(ICON)
Prudential
Government
Securities
Trust
Money Market Series
U.S. Treasury Money
Market Series
Short-Intermediate
Term Series
SEMI
ANNUAL
REPORT
May 31, 1996
(LOGO)
<PAGE>
Portfolio Managers' Report
What a difference six months can make.
In November 1995 when we last reported to you, money market funds were still
yielding about 5% or more -- despite falling short-term interest rates --and
short- to intermediate-term bond funds were on their way to ending the year
with double-digit total returns. Times were good -- but nothing lasts forever.
Over the past six months, the Federal Reserve sought to revitalize a sluggish
U.S. economy by lowering short-term interest rates to 5.25% in January, 1996.
Money market funds, whose yields adjust very quickly to changes in short-term
interest rates, saw yields drop nearly half a percentage point. Money market
fund yields then stabilized and were rising, once again, as the reporting
period ended.
Short- to intermediate-term bond prices fluctuated over the past six months.
After finishing 1995 with near-record returns, bond prices strengthened through
January. From February through late April 1996, short- to intermediate-term
bond prices fell (and yields rose) when skittish investors reacted negatively
to reports that the economy might be growing too fast, which could cause
inflation (a bond investor's worst nightmare) to accelerate.
Money Market Series
The Money Market Series' seven-day current yield was 4.45% on May 28, 1996,
compared to 4.59% for the average U.S. government money market fund. It trailed
because of a temporary increase in Series' expenses (printing of a new
prospectus and related fees) that were charged to the Series in May.
U.S. Treasury Money Market Series
The U.S. Treasury Money Market Series' seven-day current yield was 4.45% on May
28, 1996, compared to 4.51% for similar funds. We took profits as May ended and
invested in short, lower yielding securities, which temporarily depressed our
seven-day yield. It was sound strategy, since it allowed us to capture higher
yields later.
Short-Intermediate Term Series
The Short-Intermediate Term Series' 30-day yield was 5.69% for the period ended
May 31, 1996, compared to 5.27% on November 30, 1995. NAV declined during the
period to $9.47 on May 31, 1996 from $9.74 on November 30, 1995.
How Investments Compared.
(As of 5/31/96)
(CHART)
Source: Lipper Analytical Services. Financial markets change, so a mutual
fund's past performance should never be used to predict future results. The
risks to each of the investments listed above are different -- we provide
12-month total returns for several Lipper mutual fund categories to show you
that reaching for higher yields means tolerating more risk. The greater the
risk, the larger the potential reward or loss. In addition, we've included
historical 20-year average annual returns. These returns assume the
reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors have received higher
historical total returns from stocks than from most other investments. Smaller
capitalization stocks offer greater potential for long-term growth but may be
more volatile than larger capitalization stocks.
General Bond Funds provide more income than stock funds, which can help smooth
out their total returns year by year. But their prices still fluctuate
(sometimes significantly) and their returns have been historically lower than
those of stock funds.
General Municipal Debt Funds invest in bonds issued by state governments, state
agencies and/or municipalities. This investment provides income that is usually
exempt from federal and state income taxes.
Money Market Funds attempt to preserve a constant share value; they don't
fluctuate much in price but, historically, their returns have been generally
among the lowest of the major investment categories.
<PAGE>
Money Market Series
The Money Market Series seeks high current income, preservation of capital and
maintenance of liquidity from a portfolio of money market securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities. There can
be no assurance that the Fund will achieve its investment objective, nor
maintain a stable $1 net asset value.
<TABLE>
<CAPTION>
7-Day Weighted Net Asset
Current Avg.Maturity Value Total Net
Yield* (WAM) (NAV) Assets
<S> <C> <C> <C> <C>
Performance
As of
5/31/96
Money Market Series 4.45% 59 days $1 $585.3 million
IBC Financial Data
Money Fund Average** 4.59 49 days $1 N/A
</TABLE>
* Yields will fluctuate from time to time and past performance is not
indicative of future results.
** This is the average 7-day current yield, WAM and NAV of 113 funds in the
IBC Financial Money Fund Average/U.S. Government Category for the week ended
May 31, 1996.
An investment in the Series is neither insured nor guaranteed by the U.S.
government.
Yield Beats Inflation.
At 4.45%, the Money Market Series' yield was more than one full percentage
point above the reported inflation rate of about 3% for the six-month period.
Our investment strategy was to lock in higher yields when attractive, while
maintaining our flexibility to respond to Federal Reserve Board actions. We
therefore invested in very short (one month or less) securities and longer term
(12- to 13-month) securities.
Since February 1995, the Federal Reserve cut short-term interest rates three
times to encourage economic growth, most recently in January 1996 to 5.25%. It
wasn't surprising then, to see money market yields fall across the board.
Did the central bank's rate cutting strategy work? Gross Domestic Product,
which measures the value of all goods and services produced by the country,
grew by a higher-than-expected 2.3% at the end of the first quarter of 1996.
Indications were that second quarter growth would be even stronger than the
first quarter. Such growth levels could prompt the Federal Reserve to raise
short-term rates. We believe, however, that any upward adjustment will be
modest in nature.
U.S. Treasury
Money Market
Series
The U.S. Treasury Money Market Series seeks high current income consistent with
the preservation of capital and maintenance of liquidity from a portfolio of
U.S. Treasury obligations with maturities of 13 months or less. There can be no
assurance that the Series will achieve its investment objective, nor maintain
a
stable $1 net asset value.
<TABLE>
<CAPTION>
7-Day Weighted Net Asset
Current Avg.Maturity Value Total Net
Yield* (WAM) (NAV) Assets
<S> <C> <C> <C> <C>
Performance
As of
5/31/96
U.S. Treasury Series 4.45% 63 days $1 $355.2 million
IBC Financial Data
100% U.S. Treasury
Money Fund Average** 4.51 55 days $1 N/A
</TABLE>
* Yields will fluctuate from time to time and past performance is not
indicative of future results.
** This is the average 7-day current yield, WAM and NAV of 37 funds in IBC
Financial's 100% U.S. Treasury Money Fund Average for the week ended May 31,
1996.
An investment in the Series is neither insured nor guaranteed by the U.S.
government.
Maintaining Yield As Rates Drop.
Maintaining a competitive yield as short-term interest rates fell was a
challenge. By nature, U.S. Treasury securities offer lower yields than other
money market securities because they carry less credit risk. They are backed
by the full faith and credit of the U.S. government.
Our strategy mirrored that of the Money Market Series. We concurrently invested
in very short (one month or less), and longer term (12- to 13-month)
securities. Both types of securities offered attractive yields and supported
your Series' total return. Our investment in shorter term securities gave us
the flexibility to meet changing market sentiment. The longer term securities,
meanwhile, allowed us to preserve a higher yield for a longer time period.
<PAGE>
Short-Intermediate
Term Series
The Short-Intermediate Term Series invests at least 65% of assets in securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities.
As much as 35% of Series' assets may be invested in mortgage backed or asset
backed securities as well as corporate debt. The dollar-weighted average
maturity of the Series will be more than two, but less than five years. There
can be no assurance that the Series will achieve its investment objective.
Cumulative Total Returns* As of 5/31/96
<TABLE>
<CAPTION>
Six One Five Ten Since
Months Year Years Years Inception**
<S> <C> <C> <C> <C> <C>
Short-Intermediate
Term Series 0.1% 4.0% 36.7% 98.7% 207.2%
Lipper Short
U.S. Government
Fund Average*** -0.1% 4.1 35.8 103.9 208.1
</TABLE>
Average Annual Total Returns* As of 6/30/96
<TABLE>
<CAPTION>
One Five Ten Since
Year Years Years Inception**
<S> <C> <C> <C> <C>
Short-Intermediate
Term Series 4.6% 6.7% 7.0% 8.6%
</TABLE>
Past performance is not indicative of future returns. Investment return and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more less than their original cost
* Source: Prudential Mutual Fund Management and Lipper Analytical Services.
Shares of this Series are sold without an initial or contingent deferred sales
charge.
** Inception date: 9/22/82.
*** These are the average returns of 96 funds in the Short-Term U.S. Government
Bond Fund category for six months, 92 funds for one year, 26 funds for five
years, eight funds for 10 years and two funds since inception as determined by
Lipper Analytical Services.
Dividends and Yields As of 5/31/96
<TABLE>
<CAPTION>
Total Dividends 30-Day
Paid for Six Mos. SEC Yield
<S> <C>
$0.29 5.69%
</TABLE>
Bears Maul Bond Prices.
Low interest rates, lower levels of inflation and modest economic growth would
seem to be the stuff that bond market rallies are made of -- but it did not
work out that way over the last six months. Yes, the economy was growing, but
the growth was uneven. For example, good economic reports, like lower
unemployment, were countered by news that prices for wheat, gasoline and other
commodities were rising (indicating that inflation might increase). The
direction of the economy was uncertain and open to some interpretation.
Pessimistic bond investors (sometimes called "bears") argued that positive
economic reports were signs that the economy was growing too fast and that
rising inflation was just around the corner. As events unfolded, it was this
opinion that engulfed the bond market.
In February, an exceptionally good national employment report was released,
followed by news of increased home sales and durable goods purchases. Bears
reacted predictably by rapidly selling their bonds causing prices to drop
significantly and yields to rise. How quickly did yields rise? A five-year
Treasury note yield rose to 6.4% on May 21, 1996 from 5.1% on February 13,
1996 -- a change of 130 basis points (a basis point is 1/100th of a percentage
point). Of course, as yields rose, bond prices fell and investors lost some of
the gains they earned in 1995.
How did the Short-Intermediate Series weather this stormy period? From December
1995 through the end of February 1996, we began increasing our position in
cash-equivalent instruments, with maturities of a month or less, to 21% of
total net assets on February 29, 1996. It wasn't that we expected the market
to sour as it did, rather we did not see a lot of opportunity in the 2- to
5-year bond market.
Looking back, this strategy both hindered and helped us. Our cash position
prevented us from realizing the full price appreciation potential as the bond
market rallied into late January. However, it also protected the Series from
experiencing the full impact of falling bond prices in the February to April
time period. It also helped us to slightly outperform the U.S. government fund
average. Indeed, we were able to recoup most of the price appreciation lost
earlier in 1996 by reinvesting our cash position as the bond market began to
recover in early May.
1
<PAGE>
Looking Ahead.
Moderating economic growth and low levels of inflation should keep the Federal
Reserve from raising short-term interest rates too much. Of course, this is
also a presidential election year and that always seems to bring additional
uncertainty to financial markets.
We are cautiously optimistic with our outlook for both the money market and
short- to intermediate-term bond market. Our money market strategy will be
designed to give us investment flexibility while producing competitive yields.
And we will invest more aggressively in short- to intermediate-term bonds
which appear to be undervalued right now.
(PICTURE) Bernard D. Whitsett, II
Portfolio Manager
Money Market Series &
U.S. Treasury Money Market Series
(PICTURE) Barbara L. Kenworthy
Portfolio Manager
Short-Intermediate Term Series
Dividend Adjustment
The monthly dividend to the Government Securities Trust -- Short-Intermediate
Term Series was recently lowered to 4.25 cents per share from 4.75 cents per
share. Hypothetically an investor owning 1,000 shares of the Series will
receive a monthly dividend payment of $42.50 compared to $47.50 -- a
difference of $5. These rates are subject to change again based on market
conditions.
The reasons behind the reduction include changing market conditions, lower
interest rates, plus a change in accounting methodology. You should have
received a letter that explained the dividend adjustment in greater detail.
2
<PAGE>
President's Letter July 1, 1996
(PICTURE)
Dear Shareholder:
Last year, U.S. stocks and bonds generally posted extraordinary returns.
Investors celebrated this performance by putting record amounts of new money
into mutual funds in the first few months of 1996. According to figures
released by the Investment Company Institute, a mutual fund industry trade
group, new investments in mutual funds reached an all-time monthly high of $33
billion in January of 1996. An additional $66 billion was invested in the
following three months.
While we are pleased that mutual funds are attracting new investors, we're
concerned that some of them may be "buying last year's returns." Few expect
1995's virtual non-stop returns from the stock and bond markets. In fact,
1996's markets have been volatile so far (stock and bond prices go down just
as they go up). There's no better time than now to be talking with your
Financial Advisor or Registered Representative. She or he can help you
determine reasonable expectations about both the potential performance and
risks associated with your investments.
Board of Directors Election.
Late this summer, we'll be sending you a notice about a special shareholder
meeting to elect new Prudential mutual fund boards of directors. Your Board of
Directors has approved a proposal to place a common board of experienced
directors across many of Prudential's mutual funds to improve business
efficiency. The materials you'll receive this summer will contain more complete
information about this proposal.
Changes at Prudential.
Finally, there have been some important changes recently at Prudential that
were made with you in mind. Prudential Mutual Funds has moved under the
umbrella of Prudential's newly created "Money Management Group." This group
manages and administers nearly $190 billion in client assets and provides
mutual funds, annuities, defined benefit and defined contribution plans to our
individual and institutional investors. We plan to improve the range and
quality of investment products and services that we can provide you by better
leveraging Prudential's strengths. There will, however, be no change in the
service you receive from your Financial Advisor, Registered Representative or
our Customer Service unit.
We're excited about our future and hope that you are, too. Thank you for your
continued support and confidence in Prudential Mutual Funds.
Sincerely,
Richard A. Redeker
President
3
<PAGE>
Portfolio of Investments as of PRUDENTIAL GOVERNMENT SECURITIES TRUST
May 31, 1996 (Unaudited) MONEY MARKET SERIES
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Federal Farm Credit Bank--6.8%
$1,185 6.07%, 6/3/96 $ 1,185,061
20,000 5.32%, 6/20/96, F.R.N. 19,999,334
12,700 5.19%, 7/9/96 12,630,425
6,000 5.75%, 8/1/96 5,998,324
------------
39,813,144
- ------------------------------------------------------------
Federal Home Loan Bank--5.7%
2,500 5.19%, 6/3/96, F.R.N. 2,499,993
2,000 5.00%, 7/16/96 1,999,822
3,730 7.39%, 8/2/96 3,739,091
2,420 6.125%, 8/5/96 2,424,308
12,000 5.25%, 10/2/96, F.R.N. 11,995,498
2,200 6.875%, 11/18/96 2,216,812
8,500 5.02%, 2/5/97 8,494,217
------------
33,369,741
- ------------------------------------------------------------
Federal Home Loan Mortgage Corporation--1.2%
6,100 5.19%, 7/10/96 6,065,703
910 5.19%, 7/16/96 904,096
------------
6,969,799
- ------------------------------------------------------------
Federal National Mortgage Association--31.6%
9,000 5.71%, 6/10/96 8,999,362
10,000 4.89%, 6/11/96 9,986,417
2,750 5.59%, 6/21/96 2,750,782
2,945 8.00%, 7/10/96 2,952,731
25,000 5.31%, 8/8/96, F.R.N. 24,996,218
2,500 4.949%, 8/15/96 2,499,313
30,000 5.34%, 9/3/96, F.R.N. 29,997,450
14,500 5.565%, 9/27/96, F.R.N. 14,500,000
29,500 5.277%, 10/1/96, F.R.N. 29,493,186
10,000 5.60%, 11/1/96 9,993,541
11,400 5.34%, 11/20/96, F.R.N. 11,396,382
3,000 5.48%, 4/24/97 2,991,682
15,000 5.259%, 4/29/97, F.R.N. 14,985,916
19,750 5.71%, 5/20/97 19,730,609
------------
185,273,589
Student Loan Marketing Association--5.2%
$12,500 6.08%, 7/1/96, F.R.N. $ 12,499,232
18,000 7.56%, 12/9/96 18,183,959
------------
30,683,191
- ------------------------------------------------------------
Tennessee Valley Authority--0.2%
1,000 6.00%, 7/3/96 1,001,797
- ------------------------------------------------------------
United States Treasury Notes--10.7%
20,000 7.875%, 7/31/96 20,091,875
4,000 6.875%, 10/31/96 4,018,582
10,000 6.875%, 2/28/97 10,124,529
10,000 6.625%, 3/31/97 10,108,795
16,000 6.50%, 5/15/97 16,118,798
2,000 6.125%, 5/31/97 2,005,991
------------
62,468,570
- ------------------------------------------------------------
United States Treasury Strip--0.7%
4,500 5.334%, 5/15/97 4,267,990
- ------------------------------------------------------------
Repurchase Agreements(a)--37.7%
16,000 Bear, Stearns & Co., 5.29%, dated
5/28/96, due 6/03/96 in the
amount of $16,014,107 (cost
$16,000,000; the value of the
collateral including accrued
interest is $16,284,901) 16,000,000
30,000 Bear, Stearns & Co., 5.29%, dated
5/29/96, due 6/04/96 in the
amount of $30,026,450 (cost
$30,000,000; the value of the
collateral including accrued
interest is $30,555,750) 30,000,000
2,467 Bear, Stearns & Co., 5.34%, dated
5/30/96, due 6/04/96 in the
amount of $2,468,830 (cost
$2,467,000; the value of the
collateral including accrued
interest is $2,512,785) 2,467,000
</TABLE>
- -------------------------------------------------------------------------------
4 See Notes to Financial Statements.
<PAGE>
<PAGE>
Portfolio of Investments as of PRUDENTIAL GOVERNMENT SECURITIES TRUST
May 31, 1996 (Unaudited) MONEY MARKET SERIES
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Repurchase Agreements(a) (cont'd)
$16,900 Goldman Sachs & Co., 5.30%, dated
5/13/96, due 6/03/96 in the
amount of $16,952,249 (cost
$16,900,000; the value of the
collateral including accrued
interest is $17,238,000) $ 16,900,000
41,000 Goldman Sachs & Co., 5.31%, dated
5/06/96, due 6/05/96 in the
amount of $41,181,425 (cost
$41,000,000; the value of the
collateral including accrued
interest is $41,820,000) 41,000,000
263 Joint Repurchase Agreement Account,
5.32%, 6/03/96 (Note 5) 263,000
40,680 Morgan Stanley & Co., 5.29%, dated
5/28/96, due 6/03/96 in the
amount of $40,715,866 (cost
$40,680,000; the value of the
collateral including accrued
interest is $41,942,893) 40,680,000
16,000 Morgan Stanley & Co., 5.32%, dated
5/28/96, due 6/06/96 in the
amount of $16,021,280 (cost
$16,000,000; the value of the
collateral including accrued
interest is $16,496,713) 16,000,000
2,200 Morgan Stanley & Co., 5.35%, dated
5/31/96, due 6/07/96 in the
amount of $2,202,289 (cost
$2,200,000; the value of the
collateral including accrued
interest is $2,268,298) 2,200,000
$54,882 Smith Barney, Inc., 5.29%, dated
5/29/96, due 6/03/96 in the
amount of $54,922,323 (cost
$54,882,000; the value of the
collateral including accrued
interest is $55,979,640) $ 54,882,000
------------
220,392,000
- ------------------------------------------------------------
Total Investments--99.8%
(amortized cost $584,239,821(b)) 584,239,821
Other assets in excess of
liabilities--0.2% 1,082,374
------------
Net Assets--100% $585,322,195
------------
------------
</TABLE>
- ---------------
F.R.N.--Floating Rate Note. The interest rate reflected is the rate in effect
at May 31, 1996.
(a) Repurchase agreements are collateralized by U.S. Treasury or Federal agency
obligations.
(b) Federal income tax basis of portfolio securities is the same as for
financial statement purposes.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
5
<PAGE>
<PAGE>
Portfolio of Investments as of PRUDENTIAL GOVERNMENT SECURITIES TRUST
May 31, 1996 (Unaudited) SHORT-INTERMEDIATE TERM SERIES
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--85.2%
- ------------------------------------------------------------
Asset-Backed--2.4%
Main Place Funding Corporation
$5,000 5.64359%, 7/17/98, F.R.N. $ 5,003,125
- ------------------------------------------------------------
Federal Home Loan Bank--3.0%
6,010 7.87%, 10/20/04 6,277,626
- ------------------------------------------------------------
Federal Home Loan Mortgage Corporation--15.1%
15,000 6.45%, 6/4/99 14,988,281
10,000 6.71%, 6/11/02 9,790,600
6,371 7.013%, 8/01/24, ARMS 6,506,513
------------
31,285,394
- ------------------------------------------------------------
Federal National Mortgage Association--10.9%
15,000 6.63%, 6/20/05 14,453,850
7,657 9.00%, 4/01/25 7,967,080
------------
22,420,930
- ------------------------------------------------------------
Government National Mortgage Association--19.7%
8,326 9.00%, 6/15/98 - 9/15/09 8,725,768
9,893 8.00%, 6/15/23 - 8/15/25 9,931,286
14,630 7.50%, 10/15/25 - 1/15/26 14,319,921
7,739 6.00%, 7/20/25 - 11/20/25, ARMS 7,710,097
------------
40,687,072
- ------------------------------------------------------------
Resolution Trust Corporation--2.6%
5,288 6.53%, 12/25/20, CMO, Series 1992 5,294,365
- ------------------------------------------------------------
Structured Asset Securities Corporation--2.4%
5,000 6.759%, 2/25/28, CMO, Series 1996 4,875,781
United States Treasury Notes--29.1%
$34,000(a) 7.375%, 11/15/97 $ 34,584,460
15,000(a) 6.25%, 8/31/00 14,798,400
8,000 6.25%, 4/30/01 7,864,960
3,000 6.50%, 8/15/05 2,922,180
------------
60,170,000
------------
Total long-term investments
(cost $178,786,443) 176,014,293
SHORT-TERM INVESTMENTS--12.0%
- ------------------------------------------------------------
United States Treasury Notes--11.7%
8,000(a) 7.50%, 12/31/96 8,087,520
15,700(a) 8.50%, 4/15/97 16,050,738
------------
24,138,258
- ------------------------------------------------------------
Repurchase Agreement--0.3%
619 Joint Repurchase Agreement Account,
5.32%, 6/03/96 (Note 5) 619,000
------------
Total short-term investments
(cost $24,599,150) 24,757,258
------------
- ------------------------------------------------------------
Total Investments--97.2%
(cost $203,385,593; Note 4) 200,771,551
Other assets in excess of
liabilities--2.8% 5,767,722
------------
Net Assets--100% $206,539,273
------------
------------
</TABLE>
- ---------------
(a) Asset segregated for dollar rolls.
ARMS--Adjustable Rate Mortgage Security.
CMO--Collateralized Mortgage Obligation.
F.R.N.--Floating Rate Note. The interest rate reflected is the rate in effect
at May 31, 1996.
- -------------------------------------------------------------------------------
6 See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL GOVERNMENT SECURITIES TRUST
U.S. TREASURY MONEY MARKET SERIES
Portfolio of Investments as of May 31, 1996 (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
United States Treasury Bills--74.0%
$40,000 5.17%, 6/18/96 $ 39,913,833
50,000 5.205%, 6/18/96 49,884,486
5,191 5.01%, 6/20/96 5,177,274
17,919 5.015%, 6/20/96 17,871,572
89,644 5.025%, 6/20/96 89,406,257
2,339 5.03%, 6/20/96 2,332,791
15,683 5.04%, 6/20/96 15,641,961
558 5.05%, 6/20/96 532,611
27,336 5.09%, 6/20/96 27,262,565
------------
248,023,350
- ------------------------------------------------------------
United States Treasury Bond--1.6%
5,411 8.00%, 8/15/96 5,440,429
- ------------------------------------------------------------
United States Treasury Notes--25.4%
550 6.125%, 7/31/96 550,484
3,832 7.875%, 7/31/96 3,849,859
25,000 4.375%, 8/15/96 24,972,969
10,000 6.25%, 8/31/96 10,017,395
5,000 8.00%, 10/15/96 5,047,708
17,000 6.625%, 3/31/97 17,176,713
312 6.875%, 3/31/97 314,896
5,000 6.50%, 4/30/97 5,033,699
15,000 6.875%, 4/30/97 15,152,170
3,000 6.125%, 5/31/97 3,008,986
------------
85,124,879
- ------------------------------------------------------------
Total Investments--101.0%
(amortized cost $338,588,658(a)) 338,588,658
Liabilities in excess of other
assets--(1.0%) (3,368,710)
------------
Net Assets--100% $335,219,948
------------
------------
</TABLE>
- ---------------
(a) Federal income tax basis of portfolio securities is the same as for
financial statement purposes.
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
7
<PAGE>
<PAGE>
Statement of Assets and Liabilities
May 31, 1996 (Unaudited) PRUDENTIAL GOVERNMENT SECURITIES TRUST
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S.
Treasury
Money Short- Money
Market Intermediate Market
Assets
Series Term Series Series
<S>
<C> <C> <C>
------------ ------------ ------------
Investments, at value (cost $584,239,821, $203,385,593 and $338,588,658,
respectively).............................................................
$584,239,821 $200,771,551 $338,588,658
Cash........................................................................
563,898 86,577 61,486
Receivable for investments sold.............................................
5,484,735 15,447,759 115,085,698
Receivable for Series shares sold...........................................
5,565,551 3,820,957 5,087,587
Interest receivable.........................................................
4,801,230 2,183,103 1,083,366
Deferred expenses and other assets..........................................
22,287 4,797 13,612
------------ ------------ ------------
Total assets.............................................................
600,677,522 222,314,744 459,920,407
------------ ------------ ------------
Liabilities
Payable for investments purchased...........................................
7,029,918 14,988,281 89,805,396
Payable for Series shares reacquired........................................
7,293,221 286,556 14,283,842
Dividends payable...........................................................
655,182 305,557 359,120
Due to Manager..............................................................
195,230 69,628 118,599
Due to Distributors.........................................................
34,111 19,550 18,791
Accrued expenses and other liabilities......................................
147,665 105,899 114,711
------------ ------------ ------------
Total liabilities........................................................
15,355,327 15,775,471 104,700,459
------------ ------------ ------------
Net Assets..................................................................
$585,322,195 $206,539,273 $355,219,948
------------ ------------ ------------
------------ ------------ ------------
Net assets were comprised of:
Shares of beneficial interest, at par ($.01 per share)...................
$ 5,853,222 $ 217,993 $ 3,552,199
Paid-in capital in excess of par.........................................
579,468,973 263,210,560 351,667,749
------------ ------------ ------------
585,322,195 263,428,553 355,219,948
Distributions in excess of net investment income.........................
-- (96,509) --
Accumulated net realized losses..........................................
-- (54,178,729) --
Net unrealized depreciation of investments...............................
-- (2,614,042) --
------------ ------------ ------------
Net assets, May 31, 1996....................................................
$585,322,195 $206,539,273 $355,219,948
------------ ------------ ------------
------------ ------------ ------------
Shares of beneficial interest issued and outstanding........................
585,322,195 21,799,292 355,219,948
------------ ------------ ------------
------------ ------------ ------------
Net asset value.............................................................
$9.47 $1.00
------------ ------------
------------ ------------
Class A:
Net asset value, offering price and redemption price per share
($585,321,995 / 585,321,995 shares of common stock issued and
outstanding)..........................................................
$1.00
------------
------------
Class Z:
Net asset value, offering price, and redemption price per share
($200 / 200 shares of common stock issued and outstanding)............
$1.00
------------
------------
</TABLE>
- -------------------------------------------------------------------------------
8 See Notes to Financial Statements.
<PAGE>
<PAGE>
Statement of Operations
Six Months Ended
May 31, 1996 (Unaudited) PRUDENTIAL GOVERNMENT SECURITIES TRUST
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Money Short- U.S. Treasury
Market Intermediate Money
Net Investment Income
Series Term Series Market Series
<S>
<C> <C> <C>
----------- ------------ -------------
Income
Interest.................................................................
$16,800,110 $ 5,915,750 $ 11,567,770
----------- ------------ -------------
Expenses
Management fee...........................................................
1,218,236 420,854 886,218
Distribution fee.........................................................
378,876 209,714 276,943
Transfer agent's fees and expenses.......................................
600,000 162,000 68,000
Reports to shareholders..................................................
202,000 93,000 84,000
Registration fees........................................................
67,000 41,000 35,000
Custodian's fees and expenses............................................
51,000 25,000 29,000
Audit fee................................................................
22,000 19,000 20,000
Trustees' fees...........................................................
6,000 6,000 6,000
Insurance expense........................................................
7,000 3,000 3,000
Legal fees...............................................................
4,000 18,000 4,000
Amortization of deferred organization expenses...........................
-- -- 300
Miscellaneous............................................................
2,001 4,620 1,019
----------- ------------ -------------
Total expenses........................................................
2,558,113 1,002,188 1,413,480
----------- ------------ -------------
Net investment income.......................................................
14,241,997 4,913,562 10,154,290
----------- ------------ -------------
Realized and Unrealized Gain (Loss) on Investments
Net realized gain (loss) on investment transactions.........................
42,458 (344,565) 122,553
Net change in unrealized appreciation/depreciation of investments...........
-- (4,244,365) --
----------- ------------ -------------
Net gain (loss) on investments..............................................
42,458 (4,588,930) 122,553
----------- ------------ -------------
Net Increase in Net Assets Resulting from Operations........................
$14,284,455 $ 324,632 $ 10,276,843
----------- ------------ -------------
----------- ------------ -------------
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
9
<PAGE>
<PAGE>
Statement of Changes in Net Assets
(Unaudited) PRUDENTIAL GOVERNMENT SECURITIES TRUST
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Short-
Money Market
Intermediate
Series
Term Series
---------------------------------
---------------------------------
<S> <C> <C>
<C> <C>
Six Months
Six Months
Ended Year Ended
Ended Year Ended
Increase (Decrease) May 31, November 30,
May 31, November 30,
in Net Assets 1996 1995
1996 1995
-------------- --------------
-------------- --------------
Operations
Net investment income................ $ 14,241,997 $ 30,759,256
$ 4,913,562 $ 12,199,911
Net realized gain (loss) on
investment transactions........... 42,458 39,057
(344,565) 7,255,112
Net change in unrealized
appreciation/
depreciation of investments....... -- --
(4,244,365) 5,231,521
-------------- --------------
-------------- --------------
Net increase in net assets resulting
from operations................... 14,284,455 30,798,313
324,632 24,686,544
-------------- --------------
-------------- --------------
Net equalization debits................. -- --
-- (413,787)
-------------- --------------
-------------- --------------
Dividends and distributions to
shareholders......................... (14,284,455) (30,798,313)
(6,114,957) (11,844,750)
Distributions in excess of net
investment income.................... -- --
(96,509) --
-------------- --------------
-------------- --------------
Total dividends and distributions to
shareholders......................... (14,284,455) (30,798,313)
(6,211,466) (11,844,750)
-------------- --------------
-------------- --------------
Series share transactions(a)
Net proceeds from shares
subscribed........................ 943,113,474 1,668,939,755
26,926,295 40,102,462(b)
Net asset value of shares issued to
shareholders in reinvestment of
dividends and distributions....... 13,547,939 29,404,107
3,919,331 7,611,953
Cost of shares reacquired............ (969,532,801) (1,737,493,726)
(31,415,954) (89,126,093)
-------------- --------------
-------------- --------------
Net increase (decrease) in net assets
from Series share transactions.... (12,871,388) (39,149,864)
(570,328) (41,411,678)
-------------- --------------
-------------- --------------
Total increase (decrease)............... (12,871,388) (39,149,864)
(6,457,162) (28,983,671)
Net Assets
Beginning of period..................... 598,193,583 637,343,447
212,996,435 241,980,107
-------------- --------------
-------------- --------------
End of period........................... $ 585,322,195 $ 598,193,583
$ 206,539,273 $ 212,996,436
-------------- --------------
-------------- --------------
-------------- --------------
-------------- --------------
<CAPTION>
U.S. Treasury
Money Market
Series
---------------------------------
Six Months
Ended Year Ended
Increase (Decrease) May 31, November 30,
in Net Assets 1996 1995
-------------- --------------
<S> <C> <C>
Operations
Net investment income................ $ 10,154,290 $ 17,294,732
Net realized gain (loss) on
investment transactions........... 122,553 251,743
Net change in unrealized
appreciation/
depreciation of investments....... -- --
-------------- --------------
Net increase in net assets resulting
from operations................... 10,276,843 17,546,475
-------------- --------------
Net equalization debits................. -- --
-------------- --------------
Dividends and distributions to
shareholders......................... (10,276,843) (17,546,475)
Distributions in excess of net
investment income.................... -- --
-------------- --------------
Total dividends and distributions to
shareholders......................... (10,276,843) (17,546,475)
-------------- --------------
Series share transactions(a)
Net proceeds from shares
subscribed........................ 2,283,087,047 2,801,540,919
Net asset value of shares issued to
shareholders in reinvestment of
dividends and distributions....... 8,942,284 15,973,007
Cost of shares reacquired............ (2,276,143,717) (2,772,163,839)
-------------- --------------
Net increase (decrease) in net assets
from Series share transactions.... 15,885,614 45,350,087
-------------- --------------
Total increase (decrease)............... 15,885,614 45,350,087
Net Assets
Beginning of period..................... 339,334,334 293,984,247
-------------- --------------
End of period........................... $ 355,219,948 $ 339,334,334
-------------- --------------
-------------- --------------
</TABLE>
- ---------------
(a) At $1.00 per share for the Money Market Series and the U.S. Treasury
Money Market Series.
(b) Includes proceeds of $28,023,926 from the acquisition of the Prudential
Adjustable Rate Securities Fund, Inc.
- -------------------------------------------------------------------------------
10 See Notes to Financial Statements.
<PAGE>
<PAGE>
Notes to Financial Statements
(Unaudited) PRUDENTIAL GOVERNMENT SECURITIES TRUST
- -------------------------------------------------------------------------------
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
Short-Intermediate Term Series (formerly 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 Accounting Policies
The following is a summary of 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.
The Trustees have authorized the use of an independent pricing service to
determine valuations for the Short-Intermediate Term Series. 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 Short-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 Fund amortizes discounts and premiums on
purchases of portfolio securities as adjustments to income.
Effective December 1, 1995, the Short-Intermediate Term Series began accruing
income using the effective interest method which includes amortizing discounts
and premiums on purchases of portfolio securities as adjustments to income. This
method of recording income more closely reflects the economics of holding and
disposing of debt instruments. Prior to December 1, 1995 the Short-Intermediate
Term Series accrued coupon interest income and original issue discount and
accounted for purchased discounts and premiums as capital gains or losses when
realized upon disposition of the associated security. The cumulative effect of
applying this accounting change was to decrease undistributed net investment
income and increase net unrealized appreciation of investments by $989,889. Such
accounting change had no effect on net assets or net asset value per share.
Dollar Rolls: The Short-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 Short-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 Short-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: Effective December 1, 1995, the Short-Intermediate Term Series
discontinued the accounting practice of equalization. Equalization is a practice
whereby a portion of the proceeds from sales and costs of repurchases of capital
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 income.
- --------------------------------------------------------------------------------
11
<PAGE>
<PAGE>
Notes to Financial Statements
(Unaudited) PRUDENTIAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
The balance of $989,889 of undistributed net investment income at November 30,
1995, resulting from equalization was transferred to paid-in capital in excess
of par. Such reclassification had no effect on net assets, results of
operations, or net asset value per share.
Reclassification of Capital Accounts: The Fund accounts and reports for
distributions to shareholders in accordance with A.I.C.P.A. 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 Short-Intermediate Term Series, the effect of applying this
statement was to decrease undistributed net investment income by $989,889 and
increase paid-in capital in excess of par by $989,889. The reduction in
undistributed net investment income was due to the Fund discontinuing the
accounting practice of equalization. Such reclassification had no effect on net
assets, results of operations, or net asset value per share.
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 was deferred and amortized over a period of 60
months ended 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 Short-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
Short-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.
The Fund had a distribution agreement with Prudential Mutual Fund Distributors,
Inc. (``PMFD''), which acted as the distributor of the shares of the Money
Market Series and the U.S. Treasury Money Market Series through January 1, 1996.
Effective January 2, 1996, Prudential Securities Incorporated (``PSI'') assumed
these responsibilities. The Fund compensates the distributors for distributing
and servicing the Class A shares of the Money Market Series and the shares of
the U.S. Treasury Money Market Series, pursuant to plans of distribution,
regardless of expenses actually incurred by them. The distribution fees are
accrued daily and payable monthly at an annual rate of .125% of each of the
series' average daily net assets. The distributors pay various broker-dealers
for account servicing fees and for the expenses incurred by such broker-dealers.
The Fund compensates PSI for its expenses as distributor of the
Short-Intermediate Term Series. The Short-Intermediate Term Series 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 Transactions with Affiliates
Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During the six months ended May 31,
1996, the Fund incurred fees of approximately $590,000, $105,000, and $65,000,
respectively, for the Money Market Series, Short-Intermediate Term Series, and
U.S. Treasury Money Market Series. As of May 31, 1996 approximately $115,000,
$24,000, and $12,000, of
- --------------------------------------------------------------------------------
12
<PAGE>
<PAGE>
Notes to Financial Statements
(Unaudited) PRUDENTIAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
such fees were due to PMFS from the Money Market Series, Short-Intermediate 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 Securities
Purchases and sales of portfolio securities other than short-term investments,
for the Short-Intermediate Term Series for the six months ended May 31, 1996
were $111,892,221 and $105,987,806, respectively.
For the Short-Intermediate Term Series, the cost basis of investments for
federal income tax purposes was approximately the same as for reporting purposes
and, accordingly, as of May 31, 1996, net unrealized depreciation of investments
for federal income tax purposes was $2,614,042 (gross urealized appreciation
$624,527; gross unrealized depreciation--$3,238,569).
For federal income tax purposes, the Short-Intermediate Term Series has a
capital loss carryforward as of November 30, 1995 of approximately $53,834,000
of which $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.
- ------------------------------------------------------------
Note 5. Joint Repurchase Agreement Account
The Fund, along with other affiliated registered investment 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 May 31, 1996, the
Short-Intermediate Term Series and Money Market Series had a .05% and .02%
undivided interest in the repurchase agreements in the joint account,
respectively. This undivided interest represented $619,000 and $263,000 in
principal amount, respectively. As of such date, the repurchase agreements in
the joint account and the value of the collateral therefor were as follows:
Bear, Stearns & Co., 5.32%, in the principal amount of $359,000,000, repurchase
price $359,159,157, due 6/3/96. The value of the collateral including accrued
interest is $367,322,500.
CS First Boston Corp., 5.35%, in the principal amount of $300,000,000,
repurchase price $300,133,750, due 6/3/96. The value of the collateral including
accrued interest is $306,002,116.
Chase Securities, Inc., 5.25%, in the principal amount of $173,690,000,
repurchase price $173,765,989, due 6/3/96. The value of the collateral including
accrued interest is $177,814,913.
Morgan Stanley & Co., 5.27%, in the principal amount of $59,000,000, repurchase
price $59,025,911, due 6/3/96. The value of the collateral including accrued
interest is $60,337,647.
Smith Barney, Inc., 5.33%, in the principal amount of $359,000,000, repurchase
price $359,159,456, due 6/3/96. The value of the collateral including accrued
interest is $366,180,343.
- ------------------------------------------------------------
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 year ended November 30, 1995 and six
months ended May 31, 1996 were as follows:
<TABLE>
<CAPTION>
Six months
ended Year ended
May 31, November 30,
1996 1995
---------- ------------
<S> <C> <C>
Shares sold.................. 2,782,420 4,167,583*
Shares issued in reinvestment
of dividends and
distributions.............. 405,900 809,302
Shares reacquired............ (3,257,889) (9,498,358)
---------- ------------
Net decrease................. (69,569 ) (4,521,473)
---------- ------------
---------- ------------
</TABLE>
* Includes 2,889,065 shares issued for the acquisition of the Prudential
Adjustable Rate Securities Fund, Inc.
Effective March 1, 1996 the Money Market Series commenced offering Class Z
shares. Class Z shares are not subject to any sales charge and are offered
exclusively for sale to the participants of the PSI 401(k) Plan, a defined
contribution plan sponsored by PSI.
Transactions in shares of beneficial interest for the Money Market Series for
the period ended May 31, 1996 were as follows:
<TABLE>
<CAPTION>
Six months
ended
May 31,
Class A 1996
------------------------------------------ -------------
<S> <C>
Shares sold............................... 929,299,975
Shares issued in reinvestment of dividends
and distributions....................... 13,514,024
Shares reacquired......................... (943,228,739)
-------------
Net decrease in shares outstanding before
conversion.............................. (414,740)
Shares reacquired upon conversion into
Class Z................................. (12,456,848)
-------------
Net decrease in shares outstanding........ (12,871,588)
-------------
-------------
</TABLE>
- --------------------------------------------------------------------------------
13
<PAGE>
<PAGE>
Notes to Financial Statements
(Unaudited) PRUDENTIAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 1, 1996
through
Class Z May 31, 1996
- ----------------------------------------- -------------
<S> <C>
Shares sold............................... 1,356,651
Shares issued in reinvestment of dividends
and distributions....................... 33,915
Shares reacquired......................... (13,847,214)
-------------
Net decrease in shares outstanding before
conversion.............................. (12,456,648)
Shares issued upon conversion from Class A 12,456,848
-------------
Net increase in shares outstanding........ 200
-------------
-------------
</TABLE>
- --------------------------------------------------------------------------------
14
<PAGE>
<PAGE>
Financial Highlights (Unaudited) PRUDENTIAL GOVERNMENT SECURITIES TRUST
MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
Class Z
- -------------------------------------------------------------------------------
--------
March 1,
Six Months
1996(c)
Ended Year Ended
November 30, Through
May 31,
- ---------------------------------------------------------------- May 31,
1996 1995 1994
1993 1992 1991 1996
---------- -------- --------
- -------- ---------- ---------- --------
<S> <C> <C> <C> <C>
<C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period....................... $ 1.000 $ 1.000 $ 1.000 $
1.000 $ 1.000 $ 1.000 $ 1.000
Net investment income.......... 0.023 0.052 0.033
0.026 0.035 0.058 0.012
Dividends from net investment
income....................... (0.023) (0.052) (0.033)
(0.026) (0.035) (0.058) (0.012)
---------- -------- --------
- -------- ---------- ---------- --------
Net asset value, end of
period....................... $ 1.000 $ 1.000 $ 1.000 $
1.000 $ 1.000 $ 1.000 $ 1.000
---------- -------- --------
- -------- ---------- ---------- --------
---------- -------- --------
- -------- ---------- ---------- --------
TOTAL RETURN(a):............... 2.37% 5.20% 3.29%
2.62% 3.57% 5.96% 1.21%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)........................ $585,321 $598,194 $637,343
$919,503 $1,026,187 $1,212,836 $ 200(d)
Average net assets (000)....... $606,202 $597,599 $732,867
$950,988 $1,113,759 $1,255,014 $ 5,994
Ratios to average net assets:
Expenses, including
distribution fees........ 0.84%(b) 0.78% 0.77%
0.72% 0.72% 0.65% 0.72%(b)
Expenses, excluding
distribution fees........ 0.72%(b) 0.65% 0.64%
0.59% 0.60% 0.53% 0.72%(b)
Net investment income....... 4.69%(b) 5.15% 3.19%
2.56% 3.42% 5.78% 4.51%(b)
</TABLE>
- ---------------
(a) 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.
(b) Annualized.
(c) Commencement of offering of Class Z shares.
(d) Figure is actual and not rounded to nearest thousand.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
15
<PAGE>
<PAGE>
Financial Highlights (Unaudited) PRUDENTIAL GOVERNMENT SECURITIES TRUST
SHORT-INTERMEDIATE TERM SERIES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
November 30,
May 31,
- ----------------------------------------------------------------
1996 1995 1994
1993 1992 1991
<S> <C> <C> <C> <C>
<C> <C>
---------- -------- --------
- -------- ---------- ----------
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period....................... $ 9.74 $ 9.17 $ 10.06 $
9.97 $ 10.00 $ 9.71
---------- -------- --------
- -------- ---------- ----------
Income from investment
operations
Net investment income.......... 0.23 0.56 0.64
0.69 0.75 0.82
Net realized and unrealized
gain (loss) on investment
transactions................. (0.21) 0.55 (0.89)
0.11 (0.03) 0.31
---------- -------- --------
- -------- ---------- ----------
Total from investment
operations............... 0.02 1.11 (0.25)
0.80 0.72 1.13
---------- -------- --------
- -------- ---------- ----------
Less distributions
Dividends from net investment
income....................... (0.29) (0.54) (0.52)
(0.69) (0.75) (0.84)
Tax return of capital
distribution................. -- -- (0.12)
(0.02) -- --
---------- -------- --------
- -------- ---------- ----------
Total distributions............ (0.29) (0.54) (0.64)
(0.71) (0.75) (0.84)
---------- -------- --------
- -------- ---------- ----------
Net asset value, end of
period....................... $ 9.47 $ 9.74 $ 9.17 $
10.06 $ 9.97 $ 10.00
---------- -------- --------
- -------- ---------- ----------
---------- -------- --------
- -------- ---------- ----------
TOTAL RETURN(a):............... 0.13% 12.37% (2.58)%
8.26% 7.40% 12.19%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)........................ $206,539 $212,996 $241,980
$347,944 $ 303,451 $ 298,086
Average net assets (000)....... $210,427 $209,521 $307,382
$321,538 $ 294,388 $ 301,643
Ratios to average net assets:
Expenses, including
distribution fees........ 0.95%(b) 0.95% 0.84%
0.80% 0.79% 0.79%
Expenses, excluding
distribution fees........ 0.75%(b) 0.75% 0.63%
0.59% 0.58% 0.63%
Net investment income....... 4.67%(b) 4.67% 5.48%
6.80% 7.47% 8.36%
Portfolio turnover rate........ 52% 217% 431%
44% 60% 151%
</TABLE>
- ---------------
(a) 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.
(b) Annualized.
- --------------------------------------------------------------------------------
16 See Notes to Financial Statements.
<PAGE>
<PAGE>
Financial Highlights (Unaudited) PRUDENTIAL GOVERNMENT SECURITIES TRUST
U.S. TREASURY MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 3,
Six Months
1990(d)
Ended Year Ended
November 30, Through
May 31,
- ----------------------------------------------- November 30,
1996 1995 1994
1993 1992 1991
<S> <C> <C> <C> <C>
<C> <C>
---------- -------- --------
- -------- -------- ------------
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period....................... $ 1.000 $ 1.000 $ 1.000 $
1.000 $ 1.000 $ 1.000
Net investment income.......... 0.023 0.050 0.033
0.025 0.034 0.057(c)
Dividends from net investment
income....................... (0.023) (0.050) (0.033)
(0.025) (0.034) (0.057)
---------- -------- --------
- -------- -------- ------------
Net asset value, end of
period....................... $ 1.000 $ 1.000 $ 1.000 $
1.000 $ 1.000 $ 1.000
---------- -------- --------
- -------- -------- ------------
---------- -------- --------
- -------- -------- ------------
TOTAL RETURN(a)................ 2.35% 5.08% 3.31%
2.54% 3.46% 5.84%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)........................ $355,220 $339,334 $293,984
$284,978 $233,600 $288,922
Average net assets (000)....... $443,109 $345,369 $308,454
$273,313 $263,459 $273,203
Ratios to average net assets:
Expenses, including
distribution fees........ 0.63%(b) 0.62% 0.62%
0.66% 0.66% 0.50%(b)/(c)
Expenses, excluding
distribution fees........ 0.51%(b) 0.50% 0.50%
0.53% 0.54% 0.38%(b)/(c)
Net investment income....... 4.57%(b) 5.01% 3.21%
2.49% 3.29% 5.74%(b)/(c)
</TABLE>
- ---------------
(a) 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.
(b) Annualized.
(c) Net of expense subsidy.
(d) Commencement of investment operations.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
17
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
Some mutual fund shareholders won't ever read this -- they don't read annual
and semi-annual reports. It's quite understandable. These annual and
semi-annual reports are prepared to comply with Federal regulations. They are
often written in language that is difficult to understand. So when most people
run into those particularly daunting sections of these reports, they don't read
them.
We think that's a mistake.
At Prudential Mutual Funds, we've made some changes to our report to make it
easier to understand and more pleasant to read, in hopes you'll find it
profitable to spend a few minutes familiarizing yourself with your investment.
Here's what you'll find in the report:
At A Glance
Since an investment's performance is often a shareholder's primary concern, we
present performance information in two different formats. You'll find it first
on the "At A Glance" page where we compare the Fund and the comparable average
calculated by Lipper Analytical Services, a nationally recognized mutual fund
rating agency. We report both the cumulative total returns and the average
annual total returns. The cumulative total return is the total amount of income
and appreciation the Fund has achieved in various time periods. The average
annual total return is an annualized representation of the Fund's
performance -- it generally smoothes out returns and gives you an idea how much
the Fund has earned in an average year, for a given time period. Under the
performance box, you'll see legends that explain the performance information,
whether fees and sales charges have been included in returns, and the inception
dates for the Fund's share classes.
See the performance comparison charts at the back of the report for more
performance information. And keep in mind that past perfor-mance is not
indicative of future results.
Portfolio Manager's Report
The portfolio manager who invests your money for you reports on
successful -- and not-so-successful -- strategies in this section of your
report. Look for recent purchases and sales here, as well as information about
the sectors the portfolio manager favors and any changes that are on the
drawing board.
Portfolio Of Investments
This is where the report begins to look technical, but it's really just a
listing of each security held at the end of the reporting period, along with
valuations and other information. Please note that sometimes we discuss a
security in the Portfolio Manager's Report that doesn't appear in this listing
because it was sold before the close of the reporting period.
<PAGE>
Statement Of Assets And Liabilities
The balance sheet shows the assets (the value of the Fund's holdings),
liabilities (how much the Fund owes) and net assets (the Fund's equity, or
holdings after the Fund pays its debts) as of the end of the reporting period.
It also shows how we calculate the net asset value per share for each class of
shares. The net asset value is reduced by payment of your dividend, capital
gain, or other distribution, but remember that the money or new shares are
being paid or issued to you. The net asset value fluctuates daily along with
the value of every security in the portfolio.
Statement Of Operations
This is the income statement, which details income (mostly interest and
dividends earned) and expenses (including what you pay us to manage your
money). You'll also see capital gains here -- both realized and unrealized.
Statement Of Changes In Net Assets
This schedule shows how income and expenses translate into changes in net
assets. The Fund is required to pay out the bulk of its income to shareholders
every year, and this statement shows you how we do it -- through dividends and
distributions -- and how that affects the net assets. This statement also shows
how money from investors flowed into and out of the Fund.
Notes To Financial Statements
This is the kind of technical material that can intimidate readers, but it does
contain useful information. The Notes provide a brief history and explanation
of your Fund's objectives. In addition, they also outline how Prudential Mutual
Funds prices securities. The Notes also explain who manages and distributes the
Fund's shares, and more importantly, how much they are paid for doing so.
Finally, the Notes explain how many shares are outstanding and the number
issued and redeemed over the period.
Financial Highlights
This information contains many elements from prior pages, but on a per share
basis. It is designed to help you understand how the Fund performed and to
compare this year's performance and expenses to those of prior years.
Independent Auditor's Report
Once a year, an outside auditor looks over our books and certifies that the
information is fairly presented and complies with generally accepted accounting
principles.
Tax Information
This is information which we report annually about how much of your total
return is taxable. Should you have any questions, you may want to consult a
tax advisor.
Performance Comparison
These charts are included in the annual report and are required by the
Securities Exchange Commission. Performance is presented here as a hypothetical
$10,000 investment in the Fund since its inception or for 10 years (whichever
is shorter). To help you put that return in context, we are required to include
the performance of an unmanaged, broad based securities index, as well. The
index does not reflect the cost of buying the securities it contains or the
cost of managing a mutual fund. Of course, the index holdings do not mirror
those of the fund -- the index is a broadly based reference point commonly used
by investors to measure how well they are doing. A definition of the selected
index is also provided. Investors generally cannot invest directly in an index.
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
How many times have you read these letters -- or other financial
materials -- and stumbled across a word that you don't understand?
Many shareholders have run into the same problem. We'd like to help. So we'll
use this space from time to time to explain some of the words you might have
read, but not understood. And if you have a favorite word that no one can
explain to your satisfaction, please write to us.
Basis Point: One 1/100th of 1%. For example, one half of one percentage point
is 50 basis points.
Call Option: A contract giving the holder a right to buy stocks or bonds at a
predetermined price (called the strike price) before a predetermined expiration
date. A buyer of a call option generally expects to benefit from a rise in the
price of the stock or bond.
Capital Gain/Capital Loss: The difference between the cost of a capital asset
(for example, a stock, bond or mutual fund share) and its selling price. Under
current law the federal income tax rate for individuals on a long-term capital
gain is up to 28%.
Collateralized Mortgage Obligations (CMOs): Pools of mortgage-backed securities
sliced in maturity ranges that bear differing interest rates. These instruments
are sensitive to changes in interest rates and homeowner refinancing activity.
They are subject to prepayment and maturity extension risk.
Derivatives: Securities that derive their value from another security. The rate
of return of these financial products rises and falls -- sometimes very
suddenly -- in response to changes in some specific interest rate, currency,
stock or other variable.
Discount Rate: The interest rate charged by the Federal Reserve on loans to
banks and other depository institutions.
Federal Funds Rate: The interest rate charged by one bank to another on
overnight loans.
Futures Contract: An agreement to deliver a specific amount of a commodity or
financial instrument at a set price at a stipulated time in the future.
Leverage: The use of borrowed assets to enhance return on equity. The
expectation is that the interest rate charged will be lower than the return on
the investment. While leverage can increase profits, it can also magnify
losses.
Liquidity: The ease with which a financial instrument (or mutual fund) can be
bought or sold (converted into cash) in the financial markets.
Price/Earnings Ratio: The price of a share of stock divided by the earnings per
share for a 12-month period.
Option: An agreement to sell something, such as shares of stock, by a certain
time for a specified price. An option need not be exercised.
Spread: The difference between two values; most often used to describe the
difference between prices bid and asked for a security.
Yankee Bond: A bond denominated in U.S. dollars but sold by a foreign company
or government in the U.S. market.
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
(800) 225-1852
http:\\www.prudential.com
Trustees
Delayne Dedrick Gold
Arthur Hauspurg
Steven P. Munn
Richard A. Redeker
Louis A. Weil, III
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Eugene S. Stark, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Ronald Amblard, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributor
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
The views expressed in this report and information about the Series' portfolio
holdings are for the period covered by this report and are subject to change
thereafter.
The accompanying financial statements as of May 31, 1996 were not audited and,
accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
(800) 225-1852
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