PRUDENTIAL GNMA FUND INC
PRES14A, 1994-03-22
Previous: NORTH FORK BANCORPORATION INC, 8-K, 1994-03-22
Next: UNITED GOVERNMENT SECURITIES FUND INC, NSAR-A/A, 1994-03-22



<PAGE>
                                PRELIMINARY COPY
                            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/    Preliminary proxy statement

/ /    Definitive proxy statement

/ /    Definitive additional materials

/ /    Soliciting material pursuant to Section240. 14a-11c or Section240. 14a-12

                        PRUDENTIAL-BACHE GNMA FUND, INC.

________________________________________________________________________________
                (NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                        PRUDENTIAL-BACHE GNMA FUND, INC.

________________________________________________________________________________
                   (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 GNMA FUND
                               ONE SEAPORT PLAZA
                              NEW YORK, N.Y. 10292
                            ------------------------

                   NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

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

To our Shareholders:

    Notice   is  hereby  given  that  a   Special  Meeting  of  Shareholders  of
Prudential-Bache GNMA Fund, Inc.,  doing business as  Prudential GNMA Fund  (the
Fund),  will be held at  3:00 P.M. on          , 1994,  at 199 Water Street, New
York, N.Y. 10292, for the following purposes:

         1. To elect Directors.

         2. To approve an amendment of  the Fund's Articles of Incorporation  to
    permit a conversion feature for Class B Shares.

         3.  To approve an amended and restated Class A Distribution and Service
    Plan.

         4. To approve an amended and restated Class B Distribution and  Service
    Plan.

         5.  To  approve  elimination  of  the  Fund's  investment  restrictions
    regarding restricted and illiquid securities.

         6. To approve elimination of the Fund's investment restriction limiting
    the Fund's ability to purchase any security if the Fund would hold more than
    10% of any class of securities of an issuer.

         7. To  approve the  elimination of  the Fund's  investment  restriction
    limiting  the Fund's ability  to invest in  the securities of  any issuer in
    which officers and Directors  of the Fund or  officers and directors of  its
    investment adviser own more than a specified interest.

         8.  To approve an amendment of  the Fund's Articles of Incorporation to
    change the name of the Fund to "Prudential GNMA Fund, Inc."

         9. To  ratify  the  selection  by  the  Board  of  Directors  of  Price
    Waterhouse as independent accountants for the year ending December 31, 1994.

        10.  To transact  such other  business as  may properly  come before the
    Meeting or any adjournment thereof.

    Only shares of Common Stock of the  Fund of record at the close of  business
on              , 1994 are entitled to  notice of and to vote at this Meeting or
any adjournment thereof.

                                                       S. JANE ROSE
                                                    SECRETARY
Dated:         , 1994

WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN AND PROMPTLY RETURN
THE ENCLOSED PROXY IN  THE ENCLOSED SELF-ADDRESSED ENVELOPE.  IN ORDER TO  AVOID
THE  ADDITIONAL  EXPENSE  TO  THE  FUND OF  FURTHER  SOLICITATION,  WE  ASK YOUR
COOPERATION IN MAILING IN YOUR PROXY PROMPTLY.
<PAGE>
                                PRELIMINARY COPY
                              PRUDENTIAL GNMA FUND
                               ONE SEAPORT PLAZA
                              NEW YORK, N.Y. 10292

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

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

    This  statement is furnished  by the Board  of Directors of Prudential-Bache
GNMA Fund,  Inc.,  doing  business  as  Prudential  GNMA  Fund  (the  Fund),  in
connection  with its  solicitation of  proxies for use  at a  Special Meeting of
Shareholders to be held at 3:00 P.M.  on        , 1994 at 199 Water Street,  New
York,  New York 10292, the Fund's principal executive office. The purpose of the
Meeting and the  matters to  be acted  upon are  set forth  in the  accompanying
Notice of Special Meeting.

    If  the accompanying form of Proxy is executed properly and returned, shares
represented by  it  will  be  voted  at  the  Meeting  in  accordance  with  the
instructions  on the  Proxy. However, if  no instructions  are specified, shares
will be voted for the election of Directors and for each of 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 or  by  attendance at  the  Meeting. 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 the Meeting
to permit further solicitation of proxies. Any such adjournment will require the
affirmative  vote  of a  majority  of those  shares  present at  the  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.

    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 the 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

                                       1
<PAGE>
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 the Meeting for the 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           , 1994 has been fixed as the record  date
for the determination of shareholders entitled to notice of, and to vote at, the
Meeting.  On that  date, the Fund  had                   shares  of Common Stock
outstanding and entitled to vote, consisting of              Class A shares  and
             Class  B shares.  Each share  will be entitled  to one  vote at the
Meeting. It is expected that the Notice of Special Meeting, Proxy Statement  and
form of Proxy will first be mailed to shareholders on or about        , 1994.

    Management does not know of any person or group who owned beneficially 5% or
more of the outstanding shares of either class of Common Stock of the Fund as of
         , 1994.

    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 Board of Directors of the Fund has authorized management to
retain Shareholder  Communications Corporation,  a proxy  solicitation firm,  to
assist  in the  solicitation of proxies  for this Meeting.  This cost, including
specified expenses, is not expected to exceed  $17,500 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) and its affiliates.

                             ELECTION OF DIRECTORS
                                (PROPOSAL NO. 1)

    At the Meeting, nine Directors will be elected to hold office for a term  of
unlimited  duration until  their successors are  elected and qualify.  It is the
intention of the persons named in the accompanying form of Proxy to vote for the
election of Edward D. Beach, Eugene C. Dorsey, Delayne D. Gold, Harry A. Jacobs,
Jr., Lawrence  C. McQuade,  Thomas  T. Mooney,  Thomas  H. O'Brien,  Richard  A.
Redeker   and   Nancy   H.  Teeters,   all   of  whom   are   currently  members

                                       2
<PAGE>
of the Board of  Directors. Each of  the nominees has consented  to be named  in
this  Proxy Statement and to serve as a  Director if elected. All of the current
members of the Board  of Directors, with  the exception of  Mr. Redeker and  Ms.
Teeters,  have  previously been  elected by  the  shareholders. Mr.  McQuade has
served as President and Director  since May 5, 1988. Mr.  Beach has served as  a
Director since June 29, 1986. Mr. Dorsey has served as a Director since February
12,  1987. Ms. Gold has  served as a Director since  January 4, 1981. Mr. Jacobs
has served as a  Director since February  14, 1985. Mr. Mooney  has served as  a
Director  since January  22, 1986.  Mr. O'Brien has  served as  a Director since
January 25, 1982 and Mr. Redeker and Ms. Teeters have served as Directors  since
November 11, 1993 and August 4, 1992, respectively.

    The  Board of Directors  has no reason  to believe that  any of the nominees
named above will  become unavailable  for election as  a Director,  but if  that
should  occur before the Meeting, proxies will  be voted for such persons as the
Board of Directors 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 Directors is not required under  the
Investment  Company Act of 1940, as amended  (the Investment Company Act). It is
the present intention of the Board of  Directors of the Fund not to hold  annual
meetings of shareholders unless such shareholder action is required.

                                       3
<PAGE>
                        INFORMATION REGARDING DIRECTORS

<TABLE>
<CAPTION>
                                                                                                 SHARES OF
                                                                                               COMMON STOCK
           NAME, AGE, BUSINESS EXPERIENCE DURING THE                   POSITION WITH             OWNED AT
               PAST FIVE YEARS AND DIRECTORSHIPS                           FUND               [        ]1994
- ---------------------------------------------------------------        -------------        -------------------
<S>                                                                    <C>                  <C>
 Edward  D.  Beach (69),  President and  Director of  BMC Fund,          Director
  Inc., a closed-end  investment company;  prior thereto,  Vice
  Chairman  of Broyhill  Furniture Industries,  Inc.; Certified
  Public Accountant; Secretary and Treasurer of Broyhill Family
  Foundation Inc.; President, Treasurer  and Director of  First
  Financial  Fund,  Inc. and  The High  Yield Plus  Fund, Inc.;
  President and Director of Global Utility Fund, Inc.; Director
  of The Global  Government Plus Fund,  Inc., The Global  Yield
  Fund, Inc., Prudential Adjustable Rate Securities Fund, Inc.,
  Prudential Equity Fund, Inc., Prudential Global Genesis Fund,
  Prudential  Global  Natural Resources  Fund,  Prudential GNMA
  Fund,   Prudential   Government    Plus   Fund,    Prudential
  Multi-Sector  Fund, Inc. and  Prudential Special Money Market
  Fund; Trustee  of  the  BlackRock  Government  Income  Trust,
  Command Government Fund, Command Money Fund, Command Tax-Free
  Fund, Prudential California Municipal Fund, Prudential Equity
  Income  Fund, Prudential FlexiFund, Prudential Municipal Bond
  Fund and Prudential Municipal Series Fund.
</TABLE>

                                       4
<PAGE>
<TABLE>
<CAPTION>
                                                                                                 SHARES OF
                                                                                               COMMON STOCK
           NAME, AGE, BUSINESS EXPERIENCE DURING THE                   POSITION WITH             OWNED AT
               PAST FIVE YEARS AND DIRECTORSHIPS                           FUND               [        ]1994
- ---------------------------------------------------------------        -------------        -------------------
<S>                                                                    <C>                  <C>
 Eugene C. Dorsey (67), Chairman, Independent Sector  (national          Director
  coalition  of  philanthropic  organizations)  (since  October
  1989);  formerly  President,  Chief  Executive  Officer   and
  Trustee  of the Gannett Foundation;  former Publisher of four
  Gannett newspapers  and Vice  President of  Gannett  Company;
  former  Chairman  of  the  American  Council  for  the  Arts;
  Director of the Advisory Board of Chase Lincoln First Bank of
  Rochester, Prudential  Equity  Fund,  Inc.,  Prudential  GNMA
  Fund,  Prudential Institutional Liquidity Portfolio, Inc. and
  The High  Yield  Income  Fund, Inc.;  Trustee  of  Prudential
  California  Municipal Fund, Prudential  Municipal Series Fund
  and The Target Portfolio Trust.
Delayne Dedrick Gold (55), Marketing and Management Consultant;          Director
  Director of Prudential Adjustable Rate Securities Fund, Inc.,
  Prudential Equity Fund, Inc.,  Prudential Global Fund,  Inc.,
  Prudential   GNMA  Fund,  Prudential  Government  Plus  Fund,
  Prudential Growth  Opportunity  Fund, Prudential  High  Yield
  Fund,  Prudential  IncomeVertible-R-  Fund,  Inc., Prudential
  MoneyMart  Assets,  Prudential   National  Municipals   Fund,
  Prudential  Pacific Growth Fund,  Inc., Prudential Short-Term
</TABLE>

                                       5
<PAGE>
<TABLE>
<CAPTION>
                                                                                                 SHARES OF
                                                                                               COMMON STOCK
           NAME, AGE, BUSINESS EXPERIENCE DURING THE                   POSITION WITH             OWNED AT
               PAST FIVE YEARS AND DIRECTORSHIPS                           FUND               [        ]1994
- ---------------------------------------------------------------        -------------        -------------------
<S>                                                                    <C>                  <C>
  Global Income  Fund, Inc.,  Prudential Special  Money  Market
  Fund,   Prudential   Structured  Maturity   Fund,  Prudential
  Tax-Free Money Fund and  Prudential Utility Fund; Trustee  of
  The  BlackRock  Government Income  Trust,  Command Government
  Fund, Command Money Fund,  Command Tax-Free Fund,  Prudential
  California  Municipal Fund,  Prudential Government Securities
  Trust, Prudential Municipal Series  Fund and Prudential  U.S.
  Government Fund.
*Harry  A.  Jacobs, Jr.  (72),  Senior Director  (since January          Director
  1986) of Prudential Securities; formerly Interim Chairman and
  Chief Executive Officer of Prudential Mutual Fund Management,
  Inc. (PMF) (June-September  1993), Chairman of  the Board  of
  Prudential  Securities (1982-1985) and  Chairman of the Board
  and Chief Executive Officer of Bache Group Inc.  (1977-1982);
  Director  of  the  Center  for  National  Policy,  Prudential
  Adjustable Rate  Securities  Fund,  Inc.,  Prudential  Equity
  Fund,  Inc.,  Prudential Global  Fund, Inc.,  Prudential GNMA
  Fund, Prudential  Government  Plus  Fund,  Prudential  Growth
  Opportunity  Fund,  Prudential  High  Yield  Fund, Prudential
  IncomeVertible-R- Fund,  Inc., Prudential  MoneyMart  Assets,
</TABLE>

                                       6
<PAGE>
<TABLE>
<CAPTION>
                                                                                                 SHARES OF
                                                                                               COMMON STOCK
           NAME, AGE, BUSINESS EXPERIENCE DURING THE                   POSITION WITH             OWNED AT
               PAST FIVE YEARS AND DIRECTORSHIPS                           FUND               [        ]1994
- ---------------------------------------------------------------        -------------        -------------------
<S>                                                                    <C>                  <C>
  Prudential   National  Municipals  Fund,  Prudential  Pacific
  Growth Fund, Inc., Prudential Short-Term Global Income  Fund,
  Inc.,   Prudential  Special  Money  Market  Fund,  Prudential
  Structured Maturity  Fund,  Prudential Tax-Free  Money  Fund,
  Prudential  Utility Fund, The First Australia Fund, Inc., The
  First  Australia  Prime   Income  Fund,   Inc.,  The   Global
  Government  Plus Fund, Inc. and  The Global Yield Fund, Inc.;
  Trustee of the  Trudeau Institute,  The BlackRock  Government
  Income  Trust, Command  Money Fund,  Command Government Fund,
  Command Tax-Free Fund, Prudential California Municipal  Fund,
  Prudential   Municipal  Series   Fund  and   Prudential  U.S.
  Government Fund.
*Lawrence C. McQuade (66), Vice  Chairman of PMF (since  1988);        President and
  Managing  Director, Investment Banking, Prudential Securities          Director
  (1988-1991); Director of Quixote Corporation (since  February
  1992)  and BUNZL, PLC (since June 1991); formerly Director of
  Crazy Eddie Inc. (1987-1990) and Kaiser Tech, Ltd. and Kaiser
  Aluminum  and  Chemical  Corp.  (March  1987-November  1988);
  formerly  Executive Vice President and Director of W.R. Grace
  & Company; President and Director
</TABLE>

                                       7
<PAGE>
<TABLE>
<CAPTION>
                                                                                                 SHARES OF
                                                                                               COMMON STOCK
           NAME, AGE, BUSINESS EXPERIENCE DURING THE                   POSITION WITH             OWNED AT
               PAST FIVE YEARS AND DIRECTORSHIPS                           FUND               [        ]1994
- ---------------------------------------------------------------        -------------        -------------------
<S>                                                                    <C>                  <C>
of Prudential Adjustable Rate Securities Fund, Inc., Prudential
  Equity Fund, Inc., Prudential  Global Fund, Inc.,  Prudential
  Global  Genesis  Fund,  Prudential  Global  Natural Resources
  Fund, Prudential GNMA Fund, Prudential Government Plus  Fund,
  Prudential  Growth Fund, Inc.,  Prudential Growth Opportunity
  Fund, Prudential High Yield Fund, Prudential
  IncomeVertible-R-  Fund,   Inc.,   Prudential   Institutional
  Liquidity  Portfolio,  Inc.,  Prudential  Intermediate Global
  Income Fund,  Inc., Prudential  MoneyMart Assets,  Prudential
  Multi-Sector Fund, Inc., Prudential National Municipals Fund,
  Prudential  Pacific Growth Fund,  Inc., Prudential Short-Term
  Global Income  Fund, Inc.,  Prudential Special  Money  Market
  Fund,   Prudential   Structured  Maturity   Fund,  Prudential
  Tax-Free Money  Fund,  Prudential Utility  Fund,  The  Global
  Government  Plus Fund, Inc., The  Global Yield Fund, Inc. and
  The High Yield  Income Fund, Inc.;  President and Trustee  of
  The  BlackRock  Government Income  Trust,  Command Government
  Fund, Command Money Fund,  Command Tax-Free Fund,  Prudential
  California  Municipal  Fund, Prudential  Equity  Income Fund,
  Prudential FlexiFund, Prudential Government
</TABLE>

                                       8
<PAGE>
<TABLE>
<CAPTION>
                                                                                                 SHARES OF
                                                                                               COMMON STOCK
           NAME, AGE, BUSINESS EXPERIENCE DURING THE                   POSITION WITH             OWNED AT
               PAST FIVE YEARS AND DIRECTORSHIPS                           FUND               [        ]1994
- ---------------------------------------------------------------        -------------        -------------------
<S>                                                                    <C>                  <C>
  Securities Trust, Prudential Municipal Bond Fund,  Prudential
  Municipal  Series Fund,  Prudential U.S.  Government Fund and
  The Target Portfolio Trust.
 Thomas T.  Mooney (52),  President  of the  Greater  Rochester          Director
  Metro  Chamber  of Commerce;  former Rochester  City Manager;
  Trustee of Center for  Governmental Research, Inc.;  Director
  of  Blue Cross  of Rochester, Monroe  County Water Authority,
  Rochester Jobs,  Inc., Industrial  Management Council,  Inc.,
  Executive   Service   Corps  of   Rochester,   Monroe  County
  Industrial  Development  Corporation,  Global  Utility  Fund,
  Inc.,  Prudential  Adjustable  Rate  Securities  Fund,  Inc.,
  Prudential Equity Fund, Inc., Prudential Global Genesis Fund,
  Prudential Global  Natural  Resources Fund,  Prudential  GNMA
  Fund,    Prudential   Government    Plus   Fund,   Prudential
  Multi-Sector Fund,  Inc.,  First Financial  Fund,  Inc.,  The
  Global  Government Plus  Fund, Inc.,  The Global  Yield Fund,
  Inc.  and  The  High  Yield  Plus  Fund,  Inc.;  Trustee   of
  Prudential   California  Municipal  Fund,  Prudential  Equity
  Income Fund, Prudential FlexiFund, Prudential Municipal  Bond
  Fund and Prudential Municipal Series Fund.
</TABLE>

                                       9
<PAGE>
<TABLE>
<CAPTION>
                                                                                                 SHARES OF
                                                                                               COMMON STOCK
           NAME, AGE, BUSINESS EXPERIENCE DURING THE                   POSITION WITH             OWNED AT
               PAST FIVE YEARS AND DIRECTORSHIPS                           FUND               [        ]1994
- ---------------------------------------------------------------        -------------        -------------------
<S>                                                                    <C>                  <C>
 Thomas   H.  O'Brien   (69),  President,   O'Brien  Associates          Director
  (financial and  management consultants)  (since April  1984);
  formerly President of Jamaica Water Securities Corp. (holding
  company)  (February  1989-August  1990);  Director (September
  1987-April  1991),  Chairman  and  Chief  Executive   Officer
  (September   1987-February  1989)  of  Jamaica  Water  Supply
  Company; formerly  Director of  TransCanada Pipelines  U.S.A.
  Ltd.   (1984-June  1989)  and  Winthrop  University  Hospital
  (November 1976-June  1988);  Director  of  Ridgewood  Savings
  Bank,  Yankee Energy System, Inc., Prudential Adjustable Rate
  Securities  Fund,   Inc.,  Prudential   Equity  Fund,   Inc.,
  Prudential  GNMA  Fund and  Prudential Government  Plus Fund;
  Secretary and  Trustee  of  Hofstra  University;  Trustee  of
  Prudential California Municipal Fund and Prudential Municipal
  Series Fund.
*Richard  A. Redeker  (50), President,  Chief Executive Officer          Director
  and  Director  (since  October  1993),  PMF;  Executive  Vice
  President,  Director  and Member  of the  Operating Committee
  (since October 1993), Prudential Securities; Director  (since
  October  1993)  of  Prudential Securities  Group  (PSG), Inc;
  formerly Senior Executive Vice
</TABLE>

                                       10
<PAGE>
<TABLE>
<CAPTION>
                                                                                                 SHARES OF
                                                                                               COMMON STOCK
           NAME, AGE, BUSINESS EXPERIENCE DURING THE                   POSITION WITH             OWNED AT
               PAST FIVE YEARS AND DIRECTORSHIPS                           FUND               [        ]1994
- ---------------------------------------------------------------        -------------        -------------------
<S>                                                                    <C>                  <C>
President and  Director  of  Kemper  Financial  Services,  Inc.
  (September  1978-September 1993); Director  of Global Utility
  Fund, Inc., Prudential Adjustable Rate Securities Fund, Inc.,
  Prudential Equity Fund, Inc.,  Prudential Global Fund,  Inc.,
  Prudential  Global  Genesis Fund,  Prudential  Global Natural
  Resources Fund, Prudential  GNMA Fund, Prudential  Government
  Plus   Fund,   Prudential  Growth   Fund,   Inc.,  Prudential
  IncomeVertible-R-  Fund,   Inc.,   Prudential   Institutional
  Liquidity  Portfolio,  Inc.,  Prudential  Intermediate Global
  Income Fund,  Inc., Prudential  MoneyMart Assets,  Prudential
  Multi-Sector  Fund,  Inc.,  Prudential  Pacific  Growth Fund,
  Inc.,  Prudential  Short-Term   Global  Income  Fund,   Inc.,
  Prudential  Special Money Market  Fund, Prudential Structured
  Maturity Fund,  Prudential  Utility Fund,  The  Global  Yield
  Fund,  Inc., The Global  Government Plus Fund,  Inc., and The
  High Yield  Income  Fund,  Inc.;  Trustee  of  The  BlackRock
  Government  Income  Trust, Command  Government  Fund, Command
  Money Fund,  Command  Tax-Free  Fund,  Prudential  California
  Municipal  Fund,  Prudential Equity  Income  Fund, Prudential
  FlexiFund, Prudential Municipal Bond Fund,
</TABLE>

                                       11
<PAGE>
<TABLE>
<CAPTION>
                                                                                                 SHARES OF
                                                                                               COMMON STOCK
           NAME, AGE, BUSINESS EXPERIENCE DURING THE                   POSITION WITH             OWNED AT
               PAST FIVE YEARS AND DIRECTORSHIPS                           FUND               [        ]1994
- ---------------------------------------------------------------        -------------        -------------------
<S>                                                                    <C>                  <C>
  Prudential Municipal Series Fund, Prudential U.S.  Government
  Fund, and The Target Portfolio Trust.
 Nancy  H. Teeters (63), Economist; formerly Vice President and          Director
  Chief  Economist  (March  1986-June  1990)  of  International
  Business   Machines  Corporation;  Member  of  the  Board  of
  Governors of the Horace H. Rackham School of Graduate Studies
  of the  University  of  Michigan; Director  of  Inland  Steel
  Corporation  (since  July 1991),  Global Utility  Fund, Inc.,
  Prudential  Equity   Fund,   Inc.,  Prudential   GNMA   Fund,
  Prudential  MoneyMart Assets, Prudential Special Money Market
  Fund, First Financial Fund, Inc.  and the Global Yield  Fund,
  Inc.;  Trustee  of  The  BlackRock  Government  Income Trust,
  Command Government Fund, Command Money Fund, Command Tax-Free
  Fund, Prudential  California  Municipal Fund  and  Prudential
  Municipal Series Fund.
<FN>
- ------------------------
*  Indicates "interested" Director, as defined in the Investment Company Act, by reason of his affiliation with
  PMF or Prudential Securities.
</TABLE>

                                       12
<PAGE>
    The Directors and officers of the Fund  as a group did not beneficially  own
any shares of the Fund at          , 1994.

    The  Fund pays  annual compensation  of $7,500,  plus travel  and incidental
expenses, to each  of the six  Directors not affiliated  with PMF or  Prudential
Securities. The Directors have the option to receive the Director'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 Director'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 exemptive
order of the Securities and Exchange Commission (SEC), at the rate of return  of
the  Fund. Payment  of the  interest so  accrued is  also deferred  and accruals
become payable at  the option  of the Director.  The Fund's  obligation to  make
payments  of  deferred Directors'  fees, together  with  interest thereon,  is a
general obligation of the Fund. During the fiscal year ended December 31,  1993,
the Fund paid Directors' fees of approximately $45,000 and travel and incidental
expenses of approximately $500.

    There  were  four regular  meetings of  the Fund's  Board of  Directors held
during the fiscal year ended December 31, 1993. The Board of Directors presently
has an  Audit Committee,  the members  of which  are Ms.  Gold and  Teeters  and
Messrs.  Beach, Dorsey, Mooney and O'Brien, the Fund's non-interested Directors.
The Audit Committee met  twice during the fiscal  year ended December 31,  1993.
The  Audit Committee makes recommendations to the full Board with respect to the
engagement  of  independent  accountants   and  reviews  with  the   independent
accountants  the plan and results  of the audit engagement  and matters having a
material effect  upon the  Fund's financial  operations. The  Board also  has  a
Nominating  Committee, comprised  of the Fund's  non-interested Directors, which
selects and proposes  candidates for  election to  the Board  of Directors.  The
Nominating  Committee met twice during the  fiscal year ended December 31, 1993.
The Nominating Committee does not consider nominees recommended by  shareholders
to fill vacancies on the Board.

    During  the fiscal year ended December  31, 1993, no Director attended fewer
than 75%  of the  aggregate of  the total  number of  meetings of  the Board  of
Directors and any committees thereof of which such Director was a member.

    The executive officers of the Fund, other than as shown above, are: David W.
Drasnin,  Vice President,  having held  office since  March 21,  1985; Robert F.
Gunia, Vice President, and Susan C. Cote, Treasurer and Principal Financial  and
Accounting  Officer, each having held  office since May 14,  1987; S. Jane Rose,
Secretary, having  held office  since November  8, 1984,  and Deborah  A.  Docs,
Assistant    Secretary,   having    held   office   since    August   3,   1989.

                                       13
<PAGE>
Mr. Drasnin  is  57 years  old  and is  Vice  President and  Branch  Manager  of
Prudential  Securities.  Mr.  Gunia  is  47 years  old  and  is  currently Chief
Administrative  Officer  (since  July  1990),  Director  (since  January  1989),
Executive  Vice  President, Treasurer  and Chief  Financial Officer  (since June
1987) of PMF  and Senior Vice  President of Prudential  Securities (since  March
1987).  He is  also Vice  President and  Director (since  May 1989)  of The Asia
Pacific Fund, Inc. Ms. Cote is 39 years old and is Senior Vice President  (since
January 1989) of PMF and a Senior Vice President of Prudential Securities (since
January 1992). Prior thereto she was Vice President (January 1986-December 1991)
of  Prudential Securities. Ms. Rose is 48 years old and is Senior Vice President
(since January 1991) and Senior Counsel of  PMF and a Senior Vice President  and
Senior  Counsel of Prudential  Securities (since July  1992). Prior thereto, she
was First Vice President (June 1987-December 1990) of PMF and Vice President and
Associate General Counsel of Prudential Securities. Ms. Docs is 36 years old and
is a Vice President and Associate  General Counsel (since January 1993) of  PMF,
and  Vice  President  and  Associate General  Counsel  (since  January  1993) of
Prudential Securities. She was formerly Associate Vice President (January 1990 -
December 1992),  Assistant Vice  President (January  1989 -  December 1989)  and
Assistant  General Counsel (November 1991 - December 1992) of PMF. The executive
officers of the Fund are elected annually by the Board of Directors.

REQUIRED VOTE

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

                                       14
<PAGE>
                             MANAGEMENT OF THE FUND

THE MANAGER

    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).

    The  Management Agreement was last approved by the Board of Directors of the
Fund, including a majority of the Directors who are not parties to such contract
or interested persons of such parties (as defined in the Investment Company Act)
on May 6, 1993 and was approved by shareholders on April 29, 1988.

TERMS OF THE MANAGEMENT AGREEMENT

    Pursuant to the Management Agreement, PMF, subject to the supervision of the
Fund's Board of  Directors and  in conformity with  the stated  policies of  the
Fund,  is  responsible  for managing  or  providing  for the  management  of the
investment of the Fund's assets. In this regard, PMF provides supervision of the
Fund's investments, furnishes  a continuous  investment program  for the  Fund's
portfolio  and places purchase  and sale orders for  portfolio securities of the
Fund  and  other  investments.  The  Prudential  Investment  Company  (PIC),   a
wholly-owned   subsidiary  of  The  Prudential   Insurance  Company  of  America
(Prudential), provides such  services pursuant to  a subadvisory agreement  (the
Subadvisory  Agreement)  with PMF.  PMF  also administers  the  Fund's corporate
affairs, subject to the  supervision of the Fund's  Board of Directors, and,  in
connection  therewith, furnishes the Fund  with office facilities, together with
those ordinary clerical and bookkeeping  services which are not being  furnished
by the Fund's Transfer and Dividend Disbursing Agent and Custodian.

    PMF  has authorized  any of its  directors, officers and  employees who have
been elected as Directors or officers of the Fund to serve in the capacities  in
which they have been elected. All services furnished by PMF under the Management
Agreement  may be furnished by any such directors, officers or employees of PMF.
In connection with its administration of the corporate affairs of the Fund,  PMF
bears the following expenses:

        (a)  the salaries  and expenses  of all personnel  of the  Fund and PMF,
    except the fees  and expenses of  Directors not affiliated  with PMF or  the
    Fund's investment adviser;

                                       15
<PAGE>
        (b)  all expenses  incurred by  PMF or  by the  Fund in  connection with
    administering the ordinary course of  the Fund's business, other than  those
    assumed by the Fund, as described below; and

        (c)  the costs and  expenses payable to PIC  pursuant to the Subadvisory
    Agreement.

    The Fund pays PMF for the services performed and the facilities furnished by
it a fee at an annual rate of .50 of 1% of the Fund's average daily net  assets.
This  fee is computed daily and paid monthly. For the fiscal year ended December
31, 1993, PMF received a management fee of $1,714,652.

    The Management  Agreement  provides  that,  if  the  expenses  of  the  Fund
(including   the  fees  of   PMF,  but  excluding   interest,  taxes,  brokerage
commissions, distribution fees and  litigation and indemnification expenses  and
other  extraordinary expenses not incurred in  the ordinary course of the Fund's
business) for  any  fiscal year  exceed  the lowest  applicable  annual  expense
limitation  established and enforced pursuant to  the statutes or regulations of
any jurisdiction in which shares  of the Fund are  then qualified for offer  and
sale, the compensation due PMF will be reduced by the amount of such excess, or,
if such reduction exceeds the compensation payable to PMF, PMF will pay the Fund
the  amount of such reduction which exceeds the amount of such compensation. Any
such reductions or payments are subject to readjustment during the year. No such
reductions or payments were required during  the fiscal year ended December  31,
1993.  The  Fund believes  the most  restrictive of  such annual  limitations is
2 1/2% of the Fund's average daily net assets up to $30 million, 2% of the  next
$70 million of such assets and 1 1/2% of such assets in excess of $100 million.

    Except  as indicated  above, the  Fund is  responsible under  the Management
Agreement for the  payment of its  expenses, including (a)  the fees payable  to
PMF,  (b) the fees and expenses of Directors  who are not affiliated with PMF or
the investment  adviser,  (c)  the  fees and  certain  expenses  of  the  Fund's
Custodian  and Transfer  and Dividend  Disbursing Agent,  including the  cost of
providing records of the Fund  and of pricing Fund  shares, (d) the charges  and
expenses  of the Fund's legal counsel and independent accountants, (e) brokerage
commissions and any issue or transfer taxes chargeable to the Fund in connection
with its securities transactions,  (f) all taxes and  corporate fees payable  by
the  Fund to  governmental agencies,  (g) the fees  of any  trade association of
which the  Fund  may  be a  member,  (h)  the cost  of  any  share  certificates
representing  shares  of  the  Fund,  (i) the  cost  of  fidelity  and liability
insurance, (j) the  fees and  expenses involved in  registering and  maintaining
registration of the Fund and of its shares with the SEC and registering the Fund
as a broker or dealer and

                                       16
<PAGE>
qualifying its shares under state securities laws, including the preparation and
printing  of  the  Fund's  registration  statements  and  prospectuses  for such
purposes,  (k)  allocable  communications  expenses  with  respect  to  investor
services  and all expenses of shareholders' and Board of Directors' meetings and
of preparing, printing and mailing prospectuses and reports to shareholders, (l)
litigation and  indemnification expenses  and other  extraordinary expenses  not
incurred  in the  ordinary course  of the  Fund's business  and (m) distribution
fees.

    The Management Agreement provides  that PMF will not  be liable to the  Fund
for  any  error of  judgment by  PMF or  for any  loss suffered  by the  Fund in
connection with the matters to which  the Management Agreement relates except  a
loss  resulting from a breach  of fiduciary duty with  respect to the receipt of
compensation for services or willful misfeasance, bad faith, gross negligence or
reckless disregard of duty. The Management Agreement also provides that it  will
terminate  automatically  if  assigned and  that  it may  be  terminated without
penalty by the  Board of Directors  of the Fund,  by vote of  a majority of  the
Fund's  outstanding voting securities (as defined in the Investment Company Act)
or by the Manager, upon  not more than 60 days'  nor less than 30 days'  written
notice.

INFORMATION ABOUT PMF

    PMF,  a subsidiary  of Prudential  Securities and  an indirect, wholly-owned
subsidiary of Prudential, was organized in May 1987 under the laws of the  State
of Delaware. Prudential's address is Prudential Plaza, Newark, New Jersey 07102.
PMF acts as manager for the following investment companies:

        Open-End  Management  Investment  Companies:  Command  Government  Fund,
    Command Money  Fund,  Command  Tax-Free  Fund,  Prudential  Adjustable  Rate
    Securities  Fund  Inc.,  Prudential  California  Municipal  Fund, Prudential
    Equity Fund  Inc.,  Prudential  Equity Income  Fund,  Prudential  FlexiFund,
    Prudential  Global Fund,  Inc., Prudential-Bache  Global Genesis  Fund, Inc.
    (d/b/a Prudential  Global  Genesis Fund),  Prudential-Bache  Global  Natural
    Resources  Fund,  Inc.  (d/b/a Prudential  Global  Natural  Resources Fund),
    Prudential-Bache   GNMA   Fund,   Inc.   (d/b/a   Prudential   GNMA   Fund),
    Prudential-Bache Government Plus Fund Inc. (d/b/a Prudential Government Plus
    Fund), Prudential Government Securities Trust, Prudential Growth Fund, Inc.,
    Prudential-Bache  Growth  Opportunity  Fund, Inc.  (d/b/a  Prudential Growth
    Opportunity Fund), Prudential-Bache High Yield Fund, Inc. (d/b/a  Prudential
    High  Yield Fund), Prudential  IncomeVertible-R- Fund Inc., Prudential-Bache
    MoneyMart Assets Fund, Inc. (d/b/a Prudential MoneyMart Assets),  Prudential
    Multi-Sector   Fund,  Inc.,  Prudential   Municipal  Bond  Fund,  Prudential
    Municipal Series Fund, Prudential-Bache National

                                       17
<PAGE>
    Municipals  Fund,  Inc.   (d/b/a  Prudential   National  Municipals   Fund),
    Prudential  Pacific Growth  Fund Inc.,  Prudential Short-Term  Global Income
    Fund, Prudential-Bache  Special Money  Market Fund,  Inc. (d/b/a  Prudential
    Special  Money Market Fund), Prudential-Bache Structured Maturity Fund, Inc.
    (d/b/ a  Prudential  Structured Maturity  Fund),  Prudential-Bache  Tax-Free
    Money  Fund, Inc.  (d/b/a Prudential  Tax-Free Money  Fund), Prudential U.S.
    Government Fund,  Prudential-Bache  Utility  Fund,  Inc.  (d/b/a  Prudential
    Utility   Fund),   Prudential  Institutional   Liquidity   Portfolio,  Inc.,
    Prudential Intermediate Global Income Fund, Inc., Global Utility Fund, Inc.,
    Nicholas-Applegate Fund, Inc. and The BlackRock Government Income Trust.

        Closed-End Management Investment Companies:  The Global Government  Plus
    Fund, Inc., The Global Yield Fund, Inc. and The High Yield Income Fund, Inc.

    The consolidated statement of financial condition of PMF and subsidiaries as
of December 31, 1993 is set forth as Exhibit A to this Proxy Statement.

    Certain information regarding the directors and principal executive officers
of  PMF is set forth  below. Except as otherwise  indicated, the address of each
person is One Seaport Plaza, New York, New York 10292.

<TABLE>
<CAPTION>
NAME AND ADDRESS               POSITION WITH PMF     PRINCIPAL OCCUPATIONS
- -----------------------------  --------------------  ------------------------------
<S>                            <C>                   <C>
Maureen Behning-Doyle........  Executive Vice        Executive Vice President, PMF;
                                 President             Senior Vice President,
                                                       Prudential Securities
John D. Brookmeyer, Jr.        Director              Senior Vice President,
  Two Gateway Center                                   Prudential
  Newark, NJ 07102
Susan C. Cote ...............  Senior Vice           Senior Vice President, PMF;
                                 President             Senior Vice President,
                                                       Prudential Securities
Fred A. Fiandaca ............  Executive Vice        Executive Vice President,
  Raritan Plaza One              President, Chief      Chief Operating Officer and
  Edison, NJ 08847               Operating Officer     Director, PMF; Chairman,
                                 and Director          Chief Operating Officer and
                                                       Director, Prudential Mutual
                                                       Fund Services, Inc.
</TABLE>

                                       18
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS               POSITION WITH PMF     PRINCIPAL OCCUPATIONS
- -----------------------------  --------------------  ------------------------------
<S>                            <C>                   <C>
Stephen P. Fisher ...........  Senior Vice           Senior Vice President, PMF;
                                 President             Senior Vice President,
                                                       Prudential Securities
Frank W. Giordano ...........  Executive Vice        Executive Vice President,
                                 President, General    General Counsel and
                                 Counsel and           Secretary, PMF; Senior Vice
                                 Secretary             President, Prudential
                                                       Securities
Robert F. Gunia .............  Executive Vice        Executive Vice President,
                                 President, Chief      Chief Financial and
                                 Financial and         Administrative Officer,
                                 Administrative        Treasurer and Director, PMF;
                                 Officer, Treasurer    Senior Vice President,
                                 and Director          Prudential Securities
Eugene B. Heimberg ..........  Director              Senior Vice President,
  Prudential Plaza                                     Prudential
  Newark, NJ 07102
Lawrence C. McQuade .........  Vice Chairman         Vice Chairman, PMF
Leland B. Paton .............  Director              Executive Vice President and
                                                       Director, Prudential
                                                       Securities; Director, PSG
Richard A. Redeker ..........  President, Chief      President, Chief Executive
                                 Executive Officer     Officer and Director, PMF;
                                 and Director          Executive Vice President,
                                                       Director and Member of the
                                                       Operating Committee,
                                                       Prudential Securities;
                                                       Director, PSG
</TABLE>

                                       19
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS               POSITION WITH PMF     PRINCIPAL OCCUPATIONS
- -----------------------------  --------------------  ------------------------------
<S>                            <C>                   <C>
S. Jane Rose ................  Senior Vice           Senior Vice President, Senior
                                 President, Senior     Counsel and Assistant
                                 Counsel and           Secretary, PMF; Senior Vice
                                 Assistant             President and Senior
                                 Secretary             Counsel, Prudential
                                                       Securities
Donald G. Southwell .........  Director              Senior Vice President,
  213 Washington Street                                Prudential; Director, PSG
  Newark, NJ 07102
</TABLE>

THE SUBADVISER

    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.  The
Subadvisory  Agreement was  approved by shareholders  on April 29,  1988 and was
last approved by the Board of Directors of the Fund, including a majority of the
Directors who are  not parties to  such contract or  interested persons of  such
parties (as defined in the Investment Company Act), on May 6, 1993.

TERMS OF THE SUBADVISORY AGREEMENT

    Pursuant  to the Subadvisory  Agreement, PIC, subject  to the supervision of
PMF and the Board of Directors and in conformity with the stated policies of the
Fund, manages the investment operations of  the Fund and the composition of  the
Fund's   portfolio,  including  the  purchase,   retention  and  disposition  of
securities and other investments. PIC is reimbursed by PMF for reasonable  costs
and  expenses incurred by it  in furnishing such services.  The fees paid by the
Fund to PMF under  the Management Agreement  with PMF are  not affected by  this
arrangement.  PIC  keeps certain  books and  records  required to  be maintained
pursuant to the Investment Company Act. The investment advisory services of  PIC
to  the Fund are not exclusive under  the terms of the Subadvisory Agreement and
PIC is free to, and does, render investment advisory services to others.

    PIC has authorized any of its  directors, officers and employees who may  be
elected as Directors or officers of the Fund to serve in the capacities in which
they  have  been  elected.  Services  furnished  by  PIC  under  the Subadvisory
Agreement may be furnished by any such directors, officers or employees of  PIC.
The Subadvisory Agreement provides that PIC shall not be liable for any error of
judgment  or for  any loss suffered  by the Fund  or PMF in  connection with the

                                       20
<PAGE>
matters to which the Subadvisory Agreement relates, except a loss resulting from
willful misfeasance,  bad  faith  or  gross negligence  on  PIC's  part  in  the
performance  of  its  duties  or  from  its  reckless  disregard  of  duty.  The
Subadvisory Agreement provides that it shall terminate automatically if assigned
or upon termination of  the Management Agreement and  that it may be  terminated
without  penalty by either  party upon not more  than 60 days'  nor less than 30
days' written notice.

INFORMATION ABOUT PIC

    PIC was organized in June  1984 under the laws of  the State of New  Jersey.
The business and other connections of PIC's directors and executive officers are
as set forth below. Except as otherwise indicated, the address of each person is
Prudential Plaza, Newark, New Jersey 07102.

<TABLE>
<CAPTION>
NAME AND ADDRESS               POSITION WITH PIC        PRINCIPAL OCCUPATION
- -----------------------------  -----------------------  ---------------------------
<S>                            <C>                      <C>
Martin A. Berkowitz .........  Senior Vice President    Senior Vice President and
                                 and Chief Financial      Chief Financial and
                                 and Compliance           Compliance Officer, PIC;
                                 Officer                  Vice President,
                                                          Prudential
William M. Bethke ...........  Senior Vice President    Senior Vice President,
  Two Gateway Center                                      Prudential
  Newark, NJ 07102
John D. Brookmeyer, Jr.        Senior Vice President    Senior Vice President,
  Two Gateway Center                                      Prudential; Senior Vice
  Newark, NJ 07102                                        President, PIC
Eugene B. Heimberg ..........  President and Director   Senior Vice President,
                                                          Prudential
Garnett L. Keith, Jr. .......  Director                 Vice Chairman and Director,
                                                          Prudential
William P. Link .............  Executive Vice           Executive Vice President,
  Four Gateway Center            President                Prudential
  Newark, NJ 07102
Robert E. Riley .............  Executive Vice           Executive Vice President,
  800 Boylston Avenue            President                Prudential; Director, PSG
  Boston, MA 02199
</TABLE>

                                       21
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS               POSITION WITH PIC        PRINCIPAL OCCUPATION
- -----------------------------  -----------------------  ---------------------------
<S>                            <C>                      <C>
James W. Stevens ............  Executive Vice           Executive Vice President,
  Four Gateway Center            President                Prudential; Director, PSG
  Newark, NJ 07102
Robert C. Winters ...........  Director                 Chairman of the Board and
                                                          Chief Executive Officer,
                                                          Prudential; Chairman of
                                                          the Board, PSG
Claude J. Zinngrabe, Jr. .     Executive Vice           Vice President, Prudential
                                 President
</TABLE>

THE DISTRIBUTORS
    Prudential  Mutual Fund  Distributors, Inc.  (PMFD), One  Seaport Plaza, New
York, New York 10292, acts as the distributor of the Class A shares of the Fund.
Prudential Securities, One Seaport Plaza, New York, New York 10292, acts as  the
distributor of the Class B shares of the Fund.

    Under  separate Distribution  and Service  Plans (the  Class A  Plan and the
Class B Plan,  collectively, the  Plans) adopted by  the Fund  under Rule  12b-1
under  the  Investment Company  Act  and separate  distribution  agreements (the
Distribution Agreements),  PMFD  and Prudential  Securities  (collectively,  the
Distributor)  incur the expenses of distributing the  Fund's Class A and Class B
shares, respectively.

    The Plans were last approved by the Board of Directors, including a majority
of the Directors  who are not  interested persons of  the Fund and  who have  no
direct or indirect financial interest in the operation of the Class A or Class B
Plan  or in any agreement related to  either Plan (the Rule 12b-1 Directors), on
May 6,  1993. The  Class A  Plan was  approved by  the Class  A shareholders  on
December  19, 1990. The  Class B Plan  was approved by  shareholders of the Fund
(the Class B shareholders) on January 11, 1990.

    The Plans are proposed to be amended as  set forth in Proposals No. 3 and  4
below.

    CLASS  A PLAN.   Under the  Class A Plan,  the Fund reimburses  PMFD for its
distribution-related expenses with respect to Class  A shares at an annual  rate
of  up to .30 of 1%  of the average daily net assets  of the Class A Shares. The
Class A Plan provides that (i) up to  .25 of 1% of the average daily net  assets
of the Class A shares may be used for personal service and/or the maintenance of
shareholder  accounts (service fee) and  (ii) total distribution fees (including
the service fee of .25 of 1%) may not exceed .30 of 1% of the average daily  net
assets

                                       22
<PAGE>
of  the  Class A  Shares. PMFD  has advised  the Fund  that distribution-related
expenses of the Fund will not exceed .15  of 1% of the average daily net  assets
of the Class A shares for the fiscal year ending December 31, 1994.

    For  the  fiscal year  ended December  31, 1993,  PMFD received  payments of
$15,299 under the Class A Plan representing  .15 of 1% of the average daily  net
assets  of  the Class  A  Shares as  reimbursement  of expenses  related  to the
distribution of Class A  Shares. This amount was  primarily expended on  account
servicing  fees to  Prudential Securities  and Pruco  Securities Corporation, an
affiliated broker-dealer (Prusec), for payment  to financial advisers and  other
salespersons  who sell Class  A Shares. For  the fiscal year  ended December 31,
1993, PMFD also received $131,000 in initial sales charges.

    CLASS B  PLAN.   Under the  Class  B Plan,  the Fund  reimburses  Prudential
Securities  for its distribution-related expenses with respect to Class B shares
at an annual rate  of up to  .75 of 1% of  the average daily  net assets of  the
Class  B Shares. The Class B Plan also provides for the payment of a service fee
to Prudential Securities at a rate not to exceed .25 of 1% of the average  daily
net  assets of Class B Shares. The aggregate distribution fee for Class B Shares
(asset-based sales charge plus service fee) will not exceed .75 of 1% of average
daily net assets under the Class B Plan.

    For the fiscal year ended December 31, 1993, Prudential Securities  received
$2,495,486  from  the  Fund  under  the Class  B  Plan  and  spent approximately
$2,744,800 in distributing the  Fund's Class B shares.  It is estimated that  of
the  latter amount approximately .1% ($2,800)  was spent on printing and mailing
of prospectuses to other than current shareholders during the fiscal year  ended
December 31, 1993; 44.1% ($1,209,000) on compensation to Prusec, for commissions
to  its  financial  advisers  and other  expenses,  including  an  allocation of
overhead and other branch office  distribution-related expenses, incurred by  it
for  distribution of Fund shares during the fiscal year ended December 31, 1993;
14.9% ($409,800)  in interest  and/or carrying  charges during  the fiscal  year
ended  December  31,  1993;  40.9% ($1,123,200)  during  the  fiscal  year ended
December 31, 1993,  on the  aggregate of  (i) commission  credits to  Prudential
Securities  branch  offices for  payments of  commissions to  financial advisers
(21.7% ($596,500) during the  fiscal year ended December  31, 1993, and (ii)  an
allocation  of overhead  and other  branch office  distribution-related expenses
(19.2% ($526,700) during  the fiscal  year ended  December 31,  1993). The  term
"overhead  and other branch office distribution-related expenses" represents (a)
the expenses of  operating Prudential  Securities branch  offices in  connection
with  the sale of Fund shares, including  lease costs, the salaries and employee

                                       23
<PAGE>
benefits  of   operations   and   sales  support   personnel,   utility   costs,
communications  costs and the costs of stationery and supplies, (b) the costs of
client sales seminars, (c) expenses of mutual fund sales coordinators to promote
the sale of  Fund shares and  (d) other incidental  expenses relating to  branch
promotion of Fund sales.

    Prudential  Securities  also receives  the  proceeds of  contingent deferred
sales charges paid  by holders  of Class B  shares upon  certain redemptions  of
Class  B shares.  Under the  current Class  B plan,  the amount  of distribution
expenses reimbursable by Class B shares of the Fund is reduced by the amount  of
such  contingent deferred sales charges. For  the fiscal year ended December 31,
1993, Prudential  Securities  received  approximately  $504,000,  in  contingent
deferred  sales  charges. As  of  December 31,  1993,  the aggregate  amounts of
unreimbursed  distribution  expenses  for  the   Fund's  Class  B  shares   were
approximately $11,763,000.

    The Class A and Class B Plans continue in effect from year to year, provided
that  each such continuance is approved at least annually by a vote of the Board
of Directors, including  a majority vote  of the Rule  12b-1 Directors, cast  in
person  at a meeting called  for the purpose of  voting on such continuance. The
Class A and Class B Plans may  each be terminated at any time, without  penalty,
by  the vote of  a majority of  the Rule 12b-1  Directors or by  the vote of the
holders of a majority of the outstanding  shares of the applicable class on  not
more  than 30 days' written notice to any other party to the Plans. Neither Plan
may be amended to increase materially the  amounts to be spent for the  services
described  therein without approval by the shareholders of the applicable class,
and all  material  amendments  are required  to  be  approved by  the  Board  of
Directors  in the manner described above. Each Plan will automatically terminate
in the event of its assignment. The Fund will not be contractually obligated  to
pay expenses incurred under either the Class A Plan or the Class B Plan if it is
terminated  or not continued. In the  event of termination or noncontinuation of
the Class B  Plan, the Board  of Directors may  consider the appropriateness  of
having the Fund reimburse Prudential Securities for the outstanding carryforward
amounts plus interest thereon.

    Pursuant  to each Plan, the Board of  Directors reviews at least quarterly a
written report of the  distribution expenses incurred on  behalf of the Class  A
and  Class B shares of the Fund by PMFD and Prudential Securities, respectively.
The report includes an itemization of the distribution expenses and the purposes
of such expenditures. In addition,  as long as the  Plans remain in effect,  the
selection  and nomination of Rule 12b-1 Directors shall be committed to the Rule
12b-1 Directors.

                                       24
<PAGE>
    Pursuant to each Distribution  Agreement, the Fund  has agreed to  indemnify
PMFD and Prudential Securities to the extent permitted by applicable law against
certain  liabilities under the  Securities Act. Each  Distribution Agreement was
last approved by the Board of Directors, including a majority of the Rule  12b-1
Directors, on May 6, 1993.

PORTFOLIO TRANSACTIONS

    The  Manager is  responsible for  decisions to  buy and  sell securities and
futures contracts for the  Fund, the selection of  brokers, dealers and  futures
commission merchants to effect the transactions and the negotiation of brokerage
commissions,  if any. For purposes of  this section, the term "Manager" includes
the Subadviser. Fixed income  securities are generally traded  on a "net"  basis
with  dealers  acting  as principal  for  their  own accounts  without  a stated
commission, although the price of the security usually includes a profit to  the
dealer.  In underwritten  offerings, securities are  purchased at  a fixed price
which includes an amount of compensation to the underwriter, generally  referred
to  as  the underwriter's  concession or  discount.  On occasion,  certain money
market instruments may be  purchased directly from an  issuer, in which case  no
commissions  or  discounts  are paid.  The  Fund  wil not  deal  with Prudential
Securities in any transaction in which Prudential Securities acts as  principal.
Purchases  and sales of securities or futures contracts on a securities exchange
or board  of  trade will  be  effected  through brokers  or  futures  commission
merchants  who charge a commission for their services. Orders may be directed to
any broker or futures commission merchants  including, to the extent and in  the
manner permitted by applicable law, Prudential Securities.

    In  placing  orders for  portfolio securities  of the  Fund, the  Manager is
required to give primary consideration to obtaining the most favorable price and
efficient execution.  This means  that the  Manager will  seek to  execute  each
transaction  at a price and commission, if any, which provide the most favorable
total cost or  proceeds reasonably  attainable in the  circumstances. While  the
Manager  generally seeks reasonably competitive spreads or commissions, the Fund
will not necessarily be paying the lowest spread or commission available. Within
the framework of the policy of obtaining the most favorable price and  efficient
execution,  the Manager will consider  research and investment services provided
by brokers, dealers or futures commission merchants who effect or are parties to
portfolio transactions of the Fund, the Manager or the Manager's other  clients.
Such   research  and  investment  services  are  those  which  brokerage  houses
customarily provide  to  institutional  investors and  include  statistical  and
economic  data and research reports on particular companies and industries. Such
services are  used by  the Manager  in  connection with  all of  its  investment

                                       25
<PAGE>
activities,  and some of such services obtained in connection with the execution
of transactions for the Fund may be used in managing other investment  accounts.
Conversely, brokers or futures commission merchants furnishing such services may
be  selected for  the execution  of transactions  of such  other accounts, whose
aggregate assets are  far larger than  the Fund, and  the services furnished  by
such  brokers may be used by the  Manager in providing investment management for
the Fund. Commission  rates are  established pursuant to  negotiations with  the
broker, dealer or futures commission merchants based on the quality and quantity
of  execution  services provided  by the  broker,  dealer or  futures commission
merchants in the light of generally prevailing rates. The Manager's policy is to
pay higher commissions to brokers  and futures commission merchants, other  than
Prudential  Securities, for particular  transactions than might  be charged if a
different broker or futures commission merchant had been selected, on  occasions
when,  in the Manager's opinion, this policy furthers the objective of obtaining
best price and execution. In addition,  the Manager is authorized to pay  higher
commissions  on  brokerage  transactions for  the  Fund to  brokers  and futures
commission merchants  other  than  Prudential  Securities  in  order  to  secure
research  and  investment  services  described  above,  subject  to  the primary
consideration of obtaining the most  favorable price and efficient execution  in
the  circumstances and subject to  review by the Fund's  Board of Directors from
time to time as to the extent and continuation of this practice. The  allocation
of  orders among  brokers and  futures commission  merchants and  the commission
rates paid are reviewed periodically. Portfolio securities may not be  purchased
from  any underwriting or  selling syndicate of  which Prudential Securities (or
any  affiliate),  during  the  existence  of  the  syndicate,  is  a   principal
underwriter  (as defined  in the Investment  Company Act),  except in accordance
with rules of the  SEC. This limitation,  in the opinion of  the Fund, will  not
significantly  affect  the  Fund's  ability  to  pursue  its  present investment
objective. However, in the future in other  circumstances, the Fund may be at  a
disadvantage  because  of  this limitation  in  comparison to  other  funds with
similar objectives but not subject to such limitations.

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

                                       26
<PAGE>
Prudential  Securities or any affiliate to receive no more than the remuneration
which would be  expected to  be received by  an unaffiliated  broker or  futures
commission merchant in a commensurate arm's-length transaction. Furthermore, the
Board of Directors of the Fund, including a majority of the Rule 12b-1 Directors
has  adopted  procedures  which  are reasonably  designed  to  provide  that any
commissions, fees or  other remuneration  paid to Prudential  Securities or  any
affiliate are consistent with the foregoing standard. In accordance with Section
11(a)  of the  Securities Exchange  Act of  1934, Prudential  Securities may not
retain compensation for effecting transactions on a national securities exchange
for the Fund  unless the  Fund has expressly  authorized the  retention of  such
compensation. Prudential Securities must furnish to the Fund at least annually a
statement  setting  forth  the  total amount  of  all  compensation  retained by
Prudential Securities  from  transactions  effected  for  the  Fund  during  the
applicable  period.  Brokerage transactions  with  Prudential Securities  or any
affiliate are also subject  to such fiduciary standards  as may be imposed  upon
Prudential Securities or such affiliate by applicable law.

    The  Fund paid no brokerage commissions  to Prudential Securities during the
fiscal years ended December 31, 1993, 1992, and 1991.

                        APPROVAL OF A PROPOSAL TO AMEND
                      THE FUND'S ARTICLES OF INCORPORATION
              TO PERMIT THE IMPLEMENTATION OF A CONVERSION FEATURE
     (FOR CONSIDERATION BY CLASS A AND CLASS B SHAREHOLDERS VOTING JOINTLY)
                                (PROPOSAL NO. 2)

    The  Board  of  Directors  is  recommending  that  shareholders  approve  an
amendment  to the Fund's Articles of  Incorporation to permit the implementation
of a conversion feature for Class B shares. The conversion feature is authorized
pursuant to an exemptive order of the SEC (the SEC Order) and would provide  for
the  automatic conversion of  Class B shares  to Class A  shares at relative net
asset value approximately seven years after purchase. Class A shares are subject
to a  lower  annual  distribution  and  service fee  than  Class  B  shares  and
conversions would occur without the imposition of any additional sales charge. A
description  of the  conversion feature  is set  forth in  greater detail below.
Amendment of the Articles  of Incorporation requires approval  by a majority  of
the Fund's outstanding shares.

THE CLASSES OF SHARES

    The  Fund currently offers two classes of  shares, designated as Class A and
Class B shares pursuant to the  Alternative Purchase Plan, in reliance upon  the
SEC  Order. Class A shares are currently offered with an initial sales charge of

                                       27
<PAGE>
up to 4.5% of the offering price  and are subject to an annual distribution  and
service  fee of up to .30  of 1% of the average daily  net assets of the Class A
shares pursuant to a Rule 12b-1 plan. This fee is currently charged at a rate of
.15 of 1% of  the average daily net  assets of the Class  A shares and PMFD  has
agreed  to so limit  its fee under  the Class A  Plan for the  fiscal year ended
December 31, 1994. Class B shares are currently offered without an initial sales
charge but are subject to a contingent deferred sales charge or CDSC  (declining
from 5% to zero of the lesser of the amount invested or the redemption proceeds)
on  certain redemptions generally  made within six  years of purchase  and to an
annual distribution and service fee pursuant to  a Rule 12b-1 plan of up to  .75
of 1% of the average daily net asset value of the Class B shares.

    In  accordance with the SEC  Order, the Board of  Directors may, among other
things, authorize the  creation of  additional classes  of shares  from time  to
time. The Board of Directors has approved the offering of a new class of shares,
to  be designated Class C shares, which  will be offered simultaneously with the
offering of Class B shares with the proposed conversion feature. Class C  shares
will be offered without either an initial or a deferred sales charge but will be
subject  to  an annual  distribution and  service fee  not to  exceed 1%  of the
average daily  net assets  of the  Class C  shares. If  the proposed  conversion
feature for Class B shares is not approved, Class C shares will not be offered.

THE PROPOSED CONVERSION FEATURE

    On  May 6, 1993, the Fund's Board  of Directors, including a majority of the
Directors who  are not  "interested persons"  of  the Fund  (as defined  in  the
Investment  Company  Act),  approved  an amendment  to  the  Fund's  Articles of
Incorporation to  permit the  implementation  of a  conversion feature  for  the
Fund's  Class B shares. A copy of  the proposed amendment to the Fund's Articles
of Incorporation is attached hereto as Exhibit B.

    If this proposal is approved, it is currently contemplated that  conversions
of  Class  B  shares  to  Class  A  shares  will  occur  on  a  quarterly  basis
approximately seven years from the  purchase. The first conversion is  currently
anticipated  to occur  on or  about January  1995. Conversions  will be effected
automatically at  relative  net  asset  value  without  the  imposition  of  any
additional  sales charge. Class B shareholders  will benefit from the conversion
feature because they will thereafter be subject to the lower annual distribution
and service fee applicable to Class A shares.

    Since the Fund tracks amounts paid  rather than the number of shares  bought
on  each purchase of Class B shares, it is currently anticipated that the number
of Class  B shares  eligible to  convert  to Class  A shares  (excluding  shares

                                       28
<PAGE>
acquired   through   the   automatic  reinvestment   of   dividends   and  other
distributions) (the Eligible Shares) will be determined on each conversion  date
in  accordance with the following formula: (i) the ratio of (a) the amounts paid
for Class B shares purchased at least  seven years prior to the conversion  date
to (b) the total amount paid for all Class B shares purchased and then held in a
shareholder's account (ii) multiplied by the total number of Class B shares then
held  in  such  shareholder's  account.  Each  time  any  Eligible  Shares  in a
shareholder's  account  convert  to  Class  A  shares,  all  shares  or  amounts
representing  Class B shares then in such account that were acquired through the
automatic reinvestment  of dividends  and other  distributions will  convert  to
Class A shares.

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

    If the net asset value per share of  Class A is higher than that of Class  B
at  the  time  of  conversion (which  may  be  the case  because  of  the higher
distribution and service fee  applicable to Class  B shares), shareholders  will
receive  fewer  Class  A  shares  than Class  B  shares  converted  although the
aggregate dollar value will be the same.

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

                                       29
<PAGE>
will  convert  to  Class A  shares  after  expiration of  the  conversion period
applicable to the original purchase of such shares. As of the date of the  first
conversion (which, as noted above, is currently anticipated to occur in or about
January  1995) all amounts  representing Class B  shares then outstanding beyond
the expiration of the applicable conversion period will automatically convert to
Class A shares, together with all shares or amounts representing Class B  shares
acquired  through the automatic reinvestment of dividends and distributions then
held in the shareholder's account.

    Under current law, no gain or loss  will be recognized by a shareholder  for
U.S.  income tax  purposes as a  result of a  conversion of Class  B shares into
Class A shares.

    If approved by shareholders, the conversion  feature will be subject to  the
continuing  availability of opinions of counsel (i) that the dividends and other
distributions  paid  on  Class  A  and  Class  B  shares  will  not   constitute
"preferential  dividends" under the  Internal Revenue Code  of 1986, as amended,
and (ii) that the conversion of shares does not constitute a taxable event.

REQUIRED VOTE

    The proposed amendment to the Fund's Articles of Incorporation to  implement
the conversion feature requires the affirmative vote of a majority of the Fund's
outstanding  shares. In the  event shareholders of  the Fund do  not approve the
proposed amendment, the conversion feature will not be implemented for the  Fund
and  Class  B  shares  of  the  Fund  will  continue  to  be  subject,  possibly
indefinitely, to their higher annual distribution and service fee.

    THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 2.

                                  APPROVAL OF
                   AMENDED AND RESTATED CLASS A DISTRIBUTION
                                AND SERVICE PLAN
   (FOR CONSIDERATION BY CLASS A AND CLASS B SHAREHOLDERS VOTING SEPARATELY)
                                (PROPOSAL NO. 3)

    On May  6, 1993,  the Fund's  Board  of Directors  approved an  amended  and
restated  Class A Distribution and Service Plan pursuant to Rule 12b-1 under the
Investment Company Act and an  amended and restated Distribution Agreement  with
PMFD  for Class A shares of the Fund (the Proposed Class A Plan and the Proposed
Class A Distribution Agreement, respectively)  and recommends submission of  the
Proposed  Class  A Plan  to  the Fund's  Class  A shareholders  for  approval or
disapproval at this Special Meeting of Shareholders. As

                                       30
<PAGE>
contemplated by the SEC Order (previously  defined under Proposal No. 2  above),
the  Proposed  Class A  Plan is  also being  submitted for  approval by  Class B
shareholders because, subject to the approval of Proposal No. 2, Class B  shares
will  automatically convert  to Class A  shares approximately  seven years after
purchase. The Proposed Class  A Distribution Agreement does  not require and  is
not being submitted for shareholder approval.

    The  purpose  of  the Proposed  Class  A  Plan is  to  compensate  PMFD, the
distributor of the Fund's Class A shares, for providing distribution  assistance
to  broker-dealers,  including  Prudential  Securities  and  Prusec,  affiliated
broker-dealers, and  other qualified  broker-dealers,  if any,  whose  customers
invest  in Class  A shares  of the Fund  and to  defray the  costs and expenses,
including the payment of  account servicing fees, of  the services provided  and
activities undertaken to distribute Class A shares (Distribution Activities).

    The  Board of  Directors previously adopted  a plan of  distribution for the
Fund's Class A shares  pursuant to Rule 12b-1  under the Investment Company  Act
which was approved by shareholders on December 19, 1990 and last approved by the
Board  of Directors on May 6, 1993  (the Existing Class A Plan). Shareholders of
the Fund's Class A and Class B  shares are being asked to approve amendments  to
the  Existing Class A  Plan that change it  from a reimbursement  type plan to a
compensation type plan. The amendments do not change the maximum annual fee that
may be paid to PMFD  under the Existing Class  A Plan, although the  possibility
exists  that  expenses incurred  by  PMFD and  for which  it  is entitled  to be
reimbursed under the Existing Class  A Plan may be less  than the fee PMFD  will
receive  under the Proposed Class  A Plan. The amendments  are being proposed to
facilitate administration and accounting. The  Board of Directors believes  that
the  Proposed Class A Plan is in the best interest of the Fund and is reasonably
likely to benefit the Fund's Class A shareholders. A copy of the Proposed  Class
A Plan is attached hereto as Exhibit C.

THE EXISTING CLASS A PLAN

    Under  the  Existing Class  A Plan,  the Fund  reimburses PMFD  for expenses
incurred for Distribution Activities at an annual rate of up to .30 of 1% of the
average daily net assets  of the Class A  shares (up to .25  of 1% of which  may
constitute  a  service  fee for  the  servicing and  maintenance  of shareholder
accounts). Article III, Section 26 of the NASD Rules of Fair Practice (the  NASD
Rules)  places an annual limit of .25 of 1%  on fees that may be imposed for the
provision of personal  service and/or  the maintenance  of shareholder  accounts
(service fees) and an annual limit of .75 of 1% on asset-based sales charges (as
defined  in the NASD  Rules). Subject to  these limits, the  Fund may impose any

                                       31
<PAGE>
combination of  service  fees  and  asset-based sales  charges  under  both  the
Existing  Class A Plan  and the Proposed  Class A Plan;  provided that the total
fees do not exceed .30 of  1% per annum of the  average daily net assets of  the
Class A shares.

    The  Existing Class  A Plan  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  Class A shares  of the Fund.  In addition, all
material amendments thereof must be approved by  vote of a majority of the  Rule
12b-1 Directors, cast in person at a meeting called for the purpose of voting on
the  Plan. So long as the Existing Class  A Plan is in effect, the selection and
nomination of Rule 12b-1  Directors will be committed  to the discretion of  the
Rule 12b-1 Directors.

    The  Existing Class A Plan may be  terminated at any time without payment of
any penalty by the vote of a majority of the Rule 12b-1 Directors or by the vote
of a majority of the outstanding Class A  shares of the Fund (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). For a more detailed description of the Existing Class A
Plan, see "Management of the Fund -- The Distributors -- Class A Plan."

THE PROPOSED CLASS A PLAN

    The  Proposed Class A Plan amends the  Existing Class A Plan in one material
respect. Under the Existing Class A Plan, the Fund reimburses PMFD for  expenses
actually  incurred for Distribution Activities up to  a maximum of .30 of 1% per
annum of the average daily net assets of the Class A shares. The Proposed  Class
A  Plan  authorizes  the  Fund  to  pay PMFD  the  same  maximum  annual  fee as
compensation for its Distribution Activities regardless of the expenses incurred
by PMFD  for  Distribution  Activities.  The Distributor  may,  however,  as  it
currently  does, voluntarily agree to  limit its fee to  an amount less than the
maximum annual  fee. In  contrast to  the  Existing Class  A Plan,  the  amounts
payable  by  the Fund  under the  Proposed Class  A Plan  would not  be directly
related  to  the  expenses  actually  incurred  by  PMFD  for  its  Distribution
Activities.  Consequently, if  PMFD's expenses  for Distribution  Activities are
less than the distribution and service fees it receives under the Proposed Class
A Plan, it will retain its full fees and realize a profit.

    Since inception  of the  Existing Class  A Plan,  the reimbursable  expenses
incurred  thereunder  by PMFD  have generally  equalled  or exceeded  the amount
reimbursed by  the Fund.  For the  fiscal years  ended December  31, 1991,  1992

                                       32
<PAGE>
and  1993, PMFD received  payments of $4,553,  $9,940 and $15,299, respectively,
under the Existing Class A Plan, representing .15 of 1% of the average daily net
assets of  the  Class  A  shares  as  reimbursement  of  expenses  incurred  for
Distribution  Activities. PMFD agreed to limit its fees under the Existing Class
A Plan to .25 of 1% for the fiscal years ended, December 31, 1991, 1992 and 1993
even though its direct and indirect reimbursable distribution expenses  exceeded
such  amount. PMFD believes that it would have similarly limited its fee had the
Proposed Class  A  Plan been  in  effect during  the  past three  fiscal  years,
although  it could have assessed the maximum annual fee of .30 of 1%. Regardless
of which plan will be in effect, the Distributor has voluntarily agreed to limit
its fees for Distribution Activities  to no more than .15  of 1% of the  average
daily  net assets of the Class A shares  for the fiscal year ending December 31,
1994. Other expenses incurred by PMFD for Distribution Activities have been  and
will continue to be paid from the proceeds of initial sales charges.

    Among  the major perceived benefits of a compensation type plan, such as the
Proposed Class A  Plan, over  a reimbursement type  plan, such  as the  Existing
Class  A  Plan,  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 class of shares of a fund in order to
qualify  for reimbursement. Although the Proposed  Class A Plan will continue to
require quarterly reporting to the Board of Directors of the amounts accrued and
paid under the Plan and of the expenses actually borne by the Distributor, there
will be  no need  to match  specific  expenses to  reimbursements as  under  the
Existing  Class A Plan. Thus, the accounting for the Proposed Class A Plan would
be simplified  and  the timing  of  when expenditures  are  to be  made  by  the
Distributor  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 Class  A  Plan will  not exceed  the expenses
incurred by PMFD for Distribution Activities, suggest that the costs and efforts
associated with a reimbursement plan are unwarranted.

    In considering whether to approve the  Proposed Class A Plan, the  Directors
reviewed,  among  other things,  the  nature and  scope  of the  services  to be
provided by  PMFD,  the  purchase  options  available  to  investors  under  the
Alternative Purchase Plan, the amount of expenditures under the Existing Class A
Plan, the relationship of such expenditures to the overall cost structure of the
Fund,  and comparative data with respect to distribution arrangements adopted by
other investment companies. Based upon  such review, the Directors, including  a
majority  of the  Rule 12b-1  Directors, determined  that there  is a reasonable
likelihood that the Proposed Class A Plan will benefit the Fund and its Class  A
shareholders.

                                       33
<PAGE>
    If  approved by  shareholders, the  Proposed Class  A Plan  will continue in
effect from  year  to year,  provided  such  continuance is  approved  at  least
annually  by vote of a majority of  the Board of Directors, including a majority
of the Rule 12b-1 Directors.

REQUIRED VOTE

    If Proposal No.  2 is approved  by shareholders, the  Proposed Class A  Plan
will require the approval of a majority of the Fund's outstanding Class A shares
and Class B shares (as defined in the Investment Company Act) voting separately.
If  proposal No. 2  is not approved  by shareholders, the  Proposed Class A Plan
will only require the approval of a  majority of the Fund's outstanding Class  A
shares.  Under the  Investment Company Act,  a majority of  a class' outstanding
voting shares is defined as the lesser of (i) 67% of a class' outstanding shares
represented at a meeting at which more than 50% of the outstanding shares of the
class are present in person or represented by proxy, or (ii) more than 50% of  a
class'  outstanding shares.  If the  Proposed Class  A Plan  is not  approved as
described above, the Existing Class A Plan will continue in its present form.

    THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 3

                            APPROVAL OF AMENDED AND
                 RESTATED CLASS B DISTRIBUTION AND SERVICE PLAN
                (FOR CONSIDERATION BY CLASS B SHAREHOLDERS ONLY)
                                (PROPOSAL NO. 4)

    On May  6, 1993,  the Fund's  Board  of Directors  approved an  amended  and
restated  Class B Distribution and Service Plan pursuant to Rule 12b-1 under the
Investment Company  Act  and  an  amended  and  restated  Class  B  Distribution
Agreement  with  Prudential  Securities for  Class  B  shares of  the  Fund (the
Proposed  Class  B  Plan  and  the  Proposed  Class  B  Distribution  Agreement,
respectively)  and recommends  submission of  the Proposed  Class B  Plan to the
Fund's Class B shareholders for approval or disapproval at this Special  Meeting
of  Shareholders. The Proposed  Class B Distribution  Agreement does not require
and is not being submitted for shareholder approval.

    The purpose  of  the Proposed  Class  B  Plan is  to  compensate  Prudential
Securities,  the  Distributor  of  the  Fund's  Class  B  shares,  for providing
distribution assistance  to  broker/dealers,  including  Prusec,  an  affiliated
broker/dealer,  and  other  qualified broker/dealers,  if  any,  whose customers
invest in Class B

                                       34
<PAGE>
shares of the Fund and to defray  the costs and expenses, including the  payment
of account servicing fees, of the services provided and activities undertaken to
distribute Class B shares (Distribution Activities).

    The  Board of  Directors previously adopted  a plan of  distribution for the
Fund's Class B shares  pursuant to Rule 12b-1  under the Investment Company  Act
which  was approved by shareholders on January 11, 1990 and last approved by the
Board of Directors on May 6, 1993  (the Existing Class B Plan). Shareholders  of
the  Fund's Class B shares are being asked to approve amendments to the Existing
Class B Plan that  change it from  a reimbursement type  plan to a  compensation
type  plan. The amendments do not change the maximum annual fee that may be paid
to  Prudential  Securities  under  the  Existing  Class  B  Plan,  although  the
possibility exists that expenses incurred by Prudential Securities and for which
it is entitled to be reimbursed under the Existing Class B Plan may be less than
the  fee Prudential Securities will receive under the Proposed Class B Plan. The
amendments are being proposed to  facilitate administration and accounting.  The
Board  of  Directors believes  that the  Proposed Class  B Plan  is in  the best
interest of the Fund and is reasonably likely to continue to benefit the  Fund's
Class  B shareholders. A copy of the Proposed Class B Plan is attached hereto as
Exhibit D.

THE EXISTING CLASS B PLAN
    Under the Existing Class B  Plan, the Fund reimburses Prudential  Securities
for expenses incurred for Distribution Activities at an annual rate of up to .75
of  1% of the average daily net assets of the Class B shares (up to .25 of 1% of
which may  constitute  a  service  fee for  the  servicing  and  maintenance  of
shareholder  accounts). Amounts  reimbursable under the  plan 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 asset-based sales
charges  imposed on Class B shares, to the extent such charges do not exceed .75
of 1% per annum of the average daily net assets of the Class B shares, and  from
contingent  deferred sales charges received from certain redeeming shareholders,
subject to the limitations  of Article III,  Section 26 of  the NASD Rules.  The
NASD  Rules place an annual limit of .75  of 1% on asset-based sales charges (as
defined in the NASD Rules) and an annual limit of .25 of 1% on fees that may  be
imposed  for  the  provision  of  personal  service  and/or  the  maintenance of
shareholder accounts (service fees). Pursuant  to the NASD Rules, the  aggregate
deferred  sales charges and asset-based  sales charges on Class  B shares of the
Fund may not, subject to certain exclusions, exceed 6.25%, of total gross  sales
of Class B shares.

    The  Existing Class  B Plan  may not be  amended to  increase materially the
amount to be  spent for  the services described  therein without  approval by  a

                                       35
<PAGE>
majority  of the  holders of the  Class B shares  of the Fund.  In addition, all
material amendments  thereof must  be approved  by  vote of  a majority  of  the
Directors, including a majority of the Rule 12b-1 Directors, cast in person at a
meeting  called for the purpose  of voting on the plan.  So long as the Existing
Class B Plan is in effect, the selection and nomination of Rule 12b-1  Directors
will be committed to the discretion of the Rule 12b-1 Directors.

    The  Existing Class B Plan may be  terminated at any time without payment of
any penalty by the vote of a majority of the Rule 12b-1 Directors or by the vote
of a majority of the outstanding Class B  shares of the Fund (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). For a more detailed description of the Existing Class B
Plan, see "Management of the Fund -- The Distributors -- Class B Plan."

THE PROPOSED CLASS B PLAN
    The  Proposed Class B Plan amends the  Existing Class B Plan in one material
respect. Under  the  Existing  Class  B Plan,  the  Fund  reimburses  Prudential
Securities  for expenses actually  incurred for Distribution  Activities up to a
maximum of .75 of 1% per  annum of the average daily  net assets of the Class  B
shares.  In  contrast, the  Proposed Class  B  Plan authorizes  the Fund  to pay
Prudential Securities  the  same maximum  annual  fee as  compensation  for  its
Distribution  Activities. In contrast to the  Existing Class B Plan, the amounts
payable by  the Fund  under the  Proposed Class  B Plan  would not  be  directly
related  to  the expenses  actually incurred  by  Prudential Securities  for its
Distribution Activities. Consequently,  if Prudential  Securities' expenses  are
less  than its distribution and  service fees, it will  retain its full fees and
realize a  profit.  However,  if  Prudential  Securities'  expenses  exceed  the
distribution  and service fees received under the Proposed Class B Plan, it will
no longer carry forward such amounts for reimbursement in future years.

    Since inception of the  Existing Class B  Plan, the cumulative  reimbursable
expenses  incurred thereunder by Prudential Securities have exceeded the amounts
reimbursed by the Fund. Since the maximum annual fee under the Existing Class  B
Plan is the same as under the Proposed Class B Plan, Prudential Securities would
have  received the  same annual fee  under the Proposed  Class B Plan  as it did
under the Existing Class B  Plan for the fiscal  years ended December 31,  1991,
1992  and 1993. As  of December 31,  1993, the aggregate  amount of distribution
expenses incurred  and not  yet  reimbursed by  the  Fund or  recovered  through
contingent deferred sales charges was approximately $11,763,000.

    Among  the major perceived benefits of a compensation type plan, such as the
Proposed Class B  Plan, over  a reimbursement type  plan, such  as the  Existing

                                       36
<PAGE>
Class  B  Plan,  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 class of shares of a fund in order to
qualify  for reimbursement. Although the Proposed  Class B Plan will continue to
require quarterly reporting to the Board of Directors of the amounts accrued and
paid under the 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  Class  B  Plan.  Thus, the
accounting for the Proposed Class B Plan  would be simplified and the timing  of
when  expenditures are  to be  made by  the Distributor  would not  be an issue.
Currently, because  the Existing  Class  B Plan  is  a reimbursement  plan,  the
Distributor  retains an independent expert to perform a study of its methodology
for determining  and substantiating  which of  its expenses  should properly  be
allocated  to the Fund's Class B shares  for reimbursement, the cost of which is
borne by the  Fund and  other funds for  which Prudential  Securities serves  as
Distributor.  These considerations, combined  with the fact  that the cumulative
expenses incurred  by Prudential  Securities  for Distribution  Activities  have
exceeded  the amounts reimbursed  by the Fund  under the Existing  Class B Plan,
suggest that the  costs and  efforts associated  with a  reimbursement plan  are
unwarranted.

    In  considering whether to approve the  Proposed Class B Plan, the Directors
reviewed, among  other  things, the  nature  and scope  of  the services  to  be
provided  by Prudential Securities, the  purchase options available to investors
under the  Alternative  Purchase Plan,  the  amount of  expenditures  under  the
Existing Class B Plan, the relationship of such expenditures to the overall cost
structure  of  the  Fund,  and comparative  data  with  respect  to distribution
arrangements adopted by other investment companies. Based upon such review,  the
Directors,  including a  majority of the  Rule 12b-1  Directors, determined that
there is a reasonable likelihood that the Proposed Class B Plan will benefit the
Fund and its Class B shareholders.

                                       37
<PAGE>
    If approved by Class B shareholders, the Proposed Class B Plan will continue
in  effect from  year to  year, provided such  continuance is  approved at least
annually by vote of a majority of  the Board of Directors, including a  majority
of the Rule 12b-1 Directors.

REQUIRED VOTE

    The  Proposed Class B Plan requires the approval of a majority of the Fund's
outstanding Class  B  shares  as  defined in  the  Investment  Company  Act  and
described  under  Proposal No.  3 above.  If the  Proposed Class  B Plan  is not
approved, the Existing Class B Plan will continue in its present form.

    THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 4.

               APPROVAL OF ELIMINATION OF THE FUND'S FUNDAMENTAL
                  INVESTMENT RESTRICTIONS REGARDING RESTRICTED
                            AND ILLIQUID SECURITIES
                                (PROPOSAL NO. 5)

    On May 5, 1993,  at the request  of the Fund's  Manager and Subadviser,  the
Board  of Directors considered and  recommends for shareholder approval revision
of  the  Fund's  fundamental  investment  restrictions  regarding  illiquid  and
restricted securities. The current restrictions are overly confining in light of
the  development of an active market  in those securities that, although subject
to restrictions on resale,  are transferable under SEC  Rule 144A. The Board  of
Directors  recommends elimination of  the Fund's Investment  Restriction No. 11,
which limits the purchase of any  security that is restricted as to  disposition
under federal securities laws.

    Investment Restriction No. 11 currently provides the Fund may not:

    11.  Purchase  any  security  (other than  OTC  Options  on  U.S. Government
securities) restricted as to disposition  under federal securities laws.  (Since
any  foreign  securities acquired  by the  Fund will  be disposed  of only  in a
foreign market, foreign securities are not regarded as restricted.)

    Further, the Board recommends modification of Investment Restriction No.  14
to  eliminate restrictions on investments in  equity securities for which market
quotations are not readily available  and repurchase agreements with  maturities
of longer than 7 days and other illiquid assets.

                                       38
<PAGE>
    Investment  Restriction  No.  14  is  proposed  to  be  amended  as  follows
(deletions are in brackets) to provide that the Fund may not:

    14. Make  loans,  except  through  (i)  repurchase  agreements  [(repurchase
agreements  with a  maturity of  longer than 7  days together  with other liquid
assets being limited  to 10%  of the  Fund's total  assets)] and  (ii) loans  of
portfolio  securities.  (The purchase  of a  portion of  an issue  of securities
distributed publicly,  whether or  not  the purchase  is  made on  the  original
issuance, is not considered the making of a loan).

    The Board recommends replacement of such fundamental investment restrictions
with  a non-fundamental investment policy that could  be modified by the vote of
the Board of Directors in response to regulatory or market developments  without
further  approval by shareholders. The change would expand the Fund's ability to
invest in  securities which  have  restrictions on  resale  but have  a  readily
available  institutional market, such as securities eligible for resale pursuant
to Rule 144A under the Securities Act of 1933 (the Securities Act). The proposed
non-fundamental policy would provide as follows:

      The Fund  may invest up to  15% of its net  assets in illiquid  securities
    including  repurchase agreements which have a  maturity of longer than seven
    days,  securities  with   legal  or  contractual   restrictions  on   resale
    (restricted  securities)  and securities  that  are not  readily marketable.
    Restricted securities eligible for  resale pursuant to  Rule 144A under  the
    Securities  Act  that 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  Board of Directors. 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 investment  adviser or the
Board of  Directors to  affect the  Fund's liquidity  because it  excludes  from
illiquid securities only those Rule 144A securities for which there is a readily
available market.

    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

                                       39
<PAGE>
significantly,  with the  result that  new types  of instruments  have developed
which make the Fund's present  restriction on illiquid investments overly  broad
and  unnecessarily restrictive in the view of the Fund's 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 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 Fund's ability to invest in  securities
which  are  eligible for  resale  pursuant to  Rule  144A. Rule  144A securities
generally have a readily available institutional market, and the proposed change
would permit the Fund to invest up to 15% of its net assets in illiquid  assets.
The  markets for certain equity securities, corporate bonds and notes are almost
exclusively institutional. The  institutional investors depend  on an  efficient
institutional  market in which the unregistered  security can be readily resold.
In the opinion of the  Fund's Manager, the fact  that there are restrictions  on
resale  to the  general public  is therefore  not necessarily  indicative of the
liquidity of such investments. If designated as liquid (under the supervision of
the Board of Directors), these Rule 144A securities would be exempt from the 15%
limitation.

    In order to take advantage  of the market for  Rule 144A securities and  the
increasingly  liquid institutional trading markets,  the Manager recommends that

                                       40
<PAGE>
the Fund eliminate  its fundamental policies  regarding illiquid and  restricted
securities  so  that Rule  144A securities  that are  nonetheless liquid  may be
purchased without regard to the current limitations. By making the Fund's policy
on illiquid securities non-fundamental,  the Fund 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 Board  of Directors,  will monitor  the liquidity  of specific  types of
securities and, based on their recommendations, the Board of Directors 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  the  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).

    The  Board of Directors believes  that adoption of Proposal  No. 5 is in the
best interests of the Fund and its shareholders.

REQUIRED VOTE

    Adoption of Proposal No. 5 requires the affirmative vote of the holders of a
majority of the outstanding voting securities. Under the Investment Company Act,
a majority of the Fund's outstanding voting securities is defined as the  lesser
of  (i) 67% of the  Fund's outstanding shares represented  at a meeting at which
more than  50%  of  the Fund's  outstanding  shares  are present  in  person  or
represented by proxy, or (ii) more than 50% of the Fund's outstanding shares. If
the   proposed  change  in  investment  policy  is  not  approved,  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 Fund.

    THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 5.

                                       41
<PAGE>
                APPROVAL OF ELIMINATION OF THE FUND'S INVESTMENT
             RESTRICTION LIMITING THE FUND'S ABILITY TO INVEST IN A
             SECURITY IF THE FUND WOULD HOLD MORE THAN TEN PERCENT
                    OF ANY CLASS OF SECURITIES OF AN ISSUER
                                (PROPOSAL NO. 6)

    On May 6, 1993,  at the request  of the Fund's  Manager and Subadviser,  the
Board   of  Directors   considered  and  recommends   for  shareholder  approval
elimination of  Investment Restriction  No.  5 to  delete the  restriction  that
prohibits  the Fund from purchasing a security if the Fund would hold thereafter
more than ten percent of any class of securities of an issuer.

    The Fund currently may not purchase a  security if the Fund would then  hold
more  than 10% of any class of  securities of an issuer. Under this restriction,
all debt issues are each taken as  a single class. Investment Restriction No.  5
currently provides that the Fund may not:

         Purchase any security if as a result the Fund would then hold more than
    10% of any class of  securities of an issuer (taking  all debt issues of  an
    issuer as a single class).

    The  Fund's  Subadviser  believes  the  restriction  is  confining  and  has
requested its deletion. This restriction, in  its current form, is not  required
under  federal  securities  laws.  If  the proposal  is  approved,  and  a state
securities commission  requires inclusion  of this  limitation, the  Fund  would
continue to comply with the restriction as a non-fundamental operating policy so
long as the Fund sells its shares in that state.

    Currently,  the Fund may  not hold more  than 10% of  the outstanding voting
securities of an issuer  pursuant to Section 5(b)(1)  of the Investment  Company
Act and state securities laws. This restriction would remain in effect.

    The  Board of Directors believes  that adoption of Proposal  No. 6 is in the
best interests of the Fund and its shareholders.

REQUIRED VOTE

    Adoption of  Proposal No.  6 requires  the  approval of  a majority  of  the
outstanding  voting securities of the Fund, as defined by the Investment Company
Act and  described  under  Proposal No.  5  above.  If the  proposed  change  in
investment  policy  is  not  approved, the  current  limitation  would  remain a
fundamental policy which could not be changed without the approval of a majority
of the outstanding voting securities of the Fund.

                                       42
<PAGE>
    THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 6.

                APPROVAL OF ELIMINATION OF THE FUND'S INVESTMENT
            RESTRICTION LIMITING INVESTMENT IN THE SECURITIES OF ANY
             ISSUER IN WHICH THE OFFICERS AND DIRECTORS OF THE FUND
          OR ITS INVESTMENT ADVISER OWN MORE THAN A SPECIFIED INTEREST
                                (PROPOSAL NO. 7)

    On May 6, 1993, at the request of the Fund's Manager, the Board of Directors
considered and recommends  for shareholder  approval elimination  of the  Fund's
Investment Restriction No. 7, which provides that the Fund may not:

         Purchase securities of any issuer if, to the knowledge of the Fund, any
    officer or director of the Fund or of  the Manager owns more than 1/2 of  1%
    of  the  outstanding  securities  of  such  issuer,  and  such  officers and
    directors who own more than 1/2 of 1%  own in the aggregate more than 5%  of
    the outstanding securities of such issuer.

    The Manager has advised the Board of Directors that the restriction upon the
Fund's investing in companies in which officers and directors of the Fund or the
Manager  own more than 1/2  of 1% of the  outstanding securities of such company
was initially adopted to  comply with a restriction  imposed in connection  with
the  sale of the  Fund's shares in Ohio.  If the proposal  is approved, the Fund
would continue to  comply with  the restriction as  a non-fundamental  operating
policy  so long as the Fund  sells its shares in Ohio.  However, if Ohio were to
eliminate the requirement or  the Fund stopped offering  its shares for sale  in
Ohio,  the Board of  Directors could eliminate the  operating policy without the
necessity of shareholder approval.  The Fund does not  currently intend to  stop
offering its shares in Ohio, nor are the Fund or the Fund's Manager aware of any
proposal to change the Ohio law.

    The  Board of Directors believes  that adoption of Proposal  No. 7 is in the
best interests of the Fund and its shareholders.

REQUIRED VOTE

    Amendment  of  the  Fund's  investment  restrictions  to  delete  Investment
Restriction  No. 7 requires the approval of a majority of the Fund's outstanding
voting securities, as defined in the Investment Company Act and described  under
Proposal  No.  5 above.  If  the proposed  change  in investment  policy  is not

                                       43
<PAGE>
approved, 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 Fund.

    THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 7.

               APPROVAL OF AN AMENDMENT OF THE FUND'S ARTICLES OF
                  INCORPORATION TO CHANGE THE NAME OF THE FUND
                                (PROPOSAL NO. 8)

    The Board  of  Directors proposes  that  the  Fund's name  be  changed  from
Prudential-Bache  GNMA Fund,  Inc. to  Prudential GNMA  Fund, Inc.  and that the
Articles of Incorporation of the Fund be amended to effect the name change.  The
Fund is currently doing business under the name Prudential GNMA Fund.

    The   Board  of   Directors  considered   the  proposed   name  change  from
"Prudential-Bache" to "Prudential" in connection with the change in the name  of
Prudential-Bache   Securities   Inc.  to   Prudential   Securities  Incorporated
(Prudential Securities), Distributor of the Fund's Class B shares. Management of
the Fund expressed its  opinion that the proposed  name, "Prudential GNMA  Fund,
Inc."  more  accurately reflects  the  Fund's affiliation  with  PMF, Prudential
Securities and  The  Prudential  Insurance  Company  of  America,  their  parent
company.

    The  Board of Directors believes  that adoption of Proposal  No. 8 is in the
best interest of the Fund and its shareholders.

REQUIRED VOTE

    The name change must be approved by the holders of a majority of the  Fund's
shares  of common stock in accordance with the Fund's Articles of Incorporation.
The name change  will be effected  as soon as  is practicable after  shareholder
approval. If this proposal is not approved, the Board of Directors will consider
whether it is appropriate for the Fund to continue to do business under the name
Prudential GNMA Fund.

    THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 8.

                                       44
<PAGE>
                    RATIFICATION OF INDEPENDENT ACCOUNTANTS
                                (PROPOSAL NO. 9)

    The  Board  of  Directors  of  the Fund,  including  Directors  who  are not
interested persons of  the Fund,  has selected Price  Waterhouse as  independent
accountants  for the  Fund for  the fiscal  year ending  December 31,  1994. 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
will vote  for  Price  Waterhouse.  No representative  of  Price  Waterhouse  is
expected to be present at the Meeting of Shareholders.

    The  policy  of  the  Board  of  Directors'  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) meet(s) any and  all
of  the independence requirements of the  American Institute of Certified Public
Accountants and the  SEC. In accordance  with this policy,  the Audit  Committee
reviews and approves all services provided by the independent public accountants
prior  to their being  rendered. The Board  of Directors of  the Fund receives a
report from its 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 shares  present, in person or by
proxy, at the Meeting is required for ratification.

    THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 9.

                                 OTHER MATTERS

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

                             SHAREHOLDER PROPOSALS

    The  Fund is not  required to hold  annual meetings of  shareholders and the
Board of  Directors currently  does  not intend  to  hold such  meetings  unless
shareholder  action is required in accordance with the Investment Company Act or
the Fund's  By-laws. A  shareholder proposal  intended to  be presented  at  any

                                       45
<PAGE>
meeting  of shareholders of the Fund hereinafter  called must be received by the
Fund a  reasonable time  before the  Board of  Directors' solicitation  relating
thereto  is made in order to be included  in the Fund's proxy statement and form
of Proxy  relating to  that meeting.  The mere  submission of  a proposal  by  a
shareholder  does not guarantee that such proposal will be included in the proxy
statement because  certain  rules under  the  Federal securities  laws  must  be
complied with before inclusion of the proposal is required.

                                                  S. JANE ROSE
                                                    SECRETARY
Dated: March   , 1994

    SHAREHOLDERS  WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING AND WHO WISH TO
HAVE THEIR SHARES VOTED ARE  REQUESTED TO DATE AND  SIGN THE ENCLOSED PROXY  AND
RETURN  IT IN  THE ENCLOSED ENVELOPE.  NO POSTAGE  IS REQUIRED IF  MAILED IN THE
UNITED STATES.

                                       46
<PAGE>
                                                                       EXHIBIT A

            PRUDENTIAL MUTUAL FUND MANAGEMENT, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
                               DECEMBER 31, 1993

                                     ASSETS

<TABLE>
<S>                                                     <C>
CASH AND SHORT-TERM INVESTMENTS.......................  $42,667,507
LOAN TO AFFILIATE.....................................   85,000,000
MANAGEMENT, ADMINISTRATION AND OTHER FEES
 RECEIVABLE...........................................   17,897,292
TRANSFER AGENCY AND FIDUCIARY FEES RECEIVABLE.........    3,744,874
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS,
 NET..................................................   10,495,702
OTHER ASSETS..........................................    4,676,430
                                                        -----------
                                                        $164,481,805
                                                        -----------
                                                        -----------
               LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
  Due to affiliates...................................  $48,794,366
  Accounts payable and accrued expenses...............   11,208,209
  Income taxes payable to affiliate -- net............    2,937,828
                                                        -----------
                                                         62,940,403
                                                        -----------
COMMITMENTS (Note 6)
STOCKHOLDERS' EQUITY:
  Class A common stock, $1 par value (1,000 shares
   authorized, 850 shares outstanding)................          850
  Class B common stock, $1 par value (1,000 shares
   authorized, 150 shares outstanding)................          150
  Additional paid-in capital..........................   24,999,000
  Retained earnings...................................   76,541,402
                                                        -----------
                                                        101,541,402
                                                        -----------
                                                        $164,481,805
                                                        -----------
                                                        -----------
</TABLE>

          See notes to consolidated statement of financial condition.

                                      A-1
<PAGE>
            PRUDENTIAL MUTUAL FUND MANAGEMENT, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
                               DECEMBER 31, 1993

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    Prudential  Mutual  Fund  Management,  Inc.  ("PMF")  and  subsidiaries (the
"Company"), an  indirect wholly-owned  subsidiary  of The  Prudential  Insurance
Company  of America (the "Prudential"), were  created to operate as the manager,
distributor and/or transfer agent for investment companies.

    PRINCIPLES OF CONSOLIDATION

    The consolidated financial statement  includes the accounts  of PMF and  its
wholly-owned  subsidiaries, Prudential  Mutual Fund Services,  Inc. ("PMFS") and
Prudential Mutual Fund  Distributors, Inc. ("PMFD").  All intercompany  profits,
transactions and balances have been eliminated.

    INCOME TAXES

    The  Company is a  member of a  group of affiliated  companies which join in
filing a consolidated Federal  income tax return. Pursuant  to a tax  allocation
agreement,  tax expense is  determined for individual  profitable companies on a
separate return basis. Profit members pay  this amount to an affiliated  company
which  in turn apportions  the payment among  the loss members  in proportion to
their losses.  In  January 1993,  the  Company adopted  Statement  of  Financial
Accounting  Standards No. 109,  "Accounting for Income  Taxes" ("SFAS 109"). The
adoption of SFAS 109 did not have  a material effect on the Company's  financial
position.

2.  SHORT-TERM INVESTMENTS
    At  December 31, 1993, the Company had invested $35,411,571 in several money
market funds which PMF manages.

3.  FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
    Furniture, equipment and leasehold improvements consist of the following:

<TABLE>
<S>                                              <C>
Furniture......................................  $6,481,799
Equipment......................................   9,181,984
Leasehold improvements.........................   3,407,213
                                                 ----------
                                                 19,070,996
Less accumulated depreciation and
 amortization..................................   8,575,294
                                                 ----------
                                                 $10,495,702
                                                 ----------
                                                 ----------
</TABLE>

                                      A-2
<PAGE>
4.  RELATED PARTY TRANSACTIONS
    In the ordinary course of business, the Company participates in a variety of
financial and administrative transactions with affiliates.

    The loan to affiliate  bears interest at 3.45  percent at December 31,  1993
and is due on demand.

    The  caption "Due to  affiliates" includes $18,241,795  at December 31, 1993
for  reimbursement   of   employee   compensation  and   benefits,   and   other
administrative  and operating  expenses. This amount  is noninterest-bearing and
payable on demand.

    The Company  has entered  into subadvisory  agreements with  The  Prudential
Investment  Corporation ("PIC"), a wholly-owned  subsidiary of Prudential. Under
these agreements, PIC  furnishes investment advisory  services to  substantially
all  the funds for which the Company acts as Manager. At December 31, 1993 there
were unpaid fees  due to PIC  of $23,926,277,  included in the  caption "Due  to
affiliates."

    Distribution  expenses include  commissions and account  servicing fees paid
to, or on account of,  financial advisors of Prudential Securities  Incorporated
("Prudential   Securities")   and  Pruco   Securities   Corporation  ("PruSec"),
affiliated broker-dealers and indirect wholly-owned subsidiaries of  Prudential,
advertising expenses, the cost of printing and mailing prospectuses to potential
investors,  and indirect and overhead costs of Prudential Securities and PruSec,
including lease,  utility,  communications  and  sales  promotion  expenses.  At
December  31,  1993 there  were  unpaid distribution  expenses  of approximately
$6,626,000, included in the caption "Due to affiliates."

5.  CAPITAL
    PMFD is subject  to the SEC  Uniform Net Capital  Rule (Rule 15c3-1),  which
requires  the maintenance of minimum net capital  and requires that the ratio of
aggregate indebtedness to net capital, both  as defined, shall not exceed 15  to
1.  At  December  31,  1993,  PMFD had  net  capital  of  $2,308,981,  which was
$1,859,405 in excess of its required net  capital of $449,576. PMFD had a  ratio
of aggregate indebtedness to net capital of 2.9 to 1.

                                      A-3
<PAGE>
6.  COMMITMENTS
    The Company leases office space under operating leases expiring in 2003. The
leases  are  subject to  escalation  based upon  certain  costs incurred  by the
lessor. Future minimum rentals, as of  December 31, 1993, under the leases,  are
as follows:

<TABLE>
<CAPTION>
Year                                                       Minimum Rental
- --------------------------------------------------------  ----------------
<S>                                                       <C>
1994....................................................   $    2,738,000
1995....................................................        2,865,000
1996....................................................        3,375,000
1997....................................................        3,385,000
1998....................................................        3,230,000
Thereafter..............................................       13,800,000
                                                          ----------------
                                                           $   29,393,000
                                                          ----------------
                                                          ----------------
</TABLE>

7.  PENSION AND OTHER POSTRETIREMENT BENEFITS
    The Company has two defined benefit pension plans (the "Plans") sponsored by
the  Prudential and Prudential Securities. The  Plans cover substantially all of
the Company's employees. The funding policy is to contribute annually the amount
necessary  to  satisfy  the  Internal  Revenue  Service  funding  standards.  In
addition,  the Company  has two  defined benefit  plans for  key executives, the
Supplemental Retirement  Plan  (SRP)  for  which  estimated  pension  costs  are
currently accrued but not funded.

    The  Company provides  certain health care  and life  insurance benefits for
eligible retired  employees.  Effective January  1,  1993, the  Company  adopted
Statement  of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("SFAS 106"). SFAS 106 changed  the
practice of accounting for postretirement benefits on a cash basis to an accrual
basis,  whereby employers  record the  projected future  cost of  providing such
postretirement benefits as  employees render services  instead of when  benefits
are paid. This new accounting method has no effect on the Company's cash outlays
for  these  retirement benefits.  The adoption  of SFAS  106 did  not materially
impact the Company's financial position.

    The Financial Accounting Standards Board  has issued Statement of  Financial
Accounting   Standards  No.  112,   "Employers'  Accounting  for  Postemployment
Benefits," ("SFAS  112") which  is effective  for fiscal  years beginning  after
December  15, 1993. Although several benefits  are fully insured which result in
no SFAS 112 obligation,  the Company currently has  an obligation and  resulting

                                      A-4
<PAGE>
7.  PENSION AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
expense under SFAS 112 for medical benefits provided under long-term disability.
The  Company will adopt  SFAS 112 on  January 1, 1994.  Management believes that
implementation will have no material effect on the Company's financial position.

8.  CONTINGENCY
    On October 12, 1993, a purported class action lawsuit was instituted against
PMF, et al and certain  current and former directors of  a fund managed by  PMF.
The  plaintiffs seek damages  in an unspecified  amount for excessive management
and distribution fees they allege were incurred by them. Although the outcome of
this litigation cannot be  predicted at this time,  the defendants believe  they
have  meritorious defenses to the claims asserted in the complaint and intend to
defend this action vigorously. In any case, management does not believe that the
outcome of  this action  is likely  to have  a material  adverse effect  on  the
Company's financial position.

                                      A-5
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

To the Stockholders and Board of Directors of
Prudential Mutual Fund Management, Inc.:

    We  have  audited  the  accompanying  consolidated  statement  of  financial
condition of  Prudential Mutual  Fund Management,  Inc. and  subsidiaries as  of
December  31, 1993. This consolidated  financial statement is the responsibility
of the Company's management. Our responsibility is to express an opinion on this
consolidated financial statement based on our audit.

    We conducted  our  audit  in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statement is  free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the  amounts  and  disclosures  in  the  consolidated  statement  of
financial condition. An audit also includes assessing the accounting  principles
used  and significant  estimates made by  management, as well  as evaluating the
overall financial statement presentation. We  believe that our audit provides  a
reasonable basis for our opinion.

    In  our opinion, such consolidated statement of financial condition presents
fairly, in all material  respects, the financial  position of Prudential  Mutual
Fund  Management, Inc. and subsidiaries at  December 31, 1993 in conformity with
generally accepted accounting principles.

DELOITTE & TOUCHE

New York, New York
January 26, 1994

                                      A-6
<PAGE>
                                                                       EXHIBIT B

                 FORM OF AMENDMENT TO ARTICLES OF INCORPORATION

    Article V, Section 1 of the Fund's Articles of Incorporation are proposed to
be amended and restated as follows:

                                   ARTICLE V
                                  COMMON STOCK

    Section  1.    The  total  number  of  shares  of  capital  stock  which the
Corporation shall have authority to issue is 500,000,000 shares of the par value
of $.0l per share  and of the  aggregate par value of  $5,000,000 to be  divided
initially into three classes, consisting of 166,666,666 shares of Class A Common
Stock,  166,666,666 shares  of Class  B Common  Stock and  166,666,668 shares of
Class C Common Stock.

        (a) Each share  of Class  A, Class  B and Class  C Common  Stock of  the
    Corporation  shall represent the  same interest in  the Corporation and have
    identical voting, dividend,  liquidation and  other rights  except that  (i)
    Expenses  related to the distribution of each class of shares shall be borne
    solely by such class; (ii) The bearing of such expenses solely by shares  of
    each class shall be appropriately reflected (in the manner determined by the
    Board  of Directors)  in the  net asset  value, dividends,  distribution and
    liquidation rights of  the shares of  such class; (iii)  The Class A  Common
    Stock  shall  be  subject  to  a  front-end  sales  load  and  a  Rule 12b-1
    distribution fee as determined by the Board of Directors from time to  time;
    (iv)  The Class  B Common  Stock shall be  subject to  a contingent deferred
    sales charge and a Rule 12b-1 distribution fee as determined by the Board of
    Directors from time to time; and (v)  The Class C Common Stock shall not  be
    subject  to either an initial or contingent deferred sales charge, but shall
    be subject to a Rule  12b-1 distribution fee as  determined by the Board  of
    Directors  from  time to  time. All  shares of  each particular  class shall
    represent an equal proportionate interest in  that class, and each share  of
    any particular class shall be equal to each other share of that class.

        (b)  Each share of the Class B Common Stock of the Corporation, shall be
    converted automatically, and without any action or choice on the part of the
    holder thereof, into  shares (including  fractions thereof) of  the Class  A
    Common  Stock  of  the  Corporation  (computed  in  the  manner  hereinafter
    described), at the applicable net asset value of each Class, at the time  of
    the  calculation of the net asset value of such Class B Common Stock at such
    times, which may vary between shares  originally issued for cash and  shares
    purchased  through the automatic reinvestment of dividends and distributions
    with respect to Class B Common Stock (each "Conversion Date"), determined by
    the  Board  of  Directors  in   accordance  with  applicable  laws,   rules,
    regulations,  and interpretations of the  Securities and Exchange Commission
    and the National Association of Securities

                                      B-1
<PAGE>
    Dealers, Inc. and  pursuant to such  procedures as may  be established  from
    time  to time by the  Board of Directors and  disclosed in the Corporation's
    then current prospectus for such Class A and Class B Common Stock.

        (c) The number of shares of the Class A Common Stock of the  Corporation
    into  which a  share of the  Class B  Common Stock is  converted pursuant to
    Section (1) (b) hereof  shall equal the number  (including for this  purpose
    fractions  of a share) obtained by dividing the net asset value per share of
    the Class B Common  Stock for purposes of  sales and redemptions thereof  at
    the time of the calculation of the net asset value on the Conversion Date by
    the  net asset value per  share of the Class A  Common Stock for purposes of
    sales and redemptions  thereof at  the time of  the calculation  of the  net
    asset value on the Conversion Date.

        (d)  On the Conversion Date,  the shares of the  Class B Common Stock of
    the Corporation converted into shares of the Class A Common Stock will cease
    to accrue dividends and will no longer be outstanding and the rights of  the
    holders  thereof will cease (except the right to receive declared but unpaid
    dividends to the Conversion Date).

        (e) The Board of Directors shall have full power and authority to  adopt
    such  other terms and conditions concerning  the conversion of shares of the
    Class B Common  Stock to shares  of the Class  A Common Stock  as they  deem
    appropriate;  provided such terms  and conditions are  not inconsistent with
    the terms contained  in this Section  1 and subject  to any restrictions  or
    requirements  under  the  Investment  Company Act  of  1940  and  the rules,
    regulations  and  interpretations  thereof  promulgated  or  issued  by  the
    Securities  and Exchange Commission, any conditions or limitations contained
    in an order issued by the  Securities and Exchange Commission applicable  to
    the  Corporation,  or any  restrictions or  requirements under  the Internal
    Revenue  Code  of  1986,  as   amended,  and  the  rules,  regulations   and
    interpretations promulgated or issued thereunder.

                                      B-2
<PAGE>
                                                                       EXHIBIT C

                              PRUDENTIAL GNMA FUND
                         DISTRIBUTION AND SERVICE PLAN
                                (CLASS A SHARES)
                                  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  GNMA Fund, Inc.  (the Fund) and by
Prudential  Mutual  Fund  Distributors,   Inc.,  the  Fund's  distributor   (the
Distributor).

    The  Fund  has  entered  into  a  distribution  agreement  (the Distribution
Agreement) pursuant to which the Fund will employ the Distributor to  distribute
Class  A shares  issued by  the Fund  (Class A  shares). Under  the Distribution
Agreement, the Distributor will be  entitled to receive payments from  investors
of front-end sales charges with respect to the sale of Class A shares. Under the
Plan,  the  Fund intends  to pay  to  the Distributor,  as compensation  for its
services, a distribution and service fee with respect to Class A shares.

    A majority of the Board  of Directors of the  Fund, including a majority  of
those  Directors 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),  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 Fund and its shareholders. Expenditures
under this Plan  by the  Fund for  Distribution Activities  (defined below)  are
primarily  intended to result in  the sale of Class A  shares of the Fund 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 Fund, 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.

                                      C-1
<PAGE>
                                    THE PLAN

    The material aspects of the Plan are as follows:

    1.  DISTRIBUTION ACTIVITIES

        The  Fund shall engage  the Distributor to distribute  Class A shares of
    the Fund 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 Class
    A shares of the Fund 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 of
    .25 of 1% per annum  of the average daily net  assets of the Class A  shares
    (service  fee). The Fund shall calculate and accrue daily amounts payable by
    the Class A shares of the Fund hereunder and shall pay such amounts  monthly
    or at such other intervals as the Board of Directors may determine.

    3.  PAYMENT FOR DISTRIBUTION ACTIVITIES

        The Fund shall pay to the Distributor as compensation for its services a
    distribution  fee, together  with the  service fee  (described in  Section 2
    hereof), of .30 of 1% per annum of the average daily net assets of the Class
    A shares of  the Fund for  the performance of  Distribution Activities.  The
    Fund  shall calculate and accrue daily amounts payable by the Class A shares
    of the Fund hereunder and  shall pay such amounts  monthly or at such  other
    intervals as the Board of Directors may determine. Amounts payable under the
    Plan  shall be subject to the limitations  of Article III, Section 26 of the
    NASD Rules of Fair Practice.

        Amounts paid to the Distributor  by the Class A shares of the Fund  will
    not  be used to pay  the distribution expenses incurred  with respect to any
    other class  of  shares  of  the  Fund  except  that  distribution  expenses
    attributable  to the Fund as a whole will be allocated to the Class A shares
    according to the ratio of the sales of Class A shares to the total sales  of
    the  Fund's  shares over  the Fund's  fiscal year  or such  other allocation
    method approved by the  Board of Directors.  The allocation of  distribution
    expenses  among  classes will  be  subject to  the  review of  the  Board of
    Directors.

                                      C-2
<PAGE>
         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 Class  A shares  of the  Fund, including sales
        commissions and trailer commissions 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 Class A
        shares of the Fund, including sales commissions and trailer  commissions
        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 Fund prospectuses,
        statements of additional information and periodic financial reports  and
        sales literature to persons other than current shareholders of the Fund;
        and

            (d) sales commissions (including trailer commissions) 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 Class A shares of
        the Fund.

    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 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 of the Fund of  the
    commissions  and account  servicing fees  to be  paid by  the Distributor to
    account executives of  the Distributor and  to broker-dealers and  financial
    institutions which have selected dealer agreements with the Distributor.

                                      C-3
<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 Class A shares of the Fund.

        If approved by a vote of a majority of the outstanding voting securities
    of the Class A shares of the Fund, 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 of the  Fund and a majority of  the
    Rule  12b-1 Directors by  votes cast in  person at a  meeting called for the
    purpose of voting on the continuation of the Plan.

    6.  TERMINATION

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

    7.  AMENDMENTS

        The  Plan  may  not  be  amended  to  change  the  combined  service and
    distribution expenses 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 Class  A
    shares of the Fund. All material amendments of the Plan shall be approved by
    a  majority of the Board of Directors of the Fund and a majority of the Rule
    12b-1 Directors by votes cast in person at a meeting called for the  purpose
    of voting on the Plan.

    8.  RULE 12B-1 DIRECTORS

        While  the Plan is in  effect, the selection and  nomination of the Rule
    12b-1 Directors  shall be  committed to  the discretion  of the  Rule  12b-1
    Directors.

    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.

Dated:

                                      C-4
<PAGE>
                                                                       EXHIBIT D

                              PRUDENTIAL GNMA FUND
                         DISTRIBUTION AND SERVICE PLAN
                                (CLASS B SHARES)
                                  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  GNMA Fund, Inc.  (the Fund) and by
Prudential  Securities   Incorporated   (Prudential  Securities),   the   Fund's
distributor (the Distributor).

    The  Fund  has  entered  into  a  distribution  agreement  (the Distribution
Agreement) pursuant to which the Fund will employ the Distributor to  distribute
Class  B shares  issued by  the Fund  (Class B  shares). Under  the Distribution
Agreement, the Distributor will be  entitled to receive payments from  investors
of contingent deferred sales charges imposed with respect to certain repurchases
and redemptions of Class B shares. Under the Plan, the Fund wishes to pay to the
Distributor,  as compensation for  its services, a  distribution and service fee
with respect to Class B shares.

    A majority of the Board  of Directors of the  Fund including a majority  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), 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 Fund and its shareholders. Expenditures under this Plan by the
Fund for  Distribution  Activities (defined  below)  are primarily  intended  to
result in the sale of Class B shares of the Fund 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 Fund, 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.

                                      D-1
<PAGE>
                                    THE PLAN

    The material aspects of the Plan are as follows:

    1.  DISTRIBUTION ACTIVITIES

        The  Fund shall engage  the Distributor to distribute  Class B shares of
    the Fund and to service shareholder accounts using all of the facilities  of
    the Prudential Securities distribution network 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,  including Pruco Securities  Corporation (Prusec). Services provided
    and activities  undertaken to  distribute Class  B shares  of the  Fund  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  of
    .25  of 1% per annum of  the average daily net assets  of the Class B shares
    (service fee). The Fund shall calculate and accrue daily amounts payable  by
    the  Class B shares of the Fund hereunder and shall pay such amounts monthly
    or at such other intervals as the Board of Directors/Trustees may determine.

    3.  PAYMENT FOR DISTRIBUTION ACTIVITIES

        The Fund shall pay to the Distributor as compensation for its services a
    distribution fee,  together with  the service  fee (described  in Section  2
    hereof), of .75 of 1% per annum of the average daily net assets of the Class
    B  shares of  the Fund for  the performance of  Distribution Activities. The
    Fund shall calculate and accrue daily amounts payable by the Class B  shares
    of  the Fund hereunder and  shall pay such amounts  monthly or at such other
    intervals as the Board of Directors may determine. Amounts payable under the
    Plan shall be subject to the limitations  of Article III, Section 26 of  the
    NASD Rules of Fair Practice.

        Amounts  paid to the Distributor by the  Class B shares of the Fund will
    not be used to  pay the distribution expenses  incurred with respect to  any
    other  class  of  shares  of  the  Fund  except  that  distribution expenses
    attributable to the Fund as a whole will be allocated to the Class B  shares
    according  to the ratio of the sale of  Class B shares to the total sales of
    the Fund's  shares over  the Fund's  fiscal year  or such  other  allocation
    method

                                      D-2
<PAGE>
    approved  by the Board of Directors. The allocation of distribution expenses
    among classes will be subject to the review of the Board of Directors.
        The Distributor  shall spend  such amounts  as it  deems appropriate  on
    Distribution Activities which include, among others:

            (a) sales commissions (including trailer commissions) paid to, or on
        account of, account executives of the Distributor;

            (b)  indirect and overhead costs  of the Distributor associated with
        performance of  Distribution  Activities including  central  office  and
        branch expenses;

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

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

            (e) sales commissions (including trailer commissions) paid to, or on
        account of, broker-dealers and other financial institutions (other  than
        Prusec)  which  have entered  into selected  dealer agreements  with the
        Distributor with respect to Class B shares of the Fund.

    4.  QUARTERLY REPORTS; ADDITIONAL INFORMATION

        An appropriate  officer  of  the  Fund will  provide  to  the  Board  of
    Directors  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 the Rule
    12b-1. The Distributor will  provide to the Board  of Directors of the  Fund
    such  additional  information as  they 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 of  the Fund of the
    commissions and account  servicing fees  to be  paid by  the Distributor  to

                                      D-3
<PAGE>
    account  executives  of  the  Distributor and  to  broker-dealers  and other
    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 the Class B shares of the Fund.
        If approved by a vote of a majority of the outstanding voting securities
    of the Class B shares of the Fund, 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 of the  Fund and a majority of  the
    Rule  12b-1 Directors by  votes cast in  person at a  meeting called for the
    purpose of voting on the continuation of the Plan.

    6.  TERMINATION

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

    7.  AMENDMENTS

        The  Plan  may  not  be  amended  to  change  the  combined  service and
    distribution expenses 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 Class  B
    shares of the Fund. All material amendments of the Plan shall be approved by
    a  majority of the Board of Directors of the Fund and a majority of the Rule
    12b-1 Directors by votes cast in person at a meeting called for the  purpose
    of voting on the Plan.

    8.  RULE 12B-1 DIRECTORS

        While  the Plan is in  effect, the selection and  nomination of the Rule
    12b-1 Directors  shall be  committed to  the discretion  of the  Rule  12b-1
    Directors.

                                      D-4
<PAGE>
    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.

Dated:

                                      D-5
<PAGE>
PLEASE MARK, SIGN,
DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.

PROXY (CLASS A)

YOUR PROXY WILL BE ELECTRONICALLY SCANNED.
CAREFULLY DETACH HERE AND RETURN BOTTOM PORTION ONLY.

PRUDENTIAL GNMA FUND (CLASS A)
ONE SEAPORT PLAZA
NEW YORK, NEW YORK  10292

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.

The undersigned hereby appoints Susan C. Cote, S. Jane Rose and Deborah A. Docs
as proxies, each with the power of substitution, and hereby authorizes each of
them to represent and to vote, as designated below, all the shares of Class A
common stock of Prudential GNMA Fund held of record by the undersigned on
____________, 1994 at the Special Meeting of Shareholders to be held on
____________, 1994, or any adjournment thereof.

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ALL THE PROPOSALS LISTED BELOW.

Your Account No.:
Your voting shares are:

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

1.  Election of Directors

APPROVE ALL NOMINEES   WITHHOLD ALL NOMINEES   WITHHOLD THOSE LISTED ON BACK

TO WITHHOLD AUTHORITY FOR ANY INDIVIDUAL NOMINEE, PLEASE WRITE NAME ON BACK OF
FORM.
Edward D. Beach
Eugene C. Dorsey
Delayne D. Gold
Harry A. Jacobs, Jr
Lawrence C. McQuade
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters

<TABLE>
<S>                                                                                      <C>    <C>       <C>
2.  To approve an amendment of the Fund's Articles of Incorporation to permit a          FOR    AGAINST   ABSTAIN
conversion feature for Class B Shares.                                                   / /      / /       / /

3.  To approve an amended and restated Class A Distribution and Service Plan.            / /      / /       / /

4.  Not applicable to Class A Shareholders.                                              / /      / /       / /

5.  To approve elimination of the Fund's investment restrictions regarding
restricted and illiquid securities.                                                      / /      / /       / /

6.  To approve the elimination of the Fund's investment restriction limiting
the Fund's ability to purchase any security if the Fund would hold more than
10% of any class of securities of an issuer.                                             / /      / /       / /

7.  To approve the elimination of the Fund's investment restriction limiting
the Fund's ability to invest in the securities of any issuer in which officers
and Directors of the Fund or officers and directors of its investment adviser
more than a specified interest.                                                          / /      / /       / /

8.  To approve an amendment of the Fund's Articles of Incorporation to change
the name of the Fund to "Prudential GNMA Fund, Inc."                                     / /      / /       / /

9.  To ratify the selection by the Board of Directors of Price Waterhouse as
independent accountants for the fiscal year ending December 31, 1994.                    / /      / /       / /

10.  To transact such other business as may properly come before the meeting of
any adjournments thereof.                                                                / /      / /       / /
</TABLE>

Only shares of common stock of the Fund of record at the close of business on
_________, 1994 are entitled to notice of and to vote at the Meeting or any
adjournment thereof.

Please sign exactly as name appears at left. When shares are held by joint
tenants, both should sign. When signing as attorney, 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.

_______________________________________
SIGNATURE                  DATE

_______________________________________
SIGNATURE (JOINT OWNERSHIP)
<PAGE>
PLEASE MARK, SIGN,
DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.

PROXY (CLASS B)

YOUR PROXY WILL BE ELECTRONICALLY SCANNED.
CAREFULLY DETACH HERE AND RETURN BOTTOM PORTION ONLY.

PRUDENTIAL GNMA FUND
ONE SEAPORT PLAZA
NEW YORK, NEW YORK  10292

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.

The undersigned hereby appoints Susan C. Cote, S. Jane Rose and Deborah A. Docs
as proxies, each with the power of substitution, and hereby authorizes each of
them to represent and to vote, as designated below, all the shares of Class B
common stock of Prudential GNMA Fund held of record by the undersigned on
_______,1994 at the Special Meeting of Shareholders to be held on _______,
1994, or any adjournment thereof.

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER(S). iF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ALL THE PROPOSALS LISTED BELOW.

Your Account No.:
Your voting shares are:

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

1.  Election of Directors

APPROVE ALL NOMINEES   WITHHOLD ALL NOMINEES   WITHHOLD THOSE LISTED ON BACK

TO WITHHOLD AUTHORITY FOR ANY INDIVIDUAL NOMINEE, PLEASE WRITE NAME ON BACK OF
FORM.

Edward D. Beach
Eugene C. Dorsey
Delayne D. Gold
Harry A. Jacobs, Jr.
Lawrence C. McQuade
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters

<TABLE>
<S>                                                                                   <C>     <C>        <C>
                                                                                      FOR     AGAINST    ABSTAIN
2.  To approve an amendment of the Fund's Articles of Incorporation to permit a
conversion feature for Class B Shares.                                                / /       / /        / /

3.  To approve an amended and restated Class A Distribution and Service Plan.         / /       / /        / /

4.  To approve an amended and restated Class B Distribution and Service Plan.         / /       / /        / /

5.  To approve elimination of the Fund's investment restrictions regarding
restricted and illiquid securities.                                                   / /       / /        / /

6.  To approve the elimination of the Fund's investment restriction limiting
the Fund's ability to purchase any security if the Fund would hold more than
10% of any class of securities of an issuer.                                          / /       / /        / /

7.  To approve the elimination of the Fund's investment restriction limiting
the Fund's ability to invest in the securities of any issuer in which officers
and directors of the Fund or officers and directors of its investment adviser
own more than a specified interest.                                                   / /       / /        / /

8.  To approve an amendment of the Fund's Articles of Incorporation to change
the name of the Fund to "Prudential GNMA Fund, Inc."                                  / /       / /        / /

9.  To ratify the selection by the Board of Directors of Price Waterhouse as
independent accountants for the fiscal year ending December 31, 1994.                 / /       / /        / /

10.  To transact such other business as may properly come before the meeting or
any adjournments thereof.                                                             / /       / /        / /
</TABLE>

Only shares of common stock of the Fund of record at the close of business on
_______, 1994 are entitled to notice of and to vote at the Meeting or any
adjournment thereof.

Please sign exactly as name appears at left. When shares are held by joint
tenants, both should sign. When signing as attorney, 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.

____________________________________
SIGNATURE                DATE

_


© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission