PRUDENTIAL BACHE GOVERNMENT PLUS FUND INC, 485BPOS, 1994-06-24

PRUDENTIAL BACHE GOVERNMENT PLUS FUND INC
485BPOS, 1994-06-24

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<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 24, 1994

REGISTRATION NO. 2-82976
811-3712

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/

PRE-EFFECTIVE AMENDMENT NO. / /

POST-EFFECTIVE AMENDMENT NO. 16 /X/

AND/OR

REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/

AMENDMENT NO. 19 /X/
(Check appropriate box or boxes)

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

PRUDENTIAL-BACHE GOVERNMENT PLUS FUND, INC.

(doing business as Prudential Government Plus Fund)
(Exact name of registrant as specified in charter)

ONE SEAPORT PLAZA,
NEW YORK, NEW YORK 10292
(Address of Principal Executive Offices) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 214-1250

S. JANE ROSE, ESQ.
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
(NAME AND ADDRESS OF AGENT FOR SERVICE OF PROCESS)

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):

<TABLE>
<C> <S>
/X/ immediately upon filing pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on (date) pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (a), of Rule 485.
</TABLE>

PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT OF 1940, REGISTRANT
HAS PREVIOUSLY REGISTERED AN INDEFINITE NUMBER OF SHARES OF COMMON STOCK PAR
VALUE $.01 PER SHARE. THE REGISTRANT HAS FILED A NOTICE UNDER SUCH RULE FOR ITS
FISCAL YEAR ENDED FEBRUARY 28, 1994 ON OR ABOUT APRIL 29, 1994.

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<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)

<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- ---------------------------------------------------------------------------- ------------------------------------
<S> <C> <C>
PART A
Item 1. Cover Page....................................................... Cover Page
Item 2. Synopsis......................................................... Fund Expenses
Item 3. Condensed Financial Information.................................. Fund Expenses; Financial Highlights
Item 4. General Description of Registrant................................ Cover Page; How the Fund is Managed;
General Information
Item 5. Management of the Fund........................................... Financial Highlights; How the Fund
is Managed; General Information
Item 6. Capital Stock and Other Securities............................... Taxes, Dividends and Distributions,
General Information
Item 7. Purchase of Securities Being Offered............................. Shareholder Guide; How the Fund
Values its Shares
Item 8. Redemption or Repurchase......................................... Shareholder Guide; How the Fund
Values its Shares; General
Information
Item 9. Pending Legal Proceedings........................................ Not Applicable

PART B
Item 10. Cover Page....................................................... Cover Page
Item 11. Table of Contents................................................ Table of Contents
Item 12. General Information and History.................................. General Information
Item 13. Investment Objectives and Policies............................... Investment Objective and Policies;
Investment Restrictions
Item 14. Management of the Fund........................................... Directors and Officers; Manager;
Distributor
Item 15. Control Persons and Principal Holders of Securities.............. Not Applicable
Item 16. Investment Advisory and Other Services........................... Manager; Distributor; Custodian,
Transfer and Dividend Disbursing
Agent and Independent Accountants
Item 17. Brokerage Allocation and Other Practices......................... Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other Securities............................... Not Applicable
Item 19. Purchase, Redemption and Pricing of Securities Being Offered..... Purchase and Redemption of Fund
Shares; Shareholder Investment
Account
Item 20. Tax Status....................................................... Taxes, Dividends and Distributions
Item 21. Underwriters..................................................... Distributor
Item 22. Calculation of Performance Data.................................. Performance Information
Item 23. Financial Statements............................................. Financial Statements
</TABLE>

PART C

Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Post-Effective Amendment to
the Registration Statement.
<PAGE>
Prudential Government Plus Fund

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Prospectus dated June 24, 1994

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Prudential-Bache Government Plus Fund, Inc., doing business as Prudential
Government Plus Fund (the Fund), is an open-end, diversified management
investment company, or mutual fund, which has as its investment objective the
seeking of a high current return. The Fund will seek to achieve this objective
primarily by investing 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 or guaranteed by U.S. Government agencies or
instrumentalities; writing covered call options and covered put options and
purchasing put and call options. In an effort to hedge against changes in
interest rates and thus preserve its capital, the Fund may also engage in
transactions involving futures contracts on U.S. Government securities and
options on such futures. See "How the Fund Invests--Investment Objective and
Policies." There is no assurance that the Fund's investment objective will be
achieved. The Fund's address is One Seaport Plaza, New York, New York 10292, and
its telephone number is (800) 225-1852.

The Board of Directors of the Fund has approved certain changes to the Fund's
Articles of Incorporation, including a provision providing for the conversion of
Class B shares to Class A shares after a specified period, certain modifications
to the Fund's Distribution Agreements and Plans of Distribution and certain
changes to the Fund's investment restrictions. These changes will be presented
to shareholders at an upcoming meeting and if approved would become effective
upon the offering of a new class of shares of the Fund, to be designated Class C
shares, which is expected shortly. See "General Information--Additional
Information."
- --------------------------------------------------------------------------------

This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Additional information
about the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated June 24, 1994, which information is
incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Fund at the
address or telephone number noted above.

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INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>

FUND HIGHLIGHTS

The following summary is intended to highlight certain information contained
in this Prospectus and is qualified in its entirety by the more detailed
information appearing elsewhere herein.

Information."

What is Prudential Government Plus Fund?
Prudential Government Plus Fund is a mutual fund. A mutual fund pools the
resources of investors by selling its shares to the public and investing the
proceeds of such sale in a portfolio of securities designed to achieve its
investment objective. Technically, the Fund is an open-end, diversified
management investment company.

What is the Fund's Investment Objective?
The Fund's investment objective is to seek a high current return. The Fund
seeks to achieve its objective primarily by investing 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 or guaranteed by
U.S. Government agencies or instrumentalities. The Fund may also write covered
call options and covered put options and purchase put and call options. See "How
the Fund Invests--Investment Objective and Policies" at page 7.

What are the Fund's Special Characteristics and Risks?
The Fund may engage in short selling and use leverage, including dollar rolls
and bank borrowings, which entail additional risks to the Fund. See "How the
Fund Invests--Other Investment Information" at page 13. In an effort to hedge
against changes in interest rates and thus preserve its capital, the Fund may
purchase and sell put and call options on U.S. Government securities, may engage
in transactions involving futures contracts on U.S. Government securities and
options on such futures contracts and may also engage in interest rate swap
transactions. See "How the Fund Invests--Other Investments and Policies" at page
8.

Who Manages the Fund?

Prudential Mutual Fund Management, Inc. (PMF or the Manager) is the Manager of
the Fund and is compensated for its services at an annual rate of .50 of 1% of
the Fund's average daily net assets up to $3 billion and .35 of 1% of the
average daily net assets in excess of $3 billion. As of May 31, 1994, PMF served
as manager or administrator to 66 investment companies, including 37 mutual
funds, with aggregate assets of approximately $48 billion. The Prudential
Investment Corporation (PIC or the Subadviser) furnishes investment advisory
services in connection with the management of the Fund under a Subadvisory
Agreement with PMF. See "How the Fund is Managed--Manager" at page 15.

Who Distributes the Fund's Shares?
Prudential Mutual Fund Distributors, Inc. (PMFD) acts as the Distributor of
the Fund's Class A shares and is currently paid for its services at an annual
rate of .15 of 1% of the average daily net assets of the Class A shares.

Prudential Securities Incorporated (Prudential Securities or PSI), a major
securities underwriter and securities and commodities broker, acts as the
Distributor of the Fund's Class B shares. PSI is paid for its services, with
respect to Class B shares, at an annual rate of up to 1% of the average daily
net assets of the Class B shares up to $3 billion, .80 of 1% of the next $1
billion of such net assets and .50 of 1% of such net assets in excess of $4
billion. See "How the Fund is Managed--Distributor" at page 16.

2
<PAGE>
What is the Minimum Investment?

The minimum initial investment is $1,000. The minimum subsequent investment is
$100. There is no minimum investment requirement for certain retirement and
employee savings plans or custodial accounts for the benefit of minors. For
purchases made through the Automatic Savings Accumulation Plan, the minimum
initial and subsequent investment is $50. See "Shareholder Guide--How to Buy
Shares of the Fund" at page 22 and "Shareholder Guide--Shareholder Services" at
page 29.

How Do I Purchase Shares?

You may purchase shares of the Fund through Prudential Securities, Pruco
Securities Corporation (Prusec) or directly from the Fund, through its transfer
agent, Prudential Mutual Fund Services, Inc. (PMFS or the Transfer Agent) at the
net asset value per share (NAV) next determined after receipt of your purchase
order by the Transfer Agent or Prudential Securities plus a sales charge which
may be imposed either at the time of purchase or on a deferred basis. See "How
the Fund Values its Shares" at page 18 and "Shareholder Guide--How to Buy Shares
of the Fund" at page 22.

What Are My Purchase Alternatives?

The Fund offers two classes of shares which may be purchased at the next
determined NAV plus a sales charge which, at your election, may be imposed
either at the time of purchase (Class A shares) or on a deferred basis (Class B
shares).

- Class A Shares: Sold with an initial sales charge of up to 4.5% of the
offering price.

- Class B Shares: Sold without an initial sales charge but are subject to
a contingent deferred sales charge or CDSC (declining
from 5% to zero of the lower of the amount invested or
the redemption proceeds) which will be imposed on
certain redemptions made within six years of purchase.

You should understand that over time the deferred sales charge plus
distribution fee of the Class B shares will exceed the initial sales charge plus
the distribution fee for the Class A shares.

See "Shareholder Guide--Alternative Purchase Plan" at page 23.

How Do I Sell My Shares?

You may redeem your shares at any time at the NAV next determined after
Prudential Securities or the Transfer Agent receives your sell order. Although
Class B shares are sold without an initial sales charge, the proceeds of
redemptions of Class B shares held for six years or less may be subject to a
CDSC declining from 5% to zero. See "Shareholder Guide--How To Sell Your Shares"
at page 25.

How are Dividends and Distributions Paid?

The Fund expects to declare daily and pay monthly dividends of net investment
income and make distributions of any net capital gains at least annually.
Dividends and distributions will be automatically reinvested in additional
shares of the Fund at NAV without a sales charge unless you request that they be
paid to you in cash. See "Taxes, Dividends and Distributions" at page 19.

3
<PAGE>
FUND EXPENSES
<TABLE>
<CAPTION>

Class A Shares Class B Shares
(Initial Sales (Deferred Sales
Charge Charge
Shareholder Transaction Expenses+ Alternative) Alternative)
-------------- ------------------------
<S> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)..... 4.5% None
Maximum Sales Load Imposed or Deferred
Sales Load on Reinvested Dividends...... None None
Deferred Sales Load (as a percentage of
original purchase price or redemption
proceeds, whichever is lower)........... None 5% during the first
year, decreasing by 1%
annually to 1% the fifth
and sixth years and 0%
the seventh year.
Redemption Fees.......................... None None
Exchange Fee............................. None None

Annual Fund Operating Expenses
(as a percentage of average net assets) Class A Shares Class B Shares
-------------- ------------------------
<S> <C> <C>
Management Fees.......................... .50% .50%
12b-1 Fees++............................. .15% .90%
Other Expenses........................... .19% .19%
----- ------
Total Fund Operating Expenses............ .84% 1.59%
----- ------
----- ------

</TABLE>

Example 1 year 3 years 5 years 10 years
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period:
Class A................................................ $ 53 $ 71 $ 89 $ 144
Class B................................................ $ 66 $ 80 $ 97 $ 189
You would pay the following expenses on the same
investment, assuming no redemption:
Class A................................................ $ 53 $ 71 $ 89 $ 144
Class B................................................ $ 16 $ 50 $ 87 $ 189
The above example is based on restated data for the Fund's fiscal year ended February 28, 1994. THE EXAMPLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
The purpose of this table is to assist investors in understanding the various costs and expenses that an
investor in the Fund will bear, whether directly or indirectly. For more complete descriptions of the
various costs and expenses, see "How the Fund is Managed." "Other Expenses" include operating expenses of
the Fund, such as Directors' and professional fees, registration fees, reports to shareholders and transfer
agency and custodian fees.

<FN>
---------------
+ Pursuant to rules of the National Association of Securities Dealers, Inc.,
the aggregate initial sales charges, deferred sales charges and asset-based
sales charges on shares of the Fund may not exceed 6.25% of total gross
sales, subject to certain exclusions. This 6.25% limitation is imposed on
the Fund rather than on a per shareholder basis. Therefore, long-term Class
B shareholders of the Fund may pay more in total sales charges than the
economic equivalent of 6.25% of such shareholders' investment in such
shares. See "How the Fund is Managed--Distributor."
++ Although the Class A and Class B Distribution and Service Plans provide
that the Fund may pay a distribution fee of up to .30 of 1% per annum of
the average daily net assets of the Class A shares and up to 1% per annum
of the average daily net assets of the Class B shares, the Distributor has
agreed to limit its distribution fees with respect to Class A shares of the
Fund to no more than .15 of 1% of the average daily net assets of the Class
A shares and to no more than .90 of 1% of the average daily net assets of
the Class B shares for the fiscal year ending February 28, 1995. See "How
the Fund is Managed--Distributor."
</TABLE>

4
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout each of the periods indicated)
(Class A Shares)

The following financial highlights on the Class A shares has been audited by
Deloitte & Touche, independent accountants, whose report thereon was
unqualified. This information should be read in conjunction with the financial
statements and the notes thereto, which appear in the Statement of Additional
Information. The financial highlights contain selected data for a Class A share
of common stock outstanding, total return, ratios to average net assets and
other supplemental data for the periods indicated. The information has been
determined based on data generally as provided in the financial statements.

January 22,
1990+
Years ended February 28/29 through
----------------------------------------- February
1994 1993 1992 1991 28, 1990
-------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 9.40 $ 9.17 $ 9.02 $ 9.00 $ 9.17
-------- -------- -------- -------- -----------
Income from investment operations
Net investment income................... 0.61 0.66 0.68 0.69 0.06
Net realized and unrealized gain (loss)
on investment transactions............. (0.25) 0.35 0.37 0.26 (0.11)
-------- -------- -------- -------- -----------
Total from investment operations.... 0.36 1.01 1.05 0.95 (0.05)
-------- -------- -------- -------- -----------
Less distributions
Dividends from net investment income.... (0.61) (0.66) (0.68) (0.69) (0.06)
Distributions in excess of accumulated
gains.................................. (0.02) -- -- -- --
Distributions from paid-in capital in
excess of par.......................... -- (0.12) (0.22) (0.24) (0.06)
-------- -------- -------- -------- -----------
Total distributions................. (0.63) (0.78) (0.90) (0.93) (0.12)
-------- -------- -------- -------- -----------
Net asset value, end of period.......... $ 9.13 $ 9.40 $ 9.17 $ 9.02 $ 9.00
-------- -------- -------- -------- -----------
-------- -------- -------- -------- -----------
Total Return:# 3.90% 11.55% 12.18% 11.21% (0.54)%
Ratios/Supplemental Data:
Net assets, end of period (000)......... $51,673 $61,297 $33,181 $28,971 $1,961
Average net assets (000)................ $55,921 $48,812 $29,534 $23,428 $ 501
Ratios to average net assets:
Expenses, including distribution
fees............................... 0.84% 0.84% 0.86% 0.85% 0.92%*
Expenses, excluding distribution
fees............................... 0.69% 0.69% 0.71% 0.70% 0.76%*
Net investment income............... 6.48% 7.17% 7.51% 7.76% 9.11%*
Portfolio turnover rate................. 80% 36% 187% 213% 329%

<FN>
-------------
* Annualized.
+ Commencement of offering of Class A shares.
# Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
</TABLE>

5
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout each of the periods indicated)
(Class B Shares)

The following financial highlights on the Class B shares with respect to the
five-year period ended February 28, 1994, has been audited by Deloitte & Touche,
independent accountants, whose report thereon was unqualified. This information
should be read in conjunction with the financial statements and the notes
thereto, which appear in the Statement of Additional Information. The financial
highlights contain selected data for a Class B share of common stock
outstanding, total return, ratios to average net assets and other supplemental
data for the periods indicated. This information has been determined based on
data generally as provided in the financial statements.

Years ended February 28/29
----------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989*** 1988 1987
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of
period........................... $ 9.40 $ 9.17 $ 9.02 $ 9.00 $ 9.09 $ 9.85 $ 10.59 $ 10.60
----- ----- ----- ----- ----- ----- ---------- ----------
Income from investment operations
Net investment income............. 0.53 0.58 0.60 0.62 0.68 0.69 0.67 0.70
Net realized and unrealized gain
(loss) on investment
transactions..................... (0.25) 0.35 0.37 0.26 0.15 (0.49) (0.40) 0.35
----- ----- ----- ----- ----- ----- ---------- ----------
Total from investment
operations................... 0.28 0.93 0.97 0.88 0.83 0.20 0.27 1.05
----- ----- ----- ----- ----- ----- ---------- ----------
Less distributions
Dividends from net investment
income........................... (0.53) (0.58) (0.60) (0.62) (0.68) (0.69) (0.67) (0.70)
Distributions from net realized
gains............................ -- -- -- -- -- -- (0.24) (0.36)
Distributions in excess of
accumulated gains................ (.02) -- -- -- -- -- -- --
Distributions from paid-in capital
in excess of par................. -- (0.12) (0.22) (0.24) (0.24) (0.27) (0.10) --
----- ----- ----- ----- ----- ----- ---------- ----------
Total distributions........... (0.55) (0.70) (0.82) (0.86) (0.92) (0.96) (1.01) (1.06)
----- ----- ----- ----- ----- ----- ---------- ----------
Net asset value, end of period.... $ 9.13 $ 9.40 $ 9.17 $ 9.02 $ 9.00 $ 9.09 $ 9.85 $ 10.59
----- ----- ----- ----- ----- ----- ---------- ----------
----- ----- ----- ----- ----- ----- ---------- ----------
Total Return:# 3.03% 10.61% 11.27% 10.35% 10.49% 2.32% 3.36% 10.30%
Ratios/Supplemental Data:
Net assets, end of period (000)... $2,202,555 $2,680,259 $2,724,428 $3,127,587 $3,760,003 $3,814,945 $3,995,721 $4,090,417
Average net assets (000).......... $2,487,990 $2,870,924 $2,903,704 $3,432,948 $3,814,455 $3,984,300 $3,796,998 $3,978,186
Ratios to average net assets:
Expenses, including
distribution fees............ 1.68% 1.69% 1.71% 1.67% 1.49% 1.35% 1.60% 1.53%
Expenses, excluding
distribution fees............ 0.69% 0.69% 0.71% 0.70% 0.64% 0.63% 0.65% 0.61%
Net investment income......... 5.64% 6.32% 6.66% 6.94% 7.46% 7.61% 6.88% 6.56%
Portfolio turnover rate........... 80% 36% 187% 213% 329% 278% 147% 266%

<CAPTION>
April 22, 1985*
through
February 28,
1986
---------------
<S> <C>
Per Share Operating Performance:
Net asset value, beginning of
period........................... $10.00
------
Income from investment operations
Net investment income............. 0.74+
Net realized and unrealized gain
(loss) on investment
transactions..................... 0.84
------
Total from investment
operations................... 1.58
------
Less distributions
Dividends from net investment
income........................... (0.74)
Distributions from net realized
gains............................ (0.24)
Distributions in excess of
accumulated gains................ --
Distributions from paid-in capital
in excess of par................. --
------
Total distributions........... (0.98)
------
Net asset value, end of period.... $10.60
------
------
Total Return:# 16.55%
Ratios/Supplemental Data:
Net assets, end of period (000)... $3,943,495
Average net assets (000).......... $2,876,209
Ratios to average net assets:
Expenses, including
distribution fees............ 1.48%**+
Expenses, excluding
distribution fees............ 0.54%**+
Net investment income......... 8.10%**+
Portfolio turnover rate........... 245%

<FN>
- -------------
* Commencement of operations.
** Annualized.
*** On July 1, 1988, Prudential Mutual Fund Management, Inc. succeeded The
Prudential Insurance Company of America as investment adviser and since then
has acted as manager of the Fund. See "Manager" in the Statement of
Additional Information.
+ Net of expense subsidy.
# Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
</TABLE>

6
<PAGE>
HOW THE FUND INVESTS

INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is to seek a high current return. High current
return means the return received from interest income from U.S. Government and
other debt securities and from net gains realized from sales of portfolio
securities. The Fund may also realize income from premiums from covered put and
call options written by the Fund on U.S. Government securities as well as
options on futures contracts on U.S. Government securities and net gains from
closing purchase and sales transactions with respect to these options. At least
65% of the total assets of the Fund will be invested in U.S. Government
securities. There can be no assurance that the Fund's investment objective will
be achieved. See "Investment Objective and Policies" in the Statement of
Additional Information.

The Fund's net asset value will vary with changes in the values of the Fund's
portfolio securities, which values will generally vary inversely with changes in
interest rates. The writing of options on U.S. Government securities and options
on futures contracts on U.S. Government securities may limit the Fund's
potential for capital gains on its portfolio.

The Fund's investment objective is a fundamental policy and, therefore, may
not be changed without the approval of the holders of a majority of the Fund's
outstanding voting securities as defined in the Investment Company Act of 1940,
as amended (the Investment Company Act). Fund policies that are not fundamental
may be modified by the Board of Directors.

U.S. Government Securities

U.S. Treasury Securities

The Fund will invest in U.S. Treasury securities, including Bills, Notes,
Bonds and other debt securities issued by the U.S. Treasury. These instruments
are direct obligations of the U.S. Government and, as such, are backed by the
"full faith and credit" of the United States. They differ primarily in their
interest rates, the lengths of their maturities and the dates of their
issuances.

Securities Issued or Guaranteed by U.S. Government Agencies and
Instrumentalities

The Fund will invest in securities issued by agencies of the U.S. Government
or instrumentalities of the U.S. 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 Export-Import Bank 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 Fund must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment and may not be able to assert
a claim against the United States if the agency or instrumentality does not meet
its commitments. Securities in which the Fund may invest which are not backed by
the full faith and credit of the United States include obligations such as those
issued by the Tennessee Valley Authority, the Federal National Mortgage
Association (FNMA), the Federal Home Loan Mortgage Corporation (FHLMC) 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 Bank and the Federal Home Loan Bank, the obligations of which may
only be satisfied by the individual credit of the issuing agency. GNMA, FNMA and
FHLMC investments may include collateralized mortgage obligations. See "Other
Investments and Policies" below.

7
<PAGE>
Obligations issued or guaranteed as to principal and interest by the United
States Government may be acquired by the Fund 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
commonly referred to as Treasury strips.

Mortgage-Related Securities Issued by U.S. Government Agencies and
Instrumentalities

The Fund will invest in mortgage-backed securities, including those
representing an undivided ownership interest in a pool of mortgages, E.G., GNMA,
FNMA and FHLMC Certificates. The U.S. Government or the issuing agency
guarantees the payment of interest and principal of these securities. However,
the guarantees do not extend to the securities' yield or value, which are likely
to vary inversely with fluctuations in interest rates, nor do the guarantees
extend to the yield or value of the Fund's shares. See "Investment Objective and
Policies--U.S. Government Securities--Mortgage-Related Securities Issued by U.S.
Government Instrumentalities" in the Statement of Additional Information. These
certificates are in most cases "pass-through" instruments, through which the
holder receives a share of all interest and principal payments from the
mortgages underlying the certificate, net of certain fees. Because the
prepayment characteristics of the underlying mortgages vary, it is not possible
to predict accurately the average life of a particular issue of pass-through
certificates. Mortgage-backed securities are often subject to more rapid
repayment than their stated maturity date would indicate as a result of the
pass-through of prepayments of principal on the underlying mortgage obligations.
During periods of declining interest rates, prepayment of mortgages underlying
mortgage-backed securities can be expected to accelerate. The Fund's ability to
maintain a portfolio of high-yielding mortgage-backed securities will be
adversely affected to the extent that prepayments of mortgages must be
reinvested in securities which have lower yields than the prepaid mortgages.
Moreover, prepayments of mortgages which underlie securities purchased at a
premium could result in capital losses.

The Fund may also invest in balloon payment mortgage-backed securities. A
balloon payment mortgage-backed security is an amortizing mortgage security with
installments of principal and interest, the last installment of which is
predominantly principal.

The Fund 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 mortgage assets, and a rapid rate of principal payments may
have a material adverse effect on yield to maturity. If the underlying mortgage
assets experience greater than anticipated prepayments of principal, the Fund
may not fully recoup its initial investment in these securities. Conversely, if
the underlying mortgage assets experience less than anticipated prepayments of
principal, the yield on POs could be materially adversely affected.

OTHER INVESTMENTS AND POLICIES

At least 65% of the total assets of the Fund will be invested in U.S.
Government securities, as described above. U.S. Government securities which are
purchased pursuant to repurchase agreements or on a when-issued or delayed
delivery basis will be treated as U.S. Government securities for purposes of
this calculation. See "Repurchase Agreements" and "When-Issued and Delayed
Delivery Securities" below.

Up to 35% of the total assets of the Fund may be committed to investments
other than U.S. Government securities. These investments would include the
securities described in this subsection as well as purchased put and call
options and purchased put options on futures contracts. See "Options
Transactions" and "Transactions in Futures Contracts on U.S. Government
Securities and Options Thereon" below.

The Fund is permitted to invest up to 20% of its total assets in high quality
money market instruments, including commercial paper of domestic corporations
and certificates of deposit, bankers' acceptances and other obligations

8
<PAGE>

of domestic and foreign banks. Such obligations will, at the time of purchase,
be rated within the two highest quality grades as determined by a nationally
recognized statistical rating organization (such as Moody's Investors Service
(Moody's) or Standard & Poor's Ratings Group (S&P)) or, if unrated, will be of
equivalent quality in the judgment of the Fund's Subadviser.

The Fund may invest in obligations of foreign banks and foreign branches of
U.S. banks only if after giving effect to such investment all such investments
would constitute less than 10% of the Fund's total assets (determined at the
time of investment). These investments may be subject to certain risks,
including future political and economic developments, the possible imposition of
withholding taxes on interest income, the seizure or nationalization of foreign
deposits and foreign exchange controls or other restrictions. In addition, there
may be less publicly available information about a foreign bank or foreign
branch of a U.S. bank than about a domestic bank and such entities may not be
subject to the same accounting, auditing and financial recordkeeping standards
and requirements as domestic banks.

The Fund may also purchase obligations of the International Bank for
Reconstruction and Development (the World Bank). Obligations of the World Bank
are supported by appropriated but unpaid commitments of its member countries,
including the U.S., and there is no assurance these commitments will be
undertaken or met in the future.

The Fund may also purchase collateralized mortgage obligations (CMOs) and Real
Estate Mortgage Investment Conduits (REMICs). A CMO is a security issued by a
corporation or a U.S. Government instrumentality which 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. CMOs are partitioned into several
classes with a ranked priority by which the classes of obligations are redeemed.
The Fund may invest in privately-issued CMOs which are collateralized by
mortgage-backed securities issued or guaranteed by GNMA, FHLMC or FNMA or issued
by any other agency or instrumentality of the U.S. Government. The Fund may also
invest in privately-issued CMOs collateralized by whole loans or private
mortgage pass-through securities and balloon payment mortgage-backed securities.
A REMIC may be issued by a trust, partnership, corporation, association, or a
segregated pool of mortgages, or an agency of the U.S. Government and, in each
case, must qualify and elect treatment as such under the Tax Reform Act of 1986.
A REMIC must consist of one or more classes of "regular interests," some of
which may be adjustable rate, and a single class of "residual interests." To
qualify as a REMIC, substantially all the assets of the entity must be in assets
directly or indirectly secured, principally by real property. The Fund does not
intend to invest in residual interests and will only invest in REMICs rated AAA
by S&P or Aaa by Moody's. CMOs and REMICs issued by an agency or instrumentality
of the U.S. Government are considered U.S. Government securities for purposes of
this Prospectus. In reliance on rules and interpretations of the Securities and
Exchange Commission (SEC), the Fund's investments in certain qualifying CMOs and
REMICs are not subject to the limitation of the Investment Company Act of 1940
(the Investment Company Act) on acquiring interests in other investment
companies. See "Investment Objective and Policies--Collateralized Mortgage
Obligations" in the Statement of Additional Information.

The Fund may also invest up to 20% of its total assets in asset-backed
securities. Through the use of trusts and special purpose subsidiaries, various
types of assets, primarily home equity loans and automobile and credit card
receivables, have been securitized in pass-through structures similar to
mortgage pass-through structures or in a pay-through structure similar to the
collateralized mortgage structure. The Fund 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. Primarily, these securities do not have the benefit of the same
security interest in the related collateral. Credit card receivables are
generally unsecured. In connection with automobile receivables, the security
interests in the underlying automobiles are often not transferred when the pool
is created, with the resulting possibility that the collateral could be resold.
In general, these types of loans are of shorter average life than mortgage loans
and are less likely to have substantial prepayments. The Fund will only invest
in asset-backed securities rated at least AA by S&P or Aa by Moody's.

9
<PAGE>
Options Transactions

Purchasing Options

The Fund may purchase put and call options on U.S. Government securities. The
Fund may purchase a put option in an effort to protect the value of a security
which it owns against a substantial decline in market value (protective puts),
if the Fund's investment adviser believes that a defensive posture is warranted
for a portion of the portfolio. The Fund may also purchase a put option to cover
a put option it has written or to close an existing option position.

The Fund may wish to protect certain portfolio securities against a decline in
market value at a time when put options on those particular securities are not
available for purchase. The Fund may therefore purchase a put option on
securities other than those it wishes to protect even though it does not hold
such other securities in its portfolio. While changes in the value of the put
option should generally offset changes in the value of the securities being
hedged, the correlation between the two values may not be as close in these
transactions as in transactions in which the Fund purchases a put option on an
underlying security it owns.

The Fund may purchase call options on debt securities it intends to acquire in
order to hedge against an anticipated market appreciation in the price of the
underlying securities at limited risk and with a limited cash outlay. If the
market price does rise as anticipated, the Fund will benefit from that rise but
only to the extent that the rise exceeds the premiums paid. If the anticipated
rise does not occur or if it does not exceed the premium, the Fund will bear the
expense of the option premiums and transaction costs without gaining an
offsetting benefit. The Fund may also purchase a call option to close an
existing option position.

Writing Covered Options

The Fund writes (I.E., sells) covered put and call options on U.S. Government
securities. When the Fund writes an option, it receives a premium which it
retains whether or not the option is exercised. The Fund's principal reason for
writing options is to realize, through the receipt of premiums, a greater
current return than would be realized on the underlying securities alone.

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). By writing a call option, the Fund becomes obligated during the
term of the option, upon exercise of the option, to sell the underlying
securities to the purchaser against receipt of the exercise price. When the Fund
writes a call option, the Fund loses the potential for gain on the underlying
securities during the period that the option is open.

Conversely, 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 a specified exercise price. By writing a put option, the Fund becomes
obligated during the term of the option to purchase the securities underlying
the option at the exercise price, upon exercise of the option. The Fund might,
therefore, be obligated to purchase the underlying securities for more than
their current market price.

The Fund may also write straddles (I.E., a combination of a call and a put
written on the same security at the same strike price where the same issue of
the security is considered "cover" for both the put and the call). In such
cases, the Fund will also segregate or deposit cash, U.S. Government securities
or liquid high-grade debt obligations equivalent to the amount, if any, by which
the put is "in the money." It is contemplated that the Fund's use of straddles
will be limited to 5% of the Fund's net assets (meaning that the securities used
for cover or segregated as described above will not exceed 5% of the Fund's net
assets at the time the straddle is written).

An exchange-traded option position may be closed out only on an exchange which
provides a secondary market for an option of the same series. Although the Fund
will generally purchase or write only those exchange-traded 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 at
any particular time. If a secondary market does not exist, it might not be
possible to effect a closing transaction in a

10
<PAGE>
particular option. If the Fund, as a covered call option writer, is unable to
effect a closing purchase transaction, it will not be able to sell the
underlying securities until the option expires or is exercised or it otherwise
covers the position.

The Fund will not purchase a put or call option on U.S. Government securities
if, as a result of such purchase, more than 20% of its total assets would be
invested in premiums for such options and on options on futures contracts on
U.S. Government securities. The Fund's ability to purchase put and call options
may be limited by the Internal Revenue Code's requirements for qualification as
a regulated investment company. See "Taxes, Dividends and Distributions--Listed
Options and Futures" in the Statement of Additional Information.

Other Considerations

All options purchased or sold by the Fund will be traded on a U.S. securities
exchange or will be purchased or sold by a primary government securities dealer
recognized by the Federal Reserve Bank of New York (OTC options). While
exchange-traded options are in effect guaranteed by The Options Clearing
Corporation, the Fund relies on the dealer from whom it purchases an OTC option
to perform if the option is exercised. The Fund's investment adviser monitors
the creditworthiness of dealers with whom the Fund enters into OTC option
transactions under the general supervision of the Fund's Board of Directors. The
Fund's ability to enter into options contracts may be limited by the
requirements of the Internal Revenue Code of 1986, as amended (the Internal
Revenue Code) for qualification as a registered investment company. See the
Statement of Additional Information for additional information on options
transactions.

Transactions in Futures Contracts on U.S. Government Securities and Options
Thereon

The Fund may purchase and sell futures contracts on U.S. Government securities
(futures contracts) that are traded on U.S. commodity exchanges. A futures
contract on a U.S. Government security, other than GNMA's which are cash
settled, is an agreement to purchase or sell an agreed amount of such securities
at a set price for delivery on an agreed future date. The Fund may purchase a
futures contract as a hedge against an anticipated decline in interest rates,
and resulting increase in market price, in securities the Fund intends to
acquire. The Fund may sell a futures contract as a hedge against an anticipated
increase in interest rates, and resulting decline in market price, in securities
the Fund owns.

The Fund may also purchase and write (I.E., sell) "covered" call and put
options on futures contracts on U.S. Government securities that are traded on
U.S. commodity exchanges. The Fund will write options on futures contracts for
hedging purposes, as well as to realize through the receipt of premium income, a
greater return than would be realized on the Fund's portfolio securities alone.
An option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option exercise period. The writer of the
option is required upon exercise to assume an offsetting futures position (a
short position if the option is a call and a long position if the option is a
put). Upon exercise of the option, the assumption of offsetting futures
positions by the writer and holder of the option will be accompanied by delivery
of the accumulated cash balance in the writer's futures margin account which
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract.

The Fund may also from time to time purchase Eurodollar instruments traded on
the Chicago Mercantile Exchange. Eurodollar instruments are essentially U.S.
dollar-denominated futures contracts or options thereon which are linked to the
London Interbank Offered Rate (LIBOR). Eurodollar futures contracts enable
purchasers to obtain a fixed rate for the lending of funds and sellers to obtain
a fixed rate for borrowings. The Fund intends to use Eurodollar futures
contracts and options thereon to hedge against changes in LIBOR, to which many
interest rate swaps are linked. The use of these instruments is subject to the
same limitations and risks as those applicable to the use of interest rate
futures contracts and options thereon.

The Fund may also enter into closing transactions with respect to futures
contracts and options thereon to terminate existing positions. The Fund's
ability to enter into transactions in futures contracts and options thereon may
be

11
<PAGE>
limited by the Internal Revenue Code's requirements for qualification as a
regulated investment company. In addition, the Fund may not sell futures
contracts or purchase or sell related options for other than bona fide hedging
purposes if immediately thereafter the sum of the amount of initial margin
deposits on the Fund's existing futures and options on futures and for premiums
paid for such related options would exceed 5% of the liquidation value of the
Fund's total assets, after taking into account unrealized profits and unrealized
losses on any such contracts the Fund has entered into; provided, however, that
in the case of an option that is in-the-money at the time of purchase, the
in-the-money amount may be excluded in computing such 5% limitation.

Characteristics and Purposes of Interest Rate Futures

The Fund will purchase and sell futures contracts primarily to hedge its
actual or anticipated holdings of U.S. Government securities. There is generally
an inverse relationship between interest rates and bond prices. Generally, when
interest rates increase, bond prices will decline; when interest rates decline,
bond prices will increase. For example, if the Fund holds cash reserves or
short-term debt securities at a time that interest rates are expected to
decline, the Fund might purchase futures contracts as a hedge against
anticipated increases in the price of the U.S. Government securities that the
Fund intends to acquire (an anticipatory hedge).

Characteristics and Purposes of Options on Futures Contracts on U.S.
Government Securities

When an option on a futures contract is exercised, the writer of the option
delivers the futures position as well as the accumulated 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 Fund will be required to deposit initial and variation margin with
respect to options on futures contracts written by it.

The Fund will purchase put options on futures contracts primarily to hedge its
portfolio of U.S. Government securities against the risk of rising interest
rates, and the consequent decline in the prices of U.S. Government securities it
owns. The Fund will purchase call options on futures contracts to hedge the
Fund's portfolio against a possible market advance at a time when the Fund is
not fully invested in U.S. Government securities (other than Treasury Bills).

The Fund also will write call options on futures contracts as a hedge against
a modest decline in prices of debt securities held in the Fund's portfolio and
to earn additional income. If the futures price at expiration of the option is
below the exercise price, the Fund will retain the full amount of the option
premium thereby partially hedging against any decline that may have occurred in
the Fund's holdings of debt securities. If the futures price when the option is
exercised is above the exercise price, however, the Fund will incur a loss,
which may be wholly or partially offset by the increase of the value of the
securities in the Fund's portfolio which were being hedged.

Writing a put option on a futures contract serves as a partial hedge against
an increase in the value of debt securities the Fund intends to acquire. If the
futures price at expiration of the option is above the exercise price, the Fund
will retain the full amount of the option premium thereby partially hedging
against any increase that may have occurred in the price of the debt securities
the Fund intends to acquire. If the futures price when the option is exercised
is below the exercise price, however, the Fund will incur a loss, which may be
wholly or partially offset by the decrease of the price of the securities the
Fund intends to acquire. The Fund will also write options on futures contracts
in whole or in part to enhance its current return through the receipt of premium
income.

See "Investment Objective and Policies--Futures Contracts on U.S. Government
Securities" in the Statement of Additional Information.

Special Risk Considerations

Certain risks are inherent in the Fund's use of futures contracts and options
on futures. One such risk arises because the correlation between movements in
the price of futures and movements in the price of debt securities that are the
subject of the hedge will not be perfect. Another risk is that the movements in
the price of futures or options on futures may not move inversely

12
<PAGE>
with changes in interest rates. If the Fund has sold futures contracts to hedge
securities held by the Fund and the value of the futures position declines more
than the price of such securities increases, the Fund will realize a loss on the
futures contracts which is not completely offset by the appreciation in the
price of the hedged securities. Similarly, if the Fund has written a call on a
futures contract and the value of the call increases by more than the increase
in the value of the securities held as cover, the Fund may realize a loss on the
call which is not completely offset by the appreciation in the price of the
securities held as cover and the premium received for writing the call.

Repurchase Agreements

The Fund may on occasion enter into repurchase agreements, whereby the seller
agrees to repurchase a security from the Fund at a mutually agreed-upon time and
price. The repurchase date is usually within a day or two of the original
purchase date although it may extend over a number of months. The resale price
is in excess of the purchase price, reflecting an agreed-upon rate of return
effective for the period of time the Fund's money is invested in the security.
The Fund's repurchase agreements will at all times be fully collateralized in an
amount at least equal to the purchase price including accrued interest earned on
the underlying securities. The instruments held as collateral are valued daily,
and if the value of instruments declines, the Fund will require additional
collateral. If the seller defaults and the value of the collateral securing the
repurchase agreement declines, the Fund may incur a loss. The Fund participates
in a joint repurchase account with other investment companies managed by
Prudential Mutual Fund Management, Inc. pursuant to an order of the SEC. See
"Investment Objective and Policies--Repurchase Agreements" in the Statement of
Additional Information.

Securities Lending

The Fund may lend its portfolio securities to brokers or dealers, banks or
other recognized institutional borrowers of securities, provided that the
borrower at all times maintains cash or equivalent collateral or secures a
letter of credit in favor of the Fund in an amount equal to at least 100% of the
market value of the securities loaned. During the time portfolio securities are
on loan, the borrower will pay the Fund an amount equivalent to any dividend or
interest paid on such securities and the Fund may invest the cash collateral and
earn additional income, or it may receive an agreed-upon amount of interest
income from the borrower. As a matter of fundamental policy, the Fund cannot
lend more than 30% of the value of its total assets.

When-Issued and Delayed Delivery Securities

The Fund may purchase or sell U.S. Government securities on a when-issued or
delayed delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased or sold by the Fund with payment and delivery taking
place as much as a month or more in the future in order to secure what is
considered to be an advantageous price and yield to the Fund at the time of
entering into the transaction. The Fund's Custodian will maintain, in a
segregated account of the Fund, cash, U.S. Government securities or other liquid
high-grade debt obligations having a value equal to or greater than the Fund's
purchase commitments; the Custodian will likewise segregate securities sold on a
delayed delivery basis. The securities so purchased are subject to market
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
Fund's assets committed to the purchase of securities on a when-issued or
delayed delivery basis may increase the volatility of the Fund's net asset
value.

OTHER INVESTMENT INFORMATION

The Fund is permitted to use the following investment techniques, although it
does not anticipate that any of them will constitute a significant component of
its investment program.

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<PAGE>
Zero Coupon Bonds

The Fund may invest up to 5% of its total assets in zero coupon U.S.
Government securities. Zero coupon bonds are purchased at a discount from the
face amount because the buyer receives only the right to receive a fixed payment
on a certain date in the future and does not receive any periodic interest
payments. The effect of owning instruments which do not make current interest
payments is that a fixed yield is earned not only on the original investment but
also, in effect, on all discount accretion during the life of the obligations.
This implicit reinvestment of earnings at the same rate eliminates the risk of
being unable to reinvest distributions at a rate as high as the implicit yield
on the zero coupon bond, but at the same time eliminates the holder's ability to
reinvest at higher rates in the future. For this reason, zero coupon bonds are
subject to substantially greater price fluctuations during periods of changing
market interest rates than are comparable securities which pay interest
currently, which fluctuation increases the longer the period to maturity.

Short Sales Against-the-Box

The Fund may make short sales against-the-box for the purpose of deferring
realization of gain or loss for federal income tax purposes. A short sale
"against-the-box" is a short sale in which the Fund owns an equal amount of the
securities sold short or securities convertible into or exchangeable, without
payment of any further consideration, for securities of the same issue as, and
equal in amount to, the securities sold short. The Fund may engage in such short
sales only to the extent that not more than 10% of the Fund's net assets
(determined at the time of the short sale) are held as collateral for such
sales.

Borrowing

The Fund may borrow money in an amount up to 20% of the value of its total
assets (not including the amount of such borrowings) for temporary,
extraordinary or emergency purposes or for the clearance of transactions. The
Fund may pledge up to 20% of the value of its total assets to secure such
borrowings.

Illiquid Securities

The Fund may invest up to 10% of its total assets (determined at the time of
investment) in illiquid securities, including securities for which market
quotations are not readily available and in repurchase agreements which have a
maturity longer than seven days. The staff of the SEC has taken the position
that purchased OTC options and the assets used as "cover" for written OTC
options are illiquid securities. However, the Fund may treat the securities it
uses as cover for written OTC options as liquid provided it follows a specified
procedure. The Fund may sell OTC options only to qualified dealers who agree
that the Fund may repurchase any OTC options it writes for a maximum price to be
calculated by a predetermined formula. In such cases, the OTC option would be
considered illiquid only to the extent that the maximum repurchase price under
the formula exceeds the intrinsic value of the option.

When the Fund enters into interest rate swaps on other than a net basis, the
entire amount of the Fund's obligations, if any, with respect to such interest
rate swaps will be treated as illiquid. To the extent that the Fund enters into
interest rate swaps on a net basis, the net amount of the excess, if any, of the
Fund's obligations over its entitlements with respect to each interest rate swap
will be treated as illiquid.

Dollar Rolls

The Fund may enter into dollar rolls in which the Fund 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 Fund forgoes principal and
interest paid on the securities. The Fund is compensated by the difference
between the current sales price and the forward price for the future purchase
(often referred to as the "drop") as well as by the interest earned on the cash
proceeds of the initial sale.

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<PAGE>
The Fund will establish a segregated account with its custodian in which it
will maintain cash, U.S. Government securities or other liquid high-grade debt
obligations equal in value to its obligations in respect to dollar rolls. Dollar
rolls are considered borrowings by the Fund for purposes of the percentage
limitations applicable to borrowings.

Interest Rate Transactions

The Fund may enter into interest rate swaps. Interest rate swaps involve the
exchange by the Fund with another party of their respective commitments to pay
or receive interest, E.G., an exchange of floating rate payments for fixed rate
payments. The Fund expects to enter into these transactions primarily to
preserve a return or spread on a particular investment or portion of its
portfolio or to protect against any increase in the price of securities the Fund
anticipates purchasing at a later date. The Fund intends to use these
transactions as a hedge and not as a speculative investment. See "Investment
Objective and Policies--Interest Rate Transactions" in the Statement of
Additional Information.

Portfolio Turnover and Brokerage

Based on its experience in managing similar investment products, the
investment adviser expects that, under normal circumstances, if the Fund writes
substantial numbers of options, and those options are exercised, the Fund's
portfolio turnover rate may be as high as 250% or higher. Such a rate would
significantly exceed that of a fund invested exclusively in U.S. Government
securities. See "Investment Objective and Policies--Options Transactions" in the
Statement of Additional Information. While the Fund will pay commissions in
connection with its options and futures transactions, U.S. Government securities
are generally traded on a "net" basis with dealers acting as principal for their
own accounts without a stated commission. Nevertheless, high portfolio turnover
may involve correspondingly greater brokerage commissions and other transaction
costs, which will be borne directly by the Fund. See "Portfolio Transactions and
Brokerage" in the Statement of Additional Information.

INVESTMENT RESTRICTIONS

The Fund is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company Act.

See "Investment Restrictions" in the Statement of Additional Information.

HOW THE FUND IS MANAGED

The Fund has a Board of Directors which, in addition to overseeing the actions
of the Fund's Manager, Subadviser and Distributor, as set forth below, decides
upon matters of general policy. The Fund's Manager conducts and supervises the
daily business operations of the Fund. The Fund's Subadviser furnishes daily
investment advisory services.

For the fiscal year ended February 28, 1994, the total expenses as a
percentage of average net assets for the Fund's Class A and Class B shares were
0.84% and 1.68%, respectively. See "Financial Highlights."

MANAGER

Prudential Mutual Fund Management, Inc. (PMF or the Manager), One Seaport
Plaza, New York, New York 10292, is the Manager of the Fund and is compensated
for its services at an annual rate of .50 of 1% of the Fund's average daily net
assets up to $3 billion and .35 of 1% of the average daily net assets in excess
of $3 billion. It was incorporated in May 1987 under the laws of the State of
Delaware.

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<PAGE>

For the fiscal year ended February 28, 1994, the Fund paid management fees to
PMF of .50% of the Fund's average daily net assets. See "Manager" in the
Statement of Additional Information.

As of May 31, 1994, PMF served as the manager to 37 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 29 closed-end investment companies with aggregate assets of
approximately $48 billion.

Under the Management Agreement with the Fund, PMF manages the investment
operations of the Fund and also administers the Fund's corporate affairs. See
"Manager" in the Statement of Additional Information.

Under the Subadvisory Agreement between PMF and The Prudential Investment
Corporation (PIC or the Subadviser), PIC furnishes investment advisory services
in connection with the management of the Fund and is reimbursed by PMF for its
reasonable costs and expenses incurred in providing such services. Under the
Management Agreement, PMF continues to have responsibility for all investment
advisory services and supervises PIC's performance of such services.

The current portfolio manager of the Fund is Martin Lawlor, a Managing
Director of Prudential Investment Advisors, a unit of The Prudential Investment
Corporation. Mr. Lawlor has responsibility for the day-to-day management of the
Fund's portfolio. Mr. Lawlor has managed the Fund's portfolio since 1991 and has
been employed by PIC as a portfolio manager since 1984. Mr. Lawlor also serves
as the portfolio manager of The Prudential Institutional Balanced Fund.

Beginning in early July 1994, Barbara L. Kenworthy will replace Mr. Martin
Lawlor as portfolio manager of the Fund. Ms. Kenworthy is a managing director
and senior portfolio manager of Prudential Investment Advisors and she will have
responsibility for the day to day management of the Fund's portfolio. Ms.
Kenworthy was previously employed by The Dreyfus Corporation (from June 1985 to
June 1994) and served as president and portfolio manager for several Dreyfus
fixed-income funds. Prior to that, she was with Chase Investors Management, a
subsidiary of Chase Manhattan Bank, N.A. (from 1966 to June 1985) where she
managed domestic and offshore fixed-income accounts.

PMF and PIC are indirect, wholly-owned subsidiaries of The Prudential
Insurance Company of America (Prudential), a major diversified insurance and
financial services company.

DISTRIBUTOR

Prudential Mutual Fund Distributors, Inc. (PMFD), One Seaport Plaza, New York,
New York 10292, is a corporation organized under the laws of the State of
Delaware and serves as the distributor of the Class A shares of the Fund. It is
a wholly-owned subsidiary of PMF.

Prudential Securities Incorporated (Prudential Securities or PSI), One Seaport
Plaza, New York, New York 10292, is a corporation organized under the laws of
the State of Delaware and serves as the distributor of the Class B shares of the
Fund. It is an indirect, wholly-owned subsidiary of Prudential.

Under separate Distribution and Service Plans (the Class A Plan and the Class
B Plan, collectively, the Plans) adopted by the Fund under Rule 12b-1 under the
Investment Company Act and separate distribution agreements (the Distribution
Agreements), PMFD and Prudential Securities (collectively the Distributor) incur
the expenses of distributing the Fund's Class A and Class B shares,
respectively. These expenses include commissions and account servicing fees paid
to, or on account of, financial advisers of Prudential Securities and Pruco
Securities Corporation (Prusec), an affiliated broker-dealer, commissions and
account servicing fees paid to, or on account of, other broker-dealers or
financial institutions (other than national banks) which have entered into
agreements with the Distributor, interest and/or carrying charges (Class B only)
advertising expenses, the cost of printing and mailing prospectuses to potential
investors and indirect and

16
<PAGE>
overhead costs of Prudential Securities and Prusec associated with the sale of
Fund shares, including lease, utility, communications and sales promotion
expenses. The State of Texas requires that shares of the Fund may be sold in
that state only by dealers or other financial institutions which are registered
there as broker-dealers.

The Board of Directors of the Fund has approved amendments to the Plans that
would, among other things, change the Plans from reimbursement-type plans to
compensation-type plans. The Fund expects to present the amended plans to
shareholders for their approval shortly. See "General Information--Additional
Information."

Under the Class A Plan, the Fund reimburses PMFD for its distribution-related
expenses with respect to Class A shares at an annual rate of up to .30 of 1% of
the average daily net assets of the Class A shares. The Class A Plan provides
that (i) up to .25 of 1% of the average daily net assets of the Class A shares
may be used to pay for personal service and/ or the maintenance of shareholder
accounts (service fee) and (ii) total distribution fees (including the service
fee of up to .25 of 1%) may not exceed .30 of 1% of the average daily net assets
of the Class A shares. It is expected that in the case of Class A shares,
proceeds from the distribution fee will be used primarily to pay account
servicing fees to financial advisers. Unlike the Class B Plan, there are no
carry forward amounts under the Class A Plan, and interest expenses are not
incurred under the Class A Plan. PMFD has advised the Fund that
distribution-related expenses under the Class A Plan will not exceed .15 of 1%
of the average daily net assets of the Class A shares for the fiscal year ending
February 28, 1995.

For the fiscal year ended February 28, 1994, PMFD incurred distribution
expenses under the Class A Plan of $86,160, all of which was recovered through
the distribution fee paid by the Fund to PMFD. In addition, for this period,
PMFD received approximately $405,000 in initial sales charges from Class A
shareholders of the Fund.

Under the Class B Plan, the Fund reimburses Prudential Securities for its
distribution-related expenses with respect to Class B shares (asset-based sales
charges) at an annual rate of up to .75 of 1% of the average daily net asset
value of the Class B shares up to $3 billion, .55 of 1% of the next $1 billion
of such net asset value and .25 of 1% of such net asset value in excess of $4
billion. Prudential Securities recovers the distribution expenses it incurs
through the receipt of reimbursement payments from the Fund under the Class B
Plan and the receipt of contingent deferred sales charges from certain redeeming
shareholders. See "Shareholder Guide--How to Sell Your Shares--Contingent
Deferred Sales Charge-- Class B Shares." For the fiscal year ended February 28,
1994, Prudential Securities received approximately $2,533,000 in contingent
deferred sales charges.

The Class B Plan also provides for the payment of a service fee to Prudential
Securities at a rate not to exceed .25 of 1% of the average daily net asset
value of the Class B shares. The service fee is used to pay for personal service
and/or the maintenance of shareholder accounts.

Actual distribution expenses (asset-based sales charges) for Class B shares
for any given year may exceed the fees received pursuant to the Class B Plan and
will be carried forward and paid by the Fund in future years so long as the
Class B Plan is in effect. Interest is accrued monthly on such carry forward
amounts at a rate comparable to that paid by Prudential Securities for bank
borrowings. See "Distributor" in the Statement of Additional Information.

The aggregate distribution fee for Class B shares (asset-based sales charges
plus service fees) will not exceed the annual rate of up to 1% of the average
daily net asset value of the Class B shares up to $3 billion, .80 of 1% of the
next $1 billion of such net asset value and .50 of 1% of such net asset value in
excess of $4 billion under the Class B Plan.

For the fiscal year ended February 28, 1994, Prudential Securities received a
distribution fee of $24,706,451 from the Fund under the Class B Plan. It is
estimated that Prudential Securities incurred aggregate distribution expenses
under the Class B Plan of approximately $18,628,600 on behalf of the Fund during
the year ended February 28, 1994. At February 28, 1994, the aggregate amount of
distribution expenses incurred by the Distributor and not reimbursed by the Fund
or recovered through contingent deferred sales charges was approximately
147,003,000 or approximately 6.67% of the Class B year end net assets.

17
<PAGE>

These unreimbursed amounts may be recovered through future payments under the
Class B Plan or through contingent deferred sales charges.

For the fiscal year ended February 28, 1994, the Fund paid distribution
expenses of .15% and .99% of the average net assets of the Class A and Class B
shares, respectively. The Fund records all payments made under the Plans as
expenses in the calculation of net investment income.

Distribution expenses attributable to the sale of shares of the Fund will be
allocated to each class based upon the ratio of sales of each class to the sales
of all shares of the Fund other than expenses allocable to a particular class.
The distribution fee and sales charge of one class will not be used to subsidize
the sale of another class.

Each Plan provides that it shall continue in effect from year to year provided
that a majority of the Board of Directors of the Fund, including a majority of
the Directors 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 the Plan or any agreement related to the Plan (the Rule 12b-1
Directors), vote annually to continue the Plan. Each Plan may be terminated at
any time by vote of a majority of the Rule 12b-1 Directors or of a majority of
the outstanding shares of the applicable class of the Fund. In the event of
termination or noncontinuation of the Class B Plan, the Board of Directors may
consider the appropriateness of having the Fund reimburse Prudential Securities
for the outstanding carry forward amounts plus interest thereon.

In addition to distribution and service fees paid by the Fund under the Class
A and Class B Plans, the Manager (or one of its affiliates) may make payments to
dealers and other persons who distribute shares of the Fund. Such payments may
be calculated by reference to the net asset value of shares sold by such persons
or otherwise.

The Distributor is subject to the rules of the National Association of
Securities Dealers, Inc. governing maximum sales charges. See "Distributor" in
the Statement of Additional Information.

The Directors have approved certain modifications to the Plans. See "General
Information--Additional Information."

PORTFOLIO TRANSACTIONS

Prudential Securities may act as a broker and/or futures commission merchant
for the Fund provided that the commissions, fees or other remuneration it
receives are fair and reasonable. See "Portfolio Transactions and Brokerage" in
the Statement of Additional Information.

CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT

State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities and
cash and, in that capacity, maintains certain financial and accounting books and
records pursuant to an agreement with the Fund. Its mailing address is P .O. Box
1713, Boston, Massachusetts 02105.

Prudential Mutual Fund Services, Inc., Raritan Plaza One, Edison, New Jersey
08837, serves as Transfer Agent and Dividend Disbursing Agent and in those
capacities maintains certain books and records for the Fund. Its mailing address
is P .O. Box 15005, New Brunswick, New Jersey 08906-5005. PMFS is a wholly-owned

subsidiary of PMF.

HOW THE FUND VALUES ITS SHARES

The Fund's net asset value per share or NAV is determined by subtracting its
liabilities from the value of its assets and dividing the remainder by the
number of outstanding shares of the Fund. The Board of Directors has fixed the
specific time of day for the computation of the Fund's NAV to be as of 4:15
P .M., New York time.

18
<PAGE>
Portfolio securities are valued based on market quotations or, if not readily
available, at fair value as determined in good faith under procedures
established by the Fund's Board of Directors. See "Net Asset Value" in the
Statement of Additional Information.

The Fund will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase, sell
or redeem shares have been received by the Fund or days on which changes in the
value of the Fund's portfolio securities do not materially affect the NAV. The
New York Stock Exchange is closed on the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.

Although the legal rights of each class of shares are substantially identical,
the different expenses borne by each class will result in different NAVs and
dividends. The NAV of Class B shares will generally be lower than the NAV of
Class A shares as a result of the larger distribution-related fee to which Class
B shares are subject. It is expected, however, that the NAV of the two classes
will tend to converge immediately after the recording of dividends, if any,
which will differ by approximately the amount of the distribution-related

expense accrual differential between the classes.

HOW THE FUND CALCULATES PERFORMANCE

From time to time the Fund may advertise its "yield" and "total return"
(including "average annual" total return and "aggregate" total return) in
advertisements and sales literature. Yield and total return are calculated
separately for Class A and Class B shares. These figures are based on historical
earnings and are not intended to indicate future performance. The "total return"
shows how much an investment in the Fund would have increased (decreased) over a
specified period of time (I.E., one, five or ten years or since inception of the
Fund) assuming that all distributions and dividends by the Fund were reinvested
on the reinvestment dates during the period and less all recurring fees. The
"aggregate" total return reflects actual performance over a stated period of
time. "Average annual" total return is a hypothetical rate of return that, if
achieved annually, would have produced the same aggregate total return if
performance had been constant over the entire period. "Average annual" total
return smooths out variations in performance and takes into account any
applicable initial or contingent deferred sales charges. Neither "average
annual" total return nor "aggregate" total return takes into account any federal
or state income taxes which may be payable upon redemption. The "yield" refers
to the income generated by an investment in the Fund over a one-month or 30-day
period. This income is then "annualized" that is, the amount of income generated
by the investment during that 30-day period is assumed to be generated each
30-day period for twelve periods and is shown as a percentage of the investment.
The income earned on the investment is also assumed to be reinvested at the end
of the sixth 30-day period. The Fund also may include comparative performance
information in advertising or marketing the Fund's shares. Such performance
information may include data from Lipper Analytical Services, Inc., Morningstar
Publications, Inc., other industry publications, business periodicals and market
indices. See "Performance Information" in the Statement of Additional
Information. The Fund will include performance data for each class of shares of
the Fund in any advertisement or information which includes performance data of
the Fund. Further performance information is contained in the Fund's annual and
semi-annual reports to shareholders, which may be obtained without charge. See

"Shareholder Guide--Shareholder Services--Reports to Shareholders."

TAXES, DIVIDENDS AND DISTRIBUTIONS

Taxation of the Fund

The Fund has elected to qualify and intends to remain qualified as a regulated
investment company under the Internal Revenue Code. Accordingly, the Fund will
not be subject to federal income taxes on its net investment

19
<PAGE>
income and capital gains, if any, that it distributes to its shareholders. See
"Taxes, Dividends and Distributions" in the Statement of Additional Information.

Taxation of Shareholders

All dividends out of net investment income, together with distributions of
short-term capital gains, will be taxable as ordinary income to the shareholder
whether or not reinvested. Any net long-term capital gains (I.E., the excess of
net long-term capital gains over net short-term capital losses) distributed to
shareholders will be taxable as such to the shareholders, whether or not
reinvested and regardless of the length of time a shareholder has owned his or
her shares. The maximum long-term capital gains rate for individuals is 28%. The
maximum long-term capital gains rate for corporate shareholders is currently the
same as the maximum tax rate for ordinary income.

Shareholders are advised to consult their own tax advisers regarding specific
questions as to federal, state or local taxes. See "Taxes, Dividends and
Distributions" in the Statement of Additional Information.

Withholding Taxes

Under the Internal Revenue Code, the Fund is required to withhold and remit to
the U.S. Treasury 31% of dividends, capital gain income and redemption proceeds
payable to individuals and certain noncorporate shareholders who fail to furnish
correct tax identification numbers on IRS Form W-9 (or IRS Form W-8 in the case
of certain foreign shareholders) with the required certifications regarding the
shareholder's status under federal income tax law. Notwithstanding the
foregoing, dividends of net investment income and short-term capital gains to a
foreign shareholder will generally be subject to U.S. withholding tax at the
rate of 30% (or lower treaty rate).

Dividends and Distributions

The Fund expects to declare daily and pay monthly dividends of net investment
income, if any, and make distributions at least annually of any net capital
gains. In determining the amount of capital gains to be distributed, the amount
of any capital loss carryforwards from prior years will be offset against
capital gains. As of February 28, 1994, the Fund had a capital loss carryforward
for federal income tax purposes of approximately $76,930,000. Accordingly, no
capital gains distribution is expected to be paid to shareholders until net
gains have been realized in excess of such carryforwards. Dividends paid by the
Fund with respect to each class of shares, to the extent any dividends are paid,
will be calculated in the same manner, at the same time, on the same day and
will be in the same amount except that each class will bear its own distribution
charges, generally resulting in lower dividends for Class B shares.
Distributions of net capital gains, if any, will be paid in the same amount for
each class of shares. See "How the Fund Values Its Shares."

Shares will begin earning daily dividends on the day following the date on
which the shares are issued, the date of issuance customarily being the
"settlement" date. Shares continue to earn daily dividends until they are
redeemed. In the event an investor redeems all the shares in his or her account
at any time during the month, all daily dividends declared to the date of
redemption will be paid at the time of redemption.

Dividends and distributions will be paid in additional Fund shares, based on
the NAV of each class on the payment and record date, respectively, or such
other date as the Board of Directors may determine, unless the shareholder
elects in writing not less than five business days prior to the payment date to
receive such dividends and distributions in cash. Such election should be
submitted to Prudential Mutual Fund Services, Inc., Attention: Account
Maintenance, P .O. Box 15015, New Brunswick, New Jersey 08906-5015. The Fund
will notify each shareholder after the close of the Fund's taxable year of both
the dollar amount and the taxable status of that year's dividends and
distributions on a per share basis. To the extent that, in a given year,
distributions to shareholders exceed recognized net investment income and
recognized short-term and long-term capital gains for the year, shareholders
will receive a return of capital in respect of such year and, in an annual
statement, will be notified of the amount of any return of capital for such
year. Any distributions paid shortly after a purchase by an investor will

20
<PAGE>
have the effect of reducing the per share net asset value of the investor's
shares by the per share amount of the distributions. Such distributions,
although in effect a return of invested principal, are subject to federal income
taxes. Accordingly, prior to purchasing shares of the Fund, an investor should
carefully consider the impact of capital gains distributions which are expected
to be or have been announced. If you hold shares through Prudential Securities
you should contact your financial adviser to elect to receive dividends and
distributions in cash.

When the Fund goes "ex-dividend," its NAV is reduced by the amount of the
dividend or distribution. If you buy shares just prior to the ex-dividend date
(which generally occurs four business days prior to the record date), the price
you pay will include the dividend or distribution and a portion of your
investment will be returned to you as a taxable distribution. You should,
therefore, consider the timing of dividends and distributions when making your

purchases.

GENERAL INFORMATION

DESCRIPTION OF COMMON STOCK

The Fund was incorporated in Maryland on April 8, 1983. The Fund is authorized
to issue two billion shares of common stock, $.01 par value per share, divided
into two classes, designated Class A and Class B common stock, each of which
consists of one billion authorized shares. Each class of common stock represents
an interest in the same assets of the Fund and is identical in all respects
except that each class bears different distribution expenses and has exclusive
voting rights with respect to its distribution and service plan. See "How the
Fund is Managed--Distributor." The Fund has received an order from the SEC
permitting the issuance and sale of multiple classes of common stock. Currently,
the Fund is offering two classes, designated as Class A and Class B shares. In
accordance with the Fund's Articles of Incorporation, the Board of Directors has
authorized and may again authorize the creation of additional series of common
stock and classes within such series, with such preferences, privileges,
limitations and voting and dividend rights as the Board may determine. See
"Additional Information" below.

The Board of Directors may increase or decrease the number of authorized
shares. Shares of the Fund, when issued, are fully paid, nonassessable, fully
transferable and redeemable at the option of the holder. Shares are also
redeemable at the option of the Fund under certain circumstances as described
under "Shareholder Guide--How to Sell Your Shares." Each share of each class of
common stock is equal as to earnings, assets and voting privileges, except as
noted above, and each class bears the expenses related to the distribution of
its shares. There are no conversion, preemptive or other subscription rights. In
the event of liquidation, each share of common stock of the Fund is entitled to
its portion of all of the Fund's assets after all debt and expenses of the Fund
have been paid. Since Class B shares generally bear higher distribution expenses
than Class A shares, the liquidation proceeds to shareholders of Class B
shareholders are likely to be lower than to Class A shareholders. The Fund's
shares do not have cumulative voting rights for the election of Directors.

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

ADDITIONAL INFORMATION

The Board of Directors of the Fund has approved amendments to the Fund's
Articles of Incorporation (i) to provide for the conversion of Class B shares to
Class A shares approximately seven years after purchase, and (ii) to change the
name of the Fund

21
<PAGE>

to Prudential Government Income Fund, Inc. In addition, the Board of Directors
has approved modification to the Fund's Plans to make them compensation rather
than reimbursement plans. Once modified, the Plans would provide that the Fund
would be required to pay distribution and/or service fees to the Distributor as
compensation for its distribution activities, not as reimbursement for specific
expenses incurred. Under the new Plans, if the Distributor's expenses were to
exceed its distribution and service fee, the Fund would not be obligated to pay
any additional expenses. Conversely, if the Distributor's expenses were less
than its distribution and service fee, it would retain its full fees and realize
a profit. In addition, the Board of Directors has approved certain modifications
to the Fund's fundamental investment restrictions including changes (i) to
permit the Fund to invest up to 15% of its net assets in illiquid securities and
(ii) to clarify that collateral arrangements with respect to interest rate swap
transactions, reverse repurchase agreements and dollar roll transactions are not
deemed to be the issuance of a senior security or the pledge of assets. These
modifications will be presented to shareholders at an upcoming meeting and if
approved would be implemented in connection with the offering of a new class of
shares of the Fund, to be designated Class C shares, which is expected shortly.
It is currently expected that Class C shares will be offered without an initial
sales charge and would be subject to a CDSC of 1% for redemptions made within
one year of purchase. There can be no assurance that Class C shares will be
offered (or that they will be offered on the terms described above) or that the
changes to the Plans or investment restrictions will be approved by shareholders
or implemented.

This Prospectus, including the Statement of Additional Information which has
been incorporated by reference herein, does not contain all the information set
forth in the Registration Statement filed by the Fund with the SEC under the
Securities Act of 1933. Copies of the Registration Statement may be obtained at
a reasonable charge from the SEC or may be examined, without charge, at the

office of the SEC in Washington, D.C.

SHAREHOLDER GUIDE

HOW TO BUY SHARES OF THE FUND

You may purchase shares of the Fund through Prudential Securities, Prusec or
directly from the Fund, through its Transfer Agent, Prudential Mutual Fund
Services, Inc. (PMFS or the Transfer Agent), Attention: Investment Services,
P.O. Box 15020, New Brunswick, New Jersey 08906-5020. The minimum initial
investment is $1,000. The minimum subsequent investment is $100. All minimum
investment requirements are waived for certain retirement and employee savings
plans or custodial accounts for the benefit of minors. For purchases made
through the Automatic Savings Accumulation Plan, the minimum initial and
subsequent investment is $50. See "Shareholder Services."

The purchase price is the NAV next determined following receipt of an order by
the Transfer Agent or Prudential Securities plus a sales charge which, at your
option, may be imposed at the time of purchase or on a deferred basis. See
"Alternative Purchase Plan" below. See also "How the Fund Values its Shares."

Application forms can be obtained from PMFS, Prudential Securities or Prusec.
If a stock certificate is desired, it must be requested in writing for each
transaction. Certificates are issued only for full shares. Shareholders who hold
their shares through Prudential Securities will not receive stock certificates.

The Fund reserves the right to reject any purchase order or exchange order or
to suspend or modify the continuous offering of its shares. See "How to Sell
Your Shares."

Your dealer is responsible for forwarding payment promptly to the Fund. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the fifth business day following the investment.

Transactions in Fund shares may be subject to postage and handling charges
imposed by your dealer.

22
<PAGE>
Purchase by Wire. For an initial purchase of shares of the Fund by wire, you
must first telephone PMFS at (800) 225-1852 (toll-free) to receive an account
number. The following information will be requested: your name, address, tax
identification number, class election, dividend distribution election, amount
being wired and wiring bank. Instructions should then be given by you to your
bank to transfer funds by wire to State Street Bank and Trust Company, Boston,
Massachusetts, Custody and Shareholder Services Division, Attention: Prudential
Government Plus Fund, specifying on the wire the account number assigned by PMFS
and your name and identifying the sales charge alternative (Class A or Class B
shares).

If you arrange for receipt by State Street of Federal Funds prior to 4:15
P .M., New York time, on a business day, you may purchase shares of the Fund as
of that day.

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

ALTERNATIVE PURCHASE PLAN

The Fund offers two classes of shares which allows you to choose the most
beneficial sales charge structure for your individual circumstances given the
amount of the purchase, the length of time you expect to hold the shares and
other relevant circumstances.

You may purchase shares at the next determined NAV plus a sales charge which,
at your election, may be imposed either at the time of purchase (the Class A
shares or the initial sales charge alternative) or on a deferred basis (the
Class B shares or the deferred sales charge alternative) (the Alternative
Purchase Plan).

Class A shares are subject to an initial sales charge of up to 4.5% of the
offering price and an annual distribution fee which is currently being charged
at a rate of up to .15 of 1% of the average daily net assets of the Class A
shares. Certain purchases of Class A shares may qualify for reduction or waiver
of initial sales charges. See "Initial Sales Charge Alternative--Class A
Shares--Reduction and Waiver of Initial Sales Charges" below.

Class B shares do not incur a sales charge when they are purchased but are
subject to a contingent deferred sales charge (declining from 5% to zero of the
lesser of the amount invested or the redemption proceeds) which will be imposed
on certain redemptions made within six years of purchase and an annual
distribution fee of up to 1% of the average daily net assets of the Class B
shares up to $3 billion, .80% of the next $1 billion of such assets and .50% of
such assets in excess of $4 billion. Certain redemptions of Class B shares may
qualify for waiver or reduction of the contingent deferred sales charge. See
"How to Sell Your Shares--Contingent Deferred Sales Charges--Class B
Shares--Waiver of the Contingent Deferred Sales Charges" and "How to Sell Your
Shares--Quantity Discount." The Board of Directors and shareholders of the Fund
have approved certain modifications to the Fund's Class A and Class B Plans to
make them compensation rather than reimbursement Plans. See "General
Information--Additional Information."

The two classes of shares represent an interest in the same portfolio of
investments of the Fund and have the same rights, except that each class bears
the separate expenses of its Rule 12b-1 distribution and service plan and has
exclusive voting rights with respect to its plan. The classes also have separate
exchange privileges. See "How to Exchange Your Shares" below. The income
attributable to each class and the dividends payable on the shares of each class
will be reduced by the amount of the distribution fee of each class. Class B
shares bear the expenses of a higher distribution fee which will generally cause
them to have higher expense ratios and to pay lower dividends than the Class A
shares.

Financial advisers and other sales agents who sell shares of the Fund will
receive different compensation for selling Class A and Class B shares.

23
<PAGE>
The following illustrations are provided to assist you in determining which
method of purchase best suits your individual circumstances:

If you qualify for a reduced sales charge, you might elect the initial sales
charge alternative because a similar sales charge reduction is not available for
purchases under the deferred sales charge alternative. However, because the
initial sales charge is deducted at the time of purchase, you would not have all
of your money invested initially.

If you do not qualify for a reduced initial sales charge and expect to
maintain your investment in the Fund for a long period of time, you might also
elect the initial sales charge alternative because over time the accumulated
continuing distribution charges of Class B shares will exceed the initial sales
charge plus distribution fees of Class A shares. Again, however, you must weigh
this consideration against the fact that not all of your money will be invested
initially. Furthermore, the ongoing distribution charges under the deferred
sales charge alternative will be offset to the extent any return in realized on
the additional funds. However, there can be no assurance that any return will be
realized on the additional funds.

On the other hand, you might determine that it is more advantageous to have
all of your money invested initially, although it is subject to a distribution
fee of up to 1% and, for a six-year period, a contingent deferred sales charge
of up to 5%. For example, based on current fees and expenses, if you purchase
Class A shares you would have to hold your investment for more than six years
for the 1% Class B distribution fee to exceed the initial sales charge plus
distribution fee of the Class A shares. In this example, if you intend to
maintain your investment in the Fund for more than six years, you should
consider purchasing Class A shares. However, this example does not take into
account the time value of money, which further reduces the impact of the 1%
distribution fee on the investment, fluctuations in net asset value, the effect
of the return on the investment over this period of time or redemptions while
the contingent deferred sales charge is applicable.

Initial Sales Charge Alternative--Class A Shares

The offering price of Class A shares for investors choosing the initial sales
charge alternative is the next determined NAV plus a sales charge (expressed as
a percentage of the offering price and of the amount invested) as shown in the
following table:

<TABLE>
<CAPTION>
Sales Charge Dealer
as Percentage Sales Charge as Concession as
of Offering Percentage of Net Percentage of
Amount of Purchase Price Amount Invested Offering Price
- ------------------------- -------------- ----------------- ----------------
<S> <C> <C> <C>
Less than $50,000 4.50% 4.71% 4.25%
$50,000 to $99,999 4.00 4.17 3.75
$100,000 to $249,999 3.50 3.63 3.25
$250,000 to $499,999 3.00 3.09 2.90
$500,000 to $999,999 2.00 2.04 1.90
$1,000,000 to $2,499,000 1.00 1.01 0.95
$2,500,000 and above 0.50 0.50 0.45
</TABLE>

Selling dealers may be deemed to be underwriters, as that term is defined
under federal securities laws.

Reduction and Waiver of Initial Sales Charges. Sales charges are reduced under
Rights of Accumulation and Letters of Intent. Class A shares are offered at NAV
to participants in certain retirement and deferred compensation plans, including
qualified or non-qualified plans under the Internal Revenue Code and certain
affinity group and group savings plans, provided that the plan has existing
assets of at least $10 million or 2,500 eligible employees or members.
Additional information concerning the reduction and waiver of initial sales
charges is set forth in the Statement of Additional Information. In the case of
pension, profit-sharing or stock bonus plans under Section 401 of the Internal
Revenue Code and deferred compensation and annuity plans under Sections 457 and
403(b)(7) of the Internal Revenue Code (Benefit Plans) whose accounts are held
directly with the Transfer Agent and for which the Transfer Agent does
individual account record keeping (Direct Account Benefit Plans) and Benefit
Plans sponsored by PSI or its subsidiaries (PSI or Subsidiary Prototype Benefit
Plans), Class A shares are offered at NAV to participants who are repaying loans
made from such plans to the participant.

24
<PAGE>

PRUDENTIAL RETIREMENT ACCUMULATION PROGRAM 401(K) PLAN. Class A shares may be
purchased at net asset value, with a waiver of the initial sales charge, by or
on behalf of participants in the Prudential Retirement Accumulation Program
401(k) Plan for which Prudential Mutual Fund Services, Inc., the Fund's transfer
agent, provides recordkeeping services, provided that (i) for existing plans,
the plan has existing assets of $1 million or more, as measured on the last
business day of the month, invested in shares of Prudential Mutual Funds
(excluding money market funds other than those acquired pursuant to the exchange
privilege) held at the transfer agent and (ii) for new plans, the plan initially
invests $1 million or more in shares of non-money market Prudential Mutual Funds
or has at least 1,000 eligible employees or members.

PRUDENTIAL VISTA PROGRAM. Class A shares are offered at net asset value to
certain qualified employee retirement benefit plans under section 401 of the
Internal Revenue Code of 1986, as amended, for which Prudential Defined
Contribution Services serves as the recordkeeper, provided that such plan is
also participating in the Prudential Vista Program (The Vista Program), and
provided further that (i) for existing plans, the plan has existing assets of at
least $1 million and at least 100 eligible employees or members, and (ii) for
new plans, the plan has at least 500 eligible employees or members. The term
"existing assets" for this purpose includes transferable cash and GICs
(guaranteed investment contracts) maturing within 4 years.

Class A shares are offered at NAV to Directors and officers of the Fund and
other Prudential Mutual Funds, to employees of Prudential Securities and PMF and
their subsidiaries and to members of the families of such persons who maintain
an "employee related" account at Prudential Securities or the Transfer Agent.
Class A shares are offered at NAV to employees and special agents of Prudential
and its subsidiaries and to all persons who have retired directly from active
service with Prudential or one of its subsidiaries.

Class A shares are offered at NAV to an investor who has a business
relationship with a financial adviser who joined Prudential Securities from
another investment firm, provided that (i) the purchase is made within 90 days
of the commencement of the financial adviser's employment at Prudential
Securities, (ii) the purchase is made with proceeds of a redemption of shares of
any open-end investment company sponsored by the financial adviser's previous
employer (other than a money market fund or other no-load fund which imposes a
distribution or service fee of .25 of 1% or less) on which no deferred sales
load, fee or other charge was imposed on redemption and (iii) the financial
adviser served as the client's broker on the previous purchase.

You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec that you are entitled to the reduction or waiver of the
sales charge. The reduction or waiver will be granted subject to confirmation of
your entitlement. No initial sales charges are imposed upon Class A shares
purchased upon the reinvestment of dividends and distributions. See "Purchase
and Redemption of Fund Shares--Reduction and Waiver of Initial Sales
Charges--Class A Shares" in the Statement of Additional Information.

Deferred Sales Charge Alternative--Class B Shares

The offering price of Class B shares for investors choosing the deferred sales
charge alternative is the NAV per share next determined following receipt of an
order by the Transfer Agent or Prudential Securities. Although there is no sales
charge imposed at the time of purchase, redemptions of Class B shares may be
subject to a CDSC. An account servicing fee is also paid to financial advisers
and sales representatives whose customers hold shares of the Fund. See "How to
Sell Your Shares-- Contingent Deferred Sales Charges--Class B Shares."

HOW TO SELL YOUR SHARES

You can redeem your shares of the Fund at any time at the NAV per share next
determined after the redemption request is received in proper form by the
Transfer Agent or Prudential Securities. See "How the Fund Values Its Shares."
In certain cases, however, redemption proceeds from Class B shares will be
reduced by the amount of any applicable contingent deferred sales charge, as
described below. See "Contingent Deferred Sales Charges--Class B Shares."

25
<PAGE>
If you hold shares of the Fund through Prudential Securities, you must redeem
your shares by contacting your Prudential Securities financial adviser. If you
hold shares in non-certificate form, a written request for redemption signed by
you exactly as the account is registered is required. If you hold certificates,
the certificates, signed in the name(s) shown on the face of the certificates,
must be received by the Transfer Agent in order for the redemption request to be
processed. If redemption is requested by a corporation, partnership, trust or
fiduciary, written evidence of authority acceptable to the Transfer Agent must
be submitted before such request will be accepted. All correspondence and
documents concerning redemptions should be sent to the Fund in care of its
Transfer Agent, Prudential Mutual Fund Services, Inc., Attention: Redemption
Services, P .O. Box 15010, New Brunswick, New Jersey 08906-5010.

If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to a
person other than the record owner, (c) are to be sent to an address other than
the address on the Transfer Agent's records, or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the redemption
request and on the certificates, if any, or stock power must be guaranteed by an
"eligible guarantor institution." An "eligible guarantor institution" includes
any bank, broker, dealer or credit union. The Transfer Agent reserves the right
to request additional information from, and make reasonable inquiries of, any
eligible guarantor institution. For clients of Prusec, a signature guarantee may
be obtained from the agency or office manager of most Prudential Insurance and
Financial Services or Prudential Preferred Financial Services Offices.

Payment for shares presented for redemption will be made by check within seven
days after receipt by the Transfer Agent of the certificate and/or written
request except as indicated below. Such payment may be postponed or the right of
redemption suspended at times (a) when the New York Stock Exchange is closed for
other than customary weekends and holidays, (b) when trading on such Exchange is
restricted, (c) when an emergency exists as a result of which disposal by the
Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, or (d) during any other period when the SEC, by order, so permits;
provided that applicable rules and regulations of the SEC shall govern as to
whether the conditions prescribed in (b), (c) or (d) exist.

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

Redemption in Kind. If the Board of Directors determines that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price in
whole or in part by a distribution in kind of securities from the investment
portfolio of the Fund, in lieu of cash, in conformity with applicable rules of
the SEC. Securities will be readily marketable and will be valued in the same
manner as in a regular redemption. See "How the Fund Values Its Shares." If your
shares are redeemed in kind, you would incur transaction costs in converting the
assets into cash. The Fund, however, has elected to be governed by Rule 18f-1
under the Investment Company Act, under which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net asset value
of the Fund during any 90-day period for any one shareholder.

Involuntary Redemption. In order to reduce expenses of the Fund, the Board of
Directors may redeem all of the shares of any shareholder, other than a
shareholder which is an IRA or other tax-deferred retirement plan, whose account
has a net asset value of less than $500 due to a redemption. The Fund will give
such shareholders 60 days' prior written notice in which to purchase sufficient
additional shares to avoid such redemption. No contingent deferred sales charge
will be imposed on any involuntary redemption.

30-day Repurchase Privilege. If you redeem your shares and have not previously
exercised the repurchase privilege, you may reinvest any portion or all of the
proceeds of such redemption in shares of the Fund at the NAV next determined
after the order is received, which must be within 30 days after the date of the
redemption. No sales charge will apply to such repurchases. You will receive PRO
RATA credit for any contingent deferred sales charge paid in connection with the
redemption of your shares. You must notify the Fund's Transfer Agent, either
directly or through Prudential Securities or Prusec, at the time the repurchase

26
<PAGE>
privilege is exercised that you are entitled to credit for the contingent
deferred sales charge previously paid. Exercise of the repurchase privilege will
generally not affect federal income tax treatment of any gain realized upon
redemption. If the redemption resulted in a loss, some or all of the loss,
depending on the amount reinvested, will generally not be allowed for federal
income tax purposes.

Contingent Deferred Sales Charges--Class B Shares

If you have elected to purchase shares without an initial sales charge (Class
B), a contingent deferred sales charge or CDSC declining from 5% to zero over a
six-year period will be imposed at the time of redemption. The CDSC will be
deducted from the redemption proceeds and reduce the amount paid to you. The
CDSC will be imposed on any redemptions by you which reduces the current value
of your Class B shares to an amount which is lower than the amount of all
payments by you for shares during the preceding six years. A CDSC will be
applied on the lesser of the original purchase price or the current value of the
shares being redeemed. Increases in the value of your shares or shares purchased
through reinvestment of dividends or distributions are not subject to a CDSC.
The amount of any CDSC will be paid to and retained by the Distributor. See "How
the Fund is Managed-- Distributor" and "Waiver of the Contingent Deferred Sales
Charges--Class B Shares" below.

The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of shares until the time of redemption
of such shares. Solely for purposes of determining the number of years from the
time of any payment for the purchase of shares, all payments during a month will
be aggregated and deemed to have been made on the last day of the month.

The following table sets forth the rates of the CDSC.

<TABLE>
<CAPTION>
Contingent Deferred Sales
Charge as a Percentage
Year Since Purchase of Dollars Invested or
Payment Made Redemption Proceeds
- ---------------------------------------------------------------------- --------------------------
<S> <C>
First................................................................. 5.0%
Second................................................................ 4.0%
Third................................................................. 3.0%
Fourth................................................................ 2.0%
Fifth................................................................. 1.0%
Sixth................................................................. 1.0%
Seventh............................................................... None
</TABLE>

In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that generally results in the lowest possible rate. It
will be assumed that the redemption is made first of amounts representing shares
acquired pursuant to the reinvestment of dividends and distributions; then of
amounts representing the increase in net asset value above the total amount of
payments for the purchase of Fund shares made during the preceding six years
(five years for Class B shares purchased prior to January 22, 1990); then of
amounts representing the cost of shares purchased six years prior to the
redemption; and finally, of amounts representing the cost of shares held for the
longest period of time within the applicable six-year period (five years for
shares purchased prior to January 22, 1990).

For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase you decided to
redeem $500 of your investment. Assuming at the time of the redemption the NAV
had appreciated to $12 per share, the value of the investor's Class B shares
would be $1,260 (105 shares at $12 per share). The CDSC would not be applied to
the value of the reinvested dividend shares and the amount which represents
appreciation ($260). Therefore, $240 of the $500 redemption proceeds ($500 minus
$260) would be charged at a rate of 4% (the applicable rate in the second year
after purchase) for a total CDSC of $9.60.

27
<PAGE>
For federal income tax purposes, the amount of the CDSC will reduce the gain
or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.

Waiver of the Contingent Deferred Sales Charges--Class B Shares. The CDSC will
be waived in the case of a redemption following the death or disability of a
shareholder or, in the case of a trust account, following the death or
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint tenancy
(with rights of survivorship), at the time of death or initial determination of
disability.

The CDSC will also be waived in the case of a total or partial redemption in
connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or Section 403(b)(7)
custodial account. These distributions include a lump-sum or other distribution
after retirement, or for an IRA or Section 403(b) custodial account, after
attaining age 59 1/2, a tax-free return of an excess contribution or plan
distributions following the death or disability of the shareholder. The waiver
does not apply in the case of a tax-free rollover or transfer of assets, other
than one following a separation from service. In the case of Direct Account and
PSI or Subsidiary Prototype Benefit Plans, the CDSC will be waived on
redemptions which represent borrowings from such plans. Shares purchased with
amounts used to repay a loan from such plans on which a CDSC was not previously
deducted will thereafter be subject to a CDSC without regard to the time such
amounts were previously invested. In the case of a 401(k) plan, the CDSC will
also be waived upon the redemption of shares purchased with amounts used to
repay loans made from the account to the participant and from which a CDSC was
previously deducted.

In addition, the CDSC will be waived on redemptions of shares held by a
Director of the Fund.

You must notify the Fund's Transfer Agent either directly or through
Prudential Securities or Prusec, at the time of redemption, that you are
entitled to waiver of the CDSC. The waiver will be granted subject to
confirmation of your entitlement.

Quantity Discount. The CDSC is reduced on redemptions of Class B shares of the
Fund if immediately after a purchase of such shares, the aggregate cost of all
Class B shares of the Fund owned by you in a single account exceeds $500,000.
For example, if you purchase $100,000 of Class B shares of the Fund and the
following year purchase an additional $450,000 of Class B shares with the result
that the aggregate cost of your Class B shares of the Fund following the second
purchase is $550,000, the quantity discount would be available for the second
purchase of $450,000 but not for the first purchase of $100,000. The quantity
discount will be imposed at the following rates depending on whether the
aggregate value exceeds $500,000 or $1 million:

<TABLE>
<CAPTION>
Contingent Deferred Sales
Charge as a Percentage of
Dollars Invested
or Redemption Proceeds
--------------------------
$500,001 to Over $1
Year Since Purchase Payment Made $1 million million
- -------------------------------------------------------------- ------------- -----------
<S> <C> <C>
First......................................................... 3.0% 2.0%
Second........................................................ 2.0% 1.0%
Third......................................................... 1.0% 0%
Fourth and thereafter......................................... 0% 0%
</TABLE>

You must notify the Fund's Transfer Agent either directly or through
Prudential Securities or Prusec, at the time of redemption, that you are
entitled to the reduced CDSC. The reduced CDSC will be granted subject to
confirmation of your holdings.

HOW TO EXCHANGE YOUR SHARES

As a shareholder of the Fund, you have an exchange privilege with certain
other Prudential Mutual Funds, including one or more specified money market
funds, subject to the minimum investment requirement of such funds. Class A and
Class B shares may be exchanged for Class A and Class B shares, respectively, of
another fund on the basis on the relative NAV. Any applicable CDSC payable upon
the redemption of shares exchanged will be calculated from the

28
<PAGE>
first day of the month after the initial purchase, excluding the time shares
were held in a money market fund. Class B shares may not be exchanged into money
market funds other than Prudential Special Money Market Fund. An exchange will
be treated as a redemption and purchase for tax purposes. See "Shareholder
Investment Account--Exchange Privilege" in the Statement of Additional
Information.

In order to exchange shares by telephone, you must authorize the telephone
exchange privilege on your initial application form or by written notice to the
Transfer Agent and hold shares in non-certificate form. Thereafter, you may call
the Fund at 1 (800) 225-1852 to execute a telephone exchange of shares on
weekdays, except holidays, between the hours of 8:00 A. M. and 6:00 P. M., New
York time. For your protection and to prevent fraudulent exchanges, your
telephone call will be recorded and you will be asked to provide your personal
identification number. A written confirmation of the exchange transaction will
be sent to you. Neither the Fund nor its agents will be liable for any loss,
liability or cost which results from acting upon instructions reasonably
believed to be genuine under the foregoing procedures. All exchanges will be
made on the basis of the relative NAV of the two funds next determined after the
request is received in good order. The Exchange Privilege is available only in
states where the exchange may legally be made.

If you hold shares through Prudential Securities or through a dealer which has
entered into a selected dealer agreement with the Fund's Distributor, you must
exchange your shares by contacting your financial adviser.

If you hold certificates, the certificates, signed in the name(s) shown on the
face of the certificates, must be returned in order for the shares to be
exchanged. See "How to Sell Your Shares" above.

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

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

The Exchange Privilege may be modified or terminated at any time on 60 days'
notice to shareholders.

SHAREHOLDER SERVICES

In addition to the Exchange Privilege, as a shareholder in the Fund, you can
take advantage of the following additional services and privileges:

-Automatic Reinvestment of Dividends and/or Distributions Without a Sales
Charge. For your convenience, all dividends or distributions are automatically
reinvested in full and fractional shares of the Fund at NAV without a sales
charge. You may direct the Transfer Agent in writing not less than 5 full
business days prior to the record date to have subsequent dividends and/or
distributions sent in cash rather than reinvested. If you hold shares through
Prudential Securities, you should contact your financial adviser.

-Automatic Savings Accumulation Plan (ASAP). Under ASAP you may make regular
purchases of the Fund's shares in amounts as little as $50 via an automatic
debit to a bank account or Prudential Securities account (including a Command
Account). For additional information about this service, you may contact your
Prudential Securities financial adviser, Prusec registered representative or the
Transfer Agent directly.

-Tax-Deferred Retirement Plans. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both
self-employed individuals and corporate employers. These plans permit either
self-direction of accounts by participants, or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from Prudential Securities or the
Transfer Agent. If you are

29
<PAGE>
considering adopting such a plan, you should consult with your own legal or tax
adviser with respect to the establishment and maintenance of such a plan.

-Systematic Withdrawal Plan. A systematic withdrawal plan is available to
shareholders which provides for monthly or quarterly checks. Withdrawal of Class
B shares may be subject to a CDSC. See "How to Sell Your Shares--Contingent
Deferred Sales Charges--Class B Shares."

-Reports to Shareholders. The Fund will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses, the Fund will provide one annual and semi-annual shareholder report
and annual prospectus per household. You may request additional copies of such
reports by calling (800) 225-1852 or by writing to the Fund at One Seaport
Plaza, New York, New York 10292. In addition, monthly unaudited financial data
are available upon request from the Fund.

-Shareholder Inquiries. Shareholder inquiries should be addressed to the Fund
at One Seaport Plaza, New York, New York 10292, or by telephone, at (800)
225-1852 (toll-free) or, from outside the U.S.A., at (908) 417-7555 (collect).

30
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY

Prudential Mutual Fund Management offers a broad range of mutual funds
designed to meet your individual needs. We welcome you to review the investment
options available through our family of funds. For more information on the
Prudential Mutual Funds, including charges and expenses, contact your Prudential
Securities financial adviser or Prusec registered representative or telephone
the Funds at 1 (800) 225-1852 for a free prospectus. Read the prospectus
carefully before you invest or send money.

Taxable Bond Funds
Prudential Adjustable Rate Securities Fund, Inc.
Prudential GNMA Fund, Inc.
Prudential Government Plus Fund
Prudential Government Securities Trust
Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
Prudential U.S. Government Fund
The BlackRock Government Income Trust

Tax-Exempt Bond Funds
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Modified Term Series
Prudential Municipal Series Fund
Arizona Series
Florida Series
Georgia Series
Maryland Series
Massachusetts Series
Michigan Series
Minnesota Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.

Global Funds
Prudential Global Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Natural Resources Fund, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential Short-Term Global Income Fund, Inc.
Global Assets Portfolio
Short-Term Global Income Portfolio
Global Utility Fund, Inc.

Equity Funds
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential FlexiFund
Conservatively Managed Portfolio
Strategy Portfolio
Prudential Growth Fund, Inc.
Prudential Growth Opportunity Fund, Inc.
Prudential IncomeVertible-R- Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund

Money Market Funds

- - TAXABLE MONEY MARKET FUNDS
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund
Money Market Series
Prudential MoneyMart Assets

- - TAX-FREE MONEY MARKET FUNDS
Prudential Tax Free Money Fund
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 Securities Fund
Command Tax-Free Fund

- - INSTITUTIONAL MONEY MARKET FUNDS
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series

A-1
<PAGE>
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations, other than those contained
in this Prospectus, in connection with the offer contained herein, and, if given
or made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the Distributor to sell or a solicitation
of any offer to buy any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.
- -------------------------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
FUND HIGHLIGHTS...................................................... 2
FUND EXPENSES........................................................ 4
FINANCIAL HIGHLIGHTS................................................. 5
HOW THE FUND INVESTS................................................. 7
Investment Objective and Policies.................................. 7
Other Investments and Policies..................................... 8
Other Investment Information....................................... 13
Investment Restrictions............................................ 15
HOW THE FUND IS MANAGED.............................................. 15
Manager............................................................ 15
Distributor........................................................ 16
Portfolio Transactions............................................. 18
Custodian and Transfer and Dividend Disbursing Agent............... 18
HOW THE FUND VALUES ITS SHARES....................................... 18
HOW THE FUND CALCULATES PERFORMANCE.................................. 19
TAXES, DIVIDENDS AND DISTRIBUTIONS................................... 19
GENERAL INFORMATION.................................................. 21
Description of Common Stock........................................ 21
Additional Information............................................. 21
SHAREHOLDER GUIDE.................................................... 22
How to Buy Shares of the Fund...................................... 22
Alternative Purchase Plan.......................................... 23
How to Sell Your Shares............................................ 25
How to Exchange Your Shares........................................ 28
Shareholder Services............................................... 29
THE PRUDENTIAL MUTUAL FUND FAMILY.................................... A-1
</TABLE>

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

MF128A 4440464

Class A: 74430F-20-0
CUSIP Nos.: Class B: 74430F-10-1

Prudential
Government Plus
Fund
- ---------------------
<PAGE>
PRUDENTIAL GOVERNMENT PLUS FUND
STATEMENT OF ADDITIONAL INFORMATION
DATED JUNE 24, 1994

Prudential-Bache Government Plus Fund, Inc., doing business as Prudential
Government Plus Fund, (the Fund), is an open-end, diversified management
investment company, or mutual fund, which has as its investment objective the
seeking of a high current return. The Fund will seek to achieve this objective
primarily by investing in U.S. Government securities, including U.S. Treasury
Bills, Notes and Bonds and other debt securities issued by the U.S. Treasury,
and obligations issued or guaranteed by U.S. Government agencies or
instrumentalities; writing covered call options and covered put options and
purchasing put and call options. In an effort to hedge against changes in
interest rates and thus preserve its capital, the Fund may also engage in
transactions involving futures contracts on U.S. Government securities and
options on such contracts.

The Fund's investment objective and policies are described in the Fund's
Prospectus. This Statement contains additional information about those policies.
The Fund is also subject to certain investment restrictions. See "Investment
Restrictions."

The Fund offers two classes of shares which may be purchased at the next
determined net asset value per share plus a sales charge which, at the election
of the investor, may be imposed (i) at the time of purchase (Class A shares) or
(ii) on a deferred basis (Class B shares). These alternatives permit an investor
to choose the method of purchasing shares that is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other circumstances.

Each share of Class A and Class B common stock represents an identical legal
interest in the investment portfolio of the Fund and has the same rights, except
that the Class B shares bear the expenses of a higher distribution plan which
will cause the Class B shares to have a higher expense ratio and to pay lower
dividends than the Class A shares. Each class will have exclusive voting rights
with respect to its distribution plan. Although the legal rights of holders of
Class A and Class B shares are identical, the different expenses borne by each
class will result in different net asset values and dividends. The two classes
also have different exchange privileges.

The Fund's address is One Seaport Plaza, New York, New York 10292, and its
telephone number is (800) 225-1852.

This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus, dated June 24, 1994, a copy of
which may be obtained from the Fund at One Seaport Plaza, New York, New York
10292.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
CROSS-REFERENCE
TO PAGE IN
PAGE PROSPECTUS
---- ---------------
<S> <C> <C>
General Information................................... B-2 --
Investment Objective and Policies..................... B-2 7
Investment Restrictions............................... B-8 15
Directors and Officers................................ B-10 15
Manager............................................... B-12 15
Distributor........................................... B-14 16
Portfolio Transactions and Brokerage.................. B-15 18
Purchase and Redemption of Fund Shares................ B-17 22
Shareholder Investment Account........................ B-18 28
Net Asset Value....................................... B-22 18
Taxes, Dividends and Distributions.................... B-22 19
Performance Information............................... B-24 19
Custodian, Transfer and Dividend Disbursing Agent and
Independent Accountants.............................. B-26 18
</TABLE>

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MF-123B 444079V
<PAGE>
GENERAL INFORMATION

On February 28, 1991, the Board of Directors approved an amendment to the
Fund's Articles of Incorporation to change the Fund's name to Prudential
Government Plus Fund, Inc. and authorized the Fund to do business under the name
Prudential Government Plus Fund until the next annual or special meeting of
shareholders at which time the amendment will be submitted to shareholders for
their approval.

The Board of Directors has also approved certain changes to the Fund's
Articles of Incorporation to (i) provide a conversion feature for the Class B
shares of the Fund, and (ii) approve a change in the name of the Fund to
Prudential Government Income Fund, Inc. The Board of Directors has also approved
certain changes to the Fund's investment restrictions and Plans of Distribution.
These changes will be presented to shareholders at an upcoming meeting and, if
approved, would be implemented in connection with the offering of a new class of
shares, Class C shares, which is expected shortly. See "General Information--
Additional Information" in the Prospectus.

INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is to seek a high current return. The Fund
will seek a high current return primarily from interest income from U.S.
Government securities, premiums from put and call options on U.S. Government
securities and net gains from closing purchase and sale transactions with
respect to options on U.S. Government securities. The Fund may also realize net
gains from sales of portfolio securities.

U.S. GOVERNMENT SECURITIES

MORTGAGE-RELATED SECURITIES ISSUED BY U.S. GOVERNMENT
INSTRUMENTALITIES. Mortgages backing the securities purchased by the Fund
include conventional thirty-year fixed rate mortgages, graduated payment
mortgages, fifteen-year mortgages and adjustable rate mortgages. 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 individual 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. Because the prepayment characteristics of the
underlying mortgages vary, it is not possible to predict accurately the realized
yield or average life of a particular issue of pass-through certificates.
Prepayment rates are important because of their effect on the yield and price of
the securities. Accelerated prepayments adversely impact yields for pass-
throughs purchased at a premium. The opposite is true for pass-throughs
purchased at a discount.

GNMA CERTIFICATES. Certificates of the Government National Mortgage
Association (GNMA Certificates) are mortgage-backed securities, which evidence
an undivided interest in a pool of mortgage loans. GNMA Certificates differ from
bonds in that principal is paid back monthly by the borrower over the term of
the loan rather than returned in a lump sum at maturity. GNMA Certificates that
the Fund purchases are the "modified pass-through" type. "Modified pass-through"
GNMA Certificates entitle the holder to receive a share of all interest and
principal payments paid and owed on the mortgage pool, net of fees paid to the
"issuer" and GNMA, regardless of whether or not the mortgagor actually makes the
payment. The GNMA Certificates will represent a PRO RATA interest in one or more
pools of the following types of mortgage loans: (i) fixed-rate level payment
mortgage loans; (ii) fixed-rate graduated payment mortgage loans; (iii)
fixed-rate growing equity mortgage loans; (iv) fixed-rate mortgage loans secured
by manufactured (mobile) homes; (v) mortgage loans on multifamily residential
properties under construction; (vi) mortgage loans on completed multifamily
projects; (vii) 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); (viii) 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 (ix) 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.

GNMA GUARANTEE. The National Housing Act authorizes GNMA to guarantee the
timely payment of principal and interest on securities backed by a pool of
mortgages insured by the Federal Housing Administration (FHA) or the Farmers'
Home

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Administration (FMHA), or guaranteed by the Veterans Administration (VA). The
GNMA guarantee is backed by the full faith and credit of the United States. The
GNMA is also empowered to borrow without limitation from the U.S. Treasury if
necessary to make any payments required under its guarantee.

LIFE OF GNMA CERTIFICATES. The average life of a GNMA Certificate is likely
to be substantially shorter than the original maturity of the mortgages
underlying the securities. Prepayments of principal by mortgagors and mortgage
foreclosures will usually result in the return of the greater part of principal
investment long before the maturity of the mortgages in the pool. Foreclosures
impose no risk to principal investment because of the GNMA guarantee, except to
the extent that the Fund has purchased the certificates above par in the
secondary market.

FHLMC SECURITIES. The Federal Home Loan Mortgage Corporation was created in
1970 through enactment of Title III of the Emergency Home Finance Act of 1970.
Its purpose is to promote development of a nationwide secondary market in
conventional residential mortgages.

The FHLMC issues two types of mortgage pass-through securities, mortgage
participation certificates (PCs) and guaranteed mortgage certificates (GMCs).
PCs resemble GNMA Certificates in that each PC represents a pro rata share of
all interest and principal payments made and owed on the underlying pool. The
FHLMC guarantees timely monthly payment of interest on PCs and the ultimate
payment of principal.

GMCs also represent a PRO RATA interest in a pool of mortgages. However,
these instruments pay interest semi-annually and return principal once a year in
guaranteed minimum payments. The expected average life of these securities is
approximately ten years.

FNMA SECURITIES. The Federal National Mortgage Association was established
in 1938 to create a secondary market in mortgages insured by the FHA. FNMA
issues guaranteed mortgage pass-through certificates (FNMA Certificates). FNMA
Certificates resemble GNMA Certificates in that each FNMA Certificate represents
a PRO RATA share of all interest and principal payments made and owed on the
underlying pool. FNMA guarantees timely payment of interest on FNMA Certificates
and the full return of principal. Like GNMA Certificates, FNMA Certificates are
assumed to be prepaid fully in their twelfth year.

CHARACTERISTICS OF MORTGAGE-BACKED SECURITIES. The market value of mortgage
securities, like other U.S. Government securities, will generally vary inversely
with changes in market interest rates, declining when interest rates rise and
rising when interest rates decline. However, mortgage securities, while having
comparable risk of decline during periods of rising rates, usually have less
potential for capital appreciation than other investments of comparable
maturities due to the likelihood of increased prepayments of mortgages as
interest rates decline. 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.

COLLATERALIZED MORTGAGE OBLIGATIONS

Certain issuers of mortgage-backed obligations (CMOs), including certain
CMOs that have elected to be treated as Real Estate Mortgage Investment Conduits
(REMICs), are not considered investment companies pursuant to a rule recently
adopted by the Securities and Exchange Commission (SEC), and the Fund may invest
in the securities of such issuers without the limitations imposed by the
Investment Company Act of 1940 (the Investment Company Act) on investments by
the Fund in other investment companies. In addition, in reliance on an earlier
SEC interpretation, the Fund's 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 Fund
selects CMOs or REMICs that cannot rely on the rule or do not meet the above
requirements, the Fund may not invest more than 10% of its assets in all such
entities and may not acquire more than 3% of the voting securities of any single
such entity.

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OTHER SECURITIES

The Fund will invest in foreign banks and foreign branches of U.S. banks
only if after giving effect to such investments all such investments would
constitute less than 10% of the Fund's total assets (determined at the time of
investment). Investing in securities of foreign companies in foreign countries
involves certain considerations and risks which are not typically associated
with investing in U.S. Government securities and those of domestic companies.
Foreign companies are not generally subject to uniform accounting, auditing and
financial standards and requirements comparable to those applicable to U.S.
companies. There may be less publicly available information about foreign
companies and governments compared to reports and ratings published about U.S.
companies. Securities of some foreign companies are less liquid and more
volatile than securities of comparable U.S. companies, and brokerage commissions
and other transaction costs on foreign securities exchanges are generally higher
than in the United States.

OPTION WRITING AND RELATED RISKS

The Fund will write (I.E., sell) covered call or put options which are
traded on registered securities exchanges (the Exchanges) and may also write
such options with primary U.S. Government securities dealers recognized by the
Federal Reserve Bank of New York (OTC options). A call option gives the
purchaser of the option the right to buy, and the writer the obligation to sell,
the underlying security at the exercise price during the option period.
Conversely, a put option gives the purchaser the right to sell, and the writer
the obligation to buy, the underlying security at the exercise price during the
option period.

OPTIONS TRANSACTIONS

Exchange-traded options are issued by The Options Clearing Corporation (OCC)
which, in effect, gives its guarantee to every exchange-traded option
transaction. In contrast, OTC options represent a contract between a U.S.
Government securities dealer and the Fund with no guarantee of the OCC. Thus,
when the Fund purchases an OTC option, it relies on the dealer from which it has
purchased the OTC option to make or take delivery of the U.S. Government
securities underlying the OTC option. Failure by the dealer to do so would
result in the loss of premium paid by the Fund as well as loss of the expected
benefit of the transaction.

Exchange-traded options generally have a continuous liquid market while OTC
options do not. Consequently, the Fund will generally be able to realize the
value of an OTC option it has purchased only by exercising it or reselling it to
the issuing dealer. Similarly, when the Fund writes an OTC option, it generally
will be able to close out the OTC option prior to its expiration only by
entering into a closing purchase transaction with the dealer to which the Fund
originally wrote the OTC option. While the Fund will enter into OTC option
transactions only with dealers who will agree to and which are expected to be
capable of entering into closing transactions with the Fund, there can be no
assurance that the Fund will be able to liquidate an OTC option at a favorable
price at any time prior to expiration. Until the Fund, as a covered OTC call
option writer, is able to effect a closing purchase transaction, it will not be
able to liquidate securities used as cover until the option expires, is
exercised or the Fund provides substitute cover. See "How the Fund
Invests--Investment Objective and Policies--Other Investment
Information--Illiquid Securities" in the Prospectus. In the event of insolvency
of the counter party, the Fund may be unable to liquidate an OTC option. With
respect to options written by the Fund, the inability to enter into a closing
transaction may result in material losses to the Fund. This requirement may
impair the Fund's ability to sell a portfolio security at a time when such a
sale might be advantageous.

The principal reason for writing options on a securities portfolio is to
attempt to realize, through the receipt of premiums, a greater return than would
be realized on the underlying securities alone. In return for the premium, the
covered call option writer has given up the opportunity for profit from a price
increase in the underlying security above the exercise price so long as the
option remains open, but retains the risk of loss should the price of the
security decline. Conversely, the put option writer gains a profit, in the form
of the premium, so long as the price of the underlying security remains above
the exercise price, but assumes an obligation to purchase the underlying
security from the buyer of the put option at the exercise price, even though the
security may fall below the exercise price, at any time during the option
period. If an option expires, the writer realizes a gain in the amount of the
premium. Such a gain may, in the case of a covered call option, be offset by a
decline in the market value of the underlying security during the option period.
If a call option is exercised, the writer realizes a gain or loss from the sale
of the underlying security. If a put option is exercised, the writer must
fulfill its obligation to purchase the underlying security at the exercise
price, which will usually exceed the market value of the underlying security at
that time.

B-4
<PAGE>
So long as the obligation of the writer continues, the writer may be
assigned an exercise notice by the broker-dealer through whom the option was
sold. The exercise notice would require the writer to deliver, in the case of a
call, or take delivery of, in the case of a put, the underlying security against
payment of the exercise price. This obligation terminates upon expiration of the
option, or at such earlier time that the writer effects a closing purchase
transaction by purchasing an option covering the same underlying security and
having the same exercise price and expiration date (of the same series) as the
one previously sold. Once an option has been exercised, the writer may not
execute a closing purchase transaction. To secure the obligation to deliver the
underlying security in the case of a call option, the writer of the option is
required to pledge for the benefit of the broker the underlying security or
other assets in accordance with the rules of the OCC, an institution created to
interpose itself between buyers and sellers of options. Technically, the OCC
assumes the other side of every purchase and sale transaction on an Exchange
and, by doing so, guarantees the transaction.

The Fund writes only "covered" options. This means that, so long as the Fund
is obligated as the writer of a call option, it will (a) own the underlying
securities subject to the option, except that, in the case of call options on
U.S. Treasury Bills, the Fund might own U.S. Treasury Bills of a different
series from those underlying the call option, but with a principal amount and
value corresponding to the option contract amount and a maturity date no later
than that of the securities deliverable under the call option or (b) deposit and
maintain with its Custodian in a segregated account cash, U.S. Government
securities or other liquid, high-grade debt obligations having a value at least
equal to the fluctuating market value of the securities underlying the call. The
Fund will be considered "covered" with respect to a put option it writes if, so
long as it is obligated as the writer of a put option, it will (a) deposit and
maintain with its Custodian in a segregated account cash, U.S. Government
securities or other liquid high-grade debt obligations having a value equal to
or greater than the exercise price of the option, or (b) own a put option on the
same security with an exercise price the same or higher than the exercise price
of the put option sold or, if lower, deposit and maintain the differential in
cash, U.S. Government securities or other liquid high-grade debt obligations in
a segregated account with its Custodian.

To the extent that a secondary market is available on the Exchanges, the
covered option writer may close out options it has written prior to the
assignment of an exercise notice by purchasing, in a closing purchase
transaction, an option of the same series as the option previously written. If
the cost of such a closing purchase, plus transaction costs, is greater than the
premium received upon writing the original option, the writer will incur a loss
in the transaction.

Because the Fund can write only covered options, it may at times be unable
to write additional options unless it sells a portion of its portfolio holdings
to obtain new debt securities or other cover against which it can write options.
If the Fund writes a substantial number of options, its portfolio turnover will
be higher than if it did not do so. Portfolio turnover will increase to the
extent that options written by the Fund are exercised. Because the exercise of
such options depends on changes in the price of the underlying securities, the
Fund's portfolio turnover rate cannot be accurately predicted. The Fund's
turnover rate for the fiscal years ended February 29, 1993 and February 28, 1994
was 36% and 80%, respectively.

SPECIAL CONSIDERATIONS APPLICABLE TO OPTIONS

ON TREASURY BONDS AND NOTES. Because trading interest in Treasury Bonds and
Notes tends to center on the most recently auctioned issues, the Exchanges will
not indefinitely continue to introduce new series of options with expirations to
replace expiring options on particular issues. Instead, the expirations
introduced at the commencement of options trading on a particular issue will be
allowed to run their course, with the possible addition of a limited number of
new expirations as the original ones expire. Options trading on each series of
Bonds or Notes will thus be phased out as new options are listed on the more
recent issues, and a full range of expiration dates will not ordinarily be
available for every series on which options are traded.

ON TREASURY BILLS. Because the availability of deliverable Treasury Bills
changes from week to week, writers of Treasury Bill call options cannot provide
in advance for their potential exercise settlement obligations by acquiring and
holding the underlying security. However, if the Fund holds a long position in
Treasury Bills with a principal amount corresponding to the option contract
size, the Fund may be hedged from a risk standpoint. In addition, the Fund will
maintain in a segregated account with its Custodian, Treasury Bills maturing no
later than those which would be deliverable in the event of an assignment of an
exercise notice to ensure that it can meet its open option obligations.

ON GNMA CERTIFICATES. Options on GNMA Certificates are not currently traded
on any Exchange. However, the Fund intends to purchase and write such options
should they commence trading on any Exchange.

Since the remaining principal balance of GNMA Certificates declines each
month as a result of mortgage payments, the Fund, as a writer of a covered GNMA
call holding GNMA Certificates as "cover" to satisfy its delivery obligation in
the event of

B-5
<PAGE>
assignment of an exercise notice, may find that its GNMA Certificates no longer
have a sufficient remaining principal balance for this purpose. Should this
occur, the Fund 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 Fund 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 Fund will no longer be covered, and the Fund will either enter into a
closing purchase transaction or replace the GNMA Certificate with a GNMA
Certificate which represents cover. When the Fund closes its position or
replaces the GNMA Certificate, it may realize an unanticipated loss and incur
transaction costs.

RISKS PERTAINING TO THE SECONDARY MARKET. An option position may be closed
out only on an Exchange which provides a secondary market for an option of the
same series. Although the Fund will generally purchase or write only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an Exchange will exist for any
particular option at any particular time, and for some options no secondary
market on an Exchange may exist. In such event, it might not be possible to
effect closing transactions in particular options, with the result that the Fund
would have to exercise its options in order to realize any profit and may incur
transaction costs in connection therewith. If the Fund as a covered call option
writer is unable to effect a closing purchase transaction in a secondary market,
it will not be able to sell the underlying security until the option expires or
it delivers the underlying security upon exercise.

Reasons for the absence of a liquid secondary market on an exchange include
the following: (a) insufficient trading interest in certain options; (b)
restrictions or transactions imposed by an Exchange; (c) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (d) interruption of the normal
operations on an Exchange; (e) inadequacy of the facilities of an Exchange or
the OCC to handle current trading volume; or (f) a decision by one or more
Exchanges 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 OCC as a result of trades on that
Exchange would generally continue to be exercisable in accordance with their
terms.

The hours of trading for options on U.S. Government securities may not
conform to the hours during which the underlying securities are traded. To the
extent that the option markets close before the markets for the underlying
securities, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.

FUTURES CONTRACTS ON U.S. GOVERNMENT SECURITIES

CHARACTERISTICS AND PURPOSE OF INTEREST RATE FUTURES. The Fund purchases and
sells U.S. Exchange-traded interest-rate futures. Currently, there are futures
contracts based on U.S. Treasury Bonds, U.S. Treasury Notes, three-month U.S.
Treasury Bills and GNMA certificates. A clearing corporation associated with the
commodities exchange on which a futures contract trades assumes responsibility
for the completion of transactions and guarantees that futures contracts will be
performed. Although futures contracts call for actual delivery or acceptance of
debt securities, in most cases the contracts are closed out before the
settlement date without the making or taking of delivery.

CHARACTERISTICS. The Fund neither pays nor receives money upon the purchase
or sale of a futures contract. Instead, when the Fund enters into a futures
contract, it will initially be required to deposit with its Custodian for the
benefit of the broker (the futures commission merchant) an amount of "initial
margin" of cash or U.S. Treasury Bills, currently equal to approximately 1 1/2
to 2% of the contract amount for futures on Treasury Bonds and Notes and
approximately 1/10 of 1% of the contract amount for futures on Treasury Bills.
Initial margin in futures transactions is different from margin in securities
transactions in that futures contract initial margin does not involve the
borrowing of funds by the customer to finance the transactions. Rather, initial
margin is in the nature of a good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the futures commission merchant are made on a
daily basis as the market price of the futures contract fluctuates. This process
is known as "marking to market." At any time prior to expiration of the futures
contract, the Fund may elect to close the position by taking an offsetting
position which will operate to terminate the Fund's position in the futures
contract. While interest rate futures contracts provide for the delivery and
acceptance of securities, most futures contracts are terminated by entering into
offsetting transactions.

Successful use of futures contracts by the Fund is also subject to the
ability of the Fund's investment adviser to predict correctly movements in the
direction of interest rates and other factors affecting markets for securities.
For example, if the Fund

B-6
<PAGE>
has hedged against the possibility of an increase in interest rates which would
adversely affect the price of securities in its portfolio and price of such
securities increases instead, the Fund will lose part or all of the benefit of
the increased value of its securities because it will have offsetting losses in
its futures positions. In addition, in such situations, if the Fund has
insufficient cash to meet daily variation margin requirements, it may have to
sell securities to meet such requirements. Such sales of securities may be, but
will not necessarily be, at increased prices which reflect the rising market.
The Fund may have to sell securities at a time when it is disadvantageous to do
so.

The hours of trading futures contracts on U.S. Government securities may not
conform to the hours during which the Fund may trade such securities. To the
extent that the futures markets close before or after the U.S. Government
securities markets, significant variations can occur in one market that cannot
be reflected in the other market.

OPTIONS ON FUTURES CONTRACTS

CHARACTERISTICS. An option on a futures contract gives the purchaser the
right, but not the obligation, to assume a position in a futures contract (a
long position if the option is a call and a short position if the option is a
put) at a specified exercise price at any time during the option exercise
period. The writer of the option is required upon exercise to assume an
offsetting futures position (a short position if the option is a call and a long
position if the option is a put). Upon exercise of the option, the assumption of
offsetting futures positions by the writer and holder of the option will be
accompanied by delivery of the accumulated cash balance in the writer's futures
margin account which represents the amount by which the market price of the
futures contract, at exercise, exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option on the futures contract.
Currently, options can be purchased or written with respect to futures contracts
on GNMA's, U.S. Treasury Bonds and U.S. Treasury Notes on The Chicago Board of
Trade and U.S. Treasury Bills on the International Monetary Market at the
Chicago Mercantile Exchange.

The holder or writer of an option may terminate its position by selling or
purchasing an option of the same series. There is no guarantee that such closing
transactions can be effected.

The Fund will be considered "covered" with respect to a call option it
writes on a futures contract if it (a) owns a long position in the underlying
futures contract or the security underlying the futures contract, (b) owns a
security which is deliverable under the futures contract or (c) owns a separate
call option to purchase the same futures contract at a price no higher than the
exercise price of the call option written by the Fund or, if higher, the Fund
deposits and maintains the differential in cash, U.S. Government securities or
other liquid high-grade debt obligations in a segregated account with its
Custodian. The Fund is considered "covered" with respect to a put option it
writes on a futures contract if it (a) segregates and maintains with its
Custodian cash, U.S. Government securities or liquid high-grade debt obligations
at all times equal in value to the exercise price of the put (less any related
margin deposited), or (b) owns a put option on the same futures contract with an
exercise price as high or higher than the price of the contract held by the Fund
or, if lower, the Fund deposits and maintains the differential in cash, U.S.
Government securities or other liquid, high-grade debt obligations in a
segregated account with its Custodian. There is no limitation on the amount of
the Fund's assets which can be placed in the segregated account.

The Fund will be required to deposit initial and maintenance margin with
respect to put and call options on futures contracts written by it pursuant to
the Fund's futures commissions merchants' requirements similar to those
applicable to futures contracts, described above.

The skills needed to trade futures contracts and options thereon are
different than those needed to select U.S. Government securities. The Fund's
investment adviser has experience in managing other securities portfolios which
uses similar options and futures strategies as the Fund.

REPURCHASE AGREEMENTS

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

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The Fund participates in a joint repurchase account with other investment
companies managed by Prudential Mutual Fund Management, Inc. (PMF) pursuant to
an order of the SEC. On a daily basis, any uninvested cash balances of the Fund
may be aggregated with such of other 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.

INTEREST RATE TRANSACTIONS

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

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

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

INVESTMENT RESTRICTIONS

The following restrictions are fundamental policies. Fundamental policies
are those which cannot be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities. The Board of Directors has
approved certain modifications to the Fund's investment restrictions. See
"General Information--Additional Information" in the Prospectus.

The Fund may not:

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

2. Make short sales of securities or maintain a short position, except
short sales "against the box."

3. Issue senior securities, borrow money or pledge its assets except that
the Fund may borrow up to 20% of the value of its total assets (calculated when
the loan is made) for temporary, extraordinary or emergency purposes or for the
clearance of transactions. The Fund may pledge up to 20% of the value of its
total assets to secure such borrowings. For purposes of this restriction, the
purchase or sale of securities on a when-issued or delayed delivery basis,
collateral arrangements with respect to the writing of options on debt
securities or on interest rate futures contracts or other financial futures
contracts are not deemed to

B-8
<PAGE>
be a pledge of assets and neither such arrangements, nor the purchase or sale of
interest rate futures contracts or other financial futures contracts or the
purchase or sale of related options, nor obligations of the Fund to Directors
pursuant to deferred compensation arrangements are deemed to be the issuance of
a senior security.

4. Purchase any security (other than obligations of the U.S. Government,
its agencies, or instrumentalities) if as a result: (i) with respect to 75% of
the Fund's total assets, more than 5% of the Fund's total assets (determined at
the time of investment) would then be invested in securities of a single issuer,
or (ii) 25% or more of the Fund's total assets (determined at the time of
investment) would be invested in a single industry.

5. Purchase any security if as a result the Fund would then hold more than
10% of any class of securities of an issuer (taking all common stock issues of
an issuer as a single class, all preferred stock issues as a single class, and
all debt issues as a single class) or more than 10% of the outstanding voting
securities of an issuer.

6. Purchase any security if as a result the Fund would then have more than
5% of its total assets (determined at the time of investment) invested in
securities of companies (including predecessors) less than three years old, or
in equity securities for which market quotations are not readily available,
except that the Fund may invest in the securities of any U.S. Government agency
or instrumentality, and in any security guaranteed by such an agency or
instrumentality.

7. Invest in securities of any issuer if, to the knowledge of the Fund, any
officer or director of the Fund or the Fund's Manager or Subadviser owns more
than 1/2 of 1% of the outstanding securities of such issuer, and such officers
and directors who own more than 1/2 of 1% own in the aggregate more than 5% of
the outstanding securities of such issuer.

8. Buy or sell commodities or commodity contracts or real estate or
interests in real estate, except it may purchase and sell securities which are
secured by real estate, securities of companies which invest or deal in real
estate, interest rate futures contracts and other financial futures contracts
and options thereon.

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

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

11. Purchase any security restricted as to disposition under federal
securities laws. (Since any foreign security acquired by the Fund will be
disposed of only in a foreign market, foreign securities are not regarded as
restricted.)

12. Invest in securities of other registered investment companies, except by
purchases in the open market involving only customary brokerage commissions and
as a result of which not more than 5% of its total assets (determined at the
time of investment) would be invested in such securities, or except as part of a
merger, consolidation or other acquisition.

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

14. Make loans, except through (i) repurchase agreements (repurchase
agreements with a maturity of longer than 7 days together with illiquid assets
being limited to 10% of the Fund's total assets) and (ii) loans of portfolio
securities (limited to 30% of the Fund's total assets).

15. Purchase warrants if as a result the Fund would then have more than 5%
of its total assets (determined at the time of investment) invested in warrants.

16. Write, purchase or sell puts, calls or combinations thereof, or purchase
or sell futures contracts or related options, except that the Fund may write put
and call options on U.S. Government securities, purchase put and call options on
U.S. Government securities and purchase or sell interest rate futures contracts
and other financial futures contracts and related options.

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

In order to comply with certain state "blue sky" restrictions, the Fund will
not as a matter of operating policy:

1. Invest in oil, gas and mineral leases.

2. Purchase or sell real estate or interests in real estate, including real
estate limited partnerships, but excluding securities which are secured by real
estate and the securities of companies which invest in real estate which are
readily marketable.

B-9
<PAGE>
3. Purchase warrants if as a result the Fund would then have more than 5%
of its net assets (determined at the time of investment) invested in warrants.
Warrants will be valued at the lower of cost or market and investment in
warrants which are not listed on the New York Stock Exchange or American Stock
Exchange will be limited to 2% of the Fund's net assets (determined at the time
of investment). For the purpose of this limitation, warrants acquired in units
or attached to securities are deemed to be without value.

DIRECTORS AND OFFICERS

<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE FUND DURING PAST FIVE YEARS
- --------------------------- ----------------------- -----------------------------------------------------------------
<S> <C> <C>
Edward D. Beach Director President and Director of BMC Fund, Inc., prior thereto, Vice
c/o Prudential Mutual Fund Chairman of Broyhill Furniture Industries, Inc.; Certified
Management, Inc. Public Accountant; Secretary and Treasurer of Broyhill Family
One Seaport Plaza Foundation, Inc.; President, Treasurer and Director of First
New York, NY Financial Fund, Inc. and The High Yield Plus Fund, Inc. Director
of The Global Government Plus Fund, Inc. and The Global Yield
Fund, Inc.,
Delayne Dedrick Gold Director Marketing and Management Consultant.
c/o Prudential Mutual Fund
Management, Inc.
One Seaport Plaza
New York, NY
*Harry A. Jacobs, Jr. Director Senior Director (since January 1986) of Prudential Securities;
One Seaport Plaza formerly Interim Chairman and Chief Executive Officer of PMF
New York, NY (June-September 1993); Chairman of the Board of Prudential
Securities (1982-1985) and Chairman of the Board and Chief
Executive Officer of Bache Group Inc. (1977-1982); Director of
the Center for National Policy, The First Australia Fund, Inc.,
The First Australia Prime Income Fund, Inc., The Global
Government Plus Fund, Inc. and The Global Yield Fund, Inc.;
Trustee of The Trudeau Institute.
*Lawrence C. McQuade Director and President Vice Chairman of PMF (since 1988); Managing Director, Investment
One Seaport Plaza Banking, Prudential Securities (1988-1991); Director of Quixote
New York, NY Corporation (since February 1992) and BUNZL, P.L.C. (since June
1991); formerly Director of Crazy Eddie Inc. (1987-1990) Kaiser
Tech., Ltd., and Kaiser Aluminum and Chemical Corp. (March
1987-November 1988); President and Director of The High Yield
Income Fund, Inc., The Global Government Plus Fund, Inc. and The
Global Yield Fund, Inc.
Thomas T. Mooney Director President of the Greater Rochester Metro Chamber of Commerce;
c/o Prudential Mutual Fund former Rochester City Manager; Trustee of Center for
Management, Inc. Governmental Research, Inc.; Director of Blue Cross of
One Seaport Plaza Rochester, Monroe County Water Authority, Rochester Jobs, Inc.,
New York, NY Northeast-Midwest Institute, Executive Service Corps of
Rochester, Monroe County Industrial Development Corporation,
First Financial Fund, Inc., The Global Government Plus Fund,
Inc., The Global Yield Fund, Inc. and The High Yield Plus Fund,
Inc.
</TABLE>

- ------------------------
* "Interested" director as defined in the Investment Company Act.

B-10
<PAGE>

<TABLE>
<S> <C> <C>
*Richard A. Redeker Director President, Chief Executive Officer and Director
One Seaport Plaza (since October 1993), PMF; Executive Vice
New York, NY President, Director and Member of the Operating
Committee (since October 1993), Prudential
Securities; Director (since October 1993) of
Prudential Securities Group, Inc. (PSG); formerly
Senior Executive Vice President and Director of
Kemper Financial Services, Inc. (September
1978-September 1993); Director of The Global Yield
Fund, Inc., The Global Government Plus Fund, Inc.
and the High Yield Income Fund, Inc.
Stanley E. Shirk Director Certified Public Accountant and a former Senior
c/o Prudential Mutual Partner of the accounting firm of KPMG Peat
Fund Marwick; former Management and Accounting
Management, Inc. Consultant for the Association of Bank Holding
One Seaport Plaza Companies, Washington, D.C. and the Bank
New York, NY Administration Institute, Chicago, IL; Director of
The High Yield Income Fund, Inc.
David W. Drasnin Vice President Vice President and Branch Manager of Prudential
39 Public Square, Securities.
Suite 500
Wilkes-Barre, PA
Robert F. Gunia Vice President Director (since January 1989), Chief Administrative
One Seaport Plaza Officer (since July 1990), and Executive Vice
New York, NY President, Treasurer and Chief Financial Officer
(since June 1987) of PMF; Senior Vice President
(since March 1987) of Prudential Securities; Vice
President and Director of The Asia Pacific Fund,
Inc. (since May 1989).
Susan C. Cote Treasurer and Senior Vice President (since January 1989) and First
One Seaport Plaza Principal Vice President (June 1987-December 1988) of PMF;
New York, NY Accounting Senior Vice President (since January 1992) and Vice
Officer President (January 1986-December 1991) of
Prudential Securities.
</TABLE>

- ------------------------
*"Interested" director as defined in the Investment Company Act.

B-11
<PAGE>

Directors and officers of the Fund are also trustees, directors and officers
of some or all of the other investment companies distributed by Prudential
Securities or Prudential Mutual Fund Distributors, Inc.

The officers conduct and supervise the daily business operations of the
Fund, while the Directors, in addition to their functions set forth under
"Manager" and "Distributor," review such actions and decide on general policy.

The Fund pays each of its Directors who is not an affiliated person of the
Manager annual compensation of $8,000, in addition to certain out-of-pocket
expenses. Mr. Beach receives his Director's fee pursuant to a deferred fee
agreement with the Fund. Under the terms of the agreement, the Fund accrues
daily the amount of such Director's fee which accrue interest at a rate
equivalent to the prevailing rate applicable to 90-day U.S. Treasury Bills at
the beginning of each calendar quarter or at the daily rate of the Fund. Payment
of the interest so accrued is also deferred and accruals become payable at the
option of the Director. The Fund's obligation to make payments of deferred
Director's fees, together with interest thereon, is a general obligation of the
Fund.

As of June 10, 1994, the Directors and officers of the Fund, as a group,
owned less than 1% of the outstanding shares of the Fund.

As of June 10, 1994, Prudential Securities was the record holder for other
beneficial owners of 1,962,095 Class A shares (or 36.2% of the outstanding Class
A shares) and 138,646,635 Class B shares (or 62.2% of the outstanding Class B
shares) of the Fund. In the event of any meetings of shareholders, Prudential
Securities will forward, or cause the forwarding of, proxy materials to the
beneficial owners for which it is the record holder.

MANAGER

The manager of the Fund is Prudential Mutual Fund Management, Inc. (PMF or
the Manager), One Seaport Plaza, New York, New York 10292. PMF serves as manager
to all of the other investment companies that, together with the Fund, comprise
the "Prudential Mutual Funds." See "How the Fund is Managed" in the Prospectus.
As of May 31, 1994, PMF managed and/or administered open-end and closed-end
management investment companies with assets of approximately $48 billion.
According to the Investment Company Institute, as of December 31, 1993, the
Prudential Mutual Funds were the 12th largest family of mutual funds in the
United States.

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

For its services, PMF receives, pursuant to the Management Agreement, a fee
at an annual rate of .50 of 1% of the average daily net assets of the Fund up to
$3 billion and .35 of 1% of the average daily net assets of the Fund in excess
of $3 billion. The fee is computed daily and payable monthly. The Management
Agreement also provides that, in the event the expenses of the

B-12
<PAGE>

Fund (including the fees of PMF, but excluding interest, taxes, brokerage
commissions, distribution fees and litigation and indemnification expenses and
other extraordinary expenses not incurred in the ordinary course of the Fund's
business) for any fiscal year exceed the lowest applicable annual expense
limitation established and enforced pursuant to the statutes or regulations of
any jurisdiction in which the Fund's shares are qualified for offer and sale,
the compensation due to PMF will be reduced by the amount of such excess.
Reductions in excess of the total compensation payable to PMF will be paid by
PMF to the Fund. No such reductions were required during the fiscal year ended
February 28, 1994. Currently, the Fund believes that the most restrictive
expense limitation of state securities commissions is 2 1/2% of the Fund's
average daily net assets up to $30 million, 2% of the next $70 million of such
assets and 1 1/2% of such assets in excess of $100 million.

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

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

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

(c) the costs and expenses payable to The Prudential Investment Corporation
(PIC) pursuant to the subadvisory agreement between PMF and PIC (the Subadvisory
Agreement).

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

The Management Agreement provides that PMF will not be liable for any error
of judgment or for any loss suffered by the Fund in connection with the matters
to which the Management Agreement relates, except a loss resulting from willful
misfeasance, bad faith, gross negligence or reckless disregard of duty. The
Management Agreement provides that it will terminate automatically if assigned,
and that it may be terminated without penalty by either party upon not more than
60 days' nor less than 30 days' written notice. The Management Agreement will
continue in effect for a period of more than two years from the date of
execution only so long as such continuance is specifically approved at least
annually in conformity with the Investment Company Act. The Management Agreement
was last approved by the Board of Directors, including a majority of the
Directors who are not interested persons of the Fund and who have no direct or
indirect financial interest in the Management Agreement, on April 14, 1994 and
by the shareholders of the Fund on March 30, 1988.

For the fiscal years ended February 28, 1994, February 28, 1993 and February
29, 1992, the Fund paid management fees to PMF of $12,719,555, $13,588,678 and
$14,666,187, respectively.

PMF has entered into the Subadvisory Agreement with PIC (the Subadviser), a
wholly-owned subsidiary of Prudential. The Subadvisory Agreement provides that
PIC will furnish investment advisory services in connection with the management
of the Fund. In connection therewith, PIC is obligated to keep certain books and
records of the Fund. PMF continues to have responsibility for all investment
advisory services pursuant to the Management Agreement and supervises PIC's
performance of such services. PIC is reimbursed by PMF for the reasonable costs
and expenses incurred by PIC in furnishing those services.

B-13
<PAGE>

The Subadvisory Agreement was last approved by the Board of Directors,
including a majority of the Directors who are not interested persons of the Fund
and who have no direct or indirect financial interest in the Subadvisory
Agreement, on April 14, 1994, and by shareholders of the Fund on March 30, 1988.

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

The Manager and the Subadviser (The Prudential Investment Corporation) are
indirect subsidiaries of The Prudential which, as of December 31, 1993, was the
largest insurance company in North America. Prudential has been engaged in the
insurance business since 1875. In July 1993, INSTITUTIONAL INVESTOR ranked The
Prudential the third largest institutional money manager of the 300 largest
money management organizations in the United States as of December 31, 1992.

DISTRIBUTOR

Prudential Mutual Fund Distributors, Inc. (PMFD), One Seaport Plaza, New
York, New York 10292, acts as the distributor of the Class A shares of the Fund.
Prudential Securities Incorporated, One Seaport Plaza, New York, New York 10292
(Prudential Securities), acts as the distributor of the Class B shares of the
Fund.

Pursuant to separate Plans of Distribution (the Class A Plan and the Class B
Plan, collectively, the Plans) adopted by the Fund under Rule 12b-1 under the
Investment Company Act and separate distribution agreements (the Distribution
Agreements), PMFD and Prudential Securities (collectively the Distributor) incur
the expenses of distributing the Fund's Class A and Class B shares. See "How the
Fund is Managed--Distributor" in the Prospectus.

On April 15, 1993, the Board of Directors, including a majority of the
Directors who are not interested persons of the Fund and who have no direct or
indirect financial interest in the operation of the Class A Plan or Class B Plan
or in any agreement related to either Plan (the Rule 12b-1 Directors), at a
meeting called for the purpose of voting on each Plan, approved the continuance
of the Plans and Distribution Agreements and approved modifications of the
Fund's Class A and Class B Plans and Distribution Agreements to conform them
with recent amendments to the National Association of Securities Dealers, Inc.
(NASD) maximum sales charge rule described below. As so modified, the Class A
Plan provides that (i) up to .25 of 1% of the average daily net assets of the
Class A shares may be used to pay for personal service and the maintenance of
shareholder accounts (service fee) and (ii) total distribution fees (including
the service fee of .25 of 1%) may not exceed .30 of 1%. As so modified, the
Class B Plan provides that (i) up to .25 of 1% of the average daily net assets
of the Class B shares may be paid as a service fee and (ii) up to .75 of 1% (not
including the service fee) may be used as reimbursement for distribution-related
expenses with respect to the Class B shares (asset-based sales charge). The
Plans were last approved by the Board of Directors, including a majority of the
Rule 12b-1 Directors, on April 14, 1994.

The Board of Directors of the Fund has approved amendments to the Plans
which would, among other things, make the Plans compensation type plans rather
than reimbursement-type plans. See "General Information--Additional Information"
in the Prospectus.

CLASS A PLAN. For the fiscal year ended February 28, 1994, PMFD incurred
distribution expenses in the aggregate of $86,160, all of which were recovered
through the distribution fee paid by the Fund to PMFD under the Class A Plan.
This amount was primarily expended for payment of account servicing fees to
financial advisers and other persons who sell Class A shares. For the fiscal
year ended February 28, 1994, PMFD also received approximately $405,000 in
initial sales charges.

CLASS B PLAN. For the fiscal year ended February 28, 1994, Prudential
Securities received $24,706,451 from the Fund under the Class B Plan and spent
approximately $18,628,600 in distributing the Class B shares of the Fund. It is
estimated that of the latter amount, approximately $64,200 (0.3%) was spent on
printing and mailing of prospectuses to other than current shareholders,
$5,196,400 (27.9%) on interest and carrying costs, $4,676,600 (25.1%) on
compensation to Pruco Securities Corporation, an affiliated broker-dealer, for
commissions to its financial advisers and other expenses, including an
allocation on account of overhead and other branch office distribution-related
expenses incurred by it for distribution of Fund shares; and $8,691,400 (46.7%)
on the aggregate of (i) payment of commissions and account servicing fees to
financial advisers ($5,551,100 or 29.8%), and (ii) an allocation on account of
overhead and other branch office distribution-related expenses

B-14
<PAGE>

($3,140,300 or 16.9%). The term "overhead and other branch office
distribution-related expenses" represents (a) the expenses of operating branch
offices of Prusec and Prudential Securities in connection with the sale of Fund
shares, including lease costs, the salaries and employee benefits of operations
and sales support personnel, utility costs, communications costs and the costs
of stationery and supplies, (b) the costs of client sales seminars, (c) expenses
of mutual fund sales coordinators to promote the sale of Fund shares and (d)
other incidental expenses relating to branch promotion of Fund sales.

Prudential Securities also receives the proceeds of contingent deferred
sales charges paid by investors upon certain redemptions of Class B shares. See
"Shareholder Guide--How to Sell Your Shares--Contingent Deferred Sales Charges--
Class B Shares" in the Prospectus. The amount of distribution expenses
reimbursable by the Class B shares of the Fund is reduced by the amount of
contingent deferred sales charges received. For the fiscal year ended February
28, 1994, Prudential Securities received approximately $2,533,000 in contingent
deferred sales charges.

The Class A and Class B Plans continue in effect from year to year, provided
that each such continuance is approved at least annually by a vote of the Board
of Directors, including a majority vote of the Rule 12b-1 Directors, cast in
person at a meeting called for the purpose of voting on such continuance. The
Plans may each be terminated at any time, without penalty, by the vote of a
majority of the Rule 12b-1 Directors or by the vote of the holders of a majority
of the outstanding shares of the applicable class on not more than 30 days'
written notice to any other party to the Plans. The Plans may not be amended to
increase materially the amounts to be spent for the services described therein
without approval by the shareholders of the applicable class, and all material
amendments are required to be approved by the Board of Directors in the manner
described above. Each Plan will automatically terminate in the event of its
assignment. The Fund will not be contractually obligated to pay expenses
incurred under either the Class A or Class B Plan if it is terminated or not
continued.

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

Pursuant to each Distribution Agreement, the Fund has agreed to indemnify
PMFD and Prudential Securities to the extent permitted by applicable law against
certain liabilities under the Securities Act of 1933, as amended. Each
Distribution Agreement was last approved by the Board of Directors, including a
majority of the Rule 12b-1 Directors, on April 14, 1994.

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

PORTFOLIO TRANSACTIONS AND BROKERAGE

The Manager is responsible for decisions to buy and sell securities, futures
contracts and options on such securities and futures for the Fund, the selection
of brokers, dealers and futures commission merchants to effect the transactions
and the negotiation of brokerage commissions, if any. (For purposes of this
section, the term "Manager" includes the Subadviser.) Broker-dealers may receive
brokerage commissions on Fund portfolio transactions, including options, futures
and options on futures transactions and the purchase and sale of underlying
securities upon the exercise of options. Orders may be directed to any broker or
futures commission merchant including, to the extent and in the manner permitted
by applicable law, Prudential Securities.

In the U.S. Government securities market, securities are generally traded on
a "net" basis with dealers acting as principal for their own accounts without a
stated commission, although the price of the security usually includes a profit
to the dealer. In underwritten offerings, securities are purchased at a fixed
price which includes an amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. On occasion, certain
money market instruments and agency securities may be purchased directly from
the issuer, in which case no commissions or discounts are paid. The Fund will
not deal with Prudential Securities or its affiliates in any transaction in
which Prudential Securities or its affiliates act as principal.

B-15
<PAGE>
Thus, it will not deal in U.S. Government securities with Prudential Securities
or its affiliates acting as market maker, and it will not execute a negotiated
trade with Prudential or its affiliates if execution involves Prudential
Securities or its affiliates acting as principal with respect to any part of the
Fund's order.

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

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

Subject to the above considerations, Prudential Securities may act as a
broker or futures commission merchant for the Fund. In order for Prudential
Securities (or any affiliate) to effect any portfolio transactions for the Fund,
the commissions, fees or other remuneration received by Prudential Securities
(or any affiliate) must be reasonable and fair compared to the commissions, fees
or other remuneration paid to other such brokers or futures commission merchants
in connection with comparable transactions involving similar securities or
futures contracts being purchased or sold on an exchange or board of trade
during a comparable period of time. This standard would allow Prudential
Securities (or any affiliate) to receive no more than the remuneration which
would be expected to be received by an unaffiliated broker or futures commission
merchant in a commensurate arms-length transaction. Furthermore, the Board of
Directors of the Fund, including a majority of the Rule 12b-1 Directors, has
adopted procedures which are reasonably designed to provide that any
commissions, fees or other remuneration paid to Prudential Securities (or any
affiliate) are consistent with the foregoing standard. In accordance with
Section 11(a) under the Securities Exchange Act of 1934, Prudential Securities
may not retain compensation for effecting transactions on a national securities
exchange for the Fund unless the Fund has expressly authorized the retention of
such compensation. Prudential Securities must furnish to the Fund at least
annually a statement setting forth the total amount of all compensation retained
by Prudential Securities from transactions effected for the Fund during the
applicable period. Brokerage and futures transactions with Prudential Securities
(or any affiliate) are also subject to such fiduciary standards as may be
imposed upon Prudential Securities (or such affiliate) by applicable law.

During the fiscal years ended February 28, 1994, February 28, 1993 and
February 29, 1992, the Fund paid no brokerage commissions to Prudential
Securities.

B-16
<PAGE>
PURCHASE AND REDEMPTION OF FUND SHARES

Shares of the Fund may be purchased at a price equal to the next determined
net asset value per share plus a sales charge which, at the election of the
investor, may be imposed either (i) at the time of purchase (the initial sales
charge alternative), or (ii) on a deferred basis (the deferred sales charge
alternative). See "Shareholder Guide--How to Buy Shares of the Fund" in the
Prospectus.

The Fund issues two classes of shares: Class A shares are sold to investors
choosing the initial sales charge alternative and Class B shares are sold to
investors choosing the deferred sales charge alternative. The two classes of
shares represent an interest in the same portfolio of investments of the Fund
and have the same rights, except that each class bears the separate expenses of
its Rule 12b-1 distribution plan and has exclusive voting rights with respect to
such plan. See "Distributor." The two classes also have separate exchange
privileges. See "Shareholder Investment Account-Exchange Privilege."

SPECIMEN PRICE MAKE-UP

Under the current distribution arrangements between the Fund and the
Distributor, Class A shares are sold at a maximum sales charge of 4.5% and Class
B* shares are sold at net asset value. Using the Fund's net asset value at
February 28, 1994, the maximum offering price of the Fund's shares is as
follows:

<TABLE>

<S> <C>
CLASS A
Net asset value and redemption price per Class A share.................. $ 9.13
Maximum sales charge (4.5% of offering price)........................... .43
---------
Offering price to public................................................ $ 9.56
---------
---------
CLASS B
Net asset value, offering price and redemption price per Class B
share*................................................................ $ 9.13
---------
---------

<FN>

--------------------
* Class B shares are subject to a contingent deferred sales charge on
certain redemptions. See "Shareholder Guide--How to Sell Your
Shares--Contingent Deferred Sales Charges--Class B Shares" in the
Prospectus.
</TABLE>

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

RETIREMENT AND GROUP PLANS. Class A shares are offered at net asset value to
participants in certain retirement, deferred compensation, affinity group and
group savings plans, provided the plan has existing assets of at least $10
million or 2,500 eligible employees or members. The term "existing assets"
includes transferable cash, shares of Prudential Mutual Funds held at the
Transfer Agent and GICs maturing within three years. The retirement and group
plans eligible for this waiver of the initial sales charge include, but are not
limited to, pension, profit-sharing or stock bonus plans qualified or
non-qualified within the meaning of Section 401 of the Internal Revenue Code of
1986, as amended (the Internal Revenue Code), deferred compensation and annuity
plans within the meaning of Sections 403(b)(7) and 457 of the Internal Revenue
Code, certain affinity group plans such as plans of credit unions and trade
associations and certain group savings plans.

COMBINED PURCHASE AND CUMULATIVE PURCHASE PRIVILEGE. If an investor or
eligible group of related investors purchases Class A shares of the Fund
concurrently with Class A shares of other Prudential Mutual Funds, the purchases
may be combined to take advantage of the reduced sales charges applicable to
larger purchases. See the table of breakpoints under "Shareholder
Guide--Alternative Purchase Plan" in the Prospectus.

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

(a) an individual;

(b) the individual's spouse, their children and their parents;

(d) any company controlled by the individual (a person, entity or group that
holds 25% or more of the outstanding voting securities of a corporation will be
deemed to control the corporation, and a partnership will be deemed to be
controlled by each of its general partners);

(e) a trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children;

(f) a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account
created by the individual or the individual's spouse; and

(g) one or more employee benefit plans of a company controlled by an
individual.

B-17
<PAGE>
In addition, an eligible group of related Fund investors may include an
employer (or group of related employers) and one or more qualified retirement
plans of such employer or employers (an employer controlling, controlled by or
under common control with another employer is deemed related to that employer).

The Distributor must be notified at the time of purchase that the investor
is entitled to a reduced sales charge. The reduced sales charge will be granted
subject to confirmation of the investors holdings. The Combined Purchase and
Cumulative Purchase Privilege does not apply to individual participants in the
retirement and group plans described above under "Retirement and Group Plans."

RIGHTS OF ACCUMULATION. Reduced sales charges are also available through
Rights of Accumulation, under which an investor or an eligible group of related
investors, as described above under "Combined Purchase and Cumulative Purchase
Privilege," may aggregate the value of their existing holdings of the shares of
the Fund and shares of other Prudential Mutual Funds (excluding money market
funds other than those acquired pursuant to the exchange privilege) to determine
the reduced sales charge. However, the value of shares held directly with the
Transfer Agent and through Prudential Securities will not be aggregated to
determine the reduced sales charge. All shares must be held either directly with
the Transfer Agent or through Prudential Securities. The value of existing
holdings for purposes of determining the reduced sales charge is calculated
using the maximum offering or price (net asset value plus maximum sales charge)
as of the previous business day. See "How the Fund Values Its Shares" in the
Prospectus. The Distributor must be notified at the time of purchase that the
investor is entitled to a reduced sales charge. The reduced sales charges will
be granted subject to confirmation of the investor's holdings. Rights of
accumulation are not available to individual participants in any retirement or
group plans.

LETTERS OF INTENT. Reduced sales charges are available to investors or an
eligible group of related investors who enter into a written Letter of Intent
providing for the purchase, within a thirteen-month period, of shares of the
Fund and shares of other Prudential Mutual Funds. All shares of the Fund and
shares of other Prudential Mutual Funds (excluding money market funds other than
those acquired pursuant to the exchange privilege) which were previously
purchased and are still owned are also included in determining the applicable
reduction. However, the value of shares held directly with the Transfer Agent
and through Prudential Securities will not be aggregated to determine the
reduced sales charge. All shares must be held either directly with the Transfer
Agent or through Prudential Securities. Letters of Intent are not available to
individual participants in any retirement or group plans.

A Letter of Intent permits a purchaser to establish a total investment goal
to be achieved by any number of investments over a thirteen-month period. Each
investment made during the period will receive the reduced sales charge
applicable to the amount represented by the goal, as if it were a single
investment. Escrowed Class A shares totaling 5% of the dollar amount of the
Letter of Intent will be held by the Transfer Agent in the name of the
purchaser. The effective date of a Letter of Intent may be back-dated up to 90
days, in order that any investments made during this 90-day period, valued at
the purchaser's cost, can be applied to the fulfillment of the Letter of Intent
goal.

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

SHAREHOLDER INVESTMENT ACCOUNT

Upon the initial purchase of Class A or Class B shares of the Fund, a
Shareholder Investment Account is established for each investor under which the
shares are held for the investor by the Transfer Agent. If a stock certificate
is desired, it must be requested in writing for each transaction. Certificates
are issued only for full shares and may be redeposited in the Account at any
time. There is no charge to the investor for issuance of a certificate. Whenever
a transaction takes place in the Shareholder Investment Account, the shareholder
will be mailed a statement showing the transaction and the status of the
Account. The Fund makes available to the shareholders the following privileges
and plans.

AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS

For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund at net asset
value. An investor may direct the Transfer Agent in writing not less than 5 full
business days prior to the

B-18
<PAGE>
payment date to have subsequent dividends and/or distributions sent in cash
rather than reinvested. In the case of recently purchased shares for which
registration instructions have not been received on the payment date, cash
payment will be made directly to the dealer. Any shareholder who receives a cash
payment representing a dividend or distribution may reinvest such distribution
at net asset value by returning the check or the proceeds to the Transfer Agent
within 30 days after the payment date. Such investment will be made at the net
asset value per share next determined after receipt of the check or proceeds by
the Transfer Agent.

EXCHANGE PRIVILEGE

The Fund makes available to its Class A and Class B shareholders the
privilege of exchanging their shares of the Fund for shares of certain other
Prudential Mutual Funds, including one or more specified money market funds,
subject in each case to the minimum investment requirements of such funds.
Shares of such other Prudential Mutual Funds may also be exchanged for Class A
and Class B shares, respectively, of the Fund. All exchanges are made on the
basis of relative net asset value next determined after receipt of an order in
proper form. An exchange will be treated as a redemption and purchase for tax
purposes. Shares may be exchanged for shares of another fund only if shares of
such fund may legally be sold under applicable state laws. For retirement and
group plans having a limited menu of Prudential Mutual Funds, the Exchange
Privilege is available for those funds eligible for investment in the particular
program.

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

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

The following money market funds participate in the Class A Exchange
Privilege:

Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)
Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New Jersey Money Market Series)
(New York Money Market Series)
Prudential MoneyMart Assets
Prudential Tax-Free Money Fund

CLASS B. Shareholders of the Fund may exchange their Class B shares for
Class B shares of certain other Prudential Mutual Funds and shares of Prudential
Special Money Market Fund, a money market fund. No CDSC will be payable upon
such exchange, but a CDSC may be payable upon the redemption of Class B shares
acquired as a result of the exchange. The applicable sales charge will be that
imposed by the fund in which shares were initially purchased and the purchase
date will be deemed to be the first day of the month after initial purchase,
rather than the date of the exchange.

Class B shares of the Fund may also be exchanged for shares of Prudential
Special Money Market Fund without imposition of any CDSC at the time of
exchange. Upon subsequent redemption from such money market fund or after
re-exchange into the Fund, such shares will be subject to the CDSC calculated
excluding the time such shares were held in the money market fund. In order to
minimize the period of time in which shares are subject to a CDSC, shares
exchanged out of the money market fund will be exchanged on the basis of their
remaining holding periods, with the longest remaining holding periods being
transferred first. In measuring the time period shares are held in a money
market fund and "tolled" for purposes of calculating the CDSC holding period,
exchanges are deemed to have been made on the last day of the month. Thus, if
shares are exchanged into the Fund from

B-19
<PAGE>
a money market fund during the month (and are held in the Fund at the end of the
month), the entire month will be included in the CDSC holding period.
Conversely, if shares are exchanged into a money market fund prior to the last
day of the month (and are held in the money market fund on the last day of the
month), the entire month will be excluded from the CDSC holding period.

At any time after acquiring shares of other funds participating in the Class
B exchange privilege, a shareholder may again exchange those shares (and any
reinvested dividends and distributions) for Class B shares of the Fund, without
subjecting such shares to any CDSC. Shares of any fund participating in the
Class B exchange privilege that were acquired through reinvestment of dividends
or distributions may be exchanged for Class B or shares of other funds without
being subject to any CDSC.

Additional details about the Exchange Privilege and prospectuses for each of
the Prudential Mutual Funds are available from the Fund's Transfer Agent,
Prudential Securities or Prusec. The Exchange Privilege may be modified,
terminated or suspended on sixty days' notice, and any fund, including the Fund,
or the Distributor, has the right to reject any exchange application relating to
such fund's shares.

DOLLAR COST AVERAGING

Dollar cost averaging is a method of accumulating shares by investing a
fixed amount of dollars in shares at set intervals. An investor buys more shares
when the price is low and fewer shares when the price is high. The average cost
per share is lower than it would be if a constant number of shares were bought
at set intervals.

Dollar cost averaging may be used, for example, to plan for retirement to
save for a major expenditure, such as the purchase of a home, or to finance a
college education. The cost of a year's education at a four-year college today
averages around $14,000 at a private college and around $4,800 at a public
university. Assuming these costs increase at a rate of 7% a year, as has been
projected, for the freshman class of 2007, the cost of four years at a private
college could reach $163,000 and over $97,000 at a public university.(1)

The following chart shows how much you would need in monthly investments to
achieve specified lump sums to finance your investment goals.(2)

<TABLE>
<CAPTION>
PERIOD OF
MONTHLY INVESTMENTS: $100,000 $150,000 $200,000 $250,000
- ------------------------------------------------------------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
25 Years.......................................................... $ 110 $ 165 $ 220 $ 275
20 Years.......................................................... 176 264 352 440
15 Years.......................................................... 296 444 592 740
10 Years.......................................................... 555 833 1,110 1,388
5 Years.......................................................... 1,371 2,057 2,742 3,428
See "Automatic Savings Accumulation Plan."
<FN>
- ------------------------
(1) Source information concerning the costs of education at public universities
is available from The College Board Annual Survey of Colleges, 1992. Information
about the costs of private colleges is from the Digest of Education Statistics,
1992; The National Center for Educational Statistics; and the U.S. Department of
Education. Average costs for private institutions include tuition, fees, room
and board.

(2) The chart assumes an effective rate of return of 8% (assuming monthly
compounding). This example is for illustrative purposes only and is not intended
to reflect the performance of an investment in shares of the Fund. The
investment return and principal value of an investment will fluctuate so that an
investor's shares when redeemed may be worth more or less than their original
cost.
</TABLE>

AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP)

Under ASAP, an investor may arrange to have a fixed amount automatically
invested in shares of the Fund monthly by authorizing his or her bank account or
Prudential Securities account (including a Command Account) to be debited to
invest specified dollar amounts in shares of the Fund. The investor's bank must
be a member of the Automatic Clearing House System. Stock certificates are not
issued to ASAP participants.

Further information about this program and an application form can be
obtained from the Transfer Agent, Prudential Securities or Prusec.

B-20
<PAGE>
SYSTEMATIC WITHDRAWAL PLAN

A systematic withdrawal plan is available to shareholders through Prudential
Securities or the Transfer Agent. Such withdrawal plan provides for monthly or
quarterly checks in any amount, except as provided below, up to the value of the
shares in the shareholder's account. Withdrawals of Class B shares may be
subject to a CDSC. See "Shareholder Guide--How to Sell Your Shares--Contingent
Deferred Sales Charges--Class B Shares" in the Prospectus.

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

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

Withdrawal payments should not be considered as dividends, yield or income.
If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.

Furthermore, each withdrawal constitutes a redemption of shares, and any
gain or loss realized must be recognized for federal income tax purposes. In
addition, withdrawals made concurrently with purchases of additional shares are
inadvisable because of the sales charges applicable to (i) the purchase of Class
A shares and (ii) the withdrawal of Class B shares. Each shareholder should
consult his or her own tax adviser with regard to the tax consequences of the
systematic withdrawal plan, particularly if used in connection with a retirement
plan.

TAX-DEFERRED RETIREMENT PLANS

Various tax-deferred retirement plans, including a 401(k) plan,
self-directed individual retirement accounts and "tax-sheltered accounts" under
Section 403(b)(7) of the Internal Revenue Code are available through the
Distributor. These plans are for use by both self-employed individuals and
corporate employers. These plans permit either self-direction of accounts by
participants, or a pooled account arrangement. Information regarding the
establishment of these plans, the administration, custodial fees and other
details are available from Prudential Securities or the Transfer Agent.

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

TAX-DEFERRED RETIREMENT ACCOUNTS

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

<TABLE>
<CAPTION>
TAX-DEFERRED COMPOUNDING(1)
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
<FN>
- ------------------------
(1) The chart is for illustrative purposes only and does not represent the
performance of the Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated. Earnings in
the IRA account will be subject to tax when withdrawn from the account.
</TABLE>

B-21
<PAGE>
NET ASSET VALUE

The net asset value per share is the net worth of the Fund (assets,
including securities at value, minus liabilities) divided by the number of
shares outstanding. Net asset value is calculated separately for each class. The
Fund computes its net asset value at 4:15 P.M., New York time, on each day the
New York Stock Exchange is open for trading except on days on which no orders to
purchase, sell or redeem Fund shares have been received or on days on which
changes in the value of the Fund's portfolio investments do not affect net asset
value.

Under the Investment Company Act, the Board of Directors is responsible for
determining in good faith the fair value of securities of the Fund. In
accordance with procedures adopted by the Board of Directors, 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. Options on U.S. Government securities are valued at their last sale
price as of the close of options trading on the applicable exchanges. If there
is no sale on the applicable options exchange on a given day, options are valued
at the average of the quoted bid and asked prices as of the close of the
applicable exchange. Futures contracts are marked to market daily, and options
thereon are valued at their last sale price, as of the close of the applicable
commodities exchanges.

The Fund may compute its net asset value as of any time permitted pursuant
to any exemption, order or statement of the Securities and Exchange Commission
or its staff.

The net asset value of Class B shares will generally be lower than the net
asset value of Class A shares as a result of the larger distribution-related fee
to which Class B shares are subject. It is expected, however, that the net asset
value per share of each class will tend to converge immediately after the
recording of dividends which will differ by approximately the amount of the
distribution expense accrual differential between the classes.

TAXES, DIVIDENDS AND DISTRIBUTIONS

GENERAL. The Fund has elected to qualify and intends to remain qualified as
a regulated investment company under Subchapter M of the Internal Revenue Code
for each taxable year. Accordingly, the Fund 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, proceeds from loans of securities and gains from the sale or other
disposition of securities or foreign currencies or other income, including, but
not limited to, gains derived from options and futures on such securities or
foreign currencies; (b) derive less than 30% of its gross income from gains
(without offset for losses) from the sale or other disposition of securities or
options thereon held less than three months; and (c) diversify its holdings so
that, at the end of each fiscal quarter, (i) 50% of the market value of the
Fund's assets is represented by cash, U.S. Government securities and other
securities limited, in respect of any one issuer, to an amount not greater than
5% of the Fund's assets and no more than 10% of the outstanding voting
securities of any 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). These requirements may limit the Fund's ability to
engage in transactions involving options on securities, interest rate futures
and options thereon.

The Fund has received a private letter ruling from the Internal Revenue
Service (IRS) to the effect that the Fund's investments in options on U.S.
Government securities, in interest rate futures contracts and in options thereon
will be treated as "securities" for purposes of the foregoing requirements for
qualification under Subchapter M of the Internal Revenue Code.

As a regulated investment company, the Fund will not be subject to federal
income tax on its net investment income and capital gains, if any, that it
distributes to its shareholders, provided that it distributes at least 90% of
its net investment income and short-term capital gains earned in each year.
Distributions of net investment income and net short-term capital gains will be
taxable to the shareholder at ordinary income rates regardless of whether the
shareholder receives such distributions in additional shares or in cash.
Distributions of net long-term capital gains, if any, are taxable as long-term
capital gains regardless of how long the investor has held his or her Fund
shares. However, if a shareholder holds shares in the Fund for not more than six
months, then any loss recognized on the sale of such shares will be treated as
long-term capital loss to the extent of any distribution on the shares which was
treated as long-term capital gain. Shareholders will be notified annually by the
Fund as to the federal tax status of distributions made by the Fund. A 4%
nondeductible excise tax will be imposed on the Fund to the extent the Fund does
not meet certain distribution requirements by the end of each calendar year.
Distributions may be subject to additional state and local taxes. See "Taxes,
Dividends and Distributions" in the Prospectus.

B-22
<PAGE>
Although the Fund does not receive interest payments on zero-coupon bonds in
cash, it is required to accrue interest on such bonds for tax purposes.
Accordingly, in order to meet the requirement that it distribute at least 90% of
its net investment income and net short term gains earned in each taxable year,
the Fund may have to liquidate securities or borrow money. To date, the Fund has
not engaged in borrowing or liquidated securities solely or primarily for the
purpose of meeting income distribution requirements attributable to investments
in zero coupon bonds.

The Fund has a capital loss carryforward for federal income tax purposes as
of February 28, 1994 of approximately $76,930,000, of which $34,965,000 expires
in 1998 and $41,965,000 expires in 1999.

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

A shareholder who acquires shares of the Fund and sells or otherwise
disposes of such shares within 90 days of acquisition may not be allowed to
include certain sales charges incurred in acquiring such shares for purposes of
calculating gain or loss realized upon a sale or exchange of shares of the Fund.

The per share dividends on Class B shares will be lower than the per share
dividends on Class A shares as a result of the higher distribution-related fee
applicable to the Class B shares. The per share distributions of net capital
gains, if any, will be paid in the same amount for Class A and Class B shares.
See "Net Asset Value."

LISTED OPTIONS AND FUTURES. Exchange-traded futures contracts, listed
options on futures contracts and listed options on U.S. Government securities
constitute "Section 1256 contracts" under the Internal Revenue Code. Section
1256 contracts are required to be "marked-to-market" at the end of the Fund's
tax year; that is, treated as having been sold at market value. Sixty percent of
any gain or loss recognized as a result of such "deemed sales" will be treated
as long-term capital gain or loss and the remainder will be treated as
short-term capital gain or loss. The Fund has received a private letter ruling
from the IRS to the effect that a "deemed sale" of a security held for less than
three months at the end of a tax year will not result in gain from the sale of
securities held for less than three months for purposes of determining
qualification of the Fund as a regulated investment company. To the extent that
the Section 1256 contracts are considered to be part of a "designated hedge"
with U.S. Government securities, pursuant to regulations to be promulgated under
the Internal Revenue Code, the increases or decreases in the value of the
Section 1256 contract would be netted with the increases or decreases in the
U.S. Government securities for the purpose of determining gains from securities
held for less than three months.

If the Fund holds a U.S. Government security which is offset by a Section
1256 contract, the Fund is considered to hold a "mixed straddle". The Fund may
elect whether to make a straddle-by-straddle identification of mixed straddles.
By electing to identify its mixed straddles, the Fund can avoid the application
of certain rules which could, in some circumstances, cause deferral or
disallowance of losses, the change of long-term capital gains into short-term
capital gains, or the change of short-term capital losses into long-term capital
losses. Nevertheless, the Fund would be subject to the following rules.

If the Fund owns a U.S. Government security and acquires an offsetting
Section 1256 contract in a transaction which the Fund elects to identify as a
mixed straddle, the acquisition of the offsetting position will result in
recognition of the unrealized gain or loss on the U.S. Government security. This
gain or loss will be long-term or short-term depending on the holding period of
the security at the time the mixed straddle is entered into. This recognition of
unrealized gain or loss will be taken into account in determining the amount of
income available for the Fund's quarterly distributions, and can result in an
amount which is greater or less than the Fund's net realized gains being
available for such distributions. If an amount which is less than the Fund's net
realized gains is available for distribution, the Fund may elect to distribute
more than such available amount, up to the full amount of such net realized
gains.

The rules for determining whether gain or loss upon exercise, expiration or
termination of an identified mixed straddle will be treated as long-term,
short-term, or sixty percent long-term and forty percent short-term are complex.
In general, which treatment applies will depend upon the order of disposition of
the Section 1256 and the non-Section 1256 positions of a straddle and whether
all or fewer than all of such positions are disposed of on any day.

If the Fund does not elect to identify a mixed straddle, no recognition of
gain or loss on the U.S. Government securities in the Fund's portfolio will
result when the mixed straddle is entered into. However, any losses realized on
the straddle will be governed

B-23
<PAGE>
by a number of tax rules which might, under certain circumstances, defer or
disallow the losses in whole or in part, change long-term gains into short-term
gains, or change short-term losses into long-term losses. A deferral or
disallowance of recognition of a realized loss may result in the Fund being
required to distribute an amount greater than the Fund's net realized gains.

The Fund may also elect under Section 1256(d) of the Internal Revenue Code
that the provisions of Section 1256 will not apply. In the case of such an
election, the taxation of options on U.S. Government securities and the taxation
of futures will be governed by provisions of the Internal Revenue Code dealing
with taxation of capital assets generally.

OTC OPTIONS. Non-listed options on U.S. Government securities (OTC options)
are not Section 1256 contracts. If an OTC option written by the Fund on U.S.
Government securities expires, the amount of the premium will be treated as
short-term capital gain. If the option is terminated through a closing purchase
transaction, the Fund will generally recognize a short-term capital gain or
loss, depending on whether the premium income is greater or less than the amount
paid by the Fund in the closing transaction. If U.S. Government securities are
delivered by the Fund upon exercise of a written call option, or sold to the
Fund upon exercise of a written put option, the premium received when the option
was written will be treated as an addition to the proceeds received in the case
of the call option, or a decrease in the cost basis of the security received in
the case of a put option. The gain or loss realized on the exercise of a written
call option will be long-term or short-term depending upon the holding period of
the U.S. Government security delivered.

The premium paid for a purchased put or call option is a capital
expenditure, and loss will be realized on the expiration, and gain or loss will
be realized upon the sale of, a put or call option. The characterization of the
gain or loss as short-term or long-term will depend upon the holding period of
the option. If U.S. Government securities are purchased by the Fund upon
exercise of a purchased call option, or delivered by the Fund upon exercise of a
purchased put option, the premium paid when the option was purchased will be
treated as an addition to the basis of the securities purchased in the case of a
call option, or as a decrease in the proceeds received for the securities
delivered in the case of a put option.

Losses realized on straddles which include a purchased put option, can,
under certain circumstances, be subject to a number of tax rules which might
defer or disallow the losses in whole or in part, change long-term gains into
short-term gains, or change short-term losses into long-term losses. As noted
above, a deferral or disallowance of recognition of realized loss can result in
the Fund being required to distribute an amount greater than the Fund's net
realized gains.

PENNSYLVANIA PERSONAL PROPERTY TAX. The Fund has obtained a written letter
of determination from the Pennsylvania Department of Revenue that the Fund is
subject to the Pennsylvania foreign franchise and corporate net income tax.
Accordingly, it is expected that Fund shares will be exempt from Pennsylvania
personal property taxes. The Fund anticipates that it will continue such
business activities but reserves the right to suspend them at any time,
resulting in the termination of the exemption.

PERFORMANCE INFORMATION

YIELD. The Fund may from time to time advertise its yield as calculated over
a 30-day period. Yield is calculated separately for Class A and Class B shares.
The yield will be computed by dividing the Fund's 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.

a - b
YIELD = 2[( ------- +1)to the power of 6 - 1]
cd

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

The yield for the 30-day period ended February 28, 1994 for the Fund's Class
A and Class B shares was 5.45% and 4.94%, respectively.

B-24
<PAGE>
Yield fluctuates and an annualized yield quotation is not a representation
by the Fund as to what an investment in the Fund will actually yield for any
given period. Actual yields will depend upon not only changes in interest rates
generally during the period in which the investment in the Fund is held, but
also on any realized or unrealized gains and losses and changes in the Fund's
expenses.

AVERAGE ANNUAL TOTAL RETURN. The Fund may also advertise its average annual
total return. Average annual total return is determined separately for Class A
and Class B shares. See "How the Fund Calculates Performance" in the Prospectus.

Average annual total return is computed according to the following formula:

P(1+T)to the power of n = ERV

Where: P = a hypothetical initial payment of $1000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1000 payment made at the
beginning of the 1, 5 or 10 year periods at the end of the 1, 5 or
10 year periods (or fractional portion thereof).

Average annual return takes into account any applicable initial or
contingent deferred sales charges but does not take into account any federal or
state income taxes that may be payable upon redemption.

The average annual total return for Class A shares for the one year and four
year and one month periods ended on February 28, 1994 was 3.90% and 9.25%,
respectively. The average annual total return with respect to the Class B shares
of the Fund for the one, five and eight and three quarter year periods ended
February 28, 1994 was 3.03%, 8.88% and 8.62%, respectively.

AGGREGATE TOTAL RETURN. The Fund may also advertise its aggregate total
return. Aggregate total return is determined separately for Class A and Class B
shares. See "How the Fund Calculates Performance" in the Prospectus.

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

ERV - P
-------
P

Where: P = a hypothetical initial payment of $1000.
ERV = ending redeemable value of a hypothetical $1000 payment made at
the beginning of the 1, 5 or 10 year periods at the end of the
1, 5 or 10 year periods (or fractional portion thereof).

Aggregate total return does not take into account any federal or state
income taxes that may be payable upon redemption or any applicable initial or
contingent deferred sales charges.

The aggregate total return for Class A shares for the one year and four year
and one month periods ended February 28, 1994 was 3.90% and 43.79%,respectively.
The aggregate total return for Class B shares for the one, five and eight and
three quarter year periods ended February 28, 1994 was 3.03%, 53.02% and
108.07%, respectively.

B-25
<PAGE>
From time to time, the performance of the Fund may be measured against
various indices. Set forth below is a chart which compares the performance of
different types of investments over the long-term and the rate of inflation.(1)

(1)Source: Ibbotson Associates, "Stocks, Bonds, Bills and Inflation--1993
Yearbook" (annually updates the work of Roger G. Ibbotson and Rex A.
Sinquefield). Common stock returns are based on the Standard & Poor's 500 Stock
Index, a market-weighted, unmanaged index of 500 common stocks in a variety of
industry sectors. It is a commonly used indicator of broad stock price
movements. This chart is for illustrative purposes only, and is not intended to
represent the performance of any particular investment or fund.

CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT,
AND INDEPENDENT ACCOUNTANTS

Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as the Transfer and Dividend Disbursing Agent of the Fund.
It is a wholly-owned subsidiary of PMF. PMFS provides customary transfer agency
services to the Fund, including the handling of shareholder communications, the
processing of shareholder transactions, the maintenance of shareholder account
records, payment of dividends and distributions, and related functions. For
these services, PMFS receives an annual fee per shareholder account, a new
account set-up fee for each manually-established account and a monthly inactive
zero balance account fee per shareholder account. PMFS is also reimbursed for
its out-of-pocket expenses, including but not limited to postage, stationery,
printing, allocable communications expenses and other costs. For the fiscal year
ended February 28, 1994, the Fund incurred fees of approximately $2,348,000 for
the services of PMFS.

Deloitte & Touche, 1633 Broadway, New York, New York 10019, serves as the
Fund's independent accountants and in that capacity audits the Fund's annual
financial statements.

B-26
<PAGE>

PRUDENTIAL GOVERNMENT PLUS FUND Portfolio of Investments
February 28, 1994

Principal
Amount Value
(000) Description (Note 1)

<C> <S> <C>
LONG-TERM INVESTMENTS--99.6%
U. S. Government Agency
Mortgage Pass-Throughs--48.4%
Federal Home Loan Mortgage
Corp.,
$12,700 7.00%, 4/15/17 (CMO)......... $ 13,065,125
14,450 8.50%, 2/1/05 - 4/1/20....... 15,146,730
6,011 11.50%, 10/1/19.............. 6,679,254
Federal National Mortgage
Assoc.,
69,420 6.00%, 2/1/99 - 8/1/13....... 69,029,057
97,147 6.50%, 8/1/98 - 3/1/24....... 96,477,702
163,119 7.00%, 12/1/99 - 3/1/24...... 163,760,147
35,019 7.50%, 2/1/22 - 3/1/24....... 35,939,718
3,630 8.375%, 6/25/06, (CMO*)...... 3,629,535
31,325 11.00%, 11/1/20.............. 35,162,398
Government National Mortgage Assoc.,
20,396 5.00%, 1/20/24 (ARM)......... 20,585,653
24,856 6.50%, 1/15/23 - 3/1/24...... 24,172,523
9,949 7.00%, 3/15/22 - 11/15/23.... 9,964,780
14,335 7.25%, 11/15/04 - 7/15/23.... 14,500,434
72,781 7.50%, 3/15/01 - 1/15/24..... 74,995,416
39,670 8.00%, 2/15/23 - 1/15/24..... 41,602,900
119,522 8.50%, 7/15/08 - 12/15/22.... 126,733,325
170,080 9.00%, 12/15/13 - 2/15/22.... 182,110,019
92,961 9.50%, 5/15/09 - 12/15/21.... 100,917,297
28,572 11.50%, 1/15/13 - 5/15/19.... 32,929,088
Government National Mortgage Assoc. II,
12,333 9.00%, 8/20/17 - 8/20/21..... 13,027,068
9,898 9.50%, 5/20/18 - 8/20/21..... 10,541,275
--------------
Total U.S. Government Agency
Mortgage Pass-Throughs
(cost $1,080,694,100)...... 1,090,969,444
--------------
U.S. Government Obligations--42.6%
United States Treasury Bonds,
10,000 7.125%, 2/15/23.............. 10,437,500
25,000 8.50%, 2/15/20............... 29,996,000
55,000 8.875%, 8/15/17.............. 68,045,450
50,000 9.00%, 11/15/18.............. 62,828,000
25,000 10.375%, 11/15/12............ 33,515,500
United)States Treasury Bonds--(cont'd.
$150,000 10.75%, 8/15/05.............. $ 203,226,000
200,000(dag) 11.25%, 2/15/15.............. 299,594,000
United States Treasury Notes,
32,000# 3.875%, 9/30/95.............. 31,699,840
125,000 6.00%, 11/30/97.............. 127,832,500
40,000 7.00%, 4/15/99............... 42,400,000
13,000 7.875%, 8/15/01.............. 14,434,030
33,250 8.25%, 7/15/98............... 36,767,185
--------------
Total U.S. Government
Obligations
(cost $923,794,449)........ 960,776,005
--------------
Asset-Backed Securities--6.1%
Discover Credit Card Trust,
10,000 Series 1991-F, 7.85%,
11/21/00................... 10,721,800
Sears Credit Card Trust,
50,000 Series 1991-B, 8.60%,
5/15/98.................... 53,468,500
Standard Credit Card Trust,
47,000 Series 1991-1A, 8.50%,
8/7/97..................... 50,333,710
20,000 Series 1991-3A, 8.875%,
7/7/98..................... 22,150,000
--------------
Total Asset-Backed Securities
(cost $130,254,043)........ 136,674,010
--------------
U.S. Government Agency Stripped
Securities--1.3%
Federal Home Loan Mortgage Corp.,
60,000 Zero Coupon, 11/29/19........ 9,150,000
Federal National Mortgage
Assoc.,
30,000 Zero Coupon, 7/5/14.......... 6,759,300
50,000 Zero Coupon, 10/9/19......... 7,672,000
9,512 Strip Trust 137 Class
2,(I/O*)................... 1,938,092
9,620 Strip Trust 142 Class
2,(I/O*)................... 1,911,912
5,702 Trust 1991 139 Class
PS,(I/O*).................. 384,856
14,365 Trust 1991 169 Class
PL,(I/O*).................. 1,436,523
9,155 Trust 1991 G-37 Class
C,(I/O*)................... 640,852
7,367 Trust 1992-70 Class M,
(I/O*)..................... 1,123,407
--------------
Total U.S. Government Agency
Stripped Securities
(cost $45,959,868)......... 31,016,942
--------------
</TABLE>

B-27 See Notes to Financial Statements.

<PAGE>

PRUDENTIAL GOVERNMENT PLUS FUND

Principal
Amount Value
(000) Description (Note 1)

<C> <S> <C>
U.S. Government
Stripped Securities--0.8%
United States Treasury
Strips,
$ 5,000 Zero Coupon, 8/15/10......... $ 1,593,750
15,000 Zero Coupon, 2/15/11......... 4,601,250
50,000 Zero Coupon, 8/15/14......... 11,737,000
--------------
Total U.S. Government
Stripped Securities
(cost $17,393,098)......... 17,932,000
--------------
Adjustable Rate Mortgage
Pass-Throughs--0.4%
Ryland Mortgage Securities Corporation,
8,074 Mortgage Participation
Securities, Series 1993-3
Class A-3, 7.35315%,
3/25/14 (cost
$8,235,018)................ 8,346,036
--------------
Total long-term investments
(cost $2,206,330,576)...... 2,245,714,437
--------------
SHORT-TERM INVESTMENTS--1.2%
Commercial Paper--1.2%
Fuji Bank, Ltd.,
15,400 3.50%, 3/1/94................ 15,400,000
USl Capital Corporation,
11,760 3.55%, 3/1/94................ 11,760,000
--------------
Total Commercial Paper
(cost $27,160,000)......... 27,160,000
--------------
Total Investments--100.8%
(cost $2,233,490,576; Note
4)......................... 2,272,874,437
Liabilities in excess of
other
assets--(0.8%)............. (18,646,578)
--------------
Net Assets--100%............. $2,254,227,859
--------------
--------------
</TABLE>

- ---------------
ARM--Adjustable Rate Mortgage Security.
CMO--Collateralized Mortgage Obligations.
I/O--Interest Only.
* R.E.M.I.C.--Real Estate Mortgage Investment Conduit.
(dag) Portion of securities on loan; see Note 4.
# Includes $24,765,500 of market value segregated for interest rate swap.

B-28 See Notes to Financial Statements.

<PAGE>

PRUDENTIAL GOVERNMENT PLUS FUND
Statement of Assets and Liabilities

<TABLE>
<CAPTION>
February 28,
Assets 1994
--------------
<S> <C>
Investments, at value (cost $2,233,490,576)............................................. $2,272,874,437
Cash.................................................................................... 9,605,382
Collateral for securities loaned, at value (Note 4)..................................... 255,641,000
Receivable for investments sold......................................................... 27,629,173
Interest receivable..................................................................... 19,549,204
Receivable for Fund shares sold......................................................... 2,385,419
Prepaid expenses and other assets....................................................... 72,545
--------------
Total assets........................................................................ 2,587,757,160
--------------
Liabilities
Payable upon return of securities loaned................................................ 255,641,000
Payable for investments purchased....................................................... 59,226,560
Payable for Fund shares reacquired...................................................... 12,558,202
Accrued expenses........................................................................ 2,508,747
Distribution fee payable................................................................ 1,567,069
Management fee payable.................................................................. 912,836
Unrealized depreciation on interest rate swap........................................... 709,355
Dividends payable....................................................................... 405,532
--------------
Total liabilities................................................................... 333,529,301
--------------
Net Assets.............................................................................. $2,254,227,859
--------------
--------------
Net assets were comprised of:
Common stock, at par.................................................................. $ 2,469,703
Paid-in capital in excess of par...................................................... 2,292,521,784
--------------
2,294,991,487
Accumulated net realized losses on investments........................................ (79,438,134)
Net unrealized appreciation on investments............................................ 38,674,506
--------------
Net assets at February 28, 1994..................................................... $2,254,227,859
--------------
--------------
Class A:
Net asset value and redemption price per share
($51,673,180 (div) 5,659,948 shares of common stock issued and outstanding)......... $9.13
Maximum sales charge (4.5% of offering price)......................................... .43
--------------
Maximum offering price to public...................................................... $9.56
--------------
--------------
Class B:
Net asset value, offering price and redemption price per share
($2,202,554,679 (div) 241,310,340 shares of common stock issued and outstanding).... $9.13
--------------
--------------
</TABLE>

See Notes to Financial Statements.
B-29

<PAGE>

PRUDENTIAL GOVERNMENT PLUS FUND
Statement of Operations

<TABLE>
<CAPTION>
Year Ended
February 28,
Net Investment Income 1994
-------------
<S> <C>
Income
Interest (net of swap interest
expense of
$1,701,085)..................... $ 186,263,429
Income from securities loaned..... 149,782
-------------
186,413,211
-------------
Expenses
Distribution fee--Class A......... 86,160
Distribution fee--Class B......... 24,706,451
Management fee.................... 12,719,555
Transfer agent's fees and
expenses.......................... 3,015,000
Custodian's fees and expenses..... 945,000
Franchise taxes................... 575,000
Reports to shareholders........... 110,000
Insurance expense................. 84,000
Audit fee......................... 65,000
Registration fees................. 60,000
Directors' fees................... 48,000
Legal fees........................ 25,000
Miscellaneous..................... 22,693
-------------
Total expenses.................. 42,461,859
-------------
Net investment income............... 143,951,352
-------------
Realized and Unrealized Gain
(Loss) on Investments
Net realized gain (loss):
Investment transactions........... 75,825,651
Financial futures contract
transactions...................... (1,963,469)
-------------
73,862,182
-------------
Net change in unrealized
appreciation/depreciation:
Investments....................... (139,378,195)
Financial futures contracts....... 1,904,625
Interest rate swap................ (91,855)
-------------
(137,565,425)
-------------
Net loss on investments............. (63,703,243)
-------------
Net Increase in Net Assets
Resulting from Operations........... $ 80,248,109
-------------
-------------
</TABLE>

PRUDENTIAL GOVERNMENT PLUS FUND
Statement of Changes in Net Assets

<TABLE>
<CAPTION>
Increase (Decrease) Year Ended February 28,
in Net Assets 1994 1993
-------------- --------------
<S> <C> <C>
Operations
Net investment
income.............. $ 143,951,352 $ 172,237,474
Net realized gain on
investment
transactions...... 73,862,182 11,549,799
Net change in
unrealized
appreciation on
investments....... (137,565,425) 90,857,686
-------------- --------------
Net increase in net
assets
resulting from
operations 80,248,109 274,644,959
-------------- --------------
Dividends and distributions (Note 1)
Dividends to shareholders from
net investment income
Class A........... (3,625,302) (3,345,358)
Class B........... (140,326,050) (168,892,116)
-------------- --------------
(143,951,352) (172,237,474)
-------------- --------------
Distributions to shareholders in
excess of accumulated gains
Class A........... (132,529) --
Class B........... (5,651,138) --
-------------- --------------
(5,783,667) --
-------------- --------------
Distributions to shareholders
from paid-in capital
in excess of par
Class A........... -- (584,384)
Class B........... -- (34,644,947)
-------------- --------------
-- (35,229,331)
-------------- --------------
Fund share transactions (Note 5)
Net proceeds from
shares
subscribed........ 238,679,715 442,653,683
Net asset value of
shares
issued to
shareholders in
reinvestment of
dividends and
distributions..... 83,988,251 112,659,073
Cost of shares
reacquired.......... (740,509,270) (638,544,074)
-------------- --------------
Decrease in net
assets from Fund
share
transactions...... (417,841,304) (83,231,318)
-------------- --------------
Total decrease........ (487,328,214) (16,053,164)
Net Assets
Beginning of year..... 2,741,556,073 2,757,609,237
-------------- --------------
End of year........... $2,254,227,859 $2,741,556,073
-------------- --------------
-------------- --------------
</TABLE>

See Notes to Financial Statements. See Notes to Financial Statements.

B-30

<PAGE>

PRUDENTIAL GOVERNMENT PLUS FUND
Notes to Financial Statements

Prudential Government Plus Fund (the ``Fund'') is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. Investment operations commenced on April 22, 1985.
The investment objective of the Fund is to seek a high current return,
primarily through investment in U.S. Government securities and obligations
issued or guaranteed by U.S. Government agencies or instrumentalities. The
ability of issuers of debt securities, other than those issued or guaranteed by
the U.S. Government, held by the Fund to meet their obligations may be affected
by economic developments in a specific industry or region.

Note 1. Accounting The following is a summary
Policies of significant accounting policies followed by
the Fund in the preparation of its financial statements.
Security Valuation: The Fund values portfolio securities on the basis of
current market quotations provided by dealers or by a pricing service approved
by the Board of Directors, which uses information such as quotations from
dealers, market transactions in comparable securities, various relationships
between securities and calculations on yield to maturity in determining values.
Options and financial futures contracts listed on exchanges are valued at
their closing price on the applicable exchange. When market quotations are not
readily available, a security is valued at fair value as determined in good
faith by or under the direction of the Board of Directors.
Short-term securities which mature in more than 60 days are valued at
current market quotations. Short-term securities which mature in 60 days or
less are valued at amortized cost.
In connection with repurchase agreement transactions, the Fund's custodian
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 transaction exceeds one business
day, the value of the collateral is marked-to-market on a daily basis to ensure
the adequacy of the collateral. If the seller defaults and the value of the
collateral declines or if bankruptcy proceedings are commenced with respect to
the seller of the security, realization of the collateral by the Fund may be
delayed or limited.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of debt securities at a set
price for delivery on a future date. Upon entering into a financial futures
contract, the Fund 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 Fund 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. The Fund invests in financial futures contracts solely for the purpose of
hedging its existing portfolio securities or securities the Fund intends to
purchase against fluctuations in value caused by changes in prevailing market
interest rates. Should interest rates move unexpectedly, the Fund 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. As of February 28, 1994, the Fund did not have
any open financial futures contracts.
Interest Rate Swap: An interest rate swap is an agreement between two parties
in which each party commits to make periodic interest payments to the other
based on a notional principal amount for a specified time period, e.g., an
exchange of floating rate payments for fixed rate payments. Interest rate
swaps only involve the accrual and exchange of interest payments between the
parties and do not involve the exchange or payment of the contracted notional
principal amount.
During the term of the swap, changes in the value of the swap are recognized
as unrealized gains or losses by ``marking-to-market'' to reflect the market
value of the swap. When the swap is terminated, the Fund will record a realized
gain or loss equal to the difference, if any, between the proceeds from (or
cost of) the closing transaction and the Fund's basis in the contract.
The Fund is exposed to credit loss in the event of non-performance by the
other party to the interest rate swap. However, the Fund does not anticipate
non-performance by any counterparty.
Securities Lending: The Fund may lend its U.S. Government securities to
broker-dealers or government securities dealers. The loans are secured by
collateral at least equal at all times to the market value of the securities
loaned. The Fund may bear the risk of delay in recovery of, or even loss

B-31

<PAGE>

of rights in, the securities loaned should the borrower of the securities fail
financially. The Fund receives compensation for lending its securities in the
form of fees or it retains a portion of interest on the investment of any cash
received as collateral. The Fund also continues to receive interest on the
securities loaned and any gain or loss in the market price of the securities
loaned that may occur during the term of the loan will be for the account of
the Fund.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains or losses on sales of securities are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis. Net investment income (other than distribution fees) and
unrealized and realized gains or losses are allocated daily to each class of
shares based upon the relative proportion of net assets of each class at the
beginning of the day.
Dividends and Distributions: The Fund declares daily and pays monthly dividends
from net investment income. The Fund will distribute at least annually any net
capital gains in excess of loss carryforwards. Dividends and distributions are
recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences were primarily due to distributions in
excess of capital gains.
Federal Income Taxes: It is the Fund's policy to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable net income to its shareholders.
Therefore, no federal income tax provision is required.
Reclassification of Capital Accounts: Effective March 1, 1993, the Fund began
accounting and reporting for distributions to shareholders in accordance with
AICPA Statement of Position 93-2: Determination, Disclosure, and Financial
Statement Presentation of Income, Capital Gain, and Return of Capital
Distributions by Investment Companies. As a result of this statement, the Fund
changed the classification of distributions to shareholders to better disclose
the differences between financial statement amounts and distributions
determined in accordance with income tax regulations. The effect of adopting
this statement on amounts previously reported was to increase paid-in capital
by $50,139,714 and increase accumulated net realized losses on investments by
$50,139,714. During the year ended February 28, 1994, the Fund reclassified
$5,783,667 by reducing accumulated net realized losses on investments and
reducing paid-in capital in excess of par. Net investment income, net realized
gains and net assets were not affected by this change.

Note 2. Agreements The Fund has a management
agreement with Prudential Mutual Fund Management,
Inc. (``PMF''). Pursuant to this agreement, PMF has responsibility for all
investment advisory services and supervises the subadviser's performance of
such services. PMF has entered into a subadvisory agreement with The Prudential
Investment Corporation (``PIC''); PIC furnishes investment advisory services in
connection with the management of the Fund. PMF 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 PMF is computed daily and payable monthly, at an
annual rate of .50 of 1% of the Fund's average daily net assets up to $3
billion and .35 of 1% of the average daily net assets of the Fund in excess of
$3 billion.
The Fund has distribution agreements with Prudential Mutual Fund
Distributors, Inc. (``PMFD''), who acts as the distributor of the Class A
shares of the Fund and Prudential Securities Incorporated (``PSI''), who acts
as distributor of the Class B shares of the Fund (collectively the
``Distributors''). To reimburse the Distributors for their expenses incurred
in distributing and servicing the Fund's Class A and B shares, the Fund,
pursuant to plans of distribution, pays the Distributors a reimbursement,
accrued daily and payable monthly.
Pursuant to the Class A Plan, the Fund reimburses PMFD for its expenses with
respect to Class A shares, at an annual rate of up to .30 of 1% of the average
daily net assets of the Class A shares. Such expenses under the Class A Plan
were .15 of 1% of the average daily net assets of the Class A shares for the
year ended February 28, 1994. PMFD pays various broker-dealers, including PSI
and Pruco Securities Corporation (``Prusec''), affiliated broker-dealers, for
account servicing fees and other expenses incurred by such broker-dealers.
Pursuant to the Class B Plan, the Fund reimburses PSI for its
distribution-related expenses with respect to Class B shares at an annual rate
of up to 1% of the average daily net assets up to $3 billion, .80 of 1% of the
next $1 billion of such net assets and .50 of 1% over $4 billion of the average
daily net assets of the Class B shares. Such expenses under Class B Plan were
charged at an effective rate of 1% of average daily net assets through January
31, 1994. Beginning February 1, 1994 the effective rate was reduced to .90 of
1% of the average daily net assets of the Class B shares.
The Class B distribution expenses include commission credits for payments of
commissions and account servicing fees to financial advisers and an allocation
for overhead and

B-32

<PAGE>

other distribution-related expenses, interest and/or carrying charges, the cost
of printing and mailing prospectuses to potential investors and of advertising
incurred in connection with the distribution of shares.
The Distributors recover the distribution expenses and service fees incurred
through the receipt of reimbursement payments from the Fund under the Plans and
the receipt of initial sales charges (Class A only) and contingent deferred
sales charges (Class B only) from shareholders.
PMFD has advised the Fund that it has received approximately $405,000 in
front-end sales charges resulting from sales of Class A shares during the year
ended February 28, 1994. From these fees, PMFD paid such sales charges to
dealers which in turn paid commissions to salespersons.
With respect to the Class B Plan, at any given time the amount of expenses
incurred by PSI in distributing the Fund's shares and not recovered through the
imposition of contingent deferred sales charges in connection with certain
redemptions of shares may exceed the total reimbursement made by the Fund
pursuant to the Class B Plan. For the year ended February 28, 1994, PSI advised
the Fund that it received approximately $2,533,000 in contingent deferred sales
charges imposed upon redemptions by certain shareholders. PSI, as distributor,
has also advised the Fund that at February 28, 1994, the amount of distribution
expenses incurred by PSI and not yet reimbursed by the Fund or recovered
through contingent deferred sales charges approximated $147,003,000. This
amount may be recovered through future payments under the Class B Plan or
contingent deferred sales charges.
In the event of termination or noncontinuation of the Class B Plan, the
Fund would not be contractually obligated to pay PSI, as distributor, for
any expenses not previously reimbursed or recovered through contingent
deferred sales charges.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.

Note 3. Other Prudential Mutual Fund
Transactions Services, Inc. (``PMFS''), a
With Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During
the year ended February 28, 1994, the Fund incurred fees of approximately
$2,348,000 for the services of PMFS. As of February 28, 1994, approximately
$184,000 of such fees were due to PMFS. Transfer agent fees and expenses in the
Statement of Operations also include certain out of pocket expenses paid to
non-affiliates.

Note 4. Portfolio Purchases and sales of
Securities investment securities, other than
short-term investments, for the year ended
February 28, 1994, were $2,156,643,118 and $1,985,244,278, respectively.
The Fund entered into an interest rate swap on October 2, 1992 with a
notional principal amount of $25 million. Under the terms of the swap, the Fund
receives interest at a floating rate (6-month LIBOR, currently 3.375%), which
is reset semi-annually, and pays interest at a fixed rate of 6.56%. The
notional principal amount is also reset semi-annually in accordance with a
prescribed formula. The notional principal amount as of February 28, 1994 was
$26,846,855. Net receipts or payments of such amounts are exchanged
semi-annually. The swap is scheduled to terminate on October 2, 2001.
As of February 28, 1994, the Fund had securities on loan with an aggregate
market value of $248,634,096. As of such date, the collateral held for
securities loaned was as follows: U.S. Treasury Notes in the principal amount
of $252,170,000, 3.875% - 6.375%, due 2/28/95 - 8/15/02; aggregate market
value--$255,641,000.
The federal income tax cost basis of the Fund's investments, at February 28,
1994 was approximately $2,233,502,295 and, accordingly, net unrealized
appreciation for federal income tax purposes was $39,372,142 (gross unrealized
appreciation--$75,247,115; gross unrealized depreciation--$35,874,973).
The Fund had a capital loss carryforward as of February 28, 1994 of
approximately $76,930,000 of which $34,965,000 expires in 1998 and $41,965,000
expires in 1999. Such carryforward amount is after realization of approximately
$76,930,000 in net taxable gains recognized during the fiscal year ended
February 28, 1994. Accordingly, no capital gains distribution is expected to be
paid to shareholders until net gains have been realized in excess of such
amounts.

Note 5. Capital The Fund offers both Class A
and Class B shares. Class A shares are sold with
a front-end sales charge of up to 4.5%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on
the period of time the shares are held. Both classes of shares have equal
rights as to earnings, assets and voting privileges except that each class
bears different distribution expenses and has exclusive voting rights with
respect to its distribution plan.
There are 2 billion shares of common stock, $.01 par value per share,
divided into two classes, designated Class A

B-33

<PAGE>

and B common stock, each of which consists of one billion authorized shares.
Transactions in shares of common stock were as follows:

Class A Shares Amount
----------- -------------
<S> <C> <C>
Year ended February 28, 1994:
Shares sold.................... 2,311,175 $ 21,702,798
Shares issued in reinvestment
of dividends and
distributions................ 284,558 2,664,856
Shares reacquired.............. (3,453,736) (32,339,525)
----------- -------------
Net decrease in shares
outstanding.................. (858,003) $ (7,971,871)
----------- -------------
----------- -------------
Year ended February 28, 1993:
Shares sold.................... 6,211,527 $ 57,328,040
Shares issued in reinvestment
of dividends and
distributions................ 307,151 2,831,942
Shares reacquired.............. (3,618,973) (33,157,621)
----------- -------------
Net increase in shares
outstanding.................. 2,899,705 $ 27,002,361
----------- -------------
----------- -------------
<CAPTION>
Class B Shares Amount
<S> <C> <C>
----------- -------------
Year ended February 28, 1994:
Shares sold.................... 23,072,579 $ 216,976,917
Shares issued in reinvestment
of dividends and
distributions................ 8,684,229 81,323,395
Shares reacquired.............. (75,476,876) (708,169,745)
----------- -------------
Net decrease in shares
outstanding.................. (43,720,068) $(409,869,433)
----------- -------------
----------- -------------
Year ended February 28, 1993:
Shares sold.................... 41,708,714 $ 385,325,643
Shares issued in reinvestment
of dividends and
distributions................ 11,918,614 109,827,131
Shares reacquired.............. (65,674,072) (605,386,453)
----------- -------------
Net decrease in shares
outstanding.................. (12,046,744) $(110,233,679)
----------- -------------
----------- -------------
</TABLE>

B-34

<PAGE>

PRUDENTIAL GOVERNMENT PLUS FUND
Financial Highlights

<TABLE>
<CAPTION>
Class A Class B
---------------------------------------------------- -------------------------------------------------------------
January 22,
1990@
Years Ended February 28/29, Through Years Ended February 28/29,
------------------------------------- February 28, -------------------------------------------------------------
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990
------- ------- ------- ------- ------------ ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset
value,
beginning
of
period... $ 9.40 $ 9.17 $ 9.02 $ 9.00 $ 9.17 $ 9.40 $ 9.17 $ 9.02 $ 9.00 $ 9.09
------- ------- ------- ------- ------ ---------- ---------- ---------- ---------- ---------
Income from
investment
operations
Net
investment
income... 0.61 0.66 0.68 0.69 0.06 0.53 0.58 0.60 0.62 0.68
Net
realized
and
unrealized
gain
(loss)
on
investment
transactions... (0.25) 0.35 0.37 0.26 (0.11) (0.25) 0.35 0.37 0.26 0.15
------- ------ ---- ---- ------ ------ ---- ---- ---- ----
Total
from
investment
operations... 0.36 1.01 1.05 0.95 (0.05) 0.28 0.93 0.97 0.88 0.83
------- ---- ---- ---- ------ ---- ---- ---- ---- ----
Less
distributions
Dividends
from net
investment
income... (0.61) (0.66) (0.68) (0.69) (0.06) (0.53) (0.58) (0.60) (0.62) (0.68)
Distributions
in excess
of
accumulated
gains... (0.02) -- -- -- -- (0.02) -- -- -- --
Distributions
from
paid-in
capital
in
excess
of
par..... -- (0.12) (0.22) (0.24) (0.06) -- (0.12) (0.22) (0.24) (0.24)
------- ------- ------- ------- ------ ----- ---------- ---------- ---------- ----------
Total
distributions... (0.63) (0.78) (0.90) (0.93) (0.12) (0.55) (0.70) (0.82) (0.86) (0.92)
------- ------- ------- ------- ------ ---------- ---------- ---------- ---------- ---------- ----------
Net asset
value,
end of
period... $ 9.13 $ 9.40 $ 9.17 $ 9.02 $ 9.00 $ 9.13 $ 9.40 $ 9.17 $ 9.02 $ 9.00
------- ------- ------- ------- ------ ---------- ---------- ---------- ---------- ----------
------- ------- ------- ------- ------ ---------- ---------- ---------- ---------- ----------
TOTAL
RETURN#:... 3.90% 11.55% 12.18% 11.21% (0.54)% 3.03% 10.61% 11.27% 10.35% 10.49%
RATIOS/SUPPLEMENTAL
DATA:
Net
assets,
end of
period
(000)... $51,673 $61,297 $33,181 $28,971 $1,961 $2,202,555 $2,680,259 $2,724,428 $3,127,587 $3,760,003
Average
net
assets
(000)... $55,921 $46,812 $29,534 $23,428 $ 501 $2,487,990 $2,670,924 $2,903,704 $3,432,948 $3,814,455
Ratios to
average
net
assets:
Expenses,
including
distribution
fees... 0.84% 0.84% 0.86% 0.85% 0.92%* 1.68% 1.69% 1.71% 1.67% 1.49%
Expenses,
excluding
distribution
fees... 0.69% 0.69% 0.71% 0.70% 0.76%* 0.69% 0.69% 0.71% 0.70% 0.64%
Net
investment
income... 6.48% 7.17% 7.51% 7.76% 9.11%* 5.64% 6.32% 6.66% 6.94% 7.46%
Portfolio
turnover
rate.... 80% 36% 187% 213% 329% 80% 36% 187% 213% 329%

<FN>
- ---------------
@ Commencement of offering of Class A shares.
* Annualized.
# Total return does not consider the effects of sales loads. Total return is calculated assuming a purchase
of shares on the first day and a sale on the last day of each period reported and includes reinvestment of
dividends and distributions. Total returns for periods of less than a full year are not annualized.

</TABLE>

See Notes to Financial Statements.

B-35

<PAGE>

INDEPENDENT AUDITORS' REPORT

The Shareholders and Board of Directors
Prudential Government Plus Fund

We have audited the accompanying statement of assets and liabilities of
Prudential Government Plus Fund, including the portfolio of investments, as of
February 28, 1994, the related statements of operations for the year then ended
and of changes in 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. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
February 28, 1994 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Prudential
Government Plus Fund as of February 28, 1994, the results of its operations,
the changes in its net assets and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
Deloitte & Touche
New York, New York
April 14, 1994

B-36

<PAGE>
PART C

OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.

(A) FINANCIAL STATEMENTS:

(1) Financial statements included in the Prospectus constituting Part A of
this Registration Statement:

Financial Highlights.

(2) Financial statements included in the Statement of Additional
Information constituting Part B of this Registration Statement:

Portfolio of Investments at February 28, 1994.

Statement of Assets and Liabilities at February 28, 1994.

Statement of Operations for the year ended February 28, 1994.

Statement of Changes in Net Assets for the years ended February 29,
1993 and February 28, 1994.

Notes to Financial Statements. (Part B)

Financial Highlights with respect to the five-year period ended
February 28, 1994.

Independent Auditors' Report.

(B) EXHIBITS:

<TABLE>
<S> <C>
1. (a) Articles of Incorporation of Registrant, incorporated by
reference to Exhibit No. 1(a) to Registration Statement on Form N-1
(File No. 2-82976).

(b) Articles of Amendment filed January 3, 1985 with the State
Department of Assessments and Taxation of Maryland, incorporated by
reference to Exhibit No. 1(b) to Post-Effective Amendment No. 2 to
Registration Statement on Form N-1A (File No. 2-82976).

(c) Amendment to Articles of Incorporation of Registrant filed March
7, 1986 with the State Department of Assessments and Taxation of
Maryland, incorporated by reference to Exhibit No. 1(c) to
Post-Effective Amendment No. 4 to Registration Statement on Form N-1A
(File No. 2-82976).

(d) Amendments to Articles of Incorporation of the Registrant filed
on January 17, 1990, incorporated by reference to Exhibit 1(d) to
Post-Effective Amendment No. 10 to Registration Statement on Form
N-1A (File No. 2-82976).

2. Amended and Restated By-laws of the Registrant, incorporated by
reference to Exhibit 2 to Post-Effective Amendment No. 15 to
Registration Statement on Form N-1A (File No. 2-82976) filed via
EDGAR.

3. Not applicable.

4. Instruments defining rights of holders of securities being offered,
incorporated by reference to Exhibit 4 to Post-Effective Amendment
No. 15 to Registration Statement on Form N-1A (File No. 2-82976)
filed via EDGAR.

5. (a) Management Agreement between the Registrant and Prudential Mutual
Fund Management, Inc, incorporated by reference to Exhibit No. 5(b)
to Post-Effective Amendment No. 6 to Registration Statement on Form
N-1A (File No. 2-82976).
</TABLE>

C-1
<PAGE>

<TABLE>
<S> <C>
(b) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc. and The Prudential Investment Corporation, incorporated by
reference by reference to Exhibit No. 5(b) to Post-Effective
Amendment No. 6 to Registration Statement on Form N-1A (File No.
2-82976).

6. (a)(i) Distribution Agreement with respect to Class A shares between
the Registrant and Prudential Mutual Fund Distributors Inc, dated
July 1, 1993, incorporated by reference to Exhibit 6(a)(i) to
Post-Effective Amendment No. 15 to Registration Statement on Form
N-1A (File No. 2-82976) filed via EDGAR.

(b)(i) Distribution Agreement with respect to Class B shares between
the Registrant and Prudential Securities Inc, dated July 1, 1993,
incorporated by reference to Exhibit 6(b)(i) to Post-Effective
Amendment No. 15 to Registration Statement on Form N-1A (File No.
2-82976) filed via EDGAR.

(d) Dealer Agreement between Prudential-Bache Securities Inc. and
dealer or dealers to be determined, incorporated by reference to
Exhibit No. 6(b) to Post-Effective Amendment No. 2 to Registration
Statement on Form N-1A (File No. 2-82976).

7. Not Applicable.

8. (a) Custodian Agreement between the Registrant and State Street Bank
and Trust Company, incorporated by reference to Exhibit No. 8(a) to
Post-Effective Amendment No. 2 to Registration Statement on Form N-1A
(File No. 2-82976).

(b) Special Custody Agreement among the Registrant, State Street Bank
and Trust Company, and Goldman, Sachs & Co., incorporated by
reference to Exhibit No. 8(b) to Post-Effective Amendment No. 2 to
Registration Statement on Form N-1A (File No. 2-82976).

(c) Customer Agreement between the Registrant and Goldman, Sachs &
Co., incorporated by reference to Exhibit No. 8(c) to Post-Effective
Amendment No. 2 to the Registration Statement on Form N-1A (File No.
2-82976).

(d) Revised Custodian Agreement between the Registrant and State
Street Bank and Trust Company, incorporated by reference to Exhibit
No. 8(d) to Post-Effective Amendment No. 11 to Registration Statement
on Form N-1A (File No. 2-82976).

9. Transfer Agency Agreement between the Registrant and Prudential
Mutual Fund Services, Inc., incorporated by reference to Exhibit No.
9 to Post-Effective Amendment No. 6 to Registration Statement on Form
N-1A (File No. 2-82976).

10. Opinion and Consent of Counsel, incorporated by reference to Exhibit
10 to Post-Effective Amendment No. 15 to Registration Statement on
Form N-1A (File No. 2-82976) filed via EDGAR.

11. Consent of Independent Accountants.*

12. Not Applicable.

13. Purchase Agreement, incorporated by reference to Exhibit No. 13 to
Post-Effective Amendment No. 2 to Registration Statement on Form N-1A
(File No. 2-82976).

14. Not Applicable.

15. (a)(i) Amended and Restated Distribution and Service Plan for Class A
shares dated July 1, 1993, incorporated by reference to Exhibit
15(a)(i) to Post-Effective Amendment No. 15 to Registration Statement
on Form N-1A (File No. 2-82976) filed via EDGAR.
</TABLE>

C-2
<PAGE>
<TABLE>
<S> <C>
(b)(i) Amended and Restated Distribution and Service Plan for Class B
shares dated July 1, 1993, incorporated by reference to Exhibit
15(b)(i) to Post-Effective Amendment No. 15 to Registration Statement
on Form N-1A (File No. 2-82976) filed via EDGAR.

16. (a) Schedule of computation of performance (Class A), incorporated by
reference to Exhibit 16(a) of Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A (File No. 2-82976).

(b) Schedule of computation of performance (Class B), incorporated by
reference to Exhibit 16(a) of Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A (File No. 2-82976).
</TABLE>

Other Exhibits
Power of Attorney for:

Lawrence C. McQuade**
Edward D. Beach**
Delayne D. Gold**
Harry A. Jacobs, Jr.**
Thomas T. Mooney**
Thomas H. O'Brien**
Thomas A. Owens, Jr.**
Stanley E. Shirk**
- ------------------------
*Filed herewith.
**Incorporated by reference to Post-Effective Amendment No. 7 to Registration
Statement on Form N-1A (File No. 2-82976).

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

None.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES.

As of June 10, 1994 there were 19,813 and 212,527 record holders of Class A
and Class B shares of common stock, respectively, $.01 par value per share, of
the Registrant.

ITEM 27. INDEMNIFICATION.

As permitted by Section 17(h) and (i) of the Investment Company Act of 1940
(the 1940 Act) and pursuant to Article VI of the Fund's By-Laws (Exhibit 2 to
the Registration Statement), officers, directors, employees and agents of the
Registrant will not be liable to the Registrant, any stockholder, officer,
director, employee, agent or other person for any action or failure to act,
except for bad faith, willful misfeasance, gross negligence or reckless
disregard of duties, and those individuals may be indemnified against
liabilities in connection with the Registrant, subject to the same exceptions.
Section 2-418 of Maryland General Corporation Law permits indemnification of
directors who acted in good faith and reasonably believed that the conduct was
in the best interests of the Registrant. As permitted by Section 17(i) of the
1940 Act, pursuant to Section 10 of each Distribution Agreement (Exhibits 6(b)
and 6(c) to the Registration Statement), each Distributor of the Registrant may
be indemnified against liabilities which it may incur, except liabilities
arising from bad faith, gross negligence, willful misfeasance or reckless
disregard of duties.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (Securities Act) may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
1940 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities

C-3
<PAGE>
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in connection with the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such director, officer or controlling person in connection with
the shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the 1940 Act and will be governed by the
final adjudication of such issue.

The Registrant intends to purchase an insurance policy insuring its officers
and directors against liabilities, and certain costs of defending claims against
such officers and directors, to the extent such officers and directors are not
found to have committed conduct constituting willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of indemnification
payments to officers and directors under certain circumstances.

Section 9 of the Management Agreement (Exhibit 5(a) to the Registration
Statement) and Section 4 of the Subadvisory Agreement (Exhibit 5(b) to the
Registration Statement) limit the liability of Prudential Mutual Fund
Management, Inc. (PMF) and The Prudential Investment Corporation (PIC),
respectively, to liabilities arising from willful misfeasance, bad faith or
gross negligence in the performance of their respective duties or from reckless
disregard by them of their respective obligations and duties under the
agreements.

The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws and each Distribution Agreement in a manner consistent
with Release No. 11330 of the Securities and Exchange Commission under the 1940
Act so long as the interpretation of Section 17(h) and 17(i) of such Act remain
in effect and are consistently applied.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.

See "How the Fund is Managed-Manager" in the Prospectus constituting Part A
of this Registration Statement and "Manager" in the Statement of Additional
Information constituting Part B of this Registration Statement.

The business and other connections of the officers of PMF are listed in
Schedules A and D of Form ADV of PMF as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104, filed in October 1993).

The business and other connections of PMF's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is One Seaport Plaza, New York, NY 10292.

<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PMF PRINCIPAL OCCUPATIONS
- ------------------------- -------------------- -------------------------------------------------------------
<S> <C> <C>
Brendan D. Boyle Executive Vice Executive Vice President; PMF; Senior Vice President,
President, Director Prudential Securities Incorporated (Prudential Securities)
of Marketing
John D. Brookmeyer, Jr. Director Senior Vice President, The Prudential Insurance Company of
Two Gateway Center America (Prudential)
Newark, NJ 07102
Susan C. Cote Senior Vice Senior Vice President, PMF; Senior Vice President, Prudential
President Securities
Fred A. Fiandaca Executive Vice Executive Vice President, Chief Operating Officer and
Raritan Plaza One President, Chief Director, PMF; Chairman, Chief Operating Officer and
Edison, NJ 08847 Operating Officer Director, Prudential Mutual Fund Services, Inc.
and Director
</TABLE>

C-4
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PMF PRINCIPAL OCCUPATIONS
- ------------------------- -------------------- -------------------------------------------------------------
<S> <C> <C>
Stephen P. Fisher Senior Vice Senior Vice President, PMF; Senior Vice President, Prudential
President Securities
Frank W. Giordano Executive Vice Executive Vice President, General Counsel and Secretary, PMF;
President, General Senior Vice President, Prudential Securities
Counsel and
Secretary
Robert F. Gunia Executive Vice Executive Vice President, Chief Administrative Officer, Chief
President, Chief Financial Officer and Director, PMF; Senior Vice President,
Administrative Prudential Securities
Officer, Chief
Financial Officer
and Director
Eugene B. Heimberg Director Senior Vice President, Prudential; President, Director and
Prudential Plaza Chief Investment Officer, PIC
Newark, NJ 07101
Lawrence C. McQuade Vice Chairman Vice Chairman, PMF
Leland B. Paton Director Executive Vice President and Director, Prudential Securities;
Director, Prudential Securities Group, Inc., PSG
Richard A. Redeker President, Chief President, Chief Executive Officer and Director, PMF;
Executive Officer Executive Vice President, Director and Member of Operating
and Director Committee, Prudential Securities; Director, PSG
S. Jane Rose Senior Vice Senior Vice President, Senior Counsel and Assistant
President, Senior Secretary, PMF; Senior Vice President and Senior Counsel,
Counsel and Prudential Securities
Assistant Secretary
Donald G. Southwell Director Senior Vice President, Prudential; Director, PSG
213 Washington Street
Newark, NJ 07102
</TABLE>

(b) Prudential Investment Corporation (PIC)

See "How the Fund is Managed--Manager" in the Prospectus constituting Part A
of this Registration Statement and "Manager" in the Statement of Additional
Information constituting Part B of this Registration Statement.

C-5
<PAGE>
The business and other connections of PIC's directors and executive officers
are as set forth below. Except as otherwise indicated, the address of each
person is Prudential Plaza, Newark, NJ 07101.

<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATIONS
- ------------------------- -------------------- -------------------------------------------------------------
<S> <C> <C>
Martin A. Berkowitz Senior Vice Senior Vice President, Chief Financial Officer and Chief
President Chief Compliance Officer, PIC; Vice President, Prudential
Financial Officer
and Chief Compliance
Officer
William M. Bethke Senior Vice Senior Vice President, Prudential; Senior Vice President, PIC
Two Gateway Center President
Newark, NJ 07102
John D. Brookmeyer, Jr. Senior Vice Senior Vice President, Prudential; Senior Vice President, PIC
Two Gateway Center President
Newark, NJ 07102
Eugene B. Heimberg President, Director Senior Vice President, Prudential; President, Director and
and Chief Investment Chief Investment Officer, PIC
Officer
Garnett L. Keith, Jr. Director Vice Chairman and Director, Prudential; Director, PIC
William P. Link Senior Vice Executive Vice President, Prudential; Senior Vice President,
Four Gateway Center President PIC
Newark, NJ 07102
James W. Stevens Executive Vice Executive Vice President, Prudential; Director, PSG
Four Gateway Center President
Newark, NJ 07102
Robert C. Winters Director Chairman of the Board and Chief Executive Officer,
Prudential; Director, PIC; Chairman of the Board and
Director, PSG
Claude J. Zinngrabe, Jr. Executive Vice Executive Vice President, PIC; Vice President, Prudential
President
</TABLE>

ITEM 29. PRINCIPAL UNDERWRITERS.

Prudential Securities is distributor for Prudential Government
Securities Trust (Intermediate Term Series) The Target Portfolio Trust for Class
D shares of Prudential Municipal Series Fund (Florida Series) and for Class B
shares of Prudential Adjustable Rate Securities Fund, Inc., The BlackRock
Government Income Trust, Prudential California Municipal Fund (California Income
Series and California Series), Prudential Equity Fund, Inc., Prudential Equity
Income Fund, Prudential FlexiFund, Prudential Global Fund, Inc.,
Prudential-Bache Global Genesis Fund, Inc. (d/b/a Prudential Global Genesis
Fund), Prudential-Bache Global Natural Resources Fund, Inc. (d/b/a Prudential
Global Natural Resources Fund),Prudential-Bache GNMA Fund, Inc. (d/b/a
Prudential GNMA Fund), Prudential-Bache Government Plus Fund, Inc. (d/b/a
Prudential Government Plus Fund), Prudential Growth Fund, Inc., Prudential-Bache
Growth Opportunity Fund, Inc. (d/b/a Prudential Growth Opportunity Fund),
Prudential-Bache High Yield Fund, Inc. (d/b/a Prudential High Yield Fund),
Prudential IncomeVertible(R) Fund, Inc., Prudential Intermediate Global Income
Fund, Inc., Prudential Multi-Sector Fund, Inc., Prudential Municipal Bond Fund,
Prudential Municipal Series Fund (except Connecticut Money Market Series,
Massachusetts Money Market Series, New York Money Market Series, New Jersey
Money Market Series and Florida Series), Prudential-Bache National Municipals
Fund, Inc. (d/b/a Prudential National Municipals Fund), Prudential Pacific
Growth Fund, Inc., Prudential Short-Term Global Income Fund, Inc.,
Prudential-Bache

C-6
<PAGE>
Structured Maturity Fund (d/b/a Prudential Structured Maturity Fund), Prudential
U.S. Government Fund, Prudential-Bache Utility Fund, Inc. (d/b/a Prudential
Utility Fund), Global Utility Fund, Inc. and Nicholas-Applegate Fund, Inc.
(Nicholas-Applegate Growth Equity Fund). Prudential Securities is also a
depositor for the following unit investment trusts:

The Corporate Income Fund
Corporate Investment Trust Fund
Equity Income Fund
Government Securities Income Fund
International Bond Fund
Municipal Investment Trust
Prudential Equity Trust Shares
National Equity Trust
Prudential Unit Trusts
Government Securities Equity Trust
National Municipal Trust

(ii) Prudential Mutual Fund Distributors, Inc.

Prudential Mutual Fund Distributors, Inc. is distributor for Command
Government Fund, Command Money Fund, Command Tax-Free Fund, Prudential
California Municipal Fund (California Money Market Series), Prudential
Government Securities Trust (Money Market Series and U.S. Treasury Money Market
Series), Prudential-Bache MoneyMart Assets (d/b/a Prudential MoneyMart Assets),
Prudential Municipal Series Fund (Connecticut Money Market Series, Massachusetts
Money Market Series, New York Money Market Series and New Jersey Money Market
Series), Prudential Institutional Liquidity Portfolio, Inc., Prudential-Bache
Special Money Market Fund, Inc. (d/b/a Prudential Special Money Market Fund),
Prudential-Bache Structured Maturity Fund, Inc. (d/b/a Prudential Structured
Maturity Fund), Prudential-Bache Tax-Free Money Fund, Inc. (d/b/a Prudential
Tax-Free Money Fund), and for Class A shares of Prudential Adjustable Rate
Securities Fund, Inc., The BlackRock Government Income Trust, Prudential
California Municipal Fund (California Series), Prudential-Bache Equity Fund,
Inc. (d/b/a Prudential Equity Fund), Prudential Equity Income Fund, Prudential
FlexiFund, Prudential Global Fund, Inc., Prudential-Bache Global Genesis Fund,
Inc. (d/b/a Prudential Global Genesis Fund), Prudential-Bache Global Natural
Resources Fund, Inc. (d/b/a Prudential Global Natural Resources Fund),
Prudential-Bache GNMA Fund, Inc. (d/b/a Prudential GNMA Fund), Prudential-Bache
Government Plus Fund, Inc. (d/b/a Prudential Government Plus Fund), Prudential
Growth Fund, Inc., Prudential-Bache Growth Opportunity Fund, Inc. (d/b/a
Prudential Growth Opportunity Fund), Prudential-Bache High Yield Fund, Inc.
(d/b/a Prudential High Yield Fund), Prudential IncomeVertible(R) Fund, Inc.,
Prudential Intermediate Global Income Fund, Inc., Prudential Multi-Sector Fund,
Inc., Prudential Municipal Bond Fund, Prudential Municipal Series Fund (Arizona
Series, Georgia Series, Maryland Series, Massachusetts Series, Michigan Series,
Minnesota Series, New Jersey Series, North Carolina Series, Ohio Series and
Pennsylvania Series), Prudential-Bache National Municipals Fund, Inc. (d/b/a
Prudential National Municipals Fund), Prudential Pacific Growth Fund, Inc.,
Prudential Short-Term Global Income Fund, Inc., Prudential-Bache Structured
Maturity Fund (d/b/a Prudential Structured Maturity Fund), Prudential U.S.
Government Fund and Prudential-Bache Utility Fund, Inc. (d/b/a Prudential
Utility Fund), Global Utility Fund, Inc., and Nicholas-Applegate Fund, Inc.
(Nicholas-Applegate Growth Equity Fund).

C-7
<PAGE>
(b)(i) Information concerning the directors and officers of Prudential
Securities Incorporated is set forth below.

<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME(1) UNDERWRITER REGISTRANT
- ------------------------------------ ----------------------------------------------------------- --------------
<S> <C> <C>
Alan D. Hogan....................... Executive Vice President, Chief Administrative Officer and None
Director
Howard A. Knight.................... Executive Vice President, Director, Corporate Strategy and None
New Business Development
George A. Murray.................... Executive Vice President and Director None
John P. Murray...................... Executive Vice President and Director of Risk Management None
Leland B. Paton..................... Executive Vice President and Director None
Richard A. Redeker.................. Director Director
Hardwick Simmons.................... Chief Executive Officer, President and Director None
Lee Spencer......................... General Counsel, Executive Vice President and Director None
</TABLE>

(ii) Prudential Mutual Fund Distributors, Inc.

<TABLE>
<S> <C> <C>
Joanne Accurso-Soto................. Vice President None
Dennis Annarumma.................... Vice President, Assistant Treasurer and Assistant None
Comptroller
Phyllis J. Berman................... Vice President None
Fred A. Fiandaca ................... President, Chief Executive Officer and Director None
Raritan Plaza One
Edison, NJ 08847
Stephen P. Fisher................... Vice President None
Frank W. Giordano................... Executive Vice President, General Counsel, Secretary and None
Director
Robert F. Gunia..................... Executive Vice President, Director, Treasurer and Vice President
Comptroller
Andrew J. Varley.................... Vice President None
Anita L. Whelan..................... Vice President and Assistant Secretary None
<FN>
- ------------------------
(1) The address of each person named is One Seaport Plaza, New York, NY 10292
unless otherwise indicated.
</TABLE>

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.

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

C-8
<PAGE>
ITEM 31. MANAGEMENT SERVICES.

Other than as set forth under the captions "How the Fund is Managed-Manager"
and "Management of the Fund-Distributor" in the Prospectus and the captions
"Manager" and "Distributor" in the Statement of Additional Information,
constituting Parts A and B, respectively, of this Registration Statement,
Registrant is not a party to any management-related service contract.

ITEM 32. UNDERTAKINGS.

Registrant makes the following undertaking:

(a) To furnish each person to whom a prospectus is delivered with a copy of
the Fund's latest annual report upon request and without charge.

C-9
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485 (b) under the Securities Act of 1933 and that it 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 New York,
and State of New York, on the 24th day of June, 1994.

PRUDENTIAL-BACHE GOVERNMENT PLUS FUND, INC.
(DOING BUSINESS AS PRUDENTIAL GOVERNMENT PLUS FUND)

Lawrence C. McQuade
-------------------------------------------------
(LAWRENCE C. MCQUADE, 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>
Lawrence C. McQuade President and Director June 24, 1994
- ------------------------------------
LAWRENCE C. MCQUADE

Edward D. Beach Director June 24, 1994
- ------------------------------------
EDWARD D. BEACH

Delayne D. Gold Director June 24, 1994
- ------------------------------------
DELAYNE D. GOLD

Harry A. Jacobs, Jr. Director June 24, 1994
- ------------------------------------
HARRY A. JACOBS, JR.

Thomas T. Mooney Director June 24, 1994
- ------------------------------------
THOMAS T. MOONEY

Thomas H. O'Brien Director June 24, 1994
- ------------------------------------
THOMAS H. O'BRIEN

Thomas A. Owens, Jr. Director June 24, 1994
- ------------------------------------
THOMAS A. OWENS, JR.

Richard A. Redeker Director June 24, 1994
- ------------------------------------
RICHARD A. REDEKER

Stanley E. Shirk Director June 24, 1994
- ------------------------------------
STANLEY E. SHIRK

Susan C. Cote Principal Financial and June 24, 1994
- ------------------------------------ Accounting Officer
SUSAN C. COTE
</TABLE>
<PAGE>
EXHIBIT INDEX

<TABLE>
<S> <C>
1. (a) Articles of Incorporation of Registrant, incorporated by
reference to Exhibit No. 1(a) to Registration Statement on Form N-1
(File No. 2-82976).

2. Amended and Restated By-laws of the Registrant, incorporated by
reference to Exhibit 2 to Post-Effective Amendment No. 15 to
Registration Statement on Form N-1A (File No. 2-82976) filed via
EDGAR.

3. Not applicable.

(b) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc. and The Prudential Investment Corporation, incorporated by
reference to Exhibit No. 5(b) to Post-Effective Amendment No. 6 to
Registration Statement on Form N-1A (File No. 2-82976).

7. Not Applicable.

<PAGE>

<TABLE>
<S> <C>
9. Transfer Agency Agreement between the Registrant and Prudential
Mutual Fund Services, Inc., incorporated by reference to Exhibit No.
9 to Post-Effective Amendment No. 6 to Registration Statement on Form
N-1A (File No. 2-82976).

10. Opinion and Consent of Counsel, incorporated by reference to Exhibit
10 to Post-Effective Amendment No. 15 to Registration Statement on
Form N-1A (File No. 2-82976) filed via EDGAR.

11. Consent of Independent Accountants.*

12. Not Applicable.

13. Purchase Agreement, incorporated by reference to Exhibit No. 13 to
Post-Effective Amendment No. 2 to Registration Statement on Form N-1A
(File No. 2-82976).

14. Not Applicable.

(b)(i) Amended and Restated Distribution and Service Plan for Class B
shares dated July 1, 1993, incorporated by reference to Exhibit
15(b)(i) to Post-Effective Amendment No. 15 to Registration Statement
on Form N-1A (File No. 2-82976) filed via EDGAR.

16. (a) Schedule of computation of performance (Class A), incorporated by
reference to Exhibit 16(a) of Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A (File No.2-82976).

Other Exhibits
Power of Attorney for:

<PAGE>
EXHIBIT 11

CONSENT OF INDEPENDENT AUDITORS

We consent to the use in Post-Effective Amendment No. 16 to Registration
Statement No. 2-82976 of Prudential-Bache Government Plus Fund, Inc. of our
report dated April 14, 1994, appearing in the Statement of Additional
Information, which is a part of such Registration Statement, and to the
references to us under the headings "Financial Highlights" in the Prospectus,
which is a part of such Registration Statement, and "Custodian, Transfer and
Dividend Disbursing Agent and Independent Accountants" in the Statement of
Additional Information.

Deloitte & Touche
New York, New York
June 24, 1994