PRUDENTIAL GOVERNMENT SECURITIES TRUST, 485BPOS, 2000-02-02

PRUDENTIAL GOVERNMENT SECURITIES TRUST
485BPOS, 2000-02-02

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As filed with the Securities and Exchange Commission on February 2, 2000

Securities Act Registration No. 2-74139
Investment Company Act Registration No. 811-3264
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM N-1A

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [ ]

PRE-EFFECTIVE AMENDMENT NO. [ ]

POST-EFFECTIVE AMENDMENT NO. 30 [X]

AND/OR
REGISTRATION STATEMENT UNDER THE [ ]
INVESTMENT COMPANY ACT OF 1940

AMENDMENT NO. 31 [X]

(Check appropriate box or boxes)

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

PRUDENTIAL GOVERNMENT SECURITIES TRUST
(Exact name of registrant as specified in charter)
(Formerly, Prudential-Bache Government Securities Trust)

GATEWAY CENTER THREE
NEWARK, NEW JERSEY 07102-4077
(Address of Principal Executive Offices) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (973) 367-7521

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

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective
date of the Registration Statement.

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

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

[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a) (1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
[ ] this post-effective amendment designates a new
effective date for a previously filed post-effective amendment

Title of Securities Being Registered..... Shares of Beneficial Interest (Par
Value $.01 per share)
================================================================================

<PAGE>

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

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

Prudential
Government [GRAPHIC OMITTED]
Securities Trust

- --------------------------------------------------------------------------------
MONEY MARKET SERIES
PROSPECTUS DATED JANUARY 31, 2000

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 [LOGO] Prudential
accurate. It is a criminal offense to Investments
state otherwise.
<PAGE>

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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 Other Investments and Strategies

7 Investment Risks

9 How the Series is Managed
9 Board of Trustees
9 Manager
9 Investment Adviser
10 Distributor

11 Series Distributions and Tax Issues
11 Distributions
12 Tax Issues

13 How to Buy, Sell and Exchange Shares of the Series
13 How to Buy Shares
19 How to Sell Your Shares
22 How to Exchange Your Shares
23 Telephone Redemptions and Exchanges

24 Financial Highlights
24 Class A Shares
25 Class Z Shares

26 The Prudential Mutual Fund Family

For More Information (Back Cover)

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Money Market Series [GRAPHIC] (800) 225-1852
<PAGE>

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Risk/Return Summary
- --------------------------------------------------------------------------------

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

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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.
- --------------------------------------------------------------------------------

Our investment objectives are high current income, preservation of capital and
maintenance of liquidity. In pursuing our objectives, we invest primarily in a
diversified portfolio of short-term money market instruments issued or
guaranteed by the U.S. 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. Although we seek to preserve the value of your investment at $1 per
share, it is possible to lose money by investing in the Series.

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1
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Risk/Return Summary
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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
operation for the last 10 years. The bar chart and table below demonstrate the
risk of investing in the Series by showing how returns can change from year to
year and by showing how the series' average annual total returns for the periods
indicated compare with those of a group of similar mutual funds. 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.

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Annual Returns (Class A Shares)
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[The following table was depicted as a bar chart in the printed material.]

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
7.74% 5.70% 3.43% 2.58% 3.57% 5.30% 4.77% 4.93% 4.82% 4.36%

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BEST QUARTER: 2.27% (2nd quarter of 1989)
WORST QUARTER: 0.63% (2nd quarter of 1993)
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Average Annual Returns(1) (as of 12-31-99)
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1 YR 5 YRS 10 YRS SINCE INCEPTION
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Class A shares 4.36% 4.83% 4.71% 6.18% (since 1-12-82)
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Class Z shares 4.49% n/a n/a 4.91% (since 3-1-96)
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Lipper Average(2) 4.82% 5.24% 5.02% N/A
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- ------------------------------------------
7 Day Yield(1) (as of 12-31-99)
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Class A shares 4.66%
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Class Z shares 4.79%
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IBC Average(3) 4.89%
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(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. Government Money Market Funds category. Lipper returns
since the inception of each class are 6.18% for Class A and 5.12% 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] (800) 225-1852
<PAGE>

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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 Class Z. Each share class has
different expenses but represents an investment in the same series. 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."

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Shareholder Fees(1) (paid directly from your investment)
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CLASS A CLASS Z
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Maximum sales charge (load) imposed on
purchases (as a percentage of offering price) None None
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Maximum deferred sales charge (load)
(as a percentage of the lower of original
purchase price or sale proceeds) None None
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Maximum sales charge (load) imposed
on reinvested dividends and other distributions None None
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Redemption fees None None
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Exchange fee None None
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- --------------------------------------------------------------
Annual Series Operating Expenses (deducted from Series assets)
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CLASS A CLASS Z
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Management fees 0.400% 0.400%
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+ Distribution and service (12b-1) fees 0.125% None
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+ Other expenses 0.375% 0.375%
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= Total annual Series operating expenses 0.90% 0.775%
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(1) Your broker may charge you a separate or 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
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Class A shares $92 $287 $498 $1,108
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Class Z shares $79 $248 $431 $ 960
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3
<PAGE>

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How the Series Invests
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INVESTMENT OBJECTIVES AND POLICIES

The Series' investment objectives are high current income, 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 U.S. 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 U.S. 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 rates rise. However, the value of
stripped securities generally fluctuates more in response to interest rate
movements than the value of traditional debt securities. 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.

The Series 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] (800) 225-1852
<PAGE>

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How the Series Invests
- --------------------------------------------------------------------------------

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, see "Investment Risks" below 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 Series. To obtain a copy, see the back cover of
this prospectus.

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

OTHER INVESTMENTS AND STRATEGIES

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

Asset-Backed Securities

The Series may invest in asset-backed securities. An asset-backed security is a
type of pass-through instrument that pays interest based upon the cashflow from
an underlying pool of assets, such as student loans or residential mortgages.

Floating Rate Debt Securities and Variable Rate Debt Securities

The Series may invest in floating rate debt securities and variable rate bonds
with respect to money-market obligations. Floating rate debt securities are debt
securities that have an interest rate that is set as a specific percentage of a
designated rate, such as the rate on Treasury debt obligations or the prime rate
at major commercial banks. The interest rate on floating rate debt securities
changes when there is a change in the designated rate. Variable rate debt
securities are debt securities that have an interest rate that is adjusted,
based on the market rate at a specified period. They generally allow the Series
to demand payment of the debt securities on short notice for an amount that may
be more or less than the amount paid.

When-Issued and Delayed-Delivery Securities

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 pay-

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5
<PAGE>

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How the Series Invests
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ment for the obligations take place at a later time. The Series does not earn
interest income until the date the obligations are delivered.

Liquidity Puts and Calls

The Series may purchase and exercise puts or calls on money-market obligations
without limit. Puts give the Series the right to sell securities at a specified
price and date. Calls give the Series the right to buy securities at a specified
price and date. Puts or calls may be acquired to allow the Series to manage
liquidity. Puts or calls may involve additional costs to the Series, which could
reduce the Series' return.

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

Additional Strategies

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 certain securities with legal or contractual
restrictions on resale, 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.

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6 Money Market Series [GRAPHIC] (800) 225-1852
<PAGE>

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How the Series Invests
- --------------------------------------------------------------------------------

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.

- -------------------------
Investment Type
- --------------------------------------------------------------------------------
% of Series' Total Assets Risks Potential Rewards
- --------------------------------------------------------------------------------
High-quality money o Credit risk--the o May preserve the Series'
market obligations risk that the assets
of all types issued or borrower can't pay
guaranteed by the back the money o Regular interest income
U.S. Government or borrowed or make
its agencies or interest payments o Generally more secure than
instrumentalities lower-quality debt
o Market risk--the securities and equity
Up to 100% risk that the securities
obligations will
lose value in the o Principal and interest may
market because be guaranteed by the U.S.
interest rates Government
change or there is a
lack of confidence
in the borrower

o Not all U.S.
Government
securities are
insured or
guaranteed by the
U.S. Government --
some are backed by
the issuing agency.
- --------------------------------------------------------------------------------
Illiquid securities o May be difficult to o May offer a more
value precisely attractive yield or
Up to 10% of net assets potential for growth than
o May be difficult to more widely traded
sell at the time and securities
price desired
- --------------------------------------------------------------------------------
When-issued and o May magnify o May magnify underlying
delayed-delivery underlying investment gains
securities investment losses

Percentage varies o Investment costs may
exceed potential
underlying
investment gains
- --------------------------------------------------------------------------------
Variable/floating o Value lags value o May offer protection
rate debt securities of fixed-rate against interest rate
securities when changes
Percentage varies interest rates change
- --------------------------------------------------------------------------------

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7
<PAGE>

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How the Series Invests
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- -------------------------
Investment Type
- --------------------------------------------------------------------------------
% of Series' Total Assets Risks Potential Rewards
- --------------------------------------------------------------------------------
Asset-backed securities o Prepayment risk - o Regular interest income
the risk that the
underlying o Prepayment risk is
Percentage varies obligations may be generally lower than with
prepaid partially or mortgage-related
completely, securities
generally during
periods of falling o Pass-through instruments
interest rates, provide greater
which could diversification than
adversely affect direct ownership of loans
yield to maturity
and could require
the Series to
reinvest in
lower-yielding
securities

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
- --------------------------------------------------------------------------------
Liquidity puts and calls o Puts or calls used o May allow the Series to
for liquidity be fully invested while
Percentage varies management may not preserving liquidity
have the intended
effects and may
result in losses or
missed opportunities

o The other party to a
put or call could
default

o Certain types of puts
or calls involve costs
to the Series which can
reduce returns
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8 Money Market Series [GRAPHIC] (800) 225-1852
<PAGE>

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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 operations 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 Prudential Government Securities Trust
(the Trust), PIFM manages the Series' investment operations and administers its
business affairs. PIFM also is responsible for supervising the Series'
Investment Adviser. For the fiscal year ended November 30, 1999, 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 daily net
assets.

PIFM and its predecessors have served as manager or administrator to
investment companies since 1987. As of December 31, 1999, PIFM served as the
manager to all 42 of the Prudential mutual funds, and as manager or
administrator to 22 closed-end investment companies, with aggregate assets of
approximately $75.6 billion.

INVESTMENT ADVISER

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

Prudential Investments' Fixed Income Group 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

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9
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How the Series is Managed
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within those guidelines. The Money Market Sector Team, headed by Joseph Tully,
is responsible for overseeing the day-to-day management of the Series.

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 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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10 Money Market Series [GRAPHIC] (800) 225-1852
<PAGE>

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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 or tax-deferred plan or account. Dividends and distributions from the
Series may also be subject to state income tax in the state where you live.

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, distributions of dividends and capital gains
are automatically reinvested in the Series. If you ask us to pay the
distributions in cash, we will send you a check if your account is with the
Transfer Agent. Otherwise, if your account is with a broker, you will receive a
credit to your account. Either way, the distributions may be subject to taxes,
unless your shares are held in a qualified or tax-deferred plan or account. For
more information about automatic reinvestment and other shareholder services,
see "Step 4: Additional Shareholder Services" in the next section.

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11
<PAGE>

TAX ISSUES

Form 1099

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

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

Withholding Taxes

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

Qualified or Tax-Deferred Retirement Plans

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

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12 Money Market Series [GRAPHIC] (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

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

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.

Share Class Comparison. Use this chart to help you compare the Series' two share
classes.

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CLASS A CLASS Z
- --------------------------------------------------------------------------------
Minimum purchase amount(1) $1,000 None
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Minimum amount for subsequent purchases(1) $ 100 None
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Maximum initial sales charge None None
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Contingent Deferred Sales Charge (CDSC) None None
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Annual distribution and service (12b-1) fees
(shown as a percentage of average net assets)(2) .125 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 and service (12b-1) 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. Class A shares may pay a service fee of up to .125 of 1%. The
distribution fee for Class A shares is limited to .125 of 1% (including up
to .125 of 1% as a service fee).

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13
<PAGE>

Qualifying for Class Z Shares

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

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

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

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

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

Other Types of Investors. Class Z shares can also be purchased by any of the
following:

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

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 A or Class Z shares from their own resources based on a
percentage of the net asset value of shares sold or otherwise.

- --------------------------------------------------------------------------------
14 Money Market Series [GRAPHIC] (800) 225-1852
<PAGE>

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 a money market fund as your
primary money sweep fund. If you do not designate a primary money sweep fund,
Prudential MoneyMart Assets Inc. will automatically be 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. The following discussion
assumes that you have selected the Series as your primary money sweep fund.

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

- --------------------------------------------------------------------------------
15
<PAGE>

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.

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.

- --------------------------------------------------------------------------------
16 Money Market Series [GRAPHIC] (800) 225-1852
<PAGE>

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 (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, your broker will forward your order and payment to the Series. You
should contact your broker for information about services that your broker may
provide, including an automatic sweep feature. Transactions in Series shares may
be subject to postage and other charges imposed by your broker. Any such charge
is retained by your broker 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 mutual fund. 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 (NYSE) is open for
trading. The NYSE is closed on national holidays and Good Friday. We do not
determine the NAV on days when we have not received any orders to purchase, sell
or exchange Series shares or when changes in the value of the Series' portfolio
do not materially affect the NAV.

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.

- --------------------------------------------------------------------------------
17
<PAGE>

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. If you want your
distributions paid in cash, you can indicate this preference on your
application, notify your broker, or notify the Transfer Agent in writing (at the
address below) 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.

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, quarterly, semi-annual or annual redemption checks.

- --------------------------------------------------------------------------------
18 Money Market Series [GRAPHIC] (800) 225-1852
<PAGE>

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 persons 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 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 broker 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 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, your broker 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

- --------------------------------------------------------------------------------
19
<PAGE>

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

- --------------------------------------------------------------------------------
20 Money Market Series [GRAPHIC] (800) 225-1852
<PAGE>

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.

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 use this automatic redemption procedure
and 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.

- --------------------------------------------------------------------------------
21
<PAGE>

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.

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 Series 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.

- --------------------------------------------------------------------------------
22 Money Market Series [GRAPHIC] (800) 225-1852
<PAGE>

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 decision may be based upon dollar amount, volume and frequency of
trading. 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.

TELEPHONE REDEMPTIONS AND EXCHANGES

You may redeem or exchange your shares in any amount by calling the Series at
(800) 225-1852. In order to redeem or exchange your shares by telephone, you
must complete an authorization form for telephone transactions. If you have
elected telephone redemption and exchange privileges and you call the Series
before 4:30 p.m., New York time, you will receive a redemption amount based on
that day's NAV.

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

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

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

- --------------------------------------------------------------------------------
23
<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 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------
<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 0.042 0.048 0.048 .046 .052
Dividends from net
investment income (0.042) (0.048) (0.048) (.046) (.052)
Net asset value, end of year 1.000 $1.000 $1.000 $1.000 $1.000
Total return(1) 4.31% 4.87% 4.87% 4.74% 5.20%
- --------------------------------------------------------------------------------------------
Ratios/Supplemental Data 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------
Net assets,
end of year (000) $576,868 $590,004 $591,428 $552,123 $598,194
Average net assets (000) $594,266 $589,649 $586,513 $589,147 $597,599
Ratios to average net assets:
Expenses, including
distribution and service
(12b-1) fees 0.90% 80% .77% .86% .78%
Expenses, excluding
distribution and service
(12b-1) fees .77% .67% .65% .73% .65%
Net investment income 4.23% 4.77% 4.77% 4.63% 5.15%
- --------------------------------------------------------------------------------------------
</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.

- --------------------------------------------------------------------------------
24 Money Market Series [GRAPHIC] (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 1999 1998 1997 1996(1)
- --------------------------------------------------------------------------------
Net asset value, beginning of year 1.000 $1.000 $1.000 $1.000
Income from investment operations:
Net investment income 0.044 .048 .048 .038
Dividends from net investment income (0.044) (.048) (.048) (.038)
Net asset value, end of year 1.000 $1.000 $1.000 $1.000
Total return(2) 4.44% 5.00% 5.03% 3.87%
- --------------------------------------------------------------------------------
Ratios/Supplemental Data 1999 1998 1997 1996
- --------------------------------------------------------------------------------
Net assets, end of year (000) $41,546 $26,901 $581 $204(4)
Average net assets (000) $32,984 $19,236 $672 $1,962
Ratio to average net assets:
Expenses .77% .67% .65% .68%(3)
Net investment income 4.38% 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 returns for
periods of less than a full year are not annualized.

(3) Annualized.

(4) Figure is actual and not rounded to nearest thousand.

- --------------------------------------------------------------------------------
25
<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 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 Sector Funds, Inc.
Prudential Financial Services Fund
Prudential Health Sciences Fund
Prudential Technology Fund
Prudential Utility Fund
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Tax-Managed Funds
Prudential Tax-Managed Equity Fund
Prudential 20/20 Focus Fund
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund

Target Funds
Large Capitalization Growth Fund
Large Capitalization Value Fund
Small Capitalization Growth Fund
Small Capitalization Value Fund

Asset Allocation/Balanced Funds
Prudential Balanced Fund
Prudential Diversified Funds
Conservative Growth Fund
Moderate Growth Fund
High Growth Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced 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.
Prudential Global Growth Fund
Prudential International Value Fund
Prudential Jennison International Growth Fund
Global Utility Fund, Inc.

Target Funds
International Equity Fund

Global Bond Funds
Prudential Global Total Return Fund, Inc.
Prudential International Bond Fund, Inc.

- --------------------------------------------------------------------------------
26 Money Market Series [GRAPHIC] (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

Target Funds
Total Return Bond Fund

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

- --------------------------------------------------------------------------------
27
<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) 482-7555
(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 Series can be obtained without charge and can
be found in the following documents:

Statement of Additional Information (SAI)

(incorporated by reference into this prospectus)

Annual Report

(contains a discussion of the market conditions and investment strategies
that significantly affected the Series' performance.)

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 20549-0102
By Electronic Request:
[email protected]
(The SEC charges a fee to copy
documents.)

In Person:
Public Reference Room in
Washington, DC
(For hours of operation, call
1-202-942-8090.)

Via the Internet:
or the EDGAR Database at:
http://www.sec.gov

- --------------------------------------------------------------------------------
CUSIP Nos: Quotron Symbols
Class A: 744342-30-4 PBGXX
Class Z: 744342-50-2 --

Investment Company Act File No:
811-3264

MF111A [RECYCLE LOGO] Printed on Recycled Paper
<PAGE>

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

INVESTMENT OBJECTIVE:
- ------------------------------------
High current income consistent
with the preservation of
principal and liquidity

Prudential
Government [GRAPHIC OMITTED]
Securities Trust

- --------------------------------------------------------------------------------
U.S. TREASURY MONEY MARKET SERIES
PROSPECTUS DATED JANUARY 31, 2000

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 [LOGO] Prudential
state otherwise. 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 Other Investments and Strategies
7 Investment Risks

8 How the Series is Managed
8 Board of Trustees
8 Manager
8 Investment Adviser
9 Distributor

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
25 How to Exchange Your Shares
27 Telephone Redemptions and Exchanges

28 Financial Highlights
28 Class A Shares
29 Class Z Shares

30 The Prudential Mutual Fund Family

For More Information (Back Cover)

- --------------------------------------------------------------------------------
U.S. Treasury Money Market Series [GRAPHIC] (800) 225-1852
<PAGE>

- --------------------------------------------------------------------------------
Risk/Return Summary
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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

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Money Market Funds

Our investment objective is high current income consistent with the preservation
of principal and liquidity. In pursuing 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.

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.

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Risk/Return Summary
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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. The bar chart and table below demonstrate the risk of investing in
the Series by showing how returns can change from year to year and by showing
how the Series' average annual total returns for the periods indicated compare
with those of a group of similar mutual funds. 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.

[The following table was depicted as a bar graph in the printed material.]

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Annual Returns (Class A Shares)
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1991 1992 1993 1994 1995 1996 1997 1998 1999
- ---- ---- ---- ---- ---- ---- ---- ---- ----
5.70% 3.29% 2.55% 3.61% 5.25% 4.74% 4.81% 4.61% 4.25%

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BEST QUARTER: 1.53% (1st quarter of 1991)
WORST QUARTER: 0.61% (2nd quarter of 1993)
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Average Annual Returns(1) (as of 12-31-99)
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1 YR 5 YRS 10 YRS (SINCE INCEPTION)
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Class A Shares 4.25% 4.73% N/A 4.33% (since 12-3-90)
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Class Z Shares 4.38% N/A N/A 4.89% (since 2-21-97)
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Lipper Average(2) 4.23% 4.75% 4.63% N/A
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7-Day Yield(1) (as of 12-31-99)
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Class A Shares 4.79%
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Class Z Shares 4.91%
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IBC Average(3) 4.57%
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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 Money Market Fund category. Lipper returns since
the inception of each class are 4.33% for Class A, and 4.87% 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] (800) 225-1852
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Risk/Return Summary
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FEES AND EXPENSES

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Shareholder Fees(1) (paid directly from your investment)
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CLASS A CLASS Z
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Maximum sales charge (load) imposed on
purchases (as a percentage of offering price) None None
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Maximum deferred sales charge (load)
(as a percentage of the lower of original purchase
price or sale proceeds) None None
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Maximum sales charge (load) imposed
on reinvested dividends and other distributions None None
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Redemption fees None None
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Exchange fee None None
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Annual Series Operating Expenses (deducted from Series assets)
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CLASS A CLASS Z
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Management fees 0.400% 0.400%
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+ Distribution and service (12b-1) fees 0.125% None
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+ Other expenses 0.105% 0.11%
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= Total annual Series operating expenses 0.63% 0.51%
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1 Your broker may charge you a separate or additional fee for purchases and
sales of shares.

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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.

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1 YR 3 YRS 5 YRS 10 YRS
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Class A shares $64 $202 $351 $786
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Class Z shares $52 $164 $285 $640
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4 U.S. Treasury Money Market Series [GRAPHIC] (800) 225-1852
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How the Series Invests
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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.

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How the Series Invests
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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 AND STRATEGIES

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

Floating Rate Debt Securities and Variable Rate Debt Securities

The Series may invest in floating rate debt securities and variable rate debt
securities with respect to U.S. Treasury obligations. Floating rate debt
securities are debt securities that have an interest rate that is set as a
specific percentage of a designated rate, such as the rate on Treasury debt
obligations or the prime rate at major commercial banks. The interest on
floating rate debt securities changes when there is a change in the designated
rate. Variable rate debt securities are debt securities that have an interest
rate that is adjusted, based on the market rate at a specified period. They may
allow the Series to demand payment of the debt securities on short notice for an
amount that may be more or less than the amount paid.

When-Issued and Delayed-Delivery Securities

The Series may purchase U.S. Treasury 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.

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

Additional Strategies

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,

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How the Series Invests
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including certain securities with legal or contractual restrictions on resale,
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.

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,
"Description of the Trust, Its Investments and Risks," in the SAI.

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Investment Type
% of Series' Total Assets Risks Potential Rewards
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U.S. Treasury o Credit risk--the risk o May preserve the
securities that the borrower can't Series' assets
pay back the money
Up to 100% borrowed or make o Regular interest income
interest payments
o Generally more secure
o Market risk--the risk than lower quality debt
that the obligations securities and equity
will lose value in the securities
market because interest
rates change or there o Principal and interest
is a lack of confidence are guaranteed by
in the borrower the U.S. government
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When-issued and o May magnify underlying o May magnify underlying
delayed-delivery investment losses investment gains
securities
o Investment costs may
Percentage varies exceed potential
underlying investment
gains
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Illiquid securities o May be difficult to o May offer a more
value precisely attractive yield or
Up to 10% of net assets potential for growth
o May be difficult to than more widely traded
sell at the time and securities
price desired
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Variable/floating o Value lags value of o May offer protection
rate debt securities fixed rate securities against interest rate
when interest rates changes
Percentage varies change
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How the Series is Managed
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BOARD OF TRUSTEES

MANAGER

Prudential Investments Fund Management LLC (PIFM)
Gateway Center Three, 100 Mulberry Street
Newark, NJ 07102-4077

PIFM and its predecessors have served as manager or administrator to
investment companies since 1987. As of December 31, 1999, PIFM served as the
Manager to all 42 of the Prudential mutual funds, and as manager or
administrator to 22 closed-end investment companies, with aggregate assets of
approximately $75.6 billion.

INVESTMENT ADVISER

Prudential Investments' Fixed Income Group is organized into teams that
specialize in different market sectors. The Fixed Income 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. The Money Market Sector Team,

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8 U.S. Treasury Money Market Series [GRAPHIC] (800) 225-1852
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How the Series is Managed
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headed by Joseph Tully, is responsible for overseeing the day-to-day management
of the Series.

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 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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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 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 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, distributions of dividends and capital gains are
automatically reinvested in the Series. If you ask us to pay the distributions
in cash, we will send you a check if your account is with the Transfer Agent.
Otherwise, if your account is with a broker, you will receive a credit to your
account. Either way, the distributions may be subject to taxes, unless your
shares are held in a qualified or tax-deferred plan or account. For more
information about automatic reinvestment and other shareholder services, see
"Step 4: Additional Shareholder Services" in the next section.

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10 U.S. Treasury Money Market Series [GRAPHIC] (800) 225-1852
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TAX ISSUES

Form 1099

Withholding Taxes

Qualified or Tax-Deferred Retirement Plans

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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

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.

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12 U.S. Treasury Money Market Series [GRAPHIC] (800) 225-1852
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Share Class Comparison. Use this chart to help you compare the Series' two share
classes.

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."

Qualifying for Class Z Shares

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

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

Other Types of Investors. Class Z shares can also be purchased by any of the
following:

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

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

The Autosweep program allows you to designate a money market fund as your
primary money sweep fund. If you do not designate a primary money sweep fund,
Prudential MoneyMart Assets, Inc. will automatically be your primary money sweep
fund. You have the option to change your primary money sweep fund at any time by
notifying your Prudential Securities

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Financial Advisor. The following discussion assumes that you have selected the
Series as your primary money sweep fund.

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 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 the Autosweep program 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.

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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 consists of two types of
accounts: the Investor Account and the Advantage Account, which offer 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-IRA), 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

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16 U.S. Treasury Money Market Series [GRAPHIC] (800) 225-1852
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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.

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.

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).

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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, your broker will forward your order and payment to the Series.
You should contact your broker for information about services that your broker
may provide, including an automatic sweep feature. Transactions in Series shares
may be subject to postage and other charges imposed by your broker. Any such
charge is retained by your broker and is not sent to the Series.

Purchase Through the COMMAND Program or the BusinessEdge Program Class A shares
of the Series are available to shareholders who meet the minimum investment
requirements and participate in either the corporate COMMANDSM Account Program
(the COMMAND Program), which is available through Prudential Securities, or the
Prudential BusinessEdgeSM Account Program (the BusinessEdge Program), which is
available either through Prudential Securities or Pruco. These programs offer
integrated financial services that link together various product components with
the ability to invest in shares of the Series. if you participate in the COMMAND
Program or the BusinessEdge Program, your purchase of Series shares must be made
through your Prudential Securities Financial Advisor or your Pruco broker, as
applicable.

Step 3: Understanding the Price You'll Pay

When you invest in a mutual fund, you buy shares of the mutual fund. 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 its NAV, the Series values its securities using the amortized cost
method. The Series seeks to maintain an NAV of $1.

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18 U.S. Treasury Money Market Series [GRAPHIC] (800) 225-1852
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We do not determine the NAV on days when we have not received any orders to
purchase, sell or exchange Series shares or when changes in the value of the
Series' portfolio do not materially affect the NAV.

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. 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. If you want your
distributions paid in cash, you can indicate this preference on your
application, notify your broker, or notify the Transfer Agent in writing (at the
address below) at least five business days before the date we determine who
receives dividends.

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.

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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, quarterly, semi-annual or annual redemption checks.

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 for cash (in the form of a check) at any
time, subject to certain restrictions.

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20 U.S. Treasury Money Market Series [GRAPHIC] (800) 225-1852
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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 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. For more information, see the SAI,
"Purchase, Redemption and Pricing of Trust Shares -- Sale of Shares."

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

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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

Retirement Plans

Automatic Redemption for Autosweep

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.

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22 U.S. Treasury Money Market Series [GRAPHIC] (800) 225-1852
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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 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 will 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.

Automatic Redemption for the COMMAND Program or the BusinessEdge Program. If you
participate in the COMMAND Program or the BusinessEdge Program, your Series
shares will be automatically redeemed to cover any deficit in your account. The
amount of the redemption will be the nearest dollar amount necessary to cover
the deficit.

- --------------------------------------------------------------------------------
23
<PAGE>

The amount of the redemption will be the lesser of the total value of
Series shares held in your account or the deficit in your account. A deficit in
your COMMAND Program account or BusinessEdge program account may result from
activity arising under the Program, such as debit balances incurred by the use
of the Visa(R) Gold Debit Card Account (for the COMMAND Program) or the
BusinessEdge Visa(R) Debit Card Account (for the BusinessEdge Program), as well
as ATM transactions, cash advances and Program 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 or Pruco, as applicable, which has advanced monies to satisfy
deficits in your account.

Redemptions are automatically made, to the nearest dollar, on each day to
satisfy account deficits or to honor your redemption requests.

Manual Redemption for the COMMAND Program or the BusinessEdge Program. If you
participate in the COMMAND Program or the BusinessEdge Program, you may redeem
your Series shares by submitting a written request to your Prudential Securities
Financial Advisor or Pruco broker, as applicable. You should not send a manual
redemption request to the Series. If you do, we will forward the request to
Prudential Securities or Pruco, as appropriate, which could delay your requested
redemption.

The proceeds from a manual redemption will immediately become a free cash
balance in your Program account and will be automatically invested in the money
market mutual fund that you selected as the "primary fund" for cash sweeps in
your account. Both the COMMAND Program and the BusinessEdge Program require that
your written redemption request be signed by all persons in whose name Series
shares are registered, exactly as they appear on your Program account client
statement. In certain situations, additional documents such as trust
instruments, death certificates, appointments as executor or administrator, or
certificates of corporate authority may be required.

Under the COMMAND Program, Prudential Securities has the right to
terminate your Program account at any time for any reason. Likewise, under the
BusinessEdge Program, Prudential Securities or Pruco, as applicable, has

- --------------------------------------------------------------------------------
24 U.S. Treasury Money Market Series [GRAPHIC] (800) 225-1852
<PAGE>

the right to terminate your Program account at any time for any reason. If a
Program account is terminated, all shares of the Series held in the account will
be redeemed.

HOW TO EXCHANGE YOUR SHARES

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

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

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.

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 decision may be based upon dollar amount, volume and frequency of
trading. 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.

- --------------------------------------------------------------------------------
26 U.S. Treasury Money Market Series [GRAPHIC] (800) 225-1852
<PAGE>

- --------------------------------------------------------------------------------
How to Buy, Sell and
Exchange Shares of the Series
- --------------------------------------------------------------------------------

TELEPHONE REDEMPTIONS AND EXCHANGES

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

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

- --------------------------------------------------------------------------------
27
<PAGE>

- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------

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 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------
<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 .041 .046 0.047 .046 .050
Dividends from net investment
income (.041) (.046) (0.047) (.046) (.050)
Net asset value, end of year $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Total return(1) 4.19% 4.66% 4.80% 4.75% 5.08%
- --------------------------------------------------------------------------------------------------
Ratios/Supplemental Data 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------
Net assets, end of
year (000) $321,641 $336,985 $432,784 $305,330 $339,334
- --------------------------------------------------------------------------------------------------
Average net assets (000) $383,772 $420,140 $402,634 $393,060 $345,369
Ratios to average
net assets:
Expenses, including
distribution and service
(12b-1) fees .63% .63% .65% .63% .62%
Expenses, excluding
distribution and service
(12b-1) fees .51% .51% .52% .51% .50%
Net investment income 4.10% 4.57% 4.66% 4.57% 5.01%
- --------------------------------------------------------------------------------------------------
</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.

- --------------------------------------------------------------------------------
28 U.S. Treasury Money Market Series [GRAPHIC] (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 1999 1998 1997(1)
- --------------------------------------------------------------------------------
Net asset value, beginning of year $1.000 $1.000 $1.000
Income from investment operations:

Net investment income .043 049 .039
Dividends from net investment income (.043) (.049) (.039)
Net asset value, end of year $1.000 $1.000 $1.000
Total return(2) 4.37% 5.05% 3.96%
- --------------------------------------------------------------------------------
Ratios/Supplemental Data 1999 1998 1997(1)
- --------------------------------------------------------------------------------
Net assets, end of year (000) $2,013 $2114 $2054
Average net assets (000) $1,942 $2094 $1974
Ratio of average net assets:
Expenses .51% .51% .52%(3)
Net investment income 4.25% 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 returns for
periods of less than a full year are not annualized.

3 Annualized.

4 Figure is actual and not rounded to nearest thousand.

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

- --------------------------------------------------------------------------------
The Prudential Mutual Fund Family
- --------------------------------------------------------------------------------

STOCK FUNDS

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 Sector Funds, Inc.
Prudential Financial Services Fund
Prudential Health Services Fund
Prudential Technology Fund
Prudential Utility Fund
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Tax-Managed Funds
Prudential Tax-Managed Equity Fund
Prudential 20/20 Focus Fund
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund

Target Funds
Large Capitalization Growth Fund
Large Capitalization Value Fund
Small Capitalization Growth Fund
Small Capitalization Value Fund

GLOBAL FUNDS

Target Funds
International Equity Fund

Global Bond Funds
Prudential Global Total Return Fund, Inc.
Prudential International Bond Fund, Inc.

- --------------------------------------------------------------------------------
30 U.S. Treasury Money Market Series [GRAPHIC] (800) 225-1852
<PAGE>

- --------------------------------------------------------------------------------
The Prudential Mutual Fund Family
- --------------------------------------------------------------------------------

BOND FUNDS

Target Funds
Total Return Bond Fund

MONEY MARKET FUNDS

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>

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) 482-7555
(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 Series can be obtained without charge and can
be found in the following documents:

Statement of Additional Information (SAI)

(incorporated by reference into this prospectus)

Annual Report

(contains a discussion of the market conditions and investment strategies that
significantly affected the Series' performance)

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 20549-0102
By Electronic Request:
[email protected]
(The SEC charges a fee to copy documents.)

In Person:

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

Via the Internet:
on the EDGAR Database at
http://www.sec.gov

- --------------------------------------------------------------------------------
CUSIP Nos.: Quotron symbols
Class A: 744342-30-4 PUSXX
Class Z: 744342-50-2 --

Investment Company Act File No:
811-3264

MF145A [RECYCLE LOGO] Printed on Recycled Paper
<PAGE>

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

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

Prudential
Government [GRAPHIC OMITTED]
Securities Trust

- --------------------------------------------------------------------------------
SHORT-INTERMEDIATE TERM SERIES
PROSPECTUS: JANUARY 31, 2000

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 [LOGO] Prudential
state otherwise. 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 and Strategies
11 Investment Risks

15 How the Series is Managed
15 Board of Trustees
15 Manager
15 Investment Adviser
18 Distributor

19 Series Distributions and Tax Issues
19 Distributions
20 Tax Issues
21 If You Sell or Exchange Your Shares

22 How to Buy, Sell and Exchange Shares of the Series
22 How to Buy Shares
26 How to Sell Your Shares
28 How to Exchange Your Shares
29 Telephone Redemptions and Exchanges

30 Financial Highlights
30 Class A Shares
31 Class Z Shares

33 The Prudential Mutual Fund Family

For More Information (Back Cover)

- --------------------------------------------------------------------------------
Short-Intermediate Term Series [GRAPHIC] (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 risks. 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 "How the Series Invests--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 bar chart and table below demonstrate the
risk of investing in the Series by showing how returns can change from year to
year and by showing how the Series' average annual total returns for the periods
indicated compare with those of a broad measure of market performance and a
group of similar mutual funds. Past performance does not mean that the Series
will achieve similar results in the future.

[The following table was depicted as a bar graph in the printed material.]

- ------------------------------------------
Annual Returns (Class A Shares)
- --------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
7.99% 13.16% 6.13% 7.19% -2.35% 12.94% 4.00% 6.99% 6.00% 0.55%

- --------------------------------------------------------------------------------
BEST QUARTER: 4.89 % (4th quarter of 1991)
WORST QUARTER: -2.00% (1st quarter of 1994)
- --------------------------------------------------------------------------------

- ------------------------------------------
Average Annual Returns(1) (as of 12-31-99)
- --------------------------------------------------------------------------------
1 YR 5 YRS 10 YRS SINCE INCEPTION
- --------------------------------------------------------------------------------
Class A Shares 0.55% 6.02% 6.16% 7.83% (since 9-22-82)
- --------------------------------------------------------------------------------
Class Z Shares 0.74% N/A N/A 4.72% (since 2-26-97)
- --------------------------------------------------------------------------------
Lipper Average(2) 0.64% 6.00% 6.47% N/A
- --------------------------------------------------------------------------------
Lehman Brothers
Intermediate
Government Bond Index(3) 0.49% 6.93% 7.10% 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. Lipper
returns since the inception of each class are 7.89% for Class A and 4.66%
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 ten years. The Intermediate Government Bond Index includes
reinvested dividends, but does not include the effect of any operating
expenses of a mutual fund. These returns would be lower if they included
the effect of operating expenses. Intermediate Government Bond Index
returns since the inception of each class are 8.89% for Class A and 5.62%
for Class Z shares. Source: Lehman Brothers

- --------------------------------------------------------------------------------
2 Short-Intermediate Term Series [GRAPHIC] (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 and hold shares of each share class of the Series--Class A and Class
Z. Each share class has different expenses, but represents an investment in the
same series. 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 Fees (1) (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 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)
- --------------------------------------------------------------------------------
CLASS A CLASS Z
- --------------------------------------------------------------------------------
Management fees .40% .40%
- --------------------------------------------------------------------------------
+ Distribution and service (12b-1) fees .19% None
- --------------------------------------------------------------------------------
+ Other expenses .33% .33%
- --------------------------------------------------------------------------------
= Total annual Series operating expenses .92% .73%
- --------------------------------------------------------------------------------

1 Your broker may charge you a separate or additional fee for purchases and
sales of 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 $94 $293 $509 $1,131
- --------------------------------------------------------------------------------
Class Z shares $75 $233 $406 $906
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
4 Short-Intermediate Term Series [GRAPHIC] (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] (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.

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.

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 AND STRATEGIES

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

Repurchase and Reverse Repurchase Agreements

The Series may use repurchase agreements where a party agrees to sell a security
to the Series and then repurchases 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.

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.

- --------------------------------------------------------------------------------
7
<PAGE>

- --------------------------------------------------------------------------------
How the Series Invests
- --------------------------------------------------------------------------------

Dollar Rolls

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 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.

Temporary Defensive Investments

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 can limit our ability to achieve a high
level of income, but can 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, options on futures and interest rate swaps--involve costs
and can be volatile. With derivatives, the investment adviser tries to predict
if the underlying investment--whether a security, market index, currency,
interest rate or some other 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.

Options

The Series may purchase and sell put and call options on securities traded on
U.S. securities exchanges or in the over-the-counter market. An option is the
right to buy or sell securities in exchange for a premium.

Futures Contracts and Related Options

The Series may purchase and sell futures contracts and related options on
futures. A futures contract is an agreement to buy or sell a set quantity of an
underlying product at a future date, or to make or receive a cash payment based
on the value of a securities index.

- --------------------------------------------------------------------------------
8 Short-Intermediate Term Series [GRAPHIC] (800) 225-1852
<PAGE>

- --------------------------------------------------------------------------------
How the Series Invests
- --------------------------------------------------------------------------------

Interest Rate Swap Transactions

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.

When-Issued or Delayed-Delivery Securities

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.

Floating Rate Debt Securities and Variable Rate Debt Securities

The Series may invest in floating rate debt securities and variable rate debt
securities. Floating rate debt securities are debt securities that have an
interest rate that is set as a specific percentage of a designated rate, such as
the rate on Treasury debt obligations or the prime rate at major commercial
banks. The interest rate on floating rate debt securities changes when there is
a change in the designated rate. Variable rate debt securities are debt
securities that have an interest rate that is adjusted, based on the market rate
at a specified period. They generally allow the Series to demand payment of the
debt securities on short notice for an amount that may be more or less than the
amount paid.

Foreign Debt Securities

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.

- --------------------------------------------------------------------------------
9
<PAGE>

- --------------------------------------------------------------------------------
How the Series Invests
- --------------------------------------------------------------------------------

Short Sales

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.

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

Additional Strategies

The Series also follows certain policies when it: borrows money (the Series can
borrow up to 33 1/3% of the value of its total assets), 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
illiquid securities, including certain securities with legal or contractual
restrictions on resale, those without a readily available market and repurchase
agreements with maturities longer than seven days). The Series may borrow 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 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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10 Short-Intermediate Term Series [GRAPHIC] (800) 225-1852
<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 non-principal investments the Series may make.
See, too, "Description of the Trust, Its Investments and Risks," in the SAI.

- --------------------------------------------------------------------------------
11
<PAGE>

- --------------------------------------------------------------------------------
How the Series Invests
- --------------------------------------------------------------------------------

- ------------------------
Investment Type
% of Series' Total Assets Risks Potential Rewards
- --------------------------------------------------------------------------------
U.S. Government o Credit risk--the risk o Regular interest income
securities that the borrower can't
pay back the money o Generally more secure
At least 65% borrowed or make than lower quality debt
interest payments securities and equity
(relatively low for securities
U.S. Government
securities) o May preserve the
Series' assets
o Market risk--the risk
that the obligations o Principal and interest
will lose value in the may be guaranteed by
market because interest the U.S. Government
rates change or there
is a lack of confidence
in the borrower

o Not all U.S. Government
securities are insured
or guaranteed by the
U.S. Government--some
are backed by the
issuing agency
- --------------------------------------------------------------------------------
Mortgage-related o Prepayment risk -- the o Regular interest income
securities risk that the
underlying mortgage may o The U.S. Government
Percentage varies be prepaid partially or guarantees interest and
completely, generally principal payments on
during periods of certain securities
falling interest rates,
which could adversely o May benefit from
affect yield to security interest in
maturity and could real estate collateral
require the Series to
reinvest in o Pass-through
lower-yielding instruments provide
securities greater diversification
than direct ownership
o Credit risk--the risk of loans
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
- --------------------------------------------------------------------------------

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12 Short-Intermediate Term Series [GRAPHIC] (800) 225-1852
<PAGE>

- --------------------------------------------------------------------------------
How the Series Invests
- --------------------------------------------------------------------------------

- ------------------------
Investment Type
% of Series' Total Assets Risks Potential Rewards
- --------------------------------------------------------------------------------
Asset-backed securities o The security interest o Regular interest income
(privately-issued) in the underlying
collateral may not be o Prepayment risk is
Percentage varies as great as with generally lower than
mortgage-related with mortgage-related
securities securities

o Credit risk--the risk o Pass-through
that the underlying instruments provide
receivables will not be greater diversification
paid by debtors or by than direct ownership
credit insurers or of loans
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 See market risk and
prepayment risk
- --------------------------------------------------------------------------------
Corporate o See credit risk and o Regular interest income
debt obligations market risk
o Generally more secure
Up to 35% under than equity securities
normal conditions
- --------------------------------------------------------------------------------
Derivatives o Derivatives such as o The Series could make
futures, options and money and protect
Percentage varies interest rate swap against losses if the
transactions that are investment analysis
used for hedging proves correct
purposes may not fully
offset the underlying o Derivatives that
positions and this involve leverage could
could result in losses generate substantial
to the Series that gains at low cost
would not have
otherwise occurred o One way to manage the
Series' risk/return
o Derivatives used for balance is to lock in
risk management may not the value of an
have the intended investment ahead of
effects and may result time
in losses or missed
opportunities

o The other party to a
derivatives contract
could default

o Derivatives that
involve leverage
(borrowing for
investment) could
magnify losses

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

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13
<PAGE>

- --------------------------------------------------------------------------------
How the Series Invests
- --------------------------------------------------------------------------------

- ------------------------
Investment Type
% of Series' Total Assets Risks Potential Rewards
- --------------------------------------------------------------------------------
When-issued and o May magnify underlying o May magnify underlying
delayed-delivery investment losses investment gains
securities, reverse
repurchase agreements, o Investment costs may
dollar rolls and exceed potential
short sales underlying investment
gains
Percentage varies

- --------------------------------------------------------------------------------
Illiquid securities o May be difficult to o May offer a more
value precisely attractive yield or
Up to 15% of net assets potential for growth
o May be difficult to than more widely traded
sell at the time and securities
price desired
- --------------------------------------------------------------------------------
Money market o See credit risk and o May preserve the
instruments market risk Series' assets

Up to 100% on a o Limits potential for
temporary basis capital appreciation

- --------------------------------------------------------------------------------
Variable/floating rate o Value lags value of o May offer protection
debt securities fixed-rate securities against interest rate
when interest rates changes
Percentage varies change
- --------------------------------------------------------------------------------
Foreign debt securites o Foreign markets, o Investors can
economies and political participate in the
Percentage varies systems may not be as growth of foreign
stable as in the U.S., markets and companies
particularly those in operating in those
developing countries markets

o May be less liquid than o Opportunities for
U.S. debt securities diversification

o Differences in foreign
lows, accounting
standards, public
information, custody
and settlement
practices provide less
reliable information on
foreign investments and
involve more risks
- --------------------------------------------------------------------------------

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14 Short-Intermediate Term Series [GRAPHIC] (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 operations of the
Series.

MANAGER

Prudential Investments Fund Management LLC (PIFM)
Gateway Center Three, 100 Mulberry Street
Newark, NJ 07102-4077

INVESTMENT ADVISER

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

- --------------------------------------------------------------------------------
15
<PAGE>

- --------------------------------------------------------------------------------
How the Series is Managed
- --------------------------------------------------------------------------------

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

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

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

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

The following are the fixed income sector teams and the corresponding team
leaders: (Assets under management are as of June 30, 1999.)

U.S. Liquidity

Assets Under Management: $27.9 billion.

Team Leader: Michael Lillard. General Investment Experience: 12 years.

Portfolio Managers: 10. Average General Investment Experience: 13 years, which
includes team members with significant mutual fund experience.

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16 Short-Intermediate Term Series [GRAPHIC] (800) 225-1852
<PAGE>

- --------------------------------------------------------------------------------
How the Series is Managed
- --------------------------------------------------------------------------------

Sector: U.S. Treasuries, agencies and mortgages.
Investment Strategy: Focus is on high quality, liquidity and controlled risk.

Corporate

Assets Under Management: $48.6 billion.
Team Leader: Steven Kellner. General Investment Experience: 13 years.

Portfolio Managers: 8. Average General Investment Experience: 13 years, which
includes team members with mutual fund experience.

Sector: U.S. investment-grade corporate securities.

Investment Strategy: Focus is on identifying spread, credit quality and
liquidity trends to capitalize on changing opportunities in the market.
Ultimately, they seek the highest expected return with the least risk.

Global Bond

Assets Under Management: $1.9 billion.

Team Leader: Gabriel Irwin. General Investment Experience: 18 years.

Portfolio Managers: 5. Average General Investment Experience: 14 years, which
includes team members with significant mutual fund experience.

Sector: Corporate and government securities of foreign issuers.

Investment Strategy: Focus is on a top-down, geographic-allocation process. They
seek to add value by exploiting yield variances between different countries and
credit qualities.

Emerging Markets

Assets Under Management: $1.6 billion.

Team Leader: David Bessey. General Investment Experience: 10 years.

Portfolio Managers: 3. Average General Investment Experience: 12 years, which
includes team members with mutual fund experience.

Sector: Government and corporate securities issued by developing markets and
countries.

Investment Strategy: Focus is on a fundamental investment approach that uses a
strong technical and value overlay to make country selections.

Money Markets

Assets Under Management: $41.8 billion.

Team Leader: Joseph Tully. General Investment Experience: 16 years.

Portfolio Managers: 8. Average General Investment Experience: 12 years, which
includes team members with signficant mutual fund experience.

- --------------------------------------------------------------------------------
17
<PAGE>

- --------------------------------------------------------------------------------
How the Series is Managed
- --------------------------------------------------------------------------------

Sector: High-quality short-term securities, including both taxable and
tax-exempt instruments.

Investment Strategy: Focus is on safety of principal, liquidity and controlled
risk.

DISTRIBUTOR

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18 Short-Intermediate Term Series [GRAPHIC] (800) 225-1852
<PAGE>

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 or tax-deferred plan or account. Dividends and
distributions from the Series also may be subject to state and local income tax
in the state where you live.

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

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

DISTRIBUTIONS

The 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. Long-term capital gains 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, distributions of dividends and capital gains are
automatically reinvested in the Series. If you ask us to pay the distributions
in cash, we will send you a check if your account is with the Transfer Agent.
Otherwise, if your account is with a broker, you will receive a credit to your
account. Either way, the distributions may be subject to taxes, unless your
shares are held in a qualified or tax-deferred plan or account. For more
information about automatic reinvestment and other shareholder services, see
"Step 4: Additional Shareholder Services" in the next section.

As of November 30, 1999, the Series had a capital loss carryforward for
federal income tax purposes of approximately $30,673,000. Accordingly, no
capital gains distribution is expected to be paid to shareholders until we have
realized net gains greater than that carryforward.

- --------------------------------------------------------------------------------
19
<PAGE>

TAX ISSUES

Form 1099

Withholding Taxes

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

If You Purchase Just Before Record Date

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

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20 Short-Intermediate Term Series [GRAPHIC] (800) 225-1852
<PAGE>

Qualified or Tax-Deferred Retirement Plans

IF YOU SELL OR EXCHANGE YOUR SHARES

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

[GRAPHIC OMITTED]

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

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

If you sell shares and realize a loss, you will not be permitted to use
the loss to the extent you replace the shares (including pursuant to the
reinvestment of a dividend) within a 61-day period (beginning 30 days before the
sale of the shares).

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 Form 1099; however, proceeds from the sale or
exchange will be reported on Form 1099-B. Therefore, unless you hold your shares
in a qualified or tax-deferred plan or account, you or your financial adviser
should keep track of the dates on which you buy and sell -- or exchange --
Series shares, as well as the amount of any gain or loss on each transaction.
For tax advice, please see your tax adviser.

- --------------------------------------------------------------------------------
21
<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.

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22 Short-Intermediate Term Series [GRAPHIC] (800) 225-1852
<PAGE>

Share Class Comparison. Use this chart to help you compare the Series' two share
classes.

- --------------------------------------------------------------------------------
CLASS A CLASS Z
- --------------------------------------------------------------------------------
Minimum purchase amount(1) $1,000 None
- --------------------------------------------------------------------------------
Minimum amount for subsequent purchases(1) $ 100 None
- --------------------------------------------------------------------------------
Maximum initial sales charge None None
- --------------------------------------------------------------------------------
Contingent Deferred Sales Charge (CDSC) None None
- --------------------------------------------------------------------------------
Annual distribution and service (12b-1) fees .19 of 1% None
(shown as a percentage of average net assets)(2) currently
- --------------------------------------------------------------------------------

2 These distribution and service (12b-1) 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. Class A shares may pay a service fee of up to .25 of 1%,
calculated in the same manner as the distribution fee. The distribution
fee for Class A shares (including up to .25 of 1% as a service fee,
calculated in the same manner as the distribution fee) is limited to the
lesser of (i) .25 of 1% per annum of the aggregate sales of the Series'
shares, not including shares issued in connection with reinvestment of
dividends and capital gains distributions from the Series, issued on or
after July 1, 1985 less the aggregate net asset value of any such shares
redeemed, or (ii) .25 of 1% per annum of the average daily net asset value
of the Series' shares issued after July 1, 1985.

Qualifying for Class Z Shares

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

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

- --------------------------------------------------------------------------------
23
<PAGE>

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

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

Other Types of Investors. Class Z shares also can be purchased by any of the
following:

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

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 A or 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

- --------------------------------------------------------------------------------
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.

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

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

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24 Short-Intermediate Term Series [GRAPHIC] (800) 225-1852
<PAGE>

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 check the price of mutual funds daily.

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

What Price Will You Pay for Shares of the Series?

Step 4: Additional Shareholder Services

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

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.

Retirement Plan Services. Prudential offers a wide variety of retirement plans
for individuals and institutions, including large and small businesses. For
infor-

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

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

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

Systematic Withdrawal Plan. A systematic withdrawal plan is available that will
provide you with monthly, quarterly, semi-annual or annual redemption checks.

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 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, your broker must receive your order to sell by
4:15 p.m., New York time, to process the sale on that day. Otherwise, contact:

- --------------------------------------------------------------------------------
26 Short-Intermediate Term Series [GRAPHIC] (800) 225-1852

<PAGE>

Prudential Mutual Fund Services LLC
Attn: Redemption Services
P.O. Box 15010
New Brunswick, NJ 08906-5010

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

Redemption in Kind

Small Accounts

- --------------------------------------------------------------------------------
27
<PAGE>

days' notice, during which time you can purchase additional shares to avoid this
action. This involuntary sale does not apply to shareholders who own their
shares as part of a 401(k) plan, an IRA or some other qualified or tax-deferred
plan or account.

Retirement Plans

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

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28 Short-Intermediate Term Series [GRAPHIC] (800) 225-1852
<PAGE>

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 decision may be based upon a dollar amount, volume and frequency of
trading. 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 proceedings and limitations.

TELEPHONE REDEMPTIONS AND EXCHANGES

You may redeem or exchange your shares in any amount by calling the Series at
(800) 225-1852. In order to redeem or exchange your shares by telephone, you
must complete an authorization form for telephone transactions. If you have
elected telephone redemption and exchange provileges and you call the Series
before 4:15 p.m., New York time, you will receive a redemption amount based on
that day's NAV.

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

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

- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------

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 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 9.77 $ 9.74 $ 9.70 $ 9.74 $ 9.17
Income from investment operations:
Net investment income .47 .51 .56 .51 .56
Net realized and unrealized gain (loss) on
investment transactions (.35) .06 -- (.01) .55
Total from investment operations .12 .57 .56 .50 1.11
- -------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (.48) (.54) (.52) (.54) (.54)
Tax return of capital distribution -- -- -- -- --
Total distributions (.48) (.54) (.52) (.54) (.54)
Net asset value, end of year $ 9.41 $ 9.77 $ 9.74 $ 9.70 $ 9.74
Total return(1) 1.26% 6.01% 5.96% 5.34% 12.37%
- -------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
Net assets, end of year (000) $127,298 $149,508 $149,162 $185,235 $212,996
Average net assets (000) $138,847 $155,680 $166,651 $186,567 $209,521
Ratio to average net assets:
Expenses, including distribution
and service (12b-1) fees .92% .96% .97% 1.01% .95%
Expenses, excluding distribution
and service (12b-1) fees .73% .78% .77% .79% .75%
Net investment income 4.90% 5.26% 5.76% 5.99% 5.82%
Portfolio turnover rate 304% 155% 210% 132% 217%
- -------------------------------------------------------------------------------------------------------------
</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.

- --------------------------------------------------------------------------------
30 Short-Intermediate Term Series [GRAPHIC] (800) 225-1852
<PAGE>

- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------

Class Z Shares

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

<TABLE>
<CAPTION>
- ----------------------------------------------------
Class Z Shares (fiscal years ended 11-30)
- ---------------------------------------------------------------------------------------------------------
Per Share Operating Performance 1999 1998 1997(1)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year $ 9.81 $ 9.77 $ 9.64
Income from investment operations:
Net investment income .51 .47 0.47
Net realized and unrealized gain (loss) on investment transactions (.37) .130 .07
Total from investment operations .14 .60 .54
- ---------------------------------------------------------------------------------------------------------
Less distributions
Dividends from net investment income (.50) (.56) (.41)
Total distributions (.50) (.56) (.41)
Net asset value, end of year $ 9.45 $ 9.81 $ 9.77
Total return(2) 1.46% 6.31% 5.70%
- ---------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data 1999 1998 1997(1)
- ---------------------------------------------------------------------------------------------------------
Net assets, end of year (000) $ 8,360 $ 4,635 $2074
Average net assets (000) $ 8,798 $ 3,631 $2024
Ratio of average net assets:
Expenses .73% .78% .77%(3)
Net investment income 5.09% 5.36% 6.52%(3)
Portfolio turnover rate 304% 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.

3 Annualized.

4 Figure is actual and not rounded to nearest thousand.

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

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[This page has been left blank intentionally.]

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32 Short-Intermediate Term Series [GRAPHIC] (800) 225-1852

<PAGE>

- --------------------------------------------------------------------------------
The Prudential Mutual Fund Family
- --------------------------------------------------------------------------------

STOCK FUNDS

TARGET FUNDS

Large Capitalization Growth Fund
Large Capitalization Value Fund
Small Capitalization Growth Fund
Small Capitalization Value Fund

GLOBAL FUNDS

TARGET FUNDS

International Equity Funds

Global Bond Funds
Prudential Global Total Return Fund, Inc.
Prudential International Bond Fund, Inc.

- --------------------------------------------------------------------------------
33
<PAGE>

- --------------------------------------------------------------------------------
The Prudential Mutual Fund Family
- --------------------------------------------------------------------------------

BOND FUNDS

TARGET FUNDS

Total Return Bond Fund

MONEY MARKET FUNDS

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

- --------------------------------------------------------------------------------
34 Short-Intermediate Term Series [GRAPHIC] (800) 225-1852

<PAGE>

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

[This page has been left blank intentionally.]

- --------------------------------------------------------------------------------
35
<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) 482-7555
(if calling from outside the U.S.)

- --------------------------------------------------------------------------------
Visit Prudential's Web Site At:
http://www.prudential.com

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

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

Statement of Additional Information (SAI)

(incorporated by reference into this prospectus)

Annual Report

(contains a discussion of the market conditions and investment strategies
that significantly affected the Series' performance)

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 20549-0102

By Electronic Request:
[email protected]
(The SEC charges a fee to copy documents.)

In Person:
Public Reference Room in Washington, DC
(For hours of operation, call 1-202-942-8090.)

Via the Internet:
on the EDGAR Database at
http://www.sec.gov

- --------------------------------------------------------------------------------
CUSIP Nos.: Quotron symbols
Class A: 744342-10-6 PBGVX
Class Z: 744342-60-1 --

Investment Company Act File No:
811-3264

MF111A [RECYCLE LOGO] Printed on Recycled Paper
<PAGE>

PRUDENTIAL GOVERNMENT SECURITIES TRUST

Statement of Additional Information

dated January 31, 2000

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 January 31, 2000, copies of which may be obtained from
the Trust upon request.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
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-20
Management of the Trust ...................................... B-22
Control Persons and Principal Holders of Securities .......... B-26
Investment Advisory and Other Services ....................... B-26
Year 2000 Readiness Disclosure ............................... B-29
Brokerage Allocation and Other Practices ..................... B-29
Capital Shares, Other Securities and Organization ............ B-29
Purchase, Redemption and Pricing of Trust Shares ............. B-30
Shareholder Investment Account ............................... B-32
Net Asset Value .............................................. B-35
Taxes, Dividends and Distributions ........................... B-36
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-38
Financial Statements ......................................... B-40
Report of Independent Accountants ............................ B-55
Appendix I-General Investment Information .................... I-1
Appendix II-Historical Performance Data ...................... II-1
</TABLE>

- --------------------------------------------------------------------------------
MF111B

B-1

<PAGE>

TRUST HISTORY

The Trust was organized under the laws of Massachusetts on September 22,
1981 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
(including floating rate debt securities and variable rate debt securities). See
"Floating Rate and Variable Rate Debt Securities," below. 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 student loans, residential
mortgages, 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 OR CALLS. The Money Market Series may also purchase
instruments of the types described in this section together with the right to
resell or purchase 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 such a right to purchase is commonly
known as a call. The aggregate price which the Money Market Series pays for
instruments with puts or calls 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. The Money Market Series may
choose to exercise calls during periods in which funds are available for
investment. In determining whether to exercise puts or calls prior to their
expiration date and in selecting which puts or calls 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 or calls, 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 or call is dependent on the ability of the
writer to meet its obligation to repurchase or to sell, 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 or calls in that the broker, dealer or
financial institution might default on its obligation to repurchase or sell
underlying securities. 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 or
calls at amortized cost; no value is assigned to the put or call. The cost of
the put or call, 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

B-4

<PAGE>

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, 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.

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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, 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 or final distribution date of each class,
which, as with other CMO structures, must be retired by its stated maturity date
or final distribution date but may be retired earlier. PAC Bonds generally
require payments of a specified amount of principal on each payment date.PAC
Bonds always are parallel pay CMOs with the required principal payment on such
securities having the highest priority after interest has been paid to all
classes.

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. A futures contract obligates the seller of a contract
to deliver to the purchaser of a contract cash equal to a specific dollar amount
times the difference between the value of a specific fixed-income security or
index at the close of the last trading day of the contract and the price at
which the agreement is made. No physical delivery of the underlying securities
is made. The Series will engage in transactions in only those futures contracts
and options thereon that are traded on a commodities exchange or a board of
trade. As a purchaser of a 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.

Currently, futures contracts are available on several types of
fixed-income securities, including U.S. Treasury Bonds and Notes, Government
National Mortgage Association modified pass-through mortgage-backed securities,
three-month U.S. Treasury Bills and bank certificates of deposit.

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

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

There may exist an imperfect correlation between the price movements of
futures contracts purchased by the 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

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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 appears to be a 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 was 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 on investments within thirty days; (d) the margin
deposited on the contracts; and (e) any unrealized appreciation in the value of
the contracts.

If the 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

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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.

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 Series 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,

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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. The net amount of the excess, if any, of the Series' obligations over
its entitlements with respect to each interest rate swap will be accrued on a
daily basis and an amount of cash or liquid assets having an aggregate net asset
value at least equal to the accrued excess will be maintained in a segregated
account by a custodian that satisfies the requirements of the Investment Company
Act. To the extent that the Series enters into interest rate swaps on other than
a net basis, the amount maintained in a segregated account will be the full
amount of the series' obligations, if any, with respect to such interest rate
swaps, accrued on a daily basis. 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 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,

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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.

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

FOREIGN DEBT SECURITIES

The Short-Intermediate Term Series may purchase United States currency
denominated fixed-income issues of foreign governments and other foreign
issuers.

The Short-Intermediate Term Series believes that in many instances such
foreign fixed-income securities may provide higher yields than securities of
domestic issuers which have similar maturities and quality. Many of these
investments currently enjoy increased liquidity, although, under certain market
conditions, such securities may be less liquid than the securities of United
States corporations, and are certainly less liquid than securities issued or
guaranteed by the United States Government, its instrumentalities or agencies.

Foreign securities involve certain risks, which should be considered
carefully by an investor in the Short-Intermediate Term Series. Foreign
countries may impose taxes on income on foreign investments. These risks include
political or economic instability in the country of issue, the difficulty of
predicting international trade patterns and the possibility of imposition of
exchange controls. Such securities may also be subject to greater fluctuations
in price than securities issued by United States corporations or issued or
guaranteed by the United States Government, its instrumentalities or agencies.
In addition, there may be less publicly available information about a foreign
company than about a domestic company. Foreign companies generally are not
subject to uniform accounting, auditing and financial reporting standards
comparable to those applicable to domestic companies. There is generally less
government regulation of securities exchanges, brokers and listed companies
abroad than in the United States and, with respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation or diplomatic
developments that could affect investment in those countries. Finally, in the
event of a default of any such foreign debt obligations, it may be more
difficult for the Short-Intermediate Term Series to obtain or to enforce a
judgment against the issuers of such securities.

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 repurchase

B-17

<PAGE>

agreement. 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. If the seller defaults
and the value of the collateral securing the repurchase agreement declines, the
Series may incur a loss.

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 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 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. If a Series were to
exceed this limit, the investment adviser would take reasonable measures to
reduce the Series' holdings in illiquid securities to no more than 10% (15% in
the case of the Short-Intermediate Term Series) of its net assets within seven
days, including the sale of such securities. Repurchase agreements subject to
demand are deemed to have a maturity equal to the applicable notice period.

B-18

<PAGE>

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 Trust and the counterparty have provided for the Trust, at
the Trust's election, to unwind the OTC option. The exercise of such an option
ordinarily would involve the payment by the Trust of an amount designed to
reflect the counterparty's economic loss from an early termination, but does
allow the Trust to treat the assets used as "cover" as "liquid."

FLOATING RATE AND VARIABLE RATE DEBT SECURITIES

Each Series may invest in floating rate and variable rate debt securities,
including participation interests therein, subject to the requirements of the
amortized cost valuation rule and other requirements of the Commission with
respect to the Money Market Series and the U.S. Treasury Money Market Series.
Floating rate debt securities normally have a rate of interest which is set as a
specific percentage of a designated based rate, such as the rate on Treasury
Bonds or Bills or the prime rate at a major commercial bank. The interest rate
on floating rate debt securities changes whenever there is a change in the
designated base interest rate. Variable rate debt securities provide for a
specified periodic adjustment in the interest rate based on prevailing market
rates and generally would allow the series to demand payment of the obligation
on short notice at par plus accrued interest, which amount may be more or less
than the amount the series paid for them.

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-19

<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 "Brokerage
Allocation and Other Practices ."

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 30,1998 and 1999 was 155% and 304% respectively.

The Series 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 Money Market Series 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-20

<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 Short-Intermediate Term Series 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 Series 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-21

<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>
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.

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

*Robert F. Gunia (53) Vice President Chief Administrative Officer (since June 1999) of
and Trustee Prudential Investments; Vice President (September
1997-March 1999), of The Prudential Insurance
Company of America (Prudential); Executive Vice
President and Treasurer (since December 1996),
Prudential Investments Fund Management LLC (PIFM);
Senior Vice President (March 1987-May 1999) of
Prudential Securities Incorporated (Prudential
Securities) and 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.(PMF); Vice President and Director
(since May 1989) of The Asia Pacific Fund, Inc.
</TABLE>

B-22

<PAGE>

<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS ** (AGE) TRUST DURING PAST 5 YEARS
- ------------------------------- --------------- ----------------------------------------------------------
<S> <C> <C>
Thomas T. Mooney (58) Trustee President of the Greater Rochester Metro Chamber of
Commerce; former Rochester City Manager; former
Deputy Monroe County Executive; Trustee of Center for
Governmental Research, Inc.; Director of Blue Cross of
Rochester, Monroe County Water Authority Executive
Service Corps of Rochester.

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

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

Richard A. Redeker (56) Trustee Formerly Employee of Prudential Investments (October
1996-December 1998); prior thereto, 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).

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

Nancy H. Teeters (69) Trustee Economist; formerly Vice President and Chief Economist
(March 1986-June 1990) of International Business
Machines Corporation; formerly, Governor of Federal
Reserve System (1978-1984) formerly Director of Inland
Steel Industries (July 1991-1999).
</TABLE>

B-23

<PAGE>

<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS ** (AGE) TRUST DURING PAST 5 YEARS
- --------------------------- --------------------- -----------------------------------------------------------
<S> <C> <C>
Louis A. Weil, III (58) 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.

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

Stephen M. Ungerman (46) Assistant Tax Director of Prudential Investments (since March 1996);
Treasurer formerly First Vice President of Prudential Mutual Fund
Management, Inc. (February 1993-September 1996).
Deborah A. Docs (42) Secretary Vice President (since December 1996) of PIFM; formerly

Vice President and Associate General Counsel of
Prudential Securities June 1991-May 1999 and Vice
President and Associate General Counsel (June
1991-September 1996) of Prudential Mutual Fund
Management, Inc.
</TABLE>

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

** 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.

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
75.

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 PIFM or the investment adviser annual compensation of $4,700, 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.

B-24

<PAGE>

The following table sets forth the aggregate compensation paid by the
Trust for the fiscal year ended November 30, 1999 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, 1999.

COMPENSATION TABLE

<TABLE>
<CAPTION>
TOTAL 1999
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 $142,500 (43/70)*
Eugene C. Dorsey--Trustee** $4,500 None N/A $ 81,000 (17/48)*
Delayne Dedrick Gold--Trustee $4,500 None N/A $144,500 (43/70)*
Robert F. Gunia--Vice President and Trustee(1) -- -- -- --
Thomas T. Mooney--Trustee** $4,500 None N/A $129,500 (35/75)*
Stephen P. Munn--Trustee $4,500 None N/A $ 62,250 (29/53)*
David R. Odenath, Jr.--Trustee(1) -- -- -- --
Thomas H. O'Brien--Trustee@ $4,500 None N/A $ 47,500 (11/26)*
Richard A. Redeker--Trustee $4,500 None N/A $ 95,000 (29/53)*
John R. Strangfeld, Jr.--President and Trustee(1) -- --
Nancy H. Teeters--Trustee $4,500 None N/A $ 97,000 (25/43)*
Louis A. Weil, III--Trustee $4,500 None N/A $ 96,000 (29/53)*
</TABLE>

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

@ Former Trustee.
* 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.
** Total compensation from all of the funds in the Fund complex for the
calendar year ended December 31, 1999, includes amounts deferred at the
election of Trustees under the Trust's deferred compensation plan. Including
accrued interest, total compensation amounted to $103,574 and $135,102 for
Dorsey and Mooney, respectively.

B-25

<PAGE>

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 January 2, 2000, 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 January 2, 2000, Prudential Securities was the record holder for
other beneficial owners of $3,988,319 Short-Intermediate Term Series Class A
shares (or 42.2% of such shares outstanding), and NO Short-Intermediate Term
Series Class Z Shares (or 0% of such shares outstanding); 207,937,842 Money
Market Series Class A Shares (or 41.3% of such shares outstanding); and NO Money
Market Series Class Z Shares (or 0% of such shares outstanding); and 476,577,499
U.S. Treasury Money Market Series Class A Shares (or 28% 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 January 2, 2000, 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
Term Series (7.3%); Prudential Trust Company, FBO PRU-DC Clients, 30 Scranton
Office Park, Moosic, PA 18507, who held 888,794 Class Z shares of
Short-Intermediate Term Series (99.99%); Prudential Trust Company, FBO Pru DC
Trust Accounts, 30 Scranton Office Park, Moosic, PA 18507, who held 38,131,275
Class A shares of the Money Market Series (7.6%); Pru Defined Contributions
Svcs, FBO PRU Nors Trust Accounts, 30 Scranton Office Park, Moosic, PA 18507 who
held 8,224,815 Class Z Shares of the Money Market Series (19.78%); Pru Defined
Contribution Services, FBO Pru DC Qualified Clients, 30 Scranton Office Park,
Moosic, PA 18507, who held 2,263,090 Class Z shares of the U.S. Treasury Money
Market Series (99.99%); and Wilson C. Swigart Trust, Stephen B. Swigart & Betty
C. Hornbrook, CO-TTEES, MJ Swigart Trust, 1860 Saddle Hill RDS, Dunedin, FL
34698, who held 2,263,090 Class Z shares of the U.S. Treasury Money Market
Series (99.9%).

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
December 31, 1999, PIFM managed and/or administered open-end and closed-end
management investment companies with assets of approximately $75.6 billion.
According to the Investment Company Institute, as of September 30, 1999, the
Prudential mutual funds were the 20th largest family of mutual funds in the
United States.

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

Pursuant to 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 has hired The Prudential Investment Corporation, doing business
as Prudential Investments (PI, the investment adviser or the Subadviser), to
provide subadvisory services to the Trust. 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 Subadviser, pursuant to a
subadvisory agreement between PIFM and PI (the Subadvisory Agreement).

B-26
<PAGE>

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 and
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|M/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|M/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 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, 1999, the Trust paid management
fees to PIFM of $2,509,000, $590,583, and $1,542,859 relating to the Money
Market Series, Short-Intermediate Term Series and U.S. Treasury Money Market
Series. 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. 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 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-27
<PAGE>

(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. The Distributor is a subsidiary 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 Term
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, 1999, the Distributor incurred
distribution expenses in the aggregate of $690,200 and $480,800 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. It is estimated that of these amounts approximately $56,100
(8.13%) and $388,000 (80.70%) 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 $634,100 (91.87%) and $92,800 (19.30%) 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 series, including lease costs, the salaries and
employee benefits of operations and sales support personnel, utility costs,
communications costs and the costs of stationery and supplies, (b) the costs of
client sales seminars, (c) 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, 1999, the Distributor collectively
received $257,169 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 Trust 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 Trust. Fee
waivers and subsidies will increase the Trust'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

B-28
<PAGE>

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 each Series may not exceed .75 of 1% per class. The
6.25% limitation applies to each class of each Series 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 Trust's portfolio securities
and cash and, in that capacity, maintains certain financial and accounting books
and records pursuant to an agreement with the Trust. Subcustodians provide
custodial services for the Trust'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 Trust.
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.

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.

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.
Although the Series has not experienced any material problems with the services
provided by the Manager, Distributor, Transfer Agent or the Custodian as a
result of the change from 1999 to 2000, there remains a possibility that
computer software systems in use might be impaired or unavailable because of the
way dates are encoded and calculated. Such an 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 future adverse impact on the Series, the Manager, the Distributor,
the Transfer Agent and the Custodian have advised the Series that they have
completed necessary changes to their computer systems in connection with the
year 2000. The Series' service providers (or other securities market
participants) may experience future material problems with the Year 2000. The
Series and its Board have instructed the Series' principal service providers to
monitor and report year 2000 problems and successfully complete the necessary
changes in a timely manner. 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 at some later time
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.

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, 1997, 1998 and 1999.

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

B-29
<PAGE>

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 Trust are
offered to a limited group of investors at NAV.

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, Series and class
election , dividend distribution election, amount being wired and wiring bank.
Instructions should then be given by you to your bank to transfer funds by wire
to State Street Bank and Trust Company (State Street), Boston, Massachusetts,
Custody and Shareholder Services Division, Attention: Prudential 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 investing
(Class A or Class Z shares).

If you arrange for receipt by State Street of Federal Funds prior to the
calculation of NAV (4:15 p.m., New York time 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 Trust 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 amount 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 8:00 p.m., New York time.
For your protection and to prevent fraudulent exchanges, your telephone call
will be recorded and you will be asked to provide your personal identification
number. A written confirmation of the exchange transaction will be sent to you.
Neither the 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.

B-30
<PAGE>

If you hold certificates, the certificates must be returned in order for
the shares to be exchanged.

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

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

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

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

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

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

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

Other Types of Investors. Class Z shares are also available for purchase
by the following categories of investors:

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

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

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

SALE OF SHARES

You can redeem shares at any time for cash in the form of a check 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 Trust.

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.

In order to redeem shares, a written request for redemption signed by you
exactly as the account is registered is required. If you hold certificates, the
certificates must be received by the Transfer Agent, the Distributor or your
broker in order for the redemption request to be processed. If redemption is
requested by a corporation, partnership, trust or fiduciary, written evidence of
authority acceptable to the Transfer Agent must be submitted before such request
will be accepted. All correspondence and documents concerning redemptions should
be sent to the 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, to the Distributor or to your broker.

SIGNATURE GUARANTEE. If the proceeds of the redemption (1) exceed
$100,000, (2) are to be paid to a person other than the record owner, (3) are to
be sent to an address other than the address on the Transfer Agent's records, or
(4) are to be paid to a corporation, partnership, trust or fiduciary, and are
held directly with the Transfer Agent, the signature(s) on the redemption
request

B-31
<PAGE>

or stock power must be signature guaranteed by an "eligible guarantor
institution." An "eligible guarantor institution" includes any bank, broker,
dealer or credit union. The Transfer Agent reserves the right to request
additional information from, and make reasonable inquiries of, any eligible
guarantor institution. In the case of redemptions from a PruArray Plan, if the
proceeds of the redemption are invested in another investment option of the plan
in the name of the record holder and at the same address as reflected in the
Transfer Agent's records, a signature guarantee is not required.

Payment for shares presented for redemption will be made by check within
seven days after receipt of the written request, and certificate, if applicable,
by the Transfer Agent, the Distributor or your broker, 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 relevant Series 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 $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.

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 confirmation
showing the transaction and the status of such account. Stock certificates may
be issued for the Short-Intermediate Term Series only. Such a stock certificate
is desired, it must be requested in writing. 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 persons 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

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<PAGE>

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 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 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.

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 8:00 p.m. New York time. For
your protection and to prevent fraudulent exchanges, your telephone call will be
recorded and you will be asked to provide your personal identification number. A
written confirmation of the exchange transaction will be sent to you. Neither
the 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 funds next determined after the request is received in good
order.

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.

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;
however, you may be subject to any sales charge that may be imposed by such
other Prudential mutual fund into which you 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 Inc.

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, Inc., 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.

B-33
<PAGE>

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

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

See "Automatic Investment Plan" below.

- -----------
1 Source information concerning the costs of education at public and private
universities is available from The College Board Annual Survey of Colleges,
1993. Average costs for private institutions include tuition, fees, room and
board for the 1993-94 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 Trust. 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 each month by authorizing his or her bank account or
brokerage account (including a Prudential Securities COMMAND Account) to be
debited for a specified dollar amount for subsequent investment into a Series.
The investor's bank must be a member of the Automatic Clearing House System.

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

SYSTEMATIC WITHDRAWAL PLAN

A systematic withdrawal plan is available for shareholders having shares
of the Trust held through the Transfer Agent, the Distributor or your broker.
Such withdrawal plan provides for monthly, quarterly, semi-annual or annual
redemption 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) systematic withdrawals may not be for less
than $100 and (3) all dividends and/or distributions must be automatically
reinvested in additional full and fractional shares of the applicable Series in
order for the shareholder to participate in 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 systematic withdrawal payment. The systematic withdrawal plan
may be terminated at any time, and the Distributor reserves the right to
initiate a fee of up to $5 per withdrawal, upon 30 days' written notice to the
shareholder.

Systematic withdrawals should not generally be considered as dividends,
yield or income. If systematic withdrawals continuously exceed reinvested
dividends and distributions, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted. Furthermore, each systematic
withdrawal constitutes a redemption of shares, and any gain or loss realized
must 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 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

B-34
<PAGE>

both self-employed individuals and corporate employers. These plans permit
either self-direction of accounts by participants or a pooled account
arrangement. Information regarding establishment administration and custodial
fees, as well as other plan details are available from the Distributor or the
Transfer Agent.

Investors who are considering the adoption of such a plan should consult
with their own legal counsel or tax adviser with respect to the establishment
and maintenance of any such plan.

INDIVIDUAL RETIREMENT ACCOUNTS

An Individual Retirement Account (IRA) permits the deferral of federal
income tax on income earned in the account until the earnings are withdrawn. The
following chart represents a comparison of the earnings in a personal savings
account with those in an IRA, assuming a $2,000 annual contribution, an 8% rate
of return and a 39.6% federal income tax bracket and shows how much more
retirement income can accumulate within an IRA as opposed to a taxable
individual savings account.

TAX-DEFERRED 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 Trust 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 Trust 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, pursuit of greater
diversification, protection from interest rate movements or access to different
management styles. In the event such a program is instituted, there may be a
minimum investment requirement for the program as a whole. 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 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

B-35
<PAGE>

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., New York time, 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 materially 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., New York time, 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.

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.

B-36
<PAGE>

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
may be subject to similar treatment by reason of an election made by the Series
under the market discount rules. Because the original issue discount and market
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 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 "Series Distributions and Tax Issues" 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

B-37
<PAGE>

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]
cd

Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the 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.

The Short-Intermediate Term Series' 30-day yield for the period ended
November 30, 1999 was 5.15% for Class A and 5.33% 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, 1999 was 4.31%, 4.82%, 4.73% and
6.18%, 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, 1999 was 4.44% and 4.89%,
respectively.

AGGREGATE TOTAL RETURN. The Short-Intermediate Term Series may also
advertise its aggregate total return. See "Risk/Return Summary--Evaluating
Performance" in the Prospectus.

B-38
<PAGE>

Aggregate total return represents the cumulative change in the value of an
investment in a Series 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.

ADVERTISING. Advertising materials for the Trust may include biographical
information relating to its portfolio manager(s), and may include or refer to
commentary by the Trust's manager(s) concerning investment style, investment
discipline, asset growth, current or past business experience, business
capabilities, political, economic or financial conditions and other matters of
general interest to investors. Advertising materials for the Trust also may
include mention of The Prudential Insurance Company of America, its affilitates
and subsidiaries, and reference the assets, products and services of those
entities.

From time to time, advertising materials for the Trust may include
information concerning retirement and investing for retirement, may refer to the
approximate number of Trust (interest holders) and may refer to Lipper rankings
or Morningstar ratings, other related analysis supporting those ratings, other
industry publications, business periodicals and market indicies. In addition,
advertising materials may reference studies or analyses performed by the Manager
or its affiliates. Advertising materials for sector funds, funds that focus on
market capitalizations, index funds and international/global funds may discuss
the potential benefits and risks of that investment style. Advertising materials
for fixed income funds may discuss the benefits and risks of investing in the
bond market including discussions of credit quality, duration and maturity.

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, 1999 was 1.26%, 34.63%, 82.61% and 267.50%,
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, 1999 was 1.46% and 14.01%, respectively.

[CHART]

B-39
<PAGE>

Portfolio of Investments as of PRUDENTIAL GOVERNMENT SECURITIES TRUST
November 30, 1999 MONEY MARKET SERIES
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount

(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Federal Farm Credit Bank--1.1%
$ 2,000 6.88%, 5/1/00 $ 2,008,160
5,000 5.85%, 12/1/00 4,988,050
------------
6,996,210

- ------------------------------------------------------------
Federal Home Loan Bank--58.2%
24,000 5.36%, 12/1/99, F.R.N. 23,985,128
2,500 5.655%, 12/1/99, F.R.N. 2,499,587
22,500 5.706%, 12/1/99, F.R.N. 22,500,000
9,000 5.716%, 12/1/99, F.R.N. 8,998,692
31,000 5.956%, 12/1/99, F.R.N. 30,999,864
24,000 5.25875%, 12/6/99, F.R.N. 23,991,053
12,000 5.23%, 12/13/99, F.R.N. 11,996,328
23,500 5.4525%, 12/21/99, F.R.N. 23,494,405
26,000 5.44125%, 12/28/99, F.R.N. 25,991,475
28,500 5.924%, 1/4/00, F.R.N. 28,483,507
11,000 5.97625%, 1/11/00, F.R.N. 10,999,147
18,000 4.90%, 1/14/00 18,000,000
9,000 4.90%, 2/11/00 8,998,289
4,000 4.95%, 2/17/00 3,999,543
7,000 5.00%, 2/24/00 6,999,689
7,000 5.00%, 2/25/00 7,000,000
14,000 5.035%, 2/25/00 13,997,592
7,000 5.035%, 3/2/00 7,000,000
2,000 5.07%, 3/17/00 1,995,822
1,000 4.495%, 3/23/00 995,461
5,000 5.135%, 3/29/00 5,000,905
12,000 5.01%, 4/28/00 11,994,631
2,000 5.075%, 4/28/00 2,000,034
12,000 5.02%, 5/12/00 11,992,901
2,500 5.125%, 5/19/00 2,492,153
9,500 5.15%, 5/19/00 9,496,205
5,000 5.35%, 6/8/00 4,998,130

- ------------------------------------------------------------
Federal Home Loan Bank

$ 4,500 5.66%, 7/6/00 $ 4,503,583
7,000 5.875%, 9/7/00 6,997,689
4,500 Zero Coupon, 9/15/00 4,299,071
5,000 5.705%, 10/6/00 4,992,093
7,000 5.915%, 10/13/00 6,994,665
1,500 5.965%, 12/1/00 1,497,706
------------
360,185,348

- ------------------------------------------------------------
Federal Home Loan Mortgage Corporation--0.2%
1,250 6.395%, 5/16/00 1,257,322

- ------------------------------------------------------------
Federal National Mortgage Association--15.8%
12,000 5.695%, 12/1/99, F.R.N. 11,989,965
24,000 5.74%, 12/1/99, F.R.N. 23,996,181
3,000 5.33375%, 12/6/99, F.R.N. 2,999,037
3,000 5.32125%, 12/22/99, F.R.N. 2,997,712
14,500 5.94%, 2/9/00, F.R.N. 14,490,516
7,000 5.83%, 2/17/00, F.R.N. 6,992,662
12,500 5.10%, 5/19/00 12,462,513
6,500 5.33%, 6/9/00 6,496,931
7,000 5.80%, 8/17/00 6,995,261
3,000 5.97%, 10/2/00 3,001,387
5,000 5.90%, 12/1/00 4,992,850
------------
97,415,015

- ------------------------------------------------------------
Student Loan Marketing Association--7.8%
24,000 5.745%, 12/1/99, F.R.N. 23,994,574
24,000 6.055%, 12/7/99, F.R.N. 23,984,210
------------
47,978,784

- ------------------------------------------------------------
Tennessee Valley Authority--4.4%
25,500 8.625%, 12/16/99 27,096,879
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-40
<PAGE>

PRUDENTIAL GOVERNMENT SECURITIES TRUST
MONEY MARKET SERIES
Portfolio of Investments as of November 30, 1999
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount

(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Repurchase Agreements(a)--13.7%
$ 25,000 Bank of America Securities Corp.,
5.75%, dated 11/29/99, due
12/1/99 in the amount of
$25,007,986 (cost $25,000,000;
the value of the collateral
including accrued interest is
$25,530,601) $ 25,000,000
25,000 Credit Suisse First Boston Corp.,
5.71%, dated 11/29/99, due
12/1/99 in the amount of
$25,007,931 (cost $25,000,000;
the value of the collateral
including accrued interest is
$25,952,995) 25,000,000
9,333 Goldman, Sachs & Co., 5.30%, dated
11/4/99, due 12/6/99 in the
amount of $9,376,969 (cost
$9,333,000; the value of the
collateral including accrued
interest is $9,519,661) 9,333,000
25,543 Morgan Stanley Dean Witter, 5.70%,
dated 11/30/99, due 12/2/99 in
the amount of $25,551,191 (cost
$25,543,000; the value of the
collateral including accrued
interest is $26,233,005) 25,543,000
------------
84,876,000

------------
- ------------------------------------------------------------
Total Investments--101.2%
(amortized cost $625,805,558(b)) 625,805,558
Liabilities in excess of other
assets--(1.2%) (7,391,277)
------------
Net Assets--100% $618,414,281
------------
------------
</TABLE>
- ---------------
F.R.N.--Floating Rate Note. The interest rate reflected is the rate in effect at
November 30, 1999.
(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-41
<PAGE>

Portfolio of Investments as PRUDENTIAL GOVERNMENT SECURITIES TRUST
of November 30, 1999 SHORT-INTERMEDIATE TERM SERIES
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount

(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--88.6%
- ------------------------------------------------------------
Asset-Backed--7.2%
Capital One Master Trust
$ 5,000 5.43%, Ser. 98-4 A, 1/15/07 $ 4,734,375
Premier Auto Trust
5,000(a) 5.77%, Ser. 98-2 A3, 1/6/02 4,987,500
------------
9,721,875

- ------------------------------------------------------------
Corporate Obligations--1.8%
Merck and Company
2,500(a) 5.76%, 5/3/37 2,507,812
- ------------------------------------------------------------
U.S. Government Agency Mortgage Pass-Through
Obligations--27.2%
Federal Home Loan Mortgage
Association

71 7.375%, 3/1/06 70,759
804 9.00%, 9/1/05 - 11/1/05 819,369
Federal National Mortgage
Association

28,215(c) 6.50%, 12/1/14 - 1/1/15 27,588,910
2,531 7.50%, 4/1/10 - 12/1/10 2,558,181
Government National Mortgage
Association

6,030(a) 7.00%, 1/15/25 - 2/15/29 5,914,545
------------
36,951,764

- ------------------------------------------------------------
U.S. Government Agency Obligation--32.9%
Federal Home Loan Bank
15,000 5.375%, 3/2/01 14,852,400
Federal National Mortgage
Association

10,000 5.50%, 10/12/01 9,837,500
15,600 5.625%, 5/14/04 15,032,004
5,000 6.30%, 9/25/02 4,932,800
------------
44,654,704

U.S. Treasury Notes--19.5%
$ 4,720(a) 6.50%, 5/31/01 $ 4,755,400
2,400(a) 5.875%, 9/30/02 2,388,384
2,300(a) 5.75%, 11/30/02 2,280,956
1,500 5.25%, 5/15/04 1,449,135
15,000(a) 6.875%, 5/15/06 15,478,050
------------
26,351,925

------------
Total long-term investments
(cost $122,699,612) 120,188,080
------------
SHORT-TERM INVESTMENTS--31.4%
- ------------------------------------------------------------
Commercial Paper--14.7%
Citicorp
5,500 5.52%, 12/16/99 5,487,350
Enterprise Funding Corp.
4,017 5.53%, 12/16/99 4,007,744
Old Line Funding Corp.
4,000 5.57%, 12/15/99 3,991,336
Thunder Bay Funding, Inc.
1,007 5.56%, 12/14/99 1,004,978
Triple A One Funding Corp.
5,416 5.54%, 12/10/99 5,408,499
------------
Total commercial paper

(cost $19,899,907) 19,899,907
------------
- ------------------------------------------------------------
Repurchase Agreement--13.2%
17,880 Joint Repurchase Agreement Account,
5.51%, 12/1/99
(cost $17,880,000; Note 5) 17,880,000
------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-42
<PAGE>

PRUDENTIAL GOVERNMENT SECURITIES TRUST
SHORT-INTERMEDIATE TERM SERIES
Portfolio of Investments as of November 30, 1999

- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
U.S. Treasury Notes--3.5%
$ 500(c) 6.375%, 5/15/00 $ 501,640
4,340 4.50%, 9/30/00 4,293,215
------------
Total U.S. treasury notes
(cost $4,804,314) 4,794,855
------------
Total short-term investments
(cost $42,584,221) 42,574,762
------------
- ------------------------------------------------------------
Total Investments--120.0%
(amortized cost $165,283,833; Note
4) 162,762,842
Liabilities in excess of other
assets--(20.0%) (27,105,323)
------------
Net Assets--100% $135,657,519
------------
------------
</TABLE>
- ---------------
(a) Asset segregated as collateral for dollar rolls.
(b) Mortgage dollar roll, see Note 1 and Note 4.
(c) Security pledged as initial margin for financial futures contracts.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-43
<PAGE>

PRUDENTIAL GOVERNMENT SECURITIES TRUST
U.S. TREASURY MONEY MARKET SERIES
Portfolio of Investments as of November 30, 1999
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
United States Treasury Bills--75.7%
$ 70,735 5.315%, 1/13/00 $ 70,285,941
43,750 5.17%, 1/20/00 43,435,851
75,000 5.175%, 1/20/00 74,460,937
25,000 5.18%, 1/20/00 24,820,139
15,000 5.195%, 1/20/00 14,891,771
15,990 5.20%, 1/20/00 15,874,517
505 5.205%, 1/20/00 501,349
700 5.215%, 1/20/00 694,930
------------
244,965,435

- ------------------------------------------------------------
United States Treasury Notes--24.9%
5,000 6.375%, 1/15/00 5,007,837
3,295 5.375%, 1/31/00 3,297,673
24,784 7.75%, 1/31/00 24,884,466
1,845 7.125%, 2/29/00 1,853,977
6,065 6.375%, 5/15/00 6,103,295
12,569 6.25%, 5/31/00 12,640,281
7,395 6.00%, 8/15/00 7,426,254
4,571 6.25%, 8/31/00 4,596,616
1,020 4.50%, 9/30/00 1,010,891
6,325 6.125%, 9/30/00 6,356,440
7,590 4.625%, 11/30/00 7,505,619
------------
80,683,349

- ------------------------------------------------------------
Total Investments--100.6%
(amortized cost $325,648,784(a)) 325,648,784
Liabilities in excess of other
assets--(0.6%) (1,994,704)
------------
Net Assets--100% $323,654,080
------------
------------
</TABLE>
- ---------------
(a) Federal income tax basis of Portfolio securities is the same
as for financial reporting purposes.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-44
<PAGE>

Statement of Assets and Liabilities
November 30, 1999 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 $540,929,558, $147,403,833 and $325,648,784,
respectively)............................................................ $540,929,558 $144,882,842 $325,648,784
Repurchase agreements, at value (cost $84,876,000, $17,880,000 and $0,
respectively)............................................................ 84,876,000 17,880,000 --
Cash........................................................................ 104,507 103,368 --
Receivable for investments sold............................................. -- 27,775,610 --
Interest receivable......................................................... 4,948,822 1,153,672 1,150,737
Receivable for Series shares sold........................................... 4,177,203 16,491 2,693,703
Deferred expenses and other assets.......................................... 28,900 4,755 8,290
Securities lending income receivable........................................ -- 1,365 --
------------ ------------ ------------
Total assets............................................................. 635,064,990 191,818,103 329,501,514
------------ ------------ ------------
Liabilities

Payable for investments purchased........................................... 11,478,606 27,709,481 --
Dollar roll payable......................................................... -- 27,776,688 --
Payable for Series shares reacquired........................................ 4,287,974 228,382 5,122,582
Dividends payable........................................................... 553,197 148,782 292,068
Due to Manager.............................................................. 211,097 45,248 103,256
Due to distributor.......................................................... 32,147 10,207 17,509
Accrued expenses and other liabilities...................................... 87,688 239,390 312,019
Due to broker - variation margin............................................ -- 2,406 --
------------ ------------ ------------
Total liabilities........................................................ 16,650,709 56,160,584 5,847,434
------------ ------------ ------------
Net Assets.................................................................. $618,414,281 $135,657,519 $323,654,080
------------ ------------ ------------
------------ ------------ ------------
Net assets were comprised of:

Shares of beneficial interest, at par ($.01 per share)................... $ 6,184,143 $ 144,104 $ 3,236,541
Paid-in capital in excess of par......................................... 612,230,138 168,707,205 320,417,539
------------ ------------ ------------
618,414,281 168,851,309 323,654,080
Accumulated net realized loss on investments............................. -- (30,684,502) --
Net unrealized depreciation on investments............................... -- (2,509,288) --
------------ ------------ ------------
Net assets, November 30, 1999............................................... $618,414,281 $135,657,519 $323,654,080
------------ ------------ ------------
------------ ------------ ------------
Net asset value Class A:

Net asset value, offering price and redemption price per share
($576,868,299 / 576,868,299 shares of beneficial interest issued and
outstanding).......................................................... $1.00
------------
------------
($127,297,554 / 13,525,862 shares of beneficial interest issued and
outstanding).......................................................... $9.41
------------
------------
($321,640,663 / 321,640,663 shares of beneficial interest issued and
outstanding).......................................................... $1.00
------------
------------
Class Z:
Net asset value, offering price and redemption price per share
($41,545,982 / 41,545,982 shares of beneficial interest issued and
outstanding).......................................................... $1.00
------------
------------
($8,359,965 / 884,562 shares of beneficial interest issued and
outstanding).......................................................... $9.45
------------
------------
($2,013,417 / 2,013,417 shares of beneficial interest issued and
outstanding).......................................................... $1.00
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-45
<PAGE>

Statement of Operations
Year Ended November 30, 1999 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................................................................. $32,187,838 $ 8,476,964 $ 18,185,152
Income from securities loaned, net....................................... -- 112,674 --
----------- ------------ -------------
32,187,838 8,589,638 18,185,152
Expenses

Management fee........................................................... 2,509,000 590,583 1,542,859
Distribution fee--Class A................................................ 742,833 257,169 479,715
Transfer agent's fees and expenses....................................... 1,890,000 212,000 155,000
Custodian's fees and expenses............................................ 75,000 82,000 65,000
Reports to shareholders.................................................. 70,000 67,000 67,000
Registration fees........................................................ 211,000 47,000 55,000
Audit fees and expenses.................................................. 25,000 34,000 25,000
Legal fees and expenses.................................................. 30,000 32,000 18,000
Trustees' fees........................................................... 12,000 12,000 12,000
Insurance................................................................ 7,000 2,000 3,500
Miscellaneous............................................................ 4,992 1,606 20,015
----------- ------------ -------------
Total expenses........................................................ 5,576,825 1,337,358 2,443,089
----------- ------------ -------------
Net investment income....................................................... 26,611,013 7,252,280 15,742,063
----------- ------------ -------------
Realized and Unrealized Gain (Loss) on Investments Net realized gain (loss) on:

Investment transactions.................................................. 22,795 (1,535,082) 92,022
Financial futures contracts.............................................. -- (13,779) --
----------- ------------ -------------
22,795 (1,548,861) 92,022
Net change in unrealized appreciation (depreciation) on:

Investments.............................................................. -- (3,961,882) --
Financial futures contracts.............................................. -- 11,703 --
----------- ------------ -------------
Net gain (loss) on investments.............................................. 22,795 (5,499,040) 92,022
----------- ------------ -------------
Net Increase in Net Assets Resulting from Operations........................ $26,633,808 $ 1,753,240 $ 15,834,085
----------- ------------ -------------
----------- ------------ -------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-46
<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 1999 1998 1999 1998 1999 1998
--------------- --------------- --------------- ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment
income....... $ 26,611,013 $ 29,027,146 $ 7,252,280 $ 8,383,801 $ 15,742,063 $ 19,215,442
Net realized
gain (loss)
on investment
transactions... 22,795 26,721 (1,548,861) 1,506,782 92,022 293,468
Net change in
unrealized
depreciation
on
investments... -- -- (3,950,179) (564,958) -- --
--------------- --------------- --------------- ------------ --------------- ---------------
Net increase in
net assets
resulting
from
operations... 26,633,808 29,053,867 1,753,240 9,325,625 15,834,085 19,508,910
--------------- --------------- --------------- ------------ --------------- ---------------
Dividends and
distributions
(Note 1)........ (26,633,808) (29,053,867) (7,397,439) (8,799,007) (15,834,085) (19,508,910)
--------------- --------------- --------------- ------------ --------------- ---------------
Series share
transactions(a)
(Note 6):
Net proceeds
from shares
subscribed... 1,745,594,547 2,267,004,069 28,989,720 48,203,029 3,016,500,664 4,398,749,349
Net asset value
of shares
issued in
reinvestment
of dividends
and
distributions... 25,608,555 27,554,570 5,237,511 5,999,888 13,902,487 17,472,551
Cost of shares
reacquired... (1,769,693,659) (2,269,663,230) (47,069,301) (49,748,114) (3,043,734,040) (4,512,021,356)
--------------- --------------- --------------- ------------ --------------- ---------------
Net increase
(decrease) in
net assets
from Series
share
transactions.. 1,509,443 24,895,409 (12,842,070) 4,454,803 (13,330,889) (95,799,456)
--------------- --------------- --------------- ------------ --------------- ---------------
Total increase
(decrease)......... 1,509,443 24,895,409 (18,486,269) 4,981,421 (13,330,889) (95,799,456)
Net Assets
Beginning of
year............ 616,904,838 592,009,429 154,143,788 149,162,367 336,984,969 432,784,425
--------------- --------------- --------------- ------------ --------------- ---------------
End of year(b)..... $ 618,414,281 $ 616,904,838 $ 135,657,519 $154,143,788 $ 323,654,080 $ 336,984,969
--------------- --------------- --------------- ------------ --------------- ---------------
--------------- --------------- --------------- ------------ --------------- ---------------
- ---------------
(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 $ -- $ --
--------------- --------------- --------------- ------------ --------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-47
<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 (each a
'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 and each Series 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
with U.S. financial institutions, it is the Fund's policy that its 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. To the extent that any repurchase agreement exceeds one
business day, the value of the collateral is marked-to-market on a daily basis
to ensure the adequacy of the collateral. If the seller defaults and the value
of the collateral declines or if bankruptcy proceedings are commenced with
respect to the seller of the security, realization of the collateral by the Fund
may be delayed or limited.

Financial Futures Contracts: The Short-Intermediate Term Series may enter into
financial futures contracts which are agreements 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.

Securities Lending: The Money Market Series and 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 Series continues to receive any dividend or interest paid on such
securities. Each Series receives compensation net of rebates for lending
securities in the form of fees or it retains a portion of interest on the
investments of any cash received as collateral. 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 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. Expenses are
recorded on the accrual basis which may require the use of certain estimates by
management.

Dollar Rolls: The Short-Intermediate Term Series may enter 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

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

B-48
<PAGE>

Notes to Financial Statements PRUDENTIAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
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 at least 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
increase net investment income by $52,535, decrease accumulated net realized
losses by $2,336,371 and increase paid-in-capital in excess of par by $2,283,836
which represents the expiration of a portion of the capital loss carryforward.
Net investment income, 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 has a distribution agreement with Prudential Investment Management
Services LLC ('PIMS'), which acts as the distributor of the Class A and Class Z
shares of the Fund. The Fund compensates PIMS for distributing and servicing the
Fund's Class A shares, pursuant to a plan of distribution (the 'Class A Plan'),
regardless of expenses actually incurred by them. The distribution fees for
Class A shares are accrued daily and payable monthly. The distributor pays
various broker-dealers for account servicing fees and for the expenses incurred
by such broker-dealers. No distribution or service fees are paid to PIMS as
distributor of the Class Z shares of the Fund.

Pursuant to the Class A Plan, the Money Market Series and the U.S. Treasury
Money Market Series compensate PIMS at an annual rate of .125 of 1% of each
Series' average daily net assets. The Short-Intermediate Term Series' Class A
Plan compensates PIMS 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.

PIFM, PIC and PIMS are wholly owned subsidiaries of The Prudential Insurance
Company of America.

As of March 11, 1999, the Short-Intermediate Term Series, along with other
affiliated registered investment companies (the 'Funds'), entered into a
syndicated credit agreement ('SCA') with an unaffiliated lender. The maximum
commitment under the SCA is $1 billion. Interest on any borrowings will be at
market rates. The Funds pay a commitment fee at an annual rate of .065 of 1% on
the unused portion of the credit facility, which is accrued and paid quarterly
on a pro rata basis by the Funds. The SCA expires on March 9, 2000. Prior to
March 11, 1999, the Funds had a credit agreement with a maximum commitment of
$200,000,000. The commitment fee was .055 of 1% on the unused portion of the
credit facility. The Fund did not borrow any amounts pursuant to either
agreement during the year ended November 30, 1999. The purpose of the

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

B-49
<PAGE>

Notes to Financial Statements PRUDENTIAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------

agreements is to serve as an alternative source of funding for capital share
redemptions.

- ------------------------------------------------------------
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, 1999,
the Fund incurred fees of approximately $1,687,100, $190,000, and $149,700,
respectively, for the Money Market Series, Short-Intermediate Term Series, and
U.S. Treasury Money Market Series. As of November 30, 1999, approximately
$145,000, $15,400, and $9,400 of such fees were due to PMFS, 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, 1999 were
$400,163,371 and $399,824,787, respectively.

For the Short-Intermediate Term Series, the cost basis of investments for
federal income tax purposes was $165,283,833 and, accordingly, as of November
30, 1999, net unrealized depreciation of investments for federal income tax
purposes was $2,520,991 (gross unrealized appreciation $8,466; gross unrealized
depreciation--$2,529,457).

For federal income tax purposes, the Short-Intermediate Term Series has a
capital loss carryforward as of November 30, 1999 of approximately $30,673,000
of which $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,
$3,290,000 expires in 2005 and $1,537,000 expires in 2006. 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, 1999, approximately $4,746,000 of the capital loss
carryforward expired unused.

The average balance of dollar rolls outstanding during the year ended November
30, 1999 was approximately $13,957,017 for the Short-Intermediate Term Series.

During the fiscal year ended November 30, 1999, the Short-Intermediate Term
Series entered into financial futures contracts. Details of open contracts at
November 30, 1999 are as follows:

<TABLE>
<CAPTION>
Value at Value at
Number of Expiration Trade November 30, Unrealized
Contracts Type Date Date 1999 Appreciation
- --------- ----------- ----------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Short
Position:

U.S.

Treasury

7 Index Mar. 2000 $663,141 $651,438 $11,703
-------------
-------------
</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, 1999, the
Short-Intermediate Term Series had a 2.74% undivided interest in the repurchase
agreements in the joint account. This undivided interest represented $17,880,000
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., 5.68%, in the principal amount of $210,000,000,
repurchase price $210,033,133, due 12/1/99. The value of the collateral
including accrued interest was $214,561,994.

Deutsche Bank Securities Corp., 5.41%, in the principal amount of $30,000,000,
repurchase price $30,004,508, due 12/1/99. The value of the collateral including
accrued interest was $30,600,246.

Goldman, Sachs & Co., 5.45%, in the principal amount of $210,000,000, repurchase
price $210,031,792, due 12/1/99. The value of the collateral including accrued
interest was $214,200,305.

Warburg Dillon Read LLC, 5.42%, in the principal amount of $202,578,000,
repurchase price $202,608,499, due 12/1/99. The value of the collateral
including accrued interest was $206,633,395.

- ------------------------------------------------------------
Note 6. Capital

The Fund offers Class A and Class Z shares. Neither Class A nor Class Z shares
are subject to any sales or redemption charge. Class Z shares are offered
exclusively for sale to a limited group of investors. Each series has authorized
an unlimited number of shares of beneficial interest at $.01 par value.

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

B-50
<PAGE>

Notes to Financial Statements PRUDENTIAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
Transactions in shares of beneficial interest for the Money Market Series for
the fiscal years ended November 30, 1999 and 1998 were as follows:

<TABLE>
<CAPTION>
Year Ended November 30,
---------------------------------
1999 1998
--------------- ---------------
Class A

- -------------------------------
<S> <C> <C>
Shares sold.................... 1,712,722,383 2,221,883,796
Shares issued in reinvestment
of dividends and
distributions................ 24,187,413 26,646,608
Shares reacquired.............. (1,750,045,596) (2,249,954,294)
--------------- ---------------
Net decrease in shares
outstanding.................. (13,135,800) (1,423,890)
--------------- ---------------
--------------- ---------------
<CAPTION>
Class Z

- -------------------------------
Shares sold.................... 32,872,164 45,120,273
Shares issued in reinvestment
of dividends and
distributions................ 1,421,142 907,962
Shares reacquired.............. (19,648,063) (19,708,936)
--------------- ---------------
Net increase in shares
outstanding.................. 14,645,243 26,319,299
--------------- ---------------
--------------- ---------------
</TABLE>

Transactions in shares of beneficial interest for the Short-Intermediate Term
Series for the fiscal years ended November 30, 1999 and November 30, 1998 were
as follows:

<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------------- ---------- ------------
<S> <C> <C>
Year Ended November 30, 1999:
Shares sold.......................... 1,586,933 $ 15,183,562
Shares issued in reinvestment of
dividends and distributions........ 500,676 4,786,911
Shares reacquired.................... (3,863,436) (36,892,313)
---------- ------------
Net decrease in shares outstanding... (1,775,827) $(16,921,840)
---------- ------------
---------- ------------
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 Z Shares Amount
- ------------------------------------- ---------- ------------
<S> <C> <C>
Year ended November 30, 1999:
Shares sold.......................... 1,423,368 $ 13,806,158
Shares issued in reinvestment of
dividends and distributions........ 47,015 450,600
Shares reacquired.................... (1,058,235) (10,176,988)
---------- ------------
Net increase in shares outstanding... 412,148 $ 4,079,770
---------- ------------
---------- ------------
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
---------- ------------
---------- ------------
</TABLE>

Transactions in shares of beneficial interest for the U.S. Treasury Money Market
Series for the fiscal years ended November 30, 1999 and 1998 were as follows:

<TABLE>
<CAPTION>
Year Ended November 30,
---------------------------------
1999 1998
--------------- ---------------
Class A

- -------------------------------
<S> <C> <C>
Shares sold.................... 3,013,485,594 4,398,749,349
Shares issued in reinvestment
of dividends and
distributions................ 13,826,283 17,472,545
Shares reacquired.............. (3,042,655,971) (4,512,021,356)
--------------- ---------------
Net decrease in shares
outstanding.................. (15,344,094) (95,799,462)
--------------- ---------------
--------------- ---------------
<CAPTION>
Class Z

- -------------------------------
Shares sold.................... 3,015,070 --
Shares issued in reinvestment
of dividends and
distributions................ 76,204 6
Shares reacquired.............. (1,078,069) --
--------------- ---------------
Net increase in shares
outstanding.................. 2,013,205 6
--------------- ---------------
--------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------

B-51
<PAGE>

PRUDENTIAL GOVERNMENT SECURITIES TRUST
Financial Highlights MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class Z
------------------------------------------------------------ -------------------------------
Year Ended November 30, Year Ended November 30,
------------------------------------------------------------ -------------------------------
1999 1998 1997 1996 1995 1999 1998 1997
-------- -------- -------- -------- -------- -------- ------- ------
<S> <C> <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 $1.000
Net investment
income............... 0.042 0.048 0.048 0.046 0.052 0.044 0.049 0.048
Dividends and
distributions........ (0.042) (0.048) (0.048) (0.046) (0.052) (0.044) (0.049) (0.048)
-------- -------- -------- -------- -------- -------- ------- ------
Net asset value, end of
period............... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $1.000
-------- -------- -------- -------- -------- -------- ------- ------
-------- -------- -------- -------- -------- -------- ------- ------
TOTAL RETURN(a)........ 4.31% 4.87% 4.87% 4.74% 5.20% 4.44% 5.00% 5.03%
RATIOS/SUPPLEMENTAL
DATA:

Net assets, end of
period (000)......... $576,868 $590,004 $591,428 $552,123 $598,194 $ 41,546 $26,901 $ 581
Average net assets
(000)................ $594,266 $589,649 $586,513 $589,147 $597,599 $ 32,984 $19,236 $ 672
Ratios to average net
assets:
Expenses, including
distribution
fees............. 0.90% 0.80% 0.77% 0.86% 0.78% 0.77% 0.67% 0.65%
Expenses, excluding
distribution
fees............. 0.77% 0.67% 0.65% 0.73% 0.65% 0.77% 0.67% 0.65%
Net investment
income........... 4.23% 4.77% 4.77% 4.63% 5.15% 4.38% 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 and
distributions........ (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 returns for periods of less than one
full year are 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 SHORT-INTERMEDIATE TERM SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class Z
------------------------------------------------------------ -----------------------
Year Ended November 30, Year Ended November 30,
------------------------------------------------------------ -----------------------
1999 1998 1997 1996 1995 1999 1998
-------- -------- -------- -------- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period..................... $ 9.77 $ 9.74 $ 9.70 $ 9.74 $ 9.17 $ 9.81 $ 9.77
-------- -------- -------- -------- -------- ------ -----
Income from investment
operations:

Net investment income........ 0.47 0.51 0.56 0.51 0.56 0.51 0.47
Net realized and unrealized
gain (loss) on investment
transactions............... (0.35) 0.06 -- (0.01) 0.55 (0.37) 0.13
-------- -------- -------- -------- -------- ------ -----
Total from investment
operations............. 0.12 0.57 0.56 0.50 1.11 0.14 0.60
-------- -------- -------- -------- -------- ------ -----
Less distributions:
Dividends from net investment
income..................... (0.48) (0.54) (0.52) (0.54) (0.54) (0.50) (0.56)
-------- -------- -------- -------- -------- ------ -----
Net asset value, end of
period..................... $ 9.41 $ 9.77 $ 9.74 $ 9.70 $ 9.74 $ 9.45 $ 9.81
-------- -------- -------- -------- -------- ------ -----
-------- -------- -------- -------- -------- ------ -----
TOTAL RETURN(a).............. 1.26% 6.01% 5.96% 5.34% 12.37% 1.46% 6.31%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)...................... $127,298 $149,508 $149,162 $185,235 $212,996 $8,360 $4,635
Average net assets (000)..... $138,847 $155,680 $166,651 $186,567 $209,521 $8,798 $3,631
Ratios to average net assets:
Expenses, including
distribution fees...... 0.92% 0.96% 0.97% 1.01% 0.95% 0.73% 0.78%
Expenses, excluding
distribution fees...... 0.73% 0.78% 0.77% 0.79% 0.75% 0.73% 0.78%
Net investment income..... 4.90% 5.26% 5.76% 5.99% 5.82% 5.09% 5.36%
Portfolio turnover rate...... 304% 155% 210% 132% 217% 304% 155%

February 26,
1997(b)

Through
November 30,
1997

-----
<S> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period..................... $ 9.64
-----
Income from investment
operations:

Net investment income........ 0.47
Net realized and unrealized
gain (loss) on investment
transactions............... 0.07
-----
Total from investment
operations............. 0.54
-----
Less distributions:
Dividends from net investment
income..................... (0.41)
-----
Net asset value, end of
period..................... $ 9.77
-----
-----
TOTAL RETURN(a).............. 5.70%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)...................... $ 207(c)
Average net assets (000)..... $ 202(c)
Ratios to average net assets:
Expenses, including
distribution fees...... 0.77%(d)
Expenses, excluding
distribution fees...... 0.77%(d)
Net investment income..... 6.52%(d)
Portfolio turnover rate...... 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 returns for periods of less than one
full year are 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>

PRUDENTIAL GOVERNMENT SECURITIES TRUST
Financial Highlights U.S. TREASURY MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class Z
------------------------------------------------------------ -------------------------
Year Ended November 30, Year Ended November 30,
------------------------------------------------------------ -------------------------
1999 1998 1997 1996 1995 1999 1998
-------- -------- -------- -------- -------- -------- -----
<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........ 0.041 0.046 0.047 0.046 0.050 0.043 0.049
Dividends and
distributions.............. (0.041) (0.046) (0.047) (0.046) (0.050) (0.043) (0.049)
-------- -------- -------- -------- -------- -------- -----
Net asset value, end of
period..................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $1.000
-------- -------- -------- -------- -------- -------- -----
-------- -------- -------- -------- -------- -------- -----
TOTAL RETURN(a).............. 4.19% 4.66% 4.80% 4.75% 5.08% 4.37% 5.05%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)...................... $321,641 $336,985 $432,784 $305,330 $339,334 $ 2,013 $ 211(c)
Average net assets (000)..... $383,772 $420,140 $402,634 $393,060 $345,369 $ 1,942 $ 209(c)
Ratios to average net assets:
Expenses, including
distribution fees...... 0.63% 0.63% 0.65% 0.63% 0.62% 0.51% 0.51%
Expenses, excluding
distribution fees...... 0.51% 0.51% 0.52% 0.51% 0.50% 0.51% 0.51%
Net investment income..... 4.08% 4.57% 4.66% 4.57% 5.01% 4.19% 4.91%

<CAPTION>
February 21,
1997(b)

Through
November 30,
1997

-----
<S> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period..................... $1.000
Net investment income........ 0.039
Dividends and
distributions.............. (0.039)
-----
Net asset value, end of
period..................... $1.000
-----
-----
TOTAL RETURN(a).............. 3.96%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)...................... $ 205(c)
Average net assets (000)..... $ 197(c)
Ratios to average net assets:
Expenses, including
distribution fees...... 0.52%(d)
Expenses, excluding
distribution fees...... 0.52%(d)
Net investment income..... 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 returns for periods of less than one
full year are 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-54
<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, 1999, 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, 1999 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 17, 2000
- --------------------------------------------------------------------------------

B-55
<PAGE>

Important Notice for Certain Shareholders
(Unaudited) PRUDENTIAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------

We are required by New York, California, Massachusetts, Missouri and Oregon to
inform you that dividends which have been derived from interest on federal
obligations are not taxable to shareholders providing the mutual fund meets
certain requirements mandated by the respective states' taxing authorities. We
are pleased to report that 54.16% of the dividends paid by the Money Market
Series*, 33.44% of the dividends paid by the Short-Intermediate Term Series* and
100% of the dividends paid by the U.S. Treasury Money Market Series qualify for
such deduction.

Shortly after the close of the calendar year ended December 31, 1999, you will
be advised as to the federal tax status of the dividends you received in
calendar 1999.

For more detailed information regarding your state and local taxes, you should
contact your tax adviser or the state/local taxing authorities.

* Due to certain minimum portfolio holding requirements in California,
Connecticut and New York, residents of those states will not be able to exclude
interest on federal obligations from state and local tax.

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

B-56
<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

CHART

Source: Ibbotson Associates. Used with permission. All rights reserved.
This chart is for illustrative purposes only and is not indicative of the past,
present, or future performance of any asset class or any Prudential Mutual Fund.

IMPACT OF INFLATION. The "real" rate of investment return is that which
exceeds the rate of inflation, the percentage change in the value of consumer
goods and the general cost of living. A common goal of long-term investors is to
outpace the erosive impact of inflation on investment returns.

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).

II-1

<PAGE>

Set forth below is historical performance data relating to various sectors
of the fixed-income securities markets. The chart shows the historical total
returns of U.S. Treasury bonds, U.S. mortgage securities, U.S. corporate bonds,
U.S. high yield corporate bonds and world government bonds on an annual basis
from 1988 through 1999. The total returns of the indices include accrued
interest, plus the price changes (gains or losses) of the underlying securities
during the period mentioned. The data is provided to illustrate the varying
historical total returns and investors should not consider this performance data
as an indication of the future performance of the Trust or of any sector in
which the Trust 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

CHART

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

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.
Source: Lipper Inc.

4 Lehman Brothers High Yield Bond Index is an unmanaged index comprising over
750 public, fixed-rate, nonconvertible bonds that are rated Ba1 or lower by
Moody's Investors Service (or rated BB+ or lower by Standard & Poor's or
Fitch Investors Service). All bonds in the index have maturities of at least
one year.

5 Salomon Smith Barney World Government Index (Non U.S.) includes 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 1999. It does not represent the performance of any
Prudential Mutual Fund.

CHART

Source: Morgan Stanley Capital International (MSCI). Used with permission.
Morgan Stanley Country indexes are unmanaged indexes which include those stocks
making up the largest two-thirds of each country's total stock market
capitalization. Returns reflect the reinvestment of all distributions. This
chart is for illustrative purposes only and is not indicative of the past,
present or future performance of any specific investment. Investors cannot
invest directly in stock indexes.

This chart shows the growth of a hypothetical $10,000 investment made in
the stocks representing the S&P 500 Stock Index with and without reinvested
dividends.

CHART

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

Source: Lipper Inc. Used with permission. All rights reserved. This chart
is 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 composite Stock Price Index,
a market-value-weighted index made up of 500 of the largest stocks in the U.S.
based upon their stock market value. Investors cannot invest directly in
indexes.

II-3

<PAGE>

CHART

Source: Morgan Stanley Capital International, December 1999. Used with
permission. This chart represents the capitalization of major world stock
markets as measured by the Morgan Stanley Capital International (MSCI) World
Index. The total market capitalization is based on the value of 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 1926-1999. Yields represent that of an annually renewed one-bond portfolio
with a remaining maturity of approximately 20 years. This chart is for
illustrative purposes and should not be constnued to represent the yields of any
Prudential Mutual Fund.

II-4

<PAGE>

PART C
OTHER INFORMATION

ITEM 23. EXHIBITS.

(a) (1) Declaration of Trust as amended and restated on September 6, 1988 of
the Registrant. Incorporated by reference to Exhibit 1(a) to
Post-Effective Amendment No. 27 to the Registration Statement filed on
Form N-1A via EDGAR on February 2, 1998 (File No. 2-74139).
(2) Amendment to Declaration of Trust, dated March 1, 1991. Incorporated by
reference to Exhibit 1(b) to Post-Effective Amendment No. 27 to the
Registration Statement filed on Form N-1A via EDGAR on February 2, 1998
(File No. 2-74139).
(3) Amended Certificate of Designation dated July 27, 1995. Incorporated by
reference to Exhibit No. 1(c) to Post-Effective Amendment No. 25 to the
Registration Statement filed on Form N-1A via EDGAR on January 25, 1996
(File No. 2-74139).
(4) Amended Certificate of Designation dated January 22, 1996. Incorporated
by reference to Exhibit No. 1(d) to Post-Effective Amendment No. 25 to
the Registration Statement filed on Form N-1A via EDGAR on January 25,
1996 (File No. 2-74139).
(5) Form of Amended Certificate of Designation dated February 21, 1997.
Incorporated by reference to Exhibit No. 1(e) to Post-Effective
Amendment No. 26 to the Registration Statement filed on Form N-1A via
EDGAR on February 4, 1997. (File No. 2-74139).

(b) (1) By-Laws of the Registrant. Incorporated by reference to Exhibit 2 to
Post-Effective Amendment No. 27 to the Registration Statement filed on
Form N-1A via EDGAR on February 2, 1998 (File No. 2-74139).
(2) Amendment to By-Laws of the Registrant.*

(c) (1) Specimen certificate for shares of beneficial interest issued by the
Registrant. Incorporated by reference to Exhibit No. (c)(1) to
Post-Effective Amendment No. 29 to the Registration Statement filed on
Form N-1A via EDGAR on , 1999 (File No. 2-74139).
(2) Specimen certificate for shares of beneficial interest issued by the
Registrant's U.S. Treasury Money Market Series. Incorporated by
reference to Exhibit No. (c) (2) to Post-Effective Amendment No. 29 to
the Registration Statement filed on Form N-1A via EDGAR on March 25,
1999 (File No. 2-74139).

(3) Instruments defining rights of holders of the securities being offered.
Incorporated by reference to Exhibit 4(c) to Post-Effective Amendment
No. 19 to the Registration Statement filed on Form N-1A via EDGAR on
January 27, 1994 (File No. 2-74139).

(d) (1) Management Agreement dated August 9, 1988, as amended on November 19,
1993, between the Registrant and Prudential Mutual Fund Management,
Inc. Incorporated by reference to Exhibit 5(a) to Post-Effective
Amendment No. 19 to the Registration Statement filed on Form N-1A via
EDGAR on January 27, 1994 (File No. 2-74139).

(2) Subadvisory Agreement dated August 9, 1988, between Prudential Mutual
Fund Management, Inc. and The Prudential Investment Corporation
Incorporated by reference to Exhibit 5(b) to Post-Effective Amendment
No. 27 to the Registration Statement filed on Form N-1A via EDGAR on
February 2, 1998. (File No. 2-74139).

(3) Amendment to Subadvisory Agreement dated November 18, 1999, between
Prudential Investments Fund Management LLC and The Prudential
Investment Corporation.*

(e) (1) Distribution Agreement with Prudential Investment Management Services
LLC. Incorporated by reference to Exhibit (e)(i) to Post-Effective
Amendment No. 28 to the Registration Statement filed on Form N-1A via
EDGAR on January 28, 1999.
(2) Dealer Agreement. Incorporated by reference to Exhibit (e)(2) to
Post-Effective Amendment No. 28 to the Registration Statement filed on
Form N-1A via EDGAR on January 28, 1999.

(g) (1) Custodian Agreement between the Registrant and State Street Bank and
Trust Company. Incorporated by reference to Exhibit 8 to Post-Effective
Amendment No. 27 to the Registration Statement filed on Form N-1A via
EDGAR on February 2, 1998. (File No. 2-74139)
(2) Amendment to Custodian Agreement dated February 22, 1999 by and between
the Registrant and State Street Bank and Trust Company.*

(h) (1) Transfer Agency Agreement between the Registrant an Prudential Mutual
Fund Services, Inc. Incorporated by reference to Exhibit 9 to
Post-Effective Amendment No. 27 to the Registration Statement filed on
Form N-1A via EDGAR on February 2, 1998. (File No. 2-74139)

(2) Amendment to Transfer Agency and Service Agreement dated August 24,
1999 by and between the Registrant and Prudential Mutual Fund Services
LLC (successor to Prudential Mutual Fund Services, Inc.)*

(i) Opinion of Sullivan & Worcester. Incorporated by reference to Exhibit
No.(1) to Post-Effective Amendment No. 29 to the Registration Statement
filed on Form N-1A via EDGAR on March 25, 1999 (File No. 2-74139).
(j) (1) Consent of Independent Accountants.*
(2) Consent of Sullivan and Worcester.*

C-1

<PAGE>

(m) (1) Distribution and Service Plan for Class A Shares, dated December
20, 1990, as amended and restated on July 1, 1993 and August 1, 1995
(Money Market Series and U.S. Treasury Money Market Series).*
(2) Distribution and Service Plan for Class A Shares, dated July 26, 1995,
as amended and restated on July 1, 1993 and August 1, 1995
(Short-Intermediate Term Series).*
(n) (1) Rule 18f-3 Plan for Money Market Series. Incorporated by reference to
Exhibit 18 to Post Effective Amendment No. 25 to the Registration
Statement filed on Form N-1A via EDGAR on January 25, 1996.
(2) Rule 18f-3 Plan for Money Market Series, U.S. Treasury Money Market
Series and Short-Intermediate Term Series. Incorporated by reference to
Exhibit No. 18(b) to Post-Effective Amendment No. 26 to Registration
Statement filed on Form N-1A via EDGAR on February 4, 1997 (File No.
2-74139)

- -------
* Filed herewith.

ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

No person is controlled by or under common control with the Registrant.

ITEM 25. INDEMNIFICATION.

As permitted by Section 17(h) and (i) of the Investment Company Act of
1940, as amended, (the "Investment Company Act") and pursuant to Article V of
the Fund's Declaration of Trust with respect to trustees and officers and
Article VII of the Fund's By-Laws (Exhibit 2 to the Registration Statement),
trustees, officers, employees and agents of the Trust may be indemnified against
certain liabilities in connection with the Trust, and pursuant to Section 9 of
the Distribution Agreements (Exhibits 6(e) and 6(f) to the Registration
Statement), Prudential Securities Incorporated and Prudential Mutual Fund
Distributors, Inc., as distributors of the Trust, may be indemnified against
certain liabilities which they may incur. Such Article V of the Declaration of
Trust, Article VII of the By-Laws, as amended and Section 9 of the Distribution
Agreements are hereby incorporated by reference in their entirety. The Trust has
purchased an insurance policy insuring its officers and trustees against certain
liabilities, and certain costs of defending claims against such officers and
trustees, to the extent such officers and trustees are not found to have
committed conduct constituting willful misfeasance, bad faith, gross negligence
or reckless disregard in the performance of their duties. The insurance policy
also insures the Trust against the cost of indemnification payments to officers
and trustees under certain circumstances.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to trustees, officers and controlling
persons of the Registrant and the principal underwriter pursuant to the
foregoing provisions or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a trustee,
officer, or controlling person of the Registrant and the principal underwriter
in connection with the successful defense of any action, suit or proceeding) is
asserted against the Registrant by such trustee, officer or controlling person
or the principal underwriter in connection with the shares being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.

The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws in a manner consistent with Release No. 11330 of the
Securities and Exchange Commission under the Investment Company Act so long as
the interpretations of Sections 17(h) and 17(i) of such Act remain in effect and
are consistently applied.

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

(a) Prudential Investments Fund Management LLC (PIFM)

See "How the Series Is Managed" in the Prospectus constituting Part A of
this Registration Statement and "Management of the Trust" in the Statement of
Additional Information constituting Part B of this Registration Statement.

The business and other connections of the officers of PIFM are listed in
Schedules A and D of Form ADV of PMF as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104).

The business and other connections of PIFM's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is Gateway Center Three, Newark, NJ 07102.

<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIFM PRINCIPAL OCCUPATIONS
- ----------------------- ------------------------------- --------------------------------------------------------------------------
<S> <C> <C>
David R. Odenath, Jr. Officer in Charge, President, Officer in Charge, President, Chief Executive Officer and Chief Operating
Chief Executive Officer and Officer, PIFM; Senior Vice President, The Prudential Insurance
Chief Operating Officer Company of America (Prudential)
</TABLE>

C-2

<PAGE>

<TABLE>
<CAPTION>
<S> <C> <C>
Executive Vice President and Executive Vice President and Chief Administrative Officer, PIFM; Vice
Robert F. Gunia Chief Administrative Officer President, Prudential; President, Prudential Investment Management
Services LLC (PIMS)
William V. Healey Executive Vice President, Executive Vice President, Chief Legal Officer and Secretary, PIFM; Vice
Chief Legal Officer and President and Associate General Counsel, Prudential; Senior Vice
Secretary President, Chief Legal Officer and Secretary, PIMS
Brian W. Henderson Executive Vice President Executive Vice President, PIFM; Senior Vice President and Chief
Operating Officer, PIMS
Stephen Pelletier Executive Vice President Executive Vice President, PIFM
Judy A. Rice Executive Vice President Executive Vice President, PIFM
Lynn M. Waldvogel Executive Vice President Executive Vice President, PIFM
</TABLE>

(b) The Prudential Investment Corporation (PIC).

See "How the Series is Managed-Investment Adviser" in the Prospectus
constituting Part A of the Regtistration Statement and "Investment Advisory and
Other Services" in the Statement of Additional Information constituting Part B
of this Reistration Statement.

The business and other connections of PIC's directors and
executiveofficers are as set forth below. Except as otherwise indicated, the
address of each person is Gateway Center Three, Newark, NJ 07102.

<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATIONS
- ------------------------- ---------------------------- -----------------------------------------------------------------------
<S> <C> <C>
Jeffrey Hiller Chief Compliance Officer Chief Compliance Officer, Prudential Global Asset Management
John R. Strangfeld, Jr. Chairman of the Board, President of Prudential Global Asset Management Group of Prudential;
President, Chief Executive Senior Vice President, Prudential; Chairman of the Board, President,
Officer and Director Chief Executive Officer and Director, PIC
Bernard Winograd Senior Vice President and Chief Executive Officer, Prudential Real Estate Investors; Senior Vice
Director President and Director, PIC
</TABLE>

ITEM 27. PRINCIPAL UNDERWRITERS

(a) Prudential Investment Management Services LLC (PIMS)

PIMS is distributor for Cash Accumulation Trust, Command Money Fund,
Command Government Fund, Command Tax-Free Fund, Global Utility Fund, Inc.,
Nicholas-Applegate Fund, Inc. (Nicholas-Applegate Growth Equity Fund),
Prudential Balanced Fund, Prudential California Municipal Fund, Prudential
Diversified Bond Fund, Inc., Prudential Distressed Securities Fund, Inc.,
Prudential Diversified Funds, Prudential Emerging Growth Fund, Inc., Prudential
Equity Fund, Inc., Prudential Equity Income Fund, Prudential Europe Growth Fund,
Inc., Prudential Global Genesis Fund, Inc., Prudential Global Total Return Fund,
Inc., Prudential Government Income Fund, Inc., Prudential Government Securities
Trust, Prudential High Yield Fund, Inc., Prudential High Yield Total Return
Fund, Inc., Prudential Index Series Fund, Prudential Institutional Liquidity
Portfolio, Inc., Prudential International Bond Fund, Inc., Prudential Mid-Cap
Value Fund, Prudential Money Mart Assets, Inc., Prudential Municipal Bond Fund,
Prudential Municipal Series Fund, Prudential National Municipals Fund, Inc.,
Prudential Natural Resources Fund, Inc., Prudential Pacific Growth Fund, Inc.,
Prudential Real Estate Securities Fund, Prudential Sector Funds, Inc.,
Prudential Small-Cap Quantum Fund, Inc., Prudential Small Company Value Fund,
Inc., Prudential Special Money Market Fund, Inc., Prudential Structured Maturity
Fund, Inc., Prudential 20/20 Focus Fund, Prudential Tax-Free Money Fund, Inc.,
Prudential Tax-Managed Funds, Prudential World Fund, Inc., The Prudential
Investment Portfolios, Inc., Target Funds, and The Target Portfolio Trust.

(b) Information concerning the officers and directors of PIMS is set forth
below:

<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME(1) UNDERWRITER REGISTRANT
- ----------------------- ---------------------------------------------- ----------------------------
<S> <C> <C>
Margaret Deverell Vice President and Chief Financial Officer None
Robert F. Gunia President Vice President and Director
Kevin Frawley Senior Vice President and Compliance Officer None
213 Washington Street
Newark, NJ 07102
</TABLE>

C-3

<PAGE>

Brian W. Henderson Senior Vice President and Officer None

John R. Strangfeld, Jr. Advisory Board Member President and Director
</TABLE>

(1) The address of each person named is Prudential Plaza, 751 Broad
Street, Newark, New Jersey 07102 unless otherwise indicated.

ITEM 28. LOCATION OF ACCOUNTS AND RECORDS

All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules thereunder are maintained at the
offices of State Street Bank and Trust Company, One Heritage Drive, North
Quincy, Massachusetts 02171, The Prudential Investment Corporation, Prudential
Plaza, 751 Broad Street, Newark, New Jersey 07102, the Registrant, Gateway
Center Three, Newark, New Jersey 07102, and Prudential Mutual Fund Services LLC,
Raritan Plaza One, Edison, New Jersey 08837. Documents required by Rules
31a-1(b)(5), (6), (7), (9), (10) and (11) and 31a-1(f) will be kept at Gateway
Center Three, documents required by Rules 31a-1(b)(4) and (11) and 31a-1(d) at
Gateway Center Three and the remaining accounts, books and other documents
required by such other pertinent provisions of Section 31(a) and the Rules
promulgated thereunder will be kept by State Street Bank and Trust Company and
Prudential Mutual Fund Services LLC.

ITEM 29. MANAGEMENT SERVICES

Other than as set forth under the captions "How the Series Is
Managed-Manager" and "How the Series Is Managed-Distributor" in the Prospectus
and "Investment Advisory and Other Services-Manager and Investment Adviser" and
"-Principal Underwriter, Distributor and Rule 12b-1 Plans" in the Statement of
Additional Information, constituting Parts A and B, respectively, of this
Registration Statement, Registrant is not a party to any management-related
service contract.

ITEM 30. UNDERTAKINGS

The Registrant hereby undertakes to furnish each person to whom a
Prospectus is delivered with a copy of Registrant's latest annual report to
shareholders upon request and without charge.

C-4

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended,
(the "1933 Act") and the Investment Company Act of 1940, as amended, the
Registrant has duly caused this Post-Effective Amendment to the Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Post-Effective Amendment to the Registration Statement to be signed
on its behalf by the undersigned thereunto duly authorized in the City of
Newark, and State of New Jersey, on the 2nd day of February, 2000.

PRUDENTIAL GOVERNMENT SECURITIES TRUST

By /s/ John R. Strangfeld, Jr.
----------------------------------
JOHN R. STRANGFELD, JR., PRESIDENT

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------- ------------------------- -----------------
<S> <C> <C>
/s/ Eugene C. Dorsey Trustee February 2, 2000
- ------------------------------
EUGENE C. DORSEY

/s/ Delayne Dedrick Gold Trustee February 2, 2000
- ------------------------------
DELAYNE DEDRICK GOLD

/s/ Robert F. Gunia Trustee February 2, 2000
- ------------------------------
ROBERT F. GUNIA

/s/ Thomas T. Mooney Trustee February 2, 2000
- ------------------------------
THOMAS T. MOONEY

/s/ Stephen R. Munn Trustee February 2, 2000
- ------------------------------
STEPHEN R. MUNN

/s/ David R. Odenath, Jr. Trustee February 2, 2000
- ------------------------------
DAVID R. ODENATH, JR.

/s/ Richard A. Redeker Trustee February 2, 2000
- ------------------------------
RICHARD A. REDEKER

/s/ John R. Strangfeld, Jr. President and Trustee February 2, 2000
- ------------------------------
JOHN R. STRANGFELD, JR.

/s/ Nancy Hays Teeters Trustee February 2, 2000
- ------------------------------
NANCY HAYS TEETERS

/s/ Louis A. Weil, III Trustee February 2, 2000
- ------------------------------
LOUIS A. WEIL, III

/s/ Grace C. Torres Principal Financial and February 2, 2000
- ------------------------------ Accounting Officer

GRACE C. TORRES
</TABLE>

C-5

<PAGE>

EXHIBIT INDEX

(b) (2) Amendment to By-Laws of the Registrant.
(d) (3) Amendment to Subadvisory Agreement dated November 18, 1999, between
Prudential Investments Fund Management LLC and The Prudential Investment
Corporation.
(g) (2) Amendment to Custodian Agreement dated February 22, 1999 by and
between the Registrant and State Street Bank and Trust Company.
(h) (2) Amendment to Transfer Agency and Service Agreement dated August 24,
1999 by and between the Registrant and Prudential Mutual Fund Services
LLC (successor to Prudential Mutual Fund Services, Inc.)
(j) (1) Consent of Independent Accountants.
(j) (2) Consent of Sullivan and Worcester.

(m) (1) Distribution and Service Plan for Class A Shares, dated December 20,
1990, as amended and restated on July 1, 1993 and August 1, 1995. (Money
Market Series and U.S. Treasury Money Market Series).

(2) Distribution and Service Plan for Class A Shares, dated July 26,
1995, as amended and restated on July 1, 1993 and August 1, 1995
(Short-Intermediate Term Series).

C-6

Exhibit 23(b)(2)

The first paragraph of Article 1, Section 6 of the By-Laws of the Trust
is hereby replaced as follows:

Section 6. VOTING AND INSPECTORS. At all meetings, holders of record
entitled to vote thereat shall have one vote for each Share standing in his/her
name on the books of the Trust (and such holders of record holding fractional
shares, if any, shall have proportionate voting rights) on the date for the
determination of holders entitled to vote at such meeting, either in person on
by proxy. A holder may sign a writing authorizing another person to act as
proxy. Signing may be accomplished by the holder or the holder's authorized
agent signing the writing or causing the holder's signature to be affixed to the
writing by any reasonable means, including facsimilie signature. A holder may
authorize another person to act as proxy by transmitting, or authorizing the
transmission of, a telegram, cablegram, datagram, or other means of electronic
transmission to the person authorized to act as proxy or to a proxy solicitation
firm, proxy support service organization, or other person authorized by the
person who will act as proxy to receive the transmission.

AMENDMENT TO SUBADVISORY AGREEMENT

Prudential Government Securities Trust

AMENDMENT made as of this 18 th day of November, 1999, between Prudential
Investments Fund Management LLC ("PIFM"), and The Prudential Investment
Corporation ("PIC").

WHEREAS, PIFM, either itself or as successor to Prudential Investments
Fund Management, Inc., and PIC have entered into a Subadvisory Agreement (the
"Agreement") dated August 9th , 1988, with respect to the management of
Prudential Government Securities Trust (the "Fund"); and

WHEREAS, the Agreement provides that PIC shall provide investment advisory
services to the Fund, subject to oversight by PIFM; and

WHEREAS, PIFM and PIC desire to amend the Agreement with respect to the
compensation to be paid by PIFM to PIC for services provided by PIC pursuant to
the Agreement.

NOW, THEREFORE, for and in consideration of the continuation of the
Agreement for its current term, and other good and valuable consideration, PIFM
and PIC hereby amend the Agreement to provide for the compensation to be paid by
PIFM to PIC as described on the attached schedule, effective as of January 1,
2000, for the same term, including renewals, as the Agreement and upon the same
terms and conditions as described in the Agreement.

IN WITNESS WHEREOF, PIMS and PIC have signed this Amendment as of the day
and year first above written.

PRUDENTIAL INVESTMENTS THE PRUDENTIAL INVESTMENT
FUND MANAGEMENT LLC CORPORATION

By: /s/Robert F. Gunia By: /s/John R. Strangfeld, Jr.
------------------- --------------------------

Name: Robert F. Gunia Name: John R. Strangfeld, Jr.
--------------- -----------------------

Title: Executive Vice President Title: Chairman of the Board,
and Chief Administrative President, Chief Executive
Officer Officer and Director
<PAGE>

FUND NAME CONTRACTUAL COMPENSATION
MGMT FEE TO PGAM
<S> <C> <C>
EQUITY FUNDS
Prudential 20/20 Focus Fund*................................................. 0.75% 0.375%
Prudential Balanced Fund..................................................... 0.65% 0.325%
Prudential Developing Markets Fund -Developing Markets Equity Fund........... 1.25% 0.625%
Prudential Developing Markets Fund -Latin America Equity Fund................ 1.25% 0.625%
Prudential Diversified Conservative Growth Fund*............................. 0.75% 0.375%
Prudential Diversified Moderate Growth Fund*................................. 0.75% 0.375%
Prudential Diversified High Growth Fund*..................................... 0.75% 0.375%
Prudential Distressed Securities Fund, Inc. ................................. 0.75% 0.375%
Prudential Emerging Growth Fund, Inc. ....................................... 0.60% 0.300%
Prudential Equity Fund, Inc. ................................................ .50% to $500 mil 0.250%
.475% next $500 mil 0.226%
.45% over 1 bil 0.203%
Prudential Equity Income Fund................................................ .60% to $500 mil 0.300%
.50% next $500 mil 0.238%
.475% next $500 mil 0.214%
.45% over 1.5 bil 0.191%
Prudential Bond Market Index Fund............................................ 0.25% 0.125%
Prudential Europe Index Fund................................................. 0.40% 0.200%
Prudential Pacific Index Fund................................................ 0.40% 0.200%
Prudential Small Cap Index Fund.............................................. 0.30% 0.195%
Prudential Stock Index Fund.................................................. 0.30% 0.150%
Prudential Active Balanced Fund.............................................. 0.65% 0.325%
Prudential Mid-Cap Value Fund................................................ 0.70% 0.350%
Prudential Natural Resources Fund............................................ 0.75% 0.375%
Prudential Real Estate Securities Fund....................................... 0.75% .45% to $250 mil
.40% next $250 mil
.35% next $250 mil
.30% over $750 mil
Prudential Financial Services Fund........................................... 0.75% 0.375%
Prudential Health Sciences Fund*............................................. 0.75% 0.375%
Prudential Technology Fund................................................... 0.75% 0.375%
Prudential Utility Fund...................................................... .60% to $250 mil 0.300%
.50% next $500 mil 0.238%
.45% next $750 mil 0.203%
.40% next $500 mil 0.170%
.35% next $2 bil 0.140%
.325% next $2 bil 0.122%
.30% over $6 bil 0.105%
Prudential Small-Cap Quantum Fund, Inc. ..................................... 0.60% 0.390%
Prudential Small Company Value Fund, Inc. ................................... 0.70% 0.455%
Prudential Tax-Managed Equity Fund........................................... 0.65% 0.325%
Prudential World Fund, Inc., Global Series................................... 0.75% 0.375%
Prudential Europe Growth Fund................................................ 0.75% 0.375%
Prudential Global Genesis Fund............................................... 1.00% 0.500%
Prudential Pacific Growth Fund............................................... 0.75% 0.375%
TAXABLE FIXED INCOME FUNDS
Prudential Diversified Bond Fund, Inc. ...................................... 0.50% 0.250%
Prudential Global Limited Maturity Fund, Inc. ............................... 0.55% 0.275%
Prudential Government Income Fund, Inc. ..................................... .50% to $3 bil 0.250%
.35% over $3 bil 0.166%
Prudential Government Securities Trust Short Intermediate Term Series........ 0.40% 0.200%

</TABLE>

*Compensation to PGAM based on Prudential advised assets only.

FUND NAME CONTRACTUAL COMPENSATION
MGMT FEE TO PGAM
<S> <C> <C>
The High Yield Income Fund, Inc. ............................................ 0.70% 0.350%
Prudential High Yield Fund, Inc. ............................................ .50% to $250 mil 0.250%
.475% next $500 mil 0.226%
.45% next $750 mil 0.203%
.425% next $500 mil 0.181%
.40% next $500 mil 0.160%
.375% next $500 mil 0.141%
.35% over $3 bil 0.123%
Prudential High Yield Total Return Fund, Inc. ............................... 0.65% 0.325%
Prudential Intermediate Global Income Fund, Inc. ............................ 0.75% 0.375%
Prudential International Bond Fund, Inc. .................................... .75% to 1 bil 0.375%
.70% over 1 bil 0.333%
Prudential Structured Maturity Fund, Inc. ................................... 0.40% 0.200%
Prudential Global Total Return Fund, Inc. ................................... .75% to $500 mil 0.375%
.70% next $500 mil 0.333%
.65% over $1 bil 0.293%
TAX-EXEMPT FIXED INCOME FUNDS

Prudential California Municipal Fund - California Series..................... 0.50% 0.250%
Prudential California Municipal Fund - California Income..................... 0.50% 0.250%
Prudential National Municipals Fund, Inc. ................................... .50% to $250 mil 0.250%
.475% next $250 mil 0.226%
.45% next $500 mil 0.203%
.425% next $250 mil 0.181%
.40% next $250 mil 0.160%
.375% over $1.5 bil 0.141%
Prudential Municipal Bond Fund - High Income Series.......................... .50% to 1 bil 0.250%
.45% over 1 bil 0.214%
Prudential Municipal Bond Fund - Insured Series.............................. .50% to 1 bil 0.250%
.45% over 1 bil 0.214%
Prudential Municipal Series Fund - Florida Series............................ 0.50% 0.250%
Prudential Municipal Series Fund - Massachusetts Series...................... 0.50% 0.250%
Prudential Municipal Series Fund - New Jersey Series......................... 0.50% 0.250%
Prudential Municipal Series Fund - New York Series........................... 0.50% 0.250%
Prudential Municipal Series Fund - North Carolina Series..................... 0.50% 0.250%
Prudential Municipal Series Fund - Ohio Series............................... 0.50% 0.250%
Prudential Municipal Series Fund - Pennsylvania Series....................... 0.50% 0.250%
MONEY MARKET FUNDS
Command Money Fund........................................................... .50% to $500 mil 0.250%
.425% next $500 mil 0.191%
.375% next $500 mil 0.150%
.35% over $1.5 bil 0.123%
Command Government Money Market Fund......................................... .40% to $1 bil 0.200%
.375% over $1 bil 0.169%
Command Tax-Free Fund........................................................ .50% to $500 mil 0.250%
.425% next $500 mil 0.191%
.375% over $1bil 0.150%
Prudential Government Securities Trust - Money Market Series................. .40% to $1 bil 0.200%
.375% next $500 mil 0.169%
.35% over $1.5 bil 0.140%
Prudential Government Securities Trust - U.S. Treasury Money Market Series... 0.40% 0.200%
Prudential Institutional Liquidity Portfolio, Inc. .......................... 0.20% 0.100%
Prudential Tax-Free Money Market Fund, Inc. ................................. .50% to $750 mil 0.250%
</TABLE>

<PAGE>

FUND NAME CONTRACTUAL COMPENSATION
MGMT FEE TO PGAM
<S> <C> <C>
.425% next $750 mil 0.191%
.375% over $1.5 bil 0.150%
Prudential California Municipal Fund - California Money Market Series........ 0.50% 0.250%
Prudential MoneyMart Assets, Inc. Fund....................................... .50% to $50 mil 0.250%
.30% over $50 mil 0.135%
Prudential Municipal Series Fund - Connecticut Money Market Series........... 0.50% 0.250%
Prudential Municipal Series Fund - Massachusetts Money Market Series......... 0.50% 0.250%
Prudential Municipal Series Fund - New Jersey Money Market Series............ 0.50% 0.250%
Prudential Municipal Series Fund - New York Money Market Series.............. 0.50% 0.250%
Prudential Special Money Fund - Money Market Series.......................... 0.50% 0.250%
Cash Accumulated Trust Fund: Liquid Assets.................................. 0.07% 0.035%
Cash Accumulated Trust Fund: National Money Market.......................... .39% to $1 bil 0.195%
.375% next $500 mil 0.169%
.35% next $500 mil 0.140%
.325% over $2 bil 0.114%
</TABLE>

<PAGE>

FUND NAME CONTRACTUAL COMPENSATION
MGMT FEE TO PGAM
<S> <C> <C>
Prudential Government Income Fund, Inc. ..................................... .50% to $3 bil 0.250%
.35% over $3 bil 0.166%
Prudential Government Securities Trust Short Intermediate Term Series........ 0.40% 0.200%
The High Yield Income Fund, Inc. ............................................ 0.70% 0.350%
Prudential High Yield Fund, Inc. ............................................ .50% to $250 mil 0.250%
.475% next $500 mil 0.226%
.45% next $750 mil 0.203%
.425% next $500 mil 0.181%
.40% next $500 mil 0.160%
.375% next $500 mil 0.141%
.35% over $3 bil 0.123%
Prudential High Yield Total Return Fund, Inc. ............................... 0.65% 0.325%
Prudential Intermediate Global Income Fund, Inc. ............................ 0.75% 0.375%
Prudential International Bond Fund, Inc. .................................... .75% to 1 bil 0.375%
.70% over 1 bil 0.333%
Prudential Structured Maturity Fund, Inc. ................................... 0.40% 0.200%
Prudential Global Total Return Fund, Inc. ................................... .75% to $500 mil 0.375%
.70% next $500 mil 0.333%
.65% over $1 bil 0.293%
TAX-EXEMPT FIXED INCOME FUNDS

<PAGE>

FUND NAME CONTRACTUAL COMPENSATION
MGMT FEE TO PGAM
<S> <C> <C>
Prudential Government Securities Trust - Money Market Series................. .40% to $1 bil 0.200%
.375% next $500 mil 0.169%
.35% over $1.5 bil 0.140%
Prudential Government Securities Trust - U.S. Treasury Money Market Series... 0.40% 0.200%
Prudential Institutional Liquidity Portfolio, Inc. .......................... 0.20% 0.100%
Prudential Tax-Free Money Market Fund, Inc. ................................. .50% to $750 mil 0.250%
.425% next $750 mil 0.191%
.375% over $1.5 bil 0.150%
Prudential California Municipal Fund - California Money Market Series........ 0.50% 0.250%
Prudential MoneyMart Assets, Inc. Fund....................................... .50% to $50 mil 0.250%
.30% over $50 mil 0.135%
Prudential Municipal Series Fund - Connecticut Money Market Series........... 0.50% 0.250%
Prudential Municipal Series Fund - Massachusetts Money Market Series......... 0.50% 0.250%
Prudential Municipal Series Fund - New Jersey Money Market Series............ 0.50% 0.250%
Prudential Municipal Series Fund - New York Money Market Series.............. 0.50% 0.250%
Prudential Special Money Fund - Money Market Series.......................... 0.50% 0.250%
Cash Accummulated Trust Fund: Liquid Assets.................................. 0.07% 0.035%
Cash Accummulated Trust Fund: National Money Market.......................... .39% to $1 bil 0.195%
.375% next $500 mil 0.169%
.35% next $500 mil 0.140%
.325% over $2 bil 0.114%
</TABLE>

AMENDMENT TO CUSTODIAN CONTRACT/AGREEMENT

This Amendment to the respective Custodian Contract/Agreement is made as
of February 22, 1999 by and between each of the funds listed on Schedule D
(including any series thereof, each, a "Fund") and State Street Bank and Trust
Company (the "Custodian"). Capitalized terms used in this Amendment without
definition shall have the respective meanings given to such terms in the
Custodian Contract/Agreement referred to below.

WHEREAS, each Fund and the Custodian have entered into a Custodian
Contract/Agreement dated as of the dates set forth on Schedule D (each contract,
as amended, a "Contract"); and

WHEREAS, each Fund and the Custodian desire to amend certain provisions of
the Contract to reflect revisions to Rule 17f-5 ("Rule 17f-5") promulgated under
the Investment Company Act of 1940, as amended (the "1940 Act"); and

WHEREAS, each Fund and the Custodian desire to amend and restate certain
other provisions of the Contract relating to the custody of assets of each of
the Funds held outside of the United States.

NOW THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements hereinafter contained, the parties hereby agree to amend the
Contract, to add the following new provisions which supersede the provisions in
the existing contracts relating to the custody of assets of the Funds outside
the United States.

3. THE CUSTODIAN AS FOREIGN CUSTODY MANAGER.

3.1. DEFINITIONS.

Capitalized terms in this Article 3 shall have the following meanings:

"Country Risk" means all factors reasonably related to the systemic risk of
holding Foreign Assets in a particular country including, but not limited to,
such country's political environment; economic and financial infrastructure;
systemic custody and securities settlement practices; and laws and regulations
applicable to the safekeeping and recovery of Foreign Assets held in custody in
that country.

"Eligible Foreign Custodian" has the meaning set forth in section (a)(1) of Rule
17f-5, including a majority-owned or indirect subsidiary of a U.S. Bank (as
defined in Rule 17f-5), a bank holding company meeting the requirements of an
Eligible Foreign Custodian (as set forth in Rule 17f-5 or by other appropriate
action of the U.S. Securities and Exchange Commission (the "SEC")), or a foreign
branch of a Bank (as defined in Section 2(a)(5) of the 1940 Act) meeting the
requirements of a custodian under Section 17(f) of the 1940 Act, except that the
term does not include Mandatory Securities Depositories.

<PAGE>

"Foreign Assets" means any of the Funds' investments (including foreign
currencies) for which the primary market is outside the United States and such
cash and cash equivalents as are reasonably necessary to effect the Funds'
transactions in such investments.

"Foreign Custody Manager" has the meaning set forth in section (a)(2) of Rule
17f-5.

"Mandatory Securities Depository" means a foreign securities depository or
clearing agency that, either as a legal or practical matter, must be used if the
Fund determines to place Foreign Assets in a country outside the United States
(i) because required by law or regulation; (ii) because securities cannot be
withdrawn from such foreign securities depository or clearing agency; or (iii)
because maintaining or effecting trades in securities outside the foreign
securities depository or clearing agency is not consistent with systemic
custodial or market practices.

3.2. DELEGATION TO THE CUSTODIAN AS FOREIGN CUSTODY MANAGER.

Each Fund, by resolution adopted by its Board of Trustees/Directors (the
"Board"), hereby delegates to the Custodian subject to Section (b) of Rule
17f-5, the responsibilities set forth in this Article 3 with respect to Foreign
Assets of the Fund held outside the United States, and the Custodian hereby
accepts such delegation, as Foreign Custody Manager with respect to the Funds.

3.3. COUNTRIES COVERED.

The Foreign Custody Manager shall be responsible for performing the delegated
responsibilities defined below only with respect to the countries and custody
arrangements for each such country listed on Schedule A to this Contract, which
list of countries may be amended from time to time by the Fund with the
agreement of the Foreign Custody Manager. The Foreign Custody Manager shall list
on Schedule A the Eligible Foreign Custodians selected by the Foreign Custody
Manager to maintain the assets of the Funds which list of Eligible Foreign
Custodians may be amended from time to time in the sole discretion of the
Foreign Custody Manager. Mandatory Securities Depositories are listed on
Schedule B to this Contract, which Schedule B may be amended from time to time
by the Foreign Custody Manager upon reasonable notice to the Fund. The Foreign
Custody Manager will provide amended versions of Schedules A and B in accordance
with Section 3.7 of this Article 3.

Upon the receipt by the Foreign Custody Manager of Proper Instructions to open
an account or to place or maintain Foreign Assets in a country listed on
Schedule A, and the fulfillment by a Fund of the applicable account opening
requirements for such country, the Foreign Custody Manager shall be deemed to
have been delegated by that Fund's Board responsibility as Foreign Custody
Manager with respect to that country and to have accepted such delegation.
Execution of this Amendment by the Fund shall be deemed to be a Proper
Instruction to open an account, or to place or maintain Foreign Assets, in each
country listed on Schedule A in which the Custodian has previously placed or
currently maintains Foreign Assets pursuant to the terms of the

2
<PAGE>

Contract. Following the receipt of Proper Instructions directing the Foreign
Custody Manager to close the account of a Fund with the Eligible Foreign
Custodian selected by the Foreign Custody Manager in a designated country, the
delegation by that Fund's Board to the Custodian as Foreign Custody Manager for
that country shall be deemed to have been withdrawn and the Custodian shall
immediately cease to be the Foreign Custody Manager of the Fund with respect to
that country.

The Foreign Custody Manager may withdraw its acceptance of delegated
responsibilities with respect to a designated country upon written notice to the
Fund. Thirty days (or such longer period as to which the parties agree in
writing) after receipt of any such notice by the Fund, the Custodian shall have
no further responsibility as Foreign Custody Manager to the Fund with respect to
the country as to which the Custodian's acceptance of delegation is withdrawn.

3.4. SCOPE OF DELEGATED RESPONSIBILITIES.

3.4.1. SELECTION OF ELIGIBLE FOREIGN CUSTODIANS.

Subject to the provisions of this Article 3, the Fund's Foreign Custody Manager
may place and maintain the Foreign Assets in the care of the Eligible Foreign
Custodian selected by the Foreign Custody Manager in each country listed on
Schedule A, as amended from time to time.

In performing its delegated responsibilities as Foreign Custody Manager to place
or maintain Foreign Assets with an Eligible Foreign Custodian, the Foreign
Custody Manager shall determine that the Foreign Assets will be subject to
reasonable care, based on the standards applicable to custodians in the country
in which the Foreign Assets will be held by that Eligible Foreign Custodian,
after considering all factors relevant to the safekeeping of such assets,
including, without limitation the factors specified in Rule 17f-5(c)(1).

3.4.2. CONTRACTS WITH ELIGIBLE FOREIGN CUSTODIANS.

The Foreign Custody Manager shall determine that the contract (or the rules or
established practices or procedures in the case of an Eligible Foreign Custodian
that is a foreign securities depository or clearing agency) governing the
foreign custody arrangements with each Eligible Foreign Custodian selected by
the Foreign Custody Manager will satisfy the requirements of Rule 17f-5(c)(2).

3.4.3. MONITORING.

In each case in which the Foreign Custody Manager maintains Foreign Assets with
an Eligible Foreign Custodian selected by the Foreign Custody Manager, the
Foreign Custody Manager shall establish a system to monitor (i) the
appropriateness of maintaining the Foreign Assets with such Eligible Foreign
Custodian and (ii) the contract governing the custody arrangements established
by the Foreign Custody Manager with the Eligible Foreign Custodian (or the rules
or established practices and procedures in the case of an Eligible Foreign
Custodian selected by the Foreign

3
<PAGE>

Custody Manager which is a foreign securities depository or clearing agency that
is not a Mandatory Securities Depository). The Foreign Custody Manager shall
provide the Board at least annually with information as to the factors used in
such monitoring system. If the Foreign Custody Manager determines that the
custody arrangements with an Eligible Foreign Custodian it has selected are no
longer appropriate, the Foreign Custody Manager shall notify the Board in
accordance with Section 3.7 hereunder and withdraw the Foreign Assets from such
Eligible Foreign Custodian as soon as reasonably practicable.

3.5. GUIDELINES FOR THE EXERCISE OF DELEGATED AUTHORITY.

For purposes of this Article 3, the Foreign Custody Manager shall have no
responsibility for Country Risk as is incurred by placing and maintaining the
Foreign Assets in each country for which the Custodian is serving as Foreign
Custody Manager of the Portfolios. The Fund and the Custodian each expressly
acknowledge that the Foreign Custody Manager shall not be delegated any
responsibilities under this Article 3 with respect to Mandatory Securities
Depositories.

3.6. STANDARD OF CARE AS FOREIGN CUSTODY MANAGER OF A PORTFOLIO.

In performing the responsibilities delegated to it, the Foreign Custody Manager
agrees to exercise reasonable care, prudence and diligence such as a person
having responsibility for the safekeeping of assets of management investment
companies registered under the 1940 Act would exercise.

3.7. REPORTING REQUIREMENTS.

The Foreign Custody Manager shall report the placement of Foreign Assets with an
Eligible Foreign Custodian, the withdrawal of the Foreign Assets from an
Eligible Foreign Custodian and the placement of such Foreign Assets with another
Eligible Foreign Custodian by providing to the Board amended Schedules A or B at
the end of the calendar quarter in which an amendment to either Schedule has
occurred. The Foreign Custody Manager shall make written reports notifying the
Board of any other material change in the foreign custody arrangements of the
Funds described in this Article 3 promptly after the occurrence of the material
change.

3.8. REPRESENTATIONS WITH RESPECT TO RULE 17F-5.

The Foreign Custody Manager represents to the Fund that it is a U.S. Bank as
defined in section (a)(7) of Rule 17f-5.

3.9. EFFECTIVE DATE AND TERMINATION OF THE CUSTODIAN AS FOREIGN CUSTODY
MANAGER.

The Board's delegation to the Custodian as Foreign Custody Manager of the Funds
shall be effective as of the date hereof and shall remain in effect until
terminated at any time, without penalty, by written notice from the terminating
party to the non-terminating party. Termination will become effective sixty (60)
days after receipt by the non-terminating party of such notice.

4
<PAGE>

The provisions of Section 3.3 hereof shall govern the delegation to and
termination of the Custodian as Foreign Custody Manager of the Funds with
respect to designated countries.

3.10. MOST FAVORED CLIENT.

If at any time prior to termination of this Amendment, the Custodian, as a
matter of standard business practice, accepts delegation as Foreign Custody
Manager for its U.S. mutual fund clients on terms of materially greater benefit
to the Funds than set forth in this Amendment, the Custodian hereby agrees to
negotiate with the Funds in good faith with respect thereto.

4. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUNDS HELD
OUTSIDE THE UNITED STATES.

4.1 DEFINITIONS.

Capitalized terms in this Article 4 shall have the following meanings:

"Foreign Securities System" means either a clearing agency or a securities
depository listed on Schedule A hereto or a Mandatory Securities Depository
listed on Schedule B hereto.

"Foreign Sub-Custodian" means a foreign banking institution (including a foreign
branch of the Custodian or another Bank (as defined in Section 2(a)(5) of the
1940 Act)) serving as an Eligible Foreign Custodian.

4.2. HOLDING SECURITIES.

The Custodian shall identify on its books as belonging to the Funds the foreign
securities held by each Foreign Sub-Custodian or Foreign Securities System. The
Custodian may hold foreign securities for all of its customers, including the
Funds, with any Foreign Sub-Custodian in an account that is identified as
belonging to the Custodian for the benefit of its customers, provided however,
that (i) the records of the Custodian with respect to foreign securities of the
Funds which are maintained in such account shall identify those securities as
belonging to the Funds and (ii), to the extent permitted and customary in the
market in which the account is maintained, the Custodian shall require that
securities so held by the Foreign Sub-Custodian be held separately from any
assets of such Foreign Sub-Custodian or of other customers of such Foreign
Sub-Custodian.

4.3. FOREIGN SECURITIES SYSTEMS.

Foreign securities shall be maintained in a Foreign Securities System in a
designated country only through arrangements implemented by the Foreign
Sub-Custodian in such country pursuant to the terms of this Contract.

4.4. TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT.

5
<PAGE>

4.4.1. DELIVERY OF FOREIGN ASSETS.

The Custodian or a Foreign Sub-Custodian shall release and deliver foreign
securities of the Funds held by such Foreign Sub-Custodian, or in a Foreign
Securities System account, only upon receipt of Proper Instructions, which may
be continuing instructions when deemed appropriate by the parties, and only in
the following cases:

(i) upon the sale of such foreign securities for the Fund in
accordance with customary market practice in the country where
such foreign securities are held or traded, including, without
limitation: (A) delivery against expectation of receiving
later payment; or (B) in the case of a sale effected through a
Foreign Securities System, in accordance with the rules
governing the operation of the Foreign Securities System;

(ii) in connection with any repurchase agreement related to foreign
securities;

(iii) to the depository agent in connection with tender or other
similar offers for foreign securities of the Portfolios;

(iv) to the issuer thereof or its agent when such foreign
securities are called, redeemed, retired or otherwise become
payable;

(v) to the issuer thereof, or its agent, for transfer into the
name of the Custodian (or the name of the respective Foreign
Sub-Custodian or of any nominee of the Custodian or such
Foreign Sub-Custodian) or for exchange for a different number
of bonds, certificates or other evidence representing the same
aggregate face amount or number of units;

(vi) to brokers, clearing banks or other clearing agents for
examination or trade execution in accordance with reasonable
market custom; provided that in any such case the Foreign
Sub-Custodian shall have no responsibility or liability for
any loss arising from the delivery of such securities prior to
receiving payment for such securities except as may arise from
the Foreign Sub-Custodian's own negligence or willful
misconduct;

(vii) for exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;

(viii) in the case of warrants, rights or similar foreign securities,
the surrender thereof in the exercise of such warrants, rights
or similar securities or the surrender of interim receipts or
temporary securities for definitive securities;
<PAGE>

(ix) for delivery as security in connection with any borrowing by
the Funds requiring a pledge of assets by the Funds;

(x) in connection with trading in options and futures contracts,
including delivery as original margin and variation margin;

(xi) in connection with the lending of foreign securities; and

(xii) for any other proper purpose, but only upon receipt of Proper
Instructions specifying the foreign securities to be
delivered, setting forth the purpose for which such delivery
is to be made, declaring such purpose to be a proper
trust\corporate purpose, and naming the person or persons to
whom delivery of such securities shall be made.

4.4.2. PAYMENT OF FUND MONIES.

Upon receipt of Proper Instructions, which may be continuing instructions when
deemed appropriate by the parties, the Custodian shall pay out, or direct the
respective Foreign Sub-Custodian or the respective Foreign Securities System to
pay out, monies of a Fund in the following cases only:

(i) upon the purchase of foreign securities for the Fund, unless
otherwise directed by Proper Instructions, in accordance with
reasonable market settlement practice in the country where
such foreign securities are held or traded, including, without
limitation, (A) delivering money to the seller thereof or to a
dealer therefor (or an agent for such seller or dealer)
against expectation of receiving later delivery of such
foreign securities; or (B) in the case of a purchase effected
through a Foreign Securities System, in accordance with the
rules governing the operation of such Foreign Securities
System;

(ii) in connection with the conversion, exchange or surrender of
foreign securities of the Fund;

(iii) for the payment of any expense or liability of the Fund,
including but not limited to the following payments: interest,
taxes, investment advisory fees, transfer agency fees, fees
under this Contract, legal fees, accounting fees, and other
operating expenses;

(iv) for the purchase or sale of foreign exchange or foreign
exchange contracts for the Fund, including transactions
executed with or through the Custodian or its Foreign
Sub-Custodians;

(v) in connection with trading in options and futures contracts,
including delivery as

7
<PAGE>

original margin and variation margin;

(vi) for payment of part or all of the dividends received in
respect of securities sold short;

(vii) in connection with the borrowing or lending of foreign
securities; and

(viii) for any other proper purpose, but only upon receipt of Proper
Instructions specifying the amount of such payment, setting
forth the purpose for which such payment is to be made,
declaring such purpose to be a proper trust\corporate purpose,
and naming the person or persons to whom such payment is to be
made.

4.4.3. MARKET CONDITIONS; MARKET INFORMATION.

Notwithstanding any provision of this Contract to the contrary, settlement and
payment for Foreign Assets received for the account of the Funds and delivery of
Foreign Assets maintained for the account of the Funds may be effected in
accordance with the customary established securities trading or processing
practices and procedures in the country or market in which the transaction
occurs generally accepted by Institutional Clients, including, without
limitation, delivering Foreign Assets to the purchaser thereof or to a dealer
therefor (or an agent for such purchaser or dealer) with the expectation of
receiving later payment for such Foreign Assets from such purchaser or dealer.

For purposes of this Agreement, the term "Institutional Clients" means U.S.
registered investment companies or major U.S. commercial banks, insurance
companies, pension funds or substantially similar institutions which, as a part
of their ordinary business operations, purchase or sell securities and make use
of global custody services.

The Custodian shall provide to the Board information with respect to material
changes in the custody and settlement practices in countries in which the
Custodian employs a Foreign Sub-Custodian. The Custodian shall provide, without
limitation, information relating to Foreign Securities Systems and other
information described in Schedule C. The Custodian may revise Schedule C from
time to time, provided that no such revision shall result in the Board being
provided with substantively less information than had previously been provided
hereunder and provided further that the Custodian shall in any event provide to
the Board at least annually the following information and opinions with respect
to the Board approved countries listed on Schedule A:

(i) legal opinions relating to whether local law restricts with
respect to U.S. registered mutual funds (a) access of a fund's
independent public accountants to books and records of a
Foreign Sub-Custodian or Foreign Securities System, (b) a
fund's ability to recover in the event of bankruptcy or
insolvency of a Foreign Sub-Custodian or Foreign Securities
System, (c) a fund's ability to recover in the event of a loss
by a Foreign Sub-Custodian or Foreign Securities System, and
(d)

8
<PAGE>

the ability of a foreign investor to convert cash and cash
equivalents to U.S. dollars;

(ii) summary of information regarding Foreign Securities Systems;
and

(iii) country profile information containing market practice for (a)
delivery versus payment, (b) settlement method, (c) currency
restrictions, (d) buy-in practices, (e) foreign ownership
limits, and (f) unique market arrangements.

4.5. REGISTRATION OF FOREIGN SECURITIES.

The foreign securities maintained in the custody of a Foreign Sub-Custodian
(other than bearer securities) shall be registered in the name of the applicable
series or in the name of the Custodian or in the name of any Foreign
Sub-Custodian or in the name of any nominee of the foregoing, and the Fund
agrees to hold any such nominee harmless from any liability as a holder of
record of such foreign securities, except to the extent that the Fund incurs
loss or damage due to failure of such nominee to meet its standard of care set
forth in the Contract. The Custodian or a Foreign Sub-Custodian shall not be
obligated to accept securities on behalf of a Fund under the terms of this
Contract unless the form of such securities and the manner in which they are
delivered are in accordance with reasonable market practice.

4.6. BANK ACCOUNTS.

The Custodian shall identify on its books as belonging to the Fund cash
(including cash denominated in foreign currencies) deposited with the Custodian.
Where the Custodian is unable to maintain, or market practice does not
facilitate the maintenance of, cash on the books of the Custodian, a bank
account or bank accounts opened and maintained outside the United States on
behalf of a Fund with a Foreign Sub-Custodian shall be subject only to draft or
order by the Custodian or such Foreign Sub-Custodian, acting pursuant to the
terms of this Contract to hold cash received by or from or for the account of
the Portfolio.

4.7. COLLECTION OF INCOME.

The Custodian shall use reasonable commercial efforts to collect all income and
other payments with respect to the Foreign Assets held hereunder to which the
Funds shall be entitled and shall credit such income, as collected, to the
applicable Fund. In the event that extraordinary measures are required to
collect such income, the Fund and the Custodian shall consult as to such
measures and as to the compensation and expenses of the Custodian relating to
such measures.

4.8. Shareholder Rights.

With respect to the foreign securities held pursuant to this Article 4, the
Custodian will use

9
<PAGE>

reasonable commercial efforts to facilitate the exercise of voting and other
shareholder rights, subject always to the laws, regulations and practical
constraints that may exist in the country where such securities are issued. The
Fund acknowledges that local conditions, including lack of regulation, onerous
procedural obligations, lack of notice and other factors may have the effect of
severely limiting the ability of the Fund to exercise shareholder rights.

4.9. COMMUNICATIONS RELATING TO FOREIGN SECURITIES.

The Custodian shall transmit promptly to the Fund written information
(including, without limitation, pendency of calls and maturities of foreign
securities and expirations of rights in connection therewith) received by the
Custodian via the Foreign Sub-Custodians from issuers of the foreign securities
being held for the account of the Funds. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Fund written information so
received by the Custodian from issuers of the foreign securities whose tender or
exchange is sought or from the party (or its agents) making the tender or
exchange offer. Subject to the standard of care to which the Custodian is held
under this Agreement, the Custodian shall not be liable for any untimely
exercise of any tender, exchange or other right or power in connection with
foreign securities or other property of the Funds at any time held by it unless
(i) the Custodian or the respective Foreign Sub-Custodian is in actual
possession of such foreign securities or property and (ii) the Custodian
receives Proper Instructions with regard to the exercise of any such right or
power, and both (i) and (ii) occur at least three business days prior to the
date on which the Custodian is to take action to exercise such right or power.

4.10. LIABILITY OF FOREIGN SUB-CUSTODIANS AND FOREIGN SECURITIES SYSTEMS.

Each agreement pursuant to which the Custodian employs a Foreign Sub-Custodian
shall, to the extent possible, require the Foreign Sub-Custodian to exercise
reasonable care in the performance of its duties and, to the extent possible, to
indemnify, and hold harmless, the Custodian from and against any loss, damage,
cost, expense, liability or claim arising out of or in connection with the
Foreign Sub-Custodian's performance of such obligations. At each Fund's
election, a Fund shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a Foreign Sub-Custodian as a
consequence of any such loss, damage, cost, expense, liability or claim if and
to the extent that a Fund and any applicable series have not been made whole for
any such loss, damage, cost, expense, liability or claim.

4.11. TAX LAW.

Except to the extent that imposition of any tax liability arises from the
Custodian's failure to perform in accordance with the terms of this Section 4.11
or from the failure of any Foreign Sub-Custodian to perform in accordance with
the terms of the applicable subcustody agreement, the Custodian shall have no
responsibility or liability for any obligations now or hereafter imposed on a
Fund, a series thereof or the Custodian as custodian of the Fund by the tax law
of the United States or of any state or political subdivision thereof. It shall
be the responsibility of each Fund to notify the Custodian of the obligations
imposed on the Fund or the Custodian as custodian of

10
<PAGE>

the Fund by the tax law of countries other than those mentioned in the above
sentence, including responsibility for withholding and other taxes, assessments
or other governmental charges, certifications and governmental reporting. The
sole responsibility of the Custodian with regard to such tax law shall be to use
reasonable efforts to assist the Fund with respect to any claim for exemption or
refund under the tax law of countries for which the Fund has provided such
information.

4.12. LIABILITY OF CUSTODIAN.

Except as may arise from the Custodian's own negligence or willful misconduct or
the negligence or willful misconduct of a Sub-Custodian, the Custodian shall be
without liability to a Fund for any loss, liability, claim or expense resulting
from or caused by anything which is (A) part of Country Risk or (B) part of the
"prevailing country risk" of the Fund, as such term is used in SEC Release Nos.
IC-22658; IS-1080 (May 12, 1997) or as such term or other similar terms are now
or in the future interpreted by the SEC or by the staff of the Division of
Investment Management of the SEC.

The Custodian shall be liable for the acts or omissions of a Foreign
Sub-Custodian to the same extent as set forth with respect to sub-custodians
generally in the Contract and, regardless of whether assets are maintained in
the custody of a Foreign Sub-Custodian or a Foreign Securities System, the
Custodian shall not be liable for any loss, damage, cost, expense, liability or
claim resulting from nationalization, expropriation, currency restrictions, or
acts of war or terrorism, or any other loss where the Sub-Custodian has
otherwise acted with reasonable care.

III. Except as specifically superseded or modified herein, the terms and
provisions of the Contract shall continue to apply with full force and
effect. In the event of any conflict between the terms of the Contract
prior to this Amendment and this Amendment, the terms of this Amendment
shall prevail. If the Custodian is delegated the responsibilities of
Foreign Custody Manager pursuant to the terms of Article 3 hereof, in
the event of any conflict between the provisions of Articles 3 and 4
hereof, the provisions of Article 3 shall prevail.

11
<PAGE>

IN WITNESS WHEREOF, each of the parties has caused this Amendment to be
executed in its name and behalf by its duly authorized representative as of the
date first above written.

WITNESSED BY: STATE STREET BANK AND TRUST
COMPANY

/s/Marc L. Parsons By: /s/Ronald E. Logue
- ------------------ ------------------
Marc L. Parsons Ronald E. Logue
Associate Counsel Executive Vice President

Cash Accumulation Trust
Command Government Fund
Command Money Fund
Command Tax-Free Fund
Global Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Prudential 20/20 Focus Fund
Prudential Balanced Fund
Prudential California Municipal Fund
Prudential Developing Markets Fund
Prudential Distressed Securities Fund, Inc.
Prudential Diversified Bond Fund, Inc.
Prudential Diversified Funds
Prudential Index Series Fund
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Europe Growth Fund
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Prudential High Yield Fund, Inc.
Prudential High Yield Total Return Fund, Inc.
Prudential Institutional Liquidity Portfolio, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential International Bond Fund, Inc.
The Prudential Investment Portfolios Fund, Inc.
Prudential Mid-Cap Value Fund
Prudential MoneyMart Assets, Inc.

<PAGE>

WITNESSED BY: STATE STREET BANK AND TRUST
COMPANY

Prudential Mortgage Income Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Municipal Bond Fund
Prudential Municipal Series Fund
Prudential National Municipals Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential Real Estate Securities Fund
Prudential Small Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Special Money Market Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Prudential Tax-Free Money Fund, Inc.
Prudential Tax-Managed Equity Fund
Prudential Utility Fund, Inc.
Prudential World Fund, Inc.
The Global Total Return Fund, Inc.
The Target Portfolio Trust
The Asia Pacific Fund, Inc.
The High Yield Income Fund, Inc.

By: /s/S. Jane Rose By: /s/Grace Torres
--------------- ---------------
Grace Torres
Treasurer

Prudential Government Income Fund, Inc.
Prudential High Yield Total Return Fund, Inc.
Prudential Municipal Bond Fund
Prudential California Municipal Fund
The High Yield Income Fund, Inc.
Prudential Municipal Series Fund
Prudential Government Securities Trust
Prudential Diversified Bond Fund, Inc.
Prudential High Yield Fund, Inc.
Prudential National Municipals Fund, Inc.
Prudential Structured Maturity Fund, Inc.

<PAGE>

WITNESSED BY:

By: /s/Robert Rosselot By: /s/Deborah A. Docs
------------------ ------------------
Deborah A. Docs
Secretary

AMENDMENT TO TRANSFER AGENCY AND SERVICE AGREEMENT

THIS AMENDMENT to the Transfer Agency and Service Agreement by and between
Prudential Government Securities Trust (the "Fund") and Prudential Mutual Fund
Services LLC (successor to Prudential Mutual Fund Services, Inc.)("PMFS") is
entered into as of August 24, 1999.

WHEREAS, the Fund and PMFS have entered into a Transfer Agency and
Service Agreement (the "Agreement") pursuant to which PMFS serves as transfer
agent, dividend disbursing agent and shareholder servicing agent for the Fund;
and

WHEREAS, the Fund and PMFS desire to amend the Agreement to confirm the
Fund's agreement to pay transfer agency account fees and expenses for beneficial
owners holding shares through omnibus accounts maintained by The Prudential
Insurance Company of America, its subsidiaries or affiliates.

NOW, THEREFORE, for and in consideration of the continuation of the
Agreement, and other good and valuable consideration, Article 8 of the Agreement
is amended by adding the following section to the Agreement:

8.04 PMFS may enter into agreements with Prudential or any
subsidiary or affiliate of Prudential whereby PMFS will maintain an
omnibus account and the Fund will reimburse PMFS for amounts paid by
PMFS to Prudential, or such subsidiary or affiliate, in an amount not
in excess of the annual maintenance fee for each beneficial shareholder
account and transactional fees and expenses with respect to such
beneficial shareholder account as if each beneficial shareholder
account were maintained by PMFS on the Fund's records, subject to the
fee schedule attached hereto as Schedule A. Prudential, its subsidiary
or affiliate, as the case may be, shall maintain records relating to
each beneficial shareholder account that underlies the omnibus account
maintained by PMFS.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.

PRUDENTIAL GOVERNMENT SECURITIES ATTEST:
TRUST

By: /s/Robert F. Gunia By: /s/Deborah A. Docs
----------------------------------- ------------------
Robert F. Gunia Deborah A. Docs
Vice President Secretary

PRUDENTIAL MUTUAL FUND SERVICES LLC

ATTEST:

By:/s/Brian W. Henderson By: /s/William V. Healey
---------------------------- --------------------
Brian W. Henderson William V. Healey
President Secretary

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in this Registration Statement on Form N-1A of our
report dated January 17, 2000, relating to the financial statements and
financial highlights of Money Market Series, Short-Intermediate Term Series and
U.S. Treasury Money Market Series (constituting Prudential Government Securities
Trust), which appears in such Registration Statement. We also consent to the
references to us under the headings "Investment Advisory and Other Services" and
"Financial Highlights" in such Registration Statement.

PricewaterhouseCoopers LLP

New York, New York
January 31, 2000

SULLIVAN & WORCESTER LLP
ONE POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02109
IN WASHINGTON, D.C. (617) 338-2800 IN NEW YORK CITY
1025 CONNECTICUT AVENUE, N.W. FAX NO. 617-338-2880 767 THIRD AVENUE
WASHINGTON, D.C. 20036 NEW YORK, NEW YORK 10017
(202) 775-8190 (212) 486-8200
FAX NO. 202-293-2275 FAX NO. 212-758-2151

Boston
February 2, 2000

Prudential Investments Fund Management LLC
Three Gateway Center
Newark, New Jersey 07102-4077

Re: Prudential Government Securities Trust
--------------------------------------

Ladies and Gentlemen:

Please refer to our opinion letter to you of March 25, 1999, concerning certain
matters of Massachusetts law relating to the organization and shares of
Prudential Government Securities Trust (formerly "Prudential-Bache Government
Securities Trust" and originally "Chancellor Government Securities Trust"), a
trust with transferable shares under Massachusetts law (the "Fund"). We hereby
confirm the opinions stated in that letter, as of the date thereof, and consent
to your filing a copy of the same with Post-Effective Amendment No. 30 to the
Fund's Registration Statement on Form N-1A, Registration No. 2-74139, pursuant
to the Securities Act of 1933, as amended (the "Securities Act"), and Amendment
No. 31 to its Registration Statement pursuant to the Investment Company Act of
1940, as amended, Registration No. 811-3264, relating to the several series of
shares of beneficial interest, $.01 par value, of the Fund. In giving this
consent, we do not thereby concede that we come within the category of persons
whose consent is required under Section 7 of the Securities Act.

Very truly yours,

/s/Sullivan & Worcester
-----------------------
Sullivan & Worcester

SULLIVAN & WORCESTER LLP

PRUDENTIAL GOVERNMENT SECURITIES TRUST
(Money Market Series)
(U.S. Treasury Money Market Series)

Distribution and Service Plan

Introduction

The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Prudential Government Securities Trust (the
Fund), and by Prudential Mutual Fund Distributors, Inc., the distributor of the
Money Market Series and the U.S. Treasury Money Market Series (the Distributor).

Shares of beneficial interest in the Fund are currently divided into
three classes, two of which are known as the Money Market Series and the U.S.
Treasury Money Market Series (the Series).

The Fund has entered into a distribution agreement (the Distribution
Agreement) pursuant to which the Fund will employ the Distributor to distribute
shares issued by the Series. Under the Plan, the Fund intends to pay to the
Distributor, as compensation for its services, a distribution and service fee.

A majority of the Board of Directors or Trustees of the Fund, including
a majority of those Directors or Trustees who are not "interested persons" of
the Fund (as defined in the Investment Company Act) and who have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the Rule 12b-1 Directors or Trustees), have determined by votes
cast in person at a meeting called for the purpose of voting on this Plan that
there is a reasonable likelihood that adoption of this Plan will benefit the
Series and its shareholders. Expenditures under this Plan by the Fund for
Distribution Activities (defined below) on behalf of the Series are primarily
intended to result in the sale of shares of the Series within the meaning of
paragraph (a)(2) of Rule 12b-1 promulgated under the Investment Company Act.

The purpose of the Plan is to create incentives to the Distributor
and/or other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Series, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.

<PAGE>

The Plan

The material aspects of the Plan are as follows:

1. Distribution Activities

The Fund shall engage the Distributor to distribute shares of the
Series and to service shareholder accounts using all of the facilities of the
distribution networks of Prudential Securities Incorporated (Prudential
Securities) and Pruco Securities Corporation (Prusec), including sales personnel
and branch office and central support systems, and also using such other
qualified broker-dealers and financial institutions as the Distributor may
select. Services provided and activities undertaken to distribute shares of the
Series are referred to herein as "Distribution Activities."

2. Payment of Service Fee

The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee
not to exceed .125 of 1% per annum of the average daily net assets of
the shares of the Series (service fee). The Fund shall calculate and
accrue daily amounts payable by the shares of the Series hereunder and
shall pay such amounts monthly or at such other intervals as the Board
of Directors or Trustees may determine.

3. Payment for Distribution Activities

The Fund shall pay to the Distributor as compensation for its services
a distribution fee which, together with the service fee (described in Section 2
hereof), shall not exceed .125 of 1% per annum of the average daily net assets
of the shares of the Series. The Fund shall calculate and accrue daily amounts
payable by the shares of the Series hereunder and shall pay such amounts monthly
or at such other intervals as the Board of Directors or Trustees may determine.

The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:

(a) amounts paid to Prudential Securities for performing services
under a selected dealer agreement between Prudential
Securities and the Distributor for sale of shares of the
Series, including sales commissions and account servicing fees
paid to, or on account of, account executives and indirect and
overhead costs associated with Distribution Activities,
including central office and branch expenses;

(b) amounts paid to Prusec for performing services under a
selected dealer agreement between Prusec and the Distributor
for sale of shares of the Series, including sales

<PAGE>

commissions and account servicing fees paid to, or on account
of, agents and indirect and overhead costs associated with
Distribution Activities;

(c) advertising for the Fund in various forms through any
available medium, including the cost of printing and mailing
Series prospectuses, statements of additional information and
periodic financial reports and sales literature to persons
other than current shareholders of the Series; and

(d) sales commission (including accounts servicing fees) paid to,
or on account of, broker-dealers and financial institutions
(other than Prudential Securities and Prusec) which have
entered into selected dealer agreements with the Distributor
with respect to shares of the Series.

4. Quarterly Reports; Additional Information

An appropriate officer of the Fund will provide to the Board of
Directors or Trustees of the Fund for review, at least quarterly, a written
report specifying in reasonable detail the amounts expended for Distribution
Activities (including payment of the service fee) and the purposes for which
such expenditures were made in compliance with the requirements of Rule 12b-1.
The Distributor will provide to the Board of Directors or Trustees of the Fund
such additional information as the Board or Trustees shall from time to time
reasonably request, including information about Distribution Activities
undertaken or to be undertaken by the Distributor.

The Distributor will inform the Board of Directors or Trustees of the
Fund of the commissions and account servicing fees to be paid by the Distributor
to broker-dealers and financial institutions which have selected dealer
agreements with the Distributor.

5. Effectiveness; Continuation

The Plan shall not take effect until it has been approved by a vote of
a majority of the outstanding voting securities (as defined in the Investment
Company Act) of each Series.

If approved by a vote of a majority of the outstanding voting
securities of the Series, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
majority of the Board of Directors or Trustees of the Fund and a majority of the
Rule 12b-1 Directors or Trustees by votes cast in person at a meeting called for
the purpose of voting on the continuation of the Plan.

<PAGE>

6. Termination

This Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors or Trustees, or by vote of a majority of the outstanding
voting securities (as defined in the Investment Company Act) of each Series.

7. Amendments

The Plan may not be amended to change the service and distribution fee
to be paid as provided for in Sections 2 and 3 hereof so as to increase
materially the amounts payable under this Plan unless such amendment shall be
approved by the vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Series. All material amendments of
the Plan shall be approved by a majority of the Board of Directors or the
Trustees of the Fund, including a majority of the Rule 12b-1 Directors or
Trustees, by votes cast in person at a meeting called for the purpose of voting
on the Plan.

8. Rule 12b-1 Directors or Trustees

While the Plan is in effect, the selection and nomination of the Rule
12b-1 Directors or Trustees who are not "interested persons" of the Fund
(non-interested Directors or Trustees) shall be committed to the discretion of
the Rule 12b-1 Directors or Trustees.

9. Records

The Fund shall preserve copies of the Plan and any related agreements
and all reports made pursuant to Section 4 hereof, for a period of not less than
six years from the date of effectiveness of the Plan, such agreements or
reports, and for at least the first two years in an easily accessible place.

10. Liabilities of the Fund

The name Prudential Government Securities Trust is the designation of
the Trustees under a Declaration of Trust, dated September 22, 1981, as
thereafter amended, and all persons dealing with the Fund must look solely to
the property of the Fund for the enforcement of any claims against the Fund as
neither the Trustees, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.

Dated: November 20, 1990, as amended and restated on July 1, 1993 and
August 1, 1995

PRUDENTIAL GOVERNMENT SECURITIES TRUST
(Intermediate Term Series)

Distribution and Service Plan

Introduction

The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Prudential Government Securities Trust (the
Fund), and by Prudential Securities Incorporated, the distributor of the
Intermediate Term Series (the Distributor).

Shares of beneficial interest in the Fund are currently divided into
three separate series, one of which is the Intermediate Term Series (the
Series).

The Fund has entered into a distribution agreement (the Distribution
Agreement) pursuant to which the Fund will employ the Distributor to distribute
shares issued by the Series. Under the Plan, the Fund intends to pay to the
Distributor as compensation for its services, a distribution and service fee.

A majority of the Board of Directors or Trustees of the Fund, including
a majority of those Directors or Trustees who are not "interested persons" of
the Fund (as defined in the Investment Company Act) and who have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the Rule 12b-1 Directors or Trustees), have determined by votes
cast in person at a meeting called for the purpose of voting on this Plan that
there is a reasonable likelihood that adoption of this Plan will benefit the
Series and its stockholders. Expenditures under this Plan by the Fund for
Distribution Activities (defined below) on behalf of the Series are primarily
intended to result in the sale of shares of the Series within the meaning of
paragraph (a)(2) of Rule 12b-1 promulgated under the Investment Company Act.

The Plan

The material aspects of the Plan are as follows:
<PAGE>

1. DISTRIBUTION ACTIVITIES

2. PAYMENT OF SERVICE FEE

The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee which
shall not exceed the lesser of (a) .25 of 1% per annum of the aggregate sales of
the Series' shares, not including shares issued in connection with reinvestment
of dividends and capital gains distributions from the Series, issued 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) .25 of 1% per annum of the average daily net
asset value of the Series' shares issued after the effective date of the Plan
(service fee). The Fund shall calculate and accrue daily amounts payable by the
shares of the Series hereunder and shall pay such amounts monthly or at such
other intervals as the Board of Directors or Trustees may determine.

3. PAYMENT FOR DISTRIBUTION ACTIVITIES

The Fund shall pay to the Distributor as compensation for its services
a distribution fee which, together with the service fee (described in Section 2
hereof), shall not exceed the lesser of (a) .25 of 1% per annum of the aggregate
sales of the Series' shares, not including shares issued in connection with
reinvestment of dividends and capital gains distributions from the Series,
issued on or after the effective date of the 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' shares issued after the effective date of
the Plan. The Fund shall calculate and accrue daily amounts payable by the
shares of the Series hereunder and shall pay such amounts monthly or at such
other intervals as the Board of Directors or Trustees may determine.

The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:

(b) amounts paid to Prusec for performing services under a
selected dealer agreement between Prusec and the Distributor
for sale of shares of the Series, including sales commissions
and account servicing fees paid to, or on account of, agents
and indirect and overhead costs associated with Distribution
Activities;

(d) sales commissions (including account servicing fees) paid to,
or on account of, broker-dealers and financial institutions
(other than Prudential Securities and Prusec) which have
entered into selected dealer agreements with the Distributor
with respect to shares of the Series.

4. QUARTERLY REPORTS; ADDITIONAL INFORMATION

5. EFFECTIVENESS; CONTINUATION

The Plan shall not take effect until it has been approved by a vote of
a majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Series.

<PAGE>

6. TERMINATION

7. AMENDMENTS

8. RULE 12B-1 DIRECTORS OR TRUSTEES

9. RECORDS

10. LIABILITIES OF THE FUND

Dated: July 26, 1995, as amended and restated on July 1, 1993 and
August 1, 1995.