PRUDENTIAL GOVERNMENT SECURITIES TRUST, PRES14A, 1995-06-01

PRUDENTIAL GOVERNMENT SECURITIES TRUST
PRES14A, 1995-06-01

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<S> <C>

SULLIVAN & CROMWELL

NEW YORK TELEPHONE: (212) 558-4000
TELEX: 62694 (INTERNATIONAL) 127816 (DOMESTIC) 125 Broad Street, New York 10004-2498
CABLE ADDRESS: LADYCOURT, NEW YORK __________
FACSIMILE: (212) 558-3588 (125 Broad Street) 250 PARK AVENUE, NEW YORK 10177-0021
(212) 558-3792 (250 Park Avenue) 1701 PENNSYLVANIA AVE, N.W. WASHINGTON, D.C. 20006-5805
444 SOUTH FLOWER STREET, LOS ANGELES 90071-2901
8, PLACE VENDOME, 75001 PARIS
ST. OLAVE'S HOUSE, 9a IRONMONGER LANE, LONDON EC2V 8EY
101 COLLINS STREET, MELBOURNE 3000
2-1, MARUNOUCHI I-CHOME, CHIYODA-KU, TOKYO 100
GLOUCESTER TOWER, 11 PEDDER STREET, HONG KONG

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June 1, 1995

Securities and Exchange Commission,
450 Fifth Street, N.W.,
Washington, D.C. 20549.

Re: Preliminary Proxy Materials --
Prudential Government Securities Trust
(Reg. No. 811-3264)
---------------------------------------

Dear Sirs:

The accompanying EDGAR filing on behalf of
Prudential Government Securities Trust (the "Fund"),
pursuant to Rule 14a-6 under the Securities Exchange Act of
1934, is a preliminary copy of the Notice of Annual and Special
Meetings, Proxy Statement and forms of Proxy to be used in
connection with the Fund's Annual Meeting of Shareholders to
be held on June 27, 1995 and the Fund's Special Meeting of
Shareholders to be held on July 19, 1995.
In addition to the election of Trustees and the
ratification of independent accountants at the Annual
Meeting, Shareholders will be asked at the Special Meeting
to approve (i) amendments to the Fund's Distribution and
Service Plans to change them from reimbursement type plans

<PAGE>

to compensation type plans and (ii) amendments to the Fund's
investment policies and restrictions recently approved by
the Fund's Trustees and as described in the enclosed Proxy
Statement. The proposal to change the Fund's Distribution
and Service Plans is substantially the same as those
included in the proxy materials filed with the Commission
last year on behalf of a number of the Prudential Mutual
Funds, including, but not limited to, Prudential Growth
Opportunity Fund.
Pursuant to Rule 20a-1 under the Investment
Company Act of 1940, a filing fee of $125.00 has been wired
by the Fund to the Commission's designated lockbox at The
Mellon Bank in Pittsburgh.
The Fund anticipates that it will mail the Proxy
materials to shareholders on or about June 12, 1995.
Due to the fact that the Annual Meeting of
Shareholders must be held on June 27, 1995 to elect
Trustees, and in order to ensure that the Proxy materials
can be mailed to shareholders by no later than June 12,
1995, the Fund respectfully requests that the Commission
review these Proxy materials on an expedited basis.
Should you have any questions or comments
concerning the enclosed documents, please contact

<PAGE>

Ronald Amblard of Prudential Mutual Fund Management, Inc.
(212-214-2189) or the undersigned (212-558-4940).

Very truly yours,

/s/ William G. Farrar

William G. Farrar

(Enclosures)

cc: Robert Tait, Esq.
(Securities and Exchange Commission)

S. Jane Rose, Esq.
Ronald Amblard, Esq.
(Prudential Mutual Fund Management, Inc.)

<PAGE>

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934

Filed by the registrant [X}

Filed by a party other than the registrant [ ]

Check the appropriate box:

[X] Prelimary proxy statement

[ ] Definitive proxy statement

[ ] Definitive additional materials

[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12

PRUDENTIAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)

PRUDENTIAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------

(Name of Person(s) Filing Proxy Statement)

Payment of filing fee (Check the appropriate box):

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

[ ]$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.

<PAGE>

PRELIMINARY COPY
PRUDENTIAL GOVERNMENT SECURITIES TRUST
ONE SEAPORT PLAZA
NEW YORK, N.Y. 10292
-------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
-------------
To our Shareholders:

Notice is hereby given that an Annual Meeting of Shareholders of the
Prudential Government Securities Trust (the Fund or the Trust) will be held at
9:00 A.M. on June 27, 1995, at 199 Water Street, New York, New York 10292, for
the following purposes and for action by the shareholders of all the Series,
voting together:

1. To elect Trustees.

2. To ratify the selection by the Trustees of Price Waterhouse LLP as
independent accountants for the fiscal year ending November 30, 1995.

3. To consider and act upon any other business as may properly come before
the Annual Meeting or any adjournment thereof.

Notice is also hereby given that a Special Meeting of Shareholders of the
Fund will be held at 9:00 A.M. on July 19, 1995, at 199 Water Street, New York,
New York 10292, for the purposes and for action by the shareholders of the
Series indicated in the table below, voting separately:

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Proposal Shareholders
No. Voting Purpose
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>

1. All Series To approve amended and restated Distribution and Service Plans.
- -------------------------------------------------------------------------------------------------------
2. Money Market and To approve elimination of the Series' investment restriction that
Intermediate Term limits investments to those securities listed in the Series'
Series Prospectuses under "Investment Objective and Policies."
- -------------------------------------------------------------------------------------------------------
3. All Series To approve elimination of the Series' investment restrictions
regarding restricted and illiquid securities.
- -------------------------------------------------------------------------------------------------------
4. Money Market and To approve elimination of the Series' investment restriction
Intermediate Term regarding the purchase and sale of warrants, puts, calls, straddles,
Series spreads or combinations thereof.
- -------------------------------------------------------------------------------------------------------
5. Intermediate Term To approve modification of the Intermediate Term Series'
Series investment restrictions to permit an increase in the borrowing
capabilities of the Series.
- -------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

6. Intermediate Term To approve modification of the Intermediate Term Series'
Series investment restrictions to clarify that the purchase and sale of
certain securities are not deemed to be the purchase or sale of real
estate or real estate mortgage loans.
- -------------------------------------------------------------------------------------------------------
7. Intermediate Term To approve modification of the Intermediate Term Series'
Series investment restriction regarding purchases of securities on margin
and short sales to permit certain transactions involving margin and
certain short sales.
- -------------------------------------------------------------------------------------------------------
8. Intermediate Term To approve modification of the Intermediate Term Series'
Series investment restriction regarding the purchase and sale of
commodities or commodity futures contracts to permit the
purchase and sale of financial futures contracts and
options thereon.
- -------------------------------------------------------------------------------------------------------
9. All Series To consider and act upon any other business as may properly come
before the Special Meeting or any adjournment thereof.
- -------------------------------------------------------------------------------------------------------
</TABLE>

Only shares of beneficial interest of the Fund of record at the close of
business on May 26, 1995 are entitled to notice of and to vote at either the
Annual Meeting or the Special Meeting or any adjournments thereof.

Dated: June --, 1995

S. Jane Rose
Secretary

- --------------------------------------------------------------------------------
TWO PROXIES ARE ENCLOSED FOR EACH SERIES IN WHICH YOU HOLD SHARES (ONE FOR EACH
OF THE MEETINGS). WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETINGS, PLEASE
SIGN AND PROMPTLY RETURN ALL OF THE ENCLOSED PROXIES 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 BOTH OF
YOUR PROXIES PROMPTLY.
- --------------------------------------------------------------------------------

<PAGE>
PRELIMINARY COPY

PRUDENTIAL GOVERNMENT SECURITIES TRUST
ONE SEAPORT PLAZA
NEW YORK, N.Y. 10292
(800) 225-1852

----------
PROXY STATEMENT
----------

This proxy statement is furnished by the Board of Trustees of Prudential
Government Securities Trust (the Fund or the Trust), in connection with its
solicitation of proxies for use at an Annual Meeting of Shareholders (the Annual
Meeting) of the Fund to be held at 9:00 A.M. on June 27, 1995, at 199 Water
Street, New York, New York 10292, the Fund's principal executive office. This
proxy statement is also being furnished by the Trustees of the Fund in
connection with its solicitation of proxies for use at a Special Meeting of
Shareholders (the Special Meeting) of the Fund to be held at 3:00 P.M. on July
19, 1995 at 199 Water Street, New York, New York 10292. The purposes of the
Annual Meeting and the Special Meeting (collectively, the Meetings) and the
matters to be acted upon are set forth in the accompanying Notices of Annual
Meeting and Special Meeting.

The Fund's most recent Annual Report has previously been sent to
shareholders and may be obtained without charge by calling (800) 225-1852 or by
writing to the Fund at One Seaport Plaza, New York, New York 10292.

The Annual Meeting is being held because of the resignation of Lawrence C.
McQuade on April 28, 1995 after which fewer than a majority of the Trustees
currently in office have been previously elected by shareholders. Under these
circumstances, the Investment Company Act of 1940 (the Investment Company Act)
requires that a meeting of shareholders be held within 60 days for the purpose
of electing Trustees.

The Special Meeting is being held to consider various matters affecting one
or more of the Series of the Fund, namely, the Intermediate Term Series, the
Money Market Series and the U.S. Treasury Money Market Series (the Series or a
Series).

If the accompanying forms of Proxy are executed properly and returned,
shares represented by them will be voted at the Meetings, or any adjournments
thereof, in accordance with the instructions on the Proxy. However, if no
instructions are specified, shares will be voted for the election of the
Trustees and for the other proposals. A Proxy may be revoked at any time prior
to the time it is voted by written notice to the Secretary of the Fund, by
execution of a subsequent Proxy or by attendance at the Meeting to which the
Proxy relates. If sufficient votes to approve one or more of the proposed items
are not received, the persons named as proxies may propose one or more
adjournments of a Meeting to permit further solicitation of proxies. Any such
adjournment will require the affirmative vote of a majority of those shares
present at such Meeting or represented by proxy. When voting on a proposed
adjournment, the persons named as proxies will vote for the proposed adjournment
all shares that they are entitled to vote with respect to each item, unless
directed to disapprove the item, in which case such shares will be voted against
the proposed adjournment. Any questions as to an adjournment of a Meeting will
be voted on by the persons named in the enclosed Proxies in the same manner that
the Proxies are instructed to be voted. In the event that a Meeting is
adjourned, the same procedures will apply at the later Meeting date.

<PAGE>

If a Proxy that is properly executed and returned, accompanied by
instructions to withhold authority to vote, 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 will be considered
not to be present at a Meeting for purposes of determining the existence of a
quorum for the transaction of business and be deemed not cast with respect to
such proposal. If no instructions are received by the broker or nominee from the
shareholder with reference to routine matters, the shares represented thereby
may be considered for purposes of determining the existence of a quorum for the
transaction of business and will be deemed cast with respect to such proposal.
Also, a properly executed and returned Proxy marked with an abstention will be
considered present at a Meeting for purposes of determining the existence of a
quorum for the transaction of business. However, abstentions and broker
"non-votes" do not constitute a vote "for" or "against" the matter, but have the
effect of a negative vote on matters which require approval by a requisite
percentage of the outstanding shares.

The close of business on May 26, 1995 has been fixed as the record date for
the determination of shareholders entitled to notice of, and to vote at, each
Meeting. On that date, the Fund had __________ shares of beneficial interest
outstanding and entitled to vote. Each share will be entitled to one vote at
each Meeting. On May 26, 1995, the Intermediate Series, Money Market Series and
U.S. Treasury Money Market Series had __________, __________, and __________
shares of beneficial interest outstanding and entitled to vote, respectively.
With respect to the Special Meeting, only the shareholders of those Series
affected by a Proposal are eligible to vote on such Proposal. It is expected
that the Notices of Annual Meeting and Special Meeting, Proxy Statement and
forms of Proxy will first be mailed to shareholders on or about June --, 1995.

[As of May 26, 1995, management of the Fund does not know of any person or
group who owned beneficially 5% or more of any Series' outstanding shares.]

The expense of solicitation will be borne by the Fund and will include
reimbursement of brokerage firms and others for expenses in forwarding proxy
solicitation material to beneficial owners. The solicitation of proxies will be
largely by mail. The Trustees of the Fund have authorized management to retain
Shareholder Communications Corporation, a proxy solicitation firm, to assist in
the solicitation of proxies for the Meetings. This cost, including specified
expenses, is not expected to exceed $__________ and will be borne by the Fund.
In addition, solicitation may include, without cost to the Fund, telephonic,
telegraphic or oral communication by regular employees of Prudential Securities
Incorporated (Prudential Securities).

Prudential Mutual Fund Management, Inc. (PMF or the Manager), One Seaport
Plaza, New York, New York 10292, serves as the Fund's Manager under a management
agreement dated as of May 2, 1988 (the "Management Agreement"). Investment
advisory services are provided to the Fund by PMF through its affiliate, The
Prudential Investment Corporation (PIC or the Subadviser), Prudential Plaza,
Newark, New Jersey 07102, under a Subadvisory Agreement. Both PMF and PIC are
indirect subsidiaries of The Prudential Insurance Company of America. Prudential
Mutual Fund Distributors, Inc. (PMFD), One Seaport Plaza, New York, New York
10292, acts as the distributor of the U.S. Treasury Money Market Series and the
Money Market Series. Prudential Securities, One Seaport Plaza, New York, New
York 10292, acts as the distributor of the Intermediate Term Series. The Fund's
transfer agent is Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza
One, Edison, New Jersey 08837. As of April 30, 1995, PMF served as the manager
to 39 open-end investment companies, and as manager or administrator to 30
closed-end investment companies with aggregate assets of more than $46 billion.
The Fund has a Board of Trustees which, in addition to overseeing the actions of
the Fund's Manager and Subadviser, decides upon matters of general policy.

<PAGE>

- --------------------------------------------------------------------------------
ANNUAL MEETING PROPOSALS
- --------------------------------------------------------------------------------

ELECTION OF TRUSTEES

(Annual Meeting Proposal No. 1)

At the Annual Meeting, five Trustees will be elected to hold office until
the earlier to occur of the next meeting of shareholders at which Trustees are
elected or until their terms expire in accordance with the Fund's retirement
policy and until their successors are elected and qualify. The Fund's recently
adopted retirement policy generally calls for the retirement of Trustees on
December 31 of the year in which he or she reaches the age of 72. It is the
intention of the persons named in the accompanying form of Proxy to vote for the
election of Delayne Dedrick Gold, Arthur Hauspurg, Stephen P. Munn, Richard A.
Redeker and Louis A. Weil, III, all of whom except Mr.Redeker are currently
Trustees. Each of the nominees has consented to be named in this Proxy Statement
and to serve as a Trustee if elected. Only Mrs. Gold and Mr. Hauspurg have
previously been elected as Trustees by shareholders.

Mrs. Gold and Mr. Hauspurg were first elected as Trustees in 1981. Messrs.
Munn and Weil were elected as Trustees on February 5 and April 30, 1991,
respectively. Mr. Redeker is currently not a Trustee.

The Trustees have no reason to believe that any of the nominees named above
will become unavailable for election as a Trustee, but if that should occur
before the Annual Meeting, proxies will be voted for such persons as the
Trustees may recommend.

The Fund's By-laws provide that the Fund will not be required to hold annual
meetings of shareholders if the election of Trustees is not required under the
Investment Company Act. It is the present intention of the Trustees of the Fund
not to hold annual meetings of shareholders unless such shareholder action is
required.

INFORMATION REGARDING TRUSTEES
<TABLE>
<CAPTION>
Shares of Shares of Shares of
Beneficial Beneficial Beneficial
Interest Interest in Interest in
in Money Interemediate U.S. Treasury
Market Series Term Series Money Market
Name, age, business experience during Position Owned at Owned at Series Owned at
the past five years and other directorships with Fund May 26, 1995 May 26, 1995 May 26, 1995
-------------------------------------------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C>

Delayne Dedrick Gold (56), Marketing and Management Trustee [0] [0] [0]
Consultant; Director/Trustee of 24 investment
companies managed by PMF.

Arthur Hauspurg (69), Trustee and former President, Trustee [0] [525] [0]
Chief Executive Officer and Chairman of the Board
of Consolidated Edison Company of New York, Inc.;
Director of COMSAT Corp.; Director/Trustee of
5 investment companies managed by PMF.

Stephen P. Munn (52), Chairman (since January 1994), Trustee [0] [587] [0]
Director and President (since 1988) and Chief
Executive Officer (1988 - December 1993) of Carlisle
Companies Incorporated; Director/Trustee of
5 investment companies managed by PMF.

</TABLE>

<PAGE>
<TABLE>
<CAPTION>
Shares of Shares of Shares of
Beneficial Beneficial Beneficial
Interest Interest in Interest in
in Money Interemediate U.S. Treasury
Market Series Term Series Money Market
Name, age, business experience during Position Owned at Owned at Series Owned at
the past five years and other directorships with Fund May 26, 1995 May 26, 1995 May 26, 1995
-------------------------------------------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C>

*Richard A. Redeker (50), President, Chief Executive President [0] [0] [0]
Officer and Director (since October 1993),
Prudential Mutual Fund Management, Inc.;
Director and Member of the Operating Committee
(since October 1993), Prudential Securities
Incorporated; Director (since October 1993) of
Prudential Securities Group, Inc.; Executive
Vice President, The Prudential Investment
Corporation; Director (since January 1994),
Prudential Mutual Fund Distributors, Inc.; Director
(since January 1994), Prudential Mutual Fund
Services, Inc.; formerly Senior Executive Vice
President and Director of Kemper Financial Services,
Inc.(September 1978 - September 1993); President
and Director/Trustee of 38 investment companies
managed by PMF.

Louis A. Weil, III (54), Publisher and Chief Executive Trustee [2,176] [232] [2,174]
Officer, Phoenix Newspapers, Inc. (since August
1991); Director of Central Newspapers, Inc. (since
September 1991); prior thereto, Publisher of Time
Magazine (May 1989 - March 1991); formerly President,
Publisher & CEO of The Detroit News (February 1986 -
August 1989); formerly member of the Advisory
Board, Chase Manhattan Bank-Westchester;
Director/Trustee of 12 investment companies
managed by PMF.

<FN>
- ---------

*Indicates "interested" Trustee, as defined in Section 2(a)(19) of the
Investment Company Act, by reason of his affiliation with Prudential Securities
or PMF.
</FN>

</TABLE>

The Trustees and officers of the Fund as a group owned beneficially
__________ shares of the Money Market Series, __________ shares of the
Intermediate Term Series and __________ shares of the U.S. Treasury Money Market
Series at __________ __, 1995, representing less than 1% of the shares of
each Series then outstanding.

The Fund pays annual compensation of $9,000 plus actual out-of-pocket
expenses to each of the Trustees not affiliated with PMF or The Prudential
Investment Corporation (PIC). The Chairman of the Audit Committee receives an
additional $200 per year. During the fiscal year ended November 30, 1994, the
Fund paid Trustees' fees, in the aggregate, of $45,600 and travel and incidental
expenses of approximately $2,200.

Trustees may receive their Trustee's fee pursuant to a deferred fee
agreement with the Fund. Under the terms of the agreement, the Fund accrues
daily the amount of such Trustee's fee which accrues interest at a rate
equivalent to the prevailing rate applicable to 90-day U.S. Treasury bills at
the beginning of each calendar quarter or, pursuant to an SEC

<PAGE>

exemptive order, at the daily rate of return of the Fund (the Fund Rate).
Payment of the interest so accrued is also deferred and accruals become payable
at the option of the Trustee. The Fund's obligation to make payments of deferred
Trustees' fees, together with interest thereon, is a general obligation of the
Fund.

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

The following table sets forth the aggregate compensation paid by the Fund
for the fiscal year ended November 30, 1994 to the Trustees who are not
affiliated with the Manager and the aggregate compensation paid to such Trustees
for service on the Fund's board and that of all other funds managed by
Prudential Mutual Fund Management, Inc. (Fund Complex) for the calendar year
ended December 31, 1994.

Compensation Table
<TABLE>
<CAPTION>
Pension or
Retirement
Benefits Estimated Total
Accrued As Annual Compensation
Aggregate Part of Benefits From Fund and
Compensation Fund Upon Fund Complex
Name and Position From Fund Expenses Retirement Paid to Trustees
- ----------------- --------- -------- ---------- ----------------
<S> <C> <C> <C> <C>
Delayne Dedrick Gold-Trustee..... $9,200 None N/A $185,000(24)*

Arthur Hauspurg-Trustee.......... $9,000 None N/A $ 37,500(5)*

Stephen P. Munn-Trustee.......... $9,000 None N/A $ 40,000(6)*

Louis A. Weil, III-Trustee....... $9,000 None N/A $ 97,500(12)*

<FN>
- ----------
* Indicates number of funds in Fund Complex (including the Fund) to which
aggregate compensation relates.
</FN>
</TABLE>

There were four meetings of the Fund's Trustees held during the fiscal year
ended November 30, 1994. The Trustees presently have an Audit Committee and a
Nominating Committee. The members of the Audit and Nominating Committees are
Mrs. Gold and Messrs. Hauspurg Munn and Weil. The Audit Committee met three
times during the fiscal year ended November 30, 1994. The Nominating Committee
met once during the fiscal year ended November 30, 1994. No Trustee 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 fiscal year for
which each such Trustee has been a member. The Audit Committee makes
recommendations to the Trustees 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
Trustees with respect to candidates for election as Trustees of the Fund. The
Nominating Committee does not consider nominees recommended by shareholders to
fill vacancies on the Board.

The executive officers of the Fund, other than as shown above, are Robert F.
Gunia, Vice President, having held such office since April 30, 1987, Eugene S.
Stark, Treasurer, having held such office since February 7, 1995, Stephen M.
Ungerman, Assistant Treasurer, having held office since May 2, 1995; S. Jane
Rose, Secretary, having held office since October 18, 1984, and Ronald Amblard,
Assistant Secretary, having held such office since September 9, 1988. Mr.Gunia
is 48 years old and is currently Chief Administrative Officer, Director,
Executive Vice President, Treasurer and Chief Financial Officer of PMF and a
Senior Vice President of Prudential Securities. He is also Executive Vice
President, Treasurer and Comptroller (since March 1991) of PMFD and Director of
PMFS. Mr.Stark is 37 years old and is currently First Vice President (since
January 1990) of PMF. Mr. Ungerman is 42 years old and is First Vice President
of PMF (since February 1993). Prior thereto he was a Senior Tax Manager at Price
Waterhouse. Ms. Rose is 49 years old and is currently a Senior Vice President
(since January 1991) and Senior Counsel of PMF and a Senior Vice President and

<PAGE>

Senior Counsel of Prudential Securities (since July 1992). Prior thereto, she
was First Vice President of PMF (June 1987 - December 1990) and Vice President
and Associate General Counsel of Prudential Securities. Mr. Amblard is 36 years
old and is currently First Vice President (since January 1994) and Associate
General Counsel (since January 1992) of PMF and Vice President and Associate
General Counsel of Prudential Securities (since January 1992). Prior thereto, he
was Assistant General Counsel (August 1988 - December 1991) and an Associate
Vice President (January 1989 - December 1990) and Vice President (January 1991 -
December 1993) of PMF. The executive officers of the Fund are elected annually
by the Trustees.

Required Vote

Directors must be elected by a vote of a majority of the votes cast at
the Annual Meeting in person or by proxy and entitled to vote thereupon,
provided that a quorum is present.

THE TRUSTEES RECOMMEND THAT YOU VOTE "FOR" THIS ANNUAL MEETING PROPOSAL NO.
1.

RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
(Annual Meeting Proposal No. 2)

A majority of the Trustees who are not interested persons of the Fund have
selected Price Waterhouse LLP as independent accountants for the Fund for the
fiscal year ending November 30, 1995. The ratification of the selection of
independent accountants is to be voted upon at the meeting and it is intended
that the persons named in the accompanying proxy vote for Price Waterhouse LLP.
No representative of Price Waterhouse LLP is expected to be present at the
Annual Meeting of Shareholders.

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

Required Vote

The affirmative vote of a majority of the votes cast at the Annual Meeting
in person or by proxy and entitled to vote thereupon, provided a quorum is
present, is required for ratification.

THE TRUSTEES RECOMMEND THAT YOU VOTE "FOR" THIS ANNUAL MEETING PROPOSAL NO.
2.

OTHER MATTERS
(Annual Meeting)

No business other than as set forth herein is expected to come before the
Annual Meeting, but should any other matter requiring a vote of shareholders
arise, including any question as to an adjournment of the Annual Meeting, the
persons named in the enclosed proxy will vote thereon according to their best
judgment in the interests of the Fund.

<PAGE>

- --------------------------------------------------------------------------------
SPECIAL MEETING PROPOSALS
- --------------------------------------------------------------------------------

APPROVAL OF
AMENDED AND RESTATED DISTRIBUTION AND SERVICE PLANS
(For consideration by shareholders of Money Market Series,
Intermediate Term Series and U.S. Treasury Money Market Series
voting separately)
(Special Meeting Proposal No. 1)

On May 2, 1995, the Trustees approved an amended and restated Distribution
and Service Plan for each of the Money Market Series, Intermediate Term Series
and U.S. Treasury Money Market Series pursuant to Rule 12b-1 under the
Investment Company Act and an amended and restated Distribution Agreement with
PMFD for shares of the Money Market Series and U.S. Treasury Money Market Series
and with Prudential Securities for shares of the Intermediate Term Series (the
Proposed Plans and the Proposed Distribution Agreements, respectively) and
recommends submission of the Proposed Plans to the shareholders of each Series
for approval or disapproval at this Special Meeting of Shareholders. The
Proposed Distribution Agreements do not require and are not being submitted for
shareholder approval.

The Trustees previously adopted plans of distribution for each of the
Series' shares pursuant to Rule 12b-1 under the Investment Company Act which
were last approved by the Trustees on May 2, 1995 and were approved by
shareholders on ________, 19__ (each an Existing Plan, and together, the
Existing Plans). Shareholders of each Series' shares are being asked to approve
amendments to the Existing Plans that change them from reimbursement type plans
to compensation type plans. The amendments do not change the maximum annual fee
that may be paid to PMFD or Prudential Securities, as the case may be, under the
Existing Plans, although the possibility exists that expenses incurred by PMFD
and Prudential Securities and for which they are entitled to be reimbursed under
the Existing Plans may be less than the fee PMFD or Prudential Securities will
receive under the Proposed Plans. The amendments are being proposed to
facilitate administration and accounting. The Trustees believe that the Proposed
Plans are in the best interest of each Series and are reasonably likely to
benefit the Series' shareholders. The copy of the Proposed Plans relating to the
Money Market Series and the U.S. Treasury Money Market Series is attached hereto
as Exhibit A and a copy of the Proposed Plan relating to the Intermediate Term
Series is attached hereto as Exhibit B.

The Existing Plans

The purpose of each Existing Plan is to reimburse PMFD, the distributor of
the Money Market Series and U.S. Treasury Money Market Series shares, and
Prudential Securities, the distributor of the Intermediate Term Series shares,
for providing distribution assistance to broker-dealers, including Prudential
Securities and Pruco Securities Corporation, affiliated broker-dealers, and
other qualified broker-dealers, if any, whose customers invest in shares of a
Series and to defray the costs and expenses, including the payment of account
servicing fees, of the services provided and activities undertaken to distribute
each Series' shares (Distribution Activities).

Under the Existing Plan for each of the Money Market Series and the U.S.
Treasury Money Market Series, the Series reimburses PMFD for expenses incurred
for Distribution Activities at an annual rate of up to .125 of 1% of the Series'
average daily net assets. Under the Existing Plan for the Intermediate Term
Series, the Series reimburses Prudential Securities for expenses incurred for
Distribution Activities at the annual rate of the lesser of (a) .25 of 1% of the
aggregate sales of the Series' shares, not including shares issued in connection
with reinvestment of dividends and capital gains distributions, issued on or
after July 1, 1985 (the effective date of the Plan) less the aggregate net asset
value of any such shares redeemed, or (b) .25 of 1% of the average daily net
asset value of the shares issued after the effective date of the Plan. Amounts
reimbursable under the Existing Plan for the Intermediate Term Series that are
not paid because they exceed the maximum fee payable thereunder are carried
forward and may be recovered in future years by Prudential Securities from
payments under the Existing Plan. The Existing Plans for the Money Market Series
and U.S. Treasury Money Market Series do not provide for carry-forward of
unreimbursed amounts.

<PAGE>

Pursuant to the Existing Plans, the Trustees are provided with, and review,
at least quarterly, a written report of the distribution expenses incurred on
behalf of each Series by PMFD and/or Prudential Securities. The reports include
an itemization of the distribution expenses and the purpose of such
expenditures. In addition, as long as the Existing Plans remain in effect, the
selection and nomination of Trustees who are not interested persons of the Fund
shall be committed to the Trustees who are not interested persons of the Fund or
a committee thereof.

The Existing Plans may not be amended to increase materially the amount to
be spent for the services described therein without approval by a majority of
the holders of the Series' shares. In addition, all material amendments thereof
must be approved by vote of a majority of the Trustees, including a majority of
those Trustees who are not "interested persons" of the Fund (as defined in the
Investment Company Act) and who have no direct or indirect financial interest in
the operation of the Plans or any agreements related to them (the Rule 12b-1
Trustees), cast in person at a meeting called for the purpose of voting on the
Plan. So long as an Existing Plan is in effect, the selection and nomination of
Rule 12b-1 Trustees will be committed to the discretion of the Rule 12b-1
Trustees.

The Existing Plans provide that they shall continue from year to year,
provided that such continuance is approved annually by a majority vote of the
Trustees, including a majority of the Rule 12b-1 Trustees. The Existing Plans
may be terminated at any time without payment of any penalty by the vote of a
majority of the Rule 12b-1 Trustees or by the vote of a majority of the
outstanding shares of the Series (as defined in the Investment Company Act) on
written notice to any other party to such Plan and will automatically terminate
in the event of its assignment (as defined in the Investment Company Act). The
Series will not be obligated to pay expenses incurred under an Existing Plan if
it is terminated or not continued.

The Proposed Plans

The Proposed Plans amend the Existing Plans in one material respect. Under
the Existing Plans, the Fund reimburses PMFD or Prudential Securities, as
appropriate, for expenses actually incurred for Distribution Activities up to a
maximum of .125 of 1% per annum of such Series' average daily net assets with
respect to the Money Market Series and the U.S. Treasury Money Market Series,
and up to a maximum of .25 of 1% with respect to the Intermediate Term Series.
The Proposed Plans authorize each Series to pay PMFD or Prudential Securities,
as the case may be, the same maximum annual fee as compensation for its
Distribution Activities regardless of the expenses incurred by PMFD or
Prudential Securities for Distribution Activities. In contrast to the Existing
Plans, the amounts payable by each Series under the Proposed Plans would not be
directly related to the expenses actually incurred by PMFD or Prudential
Securities, as the case may be, for its Distribution Activities. Consequently,
if PMFD's or Prudential Securities' expenses are less than its fees under a
Proposed Plan, it will retain its full fees and realize a profit. However, if
PMFD's or Prudential Securities' expenses exceed the fees received under a
Proposed Plan, it will not be obligated to pay any additional expenses and in
the case of the Intermediate Term Series Prudential Securities will no longer
carry forward such amounts for reimbursement in future years.

Since inception of the Existing Plans, the amount of reimbursable expenses
incurred thereunder by PMFD and Prudential Securities have equalled or exceeded
the amounts reimbursed by the respective Series. As of November 30, 1994, the
aggregate amount of distribution expenses incurred and not yet reimbursed by the
Intermediate Term Series was $11,346,000, which represented 4.7% of such Series'
net assets.

For the fiscal years ended November 30, 1992, 1993 and 1994, with respect to
the Money Market Series and the U.S. Treasury Money Market Series, PMFD received
the following amounts under the Existing Plans, representing the percentages of
average net assets of shares as set forth below, and spent the same amounts for
Distribution Activities:

<TABLE>
<CAPTION>
1992 1993 1994
-------------------- --------------------- -------------------
Amount Amount Amount
Series of Fee Percentage of Fee Percentage of Fee Percentage
- -------------- --------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Money Market................. 1,392,198 .125% 1,188,735 .125% 916,084 .125%

U.S. Treasury Money Market... 329,323 .125% 341,641 .125% 385,567 .125%
</TABLE>

<PAGE>

For the fiscal years ended November 30, 1992, 1993 and 1994, Prudential
Securities received $624,800, $676,731 and $665,503, respectively, from the Fund
with respect to the Intermediate Term Series under the Existing Plan,
representing .21 of 1% of the Intermediate Term Series' average daily net
assets, and spent approximately $1,350,500, $800,000 and $665,500, respectively,
for Distribution Activities.

Since the maximum annual fee under the Existing Plans is the same as under
the Proposed Plans, PMFD and Prudential Securities would have received the same
annual fee under the Proposed Plans as they did under the Existing Plans for the
fiscal years ended November 30, 1992, 1993 and 1994.

Among the major perceived benefits of compensation type plans, such as the
Proposed Plans, over reimbursement type plans, such as the Existing Plans, is
the facilitation of administration and accounting. Under reimbursement plans,
all expenses must be specifically accounted for by the Distributor and
attributed to the specific shares of a fund (or series thereof) in order to
qualify for reimbursement. Although the Proposed Plans will continue to require
quarterly reporting to the Trustees of the amounts accrued and paid under each
Plan and of the expenses actually borne by the Distributor, there will be no
need to match specific expenses to reimbursements and no carrying forward of
such amounts, as under the Existing Plans. Thus, the accounting for the Proposed
Plans would be simplified and the timing of when expenditures are to be made by
the Distributor ordinarily would not be an issue. These considerations, combined
with the reasonable likelihood, although there is no assurance, that the per
annum payment rate under the Proposed Plan will not exceed the expenses incurred
by PMFD and Prudential Securities for Distribution Activities, suggest that the
costs and efforts associated with a reimbursement plan are unwarranted.

In addition to the foregoing factors in considering whether to approve the
Proposed Plans, the Trustees reviewed, among other things, the nature and scope
of the services to be provided by PMFD and Prudential Securities, the amount of
expenditures under the Existing Plans, the relationship of such expenditures to
the overall cost structure of each series and comparative data with respect to
distribution arrangements adopted by other investment companies. Based upon such
review, the Trustees, including a majority of the Rule 12b-1 Trustees,
determined that there is a reasonable likelihood that the Proposed Plans will
benefit the Series and their shareholders.

If approved by shareholders, the Proposed Plans will continue in effect from
year to year, provided such continuance is approved at least annually by vote of
a majority of the Trustees, including a majority of the Rule 12b-1 Trustees.

Required Vote

Approval of Special Meeting Proposal No. 1 requires the affirmative vote of
the holders of a majority of the outstanding voting securities (as defined in
the Investment Company Act) of each Series, voting separately. Under the
Investment Company Act, a majority of a Series' outstanding voting securities is
defined as the lesser of (i)67% of the Series' outstanding voting shares
represented at a meeting at which more than 50% of the Series' outstanding
voting shares are present in person or represented by proxy, or (ii)more than
50% of the Series' outstanding voting shares. If the Proposed Plans are not
approved, the Existing Plans will continue in their present form.

THE TRUSTEES RECOMMEND THAT YOU VOTE "FOR" THIS SPECIAL MEETING PROPOSAL NO.
1.

APPROVAL OF ELIMINATION OF THE SERIES' INVESTMENT RESTRICTION
THAT LIMITS INVESTMENT TO THE TYPES OF SECURITIES LISTED IN THE SERIES'
PROSPECTUSES UNDER "INVESTMENT OBJECTIVE AND POLICIES"
(For consideration by shareholders of Money Market Series
and Intermediate Term Series voting separately)
(Special Meeting Proposal No. 2)

On May 2, 1995, upon the recommendation of the Series' Subadviser, the
Trustees approved, subject to shareholder approval, elimination of the
investment restriction limiting the Money Market Series and Intermediate Term

<PAGE>

Series to investing only in the types of securities listed in each Series'
Prospectus under "Investment Objective and Policies." This proposal, if
approved, would have the effect of making the Series' investment policies (other
than their investment objectives and those policies specifically designated by
the Series or by law to be "fundamental") "non-fundamental" and subject to
change by the Trustees without shareholder approval.

Investment Restriction No. 1 for the Money Market Series and the
Intermediate Term Series, which is proposed to be eliminated, currently provides
as follows:

The Trust may not:

1. As to any Series, invest in any securities other than the types of
securities listed under the "Investment Objective and Policies" relating to such
Series.

Subject to shareholder approval of this proposal, upon the recommendation of
the Subadviser, the Trustees also approved modifications to the investment
policies of the Intermediate Term Series to permit the Series (1) to reduce the
percentage of its total assets which under normal circumstances would be
invested in government securities to at least 65% (currently 80%); (2) to invest
up to 35% of its total assets in corporate and other non-governmental/agency
debt obligations, including, but not limited to, collateralized mortgage
obligations, stripped mortgaged-backed securities and asset-backed securities
rated at least A by Standard & Poor's Ratings Group (S&P) or Moody's Investors
Services, Inc. (Moody's) or, if unrated, determined to be of comparable quality
by the investment adviser; (3) to shorten its maximum weighted average maturity
to 5 years (currently 10 years) and change its name to the "Short-Intermediate
Term Series"; (4) to purchase and sell options on securities and financial
indices; (5) to enter into short sales; and (6) to purchase and sell financial
futures contracts and options thereon.

The Subadviser has not recommended nor have the Trustees approved changes in
the types of securities which the Money Market Series is authorized to invest.
Consequently, shareholder approval of this proposal with respect to the Money
Market Series will initially have the effect (as is typical for most investment
companies) of merely characterizing its investment policies, other than its
investment objective and restrictions, as non-fundamental and subject to change
by the Trustees without shareholder approval. Policy changes approved by the
Trustees in the future will be described in the Series' Prospectus.

Approval of this Special Meeting Proposal No. 2 will permit the Trustees to
approve further investments not presently described in this Proxy Statement or
the Series' current Prospectuses which are consistent with the Series'
investment objectives which may entail additional risks.

The Trustees believe that approval of Special Meeting Proposal No. 2 is in
the best interest of the Series and its shareholders. The Subadviser has advised
the Trustees that implementation of this proposal would afford the Money Market
Series and the Intermediate Term Series greater investment flexibility by
allowing the Subadviser to quickly respond to changing market conditions by
avoiding the time and expense associated with shareholder meetings which would
otherwise be required.

Set forth below is a discussion of the Intermediate Term Series' proposed
use of corporate and other non-governmental/agency debt obligations. See Special
Meeting Proposal No. 4 for a discussion of the Series' proposed use of options
on securities and financial indices, Special Meeting Proposal No. 7 for a
discussion of the Series' proposed use of short sales and Special Meeting
Proposal No. 8 for a discussion of the Series' proposed use of futures contracts
and options thereon.

Corporate and Other Debt Obligations

Subject to shareholder approval of this proposal, the Intermediate Term
Series will be permitted to invest in corporate and other debt obligations rated
at least "A" by S&P or Moody's or, if unrated, deemed to be of comparable credit
quality by the Series' investment adviser. These debt securities may have
adjustable or fixed rates of interest and in

<PAGE>

certain instances may be secured by assets of the issuer. Adjustable rate
corporate debt securities may have features similar to those of adjustable rate
mortgage-backed securities, but corporate debt securities, unlike
mortgage-backed securities, are not subject to prepayment risk other than
through contractual call provisions which generally impose a penalty for
prepayment. See "Adjustable Rate Mortgage Securities" below. Fixed rate debt
securities may also be subject to call provisions.

Asset and Mortgage-Backed Securities

Asset-Backed Securities

Asset-backed securities are generally created through the use of trusts and
special purpose corporations that have securitized, in pass-through structures
similar to the mortgage pass-through structure or in a pay-through structure,
various types of assets (primarily automobile and credit card receivables and
home equity loans). If this proposal is approved, the Series may invest in these
and other types of asset-backed securities that may be developed in the future.

Mortgage-Backed Securities

Mortgage-backed securities are securities that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage loans
secured by real property. There are currently three basic types of
mortgage-backed securities: (i) those issued or guaranteed by the U.S.
Government or one of its agencies or instrumentalities, such as Government
National Mortgage Association (GNMA), Federal National Mortgage Association
(FNMA) and Federal Home Loan Mortgage Corporation (FHLMC); (ii) those issued by
private issuers that represent an interest in or are collateralized by
mortgage-backed securities issued or guaranteed by the U.S. Government or one of
its agencies or instrumentalities; and (iii) those issued by private issuers
that represent an interest in or are collateralized by whole mortgage loans or
mortgage-backed securities without a government guarantee but usually having
some form of private credit enhancement.

Adjustable Rate Mortgage Securities

Adjustable rate mortgage securities (ARMs) are pass-through mortgage
securities collateralized by mortgages with adjustable rather than fixed rates.
ARMs eligible for inclusion in a mortgage pool generally provide for a fixed
initial mortgage interest rate for either the first three, six, twelve,
thirteen, thirty-six or sixty scheduled monthly payments. Thereafter, the
interest rates are subject to periodic adjustment based on changes to a
designated benchmark index.

ARMs contain maximum and minimum rates beyond which the mortgage interest
rate may not vary over the lifetime of the security. In addition, certain ARMs
provide for limitations on the maximum amount by which the mortgage interest
rate may adjust for any single adjustment period. Alternatively, certain ARMs
contain limitations on changes in the required monthly payment. In the event
that a monthly payment is not sufficient to pay the interest accruing on an ARM,
any such excess interest is added to the principal balance of the mortgage loan,
which is repaid through future monthly payments. If the monthly payment for such
an instrument exceeds the sum of the interest accrued at the applicable mortgage
interest rate and the principal payment required at such point to amortize the
outstanding principal balance over the remaining term of the loan, the excess is
utilized to reduce the then outstanding principal balance of the ARM.

Private Mortgage Pass-Through Securities

Private mortgage pass-through securities are structured similarly to GNMA,
FNMA and FHLMC mortgage pass-through securities (which the Series is currently
authorized to invest in) and are issued by originators of and investors in
mortgage loans, including depository institutions, mortgage banks, investment
banks and special purpose subsidiaries of the foregoing. These securities
usually are backed by a pool of conventional fixed rate or adjustable rate
mortgage

<PAGE>

loans. Since private mortgage pass-through securities typically are not
guaranteed by an entity having the credit status of GNMA, FNMA and FHLMC, such
securities generally are structured with one or more types of credit
enhancement.

Collateralized Mortgage Obligations and Multiclass Pass-Through Securities

Collateralized mortgage obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities. Typically,
CMOs are collateralized by GNMA, FNMA or FHLMC Certificates, but also may be
collateralized by whole loans or private mortgage pass-through securities (such
collateral collectively hereinafter referred to as "Mortgage Assets").
Multiclass pass-through securities are equity interests in a trust composed of
Mortgage Assets. Payments of principal and interest on the Mortgage Assets, and
any reinvestment income thereon, provide the funds to pay debt service on the
CMOs or make scheduled distributions on the multiclass pass-through securities.
CMOs may be issued by agencies or instrumentalities of the U.S. Government, or
by private originators of, or investors in, mortgage loans, including depository
institutions, mortgage banks, investment banks and special purpose
subsidiaries of the foregoing. The issuer of a series of CMOs may elect to be
treated as a Real Estate Mortgage Investment Conduit (REMIC). All future
references to CMOs shall also be deemed to include REMICs.

In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche," is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates. Interest is paid or accrues on all classes of CMOs on a monthly,
quarterly or semi-annual basis. The principal of and interest on the Mortgage
Assets may be allocated among the several classes of a CMO series in a number of
different ways. Generally, the purpose of the allocation of the cash flow of a
CMO to the various classes is to obtain a more predictable cash flow to the
individual tranches than exists with the underlying collateral of the CMO. As a
general rule, the more predictable the cash flow on a CMO tranche, the lower the
anticipated yield will be on that tranche at the time of issuance relative to
prevailing market yields on mortgage-backed securities.

The Series may also invest in, among other things, parallel pay CMOs and
Planned Amortization Class CMOs (PAC Bonds). Parallel pay CMOs are structured to
provide payments of principal on each payment date to more than one class. These
simultaneous payments are taken into account in calculating the stated maturity
date or final distribution date of each class, which, as with other CMO
structures, must be retired by its stated maturity date or final distribution
date but may be retired earlier. PAC Bonds generally require payments of a
specified amount of principal on each payment date. PAC Bonds always are
parallel pay CMOs with the required principal payment on such securities having
the highest priority after interest has been paid to all classes.

In reliance on rules and interpretations of the Securities and Exchange
Commission (SEC), the Series' investments in certain qualifying CMOs and REMICs
will not be subject to the Investment Company Act's limitation on acquiring
interests in other investment companies.

Stripped Mortgage-Backed Securities

Stripped mortgage-backed securities or MBS strips are derivative multiclass
mortgage securities. In addition to MBS strips issued by agencies or
instrumentalities of the U.S. Government, the Series may purchase MBS strips
issued by private originators of, or investors in, mortgage loans, including
depository institutions, mortgage banks, investment banks and special purpose
subsidiaries of the foregoing.

Risk Factors Relating to Investing in Asset and Mortgage-Backed Securities

Asset-backed securities present certain risks that are not presented by
traditional government securities and mortgage-backed securities. Primarily,
these securities do not have the benefit of a security interest in the related
collateral. Credit card receivables are generally unsecured and the debtors are
entitled to the protection of a number of

<PAGE>

state and federal consumer credit laws, some of which may reduce the ability to
obtain full payment. In the case of automobile receivables, the security
interests in the underlying automobiles are often not transferred when the pool
is created, with the resulting possibility that the collateral could be resold.
In general, these types of loans are of shorter average life than mortgage loans
and are less likely to have substantial prepayments.

The yield characteristics of asset-backed and mortgage-backed securities
differ from traditional debt securities. Among the major differences are that
the interest and principal payments are made more frequently, usually monthly,
and that principal may be prepaid at any time because the underlying assets
generally may be prepaid at any time. As a result, if the Series purchases such
a security at a premium, a prepayment rate that is faster than expected will
reduce yield to maturity, while a prepayment rate that is slower than expected
will have the opposite effect of increasing yield to maturity. Alternatively, if
the Series purchases these securities at a discount, faster than expected
prepayments will increase, while slower than expected prepayments will reduce,
yield to maturity. The Series may invest a portion of its assets in derivative
mortgage-backed securities such as MBS strips which are highly sensitive to
changes in prepayment and interest rates. The investment adviser will seek to
manage these risks (and potential benefits) by diversifying its investments in
such securities and through the proposed use of hedging and income enhancement
strategies described under Special Meeting Proposals No. 4 and No. 8.

In addition, mortgage-backed securities which are secured by manufactured
(mobile) homes and multi-family residential properties, such as GNMA and FNMA
certificates, are subject to a higher risk of default than are other types of
mortgage-backed securities. The investment adviser will seek to minimize this
risk by investing in mortgage-backed securities rated at least "A" by Moody's or
S&P.

Asset-backed securities, although less likely to experience the same
prepayment rates as mortgage-backed securities, may respond to certain of the
same factors influencing prepayments, while at other times different factors
will predominate. Although the extent of prepayments on a pool of mortgage loans
depends on various economic and other factors, as a general rule prepayments on
fixed rate mortgage loans will increase during a period of falling interest
rates and decrease during a period of rising interest rates. Accordingly,
amounts available for reinvestment by the Series are likely to be greater during
a period of declining interest rates and, as a result, likely to be reinvested
at lower interest rates than during a period of rising interest rates. Asset and
mortgage-backed securities may decrease in value as a result of increases in
interest rates and may benefit less than other fixed income securities from
declining interest rates because of the risk of prepayment.

Required Vote

Approval of Special Meeting Proposal No. 2 requires the affirmative vote of
the holders of a majority of the outstanding voting securities of each Series,
voting separately, as defined under the Investment Company Act and as described
under Special Meeting Proposal No. 1. If the proposed change in investment
restriction is not approved by a Series, the current limitations would remain a
fundamental policy of that Series which could not be changed without the
approval of a majority of the outstanding voting securities of that Series.

THE TRUSTEES RECOMMEND THAT YOU VOTE "FOR" THIS SPECIAL MEETING PROPOSAL NO.
2.

APPROVAL OF ELIMINATION OF THE SERIES' INVESTMENT
RESTRICTIONS REGARDING RESTRICTED AND ILLIQUID SECURITIES
(For consideration by shareholders of Money Market Series,
Intermediate Term Series and U.S. Treasury Money Market Series
voting separately)
(Special Meeting Proposal No. 3)

On May 2, 1995, at the request of the Series' Subadviser, the Trustees
considered and recommend for shareholder approval elimination of Investment
Restriction No. 8 for the Money Market Series and the Intermediate Term Series
and

<PAGE>

Investment Restriction No. 10 for the U.S. Treasury Money Market Series, each of
which prohibits the purchase of certain restricted and illiquid securities and
replacing such investment restrictions with non-fundamental policies that may be
later modified by the Trustees without shareholder approval.

Investment Restriction No.8 for the Money Market Series and the Intermediate
Term Series, and Investment Restriction No.10 for the U.S. Treasury Money Market
Series, which are proposed to be eliminated, currently provide as follows:

The Trust may not:

Purchase securities for which there are legal or contractual
restrictions on resale (i.e., restricted securities) or invest
more than 10% of its assets in securities for which there is no
readily available market, except for repurchase agreements for
seven days or less.

The Trustees recommend replacement of this fundamental investment
restriction with a non-fundamental investment policy that could be modified by
the vote of the Trustees in response to regulatory or market developments
without further approval by shareholders. The proposed non-fundamental policy
would provide as follows:

The Series may invest up to [15% (Intermediate Term
Series)/10% (Money Market Series and U.S. Treasury Money Market
Series)] of its net assets in illiquid securities including
repurchase agreements which have a maturity of longer than seven
days, securities with legal or contractual restriction on resale
(restricted securities) and securities that are not readily
marketable. Restricted securities eligible for resale pursuant
to Rule 144A under the Securities Act of 1933, as amended (the
Securities Act), privately placed commercial paper and municipal
lease obligations if in each case such investments have a
readily available market are not considered illiquid for
purposes of this limitation. The investment adviser will monitor
the liquidity of such restricted securities under the
supervision of the Trustees. Repurchase agreements subject to
demand are deemed to have a maturity equal to the applicable
notice period.

An open-end investment company may not hold a significant amount of
restricted securities or illiquid securities because such securities may present
problems of accurate valuation and because it is possible that the investment
company would have difficulty satisfying redemptions within seven days. The
proposed investment policy is not expected by the Manager or the Trustees to
affect the Series' liquidity.

Historically, illiquid securities have been defined to include securities
subject to contractual or legal restrictions on resale, securities for which
there is no readily available market and repurchase agreements having a maturity
of longer than seven days. In recent years, however, the securities markets have
evolved significantly, with the result that new types of instruments have
developed which make the Series' present restrictions on illiquid investments
overly broad and unnecessarily restrictive in the view of the Series' Manager.
In particular, the SEC adopted Rule 144A in April 1990, which allows for a
broader institutional trading market for securities otherwise subject to
restrictions on resale to the general public. SEC interpretations give directors
of registered investment companies the discretion to designate restricted
securities as liquid if the presence of a readily available market can be
demonstrated and if a current market value can be ascertained. In adopting Rule
144A, the SEC recognized the increased size and liquidity of the institutional
markets for unregistered securities and the importance of institutional
investors in the capital formation process. In 1992, the SEC staff issued
amended guidelines to the effect that up to 15% (as opposed to 10%) of an
open-end fund's net assets may be invested in illiquid securities, including
repurchase agreements with a maturity of longer than seven days. The guidelines
were amended in connection with the SEC's efforts to remove unnecessary barriers
to capital formation and to facilitate access to the capital markets by small
businesses.

The staff of the SEC has also taken the position that purchased
over-the-counter options and the assets used as "cover" for written
over-the-counter options are illiquid securities unless the Fund and the
counterparty have provided

<PAGE>

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

The proposed change would expand the Series' ability to invest in securities
for which there is a readily available market and which have traditionally been
considered illiquid. The markets for certain corporate bonds and notes are
almost exclusively institutional. These institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold. In the opinion of the Series' Manager, the fact that there are
restrictions on resale to the general public is not necessarily indicative of
the liquidity of such investments. If designated as liquid (under the
supervision of the Trustees), these securities would be exempt from the Series'
percentage limitation with respect to investment in illiquid securities.

In order to take advantage of the market for the increasingly liquid
institutional trading markets, the Subadviser recommends that each Series
eliminate its fundamental investment restriction regarding illiquid and
restricted securities so that securities that are nonetheless liquid may be
purchased without regard to the current limitations. By making the Series'
policy on illiquid securities non-fundamental, the Series will be able to
respond more quickly to regulatory and market developments because a shareholder
vote will not be required to define what types of securities should be deemed
illiquid or to change the applicable permissible percentage limitation. If this
proposal is approved by shareholders, the Manager and the Subadviser, under the
supervision of the Trustees, will monitor the liquidity of specific types of
securities and, based on their recommendations, the Trustees will from time to
time determine whether such securities should be deemed to be liquid with
reference to legal, regulatory and market developments.

In reaching liquidity decisions, the Manager and Subadviser will consider,
inter alia, the following factors: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of the transfer). In addition, in order
for commercial paper that is issued in reliance on Section 4(2) of the
Securities Act to be considered liquid, (i) it must be rated in one of the two
highest rating categories by at least two nationally recognized statistical
rating organizations (NRSRO), or if only one NRSRO rates the securities, by that
NRSRO, or, if unrated, be of comparable quality in the view of the investment
adviser; and (ii) it must not be "traded flat" (i.e., without accrued interest)
or in default as to principal or interest. Repurchase agreements subject to
demand are deemed to have a maturity equal to the notice period. With respect to
municipal lease obligations, the investment adviser will consider: (1) the
willingness of the municipality to continue, annually or biannually, to
appropriate funds for payment of the lease; (2) the general credit quality of
the municipality and the importance to the municipality of the property covered
by the lease; (3) in the case of unrated municipal lease obligations, an
analysis of factors similar to that performed by nationally recognized
statistical rating organizations in evaluating the credit quality of a municipal
lease obligation, including (i) whether the lease can be cancelled, (ii) if
applicable, what assurance there is that the assets represented by the lease can
be sold, (iii) the strength of the lessee's general credit (e.g., its debt,
administrative, economic and financial characteristics), (iv) the likelihood
that the municipality will discontinue appropriating funding for the leased
property because the property is no longer deemed essential to the operation of
the municipality (e.g., the potential for an event of non-appropriation), and
(v) the legal recourse in the event of failure to appropriate; and (4) any other
factors unique to municipal lease obligations as determined by the investment
adviser.

The Trustees believe that approval of Special Meeting Proposal No. 3 is in
the best interests of the Series and their shareholders.

Required Vote

Approval of Special Meeting Proposal No. 3 requires the affirmative vote of
the holders of a majority of the outstanding voting securities of each Series,
voting separately, as defined in the Investment Company Act and as

<PAGE>

described under Special Meeting Proposal No. 1. If the proposed change in
investment restriction is not approved by a Series, the current limitations
would remain a fundamental policy of that Series, which could not be changed
without the approval of a majority of the outstanding voting securities of that
Series.

THE TRUSTEES RECOMMEND THAT YOU VOTE "FOR" THIS SPECIAL MEETING PROPOSAL
NO. 3.

APPROVAL OF ELIMINATION OF THE SERIES' INVESTMENT RESTRICTION
REGARDING THE PURCHASE AND SALE OF WARRANTS, PUTS, CALLS, STRADDLES,
SPREADS OR COMBINATIONS THEREOF
(For consideration by shareholders of Money Market Series and
Intermediate Term Series voting separately)
(Special Meeting Proposal No. 4)

On May 2, 1995, at the request of the Series' Subadviser, the Trustees
considered and recommend for shareholder approval elimination of Investment
Restriction No. 10 of the Money Market Series and the Intermediate Term Series,
which provides that:

The Trust may not:

10. Purchase warrants, or write, purchase or sell puts,
calls, straddles, spreads or combinations thereof except that
the Money Market Series may purchase instruments together with
the right to resell such instruments.

This restriction currently prohibits the Series' ability to enter into
options transactions.

With respect to the Money Market Series, the Subadviser has expressed the
concern that securities which is otherwise eligible to be purchased by the Money
Market Series may be deemed to be prohibited because they are subject to put or
call features and because they are not specifically excepted from Investment
Restriction No. 10. Removing this restriction will alleviate such concern and
afford the Series greater investment flexibility to invest in securities with
put or call features that are otherwise suitable for the Series in addition to
those currently described in its Prospectus. If elimination of Investment
Restriction No.10 is approved by shareholders, before the Subadviser effects any
options transactions (i.e., purchases or sells puts, calls, straddles, spreads
or combinations thereof) on behalf of the Money Market Series, the Trustees will
adopt a non-fundamental policy (i.e., a policy which may be changed by the
Trustees without shareholder approval) relating to such use, including whatever
limitations may be appropriate. This policy will be described in the Series'
Prospectus. The Subadviser currently anticipates that it will use options only
to hedge against potential changes in the value of securities which the Series
may then own or acquire in the future and not for speculation.

With respect to the Intermediate Term Series, in addition to those uses set
forth below, the deletion of Investment Restriction No. 10 will permit the
Series to enter into the options transactions discussed.

The Trustees believe that the approval of Special Meeting Proposal No. 4 is
in the best interests of the Series and their shareholders.

Set forth below is a discussion of the Intermediate Term Series' proposed
use of options on securities and financial indices. The Series expects to
purchase and write (i.e., sell) put and call options on securities and financial
indices that are traded on national securities exchanges or in the
over-the-counter market to attempt to enhance income or to hedge the Series'
portfolio. These options may be on debt securities, aggregates of debt
securities, financial indices and U.S. Government securities and may be traded
on national securities exchanges or over-the-counter.

Options on Securities

The purchaser of a call option has the right, for a specified period of
time, to purchase the securities subject to the option at a specified price (the
"exercise price" or "strike price"). By writing a call option, the Series
becomes obligated

<PAGE>

during the term of the option, upon exercise of the option, to deliver the
underlying securities or a specified amount of cash to the purchaser against
receipt of the exercise price. When the Series writes a call option, the Series
loses the potential for gain on the underlying securities in excess of the
exercise price of the option during the period that the option is open.

The purchaser of a put option has the right, for a specified period of time,
to sell the securities subject to the option to the writer of the put at the
specified exercise price. By writing a put option, the Series becomes obligated
during the term of the option, upon exercise of the option, to purchase the
securities underlying the option at the exercise price. The Series might,
therefore, be obligated to purchase the underlying securities for more than
their current market price.

The writer of an option retains the amount of any premium paid for the
writing of the option. The Series' maximum gain with respect to an option
written is the premium. In the case of a covered call option that is not
exercised, the amount of any premium may be offset or exceeded by a decline in
the value of the securities underlying the call option that the Series must
retain in order to maintain the "cover" on such option and, with respect to put
options written, the amount of any premium may be offset or exceeded by the
difference between the then current market price of the underlying security and
the strike price of the put option (the price at which the Series must purchase
the underlying security).

The Series may wish to protect certain portfolio securities against a
decline in market value at a time when put options on those particular
securities are not available for purchase. The Series may therefore purchase a
put option on other carefully selected securities, the values of which the
investment adviser expects will have a high degree of positive correlation to
the values of such portfolio securities. If the investment adviser's judgment is
correct, changes in the value of the put options should generally offset changes
in the value of the portfolio securities being hedged. If the investment
adviser's judgment is not correct, the value of the securities underlying the
put option may decrease less than the value of the Series' investments and
therefore the put option may not provide complete protection against a decline
in the value of the Series' investments below the level sought to be protected
by the put option.

The Series may similarly wish to hedge against appreciation in the value of
debt securities that it intends to acquire at a time when call options on such
securities are not available. The Series may, therefore, purchase call options
on other carefully selected debt securities the values of which the investment
adviser expects will have a high degree of positive correlation to the values of
the debt securities that the Series intends to acquire. In such circumstances
the Series will be subject to risks analogous to those summarized above in the
event that the correlation between the value of call options so purchased and
the value of the securities intended to be acquired by the Series is not as
close as anticipated and the value of the securities underlying the call options
increases less than the value of the securities to be acquired by the Series.

The Series will write options on securities in connection with buy-and-write
transactions; that is, the Series may purchase a security and concurrently write
a call option against that security.

The exercise price of a call option may be below ("in-the-money"), equal to
("at-the-money") or above ("out-of-the-money") the current value of the
underlying security at the time the option is written. Buy-and-write
transactions using in-the-money call options may be used when it is expected
that the price of the underlying security will remain flat or decline moderately
during the option period. Buy-and-write transactions using at-the-money call
options may be used when it is expected that the price of the underlying
security will remain fixed or advance moderately during the option period. A
buy-and-write transaction using an out-of-the-money call option may be used when
it is expected that the premium received from writing the call option plus the
appreciation in the market price of the underlying security up to the exercise
price will be greater than the appreciation in the price of the underlying
security alone. If the call option is exercised in such a transaction, the
Series' maximum gain will be the premium received by it for writing the option,
adjusted upwards or downwards by the difference between the Series' purchase
price of the security and the exercise price of the option. If the option is not
exercised and the price of the underlying security declines, the amount of the
decline will be offset in part, or entirely, by the premium received.

<PAGE>

Prior to being notified of the exercise of the option, the writer of an
exchange-traded option that wishes to terminate its obligation may effect a
"closing purchase transaction" by buying an option of the same series as the
option previously written. (Options of the same series are options on the same
underlying security, having the same expiration date and the same strike price.)
The effect of the purchase is that the writer's position will be cancelled by
the exchange's affiliated clearing organization. Likewise, an investor who is
the holder of an exchange-traded option may liquidate a position by effecting a
"closing sale transaction" by selling an option of the same series as the option
previously purchased. There is no guarantee that either a closing purchase or a
closing sale transaction can be effected.

Exchange-traded options are issued by a clearing organization affiliated
with the exchange on which the option is listed which, in effect, gives its
guarantee to every exchange-traded option transaction. In contrast,
over-the-counter (OTC) options are contracts between the Fund and its
contra-party with no clearing organization guarantee. Thus, when the Series
purchases an OTC option, it relies on the dealer from which it has purchased the
OTC option to make or take delivery of the securities underlying the option.
Failure by the dealer to do so would result in the loss of the premium paid by
the Series as well as the loss of the expected benefit of the transaction. The
Trustees of the Series will approve a list of dealers with which the Series may
engage in OTC options.

When the Series writes an OTC option, it generally will be able to close out
the OTC option prior to its expiration only by entering into a closing purchase
transaction with the dealer to which the Series originally wrote the OTC option.
While the Series will enter into OTC options only with dealers which agree to,
and which are expected to be capable of, entering into closing transactions with
the Series, there can be no assurance that the Series will be able to liquidate
an OTC option at a favorable price at any time prior to expiration. Until the
Series is able to effect a closing purchase transaction in a covered OTC call
option the Series has written, it will not be able to liquidate securities used
as cover until the option expires or is exercised or different cover is
substituted. In the event of insolvency of the contra-party, the Series may be
unable to liquidate an OTC option.

OTC options purchased by the Series will be treated as illiquid securities
subject to any applicable limitation on such securities. Similarly, the assets
used to "cover" OTC options written by the Series will be treated as illiquid
unless the OTC options are sold to qualified dealers who agree that the Series
may repurchase any OTC options it writes for a maximum price to be calculated by
a formula set forth in the option agreement. The "cover" for an OTC option
written subject to this procedure would be considered illiquid only to the
extent that the maximum repurchase price under the formula exceeds the intrinsic
value of the option.

The Series will write only "covered" options. An option is covered if, so
long as the Series is obligated under the option, it owns an offsetting position
in the underlying security or maintains cash, U.S. Government securities or
other liquid high-grade debt obligations with a value sufficient at all times to
cover its obligations in a segregated account.

Options on Securities Indices

The Series also will purchase and write call and put options on securities
indices in an attempt to hedge against market conditions affecting the value of
securities that the Series owns or intends to purchase, and not for speculation.
Through the writing or purchase of index options, the Series can achieve many of
the same objectives as through the use of options on individual securities.
Options on securities indices are similar to options on a security except that,
rather than the right to take or make delivery of a security at a specified
price, an option on a securities index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the
securities index upon which the option is based is greater than, in the case of
a call, or less than, in the case of a put, the exercise price of the option.
This amount of cash is equal to such difference between the closing price of the
index and the exercise price of the option. The writer of the option is
obligated, in return for the premium received, to make delivery of this amount.
Unlike security options, all settlements are in cash and gain or loss depends
upon price movements in the market generally (or in a particular industry or
segment of the market), rather than upon price movements in individual
securities. Price movements in securities that the Series owns or intends to
purchase will probably not correlate perfectly with

<PAGE>

movements in the level of an index and, therefore, the Series bears the risk
that a loss on an index option would not be completely offset by movements in
the price of such securities.

When the Series writes an option on a securities index, it will be required
to deposit with its custodian, and mark-to-market, eligible securities equal in
value to 100% of the exercise price in the case of a put, or the contract value
in the case of a call. In addition, where the Series writes a call option on a
securities index at a time when the contract value exceeds the exercise price,
the Series will segregate and mark-to-market, until the option expires or is
closed out, cash or cash equivalents equal in value to such excess.

Options on a securities index involve risks similar to those risks relating
to transactions in financial futures contracts described below under Special
Meeting Proposal No. 8. Also, an option purchased by the Series may expire
worthless, in which case the Series would lose the premium paid therefor.

Options On GNMA Certificates

Options on GNMA Certificates are not currently traded on any exchange.
However, the Series may purchase and write such options should they commence
trading on any exchange and may purchase or write OTC Options on GNMA
Certificates.

Since the remaining principal balance of GNMA Certificates declines each
month as a result of mortgage payments, the Series, as a writer of a covered
GNMA call holding GNMA Certificates as "cover" to satisfy its delivery
obligation in the event of assignment of an exercise notice, may find that its
GNMA Certificates no longer have a sufficient remaining principal balance for
this purpose. Should this occur, the Series will enter into a closing purchase
transaction or will purchase additional GNMA Certificates from the same pool (if
obtainable) or replacement GNMA Certificates in the cash market in order to
remain covered.

A GNMA Certificate held by the Series to cover an option position in any but
the nearest expiration month may cease to represent cover for the option in the
event of a decline in the GNMA coupon rate at which new pools are originated
under the FHA/VA loan ceiling in effect at any given time. Should this occur,
the Series will no longer be covered, and the Fund will either enter into a
closing purchase transaction or replace the GNMA Certificate with a GNMA
Certificate which represents cover. When the Series closes its position or
replaces the GNMA Certificate, it may realize an unanticipated loss and incur
transaction costs.

Risks of Options Transactions

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

Reasons for the absence of a liquid secondary market on an exchange include
the following: (a) insufficient trading interest in certain options; (b)
restrictions on transactions imposed by an Exchange; (c) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (d) interruption of the normal
operations on an exchange; (e) inadequacy of the facilities of an exchange or
the Options Clearing Corporation (OCC) to handle current trading volume; or (f)
a decision by one or more exchanges to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that exchange (or in

<PAGE>

that class or series of options) would cease to exist, although outstanding
options on that exchange that had been issued by the OCC as a result of trades
on that exchange would generally continue to be exercisable in accordance with
their terms.

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

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

Required Vote

Approval of Special Meeting Proposal No. 4 requires the approval of a
majority of the outstanding voting securities of the Money Market Series and the
Intermediate Term Series, voting separately, as defined in the Investment
Company Act and described under Special Meeting Proposal No. 1. If the proposed
change in investment restriction is not approved by a Series, the current
limitations would remain a fundamental policy of that series which could not be
changed without the approval of a majority of the outstanding voting securities
of that Series.

THE TRUSTEES RECOMMEND THAT YOU VOTE "FOR" THIS SPECIAL MEETING PROPOSAL NO.
4.

APPROVAL OF A CHANGE IN INVESTMENT RESTRICTIONS
TO PERMIT AN INCREASE IN THE BORROWING CAPABILITIES
OF THE INTERMEDIATE TERM SERIES
(For consideration by shareholders of Intermediate Term Series only)
(Special Meeting Proposal No. 5)

At the request of the Fund's Subadviser, the Trustees have considered and
approved and recommended for shareholder approval amendments to the Intermediate
Term Series' investment restrictions which would (i) increase the Series'
borrowing limit to 33-1/3% of its total assets from banks and through dollar
rolls and reverse repurchase agreements, (ii) permit the Series to borrow to
take advantage of investment opportunities, (iii) permit the Series to pledge
its assets in an amount up to 33-1/3% to secure permitted borrowings, (iv)
permit the Series to purchase portfolio securities while borrowings are
outstanding, and (v) clarify that neither permitted borrowings, entering into
repurchase agreements, 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 rolls nor the
purchase or sale of futures contracts are deemed to be a pledge of assets and
neither such arrangements nor the purchase or sale of futures contracts nor the
purchase and sale of related options, nor obligations of the Trustees pursuant
to deferred compensation arrangements are deemed to be the issuance of a senior
security.

Investment Restrictions No. 2, No. 3 and No. 12 currently read as follows:

The Trust may not:

2. Borrow money, except from banks for temporary or
emergency purposes, including the meeting of redemption requests
which might otherwise require the untimely disposition of
securities; borrowing in the aggregate may not exceed 20%, and
borrowing for purposes other than meeting redemptions may not
exceed 5%, of the value of the Trust's total assets (including
the amount borrowed), less liabilities (not including the amount
borrowed) at the time the borrowing is made; investment
securities will not be purchased while borrowings are
outstanding.

<PAGE>

3. Pledge, hypothecate, mortgage or otherwise encumber its
assets, except in an amount up to 10% of the value of its net
assets but only to secure permitted borrowings of money.

12. Issue senior securities as defined in the Investment
Company Act except insofar as the Trust may be deemed to have
issued a senior security by reason of: (a) entering into any
repurchase agreement; (b) permitted borrowings of money; or (c)
purchasing securities on a when-issued or delayed delivery
basis.

Proposed Amendment to Investment Restrictions

Investment Restrictions No. 3 and No. 12 are proposed to be deleted and
Investment Restriction No. 2 is proposed to be renumbered as Investment
Restriction No. 1 and amended in its entirety as follows:

The Trust may not:

1. Issue senior securities, borrow money or pledge its
assets, except that the Series may borrow from banks or through
dollar rolls or reverse repurchase agreements up to 33-1/3% 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 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, collateral arrangements
with respect to interest rate swap transactions, reverse
repurchase agreements or dollar rolls or the purchase and sale
of futures contracts are not deemed to be a pledge of assets and
neither such arrangements nor the purchase or sale of futures
contracts nor the purchase and sale of related options, nor
obligations of the Series to Trustees pursuant to deferred
compensation arrangements are deemed to be the issuance of a
senior security.

The Intermediate Term 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 Series must
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. Borrowings for purposes other than meeting
redemptions may not exceed 5% of the value of the Series' total assets less
liabilities. To date, the Series has not experienced operating difficulty under
its present borrowing authority.

Borrowing to invest in securities, as proposed, would involve additional
risk to the 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 the 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 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 Series, the net asset value would decrease faster than would
otherwise be the case. This is the speculative factor known as "leverage".

The Trustees believe that approval of Special Meeting Proposal No. 5 is in
the best interests of the Series and its shareholders. The change would enhance
the investment flexibility of the investment adviser by affording the
Intermediate Term 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, and to borrow money on
a temporary basis for the clearance of transactions and to borrow money to take
advantage of investment opportunities.

<PAGE>

Required Vote

Approval of Special Meeting Proposal No. 5 requires the vote of a majority
of the outstanding voting securities of the Intermediate Term Series as defined
in the Investment Company Act and described under Special Meeting Proposal No. 1
above. If the proposed change in investment restriction is not approved by the
Series, the current limitations would remain a fundamental policy of the Series
which could not be changed without the approval of a majority of the outstanding
voting securities of the Series.

THE TRUSTEES RECOMMEND THAT YOU VOTE "FOR" THIS SPECIAL MEETING PROPOSAL
NO.5.

APPROVAL OF MODIFICATION OF THE INTERMEDIATE TERM SERIES'
INVESTMENT RESTRICTION TO CLARIFY THAT THE PURCHASE AND SALE OF
CERTAIN SECURITIES ARE NOT DEEMED TO BE THE PURCHASE OR SALE
OF REAL ESTATE OR REAL ESTATE MORTGAGE LOANS
(For consideration by shareholders of Intermediate Term Series only)
(Special Meeting Proposal No. 6)

On May 2, 1995, at the request of the Subadviser, the Trustees considered
and recommend for shareholder approval a modification of the Intermediate Term
Series' investment restriction regarding the purchase and sale of real estate or
real estate mortgage loans. The Trustees recommend modification of Investment
Restriction No.5 to clarify that the restriction on the purchase or sale of real
estate or real estate mortgage loans does not prohibit the purchase and sale of
mortgage-backed securities, securities collateralized by mortgages, securities
of companies which invest or deal in real estate and publicly traded securities
of real estate investment trusts.

Investment Restriction No. 5 is proposed to be renumbered as Investment
Restriction No. 3 and amended as follows (additions are in italics and deletions
are in brackets):

The Trust may not:

3.[5]. Purchase or sell real estate or real estate mortgage
loans, except that the Series may purchase mortgage-backed
securities, securities collateralized by mortgages, 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 Series may not purchase
interests in real estate limited partnerships which are not
readily marketable.

Since the Intermediate Term Series is currently authorized to purchase
certain real estate related securities which are not prohibited by Investment
Restriction No.5 (such as mortgage pass-through securities issued or guaranteed
by the U.S. Government, its agencies or its instrumentalities), the purpose of
the proposed amendment is merely to clarify that these authorized investments,
in addition to the Series' proposed investment in certain non-U.S. Government
mortgage-related securities discussed under Special Meeting Proposal No. 2
above, are not prohibited.

The Trustees believe that adoption of Special Meeting Proposal No. 6 is in
the best interests of the Series and its shareholders.

Required Vote

Approval of Special Meeting Proposal No. 6 requires the approval of a
majority of the outstanding voting securities of the Intermediate Term Series as
defined in the Investment Company Act and described under Special Meeting
Proposal No. 1 above. If the proposed change in investment restriction is not
approved by the Series, the current limitations would remain a fundamental
policy of the Series which could not be changed without the approval of a
majority of the outstanding voting securities of the Series.

<PAGE>

THE TRUSTEES RECOMMEND THAT YOU VOTE "FOR" THIS SPECIAL MEETING PROPOSAL
NO.6.

APPROVAL OF MODIFICATION OF THE INTERMEDIATE TERM SERIES'
INVESTMENT RESTRICTIONS TO PERMIT CERTAIN TRANSACTIONS
INVOLVING MARGIN AND CERTAIN SHORT SALES
(For consideration by shareholders of Intermediate Term Series only)
(Special Meeting Proposal No.7)

On May 2, 1995, at the request of the Fund's Manager and Subadviser, the
Trustees considered and recommend for shareholder approval a modification of the
Intermediate Term Series' fundamental investment restrictions regarding margin
and short sales of securities.

Investment Restriction No. 6 of the Intermediate Term Series, which is
proposed to be modified, currently provides as follows:

The Trust may not:

6. Purchase securities on margin or sell short.

The Trustees recommend replacement of this fundamental investment
restriction with the following fundamental investment restrictions, which are
proposed to be numbered as Investment Restrictions No. 4 and No. 5:

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

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

The purpose of proposed Investment Restriction No. 4 is merely to clarify
that neither short-term credits obtained by the Series as may be necessary for
the clearance of transactions nor the deposit or payment by the Series of
initial or variation margin in connection with options and futures contracts is
considered the purchase of securities on margin. See Special Meeting Proposal
No. 4 for a discussion of the Series' proposed use of options and Special
Meeting Proposal No. 8 for a discussion of the Series' proposed use of futures
contracts and options thereon.

The purpose of proposed Investment Restriction No. 5 is to permit the Series
to enter into short sales of securities, including short sales "against-the-box"
as described below.

Short sales involve sales of securities which the seller does not own in
anticipation of a decline in the price of the securities that will allow the
seller to "cover", or make delivery of the securities sold with securities
purchased at the lower price. If the decline materializes, a profit is realized
of the difference between the sales price and the lower purchase or covering
price. If the price of the securities sold short increases, however, the short
seller must cover with securities purchased at a higher price, and a loss,
potentially limitless, will result. A short sale "against the box" occurs when
the short seller owns either an equal amount of the security in which it has a
short position or securities convertible into or exchangeable for, without
payment of any further consideration, an equal amount of the securities of the
same issuer as the securities sold short. Because the short seller actually owns
the securities it has sold short in a short sale "against the box" and can cover
its own position with those securities if the price goes up, the risk associated
with a rise in price is hedged. A short seller must make delivery of the
securities it has sold short. Because it does not own the securities (or, if the
sale is "against the box", it does not wish to deliver the securities it does
own), the short seller will ordinarily borrow

<PAGE>

the securities. To do so, the short seller must post collateral equal to the
market value of the securities borrowed. If the market price rises, this deposit
must be increased and vice versa. Engaging in short sales may accordingly reduce
the flexibility of the Series because its assets may be committed as collateral.
The short seller must also put in a segregated account (not with the broker) an
amount of cash, U.S. government securities or other liquid high grade debt
obligations equal to the difference between (a) the market value of the
securities sold short at the time they were sold short and (b) any cash, or
other liquid high grade debt obligations or U.S. government securities required
to be deposited as collateral with the broker in connection with the short sale
(not including the proceeds from the short sale). In addition, until the short
seller replaces the borrowed security, it must daily maintain the segregated
account at such level that (1) the amount deposited in it plus the amount
deposited with the broker as collateral will equal the current market value of
the securities sold short, and (2) the amount deposited in it plus the amount
deposited with the broker as collateral will not be less than the market value
of the securities at the time they were sold short. Such procedures need not be
applied to short sales to the extent that they are "against the box".

Under the proposed amendment, the Series will be able to make short sales of
securities or maintain a short position, provided not more than 25% of the
Series' net assets (determined at the time of the short sale) would be
(i) deposited as collateral for the obligation to replace securities borrowed to
effect such short sales or (ii) allocated to segregated accounts in connection
with such short sales. There would be no limitation on short sales "against the
box." Short sales will be made primarily to defer realization of gain or loss
for federal tax purposes; a gain or loss in the Series' long position will be
offset by a gain or loss in its short position.

The Trustees believe that approval of Special Meeting Proposal No. 7 is in
the best interests of the Series and its shareholders and would provide
additional flexibility in the management of the Series' portfolio.

Required Vote

Approval of Special Meeting Proposal No. 7 requires the approval of a
majority of the outstanding voting securities of the Intermediate Term Series as
defined by the Investment Company Act and described under Special Meeting
Proposal No. 1 above. If the proposed change in investment restriction is not
approved by the shareholders of the Series, the current limitations would remain
a fundamental policy which could not be changed without the approval of a
majority of the outstanding voting securities of the Series.

THE TRUSTEES RECOMMEND THAT YOU VOTE "FOR" THIS SPECIAL MEETING PROPOSAL NO.
7.

APPROVAL OF MODIFICATION OF THE INTERMEDIATE TERM SERIES'
INVESTMENT RESTRICTION REGARDING THE PURCHASE AND SALE OF
COMMODITIES OR COMMODITY FUTURES CONTRACTS TO PERMIT THE PURCHASE
AND SALE OF FINANCIAL FUTURES CONTRACTS AND OPTIONS THEREON
(For consideration by shareholders of Intermediate Term Series only)
(Special Meeting Proposal No. 8)

At a meeting held on May 2, 1995, and at the request of the Subadviser, the
Trustees considered and recommend for shareholder approval revision of the
Series' fundamental investment restriction regarding the purchase and sale of
commodities or commodity futures contracts. The Trustees recommend modification
of Investment Restriction No. 7 for the Intermediate Term Series to permit the
Series to purchase and sell financial futures contracts and options thereon.

Proposed Amendment to Investment Restrictions

Investment Restriction No. 7 for Intermediate Term Series is proposed to be
modified to read as follows and renumbered as Investment Restriction No. 5
(added language is italicized):

The Trust may not:

<PAGE>

5.[7.] Purchase or sell commodities or commodity futures
contracts, or oil, gas, or mineral exploration or development
programs, except that the Series may purchase and sell financial
futures contracts and options thereon.

The Trustees believe that approval of Special Meeting Proposal No.8 is in
the best interests of the Series and its shareholders because it would provide
additional flexibility in the management of the Series' portfolio.

Set forth below is a discussion of the Series' proposed use of options and
futures contracts and options thereon. The Series expects to purchase and sell
financial futures contracts and options thereon which are traded on a
commodities exchange or board of trade for certain hedging, return enhancement
and risk management purposes in accordance with regulations of the Commodity
Futures Trading Commission. These futures contracts and related options may be
on debt securities, aggregates of debt securities, financial indices and U.S.
Government securities and include futures contracts and options thereon which
are linked to the London Interbank Offered Rate.

Futures Contracts

As a purchaser of a futures contract (futures contract), the Series incurs
an obligation to take delivery of a specified amount of the obligation
underlying the futures contract at a specified time in the future for a
specified price. As a seller of a futures contract, the Series incurs an
obligation to deliver the specified amount of the underlying obligation at a
specified time in return for an agreed upon price. The Series may purchase
futures contracts on debt securities, aggregates of debt securities, financial
indices and U.S. Government securities including futures contracts or options
linked to the London Interbank Offered Rate.

The Series will purchase or sell futures contracts for the purpose of
hedging its portfolio (or anticipated portfolio) securities against changes in
prevailing interest rates. If the investment adviser anticipates that interest
rates may rise and, concomitantly, the price of the Series' portfolio securities
may fall, the Series may sell a futures contract. If declining interest rates
are anticipated, the Series may purchase a futures contract to protect against a
potential increase in the price of securities the Series intends to purchase.
Subsequently, appropriate securities may be purchased by the Series in an
orderly fashion; as securities are purchased, corresponding futures positions
would be terminated by offsetting sales of contracts. In addition, futures
contracts will be bought or sold in order to close out a short or long position
in a corresponding futures contract.

Although most futures contracts call for actual delivery or acceptance of
securities, the contracts usually are closed out before the settlement date
without the making or taking of delivery. A futures contract sale is closed out
by effecting a futures contract purchase for the same aggregate amount of the
specific type of security and the same delivery date. If the sale price exceeds
the offsetting purchase price the seller would be paid the difference and would
realize a gain. If the offsetting purchase price exceeds the sale price, the
seller would pay the difference and would realize a loss. Similarly, a futures
contract purchase is closed out by effecting a futures contract sale for the
same aggregate amount of the specific type of security and the same delivery
date. If the offsetting sale price exceeds the purchase price, the purchaser
would realize a gain, whereas if the purchase price exceeds the offsetting sale
price, the purchaser would realize a loss. There is no assurance that the Series
will be able to enter into a closing transaction.

When the Series enters into a futures contract it is initially required to
deposit with its custodian, in a segregated account in the name of the broker
performing the transaction, an "initial margin" of cash or U.S. Government
securities equal to approximately 2-3% of the contract amount. Initial margin
requirements are established by the exchanges on which futures contracts trade
and may, from time to time, change. In addition, brokers may establish margin
deposit requirements in excess of those required by the exchanges.

Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing of
funds by a brokers' client but is, rather, a good faith deposit on a futures
contract which will be returned to the Series upon the proper termination of the
futures contract. The margin deposits made are marked-to-

<PAGE>

market daily and the Series may be required to make subsequent deposits into the
segregated account, maintained at its custodian for that purpose, of cash or
U.S. Government securities, called "variation margin", in the name of the
broker, which are reflective of price fluctuations in the futures contract.

Options on Futures Contracts

The Series may purchase and sell call and put options on futures contracts
which are traded on an exchange and enter into closing transactions with respect
to such options to terminate an existing position. An option on a futures
contract gives the purchaser the right (in return for the premium paid), and the
writer the obligation, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the term of the option. Upon
exercise of the option, the assumption of an offsetting futures position by the
writer and holder of the option will be accompanied by delivery of the
accumulated cash balance in the writer's futures margin account which represents
the amount by which the market price of the futures contract at exercise
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option on the futures contract.

The Series will only write "covered" put and call options on futures
contracts. The Series will be considered "covered" with respect to a call option
it writes on a futures contract if the Series owns the assets which are
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 and having an expiration date not earlier than the expiration
date of the "covered" option, or if it segregates and maintains with its
custodian for the term of the option cash, U.S. Government securities or other
liquid high-grade debt obligations equal to the fluctuating value of the
optioned future. The Series 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, or if it segregates and maintains with its custodian for the
term of the option cash, U.S. Government securities or liquid high-grade debt
obligations at all times equal in value to the exercise price of the put (less
any initial margin deposited by the Series with its custodian with respect to
such option). There is no limitation on the amount of the Series' assets which
can be placed in the segregated account.

The Series will purchase options on futures contracts for identical purposes
to those set forth above for the purchase of a futures contract (purchase of a
call option or sale of a put option) and the sale of a futures contract
(purchase of a put option or sale of a call option), or to close out a long or
short position in futures contracts. If, for example, the investment adviser
wished to protect against an increase in interest rates and the resulting
negative impact on the value of a portion of its U.S. Government securities
portfolio, it might purchase a put option on an interest rate futures contract,
the underlying security of which correlates with the portion of the portfolio
the investment adviser seeks to hedge.

Risks of Transactions in Futures Contracts and Related Options

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

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

If the Series maintains a short position in a futures contract, it will
cover this position by holding, in a segregated account maintained at its
custodian, cash, U.S. Government securities or other liquid high-grade debt
obligations equal

<PAGE>

in value (when added to any initial or variation margin on deposit) to the
market value of the securities underlying the futures contract. Such a position
may also be covered by owning the securities underlying the futures contract, or
by holding a call option permitting the Series to purchase the same contract at
a price no higher than the price at which the short position was established.

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

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

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

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

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

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

<PAGE>

Limitation on the Purchase and Sale of Futures Contracts and Related Options

Pursuant to the requirements of the Commodity Exchange Act, as amended, all
U.S. 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, the Series, 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 contracts to realize any profit,
and if the Series were the writer of the option, its obligation would not
terminate until the option expired or the Series was assigned an exercise
notice.

Required Vote

Approval of Special Meeting Proposal No. 8 requires the approval of a
majority of the outstanding voting securities of the Intermediate Term Series as
defined in the Investment Company Act and described under Special Meeting
Proposal No. 1. If the proposed change in investment restriction is not approved
by shareholders of the Intermediate Term Series, the current limitations would
remain a fundamental policy which could not be changed without the approval of
the outstanding voting securities of the Series and the Series would not be able
to purchase and sell futures contracts and options thereon.

THE TRUSTEES RECOMMEND THAT YOU VOTE "FOR" THIS SPECIAL MEETING PROPOSAL
NO.8.

OTHER MATTERS
(Special Meeting)

No business other than as set forth herein is expected to come before the
Special Meeting, but should any other matter requiring a vote of shareholders
arise, including any question as to an adjournment of the Special Meeting, the
persons named in the enclosed proxy will vote thereon according to their best
judgment in the interests of the Fund.

SHAREHOLDER PROPOSALS

A shareholder's proposal intended to be presented at any subsequent meeting
of the shareholders of the Fund must be received by the Fund at a reasonable
time before the Trustees make the solicitation relating to such meeting, in
order to be included in the Fund's Proxy Statement and form of proxy relating to
such meeting.

S. JANE ROSE
Secretary

Dated: June , 1995

STOCKHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETINGS AND WHO WISH TO
HAVE THEIR SHARES VOTED ARE REQUESTED TO MARK, DATE AND SIGN ALL OF THE
ENCLOSED PROXIES AND RETURN THEM IN THE ENCLOSED ENVELOPE. NO POSTAGE IS
REQUIRED IF MAILED IN THE UNITED STATES.

<PAGE>

Exhibit A

PRUDENTIAL GOVERNMENT SECURITIES TRUST
(Money Market Series)
(U.S. Treasury Money Market Series)
Distribution and Service Plan

Introduction

The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Prudential Government Securities Trust (the
Fund), and by Prudential Mutual Fund Distributors, Inc. The distributor of the
of the Money Market Series and the U.S. Treasury Money Market Series (the
Distributor).

Shares of beneficial interest in the Fund are currently divided into three
classes, two of which are known as the Money Market Series and the U.S. Treasury
Money Market Series (the Series).

The Fund has entered into a distribution agreement (the Distribution
Agreement) pursuant to which the Fund will employ the Distributor to distribute
shares issued by the Series. Under the Plan, the Fund intends to pay to the
Distributor, as compensation for its services, a distribution and service fee.

A majority of the Board of Directors or Trustees of the Fund, including a
majority of those Directors or Trustees who are not "interested persons" of the
Fund (as defined in the Investment Company Act) and who have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the Rule 12b-1 Directors or Trustees), have determined by votes
cast in person at a meeting called for the purpose of voting on this Plan that
there is a reasonable likelihood that adoption of this Plan will benefit the
Series and its shareholders. Expenditures under this Plan by the Fund for
Distribution Activities (defined below) on behalf of the Series are primarily
intended to result in the sale of shares of the Series within the meaning of
paragraph (a)(2) of Rule 12b-1 promulgated under the Investment Company Act.

The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Series, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.

The Plan

The material aspects of the Plan are as follows:

1. Distribution Activities

The Fund shall engage the Distributor to distribute shares of the Series and
to service shareholder accounts using all of the facilities of the distribution
networks of Prudential Securities Incorporated (Prudential Securities) and Pruco
Securities Corporation (Prusec), including sales personnel and branch office and
central support systems, and also using such other qualified broker-dealers and
financial institutions as the Distributor may select. Services provided and
activities undertaken to distribute shares of the Series are referred to herein
as "Distribution Activities."

2. Payment of Service Fee

The Fund shall pay to the Distributor as compensation for providing personal
service and/or maintaining shareholder accounts a service fee not to exceed .125
of 1% per annum of the average daily net assets of the shares of the Series
(service fee). The Fund shall calculate and accrue daily amounts payable by the
shares of the Series hereunder and shall pay such amounts monthly or at such
other intervals as the Board of Directors or Trustees may determine.

A-1

<PAGE>

3. Payment for Distribution Activities

The Fund shall pay to the Distributor as compensation for its services a
distribution fee which , together with the service fee (described in Section 2
hereof), shall not exceed .125 of 1% per annum of the average daily net assets
of the shares of the Series. The Fund shall calculate and accrue daily amounts
payable by the shares of the Series hereunder and shall pay such amounts monthly
or at such other intervals as the Board of Directors or Trustees may determine.

The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:

(a) amounts paid to Prudential Securities for performing
services under a selected dealer agreement between
Prudential Securities and the Distributor for sale of shares
of the Series, including sales commissions and account
servicing fees paid to, or on account of, account executives
and indirect and overhead costs associated with Distribution
Activities, including central office and branch expenses;

(b) amounts paid to Prusec for performing services under a
selected dealer agreement between Prusec and the Distributor
for sale of shares of the Series, including sales
commissions and account servicing fees paid to, or on
account of, agents and indirect and overhead costs
associated with Distribution Activities;

(c) advertising for the Fund in various forms through any
available medium, including the cost of printing and mailing
Series prospectuses, statements of additional information
and periodic financial reports and sales literature to
persons other than current shareholders of the Series; and

(d) sales commissions (including account servicing fees) paid
to, or on account of, broker-dealers and financial
institutions (other than Prudential Securities and Prusec)
which have entered into selected dealer agreements with the
Distributor with respect to shares of the Series.

4. Quarterly Reports; Additional Information

An appropriate officer of the Fund will provide to the Board of Directors or
Trustees of the Fund for review, at least quarterly, a written report specifying
in reasonable detail the amounts expended for Distribution Activities (including
payment of the service fee) and the purposes for which such expenditures were
made in compliance with the requirements of Rule 12b-1. The Distributor will
provide to the Board of Directors or Trustees of the Fund such additional
information as the Board or Trustees shall from time to time reasonably request,
including information about Distribution Activities undertaken or to be
undertaken by the Distributor.

The Distributor will inform the Board of Directors or Trustees of the Fund
of the commissions and account servicing fees to be paid by the Distributor to
broker-dealers and financial institutions which have selected dealer agreements
with the Distributor.

5. Effectiveness; Continuation

The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of each Series.

If approved by a vote of a majority of the outstanding voting securities of
the Series, the Plan shall, unless earlier terminated in accordance with its
terms, continue in full force and effect thereafter for so long as such
continuance is specifically approved at least annually by a majority of the
Board of Directors or Trustees of the Fund and a majority of the Rule 12b-1
Directors or Trustees by votes cast in person at a meeting called for the
purpose of voting on the continuation of the Plan.

A-2

<PAGE>

6. Termination

This Plan may be terminated at any time by vote of a majority of the Rule
12b-1 Directors or Trustees, or by vote of a majority of the outstanding voting
securities (as defined in the Investment Company Act) of each Series.

7. Amendments

The Plan may not be amended to change the service and distribution fee to be
paid as provided for in Sections 2 and 3 hereof so as to increase materially the
amounts payable under this Plan unless such amendment shall be approved by the
vote of a majority of the outstanding voting securities (as defined in the
Investment Company Act) of the Series. All material amendments of the Plan shall
be approved by a majority of the Board of Directors or the Trustees of the Fund
and a majority of the Rule 12b-1 Directors or Trustees by votes cast in person
at a meeting called for the purpose of voting on the Plan.

8. Rule 12b-1 Directors or Trustees

While the Plan is in effect, the selection and nomination of the Rule 12b-1
Directors or Trustees who are not "interested persons" of the Fund
(non-interested Directors or Trustees) shall be committed to the discretion of
the Rule 12b-1 Directors or Trustees.

9. Records

The Fund shall preserve copies of the Plan and any related agreements and
all reports made pursuant to Section 4 hereof, for a period of not less than six
years from the date of effectiveness of the Plan, such agreements or reports,
and for at least the first two years in an easily accessible place.

10. Liabilities of the Fund

The name Prudential Government Securities Trust is the designation of the
Trustees under a Declaration of Trust, dated September 22, 1981, as thereafter
amended, and all persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
Trustees, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.

Dated: ____________, 19__

A-3

<PAGE>
Exhibit B

PRUDENTIAL GOVERNMENT SECURITIES TRUST
(Intermediate Term Series)
Distribution and Service Plan

Introduction

The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Prudential Government Securities Trust (the
Fund), and by Prudential Securities Incorporated the distributor of the
Intermediate Term Series (the Distributor).

Shares of beneficial interest in the Fund are currently divided into three
separate series, one of which is the Intermediate Term Series (the Series).

The Fund has entered into a distribution agreement (the Distribution
Agreement) pursuant to which the Fund will employ the Distributor to distribute
shares issued by the Series. Under the Plan, the Fund intends to pay to the
Distributor as compensation for its services, a distribution and service fee.

The Plan

The material aspects of the Plan are as follows:

1. Distribution Activities

2. Payment of Service Fee

The Fund shall pay to the Distributor as compensation for providing personal
service and/or maintaining shareholder accounts a service fee which shall not
exceed the lesser of (a) .25 of 1% per annum of the aggregate sales of the
Series' shares, not including shares issued in connection with reinvestment of
dividends and capital gains distributions from the Series, issued on or after
July1, 1985 (the effective date of the Plan) less the aggregate net asset

B-1

<PAGE>

value of any such shares redeemed, or (b) .25 of 1% per annum of the average
daily net asset value of the Series' shares issued after the effective date of
the Plan (service fee). The Fund shall calculate and accrue daily amounts
payable by the shares of the Series hereunder and shall pay such amounts monthly
or at such other intervals as the Board of Directors or Trustees may determine.

3. Payment for Distribution Activities

The Fund shall pay to the Distributor as compensation for its services a
distribution fee which, together with the service fee (described in Section 2
hereof), shall not exceed the lesser of (a).25 of 1% per annum of the aggregate
sales of the Series' shares, not including shares issued in connection with
reinvestment of dividends and capital gains distributions from the Series,
issued on or after the effective date of the Plan less the aggregate net asset
value of any such shares redeemed, or (b).25 of 1% per annum of the average
daily net asset value of the Series' shares issued after the effective date of
the Plan. The Fund shall calculate and accrue daily amounts payable by the
shares of the Series hereunder and shall pay such amounts monthly or at such
other intervals as the Board of Directors or Trustees may determine.

The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:

4. Quarterly Reports; Additional Information

B-2

<PAGE>

5. Effectiveness; Continuation

The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Series.

6. Termination

7. Amendments

8. Rule 12b-1 Directors or Trustees

9. Records

10. Liabilities of the Fund

Dated: ____________, 19__

B-3

<PAGE>

Prudential Government Securities Trust PROXY
(Intermediate Term Series)
One Seaport Plaza
New York, New York 10292

This Proxy is Solicited on Behalf of the Board of Trustees.
The undersigned hereby appoints Eugene S. Stark, S. Jane
Rose and Ronald Amblard, each with the power of
substitution, and hereby authorizes each of them to
represent and to vote, as designated below, all the shares
of Common Stock of Prudential Government Securities Trust
(Intermediate Term Series) held of record by the
undersigned on May 26, 1995 at the Annual Meeting of
Stockholders to be held on June 27, 1995, or any
adjournment thereof.

1. ELECTION OF DIRECTORS

[] FOR all nominees listed below (except as marked to the contrary below)

[] WITHHOLD AUTHORITY to vote for all nominees listed below (Instruction: To
withhold authority for any individual nominee strike a line through the
nominee's name in the list below.)

Delayne Dedrick Gold, Arthur Hauspurg, Stephen P. Munn, Richard A. Redeker and
Louis A. Weil, III

2. To ratify the selection by the Trustees of Price Waterhouse LLP as
independent accountants for the fiscal year ending November 30, 1995.

[] RATIFY [] REJECT [] ABSTAIN

3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting or any adjournment
thereof.

(over)

(Continued from other side)

PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE

This proxy when properly executed will be voted in the manner directed herein by
the undersigned stockholder.

If no direction is made, this proxy will be voted for Proposals 1 and 2.

Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign.

When signing as attorney, as executor, administrator,
trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by
president or other authorized officer. If a partnership,
please sign in partnership name by authorized person.

Dated:_____________________________________________________ , 1995

__________________________________________________________________
Signature

__________________________________________________________________
Signature if held jointly

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Prudential Government Securities Trust PROXY
(Intermediate Term Series)
One Seaport Plaza
New York, New York 10292

This Proxy is Solicited on Behalf of the Board of Trustees.
The undersigned hereby appoints Eugene S. Stark, S. Jane
Rose and Ronald Amblard, each with the power of
substitution, and hereby authorizes each of them to
represent and to vote, as designated below, all the shares
of Common Stock of Prudential Government Securities Trust,
Intermediate Term Series held of record by the undersigned
on May 26, 1995 at the Special Meeting of Stockholders to
be held on July 19, 1995, or any adjournment thereof.

1. To approve an amended and restated Distribution and Service Plan.