Prudential Government Securities Trust
(Intermediate Term Series)
- --------------------------------------------------------------------------------
Prospectus dated April 3, 1995
- --------------------------------------------------------------------------------
Prudential Government Securities Trust (the Trust) is a diversified, open-end
management investment company whose shares of beneficial interest are presently
offered in three series. Each series operates as a separate fund with its own
investment objectives and policies designed to meet its specific investment
goals.
The investment objective of the Intermediate Term Series (the Series) is to
achieve a high level of income consistent with providing reasonable safety by
investing principally in a diversified portfolio of intermediate term securities
issued or guaranteed by the United States Government or its agencies or
instrumentalities. There is no assurance that the Series' investment objective
will be achieved. See "How the Trust Invests-Investment Objective and Policies."
The Trust's address is One Seaport Plaza, New York, New York 10292, and its
telephone number is (800) 225-1852.
- --------------------------------------------------------------------------------
This Prospectus sets forth concisely the information about the Trust and the
Series that a prospective investor should know before investing. Additional
information about the Trust has been filed with the Securities and Exchange
Commission in a Statement of Additional Information, dated April 3, 1995, which
information is incorporated herein by reference (is legally considered a part of
this Prospectus) and is available without charge upon request to the Trust at
the address or telephone number noted above.
- --------------------------------------------------------------------------------
Investors are advised to read this Prospectus and retain it for future
reference.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
- --------------------------------------------------------------------------------
TRUST HIGHLIGHTS
- --------------------------------------------------------------------------------
The following summary is intended to highlight certain information contained
in this prospectus and is qualified in its entirety by the more detailed
information appearing elsewhere herein.
- --------------------------------------------------------------------------------
What is Prudential Government Securities Trust?
Prudential Government Securities Trust is a mutual fund whose shares are
offered in three series, each of which operates as a separate fund. A mutual
fund pools the resources of investors by selling its shares to the public and
investing the proceeds of such sale in a portfolio of securities designed to
achieve its investment objective. Technically, the Trust is an open-end,
diversified management investment company. Only the Intermediate Term Series is
offered through this Prospectus.
What is the Series' Investment Objective?
The Series' investment objective is to achieve a high level of income
consistent with providing reasonable safety by investing principally in a
diversified portfolio of securities issued or guaranteed by the United States
Government or its agencies or instrumentalities with maturities of 10 years or
less. There is no assurance that the Series' investment objective will be
achieved. See "How the Trust Invests-Investment Objective and Policies" at page
6.
Risk Factors and Special Characteristics
United States Government securities, including those which are guaranteed by
Federal agencies or instrumentalities, may or may not be backed by the "full
faith and credit" of the United States. In the case of securities not backed by
the full faith and credit of the United States, the Trust must look principally
to the agency issuing or guaranteeing the obligation for ultimate repayment and
may not be able to assert a claim against the United States itself in the event
the agency or instrumentality does not meet its commitments. See "How the Trust
Invests-Investment Objective and Policies" at page 6.
Who Manages the Trust?
Prudential Mutual Fund Management, Inc. (PMF or the Manager) is the Manager
of the Trust and is compensated for its services at an annual rate of .40 of 1%
of the Series' average daily net assets. As of February 28, 1995 PMF served as
manager or administrator to 69 investment companies, including 39 mutual funds,
with aggregate assets of approximately $46 billion. The Prudential Investment
Corporation (PIC or the Subadviser) furnishes investment advisory services in
connection with the management of the Trust under a Subadvisory Agreement with
PMF. See "How the Trust is Managed-Manager" at page 9.
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
Who Distributes the Series' Shares?
Prudential Securities Incorporated (PSI or the Distributor) acts as the
Distributor of the Series' shares. The Trust reimburses PSI for expenses related
to the distribution of the Series' shares at an annual rate of up to .25 of 1%
of the average daily net assets of the Series. See "How the Trust is
Managed-Distributor" at page 9.
What is the Minimum Investment?
The minimum initial investment is $1,000. The subsequent minimum investment
is $100. There is no minimum investment requirement for certain retirement and
employee savings plans or custodial accounts for the benefit of minors. For
purchases made through the Automatic Savings Accumulation Plan the minimum
initial and subsequent investment is $50. See "Shareholder Guide-How to Buy
Shares of the Trust" at page 14 and "Shareholder Guide-Shareholder Services" at
page 18.
How Do I Purchase Shares?
You may purchase shares of the Series through Prudential Securities
Incorporated (Prudential Securities or PSI), Pruco Securities Corporation
(Prusec) or directly from the Trust, through its transfer agent, Prudential
Mutual Fund Services, Inc. (PMFS or the Transfer Agent) at the net asset value
per share (NAV) next determined after receipt of your purchase order by the
Transfer Agent or Prudential Securities. See "How the Trust Values its Shares"
at page 11 and "Shareholder Guide-How to Buy Shares of the Trust" at page 14.
How Do I Sell My Shares?
You may redeem shares of the Series at any time at the NAV next determined
after Prudential Securities or the Transfer Agent receives your sell order. See
"Shareholder Guide-How to Sell Your Shares" at page 15.
How Are Dividends and Distributions Paid?
The Series expects to declare daily and pay monthly dividends of net
investment income and make distributions annually of any net capital gains.
Dividends and distributions will be automatically reinvested in additional
shares of the Series at NAV unless you request that they be paid to you in cash.
See "Taxes, Dividends and Distributions" at page 12.
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
TRUST EXPENSES-INTERMEDIATE TERM SERIES
- --------------------------------------------------------------------------------
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases ..................... None
Maximum Sales Load Imposed on Reinvested Dividends .......... None
Deferred Sales Load ......................................... None
Redemption Fees ............................................. None
Exchange Fee ................................................ None
Annual Series Operating Expenses
(as a percentage of average net assets)
Management Fees ........................................... 0.40%
12b-1 Fees ................................................ 0.21%
-----
Other Expenses ............................................ 0.23%
-----
Total Series Operating Expenses ........................... 0.84%
-----
<TABLE>
Example 1 Year 3 Years 5 Years 10 Years
------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period: $9 $27 $47 $104
<FN>
- -----------
The above example is based on data for the Series' fiscal year ended
November 30, 1994. The example should not be considered a representation of past
or future expenses. Actual expenses may be greater or less than those shown.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that an investor in the Series will bear, whether
directly or indirectly. For more complete descriptions of the various costs and
expenses, see "How the Trust is Managed." "Other Expenses" include operating
expenses of the Series, such as Trustees' and professional fees, registration
fees, reports to shareholders and transfer agent and custodian fees.
</FN>
</TABLE>
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(for a share of beneficial interest outstanding throughout each of
the years indicated)
- --------------------------------------------------------------------------------
The following financial highlights with respect to the five-year period
ended November 30, 1994, for the Series have been audited by Price Waterhouse
LLP, independent accountants, whose report thereon was unqualified. This
information should be read in conjunction with the financial statements and
notes thereto, which appear in the Statement of Additional Information. The
following financial highlights contain selected data for a share of beneficial
interest outstanding, total return, ratios to average net assets and other
supplemental data for each of the periods indicated. The information is based on
data contained in the financial statements.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Intermediate Term Series
-------------------------------------------------------------------------------------
Year Ended November 30,
-------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988(D) 1987 1986 1985
---- ---- ---- ---- ---- ---- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <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 $ 9.92 $10.24 $10.97 $10.48 $10.01
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income .............. .64 .69 .75 .82 .84 .92 .92 .92 .96 .95
Net realized and unrealized gain
(loss) on investment transactions. (.89) .11 (.03) .31 (.21) .12 (.29) (.71) .68 .54
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations ....................... (.25) .80 .72 1.13 .63 1.04 .63 .21 1.64 1.49
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net investment
income ........................... (.52) (.69) (.75) (.84) (.88) (1.00) (.95) (.78) (.99) (1.02)
Tax return of capital distribution . (.12) (.02) - - - - - - - -
Distributions of net realized gains. - - - - - - - (.16) (.16) -
Total distributions ................ (.64) (.71) (.75) (.84) (.88) (1.00) (.95) (.94) (1.15) (1.02)
Net asset value, end of year ....... $ 9.17 $10.06 $ 9.97 $10.00 $ 9.71 $ 9.96 $ 9.92 $10.24 $10.97 $10.48
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN(D)(D) (2.58)% 8.26% 7.40% 12.19% 6.73% 11.12% 6.47% 1.87% 16.48% 15.67%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) ...... $241,980 $347,944 $303,451 $298,086 $328,458 $396,519 $473,982 $633,652 $866,218 $414,835
Average net assets (000) ........... $307,382 $321,538 $294,388 $301,643 $354,064 $424,386 $537,422 $903,473 $637,637 $121,991
Ratio to average net assets:
Expenses, including distribution
fees ........................... .84% .80% .79% .79% .88% .86% .83% .72% .75% .67%
Expenses, excluding distribution
fees ........................... .63% .59% .58% .63% .63% .63% .59% .55% .52% .50%
Net investment income ............ 5.36% 6.80% 7.47% 8.36% 8.60% 9.16% 9.39% 8.30% 8.51% 8.04%
Portfolio turnover rate ............ 431% 44% 60% 151% 68% 186% 28% 59% 139% 191%
<FN>
- -------------------
(D) On August 9, 1988, Prudential Mutual Fund Management, Inc. succeeded The Prudential Insurance Company of America as
investment adviser and since then has acted as manager of the Trust. See "Manager" in the Statement of Additional
Information.
(D)(D) 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.
</FN>
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
HOW THE TRUST INVESTS
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Series is to achieve a high level of income
consistent with providing reasonable safety. There is no assurance that this
objective will be achieved.
United States Government Securities
The Series seeks to achieve its objective by investing in United States
Government securities that have maturities of ten years or less, including a
variety of securities which are issued or guaranteed by the United States
Treasury, by various agencies of the United States Government or by various
instrumentalities which have been established or sponsored by the United States
Government. (In the case of securities with put features, when the put is at the
option of the Trust as holder of the security, maturity will be defined as the
lesser of stated final maturity or put date.) These obligations, including those
which are guaranteed by Federal agencies or instrumentalities, may or may not be
backed by the "full faith and credit" of the United States. In the case of
securities not backed by the full faith and credit of the United States, the
Trust must look principally to the agency issuing or guaranteeing the obligation
for ultimate repayment and may not be able to assert a claim against the United
States itself in the event the agency or instrumentality does not meet its
commitments. Securities in which the Series may invest which are not backed by
the full faith and credit of the United States include obligations of the
Tennessee Valley Authority, the Federal National Mortgage Association and the
United States Postal Service, each of which has the right to borrow from the
United States Treasury to meet its obligations, and obligations of the Federal
Farm Credit System and the Federal Home Loan Banks, whose obligations may only
be satisfied by the individual credits of each issuing agency. Treasury
securities include Treasury bills, Treasury notes and Treasury bonds, all of
which are backed by the full faith and credit of the United States, as are
obligations of the Government National Mortgage Association, the Farmers Home
Administration and the Export-Import Bank. The Intermediate Term Series will
limit its investments to those which are eligible for federal credit unions.
Certain United States Government securities, such as those issued by the
Government National Mortgage Association and the Federal National Mortgage
Association, are mortgage-backed "pass-through" securities. The U.S. Government
or the issuing agency guarantees the payment of principal and interest of these
securities. However, the guarantees do not extend to the securities' yield or
value, which is likely to vary inversely with fluctuations in interest rates,
nor do the guarantees extend to the yield or value of the Trust's shares. Such
mortgage-backed securities are subject to more rapid repayment than their stated
maturity date as a result of the pass-through of prepayments of principal on the
underlying mortgage obligations. Accordingly, the Series' ability to maintain
positions in high-yielding mortgage-backed securities will be affected by
reductions in the principal amount of such securities resulting from such
prepayments, and its ability to reinvest the returns of principal at comparable
yields is subject to interest rates prevailing generally at that time. In
addition, during periods of declining interest rates, prepayment of mortgages
underlying mortgage-backed securities tends to accelerate. For purposes of the
Trust's maturity limitation, the maturity of a mortgage-backed security will be
deemed to be equal to its remaining maturity (i.e., the average maturity of the
mortgages underlying such security determined by the investment adviser on the
basis of assumed prepayment rates with respect to such mortgages).
The Series will invest at least 80% of its total assets in the types of
government securities described above, including repurchase agreements with
respect to such securities.
The Series' investment objective and policies described above are
fundamental policies and, therefore, may not be changed without the approval of
the holders of a majority of the outstanding voting securities of the Series, as
defined in the Investment Company Act of 1940, as amended (the Investment
Company Act). Policies that are not fundamental may be modified by the Trustees.
The Series' net asset value will vary with changes in the values of the
Series' portfolio securities. Such values will vary with changes in market
interest rates generally and the differentials in yields among various kinds of
United States Government securities.
6
<PAGE>
The Series may not invest in securities other than the types of securities
listed above and is subject to other specific investment restrictions as
detailed under "Investment Restrictions" in the Statement of Additional
Information.
It is currently anticipated that the Series will invest primarily in
securities with maturities ranging from 2 to 5 years, but depending on market
conditions and changing economic conditions the Series may invest in securities
of any maturity of 10 years or less. Certain securities with maturities of ten
years or less which are purchased at auction or on a when-issued basis may
mature later than ten years from date of purchase and are eligible for purchase
by the Series. The average weighted maturity of the Series' investments will be
from 3 to 10 years.
OTHER INVESTMENTS AND POLICIES
Repurchase Agreements
The Series may enter into repurchase agreements, whereby the seller of a
security agrees to repurchase that security from the Series at a mutually
agreed-upon time and price. The period of maturity is usually quite short,
possibly overnight or a few days, although it may extend over a number of
months. The resale price is in excess of the purchase price, reflecting an
agreed-upon rate of return effective for the period of time the Series' money is
invested in the security. The Series' repurchase agreements will at all times be
fully collateralized in an amount at least equal to the purchase price including
accrued interest earned on the underlying securities. The instruments held as
collateral are valued daily, and if the value of such instruments declines, the
Series will require additional collateral. If the seller defaults and the value
of the collateral securing the repurchase agreement declines, the Series may
incur a loss. The Series participates in a joint repurchase account with other
investment companies managed by Prudential Mutual Fund Management, Inc. pursuant
to an order of the Securities and Exchange Commission (SEC).
When-Issued and Delayed Delivery Securities
The Series may purchase or sell securities on a when-issued or delayed
delivery basis, provided that delivery takes place within 120 days of the
transaction. When-issued or delayed delivery transactions arise when securities
are purchased or sold by the Series with payment and delivery taking place as
much as a month or more into the future in order to secure what is considered to
be an advantageous price and yield to the Series at the time of entering into
the transaction. The Trust's Custodian will maintain, in a segregated account of
the Series, cash, U.S. Government securities or other liquid high-grade debt
obligations having a value equal to or greater than the Series' purchase
commitments; the Custodian will likewise segregate securities sold on a delayed
delivery basis. The securities so purchased are subject to market fluctuation
and no interest accrues to the purchaser during the period between purchase and
settlement. At the time of delivery of the securities the value may be more or
less than the purchase price and an increase in the percentage of the Series'
assets committed to the purchase of securities on a when-issued or delayed
delivery basis may increase the volatility of the Series' net asset value.
Securities Lending
The Series may lend its portfolio securities to brokers or dealers, banks or
other recognized institutional borrowers of securities, provided that the
borrower at all times maintains cash or equivalent collateral or secures a
letter of credit in favor of the Series in an amount equal to at least 100% of
the market value of the securities loaned. During the time portfolio securities
are on loan, the borrower will pay the Series an amount equivalent to any
dividend or interest paid on such securities and the Series may invest the cash
collateral and earn additional income, or it may receive an agreed-upon amount
of interest income from the borrower. As a matter of fundamental policy, the
Series may not lend more than 30% of the value of its total assets.
Reverse Repurchase Agreements and Dollar Rolls
Reverse repurchase agreements involve sales by the Series of portfolio
assets concurrently with an agreement by the Series to repurchase the same
assets at a later date at a fixed price. During the reverse repurchase agreement
period, the Series continues to receive principal and interest payments on these
securities.
7
<PAGE>
The Series may enter into dollar rolls in which the Series sells securities
for delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type and coupon) securities on a specified future
date from the same party. During the roll period, the Seires forgoes principal
and interest paid on the securities. The Series is compensated by the difference
between the current sales price and the forward price for the future purchase
(often referred to as the "drop") as well as by the interest earned on the cash
proceeds of the initial sale.
The Series will establish a segregated account with its custodian in which
it will maintain cash, U.S. Government securities or other liquid high-grade
debt obligations equal in value to its obligations in respect of reverse
repurchase agreements and dollar rolls. Reverse repurchase agreements and dollar
rolls involve the risk that the market value of the securities retained by the
Series may decline below the price of the securities the Series has sold but is
obligated to repurchase under the agreement. In the event the buyer of
securities under a reverse repurchase agreement files for bankruptcy or becomes
insolvent, the Series' use of the proceeds of the agreement may be restricted
pending a determination by the other party, or its trustee or receiver, whether
to enforce the Series' obligation to repurchase the securities.
Whenever the Series enters into a reverse repurchase or dollar roll
transaction, it will maintain an offsetting cash position or a cash equivalent
security position which matures on or before the forward settlement date of the
transaction.
Reverse repurchase agreements and dollar rolls are considered borrowings by
the Series for purposes of the 20% limitation applicable to borrowings. See
"Borrowing" below.
Borrowing
The Series may borrow an amount equal to no more than 20% of the value of
its total assets (calculated when the loan is made) from banks for temporary,
extraordinary or emergency purposes. The Series may pledge up to 20% of its
total assets to secure these borrowings. Borrowing for purposes other than
meeting redemptions may not exceed 5% of the value of the Series' total assets.
Investment securities will not be purchased while borrowings are outstanding.
Illiquid Securities
The Series may invest up to 10% of its assets in securities for which there
is no readily available market, including repurchase agreements which have a
maturity of longer than seven days. The Series may not, however, invest in
securities for which there are legal or contractual restrictions on resale
(i.e., restricted securities).
Portfolio Turnover
Although the Series has no fixed policy with respect to portfolio turnover,
it may sell portfolio securities without regard to the length of time that they
have been held in order to take advantage of new investment opportunities or
yield differentials, or because the Series desires to preserve gains or limit
losses due to changing economic conditions. Accordingly, it is possible that the
portfolio turnover rate of the Series may reach, or even exceed, 250%. The
portfolio turnover rate is computed by dividing the lesser of the amount of the
securities purchased or securities sold (excluding all securities whose
maturities at acquisiton were one year or less) by the average monthly value of
such securities owned during the year. A higher rate of turnover results in
increased transaction costs to the Series. See "Portfolio Turnover" in the
Statement of Additional Information.
INVESTMENT RESTRICTIONS
The Series is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Series' outstanding securities, as defined in the Investment Company Act. See
"Investment Restrictions" in the Statement of Additional Information.
8
<PAGE>
HOW THE TRUST IS MANAGED
The Trust has Trustees who, in addition to overseeing the actions of the
Trust's Manager, Subadviser and Distributor, as set forth below, decide upon
matters of general policy. The Trust's Manager conducts and supervises the daily
business operations of the Trust. The Trust's Subadviser furnishes daily
investment advisory services.
For the fiscal year ended November 30, 1994, total expenses of the Series as
a percentage of its average net assets were .84%. See "Financial Highlights."
MANAGER
Prudential Mutual Fund Management, Inc. (PMF or the Manager), One Seaport
Plaza, New York, New York 10292, is the Manager of the Trust and is compensated
for its services at an annual rate of .40 of 1% of the Series' average daily net
assets. It was incorporated in May 1987 under the laws of the State of Delaware.
For the fiscal year ended November 30, 1994, the Trust paid management fees to
PMF of .40% of the average net assets of the Series. See "Manager" in the
Statement of Additional Information.
As of February 28, 1995 PMF served as the manager to 39 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 30 closed-end investment companies with aggregate assets of
approximately $46 billion.
Under the Management Agreement with the Trust, PMF manages the investment
operations of the Trust and also administers the Trust's corporate affairs. See
"Manager" in the Statement of Additional Information.
Under a Subadvisory Agreement between PMF and The Prudential Investment
Corporation (PIC or the Subadviser), PIC furnishes investment advisory services
in connection with the management of the Trust and is reimbursed by PMF for its
reasonable costs and expenses incurred in providing such services. Under the
Management Agreement, PMF continues to have responsibility for all investment
advisory services and supervises PIC's performance of such services.
The current portfolio manager of the Series is David Graham, a Vice
President of Prudential Investment Advisors, a unit of PIC. Mr. Graham has
responsibility for the day-to-day management of the Series' portfolio. Mr.
Graham was previously employed by Alliance Capital Management L.P. (February
1993-October 1993) as a fixed-income portfolio manager in the mortgage-backed
securities group, by Equitable Capital Management Corporation (May 1989-February
1993) where he served as a Vice President and was responsible for managing total
return accounts with mortgage securities, and prior thereto, by Metropolitan
Life Insurance Company (June 1986-April 1989) where he served as a portfolio
manager. Mr. Graham joined PIC on November 15, 1993.
PMF and PIC are indirect, wholly-owned subsidiaries of The Prudential
Insurance Company of America (Prudential), a major diversified insurance and
financial services company.
DISTRIBUTOR
Prudential Securities Incorporated (Prudential Securities, PSI or the
Distributor), One Seaport Plaza, New York, New York 10292, is a corporation
organized under the laws of the State of Delaware and serves as the Distributor
for the Series. It is an indirect, wholly-owned subsidiary of Prudential.
Under a Distribution and Service Plan (the Plan) adopted by the Series under
Rule 12b-1 under the Investment Company Act and a distribution and service
agreement (the Distribution Agreement), the Distributor incurs the
9
<PAGE>
expenses of distributing shares of the Series. These expenses include commission
credits to Prudential Securities Incorporated (Prudential Securites or PSI)
branch offices for payments of commissions and account servicing fees to
financial advisers and an allocation of overhead and other branch office
distribution-related expenses. Such account servicing fees are paid based on the
average balance of Series' shares held in the account of the customers of
financial advisers. The Distributor also pays the cost of printing and mailing
prospectuses to potential investors and advertising expenses. In addition, the
Distributor pays other broker-dealers, including Pruco Securities Corporation
(Prusec), an affiliated broker-dealer, for commissions and other expenses
incurred by such broker-dealers in distributing the Series' shares. The State of
Texas requires that shares of the Trust may be sold in that state only by
dealers or other financial institutions which are registered there as
broker-dealers.
Under the Plan, the Trust reimburses the Distributor for its
distribution-related expenses with respect to the Series at the annual rate of
the lesser of (a) .25 of 1% per annum of the aggregate sales of the Series'
shares, not including shares issued in connection with reinvestment of dividends
and capital gains distributions, issued on or after July 1, 1985 (the effective
date of the Plan) less the aggregate net asset value of any such shares
redeemed, or (b) .25 of 1% per annum of the average daily net asset value of the
shares issued after the effective date of the Plan. Such amounts are accrued
daily and paid monthly and average daily net assets are calculated on the basis
of the Series' fiscal year.
Actual distribution expenses for any given year may exceed the fees received
pursuant to the Plan and will be carried forward and paid by the Trust in future
years so long as the Plan is in effect. See "Distributor" in the Statement of
Additional Information.
For the fiscal year ended November 30, 1994, the Distributor received
$665,503 from the Series under the Plan. It is estimated that the Distributor
spent $665,503 on behalf of the Series. At November 30, 1994, the aggregate
amount of distribution expenses incurred by the Distributor and not yet
reimbursed by the Series was approximately $11,346,000, which represented 4.7%
of the Series' net assets. These unreimbursed amounts may be recovered by the
Distributor through future payments under the Plan.
For the fiscal year ended November 30, 1994, the Series paid distribution
expenses under the Plan of .21 of 1% of its average net assets. The Trust
records all payments made under the Plan as expenses in the calculation of its
net investment income.
In addition to distribution and service fees paid by the Series under the
Plan, the Manager (or one of its affiliates) may make payments out of its own
resources to dealers and other persons which distribute shares of the Series.
Such payments may be calculated by reference to the net asset value of shares
sold by such persons or otherwise.
The Plan provides that it shall continue in effect from year to year
provided that a majority of the Trustees, including a majority of the Trustees
who are not interested persons of the Trust (as defined in the Investment
Company Act) and who have no direct or indirect financial interest in the
operation of the Plan or any agreement related to the Plan (the Rule 12b-1
Trustees), vote annually to continue the Plan. The Plan may be terminated at any
time by vote of a majority of the Rule 12b-1 Trustees or of a majority of the
outstanding shares of the Series. In the event of termination or noncontinuation
of the Plan, the Series would not be legally obligated to pay the Distributor
for any expenses not previously reimbursed, including carry-over amounts.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators (with the exception of the Texas Securities
Commissioner who joined the settlement on January 18, 1994) and the National
Association of Securities Dealers, Inc. to resolve allegations that from 1980
through 1990 PSI sold certain limited partnership interests in violation of
securities laws to persons for whom such securities were not suitable and
misrepresented the safety, potential returns and liquidity of these investments.
Without admitting or denying the allegations asserted against it, PSI consented
to the entry of an SEC Administrative Order which stated that PSI's conduct
violated the federal securities laws, directed PSI to cease and desist from
violating the federal securities laws, pay civil penalties, and adopt certain
remedial measures to address the violations.
10
<PAGE>
Pursuant to the terms of the SEC settlement, PSI agreed to the imposition of
a $10,000,000 civil penalty, established a settlement fund in the amount of
$330,000,000 and procedures to resolve legitimate claims for compensatory
damages by purchasers of the partnership interests. PSI has agreed to provide
additional funds, if necessary, for the purpose of the settlement fund. PSI's
settlement with the state securities regulators included an agreement to pay a
penalty of $500,000 per jurisdiction. PSI consented to a censure and to the
payment of a $5,000,000 fine in settling the NASD action.
In October 1994, a criminal complaint was filed with the United States
Magistrate for the Southern District of New York alleging that PSI committed
fraud in connection with the sale of certain limited partnership interests in
violation of federal securities laws. An agreement was simultaneously filed to
defer prosecution of these charges for a period of three years from the signing
of the agreement, provided that PSI complies with the terms of the agreement.
If, upon completion of the three year period, PSI has complied with the terms of
the agreement, no prosecution will be instituted by the United States for the
offenses charged in the complaint. If on the other hand, during the course of
the three year period, PSI violates the terms of the agreement, the U.S.
Attorney can then elect to pursue these charges. Under the terms of the
agreement, PSI agreed, among other things, to pay an additional $330,000,000
into the fund established by the SEC to pay restitution to investors who
purchased certain PSI limited partnership interests.
For more detailed information concerning the foregoing matters, see
"Distributor" in the Statement of Additional Information, a copy of which may be
obtained at no cost by calling 1-800-225-1852.
The Trust is not affected by PSI's financial condition and is an entirely
separate legal entity from PSI, which has no beneficial ownership therein and
the Trust's assets which are held by State Street Bank and Trust Company, an
independent custodian, are separate and distinct from PSI.
PORTFOLIO TRANSACTIONS
Prudential Securities may act as a broker for the Trust provided that the
commissions, fees or other remuneration it receives are fair and reasonable. See
"Portfolio Transactions and Brokerage" in the Statement of Additional
Information.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian of the Trust's portfolio securities
and, in that capacity, maintains certain financial and accounting books and
records pursuant to an agreement with the Trust. Its mailing address is P.O. Box
1713, Boston, Massachusetts 02105.
Prudential Mutual Fund Services, Inc., Raritan Plaza One, Edison, New Jersey
08837, serves as Transfer and Dividend Disbursing Agent and, in those
capacities, maintains certain books and records for the Trust. PMFS is a
wholly-owned subsidiary of PMF. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.
- --------------------------------------------------------------------------------
HOW THE TRUST VALUES ITS SHARES
- --------------------------------------------------------------------------------
The Series' net asset value per share or NAV is determined by subtracting
its liabilities from the value of its assets and dividing the remainder by the
number of outstanding shares. The Trustees have fixed the specific time of day
for the computation of the NAV of the Series to be as of 4:15 P.M., New York
time.
Portfolio securities are valued based on market quotations or, if not
readily available, at fair value as determined in good faith under procedures
established by the Trustees. See "Net Asset Value" in the Statement of
Additional Information.
The Series will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase, sell
or redeem Intermediate Term Series shares have been received or days on which
changes in the value of the Series' portfolio securities do not materially
affect the NAV. The New York Stock
11
<PAGE>
Exchange is closed on the following holidays: New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. See "Net Asset Value" in the Statement of Additional Information.
- --------------------------------------------------------------------------------
HOW THE TRUST CALCULATES PERFORMANCE
- --------------------------------------------------------------------------------
The Series may from time to time advertise its "yield" and its total return
(including "average annual" total return and "aggregate" total return) in
advertisements or sales literature. These figures are based on historical
earnings and are not intended to indicate future performance. The "yield" refers
to the income generated by an investment in the Series over a 30-day period.
This income is then "annualized"; that is, the amount of income generated by the
investment during that 30-day period is assumed to be generated each 30-day
period for twelve periods and is shown as a percentage of the investment. The
income earned on the investment is also assumed to be reinvested at the end of
the sixth 30-day period. The "total return" shows how much an investment in the
Series would have increased (decreased) over a specified period of time (i.e.,
one, five or ten years or since inception of the Trust) assuming that all
distributions and dividends by the Series were reinvested on the reinvestment
dates during the period and less all recurring fees. The "aggregate" total
return reflects actual performance over a stated period of time. "Average
annual" total return is a hypothetical rate of return that, if achieved
annually, would have produced the same aggregate total return if performance had
been constant over the entire period. "Average annual" total return smooths out
variations in performance. Neither "average annual" nor "aggregate" total return
takes into account any federal or state income taxes which may be payable upon
redemption. The Series may include comparative performance information in
advertising or marketing its shares. Such performance information may include
data from Lipper Analytical Services, Inc., Morningstar Publications, Inc.,
other industry publications, business periodicals, and market indices. See
"Performance Information" in the Statement of Additional Information. Further
performance information is contained in the Trust's annual report to
shareholders, which may be obtained without charge. See "Shareholder
Guide-Shareholder Services-Reports to Shareholders."
- --------------------------------------------------------------------------------
TAXES, DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
Taxation of the Series
Each series of the Trust is treated as a separate entity for federal income
tax purposes and each has elected to qualify and intends to remain qualified as
a regulated investment company under the Internal Revenue Code. Accordingly, the
Series will not be subject to federal income taxes on the taxable income it
distributes to shareholders. The performance and tax qualification of one series
will have no effect on the federal income tax liability of shareholders of the
other series. See "Taxes" in the Statement of Additional Information.
Gains or losses on sales of securities by the Series are treated as
long-term capital gains or losses if the securities have been held by it for
more than one year and otherwise as short-term capital gains or losses.
Taxation of Shareholders
Distributions of net investment income and realized net short-term capital
gains (i.e., the excess of net short-term capital gains over net long-term
capital losses) of the Series, if any, are taxable to shareholders of the Series
as ordinary income, whether such distributions are received in cash or
reinvested in additional shares. Distributions of net long-term capital gains,
if any, are taxable as long-term capital gains, whether paid in cash or
reinvested in additional shares, regardless of how long the shareholder has held
the Series' shares. Because none of the income of the Series will consist of
dividends from domestic corporations, dividends of net investment income and
distributions of net short-term or long-term capital gains will not be eligible
for the dividends-received deduction for corporate shareholders. Tax-exempt
shareholders will not be required to pay taxes on amounts distributed to them.
12
<PAGE>
Any gain or loss realized upon a sale, redemption or exchange of shares of
the Series by a shareholder who is not a dealer in securities will generally be
treated as long-term capital gain or loss if the shares have been held for more
than one year, and otherwise as short-term capital gain or loss. Any loss
realized by a shareholder upon the sale, redemption or exchange of Series shares
held six months or less will be treated as a long-term capital loss, however, to
the extent of any net long-term capital gain distributions received by the
shareholder with respect to those shares. Any loss realized on a sale,
redemption or exchange will be disallowed to the extent the shares disposed of
are replaced (including by reinvestment of dividends) within the 61-day period
ending 30 days after the shares are disposed of.
Shareholders are advised to consult their own tax advisers regarding
specific questions as to federal, state or local taxes.
Witholding Taxes
Under Treasury Regulations, the Series is required to withhold and remit to
the U.S. Treasury 31% of dividends, capital gain distributions and redemption
proceeds on the accounts of those shareholders who fail to furnish their tax
identification numbers on IRS Form W-9 (or IRS Form W-8 in the case of certain
foreign shareholders). Withholding at this rate is also required from dividends
and capital gains distributions (but not redemption proceeds) payable to
shareholders who are otherwise subject to backup withholding. Dividends from net
investment income and short-term capital gains paid to a foreign shareholder
will generally be subject to U.S. withholding tax at the rate of 30% (or lower
treaty rate).
Dividends and Distributions
The Series declares dividends on a daily basis payable monthly in an amount
based on actual and projected net investment income determined in accordance
with generally accepted accounting principles.
Dividends and distributions will be paid in additional shares of the Series,
based on the NAV on the payment date, unless the shareholder elects in writing
not less than five business days prior to the payment date to receive such
dividends and distributions in cash. Such election should be submitted to
Prudential Mutual Fund Services, Inc., Attention: Account Maintenance, P.O. Box
15015, New Brunswick, New Jersey 08906-5015. If you hold shares through
Prudential Securities, you should contact your financial adviser to elect to
receive dividends and distributions in cash. The Trust will notify each
shareholder after the close of the Trust's taxable year of both the dollar
amount and taxable status of that year's dividends and distributions on a per
share basis. Distributions may be subject to state and local taxes. See
"Taxation of Shareholders" above.
As of November 30, 1994, the Series had a capital loss carryforward for
federal income tax purposes of approximately $78,649,000. Accordingly, no
capital gains distribution is expected to be paid to shareholders until net
gains have been realized in excess of such carryforward.
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
DESCRIPTION OF SHARES
The Trust, organized as an unincorporated business trust under the laws of
Massachusetts, is a trust fund of the type commonly known as a "Massachusetts
business trust." The Trust's activities are supervised by its Trustees. The
Declaration of Trust permits the Trustees to issue an unlimited number of full
and fractional shares in separate series.
The shareholders of the Money Market Series, the Intermediate Term Series
and the U.S. Treasury Money Market Series are each entitled to a full vote for
each full share of beneficial interest (par value $.01 per share) held (and
fractional votes for fractional shares). Shares of each series are entitled to
vote as a class only to the extent required by the provisions of the Investment
Company Act or as otherwise permitted by the Trustees in their sole discretion.
Under the
13
<PAGE>
Investment Company Act, shareholders of each series have to approve the adoption
of any investment advisory agreement relating to such series and of any changes
in investment policies related thereto.
It is the intention of the Trust not to hold annual meetings of
shareholders. The Trustees may call special meetings of shareholders for action
by shareholder vote as may be required by the Investment Company Act or the
Declaration of Trust. Shareholders have certain rights, including the right to
call a meeting upon a vote of 10% of the Trust's outstanding shares for the
purpose of voting on the removal of one or more Trustees.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which has
been incorporated by reference herein, does not contain all the information set
forth in the Registration Statement filed by the Trust with the SEC under the
Securities Act of 1933. Copies of the Registration Statement may be obtained at
a reasonable charge from the SEC or may be examined, without charge, at the
office of the SEC in Washington, D.C.
- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE
- --------------------------------------------------------------------------------
HOW TO BUY SHARES OF THE TRUST
You may purchase shares of the Series through Prudential Securities or
through Prusec or directly from the Trust through its Transfer Agent, Prudential
Mutual Fund Services, Inc. (PMFS or the Transfer Agent), Attention: Investment
Services, P.O. Box 15020, New Brunswick, New Jersey 08906-5020. The minimum
initial investment is $1,000. The minimum subsequent investment is $100. All
minimum investment requirements are waived for certain retirement and employee
savings plans and for custodial accounts for the benefit of minors. For
purchases through the Automatic Savings Accumulation Plan, the minimum initial
and subsequent investment is $50. See "Shareholder Services" below.
Shares of the Series are sold, without a sales charge, at the NAV next
determined after receipt of an order by PMFS of a purchase order and payment in
proper form [i.e., a check or Federal Funds wired to State Street Bank and Trust
Company (State Street)]. See "How the Trust Values its Shares." When payment is
received by PMFS prior to 4:15 P.M., New York time, in proper form, a share
purchase order will be entered at the price determined as of 4:15 P.M., New York
time, on that day, and dividends on the shares purchased will begin on the
business day following such investment. See "Taxes, Dividends and
Distributions."
Application forms can be obtained from PMFS, Prudential Securities or
Prusec. If a stock certificate is desired, it must be requested in writing for
each transaction. Certificates are issued only for full shares. Shareholders who
hold their shares through Prudential Securities will not receive stock
certificates. Shareholders cannot utilize Expedited Redemption or have a
Systematic Withdrawal Plan if they have been issued share certificates.
The Trust reserves the right to reject any purchase order (including an
exchange into the Series) or to suspend or modify the continuous offering of its
shares. See "How to Sell Your Shares" below.
Your dealer is responsible for forwarding payment promptly to the Trust. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the fifth business day following the investment.
Transactions in Trust shares may be subject to postage and handling charges
imposed by your dealer.
Purchases through Prudential Securities. If you have an account with
Prudential Securities (or open such an account), you may ask Prudential
Securities to purchase shares of the Series on your behalf. On the business day
following confirmation that a free credit balance (i.e., immediately available
funds) exists in your account, Prudential
14
<PAGE>
Securities, at your request, will effect a purchase order for shares of the
Series in an amount up to the balance at the NAV determined that day. Funds held
by Prudential Securities on behalf of its clients in the form of free credit
balances are delivered to State Street by Prudential Securities and begin
earning dividends the second business day after receipt of the order by
Prudential Securities. Accordingly, Prudential Securities will have the use of
such free credit balances during this period.
Shares of the Series purchased by Prudential Securities on behalf of its
clients will be held by Prudential Securities as record holder. Prudential
Securities will thereafter receive statements and dividends directly from the
Trust and will in turn provide investors with Prudential Securities account
statements reflecting Series purchases, redemptions and dividend payments.
Prudential Securities clients wishing additional information concerning
investment in Series shares made through Prudential Securities should call their
Prudential Securities financial adviser.
Purchases through Prusec. You may purchase shares of the Series by placing
an order with your Prusec registered representative accompanied by payment for
the purchase price of such shares and, in the case of a new account, a completed
Application Form. You should also submit an IRS Form W-9. The Prusec registered
representative will then forward these items to the Transfer Agent. See
"Purchase by Mail" below.
Purchase by Wire. For an initial purchase of shares of the Series by wire,
you must first telephone PMFS at (800) 225-1852 to receive an account number.
The following information will be requested: your name, address, tax
identification number, dividend and distribution elections, amount being wired
and wiring bank. Instructions should then be given by you to your bank to
transfer funds by wire to State Street Bank and Trust Company, Boston,
Massachusetts, Custody and Shareholder Services Division, Attention: Prudential
Government Securities Trust, Intermediate Term Series, specifying on the wire
the account number assigned and your name.
If you arrange for receipt by State Street of Federal Funds prior to 4:15
P.M., New York time, on a business day, you may purchase Series shares as of
that day and earn dividends commencing on the next business day.
In making a subsequent purchase utilizing Federal Funds, you should wire
State Street directly and should be sure that the wire specifies Prudential
Government Securities Trust (Intermediate Term Series) and your name and
individual account number. It is not necessary to call PMFS to make subsequent
purchase orders utilizing Federal Funds. The minimum amount which may be
subsequently invested by wire is $1,000.
Purchase by Mail. Purchase orders for which remittance is to be made by
check must be submitted directly by mail to Prudential Mutual Fund Services,
Inc., Attention: Investment Services, P.O. Box 15020, New Brunswick, New Jersey
08906-5020, together with payment for the purchase price of such shares and, in
the case of a new account, a completed Application Form. You should also submit
an IRS Form W-9. If PMFS receives your order to purchase shares of the Trust and
payment in proper form prior to 4:15 P.M., New York time, the purchase order
will be effective on that day and you will begin earning dividends on the
following business day. See "Taxes, Dividends and Distributions." Checks should
be made payable to "Prudential Government Securities Trust, Intermediate Term
Series." Certified checks are not necessary, but checks are accepted subject to
collection at full face value in United States funds and must be drawn on a bank
located in the United States. There are restrictions on the redemption of shares
purchased by check while the funds are being collected. See "How to Sell Your
Shares."
HOW TO SELL YOUR SHARES
You can redeem your shares at any time for cash at the NAV next determined
after the redemption request is received in proper form by the Transfer Agent or
Prudential Securities. See "How the Trust Values its Shares."
Shares for which a redemption request is received by PMFS prior to 4:15
P.M., New York time, are entitled to a dividend on the day on which the request
is received. By pre-authorizing Expedited Redemption, a shareholder may arrange
to have payment for redeemed shares made in Federal Funds wired to the
shareholder's bank, normally on the next bank business day following the date of
receipt of the redemption instructions. Should a shareholder redeem all of his
or her shares, he or she will receive the amount of all dividends declared for
the month-to-date on those shares. Any
15
<PAGE>
capital gain or loss realized by a shareholder upon any redemption of Trust
shares must be recognized for federal income tax purposes. See "Taxes, Dividends
and Distributions."
Prudential Securities clients for whom Prudential Securities has purchased
shares of the Trust may have their shares redeemed by calling their Prudential
Securities financial adviser.
If redemption is requested by a corporation, partnership, trust or
fiduciary, written evidence of authority acceptable to the Transfer Agent must
be submitted before such request will be accepted. All correspondence and
documents concerning redemptions should be sent to the Trust in care of its
Transfer Agent, Prudential Mutual Fund Services, Inc., Attention: Redemption
Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5020.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to
a person other than the record owner, (c) are to be sent to an address other
than the address on the Transfer Agent's records or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the redemption
request and on the certificates, if any, or stock, power must be guaranteed by
an "eligible guarantor institution." An "eligible guarantor institution"
includes any bank, broker, dealer or credit union. The Transfer Agent reserves
the right to request additional information from, and make reasonable inquiries
of, any eligible guarantor institution. For clients of Prusec, a signature
guarantee may be obtained from the agency or office manager of most Prudential
Insurance and Financial Services or Preferred Services offices.
Payment for shares presented for redemption will ordinarily be made by check
mailed to the shareholder's address within seven days after receipt of the
redemption request in proper order. Such payment may be postponed or the right
of redemption suspended at times (a) when the New York Stock Exchange is closed,
for other than customary weekends and holidays, (b) when trading on such
Exchange is restricted, (c) when an emergency exists as a result of which
disposal by the Trust of securities owned by it is not reasonably practicable or
it is not reasonably practicable for the Trust fairly to determine the value of
its net assets or (d) during any other period when the Securities and Exchange
Commission, by order, so permits; provided that applicable rules and regulations
of the Securities and Exchange Commission shall govern as to whether the
conditions prescribed in (b), (c) or (d) exist.
Payment for redemption of recently purchased shares will be delayed until
the Trust or its Transfer Agent has been advised that the purchase check has
been honored, up to 10 calendar days from the time of receipt of the purchase
check by the Transfer Agent. Such delay may be avoided if shares are purchased
by wire or by certified or official bank check.
Expedited Redemption. By pre-authorizing Expedited Redemption, you may
arrange to have payment for redeemed shares made in Federal Funds wired to your
bank, normally on the next business day following redemption. In order to use
Expedited Redemption, you may so designate at the time the initial investment is
made or at a later date. Once an Expedited Redemption authorization form has
been completed, the signature on the authorization form guaranteed as set forth
above and the form returned to PMFS, requests for redemption may be made by
telegraph, letter or telephone. To request Expedited Redemption by telephone,
you should call PMFS at (800) 225-1852. Calls must be received by PMFS before
4:15 P.M., New York time, to permit redemption as of such date. Requests by
letter should be addressed to Prudential Mutual Fund Services, Inc., Attention:
Redemption Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010.
A signature guarantee is not required under Expedited Redemption once the
authorization form is properly completed and returned. The Expedited Redemption
privilege may be used to redeem shares in an amount of $200 or more, except that
if an account for which Expedited Redemption is requested has a net asset value
of less than $200, the entire account must be redeemed. The proceeds of redeemed
shares in the amount of $1,000 or more are transmitted by wire to your account
at a domestic commercial bank which is a member of the Federal Reserve System.
Proceeds of less than $1,000 are forwarded by check to your designated bank
account.
During periods of severe market or economic conditions, Expedited
Redemptions may be difficult to implement and you should redeem your shares by
mail as described above.
16
<PAGE>
Redemption in Kind. If the Trustees determine that it would be detrimental
to the best interests of the remaining shareholders of the Series to make
payment wholly or partly in cash, the Trust may pay the redemption price in
whole or in part by a distribution in kind of securities from the portfolio of
the Series, in lieu of cash in conformity with applicable rules of the
Securities and Exchange Commission. Securities will be readily marketable and
will be valued in the same manner as in a regular redemption. See "How the Trust
Values its Shares." If your shares are redeemed in kind, you would incur
transaction costs in converting the assets into cash. The Trust, however, has
elected to be governed by Rule 18f-1 under the Investment Company Act pursuant
to which the Trust is obligated to redeem shares solely in cash up to the lesser
of $250,000 or one percent of the net asset value of the Series during any
90-day period for any one shareholder.
Involuntary Redemption. In order to reduce the expenses of the Trust, the
Trustees may redeem all of the shares of any shareholder whose account has a net
asset value of less than $500 due to a redemption. The Trust would give
shareholders whose shares were being redeemed 60 days' prior written notice in
which to purchase sufficient additional shares to avoid such redemption.
90-Day Repurchase Privilege. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest any portion or
all of the proceeds of such redemption in shares of the Trust at the NAV next
determined after the order is received, which must be within 90 days after the
date of the redemption. You will receive pro rata credit for any contingent
deferred sales charge paid in connection with the redemption. You must notify
the Trust's Transfer Agent, either directly or through Prudential Securities or
Prusec, at the time the repurchase privilege is exercised, that you are entitled
to credit for any contingent deferred sales charge previously paid. Exercise of
the repurchase privilege will not affect the federal income tax treatment of any
gain realized upon the redemption. If the redemption resulted in a loss, some or
all of the loss, depending on the amount reinvested, will not be allowed for
federal income tax purposes.
Class B and Class C Purchase Privilege. You may direct that the proceeds of
the redemption of Fund shares be invested in Class B or Class C shares of any
Prudential Mutual Fund by calling your Prudential Securities financial adviser
or the Transfer Agent at (800) 225-1852. The transaction will be effected on the
basis of the relative NAV.
HOW TO EXCHANGE YOUR SHARES
As a shareholder of the Series, you may exchange your shares for shares of
other series of the Trust and certain other Prudential Mutual Funds, including
money market funds and funds sold with an initial sales charge, subject to the
minimum investment requirements of such funds on the basis of relative NAV. You
may exchange your shares for Class A shares of the Prudential Mutual Funds on
the basis of the relative NAV plus the applicable sales charge. No additional
sales charge is imposed in connection with subsequent exchanges. You may not
exchange your shares for Class B shares of the Prudential Mutual Funds, except
that shares acquired prior to January 22, 1990 subject to a contingent deferred
sales charge can be exchanged for Class B shares. You may not exchange your
shares for Class C shares of the Prudential Mutual Funds. See "How to Sell Your
Shares-Class B and Class C Purchase Privilege" above and "Shareholder Investment
Account-Exchange Privilege" in the Statement of Additional Information. An
exchange will be treated as a redemption and purchase for tax purposes.
In order to exchange shares by telephone, you must authorize telephone
exchanges on your initial application form or by written notice to the Transfer
Agent and hold shares in non-certificate form. Thereafter, you may call the
Trust at (800) 225-1852 to execute a telephone exchange of shares, on weekdays,
except holidays, between the hours of 8:00 A.M. and 6:00 P.M., New York time.
For your protection and to prevent fradulent exchanges, your telephone call will
be recorded and you will be asked to provide your personal identification
number. A written confirmation of the exchange transaction will be sent to you.
Neither the Trust nor its agents will be liable for any loss, liability or cost
which results from acting upon instructions reasonably believed to be genuine
under the foregoing procedures. All exchanges will be made on the basis of the
relative NAV of the two funds (or series) next determined after the request is
received in good order. The Exchange Privilege is available only in states where
the exchange may legally be made.
17
<PAGE>
If you hold shares through Prudential Securities, you must exchange your
shares by contacting your Prudential Securities financial adviser. If you hold
certificates, the certificates, signed in the name(s) shown on the face of the
certificates, must be returned in order for the shares to be exchanged. See
"Purchase and Redemption of Trust Shares-How to Sell Your Shares" above.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services, Inc., Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
In periods of severe market or economic conditions, the telephone exchange
of shares may be difficult to implement and you should make exchanges by mail by
writing to Prudential Mutual Fund Services, Inc., at the address noted above.
The Exchange Privilege may be modified or terminated at any time on 60 days'
notice to shareholders.
SHAREHOLDER SERVICES
In addition to the exchange privilege, as a shareholder in the Trust, you
can take advantage of the following additional services and privileges:
*Automatic Reinvestment of Dividends and/or Distributions. For your
convenience, all dividends and distributions are automatically reinvested in
full and fractional shares of the Series at NAV. You may direct the Transfer
Agent in writing not less than 5 full business days prior to the record date to
have subsequent dividends and/or distributions sent in cash rather than
reinvested. If you hold your shares through Prudential Securities, you should
contact your financial adviser.
*Automatic Savings Accumulation Plan (ASAP). Under ASAP you may make regular
purchases of Series shares in amounts as little as $50 via an automatic charge
to a bank account or Prudential Securities account (including a Command
Account). For additional information about this service, you may contact your
Prudential Securities financial adviser, Prusec representative or the Transfer
Agent directly.
*Tax-Deferred Retirement Plans. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both
self-employed individuals and corporate employers. These plans permit either
self-direction of accounts by participants, or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from Prudential Securities or the
Transfer Agent. If you are considering adopting such a plan, you should consult
with your own legal or tax adviser with respect to the establishment and
maintenance of such a plan.
*Systematic Withdrawal Plan. A systematic withdrawal plan is available for
shareholders which provides for monthly or quarterly checks. For additional
information about this service, you may contact your Prudential Securities
financial adviser, Prusec representative or the Transfer Agent directly.
*Reports to Shareholders. The Trust will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses the Trust will provide one annual report and semi-annual shareholder
report and annual prospectus per household. You may request additional copies of
such reports by calling (800) 225-1852 or by writing to the Trust at One Seaport
Plaza, New York, NY 10292. In addition, monthly unaudited financial data is
available upon request from the Trust.
*Shareholder Inquiries. Inquiries should be addressed to the Trust at One
Seaport Plaza, New York, New York 10292, or by telephone, at (800) 225-1852
(toll free) or, from outside the U.S.A., at (908) 417-7555 (collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
18
<PAGE>
- --------------------------------------------------------------------------------
THE PRUDENTIAL MUTUAL FUND FAMILY
- --------------------------------------------------------------------------------
Prudential Mutual Fund Management offers a broad range of mutual funds
designed to meet your individual needs. We welcome you to review the investment
options available through our family of funds. For more information on the
Prudential Mutual Funds, including charges and expenses, contact your Prudential
Securities financial adviser or Prusec registered representative or telephone
the Trust at (800) 225-1852 for a free prospectus. Read the prospectus carefully
before you invest or send money.
Taxable Bond Funds
Prudential Adjustable Rate Securities Fund, Inc.
Prudential Diversified Bond Fund, Inc.
Prudential GNMA Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
Prudential U.S. Government Fund
The BlackRock Government Income Trust
Tax-Exempt Bond Funds
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Modified Term Series
Prudential Municipal Series Fund
Arizona Series
Florida Series
Georgia Series
Hawaii Income Series
Maryland Series
Massachusetts Series
Michigan Series
Minnesota Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
Global Funds
Prudential Europe Growth Fund, Inc.
Prudential Global Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Natural Resources Fund, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential Short-Term Global Income Fund, Inc.
Global Assets Portfolio
Short-Term Global Income Portfolio
Global Utility Fund, Inc.
Equity Funds
Prudential Allocation Fund
Conservatively Managed Portfolio
Strategy Portfolio
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Growth Opportunity Fund, Inc.
Prudential IncomeVertible(R) Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Strategist Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Money Market Funds
Taxable Money Market Funds
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund
Money Market Series
Prudential MoneyMart Assets
Tax-Free Money Market Funds
Prudential Tax-Free Money Fund
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
Command Funds
Command Money Fund
Command Government Fund
Command Tax-Free Fund
Institutional Money Market Funds
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
A-1
<PAGE>
No dealer, sales representative or any other person has
been authorized to give any information or to make any
representations, other than those contained in this
Prospectus, in connection with the offer contained
herein, and, if given or made, such other information or
representations must not be relied upon as having been
authorized by the Trust or the Distributor. This
Prospectus does not constitute and offer by the Trust or
by the Distributor to sell or a solicitation of an offer to
buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make
such offer in such jurisdiction.
___________________________________________________________
TABLE OF CONTENTS
Page
----
TRUST HIGHLIGHTS............................. 2
Risk Factors and Special Characteristics... 2
TRUST EXPENSES............................... 4
FINANCIAL HIGHLIGHTS......................... 5
HOW THE TRUST INVESTS........................ 6
Investment Objective and Policies.......... 6
Other Investments and Policies............. 7
Investment Restrictions.................... 8
HOW THE TRUST IS MANAGED..................... 9
Manager.................................... 9
Distributor................................ 9
Portfolio Transactions..................... 11
Custodian and Transfer and
Dividend Disbursing Agent................ 11
HOW THE TRUST VALUES ITS SHARES.............. 11
HOW THE TRUST CALCULATES PERFORMANCE......... 12
TAXES, DIVIDENDS AND DISTRIBUTIONS........... 12
GENERAL INFORMATION.......................... 13
Description of Shares...................... 13
Additional Information..................... 14
SHAREHOLDER GUIDE............................ 14
How to Buy Shares of the Trust............. 14
How to Sell Your Shares.................... 15
How to Exchange Your Shares................ 17
Shareholder Services....................... 18
THE PRUDENTIAL MUTUAL FUND FAMILY............A-1
________________________________________________
111A 4440381
________________________________________________
CUSIP #: 744342 10 6
________________________________________________
Prudential
Government
Securities
Trust
(Intermediate Term Series)
Prudential Mutual Funds (LOGO)
Building Your Future
On Our StrengthSM
PROSPECTUS
April 3, 1995
<PAGE>
Prudential Government Securities Trust
(Money Market Series)
- --------------------------------------------------------------------------------
Prospectus dated April 3, 1995
- --------------------------------------------------------------------------------
Prudential Government Securities Trust (the Trust) is a diversified, open-end
management investment company whose shares of beneficial interest are offered in
three series. Each series operates as a separate fund with its own investment
objectives and policies designed to meet its specific investment goals.
The investment objectives of the Money Market Series (the Series) are to obtain
high current income, preservation of capital and maintenance of liquidity by
investing principally in a diversified portfolio of short-term money-market
instruments issued or guaranteed by the United States Government or its agencies
or instrumentalities. There is no assurance that the Series' investment
objective will be achieved. See "How the Trust Invests-Investment Objectives and
Policies."
An investment in the Series is neither insured nor guaranteed by the U.S.
Government and there can be no assurance that the Series will be able to
maintain a stable net asset value of $1.00 per share. See "How the Trust Values
its Shares."
The Trust's address is One Seaport Plaza, New York, New York 10292, and its
telephone number is (800) 225-1852.
- --------------------------------------------------------------------------------
This Prospectus sets forth concisely the information about the Trust and the
Series that a prospective investor should know before investing. Additional
information about the Trust has been filed with the Securities and Exchange
Commission in a Statement of Additional Information, dated April 3, 1995, which
information is incorporated herein by reference (is legally considered a part of
this Prospectus) and is available without charge upon request to the Trust at
the address or telephone number noted above.
- --------------------------------------------------------------------------------
Investors are advised to read this Prospectus and retain it for future
reference.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
- --------------------------------------------------------------------------------
TRUST HIGHLIGHTS
- --------------------------------------------------------------------------------
The following summary is intended to highlight certain information contained
in this prospectus and is qualified in its entirety by the more detailed
information appearing elsewhere herein.
- --------------------------------------------------------------------------------
What is Prudential Government Securities Trust?
Prudential Government Securities Trust is a mutual fund whose shares are
offered in three series, each of which operates as a separate fund. A mutual
fund pools the resources of investors by selling its shares to the public and
investing the proceeds of such sale in a portfolio of securities designed to
achieve its investment objective. Technically, the Trust is an open-end,
diversified management investment company. Only the Money Market Series is
offered through this Prospectus.
What are the Series' Investment Objectives?
The Series' investment objectives are to obtain high current income,
preservation of capital and maintenance of liquidity by investing principally in
a diversified portfolio of short-term money-market instruments issued or
guaranteed by the United States Government or its agencies or instrumentalities.
There is no assurance that the Series' investment objective will be achieved.
See "How the Trust Invests-Investment Objectives and Policies" at page 6.
Risk Factors and Special Characteristics
It is anticipated that the net asset value of the Series will remain
constant at $1.00 per share, although this cannot be assured. In order to
maintain such constant net asset value, the Series will value its portfolio
securities at amortized cost. While this method provides certainty in valuation,
it may result in periods during which the value of a security in its portfolio,
as determined by amortized cost, is higher or lower than the price the Series
would receive if it sold such security. See "How the Trust Values its Shares" at
page 10.
Who Manages the Trust?
Prudential Mutual Fund Management, Inc. (PMF or the Manager) is the Manager
of the Trust and is compensated for its services at an annual rate of .40 of 1%
of the Series' average daily net assets up to $1 billion, .375 of 1% of the
Series' average daily net assets between $1 billion and $1.5 billion and .35 of
1% in excess of $1.5 billion. As of February 28, 1995, PMF served as manager or
administrator to 69 investment companies, including 39 mutual funds, with
aggregate assets of approximately $46 billion. The Prudential Investment
Corporation (PIC or the Subadviser) furnishes investment advisory services in
connection with the management of the Trust under a Subadvisory Agreement with
PMF. See "How the Trust is Managed-Manager" at page 8.
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
Who Distributes the Series' Shares?
Prudential Mutual Fund Distributors, Inc. (PMFD or the Distributor) acts as
the Distributor of the Series' shares. The Trust reimburses PMFD for expenses
related to the distribution of the Series' shares at an annual rate of up to
.125 of 1% of the average daily net assets of the Series. See "How the Trust is
Managed-Distributor" at page 8.
What is the Minimum Investment?
The minimum initial investment is $1,000. The subsequent minimum investment
is $100. There is no minimum investment requirement for certain retirement and
employee savings plans or custodial accounts for the benefit of minors. For
purchases made through the Automatic Savings Accumulation Plan, the minimum
initial and subsequent investment is $50. See "Shareholder Guide-How to Buy
Shares of the Trust" at page 12 and "Shareholder Guide-Shareholder Services" at
page 17.
How Do I Purchase Shares?
You may purchase shares of the Series through Prudential Securities
Incorporated (Prudential Securities or PSI), Pruco Securities Corporation
(Prusec) or directly from the Trust, through its transfer agent, Prudential
Mutual Fund Services, Inc. (PMFS or the Transfer Agent) at the net asset value
per share (NAV) next determined after receipt of your purchase order by the
Transfer Agent or Prudential Securities. See "How the Trust Values its Shares"
at page 10 and "Shareholder Guide-How to Buy Shares of the Trust" at page 12.
How Do I Sell My Shares?
You may redeem shares of the Series at any time at the NAV next determined
after Prudential Securities or the Transfer Agent receives your sell order. See
"Shareholder Guide-How to Sell Your Shares" at page 14.
How Are Dividends and Distributions Paid?
The Series expects to declare daily and pay monthly dividends of net
investment income and short-term capital gains, if any. Dividends and
distributions will be automatically reinvested in additional shares of the
Series at NAV unless you request that they be paid to you in cash. See "Taxes,
Dividends and Distributions" at page 10.
- --------------------------------------------------------------------------------
3
<PAGE>
TRUST EXPENSES-MONEY MARKET SERIES
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases None
Maximum Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Series Operating Expenses
(as a percentage of average net assets)
Management Fees 0.400%
12b-1 Fees 0.125%
------
Other Expenses 0.245%
------
Total Series Operating Expenses 0.770%
------
<TABLE>
<CAPTION>
Example 1 Year 3 Years 5 Years 10 Years
------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period: $8 $25 $43 $95
<FN>
- --------------
The above example is based on data for the Series' fiscal year ended
November 30, 1994. The example should not be considered a representation of past
or future expenses. Actual expenses may be greater or less than those shown.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that an investor in the Series will bear, whether
directly or indirectly. For more complete descriptions of the various costs and
expenses, see ``How the Trust is Managed." "Other Expenses" include operating
expenses of the Series, such as Trustees' and professional fees, registration
fees, reports to shareholders and transfer agent and custodian fees.
</FN>
</TABLE>
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(for a share of beneficial interest outstanding throughout each of
the years indicated)
- --------------------------------------------------------------------------------
The following financial highlights with respect to the five-year period
ended November 30, 1994 for the Series have been audited by Price Waterhouse
LLP, independent accountants, whose report thereon was unqualified. This
information should be read in conjunction with the financial statements and
notes thereto, which appear in the Statement of Additional Information. The
following financial highlights contain selected data for a share of beneficial
interest outstanding, total return, ratios to average net assets and other
supplemental data for each of the periods indicated. The information is based on
data contained in the financial statements.
- --------------------------------------------------------------------------------
<TABLE>
Money Market Series
-----------------------------------------------------------------------------------
Year Ended November 30,
-----------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988(D) 1987 1986 1985
---- ---- ---- ---- ---- ---- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <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 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment income .............. .033 .026 .035 .058 .076 .084 .067 .058 .061 .075
Dividends from net investment
income ........................... (.033) (.026) (.035) (.058) (.076) (.084) (.067) (.058) (.061) (.075)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of year ....... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN(D)(D) ................. 3.29% 2.62% 3.57% 5.96% 7.83% 8.77% 6.99% 6.01% 6.30% 7.73%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) ......$637,343 $919,503 $1,026,187 $1,212,836 $1,355,058 $667,571 $470,727 $445,761 $329,789 $268,046
Average net assets (000) ...........$732,867 $950,988 $1,113,759 $1,255,014 $ 857,385 $528,820 $480,598 $368,100 $315,520 $257,977
Ratio to average net assets:
Expenses, including
distribution fees ................ .77% .72% .72% .65% .66% .68% .65% .68% .70% .73%
Expenses, excluding
distribution fees ................ .64% .59% .60% .53% .53% .56% .52% .55% .57% .60%
Net investment income .............. 3.19% 2.56% 3.42% 5.78% 7.52% 8.30% 6.69% 5.78% 6.13% 7.39%
<FN>
- ------------------
(D) On August 9, 1988, Prudential Mutual Fund Management, Inc. succeeded The Prudential Insurance Company of America as
investment adviser and since then has acted as manager of the Trust. See "Manager" in the Statement of Additional
Information.
(D)(D) 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.
</FN>
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE>
CALCULATION OF YIELD
The Series calculates its "current yield" based on the net change, exclusive
of realized and unrealized gains or losses, in the value of a hypothetical
account over a seven calendar day base period. The Series also calculates its
"effective annual yield" assuming weekly compounding. The following is an
example of the yield calculations as of November 30, 1994:
Value of hypothetical account at end of period $1.000900134
------------
Value of hypothetical account at beginning of period 1.000000000
------------
Base period return $0.000900134
============
Current yield (.000900134 x (365/7)) 4.69%
Effective annual yield, assuming weekly compounding 4.80%
The yield will fluctuate from time to time and is not necessarily
representative of future performance.
The weighted average life to maturity of the portfolio of the Series on
November 30, 1994 was 42 days.
Yield is computed in accordance with a standardized formula described in the
Statement of Additional Information. In addition, comparative performance
information may be used from time to time in advertising or marketing the
Trust's shares, including data from Lipper Analytical Services, Inc.,
Morningstar Publications, Inc., Donoghue's Money Fund Report, The Bank Rate
Monitor, other industry publications, business periodicals, and market indices.
- --------------------------------------------------------------------------------
HOW THE TRUST INVESTS
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the Series are to obtain high current income,
preserve capital and maintain liquidity. There is no assurance that these
objectives will be achieved.
The Series will invest at least 80% of its total assets in United States
Government securities. These securities may include securities issued or
guaranteed by the United States Treasury, by various agencies of the United
States Government or by various instrumentalities which have been established or
sponsored by the United States Government including repurchase agreements with
respect to such securities. The Series may also invest in fully insured
certificates of deposit issued by banks or savings and loan associations subject
to certain restrictions and obligations of the International Bank for
Reconstruction and Development (the World Bank). Obligations of the World Bank
are supported by appropriated but unpaid commitments of its member countries,
including the United States, and there is no assurance these commitments will be
undertaken or met in the future. See "Investment Restrictions" in the Statement
of Additional Information.
The Series may also purchase instruments of the types described above
together with the right to resell the instruments at an agreed-upon price or
yield within a specified period prior to the maturity date of the instrument,
commonly known as a "put." The aggregate price that the Series pays for
instruments with a put may be higher than the price that otherwise would be paid
for the instruments. See "Investment Objectives and Policies" in the Statement
of Additional Information.
The Series' investment objectives and policies described above are
fundamental policies, and, therefore, may not be changed without the approval of
the holders of a majority of the outstanding voting securities of the Money
Market Series, as defined in the Investment Company Act of 1940, as amended (the
Investment Company Act). Policies that are not fundamental may be modified by
the Trustees.
6
<PAGE>
The Series may not invest in securities other than the types of securities
listed above and is subject to other specific investment restrictions as
detailed under "Investment Restrictions" in the Statement of Additional
Information.
The Series seeks to maintain a $1.00 share price at all times. To achieve
this, the Series purchases only securities with remaining maturities of thirteen
months or less and limits the dollar-weighted average maturity of its portfolio
to 90 days or less. There is no assurance that the Series will be able to
maintain a stable net asset value. See "How the Trust Values its Shares."
OTHER INVESTMENTS AND POLICIES
Repurchase Agreements
The Series may enter into repurchase agreements, whereby the seller of a
security agrees to repurchase that security from the Series at a mutually
agreed-upon time and price. The period of maturity is usually quite short,
possibly overnight or a few days, although it may extend over a number of
months. The resale price is in excess of the purchase price, reflecting an
agreed-upon rate of return effective for the period of time the Series' money is
invested in the security. The Series' repurchase agreements will at all times be
fully collateralized in an amount at least equal to the purchase price including
accrued interest earned on the underlying securities. The instruments held as
collateral are valued daily, and if the value of such instruments declines, the
Series will require additional collateral. If the seller defaults and the value
of the collateral securing the repurchase agreement declines, the Series may
incur a loss. The Series participates in a joint repurchase account with other
investment companies managed by Prudential Mutual Fund Management, Inc. pursuant
to an order of the Securities and Exchange Commission (SEC).
When-Issued and Delayed Delivery Securities
The Series may purchase or sell securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased or sold by the Series with payment and delivery taking
place as much as a month or more into the future in order to secure what is
considered to be an advantageous price and yield to the Series at the time of
entering into the transaction. The Trust's Custodian will maintain, in a
segregated account of the Series, cash, U.S. Government securities or other
liquid high-grade debt obligations having a value equal to or greater than the
Series' purchase commitments; the Custodian will likewise segregate securities
sold on a delayed delivery basis. The securities so purchased are subject to
market fluctuation and no interest accrues to the purchaser during the period
between purchase and settlement. At the time of delivery of the securities the
value may be more or less than the purchase price and an increase in the
percentage of the Series' assets commited to the purchase of securities on a
when-issued or delayed delivery basis may increase the volatility of the Series'
net asset value.
Borrowing
The Series may borrow an amount equal to no more than 20% of the value of
its total assets (calculated when the loan is made) from banks for temporary,
extraordinary or emergency purposes. The Series may pledge up to 20% of its
total assets to secure these borrowings. Borrowing for purposes other than
meeting redemptions may not exceed 5% of the value of the Series' total assets.
Investment securities will not be purchased while borrowings are outstanding.
Illiquid Securities
The Series may invest up to 10% of its assets in securities for which there
is no readily available market, including repurchase agreements which have a
maturity of longer than seven days. The Series may not, however, invest in
securities for which there are legal or contractual restrictions on resale
(i.e., restricted securities).
INVESTMENT RESTRICTIONS
The Series is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Series' outstanding securities, as defined in the Investment Company Act. See
"Investment Restrictions" in the Statement of Additional Information.
7
<PAGE>
- --------------------------------------------------------------------------------
HOW THE TRUST IS MANAGED
- --------------------------------------------------------------------------------
The Trust has Trustees who, in addition to overseeing the actions of the
Trust's Manager, Subadviser and Distributor, as set forth below, decide upon
matters of general policy. The Trust's Manager conducts and supervises the daily
business operations of the Trust. The Trust's Subadviser furnishes daily
investment advisory services.
For the fiscal year ended November 30, 1994, total expenses of the Series as
a percentage of its average net assets were .77%. See "Financial Highlights."
MANAGER
Prudential Mutual Fund Management, Inc. (PMF or the Manager), One Seaport
Plaza, New York, New York 10292, is the Manager of the Trust and is compensated
for its services at an annual rate of .40 of 1% of the Series' average daily net
assets up to $1 billion, .375 of 1% of the Series' average daily net assets
between $1 billion and $1.5 billion and .35 of 1% in excess of $1.5 billion. It
was incorporated in May 1987 under the laws of the State of Delaware. For the
fiscal year ended November 30, 1994, the Trust paid management fees to PMF of
.40% of the average net assets of the Series. See "Manager" in the Statement of
Additional Information.
As of February 28, 1995, PMF served as the manager to 39 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 30 closed-end investment companies with aggregate assets of
approximately $46 billion.
Under the Management Agreement with the Trust, PMF manages the investment
operations of the Trust and also administers the Trust's corporate affairs. See
"Manager" in the Statement of Additional Information.
Under a Subadvisory Agreement between PMF and The Prudential Investment
Corporation (PIC or the Subadviser), PIC furnishes investment advisory services
in connection with the management of the Trust and is reimbursed by PMF for its
reasonable costs and expenses incurred in providing such services. Under the
Management Agreement, PMF continues to have responsibility for all investment
advisory services and supervises PIC's performance of such services.
PMF and PIC are indirect, wholly-owned subsidiaries of The Prudential
Insurance Company of America (Prudential), a major diversified insurance and
financial services company.
DISTRIBUTOR
Prudential Mutual Fund Distributors, Inc. (PMFD or the Distributor), One
Seaport Plaza, New York, New York 10292, is a corporation organized under the
laws of the State of Delaware and serves as the Distributor for the Series. It
is a wholly-owned subsidiary of PMF.
Under a Distribution and Service Plan (the Plan) adopted by the Series under
Rule 12b-1 under the Investment Company Act and a distribution and service
agreement (the Distribution Agreement), the Distributor incurs the expenses of
distributing shares of the Series. These expenses include account servicing fees
paid to, or on account of, financial advisers of Prudential Securities
Incorporated (Prudential Securities or PSI) and representatives of Pruco
Securities Corporation (Prusec), an affiliated broker-dealer, account servicing
fees paid to, or on account of, other broker-dealers or financial institutions
(other than national banks) which have entered into agreements with the
Distributor, advertising expenses, the cost of printing and mailing prospectuses
to potential investors and indirect and overhead costs of Prudential Securities
and Prusec associated with the sale of the Series' shares, including lease,
utility, communications and sales promotion expenses. There are no carryforward
amounts under the Plan and interest expenses are not incurred under the Plan.
The State of Texas requires that shares of the Trust may be sold in that state
only by dealers or other financial institutions which are registered there as
broker-dealers.
8
<PAGE>
Under the Plan, the Trust reimburses the Distributor for its
distribution-related expenses with respect to the Series at an annual rate of up
to .125 of 1% of the Series' average daily net assets. Account servicing fees
are paid based on the average balance of Series shares held in accounts of
customers of financial advisers. The entire distribution fee may be used to pay
account servicing fees.
The Plan provides that it shall continue in effect from year to year
provided that each such continuance is approved annually by a majority vote of
the Trustees, including a majority of the Trustees who are not interested
persons of the Trust and who have no direct or indirect financial interest in
the operation of the Plan or any agreements related to the Plan. The Trustees
are provided with and review quarterly reports of expenditures under the Plan.
For the fiscal year ended November 30, 1994, PMFD incurred distribution
expenses in the aggregate of $916,084, all of which was recovered through the
distribution fee paid by the Series to PMFD. The Trust records all payments made
under the Plan as expenses in the calculation of its net investment income.
In addition to distribution and service fees paid by the Series under the
Plan, the Manager (or one of its affiliates) may make payments out of its own
resources to dealers and other persons which distribute shares of the Series.
Such payments may be calculated by reference to the net asset value of shares
sold by such persons or otherwise.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators (with the exception of the Texas Securities
Commissioner who joined the settlement on January 18, 1994) and the National
Association of Securities Dealers, Inc. (NASD) to resolve allegations that from
1980 through 1990 PSI sold certain limited partnership interests in violation of
securities laws to persons for whom such securities were not suitable and
misrepresented the safety, potential returns and liquidity of these investments.
Without admitting or denying the allegations asserted against it, PSI consented
to the entry of an SEC Administrative Order which stated that PSI's conduct
violated the federal securities laws, directed PSI to cease and desist from
violating the federal securities laws, pay civil penalties, and adopt certain
remedial measures to address the violations.
Pursuant to the terms of the SEC settlement, PSI agreed to the imposition of
a $10,000,000 civil penalty, established a settlement fund in the amount of
$330,000,000 and procedures to resolve legitimate claims for compensatory
damages by purchasers of the partnership interests. PSI has agreed to provide
additional funds, if necessary, for the purpose of the settlement fund. PSI's
settlement with the state securities regulators included an agreement to pay a
penalty of $500,000 per jurisdiction. PSI consented to a censure and to the
payment of a $5,000,000 fine in settling the NASD action.
In October 1994, a criminal complaint was filed with the United States
Magistrate for the Southern District of New York alleging that PSI committed
fraud in connection with the sale of certain limited partnership interests in
violation of federal securities laws. An agreement was simultaneously filed to
defer prosecution of these charges for a period of three years from the signing
of the agreement, provided that PSI complies with the terms of the agreement.
If, upon completion of the three year period, PSI has complied with the terms of
the agreement, no prosecution will be instituted by the United States for the
offenses charged in the complaint. If on the other hand, during the course of
the three year period, PSI violates the terms of the agreement, the U.S.
Attorney can then elect to pursue these charges. Under the terms of the
agreement, PSI agreed, among other things, to pay an additional $330,000,000
into the fund established by the SEC to pay restitution to investors who
purchased certain PSI limited partnership interests.
For more detailed information concerning the foregoing matters, see
"Distributor" in the Statement of Additional Information, a copy of which may be
obtained at no cost by calling 1-800-225-1852.
The Trust is not affected by PSI's financial condition and is an entirely
separate legal entity from PSI, which has no beneficial ownership therein and
the Trust's assets which are held by State Street Bank and Trust Company, an
independent custodian, are separate and distinct from PSI.
9
<PAGE>
PORTFOLIO TRANSACTIONS
Prudential Securities may act as a broker for the Trust, provided that the
commissions, fees or other remuneration it receives are fair and reasonable. See
"Portfolio Transactions and Brokerage" in the Statement of Additional
Information.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian of the Trust's portfolio securities
and, in that capacity, maintains certain financial and accounting books and
records pursuant to an agreement with the Trust. Its mailing address is P.O. Box
1713, Boston, Massachusetts 02105.
Prudential Mutual Fund Services, Inc., Raritan Plaza One, Edison, New Jersey
08837, serves as Transfer and Dividend Disbursing Agent and, in those
capacities, maintains certain books and records for the Trust. PMFS is a
wholly-owned subsidiary of PMF. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.
- --------------------------------------------------------------------------------
HOW THE TRUST VALUES ITS SHARES
- --------------------------------------------------------------------------------
The Series' net asset value per share or NAV is determined by subtracting
its liabilities from the value of its assets and dividing the remainder by the
number of outstanding shares. The Trustees have fixed the specific time of day
for the computation of the Series' NAV to be as of 4:30 P.M., New York time,
immediately after the daily declaration of dividends.
The Series will compute its NAV once daily on the days that the New York
Stock Exchange is open for trading, except on days on which no orders to
purchase, sell or redeem Series shares have been received or days on which
changes in the value of the Series' portfolio securities do not materially
affect the NAV. The New York Stock Exchange is closed on the following holidays:
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
The Series determines the value of its portfolio securities by the amortized
cost method. This method involves valuing a security at its cost at the time of
purchase and thereafter assuming a constant amortization to maturity of any
discount or premium regardless of the impact of fluctuating interest rates on
the market value of the instrument. While this method provides certainty in
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price the Series would receive if it
sold the instrument. During these periods, the yield to a shareholder may differ
somewhat from that which could be obtained from a similar fund which marks its
portfolio securities to the market each day. For example, during periods of
declining interest rates, if the use of the amortized cost method resulted in a
lower value of the Series' portfolio on a given day, a prospective investor in
the Series would be able to obtain a somewhat higher yield and existing
shareholders would receive correspondingly less income. The converse would apply
during periods of rising interest rates. The Trustees have established
procedures designed to stabilize, to the extent reasonably possible, the NAV of
the Series' shares at $1.00 per share. See "Net Asset Value" in the Statement of
Additional Information.
- --------------------------------------------------------------------------------
TAXES, DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
Taxation of the Series
Each series of the Trust is treated as a separate entity for federal income
tax purposes and each has elected to qualify and intends to remain qualified as
a regulated investment company under the Internal Revenue Code. Accordingly, the
Series will not be subject to federal income taxes on its net investment income
and capital gain, if any, it distributes to shareholders. To the extent not
distributed by the Series, taxable net investment income and net
10
<PAGE>
capital gains are taxable to the Series. The performance and tax qualification
of one series will have no effect on the federal income tax liability of
shareholders of the other series. See "Taxes" in the Statement of Additional
Information.
Taxation of Shareholders
Distributions of net investment income and net short-term capital gains
(i.e., the excess of net short-term capital gains over net long-term capital
losses), if any, will be taxable to shareholders of the Series as ordinary
income, whether or not reinvested. The Series does not expect to realize
long-term capital gains or losses. Because none of the income of the Series will
consist of dividends from domestic corporations, dividends of net investment
income and distributions of net short-term capital gains will not be eligible
for the dividends-received deduction for corporate shareholders. Tax-exempt
shareholders will generally not be required to pay taxes on amounts distributed
to them.
Shareholders are advised to consult their own tax advisers regarding
specific questions as to federal, state or local taxes.
Withholding Taxes
Under Treasury Regulations, the Trust is required to withhold and remit to
the U.S. Treasury 31% of dividends, capital gain distributions and redemption
proceeds on the accounts of those shareholders who fail to furnish their tax
identification numbers on IRS Form W-9 (or IRS Form W-8 in the case of certain
foreign shareholders). Withholding at this rate is also required from dividends
and capital gains distributions (but not redemption proceeds) payable to
shareholders who are otherwise subject to backup withholding. Dividends from net
investment income and short-term capital gains paid to a foreign shareholder
will generally be subject to U.S. withholding tax at the rate of 30% (or lower
treaty rate).
Dividends and Distributions
The Series expects to declare daily and pay monthly dividends of net
investment income and short-term capital gains, if any. A shareholder begins to
earn dividends on the first business day after the settlement date of his or her
order and continues to earn dividends through the day on which his or her shares
are redeemed.
Dividends and distributions will be paid in additional shares of the Series
based on the net asset value of the Series' shares on the payment date, unless
the shareholder elects in writing not less than five business days prior to the
payment date to receive such dividends and distributions in cash. Such election
should be submitted to Prudential Mutual Fund Services, Inc., Att: Account
Maintenance, P.O. Box 15015, New Brunswick, New Jersey 08906-5015. If you hold
shares through Prudential Securities, you should contact your financial adviser
to elect to receive dividends and distributions in cash. The Trust will notify
each shareholder after the close of the Trust's taxable year of both the dollar
amount and taxable status of that year's dividends and distributions on a per
share basis. Distributions may be subject to state and local taxes. See
"Taxation of Shareholders" above.
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
DESCRIPTION OF SHARES
The Trust, organized as an unincorporated business trust under the laws of
Massachusetts, is a trust fund of the type commonly known as a "Massachusetts
business trust." The Trust's activities are supervised by its Trustees. The
Declaration of Trust permits the Trustees to issue an unlimited number of full
and fractional shares in separate series.
The shareholders of the Money Market Series, the Intermediate Term Series
and the U.S. Treasury Money Market Series are each entitled to a full vote for
each full share of beneficial interest (par value $.01 per share) held (and
fractional
11
<PAGE>
votes for fractional shares). Shares of each series are entitled to vote as a
class only to the extent required by the provisions of the Investment Company
Act or as otherwise permitted by the Trustees in their sole discretion. Under
the Investment Company Act, shareholders of each series have to approve the
adoption of any investment advisory agreement relating to such series and of any
changes in the investment policies related thereto.
It is the intention of the Trust not to hold annual meetings of
shareholders. The Trustees may call special meetings of shareholders for action
by shareholder vote as may be required by the Investment Company Act or the
Declaration of Trust. Shareholders have certain rights, including the right to
call a meeting upon vote of 10% of the Trust's outstanding shares for the
purpose of voting on the removal of one or more Trustees.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which has
been incorporated by reference herein, does not contain all the information set
forth in the Registration Statement filed by the Trust with the SEC under the
Securities Act of 1933. Copies of the Registration Statement may be obtained at
a reasonable charge from the SEC or may be examined, without charge, at the
office of the SEC in Washington, D.C.
- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE
- --------------------------------------------------------------------------------
HOW TO BUY SHARES OF THE TRUST
You may purchase shares of the Series through Prudential Securities or
through Prusec, or directly from the Trust through its Transfer Agent,
Prudential Mutual Fund Services, Inc. (PMFS or the Transfer Agent), Attention:
Investment Services, P.O. Box 15020, New Brunswick, New Jersey 08906-5020. The
minimum initial investment is $1,000. The minimum subsequent investment is $100.
All minimum investment requirements are waived for certain retirement and
employee savings plans and for custodial accounts for the benefit of minors. For
purchases through the Automatic Savings Accumulation Plan, the minimum initial
and subsequent investment is $50. See "Shareholder Services" below.
Shares of the Series are sold, without a sales charge, at the NAV next
determined after receipt and acceptance by PMFS of a purchase order and payment
in proper form [i.e., a check or Federal Funds wired to State Street Bank and
Trust Company (State Street), the Trust's custodian]. See "How the Trust Values
its Shares." When payment is received by PMFS prior to 4:30 P.M., New York time,
in proper form, a share purchase order will be entered at the price determined
as of 4:30 P.M., New York time, on that day, and dividends on the shares
purchased will begin on the business day following such investment. See "Taxes,
Dividends and Distributions."
Application forms can be obtained from PMFS, Prudential Securities or
Prusec. If a stock certificate is desired, it must be requested in writing for
each transaction. Certificates are issued only for full shares. Shareholders who
hold their shares through Prudential Securities will not receive stock
certificates. Shareholders cannot utilize Expedited Redemption or Check
Redemption or have a Systematic Withdrawal Plan if they have been issued share
certificates.
The Trust reserves the right to reject any purchase order (including an
exchange into the Series) or to suspend or modify the continuous offering of its
shares. See "How to Sell Your Shares" below.
Your dealer is responsible for forwarding payment promptly to the Trust. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the fifth business day following the investment.
Transactions in Trust shares may be subject to postage and handling charges
imposed by your dealer.
12
<PAGE>
Purchase through Prudential Securities
If you have an account with Prudential Securities (or open such an account),
you may ask Prudential Securities to purchase shares of the Series on your
behalf. On the business day following confirmation that a free credit balance
(i.e., immediately available funds) exists in your account, Prudential
Securities, at your request, will effect a purchase order for shares of the
Series in an amount up to the balance at the NAV determined on that day. Funds
held by Prudential Securities on behalf of its clients in the form of free
credit balances are delivered to the Trust by Prudential Securities and begin
earning dividends the second business day after receipt of the order by
Prudential Securities. Accordingly, Prudential Securities will have the use of
such free credit balances during this period.
Shares of the Series purchased by Prudential Securities on behalf of its
clients will be held by Prudential Securities as record holder. Prudential
Securities will thereafter receive statements and dividends directly from the
Series and will in turn provide investors with Prudential Securities account
statements reflecting purchases, redemptions and dividend payments. Although
Prudential Securities clients who purchase shares of the Series through
Prudential Securities may not redeem shares of the Series by check, Prudential
Securities may provide its clients with alternative forms of immediate access to
monies invested in shares of the Series.
Prudential Securities clients wishing additional information concerning
investment in Series shares made through Prudential Securities should call their
Prudential Securities financial adviser.
Automatic Investment. Prudential Securities has advised the Series that it
has instituted procedures pursuant to which, upon enrollment by a Prudential
Securities client, Prudential Securities will make automatic investments of free
credit balances of $1,000 or more ($1.00 for IRAs) (Eligible Credit Balances)
held in such client's account in shares of the Money Market Series (Autosweep).
To effect the automatic investment of Eligible Credit Balances representing the
proceeds from the sale of securities, Prudential Securities will enter orders
for the purchase of Series shares at the opening of business on the day
following the settlement of such securities transaction; to effect the automatic
investment of Eligible Credit Balances representing non-trade related credits,
Prudential Securities will enter orders for the purchase of Series shares at the
opening of business semi-monthly. All shares purchased pursuant to such
procedures will be issued at the NAV determined on the date the order is entered
and will receive the next dividend declared after such shares are issued.
Self-directed Investment. Prudential Securities clients not electing
Autosweep may continue to place orders for the purchase of Series shares through
Prudential Securities, subject to minimum initial and subsequent investment
requirements as described above.
A Prudential Securities client who has not elected Autosweep (see "Automatic
Investment") and who does not place a purchase order promptly after funds are
credited to his or her Prudential Securities account will have a free credit
balance with Prudential Securities and will not begin earning dividends until
the business day after Prudential Securities has placed the client's purchase
order with the Trust to purchase shares of the Series. Accordingly, Prudential
Securities will have the use of such free credit balances during this period.
Purchase through Prusec
You may purchase shares of the Series by placing an order with your Prusec
registered representative accompanied by payment for the purchase price of such
shares and, in the case of a new account, a completed Application Form. You
should also submit an IRS Form W-9. The Prusec registered representative will
then forward these items to the Transfer Agent. See "Purchase By Mail" below.
Purchase by Wire
For an initial purchase of shares of the Series by wire, you must first
telephone PMFS at (800) 225-1852 (toll free) to receive an account number. The
following information will be requested: your name, address, tax identification
number, dividend distribution election, amount being wired and wiring bank.
Instructions should then be given by you to your
13
<PAGE>
bank to transfer funds by wire to State Street Bank and Trust Company (State
Street), Boston, Massachusetts 02205, Services Division, Attention: Prudential
Government Securities Trust (Money Market Series), specifying on the wire the
account number assigned by PMFS and your name.
If you arrange for receipt by State Street of Federal Funds prior to 4:30
P.M., New York time, on a business day, you may purchase Series shares as of
that day and earn dividends commencing on the next business day.
In making a subsequent purchase order by wire, you should wire State Street
directly, and should be sure that the wire specifies Prudential Government
Securities Trust (Money Market Series) and your name and individual account
number. It is not necessary to call PMFS to make subsequent purchase orders by
wire. The minimum amount which may be invested by wire is $1,000.
Purchase by Mail
Purchase orders for which remittance is to be made by check or money order
may be submitted directly by mail to Prudential Mutual Fund Services, Inc.,
Attention: Investment Services, P.O. Box 15020, New Brunswick, New Jersey
08906-5020, together with payment of the purchase price of such shares and, in
the case of a new account, a completed Application Form. You should also submit
an IRS Form W-9. If PMFS receives your order to purchase shares of the Trust and
payment in proper form prior to 4:30 P.M., New York time, the purchase order
will be effective on that day and you will begin earning dividends on the
following business day. See "Taxes, Dividends and Distributions." Checks should
be made payable to Prudential Government Securities Trust (Money Market Series).
Certified checks are not necessary, but checks are accepted subject to
collection at full face value in United States funds and must be drawn on a bank
located in the United States. There are restrictions on the redemption of shares
purchased by check while the funds are being collected. See "How to Sell Your
Shares."
HOW TO SELL YOUR SHARES
You can redeem your shares at any time for cash at the NAV next determined
after the redemption request is received in proper form by the Transfer Agent or
Prudential Securities. See "How the Trust Values its Shares." Orders are
received on each business day until 4:00 P.M., New York time.
Shares for which a redemption request is received prior to 4:30 P.M., New
York time, are entitled to a dividend on the day the request is received. By
pre-authorizing Expedited Redemption, you may arrange to have payment for
redeemed shares made in Federal Funds wired to your bank, normally on the next
bank business day following the date of receipt of the redemption instructions.
Should you redeem all of your shares, you will receive the amount of all
dividends declared for the month-to-date on those shares. See "Taxes, Dividends
and Distributions."
If redemption is requested by a corporation, partnership, trust or
fiduciary, written evidence of authority acceptable to the Transfer Agent must
be submitted before such request will be accepted. All correspondence and
documents concerning redemptions should be sent to the Trust in care of its
Transfer Agent, Prudential Mutual Fund Services, Inc., Attention: Redemption
Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to
a person other than the record owner, (c) are to be sent to an address other
than the address on the Transfer Agent's records or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the redemption
request and on the certificates, if any, or stock power, must be guaranteed by
an "eligible guarantor institution." An "eligible guarantor institution"
includes any bank, broker, dealer or credit union. The Transfer Agent reserves
the right to request additional information from, and make reasonable inquiries
of, any eligible guarantor institution. For clients of Prusec a signature
guarantee may be obtained from the agency or office manager of most Prudential
Insurance and Financial Services or Preferred Services offices.
Normally, the Trust makes payment on the next business day for all shares of
the Series redeemed, but in any event, payment will be made within seven days
after receipt by PMFS of share certificates and/or of a redemption
14
<PAGE>
request in proper form. However, the Trust may suspend the right of
redemption or postpone the date of payment (a) for any periods during which the
New York Stock Exchange is closed (other than for customary weekend or holiday
closings), (b) for any periods when trading in the markets the Series normally
utilizes is closed or restricted or an emergency exists as determined by the SEC
so that disposal of the investments of the Series or determination of its NAV is
not reasonably practicable, or (c) for such other periods as the SEC may permit
for protection of the shareholders of the Money Market Series.
Payment for redemption of recently purchased shares will be delayed until
the Trust or its Transfer Agent has been advised that the purchase check has
been honored, up to 10 calendar days from the time of receipt of the purchase
check by the Transfer Agent. Such delay may be avoided if shares are purchased
by wire or by certified or official bank check.
Redemption of Shares Purchased Through Prudential Securities
Prudential Securities clients for whom Prudential Securities has purchased
shares of the Series may have such shares redeemed only by instructing their
Prudential Securities financial adviser orally or in writing.
Prudential Securities has advised the Series that it has established
procedures pursuant to which shares of the Series held by a Prudential
Securities client having a deficiency in his or her Prudential Securities
account will be redeemed automatically to the extent of that deficiency to the
nearest highest dollar, unless the client notifies Prudential Securities to the
contrary. The amount of the redemption will be the lesser of (a) the total NAV
of Series shares held in the client's Prudential Securities account or (b) the
deficiency in the client's Prudential Securities account at the close of
business on the date such deficiency is due. Accordingly, a Prudential
Securities client utilizing this automatic redemption procedure and who wishes
to pay for a securities transaction or meet any market action related deficiency
in his or her account must do so not later than the day of settlement for such
securities transaction or the date such market action related deficiency is
incurred. Prudential Securities clients who have elected to utilize Autosweep
will not be entitled to dividends declared on the date of redemption.
Redemption of Shares Purchased Through PMFS
If you purchase shares of the Series through PMFS, you may use Check
Redemption, Expedited Redemption or Regular Redemption. Prudential Securities
clients for whom Prudential Securities has purchased shares may not use such
services.
Regular Redemption. You may redeem your shares of the Trust by sending a
written request to PMFS, Attention: Redemption Services, P.O. Box 15010, New
Brunswick, New Jersey 08906-5010. In this case, all share certificates must be
endorsed by you with signature guaranteed, as described above. PMFS may request
further documentation from corporations, executors, administrators, trustees or
guardians. Regular redemption is made by check mailed to the shareholder's
address.
Expedited Redemption. By pre-authorizing Expedited Redemption, you may
arrange to have payment for redeemed shares made in Federal Funds wired to your
bank, normally on the next business day following redemption. In order to use
Expedited Redemption, you may so designate at the time the initial investment is
made or at a later date. Once an Expedited Redemption authorization form has
been completed, the signature on the authorization form guaranteed as set forth
above and the form returned to PMFS, requests for redemption may be made by
telegraph, letter or telephone. To request Expedited Redemption by telephone,
you should call PMFS at (800) 225-1852. Calls must be received by PMFS before
4:30 P.M., New York time, to permit redemption as of such date. Requests by
letter should be addressed to Prudential Mutual Fund Services, Inc., Att:
Redemption Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010.
15
<PAGE>
A signature guarantee is not required under Expedited Redemption once the
authorization form is properly completed and returned. The Expedited Redemption
privilege may be used to redeem shares in an amount of $200 or more, except that
if an account for which Expedited Redemption is requested has a net asset value
of less than $200, the entire account must be redeemed. The proceeds of redeemed
shares in the amount of $1,000 or more are transmitted by wire to your account
at a domestic commercial bank which is a member of the Federal Reserve System.
Proceeds of less than $1,000 are forwarded by check to your designated bank
account.
During periods of severe market or economic conditions, Expedited Redemption
may be difficult to implement and you should redeem your shares by mail as
described above.
Check Redemption. At your request, State Street will establish a personal
checking account for you. Checks drawn on this account can be made payable to
the order of any person in any amount greater than $500. When such check is
presented to State Street for payment, State Street presents the check to the
Trust as authority to redeem a sufficient number of shares of the Trust in your
account to cover the amount of the check. If insufficient shares are in the
account or, if the purchase was made by check within 10 calendar days, the check
will be returned marked "insufficient funds." Checks in an amount less than $500
will not be honored. Shares for which certificates have been issued cannot be
redeemed by check. PMFS reserves the right to impose a service charge to
establish a checking account and order checks.
Involuntary Redemption
Because of the relatively high cost of maintaining an account, the Trust
reserves the right to redeem, upon 60 days' written notice, an account which is
reduced to an NAV of $500 or less due to a redemption. You may avoid such
redemption by increasing the NAV of your account to an amount in excess of $500.
Redemption in Kind
If the Trustees determine that it would be detrimental to the best interests
of the remaining shareholders of the Series to make payment wholly or partly in
cash, the Trust may pay the redemption price in whole or in part by a
distribution in kind of securities from the investment portfolio of the Series
in lieu of cash, in conformity with applicable rules of the SEC. Securities will
be readily marketable and will be valued in the same manner as in a regular
redemption. See "How the Trust Values its Shares." If your shares are redeemed
in kind, you would incur transaction costs in converting the assets into cash.
The Trust, however, has elected to be governed by Rule 18f-1 under the
Investment Company Act, under which the Trust is obligated to redeem shares
solely in cash up to the lesser of $250,000 or one percent of the net asset
value of the Trust during any 90-day period for any one shareholder.
90-Day Repurchase Privilege
If you redeem your shares and have not previously exercised the repurchase
privilege, you may reinvest any portion or all of the proceeds of such
redemption in shares of the Trust at the NAV next determined after the order is
received, which must be within 90 days after the date of the redemption. You
will receive pro rata credit for any contingent deferred sales charge paid in
connection with the redemption. You must notify the Trust's Transfer Agent,
either directly or through Prudential Securities or Prusec, at the time the
repurchase privilege is exercised, that you are entitled to credit for any
contingent deferred sales charge previously paid. Exercise of the repurchase
privilege will not affect the federal income tax treatment of any gain realized
upon the redemption. If the redemption resulted in a loss, some or all of the
loss, depending on the amount reinvested, will not be allowed for federal income
tax purposes.
Class B and Class C Purchase Privilege
You may direct that the proceeds of the redemption of your shares be
invested in Class B or Class C shares of any Prudential Mutual Fund by calling
your Prudential Securities financial adviser or the Transfer Agent at (800)
225-1852. The transaction will be effected on the basis of the relative NAV.
16
<PAGE>
HOW TO EXCHANGE YOUR SHARES
As a shareholder of the Series you may exchange your shares for shares of
other series of the Trust and certain other Prudential Mutual Funds, including
money market funds and funds sold with an initial sales charge, subject to the
minimum investment requirements of such funds on the basis of the relative NAV.
You may exchange your shares for Class A shares of the Prudential Mutual Funds
on the basis of the relative NAV, plus the applicable sales charge. No
additional sales charge is imposed in connection with subsequent exchanges. You
may not exchange your shares for Class B shares of the Prudential Mutual Funds,
except that shares acquired prior to January 22, 1990 subject to a contingent
deferred sales charge can be exchanged for Class B shares. You may not exchange
your shares for Class C shares of the Prudential Mutual Funds. See "How to Sell
Your Shares-Class B and Class C Purchase Privilege" above and "Shareholder
Investment Account-Exchange Privilege" in the Statement of Additional
Information. An exchange will be treated as a redemption and purchase for tax
purposes.
In order to exchange shares by telephone, you must authorize telephone
exchanges on your initial application form or by written notice to the Transfer
Agent and hold shares in non-certificate form. Thereafter, you may call the
Trust at (800) 225-1852 to execute a telephone exchange of shares, on weekdays,
except holidays, between the hours of 8:00 A.M. and 6:00 P.M., New York time.
For your protection and to prevent fradulent exchanges, your telephone call will
be recorded and you will be asked to provide your personal identification
number. A written confirmation of the exchange transaction will be sent to you.
Neither the Trust nor its agents will be liable for any loss, liability or cost
which results from acting upon instructions reasonably believed to be genuine
under the foregoing procedures. All exchanges will be made on the basis of the
relative NAV of the two funds (or series) next determined after the request is
received in good order. The Exchange Privilege is available only in states where
the exchange may legally be made.
If you hold shares through Prudential Securities, you must exchange your
shares by contacting your Prudential Securities financial adviser. If you hold
certificates, the certificates, signed in the name(s) shown on the face of the
certificates, must be returned in order for the shares to be exchanged. See "How
to Sell Your Shares" above.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services, Inc., Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
In periods of severe market or economic conditions the telephone exchange of
shares may be difficult to implement and you should make exchanges by mail by
writing to Prudential Mutual Fund Services, Inc., at the address noted above.
The Exchange Privilege may be modified or terminated at any time on 60 days'
notice to shareholders.
SHAREHOLDER SERVICES
In addition to the exchange privilege, as a shareholder in the Series, you
can take advantage of the following additional services and privileges:
* Automatic Reinvestment of Dividends and/or Distributions. For your
convenience, all dividends and distributions are automatically reinvested in
full and fractional shares of the Series at NAV. You may direct the Transfer
Agent in writing not less than 5 full business days prior to the record date to
have subsequent dividends and/or distributions sent in cash rather than
reinvested. If you hold your shares through Prudential Securities, you should
contact your financial adviser.
* Automatic Savings Accumulation Plan (ASAP). Under ASAP you may make
regular purchases of Series shares in amounts as little as $50 via an automatic
charge to a bank account or Prudential Securities account (including a Command
Account). For additional information about this service, you may contact your
Prudential Securities financial adviser, Prusec representative or the Transfer
Agent directly.
* Tax-Deferred Retirement Plans. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue Code
are
17
<PAGE>
available through the Distributor. These plans are for use by both
self-employed individuals and corporate employers. These plans permit either
self-direction of accounts by participants, or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from Prudential Securities or the
Transfer Agent. If you are considering adopting such a plan, you should consult
with your own legal or tax adviser with respect to the establishment and
maintenance of such a plan.
* Systematic Withdrawal Plan. A systematic withdrawal plan is available for
shareholders which provides for monthly or quarterly checks. For additional
information about this service, you may contact your Prudential Securities
financial adviser, Prusec representative or the Transfer Agent directly.
* Multiple Accounts. Special procedures have been designed for banks and
other institutions that wish to open multiple accounts. An institution may open
a single master account by filing an Application Form with Prudential Mutual
Fund Services, Inc. (PMFS or the Transfer Agent), Attention: Customer Service,
P.O. Box 15005, New Brunswick, New Jersey 08906, signed by personnel authorized
to act for the institution. Individual sub-accounts may be opened at the time
the master account is opened by listing them, or they may be added at a later
date by written advice or by filing forms supplied by the Trust. Procedures are
available to identify sub-accounts by name and number within the master account
name. The investment minimums set forth above are applicable to the aggregate
amounts invested by a group and not to the amount credited to each sub-account.
* Reports to Shareholders. The Trust will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses the Trust will provide one annual report and semi-annual shareholder
report and annual prospectus per household. You may request additional copies of
such reports by calling (800) 225-1852 or by writing to the Trust at One Seaport
Plaza, New York, NY 10292.
* Shareholder Inquiries. Inquiries should be addressed to the Trust at One
Seaport Plaza, New York, New York 10292, or by telephone, at (800) 225-1852
(toll free) or, from outside the U.S.A., at (908) 417-7555 (collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
18
<PAGE>
- --------------------------------------------------------------------------------
THE PRUDENTIAL MUTUAL FUND FAMILY
- --------------------------------------------------------------------------------
Prudential Mutual Fund Management offers a broad range of mutual funds
designed to meet your individual needs. We welcome you to review the investment
options available through our family of funds. For more information on the
Prudential Mutual Funds, including charges and expenses, contact your Prudential
Securities financial adviser or Prusec registered representative or telephone
the Trust at (800) 225-1852 for a free prospectus. Read the prospectus carefully
before you invest or send money.
Taxable Bond Funds
Prudential Adjustable Rate Securities Fund, Inc.
Prudential Diversified Bond Fund, Inc.
Prudential GNMA Fund, Inc.
Prudential Government Income Fund
Prudential Government Securities Trust
Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
Prudential U.S. Government Fund
The BlackRock Government Income Trust
Tax-Exempt Bond Funds
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Modified Term Series
Prudential Municipal Series Fund
Arizona Series
Florida Series
Georgia Series
Hawaii Income Series
Maryland Series
Massachusetts Series
Michigan Series
Minnesota Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
Global Funds
Prudential Europe Growth Fund, Inc.
Prudential Global Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Natural Resources Fund, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential Short-Term Global Income Fund, Inc.
Global Assets Portfolio
Short-Term Global Income Portfolio
Global Utility Fund, Inc.
Equity Funds
Prudential Allocation Fund
Conservatively Managed Portfolio
Strategy Portfolio
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Growth Opportunity Fund, Inc.
Prudential IncomeVertible(R) Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Strategist Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Money Market Funds
Taxable Money Market Funds
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund
Money Market Series
Prudential MoneyMart Assets
Tax-Free Money Market Funds
Prudential Tax-Free Money Fund
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
Command Funds
Command Money Fund
Command Government Fund
Command Tax-Free Fund
Institutional Money Market Funds
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
A-1
<PAGE>
No dealer, sales representative or any other person has
been authorized to give any information or to make any
representations, other than those contained in this
Prospectus, in connection with the offer contained
herein, and, if given or made, such other information or
representations must not be relied upon as having been
authorized by the Trust or the Distributor. This
Prospectus does not constitute and offer by the Trust or
by the Distributor to sell or a solicitation of an offer to
buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make
such offer in such jurisdiction.
___________________________________________________________
TABLE OF CONTENTS
Page
----
TRUST HIGHLIGHTS............................. 2
Risk Factors and Special Characteristics... 2
TRUST EXPENSES............................... 4
FINANCIAL HIGHLIGHTS......................... 5
CALCULATION OF YIELD......................... 6
HOW THE TRUST INVESTS........................ 6
Investment Objective and Policies.......... 6
Other Investments and Policies............. 7
Investment Restrictions.................... 7
HOW THE TRUST IS MANAGED..................... 8
Manager.................................... 8
Distributor................................ 8
Portfolio Transactions..................... 10
Custodian and Transfer and
Dividend Disbursing Agent................ 10
HOW THE TRUST VALUES ITS SHARES.............. 10
TAXES, DIVIDENDS AND DISTRIBUTIONS........... 10
GENERAL INFORMATION.......................... 11
Description of Shares...................... 11
Additional Information..................... 12
SHAREHOLDER GUIDE............................ 12
How to Buy Shares of the Trust............. 12
How to Sell Your Shares.................... 14
How to Exchange Your Shares................ 17
Shareholder Services....................... 17
THE PRUDENTIAL MUTUAL FUND FAMILY............A-1
________________________________________________
100A 430144C
________________________________________________
CUSIP #: 744342 20 5
________________________________________________
Prudential
Government
Securities
Trust
(Money Market Series)
Prudential Mutual Funds (LOGO)
Building Your Future
On Our StrengthSM
PROSPECTUS
April 3, 1995
<PAGE>
Prudential Government Securities Trust
(U.S. Treasury Money Market Series)
- --------------------------------------------------------------------------------
Prospectus dated April 3, 1995
- --------------------------------------------------------------------------------
Prudential Government Securities Trust (the Trust) is a diversified, open-end
management investment company whose shares of beneficial interest are offered in
three series. Each series operates as a separate fund with its own investment
objectives and policies designed to meet its specific investment goals.
The investment objective of the U.S. Treasury Money Market Series (the Series)
is high current income consistent with the preservation of principal and
liquidity. The Series seeks to achieve its objective by investing exclusively in
U.S. Treasury obligations which have maturities of thirteen months or less.
Interest on U.S. Treasury obligations is specifically exempted from state and
local income taxes under federal law. All states allow the character of the
Series' income to pass through to the dividends distributed to its shareholders.
Interest on U.S. Treasury obligations is not exempt from federal income tax.
There is no assurance that the Series' investment objective will be achieved.
See "How the Trust Invests-Investment Objective and Policies" and "Taxes,
Dividends and Distributions."
An investment in the Series is neither insured nor guaranteed by the U.S.
Government and there can be no assurance that the Series will be able to
maintain a stable net asset value of $1.00 per share. See "How the Trust Values
its Shares."
The Trust's address is One Seaport Plaza, New York, New York 10292, and its
telephone number is (800) 225-1852.
- --------------------------------------------------------------------------------
This Prospectus sets forth concisely the information about the Trust and the
Series that a prospective investor should know before investing. Additional
information about the Trust and the Series has been filed with the Securities
and Exchange Commission in a Statement of Additional Information, dated April 3,
1995, which information is incorporated herein by reference (is legally
considered a part of this Prospectus) and is available without charge upon
request to the Trust at the address or telephone number noted above.
- --------------------------------------------------------------------------------
Investors are advised to read this Prospectus and retain it for future
reference.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
- --------------------------------------------------------------------------------
TRUST HIGHLIGHTS
- --------------------------------------------------------------------------------
The following summary is intended to highlight certain information contained
in this prospectus and is qualified in its entirety by the more detailed
information appearing elsewhere herein.
- --------------------------------------------------------------------------------
What is Prudential Government Securities Trust?
Prudential Government Securities Trust is a mutual fund whose shares are
offered in three series, each of which operates as a separate fund. A mutual
fund pools the resources of investors by selling its shares to the public and
investing the proceeds of such sale in a portfolio of securities designed to
achieve its investment objective. Technically, the Trust is an open-end,
diversified management investment company. Only the U.S. Treasury Money Market
Series is offered through this Prospectus.
What is the Series' Investment Objective?
The Series' investment objective is high current income consistent with the
preservation of principal and liquidity. The Series invests exclusively in U.S.
Treasury obligations which have effective maturities of thirteen months or less.
There is no assurance that the Series' investment objecitve will be achieved.
See "How the Trust Invests-Investment Objective and Policies" at page 6.
Risk Factors and Special Characteristics
It is anticipated that the net asset value of the Series will remain
constant at $1.00 per share, although this cannot be assured. In order to
maintain such constant net asset value, the Series will value its portfolio
securities at amortized cost. While this method provides certainty in valuation,
it may result in periods during which the value of a security in the Series'
portfolio , as determined by amortized cost, is higher or lower than the price
the Series would receive if it sold such security. See "How the Trust Values its
Shares" at page 10.
Who Manages the Trust?
Prudential Mutual Fund Management, Inc. (PMF or the Manager) is the Manager
of the Trust and is compensated for its services at an annual rate of .40 of 1%
of the Series' average daily net assets. As of February 28, 1995, PMF served as
manager or administrator to 69 investment companies, including 39 mutual funds,
with aggregate assets of approximately $46 billion. The Prudential Investment
Corporation (PIC or the Subadviser) furnishes investment advisory services in
connection with the management of the Trust under a Subadvisory Agreement with
PMF. See "How the Trust is Managed-Manager" at page 8.
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
Who Distributes the Series' Shares?
Prudential Mutual Fund Distributors, Inc. (PMFD or the Distributor) acts as
the Distributor of the Series' shares. The Trust reimburses PMFD for expenses
related to the distribution of the Series' shares at an annual rate of up to
.125 of 1% of the average daily net assets of the Series. See "How the Trust is
Managed-Distributor" at page 8.
What is the Minimum Investment?
The minimum initial investment is $2,500. The subsequent minimum investment
is $100. There is no minimum investment requirement for the Command Account
Program (if the Series is designated as your primary fund) and certain
retirement and employee savings plans or custodial accounts for the benefit of
minors. For purchases made through the Automatic Savings Accumulation Plan, the
minimum initial and subsequent investment is $50. See "Shareholder Guide-How to
Buy Shares of the Trust" at page 12 and "Shareholder Guide-Shareholder Services"
at page 18.
How Do I Purchase Shares?
You may purchase shares of the Series through Prudential Securities
Incorporated (Prudential Securities or PSI), Pruco Securities Corporation
(Prusec) or directly from the Trust, through its transfer agent, Prudential
Mutual Fund Services, Inc. (PMFS or the Transfer Agent) at the net asset value
per share (NAV) next determined after receipt of your purchase order by the
Transfer Agent or Prudential Securities. See "How the Trust Values its Shares"
at page 10 and "Shareholder Guide-How to Buy Shares of the Trust" at page 12.
How Do I Sell My Shares?
You may redeem shares of the Series at any time at the NAV next determined
after Prudential Securities or the Transfer Agent receives your sell order. See
"Shareholder Guide-How to Sell Your Shares" at page 15.
How Are Dividends and Distributions Paid?
The Series expects to declare daily and pay monthly dividends of net
investment income and short-term capital gains, if any. Dividends and
distributions will be automatically reinvested in additional shares of the
Series at NAV unless you request that they be paid to you in cash. See "Taxes,
Dividends and Distributions" at page 10.
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
TRUST EXPENSES-U.S. TREASURY MONEY MARKET SERIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases ..................... None
Maximum Sales Load Imposed on Reinvested Dividends .......... None
Deferred Sales Load ......................................... None
Redemption Fees ............................................. None
Exchange Fee ................................................ None
Annual Series Operating Expenses
(as a percentage of average net assets)
Management Fees ............................................. 0.400%
12b-1 Fees .................................................. 0.125%
Other Expenses .............................................. 0.095%
------
Total Series Operating Expenses ............................. 0.620%
------
<TABLE>
<CAPTION>
Example 1 Year 3 Years 5 Years 10 Years
------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period: $6 $20 $35 $77
<FN>
- --------------
The above example is based on data for the Series' fiscal year ended
November 30, 1994. The example should not be considered a representation of past
or future expenses. Actual expenses may be greater or less than those shown.
The purpose of this table is to assist investors in understanding the
various costs and expenses that an investor in the Series will bear, whether
directly or indirectly. For more complete descriptions of the various costs and
expenses, see "How the Trust is Managed." "Other Expenses" include an estimate
of operating expenses of the Series, such as trustees' and professional fees,
registration fees, reports to shareholders and transfer agency and custodian
fees.
</FN>
</TABLE>
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(for a share of beneficial interest outstanding throughout each
period indicated)
- --------------------------------------------------------------------------------
The following financial highlights for the Series have been audited by Price
Waterhouse LLP, independent accountants, whose report thereon was unqualified.
This information should be read in conjunction with the financial statements and
notes thereto, which appear in the Statement of Additional Information. The
following financial highlights contain selected data for a share of beneficial
interest outstanding, total return, ratios to average net assets and other
supplemental data for each of the periods indicated. The information is based on
data contained in the financial statements.
- --------------------------------------------------------------------------------
U.S. Treasury Money Market Series
December 3, 1990*
Year ended November 30, through
------------------------- November 30,
1994 1993 1992 1991
---- ---- ---- ----
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period. $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------
Net investment income ............... .033 .025 .034 .057(D)
Dividends from net investment income. (.033) (.025) (.034) (.057)
------ ------ ------ ------
Net asset value, end of period ...... $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ======
TOTAL RETURN(D)(D) .................. 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
Ratio to average net assets:
Expenses, including distribution fees .62% .66% .66% .50%(D)/**
Expenses, excluding distribution fees .50% .53% .54% .38%(D)/**
Net investment income ............... 3.21% 2.49% 3.29% 5.74%(D)/**
- ---------------
* Commencement of investment operations.
** Annualized.
(D) Net of expense subsidy and management fee waiver.
(D)(D) 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 periods
less than one year are not annualized.
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
CALCULATION OF YIELD
- --------------------------------------------------------------------------------
The Series calculates its "current yield" based on the net change, exclusive
of realized and unrealized gains or losses, in the value of a hypothetical
account over a seven calendar day base period. The Series also calculates its
"effective annual yield" assuming weekly compounding. The following is an
example of the yield calculations as of November 30, 1994:
Value of hypothetical account at end of period $1.000890040
------------
Value of hypothetical account at beginning of period 1.000000000
------------
Base period return $0.000890040
============
Current yield (.000890040 x (365/7)) 4.64%
Effective annual yield, assuming weekly compounding 4.75%
The yield will fluctuate from time to time and is not necessarily
representative of future performance.
The weighted average maturity of the portfolio of the Series on November 30,
1994 was 46 days.
Yield is computed in accordance with a standardized formula described in the
Statement of Additional Information. In addition, comparative performance
information may be used from time to time in advertising or marketing the
Series' shares, including data from Lipper Analytical Services, Inc.,
Morningstar Publications, Inc., Donoghue's Money Fund Report, other industry
publications, business periodicals, and market indices.
- --------------------------------------------------------------------------------
HOW THE TRUST INVESTS
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Series is high current income consistent
with the preservation of principal and liquidity. The Series invests exclusively
in U.S. Treasury obligations which have effective maturities of thirteen months
or less. There can be no assurance that this objective will be achieved.
The Series' investment objective is a fundamental policy and, therefore, may
not be changed without the approval of the holders of a majority of the Series'
outstanding voting securities, as defined in the Investment Company Act of 1940,
as amended (the Investment Company Act). Policies that are not fundamental may
be modified by the Trustees.
The Series will invest in the following instruments:
U.S. Treasury Securities. The Series will invest in U.S. Treasury
securities, including bills, notes and bonds. These instruments are direct
obligations of the U.S. Government and, as such, are backed by the "full faith
and credit" of the United States. They differ primarily in their interest rates
and the lengths of their maturities.
Components of U.S. Treasury Securities. The Series may also invest in
component parts of U.S. Treasury notes or bonds, namely, either the corpus
(principal) of such Treasury obligations or one of the interest payments
scheduled to be paid on such obligations. These obligations may take the form of
(i) Treasury obligations from which the interest coupons have been stripped,
(ii) the interest coupons that are stripped, or (iii) book-entries at a Federal
Reserve member bank representing ownership of Treasury obligation components.
6
<PAGE>
Interest on U.S. Treasury obligations is specifically exempted from state
and local taxes under federal law. While shareholders in the Series do not
directly receive interest on U.S. Treasury obligations, substantially all of the
dividends from the Series will be derived primarily from such interest. All
states allow the character of the Series' income to pass through to its
shareholders so that distributions from the Series derived from interest on U.S.
Treasury obligations will also be exempt from state and local income taxes when
earned by an individual shareholder through a distribution from the Trust. See
"Taxes, Dividends and Distributions."
The Series does not engage in repurchase agreements or lend its portfolio
securities because the income from such activities is generally not exempt from
state and local income taxes.
Interest income on U.S. Treasury obligations is not, however, exempt from
federal income tax. In addition, capital gains, if any, realized by the Series
upon the sale of U.S. Treasury obligations are not exempt from federal taxes or,
generally, from state and local taxes. See "Taxes, Dividends and Distributions."
The Series seeks to maintain a $1.00 share price at all times. To achieve
this, the Series purchases only securities with remaining maturities of thirteen
months or less and limits the dollar-weighted average maturity of its portfolio
to 90 days or less. There is no assurance that the Series will be able to
maintain a stable net asset value. See "How the Trust Values its Shares."
OTHER INVESTMENTS AND POLICIES
When-Issued and Delayed Delivery Securities
The Series may purchase or sell securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased or sold by the Series with payment and delivery taking
place as much as a month or more into the future in order to secure what is
considered to be an advantageous price and yield to the Series at the time of
entering into the transaction. The Trust's Custodian will maintain, in a
segregated account of the Series, cash or U.S. Treasury obligations having a
value equal to or greater than the Series' purchase commitments. The Custodian
will likewise segregate securities sold on a delayed delivery basis. The
securities so purchased are subject to market fluctuation and no interest
accrues to the purchaser during the period between purchase and settlement. At
the time of delivery of the securities the value may be more or less than the
purchase price and an increase in the percentage of the Series' assets committed
to the purchase of securities on a when-issued or delayed delivery basis may
increase the volatility of the Series' net asset value.
Borrowing
The Series may borrow an amount equal to no more than 20% of the value of
its total assets (calculated when the loan is made) for temporary, extraordinary
or emergency purposes. Such borrowings shall be made only from banks, unless the
Trust receives an order from the Securities and Exchange Commission (SEC) to
permit borrowing from entities other than banks. The Series may pledge up to 20%
of its total assets to secure these borrowings. The Series will not purchase
portfolio securities if its borrowings exceed 5% of its assets.
Illiquid Securities
The Series may invest up to 10% of its assets in securities for which there
is no readily available market. The Series may not, however, invest in
securities for which there are legal or contractual restrictions on resale
(i.e., restricted securities).
INVESTMENT RESTRICTIONS
The Series is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Series' outstanding voting securities, as defined in the Investment Company Act.
See "Investment Restrictions" in the Statement of Additional Information.
7
<PAGE>
- --------------------------------------------------------------------------------
HOW THE TRUST IS MANAGED
- --------------------------------------------------------------------------------
The Trust has Trustees who, in addition to overseeing the actions of the
Trust's Manager, Subadviser and Distributor, as set forth below, decide upon
matters of general policy. The Trust's Manager conducts and supervises the daily
business operations of the Trust. The Trust's Subadviser furnishes daily
investment advisory services.
For the fiscal year ended November 30, 1994, total expenses of the Series as
a percentage of its average net assets were .62%. See "Financial Highlights."
MANAGER
Prudential Mutual Fund Management, Inc. (PMF or the Manager), One Seaport
Plaza, New York, New York 10292, is the Manager of the Trust and is compensated
for its services at an annual rate of .40 of 1% of the Series' average daily net
assets. It was incorporated in May 1987 under the laws of the State of Delaware.
For the fiscal year ended November 30, 1994, the Trust paid management fees to
PMF of .40% of the average net assets of the Series. See "Manager" in the
Statement of Additional Information.
As of February 28, 1995, PMF served as the manager to 39 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 30 closed-end investment companies with aggregate assets of
approximately $46 billion.
Under the Management Agreement with the Trust, PMF manages the investment
operations of the Trust and also administers the Trust's business affairs. See
"Manager" in the Statement of Additional Information.
Under a Subadvisory Agreement between PMF and The Prudential Investment
Corporation (PIC or the Subadviser), PIC furnishes investment advisory services
in connection with the management of the Trust and is reimbursed by PMF for its
reasonable costs and expenses incurred in providing such services. Under the
Management Agreement, PMF continues to have responsibility for all investment
advisory services and supervises PIC's performance of such services.
PMF and PIC are indirect, wholly-owned subsidiaries of The Prudential
Insurance Company of America (Prudential), a major diversified insurance and
financial services company.
DISTRIBUTOR
Prudential Mutual Fund Distributors, Inc. (PMFD or the Distributor), One
Seaport Plaza, New York, New York 10292, is a corporation organized under the
laws of the State of Delaware and serves as the Distributor of the Series. It is
a wholly-owned subsidiary of PMF.
Under a Distribution and Service Plan (the Plan) adopted by the Series under
Rule 12b-1 under the Investment Company Act and a distribution and service
agreement (the Distribution Agreement), the Distributor incurs the expenses of
distributing the shares of the Series. These expenses include account servicing
fees paid to, or on account of, financial advisers of Prudential Securities
Incorporated (Prudential Securities or PSI) and representatives of Pruco
Securities Corporation (Prusec), affiliated broker-dealers, account servicing
fees paid to, or on account of, other broker-dealers or financial institutions
(other than national banks) which have entered into agreements with the
Distributor, advertising expenses, the cost of printing and mailing prospectuses
to potential investors and indirect and overhead costs of Prudential Securities
and Prusec associated with the sale of the Series' shares, including lease,
utility, communications and sales promotion expenses. There are no carry forward
amounts under the Plan and interest expenses are not incurred under the Plan.
The State of Texas requires that shares of the Series may be sold in that State
only by dealers or other financial institutions which are registered there as
broker-dealers.
Under the Plan, the Trust reimburses the Distributor for its
distribution-related expenses with respect to the Series at an annual rate of up
to .125 of 1% of the Series' average daily net assets. Account servicing fees
are paid
8
<PAGE>
based on the average balance of Series' shares held in the accounts of
customers of financial advisers. The entire distribution fee may be used to pay
account servicing fees.
The Plan provides that it shall continue in effect from year to year
provided that each such continuance is approved annually by a majority vote of
the Trustees, including a majority of the Trustees who are not interested
persons of the Trust and who have no direct or indirect financial interest in
the operation of the Plan or in any agreement related to the Plan. The Trustees
are provided with and review quarterly reports of expenditures under the Plan.
For the fiscal year ended November 30, 1994, PMFD incurred distribution
expenses in the aggregate of $385,567, all of which was recovered through the
distribution fee paid by the Series to PMFD. The Trust records all payments made
under the Plan as expenses in the calculation of its net investment income.
In addition to distribution and service fees paid by the Series under the
Plan, the Manager (or one of its affiliates) may make payments out of its own
resources to dealers and other persons which distribute shares of the Series.
Such payments may be calculated by reference to the net asset value of shares
sold by such persons or otherwise.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators (with the exception of the Texas Securities
Commissioner who joined the settlement on January 18, 1994) and the National
Association of Securities Dealers, Inc. to resolve allegations that from 1980
through 1990 PSI sold certain limited partnership interests in violation of
securities laws to persons for whom such securities were not suitable and
misrepresented the safety, potential returns and liquidity of these investments.
Without admitting or denying the allegations asserted against it, PSI consented
to the entry of an SEC Administrative Order which stated that PSI's conduct
violated the federal securities laws, directed PSI to cease and desist from
violating the federal securities laws, pay civil penalties, and adopt certain
remedial measures to address the violations.
Pursuant to the terms of the SEC settlement, PSI agreed to the imposition of
a $10,000,000 civil penalty, established a settlement fund in the amount of
$330,000,000 and procedures to resolve legitimate claims for compensatory
damages by purchasers of the partnership interests. PSI has agreed to provide
additional funds, if necessary, for the purpose of the settlement fund. PSI's
settlement with the state securities regulators included an agreement to pay a
penalty of $500,000 per jurisdiction. PSI consented to a censure and to the
payment of a $5,000,000 fine in settling the NASD action.
In October 1994, a criminal complaint was filed with the United States
Magistrate for the Southern District of New York alleging that PSI committed
fraud in connection with the sale of certain limited partnership interests in
violation of federal securities laws. An agreement was simultaneously filed to
defer prosecution of these charges for a period of three years from the signing
of the agreement, provided that PSI complies with the terms of the agreement.
If, upon completion of the three year period, PSI has complied with the terms of
the agreement, no prosecution will be instituted by the United States for the
offenses charged in the complaint. If on the other hand, during the course of
the three year period, PSI violates the terms of the agreement, the U.S.
Attorney can then elect to pursue these charges. Under the terms of the
agreement, PSI agreed, among other things, to pay an additional $330,000,000
into the fund established by the SEC to pay restitution to investors who
purchased certain PSI limited partnership interests.
For more detailed information concerning the foregoing matters, see
"Distributor" in the Statement of Additional Information, a copy of which may be
obtained at no cost by calling 1-800-225-1852.
The Trust is not affected by PSI's financial condition and is an entirely
separate legal entity from PSI, which has no beneficial ownership therein and
the Trust's assets which are held by State Street Bank and Trust Company, an
independent custodian, are separate and distinct from PSI.
PORTFOLIO TRANSACTIONS
Prudential Securities may act as a broker for the Trust, provided that the
commissions, fees or other remuneration it receives are fair and reasonable. See
"Portfolio Transactions and Brokerage" in the Statement of Additional
Information.
9
<PAGE>
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Trust's portfolio securities
and cash and, in that capacity, maintains certain financial and accounting books
and records pursuant to an agreement with the Trust. Its mailing address is P.O.
Box 1713, Boston, Massachusetts 02105.
Prudential Mutual Fund Services, Inc., Raritan Plaza One, Edison, New Jersey
08837, serves as Transfer Agent and Dividend Disbursing Agent and, in those
capacities, maintains certain books and records for the Trust. PMFS is a
wholly-owned subsidiary of PMF. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.
- --------------------------------------------------------------------------------
HOW THE TRUST VALUES ITS SHARES
- --------------------------------------------------------------------------------
The Series' net asset value per share or NAV is determined by subtracting
its liabilities from the value of its assets and dividing the remainder by the
number of outstanding shares. The Trustees have fixed the specific time of day
for the computation of the Series' NAV to be as of 4:30 P.M., New York time,
immediately after the declaration of dividends.
The Series will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase, sell
or redeem Series shares have been received or days on which changes in the value
of the Series' portfolio securities do not materially affect the net asset
value. The New York Stock Exchange is closed on the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
The Series determines the value of its portfolio securities by the amortized
cost method. This method involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Series would receive if it sold the
instrument. During these periods, the yield to a shareholder may differ somewhat
from that which could be obtained from a similar fund which marks its portfolio
securities to the market each day. For example, during periods of declining
interest rates, if the use of the amortized cost method resulted in a lower
value of the Series' portfolio on a given day, a prospective investor in the
Series would be able to obtain a somewhat higher yield and existing shareholders
would receive correspondingly less income. The converse would apply during
periods of rising interest rates. The Trustees have established procedures
designed to stabilize, to the extent reasonably possible, the NAV of the shares
of the Series at $1.00 per share. See "Net Asset Value" in the Statement of
Additional Information.
- --------------------------------------------------------------------------------
TAXES, DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
Taxation of the Series
Each series of the Trust is treated as a separate entity for federal income
tax purposes and each has elected to qualify and intends to remain qualified as
a regulated investment company under the Internal Revenue Code. Accordingly, the
Series will not be subject to federal income taxes on its net investment income
and capital gains, if any, that it distributes to its shareholders. To the
extent not distributed by the Series, taxable net investment income and net
capital gains are taxable to the Series. The performance and tax qualification
of one series will have no effect on the federal income tax liability of
shareholders of the other series. See "Taxes" in the Statement of Additional
Information.
10
<PAGE>
Taxation of Shareholders
Distributions of net investment income and realized net short-term capital
gains (i.e., the excess of net short-term capital gains over net long-term
capital losses), if any, are taxable to shareholders of the Series for U.S.
federal income tax purposes as ordinary income, whether or not reinvested. The
Series does not expect to realize long-term capital gains or losses. Because
none of the income of the Series will consist of dividends from domestic
corporations, dividends of net investment income and distributions of net
short-term capital gains will not be eligible for the dividends-received
deduction for corporate shareholders. Tax-exempt shareholders generally will not
be required to pay taxes on amounts distributed to them.
The Series will invest exclusively in U.S. Treasury obligations whose
interest is specifically exempted from state and local income taxes under
federal law. See "How the Trust Invests-Investment Objective and Policies" for a
discussion of the treatment of dividends from the Fund for state and local
income tax purposes. Investors should recognize that the state and local income
tax rules that apply to the Series and its shareholders may be subject to change
in the future and that such changes could have an adverse impact on the Series
and its shareholders.
Shareholders are advised to consult their own tax advisers regarding
specific questions as to federal, state or local taxes.
Withholding Taxes
Under U.S. Treasury Regulations, the Trust is required to withhold and remit
to the U.S. Treasury 31% of dividend, capital gain distributions and redemption
proceeds on the accounts of those shareholders who fail to furnish their tax
identification numbers on IRS Form W-9 (or IRS Form W-8 in the case of certain
foreign shareholders. Withholding at this rate is also required from dividends
and capital gains distributions (but not redemption proceeds) payable to
shareholders who are otherwise subject to backup withholding. Dividends from net
investment income and short-term capital gains paid to a foreign shareholder
will generally be subject to U.S. withholding tax at the rate of 30% (or lower
treaty rate).
Dividends and Distributions
The Series expects to declare daily and pay monthly dividends of net
investment income and short-term capital gains, if any. A shareholder begins to
earn dividends on the first business day after the settlement date of his or her
order and continues to earn dividends through the day on which his or her shares
are redeemed.
Dividends and distributions will be paid in additional shares of the Series
based on the net asset value of the Series' shares on the payment date, unless
the shareholder elects in writing not less than five business days prior to the
payment date to receive such dividends and distributions in cash. Such election
should be submitted to Prudential Mutual Fund Services, Inc., Att: Account
Maintenance, P.O. Box 15015, New Brunswick, New Jersey 08906-5015. If you hold
shares through Prudential Securities, you should contact your financial adviser
to elect to receive dividends and distributions in cash. The Trust will notify
each shareholder after the close of the Trust's taxable year of both the dollar
amount and taxable status of that year's dividends and distributions on a per
share basis. Distributions may be subject to state and local taxes. See
"Taxation of Shareholders" above.
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
DESCRIPTION OF SHARES
The Trust, organized as an unincorporated business trust under the laws of
Massachusetts, is a trust fund of the type commonly known as a "Massachusetts
business trust." The Trust's activities are supervised by its Trustees. The
Declaration of Trust permits the Trustees to issue an unlimited number of full
and fractional shares in separate series.
11
<PAGE>
The shareholders of the U.S. Treasury Money Market Series, the Money Market
Series and the Intermediate Term Series are each entitled to a full vote for
each full share of beneficial interest (par value $.01 per share) held (and
fractional votes for fractional shares). Shares of each series are entitled to
vote as a class only to the extent required by the provisions of the Investment
Company Act or as otherwise permitted by the Trustees in their sole discretion.
Under the Investment Company Act, shareholders of each series have to approve
the adoption of any investment advisory agreement relating to such series and of
any changes in the investment policies related thereto.
It is the intention of the Trust not to hold annual meetings of
shareholders. The Trustees may call special meetings of shareholders for action
by shareholder vote as may be required by the Investment Company Act or the
Declaration of Trust. Shareholders have certain rights, including the right to
call a meeting upon a vote of 10% of the Trust's outstanding shares for the
purpose of voting on the removal of one or more Trustees.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which has
been incorporated by reference herein, does not contain all the information set
forth in the Registration Statement filed by the Trust with the SEC under the
Securities Act of 1933. Copies of the Registration Statement may be obtained at
a reasonable charge from the SEC or may be examined, without charge, at the
office of the SEC in Washington, D.C.
- --------------------------------------------------------------------------------
SHAREHOLDER GUIDE
- --------------------------------------------------------------------------------
HOW TO BUY SHARES OF THE TRUST
You may purchase shares of the Series through Prudential Securities or
Prusec or directly from the Trust through its Transfer Agent, Prudential Mutual
Fund Services, Inc. (PMFS or the Transfer Agent), Attention: Investment
Services, P.O. Box 15020, New Brunswick, New Jersey 08906-5020. The minimum
initial investment is $2,500. The minimum subsequent investment is $100. All
minimum investment requirements are waived for the Command Account Program (if
the Series is designated as your primary fund) and certain retirement and
employee savings plans or custodial accounts for the benefit of minors. For
purchases made through the Automatic Savings Accumulation Plan, the minimum
initial and subsequent investment is $50. See "Shareholder Services."
Shares of the Series are sold, without a sales charge, at the NAV next
determined after receipt and acceptance by PMFS of a purchase order and payment
in proper form [i.e., a check or Federal Funds wired to State Street Bank and
Trust Company (State Street)]. See "How the Trust Values its Shares." When
payment is received by PMFS prior to 4:30 P.M., New York time, in proper form, a
share purchase order will be entered at the price determined as of 4:30 P.M.,
New York time, on that day, and dividends on the shares purchased will begin on
the business day following such investment. See "Taxes, Dividends and
Distributions."
Application forms can be obtained from PMFS, Prudential Securities or
Prusec. If a stock certificate is desired, it must be requested in writing for
each transaction. Certificates are issued only for full shares. Shareholders who
hold their shares through Prudential Securities will not receive stock
certificates. Shareholders cannot utilize Expedited Redemption or Check
Redemption or have a Systematic Withdrawal Plan if they have been issued share
certificates.
The Trust reserves the right to reject any purchase order (including an
exchange into the Series) or to suspend or modify the continuous offering of its
shares. See "How to Sell Your Shares" below.
Your dealer is responsible for forwarding payment promptly to the Trust. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the fifth business day following the investment.
Transactions in Trust shares may be subject to postage and other charges
imposed by your dealer.
12
<PAGE>
Purchases through Prudential Securities
If you have an account with Prudential Securities (or open such an account),
you may ask Prudential Securities to purchase shares of the Series on your
behalf. On the business day following confirmation that a free credit balance
(i.e., immediately available funds) exists in your account, Prudential
Securities, at your request, will effect a purchase order for shares of the
Series in an amount up to the balance at the NAV determined on that day. Funds
held by Prudential Securities on behalf of its clients in the form of free
credit balances are delivered to the Trust by Prudential Securities and begin
earning dividends the second business day after receipt of the order by
Prudential Securities. Accordingly, Prudential Securities will have the use of
such free credit balances during this period.
Shares of the Series purchased by Prudential Securities on behalf of its
clients will be held by Prudential Securities as record holder. Prudential
Securities will therefore receive statements and dividends directly from the
Trust and will in turn provide investors with Prudential Securities account
statements reflecting purchases, redemptions and dividend payments. Although
Prudential Securities clients who purchase shares of the Series through
Prudential Securities may not redeem shares of the Series by check, Prudential
Securities provides its clients with alternative forms of immediate access to
monies invested in shares of the Series.
Prudential Securities clients wishing additional information concerning
investment in Series shares made through Prudential Securities should call their
Prudential Securities financial adviser.
Automatic Investment. Prudential Securities has advised the Series that it
has instituted procedures pursuant to which, upon enrollment by a Prudential
Securities client, Prudential Securities will make automatic investments of free
credit balances of $2,500 or more for initial purchases and $1,000 or more
($1.00 for IRAs) thereafter (Eligible Credit Balances) held in such client's
account in shares of the Series (Autosweep). To effect the automatic investment
of Eligible Credit Balances representing the proceeds from the sale of
securities, Prudential Securities will enter orders for the purchase of Series
shares at the opening of business on the day following the settlement of such
securities transaction; to effect the automatic investment of Eligible Credit
Balances representing non-trade related credits, Prudential Securities will
enter orders for the purchase of Series shares at the opening of business
semi-monthly. All shares purchased pursuant to such procedures will be issued at
the NAV determined on the date the order is entered and will receive the next
dividend declared after such shares are issued.
Self-Directed Investment. Prudential Securities clients not electing
Autosweep may continue to place orders for the purchase of Series shares through
Prudential Securities, subject to minimum initial and subsequent investment
requirements as described above.
A Prudential Securities client who has not elected Autosweep (see "Automatic
Investment") and who does not place a purchase order promptly after funds are
credited to his or her Prudential Securities account will have a free credit
balance with Prudential Securities and will not begin earning dividends on
shares of the Fund until the second business day after receipt of the order by
Prudential Securities. Accordingly, Prudential Securities will have the use of
such free credit balances during this period.
Purchases through Prusec
You may purchase shares of the Series by placing an order with your Prusec
registered representative accompanied by payment for the purchase price of such
shares and, in the case of a new account, a completed Application Form. You
should also submit an IRS Form W-9. The Prusec registered representative will
then forward these items to the Transfer Agent. See "Purchase By Mail" below.
Purchase by Wire
For an initial purchase of shares of the Series by wire, you must first
telephone PMFS at (800) 225-1852 (toll-free) to receive an account number. The
following information will be requested: your name, address, tax identification
13
<PAGE>
number, dividend distribution election, amount being wired and wiring bank.
Instructions should then be given by you or your bank to transfer funds by wire
to State Street Bank and Trust Company, Boston, Massachusetts, Custody and
Shareholder Services Division, Attention: Prudential Government Securities
Trust, U.S. Treasury Money Market Series, specifying on the wire the account
number assigned by PMFS and your name.
If you arrange for receipt by State Street of Federal Funds prior to 4:30
P.M., New York time, on a business day, you may purchase shares of the Series as
of that day and earn dividends commencing on the next business day.
In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Government
Securities Trust (U.S. Treasury Money Market Series) and your name and
individual account number. It is not necessary to call PMFS to make subsequent
purchase orders by wire. The minimum amount which may be invested by wire is
$1,000.
Purchase by Mail
Purchase orders for which remittance is to be made by check or money order
may be submitted directly by mail to Prudential Mutual Fund Services, Inc.,
Attention: Investment Services, P.O. Box 15020, New Brunswick, New Jersey
08906-5020, together with payment of the purchase price of such shares and, in
the case of a new account, a completed Application Form. You should also submit
an IRS Form W-9. If PMFS receives an order to purchase shares of the Series and
payment in proper form prior to 4:30 P.M., New York time, the purchase order
will be effective on that day and you will begin earning dividends on the
following business day. See "Taxes, Dividends and Distributions." Checks should
be made payable to Prudential Government Securities Trust, U.S. Treasury Money
Market Series. Certified checks are not necessary, but checks must be drawn on a
bank located in the United States. There are restrictions on the redemption of
shares purchased by check while the funds are being collected. See "How to Sell
Your Shares."
The Prudential Advantage Account Program
Shares of the Series are offered to participants in the Prudential Advantage
Account Program (the Advantage Account Program), a financial services program
available to clients of Pruco Securities Corporation. Investors participating in
the Advantage Account Program may select the Series as their primary investment
vehicle. Such investors will have the free credit cash balances of $1.00 or more
in their Securities Account (Available Cash) (a component of the Advantage
Account Program carried through Prudential Securities) automatically invested in
shares of the Series. Specifically, an order to purchase shares of the Series is
placed (i) in the case of Available Cash resulting from the proceeds of
securities sales, on the settlement date of the securities sale, and (ii) in the
case of Available Cash resulting from non-trade related credits (i.e., receipt
of dividends and interest payments, or a cash payment by the participant into
his or her Securities Account), on the business day after receipt by Prudential
Securities of the non-trade related credit.
All shares purchased pursuant to these automatic purchase procedures will
begin earning dividends on the business day after the order is placed.
Prudential Securities will arrange for investment in shares of the Series at
4:30 P.M. on the day the order is placed and cause payment to be made in federal
funds for the shares prior to 4:30 P.M. on the next business day. Prudential
Securities will have the use of free credit cash balances until delivery to the
Trust.
Redemptions will be automatically effected by Prudential Securities to
satisfy debit balances in a Securities Account created by activity therein or
existing under the Advantage Account Program, such as those incurred by use of
the Visa(R) Account, including Visa purchases, cash advances and Visa Account
checks. Each Advantage Account Program Securities Account will be automatically
scanned for debits each business day as of the close of business on that day and
after application of any free credit cash balances in the account to such
debits, a sufficient number of shares of the Series (if selected as the primary
fund) and, if necessary, shares of other Advantage Account funds owned by the
Advantage Account Program participant which have not been selected as his or her
primary fund or shares of a participant's money market funds managed by PMF
which are not primary Advantage Account funds will be redeemed as
14
<PAGE>
of that business day to satisfy any remaining debits in the Securities
Account. Shares may not be purchased until all debits, overdrafts and other
requirements in the Securities Account are satisfied.
Advantage Account Program charges and expenses are not reflected in the
table of Trust expenses. See "Trust Expenses."
For information on participation in the Advantage Account Program, you
should telephone (800) 235-7637 (toll-free).
Command AccountTM Program
Shares of the Series are offered to participants in the Prudential
Securities Command AccountTM program, an integrated financial services program
of Prudential Securities. Investors having a Command Account may select the
Series as their primary fund. Such investors will have the free credit cash
balances of $1.00 or more in their Securities Account (Available Cash) (a
component of the Command Account program) automatically invested in shares of
the Series as described below. Specifically, an order to purchase shares of the
Series is placed (i) in the case of Available Cash resulting from the proceeds
of securities sales, on the settlement date of the securities sale, and (ii) in
the case of Available Cash resulting from non-trade related credits (i.e.,
receipt of dividends and interest payments, or a cash payment by the participant
into his or her Securities Account), on the business day after receipt by
Prudential Securities of the non-trade related credit. These automatic purchase
procedures are also applicable for Corporate Command Accounts.
All shares purchased pursuant to these automatic purchase procedures will
begin earning dividends on the business day after the order is placed.
Prudential Securities will arrange for investment in shares of the Series at
4:30 P.M. on the day the order is placed and cause payment to be made in federal
funds for the shares prior to 4:30 P.M. on the next business day. Prudential
Securities will have the use of free credit cash balances until delivery to the
Fund. There are no minimum investment requirements for participants in the
Command Account program.
Redemptions will be automatically effected by Prudential Securities to
satisfy debit balances in a Securities Account created by activity therein or
arising under the Command program, such as those incurred by use of the Visa
Gold Account, including Visa purchases, cash advances and Visa Account checks.
Each Command program Securities Account will be automatically scanned for debits
monthly for all Visa purchases incurred during the month and each business day
as of the close of business on that day for all cash advances and check charges
as incurred and after application of any free credit cash balances in the
account to such debits, a sufficient number of shares of the Series and, if
necessary, shares of other Command funds owned by the Command program
participant which have not been selected as his or her primary fund or shares of
a participant's money market funds managed by PMF which are not primary Command
funds will be redeemed as of that business day to satisfy any remaining debits
in the Securities Account. The single monthly debit for Visa purchases will be
made on the twenty-fifth day of each month, or the prior business day if the
twenty-fifth day falls on a weekend or holiday. Margin loans will be utilized to
satisfy debits remaining after the liquidation of all shares of the Series in a
Securities Account, and shares may not be purchased until all debits, margin
loans and other requirements in the Securities Account are satisfied. Command
Account participants will not be entitled to dividends declared on the date of
redemption.
For information on participation in the Command Account program, you should
telephone (800) 222-4321 (toll-free).
HOW TO SELL YOUR SHARES
You can redeem your shares at any time for cash at the NAV next determined
after the redemption request is received in proper form by the Transfer Agent or
Prudential Securities. See "How the Trust Values its Shares."
Shares for which a redemption request is received by PMFS prior to 4:30
P.M., New York time, are entitled to a dividend on the day on which the request
is received. By pre-authorizing Expedited Redemption, you may arrange to have
payment for redeemed shares made in Federal Funds wired to your bank, normally
on the next bank business day
15
<PAGE>
following the date of receipt of the redemption instructions. Should you
redeem all of your shares, you will receive the amount of all dividends declared
for the month-to-date on those shares. See "Taxes, Dividends and Distributions."
If redemption is requested by a corporation, partnership, trust or
fiduciary, written evidence of authority acceptable to the Transfer Agent must
be submitted before such request will be accepted. All correspondence and
documents concerning redemptions should be sent to the Trust in care of its
Transfer Agent, Prudential Mutual Fund Services, Inc., Attention: Redemption
Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to
a person other than the record owner, (c) are to be sent to an address other
than the address on the Transfer Agent's records or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the redemption
request and on the certificates, if any, or stock power, must be guaranteed by
an "eligible guarantor institution." An "eligible guarantor institution"
includes any bank, broker, dealer or credit union. The Transfer Agent reserves
the right to request additional information from, and make reasonable inquiries
of, any eligible guarantor institution. For clients of Prusec, a signature
guarantee may be obtained from the agency or office manager of most Prudential
Insurance and Financial Services or Preferred Services offices.
Normally, the Trust makes payment on the next business day for all shares of
the Series redeemed, but in any event, payment will be made within seven days
after receipt by PMFS of share certificates and/or of a redemption request in
proper form. However, the Trust may suspend the right of redemption or postpone
the date of payment (a) for any periods during which the New York Stock Exchange
is closed (other than for customary weekend or holiday closings), (b) for any
periods when trading in the markets which the Trust normally utilizes is closed
or restricted or an emergency exists as determined by the SEC so that disposal
of the Series' investments or determination of its NAV is not reasonably
practicable or (c) for such other periods as the SEC may permit for protection
of the Series' shareholders.
Payment for redemption of recently purchased shares will be delayed until
the Trust or its Transfer Agent has been advised that the purchase check has
been honored, up to 10 calendar days from the time of receipt of the purchase
check by the Transfer Agent. Such delay may be avoided by purchasing shares by
wire or by certified or official bank check.
Redemption of Shares Purchased through Prudential Securities
Prudential Securities clients for whom Prudential Securities has purchased
shares of the Series may have these shares redeemed only by instructing their
Prudential Securities financial adviser orally or in writing.
Prudential Securities has advised the Trust that it has established
procedures pursuant to which shares of the Series held by a Prudential
Securities client having a deficiency in his or her Prudential Securities
account will be redeemed automatically to the extent of that deficiency to the
nearest highest dollar, unless the client notifies Prudential Securities to the
contrary. The amount of the redemption will be the lesser of (a) the total NAV
of the Series held in the client's Prudential Securities account or (b) the
deficiency in the client's Prudential Securities account at the close of
business on the date such deficiency is due. Accordingly, a Prudential
Securities client utilizing this automatic redemption procedure and who wishes
to pay for a securities transaction or meet any market action related deficiency
in his or her account other than through such automatic redemption procedure
must do so not later than the day of settlement for such securities transaction
or the date such market action related deficiency is incurred. Prudential
Securities clients who have elected to utilize Autosweep will not be entitled to
dividends declared on the date of redemption.
Redemption of Shares Purchased through PMFS
If you purchase shares of the Series through PMFS, you may use Check
Redemption, Expedited Redemption or Regular Redemption. Prudential Securities
clients for whom Prudential Securities has purchased shares may not use such
services.
Regular Redemption. You may redeem your shares by sending a written request,
accompanied by duly endorsed share certificates, if issued, to PMFS, Attention:
Redemption Services, P.O. Box 15010, New Brunswick, New Jersey
16
<PAGE>
08906-5010. In this case, all share certificates must be endorsed by you
with signature guaranteed, as described above. PMFS may request further
documentation from corporations, executors, administrators, trustees or
guardians. Regular redemption is made by check sent to the shareholder's
address.
Expedited Redemption. By pre-authorizing Expedited Redemption, you may
arrange to have payment for redeemed shares made in Federal Funds wired to your
bank, normally on the next business day following redemption. In order to use
Expedited Redemption, you may so designate at the time the initial Application
Form is filed or at a later date. Once the Expedited Redemption authorization
form has been completed, the signature on the authorization form guaranteed as
set forth above and the form returned to PMFS, requests for redemption may be
made by telegraph, letter or telephone. To request Expedited Redemption by
telephone, you should call PMFS at (800) 255-1852. Calls must be received by
PMFS before 4:30 P.M., New York time to permit redemption as of such date.
Requests by letter should be addressed to Prudential Mutual Fund Services, Inc.,
Att: Redemption Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010.
A signature guarantee is not required under Expedited Redemption once the
authorization form is properly completed and returned. The Expedited Redemption
privilege may be used only to redeem shares in an amount of $200 or more, except
that, if an account for which Expedited Redemption is requested has a net asset
value of less than $200, the entire account must be redeemed. The proceeds of
redeemed shares in the amount of $1,000 or more are transmitted by wire to your
account at a domestic commercial bank which is a member of the Federal Reserve
System. Proceeds of less than $1,000 are forwarded by check to your designated
bank account.
During periods of severe market or economic conditions, Expedited Redemption
may be difficult to implement and you should redeem your shares by mail as
described above.
Check Redemption. At your request, State Street will establish a personal
checking account for you. Checks drawn on this account can be made payable to
the order of any person in any amount greater than $500. When such check is
presented to State Street for payment, State Street presents the check to the
Trust as authority to redeem a sufficient number of shares of the Series in your
account to cover the amount of the check. If insufficient shares are in the
account, or if the purchase was made by check within 10 calendar days, the check
will be returned marked "insufficient funds." Checks in an amount less than $500
will not be honored. Shares for which certificates have been issued cannot be
redeemed by check. PMFS reserves the right to impose a service charge to
establish a checking account and order checks.
Involuntary Redemption
Because of the relatively high cost of maintaining an account, the Trust
reserves the right to redeem, upon 60 days' written notice, an account which is
reduced by a shareholder to an NAV of $500 or less due to redemption. You may
avoid such redemption by increasing the NAV of your account to an amount in
excess of $500.
Redemption in Kind
If the Trustees determine that it would be detrimental to the best interests
of the remaining shareholders of the Series to make payment wholly or partly in
cash, the Trust may pay the redemption price in whole or in part by a
distribution in kind of securities from the portfolio of the Series, in lieu of
cash in conformity with applicable rules of the Securities and Exchange
Commission. Securities will be readily marketable and will be valued in the same
manner as in a regular redemption. See "How the Trust Values its Shares." If
your shares are redeemed in kind, you would incur transaction costs in
converting the assets into cash. The Trust, however, has elected to be governed
by Rule 18f-1 under the Investment Company Act pursuant to which the Trust is
obligated to redeem shares solely in cash up to the lesser of $250,000 or one
percent of the net asset value of the Series during any 90-day period for any
one shareholder.
90-Day Repurchase Privilege
If you redeem your shares and have not previously exercised the repurchase
privilege, you may reinvest any portion or all of the proceeds of such
redemption in shares of the Series at the NAV next determined after the order is
received,
17
<PAGE>
which must be within 90 days after the date of the redemption. You will
receive pro rata credit for any contingent deferred sales charge paid in
connection with the redemption. You must notify the Trust's Transfer Agent,
either directly or through Prudential Securities or Prusec, at the time the
repurchase privilege is exercised, that you are entitled to credit for any
contingent deferred sales charge previously paid. Exercise of the repurchase
privilege will not affect the federal income tax treatment of any gain realized
upon the redemption. If the redemption resulted in a loss, some or all of the
loss, depending on the amount reinvested, will not be allowed for federal income
tax purposes.
Class B and Class C Purchase Privilege
You may direct that the proceeds of the redemption of your shares be
invested in Class B or Class C shares of any Prudential Mutual Fund by calling
your Prudential Securities financial adviser or the Transfer Agent at (800)
225-1852. The transaction will be effected on the basis of the relative NAV.
HOW TO EXCHANGE YOUR SHARES
As a shareholder of the Series you may exchange your shares for shares of
other series of the Trust and certain other Prudential Mutual Funds, including
money market funds and funds sold with an initial sales charge, subject to the
minimum investment requirements of such funds on the basis of the relative NAV.
You may exchange your shares for Class A shares of the Prudential Mutual Funds
on the basis of the relative NAV, plus the applicable sales charge. No
additional sales charge is imposed in connection with subsequent exchanges. You
may not exchange your shares for Class B shares of the Prudential Mutual Funds,
except that shares acquired prior to January 22, 1990 subject to a contingent
deferred sales charge can be exchanged for Class B shares. You may not exchange
your shares for Class C shares of the Prudential Mutual Funds. See "How to Sell
Your Shares-Class B and Class C Purchase Privilege" above and "Shareholder
Investment Account-Exchange Privilege" in the Statement of Additional
Information. An exchange will be treated as a redemption and purchase for tax
purposes.
In order to exchange shares by telephone, you must authorize telephone
exchanges on your initial application form or by written notice to the Transfer
Agent and hold shares in non-certificate form. Thereafter, you may call the
Trust at (800) 225-1852 to execute a telephone exchange of shares, on weekdays,
except holidays, between the hours of 8:00 A.M. and 6:00 P.M., New York time.
For your protection and to prevent fraudulent exchanges, your telephone call
will be recorded and you will be asked to provide your personal identification
number. A written confirmation of the exchange transaction will be sent to you.
Neither the Trust nor its agents will be liable for any loss, liability or cost
which results from acting upon instructions reasonably believed to be genuine
under the foregoing procedures. All exchanges will be made on the basis of the
relative NAV of the two funds (or series) next determined after the request is
received in good order. The Exchange Privilege is available only in states where
the exchange may legally be made.
If you hold shares through Prudential Securities, you must exchange your
shares by contacting your Prudential Securities financial adviser. If you hold
certificates, the certificates, signed in the name(s) shown on the face of the
certificates, must be returned in order for the shares to be exchanged. See "How
to Sell Your Shares" above.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services, Inc., Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
In periods of severe market or economic conditions the telephone exchange of
shares may be difficult to implement and you should make exchanges by mail in
writing to Prudential Mutual Fund Services, Inc., at the address noted above.
The Exchange Privilege may be modified or terminated at any time on 60 days'
notice to shareholders.
SHAREHOLDER SERVICES
In addition to the exchange privilege, as a shareholder in the Series, you
can take advantage of the following additional services and privileges:
18
<PAGE>
*Automatic Reinvestment of Dividends and/or Distributions. For your
convenience, all dividends and distributions are automatically reinvested in
full and fractional shares of the Series at NAV. You may direct the Transfer
Agent in writing not less than 5 full business days prior to the record date to
have subsequent dividends and/or distributions sent in cash rather than
reinvested. If you hold shares through Prudential Securities, you should contact
your financial adviser.
*Automatic Savings Accumulation Plan (ASAP). Under ASAP you may make regular
purchases of Series shares in amounts as little as $50 via an automatic charge
to a bank account or Prudential Securities account (including a Command
Account). For additional information about this service, you may contact your
Prudential Securities financial adviser, Prusec representative or the Transfer
Agent directly.
*Tax-Deferred Retirement Plans. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both
self-employed individuals and corporate employers. These plans permit either
self-direction of accounts by participants, or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from Prudential Securities or the
Transfer Agent. If you are considering adopting such a plan, you should consult
with your own legal or tax adviser with respect to the establishment and
maintenance of such a plan.
*Systematic Withdrawal Plan. A systematic withdrawal plan is available for
shareholders having shares of the Series which provides for monthly or quarterly
checks. For additional information about this service, you may contact your
Prudential Securities financial adviser, Prusec representative or the Transfer
Agent directly.
*Multiple Accounts. Special procedures have been designed for banks and
other institutions that wish to open multiple accounts. An institution may open
a single master account by filing an Application Form with Prudential Mutual
Fund Services, Inc. (PMFS or the Transfer Agent), Attention: Customer Service,
P.O. Box 15005, New Brunswick, New Jersey 08906, signed by personnel authorized
to act for the institution. Individual sub-accounts may be opened at the time
the master account is opened by listing them, or they may be added at a later
date by written advice or by filing forms supplied by the Trust. Procedures are
available to identify sub-accounts by name and number within the master account
name. The investment minimums set forth above are applicable to the aggregate
amounts invested by a group and not to the amount credited to each sub-account.
*Reports to Shareholders. The Trust will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses the Trust will provide one annual report and semi-annual shareholder
report and annual prospectus per household. You may request additional copies of
such reports by calling (800) 225-1852 or by writing to the Trust at One Seaport
Plaza, New York, NY 10292.
*Shareholder Inquiries. Inquiries should be addressed to the Trust at One
Seaport Plaza, New York, New York 10292, or by telephone, at (800) 225-1852
(toll free) or, from outside the U.S.A., at (908) 417-7555 (collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
19
<PAGE>
- --------------------------------------------------------------------------------
THE PRUDENTIAL MUTUAL FUND FAMILY
- --------------------------------------------------------------------------------
Prudential Mutual Fund Management offers a broad range of mutual funds
designed to meet your individual needs. We welcome you to review the investment
options available through our family of funds. For more information on the
Prudential Mutual Funds, including charges and expenses, contact your Prudential
Securities financial adviser or Prusec registered representative or telephone
the Trust at (800) 225-1852 for a free prospectus. Read the prospectus carefully
before you invest or send money.
- --------------------------------------------------------------------------------
Taxable Bond Funds
Prudential Adjustable Rate Securities Fund, Inc.
Prudential Diversified Bond Fund, Inc.
Prudential GNMA Fund
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
Prudential U.S. Government Fund
The BlackRock Government Income Trust
Tax-Exempt Bond Funds
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Modified Term Series
Prudential Municipal Series Fund
Arizona Series
Florida Series
Georgia Series
Hawaii Income Series
Maryland Series
Massachusetts Series
Michigan Series
Minnesota Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
Global Funds
Prudential Europe Growth Fund, Inc.
Prudential Global Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Natural Resources Fund, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential Short-Term Global Income Fund, Inc.
Global Assets Portfolio
Short-Term Global Income Portfolio
Global Utility Fund, Inc.
Equity Funds
Prudential Allocation Fund
Conservatively Managed Portfolio
Strategy Portfolio
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Growth Opportunity Fund, Inc.
Prudential IncomeVertible(R) Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Strategist Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Money Market Funds
Taxable Money Market Funds
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund
Money Market Series
Prudential MoneyMart Assets
Tax-Free Money Market Funds
Prudential Tax-Free Money Fund
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
Command Funds
Command Money Fund
Command Government Fund
Command Tax-Free Fund
Institutional Money Market Funds
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
A-1
<PAGE>
No dealer, sales representative or any other person has
been authorized to give any information or to make any
representations, other than those contained in this
Prospectus, in connection with the offer contained
herein, and, if given or made, such other information or
representations must not be relied upon as having been
authorized by the Trust or the Distributor. This
Prospectus does not constitute and offer by the Trust or
by the Distributor to sell or a solicitation of an offer to
buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make
such offer in such jurisdiction.
___________________________________________________________
TABLE OF CONTENTS
Page
----
TRUST HIGHLIGHTS............................. 2
Risk Factors and Special Characteristics... 2
TRUST EXPENSES............................... 4
FINANCIAL HIGHLIGHTS......................... 5
CALCULATION OF YIELD......................... 6
HOW THE TRUST INVESTS........................ 6
Investment Objective and Policies.......... 6
Other Investments and Policies............. 7
Investment Restrictions.................... 7
HOW THE TRUST IS MANAGED..................... 8
Manager.................................... 8
Distributor................................ 8
Portfolio Transactions..................... 9
Custodian and Transfer and
Dividend Disbursing Agent................ 10
HOW THE TRUST VALUES ITS SHARES.............. 10
TAXES, DIVIDENDS AND DISTRIBUTIONS........... 10
GENERAL INFORMATION.......................... 11
Description of Shares...................... 11
Additional Information..................... 12
SHAREHOLDER GUIDE............................ 12
How to Buy Shares of the Trust............. 12
How to Sell Your Shares.................... 15
How to Exchange Your Shares................ 18
Shareholder Services....................... 18
THE PRUDENTIAL MUTUAL FUND FAMILY............A-1
________________________________________________
MF145A 4441280
________________________________________________
CUSIP #: 744342 30 4
________________________________________________
Prudential
Government
Securities
Trust
(U.S. Treasury Money Market Series)
Prudential Mutual Funds (LOGO)
Building Your Future
On Our StrengthSM
PROSPECTUS
April 3, 1995
<PAGE>
Prudential Government Securities Trust
Statement of Additional Information
dated April 3, 1995
Prudential Government Securities Trust (the Trust) is offered in three
series: the Money Market Series, the U.S. Treasury Money Market Series and the
Intermediate Term Series. Each series operates as a separate fund with its own
investment objectives and policies designed to meet its specific investment
goals. The investment objectives of the Money Market Series and the U.S.
Treasury Money Market Series are to obtain high current income, preserve capital
and maintain liquidity. The investment objective of the Intermediate Term Series
is to achieve a high level of income consistent with providing reasonable
safety. There can be no assurance that any series' investment objective will be
achieved.
The Trust's address is One Seaport Plaza, New York, New York 10292, and its
telephone number is (800) 225-1852.
This Statement of Additional Information sets forth information about each
of the series. This Statement of Additional Information is not a prospectus and
should be read in conjunction with the Trust's Money Market Series Prospectus,
U.S. Treasury Money Market Series Prospectus or Intermediate Term Series
Prospectus, each dated April 3, 1995, copies of which may be obtained from the
Trust upon request.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Cross-reference
Cross-reference to page in U.S. Cross-reference
to page in Treasury Money to page in
Money Market Market Series Intermediate Term
Page Series Prospectus Prospectus Series Prospectus
---- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
General Information....................... B-2 11 11 13
Investment Objective(s) and Policies...... B-3 --
Money Market Series.................. B-3 6 --
U.S. Treasury Money Market Series.... B-4 -- 6 --
Intermediate Term Series............. B-5 -- -- 6
Portfolio Turnover........................ B-5 -- -- --
Investment Restrictions................... B-6 7 7 8
Trustees and Officers..................... B-7 8 8 9
Manager................................... B-9 8 8 9
Distributor............................... B-11 8 8 9
Portfolio Transactions and Brokerage...... B-12 10 9 11
Shareholder Investment Account............ B-13 17 18 18
Net Asset Value........................... B-16 10 10 11
Performance Information................... B-16
Money Market Series and U.S. Treasury
Money Market Series--Calculation of
Yield.............................. B-16 6 6 --
Intermediate Term Series--Calculation
of Yield and Total Return.......... B-17 -- -- 12
Taxes..................................... B-18 10 10 12
Custodian and Transfer and Dividend
Disbursing Agent and Independent
Accountants............................. B-18 10 10 11
Financial Statements...................... B-19 -- -- --
Report of Independent Accountants......... B-33 -- -- --
</TABLE>
- --------------------------------------------------------------------------------
111B 430145A
<PAGE>
GENERAL INFORMATION
The Trust is a trust fund of the type commonly known as a ``Massachusetts
business trust.'' The Declaration of Trust and the By-Laws of the Trust are
designed to make the Trust similar in most respects to a Massachusetts business
corporation. The principal distinction between the two forms relates to
shareholder liability: under Massachusetts law, shareholders of a business trust
may, in certain circumstances, be held personally liable as partners for the
obligations of the Trust, which is not the case with a corporation. The
Declaration of Trust of the Trust provides that shareholders shall not be
subject to any personal liability for the acts or obligations of the Trust and
that every written obligation, contract, instrument or undertaking made by the
Trust shall contain a provision to the effect that the shareholders are not
individually bound thereunder.
Massachusetts counsel for the Trust are of the opinion that no personal
liability will attach to the shareholders under any undertaking containing such
provision when adequate notice of such provision is given, except possibly in a
few jurisdictions. With respect to all types of claims in the latter
jurisdictions and with respect to tort claims, contract claims where the
provision referred to is omitted from the undertaking, claims for taxes and
certain statutory liabilities in other jurisdictions, a shareholder may be held
personally liable to the extent that claims are not satisfied by the Trust.
However, upon payment of any such liability the shareholder will be entitled to
reimbursement from the general assets of the Trust. The Trustees intend to
conduct the operations of the Trust, with the advice of counsel, in such a way
so as to avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Trust.
The Declaration of Trust further provides that no trustee, officer,
employee or agent of the Trust is liable to the Trust or to a shareholder, nor
is any trustee, officer, employee or agent liable to any third persons in
connection with the affairs of the Trust, except as such liability may arise
from his or its own bad faith, wilful misfeasance, gross negligence, or reckless
disregard of his or its duties. It also provides that all third persons shall
look solely to the Trust property for satisfaction of claims arising in
connection with the affairs of the Trust. With the exceptions stated, the
Declaration of Trust permits the Trustees to provide for the indemnification of
trustees, officers, employees or agents of the Trust against all liability in
connection with the affairs of the Trust.
Other distinctions between a corporation and a Massachusetts business trust
include the absence of a requirement that business trusts issue share
certificates.
The Trust shall continue without limitation of time subject to the
provisions in the Declaration of Trust concerning termination by action of the
shareholders or by the Trustees by written notice to the shareholders.
Pursuant to the Declaration of Trust, the Trustees initially authorized the
issuance of an unlimited number of full and fractional shares of a single class.
In connection with the establishment of the Intermediate Term Series on July 1,
1982, the Trustees designated the outstanding shares and shares that may
thereafter be issued under previous authority as the shares of the Money Market
Series. On November 1, 1991, the Trustees established the U.S. Treasury Money
Market Series by designating it out of the unissued shares of beneficial
interest of the Trust. In so designating, the Trustees did not change any of the
existing shareholders' preferences, privileges, limitations or voting rights.
Each share of the Money Market Series, the U.S. Treasury Money Market Series and
the Intermediate Term Series represents an equal proportionate interest in the
assets of the Trust attributable to the respective series with each other share
of the respective series. The Declaration of Trust permits the Trustees to
divide or combine the shares of any series into a greater or lesser number of
shares without thereby changing the proportionate beneficial interests of the
shares of any series in the assets of the Trust attributable to such series. If
the assets attributable to one series of shares are insufficient to satisfy its
liabilities, the assets of other series could be subjected to such liabilities.
Upon liquidation of the Trust, shareholders are entitled to share pro rata in
the net assets of the Trust attributable to the series of which shares are held
and available for distribution to shareholders. Shares have no preemptive,
appraisal or conversion rights and, except as may be otherwise indicated hereby,
no preference rights. Shares are fully paid and nonassessable by the Trust.
Pursuant to the Declaration of Trust, the Trustees may authorize the
creation of additional series of shares (the proceeds of which would be invested
in separate, independently managed portfolios with distinct investment
objectives and policies and share purchase, redemption and net asset valuation
procedures) and additional classes of shares within any series (which would be
used to distinguish among the rights of different categories of shareholders, as
might be required by future regulations or other unforeseen circumstances) with
such preferences, privileges, limitations and voting and dividend rights as the
Trustees may determine. All consideration received by the Trust for shares of
any additional series or class, and all assets in which such consideration is
invested, would belong to that series or class (subject only to the rights of
creditors of the Trust) and would be subject to the liabilities related thereto.
Pursuant to the Investment Company Act of 1940, as amended (the Investment
Company Act), shareholders of any additional series or class of shares would
normally have to approve any changes in the management contract relating to such
series or class and of any changes in the investment policies related thereto.
The Trustees themselves have the power to alter the number and the terms of
office of the Trustees, and they may at any time lengthen their own terms or
make their terms of unlimited duration (subject to certain removal procedures)
and appoint their own successors, provided that always at least a majority of
the Trustees have been elected by the shareholders of the Trust. The voting
rights
B-2
<PAGE>
of shareholders are not cumulative, so that holders of more than 50 percent of
the shares voting can, if they choose, elect all trustees being selected, while
the holders of the remaining shares would be unable to elect any trustees.
On April 22, 1983, the Trustees at a meeting of the Board of Trustees
approved an amendment to the Declaration of Trust to effect a name change from
Chancellor Government Securities Trust to Prudential-Bache Government Securities
Trust. On February 28, 1991, the Trustees approved an amendment to the Fund's
Declaration of Trust to change the Trust's name from Prudential-Bache Government
Securities Trust to Prudential Government Securities Trust.
INVESTMENT OBJECTIVES AND POLICIES
The Money Market Series, the U.S. Treasury Money Market Series and the
Intermediate Term Series operate as separate funds with their own investment
objectives and policies. The investment objectives of the Money Market Series
and the U.S. Treasury Money Market Series are to obtain high current income,
preserve capital and maintain liquidity. The investment objective of the
Intermediate Term Series is to achieve a high level of income consistent with
providing reasonable safety. For a further description of the investment
objectives and policies for each series see ``How the Trust Invests--Investment
Objective and Policies'' in their respective Prospectuses. There can be no
assurance that any series' investment objective will be achieved.
In order to achieve their objectives, the Money Market Series, the U.S.
Treasury Money Market Series and the Intermediate Term Series (collectively
referred to as the Series), each acting independently of the other, may, when
appropriate, invest in the types of instruments and use certain strategies
described below:
Repurchase Agreements. The Trust's repurchase agreements will be
collateralized by U.S. Government obligations. The Trust will enter into
repurchase transactions only with parties meeting creditworthiness standards
approved by the Trustees. The Trust's investment adviser will monitor the
creditworthiness of such parties, under the general supervision of the Trustees.
In the event of a default or bankruptcy by a seller, the Trust will promptly
seek to liquidate the collateral. To the extent that the proceeds from any sale
of such collateral upon a default in the obligation to repurchase are less than
the repurchase price, the Trust will suffer a loss.
The Trust participates in a joint repurchase account with other investment
companies managed by Prudential Mutual Fund Management, Inc. (PMF or the
Manager) pursuant to an order of the Securities and Exchange Commission (SEC).
On a daily basis, any uninvested cash balances of the Trust may be aggregated
with those of such investment companies and invested in one or more repurchase
agreements. Each fund participates in the income earned or accrued in the joint
account based on the percentage of its investment.
Money Market Series
The Money Market Series seeks to achieve its objectives by investing in
United States Government securities that mature within thirteen months from date
of purchase, including a variety of securities which are issued or guaranteed by
the United States Treasury, by various agencies of the United States Government
or by various instrumentalities which have been established or sponsored by the
United States Government. These obligations, including those which are
guaranteed by Federal agencies or instrumentalities, may or may not be backed by
the ``full faith and credit'' of the United States. In the case of securities
not backed by the full faith and credit of the United States, the Trust must
look principally to the agency issuing or guaranteeing the obligation for
ultimate repayment and may not be able to assert a claim against the United
States itself in the event the agency or instrumentality does not meet its
commitments. Securities in which the Money Market Series may invest which are
not backed by the full faith and credit of the United States include, but are
not limited to, obligations of the Tennessee Valley Authority, the Federal
National Mortgage Association and the United States Postal Service, each of
which has the right to borrow from the United States Treasury to meet its
obligations, and obligations of the Federal Farm Credit System and the Federal
Home Loan Banks, whose obligations may only be satisfied by the individual
credits of each issuing agency. Treasury securities include Treasury bills,
Treasury notes and Treasury bonds, all of which are backed by the full faith and
credit of the United States, as are obligations of the Government National
Mortgage Association, the Farmers Home Administration and the Export-Import
Bank. The Money Market Series will invest at least 80% of its assets in such
types of government securities.
The Series may also invest in component parts of U.S. Treasury notes or
bonds, namely, either the corpus (principal) of such Treasury obligations or one
of the interest payments scheduled to be paid on such obligations. These
obligations may take the form of (i) Treasury obligations from which the
interest coupons have been stripped, (ii) the interest coupons that are
stripped, (iii) book-entries at a Federal Reserve member bank representing
ownership of Treasury obligation components, or (iv) receipts evidencing the
component parts (corpus or coupons) of Treasury obligations that have not
actually been stripped. Such receipts evidence ownership of component parts of
Treasury obligations (corpus or coupons) purchased by a third party (typically
an investment banking firm) and held on behalf of the third party in physical or
book-entry form by a major commercial bank or trust company pursuant to a
custody agreement with the third party. Treasury obligations, including those
underlying such receipts, are backed by the full faith and credit of the U.S.
Government.
The Money Market Series may also invest in fully insured certificates of
deposit. The Federal Deposit Insurance Corporation and the Federal Savings and
Loan Insurance Corporation, which are agencies of the United States Government,
insure the deposits of insured
B-3
<PAGE>
banks and savings and loan associations, respectively, up to $100,000 per
depositor. Current federal regulations also permit such institutions to issue
insured negotiable certificates of deposit (CDs) in amounts of $100,000 or more
without regard to the interest rate ceilings on other deposits. To remain fully
insured as to principal, such CDs must currently be limited to $100,000 per bank
or savings and loan association. Interest on such CDs is not insured. The Money
Market Series may invest in such CDs, limited to the insured amount of principal
($100,000) in each case and to 10% or less of the gross assets of the Money
Market Series in all such CDs in the aggregate. Such CDs may or may not have a
readily available market, and the investment of the Money Market Series in CDs
which do not have a readily available market is further limited by the
restriction on investment by the Money Market Series of not more than 10% of
assets in securities for which there is no readily available market. See
``Investment Restrictions.''
The Money Market Series will attempt to balance its objectives of high
income, capital preservation and liquidity by investing in securities of varying
maturities and risks. As a result, the Money Market Series may not necessarily
invest in securities with the highest available yield. The Money Market Series
will not, however, invest in securities with remaining maturities of more than
thirteen months or maintain a dollar-weighted average maturity which exceeds 90
days. The amounts invested in obligations of various maturities of thirteen
months or less will depend on management's evaluation of the risks involved.
Longer-term issues, while frequently paying higher interest rates, are subject
to greater fluctuations in value resulting from general changes in interest
rates than are shorter-term issues. Thus, when rates on new securities increase,
the value of outstanding longer-term securities may decline and vice versa. Such
changes may also occur, but to a lesser degree, with short-term issues. These
changes, if realized, may cause fluctuations in the amount of daily dividends
and, in extreme cases, could cause the net asset value per share to decline. See
``Net Asset Value.'' In the event of unusually large redemption demands,
securities may have to be sold at a loss prior to maturity or the Money Market
Series may have to borrow money and incur interest expense. Either occurrence
would adversely affect the amount of daily dividends and could result in a
decline in daily net asset value per share or the reduction by the Money Market
Series of the number of shares held in a shareholder's account. The Money Market
Series will attempt to minimize these risks by investing in longer-term
securities, subject to the foregoing limitations, when it appears to management
that yields on such securities are not likely to increase substantially during
the period of expected holding, and then only in securities which are readily
marketable. However, there can be no assurance that the Money Market Series will
be successful in achieving this objective.
Liquidity Puts. The Money Market Series may also purchase instruments of
the types described in this section together with the right to resell the
instruments at an agreed-upon price or yield within a specified period prior to
the maturity date of the instruments. Such a right to resell is commonly known
as a ``put,'' and the aggregate price which the Money Market Series pays for
instruments with puts may be higher than the price which otherwise would be paid
for the instruments. Consistent with the Money Market Series' investment
objective and applicable rules issued by the SEC and subject to the supervision
of the Trustees, the purpose of this practice is to permit the Money Market
Series to be fully invested while preserving the necessary liquidity to meet
unusually large redemptions and to purchase at a later date securities other
than those subject to the put. The Money Market Series may choose to exercise
puts during periods in which proceeds from sales of its shares and from recent
sales of portfolio securities are insufficient to meet redemption requests or
when the funds available are otherwise allocated for investment. In determining
whether to exercise puts prior to their expiration date and in selecting which
puts to exercise in such circumstances, the Money Market Series' investment
adviser considers, among other things, the amount of cash available to the Money
Market Series, the expiration dates of the available puts, any future
commitments for securities purchases, the yield, quality and maturity dates of
the underlying securities, alternative investment opportunities and the
desirability of retaining the underlying securities in the Money Market Series'
portfolio.
Since the value of the put is dependent on the ability of the put writer to
meet its obligation to repurchase, the Money Market Series' policy is to enter
into put transactions only with such brokers, dealers or financial institutions
which present minimal credit risks. There is a credit risk associated with the
purchase of puts in that the broker, dealer or financial institution might
default on its obligation to repurchase an underlying security. In the event
such a default should occur, the Money Market Series is unable to predict
whether all or any portion of any loss sustained could subsequently be recovered
from the broker, dealer or financial institution.
The Money Market Series values instruments which are subject to puts at
amortized cost; no value is assigned to the put. The cost of the put, if any, is
carried as an unrealized loss from the time of purchase until it is exercised or
expires.
U.S. Treasury Money Market Series
The U.S. Treasury Money Market Series seeks to achieve its objective by
investing in U.S. Treasury securities, including bills,notes and bonds. These
instruments are direct obligations of the U.S. Government and, as such, are
backed by the ``full faith and credit'' of the United States. They differ
primarily in their interest rates and the lengths of their maturities.
The U.S. Treasury Money Market Series may also invest in component parts of
U.S. Treasury notes or bonds, namely, either the corpus (principal) of such
Treasury obligations or one of the interest payments scheduled to be paid on
such obligations. These obligations may take the form of (i) Treasury
obligations from which the interest coupons have been stripped, (ii) the
interest coupons that are stripped, or (iii) book-entries at a Federal Reserve
member bank representing ownership of Treasury obligation components.
B-4
<PAGE>
The U.S. Treasury Money Market Series does not engage in repurchase
agreements or lend its portfolio securities because the income from such
activities is generally not exempt from state and local income taxes, but may
purchase or sell securities on a when-issued or delayed delivery basis.
When-issued or delayed delivery transactions arise when securities are purchased
or sold by the Series with payment and delivery taking place in the future in
order to secure what is considered to be an advantageous price and yield to the
Series at the time of entering into the transaction. The Trust's Custodian will
maintain, in a segregated account of the Series, cash or U.S. Treasury
obligations having a value equal to or greater than the Series' purchase
commitments. The Custodian will likewise segregate securities sold on a delayed
delivery basis.
Intermediate Term Series
The Intermediate Term Series seeks to achieve its objective by investing in
United States Government securities that have maturities of ten years or less,
including a variety of securities which are issued or guaranteed by the United
States Treasury, by various agencies of the United States Government or by
various instrumentalities which have been established or sponsored by the United
States Government. Such obligations are more fully described under ``Investment
Objective and Policies'' in the Prospectus.
The Intermediate Term Series will make purchases and sales of portfolio
securities from the issuer or a government securities dealer on a net price
basis; brokerage commissions are not normally charged on the purchase or sale of
securities such as United States Government obligations. See ``Portfolio
Transactions and Brokerage.''
The Intermediate Term Series intends to vary the proportion of its holdings
of long-and short-term debt securities in order to reflect its assessment of
prospective changes in interest rates even if such action may adversely affect
current income. For example, if, in the opinion of the Intermediate Term Series'
investment adviser, interest rates generally are expected to decline, the
Intermediate Term Series may sell its shorter-term securities and purchase
longer-term securities in order to benefit from greater expected relative price
appreciation; the securities sold may have a higher current yield than those
being purchased. The success of this strategy will depend on the investment
adviser's ability to forecast changes in interest rates. Moreover, the
Intermediate Term Series intends to manage its portfolio actively by taking
advantage of trading opportunities such as sales of portfolio securities and
purchases of higher yielding securities of similar quality due to distortions in
normal yield differentials. In addition, if, in the opinion of the investment
adviser market conditions warrant, the Intermediate Term Series may purchase U.
S. Government securities at a discount or trade securities in response to
fluctuations in interest rates to provide for the prospect of modest capital
appreciation at maturity.
The Intermediate Term Series' investment adviser currently anticipates that
investments will primarily be made in securities with maturities ranging from 2
to 5 years, but depending on market conditions and changing economic conditions
the Intermediate Term Series may invest in securities of any maturity 10 years
or less. Certain securities with maturities of ten years or less which are
purchased at auction or on a when-issued basis may mature later than ten years
from date of purchase and are eligible for purchase by the Series.
PORTFOLIO TURNOVER
The Money Market Series and the U.S. Treasury Money Market Series intend
normally to hold their portfolio securities to maturity. The Money Market Series
and the U.S. Treasury Money Market Series do not normally expect to trade
portfolio securities although they may do so to take advantage of short-term
market movements. The Money Market Series and the U.S. Treasury Money Market
Series will make purchases and sales of portfolio securities with a government
securities dealer on a net price basis; brokerage commissions are not normally
charged on the purchase or sale of U.S. Treasury Securities. See ``Portfolio
Transactions and Brokerage.''
Although the Intermediate Term Series has no fixed policy with respect to
portfolio turnover, it may sell portfolio securities without regard to the
length of time that they have been held in order to take advantage of new
investment opportunities or yield differentials, or because the Intermediate
Term Series desires to preserve gains or limit losses due to changing economic
conditions. Accordingly, it is possible that the portfolio turnover rate of the
Intermediate Term Series may reach, or even exceed, 250%. The portfolio turnover
rate is computed by dividing the lesser of the amount of the securities
purchased or securities sold (excluding all securities whose maturities at
acquisition were one year or less) by the average monthly value of such
securities owned during the year. A 100% turnover rate would occur, for example,
if all of the securities held in the portfolio of the Intermediate Term Series
were sold and replaced within one year. However, when portfolio changes are
deemed appropriate due to market or other conditions, such turnover rate may be
greater than anticipated. A higher rate of turnover results in increased
transaction costs to the Intermediate Term Series. The portfolio turnover rate
for the Intermediate Term Series for the fiscal years ended November 30, 1993
and 1994 was 44% and 431%, respectively. The increase in the Intermediate Term
Series' portfolio turnover rate resulted in part from the repositioning of its
portfolio by its current portfolio manager, who commenced managing the Series'
portfolio in November 1993. It also resulted from efforts to take advantage of
yield differentials which existed between mortgage ``pass-through'' securities
and U.S. Treasury securities during a year when short-term interest rates were
particularly volatile. These efforts, which involved sales of pass-through
securities in order to buy Treasury securities and vice versa, added
significantly to the Intermediate Term Series' higher turnover rate.
B-5
<PAGE>
INVESTMENT RESTRICTIONS
The Trust's fundamental policies as they affect a particular Series cannot
be changed without the approval of the outstanding shares of such Series by a
vote which is the lesser of (i) 67% or more of the voting securities of such
Series represented at a meeting at which more than 50% of the outstanding voting
securities of such Series are present in person or represented by proxy or (ii)
more than 50% of the outstanding voting securities of such Series. With respect
to the submission of a change in fundamental policy or investment objective to a
particular Series, such matters shall be deemed to have been effectively acted
upon with respect to all Series of the Trust if a majority of the outstanding
voting securities of the particular Series votes for the approval of such
matters as provided above, notwithstanding (1) that such matter has not been
approved by a majority of the outstanding voting securities of any other Series
affected by such matter and (2) that such matter has not been approved by a
majority of the outstanding voting securities of the Trust.
Money Market Series and Intermediate Term Series
The following investment restrictions are fundamental policies of the Trust
with respect to the Money Market Series and the Intermediate Term Series of the
Trust and may not be changed except as described above.
The Trust may not:
1. As to any Series, invest in any securities other than the types of
securities listed under the ``Investment Objectives and Policies'' relating to
such Series;
2. Borrow money, except from banks for temporary or emergency purposes,
including the meeting of redemption requests which might otherwise require the
untimely disposition of securities; borrowing in the aggregate may not exceed
20%, and borrowing for purposes other than meeting redemptions may not exceed
5%, of the value of the Trust's total assets (including the amount borrowed),
less liabilities (not including the amount borrowed) at the time the borrowing
is made; investment securities will not be purchased while borrowings are
outstanding;
3. Pledge, hypothecate, mortgage or otherwise encumber its assets, except
in an amount up to 10% of the value of its net assets but only to secure
permitted borrowings of money;
4. Make loans to others, except through the purchase of the debt
obligations and the repurchase agreements covering government securities and the
lending of portfolio securities (limited to thirty percent of the Trust's total
assets);
5. Purchase or sell real estate or real estate mortgage loans;
6. Purchase securities on margin or sell short;
7. Purchase or sell commodities or commodity futures contracts, or oil,
gas, or mineral exploration or development programs;
8. Purchase securities for which there are legal or contractual
restrictions on resale (i.e. restricted securities) or invest more than 10% of
its assets in securities for which there is no readily available market, except
for repurchase agreements for seven days or less;
9. Underwrite securities of other issuers;
10. Purchase warrants, or write, purchase or sell puts, calls, straddles,
spreads or combinations thereof except that the Money Market Series may purchase
instruments together with the right to resell such instruments;
11. Purchase the securities of any other investment company, except in
connection with a merger, consolidation, reorganization or acquisition of
assets;
12. Issue senior securities as defined in the Investment Company Act except
insofar as the Trust may be deemed to have issued a senior security by reason
of: (a) entering into any repurchase agreement; (b) permitted borrowings of
money; or (c) purchasing securities on a when-issued or delayed delivery basis;
and
13. Purchase securities on a when-issued basis if, as a result, more than
15% of the Trust's net assets would be committed.
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total or net assets will not be considered a
violation of any of the foregoing restrictions. However, in the event that
either Series' asset coverage for borrowings falls below 300%, that Series will
take prompt action to reduce its borrowings, as required by applicable law.
In addition, although not as fundamental policies of the Trust, the Trust
will apply the percentage limitations set forth in Investment Restrictions Nos.
2, 8 and 13 separately to investments made by each of the Money Market Series
and the Intermediate Term Series.
B-6
<PAGE>
U.S. Treasury Money Market Series
In connection with its investment objective and policies as set forth in
the Prospectus, the U.S. Treasury Money Market Series has adopted the following
investment restrictions.
The U.S. Treasury Money Market Series may not:
1. Invest in any securities other than U.S. Treasury obligations.
2. Purchase securities on margin (but the Series may obtain such
short-term credits as may be necessary for the clearance of transactions).
3. Make short sales of securities or maintain a short position.
4. Issue senior securities, borrow money or pledge its assets, except that
the Series may borrow up to 20% of the value of its total assets (calculated
when the loan is made) from banks and from entities other than banks if so
permitted pursuant to an order of the Securities and Exchange Commission for
temporary, extraordinary or emergency purposes. The Series may pledge up to 20%
of the value of its total assets to secure such borrowings.
5. Buy or sell real estate or interests in real estate.
6. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter under
certain federal laws.
7. Make investments for the purpose of exercising control or management.
8. Invest in interests in oil, gas or other mineral exploration or
development programs.
9. Buy or sell commodities or commodity contracts (including futures
contracts and options thereon).
10. Purchase securities for which there are legal or contractual
restrictions on resale (i.e. restricted securities) or invest more than 10% of
its assets in securities for which there is no readily available market, except
for repurchase agreements for seven days or less.
Whenever any fundamental investment policy or investment restriction states
a maximum percentage of the U.S. Treasury Money Market Series' assets, it is
intended that if the percentage limitation is met at the time the investment is
made, a later change in percentage resulting from changing total or net asset
values will not be considered a violation of such policy. However, in the event
that the U.S. Treasury Money Market Series' asset coverage for borrowings falls
below 300%, the Series will take prompt action to reduce its borrowings, as
required by applicable law.
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
Position with Principal Occupations
Name, Address and Age Trust During Past 5 Years
- ---------------------- -------------- ----------------------------------------------------------
<S> <C> <C>
Delayne Dedrick Gold Trustee Marketing and Management Consultant.
(56)
c/o Prudential Mutual
Fund
Management, Inc.
One Seaport Plaza
New York, NY
Arthur Hauspurg (69) Trustee Trustee and former President, Chief Executive Officer and
c/o Prudential Mutual Chairman of the Board of Consolidated Edison Company of
Fund New York, Inc.; Director of COMSAT Corp.
Management, Inc.
One Seaport Plaza
New York, NY
</TABLE>
B-7
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupations
Name, Address and Age Trust During Past 5 Years
- ---------------------- -------------- ----------------------------------------------------------
<S> <C> <C>
*Lawrence C. McQuade President Vice Chairman of PMF (since 1988); Managing Director,
(67) and Trustee Investment Banking , Prudential Securities Incorporated
One Seaport Plaza (Prudential Securities) (1988-1991); Director of Czech
New York, NY and Slovak American Enterprise Fund (since October
1994), Quixote Corporation (since February 1992) and
BUNZL, P.L.C. (since June 1991); formerly, Director of
Crazy Eddie Inc. (1987-1990), Kaiser Tech, Ltd. and
Kaiser Aluminum and Chemical Corp. (March 1987-November
1988); formerly Executive Vice President and Director of
WR Grace & Company; President and Director of The Global
Government Plus Fund, Inc., The Global Total Return
Fund, Inc. and The High Yield Income Fund, Inc.
Stephen P. Munn (52) Trustee Chairman (since January 1994), Director and President
101 South Salina (since 1988) and Chief Executive Officer (1988-December
Street 1993) of Carlisle Companies Incorporated.
Syracuse, NY
Louis A. Weil, III Trustee Publisher and Chief Executive Officer, Phoenix Newspapers,
(54) Inc. (since August 1991); Director of Central
120 E. Van Buren Newspapers, Inc. (since September 1991); prior thereto,
Phoenix, AZ Publisher of Time Magazine (May 1989-March 1991);
formerly President, Publisher and Chief Executive
Officer of The Detroit News (February 1986-August 1989);
formerly member of the Advisory Board, Chase Manhattan
Bank-Westchester; Director of The Global Government Plus
Fund, Inc.
Robert F. Gunia (48) Vice President Chief Administrative Officer (since July 1990), Director
One Seaport Plaza (since January 1989), Executive Vice President,
New York, NY Treasurer and Chief Financial Officer (since June 1987)
of PMF; Senior Vice President (since March 1987) of
Prudential Securities; Executive Vice President,
Treasurer and Comptroller (since March 1991) of
Prudential Mutual Fund Distributors, Inc. and Prudential
Mutual Fund Services, Inc., Vice President and Director
of The Asia Pacific Fund, Inc. (since May 1989).
Eugene S. Stark (37) Treasurer and First Vice President (since January 1990) of PMF.
One Seaport Plaza Principal
New York, NY Financial and
Accounting
Officer
S. Jane Rose (49) Secretary Senior Vice President (since January 1991), Senior Counsel
One Seaport Plaza (since June 1987) and First Vice President (June
New York, NY 1987-December 1990) of PMF; Senior Vice President and
Senior Counsel of Prudential Securities (since July
1992); formerly Vice President and Associate General
Counsel of Prudential Securities.
Ronald Amblard (36) Assistant First Vice President (since January 1994), and Associate
One Seaport Plaza Secretary General Counsel (since January 1992) of PMF; Vice
New York, NY President and Associate General Counsel of Prudential
Securities (since January 1992); Assistant General
Counsel (August 1988-December 1991), Associate Vice
President (January 1989-December 1990) and Vice
President (January 1991-December 1993) of PMF.
</TABLE>
- ------------------
* ``Interested'' Trustee, as defined in the Investment Company Act.
Trustees of the Trust are elected by the holders of the shares of all
Series of the Trust, and not separately by holders of each Series voting as a
class.
Trustees and officers of the Trust are also trustees, directors and
officers of some or all of the other investment companies distributed by
Prudential Securities or Prudential Mutual Fund Distributors, Inc.
The officers conduct and supervise the daily business operations of the
Trust, while the Trustees, in addition to their functions set forth under
``Manager,'' and ``Distributor,'' review such actions and decide on general
policy.
B-8
<PAGE>
The Trust pays each of its directors who is not an affiliated person of PMF
or The Prudential Investment Corporation (PIC) annual compensation of $9,000, in
addition to certain out-of-pocket expenses. The Chairman of the Audit Committee
receives an additional $200 per year.
Trustees may receive their Trustee's fee pursuant to a deferred fee
agreement with the Trust. Under the terms of the agreement, the Trust accrues
daily the amount of such Trustee's fee which accrues interest at a rate
equivalent to the prevailing rate applicable to 90-day U.S. Treasury bills at
the beginning of each calendar quarter or, pursuant to an SEC exemptive order,
at the daily rate of return of the Trust (the Trust Rate). Payment of the
interest so accrued is also deferred and accruals become payable at the option
of the Trustee. The Trust's obligation to make payments of deferred Trustees'
fees, together with interest thereon, is a general obligation of the Trust.
Pursuant to the terms of the Management Agreement with the Trust, the
Manager pays all compensation of officers and employees of the Trust as well as
the fees and expenses of all Trustees of the Trust who are affiliated persons of
the Manager.
The following table sets forth the aggregate compensation paid by the Trust
for the fiscal year ended November 30, 1994 to the Trustees who are not
affiliated with the Manager and the aggregate compensation paid to such Trustees
for service on the Trust's board and that of all other funds managed by
Prudential Mutual Fund Management, Inc. (Fund Complex) for the calendar year
ended December 31, 1994.
Compensation Table
<TABLE>
<CAPTION>
Total
Pension or Compensation
Retirement From Trust
Aggregate Benefits Accrued Estimated Annual and Fund
Compensation As Part of Trust Benefits Upon Complex Paid
Name and Position From Trust Expenses Retirement to Trustees
- ------------------------------------------ ------------ ----------------- ----------------- -------------
<S> <C> <C> <C> <C>
Delayne Dedrick Gold--Trustee $9,200 None N/A $ 185,000(24)*
Arthur Hauspurg--Trustee $9,000 None N/A $ 37,500(5)*
Stephen P. Munn--Trustee $9,000 None N/A $ 40,000(6)*
Louis A. Weil, III--Trustee $9,000 None N/A $ 97,500(12)*
- ------------------
* Indicates number of funds in Fund Complex (Including the Trust) to which aggregate compensation relates.
</TABLE>
As of January 6, 1995, the Trustees and officers of the Trust, as a group,
owned less than 1% of the outstanding shares of beneficial interest of each of
the Money Market Series, U.S. Treasury Money Market Series and the Intermediate
Term Series of the Trust.
As of January 6, 1995, Prudential Securities was the record holder for
other beneficial owners of 12,985,683 Intermediate Term Series Shares (or 54% of
such shares outstanding), 493,761,686 Money Market Series Shares (or 80% of such
shares outstanding) and 514,185,764 U.S. Treasury Money Market Series Shares (or
99% of such shares outstanding). In the event of any meetings of shareholders,
Prudential Securities will forward, or cause the forwarding of, proxy materials
to the beneficial owners for which it is the record holder.
MANAGER
The Manager of the Trust is Prudential Mutual Fund Management, Inc. (PMF or
the Manager), One Seaport Plaza, New York, New York 10292. PMF serves as manager
of all of the investment companies that, together with the Trust, comprise the
Prudential Mutual Funds. See ``How the Trust is Managed--Manager'' in the
Prospectus of each Series. As of February 28, 1995, PMF managed and/or
administered open-end and closed-end management investment companies with assets
of approximately $46 billion. According to the Investment Company Institute, as
of April 30, 1994, the Prudential Mutual Funds were the 12th largest family of
mutual funds in the United States.
Pursuant to a management agreement with the Trust (the Management
Agreement), PMF, subject to the supervision of the Trustees and in conformity
with the stated policies of the Trust, manages both the investment operations of
the Trust and the composition of the Trust's portfolio, including the purchase,
retention, disposition and loan of securities and other investments. PMF is
obligated to keep certain books and records of the Trust in connection
therewith. PMF is also obligated to provide research and statistical analysis
and to pay costs of certain clerical and administrative services involved in the
portfolio management. The management services of PMF to the Trust are not
exclusive under the terms of the Management Agreement and PMF is free to, and
does, render management services to others.
PMF has authorized any of its directors, officers and employees who have
been elected as trustees or officers of the Trust to serve in the capacities in
which they have been elected. Services furnished by PMF under the Management
Agreement may be furnished by any such directors, officers or employees of PMF.
In connection with the services it renders, PMF bears the following expenses:
B-9
<PAGE>
(a) the salaries and expenses of all personnel of the Trust and the
Manager, except the fees and expenses of Trustees who are not affiliated
persons of the Manager;
(b) all expenses incurred by the Manager or by the Trust in connection
with managing the ordinary course of the Trust's business, other than those
assumed by the Trust, as described below; and
(c) the costs and expenses payable to The Prudential Investment
Corporation (PIC) pursuant to a subadvisory agreement between PMF and PIC
(the Subadvisory Agreement).
Under the terms of the Management Agreement, the Trust is responsible for
the payment of the following expenses, including (a) the fee payable to the
Manager, (b) the fees and expenses of Trustees who are not affiliated with PMF
or PIC, (c) the fees and certain expenses of the Trust's Custodian and Transfer
and Dividend Disbursing Agent, including the cost of providing records to the
Manager in connection with its obligation of maintaining required records of the
Trust and of pricing the Trust's shares, (d) the fees and expenses of the
Trust's legal counsel and independent accountants, (e) brokerage commissions and
any issue or transfer taxes chargeable to the Trust in connection with its
securities transactions, (f) all taxes and corporate fees payable by the Trust
to governmental agencies, (g) the fees of any trade association of which the
Trust is a member, (h) the cost of share certificates representing shares of the
Trust, (i) the cost of fidelity, directors and officers and errors and omissions
insurance, (j) the fees and expenses involved in registering and maintaining
registration of the Trust and of its shares with the SEC and registering the
Trust as a broker or dealer and qualifying its shares under state securities
laws, including the preparation and printing of the Trust's registration
statements and prospectuses for such purposes, (k) allocable communications
expenses with respect to investor services and all expenses of shareholders' and
Trustees' meetings and of preparing, printing and mailing reports to
shareholders, (l) litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of the Trust's
business and (m) distribution fees.
The Trust pays a fee to PMF for the services performed and the facilities
furnished by PMF, computed daily and payable monthly, at an annual rate of .40
of 1% of the Intermediate Term Series' and the U.S. Treasury Money Market
Series' average daily net assets and at an annual rate of .40 of 1% of the
average daily net assets up to $1 billion, .375 of 1% on assets between $1
billion and $1.5 billion and .35 of 1% on assets in excess of $1.5 billion of
the average daily net assets of the Money Market Series. The Management
Agreement also provides that in the event the expenses of the Series (including
the fees of the Manager but excluding interest, taxes, brokerage commissions,
distribution fees, litigation and indemnification expenses and other
extraordinary expenses) for any fiscal year exceed the lowest applicable annual
expense limitation established and enforced pursuant to the statute or
regulations of any jurisdictions in which shares of the Series are then
qualified for offer and sale, PMF will reduce its fee by the amount of such
excess. Reductions in excess of the total compensation payable to PMF will be
paid by PMF to the Series. Any such reductions are subject to readjustment
during the year. Currently, the Trust believes that the most restrictive expense
limitation of state securities commissions is 2 1/2% of the average daily net
assets of each Series up to $30 million, 2% of the average daily net assets of
each Series from $30 million to $100 million and 1 1/2% of any excess over $100
million. The Management Agreement provides that the Manager shall not be liable
to the Trust for any error of judgment by the Manager or for any loss sustained
by the Trust except in the case of a breach of fiduciary duty with respect to
the receipt of compensation for services (in which case any award of damages
will be limited as provided in the Investment Company Act) or of wilful
misfeasance, bad faith, gross negligence or reckless disregard of duty.
The Management Agreement provides that it shall terminate automatically if
assigned, and that it may be terminated without penalty by either party upon not
more than 60 days', nor less than 30 days', written notice. The Management
Agreement was last approved by the Trustees, including all of the Trustees who
are not interested persons as defined in the Investment Company Act, on May 2,
1994 and by a majority of the outstanding shares of the Money Market Series and
the Intermediate Term Series on April 28, 1988 and a majority of the outstanding
shares of the U.S. Treasury Money Market Series on November 26, 1991.
For the fiscal year ended November 30, 1994 the Trust paid management fees
to PMF of $2,931,469, $1,229,526 and $1,233,814 relating to the Money Market
Series, Intermediate Term Series and U.S. Treasury Money Market Series,
respectively. For the fiscal year ended November 30, 1993, the Trust paid
management fees to PMF of $3,803,950, $1,286,150 and $1,093,251 relating to the
Money Market Series, Intermediate Term Series and U.S. Treasury Money Market
Series, respectively. For the fiscal year ended November 30, 1992, the Trust
paid management fees to PMF of $4,455,034, $1,177,548 and $1,053,834 relating to
the Money Market Series, Intermediate Term Series and U.S. Treasury Money Market
Series respectively.
PMF has entered into the Subadvisory Agreement with PIC (the Subadviser).
The Subadvisory Agreement provides that PIC furnish investment advisory services
in connection with the management of the Trust. In connection therewith, PIC is
obligated to keep certain books and records of the Trust. PMF continues to have
responsibility for all investment advisory services pursuant to the Management
Agreement and supervises PIC's performance of those services. PIC is reimbursed
by PMF for the reasonable costs and expenses incurred by PIC in furnishing those
services.
B-10
<PAGE>
The Subadvisory Agreement was last approved by the Trustees, including all
of the Trustees who are not interested persons as defined in the Investment
Company Act, on May 2, 1994, and by the shareholders of each of the Money Market
Series and the Intermediate Term Series on April 28, 1988 and the shareholders
of the U.S. Treasury Money Market Series on November 26, 1991.
The Subadvisory Agreement provides that it will terminate in the event of
its assignment or upon the termination of the Management Agreement. The
Subadvisory Agreement may be terminated by the Trust, PMF or PIC upon not less
than 30 days' nor more than 60 days' written notice. The Subadvisory Agreement
provides that it will continue in effect for a period of more than two years
only so long as such continuance is specifically approved at least annually in
accordance with the requirements of the Investment Company Act applicable to
continuance of investment advisory contracts.
The Manager and the Subadviser are subsidiaries of The Prudential Insurance
Company of America (The Prudential) which, as of December 31, 1993, was one of
the largest financial institutions in the world and the largest insurance
company in North America. The Prudential has been engaged in the insurance
business since 1875. In July 1994, Institutional Investor ranked The Prudential
the second largest institutional money manager of the 300 largest money
management organizations in the United States as of December 31, 1993.
DISTRIBUTOR
Prudential Securities Incorporated (Prudential Securities or PSI), One
Seaport Plaza, New York, New York 10292, has entered into an agreement with the
Trust under which Prudential Securities acts as distributor for the Intermediate
Term Series. Prudential Securities is engaged in the securities underwriting and
securities and commodities brokerage business and is a member of the New York
Stock Exchange, other major securities and commodities exchanges and the
National Association of Securities Dealers, Inc. (NASD). Prudential Securities
is also engaged in the investment advisory business. Prudential Securities is a
wholly-owned subsidiary of Prudential Securities Group Inc., which is an
indirect, wholly-owned subsidiary of Prudential. The services it provides to the
Trust are discussed in the Intermediate Term Series' Prospectus. See ``How the
Trust is Managed--Distributor.''
Prudential Mutual Fund Distributors, Inc. (PMFD), One Seaport Plaza, New
York, New York 10292, has entered into an agreement with the Trust pursuant to
which PMFD serves as distributor for the Money Market Series and the U.S.
Treasury Money Market Series. PMFD is a wholly-owned subsidiary of PMF. The
services it provides to the Trust are described in the Money Market Series and
the U.S. Treasury Money Market Series Prospectuses. See ``How the Trust is
Managed--Distributor.''
Distribution and Service Plans. See ``How the Trust is Managed--Distributor'' in
the prospectus of each Series.
During the fiscal year ended November 30, 1994, PMFD incurred distribution
expenses in the aggregate of $916,084 and $385,567 with respect to the Money
Market Series and the U.S. Treasury Money Market Series, respectively, all of
which was recovered through the distribution fee paid by each Series to PMFD. It
is estimated that of these amounts approximately $714,500 (78%) and $297,300
(77.1%) was spent on payment of account servicing fees to financial advisers for
the Money Market Series and U.S. Treasury Money Market Series, respectively, and
$201,500 (22%) and $88,300 (22.9%) on allocation of overhead and other branch
office distribution-related expenses for the Money Market Series and U.S.
Treasury Money Market Series, respectively. 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 shares of
the series, including lease costs, the salaries and employee 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) travel expenses of mutual fund sales coordinators to promote the sale of
shares of the series, and (d) other incidental expenses relating to branch
promotion of sales of the series. Reimbursable distribution expenses do not
include any direct interest or carrying charges.
For the fiscal year ended November 30, 1994, Prudential Securities received
$665,503 from the Intermediate Term Series under the Plan all of which was spent
on behalf of the Intermediate Term Series for the payment of account servicing
fees to financial advisers.
Pursuant to Rule 12b-1, the Distribution and Service Plan of the Money
Market Series and Distribution and Service Plan of the Intermediate Term Series
were approved by the vote of a majority of their outstanding voting securities
on April 28, 1988 and June 26, 1985, respectively, and the Distribution and
Service Plan of the U.S. Treasury Money Market Series was approved by a majority
of its outstanding voting securities on November 26, 1991 (collectively referred
to as the Plans). The Plans were last approved by the Trustees, including a
majority of the Trustees who are not interested persons of the Trust and who
have no direct or indirect financial interest in the operation of the Plans or
in any agreements related to the Plans (the Rule 12b-1 Trustees), cast in person
at a meeting called for the purpose of voting on such Plans on May 2, 1994.
In each Distribution and Service Agreement, the Trust has agreed to
indemnify Prudential Securities or PMFD to the extent permitted by applicable
law against certain liabilities under the Securities Act of 1933, as amended.
Pursuant to the Plans, the Trustees are provided at least quarterly with
written reports of the amounts expended under the Plans and the purposes for
which such expenditures were made. The Trustees review such reports on a
quarterly basis.
B-11
<PAGE>
The Plans provide that they will continue in effect from year to year,
provided each such continuance is approved annually by a vote of the Trustees in
the manner described above. The Plans may not be amended to increase materially
the amount to be spent for the services described therein without approval of
the shareholders of the applicable Series, and all material amendments of the
Plans must also be approved by the Trustees in the manner described above. Each
Plan may be terminated at any time, without payment of any penalty, by vote of a
majority of the Rule 12b-1 Trustees, or by a vote of a majority of the
outstanding voting securities of the applicable Series (as defined in the
Investment Company Act). Each Plan will automatically terminate in the event of
its assignment (as defined in the Investment Company Act).
So long as the Plans are in effect, the selection and nomination of
Trustees who are not interested persons of the Trust shall be committed to the
discretion of the Trustees who are not interested persons. The Trustees have
determined that, in their judgment, there is a reasonable likelihood that the
Plans will benefit the Trust and its shareholders. In the Trustees' quarterly
review of the Plans, they consider the continued appropriateness and the level
of payments provided therein.
The Distribution Agreements provide that each shall terminate automatically
if assigned and that each may be terminated without penalty by either party upon
not more than 60 days' nor less than 30 days' written notice.
Each Distribution Agreement was last approved by the Trustees, including
all of the Trustees who are not interested persons of the Trust and have no
direct or indirect financial interest in the operation of the Plans or the
Distribution Agreements on May 2,1994.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators in 51 jurisdictions and the NASD to resolve
allegations that PSI sold interests in more than 700 limited partnerships (and a
limited number of other types of securities) from January 1, 1980 through
December 31, 1990, in violation of securities laws to persons for whom such
securities were not suitable in light of the individuals' financial condition or
investment objectives. It was also alleged that the safety, potential returns
and liquidity of the investments had been misrepresented. The limited
partnerships principally involved real estate, oil and gas producing properties
and aircraft leasing ventures. The SEC Order (i) included findings that PSI's
conduct violated the federal securities laws and that an order issued by the SEC
in 1986 requiring PSI to adopt, implement and maintain certain supervisory
procedures had not been complied with; (ii) directed PSI to cease and desist
from violating the federal securities laws and imposed a $10 million civil
penalty; and (iii) required PSI to adopt certain remedial measures including the
establishment of a Compliance Committee of its Board of Directors. Pursuant to
the terms of the SEC settlement, PSI established a settlement fund in the amount
of $330,000,000 and procedures, overseen by a court approved Claims
Administrator, to resolve legitimate claims for compensatory damages by
purchasers of the partnership interests. PSI has agreed to provide additional
funds, if necessary, for that purpose. PSI's settlement with the state
securities regulators included an agreement to pay a penalty of $500,000 per
jurisdiction. PSI consented to a censure and to the payment of a $5,000,000 fine
in settling the NASD action. In settling the above referenced matters, PSI
neither admitted nor denied the allegations asserted against it.
On January 18, 1994, PSI agreed to the entry of a Final Consent Order and a
Parallel Consent Order by the Texas Securities Commissioner. The firm also
entered into a related agreement with the Texas Securities Commissioner. The
allegations were that the firm had engaged in improper sales practices and other
improper conduct resulting in pecuniary losses and other harm to investors
residing in Texas with respect to purchases and sales of limited partnership
interests during the period of January 1, 1980 through December 31, 1990.
Without admitting or denying the allegations, PSI consented to a reprimand,
agreed to cease and desist from future violations, and to provide voluntary
donations to the State of Texas in the aggregate amount of $1,500,000. The firm
agreed to suspend the creation of new customer accounts, the general
solicitation of new accounts, and the offer for sale of securities in or from
PSI's North Dallas office to new customers during a period of twenty consecutive
business days, and agreed that its other Texas offices would be subject to the
same restrictions for a period of five consecutive business days. PSI also
agreed to institute training programs for its securities salesmen in Texas.
On October 27, 1994, Prudential Securities Group, Inc. and PSI entered into
agreements with the United States Attorney deferring prosecution (provided PSI
complies with the terms of the agreement for three years) for any alleged
criminal activity related to the sale of certain limited partnership programs
from 1983 to 1990. In connection with these agreements, PSI agreed to add the
sum of $330,000,000 to the fund established by the SEC and executed a
stipulation providing for a reversion of such funds to the United States Postal
Inspection Service. PSI further agreed to obtain a mutually acceptable outside
director to sit on the Board of Directors of PSG and the Compliance Committee of
PSI. The new director will also serve as an independent ``ombudsman'' whom PSI
employees can call anonymously with complaints about ethics and compliance.
Prudential Securities shall report any allegations or instances of criminal
conduct and material improprieties to the new director. The new director will
submit compliance reports which shall identify all such allegations or instances
of criminal conduct and material improprieties every three months for a
three-year period.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Manager and PIC are responsible for decisions to buy and sell
securities for the Money Market Series, Intermediate Term Series and U.S.
Treasury Money Market Series, arranging the execution of portfolio security
transactions on each Series' behalf, and the selection of brokers and dealers to
effect the transactions. Purchases of portfolio securities are made from
dealers, underwriters and
B-12
<PAGE>
issuers; sales, if any, prior to maturity, are made to dealers and issuers. Each
Series does not normally incur any brokerage commission expense on such
transactions. The instruments purchased by the Series 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. Securities purchased in underwritten offerings include a fixed
amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. When securities are purchased or sold
directly from or to an issuer, no commissions or discounts are paid.
The policy of each of the Series regarding purchases and sales of
securities is that primary consideration will be given to obtaining the most
favorable price and efficient execution of transactions.
The Trust paid no brokerage commissions for the fiscal years ended November
30, 1992, 1993 and 1994.
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of shares of the Trust, a Shareholder Investment
Account is established for each investor under which a record of the shares held
is maintained by the Transfer Agent. If a share certificate is desired, it must
be requested in writing for each transaction. Certificates are issued only for
full shares and may be redeposited in the account at any time. There is no
charge to the investor for issuance of a certificate. Whenever a transaction
takes place in the Shareholder Investment Account, the shareholder will be
mailed a statement showing the transaction and the status of such account.
Procedure for Multiple Accounts
Special procedures have been designed for banks and other institutions that
wish to open multiple accounts. An institution may open a single master account
by filing an Application Form with Prudential Mutual Fund Services, Inc. (PMFS
or the Transfer Agent), Attention: Customer Service, P.O. Box 15005, New
Brunswick, New Jersey 08906, signed by personnel authorized to act for the
institution. Individual sub-accounts may be opened at the time the master
account is opened by listing them, or they may be added at a later date by
written advice or by filing forms supplied by the Trust. Procedures are
available to identify sub-accounts by name and number within the master account
name. The investment minimums set forth above are applicable to the aggregate
amounts invested by a group and not to the amount credited to each sub-account.
PMFS provides each institution with a written confirmation for each
transaction in sub-accounts. Further, PMFS provides, to each institution on a
monthly basis, a statement which sets forth for each master account its share
balance and income earned for the month. In addition, each institution receives
a statement for each individual account setting forth transactions in the
sub-account for the year-to-date, the total number of shares owned as of the
dividend payment date and the dividends paid for the current month, as well as
for the year-to-date.
Further information on the sub-accounting system and procedures is
available from the Transfer Agent, Prudential Securities or Prusec.
Automatic Reinvestment of Dividends and Distributions
For the convenience of investors, all dividends and distributions are
automatically invested in full and fractional shares of the applicable Series at
net asset value. An investor may direct the Transfer Agent in writing not less
than 5 full business days prior to the payable date to have subsequent dividends
and/or distributions sent in cash rather than invested. In the case of recently
purchased shares for which registration instructions have not been received on
the record date, cash payment will be made directly to the dealer. Any
shareholder who receives a cash payment representing a dividend or distribution
may reinvest such dividend or distribution at net asset value by returning the
check or the proceeds to the Transfer Agent within 30 days after the payment
date. Such investment will be made at the net asset value per share next
determined after receipt of the check or proceeds by the Transfer Agent.
Exchange Privilege
The Trust makes available to its Money Market Series, Intermediate Term
Series and U.S. Treasury Money Market Series shareholders the privilege of
exchanging their shares for shares of either Series and certain other Prudential
Mutual Funds, including one or more specified money market funds, subject in
each case to the minimum investment requirements of such funds. Class A shares
of such other Prudential Mutual Funds may also be exchanged for Money Market
Series, Intermediate Term Series and U.S. Treasury Money Market Series shares.
All exchanges are made on the basis of relative net asset value next determined
after receipt of an order in proper form. An exchange will be treated as a
redemption and purchase for tax purposes. Shares may be exchanged for shares of
another fund only if shares of such fund may legally be sold under applicable
state laws.
It is contemplated that the exchange privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.
B-13
<PAGE>
Shareholders of the Trust may exchange their shares for Class A shares of
the Prudential Mutual Funds, and shares of the money market funds specified
below. No fee or sales load will be imposed upon the exchange.
The following money market funds participate in the Class A Exchange
Privilege:
Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)
Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New York Money Market Series)
(New Jersey Money Market Series)
Prudential MoneyMart Assets
Prudential Tax-Free Money Fund
Shareholders of The Trust may not exchange their shares for Class B or
Class C shares of the Prudential Mutual Funds or shares of Prudential Special
Money Market Fund, a money market fund, except that shares acquired prior to
January 22, 1990 subject to a contingent deferred sales charge can be exchanged
for Class B shares.
Additional details about the Exchange Privilege and prospectuses for each
of the Prudential Mutual Funds are available from the Trust's Transfer Agent,
Prudential Securities or Prusec. The Exchange Privilege may be modified,
terminated or suspended on sixty days notice, and any fund, including the Trust,
or the Distributor, has the right to reject any exchange application relating to
such fund's shares.
Dollar Cost Averaging
Dollar cost averaging is a method of accumulating shares by investing a
fixed amount of dollars in shares at set intervals. An investor buys more shares
when the price is low and fewer shares when the price is high. The overall cost
is lower than it would be if a constant number of shares were bought at set
intervals.
Dollar cost averaging may be used, for example, to plan for retirement, to
save for a major expenditure, such as the purchase of a home, or to finance a
college education. The cost of a year's education at a four-year college today
averages around $14,000 at a private college and around $4,800 at a public
university. Assuming these costs increase at a rate of 7% a year, as has been
projected, for the freshman class of 2007, the cost of four years at a private
college could reach $163,000 and over $97,000 at a public university.1
The following chart shows how much you would need in monthly investments to
achieve specified lump sums to finance your investment goals.2
<TABLE>
<CAPTION>
Period of
Monthly investments: $100,000 $150,000 $200,000 $250,000
--------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
25 Years......................... $ 110 $ 165 $ 220 $ 275
20 Years......................... 176 264 352 440
15 Years......................... 296 444 592 740
10 Years......................... 555 833 1,110 1,388
5 Years......................... 1,371 2,057 2,742 3,428
</TABLE>
See ``Automatic Savings Accumulation Plan.''
- ---------------
1 Source information concerning the costs of education at public
universities is available from The College Board Annual Survey of Colleges,
1992. Information about the costs of private colleges is from the Digest of
Education Statistics, 1992; The National Center for Educational Statistics; and
the U.S. Department of Education. Average costs for private institutions include
tuition, fees, room and board.
2 The chart assumes an effective rate of return of 8% (assuming monthly
compounding). This example is for illustrative purposes only and is not intended
to reflect the performance of an investment in shares of the Fund. The
investment return and principal value of an investment will fluctuate so that an
investor's shares when redeemed may be worth more or less than their original
cost.
B-14
<PAGE>
Automatic Savings Accumulation Plan (ASAP)
Under ASAP, an investor may arrange to have a fixed amount automatically
invested in any Series' shares each month by authorizing his or her bank account
or Prudential Securities Account (including a Command Account) to be debited to
invest specified dollar amounts in shares of that Series. The investor's bank
must be a member of the Automatic Clearing House System. Share certificates are
not issued to ASAP participants.
Further information about this program and an application form can be
obtained from the Transfer Agent, Prudential Securities or Prusec.
Systematic Withdrawal Plan
A systematic withdrawal plan is available for shareholders having shares of
the Trust held through Prudential Securities or the Transfer Agent. Such
withdrawal plan provides for monthly or quarterly checks in any amount, except
as provided below, up to the value of the shares in the shareholder's account.
In the case of shares held through the Transfer Agent (i) a $10,000 minimum
account value applies, (ii) withdrawals may not be for less than $100 and (iii)
the shareholder must elect to have all dividends and/or distributions
automatically reinvested in additional full and fractional shares of the
applicable series at net asset value on shares held under this plan. See
``Shareholder Investment Account-Automatic Reinvestment of Dividends and
Distributions.''
Prudential Securities and the Transfer Agent act as agents for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment. The systematic withdrawal plan may be
terminated at any time, and the Distributor reserves the right to initiate a fee
of up to $5 per withdrawal, upon 30 days' written notice to the shareholder.
Withdrawal payments should not generally be considered as dividends, yield
or income. If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted. Furthermore, each withdrawal constitutes a
redemption of shares, and any gain or loss realized must generally be recognized
for federal income tax purposes. Each shareholder should consult his or her own
tax adviser with regard to the tax consequences of the plan, particularly if
used in connection with a retirement plan.
Tax-Deferred Retirement Plans
Various tax-deferred retirement plans, including a 401(k) Plan,
self-directed individual retirement accounts and ``tax-sheltered accounts''
under Section 403(b)(7) of the Internal Revenue Code are available through the
Distributor. These plans are for use by both self-employed individuals and
corporate employers. These plans permit either self-direction of accounts by
participants, or a pooled account arrangement. Information regarding the
establishment of these plans, the administration, custodial fees and other
details are available from Prudential Securities or the Transfer Agent.
Investors who are considering the adoption of such a plan should consult
with their own legal counsel or tax adviser with respect to the establishment
and maintenance of any such plan.
Individual Retirement Accounts
An individual retirement account (IRA) permits the deferral of federal
income tax on income earned in the account until the earnings are withdrawn. The
following chart represents a comparison of the earnings in a personal savings
account with those in an IRA, assuming a $2,000 annual contribution, an 8% rate
of return and a 39.6% federal income tax bracket and shows how much more
retirement income can accumulate within an IRA as opposed to a taxable
individual savings account.
<TABLE>
<CAPTION>
Tax-Deferred Compounding1
Contributions Personal
Made Over: Savings IRA
- -------------- -------- --------
<S> <C> <C>
10 years $ 26,165 $ 31,291
15 years 44,675 58,649
20 years 68,109 98,846
25 years 97,780 157,909
30 years 135,346 244,692
</TABLE>
- ------------------
1The chart is for illustrative purposes only and does not represent the
performance of the Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated. Earnings in
the IRA account will be subject to tax when withdrawn from the account.
B-15
<PAGE>
NET ASSET VALUE
Money Market Series and U.S. Treasury Money Market Series
Amortized Cost Valuation. The Money Market Series and the U.S. Treasury
Money Market Series use the amortized cost method to determine the value of
their portfolio securities in accordance with regulations of the Securities and
Exchange Commission. The amortized cost method involves valuing a security at
its cost and amortizing any discount or premium over the period until maturity.
The method does not take into account unrealized capital gains and losses which
may result from the effect of fluctuating interest rates on the market value of
the security.
With respect to the Money Market Series and the U.S. Treasury Money Market
Series, the Trustees have determined to maintain a dollar-weighted average
maturity of 90 days or less, to purchase instruments having remaining maturities
of thirteen months or less and to invest only in securities determined by the
investment adviser under the supervision of the Trustees to present minimal
credit risks and to be of eligible quality in accordance with the provisions of
Rule 2a-7 of the Investment Company Act. The Trustees have adopted procedures
designed to stabilize, to the extent reasonably possible, both Series' price per
share as computed for the purpose of sales and redemptions at $1.00. Such
procedures will include review of the Series' portfolio holdings by the
Trustees, at such intervals as they may deem appropriate, to determine whether
the Series' net asset value calculated by using available market quotations
deviates from $1.00 per share based on amortized cost. The extent of any
deviation will be examined by the Trustees. If such deviation exceeds 1/2 of 1%,
the Trustees will promptly consider what action, if any, will be initiated. In
the event the Trustees determine that a deviation exists which may result in
material dilution or other unfair results to prospective investors or existing
shareholders, the Trustees will take such corrective action as they consider
necessary and appropriate, including the sale of portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity, the withholding of dividends, redemptions of shares in kind, or the
use of available market quotations to establish a net asset value per share.
Intermediate Term Series
In determining the value of the assets of the Intermediate Term Series, the
value of each U.S. Government security for which quotations are available will
be based on the valuation provided by an independent pricing service. Pricing
services consider such factors as security prices, yields, maturities, call
features, ratings and developments relating to specific securities in arriving
at securities valuations. Securities for which market quotations are not readily
available are valued by appraisal at their fair value as determined in good
faith by the Manager under procedures established under the general supervision
and responsibility of the Trustees.
Short-term investments which mature in 60 days or less are valued at
amortized cost, if their term to maturity from date of purchase was 60 days or
less, or by amortizing their value on the 61st day prior to maturity if their
term to maturity when acquired by the Intermediate Series was more than 60 days,
unless this is determined not to represent fair value by the Trustees.
Time Net Asset Value is Calculated
The Trust will calculate its net asset value at 4:15 P.M., New York time,
for the Intermediate Term Series and at 4:30 P.M. for the Money Market Series
and U.S. Treasury Money Market Series, on each day the New York Stock Exchange
is open for trading except on days on which no orders to purchase, sell or
redeem series shares have been received or days on which changes in the value of
a series' securities do not affect net asset value. In the event the New York
Stock Exchange closes early on any business day, the net asset value of the
series' shares shall be determined at a time between such closing and 4:15 or
4:30, New York time, as appropriate.
PERFORMANCE INFORMATION
Money Market Series and U.S. Treasury Money Market Series--Calculation of Yield
The Money Market Series and U.S. Treasury Money Market Series will each
prepare a current quotation of yield from time to time. The yield quoted will be
the simple annualized yield for an identified seven calendar day period. The
yield calculation will be based on a hypothetical account having a balance of
exactly one share at the beginning of the seven-day period. The base period
return will be the change in the value of the hypothetical account during the
seven-day period, including dividends declared on any shares purchased with
dividends on the shares but excluding any capital changes. The yield will vary
as interest rates and other conditions affecting money market instruments
change. Yield also depends on the quality, length of maturity and type of
instruments in the Money Market Series and U.S. Treasury Money Market Series'
portfolios and their operating expenses. The Money Market Series and U.S.
Treasury Money Market Series may also each prepare an effective annual yield
computed by compounding the unannualized seven-day period return as follows: by
adding 1 to the unannualized seven-day period return, raising the sum to a power
equal to 365 divided by 7, and subtracting 1 from the result.
Effective yield = [(base period return + 1)365/7] -1
B-16
<PAGE>
The U.S. Treasury Money Market Series may also calculate the tax equivalent
yield over a 7-day period. The tax equivalent yield will be determined by first
computing the current yield as discussed above. The Series will then determine
what portion of the yield is attributable to securities, the income of which is
exempt for state and local income tax purposes. This portion of the yield will
then be divided by one minus the maximum state tax rate of individual taxpayers
and then added to the portion of the yield that is attributable to other
securities.
Comparative performance information may be used from time to time in
advertising or marketing the Money Market Series' and U.S. Treasury Money Market
Series' shares, including data from Lipper Analytical Services, Inc., Donoghue's
Money Fund Report, The Bank Rate Monitor, other industry publications, business
periodicals, rating services and market indices.
The Money Market Series' and U.S. Treasury Money Market Series' yields
fluctuate, and annualized yield quotations are not a representation by the Money
Market Series or U.S. Treasury Money Market Series as to what an investment in
the Money Market Series and U.S. Treasury Money Market Series will actually
yield for any given period. Yield for the Money Market Series and U.S. Treasury
Money Market Series will vary based on a number of factors including changes in
market conditions, the level of interest rates and the level of each series'
income and expenses.
Intermediate Term Series--Calculation of Yield and Total Return
Yield. The Intermediate Term Series may from time to time advertise its
yield as calculated over a 30-day period. Yield will be computed by dividing the
Intermediate Term Series' net investment income per share earned during this
30-day period by the net asset value per share on the last day of this period.
Yield is calculated according to the following formula:
a-b
YIELD = 2 [(---------+1)6 - 1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the net asset value per share on the last day of the period.
Yield fluctuates and an annualized yield quotation is not a representation
by the Trust as to what an investment in the Intermediate Term Series will
actually yield for any given period.
The Intermediate Term Series' 30-day yield for the period ended November
30, 1994 was 6.52%.
Average Annual Total Return. The Intermediate Term Series may from time to
time advertise its average annual total return. See ``How the Trust Calculates
Performance'' in the Prospectus.
Average annual total return is computed according to the following formula:
P(1+T)n = ERV
Where: P= a hypothetical initial payment of $1,000.
T= average annual total return.
n= number of years.
ERV= Ending Redeemable Value at the end of the 1, 5 or 10 year
periods (or fractional portion thereof) of a hypothetical
$1,000 payment made at the beginning of the 1, 5 or 10 year
periods.
Average annual total return does not take into account any federal or state
income taxes that may be payable upon redemption.
The Intermediate Term Series' average annual total return for the one, five
and ten year periods ended November 30, 1994 was -2.58%, 6.29% and 8.22%,
respectively.
Aggregate Total Return. The Intermediate Term Series may also advertise its
aggregate total return. See ``How the Trust Calculates Performance'' in the
Prospectus.
Aggregate total return represents the cumulative change in the value of an
investment in the Fund and is computed according to the following formula:
ERV- P
-------------
P
Where: P= a hypothetical initial payment of $1,000.
ERV= Ending Redeemable Value at the end of the 1, 5 or 10 year
periods (or fractional portion thereof) of a hypothetical
$1,000 investment made at the beginning of the 1, 5 or 10 year
periods.
B-17
<PAGE>
Aggregate total return does not take into account any federal or state
income taxes that may be payable upon redemption.
The Intermediate Term Series' aggregate total return for the one, five and
ten year periods ended November 30, 1994 was -2.58%, 35.64% and 120.26%,
respectively.
TAXES
Each series of the Trust is treated as a separate entity for federal income
tax purposes and each has elected to qualify and intends to remain qualified as
a regulated investment company under the Internal Revenue Code of 1986, as
amended (the Internal Revenue Code). If each series qualifies as a regulated
investment company, it will not be subject to federal income taxes on the
taxable income it distributes to shareholders, provided at least 90% of its net
investment income and net short-term capital gains earned in the taxable year is
so distributed. To qualify for this treatment, each series must, among other
things, (a) derive at least 90% of its gross income (without offset for losses
from the sale or other disposition of securities or foreign currencies) from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of securities or foreign currencies and certain
financial futures, options and forward contracts; (b) derive less than 30% of
its gross income (without offset for losses from the sale or other disposition
of securities or foreign currencies) from the gains on the sale or other
disposition of securities held for less than three months; and (c) diversify its
holdings so that, at the end of each quarter of the taxable year, (i) at least
50% of the value of its assets is represented by cash, U.S. Government
securities and other securities limited in respect of any one issuer to an
amount no greater than 5% of its assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its assets
is invested in the securities of any one issuer (other than U.S. Government
securities). The performance and tax qualification of one series will have no
effect on the federal income tax liability of shareholders of the other series.
The Internal Revenue Code imposes a 4% nondeductible excise tax to the
extent any series fails to meet certain minimum distribution requirements by the
end of each calendar year. For this purpose, dividends declared in October,
November and December payable to shareholders of record on a specified date in
October, November and December and paid in the following January will be treated
as having been paid by the Trust and received by shareholders in such prior
year. Under this rule, a shareholder may be taxed in one year on dividends or
distributions actually received in January of the following year.
See ``Taxes, Dividends and Distributions'' in the Prospectus of each
series.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT AND
INDEPENDENT ACCOUNTANTS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, has been retained to act as Custodian of the Trust's
investments and in such capacity maintains certain financial and accounting
books and records pursuant to an agreement with the Trust.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison,
New Jersey 08837, serves as Transfer and Dividend Disbursing Agent and in those
capacities maintains certain books and records for the Trust. PMFS is a
wholly-owned subsidiary of PMF. PMFS provides customary transfer agency services
to the Trust, including the handling of shareholder communications, the
processing of shareholder transactions, the maintenance of shareholder account
records, payment of dividends and distributions and related functions. For these
services, PMFS receives an annual fee per shareholder account, a new account
set-up fee for each manually established account and a monthly inactive zero
balance account fee per shareholder account. PMFS is also reimbursed for its
out-of-pocket expenses, including but not limited to postage, stationery,
printing, allocable communications and other costs. For the fiscal year ended
November 30, 1994, the Intermediate Term Series, Money Market Series and U.S.
Treasury Money Market Series incurred fees of $267,000, $1,066,000 and $79,000,
respectively, for the services of PMFS.
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York,
serves as the Trust's independent accountants and in that capacity audits the
Trust's annual financial statements.
B-18
<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>
See Notes to Financial Statements.
B-19
<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>
See Notes to Financial Statements.
B-20
<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.
See Notes to Financial Statements.
B-21
<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.
See Notes to Financial Statements.
B-22
<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.
See Notes to Financial Statements.
B-23
<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.
B-24
<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.
B-25
<PAGE>
PRUDENTIAL GOVERNMENT SECURITIES TRUST
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
US TREASURY
MONEY MARKET INTERMEDIATE MONEY MARKET
SERIES TERM SERIES SERIES
--------------------------------- ----------------------------- ---------------------------------
Year Ended November 30,
Increase (Decrease) -----------------------------------------------------------------------------------------------------
in Net Assets 1994 1993 1994 1993 1994 1993
--------------- --------------- ------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
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.
B-26
<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
B-27
<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
B-28
<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>
B-29
<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.
B-30
<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.
B-31
<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.
B-32
<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.
B-33
<PAGE>
PRUDENTIAL GOVERNMENT SECURITIES TRUST
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
April 7, 1995
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Prudential Government Securities Trust
(File No. 2-74139)
Ladies and Gentlemen:
In accordance with Rule 497(c) under the Securities Act of 1933, enclosed
for filing are the Prospectuses and Statement of Additional Information dated
April 3, 1995 for the above referenced Trust.
In addition, pursuant to Rule 497(g), the enclosed Prospectuses and
Statement of Additional Information have been marked to indicate in the upper
righthand corner the Rule and subparagraph under which the filing is made and
the registration number.
Very truly yours,
/s/ Ronald Amblard
-------------------
Ronald Amblard
Assistant Secretary
RA/rb
Enclosures
