PRUDENTIAL ALLOCATION FUND, 485APOS, 1995-10-27

PRUDENTIAL ALLOCATION FUND
485APOS, 1995-10-27

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<PAGE>

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

Securities Act Registration No. 33-12531
Investment Company Act Registration No. 811-5055
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/

PRE-EFFECTIVE AMENDMENT NO. / /

POST-EFFECTIVE AMENDMENT NO. 16 /X/

AND/OR

REGISTRATION STATEMENT UNDER THE

INVESTMENT COMPANY ACT OF 1940 /X/

AMENDMENT NO. 18 /X/

(CHECK APPROPRIATE BOX OR BOXES)
--------------

PRUDENTIAL ALLOCATION 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 filed a notice for its fiscal year ended
July 31, 1995 on or about September 28, 1995.

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

<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- ------------------------------------------------------------------------ -------------------------------------------
<S> <C> <C> <C>
PART A
Item 1. Cover Page.................................................. Cover Page
Item 2. Synopsis.................................................... Fund Expenses
Item 3. Condensed Financial Information............................. Fund Expenses; Financial Highlights;
General Information
Item 4. General Description of Registrant........................... Cover Page; How the Fund Invests; General
Information
Item 5. Management of the Fund...................................... Financial Highlights; How the Fund is
Managed; General Information
Item 6. Capital Stock and Other Securities.......................... Taxes, Dividends and Distributions; General
Information
Item 7. Purchase of Securities Being Offered........................ Shareholder Guide; How the Fund Values its
Shares
Item 8. Redemption or Repurchase.................................... Shareholder Guide; 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; Organization and
Capitalization
Item 13. Investment Objectives and Policies.......................... Investment Objectives and Policies;
Investment Restrictions
Item 14. Management of the Fund...................................... Trustees and Officers; Manager; Distributor
Item 15. Control Persons and Principal Holders of Securities......... Not Applicable
Item 16. Investment Advisory and Other Services...................... Manager; Distributor; Custodian, Transfer
and Dividend Disbursing Agent and
Independent Accountants
Item 17. Brokerage Allocation and Other Practices.................... Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other Securities.......................... Not Applicable
Item 19. Purchase, Redemption and Pricing of Securities Being Purchase and Redemption of Fund Shares;
Offered..................................................... 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 of
this Registration Statement.
</TABLE>
<PAGE>
Prudential Allocation Fund

CLASS Z SHARES

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

Prospectus dated January 2, 1996

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Prudential Allocation Fund (the Fund) is an open-end, diversified, management
investment company comprised of two separate portfolios--the Balanced Portfolio
(formerly called the Conservatively Managed Portfolio) and the Strategy
Portfolio (the Portfolios). The investment objective of the Balanced Portfolio
is to achieve a high total investment return consistent with moderate risk. The
investment objective of the Strategy Portfolio is to achieve a high total
investment return consistent with relatively higher risk than the Balanced
Portfolio. While each Portfolio will seek to achieve its objective by investing
in a diversified portfolio of money market instruments, debt obligations and
equity securities (including securities convertible into equity securities), the
Portfolios will differ with respect to the proportions of investments in debt
and equity securities, the quality and maturity of debt securities purchased and
the price volatility of equity securities purchased. It is expected that the
Strategy Portfolio will offer investors a higher potential return with a
correspondingly higher risk of loss than the Balanced Portfolio. There can be no
assurance that the Portfolios' investment objectives will be achieved. See "How
the Fund Invests--Investment Objectives and Policies." The Fund's address is One
Seaport Plaza, New York, New York 10292, and its telephone number is (800)
225-1852.

Class Z shares are offered by the Balanced Portfolio exclusively for sale to the
Trustee of the Prudential Securities 401(k) Plan, a defined contribution plan
sponsored by Prudential 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
September 29, 1995 (the Retail Class Prospectus) which is a part hereof.

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

INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.

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

<PAGE>

FUND EXPENSES
(BALANCED PORTFOLIO)

<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS Z SHARES
----------------------
<S> <C>
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

ANNUAL FUND OPERATING EXPENSES CLASS Z SHARES*
(as a percentage of average net assets) ----------------------
<S> <C>
Management Fees.......................... .65%
12b-1 Fees............................... None
Other Expenses........................... .32
---
Total Fund Operating Expenses............ .97%
---
---
</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*............................................... $10 $31 $54 $169

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 July 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 Class Z shares of the Balanced Portfolio 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 Portfolio, such as Trustees' and professional fees, registration fees,
reports to shareholders and transfer agency and custodian fees.
<FN>

- ------------
* Estimated based on expenses expected to have been incurred if Class Z
shares had been in existence throughout the fiscal year ended July 31,
1995.
</TABLE>

2
<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 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 are offered exclusively for sale by the Balanced Portfolio 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 Balanced
Portfolio 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 of the Balanced
Portfolio 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.

3
<PAGE>

PRUDENTIAL ALLOCATION FUND
SUPPLEMENT DATED JANUARY 2, 1996 TO PROSPECTUS DATED
SEPTEMBER 29, 1995

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, of separate series or portfolios, the
Balanced Portfolio of which is divided into four classes of shares, designated
Class A, Class B, Class C and Class Z shares. Each class represents an interest
in the same assets of the Portfolio 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 and/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
Balanced Portfolio is offering four classes, designated Class A, Class B, Class
C and Class Z shares, and the Strategy Portfolio is offering three classes,
designated Class A, Class B and Class C 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 of a Portfolio
offered through the Prospectus in any advertisement of information including
performance data of the Portfolio.

<PAGE>

PRUDENTIAL ALLOCATION FUND
SUPPLEMENT DATED JANUARY 2, 1996 TO
STATEMENT OF ADDITIONAL INFORMATION DATED
SEPTEMBER 29, 1995

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 either
Portfolio of the Fund.

As of October 13, 1995, Prudential Securities was the record holder for other
beneficial owners of 11,725,273 Class A shares (or 51% of the outstanding Class
A shares), 13,183,281 Class B shares (or 35% of the outstanding Class B shares)
and 44,330 Class C shares (or 32% of the outstanding Class C shares) of the
Balanced Portfolio and 2,675,198 Class A shares (or 37% of the outstanding Class
A shares), 10,895,278 Class B shares (or 50% of the outstanding Class B shares)
and 14,936 Class C shares (or 54% of the outstanding Class C shares) of the
Strategy Portfolio. In the event of any meetings of shareholders, Prudential
Securities will forward, or cause the forwarding of, proxy materials to the
beneficial owners for which it is the record holder.

As of October 13, 1995, Prudential Bank & Trust C/F the IRA of Clarence A.
Lukeski, P.O. Box 2, Hamlin, PA 18427-0002 and Marvel Food Stores #3 Inc., 429
W. Lockeford Street, Lodi, CA 95240-2035 were the beneficial owners of 5.2% and
14.5% respectively, of the Class C outstanding voting securities of the Balanced
Portfolio. As of October 13, 1995, Prudential Bank & Trust Co. C/F the IRA of
Henry W. Anthony, RR1 Box 92, Fryeburg, ME 04037-9709, Steven N. Hendel, 7 Brown
Terrace, Cranford, NJ 07016-1501, Prudential Securities C/F Dennis Gushue IRA
DTD 12/29/94, P.O. Box 33418, Las Vegas, NV 89133-3418, Prudential Bank & Trust
C/F the IRA of Homer R. O'Connor, 2 Front Drive, Little Hocking, OH 45742-9710,
Kenzie Ramsey, 4281 Shafer Dr, Hamilton, OH 45011-2336 and Prudential
Securities, Inc. FA Allen C. Bellamy, 10610 Hanging Moss Trail, Charlotte, NC
28227 were the beneficial owners of 11.4%, 7.8%, 8.9%, 6.5%, 5.6% and 5.3%
respectively, of the Class C outstanding voting securities of the Strategy
Portfolio.

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

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

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
Balanced Portfolio 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 Portfolio 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 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 offered exclusively for sale to
the Trustee of the PSI 401(k) Plan. See "Distributor." Each class also has
separate exchange privileges. See "Shareholder Investment Account--Exchange
Privilege."

1
<PAGE>

SPECIMEN PRICE MAKE-UP

Under the current distribution arrangements between the Fund and the
Distributor, Class A shares are sold at a maximum sales charge of 5% and Class
B*, Class C* and Class Z** shares are sold at net asset value. Using the
Balanced Portfolio's net asset value at July 31, 1995, the maximum offering
price of the Balanced Portfolio's shares is as follows:

<TABLE>
<S> <C>
CLASS A
Net asset value and redemption price per Class A share................................... $ 12.04
Maximum sales charge (5% of offering price).............................................. .63
---------
Offering price to public................................................................. $ 12.67
---------
---------
CLASS B
Net asset value, offering price and redemption price per Class B share*.................. $ 12.00
---------
---------

CLASS C
Net asset value, offering price and redemption price per Class C share*.................. $ 12.00
---------
---------

CLASS Z
Net asset value, offering price and redemption price per Class Z share**................. $ 12.00
---------
---------
</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.

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

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 Equity Income Fund

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 Balanced Portfolio 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.

AGGREGATE TOTAL RETURN. The Balanced Portfolio 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.

YIELD. The Balanced Portfolio 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.

2
<PAGE>

PRUDENTIAL ALLOCATION FUND

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

PROSPECTUS DATED SEPTEMBER 29, 1995
- --------------------------------------------------------------------------------

Prudential Allocation Fund (the Fund) is an open-end, diversified, management
investment company comprised of two separate portfolios -- the Balanced
Portfolio (formerly called the Conservatively Managed Portfolio) and the
Strategy Portfolio (the Portfolios). The investment objective of the Balanced
Portfolio is to achieve a high total investment return consistent with moderate
risk. The investment objective of the Strategy Portfolio is to achieve a high
total investment return consistent with relatively higher risk than the Balanced
Portfolio. While each Portfolio will seek to achieve its objective by investing
in a diversified portfolio of money market instruments, debt obligations and
equity securities (including securities convertible into equity securities), the
Portfolios will differ with respect to the proportions of investments in debt
and equity securities, the quality and maturity of debt securities purchased and
the price volatility of equity securities purchased. It is expected that the
Strategy Portfolio will offer investors a higher potential return with a
correspondingly higher risk of loss than the Balanced Portfolio. There can be no
assurance that the Portfolios' investment objectives will be achieved. See "How
the Fund Invests -- Investment Objectives and Policies." The Fund's address is
One Seaport Plaza, New York, New York 10292, and its telephone 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 September 29, 1995, which information
is incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Fund at the
address or telephone number noted above.
- --------------------------------------------------------------------------------
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
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
FUND HIGHLIGHTS
The following summary is intended to highlight certain information contained
in this Prospectus and is qualified in its entirety by the more detailed
information appearing elsewhere herein.

WHAT IS PRUDENTIAL ALLOCATION FUND?
Prudential Allocation 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 ARE THE FUND'S INVESTMENT OBJECTIVES AND RISKS?
The Fund is comprised of two separate portfolios -- the Balanced Portfolio
(formerly called the Conservatively Managed Portfolio) and the Strategy
Portfolio. The investment objective of the Balanced Portfolio is to achieve a
high total investment return consistent with moderate risk. The investment
objective of the Strategy Portfolio is to achieve a high total investment return
consistent with relatively higher risk than the Balanced Portfolio. Each
Portfolio will seek to achieve its objective by investing in a diversified
portfolio of equity securities, debt obligations and money market instruments.
There can be no assurance that the Portfolios' objectives will be achieved. See
"How the Fund Invests -- Investment Objectives and Policies" at page 9.

RISK FACTORS AND SPECIAL CHARACTERISTICS
The Balanced Portfolio may invest up to 10% of its total assets in securities
rated Ba or lower by Moody's Investors Service (Moody's) or BB or lower by
Standard & Poor's Ratings Group (S&P). The Strategy Portfolio, under normal
conditions, will purchase debt securities of a lesser quality that will, in the
aggregate, have a weighted average maturity greater than that of the Balanced
Portfolio. The Strategy Portfolio may invest up to 25% of its total assets in
securities rated Ba or lower by Moody's or BB or lower by S&P. Each Portfolio
will also purchase equity securities of smaller, faster growing companies which
are subject to greater price volatility than equity securities of major,
established companies. See "How the Fund Invests -- Investment Objectives and
Policies" at page 9. In addition, each Portfolio may engage in various hedging
strategies, including utilizing derivatives. These activities may be considered
speculative and may result in higher risks and costs to the Portfolios. See "How
the Fund Invests -- Hedging Strategies -- Risks of Hedging Strategies" at page
16.

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 .65 of 1% of
the average net assets of each Portfolio. As of August 31, 1995, PMF served as
manager or administrator to 66 investment companies, including 38 mutual funds,
with aggregate assets of approximately $51 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 19.

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 20.

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 26 and "Shareholder Guide -- Shareholder
Services" at page 34.

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 22 and "Shareholder Guide -- How to Buy Shares of the
Fund" at page 26.

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 ongoing distribution-related
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 27.

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 29.

HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?

Each Portfolio 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 Portfolio at NAV without a sales charge unless you request that
they be paid to you in cash. See "Taxes, Dividends and Distributions" at page
23.

3
<PAGE>
FUND EXPENSES
(FOR EACH PORTFOLIO)

<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 within
decreasing by 1% annually to one year of purchase
1% in the fifth and sixth
years and 0% the seventh year*
Redemption Fees........................ None None None
Exchange Fee........................... None None None
</TABLE>

<TABLE>
<CAPTION>
BALANCED PORTFOLIO STRATEGY PORTFOLIO
------------------------------ --------------------------------
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
(as a percentage of average net assets) SHARES SHARES SHARES SHARES SHARES SHARES
-------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Management Fees......................................... .65% .65% .65% .65% .65% .65%
12b-1 Fees.............................................. .25++ 1.00 1.00 .25++ 1.00 1.00
Other Expenses.......................................... .32 .32 .39 .43 .43 .45
--- --- --- --- --- ---
Total Fund Operating Expenses........................... 1.22% 1.97% 2.04% 1.33% 2.08% 2.10%
--- --- --- --- --- ---
--- --- --- --- --- ---
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE (BALANCED PORTFOLIO) 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........................................................ $ 62 $ 87 $114 $190
Class B........................................................ $ 70 $ 92 $116 $201
Class C........................................................ $ 31 $ 64 $110 $237
You would pay the following expenses on the same investment,
assuming no redemption:
Class A........................................................ $ 62 $ 87 $114 $190
Class B........................................................ $ 20 $ 62 $106 $201
Class C........................................................ $ 21 $ 64 $110 $237
</TABLE>

<TABLE>
<CAPTION>
EXAMPLE (STRATEGY PORTFOLIO) 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.................................................................. $ 63 $ 90 $119 $202
Class B.................................................................. $ 71 $ 95 $122 $213
Class C.................................................................. $ 31 $ 66 $113 $243
You would pay the following expenses on the same investment, assuming no
redemption:
Class A.................................................................. $ 63 $ 90 $119 $202
Class B.................................................................. $ 21 $ 65 $112 $213
Class C.................................................................. $ 21 $ 66 $113 $243
The above example is based on data for the Fund's fiscal year ended July 31, 1995. THE EXAMPLES 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 each
Portfolio 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.
<FN>
- ---------------
* Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide -- Conversion Feature
-- Class B Shares."
+ 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 a Portfolio 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 of each Portfolio, the Distributor
has agreed to limit its distribution fees with respect to the Class A
shares of each Portfolio to no more than .25 of 1% of the average daily
net assets of the Class A shares for the fiscal year ending July 31, 1996.
Total Fund Operating Expenses without such limitation would be 1.27% and
1.38% of the Balanced Portfolio and Strategy Portfolio, respectively. See
"How the Fund is Managed -- Distributor."
</TABLE>

4
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
(CLASS A SHARES)

The following financial highlights, with respect to the five year period
ended July 31, 1995, 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 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.

BALANCED PORTFOLIO (D)

<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------
JANUARY
22,
1990 (A)
YEAR ENDED JULY 31, THROUGH
----------------------------------------------- JULY 31,
1995 1994 1993 1992 1991 1990
-------- ------- ------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................... $ 11.12 $ 11.75 $ 11.00 $ 10.73 $10.23 $ 9.83
-------- ------- ------- ------- ------ --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income................. .34 .33 .43 .44 .44 .26
Net realized and unrealized gain
(loss) on investment transactions.... 1.11 (.05) 1.16 .81 .73 .38
-------- ------- ------- ------- ------ --------
Total from investment operations.... 1.45 .28 1.59 1.25 1.17 .64
-------- ------- ------- ------- ------ --------
LESS DISTRIBUTIONS
Dividends from net investment
income............................... (.33) (.37) (.37) (.44) (.44) (.24)
Distributions paid to shareholders
from net realized gains on investment
transactions......................... (.20) (.54) (.47) (.54) (.23) --
-------- ------- ------- ------- ------ --------
Total distributions................. (.53) (.91) (.84) (.98) (.67) (.24)
-------- ------- ------- ------- ------ --------
Net asset value, end of period........ $ 12.04 $ 11.12 $ 11.75 $ 11.00 $10.73 $10.23
-------- ------- ------- ------- ------ --------
-------- ------- ------- ------- ------ --------
TOTAL RETURN (C):..................... 13.67% 2.39% 15.15% 12.29% 11.99% 6.59%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)....... $119,829 $37,512 $22,605 $10,944 $4,408 $1,944
Average net assets (000).............. $ 69,754 $29,875 $15,392 $ 7,103 $2,747 $1,047
Ratios to average net assets:
Expenses, including distribution
fees............................... 1.22% 1.23% 1.17% 1.29% 1.38% 1.29%(b)
Expenses, excluding distribution
fees............................... .97% 1.00% .97% 1.09% 1.18% 1.09%(b)
Net investment income............... 2.90% 2.84% 3.88% 3.97% 4.44% 5.04%(b)
Portfolio turnover rate............... 201% 108% 83% 105% 137% 106%
<FN>
- ----------------------------------
(a) Commencement of offering of Class A shares.
(b) Annualized.
(c) 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.
(d) Prior to September 29, 1995, the Balanced Portfolio was called the
Conservatively Managed Portfolio.
</TABLE>

5
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
(CLASS B AND CLASS C SHARES)

The following financial highlights, with respect to the five year period
ended July 31, 1995, 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 financial highlights
contain selected data for a Class B and Class C 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.

BALANCED PORTFOLIO (G)

<TABLE>
<CAPTION>
CLASS C
CLASS B -------
-------------------------------------------------------------------------------------- AUGUST
SEPTEMBER 1,
15, 1994(C)
1987(A) THROUGH
YEAR ENDED JULY 31, THROUGH JULY
-------------------------------------------------------------------------- JULY 31, 31,
1995 1994 1993 1992 1991 1990 1989 1988(B) 1995
-------- -------- -------- -------- -------- -------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period..... $ 11.09 $ 11.72 $ 10.98 $ 10.71 $ 10.22 $ 10.21 $ 9.43 $ 10.00 $11.12
-------- -------- -------- -------- -------- -------- -------- --------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income.... .26 .24 .34 .35 .36 .45 .52 .32 .21
Net realized and
unrealized gain (loss)
on investment
transactions............ 1.10 (.05) 1.16 .82 .73 .18 .73 (.62) 1.12
-------- -------- -------- -------- -------- -------- -------- --------- -------
Total from investment
operations............ 1.36 .19 1.50 1.17 1.09 .63 1.25 (.30) 1.33
-------- -------- -------- -------- -------- -------- -------- --------- -------
LESS DISTRIBUTIONS
Dividends from net
investment income....... (.25) (.28) (.29) (.36) (.37) (.52) (.47) (.25) (.25)
Distributions paid to
shareholders from net
realized gains on
investment
transactions............ (.20) (.54) (.47) (.54) (.23) (.10) -- (.02) (.20)
-------- -------- -------- -------- -------- -------- -------- --------- -------
Total distributions.... (.45) (.82) (.76) (.90) (.60) (.62) (.47) (.27) (.45)
-------- -------- -------- -------- -------- -------- -------- --------- -------
Net asset value, end of
period.................. $ 12.00 $ 11.09 $ 11.72 $ 10.98 $ 10.71 $ 10.22 $ 10.21 $ 9.43 $12.00
-------- -------- -------- -------- -------- -------- -------- --------- -------
-------- -------- -------- -------- -------- -------- -------- --------- -------
TOTAL RETURN (E):........ 12.79% 1.61% 14.27% 11.48% 11.13% 6.44% 13.73% (2.95)% 12.49%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)................... $392,291 $445,609 $321,831 $225,995 $162,281 $154,917 $132,631 $149,472 $3,046
Average net assets
(000)................... $409,419 $392,133 $267,340 $189,358 $149,907 $143,241 $139,009 $113,774 $ 920
Ratios to average net
assets: (f)
Expenses, including
distribution fees..... 1.97% 2.00% 1.97% 2.09% 2.16% 2.07% 2.09% 2.08%(d) 2.04%(d)
Expenses, excluding
distribution fees..... .97% 1.00% .97% 1.09% 1.16% 1.08% 1.08% 1.11%(d) 1.04%(d)
Net investment
income................ 2.34% 2.08% 3.04% 3.25% 3.55% 4.42% 5.47% 4.22%(d) 2.20%(d)
Portfolio turnover
rate.................... 201% 108% 83% 105% 137% 106% 137% 112% 201%
<FN>
- ----------------------------------
(a) Commencement of offering of Class B shares.
(b) On March 1, 1988, Prudential Mutual Fund Management, Inc. succeeded The
Prudential Insurance Company of America as manager of the Fund.
(c) Commencement of offering of Class C shares.
(d) Annualized.
(e) 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.
(f) Because of the recent commencement of its offering, 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.
(g) Prior to September 29, 1995, the Balanced Portfolio was called the
Conservatively Managed Portfolio.
</TABLE>

6
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
(CLASS A SHARES)

STRATEGY PORTFOLIO

<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------
JANUARY
22,
1990(A)
YEAR ENDED JULY 31, THROUGH
-------------------------------------------------------- JULY 31,
1995 1994 1993 1992 1991 1990
--------- --------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period....................... $ 11.60 $ 11.82 $ 12.03 $ 11.45 $ 10.50 $10.16
--------- --------- -------- -------- ---------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income......... .38 .30 .42 .35 .38 .25
Net realized and unrealized
gain on investment and
foreign currency
transactions................. 1.14 .05 .70 1.02 .98 .33
--------- --------- -------- -------- ---------- --------
Total from investment
operations................. 1.52 .35 1.12 1.37 1.36 .58
--------- --------- -------- -------- ---------- --------
LESS DISTRIBUTIONS
Dividends from net investment
income....................... (.30) (.22) (.37) (.37) (.35) (.24)
Dividends in excess of net
investment income............ -- (.01) -- -- -- --
Distributions paid to
shareholders from net
realized gains on investment
and foreign currency
transactions................. (.34) (.34) (.96) (.42) (.06) --
--------- --------- -------- -------- ---------- --------
Total distributions......... (.64) (.57) (1.33) (.79) (.41) (.24)
--------- --------- -------- -------- ---------- --------
Net asset value, end of
period....................... $ 12.48 $ 11.60 $ 11.82 $ 12.03 $ 11.45 $10.50
--------- --------- -------- -------- ---------- --------
--------- --------- -------- -------- ---------- --------
TOTAL RETURN(C):.............. 13.95% 2.88% 10.02% 12.36% 13.42% 5.83%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)........................ $ 87,081 $ 32,485 $ 28,641 $ 20,378 $ 10,765 $5,073
Average net assets (000)...... $ 57,020 $ 30,634 $ 24,216 $ 15,705 $ 6,694 $2,928
Ratios to average net assets:
Expenses, including
distribution fees.......... 1.33% 1.26% 1.21% 1.26% 1.33% 1.51%(b)
Expenses, excluding
distribution fees.......... 1.08% 1.03% 1.01% 1.06% 1.13% 1.26%(b)
Net investment income....... 3.34% 2.52% 3.61% 3.05% 3.89% 4.58%(b)
Portfolio turnover rate....... 180% 96% 145% 241% 189% 159%
<FN>
- ----------------------------------
(a) Commencement of offering of Class A shares.
(b) Annualized.
(c) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
</TABLE>

7
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
(CLASS B AND CLASS C SHARES)

The following financial highlights, with respect to the five year period
ended July 31, 1995, 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 financial highlights
contain selected data for a Class B and Class C 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.

STRATEGY PORTFOLIO

<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------------------------ CLASS C
SEPTEMBER ----------
15, AUGUST 1,
1987 (A) 1994 (C)
YEAR ENDED JULY 31, THROUGH THROUGH
---------------------------------------------------------------- JULY 31, JULY 31,
1995 1994 1993 1992 1991 1990 1989 1988 (B) 1995
------- ------- ------- ------- ------- ------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of
period............ $ 11.54 $ 11.79 $ 12.01 $ 11.43 $ 10.49 $ 10.85 $ 9.52 $10.00 $11.57
------- ------- ------- ------- ------- ------- ---------- --------- ----------
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income............ .20 .21 .34 .26 .30 .37 .42(g) .23(g) .25
Net realized and
unrealized gain on
investment and
foreign currency
transactions...... 1.22 .05 .70 1.02 .97 .03 1.30 (.53) 1.14
------- ------- ------- ------- ------- ------- ---------- --------- ----------
Total from
investment
operations...... 1.42 .26 1.04 1.28 1.27 .40 1.72 (.30) 1.39
------- ------- ------- ------- ------- ------- ---------- --------- ----------
LESS DISTRIBUTIONS
Dividends from net
investment
income............ (.21) (.16) (.30) (.28) (.27) (.40) (.39) (.18) (.21)
Dividends in excess
of net investment
income............ -- (.01) -- -- -- -- -- -- --
Distributions paid
to shareholders
from net realized
gains on
investment and
foreign currency
transactions...... (.34) (.34) (.96) (.42) (.06) (.36) -- -- (.34)
------- ------- ------- ------- ------- ------- ---------- --------- ----------
Total
distributions.... (.55) (.51) (1.26) (.70) (.33) (.76) (.39) (.18) (.55)
------- ------- ------- ------- ------- ------- ---------- --------- ----------
Net asset value,
end of period..... $ 12.41 $ 11.54 $ 11.79 $ 12.01 $ 11.43 $ 10.49 $10.85 $9.52 $12.41
------- ------- ------- ------- ------- ------- ---------- --------- ----------
------- ------- ------- ------- ------- ------- ---------- --------- ----------
TOTAL RETURN
(E):.............. 13.05% 2.11% 9.21% 11.53% 12.49% 3.59% 18.53% (2.92)% 12.75%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000)...... $278,714 $351,140 $357,287 $314,771 $219,983 $176,078 $62,651 $55,671 $ 289
Average net assets
(000)............. $307,439 $362,579 $339,225 $267,525 $190,913 $127,360 $57,326 $44,717 $ 170
Ratios to average
net assets:(f)
Expenses,
including
distribution
fees............ 2.08% 2.03% 2.01% 2.06% 2.11% 2.10% 2.33%(g) 2.40%(g)/(d) 2.10%(d)
Expenses,
excluding
distribution
fees............ 1.08% 1.03% 1.01% 1.06% 1.11% 1.14% 1.34%(g) 1.43%(g)/(d) 1.10%(d)
Net investment
income.......... 1.77% 1.77% 2.79% 2.27% 2.95% 3.61% 4.26%(g) 3.13%(g)/(d) 2.27%(d)
Portfolio turnover
rate.............. 180% 96% 145% 241% 189% 159% 132% 93% 180%
<FN>
- ----------------------------------
(a) Commencement of offering of Class B shares.

(b) On March 1, 1988, Prudential Mutual Fund Management, Inc. succeeded The
Prudential Insurance Company of America as manager of the Fund.

(d) Annualized.

(e) 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.

(f) Because of the recent commencement of its offering, 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.

(g) Net of expense subsidy or reimbursement.
</TABLE>

8
<PAGE>
HOW THE FUND INVESTS

INVESTMENT OBJECTIVES AND POLICIES

THE FUND IS COMPRISED OF TWO SEPARATE DIVERSIFIED PORTFOLIOS -- THE BALANCED
PORTFOLIO (FORMERLY CALLED THE CONSERVATIVELY MANAGED PORTFOLIO) AND THE
STRATEGY PORTFOLIO -- EACH OF WHICH IS, IN EFFECT, A SEPARATE FUND ISSUING ITS
OWN SHARES. THE INVESTMENT OBJECTIVE OF THE BALANCED PORTFOLIO IS TO ACHIEVE A
HIGH TOTAL INVESTMENT RETURN CONSISTENT WITH MODERATE RISK. THE INVESTMENT
OBJECTIVE OF THE STRATEGY PORTFOLIO IS TO ACHIEVE A HIGH TOTAL INVESTMENT RETURN
CONSISTENT WITH RELATIVELY HIGHER RISK THAN THE BALANCED PORTFOLIO. THERE CAN BE
NO ASSURANCE THAT SUCH OBJECTIVES WILL BE ACHIEVED. See "Investment Objectives
and Policies" in the Statement of Additional Information.

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

EACH PORTFOLIO PURSUES ITS OBJECTIVE THROUGH THE INVESTMENT POLICIES DESCRIBED
BELOW. WHILE EACH PORTFOLIO WILL SEEK TO ACHIEVE ITS OBJECTIVE BY INVESTING IN A
DIVERSIFIED PORTFOLIO OF EQUITY SECURITIES (INCLUDING SECURITIES CONVERTIBLE
INTO EQUITY SECURITIES), DEBT OBLIGATIONS AND MONEY MARKET INSTRUMENTS, THE
PORTFOLIOS WILL DIFFER WITH RESPECT TO THE DEGREE OF RISK INVOLVED. THE BALANCED
PORTFOLIO WILL BE SUBJECT TO MODERATE RISK, IN THE OPINION OF THE FUND'S
INVESTMENT ADVISER, AND THE STRATEGY PORTFOLIO WILL BE SUBJECT TO RELATIVELY
HIGHER RISK. These differences in risks will be evidenced in the proportions of
investments in debt and equity securities, the quality and maturity of debt
securities purchased and the price volatility and the type of issuer of equity
securities. The following table summarizes the differences in the types of
investments in which each Portfolio may invest under normal circumstances in
seeking to achieve its objective:

<TABLE>
<CAPTION>
BALANCED STRATEGY
DEBT SECURITIES PORTFOLIO PORTFOLIO
- ------------------ ----------------------------- -----------------------------
<S> <C> <C>
Quality Investment grade debt Investment grade debt
securities AND up to 10% of securities AND up to 25% of
its assets in debt securities its assets in debt securities
rated below investment grade rated below investment grade
Percent of At least 25% of its assets in No specific limitation
Portfolio's fixed-income senior
assets securities
Average duration Less than 10 years; weighted More than 10 years; weighted
average maturity will exceed average maturity will exceed
the average duration the average duration

EQUITY SECURITIES
- ------------------
Type of issuer Common stock and common stock Common stock and common stock
equivalents of major, equivalents of major,
established companies AND established companies AND a
smaller, faster growing greater proportion of its
companies assets in smaller, faster
growing companies
</TABLE>

Lower-rated debt securities, as well as debt securities with longer maturities
or with a longer duration, typically provide a higher return and are subject to
a greater degree of risk of loss and price volatility than higher-rated
securities and securities with shorter maturities or a shorter duration. Equity
securities of smaller companies are generally subject to a greater degree of
risk and price

9
<PAGE>
volatility than those of major companies. Finally, it is anticipated that the
money market instruments held by the Balanced Portfolio will be substantially of
the same quality and have generally the same maturities as those held by the
Strategy Portfolio. A more complete description of the Portfolios' investment
policies is set forth below.

The Fund's investment adviser determines the allocation of assets among the
different investment vehicles available (asset mix) to each Portfolio on a
regular basis (at least monthly). The determination of asset mix will result in
decisions with respect to: (1) the proportion of investments among the various
financial instruments available (money market instruments, bonds and other
indebtedness and equity securities, including convertible securities); (2) the
distribution of debt securities among short, intermediate and long-term
maturities; and (3) the distribution of equity and convertible securities
between those of major, established companies and those of smaller, faster
growing companies, the prices of which are typically more volatile. The
determination of asset mix for each Portfolio is based on technical, qualitative
and fundamental analyses and forecasts made by the investment adviser,
prevailing interest rates and general economic factors. In addition, the
investment adviser considers the relative risk objectives of the Portfolios in
making asset mix determinations.

BALANCED PORTFOLIO

THE BALANCED PORTFOLIO WILL INVEST IN A DIVERSIFIED PORTFOLIO COMPRISED
GENERALLY OF EQUITY SECURITIES, DEBT OBLIGATIONS AND MONEY MARKET INSTRUMENTS.
The specific asset mix of the Portfolio will be determined by the Fund's
investment adviser. Under normal circumstances, the Portfolio will maintain at
least 25% of the value of its assets in fixed-income securities. Although there
is no other limitation on the percentage of assets invested in the various
investment categories (money market instruments, debt obligations and equity
securities), it is anticipated that the Balanced Portfolio will generally have a
smaller percentage of its assets invested in equity securities and a larger
percentage invested in money market instruments than the Strategy Portfolio. In
addition, the average duration of the debt securities purchased by the Balanced
Portfolio will generally be shorter than that of the debt securities purchased
by the Strategy Portfolio. (Duration is a measure of the price sensitivity of a
debt instrument to interest rate changes; it incorporates a bond's yield, coupon
interest payments, final maturity, call and put features and prepayment exposure
into one measure.) The weighted average maturity of the debt securities
purchased by the Balanced Portfolio will generally be shorter than that of the
Strategy Portfolio and a greater proportion of the equity securities held by the
Balanced Portfolio will be those of larger, more mature companies, which are
subject to less price volatility, than those held by the Strategy Portfolio.
Based upon its asset mix, the Balanced Portfolio is expected to be subject to a
relatively lower risk of loss (and offer a correspondingly lower potential
return) than the Strategy Portfolio.

MONEY MARKET INSTRUMENTS. The Balanced Portfolio may invest in the following
money market instruments generally maturing in one year or less:

1. U.S. Treasury bills and other obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.

2. Obligations (including certificates of deposit, bankers' acceptances and
time deposits) of commercial banks, savings banks and savings and loan
associations having, at the time of acquisition by the Portfolio of such
obligations, total assets of not less than $1 billion or its equivalent. The
Portfolio may invest in obligations of domestic banks, foreign banks, and
branches and offices thereof. The term "certificates of deposit" includes both
Eurodollar certificates of deposit, for which there is generally a market, and
Eurodollar time deposits, for which there is generally not a market.
"Eurodollars" are dollars deposited in banks outside the United States.

3. Commercial paper, variable amount demand master notes, bills, notes and
other obligations issued by a U.S. company, a foreign company or a foreign
government, its agencies, instrumentalities or political subdivisions,
maturing in one year or less, denominated in U.S. dollars, and, at the date of
investment, rated at least A or A-2 by Standard & Poor's Ratings Group (S&P)
or A or Prime-2 by Moody's Investors Service (Moody's), or, if not rated,
issued by an entity having an outstanding unsecured debt issue rated at least
A or A-2 by S&P, or A or Prime-2 by Moody's. If such obligations are
guaranteed or supported by a letter of credit issued by a bank, the bank
(including a foreign bank) must meet the requirements set forth in

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paragraph (2) above. If such obligations are guaranteed or insured by an
insurance company or other non-bank entity, the insurance company or other
non-bank entity must represent a credit of high quality, as determined by the
Fund's investment adviser under the supervision of the Fund's Trustees.

DEBT OBLIGATIONS. IN ADDITION TO MONEY MARKET INSTRUMENTS DESCRIBED ABOVE,
THE BALANCED PORTFOLIO MAY INVEST IN LONGER-TERM DEBT SECURITIES. It is
anticipated that the average duration of the debt securities held by the
Portfolio will not exceed 10 years. Duration is a measure of the expected life
of a fixed-income security on a present value basis. Duration takes the length
of time intervals between the present time and the time that the interest and
principal payments are scheduled or, in the case of a mortgage-backed,
asset-backed or callable bond, EXPECTED to be received, and weights them by the
present values of the cash to be received at each future point in time. For any
fixed-income security with interest payments occurring prior to the payment of
principal, duration is ordinarily less than maturity. In general, all other
things being equal, the lower the stated or coupon rate of interest of a
fixed-income security, the longer the duration of the security; conversely, the
higher the stated or coupon rate of interest of a fixed-income security, the
shorter the duration of the security. There are some situations where even the
standard duration calculation does not properly reflect the interest rate
exposure of a security. In these and other similar situations, the investment
adviser will use more sophisticated analytical techniques that incorporate the
economic life of a security into the determination of its interest rate
exposure. The computation of duration is based on estimated rather than known
factors. Thus, there can be no assurance that the average duration will at all
times be achieved by the Portfolio.

Debt securities acquired by the Portfolio will generally be rated at the time
of purchase within the four highest categories determined by S&P, Moody's or a
similar nationally recognized rating service, or, if not rated, be of comparable
quality in the opinion of the investment adviser. However, the Portfolio may
invest up to 10% of its total assets in securities rated at the time of purchase
BB or Ba or lower by S&P or Moody's, respectively (or a similar nationally
recognized rating service), or, if not rated, of comparable quality in the
opinion of the investment adviser, all of which are commonly known as "junk
bonds." The Portfolio will not invest more than 35% of its net assets in "junk
bonds." See "Investment Policies Applicable to All Portfolios -- Risks of
Investing in High Yield Securities" below.

THE PORTFOLIO MAY ALSO INVEST IN OBLIGATIONS OF THE U.S. GOVERNMENT AND ITS
AGENCIES AND INSTRUMENTALITIES. These securities include U.S. Treasury
obligations (including bills, notes and bonds) and securities issued or
guaranteed by U.S. Government agencies (such as the Export-Import Bank of the
United States, Federal Housing Administration and Government National Mortgage
Association) or by U.S. Government instrumentalities (such as the Federal Home
Loan Bank, Federal Intermediate Credit Banks and Federal Land Bank). Except for
U.S. Treasury securities, these obligations, even those that are guaranteed by
federal agencies or instrumentalities, may or may not be backed by the "full
faith and credit" of the United States. In the case of securities not backed by
the full faith and credit of the United States, the Portfolio must look
principally to the agency issuing or guaranteeing the obligation for ultimate
repayment, and may not be able to assert a claim against the United States
itself in the event the agency or instrumentality does not meet its commitments.

THE PORTFOLIO MAY INVEST IN MORTGAGE-BACKED SECURITIES INCLUDING THOSE
REPRESENTING AN UNDIVIDED OWNERSHIP INTEREST IN A POOL OF MORTGAGES, E.G., GNMA,
FNMA AND FHLMC CERTIFICATES. The mortgages backing these securities include
conventional thirty-year fixed rate mortgages, fifteen-year fixed rate
mortgages, graduated payment mortgages and adjustable rate mortgages. The U.S.
Government or the issuing agency guarantees the payment of interest and
principal of these securities; however, the guarantees do not extend to the
securities' yield or value, which are likely to vary inversely with fluctuations
in interest rates, nor do the guarantees extend to the yield or value of the
Portfolio's shares. These certificates are in most cases "pass-through"
instruments, through which the holder receives a share of all interest and
principal payments from the mortgages underlying the certificate, net of certain
fees. Because the prepayment characteristics of the underlying mortgages vary,
it is not possible to predict accurately the average life or realized yield of a
particular issue of pass-through certificates. Mortgage-backed securities are
often subject to more rapid repayment than their stated maturity date would
indicate as a result of the pass-through of prepayments of principal on the
underlying mortgage obligations. While the timing of prepayments of graduated
payment mortgages differs somewhat from that of conventional mortgages, the
prepayment experience of graduated payment mortgages is basically the same as
that of the conventional mortgages of the same maturity dates over the life of
the

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<PAGE>
pool. During periods of declining interest rates, prepayment of mortgages
underlying mortgage-backed securities can be expected to accelerate. When the
mortgage obligations are prepaid, the Portfolio reinvests the prepaid amounts in
securities the yields of which reflect interest rates prevailing at the time.
Therefore, the Portfolio's ability to maintain a portfolio containing high-
yielding mortgage-backed securities will be adversely affected to the extent
that prepayments of mortgages must be reinvested in securities which have lower
yields than the prepaid mortgages. Moreover, prepayments of mortgages which
underlie securities purchased at a premium could result in capital losses.

THE PORTFOLIO MAY ALSO INVEST IN ASSET-BACKED SECURITIES. Through the use of
trusts and special purpose corporations, various types of assets, primarily
automobile and credit card receivables and home equity loans, have been
securitized in pass-through structures similar to the mortgage pass-through
structures or in a pay-through structure similar to the collateralized mortgage
structure. The Portfolio may invest in these and other types of asset-backed
securities that may be developed in the future. Asset-backed securities present
certain risks that are not presented by mortgage-backed securities. Primarily,
these securities do not have the benefit of the same security interest in the
related collateral. Credit card receivables are generally unsecured and debtors
are entitled to the protection of a number of state and federal consumer credit
laws, some of which may reduce the ability to obtain full payment. In the case
of automobile receivables, the security interests in the underlying automobiles
are often not transferred when the pool is created, with the resulting
possibility that the collateral could be resold. In general, these types of
loans are of shorter average life than mortgage loans and are less likely to
have substantial prepayments.

EQUITY SECURITIES. THE EQUITY SECURITIES IN WHICH THE BALANCED PORTFOLIO WILL
PRIMARILY INVEST ARE COMMON STOCKS OF MAJOR, ESTABLISHED CORPORATIONS WHICH, IN
THE OPINION OF THE INVESTMENT ADVISER, HAVE PROSPECTS OF PRICE APPRECIATION
GREATER THAN THAT OF THE S&P 500 STOCK INDEX. The Portfolio may also invest in
preferred stocks or debt securities that either have warrants attached or are
otherwise convertible into such common stocks. See "Investment Policies
Applicable to All Portfolios -- Convertible Securities." In addition, the
Portfolio may invest in common stocks and common stock equivalents of smaller,
faster growing companies, although to a lesser extent than the Strategy
Portfolio.

OTHER. The Balanced Portfolio may also make other kinds of investments as
described under "Investment Policies Applicable to All Portfolios" below.

STRATEGY PORTFOLIO

THE STRATEGY PORTFOLIO WILL INVEST IN A DIVERSIFIED PORTFOLIO OF EQUITY
SECURITIES, DEBT OBLIGATIONS AND MONEY MARKET INSTRUMENTS. The specific asset
mix of the Portfolio will be determined by the Fund's investment adviser.
Although there is no limitation on the percentage of assets invested in the
various investment categories (money market instruments, debt obligations and
equity securities), it is anticipated that the Strategy Portfolio will generally
have a greater percentage of its assets invested in long-term bonds and equity
securities than the Balanced Portfolio. In addition, under normal conditions the
debt securities purchased by the Strategy Portfolio will be of lesser quality
and will, in the aggregate, have an average duration that is higher than that of
the Balanced Portfolio and a greater proportion of the equity securities will be
of smaller, faster growing companies and subject to greater price volatility
than those of the Balanced Portfolio. The Strategy Portfolio is expected to be
subject to a relatively higher risk of loss (and offer a correspondingly higher
potential return) than the Balanced Portfolio.

MONEY MARKET INSTRUMENTS. The Strategy Portfolio may invest in the same money
market instruments permitted for the Balanced Portfolio.

DEBT OBLIGATIONS. IN ADDITION TO MONEY MARKET INSTRUMENTS DESCRIBED ABOVE,
THE STRATEGY PORTFOLIO MAY INVEST IN LONG-TERM DEBT SECURITIES. It is
anticipated that the average duration of the debt securities held by the
Portfolio in the aggregate will normally be greater than 10 years. See "Balanced
Portfolio -- Debt Obligations" above. Such securities will generally be rated at
the time of purchase within the four highest categories determined by S&P,
Moody's or a similar nationally recognized rating service, or, if not rated,
will be of comparable quality in the opinion of the investment adviser. However,
the Portfolio may invest up to 25% of its total assets in securities rated at
the time of purchase BB or Ba or lower by S&P or Moody's, respectively

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<PAGE>

(or a similar nationally recognized rating service), or, if not rated, of
comparable quality in the opinion of the investment adviser, all of which are
commonly known as "junk bonds." The Portfolio will not invest more than 35% of
its net assets in "junk bonds." See "Investment Policies Applicable to All
Portfolios -- Risks of Investing in High Yield Securities" below.

THE PORTFOLIO MAY INVEST IN OBLIGATIONS OF THE U.S. GOVERNMENT AND ITS
AGENCIES AND INSTRUMENTALITIES AND IN ASSET-BACKED SECURITIES. See "Balanced
Portfolio -- Debt Obligations" above.

EQUITY SECURITIES. LIKE THE BALANCED PORTFOLIO, THE STRATEGY PORTFOLIO MAY
INVEST IN COMMON STOCKS OF MAJOR, ESTABLISHED CORPORATIONS WHICH, IN THE OPINION
OF THE INVESTMENT ADVISER, HAVE PROSPECTS OF PRICE APPRECIATION GREATER THAN
THAT OF THE S&P 500 STOCK INDEX. THE STRATEGY PORTFOLIO MAY ALSO INVEST A
GREATER PROPORTION OF ITS ASSETS IN COMMON STOCKS OF SMALLER, FASTER GROWING
COMPANIES. These equity securities will typically have more volatile market
values and thus may be subject to a greater risk of decline in market value than
the equity securities of major, established corporations.

The Portfolio may invest in preferred stocks or debt securities that either
have warrants attached or are otherwise convertible into such common stocks.

OTHER. The Strategy Portfolio may also make other kinds of investments as
described under "Investment Policies Applicable to All Portfolios" below.

INVESTMENT POLICIES APPLICABLE TO ALL PORTFOLIOS

GENERAL. IN PURSUIT OF ITS INVESTMENT OBJECTIVE, EACH PORTFOLIO MAY (I)
INVEST IN CONVERTIBLE SECURITIES, (II) PURCHASE AND WRITE (I.E., SELL) OPTIONS
ON EQUITY SECURITIES AND STOCK INDICES FOR HEDGING PURPOSES AND TO REALIZE
INCOME, (III) PURCHASE AND SELL FINANCIAL AND STOCK INDEX FUTURES CONTRACTS AND
PURCHASE AND WRITE (I.E., SELL) OPTIONS THEREON FOR HEDGING PURPOSES OR, WITH
RESPECT TO WRITING OPTIONS ON FUTURES CONTRACTS, TO REALIZE A GREATER RETURN,
(IV) PURCHASE SECURITIES ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS, (V) MAKE
SHORT SALES AGAINST-THE-BOX, (VI) INVEST IN FOREIGN SECURITIES AND (VII) ENTER
INTO REPURCHASE AGREEMENTS.

CONVERTIBLE SECURITIES. EACH PORTFOLIO MAY INVEST IN PREFERRED STOCKS OR DEBT
SECURITIES THAT EITHER HAVE WARRANTS ATTACHED OR ARE OTHERWISE CONVERTIBLE INTO
COMMON STOCKS. A convertible security is typically a corporate bond (or
preferred stock) that may be converted at a stated price within a specified
period of time into a specified number of shares of common stock of the same or
a different issuer. Convertible securities are generally senior to common stocks
in a corporation's capital structure but are usually subordinated to similar
non-convertible 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 non-convertible security), a convertible security
also affords an investor the opportunity, through its conversion feature, to
participate in capital appreciation dependent upon a market price advance in the
convertible security's underlying common stock. Convertible securities also
include preferred stock which is technically an equity security.

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.

FOREIGN SECURITIES. EACH PORTFOLIO 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, Yankee bonds (I.E., U.S.

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<PAGE>
dollar denominated bonds issued by foreign companies in the United States) and
global bonds which are U.S. dollar denominated 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 or quality.

INVESTING IN SECURITIES OF FOREIGN COMPANIES AND COUNTRIES INVOLVES CERTAIN
CONSIDERATIONS AND RISKS WHICH ARE NOT TYPICALLY ASSOCIATED WITH INVESTING IN
U.S. GOVERNMENT SECURITIES AND SECURITIES OF DOMESTIC COMPANIES. There may be
less publicly available information about a foreign issuer than a domestic one,
and foreign companies are not generally subject to uniform accounting, auditing
and financial standards and requirements comparable to those applicable to U.S.
companies. There may also be less government supervision and regulation of
foreign securities exchanges, brokers and listed companies than exists in the
United States. Interest and dividends paid by foreign issuers may be subject to
withholding and other foreign taxes, which may decrease the net return on such
investments as compared to dividends and interest paid to the Portfolio by
domestic companies or the U.S. Government. There may be the possibility of
expropriations, seizure or nationalization of foreign deposits, confiscatory
taxation, political, economic or social instability or diplomatic developments
which could affect assets of the Portfolio held in foreign countries. Finally,
the establishment of exchange controls or other foreign governmental laws or
restrictions could adversely affect the payment of obligations.

To the extent a Portfolio's currency exchange transactions do not fully
protect the Portfolio against adverse changes in currency exchange rates,
decreases in the value of currencies of the foreign countries in which the
Portfolio will invest relative to the U.S. dollar will result in a corresponding
decrease in the U.S. dollar value of the Portfolio's assets denominated in those
currencies (and possibly a corresponding increase in the amount of securities
required to be liquidated to meet distribution requirements). Conversely,
increases in the value of currencies of the foreign countries in which a
Portfolio invests relative to the U.S. dollar will result in a corresponding
increase in the U.S. dollar value of the Portfolio's assets (and possibly a
corresponding decrease in the amount of securities to be liquidated).

There may be less publicly available information about foreign companies and
governments compared to reports and ratings published about U.S. companies.
Foreign securities markets have substantially less volume than the New York
Stock Exchange and securities of some foreign companies are less liquid and more
volatile than securities of comparable U.S. companies. Brokerage commissions and
other transaction costs on foreign securities exchanges are generally higher
than in the United States.

RISKS OF INVESTING IN HIGH YIELD SECURITIES

Securities rated Baa by Moody's, although considered to be investment grade,
lack outstanding investment characteristics and in fact have speculative
characteristics as well. Securities rated BB or Ba or lower by S&P or Moody's,
respectively, are generally considered to be predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal. The prices
of debt securities vary inversely with interest rates. In addition, lower-rated
debt obligations typically provide a higher yield than higher-rated obligations
of similar maturity. However, lower-rated obligations are also subject to a
greater degree of risk with respect to the ability of the issuer to meet the
principal and interest payments on the obligations and may also be subject to
greater price volatility due to the market's perceptions of the creditworthiness
of the issuer. A description of security ratings is contained in Appendix A.

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 Portfolios. See "Investment
Objectives and Policies -- Risk Factors Relating to High Yield Securities" in
the Statement of Additional Information.

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<PAGE>
HEDGING STRATEGIES

EACH PORTFOLIO MAY ENGAGE IN VARIOUS PORTFOLIO STRATEGIES, INCLUDING UTILIZING
DERIVATIVES, TO REDUCE CERTAIN RISKS OF ITS INVESTMENTS AND TO ATTEMPT TO
ENHANCE RETURN. THESE STRATEGIES CURRENTLY INCLUDE THE USE OF OPTIONS, FORWARD
CURRENCY EXCHANGE CONTRACTS AND FUTURES CONTRACTS AND OPTIONS THEREON. Each
Portfolio'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 Objectives and Policies" in
the Statement of Additional Information. New financial products and risk
management techniques continue to be developed, and each Portfolio may use these
new investments and techniques to the extent consistent with its investment
objective and policies.

OPTIONS TRANSACTIONS

EACH PORTFOLIO MAY PURCHASE AND WRITE (I.E., SELL) PUT AND CALL OPTIONS ON
SECURITIES AND CURRENCIES THAT ARE TRADED ON SECURITIES EXCHANGES OR IN THE
OVER-THE-COUNTER MARKET TO ENHANCE RETURN OR TO HEDGE THEIR PORTFOLIOS. These
options will be on equity securities, financial indices (E.G., S&P 500) and
foreign currencies. Each Portfolio 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 purchase call options in an effort to protect against an
increase in the price of securities it intends to purchase. Each Portfolio may
also purchase put and call options to offset previously written put and call
options of the same series. See "Investment Objectives and Policies -- Risks of
Transactions in Options" 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 a Portfolio writes a call option, the
Portfolio 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 exercise price. A Portfolio
might, therefore, be obligated to purchase the underlying securities for more
than their current market price.

EACH PORTFOLIO WILL WRITE ONLY "COVERED" OPTIONS. An option is covered if, so
long as the Portfolio 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 with a value sufficient
at all times to cover its obligations. See "Investment Objectives and Policies
- -- Options on Stock Indices" in the Statement of Additional Information.

THERE IS NO LIMITATION ON THE AMOUNT OF CALL OPTIONS THE PORTFOLIOS MAY WRITE.
The Fund has undertaken with certain state securities commissions that, so long
as shares of the Fund are registered in those states, neither Portfolio will
purchase (i) put options on stocks not held by the Portfolio, (ii) put options
on indices or (iii) call options on stock or stock indices if, after any such
purchase, the total premiums paid for such options would exceed 10% of the
Portfolio's total assets; provided, however, that the Portfolio may purchase put
options on stocks held by the Portfolio if after such purchase the aggregate
premiums paid for such options do not exceed 20% of the Portfolio's total net
assets. In addition, the aggregate value of the securities that are the subject
of the put options will not exceed 50% of the Portfolio's net assets.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

EACH PORTFOLIO 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. Each Portfolio 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

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<PAGE>
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.

EACH PORTFOLIO'S DEALINGS IN FORWARD CONTRACTS WILL BE LIMITED TO HEDGING
INVOLVING EITHER SPECIFIC TRANSACTIONS OR PORTFOLIO POSITIONS. Transaction
hedging is the purchase or sale of a forward contract with respect to specific
receivables or payables of the Portfolio generally arising in connection with
the purchase or sale of its portfolio securities and accruals of interest or
dividends receivable and Portfolio 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 currency bearing a substantial correlation to
the value of that currency (cross hedge). Although there are no limits on the
number of forward contracts which a Portfolio may enter into, a Portfolio 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
forward currency) of the securities held in its portfolio denominated or quoted
in, or currently convertible into, such currency.

FUTURES CONTRACTS AND OPTIONS THEREON

EACH PORTFOLIO MAY PURCHASE AND SELL FINANCIAL FUTURES CONTRACTS AND OPTIONS
THEREON WHICH ARE TRADED ON A COMMODITIES EXCHANGE OR BOARD OF TRADE FOR CERTAIN
HEDGING, RETURN ENHANCEMENT AND RISK MANAGEMENT PURPOSES IN ACCORDANCE WITH
REGULATIONS OF THE COMMODITY FUTURES TRADING COMMISSION. These futures contracts
and options thereon will be on interest-bearing securities, financial indices
and interest rate indices. A financial futures contract is an agreement to
purchase or sell an agreed amount of securities at a set price for delivery in
the future.

A PORTFOLIO MAY NOT PURCHASE OR SELL FUTURES CONTRACTS AND OPTIONS THEREON FOR
RETURN ENHANCEMENT OR RISK MANAGEMENT PURPOSES IF, IMMEDIATELY THEREAFTER, THE
SUM OF THE AMOUNT OF INITIAL MARGIN DEPOSITS ON THE PORTFOLIO'S FUTURES
POSITIONS AND PREMIUMS PAID FOR OPTIONS THEREON WOULD EXCEED 5% OF THE
LIQUIDATION VALUE OF THE PORTFOLIO'S TOTAL ASSETS. ALTHOUGH THERE ARE NO OTHER
LIMITS APPLICABLE TO FUTURES CONTRACTS AND OPTIONS THEREON, THE VALUE OF ALL
FUTURES CONTRACTS AND OPTIONS THEREON SOLD WILL NOT EXCEED THE TOTAL MARKET
VALUE OF THE PORTFOLIO.

A PORTFOLIO'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 there is 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 Portfolio. 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 each Portfolio's ability
to purchase or sell certain futures contracts or options thereon on any
particular day.

EACH PORTFOLIO'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
COMPANY. See "Taxes" in the Statement of Additional Information.

RISKS OF HEDGING STRATEGIES

PARTICIPATION IN THE OPTIONS OR FUTURES MARKETS AND IN CURRENCY EXCHANGE
TRANSACTIONS INVOLVES INVESTMENT RISKS AND TRANSACTION COSTS TO WHICH A
PORTFOLIO WOULD NOT BE SUBJECT AND TRANSACTION COSTS FROM WHICH NO FUTURE
BENEFIT MAY BE DERIVED ABSENT THE USE OF THESE STRATEGIES. If the investment
adviser's prediction of movements in the direction of the securities, foreign
currency and interest rate markets are inaccurate, the adverse consequences to
the Portfolio may leave the Portfolio 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 investment adviser's ability to predict correctly movements in the direction
of interest rates, securities prices and currency markets; (2) imperfect
correlation between the price of options and futures contracts and options
thereon and movements in the prices of the securities being hedged; (3) the fact
that the

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<PAGE>
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 defer closing
out certain hedged positions to avoid adverse tax consequences; and (6) the
possible inability of a Portfolio to purchase or sell a portfolio security at a
time that otherwise would be favorable for it to do so, or the possible need for
a Portfolio to sell a portfolio security at a disadvantageous time, due to the
need for a Portfolio to maintain "cover" or to segregate securities in
connection with hedging transactions. See "Taxes" and "Investment Objectives and
Policies" in the Statement of Additional Information.

OTHER INVESTMENTS AND POLICIES

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

Each Portfolio may purchase or sell securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased or sold by the Portfolio 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 Portfolio at the time of entering into the
transaction. The Fund's Custodian will maintain, in a segregated account of the
Fund, cash, U.S. Government securities or other liquid high-grade debt
obligations having a value equal to or greater than the Fund's purchase
commitments; the Custodian will likewise segregate securities sold on a delayed
delivery basis. The securities so purchased are subject to market fluctuation
and no interest accrues to the purchaser during the period between purchase and
settlement. At the time of delivery of the securities, the value may be more or
less than the purchase price and an increase in the percentage of the
Portfolio's assets committed to the purchase of securities on a when-issued or
delayed delivery basis may increase the volatility of the Portfolio's net asset
value.

SHORT SALES AGAINST-THE-BOX

The Portfolios may make short sales of securities or maintain a short
position, provided that at all times when a short position is open, the
Portfolio 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 conversion 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 a Portfolio'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
income tax purposes.

INTEREST RATE SWAPS

Each Portfolio may enter into interest rate swap transactions with respect to
up to 5% of its total assets. Interest rate swaps are used to hedge the value of
existing portfolio assets or assets a Portfolio intends to acquire. Interest
rate swaps involve the exchange by a Portfolio with another party of their
respective commitments to pay or receive interest (E.G., an exchange of
floating-rate payments for fixed-rate payments). Each Portfolio enters into
these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio or to protect against any increase in the
price of securities it anticipates purchasing at a later date. The Portfolios
use interest rate swaps for hedging purposes and not as a speculative
investment.

The use of interest rate swaps is a highly speculative activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If the investment adviser were incorrect in
its forecast of market values, interest rates and other applicable factors, the
investment performance of a Portfolio would diminish compared to what it would
have been if this investment technique were never used. Interest rate swaps do
not involve the delivery of securities or other underlying assets or principal.
Accordingly, the risk of loss with respect to interest rate swaps is limited to
the net amount of interest payments that a Portfolio is contractually obligated
to make. If the other party to an interest rate swap defaults, a Portfolio's
risk of loss consists of the net amount of interest payments that the Portfolio
is contractually entitled to receive. Since interest rate swaps are individually
negotiated, each Portfolio expects to achieve an acceptable degree of
correlation between its rights to receive interest on its portfolio securities
and its rights and obligations to receive and pay interest pursuant to interest
rate swaps.

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REPURCHASE AGREEMENTS

Each Portfolio may on occasion enter into repurchase agreements whereby the
seller of a security agrees to repurchase that security from the Portfolio at a
mutually agreed-upon time and price. The repurchase date 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 Portfolio's
money is invested in the repurchase agreement. Each Portfolio's repurchase
agreements will at all times be fully collateralized in an amount at least equal
to the purchase price, including accrued interest earned on the underlying
securities. The instruments held as collateral are valued daily, and if the
value of the instruments declines, the Portfolio will require additional
collateral. If the seller defaults and the value of the collateral securing the
repurchase agreement declines, the Portfolio may incur a loss. The Fund
participates in a joint repurchase account with other investment companies
managed by Prudential Mutual Fund Management, Inc. pursuant to an order of the
Securities and Exchange Commission (SEC).

BORROWING

Each Portfolio 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. A Portfolio may pledge up to 20%
of its total assets to secure these borrowings. Neither Portfolio will purchase
portfolio securities if its borrowings exceed 5% of its net assets.

ILLIQUID SECURITIES

Each Portfolio may invest up to 10% of its net assets in illiquid securities,
including repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) 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 readily
available market are not considered illiquid for purposes of this limitation.
Each Portfolio intends to comply with any applicable state blue sky laws
restricting the Portfolio's investments in illiquid securities. See "Investment
Restrictions" in the Statement of Additional Information. The investment adviser
will monitor the liquidity of such restricted securities under the supervision
of the Trustees. Repurchase agreements subject to demand are deemed to have a
maturity equal to the applicable notice period.

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

PORTFOLIO TURNOVER

The portfolio turnover rate for each Portfolio 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 each
Portfolio's 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 Portfolio. See "Portfolio Transactions and
Brokerage" in the Statement of Additional Information. In addition, 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

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

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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 July 31, 1995, total expenses as a percentage of
average net assets were 1.22%, 1.97% and

2.04% (annualized) of the Class A, Class B and Class C shares, respectively, of
the Balanced Portfolio and were 1.33%, 2.08% and 2.10% (annualized) of the Class
A, Class B and Class C shares, respectively, of the Strategy Portfolio. 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 .65 OF 1% OF THE AVERAGE DAILY NET ASSETS
OF EACH PORTFOLIO. It was incorporated in May 1987 under the laws of the State
of Delaware. For the fiscal year ended July 31, 1995, the Fund paid management
fees to PMF of .65% of average net assets of both the Strategy Portfolio and the
Balanced Portfolio. See "Manager" in the Statement of Additional Information.

As of August 31, 1995, PMF served as the manager to 38 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 28 closed-end investment companies with aggregate assets of
approximately $51 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.

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. Under the
Management Agreement, PMF continues to have responsibility for all investment
advisory services and supervises PIC's performance of such services.
The Balanced Portfolio is managed by Gregory Goldberg, a Vice President of
Prudential Investment Advisors, a unit of PIC. The Strategy Portfolio is managed
by PIC using a team of portfolio managers under the supervision of Mr. Goldberg.
Mr. Goldberg has had responsibility for the day-to-day management of the
Portfolios since January 1995. Mr. Goldberg was previously employed by Daiwa
International Capital Management (January 1988-December 1993) as a portfolio
manager for institutional clients. Mr. Goldberg joined PIC on January 11, 1994
and is also the portfolio manager of Prudential Multi-Sector Fund, Inc.

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.

THE FUND'S SUBADVISER HAS ENTERED INTO A CONSULTING ARRANGEMENT WITH GREG A.
SMITH WITH RESPECT TO THE STRATEGY PORTFOLIO, PURSUANT TO WHICH MR. SMITH MAKES
RECOMMENDATIONS TO PIC WITH RESPECT TO THE ALLOCATION OF ASSETS. Mr. Smith is a
consultant to Prudential Securities Incorporated, an affiliate of both the
Subadviser and the Fund, and the President of Greg A. Smith Asset Management
Corporation, a registered investment adviser. Mr. Smith is a consultant to PIC
with respect to

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the allocation of assets for Prudential Multi-Sector Fund, Inc. Mr. Smith is
recognized in the financial community as a leading asset allocation strategist.
Since 1983, he has been named by INSTITUTIONAL INVESTOR magazine as a member of
its All-America Research Team.

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 OF EACH PORTFOLIO. 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 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 July
31, 1996.

UNDER THE CLASS B AND CLASS C PLANS, EACH PORTFOLIO PAYS PRUDENTIAL SECURITIES
FOR ITS DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS B AND CLASS C
SHARES AT AN ANNUAL RATE OF UP TO 1% OF THE AVERAGE DAILY NET ASSETS OF EACH OF
THE CLASS B AND CLASS C SHARES OF THE PORTFOLIO. 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."

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For the fiscal year ended July 31, 1995, the Fund paid distribution expenses
of .25%, 1.00% and 1.00% (annualized) of the average daily net assets of the
Class A, Class B and Class C shares of each Portfolio, 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 each Portfolio
will be allocated to each class based upon the ratio of sales of each class to
the sales of all shares of the Portfolio 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 with
respect to a Portfolio 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 Portfolio. The Portfolios will not be obligated to pay distribution and
service fees incurred under any Plan if it is terminated or not continued.

In addition to distribution and service fees paid by each Portfolio of 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 Portfolios. 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.

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 has agreed to provide additional funds, if necessary, for
the purpose of the settlement fund. 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 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.

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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 also 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.

HOW THE FUND VALUES ITS SHARES
EACH PORTFOLIO'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 NET
ASSET VALUE OF EACH PORTFOLIO 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.

Each Portfolio 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 Portfolio or days on which changes in
the value of the 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 net asset
values 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 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 EACH PORTFOLIO OF 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 Portfolio would have
increased (decreased) over a specified period of time (I.E., one, five or ten
years or since inception of the Portfolio) assuming that all distributions and
dividends by the Portfolio 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

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hypothetical rate of return that, if achieved annually, would have produced the
same aggregate total return if performance had been constant over the entire
period. "Average annual" total return smooths out variations in performance and
takes into account any applicable initial or contingent deferred sales charges.
Neither "average annual" total return nor "aggregate" total return takes into
account any federal or state income taxes which may be payable upon redemption.
The "yield" refers to the income generated by an investment in a Portfolio 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. Each Portfolio
of the Fund also may include comparative performance information in advertising
or marketing its 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 a Portfolio in any advertisement or
information including performance data of the Portfolio. Further performance
information is contained in the Fund's annual and semi-annual reports to
shareholders, which may be obtained without charge. See "Shareholder Guide --
Shareholder Services -- Reports to Shareholders."

TAXES, DIVIDENDS AND DISTRIBUTIONS

TAXATION OF THE FUND

EACH PORTFOLIO HAS ELECTED TO QUALIFY AND INTENDS TO REMAIN QUALIFIED AS A
REGULATED INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE. ACCORDINGLY, EACH
PORTFOLIO WILL NOT BE SUBJECT TO FEDERAL INCOME TAXES ON ITS NET INVESTMENT
INCOME AND CAPITAL 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 a Portfolio 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.

Each Portfolio 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, a Portfolio's investments
in PFICs may subject the Portfolio to federal income taxes on certain income and
gains realized by the Portfolio. Certain gains or losses from fluctuations in
foreign currency exchange rates (Section 988 gains or losses) will affect the
amount of ordinary income a Portfolio 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 capital gains over net
long-term capital losses) distributed to shareholders will be taxable as
ordinary income to the shareholder whether or not reinvested. 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 the shareholders, whether or not reinvested and regardless of the
length of time a shareholder has owned his or her shares. The maximum long-term
capital gains rate for corporate shareholders currently is the same as the
maximum tax rate for ordinary income. The maximum long-term capital gains rate
for individual shareholders is 28%.

Both regular and capital gains dividends are taxable to shareholders in the
year in which received, whether they are received in cash or in additional
shares. In addition, certain dividends declared by a Portfolio will be treated
as received by shareholders on

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December 31 of the year the dividends are declared. This rule applies to
dividends declared by a Portfolio 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 a Portfolio's income is derived from
qualified dividends received by the Portfolio 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 with respect to
shares that are held for six months or less, 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.

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 paid to a foreign shareholder
will generally be subject to a U.S. withholding rate of 30% (or lower treaty
rate).

DIVIDENDS AND DISTRIBUTIONS

THE FUND EXPECTS TO PAY DIVIDENDS 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 DISTRIBUTIONS IN
CASH. Such election should be submitted to Prudential Mutual Fund Services,
Inc., Attention: Account Maintenance, P.O. Box 15015, New Brunswick, New Jersey
08906-5015. If you hold shares through Prudential Securities, you should contact
your financial adviser to elect to receive dividends and distributions in cash.
The Fund will notify each shareholder after the close of the Fund's taxable year
both of 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 THREE BUSINESS

24
<PAGE>
DAYS PRIOR TO THE RECORD DATE), THE PRICE YOU PAY WILL INCLUDE THE DIVIDEND OR
DISTRIBUTION AND A PORTION OF YOUR INVESTMENT WILL BE RETURNED TO YOU AS A
TAXABLE 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, MANAGEMENT INVESTMENT COMPANY WHICH WAS ORGANIZED
UNDER THE LAWS OF MASSACHUSETTS ON FEBRUARY 23, 1987 AS AN UNINCORPORATED
BUSINESS TRUST, A FORM OF ORGANIZATION THAT IS COMMONLY KNOWN AS A MASSACHUSETTS
BUSINESS TRUST. THE FUND WAS FORMERLY KNOWN AS PRUDENTIAL FLEXIFUND, THE
BALANCED PORTFOLIO WAS FORMERLY KNOWN AS THE CONSERVATIVELY MANAGED PORTFOLIO
AND THE STRATEGY PORTFOLIO WAS FORMERLY KNOWN AS THE AGGRESSIVELY MANAGED
PORTFOLIO. THE FUND IS AUTHORIZED TO ISSUE AN UNLIMITED NUMBER OF SHARES OF
SEPARATE SERIES OR PORTFOLIOS, 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 Portfolio 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 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, each
Portfolio is offering only 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 each Portfolio 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 A 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, which is not the case with a corporation. 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.

25
<PAGE>
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 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 Allocation 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) and the name of the Portfolio.

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

26
<PAGE>
In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Allocation Fund,
the name of the Portfolio, 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.

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, 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 of 5% of .30 of 1% (Currently Initial sales charge waived or reduced
the public offering price being charged at a rate for certain purchases
of .25 of 1%)
CLASS B Maximum contingent deferred sales 1% Shares convert to Class A shares
charge or CDSC of 5% of the lesser of approximately seven years after
the amount invested or the redemption purchase
proceeds; declines to zero after six
years
CLASS C Maximum CDSC of 1% of the lesser of 1% Shares do not convert to another class
the amount invested 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 a Portfolio 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 Portfolios
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 Portfolios:

27
<PAGE>
If you intend to hold your investment in a Portfolio 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.

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 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 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

28
<PAGE>
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.

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, including pension, profit-sharing, stock-bonus or other employee
benefit plans under Section 401 of the Internal Revenue Code and deferred
compensation and annuity plans under Sections 457 and 403(b)(7) of the Code that
participate in the Transfer Agent's PruArray Program (a benefit plan
recordkeeping 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.

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

OTHER WAIVERS. In addition, Class A shares may be purchased at NAV, through
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) and (iii) the financial adviser served as the client's
broker on the previous purchase.

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."

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.

29
<PAGE>
IF YOU HOLD SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, YOU MUST REDEEM
YOUR SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER. IF YOU
HOLD SHARES IN NON-CERTIFICATE FORM, A WRITTEN REQUEST FOR REDEMPTION SIGNED BY
YOU EXACTLY AS THE ACCOUNT IS REGISTERED IS REQUIRED. IF YOU HOLD CERTIFICATES,
THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE FACE OF THE CERTIFICATES,
MUST BE RECEIVED BY THE TRANSFER AGENT IN ORDER FOR THE REDEMPTION REQUEST TO BE
PROCESSED. IF REDEMPTION IS REQUESTED BY A CORPORATION, PARTNERSHIP, TRUST OR
FIDUCIARY, WRITTEN EVIDENCE OF AUTHORITY ACCEPTABLE TO THE TRANSFER AGENT MUST
BE SUBMITTED BEFORE SUCH REQUEST WILL BE ACCEPTED. All correspondence and
documents concerning redemptions should be sent to the Fund in care of its
Transfer Agent, Prudential Mutual Fund Services, Inc., Attention: Redemption
Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010.

If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to a
person other than the record owner, (c) are to be sent to an address other than
the address on the Transfer Agent's records, or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the redemption
request and on the certificates, if any, or stock power must be guaranteed by an
"eligible guarantor institution." An "eligible guarantor institution" includes
any bank, broker, dealer or credit union. The Transfer Agent reserves the right
to request additional information from, and make reasonable inquiries of, any
eligible guarantor institution. For clients of Prusec, a signature guarantee may
be obtained from the agency or office manager of most Prudential Insurance and
Financial Services or 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 a Portfolio, 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 a regular redemption. See
"How the Fund Values its Shares." If your shares are redeemed in kind, you would
incur transaction costs in converting the assets into cash. The Fund, however,
has elected to be governed by Rule 18f-1 under the Investment Company Act, under
which the Fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund during any 90-day period for
any one shareholder.

INVOLUNTARY REDEMPTION. In order to reduce expenses of the Fund, the 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 such involuntary redemption.

90-DAY REPURCHASE PRIVILEGE. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest any portion or
all of the proceeds of such redemption in shares of the Fund at the NAV next
determined after the order is received, which must be within 90 days after the
date of the redemption. 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

30
<PAGE>
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 results 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 OF DOLLARS
YEAR SINCE PURCHASE INVESTED
PAYMENT MADE OR REDEMPTION PROCEEDS
- ------------------------------------------------ ---------------------------------
<S> <C>
First......................................... 5.0%
Second........................................ 4.0%
Third......................................... 3.0%
Fourth........................................ 2.0%
Fifth......................................... 1.0%
Sixth......................................... 1.0%
Seventh....................................... None
</TABLE>

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

31
<PAGE>
For federal income tax purposes, the amount of the CDSC will reduce the gain
or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.

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

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. Conversions will be effected at
relative net asset value without the imposition of any additional sales charge.
The first conversion of Class B shares occurred in February 1995, when the
conversion feature was first implemented.

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.

32
<PAGE>
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 will not convert to Class A
shares until approximately eight years from purchase. For purposes of measuring
the time period during which shares are held in a money market fund, exchanges
will be deemed to have been made on the last day of the month. Class B shares
acquired through exchange will convert to Class A shares after expiration of the
conversion period applicable to the original purchase of such shares.

The conversion feature may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service (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 Portfolios 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 THE OTHER
PORTFOLIO OF THE FUND AND 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 PORTFOLIO OR 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, 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

33
<PAGE>
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. 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 shares on a
quarterly basis, unless the shareholder elects otherwise. 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 5 full
business days prior to the record date to have subsequent dividends and/or
distributions sent in cash rather than reinvested. If you hold shares through
Prudential Securities, you should contact your financial adviser.

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

34
<PAGE>
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.

35
<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 bonds 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 sometime 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.

C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

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.

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

A-1
<PAGE>
P-2: Issuers rated "Prime-2" or "P-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.

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 for debt in higher-rated categories.

BB, B, CCC, CC and C: Debt rated BB, B, CCC, CC and C 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 C 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

S&P's commercial paper ratings are current assessments 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.

A-2
<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 Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series

Prudential High Yield Fund, Inc.
Prudential Mortgage Income 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

Intermediate 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
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
Balanced Portfolio
Strategy Portfolio

Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Growth Opportunity Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund

MONEY MARKET FUNDS
-TAXABLE MONEY MARKET FUNDS
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund
Money Market Series
Prudential MoneyMart Assets
-TAX-FREE MONEY MARKET FUNDS
Prudential Tax-Free Money Fund
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series

-COMMAND FUNDS

Command Money Fund
Command Government Fund
Command Tax-Free Fund

-INSTITUTIONAL MONEY MARKET FUNDS

Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series

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

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FUND HIGHLIGHTS........................................................... 2
Risk Factors and Special Characteristics................................ 2
FUND EXPENSES............................................................. 4
FINANCIAL HIGHLIGHTS...................................................... 5
HOW THE FUND INVESTS...................................................... 9
Investment Objectives and Policies...................................... 9
Hedging Strategies...................................................... 15
Other Investments and Policies.......................................... 17
Investment Restrictions................................................. 18
HOW THE FUND IS MANAGED................................................... 19
Manager................................................................. 19
Distributor............................................................. 20
Portfolio Transactions.................................................. 22
Custodian and Transfer and Dividend Disbursing Agent.................... 22
HOW THE FUND VALUES ITS SHARES............................................ 22
HOW THE FUND CALCULATES PERFORMANCE....................................... 22
TAXES, DIVIDENDS AND DISTRIBUTIONS........................................ 23
GENERAL INFORMATION....................................................... 25
Description of Shares................................................... 25
Additional Information.................................................. 26
SHAREHOLDER GUIDE......................................................... 26
How to Buy Shares of the Fund........................................... 26
Alternative Purchase Plan............................................... 27
How to Sell Your Shares................................................. 29
Conversion Feature -- Class B Shares.................................... 32
How to Exchange Your Shares............................................. 33
Shareholder Services.................................................... 34
DESCRIPTION OF SECURITY RATINGS........................................... A-1
THE PRUDENTIAL MUTUAL FUND FAMILY......................................... B-1
</TABLE>

----------------------------------------------
MF134A 44414OE

<TABLE>
<S> <C> <C>
Balanced: Class A: 74429R108
Class B: 74429R207
CUSIP Nos.: Class C: 74429R306
Strategy: Class A: 74429R405
Class B: 74429R504
Class C: 74429R603
</TABLE>

Prudential
Allocation Fund
---------------

(Balanced Portfolio)
(Strategy Portfolio)

[LOGO]
<PAGE>
PRUDENTIAL ALLOCATION FUND
STATEMENT OF ADDITIONAL INFORMATION
DATED SEPTEMBER 29, 1995

Prudential Allocation Fund (the Fund), is an open-end, diversified,
management investment company. The Fund is comprised of two separate
portfolios--the Balanced Portfolio (formerly called the Conservatively Managed
Portfolio) and the Strategy Portfolio. The investment objective of the Balanced
Portfolio is to achieve a high total investment return consistent with moderate
risk. The investment objective of the Strategy Portfolio is to achieve a high
total investment return consistent with relatively higher risk than the Balanced
Portfolio. While each Portfolio will seek to achieve its objective by investing
in a diversified portfolio of money market instruments, debt obligations and
equity securities (including securities convertible into equity securities), the
Portfolios will differ with respect to the proportions of investments in debt
and equity securities, the quality and maturity of debt securities purchased and
the price volatility of equity securities purchased. It is expected that the
Strategy Portfolio will offer investors a higher potential return with a
correspondingly higher risk of loss than the Balanced Portfolio. There can be no
assurance that the Portfolios' investment objectives will be achieved. See
"Investment Objectives 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 September 29, 1995, a copy
of which may be obtained from the Fund upon request.

TABLE OF CONTENTS

CROSS-REFERENCE
TO PAGE IN
PAGE PROSPECTUS
---- ---------------
General Information...................................... B-2 25
Investment Objectives and Policies....................... B-2 9
Investment Restrictions.................................. B-11 18
Trustees and Officers.................................... B-13 19
Manager.................................................. B-15 19
Distributor.............................................. B-17 20
Portfolio Transactions and Brokerage..................... B-20 22
Purchase and Redemption of Fund Shares................... B-22 26
Shareholder Investment Account........................... B-25 34
Net Asset Value.......................................... B-28 22
Taxes.................................................... B-29 23
Performance Information.................................. B-31 22
Organization and Capitalization.......................... B-32 25
Custodian, Transfer and Dividend Disbursing Agent and
Independent Accountants................................. B-34 22
Financial Statements..................................... B-35 --
Independent Auditors' Report............................. B-55 --
Appendix I............................................... I-1 --
Appendix II.............................................. II-1 --

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

MF134B 444141C
<PAGE>
GENERAL INFORMATION

The Fund was organized on February 23, 1987 and consisted of two Portfolios,
the Aggressively Managed Portfolio and the Conservatively Managed Portfolio. On
November 30, 1990, the name of the Aggressively Managed Portfolio was changed to
the Strategy Portfolio. On February 28, 1991, the Trustees approved an amendment
to the Declaration of Trust to change the Fund's name from Prudential-Bache
FlexiFund to Prudential FlexiFund and, on February 8, 1994, the Trustees
approved an amendment to the Declaration of Trust to change the Fund's name from
Prudential FlexiFund to Prudential Allocation Fund, effective August 1, 1994. On
May 3, 1995, the Trustees approved a change in the name of the Conservatively
Managed Portfolio to the Balanced Portfolio, effective September 29, 1995.

INVESTMENT OBJECTIVES AND POLICIES

The investment objective of the Balanced Portfolio is to achieve a high
total investment return consistent with moderate risk. The investment objective
of the Strategy Portfolio is to achieve a high total investment return
consistent with relatively higher risk than the Balanced Portfolio. Each
Portfolio will seek to achieve its objective by investing in a diversified
portfolio of money market instruments, debt obligations and equity securities.
However, the asset mix and the type of portfolio securities purchased by the
Portfolios will differ. It is anticipated that, under normal conditions, the
Balanced Portfolio will have a smaller percentage of its assets invested in
equity securities and a larger percentage invested in money market instruments
than the Strategy Portfolio. In addition, the average duration of the debt
securities held by the Balanced Portfolio will be shorter than that of the
Strategy Portfolio, and a greater proportion of the equity securities held by
the Balanced Portfolio will typically be less volatile securities of larger and
more mature companies than the equity securities held by the Strategy Portfolio.
There can be no assurance that the Portfolios' investment objectives will be
achieved. See "How the Fund Invests--Investment Objectives and Policies" in the
Prospectus.

RISKS OF TRANSACTIONS IN OPTIONS

A Portfolio will write (I.E., sell) covered call options only on equity
securities, on stock indices which are traded on a securities exchange or which
are listed on NASDAQ or in the over-the-counter market, on currencies and on
futures contracts which are traded on an exchange or board of trade. A call
option gives the purchaser of the option the right to buy, and the writer the
obligation to sell, the underlying security at the exercise price during the
option period. A Portfolio will write covered call options for hedging purposes
and to augment its income.

So long as the obligation of the writer of the call continues, the writer
may be assigned an exercise notice. The exercise notice would require the writer
of a call option to deliver the underlying security against payment of the
exercise price. This obligation terminates upon expiration of the option, or at
such earlier time that the writer effects a closing purchase transaction by
purchasing an option covering the same underlying security and having the same
exercise price and expiration date (of the same series) as the one previously
sold. Once an option has been exercised, the writer may not execute a closing
purchase transaction. To secure the obligation to deliver the underlying
security the writer of the option is required to deposit in escrow the
underlying security or other assets in accordance with the rules of The Options
Clearing Corporation (the OCC), the Chicago Board of Trade and the Chicago
Mercantile Exchange, institutions which interpose themselves between buyers and
sellers of options. Technically, each of these institutions assumes the other
side of every purchase and sale transaction on an exchange and, by doing so,
gives its guarantee to the transaction.

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 a Portfolio 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 Portfolio 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 a Portfolio 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

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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 OCC, 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.

OPTIONS ON STOCK INDICES

Except as described below, a Portfolio will write call options on indices
only if on such date it holds a portfolio of securities at least equal to the
value of the index times the multiplier times the number of contracts. When a
Portfolio writes a call option on a broadly-based stock market index, the
Portfolio will segregate or put into escrow with its Custodian, or pledge to a
broker as collateral for the option, cash, cash equivalents or at least one
"qualified security" 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. A Portfolio will write call options on broadly-based stock
market indices only if at the time of writing it holds a diversified portfolio
of stocks.

If a Portfolio has written an option on an industry or market segment index,
it will so segregate or put into escrow with the Fund's Custodian, or pledge to
a broker as collateral for the option, at least ten "qualified securities," all
of which are stocks of an issuer 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
Portfolio'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, a Portfolio will
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 Portfolio writes a call on an index which is in-the-money at
the time the call is written, the Portfolio will segregate with the Fund's
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
Portfolio'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 securities exchange or listed on
NASDAQ against which the Portfolio has not written a stock call option and which
has not been hedged by the Portfolio by the sale of stock index futures.
However, if the Portfolio 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 Portfolio in cash, Treasury bills or
other high-grade short-term debt obligations in a segregated account with the
Fund's Custodian, it will not be subject to the requirements described in this
paragraph.

RISKS OF OPTIONS ON INDICES

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

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Because the value of an index option depends upon movements in the level of
the index rather than the price of a particular stock, successful use by the
Fund of options on indices would be subject to the investment adviser's ability
to predict correctly movements in the direction of the stock market generally or
of a particular industry. This requires different skills and techniques than
predicting changes in the price of individual stocks.

Index prices may be distorted if trading of certain securities 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 securities included in the index. If this occurred, the Portfolio 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 Portfolio. It is each
Portfolio's policy to purchase or write options only on indices which include a
number of securities sufficient to minimize the likelihood of a trading halt in
the index.

Trading in stock 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. Neither Portfolio
will purchase or sell any index option contract unless and until, in the
investment adviser's opinion, 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.

SPECIAL RISKS OF WRITING CALLS ON INDICES. Unless a Portfolio has other
liquid assets which are sufficient to satisfy the exercise of a call, the
Portfolio 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 Portfolio fails to anticipate an
exercise, it may have to borrow from a bank (in amounts not exceeding 20% of the
Portfolio's total assets) pending settlement of the sale of securities in its
portfolio and would incur interest charges thereon.

When a Portfolio has written a call, there is also a risk that the market
may decline between the time the Portfolio 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 Portfolio is able to sell securities in its
portfolio. As with stock options, the Portfolio 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 Portfolio would be able to deliver the underlying
securities in settlement, the Portfolio may have to sell part of its portfolio
in order to make settlement in cash, and the price of such securities 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 Portfolio has
written is "covered" by an index call held by the Portfolio with the same strike
price, the Portfolio 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 Portfolio
exercises the call it holds or the time the Portfolio sells the call, which in
either case would occur no earlier than the day following the day the exercise
notice was filed.

RISKS OF OPTIONS ON FOREIGN CURRENCIES

Because there are two currencies involved, developments in either or both
countries can affect the values of options on foreign currencies. Risks include
those described in the Prospectus under "How the Fund Invests--Investment
Objectives and Policies," including government actions affecting currency
valuation and the movements of currencies from one country to another. The
quantities of currency underlying option contracts represent odd lots in a
market dominated by transactions between banks; this can mean extra transaction
costs upon exercise. Option markets may be closed while round-the-clock
interbank currency markets are open, and this can create price and rate
discrepancies.

RISKS RELATED TO FORWARD CURRENCY EXCHANGE CONTRACTS

A Portfolio may enter into forward foreign currency exchange contracts in
several circumstances. When the Portfolio enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when the
Portfolio anticipates the receipt in a foreign currency of dividends or interest
payments on a security which it holds, the Portfolio 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 Portfolio will be able to
protect itself against a possible loss resulting from an adverse change

B-4
<PAGE>
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 payments are 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, a Portfolio 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 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. A Portfolio does not intend to enter into
such forward contracts to protect the value of its portfolio securities on a
regular or continuous basis. A Portfolio 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 Portfolio to deliver an amount of foreign
currency in excess of the value of the 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 interests of the
Portfolio will thereby be served. The Fund's Custodian will place cash or liquid
equity or debt securities into a segregated account of the Portfolio in an
amount equal to the value of the Portfolio'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 Portfolio's commitments with respect to
such contracts.

A Portfolio generally will not enter into a forward contract with a term of
greater than one year. At the maturity of a forward contract, the Portfolio 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 Portfolio 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 Portfolio is
obligated to deliver and if a decision is made to sell the security and make
delivery of the foreign currency.

If the Portfolio retains the portfolio security and engages in an offsetting
transaction, the Portfolio will incur a gain or a loss to the extent that there
has been movement in forward contract prices. Should forward contract prices
decline during the period between the Portfolio'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 Portfolio 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
contract prices increase, the Portfolio 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.

A Portfolio's dealings in forward foreign currency exchange contracts will
be limited to the transactions described above. Of course, the Portfolio 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 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.

Although each Portfolio 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 Portfolio at one rate, while offering a lesser rate of exchange should
the Portfolio desire to resell that currency to the dealer.

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RISKS OF TRANSACTIONS IN FUTURES CONTRACTS

There are several risks involved in the use of futures contracts as a
hedging device. Due to the imperfect correlation between the price of futures
contracts and movements in the price of the underlying securities, the price of
a futures contract may move more or less than the price of the securities being
hedged. Therefore, a correct forecast of interest rate or stock market trends by
the investment adviser may still not result in a successful hedging transaction.

Although a Portfolio will purchase or sell futures contracts only on
exchanges where there appears to be an adequate secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular contract or at any particular time. Accordingly, there can be no
assurance that it will be possible, at any particular time, to close a futures
position. In the event a Portfolio could not close a futures position and the
value of such position declined, the Portfolio would be required to continue to
make daily cash payments of variation margin. However, in the event a futures
contract has been used to hedge portfolio securities, such securities will not
be sold until the futures contract can be terminated. In such circumstances, an
increase in the price of the securities, if any, may partially or completely
offset losses on the futures contract. However, there is no guarantee that the
price movements of the securities will, in fact, correlate with the price
movements in the futures contract and thus provide an offset to losses on the
futures contract.

Under regulations of the Commodity Exchange Act, investment companies
registered under the Investment Company Act of 1940, as amended (the Investment
Company Act), are exempt from the definition of "commodity pool operator,"
subject to compliance with certain conditions. The exemption is conditioned upon
the Portfolio's purchasing and selling futures contracts and options thereon for
BONA FIDE hedging transactions, except that a Portfolio of the Fund may purchase
and sell futures contracts or 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 Portfolio's total assets. In addition, a Portfolio
may not enter into futures contracts or options thereon if the sum of initial
and variation margin on outstanding futures contracts, together with the premium
paid on outstanding options, exceeds 20% of the Portfolio's total assets. The
Fund will use futures and options thereon in a manner consistent with these
requirements.

If a Portfolio maintains a short position in a futures contract, it will
cover this position by holding, in a segregated account maintained at the
Custodian, cash, U.S. Government securities or other liquid high-grade debt
obligations equal in value (when added to any initial or variation margin on
deposit) to the market value of the securities underlying the futures contract.
Such a position may also be covered by owning the securities underlying the
futures contract, or by holding a call option permitting the Portfolio to
purchase the same contract at a price no higher than the price at which the
short position was established.

In addition, if a Portfolio holds a long position in a futures contract, it
will hold cash, U.S. Government securities or other liquid high-grade debt
obligations equal to the purchase price of the contract (less the amount of
initial or variation margin on deposit) in a segregated account maintained for
the Portfolio by the Fund's Custodian. Alternatively, a Portfolio could cover
its long position by purchasing a put option on the same futures contract with
an exercise price as high as or higher than the price of the contract held by
the Portfolio.

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

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

There are risks inherent in the use of futures contracts and options
transactions for the purpose of hedging a Portfolio's portfolio securities. One
such risk which may arise in employing futures contracts to protect against the
price volatility of portfolio securities is that the prices of securities
subject to futures contracts (and thereby the futures contract prices) may
correlate imperfectly with the behavior of the cash prices of the Portfolio's
portfolio securities. Another such risk is that prices of futures contracts may
not move in tandem with the changes in prevailing interest rates against which
the Portfolio seeks a

B-6
<PAGE>
hedge. A correlation may also be distorted by the fact that the futures market
is dominated by short-term traders seeking to profit from the difference between
a contract or security price objective and their cost of borrowed funds. Such
distortions are generally minor and would diminish as the contract approached
maturity.

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

Successful use of futures contracts by a Portfolio is also subject to the
ability of the Fund's investment adviser to predict correctly movements in the
direction of interest rates and other factors affecting markets for securities.
For example, if a Portfolio has hedged against the possibility of an increase in
interest rates which would adversely affect the price of securities in its
portfolio and the price of such securities increases instead, the Portfolio will
lose part or all of the benefit of the increased value of its securities because
it will have offsetting losses in its futures positions. In addition, in such
situations, if a Portfolio has insufficient cash to meet daily variation margin
requirements, it may need to sell securities to meet such requirements. Such
sales of securities may be, but will not necessarily be, at increased prices
which reflect the rising market. A Portfolio may have to sell securities at a
time when it is disadvantageous to do so.

The hours of trading of futures contracts may not conform to the hours
during which a Portfolio may trade the underlying securities. To the extent that
the futures markets close before the securities markets, significant price and
rate movements can take place in the securities markets that cannot be reflected
in the futures markets.

OPTIONS ON FUTURES CONTRACTS

An option on a futures contract gives the purchaser the right, but not the
obligation, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option exercise period. The writer of the
option is required upon exercise to assume an offsetting futures position (a
short position if the option is a call and a long position if the option is a
put). Upon exercise of the option, the assumption of offsetting futures
positions by the writer and holder of the option will be accompanied by delivery
of the accumulated cash balance in the writer's futures margin account which
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract. Currently, options can
be purchased or written with respect to futures contracts on U.S. Treasury
Bills, Notes and Bonds and on the S&P 500 Stock Index and the NYSE Composite
Index.

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

LIMITATIONS ON PURCHASE AND SALE OF OPTIONS, FUTURES AND OPTIONS THEREON

Each Portfolio may write call options on stocks only if they are covered,
and such options must remain covered so long as the Fund is obligated as a
writer. The Fund has undertaken with certain state securities commissions that,
so long as shares of a Portfolio of the Fund are registered in those states,
neither Portfolio will purchase (i) put options on stocks not held by the
Portfolio, (ii) put options on indices and (iii) call options on stock or stock
indices or foreign currencies if, after any such purchase, the total premiums
paid for such options would exceed 10% of the Portfolio's total assets;
provided, however, that a Portfolio may purchase put options on stock held by
the Portfolio if after such purchase the aggregate premiums paid for such
options do not exceed 20% of the Portfolio's total net assets. In addition, the
aggregate value of the securities that are the subject of put options will not
exceed 50% of the Portfolio's net assets.

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POSITION LIMITS. Transactions by a Portfolio in futures contracts and
options will be subject to limitations, if any, established by each of the
exchanges, boards of trade or other trading facilities (including NASDAQ)
governing the maximum number of options in each class which may be written or
purchased by a single investor or group of investors acting in concert,
regardless of whether the options are written on the same or different
exchanges, boards of trade or other trading facilities or are held or written in
one or more accounts or through one or more brokers. Thus, the number of futures
contracts and options which the Portfolio may write or purchase may be affected
by the futures contracts and options written or purchased by other investment
advisory clients of the investment adviser. An exchange, board of trade or other
trading facility may order the liquidations of positions found to be in excess
of these limits, and it may impose certain other sanctions.

RISK FACTORS RELATING TO 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 Portfolios.

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. An economic downturn could severely affect the ability of highly
leveraged issuers 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 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 a Portfolio'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 a Portfolio'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, a Portfolio may
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. If the Portfolio 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 Portfolio and increasing the
exposure of the Portfolio to the risks of high yield securities.

MORTGAGE-RELATED SECURITIES

Each Portfolio may also invest in Collateralized Mortgage Obligations
(CMOs). A CMO is a debt security that is backed by a portfolio of mortgages or
mortgage-backed securities. The issuer's obligation to make interest and
principal payments is secured by the underlying portfolio of mortgages or
mortgage-backed securities. CMOs generally are partitioned into several classes
with a ranked priority as to the time that principal payments will be made with
respect to each of the classes.

Each Portfolio may also invest in Real Estate Mortgage Investment Conduits
(REMICs). An issuer of REMICs may be a trust, partnership, corporation,
association, segregated pool of mortgages, or agency of the U.S. Government and,
in each case, must qualify and elect treatment as such under the Tax Reform Act
of 1986. A REMIC must consist of one or more classes of "regular interests" some
of which may be adjustable rate, and a single class of "residual interests." To
qualify as a REMIC, substantially all the assets of the entity must be directly
or indirectly secured, principally by real property. The Fund does not intend to
invest in residual interests. REMICs are intended by the U.S. Congress
ultimately to become the exclusive vehicle for the issuance of multi-class
securities backed by real estate mortgages. As of January 1, 1992, if a trust or
partnership that issues CMOs does not elect or qualify for REMIC status, it is
taxed at the entity level as a corporation.

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Certain issuers of CMOs, including CMOs that have elected to be treated as
REMICs, are not considered investment companies pursuant to a Rule adopted by
the Securities and Exchange Commission (SEC), and each Portfolio may invest in
the securities of such issuers without the limitations imposed by the Investment
Company Act of 1940 on investments by an investment company in other investment
companies. In addition, in reliance on an earlier SEC interpretation, a
Portfolio's investments in certain qualifying CMOs, which cannot or do not rely
on the rule, including CMOs that have elected to be treated as REMICs, are not
subject to the Investment Company Act's limitation on acquiring interests in
other investment companies. In order to be able to rely on the SEC's
interpretation, the CMOs and REMICs must be unmanaged, fixed-asset issuers that
(a) invest primarily in mortgage-backed securities, (b) do not issue redeemable
securities, (c) operate under general exemptive orders exempting them from all
provisions of the Investment Company Act, and (d) are not registered or
regulated under the Investment Company Act as investment companies. To the
extent that a Portfolio selects CMOs or REMICs that do not meet the above
requirements, the Portfolio may not invest more than 10% of its assets in all
such entities and may not acquire more than 3% of the voting securities of any
single such entity.

MONEY MARKET INSTRUMENTS

Each Portfolio may invest in money market instruments, including commercial
paper of 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. A Portfolio 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 such Portfolio'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.

Each Portfolio may also invest in money market instruments that are
guaranteed by an insurance company or other non-bank entity. Under the
Investment Company Act, a guaranty is not deemed to be a security of the
guarantor for purposes of satisfying the diversification requirements provided
that the securities issued or guaranteed by the guarantor and held by a
Portfolio do not exceed 10% of the Portfolio's total assets.

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 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, each Portfolio 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
Portfolio's total assets and provided further that such loans are callable at
any time by the Portfolio 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 a Portfolio continues to
receive payments in lieu of the interest and dividends of 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
a Portfolio at any time. If the borrower fails to maintain the requisite amount
of collateral, the loan automatically terminates and the Portfolio 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

B-9
<PAGE>
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 Portfolio, and any gain or loss in the market price
during the loan would inure to the Portfolio.

Since voting or consent rights which accompany loaned securities pass to the
borrower, each Portfolio 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 effect on the Portfolio's investment in
the securities which are the subject of the loan. A Portfolio will pay
reasonable finder's, administrative and custodial fees in connection with a loan
of its securities or may share the interest earned on collateral with the
borrower.

WARRANTS

Each Portfolio will not invest more than 5% of its net assets in warrants,
nor will it invest more than 2% of its net assets in warrants which are not
listed on the New York or American Stock Exchanges or a major foreign exchange.
In the application of such limitation, warrants will be valued at the lower of
cost or market value, except that warrants acquired by a Portfolio in units or
attached to other securities will be deemed to be without value.

ILLIQUID SECURITIES

The Fund may not invest more than 10% 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. (NASD).

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 puchase 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

B-10
<PAGE>
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.

SECURITIES OF OTHER INVESTMENT COMPANIES

Each Portfolio may invest up to 5% of its total assets in securities of
other registered investment companies. Generally, the Portfolios do not intend
to invest in such securities. If a Portfolio does invest in securities of other
registered investment companies, shareholders of the Portfolio may be subject to
duplicate management and advisory fees.

PORTFOLIO TURNOVER

As a result of the investment policies described above, each Portfolio may
engage in a substantial number of portfolio transactions, but each Portfolio's
portfolio turnover rate is not expected to exceed 200%. The portfolio turnover
rates for the Balanced Portfolio for the fiscal years ended July 31, 1994 and
1995 were 108% and 201%, respectively. The portfolio turnover rates for the
Strategy Portfolio for the fiscal years ended July 31, 1994 and 1995 were 96%
and 180%, 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 such
portfolio securities. High portfolio turnover involves correspondingly greater
brokerage commissions and other transaction costs, which are borne directly by
each Portfolio. In addition, high portfolio turnover may also mean that a
proportionately greater amount of distributions to shareholders 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 outstanding voting securities of a Portfolio. A "majority of the
outstanding voting securities of a Portfolio," 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.

Each Portfolio may not:

1. Purchase securities on margin (but the Portfolio may obtain such
short-term credits as may be necessary for the clearance of transactions);
provided that the deposit or payment by the Portfolio of initial or maintenance
margin in connection with futures contracts 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 Portfolio may borrow up to 20% of the value of its total assets (calculated
when the loan is made) for temporary, extraordinary or emergency purposes or for
the clearance of transactions. The Portfolio may pledge up to 20% of the value
of its total assets to secure such borrowings. For purposes of this restriction,
the preference as to shares of a Portfolio in liquidation and as to dividends
over all other Portfolios of the Fund with respect to assets specifically
allocated to that Portfolio, the purchase or sale of securities on a when-issued
or delayed delivery basis, the purchase of forward foreign currency exchange
contracts and collateral arrangements relating thereto, the purchase and sale of
options, financial futures contracts, options on such contracts and collateral
arrangements with respect thereto and with respect to interest rate swap
transactions and obligations of the Fund to Trustees pursuant to deferred
compensation arrangements are not deemed to be the issuance of a senior security
or a pledge of assets.

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 Portfolio's assets, more than 5% of the total assets of the Portfolio
(determined at the time of investment) would then be invested in securities of a
single issuer or (ii) more than 25% of the total assets of the Portfolio
(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.

B-11
<PAGE>
5. Purchase any security if as a result the Portfolio would then hold more
than 10% of the outstanding voting securities of an issuer.

6. Purchase any security if as a result the Portfolio 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 Portfolio 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 it 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.

8. Buy or sell commodities or commodity contracts, except that it may
purchase and sell futures contracts and options thereon. (For purposes of this
restriction, a forward foreign currency exchange contract is 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.

12. Invest in interests in oil, gas or other mineral exploration or
development programs, except that the Portfolio 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 Portfolio's total assets).

In order to comply with certain state "blue sky" restrictions, each
Portfolio 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 any officer or director of 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. 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;

3. 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;

4. Purchase securities which are secured by real estate or securities of
companies which invest or deal in real estate unless such securities are readily
marketable; and invest in oil, gas and mineral leases; and

5. Engage in arbitrage transactions.

Whenever any fundamental investment policy or investment restriction states
a maximum percentage of a Portfolio'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
Portfolio's asset coverage for borrowings falls below 300%, the Portfolio will
take prompt action to reduce its borrowings, as required by applicable law.

B-12
<PAGE>
TRUSTEES AND OFFICERS

<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE THE FUND DURING PAST 5 YEARS
- ------------------------------ ----------------------- --------------------------------------------------------------
<S> <C> <C>
Edward D. Beach (70) Trustee President and Director of BMC Fund, Inc., a closed-end
c/o Prudential Mutual Fund investment company; formerly Vice Chairman of Broyhill
Management, Inc. Furniture Industries, Inc.; Certified Public Accountant;
One Seaport Plaza Secretary and Treasurer of Broyhill Family Foundation, Inc.;
New York, NY President, Treasurer and Director of First Financial Fund,
Inc. and The High Yield Plus Fund, Inc.; President and
Director of Global Utility Fund, Inc.; Director of The Global
Government Plus Fund, Inc. and The Global Total Return Fund,
Inc.

Donald D. Lennox (76) Trustee Chairman (since February 1990) and Director (since April 1989)
c/o Prudential Mutual Fund of International Imaging Materials, Inc.; Retired Chairman,
Management, Inc. Chief Executive Officer and Director of Schlegel Corporation
One Seaport Plaza (industrial manufacturing) (March 1987-February 1989);
New York, NY Director of Gleason Corporation, Personal Sound Technologies,
Inc., The Global Government Plus Fund, Inc. and The High
Yield Income Fund, Inc.

Douglas H. McCorkindale (56) Trustee Vice Chairman, Gannett Co. Inc. (publishing and media) (since
c/o Prudential Mutual Fund March 1984); Director of Continental Airlines, Inc., Gannett
Management, Inc. Co. Inc., Frontier Corporation and The Global Government Plus
One Seaport Plaza Fund, Inc.
New York, NY

Thomas T. Mooney (53) Trustee President of the Greater Rochester Metro Chamber of Commerce;
c/o Prudential Mutual Fund formerly Rochester City Manager; Trustee of Center for
Management, Inc. Governmental Research, Inc.; Director of Blue Cross of
One Seaport Plaza Rochester, Monroe County Water Authority, Rochester Jobs,
New York, NY Inc., Executive Service Corps of Rochester, Monroe County
Industrial Development Corporation, Northeast Midwest
Institute, First Financial Fund, Inc., The Global Government
Plus Fund, Inc., The Global Total Return Fund, Inc. and The
High Yield Plus Fund, Inc.

*Richard A. Redeker (52) President and Trustee President, Chief Executive Officer and Director (since October
One Seaport Plaza 1993), Prudential Mutual Fund Management, Inc. (PMF);
New York, NY Executive Vice President, Director and Member of Operating
Committee (since October 1993), Prudential Securities
Incorporated (Prudential Securities); Director (since October
1993) of Prudential Securities Group, Inc.; Executive Vice
President, The Prudential Investment Corporation (since
January 1994); Director (since January 1994), Prudential
Mutual Fund Distributors, Inc. (PMFD) and Director (since
January 1994), Prudential Mutual Fund Services, Inc. (PMFS);
formerly Senior Executive Vice President and Director of
Kemper Financial Services, Inc. (September 1978-September
1993); President and Director of The Global Government Plus
Fund, Inc., The Global Total Return Fund, Inc. and The High
Yield Income Fund, Inc.
</TABLE>

- ------------------------
* "Interested" Trustee, as defined in the investment Company Act, by reason of
his affiliation with Prudential Securities and PMF.

B-13
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE THE FUND DURING PAST 5 YEARS
- ------------------------------ ----------------------- --------------------------------------------------------------
<S> <C> <C>
Louis A. Weil, III (54) Trustee Publisher and Chief Executive Officer, Phoenix Newspapers,
c/o Prudential Mutual Fund Inc. (since August 1991); Director of Central Newspapers,
Management, Inc. Inc. (since September 1991); prior thereto, Publisher of Time
One Seaport Plaza Magazine (May 1989-March 1991); formerly President, Publisher
New York, NY and Chief Executive Officer of The Detroit News (February
1986-August 1989); formerly member of the Advisory Board,
Chase Manhattan Bank-Westchester; Director of The Global
Government Plus Fund, Inc.

Robert F. Gunia (48) Vice President Chief Administrative Officer (since July 1990), Director
One Seaport Plaza (since January 1989) and Executive Vice President, Treasurer
New York, NY and Chief Financial Officer (since June 1987) of PMF; Senior
Vice President (since March 1987) of Prudential Securities;
Executive Vice President, Treasurer, Comptroller and Director
(since March 1991) of PMFD; Director (since June 1987) of
PMFS; Vice President and Director (since May 1989) of The
Asia Pacific Fund, Inc.

Susan C. Cote (40) Treasurer and Principal Chief Operating Officer and Managing Director, Prudential
751 Broad Street Financial and Investment Advisors, and Vice President, The Prudential
Newark, NJ Accounting Officer Investment Corporation (since February 1995); Senior Vice
President (January 1989-January 1995) of PMF; Senior Vice
President (January 1992-January 1995) and Vice President
(January 1986-December 1991) of Prudential Securities.

Stephen M. Ungerman (42) Assistant Treasurer First Vice President of PMF (since February 1993); prior
One Seaport Plaza thereto, Senior Tax Manager of Price Waterhouse (1981-January
New York, NY 1993).
S. Jane Rose (49) Secretary Senior Vice President (since January 1991), Senior Counsel
One Seaport Plaza (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 (39) Assistant Secretary Vice President and Associate General Counsel (since June 1991)
One Seaport Plaza of PMF; Vice President and Associate General Counsel of
New York, NY Prudential Securities.
</TABLE>

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.

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.

The Trustees have adopted a retirement policy which calls for the retirement
of Trustees on December 31 of the year in which they reach the age of 72, except
that retirement is being phased in for Trustees who were age 68 or older as of
December 31, 1993. Under this phase-in provision, Messrs. Lennox and Beach are
scheduled to retire on December 31, 1997 and 1999, respectively.

The Fund pays each of its Trustees who is not an affiliated person of PMF
annual compensation of $8,500 in addition to certain out-of-pocket expenses.

B-14
<PAGE>

Trustees may receive their Trustees' fees pursuant to a deferred fee
agreement with the Fund. Under the terms of the agreement, the Fund accrues
daily the amount of Trustees' 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.

Pursuant to the terms of the Management Agreement with the Fund, the Manager
pays all compensation of officers and employees of the Fund as well as the fees
and expenses of all Trustees of the Fund who are affiliated persons of the
Manager.

The following table sets forth the aggregate compensation paid by the Fund
to the Trustees who are not affiliated with the Manager for the fiscal year
ended July 31, 1995 and the aggregate compensation paid to such Trustees for
service on the Fund's Board and the Boards of any other investment companies
managed by PMF (Fund Complex) for the calendar year ended December 31, 1994.

COMPENSATION TABLE

<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM FUND AND
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL FUND COMPLEX
COMPENSATION AS PART OF FUND BENEFITS UPON PAID TO
NAME AND POSITION FROM FUND EXPENSES RETIREMENT TRUSTEES
- ----------------------------------- ------------- ----------------- ----------------- -------------
<S> <C> <C> <C> <C>
Edward D. Beach--Trustee $ 8,500 None N/A $159,000 (20/39)*
Donald D. Lennox--Trustee 8,500 None N/A 90,000 (10/13)*
Douglas H. McCorkindale--Trustee 8,500 None N/A 60,000 (7/10)*
Thomas T. Mooney--Trustee 8,500 None N/A 114,000 (15/36)*
Louis A. Weil III--Trustee 8,500 None N/A 97,500 (12/15)*
<FN>
- ------------------------
* Indicates number of funds/portfolios in Fund Complex (including the Fund) to
which aggregate compensation relates.
</TABLE>

As of September 15, 1995, the Trustees and officers of the Fund, as a group,
owned beneficially less than 1% of the outstanding shares of beneficial interest
of each Portfolio of the Fund. As of September 15, 1995, Prudential Bank & Trust
Co. C/F The IRA of Clarence A. Lukeski, P.O. Box 2, Hamlin, PA 18427-0002 and
Marvel Food Stores #3 Inc., 429 West Lockeford Street, Lodi, California
95240-2035 were the beneficial owners of 5.3% and 14.9%, respectively, of the
Class C outstanding voting securities of the Balanced Portfolio. As of September
15, 1995, Prudential Bank & Trust Co C/F the IRA of Henry W. Anthony, RR1 Box
92, Fryeburg, ME 04037-9709, Steven N. Hendel, 7 Brown Terrace, Cranford, NJ
07016-1501, Prudential Securities C/F Dennis Gushue IRA DTD 12/29/94, P.O. Box
33418, Las Vegas, NV 89133-3418, Prudential Bank & Trust C/F The IRA of Homer R.
O'Connor, 2 Front Drive, Little Hocking, OH 45742-9710, James P. Solari Jr. &
Jennifer L. Solari Ten Com, 906 9th Street, Lake Charles, LA 70601-6223, and
Prudential Securities Inc. FA Allen C. Bellamy, 10610 Hanging Moss Trail,
Charlotte, NC 28227, were the beneficial owners of 12.8%, 9.1%, 10%, 7.3%, 5.5%
and 6% of the Class C outstanding voting securities of the Strategy Portfolio.

As of September 15, 1995, Prudential Securities was record holder for other
beneficial owners of 3,263,939 Class A shares (or 31% of the outstanding Class A
shares) of the Balanced Portfolio and 2,692,525 Class A shares (or 37% of the
outstanding Class A shares) of the Strategy Portfolio, 9,232,150 Class B shares
(or 29% of the outstanding Class B shares) of the Balanced Portfolio and
10,999,337 Class B shares (or 50% of the outstanding Class B shares) of the
Strategy Portfolio and 42,324 Class C shares (or 31% of the outstanding Class C
shares) of the Balanced Portfolio and 14,076 Class C shares (or 57% of the
outstanding Class C shares) of the Strategy Portfolio. 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 August 31, 1995, PMF managed

B-15
<PAGE>

and/or administered open-end and closed-end management investment companies with
assets of approximately $51 billion. According to the Investment Company
Institute, as of December 31, 1994, the Prudential Mutual Funds were the 12th
largest family of mutual funds in the United States.

PMF 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, recordkeeping and
management and administration services to qualified plans.

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 portfolios, 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 (State Street or the Custodian), the Fund's custodian, and PMFS,
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 .65 of 1% of the average daily net assets of each
Portfolio. 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
July 31, 1995. Currently, the Fund believes that the most restrictive expense
limitation of state securities commissions is 2 1/2% of a Portfolio'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

(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.

B-16
<PAGE>
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
party, as defined in the Investment Company Act, on May 3, 1995 and by
shareholders of each Portfolio of the Fund on February 19, 1988.

For the fiscal year ended July 31, 1995, PMF received management fees of
$3,120,574 and $2,370,080 on behalf of the Balanced Portfolio and Strategy
Portfolio, respectively. For the fiscal year ended July 31, 1994, PMF received
management fees of $2,743,056 and $2,555,883 on behalf of the Balanced Portfolio
and Strategy Portfolio, respectively. For the fiscal year ended July 31, 1993,
PMF received management fees of $1,837,757 and $2,362,366 on behalf of the
Balanced Portfolio and Strategy Portfolio, respectively.

PMF has entered into the Subadvisory Agreement with PIC (the Subadviser).
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,
1995, and by shareholders of each Portfolio of the Fund on February 19, 1988.

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

The Manager and the Subadviser (The Prudential Investment Corporation) are
subsidiaries of Prudential. 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. 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.

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.

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-17
<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 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, 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 NASD maximum sales charge rule described below. As so modified, the Class
A Plan provides that (i) up to .25 of 1% of the average daily net assets of the
Class A shares may be used to pay for personal service and the maintenance of
shareholder accounts (service fee) and (ii) total distribution fees (including
the service fee of .25 of 1%) may not exceed .30 of 1%. As so modified, the
Class B Plan provides that (i) up to .25 of 1% of the average daily net assets
of the Class B shares may be paid as a service fee and (ii) up to .75 of 1% (not
including the service fee) 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 12b-1 Trustees, on May 3, 1995. The Class A
Plan, as amended, was approved by Class A and Class B shareholders of each
Portfolio, and the Class B Plan, as amended, was approved by Class B
shareholders of each Portfolio on July 19, 1994. The Class C Plan was approved
by the sole shareholder of Class C shares of each Portfolio on August 1, 1994.

CLASS A PLAN. For the fiscal year ended July 31, 1995, PMFD received
payments of $174,385 and $142,549 on behalf of the Balanced Portfolio and
Strategy Portfolio, respectively, under the Class A Plan. These amounts were
primarily expended for payments of account servicing fees to financial advisers
and other persons who sell Class A shares. For the fiscal year ended July 31,
1995, PMFD also received approximately $254,000 and $186,000 on behalf of the
Balanced Portfolio and Strategy Portfolio, respectively, in initial sales
charges.

CLASS B PLAN. For the fiscal year ended July 31, 1995, Prudential Securities
received $4,094,190 and $3,074,388 from the Balanced Portfolio and Strategy
Portfolio, respectively, under the Class B Plan and spent approximately the
following amounts on behalf of the Portfolios of the Fund:

<TABLE>
<CAPTION>
PRINTING AND COMMISSION COMPENSATION APPROXIMATE
MAILING PAYMENTS TO TO PRUSEC FOR TOTAL AMOUNT
PROSPECTUSES TO FINANCIAL OVERHEAD COMMISSION SPENT BY
OTHER THAN ADVISERS OF COSTS PAYMENTS TO DISTRIBUTOR ON
CURRENT PRUDENTIAL OF PRUDENTIAL REPRESENTATIVES AND BEHALF OF
PORTFOLIO SHAREHOLDERS SECURITIES SECURITIES* OTHER EXPENSES* PORTFOLIO
- ------------------------- --------------- ----------- --------------- ------------------- --------------
<S> <C> <C> <C> <C> <C>
Balanced Portfolio....... $46,300 $ 713,400 $ 398,600 $1,229,400 $ 2,387,700
Strategy Portfolio....... 48,500 614,400 313,900 325,200 1,302,000
<FN>
- ------------------------
* Including lease, utility and sales promotional expenses.
</TABLE>

The term "overhead costs" represents (a) the expenses of operating the
branch offices of Prudential Securities and Pruco Securities Corporation, an
affiliated broker-dealer (Prusec), in connection with the sale of Fund shares,
including lease costs, the salaries and employee benefits of operations and
sales support personnel, utility costs, communication costs and the costs of
stationery and supplies, (b) the cost 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

B-18
<PAGE>

Prospectus. For the fiscal year ended July 31, 1995, Prudential Securities
received approximately $963,500 and $714,000 on behalf of the Balanced Portfolio
and Strategy Portfolio, respectively, in contingent deferred sales charges
attributable to Class B shares.

CLASS C PLAN. For the fiscal year ended July 31, 1995, Prudential Securities
received $9,153 and $1,692 on behalf of the Balanced Portfolio and Strategy
Portfolio, respectively, under the Class C Plan and spent approximately $15,300
and $2,100, respectively, 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 ($5,000 and $900, respectively), (ii) payments to
Prusec ($3,400 and $200, respectively) and (iii) an allocation of overhead and
other branch office distribution related expenses for payments of related
expenses ($6,900 and $1,000, respectively). 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. For the fiscal year ended
July 31, 1995, Prudential Securities received approximately $2,500 and $400 on
behalf of the Balanced Portfolio and Strategy Portfolio, respectively, in
contingent deferred sales charges attributable to Class C shares.

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 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 Portfolios 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, 1995.

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 a Portfolio 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

B-19
<PAGE>
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 3, 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 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 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 and
options on securities and futures for each Portfolio of the Fund, the selection
of brokers, dealers and futures commission merchants to effect the transactions
and the negotiation of brokerage commissions, if any. The term "Manager" as used
in this section includes the Subadviser. Broker-dealers may receive brokerage
commissions on 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 and bonds, including convertible
bonds, 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

B-20
<PAGE>
selected for the execution of transactions of such other accounts, whose
aggregate assets are far larger than the Fund's, and the services furnished by
such brokers, dealers or futures commission merchants may be used by the Manager
in providing investment management for the Fund. Commission rates are
established pursuant to negotiations with the broker, dealer or futures
commission merchant based on the quality and quantity of execution services
provided by the broker, dealer or futures commission merchant in the light of
generally prevailing rates. The policy of the Manager 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 Manager's opinion, this policy furthers the objective of
obtaining best price and execution. In addition, the Manager is authorized to
pay higher commissions on brokerage transactions for the Fund to brokers 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
Portfolios' ability to pursue their present investment objectives. However, in
the future in other circumstances, the Portfolios 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 contracts being purchased or sold on an exchange
or board of trade during a comparable period of time. This standard would allow
Prudential Securities (or any affiliate) to receive no more than the
remuneration which would be expected to be received by an unaffiliated broker or
futures commission merchant in a commensurate 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) of the Securities Exchange Act of 1934, Prudential
Securities may not retain compensation for effecting transactions on a national
securities exchange for a Portfolio 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 Portfolios
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.

Transactions in options by the Fund will be subject to limitations
established by each of the exchanges governing the maximum number of options
which may be written or held by a single investor or group of investors acting
in concert, regardless of whether the options are written or held on the same or
different exchanges or are written or held in one or more accounts or through
one or more brokers. Thus, the number of options which the Fund may write or
hold may be affected by options written or held by the Manager and other
investment advisory clients of the Manager. An exchange may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.

The table below sets forth information concerning the payment of commissions
by the Fund, including the amount of such commissions paid to Prudential
Securities, for the three years ended July 31, 1995:

<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, JULY 31, JULY 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Total brokerage commissions paid by the Fund.................................. $ 1,810,839 $ 906,929 $ 714,203
Total brokerage commissions paid to Prudential
Securities................................................................... $ 106,448 $ 49,834 $ 38,171
Percentage of total brokerage commissions paid to Prudential
Securities................................................................... 5.9% 5.5% 5.3%
</TABLE>

The Fund effected approximately 7.7% of the total dollar amount of its
transactions involving the payment of commissions to Prudential Securities
during the year ended July 31, 1995. Of the total brokerage commissions paid
during such period,

B-21
<PAGE>

$735,333 and $745,713 (or 78.3% and 85.5%), respectively, were paid to firms
which provide research, statistical or other services to PMF on behalf of the
Balanced Portfolio and Strategy Portfolio, respectively. PMF has not separately
identified a portion of such brokerage commissions as applicable to the
provision of such research, statistical or other services.

PURCHASE AND REDEMPTION OF FUND SHARES

Shares of each Portfolio 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). See
"Shareholder Guide--How to Buy Shares of the Fund" in the Prospectus.

Each class of shares represents an interest in the same portfolio of
investments of each Portfolio 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."

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
each Portfolio's net asset value at July 31, 1995, the maximum offering price of
the Fund's shares is as follows:

<TABLE>
<CAPTION>
BALANCED STRATEGY
PORTFOLIO PORTFOLIO
--------- -------
<S> <C> <C>
CLASS A
Net asset value and redemption price per Class A share..... $12.04 $ 12.48
Maximum sales charge (5% of offering price)................ .63 .66
--------- ------
Maximum offering price to public........................... $12.67 $ 13.14
--------- ------
--------- ------
CLASS B
Net asset value, offering price and redemption price to
public per Class B share*................................ $12.00 $ 12.41
--------- ------
--------- ------
CLASS C
Net asset value, offering price and redemption price to
public per Class C share*................................ $12.00 $ 12.41
--------- ------
--------- ------
<FN>
- ------------------------
* 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.
</TABLE>

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;

(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);

B-22
<PAGE>
(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;

(g) one or more employee benefits plans of a company controlled by an
individual; and

(h) (i) a client of a Prudential Securities financial adviser who gives such
financial adviser discretion to purchase the Prudential Mutual Funds for his or
her account only in connection with participation in a market timing program and
for which program Prudential Securities receives a separate advisory fee or (ii)
a client of an unaffiliated registered investment adviser which is a client of a
Prudential Securities financial adviser, if such unaffiliated adviser has
discretion to purchase the Prudential Mutual Funds for the accounts of his or
her customers but only if the client of such unaffiliated adviser participates
in a market timing program conducted by such unaffiliated adviser; provided such
accounts in the aggregate have assets of at least $15 million invested in the
Prudential Mutual Funds.

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 a
Portfolio 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
shareholder is entitled to a reduced sales charge. The reduced sales charge will
be granted subject to confirmation of the investor's holdings. Rights of
Accumulation are not available to individual participants in any retirement or
group plans.

LETTERS OF INTENT. Reduced sales charges are 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 a Portfolio and shares of other Prudential
Mutual Funds. All shares of each Portfolio 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 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. If the goal is exceeded in
an amount which

B-23
<PAGE>
qualifies for a lower sales charge, a price adjustment is made by refunding to
the purchaser the amount of excess sales charge, if any, paid during the
thirteen-month period. Investors electing to purchase Class A shares of a
Portfolio 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.

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

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

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

The CDSC is reduced on redemptions of Class B shares of a Portfolio
purchased prior to August 1, 1994 if, immediately after a purchase of such
shares, the aggregate cost of all Class B shares of the Portfolio owned by you
in a single account exceeded $500,000. For example, if you purchased $100,000 of
Class B shares of the Portfolio and the following year purchased an additional
$450,000 of Class B shares with the result that the aggregate cost of your Class
B shares of the Portfolio 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 OVER $1
PAYMENT MADE $500,001 TO $1 MILLION MILLION
- ----------------------------------- ---------------------- --------------
<S> <C> <C>
First.............................. 3.0% 2.0%
Second............................. 2.0% 1.0%
Third.............................. 1.0% 0%
Fourth and thereafter.............. 0% 0%
</TABLE>

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

B-24
<PAGE>
SHAREHOLDER INVESTMENT ACCOUNT

Upon the initial purchase of shares of any Portfolio, 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 a Portfolio. 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. The 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
shareholders will receive credit for any contingent deferred sales charge paid
in connection with the amount of proceeds being reinvested.

EXCHANGE PRIVILEGE

Each Portfolio of the Fund makes available to its shareholders the privilege
of exchanging their shares 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 a Portfolio. 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 a Portfolio may exchange their Class A shares for
Class A shares of another Portfolio, 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.

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 each Portfolio may exchange their Class
B and Class C shares for Class B and Class C shares, respectively, of another
Portfolio, shares of certain other Prudential Mutual Funds and shares of
Prudential Special Money Market Fund, a money market fund. No CDSC will be
payable upon such exchange, but a CDSC may be payable

B-25
<PAGE>
upon the redemption of the Class B and Class C shares acquired as a result of an
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 each Portfolio may also be exchanged for
shares of an eligible 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 each Portfolio, 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 sixty days' notice, and any fund, including the Fund,
or the Distributor, has the right to reject any exchange application relating to
such fund's shares.

DOLLAR COST AVERAGING

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

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

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

<TABLE>
<CAPTION>
PERIOD OF
MONTHLY INVESTMENTS: $100,000 $150,000 $200,000 $250,000
- -------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
25 Years.................. $ 110 $ 165 $ 220 $ 275
20 Years.................. 176 264 352 440
15 Years.................. 296 444 592 740
10 Years.................. 555 833 1,110 1,388
5 Years................... 1,371 2,057 2,742 3,428

See "Automatic Savings Accumulation Plan."
<FN>
- ------------------------
(1) Source information concerning the costs of education at public and private
universities is available from The College Board Annual Survey of Colleges,
1993. Average costs for private institutions include tuition, fees, room and
board for the 1993-1994 academic year.
(2) The chart assumes an effective rate of return of 8% (assuming compounding).
This example is for illustrative purposes only and is not intended to reflect
the performance of an investment in shares of the Fund. The investment return
and principal value of an investment will fluctuate so that an investor's shares
when redeemed may be worth more or less than their original cost.
</TABLE>

B-26
<PAGE>
AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP)

Under ASAP, an investor may arrange to have a fixed amount automatically
invested in shares of a Portfolio 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 Portfolio. 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 plan, particularly if used in connection with a
retirement plan.

TAX-DEFERRED RETIREMENT PLANS

Various qualified 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 ACCOUNT. 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

B-27
<PAGE>
personal savings account with those in an IRA, assuming a $2,000 annual
contribution, an 8% rate of return and a 39.6% federal income tax bracket and
shows how much more retirement income can accumulate within an IRA as opposed to
a taxable individual savings account.

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

MUTUAL FUND PROGRAMS

From time to time, the Fund (or a portfolio of the Fund) may be included in
a mutual fund program with other Prudential Mutual Funds. Under such a program,
a group of portfolios will be selected and thereafter promoted collectively.
Typically, these programs are created with an investment theme, 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.

NET ASSET VALUE

Under the Investment Company Act, the Trustees are responsible for
determining in good faith the fair value of securities of the Fund. In
accordance with procedures adopted by the Trustees, the value of investments
listed on a securities exchange and NASDAQ National Market System securities
(other than options on stock and stock indices) are valued at the last sales
price on the day of valuation, or, if there was no sale on such day, the mean
between the last bid and asked prices on such day, as provided by a pricing
service or principal market maker. Corporate bonds (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 on the basis of valuations
provided by a pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, agency ratings, market
transactions in comparable securities and various relationships between
securities in determining value. 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 last reported bid and asked prices provided by principal market
maker. Options on stock and stock indices traded on an exchange are valued at
the mean between the most recently quoted bid and asked prices on the respective
exchange and futures contracts and options thereon are valued at their last
sales prices as of the close of the commodities exchange or board of trade.
Quotations of foreign securities in a foreign currency are converted to U.S.
dollar equivalents at the current rate obtained from a recognized bank or dealer
and forward currency exchange contracts are valued at the current cost of
covering or offsetting such contracts. Should an extraordinary event, which is
likely to affect the value of the security, occur after the close of an exchange
on which a portfolio security is traded, such security will be valued at fair
value considering factors determined in good faith by the investment adviser
under procedures established by and under the general supervision of the Fund's
Trustees.

Securities or other assets for which market quotations are not readily
available are valued at their fair value as determined in good faith by the
Trustees. Short-term debt securities are valued at cost, with interest accrued
or discount amortized to the date

B-28
<PAGE>
of maturity, if their original maturity was 60 days or less, unless this is
determined by the Trustees not to represent fair value. Short-term securities
with remaining maturities of more than 60 days, for which market quotations are
readily available, are valued at their current market quotations as supplied by
an independent pricing agent or principal market maker. The Fund will compute
its net asset value at 4:15 P.M., New York time, on each day the New York Stock
Exchange is open for trading except on days on which no orders to purchase, sell
or redeem Fund shares have been received or days on which changes in the value
of the Fund's portfolio securities do not affect net asset value. In the event
the New York Stock Exchange closes early on any business day, the net asset
value of the Portfolio's shares shall be determined at a time between such
closing and 4:15 P.M., New York time.

Net asset value is calculated separately for each class. 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

For federal tax purposes, each Portfolio is treated as a separate taxable
entity. Each Portfolio of 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 Portfolio (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 capital gains of the Portfolio (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 Portfolio are held. Net capital gains of a Portfolio which are available for
distribution to shareholders will be computed by taking into account any capital
loss carryforward of that Portfolio.

Qualification of a Portfolio as a regulated investment company requires,
among other things, that (a) at least 90% of the Portfolio's annual gross
income, without offset for losses from the sale or other disposition of
securities, be derived from payments with respect to securities loans, interest,
dividends and gains from the sale or other disposition of securities, futures
contracts 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 Portfolio derive less than 30% of its gross income from gains (without
offset for losses) from the sale or other disposition of securities, options
thereon, futures contracts, 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 Portfolio diversify its holdings so that, at the end of each quarter of
the taxable year, (i) at least 50% of the market value of its assets is
represented by cash, U.S. Government securities and other securities limited in
respect of any one issuer to an amount not greater than 5% of the market value
of the assets of the Portfolio 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 each Portfolio of 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 Portfolio acquires a
put or writes a call thereon or makes a short sale against-the-box. 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 a Portfolio on securities lapses or is terminated through a
closing transaction, such as a repurchase by the Portfolio of the option from
its holder, the Portfolio will generally realize short-term capital gain or
loss. If securities are sold by the Portfolio pursuant to the exercise of a call
option written by it, the Portfolio will include the premium received in the
sale proceeds of the securities delivered in determining the amount of gain or
loss on the sale. If securities are purchased by a Portfolio pursuant to the
exercise of a put option written by it, the Portfolio will subtract the premium
received from its cost basis in the securities purchased. Certain transactions
of a Portfolio 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 Portfolios may be subject to original issue discount
and market discount rules.

Special rules will apply to most options on stock indices, futures contracts
and options thereon, and forward foreign currency exchange contracts in which
the Portfolios may invest. See "Investment Objectives and Policies." These
investments

B-29
<PAGE>
will generally constitute "Section 1256 contracts" and will be required to be
"marked to market" for federal income tax purposes at the end of each
Portfolio's taxable year; that is, treated as having been sold at market value.
Except with respect to forward foreign currency exchange contracts, 60 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. The Portfolios' ability to invest in
forward foreign currency exchange contracts, options on equity securities and on
stock indices, futures contracts and options thereon may be affected by the 30%
limitation on gains derived from securities held less than three months,
discussed above.

Gains or losses attributable to fluctuations in exchange rates which occur
between the time a Portfolio accrues interest or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time the
Portfolio 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 Portfolio's investment company taxable
income available to be distributed to its shareholders as ordinary income,
rather than increasing or decreasing the amount of the Portfolio's net capital
gain. If Section 988 losses exceed other investment company taxable income
during a taxable year, the Portfolio 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 Portfolio
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 applicable
Portfolio 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 any
Portfolio 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.

Each Portfolio of 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. Each Portfolio 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, each Portfolio 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 year, respectively. To the extent it does not meet
these distribution requirements, a Portfolio will be subject to a nondeductible
4% excise tax on the undistributed amount. For purposes of this excise tax,
income on which a Portfolio pays income tax is treated as distributed.

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 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."

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-30
<PAGE>
PERFORMANCE INFORMATION

AVERAGE ANNUAL TOTAL RETURN. Each Portfolio of 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 = a 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 the Class A shares for the one year,
five year and since inception (January 22, 1990) periods ended July 31, 1995 was
7.98%, 9.87% and 10.17% for the Balanced Portfolio and 8.25%, 9.35% and 9.56%
for the Strategy Portfolio, respectively. The average annual total return for
the Class B shares for the one and five year and since inception (September 15,
1987) periods ended July 31, 1995 was 7.79%, 10.02% and 8.53% for the Balanced
Portfolio and 8.05%, 9.47% and 8.43% for the Strategy Portfolio, respectively.
The average annual total return for the Class C shares for the one year period
ended July 31, 1995 was 11.53% and 11.80% for the Balanced Portfolio and the
Strategy Portfolio, respectively.

AGGREGATE TOTAL RETURN. Each Portfolio 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 a Portfolio of the Fund and is computed according to the following
formula:
ERV - 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 year, five year
and since inception (January 22, 1990) periods ended July 31, 1995 was 13.67%,
18.51% and 79.62% for the Balanced Portfolio and 13.95%, 64.60% and 74.19% for
the Strategy Portfolio, respectively. The aggregate total return for Class B
shares for the one and five year and since inception (September 15, 1987)
periods ended July 31, 1995 was 12.79%, 62.22% and 90.57% for the Balanced
Portfolio and 13.05%, 58.18% and 89.18% for the Strategy Portfolio,
respectively. The aggregate total return for Class C shares for the one year
period ended July 31, 1995 was 12.49% and 12.75% for the Balanced Portfolio and
the Strategy Portfolio, respectively.

YIELD. A Portfolio of 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. This yield will be computed by dividing the
Portfolio'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

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

B-31
<PAGE>
Yield fluctuates and an annualized yield quotation is not a representation
by the Fund as to what an investment in a Portfolio will actually yield for any
given period.

The 30-day yields for the period ended July 31, 1995 were 1.93% and 2.14%
for the Class A shares of the Balanced Portfolio and the Strategy Portfolio,
respectively; and 1.29% and 1.51% for the Class B shares of the Balanced
Portfolio and the Strategy Portfolio, respectively; and 1.35% and 1.52% for the
Class C shares of the Balanced Portfolio and the Strategy Portfolio,
respectively.

From time to time, the performance of the Portfolios 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)

[GRAPH]

(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 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 has 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 appropriate Portfolio 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.

B-32
<PAGE>
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 or the property of the appropriate Portfolio for satisfaction
of claims arising in connection with the affairs of the Fund or of the
particular Portfolio of the Fund, respectively. 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.

The Fund and each Portfolio thereof 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, issued in separate Portfolios and
divided into separate classes. Each Portfolio of the Fund, for federal income
tax and Massachusetts state law purposes, will constitute a separate trust which
will be governed by the provisions of the Declaration of Trust. All shares of
any Portfolio issued and outstanding are fully paid and nonassessable by the
Fund. Each share of each Portfolio represents an equal proportionate interest in
that Portfolio with each other share of that Portfolio. The assets of the Fund
received for the issue or sale of the shares of each Portfolio and all income,
earnings, profits and proceeds thereof, subject only to the rights of creditors
of that Portfolio, are specially allocated to the Portfolio and constitute the
underlying assets of the Portfolio. The underlying assets of each Portfolio are
segregated on the books of account and are to be charged with the liabilities in
respect to the Portfolio and with a share of the general liabilities of the
Fund. Under no circumstances would the assets of a Portfolio be used to meet
liabilities that are not otherwise properly chargeable to it. Expenses with
respect to any two or more Portfolios are to be allocated in proportion to the
asset value of the respective Portfolio except where allocations of direct
expenses can otherwise be fairly made. The officers of the Fund, subject to the
general supervision of the Trustees, have the power to determine which
liabilities are allocable to a given Portfolio or which are general. Upon
redemption of shares of a Portfolio of the Fund, the shareholder will receive
proceeds solely of the assets of such Portfolio. In the event of the dissolution
or liquidation of the Fund, the holders of the shares of any Portfolio are
entitled to receive as a class the underlying assets of that Portfolio available
for distribution to shareholders.

Shares of the Fund entitle their holders to one vote per share. Matters will
be acted upon by the vote of the shareholders of each Portfolio separately,
except to the extent otherwise provided in the Investment Company Act. A change
in the investment objective or investment restrictions for a Portfolio would be
voted upon only by shareholders of the Portfolio involved. In addition, approval
of the investment advisory agreement is a matter to be determined separately by
each Portfolio. Approval by the shareholders of a Portfolio is effective as to
that Portfolio whether or not enough votes are received from the shareholders of
the other Portfolio to approve the proposal as to that Portfolio.

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 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 at
all times at least a majority of the Trustees has been elected by the
shareholders of the Fund. The voting rights of shareholders are not cumulative,
so that holders of more than 50% 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.

B-33
<PAGE>
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 Transfer and Dividend Disbursing Agent of the Fund. It
is a wholly-owned subsidiary of PMF. PMFS provides customary transfer agency
services to the Fund, including the handling of shareholder communications, the
processing of shareholder transactions, the maintenance of shareholder account
records, 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 communications expenses and other costs. For the fiscal year
ended July 31, 1995, the Fund incurred fees of approximately $1,396,000
($711,000--Balanced Portfolio and $685,000--Strategy Portfolio) 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-34
<PAGE>
PRUDENTIAL ALLOCATION FUND
Portfolio of Investments as of July 31, 1995 BALANCED PORTFOLIO*
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- -------------------------------------------------------------------------
LONG-TERM INVESTMENTS--86.1%
COMMON STOCKS--55.0%
- --------------------------------------------------------------------------
Aerospace/Defense--1.1%
60,000 Boeing Co. $ 4,020,000
116,400 Gencorp, Inc. 1,353,150
-------------
5,373,150
- ------------------------------------------------------------
Automotive--0.8%
150,000 Ford Motor Co. 4,331,250
- ------------------------------------------------------------
Chemicals--0.9%
140,000 Agrium Inc. (Canada) 4,869,964
- ------------------------------------------------------------
Computer & Related Equipment--9.5%
135,000 Bay Networks* 6,058,125
80,000 Cisco Systems, Inc.* 4,450,000
50,000 Compaq Computer Corp.* 2,537,500
222,000 EMC Corp.* 5,078,250
100,000 Intel Corp. 6,500,000
85,000 Motorola, Inc. 6,513,125
172,500 Network Express, Inc.* 3,212,812
117,800 Quad Systems Corp.* 1,060,200
130,000 Seagate Technology* 5,768,750
160,000 Sun Microsystems, Inc.* 7,700,000
-------------
48,878,762
- ------------------------------------------------------------
Consumer Products--0.6%
158,500 Whitman Corp. 3,090,750
- ------------------------------------------------------------
Containers & Packaging--0.7%
160,000 Stone Container Corp.* 3,460,000
- ------------------------------------------------------------
Drugs & Health Care--5.3%
100,000 Columbia Healthcare Corp. 4,900,000
100,000 Forest Laboratories, Inc.* 4,437,500
35,000 Johnson & Johnson Co. 2,511,250
119,800 Physician Corp. of America* 1,957,981
70,000 St. Jude Medical, Inc. $ 3,832,500
50,100 Tenet Healthcare Corp. 764,025
133,800 U.S. HealthCare, Inc. 4,231,425
117,400 Ventritex, Inc.* 1,871,063
50,000 Zeneca Group PLC (United Kingdom) 2,668,750
-------------
27,174,494
- ------------------------------------------------------------
Electronics--5.4%
25,300 ADT Ltd.* 303,600
35,000 Applied Materials, Inc.* 3,622,500
77,000 Integrated Device Technology, Inc.* 4,822,125
51,000 KLA Instruments Corp.* 4,424,250
60,000 Loral Corp. 3,360,000
43,700 MEMC Electronic Materials, Inc.* 1,316,463
98,400 Tencor Instruments* 4,329,600
185,500 VLSI Technology, Inc.* 5,495,437
-------------
27,673,975
- ------------------------------------------------------------
Financial Services--6.5%
138,800 Ahmanson (H.F.) & Co. 3,105,650
70,000 Citicorp 4,366,250
124,500 Dean Witter Discover & Co. 6,287,250
60,900 Federal National Mortgage Association 5,701,762
85,000 NationsBank Corp. 4,770,625
47,300 Republic New York Corp. 2,648,800
130,000 Salomon, Inc. 4,793,750
166,600 Western National Corp. 1,978,375
-------------
33,652,462
- ------------------------------------------------------------
Home Improvements--1.2%
115,000 Owens-Corning Fiberglass* 4,513,750
119,400 Ply Gem Industries, Inc. 1,850,700
-------------
6,364,450
- ------------------------------------------------------------
Hotels & Leisure--0.6%
144,700 Carnival Corp. 3,273,838

</TABLE>
- --------------------------------------------------------------------------------
*See Note 8.
See Notes to Financial Statements.

B-35

<PAGE>
PRUDENTIAL ALLOCATION FUND
Portfolio of Investments as of July 31, 1995 BALANCED PORTFOLIO*
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- --------------------------------------------------------------
Insurance--6.1%
35,400 Berkley (W. R.) Corp. $ 1,358,475
26,900 Chubb Corp. 2,243,702
57,300 Emphesys Financial Group, Inc. 1,640,213
210,000 Equitable Cos., Inc. 4,698,750
90,000 Equitable of Iowa Cos. 2,925,000
75,800 PMI Group Inc. 3,524,700
163,600 SunAmerica, Inc. 9,366,100
119,400 Travelers Corp. 5,656,575
-------------
31,413,515
- ------------------------------------------------------------
Machinery & Equipment--0.9%
44,100 Regal Beloit Corp. 904,050
225,000 Smith International, Inc.* 3,825,000
-------------
4,729,050
- ------------------------------------------------------------
Mining--0.7%
300,000 Santa Fe Pacific Gold Corp.* 3,750,000
- ------------------------------------------------------------
Oil & Gas--3.3%
106,200 Cabot Corp. 1,486,800
148,000 Mesa, Inc.* 629,000
187,300 Noble Drilling Corp.* 1,217,450
157,300 Oryx Energy Co. 2,261,187
44,700 Parker & Parsley Petroleum Co. 866,063
143,600 Repsol S.A. (ADR) (Spain) 4,792,650
89,000 Seagull Energy Corp.* 1,590,875
222,000 YPF Sociedad Anonima (ADS)
(Argentina) 3,857,250
-------------
16,701,275
- ------------------------------------------------------------
Petroleum Services--2.2%
230,000 BJ Services Corp.* 5,721,250
75,000 Exxon Corp. 5,437,500
-------------
11,158,750
Realty Investment Trust--0.3%
92,200 Manufactured Home Community, Inc. $ 1,463,675
- ------------------------------------------------------------
Retail--1.0%
152,700 Caldor Corp.* 2,080,538
106,000 Dillard Department Stores, Inc. 3,286,000
-------------
5,366,538
- ------------------------------------------------------------
Software--2.5%
121,600 Baan Company N.V.* (Netherlands) 4,058,400
60,000 Computer Associates International,
Inc. 4,402,500
50,000 Microsoft Corp.* 4,525,000
-------------
12,985,900
- ------------------------------------------------------------
Steel & Metals--0.9%
150,000 National Steel Corp.* 2,400,000
70,000 Trinity Industries, Inc. 2,345,000
-------------
4,745,000
- ------------------------------------------------------------
Telecommunications--2.4%
62,100 AirTouch Communications* 1,956,150
200,000 NEXTEL Communications, Inc.* 3,875,000
152,800 Tele-Communications, Inc.* 3,820,000
75,000 Telefonos de Mexico, Series A (ADR)
(Mexico) 2,475,000
-------------
12,126,150
- ------------------------------------------------------------
Textiles--1.0%
220,000 Fruit of the Loom, Inc.* 5,087,500
- ------------------------------------------------------------
Tobacco--1.1%
200,000 RJR Nabisco Holdings Corp. 5,525,000
-------------
Total common stocks (cost
$245,361,408) 283,195,448
</TABLE>

- --------------------------------------------------------------------------------
*See Note 8.
See Notes to Financial Statements.

B-36

<PAGE>
PRUDENTIAL ALLOCATION FUND
Portfolio of Investments as of July 31, 1995 BALANCED PORTFOLIO*
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
<C> <C> <S> <C>
- --------------------------------------------------------------------------
DEBT OBLIGATIONS--31.1%
CORPORATE BONDS--6.6%
- ------------------------------------------------------------
Electronics--0.4%
Westinghouse Electric Corp.,
Ba1 $ 2,500 6.875%, 9/1/03 $ 2,280,825
- ------------------------------------------------------------
Financial Services--2.3%
Associates Corp. of North
America,
Aa3 750 6.875%, 1/15/97 756,172
Aa3 200 8.375%, 1/15/98, Sr. Note, 208,290
Financiera Energetica
Nacional (Columbia)
BBB-# 900 6.625%, 12/13/96 893,250
First Union Corp., Sub.
Note,
A3 1,000 9.45%, 6/15/99 1,082,240
Ford Motor Credit Co.,
A1 5,000 7.75%, 3/15/05 5,212,800
Kansallis-Osake-Pankki
Bank, (Finland)
A3 1,000 6.125%, 5/15/98 989,850
Ba1 1,000 8.65%, 12/29/49 1,042,500
PT Alatief Freeport
Finance, Sr. Note,
(Netherlands)
Ba2 1,400 9.75%, 4/15/01 1,414,000
------------
11,599,102
- ------------------------------------------------------------
Food & Beverage--0.1%
Coca Cola Enterprises,
Inc.,
A3 500 6.50%, 11/15/97 502,995
- ------------------------------------------------------------
Media--0.3%
Grupo Televisa, Sa De
Euro, (MTN) (Mexico)
Ba2 1,400 10.00%, 11/9/97 1,317,750
Oil & Gas--0.2%
Arkla, Inc., (MTN)
Ba1 $ 1,000 9.30%, 1/15/98 $ 1,038,270
- ------------------------------------------------------------
Petroleum Services--0.2%
Empresa De Petroleos,
(Columbia)
BBB-# 1,000 7.25%, 7/8/98 980,000
- ------------------------------------------------------------
Retail--1.0%
K Mart Corp.,
Baa1 5,000 8.125%, 12/1/06 5,084,650
- ------------------------------------------------------------
Shipping--0.2%
Compania SudAmericana
De Vapores, (Chile)
BBB-# 1,100 7.375%, 12/8/03 1,039,500
- ------------------------------------------------------------
Tobacco--0.9%
RJR Nabisco, Inc.,
Baa3 5,000 7.625%, 9/15/03 4,872,600
- ------------------------------------------------------------
Tourism/Resorts--1.0%
Royal Caribbean Cruises
Ltd.,
Baa3 5,000 8.25%, 4/1/05 5,187,750
------------
Total corporate bonds
(cost $33,379,339) 33,903,442
- ------------------------------------------------------------
SOVEREIGN BONDS--0.2%
- ------------------------------------------------------------
United Mexican States,
(Mexico)
Ba2 1,225 8.50%, 9/15/02
(cost $1,122,069) 1,022,875
</TABLE>
- --------------------------------------------------------------------------------
*See Note 8.
See Notes to Financial Statements.

B-37

- ---------------
* Non-income producing security.
# S&P rating.
ADR--American Depository Receipt.
ADS--American Depository Shares.
MTN--Medium Term Note.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Prospectus contains a description of Moody's and Standard &
Poor's ratings.
- --------------------------------------------------------------------------------
*See Note 8.
See Notes to Financial Statements.

B-38

<PAGE>
PRUDENTIAL ALLOCATION FUND
Statement of Assets and Liabilities BALANCED PORTFOLIO*
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets July 31, 1995
Investments, at value (cost $469,556,203).................................................................... $508,381,980
Receivable for investments sold.............................................................................. 22,637,791
Receivable for Fund shares sold.............................................................................. 5,289,720
Dividends and interest receivable............................................................................ 3,431,481
Deferred expenses............................................................................................ 10,579
------------
Total assets.............................................................................................. 539,751,551
------------
Liabilities
Bank overdraft............................................................................................... 8,566
Payable for investments purchased............................................................................ 23,092,390
Payable for Fund shares reacquired........................................................................... 656,792
Distribution fee payable..................................................................................... 356,645
Management fee payable....................................................................................... 280,037
Accrued expenses............................................................................................. 192,071
------------
Total liabilities......................................................................................... 24,586,501
------------
Net Assets................................................................................................... $515,165,050
------------
------------
Net assets were comprised of:
Shares of beneficial interest, at par..................................................................... $ 429,002
Paid-in capital in excess of par.......................................................................... 454,815,020
------------
455,244,022
Undistributed net investment income....................................................................... 1,914,605
Accumulated net realized gain on investments.............................................................. 19,180,646
Net unrealized appreciation on investments................................................................ 38,825,777
------------
Net Assets, July 31, 1995.................................................................................... $515,165,050
------------
------------
Class A:
Net asset value and redemption price per share
($119,828,557 / 9,951,069 shares of beneficial interest issued and outstanding)........................ $12.04
Maximum sales charge (5% of offering price)............................................................... .63
------------
Maximum offering price to public.......................................................................... $12.67
------------
------------
Class B:
Net asset value, offering price and redemption price per share
($392,290,710 / 32,695,277 shares of beneficial interest issued and outstanding)....................... $12.00
------------
------------
Class C:
Net asset value, offering price and redemption price per share
($3,045,783 / 253,825 shares of beneficial interest issued and outstanding)............................ $12.00
------------
------------
</TABLE>

- --------------------------------------------------------------------------------
*See Note 8.
See Notes to Financial Statements.

B-39

<PAGE>
PRUDENTIAL ALLOCATION FUND
BALANCED PORTFOLIO*
Statement of Operations
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income July 31, 1995
<S> <C>
Income
Interest $ 16,851,017
Dividends (net of foreign withholding taxes
of $67,443).............................. 3,714,618
-------------
Total income............................. 20,565,635
-------------
Expenses
Distribution fee--Class A................... 174,385
Distribution fee--Class B................... 4,094,190
Distribution fee--Class C................... 9,153
Management fee.............................. 3,120,574
Transfer agent's fees and expenses.......... 972,000
Reports to shareholders..................... 264,000
Custodian's fees and expenses............... 159,000
Registration fees........................... 71,000
Legal fees.................................. 26,000
Trustees' fees and expenses................. 22,300
Audit fee and expenses...................... 16,500
Insurance................................... 13,700
Miscellaneous............................... 6,282
-------------
Total expenses........................... 8,949,084
-------------
Net investment income.......................... 11,616,551
-------------
Realized and Unrealized Gain (Loss)
on Investments
Net realized gain (loss) on:
Investment transactions..................... 24,868,871
Foreign currency transactions............... (13,031)
-------------
24,855,840
Net change in unrealized appreciation on
investments................................. 21,889,387
-------------
Net gain on investments........................ 46,745,227
-------------
Net Increase in Net Assets Resulting
from Operations................................ $ 58,361,778
-------------
-------------
</TABLE>

PRUDENTIAL ALLOCATION FUND
BALANCED PORTFOLIO*
Statement of Changes in Net Assets

<TABLE>
<CAPTION>
Increase (Decrease) Year Ended July 31,
<S> <C> <C>
in Net Assets 1995 1994
Operations
Net investment income......... $ 11,616,551 $ 8,998,851
Net realized gain on
investments and foreign
currency transactions...... 24,855,840 8,854,437
Net change in unrealized
appreciation (depreciation)
of investments............. 21,889,387 (13,575,563)
------------- ------------
Net increase in net assets
resulting from
operations................. 58,361,778 4,277,725
------------- ------------
Net equalization credits
(debits)...................... (108,882) 1,077,644
------------- ------------
Dividends and distributions (Note
1)
Dividends to shareholders from
net investment income
Class A.................... (2,234,935) (970,829)
Class B.................... (9,204,130) (9,728,864)
Class C.................... (21,646) --
------------- ------------
(11,460,711) (10,699,693)
------------- ------------
Distributions to shareholders
from net realized gains on
investment transactions
Class A.................... (701,041) (1,247,471)
Class B.................... (7,720,336) (16,812,829)
Class C.................... (13,746) --
------------- ------------
(8,435,123) (18,060,300)
------------- ------------
Fund share transactions (net of
share conversions) (Note 6)
Net proceeds from shares
subscribed................. 177,082,017 216,417,990
Net asset value of shares
issued to shareholders in
reinvestment of dividends
and distributions.......... 18,598,887 26,617,480
Cost of shares reacquired..... (201,993,090) (80,947,022)
------------- ------------
Net increase (decrease) in net
assets from Fund shares
transactions............... (6,312,186) 162,088,448
------------- ------------
Total increase................... 32,044,876 138,683,824
Net Assets
Beginning of year................ 483,120,174 344,436,350
------------- ------------
End of year...................... $ 515,165,050 $483,120,174
------------- ------------
------------- ------------
</TABLE>

- --------------------------------------------------------------------------------
*See Note 8.
See Notes to Financial Statements.

B-40

<PAGE>
PRUDENTIAL ALLOCATION FUND
Portfolio of Investments as of July 31, 1995 STRATEGY PORTFOLIO
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
-----------------------------------------------------------------
LONG-TERM INVESTMENTS--89.2%
COMMON STOCKS--60.1%
- ------------------------------------------------------------------
Aerospace/Defense--0.9%
51,000 Boeing Co. $ 3,417,000
- ------------------------------------------------------------
Automotive--1.1%
140,000 Ford Motor Co. 4,042,500
- ------------------------------------------------------------
Chemicals--1.3%
130,000 Agrium Inc. (Canada) 4,522,110
- ------------------------------------------------------------
Computer & Related Equipment--10.1%
100,000 Bay Networks* 4,487,500
70,000 Cisco Systems, Inc.* 3,893,750
45,000 Compaq Computer Corp.* 2,283,750
164,000 EMC Corp.* 3,751,500
75,000 Intel Corp. 4,875,000
65,000 Motorola, Inc. 4,980,625
135,500 Network Express, Inc.* 2,523,687
94,200 Quad Systems Corp.* 847,800
72,000 Seagate Technology* 3,195,000
130,000 Sun Microsystems, Inc.* 6,256,250
-------------
37,094,862
- ------------------------------------------------------------
Containers & Packaging--0.8%
140,000 Stone Container Corp.* 3,027,500
- ------------------------------------------------------------
Drugs & Health Care--6.3%
86,000 Columbia Healthcare Corp. 4,214,000
90,000 Forest Laboratories, Inc.* 3,993,750
63,900 Health Care & Retirement Corp.* 2,044,800
27,500 Johnson & Johnson Co. 1,973,125
102,100 Physician Corp. of America* 1,668,697
64,700 St. Jude Medical, Inc. 3,542,325
21,600 Tenet Healthcare Corp. 329,400
113,500 U.S. HealthCare, Inc. $ 3,589,437
102,900 Ventritex, Inc.* 1,639,969
-------------
22,995,503
- ------------------------------------------------------------
Electronics--6.3%
29,000 ADT Ltd.* 348,000
25,000 Applied Materials, Inc.* 2,587,500
40,000 General Electric Co. 2,360,000
59,000 Integrated Device Technology, Inc.* 3,694,875
40,000 KLA Instruments Corp.* 3,470,000
30,100 Loral Corp. 1,685,600
34,100 MEMC Electronic Materials, Inc.* 1,027,262
79,300 Tencor Instruments* 3,489,200
145,000 VLSI Technology, Inc.* 4,295,625
-------------
22,958,062
- ------------------------------------------------------------
Financial Services--7.4%
121,300 Ahmanson ( H.F.) & Co. 2,714,088
70,000 Citicorp 4,366,250
88,300 Dean Witter Discover & Co. 4,459,150
54,100 Federal National Mortgage Assn. 5,065,112
75,000 NationsBank Corp. 4,209,375
43,200 Republic New York Corp. 2,419,200
105,000 Salomon, Inc. 3,871,875
-------------
27,105,050
- ------------------------------------------------------------
Home Improvements--0.9%
65,000 Owens-Corning Fiberglass* 2,551,250
50,000 Ply Gem Industries, Inc. 775,000
-------------
3,326,250
- ------------------------------------------------------------
Hotels & Leisure--1.1%
179,800 Carnival Corp. 4,067,975

</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-41

<PAGE>
PRUDENTIAL ALLOCATION FUND
Portfolio of Investments as of July 31, 1995 STRATEGY PORTFOLIO
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ----------------------------------------------------------------
Information Services--0.5%
59,900 American Business Information, Inc.* $ 1,849,413
- ------------------------------------------------------------
Insurance--5.7%
10,200 Berkley (W. R.) Corp. 391,425
21,400 Chubb Corp. 1,784,953
160,000 Equitable Cos., Inc. 3,580,000
65,700 PMI Group, Inc. 3,055,050
135,400 SunAmerica, Inc. 7,751,650
89,700 Travelers Corp. 4,249,537
-------------
20,812,615
- ------------------------------------------------------------
Mining--1.0%
300,000 Santa Fe Pacific Gold Corp.* 3,750,000
- ------------------------------------------------------------
Oil & Gas--2.7%
105,900 Mesa, Inc.* 450,075
159,000 Noble Drilling Corp.* 1,033,500
118,900 Repsol S.A. (ADR) (Spain) 3,968,287
52,400 Seagull Energy Corp.* 936,650
190,000 YPF Sociedad Anonima (ADS)
(Argentina) 3,301,250
-------------
9,689,762
- ------------------------------------------------------------
Petroleum Services--3.5%
176,000 BJ Services Corp.* 4,378,000
70,000 Exxon Corp. 5,075,000
200,000 Smith International, Inc.* 3,400,000
-------------
12,853,000
- ------------------------------------------------------------
Realty Investment Trust--0.4%
97,300 Manufactured Home Community, Inc. 1,544,638
Retail--1.3%
132,100 Caldor Corp.* $ 1,799,863
93,000 Dillard Department Stores, Inc. 2,883,000
-------------
4,682,863
- ------------------------------------------------------------
Software--2.9%
97,700 Baan Company* (Netherlands) 3,260,738
50,000 Computer Associates International,
Inc. 3,668,750
42,000 Microsoft Corp.* 3,801,000
-------------
10,730,488
- ------------------------------------------------------------
Steel--1.2%
150,000 National Steel Corp.* 2,400,000
60,000 Trinity Industries, Inc. 2,010,000
-------------
4,410,000
- ------------------------------------------------------------
Telecommunications--2.3%
58,500 AirTouch Communications* 1,842,750
150,000 NEXTEL Communications, Inc.* 2,906,250
52,779 Tele-Communications, Inc.* 1,319,475
75,000 Telefonos de Mexico, Series A (ADR)
(Mexico) 2,475,000
-------------
8,543,475
- ------------------------------------------------------------
Textiles--1.3%
200,000 Fruit of the Loom, Inc.* 4,625,000
- ------------------------------------------------------------
Tobacco--1.1%
150,000 RJR Nabisco Holdings Corp. 4,143,750
-------------
Total common stocks (cost
$185,945,464) 220,191,816
</TABLE>

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

B-42

<PAGE>

PRUDENTIAL ALLOCATION FUND
Portfolio of Investments as of July 31, 1995 STRATEGY PORTFOLIO
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <C> <S> <C>
- ---------------------------------------------------------------------
DEBT OBLIGATIONS--29.1%
SOVEREIGN BONDS--3.3%
Argentina Gov't. Bond,
(Argentina)
$ 13,950 Zero Coupon, 9/1/97 $ 6,856,188
German Government Bonds,
(Germany)
7,000 7.375%, 1/3/05 5,259,382
------------
Total (cost $12,277,470) 12,115,570
- ------------------------------------------------------------
U.S. GOVERNMENT SECURITIES--25.8%
United States Treasury
Notes,
43,000 7.50%, 2/15/05 46,090,410
United States Treasury
Bonds,
44,000 7.625%, 2/15/25 48,255,680
------------
Total U.S. Government
Securities
(cost $94,448,437) 94,346,090
------------
Total debt obligations
(cost $106,725,907) 106,461,660
------------
Total long-term
investments
(cost $292,671,371) 326,653,476
------------
- ------------------------------------------------------------
SHORT-TERM INVESTMENTS--11.8%
SOVEREIGN BONDS--0.6%
- ------------------------------------------------------------
Mexican Tesobonos,
(Mexico)
2,348 Zero Coupon, 12/7/95 2,274,643
REPURCHASE AGREEMENT--11.2%
Joint Repurchase
Agreement Account,
5.82%, 8/1/95, (Note 5) $ 40,800,000
$ 40,800
------------
Total short-term
investments
(cost $43,078,628) 43,074,643
- ------------------------------------------------------------
Total Investments--101.0%
(cost $335,749,999; Note
4) 369,728,119
Liabilities in excess of
other assets--(1.0%) (3,644,178)
------------
Net Assets--100% $366,083,941
------------
------------
</TABLE>

- ---------------
* Non-income producing security.
ADR--American Depository Receipt.
ADS--American Depository Share.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-43

<PAGE>
PRUDENTIAL ALLOCATION FUND
Statement of Assets and Liabilities STRATEGY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets July 31, 1995
Investments, at value (cost $335,749,999).................................................................... $369,728,119
Cash......................................................................................................... 34,950
Receivable for investments sold.............................................................................. 16,703,011
Dividends and interest receivable............................................................................ 3,379,850
Receivable for Fund shares sold.............................................................................. 219,527
Deferred expenses and other assets........................................................................... 20,288
------------
Total assets............................................................................................. 390,085,745
------------
Liabilities
Payable for investments purchased............................................................................ 22,560,918
Payable for Fund shares reacquired........................................................................... 784,384
Distribution fee payable..................................................................................... 256,290
Management fee payable....................................................................................... 202,682
Accrued expenses............................................................................................. 197,530
------------
Total liabilities........................................................................................ 24,001,804
------------
Net Assets................................................................................................... $366,083,941
------------
------------
Net assets were comprised of:
Shares of beneficial interest, at par..................................................................... $ 294,618
Paid-in capital in excess of par.......................................................................... 315,051,415
------------
315,346,033
Undistributed net investment income....................................................................... 1,539,281
Accumulated net realized gain on investments.............................................................. 15,225,530
Net unrealized appreciation on investments................................................................ 33,973,097
------------
Net Assets, July 31, 1995.................................................................................... $366,083,941
------------
------------
Class A:
Net asset value and redemption price per share
($87,081,211 / 6,978,363 shares of beneficial interest issued and outstanding)......................... $12.48
Maximum sales charge (5.00% of offering price)............................................................ .66
------------
Maximum offering price to public.......................................................................... $13.14
------------
------------
Class B:
Net asset value, offering price and redemption price per share
($278,713,976 / 22,460,135 beneficial interest issued and outstanding)................................. $12.41
------------
------------
Class C:
Net asset value, offer price and redemption price per share
($288,754 / 23,269 shares of beneficial interest issued and outstanding)............................... $12.41
------------
------------
</TABLE>

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

B-44

<PAGE>
PRUDENTIAL ALLOCATION FUND
STRATEGY PORTFOLIO
Statement of Operations
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income July 31, 1995
<S> <C>
Income
Interest.................................... $ 10,989,653
Dividends (net of foreign withholding taxes
of $58,427).............................. 3,814,245
-------------
Total income............................... 14,803,898
-------------
Expenses
Distribution fee--Class A................... 142,549
Distribution fee--Class B................... 3,074,388
Distribution fee--Class C................... 1,692
Management fee.............................. 2,370,080
Transfer agent's fees and expenses.......... 1,024,000
Reports to shareholders..................... 222,000
Custodian's fees and expenses............... 204,000
Registration fees........................... 56,500
Legal fees.................................. 26,000
Trustees' fees and expenses................. 22,300
Audit fee and expenses...................... 16,500
Insurance expenses.......................... 11,700
Miscellaneous............................... 985
-------------
Total expenses............................. 7,172,694
-------------
Net investment income.......................... 7,631,204
-------------
Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency
Net realized gain (loss) on:
Investment transactions..................... 16,396,551
Financial futures contracts................. (1,010,688)
Foreign currency transactions............... 326,751
-------------
15,712,614
-------------
Net change in unrealized appreciation
(depreciation) on:
Investments................................. 20,549,622
Financial futures contracts................. 467,750
Foreign currency transactions............... (348,855)
-------------
20,668,517
-------------
Net gain on investments........................ 36,381,131
-------------
Net Increase in Net Assets Resulting from
Operations..................................... $ 44,012,335
-------------
-------------
</TABLE>

PRUDENTIAL ALLOCATION FUND
STRATEGY PORTFOLIO
Statement of Changes in Net Assets

<TABLE>
<CAPTION>
Increase (Decrease) Year Ended July 31,
<S> <C> <C>
in Net Assets 1995 1994
Operations
Net investment income......... $ 7,631,204 $ 7,171,844
Net realized gain on
investments................ 15,712,614 14,878,620
Net change in unrealized
appreciation (depreciation)
of investments............. 20,668,517 (13,682,115)
------------- ------------
Net increase in net assets
resulting from
operations................. 44,012,335 8,368,349
------------- ------------
Net equalization credits
(debits)...................... (274,536) 48,191
------------- ------------
Dividends and distributions (Note
1)
Dividends to shareholders from
net investment income
Class A.................... (1,553,405) (549,810)
Class B.................... (5,542,190) (4,811,597)
Class C.................... (3,515) --
------------- ------------
(7,099,110) (5,361,407)
------------- ------------
Distributions to shareholders
from net realized gains on
investment transactions
Class A.................... (1,061,481) (815,586)
Class B.................... (9,845,692) (10,082,411)
Class C.................... (5,857) --
------------- ------------
(10,913,030) (10,897,997)
------------- ------------
Distributions to shareholders
in excess of net investment
income
Class A.................... -- (40,192)
Class B.................... -- (351,923)
Class C.................... -- --
------------- ------------
-- (392,115)
------------- ------------
Fund share transactions (net of
share conversions) (Note 6)
Net proceeds from shares
subscribed................. 87,194,600 76,851,235
Net asset value of shares
issued to shareholders in
reinvestment of dividends
and distributions.......... 17,309,043 15,914,742
Cost of shares reacquired..... (147,769,905) (86,835,010)
------------- ------------
Net increase (decrease) in net
assets from Fund share
transactions............... (43,266,262) 5,930,967
------------- ------------
Total decrease................... (17,540,603) (2,304,012)
Net Assets
Beginning of year................ 383,624,544 385,928,556
------------- ------------
End of year...................... $ 366,083,941 $383,624,544
------------- ------------
------------- ------------
</TABLE>

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

B-45

<PAGE>
Notes to Financial Statements PRUDENTIAL ALLOCATION FUND
- --------------------------------------------------------------------------------
Prudential Allocation Fund, (the ``Fund'') is registered under the Investment
Company Act of 1940, as a diversified, open-end management investment company.
The Fund was organized as an unincorporated business trust in Massachusetts on
February 23, 1987 and consists of two series, the Balanced Portfolio* and the
Strategy Portfolio. The investment objective of the Balanced Portfolio* is to
achieve a high total investment return consistent with moderate risk by
investing in a diversified portfolio of money market instruments, debt
obligations and equity securities. The investment objective of the Strategy
Portfolio is to achieve a high total investment return consistent with
relatively higher risk than the Balanced Portfolio* through varying the
proportions of investments in debt and equity securities, the quality and
maturity of debt securities purchased and the price volatility and the type of
issuer of equity securities purchased. The ability of issuers of debt securities
held by the Fund to meet their obligations may be affected by economic
developments in a specific country, industry or region.
- ------------------------------------------------------------
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: Any security for which the primary market is on an
exchange (including NASDAQ National Market System equity securities) is 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. Corporate bonds (other than convertible debt securities) and U.S.
Government and agency 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 on the basis of valuations
provided by a pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, agency ratings, market
transactions in comparable securities and various relationships between
securities in determining value. 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. Forward currency exchange contracts are valued at the current
cost of offsetting the contract on the day of valuation. Options are valued at
the mean between the most recently quoted bid and asked prices. Futures and
options thereon are valued at their last sales price as of the close of the
commodities exchange or board of trade.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost.
In connection with transactions in repurchase agreements with U.S. financial
institutions, it is the Fund's policy that its custodian or designated
subcustodians, as the case may be under triparty repurchase agreements, take
possession of the underlying collateral securities, the value of which exceeds
the principal amount of the repurchase transaction, including accrued interest.
To the extent that any repurchase transaction exceeds one business day, the
value of the collateral is marked-to-market on a daily basis to ensure the
adequacy of the collateral. If the seller defaults and the value of the
collateral declines or if bankruptcy proceedings are commenced with respect to
the seller of the security, realization of the collateral by the Fund may be
delayed or limited.
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
closing daily rate of exchange.
(ii) purchases and sales of investment securities, income and expenses--at the
rate 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 fiscal 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 long-term securities held at the end of the fiscal period. 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
portfolio securities sold during the fiscal period. Accordingly, realized
foreign currency gains (losses) are included in the reported net realized gains
on investment transactions.
Net realized gains on foreign currency transactions represent net foreign
exchange gains from the 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 dividends, interest and foreign taxes
recorded on the Fund's books and the U.S. dollar equivalent amounts actually
received or paid.
- --------------------------------------------------------------------------------
*See Note 8.

B-46

<PAGE>
Notes to Financial Statements PRUDENTIAL ALLOCATION FUND
- --------------------------------------------------------------------------------
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors, the possibility of political and economic instability or
the level of governmental supervision and regulation of foreign securities
markets.
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 each series based
upon the relative proportion of net assets at the beginning of the day of each
class.
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: For federal income tax purposes, each series in the Fund
is treated as a separate taxpaying entity. It is the intent of each series 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 interest and 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 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 gains distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments of wash sales and foreign currency transactions.
Reclassification of Capital Accounts: The Fund accounts and reports for
distributions to shareholders in accordance with the Statement of Position 93-2:
Determination, Disclosure, and Financial Statement Presentation of Income;
Capital Gain, and Return of Capital Distributions by Investment Companies. For
the year ended July 31, 1995, the Strategy Portfolio decreased undistributed net
investment income and increased accumulated net realized gain on investments by
$265,496. Net realized gains and net assets were not affected by this change.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential Mutual Fund Management, Inc.
(``PMF''). Pursuant to this agreement, PMF has responsibility for all investment
advisory services and supervises the subadviser's performance of such services.
PMF has entered into a subadvisory agreement with The Prudential Investment
Corporation (``PIC''); PIC furnishes investment advisory services in connection
with the management of the Fund. PMF pays for the services of PIC, 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 .65 of 1% of the average daily net assets of each of the series.
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.
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 Plans were .25 of 1%, 1% and 1% of the average daily net
assets of the Class A, B and C shares, respectively, for the year ended July 31,
1995.
PMFD has advised the Fund that it has received approximately $440,000
($254,000--Balanced Portfolio* and $186,000--Strategy Portfolio) in front-end
sales charges resulting from sales of Class A shares during the
- --------------------------------------------------------------------------------
*See Note 8.

B-47

<PAGE>
Notes to Financial Statements PRUDENTIAL ALLOCATION FUND
- --------------------------------------------------------------------------------
year ended July 31, 1995. From these fees, PMFD paid such sales charges to
dealers which in turn paid commissions to salespersons.
PSI advised the Fund that for the year ended July 31, 1995 it received
approximately $1,677,500 ($963,500--Balanced Portfolio* and $714,000--Strategy
Portfolio) in contingent deferred sales charges imposed upon certain redemptions
by Class B and C shareholders.
PMFD is a wholly-owned subsidiary of PMF. PSI, PIC and PMF 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. During the year ended July 31, 1995,
the Fund incurred fees of approximately $1,396,000 ($711,000--Balanced
Portfolio* and $685,000--Strategy Portfolio) for the services of PMFS. As of
July 31, 1995, approximately $118,000 ($62,000--Balanced Portfolio* and
$56,000--Strategy Portfolio) of such fees were due to PMFS. Transfer agent fees
and expenses in the Statement of Operations also include certain out of pocket
expenses paid to non-affiliates.
For the year ended July 31, 1995, PSI received approximately $106,500
($47,400--Balanced Portfolio* and $59,100--Strategy Portfolio) in brokerage
commissions from portfolio transactions executed on behalf of the Fund.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the year ended July 31, 1995, were as follows:
<TABLE>
<CAPTION>
Portfolio Purchases Sales
- ---------------------------------- ------------- -------------
<S> <C> <C>
Balanced Portfolio*............... $ 806,898,931 $ 800,641,319
Strategy Portfolio................ $ 576,378,735 $ 532,216,646
</TABLE>

The cost basis of investments for federal income tax purposes as of July 31,
1995 was $469,592,939 and $335,765,352 for the Balanced Portfolio* and the
Strategy Portfolio, respectively, and net and gross unrealized appreciation of
investments for federal income tax purposes was as follows:
<TABLE>
<CAPTION>
Balanced Strategy
Portfolio* Portfolio
------------ -----------
<S> <C> <C>
Gross unrealized appreciation...... $ 49,713,371 $39,725,210
Gross unrealized depreciation...... (10,924,330) (5,762,443)
------------ -----------
Net unrealized appreciation........ $ 38,789,041 $33,962,767
------------ -----------
------------ -----------
</TABLE>

- ------------------------------------------------------------
Note 5. Joint Repurchase Agreement Account
The Fund, along with other affiliated registered investment companies, transfers
uninvested cash balances into a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements collateralized
by U.S. Government or federal agency obligations. As of July 31, 1995, the Fund
had a 12.7% (Balanced Portfolio*--7.6% and Strategy Portfolio--5.1%) undivided
interest in the repurchase agreements in the joint account. The undivided
interest for the Fund represented $101,291,000 (Balanced Portfolio*--$60,491,000
and Strategy Portfolio--$40,800,000) in the 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., Inc., 5.82%, dated 7/31/95, in the principal amount of
$265,000,000, repurchase price $265,042,842, due 8/1/95. The value of the
collateral including accrued interest is $270,429,672.
CS First Boston Corp., 5.82%, dated 7/31/95, in the principal amount of
$265,000,000, repurchase price $265,042,842, due 8/1/95. The value of the
collateral including accrued interest is $270,382,812.
Smith Barney Inc., 5.82%, dated 7/31/95, in the principal amount of $265,000,000
repurchase price $265,042,842 due 8/1/95. The value of the collateral including
accrued interest is $270,382,812.
- ------------------------------------------------------------
Note 6. Capital
Class A shares are sold with a front-end sales charge of up to 5%. Class B
shares are sold with a contingent deferred sales charge which declines from 5%
to zero depending on the period of time the shares are held. 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
- --------------------------------------------------------------------------------
*See Note 8.

B-48

<PAGE>
Notes to Financial Statements PRUDENTIAL ALLOCATION FUND
- --------------------------------------------------------------------------------
shares on a quarterly basis approximately seven years after purchase commencing
in February 1995. All classes of shares have equal rights as to earnings, assets
and voting privileges except that each class bears different distribution
expenses and has exclusive voting rights with respect to its distribution plan.
The Fund has authorized an unlimited number of shares of beneficial interest of
each class at $.01 par value per share.
Transactions in shares of beneficial interest for the fiscal years ended July
31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
Balanced Portfolio*: Strategy Portfolio:
Class A Class A
------------------------------- -------------------------------
Year Ended July 31, 1995 Shares Amount Shares Amount
- --------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares issued............................................ 3,862,947 $ 44,308,109 1,390,817 $ 15,562,421
Shares issued in reinvestment of dividends and
distributions.......................................... 251,790 2,763,092 226,669 2,532,533
Shares reacquired........................................ (3,252,889) (37,646,830) (1,480,078) (17,030,049)
----------- ------------- ----------- -------------
Net increase in shares outstanding before conversion..... 861,848 9,424,371 137,408 1,064,905
Shares issued upon conversion from Class B............... 5,717,102 62,038,822 4,041,405 45,163,786
----------- ------------- ----------- -------------
Net increase in shares outstanding....................... 6,578,950 $ 71,463,193 4,178,813 $ 46,228,691
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
<CAPTION>
Year Ended July 31, 1994
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
Shares issued............................................ 1,936,121 $ 22,068,844 954,118 $ 11,209,754
Shares issued in reinvestment of dividends and
distributions.......................................... 185,818 2,104,551 115,925 1,362,807
Shares reacquired........................................ (673,143) (7,607,829) (693,445) (8,199,850)
----------- ------------- ----------- -------------
Net increase in shares outstanding....................... 1,448,796 $ 16,565,566 376,598 $ 4,372,711
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
<CAPTION>
Class B Class B
------------------------------- -------------------------------
Year Ended July 31, 1995 Shares Amount Shares Amount
- --------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares issued............................................ 5,899,203 $ 65,629,606 2,294,936 $ 26,157,592
Shares issued in reinvestment of dividends and
distributions.......................................... 1,480,760 15,800,410 1,357,022 14,767,213
Shares reacquired........................................ (9,125,344) (100,071,801) (7,554,633) (85,523,598)
----------- ------------- ----------- -------------
Net decrease in shares outstanding before conversion..... (1,745,381) (18,641,785) (3,902,675) (44,598,793)
Shares reacquired upon conversion into Class A........... (5,738,270) (62,038,822) (4,066,519) (45,163,786)
----------- ------------- ----------- -------------
Net decrease in shares outstanding....................... (7,483,651) $ (80,680,607) (7,969,194) $ (89,762,579)
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
</TABLE>

- --------------------------------------------------------------------------------
*See Note 8.

B-49

<PAGE>
Notes to Financial Statements PRUDENTIAL ALLOCATION FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Balanced Portfolio*: Strategy Portfolio:
Class B Class B
------------------------------- -------------------------------
Year Ended July 31, 1994 Shares Amount Shares Amount
- --------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares issued............................................ 17,006,359 $ 194,349,146 5,564,589 $ 65,641,481
Shares issued in reinvestment of dividends and
distributions.......................................... 2,171,273 24,512,929 1,243,606 14,551,935
Shares reacquired........................................ (6,463,788) (73,339,193) (6,693,142) (78,635,160)
----------- ------------- ----------- -------------
Net increase in shares outstanding....................... 12,713,844 $ 145,522,882 115,053 $ 1,558,256
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
<CAPTION>
Class C Class C
------------------------------- -------------------------------
August 1, 1994* Through July 31, 1995 Shares Amount Shares Amount
- --------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares issued............................................ 442,652 $ 5,105,480 26,928 $ 310,801
Shares issued in reinvestment of dividends and
distributions.......................................... 3,269 35,385 850 9,297
Shares reacquired........................................ (192,096) (2,235,637) (4,509) (52,472)
----------- ------------- ----------- -------------
Net increase in shares outstanding....................... 253,825 $ 2,905,228 23,269 $ 267,626
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
- ---------------
* Commencement of offering of Class C shares.
</TABLE>

- ------------------------------------------------------------
Note 7. Dividends
On September 7, 1995, the Board of Trustees of the Fund declared a dividend from
undistributed net investment income of $.0675 per share to Class A shareholders
and $.0450 per share to Class B shareholders and Class C shareholders for the
Balanced Portfolio* and a dividend from undistributed net investment income of
$.0675 per share to Class A shareholders and $.0450 per share to Class B
shareholders, and Class C shareholders for the Strategy Portfolio. All dividends
are payable on September 15, 1995 to shareholders of record on September 12,
1995.
- ------------------------------------------------------------
Note 8. Subsequent Events
On May 3, 1995, the Board of Trustees of the Fund approved a name change for
the Conservatively Managed Portfolio to the Balanced Portfolio. On
September 6, 1995, the shareholders of the Prudential IncomeVertible-Registered
Trademark- Fund, Inc. approved the merger into the Balanced Portfolio. Both
changes are effective September 29, 1995.
- --------------------------------------------------------------------------------
*See Note 8.

B-50

<PAGE>
PRUDENTIAL ALLOCATION FUND
Financial Highlights BALANCED PORTFOLIO*
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each of
the years indicated:
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------
Year Ended July 31,
-------------------------------------------------------
1995 1994 1993 1992 1991
-------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............ $ 11.12 $ 11.75 $ 11.00 $ 10.73 $10.23
-------- ------- ------- ------- ------
Income from investment operations
Net investment income......................... .34 .33 .43 .44 .44
Net realized and unrealized gain (loss) on
investment transactions.................... 1.11 (.05) 1.16 .81 .73
-------- ------- ------- ------- ------
Total from investment operations........... 1.45 .28 1.59 1.25 1.17
-------- ------- ------- ------- ------
Less distributions
Dividends from net investment income.......... (.33) (.37) (.37) (.44) (.44)
Distributions paid to shareholders from net
realized gains on investment
transactions............................... (.20) (.54) (.47) (.54) (.23)
-------- ------- ------- ------- ------
Total distributions........................ (.53) (.91) (.84) (.98) (.67)
-------- ------- ------- ------- ------
Net asset value, end of period................ $ 12.04 $ 11.12 $ 11.75 $ 11.00 $10.73
-------- ------- ------- ------- ------
-------- ------- ------- ------- ------
TOTAL RETURN(a):.............................. 13.67% 2.39% 15.15% 12.29% 11.99%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $119,829 $37,512 $22,605 $10,944 $4,408
Average net assets (000)...................... $ 69,754 $29,875 $15,392 $ 7,103 $2,747
Ratios to average net assets:
Expenses, including distribution fees...... 1.22% 1.23% 1.17% 1.29% 1.38%
Expenses, excluding distribution fees...... 0.97% 1.00% .97% 1.09% 1.18%
Net investment income...................... 2.90% 2.84% 3.88% 3.97% 4.44%
Portfolio turnover rate....................... 201% 108% 83% 105% 137%
</TABLE>
- ---------------
<TABLE>
<C> <S>
(a) 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.
</TABLE>
- --------------------------------------------------------------------------------
*See Note 8.
See Notes to Financial Statements.

B-51

<PAGE>
PRUDENTIAL ALLOCATION FUND
Financial Highlights BALANCED PORTFOLIO*
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated:
<TABLE>
<CAPTION>
Class B Class C
------------------------------------------------------------ ---------
August 1,
1994(a)
Year Ended July 31, through
------------------------------------------------------------ July 31,
1995 1994 1993 1992 1991 1995
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 11.09 $ 11.72 $ 10.98 $ 10.71 $ 10.22 $ 11.12
-------- -------- -------- -------- -------- ---------
Income from investment operations
Net investment income......................... .26 .24 .34 .35 .36 .21
Net realized and unrealized gain (loss) on
investment transactions.................... 1.10 (.05) 1.16 .82 .73 1.12
-------- -------- -------- -------- -------- ---------
Total from investment operations........... 1.36 .19 1.50 1.17 1.09 1.33
-------- -------- -------- -------- -------- ---------
Less distributions
Dividends from net investment income.......... (.25) (.28) (.29) (.36) (.37) (.25)
Distributions paid to shareholders from net
realized gains on investment
transactions............................... (.20) (.54) (.47) (.54) (.23) (.20)
-------- -------- -------- -------- -------- ---------
Total distributions........................ (.45) (.82) (.76) (.90) (.60) (.45)
-------- -------- -------- -------- -------- ---------
Net asset value, end of period................ $ 12.00 $ 11.09 $ 11.72 $ 10.98 $ 10.71 $ 12.00
-------- -------- -------- -------- -------- ---------
-------- -------- -------- -------- -------- ---------
TOTAL RETURN(d):.............................. 12.79% 1.61% 14.27% 11.48% 11.13% 12.49%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $392,291 $445,609 $321,831 $225,995 $162,281 $ 3,046
Average net assets (000)...................... $409,419 $392,133 $267,340 $189,358 $149,907 $ 920
Ratios to average net assets:(c)
Expenses, including distribution fees...... 1.97% 2.00% 1.97% 2.09% 2.16% 2.04%(b)
Expenses, excluding distribution fees...... .97% 1.00% .97% 1.09% 1.16% 1.04%(b)
Net investment income...................... 2.34% 2.08% 3.04% 3.25% 3.55% 2.20%(b)
Portfolio turnover rate....................... 201% 108% 83% 105% 137% 201%
</TABLE>
- ---------------
<TABLE>
<C> <S>
(a) Commencement of offering of Class C shares.
(b) Annualized.
(c) Because of the recent commencement of its offering, 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.
(d) Total return does not consider the effects of sales loads. Total return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes reinvestment of dividends and distributions.
Total returns for periods of less than a full year are not annualized.
</TABLE>

- --------------------------------------------------------------------------------
*See Note 8.
See Notes to Financial Statements.

B-52

<PAGE>
PRUDENTIAL ALLOCATION FUND
Financial Highlights STRATEGY PORTFOLIO
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each of
the years indicated:
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------
Year Ended July 31,
-------------------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............ $ 11.60 $ 11.82 $ 12.03 $ 11.45 $ 10.50
------- ------- ------- ------- -------
Income from investment operations
Net investment income......................... .38 .30 .42 .35 .38
Net realized and unrealized gain on investment
and foreign currency transactions.......... 1.14 .05 .70 1.02 .98
------- ------- ------- ------- -------
Total from investment operations........... 1.52 .35 1.12 1.37 1.36
------- ------- ------- ------- -------
Less distributions
Dividends from net investment income.......... (.30) (.22) (.37) (.37) (.35)
Dividends in excess of net investment
income..................................... -- (.01) -- -- --
Distributions paid to shareholders from net
realized gains on investment and foreign
currency transactions...................... (.34) (.34) (.96) (.42) (.06)
------- ------- ------- ------- -------
Total distributions........................ (.64) (.57) (1.33) (.79) (.41)
------- ------- ------- ------- -------
Net asset value, end of year.................. $ 12.48 $ 11.60 $ 11.82 $ 12.03 $ 11.45
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN(a):.............................. 13.95% 2.88% 10.02% 12.36% 13.42%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $87,081 $32,485 $28,641 $20,378 $10,765
Average net assets (000)...................... $57,020 $30,634 $24,216 $15,705 $ 6,694
Ratios to average net assets:
Expenses, including distribution fees...... 1.33% 1.26% 1.21% 1.26% 1.33%
Expenses, excluding distribution fees...... 1.08% 1.03% 1.01% 1.06% 1.13%
Net investment income...................... 3.34% 2.52% 3.61% 3.05% 3.89%
Portfolio turnover rate....................... 180% 96% 145% 241% 189%
</TABLE>
- ---------------
<TABLE>
<C> <S>
(a) 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.
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.

B-53

<PAGE>
PRUDENTIAL ALLOCATION FUND
Financial Highlights STRATEGY PORTFOLIO
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated:
<TABLE>
<CAPTION>
Class B Class C
------------------------------------------------------------ ---------
August 1,
1994(a)
Year Ended July 31, through
------------------------------------------------------------ July 31,
1995 1994 1993 1992 1991 1995
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 11.54 $ 11.79 $ 12.01 $ 11.43 $ 10.49 $ 11.57
-------- -------- -------- -------- -------- ---------
Income from investment operations
Net investment income......................... .20 .21 .34 .26 .30 .25
Net realized and unrealized gain on investment
and foreign currency transactions.......... 1.22 .05 .70 1.02 .97 1.14
-------- -------- -------- -------- -------- ---------
Total from investment operations........... 1.42 .26 1.04 1.28 1.27 1.39
-------- -------- -------- -------- -------- ---------
Less distributions
Dividends from net investment income.......... (.21) (.16) (.30) (.28) (.27) (.21)
Dividends in excess of net investment
income..................................... -- (.01) -- -- -- --
Distributions paid to shareholders from net
realized gains on investment and foreign
currency transactions...................... (.34) (.34) (.96) (.42) (.06) (.34)
-------- -------- -------- -------- -------- ---------
Total distributions........................ (.55) (.51) (1.26) (.70) (.33) (.55)
-------- -------- -------- -------- -------- ---------
Net asset value, end of period................ $ 12.41 $ 11.54 $ 11.79 $ 12.01 $ 11.43 $ 12.41
-------- -------- -------- -------- -------- ---------
-------- -------- -------- -------- -------- ---------
TOTAL RETURN(d):.............................. 13.05% 2.11% 9.21% 11.53% 12.49% 12.75%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $278,714 $351,140 $357,287 $314,771 $219,983 $ 289
Average net assets (000)...................... $307,439 $362,579 $339,225 $267,525 $190,913 $ 170
Ratios to average net assets:(c)
Expenses, including distribution fees...... 2.08% 2.03% 2.01% 2.06% 2.11% 2.10%(b)
Expenses, excluding distribution fees...... 1.08% 1.03% 1.01% 1.06% 1.11% 1.10%(b)
Net investment income...................... 1.77% 1.77% 2.79% 2.27% 2.95% 2.27%(b)
Portfolio turnover rate....................... 180% 96% 145% 241% 189% 180%
</TABLE>
- ---------------
<TABLE>
<C> <S>
(a) Commencement of offering of Class C shares.
(b) Annualized.
(c) Because of the recent commencement of its offering, 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.
(d) Total return does not consider the effects of sales loads. Total return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes reinvestment of dividends and distributions.
Total returns for periods of less than a full year are not annualized.
</TABLE>

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

B-54

<PAGE>
Report of Independent Accountants PRUDENTIAL ALLOCATION FUND
- --------------------------------------------------------------------------------
The Shareholders and Board of Trustees
Prudential Allocation Fund
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Prudential Allocation Fund (consisting of the
Balanced Portfolio (formerly the Conservatively Managed Portfolio) and the
Strategy Portfolio) as of July 31, 1995, 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
July 31, 1995 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 each of the
respective portfolios constituting Prudential Allocation Fund as of July 31,
1995, the results of their operations, the changes in their net assets and the
financial highlights for the respective stated periods in conformity with
generally accepted accounting principles.

DELOITTE & TOUCHE LLP
New York, New York
September 7, 1995

B-55
<PAGE>

APPENDIX I--GENERAL INVESTMENT INFORMATION

The following terms are used in mutual fund investing.

ASSET ALLOCATION

Asset allocation is a technique for reducing risk, 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.

I-1
<PAGE>
APPENDIX II--HISTORICAL PERFORMANCE DATA

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

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

[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 for illustrative
purposes only and is not indicative of the past, present, or future performance
of any asset class or any Prudential Mutual Fund.

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

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

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

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

II-1
<PAGE>

Set forth below is historical performance data relating to various sectors
of the fixed-income securities markets. The chart shows the historical total
returns of U.S. Treasury bonds, U.S. mortgage securities, U.S. corporate bonds,
U.S. high yield bonds and world government bonds on an 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 Expenses" in the prospectus. The net effect of the
deduction of the operating expenses of a mutual fund on these historical total
returns, including the compounded effect over time, could be substantial.

HISTORICAL TOTAL RETURNS OF DIFFERENT BOND MARKET SECTORS

<TABLE>
<CAPTION>
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,
nonconvertible investment-grade bonds. All bonds are U.S. dollar-denominated
issues and include debt issued or guaranteed by foreign sovereign governments,
municipalities, governmental agencies or international agencies. All bonds in
the index have maturities of at least one year.

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

(5) SALOMON 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.

II-2
<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.

II-3
<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.

II-4
<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.

<TABLE>
<CAPTION>
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-14

<PAGE>
PART C
OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.

(A) FINANCIAL STATEMENTS:

(1) The following financial statements are included in the Prospectus
constituting Part A of this Registration Statement:

Financial Highlights.

(2) The following financial statements are included in the Statement of
Additional Information constituting Part B of this Registration Statement:

Portfolio of Investments at July 31, 1995.

Statement of Assets and Liabilities at July 31, 1995.

Statement of Operations for the year ended July 31, 1995.

Statement of Changes in Net Assets for the years ended July 31, 1995
and 1994.

Notes to Financial Statements.

Financial Highlights.

Independent Auditors' Report.

(B) EXHIBITS:

1. (a) Amended and Restated Declaration of Trust. Incorporated by
reference to Exhibit No. 1(a) to Post-Effective Amendment No. 13 to
the Registration Statement on Form N-1A filed via EDGAR on September
29, 1994 (File No. 33-12531).

(b) Amended and Restated Certificate of Designation. Incorporated by
reference to Exhibit No. 1(b) to Post-Effective Amendment No. 14 to
the Registration Statement on Form N-1A filed via EDGAR on July 24,
1995 (File No. 33-12531).

2. By-Laws of the Registrant. Incorporated by reference to Exhibit No.
2 to Post-Effective Amendment No. 13 to the Registration Statement
on Form N-1A filed via EDGAR on September 29, 1994 (File No.
33-12531).

4. (a) Specimen receipt for shares of beneficial interest issued by the
Registrant. Incorporated by reference to Exhibit No. 4 to
Post-Effective Amendment No. 2 to the Registration Statement on Form
N-1A filed on March 1, 1988 (File No. 33-12531).

(b) Specimen receipt for Class A shares of beneficial interest of
the Conservatively Managed Portfolio of the Registrant. Incorporated
by reference to Exhibit No. 4(b) to Post-Effective Amendment No. 7
to the Registration Statement on Form N-1A filed on November 30,
1990 (File No. 33-12531).

C-1
<PAGE>
(c) Specimen receipt for Class A and Class B shares of beneficial
interest of the Strategy Portfolio. Incorporated by reference to
Exhibit No. 4(c) to Post-Effective Amendment No. 7 to the
Registration Statement on Form N-1A filed on November 30, 1990 (File
No. 33-12531).

5. (a) Management Agreement between the Registrant and Prudential
Mutual Fund Management, Inc. Incorporated by reference to Exhibit
No. 5(a) to Post-Effective Amendment No. 4 to the Registration
Statement on Form N-1A filed on October 31, 1989 (File No.
33-12531).

(b) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc. and The Prudential Investment Corporation. Incorporated by
reference to Exhibit No. 5(b) to Post-Effective Amendment No.4 to
the Registration Statement on Form N-1A filed on October 31, 1989
(File No. 33-12531).

6. (a) Distribution Agreement for Class A shares. Incorporated by
reference to Exhibit No. 6(a) to Post-Effective Amendment No. 13 to
the Registration Statement on Form N-1A filed via EDGAR on September
29, 1994 (File No. 33-12531).

(b) Distribution Agreement for Class B shares. Incorporated by
reference to Exhibit No. 6(b) to Post-Effective Amendment No. 13 to
the Registration Statement on Form N-1A filed via EDGAR on September
29, 1994 (File No. 33-12531).

(c) Distribution Agreement for Class C shares. Incorporated by
reference to Exhibit No. 6(c) to Post-Effective Amendment No. 13 to
the Registration Statement on Form N-1A filed via EDGAR on September
29, 1994 (File No. 33-12531).

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

8. (a) Custodian Contract betwen the Registrant and State Street Bank
and Trust Company. Incorporated by reference to Exhibit No. 8 to
Post-Effective Amendment No. 4 to the Registration Statement on Form
N-1A filed on October 31, 1989 (File No. 33-12531).

(b) Amendment to Custodian Contract. Incorporated by reference to
Exhibit No. 8(b) to Post-Effective Amendment No. 7 to the
Registration Statement on Form N-1A filed on November 30, 1990 (File
No. 33-12531).

9. Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, Inc. Incorporated by reference to
Exhibit No. 9 to Post-Effective Amendment No. 4 to the Registration
Statement on Form N-1A filed on October 31, 1989 (File No.
33-12531).

10. (a) Opinion of Counsel. Incorporated by reference to Exhibit No. 10
to Pre-Effective Amendment No. 2 to the Registration Statement on
Form N-1A filed on August 31, 1987 (File No. 33-12531).

(b) Opinion of Counsel. Incorporated by reference to Exhibit No.
10(b) to Post-Effective Amendment No. 15 to the Registration
Statement on Form N-1A filed via EDGAR on September 27, 1995 (File
No. 33-12531).

11. Consent of Independent Auditors.*

13. Purchase Agreement. Incorporated by reference to Exhibit No. 13 to
Pre-Effective Amendment No. 2 to the Registration Statement on Form
N-1A filed on August 31, 1987 (File No. 33-12531).

15. (a) Distribution and Service Plan for Class A shares. Incorporated
by reference to Exhibit No. 15(a) to Post-Effective Amendment No. 13
to the Registration Statement on Form N-1A filed via EDGAR on
September 29, 1994 (File No. 33-12531).

C-2
<PAGE>
(b) Distribution and Service Plan for Class B shares. Incorporated
by reference to Exhibit No. 15(b) to Post-Effective Amendment No. 13
to the Registration Statement on Form N-1A filed via EDGAR on
September 29, 1994 (File No. 33-12531).

(c) Distribution and Service Plan for Class C shares. Incorporated
by reference to Exhibit No. 15(c) to Post-Effective Amendment No. 13
to the Registration Statement on Form N-1A filed via EDGAR on
September 29, 1994 (File No. 33-12531).

16. (a) Schedule of Computation of Performance Quotations. Incorporated
by reference to Exhibit No. 16 to Post-Effective Amendment No. 4 to
the Registration Statement on Form N-1A filed on October 31, 1989
(File No. 33-12531).

(b) Schedule of Computation of Performance Quotations for Class A
shares. Incorporated by reference to Exhibit No. 16(b) to
Post-Effective Amendment No. 7 to the Registration Statement on Form
N-1A filed on November 30, 1990 (File No. 33-12531).

17. Financial Data Schedules.*

18. Rule 18f-3 Plan.*

Other Exhibits

Powers of Attorney for: Edward D. Beach, Donald D. Lennox, Douglas H.
McCorkindale, Thomas T. Mooney and Louis A. Weil, III. Executed copies
incorporated by reference to Other Exhibits to Post-Effective Amendment No.
4 to the Registration Statement on Form N-1A filed on October 31, 1989 (File
No. 33-12531).
------------------
* Filed herewith

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

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

ITEM 26. NUMBER OF HOLDERS OF SECURITIES.

As of September 15, 1995, there were 19,645 Class A shareholders of the
Balanced Portfolio and 18,078 Class A shareholders of the Strategy Portfolio;
47,045 Class B shareholders of the Balanced Portfolio and 38,378 Class B
shareholders of the Strategy Portfolio; and 322 Class C shareholders of the
Balanced Portfolio and 58 Class C shareholders of the Strategy Portfolio.

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 VI 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 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

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

The Registrant has purchased 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 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 interpretations of Sections 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 executive 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-4
<PAGE>
The business and other connections of PMF's directors and principal
executive officers are set forth below. 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
Director of Marketing and and Director, PMF; Senior Vice President,
Director 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,
General Counsel, Secretary and Secretary and Director, PMF and PMFD; Senior
Director Vice President, Prudential Securities; Director,
Prudential Mutual Fund Services, Inc. (PMFS)
Robert F. Gunia Executive Vice President, Executive Vice President, Chief Financial and
Chief Financial and Administrative Officer, Treasurer and Director,
Administrative Officer, PMF; Senior Vice President, Prudential
Treasurer and Director Securities; Executive Vice President, Chief
Financial Officer, 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 Executive President, Chief Executive Officer and Director,
Officer and Director PMF; Executive Vice President, Director and
Member of Operating Committee, Prudential
Securities; Director, Prudential Securities
Group, Inc. (PSG); Executive Vice President,
PIC; Director, PMFD; Director, PMFS;
S. Jane Rose Senior Vice President, Senior Senior Vice President, Senior Counsel and
Counsel and Assistant Assistant Secretary, PMF; Senior Vice President
Secretary and Senior Counsel, Prudential Securities
</TABLE>

(b) The Prudential Investment Corporation (PIC)

C-5
<PAGE>
The business and other connections of PIC's directors and executive officers
are as set forth below. Except as otherwise indicated, the address of each
person is Prudential Plaza, Newark, NJ 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
Two Gateway Center President, PIC
Newark, NJ 07102
John D. Brookmeyer, Jr. Senior Vice President Senior Vice President, Prudential; Senior Vice
51 JFK Parkway President and 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
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,
and Director Prudential
William P . Link Senior Vice President Executive Vice President, Prudential; Senior Vice
Four Gateway Center President, PIC
Newark, NJ 07102
Richard A. Redeker Executive Vice President President, Chief Executive Officer and Director,
One Seaport Plaza PMF; Executive Vice President, Director and
New York, NY 10292 Member of Operating Committee, Prudential
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 Vice President, Prudential; Executive Vice
President President, PIC
</TABLE>

C-6
<PAGE>
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 Class 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 Series and California Income
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., 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.

C-7
<PAGE>
(b)(i) Information concerning the officers and directors 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 Director None
One New York Plaza
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, Chief Financial None
Officer and Director
Hardwick Simmons................... Chief Executive Officer, President and None
Director
Lee B. Spencer, Jr................. Executive Vice President, General Counsel None
Secretary, and Director
</TABLE>

(ii) Information concerning the officers and directors of Prudential Mutual
Fund Distributors, Inc. is set forth below.

<TABLE>
<S> <C> <C>
Joanne Accurso-Soto................ Vice President None
Dennis N. Annarumma................ Vice President, Assistant Treasurer and None
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, General Counsel, None
Secretary and Director
Robert F. Gunia.................... Executive Vice President, Chief Financial Vice President
Officer, Treasurer, and Director
Timothy J. O'Brien................. President, Chief Executive Officer, Chief None
Operating Officer and Director
Richard A. Redeker................. Director President and
Trustee
Andrew J. Varley................... Vice President None
Anita L. Whelan.................... Vice President and Assistant Secretary None
<FN>
- --------------
(1) The address of each person named is One Seaport Plaza, New York, NY 10292 unless otherwise
indicated.
</TABLE>

C-8
<PAGE>
(c) Registrant has no principal underwriter who is not an affiliated person
of the Registrant.

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-9
<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 the State of New York, on the 25 day of October, 1995.

PRUDENTIAL ALLOCATION 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 Trustee and President October 25, 1995
- ---------------------------------
RICHARD A. REDEKER

/s/ Louis A. Weil, III Trustee October 25, 1995
- ---------------------------------
LOUIS A. WEIL, III
</TABLE>

<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER PAGE
- ------------------------------------------------------------------------- ----
<C> <S> <C>
1. (a) Amended and Restated Declaration of Trust. Incorporated by
reference to Exhibit No. 1(a) to Post-Effective Amendment No. 13 to
the Registration Statement on Form N-1A filed via EDGAR on September
29, 1994 (File No. 33-12531).
(b) Amended and Restated Certificate of Designation. Incorporated by
reference to Exhibit No. 1(b) to Post-Effective Amendment No. 14 to
the Registration Statement on Form N-1A filed via EDGAR on July 24,
1995 (File No. 33-12531).
2. By-Laws of the Registrant. Incorporated by reference to Exhibit No.
2 to Post-Effective Amendment No. 13 to the Registration Statement
on Form N-1A filed via EDGAR on September 29, 1994 (File No.
33-12531).
4. (a) Specimen receipt for shares of beneficial interest issued by the
Registrant. Incorporated by reference to Exhibit No. 4 to
Post-Effective Amendment No. 2 to the Registration Statement on Form
N-1A filed on March 1, 1988 (File No. 33-12531).
(b) Specimen receipt for Class A shares of beneficial interest of
the Conservatively Managed Portfolio of the Registrant. Incorporated
by reference to Exhibit No. 4(b) to Post-Effective Amendment No. 7
to the Registration Statement on Form N-1A filed on November 30,
1990 (File No. 33-12531).
(c) Specimen receipt for Class A and Class B shares of beneficial
interest of the Strategy Portfolio. Incorporated by reference to
Exhibit No. 4(c) to Post-Effective Amendment No. 7 to the
Registration Statement on Form N-1A filed on November 30, 1990 (File
No. 33-12531).
5. (a) Management Agreement between the Registrant and Prudential
Mutual Fund Management, Inc. Incorporated by reference to Exhibit
No. 5(a) to Post-Effective Amendment No. 4 to the Registration
Statement on Form N-1A filed on October 31, 1989 (File No.
33-12531).
(b) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc. and The Prudential Investment Corporation. Incorporated by
reference to Exhibit No. 5(b) to Post-Effective Amendment No.4 to
the Registration Statement on Form N-1A filed on October 31, 1989
(File No. 33-12531).
6. (a) Distribution Agreement for Class A shares. Incorporated by
reference to Exhibit No. 6(a) to Post-Effective Amendment No. 13 to
the Registration Statement on Form N-1A filed via EDGAR on September
29, 1994 (File No. 33-12531).
(b) Distribution Agreement for Class B shares. Incorporated by
reference to Exhibit No. 6(b) to Post-Effective Amendment No. 13 to
the Registration Statement on Form N-1A filed via EDGAR on September
29, 1994 (File No. 33-12531).
(c) Distribution Agreement for Class C shares. Incorporated by
reference to Exhibit No. 6(c) to Post-Effective Amendment No. 13 to
the Registration Statement on Form N-1A filed via EDGAR on September
29, 1994 (File No. 33-12531).
(d) Form of Distribution Agreement for Class Z shares.*
8. (a) Custodian Contract betwen the Registrant and State Street Bank
and Trust Company. Incorporated by reference to Exhibit No. 8 to
Post-Effective Amendment No. 4 to the Registration Statement on Form
N-1A filed on October 31, 1989 (File No. 33-12531).
(b) Amendment to Custodian Contract. Incorporated by reference to
Exhibit No. 8(b) to Post-Effective Amendment No. 7 to the
Registration Statement on Form N-1A filed on November 30, 1990 (File
No. 33-12531).
9. Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, Inc. Incorpo-
rated by reference to Exhibit No. 9 to Post-Effective Amendment No.
4 to the Registration Statement on Form N-1A
filed on October 31, 1989 (File No. 33-12531).
</TABLE>

<PAGE>

<TABLE>
<C> <S> <C>
10. (a) Opinion of Counsel. Incorporated by reference to Exhibit No. 10
to Pre-Effective Amendment No. 2 to the Registration Statement on
Form N-1A filed on August 31, 1987 (File No. 33-12531).
(b) Opinion of Counsel. Incorporated by reference to Exhibit No.
10(b) to Post-Effective Amendment No. 15 to the Registration
Statement on Form N-1A filed via EDGAR on September 27, 1995 (File
No. 33-12531)
11. Consent of Independent Auditors.*
13. Purchase Agreement. Incorporated by reference to Exhibit No. 13 to
Pre-Effective Amendment No. 2 to the Registration Statement on Form
N-1A filed on August 31, 1987 (File No. 33-12531).
15. (a) Distribution and Service Plan for Class A shares. Incorporated
by reference to Exhibit No. 15(a) to Post-Effective Amendment No. 13
to the Registration Statement on Form N-1A filed via EDGAR on
September 29, 1994 (File No. 33-12531).
(b) Distribution and Service Plan for Class B shares. Incorporated
by reference to Exhibit No. 15(b) to Post-Effective Amendment No. 13
to the Registration Statement on Form N-1A filed via EDGAR on
September 29, 1994 (File No. 33-12531).
(c) Distribution and Service Plan for Class C shares. Incorporated
by reference to Exhibit No. 15(c) to Post-Effective Amendment No. 13
to the Registration Statement on Form N-1A filed via EDGAR on
September 29, 1994 (File No. 33-12531).
16. (a) Schedule of Computation of Performance Quotations. Incorporated
by reference to Exhibit No. 16 to Post-Effective Amendment No. 4 to
the Registration Statement on Form N-1A filed on October 31, 1989
(File No. 33-12531).
(b) Schedule of Computation of Performance Quotations for Class A
shares. Incorporated by reference to Exhibit No. 16(b) to
Post-Effective Amendment No. 7 to the Registration Statement on Form
N-1A filed on November 30,
1990 (File No. 33-12531).
17. Financial Data Schedules.*
18. Rule 18f-3 Plan.*
<FN>
- --------------
* Filed herewith
</TABLE>

<PAGE>

Prudential Allocation Fund

Form of
Distribution Agreement
(CLASS Z SHARES)

Agreement made as of _______, 1995, between Prudential Allocation
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 Class Z shares
of the Balanced Portfolio from and after the date hereof in order to promote
the growth of the Portfolio 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 Portfolio to sell Class Z shares
to the public on behalf of the Portfolio 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 Portfolio 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 Class Z shares, except
that:
2.1 The exclusive rights granted to the Distributor to sell Class Z
shares shall not apply to Class Z shares 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 Balanced Portfolio pursuant to reinvestment of dividends or capital gains
distributions.

2.3 Such exclusive rights shall not apply to Class Z shares issued by
the Balanced Portfolio 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 Balanced Portfolio 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 Board of
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

<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 Balanced Portfolio 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

<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 Balanced
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

<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 Balanced Portfolio 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 Balanced
Portfolio 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

<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

<PAGE>

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 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 Balanced
Portfolio 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
Balanced Portfolio, 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 Balanced
Portfolio.

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.

<PAGE>

Section 11. LIABILITIES OF THE FUND

The name Prudential Allocation 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 Allocation Fund

By:
-------------------------------
Richard A. Redeker
President

[18f3]cld-mod.agr

<PAGE>

CONSENT OF INDEPENDENT AUDITORS

We consent to the use in Post-Effective Amendment No. 16 to Registration
Statement No. 33-12531 of Prudential Allocation Fund of our report dated
September 7, 1995, appearing in the Statement of Additional Information, which
is a part of such Registration Statement, and to the references to us under the
headings "Financial Highlights" in the Prospectus, which is a part of such
Registration Statement, and "Custodian, Transfer and Dividend Disbursing Agent
and Independent Accountants" in the Statement of Additional Information.

Deloitte & Touche LLP
New York, New York
October 26, 1995

<PAGE>
[ARTICLE] 6
[CIK] 0000811444
[NAME] PRUDENTIAL ALLOCATION FUND - BALANCED PORTFOLIO
[SERIES]
[NUMBER] 001
[NAME] PRU ALLOCATION FUND - BALANCED PORTFOLIO (CLASS A)
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] JUL-31-1995
[PERIOD-END] JUL-31-1995
[INVESTMENTS-AT-COST] 469,556,203
[INVESTMENTS-AT-VALUE] 508,381,980
[RECEIVABLES] 31,358,992
[ASSETS-OTHER] 10,579
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 539,751,551
[PAYABLE-FOR-SECURITIES] 23,092,390
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1,494,111
[TOTAL-LIABILITIES] 24,586,501
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 455,244,022
[SHARES-COMMON-STOCK] 42,900,171
[SHARES-COMMON-PRIOR] 43,551,047
[ACCUMULATED-NII-CURRENT] 1,914,605
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 19,180,646
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 38,825,777
[NET-ASSETS] 515,165,050
[DIVIDEND-INCOME] 3,714,618
[INTEREST-INCOME] 16,851,017
[OTHER-INCOME] 0
[EXPENSES-NET] 8,949,084
[NET-INVESTMENT-INCOME] 11,616,551
[REALIZED-GAINS-CURRENT] 24,855,840
[APPREC-INCREASE-CURRENT] 21,889,387
[NET-CHANGE-FROM-OPS] 58,361,778
[EQUALIZATION] (108,882)
[DISTRIBUTIONS-OF-INCOME] (11,460,711)
[DISTRIBUTIONS-OF-GAINS] (8,435,123)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 177,082,017
[NUMBER-OF-SHARES-REDEEMED] (201,993,090)
[SHARES-REINVESTED] 18,598,887
[NET-CHANGE-IN-ASSETS] 32,044,876
[ACCUMULATED-NII-PRIOR] 1,867,647
[ACCUMULATED-GAINS-PRIOR] 2,759,929
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 3,120,574
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 8,949,084
[AVERAGE-NET-ASSETS] 69,754,000
[PER-SHARE-NAV-BEGIN] 11.12
[PER-SHARE-NII] 1.45
[PER-SHARE-GAIN-APPREC] 0.00
[PER-SHARE-DIVIDEND] (0.33)
[PER-SHARE-DISTRIBUTIONS] (0.20)
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 12.04
[EXPENSE-RATIO] 1.22
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0.00
</TABLE>

<PAGE>
[ARTICLE] 6
[CIK] 0000811444
[NAME] PRUDENTIAL ALLOCATION FUND - BALANCED PORTFOLIO
[SERIES]
[NUMBER] 002
[NAME] PRU ALLOCATION FUND - BALANCED PORTFOLIO (CLASS B)
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] JUL-31-1995
[PERIOD-END] JUL-31-1995
[INVESTMENTS-AT-COST] 469,556,203
[INVESTMENTS-AT-VALUE] 508,381,980
[RECEIVABLES] 31,358,992
[ASSETS-OTHER] 10,579
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 539,751,551
[PAYABLE-FOR-SECURITIES] 23,092,390
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1,494,111
[TOTAL-LIABILITIES] 24,586,501
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 455,244,022
[SHARES-COMMON-STOCK] 42,900,171
[SHARES-COMMON-PRIOR] 43,551,047
[ACCUMULATED-NII-CURRENT] 1,914,605
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 19,180,646
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 38,825,777
[NET-ASSETS] 515,165,050
[DIVIDEND-INCOME] 3,714,618
[INTEREST-INCOME] 16,851,017
[OTHER-INCOME] 0
[EXPENSES-NET] 8,949,084
[NET-INVESTMENT-INCOME] 11,616,551
[REALIZED-GAINS-CURRENT] 24,855,840
[APPREC-INCREASE-CURRENT] 21,889,387
[NET-CHANGE-FROM-OPS] 58,361,778
[EQUALIZATION] (108,882)
[DISTRIBUTIONS-OF-INCOME] (11,460,711)
[DISTRIBUTIONS-OF-GAINS] (8,435,123)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 177,082,017
[NUMBER-OF-SHARES-REDEEMED] (201,993,090)
[SHARES-REINVESTED] 18,598,887
[NET-CHANGE-IN-ASSETS] 32,044,876
[ACCUMULATED-NII-PRIOR] 1,867,647
[ACCUMULATED-GAINS-PRIOR] 2,759,929
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 3,120,574
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 8,949,084
[AVERAGE-NET-ASSETS] 409,419,000
[PER-SHARE-NAV-BEGIN] 11.09
[PER-SHARE-NII] 1.36
[PER-SHARE-GAIN-APPREC] 0.00
[PER-SHARE-DIVIDEND] (0.25)
[PER-SHARE-DISTRIBUTIONS] (0.20)
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 12.00
[EXPENSE-RATIO] 1.97
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0.00
</TABLE>

<PAGE>
[ARTICLE] 6
[CIK] 0000811444
[NAME] PRUDENTIAL ALLOCATION FUND - BALANCED PORTFOLIO
[SERIES]
[NUMBER] 003
[NAME] PRU ALLOCATION FUND - BALANCED PORTFOLIO (CLASS C)
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] JUL-31-1995
[PERIOD-END] JUL-31-1995
[INVESTMENTS-AT-COST] 469,556,203
[INVESTMENTS-AT-VALUE] 508,381,980
[RECEIVABLES] 31,358,992
[ASSETS-OTHER] 10,579
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 539,751,551
[PAYABLE-FOR-SECURITIES] 23,092,390
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1,494,111
[TOTAL-LIABILITIES] 24,586,501
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 455,244,022
[SHARES-COMMON-STOCK] 42,900,171
[SHARES-COMMON-PRIOR] 43,551,047
[ACCUMULATED-NII-CURRENT] 1,914,605
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 19,180,646
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 38,825,777
[NET-ASSETS] 515,165,050
[DIVIDEND-INCOME] 3,714,618
[INTEREST-INCOME] 16,851,017
[OTHER-INCOME] 0
[EXPENSES-NET] 8,949,084
[NET-INVESTMENT-INCOME] 11,616,551
[REALIZED-GAINS-CURRENT] 24,855,840
[APPREC-INCREASE-CURRENT] 21,889,387
[NET-CHANGE-FROM-OPS] 58,361,778
[EQUALIZATION] (108,882)
[DISTRIBUTIONS-OF-INCOME] (11,460,711)
[DISTRIBUTIONS-OF-GAINS] (8,435,123)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 177,082,017
[NUMBER-OF-SHARES-REDEEMED] (201,993,090)
[SHARES-REINVESTED] 18,598,887
[NET-CHANGE-IN-ASSETS] 32,044,876
[ACCUMULATED-NII-PRIOR] 1,867,647
[ACCUMULATED-GAINS-PRIOR] 2,759,929
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 3,120,574
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 8,949,084
[AVERAGE-NET-ASSETS] 920,000
[PER-SHARE-NAV-BEGIN] 11.12
[PER-SHARE-NII] 1.33
[PER-SHARE-GAIN-APPREC] 0.00
[PER-SHARE-DIVIDEND] (0.25)
[PER-SHARE-DISTRIBUTIONS] (0.20)
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 12.00
[EXPENSE-RATIO] 2.04
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0.00
</TABLE>

<PAGE>
[ARTICLE] 6
[CIK] 0000811444
[NAME] PRUDENTIAL ALLOCATION FUND - STRATEGY PORTFOLIO
[SERIES]
[NUMBER] 004
[NAME] PRU ALLOCATION FUND - STRATEGY PORTFOL (CLASS A)
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] JUL-31-1995
[PERIOD-END] JUL-31-1995
[INVESTMENTS-AT-COST] 335,749,999
[INVESTMENTS-AT-VALUE] 369,728,119
[RECEIVABLES] 20,302,388
[ASSETS-OTHER] 55,238
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 390,085,745
[PAYABLE-FOR-SECURITIES] 22,560,918
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1,440,886
[TOTAL-LIABILITIES] 24,001,804
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 315,346,033
[SHARES-COMMON-STOCK] 29,461,767
[SHARES-COMMON-PRIOR] 33,228,879
[ACCUMULATED-NII-CURRENT] 1,539,281
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 15,225,530
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 33,973,097
[NET-ASSETS] 366,083,941
[DIVIDEND-INCOME] 3,814,245
[INTEREST-INCOME] 10,989,653
[OTHER-INCOME] 0
[EXPENSES-NET] 7,172,694
[NET-INVESTMENT-INCOME] 7,631,204
[REALIZED-GAINS-CURRENT] 15,712,614
[APPREC-INCREASE-CURRENT] 20,668,517
[NET-CHANGE-FROM-OPS] 44,012,335
[EQUALIZATION] (274,536)
[DISTRIBUTIONS-OF-INCOME] (7,099,110)
[DISTRIBUTIONS-OF-GAINS] (10,913,030)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 87,194,600
[NUMBER-OF-SHARES-REDEEMED] (147,769,905)
[SHARES-REINVESTED] 17,309,043
[NET-CHANGE-IN-ASSETS] (17,540,603)
[ACCUMULATED-NII-PRIOR] 1,547,219
[ACCUMULATED-GAINS-PRIOR] 10,160,450
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 2,370,080
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 7,172,694
[AVERAGE-NET-ASSETS] 57,020,000
[PER-SHARE-NAV-BEGIN] 11.60
[PER-SHARE-NII] 1.52
[PER-SHARE-GAIN-APPREC] 0.00
[PER-SHARE-DIVIDEND] (0.30)
[PER-SHARE-DISTRIBUTIONS] (0.34)
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 12.48
[EXPENSE-RATIO] 1.33
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0.00
</TABLE>

<PAGE>
[ARTICLE] 6
[CIK] 0000811444
[NAME] PRUDENTIAL ALLOCATION FUND - STRATEGY PORTFOLIO
[SERIES]
[NUMBER] 005
[NAME] PRU ALLOCATION FUND - STRATEGY PORTFOLIO (CLASS B)
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] JUL-31-1995
[PERIOD-END] JUL-31-1995
[INVESTMENTS-AT-COST] 335,749,999
[INVESTMENTS-AT-VALUE] 369,728,119
[RECEIVABLES] 20,302,388
[ASSETS-OTHER] 55,238
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 390,085,745
[PAYABLE-FOR-SECURITIES] 22,560,918
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1,440,886
[TOTAL-LIABILITIES] 24,001,804
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 315,346,033
[SHARES-COMMON-STOCK] 29,461,767
[SHARES-COMMON-PRIOR] 33,228,879
[ACCUMULATED-NII-CURRENT] 1,539,281
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 15,225,530
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 33,973,097
[NET-ASSETS] 366,083,941
[DIVIDEND-INCOME] 3,814,245
[INTEREST-INCOME] 10,989,653
[OTHER-INCOME] 0
[EXPENSES-NET] 7,172,694
[NET-INVESTMENT-INCOME] 7,631,204
[REALIZED-GAINS-CURRENT] 15,712,614
[APPREC-INCREASE-CURRENT] 20,668,517
[NET-CHANGE-FROM-OPS] 44,012,335
[EQUALIZATION] (274,536)
[DISTRIBUTIONS-OF-INCOME] (7,099,110)
[DISTRIBUTIONS-OF-GAINS] (10,913,030)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 87,194,600
[NUMBER-OF-SHARES-REDEEMED] (147,769,905)
[SHARES-REINVESTED] 17,309,043
[NET-CHANGE-IN-ASSETS] (17,540,603)
[ACCUMULATED-NII-PRIOR] 1,547,219
[ACCUMULATED-GAINS-PRIOR] 10,160,450
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 2,370,080
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 7,172,694
[AVERAGE-NET-ASSETS] 307,439,000
[PER-SHARE-NAV-BEGIN] 11.54
[PER-SHARE-NII] 1.42
[PER-SHARE-GAIN-APPREC] 0.00
[PER-SHARE-DIVIDEND] (0.21)
[PER-SHARE-DISTRIBUTIONS] (0.34)
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 12.41
[EXPENSE-RATIO] 2.08
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0.00
</TABLE>

<PAGE>
[ARTICLE] 6
[CIK] 0000811444
[NAME] PRUDENTIAL ALLOCATION FUND - STRATEGY PORTFOLIO
[SERIES]
[NUMBER] 006
[NAME] PRU ALLOCATION FUND - STRATEGY PORTFOLIO (CLASS C)
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] JUL-31-1995
[PERIOD-END] JUL-31-1995
[INVESTMENTS-AT-COST] 335,749,999
[INVESTMENTS-AT-VALUE] 369,728,119
[RECEIVABLES] 20,302,388
[ASSETS-OTHER] 55,238
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 390,085,745
[PAYABLE-FOR-SECURITIES] 22,560,918
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1,440,886
[TOTAL-LIABILITIES] 24,001,804
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 315,346,033
[SHARES-COMMON-STOCK] 29,461,767
[SHARES-COMMON-PRIOR] 33,228,879
[ACCUMULATED-NII-CURRENT] 1,539,281
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 15,225,530
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 33,973,097
[NET-ASSETS] 366,083,941
[DIVIDEND-INCOME] 3,814,245
[INTEREST-INCOME] 10,989,653
[OTHER-INCOME] 0
[EXPENSES-NET] 7,172,694
[NET-INVESTMENT-INCOME] 7,631,204
[REALIZED-GAINS-CURRENT] 15,712,614
[APPREC-INCREASE-CURRENT] 20,668,517
[NET-CHANGE-FROM-OPS] 44,012,335
[EQUALIZATION] (274,536)
[DISTRIBUTIONS-OF-INCOME] (7,099,110)
[DISTRIBUTIONS-OF-GAINS] (10,913,030)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 87,194,600
[NUMBER-OF-SHARES-REDEEMED] (147,769,905)
[SHARES-REINVESTED] 17,309,043
[NET-CHANGE-IN-ASSETS] (17,540,603)
[ACCUMULATED-NII-PRIOR] 1,547,219
[ACCUMULATED-GAINS-PRIOR] 10,160,450
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 2,370,080
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 7,172,694
[AVERAGE-NET-ASSETS] 170,000
[PER-SHARE-NAV-BEGIN] 11.57
[PER-SHARE-NII] 1.39
[PER-SHARE-GAIN-APPREC] 0.00
[PER-SHARE-DIVIDEND] (0.21)
[PER-SHARE-DISTRIBUTIONS] (0.34)
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 12.41
[EXPENSE-RATIO] 2.10
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0.00
</TABLE>

<PAGE>

PRUDENTIAL ALLOCATION 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 of its Balanced
Portfolio (the Portfolio). 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

<PAGE>
that class in relation to the net asset value of the Portfolio.

DIVIDENDS AND DISTRIBUTIONS

Dividends and other distributions paid by the Portfolio 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

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
Portfolio 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 Portfolio'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