(ICON)
Prudential
Government
Securities
Trust
- ---------------------------------
Money Market Series
Short-Intermediate Term Series
U.S. Treasury Money Market Series
ANNUAL
REPORT
Nov. 30, 1996
(LOGO)
<PAGE>
Portfolio Managers' Report
Short-term interest rates -- and therefore intermediate-term
bond returns --
seesawed over much of the past 12 months as financial
markets were buffeted by
conflicting news which alternately showed the U.S. economy
strengthening or
weakening. When all was said and done, money market funds
and short- to
intermediate-term bond funds ended the reporting period
posting attractive, if
somewhat lower, returns than a year earlier.
Part of the reason for this fluctuation was that market
opinion about the
course of interest rates changed over the past six months.
When we reported to
you in May, investors were speculating that the Federal
Reserve would soon
raise the Federal Funds rate (what banks charge each other
for overnight loans)
to head-off inflation. Analysts now expect the Federal Funds
rate to remain at
5.25% for most of the first quarter of 1997. Money market
yields, which rose
earlier in the summer, began declining in the fall,
reflecting this change in
market sentiment.
Bonds, which had posted near-record returns in 1995, lost
some of their gains
from February through April as investors started to
anticipate rising inflation
and higher interest rates and sold their positions. Since
late May, however,
bond prices rebounded.
Why the turnaround? Higher inflation never materialized. The
Consumer Price
Index (CPI), excluding volatile food and energy prices,
remained fairly benign
throughout the period. October's CPI, for example, rose only
0.2% for an
inflation rate of less than 3% a year. The economy also
slowed. Gross Domestic
Product (GDP), the total value of goods and services
produced by the nation and
a widely used barometer for economic growth, fell to 2.1% in
the third quarter,
which was less than half of what it was in the second
quarter. With inflation
behaving itself, and the economy slowing, there was no
reason for the Federal
Reserve to raise interest rates.
Money Market Series
The Money Market Series' seven-day current yield on November
30, 1996 was
4.62%, which compares to 4.45% last May and 5.13% of a year
ago. The Series'
yield was lower than the 4.67% returned by the average
government money fund
tracked by IBC Financial Data.
U.S. Treasury Money Market Series
The U.S. Treasury Money Market Series' seven-day current
yield was 4.57% on
November 30, 1996 compared to 4.45% last May and 4.99% of a
year ago. The
Series' yield was lower when compared to 4.62% for similar
U.S. Treasury money
funds measured by IBC Financial Data.
Short-Intermediate Term Series
The Short-Intermediate Term Series' 30-day yield on November
30, 1996 was
5.60%, which finished the reporting period ahead of the
average of 5.28% for
similar funds in the Lipper Analytical Services
short/intermediate U.S.
government fund average.
How Investments Compared.
(As of 11/30/96)
(CHART)
U.S. General General U.S.
Growth Bond Muni Debt Taxable
Funds Funds Funds Money Funds
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.
<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
11/30/96
Money Market Series 4.62% 48 days $1
$552.1 million
IBC Financial Data
Money Fund Average** 4.67 47 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 IBC's
Money Fund Average/U.S. Government Category for the week
ended November 26,
1996.
An investment in the Series is neither insured nor
guaranteed by the U.S.
government and there can be no assurance the Series will be
able to maintain a
stable net asset value of $1 per share.
A Steady Course.
Our strategy changed in tandem with overall market sentiment
since our last
report in May. We've moved from investing in a mixture of
short- (one month
and less) and long-term (12- to 13-month) securities to
investing the majority
of our new assets in shorter term securities.
We favored shorter term securities because longer term
securities no longer
offered much more in the way of yield. As the reporting
period ended, we held
57.9% of your Series in securities of three months or less.
Our weighted
average maturity (WAM) was 48 days on November 30, 1996
compared to 47 days for
the average money fund.
The days of seesawing market opinion appear to be over. We
believe that the
Federal Reserve will probably leave interest rates alone
into early 1997.
Accordingly, we will keep the Series in a neutral position
until it becomes
apparent that the central bank will have to move.
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.
<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
11/30/96
U.S. Treasury Series 4.57% 64 days $1
$305.3 million
IBC Financial Data
100% U.S. Treasury
Money Fund Average** 4.62 61 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
35 funds in the IBC
100% U.S. Treasury Money Fund Average for the week ended
November 26, 1996.
An investment in the Series is neither insured nor
guaranteed by the U.S.
government and there can be no assurance the Series will be
able to maintain a
stable net asset value of $1 per share.
We Were Flexible.
Yields for the U.S. Treasury Series are usually lower than
other money market
funds because all of the securities we hold are backed by
the full faith and
credit of the U.S. government and thus carry less credit
risk.
Like the Money Market Series, our strategy changed over the
past six months.
And we've adopted a more active investment strategy by
investing new assets in
shorter term (three months or less) securities. Overall, the
Series was
considered relatively neutral to slightly long when compared
to the weighted
average maturity (WAM) of the average U.S. Treasury money
market tracked by
IBC. On November 30, 1996, for example, our WAM was 64 days,
compared to 61
days for the average U.S. Treasury money fund.
While we do not believe the Federal Reserve will move rates
anytime soon, we
are positioned to respond quickly should market sentiment
change.
<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.
<TABLE>
<CAPTION>
One Five Ten
Since
Year Years Years
Inception**
<S> <C> <C> <C>
<C>
Cumulative
Total Returns*
As of
11/30/96
Short-Intermediate
Term Series 5.3% 34.1% 93.5%
223.1%
Lipper Short/Intermediate
U.S. Government
Fund Average*** 4.9 33.6 98.9
222.9
</TABLE>
<TABLE>
<CAPTION>
One Five Ten
Since
Year Years Years
Inception**
<S> <C> <C> <C>
<C>
Average
Annual
Total Returns*
As of
12/31/96
Short-Intermediate
Term Series 4.0% 5.5% 6.9%
8.5%
</TABLE>
<TABLE>
<CAPTION>
Dividends & Yields
As of 11/30/96
Total Dividends 30-
Day
Paid for 12 Mos. SEC
Yield
<S> <C>
$0.54
5.60%
</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: 9/13/82.
*** These are the average returns of 89 funds in the
Lipper Short/
Intermediate U.S. Government Fund category for one year, 34
funds for five
years, eight funds for 10 years and two funds since
inception as determined by
Lipper Analytical Services.
Bears Retreat, For Now.
When we last reported to you six months ago, bears were on a
rampage. These
worried investors read signs of a strengthening economy as a
warning of bad
inflationary pressures to come (not to mention higher short-
term interest
rates), and sold their securities, driving prices down and
yields up. The yield
on a five-year Treasury note, for example, rose 130 basis
points (a basis point
is 1/100th of a percentage point) to 6.4% on May 21, 1996
from 5.1% on February
13, 1996. All investors lost some of the capital
appreciation realized from
1995 as yields rose and bond prices fell.
But then the short- to intermediate-term bond market started
to rebound --
thanks to moderating economic growth and continued low
inflation -- forcing the
bears to grudgingly give ground. A flurry of good news
fueled the comeback
including:
- - Moderating Growth. GDP moderated in the third quarter to
2.2% -- down from
the worrisome 3.4% growth rate for the first six months of
the year, which
economists believed could generate higher inflation.
- - Shrinking Federal Deficit. The federal deficit was lower
than projected.
This meant fewer Treasury bonds were sold, increasing demand
for existing
supply and pushing prices up.
- - More Savings. Personal savings, which bottomed at 3.6% of
disposal income in
April, grew to 5.3% by the end of June. This meant consumers
were spending
less, braking the economy.
Thus inflation, a bond investor's worst enemy, remained
fairly benign rising at
an annual rate of about 3%. In addition, the Federal Reserve
kept the Federal
Funds rate at 5.25%, where it has stood since January.
Bottom line: Bond prices
have stabilized and recovered with the yield on a 5-year
Treasury declining 50
basis points to 5.9% on November 19, 1996 compared to 6.4%
on May 21.
As you may recall, we maintained a higher cash position
earlier this year
because we did not believe the returns offered in the two-
to five-year bond
range were attractive enough to offset their interest rate
risk. This tactic
helped us weather the price declines of February through
April. Since May,
however, we actively reinvested our cash position in
attractive issues at the
longer end of the yield curve. Our duration was 2.8 years on
November 30, 1996.
To increase yield we bought federal agencies debt, asset
backed securities, and
mortgage backed securities with higher coupons.
- ------------------------------------------------------------
- -------------------
1
<PAGE>
Looking Ahead.
The seesawing rates in the money market and short- to
intermediate-term bond
markets appear to have steadied for now. We believe the U.S.
economy is on
track for slow, steady and non-inflationary growth into the
first quarter of
1997. If we're right, then the Federal Reserve will have
little reason to raise
- -- or lower -- short-term interest rates. Given this
scenario, our money market
and bond funds will continue to pursue their present
strategies of investing in
attractive securities while maintaining the flexibility to
respond should
interest rates begin to move.
(PHOTO) (PHOTO)
Bernard D. Whitsett, II Barbara L.
Kenworthy
Portfolio Manager Portfolio Manager
Money Market Series & Short-Intermediate
Term Series
U.S. Treasury Money Market Series
- ------------------------------------------------------------
- -------------------
2
<PAGE>
President's Letter
January 1, 1997
(PHOTO)
Dear Shareholder:
For many investors, 1996 may well be the second year of back-
to-back,
double-digit stock market returns. In late November, the Dow
Jones Industrial
Average passed 6500 -- only weeks after breaking the 6000
mark in mid-October.
America's economic expansion is entering its sixth year and
there seems little
evidence of an end to the continued modest growth and low
inflation we've
enjoyed for the last several years.
This is good news. For most investors it's meant an increase
in their share
values for college funds, retirement nest eggs or other long-
term financial
goals. However, as you read your year-end account statements
and make plans for
1997, it's important to remember that there never is a
"sure thing" when it
comes to investment returns. Stock and bond markets go down
just as they go up.
(Did you notice the brief period of decline this past
summer?) No one likes to
see the value of their investments fall but such periods
remind us we must keep
our expectations realistic.
Regardless of the market's direction, a wise investor plans
for tomorrow's
needs today. Your Financial Advisor or Registered
Representative can help
you:
- - Review your portfolio and suggest strategies for 1997,
such as diversifying
across different types of investments. Financial markets
seldom move in
lockstep. By investing in a mix of stock and bond funds
(foreign & domestic)
and money market funds you may be in a better position to
achieve your
long-term goals and to weather periods of uncertainty.
- - See why annuities have become popular retirement planning
tools. The choices
are broader than ever. Our new Discovery SelectSM Variable
Annuity offers you
many of the keys to successful retirement planning,
including a personalized
asset allocation program and a choice of 21 variable- or
fixed-rate
investment options offering a broad array of investment
objectives and
styles.
- - Explain new retirement savings developments. For example,
Congress has
expanded the contribution limit on spousal IRAs. And don't
forget, it's not
too late for you to make a contribution to your IRA or
open one for 1996. The
IRS deadline is April 15, 1997, but it's best to act
sooner.
Why not contact your Financial Advisor or Registered
Representative today? If
you are interested in Discovery SelectSM call for a
prospectus, which contains
more complete information. Read it carefully before you
invest.
Sincerely,
Richard A. Redeker
President
P.S. Your 1997 Prudential IRA contribution may qualify you
for a waiver of the
annual custodial fee. Ask your financial representative for
details.
- ------------------------------------------------------------
- -------------------
3
<PAGE>
Portfolio of Investments as PRUDENTIAL
GOVERNMENT SECURITIES
of November 30, 1996 TRUST MONEY MARKET
SERIES
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
-----------------------------------------------------------
- -
Federal Farm Credit Bank--1.9%
$10,000 5.235%, 3/7/97 $
9,860,400
500 5.40%, 4/1/97
499,601
--------
- ----
10,360,001
- ------------------------------------------------------------
Federal Home Loan Bank--4.6%
8,500 5.02%, 2/5/97
8,498,467
1,000 5.235%, 3/4/97
986,477
6,000 5.325%, 3/18/97
5,999,458
10,000 5.89%, 7/29/97
9,993,065
--------
- ----
25,477,467
- ------------------------------------------------------------
Federal Home Loan Mortgage Corporation--1.7%
9,500 5.33%, 12/2/96
9,498,593
- ------------------------------------------------------------
Federal National Mortgage Association--30.4%
2,000 8.20%, 12/23/96
2,003,266
6,000 5.23%, 1/28/97
5,949,443
6,500 5.23%, 3/27/97
6,390,461
18,000 5.30%, 4/4/97
17,671,400
8,000 5.48%, 4/24/97
7,997,979
15,000 5.205%, 4/29/97, F.R.N.
14,993,679
19,750 5.71%, 5/20/97
19,740,642
49,000 5.36%, 8/1/97, F.R.N.
48,985,773
9,805 5.36%, 8/22/97, F.R.N.
9,800,850
5,000 5.64%, 9/3/97
4,983,665
29,425 5.36%, 11/14/97, F.R.N.
29,410,973
--------
- ----
167,928,131
- ------------------------------------------------------------
Student Loan Marketing Association--3.3%
18,000 7.56%, 12/9/96
18,007,705
- ------------------------------------------------------------
Tennessee Valley Authority--0.2%
1,000 6.00%, 1/15/97
1,000,000
United States Treasury Notes--10.1%
$10,000 6.875%, 2/28/97 $
10,040,747
29,500 6.50%, 5/15/97
29,636,433
2,000 6.125%, 5/31/97
2,002,979
13,910 6.50%, 8/15/97
13,967,985
--------
- ----
55,648,144
- ------------------------------------------------------------
Repurchase Agreements(a)--47.9%
54,367 Bear Stearns & Co., 5.37%, dated
11/26/96, due 12/03/96 in the
amount of $54,423,768 (cost
$54,367,000; the value of the
collateral including accrued
interest is $55,659,688)
54,367,000
25,000 Merrill Lynch, 5.37%, dated
11/26/96, due 12/03/96 in the
amount of $25,026,104 (cost
$25,000,000; the value of the
collateral including accrued
interest is $25,502,384)
25,000,000
8,118 Morgan Stanley & Co., 5.32%, dated
11/25/96, due 12/02/96 in the
amount of $8,126,398 (cost
$8,118,000; the value of the
collateral including accrued
interest is $8,392,804)
8,118,000
26,500 Morgan Stanley & Co., 5.38%, dated
11/27/96, due 12/04/96 in the
amount of $26,527,722 (cost
$26,500,000; the value of the
collateral including accrued
interest is $27,397,057)
26,500,000
500 Morgan Stanley & Co., 5.29%, dated
11/07/96, due 12/06/96 in the
amount of $502,131 (cost
$500,000; the value of the
collateral including accrued
interest is $516,926)
500,000
</TABLE>
- ------------------------------------------------------------
- --------------------
4 See Notes to
Financial Statements.
<PAGE>
Portfolio of Investments as PRUDENTIAL
GOVERNMENT SECURITIES
of November 30, 1996 TRUST MONEY MARKET
SERIES
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
-----------------------------------------------------------
- -
Repurchase Agreements(a) (cont'd.)
$21,000 Morgan Stanley & Co., 5.32%, dated
11/19/96, due 12/12/96 in the
amount of $21,071,377 (cost
$21,000,000; the value of the
collateral including accrued
interest is $21,710,875) $
21,000,000
56,000 Nomura Securities International
Inc., 5.43%, dated 11/27/96, due
12/02/96 in the amount of
$56,042,233 (cost $56,000,000;
the value of the collateral
including accrued interest is
$57,121,929)
56,000,000
5,764 Smith Barney Inc., 5.40%, dated
11/27/96, due 12/04/96 in the
amount of $5,783,021 (cost
$5,764,000; the value of the
collateral including accrued
interest is $5,879,280)
5,764,000
9,000 Smith Barney Inc., 5.32%, dated
11/04/96, due 12/05/96 in the
amount of $9,041,230 (cost
$9,000,000; the value of the
collateral including accrued
interest is $9,180,000)
9,000,000
11,000 Smith Barney Inc., 5.31%, dated
11/12/96, due 12/16/96 in the
amount of $11,055,165 (cost
$11,000,000; the value of the
collateral including accrued
interest is $11,220,000)
11,000,000
13,000 Smith Barney Inc., 5.33%, dated
11/27/96, due 12/30/96 in the
amount of $13,063,516 (cost
$13,000,000; the value of the
collateral including accrued
interest is $13,260,000)
13,000,000
$34,522 UBS Securities Inc., 5.75%, dated
11/29/96, due 12/03/96 in the
amount of $34,544,056 (cost
$34,522,000; the value of the
collateral including accrued
interest is $35,212,622) $
34,522,000
--------
- ----
264,771,000
- ------------------------------------------------------------
Total Investments--100.1%
(amortized cost $552,691,041(b))
552,691,041
Liabilities in excess of other
assets--(0.1%)
(568,298)
--------
- ----
Net Assets--100%
$552,122,743
--------
- ----
--------
- ----
</TABLE>
- ---------------
F.R.N.--Floating Rate Note. The interest rate reflected is
the rate in effect
at November 30, 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 reporting purposes.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements.
5 -----
<PAGE>
Portfolio of Investments as PRUDENTIAL
GOVERNMENT SECURITIES TRUST
of November 30, 1996 SHORT-INTERMEDIATE
TERM SERIES
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--100.7%
- ------------------------------------------------------------
Asset-Backed--13.5%
Daimler Benz Vehicle Trust
$10,000 5.85%, 7/20/03 $
10,003,125
Ford Credit Auto Lease Trust
10,000 5.80%, 5/15/99
10,000,000
Main Place Funding Corporation
5,000 5.585%, 7/17/98, F.R.N.
5,000,000
--------
- ----
25,003,125
- ------------------------------------------------------------
Collateralized Mortgage Obligations--10.2%
GMAC Commercial Mortgage Security
10,088 6.79%, 9/15/03, Series 96
10,138,671
Resolution Trust Corporation
3,732 6.593%, 12/25/20, CMO, Series 1992
3,749,691
Structured Asset Securities Corp.
5,000 6.759%, 2/25/28, CMO, Series 1996
5,040,625
--------
- ----
18,928,987
- ------------------------------------------------------------
Federal Home Loan Mortgage Corporation--11.4%
15,000 6.45%, 6/4/99
15,133,650
5,787 7.831%, 8/1/24, ARMS
5,984,238
--------
- ----
21,117,888
- ------------------------------------------------------------
Federal National Mortgage Association--20.3%
4,242 7.435%, 8/1/06
4,493,627
8,471 7.445%, 8/1/06
8,979,414
8,648 7.50%, 10/1/06
9,185,877
14,500 8.00%, 1/1/99 - 12/01/99
14,949,775
--------
- ----
37,608,693
- ------------------------------------------------------------
Government National Mortgage Association--17.5%
7,422 9.00%, 6/15/98 - 9/15/09
7,775,759
9,541 8.00%, 6/15/23 - 12/15/24
9,916,273
14,493 7.50%, 10/15/25 - 1/15/26
14,712,536
--------
- ----
32,404,568
United States Treasury Notes--27.8%
$11,000(a) 7.375%, 11/15/97 $
11,190,740
20,000(a) 8.25%, 7/15/98
20,828,200
1,000(a) 6.00%, 8/15/99
1,008,280
15,000(a) 6.375%, 9/30/01
15,330,450
3,000(a) 6.50%, 8/15/05
3,091,410
--------
- ----
51,449,080
--------
- ----
Total long-term investments
(cost $184,182,201)
186,512,341
SHORT-TERM INVESTMENTS--6.7%
- ------------------------------------------------------------
Commercial Paper--5.1%
Kerr-McGee Credit Corporation
2,008 5.40%, 12/12/96
2,004,687
Tyson Foods
7,420 5.37%, 12/16/96
7,403,398
--------
- ----
(cost $9,408,085)
9,408,085
--------
- ----
Repurchase Agreement--1.6%
3,030 Joint Repurchase Agreement Account,
5.68%, 12/2/96
(cost $3,030,000; Note 5)
3,030,000
--------
- ----
Total short-term investments
(cost $12,438,085)
12,438,085
--------
- ----
- ------------------------------------------------------------
Total Investments--107.4%
(cost $196,620,286; Note 4)
198,950,426
Liabilities in excess of other
assets--(7.4%)
(13,715,761)
--------
- ----
Net Assets--100%
$185,234,665
--------
- ----
--------
- ----
</TABLE>
- ---------------
(a) Asset segregated for dollar rolls.
ARMS--Adjustable Rate Mortgage Security. The interest rate
reflected is the rate
in effect at November 30, 1996.
CMO--Collateralized Mortgage Obligation.
F.R.N.--Floating Rate Note. The interest rate reflected is
the rate in effect at
November 30, 1996.
- ------------------------------------------------------------
- --------------------
6 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL GOVERNMENT SECURITIES TRUST
U.S. TREASURY MONEY MARKET SERIES
Portfolio of Investments as of November 30, 1996
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
United States Treasury Bills--13.6%
$4,570 5.10%, 12/19/96 $
4,558,347
9,945 5.105%, 12/19/96
9,919,616
6,814 5.11%, 12/19/96
6,796,590
1,755 5.125%, 12/19/96
1,750,503
7,005 5.15%, 12/19/96
6,986,962
2,200 5.19882%, 12/19/96
2,194,281
9,500 5.20%, 12/19/96
9,475,300
--------
- ----
41,681,599
- ------------------------------------------------------------
United States Treasury Notes--96.6%
23,243 7.25%, 11/30/96
23,243,000
193,268 7.50%, 1/31/97
193,946,983
25,000 6.75%, 2/28/97
25,087,742
16,842 6.875%, 2/28/97
16,905,317
33,000 6.625%, 3/31/97
33,144,142
2,510 6.50%, 8/15/97
2,518,131
--------
- ----
294,845,315
- ------------------------------------------------------------
Total Investments--110.2%
(amortized cost $336,526,914(a))
336,526,914
Liabilities in excess of other
assets--(10.2%)
(31,197,337)
--------
- ----
Net Assets--100%
$305,329,577
--------
- ----
--------
- ----
- ---------------
(a) Federal income tax basis of portfolio securities is the
same as for
financial reporting purposes.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements.
7 -----
<PAGE>
Statement of Assets and Liabilities
November 30, 1996 PRUDENTIAL
GOVERNMENT SECURITIES TRUST
- ------------------------------------------------------------
- --------------------
</TABLE>
<TABLE>
<CAPTION>
U.S.
Treasury
Money Short- Money
Market Intermediate Market
Assets
Series Term Series Series
- ------------ ------------ ------------
<S>
<C> <C> <C>
Investments, at value (cost $552,691,041, $196,620,286 and
$336,526,914,
respectively)...............................................
.............. $552,691,041 $198,950,426
$336,526,914
Cash........................................................
................ 1,017,178 --
2,698
Interest
receivable..................................................
....... 2,436,225 1,952,188 6,834,430
Receivable for Series shares
sold...........................................
534,588 11,927 3,117,887
Deferred expenses and other
assets..........................................
13,524 5,011 8,294
- ------------ ------------ ------------
Total
assets......................................................
....... 556,692,556 200,919,552 346,490,223
- ------------ ------------ ------------
Liabilities
Payable for investments
purchased...........................................
- -- 14,904,930 20,316,827
Payable for Series shares
reacquired........................................
3,470,713 259,836 20,282,576
Dividends
payable.....................................................
...... 435,875 237,163 240,640
Due to
Manager.....................................................
......... 182,117 60,970 101,699
Due to
Distributors................................................
......... 30,542 18,400 16,851
Accrued expenses and other
liabilities......................................
450,566 203,588 202,053
- ------------ ------------ ------------
Total
liabilities.................................................
....... 4,569,813 15,684,887 41,160,646
- ------------ ------------ ------------
Net
Assets......................................................
............ $552,122,743 $185,234,665
$305,329,577
- ------------ ------------ ------------
- ------------ ------------ ------------
Net assets were comprised of:
Shares of beneficial interest, at par ($.01 per
share)................... $ 5,521,227 $ 190,951
$ 3,053,296
Paid-in capital in excess of
par......................................... 546,601,516
235,650,778 302,276,281
- ------------ ------------ ------------
552,122,743 235,841,729 305,329,577
Distributions in excess of net investment
income......................... --
(86,689) --
Accumulated net realized
losses..........................................
- -- (52,850,515) --
Net unrealized appreciation of
investments............................... --
2,330,140 --
- ------------ ------------ ------------
Net assets, November 30,
1996...............................................
$552,122,743 $185,234,665 $305,329,577
- ------------ ------------ ------------
- ------------ ------------ ------------
Shares of beneficial interest issued and
outstanding........................ 552,122,743
19,095,120 305,329,577
- ------------ ------------ ------------
- ------------ ------------ ------------
Net asset
value.......................................................
...... $9.70 $1.00
- ------------ ------------
- ------------ ------------
Class A:
Net asset value, offering price and redemption price per
share
($552,122,539 / 552,122,539 shares of common stock
issued and
outstanding)................................................
.......... $1.00
- ------------
- ------------
Class Z:
Net asset value, offering price and redemption price per
share
($204 / 204 shares of common stock issued and
outstanding)............ $1.00
- ------------
- ------------
</TABLE>
- ------------------------------------------------------------
- --------------------
8 See Notes to
Financial Statements.
<PAGE>
Statement of Operations
Year Ended November 30, 1996 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....................................................
............. $32,326,163 $ 13,065,952 $
20,531,847
- ----------- ------------ -------------
Expenses
Management
fee.........................................................
.. 2,362,419 810,455 1,572,239
Distribution
fee.........................................................
736,434 409,005 491,325
Transfer agent's fees and
expenses.......................................
1,220,000 240,000 151,000
Custodian's fees and
expenses............................................
97,000 22,000 69,000
Registration
fees........................................................
129,000 119,000 35,000
Reports to
shareholders................................................
.. 445,000 200,000 145,000
Audit
fee.........................................................
....... 44,000 39,000 40,000
Trustees'
fees........................................................
... 12,000 12,500 12,000
Insurance
expense.....................................................
... 15,300 6,000 5,000
Legal
fees........................................................
....... 8,000 21,000 7,000
Amortization of deferred organization
expenses........................... --
- -- 300
Miscellaneous...............................................
............. 5,027 9,915
7,717
- ----------- ------------ -------------
Total
expenses....................................................
.... 5,074,180 1,888,875 2,535,581
- ----------- ------------ -------------
Net investment
income......................................................
. 27,251,983 11,177,077 17,996,266
- ----------- ------------ -------------
Realized and Unrealized Gain (Loss) on Investments
Net realized gain (loss) on investment
transactions......................... 82,865
(1,939,815) 231,117
Net change in unrealized appreciation of
investments........................ --
699,817 --
- ----------- ------------ -------------
Net gain (loss) on
investments..............................................
82,865 (1,239,998) 231,117
- ----------- ------------ -------------
Net Increase in Net Assets Resulting from
Operations........................ $27,334,848 $
9,937,079 $ 18,227,383
- ----------- ------------ -------------
- ----------- ------------ -------------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements.
9 -----
<PAGE>
Statement of Changes in Net Assets PRUDENTIAL
GOVERNMENT SECURITIES TRUST
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Short- U.S. Treasury
Money Market
Intermediate Money Market
Series
Term Series Series
---------------------------
- ---- --------------------------- ----------------------
- ---------
Year ended November 30,
Increase (Decrease) ---------------------------
- ------------------------------------------------------------
- ---------
in Net Assets 1996 1995
1996 1995 1996 1995
-------------- ----------
- ---- ------------ ------------ -------------- -----
- ---------
<S> <C> <C>
<C> <C> <C> <C>
Operations
Net investment income....... $ 27,251,983 $
30,759,256 $ 11,177,077 $ 12,199,911 $ 17,996,266
$ 17,294,732
Net realized gain (loss) on
investment
transactions............. 82,865
39,057 (1,939,815) 7,255,112 231,117
251,743
Net change in unrealized
appreciation/depreciation
of investments........... --
- -- 699,817 5,231,521 --
- --
-------------- ----------
- ---- ------------ ------------ -------------- -----
- ---------
Net increase in net assets
resulting from
operations............... 27,334,848
30,798,313 9,937,079 24,686,544 18,227,383
17,546,475
-------------- ----------
- ---- ------------ ------------ -------------- -----
- ---------
Net equalization debits........ --
- -- -- (413,787) --
- --
-------------- ----------
- ---- ------------ ------------ -------------- -----
- ---------
Dividends and distributions to
shareholders:
Dividends to shareholders... (27,334,848)
(30,798,313) (11,380,459) (11,844,750) (18,227,383)
(17,546,475)
-------------- ----------
- ---- ------------ ------------ -------------- -----
- ---------
Series share transactions(a)
Net proceeds from shares
subscribed............... 1,688,126,619
1,668,939,755 38,324,541 40,102,462(b)
3,788,052,358 2,801,540,919
Net asset value of shares
issued to shareholders in
reinvestment of dividends
and distributions........ 26,320,285
29,404,107 7,194,984 7,611,953 16,677,439
15,973,007
Cost of shares reacquired... (1,760,517,744)
(1,737,493,726) (71,837,916) (89,126,093)
(3,838,734,554) (2,772,163,839)
-------------- ----------
- ---- ------------ ------------ -------------- -----
- ---------
Net increase (decrease) in
net assets from Series
share transactions....... (46,070,840)
(39,149,864) (26,318,391) (41,411,678) (34,004,757)
45,350,087
-------------- ----------
- ---- ------------ ------------ -------------- -----
- ---------
Total increase (decrease)...... (46,070,840)
(39,149,864) (27,761,771) (28,983,671) (34,004,757)
45,350,087
Net Assets
Beginning of year.............. 598,193,583
637,343,447 212,996,436 241,980,107 339,334,334
293,984,247
-------------- ----------
- ---- ------------ ------------ -------------- -----
- ---------
End of year.................... $ 552,122,743 $
598,193,583 $185,234,665 $212,996,436 $ 305,329,577
$ 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>
Notes to Financial Statements 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 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.
For the Short-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 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 $797,340. 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. There were no dollar
rolls outstanding
as of November 30, 1996.
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. The balance of
$1,277,251 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
- ------------------------------------------------------------
- --------------------
11 -----
<PAGE>
Notes to Financial Statements PRUDENTIAL
GOVERNMENT SECURITIES TRUST
- ------------------------------------------------------------
- --------------------
effect of applying this statement (including the effect of
accounting changes)
was to decrease undistributed net investment income by
$2,074,591, ($1,277,251
representing discontinuation of the accounting practice of
equalization and
$797,340 representing a cumulative adjustment for amortizing
discounts and
premiums on purchases of portfolio securities as adjustments
to income),
decrease accumulated net realized losses by $2,923,464
($11,425,628 of which
represents expiration of a portion of the capital loss
carryforward offset by
$8,502,164 of additional accumulated net realized capital
losses resulting from
the acquisition of Prudential Adjustable Rate Securities
Fund, Inc.), decrease
paid-in capital in excess of par by $1,646,213 and increase
unrealized
appreciation by $797,340.
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 LLC
(``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 each of the Series' shares, 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 also 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 year
ended November 30,
1996, the Fund incurred fees of approximately $1,060,000,
$200,000, and
$128,000, respectively, for the Money Market Series, Short-
Intermediate Term
Series, and U.S. Treasury Money Market Series. Transfer
agent fees and expenses
in the Statement of Operations includes certain out-of-
pocket expenses paid to
non-affiliates.
- ------------------------------------------------------------
- --------------------
12
<PAGE>
Notes to Financial Statements PRUDENTIAL
GOVERNMENT SECURITIES TRUST
- ------------------------------------------------------------
- --------------------
Note 4. Portfolio Securities
Purchases and sales of portfolio securities other than short-
term investments,
for the Short-Intermediate Term Series for the year ended
November 30, 1996 were
$260,921,363 and $267,876,070, respectively.
For the Short-Intermediate Term Series, the cost basis of
investments for
federal income tax purposes was 196,626,252 and,
accordingly, as of November 30,
1996, net unrealized appreciation of investments for federal
income tax purposes
was $2,324,174 (gross unrealized appreciation $2,510,363;
gross unrealized
depreciation--$186,189).
For federal income tax purposes, the Short-Intermediate Term
Series has a
capital loss carryforward as of November 30, 1996 of
approximately $52,844,000
of which $19,180,000 expires in 1997, $6,864,000 expires in
1998, $4,746,000
expires in 1999, $3,422,000 expires in 2001, $16,699,000
expires in 2002 and
$1,933,000 expires in 2003. Accordingly, no capital gains
distribution is
expected to be paid to shareholders until net gains have
been realized in excess
of such carryforward. During the fiscal year ended November
30, 1996,
approximately $11,426,000 of the capital loss carryforward
expired unused.
- ------------------------------------------------------------
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
November 30, 1996, the
Short-Intermediate Term Series had a 0.35% undivided
interest in the repurchase
agreements in the joint account. This undivided interest
represented $3,030,000
in principal amount. As of such date, the repurchase
agreements in the joint
account and the value of the collateral therefor were as
follows:
Bear, Stearns & Co., 5.68%, in the principal amount of
$280,000,000, repurchase
price $280,132,533, due 12/2/96. The value of the collateral
including accrued
interest was $285,853,687.
CS First Boston Corp., 5.68%, in the principal amount of
$280,000,000,
repurchase price $280,132,533, due 12/2/96. The value of the
collateral
including accrued interest was $290,562,688.
J.P. Morgan Securities, Inc., 5.65%, in the principal amount
of $34,809,000,
repurchase price $34,825,389, due 12/2/96. The value of the
collateral including
accrued interest was $35,526,121.
Smith Barney, Inc., 5.68%, in the principal amount of
$280,000,000, repurchase
price $280,132,533, due 12/2/96. The value of the collateral
including accrued
interest was $286,599,817.
- ------------------------------------------------------------
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
Short-Intermediate Term Series for the fiscal years ended
November 30, 1995 and
1996 were as follows:
<TABLE>
<CAPTION>
Year ended November 30,
-------------------------
- --
1996 1995
----------- ----------
- --
<S> <C> <C>
Shares sold.................. 3,978,671
4,167,583*
Shares issued in reinvestment
of dividends and
distributions.............. 749,149
809,302
Shares reacquired............ (7,501,561 )
(9,498,358)
----------- ----------
- --
Net decrease................. (2,773,741 )
(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 or
redemption charge and are
offered exclusively for sale to a limited group of
investors.
Transactions in shares of beneficial interest for the Money
Market Series for
the period ended November 30, 1996 were as follows:
<TABLE>
<CAPTION>
Year ended
November
30,
1996
------------
- ---
<S> <C>
Class A
- ----------------------------------------------
Shares sold...................................
1,686,769,968
Shares issued in reinvestment of dividends and
distributions...............................
26,286,366
Shares reacquired.............................
(1,746,670,530)
------------
- ---
Net decrease in shares outstanding before
conversion..................................
(33,614,196)
Shares reacquired upon conversion into
Class Z.....................................
(12,456,848)
------------
- ---
Net decrease in shares outstanding............
(46,071,044)
------------
- ---
------------
- ---
</TABLE>
- ------------------------------------------------------------
- --------------------
13 -----
<PAGE>
Notes to Financial Statements PRUDENTIAL
GOVERNMENT SECURITIES TRUST
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
March 1,
1996
through
November
30,
1996
------------
- ---
Class Z
- ----------------------------------------------
<S> <C>
Shares sold...................................
1,356,651
Shares issued in reinvestment of dividends and
distributions...............................
33,919
Shares reacquired.............................
(13,847,214)
------------
- ---
Net decrease in shares outstanding before
conversion..................................
(12,456,644)
Shares issued upon conversion from Class A....
12,456,848
------------
- ---
Net increase in shares outstanding............
204
------------
- ---
------------
- ---
</TABLE>
- ------------------------------------------------------------
- --------------------
14
<PAGE>
PRUDENTIAL GOVERNMENT
SECURITIES TRUST
Financial Highlights MONEY MARKET SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class Z
Class A ---------------
-------------------------
- ------------------------------------- March 1,
1996(b)
Year
Ended November 30, Through
-------------------------
- ------------------------------------- November 30,
1996 1995
1994 1993 1992 1996
<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.......... 0.046 0.052
0.033 0.026 0.035 0.038
Dividends from net investment
income....................... (0.046) (0.052)
(0.033) (0.026) (0.035) (0.038)
-------- --------
- -------- -------- ---------- ---------------
Net asset value, end of
period....................... $ 1.000 $ 1.000
$ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- --------
- -------- -------- ---------- ---------------
-------- --------
- -------- -------- ---------- ---------------
TOTAL RETURN(a):............... 4.74% 5.20%
3.29% 2.62% 3.57% 3.87%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)........................ $552,123 $598,194
$637,343 $919,503 $1,026,187 $ 204(c)
Average net assets (000)....... $589,147 $597,599
$732,867 $950,988 $1,113,759 $ 1,962
Ratios to average net assets:
Expenses, including
distribution fees........ 0.86% 0.78%
0.77% 0.72% 0.72% 0.68%(d)
Expenses, excluding
distribution fees........ 0.73% 0.65%
0.64% 0.59% 0.60% 0.68%(d)
Net investment income....... 4.63% 5.15%
3.19% 2.56% 3.42% 4.68%(d)
</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) Commencement of offering of Class Z shares.
(c) Figure is actual and not rounded to nearest thousand.
(d) Annualized.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements.
15 -----
<PAGE>
PRUDENTIAL GOVERNMENT
SECURITIES TRUST
Financial Highlights SHORT-INTERMEDIATE TERM
SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Year
Ended November 30,
-------------------------
- -------------------------------------
1996 1995
1994 1993 1992
-------- --------
- -------- -------- ----------
<S> <C> <C>
<C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
year........................ $ 9.74 $ 9.17
$ 10.06 $ 9.97 $ 10.00
-------- --------
- -------- -------- ----------
Income from investment
operations
Net investment income.......... 0.51 0.56
0.64 0.69 0.75
Net realized and unrealized
gain (loss) on investment
transactions................ (0.01) 0.55
(0.89) 0.11 (0.03)
-------- --------
- -------- -------- ----------
Total from investment
operations............... 0.50 1.11
(0.25) 0.80 0.72
-------- --------
- -------- -------- ----------
Less distributions
Dividends from net investment
income...................... (0.54) (0.54)
(0.52) (0.69) (0.75)
Tax return of capital
distribution................ -- --
(0.12) (0.02) --
-------- --------
- -------- -------- ----------
Total distributions............ (0.54) (0.54)
(0.64) (0.71) (0.75)
-------- --------
- -------- -------- ----------
Net asset value, end of year... $ 9.70 $ 9.74
$ 9.17 $ 10.06 $ 9.97
-------- --------
- -------- -------- ----------
-------- --------
- -------- -------- ----------
TOTAL RETURN(a):............... 5.34% 12.37%
(2.58)% 8.26% 7.40%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000)....................... $185,235 $212,996
$241,980 $347,944 $ 303,451
Average net assets (000)....... $186,567 $209,521
$307,382 $321,538 $ 294,388
Ratios to average net assets:
Expenses, including
distribution fees........ 1.01% 0.95%
0.84% 0.80% 0.79%
Expenses, excluding
distribution fees........ 0.79% 0.75%
0.63% 0.59% 0.58%
Net investment income....... 5.99% 5.82%
5.48% 6.80% 7.47%
Portfolio turnover rate........ 132% 217%
431% 44% 60%
</TABLE>
- ---------------
(a) 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.
- ------------------------------------------------------------
- --------------------
16 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL GOVERNMENT
SECURITIES TRUST
Financial Highlights U.S. TREASURY MONEY
MARKET SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Year
Ended November 30,
-------------------------
- -----------------------------------
1996 1995
1994 1993 1992
-------- --------
- -------- -------- --------
<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.......... 0.046 0.050
0.033 0.025 0.034
Dividends from net investment
income....................... (0.046) (0.050)
(0.033) (0.025) (0.034)
-------- --------
- -------- -------- --------
Net asset value, end of year... $ 1.000 $ 1.000
$ 1.000 $ 1.000 $ 1.000
-------- --------
- -------- -------- --------
-------- --------
- -------- -------- --------
TOTAL RETURN(a)................ 4.75% 5.08%
3.31% 2.54% 3.46%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000)........................ $305,330 $339,334
$293,984 $284,978 $233,600
Average net assets (000)....... $393,060 $345,369
$308,454 $273,313 $263,459
Ratios to average net assets:
Expenses, including
distribution fees........ 0.63% 0.62%
0.62% 0.66% 0.66%
Expenses, excluding
distribution fees........ 0.51% 0.50%
0.50% 0.53% 0.54%
Net investment income....... 4.57% 5.01%
3.21% 2.49% 3.29%
</TABLE>
- ---------------
(a) 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.
17 -----
<PAGE>
Report of Independent Accountants PRUDENTIAL
GOVERNMENT SECURITIES TRUST
- ------------------------------------------------------------
- --------------------
To the Shareholders and Trustees of
Prudential Government Securities Trust:
In our opinion, the accompanying statement of assets and
liabilities, including
the portfolios 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,
Short-Intermediate Term Series and U.S. Treasury Money
Market Series
(constituting Prudential Government Securities Trust,
hereafter referred to as
the ``Fund'') at November 30, 1996, 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 five
years in the period then ended, 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, 1996 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 24, 1997
- ------------------------------------------------------------
- --------------------
18
<PAGE>
Important Notice for
Certain Shareholders PRUDENTIAL
GOVERNMENT SECURITIES TRUST
- ------------------------------------------------------------
- --------------------
We are required by New York, California, Massachusetts,
Missouri 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 states'
taxing authorities. We
are pleased to report that 25% of the dividends paid by the
Money Market
Series*, 39% of the dividends paid by the Short-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, 1996, you will
be advised as to the federal tax status of the dividends you
received in
calendar 1996.
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,
Connecticut, New Jersey and New York, residents of those
states will not be able
to exclude interest on federal obligations from state and
local tax.
- ------------------------------------------------------------
- --------------------
19 -----
<PAGE>
Supplemental Proxy Information PRUDENTIAL
GOVERNMENT SECURITIES TRUST
- ------------------------------------------------------------
- --------------------
The Annual Meeting of Shareholders of the Prudential
Government Securities
Trust was held on October 30, 1996 at the offices of
Prudential Securities
Incorporated, One Seaport Plaza, New York, New York. The
meeting was held for
the following purposes:
<TABLE>
<S> <C>
(1) To elect the following twelve Trustees:
- Edward D. Beach
- Eugene C. Dorsey
- Delayne Dedrick Gold
- Robert F. Gunia
- Harry A. Jacobs, Jr.
- Donald D. Lennox
- Mendel A. Melzer
- Thomas T. Mooney
- Thomas H. O'Brien
- Richard A. Redeker
- Nancy H. Teeters
- Louis A. Weil, III
(2) To ratify the selection by the Trustees of
Price Waterhouse LLP as independent accountants
for the fiscal year ending November 30, 1996.
(3) To consider and act upon any other business as
may properly come before the Annual Meeting
or any adjournment thereof.
</TABLE>
The results of the proxy solicitation on the above
matters were as follows:
<TABLE>
<CAPTION>
Trustee/Auditor Votes for
Votes against Votes withheld Abstentions
--------------------- ------------
- -------------- --------------- ------------
<S> <C> <C>
<C> <C> <C>
(1) Edward D. Beach 819,618,690
- -- 10,910,309 --
Eugene C. Dorsey 819,857,069
- -- 10,671,930 --
Delayne Dedrick Gold 819,850,177
- -- 10,678,822 --
Robert F. Gunia 820,076,407
- -- 10,452,592 --
Harry A. Jacobs, Jr. 819,644,345
- -- 10,884,654 --
Donald D. Lennox 819,099,608
- -- 11,429,391 --
Mendel A. Melzer 819,898,513
- -- 10,630,486 --
Thomas T. Mooney 820,018,906
- -- 10,510,093 --
Thomas H. O'Brien 819,616,848
- -- 10,912,151 --
Richard A. Redeker 819,918,621
- -- 10,610,378 --
Nancy H. Teeters 819,997,034
- -- 10,531,965 --
Louis A. Weil, III 819,872,026
- -- 10,656,973 --
(2) Price Waterhouse LLP 818,409,971
3,492,806 -- 8,626,222
(3) There was no other business voted upon at the
Annual Meeting of Shareholders.
</TABLE>
- ------------------------------------------------------------
- --------------------20
<PAGE>
Comparing A $10,000 Investment.
Prudential Government Securities Trust:
Short-Intermediate Term Series vs. the Lehman
Brothers Intermediate Gov't Bond Index.
// Prudential Gov't Sec Trust: Short-Intermediate Term
Series
- - Lehman Bros. Inter. Gov't Bond Index
Average Annual
Total Returns
Without Sales Load
8.6% Since Inception
6.8% for 10 Years
6.0% for 5 Years
5.3% for 1 Year
Best Year: 1986
(CHART)
Worst Year: 1994
(GRAPH)
Past performance is not indicative of future results.
Investment return and
principal value will fluctuate so an investor's shares, when
redeemed, may be
worth more or less than their original cost. The chart above
the graph is
designed to give you an idea how much the Series' returns
can fluctuate from
year to year by measuring the best and worst years in terms
of total annual
return since inception of the Series.
This graph is furnished to you in accordance with SEC
regulations. It compares
a $10,000 investment in the Prudential Government Securities
Trust:
Short-Intermediate Term Series with a similar investment in
the Lehman Brothers
Intermediate Government Bond Index by portraying the account
value for 10
years, and subsequent account value at the end of this
reporting period
(November 30), as measured on a quarterly basis, beginning
in 1986. For
purposes of the graph, and unless otherwise indicated, in
the accompanying
table it has been assumed all recurring fees (including
management fees) were
deducted; and all dividends and distributions were
reinvested.
The Index is a weighted index comprised of securities issued
or backed by the
U.S. government, its agencies and instrumentalities with a
remaining maturity
of one to 10 years. The index is unmanaged and includes the
reinvestment of all
dividends, but does not reflect the payment of transactions
costs and advisory
fees associated with an investment in the Series. The
securities that comprise
the Index may differ substantially from the securities in
the Series'
portfolio. The Index is not the only one that may be used to
characterize
performance of short-intermediate U.S. government bond funds
and other indexes
may portray different comparative performance.
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
(LOGO)
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Robert F. Gunia
Harry A. Jacobs, Jr.
Donald D. Lennox
Mendel A. Melzer
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
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
Deborah Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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 LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Auditors
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
Fund's portfolio
holdings are for the period covered by this report and are
subject to change
thereafter.
This report is not authorized for distribution to
prospective investors unless
preceded or accompanied by a current prospectus.
744342106 MF100E
744342205 Cat. #444437V
744342304
744342106
