PRUDENTIAL HIGH YIELD FUND INC, PRE 14A, 1996-08-20

PRUDENTIAL HIGH YIELD FUND INC
PRE 14A, 1996-08-20

Previous: LURIA L & SON INC, SC 14F1, 1996-08-20

Next: TRANS WORLD AIRLINES INC /NEW/, 424B4, 1996-08-20

<PAGE>

PRUDENTIAL MUTUAL FUNDS
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292

August , 1996

Dear Shareholder:

Enclosed is a proxy statement asking you to vote in favor of several
proposals relating to the management and operation of your Fund.

Meetings of your Fund and of other Funds within the Prudential Mutual Fund
Complex are being held on October 30, 1996 to consider these proposals and to
transact any other business that may properly come before the meetings. In the
past, when we have solicited proxies for your Fund, we usually have enclosed a
proxy statement directed solely to the shareholders of your Fund. This time,
however, shareholders of several Funds are being asked to approve many of the
same proposals, so most of the information that must be included in a proxy
statement for your Fund needs to be included in a proxy statement for the
other Funds as well. Therefore, in order to save money for your Fund, one
proxy statement has been prepared for these Funds. This proxy statement
contains detailed information about each of the proposals relating to your
Fund, and we recommend that you read it carefully. However, we have also
attached some Questions and Answers that we hope will assist you in evaluating
the proposals.

We have retained an outside proxy solicitation firm to assist us with any
necessary follow-up. If we have not received your vote as the meeting date
approaches, you may receive a telephone call from Shareholder Communications
Corporation to ask for your vote. We hope that their telephone call does not
inconvenience you.

You will receive a separate proxy statement and proxy card for each Fund
that you own. If you hold shares in more than one of the Funds or you have
more than one account holding Fund shares (e.g., an individual account and an
IRA), you will receive multiple copies of this Proxy Statement and proxy cards
for each of your Fund accounts. Please vote each proxy card you receive.

Thank you for your attention to this matter and for your continuing
investment in the Prudential Mutual Funds.

Very truly yours,
/s/ Richard A. Redeker
Richard A. Redeker
President
Prudential Mutual Fund Management

Proxy cards for each of your Funds are enclosed along with the proxy
statement. Please vote your shares today by signing and returning each
enclosed proxy card in the postage prepaid envelope provided. The Board of
your Fund recommends that you vote "FOR" the nominees for Board member and
"FOR" each proposal.

i
<PAGE>

QUESTIONS AND ANSWERS

Q: WHAT IS THE PURPOSE OF THIS PROXY SOLICITATION?

A: The purpose of this proxy is to ask you to vote on three primary issues:

. to elect twelve Board members;

. for most Funds, to approve changes to your Fund's fundamental investment
restrictions; and

. for most Funds, to ratify the selection of your Fund's independent
accountants for the current year.

Q: WHY AM I RECEIVING PROXY INFORMATION ON FUNDS THAT I DO NOT OWN?

A: In the past, when we have solicited proxies for your Fund, we have
generally enclosed a proxy statement directed solely to the shareholders of
one Fund. This time, however, shareholders of several Funds are being asked
to approve many of the same proposals, so most of the information that must
be included in a proxy statement for your Fund needs to be included in a
proxy statement for the other Funds as well. Therefore, in order to save
money for your Fund, one proxy statement has been prepared for these Funds.

Q: WHY AM I RECEIVING MORE THAN ONE PROXY STATEMENT OR MORE THAN ONE MAILING?

A: You will receive a separate proxy statement for each Fund that you own.
Also, if you hold shares in more than one account, for example, in an
individual account and in an IRA, you will receive multiple proxy
statements. Each proxy card should be voted and returned.

Q: WHY ARE YOU RECOMMENDING A NEW BOARD FOR THE FUNDS?

A: An advisory group comprised of independent directors of the Prudential
Mutual Funds, including a number of the existing Board members of the Funds
(the Advisory Group), assisted by representatives of Prudential Mutual Fund
Management, formed a corporate governance task force and considered issues
relating to the management and governance of the Funds. The Advisory Group
recommended to the Fund Boards, as part of an overall plan to coordinate
and enhance the efficiency of the operation of the Funds, that the
Prudential Mutual Funds should be restructured with fewer boards in the
Complex. The Fund Boards adopted the recommendations of the Advisory Group
and nominated twelve individuals drawn primarily from existing Boards.
Eight of the individual Board nominees are independent of Prudential. Said
differently, if the Shareholders approve the proposal and the nominees are
elected, more of the Prudential Mutual Funds would have identical Board
compositions than presently is the case. The Boards believe that
coordinated governance through this Board restructuring will benefit each
of the Funds.

Q: WILL THE PROPOSED CHANGES RESULT IN HIGHER MANAGEMENT FEES?

A: No. The management fees charged to each Fund will remain the same.

Q: WILL THE PROPOSED CHANGES RESULT IN HIGHER DIRECTORS' AND TRUSTEES' FEES?

A: It is anticipated that, on a Fund by Fund basis, Directors' and Trustees'
fees in the aggregate will not for the most part be higher than they are
currently.

Q: WHAT ARE "FUNDAMENTAL" INVESTMENT RESTRICTIONS, AND WHY ARE THEY BEING
CHANGED?

A: A Fund's "fundamental" investment restrictions are limitations placed on a
Fund's investment policies that can be changed only by a shareholder vote--
even if the changes are minor. The law requires certain investment policies
to be designated as fundamental. Each Fund adopted a number of fundamental

ii
<PAGE>

investment restrictions either when the Fund was created or at a later
date, and some of those fundamental restrictions reflect regulatory,
business or industry conditions, practices or requirements that are no
longer in effect. Others reflect regulatory requirements that, while still
in effect, do not need to be classified as fundamental restrictions.

The Fund Boards believe that certain fundamental investment restrictions
that are not legally required should be eliminated and that other
fundamental restrictions should be modernized and made more uniform. The
Boards believe that the proposed changes to the Funds' fundamental
investment restrictions will provide greater flexibility.

Q: DO THE PROPOSED CHANGES TO FUNDAMENTAL INVESTMENT RESTRICTIONS MEAN THAT MY
FUND'S INVESTMENT OBJECTIVE IS BEING CHANGED?

A: No. None of the proposals would change the investment objective of any Fund
or any series thereof.

Q: WHAT WILL BE THE EFFECT OF THE PROPOSED CHANGES TO MY FUND'S FUNDAMENTAL
RESTRICTIONS?

A: The Boards do not believe that the proposed changes to fundamental
investment restrictions will result at this time in a major restructuring
of the investment portfolio of any Fund or any series thereof. The changes
will allow each applicable Fund greater flexibility to respond to
investment opportunities. By making certain investment policies and
restrictions non-fundamental, the Board may make changes in the future that
it considers desirable without the necessity of a shareholder vote and
without incurring additional expenses. A shareholder vote is not necessary
for changes to non-fundamental investment policies or restrictions.

Q: WHAT ARE MY BOARD'S RECOMMENDATIONS?

A: The Board of each Fund has recommended that you vote "FOR" the nominees for
Board member and "FOR" each Proposal that applies to your Fund.

The attached proxy statement contains more detailed information about
each of the proposals relating to your Fund. Please read it carefully.

iii
<PAGE>

YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN

Enclosed you will find one or more proxy cards relating to each of the
Funds for which you are entitled to vote. Please indicate your voting
instructions on each of the enclosed proxy cards, date and sign them, and
return them in the envelope provided. If you sign, date and return a proxy
card but give no voting instructions, your shares will be voted "FOR" the
nominees for director or trustee named in the attached proxy statement and
"FOR" all other proposals indicated on the cards. In order to avoid the
additional expense to the Funds of further solicitation, we ask your
cooperation in mailing in your proxy cards promptly. Unless proxy cards
are signed by the appropriate persons as indicated in the instructions
below, they will not be voted.

INSTRUCTIONS FOR SIGNING PROXY CARDS

The following general rules for signing proxy cards may be of assistance to
you and avoid the time and expense to the Fund involved in validating your
vote if you fail to sign your proxy card properly.

1. Individual Accounts: Sign your name exactly as it appears in the
registration on the proxy card.

2. Joint Accounts: Either party may sign, but the name of the party
signing should conform exactly to the name shown in the registration on the
proxy card.

3. All Other Accounts: The capacity of the individual signing the proxy
card should be indicated unless it is reflected in the form of
registration. For example:

<TABLE>
<CAPTION>
REGISTRATION VALID SIGNATURE
------------ ----------------------------
<S> <C>
Corporate Accounts
(1) XYZ Corp................................ XYZ Corp.
Jane L. Doe, Treasurer
(2) XYZ Corp................................ Jane L. Doe, Treasurer
(3) XYZ Corp. c/o Jane L. Doe, Treasurer.... Jane L. Doe
(4) XYZ Corp. Profit Sharing Plan........... Jane L. Doe, Trustee
Partnership Accounts
(1) The ABC Partnership..................... Robert Fogg, Partner
(2) Fogg and Hale, Limited Partnership...... Robert Fogg, General Partner
Trust Accounts
(1) ABC Trust Account....................... William X. Smith, Trustee
(2) Ron F. Anderson, Trustee u/t/d
12/28/78................................... Ron F. Anderson
Custodial or Estate Accounts
(1) Katherine T. John, Cust. F/b/o Albert T.
John, Jr. UGMA/UTMA....................... Katherine T. John
(2) Estate of Katherine T. John............. Albert T. John, Executor
</TABLE>

iv
<PAGE>

PRUDENTIAL CALIFORNIA MUNICIPAL FUND
PRUDENTIAL DIVERSIFIED BOND FUND, INC.
PRUDENTIAL GOVERNMENT INCOME FUND, INC.
PRUDENTIAL GOVERNMENT SECURITIES TRUST
PRUDENTIAL HIGH YIELD FUND, INC.
PRUDENTIAL MORTGAGE INCOME FUND, INC.
PRUDENTIAL MUNICIPAL BOND FUND
PRUDENTIAL MUNICIPAL SERIES FUND
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
PRUDENTIAL STRUCTURED MATURITY FUND, INC.

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

ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292

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

NOTICE OF JOINT SPECIAL AND ANNUAL MEETINGS OF SHAREHOLDERS TO BE HELD ON

OCTOBER 30, 1996

----------------
To The Shareholders:

Joint meetings of the shareholders of each of the above-listed investment
companies (Funds) will be held at One Seaport Plaza, 199 Water Street, 35th
Floor, New York, New York, on October 30, 1996 at 9:00 a.m., Eastern time, for
the purpose of considering the following proposals with respect to the Funds:

1. For each Fund, to elect twelve members to its Board of Directors or
Trustees.

2. For Prudential California Municipal Fund, Prudential Diversified Bond
Fund, Inc., Prudential Government Income Fund, Inc., Prudential High Yield
Fund, Inc., Prudential Mortgage Income Fund, Inc., Prudential Municipal
Bond Fund, Prudential Municipal Series Fund and Prudential National
Municipals Fund, Inc., to approve certain changes to such Fund's
fundamental investment policies or restrictions.

3. For each Fund (except Prudential California Municipal Fund and
Prudential Municipal Series Fund), to ratify the selection of independent
accountants for such Fund's current fiscal year.

4. For each Fund, to transact such other business as may properly come
before the meeting and any adjournments thereof.

For Prudential Diversified Bond Fund, Inc., Prudential Government Income
Fund, Inc., Prudential High Yield Fund, Inc., Prudential Mortgage Income Fund,
Inc., Prudential National Municipals Fund, Inc. and Prudential Structured
Maturity Fund, Inc., the meetings will be the Funds' annual meetings. For the
other Funds, the meetings are special meetings.

You are entitled to vote at the meetings, and at any adjournments thereof,
of each Fund in which you owned shares at the close of business on August 9,
1996. If you attend the meetings, you may vote your shares in person. If you
do not expect to attend the meetings, please complete, date, sign and return
each enclosed proxy card in the enclosed postage paid envelope.
By order of the Boards.

S. Jane Rose
Secretary
August , 1996

- -------------------------------------------------------------------------------
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN AND PROMPTLY
RETURN THE ENCLOSED PROXY IN THE ENCLOSED SELF-ADDRESSED, STAMPED ENVELOPE.
IN ORDER TO AVOID THE ADDITIONAL EXPENSE TO THE FUND OF FURTHER
SOLICITATION, WE ASK YOUR COOPERATION IN MAILING IN YOUR PROXY PROMPTLY.
- -------------------------------------------------------------------------------
<PAGE>

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

ONE SEAPORT PLAZA

NEW YORK, NEW YORK 10292

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

PROXY STATEMENT

JOINT SPECIAL AND ANNUAL MEETINGS OF SHAREHOLDERS

TO BE HELD ON OCTOBER 30, 1996

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

This proxy statement is being furnished to holders of Shares of each of the
above-listed investment companies (Funds) in connection with the solicitation
by their respective Boards of proxies to be used at joint meetings (Meetings)
of Shareholders to be held at One Seaport Plaza, 199 Water Street, 35th Floor,
New York, New York 10292 on October 30, 1996, at 9:00 a.m., Eastern time, or
any adjournment or adjournments thereof. For Prudential Diversified Bond Fund,
Inc., Prudential Government Income Fund, Inc., Prudential High Yield Fund,
Inc., Prudential Mortgage Income Fund, Inc., Prudential National Municipals
Fund, Inc. and Prudential Structured Maturity Fund, Inc., the meetings will be
the Funds' Annual Meetings of Shareholders. For each other Fund, the meetings
are Special Meetings. This proxy statement is being first mailed to
Shareholders on or about August , 1996.

Each Fund is a registered, management investment company under the
Investment Company Act of 1940, as amended (the Investment Company Act), and
is organized as a Maryland corporation, except for Prudential California
Municipal Fund, Prudential Government Securities Trust, Prudential Municipal
Bond Fund and Prudential Municipal Series Fund, which are organized as
Massachusetts business trusts. Each Fund's shares of common stock, in the case
of Maryland corporations, or shares of beneficial interest, in the case of
Massachusetts business trusts, are referred to as "Shares," and the holders of
the Shares are "Shareholders"; and each Fund's board of directors or trustees
is referred to as a "Board," and the directors or trustees are "Board Members"
or "Directors" or "Trustees," as the case may be. A listing of the formal name
for each Fund, the abbreviated name for each Fund that is used in this proxy
statement and the proposals applicable to each Fund are set forth below.

<TABLE>
<CAPTION>
ABBREVIATED NAME PROPOSALS
USED IN THIS APPLICABLE
FUND NAME PROXY STATEMENT TO FUND
- --------- -------------------- ----------
<S> <C> <C>
Prudential California Municipal Fund........... California Municipal 1 and 2
Prudential Diversified Bond Fund, Inc.......... Diversified Bond 1, 2 and 3
Prudential Government Income Fund, Inc......... Government Income 1, 2 and 3
Prudential Government Securities Trust......... GST 1 and 3
Prudential High Yield Fund, Inc................ High Yield 1, 2 and 3
Prudential Mortgage Income Fund, Inc........... Mortgage Income 1, 2 and 3
Prudential Municipal Bond Fund................. Municipal Bond 1, 2 and 3
Prudential Municipal Series Fund............... Muni Series 1 and 2
Prudential National Municipals Fund, Inc....... National Municipals 1, 2 and 3
Prudential Structured Maturity Fund, Inc....... Structured Maturity 1 and 3
</TABLE>

1
<PAGE>

Prudential Mutual Fund Management, Inc. (Prudential Mutual Fund Management,
PMF or the Manager), One Seaport Plaza, New York, New York 10292, serves as
the Funds' Manager under a management agreement with each Fund (the Management
Agreement). Investment advisory services are provided to each Fund by PMF
through its affiliate, The Prudential Investment Corporation (PIC or the
Subadviser), Prudential Plaza, Newark, New Jersey 07102, under a Subadvisory
Agreement. PMF and PIC are subsidiaries of The Prudential Insurance Company of
America (Prudential) and are part of Prudential's Money Management Group.
Prudential Securities Incorporated (Prudential Securities), One Seaport Plaza,
New York, New York 10292 serves as the distributor of the Funds' shares. The
Funds' transfer agent is Prudential Mutual Fund Services, Inc. (PMFS), Raritan
Plaza One, Edison, New Jersey 08837. As of June 30, 1996, PMF served as the
manager to 39 open-end investment companies and as manager or administrator to
22 closed-end investment companies with aggregate assets of more than $52
billion. As part of a corporate restructuring, PMF intends to reorganize as a
limited liability company on or before December 31, 1996. This reorganization
will have no impact on the provision of services to the Funds. This
reorganization will not result in a change of management or control within the
meaning of the Investment Company Act and does not require Shareholder
approval. Each Fund has a Board of Directors or Trustees which, in addition to
overseeing the actions of the Fund's Manager and Subadviser, decides upon
matters of general policy.

VOTING INFORMATION

For each Fund, the presence, in person or by proxy, of a majority of the
Shares of the Fund outstanding and entitled to vote will constitute a quorum
for the transaction of business at the Meetings.

If a quorum is not present at a Meeting, or if a quorum is present at that
Meeting but sufficient votes to approve any of the proposals are not received,
the persons named as proxies may propose one or more adjournments of the
Meeting to permit further solicitation of proxies. Any adjournment will
require the affirmative vote of a majority of those Shares represented at the
Meeting in person or by proxy. The persons named as proxies will vote those
proxies which they are entitled to vote FOR any proposal in favor of the
adjournment and will vote those proxies required to be voted AGAINST any
proposal against the adjournment. A Shareholder vote may be taken on one or
more of the proposals in this proxy statement prior to any such adjournment if
sufficient votes have been received and it is otherwise appropriate.

If a proxy that is properly executed and returned is accompanied by
instructions to withhold authority to vote (an abstention) or represents a
broker "non-vote" (that is, a proxy from a broker or nominee indicating that
such person has not received instructions from the beneficial owner or other
person entitled to vote Shares on a particular matter with respect to which
the broker or nominee does not have discretionary power), the Shares
represented thereby, with respect to matters to be determined by a majority of
the votes cast on such matters, will be considered present for purposes of
determining the existence of a quorum for the transaction of business, but,
not being cast, will have no effect on the outcome of such matters. With
respect to matters requiring the affirmative vote of a specified percentage of
the total Shares outstanding, an abstention or broker non-vote will be
considered present for purposes of determining a quorum but will have the
effect of a vote against such matters. Accordingly, abstentions and broker
non-votes will have no effect on Proposals Nos. 1 and 3, for which the
required vote is a plurality or majority number of the votes cast, but
effectively will be a vote against Proposal No. 2, which requires approval of
a majority of the outstanding voting securities under the Investment Company
Act.

The individuals named as proxies on the enclosed proxy cards will vote in
accordance with your direction as indicated thereon, if your proxy card is
received properly executed by you or by your duly appointed agent or attorney-
in-fact. If your card is properly executed and you give no voting
instructions, your Shares will be voted FOR the nominees named herein for the
Board of the Fund to which the proxy card relates and FOR the remaining
proposals described in this proxy statement and referenced on the proxy card.
If any nominee for the Fund Boards should withdraw or otherwise become
unavailable for election, your Shares will be voted in favor of such other
nominee or nominees as management may recommend. You may revoke any proxy card
by giving

2
<PAGE>

another proxy or by letter or telegram revoking the initial proxy. To be
effective, your revocation must be received by the Fund prior to the related
Meeting and must indicate your name and account number. In addition, if you
attend a Meeting in person you may, if you wish, vote by ballot at that
Meeting, thereby canceling any proxy previously given.

The close of business on August 9, 1996 has been fixed as the record date
for the determination of Shareholders entitled to notice of, and to vote at
the Meetings. Information as to the number of outstanding Shares for each Fund
as of August 9, 1996 is set forth below:

<TABLE>
<CAPTION>
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
CLASS A CLASS B CLASS C CLASS Z TOTAL NUMBER
SHARES SHARES SHARES SHARES OF SHARES
FUND OUTSTANDING OUTSTANDING OUTSTANDING OUTSTANDING OUTSTANDING
- ---- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Prudential California
Municipal Fund
California Income
Series...............
California Series.....
California Money
Market Series*.......
Prudential Diversified
Bond Fund, Inc. .......
Prudential Government
Income Fund, Inc. .....
Prudential Government
Securities Trust.......
Money Market Series...
Short-Intermediate
Term Series*.........
U.S. Treasury Money
Market Series*.......
Prudential High Yield
Fund, Inc. ............
Prudential Mortgage
Income Fund, Inc. .....
Prudential Municipal
Bond Fund
Insured Series........
High Yield Series.....
Intermediate Series...
Prudential Municipal
Series Fund
Connecticut Money
Market Series*.......
Florida Series........
Hawaii Income Series..
Maryland Series.......
Massachusetts Series..
Massachusetts Money
Market Series*.......
Michigan Series.......
New Jersey Money
Market Series*.......
New Jersey Series.....
New York Series.......
New York Money Market
Series*..............
North Carolina
Series...............
Ohio Series...........
Pennsylvania Series...
Prudential National
Municipals Fund,
Inc. ..................
Prudential Structured
Maturity Fund, Inc. ...
</TABLE>
- --------
* Shares outstanding are not designated by class type as Series only has one
class of shares authorized.

None of the items on the agenda require separate voting by class, although
Proposal No. 2 requires separate voting by Series for those Funds with Series
of shares. Each share of each class is entitled to one vote. [Management does
not know of any person who owned beneficially 5% more of the Shares of any
Fund as of August 9, 1996.] [Information about persons who owned beneficially
more than 5% of the Shares of any Fund as of August 9, 1996 is set forth in
Exhibit F.] To the knowledge of management, the executive officers and Board

3
<PAGE>

Members of each Fund, as a group, owned less than 1% of the outstanding Shares
of each Fund as of August 9, 1996.

COPIES OF EACH FUND'S MOST RECENT ANNUAL AND SEMI-ANNUAL REPORTS, INCLUDING
FINANCIAL STATEMENTS, HAVE PREVIOUSLY BEEN DELIVERED TO SHAREHOLDERS OR ARE
ENCLOSED WITH THIS PROXY STATEMENT. SHAREHOLDERS OF ANY FUND MAY OBTAIN
WITHOUT CHARGE ADDITIONAL COPIES OF A FUND'S ANNUAL AND SEMI-ANNUAL REPORTS BY
WRITING THE FUND AT ONE SEAPORT PLAZA, NEW YORK, NEW YORK 10292, OR BY CALLING
1-800-225-1852 (TOLL FREE).

Each full Share of each Fund outstanding is entitled to one vote, and each
fractional Share of each Fund outstanding is entitled to a proportionate share
of one vote, with respect to each matter to be voted upon by the Shareholders
of that Fund. Information about the vote necessary with respect to each
proposal is discussed below in connection with the proposal.

ELECTION OF DIRECTORS OR TRUSTEES
(PROPOSAL NO. 1)

RELEVANT FUNDS. All Funds.

DISCUSSION. The Board of each Fund has acted to expand its membership and
has nominated the twelve individuals identified below for election to the
related Fund's Board at its Meeting. Under Proposal No. 1, Shareholders of
each Fund are being asked to vote on those nominees. Pertinent information
about each nominee is set forth in the listing below and in Exhibits A through
D hereto. Each nominee has indicated a willingness to serve if elected. If
elected, each nominee will hold office until the earlier to occur of the next
meeting of Shareholders at which Board Members are elected and until their
successors are elected and qualified or until their terms expire in accordance
with the Fund's retirement policy. The Funds do not intend to hold annual
meetings of shareholders unless the election of Directors (or Trustees) is
required under the Investment Company Act. Accordingly, if elected, each
nominee will serve for a term of unlimited duration until his or her term
expires in accordance with the Fund's retirement policy or until the next
meeting of shareholders at which Directors or Trustees are elected, whichever
is earlier. Each Fund's retirement policy generally calls for the retirement
of Directors or Trustees on December 31 of the year in which they reach the
age of 72, except that there is a phase-in period for Board Members who were
68 and older as of December 31, 1993. Under this phase-in period, such Board
Members will retire on or before December 31, 1999.

The increase in the size of the Boards and the nomination of a single group
of nominees to serve as the Board Members for each Fund reflects an overall
plan to coordinate and enhance the efficiency of the governance of the Funds
and of certain other investment companies that are part of the Prudential
Mutual Fund Complex. This plan was developed by an advisory group of current
Board Members who are not "interested persons" of the Funds, as defined in the
Investment Company Act (independent Board Members), with the assistance of
representatives of Prudential Mutual Fund Management, who formed a corporate
governance task force. The Advisory Group considered various matters related
to the management and governance of the Funds and made recommendations to the
Boards, including proposals concerning the number of mutual fund boards, the
size and composition of such Boards, retirement policies and related matters.
These proposals were adopted by the Boards at meetings in November 1995 and
during the first quarter of 1996, and are summarized below. The Boards acted
in 1996 to establish the size of the Board at twelve. The nominees for
independent Board memberships were selected by the nominating committees of
the Board of each Fund. With the exception of the nominations for Board
membership, which are the subject of Proposal No. 1, no Shareholder action is
required with respect to the Advisory Group recommendations. If all of the
nominees are elected, some Funds will have more Board members than they
currently have. Notwithstanding this increase in the number of Board Members,
it is anticipated that, on a Fund by Fund basis, Directors' and Trustees' fees
in the aggregate will not for the most part be higher than they currently are.
Board fees are reviewed periodically by each Fund's Board and may be changed
in the future.

4
<PAGE>

The Boards believe that coordinated governance through this Board
restructuring will benefit each of the Funds. Despite some recent
consolidations, the Prudential Mutual Fund Complex has grown substantially in
size in the years since the current Boards were created. This growth has been
due to the creation of new Funds intended to serve a wide variety of
investment needs. The Advisory Group concluded that the Prudential Mutual Fund
Complex would operate more efficiently and economically with fewer boards. The
Prudential Mutual Fund Complex currently includes over 70 portfolios of open-
end and closed-end funds having a wide variety of investment objectives and
policies with over 12 different boards (clusters). The Advisory Group
recommended that the number of Board clusters be reduced from the present
level to four. The proposed Board cluster covered by this proxy statement
would include municipal and domestic taxable bond funds. The other Board
clusters would focus on other types of investments. The Boards believe that
the Funds will benefit from having Board Members focus on the issues relating
to these types of Funds and to investing in these types of securities. The
Boards believe that greater efficiencies would result through the holding of
joint Board and shareholder meetings. Coordinated governance within the
Prudential Mutual Fund Complex also will reduce the possibility that separate
Boards might arrive at conflicting decisions regarding the operation and
management of the Funds.

The Boards also believe that the Funds will benefit from the diversity and
experience of the nominees that would comprise the restructured Boards. These
nominees have had distinguished careers in business, finance, government and
other areas and will bring a wide range of expertise to the Boards. Eight of
the twelve nominees have no affiliation with PMF, Prudential Securities or
Prudential and would be independent Board Members. Independent Board Members
are charged with special responsibilities, among other things, to approve
advisory, distribution and similar agreements between the Funds and
management. Currently, they also constitute the members of the Boards' audit
and nominating committees. In the course of their duties, Board Members must
review and understand large amounts of financial and technical material and
must be willing to devote substantial amounts of time to their duties. Due to
the demands of service on the Boards, independent nominees may need to reject
other attractive opportunities. Each of the independent nominees already
serves as an independent Board Member for one or more funds within the
Prudential Mutual Fund Complex and understands the operations of the complex.

As recommended by the Advisory Group, the compensation paid to independent
Board Members will change. The Advisory Group has recommended that, initially,
under the new structure, each independent Board Member be paid annual fees in
the aggregate of $45,000 for this Fund cluster. There will be no additional
compensation for serving on committees or for attending meetings. For the most
part, on a Fund by Fund basis, Directors' and Trustees' fees in the aggregate
will not be higher than they are currently. "Interested" Board Members will
continue to receive no compensation from any Fund. Board Members will continue
to be reimbursed for any expenses incurred in attending meetings and for other
incidental expenses. The annual Board fees per Fund and per cluster are
subject to the approval of the new Boards upon their election. Thereafter,
annual Board fees may be reviewed periodically and changed by each Fund's
Board.

5
<PAGE>

The following table sets forth information relating to the compensation paid
to Board Members (i) specifically by the Fund during such Fund's last fiscal
year and (ii) in the aggregate for the calendar year ended December 31, 1995:

COMPENSATION TABLE

<TABLE>
<CAPTION>
TOTAL
COMPENSATION
PAID TO
BOARD
MEMBERS
AGGREGATE FROM FUNDS
COMPENSATION AND FUND
BOARD MEMBER(1) FROM FUND COMPLEX(2)
- ----------------------------------------------------------------------------------------------------------------------------------
CALIFORNIA DIVERSIFIED GOVERNMENT HIGH MORTGAGE MUNICIPAL MUNI NATIONAL STRUCTURED
MUNICIPAL BOND INCOME GST YIELD INCOME BOND SERIES MUNICIPALS MATURITY
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beach, Edward
D.............. $4,000 -- $8,000 -- -- $7,500 $9,000 $9,000 -- -- $183,500(22)+
Dorsey, Eugene
C.............. $4,000 $7,500 -- -- -- $7,500 -- $9,000 -- -- $ 75,500(9)+
Fortune, Robert,
R.*............ -- -- -- -- -- -- -- -- -- $6,000 $ 20,250(3)+
Gold, Delayne
D. ............ $4,000 -- $8,000 $9,200 $9,200 $7,500 -- $9,000 $7,700 $6,000 $183,250(24)+
Hauspurg,
Arthur*........ -- -- -- $9,000 $9,000 -- -- -- $7,500 -- $ 37,500(5)+
Jacobs, Jr.,
Harry A. ......
Lennox, Donald
D.............. -- -- -- -- -- -- $9,000 -- -- -- $ 90,000(10)+
McCorkindale,
Douglas*....... -- -- -- -- -- -- $9,000 -- -- -- $ 63,750(7)+
Mooney, Thomas
T.............. $4,000 -- $8,000 -- -- $7,500 $9,000 $9,000 -- -- $129,625(14)+
Munn, Stephen
P.*............ -- -- -- $9,000 $9,000 -- -- -- $7,500 -- $ 39,375(6)+
O'Brien, Thomas
H.............. $4,000 -- $8,000 -- -- $7,500 -- $9,000 -- -- $ 44,000(6)+
Owens Jr.,
Thomas A.*..... -- -- $8,000 -- -- -- -- -- -- $6,000 $ 87,000(12)+
Redeker, Richard
A. ............
Sandberg, Sir
Michael*....... -- -- -- -- -- -- -- -- -- -- $ 22,000(2)+
Shirk, Stanley
E.*............ -- -- $8,000 -- -- -- -- -- -- -- $ 79,000(8)+
Smith, Robin
B.*............ -- $7,500 -- -- -- -- -- -- -- -- $100,741(10)+
Teeters, Nancy
H.............. $4,000 -- -- -- -- $7,500 -- $9,000 -- -- $107,500(13)+
Weil, III, Louis
A.............. -- -- -- $9,000 $9,000 -- $9,000 -- $7,500 -- $ 93,750(11)+
Wellington,
Robert H.*..... -- -- -- -- -- -- -- -- -- -- $ 19,000(3)+
Welshans, Merle
T.*............ -- -- -- -- -- -- -- -- -- $6,000 $ 20,250(3)+
</TABLE>
- --------
* Indicates Board Member who is not standing for reelection.
+ Indicates number of funds in Fund Complex (including the Funds) to which
aggregate compensation relates.
(1) Board members who were not independent did not receive compensation from
the Funds or Fund Complex. All other Board members listed above are deemed
to be independent Board members.
(2) No fund within the fund complex has a bonus, pension, profit sharing or
retirement plan.

6
<PAGE>

In connection with the Advisory Group recommendations for a restructuring of
the Prudential Mutual Fund Boards, PMF offered to pay from its own resources a
one-time retirement package to the independent Board Members. The purpose of
the one-time retirement package was to reduce the overall number of Board
Members in the Prudential Mutual Fund Complex. The retirement package would be
equal to twice the current aggregate annual Board fees but not to exceed
$75,000 per Director/Trustee plus $2,000 for every year of service in excess
of ten years. Retirement would be effective in late 1996 or early 1997 after
the Shareholder Meetings. On a complex-wide basis, fourteen independent Board
Members have accepted this offer and are not standing for reelection to any
Fund's Board. On a complex-wide basis, there will be seventeen Board Members
who are not affiliated with PMF or Prudential Securities standing for
reelection to one or more of the four Board clusters.

Board Members may elect to receive their Directors' or Trustees' fees
pursuant to a deferred fee agreement with each Fund. Under the terms of the
agreement, the Fund accrues daily the amount of such Board Member's fee in
installments 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 exemptive order of the Securities and Exchange
Commission (SEC), at the daily rate of return of the applicable Fund. Payment
of the interest so accrued is also deferred and accruals become payable at the
option of the Board Member. The Fund's obligation to make payments of deferred
Directors' and Trustees' fees, together with interest thereon, is a general
obligation of the Fund.

The nominees for election as Board members, their ages and a description of
their principal occupations are listed below. Further information about the
nominees or current Board members standing for reelection is set forth in
Exhibits A through D. A table indicating each nominee's ownership of Fund
shares is attached as Exhibit B.

NAME, AGE, BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS AND OTHER
DIRECTORSHIPS.

Edward D. Beach (71), President and Director of BMC Fund, Inc., a closed-end
investment company; prior thereto, Vice Chairman of Broyhill Furniture
Industries, Inc.; Certified Public Accountant; Secretary and Treasurer of
Broyhill Family Foundation, Inc.; Member of the Board of Trustees of Mars Hill
College; President 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., The Global Total Return
Fund, Inc., Prudential Equity Fund, Inc., Prudential Global Genesis Fund,
Inc., Prudential Government Income Fund, Inc., Prudential Mortgage Income
Fund, Inc., Prudential Multi-Sector Fund, Inc., Prudential Natural Resources
Fund, Inc. and Prudential Special Money Market Fund, Inc.; Trustee of The
BlackRock Government Income Trust, Command Government Fund, Command Money
Fund, Command Tax-Free Fund, Prudential Allocation Fund, Prudential California
Municipal Fund, Prudential Equity Income Fund, Prudential Municipal Bond Fund
and Prudential Municipal Series Fund.

Eugene C. Dorsey (69), Retired President, Chief Executive Officer and
Trustee of the Gannett Foundation (now Freedom Forum); former Publisher of
four Gannett newspapers and Vice President of Gannett Company; former chairman
of Independent Sector, Washington, D.C. (national coalition of philanthropic
organizations); former Chairman of the American Council for the Arts; Director
of the Advisory Board of Chase Manhattan Bank of Rochester, Prudential
Diversified Bond Fund, Inc., Prudential Equity Fund, Inc., Prudential Europe
Growth Fund, Inc., Prudential Institutional Liquidity Portfolio, Inc.,
Prudential Jennison Fund, Inc., Prudential Mortgage Income Fund, Inc. and The
High Yield Income Fund, Inc.; Trustee of Prudential California Municipal Fund,
Prudential Municipal Series Fund and The Target Portfolio Trust.

Delayne Dedrick Gold (58), Marketing and Management Consultant; Director of
Prudential Distressed Securities Fund, Inc., Prudential Equity Fund, Inc.,
Prudential Global Limited Maturity Fund, Inc., Prudential Government Income
Fund, Inc., Prudential High Yield Fund, Inc., Prudential MoneyMart Assets,
Inc., Prudential Mortgage Income Fund, Inc., Prudential National Municipals
Fund, Inc., Prudential Pacific Growth Fund, Inc., Prudential Small Companies
Fund, Inc., Prudential Special Money Market Fund, Inc., Prudential Structured
Maturity Fund, Inc., Prudential Tax-Free Money Fund, Inc., Prudential Utility
Fund, Inc. and Prudential World Fund, Inc.; Trustee of The BlackRock
Government Income Trust, Command Government Fund, Command

7
<PAGE>

Money Fund, Command Tax-Free Fund, Prudential California Municipal Fund,
Prudential Government Securities Trust and Prudential Municipal Series Fund.

*Robert F. Gunia (49), Director, Chief Administrative Officer, Executive
Vice President, Treasurer and Chief Financial Officer of PMF; Comptroller of
the Money Management Group of Prudential (since 1996); Senior Vice President
of Prudential Securities; Vice President and Director of Nicholas-Applegate
Fund, Inc. and The Asia Pacific Fund, Inc.

*Harry A. Jacobs, Jr. (75), Senior Director (since January 1986) of
Prudential Securities; formerly Interim Chairman and Chief Executive Officer
of PMF (June-September 1993); formerly Chairman of the Board of Prudential
Securities (1982-1985) and Chairman of the Board and Chief Executive Officer
of Bache Group Inc. (1977-1982); Director of Prudential Equity Fund, Inc.,
Prudential Global Limited Maturity Fund, Inc., Prudential Government Income
Fund, Inc., Prudential High Yield Fund, Inc., Prudential MoneyMart Assets,
Inc., Prudential Mortgage Income Fund, Inc., Prudential National Municipals
Fund, Inc., Prudential Pacific Growth Fund, Inc., Prudential Small Companies
Fund, Inc., Prudential Special Money Market Fund, Inc., Prudential Structured
Maturity Fund, Inc., Prudential Utility Fund, Inc., Prudential World Fund,
Inc., The First Australia Fund, Inc. and The First Australia Prime Income
Fund, Inc.; Trustee of the Trudeau Institute, Command Money Fund, Command
Government Fund, Command Tax-Free Fund, Prudential California Municipal Fund
and Prudential Municipal Series Fund.

Donald D. Lennox (77), Chairman (since February 1990) and Director (since
April 1989) of International Imaging Materials, Inc.; Retired Chairman, Chief
Executive Officer and Director of Schlegel Corporation (industrial
manufacturing) (March 1987-February 1989); Director of Gleason Corporation,
Personal Sound Technologies, Inc., Prudential Global Genesis Fund, Inc.,
Prudential Institutional Liquidity Portfolio, Inc., Prudential Multi-Sector
Fund, Inc., Prudential Natural Resources Fund, Inc., The Global Government
Plus Fund, Inc. and The High Yield Plus Fund, Inc.; Trustee of Prudential
Allocation Fund, Prudential Equity Income Fund, Prudential Municipal Bond Fund
and The Target Portfolio Trust.

*Mendel A. Melzer (35), Chief Financial Officer (since November 1995) of the
Money Management Group of Prudential; formerly Senior Vice President and Chief
Financial Officer of Prudential Preferred Financial Services (April 1993--
November 1995); Managing Director of Prudential Investment Advisors (April
1991--April 1993); Senior Vice President of Prudential Capital Corporation
(July 1989--April 1991); Chairman and Director of Prudential Series Fund, Inc.

Thomas T. Mooney (54), President of the Greater Rochester Metro Chamber of
Commerce; former Rochester City Manager; Trustee of Center for Governmental
Research, Inc.; Director of Blue Cross of Rochester, Monroe County Water
Authority, Rochester Jobs, Inc., Executive Service Corps of Rochester, Monroe
County Industrial Development Corporation, Northeast Midwest Institute, The
Business Council of New York State, Global Utility Fund, Inc., Prudential
Distressed Securities Fund, Inc., Prudential Equity Fund, Inc., Prudential
Global Genesis Fund, Inc., Prudential Government Income Fund, Inc., Prudential
Mortgage Income Fund, Inc., Prudential Multi-Sector Fund, Inc., Prudential
Natural Resources Fund, Inc., First Financial Fund, Inc., The Global
Government Plus Fund, Inc., The Global Total Return Fund, Inc. and The High
Yield Plus Fund, Inc.; Trustee of Prudential Allocation Fund, Prudential
California Municipal Fund, Prudential Equity Income Fund, Prudential Municipal
Bond Fund and Prudential Municipal Series Fund.

Thomas H. O'Brien (71), President of O'Brien Associates; formerly President
of Jamaica Water Securities Corp. (February 1989--August 1990); Chairman and
Chief Executive Officer (September 1987--February 1989) and Director
(September 1987--August 1990) of Jamaica Water Supply Company; formerly
Director of TransCanada Pipelines U.S.A. Ltd. (1984-June 1989); Director of
Ridgewood Savings Bank, Prudential Equity Fund, Inc., Prudential Government
Income Fund, Inc. and Prudential Mortgage Income Fund, Inc.; and Trustee of
Hofstra University; Trustee of Prudential California Municipal Fund and
Prudential Municipal Series Fund.
- --------
* Is or will be an "interested" Director or Trustee, as defined in the
Investment Company Act, by reason of his affiliation with PMF, Prudential
Securities or Prudential.

8
<PAGE>

*Richard A. Redeker (53), President, Chief Executive Officer and Director
(since October 1993) of PMF; Executive Vice President, Director and Member of
the Operating Committee (since October 1993) of Prudential Securities;
Director (since October 1993) of Prudential Securities Group, Inc; formerly
Senior Executive Vice President and Director of Kemper Financial Services,
Inc. (September 1978--September 1993); Director of Global Utility Fund, Inc.,
Prudential Distressed Securities Fund, Inc., Prudential Diversified Bond Fund,
Inc., Prudential Equity Fund, Inc., Prudential Europe Growth Fund, Inc.,
Prudential Global Genesis Fund, Inc., Prudential Global Limited Maturity Fund,
Inc., Prudential Government Income Fund, Inc., Prudential High Yield Fund,
Inc., Prudential Institutional Liquidity Portfolio, Inc., Prudential
Intermediate Global Income Fund, Inc., Prudential Jennison Fund, Inc.,
Prudential MoneyMart Assets, Inc., Prudential Mortgage Income Fund, Inc.,
Prudential Multi-Sector Fund, Inc., Prudential National Municipals Fund, Inc.,
Prudential Natural Resources Fund, Inc., Prudential Pacific Growth Fund, Inc.,
Prudential Small Companies Fund, Inc., Prudential Special Money Market Fund,
Inc., Prudential Structured Maturity Fund, Inc., Prudential Tax-Free Money
Fund, Inc., Prudential Utility Fund, Inc., Prudential World Fund, Inc., The
Global Total Return Fund, Inc., The Global Government Plus Fund, Inc., and The
High Yield Income Fund, Inc.; Trustee of Command Government Fund, Command
Money Fund, Command Tax-Free Fund, Prudential Allocation Fund, Prudential
California Municipal Fund, Prudential Equity Income Fund, Prudential
Government Securities Trust, Prudential Municipal Bond Fund, Prudential
Municipal Series Fund and The Target Portfolio Trust. Mr. Redeker has resigned
as President and Chief Executive Officer and Director of PMF effective on or
before December 31, 1996. Although he will no longer oversee the operations of
the Manager on a day-to-day basis, it is anticipated that Mr. Redeker will
remain associated with PMF and Prudential and will continue to serve as
President of the Funds./1/

Nancy H. Teeters (66), Economist; formerly Vice President and Chief
Economist (March 1986--June 1990) of International Business Machines
Corporation; Director of Inland Steel Corporation (since July 1991), Global
Utility Fund, Inc., Prudential Equity Fund, Inc., Prudential MoneyMart Assets,
Inc., Prudential Mortgage Income Fund, Inc., Prudential Special Money Market
Fund, Inc., First Financial Fund, Inc. and The Global Total Return Fund, Inc.;
Trustee of The BlackRock Government Income Trust, Command Government Fund,
Command Money Fund, Command Tax-Free Fund, Prudential California Municipal
Fund and Prudential Municipal Series Fund.

Louis A. Weil, III (55), President and Chief Executive Officer (since
January 1996) and Director (since September 1991) of Central Newspapers, Inc.;
Chairman of the Board (since January 1996), Publisher and Chief Executive
Officer (August 1991--December 1995) of Phoenix Newspapers, Inc.; formerly
Publisher of Time Magazine (May 1989--March 1991); formerly President,
Publisher and Chief Executive Officer of The Detroit News (February 1986--
August 1989); formerly member of the Advisory Board of Chase Manhattan Bank-
Westchester; Trustee of Prudential Allocation Fund, Prudential Distressed
Securities Fund, Inc., Prudential Equity Income Fund, Prudential Government
Securities Trust and Prudential Municipal Bond Fund; Director of Prudential
Global Genesis Fund, Inc., Prudential High Yield Fund, Inc., Prudential Multi-
Sector Fund, Inc., Prudential National Municipals Fund, Inc., Prudential
Natural Resources Fund, Inc., Prudential Small Companies Fund, Inc.,
Prudential Tax-Free Money Fund, Inc. and The Global Government Plus Fund, Inc.
- --------
* Is or will be an "interested" Director or Trustee, as defined in the
Investment Company Act, by reason of his affiliation with PMF, Prudential
Securities or Prudential.
/1/ Mr. Redeker has resigned as President and Chief Executive Officer and
Director of PMF effective on or before December 31, 1996. Although he will
no longer oversee the operations of the Manager on a day-to-day basis, it
is anticipated that Mr. Redeker will remain associated with PMF and
Prudential and will continue to serve as President of the Funds.

Each Fund has a Nominating Committee and an Audit Committee, the members of
which are the independent Board members. The Audit Committee makes
recommendations to the Board with respect to the engagement of independent
accountants and reviews with the independent accountants the plan and results
of the audit engagement and matters having a material effect upon the Fund's
financial operations. The Nominating Committee makes recommendations to the
Board with respect to candidates for election as Board Members. The Nominating
Committee does not consider nominees recommended by Shareholders to fill
vacancies on the Board. Information about the number of Board and Committee
meetings held during the most recent fiscal year ended for each Fund is
included in Exhibit C. Information concerning Fund officers is set forth in
Exhibit D.

9
<PAGE>

REQUIRED VOTE. The nominees receiving the affirmative vote of a majority
(California Municipal, GST, High Yield, Mortgage Income, Municipal Bond, Muni
Series, National Municipals and Structured Maturity) or a plurality
(Diversified Bond, Government Income) of the votes cast will be elected,
provided a quorum is present.

EACH BOARD, INCLUDING ITS INDEPENDENT BOARD MEMBERS, RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" EACH OF THE NOMINEES UNDER PROPOSAL NO. 1.

APPROVAL OF CHANGES TO FUNDAMENTAL INVESTMENT
RESTRICTIONS AND POLICIES

(PROPOSAL NO. 2)

RELEVANT FUNDS. Changes to fundamental investment restrictions and policies
are proposed for all Funds, except GST and Structured Maturity. Some of the
proposed changes apply only to certain Funds. See "Proposed Changes" below for
listings of the Funds to which each specific change applies.

REASONS FOR THE PROPOSED CHANGES. Pursuant to the Investment Company Act,
each of the Funds has adopted certain fundamental investment restrictions and
policies (fundamental restrictions), which are set forth in the Fund's
prospectus or statement of additional information, and may be changed only
with Shareholder approval. Restrictions and policies that a Fund has not
specifically designated as being fundamental are considered to be "non-
fundamental" and may be changed by the Fund's Board without Shareholder
approval.

Certain of the fundamental restrictions that the Funds have adopted in the
past reflect regulatory, business or industry conditions, practices or
requirements that are no longer in effect. Other fundamental restrictions
reflect regulatory requirements which remain in effect, but are not required
to be stated as fundamental, or in some cases even as non-fundamental,
restrictions. Also, as new Funds have been created over a period of years,
substantially similar fundamental restrictions often have been phrased in
slightly different ways, which could result in minor but unintended
differences in effect or potentially give rise to unintended differences in
interpretation.

Accordingly, the Boards have approved revisions to their respective Funds'
fundamental restrictions in order to simplify, modernize and make more uniform
those investment restrictions that are required to be fundamental, and to
eliminate certain fundamental restrictions that are not legally required. In
certain instances, existing fundamental restrictions that are eliminated
because they are not required to be fundamental would be re-classified as non-
fundamental restrictions, in which event they could be further modified by the
Board without shareholder approval.

The Board of each applicable Fund believes that the proposed changes to the
Fund's fundamental restrictions will enhance management's ability to manage
efficiently and effectively the Fund's assets in changing regulatory and
investment environments. In addition, by reducing to a minimum those policies
that can be changed only by Shareholder vote, each Fund will more often be
able to avoid the cost and delays of a Shareholder meeting when making changes
to investment policies that, at a future time, its Board considers desirable.
Although the proposed changes in fundamental restrictions will allow the Funds
greater investment flexibility to respond to future investment opportunities,
the Boards do not anticipate at this time that the changes, individually or in
the aggregate, will result in a major restructuring of any Fund's investment
portfolio.

A summary description of each proposed change to the Funds' fundamental
restrictions is set forth below. Shareholders should refer to Exhibit E to
this proxy statement for the text of the Funds' fundamental restrictions as
proposed to be amended.

The text below also describes those non-fundamental restrictions that would
be adopted by the Boards in conjunction with the elimination of certain
fundamental restrictions under Proposal No. 2. Any non-fundamental restriction
may be modified or eliminated by the appropriate Board at any future date
without any further approval of Shareholders.

10
<PAGE>

If the proposed changes are approved by Shareholders of the respective Funds
at the Meeting, the Funds' prospectuses and statements of additional
information will be revised, as appropriate, to reflect those changes. This
will occur as soon as practicable following the Meetings. In those cases in
which a Fund's practice has been to state its fundamental restrictions both in
its prospectus (as affirmative policies) and in its statement of additional
information (as restrictions), adoption of Proposal No. 2 will result in a
change to both. Proposal No. 2 will not result in a change to any Fund's
investment objective.

PROPOSED CHANGES. The following is the text and a summary description of the
proposed changes to the Funds' fundamental restrictions, together with the
text of those non-fundamental restrictions that would be adopted in connection
with the elimination of certain of the Funds' current fundamental
restrictions. With respect to each Fund and each proposed fundamental
restriction, if a percentage restriction is adhered to at the time of an
investment or transaction, a later increase or decrease in percentage
resulting from a change in the values of the Fund's portfolio securities or
the amount of its total assets will not be considered a violation of the
fundamental restriction.

<TABLE>
<CAPTION>
ITEM NO. APPLICABLE FUND(S)
-------- ------------------
<C> <S>
Item 2(a) Government Income, High Yield, Municipal Bond and National
Municipals
Item 2(b) Diversified Bond, Government Income, High Yield, Mortgage
Income, Municipal Bond
Item 2(c) California Municipal, Municipal Bond, Municipal Series and
National Municipals
Item 2(d) High Yield
Item 2(e) High Yield
Item 2(f) High Yield and National Municipals
Item 2(g) National Municipals
Item 2(h) National Municipals
Item 2(i) National Municipals
</TABLE>

ITEM 2(A). Approval of Amendments of the Funds' Fundamental Investment
Restriction Regarding Investment in Shares of Other Investment Companies.

PROPOSED CHANGES. The relevant Funds affected by this Item 2(a) are listed
below. Next to the Fund name is the respective investment restriction number
which is proposed to be modified. The language of the current investment
restriction as well as the modified investment restriction is found in Exhibit
E.

RELEVANT FUNDS.

<TABLE>
<CAPTION>
EXISTING INVESTMENT
RESTRICTION NUMBER
FUND NAME (SEE EXHIBIT E)
--------- -------------------
<S> <C>
Prudential High Yield Fund, Inc. 14
Prudential Government Income Fund, Inc. 10
Prudential Municipal Bond Fund 9
Prudential National Municipals Fund, Inc. 9
</TABLE>

Upon the approval of Item 2(a), the existing fundamental restriction
regarding the purchase of shares of investment companies will be modified so
that the applicable Funds will be permitted to invest a larger portion of
their assets in securities of investment companies.

DISCUSSION: With respect to each Fund's fundamental investment restriction
relating to investing in shares of other investment companies, the increase in
the limit is designed to make the limitation co-extensive with the

11
<PAGE>

limitation of the Investment Company Act which permits a fund (or a series) to
invest up to 10% of its total assets in the shares of other investment
companies in the aggregate. Under the Investment Company Act, (i) a fund (or a
series) may invest no more than 5% of its total assets in any one investment
company and (ii) a fund (or a series) may not own more than 3% of the total
outstanding voting stock of any one investment company). The Boards believe
the proposed amendment would provide the Subadviser with additional
flexibility to take advantage of investment opportunities. However, because
any shares that a Fund or a series holds in another investment company will be
subject to the management fees and expenses of such investment company,
investment by a Fund or a series in other investment companies may result, in
effect, in payment by shareholders of duplicate fees and expenses. See Exhibit
E.

ITEM 2(B). Approval of Amendments of the Funds' Fundamental Investment
Restriction Regarding Unseasoned Issuers.

PROPOSED CHANGES. The relevant Funds affected by this Item 2(b) are listed
below. Next to the Fund name is the respective investment restriction number
which is proposed to be eliminated. The language of the investment restriction
is found in Exhibit E.

RELEVANT FUNDS.

<TABLE>
<CAPTION>
EXISTING INVESTMENT
RESTRICTION NUMBER
FUND NAME (SEE EXHIBIT E)
--------- -------------------
<S> <C>
Prudential Diversified Bond Fund, Inc. .................. 5
Prudential Government Income Fund, Inc. ................. 6
Prudential High Yield Fund, Inc. ........................ 7
Prudential Mortgage Income Fund, Inc. ................... 5
Prudential Municipal Bond Fund........................... 10
</TABLE>

Upon the approval of Item No. 2(b), the existing fundamental restriction
regarding the purchase of securities of issuers in business for less than
three years would be eliminated. The Funds would in turn become subject to the
following non-fundamental restriction:

The Fund (or the Series) may not:

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

DISCUSSION: Each Fund's fundamental restriction relating to investing in
"unseasoned issuers," was initially placed in its registration statement due
to state law ("blue sky") requirements. The restriction is not required under
the federal securities laws. The Subadviser believes that the restriction is
confining and has recommended to the Boards that it be eliminated. The Boards
believe it prudent to delete this investment restriction as fundamental and
permit the Boards the flexibility to relax the restriction if legislative or
regulatory changes so permit.

If Item 2(b) is approved, the Fund would continue to comply with the
restriction as a non-fundamental investment restriction so long as it is
required under blue sky regulations. Accordingly, approval of Item 2(b) should
not result in any change to the Funds' portfolios or the way in which they are
managed.

ITEM 2(C). Approval of Amendments to the Funds' Investment Restriction to
Permit an Increase in the Borrowing Capabilities of the Funds.

PROPOSED CHANGES. The relevant Funds affected by this Item 2(c) are listed
below. Next to the Fund name is the respective investment restriction number
which is proposed to be modified. The language of the investment restriction
is found in Exhibit E.

12
<PAGE>

RELEVANT FUNDS.

<TABLE>
<CAPTION>
EXISTING INVESTMENT
RESTRICTION NUMBER
FUND NAME (SEE EXHIBIT E)
--------- -------------------
<S> <C>
Prudential California Municipal Fund..................... 3
Prudential Municipal Bond Fund........................... 3
Prudential Municipal Series Fund......................... 3
Prudential National Municipals Fund, Inc. ............... 5
</TABLE>

Upon the approval of Item 2(c), the existing fundamental restriction
regarding the borrowing capabilities of the Funds would be modified to permit
each Fund (or Series) to borrow up to 33 1/3% (from 20%) of the value of its
total assets (calculated when the loan is made) for temporary, extraordinary
or emergency purposes, to take advantage of investment opportunities or for
the clearance of transactions and to permit each Fund (or Series) to pledge up
to 33 1/3% of the value of its total assets to secure permitted borrowings.

DISCUSSION: With respect to each Fund's fundamental investment restriction
regarding borrowing capabilities, the Fund (or Series) may currently borrow
money only from banks for temporary or emergency purposes in an amount not
exceeding 20% of the value of its total assets (including the amount borrowed)
less liabilities (not including the amount borrowed at the time the borrowing
is made). The Funds occasionally borrow money to fund substantial shareholder
redemptions or exchange requests or for the clearance of transactions when
available cash is not sufficient for these needs. Although the Funds have not
experienced difficulties under their current policies, the Manager and
Subadviser believe that the proposed change would enhance management
flexibility. The modification would afford each Fund (or Series) a greater
capacity to satisfy net redemptions of its shares on a temporary basis,
without having to resort to forced sales of portfolio securities at possibly
disadvantageous prices, to borrow money on a temporary basis for the clearance
of transactions and to borrow money to take advantage of investment
opportunities.

Borrowing to invest an increased percentage of its total assets in
securities, as proposed, would involve additional risk to each Fund (or
Series) since interest expenses may be greater than the income from or
appreciation of the securities financed and the value of securities financed
may decline below the amount borrowed. If a Fund (or Series) were to borrow to
invest in securities, even for only temporary purposes, any investment gains
made on the securities in excess of interest paid on the borrowing would cause
the net asset value of the Fund (or Series) to rise faster than would
otherwise be the case. On the other hand, if the investment performance of the
additional securities purchased failed to cover their cost (including any
interest accrued on the money borrowed) to the Fund (or Series), the net asset
value would decrease faster than would otherwise be the case. This is the
speculative factor known as "leverage." Additionally, interest income derived
from such securities would not be tax-exempt.

The Funds (or Series) would not purchase portfolio securities when
borrowings exceed 5% of the Fund's (or Series') total assets.

ITEM 2(D). Approval of an Amendment of the Fund's Investment Restriction to
Eliminate the Prohibition on Investing in Non-Fixed Income Equity Securities.

PROPOSED CHANGE. The High Yield Fund would be permitted to purchase equity
securities.

RELEVANT FUND. Prudential High Yield Fund, Inc.

DISCUSSION: Currently, the Fund is prohibited from investing in any non-
fixed income equity securities, including warrants, except when attached to or
included in a unit with fixed-income securities. At a meeting on May 8, 1996,
upon the recommendation of the Fund's Subadviser, the Board of Directors
approved, subject to shareholder approval, elimination of the Fund's
Investment Restriction No. 1 which prohibits investments in any non-fixed
income equity securities in order to permit the Fund to invest up to 10% of
its total assets in non-fixed-income equity securities and warrants, including
equity securities of financially troubled or bankrupt companies (financially
troubled issuers) and in equity securities of companies that in the view of
the Subadviser are currently

13
<PAGE>

undervalued, out-of-favor or price-depressed relative to their long-term
potential for growth and income (operationally troubled issuers) (collectively
referred to as "distressed securities").

Investment Restriction No. 1, which is proposed to be eliminated, currently
provides as follows:

The Fund may not:

1. Invest in any non-fixed income equity securities, including warrants,
except when attached to or included in a unit with fixed-income securities.

The Manager and Subadviser believe that permitting the Fund to invest in
equity securities and warrants, including distressed securities, although
representing a shift in the manner in which the Fund has previously been
managed, is in the best interests of the Fund and its shareholders. The
proposed changes will add to the Fund's investment flexibility and will
complement the Fund's secondary objective of capital appreciation.
Notwithstanding the approval of this proposal, the Board has adopted a non-
fundamental policy that the Fund initially will limit its investment in such
securities to no more than 5% of its total assets.

Distressed securities involve a high degree of credit and market risk and
are subject to greater credit and market risk and price volatility than the
securities in which the Fund generally invests. Although the Fund would invest
in select companies which in the view of its investment adviser have the
potential over the long term for capital growth, there can be no assurance
that such financially or operationally troubled companies can be successfully
transformed into profitable operating companies. There is a possibility that
the Fund may incur substantial or total losses on its investments. During
economic downturn or recession, securities of financially troubled issuers are
more likely to go into default than securities of other issuers. In addition,
it may be difficult to obtain information about financially and operationally
troubled issuers.

Securities of financially troubled issuers are less liquid and more volatile
than securities of companies not experiencing financial difficulties. The
market prices of such securities are subject to erratic and abrupt market
movements and the spread between bid and asked prices may be greater than
normally expected. In addition, it is anticipated that many of the Fund's
portfolio investments may not be widely traded and that the Fund's position in
such securities may be substantial relative to the market for such securities.
As a result, the Fund may experience delays and incur losses and other costs
in connection with the sale of its portfolio securities.

Distressed securities which the Fund will be permitted to purchase may also
include securities of companies involved in bankruptcy proceedings,
reorganizations and financial restructurings. To the extent the Fund invests
in such securities, it may have a more active participation in the affairs of
issuers than is generally assumed by an investor. This may subject the Fund to
litigation risks or prevent the Fund from disposing of securities.

The Board of Directors believes that the proposed modifications will benefit
the Fund and recommends Shareholder approval.

Item 2(e). Approval of an Amendment of the Fund's Investment Restriction
Regarding the Making of Loans.

PROPOSED CHANGE. Investment Restriction No. 12 of the High Yield Fund would
be modified to clarify that the Fund's purchase of debt obligations in
accordance with its investment objective and policies and its purchase of bank
debt or loan participations do not constitute the making of prohibited loans.
If this proposal is approved, the Fund's purchase of loan participations will
be limited (as a non-fundamental policy which may be modified in the future by
the Board without shareholder approval) to 5% of the Fund's total assets. The
language of the current investment restriction as well as the modified
investment restriction is found in Exhibit E.

RELEVANT FUND. Prudential High Yield Fund, Inc.

14
<PAGE>

DISCUSSION. At a meeting held on May 8, 1996, the Board of Directors of the
Fund approved an amendment to Investment Restriction No. 12 which, if approved
by Shareholders, would clarify that the Fund's purchase of debt obligations in
accordance with its investment objective and policies and its purchase of bank
debt or loan participations do not constitute the making of prohibited loans.
If this proposal is approved, the Fund intends to invest in loan
participations, as described below.

The bank debt in which the Fund intends to invest includes interests in
loans to companies or their affiliates undertaken to finance a capital
restructuring or in connection with recapitalizations, acquisitions, leveraged
buy-outs, refinancings or other financially leveraged transactions and may
include loans which are designed to provide temporary or "bridge" financing to
a borrower pending the sale of identified assets, the arrangement of longer-
term loans or the issuance and sale of debt obligations. These loans, which
may bear fixed or floating rates, have generally been arranged through private
negotiations between a corporate borrower and one or more financial
institutions (Lenders), including banks. The Fund's investment may be in the
form of participations in loans (Participations) or of assignments of all or a
portion of loans from third parties (Assignments).

Participations differ both from the public and private debt securities
typically held by the Fund and from Assignments. In Participations, the Fund
has a contractual relationship only with the Lender, not with the borrower. As
a result, the Fund has the right to receive payments of principal, interest
and any fees to which it is entitled only from the Lender selling the
Participation and only upon receipt by the Lender of the payments from the
borrower. In connection with purchasing Participations, the Fund generally
will have no right to enforce compliance by the borrower with the terms of the
loan agreement relating to the loan, nor any rights of set-off against the
borrower, and the Fund may not benefit directly from any collateral supporting
the loan in which it has purchased the Participation. Thus, the Fund assumes
the credit risk of both the borrower and the Lender that is selling the
Participation. In the event of the insolvency of the Lender, the Fund may be
treated as a general creditor of the Lender and may not benefit from any set-
off between the Lender and the borrower. In Assignments, by contrast, the Fund
acquires direct rights against the borrower, except that under certain
circumstances such rights may be more limited than those held by the assigning
Lender.

Investments in Participations and Assignments otherwise bear risks common to
investing in debt instruments which the Fund is currently authorized to
purchase, including the risk of nonpayment of principal and interest by the
borrower, the risk that any loan collateral may become impaired and that the
Fund may obtain less than the full value for loan interests sold because they
are illiquid. The lack of a highly liquid secondary market for loans may have
an adverse impact on the value of such instruments and will have an adverse
impact on the Fund's ability to dispose of particular loans in response to a
specific economic event such as deterioration in the creditworthiness of the
borrower. In addition to the creditworthiness of the borrower, the Fund's
ability to receive payment of principal and interest is also dependent on the
creditworthiness of any institution (i.e, the Lender) interposed between the
Fund and the borrower.

The Board believes that adoption of Item 2(e) is in the best interests of
the High Yield Fund and its shareholders.

Item 2(f). Approval of Amendments of the Funds' Investment Restriction To
Permit the Funds to Use Futures Contracts and Options Thereon.

PROPOSED CHANGES. The relevant Funds affected by this Item 2(f) are listed
below. Next to the Fund name is the respective investment restriction number
which is proposed to be modified. The language of the investment restriction
is found in Exhibit E.

RELEVANT FUNDS.

<TABLE>
<CAPTION>
EXISTING INVESTMENT
RESTRICTION NUMBER
FUND NAME (SEE EXHIBIT E)
--------- -------------------
<S> <C>
Prudential High Yield Fund, Inc. ....................... 6, 8 and 11
Prudential National Municipals Fund, Inc. .............. 13
</TABLE>

15
<PAGE>

PRUDENTIAL HIGH YIELD FUND: High Yield Fund would be permitted to engage in
futures transactions and related options for hedging, risk management and
return enhancement purposes. High Yield Fund's current Investment Restrictions
Nos. 6, 8 and 11 would be modified to permit the use of futures contracts and
related options.

PRUDENTIAL NATIONAL MUNICIPALS FUND. Investment Restriction No. 13 of
Prudential National Municipals Fund would be modified to permit the Fund to
engage in transactions in futures contracts for return enhancement and risk
management purposes as well as for hedging purposes.

DISCUSSION. On May 8, 1996, upon the recommendation of the Subadviser of
each Fund, the Board of each Fund approved, subject to shareholder approval,
modification of the Funds' Investment Restrictions relating to the use of
futures contracts. With respect to High Yield Fund, it is proposed that
Investment Restrictions Nos. 6, 8 and 11 be modified to permit High Yield Fund
to use futures contracts and options thereon for hedging, risk management and
return enhancement purposes. With respect to National Municipals Fund, it is
proposed that Investment Restriction No. 13 be modified to expand National
Municipal Fund's use of futures contracts. Currently, National Municipals Fund
is permitted to use futures contracts for hedging purposes only (i.e., to
hedge against interest rate fluctuations in the value of securities held by
the Fund or which it intends to purchase). Because of the limitation imposed
by Investment Restriction No. 13, which limits National Municipal Fund's use
of futures contracts to that described in that Fund's Prospectus and Statement
of Additional Information, the Subadviser has been precluded from using
futures contracts to the fullest extent permitted by applicable regulations of
the Commodities Futures Trading Commission. It is proposed that National
Municipals Fund be permitted to engage in futures transactions for risk
management and return enhancement purposes as well as for hedging purposes.

The Board of each Fund believes that the proposed modifications will benefit
each Fund and recommends shareholder approval.

Set forth below is a discussion of the proposed use of futures contracts by
both Funds.

FUTURES CONTRACTS

The Funds would enter into futures contracts for the purchase or sale of
debt securities and financial indices (collectively, interest rate futures
contracts) in accordance with each Fund's investment objective . A "purchase"
of a futures contract (or a "long" futures position) means the assumption of a
contractual obligation to acquire a specified quantity of the securities
underlying the contract at a specified price at a specified future date. A
"sale" of a futures contract (or a "short" futures position) means the
assumption of a contractual obligation to deliver a specified quantity of the
securities underlying the contract at a specified price at a specified future
date. At the time a futures contract is purchased or sold, the Funds would be
required to deposit cash or securities with a futures commission merchant or
in a segregated custodial account representing between approximately l 1/2% to
5% of the contract amount, called "initial margin." Thereafter, the futures
contract would be valued daily and the payment in cash of "maintenance" or
"variation margin" may be required, resulting in the Funds' paying or
receiving cash that reflects any decline or increase in the contract's value,
a process known as "mark-to-the-market."

Some futures contracts by their terms may call for the actual delivery or
acquisition of the underlying assets and other futures contracts must be "cash
settled." In most cases the contractual obligation is extinguished before the
expiration of the contract by buying (to offset an earlier sale) or selling
(to offset an earlier purchase) an identical futures contract calling for
delivery or acquisition in the same month. The purchase (or sale) of an
offsetting futures contract is referred to as a "closing transaction."

16
<PAGE>

LIMITATIONS ON THE PURCHASE AND SALE OF FUTURES CONTRACTS AND RELATED OPTIONS

CFTC LIMITS. In accordance with Commodity Futures Trading Commission (CFTC)
regulations, the Funds are not permitted to purchase or sell interest rate
futures contracts or options thereon for return enhancement or risk management
purposes if immediately thereafter the sum of the amounts of initial margin
deposits on a Fund's existing futures and premiums paid for options on futures
exceed 5% of the liquidation value of such Fund's total assets (the "5% CFTC
limit" ). This restriction does not apply to the purchase and sale of interest
rate futures contracts and options thereon for bona fide hedging purposes.

SEGREGATION REQUIREMENTS. To the extent the Funds enter into futures
contracts, they are each required by the SEC to maintain a segregated asset
account with their respective custodians sufficient to cover each Fund's
obligations with respect to such futures contracts, which will consist of cash
or liquid securities from their portfolios in an amount equal to the
difference between the fluctuating market value of such futures contracts and
the aggregate value of the initial margin deposited by each Fund with its
Custodian with respect to such futures contracts. Offsetting the contract by
another identical contract eliminates the segregation requirement.

With respect to options on futures, there are no segregation requirements
for options that are purchased and owned by a Fund. However, written options,
since they involve potential obligations of a Fund, may require segregation of
Fund assets if the options are not "covered" as described below under "Options
on Futures Contracts." If a Fund writes a call option that is not "covered,"
it must segregate and maintain with the custodian for the term of the option
cash or liquid securities equal to the fluctuating value of the optioned
futures. If a Fund writes a put option that is not "covered," the segregated
amount would have to be at all times equal in value to the exercise price of
the put (less any initial margin deposited by the Fund with its custodian with
respect to such option).

USE OF INTEREST RATE FUTURES CONTRACTS

Interest rate futures contracts would be used for bona fide hedging, risk
management and return enhancement purposes.

POSITION HEDGING. The Funds might sell interest rate futures contracts to
protect the Funds against a rise in interest rates which would be expected to
decrease the value of debt securities which the Funds hold. This would be
considered a bona fide hedge and, therefore, is not subject to the 5% CFTC
limit. For example, if interest rates are expected to increase, the Funds
might sell futures contracts on debt securities, the values of which
historically have closely correlated or are expected to closely correlate to
the values of the Funds' portfolio securities. Such a sale would have an
effect similar to selling an equivalent value of the Funds' portfolio
securities. If interest rates increase, the value of the Funds' portfolio
securities will decline, but the value of the futures contracts to the Funds
will increase at approximately an equivalent rate thereby keeping the net
asset value of the Funds from declining as much as they otherwise would have.
The Funds could accomplish similar results by selling debt securities with
longer maturities and investing in debt securities with shorter maturities
when interest rates are expected to increase. However, since the futures
market may be more liquid than the cash market, the use of futures contracts
as a hedging technique would allow the Funds to maintain a defensive position
without having to sell portfolio securities. If in fact interest rates decline
rather than rise, the value of the futures contract will fall but the value of
the bonds should rise and should offset all or part of the loss. If futures
contracts are used to hedge 100% of the bond position and correlate precisely
with the bond positions, there should be no loss or gain with a rise (or fall)
in interest rates. However, if only 50% of the bond position is hedged with
futures, then the value of the remaining 50% of the bond position would be
subject to change because of interest rate fluctuations. Whether the bond
positions and futures contracts correlate is a significant risk factor.

ANTICIPATORY POSITION HEDGING. Similarly, when it is expected that interest
rates may decline and the Funds intend to acquire debt securities, the Funds
might purchase interest rate futures contracts. The purchase of

17
<PAGE>

futures contracts for this purpose would constitute an anticipatory hedge
against increases in the price of debt securities (caused by declining
interest rates) which the Funds subsequently acquire and would normally
qualify as a bona fide hedge not subject to the 5% CFTC limit. Since
fluctuations in the value of appropriately selected futures contracts should
approximate that of the debt securities that would be purchased, the Funds
could take advantage of the anticipated rise in the cost of the debt
securities without actually buying them. Subsequently, the Funds could make
the intended purchases of the debt securities in the cash market and
concurrently liquidate the futures positions.

RISK MANAGEMENT AND RETURN ENHANCEMENT. The Funds might sell interest rate
futures contracts covering bonds. This has the same effect as selling bonds in
the portfolio and holding cash and reduces the duration of the portfolio.
(Duration measures the price sensitivity of the portfolio to interest rates.
The longer the duration, the greater the impact of interest rate changes on
the portfolio's price.) This should lessen the risks associated with a rise in
interest rates. In some circumstances, this may serve as a hedge against a
loss of principal, but is usually referred to as an aspect of risk management.

The Funds might buy interest rate futures contracts covering bonds with a
longer maturity than each Fund's portfolio average. This would tend to
increase the duration and should increase the gain in the overall portfolio if
interest rates fall. This is often referred to as risk management rather than
hedging but, if it works as intended, has the effect of increasing principal
value. If it does not work as intended because interest rates rise instead of
fall, the loss will be greater than would otherwise have been the case.
Futures contracts used for these purposes are not considered bona fide hedges
and, therefore, are subject to the 5% CFTC limit.

OPTIONS ON FUTURES CONTRACTS

It is proposed that the Funds be permitted to enter into options on futures
contracts for certain bona fide hedging, risk management and return
enhancement purposes. This would include the ability to purchase put and call
options and write (i.e., sell) "covered" put and call options on futures
contracts that are traded on commodity and futures exchanges.

If a Fund purchased an option on a futures contract, it has the right but
not the obligation, in return for the premium paid, to assume a position in a
futures contract (a long position if the option is a call or a short position
if the option is a put) at a specified exercise price at any time during the
option exercise period.

Unlike purchasing an option, which is similar to purchasing insurance to
protect against a possible rise or fall of security prices or currency values,
the writer or seller of an option undertakes an obligation upon exercise of
the option to either buy or sell the underlying futures contract at the
exercise price. A writer of a call option has the obligation upon exercise to
assume a short futures position and a writer of a put option has the
obligation to assume a long futures position. 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. If there is no balance in the writer's margin
account, the option is "out of the money" and will not be exercised. A Fund,
as the writer, has income in the amount it was paid for the option. If there
is a margin balance, a Fund will have a loss in the amount of the balance less
the premium it was paid for writing the option.

When a Fund writes a put or a call option on futures contracts, the option
must either be "covered" or, to the extent not "covered," will be subject to
segregation requirements. A Fund will be considered "covered" with respect to
a call option it writes on a futures contract if the Fund owns the securities
or currency which is deliverable under the futures contract or an option to
purchase that futures contract having a strike price equal to or less than the
strike price of the "covered" option. A Fund will be considered "covered" with
respect to a put option it writes on a futures contract if it owns an option
to sell that futures contract having a strike price equal to or greater than
the strike price of the "covered" option.

18
<PAGE>

To the extent a Fund is not "covered" as described above with respect to
written options, it will segregate and maintain with its custodian for the
term of the option cash or liquid securities as described above under
"Segregation Requirements."

USE OF OPTIONS ON FUTURES CONTRACTS

Options on interest rate futures contracts would be used for bona fide
hedging, risk management and return enhancement purposes.

POSITION HEDGING. Each Fund may purchase put options on interest rate or
currency futures contracts to hedge its portfolio against the risk of a
decline in the value of the debt securities it owns as a result of rising
interest rates.

ANTICIPATORY HEDGING. Each Fund may also purchase call options on futures
contracts as a hedge against an increase in the value of securities the Fund
might intend to acquire as a result of declining interest rates.

Writing a put option on a futures contract may serve as a partial
anticipatory hedge against an increase in the value of debt securities a Fund
might intend to acquire. If the futures price at expiration of the option is
above the exercise price, the Fund retains the full amount of the option
premium which provides a partial hedge against any increase that may have
occurred in the price of the debt securities the Fund intended to acquire. If
the market price of the underlying futures contract is below the exercise
price when the option is exercised, the Fund would incur a loss, which may be
wholly or partially offset by the decrease in the value of the securities the
Fund might intend to acquire.

Whether options on interest rate futures contracts are subject to or exempt
from the 5% CFTC limit depends on whether the purpose of the options
constitutes a bona fide hedge.

RISK MANAGEMENT AND RETURN ENHANCEMENT. Writing a put option that does not
relate to securities a Fund intends to acquire would be a return enhancement
strategy which would result in a loss if interest rates rise.

Similarly, writing a covered call option on a futures contract is also a
return enhancement strategy. If the market price of the underlying futures
contract at expiration of a written call option is below the exercise price, a
Fund would retain the full amount of the option premium increasing the income
of the Fund. If the futures price when the option is exercised is above the
exercise price, however, the Fund would sell the underlying securities which
was the "cover" for the contract and incur a gain or loss depending on the
cost basis for the underlying asset.

Writing a covered call option as in any return enhancement strategy can also
be considered a partial hedge against a decrease in the value of a Fund's
portfolio securities. The amount of the premium received acts as a partial
hedge against any decline that may have occurred in the Fund's debt
securities.

RISKS RELATING TO TRANSACTIONS IN FUTURES CONTRACTS AND OPTIONS THEREON

Each Fund's ability to establish and close out positions in futures
contracts and options on futures contracts would be impacted by the liquidity
of these markets. Although each Fund generally would purchase or sell only
those futures contracts and options thereon for which there appeared to be a
liquid market, there would be no assurance that a liquid market on an exchange
will exist for any particular futures contract or option at any particular
time. In the event no liquid market exists for a particular futures contract
or option thereon in which a Fund maintains a position, it would not be
possible to effect a closing transaction in that contract or to do so at a
satisfactory price and the Fund would have to either make or take delivery
under the futures contract or, in the case of a written call option, wait to
sell the underlying securities until the option expired or was exercised, or,
in the case of a purchased option, exercise the option. In the case of a
futures contract or an option on a futures contract which a Fund had written
and which the Fund was unable to close, the Fund would be required to

19
<PAGE>

maintain margin deposits on the futures contract or option and to make
variation margin payments until the contract is closed.

Risks inherent in the use of these strategies include (1) dependence on the
investment adviser's ability to predict correctly movements in the direction
of interest rates, securities prices and markets; (2) imperfect correlation
between the price of futures contracts and options thereon and movements in
the prices of the securities being hedged; (3) the fact that the skills needed
to use these strategies are different from those needed to select portfolio
securities; (4) the possible absence of a liquid secondary market for any
particular instrument at any time; (5) the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences; and (6) the
possible inability of a Fund to sell a portfolio security at a time that
otherwise would be favorable for it to do so. In the event it did sell the
security and eliminated its "cover," it would have to replace its "cover" with
an appropriate futures contract or option or segregate securities with the
required value, as described under "Segregation Requirements."

Although futures prices themselves have the potential to be extremely
volatile, in the case of any strategy involving interest rate futures
contracts and options thereon when the Subadviser's expectations are not met,
assuming proper adherence to the segregation requirement, the volatility of a
Fund as a whole should be no greater than if the same strategy had been
pursued in the cash market.

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

Pursuant to the requirements of the Commodity Exchange Act, as amended (the
Commodity Exchange Act), all futures contracts and options thereon must be
traded on an exchange. Since a clearing corporation effectively acts as the
counterparty on every futures contract and option thereon, the counterparty
risk depends on the strength of the clearing or settlement corporation
associated with the exchange. Additionally, although the exchanges provide a
means of closing out a position previously established, there can be no
assurance that a liquid market will exist for a particular contract at a
particular time. In the case of options on futures, if such a market does not
exist, a Fund, as the holder of an option on futures contracts, would have to
exercise the option and comply with the margin requirements for the underlying
futures contract to realize any profit, and if a Fund were the writer of the
option, its obligation would not terminate until the option expired or the
Fund was assigned an exercise notice.

The Subadviser believes that the use of futures contracts and options
thereon would add new tools to those that presently are available with which
the Subadviser could seek to achieve each Fund's objectives.

The Board of each Fund believes that approval of item 2(f) is in the best
interests of each Fund and its Shareholders because it would provide
additional flexibility in the management of each Fund's portfolio.

ITEM 2(G). Approval of Elimination of the Fund's Investment Restriction
Relating to the Purchase and Sale of Puts and Calls.

PROPOSED CHANGES. Investment Restriction No. 11 of Prudential National
Municipals Fund would be eliminated. That Investment Restriction prohibits the
Fund from the purchase or sale of puts, calls, or combination thereof, except
that the Fund may obtain rights to resell municipal bonds and notes and it may
purchase puts and options on futures contracts as described in the Fund's
prospectus and statement of additional information.

RELEVANT FUND.

Prudential National Municipals Fund, Inc.

20
<PAGE>

DISCUSSION: The deletion of Investment Restriction No. 11 relating to the
purchase or sale of puts, calls, or combinations thereof is being proposed in
order to alleviate any concern that securities which would otherwise be
permissible investments of the Fund are not prohibited investments. In
addition, deleting Investment Restriction No. 11 would provide the Subadviser
with the ability to purchase and sell puts, calls and combinations thereof on
securities that the Fund may invest in as well as on futures contracts.

Among other things, Investment Restriction No. 11 currently permits the Fund
to purchase puts and options on futures contracts as described under
"Investment Objective and Policies" in the Fund's Prospectus and Statement of
Additional Information. The description was written many years ago and does
not allow for the purchase and sale of instruments which have developed in
response to market conditions since that time. The Fund's present intention is
to continue to purchase the types of options that Investment Restriction No.
11 currently permits. However, subject to the approval of the Fund's Board,
the Subadviser would be able to invest in new types of instruments without the
time and expense associated with the calling of a shareholder's meeting.
Approval of this proposal would thus permit the Subadviser to respond quickly
to changes in market conditions and the development of new products.

If the Board permits the Fund to expand the types of options that it may
purchase and sell, the Fund could be subject to additional risks that it is
not currently subject to including the occurrence of events that could result
in the absence of a liquid secondary market for such options.

ITEM 2(H). Approval of Elimination of the Fund's Investment Restriction
Limiting Investment To Only Those Securities Described in the Investment
Objectives and Policies Section of the Prospectus and Statement of Additional
Information.

PROPOSED CHANGES. Investment Restriction No. 1 of Prudential National
Municipals Fund would be eliminated. That Investment Restriction prohibits the
Fund from investing in municipal bonds and notes not specifically described in
the Fund's prospectus and statement of additional information.

RELEVANT FUND.

Prudential National Municipals Fund, Inc.

DISCUSSION: The restriction currently prohibits the Fund from investing in
municipal bonds and notes that are not specifically described in the Fund's
prospectus and statement of additional information. The current wording of the
investment restriction limits the Fund's investments to those securities and
instruments which were described in the Fund's prospectus many years ago and
does not allow for the purchase of securities and other instruments which have
developed in response to market conditions since that time. The Subadviser has
recommended that this investment restriction be eliminated so that, in seeking
to achieve its investment objective, the Fund would be able to consider for
purchase an expanding universe of securities rather than the relatively
limited one required by the restriction. The Subadviser has advised the Board
that this proposal would allow the Subadviser to respond quickly to changing
market conditions and the development of new products by avoiding the time and
expense associated with shareholder meetings which would otherwise be
required. Shareholder approval of this proposal will initially have the effect
of characterizing the Fund's investment policies, other than its investment
objective and restrictions, as non-fundamental, which means they would be
subject to change by the Board without shareholder approval. By eliminating
this restriction, future changes in the Fund's investment policies, other than
a change in the Fund's objective or in other investment restrictions, would be
subject only to the approval of the Board of Directors. Approval of this
proposal would permit the Board to approve investments not presently described
in the Fund's prospectus which are consistent with the Fund's investment
objective. These investments may entail additional risks.

The Board believes that approval of this proposal is in the best interests
of the Fund and its Shareholders.

21
<PAGE>

ITEM 2(i). Approval of an Amendment to the Fund's Investment Restriction
Regarding the Making of Loans.

PROPOSED CHANGES. Investment Restriction No. 8 of Prudential National
Municipals Fund, Inc. would be modified to clarify that the Fund's investment
in repurchase agreements and privately-placed debt securities does not
constitute a loan of money or securities.

RELEVANT FUND.

Prudential National Municipals Fund, Inc.

DISCUSSION: The Fund's Investment Restriction No. 8 currently provides that
the Fund may not make loans of money or securities and that the purchase of a
portion of an issue of publicly distributed debt securities is not considered
the making of a loan. While the intention of the investment restriction seems
to be related to the making of individually negotiated loans similar to those
made by banks and insurance companies, the restriction may be interpreted more
broadly to cover common investment techniques, such as repurchase agreements,
and the increasingly large market in privately-placed debt securities. The
latter differ from publicly distributed debt securities more in their method of
offering and the limitation on their resale, than they do in their terms and
conditions or the number or nature of their beneficial owners. As a result, the
Subadviser recommended that the investment restriction be clarified so that the
(i) entering into of repurchase agreements and (ii) purchase of debt
obligations (including privately-placed debt securities) in accordance with
Fund's investment objective and policies, do not constitute prohibited loans.
Income derived from repurchase agreements would not be tax-exempt.

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

REQUIRED VOTE FOR PROPOSAL 2, ITEMS (a)--(i): Approval of each of the nine
items contemplated by Proposal No. 2 with respect to a Fund (or a Series)
requires the affirmative vote of a "majority of the outstanding voting
securities" of that Fund (or Series), which for this purpose means the
affirmative vote of the lesser of (1) more than 50% of the outstanding Shares
of the Fund (or Series) or (2) 67% or more of the Shares of the Fund (or
Series) present at the Meeting if more than 50% of the outstanding Shares of
the Fund (or Series) are represented at the Meeting in person or by proxy.
Shareholders of any Fund (or Series) may vote against the changes proposed in
any item with respect to specific fundamental restrictions applicable to their
Fund (or Series) in the manner indicated on the proxy card.

IF ONE OR MORE OF THE NUMBERED ITEMS CONTEMPLATED BY PROPOSAL NO. 2 IS NOT
APPROVED BY SHAREHOLDERS OF A FUND, THE RELATED, EXISTING FUNDAMENTAL
RESTRICTIONS OF THAT FUND WILL CONTINUE IN EFFECT FOR THAT FUND, BUT
DISAPPROVAL OF ALL OR PART OF PROPOSAL NO. 2 BY THE SHAREHOLDERS OF ONE FUND
WILL NOT AFFECT ANY APPROVALS OF PROPOSAL NO. 2 THAT ARE OBTAINED WITH RESPECT
TO ANY OTHER FUND.

IN THE CASE OF A SERIES FUND, IF ONE OR MORE OF THE NUMBERED ITEMS
CONTEMPLATED BY PROPOSAL NO. 2 IS NOT APPROVED BY SHAREHOLDERS OF A SERIES, THE
EXISTING FUNDAMENTAL RESTRICTIONS OF THAT SERIES WILL CONTINUE IN EFFECT FOR
THAT SERIES, BUT FAILURE TO APPROVE ALL OR PART OF PROPOSAL NO. 2 BY THE
SHAREHOLDERS OF ONE SERIES WILL NOT AFFECT ANY APPROVALS OF PROPOSAL NO. 2 THAT
ARE OBTAINED WITH RESPECT TO ANY OTHER SERIES OF THE SAME FUND.

EACH BOARD, INCLUDING ITS INDEPENDENT BOARD MEMBERS, RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" PROPOSAL NO. 2.

22
<PAGE>

RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
(PROPOSAL NO. 3)

RELEVANT FUNDS. All Funds, except Prudential California Municipal Fund and
Prudential Municipal Series Fund.

DISCUSSION. Under Proposal No. 3, Shareholders of each relevant Fund are
asked to ratify their Board's selection of independent accountants for their
Fund. The accountants for each Fund audit the Fund's financial statements for
each fiscal year.

The policy of the Board of each of the Funds regarding engaging independent
accountants' services is that management may engage the Fund's principal
independent public accountants to perform any service(s) normally provided by
independent accounting firms, provided that such service(s) meet(s) any and
all of the independence requirements of the American Institute of Certified
Public Accountants and the SEC. In accordance with this policy, the Audit
Committee of each Board reviews and approves all services provided by the
independent public accountants prior to their being rendered. The Board of
each Fund receives a report from its Audit Committee relating to all services
after they have been performed by the Fund's independent accountants.

During the last fiscal year, Deloitte & Touche LLP served as independent
accountants for Prudential Diversified Bond Fund, Inc., Prudential Government
Income Fund, Inc., Prudential Municipal Bond Fund and Prudential Structured
Maturity Fund, Inc., and Price Waterhouse LLP served as accountants for
Prudential Government Securities Trust, Prudential High Yield Fund, Inc.,
Prudential Mortgage Income Fund, Inc. and Prudential National Municipals Fund,
Inc. The Boards of each of these Funds have selected their respective
accountants to continue to serve in that capacity for the current fiscal year,
subject to ratification by Shareholders of each of those Funds at the
Meetings.

Representatives of the accountants are not expected to be present at the
Meetings but will be available to answer any questions or make any statements
should any matters arise requiring their presence. Deloitte & Touche LLP and
Price Waterhouse LLP have informed the Funds for which they will act as
accountants that they have no material direct or indirect financial interest
in these Funds.

The persons named in the accompanying proxy will vote FOR ratification of
the selection of each Fund's accountant unless contrary instructions are
given.

REQUIRED VOTE. For each Fund, approval of Proposal No. 3 requires a vote of
a majority of the votes cast with respect to Proposal No. 3 at the Meeting,
provided a quorum is present.

EACH BOARD, INCLUDING ITS INDEPENDENT BOARD MEMBERS, RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" PROPOSAL NO. 3.

ADDITIONAL INFORMATION

The solicitation of proxies, the cost of which will be borne by the Funds,
will be made primarily by mail but also may include telephone or oral
communications by regular employees of Prudential Securities or Prudential
Mutual Fund Management, who will not receive any compensation therefor from
the Funds, or by Shareholder Communications Corporation, professional proxy
solicitors retained by the Funds, who will be paid the approximate fees and
expenses for soliciting services set forth below. Proxies may be recorded
pursuant to (i) electronically transmitted instructions or (ii) telephone
instructions obtained through procedures reasonably designed to verify that
the instructions have been authorized. Soliciting fees and expenses payable to
Shareholder Communications Corporation by a particular Fund are a function of
the number of Shareholders in that Fund.

23
<PAGE>

<TABLE>
<CAPTION>
ESTIMATED SOLICITATION
FUND FEES AND EXPENSES
- ---- ----------------------
<S> <C>
Prudential California Municipal Fund
California Income Series...............................
California Series......................................
California Money Market Series.........................
Prudential Diversified Bond Fund, Inc. ..................
Prudential Government Income Fund, Inc. .................
Prudential Government Securities Trust
Money Market Series....................................
Short-Intermediate Term Series.........................
U.S. Treasury Money Market Series......................
Prudential High Yield Fund, Inc. ........................
Prudential Mortgage Income Fund, Inc. ...................
Prudential Municipal Bond Fund
Insured Series.........................................
High Yield Series......................................
Intermediate Series....................................
Prudential Municipal Series Fund.........................
Connecticut Money Market Series........................
Florida Series.........................................
Hawaii Income Series...................................
Maryland Series........................................
Massachusetts Series...................................
Massachusetts Money Market Series......................
Michigan Series........................................
New Jersey Money Market Series.........................
New Jersey Series......................................
New York Series........................................
New York Money Market Series...........................
North Carolina Series..................................
Ohio Series............................................
Pennsylvania Series....................................
Prudential National Municipals Fund, Inc.................
Prudential Structured Maturity Fund, Inc.................
</TABLE>

SHAREHOLDER PROPOSALS

Any Shareholder who wishes to submit a proposal to be considered at a Fund's
next annual meeting of Shareholders should send the proposal to that Fund at
One Seaport Plaza, New York, New York 10292, so as to be received within a
reasonable time before the Board makes the solicitation relating to such
meeting, in order to be included in the proxy statement and form of proxy
relating to such meeting.

Each Fund provide that the Fund will not be required to hold annual meetings
of shareholders if the election of Board Members is not required under the
Investment Company Act. It is the present intention of the Board of each Fund
not to hold annual meetings of shareholders unless such shareholder action is
required.

Shareholder proposals that are submitted in a timely manner will not
necessarily be included in the Fund's proxy materials. Inclusion of such
proposals is subject to limitations under the federal securities laws.

24
<PAGE>

OTHER BUSINESS

Management knows of no business to be presented at the Meetings other than
the matters set forth in this proxy statement, but should any other matter
requiring a vote of Shareholders arise, the proxies will vote according to
their best judgment in the interest of the Funds.

S. Jane Rose
Secretary

August , 1996

IT IS IMPORTANT THAT YOU EXECUTE AND RETURN ALL OF YOUR PROXIES PROMPTLY.

25
<PAGE>

INDEX TO EXHIBITS TO PROXY STATEMENT

<TABLE>
<C> <S> <C>
Exhibit A --Year in Which Current Board Member Standing for Re-Election
Became a Member of the Board................................ A-1
Exhibit B --Fund Ownership of Nominees and Current Board Members
Standing for Re-Election.................................... B-1
Exhibit C --Board and Committee Information............................. C-1
Exhibit D --Officer Information......................................... D-1
Exhibit E --Fundamental Restrictions.................................... E-1
</TABLE>

26
<PAGE>

EXHIBIT A

YEAR IN WHICH CURRENT BOARD MEMBER STANDING
FOR RE-ELECTION BECAME A MEMBER OF THE BOARD*

NAME OF FUNDS

<TABLE>
<CAPTION>
CALIFORNIA DIVERSIFIED GOVERNMENT HIGH MORTGAGE MUNICIPAL MUNI NATIONAL STRUCTURED
DIRECTORS/TRUSTEES MUNICIPAL BOND INCOME GST YIELD INCOME BOND SERIES MUNICIPALS MATURITY
- ------------------ ---------- ----------- ---------- ---- ----- -------- --------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Edward D. Beach......... 1986 -- 1985 -- -- 1986 1986 1986 -- --
Eugene C. Dorsey........ 1987 1994 -- -- -- 1987 -- 1987 -- --
Delayne D. Gold......... 1984 -- 1983 1981 1982 1981 -- 1984 1982 1989
Harry A. Jacobs......... 1984 -- 1983 -- 1988 1985 -- 1984 1988 1989
Donald D. Lennox........ -- -- -- -- -- -- 1987 -- -- --
Thomas T. Mooney........ 1986 -- 1985 -- -- 1986 1986 1986 -- --
Thomas H. O'Brien....... 1984 -- 1985 -- -- 1982 -- 1984 -- --
Richard A. Redeker...... 1993 1994 1993 1995 1995 1993 1993 1993 1995 1993
Nancy H. Teeters........ 1984 -- -- -- -- 1992 -- 1984 -- --
Louis A. Weil, III...... -- -- -- 1991 1991 -- 1986 -- 1991 --
</TABLE>
- -------
* Excludes Robert F. Gunia and Mendel A. Melzer who are not presently members
of these Boards. All nominees were nominated in 1996.

A-1
<PAGE>

EXHIBIT B

FUND OWNERSHIP OF NOMINEES AND CURRENT BOARD MEMBERS
STANDING FOR RE-ELECTION

NUMBER OF SHARES HELD AS OF AUGUST 9, 1996

NAME OF FUNDS

<TABLE>
<CAPTION>
GOVERNMENT
CALIFORNIA DIVERSIFIED GOVERNMENT SECURITIES HIGH MORTGAGE MUNI MUNICIPAL NATIONAL STRUCTURED
DIRECTORS/TRUSTEE MUNICIPAL BOND INCOME TRUST YIELD INCOME BOND SERIES MUNICIPALS MATURITY
- ----------------- ---------- ----------- ---------- ----------- ------ -------- ----- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Eugene C. Dorsey.. 374 412
Delayne D. Gold...
Robert F. Gunia...
Harry A. Jacobs...
Donald D. Lennox..
Mendel A. Melzer..
Thomas T. Mooney.. 1,426 1,156 1,185
Thomas H.
O'Brien.......... 6,648 5,656
Richard A.
Redeker.......... 16,423 4,580
Nancy H. Teeters.. 1,500
Louis A. Weil,
III.............. 2,562 879 1,379 405
</TABLE>

B-1
<PAGE>

EXHIBIT C

BOARD AND COMMITTEE INFORMATION**

NAME OF FUNDS

<TABLE>
<CAPTION>
CALIFORNIA DIVERSIFIED GOVERNMENT HIGH MORTGAGE MUNICIPAL MUNI NATIONAL STRUCTURED
MUNICIPAL(1) BOND INCOME(1) GST(3) YIELD(2) INCOME BOND SERIES MUNICIPALS(2) MATURITY(1)
------------- ----------- ---------- ------ --------- --------- --------- ------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Annual Fee*..... $4,000 $7,500 $8,000 $9,000 $9,000 $7,500 $9,000 $9,000 $7,500 $6,000
Fee for
Attendance of
Board
Meetings....... NA NA NA NA NA NA NA NA NA NA
Fee for
Attendance of
Committee
Meetings....... NA NA NA NA $ 200+ NA NA NA $ 200+ NA
Number of Board
Meetings during
last fiscal
year........... Eight Four Four Four Four Six Five Five Four Four
Number of Audit
Committee
Meetings during
last fiscal
year........... Two Two Two Three Two Two Two Two Two Two
Number of
Nominating
Committee
Meetings during
last fiscal
year........... None None One One None One One None None None
Size of Current
Board.......... Eight Three Eight Five Six Eight Six Eight Six Seven
</TABLE>
- -------
+ The Chairman of the Audit Committee receives an additional $200 per year.
(1) Harry A. Jacobs, Jr. attended fewer than 75% of the total number of Board
meetings held during the most recent fiscal year.
(2) Harry A. Jacobs, Jr. and Louis A. Weil, III attended fewer than 75% of the
aggregate of the total number of meetings of the Directors, the Audit
Committee and Nominating Committee held during the most recent fiscal year
for which each such Director has been a member.
(3) Louis A. Weil, III attended fewer than 75% of the aggregate of the total
number of meetings of the Trustees, the Audit Committee and Nominating
Committee held during the most recent fiscal year.
* Reflects compensation rates in effect prior to changes described in proxy
statement. Board Members who were not independent did not receive
compensation from the Funds.
** Only the Independent Directors/Trustees of the Board serve on the Fund's
Audit and Nominating Committees.

C-1
<PAGE>

EXHIBIT D

OFFICER INFORMATION

OFFICER SINCE

<TABLE>
<CAPTION>
NME, AGE, PRINCIPALA
BSINESS OCCUPATIONU CALIFORNIA DIVERSIFIED GOVERNMENT HIGH MORTGAGE MUNICIPAL MUNI NATIONAL STRUCTURED
FORTHE PAST FIVE YEARS OFFICE MUNICIPAL BOND INCOME GST YIELD INCOME BOND SERIES MUNICIPALS MATURITY
- ----------------------- --------- ---------- ----------- ---------- ---- ----- -------- --------- ------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Richard A.
Redeker (53), President 1995 1995 1995 1995 1995 1995 1995 1995 1995 1995
President,
Chief Executive
Officer and
Director (since
October 1993),
PMF; Executive
Vice President,
Director and
Member of the
Operating
Committee
(since October
1993) of
Prudential
Securities;
Director (since
October 1993)
of Prudential
Securities
Group, Inc.
(PSG);
Executive Vice
President, The
Prudential
Investment
Corporation
(PIC) (since
July 1994);
Director (since
January 1994)
of Prudential
Mutual Fund
Distributors,
Inc. (PMFD) and
Prudential
Mutual Fund
Services, Inc.
(PMFS);
formerly Senior
Executive Vice
President and
Director of
Kemper
Financial
Services, Inc.
(September
1978-September
1993);
President and
Director of The
High Yield
Income Fund,
Inc.
Robert F. Gunia
(49), Vice 10/87 9/94 10/87 4/87 4/87 5/87 10/87 11/84 4/87 6/88
Director (since President
January 1989),
Chief
Administrative
Officer (since
July 1990), and
Executive Vice
President,
Treasurer and
Chief Financial
Officer (since
June 1987) of
PMF;
Comptroller of
the Money
Management
Group of
Prudential
(since 1996);
Senior Vice
President
(since March
1987) of
Prudential
Securities;
Executive Vice
President,
Treasurer and
Comptroller
(since March
1991) of PMFD;
<CAPTION> Director (since
NME, AGE, PRINCIPALAJune 1987) of
BSINESS OCCUPATIONUPMFS; Vice
FORTHE PAST FIVE YEARSPresident and
- -----Director-of-the---
<S>Asia Pacific <C>
RichardFA.und, Inc.
Redeker((53),since May
President,1989)
SChiefuExecutivesan C. Cote
Officer(and41), Treasurer 10/87
DirectorM(sinceanaging
OctoberD1993),irector,
PMF;PExecutiverudential
ViceIPresident,nvestment
DirectorAanddvisors, and
MemberVofithece President,
OperatingThe Prudential
CommitteeInvestment
(sinceCOctoberorporation
1993)(ofSince February
Prudential1995); Senior
Securities;Vice President
Director((sinceJanuary 1989-
OctoberJ1993)anuary 1995)
ofoPrudentialf PMF; Senior
SecuritiesVice President
Group,(Inc.January 1992-
(PSG);January 1995)
ExecutiveaVicend Vice
President,PTheresident
Prudential(January 1986-
InvestmentDecember 1991)
Corporationof Prudential
(PIC)S(sinceecurities
July 1994);
Director (since
January 1994)
of Prudential
Mutual Fund
Distributors,
Inc. (PMFD) and
Prudential
Mutual Fund
Services, Inc.
(PMFS);
formerly Senior
Executive Vice
President and
Director of
Kemper
Financial
Services, Inc.
(September
1978-September
1993);
President and
Director of The
High Yield
Income Fund,
Inc.
Robert F. Gunia
(49),
Director (since
January 1989),
Chief
Administrative
Officer (since
July 1990), and
Executive Vice
President,
Treasurer and
Chief Financial
Officer (since
June 1987) of
PMF;
Comptroller of
the Money
Management
Group of
Prudential
(since 1996);
Senior Vice
President
(since March
1987) of
Prudential
Securities;
Executive Vice
President,
Treasurer and
Comptroller
(since March
1991) of PMFD;
Director (since
June 1987) of
PMFS; Vice
President and
Director of the
Asia Pacific
Fund, Inc.
(since May
1989)
Susan C. Cote
(41),
Managing
Director,
Prudential
Investment
Advisors, and
Vice President,
The Prudential
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
</TABLE>

D-1
<PAGE>

<TABLE>
<CAPTION>
NME, AGE; PRINCIPALA GOVERNMENT
BSINESS OCCUPATIONU CALIFORNIA DIVERSIFIED GOVERNMENT SECURITIES HIGH MORTGAGE MUNICIPAL MUNI NATIONAL
FORTHE PAST FIVE YEARS OFFICE MUNICIPAL BOND INCOME TRUST YIELD INCOME BOND SERIES MUNICIPALS
- ----------------------- --------- ---------- ----------- ---------- ---------- ----- -------- --------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Eugene S. Stark
(38), Treasurer 5/95 4/95 6/95 2/95 -- -- -- -- --
First Vice
President
(Since January
1990) of PMF
Grace Torres
(37), Treasurer -- -- -- -- 2/95 2/95 -- 5/95 2/95
First Vice
President
(Since March
1994) of PMF;
First Vice
President of
Prudential
Securities
(Since March
1994); prior
thereto Vice
President of
Bankers Trust
Corporation
Stephen Ungerman
(42), Assistant 5/95 6/95 4/95 5/95 5/95 5/95 5/95 5/95 5/95
First Vice Treasurer
President
(Since February
1993) of PMF;
prior thereto,
Senior Tax
Manager of
Price
Waterhouse
(1981-January
1993)
S. Jane Rose
(50), Secretary 8/86 9/94 1/85 10/84 10/84 11/84 11/86 11/84 10/84
Senior Vice
President
(since January
1991) and
Senior Counsel
(since June
1987) of PMF;
Senior Vice
President and
Senior Counsel
of Prudential
Securities
(since July
1992); formerly
Vice President
and Associate
General Counsel
of Prudential
Securities
Deborah A. Docs
(38), Assistant 8/89 -- -- -- -- 8/89 -- 8/89 --
Vice President Secretary
and Associate
General Counsel
(Since January
1993) of PMF;
Vice President
and Associate
General Counsel
of Prudential
Securities
(Since January
1993);
previously
Associate Vice
President
(January 1990-
December 1992)
and Assistant
General Counsel
(November 1991-
December 1992)
of PMF
Marguerite
Morrison (40), Assistant -- -- -- -- -- -- 5/91 -- --
Vice President Secretary
and Associate
General Counsel
(Since June
1991) of PMF;
Vice President
and Associate
General Counsel
of Prudential
Securities
Ellyn C. Vogin
(35), Assistant -- 6/95 4/95 -- -- -- -- -- --
Vice President Secretary
and Associate
General Counsel
(Since March
1995) of PMF;
Vice President
and Associate
General Counsel
of Prudential
Securities
(Since March
1995); prior
thereto,
associated with
the law firm of
Fulbright &
Jaworski LLP
<CAPTION>
NME, AGE; PRINCIPALA
BSINESS OCCUPATIONU STRUCTURED
FORTHE PAST FIVE YEARS MATURITY
- ----------------------- ----------
<S> <C>
Eugene S. Stark
(38), 2/95
First Vice
President
(Since January
1990) of PMF
Grace Torres
(37), --
First Vice
President
(Since March
1994) of PMF;
First Vice
President of
Prudential
Securities
(Since March
1994); prior
thereto Vice
President of
Bankers Trust
Corporation
Stephen Ungerman
(42), 6/95
First Vice
President
(Since February
1993) of PMF;
prior thereto,
Senior Tax
Manager of
Price
Waterhouse
(1981-January
1993)
S. Jane Rose
(50), 6/88
Senior Vice
President
(since January
1991) and
Senior Counsel
(since June
1987) of PMF;
Senior Vice
President and
Senior Counsel
of Prudential
Securities
(since July
1992); formerly
Vice President
and Associate
General Counsel
of Prudential
Securities
Deborah A. Docs
(38), --
Vice President
and Associate
General Counsel
(Since January
1993) of PMF;
Vice President
and Associate
General Counsel
of Prudential
Securities
(Since January
1993);
previously
Associate Vice
President
(January 1990-
December 1992)
and Assistant
General Counsel
(November 1991-
December 1992)
of PMF
Marguerite
Morrison (40), 6/91
Vice President
and Associate
General Counsel
(Since June
1991) of PMF;
Vice President
and Associate
General Counsel
of Prudential
Securities
Ellyn C. Vogin
(35), --
Vice President
and Associate
General Counsel
(Since March
1995) of PMF;
Vice President
and Associate
General Counsel
of Prudential
Securities
(Since March
1995); prior
thereto,
associated with
the law firm of
Fulbright &
Jaworski LLP
</TABLE>

D-2
<PAGE>

EXHIBIT E

EXISTING FUNDAMENTAL RESTRICTIONS

The fundamental investment restrictions of each Fund will be found on the
following pages of this Exhibit (underscored language represents proposed
additions; bracketed language represents proposed deletions):

CALIFORNIA MUNICIPAL FUND

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 series. A "majority of the
outstanding voting securities" of a series, 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.

A series may not:

1. Purchase securities on margin (but the series may obtain such short-term
credits as may be necessary for the clearance of transactions. For the purpose
of this restriction, the deposit or payment by the California Series or the
California Income Series of initial or maintenance margin in connection with
futures contracts or related options transactions is not considered the
purchase of a security on margin).

2. Make short sales of securities or maintain a short position.

3. Issue senior securities, borrow money or pledge its assets, except that
the series [may] borrow up to 20% of the value of its total assets (calculated
when the loan is made) for temporary, extraordinary or emergency purposes or
for the clearance of transactions. The series may pledge up to [20%] 33 1/3%
of the value of its total assets to secure such borrowings. A series will not
purchase portfolio securities if its borrowings exceed 5% of its assets. For
purposes of this restriction, the preference as to shares of a series in
liquidation and as to dividends over all other series of the Fund with respect
to assets specifically allocated to that series, the purchase and sale of
futures contracts and related options, collateral arrangements with respect to
margin for futures contracts and the writing of related options, [by the
California Series or the California Income Series] (except with respect to the
California Money Market Series) and obligations of the Fund to Trustees
pursuant to deferred compensation arrangements, are not deemed to be a pledge
of assets or the issuance of a senior security.

4. Purchase any security if as a result, with respect to 75% of its total
assets, more than 5% of its total assets would be invested in the securities
of any one issuer (provided that this restriction shall not apply to
obligations issued or guaranteed as to principal and interest by the U.S.
Government or its agencies or instrumentalities).

5. Buy or sell commodities or commodity contracts, or real estate or
interests in real estate, although it may purchase and sell financial futures
contracts and related options, securities which are secured by real estate and
securities of companies which invest or deal in real estate. The California
Money Market Series may not purchase and sell financial futures contracts and
related options.

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

7. Invest in interest in oil, gas or other mineral exploration or
development programs.

8. Make loans, except through repurchase agreements.

The California Income Series may not purchase securities (other than
municipal obligations and obligations guaranteed as to principal an interest
by the U.S. Government or its agencies or instrumentalities) if, as a result
of such purchase, 25% or more of the total assets of the Series (taken at
current market value) would be invested in any one industry.

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

E-1
<PAGE>

DIVERSIFIED BOND FUND

INVESTMENT RESTRICTIONS

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

The Fund may not:

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

2. Make short sales of securities or maintain a short position if, when
added together, more than 25% of the value of the Fund's net assets would be
(i) deposited as collateral for the obligation to replace securities borrowed
to affect short sales and (ii) allocated to segregated accounts in connection
with short sales. Short sales "against-the-box" are not subject to this
limitation.

3. Issue senior securities, borrow money or pledge its assets, except that
the Fund may borrow from banks up to 33 1/3% of the value of its total assets
(calculated when the loan is made) for temporary, extraordinary or emergency
purposes, for the clearance of transactions or for investment purposes. The
Fund may pledge up to 33 1/3% of the value of its total assets to secure such
borrowings. For purposes of this restriction, the purchase or sale of
securities on a when-issued or delayed delivery basis, forward foreign
currency exchange contracts and collateral arrangements relating thereto, and
collateral arrangements with respect to interest rate swap transactions,
reverse repurchase agreements, dollar roll transactions, options, futures
contracts and options thereon and obligations of the Fund to Directors
pursuant to deferred compensation arrangements are not deemed to be a pledge
of assets or the issuance of a senior security.

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

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

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

6. [7.] Buy or sell commodities or commodity contracts, except that the Fund
may purchase and sell financial futures contracts and options thereon. (For
purposes of this restriction, futures contracts on securities, currencies and
on securities or financial indices and forward foreign currency exchange
contracts are not deemed to be commodities or commodity contracts.)

7. [8.] 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. The Fund has not adopted a fundamental
investment policy with respect to investments in restricted securities.

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

E-2
<PAGE>

9. [10.] Invest in securities of other investment companies, except by
purchases in the open market involving only customary brokerage commissions and
as a result of which the Fund will not hold more than 3% of the outstanding
voting securities of any one investment company, will not have invested more
than 5% of its total assets in any one investment company and will not have
invested more than 10% of its total assets (determined at the time of
investment) in such securities of one or more investment companies, or except
as part of a merger, consolidation or other acquisition.

10. [11.] Invest in interests in oil, gas or other mineral exploration or
development programs, except that the Fund may invest in the securities of
companies which invest in or sponsor such programs.

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

12. [13.] Purchase more than 10% of all outstanding voting securities of any
one issuer.

E-3
<PAGE>

GOVERNMENT INCOME FUND

INVESTMENT RESTRICTIONS

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

The Fund may not:

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

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

3. Issue senior securities, borrow money or pledge its assets except that the
Fund may borrow up to 20% of the value of its total assets (calculated when the
loan is made) for temporary, extraordinary or emergency purposes or for the
clearance of transactions. The Fund may pledge up to 20% of the value of its
total assets to secure such borrowings. For purposes of this restriction, the
purchase or sale of securities on a when-issued or delayed delivery basis,
collateral arrangements with respect to interest rate swap transactions,
reverse repurchase agreements or dollar roll transactions or the writing of
options on debt securities or on interest rate futures contracts or other
financial futures contracts are not deemed to be a pledge of assets and neither
such arrangements, nor the purchase or sale of interest rate futures contracts
of other financial futures contracts or the purchase or sale of related
options, nor obligations of the Fund to Directors pursuant to deferred
compensation arrangements are deemed to be the issuance of a senior security.

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

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

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

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

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

8. [9.] Make investments for the purpose of exercising control of management.

9. [10.] 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%] 10% of its total assets
(determined at the time of investment) would be invested in such securities, or
except as part of a merger, consolidation or other acquisition.

E-4
<PAGE>

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

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

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

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

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

E-5
<PAGE>

HIGH YIELD FUND

INVESTMENT RESTRICTIONS

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

The Fund may not:

[(1) Invest in any non-fixed income equity securities, including warrants,
except when attached to or included in a unit with fixed-income securities.]

(1)[(2)] Invest more than 5% of the market or other fair value of its total
assets in the securities of any one issuer (other than obligations of, or
guaranteed by, the United States Government, its agencies or
instrumentalities).

(2)[(3)] Purchase more than 10% of the voting securities of any issuer.

(3)[(4)] Invest more than 25% of the market or other fair value of its total
assets in the securities of issuers, all of which conduct their principal
business activities in the same industry. For purposes of this restriction,
gas, electric, water and telephone utilities will each be treated as being a
separate industry. This restriction does not apply to obligations issued or
guaranteed by the United States Government or its agencies or
instrumentalities.

(4)[(5) Make short sales of securities.

(5)[(6)] Purchase securities on margin, except for such short-term credits as
are necessary for the clearance of purchases and sales of portfolio securities
and the making of margin payments in connection with transactions in financial
futures contracts.

[(7) Invest more than 5% of the market or other fair value of its total
assets in securities of companies having a record, together with predecessors,
of less than three years of continuous operation. This restriction shall not
apply to any obligation of, or guaranteed by, the United States Government, its
agencies or instrumentalities.]

(6) [(8)] Issue senior securities, borrow money or pledge its assets, except
that the Fund may borrow up to 20% of the value of its total assets (calculated
when the loan is made) for temporary, extraordinary or emergency purposes or
for the clearance of transactions. The Fund may pledge up to 20% of the value
of its total assets to secure such borrowings. Secured borrowings may take the
form of reverse repurchase agreements, pursuant to which the Fund would sell
portfolio securities for cash and simultaneously agree to repurchase them at a
specified date for the same amount of cash plus an interest component. For
purposes of this restriction, obligations of the Fund to Directors pursuant to
deferred compensation arrangements and the purchase and sale of securities on a
when-issued or delayed delivery basis and engaging in financial futures
contracts and related options are not deemed to be the issuance of a senior
security or a pledge of assets.

(7) [(9)] Engage in the underwriting of securities except insofar as the Fund
may be deemed an underwriter under the Securities Act in disposing of a
portfolio security.

(8) [(10)] Purchase or sell real estate or real estate mortgage loans,
although it may purchase marketable securities of issuers which engage in real
estate operations or securities which are secured by interests in real estate

(9) [(11)] Purchase or sell commodities or commodity futures contracts except
financial futures contracts and option thereof.

E-6
<PAGE>

(10) [(12)] Make loans of money or securities, except through the purchase of
debt obligations, bank debt (i.e., loan participations repurchase agreements
and loans of securities. [(a) by investment in repurchase agreements (see
"Portfolio Characteristics--Repurchase Agreements") or (b) by lending its
portfolio securities, subject to limitations described elsewhere in the
Prospectus and this Statement of Additional Information (see "Portfolio
Characteristics--Lending of Securities"). The purchase of a portion of an issue
of publicly-distributed debt securities is not considered the making of a
loan.]

(11) [(13)] Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that the Fund may
invest in the securities of companies which invest in or sponsor such programs.

(12) [(14)] Purchase securities of other investment companies, except in the
open market involving only customary brokerage commissions and as a result of
which no more than 10% of its total assets determined at the time of
investment) would be invested in such securities or except in connection with a
merger, consolidation, reorganization or acquisition of assets.

(13) [(15)] Invest for the purpose of exercising control or management of
another company.

(14) [(16)] Invest more than 20% of the market or other fair value of its
total assets in United States currency denominated issues of foreign
governments and other foreign issuers; or invest more than 10% of the market or
other fair value of its total assets in securities which are payable in
currencies other than Unites States dollars. The Fund will not engage in
investment activity in non-U.S. dollar denominated issues without first
obtaining authorization to do so from its Board of Directors. See "Portfolio
Characteristics--Securities of Foreign Issuers."

E-7
<PAGE>

MORTGAGE INCOME FUND

INVESTMENT RESTRICTIONS

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

The Fund may not:

(1) Purchase any security (other than obligations of the U.S. Government, its
agencies, or instrumentalities) if as a result with respect to 75% of the
Fund's total assets, more than 5% of the Fund's total assets (taken at current
value) would then be invested in securities of a single issuer.

(2) Make short sales of securities or purchase securities on margin (but the
Fund may obtain such short-term credits as may be necessary for the clearance
of transactions). For purposes of this investment restriction, the deposit or
payment by the Fund of initial or variation margin in connection with
transactions in interest rate futures contracts or related options transactions
and collateralization arrangements with respect to exchange-traded and OTC
options on debt securities are not considered the purchase of a security on
margin.

(3) Concentrate its investments in any one industry (no more than 25% of the
Fund's total assets will be invested in any one industry or in the securities
of issuers located in any one foreign country); however, there is no limitation
as to investments in obligations of the U.S. Government, its agencies or
instrumentalities.

(4) Issue senior securities, borrow money or pledge its assets, except that
the Fund may borrow up to 20% of the value of its total assets (calculated when
the loan is made) for temporary, extraordinary or emergency purposes or for the
clearance of transactions. The Fund may pledge up to 20% of the value of its
total assets to secure such borrowings. For purposes of this restriction,
obligations of the Fund to Directors pursuant to deferred compensation
arrangements, the purchase or sale of securities on a when-issued or delayed
delivery basis, the purchase and sale of options and futures contracts and
collateral arrangements with respect to the purchase and sale of options and
futures contracts are not deemed to be the issuance of a senior security or a
pledge of assets.

[(5) Purchase any security if as a result the Fund would then have more than
5% of its total assets (taken at current value) invested in securities of
companies (including predecessors) less than three years old.]

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

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

(7)[(8)] Make investments for the purpose of exercising control or
management.

(8)[(9)] Invest in securities of other 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 (taken at current
value) would be invested in such securities, or except as part of a merger,
consolidation or other acquisition.

(9)[(10)] Invest in interests in oil, gas or other mineral exploration or
development programs.

(10)[(11)] Make loans, except through (i) repurchase agreements and (ii)
loans of portfolio securities. (The purchase of a portion of an issue of
securities distributed publicly, whether or not the purchase is made on the
original issuance, is not considered the making of a loan.)

E-8
<PAGE>

(11)[(12)] Purchase securities of foreign issuers other than U.S. dollar
denominated debt securities rated at least Aa by Moody's or AA by S&P or U.S.
dollar denominated obligations of foreign branches of domestic banks or of any
bank organized under the laws of Canada, France, Germany, Japan, the
Netherlands, Switzerland or the United Kingdom, provided that such bank has, at
the time of the Fund's investment, total assets of at least $10 billion or the
equivalent.

12 [(13)] Purchase or sell puts or calls or combinations thereof, except that
the Fund may write covered put and call options on U.S. Government securities,
purchase put and call options on U.S. Government securities and purchase and
sell interest rate futures contracts and other financial futures contracts and
options thereon, and, in connection with the purchase of other securities, it
may acquire warrants or other rights to subscribe for securities of companies
or parents or subsidiaries of such companies.

E-9
<PAGE>

MUNICIPAL BOND FUND

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 a Series' outstanding voting securities. A "majority of the
outstanding voting securities" of a Series, 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 Series may not:

1. Purchase securities on margin (but the Series may obtain such short-term
credits as may be necessary for the clearance of transactions and for margin
payments in connection with transactions in financial futures contracts and
options thereon).

2. Make short sales of securities or maintain a short position.

3. Issue senior securities, borrow money or pledge its assets, except that
each Series may borrow up to [20%] 33 1/3% of the value of its total assets
(calculated when the loan is made) for temporary, extraordinary or emergency
purposes and to take advantage of investment opportunities or for the
clearance of transactions. The Series may pledge up to [20%] 33 1/3% of the
value of its total assets to secure such borrowings. For purposes of this
restriction, the preference as to shares of a Series in liquidation and as to
dividends over all other Series of the Fund with respect to assets
specifically allocated to that Series, the purchase or sale of securities on a
when-issued or delayed delivery basis, the purchase and sale of financial
futures contracts and collateral arrangements with respect thereto and
obligations of the Series 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 if as a result, with respect to 75% of the total
assets of the Series, more than 5% of the total assets of the Series would be
invested in the securities of any one issuer (provided that this restriction
shall not apply to obligations issued or guaranteed as to principal and
interest by the U.S. Government or its agencies or instrumentalities).

5. Purchase securities (other than municipal obligations and obligations
guaranteed as to principal and interest by the U.S. Government or its agencies
or instrumentalities) if, as a result of such purchase, 25% or more of the
total assets of the Series (taken at current market value) would be invested
in any one industry. purposes of this restriction, industrial development
bonds, where the payment of the principal and interest is the ultimate
responsibility of companies within the same industry, are grouped together as
an "industry.")

6. Buy or sell commodities or commodity contracts, except financial futures
contracts and options thereon.

7. Buy or sell real estate or interests in real estate, although it may
purchase and sell securities which are secured by real estate and securities
of companies which invest or deal in real estate.

8. 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.

9. Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets.

10. Purchase any security if as a result the Series would then have more
than 5% of its total assets (taken at current value) invested in industrial
development revenue bonds where the private entity on whose credit the
security is based, directly or indirectly, is less than three years old
(including predecessors), unless the security purchased by the Series is rated
by a nationally recognized rating service.

E-10
<PAGE>

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

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

13. Purchase or write puts, calls or combinations thereof except as described
in the Prospectus and this Statement of Additional Information with respect to
puts and options on futures contracts.

14. Invest for the purpose of exercising control or management of another
company.

E-11
<PAGE>

MUNICIPAL SERIES FUND

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 series. A "majority of the
outstanding voting securities" of a series, when used in this Statement of
Additional Information, means the lesser of (i) 67% of the voting shares
represented at a meeting at which more than 50% of the outstanding voting
shares are present in person or represented by proxy or (ii) more than 50% of
the outstanding voting shares.

The Fund may not:

1. Purchase securities on margin, but the Fund may obtain such short-term
credits as may be necessary of the clearance of transactions. For the
purpose of this restriction, the deposit or payment by the Fund (except
with respect to the Connecticut Money Market Series, the Massachusetts
Money Market Series, the New York Money Market Series and the New Jersey
Money Market Series) of initial or maintenance margin in connection with
futures contracts or related options transactions is not considered the
purchase of a security on margin.

2. Make short sales of securities or maintain a short position.

3. Issue senior securities, borrow money or pledge its assets, except
that the Fund may on behalf of a series borrow up to [20%] 33 1/3% of the
value of its total assets (calculated when the loan is made) for temporary,
extraordinary or emergency purposes. The Fund on behalf of a series may
pledge up to [20%] 33 1/3% of the value of its total assets to secure such
borrowings. A series will not purchase portfolio securities if its
borrowings exceed 5% of the assets. For purposes of this restriction, the
preference as to shares of a series in liquidation and as to dividends over
all other series of the Fund with respect to assets specifically allocated
to that series, the purchase and sale of futures contracts and related
options, collateral arrangements with respect to margin for futures
contracts, the writing of related options (except with respect to the
Connecticut Money Market Series, the Massachusetts Money Market Series, the
New York Money Market Series and the New Jersey Money Market Series) and
obligations of the Fund to Trustees pursuant to deferred compensation
arrangements, are not deemed to be a pledge of assets or the issuance of a
senior security. [The Fund will not purchase portfolio securities if its
borrowings exceed 5% of the assets.]

4. Purchase any security if as a result, with respect to 75% of a series'
total assets (except with respect to the Connecticut Money Market Series,
the Florida Series, the Hawaii Income Series, the Massachusetts Money
Market Series, the New Jersey Money Market Series and the New York Income
Series), more than 5% of the total assets of any series would be invested
in the securities of any one issuer (provided that this restriction shall
not apply to obligations issued or guaranteed as to principal and interest
either by the U.S. Government or its agencies or instrumentalities).

5. Buy or sell commodities or commodity contracts, or real estate or
interests in real estate, although it may purchase and sell financial
futures contracts and related options (except with respect to the
Connecticut Money Market Series, the Massachusetts Money Market Series, the
New York Money Market Series and the New Jersey Money Market Series),
securities which are secured by real estate and securities of companies
which invest or deal in real estate.

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

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

8. Make loans, except through repurchase agreements.

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

E-12
<PAGE>

NATIONAL MUNICIPALS FUND

INVESTMENT RESTRICTIONS

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

The Fund may not:

[(1) Invest in securities other than Municipal Bonds and Notes (including
when-issued and delayed delivery purchases, and rights to resell Municipal
Bonds and Notes and financial futures contracts and options thereon) as
described under "Investment Objective and Policies" in the prospectus and this
Statement of Additional Information.]

(2) With respect to 75% of its total assets, invest more than 5% of the
market or other fair value of its total assets in the securities of any one
issuer (other than obligations of, or guaranteed by, the U.S. government, its
agencies or instrumentalities). It is the current policy (but not a fundamental
policy) of the Fund not to invest more than 5% of the market or other fair
value of its total assets in the securities of any one issuer.

(3) Make short sales of securities.

(4) Purchase securities on margin, except for such short-term credits as are
necessary for the clearance of purchases and sales of portfolio securities and
margin payments in connection with transactions in financial futures contracts.

(5) Issue senior securities, borrow money or pledge its assets, except that
the Fund may borrow up to [20%] 33 1/3% of the value of its total assets
(calculated when the loan is made) for temporary, extraordinary or emergency
purposes or for the clearance of transactions. The Fund may pledge up to[20%]
33 1/3% of the value of its total assets to secure such borrowings. Secured
borrowings may take the form of reverse repurchase agreements, pursuant to
which the Fund would sell portfolio securities for cash and simultaneously
agree to repurchase them at a specified date for the same amount of cash plus
an interest component. The Fund would maintain, in a segregated account with
its Custodian, liquid assets equal in value to the amount owed. For purposes of
this restriction, obligations of the Fund to Directors pursuant to deferred
compensation arrangements, the purchase and sale of securities on a when-issued
or delayed delivery basis, the purchase and sale of financial futures contracts
and options and collateral arrangements with respect to margins for financial
futures contracts and with respect to options are not deemed to be the issuance
of a senior security or a pledge of assets.

(6) Engage in the underwriting of securities or purchase any securities as to
which registration under the Securities Act of 1933 would be required for
resale of such securities to the public.

(7) Purchase or sell real estate or real estate mortgage loans, although it
may purchase Municipal Bonds or Notes secured by interests in real estate.

(8) Make loans of money or securities except through the purchase of debt
obligations or repurchase agreements. [The purchase of a portion of an issue of
publicly distributed debt securities is not considered the making of a loan.

(9) Purchase securities of other investment companies, except in the open
market involving any customary brokerage commissions and as a result of which
not more than 10% of its total assets (determined at the time of investment)
would be invested in such securities or except in connection with a merger,
consolidation, reorganization or acquisition of assets.

E-13
<PAGE>

(10) Invest for the purpose of exercising control or management of another
company.

[(11)] Purchase or sell puts, calls, or combinations thereof, except that it
may obtain rights to resell Municipal Bonds and Notes and it may purchase and
sell puts and options on futures contracts as set forth under "Investment
Objective and Policies" in the Prospectus and this Statement of Additional
Information.]

(12) Purchase industrial revenue bonds if, as a result of such purchase, more
than 5% of total Fund assets would be invested in industrial revenue bonds
where payment of principal and interest are the responsibility of companies
with less than three years of operating history.

(13) Purchase or sell commodities or commodities futures contracts except
financial futures contracts and options thereon, [as described under
"Investment Objective and Policies" in the Prospectus and this Statement of
Additional Information.

(14) Invest more than 25% of the value of its total assets in securities
whose issuers are located in any one state.

E-14

<PAGE>

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement

[_] Definitive Additional Materials

[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12

Prudential Diversified Bond Fund, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.

[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).

[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

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

(2) Aggregate number of securities to which transaction applies:

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

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):

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

(4) Proposed maximum aggregate value of transaction:

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

(5) Total fee paid:

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

[_] Fee paid previously with preliminary materials.

[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

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

(2) Form, Schedule or Registration Statement No.:

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

(3) Filing Party:

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

(4) Date Filed:

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

Notes:

<PAGE>

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement

[_] Definitive Additional Materials

[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12

Prudential Government Income Fund, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)