PRUDENTIAL EQUITY INCOME FUND, 485APOS, 1995-10-30

PRUDENTIAL EQUITY INCOME FUND
485APOS, 1995-10-30

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<PAGE>

As filed with the Securities and Exchange Commission on October 27, 1995

Securities Act Registration No. 33-9269
Investment Company Act Registration No. 811-4864
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

-----------

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]

PRE-EFFECTIVE AMENDMENT NO. [_]

[X]
POST-EFFECTIVE AMENDMENT NO. 15

AND/OR

REGISTRATION STATEMENT UNDER THE

INVESTMENT COMPANY ACT OF 1940 [X]

[X]
AMENDMENT NO. 16

(Check appropriate box or boxes)

-----------

PRUDENTIAL EQUITY INCOME FUND

(Exact name of registrant as specified in charter)

ONE SEAPORT PLAZA,
NEW YORK, NEW YORK 10292

(Address of Principal Executive Offices) (Zip Code)

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

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

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):

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

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

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

[X] on January 2, 1996 pursuant to paragraph (a)(1)

[_] 75 days after filing pursuant to paragraph (a)(2)

[_] on (date) pursuant to paragraph (a)(2) of Rule 485

If appropriate, check the following box:
[_] this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment

PURSUANT TO RULE 24f-2 UNDER THE INVESTMENT COMPANY ACT OF 1940, REGISTRANT
HAS PREVIOUSLY REGISTERED AN INDEFINITE NUMBER OF SHARES OF BENEFICIAL
INTEREST, PAR VALUE $.01 PER SHARE. THE REGISTRANT WILL FILE A NOTICE UNDER
SUCH RULE FOR ITS FISCAL YEAR ENDING OCTOBER 31, 1995 ON OR BEFORE DECEMBER
29, 1995.

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

CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)

<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
------------- --------
<C> <S> <C>
PART A
Item 1. Cover Page........................... Cover Page

Item 2. Synopsis............................. Fund Expenses; Fund Highlights

Item 3. Condensed Financial Information...... Fund Expenses; Financial
Highlights; How the Fund
Calculates Performance

Item 4. General Description of Registrant.... Cover Page; Fund Highlights;
How the Fund Invests; General
Information

Item 5. Management of Fund................... Financial Highlights; How the
Fund is Managed; General
Information

Item 6. Capital Stock and Other Securities... Taxes, Dividends and
Distributions; General
Information

Item 7. Purchase of Securities Being Offered. Shareholder Guide; How the
Fund Values its Shares

Item 8. Redemption or Repurchase............. Shareholder Guide; How the
Fund Values its Shares;
General Information

Item 9. Pending Legal Proceedings............ Not Applicable

PART B

Item 10. Cover Page........................... Cover Page

Item 11. Table of Contents.................... Table of Contents

Item 12. General Information and History...... General Information

Item 13. Investment Objectives and Policies... Investment Objective and
Policies; Investment
Restrictions

Item 14. Management of the Fund............... Trustees and Officers;
Manager; Distributor

Item 15. Control Persons and Principal Holders Not Applicable
of Securities........................

Item 16. Investment Advisory and Other Manager; Distributor;
Services............................. Custodian, Transfer and
Dividend Disbursing Agent and
Independent Accountants

Item 17. Brokerage Allocation and Other Portfolio Transactions and
Practices............................ Brokerage

Item 18. Capital Stock and Other Securities... Not Applicable

Item 19. Purchase, Redemption and Pricing of Purchase and Redemption of
Securities Being Offered............. Fund Shares; Shareholder
Investment Account; Net Asset
Value

Item 20. Tax Status........................... Taxes

Item 21. Underwriters......................... Distributor

Item 22. Calculation of Performance Data...... Performance Information

Item 23. Financial Statements................. Financial Statements

PART C

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

<PAGE>

Prudential Equity Income Fund
Class Z shares

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

PROSPECTUS DATED JANUARY 2, 1996

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

Prudential Equity Income Fund (the Fund) is an open-end, diversified manage-
ment investment company. Its investment objective is both current income and
capital appreciation. It seeks to achieve this objective by investing primar-
ily in common stocks and convertible securities that provide investment income
returns above those of the Standard & Poor's 500 Stock Index or the NYSE Com-
posite Index. In normal circumstances, the Fund intends to invest at least 65%
of its total assets in such securities. The balance of the Fund's assets may
be invested in other common stocks, other securities convertible into common
stocks, debt securities and certain derivatives, including options on stocks
and stock indices. Common stocks may include securities of foreign issuers.
There can be no assurance that the Fund's investment objective will be
achieved. See "How the Fund Invests--Investment Objective and Policies." The
Fund's address is One Seaport Plaza, New York, New York 10292, and its tele-
phone number is (800) 225-1852.

The Fund's purchase and sale of put and call options and related short-term
trading may result in a high portfolio turnover rate. These activities may be
considered speculative and may result in higher risks and costs to the Fund.
The Fund may also buy and sell stock index futures and options thereon for the
purpose of hedging its securities portfolio and may buy and sell options on
stock indices, in each case in accordance with limits described herein. See
"How the Fund Invests--Investment Objective and Policies."

Class Z shares are offered exclusively for sale to the Trustee of the Pruden-
tial Securities 401(k) Plan, a defined contribution plan sponsored by Pruden-
tial Securities Incorporated (the PSI 401(k) Plan or the Plan). Only Class Z
shares are offered through this Prospectus. The Fund also offers Class A,
Class B and Class C shares through the attached Prospectus dated January 2,
1996 (the Retail Class Prospectus), which is a part hereof.

This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. Additional information
about the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated January 2, 1996, which information
is incorporated herein by reference (is legally considered a part of this Pro-
spectus) and is available without charge upon request to the Fund at the ad-
dress or telephone number noted above.

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

Investors are advised to read this Prospectus and retain it for future
reference.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<PAGE>

FUND EXPENSES

<TABLE>
<CAPTION>
CLASS Z SHARES
--------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price).............................................. None
Maximum Sales Load or Deferred Sales Load Imposed on
Reinvested Dividends......................................... None
Deferred Sales Load (as a percentage of original purchase
price or redemption proceeds, whichever is lower)............ None
Redemption Fees............................................... None
Exchange Fee.................................................. None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES CLASS Z SHARES*
(as a percentage of average net assets) ---------------
<S> <C>
Management Fees............................................... .55%
12b-1 Fees.................................................... None
Other Expenses................................................ .30
---
Total Fund Operating Expenses................................. .85%
===
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual
return and (2) redemption at the end of
each time period:
Class Z*................................ $9 $27 $47 $105
</TABLE>

The above example is based on expenses expected to have been incurred if
Class Z shares had been in existence throughout the fiscal year ended
October 31, 1995. The example should not be considered a representation of
past or future expenses. Actual expenses may be greater or less than those
shown.

The purpose of this table is to assist investors in understanding the
various costs and expenses that an investor in the Class Z shares of the
Fund will bear, whether directly or indirectly. For more complete
descriptions of the various costs and expenses, see "How the Fund is
Managed." "Other Expenses" includes operating expenses of the Fund, such
as Trustees' and professional fees, registration fees, reports to
shareholders and transfer agency and custodian fees.
--------

* Estimated based on expenses expected to have been incurred if Class Z
shares had been in existence throughout the fiscal year ended October 31,
1995.

<PAGE>

THE FOLLOWING INFORMATION SUPPLEMENTS "HOW THE FUND IS MANAGED--DISTRIBUTOR"
IN THE RETAIL CLASS PROSPECTUS:

Prudential Securities serves as the Distributor of Class Z shares and incurs
the expenses of distributing the Fund's Class Z shares under a Distribution
Agreement with the Fund, none of which is reimbursed by or paid for by the
Fund.

THE FOLLOWING INFORMATION SUPPLEMENTS "HOW THE FUND VALUES ITS SHARES" IN
THE RETAIL CLASS PROSPECTUS:

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 or service fee. It is expected, however, that
the NAV of the four classes will tend to converge immediately after the
recording of dividends, which will differ by approximately the amount of the
distribution-related accrual differential among the classes.

THE FOLLOWING INFORMATION SUPPLEMENTS "TAXES, DIVIDENDS AND DISTRIBUTIONS--
TAXATION OF SHAREHOLDERS" IN THE RETAIL CLASS PROSPECTUS:

As a qualified plan, the PSI 401(k) Plan generally pays no federal income
tax. Individual participants in the Plan should consult Plan documents and
their own tax advisers for information on the tax consequences associated with
participating in the PSI 401(k) Plan.

The per share dividends on Class Z shares will generally be higher than the
per share dividends on Class A, Class B or Class C shares as a result of the
fact that Class Z shares are not subject to any distribution or service fee.

THE FOLLOWING INFORMATION REPLACES THE INFORMATION UNDER "SHAREHOLDER
GUIDE--HOW TO BUY SHARES OF THE FUND" AND "SHAREHOLDER GUIDE--HOW TO SELL YOUR
SHARES" IN THE RETAIL CLASS PROSPECTUS:

Class Z shares of the Fund are offered exclusively for sale to the Trustee
of the PSI 401(k) Plan. Such shares may be purchased or redeemed only by the
Plan on behalf of individual Plan participants at NAV without any sales or
redemption charge. Class Z shares are not subject to any minimum investment
requirements. The Plan purchases and redeems shares to implement the
investment choices of individual Plan participants with respect to their
contributions in the Plan. All purchases through the Plan will be for Class Z
shares. Individual Plan participants should consult Plan documents for a
description of the procedures and limitations applicable to the making or
changing of investment choices. Copies of the Plan documents are available
from the Prudential Securities Benefits Department at One Seaport Plaza, 33rd
Floor, New York, New York 10292 or by calling (212) 214-7194.

The average net asset value per share at which shares of the Fund are
purchased or redeemed by the Plan for the accounts of individual Plan
participants might be more or less than the net asset value per share
prevailing at the time that such participants made their investment choices or
made their contributions to the Plan.

THE FOLLOWING INFORMATION SUPPLEMENTS "SHAREHOLDER GUIDE--HOW TO EXCHANGE
YOUR SHARES" IN THE RETAIL CLASS PROSPECTUS:

Effective as of the date of this Prospectus, Class A shares held through the
PSI 401(k) Plan on behalf of participants will be automatically exchanged at
relative net asset value for Class Z shares. You should contact the Prudential
Securities Benefits Department about how to exchange your Class Z shares. See
"How to Buy Shares of the Fund" above.

THE INFORMATION ABOVE ALSO SUPPLEMENTS THE INFORMATION UNDER "FUND
HIGHLIGHTS" IN THE RETAIL CLASS PROSPECTUS AS APPROPRIATE.

<PAGE>

Supplement dated January 2, 1996 to

Prospectus dated December 29, 1994

THE FOLLOWING INFORMATION SUPPLEMENTS "FINANCIAL HIGHLIGHTS" IN THE
PROSPECTUS:

FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED)
(CLASS A, CLASS B AND CLASS C SHARES)

The following financial highlights for Class A, Class B and Class C shares
are unaudited. This information should be read in conjunction with the
financial statements and the notes thereto, which appear in the Statement of
Additional Information. The financial highlights contain selected data for a
Class A, Class B and Class C share of beneficial interest, respectively,
outstanding, total return, ratios to average net assets and other supplemental
data for the period indicated. The information has been determined based on
data contained in the financial statements. No Class Z shares were outstanding
during the indicated period.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30, 1995 (UNAUDITED)
------------------------------
CLASS A CLASS B CLASS C
--------- --------- --------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 14.03 $ 14.00 $ 14.00
--------- --------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income......................... .23 .18 .18
Net realized and unrealized gain on
investment transactions...................... .53 .53 .53
--------- --------- -------
Total from investment operations............. .76 .71 .71
--------- --------- -------
LESS DISTRIBUTIONS
Dividends from net investment income.......... (.31) (.26) (.26)
Distributions from net realized gains......... (.53) (.53) (.53)
--------- --------- -------
Total distributions.......................... (.84) (.79) (.79)
--------- --------- -------
Net asset value, end of period................ $ 13.95 $ 13.92 $ 13.92
========= ========= =======
TOTAL RETURN(B):.............................. 6.04% 5.65% 5.65%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $ 261,036 $891,264 $ 3,032
Average net assets (000)...................... $ 192,144 $893,465 $ 2,214
Ratios to average net assets:(a)
Expenses, including distribution fees........ 1.03% 1.79% 1.78%
Expenses, excluding distribution fees........ .78% .79% .78%
Net investment income........................ 3.46% 2.79% 2.65%
Portfolio turnover rate....................... 35% 35% 35%
</TABLE>
--------

(a) Annualized.

(b) Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of the period reported and includes reinvestment of
dividends and distributions. Total returns for periods of less than a
full year are not annualized.

S-1

<PAGE>

THE FOLLOWING INFORMATION SUPPLEMENTS "GENERAL INFORMATION--DESCRIPTION OF
SHARES" IN THE PROSPECTUS:

The Fund is authorized to offer an unlimited number of shares of beneficial
interest, $.01 par value per share, divided into four classes, designated
Class A, Class B, Class C and Class Z shares. Each class represents an
interest in the same assets of the Fund and is identical in all respects
except that (i) 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 distribution and/or service fee), (ii) each class has exclusive
voting rights on any matter submitted to shareholders that relates solely to
its arrangement and has separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the interests of
any other class, (iii) each class has a different exchange privilege, (iv)
only Class B shares have a conversion feature and (v) Class Z shares are not
subject to any sales or redemption charge and are offered exclusively for sale
to the Trustee of the Prudential Securities 401(k) Plan, a defined
contribution plan sponsored by Prudential Securities. 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 or service fee. In accordance with the Fund's
Declaration of Trust, the Board of Trustees may authorize the creation of
additional series and classes within such series, with such preferences,
privileges, limitations and voting and dividend rights as the Trustees may
determine. Currently, the Fund is offering four classes, designated Class A,
Class B, Class C and Class Z shares.

THE FOLLOWING INFORMATION FOR THE CLASS Z SHARES SUPPLEMENTS "HOW THE FUND
CALCULATES PERFORMANCE" IN THE PROSPECTUS:

The Fund will include performance data for each class of shares offered
through the Prospectus and in any advertisement or information including
performance data of the Fund.

S-2
<PAGE>

PRUDENTIAL EQUITY INCOME FUND

Supplement dated January 2, 1996 to

Statement of Additional Information dated December 29, 1994

THE FOLLOWING INFORMATION SUPPLEMENTS "TRUSTEES AND OFFICERS" IN THE
STATEMENT OF ADDITIONAL INFORMATION:

As of October 13, 1995, the Trustees and officers of the Fund, as a group,
owned less than 1% of the outstanding shares of beneficial interest of the
Fund.

As of October 13, Prudential Securities was the record holder for other
beneficial owners of 10,791,918 Class A shares (or 56% of the outstanding
Class A shares), 44,138,759 Class B shares (or 70% of the outstanding Class B
shares) and 198,262 Class C shares (or 64% of the outstanding Class C 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.

THE FOLLOWING INFORMATION SUPPLEMENTS "DISTRIBUTOR" IN THE STATEMENT OF
ADDITIONAL INFORMATION:

THE FOLLOWING INFORMATION SUPPLEMENTS "PURCHASE AND REDEMPTION OF FUND
SHARES" IN THE STATEMENT OF ADDITIONAL INFORMATION:

Shares of the Fund may be purchased at a price equal to the next determined
net asset value per share plus a sales charge which, at the election of the
investor, may be imposed either (i) at the time of purchase (Class A shares)
or (ii) on a deferred basis (Class B or Class C shares). Class Z shares of the
Fund are not subject to any sales or redemption charge and are offered
exclusively for sale to the Trustee of the Prudential Securities 401(k) Plan,
a defined contribution plan sponsored by Prudential Securities (the PSI 401(k)
Plan). See "Shareholder Guide--How to Buy Shares of the Fund" in the
Prospectus.

Each class represents an interest in the same assets of the Fund and is
identical in all respects except that (i) 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 or redemption charge or distribution and/or
service fee), (ii) each class has exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement and has
separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class, (iii) each
class has a different exchange privilege, (iv) only Class B shares have a
conversion feature and (v) Class Z shares are offered exclusively for sale to
the Trustee of the PSI 401(k) Plan. See "Distributor" and "Shareholder
Investment Account--Exchange Privilege."

SPECIMEN PRICE MAKE-UP

Under the current distribution arrangements between the Fund and the
Distributor, Class A shares are sold at a maximum sales charge of 5% and Class
B*, Class C* and Class Z** shares are sold at net asset value. Using the
Fund's net asset value at April 30, 1995, 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.................. $13.95
Maximum sales charge (5% of offering price)............................. .73
------
Offering price to public................................................ $14.68
======
CLASS B
Net asset value, offering price and redemption price per Class B share*. $13.92
======
CLASS C
Net asset value, offering price and redemption price per Class C share*. $13.92
======
CLASS Z
Net asset value, offering price and redemption price per Class Z
share**................................................................ $13.92
======
</TABLE>
- ---------
* Class B and Class C shares are subject to a contingent deferred sales
charge on certain redemptions. See "Shareholder Guide--How to Sell Your
Shares--Contingent Deferred Sales Charges" in the Prospectus.

** Class Z shares did not exist prior to January 2, 1996.

B-1

<PAGE>

THE FOLLOWING INFORMATION SUPPLEMENTS "SHAREHOLDER INVESTMENT ACCOUNT--
EXCHANGE PRIVILEGE" IN THE STATEMENT OF ADDITIONAL INFORMATION:

CLASS Z. Class Z shares may be exchanged for Class Z shares of the funds
listed below which participate in the PSI 401(k) Plan. No fee or sales load
will be imposed upon the exchange.

Prudential Allocation Fund (Balanced Portfolio)
Prudential Equity Fund, Inc.
Prudential Global Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust (Money Market Series)
Prudential Growth Opportunity Fund, Inc.
Prudential High Yield Fund, Inc.
Prudential MoneyMart Assets, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential Utility Fund, Inc.

THE FOLLOWING INFORMATION SUPPLEMENTS "PERFORMANCE INFORMATION" IN THE
STATEMENT OF ADDITIONAL INFORMATION:

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

The average annual total return for the one year, five year and since
inception periods ended April 30, 1995 was:

<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS SINCE INCEPTION
-------- ---------- ---------------
<S> <C> <C> <C>
Class A............................. 6.2% 12.5% 11.3%(1/22/90)
Class B............................. 5.9% 12.7% 9.9%(1/22/87)
Class C............................. N/A N/A 5.1%(8/1/94)
</TABLE>

During these periods, no Class Z shares were outstanding.

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 "How the Fund Calculates Performance" in the
Prospectus.

The aggregate total return for the one year, five year and since inception
periods ended April 30, 1995 was:

<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS SINCE INCEPTION
-------- ---------- ---------------
<S> <C> <C> <C>
Class A............................. 11.8% 89.6% 84.6%(1/22/90)
Class B............................. 10.9% 82.3% 117.7%(1/22/87)
Class C............................. N/A N/A 6.1%(8/1/94)
</TABLE>

During these periods, no Class Z shares were outstanding.

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 Fund's 30-day yields for the 30 days ended April 30,
1995 were 2.82%, 2.23% and 2.24% for the Class A, Class B and Class C shares,
respectively. During this period, no Class Z shares were outstanding.

B-2

<PAGE>

Portfolio of Investments as of
April 30, 1995 (Unaudited) PRUDENTIAL EQUITY INCOME FUND
- ------------------------------ -----------------------------

Shares Description Value (Note 1)

LONG-TERM INVESTMENTS--97.6%
COMMON STOCKS--75.3%
<C> <S> <C>
Aerospace/Defense--4.7%

583,600 Northrop Grumman Corp. $ 28,961,150
896,400 Thiokol Corp. 24,987,150
39,200 United Industrial Corp. 240,100
---------------
54,188,400
---------------

Apparel--1.9%

500,000 Fruit of the Loom, Inc.* 13,000,000
4,700 Garan, Inc. 81,075
423,500 Kellwood Co. 7,570,063
41,300 Oxford Industries, Inc. 795,025
---------------
21,446,163
---------------

Automobiles & Trucks--0.6%

150,000 General Motors Corp. 6,768,750
---------------

Banking--1.5%

200,000 Chase Manhattan Corp. 8,750,000
200,000 Chemical Banking Corp. 8,350,000
15,100 First Fidelity Bancorp 728,575
---------------
17,828,575
---------------

Chemicals--0.6%

120,100 Potash Corp. of Saskatchewan, Inc. 6,380,313
---------------

Computer Hardware--3.0%

370,600 International Business Machines Corp. 35,114,350
---------------

Computer Software & Services--1.0%

1,041,100 Intergraph Corp.* 11,191,825
---------------

Drugs & Medical Supplies--0.9 %

300,000 Baxter International, Inc. 10,425,000

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

Electric Utilities--0.9%

9,000 Central Louisiana Electric Co . $ 207,000
457,800 Entergy Corp. 9,957,150
---------------
10,164,150
---------------

Electrical Equipment--1.9%

183,660 Advanced Micro Devices, Inc. 6,611,760
1,020,100 Westinghouse Electric Corp. 15,301,500
---------------
21,913,260
---------------

Electronics--1.3%

220,500 Esterline Technologies Corp.* 3,720,938
517,900 IMO Industries, Inc.* 3,819,512
379,400 Newport Corp. 3,177,475
190,500 Pacific Scientific Co. 4,024,312
---------------
14,742,237
---------------

Energy Equipment & Services-- 3.7%

501,000 Smith International, Inc.* 8,642,250
265,400 Sonat Offshore Drilling, Inc. 7,165,800
522,800 USX Corp. 15,945,400
1,372,000 Varco International, Inc.* 11,490,500
---------------
43,243,950
---------------

Energy Systems--8.8%

823,700 Baker Hughes, Inc. 18,533,250
823,100 Dresser Industries, Inc. 18,005,313
445,000 Halliburton Co. 17,076,875
1,284,500 McDermott International, Inc. 35,323,750
1,403,100 Morrison Knudsen Corp. 11,049,412
80,000 Zurn Industries, Inc. 1,610,000
---------------
101,598,600
</TABLE>

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

See Notes to Financial Statements. 3
<PAGE>

Portfolio of Investments as of
April 30, 1995 (Unaudited) PRUDENTIAL EQUITY INCOME FUND
- ------------------------------ -----------------------------

Shares Description Value (Note 1)
<C> <S> <C>

Financial Services--6.6%

147,900 Alex Brown, Inc. $ 6,063,900
903,500 Bear Stearns Cos., Inc. 18,634,688
530,900 Edwards (A.G.), Inc. 12,144,337
111,600 Legg Mason, Inc. 2,748,150
1,502,000 Lehman Brothers Holdings, Inc. 29,289,000
100,000 Morgan Stanley Group, Inc. 6,950,000
---------------
75,830,075
---------------

Gas Distribution--1.4%

129,800 British Gas Plc., (ADS)
(United Kingdom) 6,327,750
76,400 Equitable Resources, Inc. 2,186,950
237,450 KN Energy, Inc. 6,025,294
58,450 Yankee Energy System, Inc. 1,139,775
---------------
15,679,769
---------------

Gas Pipelines--2.7%

532,000 Panhandle Eastern Corp. 12,768,000
318,300 Sonat, Inc. 9,668,362
410,000 TransCanada Pipelines, Ltd. 5,483,750
68,963 Transco Energy Co. 1,413,742
51,300 Williams Cos., Inc. 1,686,488
---------------
31,020,342
---------------

Insurance--5.6%

277,500 Aetna Life & Casualty Co. 15,817,500
981,100 Alexander & Alexander Services,Inc. 23,423,762
117,800 Fremont General Corp. 2,606,325
186,600 Ohio Casualty Corp. 5,458,050
194,000 SAFECO Corp. 10,961,000
225,500 Selective Insurance Group, Inc. 6,567,688
---------------
64,834,325
---------------

Integrated Producers--7.0%

19,000 Kerr-McGee Corp. 985,625
33,300 Mobil Corp. 3,159,338
544,300 Occidental Petroleum Corp. 12,518,900
49,800 Petroleum Heat & Power Co., Inc. 361,050
893,300 Quaker State Corp. 12,729,525
210,300 Repsol, S.A. (ADS) $ 6,729,600
469,170 Societe Nationale Elf Aquitaine, (ADR)
(France) 18,649,507
158,700 Sun Co., Inc. 4,780,837
39,400 Texaco, Inc. 2,693,975
962,000 USX Marathon Corp. 18,037,500
---------------
80,645,857
---------------

Machinery--0.2%

278,600 Terex Corp.* 1,810,900
---------------

Media--2.4%

250,000 Dun & Bradstreet Corp. 13,031,250
150,000 Gannett Co., Inc. 7,893,750
46,200 Harland (John H.) Co. 1,027,950
140,875 Pulitzer Publishing Co. 5,687,828
---------------
27,640,778
---------------

Miscellaneous Industrial--1.6%

60,000 Hanson Plc., (ADR) 1,140,000
5,400 Kollmorgen Corp. 34,425
374,200 Tenneco, Inc. 17,166,425
---------------
18,340,850
---------------

Offshore Service Vessel--0.4%

200,000 Tidewater, Inc. 4,750,000
---------------

Paper--0.4%

482,900 Gibson Greetings, Inc. 4,829,000
---------------

Realty Investment Trust--12.1%

271,000 AMLI Residential Property Trust 4,945,750
315,000 Avalon Properties, Inc. 6,181,875
231,200 Beacon Properties 4,537,300
300,000 Bradley Real Estate Trust 4,537,500
30,200 Carr Realty Corp. 536,050
68,100 Charles E. Smith Residential
Realty, Inc. 1,549,275
808,900 Crescent Real Estate Equities 23,255,875
837,400 Equity Residential Property Trust 22,400,450
175,000 Essex Property Trust 2,843,750
---------------
</TABLE>

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

4 See Notes to Financial Statements.
<PAGE>

Portfolio of Investments as of
April 30, 1995 (Unaudited) PRUDENTIAL EQUITY INCOME FUND
- ------------------------------ -----------------------------

Shares Description Value (Note 1)
<C> <S> <C>

Realty Investment Trust (cont'd.)--12.1%

151,800 First Union Real Estate Equity &
Mortgage Investments $ 1,100,550
567,700 Gables Residential Trust 10,431,487
300,000 Glimcher Realty Trust 5,812,500
400,000 Irvine Apartment Communities, Inc. 6,300,000
96,000 JP Realty, Inc. 1,824,000
41,700 Kimco Realty Corp. 1,574,175
230,000 Malan Reality Investors, Inc. 3,162,500
442,100 Manufactured Home Communities, Inc. 6,963,075
43,500 MGI Properties 614,438
62,600 Pennsylvania Real Estate
Investment Trust 1,314,600
586,093 Security Capital Pacific Trust 10,256,628
285,700 Simon Property Group, Inc. 6,785,375
70,500 Storage Equities, Inc. 1,136,812
302,500 Vornado Realty Trust 10,209,375
69,600 Weingarten Realty Investors, Inc. 2,436,000
---------------
140,709,340
---------------

Retail--1.4%

300,000 Bradlees, Inc. 3,150,000
400,000 K-Mart Corp. 5,550,000
200,000 May Department Stores Co. 7,250,000
---------------
15,950,000
---------------

Steel--0.1%

102,400 LTV Corp.* 1,459,200
59,600 Tubos de Acero de Mexico, S.A.,
(ADR)* (Mexico) 257,025
---------------
1,716,225
---------------

Telecommunication Services--2.0%

13,600 Ameritech Corp. $ 612,000
100,000 BellSouth Corp. 6,125,000
196,700 NYNEX Corp. 8,040,112
265,000 Telefonos de Mexico, S.A., (ADR)
(Mexico) 8,016,250
11,600 U.S. West, Inc. 479,950
---------------
23,273,312
---------------

Wood Processing--0.6%

200,000 Rayonier, Inc. 6,625,000
---------------
Total common stocks (cost
$782,807,396) 868,661,346
---------------
PREFERRED STOCKS--15.6%

Aluminum--1.2%

422,500 Kaiser Aluminum Corp., Conv. $8.25 4,647,500
193,500 Reynolds Metals Co., Conv. $3.31 9,336,375
---------------
13,983,875
---------------

Automobiles & Trucks--3.3%

158,200 Chrysler Corp.,* Conv. $4.63 18,964,225
213,000 Ford Motor Co., Conv. $4.20 18,770,625
---------------
37,734,850
---------------

Banking--0.1%

54,600 Security Capital Pacific Trust,
Ser. A, Conv. 1,228,500
---------------

Electric Utilities--0.1%

2,100 Gulf States Utilities Co., $5.08, Class E 122,063
10,624 Gulf States Utilities Co., $8.08, Class K 1,025,880
---------------
1,147,943
---------------
</TABLE>

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

See Notes to Financial Statements. 5
<PAGE>

Portfolio of Investments as of
April 30, 1995 (Unaudited) PRUDENTIAL EQUITY INCOME FUND
- ------------------------------ ------------------------------

Shares Description Value (Note 1)
<C> <S> <C>

Electrical Equipment--3.6%

172,000 National Semiconductor Corp.,
Conv. $3.25 $ 14,276,000
1,743,000 Westinghouse Electric Corp.,
Conv. $1.30 26,580,750
---------------
40,856,750
---------------

Energy Systems--0.7%

100,000 McDermott International, Inc.,
Conv. $5.75, Ser. C 4,575,000
149,300 Reading & Bates Corp., Conv. $1.63 4,012,437
---------------
8,587,437
---------------

Insurance--0.5%

102,200 Alexander & Alexander Servic es, Inc.,*
Conv. $3.63, Ser. A 4,982,250
12,700 USF&G Corp., Conv. $4.10, Ser. A 598,488
---------------
5,580,738
---------------

Integrated Producers--0.9%

110,000 Noble Drilling Corp., Conv. $1.50 2,509,375
49,000 Unocal Corp., Conv. $3.50 2,664,375
118,900 USX Marathon Corp., Conv. 6.5% 5,335,637
---------------
10,509,387
---------------

Mining--0.5%

100,000 Echo Bay Finance Corp., Conv. $1.75,
Ser. A 2,962,500
60,000 Hecla Mining Co., Conv. 7.00 %, Ser. B 3,037,500
---------------
6,000,000
---------------

Oil & Gas Exploration & Prod uction--0.3%

85,000 Parker & Parsley Capital, Conv. 6.25% 3,952,500
---------------

Paper--0.7%

58,300 Bowater, Inc., Conv. 7%, Ser. B $ 1,880,175
244,000 James River Corp., Conv. $9.00 5,978,000
---------------
7,858,175
---------------

Steel--1.1%

285,000 Bethleham Steel Corp., Conv. $3.50 12,433,125
---------------

Textiles--0.3%

79,000 Fieldcrest Cannon, Inc., Conv. $3.00,
Ser. A 3,811,750
---------------

Tobacco--2.3%

4,400,000 RJR Nabisco Holdings, Inc., Conv. $0.60,
PERCS 26,400,000
---------------
Total preferred stocks (cost $186,080,708) 180,085,030
---------------

Principal
Moody's Amount
Rating (000)

CONVERTIBLE BONDS--6.4%
- -----------------------

Airlines--1.0%

<C> <S> <C> <C>
Ba2 $ 11,500 AMR Corp., Deb.,
6.125%, 11/1/24 11,149,480
---------------
<CAPTION>
Computer Hardware--1.8%
<C> <S> <C> <C>
B2 2,300 Conner Peripherals,
Inc., Sub. Deb.,
6.75%, 3/1/01 1,776,290
B2 7,000 Quantum Corp., Deb.,
6.375%, 4/1/02 7,595,000
Seagate Technology,
6.75%, 5/1/12, Deb. 3,321,825
B1 3,407
B1 7,600 Sub. Deb.,
5.00%, 11/1/03 9,766,000
---------------
22,459,115
</TABLE>

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

6 See Notes to Financial Statements.
<PAGE>

Portfolio of Investments as of
April 30, 1995 (Unaudited) PRUDENTIAL EQUITY INCOME FUND
- ------------------------------ -----------------------------

Principal
Moody's Amount
Rating (000) Description Value (Note 1)
- ------- --------- ----------- ---------------
<C> <C> <S> <C>

Electrical Equipment--0.4%

B2 $ 2,665 Cypress Semiconductor
Corp., Sub. Notes,
3.15%, 3/15/01 $ 3,071,413
B3 1,626 VLSI Technology, Inc.,
Sub. Deb.,
7.00%, 5/1/12 1,747,950
---------------
4,819,363
---------------

Fertilizer--0.4%

B3 4,500 IMC Fertilizer Group,
Inc., Deb.,
6.25%, 12/1/01 4,328,505
---------------

Integrated Oil--0.8%

Aa3 339 Amoco Canada Petroleum
Co., Sub. Exch. Deb.,
7.375%, 9/1/13 426,252
A2 8,250 Baker Hughes, Inc.,
Zero Coupon, 5/5/08 4,749,113
B2 2,583 Cross Timbers Oil Co.,
Deb.,
5.25%, 11/1/03 2,182,635
B2 2,121 Oryx Energy Co.,
Sub. Deb.,
7.50%, 5/15/14 1,765,732
---------------
9,123,732
---------------

Integrated Producers--1.2%

Baa3 14,299 Noble Affiliates, Inc.,
Sub. Notes,
4.25%, 11/1/03 13,691,292
---------------

Mining--0.4%

B2 3,000 Coeur D'Alene Mines
Corp., Sub. Deb.,
7.00%, 11/30/02 3,855,000
Ba3 1,000 Freeport McMoran, Inc.,
Deb.,
6.55%, 1/15/01 918,050
---------------
4,773,050
---------------

Realty Investment Trust--0.3%

NR $ 3,800 Malan Reality Investors,
Inc., Sub. Deb.,
9.50%, 7/15/04 $ 3,344,000
---------------

Steel--0.1%

Ba2 710 USX Corp., Sub. Deb.,
7.00%, 6/15/17 624,800
---------------
Total convertible bonds
(cost $70,667,529) 74,313,337
---------------

Foreign Government Obligations--0.3%

NZ$5,900 New Zealand Gov't.
Bonds, 8.00%, 4/15/04
(cost $4,003,914) 4,017,047
---------------
Total long-term
investments (cost
$1,043,559,548) 1,127,076,760
---------------
<CAPTION>
SHORT-TERM INVESTMENTS--1.7%

Repurchase Agreement--1.7%
<C> <C> <S> <C>
19,881 Joint Repurchase
Agreement Account,
5.93%, 5/1/95, (cost
$19,881,000; Note 5) 19,881,000
---------------
<CAPTION>
Total Investments--99.3%
<C> <C> <S> <C>
(cost $1,063,440,548;
Note 4) 1,146,957,760
Other assets in excess
of liabilities--0.7% 8,374,499
---------------
Net Assets--100% $ 1,155,332,259
===============
</TABLE>

- ---------------
*Non-income producing security.
ADR--American Depository Receipt.
ADS--American Depository Shares.
PERCS--Preferred Equity Redemption Cumulative Stock.
The Fund's current Statement of Additional Information contains a description of
Moody's ratings.
NR--Not rated by Moody's or Standard & Poor's.

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

See Notes to Financial Statements. 7
<PAGE>

Statement of Assets and Liabilities (Unaudited) PRUDENTIAL EQUITY INCOME FUND
- ----------------------------------------------- -----------------------------
<S> <C>
ASSETS April 30, 1995

Investments, at value (cost $1,063,440,548)................................................................ $1,146,957,760
Cash....................................................................................................... 47,471
Receivable for investments sold............................................................................ 14,685,163
Dividends and interest receivable.......................................................................... 3,563,406
Receivable for Fund shares sold............................................................................ 3,225,387
Deferred expenses and other assets......................................................................... 30,373
--------------
Total assets............................................................................................ 1,168,509,560
--------------
Liabilities
Payable for investments purchased.......................................................................... 8,015,725
Payable for Fund shares reacquired......................................................................... 3,424,385
Distribution fee payable................................................................................... 777,376
Management fee payable..................................................................................... 508,424
Accrued expenses........................................................................................... 440,403
Foreign withholding tax payable............................................................................ 10,988
--------------
Total liabilities....................................................................................... 13,177,301
--------------
Net Assets................................................................................................. $1,155,332,259
--------------
Net assets were comprised of:
Shares of beneficial interest, at par................................................................... $ 829,766
Paid-in capital in excess of par........................................................................ 1,076,679,813
--------------
1,077,509,579
Undistributed net investment income..................................................................... 7,950,101
Accumulated net realized loss on investments............................................................ (13,631,919)
Net unrealized appreciation of investments and foreign currencies....................................... 83,504,498
--------------
Net assets, April 30, 1995................................................................................. $1,155,332,259
==============
Class A:
Net asset value and redemption price per share
($261,036,128 / 18,715,618 shares of beneficial interest issued and outstanding)..................... $13.95
Maximum sales charge (5% of offering price)............................................................. .73
------
Maximum offering price to public........................................................................ $14.68
======
Class B:
Net asset value, offering price and redemption price per share
($891,264,215 / 64,043,150 shares of beneficial interest issued and outstanding)..................... $13.92
======
Class C:
Net asset value, offering price and redemption price per share
($3,031,916 / 217,855 shares of beneficial interest issued and outstanding).......................... $13.92
======
</TABLE>

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

8 See Notes to Financial Statements.
<PAGE>

PRUDENTIAL EQUITY INCOME FUND PRUDENTIAL EQUITY INCOME FUND
Statement of Operations (Unaudited) Statement of Changes in Net Assets (Unaudited)
- ----------------------------------- ----------------------------------------------

Six Months
Ended
Net Investment Income April 30, 1995
<S> <C>
Income
Dividends (net of foreign withholding taxes
of $51,758)............................. $ 20,420,943
Interest................................... 4,110,287
------------
Total income............................ 24,531,230
------------
Expenses
Distribution fee--Class A.................. 238,206
Distribution fee--Class B.................. 4,430,608
Distribution fee--Class C.................. 10,980
Management fee............................. 2,945,150
Transfer agent's fees and expenses......... 773,000
Reports to shareholders.................... 177,000
Registration fees.......................... 106,000
Custodian's fees and expenses.............. 103,000
Legal fees................................. 23,000
Trustees' fees............................. 18,500
Audit fee.................................. 18,000
Insurance.................................. 14,000
Miscellaneous.............................. 5,066
------------
Total expenses.......................... 8,862,510
------------
Net investment income......................... 15,668,720
------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized loss on investment
transactions............................... (13,082,353)
------------
Net change in unrealized
appreciation/depreciation of:
Investments................................ 59,429,200
Foreign currencies......................... (11,662)
------------
59,417,538
------------
Net gain on investment transactions........... 46,335,185
------------
Net Increase in Net Assets
Resulting from Operations..................... $ 62,003,905
============
<CAPTION>

Six Months
Increase (Decrease) Ended Year Ended
in Net Assets April 30, 1995 October 31, 1994
<S> <C> <C>
Operations
Net investment income....... $ 15,668,720 $ 21,216,512
Net realized gain (loss) on
investments.............. (13,082,353) 42,485,087
Net change in unrealized
appreciation/depreciation
of investments and
foreign currencies....... 59,417,538 (35,543,092)
-------------- --------------
Net increase in net assets
resulting from
operations............... 62,003,905 28,158,507
-------------- --------------
Net equalization credits....... 38,992 3,591,448
-------------- --------------
Dividends and distributions
(Note 1)
Dividends from net
investment income
Class A.................. (4,157,436) (2,741,569)
Class B.................. (17,422,155) (10,744,017)
Class C.................. (39,686) (3,204)
-------------- --------------
(21,619,277) (13,488,790)
-------------- --------------
Distributions from net
realized gains
Class A.................. (5,627,572) (4,073,407)
Class B.................. (35,965,908) (22,284,545)
Class C.................. (68,654) --
-------------- --------------
(41,662,134) (26,357,952)
-------------- --------------
Fund share transactions (net of
share conversions) (Note 6)
Proceeds from shares sold... 152,493,616 668,069,397
Net asset value of shares
issued in reinvestment of
dividends and
distributions............ 57,507,057 36,142,786
Cost of shares reacquired... (160,408,987) (221,021,185)
-------------- --------------
Net increase in net assets
from Fund share
transactions............. 49,591,686 483,190,998
-------------- --------------
Total increase................. 48,353,172 475,094,211
Net Assets
Beginning of period............ 1,106,979,087 631,884,876
-------------- --------------
End of period.................. $1,155,332,259 $1,106,979,087
============== ==============
</TABLE>

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

See Notes to Financial Statements. 9
<PAGE>

Notes to Financial Statements (Unaudited) PRUDENTIAL EQUITY INCOME FUND
- --------------------------------------------------------------------------------
Prudential Equity Income Fund (the ``Fund'') is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company.
The investment objective of the Fund is both current income and capital
appreciation. It seeks to achieve this objective by investing primarily in
common stocks and convertible securities that provide investment income returns
above those of the Standard & Poor's 500 Stock Index or the NYSE Composite
Index. The ability of the issuers of the debt securities held by the Fund to
meet their obligations may be affected by economic developments in a specific
industry or country.

Note 1. Accounting Policies

The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.

Securities Valuation: Investments in securities traded on a national securities
exchange (or reported on the NASDAQ national market) are valued at the last sale
price on such exchange on the day of valuation or, if there was no sale on such
day, the mean between the last bid and asked prices quoted on such day.
Convertible debt securities that are actively traded in the over-the-counter
market, including listed securities for which the primary market is believed to
be over-the-counter, are valued at the mean between the most recently quoted bid
and asked prices provided by principal market makers. Other securities are
valued at the mean between the most recently quoted bid and asked prices.
Securities which are otherwise not readily marketable or securities for which
market quotations are not readily available are valued in good faith at fair
value in accordance with procedures adopted by the Fund's Board of Trustees.

Short-term securities which mature in more than 60 days are valued based upon
current market quotations. Short-term securities which mature in 60 days or less
are valued at amortized cost which approximates market value.

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

Foreign Currency Translation: The books and records of the Fund are maintained
in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on
the following basis:

(i) market value of investment securities, other assets and liabilities--at
the current rates of exchange;

(ii) purchases and sales of investment securities, income and expenses--at
the rates of exchange prevailing on the respective dates of such
transactions.

Although the net assets of the Fund are presented at the foreign exchange rates
and market values at the close of the period, the Fund does not isolate that
portion of the results of operations arising as a result of changes in the
foreign exchange rates from the fluctuations arising from changes in the market
prices of the securities held at period end. Similarly, the Fund does not
isolate the effect of changes in foreign exchange rates from the fluctuations
arising from changes in the market prices of long-term debt securities sold
during the period. Accordingly, such realized foreign currency gains and losses
are included in the reported net realized gains/losses on investment
transactions.

Net realized losses on foreign currency transactions represents net foreign
exchange gains and losses from sales and maturities of short-term securities and
forward currency contracts, holding of foreign currencies, currency gains or
losses realized between the trade and settlement dates on securities
transactions, and the difference between the amounts of interest and foreign
taxes recorded on the Fund's books and the U.S. dollar equivalent amounts
actually received or paid. Net currency gains and losses from valuing foreign
currency denominated assets (excluding investments) and liabilities at period
end exchange rates are reflected as a component of net unrealized
appreciation/depreciation on investments and foreign currencies.

Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of U.S. companies as a result of,
among other factors, the possibility of political or economic instability and
the level of governmental supervision and regulation of foreign securities
markets.

Net investment income (other than distribution fees) and unrealized and realized
gains or losses are allocated daily to each class of shares of the Fund based
upon the relative proportion of net assets of each class at the beginning of the
day.

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

10
<PAGE>

Notes to Financial Statements (Unaudited) PRUDENTIAL EQUITY INCOME FUND
- --------------------------------------------------------------------------------
Equalization: The Fund follows the accounting practice known as equalization by
which a portion of the proceeds from sales and costs of reacquisitions of Fund
shares, equivalent on a per share basis to the amount of distributable net
investment income on the date of the transaction, is credited or charged to
undistributed net investment income. As a result, undistributed net investment
income per share is unaffected by sales or reacquisitions of the Fund's shares.

Federal Income Taxes: It is the Fund's policy to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable net income to its shareholders.
Therefore, no federal income tax provision is required.

Withholding taxes on foreign dividends have been provided for in accordance with
the Fund's understanding of the applicable country's tax rates.

Dividends and Distributions: The Fund expects to pay dividends out of net
investment income quarterly and make distributions at least annually of any net
capital gains. Dividends and distributions are recorded on the ex-dividend date.

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

Note 2. Agreements

The Fund has a management agreement with Prudential Mutual Fund Management, Inc.
(``PMF''). Pursuant to this agreement, PMF has responsibility for all investment
advisory services and supervises the subadviser's performance of such services.
PMF has entered into a subadvisory agreement with The Prudential Investment
Corporation (``PIC''); PIC furnishes investment advisory services in connection
with the management of the Fund. PMF pays for the cost of the subadviser's
services, the compensation of officers of the Fund, occupancy and certain
clerical and bookkeeping costs of the Fund. The Fund bears all other costs and
expenses.

The management fee paid PMF is computed daily and payable monthly at an annual
rate of .60 of 1% of the average daily net assets of the Fund up to $500 million
and .50 of 1% of the average daily net assets in excess of $500 million. PMF has
agreed to voluntarily reduce its management fee, effective June 1, 1995, to an
annual rate of .60% of 1% of the Fund's average daily net assets up to $500
million, .50 of 1% of the next $500 million, .475 of 1% of the next $500 million
and .45 of 1% of the average daily net assets in excess of $1.5 billion.

The Fund has distribution agreements with Prudential Mutual Fund Distributors,
Inc. (``PMFD''), which acts as the distributor of the Class A shares of the
Fund, and with Prudential Securities Incorporated (``PSI''), which acts as
distributor of the Class B and Class C shares of the Fund (collectively, the
``Distributors''). The Fund compensates the Distributors for distributing and
servicing the Fund's Class A, Class B and Class C shares, pursuant to plans of
distribution (the ``Class A, B and C Plans''), regardless of expenses actually
incurred by them. The distribution fees are accrued daily and payable monthly.

PMFD has advised the Fund that it has received approximately $320,200 in
front-end sales charges resulting from sales of Class A shares during the six
months ended April 30, 1995. From these fees, PMFD paid such sales charges to
dealers which in turn paid commissions to salespersons.

PSI has advised the Fund that for the six months ended April 30, 1995, it
received approximately $1,354,000 in contingent deferred sales charges imposed
upon certain redemptions by Class B and Class C shareholders.

PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.

Note 3. Other Transactions with Affiliates

Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent and during the six months ended April
30, 1995, the Fund incurred fees of approximately $760,500 for the services of
PMFS. As of April 30, 1995, approximately $138,600 of such fees were due to
PMFS. Transfer agent fees and expenses in the Statement of Operations include
certain out-of-pocket expenses paid to non-affiliates.

For the six months ended April 30, 1995, PSI earned approximately $73,100 in
brokerage commissions from portfolio transactions executed on behalf of the
Fund.

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

11
<PAGE>

Notes to Financial Statements (Unaudited) PRUDENTIAL EQUITY INCOME FUND
- --------------------------------------------------------------------------------

Note 4. Portfolio Securities

Purchases and sales of investment securities, other than short-term investments,
for the six months ended April 30, 1995 were $395,698,140 and $364,510,964,
respectively.

The federal income tax basis of the Fund's investments at April 30, 1995 was
$1,063,440,548 and, accordingly, net unrealized appreciation for federal income
tax purposes was $83,517,212 (gross unrealized appreciation--$129,939,350; gross
unrealized depreciation--$46,422,138)

Note 5. Joint Repurchase Agreement Account

The Fund, along with other affiliated registered investment companies, transfers
uninvested cash balances into a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements collateralized
by U.S. Treasury or federal agency obligations. At April 30, 1995, the Fund had
a 2.9% undivided interest in the repurchase agreements in the joint account. The
undivided interest for the Fund represented $19,881,000 in principal amount. As
of such date, each repurchase agreement in the joint account and the value of
the collateral therefor was as follows:

Bear, Stearns & Co., 5.92%, in the principal amount of $125,000,000, repurchase
price $125,061,667, due 5/1/95. The value of the collateral including accrued
interest is $127,647,875.

UBS Securities Inc., 5.93%, in the principal amount of $100,000,000, repurchase
price $100,049,417, due 5/1/95. The value of the collateral including accrued
interest is $102,062,500.

Morgan Stanley and Co., Inc., 5.93%, in the principal amount of $225,000,000,
repurchase price $225,111,188, due 5/1/95. The value of the collateral including
accrued interest is $229,640,625.

CS First Boston Corp., 5.93%, in the principal amount of $225,000,000,
repurchase price $225,111,188, due 5/1/95. The value of the collateral including
accrued interest is $229,640,625.

Note 6. Capital

The Fund offers Class A, Class B and Class C shares. Class A shares are sold
with a front-end sales charge of up to 5.00%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class C shares are sold with a contingent
deferred sales charge of 1% during the first year. Class B shares will
automatically convert to Class A shares on a quarterly basis approximately seven
years after purchase.

The Fund has authorized an unlimited number of shares of beneficial interest at
$.01 par value divided into three classes, designated Class A, Class B and Class
C.

Transactions in shares of beneficial interest were as follows:

Class A Shares Amount
- ------- ----------- -------------
<S> <C> <C>
Six months ended April 30, 1995:
Shares sold...................... 3,718,522 $ 48,483,821
Shares issued in reinvestment of
dividends and distributions.... 717,157 9,087,229
Shares reacquired................ (3,586,028) (47,216,896)
----------- -------------
Net increase in shares
outstanding before
conversion..................... 849,651 10,354,154
Shares issued upon conversion
from Class B................... 7,136,039 92,554,638
----------- -------------
Net increase in shares
outstanding.................... 7,985,690 $ 102,908,792
=========== =============
Year ended October 31, 1994:
Shares sold...................... 6,678,218 $ 92,227,070
Shares issued in reinvestment of
dividends and distributions.... 461,830 6,268,096
Shares reacquired................ (3,645,394) (50,335,973)
----------- -------------
Net increase in shares
outstanding.................... 3,494,654 $ 48,159,193
=========== =============
<CAPTION>

Class B
- -------
<S> <C> <C>
Six months ended April 30, 1995:
Shares sold...................... 7,832,547 $ 102,568,917
Shares issued in reinvestment of
dividends and distributions.... 3,849,679 48,314,439
Shares reacquired................ (8,711,753) (113,072,931)
----------- -------------
Net decrease in shares
outstanding before
conversion..................... 2,970,473 37,810,425
Shares reacquired upon conversion
into Class A................... (7,152,506) (92,554,638)
----------- -------------
Net decrease in shares
outstanding.................... (4,182,033) $ (54,744,213)
=========== =============
Year ended October 31, 1994:
Shares sold...................... 41,661,976 $ 574,309,044
Shares issued in reinvestment of
dividends and distributions.... 2,213,613 29,871,685
Shares reacquired................ (12,436,151) (170,671,244)
----------- -------------
Net increase in shares
outstanding.................... 31,439,438 $ 433,509,485
=========== =============
</TABLE>

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

12
<PAGE>

Notes to Financial Statements (Unaudited) PRUDENTIAL EQUITY INCOME FUND
- --------------------------------------------------------------------------------

Class C Shares Amount
- ------- ----------- -------------
Six months ended April 30, 1995:
<S> <C> <C>
Shares sold...................... 109,364 $ 1,440,878
Shares issued in reinvestment of
dividends and distributions.... 8,330 105,389
Shares reacquired................ (8,916) (119,160)
----------- -------------
Net increase in shares
outstanding.................... 108,778 $ 1,427,107
=========== =============
August 1, 1994* through October
31, 1994:
Shares sold...................... 109,870 $ 1,533,283
Shares issued in reinvestment of
dividends...................... 215 3,005
Shares reacquired................ (1,008) (13,968)
----------- -------------
Net increase in shares
outstanding.................... 109,077 $ 1,522,320
=========== =============
</TABLE>

- ---------------
* Commencement of offering of Class C shares.

- ------------------------------------------------------------
Note 7. Dividends

On June 15, 1995, the Board of Trustees of the Fund declared dividends of $.11
per Class A share and $.085 per Class B and Class C shares payable on June 23,
1995 to shareholders of record on June 20, 1995.

- ------------------------------------------------------------------------------
These financial statements are unaudited and reflect all adjustments (consisting
only of normal recurring adjustments) which are, in the opinion of Management,
necessary for a fair presentation of the results for the interim period
presented.
13
<PAGE>

Financial Highlights (Unaudited) PRUDENTIAL EQUITY INCOME FUND
- --------------------------------------------------------------------------------

Class A
-----------------------------------------------------------------------------
January 22,
Six Months 1990D
Ended Year Ended October 31, Through
April 30, -------------------------------------------- October 31,
1995 1994 1993 1992 1991 1990
------------ -------- -------- ------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 14.03 $ 14.38 $ 12.16 $ 12.04 $ 9.53 $ 10.59
---------- -------- -------- ------- ------ ------

Income from investment operations
Net investment income......................... .23 .41 .47 .47 .38 .25
Net realized and unrealized gain (loss) on
investment transactions..................... .53 .06 2.65 .60 2.50 (1.01)
---------- -------- -------- ------- ------ ------
Total from investment operations............ .76 .47 3.12 1.07 2.88 (.76)
---------- -------- -------- ------- ------ ------
Less distributions
Dividends from net investment income.......... (.31) (.29) (.46) (.47) (.37) (.30)
Distributions from net realized gains......... (.53) (.53) (.44) (.48) -- --
---------- -------- -------- ------- ------ ------
Total distributions......................... (.84) (.82) (.90) (.95) (.37) (.30)
---------- -------- -------- ------- ------ ------
Net asset value, end of period................ $ 13.95 $ 14.03 $ 14.38 $ 12.16 $12.04 $ 9.53
========== ======== ======== ======= ====== =====
TOTAL RETURN#:................................ 6.04% 3.48% 26.93% 9.50% 30.62% (7.36)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $261,036 $150,502 $104,017 $51,165 $4,013 $ 1,098
Average net assets (000)...................... $192,144 $131,398 $ 70,895 $21,931 $2,084 $ 752
Ratios to average net assets:
Expenses, including distribution fees....... 1.03%* 1.09% 1.07% 1.22% 1.37% 1.59%*
Expenses, excluding distribution fees....... .78%* .85% .87% 1.02% 1.17% 1.39%*
Net investment income....................... 3.46%* 2.97% 3.44% 3.22% 3.43% 3.12%*
Portfolio turnover............................ 35% 70% 57% 43% 64% 58%
</TABLE>

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

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

14 See Notes to Financial Statements.
<PAGE>

Financial Highlights (Unaudited) PRUDENTIAL EQUITY INCOME FUND
- --------------------------------------------------------------------------------

Class B
-----------------------------------------------------------------------------
Six Months
Ended Year Ended October 31,
April 30, ------------------------------------------------------------
1995 1994 1993 1992 1991 1990
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 14.00 $ 14.35 $ 12.14 $ 12.03 $ 9.53 $ 10.89
---------- -------- -------- -------- -------- --------
Income from investment operations
Net investment income......................... .18 .31 .37 .37 .30 .28
Net realized and unrealized gain (loss) on
investment transactions..................... .53 .06 2.64 .59 2.49 (1.32)
---------- -------- -------- -------- -------- --------
Total from investment operations............ .71 .37 3.01 .96 2.79 (1.04)
---------- -------- -------- -------- -------- --------
Less distributions
Dividends from net investment income.......... (.26) (.19) (.36) (.37) (.29) (.32)
Distributions from net realized gains......... (.53) (.53) (.44) (.48) -- --
---------- -------- -------- -------- -------- --------
Total distributions......................... (.79) (.72) (.80) (.85) (.29) (.32)
---------- -------- -------- -------- -------- --------
Net asset value, end of period................ $ 13.92 $ 14.00 $ 14.35 $ 12.14 $ 12.03 $ 9.53
========== ======== ======== ======== ======== ========
TOTAL RETURN#:................................ 5.65% 2.73% 25.93% 8.55% 29.58% (9.77)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $891,264 $954,951 $527,868 $190,846 $151,538 $120,032
Average net assets (000)...................... $893,465 $784,063 $304,898 $169,524 $136,602 $142,179
Ratios to average net assets:
Expenses, including distribution fees....... 1.79%* 1.85% 1.87% 2.02% 2.17% 2.22%
Expenses, excluding distribution fees....... .79%* .85% .87% 1.02% 1.17% 1.22%
Net investment income....................... 2.79%* 2.21% 2.58% 3.05% 2.67% 2.70%
Portfolio turnover............................ 35% 70% 57% 43% 64% 58%
<CAPTION>
Class C
----------------------------
August 1,
Six Months 1994D
Ended Through
April 30, October 31,
1995 1994
------------ -----------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 14.00 $ 13.99
---------- ----------
Income from investment operations
Net investment income......................... .18 .08
Net realized and unrealized gain (loss) on
investment transactions..................... .53 (.02)
---------- ----------
Total from investment operations............ .71 .06
---------- ----------
Less distributions
Dividends from net investment income.......... (.26) (.05)
Distributions from net realized gains......... (.53) --
---------- ----------
Total distributions......................... (.79) (.05)
---------- ----------
Net asset value, end of period................ $ 13.92 $ 14.00
========== ==========
TOTAL RETURN#:................................ 5.65% 0.45%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $ 3,032 $ 1,527
Average net assets (000)...................... $ 2,214 $ 762
Ratios to average net assets:
Expenses, including distribution fees....... 1.78%* 2.05%*
Expenses, excluding distribution fees....... .78%* 1.05%*
Net investment income....................... 2.65%* 2.42%*
Portfolio turnover............................ 35% 70%
</TABLE>

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

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

See Notes to Financial Statements. 15
<PAGE>

Prudential Equity Income Fund

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

PROSPECTUS DATED DECEMBER 30, 1994

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

Prudential Equity Income Fund (the Fund) is an open-end, diversified manage-
ment investment company. Its investment objective is both current income and
capital appreciation. It seeks to achieve this objective by investing prima-
rily in common stocks and convertible securities that provide investment in-
come returns above those of the Standard & Poor's 500 Stock Index or the NYSE
Composite Index. In normal circumstances, the Fund intends to invest at least
65% of its total assets in such securities. The balance of the Fund's assets
may be invested in other common stocks, other securities convertible into com-
mon stocks, debt securities and certain derivatives, including options on
stocks and stock indices. Common stocks may include securities of foreign is-
suers. There can be no assurance that the Fund's investment objective will be
achieved. See "How the Fund Invests--Investment Objective and Policies." The
Fund's address is One Seaport Plaza, New York, New York 10292, and its tele-
phone number is (800) 225-1852.

This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. Additional information
about the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated December 30, 1994, which informa-
tion is incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Fund, at the
address or telephone number noted above.

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

Investors are advised to read this Prospectus and retain it for future
reference.

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

FUND HIGHLIGHTS

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

WHAT IS PRUDENTIAL EQUITY INCOME FUND?

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

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is both current income and capital
appreciation. It seeks to achieve this objective by investing primarily in
common stocks and convertible securities that provide investment income
returns above those of the Standard & Poor's 500 Stock Index or the NYSE
Composite Index. There can be no assurance that the Fund's objective will
be achieved. See "How the Fund Invests--Investment Objective and Policies"
at page 8.

RISK FACTORS AND SPECIAL CHARACTERISTICS

The Fund may invest up to 30% of its total assets in the securities of
foreign issuers and up to 35% of its total assets in fixed-income
obligations, including securities rated Baa or lower by Moody's Investors
Service or BBB or lower by Standard & Poor's Ratings Group or Duff & Phelps
Credit Rating Co. which may be subject to special risks. See "How the Fund
Invests--Investment Objective and Policies" at page 8. The Fund may also
engage in various hedging and income enhancement strategies, including
utilizing derivatives. These activities may be considered speculative and
may result in higher risks and costs to the Fund. See "How the Fund
Invests--Hedging and Income Enhancement Strategies--Risks of Hedging and
Income Enhancement Strategies" at page 12.

WHO MANAGES THE FUND?

Prudential Mutual Fund Management, Inc. (PMF or the Manager) is the
Manager of the Fund and is compensated for its services at an annual rate
of .60 of 1% of the Fund's average daily net assets up to $500 million and
.50 of 1% of the Fund's average daily net assets in excess of $500 million.
As of November 30, 1994, PMF served as manager or administrator to 68
investment companies, including 38 mutual funds, with aggregate assets of
approximately $46 billion. The Prudential Investment Corporation (PIC or
the Subadviser) furnishes investment advisory services in connection with
the management of the Fund under a Subadvisory Agreement with PMF. See "How
the Fund is Managed--Manager" at page 14.

WHO DISTRIBUTES THE FUND'S SHARES?

Prudential Mutual Fund Distributors, Inc. (PMFD) acts as the Distributor
of the Fund's Class A shares and is paid an annual distribution and service
fee which is currently being charged at the rate of .25 of 1% of the
average daily net assets of the Class A shares.

Prudential Securities Incorporated (Prudential Securities or PSI), a
major securities underwriter and securities and commodities broker, acts as
the Distributor of the Fund's Class B and Class C shares and is paid an
annual distribution and service fee at the rate of 1% of the average daily
net assets of each of the Class B and Class C shares.

See "How the Fund is Managed--Distributor" at page 15.

2
<PAGE>

WHAT IS THE MINIMUM INVESTMENT?

The minimum initial investment for Class A and Class B shares is $1,000
per class and $5,000 for Class C shares. The minimum subsequent investment
is $100 for all classes. There is no minimum investment requirement for
certain retirement and employee savings plans or custodial accounts for the
benefit of minors. For purchases made through the Automatic Savings
Accumulation Plan, the minimum initial and subsequent investment is $50.
See "Shareholder Guide--How to Buy Shares of the Fund" at page 21 and
"Shareholder Guide--Shareholder Services" at page 31.

HOW DO I PURCHASE SHARES?

You may purchase shares of the Fund through Prudential Securities, Pruco
Securities Corporation (Prusec) or directly from the Fund through its transfer
agent, Prudential Mutual Fund Services, Inc. (PMFS or the Transfer Agent), at
the net asset value per share (NAV) next determined after receipt of your
purchase order by the Transfer Agent or Prudential Securities plus a sales
charge which may be imposed either (i) at the time of purchase (Class A shares)
or (ii) on a deferred basis (Class B or Class C shares). See "How the Fund
Values its Shares" at page 18 and "Shareholder Guide--How to Buy Shares of the
Fund" at page 21.

WHAT ARE MY PURCHASE ALTERNATIVES?

The Fund offers three classes of shares:

. Class A Shares: Sold with an initial sales charge of up to 5% of the
offering price.

. Class B Shares: Sold without an initial sales charge but are subject to a
contingent deferred sales charge or CDSC (declining from
5% to zero of the lower of the amount invested or the
redemption proceeds) which will be imposed on certain
redemptions made within six years of purchase. Although
Class B shares are subject to higher ongoing
distribution-related expenses than Class A shares, Class
B shares will automatically convert to Class A shares
(which are subject to lower distribution-related ongoing
expenses) approximately seven years after purchase.

. Class C Shares: Sold without an initial sales charge and, for one year
after purchase, are subject to a 1% CDSC on redemptions.
Like Class B shares, Class C shares are subject to higher
ongoing distribution-related expenses than Class A shares
but do not convert to another class.

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

HOW DO I SELL MY SHARES?

You may redeem your shares at any time at the NAV next determined after
Prudential Securities or the Transfer Agent receives your sell order. However,
the proceeds of redemptions of Class B and Class C shares may be subject to a
CDSC. See "Shareholder Guide--How to Sell Your Shares" at page 26.

HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?

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

3
<PAGE>

FUND EXPENSES

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- -------------- --------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES+
Maximum Sales Load
Imposed on Purchases
(as a percentage of
offering price)....... 5% None None
Maximum Sales Load or
Deferred Sales Load
Imposed on Reinvested
Dividends............. None None None
Deferred Sales Load (as
a percentage of
original purchase
price or redemption
proceeds, whichever is
lower)................ None 5% during the first year, 1% on redemptions made
decreasing by 1% annually within one year of purchase
to 1% in the fifth and sixth
years and 0% the seventh
year*
Redemption Fees........ None None None
Exchange Fee........... None None None
<CAPTION>
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of av- CLASS A SHARES CLASS B SHARES CLASS C SHARES **
erage net assets) -------------- -------------- -----------------
<S> <C> <C> <C>
Management Fees........ .55% .55% .55%
12b-1 Fees............. .25++ 1.00 1.00
Other Expenses......... .30 .30 .30
--- ---- ----
Total Fund Operating 1.10% 1.85% 1.85%
Expenses.............. ==== ==== ====
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual
return and (2) redemption at the end of
each time period:
Class A................................. $61 $83 $108 $177
Class B................................. $69 $88 $110 $188
Class C**............................... $29 $58 $100 $217
You would pay the following expenses on the
same investment, assuming no redemption:
Class A................................. $61 $83 $108 $177
Class B................................. $19 $58 $100 $188
Class C**............................... $19 $58 $100 $217
</TABLE>

The above example with respect to Class A and Class C shares is based on
restated data for the Fund's fiscal year ended October 31, 1994. The above
example with respect to Class B shares is based on actual data for the
Fund's fiscal year ended October 31, 1994. The example should not be
considered a representation of past or future expenses. Actual expenses
may be greater or less than those shown.

The purpose of this table is to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear, whether
directly or indirectly. For more complete descriptions of the various
costs and expenses, see "How the Fund is Managed." "Other Expenses"
includes operating expenses of the Fund, such as Trustees' and
professional fees, registration fees, reports to shareholders and transfer
agency and custodian fees.
--------
* Class B shares will automatically convert to Class A shares
approximately seven years after purchase. See "Shareholder Guide--
Conversion Feature--Class B Shares."
** Estimated based on expenses expected to have been incurred if Class C
shares had been in existence during the entire fiscal year ended October
31, 1994.
+ Pursuant to rules of the National Association of Securities Dealers, Inc.,
the aggregate initial sales charges, deferred sales charges and asset-based
sales charges on shares of the Fund may not exceed 6.25% of total gross
sales, subject to certain exclusions. This 6.25% limitation is imposed on
each class of the Fund rather than on a per shareholder basis. Therefore,
long-term shareholders of the Fund may pay more in total sales charges than
the economic equivalent of 6.25% of such shareholders' investment in such
shares. See "How the Fund is Managed--Distributor."
++ Although the Class A Distribution and Service Plan provides that the Fund
may pay a distribution fee of up to .30 of 1% per annum of the average
daily net assets of the Class A shares, the Distributor has agreed to limit
its distribution fees with respect to the Class A shares of the Fund to no
more than .25 of 1% of the average daily net assets of the Class A shares
for the fiscal year ending October 31, 1995. Total Fund Operating Expenses
without such limitation would be 1.15%. See "How the Fund is Managed--
Distributor."

4
<PAGE>

FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
(CLASS A SHARES)

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

<TABLE>
<CAPTION>
CLASS A
------------------------------------------------
JANUARY 22,
1990*
YEAR ENDED OCTOBER 31, THROUGH
----------------------------------- OCTOBER 31,
1994 1993 1992 1991 1990
-------- -------- ------- ------ -----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORM-
ANCE:
Net asset value, beginning $ 14.38 $ 12.16 $ 12.04 $ 9.53 $10.59
of period.................. -------- -------- ------- ------ ------
INCOME FROM INVESTMENT OPER-
ATIONS
Net investment income....... .41 .47 .47 .38 .25
Net realized and unrealized
gain (loss) on
investment transactions.... .06 2.65 .60 2.50 (1.01)
-------- -------- ------- ------ ------
Total from investment oper-
ations.................... .47 3.12 1.07 2.88 (.76)
-------- -------- ------- ------ ------
LESS DISTRIBUTIONS
Dividends from net invest-
ment income................ (.29) (.46) (.47) (.37) (.30)
Distributions from net real-
ized gains................. (.53) (.44) (.48) -- --
-------- -------- ------- ------ ------
Total distributions........ (.82) (.90) (.95) (.37) (.30)
-------- -------- ------- ------ ------
Net asset value, end of pe-
riod....................... $ 14.03 $ 14.38 $ 12.16 $12.04 $ 9.53
======== ======== ======= ====== ======
TOTAL RETURN++:............. 3.48% 26.93% 9.50% 30.62% (7.36)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)...................... $150,502 $104,017 $51,165 $4,013 $1,098
Average net assets (000).... $131,398 $ 70,895 $21,931 $2,084 $ 752
Ratios to average net as-
sets:
Expenses, including distri-
bution fees............... 1.09% 1.07% 1.22% 1.37% 1.59%+
Expenses, excluding distri-
bution fees............... .85% .87% 1.02% 1.17% 1.39%+
Net investment income...... 2.97% 3.44% 3.22% 3.43% 3.12%+
Portfolio turnover.......... 70% 57% 43% 64% 58%
</TABLE>
--------
* Commencement of offering of Class A shares.
+ Annualized.
++ Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment of
dividends and distributions. Total returns for periods of less than a
full year are not annualized.

5
<PAGE>

FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
(CLASS B SHARES)

The following financial highlights, with respect to the five-year period
ended October 31, 1994, have been audited by Deloitte & Touche LLP,
independent accountants, whose report thereon was unqualified. This
information should be read in conjunction with the financial statements and
notes thereto, which appear in the Statement of Additional Information. The
following financial highlights contain selected data for a Class B share of
beneficial interest outstanding, total return, ratios to average net assets
and other supplemental data for the periods indicated. The information is
based on data contained in the financial statements.

<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------------------------------------
JANUARY 22,
1987*
YEAR ENDED OCTOBER 31, THROUGH
-------------------------------------------------------------------- OCTOBER 31,
1994 1993 1992 1991 1990 1989 1988** 1987
-------- -------- -------- -------- -------- -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, begin- $ 14.35 $ 12.14 $ 12.03 $ 9.53 $ 10.89 $ 9.63 $ 8.48 $ 9.70
ning of period......... -------- -------- -------- -------- -------- -------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income... .31 .37 .37 .30 .28 .32 .28 .18++
Net realized and
unrealized gain (loss)
on investment transac-
tions.................. (.06) 2.64 .59 2.49 (1.32) 1.26 1.47 (1.30)
-------- -------- -------- -------- -------- -------- ------- -------
Total from investment
operations............ (.37) 3.01 .96 2.79 (1.04) 1.58 1.75 (1.12)
-------- -------- -------- -------- -------- -------- ------- -------
LESS DISTRIBUTIONS
Dividends from net in-
vestment income........ (.19) (.36) (.37) (.29) (.32) (.32) (.27) (.10)
Distributions from net
realized gains......... (.53) (.44) (.48) -- -- -- (.33) --
-------- -------- -------- -------- -------- -------- ------- -------
Total distributions.... (.72) (.80) (.85) (.29) (.32) (.32) (.60) (.10)
-------- -------- -------- -------- -------- -------- ------- -------
Net asset value, end of
period................. $ 14.00 $ 14.35 $ 12.14 $ 12.03 $ 9.53 $ 10.89 $ 9.63 $ 8.48
======== ======== ======== ======== ======== ======== ======= =======
TOTAL RETURN+++:........ 2.73% 25.93% 8.55% 29.58% (9.77)% 16.68% 21.85% (11.74)%
RATIOS/SUPPLEMENTAL DA-
TA:
Net assets, end of pe-
riod (000)............. $954,951 $527,868 $190,846 $151,538 $120,032 $143,169 $60,733 $67,226
Average net assets
(000).................. $784,063 $304,898 $169,524 $136,602 $142,179 $ 84,157 $63,013 $73,823
Ratios to average net
assets:
Expenses, including
distribution fees..... 1.85% 1.87% 2.02% 2.17% 2.22% 2.08% 2.30% 2.22%+/++
Expenses, excluding
distribution fees..... .85% .87% 1.02% 1.17% 1.22% 1.12% 1.29% 1.21%+/++
Net investment income.. 2.21% 2.58% 3.05% 2.67% 2.70% 2.89% 3.19% 2.12%+/++
Portfolio turnover...... 70% 57% 43% 64% 58% 60% 35% 71%
</TABLE>
- --------
* Commencement of offering of Class B shares.
** On March 1, 1988, Prudential Mutual Fund Management, Inc. succeeded The
Prudential Insurance Company of America as manager of the Fund.
+ Annualized.
++ Net of expense reimbursement.
+++ Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment of
dividends and distributions. Total returns for periods of less than a
full year are not annualized.

6
<PAGE>

FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
(CLASS C SHARES)

The following financial highlights have been audited by Deloitte & Touche
LLP, independent accountants, whose report thereon was unqualified. This
information should be read in conjunction with the financial statements and
notes thereto, which appear in the Statement of Additional Information. The
following financial highlights contain selected data for a Class C share of
beneficial interest outstanding, total return, ratios to average net assets
and other supplemental data for the period indicated. The information is based
on data contained in the financial statements.

<TABLE>
<CAPTION>
CLASS C
------------
AUGUST 1,
1994*
THROUGH
OCTOBER 31,
1994
------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............................. $13.99
------
INCOME FROM INVESTMENT OPERATIONS
Net investment income............................................ .08
Net realized and unrealized gain (loss) on
investment transactions......................................... (.02)
------
Total from investment operations................................ .06
------
LESS DISTRIBUTIONS
Dividends from net investment income............................. (.05)
------
Net asset value, end of period................................... $14.00
======
TOTAL RETURN+:................................................... 0.45%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).................................. $1,527
Average net assets (000)......................................... $ 762
Ratios to average net assets:#
Expenses, including distribution fees........................... 2.05%**
Expenses, excluding distribution fees........................... 1.05%**
Net investment income........................................... 2.42%**
Portfolio turnover............................................... 70%
</TABLE>
--------
* Commencement of offering of Class C shares.
** Annualized.
+ Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment of
dividends and distributions. Total return is not annualized.
# Since the Fund did not commence a public offering of Class C shares until
August 1, 1994, historical expenses and ratios of expenses to average net
assets of Class A and Class B shares are not necessarily indicative of
future expenses and related ratios of Class C shares.

7
<PAGE>

HOW THE FUND INVESTS

INVESTMENT OBJECTIVE AND POLICIES

THE INVESTMENT OBJECTIVE OF THE FUND IS BOTH CURRENT INCOME AND CAPITAL
APPRECIATION. THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING
PRIMARILY IN COMMON STOCKS AND CONVERTIBLE SECURITIES THAT PROVIDE INVESTMENT
INCOME RETURNS ABOVE THOSE OF THE STANDARD & POOR'S 500 STOCK INDEX OR THE
NYSE COMPOSITE INDEX. In selecting these investments, the Fund puts emphasis
on earnings, balance sheet and cash flow analyses and the relationships that
these factors have to the price and return of a given security. Under normal
circumstances, the Fund will invest at least 65% of its total assets
(determined at the time of purchase) in such securities. THERE CAN BE NO
ASSURANCE THAT SUCH OBJECTIVE WILL BE ACHIEVED. See "Investment Objective and
Policies" in the Statement of Additional Information.

THE FUND'S INVESTMENT OBJECTIVE IS A FUNDAMENTAL POLICY AND MAY NOT BE
CHANGED WITHOUT THE APPROVAL OF THE HOLDERS OF A MAJORITY OF THE FUND'S
OUTSTANDING VOTING SECURITIES AS DEFINED IN THE INVESTMENT COMPANY ACT OF
1940, AS AMENDED (THE INVESTMENT COMPANY ACT). FUND POLICIES THAT ARE NOT
FUNDAMENTAL MAY BE MODIFIED BY THE TRUSTEES.

THE BALANCE OF THE FUND'S TOTAL ASSETS MAY BE INVESTED IN OTHER COMMON
STOCKS, IN OTHER SECURITIES CONVERTIBLE INTO COMMON STOCKS, IN DEBT SECURITIES
(INCLUDING MONEY MARKET INSTRUMENTS) AND IN OPTIONS ON STOCK AND ON STOCK
INDICES. Common stocks may include securities of foreign issuers.

IN ADDITION, THE FUND MAY (I) PURCHASE AND SELL STOCK INDEX FUTURES AND
OPTIONS THEREON FOR HEDGING OR INCOME ENHANCEMENT PURPOSES OR, WITH RESPECT TO
WRITING OPTIONS ON FUTURES, TO REALIZE A GREATER RETURN (SEE "HEDGING AND
INCOME ENHANCEMENT STRATEGIES" BELOW), (II) PURCHASE SECURITIES ON A WHEN-
ISSUED OR DELAYED DELIVERY BASIS (SEE "OTHER INVESTMENTS AND POLICIES--WHEN-
ISSUED AND DELAYED DELIVERY SECURITIES" BELOW), (III) MAKE SHORT SALES
AGAINST-THE-BOX (SEE "OTHER INVESTMENTS AND POLICIES--SHORT SALES AGAINST-THE-
BOX" BELOW), AND (IV) ENTER INTO REPURCHASE AGREEMENTS (SEE "OTHER INVESTMENTS
AND POLICIES--REPURCHASE AGREEMENTS" BELOW).

CONVERTIBLE SECURITIES

A CONVERTIBLE SECURITY IS A FIXED-INCOME SECURITY (A BOND OR PREFERRED
STOCK) WHICH MAY BE CONVERTED AT A STATED PRICE WITHIN A SPECIFIED PERIOD OF
TIME INTO A CERTAIN QUANTITY OF THE COMMON STOCK OF THE SAME OR A DIFFERENT
ISSUER. Convertible securities are senior to common stocks in a corporation's
capital structure, but are usually subordinated to similar nonconvertible
securities. While providing a fixed income stream (generally higher in yield
than the income derivable from a common stock but lower than that afforded by
a similar nonconvertible security), a convertible security also affords an
investor the opportunity, through its conversion feature, to participate in
the capital appreciation attendant upon a market price advance in the
convertible security's underlying common stock.

In general, the market value of a convertible security is at least the
higher of its "investment value" (i.e., its value as a fixed-income security)
or its "conversion value" (i.e., its value upon conversion into its underlying
common stock). As a fixed-income security, a convertible security tends to
increase in market value when interest rates decline and tends to decrease in
value when interest rates rise. However, the price of a convertible security
is also influenced by the market value of the security's underlying common
stock. The price of a convertible security tends to increase as the market
value of the underlying stock rises, whereas it tends to decrease as the
market value of the underlying stock declines. While no securities investment
is without some risk, investments in convertible securities generally entail
less risk than investments in the common stock of the same issuer.

8
<PAGE>

MONEY MARKET INSTRUMENTS

THE FUND MAY INVEST UP TO 35% OF ITS TOTAL ASSETS IN MONEY MARKET
INSTRUMENTS UNDER NORMAL CIRCUMSTANCES. The Fund may invest in such
instruments without limit when the investment adviser believes that market
conditions warrant a temporary defensive investment posture or pending
investment of proceeds from sales of the Fund's shares. These instruments
include obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities; commercial paper; certificates of deposit;
bankers' acceptances and other obligations of domestic and foreign banks. Such
obligations (other than U.S. Government securities) will be rated, at the time
of purchase, within the two highest quality grades as determined by a
nationally recognized statistical rating organization, such as Moody's
Investors Service (Moody's), Standard & Poor's Ratings Group (S&P) or Duff &
Phelps Credit Rating Co. (Duff & Phelps) or, if unrated, will be of equivalent
quality in the judgment of the Fund's investment adviser.

OTHER FIXED-INCOME OBLIGATIONS

THE FUND MAY INVEST UP TO 35% OF ITS TOTAL ASSETS IN OTHER FIXED-INCOME
OBLIGATIONS. The Fund anticipates that it will primarily invest in fixed-
income securities rated A or better by Moody's or S&P or BBB+ or better by
Duff & Phelps. The Fund may also invest in fixed-income securities rated Baa
or lower by Moody's or BBB or lower by S&P or Duff & Phelps (although the Fund
will not invest in fixed-income securities rated lower than Ca, CC or CCC by
Moody's, S&P or Duff & Phelps, respectively). Subsequent to its purchase by
the Fund, a fixed-income obligation may be assigned a lower rating or cease to
be rated. Such an event would not require the elimination of the issue from
the portfolio, but the investment adviser will consider such an event in
determining whether the Fund should continue to hold the security in its
portfolio. Securities rated Baa by Moody's or BBB by S&P or Duff & Phelps have
speculative characteristics and changes in economic conditions or other
circumstances could lead to a weakened capacity to make principal and interest
payments than higher grade securities. Securities rated BB, Ba or BB+ or lower
by S&P, Moody's or Duff & Phelps, respectively, are generally considered to be
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal. A description of corporate bond ratings is
contained in the Appendix to the Statement of Additional Information. The Fund
may also invest in unrated fixed-income securities which, in the opinion of
the investment adviser, are of a quality comparable to rated securities in
which the Fund may invest.

RISKS OF INVESTING IN HIGH YIELD SECURITIES

FIXED-INCOME SECURITIES ARE SUBJECT TO THE RISK OF AN ISSUER'S INABILITY TO
MEET PRINCIPAL AND INTEREST PAYMENTS ON THE OBLIGATIONS (CREDIT RISK) AND MAY
ALSO BE SUBJECT TO PRICE VOLATILITY DUE TO SUCH FACTORS AS INTEREST RATE
SENSITIVITY AND THE MARKET PERCEPTION OF THE CREDITWORTHINESS OF THE ISSUER
(MARKET RISK). Lower rated or unrated (i.e., high yield) securities are more
likely to react to developments affecting market and credit risk than are more
highly rated securities, which react primarily to movements in the general
level of interest rates. The investment adviser considers both credit risk and
market risk in making investment decisions for the Fund. See "Investment
Objective and Policies--Risks of Investing in High Yield Securities" in the
Statement of Additional Information.

FOREIGN SECURITIES

THE FUND MAY INVEST UP TO 30% OF ITS TOTAL ASSETS IN FOREIGN MONEY MARKET
INSTRUMENTS AND DEBT AND EQUITY SECURITIES. For purposes of this limitation,
American Depositary Receipts are not deemed to be foreign securities. In many
instances, foreign securities may provide higher yields but may be subject to
greater fluctuations in price than securities of domestic issuers which have
similar maturities and quality. Under certain market conditions these invest-
ments may be less liquid than the securities of U.S. corporations and are cer-
tainly less liquid than securities issued or guaranteed by the U.S. Govern-
ment, its instrumentalities or agencies.

FOREIGN SECURITIES INVOLVE CERTAIN RISKS, WHICH SHOULD BE CONSIDERED CARE-
FULLY BY AN INVESTOR IN THE FUND. These risks include political or economic
instability in the country of the issuer, the difficulty of predicting inter-
national trade patterns, the possibility of imposition of exchange controls
and the risk of currency fluctuations. Such securities may be subject to

9
<PAGE>

greater fluctuations in price than securities issued by U.S. corporations or
issued or guaranteed by the U.S. Government, its instrumentalities or agen-
cies. In addition, there may be less publicly available information about a
foreign company than about a domestic company. Foreign companies generally are
not subject to uniform accounting, auditing and financial reporting standards
comparable to those applicable to domestic companies. There is generally less
government regulation of securities exchanges, brokers and listed companies
abroad than in the United States, and, with respect to certain foreign coun-
tries, there is a possibility of expropriation, confiscatory taxation or dip-
lomatic developments which could affect investment in those countries. Final-
ly, in the event of a default of any such foreign debt obligations, it may be
more difficult for the Fund to obtain, or to enforce a judgment against, the
issuers of such securities.

If the security is denominated in a foreign currency, it may be affected by
changes in currency rates and in exchange control regulations, and costs may
be incurred in connection with conversions between currencies. The Fund may
enter into forward foreign currency exchange contracts for the purchase or
sale of foreign currency for hedging purposes. See "Investment Objective and
Policies--Special Risks Related to Forward Foreign Currency Exchange
Contracts" in the Statement of Additional Information.

HEDGING AND INCOME ENHANCEMENT STRATEGIES

THE FUND MAY ALSO ENGAGE IN VARIOUS PORTFOLIO STRATEGIES, INCLUDING
DERIVATIVES, TO REDUCE CERTAIN RISKS OF ITS INVESTMENTS AND TO ATTEMPT TO
ENHANCE RETURN. THESE STRATEGIES CURRENTLY INCLUDE THE USE OF OPTIONS, FORWARD
FOREIGN CURRENCY EXCHANGE CONTRACTS AND FUTURES CONTRACTS AND OPTIONS THEREON.
The Fund's ability to use these strategies may be limited by market
conditions, regulatory limits and tax considerations and there can be no
assurance that any of these strategies will succeed. See "Investment Objective
and Policies" in the Statement of Additional Information. New financial
products and risk management techniques continue to be developed and the Fund
may use these new investments and techniques to the extent consistent with its
investment objective and policies.

OPTIONS TRANSACTIONS

THE FUND MAY PURCHASE AND WRITE (I.E., SELL) PUT AND CALL OPTIONS ON SECURI-
TIES THAT ARE TRADED ON NATIONAL SECURITIES EXCHANGES OR IN THE OVER-THE-COUN-
TER MARKET TO ENHANCE INCOME OR TO HEDGE THE FUND'S PORTFOLIO. These options
will be on equity securities and financial indices (e.g., S&P 500). The Fund
may write covered put and call options to generate additional income through
the receipt of premiums, purchase put options in an effort to protect the
value of a security that it owns against a decline in market value and pur-
chase call options in an effort to protect against an increase in the price of
securities it intends to purchase. The Fund may also purchase put and call op-
tions to offset previously written put and call options of the same series.
See "Investment Objective and Policies--Limitations on Purchase and Sale of
Stock Options, Options on Stock Indices, Stock Index Futures and Options
Thereon" in the Statement of Additional Information.

A CALL OPTION GIVES THE PURCHASER, IN EXCHANGE FOR A PREMIUM PAID, THE RIGHT
FOR A SPECIFIED PERIOD OF TIME TO PURCHASE THE SECURITIES SUBJECT TO THE
OPTION AT A SPECIFIED PRICE (THE EXERCISE PRICE OR STRIKE PRICE). The writer
of a call option, in return for the premium, has the obligation, upon exercise
of the option, to deliver, depending upon the terms of the option contract,
the underlying securities or a specified amount of cash to the purchaser upon
receipt of the exercise price. When the Fund writes a call option, the Fund
gives up the potential for gain on the underlying securities in excess of the
exercise price of the option during the period that the option is open.

A PUT OPTION GIVES THE PURCHASER, IN RETURN FOR A PREMIUM, THE RIGHT FOR A
SPECIFIED PERIOD OF TIME TO SELL THE SECURITIES SUBJECT TO THE OPTION TO THE
WRITER OF THE PUT AT THE SPECIFIED EXERCISE PRICE. The writer of the put
option, in return for the premium, has the obligation, upon exercise of the
option, to acquire the securities underlying the option at the

10
<PAGE>

exercise price. The Fund might, therefore, be obligated to purchase the
underlying securities for more than their current market price.

THE FUND WILL WRITE ONLY "COVERED" OPTIONS. An option is covered if, so long
as the Fund is obligated under the option, it owns an offsetting position in
the underlying security or maintains cash, U.S. Government securities or other
liquid high-grade debt obligations in a segregated account with a value
sufficient at all times to cover its obligations. See "Investment Objective
and Policies--Limitations on Purchase and Sale of Stock Options, Options on
Stock Indices, Stock Index Futures and Options Thereon" in the Statement of
Additional Information.

THERE IS NO LIMITATION ON THE AMOUNT OF CALL OPTIONS THE FUND MAY WRITE. The
Fund has undertaken with certain state securities commissions that, so long as
shares of the Fund are registered in those states, it will not (a) write puts
having aggregate exercise prices greater than 25% of the Fund's total net
assets; or (b) purchase (i) put options on stocks not held in the Fund's
portfolio, (ii) put options on stock indices or (iii) call options on stocks
or stock indices if, after any such purchase, the aggregate premiums paid for
such options would exceed 20% of the Fund's total net assets. In addition, the
Fund will not purchase put or call options if as a result of such purchase
more than 5% of the Fund's total assets would be invested in premiums for such
options and options on futures contracts, but such restriction would not apply
to put options on securities in the Fund's portfolio.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

THE FUND MAY ENTER INTO FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS TO
PROTECT THE VALUE OF ITS PORTFOLIO AGAINST FUTURE CHANGES IN THE LEVEL OF
CURRENCY EXCHANGE RATES. The Fund may enter into such contracts on a spot
(i.e., cash) basis at the rate then prevailing in the currency exchange market
or on a forward basis, by entering into a forward contract to purchase or sell
currency. A forward contract on foreign currency is an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of
days agreed upon by the parties from the date of the contract at a price set
on the date of the contract. See "Investment Objective and Policies--Special
Risks Related to Forward Foreign Currency Exchange Contracts" in the Statement
of Additional Information.

THE FUND'S DEALINGS IN FORWARD CONTRACTS WILL BE LIMITED TO HEDGING
INVOLVING EITHER SPECIFIED TRANSACTIONS OR PORTFOLIO POSITIONS. Transaction
hedging is the purchase or sale of a forward contract with respect to specific
receivables or payables of the Fund generally arising in connection with the
purchase or sale of its portfolio securities and accruals of interest or
dividends receivable and Fund expenses. Position hedging is the sale of a
foreign currency with respect to portfolio security positions denominated or
quoted in that currency or in a different foreign currency (cross hedge).
Although there are no limits on the number of forward contracts which the Fund
may enter into, the Fund may not position hedge with respect to a particular
currency for an amount greater than the aggregate market value (determined at
the time of making any sale of foreign currency) of the securities held in its
portfolio denominated or quoted in, or currently convertible into, such
currency.

FUTURES CONTRACTS AND OPTIONS THEREON

THE FUND MAY PURCHASE AND SELL FINANCIAL FUTURES CONTRACTS AND OPTIONS
THEREON WHICH ARE TRADED ON A COMMODITIES EXCHANGE OR BOARD OF TRADE FOR
CERTAIN HEDGING, INCOME ENHANCEMENT AND RISK MANAGEMENT PURPOSES IN ACCORDANCE
WITH REGULATIONS OF THE COMMODITY FUTURES TRADING COMMISSION. THESE FUTURES
CONTRACTS AND OPTIONS THEREON WILL BE ON FINANCIAL INDICES.

A STOCK INDEX FUTURES CONTRACT IS AN AGREEMENT TO PURCHASE OR SELL CASH
EQUAL TO A SPECIFIC DOLLAR AMOUNT TIMES THE DIFFERENCE BETWEEN THE VALUE OF A
SPECIFIC STOCK INDEX AT THE CLOSE OF THE LAST TRADING DAY OF THE CONTRACT AND
THE PRICE AT WHICH THE AGREEMENT IS MADE. No physical delivery of the
underlying stocks in the index is made.

11
<PAGE>

UNDER REGULATIONS OF THE COMMODITY EXCHANGE ACT, INVESTMENT COMPANIES
REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED, ARE EXEMPT
FROM THE DEFINITION OF "COMMODITY POOL OPERATOR", SUBJECT TO COMPLIANCE WITH
CERTAIN CONDITIONS. THE EXEMPTION IS CONDITIONED UPON THE FUND'S PURCHASING
AND SELLING FUTURES CONTRACTS AND OPTIONS THEREON FOR BONA FIDE HEDGING
TRANSACTIONS, EXCEPT THAT THE FUND MAY PURCHASE AND SELL FUTURES CONTRACTS AND
OPTIONS THEREON FOR ANY OTHER PURPOSE TO THE EXTENT THAT THE AGGREGATE INITIAL
MARGIN AND OPTION PREMIUMS DO NOT EXCEED 5% OF THE LIQUIDATION VALUE OF THE
FUND'S TOTAL ASSETS. ALTHOUGH THERE ARE NO OTHER LIMITS APPLICABLE TO FUTURES
CONTRACTS, THE VALUE OF ALL FUTURES CONTRACTS SOLD WILL NOT EXCEED THE TOTAL
MARKET VALUE OF THE FUND'S PORTFOLIO.

THE FUND'S SUCCESSFUL USE OF FUTURES CONTRACTS AND OPTIONS THEREON DEPENDS
UPON THE INVESTMENT ADVISER'S ABILITY TO PREDICT THE DIRECTION OF THE MARKET
AND INTEREST RATES AND REQUIRES SKILLS AND TECHNIQUES DIFFERENT FROM THOSE
USED IN SELECTING PORTFOLIO SECURITIES. The correlation between movements in
the price of a futures contract and movements in the price of the securities
being hedged is imperfect and the risk from imperfect correlation increases as
the composition of the Fund's portfolio diverges from the composition of the
relevant index. There is also a risk that the value of the securities being
hedged may increase or decrease at a greater rate than the related futures
contracts, resulting in losses to the Fund. Certain futures exchanges or
boards of trade have established daily limits on the amount that the price of
futures contracts or options thereon may vary, either up or down, from the
previous day's settlement price. These daily limits may restrict the Fund's
ability to purchase or sell certain futures contracts or options thereon on
any particular day.

THE FUND'S ABILITY TO ENTER INTO FUTURES CONTRACTS AND OPTIONS THEREON IS
LIMITED BY THE REQUIREMENTS OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
(THE INTERNAL REVENUE CODE), FOR QUALIFICATION AS A REGULATED INVESTMENT COM-
PANY. See "Taxes" in the Statement of Additional Information.

RISKS OF HEDGING AND INCOME ENHANCEMENT STRATEGIES

PARTICIPATION IN THE OPTIONS OR FUTURES MARKETS AND IN CURRENCY EXCHANGE
TRANSACTIONS INVOLVES INVESTMENT RISKS AND TRANSACTION COSTS TO WHICH THE FUND
WOULD NOT BE SUBJECT ABSENT THE USE OF THESE STRATEGIES. If the investment ad-
viser'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, foreign currency and futures
contracts and options on futures contracts include (1) dependence on the in-
vestment adviser's ability to predict correctly movements in the direction of
interest rates, securities prices and currency markets; (2) imperfect correla-
tion between the price of options and futures contracts and options thereon
and movements in the prices of the securities being hedged; (3) the fact that
the 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; (5) the possible need to de-
fer closing out certain hedged positions to avoid adverse tax consequences;
and (6) the possible inability of the Fund to purchase or sell a portfolio se-
curity 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 securi-
ties in connection with hedging transactions. See "Taxes" and "Investment Ob-
jective and Policies" in the Statement of Additional Information.

OTHER INVESTMENTS AND POLICIES

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

The Fund may purchase or sell securities on a when-issued or delayed deliv-
ery basis. When-issued or delayed delivery transactions arise when securities
are purchased or sold by the Fund with payment and delivery taking place in
the future in order to secure what is considered to be an advantageous price
and yield to the Fund at the time of entering into the transaction. The Fund's
Custodian will maintain, in a segregated account of the Fund, cash, U.S. Gov-
ernment securities or

12
<PAGE>

other liquid high-grade debt obligations having a value equal to or greater
than the Fund's purchase commitments; the Custodian will likewise segregate
securities sold on a delayed delivery basis. The securities so purchased are
subject to market fluctuation and no interest accrues to the purchaser during
the period between purchase and settlement. At the time of delivery of the se-
curities the value may be more or less than the purchase price and an increase
in the percentage of the Fund's assets committed to the purchase of securities
on a when-issued or delayed delivery basis may increase the volatility of the
Fund's net asset value.

SHORT SALES AGAINST-THE-BOX

The Fund may make short sales of securities or maintain a short position,
provided that at all times when a short position is open, the Fund owns an
equal amount of such securities or securities convertible into or exchangeable
for, with or without payment of any further consideration, such securities;
provided that if further consideration is required in connection with the con-
version or exchange, cash or U.S. Government securities in an amount equal to
such consideration must be put in a segregated account, for an equal amount of
the securities of the same issuer as the securities sold short (a short sale
against-the-box). Not more than 25% of the Fund's net assets (determined at
the time of the short sale) may be subject to such sales. Short sales will be
made primarily to defer realization of gain or loss for federal tax purposes.
The Fund does not intend to have more than 5% of its net assets (determined at
the time of the short sale) subject to short sales against-the-box during the
coming year.

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 mu-
tually 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 security. The Fund's repurchase agreements will at all
times be fully collateralized in an amount at least equal to the purchase
price, including accrued interest earned on the underlying securities. The in-
struments held as collateral are valued daily, and if the value of the instru-
ments declines, the Fund will require additional collateral. If the seller de-
faults and the value of the collateral securing the repurchase agreement de-
clines, the Fund may incur a loss. The Fund participates in a joint repurchase
account with other investment companies managed by PMF pursuant to an order of
the Securities and Exchange Commission (SEC).

BORROWING

The Fund may borrow an amount equal to no more than 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 and to take advan-
tage of investment opportunities. The Fund may pledge up to 20% of its total
assets to secure these borrowings. If the Fund's asset coverage for borrowings
falls below 300%, the Fund will take prompt action to reduce its borrowings.

SECURITIES LENDING

The Fund is permitted to lend its portfolio securities. See "Investment
Objective and Policies--Lending of Securities" in the Statement of Additional
Information.

ILLIQUID SECURITIES

The Fund may invest up to 5% of its net assets in illiquid securities, in-
cluding repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted secu-
rities) and securities that are not readily marketable in securities markets
either within or outside of the United States. Restricted securities eligible
for resale pursuant to Rule 144A under the Securities Act of 1933, as amended
(the Securities Act), and privately placed commercial paper that have a read-
ily available market are not considered illiquid for purposes of this limita-
tion. The investment adviser will monitor the liquidity of such restricted se-
curities under the supervision of the Trustees. Repurchase agreements subject
to demand are deemed to have a maturity equal to the applicable notice period.

13
<PAGE>

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

PORTFOLIO TURNOVER

The Fund does not expect to trade in securities for short-term gain. It is
anticipated that the portfolio turnover rate may exceed 100%, although the
rate is not expected to exceed 200%. The portfolio turnover rate is calculated
by dividing the lesser of sales or purchases of portfolio securities by the
average monthly value of the Fund's portfolio securities, excluding securities
having a maturity at the date of purchase of one year or less. High portfolio
turnover may involve correspondingly greater brokerage commissions and other
transaction costs, which will be borne directly by the Fund. See "Portfolio
Transactions and Brokerage" in the Statement of Additional Information. In ad-
dition, high portfolio turnover may result in increased short-term capital
gains which, when distributed to shareholders, are treated as ordinary income.
See "Taxes, Dividends and Distributions."

INVESTMENT RESTRICTIONS

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

HOW THE FUND IS MANAGED

THE FUND HAS TRUSTEES WHO, IN ADDITION TO OVERSEEING THE ACTIONS OF THE
FUND'S MANAGER, SUBADVISER AND DISTRIBUTOR, AS SET FORTH BELOW, DECIDE UPON
MATTERS OF GENERAL POLICY. THE FUND'S MANAGER CONDUCTS AND SUPERVISES THE
DAILY BUSINESS OPERATIONS OF THE FUND. THE FUND'S SUBADVISER FURNISHES DAILY
INVESTMENT ADVISORY SERVICES.

For the fiscal year ended October 31, 1994, the Fund's total expenses as a
percentage of average net assets for Class A, Class B and Class C shares were
1.09%, 1.85% and 2.05% (annualized), respectively. See "Financial Highlights."

MANAGER

PRUDENTIAL MUTUAL FUND MANAGEMENT, INC. (PMF OR THE MANAGER), ONE SEAPORT
PLAZA, NEW YORK, NEW YORK 10292, IS THE MANAGER OF THE FUND AND IS COMPENSATED
FOR ITS SERVICES AT AN ANNUAL RATE OF .60 OF 1% OF THE FUND'S AVERAGE DAILY
NET ASSETS UP TO $500 MILLION AND .50 OF 1% OF THE FUND'S AVERAGE DAILY NET
ASSETS IN EXCESS OF $500 MILLION. PMF was incorporated in May 1987 under the
laws of the State of Delaware. For the fiscal year ended October 31, 1994, the
Fund paid management fees to PMF of .55% of the Fund's average net assets. See
"Manager" in the Statement of Additional Information.

As of November 30, 1994, PMF served as the manager to 38 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 30 closed-end investment companies with aggregate assets of
approximately $46 billion.

UNDER THE MANAGEMENT AGREEMENT WITH THE FUND, PMF MANAGES THE INVESTMENT
OPERATIONS OF THE FUND AND ALSO ADMINISTERS THE FUND'S BUSINESS AFFAIRS. See
"Manager" in the Statement of Additional Information.

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<PAGE>

UNDER A SUBADVISORY AGREEMENT BETWEEN PMF AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC OR THE SUBADVISER), PIC FURNISHES INVESTMENT ADVISORY
SERVICES IN CONNECTION WITH THE MANAGEMENT OF THE FUND AND IS REIMBURSED BY
PMF FOR ITS REASONABLE COSTS AND EXPENSES INCURRED IN PROVIDING SUCH SERVICES.
PMF continues to have responsibility for all investment advisory services
under the Management Agreement and supervises PIC's performance of such
services.

The current portfolio manager of the Fund is Warren E. Spitz, a Managing
Director of Prudential Investment Advisors, a unit of PIC. Mr. Spitz has
responsibility for the day-to-day management of the Fund's portfolio. Mr.
Spitz has managed the Fund's portfolio since January 1987 and has been
employed by PIC as a portfolio manager since 1987. Mr. Spitz also serves as
the co-portfolio manager of the Prudential Utility Fund and the portfolio
manager of Prudential Series Fund High Dividend Stock Portfolio.

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

DISTRIBUTOR

PRUDENTIAL MUTUAL FUND DISTRIBUTORS, INC. (PMFD), ONE SEAPORT PLAZA, NEW
YORK, NEW YORK 10292, IS A CORPORATION ORGANIZED UNDER THE LAWS OF THE STATE
OF DELAWARE AND SERVES AS THE DISTRIBUTOR OF THE CLASS A SHARES OF THE FUND.
IT IS A WHOLLY-OWNED SUBSIDIARY OF PMF.

PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES OR PSI), ONE
SEAPORT PLAZA, NEW YORK, NEW YORK 10292, IS A CORPORATION ORGANIZED UNDER THE
LAWS OF THE STATE OF DELAWARE AND SERVES AS THE DISTRIBUTOR OF THE CLASS B AND
CLASS C SHARES OF THE FUND. IT IS AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF
PRUDENTIAL.

UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN, THE CLASS B
PLAN AND THE CLASS C PLAN, COLLECTIVELY, THE PLANS) ADOPTED BY THE FUND UNDER
RULE 12b-1 UNDER THE INVESTMENT COMPANY ACT AND SEPARATE DISTRIBUTION
AGREEMENTS (THE DISTRIBUTION AGREEMENTS), PMFD AND PRUDENTIAL SECURITIES
(COLLECTIVELY, THE DISTRIBUTOR) INCUR THE EXPENSES OF DISTRIBUTING THE FUND'S
CLASS A, CLASS B AND CLASS C SHARES. These expenses include commissions and
account servicing fees paid to, or on account of, financial advisers of
Prudential Securities and representatives of Pruco Securities Corporation
(Prusec), an affiliated broker-dealer, commissions and account servicing fees
paid to, or on account of, other broker-dealers or financial institutions
(other than national banks) which have entered into agreements with the
Distributor, advertising expenses, the cost of printing and mailing
prospectuses to potential investors and indirect and overhead costs of
Prudential Securities and Prusec associated with the sale of Fund shares,
including lease, utility, communications and sales promotion expenses. The
State of Texas requires that shares of the Fund may be sold in that state only
by dealers or other financial institutions which are registered there as
broker-dealers.

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

UNDER THE CLASS A PLAN, THE FUND MAY PAY PMFD 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 (i) up to .25 of 1% of the average daily net assets of the Class
A shares may be used to pay for personal service and/or the maintenance of
shareholder accounts (service fee) and (ii) total distribution fees (including
the service fee of .25 of 1%) may not exceed .30 of 1% of the average daily
net assets of the Class A shares. PMFD has agreed to limit

15
<PAGE>

its distribution-related fees payable under the Class A Plan to .25 of 1% of
the average daily net assets of the Class A shares for the fiscal year ending
October 31, 1995.

For the fiscal year ended October 31, 1994, PMFD received payments of
$319,509 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 October 31, 1994, PMFD also
received approximately $1,542,700 in initial sales charges.

UNDER THE CLASS B AND CLASS C PLANS, THE FUND PAYS PRUDENTIAL SECURITIES FOR
ITS DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS B AND CLASS C SHARES
AT AN ANNUAL RATE OF 1% OF THE AVERAGE DAILY NET ASSETS OF EACH OF THE CLASS B
AND CLASS C SHARES. The Class B and Class C Plans provide for the payment to
Prudential Securities of (i) an asset-based sales charge of .75 of 1% of the
average daily net assets of each of the Class B and Class C shares and (ii) a
service fee of .25 of 1% of the average daily net assets of each of the Class
B and Class C shares. The service fee is used to pay for personal service
and/or the maintenance of shareholder accounts. Prudential Securities also
receives contingent deferred sales charges from certain redeeming
shareholders. See "Shareholder Guide--How to Sell Your Shares--Contingent
Deferred Sales Charges."

For the fiscal year ended October 31, 1994, Prudential Securities incurred
distribution expenses of approximately $13,607,400 under the Class B Plan and
received $7,840,632 from the Fund under the Class B Plan. In addition,
Prudential Securities received approximately $1,587,700 in contingent deferred
sales charges from redemptions of Class B shares during this period.

For the period August 1, 1994 through October 31, 1994, Prudential
Securities incurred distribution expenses of approximately $11,200 under the
Class C Plan and received $1,880 from the Fund under the Class C Plan.
Prudential Securities did not receive any contingent deferred sales charges
from redemptions of Class C shares during this period.

For the fiscal year ended October 31, 1994, the Fund paid distribution
expenses of .24%, 1% and 1% (annualized) of the average daily net assets of
the Class A, Class B and Class C shares of the Fund, respectively. The Fund
records all payments made under the Plans as expenses in the calculation of
net investment income. Prior to August 1, 1994, the Class A and Class B Plans
operated as "reimbursement type" plans and, in the case of Class B, provided
for the reimbursement of distribution expenses incurred in current and prior
years. See "Distributor" in the Statement of Additional Information.

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

Each Plan provides that it shall continue in effect from year to year
provided that a majority of the Trustees of the Fund, including a majority of
the Trustees who are not "interested persons" of the Fund (as defined in the
Investment Company Act) and who have no direct or indirect financial interest
in the operation of the Plan or any agreement related to the Plan (the Rule
12b-1 Trustees), vote annually to continue the Plan. Each Plan may be
terminated at any time by vote of a majority of the Rule 12b-1 Trustees or of
a majority of the outstanding shares of the applicable class of the Fund. The
Fund will not be obligated to pay expenses incurred under any Plan if it is
terminated or not continued.

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

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

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<PAGE>

On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators (with the exception of the Texas Securities
Commissioner who joined the settlement on January 18, 1994) and the NASD to
resolve allegations that from 1980 through 1990 PSI sold certain limited
partnership interests in violation of securities laws to persons for whom such
securities were not suitable and misrepresented the safety, potential returns
and liquidity of these investments. Without admitting or denying the
allegations asserted against it, PSI consented to the entry of an SEC
Administrative Order which stated that PSI's conduct violated the federal
securities laws, directed PSI to cease and desist from violating the federal
securities laws, pay civil penalties, and adopt certain remedial measures to
address the violations.

Pursuant to the terms of the SEC settlement, PSI agreed to the imposition of
a $10,000,000 civil penalty, established a settlement fund in the amount of
$330,000,000 and procedures to resolve legitimate claims for compensatory
damages by purchasers of the partnership interests. PSI's settlement with the
state securities regulators included an agreement to pay a penalty of $500,000
per jurisdiction. PSI consented to a censure and to the payment of a
$5,000,000 fine in settling the NASD action.

In October 1994, a criminal complaint was filed with the United States
Magistrate for the Southern District of New York alleging that PSI committed
fraud in connection with the sale of certain limited partnership interests in
violation of federal securities laws. An agreement was simultaneously filed to
defer prosecution of these charges for a period of three years from the
signing of the agreement, provided that PSI complies with the terms of the
agreement. If, upon completion of the three year period, PSI has complied with
the terms of the agreement, no prosecution will be instituted by the United
States for the offenses charged in the complaint. If on the other hand, during
the course of the three year period, PSI violates the terms of the agreement,
the U.S. Attorney can then elect to pursue these charges. Under the terms of
the agreement, PSI agreed, among other things, to pay an additional
$330,000,000 into the fund established by the SEC to pay restitution to
investors who purchased certain PSI limited partnership interests.

For more detailed information concerning the foregoing matters, see
"Distributor" in the Statement of Additional Information, a copy of which may
be obtained at no cost by calling 1-800-225-1852.

The Fund is not affected by PSI's financial condition and is an entirely
separate legal entity from PSI, which has no beneficial ownership therein and
the Fund's assets which are held by State Street Bank and Trust Company, an
independent custodian, are separate and distinct from PSI.

PORTFOLIO TRANSACTIONS

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

CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT

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

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

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<PAGE>

HOW THE FUND VALUES ITS SHARES

THE FUND'S NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING ITS
LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS. THE
TRUSTEES 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.

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

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

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

HOW THE FUND CALCULATES PERFORMANCE

FROM TIME TO TIME THE FUND MAY ADVERTISE ITS TOTAL RETURN (INCLUDING
"AVERAGE ANNUAL" TOTAL RETURN AND "AGGREGATE" TOTAL RETURN) AND YIELD IN
ADVERTISEMENTS OR SALES LITERATURE. TOTAL RETURN AND YIELD ARE CALCULATED
SEPARATELY FOR CLASS A, CLASS B AND CLASS C SHARES. These figures are based on
historical earnings and are not intended to indicate future performance. The
"total return" shows how much an investment in the Fund would have increased
(decreased) over a specified period of time (i.e., one, five or ten years or
since inception of the Fund) assuming that all distributions and dividends by
the Fund were reinvested on the reinvestment dates during the period and less
all recurring fees. The "aggregate" total return reflects actual performance
over a stated period of time. "Average annual" total return is a hypothetical
rate of return that, if achieved annually, would have produced the same
aggregate total return if performance had been constant over the entire
period. "Average annual" total return smoothes out variations in performance
and takes into account any applicable initial or contingent deferred sales
charges. Neither "average annual" total return nor "aggregate" total return
takes into account any federal or state income taxes which may be payable upon
redemption. The "yield" refers to the income generated by an investment in the
Fund over a one-month or 30-day period. This income is then "annualized;" that
is, the amount of income generated by the investment during that 30-day period
is assumed to be generated each 30-day period for twelve periods and is shown
as a percentage of the investment. The income earned on the investment is also
assumed to be reinvested at the end of the sixth 30-day period. The Fund also
may include comparative performance information in advertising or marketing
the Fund's shares. Such performance information may include data from Lipper
Analytical Services, Inc., Morningstar Publications, Inc., other industry
publications, business periodicals and market indices. See "Performance
Information" in the Statement of Additional Information. The Fund will include
performance data for each class of shares of the Fund in any advertisement or
information including performance data of the Fund. Further performance
information is contained in the Fund's annual and semi-annual reports to
shareholders, which may be obtained without charge. See "Shareholder Guide--
Shareholder Services--Reports to Shareholders."

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<PAGE>

TAXES, DIVIDENDS AND DISTRIBUTIONS

TAXATION OF THE FUND

THE FUND HAS ELECTED TO QUALIFY AND INTENDS TO REMAIN QUALIFIED AS A
REGULATED INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE. ACCORDINGLY, THE
FUND WILL NOT BE SUBJECT TO FEDERAL INCOME TAXES ON ITS NET INVESTMENT INCOME
AND CAPITAL AND CURRENCY GAINS, IF ANY, THAT IT DISTRIBUTES TO ITS
SHAREHOLDERS. See "Taxes" in the Statement of Additional Information.

Under the Internal Revenue Code, special rules apply to the treatment of
certain options and futures contracts (Section 1256 contracts). At the end of
each year, such investments held by the Fund will be required to be "marked to
market" for federal income tax purposes; that is, treated as having been sold
at market value. Sixty percent of any gain or loss recognized on these "deemed
sales" and on actual dispositions will be treated as long-term capital gain or
loss, and the remainder will be treated as short-term capital gain or loss.
See "Taxes" in the Statement of Additional Information.

The Fund may, from time to time, invest in Passive Foreign Investment
Companies (PFICs). PFICs are foreign corporations which derive a majority of
their income from passive sources. For tax purposes, the Fund's investments in
PFICs may subject the Fund to federal income taxes on certain income and gains
realized by the Fund. Certain gains or losses from fluctuations in foreign
currency exchange rates (Section 988 gains and losses) will affect the amount
of ordinary income the Fund will be able to pay as dividends. See "Taxes" in
the Statement of Additional Information.

TAXATION OF SHAREHOLDERS

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

Both regular and capital gains dividends are taxable to shareholders in the
year in which received, whether they are received in cash or additional
shares. In addition, certain dividends declared by the Fund will be treated as
received by shareholders on December 31 of the year the dividends are
declared. This rule applies to dividends declared by the Fund in October,
November or December of a calendar year, payable to shareholders of record on
a date in any such month, if such dividends are paid during January of the
following calendar year.

Dividends received by corporate shareholders are eligible for a dividends
received deduction of 70% to the extent the Fund's income is derived from
qualified dividends received by the Fund from domestic corporations. Dividends
attributable to foreign dividends, interest income, capital gain net income,
gain or loss from Section 1256 contracts and from some other sources will not
be eligible for the corporate dividends received deduction. Corporate
shareholders should consult their tax advisers regarding other requirements
applicable to the dividends received deduction.

Any gain or loss realized upon a sale or redemption of Fund shares by a
shareholder who is not a dealer in securities will generally be treated as
long-term capital gain or loss if the shares have been held more than one year
and otherwise as short-term capital gain or loss. Any such loss, however,
although otherwise treated as a short-term capital loss, will be treated as
long-term capital loss to the extent of any capital gain distributions
received by the shareholder with respect to those shares.

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<PAGE>

The Fund has obtained opinions of counsel to the effect that neither (i) the
conversion of Class B shares into Class A shares nor (ii) the exchange of
Class B or Class C shares for Class A shares constitutes a taxable event for
federal income tax purposes. However, such opinions are not binding on the
Internal Revenue Service.

Shareholders are advised to consult their own tax advisers regarding
specific questions as to federal, state or local taxes.

WITHHOLDING TAXES

Under the Internal Revenue Code, the Fund is required to withhold and remit
to the U.S. Treasury 31% of dividends, capital gain income and redemption
proceeds on the accounts of those shareholders who fail to furnish their tax
identification numbers on IRS Form W-9 (or IRS Form W-8 in the case of certain
foreign shareholders). Withholding at this rate is also required from
dividends and capital gains distributions (but not redemption proceeds)
payable to shareholders who are otherwise subject to backup withholding.
Dividends of net investment income and short-term capital gains to a foreign
shareholder will generally be subject to U.S. withholding tax at the rate of
30% (or lower treaty rate).

DIVIDENDS AND DISTRIBUTIONS

THE FUND EXPECTS TO PAY DIVIDENDS OUT OF NET INVESTMENT INCOME, IF ANY,
QUARTERLY AND MAKE DISTRIBUTIONS AT LEAST ANNUALLY OF ANY CAPITAL GAINS IN
EXCESS OF CAPITAL LOSSES. Dividends paid by the Fund with respect to each
class of shares, to the extent any dividends are paid, will be calculated in
the same manner, at the same time, on the same day and will be in the same
amount except that each class will bear its own distribution charges,
generally resulting in lower dividends for Class B and Class C shares.
Distributions of net capital gains, if any, will be paid in the same amount
for each class of shares. See "How the Fund Values its Shares."

DIVIDENDS AND DISTRIBUTIONS WILL BE PAID IN ADDITIONAL FUND SHARES BASED ON
THE NAV OF EACH CLASS ON THE RECORD DATE, OR SUCH OTHER DATE AS THE TRUSTEES
MAY DETERMINE, UNLESS THE SHAREHOLDER ELECTS IN WRITING NOT LESS THAN FIVE
BUSINESS DAYS PRIOR TO THE RECORD DATE TO RECEIVE SUCH DIVIDENDS AND DISTRIBU-
TIONS IN CASH. Such election should be submitted to Prudential Mutual Fund
Services, Inc., Attention: Account Maintenance, P.O. Box 15015, New Brunswick,
New Jersey 08906-5015. If you hold shares through Prudential Securities, you
should contact your financial adviser to elect to receive dividends and dis-
tributions in cash. The Fund will notify each shareholder after the close of
the Fund's taxable year of both the dollar amount and the taxable status of
that year's dividends and distributions on a per share basis.

WHEN THE FUND GOES "EX-DIVIDEND," THE NAV OF EACH CLASS IS REDUCED BY THE
AMOUNT OF THE DIVIDEND OR DISTRIBUTION ALLOCABLE TO EACH CLASS. IF YOU BUY
SHARES JUST PRIOR TO THE EX-DIVIDEND DATE (WHICH GENERALLY OCCURS FOUR
BUSINESS DAYS PRIOR TO THE RECORD DATE), THE PRICE YOU PAY WILL INCLUDE THE
DIVIDEND OR DISTRIBUTION AND A PORTION OF YOUR INVESTMENT MAY BE RETURNED TO
YOU AS A TAXABLE DIVIDEND OR DISTRIBUTION. YOU SHOULD, THEREFORE, CONSIDER THE
TIMING OF DIVIDENDS AND DISTRIBUTIONS WHEN MAKING YOUR PURCHASES.

GENERAL INFORMATION

DESCRIPTION OF SHARES

THE FUND IS AN OPEN-END INVESTMENT COMPANY WHICH WAS ORGANIZED UNDER THE
LAWS OF MASSACHUSETTS ON SEPTEMBER 18, 1986 AS AN UNINCORPORATED BUSINESS
TRUST, A FORM OF ORGANIZATION THAT IS COMMONLY KNOWN AS A MASSACHUSETTS
BUSINESS TRUST. THE FUND IS AUTHORIZED TO ISSUE AN UNLIMITED NUMBER OF SHARES,
DIVIDED INTO THREE CLASSES, DESIGNATED CLASS A, CLASS B AND CLASS C SHARES.
Each class of shares represents an interest in the same assets of the Fund and
is identical in all respects except that (i) each class bears different
distribution expenses, (ii) each class has exclusive voting rights with
respect to its distribution and service plan (except that the Fund has agreed
with the SEC in

20
<PAGE>

connection with the offering of a conversion feature on Class B shares to
submit any amendment of the Class A Plan to both Class A and Class B
shareholders), (iii) each class has a different exchange privilege and (iv)
only Class B shares have a conversion feature. See "How the Fund is Managed--
Distributor." The Fund has received an order from the SEC permitting the
issuance and sale of multiple classes of shares. Currently, the Fund is
offering three classes, designated Class A, Class B and Class C shares. In
accordance with the Fund's Declaration of Trust, the Trustees may authorize
the creation of additional series of shares and classes of shares within such
series, with such preferences, privileges, limitations and voting and dividend
rights as the Trustees may determine.

Shares of the Fund, when issued, are fully paid, nonassessable, fully
transferable and redeemable at the option of the holder. Shares are also
redeemable at the option of the Fund under certain circumstances as described
under "Shareholder Guide--How to Sell Your Shares." Each share of each class
is equal as to earnings, assets and voting privileges, except as noted above,
and each class of shares bears the expenses related to the distribution of its
shares. Except for the conversion feature applicable to the Class B shares,
there are no conversion, preemptive or other subscription rights. In the event
of liquidation, each share of the Fund is entitled to its portion of all of
the Fund's assets after all debt and expenses of the Fund have been paid.
Since Class B 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. The Fund's shares do not
have cumulative voting rights for the election of Trustees.

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 TRUSTEES 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 THE VOTE OF 10% OF
THE FUND'S OUTSTANDING SHARES FOR THE PURPOSE OF VOTING ON THE REMOVAL OF ONE
OR MORE TRUSTEES OR TO TRANSACT ANY OTHER BUSINESS.

The Declaration of Trust and the By-Laws of the Fund are designed to make
the Fund similar in certain respects to a Massachusetts business corporation.
The principal distinction between a Massachusetts business corporation and a
Massachusetts business trust relates to shareholder liability. Under
Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for the obligations of
the Fund beyond the amount of their investment in the Fund. The Declaration of
Trust of the Fund provides that shareholders will not be subject to any
personal liability for acts or obligations of the Fund and that every written
obligation, contract, instrument or undertaking made by the Fund will contain
a provision to the effect that shareholders are not individually bound
thereunder.

ADDITIONAL INFORMATION

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

SHAREHOLDER GUIDE

HOW TO BUY SHARES OF THE FUND

YOU MAY PURCHASE SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, PRUSEC OR
DIRECTLY FROM THE FUND, THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL FUND
SERVICES, INC. (PMFS OR THE TRANSFER AGENT), ATTENTION: INVESTMENT SERVICES,
P.O. BOX 15020, NEW BRUNSWICK, NEW JERSEY 08906-5020. The minimum initial
investment for Class A and Class B shares is $1,000 per class and $5,000 for
Class C shares. The minimum subsequent investment is $100 for all classes. All
minimum

21
<PAGE>

investment requirements are waived for certain retirement and employee savings
plans or custodial accounts for the benefit of minors. For purchases made
through the Automatic Savings Accumulation Plan, the minimum initial and
subsequent investment is $50. The minimum initial investment requirement is
waived for purchases of Class A shares effected through an exchange of Class B
shares of The BlackRock Government Income Trust. See "Shareholder Services"
below.

THE PURCHASE PRICE IS THE NAV NEXT DETERMINED FOLLOWING RECEIPT OF AN ORDER
BY THE TRANSFER AGENT OR PRUDENTIAL SECURITIES PLUS A SALES CHARGE WHICH, AT
YOUR OPTION, MAY BE IMPOSED EITHER (I) AT THE TIME OF PURCHASE (CLASS A
SHARES) OR (II) ON A DEFERRED BASIS (CLASS B OR CLASS C SHARES). SEE
"ALTERNATIVE PURCHASE PLAN" BELOW. SEE ALSO "HOW THE FUND VALUES ITS SHARES."

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

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

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

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

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

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

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

22
<PAGE>

ALTERNATIVE PURCHASE PLAN

THE FUND OFFERS THREE CLASSES OF SHARES (CLASS A, CLASS B AND CLASS C
SHARES) WHICH ALLOWS YOU TO CHOOSE THE MOST BENEFICIAL SALES CHARGE STRUCTURE
FOR YOUR INDIVIDUAL CIRCUMSTANCES, GIVEN THE AMOUNT OF THE PURCHASE AND THE
LENGTH OF TIME YOU EXPECT TO HOLD THE SHARES AND OTHER RELEVANT CIRCUMSTANCES
(ALTERNATIVE PURCHASE PLAN).

<TABLE>
<CAPTION>
ANNUAL 12b-1 FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
------------------------------ ------------------------ ------------------------------
<S> <C> <C> <C>
CLASS A Maximum initial sales charge .30 of 1% Initial sales charge waived or
of 5% of the public offering (Currently being reduced for certain purchases
price charged at a rate
of .25 of 1%)
CLASS B Maximum contingent deferred 1% Shares convert to Class A
sales charge or CDSC of 5% of shares approximately seven
the lesser of the amount years after purchase
invested or the redemption
proceeds; declines to zero
after six years
CLASS C Maximum CDSC of 1% of the 1% Shares do not convert to
lesser of the amount invested another class
or the redemption proceeds on
redemptions made within one
year of purchase
</TABLE>

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

Financial advisers and other sales agents who sell shares of the Fund will
receive different compensation for selling Class A, Class B and Class C shares
and will generally receive more compensation initially for selling Class A and
Class B shares than for selling Class C shares.

IN SELECTING A PURCHASE ALTERNATIVE, YOU SHOULD CONSIDER, AMONG OTHER
THINGS, (1) the length of time you expect to hold your investment, (2) the
amount of any applicable sales charge (whether imposed at the time of purchase
or redemption) and distribution-related fees, as noted above, (3) whether you
qualify for any reduction or waiver of any applicable sales charge, (4) the
various exchange privileges among the different classes of shares (see "How to
Exchange Your Shares" below) and (5) the fact that Class B shares
automatically convert to Class A shares approximately seven years after
purchase (see "Conversion Feature--Class B Shares" below).

The following is provided to assist you in determining which method of
purchase best suits your individual circumstances and is based on current fees
and expenses being charged to the Fund:

If you intend to hold your investment in the Fund for less than 7 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 5% 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.

23
<PAGE>

If you intend to hold your investment for 7 years or more and do not qualify
for a reduced sales charge on Class A shares, since Class B shares convert to
Class A shares approximately 7 years after purchase and because all of your
money would be invested initially in the case of Class B shares, you should
consider purchasing Class B shares over either Class A or Class C shares.

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

If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class B or Class C shares, you would have to hold your investment for
more than 6 years in the case of Class B shares and Class C shares for the
higher cumulative annual distribution-related fee on those shares to exceed
the initial sales charge plus cumulative annual distribution-related fees on
Class A shares. This does not take into account the time value of money, which
further reduces the impact of the higher Class B or Class C distribution-
related fee on the investment, fluctuations in net asset value, the effect of
the return on the investment over this period of time or redemptions during
the period in which the CDSC is applicable.

ALL PURCHASES OF $1 MILLION OR MORE, EITHER AS PART OF A SINGLE INVESTMENT
OR UNDER RIGHTS OF ACCUMULATION OR LETTERS OF INTENT, MUST BE FOR CLASS A
SHARES. See "Reduction and Waiver of Initial Sales Charges" below.

CLASS A SHARES

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

<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS DEALER CONCESSION
PERCENTAGE OF PERCENTAGE OF AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
------------------ --------------- --------------- -----------------
<S> <C> <C> <C>
Less than $25,000............. 5.00% 5.26% 4.75%
$25,000 to $49,999............ 4.50 4.71 4.25
$50,000 to $99,999............ 4.00 4.17 3.75
$100,000 to $249,999.......... 3.25 3.36 3.00
$250,000 to $499,999.......... 2.50 2.56 2.40
$500,000 to $999,999.......... 2.00 2.04 1.90
$1,000,000 and above.......... None None None
</TABLE>

Selling dealers may be deemed to be underwriters, as that term is defined in
the Securities Act.

REDUCTION AND WAIVER OF INITIAL SALES CHARGES. Reduced sales charges are
available through Rights of Accumulation and Letters of Intent. Shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) may be
aggregated to determine the applicable reduction. See "Purchase and Redemption
of Fund Shares--Reduction and Waiver of Initial Sales Charges--Class A Shares"
in the Statement of Additional Information.

Benefit Plans. 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 and annuity plans under Sections 457 and 403(b)(7) of the
Internal Revenue Code (Benefit Plans), provided

24
<PAGE>

that the 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 1,000 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 PSI or its subsidiaries
(PSI 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 Vista Program. Class A shares are offered at net asset value to
certain qualified employee retirement benefit plans under section 401 of the
Internal Revenue Code of 1986, as amended, for which Prudential Defined
Contribution Services serves as the recordkeeper provided that such plan is
also participating in the Prudential Vista Program (PruVista Plan), and
provided further that (i) for existing plans, the plan has existing assets of
at least $1 million and at least 100 eligible employees or participants, and
(ii) for new plans, the plan has at least 500 eligible employees or
participants. The term "existing assets" for this purpose includes
transferable cash and GICs (guaranteed investment contracts) maturing within 4
years.

Special Rules Applicable to Retirement Plans. After a Benefit Plan or the
PruVista 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
Prudential Securities or the Transfer Agent, by the following persons: (a)
Trustees and officers of the Fund and other Prudential Mutual Funds, (b)
employees of Prudential Securities and PMF and their subsidiaries and members
of the families of such persons who maintain an "employee related" account at
Prudential Securities or the Transfer Agent, (c) 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, (d) registered
representatives and employees of dealers who have entered into a selected
dealer agreement with Prudential Securities provided that purchases at NAV are
permitted by such person's employer and (e) investors who have a business
relationship with a financial adviser who joined Prudential Securities from
another investment firm, provided that (i) the purchase is made within 90 days
of the commencement of the financial adviser's employment at Prudential
Securities, (ii) the purchase is made with proceeds of a redemption of shares
of any open-end, 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) on which no deferred sales load, fee or other charge
was imposed on redemption and (iii) the financial adviser served as the
client's broker on the previous purchases.

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

CLASS B AND CLASS C SHARES

The offering price of Class B and Class C shares for investors choosing one
of the deferred sales charge alternatives is the NAV next determined following
receipt of an order by the Transfer Agent or Prudential Securities. Although
there is no sales charge imposed at the time of purchase, redemptions of Class
B and Class C shares may be subject to a CDSC. See "How to Sell Your Shares--
Contingent Deferred Sales Charges."

25
<PAGE>

HOW TO SELL YOUR 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 BY THE TRANSFER AGENT
OR PRUDENTIAL SECURITIES. SEE "HOW THE FUND VALUES ITS SHARES." In certain
cases, however, redemption proceeds will be reduced by the amount of any
applicable contingent deferred sales charge, as described below. See
"Contingent Deferred Sales Charges" below.

IF YOU HOLD SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, YOU MUST
REDEEM YOUR SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.
IF YOU HOLD SHARES IN NON-CERTIFICATE FORM, A WRITTEN REQUEST FOR REDEMPTION
SIGNED BY YOU EXACTLY AS THE ACCOUNT IS REGISTERED IS REQUIRED. IF YOU HOLD
CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE FACE OF THE
CERTIFICATES, MUST BE RECEIVED BY THE TRANSFER AGENT IN ORDER FOR THE
REDEMPTION REQUEST TO BE PROCESSED. IF REDEMPTION IS REQUESTED BY A
CORPORATION, PARTNERSHIP, TRUST OR FIDUCIARY, WRITTEN EVIDENCE OF AUTHORITY
ACCEPTABLE TO THE TRANSFER AGENT MUST BE SUBMITTED BEFORE SUCH REQUEST WILL BE
ACCEPTED. All correspondence and documents concerning redemptions should be
sent to the Fund in care of its Transfer Agent, Prudential Mutual Fund
Services, Inc., Attention: Redemption Services, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.

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

PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE MADE BY CHECK WITHIN
SEVEN DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE CERTIFICATE AND/OR
WRITTEN REQUEST, EXCEPT AS INDICATED BELOW. IF YOU HOLD SHARES THROUGH
PRUDENTIAL SECURITIES, PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE
CREDITED TO YOUR PRUDENTIAL SECURITIES ACCOUNT, UNLESS YOU INDICATE
OTHERWISE. Such payment may be postponed or the right of redemption suspended
at times (a) when the New York Stock Exchange is closed for other than
customary weekends and holidays, (b) when trading on such Exchange is
restricted, (c) when an emergency exists as a result of which disposal by the
Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, or (d) during any other period when the SEC, by order, so permits;
provided that applicable rules and regulations of the SEC shall govern as to
whether the conditions prescribed in (b), (c) or (d) exist.

PAYMENT FOR REDEMPTION OF RECENTLY PURCHASED SHARES WILL BE DELAYED UNTIL
THE FUND OR ITS TRANSFER AGENT HAS BEEN ADVISED THAT THE PURCHASE CHECK HAS
BEEN HONORED, UP TO 10 CALENDAR DAYS FROM THE TIME OF RECEIPT OF THE PURCHASE
CHECK BY THE TRANSFER AGENT. SUCH DELAY MAY BE AVOIDED BY PURCHASING SHARES BY
WIRE OR BY CERTIFIED OR OFFICIAL BANK CHECK.

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

26
<PAGE>

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 contingent deferred
sales charge will be imposed on any involuntary redemption.

30-DAY REPURCHASE PRIVILEGE. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest any portion or
all of the proceeds of such redemption in shares of the Fund at the NAV next
determined after the order is received, which must be within 30 days after the
date of the redemption. No sales charge will apply to such repurchases. You
will receive pro rata credit for any contingent deferred sales charge paid in
connection with the redemption of Class B or Class C shares. You must notify
the Fund's Transfer Agent, either directly or through Prudential Securities or
Prusec, at the time the repurchase privilege is exercised that you are
entitled to credit for the contingent deferred sales charge previously paid.
Exercise of the repurchase privilege will generally not affect federal income
tax treatment of any gain realized upon redemption. If the redemption resulted
in a loss, some or all of the loss, depending on the amount reinvested, will
generally not be allowed for federal income tax purposes.

CONTINGENT DEFERRED SALES CHARGES

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 one year of purchase will be subject to a 1% CDSC. The
CDSC will be deducted from the redemption proceeds and reduce the amount paid
to you. The CDSC will be imposed on any redemption by you which reduces the
current value of your Class B or Class C shares to an amount which is lower
than the amount of all payments by you for shares during the preceding six
years, in the case of Class B shares, and one year, in the case of Class C
shares. A CDSC will be applied on the lesser of the original purchase price or
the current value of the shares being redeemed. Increases in the value of your
shares or shares acquired through reinvestment of dividends or distributions
are not subject to a CDSC. The amount of any contingent deferred sales charge
will be paid to and retained by the Distributor. See "How the Fund is
Managed--Distributor" and "Waiver of the Contingent Deferred Sales Charges--
Class B Shares" below.

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

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

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

In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results in the lowest possible rate. It will be
assumed that the redemption is made first of amounts representing shares
acquired

27
<PAGE>

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.

WAIVER OF THE CONTINGENT DEFERRED SALES CHARGES--CLASS B SHARES. The CDSC
will be waived in the case of a redemption following the death or disability
of a shareholder or, in the case of a trust account, following the death or
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint
tenancy (with rights of survivorship), at the time of death or initial
determination of disability, 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 include: (i) in the case of a tax-
deferred retirement plan, a lump-sum or other distribution after retirement;
(ii) in the case of an IRA or Section 403(b) custodial account, a lump-sum or
other distribution after attaining age 59 1/2; and (iii) 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 PSI or Subsidiary Prototype Benefit Plans, the CDSC will be
waived on redemptions which represent borrowings from such plans. Shares
purchased with amounts used to repay a loan from such plans on which a CDSC
was not previously deducted will thereafter be subject to a CDSC without
regard to the time such amounts were previously invested. In the case of a
401(k) plan, the CDSC will also be waived upon the redemption of shares
purchased with amounts used to repay loans made from the account to the
participant and from which a CDSC was previously deducted.

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

You must notify the Fund's Transfer Agent either directly or through
Prudential Securities or Prusec, at the time of redemption, that you are
entitled to waiver of the CDSC 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. See "Purchase and
Redemption of Fund Shares--Waiver of the Contingent Deferred Sales Charge--
Class B Shares" in the Statement of Additional Information.

28
<PAGE>

A quantity discount may apply to redemptions of Class B shares purchased
prior to August 1, 1994. See "Purchase and Redemption of Fund Shares--Quantity
Discount--Class B Shares Purchased Prior to August 1, 1994" in the Statement
of Additional Information.

CONVERSION FEATURE--CLASS B SHARES

Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. It is currently anticipated
that conversions will occur during the months of February, May, August and
November commencing in or about February 1995. 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 net asset value 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. See "How the Fund Values its
Shares."

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 purchases of such Class B shares was made. For Class B
shares previously exchanged for shares of a money market fund, the time period
during which such shares were held in the money market fund will be excluded.
For example, Class B shares held in a money market fund for one year would not
convert to Class A shares until approximately eight years from purchase. For
purposes of measuring the time period during which shares are held in a 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 described above will not be implemented
and, consequently, the first conversion of Class B shares will not occur
before February 1995, but as soon thereafter as practicable. At that time all
amounts representing Class B shares then outstanding beyond the applicable
conversion period will automatically convert to Class A shares together with
all shares or amounts representing Class B shares acquired through the
automatic reinvestment of dividends and distributions then held in your
account.

29
<PAGE>

The conversion feature may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service (i) that the
dividends and other distributions paid on Class A, Class B and Class C shares
will not constitute "preferential dividends" under the Internal Revenue Code
and (ii) 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.

HOW TO EXCHANGE YOUR SHARES

AS A SHAREHOLDER OF THE FUND, YOU HAVE AN EXCHANGE PRIVILEGE WITH CERTAIN
OTHER PRUDENTIAL MUTUAL FUNDS (THE EXCHANGE PRIVILEGE), INCLUDING ONE OR MORE
SPECIFIED MONEY MARKET FUNDS, SUBJECT TO THE MINIMUM INVESTMENT REQUIREMENTS
OF SUCH FUNDS. CLASS A, CLASS B AND CLASS C SHARES MAY BE EXCHANGED FOR CLASS
A, CLASS B AND CLASS C SHARES, RESPECTIVELY, OF ANOTHER FUND ON THE BASIS OF
THE RELATIVE NAV. No sales charge will be imposed at the time of the exchange.
Any applicable CDSC payable upon the redemption of shares exchanged 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. Class B and Class
C shares may not be exchanged into money market funds other than Prudential
Special Money Market Fund. For purposes of calculating the 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. See
"Conversion Feature--Class B Shares" above. An exchange will be treated as a
redemption and purchase for tax purposes. See "Shareholder Investment
Account--Exchange Privilege" in the Statement of Additional Information.

IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE 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. The Exchange Privilege is available
only in states where the exchange may legally be made.

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. SEE "HOW TO SELL YOUR SHARES" ABOVE.

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

IN PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS THE TELEPHONE EXCHANGE OF
SHARES MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD MAKE EXCHANGES BY MAIL BY
WRITING TO PRUDENTIAL MUTUAL FUND SERVICES, INC., AT THE ADDRESS NOTED ABOVE.

SPECIAL EXCHANGE PRIVILEGE. Commencing in or about February 1995, a special
exchange privilege is available for shareholders who qualify to purchase Class
A shares at NAV. See "Alternative Purchase Plan--Class A Shares--Reduction and
Waiver of Initial Sales Charges" above. 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

30
<PAGE>

shares on a quarterly basis, unless the shareholder elects otherwise. It is
currently anticipated that this exchange will occur quarterly in February,
May, August and November. 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 or Prusec that they are eligible for
this special exchange privilege.

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

SHAREHOLDER SERVICES

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

. AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS WITHOUT A SALES
CHARGE. For your convenience, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund at NAV
without a sales charge. You may direct the Transfer Agent in writing not less
than five full business days prior to the record date to have subsequent
dividends and/or distributions sent in cash rather than reinvested. If you
hold shares through Prudential Securities, you should contact your financial
adviser.

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

. TAX-DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both self-
employed individuals and corporate employers. These plans permit either self-
direction of accounts by participants, or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from Prudential Securities or
the Transfer Agent. If you are considering adopting such a plan, you should
consult with your own legal or tax adviser with respect to the establishment
and maintenance of such a plan.

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

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

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

For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.

31
<PAGE>

[This page intentionally left blank]
<PAGE>

THE PRUDENTIAL MUTUAL FUND FAMILY

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

TAXABLE BOND FUNDS
Prudential Adjustable Rate Securities Fund, Inc.
Prudential GNMA Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
Prudential U.S. Government Fund
The BlackRock Government Income Trust

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

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

EQUITY FUNDS

Prudential Allocation Fund
Conservatively Managed Portfolio
Strategy Portfolio
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Growth Opportunity Fund, Inc.
Prudential IncomeVertible(R) Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Strategist Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc. Nicholas-Applegate Growth Equity Fund

MONEY MARKET FUNDS

.Taxable Money Market Funds
Prudential Government Securities Trust Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund
Money Market Series
Prudential MoneyMart Assets
.Tax-Free Money Market Funds
Prudential Tax-Free Money Fund
Prudential California Municipal Fund California Money Market Series
Prudential Municipal Series Fund Connecticut Money Market Series Massachusetts
Money Market Series New Jersey Money Market Series New York Money Market
Series
.Command Funds
Command Money Fund
Command Government Fund
Command Tax-Free Fund
.Institutional Money Market Funds
Prudential Institutional Liquidity Portfolio, Inc. Institutional Money Market
Series

A-1
<PAGE>

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

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FUND HIGHLIGHTS............................................................ 2
Risk Factors and Special Characteristics.................................. 2
FUND EXPENSES.............................................................. 4
FINANCIAL HIGHLIGHTS....................................................... 5
HOW THE FUND INVESTS....................................................... 8
Investment Objective and Policies......................................... 8
Hedging and Income Enhancement Strategies................................. 10
Other Investments and Policies............................................ 12
Investment Restrictions................................................... 14
HOW THE FUND IS MANAGED.................................................... 14
Manager................................................................... 14
Distributor............................................................... 15
Portfolio Transactions.................................................... 17
Custodian and Transfer and Dividend Disbursing Agent...................... 17
HOW THE FUND VALUES ITS SHARES............................................. 18
HOW THE FUND CALCULATES PERFORMANCE........................................ 18
TAXES, DIVIDENDS AND DISTRIBUTIONS......................................... 19
GENERAL INFORMATION........................................................ 20
Description of Shares..................................................... 20
Additional Information.................................................... 21
SHAREHOLDER GUIDE.......................................................... 21
How to Buy Shares of the Fund............................................. 21
Alternative Purchase Plan................................................. 23
How to Sell Your Shares................................................... 26
Conversion Feature--Class B Shares........................................ 29
How to Exchange Your Shares............................................... 30
Shareholder Services...................................................... 31
THE PRUDENTIAL MUTUAL FUND FAMILY.......................................... A-1
</TABLE>

- --------------------------------------------------------------------------------
MF131A 4401367
Class A: 743916207
CUSIP Nos.: Class B: 743916108
Class C: 743916306

[LOGO]

Prudential Equity Income Fund

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

December 30, 1994
<PAGE>

Prudential Mutual Funds
Supplement dated May 5, 1995

The following information supplements the Prospectus of each of the Funds
listed below.

SHAREHOLDER GUIDE

ALTERNATIVE PURCHASE PLAN

Class A Shares--Reduction and Waiver of Initial Sales Charges

Other Waivers. Class A shares may be purchased at NAV, through Prudential
Securities or the Transfer Agent, by investors who have a business relationship
with a financial adviser who joined Prudential Securities from another
investment firm, provided that (i) the purchase is made within 90 days of the
commencement of the financial adviser's employment at Prudential Securities,
(ii) the purchase is made with proceeds of a redemption of shares of any
open-end, non-money market fund sponsored by the financial adviser's previous
employer (other than a fund which imposes a distribution or service fee .25 of
1% or less) and (iii) the financial adviser served as the client's broker on the
previous purchase.

HOW TO SELL YOUR SHARES

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. No sales charge will apply to such repurchases. You will
receive pro rata credit for any contingent deferred sales charge paid in
connection with the redemption of Class B or Class C shares. You must notify the
Fund's Transfer Agent, either directly or through Prudential Securities or
Prusec, at the time the repurchase privilege is exercised that you are entitled
to credit for the contingent deferred sales charge previously paid. Exercise of
the repurchase privilege will generally not effect federal tax treatment of any
gain realized upon redemption. If the redemption resulted in a loss, some or all
of the loss, depending on the amount reinvested, will generally not be allowed
for federal income tax purposes.

Listed below are the names of the Prudential Mutual Funds and the dates of
the Prospectuses to which this supplement relates.

Name of Fund Prospectus Date

Prudential Adjustable Rate Securities Fund, Inc. May 1, 1994
Prudential Allocation Fund September 29, 1994
Prudential California Municipal Fund
California Income Series December 30, 1994
California Series December 30, 1994
Prudential Equity Income Fund December 30, 1994
Prudential Global Fund, Inc. January 3, 1995
Prudential Global Genesis Fund, Inc. August 1, 1994
Prudential Global Natural Resources Fund, Inc. August 1, 1994
Prudential Multi-Sector Fund, Inc. August 1, 1994
Prudential Municipal Bond Fund August 1, 1994
Prudential Municipal Series Fund
Arizona Series December 30, 1994
Florida Series December 30, 1994
Georgia Series December 30, 1994
Maryland Series December 30, 1994
Massachusetts Series December 30, 1994
Michigan Series December 30, 1994
Minnesota Series December 30, 1994
New Jersey Series December 30, 1994
New York Series December 30, 1994
North Carolina Series December 30, 1994
Ohio Series December 30, 1994
Pennsylvania Series December 30, 1994
Prudential Pacific Growth Fund, Inc. January 3, 1995
Prudential Short-Term Global Income Fund, Inc.
Global Assets Portfolio January 3, 1995
Short-Term Global Income Fund January 3, 1995
Prudential Strategist Fund, Inc. August 1, 1994
Prudential U.S. Government Fund January 3, 1995
The BlackRock Government Income Trust November 1, 1994
(as supplemented
December 30, 1994)

MF950C-6
<PAGE>

Prudential Equity Income Fund
Supplement dated June 1, 1995 to
Prospectus dated December 30, 1994

Management of the Fund

The Trustees have approved an amendment to the Management Agreement with
Prudential Mutual Fund Management, Inc. (the Manager) which reduces the fee
payable thereunder to the Manager on assets in excess of $1 billion, effective
June 1, 1995.

As reduced, the management fee is as follows: .60 of 1% of the Fund's
average daily net assets up to $500 million, .50 of 1% of average daily net
assets between $500 million and $1 billion, .475 of 1% of average daily net
assets between $1 billion and $1.5 billion and .45 of 1% of average daily net
assets in excess of $1.5 billion. Annual Fund Operating Expenses are set forth
under ``Fund Expenses'' in the Prospectus.

MF131C-1 (6/1/95)
<PAGE>

Prudential Mutual Funds
Supplement dated July 3, 1995

The following information supplements the prospectuses of each of the Funds
listed on the reverse.

SHAREHOLDER GUIDE

HOW TO BUY SHARES OF THE FUND

Reduction and Waiver of Initial Sales Charges.

PruArray Plans. Class A shares may be purchased at NAV by certain retirement
and deferred compensation plans, qualified or non-qualified under the Internal
Revenue Code of 1986, as amended, (the Code), including pension, profit-sharing,
stock-bonus or other employee benefit plans under Section 401 of the Code and
deferred compensation and annuity plans under Sections 457 and 403(b)(7) of the
Code that participate in the Transfer Agent's PruArray Program (a benefit plan
record keeping service) (hereafter referred to as a PruArray Plan); provided (i)
that the plan has at least $1 million in existing assets or 1,000 eligible
employees or participants and (ii) that Prudential Mutual Funds constitute at
least one-half of the plan's investment options. The term ``existing assets''
for this purpose includes stock issued by a PruArray Plan sponsor and shares of
non-money market Prudential Mutual Funds and shares of certain unaffiliated
non-money market mutual funds that participate in the PruArray Program
(Participating Funds). ``Existing assets'' also include shares of money market
funds acquired by exchange from a Participating Fund. After a PruArray Plan
qualifies to purchase Class A shares at NAV, all subsequent purchases will be
made at NAV.

Listed below are the names of the Prudential Mutual Funds and the dates of
the prospectuses to which this supplement relates.

Name of Fund Prospectus Date
<S> <C>
Prudential Adjustable Rate Securities Fund, Inc. June 26, 1995
Prudential Allocation Fund September 29, 1994
Prudential Diversified Bond Fund, Inc. January 3, 1995
(as supplemented June 20, 1995)
Prudential Equity Fund, Inc. February 28, 1995
Prudential Equity Income Fund December 30, 1994
Prudential Global Fund, Inc. January 3, 1995
Prudential Global Genesis Fund, Inc. August 1, 1994
Prudential Global Natural Resources Fund, Inc. August 1, 1994
Prudential GNMA Fund, Inc. March 2, 1995
Prudential Government Income Fund, Inc. May 1, 1995
Prudential Growth Opportunity Fund, Inc. February 1, 1995
Prudential High Yield Fund, Inc. February 28, 1995
Prudential IncomeVertible Fund, Inc. March 1, 1995
Prudential Intermediate Global Income Fund, Inc. March 2, 1995
Prudential Multi-Sector Fund, Inc. June 30, 1995
Prudential Pacific Growth Fund, Inc. January 3, 1995
Prudential Short-Term Global Income Fund, Inc.
Global Assets Portfolio January 3, 1995
Short-Term Global Income Fund January 3, 1995
Prudential Structured Maturity Fund, Inc. March 1, 1995
Prudential U.S. Government Fund January 3, 1995
Prudential Utility Fund, Inc. March 1, 1995
The BlackRock Government Income Trust November 1, 1994
(as supplemented December 30, 1994)
Global Utility Fund, Inc. February 1, 1995
Nicholas-Applegate Fund, Inc. March 6, 1995
</TABLE>

MF950C-7
<PAGE>

PRUDENTIAL EQUITY INCOME FUND

Statement of Additional Information
dated December 30, 1994

Prudential Equity Income Fund (the Fund) is an open-end, diversified
management investment company. Its investment objective is both current income
and capital appreciation. It seeks to achieve this objective by investing
primarily in common stocks and convertible securities that provide investment
income returns above those of the Standard & Poor's 500 Stock Index or the
NYSE Composite Index. In normal circumstances, the Fund intends to invest at
least 65% of its total assets in such securities. In selecting these
investments, the Fund puts emphasis on earnings, balance sheet and cash flow
analysis and the relationships that those factors have to the price and return
of a given security. The balance of the Fund's assets may be invested in other
common stocks, other securities convertible into common stocks, debt
securities and certain derivatives, including options on stocks and stock
indices. Common stocks may include securities of foreign issuers. There can be
no assurance that the Fund's investment objective will be achieved. See
"Investment Objective and Policies."

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

This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus dated December 30, 1994, a copy
of which may be obtained from the Fund upon request.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
CROSS-REFERENCE
TO PAGE IN
PAGE PROSPECTUS
---- ---------------
<S> <C> <C>
General Information....................................... B-2 20
Investment Objective and Policies......................... B-2 8
Investment Restrictions................................... B-8 14
Trustees and Officers..................................... B-9 14
Manager................................................... B-11 14
Distributor............................................... B-12 15
Portfolio Transactions and Brokerage...................... B-15 17
Purchase and Redemption of Fund Shares.................... B-16 21
Shareholder Investment Account............................ B-19 31
Net Asset Value........................................... B-22 18
Taxes..................................................... B-23 19
Performance Information................................... B-25 18
Organization and Capitalization........................... B-26 20
Custodian, Transfer and Dividend Disbursing Agent and In-
dependent Accountants.................................... B-27 17
Financial Statements...................................... B-28 --
Independent Auditors' Report.............................. B-38 --
Description of Security Ratings........................... A-1 --
</TABLE>

- -------------------------------------------------------------------------------
131B 4401375
<PAGE>

GENERAL INFORMATION

On February 28, 1991, the Trustees approved an amendment to the Declaration
of Trust to change the Fund's name from Prudential-Bache Equity Income Fund to
Prudential Equity Income Fund.

INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is both current income and capital
appreciation. It seeks to achieve this objective by investing primarily in
common stocks and convertible securities that provide investment income
returns above those of the Standard & Poor's 500 Stock Index or the NYSE
Composite Index. 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.

LIMITATIONS ON PURCHASE AND SALE OF STOCK OPTIONS, OPTIONS ON STOCK INDICES,
STOCK INDEX FUTURES AND OPTIONS THEREON

Except as described below, the Fund will write call options on indices only
if on such date it holds a portfolio of stocks at least equal to the value of
the index times the multiplier times the number of contracts. When the Fund
writes a call option on a broadly-based stock market index, the Fund will
segregate or put into escrow with its Custodian, or pledge to a broker as
collateral for the option, cash, cash equivalents or "qualified securities"
with a market value at the time the option is written of not less than 100% of
the current index value times the multiplier times the number of contracts.

If the Fund has written an option on an industry or market segment index, it
will segregate or put into escrow with its Custodian, or pledge to a broker as
collateral for the option, at least ten "qualified securities," which are
stocks of issuers in such industry or market segment, with a market value at
the time the option is written of not less than 100% of the current index
value times the multiplier times the number of contracts. Such stocks will
include stocks which represent at least 50% of the weighting of the industry
or market segment index and will represent at least 50% of the Fund's holdings
in that industry or market segment. No individual security will represent more
than 15% of the amount so segregated, pledged or escrowed in the case of
broadly-based stock market index options or 25% of such amount in the case of
industry or market segment index options. If at the close of business on any
day the market value of such qualified securities so segregated, escrowed or
pledged falls below 100% of the current index value times the multiplier times
the number of contracts, the Fund will so segregate, escrow or pledge an
amount in cash, Treasury bills or other high-grade short-term debt obligations
equal in value to the difference. In addition, when the Fund writes a call on
an index which is in-the-money at the time the call is written, the Fund will
segregate with its Custodian or pledge to the broker as collateral cash, U.S.
Government or other high-grade short-term debt obligations equal in value to
the amount by which the call is in-the-money times the multiplier times the
number of contracts. Any amount segregated pursuant to the foregoing sentence
may be applied to the Fund's obligation to segregate additional amounts in the
event that the market value of the qualified securities falls below 100% of
the current index value times the multiplier times the number of contracts. A
"qualified security" is an equity security which is listed on a national
securities exchange or listed on the National Association of Securities
Dealers Automated Quotation System against which the Fund has not written a
stock call option and which has not been hedged by the Fund by the sale of
stock index futures. However, if the Fund holds a call on the same index as
the call written where the exercise price of the call held is equal to or less
than the exercise price of the call written or greater than the exercise price
of the call written if the difference is maintained by the Fund in cash,
Treasury bills or other high-grade short-term debt obligations in a segregated
account with its Custodian, it will not be subject to the requirements
described in this paragraph.

The Fund will engage only in transactions in stock index futures contracts
and options thereon as a hedge against changes, resulting from market
conditions, in the values of securities which are held in the Fund's portfolio
or which it intends to purchase or when they are economically appropriate for
the reduction of risks inherent in the ongoing management of the Fund or for
income enhancement. The Fund may not purchase or sell stock index futures or
purchase options thereon if, immediately thereafter, more than one-third of
its net assets would be hedged and, in addition, except as described above in
the case of a call written and held on the same index, will write call options
on indices or sell stock index futures only if the amount resulting from the
multiplication of the then current level of the index (or indices) upon which
the option or futures contract(s) is based, the applicable multiplier(s), and
the number of futures or options contracts which would be outstanding, would
not exceed one-third of the value of the Fund's net assets. The Fund also may
not purchase or sell stock index futures or options thereon for risk
management purposes or income enhancement if, immediately thereafter, the sum
of the amount of margin deposits on the Fund's existing futures positions and
premiums paid for such options would exceed 5% of the liquidation value of the
Fund's total assets after taking into account unrealized profits and
unrealized losses on any such contracts, 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 stock index futures or options thereon for bona fide hedging purposes.
In instances involving the purchase of stock index futures

B-2
<PAGE>

contracts by the Fund, an amount of cash and cash equivalents, equal to the
market value of the futures contracts, will be deposited in a segregated
account with the Fund's Custodian and/or in a margin account with a broker to
collateralize the position and thereby ensure that the use of such futures is
unleveraged.

The Fund will use stock index futures and options thereon as described
herein in a manner consistent with these requirements.

The Fund's ability to enter into stock index futures contracts, options
thereon and options on stocks and stock indices may be limited by certain
requirements for qualification as a regulated investment company under the
Internal Revenue Code. See "Taxes."

RISKS OF TRANSACTIONS IN STOCK OPTIONS

An option position may be closed out only on an exchange, board of trade or
other trading facility 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, or at any particular time, and for some options no
secondary market on an exchange or otherwise 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 brokerage commissions upon the exercise of call
options and upon the subsequent disposition of underlying securities acquired
through the exercise of call options or upon the purchase of underlying
securities for the exercise of put options. 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: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the
facilities of an exchange or a clearing corporation may not at all times be
adequate to handle current trading volume; or (vi) one or more exchanges
could, for economic or other reasons, decide, or be compelled at some future
date, to discontinue the trading of options (or a particular class or series
of options), in which event the secondary market on that exchange (or in the
class or series of options) would cease to exist, although outstanding options
on that exchange that had been issued by a clearing corporation as a result of
trades on that exchange would continue to be exercisable in accordance with
their terms. There is no assurance that higher than anticipated trading
activity or other unforeseen events might not, at times, render certain of the
facilities of any of the clearing corporations inadequate, and thereby result
in the institution by an exchange of special procedures which may interfere
with the timely execution of customers' orders. However, The Options Clearing
Corporation, based on forecasts provided by the U.S. exchanges, believes that
its facilities are adequate to handle the volume of reasonably anticipated
options transactions, and such exchanges have advised such clearing
corporation that they believe their facilities will also be adequate to handle
reasonably anticipated volume.

RISKS OF OPTIONS ON INDICES

The Fund's purchase and sale of options on indices will be subject to risks
described above under "Risks of Transactions in Stock Options." In addition,
the distinctive characteristics of options on indices create certain risks
that are not present with stock options.

Index prices may be distorted if trading of certain stocks included in the
index is interrupted. Trading in the index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number
of stocks included in the index. If this occurred, the Fund would not be able
to close out options which it had purchased or written and, if restrictions on
exercise were imposed, might be unable to exercise an option it holds, which
could result in substantial losses to the Fund. It is the Fund's policy to
purchase or write options only on indices which include a number of stocks
sufficient to minimize the likelihood of a trading halt in the index.

Trading in index options commenced in April 1983 with the S&P 100 option
(formerly called the CBOE 100). Since that time a number of additional index
option contracts have been introduced, including options on industry indices.
Although the markets for certain index option contracts have developed
rapidly, the markets for other index options are still relatively illiquid.
The ability to establish and close out positions on such options will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop in all index option contracts. The
Fund will not purchase or sell any index option contract unless and until, in
the opinion of the investment adviser, the market for such options has
developed sufficiently that the risk in connection with such transactions is
no greater than the risk in connection with options on stocks.

B-3
<PAGE>

SPECIAL RISKS OF WRITING CALLS ON INDICES. Because exercises of index
options are settled in cash, a call writer such as the Fund cannot determine
the amount of its settlement obligations in advance and, unlike call writing
on specific stocks, cannot provide in advance for, or cover, its potential
settlement obligations by acquiring and holding the underlying securities.
However, the Fund will write call options on indices only under the
circumstances described above under "Limitations on Purchase and Sale of Stock
Options, Options on Stock Indices, Stock Index Futures and Options Thereon."

Price movements in the Fund's portfolio probably will not correlate
precisely with movements in the level of the index and, therefore, the Fund
bears the risk that the price of the securities held by the Fund may not
increase as much as the index. In such event, the Fund would bear a loss on
the call which is not completely offset by movements in the price of the
Fund's portfolio. It is also possible that the index may rise when the Fund's
portfolio of stocks does not rise. If this occurred, the Fund would experience
a loss on the call which would not be offset by an increase in the value of
its portfolio and might also experience a loss in its portfolio. However,
because the value of a diversified portfolio will, over time, tend to move in
the same direction as the market, movements in the value of the Fund's
portfolio in the opposite direction as the market would be likely to occur for
only a short period or to a small degree.

Unless the Fund has other liquid assets which are sufficient to satisfy the
exercise of a call, the Fund would be required to liquidate portfolio
securities in order to satisfy the exercise. Because an exercise must be
settled within hours after receiving the notice of exercise, if the Fund fails
to anticipate an exercise, it may have to borrow from a bank (in amounts not
exceeding 20% of the Fund's total assets) pending settlement of the sale of
securities in its portfolio and would incur interest charges thereon.

When the Fund has written a call, there is also a risk that the market may
decline between the time the Fund has a call exercised against it, at a price
which is fixed as of the closing level of the index on the date of exercise,
and the time the Fund is able to sell stocks in its portfolio. As with stock
options, the Fund will not learn that an index option has been exercised until
the day following the exercise date but, unlike a call on stock where the Fund
would be able to deliver the underlying securities in settlement, the Fund may
have to sell part of its stock portfolio in order to make settlement in cash,
and the price of such stocks might decline before they can be sold. This
timing risk makes certain strategies involving more than one option
substantially more risky with index options than with stock options. For
example, even if an index call which the Fund has written is "covered" by an
index call held by the Fund with the same strike price, the Fund will bear the
risk that the level of the index may decline between the close of trading on
the date the exercise notice is filed with the clearing corporation and the
close of trading on the date the Fund exercises the call it holds or the time
the Fund sells the call which in either case would occur no earlier than the
day following the day the exercise notice was filed.

SPECIAL RISKS OF PURCHASING PUTS AND CALLS ON INDICES. If the Fund holds an
index option and exercises it before final determination of the closing index
value for that day, it runs the risk that the level of the underlying index
may change before closing. If such a change causes the exercised option to
fall out-of-the-money, the Fund will be required to pay the difference between
the closing index value and the exercise price of the option (times the
applicable multiplier) to the assigned writer. Although the Fund may be able
to minimize this risk by withholding exercise instructions until just before
the daily cutoff time or by selling rather than exercising an option when the
index level is close to the exercise price, it may not be possible to
eliminate this risk entirely because the cutoff times for index options may be
earlier than those fixed for other types of options and may occur before
definitive closing index values are announced.

SPECIAL RISKS RELATED TO FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

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

Additionally, when the investment adviser believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, the Fund may enter into a forward contract for a fixed amount of
dollars to sell the amount of foreign currency approximating the value of some
or all of the Fund's portfolio securities denominated in such foreign
currency. The precise matching of the forward contract amounts and the value
of the securities involved will not generally be possible since the future
value of securities in foreign currencies will change as a consequence of
market movements in the value of those securities between the date on which
the forward contract is entered into and the date it matures. The projection
of short-term currency market movement is extremely difficult, and the
successful execution of a short-term hedging strategy is highly uncertain. The
Fund does not intend to enter into such forward contracts to protect the value
of its portfolio securities on a regular or continuous basis. The

B-4
<PAGE>

Fund will also not enter into such forward contracts or maintain a net
exposure to such contracts where the consummation of the contracts would
obligate the Fund to deliver an amount of foreign currency in excess of the
value of the Fund's portfolio securities or other assets denominated in that
currency. Under normal circumstances, consideration of the prospect for
currency parities will be incorporated into the long-term investment decisions
made with regard to overall diversification strategies. However, the Fund
believes that it is important to have the flexibility to enter into such
forward contracts when it determines that the best interest of the Fund will
thereby be served. The Fund's Custodian will place cash or liquid, high-grade
debt securities into a segregated account of the Fund in an amount equal to
the value of the Fund's total assets committed to the consummation of forward
foreign currency exchange contracts. If the value of the securities placed in
the segregated account declines, additional cash or securities will be placed
in the account on a daily basis so that the value of the account will equal
the amount of the Fund's commitments with respect to such contracts.

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

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

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

The Fund's dealings in forward foreign currency exchange contracts will be
limited to the transactions described above. Of course, the Fund is not
required to enter into such transactions with regard to its foreign currency-
denominated securities. It also should be realized that this method of
protecting the value of the Fund's portfolio securities against a decline in
the value of a currency does not eliminate fluctuations in the underlying
prices of the securities which are unrelated to exchange rates. Additionally,
although such contracts tend to minimize the risk of loss due to a decline in
the value of the hedged currency, at the same time they tend to limit any
potential gain which might result should the value of such currency increase.
The Fund's ability to enter into forward foreign currency exchange contracts
may be limited by certain requirements for qualification as a regulated
investment company under the Internal Revenue Code. See "Taxes."

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

RISKS OF INVESTING IN HIGH YIELD SECURITIES

Fixed-income securities are subject to the risk of an issuer's inability to
meet principal and interest payments on the obligations (credit risk) and may
also be subject to price volatility due to such factors as interest rate
sensitivity, market perception of the creditworthiness of the issuer and
general market liquidity (market risk). Lower rated or unrated (i.e., high
yield) securities are more likely to react to developments affecting market
and credit risk than are more highly rated securities, which react primarily
to movements in the general level of interest rates. The investment adviser
considers both credit risk and market risk in making investment decisions for
the Fund. Investors should carefully consider the relative risks of investing
in high yield securities and understand that such securities are not generally
meant for short-term trading.

The amount of high yield securities outstanding proliferated in the 1980's
in conjunction with the increase in merger and acquisition and leveraged
buyout activity. Under adverse economic conditions, there is a risk that
highly leveraged issuers may be unable to service their debt obligations or to
repay their obligations upon maturity. In addition, the secondary market for
high yield securities, which is concentrated in relatively few market makers,
may not be as liquid as the secondary market for more highly rated

B-5
<PAGE>

securities. Under adverse market or economic conditions, the secondary market
for high yield securities could contract further, independent of any specific
adverse changes in the condition of a particular issuer. As a result, the
investment adviser could find it more difficult to sell these securities or
may be able to sell the securities only at prices lower than if such
securities were widely traded. Prices realized upon the sale of such lower
rated or unrated securities, under these circumstances, may be less than the
prices used in calculating the Fund's net asset value.

Federal laws require the divestiture by federally insured savings and loan
associations of their investments in high yield bonds and limit the
deductibility of interest by certain corporate issuers of high yield bonds.
These laws could adversely affect the Fund's net asset value and investment
practices, the secondary market for high yield securities, the financial
condition of issuers of these securities and the value of outstanding high
yield securities.

Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, the Fund may
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. If the Fund experiences unexpected net
redemptions, it may be forced to sell its higher rated securities, resulting
in a decline in the overall credit quality of the Fund's portfolio and
increasing the exposure of the Fund to the risks of high yield securities.

DEFENSIVE STRATEGY AND SHORT-TERM INVESTMENTS

When conditions dictate a defensive strategy or during periods of portfolio
structuring or restructuring, the Fund may invest in money market instruments,
including commercial paper of domestic corporations, certificates of deposit,
bankers' acceptances and other obligations of domestic and foreign banks, and
obligations issued or guaranteed by the U.S. Government, its instrumentalities
or its agencies. The Fund will invest in 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 (taken
at current value). Such 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.

REPURCHASE AGREEMENTS

The Fund's repurchase agreements will be collateralized by U.S. Government
obligations. The Fund will enter into repurchase transactions only with
parties meeting creditworthiness standards approved by the Fund's Trustees.
The Fund's investment adviser will monitor the creditworthiness of such
parties under the general supervision of the Trustees. In the event of a
default or bankruptcy by a seller, the 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 Mutual Fund Management, Inc. (PMF) pursuant to
an order of the Securities and Exchange Commission (SEC). On a daily basis,
any uninvested cash balances of the Fund may be aggregated with those of such
investment companies and invested in one or more repurchase agreements. Each
fund participates in the income earned or accrued in the joint account based
on the percentage of its investment.

LENDING OF SECURITIES

Consistent with applicable regulatory requirements, the Fund may lend its
portfolio securities to brokers, dealers and financial institutions, provided
that outstanding loans do not exceed in the aggregate 33% of the value of the
Fund's total assets and provided that such loans are callable at any time by
the Fund and are at all times secured by cash or equivalent collateral that is
equal to at least the market value, determined daily, of the loaned
securities. The advantage of such loans is that the Fund continues to receive
payments in lieu of the interest and dividends on the loaned securities, while
at the same time earning interest either directly from the borrower or on the
collateral which will be invested in short-term obligations.

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

Since voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loan, in whole or in
part as may be appropriate, to permit the exercise of such rights if the
matters involved would have a material

B-6
<PAGE>

effect on the Fund's investment in the securities which are the subject of the
loan. The Fund will pay reasonable finders', administrative and custodial fees
in connection with a loan of its securities or may share the interest earned
on collateral with the borrower.

ILLIQUID SECURITIES

The Fund may not invest more than 5% of its net assets in repurchase
agreements which have a maturity of longer than seven days or in other
illiquid securities, including securities that are illiquid by virtue of the
absence of a readily available market (either within or outside of the United
States) or legal or contractual restrictions on resale. Historically, illiquid
securities have included securities subject to contractual or legal
restrictions on resale because they have not been registered under the
Securities Act of 1933, as amended (Securities Act), securities which are
otherwise not readily marketable and repurchase agreements having a maturity
of longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted
securities in order to dispose of them resulting in additional expense and
delay. Adverse market conditions could impede such a public offering of
securities.

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

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

Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and commercial paper for which there is 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
Trustees. 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 (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer). In addition, in order for commercial paper that is issued in
reliance on Section 4(2) of the Securities Act to be considered liquid, (i) it
must be rated in one of the two highest rating categories by at least two
nationally recognized statistical rating organizations (NRSRO), or if only one
NRSRO rates the securities, by that NRSRO, or, if unrated, be of comparable
quality in the view of the investment adviser, and (ii) it must not be "traded
flat" (i.e., 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.

PORTFOLIO TURNOVER

As a result of the investment policies described above, the Fund may engage
in a substantial number of portfolio transactions, and the Fund's portfolio
turnover rate may exceed 100%, but is not expected to exceed 200%. The
portfolio turnover rates for the Fund for the fiscal years ended October 31,
1993 and 1994 were 57% and 70%, respectively. The portfolio turnover rate is
generally the percentage computed by dividing the lesser of portfolio
purchases or sales (excluding all securities, including options, whose
maturities or expiration date at acquisition were one year or less) by the
monthly average value of the long-term portfolio. High portfolio turnover
involves correspondingly greater brokerage commissions and other transaction
costs, which are borne directly by the Fund. In addition, high portfolio
turnover may also mean that a proportionately greater amount of distributions
to shareholders

B-7
<PAGE>

will be taxed as ordinary income rather than long-term capital gains compared
to investment companies with lower portfolio turnover. See "Portfolio
Transactions and Brokerage" and "Taxes."

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); provided that
the deposit or payment by the Fund of initial or maintenance margin in
connection with stock index futures or options thereon 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 and to take advantage of investment
opportunities. 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, forward foreign
currency exchange contracts and collateral and collateral arrangements
relating thereto, collateral arrangements with respect to stock index futures
and options thereon and with respect to the writing of options on securities
or on stock indices and obligations of the Fund to Trustees pursuant to
deferred compensation arrangements are not deemed to be a pledge of assets or
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) more than 25% of the Fund's total assets (determined at the
time of investment) would be invested in a single industry. As to utility
companies, gas, electric and telephone companies will be considered as
separate industries.

(5) Purchase any security if as a result the Fund would then hold more than
10% of the outstanding voting securities of an issuer.

(6) Purchase any security if as a result the Fund would then have more than
5% of its total assets (determined at the time of investment) invested in
securities of companies (including predecessors) less than three years old,
except that the Fund may invest in the securities of any U.S. Government
agency or instrumentality, and in any security guaranteed by such an agency or
instrumentality.

(7) Buy or sell real estate or interests in real estate, except that the
Fund may purchase and sell securities which are secured by real estate,
securities of companies which invest or deal in real estate and publicly
traded securities of real estate investment trusts. The Fund may not purchase
interests in real estate limited partnerships which are not readily
marketable.

(8) Buy or sell commodities or commodity contracts, except that the Fund may
purchase and sell stock index futures contracts and options thereon. (For
purposes of this restriction, forward foreign currency exchange contracts are
not deemed to be a commodity or commodity contract.)

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

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

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

B-8
<PAGE>

(12) Invest in interests in oil, gas or other mineral exploration or
development programs, except that the Fund may invest in the securities of
companies which invest in or sponsor such programs.

(13) Make loans, except through repurchase agreements and loans of portfolio
securities (limited to 33% of the Fund's total assets).

(14) Purchase warrants if as a result the Fund would then have more than 5%
of its total assets (taken at current value) invested in warrants or more than
2% of its total assets (taken at current value) invested in warrants not
listed on the New York or American Stock Exchanges.

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

In order to comply with certain state "blue sky" restrictions, the Fund will
not as a matter of operating policy:
1. purchase the securities of any one issuer if, to the knowledge of the
Fund, any officer or Trustee of the Fund or the Manager or Subadviser
owns more than 1/2 of 1% of the outstanding securities of such issuer,
and such officers, Trustees and directors who own more than 1/2 of 1%
own in the aggregate more than 5% of the outstanding securities of
such issuer;
2. engage in arbitrage transactions;
3. invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, or
securities of issuers which are restricted as to disposition, if more
than 15% of its total assets would be invested in such securities.
This restriction shall not apply to mortgage-backed securities, asset-
backed securities or obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities;
4. invest more than 5% of its total assets in securities of unseasoned
issuers, including their predecessors, which have been in operation
for less than three years, and in equity securities of issuers which
are not readily marketable; and
5. invest in oil, gas and mineral leases.

TRUSTEES AND OFFICERS

<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS
NAME AND ADDRESS WITH FUND DURING PAST FIVE YEARS
---------------- --------- ----------------------
<C> <C> <S>
Edward D. Beach Trustee President and Director of BMC Fund, Inc., a closed-end
c/o Prudential Mutual Fund investment company; prior thereto, Vice Chairman of
Management, Inc. Broyhill Furniture Industries, Inc.; Certified Public
One Seaport Plaza Accountant; Secretary and Treasurer of Broyhill Family
New York, NY Foundation, Inc.; President,Treasurer and Director of
First Financial Fund, Inc. and The High Yield Plus
Fund, Inc.; Director of The Global Government Plus
Fund, Inc. and The Global Yield Fund, Inc.
Donald D. Lennox Trustee Chairman (since February 1990) and Director (since
c/o Prudential Mutual Fund April 1989) of International Imaging Materials, Inc.;
Management, Inc. Retired Chairman, Chief Executive Officer and Director
One Seaport Plaza of Schlegel Corporation (industrial manufacturing)
New York, NY (March 1987-February 1989); Director of Gleason
Corporation, Navistar International Corporation,
Personal Sound Technologies, Inc., The Global
Government Plus Fund, Inc. and The High Yield Income
Fund, Inc.
Douglas H. McCorkindale Trustee Vice Chairman, Gannett Co. Inc. (publishing and media)
c/o Prudential Mutual Fund (since March 1984); Director of Continental Airlines,
Management, Inc. Inc., Gannett Co., Inc., Rochester Telephone
One Seaport Plaza Corporation and The Global Government Plus Fund, Inc.
New York, NY

</TABLE>

B-9
<PAGE>

<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS
NAME AND ADDRESS WITH FUND DURING PAST FIVE YEARS
---------------- --------- ----------------------
<C> <C> <S>
*Lawrence C. McQuade President and Vice Chairman of Prudential Mutual Fund Management, Inc.
One Seaport Plaza Trustee (PMF) (since 1988); Managing Director, Investment
New York, NY Banking, of Prudential Securities Incorporated
(Prudential Securities) (1988-1991); Director of Czech
& Slovak American Enterprise Fund (since October 1994),
Quixote Corporation (since February 1992) and BUNZL,
P.L.C. (since June 1991); formerly Director of Kaiser
Tech. Ltd. and Kaiser Aluminum and Chemical Corp.
(March 1987-November 1988) and Crazy Eddie Inc.
(1987-1990); formerly Executive Vice President and
Director of W. R. Grace & Company (1975-1987); President
and Director of The Global Government Plus Fund, Inc.,
The Global Total Return Fund, Inc. and The High Yield
Income Fund, Inc.

Thomas T. Mooney Trustee President of the Greater Rochester Metro Chamber of
c/o Prudential Mutual Commerce; former Rochester City Manager; Trustee of
Fund Center for Governmental Research, Inc.; Director of
Management, Inc. Blue Cross of Rochester, Monroe County Water Authority,
One Seaport Plaza Rochester Jobs, Inc., Executive Service Corps of
New York, NY Rochester, Monroe County Industrial Development
Corporation, Northeast Midwest Institute, First
Financial Fund, Inc., The GlobalGovernment Plus
Fund, Inc., The Global Total Return Fund, Inc. and
The High Yield Plus Fund, Inc.

*Richard A. Redeker Trustee President, Chief Executive Officer and Director (since
One Seaport Plaza October 1993), PMF; Executive Vice President,
New York, NY Director and Member of Operating Committee (since
October 1993), Prudential Securities; Director (since
October 1993) of Prudential Securities Group, Inc.;
Vice President, The Prudential Investment Corporation
(since July 1994); formerly Senior Executive Vice
President and Director of Kemper Financial Services, Inc.
(September 1978-September 1993); Director of The Global
Government Plus Fund, Inc., The Global Total Return Fund,
Inc. and The High Yield Income Fund, Inc.

Louis A. Weil, III Trustee Publisher and Chief Executive Officer, Phoenix Newspapers,
c/o Prudential Mutual Inc. (since August 1991); Director of Central Newspapers,
Fund Inc. (since September 1991); prior thereto, Publisher of
Management, Inc. Time Magazine (May 1989-March 1991); formerly President,
One Seaport Plaza Publisher and Chief Executive Officer of The Detroit News
New York, NY (February 1986-August 1989); formerly member of the Advisory
Board, Chase Manhattan Bank-Westchester; Director of The
Global Government Plus Fund, Inc.

Robert F. Gunia Vice President Chief Administrative Officer (since July 1990), Director
One Seaport Plaza (since January 1989) and Executive Vice President,
New York, NY Treasurer and Chief Financial Officer (since June 1987)
of PMF; Senior Vice President (since March 1987) of
Prudential Securities; Vice President and Director (since
May 1989) of The Asia Pacific Fund, Inc.

Susan C. Cote Treasurer and Senior Vice President (since January 1989) of PMF;
One Seaport Plaza Principal Senior Vice President (since January 1992) and Vice
New York, NY Financial and President (January 1986-December 1991) of Prudential
Accounting Securities.
Officer

S. Jane Rose Secretary Senior Vice President (since January 1991), Senior
One Seaport Plaza Counsel (since June 1987) and First Vice President (June
New York, NY 1987-December 1990) of PMF; Senior Vice President and
Senior Counsel (since July 1992) of Prudential Securities;
formerly Vice President and Associate General Counsel of
Prudential Securities.

Marguerite E.H. Morrison Assistant Vice President and Associate General Counsel (since June
One Seaport Plaza Secretary 1991) of PMF; Vice President and Associate General Counsel
New York, NY of Prudential Securities.
</TABLE>
- ---------
* "Interested" Trustee, as defined in the Investment Company Act, by reason of
his affiliation with Prudential Securities or PMF.

B-10
<PAGE>

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

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

Pursuant to 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 Trustees of the Fund who are affiliated persons of the
Manager.

The Fund pays each of its Trustees who is not an affiliated person of the
Manager annual compensation of $7,500, in addition to certain out-of-pocket
expenses.

Trustees may receive their Trustee's fee pursuant to a deferred fee
agreement with the Fund. Under the terms of the agreement, the Fund accrues
daily the amount of Trustee's fees which accrue interest at a rate equivalent
to the prevailing rate applicable to 90-day U.S. Treasury bills at the
beginning of each calendar quarter or, pursuant to an SEC exemptive order, at
the daily rate of return of the Fund. Payment of the interest so accrued is
also deferred and accruals become payable at the option of the Trustee. The
Fund's obligation to make payments of deferred Trustees' fees, together with
interest thereon, is a general obligation of the Fund. Mr. Beach elected to
receive his Trustee's fee pursuant to a deferred fee agreement with the Fund
for the fiscal year ended October 31, 1994.

As of December 2, 1994, the Trustees and officers of the Fund, as a group,
owned beneficially less than 1% of the outstanding shares of beneficial
interest of the Fund.

As of December 2, 1994, Prudential Securities was record holder of 5,689,079
Class A shares (or 52% of the outstanding Class A shares), 49,660,588 Class B
shares (or 72% of the outstanding Class B shares) and 84,063 Class C shares
(or 67% of the outstanding Class C shares) of the Fund. In the event of any
meetings of shareholders, Prudential Securities will forward, or cause the
forwarding of, proxy material to the beneficial owners for which it is the
record holder.

MANAGER

The manager of the Fund is Prudential Mutual Fund Management, Inc. (PMF or
the Manager), One Seaport Plaza, New York, New York 10292. PMF serves as
manager to all of the other investment companies that, together with the Fund,
comprise the Prudential Mutual Funds. See "How the Fund is Managed--Manager"
in the Prospectus. As of November 30, 1994, PMF managed and/or administered
open-end and closed-end management investment companies with assets of
approximately $46 billion. According to the Investment Company Institute, as
of August 31, 1994, the Prudential Mutual Funds were the 12th largest family
of mutual funds in the United States.

Pursuant to the Management Agreement with the Fund (the Management
Agreement), PMF, subject to the supervision of the Fund's Trustees and in
conformity with the stated policies of the Fund, manages both the investment
operations of the Fund and the composition of the Fund's portfolio, including
the purchase, retention, disposition and loan of securities. In connection
therewith, PMF is obligated to keep certain books and records of the Fund. PMF
also administers the Fund's business 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), the Fund's custodian, and
Prudential Mutual Fund Services, Inc. (PMFS or the Transfer Agent), the Fund's
transfer and dividend disbursing agent. The management services of PMF for the
Fund are not exclusive under the terms of the Management Agreement and PMF is
free to, and does, render management services to others.

For its services, PMF receives, pursuant to the Management Agreement, a fee
at an annual rate of .60 of 1% of the Fund's average daily net assets up to
$500 million and .50 of 1% of the Fund's average daily net assets in excess of
$500 million. 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 PMF, but excluding interest, taxes, brokerage commissions,
distribution fees and litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of the Fund's
business) for any fiscal year exceed the lowest applicable annual expense
limitation established and enforced pursuant to the statutes or regulations of
any jurisdiction in which the Fund's shares are qualified for offer and sale,
the compensation due PMF will be reduced by the amount of such excess.
Reductions in excess of the total compensation payable to PMF will be paid by
PMF to the Fund. No such reductions were required during the fiscal year ended
October 31, 1994. Currently, the Fund believes that the most restrictive
expense limitation of state securities commissions is 2 1/2% of the Fund's
average daily net assets up to $30 million, 2% of the next $70 million of such
assets and 1 1/2% of such assets in excess of $100 million.

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

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

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

B-11
<PAGE>

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

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

The Management Agreement provides that PMF will not be liable for any error
of judgment or for any loss suffered by the Fund in connection with the
matters to which the Management Agreement relates, except a loss resulting
from willful misfeasance, bad faith, gross negligence or reckless disregard of
duty. The Management Agreement provides that it will terminate automatically
if assigned, and that it may be terminated without penalty by either party
upon not more than 60 days' nor less than 30 days' written notice. The
Management Agreement will continue in effect for a period of more than two
years from the date of execution only so long as such continuance is
specifically approved at least annually in conformity with the Investment
Company Act. The Management Agreement was last approved by the Trustees of the
Fund, including a majority of the Trustees who are not parties to the contract
or interested persons of any such parties as defined in the Investment Company
Act, on May 3, 1994 and by shareholders of the Fund on January 14, 1988.

For the fiscal years ended October 31, 1994, 1993 and 1992, PMF received
management fees of $5,078,246, $2,254,755 and $1,148,728, respectively.

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

The Subadvisory Agreement was last approved by the Trustees, including a
majority of the Trustees who are not parties to the contract or interested
persons of any such party as defined in the Investment Company Act, on May 3,
1994, and by shareholders of the Fund on January 14, 1988.

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

The Manager and the Subadviser are subsidiaries of Prudential which, as of
December 31, 1993, is one of the largest financial institutions in the world
and the largest insurance company in North America. Prudential has been
engaged in the insurance business since 1875. In July 1994, Institutional
Investor ranked Prudential the second largest institutional money manager of
the 300 largest money management organizations in the United States as of
December 31, 1993.

DISTRIBUTOR

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

B-12
<PAGE>

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

Prior to January 22, 1990, the Fund offered only one class of shares (the
then existing Class B shares). On October 11, 1989, the Trustees, including a
majority of the Trustees who are not interested persons of the Fund and who
have no direct or indirect financial interest in the operation of the Class A
or Class B Plan or in any agreement related to either Plan (the Rule 12b-1
Trustees), at a meeting called for the purpose of voting on each Plan, adopted
a new plan of distribution for the Class A shares of the Fund (the Class A
Plan) and approved an amended and restated plan of distribution with respect
to the Class B shares of the Fund (the Class B Plan). On February 9, 1993, the
Trustees, including a majority of the Rule 12b-1 Trustees, at a meeting called
for the purpose of voting on each Plan, approved the continuance of the Plans
and Distribution Agreements and approved modifications of the Fund's Class A
and Class B Plans and Distribution Agreements to conform them with recent
amendments to the National Association of Securities Dealers, Inc. (NASD)
maximum sales charge rule described below. As so modified, the Class A Plan
provides that (i) up to .25 of 1% of the average daily net assets of the Class
A shares may be used to pay for personal service and/or the maintenance of
shareholder accounts (service fee) and (ii) total distribution fees (including
the service fee of .25 of 1%) may not exceed .30 of 1%. As so modified, the
Class B Plan provides that (i) up to .25 of 1% of the average daily net assets
of the Class B shares may be paid as a service fee and (ii) up to .75 of 1%
(not including the service fee) of the average daily net assets of the Class B
shares (asset-based sales charge) may be used as reimbursement for
distribution-related expenses with respect to the Class B shares. On May 4,
1993, the Trustees, including a majority of the Rule 12b-1 Trustees, at a
meeting called for the purpose of voting on each Plan, adopted a plan of
distribution for the Class C shares of the Fund and approved further
amendments to the plans of distribution for the Fund's Class A and Class B
shares changing them from reimbursement type plans to compensation type plans.
The Plans were last approved by the Trustees, including a majority of the Rule
12-1 Trustees, on May 3, 1994. The Class A Plan, as amended, was approved by
Class A and Class B shareholders, and the Class B Plan, as amended, was
approved by Class B shareholders, on July 19, 1994. The Class C Plan was
approved by the sole shareholder of Class C shares on August 1, 1994.

CLASS A PLAN. For the fiscal year ended October 31, 1994, PMFD received
payments of $319,509 under the Class A Plan. This amount was primarily
expended for payments of account servicing fees to financial advisers and
other persons who sell Class A shares. For the fiscal year ended October 31,
1994, PMFD also received approximately $1,542,700 in initial sales charges.

CLASS B PLAN. For the fiscal year ended October 31, 1994, the Prudential
Securities received $7,840,632 from the Fund under the Class B Plan and spent
approximately $13,607,400 in distributing the Fund's Class B shares. It is
estimated that of the latter amount, approximately 1.1% ($149,500) was spent
on printing and mailing of prospectuses to other than current shareholders;
25.2% ($3,428,800) on compensation to Pruco Securities Corporation (an
affiliated broker-dealer) (Prusec) 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;
3.1% ($416,500) in interest and/or carrying charges; and 70.6% ($9,612,600) on
the aggregate of (i) payments of commissions and account servicing fees to
financial advisers (39.2% or $5,340,300) and (ii) an allocation of overhead
and other branch office distribution-related expenses for payments of related
expenses (31.4% or $4,272,300). 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.

Prudential Securities also receives the proceeds of contingent deferred
sales charges paid by investors upon certain redemptions of Class B shares.
See "Shareholder Guide--How to Sell Your Shares--Contingent Deferred Sales
Charges" in the Prospectus. For the fiscal year ended October 31, 1994,
Prudential Securities received approximately $1,587,700 in contingent deferred
sales charges.

CLASS C PLAN. For the period August 1, 1994 (inception of Class C shares)
through October 31, 1994, Prudential Securities received $1,880 under the
Class C Plan and spent approximately $11,200 in distributing Class C shares.
It is estimated that the latter amount was spent on (i) payments of
commissions and account servicing fees to financial advisers (41.1% or $4,600)
and (ii) an allocation of overhead and other branch office distribution-
related expenses for payments of related expenses (58.9% or $6,600).
Prudential Securities also receives the proceeds of contingent deferred sales
charges paid by investors upon certain redemptions of Class C shares. See
"Shareholder Guide--How to Sell Your Shares--Contingent Deferred Sales
Charges" in the Prospectus.

The Class A, Class B and Class C Plans continue in effect from year to year,
provided that each such continuance is approved at least annually by a vote of
the Trustees, including a majority vote of the Rule 12b-1 Trustees, cast in
person at a meeting called

B-13
<PAGE>

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 Trustees or by the vote of the holders of a majority of the outstanding
shares of the applicable class on not more than 30 days' written notice to any
other party to the Plans. The Plans may not be amended to increase materially
the amounts to be spent for the services described therein without approval by
the shareholders of the applicable class (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
Trustees 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 Trustees will review at least quarterly a written
report of the distribution expenses incurred on behalf of each class of shares
of the Fund by the Distributor. The report includes 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 Trustees shall be committed to the Rule 12b-1 Trustees.

Pursuant to each Distribution Agreement, the Fund has agreed to indemnify
PMFD and Prudential Securities to the extent permitted by applicable law
against certain liabilities under the Securities Act of 1933, as amended. Each
Distribution Agreement was last approved by the Trustees, including a majority
of the Rule 12b-1 Trustees, on May 3, 1994.

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

On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators in 51 jurisdictions and the NASD to resolve
allegations that PSI sold interests in more than 700 limited partnerships (and
a limited number of other types of securities) from January 1, 1980 through
December 31, 1990, in violation of securities laws to persons for whom such
securities were not suitable in light of the individuals' financial condition
or investment objectives. It was also alleged that the safety, potential
returns and liquidity of the investments had been misrepresented. The limited
partnerships principally involved real estate, oil and gas producing
properties and aircraft leasing ventures. The SEC Order (i) included findings
that PSI's conduct violated the federal securities laws and that an order
issued by the SEC in 1986 requiring PSI to adopt, implement and maintain
certain supervisory procedures had not been complied with; (ii) directed PSI
to cease and desist from violating the federal securities laws and imposed a
$10 million civil penalty; and (iii) required PSI to adopt certain remedial
measures including the establishment of a Compliance Committee of its Board of
Directors. Pursuant to the terms of the SEC settlement, PSI established a
settlement fund in the amount of $330,000,000 and procedures, overseen by a
court approved Claims Administrator, to resolve legitimate claims for
compensatory damages by purchasers of the partnership interests. PSI has
agreed to provide additional funds, if necessary, for that purpose. PSI's
settlement with the state securities regulators included an agreement to pay a
penalty of $500,000 per jurisdiction. PSI consented to a censure and to the
payment of a $5,000,000 fine in settling the NASD action. In settling the
above referenced matters, PSI neither admitted nor denied the allegations
asserted against it.

On January 18, 1994, PSI agreed to the entry of a Final Consent Order and a
Parallel Consent Order by the Texas Securities Commissioner. The firm also
entered into a related agreement with the Texas Securities Commissioner. The
allegations were that the firm had engaged in improper sales practices and
other improper conduct resulting in pecuniary losses and other harm to
investors residing in Texas with respect to purchases and sales of limited
partnership interests during the period of January 1, 1980 through December
31, 1990. Without admitting or denying the allegations, PSI consented to a
reprimand, agreed to cease and desist from future violations, and to provide
voluntary donations to the State of Texas in the aggregate amount of
$1,500,000. The firm agreed to suspend the creation of new customer accounts,
the general solicitation of new accounts, and the offer for sale of securities
in or from PSI's North Dallas office to new customers during a period of
twenty consecutive business days, and agreed that its other Texas offices
would be subject to the same restrictions for a period of five consecutive
business days. PSI also agreed to institute training programs for its
securities salesmen in Texas.

On October 27, 1994, Prudential Securities Group, Inc. (PSG) and PSI entered
into agreements with the United States Attorney deferring prosecution
(provided PSI complies with the terms of the agreement for three years) for
any alleged criminal activity related to the sale of certain limited
partnership programs from 1983 to 1990. In connection with these agreements,
PSI agreed to add the sum of $330,000,000 to the fund established by the SEC
and executed a stipulation providing for a reversion of such funds to the

B-14
<PAGE>

United States Postal Inspection Service. PSI further agreed to obtain a
mutually acceptable outside director to sit on the Board of Directors of PSG
and the Compliance Committee of PSI. The new director will also serve as an
independent "ombudsman" whom PSI employees can call anonymously with
complaints about ethics and compliance. Prudential Securities shall report any
allegations or instances of criminal conduct and material improprieties to the
new director. The new director will submit compliance reports which shall
identify all such allegations or instances of criminal conduct and material
improprieties every three months for a three-year period.

PORTFOLIO TRANSACTIONS AND BROKERAGE

The Manager is responsible for decisions to buy and sell securities, futures
and options on securities and futures for the Fund, the selection of brokers,
dealers and futures commission merchants to effect the transactions and the
negotiation of brokerage commissions, if any. For purposes of this section,
the term "Manager" includes the Subadviser. Broker-dealers may receive
brokerage commissions on Fund portfolio transactions, including options 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. Brokerage commissions on United States
securities, options and futures exchanges or boards of trade are subject to
negotiation between the Manager and the broker or futures commission merchant.

In the over-the-counter 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 U.S. Government agency securities may be
purchased directly from the issuer, in which case no commissions or discounts
are paid. The Fund will not deal with Prudential Securities in any transaction
in which Prudential Securities (or any affiliate) acts as principal. Thus, it
will not deal with Prudential Securities acting as market maker, and it will
not execute a negotiated trade with Prudential Securities if execution
involves Prudential Securities' acting as principal with respect to any part
of the Fund's order.

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 those of the Fund, 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, dealer or futures
commission merchant in the light of generally prevailing rates. The Manager's
policy is to pay higher commissions to brokers, other than Prudential
Securities, for particular transactions than might be charged if a different
broker had been selected, on occasions when, in the opinion of the Manager,
this policy furthers the objective of obtaining best price and execution. In
addition, the Manager is authorized to pay higher commissions on brokerage
transactions for the Fund to brokers other than Prudential Securities in order
to secure research and investment services described above, subject to review
by the Fund's Trustees from time to time as to the extent and continuation of
this practice. The allocation of orders among brokers and the commission rates
paid are reviewed periodically by the Fund's Trustees. Portfolio securities
may not be purchased from any underwriting or selling syndicate of which
Prudential Securities (or any affiliate), during the existence of the
syndicate, is a principal underwriter (as defined in the Investment Company
Act), except in accordance with rules of the SEC. This limitation, in the
opinion of the Fund, will not significantly affect the Fund's ability to
pursue its present investment objective. However, in the future in other
circumstances, the Fund may be at a disadvantage because of this limitation in
comparison to other funds with similar objectives but not subject to such
limitations.

Subject to the above considerations, Prudential Securities may act as a
securities broker or futures commission merchant for the Fund. In order for
Prudential Securities (or any affiliate) to effect any portfolio transactions
for the Fund, the commissions, fees or other remuneration received by
Prudential Securities (or any affiliate) must be reasonable and fair compared
to the commissions, fees or other remuneration paid to other brokers or
futures commission merchants in connection with comparable transactions
involving similar securities or futures being purchased or sold on an exchange
or board of trade during a comparable period of time.

B-15
<PAGE>

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 arm's-
length transaction. Furthermore, the Trustees of the Fund, including a
majority of the non-interested Trustees, have adopted procedures which are
reasonably designed to provide that any commissions, fees or other
remuneration paid to Prudential Securities (or any affiliate) are consistent
with the foregoing standard. In accordance with Section 11(a) under the
Securities Exchange Act of 1934, Prudential Securities may not retain
compensation for effecting transactions on a national securities exchange for
the Fund unless the Fund has expressly authorized the retention of such
compensation. Prudential Securities must furnish to the Fund at least annually
a statement setting forth the total amount of all compensation retained by
Prudential Securities from transactions effected for the Fund during the
applicable period. Brokerage and futures transactions with Prudential
Securities (or any affiliate) are also subject to such fiduciary standards as
may be imposed upon Prudential Securities (or such affiliate) by applicable
law.

The table below sets forth information concerning the payment of commissions
by the Fund, including the commissions paid to Prudential Securities, for the
three years ended October 31, 1994.

<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, 1994 OCTOBER 31, 1993 OCTOBER 31, 1992
---------------- ---------------- ----------------
<S> <C> <C> <C>
Total brokerage commissions
paid by the Fund........... $2,619,977 $1,046,105 $356,821
Total brokerage commissions
paid to Prudential
Securities................. $ 177,117 $ 193,083 $ 77,071
Percentage of total
brokerage commissions paid
to Prudential Securities... 6.8% 18.5% 21.6%
</TABLE>

The Fund effected approximately 6.8% of the total dollar amount of its
transactions involving the payment of commissions to Prudential Securities
during the year ended October 31, 1994. Of the total brokerage commissions
paid during that period, $1,897,147 (or 72.4%) were paid to firms which
provide research, statistical or other services to PIC.

PURCHASE AND REDEMPTION OF FUND SHARES

Each class of shares represents an interest in the same portfolio of
investments of the Fund and has the same rights, except that (i) each class
bears the separate expenses of its Rule 12b-1 distribution and service plan,
(ii) each class has exclusive voting rights with respect to its plan (except
that the Fund has agreed with the SEC in connection with the offering of a
conversion feature on Class B shares to submit any amendment of the Class A
distribution and service plan to both Class A and Class B shareholders) and
(iii) only Class B shares have a conversion feature. See "Distributor." Each
class also has separate exchange privileges. See "Shareholder Investment
Account--Exchange Privilege."

B-16
<PAGE>

SPECIMEN PRICE MAKE-UP

Under the current distribution arrangements between the Fund and the
Distributor, Class A shares of the Fund are sold at a maximum sales charge of
5% and Class B* and Class C* shares of the Fund are sold at net asset value.
Using the Fund's net asset value at October 31, 1994, the maximum offering
price of the Fund's shares is as follows:

<TABLE>
<S> <C>
CLASS A
Net asset value and redemption price per Class A share.................. $14.03
Maximum sales charge (5% of offering price)............................. .74
------
Maximum offering price to public........................................ $14.77
======
CLASS B
Net asset value, redemption price and offering price per Class B share*. $14.00
======
CLASS C
Net asset value, redemption price and offering price per Class C share*. $14.00
======
</TABLE>
- ---------
*Class B and Class C shares are subject to a contingent deferred sales charge
on certain redemptions. See "Shareholder Guide--How to Sell Your Shares--
Contingent Deferred Sales Charges" in the Prospectus.

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 the table of breakpoints under
"Shareholder Guide--Alternative Purchase Plan" in the Prospectus.

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

(a) an individual;
(b) the individual's spouse, their children and their parents;
(c) the individual's and spouse's Individual Retirement Account (IRA);
(d) any company controlled by the individual (a person, entity or group
that holds 25% or more of the outstanding voting securities of a
company will be deemed to control the company, and a partnership
will be deemed to be controlled by each of its general partners);
(e) a trust created by the individual, the beneficiaries of which are
the individual, his or her spouse, parents or children;
(f) a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act
account created by the individual or the individual's spouse; and
(g) one or more employee benefit plans of a company controlled by an
individual.

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

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

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

B-17
<PAGE>

LETTERS OF INTENT. Reduced sales charges are also 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. All shares of the Fund and shares of other Prudential Mutual
Funds (excluding money market funds other than those acquired pursuant to the
exchange privilege) which were previously purchased and are still owned are
also included in determining the applicable reduction. However, the value of
shares held directly with the Transfer Agent and through Prudential Securities
will not be aggregated to determine the reduced sales charge. All shares must
be held either directly with the Transfer Agent or through Prudential
Securities. The Distributor must be notified at the time of purchase that the
investor is entitled to a reduced sales charge. The reduced sales charge will
be granted subject to confirmation of the investor's holdings. Letters of
Intent are not available to individual participants in any retirement or group
plans.

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

The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the purchaser (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 the sales charge 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.

WAIVER OF THE CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES

The contingent deferred sales charge is waived under circumstances described
in the Prospectus. See "Shareholder Guide--How to Sell Your Shares--Waiver of
the Contingent Deferred Sales Charges--Class B Shares" in the Prospectus. In
connection with these waivers, the Transfer Agent will require you to submit
the supporting documentation set forth below.

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

Distribution from an IRA or 403(b) A copy of the distribution form from
Custodial Account the 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.

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

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.

B-18
<PAGE>

For example, if you purchased $100,000 of Class B shares of the Fund and the
following year purchase an additional $450,000 of Class B shares with the
result that the aggregate cost of your Class B shares of the Fund following
the second purchase 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.

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 share certificate is desired, it must be
requested in writing for each transaction. Certificates are issued only for
full shares and may be redeposited in the Account at any time. There is no
charge to the investor for issuance of a certificate. The Fund makes available
to its shareholders the following privileges and plans.

AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS

For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund. An
investor may direct the Transfer Agent in writing not less than five full
business days prior to the record date to have subsequent dividends and/or
distributions sent in cash rather than reinvested. In the case of recently
purchased shares for which registration instructions have not been received on
the record date, cash payment will be made directly to the dealer. Any
shareholder who receives a cash payment representing a dividend or
distribution may reinvest such dividend or distribution at net asset value by
returning the check or the proceeds to the Transfer Agent within 30 days after
the payment date. Such investment will be made at the net asset value per
share next determined after receipt of the check or proceeds by the Transfer
Agent. Such shareholder will receive credit for any contingent deferred sales
charge 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 relative net asset value next determined
after receipt of an order in proper form. An exchange will be treated as a
redemption and purchase for tax purposes. Shares may be exchanged for shares
of another fund only if shares of such fund may legally be sold under
applicable state laws. For retirement and group plans having a limited menu of
Prudential Mutual Funds, the Exchange Privilege is available for those funds
eligible for investment in the particular program.

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

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

B-19
<PAGE>

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

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

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, a
money market fund. No CDSC will be payable upon such exchange, but a CDSC may
be payable upon the redemption of the Class B and Class C shares acquired as a
result of the exchange. The applicable sales charge will be that imposed by
the fund in which shares were initially purchased and the purchase date will
be deemed to be the first day of the month after the initial purchase, rather
than the date of the exchange.

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

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

Additional details about the Exchange Privilege and prospectuses for each of
the Prudential Mutual Funds are available from the Fund's Transfer Agent,
Prudential Securities or Prusec. The Exchange Privilege may be modified,
terminated or suspended on 60 days' notice, and any fund, including the Fund,
or the Distributor, has the right to reject any exchange application relating
to such fund's shares.

DOLLAR COST AVERAGING

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

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

B-20
<PAGE>

for the freshman class of 2007, the cost of four years at a private college
could reach $163,000 and over $97,000 at a public university./1/

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

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

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

AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP)

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

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

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

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

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

Furthermore, each withdrawal constitutes a redemption of shares, and any
gain or loss realized must generally 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.

B-21
<PAGE>

TAX-DEFERRED RETIREMENT PLANS

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

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

TAX-DEFERRED RETIREMENT ACCOUNTS

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

TAX-DEFERRED COMPOUNDING/1/

<TABLE>
<CAPTION>
CONTRIBUTIONS PERSONAL
MADE OVER: SAVINGS IRA
------------- -------- --------
<S> <C> <C>
10 years $ 26,165 $ 31,291
15 years 44,675 58,649
20 years 68,109 98,846
25 years 97,780 157,909
30 years 135,346 244,692
</TABLE>
- ---------
/1/The chart is for illustrative purposes only and does not represent the
performance of the Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated. Earnings
in the IRA account will be subject to tax when withdrawn from the account.

NET ASSET VALUE

The net asset value per share is the net worth of the Fund (assets,
including securities at value, minus liabilities) divided by the number of
shares outstanding. Net asset value is calculated separately for each class.
Under the Investment Company Act, the Trustees are responsible for determining
in good faith the fair value of securities of the Fund. The Trustees 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. 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.

In accordance with procedures adopted by the Trustees, the value of the
Fund's portfolio will be determined as follows:

Securities for which the primary market is on an exchange or NASDAQ National
Market Securities, other than options on stocks and stock indices, are valued
at the last sale price on such exchange on the day of valuation or, if there
was no sale on such day, at the average of readily available closing bid and
asked prices on such exchange. Corporate obligations (other than convertible
debt securities) and U.S. Government securities that are actively traded in
the over-the-counter market, including listed securities for which the primary
market is believed to be over-the-counter, are valued at a price provided by
an independent pricing agent using matrix pricing; the independent pricing
agent will use information with respect to transactions in bonds, quotations
from bond dealers, agency ratings, market transactions in comparable
securities and various relationships between securities in determining value.
Convertible debt securities that are actively traded in the over-the-counter
market, including listed securities for which the primary market is believed
to be over-the-counter, are valued at the average of the most recently quoted
bid and asked prices provided by principal market makers. Other securities are
valued at the mean between the most recently quoted bid and asked prices.
Options on stocks and stock indices traded on a national securities exchange
are valued at the last sale price at the close of options trading on such
exchange or, if there was no sale on the applicable options exchange on such
day, at the average of quoted bid and asked prices as of the close of such
exchange. Stock index futures and options thereon traded on a commodities
exchange or board of

B-22
<PAGE>

trade are valued at the last sale price at the close of trading 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 average of quoted
bid and asked prices as of the close of such exchange or board of trade. Money
market instruments having a maturity of one year or less are valued at
amortized cost; the amortized cost method involves valuing a security at cost
and amortizing any discount or premium over the period until maturity; a
dollar-weighted average portfolio maturity of 120 days or less must be
maintained with respect to money market instruments; and securities or other
assets for which reliable market quotations are not readily available are
valued by the Fund's manager in good faith at fair value in accordance with
procedures adopted by the Fund's Trustees.

Because the New York State Exchange or the national securities exchanges on
which stock options are traded have adopted different trading hours on either
a permanent or temporary basis, the Trustees of the Fund may reconsider the
time at which net asset value is computed. In addition, the Fund may compute
its net asset value as of any time permitted pursuant to any exemption, order
or statement of the SEC or its staff.

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

TAXES

The Fund has elected to qualify and intends to remain qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code.
This relieves the Fund (but not its shareholders) from paying federal tax on
income which is distributed to shareholders, provided that it distributes at
least 90% of its net investment income and short-term capital gains, and
permits net long-term capital gains of the Fund (i.e., the excess of net long-
term capital gains over net short-term capital losses) to be treated as long-
term capital gains of the shareholders, regardless of how long shares in the
Fund are held.

Qualification as a regulated investment company requires, among other
things, that (a) the Fund derive at least 90% of its annual gross income
(without reduction 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
options thereon or foreign currencies, or other income (including but not
limited to, gains from options, futures or forward contracts) derived with
respect to its business of investing in such securities or currencies; (b) the
Fund derive less than 30% of its gross income from gains (without reduction
for losses) from the sale or other disposition of securities, options thereon,
futures contracts and options thereon, forward contracts and foreign
currencies held for less than three months (except for foreign currencies
directly related to the Fund's business of investing in foreign securities);
and (c) the Fund diversify its holdings so that, at the end of each quarter of
the taxable year, (i) at least 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 market
value of the Fund's assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its assets is invested
in the securities of any one issuer (other than U.S. Government securities).

Gains or losses on sales of securities by the Fund will be treated as long-
term capital gains or losses if the securities have been held by it for more
than one year, except in certain cases where the Fund acquires a put or writes
a call thereon or otherwise holds an offering position with respect to the
securities. Other gains or losses on the sale of securities will be short-term
capital gains or losses. Gains and losses on the sale, lapse or other
termination of options on securities will generally be treated as gains and
losses from the sale of securities (assuming they do not qualify as "Section
1256 contracts"). If an option written by the Fund on securities lapses or is
terminated through a closing transaction, such as a repurchase by the Fund of
the option from its holder, the Fund will generally realize capital gain or
loss. If securities are sold by the Fund pursuant to the exercise of a call
option written by it, the Fund will include the premium received in the sale
proceeds of the securities delivered in determining the amount of gain or loss
on the sale. Certain of the Fund's transactions may be subject to wash sale,
short sale, straddle and anti-conversion provisions of the Internal Revenue
Code. In addition, debt securities acquired by the Fund may be subject to
original issue discount and market discount rules.

"Regulated futures contracts" and certain listed options which are not
"equity options" constitute "Section 1256 contracts" and will be required to
be "marked to market" for federal income tax purposes at the end of the Fund's
taxable year; that is, treated as having been sold at market value. Sixty
percent of any gain or loss recognized on such "deemed sales" and on actual
dispositions will be treated as long-term capital gain or loss, and the
remainder will be treated as short-term capital gain or loss. Gain or loss on
the sale, lapse or other termination of options on narrowly-based stock
indices will be capital gain or loss and will be long-term or short-term
depending on the holding period of the option. In addition, positions which
are part of a "straddle" are to be subject to

B-23
<PAGE>

rules which apply certain wash sale and short sale provisions of the Internal
Revenue Code. The Fund may be required to defer the recognition of losses on
positions it holds to the extent of any unrecognized gain on offsetting
positions held by the Fund. The Fund's ability to enter into forward foreign
currency exchange contracts, stock index futures contracts, options thereon
and options on stocks and stock indices may be affected by the 30% limitation
on gains derived from securities held less than three months, discussed above.
The Fund's ability to hold foreign currencies or engage in hedging activities
may be limited by the 30%-of-income qualification test discussed above.

Gains or losses attributable to fluctuations in exchange rates which occur
between the time the Fund accrues interest or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time
the Fund actually collects such receivables or pays such liabilities are
treated as ordinary income or ordinary loss. Similarly, gains or losses on
forward foreign currency exchange contracts or dispositions of debt securities
denominated in a foreign currency attributable to fluctuations in the value of
the foreign currency between the date of acquisition of the security and the
date of disposition also are treated as ordinary gain or loss. These gains,
referred to under the Internal Revenue Code as "Section 988" gains or losses,
increase or decrease the amount of the Fund's investment company taxable
income available to be distributed to its shareholders as ordinary income,
rather than increasing or decreasing the amount of the Fund's net capital
gain. If Section 988 losses exceed other investment company taxable income
during a taxable year, the Fund would not be able to make any ordinary
dividend distributions, or distributions made before the losses were realized
would be recharacterized as a return of capital to shareholders, rather than
as an ordinary dividend, reducing each shareholder's basis in his or her Fund
shares.

Shareholders electing to receive dividends and distributions in the form of
additional shares will have a cost basis for federal income tax purposes in
each share so received equal to the net asset value of a share of the Fund on
the reinvestment date.

Any dividends or 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 dividends or distributions.
Furthermore, such dividends or distributions, although in effect a return of
capital, are subject to federal income taxes. Therefore, prior to purchasing
shares of the Fund, the investor should carefully consider the impact of
dividends or capital gains distributions which are expected to be or have been
announced.

Dividends and distributions may also be subject to state and local taxes.

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 will constitute a
replacement of shares.

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

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

The Fund is required under the Internal Revenue Code to distribute 98% of
its ordinary income in the same calendar year in which it is earned. The Fund
is also required to distribute during the calendar year 98% of the capital
gain net income it earned during the twelve months ending on October 31 of
such calendar year. In addition, the Fund must distribute during the calendar
year any undistributed ordinary income and undistributed capital gain net
income from the prior year or the twelve-month period ending on October 31 of
such prior calendar year, respectively. To the extent it does not meet these
distribution requirements, the Fund will be subject to a non-deductible 4%
excise tax on the undistributed amount. For purposes of this excise tax,
income on which the Fund pays income tax is treated as distributed.

The Fund may, from time to time, invest in Passive Foreign Investment
Companies (PFICs). PFICs are foreign corporations which derive a majority of
their income from passive sources. For tax purposes, the Fund's investments in
PFICs may subject the Fund to federal income taxes on certain income and gains
realized by the Fund. Under proposed Treasury regulations, the Fund would be
able to avoid such taxes and interest by electing to "mark-to-market" its
investments in PFICs (i.e., treat them as sold for fair market value at the
end of the year).

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 is not known.

B-24
<PAGE>

PERFORMANCE INFORMATION

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

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

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

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

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

The average annual total return for Class A shares for the one year and
since inception (January 22, 1990) periods ended October 31, 1994 was -1.69%
and 11.11%, respectively. The average annual total return for Class B shares
for the one and five year and since inception (January 22, 1987) periods ended
October 31, 1994 was -2.27%, 10.29% and 9.74%, respectively. The average
annual total return for Class C shares for the period since inception (August
1, 1994) through October 31, 1994 was -0.55%.

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

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

ERV - P
-------
P

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

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

The aggregate total return for Class A shares for the one and since
inception periods ended on October 31, 1994 was 3.48% and 74.03%,
respectively. The aggregate total return for Class B shares for the one and
five year and since inception periods ended on October 31, 1994 was 2.73%,
64.17% and 106.01%, respectively. The aggregate total return for Class C
shares for the period since inception (August 1, 1994) through October 31,
1994 was 0.45%.

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 and Class
C shares. The yield will be computed by dividing the Fund's net investment
income per share earned during this 30-day period by the maximum offering
price per share on the last day of this period. Yield is calculated according
to the following formula:

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).
the average daily number of shares outstanding during the
period that were entitled to receive
c = dividends.
d = the maximum offering price per share on the last day of the
period.

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.

B-25
<PAGE>

The Fund's 30-day yields for the 30 days ended October 31, 1994 were 2.49%,
1.89% and 1.91% for the Class A, Class B and Class C shares, respectively.

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/

[ART]

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

ORGANIZATION AND CAPITALIZATION

The Declaration of Trust and the By-Laws of the Fund are designed to make
the Fund similar in certain respects to a Massachusetts business corporation.
The principal distinction between a Massachusetts business trust and a
Massachusetts business corporation relates to shareholder liability. Under
Massachusetts law, shareholders of a business trust may, in certain
circumstances, be held personally liable as partners for the obligations of
the Fund, which is not the case with a corporation. The Fund believes that
this risk is not material. The Declaration of Trust of the Fund provides that
shareholders shall not be subject to any personal liability for the acts or
obligations of the Fund and that every written obligation, contract,
instrument or undertaking made by the Fund shall contain a provision to the
effect that the shareholders are not individually bound thereunder.

Massachusetts counsel for the Fund have advised the Fund that no personal
liability with respect to contract obligations will attach to the shareholders
under any undertaking containing such provisions when adequate notice of such
provision is given, except possibly in a few jurisdictions. With respect to
all types of claims in the latter jurisdictions and with respect to tort
claims, contract claims when the provision referred to is omitted from the
undertaking, claims for taxes and certain statutory liabilities, a shareholder
may be held personally liable to the extent that claims are not satisfied by
the Fund. However, upon payment of any such liability, the shareholder will be
entitled to reimbursement from the general assets of the Fund. The Trustees
intend to conduct the operations of the Fund in such a way as to avoid, to the
extent possible, ultimate liability of the shareholders for liabilities of the
Fund.

The Declaration of Trust further provides that no Trustee, officer, employee
or agent of the Fund is liable to the Fund or to a shareholder, nor is any
Trustee, officer, employee or agent liable to any third persons in connection
with the affairs of the Fund, except as such liability may arise from his or
her own bad faith, willful misfeasance, gross negligence or reckless disregard
of his or her duties. It also provides that all third parties shall look
solely to the Fund property for satisfaction of claims arising in connection
with the affairs of the Fund. With the exceptions stated, the Declaration of
Trust permits the Trustees to provide for the indemnification of Trustees,
officers, employees or agents of the Fund against all liability in connection
with the affairs of the Fund.

The Fund does not intend to hold annual meetings of shareholders.

B-26
<PAGE>

The Fund shall continue without limitation of time subject to the provisions
in the Declaration of Trust concerning termination by action of the
shareholders or by the Trustees by written notice to the shareholders.

The authorized capital of the Fund consists of an unlimited number of shares
of beneficial interest, $.01 par value, initially all of one series. All
shares of the Fund issued and outstanding are fully paid and non-assessable by
the Fund. Each share of the Fund represents an equal proportionate interest
with each other share of the Fund. Shares of the Fund entitle their holders to
one vote per share.

Pursuant to the Declaration of Trust, the Trustees may authorize the
creation of additional series of shares (the proceeds of which would be
invested in separate, independently managed portfolios with distinct
investment objectives and policies and share purchase, redemption and net
asset value procedures) with such preferences, privileges, limitations and
voting and dividend rights as the Trustees may determine. All consideration
received by the Fund for shares of any additional series, and all assets in
which such consideration is invested, would belong to that series (subject
only to the rights of creditors of that series) and would be subject to the
liabilities related thereto. Pursuant to the Investment Company Act,
shareholders of any additional series of shares would normally have to approve
the adoption of any advisory contract relating to such series and of any
changes in the investment policies related thereto. The Trustees have no
intention of authorizing additional series at the present time.

The Trustees have the power to alter the number and the terms of office of
the Trustees and they may at any time lengthen their own terms or make their
terms of unlimited duration and appoint their own successors, provided that
always at least a majority of the Trustees have been elected by the
shareholders of the Fund. The voting rights of shareholders are not
cumulative, so that holders of more than 50 percent of the shares voting can,
if they choose, elect all Trustees being selected, while the holders of the
remaining shares would be unable to elect any Trustees.

CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT AND INDEPENDENT ACCOUNTANTS

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. See "How the Fund is Managed--Custodian and Transfer and
Dividend Disbursing Agent" in the Prospectus.

Prudential Mutual Fund Services, Inc. (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 PMF. PMFS provides customary
transfer agency services to the Fund, including the handling of shareholder
communications, the processing of shareholder transactions, the maintenance of
shareholder account records, the payment of dividends and distributions and
related functions. For these services, PMFS receives an annual fee per
shareholder account, a new account set-up fee for each manually established
account and a monthly inactive zero balance account fee per shareholder
account. PMFS is also reimbursed for its out-of-pocket expenses, including but
not limited to postage, stationery, printing, allocable communication expenses
and other costs. For the fiscal year ended October 31, 1994, the Fund incurred
fees of approximately $1,198,800 for the services of PMFS.

Deloitte & Touche LLP, Two World Financial Center, New York, New York 10281,
serves as the Fund's independent accountants and in that capacity audits the
Fund's annual financial statements.

B-27
<PAGE>

PRUDENTIAL EQUITY INCOME FUND Portfolio of Investments
October 31, 1994
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S> <C>
LONG-TERM INVESTMENTS--93.6%
Common Stocks--68.9%
Aerospace/Defense--5.9%
91,800 Alliant Techsystems,
Inc.*..................... $ 3,155,625
159,500 E-Systems, Inc.............. 6,619,250
35,500 Moog, Inc.*................. 297,313
583,600 Northrop Grumman Corp....... 25,605,450
134,400 Rockwell International
Corp...................... 4,687,200
1,006,400 Thiokol Corp................ 24,782,600
------------
65,147,438
------------
Automobiles & Trucks--0.5%
150,000 General Motors Corp......... 5,925,000
------------
Banking--0.1%
15,100 First Fidelity Bancorp...... 679,500
------------
Chemicals--0.6%
180,100 Potash Corp. Saskatchewan,
Inc....................... 6,371,037
------------
Computer Hardware--2.9%
93,900 Digital Equipment Corp.*.... 2,875,688
390,900 International Business
Machines Corp............. 29,122,050
------------
31,997,738
------------
Computer Software & Services--0.7%
831,100 Intergraph Corp.*........... 7,168,238
25,200 Shared Medical Systems
Corp...................... 743,400
------------
7,911,638
------------
Conglomerate--0.7%
88,300 ITT Corp.................... 7,792,475
------------
Drugs & Medical Supplies--0.9%
400,000 Baxter International,
Inc....................... 10,400,000
------------
Electrical Equipment--1.6%
1,220,100 Westinghouse Electric
Corp...................... 17,233,913
------------
Electric Utilities--3.1%
81,000 Central & South West
Corp...................... 1,822,500
26,200 Central Hudson Gas &
Electric Co............... 641,900
47,000 Central Louisiana Electric
Co........................ 1,016,375
227,311 CINergy Corp................ 5,256,558
457,800 Entergy Corp................ 10,701,075
116,900 NIPSCO Industries, Inc...... 3,258,587
170,700 Pinnacle West Capital
Corp...................... 3,179,288
100,000 Public Service Enterprise,
Inc....................... 2,625,000
280,600 SCE Corp.................... 3,893,325
75,000 Texas Utilities Co.......... 2,446,875
------------
34,841,483
------------
Electronics--1.5%
348,900 Esterline Technologies
Corp.*.................... 4,317,638
462,800 IMO Industries, Inc.*....... 4,396,600
5,400 Kollmorgen Corp............. 35,100
379,400 Newport Corp................ 2,892,925
114,100 Pacific Scientific Co....... 5,419,750
------------
17,062,013
------------
Energy Equipment & Services--2.0%
101,000 Smith International,
Inc.*..................... 1,691,750
375,400 Sonat Offshore Drilling,
Inc....................... 7,461,075
218,300 USX Corp.................... 8,186,250
740,300 Varco International, Inc.... 5,182,100
------------
22,521,175
------------
Energy Systems--8.4%
773,700 Baker Hughes, Inc........... 15,860,850
683,100 Dresser Industries, Inc..... 14,430,488
595,000 Halliburton Co.............. 22,015,000
954,500 McDermott International,
Inc....................... 24,459,063
1,025,000 Morrison Knudsen Corp....... 16,015,624
------------
92,781,025
------------
Financial Services--5.9%
147,900 Alex Brown, Inc............. 4,085,738
800,000 Bear Stearns Cos., Inc...... 13,000,000
330,900 Edwards (A.G.), Inc......... 6,121,650
111,600 Legg Mason, Inc............. 2,343,600
1,169,600 Lehman Brothers Holdings,
Inc....................... 18,128,800
300,000 Merrill Lynch & Co., Inc.... 11,812,500
150,000 Morgan Stanley Group,
Inc....................... 9,806,250
------------
65,298,538
------------
</TABLE>

See Notes to Financial Statements.

B-28

<PAGE>

PRUDENTIAL EQUITY INCOME FUND
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
Gas Distribution--2.0%
259,800 British Gas plc., ADS
(United Kindom)........... $ 12,308,025
76,400 Equitable Resources, Inc.... 2,330,200
237,450 KN Energy, Inc.............. 5,847,206
58,450 Yankee Energy System,
Inc....................... 1,307,819
------------
21,793,250
------------
Gas Pipelines--2.4%
462,000 Panhandle Eastern Corp...... 10,857,000
208,300 Sonat, Inc.................. 6,769,750
410,000 TransCanada Pipelines,
Ltd....................... 5,330,000
228,900 Transco Energy Co........... 3,290,438
------------
26,247,188
------------
Insurance--5.1%
175,400 Aetna Life & Casualty Co.... 8,090,325
981,100 Alexander & Alexander
Services, Inc............. 19,867,275
138,700 Allstate Corp............... 3,346,138
548,200 Continental Corp............ 8,291,525
113,400 Jefferson-Pilot Corp........ 6,151,950
49,000 Lincoln National Corp....... 1,776,250
85,400 Ohio Casualty Corp.......... 2,497,950
56,300 SAFECO Corp................. 2,822,037
140,100 Selective Insurance Group,
Inc....................... 3,537,525
------------
56,380,975
------------
Integrated Producers--5.5%
19,000 Kerr-McGee Corp............. 933,375
33,300 Mobil Corp.................. 2,863,800
544,300 Occidental Petroleum
Corp...................... 11,906,562
49,800 Petroleum Heat & Power,
Inc....................... 460,650
382,800 Quaker State Corp........... 5,215,650
469,170 Societe Nationale ELF
Aquitaine, ADR
(France).................. 17,183,351
158,700 Sun Co., Inc................ 5,098,238
39,400 Texaco, Inc................. 2,575,775
762,000 USX Marathon Group.......... 14,287,500
------------
60,524,901
------------
Machinery--0.2%
277,300 Terex Corp.*................ $ 2,149,075
------------
Media--0.4%
132,700 Pulitzer Publishing Co...... 4,744,025
------------
Miscellaneous Industrial--1.9%
60,000 Hanson plc., ADR (United
Kingdom).................. 1,117,500
452,000 Tenneco, Inc................ 20,001,000
------------
21,118,500
------------
Realty Investment Trust--10.5%
271,000 AMLI Residential Property
Trust..................... 5,149,000
315,000 Avalon Properties, Inc...... 6,142,500
231,200 Beacon Properties........... 4,363,900
24,600 Carr Reality Corp........... 479,700
68,100 Charles E. Smith Residential
Realty, Inc............... 1,685,474
611,000 Crescent Real Estate
Equities.................. 16,497,000
776,900 Equity Residential Property
Trust..................... 23,209,887
161,900 First Union Real Estate
Equity & Mortgage
Investments............... 1,254,725
457,700 Gables Residential Trust.... 9,840,550
300,000 Glimcher Reality Trust...... 5,812,500
400,000 Irvine Apartment
Communities, Inc.......... 7,100,000
96,000 JP Reality, Inc............. 1,884,000
41,700 Kimco Reality Corp.......... 1,527,262
230,000 Malan Reality
Investors, Inc............ 3,450,000
300,000 Manufactured Home
Communities, Inc.......... 5,587,500
386,742 Property Trust of America... 6,236,215
285,700 Simon Property Group,
Inc....................... 6,821,087
196,200 Vornado Reality Trust....... 6,180,300
69,600 Weingarten Realty Investors,
Inc....................... 2,383,800
------------
115,605,400
------------
Retail
13,100 Bradlees, Inc............... 201,413
------------
Steel
59,600 Tubos De Acero De Mexico,
S.A., ADR*(Mexico)........ 312,900
------------
</TABLE>

See Notes to Financial Statements.

B-29

<PAGE>

PRUDENTIAL EQUITY INCOME FUND
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
Telecommunication Services--6.1%
13,600 Ameritech Corp.............. $ 549,100
100,000 BellSouth Corp.............. 5,325,000
165,900 GTE Corp.................... 5,101,425
196,700 NYNEX Corp.................. 7,720,475
885,800 Telefonos de Mexico, S.A.,
ADR (Mexico).............. 48,829,725
11,600 U.S. West, Inc.............. 436,450
------------
67,962,175
------------
Total common stocks
(cost $733,942,598)....... 763,002,775
------------
Preferred Stocks--14.8%
Aluminum--1.3%
422,500 Kaiser Aluminum Corp.,
Conv. $8.25............... 4,753,125
193,500 Reynolds Metals Co., Conv.
$3.31..................... 10,158,750
------------
14,911,875
------------
Automobiles & Trucks--2.7%
118,000 Chrysler Corp., Conv.
$4.63..................... 16,077,500
143,000 Ford Motor Co., Conv.
$4.20..................... 13,835,250
------------
29,912,750
------------
Electrical Equipment--2.3%
1,743,000 Westinghouse Electric Corp.,
Conv. $1.30............... 25,491,375
------------
Electric Utilities--0.1%
2,100 Gulf States Utilities Co.,
$5.08, Class E............ 120,093
11,205 Gulf States Utilities Co.,
$8.08, Class K............ 1,131,705
------------
1,251,798
------------
Energy Systems--0.7%
100,000 McDermott International,
Inc., Conv. $5.75, Ser.
C......................... 4,262,500
149,300 Reading & Bates Corp.,*
Conv. $1.63............... 3,639,187
------------
7,901,687
------------
Insurance--0.5%
102,200 Alexander & Alexander
Services, Inc.,
Conv. $3.63, Ser. A....... $ 4,394,600
12,700 USF & G Corp., Conv. $4.10,
Ser. A.................... 590,550
------------
4,985,150
------------
Integrated Producers--1.0%
110,000 Noble Drilling Corp.,*
Conv. $1.50............... 2,695,000
49,000 Unocal Corp., Conv. $3.50... 2,707,250
118,900 USX Marathon Group, Conv.
6.5%...................... 5,989,587
------------
11,391,837
------------
Mining--0.6%
100,000 Echo Bay Finance Corp.,
Conv. $1.75 Ser. A........ 3,737,500
60,000 Hecla Mining Co.
Conv. 7%, Ser. B.......... 3,015,000
------------
6,752,500
------------
Oil & Gas Exploration & Production--0.4%
85,000 Parker & Parsley Capital,
Conv. 6.25%............... 4,430,625
------------
Paper--1.3%
181,800 Bowater, Inc., Conv. 7%,
Ser. B.................... 4,726,800
451,200 James River Corp., Conv.
$9.00..................... 9,926,400
------------
14,653,200
------------
Realty Investment Trust--0.1%
54,600 Property Trust of America,
Conv. $1.75, Ser. A....... 1,180,725
------------
Steel--1.1%
228,000 Bethleham Steel Corp.,
Conv. $3.50............... 12,255,000
------------
Tobacco--2.7%
4,400,000 RJR Nabisco Holdings, Inc.,
Conv. $0.60, PERCS........ 30,250,000
------------
Total preferred stocks
(cost $162,231,512)....... 165,368,522
------------
</TABLE>

See Notes to Financial Statements.

B-30

<PAGE>

PRUDENTIAL EQUITY INCOME FUND
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (Note 1)
<C> <C> <S> <C>
Convertible Bonds--4.7%
Computer Hardware--1.8%
B2 $ 2,300 Conner Peripherals, Inc.,
Sub. Deb.,
6.75%, 3/1/01.......... $ 1,799,750
B2 5,250 Quantum Corp., Deb.,
6.375%, 4/1/02......... 5,197,500
Seagate Technology,
B1 3,407 Deb.,
6.75%, 5/1/12.......... 2,912,985
B1 9,000 Sub. Deb.,
5.00%, 11/1/03......... 9,767,610
--------------
19,677,845
--------------
Fertilizer--0.4%
Caa 4,500 IMC Fertilizer Group, Deb.,
6.25%, 12/1/01......... 4,117,500
--------------
Integrated Oil--0.4%
Aa3 339 Amoco Canada
Petroleum Co.,
Sub. Exch. Deb.,
7.375%, 9/1/13......... 419,513
B2 2,583 Cross Timbers Oil Co.,
Deb.,
5.25%, 11/1/03......... 2,208,465
B1 2,121 Oryx Energy Co.,
Sub. Deb.,
7.50%, 5/15/14......... 1,619,914
--------------
4,247,892
--------------
Integrated Producers--1.3%
Baa3 14,299 Noble Affiliates, Inc.,
Sub. Notes,
4.25%, 11/1/03......... 13,870,030
--------------
Mining--0.4%
CCC** 3,000 Coeur D'Alene Mines
Corp., Sub. Deb.,
7.00%, 11/30/02........ 3,810,000
Ba3 1,000 Freeport McMoran, Inc.,
Deb.,
6.55%, 1/15/01......... 903,130
--------------
4,713,130
--------------
Real Estate--0.3%
NR $ 3,800 Malan Reality Investors,
Inc., Sub. Deb.,
9.50%, 7/15/04......... $ 3,458,000
--------------
Steel--0.1%
BB-** 710 USX Corp., Sub Deb.,
7.00%, 6/15/17......... 628,350
--------------
Total convertible bonds
(cost $55,293,712)..... 50,712,747
--------------
U. S. Government
Securities--5.2%
71,500 United States Treasury
Bonds,
6.25%, 8/15/23
(cost $60,751,449)..... 57,222,185
--------------
Total long-term
investments
(cost $1,012,219,269).. 1,036,306,229
--------------
SHORT-TERM INVESTMENTS--4.3%
48,057 Joint Repurchase Agreement
Account, 4.77%, 11/1/94
(cost $48,057,000;
Note 5)................ 48,057,000
--------------
Total Investments--98.0%
(cost $1,060,276,269;
Note 4)................ 1,084,363,229
Other assets in excess
of liabilities--2.0%... 22,615,858
--------------
Net Assets--100%......... $1,106,979,087
==============
</TABLE>
- ---------------
* Non-income producing security.
** Standard & Poor's rating.
ADR--American Depository Receipt.
ADS--American Depository Shares.
PERCS--Preferred Equity Redemption Cumulative Stock.
The Fund's current Statement of Additional Information contains a description of
Moody's ratings.
NR--Not rated by Moody's or Standard & Poor's.
See Notes to Financial Statements.

B-31

<PAGE>

PRUDENTIAL EQUITY INCOME FUND
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
Assets October 31, 1994
----------------
<S> <C>
Investments, at value (cost $1,060,276,269).................................................. $1,084,363,229
Cash......................................................................................... 232,809
Receivable for investments sold.............................................................. 33,723,970
Dividends and interest receivable............................................................ 4,896,197
Receivable for Fund shares sold.............................................................. 3,213,254
Deferred expenses and other assets........................................................... 10,495
----------------
Total assets............................................................................... 1,126,439,954
----------------
Liabilities
Payable for investments purchased............................................................ 15,333,395
Payable for Fund shares reacquired........................................................... 2,255,287
Distribution fee payable..................................................................... 828,063
Management fee payable....................................................................... 503,562
Accrued expenses............................................................................. 483,880
Foreign withholding tax payable.............................................................. 56,680
----------------
Total liabilities.......................................................................... 19,460,867
----------------
Net Assets................................................................................... $1,106,979,087
================
Net assets were comprised of:
Shares of beneficial interest, at par...................................................... $ 790,642
Paid-in capital in excess of par........................................................... 1,027,127,251
----------------
1,027,917,893
Undistributed net investment income........................................................ 13,861,666
Accumulated net realized gain on investments............................................... 41,112,568
Net unrealized appreciation of investments................................................. 24,086,960
----------------
Net assets, October 31, 1994................................................................. $1,106,979,087
================
Class A:
Net asset value and redemption price per share
($150,501,747 / 10,729,928 shares of beneficial interest issued and outstanding)......... $14.03
Maximum sales charge (5.00% of offering price)............................................. .74
-------
Maximum offering price to public........................................................... $14.77
=======

Class B:
Net asset value, offering price and redemption price per share
($954,950,559 / 68,225,183 shares of beneficial interest issued and outstanding)......... $14.00
=======

Class C:
Net asset value, offering price and redemption price per share
($1,526,781 / 109,077 shares of beneficial interest issued and outstanding).............. $14.00
=======
</TABLE>

See Notes to Financial Statements.
B-32

<PAGE>

PRUDENTIAL EQUITY INCOME FUND
Statement of Operations
<TABLE>
<CAPTION>
Year Ended
Net Investment Income October 31, 1994
----------------
<S> <C>
Income
Dividends (net of foreign
withholding
taxes of $356,524).............. $ 30,417,969
Interest.......................... 6,772,275
----------------
Total income.................... 37,190,244
----------------
Expenses
Distribution fee--Class A......... 319,509
Distribution fee--Class B......... 7,840,632
Distribution fee--Class C......... 1,880
Management fee.................... 5,078,246
Transfer agent's fees and
expenses........................ 1,448,000
Reports to shareholders........... 500,000
Registration fees................. 330,000
Custodian's fees and expenses..... 296,000
Legal fees........................ 56,000
Trustees' fees.................... 37,500
Audit fee......................... 36,000
Insurance expense................. 15,000
Miscellaneous..................... 14,965
----------------
Total expenses.................. 15,973,732
----------------
Net investment income............... 21,216,512
----------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain on
investment transactions........... 42,485,087
Net change in unrealized
appreciation/depreciation
of investments.................... (35,543,092)
----------------
Net gain on investment
transactions...................... 6,941,995
----------------
Net Increase in Net Assets
Resulting from Operations........... $ 28,158,507
================
</TABLE>

PRUDENTIAL EQUITY INCOME FUND
Statement of Changes in Net Assets

<TABLE>
<CAPTION>
Year Ended October 31,
Increase (Decrease) -------------------------------
in Net Assets 1994 1993
-------------- ------------
<S> <C> <C>
Operations
Net investment income...... $ 21,216,512 $ 10,304,124
Net realized gain on
investment
transactions............. 42,485,087 25,234,290
Net change in unrealized
appreciation/depreciation
of investments........... (35,543,092) 45,035,883
-------------- ------------
Net increase in net
assets resulting from
operations............... 28,158,507 80,574,297
-------------- ------------
Net equalization credits..... 3,591,448 1,785,921
-------------- ------------
Dividends and distributions
(Note 1)
Dividends from net
investment income
Class A.................. (2,741,569) (2,383,733)
Class B.................. (10,744,017) (8,100,377)
Class C.................. (3,204) --
-------------- ------------
(13,488,790) (10,484,110)
-------------- ------------
Distributions from net
realized gains
Class A.................. (4,073,407) (1,901,042)
Class B.................. (22,284,545) (7,217,743)
-------------- ------------
(26,357,952) (9,118,785)
-------------- ------------
Fund share transactions
(Note 6)
Proceeds from shares
subscribed............... 668,069,397 398,239,834
Net asset value of shares
issued in reinvestment
of dividends and
distributions............ 36,142,786 17,714,556
Cost of shares
reacquired................. (221,021,185) (88,837,779)
-------------- ------------
Net increase in net
assets from Fund share
transactions............. 483,190,998 327,116,611
-------------- ------------
Total increase............... 475,094,211 389,873,934
Net Assets
Beginning of year............ 631,884,876 242,010,942
-------------- ------------
End of year.................. $1,106,979,087 $631,884,876
============== ============
</TABLE>

See Notes to Financial Statements.

B-33
<PAGE>

PRUDENTIAL EQUITY INCOME FUND
Notes to Financial Statements
Prudential Equity Income Fund (the ``Fund'') is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The investment objective of the Fund is both current income and capital
appreciation. It seeks to achieve this objective by investing primarily in
common stocks and convertible securities that provide investment income returns
above those of the Standard & Poor's 500 Stock Index or the NYSE Composite
Index. The ability of the issuers of the debt securities held by the Fund to
meet their obligations may be affected by economic developments in a specific
industry or country.

Note 1. Accounting The following is a summary
Policies of significant accounting poli-
cies followed by the Fund in the preparation of
its financial statements.

Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of investments
are calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date; interest income is recorded on the accrual basis.
Net investment income (other than distribution fees) and unrealized and
realized gains or losses are allocated daily to each class of shares of the Fund
based upon the relative proportion of net assets of each class at the beginning
of the day.

Equalization: The Fund follows the accounting practice known as equalization by
which a portion of the proceeds from sales and costs of reacquisitions of Fund
shares, equivalent on a per share basis to the amount of distributable net
investment income on the date of the transaction, is credited or charged to
undistributed net investment income. As a result, undistributed net investment
income per share is unaffected by sales or reacquisitions of the Fund's shares.

Withholding taxes on foreign dividends have been provided for in accordance
with the Fund's understanding of the applicable country's tax rates.
Dividends and Distributions: The Fund expects to pay dividends out of net
investment income quarterly and make distributions at least annually of any net
capital gains. Dividends and distributions are recorded on the ex-dividend date.

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

Note 2. Agreements The Fund has a management
agreement with Prudential Mutual Fund Management,
Inc. (``PMF''). Pursuant to this agreement, PMF has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PMF has entered into a subadvisory agreement with The Prudential
Investment Corporation (``PIC''); PIC furnishes investment advisory services in
connection with the management of the Fund. PMF pays for the cost of the
subadviser's services, the compensation of officers of the Fund, occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.

B-34

<PAGE>

The Fund has distribution agreements with Prudential Mutual Fund
Distributors, Inc. (``PMFD''), which acts as the distributor of the Class A
shares of the Fund, and with Prudential Securities Incorporated (``PSI''), which
acts as distributor of the Class B and Class C shares of the Fund (collectively,
the ``Distributors''). The Fund compensates the Distributors for distributing
and servicing the Fund's Class A, Class B and Class C shares, pursuant to plans
of distribution (the ``Class A, B and C Plans''), regardless of expenses
actually incurred by them. The distribution fees are accrued daily and payable
monthly.

On July 19, 1994, shareholders of the Fund approved amendments to the Class A
and Class B distribution plans under which the distribution plans became
compensation plans, effective August 1, 1994. Prior thereto, the distribution
plans were reimbursement plans, under which PMFD and PSI were reimbursed for
expenses actually incurred by them up to the amount permitted under the Class A
and Class B Plans, respectively. The Fund is not obligated to pay any prior or
future excess distribution costs (costs incurred by the Distributors in excess
of distribution fees paid by the Fund or contingent deferred sales charges
received by the Distributors). The rate of the distribution fees charged to
Class A and Class B shares of the Fund did not change under the amended plans of
distribution. The Fund began offering Class C shares on August 1, 1994.

Pursuant to the Class A, B and C Plans, the Fund compensates the Distributors
for distribution-related activities at an annual rate of up to .30 of 1%, 1% and
1%, of the average daily net assets of the Class A, B and C shares,
respectively. Such expenses under the Class A Plan were charged at an effective
rate of .24 of 1% of the average daily net assets of the Class A shares for the
fiscal year ended October 31, 1994 and are currently charged at a rate of .25 of
1% of the average daily net assets of the Class A shares. Such expenses under
the Class B and C Plans were both 1% of the average daily net assets of the
Class B and C shares for the fiscal year ended October 31, 1994.

PMFD has advised the Fund that it has received approximately $1,542,700 in
front-end sales charges resulting from sales of Class A shares during the fiscal
year ended October 31, 1994. From these fees, PMFD paid such sales charges to
dealers which in turn paid commissions to salespersons.

PSI has advised the Fund that for the fiscal year ended October 31, 1994, it
received approximately $1,587,700 in contingent deferred sales charges imposed
upon certain redemptions by Class B shareholders.

PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.

Note 3. Other Prudential Mutual Fund Ser-
Transactions vices, Inc. (``PMFS''), a
with Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent and
during the fiscal year ended October 31, 1994, the Fund incurred fees of
approximately $1,198,800 for the services of PMFS. As of October 31, 1994,
approximately $116,000 of such fees were due to PMFS. Transfer agent fees and
expenses in the Statement of Operations include certain out-of-pocket expenses
paid to non-affiliates.

For the fiscal year ended October 31, 1994, PSI earned approximately $177,100
in brokerage commissions from portfolio transactions executed on behalf of the
Fund.

Note 4. Portfolio Purchases and sales of invest-
Securities ment securities, other than
short-term investments, for the fiscal year ended
October 31, 1994 were $1,101,036,972 and $594,117,341, respectively.

The federal income tax basis of the Fund's investments at October 31, 1994
was $1,060,713,598 and, accordingly, net unrealized appreciation for federal
income tax purposes was $23,649,631 (gross unrealized appreciation--$63,938,373;
gross unrealized depreciation--$40,288,742).

Note 5. Joint The Fund, along with other
Repurchase affiliated registered invest-
Agreement ment companies, transfers
Account uninvested cash balances into
a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements collateralized
by U.S. Treasury or federal agency obligations. At October 31, 1994, the Fund
had a 5.34% undivided interest in the repurchase agreements in the joint
account. The undivided interest for the Fund represented $48,057,000 in
principal amount. As of such date, each repurchase agreement in the joint
account and the value of the collateral therefor was as follows:

Smith Barney, Inc., 4.80%, in the principal amount of $260,000,000,
repurchase price $260,034,667, due 11/1/94. The value of the collateral
including accrued interest is $265,200,122.

Nomura Securities International, Inc., 4.77%, in the principal amount of
$100,000,000, repurchase price $100,013,250, due 11/1/94. The value of the
collateral including accrued interest is $102,000,391.

B-35

<PAGE>

Goldman, Sachs & Co., 4.75%, in the principal amount of $275,000,000,
repurchase price $275,036,285, due 11/1/94. The value of the collateral
including accrued interest is $280,500,611.

CS First Boston Corp., 4.75%, in the principal amount of $265,000,000,
repurchase price $265,034,965, due 11/1/94. The value of the collateral
including accrued interest is $271,053,272.

Note 6. Capital The Fund currently offers Class A, Class B and
Class C shares. Class A shares are sold with a
front-end sales charge of up to 5.00%. Class B shares are sold with a contingent
deferred sales charge which declines from 5% to zero depending on the period of
time the shares are held. Class C shares are sold with a contingent deferred
sales charge of 1% during the first year. Class B shares will automatically
convert to Class A shares on a quarterly basis approximately seven years after
purchase commencing in or about February 1995.

The Fund has authorized an unlimited number of shares of beneficial interest
at $.01 par value divided into three classes, designated Class A, Class B and
Class C.

Transactions in shares of beneficial interest were as follows:

<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------ ----------- ------------
<S> <C> <C>
Year ended October 31, 1994:
Shares sold................... 6,678,218 $ 92,227,070
Shares issued in reinvestment
of dividends and
distributions............... 461,830 6,268,096
Shares reacquired............. (3,645,394) (50,335,973)
----------- ------------
Net increase in shares
outstanding................. 3,494,654 $ 48,159,193
=========== ============
Year ended October 31, 1993:
Shares sold................... 3,950,176 $ 53,801,595
Shares issued in reinvestment
of dividends and
distributions............... 308,487 3,893,566
Shares reacquired............. (1,232,317) (16,658,314)
----------- ------------
Net increase in shares
outstanding................. 3,026,346 $ 41,036,847
=========== ============

<CAPTION>
Class B Shares Amount
- ------------------------------ ----------- ------------
<S> <C> <C>
Year ended October 31, 1994:
Shares sold................... 41,661,976 $574,309,044
Shares issued in reinvestment
of dividends and
distributions............... 2,213,613 29,871,685
Shares reacquired............. (12,436,151) (170,671,244)
----------- ------------
Net increase in shares
outstanding................. 31,439,438 $433,509,485
=========== ============
Year ended October 31, 1993:
Shares sold................... 25,419,549 $344,438,239
Shares issued in reinvestment
of dividends and
distributions............... 1,098,086 13,820,990
Shares reacquired............. (5,453,744) (72,179,465)
----------- ------------
Net increase in shares
outstanding................. 21,063,891 $286,079,764
=========== ============

<CAPTION>
Class C
- ------------------------------
<S> <C> <C>
August 1, 1994* through
October 31, 1994:
Shares sold................... 109,870 $ 1,533,283
Shares issued in reinvestment
of dividends................ 215 3,005
Shares reacquired............. (1,008) (13,968)
----------- ------------
Net increase in shares
outstanding................. 109,077 $ 1,522,320
=========== ============
- ---------------
* Commencement of offering of Class C shares.
</TABLE>

Note 7. Dividends On December 7, 1994, the Board of Trustees of the
and Distributions Fund declared the following dividends and
distributions per share, payable on December 19,
1994 to shareholders of record on December 13, 1994:

<TABLE>
<CAPTION>
Class A Class B and C
------- -------------
<S> <C> <C>
Ordinary Income....................... $0.200 $0.175
Short-Term Capital Gains.............. $0.130 $0.130
Long-Term Capital Gains............... $0.395 $0.395
</TABLE>

B-36
<PAGE>

PRUDENTIAL EQUITY INCOME FUND
Financial Highlights
<TABLE>
<CAPTION>
Class A Class B Class C
------------------------------------------------- ---------------------------------------------------- -----------
January 22, August 1,
1990(D) 1994(D)(D)
Year Ended October 31, through Year Ended October 31, through
-------------------------------------- October 31, ---------------------------------------------------- October 31,
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990 1994
-------- -------- ------- ------ -------- -------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE
OPERATING
PERFORMANCE:
Net asset
value,
beginning
of
period..... $ 14.38 $ 12.16 $ 12.04 $ 9.53 $10.59 $ 14.35 $ 12.14 $ 12.03 $ 9.53 $ 10.89 $ 13.99
-------- -------- ------- ------ -------- -------- -------- -------- -------- -------- -----------
Income
from
investment
operations
Net
investment
income..... .41 .47 .47 .38 .25 .31 .37 .37 .30 .28 .08
Net
realized
and
unrealized
gain
(loss)
on
investment
trans-
actions.... .06 2.65 .60 2.50 (1.01) .06 2.64 .59 2.49 (1.32) (.02)
-------- -------- ------- ------ -------- -------- -------- -------- -------- -------- -----------
Total
from
investment
operations. .47 3.12 1.07 2.88 (.76) .37 3.01 .96 2.79 (1.04) .06
-------- -------- ------- ------ -------- -------- -------- -------- -------- -------- -----------
Less
distributions
Dividends
from
net
investment
income..... (.29) (.46) (.47) (.37) (.30) (.19) (.36) (.37) (.29) (.32) (.05)
Distributions
from net
realized
gains...... (.53) (.44) (.48) -- -- (.53) (.44) (.48) -- -- --
-------- -------- ------- ------ -------- -------- -------- -------- -------- -------- -----------
Total
distri-
butions.. (.82) (.90) (.95) (.37) (.30) (.72) (.80) (.85) (.29) (.32) (.05)
-------- -------- ------- ------ -------- -------- -------- -------- -------- -------- -----------
Net asset
value,
end of
period..... $ 14.03 $ 14.38 $ 12.16 $12.04 $ 9.53 $ 14.00 $ 14.35 $ 12.14 $ 12.03 $ 9.53 $ 14.00
======== ======== ======= ====== ======== ======== ======== ======== ======== ======== ===========
TOTAL
RETURN#:... 3.48% 26.93% 9.50% 30.62% (7.36)% 2.73% 25.93% 8.55% 29.58% (9.77)% 0.45%
RATIOS/SUPPLEMENTAL
DATA:
Net
assets,
end of
period
(000)...... $150,502 $104,017 $51,165 $4,013 $1,098 $954,951 $527,868 $190,846 $151,538 $120,032 $ 1,527
Average
net
assets
(000)...... $131,398 $ 70,895 $21,931 $2,084 $ 752 $784,063 $304,898 $169,524 $136,602 $142,179 $ 762
Ratios to average
net assets:##
Expenses,
including
distribution
fees..... 1.09% 1.07% 1.22% 1.37% 1.59%* 1.85% 1.87% 2.02% 2.17% 2.22% 2.05%*
Expenses,
excluding
distribution
fees..... .85% .87% 1.02% 1.17% 1.39%* .85% .87% 1.02% 1.17% 1.22% 1.05%*
Net
investment
income... 2.97% 3.44% 3.22% 3.43% 3.12%* 2.21% 2.58% 3.05% 2.67% 2.70% 2.42%*
Portfolio
turnover... 70% 57% 43% 64% 58% 70% 57% 43% 64% 58% 70%
</TABLE>

- ---------------
* Annualized.
(D) Commencement of offering of Class A shares.
(D)(D) Commencement of offering of Class C shares.
# Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
## Because of the event referred to in (D)(D) and the timing of such, the ratios
for the Class C shares are not necessarily comparable to that of Class A or B
shares and are not necessarily indicative of future ratios.
See Notes to Financial Statements.
B-37

<PAGE>

INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Trustees
Prudential Equity Income Fund

We have audited the accompanying statement of assets and liabilities of
Prudential Equity Income Fund, including the portfolio of investments, as of
October 31, 1994, the related statements of operations for the year then ended
and of changes in net assets for each of the two years in the period then ended,
and the financial highlights for each of the five years in the period then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
October 31, 1994 by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing procedures. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Prudential Equity
Income Fund as of October 31, 1994, the results of its operations, the changes
in its net assets and its financial highlights for the respective stated periods
in conformity with generally accepted accounting principles.

Deloitte & Touche LLP
New York, New York
December 7, 1994

B-38
<PAGE>

DESCRIPTION OF SECURITY RATINGS

MOODY'S INVESTORS SERVICE

BOND RATINGS

Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.

Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than Aaa because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.

A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment some time in the
future.

Baa: Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.

Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.

Ca: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.

SHORT-TERM DEBT RATINGS

Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity not
exceeding one year.

PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obliqations.

PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations.

STANDARD & POOR'S RATINGS GROUP

DEBT RATINGS

AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

A-1
<PAGE>

AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.

A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.

BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.

BB, B, CCC AND CC: Debt rated BB, B, CCC and CC is regarded, on balance, as
having predominantly speculative characteristics with respect to capacity to
pay interest and repay principal. BB indicates the least degree of speculation
and CC the highest degree of speculation. While such debt will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.

COMMERCIAL PAPER RATINGS

An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.

A-1: The A-1 designation indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.

A-2: Capacity for timely payment on issues with the designation A-2 is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.

DUFF & PHELPS CREDIT RATING CO.

LONG-TERM DEBT AND PREFERRED STOCK RATINGS

AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.

AA: High credit quality. Protection factors are strong. Risk is modest but
may vary sightly from time to time because of economic conditions.

A: Protection factors are average but adequate. However, risk factors are
more variable and greater in periods of economic stress.

BBB: Below average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic cycles.

BB: Below investment grade but deemed likely to meet obligations when due.
Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category.

B: Below investment grade and possessing risk that obligations will not be
met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher or
lower rating grade.

Duff & Phelps refines each generic rating classification from AA through B
with a "+" or a "-".

CCC: Well below investment grade securities. Considerable uncertainty exists
as to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.

SHORT-TERM DEBT RATINGS

DUFF 1 +: Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to alternative sources of
funds, is outstanding, and safety is just below risk-free U.S. Treasury short-
term obligations.

DUFF 1: Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk factors
are minor.

DUFF 1-: High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.

DUFF 2: Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.

A-2
<PAGE>

Prudential Mutual Funds
Supplement dated August 1, 1995

The following information supplements the Statement of Additional
Information of each of the Funds listed below.

MANAGER

Prudential Mutual Fund Management, Inc. (PMF or the Manager), the Manager of
the Fund, is a subsidiary of Prudential Securities Incorporated and The
Prudential Insurance Company of America (Prudential). PMF has three wholly-owned
subsidiaries: Prudential Mutual Fund Distributors, Inc., Prudential Mutual Fund
Services, Inc. (PMFS or the Transfer Agent) and Prudential Mutual Fund
Investment Management, Inc. PMFS 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.

Prudential 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, 1994. 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 nearly 100,000 persons worldwide, and maintains a sales
force of approximately 19,000 agents, 3,400 insurance brokers and 6,000
financial advisors. It insures or provides other financial services to more than
50 million people worldwide. 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.

Investment advisory services are provided to the Fund by a unit of The
Prudential Investment Corporation (PIC or the Subadviser), a subsidiary of
Prudential.

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.

SHAREHOLDER INVESTMENT ACCOUNT

Mutual Fund Programs

From time to time, the Fund (or a portfolio of the Fund, if applicable) may
be included in a mutual fund program with other Prudential Mutual Funds. Under
such a program, a group of portfolios will be selected and thereafter promoted
collectively. Typically, these programs are created with an investment theme,
e.g., 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 the program. Since the allocation of portfolios included in the program may
not be appropriate for all investors, investors should consult their Prudential
Securities Financial Advisor or Prudential/Pruco Securities Representative
concerning the appropriate blend of portfolios for them. If investors elect to
purchase the individual mutual funds that constitute the program in an
investment ratio different from that offered by the program, the standard
minimum investment requirements for the individual mutual funds will apply.
<PAGE>

APPENDIX--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.
<PAGE>

APPENDIX--PORTFOLIO MANAGERS

The following information supplements only the Statement of Additional
Information of the captioned Fund.

Prudential Allocation Fund (Conservative Portfolio)
Prudential Multi-Sector Fund, Inc.

Gregory Goldberg, serves as the portfolio manager of Prudential Multi-Sector
Fund, Inc. and Prudential Allocation Fund (Conservative Portfolio). In making
equity investments, Mr. Goldberg generally focuses on stocks with a potential
for capital appreciation. He utilizes a ``bottom-up'' approach, selecting stocks
that, in his opinion, have strong fundamentals regardless of industry
performance. He evaluates a company's earnings and balance sheet to find
companies that, in his view, are leaders in their fields and have strong growth
potential. With respect to fixed-income securities, Mr. Goldberg generally
focuses on issues with a potential for total return, selecting securities that,
in his opinion, compare favorably in terms of price and yield relative to
maturity.

Prudential Equity Fund, Inc.

Thomas R. Jackson, has served as the portfolio manager of Prudential Equity
Fund, Inc. (the Fund) since 1990. He utilizes a ``value'' investing style in
managing the Fund. Value investing is a disciplined approach which attempts to
identify strong companies selling at a discount from their perceived true worth.
Mr. Jackson selects stocks for the Fund's portfolio at prices which in his view
are temporarily low relative to the company's earnings, assets, cash flow and
dividends. He may invest in out-of-favor companies as long as they meet his
strict criteria for value: financial soundness and low price relative to
earnings, book value and cash flow.

Prudential Equity Income Fund

Warren Spitz serves as the portfolio manager of Prudential Equity Income
Fund. He utilizes a ``value'' investing style in managing the Fund. Value
investing is a disciplined approach which attempts to identify strong companies
that are selling at a discount from their perceived true worth. Mr. Spitz seeks
to invest in companies that in his view have the potential to produce both
above-average earnings and dividend growth over the long term. These types of
companies are sometimes referred to as ``high dividend stocks.'' He seeks to
invest in securities at prices which in his view are temporarily low relative to
the company's earnings, assets, cash flow and dividends.

Prudential Global Fund, Inc.
Prudential Europe Growth Fund, Inc.
Prudential Pacific Growth Fund, Inc.

Daniel J. Duane, serves as the portfolio manger of Prudential Global Fund,
Inc., Prudential Global Genesis Fund, Inc., Prudential Europe Growth Fund, Inc.,
and Prudential Pacific Growth Fund, Inc. Consistent with the investment
objectives and policies of each Fund, Mr. Duane evaluates the economic climate
in various countries and focuses on growth-oriented global equity investments.
He seeks to identify long-term themes and changing economic conditions that, in
his opinion, will lead to earnings growth. His portfolio management style can be
referred to as ``bottom up'' in that his primary focus is on individual stocks.
He evaluates historical business trends in the United States when looking for
long-term investment opportunities abroad (the ``rear view mirror'' analysis).
In globally-diversified portfolios, the portfolio manager generally maintains
exposure to major world stock markets. Under normal market conditions, the
portfolio manager seeks to keep the portfolios fully invested. Mr. Duane
consults with a team of regional equity analysts who provide research on
existing holdings of each Fund and on potential acquisitions.

Prudential Utility Fund, Inc.

According to data provided by Lipper Analytical Services, Inc., Prudential
Utility Fund, Inc. (the Fund) is among the oldest and largest U.S. mutual funds
in the utility category of mutual funds. David Kiefer, CFA, serves as the
portfolio manager of the Fund and seeks to invest in a broad range of utilities
companies including electric, gas, gas pipeline, telephone communications, water
and cable companies from around the world. Historically, the Fund invested in
traditional types of utility companies--principally, electric, gas and telephone
companies. The portfolio manager seeks to invest in companies that have the
potential for above-average earnings and dividend growth over the long term and
considers such factors as cash flow in selecting portfolio securities.
<PAGE>

APPENDIX--HISTORICAL PERFORMANCE DATA

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

The following chart shows the long term performance of various asset classes and
the rate of inflation.

[GRAPH]

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-terms 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.

<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 a annual basis from
1987 to May 1995. 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 "Fund Expense" in the prospectus. The
net effect of the deduction of the operating expenses of a mutual fund on these
historical total returns, including a compounded effect over time, could be
substantial.

HISTORICAL TOTAL RETURNS OF DIFFERENT BOND MARKET SECTORS

YEAR 87 88 89 90 91 92
- --------------------------------------------- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
U.S. Government Treasury Bonds 1............. 2.0% 7.0% 14.4% 8.5% 15.3% 7.2%
U.S. Government Mortgage Securities 2........ 4.3% 8.7% 15.4% 10.7% 15.7% 7.0%
U.S. Investment Grade Corporate Bonds 3...... 2.0% 9.2% 14.1% 7.1% 18.5% 8.7%
U.S. High Yield Corporate Bonds 4............ 5.0% 12.5% 0.8% -9.8% 46.2% 15.8%
World Government Bonds 5..................... 35.2% 2.3% -3.4% 15.3% 16.2% 4.8%
---- ---- ---- ---- ---- ----
Difference between highest and lowest return
in percent.................................. 39.2 10.2 18.8 24.9 30.9 11.0
==== ==== ==== ==== ==== ====

<CAPTION>
YTD
YEAR 93 94 5/95
- --------------------------------------------- -- -- --
<S> <C> <C> <C>
U.S. Government Treasury Bonds 1............. 10.7% -3.4% 10.3%
U.S. Government Mortgage Securities 2........ 8.8% -1.6% 10.1%
U.S. Investment Grade Corporate Bonds 3...... 12.2% -3.9% 12.8%
U.S. High Yield Corporate Bonds 4............ 17.1% -1.0% 11.7%
World Government Bonds 5..................... 15.1% 6.0% 19.4%
---- ---- ----
Difference between highest and lowest return
in percent.................................. 10.3 9.9 9.3
==== ==== ====
</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,
nonconvertable 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 S&P or Fitch Investors
Service). All bonds in this index have maturities of at least one year.

(5) SOLOMON BROTHERS 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.

<PAGE>

This chart illustrates the performance of major world stock markets for the
period from 1985 through 1994. It does not represent the performance of any
Prudential Mutual Fund.

AVERAGE ANNUAL TOTAL RETURNS OF MAJOR WORLD STOCK MARKETS (1985-1994) (IN U.S.
DOLLARS)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<S> <C>
Hong Kong 26.5%
Belgium 24.9%
Austria 23.3%
Netherlands 22.1%
Sweden 21.4%
Switzerland 21.3%
France 20.8%
Spain 20.1%
Germany 18.7%
United Kingdom 17.7%
Japan 16.8%
United States 14.4%
</TABLE>

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

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

[GRAPH]

Source: Stocks, Bonds, Bills, and Inflation 1995 yearbook, Ibbotson Associates,
Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield).
Used with permission. All rights reserved. This chart is used for illustrative
purposes only and is not intended to represent the past, present or future
performance of any Prudential Mutual Fund. Common stock total return is based on
the Standard & Poor's 500 Stock Index, a market-value-weighted index made up of
500 of the largest stocks in the U.S. based upon their stock market value.
Investors cannot invest directly in indices.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
WORLD STOCK MARKET CAPITALIZATION BY REGION

<S> <C>
World Total: $12.4 Trillion
U.S. 35%
Europe 28%
Pacific Basin 35%
Canada 2%
</TABLE>

Source: Morgan Stanley Capital International, December 1994. Used with
permission. This chart represents the capitalization of major world stock
markets as measured by the Morgan Stanley Capital International (MSCI) World
Index. The total market capitalization is based on the value of 1577 companies
in 22 countries (representing approximately 60% of the aggregate market value of
the stock exchanges). This chart is for illustrative purposes only and does not
represent the allocation of any Prudential Mutual Fund.
<PAGE>

This chart below shows the historical volatility of general interest rates as
measured by the long U.S. Treasury Bond.

[GRAPH]

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

Source: Stocks, Bonds, Bills, and Inflation 1995 Yearbook, Ibbotson Associates,
Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield).
Used with permission. All rights reserved. The chart illustrates the historical
yield of the long-term U.S. Treasury Bond from 1926-1994. 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.

Listed below are the names of the Prudential Mutual Funds and the dates of
the Statements of Additional Information to which this supplement relates.

<TABLE>
<S> <C>
Name of Fund Statement Date
Prudential Allocation Fund September 29, 1994
Strategy Portfolio
Conservatively Managed Portfolio
Prudential Equity Fund, Inc. February 28, 1995
Prudential Equity Income Fund December 30, 1994
Prudential Europe Growth Fund, Inc. June 30, 1995
Prudential Global Fund, Inc. January 3, 1995
Prudential Growth Opportunity Fund, Inc. February 1, 1995
Prudential Multi-Sector Fund, Inc. June 30, 1995
Prudential Pacific Growth Fund, Inc. January 3, 1995
Prudential Utility Fund, Inc. March 1, 1995
</TABLE>

<PAGE>

Prudential Mutual Funds
Supplement dated September 29, 1995

The following information supplements the Statement of Additional Information of
each of the Funds listed below.

MANAGER

Prudential Mutual Fund Management, Inc. (PMF or the Manager) serves as the
manager of all of the investment companies that comprise the Prudential Mutual
Funds. As of August 31, 1995, assets of the Prudential Mutual Funds were
approximately $50 billion. The Prudential Investment Corporation (PIC) serves as
the investment adviser for each of the Funds listed below. The unit of PIC which
provides investment advisory services to the Funds is known as Prudential Mutual
Fund Investment Management.

Based on data for the year ended December 31, 1994 for the Prudential Mutual
Funds, on an average day, there are approximately $80 million in common stock
transactions, over $100 million in bond transactions and over $4.1 billion in
money market transactions. In 1994, the Prudential Mutual Funds effected more
than 57,000 trades in money market securities and held on average $21 billion of
money market securities. Based on complex-wide data for the year ended December
31, 1994, on an average day, 7,168 shareholders telephoned Prudential Mutual
Fund Services, Inc., the Transfer Agent of the Prudential Mutual Funds, on the
Prudential Mutual Funds' toll-free number. On an annual basis, that represents
approximately 1.8 million telephone calls and approximately 1.1 million fund
transactions.

PMF is a subsidiary of The Prudential Insurance Company of America
(Prudential), one of the largest diversified financial services institutions in
the world. For the year ended December 31, 1994, Prudential through its
subsidiaries provided financial services to more than 50 million people
worldwide --more than one of every five people in the United States. As of
December 31, 1994, Prudential through its subsidiaries provided automobile
insurance for more than 1.8 million cars and insured more than 1.5 million
homes. For the year ended December 31, 1994, The Prudential Bank, a subsidiary
of Prudential, served 940,000 customers in 50 states providing credit card
services and loans totaling more than $1.2 billion. Assets held by Prudential
Securities Incorporated (PSI) for its clients totaled approximately $150 billion
at December 31, 1994. During 1994, over 28,000 new customer accounts were opened
each month at PSI. The Prudential Real Estate Affiliates, the fourth largest
real estate brokerage network in the United States, has more than 34,000 brokers
and agents and more than 1,100 offices in the United States.

(over)
<PAGE>

Listed below are the names of the Prudential Mutual Funds and the dates of
the Statements of Additional Information to which this supplement relates.

Name of Fund Statement Date
<S> <C>
Prudential Allocation Fund September 29, 1995
Strategy Portfolio
Balanced Portfolio
Prudential California Municipal Fund
California Income Series December 30, 1994
California Series December 30, 1994
Prudential Diversified Bond Fund, Inc. January 3, 1995
Prudential Equity Fund, Inc. February 28, 1995
Prudential Equity Income Fund December 30, 1994
Prudential Europe Growth Fund, Inc. June 30, 1995
Prudential Global Fund, Inc. January 3, 1995
Prudential Global Genesis Fund, Inc. July 31, 1995
Prudential Global Natural Resources Fund, Inc. July 31, 1995
Prudential Government Income Fund, Inc. May 1, 1995
Prudential Government Securities Trust
Short-Intermediate Term Series August 1, 1995
Prudential Growth Opportunity Fund, Inc. February 1, 1995
Prudential High Yield Fund, Inc. February 28, 1995
Prudential Intermediate Global Income Fund, Inc. March 2, 1995
Prudential Mortgage Income Fund, Inc. August 25, 1995
Prudential Multi-Sector Fund, Inc. June 30, 1995
Prudential Municipal Bond Fund June 30, 1995
Insured Series
High Yield Series
Intermediate Series
Prudential Municipal Series Fund
Arizona Series December 30, 1994
Florida Series December 30, 1994
Georgia Series December 30, 1994
Hawaii Income Series March 30, 1995
Maryland Series December 30, 1994
Massachusetts Series December 30, 1994
Michigan Series December 30, 1994
Minnesota Series December 30, 1994
New Jersey Series December 30, 1994
New York Series December 30, 1994
North Carolina Series December 30, 1994
Ohio Series December 30, 1994
Pennsylvania Series December 30, 1994
Prudential National Municipals Fund, Inc. February 28, 1995
Prudential Pacific Growth Fund, Inc. January 3, 1995
Prudential Short Term Global Income Fund, Inc.
Global Assets Portfolio January 3, 1995
Short-Term Global Income Portfolio January 3, 1995
Prudential Structured Maturity Fund, Inc. March 1, 1995
Income Portfolio
Prudential U. S. Government Fund January 3, 1995
Prudential Utility Fund, Inc. March 1, 1995
</TABLE>

MF950C
<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 October 31, 1994 and April 30, 1995
(unaudited).

Statement of Assets and Liabilities at October 31, 1994 and April 30,
1995 (unaudited).

Statement of Operations for the Year Ended October 31, 1994 and April
30, 1995 (unaudited).

Statement of Changes in Net Assets for the Years Ended October 31,
1994 and October 31, 1993 and for the six months ended April 30, 1995
(unaudited).

Notes to Financial Statements.

Financial Highlights.

Independent Auditors' Report.

(B) EXHIBITS:

1. (a) Amended and Restated Declaration of Trust. Incorporated by
reference to Exhibit 1(a) to Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A filed via EDGAR on December 21,
1994 (File No. 33-9269).

(b) Amended and Restated Certificate of Designation. Incorporated by
reference to Exhibit 1(b) to Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A filed via EDGAR on December 21,
1994 (File No. 33-9269).

2. By-laws. Incorporated by reference to Exhibit 2(b) to Post-Effective
Amendment No. 11 to the Registration Statement on Form N-1A filed via
EDGAR on May 6, 1994 (File No. 33-9269).

4. (a) Specimen receipt for shares of beneficial interest, $.01 par
value, of Class A shares. Incorporated by reference to Exhibit 4(a)
to Post-Effective Amendment No. 7 to the Registration Statement on
Form N-1A filed on February 28, 1991 (File No. 33-9269).

(b) Specimen receipt for shares of beneficial interest, $.01 par
value, of Class B shares. Incorporated by reference to Exhibit 4(b)
to Post-Effective Amendment No. 7 to the Registration Statement on
Form N-1A filed on February 28, 1991 (File No. 33-9269).

(c) Instruments Defining Rights of Shareholders. Incorporated by
reference to Exhibit 4(c) to Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A filed via EDGAR on December 30,
1993 (File No. 33-9269).

5. (a) Amended and Restated Management Agreement between the Registrant
and Prudential Mutual Fund Management, Inc.*

(b) 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. 5 to the
Registration Statement on Form N-1A filed on December 28, 1989 (File
No. 33-9269).

C-1
<PAGE>

6. (a) Distribution Agreement for Class A shares. Incorporated by
reference to Exhibit 6(a) to Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A filed via EDGAR on December 21,
1994 (File No. 33-9269).

(b) Distribution Agreement for Class B shares. Incorporated by
reference to Exhibit 6(b) to Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A filed via EDGAR on December 21,
1994 (File No. 33-9269).

(c) Distribution Agreement for Class C shares. Incorporated by
reference to Exhibit 6(c) to Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A filed via EDGAR on December 21,
1994 (File No. 33-9269).

(d) Form of Distribution Agreement for Class Z shares.*

8. Custodian Contract between the Registrant and State Street Bank and
Trust Company. Incorporated by reference to Exhibit 8 to Pre-
Effective Amendment No. 2 to the Registration Statement on Form N-1A
filed on January 16, 1987 (File No. 33-9269).

9. Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, Inc. Incorporated by reference to
Exhibit 9(a) to Post-Effective Amendment No. 2 to the Registration
Statement on Form N-1A filed on December 31, 1987 (File No. 33-9269).

10. Opinion of Counsel. Incorporated by reference to Exhibit 10 to Pre-
Effective Amendment No. 2 to the Registration Statement on Form N-1A
filed on January 16, 1987 (File No. 33-9269).

11. Consent of Independent Accountants.*

13. Purchase Agreement. Incorporated by reference to Exhibit 13 to Pre-
Effective Amendment No. 2 to the Registration Statement on Form N-1A
filed on January 16, 1987 (File No. 33-9269).

15. (a) Distribution and Service Plan for Class A shares. Incorporated by
reference to Exhibit 15(a) to Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A filed via EDGAR on December 21,
1994 (File No. 33-9269).

(b) Distribution and Service Plan for Class B shares. Incorporated by
reference to Exhibit 15(b) to Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A filed via EDGAR on December 21,
1994 (File No. 33-9269).

(c) Distribution and Service Plan for Class C shares. Incorporated by
reference to Exhibit 15(c) to Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A filed via EDGAR on December 21,
1994 (File No. 33-9269).

16. (a) Schedule of Computation of Performance Quotations for Class B
Shares. Incorporated by reference to Exhibit 16 to Post-Effective
Amendment No. 6 to the Registration Statement on Form N-1A filed on
January 19, 1990 (File No. 33-9269).

(b) Schedule of Computation of Performance Quotations for Class A
Shares. Incorporated by reference to Exhibit 16(b) to Post-Effective
Amendment No. 8 to the Registration Statement on Form N-1A filed on
December 30, 1991 (File No. 33-9269).

18. Rule 18f-3 Plan.*

27. Financial Data Schedules.*

Other Exhibits
Copies of Powers of Attorney for:

Edward D. Beach**,
Donald D. Lennox**,
Douglas H. McCorkindale**,

Thomas T. Mooney**,
Louis A. Weil, III**.

- ---------
*Filed herewith.
**Incorporated by reference to Post-Effective Amendment No. 7 to the
Registration Statement on Form N-1A filed on February 28, 1991 (File No.
33-9269).

C-2
<PAGE>

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

None.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES.

As of October 13, 1995 there were 38,744, 100,413 and 741 record holders of
Class A, Class B and Class C shares of beneficial interest, $.01 par value per
share, of the Registrant.

ITEM 27. INDEMNIFICATION.

As permitted by Sections 17(h) and (i) of the Investment Company Act of 1940
(the "1940 Act") and pursuant to Article V, Sections 5.2 and 5.3 of the
Declaration of Trust (Exhibit 1(a) to the Registration Statement) and to
Article X of the Fund's By-Laws (Exhibit 2 to the Registration Statement),
officers, Trustees, employees and agents of the Registrant will not be liable
to the Registrant, any shareholder, officer, Trustee, 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. As permitted by Section 17(i) of
the 1940 Act, pursuant to Section 10 of the Distribution Agreements (Exhibit
6(a), (b) and (c) to the Registration Statement), each Distributor of the
Registrant may be indemnified against liabilities which it may incur, except
liabilities arising from bad faith, gross negligence, willful misfeasance or
reckless disregard of duties.

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

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

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

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

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.

(a) Prudential Mutual Fund Management, Inc.

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

The business and other connections of the officers of PMF are listed in
Schedules A and D of Form ADV of PMF as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104, filed on March 30, 1995).

C-3
<PAGE>

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

<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PMF PRINCIPAL OCCUPATIONS
- ---------------- ----------------- ---------------------
<S> <C> <C>
Brendan D. Boyle Executive Vice President Executive Vice President, Director of Marketing and Director, PMF;
and Director of Marketing Senior Vice President, Prudential Securities Incorporated
(Prudential Securities); Chairman and Director, Prudential Mutual
Fund Distributors, Inc. (PMFD)

Stephen P. Fisher Senior Vice President Senior Vice President, PMF; Senior Vice President, Prudential
Securities; Vice President, PMFD

Frank W. Giordano Executive Vice President, Executive Vice President, General Counsel, Secretary and Director, PMF
General Counsel, and PMFD; Senior Vice President, Prudential Securities; Director,
Secretary and Director Prudential Mutual Fund Services, Inc. (PMFS)

Robert F. Gunia Executive Vice President, Executive Vice President, Chief Financial and Administrative Officer,
Chief Financial and Treasurer and Director, PMF; Senior Vice President, Prudential
Administrative Officer, Securities; Executive Vice President, Chief Financial Officer,
Treasurer and Director Treasurer and Director, PMFD; Director, PMFS

Theresa A. Hamacher Director Director, PMF; Vice President, The Prudential Insurance Company of
America (Prudential); Vice President, The Prudential Investment
Corporation (PIC)

Timothy J. O'Brien Director President, Chief Executive Officer, Chief Operating Officer and
Director, PMFD; Chief Executive Officer and Director, PMFS;
Director, PMF

Richard A. Redeker President, Chief President, Chief Executive Officer and Director, PMF; Executive Vice
Executive Officer and President, Director and Member of Operating Committee, Prudential
Director Securities; Director, Prudential Securities Group, Inc. (PSG);
Executive Vice President, PIC; Director, PMFD; Director, PMFS

S. Jane Rose Senior Vice President Senior Vice President, Senior Counsel and Assistant Secretary, PMF;
Senior Counsel and Senior Vice President and Senior Counsel, Prudential Securities
Assistant Secretary
</TABLE>

(b) The Prudential Investment Corporation (PIC)

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 07102.

<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATIONS
- ---------------- ----------------- ---------------------
<S> <C> <C>
William M. Bethke Senior Vice President Senior Vice President, Prudential; Senior Vice President, PIC
Two Gateway Center
Newark, NJ 07102

John D. Brookmeyer, Jr. Senior Vice President and Senior Vice President, Prudential; Senior Vice President and Director,
51 JFK Parkway Director PIC
Short Hills, NJ 07078

Barry M. Gillman Director Director, PIC

Theresa A. Hamacher Vice President Vice President, Prudential; Vice President, PIC; Director, PMF
</TABLE>

C-4
<PAGE>

<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATIONS
- ---------------- ----------------- ---------------------
<S> <C> <C>
Harry E. Knapp, Jr. President, Chairman of the President, Chairman of the Board, Chief Executive
Board, Chief Executive Officer Officer and Director, PIC; Vice President, Prudential
and Director

William P. Link Senior Vice President Executive Vice President, Prudential; Senior Vice President, PIC
Four Gateway Center
Newark, NJ 07102

Richard A. Redeker Executive Vice President President, Chief Executive Officer and Director, PMF; Executive Vice
One Seaport Plaza President, Director and Member of Operating Committee, Prudential
New York, NY 10292 Securities; Director, PSG; Executive Vice President, PIC; Director,
PMFD; Director, PMFS

Eric A. Simonson Vice President and Director Vice President and Director, PIC; Executive Vice President, Prudential

Claude J. Zinngrabe, Jr. Executive Vice President Vice President, Prudential; Executive Vice President, PIC
</TABLE>

ITEM 29. PRINCIPAL UNDERWRITERS.

(a)(i) Prudential Securities Incorporated

Prudential Securities is distributor for Prudential Government Securities
Trust (Short-Intermediate Term Series), Prudential Jennison Fund, Inc. and The
Target Portfolio Trust, for Class B shares of Prudential Adjustable Rate
Securities Fund, Inc., and for Class B and C shares of The BlackRock
Government Income Trust, Global Utility Fund, Inc., Nicholas-Applegate Fund,
Inc. (Nicholas-Applegate Growth Equity Fund), Prudential Allocation Fund,
Prudential California Municipal Fund (California Income Series and California
Series), Prudential Diversified Bond Fund, Inc., Prudential Equity Fund, Inc.,
Prudential Equity Income Fund, Prudential Europe Growth Fund, Inc., Prudential
Global Fund, Inc., Prudential Global Genesis Fund, Inc., Prudential Global
Limited Maturity Fund, Inc., Prudential Global Natural Resources Fund, Inc.,
Prudential Government Income Fund, Inc., Prudential Growth Opportunity Fund,
Inc., Prudential High Yield Fund, Inc., Prudential Intermediate Global Income
Fund, Inc., Prudential Mortgage Income Fund, Inc., Prudential Multi-Sector
Fund, Inc., Prudential Municipal Bond Fund, Prudential Municipal Series Fund
(except Connecticut Money Market Series, Massachusetts Money Market Series,
New York Money Market Series and New Jersey Money Market Series), Prudential
National Municipals Fund, Inc., Prudential Pacific Growth Fund, Inc.,
Prudential Structured Maturity Fund, Inc., Prudential U.S. Government Fund and
Prudential Utility Fund, Inc. Prudential Securities is also a depositor for
the following unit investment trusts:

Corporate Investment Trust Fund
Prudential Equity Trust Shares
National Equity Trust
Prudential Unit Trusts
Government Securities Equity Trust
National Municipal Trust

(ii) Prudential Mutual Fund Distributors, Inc.

Prudential Mutual Fund Distributors, Inc. is distributor for Command
Government Fund, Command Money Fund, Command Tax-Free Fund, Prudential
California Municipal Fund (California Money Market Series), Prudential
Government Securities Trust (Money Market Series and U.S. Treasury Money Market
Series), Prudential Institutional Liquidity Portfolio, Inc., Prudential-Bache
MoneyMart Assets Inc. (d/b/a Prudential MoneyMart Assets), Prudential Municipal
Series Fund (Connecticut Money Market Series, Massachusetts Money Market Series,
New York Money Market Series and New Jersey Money Market Series), Prudential-
Bache Special Money Market Fund, Inc. (d/b/a Prudential Special Money Market
Fund), Prudential-Bache Tax-Free Money Fund, Inc. (d/b/a Prudential Tax-Free
Money Fund), and for Class A shares of The BlackRock Government Income Trust,
Global Utility Fund, Inc., Nicholas-Applegate Fund, Inc. (Nicholas-Applegate
Growth Equity Fund), Prudential Adjustable Rate Securities Fund, Inc.,
Prudential Allocation Fund, Prudential California Municipal Fund (California
Income Series and California Series), Prudential Diversified Bond Fund, Inc.,
Prudential Equity Fund, Inc., Prudential Equity Income Fund, Prudential Europe
Growth Fund, Inc.,

C-5
<PAGE>

Prudential Global Fund, Inc., Prudential Global Genesis Fund, Inc., Prudential
Global Limited Maturity Fund, Inc., Prudential Global Natural Resources Fund,
Inc., Prudential Government Income Fund, Inc., Prudential Growth Opportunity
Fund, Inc., Prudential High Yield Fund, Inc., Prudential Intermediate Global
Income Fund, Inc., Prudential Mortgage Income Fund, Inc., Prudential Multi-
Sector Fund, Inc., Prudential Municipal Bond Fund, Prudential Municipal Series
Fund (except Connecticut Money Market Series, Massachusetts Money Market
Series, New York Money Market Series and New Jersey Money Market Series),
Prudential National Municipals Fund, Inc., Prudential Pacific Growth Fund,
Inc., Prudential Structured Maturity Fund, Inc., Prudential U.S. Government
Fund and Prudential Utility Fund, Inc.

(b)(i) Information concerning the directors and officers of Prudential
Securities Incorporated is set forth below.

<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME(1) UNDERWRITER REGISTRANT
- ------- ------------- -------------
<S> <C> <C>
Robert Golden........... Executive Vice President and Director None
One New York Plaza
New York, NY

Alan D. Hogan........... Executive Vice President, Chief None
Administrative Officer and
Director

George A. Murray........ Executive Vice President and Director None

Leland B. Paton......... Executive Vice President and None
One New York Plaza Director
New York, NY

Vincent T. Pica, II..... Executive Vice President and Director None
One New York Plaza
New York, NY

Richard A. Redeker...... Executive Vice President and Director President and Trustee

Gregory W. Scott........ Executive Vice President, None
Chief Financial Officer
and Director

Hardwick Simmons........ Chief Executive Officer, President None
and Director

Lee B. Spencer, Jr. .... Executive Vice President, None
General Counsel, Secretary and
Director

(ii) Information concerning the officers and directors of Prudential Mutual
Fund Distributors, Inc. is set forth below.

<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME(1) UNDERWRITER REGISTRANT
- ------- ------------- -------------
<S> <C> <C>
Joanne Accurso-Soto..... Vice President None

Dennis N. Annarumma..... Vice President, Assistant Treasurer None
and Assistant Comptroller

Phyllis J. Berman....... Vice President None

Brendan D. Boyle........ Chairman and Director None

Stephen P. Fisher....... Vice President None

Frank W. Giordano....... Executive Vice President, None
General Counsel,
Secretary and Director

Robert F. Gunia......... Executive Vice President, Vice President
Chief Financial Officer,
Treasurer and Director

Timothy J. O'Brien...... President, Chief Executive Officer, None
Chief Operating Officer and Director

Richard A. Redeker...... Director Trustee and President

Andrew J. Varley........ Vice President None

Anita L. Whelan......... Vice President and Assistant Secretary None
</TABLE>
- ---------
(/1/)The address of each person named is One Seaport Plaza, New York 10292
unless otherwise indicated.

C-6
<PAGE>

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.

All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the Rules thereunder are maintained at the offices
of State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171; The Prudential Investment Corporation, Prudential Plaza,
745 Broad Street, Newark, New Jersey 07102; the Registrant, One Seaport Plaza,
New York, New York 10292; and Prudential Mutual Fund Services, Inc., Raritan
Plaza One, Edison, New Jersey 08837. Documents required by Rules 31a-1(b)(5),
(6), (7), (9), (10) and (11) and 31a-1(f) will be kept at Two Gateway Center,
Newark, New Jersey 07102, documents required by Rules 31a-1(b)(4) and (11) and
31a-1(d) at One Seaport Plaza and the remaining accounts, books and other
documents required by such other pertinent provisions of Section 31(a) and the
Rules promulgated thereunder will be kept by State Street Bank and Trust
Company and Prudential Mutual Fund Services, Inc.

ITEM 31. MANAGEMENT SERVICES.

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

ITEM 32. UNDERTAKINGS.

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

C-7
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, 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 New York, and
State of New York, on the 25th day of October, 1995.

PRUDENTIAL EQUITY INCOME FUND

/s/ Richard A. Redeker
---------------------------------

(RICHARD A. REDEKER, PRESIDENT)

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

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Susan C. Cote Treasurer and Principal Financial October 25, 1995
- --------------------------------- and Accounting Officer
SUSAN C. COTE

/s/ Edward D. Beach Trustee October 25, 1995
- ---------------------------------
EDWARD D. BEACH

/s/ Donald D. Lennox Trustee October 25, 1995
- ---------------------------------
DONALD D. LENNOX

/s/ Douglas H. McCorkindale Trustee October 25, 1995
- ---------------------------------
DOUGLAS H. MCCORKINDALE

/s/ Thomas T. Mooney Trustee October 25, 1995
- ---------------------------------
THOMAS T. MOONEY

/s/ Richard A. Redeker President and Trustee October 25, 1995
- ---------------------------------
RICHARD A. REDEKER

/s/ Louis A. Weil, III Trustee October 25, 1995
- ---------------------------------
LOUIS A. WEIL, III
</TABLE>

C-8
<PAGE>

PRUDENTIAL EQUITY INCOME FUND

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION PAGE NUMBER
-------------- ----------- -----------
<C> <S> <C>
1(a) Amended and Restated Declaration of Trust. --
Incorporated by reference to Exhibit 1(a) to
Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A filed via
EDGAR on December 21, 1994 (File No. 33-9269).

1(b) Amended and Restated Certificate of Designation. --
Incorporated by reference to Exhibit 1(b) to
Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A filed via
EDGAR on December 21, 1994 (File No. 33-9269).

2 By-laws. Incorporated by reference to Exhibit --
2(b) to Post-Effective Amendment No. 11 to the
Registration Statement on Form N-1A filed via
EDGAR on May 6, 1994 (File No. 33-9269).

4(a) Specimen receipt for shares of beneficial --
interest, $.01 par value, of Class A shares.
Incorporated by reference to Exhibit 4(a) to
Post-Effective Amendment No. 7 to the
Registration Statement on Form N-1A filed on
February 28, 1991 (File No. 33-9269).

4(b) Specimen receipt for shares of beneficial --
interest, $.01 par value, of Class B shares.
Incorporated by reference to Exhibit 4(b) to
Post-Effective Amendment No. 7 to the
Registration Statement on Form N-1A filed on
February 28, 1991 (File No. 33-9269).

4(c) Instruments Defining Rights of Shareholders. --
Incorporated by reference to Exhibit 4(c) to
Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A filed via
EDGAR on December 30, 1993 (File No. 33-9269).

5(a) Amended and Restated Management Agreement between
the Registrant and Prudential Mutual Fund
Management, Inc.*

5(b) 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. 5
to the Registration Statement on Form N-1A filed
on December 28, 1989 (File No. 33-9269).

6(a) Distribution Agreement for Class A shares. --
Incorporated by reference to Exhibit 6(a) to
Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A filed via
EDGAR on December 21, 1994 (File No. 33-9269).

6(b) Distribution Agreement for Class B shares. --
Incorporated by reference to Exhibit 6(b) to
Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A filed via
EDGAR on December 21, 1994 (File No. 33-9269).

6(c) Distribution Agreement for Class C shares. --
Incorporated by reference to Exhibit 6(c) to
Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A filed via
EDGAR on December 21, 1994 (File No. 33-9269).

6(d) Form of Distribution Agreement for Class Z
shares.*

8 Custodian Contract between the Registrant and --
State Street Bank and Trust Company. Incorporated
by reference to Exhibit 8 to Pre-Effective
Amendment No. 2 to the Registration Statement on
Form N-1A filed on January 16, 1987 (File No. 33-
9269).

9 Transfer Agency and Service Agreement between the --
Registrant and Prudential Mutual Fund Services,
Inc. Incorporated by reference to Exhibit 9(a) to
Post-Effective Amendment No. 2 to the
Registration Statement on Form N-1A filed on
December 31, 1987 (File No. 33-9269).

10 Opinion of Counsel. Incorporated by reference to --
Exhibit 10 to Pre-Effective Amendment No. 2 to
the Registration Statement on Form N-1A filed on
January 16, 1987 (File No. 33-9269).

11 Consent of Independent Accountants.*

13 Purchase Agreement. Incorporated by reference to --
Exhibit 13 to Pre-Effective Amendment No. 2 to
the Registration Statement on Form N-1A filed on
January 16, 1987 (File No. 33-9269).
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION PAGE NUMBER
-------------- ----------- -----------
<C> <S> <C>
15(a) Distribution and Service Plan for Class A shares. --
Incorporated by reference to Exhibit 15(a) to
Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A filed via
EDGAR on December 21, 1994 (File No. 33-9269).

15(b) Distribution and Service Plan for Class B shares. --
Incorporated by reference to Exhibit 15(b) to
Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A filed via
EDGAR on December 21, 1994 (File No. 33-9269).

15(c) Distribution and Service Plan for Class C shares. --
Incorporated by reference to Exhibit 15(c) to
Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A filed via
EDGAR on December 21, 1994 (File No. 33-9269).

16(a) Schedule of Computation of Performance Quotations --
for Class B Shares. Incorporated by reference to
Exhibit 16 to Post-Effective Amendment No. 6 to
the Registration Statement on Form N-1A filed on
January 19, 1990 (File No. 33-9269).

16(b) Schedule of Computation of Performance Quotations --
for Class A Shares. Incorporated by reference to
Exhibit 16(b) to Post-Effective Amendment No. 8
to the Registration Statement on Form N-1A filed
on December 30, 1991 (File No. 33-9269).

18 Rule 18f-3 Plan.*

27 Financial Data Schedules.*
</TABLE>

Other Exhibits
Copies of Powers of Attorney for:

Edward D. Beach**,
Donald D. Lennox**,
Douglas H. McCorkindale**,

Thomas T. Mooney**,
Louis A. Weil, III**.

- ---------
*Filed herewith.
**Incorporated by reference to Post-Effective Amendment No.7 to the
Registration Statement on Form N-1A filed on February 28, 1991 (File No.
33-9269).

<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 001
<NAME> PRUDENTIAL EQUITY INCOME FUND (CLASS A)

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-END> OCT-31-1994
<INVESTMENTS-AT-COST> 1,060,276,269
<INVESTMENTS-AT-VALUE> 1,084,363,229
<RECEIVABLES> 41,833,421
<ASSETS-OTHER> 243,304
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,126,439,954
<PAYABLE-FOR-SECURITIES> 15,333,395
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,127,472
<TOTAL-LIABILITIES> 19,460,867
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,027,917,893
<SHARES-COMMON-STOCK> 79,064,188
<SHARES-COMMON-PRIOR> 44,021,019
<ACCUMULATED-NII-CURRENT> 13,861,666
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 41,112,568
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 24,086,960
<NET-ASSETS> 1,106,979,087
<DIVIDEND-INCOME> 30,417,969
<INTEREST-INCOME> 6,772,275
<OTHER-INCOME> 0
<EXPENSES-NET> 15,973,732
<NET-INVESTMENT-INCOME> 21,216,512
<REALIZED-GAINS-CURRENT> 42,485,087
<APPREC-INCREASE-CURRENT> (35,543,092)
<NET-CHANGE-FROM-OPS> 28,158,507
<EQUALIZATION> 3,591,448
<DISTRIBUTIONS-OF-INCOME> (13,488,790)
<DISTRIBUTIONS-OF-GAINS> (26,357,952)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 668,069,397
<NUMBER-OF-SHARES-REDEEMED> (221,021,185)
<SHARES-REINVESTED> 36,142,786
<NET-CHANGE-IN-ASSETS> 475,094,211
<ACCUMULATED-NII-PRIOR> 2,542,710
<ACCUMULATED-GAINS-PRIOR> 24,985,219
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,078,246
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 15,973,732
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 14.38
<PER-SHARE-NII> 0.41
<PER-SHARE-GAIN-APPREC> 0.06
<PER-SHARE-DIVIDEND> (0.29)
<PER-SHARE-DISTRIBUTIONS> (0.53)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.03
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 002
<NAME> PRUDENTIAL EQUITY INCOME FUND (CLASS B)

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-END> OCT-31-1994
<INVESTMENTS-AT-COST> 1,060,276,269
<INVESTMENTS-AT-VALUE> 1,084,363,229
<RECEIVABLES> 41,833,421
<ASSETS-OTHER> 243,304
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,126,439,954
<PAYABLE-FOR-SECURITIES> 15,333,395
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,127,472
<TOTAL-LIABILITIES> 19,460,867
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,027,917,893
<SHARES-COMMON-STOCK> 79,064,188
<SHARES-COMMON-PRIOR> 44,021,019
<ACCUMULATED-NII-CURRENT> 13,861,666
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 41,112,568
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 24,086,960
<NET-ASSETS> 1,106,979,087
<DIVIDEND-INCOME> 30,417,969
<INTEREST-INCOME> 6,772,275
<OTHER-INCOME> 0
<EXPENSES-NET> 15,973,732
<NET-INVESTMENT-INCOME> 21,216,512
<REALIZED-GAINS-CURRENT> 42,485,087
<APPREC-INCREASE-CURRENT> (35,543,092)
<NET-CHANGE-FROM-OPS> 28,158,507
<EQUALIZATION> 3,591,448
<DISTRIBUTIONS-OF-INCOME> (13,488,790)
<DISTRIBUTIONS-OF-GAINS> (26,357,952)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 668,069,397
<NUMBER-OF-SHARES-REDEEMED> (221,021,185)
<SHARES-REINVESTED> 36,142,786
<NET-CHANGE-IN-ASSETS> 475,094,211
<ACCUMULATED-NII-PRIOR> 2,542,710
<ACCUMULATED-GAINS-PRIOR> 24,985,219
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,078,246
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 15,973,732
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 14.35
<PER-SHARE-NII> 0.31
<PER-SHARE-GAIN-APPREC> 0.06
<PER-SHARE-DIVIDEND> (0.19)
<PER-SHARE-DISTRIBUTIONS> (0.53)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<PAGE>

<ARTICLE> 6
<SERIES>
<NUMBER> 003
<NAME> PRUDENTIAL EQUITY INCOME FUND (CLASS C)

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-END> OCT-31-1994
<INVESTMENTS-AT-COST> 1,060,276,269
<INVESTMENTS-AT-VALUE> 1,084,363,229
<RECEIVABLES> 41,833,421
<ASSETS-OTHER> 243,304
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,126,439,954
<PAYABLE-FOR-SECURITIES> 15,333,395
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,127,472
<TOTAL-LIABILITIES> 19,460,867
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,027,917,893
<SHARES-COMMON-STOCK> 79,064,188
<SHARES-COMMON-PRIOR> 44,021,019
<ACCUMULATED-NII-CURRENT> 13,861,666
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 41,112,568
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 24,086,960
<NET-ASSETS> 1,106,979,087
<DIVIDEND-INCOME> 30,417,969
<INTEREST-INCOME> 6,772,275
<OTHER-INCOME> 0
<EXPENSES-NET> 15,973,732
<NET-INVESTMENT-INCOME> 21,216,512
<REALIZED-GAINS-CURRENT> 42,485,087
<APPREC-INCREASE-CURRENT> (35,543,092)
<NET-CHANGE-FROM-OPS> 28,158,507
<EQUALIZATION> 3,591,448
<DISTRIBUTIONS-OF-INCOME> (13,488,790)
<DISTRIBUTIONS-OF-GAINS> (26,357,952)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 668,069,397
<NUMBER-OF-SHARES-REDEEMED> (221,021,185)
<SHARES-REINVESTED> 36,142,786
<NET-CHANGE-IN-ASSETS> 475,094,211
<ACCUMULATED-NII-PRIOR> 2,542,710
<ACCUMULATED-GAINS-PRIOR> 24,985,219
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,078,246
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 15,973,732
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 13.99
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> (0.02)
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> PRUDENTIAL EQUITY INCOME FUND (CLASS A)

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> APR-30-1995
<INVESTMENTS-AT-COST> 1063440548
<INVESTMENTS-AT-VALUE> 1146957760
<RECEIVABLES> 21473956
<ASSETS-OTHER> 77844
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1168509560
<PAYABLE-FOR-SECURITIES> 8015725
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5161576
<TOTAL-LIABILITIES> 13177301
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1077509579
<SHARES-COMMON-STOCK> 82976623
<SHARES-COMMON-PRIOR> 79064188
<ACCUMULATED-NII-CURRENT> 7950101
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (13631919)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 83504498
<NET-ASSETS> 1155332259
<DIVIDEND-INCOME> 20420943
<INTEREST-INCOME> 4110287
<OTHER-INCOME> 0
<EXPENSES-NET> 8862510
<NET-INVESTMENT-INCOME> 15668720
<REALIZED-GAINS-CURRENT> (13082353)
<APPREC-INCREASE-CURRENT> 59417538
<NET-CHANGE-FROM-OPS> 62003905
<EQUALIZATION> 38992
<DISTRIBUTIONS-OF-INCOME> (21619277)
<DISTRIBUTIONS-OF-GAINS> (41662134)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 152493616
<NUMBER-OF-SHARES-REDEEMED> (160408987)
<SHARES-REINVESTED> 57507057
<NET-CHANGE-IN-ASSETS> 48353172
<ACCUMULATED-NII-PRIOR> 13861666
<ACCUMULATED-GAINS-PRIOR> 41112568
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2945150
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8862510
<AVERAGE-NET-ASSETS> 192144000
<PER-SHARE-NAV-BEGIN> 14.03
<PER-SHARE-NII> 0.23
<PER-SHARE-GAIN-APPREC> 0.53
<PER-SHARE-DIVIDEND> (0.31)
<PER-SHARE-DISTRIBUTIONS> (0.53)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.95
<EXPENSE-RATIO> 1.03
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> PRUDENTIAL EQUITY INCOME FUND (CLASS B)

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> APR-30-1995
<INVESTMENTS-AT-COST> 1063440548
<INVESTMENTS-AT-VALUE> 1146957760
<RECEIVABLES> 21473956
<ASSETS-OTHER> 77844
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1168509560
<PAYABLE-FOR-SECURITIES> 8015725
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5161576
<TOTAL-LIABILITIES> 13177301
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1077509579
<SHARES-COMMON-STOCK> 82976623
<SHARES-COMMON-PRIOR> 79064188
<ACCUMULATED-NII-CURRENT> 7950101
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (13631919)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 83504498
<NET-ASSETS> 1155332259
<DIVIDEND-INCOME> 20420943
<INTEREST-INCOME> 4110287
<OTHER-INCOME> 0
<EXPENSES-NET> 8862510
<NET-INVESTMENT-INCOME> 15668720
<REALIZED-GAINS-CURRENT> (13082353)
<APPREC-INCREASE-CURRENT> 59417538
<NET-CHANGE-FROM-OPS> 62003905
<EQUALIZATION> 38992
<DISTRIBUTIONS-OF-INCOME> (21619277)
<DISTRIBUTIONS-OF-GAINS> (41662134)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 152493616
<NUMBER-OF-SHARES-REDEEMED> (160408987)
<SHARES-REINVESTED> 57507057
<NET-CHANGE-IN-ASSETS> 48353172
<ACCUMULATED-NII-PRIOR> 13861666
<ACCUMULATED-GAINS-PRIOR> 41112568
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2945150
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8862510
<AVERAGE-NET-ASSETS> 893465000
<PER-SHARE-NAV-BEGIN> 14.00
<PER-SHARE-NII> 0.18
<PER-SHARE-GAIN-APPREC> 0.53
<PER-SHARE-DIVIDEND> (0.26)
<PER-SHARE-DISTRIBUTIONS> (0.53)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.92
<EXPENSE-RATIO> 1.79
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> PRUDENTIAL EQUITY INCOME FUND (CLASS C)

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> APR-30-1995
<INVESTMENTS-AT-COST> 1063440548
<INVESTMENTS-AT-VALUE> 1146957760
<RECEIVABLES> 21473956
<ASSETS-OTHER> 77844
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1168509560
<PAYABLE-FOR-SECURITIES> 8015725
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5161576
<TOTAL-LIABILITIES> 13177301
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1077509579
<SHARES-COMMON-STOCK> 82976623
<SHARES-COMMON-PRIOR> 79064188
<ACCUMULATED-NII-CURRENT> 7950101
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (13631919)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 83504498
<NET-ASSETS> 1155332259
<DIVIDEND-INCOME> 20420943
<INTEREST-INCOME> 4110287
<OTHER-INCOME> 0
<EXPENSES-NET> 8862510
<NET-INVESTMENT-INCOME> 15668720
<REALIZED-GAINS-CURRENT> (13082353)
<APPREC-INCREASE-CURRENT> 59417538
<NET-CHANGE-FROM-OPS> 62003905
<EQUALIZATION> 38992
<DISTRIBUTIONS-OF-INCOME> (21619277)
<DISTRIBUTIONS-OF-GAINS> (41662134)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 152493616
<NUMBER-OF-SHARES-REDEEMED> (160408987)
<SHARES-REINVESTED> 57507057
<NET-CHANGE-IN-ASSETS> 48353172
<ACCUMULATED-NII-PRIOR> 13861666
<ACCUMULATED-GAINS-PRIOR> 41112568
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2945150
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8862510
<AVERAGE-NET-ASSETS> 2214000
<PER-SHARE-NAV-BEGIN> 14.00
<PER-SHARE-NII> 0.18
<PER-SHARE-GAIN-APPREC> 0.53
<PER-SHARE-DIVIDEND> (0.26)
<PER-SHARE-DISTRIBUTIONS> (0.53)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.92
<EXPENSE-RATIO> 1.78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<PAGE>

EXHIBIT 99.5(a)

PRUDENTIAL EQUITY INCOME FUND

MANAGEMENT AGREEMENT

Agreement, made this 1st day of March, 1988 and amended and restated as
of June 1, 1995 between Prudential Equity Income Fund, formerly Prudential-Bache
Equity Income Fund, a Massachusetts business trust (the "Fund"), and Prudential
Mutual Fund Management, Inc., a Delaware corporation (the "Manager").

W I T N E S S E T H

WHEREAS, the Fund is a diversified, open-end management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"); and

WHEREAS, the Fund desires to retain the Manager to render or contract to
obtain as hereinafter provided investment advisory services to the Fund and the
Fund also desires to avail itself of the facilities available to the Manager
with respect to the administration of its day to day business affairs, and the
Manager is willing to render such investment advisory and administrative
services;

NOW, THEREFORE, the parties agree as follows:

1. The Fund hereby appoints the Manager to act as manager of the Fund
and administrator of its business affairs for the period and on the terms set
forth in this Agreement. The Manager accepts such appointment and agrees to
render the services herein described, for the compensation herein provided. The
Manager will enter into an agreement, dated the date hereof, with The Prudential
Investment Corporation ("PIC") pursuant to which PIC shall furnish to the Fund
the investment advisory

<PAGE>

services specified therein in connection with the management of the Fund. Such
agreement in the form attached as Exhibit A is hereinafter referred to as the
"Subadvisory Agreement." The Manager will continue to have responsibility for
all investment advisory services furnished pursuant to the Subadvisory
Agreement.

2. Subject to the supervision of the Trustees of the Fund, the Manager
shall administer the Fund's business affairs and, in connection therewith, shall
furnish the Fund with office facilities and with clerical, bookkeeping and
recordkeeping services at such office facilities and, subject to Section 1
hereof and the Subadvisory Agreement, the Manager shall manage the investment
operations of the Fund and the composition of the Fund's portfolio, including
the purchase, retention and disposition thereof, in accordance with the Fund's
investment objectives, policies and restrictions as stated in the Prospectus
(hereinafter defined) and subject to the following understandings:

(a) The Manager shall provide supervision of the Fund's investments and
determine from time to time what investments or securities will be
purchased, retained, sold or loaned by the Fund, and what portion of the
assets will be invested or held uninvested as cash.

(b) The Manager, in the performance of its duties and obligations under
this Agreement, shall act in conformity with the Declaration of Trust, By-
Laws and Prospectus (hereinafter defined) of the Fund and with the
instructions and directions of the Trustees of the Fund and will conform to
and comply with the
-2-
<PAGE>

requirements of the 1940 Act and all other applicable federal and state laws and
regulations.

(c) The Manager shall determine the securities and futures
contracts to be purchased or sold by the Fund and will place orders pursuant
to its determinations with or through such persons, brokers, dealers or
futures commission merchants (including but not limited to Prudential
Securities Incorporated) in conformity with the policy with respect to
brokerage as set forth in the Fund's Registration Statement and Prospectus
(hereinafter defined) or as the Trustees may direct from time to time. In
providing the Fund with investment supervision, it is recognized that the
Manager will give primary consideration to securing the most favorable price
and efficient execution. Consistent with this policy, the Manager may
consider the financial responsibility, research and investment information
and other services provided by brokers, dealers or futures commission
merchants who may effect or be a party to any such transaction or other
transactions to which other clients of the Manager may be a party. It is
understood that Prudential Securities Incorporated may be used as principal
broker for securities transactions but that no formula has been adopted for
allocation of the Fund's investment transaction business. It is also
understood that it is desirable for the Fund that the Manager have access to
supplemental investment and market research and security and economic
analysis provided by brokers or futures commission merchants and that such
brokers may execute brokerage transactions at a higher cost to the Fund than
may result when allocating brokerage to other brokers or futures commission
merchants on
-3-
<PAGE>

the basis of seeking the most favorable price and efficient execution.
Therefore, the Manager is authorized to pay higher brokerage commissions for
the purchase and sale of securities and futures contracts for the Fund to
brokers or futures commission merchants who provide such research and
analysis, subject to review by the Fund's Trustees from time to time with
respect to the extent and continuation of this practice. It is understood
that the services provided by such broker or futures commission merchant may
be useful to the Manager in connection with its services to other clients.
On occasions when the Manager deems the purchase or sale of a security
or a futures contract to be in the best interest of the Fund as well as
other clients of the Manager or the Subadviser, the Manager, to the extent
permitted by applicable laws and regulations, may, but shall be under no
obligation to, aggregate the securities or futures contracts to be so sold
or purchased in order to obtain the most favorable price or lower brokerage
commissions and efficient execution. In such event, allocation of the
securities or futures contracts so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Manager in the
manner it considers to be the most equitable and consistent with its
fiduciary obligations to the Fund and to such other clients.

(d) The Manager shall maintain all books and records with respect to the
Fund's portfolio transactions and shall render to the Fund's Trustees such
periodic and special reports as the Trustees may reasonably request.
-4-
<PAGE>

(e) The Manager shall be responsible for the financial and accounting
records to be maintained by the Fund (including those being maintained by
the Fund's Custodian).

(f) The Manager shall provide the Fund's Custodian on each business day
with information relating to all transactions concerning the Fund's assets.

(g) The investment management services of the Manager to the Fund under
this Agreement are not to be deemed exclusive, and the Manager shall be free
to render similar services to others.

3. The Fund has delivered to the Manager copies of each of the following
documents and will deliver to it all future amendments and supplements, if
any:

(a) Declaration of Trust of the Fund, as filed with the Commonwealth of
Massachusetts (such Declaration of Trust, as in effect on the date hereof
and as amended from time to time, is herein called the "Declaration of
Trust");

(b) By-Laws of the Fund (such By-Laws, as in effect on the date hereof
and as amended from time to time, are herein called the "By-Laws");

(c) Certified resolutions of the Trustees of the Fund authorizing the
appointment of the Manager and approving the form of this agreement;

(d) Registration Statement under the 1940 Act and the Securities Act of
1933, as amended, on Form N-1A (the "Registration Statement"), as filed with
the Securities and Exchange Commission (the "Commission") relating to the
Fund and shares of beneficial interest of the Fund and all amendments
thereto;
-5-
<PAGE>

(e) Notification of Registration of the Fund under the 1940 Act on
Form N-8A as filed with the Commission and all amendments thereto; and

(f) Prospectus of the Fund (such Prospectus and Statement of Additional
Information, as currently in effect and as amended or supplemented from time
to time, being herein called the "Prospectus").

4. The Manager shall authorize and permit any of its directors,
officers and employees who may be elected as Trustees or officers of the Fund to
serve in the capacities in which they are elected. All services to be furnished
by the Manager under this Agreement may be furnished through the medium of any
such directors, officers or employees of the Manager.

5. The Manager shall keep the Fund's books and records required to be
maintained by it pursuant to paragraph 2 hereof. The Manager agrees that all
records which it maintains for the Fund are the property of the Fund and it will
surrender promptly to the Fund any such records upon the Fund's request,
provided however that the Manager may retain a copy such records. The Manager
further agrees to preserve for the periods prescribed by Rule 31a-2 under the
1940 Act any such records as are required to be maintained by the Manager
pursuant to Paragraph 2 hereof.

6. During the term of this Agreement, the Manager shall pay the
following expenses:

(i) the salaries and expenses of all personnel of the Fund and the
Manager except the fees and expenses of Trustees who are not affiliated
persons of the Manager or the Fund's investment adviser,
-6-
<PAGE>
(ii) 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 herein, and
(iii) the costs and expenses payable to PIC pursuant to the Subadvisory
Agreement.
The Fund assumes and will pay the expenses described below:
(a) the fees and expenses incurred by the Fund in connection with the
management of the investment and reinvestment of the Fund's assets,
(b) the fees and expenses of Trustees who are not affiliated persons of
the Manager or the Fund's investment adviser,
(c) the fees and expenses of the Custodian that relate to (i) the
custodial function and the recordkeeping connected therewith, (ii) preparing and
maintaining the general accounting records of the Fund and the providing of any
such records to the Manager useful to the Manager in connection with the
Manager's responsibility for the accounting records of the Fund pursuant to
Section 31 of the 1940 Act and the rules promulgated thereunder, (iii) the
pricing of the shares of the Fund, including the cost of any pricing service or
services which may be retained pursuant to the authorization of the Trustees of
the Fund, and (iv) for both mail and wire orders, the cashiering function in
connection with the issuance and redemption of the Fund's securities,
(d) the fees and expenses of the Fund's Transfer and Dividend
Disbursing Agent, which may be the Custodian, that relate to the maintenance of
each shareholder account,

-7-
<PAGE>
(e) the charges and expenses of legal counsel and independent
accountants for the Fund,
(f) brokers' commissions and any issue or transfer taxes chargeable to
the Fund in connection with its securities and futures transactions,
(g) all taxes and corporate fees payable by the Fund to federal, state
or other governmental agencies,
(h) the fees of any trade associations of which the Fund may be a
member,
(i) the cost of share certificates representing, and/or non-negotiable
share deposit receipts evidencing, shares of the Fund,
(j) the cost of fidelity, directors and officers and errors and
omissions insurance,
(k) the fees and expenses involved in registering and maintaining
registration of the Fund and of its shares with the Securities and Exchange
Commission, registering the Fund as a broker or dealer and qualifying its shares
under state securities laws, including the preparation and printing of the
Fund's registration statements, prospectuses and statements of additional
information for filing under federal and state securities laws for such
purposes,
(l) allocable communications expenses with respect to investor services
and all expenses of shareholders' and Trustees' meetings and of preparing,
printing and mailing reports to shareholders in the amount necessary for
distribution to the shareholders,

-8-
<PAGE>
(m) litigation and indemnification expenses and other extraordinary
expenses not incurred in the ordinary course of the Fund's business, and
(n) any expenses assumed by the Fund pursuant to a Plan of Distribution
adopted in conformity with Rule 12b-1 under the 1940 Act.

7. In the event the expenses of the Fund for any fiscal year (including
the fees payable to 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) exceed the lowest applicable annual expense limitation established and
enforced pursuant to the statute or regulations of any jurisdictions in which
shares of the Fund are then qualified for offer and sale, the compensation due
the Manager will be reduced by the amount of such excess, or, if such reduction
exceeds the compensation payable to the Manager, the Manager will pay to the
Fund the amount of such reduction which exceeds the amount of such compensation.

8. For the services provided and the expenses assumed pursuant to this
Agreement, the Fund will pay to the Manager as full compensation therefor a fee
at an annual rate of .60 of 1% of the first $500 million of the Fund's average
daily net assets, .50 of 1% of the average daily net assets between $500 million
and $1 billion, .475 of 1% of the average daily net assets between $1 billion
and $1.5 billion and .45 of 1% of the average daily net assets in excess of $1.5
billion. This fee will be computed daily and will be paid to the Manager
monthly. Any reduction in the fee payable and any payment by the Manager to the
Fund pursuant to paragraph 7 shall be made monthly. Any such reductions or
payments are subject to readjustment during the year.

-9-
<PAGE>
9. The Manager shall not be liable for any error of judgment or for any
loss suffered by the Fund in connection with the matters to which this Agreement
relates, except a loss resulting from a breach of fiduciary duty with respect to
the receipt of compensation for services (in which case any award of damages
shall be limited to the period and the amount set forth in Section 36(b)(3) of
the 1940 Act) or loss resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.

10. This Agreement shall continue in effect for a period of more than
two years from the date hereof only so long as such continuance is specifically
approved at least annually in conformity with the requirements of the 1940 Act;
provided, however, that this Agreement may be terminated by the Fund at any
time, without the payment of any penalty, by the Trustees of the Fund or by vote
of a majority of the outstanding voting securities (as defined in the 1940 Act)
of the Fund, or by the Manager at any time, without the payment of any penalty,
on not more than 60 days' nor less than 30 days' written notice to the other
party. This Agreement shall terminate automatically in the event of its
assignment (as defined in the 1940 Act).

11. Nothing in this Agreement shall limit or restrict the right of any
director, officer or employee of the Manager who may also be a Trustee, officer
or employee of the Fund to engage in any other business or to devote his or her
time and attention in part to the management or other aspects of any business,
whether of a similar or dissimilar nature, nor limit or restrict the right of
the Manager to engage in any other business or to render services of any kind to
any other corporation, firm, individual or association.

-10-
<PAGE>
12. Except as otherwise provided herein or authorized by the Trustees of
the Fund from time to time, the Manager shall for all purposes herein be deemed
to be an independent contractor and shall have no authority to act for or
represent the Fund in any way or otherwise be deemed an agent of the Fund.

13. During the term of this Agreement, the Fund agrees to furnish the
Manager at its principal office all prospectuses, proxy statements, reports to
shareholders, sales literature, or other material prepared for distribution to
shareholders of the Fund or the public, which refer in any way to the Manager,
prior to use thereof and not to use such material if the Manager reasonably
objects in writing within five business days (or such other time as may be
mutually agreed) after receipt thereof. In the event of termination of this
Agreement, the Fund will continue to furnish to the Manager copies of any of the
above mentioned materials which refer in any way to the Manager. Sales
literature may be furnished to the Manager hereunder by first-class or overnight
mail, facsimile transmission equipment or hand delivery. The Fund shall furnish
or otherwise make available to the Manager such other information relating to
the business affairs of the Fund as the Manager at any time, or from time to
time, reasonably requests in order to discharge its obligations hereunder.

14. This Agreement may be amended by mutual consent, but the consent of
the Fund must be obtained in conformity with the requirements of the 1940 Act.

15. Any notice or other communication required to be given pursuant to
this Agreement shall be deemed duly given if delivered or mailed by registered
mail, postage prepaid, (1) to the Manager at One Seaport Plaza, New York, N.Y.
10292, Attention: Secretary; or (2) to the Fund at One Seaport Plaza, New York,
N.Y. 10292, Attention: President.

-11-
<PAGE>
16. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.

17. The Fund may use the name "Prudential Equity Income Fund" or any
name including the words "Prudential" only for so long as this Agreement or any
extension, renewal or amendment hereof remains in effect, including any similar
agreement with any organization which shall have succeeded to the Manager's
business as Manager or any extension, renewal or amendment thereof remain in
effect. At such time as such an agreement shall no longer be in effect, the Fund
will (to the extent that it lawfully can) cease to use such a name or any other
name indicating that it is advised by, managed by or otherwise connected with
the Manager, or any organization which shall have so succeeded to such
businesses. In no event shall the Fund use the name "Prudential Equity Income
Fund" or any name including the word "Prudential" if the Manager's function is
transferred or assigned to a company of which The Prudential Insurance Company
of America does not have control.

-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.

PRUDENTIAL EQUITY INCOME FUND

By /s/ Robert F. Gunia
--------------------------
Vice President (TITLE)

PRUDENTIAL MUTUAL FUND MANAGEMENT, INC.

By /s/ Richard A. Redeker
--------------------------
President (TITLE)

-13-

<PAGE>

EXHIBIT 99.6(d)

Prudential Equity Income Fund

Form of
Distribution Agreement
(Class Z Shares)
----------------

Agreement made as of _______, 1995, between Prudential Equity Income
Fund, a Massachusetts business trust (the Fund) and Prudential Securities
Incorporated, a Delaware Corporation (the Distributor).

WITNESSETH

WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the Investment Company Act), as a diversified, open-end,
management investment company and it is in the interest of the Fund to offer its
Class Z shares for sale continuously;

WHEREAS, the Distributor is a broker-dealer registered under the
Securities Exchange Act of 1934, as amended, and is engaged in the business of
selling shares of registered investment companies either directly or through
other broker-dealers; and

WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other, with respect to the continuous offering of the Fund's Class Z
shares from and after the date hereof in order to promote the growth of the Fund
and facilitate the distribution of its Class Z shares.

NOW, THEREFORE, the parties agree as follows:

Section 1. Appointment of the Distributor
------------------------------

The Fund hereby appoints the Distributor as the principal underwriter
and distributor of the Class Z shares of the Fund to sell Class Z shares to the
public on behalf of the Fund and the Distributor hereby accepts such appointment
and agrees to act hereunder. The Fund hereby agrees during the term of this
Agreement to sell Class Z shares of the Fund through the Distributor on the
terms and conditions set forth below.

Section 2. Exclusive Nature of Duties
--------------------------

The Distributor shall be the exclusive representative of the Fund to
act as principal underwriter and distributor of the Fund's Class Z shares,
except that:

2.1 The exclusive rights granted to the Distributor to sell Class Z
shares of the Fund shall not apply to Class Z shares of the Fund issued in
connection with the merger or consolidation of any other investment company or
personal holding company with the Fund or the acquisition by purchase or
otherwise of all (or substantially all) of the assets or the outstanding shares
of any such company by the Fund.
<PAGE>

2.2 Such exclusive rights shall not apply to Class Z shares issued by
the Fund pursuant to reinvestment of dividends or capital gains distributions.

2.3 Such exclusive rights shall not apply to Class Z shares issued by
the Fund pursuant to the reinstatement privilege afforded redeeming
shareholders.

2.4 Such exclusive rights shall not apply to purchases made through
the Fund's transfer and dividend disbursing agent in the manner set forth in the
currently effective Prospectus of the Fund. The term "Prospectus" shall mean
the Prospectus and Statement of Additional Information included as part of the
Fund's Registration Statement, as such Prospectus and Statement of Additional
Information may be amended or supplemented from time to time, and the term
"Registration Statement" shall mean the Registration Statement filed by the Fund
with the Securities and Exchange Commission and effective under the Securities
Act of 1933, as amended (the Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.

Section 3. Purchase of Class Z Shares from the Fund
----------------------------------------

3.1 The Distributor shall have the right to buy from the Fund on
behalf of investors the Class Z shares needed, but not more than the Class Z
shares needed (except for clerical errors in transmission) to fill unconditional
orders for Class Z shares placed with the Distributor by investors or registered
and qualified securities dealers and other financial institutions (selected
dealers).

3.2 The Class Z shares shall be sold by the Distributor on behalf of
the Fund and delivered by the Distributor or selected dealers, as described in
Section 6.4 hereof, to investors at the offering price as set forth in the
Prospectus.

3.3 The Fund shall have the right to suspend the sale of its Class Z
shares at times when redemption is suspended pursuant to the conditions in
Section 4.3 hereof or at such other times as may be determined by the Trustees.
The Fund shall also have the right to suspend the sale of its Class Z shares if
a banking moratorium shall have been declared by federal or New York
authorities.

3.4 The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Class Z shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Class Z shares. The Fund (or
its agent) will confirm orders upon their receipt, will make appropriate book
entries and upon receipt by the Fund (or its

2
<PAGE>

agent) of payment therefor, will deliver deposit receipts for such Class Z
shares pursuant to the instructions of the Distributor. Payment shall be made
to the Fund in New York Clearing House funds or federal funds. The Distributor
agrees to cause such payment and such instructions to be delivered promptly to
the Fund (or its agent).

Section 4. Repurchase or Redemption of Class Z Shares by the Fund
------------------------------------------------------

4.1 Any of the outstanding Class Z shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Class Z
shares so tendered in accordance with its Declaration of Trust as amended from
time to time, and in accordance with the applicable provisions of the
Prospectus. The price to be paid to redeem or repurchase the Class Z shares
shall be equal to the net asset value determined as set forth in the Prospectus.
All payments by the Fund hereunder shall be made in the manner set forth in
Section 4.2 below.

4.2 The Fund shall pay the total amount of the redemption price as
defined in the above paragraph pursuant to the instructions of the Distributor
on or before the seventh day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of Class Z shares
shall be paid by the Fund to or for the account of the redeeming shareholder, in
each case in accordance with applicable provisions of the Prospectus.

4.3 Redemption of Class Z shares or payment may be suspended at times
when the New York Stock Exchange is closed for other than customary weekends and
holidays, when trading on said Exchange is restricted, 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 during any other period when the
Securities and Exchange Commission, by order, so permits.

Section 5. Duties of the Fund
------------------

5.1 Subject to the possible suspension of the sale of Class Z shares
as provided herein, the Fund agrees to sell its Class Z shares so long as it has
Class Z shares available.

5.2 The Fund shall furnish the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Class Z shares, and this
shall include one certified copy, upon request by the Distributor, of all
financial statements examined for the Fund by independent public accountants.
The Fund shall make available to the Distributor such number of copies of its
Prospectus and annual and interim reports as the

3
<PAGE>

Distributor shall reasonably request.

5.3 The Fund shall take, from time to time, but subject to the
necessary approval of the Trustees and the shareholders, all necessary action to
fix the number of authorized Class Z shares and such steps as may be necessary
to register the same under the Securities Act, to the end that there will be
available for sale such number of Class Z shares as the Distributor reasonably
may expect to sell. The Fund agrees to file from time to time such amendments,
reports and other documents as may be necessary in order that there will be no
untrue statement of a material fact in the Registration Statement, or necessary
in order that there will be no omission to state a material fact in the
Registration Statement which omission would make the statements therein
misleading.

5.4 The Fund shall use its best efforts to qualify and maintain the
qualification of any appropriate number of its Class Z shares for sales under
the securities laws of such states as the Distributor and the Fund may approve;
provided that the Fund shall not be required to amend its Declaration of Trust
or By-Laws to comply with the laws of any state, to maintain an office in any
state, to change the terms of the offering of its Class Z shares in any state
from the terms set forth in its Registration Statement, to qualify as a foreign
corporation in any state or to consent to service of process in any state other
than with respect to claims arising out of the offering of its Class Z shares.
Any such qualification may be withheld, terminated or withdrawn by the Fund at
any time in its discretion. As provided in Section 7.1 hereof, the expense of
qualification and maintenance of qualification shall be borne by the Fund. The
Distributor shall furnish such information and other material relating to its
affairs and activities as may be required by the Fund in connection with such
qualifications.

Section 6. Duties of the Distributor
-------------------------

6.1 The Distributor shall devote reasonable time and effort to effect
sales of Class Z shares of the Fund, but shall not be obligated to sell any
specific number of Class Z shares. Sales of the Class Z shares shall be on the
terms described in the Prospectus. The Distributor may enter into like
arrangements with other investment companies. The Distributor shall compensate
the selected dealers as set forth in the Prospectus.

6.2 In selling the Class Z shares, the Distributor shall use its best
efforts in all respects duly to conform with the requirements of all federal and
state laws relating to the sale of such securities. Neither the Distributor nor
any selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales

4
<PAGE>

literature approved by appropriate officers of the Fund.

6.3 The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements of the National Association of Securities Dealers, Inc. (NASD).

6.4 The Distributor shall have the right to enter into selected
dealer agreements with registered and qualified securities dealers and other
financial institutions of its choice for the sale of Class Z shares, provided
that the Fund shall approve the forms of such agreements. Within the United
States, the Distributor shall offer and sell Class Z shares only to such
selected dealers as are members in good standing of the NASD. Class Z shares
sold to selected dealers shall be for resale by such dealers only at the
offering price determined as set forth in the Prospectus.

Section 7. Allocation of Expenses
----------------------

7.1 The Fund shall bear all costs and expenses of the continuous
offering of its Class Z shares, including fees and disbursements of its counsel
and auditors, in connection with the preparation and filing of any required
Registration Statements and/or Prospectuses under the Investment Company Act or
the Securities Act, and preparing and mailing annual and periodic reports and
proxy materials to shareholders (including but not limited to the expense of
setting in type any such Registration Statements, Prospectuses, annual or
periodic reports or proxy materials). The Fund shall also bear the cost of and
expense of qualification of the Class Z shares for sale, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer,
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5.4 hereof and the cost and
expense payable to each such state for continuing qualification therein until
the Fund decides to discontinue such qualification pursuant to Section 5.4
hereof.

Section 8. Indemnification
---------------

8.1 The Fund agrees to indemnify, defend and hold the Distributor,
its officers and Directors and any person who controls the Distributor within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Distributor, its
officers, Directors or any such controlling person may incur under the
Securities Act, or under common law or otherwise, arising out of or based upon
any untrue statement of a

5
<PAGE>

material fact contained in the Registration Statement or Prospectus or arising
out of or based upon any alleged omission to state a material fact required to
be stated in either thereof or necessary to make the statements in either
thereof not misleading, except insofar as such claims, demands, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information furnished in writing by the Distributor to the Fund for use in
the Registration Statement or Prospectus; provided, however, that this indemnity
agreement shall not inure to the benefit of any such officer, Director or
controlling person unless a court of competent jurisdiction shall determine in a
final decision on the merits, that the person to be indemnified was not liable
by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement (disabling conduct), or, in the absence of such
a decision, a reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling conduct, by (a) a
vote of a majority of a quorum of Directors who are neither "interested persons"
of the Fund as defined in Section 2(a)(19) of the Investment Company Act nor
parties to the proceeding, or (b) an independent legal counsel in a written
opinion. The Fund's agreement to indemnify the Distributor, its officers and
Directors and any such controlling person as aforesaid is expressly conditioned
upon the Fund's being promptly notified of any action brought against the
Distributor, its officers or Directors, or any such controlling person, such
notification to be given in writing addressed to the Fund at its principal
business office. The Fund agrees promptly to notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or Trustees in connection with the issue and sale of any Class Z shares.

8.2 The Distributor agrees to indemnify, defend and hold the Fund,
its officers and Trustees and any person who controls the Fund, if any, within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending against such claims, demands or liabilities
and any counsel fees incurred in connection therewith) which the Fund, its
officers and Trustees or any such controlling person may incur under the
Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Fund, its Trustees or officers or such
controlling person resulting from such claims or demands shall arise out of or
be based upon any alleged untrue statement of a material fact contained in
information furnished in writing by the Distributor to the Fund for use in the
Registration Statement or Prospectus or shall arise out of or be based upon any
alleged omission to state a material fact in connection with such information
required to be stated in the Registration Statement or

6
<PAGE>

Prospectus or necessary to make such information not misleading. The
Distributor's agreement to indemnify the Fund, its officers and Trustees and any
such controlling person as aforesaid, is expressly conditioned upon the
Distributor's being promptly notified of any action brought against the Fund,
its officers and Trustees or any such controlling person, such notification to
be given to the Distributor in writing at its principal business office.

Section 9. Duration and Termination of this Agreement
------------------------------------------

9.1 This Agreement shall become effective as of the date first above
written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Trustees of the Fund, or by the vote of a majority of
the outstanding voting securities of the Class Z shares of the Fund and (b) by
the vote of a majority of those Trustees who are not parties to this Agreement
or interested persons of any such parties and who have no direct or indirect
financial interest in this Agreement.

9.2 This Agreement may be terminated at any time, without the payment
of any penalty, by a majority of the Rule 12b-1 Trustees or by vote of a
majority of the outstanding voting securities of the Class Z shares of the Fund,
or by the Distributor, on sixty (60) days' written notice to the other party.
This Agreement shall automatically terminate in the event of its assignment.

9.3 The terms "affiliated person," "assignment," "interested person"
and "vote of a majority of the outstanding voting securities," when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.

Section 10. Amendments to this Agreement
----------------------------

This Agreement may be amended by the parties only if such amendment is
specifically approved by the Trustees of the Fund, or by the
vote of a majority of the outstanding voting securities of the Class Z shares of
the Fund.

Section 11. Governing Law
-------------

The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York as at the time in effect and
the applicable provisions of the Investment Company Act. To the extent that the
applicable law of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the Investment Company Act, the
latter shall control.

7
<PAGE>

Section 11. Liabilities of the Fund
-----------------------

The name Prudential Equity Income Fund is the designation of the Trustees
under an Amended and Restated Declaration of Trust, dated August 16, 1994, as
thereafter amended, and all persons dealing with the Fund must look solely to
the property of the Fund for the enforcement of any claims against the Fund as
neither the Trustees, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year above written.

Prudential Securities
Incorporated

By:
----------------------
Robert F. Gunia
Senior Vice President

Prudential Equity Income Fund

By:
----------------------
Richard A. Redeker
President

<PAGE>

EXHIBIT 99.11

CONSENT OF INDEPENDENT AUDITORS

We consent to the use in Post-Effective Amendment No. 15 to Registration
Statement No. 33-9269 of Prudential Equity Income Fund of our report dated
December 7, 1994, appearing in the Statement of Additional Information, which is
a part of such Registration Statement, and to the references to us under the
headings "Financial Highlights" in the Prospectus, which is a part of such
Registration Statement, and "Custodian, Transfer and Dividend Disbursing Agent
and Independent Accountants" in the Statement of Additional Information.

/s/ Deloitte & Touche LLP

Deloitte & Touche LLP
New York, New York
October 24, 1995

<PAGE>

EXHIBIT 99.18

PRUDENTIAL EQUITY INCOME FUND
(the Fund)

PLAN PURSUANT TO RULE 18F-3

The Fund hereby adopts this plan pursuant to Rule 18f-3 under the
Investment Company Act of 1940 (the 1940 Act), setting forth the separate
arrangement and expense allocation of each class of shares. Any material
amendment to this plan is subject to prior approval of the Trustees, including
a majority of the independent Trustees.

CLASS CHARACTERISTICS

CLASS A SHARES: Class A shares are subject to a high initial sales charge
- -------------- and a distribution and/or service fee pursuant to Rule 12b-1
under the 1940 Act (Rule 12b-1 fee) not to exceed .30 of 1%
per annum of the average daily net assets of the class. The
initial sales charge is waived or reduced for certain
eligible investors.

CLASS B SHARES: Class B shares are not subject to an initial sales charge
- -------------- but are subject to a high contingent deferred sales charge
(declining by 1% each year) which will be imposed on certain
redemptions and a Rule 12b-1 fee of not to exceed 1% per
annum of the average daily net assets of the class. The
contingent deferred sales charge is waived for certain
eligible investors. Class B shares automatically convert to
Class A shares approximately seven years after
purchase.

CLASS C SHARES: Class C shares are not subject to an initial sales charge
- -------------- but are subject to a low contingent deferred sales charge
(declining by 1% each year) which will be imposed on certain
redemptions and a Rule 12b-1 fee not to exceed 1% per annum
of the average daily net assets of the class.

Class Z SHARES: Class Z shares are not subject to either an initial or
- -------------- contingent deferred sales charge nor are they subject to any
Rule 12b-1 fee.

INCOME AND EXPENSE ALLOCATIONS

Income, any realized and unrealized capital gains and losses, and expenses
not allocated to a particular class, will be allocated to each class on the
basis of the net asset value of that class in relation to the net asset
value of the Fund.
<PAGE>

DIVIDENDS AND DISTRIBUTIONS

Dividends and other distributions paid by the Fund to each class of shares,
to the extent paid, will be paid on the same day and at the same time, and
will be determined in the same manner and will be in the same amount,
except that the amount of the dividends and other distributions declared
and paid by a particular class may be different from that paid by another
class because of Rule 12b-1 fees and other expenses borne exclusively by
that class.

EXCHANGE PRIVILEGE

Each class of shares is generally exchangeable for the same class of shares
(or the class of shares with similar characteristics), if any, of the other
Prudential Mutual Funds (subject to certain minimum investment
requirements) at relative net asset value without the imposition of any
sales charge.

Class B and Class C shares (which are not subject to a contingent deferred
sales charge) of shareholders who qualify to purchase Class A shares at net
asset value will be automatically exchanged for Class A shares on a
quarterly basis, unless the shareholder elects otherwise.

CONVERSION FEATURES

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.

GENERAL

A. Each class of shares shall have exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement and shall
have separate voting rights on any matter submitted to shareholders in
which the interests of one class differ from the interests of any other
class.

B. On an ongoing basis, the Trustees, pursuant to their fiduciary
responsibilities under the 1940 Act and otherwise, will monitor the Fund
for the existence of any material conflicts among the interests of its
several classes. The Trustees, including a majority of the independent
Trustees, shall take such action as is reasonably necessary to eliminate
any such conflicts that may develop. Prudential Mutual Fund Management,
Inc., the Fund's Manager, will be responsible for reporting any potential
or existing conflicts to the Trustees.
<PAGE>

C. For purposes of expressing an opinion on the financial statements of the
Fund, the methodology and procedures for calculating the net asset value
and dividends/distributions of the Fund's several classes and the proper
allocation of income and expenses among such classes will be examined
annually by the Fund's independent auditors who, in performing such
examination, shall consider the factors set forth in the relevant auditing
standards adopted, from time to time, by the American Institute of
Certified Public Accountants.

Dated: January 2, 1996