<PAGE>
ANNUAL REPORT
November 30, 1994
Prudential
Government
Securities
Trust
- -------------------
(ICON)
Money Market Series
Intermediate Term Series
U.S. Treasury
Money Market Series
(LOGO)
<PAGE>
LETTER TO
SHAREHOLDERS
January 16, 1995
Dear Shareholder:
Interest rates have risen dramatically over the last six months and money
market fund investors have seen their yields rise. Longer-term interest rates
have also risen, but bond prices fall as interest rates rise, so the average
intermediate-term bond fund produced negative total returns, as measured by
Lipper Analytical Services Inc. We're pleased to note that the all three Series
in the Government Securities Trust produced average returns in this market.
The Fed Raised Short-Term Interest Rates.
Over the last six months, the Federal Reserve Board has raised short-term
interest rates by 2.5 percentage points, in the belief that higher short-term
interest rates were necessary to moderate economic growth and keep inflation in
check. Third-quarter 1994 gross domestic product, which measures the value of
all goods produced and services delivered in the U.S., grew at an annualized
rate of 3.9%, faster than expected, and more than the 2.5% to 3% than the
Federal Reserve would like. Pessimists have argued that inflation must surely
follow even though inflation to date is within the Fed's target when measured
on an actual basis. So it continues to be the fear of rising inflation that
has spooked the markets--the prospect, but not the reality of increasing prices.
As the Federal Reserve raised short-term interest rates, inflation fears in
the bond market pushed rates on intermediate maturities higher as well. Yields
on shorter maturities rose more than yields on long maturities over the last six
months. The yield of the two-year U.S. Treasury rose to 7.3% on November 30,
from 6.0% on May 31, while the 10-year yield edged up to 7.8% from 7.2%.
-1-
<PAGE>
Money Market Series
The Money Market Series seeks high current income, preservation of capital
and maintenance of liquidity from a portfolio of money market instruments issued
by the U.S. Government, its agencies and instrumentalities.
MONEY MARKET SERIES PERFORMANCE
As of November 30, 1994
<TABLE>
<CAPTION>
7-Day Weighted Net Asset Total
Yield* Avg. Mat. (WAM) Value (NAV) Net Assets
<S> <C> <C> <C> <C>
Money Market Series 4.69% 42 days $1.00 $ 637.3 mil.
Donoghue's Money 4.67% 38 days $1.00 N/A
Fund Average (GVT)**
</TABLE>
*Yields will fluctuate from time to time and past performance is not
indicative of future results.
**This is the average 7-day yield, WAM and NAV of 212 funds in Donoghue's
Money Fund Average/U.S. Government Category for the week ending November 29.
An investment in the Series is neither insured nor guaranteed by the U.S.
Government and there can be no assurance that it will be able to maintain a
stable net asset value of $1.00 per share.
Money Market Yields Top 4%.
For the first time in two and half years, the Money Market Series' 7-day
yield has topped 4%. When we last reported to you on May 31, the Series' 7-day
yield was 3.18%. Our current 7-day yield of 4.69% is slightly higher than
Donoghue's U.S. Government Money Market average of 4.67%.
In this period of rising rates, the Series has shortened its weighted average
maturity (WAM) significantly from our position a year ago so we can reinvest
the proceeds from maturing notes more quickly at higher rates. In addition,
we increased our holdings in floating and variable rate instruments. The
coupons on these securities adjust periodically to reflect current interest
rates, so they help enhance yield when rates rise.
The floating rate notes we purchase are based on a money market index such
as LIBOR (London Interbank Offered Rate), the 3-month U.S. Treasury bill, or
the federal funds rate. These securities pay the quoted index rate plus a
specified margin, and the rate resets at a specified time period, such as
daily, weekly or monthly.
The Series held its WAM fairly steady, ending at 42 days on November 30,
compared to 39 days on May 31 and 64 days on November 30, 1993. In addition, we
increased our holdings in floating and variable rate instruments to 25% of
assets from 21% on May 31.
-2-
<PAGE>
U.S. Treasury Money Market Series
The U.S. Treasury Money Market Series seeks high current income consistent
with preservation of capital and maintenance of liquidity from a portfolio of
U.S. Treasury obligations with maturities of 13 months or less. During the
last six months, the U.S. Treasury Money Market Series produced yields
competitive with the Donoghue Government Money Fund Averages.
U.S. TREASURY MONEY MARKET SERIES PERFORMANCE
As of November 30, 1994
<TABLE>
<CAPTION>
7-Day Weighted Net Asset Total
Yield* Avg. Mat. (WAM) Value (NAV) Net Assets
<S> <C> <C> <C> <C>
U.S. Treasury Series 4.64% 45 days $1.00 $294.0 mil.
Donoghue's Money 4.50% 46 days $1.00 N/A
Fund Averages (TR)**
</TABLE>
* Yields will fluctuate from time to time and past performance is not
indicative of future results.
**This is the average 7-day yield, WAM and NAV of 37 funds in Donoghue's
100% U.S. Treasury Money Fund Average.
An investment in the Series is neither insured nor guaranteed by the U.S.
government and there can be no assurance that it will be able to maintain a
stable net asset value of $1.00 per share.
Managing Maturity As Interest Rates Rise.
When we last reported to you, our 7-day yield was 3.20%. On November 30,
the 7-day yield was 4.64%, outperforming Donoghue's 100% U.S. Treasury Money
Fund Average of 4.50%.
At the beginning of our reporting period, on May 31, we held a 51-day WAM,
slightly longer than our peers. At the time, we wanted to lock in interest rates
that the Federal Reserve had increased on May 17. Since then, we have shortened
WAM to 45 days, so we could reinvest the proceeds from maturing notes more
quickly at higher rates.
Tax Update-Intermediate Term Series
Of the 4.5 cents declared as accumulated net investment income in December
1994, 4 cents was derived from net investment income and 0.5 cents was derived
from paid-in capital. In addition, we believe approximately 17% of the
distributions paid in 1994 will constitute a ``return of capital,'' which is
not subject to taxation as ordinary income.
Intermediate-Term Series
The Intermediate-Term Series seeks high income consistent with providing
reasonable safety of principal by investing primarily in a diversified portfolio
of securities issued by the U.S. government, its agencies or instrumentalities.
The Series' net asset value (NAV) fell to $9.17 on November 30 from $9.47 on
May 31. At the same time, the Series' 30-day SEC yield rose above 6% for the
first time since September, 1991. On May 31, the Series' 30-day SEC yield was
4.79%. On November 30, the yield was 6.52%.
-3-
<PAGE>
INTERMEDIATE-TERM SERIES
CUMULATIVE TOTAL RETURN
As of November 30, 1994*
<TABLE>
<CAPTION>
One Year Five Year Ten Year Since 9/22/82
<S> <C> <C> <C> <C>
Intermediate -2.6% 35.6% 120.3% 173.0%
Term Series
Lipper Inter. -3.7% 37.0% 122.5% 168.1%
US Gvt Bond
Fund Average**
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
As of December 31, 1994*
One Year Five Year Ten Year Since 9/22/82
<S> <C> <C> <C> <C>
Intermediate -2.4% 6.4% 8.1% 8.6%
Term Series
</TABLE>
Past performance is no guarantee of future results. Investment return and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
* Source: Prudential Mutual Fund Management Inc. Shares of this Series are
sold without an initial or contingent deferred sales charge.
**These are the average returns of 88 funds in the Intermediate U.S.
Government Bond Fund category for six months, 73 funds for one year, 20 funds
for five years, 5 funds for 10 years, and 3 funds since inception on 9/22/82,
as determined by Lipper Analytical Services, Inc.
More Mortgages.
To counter the negative effect of rising interest rates on bond prices, we
adopted a defensive posture by increasing exposure to mortgage-backed securities
to 30% of assets from 12%. Mortgages tend to be less volatile than U.S.
Treasuries as interest rates rise, because they generally have higher coupons.
In addition, the risk these will be prepaid declines since homeowners have no
incentive to prepay their mortgages. (Prepayment risk is important because a
security is less valuable if it matures earlier than anticipated.) Following
this strategy, we sold approximately $50 million in U.S. Treasury notes with
maturities ranging from five to ten years and reinvested the proceeds in Ginnie
Mae adjustable rate mortgages and seven-year Fannie Mae balloon mortgages.
As a result of increasing our holdings in mortgages, turnover in the
portfolio increased this year. When David Graham started to manage the fund in
November 1993, he began to add mortgage-backed securities to the portfolio.
Until then, the portfolio contained primarily U.S. Treasuries and government
agencies. During the 12-month period, David invested as much as 30% of assets
in U.S. mortgage-backed securities to increase the series' yield and enhance
value during a turbulent interest rate environment. Mortgages outperformed
both Treasuries and agencies during the period, as measured by Lehman Brothers.
-4-
<PAGE>
We also shifted assets to shorter-term maturities to take advantage of
rapidly rising interest rates in this maturity range. For example, the
percentage of assets in the one -- to three-year maturity range rose to 50%
from 32% while assets held in the three -- to five-year maturity range fell to
15% from 45%.
The Outlook.
The economy probably has not yet slowed sufficiently to prevent the threat
of rising inflation. We expect the Federal Reserve to increase short-term
interest rates at least one more time before its job is done, and will continue
to manage our portfolios to maximize yield and preserve value to the degree
dictated by each of the individual Series' objectives.
Thank you for the confidence you have shown in us by choosing the Prudential
Government Securities Trust for your government securities investment.
Sincerely,
Lawrence C. McQuade
President
Bernard D. Whitsett II
Portfolio Manager
Money Market Series
U.S. Treasury Money Market Series
David Graham
Portfolio
Manager
Intermediate-Term Series
-5-
<PAGE>
PORTFOLIO Q&A
(PHOTO)
Bernard D. Whitsett II
A Word About Derivatives & Money Market Funds
``Derivative'' investments have received a lot of press lately and not much
of it has been favorable.
However, it is important to remember that all derivatives are not created
equal. For example, money market mutual funds have invested for a long time in
securities which are, technically speaking, derivatives. Bernard D. Whitsett
II, who manages the Money Market Series and the U.S. Treasury Money Market
Series, explains how we use them in Prudential taxable money market funds.
Q. What is a derivative?
A. A derivative is a financial instrument whose value is derived from the
value of an underlying asset, such as a stock, bond, commodity, currency or from
an index. That covers just about all financial instruments except plain stocks
or bonds.
Q. What derivatives are used by the Prudential Government Securities Trust --
Money Market Series and/or U.S. Treasury Money Market Series?
A. We use adjustable rate securities and occasionally liquidity ``puts,'' which
are considered derivatives. Liquidity puts simply allow us to resell a security
for cash to the issuer on a specified date. The adjustable rate instruments we
purchase for the Series have interest rates that are pegged to a money market
index, such as LIBOR (the London Interbank Offered Rate), the three-month U.S.
Treasury Bill or the federal funds rate. We do not invest in derivative-related
securities such as ``inverse floaters'' that the SEC has suggested are
inappropriate for money market funds.
Q. What is your philosophy of derivative investing?
A. Prudential taxable money market funds emphasize a conservative, quality
oriented investment approach. We continue to believe that preservation of
capital and liquidity cannot be sacrificed for additional yield.
-6-
<PAGE>
PRUDENTIAL GOVERNMENT SECURITIES TRUST Portfolio of Investments
MONEY MARKET SERIES November 30, 1994
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
Federal Agricultural Mortgage
Corporation--1.0%
$ 6,600 5.32%, 1/3/95................ $ 6,567,814
------------
Federal Farm Credit Bank--10.9%
4,000 8.30%, 1/20/95............... 4,013,696
5,735 5.65%, 1/24/95............... 5,686,396
1,000 5.60%, 2/14/95............... 1,003,184
16,600 5.62%, 2/23/95, F.R.N........ 16,589,790
1,500 5.22%, 3/22/95............... 1,475,857
2,000 5.27%, 3/22/95............... 1,967,502
3,150 5.35%, 3/24/95............... 3,097,102
6,700 5.85%, 5/1/95................ 6,700,000
19,000 5.375%, 8/1/95............... 18,984,296
9,900 6.56%, 11/14/95.............. 9,886,616
------------
69,404,439
------------
Federal Home Loan Bank--9.3%
15,000 4.72%, 12/8/94, F.R.N........ 14,967,849
1,000 8.05%, 12/26/94.............. 1,003,019
3,945 5.32%, 1/5/95................ 3,924,596
13,200 5.32%, 1/12/95............... 13,118,072
7,300 8.40%, 1/25/95............... 7,351,684
8,500 3.46%, 2/3/95................ 8,497,243
10,100 5.625%, 8/23/95.............. 10,096,333
------------
58,958,796
------------
Federal Home Loan Mortgage
Corporation--9.0%
12,000 4.75%, 12/9/94............... 11,987,333
14,000 5.32%, 1/4/95................ 13,929,658
7,000 5.30%, 1/5/95................ 6,963,931
10,000 5.64%, 1/23/95............... 9,916,967
5,000 5.55%, 2/2/95................ 4,951,437
10,000 5.54%, 2/3/95................ 9,901,511
------------
57,650,837
------------
Federal National Mortgage
Association--14.4%
$ 2,340 8.65%, 12/12/94.............. $ 2,341,927
1,300 9.00%, 1/10/95............... 1,304,139
5,125 5.17%, 1/25/95............... 5,084,520
11,000 11.50%, 2/10/95.............. 11,131,883
7,700 5.105%, 3/9/95............... 7,592,993
8,000 5.22%, 3/20/95............... 7,873,560
15,000 5.60%, 4/18/95, F.R.N........ 14,678,000
27,000 5.57%, 6/1/95, F.R.N......... 26,994,303
15,000 5.72%, 8/25/95............... 15,000,000
------------
92,001,325
------------
Student Loan Marketing
Association--11.2%
10,500 5.59%, 12/8/94, F.R.N........ 10,499,959
3,105 5.35%, 12/30/94, F.R.N....... 3,105,682
9,790 5.89%, 12/30/94, F.R.N....... 9,792,054
9,000 5.89%, 1/16/95, F.R.N........ 9,010,953
5,000 6.19%, 3/23/95, F.R.N........ 5,008,293
6,750 6.19%, 3/27/95, F.R.N........ 6,760,843
10,000 5.81%, 4/16/95, F.R.N........ 10,000,000
17,000 5.94%, 8/7/95, F.R.N......... 17,034,305
------------
71,212,089
------------
Repurchase Agreements(D)--46.4%
9,908 Joint Repurchase Agreement
Account
5.692%, 12/1/94 (Note 5)... 9,908,000
</TABLE>
-7- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL GOVERNMENT SECURITIES TRUST
MONEY MARKET SERIES
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
Repurchase Agreements(D)--cont'd
$ 8,000 Merrill Lynch, Pierce, Fenner
& Smith, Inc., 5.625%,
dated 11/29/94, due 12/1/94
in the amount of $8,002,500
(cost $8,000,000; the value
of the collateral including
accrued interest is
$8,160,353)................ $ 8,000,000
5,000 Nomura Securities
International, Inc., 5.60%,
dated 11/30/94, due 12/2/94
in the amount of $5,001,556
(cost $5,000,000; the value
of the collateral including
accrued interest is
$5,097,150)................ 5,000,000
57,503 Goldman Sachs & Co., 5.55%,
dated 11/28/94, due 12/5/94
in the amount of
$57,565,055 (cost
$57,503,000; the value of
the collateral including
accrued interest is
$58,653,060)............... 57,503,000
56,000 Merrill Lynch, Pierce, Fenner
& Smith, Inc., 5.55%, dated
11/28/94, due 12/5/94 in
the amount of $56,060,433
(cost $56,000,000; the
value of the collateral
including accrued interest
is $57,140,688)............ 56,000,000
17,000 Bear, Stearns & Co., 5.60%,
dated 11/28/94, due 12/5/94
in the amount of
$17,018,511 (cost
$17,000,000; the value of
the collateral including
accrued interest is
$17,288,501)............... 17,000,000
$ 36,234 Bear, Stearns & Co., 5.57%,
dated 11/29/94, due 12/6/94
in the amount of
$36,273,243 (cost
$36,234,000; the value of
the collateral including
accrued interest is
$36,905,875)............... $ 36,234,000
58,000 Nomura Securities
International, Inc., 5.63%,
dated 11/30/94, due 12/7/94
in the amount of
$58,063,494 (cost
$58,000,000; the value of
the collateral including
accrued interest is
$59,160,000)............... 58,000,000
10,000 CS First Boston Corp., 5.02%,
dated 9/12/94, due 12/30/94
in the amount of
$10,151,994 (cost
$10,000,000; the value of
the collateral including
accrued interest is
$10,302,617)............... 10,000,000
7,810 CS First Boston Corp., 5.17%,
dated 10/3/94, due 12/30/94
in the amount of $7,908,701
(cost $7,810,000; the value
of the collateral including
accrued interest is
$8,039,946)................ 7,810,000
14,946 Lehman, Inc., 5.50%, dated
11/3/94, due 1/3/95 in the
amount of $15,085,288 (cost
$14,946,000; the value of
the collateral including
accrued interest is
$15,248,035)............... 14,946,000
</TABLE>
-8- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL GOVERNMENT SECURITIES TRUST
MONEY MARKET SERIES
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
Repurchase Agreements(D)--cont'd
$ 15,000 Lehman, Inc., 5.55%, dated
10/6/94, due 1/6/95 in the
amount of $15,212,750 (cost
$15,000,000; the value of
the collateral including
accrued interest is
$15,300,621)............... $ 15,000,000
------------
295,401,000
------------
Total Investments--102.2%
(amortized cost
$651,196,300*)............. 651,196,300
Liabilities in excess of
other
assets--(2.2%)............. (13,852,853)
------------
Net Assets--100%............. $637,343,447
------------
------------
</TABLE>
- ---------------
F.R.N.--Floating Rate Note.
* Federal income tax basis of portfolio securities
is the same as for financial reporting purposes.
(D) Repurchase Agreements are collateralized by U.S.
Treasury or Federal agency obligations.
-9- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL GOVERNMENT SECURITIES TRUST Portfolio of Investments
INTERMEDIATE TERM SERIES November 30, 1994
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
LONG-TERM INVESTMENTS--85.2%
Federal Home Loan Mortgage
Corporation
$ 73 8.00%, 6/1/24................ $ 69,521
------------
Federal National Mortgage
Association
21 7.50%, 10/1/01............... 20,019
------------
Government National Mortgage
Association--7.6%
6,671 6.00%, 7/20/24............... 6,372,996
4,052 6.00%, 8/20/24............... 3,870,503
8,478 6.00%, 9/20/24............... 8,099,204
------------
18,342,703
------------
United States Treasury Notes--77.6%
41,000* 4.00%, 1/31/96............... 39,603,540
17,000* 4.75%, 2/15/97............... 16,057,010
16,000* 8.50%, 4/15/97............... 16,329,920
99,000 5.125%, 11/30/98............. 90,120,690
6,000 7.25%, 8/15/04............... 5,725,320
20,000 7.875%, 11/15/04............. 19,867,969
------------
187,704,449
------------
Total long-term investments
(cost $209,737,890)........ 206,136,692
------------
SHORT-TERM INVESTMENT--0.6%
Joint Repurchase Agreement Account,
1,439 5.692%, 12/1/94 (Note 5)
(cost $1,439,000).......... 1,439,000
------------
Total Investments--85.8%
(cost $211,176,890; Note
4)......................... 207,575,692
Other assets in excess of
liabilities--14.2%......... 34,404,415
------------
Net Assets--100%............. $241,980,107
------------
------------
</TABLE>
- ---------------
* Asset segregated for dollar rolls.
-10- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL GOVERNMENT SECURITIES TRUST Portfolio of Investments
U.S. TREASURY MONEY MARKET SERIES November 30, 1994
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
United States Treasury Bills--69.2%
$ 6,918 4.91%, 12/22/94.............. $ 6,898,186
22,325 4.95%, 12/22/94.............. 22,260,536
14,816 4.97%, 12/22/94.............. 14,773,046
50,000 5.06%, 12/22/94.............. 49,852,417
850 5.075%, 12/22/94............. 847,484
5,890 5.08%, 12/22/94.............. 5,872,546
13,565 5.09%, 12/22/94.............. 13,524,723
53,697 5.11%, 12/22/94.............. 53,536,938
3,000 5.13%, 12/22/94.............. 2,991,022
8,681 5.135%, 12/22/94............. 8,654,997
3,319 5.165%, 12/22/94............. 3,309,000
11,111 5.125%, 2/16/95.............. 10,989,204
10,000 4.975%, 4/6/95............... 9,825,875
------------
203,335,974
------------
United States Treasury Notes--31.1%
26,345 4.625%, 12/31/94............. 26,327,730
28,500 5.50%, 2/15/95............... 28,506,087
1,033 7.75%, 2/15/95............... 1,037,824
24,020 3.875%, 2/28/95.............. 23,930,750
11,763 5.875%, 5/15/95.............. 11,753,357
------------
91,555,748
------------
Total Investments--100.3%
(amortized cost
$294,891,722*)............. 294,891,722
Liabilities in excess of
other
assets--(0.3%)............. (907,475)
------------
Net Assets--100%............. $293,984,247
------------
------------
</TABLE>
- ---------------
* Federal income tax basis of portfolio securities is the same as for
financial reporting purposes.
-11- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL GOVERNMENT SECURITIES TRUST
Statement of Assets and Liabilities
November 30, 1994
<TABLE>
<CAPTION>
US TREASURY
MONEY MONEY
MARKET INTERMEDIATE MARKET
Assets SERIES TERM SERIES SERIES
<S> <C> <C> <C>
------------ ------------ ------------
Investments, at value (cost $651,196,300, $211,176,890 and
$294,891,722, respectively)................................... $651,196,300 $207,575,692 $294,891,722
Cash............................................................ -- -- 4,828
Interest receivable............................................. 3,328,495 1,507,746 1,260,514
Receivable for investments sold................................. -- 54,380,133 --
Receivable for Series shares sold............................... 2,580,434 37,209 1,231,273
Fees receivable on securities loaned............................ -- 17,196 --
Deferred expenses and other assets.............................. 13,457 10,022 15,725
------------ ------------ ------------
Total assets................................................ 657,118,686 263,527,998 297,404,062
------------ ------------ ------------
Liabilities
Payable for investments purchased............................... -- 19,989,792 --
Payable for Series shares reacquired............................ 18,798,972 1,061,352 2,974,191
Dividends payable............................................... 507,646 355,635 231,861
Due to Manager.................................................. 211,049 81,260 92,141
Accrued expenses and other liabilities.......................... 222,306 29,452 105,759
Due to Distributors............................................. 35,266 30,400 15,863
------------ ------------ ------------
Total liabilities........................................... 19,775,239 21,547,891 3,419,815
------------ ------------ ------------
Net Assets...................................................... $637,343,447 $241,980,107 $293,984,247
------------ ------------ ------------
------------ ------------ ------------
Net assets were comprised of:
Shares of beneficial interest, at par ($.01 per share).......... $ 6,373,434 $ 263,903 $ 2,939,842
Paid-in capital in excess of par................................ 630,970,013 326,069,502 291,044,405
------------ ------------ ------------
637,343,447 326,333,405 293,984,247
Undistributed net investment income............................. -- 2,133,743 --
Accumulated net realized losses................................. -- (82,885,843 ) --
Net unrealized depreciation of investments...................... -- (3,601,198 ) --
------------ ------------ ------------
Net assets, November 30, 1994................................... $637,343,447 $241,980,107 $293,984,247
------------ ------------ ------------
------------ ------------ ------------
Shares of beneficial interest issued and outstanding............ 637,343,447 26,390,334 293,984,247
------------ ------------ ------------
------------ ------------ ------------
Net asset value................................................. $1.00 $9.17 $1.00
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See Notes to Financial Statements.
-12-
<PAGE>
<PAGE>
PRUDENTIAL GOVERNMENT SECURITIES TRUST
Statement of Operations
Year Ended November 30, 1994
<TABLE>
<CAPTION>
US TREASURY
MONEY MONEY
MARKET INTERMEDIATE MARKET
Net Investment Income SERIES TERM SERIES SERIES
<S> <C> <C> <C>
----------- ------------ -----------
Income
Interest...................................................... $28,983,835 $19,425,626 $11,818,912
Income from securities loaned................................. -- 22,315 --
----------- ------------ -----------
28,983,835 19,447,941 11,818,912
----------- ------------ -----------
Expenses
Management fee................................................ 2,931,469 1,229,526 1,233,814
Distribution fee.............................................. 916,084 665,503 385,567
Transfer agent's fees and expenses............................ 1,303,000 384,000 92,000
Custodian's fees and expenses................................. 163,000 120,000 41,000
Registration fees............................................. 112,000 61,000 69,000
Reports to shareholders....................................... 105,000 57,000 28,000
Audit fee..................................................... 38,000 35,000 35,000
Trustees' fees................................................ 15,200 15,200 15,200
Insurance expense............................................. 23,000 8,000 13,000
Legal fees.................................................... 7,000 16,000 4,000
Amortization of deferred organization expenses................ -- -- 7,932
Miscellaneous................................................. 3,859 4,101 2,687
----------- ------------ -----------
Total expenses.............................................. 5,617,612 2,595,330 1,927,200
----------- ------------ -----------
Net investment income........................................... 23,366,223 16,852,611 9,891,712
----------- ------------ -----------
Realized and Unrealized Gain (Loss) on Investments
Net realized gain (loss) on investment transactions............. 84,741 (15,205,293 ) 55,159
Net change in unrealized depreciation of investments............ -- (10,351,690 ) --
----------- ------------ -----------
Net gain (loss) on investments.................................. 84,741 (25,556,983 ) 55,159
----------- ------------ -----------
Net Increase (Decrease) in Net Assets Resulting from
Operations...................................................... $23,450,964 $(8,704,372 ) $9,946,871
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
See Notes to Financial Statements.
-13-
<PAGE>
<PAGE>
PRUDENTIAL GOVERNMENT SECURITIES TRUST
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
US TREASURY
MONEY MARKET INTERMEDIATE MONEY MARKET
SERIES TERM SERIES SERIES
--------------------------------- ----------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
Year Ended November 30,
Increase (Decrease) -----------------------------------------------------------------------------------------------------
in Net Assets 1994 1993 1994 1993 1994 1993
--------------- --------------- ------------- ------------- --------------- ---------------
Operations
Net investment income... $ 23,366,223 $ 24,381,889 $ 16,852,611 $ 21,862,611 $ 9,891,712 $ 6,812,533
Net realized gain (loss)
on investment
transactions.......... 84,741 240,813 (15,205,293) (234,826) 55,159 141,643
Net change in unrealized
appreciation/depreciation
of investments........ -- -- (10,351,690) 3,085,195 -- --
--------------- --------------- ------------- ------------- --------------- ---------------
Net increase (decrease)
in net assets
resulting from
operations............ 23,450,964 24,622,702 (8,704,372) 24,712,980 9,946,871 6,954,176
--------------- --------------- ------------- ------------- --------------- ---------------
Net equalization (debits)
credits................. -- -- (3,335) 4,795 -- --
--------------- --------------- ------------- ------------- --------------- ---------------
Dividends and
distributions to
shareholders:
Dividends to
shareholders.......... (23,450,964) (24,622,702) (16,669,920) (21,877,946) (9,946,871) (6,954,176)
Tax return of capital
distribution.......... -- -- (3,852,402) (702,835) -- --
--------------- --------------- ------------- ------------- --------------- ---------------
Total dividends and
distributions to
shareholders............ (23,450,964) (24,622,702) (20,522,322) (22,580,781) (9,946,871) (6,954,176)
--------------- --------------- ------------- ------------- --------------- ---------------
Series share transactions*
Net proceeds from shares
subscribed............ 1,978,695,920 2,705,725,541 86,065,731 191,340,556 1,582,592,660 1,255,246,290
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions......... 22,318,739 23,600,594 14,086,719 14,618,822 9,338,121 6,581,355
Cost of shares
reacquired............ (2,283,173,810) (2,836,010,964) (176,886,461) (163,603,524) (1,582,924,124) (1,210,449,881)
--------------- --------------- ------------- ------------- --------------- ---------------
Net increase (decrease)
in net assets from
Series share
transactions.......... (282,159,151) (106,684,829) (76,734,011) 42,355,854 9,006,657 51,377,764
--------------- --------------- ------------- ------------- --------------- ---------------
Total increase
(decrease)................ (282,159,151) (106,684,829) (105,964,040) 44,492,848 9,006,657 51,377,764
Net Assets
Beginning of year....... 919,502,598 1,026,187,427 347,944,147 303,451,299 284,977,590 233,599,826
--------------- --------------- ------------- ------------- --------------- ---------------
End of year............. $ 637,343,447 $ 919,502,598 $ 241,980,107 $ 347,944,147 $ 293,984,247 $ 284,977,590
--------------- --------------- ------------- ------------- --------------- ---------------
--------------- --------------- ------------- ------------- --------------- ---------------
</TABLE>
- ---------------
*At $1.00 per share for the Money Market Series and the U.S. Treasury Money
Market Series.
See Notes to Financial Statements.
-14-
<PAGE>
<PAGE>
PRUDENTIAL GOVERNMENT SECURITIES TRUST
Notes to Financial Statements
Prudential Government Securities Trust (the ``Fund'') is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The Fund consists of three series--the Money Market Series, the
Intermediate Term Series and the U.S. Treasury Money Market Series; the monies
of each series are invested in separate, independently managed portfolios.
Note 1. Significant The following is a summary
Accounting Policies of the significant accounting
policies followed by the Fund in the preparation
of its financial statements.
Securities Valuations: The Money Market Series and U.S. Treasury Money Market
Series value portfolio securities at amortized cost, which approximates market
value. The amortized cost method of valuation involves valuing a security at its
cost on the date of purchase and thereafter assuming a constant amortization to
maturity of any discount or premium.
For the Intermediate Term Series, the Trustees have authorized the use of an
independent pricing service to determine valuations. The pricing service
considers such factors as security prices, yields, maturities, call features,
ratings and developments relating to specific securities in arriving at
securities valuations. When market quotations are not readily available, a
security is valued by appraisal at its fair value as determined in good faith
under procedures established under the general supervision and responsibility of
the Trustees. Short-term securities which mature in more than 60 days are valued
at current market quotations. Short-term securities which mature in 60 days or
less are valued at amortized cost.
In connection with transactions in repurchase agreements, the Fund's
custodian or designated subcustodians, as the case may be under triparty
repurchase agreements, takes possession of the underlying collateral securities,
the value of which exceeds the principal amount of the repurchase transaction,
including accrued interest. If the seller defaults and the value of the
collateral declines or if bankruptcy proceedings are commenced with respect to
the seller of the security, realization of the collateral by the Fund may be
delayed or limited.
Securities Lending: The Intermediate Term Series may lend its U.S. Government
securities to broker-dealers or government securities dealers. The Fund's policy
is to receive collateral on each loan at least equal, at all times, to the
market value of the securities loaned. The Series may bear the risk of delay in
recovery of, or even loss of rights in, the collateral should the borrower of
the securities fail financially. The Series receives compensation for lending
its securities in the form of fees or it retains a portion of interest on the
investment of any cash received as collateral. The Series also continues to
receive interest on the securities loaned, and any gain or loss in the market
price of the securities loaned that may occur during the term of the loan will
be for the account of the Series.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of portfolio
securities are calculated on the identified cost basis. Interest income is
recorded on the accrual basis. The Money Market and the U.S. Treasury Money
Market Series' amortize discounts and premiums on purchases of portfolio
securities as adjustments to income. For the Intermediate Term Series, gains or
losses resulting from discounts or premiums on purchased securities are treated
as capital gains or losses when realized upon disposal.
Dollar Rolls: The Intermediate Term Series enters into dollar roll transactions
in which the Series sells securities for delivery in the current month,
realizing a gain or loss, and simultaneously contracts to repurchase somewhat
similar (same type, coupon and maturity) securities on a specified future date.
During the roll period the Intermediate Term Series forgoes principal and
interest paid on the securities. The Series is compensated by the interest
earned on the cash proceeds of the initial sale and by the lower repurchase
price at the future date. The difference between the sale proceeds and the lower
repurchase price is taken into income. The Intermediate Term Series maintains a
segregated account, the dollar value of which is equal to its obligations in
respect of dollar rolls.
Federal Income Taxes: For federal income tax purposes, each series of the Fund
is treated as a separate taxable entity. It is each Series' policy to continue
to meet the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable net income to its
shareholders. Therefore, no federal income tax provision is required.
Equalization: The Intermediate Term Series follows the accounting practice known
as equalization by which a portion of the proceeds from sales and costs of
reacquisitions of its shares, equivalent on a per share basis to the amount of
distributable net investment income on the date of the transaction, is credited
or charged to undistributed net investment
-15-
<PAGE>
<PAGE>
income. As a result, undistributed net investment income per share is unaffected
by sales or reacquisitions of the shares.
Reclassification of Capital Accounts: The Fund accounts and reports for
distributions to shareholders in accordance with Statement of Position 93-2:
Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies. For
the Intermediate Term Series, the effect of applying this statement was to
increase undistributed net investment income by $3,909,174, increase accumulated
net realized losses by $56,772 for market discount recognized on securities sold
and decrease paid-in capital in excess of par by $3,852,402 for tax return of
capital distributions. Current year net investment income, net realized losses
and net assets were not affected by this change.
Deferred Organization Expenses: Approximately $49,000 of expenses were incurred
in connection with the organization and initial registration of the U.S.
Treasury Series and such amount has been deferred and is being amortized over a
period of 60 months ending December, 1995.
Dividends and Distributions: The Money Market Series and U.S. Treasury Money
Market Series declare daily dividends from net investment income and net
short-term capital gains and losses. Dividends are paid monthly.
The Intermediate Term Series declares dividends from net investment income
daily; payment of dividends is made monthly. Distributions of net capital gains,
if any, are made annually.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
Note 2. Agreements The Fund has a management
agreement with Prudential Mutual Fund Management,
Inc. (``PMF''). Pursuant to this agreement, PMF has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PMF has entered into a subadvisory agreement with The Prudential
Investment Corporation (``PIC''); PIC furnishes investment advisory services in
connection with the management of the Fund. PMF pays for the cost of the
subadviser's services, the compensation of officers of the Fund, occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.
The management fee paid to PMF is computed daily and payable monthly, at an
annual rate of .40 of 1% of the average daily net assets of the Intermediate
Term Series and the U.S. Treasury Money Market Series. With respect to the Money
Market Series, the management fee is payable as follows: .40 of 1% of average
daily net assets up to $1 billion, .375 of 1% of average daily net assets
between $1 billion and $1.5 billion and .35 of 1% in excess of $1.5 billion.
To reimburse Prudential Mutual Fund Distributors, Inc. (``PMFD'') as
distributor of the shares of the Money Market Series and the U.S. Treasury Money
Market Series, each series has entered into a distribution agreement pursuant to
which each series pays PMFD a reimbursement, accrued daily and payable monthly,
at an annual rate of .125% of each of the series' average daily net assets. PMFD
pays various broker-dealers, including Prudential Securities Incorporated
(``PSI'') and Pruco Securities Corporation (``Pruco''), affiliated
broker-dealers, for account servicing fees and for the expenses incurred by such
broker-dealers.
To reimburse PSI for its expenses as distributor of the Intermediate Term
Series, the Intermediate Term Series has entered into a distribution agreement
and a plan of distribution pursuant to which it pays PSI a fee, accrued daily
and payable monthly, at an annual rate of .25 of 1% of the lesser of (a) the
aggregate sales of shares issued (not including reinvestment of dividends and
distributions) on or after July 1, 1985 (the effective date of the plan) less
the aggregate net asset value of any such shares redeemed, or (b) the average
net asset value of the shares issued after the effective date of the plan.
Distribution expenses include commission credits to PSI branch offices for
payments of commissions and account servicing fees to financial advisers and an
allocation on account of overhead and other distribution-related expenses, the
cost of printing and mailing prospectuses to potential investors and of
advertising incurred in connection with the distribution of series shares. In
addition, PSI pays other broker-dealers, including Pruco, an affiliated
broker-dealer, for account servicing fees and other expenses incurred by such
broker-dealers in distributing these shares.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are (indirect)
wholly-owned subsidiaries of The Prudential Insurance Company of America.
Note 3. Other Prudential Mutual Fund Ser-
Transactions vices, Inc. (``PMFS''), a
with Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During
the year ended November 30, 1994, the Fund incurred fees of approximately
$1,066,000, $267,000, and $79,000, respectively, for the Money Market Series,
Intermediate Term Series, and U.S. Treasury Money Market Series. As of November
30, 1994, approximately $79,000, $20,000, and $6,000 of such fees were due to
PMFS from the Money Market Series, Intermediate
-16-
<PAGE>
<PAGE>
Term Series and U.S. Treasury Money Market Series, respectively. Transfer agent
fees and expenses in the Statement of Operations includes certain out-of-pocket
expenses paid to non-affiliates.
Note 4. Portfolio Purchases and sales of port-
Securities folio securities other than
short-term investments, for the Intermediate Term
Series, for the year ended November 30, 1994 were $1,226,973,317 and
$1,333,353,540, respectively.
For the Intermediate Term Series the cost basis of investments for federal
income tax purposes was $211,627,944 and, accordingly, as of November 30, 1994,
net and gross unrealized depreciation of investments for federal income tax
purposes was $4,052,252.
For federal income tax purposes, the Intermediate Term Series has a capital
loss carryforward as of November 30, 1994 of approximately $79,007,000 of which
$25,173,000 expires in 1995, $11,426,000 expires in 1996, $19,180,000 expires in
1997, $6,864,000 expires in 1998, $4,746,000 expires in 1999, $235,000 expires
in 2001, and $11,383,000 expires in 2002. Accordingly, no capital gains
distribution is expected to be paid to shareholders until net gains have been
realized in excess of such carryforward.
The Intermediate Term Series will elect to treat net capital losses of
approximately $3,428,300 incurred in the one month period ended November 30,
1994 as having incurred in the following fiscal year.
Note 5. Joint The Fund, along with other
Repurchase affiliated registered invest-
Agreement Account ment companies, transfers
uninvested cash balances into a single joint
account, the daily aggregate balance of which is invested in one or more
repurchase agreements collateralized by U.S. Treasury or federal agency
obligations. As of November 30, 1994, the Money Market Series and the
Intermediate Term Series had 1.3% and 0.2%, respectively, undivided interests
in the repurchase agreements in the joint account. These undivided interests
represented $9,908,000 and $1,439,000, respectively, in principal amount. As of
such date, the repurchase agreements in the joint account and the value of the
collateral therefor were as follows:
Goldman, Sachs & Co., 5.70%, in the principal amount of $250,000,000,
repurchase price $250,039,583, due 12/1/94. The value of the collateral
including accrued interest is $255,000,187.
Morgan (J.P.) Securities Inc., 5.68%, in the principal amount of
$200,000,000, repurchase price $200,031,556, due 12/1/94. The value of the
collateral including accrued interest is $204,329,069.
Morgan Stanley & Co. Inc., 5.68%, in the principal amount of $200,000,000,
repurchase price $200,031,556, due 12/1/94. The value of the collateral
including accrued interest is $204,148,271.
Smith Barney, Inc., 5.72%, in the principal amount of $100,000,000,
repurchase price $100,015,889, due 12/1/94. The value of the collateral
including accrued interest is $102,000,653.
Note 6. Capital Each series has authorized an
unlimited number of shares of beneficial interest
at $.01 par value. Transactions in shares of beneficial interest for the
Intermediate Term Series for the fiscal years ended November 30, 1994 and 1993
were as follows:
<TABLE>
<CAPTION>
Year Ended November 30,
--------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
Shares sold................... 8,712,001 18,902,083
Shares issued in reinvestment
of dividends and
distributions............... 1,465,698 1,439,530
Shares reacquired............. (18,375,629) (16,203,923)
-------------- --------------
Net increase (decrease)....... (8,197,930) 4,137,690
-------------- --------------
-------------- --------------
</TABLE>
-17-
<PAGE>
<PAGE>
PRUDENTIAL GOVERNMENT SECURITIES TRUST
MONEY MARKET SERIES
Financial Highlights
<TABLE>
<CAPTION>
Year Ended November 30,
----------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year........................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Net investment income..................................... 0.033 0.026 0.035 0.058 0.076
Dividends from net investment income...................... (0.033) (0.026) (0.035) (0.058) (0.076)
-------- -------- ---------- ---------- ----------
Net asset value, end of year.............................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- ---------- ---------- ----------
-------- -------- ---------- ---------- ----------
TOTAL RETURN#:............................................ 3.29% 2.62% 3.57% 5.96% 7.83%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)............................. $637,343 $919,503 $1,026,187 $1,212,836 $1,355,058
Average net assets (000).................................. $732,867 $950,988 $1,113,759 $1,255,014 $ 857,385
Ratios to average net assets:
Expenses, including distribution fees................... 0.77% 0.72% 0.72% 0.65% 0.66%
Expenses, excluding distribution fees................... 0.64% 0.59% 0.60% 0.53% 0.53%
Net investment income................................... 3.19% 2.56% 3.42% 5.78% 7.52%
</TABLE>
- ---------------
# Total return is calculated assuming a purchase of shares on the first day and
a sale on the last day of each year reported and includes reinvestment of
dividends and distributions.
See Notes to Financial Statements.
-18-
<PAGE>
<PAGE>
PRUDENTIAL GOVERNMENT SECURITIES TRUST
INTERMEDIATE TERM SERIES
Financial Highlights
<TABLE>
<CAPTION>
Year Ended November 30,
----------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............................ $ 10.06 $ 9.97 $ 10.00 $ 9.71 $ 9.96
-------- -------- -------- -------- --------
Income from investment operations
Net investment income......................................... 0.64 0.69 0.75 0.82 0.84
Net realized and unrealized gain (loss) on investment
transactions................................................ (0.89) 0.11 (0.03) 0.31 (0.21)
-------- -------- -------- -------- --------
Total from investment operations............................ (0.25) 0.80 0.72 1.13 0.63
-------- -------- -------- -------- --------
Less distributions
Dividends from net investment income.......................... (0.52) (0.69) (0.75) (0.84) (0.88)
Tax return of capital distribution............................ (0.12) (0.02) -- -- --
-------- -------- -------- -------- --------
Total distributions........................................... (0.64) (0.71) (0.75) (0.84) (0.88)
-------- -------- -------- -------- --------
Net asset value, end of year.................................. $ 9.17 $ 10.06 $ 9.97 $ 10.00 $ 9.71
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN#................................................. (2.58)% 8.26% 7.40% 12.19% 6.73%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................................. $241,980 $347,944 $303,451 $298,086 $328,458
Average net assets (000)...................................... $307,382 $321,538 $294,388 $301,643 $354,064
Ratios to average net assets:
Expenses, including distribution fees....................... 0.84% 0.80% 0.79% 0.79% 0.88%
Expenses, excluding distribution fees....................... 0.63% 0.59% 0.58% 0.63% 0.63%
Net investment income....................................... 5.48% 6.80% 7.47% 8.36% 8.60%
Portfolio turnover rate....................................... 431% 44% 60% 151% 68%
</TABLE>
- ---------------
# Total return is calculated assuming a purchase of shares on the first day and
a sale on the last day of each year reported and includes reinvestment of
dividends and distributions.
See Notes to Financial Statements.
-19-
<PAGE>
<PAGE>
PRUDENTIAL GOVERNMENT SECURITIES TRUST
U.S. TREASURY MONEY MARKET SERIES
Financial Highlights
<TABLE>
<CAPTION>
December 3,
1990*
Year Ended November 30, Through
------------------------------------------ November 30,
1994 1993 1992 1991
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............................ $ 1.000 $ 1.000 $ 1.000 $ 1.000
Net investment income........................................... 0.033 0.025 0.034 0.057(D)(D)
Dividends from net investment income............................ (0.033) (0.025) (0.034) (0.057)
------------ ------------ ------------ ------------
Net asset value, end of period.................................. $ 1.000 $ 1.000 $ 1.000 $ 1.000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
TOTAL RETURN#................................................... 3.31% 2.54% 3.46% 5.84%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)................................. $293,984 $284,978 $233,600 $288,922
Average net assets (000)........................................ $308,454 $273,313 $263,459 $273,203
Ratios to average net assets:
Expenses, including distribution fees......................... 0.62% 0.66% 0.66% 0.50%(D)/(D)(D)
Expenses, excluding distribution fees......................... 0.50% 0.53% 0.54% 0.38%(D)/(D)(D)
Net investment income......................................... 3.21% 2.49% 3.29% 5.74%(D)/(D)(D)
</TABLE>
- ---------------
* Commencement of investment operations.
(D) Annualized.
(D)(D) Net of expense subsidy.
# Total return is calculated assuming a purchase of shares on the first
day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total return for a period
of less than one year is not annualized.
See Notes to Financial Statements.
-20-
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
Prudential Government Securities Trust:
In our opinion, the accompanying statements of assets and liabilities,
including the schedules of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Money Market Series, Intermediate
Term Series and U.S. Treasury Money Market Series (constituting Prudential
Government Securities Trust, hereafter referred to as the ``Fund'') at November
30, 1994, the results of each of their operations for the year then ended, the
changes in each of their net assets for each of the two years in the period then
ended and the financial highlights for each of the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as ``financial
statements'') are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
November 30, 1994 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
January 16, 1995
IMPORTANT NOTICE FOR
CERTAIN SHAREHOLDERS
(UNAUDITED)
We are required by New York, California, Massachusetts and Oregon to inform
you that dividends which have been derived from interest on federal obligations
are not taxable to shareholders providing the mutual fund meets certain
requirements mandated by the respective state's taxing authorities. We are
pleased to report that 40% of the dividends paid by the Money Market Series*,
75.2% of the dividends paid by the Intermediate Term Series and 100% of the
dividends paid by the U.S. Treasury Money Market Series qualify for such
deduction.
Shortly after the close of the calendar year ended December 31, 1994, you
will be advised as to the federal tax status of the dividends you received in
calendar 1994.
For more detailed information regarding your state and local taxes, you
should contact your tax adviser or the state/local taxing authorities.
* Due to certain minimum portfolio holding requirements in California and New
York, residents of those states will not be able to exclude interest on Federal
obligations from state and local tax.
-21-
<PAGE>
Trustees
Delayne Dedrick Gold
Arthur Hauspurg
Lawrence C. McQuade
Stephen P. Munn
Richard A. Redeker
Louis A. Weil, III
Officers
Lawrence C. McQuade, President
Robert F. Gunia, Vice President
Susan C. Cote, Treasurer
S. Jane Rose, Secretary
Ronald Amblard, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributors
Prudential Mutual Fund Distributors, Inc.
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.<PAGE>
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll free (800) 225-1852, Collect (908) 417-7555
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
744342205
744342106 MF100E-3
744342304 (LOGO) Cat. #444437V
