PRUDENTIAL GOVERNMENT INCOME FUND INC, 485APOS, 1999-03-17

PRUDENTIAL GOVERNMENT INCOME FUND INC
485APOS, 1999-03-17

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 17, 1999

REGISTRATION NOS. 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

PRE-EFFECTIVE AMENDMENT NO. / /

POST-EFFECTIVE AMENDMENT NO. 26 /X/

AND/OR

REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940

AMENDMENT NO. 29 /X/

(Check appropriate box or boxes)
------------------------

PRUDENTIAL GOVERNMENT INCOME FUND, INC.
(Exact name of registrant as specified in charter)

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

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

DEBORAH A. DOCS, ESQ.
GATEWAY CENTER THREE,
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(NAME AND ADDRESS OF AGENT FOR SERVICE)

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

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

<TABLE>
<C> <S>
/ / immediately upon filing pursuant to paragraph (b)
/ / on pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/X/ on April 30 pursuant to paragraph (a)(2) of Rule
485.
If appropriate, check the following box:
/ / This post-effective amendment designates a new
effective date for a previously filed
post-effective amendment.
</TABLE>

<TABLE>
<S> <C>
Shares of Common Stock, par value $.01
Title of Securities Being Registered.............. per share.
</TABLE>

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<PAGE>
FUND TYPE:
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Government securities

INVESTMENT OBJECTIVE:
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High current return

[LOGO]
PRUDENTIAL
GOVERNMENT
INCOME FUND

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PROSPECTUS: APRIL _ _ _ , 1999

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

<PAGE>
TABLE OF CONTENTS
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<TABLE>
<S> <C>
1 RISK/RETURN SUMMARY
1 Investment Objective and Principal Strategies
1 Principal Risks
2 Evaluating Performance
3 Fees and Expenses

5 HOW THE FUND INVESTS
5 Investment Objective and Policies
7 Other Investments
9 Derivative Strategies
10 Additional Strategies
12 Investment Risks

17 HOW THE FUND IS MANAGED
17 Manager
17 Investment Adviser
17 Portfolio Manager
18 Distributor
18 Year 2000 Readiness Disclosure

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

24 HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND
24 How to Buy Shares
32 How to Sell Your Shares
36 How to Exchange Your Shares

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

42 THE PRUDENTIAL MUTUAL FUND FAMILY

FOR MORE INFORMATION (Back Cover)
</TABLE>

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GOVERNMENT INCOME FUND [LOGO] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
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This section highlights key information about the PRUDENTIAL GOVERNMENT INCOME
FUND, INC. which we refer to as "the Fund." Additional information follows this
summary.

INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES

Our investment objective is HIGH CURRENT RETURN. We normally invest at least 65%
of the Fund's total assets in U.S. Government securities, including U.S.
Treasury bills, notes, bonds and other debt securities issued by the U.S.
Treasury, and obligations, including mortgage-related securities, issued or
guaranteed by U.S. Government agencies or instrumentalities. While we make every
effort to achieve our objective, we can't guarantee success.

PRINCIPAL RISKS

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

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

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

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1
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RISK/RETURN SUMMARY
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EVALUATING PERFORMANCE

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

ANNUAL RETURNS(1) (CLASS B SHARES)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<S> <C>
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
BEST QUARTER: % ( quarter of 199 )
WORST QUARTER: % ( quarter of 199 )
</TABLE>

1 THESE ANNUAL RETURNS DO NOT INCLUDE SALES CHARGES. IF THE SALES CHARGES WERE
INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN.

AVERAGE ANNUAL RETURNS* (AS OF 12-31-98)

<TABLE>
<CAPTION>
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1 YR 5 YRS 10 YRS SINCE INCEPTION
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<S> <C> <C> <C> <C>
Class A shares N/A % (since 1-22-90)
Class B shares % % (since 4-22-85)
Class C shares N/A N/A % (since 8-1-94)
Class Z shares N/A N/A % (since 3-1-96)
Lehman Bros. Government Bond
Index1 N/A
Lipper Average2 % % N/A
</TABLE>

* THE FUND'S RETURNS ARE AFTER DEDUCTION OF SALES CHARGES AND EXPENSES.
1 THE LEHMAN BROS. GOVERNMENT BOND INDEX ( ) -- AN UNMANAGED INDEX OF
INVESTMENT-GRADE SECURITIES ISSUED BY THE U.S. GOVERNMENT AND ITS AGENCIES
AND BY [ ] -- GIVES A BROAD LOOK AT [ ]. THESE RETURNS DO NOT
INCLUDE THE EFFECT OF ANY SALES CHARGES. THESE RETURNS WOULD BE LOWER IF
THEY INCLUDED THE EFFECT OF SALES CHARGES. [ ] INDEX RETURNS SINCE
THE INCEPTION OF EACH CLASS ARE [ ] FOR CLASS A, [ ] FOR CLASS
B, [ ] FOR CLASS C AND [ ] FOR CLASS Z SHARES. SOURCE: LEHMAN
BROS.
2 THE LIPPER AVERAGE IS BASED ON THE AVERAGE RETURN OF ALL MUTUAL FUNDS IN
THE LIPPER [GENERAL BOND] FUND CATEGORY. THESE RETURNS DO NOT INCLUDE THE
EFFECT OF ANY SALES CHARGES. THESE RETURNS WOULD BE LOWER IF THEY INCLUDED
THE EFFECT OF SALES CHARGES. LIPPER RETURNS SINCE THE INCEPTION OF EACH
CLASS ARE % FOR CLASS A, % CLASS B AND % CLASS C SHARES AND %
FOR CLASS Z SHARES. SOURCE: LIPPER, INC.

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2 GOVERNMENT INCOME FUND [LOGO] (800) 225-1852
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RISK/RETURN SUMMARY
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FEES AND EXPENSES

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

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

<TABLE>
<CAPTION>
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CLASS A CLASS B CLASS C CLASS Z
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<S> <C> <C> <C> <C>
Maximum sales charge (load)
imposed on purchases (as a
percentage of offering
price) 4% None 1% None
Maximum deferred sales
charge (load) (as a
percentage of the lower of
original purchase price or
sale proceeds) None 5%(2) 1%(3) None
Maximum sales charge (load)
imposed on reinvested
dividends and other
distributions None None None None
Redemption fees None None None None
Exchange fee None None None None
</TABLE>

ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS)

<TABLE>
<CAPTION>
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CLASS A CLASS B CLASS C CLASS Z
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<S> <C> <C> <C> <C>
Management fees .50% .50% .50% .50%
+ Distribution and service
(12b-1) fees(4) .30% 1.00% 1.00% None
+ Other expenses [ ] [ ] [ ] [ ]
= TOTAL ANNUAL FUND
OPERATING EXPENSES [ ] [ ] [ ] [ ]
- Fee waiver or expense
reimbursement(4) % % % %
= NET EXPENSES % % % %
</TABLE>

1 YOUR BROKER MAY CHARGE YOU A SEPARATE OR ADDITIONAL FEE FOR PURCHASES AND
SALE OF SHARES.
2 THE CONTINGENT DEFERRED SALES CHARGE (CDSC) FOR CLASS B SHARES DECREASES BY
1% ANNUALLY TO 1% IN THE FIFTH AND SIXTH YEARS AND 0% IN THE SEVENTH YEAR.
CLASS B SHARES CONVERT TO CLASS A SHARES APPROXIMATELY SEVEN YEARS AFTER
PURCHASE.
3 THE CDSC FOR CLASS C SHARES IS 1% FOR SHARES REDEEMED WITHIN 18 MONTHS OF
PURCHASE.
4 THE FUND'S DISTRIBUTION AND SERVICE FEES HAVE BEEN RESTATED TO REFLECT
CURRENT FEE LEVELS FOR CLASS A SHARES. FOR THE FISCAL YEAR ENDING FEBRUARY
28, 2000, THE DISTRIBUTOR OF THE FUND HAS CONTRACTUALLY AGREED TO REDUCE
ITS DISTRIBUTION AND SERVICE FEES TO %, %, % AND % OF THE
AVERAGE DAILY NET ASSETS FOR CLASS A, CLASS B, CLASS C AND CLASS Z SHARES,
RESPECTIVELY.

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3
<PAGE>
RISK/RETURN SUMMARY
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EXAMPLE

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

The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. [After the first year, the example
does not take into consideration the Distributor's agreement to reduce
distribution and service fees for Class A, Class B and Class C shares.] Although
your actual costs may be higher or lower, based on these assumptions, your costs
would be:

<TABLE>
<CAPTION>
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1 YR 3 YRS 5 YRS 10 YRS
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $ $ $ $
Class B shares $ $ $ $
Class C shares $ $ $ $
Class Z shares $ $ $ $
</TABLE>

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

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4 GOVERNMENT INCOME FUND [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
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INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is HIGH CURRENT RETURN. While we make every
effort to achieve our objective, we can't guarantee success.

U.S. GOVERNMENT SECURITIES

The Fund seeks to achieve its objective by investing under normal market
conditions at least 65% of its total assets in U.S. GOVERNMENT SECURITIES. These
include DEBT OBLIGATIONS ISSUED BY THE U.S. TREASURY. Treasury securities have
varying interest rates and maturities, but they are all backed by the full faith
and credit of the U.S. Government.

The Fund may also acquire U.S. Government securities in the form of
custodial receipts that show ownership of future interest payments, principal
payments or both on certain U.S. Treasury notes or bonds. Such notes or bonds
are held in custody by a bank on behalf of the owners. These custodial receipts
are commonly referred to as TREASURY STRIPS.

The Fund may also invest in other DEBT OBLIGATIONS ISSUED OR GUARANTEED BY
THE U.S. GOVERNMENT and government-related entities. Some of these debt
securities are backed by the full faith and credit of the U.S. Government, which
means that payment of interest and principal is guaranteed, but yield and market
value are not. These include obligations of the Government National Mortgage
Association (GNMA or "Ginnie Mae"), the Farmers Home Administration and the
Export-Import Bank. Debt securities issued by other government entities, like
obligations of the Federal National Mortgage Association (FNMA or "Fannie Mae"),
the Federal Home Loan Mortgage Corporation (FHLMC), the Tennessee Valley
Authority and the United States Postal Service are not backed by the full faith
and credit of the U.S. Government. However, these issuers have the right to
borrow from the U.S. Treasury to meet their obligations. In contrast, the debt
securities of other issuers, like the Farm Credit System and the Federal Home
Loan Bank, depend entirely upon their own resources to repay their debt.

The Fund has no limitations with respect to the maturities of portfolio
securities in which it may invest.

MORTGAGE-RELATED SECURITIES

As mentioned above, the Fund invests in MORTGAGE-RELATED SECURITIES issued or
guaranteed by U.S. governmental entities. These securities are

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5
<PAGE>
HOW THE FUND INVESTS

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

usually pass-through instruments that pay investors a share of all interest and
principal payments from an underlying pool of fixed or adjustable rate
mortgages. Mortgage-related securities issued by the U.S. Government or its
agencies include FNMAs, GNMAs and FHLMCs. The U.S. Government or the issuing
agency directly or indirectly guarantees the payment of interest and principal
on these securities.

Mortgage pass-through securities include collateralized mortgage
obligations, Real Estate Mortgage Investment Conduits, multi-class pass-through
securities, stripped mortgage-backed securities and balloon payment
mortgage-backed securities. A COLLATERALIZED MORTGAGE OBLIGATION (CMO) is a
security backed by an underlying portfolio of mortgages or mortgage-backed
securities that may be issued or guaranteed by a bank or by U.S. governmental
entities. A REAL ESTATE MORTGAGE INVESTMENT CONDUIT (REMIC) is a security issued
by a U.S. Government agency or private issuer and secured by real property.
REMICs consist of classes of regular interest, some of which may be adjustable
rate, and a single class of residual interests. The Fund does not intend to
invest in residual interests. A MULTI-CLASS PASS-THROUGH SECURITY is an equity
interest in a trust composed of underlying mortgage assets. Payments of
principal of and interest on the mortgage assets and any reinvestment income
thereon provide the funds to pay debt service on the CMO or to make scheduled
distributions on the multi-class pass-through security. A STRIPPED MORTGAGE-
BACKED SECURITY (MBS STRIP) may be issued by U.S. governmental entities or by
private institutions. MBS strips take the pieces of a debt security (principal
and interest) and break them apart. The resulting securities may be sold
separately and may perform differently. The Fund may also invest in BALLOON
PAYMENT MORTGAGE-BACKED SECURITIES, which are amortizing mortgage securities
offering payments of principal and interest, the last payment of which is
predominantly principal.

The values of mortgage-related securities vary with changes in market
interest rates generally and in yields among various kinds of mortgage-related
securities. Such values are particularly sensitive to changes in prepayments of
the underlying mortgages. For example, during periods of falling interest rates,
prepayments tend to accelerate as homeowners and others refinance their higher
rate mortgages; these prepayments reduce the anticipated duration of the
mortgage-related securities. Conversely, during periods of rising interest
rates, prepayments can be expected to decelerate,

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6 GOVERNMENT INCOME FUND [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS

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which has the effect of extending the anticipated duration at the same time that
the value of the securities declines. MBS strips tend to be even more highly
sensitive to changes in prepayment and interest rates than mortgage-related
securities and CMOs generally.

ACTIVE TRADING

The Fund may also engage in ACTIVE TRADING--that is, frequent trading of its
securities--in order to take advantage of new investment opportunities or yield
differentials. The Fund will be more heavily involved in active trading during
periods of market volatility in order to preserve gains or limit losses. There
may be tax consequences, such as a possible increase in short-term capital gains
or losses, when the Fund sells a security without regard to how long it has held
the security. In addition, active trading may result in high portfolio turnover
and correspondingly greater transaction costs, which the Fund will bear
directly.

[The investment adviser has a team of fixed-income professionals, including
credit analysts and traders, with experience in many sectors of the U.S. and
foreign fixed-income securities markets. In selecting portfolio securities, the
investment adviser will consider economic conditions and interest rate
fundamentals. The investment adviser will also evaluate individual issues within
each bond sector based upon their relative investment merit and will consider
factors such as yield and potential for price appreciation as well as credit
quality, maturity and risk.]

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

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

OTHER INVESTMENTS

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

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7
<PAGE>
HOW THE FUND INVESTS

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The Fund may invest up to 20% of its total assets in high quality MONEY
MARKET INSTRUMENTS, including commercial paper of domestic companies,
certificates of deposit, bankers' acceptances and other obligations of domestic
and foreign banks. The Fund will only purchase money market instruments that are
in one of the two highest quality grades of a major rating service or that are
similarly rated by the Fund's investment adviser.

We may invest up to 20% of the Fund's total assets in privately-issued
ASSET-BACKED DEBT SECURITIES. An asset-backed security is another type of
pass-through instrument that pays interest based upon the cash flow of an
underlying pool of assets, such as automobile loans and credit card receivables.

The Fund may also invest in PRIVATELY-ISSUED MORTGAGE-RELATED SECURITIES
that are not guaranteed by U.S. Governmental entities. Such securities generally
have one or more types of credit enhancement to ensure timely receipt of
payments and to protect against default.

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).

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 is permitted to invest in both FIXED AND ADJUSTABLE RATE DEBT
SECURITIES. The value of adjustable rate debt securities will, like other debt
securities, generally vary inversely with changes in prevailing interest rates.
The value of adjustable rate debt securities is unlikely to rise in periods of
declining interest rates to the same extent as fixed rate instruments. In
periods of rising interest rates, changes in the coupon will lag behind changes
in the market rate, resulting in a lower net asset value until the coupon resets
to market rates.

The debt obligations in which the Fund may invest are rated at least A by
Standard & Poor's or Moody's or, if unrated, are deemed to be of comparable
credit quality by the Fund's investment adviser.

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8 GOVERNMENT INCOME FUND [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS

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TEMPORARY DEFENSIVE STRATEGY AND SHORT-TERM INVESTMENTS

In response to adverse market, economic or political conditions, we may
temporarily invest without limit in high quality money market instruments, cash
and U.S. Government securities. Investing heavily in these securities limits our
ability to achieve our investment objective, but may help preserve the Fund's
assets.

DERIVATIVE STRATEGIES

The Fund may use various DERIVATIVE strategies to try to improve its returns or
protect its assets. We cannot guarantee that these strategies will work, that
the instruments necessary to implement these strategies will be available, or
that the Fund will not lose money. Derivatives--such as futures, including
interest rate futures, futures contracts, options and options on futures,
straddles and Eurodollar instruments--involve costs and can be volatile. With
derivatives, the investment adviser tries to predict whether the underlying
investment -- a security, market index, currency, interest rate, or some other
benchmark -- will go up or down at some future date. We may use derivatives to
try to reduce risk or to increase return consistent with the Fund's overall
investment objective. The investment adviser will consider other factors (such
as cost) in deciding whether to employ any particular strategy or use any
particular investment. Any derivatives we may use may not match the Fund's
underlying holdings.

A FUTURES CONTRACT is an agreement to buy or sell a set quantity of an
underlying product at a future date, or to make or receive a cash payment based
on the value of a securities index. An OPTION is the right to buy (a call
option) or sell (a put option) securities, or in the case of an option on a
futures contract, the right to buy or sell a futures contract in exchange for a
premium. The Fund may invest up to 5% of its total assets for initial margin
deposits on existing futures and options on futures and for premiums paid for
these types of options. A STRADDLE is a combination of a call and a put written
on the same security at the same exercise price. The Fund's use of straddles
will not exceed 5% of its net assets. EURODOLLAR INSTRUMENTS are essentially
U.S. dollar-denominated futures contracts linked to the London Interbank Offered
Rate (LIBOR). Eurodollar instruments enable purchasers to obtain a fixed rate
for the lending of funds and sellers to obtain a fixed rate for borrowings.

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9
<PAGE>
HOW THE FUND INVESTS

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

ADDITIONAL STRATEGIES

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

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

The Fund may enter into DOLLAR ROLLS in which the Fund sells securities to
be delivered in the current month and repurchases substantially similar (same
type and coupon) securities to be delivered on a specified future date by the
same party. The Fund is paid the difference between the current sales price and
the forward price for the future purchase as well as the interest earned on the
cash proceeds of the initial sale.

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

The Fund may invest up to 5% of its total assets in zero coupon U.S.
Government securities. ZERO COUPON BONDS do not pay interest during the life of
the security. An investor makes money by purchasing the security at a price that
is less than the money the investor will receive when the borrower repays the
amount borrowed (face value).

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

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10 GOVERNMENT INCOME FUND [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS

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

The Fund also follows certain policies when it LENDS ITS SECURITIES to
others (the Fund may lend its portfolio securities to brokers, dealers and
financial institutions, provided that the outstanding loans do not exceed in
aggregate 30% of the value of the Fund's total assets and are at all times
secured by cash or equivalent collateral); BORROWS (the Fund may borrow no more
than 20% of the value of its total assets (calculated at the time of the
borrowing) for temporary, extraordinary or emergency purposes or for the
clearance of transactions); MAKES SHORT SALES AGAINST-THE-BOX (the Fund may
engage in such short sales only to the extent that not more than 10% of the
Fund's net assets (as determined at the time of the short sale) are held as
collateral for such sales); and HOLDS ILLIQUID SECURITIES (the Fund may hold up
to 15% of its net assets in illiquid securities, including securities without a
readily available market and repurchase agreements with maturities longer than
seven days). The Fund is subject to certain investment restrictions that are
fundamental policies, which means they cannot be changed without shareholder
approval. For more information about these restrictions, see the SAI.

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11
<PAGE>
HOW THE FUND INVESTS
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INVESTMENT RISKS

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

INVESTMENT TYPE

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12 GOVERNMENT INCOME FUND [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
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INVESTMENT TYPE

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
% OF FUND'S ASSETS RISKS POTENTIAL REWARDS
- --------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MORTGAGE-RELATED -- Prepayment risk--the -- Regular interest
SECURITIES risk that the income
underlying mortgage -- The U.S. Government
PERCENTAGE VARIES may be pre-paid guarantees interest
partially or and principal
completely, payments on certain
generally during securities
periods of falling -- May benefit from
interest rates, security interest in
which could real estate
adversely affect collateral
yield to maturity -- Pass-through
and could require instruments provide
the Fund to reinvest greater
in lower-yielding diversification than
securities direct ownership of
-- Credit risk--the risk loans
that the underlying
mortgages will not
be paid by debtors
or by credit
insurers or
guarantors of such
instruments. Some
private mortgage
securities are
unsecured or secured
by lower-rated
insurers or
guarantors and thus
may involve greater
risk
-- Market risk
- --------------------------------------------------------------------------------
ASSET-BACKED -- Prepayment risk -- Regular interest
SECURITIES -- The security interest income
(PRIVATELY-ISSUED) in the underlying -- Prepayment risk for
collateral asset-backed
UP TO 20% OF TOTAL -- Credit risk--the risk securities is
ASSETS that the underlying generally lower than
receivables will not with
be paid by debtors mortgage-related
or by credit securities.
insurers or -- Pass-through
guarantors of such instruments provide
instruments. Some greater
private asset-backed diversification than
securities are direct ownership of
unsecured or secured loans.
by lower-rated
insurers or
guarantors and thus
may involve greater
risk
-- Market risk
- --------------------------------------------------------------------------------
</TABLE>

- --------------------------------------------------------------------------------
13
<PAGE>
HOW THE FUND INVESTS

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

INVESTMENT TYPE

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
% OF FUND'S ASSETS RISKS POTENTIAL REWARDS
- --------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DERIVATIVES -- Derivatives such as -- The Fund could make
futures and options money and protect
PERCENTAGE VARIES may not fully offset against losses if
the underlying the investment
positions and this analysis proves
could result in correct
losses to the Fund -- One way to manage the
that would not have Fund's risk/return
otherwise occurred balance by locking
-- Derivatives used for in the value of an
risk management may investment ahead of
not have the time
intended effects and -- Derivatives that
may result in losses involve leverage
or missed could generate
opportunities substantial gains at
-- The other party to a low cost
derivatives contract
could default
-- Certain types of
derivatives involve
costs to the Fund
that can reduce
returns
- --------------------------------------------------------------------------------
MONEY MARKET -- Limits potential for -- May preserve the
INSTRUMENTS capital appreciation Fund's assets
-- Credit risk
UP TO 20% OR UP TO -- Market risk
100% OF TOTAL ASSETS
ON A TEMPORARY BASIS
- --------------------------------------------------------------------------------
ILLIQUID SECURITIES -- May be difficult to -- May offer a more
value precisely attractive yield or
UP TO 15% OF NET -- May be difficult to potential for growth
ASSETS sell at the time or than more widely
price desired traded securities
- --------------------------------------------------------------------------------
</TABLE>

- -------------------------------------------------------------------
14 GOVERNMENT INCOME FUND [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------

INVESTMENT TYPE

- --------------------------------------------------------------------------------
15
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------

INVESTMENT TYPE

- -------------------------------------------------------------------
16 GOVERNMENT INCOME FUND [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND IS MANAGED
- -------------------------------------

BOARD OF DIRECTORS

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

MANAGER

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

Under a management agreement with the Fund, PIFM manages the Fund's
investment operations and administers its business affairs. For the fiscal year
ended February 28, 1999, the Fund paid PIFM management fees of .50% of the
Fund's average net assets up to $3 billion and .35 of 1% of the average daily
net assets in excess of $3 billion.

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

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

PORTFOLIO MANAGER

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

MS. KENWORTHY, a Managing Director of Prudential Investments, has managed
the Fund since July, 1994. Before joining Prudential in 1994, she served as
president and portfolio manager for several Dreyfus fixed-income funds. She
earned a B.A. from Wilson College and an M.B.A. from New

- --------------------------------------------------------------------------------
17
<PAGE>
HOW THE FUND IS MANAGED

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

York University. Ms. Kenworthy has over 30 years of investment experience and is
a member of the Treasury Borrowing Advisory Committee of the Public Securities
Association.

Ms. Kenworthy conducts extensive analysis of U.S. and overseas markets to
identify trends in interest rates, supply and demand and economic growth. She
then selects the sectors, maturities and individual bonds she believes provide
the best value under those conditions.

DISTRIBUTOR

Prudential Investment Management Services LLC (PIMS) distributes the Fund's
shares under a Distribution Agreement. The Fund has Distribution and Service
Plans under Rule 12b-1 of the Investment Company Act. Under the Plans and the
Distribution Agreement, PIMS pays the expenses of distributing the Fund's Class
A, B, C and Z shares and provides certain shareholder support services. The Fund
pays distribution and other fees to PIMS as compensation for its services for
each class of shares other than Class Z. The Class A Plan provides for payment
of a service fee at an annual rate of up to .25 or 1% of the average daily net
assets of Class A shares and total distribution fees (including the service fee)
of up to .30 of 1% of the average daily net assets of Class A shares.

The Class B Plan provides for payment of a service fee at an annual rate of
.25 of 1% of the average daily net assets of Class B shares and an asset-based
sales charge of up to 1% of the average daily assets of the Class B shares up to
$3 billion, .80 of 1% of the next $1 billion of such assets and .50 of 1% of
such assets in excess of $4 billion.

The Class C Plan provides for payment of a service fee at an annual rate of
.25 of 1% of the average daily net assets of each such class and an asset-based
sales charge of .75 of 1% of the average daily net assets of each such class.

Because these fees--known as 12b-1 fees--are paid out of the Series' assets
with respect to each Class, except for Class Z shares, on an ongoing basis,
overtime they will increase the cost of your investment and may cost you more
than paying other types of sales charges.

YEAR 2000 READINESS DISCLOSURE

The services provided to the Fund and the shareholders by the Manager, the

Distributor, the Transfer Agent and the Custodian depend on the smooth

- -------------------------------------------------------------------
18 GOVERNMENT INCOME FUND [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND IS MANAGED

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

functioning of their computer systems and those of outside service providers.
Many computer software systems in use today cannot distinguish the year 2000
from the year 1900 because of the way dates are encoded and calculated. Such
event could have a negative impact on handling securities trades, payments of
interest and dividends, pricing and account services. Although, at this time,
there can be no assurance that there will be no adverse impact on the Fund, the
Manager, the Distributor, the Transfer Agent and the Custodian have advised the
Fund that they have been actively working on necessary changes to their computer
systems to prepare for the year 2000. The Fund and its Board receive, and have
received since early 1998, satisfactory quarterly reports from the principal
service providers as to their preparations for year 2000 readiness, although
there can be no assurance that the service providers (or other securities market
participants) will successfully complete the necessary changes in a timely
manner or that there will be no adverse impact on the Fund. Moreover, the Fund
at this time has not considered retaining alternative service providers or
directly undertaken efforts to achieve year 2000 readiness, the latter of which
would involve substantial expenses without an assurance of success.

Additionally, issuers of securities generally as well as those purchased by
the Fund may confront year 2000 compliance issues which, if material and not
resolved, could have an adverse impact on securities markets and/or a specific
issuer's performance and could result in a decline in the value of the
securities held by the Fund.

- --------------------------------------------------------------------------------
19
<PAGE>
FUND DISTRIBUTIONS
AND TAX ISSUES
- -------------------------------------

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

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

DISTRIBUTIONS

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

The Fund also distributes LONG-TERM CAPITAL GAINS to shareholders (typically
once a year). Long-term capital gains are generated when the Fund sells assets
that it held for more than 12 months for a profit. For an individual, the
maximum long-term capital gains rate is 20%.
For your convenience, Fund dividends and distributions of capital gains are
AUTOMATICALLY REINVESTED in the Fund without any sales charge. If you ask us to
pay the distributions in cash, we will send you a check instead of purchasing
more shares of the Fund. Otherwise, if your account is with a broker, you will
receive a credit to your account. Either way, the distributions may be subject
to taxes, unless your shares are held in a qualified tax-deferred plan or
account. For more information about automatic reinvestment and other shareholder
services, see "Step 4: Additional Shareholder Services" under "How to Buy, Sell
and Exchange Shares of the Fund--How to Buy Shares."

- -------------------------------------------------------------------
20 GOVERNMENT INCOME FUND [LOGO] (800) 225-1852
<PAGE>
FUND DISTRIBUTIONS
AND TAX ISSUES
- ------------------------------------------------

TAX ISSUES
FORM 1099
During the tax season every year, you will receive a Form 1099, which reports
the amount of dividends and long-term capital gains we distributed to you during
the prior year. If you own shares of the Fund as part of a qualified
tax-deferred plan or account, your taxes are deferred, so you will not receive a
Form 1099. However, you will receive a Form 1099 when you take any distributions
from your qualified tax-deferred plan or account.
Fund distributions are generally taxable to you in the year they are
received, except when we declare certain dividends in the fourth quarter and
actually pay them in January of the following year. In such cases, the dividends
are treated as if they were paid on December 31 of the prior year.

WITHHOLDING TAXES

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

IF YOU PURCHASE JUST BEFORE RECORD DATE

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

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

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

QUALIFIED RETIREMENT PLANS

Retirement plans and accounts allow you to defer paying taxes on investment
income and capital gains. Contributions to these plans may also be tax
deductible, although distributions from these plans generally are taxable. In
the case of Roth IRA accounts--available to certain taxpayers beginning in
1998--contributions are not tax deductible, but distributions from the plan may
be tax free. Please contact your financial adviser for information on a variety
of Prudential mutual funds that are suitable for retirement plans offered by
Prudential.

IF YOU SELL OR EXCHANGE YOUR SHARES

If you sell any shares of the Fund for a profit, you have REALIZED A CAPITAL
GAIN, which is subject to tax,
unless you hold shares in a
qualified tax-deferred plan or
account. For individuals, the
maximum capital gains tax rate is
20% for shares held for more than 12
months. If you sell shares of the Fund for a loss, you may have a capital loss,
which you may use to offset certain capital gains you have.

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

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

- -------------------------------------------------------------------
22 GOVERNMENT INCOME FUND [LOGO] (800) 225-1852
<PAGE>
FUND DISTRIBUTIONS
AND TAX ISSUES
- ------------------------------------------------

AUTOMATIC CONVERSION OF CLASS B SHARES

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

- --------------------------------------------------------------------------------
23
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- -------------------------------------

HOW TO BUY SHARES
STEP 1: OPEN AN ACCOUNT
If you don't have an account with us or a securities firm that is permitted to
buy or sell shares of the Fund for you, call Prudential Mutual Fund Services LLC
(PMFS) at (800) 225-1852 or contact:

PRUDENTIAL MUTUAL FUND SERVICES LLC

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

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

STEP 2: CHOOSE A SHARE CLASS
Individual investors can choose among Class A, Class B, Class C and Class Z
shares of the Fund, although Class Z shares are available only to a limited
group of investors.

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

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

-- The amount of your investment

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

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

- -------------------------------------------------------------------
24 GOVERNMENT INCOME FUND [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------

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

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

-- Whether you qualify to purchase Class Z shares.

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

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

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Z
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Minimum purchase
amount(1) $1,000 $1,000 $5,000 None
Minimum amount for $100 $100 $100 None
subsequent
purchases(1)
Maximum initial sales
charge 4% of the public offering price None
1% of the public offering
price None
Contingent Deferred None If sold during: 1% on sales None
Sales Charge Year 1, 5% made within
(CDSC)(2) Year 2, 4% 18 months
of
Year 3, 3% purchase(2)
Year 4, 2%
Year 5, 1%
Year 6, 1%
Year 7, 0%
Annual distribution and
service (12b-1) fees
(shown as a percentage .30 of 1% 1.00% 1.00%
of average net [(.25] of 1% [(.825] of 1% (.75% of 1%
assets)(3) currently) currently) currently) None
</TABLE>

1 THE MINIMUM INVESTMENT REQUIREMENTS DO NOT APPLY TO CERTAIN RETIREMENT AND
EMPLOYEE SAVINGS PLANS AND CUSTODIAL ACCOUNTS FOR MINORS. THE MINIMUM
INITIAL AND SUBSEQUENT INVESTMENT FOR PURCHASES MADE THROUGH THE AUTOMATIC
INVESTMENT PLAN IS $50. FOR MORE INFORMATION, SEE "STEP 4: ADDITIONAL
SHAREHOLDER SERVICES--AUTOMATIC INVESTMENT PLAN."
2 FOR MORE INFORMATION ABOUT THE CDSC AND HOW IT IS CALCULATED, SEE "HOW TO
SELL YOUR SHARES-- CONTINGENT DEFERRED SALES CHARGES (CDSC)." CLASS C
SHARES BOUGHT BEFORE NOVEMBER 2, 1998, HAVE A 1% CDSC IF SOLD WITHIN ONE
YEAR.
3 THESE DISTRIBUTION FEES ARE PAID FROM THE FUND'S ASSETS ON A CONTINUOUS
BASIS. OVER TIME, THE FEES WILL INCREASE THE COST OF YOUR INVESTMENT AND
MAY COST YOU MORE THAN PAYING OTHER TYPES OF SALES CHARGES. THE SERVICE FEE
FOR CLASS A, CLASS B AND CLASS C SHARES IS .25 OF 1%. THE DISTRIBUTION FEE
FOR CLASS A SHARES IS LIMITED TO .30 OF 1% (INCLUDING THE .25 OF 1% SERVICE
FEE) AND 1% PER ANNUM OF THE AVERAGE DAILY NET ASSETS OF THE CLASS B SHARES
UP TO $3 BILLION, .80 OF 1% OF THE NEXT $1 BILLION, AND .50 OF 1% OF ASSETS
IN EXCESS OF $4 BILLION AND 1% FOR CLASS C SHARES.

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

25
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------

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

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

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
SALES CHARGE AS % SALES CHARGE AS % DEALER
AMOUNT OF PURCHASE OF OFFERING PRICE OF AMOUNT INVESTED REALLOWANCE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Less than $50,000 4.00% 4.17% 3.75%
$50,000 to $99,999 3.50% 3.63% 3.25%
$100,000 to $249,999 2.75% 2.83% 2.50%
$250,000 to $499,999 2.00% 2.04% 1.90%
$500,000 to $999,999 1.50% 1.52% 1.40%
$1,000,000 and above* None None None
</TABLE>

* IF YOU INVEST $1 MILLION OR MORE, YOU CAN BUY ONLY CLASS A SHARES, UNLESS
YOU QUALIFY TO BUY CLASS Z SHARES.

To satisfy the purchase amounts above, you can:

-- Invest with an eligible group of related investors

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

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

-- Sign a LETTER OF INTENT, stating in writing that you or an eligible
group of related investors will purchase a certain amount of shares
in the Fund and other Prudential mutual funds within 13 months.

BENEFIT PLANS Benefit Plans can avoid Class A's initial sales charges if the
Benefit Plan has existing assets of at least $1 million invested in shares of
Prudential mutual funds (excluding money market funds other than those acquired
under the exchange privilege) or 250 eligible employees or participants. For
these purposes, a Benefit Plan is a pension, profit-sharing or other employee
benefit plans qualified under Section 401 of the Internal Revenue Code and
deferred compensation and annuity plans under Sections 457 and 403(b) of the
Internal Revenue Code, "rabbi" trust, or a

- -------------------------------------------------------------------
26 GOVERNMENT INCOME FUND [LOGO] (800) 225-1852
<PAGE>

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

nonqualified deferred compensation plan sponsored by an employer that has a
tax-qualified benefit plan with Prudential. Class A shares may also be purchased
without a sales charge by participants who are repaying loans from Benefit Plans
where Prudential (or its affiliates) provides administrative or recordkeeping
services, sponsors the product or provides account services.

Certain Prudential retirement programs--such as PruArray Association Benefit
Plans and PruArray Savings Programs--may also be exempt from Class A's sales
charge. For more information, see the SAI or contact your financial adviser. In
addition, waivers are available to investors in certain programs sponsored by
brokers, investment advisers and financial planners who have agreements with
Prudential Investments Advisory Group relating to:

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

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

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

WAIVING CLASS C'S INITIAL SALES CHARGE

BENEFIT PLANS. Benefit Plans (as defined above) may purchase Class C shares
without paying an initial sales charge. Class C shares may also be purchased
without an initial sales charge by participants who are repaying loans from
Benefit Plans where Prudential (or its affiliates) provides administrative or
recordkeeping services, sponsors the product or provides account services.

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

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

PRUDENTIAL RETIREMENT PLANS The initial sales charge will be waived for
purchases of Class C shares by both qualified and nonqualified retirement and
deferred compensation plans participating in a PruArray Plan and other plans if
Prudential also provides administrative or recordkeeping services.

INVESTMENT OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES. The initial
sales charge will be waived for purchases of Class C shares if the purchase is
made with money from the redemption of shares of any unaffiliated investment
company, as long as the shares were not held in an account at Prudential
Securities Incorporated or one of its affiliates. These purchases must be made
within 60 days of redemption. To qualify for this waiver you must:

-- Purchase your shares through an account at Prudential Securities;

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

-- Purchase your shares through other brokers.

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

QUALIFYING FOR CLASS Z SHARES
Class Z shares of the Fund can be purchased by any of the following:
-- Any Benefit Plan as defined above, and certain nonqualified plans,
provided the Benefit Plan--in combination with other plans sponsored
by the same employer or group of related employers--has at least $50
million in defined contribution assets
-- Participants in any fee-based program or trust program sponsored by
Prudential or an affiliate which includes mutual funds as investment
options and the Fund as an available option
-- Certain participants in the MEDLEY Program (group variable annuity
contracts) sponsored by Prudential for whom Class Z shares of the
Prudential Mutual Funds are an available option

-- Benefit Plans for which an affiliate of the Distributor provides
administrative or recordkeeping services and, as of September 20,
1996, were either Class Z shareholders of the Prudential Mutual

- -------------------------------------------------------------------
28 GOVERNMENT INCOME FUND [LOGO] (800) 225-1852
<PAGE>

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

Funds or executed a letter of intent to purchase Class Z shares of
the Prudential mutual funds

-- The Prudential Securities Cash Balance Pension Plan, an
employee-defined benefit plan sponsored by Prudential Securities

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

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

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

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

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

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

STEP 3: UNDERSTANDING THE PRICE YOU'LL PAY

The price you pay for each share of the Fund is based on the share value. The
share value of a mutual fund--known as the NET ASSET VALUE or NAV-- is
determined by a simple calculation: it's the total value of the Fund

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

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

(assets minus liabilities) divided by the total number of shares outstanding.
For example, if the value of the investments held by Fund XYZ (minus its
liabilities) is $1,000 and there are 100 shares of Fund XYZ owned by
shareholders, the price of one share of the fund--or the NAV--is $10 ($1,000
divided by 100). Portfolio securities are valued based upon market quotations
or, if not readily available, at fair value as determined in good faith under
procedures established by the Fund's Board. Most national newspapers report the
NAVs of most mutual funds, which allows investors to check the price of mutual
funds daily.

We determine the NAV of our shares once each business day at 4:15 p.m. New
York time on days that the New York Stock Exchange is open for trading. We do
not determine the NAV on days when we have not received any orders to purchase,
sell, or exchange Fund shares, or when changes in the value of the Fund's
portfolio do not materially affect the NAV.

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

- -------------------------------------------------------------------
MUTUAL FUND SHARES

The NAV of mutual fund shares changes every day because the value of a fund's
portfolio change constantly. For example, if Fund XYZ holds ACME Corp. bonds in
its portfolio and the price of ACME bonds goes up while the value of the fund's
other holdings remains the same and expenses don't change, the NAV of Fund XYZ
will increase.

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

- -------------------------------------------------------------------
30 GOVERNMENT INCOME FUND [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------

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

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

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

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

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

THE PRUTECTOR PROGRAM Optional group term life insurance--which protects the
value of your Prudential mutual fund investment for your beneficiaries against
market downturns--is available to investors who purchase their shares through
Prudential. This insurance is subject to various restrictions and charges and is
not available in all states.

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

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

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

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

HOW TO SELL YOUR SHARES
You can sell your shares of the Fund for cash (in the form of a check) at any
time, subject to certain restrictions.
When you sell shares of the Fund--also known as redeeming your shares--the
price you will receive will be the NAV next determined after the Transfer Agent,
the Distributor or your broker receives your order to sell (less any applicable
CDSC). If your broker holds your shares, he must receive your order to sell by
4:15 p.m. New York time to process the sale on that day. Otherwise, contact:

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

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

RESTRICTIONS ON SALES
There are certain times when you may not be able to sell shares of the Fund, or
when we may delay paying you the proceeds from a sale. This

- -------------------------------------------------------------------
32 GOVERNMENT INCOME FUND [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------

may happen during unusual market conditions or emergencies when the Fund can't
determine the value of its assets or sell its holdings. For more information,
see the SAI, "Purchase, Redemption and Pricing of Fund Shares--Sale of Shares."

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

CONTINGENT DEFERRED SALES CHARGES (CDSC)
If you sell Class B shares within six years of purchase or Class C shares within
18 months of purchase (one year for Class C shares purchased before November 2,
1998), you will have to pay a CDSC. To keep the CDSC as low as possible, we will
sell amounts representing shares in the following order:
-- Amounts representing shares you purchased with reinvested dividends
and distributions

-- Amounts representing the increase in NAV above the total amount of
payments for shares made during the past three years for Class B
shares and 18 months for Class C shares (one year for Class C shares
purchased before November 2, 1998)

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

Since shares that fall into any of the categories listed above are not
subject to the CDSC, selling them first helps you to avoid--or at least
minimize--the CDSC.
Having sold the exempt shares first, if there are any remaining shares that
are subject to the CDSC, we will apply the CDSC to amounts representing the cost
of shares held for the longest period of time within the applicable CDSC period.

As we noted before in the "Share Class Comparison" chart, the CDSC for Class
B shares is 5% in the first year, 4% in the second, 3% in the third, 2% in the
fourth, and 1% in the fifth and sixth years. The rate decreases on

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

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

the first day of the month following the anniversary date of your purchase, not
on the anniversary date itself. The CDSC is 1% for Class C shares-- which is
applied to shares sold within 18 months of purchase (or one year if purchased
before November 2, 1998). For both Class B and Class C shares, the CDSC is
calculated based on the lesser of the original purchase price or the redemption
proceeds. For purposes of determining how long you've held your shares, all
purchases during the month are grouped together and considered to have been made
on the last day of the month.

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

WAIVER OF THE CDSC--CLASS B SHARES
The CDSC will be waived if the Class B shares are sold:
-- After a shareholder is deceased or disabled (or, in the case of a
trust account, the death or disability of the grantor). This waiver
applies to individual shareholders, as well as shares owned in joint
tenancy (with rights of survivorship), provided the shares were
purchased before the death or disability
-- To provide for certain distributions--made without IRS penalty-- from
a tax-deferred retirement plan, IRA or Section 403(b) custodial
account

-- On certain sales from a Systematic Withdrawal Plan.

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

WAIVER OF THE CDSC--CLASS C SHARES

PRUDENTIAL RETIREMENT PLANS. The CDSC will be waived for purchases of Class C
shares by both qualified and nonqualified retirement and deferred compensation
plans participating in a PruArray Plan and other plans if Prudential also
provides administrative or recordkeeping services. The CDSC will also be waived
on redemptions sponsored by Prudential and its affiliates to the extent that the
redemption proceeds are invested in the Guaranteed Investment Account, a group
annuity insurance product sponsored by

- -------------------------------------------------------------------
34 GOVERNMENT INCOME FUND [LOGO] (800) 225-1852
<PAGE>

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

Prudential, The Guaranteed Insulated Separate Account, a separate account
offered by Prudential, and shares of The Stable Value Fund, an unaffiliated bank
collective fund.

OTHER BENEFIT PLANS. The CDSC will be waived on redemptions from Benefit Plans
holding shares through a broker not affiliated with Prudential and for which the
broker provides administrative and recordkeeping services.

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

SMALL ACCOUNTS

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

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

- --------------------------------------------------------------------------------
35
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------

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

HOW TO EXCHANGE YOUR SHARES

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

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

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

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

- -------------------------------------------------------------------
36 GOVERNMENT INCOME FUND [LOGO] (800) 225-1852
<PAGE>

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

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

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

FREQUENT TRADING

Frequent trading of Fund shares in response to short-term fluctuations in the
market--also known as "market timing"--may make it very difficult to manage the
Fund's investments. When market timing occurs, the Fund may have to sell
portfolio securities to have the cash necessary to redeem the market timer's
shares. This can happen at a time when it is not advantageous to sell any
securities, so the Fund's performance may be hurt. When large dollar amounts are
involved, market timing can also make it difficult to use long-term investment
strategies because we cannot predict how much cash the Fund will have to invest.
When, in our opinion, such activity would have a disruptive effect on portfolio
management, the Fund reserves the right to refuse purchase orders and exchanges
by any person, group or commonly controlled accounts. The Fund may notify a
market timer of rejection of an exchange or purchase order after the day the
order is placed. If the Fund allows a market timer to trade Fund shares, it may
require the market timer to enter into a written agreement to follow certain
procedures and limitations.

- --------------------------------------------------------------------------------
37
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------

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

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

CLASS A SHARES

The financial highlights for the two years ended February 28, 1999 were audited
by PricewaterhouseCoopers LLP, and the financial highlights for the three years
ended February 28, 1997, were audited by other independent auditors, whose
reports were unqualified.

CLASS A SHARES (FISCAL YEARS ENDED 2-28)

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2)
Net realized and unrealized gain
(loss) on investment and foreign
currency transactions
TOTAL FROM INVESTMENT OPERATIONS
LESS DISTRIBUTIONS:
Dividends from net investment
income
Distributions in excess of net
investment income
Distributions from net realized
gains
TOTAL DISTRIBUTIONS
NET ASSET VALUE, END OF YEAR
TOTAL RETURN(1) e
- ----------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000,000)
AVERAGE NET ASSETS (000,000)
RATIOS TO AVERAGE NET ASSETS:(2)
Expenses, including distribution
fees
Expenses, excluding distribution
fees
Net investment income
Portfolio turnover rate
</TABLE>

1 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER DISTRIBUTIONS,
BUT DOES NOT INCLUDE THE EFFECT OF SALES CHARGES. IT IS CALCULATED ASSUMING
SHARES ARE PURCHASED ON THE FIRST DAY AND SOLD ON THE LAST DAY OF EACH
PERIOD REPORTED. TOTAL RETURN FOR PERIODS OF LESS THAN A FULL YEAR IS NOT
ANNUALIZED.
2 NET OF EXPENSE SUBSIDY AND/OR FEE WAIVER.

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

38 GOVERNMENT INCOME FUND [LOGO] (800) 225-1852
<PAGE>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------

CLASS B SHARES

The financial highlights for the two years ended February 28, 1999, were audited
by PricewaterhouseCoopers LLP, independent accountants, and the financial
highlights for the three years ended February 28, 1997, were audited by other
independent auditors, whose reports were unqualified.

CLASS B SHARES (FISCAL YEARS ENDED 2-28)

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(4)
Net realized and unrealized gain
(loss) on investment and foreign
currency transactions
TOTAL FROM INVESTMENT OPERATIONS
LESS DISTRIBUTIONS:
Dividends from net investment
income
Distributions in excess of net
investment income
Tax return of capital
distributions
TOTAL DISTRIBUTIONS
NET ASSET VALUE, END OF YEAR
TOTAL RETURN(1)
- ----------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------

NET ASSETS, END OF YEAR (000,000)
Average net assets (000,000)
RATIOS TO AVERAGE NET ASSETS:(2)
Expenses, including distribution
fees
Expenses, excluding distribution
fees
Net investment income
Portfolio turnover
</TABLE>

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

39
<PAGE>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------

CLASS C SHARES

The financial highlights for the two years ended February 28, 1999, were audited
by [ ] LLP, independent accountants, and the financial highlights
for the two years ended February 28, 1997, and the period from August 1, 1994
through February 28, 1995, were audited by other independent auditors, whose
reports were unqualified.

CLASS C SHARES (FISCAL PERIODS ENDED 2-28)

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1999 1998 1997 1996 1995(1)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(4)
Net realized and unrealized gain
(loss) on investment and foreign
currency transactions
TOTAL FROM INVESTMENT OPERATIONS
LESS DISTRIBUTIONS:
Dividends from net investment
income
Distributions in excess of net
investment income
Tax return of capital
distributions
TOTAL DISTRIBUTIONS
NET ASSET VALUE, END OF PERIOD
TOTAL RETURN(2)
- ----------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------

NET ASSETS, END OF PERIOD (000)
Average net assets (000)
RATIOS TO AVERAGE NET ASSETS:(4)
Expenses, including distribution
fees (3)
Expenses, excluding distribution
fees (3)
Net investment income (3)
Portfolio turnover
</TABLE>

1 FOR THE PERIOD FROM AUGUST 1, 1994 (WHEN CLASS C SHARES WERE FIRST OFFERED)
THROUGH FEBRUARY 28, 1995.
2 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER DISTRIBUTIONS,
BUT DOES NOT INCLUDE THE EFFECT OF SALES CHARGES. IT IS CALCULATED ASSUMING
SHARES ARE PURCHASED ON THE FIRST DAY AND SOLD ON THE LAST DAY OF EACH
PERIOD REPORTED. TOTAL RETURN FOR PERIODS OF LESS THAN A FULL YEAR IS NOT
ANNUALIZED.
3 ANNUALIZED.
4 NET OF EXPENSE SUBSIDY AND/OR FEE WAIVER.

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

40 GOVERNMENT INCOME FUND [LOGO] (800) 225-1852
<PAGE>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------

CLASS Z SHARES

The financial highlights for the two years ended February 28, 1999, were audited
by [ ] LLP, independent accountants, and the financial highlights
for the period from March 1, 1996, through February 28, 1997, were audited by
other independent auditors, whose reports were unqualified.

CLASS Z SHARES (FISCAL PERIODS ENDED 2-28)

<TABLE>
<CAPTION>
- --------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1999 1998 1997(1)
- --------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(4)
Net realized and unrealized gain
(loss) on investment and foreign
currency transactions
TOTAL FROM INVESTMENT OPERATIONS
LESS DISTRIBUTIONS:
Dividends from net investment
income
Distributions in excess of net
investment income
Distributions from net realized
gain
TOTAL DISTRIBUTIONS
NET ASSET VALUE, END OF PERIOD
TOTAL RETURN(2)
- --------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997
- --------------------------------------------------------------
NET ASSETS, END OF PERIOD (000)
Average net assets (000)
RATIOS TO AVERAGE NET ASSETS:(4)
Expenses (3)
Net investment income (3)
Portfolio turnover
</TABLE>

1 INFORMATION SHOWN IS FOR THE PERIOD FROM MARCH 1, 1996 (WHEN CLASS Z SHARES
WERE FIRST OFFERED) THROUGH FEBRUARY 28, 1997.
2 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER DISTRIBUTIONS.
IT IS CALCULATED ASSUMING SHARES ARE PURCHASED ON THE FIRST DAY AND SOLD ON
THE LAST DAY OF EACH PERIOD REPORTED. TOTAL RETURN FOR PERIODS OF LESS THAN
A FULL YEAR IS NOT ANNUALIZED.
3 ANNUALIZED.
4 NET OF EXPENSE SUBSIDY AND/OR FEE WAIVER.

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

41
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
- -------------------------------------

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

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

ASSET ALLOCATION/BALANCED FUNDS

PRUDENTIAL BALANCED FUND

PRUDENTIAL DIVERSIFIED FUNDS

CONSERVATIVE GROWTH FUND

MODERATE GROWTH FUND

HIGH GROWTH FUND

THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.

PRUDENTIAL ACTIVE BALANCED FUND

GLOBAL FUNDS
GLOBAL STOCK FUNDS
PRUDENTIAL DEVELOPING MARKETS FUND
PRUDENTIAL DEVELOPING MARKETS EQUITY FUND
PRUDENTIAL LATIN AMERICA EQUITY FUND
PRUDENTIAL EUROPE GROWTH FUND, INC.
PRUDENTIAL GLOBAL GENESIS FUND, INC.

PRUDENTIAL INDEX SERIES FUND

PRUDENTIAL EUROPE INDEX FUND

PRUDENTIAL PACIFIC INDEX FUND

PRUDENTIAL NATURAL RESOURCES FUND, INC.
PRUDENTIAL PACIFIC GROWTH FUND, INC.
PRUDENTIAL WORLD FUND, INC.
GLOBAL SERIES
INTERNATIONAL STOCK SERIES
GLOBAL UTILITY FUND, INC.
GLOBAL BOND FUNDS
PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
LIMITED MATURITY PORTFOLIO
PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC.
PRUDENTIAL INTERNATIONAL BOND FUND, INC.
THE GLOBAL TOTAL RETURN FUND, INC.

- -------------------------------------------------------------------
42 GOVERNMENT INCOME FUND [LOGO] (800) 225-1852
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
- -------------------------------------

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

PRUDENTIAL BOND MARKET INDEX FUND

PRUDENTIAL BOND MARKET INDEX FUND
PRUDENTIAL STRUCTURED MATURITY
FUND, INC.
INCOME PORTFOLIO
TAX-EXEMPT BOND FUNDS
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA SERIES
CALIFORNIA INCOME SERIES
PRUDENTIAL MUNICIPAL BOND FUND
HIGH INCOME SERIES
INSURED SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
MASSACHUSETTS SERIES
NEW JERSEY SERIES
NEW YORK SERIES
NORTH CAROLINA SERIES
OHIO SERIES
PENNSYLVANIA SERIES
PRUDENTIAL NATIONAL MUNICIPALS
FUND, INC.

MONEY MARKET FUNDS
TAXABLE MONEY MARKET FUNDS
CASH ACCUMULATION TRUST
LIQUID ASSETS FUND
NATIONAL MONEY MARKET FUND
PRUDENTIAL GOVERNMENT SECURITIES TRUST
MONEY MARKET SERIES
U.S. TREASURY MONEY MARKET SERIES
PRUDENTIAL SPECIAL MONEY MARKET
FUND, INC.
MONEY MARKET SERIES
PRUDENTIAL MONEYMART ASSETS, INC.
TAX-FREE MONEY MARKET FUNDS
PRUDENTIAL TAX-FREE MONEY FUND, INC.
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA MONEY MARKET SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
CONNECTICUT MONEY MARKET SERIES
MASSACHUSETTS MONEY MARKET SERIES
NEW JERSEY MONEY MARKET SERIES
NEW YORK MONEY MARKET SERIES
COMMAND FUNDS
COMMAND MONEY FUND
COMMAND GOVERNMENT FUND
COMMAND TAX-FREE FUND
INSTITUTIONAL MONEY MARKET FUNDS
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES

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

PRUDENTIAL MUTUAL FUND SERVICES LLC
P.O. BOX 15005
NEW BRUNSWICK, NJ 08906-5005
(800) 225-1852
(732) 417-7555
(if calling from outside the U.S.)

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

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

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

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

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

SEMI-ANNUAL REPORT

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

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

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

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

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CUSIP Numbers:
Class A: 744339-10-2
Class B: 744339-20-1
Class C: 744339-30-0
Class Z: 744339-40-9

Investment Company Act File No:

811-7215

MF128A M Printed on Recycled Paper

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PRUDENTIAL GOVERNMENT INCOME FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED APRIL , 1999

Prudential Government Income Fund, Inc. (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 put and call 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. There can be no assurance that the Fund's investment
objective will be achieved. See "Description of the Fund, Its Investments and
Risks."

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

This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus, dated April , 1999, a copy of
which may be obtained from the Fund upon request.

TABLE OF CONTENTS

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PAGE
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<S> <C>
Fund History.......................................... B-2
Description of the Fund, Its Investments and Risks.... B-2
Investment Restrictions............................... B-14
Management of the Fund................................ B-15
Control Persons and Principal Holders of Securities... B-19
Investment Advisory and Other Services................ B-19
Brokerage Allocation and Other Practices.............. B-23
Capital Shares, Other Securities and Organization..... B-25
Purchase, Redemption and Pricing of Fund Shares....... B-25
Shareholder Investment Account........................ B-38
Net Asset Value....................................... B-42
Taxes, Dividends and Distributions.................... B-43
Performance Information............................... B-46
Financial Statements.................................. B-48
Report of Independent Auditors........................ B-61
Appendix I -- Historical Performance Data............. I-1
Appendix II -- General Investment Information......... II-1
Appendix III -- Information Relating to Prudential.... III-1
</TABLE>

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MF128B
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FUND HISTORY

The Fund was organized under the laws of Maryland on April 8, 1983.

DESCRIPTION OF THE FUND, ITS INVESTMENTS AND RISKS

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

(B) AND (C) INVESTMENT STRATEGIES, POLICIES AND RISKS.

The Fund's investment objective is 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. There can be no assurance that the
Fund's investment objective will be achieved. See "How the Fund
Invests--Investment Objective and Policies" in the Prospectus.

THE FUND WILL SEEK 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. THESE GUARANTEES
APPLY ONLY TO THE PAYMENT OF PRINCIPAL AND INTEREST ON THESE SECURITIES AND DO
NOT EXTEND TO THE SECURITIES' YIELD OR VALUE, WHICH ARE LIKELY TO VARY 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
AGENCIES AND INSTRUMENTALITIES" BELOW. THE FUND WILL ALSO WRITE COVERED CALL
OPTIONS AND COVERED PUT OPTIONS AND PURCHASING PUT AND CALL OPTIONS. UNDER
NORMAL MARKET CONDITIONS, AT LEAST 65% OF THE TOTAL ASSETS OF THE FUND WILL BE
INVESTED IN U.S. GOVERNMENT SECURITIES. 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. THE FUND HAS NO LIMITATIONS WITH RESPECT TO THE MATURITIES OF
PORTFOLIO SECURITIES IN WHICH IT MAY INVEST.

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. 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.

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

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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: (1) fixed-rate level payment mortgage loans;
(2) fixed-rate graduated payment mortgage loans; (3) fixed-rate growing equity
mortgage loans; (4) fixed-rate mortgage loans secured by manufactured (mobile)
homes; (5) mortgage loans on multifamily residential properties under
construction; (6) mortgage loans on completed multifamily projects; (7)
fixed-rate mortgage loans as to which escrowed funds are used to reduce the
borrower's monthly payments during the early years of the mortgage loans
(buydown mortgage loans); (8) mortgage loans that provide for adjustments in
payments based on periodic changes in interest rates or in other payment terms
of the mortgage loans; and (9) mortgage-backed serial notes. All of these
mortgage loans will be FHA Loans or VA Loans and, except as otherwise specified
above, will be fully-amortizing loans secured by first liens on
one-to-four-family housing units. Legislative changes may be proposed from time
to time in relation to the Department of Housing and Urban Development which, if
adopted, could alter the viability of investing in GNMAs. The Fund's adviser may
re-evaluate the Fund's investment objectives and policies if any such
legislative proposals are adopted.

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 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
(FHLMC Act). 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

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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 adopted by
the Securities and Exchange Commission (Commission), and the Fund may invest in
the securities of such issuers without the limitations imposed by the Investment
Company Act of 1940, as amended (the Investment Company Act) on investments by
the Fund in other investment companies. In addition, in reliance on an earlier
Commission 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 Commission'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.

OTHER INVESTMENTS AND POLICIES

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 "Futures Contracts on U.S. Government Securities." THE FUND
MAY INVEST IN DEBT OBLIGATIONS RATED AT LEAST A BY S&P OR MOODY'S OR, IF
UNRATED, DEEMED TO BE OF COMPARABLE CREDIT QUALITY BY THE FUND'S INVESTMENT
ADVISER. These debt securities may have adjustable or fixed rates of interest
and in certain instances may be secured by assets of the issuer. Fixed rate debt
securities may also be subject to call provisions.

MONEY MARKET INSTRUMENTS

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 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 (NRSRO) (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 investment
adviser.

FOREIGN BANK OBLIGATIONS

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.

B-4
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WORLD BANK OBLIGATIONS

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.

ADJUSTABLE RATE DEBT SECURITIES

THE FUND IS PERMITTED TO INVEST IN ADJUSTABLE RATE DEBT SECURITIES,
including securities issued by U.S. Government agencies, whose interest rate is
calculated by reference to a specified index such as the constant maturity
Treasury rate, the T-bill rate or LIBOR (London Interbank Offered Rate) and is
reset periodically. The value of adjustable rate securities will, like other
debt securities, generally vary inversely with changes in prevailing interest
rates. The value of adjustable rate securities is unlikely to rise in periods of
declining interest rates to the same extent as fixed rate instruments. In
periods of rising interest rates, changes in the coupon will lag behind changes
in the market rate resulting in a lower NAV until the coupon resets to market
rates.

ASSET-BACKED SECURITIES

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 A by S&P or Moody's or, if unrated, of
equivalent quality in the judgment of the Fund's investment adviser.

OPTION WRITING AND RELATED RISKS

The Fund will write (that is, 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

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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--Additional Strategies--Illiquid Securities" in the Prospectus. In the
event of insolvency of the counterparty, 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.

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 in a segregated account cash or other liquid assets 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 in a segregated account cash or other liquid assets 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 or other liquid assets in a segregated account.

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. See "Portfolio
Turnover" below.

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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 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 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 on 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.

B-7
<PAGE>
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 may purchase
and sell 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 in a segregated account 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 has hedged against the possibility of an increase in
interest rates which would adversely affect the price of securities in its
portfolio and the price of such securities increases instead, the Fund will lose
part or all of the benefit of the increased value of its securities because it
will have offsetting losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash to meet daily variation margin
requirements, it may have to sell securities to meet such requirements. Such
sales of securities may be, but will not necessarily be, at increased prices
which reflect the rising market. The Fund may have to sell securities at a time
when it is disadvantageous to do so.

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 GNMAs, 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.

B-8
<PAGE>

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 or other liquid assets in a
segregated account. The Fund is considered covered with respect to a put option
it writes on a futures contract if it (a) segregates and maintains in a
segregated account cash or other liquid assets 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 or other liquid assets in a segregated
account. 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.

RISKS OF HEDGING AND RETURN ENHANCEMENT STRATEGIES

PARTICIPATION IN THE OPTIONS OR FUTURES MARKETS INVOLVES INVESTMENT RISKS
AND TRANSACTION COSTS TO WHICH THE FUND WOULD NOT BE SUBJECT ABSENT THE USE OF
THESE STRATEGIES. The Fund, and thus its investors, may lose money through the
unsuccessful use of these strategies. If the investment adviser's predictions of
movements in the direction of the securities, foreign currency and interest rate
markets are inaccurate, the adverse consequences to the Fund may leave the Fund
in a worse position than if such strategies were not used. Risks inherent in the
use of options, futures contracts and options on futures contracts include (1)
dependence on the investment adviser's ability to predict correctly movements in
the direction of interest rates, securities prices and currency markets; (2)
imperfect correlation between the price of options and futures contracts and
options thereon and movements in the prices of the securities or currencies
being hedged; (3) the fact that skills needed to use these strategies are
different from those needed to select portfolio securities; (4) the possible
absence of a liquid secondary market for any particular instrument at any time;
and (5) the possible inability of the Fund to purchase or sell a portfolio
security at a time that otherwise would be favorable for it to do so, or the
possible need for the Fund to sell a portfolio security at a disadvantageous
time, due to the need for the Fund to maintain cover or to segregate securities
in connection with hedging transactions.

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

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

B-9
<PAGE>

The Fund may sell a futures contract to protect against the decline in the
value of securities held by the Fund. However, it is possible that the futures
market may advance and the value of securities held in the Fund's portfolio may
decline. If this were to occur, the Fund would lose money on the futures
contracts and also experience a decline in value in its portfolio securities.

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

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

Pursuant to the requirements of the Commodity Exchange Act, as amended (the
Commodity Exchange Act), all futures contracts and options thereon must be
traded on an exchange. The Fund intends to purchase and sell futures contracts
only on exchanges where there appears to be a market in such futures
sufficiently active to accommodate the volume of its trading activity. The
Fund's ability to establish and close out positions in futures contracts and
options on futures contracts would be impacted by the liquidity of these
exchanges. Although the Fund generally would purchase or sell only those futures
contracts and options thereon for which there appeared to be a liquid market,
there is no assurance that a liquid market on an exchange will exist for any
particular futures contract or option at any particular time. In the event no
liquid market exists for a particular futures contract or option thereon in
which the Fund maintains a position, it would not be possible to effect a
closing transaction in that contract or to do so at a satisfactory price and the
Fund would have to either make or take delivery under the futures contract or,
in the case of a written call option, wait to sell the underlying securities
until the option expired or was exercised, or, in the case of a purchased
option, exercise the option and comply with the margin requirements for the
underlying futures contract to realize any profit. In the case of a futures
contract or an option on a futures contract which the Fund had written and which
the Fund was unable to close, the Fund would be required to maintain margin
deposits on the futures contract or option and to make variation margin payments
until the contract is closed. In the event futures contracts have been sold to
hedge portfolio securities, such securities will not be sold until the
offsetting futures contracts can be executed. Similarly, in the event futures
have been bought to hedge anticipated securities purchases such purchases will
not be executed until the offsetting futures contracts can be sold.

Exchanges on which futures and related options trade may impose limits on
the positions that the Fund may take in certain circumstances. In addition, the
hours of trading of financial futures contracts and options thereon may not
conform to the hours during which the Fund may trade the underlying securities.
To the extent the futures markets close before the securities markets,
significant price and rate movements can take place in the securities markets
that cannot be reflected in the futures markets.

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

In order to determine that the Fund is entering into transactions in futures
contracts for hedging purposes as such term is defined by the CFTC, either: (1)
a substantial majority (THAT IS, approximately 75%) of all anticipatory hedge
transactions (transactions in which the Fund does not own at the time of the
transaction, but expects to acquire, the securities underlying the relevant
futures contract) involving the purchase of futures contracts will be completed
by the purchase of securities which are the subject of the hedge, or (2) the
underlying value of all long positions in futures

B-10
<PAGE>

contracts will not exceed the total value of (a) all short-term debt obligations
held by the Fund; (b) cash held by the Fund; (c) cash proceeds due to the Fund
on investments within thirty days; (d) the margin deposited on the contracts;
and (e) any unrealized appreciation in the value of the contracts.

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

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

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

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

RISKS OF TRANSACTIONS IN OPTIONS AND FINANCIAL FUTURES

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

An option position may be closed out only on an exchange which provides a
secondary market for an option of the same series. As described above, although
the Fund generally will purchase only those options for which there appears to
be an active secondary market, there is no assurance that a liquid secondary
market on an exchange will exist for any particular option, or at any particular
time, and for some options, no secondary market on an exchange may exist. In
such event it might not be possible to effect closing transactions in particular
options with the result that the Fund would have to exercise its options in
order to realize any profit and would incur transaction costs upon the sale of
underlying securities pursuant to the exercise of put options.

Reasons for the absence of a liquid secondary market on an exchange include
the following: (1) there may be insufficient trading interest in certain
options; (2) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (3) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (4) unusual or unforseen circumstances may
interrupt normal operations on an exchange; (5) the facilities of an exchange or
the Options Clearing Corporation may not at all times be adequate to handle
current trading volume; or (6) one or more exchanges could, for economic or
other reasons, decide to be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that exchange (or in that class or series of options)
would cease to exist, although outstanding options on that exchange that had
been issued by the Options Clearing Corporation as a result of trades on that
exchange could continue to be exercisable in accordance with their terms.

B-11
<PAGE>

There is no assurance that higher than anticipated trading activity or other
unforseen events might not, at times, render certain of the facilities of the
Options Clearing Corporation inadequate, and thereby result in the institution
by an exchange of special procedures which may interfere with the timely
execution of customers' orders.

REPURCHASE AGREEMENTS

The Fund may on occasion enter into repurchase agreements, whereby the
seller of a security agrees to repurchase that security from the Fund at a
mutually agreed-upon time and price. The period of maturity is usually quite
short, possibly overnight or a few days, although it may extend over a number of
months. The resale price is in excess of the purchase price, reflecting an
agreed-upon rate of return effective for the period of time the Fund's money is
invested in the repurchase agreement. The instruments held as collateral are
valued daily, and if the value of the 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 will enter into repurchase transactions only with parties meeting
creditworthiness standards approved by the Fund's Board of Directors. The Fund's
repurchase agreements will at all times be fully collaterized by U.S. Government
obligations in an amount at least equal to the resale price. The Fund's
investment adviser will monitor the creditworthiness of such parties, under the
general supervision of the Board of Directors. In the event of a default or
bankruptcy by a seller, the Fund will promptly seek to liquidate the collateral.
To the extent that the proceeds from any sale of such collateral upon a default
in the obligation to repurchase are less than the repurchase price, the Fund
will suffer a loss.

The Fund participates in a joint repurchase account with other investment
companies managed by Prudential Investments Fund Management LLC (PIFM) pursuant
to an order of the Commission. 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, that is, the two payment streams netted out, with the Fund
receiving or paying, as the case may be, only the net amount of the two
payments. The net amount of the excess, if any, of the Fund's obligations over
its entitlements with respect to each interest rate swap will be accrued on a
daily basis and an amount of cash or other liquid assets having an aggregate net
asset value per share (NAV) at least equal to the accrued excess will be
maintained in a segregated account 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 adviser is
incorrect in its forecast of market values, interest rates and other applicable
factors, the investment performance of the Fund would diminish compared to what
it would have been if this investment technique was never used.

The Fund may 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

B-12
<PAGE>
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.

ILLIQUID SECURITIES

The Fund may hold up to 15% of its liquid net assets in repurchase
agreements which have a maturity of longer than seven days, certain securities
with legal or contractual restrictions on resale (restricted securities) either
within or outside of the United States and securities that are not readily
marketable.

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

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

Rule 144A of the Securities Act allows for a broader institutional trading
market for securities otherwise subject to restriction on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the Securities Act for resales of certain securities to qualified
institutional buyers. The investment adviser anticipates that the market for
certain restricted securities such as institutional commercial paper,
convertible securities and foreign securities will expand further as a result of
this regulation and the development of automated systems for the trading,
clearance and settlement of unregistered securities of domestic and foreign
issuers, such as the PORTAL System sponsored by the National Association of
Securities Dealers, Inc. (NASD).

Restricted securities, including securities eligible for resale pursuant to
Rule 144A under the Securities Act and securities with contractual restrictions,
and commercial paper that has a readily available market will not be deemed to
be illiquid. The investment adviser will monitor the liquidity of such
restricted securities subject to the supervision of the Board of Directors. In
reaching liquidity decisions, the investment adviser will consider, INTER ALIA,
the following factors: (1) the frequency of trades and quotes for the security;
(2) the number of dealers wishing to purchase or sell the security and the
number of other potential purchasers; (3) dealer undertakings to make a market
in the security and (4) the nature of the security and the nature of the
marketplace trades (for example, the time needed to dispose of the security, the
method of soliciting offers and the mechanics of the transfer). In addition, in
order for commercial paper that is issued in reliance on Section 4(2) of the
Securities Act to be considered liquid, (a) it must be rated in one of the two
highest rating categories by at least two nationally recognized statistical
rating organizations (NRSRO), or if only one NRSRO rates the securities, by that
NRSRO, or, if unrated, be of comparable quality in the view of the investment
adviser; and (b) it must not be "traded flat" (THAT IS, without accrued
interest) or in default as to principal or interest. Repurchase agreements
subject to demand are deemed to have a maturity equal to the notice period.

The staff of the Commission has also taken the position that purchased OTC
options and the assets used as "cover" for written OTC options are illiquid
securities unless the Fund and the counterparty have provided for the Fund, at
the Fund's election, to unwind the OTC option. The exercise of such an option
would ordinarily involve the payment by the Fund of an amount designed to
reflect the counterparty's economic loss from an early termination, but does
allow the Fund to treat the assets used as cover as liquid.

B-13
<PAGE>

BORROWING

The Fund will not purchase securities when borrowings exceed 5% of the value
of Fund's total assets.

SEGREGATED ASSETS

When the Fund is required to segregate assets in connection with certain
hedging transactions, it will maintain cash or liquid assets in a segregated
account. "Liquid assets" means cash, U.S. Government securities, foreign
securities, equity securities, debt obligations or other liquid, unencumbered
assets marked-to-market daily. Such hedging transactions may involve when-issued
and delayed delivery securities, futures contracts, options and options on
futures contracts (unless otherwise covered). If collateralized or otherwise
covered, in accordance with Commission guidelines, these will not be deemed to
be senior securities.

(D) TEMPORARY DEFENSIVE STRATEGY AND SHORT-TERM INVESTMENTS

When conditions dictate a defensive strategy, the Fund may temporarily
invest without limit in money market instruments, hold cash and engage in
repurchase agreement transactions. Investing heavily in these securities limits
our ability to achieve a high level of income, but may help to preserve the
Fund's assets.

(E) PORTFOLIO TURNOVER

The Fund's portfolio turnover rate for the fiscal years ended February 28,
1998 and February 28, 1999 was 88% and %, respectively. The investment
adviser expects that, under normal circumstances, if the Fund writes a
substantial number of options, and those options are exercised, the Fund's
portfolio turnover rate may be as high as 250% or higher. See "Brokerage
Allocation and Other Practices" and "Taxes, Dividends and Distributions."

INVESTMENT RESTRICTIONS

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

The Fund may not:

1. Purchase 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 interest rate swap transactions, reverse
repurchase agreements or dollar roll transactions or the writing of options on
debt securities or on interest rate futures contracts or other financial futures
contracts are not deemed to 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 the outstanding voting securities of an issuer.

B-14
<PAGE>
6. 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.

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

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

9. 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 10% 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.

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

11. Make loans, except through (i) repurchase agreements and (ii) loans of
portfolio securities (limited to 30% of the Fund's total assets).

12. 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.

13. 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.

MANAGEMENT OF THE FUND

B-15
<PAGE>

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS(1) AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ----------------------------- ----------------------- ----------------------------------------------------------
<S> <C> <C>
*Robert F. Gunia (52) Director and Vice Vice President (since September 1997), The Prudential
President Insurance Company of America; Executive Vice President
and Treasurer (since December 1996), Prudential
Investments Fund Management LLC (PIFM); Senior Vice
President (since March 1987) of Prudential Securities
Incorporated (Prudential Securities); formerly Chief
Administrative Officer (July 1990-September 1996),
Director (January 1989-September 1996) and Executive Vice
President, Treasurer and Chief Financial Officer (June
1987-September 1996) of Prudential Mutual Fund
Management, Inc. (PMF); Vice President and Director of
The Asia Pacific Fund, Inc. (since May 1989); Director of
The High Yield Income Fund, Inc.
*Mendel A. Melzer CFA (38) Director and President Chief Investment Officer (since October 1996) of
751 Broad Street Prudential Investments; formerly Chief Financial Officer
Newark, NJ 07102 of Prudential Investments (November 1995-September 1996),
Senior Vice President and Chief Financial Officer of
Prudential Preferred Financial Services (April
1993-November 1995), Managing Director of Prudential
Investment Advisors (April 1991-April 1993) and Senior
Vice President of Prudential Capital Corporation (July
1989-April 1991); Director of the High Yield Income Fund,
Inc.
Thomas T. Mooney (57) Director President of the Greater Rochester Metro Chamber of
Commerce; formerly Rochester City Manager; Trustee of
Center for Governmental Research, Inc.; Director of Blue
Cross of Rochester, The Business Council of New York
State, Monroe County Water Authority, Rochester Jobs,
Inc., Northeast-Midwest Institute, Executive Service
Corps of Rochester, Monroe County Industrial Development
Corporation and The High Yield Income Fund, Inc.;
President, Director and Treasurer of First Financial
Fund, Inc. and The High Yield Plus Fund, Inc.
Thomas H. O'Brien (74) Director President, O'Brien Associates (financial and management
consultants) (since April 1984); formerly President of
Jamaica Water Securities Corp. (holding company)
(February 1989-August 1990); Chairman and Chief Executive
Officer (September 1987-February 1989) and Director
(September 1987-August 1990) of Jamaica Water Supply
Company; Director and President of Winthrop Regional
Health Systems, Inc. and United Presbyterian Homes;
Director of Ridgewood Savings Bank; Trustee of Hofstra
University. Director of The High Yield Income Fund, Inc.
</TABLE>

B-16
<PAGE>

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS(1) AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- ----------------------------- ----------------------- ----------------------------------------------------------
<S> <C> <C>
Richard A. Redeker (54) Director Formerly President, Chief Executive Officer and Director
(October 1993-September 1996), PMF; Executive Vice
President, Director and Member of the Operating Committee
(October 1993-September 1996), Prudential Securities;
Director (October 1993-September 1996) of Prudential
Securities Group, Inc. (PSG); Executive Vice President,
The Prudential Investment Corporation (July
1994-September 1996); Director (January 1994-September
1996) of Prudential Mutual Fund Distributors, Inc. (PMFD)
and Prudential Mutual Fund Services, Inc. (PMFS);
formerly Senior Executive Vice President and Director of
Kemper Financial Services, Inc. (September 1978-September
1993); Director and President of The High Yield Income
Fund, Inc.
Nancy H. Teeters (68) Director Economist; formerly Vice President and Chief Economist of
International Business Machines Corporation (March
1986-June 1990); Director of Inland Steel Industries
(since July 1991) and the High Yield Income Fund, Inc.
Louis A. Weil, III (57) Director Chairman (since January 1999), President and Chief
Executive Officer (since January 1996) and Director
(since September 1991) of Central Newspapers, Inc.;
Chairman (since January 1996), Publisher and Chief
Executive Officer of Phoenix Newspapers, Inc. (August
1991-December 1995), prior thereto, Publisher of Time
Magazine (May 1989-March 1991); formerly President,
Publisher and Chief Executive Officer of the Detroit News
(February 1986-August 1989); formerly member of the
Advisory Board, Chase Manhattan Bank-Westchester,
Director of the High Yield Income Fund, Inc.
Stephen M. Ungerman (45) Assistant Treasurer Tax Director (since March 1996) of Prudential Investments
and the Private Asset Group of The Prudential Insurance
Company of America; formerly First Vice President of
Prudential Mutual Fund Management, Inc. (February
1993-September 1996); prior thereto, Senior Tax Manager
at Price Waterhouse LLP (1981-January 1993).
Grace C. Torres (39) Treasurer and Principal First Vice President (since December 1996) of PIFM; First
Financial and Vice President of Prudential Securities (since March
Accounting Officer 1994); formerly First Vice President (March
1994-September 1996), of Prudential Mutual Fund
Management, Inc., and Vice President (July 1989-March
1994) of Bankers Trust Corporation.
Deborah A. Docs (41) Secretary Vice President (since December 1996) of PIFM; Vice
President and Associate General Counsel (June
1991-September 1996) of PMF; Vice President and Associate
General Counsel of Prudential Securities (since December
1996).
</TABLE>

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

B-17
<PAGE>
(1) Unless otherwise noted the address for each of the above persons is c/o:
Prudential Investments Fund Management LLC, Gateway Center Three, 100
Mulberry Street, Newark, New Jersey 07102-4077.

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

The Fund has Directors who, in addition to overseeing the actions of the
Fund's Manager, investment adviser and Distributor, decide upon matters of
general policy. The Directors also review the actions of the Fund's officers and
supervise the daily business operations of the Fund.

The Fund pays each of its Directors who is not an affiliated person of the
Manager annual compensation of $5,500, in addition to certain out-of-pocket
expenses. The amount of annual compensation paid to each Director may change as
a result of the introduction of additional funds upon which the Director may be
asked to serve.

Directors may receive their Directors' fees pursuant to a deferred fee
arrangement with the Fund. Under the terms of the agreement, the Fund accrues
daily the amount of Directors' fees which accrue interest at a rate equivalent
to the prevailing rate applicable to 90-day U.S. Treasury Bills at the beginning
of each calendar quarter or 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 Directors'
fees, together with interest thereon, is a general obligation of the Fund.

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

Pursuant to the terms of the Management Agreement with the Fund, the Manager
pays all compensation of officers and employees of the Fund as well as the fees
and expenses of all Directors of the Fund who are affiliated persons of the
Manager. The Fund pays each of its Directors who is not an affiliated person of
PIFM, the Prudential Investment Corporation (PIC) or the Subadviser annual
compensation of $4,500, in addition to certain out-of-pocket expenses. The
amount of annual compensation paid to each Director may change as a result of
the introduction of additional funds on whose Boards the Directors may be asked
to serve.

The following table sets forth the aggregate compensation paid by the Fund
for the fiscal year ended February 28, 1999 to the Directors who are not
affiliated with the Manager and the aggregate compensation paid to such
Directors for service on the Fund's Board and the Board of any other investment
companies managed by Prudential Mutual Fund Management, Inc. (Fund Complex) for
the calender year ended December 31, 1998.

COMPENSATION TABLE

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

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

** Total aggregate compensation from all of the funds in the Fund Complex for
the calendar year ended December 31, 1998, includes amounts deferred at the
election of Directors. Including accrued interest, total compensation
amounted to $87,401, and $143,909 for Eugene C. Dorsey and Thomas T. Mooney,
respectively.

(1) Interested Directors do not receive compensation from the Fund or any fund
in the Fund Complex. Mr. Redeker is no longer an interested Director.

B-18
<PAGE>

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

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

As of , 1999, the Directors and officers of the Fund, as a group,
owned less than 1% of the outstanding shares of the Fund.

As of , 1999, the only beneficial owners, directly or indirectly of
more than 5% of any class of shares of the Fund were: [F.H. Peterson Machine
Corp., P/S Plan UAD 11-31-78, FBO Wilbur J. Boss, P.O. Box 617, Stoughton, MA
02072-0617, who held 19,264 Class C shares (5.7% of the outstanding Class C
shares); Prudential Trust Company, FBO PRU-DC Trust Accounts, Attn. John Sturdy,
30 Scranton Office Park, Moosic, PA 18507-1796, who held 24,602 Class C shares
(approximately 7.3% of the outstanding Class C shares); Prudential Defined
Contribution Services, FBO PRU-NON Trust Accounts, Attn. John Sturdy, 30
Scranton Office Park, Moosic, PA 18507-1755, who held 5,058,807 Class Z shares
(approximately 54.6% of the outstanding Class Z shares); and Prudential Trust
Company, FBO PRU-DC Trust Accounts, Attn. John Sturdy, 30 Scranton Office Park,
Moosic, PA 18507-1796, who held 1,599,665 Class Z shares (approximately 17.3% of
the outstanding Class Z shares).]

As of , 1999, Prudential Securities was the record holder for other
beneficial owners of 54,345,743 Class A shares (or 60% of the outstanding Class
A shares), 17,164,696 Class B shares (or 47% of the outstanding Class B shares),
215,784 Class C shares (or 64% of the outstanding Class C shares) and 207,487
Class Z shares (or 2% of the outstanding Class Z shares) of the Fund. In the
event of any meetings of shareholders, Prudential Securities will forward, or
cause the forwarding of, proxy materials to the beneficial owners for which it
is the record holder.

INVESTMENT ADVISORY AND OTHER SERVICES

(A) MANAGER AND INVESTMENT ADVISER

The manager of the Fund is Prudential Investments Fund Management LLC (PIFM
or the Manager), Gateway Center Three, 100 Mulberry Street, Newark, New Jersey
07102-4077. The Manager 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--Manager" in the Prospectus. As of January 31,
1999, PIFM managed and/or administered open-end and closed-end management
investment companies with assets of approximately $71.7 billion. According to
the Investment Company Institute, as of December 31, 1998, the Prudential Mutual
Funds were the 18th largest family of mutual funds in the United States.

The Manager is a subsidiary of Prudential Securities and Prudential.
Prudential Mutual Fund Services LLC (the Transfer Agent), a wholly owned
subsidiary of the Manager, serves as the Transfer Agent for the Prudential
Mutual Funds and, in addition, provides customer service, record keeping and
management and administration services to qualified plans.

Pursuant to the Management Agreement with the Fund (the Management
Agreement), the Manager, 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, the Manager is obligated to keep certain
books and records of the Fund. The Manager 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 Custodian) and the
Fund's transfer and dividend disbursing agent. The services of the Manager for
the Fund are not exclusive under the terms of the Management Agreement and the
Manager is free to, and does, render management services to others.

For its services, the Manager receives, pursuant to the Management
Agreement, a fee at an annual rate of 0.50 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
Fund (including the fees of the Manager, 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

B-19
<PAGE>
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 the Manager will be reduced by the amount of such excess.
Currently, the Fund believes there are no such restrictions.

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

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

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

(c) the costs and expenses payable to the Subadviser pursuant to the
subadvisory agreement between the Manager and the Subadviser (the Subadvisory
Agreement).

Under the terms of the Management Agreement, the Fund is responsible for the
payment of the following expenses: (a) the fees payable to the Manager, (b) the
fees and expenses of Directors who are not affiliated persons of the Manager or
the Fund's Subadviser, (c) the fees and certain expenses of the Custodian and
Transfer 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 Commission, including the preparation and printing of the
Fund's registration statements and prospectuses for such purposes and paying the
fees and expenses of notice filings made in accordance with state securities
laws, (k) allocable communications expenses with respect to investor services
and all expenses of shareholders' and Directors' meetings and of preparing,
printing and mailing reports, proxy statements and prospectuses to shareholders
in the amount necessary for distribution to the shareholders, (l) litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the Fund's business and (m) distribution fees.

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

For the fiscal years ended February 28, 1999, February 28, 1998 and February
29, 1997, the Fund paid management fees to the Manager or its predecessors of
$ $6,507,621, and $7,351,081, respectively.

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

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

B-20
<PAGE>

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

Prudential Investment Management Services LLC (PIMS or the Distributor),
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, acts
as the distributor of the shares of the Fund. Prior to June 1, 1998. Prudential
Securities Incorporated (Prudential Securities) was the Fund's distributor. PIMS
and Prudential Securities are subsidiaries of Prudential.

Pursuant to separate Plans of Distribution (the Class A Plan, the Class B
Plan and the Class C Plan, collectively, the Plans) adopted by the Fund under
Rule 12b-1 under the Investment Company Act and a distribution agreement (the
Distribution Agreement), the Distributor incurs the expenses of distributing the
Fund's Class A, Class B and Class C shares. The Distributor also incurs the
expenses of distributing the Fund's Class Z shares under the Distribution
Agreement, none of which are reimbursed by or paid for by the Fund. See "How the
Fund is Managed--Distributor" in the Prospectus.

The expenses incurred under the Plans include commissions and account
servicing fees paid to or on account of brokers or financial institutions which
have entered into agreements with the Distributor, advertising expenses, the
cost of printing and mailing prospectuses to potential investors and indirect
and overhead costs of the Distributor associated with the sale of Fund shares,
including lease, utility communications and sales promotion expenses. The
distribution and/or service fees may also be used by the Distributor to
compensate on a continuing basis brokers in consideration for the distribution,
marketing, administrative and other services and activities provided by brokers
with respect to the promotion of the sale of the Fund's shares and the
maintenance of related shareholder accounts.

Under the Plans, the Fund is obligated to pay distribution and/or service
fees to the Distributor as compensation for its distribution and services
activities, net as reimbursement for specific expenses incurred. If the
Distributor's expenses exceed its distribution and service fees, the Fund will
not be obligated to pay any additional expenses. If the Distributor's expenses
are less than such distribution and service fees, it will retain its full fees
and realize a profit.

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

CLASS A PLAN. Under the Class A Plan, the Fund may pay the Distributor for
its distribution-related activities with respect to Class A shares at an annual
rate of up to .30 of 1% of the average daily net assets of the Class A shares.
The Class A Plan provides that (1) up to .25 of 1% of the average daily net
assets of the Class A shares may be used to pay for personal service and/or the
maintenance of shareholder accounts (service fee) and (2) total distribution
fees (including the service fee of .25% of 1%) may not exceed .30 of 1%. The
Distribution has contractually limited its distribution-related fees payable
under the Class A Plan to .15 of 1% of the average daily net assets of the Class
A shares for the fiscal year ending February 28, 2000. Fee waivers will increase
the Fund's total return.

For the fiscal year ended February 28, 1999, the Distributor and Prudential
Securities collectively received payments of $ 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, 1999, the Distributor and Prudential Securities also
received approximately $ in initial sales charges.

CLASS B AND CLASS C PLANS. Under the Class B and Class C Plans, the Fund
pays the Distributor for its distribution-related activities with respect to
Class B and Class C shares at an annual rate of up to 1% of the average daily
net assets of each of the Class B and Class C shares. The Class B Plan provides
that (1) up to .25% of 1% of the average daily net assets of the Class B shares
may be paid as a service fee and (2) up to 1% (not including the service fee) 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 assets and .50 of 1% of such assets in excess of
$4 billion (asset-based sales charge), may be paid for distribution-related
expenses with respect to the Class B shares. The Class C Plan provides that (1)
up to .25 of 1% of the average daily net assets of the Class C shares may be
paid as a service fee for providing personal service and/or maintaining
shareholder accounts and (2) up to .75 of 1% of the average daily net assets of
the Class C shares (asset-based sales charge) may be paid for
distribution-related expenses with respect to Class C shares. The service fee
(.25 of 1% of average daily net assets) is used to pay for personal service
and/or the maintenance of shareholder accounts. The Distributor also receives
contingent deferred sales charges from certain

B-21
<PAGE>

redeeming shareholders and, with respect to Class C shares, an initial sales
charge. The Distributor has contractually limited its distribution-related fees
payable under the Class B and C Plans to .75 of 1% of the average daily net
assets of each of the Class B and Class C shares for the fiscal year ending
February 28, 2000. Fee waivers will increase the Fund's total return.

CLASS B PLAN. For the fiscal year ended February 28, 1999, the Distributor
and Prudential Securities collectively received $ from the Fund under
the Class B Plan and collectively spent approximately $ in distributing
the Class B shares of the Fund. It is estimated that of the latter amount,
approximately $ ( %) was spent on printing and mailing of prospectuses to
other than current shareholders, $ ( %) on compensation to Pruco
Securities Corporation, an affiliated broker-dealer, for commissions to its
representatives and other expenses, including an allocation on account of
overhead and other branch office distribution-related expenses incurred by it
for distribution of Fund shares; and $ ( %) on the aggregate of (i)
payment of commissions and account servicing fees to financial advisers ($
or %), and (ii) an allocation on account of overhead and other branch office
distribution-related expenses ($ or %). The term "overhead and other
branch office distribution-related expenses" represents (a) the expenses of
operating branch offices of Prusec and the Distributor 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.

The Distributor (and Prudential Securities as its predecessor) also receives
the proceeds of contingent deferred sales charges paid by investors upon certain
redemptions of Class B shares. See "How to Buy, Sell and Exchange Shares of the
Fund--How to Sell Your Shares--Contingent Deferred Sales Charges (CDSC)" in the
Prospectus. For the fiscal year ended February 28, 1999, the Distributor and
Prudential Securities collectively received approximately $ and $
respectively, in contingent deferred sales charges attributable to the Class B
shares.

CLASS C PLAN. For the fiscal year ended February 28, 1999, the Distributor
collectively received $18,923 from the Fund under the Class C Plan and spent
approximately $ in distributing the Fund's Class C shares. It is estimated
that of the latter amount approximately $ ( %) was spent on printing and
mailing of prospectuses to other than current shareholders; $ ( %) on
compensation to Pruco Securities Corporation, an affiliated broker-dealer, for
commissions to its representatives and other expenses, including an allocation
of overhead and other branch office distribution-related expenses, incurred by
it for distribution of Fund shares; and $ ( %) on the aggregate of (i)
payments of commission and account servicing fees to financial advisors ($
or %) and (ii) an allocation of overhead and other branch office
distribution-related expenses ($ or %). The term "overhead and other
branch office distribution-related expenses" represents (a) the expenses of
operating Prudential Securities' branch offices in connection with the sale of
Fund shares, including lease costs, the salaries and employee benefits of
operations and sales support personnel, utility costs, communications costs and
the costs of stationery and supplies, (b) the costs of client sales seminars,
(c) expenses of mutual fund sales coordinators to promote the sale of Fund
shares and (d) other incidental expenses relating to branch promotion of Fund
sales.

The Distributor (and Prudential Securities as its predecessor) also receives
the proceeds of contingent deferred sales charges paid by holders of Class C
shares upon certain redemptions of Class C shares. For the fiscal year ended
February 28, 1999, the Distributor received approximately $ in
contingent deferred sales charges attributable to Class C shares. For the fiscal
year ended February 28, 1999, the Distributor received approximately $3,100 in
initial sales charges with respect to Class C shares.

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

The Plans continue in effect from year to year, provided that each such
continuance is approved at least annually by a vote of the Board of Directors,
including a majority vote of the directors who are not interested persons of the
Fund and have no direct or indirect financial interest in the Class A, B or C
Plans or in any agreement related to the Plans (Rule 12b-1 Directors), cast in
person at a meeting called for the purpose of voting on such continuance. 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

B-22
<PAGE>
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 (by both Class A and Class B shareholders, voting
separately, in the case of material amendments to the Class A Plan), and all
material amendments are required to be approved by the Board of Directors in the
manner described above. Each Plan will automatically terminate in the event of
its assignment. The Fund will not be contractually obligated to pay expenses
incurred under any Plan if it is terminated or not continued.

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

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

FEE WAIVERS/SUBSIDIES

PIFM may from time to time waive all or a portion of its management fee and
subsidize all or a portion of the operating expenses of the Fund. [In addition,
the Distributor has contractually agreed to waive a portion of its distribution
fees for the Class [ ] shares for the fiscal year ending February 28, 2000.] Fee
waivers and subsidies will increase the Fund's total return.

NASD MAXIMUM SALES CHARGE RULE

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

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

Prudential Mutual Fund Services LLC (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as the transfer and dividend disbursing agent of the Fund.
PMFS is a wholly-owned subsidiary of PIFM. PMFS provides customary transfer
agency services to the Fund, including the handling of shareholder
communications, the processing of shareholder transactions, the maintenance of
shareholder account records, the payment of dividends and distributions and
related functions. For these services, PMFS receives an annual fee of $10.00 per
shareholder account and a new account set-up fee of $2.00 for each manually
established shareholder account. PMFS is also reimbursed for its out-of-pocket
expenses, including but not limited to postage, stationery, printing, allocable
communication expenses and other costs.

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

BROKERAGE ALLOCATION AND OTHER PRACTICES

The Manager is responsible for decisions to buy and sell securities, futures
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

B-23
<PAGE>
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 and its affiliates.

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. 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 Commission. 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 non-interested 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) of 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

B-24
<PAGE>
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.

For the fiscal years ended February 28, 1999, February 28, 1998 and February
29, 1997, the Fund paid no brokerage commissions to Prudential Securities.

The Fund is required to disclose its holdings of securities of its regular
brokers and dealers (as defined under Rule 10b-1 of the Investment Company Act)
and their parents at November 30, 1998. As of November 30, 1998, the Fund held
securities of in the amount of .

CAPITAL SHARES, OTHER SECURITIES AND ORGANIZATION

The Fund is authorized to issue 2 billion shares of common stock, $.01 par
value per share, divided into four classes, designated Class A, Class B, Class C
and Class Z common stock. Of the authorized shares of common stock of the Fund,
500 million shares consist of Class A common stock, 500 million shares consist
of Class B common stock, 500 million shares consist of Class C common stock and
500 million shares consist of Class Z common stock. Each class of common stock
of the Fund represents an interest in the same assets of the Fund and is
identical in all respects except that (1) each class is subject to different
sales charges and distribution and/or service fees (except Class Z shares, which
are not subject to any sales charges and distribution and/or service fees),
which may affect performance, (2) each class has exclusive voting rights on any
matter submitted to shareholders that relates solely to its distribution
arrangement and has separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the interests of
any other class, (3) each class has a different exchange privilege, and (4) only
Class B shares have a conversion feature. Class Z shares are no currently
offered for sale to investors. In accordance with the Fund's Articles of
Incorporation, the Board of Directors may authorize the creation of additional
series of common stock and classes within such series, with such preferences,
privileges, limitations and voting and dividend rights as the Board may
determine.

The Board of Directors may increase or decrease the number of authorized
shares without the approval of shareholders. Shares of the Fund, when issued,
are fully paid, nonassessable, fully transferable and redeemable at the option
of the holder. Shares are also redeemable at the option of the Fund under
certain circumstances. Each share of each class of common stock is equal as to
earnings, assets and voting privileges, except as noted above, and each class
bears the expenses related to the distribution of its shares (with the exception
of Class Z shares, which are not subject to any distribution and/or service
fees). Except for the conversion feature applicable to the Class B shares, there
are no conversion, preemptive or other subscription rights. In the event of
liquidation, each share of common stock of the Fund is entitled to its portion
of all of the Fund's assets after all debts and expenses of the Fund have been
paid. Since Class B and Class C shares generally bear higher distribution
expenses than Class A shares, the liquidation proceeds to shareholders of those
classes are likely to be lower than to Class A shareholders and to Class Z
shareholders, whose shares are not subject to any distribution and/or service
fees. The Fund's shares do not have cumulative voting rights for the election of
Directors.

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

PURCHASE, REDEMPTION AND PRICING OF FUND SHARES

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

B-25
<PAGE>

Each class represents an interest in the same assets of the Fund and is
identical in all respects except that (1) each class is subject to different
sales charges and distribution and/or service fees (except for Class Z shares
which are not subject to any sales charge or distribution and/or service fees)
which may affect performance, (2) each class has exclusive voting rights with
respect to any matter submitted to shareholders that relates solely to its
arrangement and has separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the interests of
any other class, (3) each class has a different exchange privilege, (4) only
Class B shares have a conversion feature and (5) Class Z shares are offered
exclusively for sale to a limited group of investors. See "Investment Advisory
and Other Services--Principal Underwriter, Distributor and Rule 12b-1 Plans" and
"Shareholder Investment Account--Exchange Privilege."

PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire, you
must complete an application and telephone PMFS at (800) 225-1852 (toll-free) to
receive an account number. The following information will be requested: your
name, address, tax identification number, class election, dividend distribution
election, amount being wired and wiring bank. Instructions should then be given
by you to your bank to transfer funds by wire to State Street Bank and Trust
Company (State Street), Boston, Massachusetts, Custody and Shareholder Services
Division, Attention: Prudential Governmennt Income Fund, specifying on the wire
the account number assigned by PMFS and your name an identifying the class in
which you are eligible to invest (Class A, Class B, Class C or Class Z shares).

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

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

ISSUANCE OF FUND SHARES FOR SECURITIES

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

B-26
<PAGE>
SPECIMEN PRICE MAKE-UP

Under the current distribution arrangements between the Fund and the
Distributor, Class A shares are sold at a maximum sales charge of 4%, Class C
shares are sold with a 1% sales charge, and Class B*, Class C* and Class Z
shares are sold at NAV. Using the Fund's NAV at February 28, 1998, 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............. $ 9.05
Maximum sales charge (4% of offering price)........................ .38
---------
Offering price to public........................................... $ 9.43
---------
---------
CLASS B
Net asset value, offering price and redemption price per Class B
share*........................................................... $ 9.05
---------
---------
CLASS C
Net asset value, offering price and redemption price per Class C
share*........................................................... $ 9.05
---------
---------
CLASS Z
Net asset value, offering price and redemption price per Class Z
share............................................................ $ 9.04
---------
---------
</TABLE>

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

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

SELECTING A PURCHASE ALTERNATIVE

If you intend to hold your investment for longer than 5 years, you should
consider purchasing Class A shares over either Class B or Class C shares. This
is because the maximum sales charge plus the cumulative annual distribution-
related fee on Class A shares would be less than those of the Class B and Class
C shares.

If you qualify for a reduced sales charge on Class A shares, it may be more
advantageous for you to purchase Class A shares over either Class B or Class C
shares regardless of how long you intend to hold your investment. However,
unlike Class B shares, you would not have all of your money invested initially
because the sales charge on Class A shares is deducted at the time of purchase.

If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class B or Class C shares, you would have to hold your investment for
more than 5 years for the higher cumulative annual distribution-related fee on
those shares plus, in the case of Class C shares, the 1% initial sales charge to
exceed the initial sales charge plus cumulative annual distribution-related fee
on Class A shares. This does not take into account the time value of money,
which further reduces the impact of the higher Class B or Class C
distribution-related fee on the investment, fluctuations in NAV, the effect of
the return on the investment over this period of time or redemptions when the
CDSC is applicable.

If you intend to hold your investment in the Fund for less than 4 years and
do not qualify for a reduced sales charge on Class A shares, since Class A
shares are subject to a maximum initial sales charge of 4% and Class B shares
are subject to a CDSC of 5% which declines to zero over a 6 year period, you
should consider purchasing Class C shares over either Class A or Class B shares.

If you intend to hold your investment for more than 4 years, but less than 5
years, you may consider purchasing Class A shares or Class C shares because: (i)
the maximum 4% initial sales charge plus the cumulative annual
distribution-related fee on Class A shares; and (ii) the maximum 1% initial
sales charge plus the cumulative annual distribution-related fee on Class C
shares would be lower than the contingent-deferred sales charge plus the
cumulative annual distribution-related fee on Class B shares.

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

BENEFIT PLAN. Class A Shares may be purchased at NAV, without payment of an
initial sales charge, by pension, profit-sharing or other employee benefit plans
qualified under Section 401 of the Internal Revenue Code and deferred
compensation or annuity plans under Section 403(b) and 457 of the Internal
Revenue Code, "rabbi" trusts and non-

B-27
<PAGE>

qualified deferred compensation plans that are sponsored by any employer that
has a tax qualified plan with Prudential (collectively, Benefit Plans), provided
that the Benefit Plan has existing assets of at least $1 million invested in
shares of Prudential Mutual Funds (excluding money market funds other than those
acquired pursuant to the exchange privilege) or 250 eligible employees or
participants. In the case of Benefit Plans whose accounts are held directly with
the Transfer Agent or Prudential Securities and for which the Transfer Agent or
Prudential Securities does individual account recordkeeping (Direct Account
Benefit Plans) and Benefit Plans sponsored by Prudential Securities or its
subsidiaries (Prudential Securities or Subsidiary Prototype Benefit Plans),
Class A shares may be purchased at NAV by participants who are repaying loans
made from such plans to the participant.

PRUDENTIAL RETIREMENT PROGRAMS. Class A shares may be purchased at NAV by
certain savings, retirement and deferred compensation plans, qualified or
non-qualified under the Internal Revenue Code, for which Prudential provides
administrative or recordkeeping services, provided that (1) the plan has at
least $1 million in existing assets or 250 eligible employees and (2) the Fund
is an available investment option. These plans include pension, profit-sharing,
stock-bonus or other employee benefit plans under Section 401 of the Internal
Revenue Code, deferred compensation and annuity plans under Sections 457 and
403(b)(7) of the Internal Revenue Code and plans that participate in the
PruArray Program (benefit plan recordkeeping service) (hereafter referred to as
a PruArray Plan). All Benefit Plans of a company (or affiliated companies under
common control) for which Prudential serves as plan administrator or
recordkeeper are aggregated in meeting the $1 million threshold, provided that
Prudential has been notified in advance of the entitlement to the waiver of the
sales charge based on the aggregated assets. The term "existing assets" as used
herein includes stock issued by a plan sponsor, shares of Prudential Mutual
Funds and shares of certain unaffiliated mutual funds that participate in the
PruArray Plan (Participating Fund). "Existing assets" also include monies
invested in The Guaranteed Interest Account (GIA), a group annuity insurance
product issued by Prudential, the Guaranteed Insulated Separate Account, a
separate account offered by Prudential and units of The Stable Value Fund (SVF),
an unaffiliated bank collective fund. Class A shares may also by purchased at
NAV by plans that have monies in GIA and SVF, provided (1) the purchase is made
with the proceeds of a redemption from either GIA or SVF and (2) Class A shares
are an investment option of the plan.

PRUARRAY ASSOCIATION BENEFIT PLANS. Class A shares are also offered at NAV
to Benefit Plans or non-qualified plans sponsored by employers which are members
of a common trade, professional or membership association (Association) that
participate in the PruArray Plan provided that the Association enters into a
written agreement with Prudential. Such Benefit Plans or non-qualified plans may
purchase Class A shares at NAV without regard to the assets or number of
participants in the individual employer's qualified Plan(s) or non-qualified
plans so long as the employers in the Association (1) have retirement plan
assets in the aggregate of at least $1 million or 250 participants in the
aggregate and (2) maintain their accounts with the Transfer Agent.

PRUARRAY SAVINGS PROGRAM. Class A shares are also offered at NAV to
employees of companies that enter into a written agreement with Prudential
Retirement Services to participate in the PruArray Savings Program. Under this
Program, a limited number of Prudential Mutual Funds are available for purchase
at NAV by Individual Retirement Accounts and Savings Accumulation Plans of the
company's employees. The Program is available only to (1) employee who open an
IRA or Savings Accumulation Plan account with the Transfer Agent and (2) spouses
of employees who open an IRA account with the Transfer Agent. The program is
offered to companies that have at least 250 eligible employees.

SPECIAL RULES APPLICABLE TO RETIREMENT PLANS. After a Benefit Plan or
PruArray Plan qualifies to purchase Class A shares at NAV, all subsequent
purchases will be made at NAV.

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

- officers of the Prudential Mutual Funds (including the Fund),

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

- employees of subadvisers of the Prudential Mutual Funds provided that
purchases at NAV are permitted by such person's employer,

- Prudential, employees and special agents of Prudential and its
subsidiaries and all persons who have retired directly from active service
with Prudential or one of its subsidiaries,

B-28
<PAGE>

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

- investors who have a business relationship with a financial adviser who
joined Prudential Securities from another investment firm, provided that
(1) the purchase is made within 180 days of the commencement of the
financial adviser's employment at Prudential Securities, or within one
year in the case of Benefit Plans, (2) the purchase is made with proceeds
of a redemption of shares of any open-end non-money market fund sponsored
by the financial adviser's previous employer (other than a fund which
imposes a distribution or service fee of .25 of 1% or less) and (3) the
financial adviser served as the client's broker on the previous purchase,
and

- investors in Individual Retirement Accounts, provided the purchase is made
with the proceeds of a tax-free rollover of assets from a Benefit Plan for
which Prudential provides administrative or recordkeeping services and
further provided that such purchase is made within 60 days of receipt of
the Benefit Plan distribution (h) orders placed by broker-dealers,
investment advisors or financial planners who have entered into an
agreement with the Distributor, who place trades for their own accounts or
the accounts of their clients and who charge a management, consulting or
other fee for their services (e.g. mutual fund "wrap" or asset allocation
programs); (i) orders placed by clients of broker-dealers, investment
advisers or financial planners who place trades for customer accounts if
the accounts are linked to the master account of such broker-dealer,
investment adviser or financial planner and the broker-dealer, investment
adviser or financial planner charges its clients a separate fee for its
services (e.g. mutual fund "supermarket programs").

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

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

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

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

COMBINED PURCHASE AND CUMULATIVE PURCHASE PRIVILEGE. If an investor or
eligible group of related investors purchases Class A shares of 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 "How to Buy, Sell and Exchange Shares of the Fund--How to
Buy Shares--Step 2: Choose a Share Class--Reducing or Waiving Class A's Initial
Sales Charge" in the Prospectus.

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

- an individual;

- the individual's spouse, their children and their parents;

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

- 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);

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

B-29
<PAGE>

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

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

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

The Transfer Agent Distributor or your broker must be notified at the time
of purchase that the investor is entitled to a reduced sales charge. The reduced
sales charge will be granted subject to confirmation of the investors holdings.
The Combined Purchase and Cumulative Purchase Privilege does not apply to
individual participants in any retirement or group plans.

RIGHTS OF ACCUMULATION. Reduced sales charges are also available through
Rights of Accumulation, under which an investor or an eligible group of related
investors 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 your broker 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. The Distributor or the Transfer Agent must be notified at the time
of purchase that the investor is entitled to a reduced sales charge. The reduced
sales charges will be granted subject to confirmation of the investor's
holdings. Rights of accumulation are not available to individual participants in
any retirement or group plans.

LETTERS OF INTENT. Reduced sales charges are available to investors (or an
eligible group of related investors), including retirement and group plans, who
enter into a written Letter of Intent providing for the purchase, within a
thirteen-month period, of shares of the Fund and shares of other Prudential
Mutual Funds (Investment Letter of Intent). Retirement and group plans may also
qualify to purchase Class A shares at NAV by entering into a Letter of Intent
whereby they agree to enroll, within a thirteen month period, a specified number
of eligible employees or participants (Participant Letter of Intent).

For purposes of the Investment Letter of Intent, all shares of 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,
Prudential Securities or its affiliates, and through your broker, will not be
aggregated to determine the reduced sales charge.

A Letter of Intent permits a purchaser, in the case of an Investment Letter
of Intent, to establish a total investment goal to be achieved by any number of
investments over a thirteen-month period and, in the case of a Participant
Letter of Intent, to establish a minimum eligible employee or participant
enrollment goal over a thirteen month period. Each investment made during the
period, in the case of an Investment Letter of Intent, will receive the reduced
sales charge applicable to the amount represented by the goal, as if it were a
single investment. In the case of a Participant Letter of Intent, each
investment made during the period will be made at net asset value. Escrowed
Class A shares totaling 5% of the dollar amount of the Letter of Intent will be
held by the Transfer Agent in the name of the purchaser, except in the case of
retirement and group plans where the employer or plan sponsor will be
responsible for paying any applicable sales charge. The effective date of an
Investment Letter of Intent (except in the case of retirement and group plans)
may be back-dated up to 90 days, in order that any investments made during this
90-day period, valued at the purchaser's cost, can be applied to the fulfillment
of the Letter of Intent goal, except in the case of retirement and group plans.

The Investment Letter of Intent does not obligate the investor to purchase,
nor the Fund to sell, the indicated amount. Similarly, the Participant Letter of
Intent does not obligate the retirement or group plan to enroll the indicated
number of eligible employees or participants. In the event the Letter of Intent
goal is not achieved within the thirteen-month period, the purchaser (or the
employer or plan sponsor in the case of any retirement or group plan) is
required to pay the difference between the sales charge otherwise applicable to
the purchases made during this period and sales charges

B-30
<PAGE>
actually paid. Such payment may be made directly to the Distributor or, if not
paid, the Distributor will liquidate sufficient escrowed shares to obtain such
difference. Investors electing to purchase Class A shares of the Fund pursuant
to a Letter of Intent should carefully read such Letter of Intent.

The Distributor must be notified at the time of purchase that the investor
is entitled to a reduced sales charge. The reduced sales charge will, in the
case of an Investment Letter of Intent, be granted subject to confirmation of
the investor's holdings or in the case of a Participant Letter of Intent,
subject to confirmation of the number of eligible employees or participants in
the retirement or group plan. Letters of Intent are not available to individual
participants in any retirement or group plans.

CLASS B SHARES

The offering price of Class B shares for investors choosing one of the
deferred sales charge alternatives is the NAV next determined following receipt
of an order in proper form by the Transfer Agent, your Dealer of the Distributor
plus in the case of Class C shares, an initial sales charge of 1%. Redemptions
of Class B shares may be subject to a CDSC. See "Contingent Deferred Sales
Charges" below. In connection with these waivers, the Transfer Agent will
require you to submit the supporting documentation set forth below.

The Distributor will pay, from its own resources, sales commissions of up to
5% of the purchase price of Class B shares to brokers, financial advisers and
other persons who sell Class B shares at the time of sale. This facilitates the
ability of the Fund to sell the Class B shares without an initial sales charge
being deducted at the time of purchase. The Distributor anticipates that it will
recoup its advancement of sales commissions from the combination of the CDSC and
the distribution fee.

CLASS C SHARES

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

WAIVER OF INITIAL SALES CHARGE--CLASS C SHARES

BENEFIT PLANS. Class C shares may be purchased at NAV, without payment of an
initial sales charge, by Benefit Plans (as defined above). In the case of
Benefit Plans whose accounts are held directly with the Transfer Agent or
Prudential Securities and for which the Transfer Agent or Prudential Securities
does individual account recordkeeping (Direct Account Benefit Plans) and Benefit
Plans sponsored by Prudential, Prudential Securities or its subsidiaries
(Prudential Securities or Subsidiary Prototype Benefit Plans). Class C shares
may be purchased at NAV by participants who are repaying the loans made from
such plans to the participant.

PRUDENTIAL RETIREMENT PLANS. The initial sales charge will be waived with
respect to purchases of Class C shares by qualified and non-qualified retirement
and deferred compensation plans participating in the PruArray Plan and other
plans for which Prudential provides administrative or recordkeeping services.

INVESTMENTS OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT
COMPANIES. Investors may purchase Class C shares at NAV, without the initial
sales charge, with the proceeds from the redemption of shares of any
unaffiliated registered investment company which were not held through an
account with any Prudential affiliate. Such purchases must be made within 60
days of the redemption. Investors eligible for this waiver include: (i)
investors purchasing shares through an account at Prudential Securities; (ii)
investors purchasing shares through an ADVANTAGE Account or an Investor Account
with Pruco Securities Corporation (Prusec); and (iii) investors purchasing
shares through other Dealers. This waiver is not available to investors who
purchase shares directly from the Transfer Agent. You must notify the Transfer
Agent directly or through your Dealer if you are entitled to this waiver and
provide the Transfer Agent with such supporting documents as it may deem
appropriate.

B-31
<PAGE>

CLASS Z SHARES

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

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

- participants in any fee-based program sponsored by Prudential Securities,
The Prudential Savings Bank, F.S.B. or any affiliate which includes mutual
funds as investment options and for which the Fund is an available option;

- certain participants in the MEDLEY Program (group variable annuity
contracts) sponsored by Prudential for whom Class Z shares of the
Prudential Mutual Funds are an available investment option;

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

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

- current and former Directors/Trustees of the Prudential Mutual Funds
(including the Fund);

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

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

After a Benefit Plan qualifies to purchase Class 2 shares, all subsequent
purchases will be for Class Z shares.

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

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

SALE OF SHARES

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

If you hold shares of the Fund through Prudential Securities, you must
redeem your shares through Prudential Securities. Please contact your Prudential
Securities financial adviser.

B-32
<PAGE>

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

SIGNATURE GUARANTEE. If the proceeds of the redemption (1) exceed $50,000,
(2) are to be paid to a person other than the record owner, (3) are to be sent
to an address other than the address on the Transfer Agent's records, or (4) are
to be paid to a corporation, partnership, trust or fiduciary, the signature(s)
on the redemption request and on the certificates, if any, or stock power must
be guaranteed by an "eligible guarantor institution." An "eligible guarantor
institution" includes any bank, broker, dealer or credit union. The Transfer
Agent reserves the right to request additional information from, and make
reasonable inquiries of, any eligible guarantor institution. For clients of
Prusec, a signature guarantee may be obtained from the agency or office manager
of most Prudential Insurance and Financial Services or Preferred Services
offices. In the case of redemptions from a PruArray Plan, if the proceeds of the
redemption are invested in another investment option of the plan in the name of
the record holder and at the same address as reflected in the Transfer Agent's
records, a signature guarantee is not required.

Payment for shares presented for redemption will be made by check within
seven days after receipt by the Transfer Agent, the Distributor or your broker
of the certificate and/or written request, except as indicated below. If you
hold shares through a broker payment for shares presented for redemption will be
credited to your account at your broker, unless you indicate otherwise. Such
payment may be postponed or the right of redemption suspended at times (1) when
the New York Stock Exchange is closed for other than customary weekends and
holidays, (2) when trading on such Exchange is restricted, (3) when an emergency
exists as a result of which disposal by the Fund of securities owned by it is
not reasonably practicable or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, or (4) during any other period
when the Commission, by order, so permits; provided that applicable rules and
regulations of the Commission shall govern as to whether the conditions
prescribed in (2), (3) or (4) exist.

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

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

INVOLUNTARY REDEMPTION. In order to reduce expenses of the Fund, the
Trustees may redeem all of the shares of any shareholder, other than a
shareholder which is an IRA or other tax-deferred retirement plan, whose account
has a 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 CDSC will be imposed on any such
involuntary redemption.

90-DAY REPURCHASE PRIVILEGE. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest any portion or
all of the proceeds of such redemption in shares of the Fund at the NAV next
determined after the order is received, which must be within 90 days after the
date of the redemption. Any CDSC paid in connection with such redemption will be
credited (in shares) to your account. (If less than a full repurchase is made,
the credit will be on a PRO RATA basis.) You must notify the Transfer Agent,
either directly or through The Distributor or your

B-33
<PAGE>

broker, at the time the repurchase privilege is exercised to adjust your account
for the CDSC you previously paid. Thereafter, any redemptions will be subject to
the CDSC applicable at the time of the redemption. See "Contingent Deferred
Sales Charges" below. Exercise of the repurchase privilege may affect federal
tax treatment of the redemption.

CONTINGENT DEFERRED SALES CHARGES

Redemptions of Class B shares will be subject to a contingent deferred sales
charge or CDSC declining from 5% to zero over a six-year period. Class C shares
redeemed within 18 months of purchase (or one year in the case of shares
purchased prior to November 2, 1998), will be subject to a 1% CDSC. The CDSC
will be deducted from the redemption proceeds and reduce the amount paid to you.
The CDSC will be imposed on any redemption by you which reduces the current
value of your Class B or Class C shares to an amount which is lower than the
amount of all payments by you for shares during the preceding six years, in the
case of Class B shares, and 18 months, in the case of Class C shares (one year
for Class C shares purchased before November 2, 1998). A CDSC will be applied on
the lesser of the original purchase price or the current value of the shares
being redeemed. Increases in the value of your shares or shares acquired through
reinvestment of dividends or distributions are not subject to a CDSC. The amount
of any CDSC will be paid to and retained by the Distributor.

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

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

<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF
YEAR SINCE PURCHASE DOLLARS INVESTED OR
PAYMENT MADE REDEMPTION PROCEEDS
-------------------- -------------------------
<S> <C>
First................................................................. 5.0%
Second................................................................ 4.0%
Third................................................................. 3.0%
Fourth................................................................ 2.0%
Fifth................................................................. 1.0%
Sixth................................................................. 1.0%
Seventh............................................................... None
</TABLE>

In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results in the lowest possible rate. It will be
assumed that the redemption is made first of amounts representing shares
acquired pursuant to the reinvestment of dividends and distributions; then of
amounts representing the increase in NAV above the total amount of payments for
the purchase of 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 held beyond the applicable CDSC period; and
finally, of amounts representing the cost of shares held for the longest period
of time within the applicable CDSC period.

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

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

B-34
<PAGE>

WAIVER OF CONTINGENT DEFERRED SALES CHARGES--CLASS B SHARES. The CDSC will
be waived in the case of a redemption following the death or disability of a
shareholder or, in the case of a trust account following the death or disability
of the grantor. The waiver is available for total or partial redemptions of
shares owned by a person, either individually or in joint tenancy (with rights
of survivorship), at the time of death or initial determination of disability,
provided that the shares were purchased prior to death or disability.

The CDSC will also be waived in the case of a total or partial redemption in
connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or Section 403(b)
custodial account. These distributions are:

(1) in the case of a tax-deferred retirement plan, a lump-sum or other
distribution after retirement;

(2) in the case of an IRA (including a Roth IRA), a lump-sum or other
distribution after attaining age 59 1/2 or a periodic distribution based on life
expectancy;

(3) in the case of a Section 403(b) custodial account, a lump sum or other
distribution after attaining age 59 1/2; and

(4) a tax-free return of an excess contribution or plan distributions
following the death or disability of the shareholder, provided that the shares
were purchased prior to death or disability.

The waiver does not apply in the case of a tax-free rollover or transfer of
assets, other than one following a separation from service (I.E., following
voluntary or involuntary termination of employment or following retirement).
Under no circumstances will the CDSC be waived on redemptions resulting from the
termination of a tax-deferred retirement plan, unless such redemptions otherwise
qualify for a waiver as described above. In the case of Direct Account and
Prudential Securities or Subsidiary Prototype Benefit Plans, the CDSC will be
waived on redemptions which represent borrowings from such plans. Shares
purchased with amounts used to repay a loan from such plans on which a CDSC was
not previously deducted will thereafter be subject to a CDSC without regard to
the time such amounts were previously invested. In the case of a 401(k) plan,
the CDSC will also be waived upon the redemption of shares purchased with
amounts used to repay loans made from the account to the participant and from
which a CDSC was previously deducted.

(5) Finally, the CDSC will be waived to the extent that the proceeds from
shares redeemed are invested in Prudential Mutual Funds. The Guaranteed
Investment Account, the Guaranteed Insulated Separate Account, or units of The
Stable Value Fund.

SYSTEMATIC WITHDRAWAL PLAN The CDSC will be waived (or reduced) on certain
redemptions from a Systematic Withdrawal Plan. On an annual basis, up to 12% of
the total dollar amount subject to the CDSC may be redeemed without charge. The
Transfer Agent will calculate the total amount available for this waiver
annually on the anniversary date of your purchase or, for shares purchased prior
to March 1, 1997, on March 1 of the current year. The CDSC will be waived (or
reduced) on redemptions until this threshold 12% is reached.

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

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

B-35
<PAGE>

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

<TABLE>
<S> <C>
CATEGORY OF WAIVER REQUIRED DOCUMENTATION
Death A copy of the shareholder's death certificate
or, in the case of a trust, a copy of the
grantor's death certificate, plus a copy of
the trust agreement identifying the grantor.
Disability--An individual will be considered A copy of the Social Security Administration
disabled if he or she is unable to engage in award letter or a letter from a physician on
any substantial gainful activity by reason of the physician's letterhead stating that the
any medically determinable physical or mental shareholder (or, in the case of a trust, the
impairment which can be expected to result in grantor) is permanently disabled. The letter
death or to be of long-continued and must also indicate the date of disability.
indefinite duration.
Distribution from an IRA or 403(b) Custodial A copy of the distribution form from the
Account custodial firm indicating (i) the date of
birth of the shareholder and (ii) that the
shareholder is over age 59 1/2 and is taking
a normal distribution--signed by the
shareholder.
Distribution from Retirement Plan A letter signed by the plan
administrator/trustee indicating the reason
for the distribution.
Excess Contributions A letter from the shareholder (for an IRA) or
the plan administrator/trustee on company
letterhead indicating the amount of the
excess and whether or not taxes have been
paid.
</TABLE>

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

SYSTEMATIC WITHDRAWAL PLAN. The CDSC will be waived (or reduced) on certain
redemptions from a Systematic Withdrawal Plan. On an annual basis, up to 12% of
the total dollar amount subject to the CDSC may be redeemed without charge. The
Transfer Agent will calculate the total amount available for this waiver
annually on the anniversary date of your purchase or, for shares purchased prior
to March 1, 1997, on March 1, of the current year. The CDSC will be waived (or
reduced) on redemptions until this threshold 12% is reached.

QUANTITY DISCOUNT--CLASS B SHARES PURCHASED PRIOR TO AUGUST 1, 1994

The CDSC is reduced on redemptions of Class B shares of the Fund purchased
prior to August 1, 1994 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 exceeded $500,000. For example, if you purchased $100,000 of Class B
shares of the Fund and the following year purchased 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 was $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 exceeded $500,000 or $1 million:

<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
AS A PERCENTAGE OF DOLLARS INVESTED
OR REDEMPTION PROCEEDS
YEAR SINCE PURCHASE -----------------------------------------------
PAYMENT MADE $500,001 TO $1 MILLION OVER $1 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.

B-36
<PAGE>

WAIVER OF CONTINGENT DEFERRED SALES CHARGES--CLASS C SHARES

PRUDENTIAL RETIREMENT PLANS. The CDSC will be waived on redemptions from
qualified and non-qualified retirement and deferred compensation plans that
participate in the PruArray Plan and other plans for which Prudential provides
administrative or recordkeeping services. The CDSC will also be waived on
redemptions from Benefit Plans sponsored by Prudential and its affiliates to the
extent that the redemption proceeds are invested in The Guaranteed Investment
Account, the Guaranteed Insulated Separate Account and units of The Stable Value
Fund.

OTHER BENEFIT PLANS. The CDSC will be waived on redemptions from Benefit
Plans holding shares through a Dealer not affiliated with Prudential and for
whom the Dealer provides administrative or recordkeeping services.

CONVERSION FEATURE--CLASS B SHARES

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

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

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

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

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

The conversion feature may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service (1) that the
dividends and other distributions paid on Class A, Class B, Class C and Class Z
shares will not constitute "preferential dividends" under the Internal Revenue
Code and (2) that the conversion of shares does not constitute a taxable event.
The conversion of Class B shares into Class A shares may be suspended if such
opinions or rulings are no longer available. If conversions are suspended, Class
B shares of the Fund will continue to be subject, possibly indefinitely, to
their higher annual distribution and service fee.

B-37
<PAGE>
SHAREHOLDER INVESTMENT ACCOUNT

Upon the initial purchase of Fund shares, 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. 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. An investor
may direct the Transfer Agent in writing not less than 5 full business days
prior to the 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 broker. Any shareholder who receives a cash
payment representing a dividend or distribution may reinvest such distribution
at NAV by returning the check or the proceeds to the Transfer Agent within 30
days after the payment date. Such investment will be made at the NAV next
determined after receipt of the check or proceeds by the Transfer Agent. Such
shareholder will receive credit for any CDSC paid in connection with the amount
of proceeds being reinvested.

EXCHANGE PRIVILEGE

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

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

If you hold shares through Prudential Securities, you must exchange your
shares by contacting your Prudential Securities financial adviser.

If you hold certificates, the certificates, signed in the name(s) shown on
the face of the certificates, must be returned in order for the shares to be
exchanged.

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

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

CLASS A. Shareholders of the Fund may exchange their Class A shares for
Class A shares of certain other Prudential Mutual Funds, shares of Prudential
Government Securities Trust (Short-Intermediate Term Series) and shares of the

B-38
<PAGE>
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, Inc.
Prudential Tax-Free Money Fund, Inc.

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

Class B and Class C shares of the Fund may also be exchanged for shares of
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 a money market fund during the month
(and are held in the Fund at the end of the month), the entire month will be
included in the CDSC holding period. Conversely, if shares are exchanged into a
money market fund prior to the last day of the month (and are held in the money
market fund on the last day of the month), the entire month will be excluded
from the CDSC holding period. For purposes of calculating the seven year holding
period applicable to the Class B conversion feature, the time period during
which Class B shares were held in a money market fund will be excluded.

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

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

Additional details about the exchange privilege 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 (60) days' notice, and any fund, including the Fund, or Prudential
Securities, has the right to reject any exchange application relating to such
Fund's shares.

SPECIAL EXCHANGE PRIVILEGES. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV and for shareholders
who qualify to purchase Class Z shares. Under this exchange privilege, amounts
representing any Class B and Class C shares which are not subject to a CDSC held
in such a shareholder's account will be automatically exchanged for Class A
shares for shareholders who qualify to purchase Class A shares at NAV on a
quarterly basis, unless the shareholder elects otherwise. Similarly,
shareholders who qualify to purchase Class Z

B-39
<PAGE>

shares will have their Class B and Class C shares which are not subject to a
CDSC and their Class A shares exchanged for Class Z shares on a quarterly basis.
Eligibility for this exchange privilege will be calculated on the business day
prior to the date of the exchange. Amounts representing Class B or Class C
shares which are not subject to a CDSC include the following: (1) amounts
representing Class B or Class C shares acquired pursuant to the automatic
reinvestment of dividends and distributions, (2) amounts representing the
increase in the net asset value above the total amount of payments for the
purchase of Class B or Class C shares and (3) amounts representing Class B or
Class C shares held beyond the applicable CDSC period. Class B and Class C
shareholders must notify the Transfer Agent either directly or through
Prudential Securities, Prusec or another broker that they are eligible for this
special exchange privilege.

Participants in any fee-based program for which the Fund is an available
option will have their Class A shares, if any, exchanged for Class Z shares when
they elect to have those assets become a part of the fee-based program. Upon
leaving the program (whether voluntarily or not), such Class Z shares (and, to
the extent provided for in the program, Class Z shares acquired through
participation in the program) will be exchanged for Class A shares at net asset
value. Similarly, participants in Prudential Securities' 401(k) Plan for which
the Fund's Class Z shares is an available option and who wish to transfer their
Class Z shares out of the Prudential Securities 401(k) Plan following separation
from service (I.E., voluntary or involuntary termination of employment or
retirement) will have their Class Z shares exchanged for Class A shares at NAV.

The Prudential Securities Cash Balance Pension Plan may only exchange its
Class Z shares for Class Z shares of those Prudential Mutual Funds which permit
investment by the Prudential Securities Cash Balance Pension Plan.

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

DOLLAR COST AVERAGING

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

Dollar cost averaging may be used, for example, to plan for retirement to
save for a major expenditure, such as the purchase of a home, or to finance a
college education. The cost of a year's education at a four-year college today
averages around $14,000 at a private college and around $6,000 at a public
university. Assuming these costs increase at a rate of 7% a year, as has been
projected, for the freshman class of 2011, the cost of four years at a private
college could reach $210,000 and over $90,000 at a public university.(1)

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

<TABLE>
<CAPTION>
PERIOD OF
MONTHLY INVESTMENTS: $100,000 $150,000 $200,000 $250,000
- ------------------------------------------------------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
25 Years.................................................... $ $ $ $
20 Years....................................................
15 Years....................................................
10 Years....................................................
5 Years....................................................
See "Automatic Investment Plan (AIP)" below.
<FN>
- ------------------------
(1) Source information concerning the costs of education at public and private
universities is available from The College Board Annual Survey of Colleges,
1993. Average costs for private institutions include tuition, fees, room and
board for its 1993-1994 academic year.

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

B-40
<PAGE>

AUTOMATIC INVESTMENT PLAN (AIP)

Under AIP, 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 Prudential Securities 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 AIP participants.

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

SYSTEMATIC WITHDRAWAL PLAN

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

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

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

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

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

TAX-DEFERRED RETIREMENT PLANS

Various tax-deferred retirement plans, including 401(k) plans, self-directed
individual retirement accounts and "tax-sheltered accounts" under Section
403(b)(7) of the Internal Revenue Code are available through Prudential
Securities. 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 (or, in the case of a Roth IRA, the avoidance of
federal income tax on such income). The following chart represents a comparison
of the earnings in a personal savings account

B-41
<PAGE>
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
a traditional IRA account will be subject to tax when withdrawn from the
account. Distributions from a Roth IRA which meet the conditions under the
Internal Revenue Code will not be subject to tax withdrawal from the account.
</TABLE>

MUTUAL FUND PROGRAMS

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

The mutual funds in the program may be purchased individually or as a part
of a program. Since the allocation of portfolios included in a program may not
be appropriate for all investors, investors should consult their Prudential
Securities Financial Adviser or Prudential/Pruco Securities Representative
concerning the appropriate blends of portfolios for them. If investors elect to
purchase the individual mutual funds that constitute a program in an investment
ratio different from that offered by the program, the standard minimum
investment requirements for the individual mutual funds will apply.

NET ASSET VALUE

The price an investor pays for each share is based on the share value. The
Fund's share value--known as the net asset value per share or NAV--is determined
by subtracting its liabilities from the value of its assets and dividing the
remainder by the number of outstanding shares. NAV is calculated separately for
each class. The Directors have fixed the specific time of day for the
computation of the Fund's net asset value to be as of 4:15 P.M., New York time.

Under the Investment Company Act, the Board of Directors is responsible for
determining in good faith the fair value of securities of the Fund. In
accordance with procedures adopted by the Board of Directors, the value of each
U.S. Government security for which quotations are available will be based on the
valuations provided by a pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, agency ratings, market
transactions in comparable securities and various relationships between
securities in determining value. Options on U.S. Government securities traded on
an exchange are valued at the mean between the most recently quoted bid and
asked prices on the respective exchange. Futures contracts and options thereon
are valued at their last sales prices as of the close of the commodities
exchange or board of trade or, if there was no sale on such day, the mean
between the most recently quoted bid and asked prices on such exchange or board
of trade or, if there was no sale on the applicable commodities exchange or
board of trade on such day; at the mean between the most recently quoted bid and
asked prices on such exchange or board of trade. Should an extraordinary event,
which is likely to affect the value of the security, occur after the close of an
exchange on which a portfolio security is traded, such security will be valued
at fair value considering factors determined in good faith by the investment
adviser under procedures established by and under the general supervision of the
Fund's Board of Directors. Quotations of foreign securities in a foreign
currency are converted to U.S. dollar equivalents at the current rate obtained
from a recognized bank or dealer, and foreign currency forward contracts are
valued at the current

B-42
<PAGE>

cost of covering or offsetting such contracts. Should an extraordinary event,
which is likely to affect the value of the security, occur after the close of an
exchange on which a portfolio security is traded, such security will be valued
at fair value considering factors determined in good faith by the investment
adviser under procedures established by and under the general supervision of the
Fund's Board of Trustees.

The Fund will compute its NAV at 4:15 P.M., New York time, on each day the
New York Stock Exchange is open for trading except on days on which no orders to
purchase, sell or redeem Fund shares have been received or days on which changes
in the value of the Fund's portfolio securities do not affect NAV. In the event
the New York Stock Exchange closes early on any business day, the net asset
value of the Fund's shares shall be determined at a time between such closing
and 4:15 P.M., New York time.

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 Z shares will generally be higher than the
NAV of Class A, Class B or Class C shares as a result of the fact that the Class
Z shares are not subject to any distribution of service fee. It is expected,
however, that the NAV per share of each class will tend to converge immediately
after the recording the dividends, which will differ by approximately the amount
of the distribution-related expense accrual differential among the classes.

TAXES, DIVIDENDS AND DISTRIBUTIONS

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 generally 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 related to its
business of investing in securities and currencies, including, but not limited
to, gains derived from options and futures on such securities or foreign
currencies; and (b) 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 or close out 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. 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. The
Fund intends to make sufficient distributions to avoid imposition of excise tax.

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 capital gains (the excess of net capital gains from the
sale of assets held for more than 12 months over net short-term capital loss),
if any, are taxable as capital gains regardless of how long the investor has
held his or her Fund shares. The maximum capital gains rate for individuals is
20%. The maximum capital gains rate for corporate shareholders is currently the
same as the maximum tax rate for ordinary income. 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. Dividends paid by the Fund will not be
subject to the dividends received deduction available to corporations.
Distributions and gains from the sale, redemption or exchange of shares of the
Fund may be subject to additional state, local and foreign taxes. Shareholders
are urged to consult their tax advisers regarding specific questions as to
federal, state, local or foreign taxes.

B-43
<PAGE>
Dividends and distributions generally are taxable to shareholders in the
year in which they are received; however, dividends declared in October,
November and December and paid on the following January will be treated as
having been paid on December 31 of such prior year. Under this rule, a
shareholder may be taxed in one year on dividends received in the following
January.

Any distributions paid shortly after a purchase by an investor may have the
effect of reducing the per share net asset value of the investor's shares by the
per share amount of the distributions. Furthermore, such distributions, although
in effect a return of capital, are subject to federal income taxes. Therefore,
prior to purchasing shares of the Fund, the investor should carefully consider
the impact of capital gains distributions, which are expected to be or have been
announced.

Dividends of net investment income and distributions of net short-term
capital gains paid to a shareholder (including a shareholder acting as a nominee
or fiduciary) who is a nonresident alien individual, a foreign corporation or a
foreign partnership (foreign shareholder) are subject to a 30% (or lower treaty
rate) withholding tax upon the gross amount of the dividends unless the
dividends are effectively connected with a U.S. trade or business conducted by
the foreign shareholder. Capital gain distributions paid to a foreign
shareholder are generally not subject to withholding tax. A foreign shareholder
will, however, be required to pay U.S. income tax on any dividends and capital
gain distributions which are effectively connected with a U.S. trade or business
of the foreign shareholder.

Upon a sale or exchange of its shares, a shareholder will realize a taxable
gain or loss depending on its basis in the shares. Such gain or loss will be
treated as capital gain or loss if the shares are capital assets in the
shareholder's hands. In the case of an individual, any such capital gain will be
treated as short-term capital gain, taxable at the same rates as ordinary income
if the shares were held for not more than 12 months and capital gain taxable at
the maximum rate of 20% if such shares were held for more than 12 months. In the
case of a corporation, any such capital gain will be treated as long-term
capital gain, taxable at the same rates as ordinary income, if such shares were
held for more than 12 months. Any such loss will be treated as long-term capital
loss if such shares were held for more than 12 months. A loss recognized on the
sale or exchange of shares held for six months or less, however, will be treated
as long-term capital loss to the extent of any long-term capital gains
distribution with respect to such shares.

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.

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 distribution requirements discussed above, 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.

Income received by the Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Income tax
treaties between certain countries and the United States may reduce or eliminate
such taxes. It is impossible to determine in advance the effective rate of
foreign tax to which the Fund will be subject since the amount of the Fund's
assets to be invested in various countries will vary.

The Fund has a capital loss carryforward for federal income tax purposes as
of February 28, 1999 of approximately $ , of which $ expires
in 1999, $ expires in 2001, $ expires in 2002, $
expires in 2003 and $ expires in 2005.

The per share dividends on Class B and Class C 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 and Class C shares. The per
share dividends on Class A shares will be lower than the per share dividends on
Class Z shares. The per share distributions of net capital gains, if any, will
be paid in the same amount for Class A, Class B, Class C and Class Z shares. See
"Net Asset Value."

B-44
<PAGE>
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.

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 gains or losses
realized on the straddle will be governed 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, change short-term losses into
long-term losses, or change capital gains into ordinary income. 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 to Section 1256 contracts
which are part of a mixed straddle. 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.

B-45
<PAGE>
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, change short-term losses into long-term losses, or change
capital gains into ordinary income. 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, Class B, Class C
and Class Z 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.

Yield is calculated according to the following formula:

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, 1999 for the Fund's Class
A, Class B, Class C and Class Z shares was %, %, % and %,
respectively.

Yield fluctuates and an annualized yield quotation is not a representation
by the Fund as to what an investment in the Fund will actually yield for any
given period. 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 from time to time also advertise
its average annual total return. Average annual total return is determined
separately for Class A, Class B and Class C shares. See "Risk/Return
Summary--Evaluating 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 investment 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.

B-46
<PAGE>

Below are the average annual total returns for the Fund's share classes for
the periods ended February 28, 1999.

<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
----------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
Class A........ % % % %(1-2 90)
Class B........ (4-22 85)
Class C........ (8-1-94)
Class Z........ (3-1-96)
</TABLE>

AGGREGATE TOTAL RETURN. The Fund may also advertise its aggregate total
return. Aggregate total return is determined separately for Class A, Class B,
Class C and Class Z shares. See "Risk/Return Summary--Evaluating 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.

Below are the aggregate total returns for the Fund's share classes for the
periods ended February 28, 1999.

B-47
<PAGE>
APPENDIX I--HISTORICAL PERFORMANCE DATA

The historical performance data contained in this Appendix relies on data
obtained from statistical services, reports and other services believed by the
Manager to be reliable. The information has not been independently verified by
the Manager.

This chart shows the long-term performance of various asset classes and the
rate of inflation.

EACH INVESTMENT PROVIDES A DIFFERENT OPPORTUNITY
(VALUE OF $1 INVESTED ON 12/31/25)

[CHART APPEARS HERE]

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

Generally, stock returns are attributable to capital appreciation and the
reinvestment of distributions. Bond returns are attributable mainly to the
reinvestment of distributions. Also, stock prices are usually more volatile than
bond prices over the long-term.

Small stock returns for 1926-1989 are those of stocks comprising the 5th
quintile of the New York Stock Exchange. Thereafter, returns are those of the
Dimensional Fund Advisors (DFA) Small Company Fund. Common stock returns are
based on the S&P Composite Index, a market-weighted, unmanaged index of 500
stocks (currently) in a variety of industries. It is often used as a broad
measure of stock market performance.

Long-term government bond returns are represented by a portfolio that
contains only one bond with a maturity of roughly 20 years. At the beginning of
each year a new bond with a then-current coupon replaces the old bond. Treasury
bill returns are for a one-month bill. Treasuries are guaranteed by the
government as to the timely payment of principal and interest; equities are not.
Inflation is measured by the consumer price index (CPI).

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

I-1
<PAGE>

Set forth below is historical performance data relating to various sectors
of the fixed-income securities markets. The chart shows the historical total
returns of U.S. Treasury bonds, U.S. mortgage securities, U.S. corporate bonds,
U.S. high yield bonds and world government bonds on an annual basis from 1988
through 1998. The total returns of the indices include accrued interest, plus
the price changes (gains or losses) of the underlying securities during the
period mentioned. The data is provided to illustrate the varying historical
total returns and investors should not consider this performance data as an
indication of the future performance of the Fund or of any sector in which the
Fund invests.

All information relies on data obtained from statistical services, reports
and other services believed by the Manager to be reliable. Such information has
not been verified. The figures do not reflect the operating expenses and fees of
a mutual fund. See "Risk/Return Summary--Fees and Expenses" in the Prospectus.
The net effect of the deduction of the operating expenses of a mutual fund on
these historical total returns, including the compounded effect over time, could
be substantial.

HISTORICAL TOTAL RETURNS OF DIFFERENT BOND MARKET SECTORS

<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT
TREASURY
BONDS(1) 7.0% 14.4% 8.5% 15.3% 7.2% 10.7% (3.4)% 18.4% 2.7% 9.6%
- ----------------------------------------------------------------------------------------------------------------------------
U. S. GOVERNMENT
MORTGAGE
SECURITIES(2) 8.7% 15.4% 10.7% 15.7% 7.0% 6.8% (1.6)% 16.8% 5.4% 9.5%
- ----------------------------------------------------------------------------------------------------------------------------
U.S. INVESTMENT GRADE
CORPORATE
BONDS(3) 9.2% 14.1% 7.1% 18.5% 8.7% 12.2% (3.9)% 22.3% 3.3% 10.2%
- ----------------------------------------------------------------------------------------------------------------------------
U.S.
HIGH YIELD
CORPORATE
BONDS(4) 12.5% 0.8% (9.6)% 46.2% 15.8% 17.1% (1.0)% 19.2% 11.4% 12.8%
- ----------------------------------------------------------------------------------------------------------------------------
WORLD
GOVERNMENT
BONDS(5) 2.3% (3.4)% 15.3% 16.2% 4.8% 15.1% 6.0% 19.6% 4.1% (4.3)%
- ----------------------------------------------------------------------------------------------------------------------------
DIFFERENCE BETWEEN HIGHEST
AND LOWEST RETURN PERCENT 10.2% 18.8% 24.9% 30.9% 11.0% 10.3% 9.9% 5.5% 8.7% 17.1%

<CAPTION>
1998
- -----------------------------------
<S> <C>
U.S. GOVERNMENT
TREASURY
BONDS(1) 10.0%
- -----------------------------------
U. S. GOVERNMENT
MORTGAGE
SECURITIES(2) 7.0%
- -----------------------------------
U.S. INVESTMENT GRADE
CORPORATE
BONDS(3) 8.6%
- -----------------------------------
U.S.
HIGH YIELD
CORPORATE
BONDS(4) 1.6%
- -----------------------------------
WORLD
GOVERNMENT
BONDS(5) 5.3%
- -----------------------------------
DIFFERENCE BETWEEN HIGHEST
AND LOWEST RETURN PERCENT 8.4%
</TABLE>

(1)LEHMAN BROTHERS TREASURY BOND INDEX is an unmanaged index made up of over 150
public issues of the U.S. Treasury having maturities of at least one year.

(2)LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX is an unmanaged index that
includes over 600 15- and 30-year fixed-rate mortgage-backed securities of the
Government National Mortgage Association (GNMA), Federal National Mortgage
Association (FNMA), and the Federal Home Loan Mortgage Corporation (FHLMC).

(3)LEHMAN BROTHERS CORPORATE BOND INDEX includes over 3,000 public fixed-rate,
nonconvertible investment-grade bonds. All bonds are U.S. dollar-denominated
issues and include debt issued or guaranteed by foreign sovereign governments,
municipalities, governmental agencies or international agencies. All bonds in
the index have maturities of at least one year.

(4)LEHMAN BROTHERS HIGH YIELD BOND INDEX is an unmanaged index comprising over
750 public, fixed-rate, nonconvertible bonds that are rated Ba1 or lower by
Moody's Investors Service (or rated BB+ or lower by Standard & Poor's or Fitch
Investors Service). All bonds in the index have maturities of at least one year.
Data retrieved from Lipper, Inc. Data retrieved from Lipper, Inc.

(5)SALOMON SMITH BARNEY WORLD GOVERNMENT INDEX (NON U.S.) includes over 800
bonds issued by various foreign governments or agencies, excluding those in the
U.S., but including those in Japan, Germany, France, the U.K., Canada, Italy,
Australia, Belgium, Denmark, the Netherlands, Spain, Sweden, and Austria. All
bonds in the index have maturities of at least one year.

I-2
<PAGE>
This chart below shows the historical volatility of general interest rates
as measured by the long U.S. Treasury Bond.

[CHART APPEARS HERE]

- -------

Source: Ibbotson Associates. Used with permission. All rights reserved. The
chart illustrates the historical yield of the long-term U.S. Treasury Bond from
1926-1998. Yields represent that of an annually renewed one-bond portfolio with
a remaining maturity of approximately 20 years. This chart is for illustrative
purposes and should not be construed to represent the yields of any Prudential
Mutual Fund.

I-3
<PAGE>
APPENDIX II--GENERAL INVESTMENT INFORMATION

The following terms are used in mutual fund investing.

ASSET ALLOCATION

Asset allocation is a technique for reducing risk, providing balance. Asset
allocation among different types of securities within an overall investment
portfolio helps to reduce risk and to potentially provide stable returns, while
enabling investors to work toward their financial goal(s). Asset allocation is
also a strategy to gain exposure to better performing asset classes while
maintaining investment in other asset classes.

DIVERSIFICATION

Diversification is a time-honored technique for reducing risk, providing
"balance" to an overall portfolio and potentially achieving more stable returns.
Owning a portfolio of securities mitigates the individual risks (and returns) of
any one security. Additionally, diversification among types of securities
reduces the risks (and general returns) of any one type of security.

DURATION

Debt securities have varying levels of sensitivity to interest rates. As
interest rates fluctuate, the value of a bond (or a bond portfolio) will
increase or decrease. Longer-term bonds are generally more sensitive to changes
in interest rates. When interest rates fall, bond prices generally rise.
Conversely, when interest rates rise, bond prices generally fall.

Duration is an approximation of the price sensitivity of a bond (or a bond
portfolio) to interest rate changes. It measures the weighted average maturity
of a bond's (or a bond portfolio's) cash flows, I.E., principal and interest
rate payments. Duration is expressed as a measure of time in years--the longer
the duration of a bond (or a bond portfolio), the greater the impact of interest
rate changes on the bond's (or the bond portfolio's) price. Duration differs
from effective maturity in that duration takes into account call provisions,
coupon rates and other factors. Duration measures interest rate risk only and
not other risks such as credit risk and, in the case of non-U.S. dollar
denominated securities, currency risk. Effective maturity measures the final
maturity dates of a bond (or a bond portfolio).

MARKET TIMING

Market timing--buying securities when prices are low and selling them when
prices are relatively higher may not work for many investors because it is
impossible to predict with certainty how the price of a security will fluctuate.
However, owning a security for a long period of time may help investors offset
short-term price volatility and realize positive returns.

POWER OF COMPOUNDING

Over time, the compounding of returns can significantly impact investment
returns. Compounding is the effect of continuous investment on long-term
investment results, by which the proceeds of capital appreciation (and income
distributions, if elected) are reinvested to contribute to the overall growth of
assets. The long-term investment results of compounding may be greater than that
of an equivalent initial investment in which the proceeds of capital
appreciation and income distributions are taken in cash.

STANDARD DEVIATION

Standard deviation is an absolute (non-relative) measure of volatility
which, for a mutual fund, depicts how widely the returns varied over a certain
period of time. When a fund has a high standard deviation, its range of
performance has been very wide, implying greater volatility potential. Standard
deviation is only one of several measures of a fund's volatility.

II-1
<PAGE>
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)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
A LOOK AT PERFORMANCE
<S> <C> <C>
Over the Long-Term
Average Annual
Returns
12/31/25-12/31/98
Long-Term Govt.
Common Stocks Bonds Inflation
11.2% 5.3% 3.1%
</TABLE>

(1)Source: Ibbotson Associates. Used with permission. All rights reserved.
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. Investors cannot invest
directly in an index. Past performance is not a guarantee of future results.

II-2
<PAGE>

APPENDIX III--INFORMATION RELATING TO PRUDENTIAL

Set forth below is information relating to The Prudential Insurance Company
of America (Prudential) and its subsidiaries as well as information relating to
the Prudential Mutual Funds. See "How the Fund is Managed--Manager" in the
Prospectus. The data will be used in sales materials relating to the Prudential
Mutual Funds. Unless otherwise indicated, the information is as of December 31,
1996 and is subject to change thereafter. All information relies on data
provided by The Prudential Investment Corporation (PIC) or from other sources
believed by the Manager to be reliable. Such information has not been verified
by the Fund.

INFORMATION ABOUT PRUDENTIAL

The Manager and PI(1) are subsidiaries of Prudential, which is one of the
largest diversified financial services institutions in the world and, based on
total assets, the largest insurance company in North America as of December 31,
1996. Its primary business is to offer a full range of products and services in
three areas: insurance, investments and home ownership for individuals and
families; health-care management and other benefit programs for employees of
companies and members of groups; and asset management for institutional clients
and their associates. Prudential (together with its subsidiaries) employs more
than 81,000 persons worldwide, and maintains a sales force of approximately
11,500 agents and 6,400 financial advisors. Prudential is a major issuer of
annuities, including variable annuities. Prudential seeks to develop innovative
products and services to meet consumer needs in each of its business areas.
Prudential uses the rock of Gibraltar as its symbol. The Prudential rock is a
recognized brand name throughout the world.

INSURANCE. Prudential has been engaged in the insurance business since 1875.
It insures or provides financial services to more than 50 million people
worldwide--one of every five people in the United States. Long one of the
largest issuers of individual life insurance, the Prudential has 22 million life
insurance policies in force today with a face value of $1 trillion. Prudential
has the largest capital base ($12.1 billion) of any life insurance company in
the United States. The Prudential provides auto insurance for more than 1.6
million cars and insures more than 1.2 million homes.

MONEY MANAGEMENT. The Prudential is one of the largest pension fund managers
in the country, providing pension services to 1 in 3 Fortune 500 firms. It
manages $36 billion of individual retirement plan assets, such as 401(k) plans.
As of December 31, 1996, Prudential had more than $322 billion in assets under
management. Prudential Investments, a business group of Prudential (of which
Prudential Mutual Funds is a key part) manages over $190 billion in assets of
institutions and individuals. In INSTITUTIONAL INVESTOR, July 1998, Prudential
was ranked eighth in terms of total assets under management as of December 31,
1997.

REAL ESTATE. The Prudential Real Estate Affiliates is one of the leading
real estate residential and commercial brokerage networks in North America and
has more than 37,000 real estate brokers and agents and more than 1,400 offices
across the United States.(2)

HEALTHCARE. Over two decades ago, the Prudential introduced the first
federally-funded, for-profit HMO in the country. Today, almost 4.6 million
Americans receive healthcare from a Prudential managed care membership.(3)

FINANCIAL SERVICES. The Prudential Savings Bank (FSB), a wholly-owned
subsidiary of the Prudential, has nearly $1 billion in assets and serves nearly
1.5 million customers across 50 states.

INFORMATION ABOUT THE PRUDENTIAL MUTUAL FUNDS

As of November 30, 1998, Prudential Mutual Fund Management was the
eighteenth largest mutual fund companies in the country, with over 2.5 million
shareholders invested in more than 50 mutual fund portfolios and variable
annuities with more than 3.7 million shareholder accounts.

The Prudential Mutual Funds have over 30 portfolio managers who manage over
$55 billion in mutual fund and variable annuity assets. Some of Prudential's
portfolio managers have over 20 years of experience managing investment
portfolios.

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

(1) Prudential Investments serves as the Subadviser to substantially all of the
Prudential Mutual Funds. Wellington Management Company serves as the
subadviser to Global Utility Fund, Inc., Nicholas-Applegate Capital
Management as subadviser to Nicholas-Applegate Fund, Inc., Jennison
Associates Capital Corp. as the subadviser to Prudential Jennison Series
Fund, Inc. and Mercator Asset Management LP. as Subadviser to International
Stock Series, a portfolio of Prudential World Fund. There are multiple
subadvisers for The Target Portfolio Trust.

(2) As of December 31, 1997.

(3) On December 10, 1998, Prudential announced its intention to sell Prudential
Health Care to Aetna, Inc. for $1 billion.

III-1
<PAGE>
From time to time, there may be media coverage of portfolio managers and
other investment professionals associated with the Manager and the Subadviser in
national and regional publications, on television and in other media.
Additionally, individual mutual fund portfolios are frequently cited in surveys
conducted by national and regional publications and media organizations such as
THE WALL STREET JOURNAL, THE NEW YORK TIMES, BARRON'S and USA TODAY.

EQUITY FUNDS. Prudential Equity Fund is managed with a "value" investment
style by PIC. In 1995, Prudential Securities introduced Prudential Jennison
Growth Fund, a growth-style equity fund managed by Jennison Associates Capital
Corp., a premier institutional equity manager and a subsidiary of Prudential.

HIGH YIELD FUNDS. Investing in high yield bonds is a complex and research
intensive pursuit. A separate team of high yield bond analysts monitor
approximately 200 issues held in the Prudential High Yield Fund (currently the
largest fund of its kind in the country) along with 100 or so other high yield
bonds, which may be considered for purchase.(4) Non-investment grade bonds, also
known as junk bonds or high yield bonds, are subject to a greater risk of loss
of principal and interest including default risk than higher-rated bonds.
Prudential high yield portfolio managers and analysts meet face-to-face with
almost every bond issuer in the High Yield Fund's portfolio annually, and have
additional telephone contact throughout the year.

Prudential's portfolio managers are supported by a large and sophisticated
research organization. Investment grade bond analysts monitor the financial
viability of different bond issuers in the investment grade corporate and
municipal bond markets--from IBM to small municipalities, such as Rockaway
Township, New Jersey. These analysts consider among other things sinking fund
provisions and interest coverage ratios.

Prudential's portfolio managers and analysts receive research services from
almost 200 brokers and market service vendors. They also receive nearly 100
trade publications and newspapers--from PULP AND PAPER FORECASTER to WOMEN'S
WEAR DAILY--to keep them informed of the industries they follow.

Prudential Mutual Funds' traders scan over 100 computer monitors to collect
detailed information on which to trade. From natural gas prices in the Rocky
Mountains to the results of local municipal elections, a Prudential portfolio
manager or trader is able to monitor it if it's important to a Prudential mutual
fund.

Prudential Mutual Funds trades billions in U.S. and foreign government
securities a year. PIC seeks information from government policy makers.
Prudential's portfolio managers met with several senior U.S. and foreign
government officials, on issues ranging from economic conditions in foreign
countries to the viability of index-linked securities in the United States.

INFORMATION ABOUT PRUDENTIAL SECURITIES

Prudential Securities is the fifth largest retail brokerage firm in the
United States with approximately 5,600 financial advisors. It offers to its
clients a wide range of products, including Prudential Mutual Funds and
Annuities. As of December 31, 1998, assets held by Prudential Securities for its
clients approximated $268 billion. During 1998, over 31,000 new customer
accounts were opened each month at Prudential Securities.(5)

Prudential Securities has a two-year Financial Advisor training program plus
advanced education programs, including Prudential Securities "university," which
provides advanced education in a wide array of investment and financial planning
areas.

In addition to training, Prudential Securities provides its financial
advisors with access to firm economists and market analysts. It has also
developed proprietary tools for use by financial advisors, including the
Financial Architect/Financial AdvisersSM, a state-of-the-art asset allocation
software program which helps Financial Advisors to evaluate a client's
objectives and overall financial plan, and a comprehensive mutual fund
information and analysis system that compares different mutual funds.

For more complete information about any of the Prudential Mutual Funds,
including charges and expenses, call your Prudential Securities financial
adviser or Pruco/Prudential representative for a free prospectus. Read it
carefully before you invest or send money.

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

(4) As of December 31, 1997. The number of bonds and the size of the Fund are
subject to change.

(5) As of December 31, 1997.

III-2
<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, 1999 (audited).

Statement of Assets and Liabilities at February 28, 1999 (audited).

Statement of Operations for the year ended February 28, 1999
(audited).

Statement of Changes in Net Assets for the years ended February 28,
1999 and February 29, 1998 (audited).

Notes to Financial Statements.

Financial Highlights with respect to the five-year period ended
February 28, 1999 (audited).

Independent Auditors' Report.

(b) EXHIBITS:

<TABLE>
<S> <C>
(a) (1) Articles of Restatement. Incorporated by reference to Exhibit 1
to Post-Effective Amendment No. 22 to Registration Statement on Form
N-1A (File No. 2-82976) filed via EDGAR.
(b) 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.
(c) 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.
(d) (1) Management Agreement between the Registrant and Prudential Mutual
Fund Management, Inc. Incorporated by reference to Exhibit 5(a) to
Post-Effective Amendment No. 24 to the Registration Statement on Form
N-1A (File No. 2-82976) filed via EDGAR.

(2) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc. and The Prudential Investment Corporation. Incorporated by
reference to Exhibit 5(b) to Post-Effective Amendment No. 24 to the
Registration Statement on Form N-1A (File No. 2-82976) filed via
EDGAR.

(e) (1) Distribution Agreement with Prudential Investment Management
Services LLC. Incorporated by reference to Exhibit 7(b) to the
Registration Statement on Form N-14 (File No. 333-64907) via EDGAR.

(2) Selected Dealer Agreement. Incorporated by reference to Exhibit
7(a) to the Registration Statement on Form N-14 (File No. 333-64907)
via EDGAR.

(g) (1) Revised Custodian Agreement between the Registrant and State
Street Bank and Trust Company. Incorporated by reference to Exhibit
8(a) to Post-Effective Amendment No. 24 to the Registration Statement
on Form N-1A (File No. 2-82976) filed via EDGAR.

(2) Special Custody Agreement among the Registrant, State Street Bank
and Trust Company, and Goldman, Sachs & Co. Incorporated by reference
to Exhibit 8(b) to Post-Effective Amendment No. 24 to the
Registration Statement on Form N-1A (File No. 2-82976) filed via
EDGAR.

(3) Customer Agreement between the Registrant and Goldman, Sachs &
Co. Incorporated by reference to Exhibit 8(c) to Post-Effective
Amendment No. 24 to the Registration Statement on Form N-1A (File No.
2-82976) filed via EDGAR.
</TABLE>

C-1
<PAGE>

<TABLE>
<S> <C>
(4) Form of Amendment to Revised Custodian Agreement. Incorporated by
reference to Exhibit 8(d) to Post-Effective Amendment No. 19 to the
Registration Statement on Form N-1A (File No. 2-82976) filed via
EDGAR.

(h) Transfer Agency Agreement between the Registrant and Prudential
Mutual Fund Services, Inc. Incorporated by reference to Exhibit 9 to
Post-Effective Amendment No. 24 to the Registration Statement on Form
N-1A (File No. 2-82976) filed via EDGAR.

(i) Opinion of Counsel. Incorporated by reference to Exhibit 10 to
Post-Effective Amendment No. 25 to Registration Statement on Form
N-1A (File No. 2-82976) via EDGAR.

(j)(1) Consent of Independent Accountants.**

(j)(2) Consent of Counsel.*

(l) Purchase Agreement. Incorporated by reference to Exhibit 13 to
Post-Effective Amendment No. 24 to the Registration Statement on Form
N-1A (File No. 2-82976) filed via EDGAR.

(m) (1) Amended and Restated Distribution and Service Plan for Class A
shares. Incorporated by reference to Exhibit 15(a) to the
Registration Statement on Form N-14 (File No. 333-64907) via EDGAR.

(2) Amended and Restated Distribution and Service Plan for Class B
shares. Incorporated by reference to Exhibit 15(b) to the
Registration Statement on Form N-14 (File No. 333-64907) via EDGAR.

(3) Amended and Restated Distribution and Service Plan for Class C
shares. Incorporated by reference to Exhibit 15(c) to the
Registration Statement on Form N-14 (File No. 333-64907) via EDGAR.

(n) Financial Data Schedules for Class A, Class B, Class C and Class Z
shares.**

(o) Amended Rule 18f-3 Plan.**
</TABLE>

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

**To be filed by amendment.

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

None.

ITEM 25. INDEMNIFICATION.

As permitted by Section 17(h) and (i) of the Investment Company Act of 1940,
as amended (the 1940 Act), and pursuant to Article VI of the 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 (Exhibit 6 to
the Registration Statement), each Distributor of the Registrant may be
indemnified against liabilities which it may incur, except liabilities arising
from bad faith, gross negligence, willful misfeasance or reckless disregard of
duties.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (Securities Act), may be permitted to directors, officers
and controlling persons of the Registrant pursuant to foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission (the Commission) such indemnification is against public
policy as expressed in the 1940 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in connection with the successful defense
of any action, suit or proceeding) is asserted against the Registrant by such
director, officer or controlling person in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1940 Act and will be governed by the final
adjudication of such issue.

C-2
<PAGE>
The Registrant has purchased an insurance policy insuring its officers and
directors against liabilities, and certain costs of defending claims against
such officers and directors, to the extent such officers and directors are not
found to have committed conduct constituting willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of indemnification
payments to officers and directors under certain circumstances.

Section 9 of 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 Investments Fund
Management LLC (PIFM) and The Prudential Investment Corporation (PIC),
respectively, to liabilities arising from willful misfeasance, bad faith or
gross negligence in the performance of their respective duties or from reckless
disregard by them of their respective obligations and duties under the
agreements.

The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws and the Distribution Agreement in a manner consistent
with Release No. 11330 of the 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 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.

(a) Prudential Investments Fund Management LLC (PIFM)

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

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

The business and other connections of PIFM's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is Gateway Center Three, 100 Mulberry Street, Newark, NJ
07102-4077.

<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIFM PRINCIPAL OCCUPATIONS
- ------------------------- -------------------- -------------------------------------------------------------
<S> <C> <C>
Robert F. Gunia Executive Vice Vice President, Prudential Investments; Executive Vice
President and President and Treasurer, PIFM; Senior Vice President of
Treasurer Prudential Securities
Neil A. McGuinness Executive Vice Executive Vice President and Director of Marketing,
President Prudential Mutual Funds and Annuities (PMF&A); Executive
Vice President, PIFM
Robert J. Sullivan Executive Vice Executive Vice President, PMF&A; Executive Vice President,
President PIFM
</TABLE>

(b) The Prudential Investment Corporation (PIC)

See "How the Fund is Managed--Manager" in the Prospectus constituting Part A
of this Registration Statement and "Investment Advisory and Other
Services--Management and Investment Adviser" in the Statement of Additional
Information constituting Part B of this Registration Statement.

The business and other connections of PIC's directors and executive officers
are as set forth below. 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>
E. Michael Caulfield Chairman of the Chief Executive Officer, Prudential Investments (PIC) of The
Board, President, Prudential Insurance Company of America (Prudential);
Chief Executive Chairman of the Board, President, Chief Executive Officer
Officer and Director and Director, PIC

John R. Strangfeld, Jr. Vice President and President of Private Asset Management Group of Prudential;
Director Senior Vice President, Prudential; Vice President and
Director, PIC
</TABLE>

C-3
<PAGE>

ITEM 27. PRINCIPAL UNDERWRITERS.

(a) Prudential Investment Management Services LLC (PIMS)

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

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

<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME(1) UNDERWRITER REGISTRANT
- ------------------------------------ ----------------------------------------------------------- --------------
<S> <C> <C>
E. Michael Caulfield................ President None
Mark R. Fetting .................... Executive Vice President None
Gateway Center Three
100 Mulberry Street
Gateway Center Three
Newark, New Jersey 07102
Jean D. Hamilton.................... Executive Vice President None
Ronald P. Joelson................... Executive Vice President None
John R. Strangfeld, Jr.............. Executive Vice President None
Mario A. Mosse...................... Senior Vice President and Chief Operating Officer None
Scott S. Wallner.................... Vice President, Secretary and Chief Legal Officer None
Michael G. Williamson............... Vice President, Comptroller and Chief Financial Officer None
C. Edward Chaplin................... Treasurer None
<FN>
- ------------------------
(1) The address of each person named is Prudential Plaza, 751 Broad Street,
Newark NJ 07102 unless otherwise indicated.
</TABLE>

ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.

All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the Rules thereunder are maintained at the offices of
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, the Registrant, Gateway Center Three, 100 Mulberry Street,
Newark, New Jersey 07102-4077, and Prudential Mutual Fund Services LLC, Raritan
Plaza One, Edison, New Jersey. Documents required by Rules 31a-1(b)(5), (6),
(7), (9), (10) and (11) and 31a-1(f) and Rules 31a-1(b)(4) and (11) and 31a-1(d)
will be kept at Gateway Center Three, 100 Mulberry Street, Newark, New Jersey
07102-4077 and the remaining accounts, books and other documents required by
such other pertinent provisions of Section 31(a) and the Rules promulgated
thereunder will be kept by State Street Bank and Trust Company and Prudential
Mutual Fund Services LLC.

C-4
<PAGE>

ITEM 29. MANAGEMENT SERVICES.

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

ITEM 30. 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-5
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, (the
"1933 Act") and the Investment Company Act of 1940, as amended, the Registrant
has duly caused this Post-Effective Amendment to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Newark, and State of New Jersey, on the 17th day of March, 1999.

PRUDENTIAL GOVERNMENT INCOME FUND, INC.

/s/ Mendel A. Melzer
-------------------------------------------------
MENDEL A. MELZER, PRESIDENT

Pursuant to the requirements of the 1933 Act, this Post-Effective Amendment
No. 26 to the Registrant's Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ----------------------------------------------------

<S> <C> <C>
/s/ Edward D. Beach Director March 17, 1999
- ------------------------------------
EDWARD D. BEACH

/s/ Eugene C. Dorsey Director March 17, 1999
- ------------------------------------
EUGENE C. DORSEY

/s/ Delayne Dedrick Gold Director March 17, 1999
- ------------------------------------
DELAYNE DEDRICK GOLD

/s/ Robert F. Gunia Director and Vice President March 17, 1999
- ------------------------------------
ROBERT F. GUNIA

/s/ Thomas T. Mooney Director March 17, 1999
- ------------------------------------
THOMAS T. MOONEY

/s/ Thomas O'Brien Director March 17, 1999
- ------------------------------------
THOMAS O'BRIEN

/s/ Richard A. Redeker Director March 17, 1999
- ------------------------------------
RICHARD A. REDEKER

/s/ Mendel A. Melzer President and Director March 17, 1999
- ------------------------------------
MENDEL A. MELZER

/s/ Nancy H. Teeters Director March 17, 1999
- ------------------------------------
NANCY H. TEETERS

/s/ Grace Torres Treasurer and Principal Financial March 17, 1999
- ------------------------------------ and Accounting Officer
GRACE TORRES

/s/ Louis A. Weil, III Director March 17, 1999
- ------------------------------------
LOUIS A. WEIL, III
</TABLE>

<PAGE>
EXHIBIT INDEX

<TABLE>
<S> <C>
(j)(2) Consent of Counsel.
</TABLE>

<PAGE>

CONSENT OF SWIDLER BERLIN SHEREFF FRIEDMAN, LLP

We hereby consent to the reference to our firm included in the
prospectus of Prudential Government Income Fund, Inc. filed as part of
Registration Statement No. 2-82976 and to the use of our opinion of counsel,
incorporated by reference to Exhibit 10 to Post-Effective Amendment No. 25 to
the Registration Statement on Form N-1A filed via EDGAR on April 28, 1998 (File
No. 2-82976).

Swidler Berlin Shereff Friedman, LLP

New York, New York
March 15, 1999