(ICON)
Prudential
Government
Securities
Trust
- -----------------------
Money Market Series
Short-Intermediate
Term Series
U.S. Treasury Money
Market Series
SEMI
ANNUAL
REPORT
May 31, 1998
(LOGO)
<PAGE>
Portfolio Managers' Report
There were several shifts in bond market sentiment during the past six
months -- belief that the Federal Reserve was about to lower the federal funds
rate (what banks charge each other for overnight loans) was replaced by
expectations that short-term interest rates were either headed higher or would
remain unchanged. U.S. debt markets rallied, however, as inflation remained
tame even though domestic economic growth did not slow as much as expected due
to the Asian financial crisis.
With formerly prosperous Asian countries such as Indonesia and South Korea
embroiled in economic turmoil, U.S. economic growth was expected to slow as
exports to Asia declined while cheaply priced Asian imports flooded U.S.
markets. But the U.S. economy grew more rapidly in the first three months of
1998 than in the final quarter of 1997, primarily because companies spent
heavily to build up their inventories. Many analysts believed that probably
the last thing the economy needed was a federal funds rate cut.
Short- and intermediate-term interest rates fluctuated sharply over the past
six months, reflecting developments in Asia and the changing U.S. economic
outlook. In mid-January, investors who were worried about the failure of Hong
Kong's largest investment bank purchased U.S. Treasury securities, sending
one-year Treasury bill yields plunging to 5.07%, the lowest level of the
reporting period. (As you know, yields fall when prices rise and vice versa.)
By early March, however, that yield hovered above 5.40% as the U.S. economy
was stronger than expected and investors realized the Federal Reserve was not
about to lower the key short-term interest rate.
Money Market Series
Class A shares' seven-day current yield was 4.76% and Class Z shares' was
4.89% on June 2, 1998, which was competitive with the 4.90% provided by the
average U.S. government money market fund, as tracked by IBC Financial Data.
We held a mix of short-term and longer-term government money market securities
that allowed us to lock in attractive yields on one-year debt and still have
ample cash on hand to take advantage of new buying opportunities.
U.S. Treasury Money Market Series
Class A shares' seven-day current yield was 4.33% and Class Z shares' was 4.88%
on June 2, 1998, compared to 4.62% for the average U.S. Treasury money fund, as
measured by IBC Financial Data. As the Treasury temporarily needed more cash
for the upcoming tax season, it issued cash management bills with attractive
yields. These securities helped to bolster your return.
Short-Intermediate Term Series
Class A shares' 30-day SEC yield was 5.25% and Class Z shares' was 5.44% on
May 31, 1998, compared to 5.12% for similar funds, as tracked by Lipper
Analytical Services. Solid gains in the prices of U.S. Treasury securities and
reducing prepayment risk on mortgage-backed securities helped bolster the
Series' yields.
How Investments Compared.
(As of 5/31/98)
(GRAPH)
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 returns 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.
U.S. Taxable Money 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 by investing principally in a diversified portfolio
of short-term money market instruments issued or guaranteed by the U.S.
government, its agencies or instrumentalities. There can be no assurance that
the Series will achieve its investment objective.
Performance
As of
5/31/98
<TABLE>
<CAPTION>
7-Day Net Asset Weighted Net
Current Value Avg. Mat. Assets
Yld* (NAV) (WAM) (Mil.)
<S> <C> <C> <C> <C>
Class A 4.76% $1 76 Days $555
Class Z 4.89% $1 76 Days $ 19
IBC Financial Data
Money Fund Average** 4.90% $1 50 Days N/A
</TABLE>
*Yields will fluctuate from time to time and past performance is not
indicative of future results. 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.
**IBC Financial Data reports a seven-day current yield, NAV, and WAM on
Tuesdays. This is the data of all funds in IBC's Money Fund Average as of June
2, 1998, which was the closest date to the end of our reporting period.
The Long and
Short Of It.
Owning a mixture of shorter term and longer term government money market
securities worked well as the outlook for U.S. monetary policy changed.
Short-term securities allowed us quick access to cash to buy any higher
yielding debt that would become available if the federal funds rate was
increased. For example, floating-rate securities with coupons that reset on a
weekly basis comprised 25% to 30% of total investments. These securities
provided attractive yields compared to repurchase agreements, a type of
collateralized loan that became increasingly expensive over the reporting
period. In fact, we reduced our investment in repurchase agreements in favor of
floating-rate securities.
The best opportunity to buy longer term government money market securities
occurred from late February through April when investors repeatedly pushed
money market yields higher. Yields rose in late February after Federal
Reserve Chairman Alan Greenspan hinted that a federal funds rate cut was not
imminent. Government reports showing a strong job market, solid home sales, and
similar data also caused yields to climb. When yields jumped, we purchased
one-year federal government agency securities, which kept the Series' weighted
average maturity longer than its competition.
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U.S. Treasury
Money Market
Series
The U.S. Treasury Money Market Series seeks high current income consistent
with the preservation of principal and liquidity by investing exclusively in
U.S. Treasury obligations which have maturities of 13 months or less. There
can be no assurance that the Series will achieve its investment objective.
Performance
As of
5/31/98
<TABLE>
<CAPTION>
7-Day Net Asset Weighted Net
Current Value Avg. Mat. Assets
Yld* (NAV) (WAM) (Mil.)
<S> <C> <C> <C> <C>
Class A 4.33% $1 76 Days $354
Class Z 4.88% $1 76 Days ***
IBC Financial Data
100% U.S. Treasury
Money Fund Average** 4.62% $1 72 Days N/A
</TABLE>
*Yields will fluctuate from time to time and past performance is not
indicative of future results. 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.
**IBC Financial Data reports a seven-day current yield, NAV, and WAM on
Tuesdays. This is the data of all funds in the IBC 100% U.S. Treasury Money
Fund Average as of June 2, 1998, which was the closest date to the end of our
reporting period.
***Actual amount: $208.
Quick On Our Feet.
The Series experienced the usual heavy volume of redemptions in January as
shareholders withdrew cash to pay seasonal expenditures. Anticipating this
outflow, we had purchased attractively priced cash management bills in
December that we sold at a profit in 1998 to meet the redemptions. The U.S.
Treasury sells cash management bills when it needs funds temporarily. In
preparation for the upcoming tax season, it issued a flood of these bills at
generous yields in March. We quickly took advantage of this excellent buying
opportunity.
Treasury bills became rather expensive as fewer were issued, so we purchased
Treasury notes maturing in three to six months, which offered higher yields.
<PAGE>
Short-Intermediate
Term Series
The Short-Intermediate Term Series seeks to achieve a high level of income
consistent with providing reasonable safety by investing at least 65% of its
total assets in securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities. As much as 35% of the Series' assets may be
invested in mortgage-backed or asset-backed securities as well as corporate
debt. There can be no assurance that the Series will achieve its investment
objective.
Cumulative Total Returns1 As of 5/31/98
<TABLE>
<CAPTION>
Six One Five Ten Since
Months Year Years Years Inception2
<S> <C> <C> <C> <C> <C>
Class A 2.70% 7.19% 29.19% 100.20% 251.60%
Class Z 2.90 7.72 N/A N/A 8.77
Lipper Short-Intermediate
U.S. Government
Fund Average3 3.10 7.33 28.69 104.26 ***
</TABLE>
Average Annual Total Returns1 As of 6/30/98
<TABLE>
<CAPTION>
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A 6.65% 5.04% 7.07% 8.32%
Class Z 7.18 N/A N/A 6.78
</TABLE>
Distributions and Yields
As of 5/31/98
<TABLE>
<CAPTION>
Total Distributions 30-Day
Paid for Six Mos. SEC Yield
<S> <C> <C>
Class A $0.27 5.25%
Class Z $0.28 5.44%
</TABLE>
A Well-Timed Merger.
Investors fleeing Asian stocks and bonds pushed prices of U.S. Treasury
securities sharply higher in mid-January, dropping the five-year Treasury note
yield to its lowest level of the six-month period. The U.S. dollar also surged
against many currencies, making dollar-denominated debt even more attractive.
In the midst of this flight-to-quality buying, the BlackRock Government Income
Trust merged with the Short-Intermediate Term Series in January. The merged
portfolio's larger total asset base allows us to trade more efficiently.
Additionally, the merged portfolio had a larger allocation to Treasuries, which
were not subject to prepayments as were our mortgage-backed securities.
As bond yields fell in January, mortgage rates plummeted. Consumers rushed to
refinance home loans at a record pace, unleashing a flurry of prepayments on
mortgage-backed securities. The securities with higher coupons are more
vulnerable to prepayments because the underlying home loans carry higher rates
and are more likely to be refinanced. Holders of mortgage-backed securities who
got their money back early had to reinvest at lower interest rates. To minimize
this risk, we sold Ginnie Mae securities with 7.5% coupons and purchased
securities with seven percent coupons. We also increased our holdings of
collateralized mortgage obligations, which can offer investors some protection
from prepayment risk.
Meanwhile, we cut asset-backed securities to 18% of total investments as of
May 31, 1998, from 29% as of November 30, 1997. While the sector generally
performed well, Green Tree Financial, a major issuer of asset-backed
securities, reported a fourth quarter loss and said it expected 1998 earnings
to be below analysts' estimates. Both Moody's Investors Service, Inc. and
Standard & Poor's Ratings Group downgraded the company's credit ratings. Our
analysis also raised sufficient doubts about Green Tree Financial so we sold
the securities even though they had declined in value.
1
<PAGE>
Looking
Ahead.
We believe the U.S. economic expansion may lose steam if the country's
international trade deficit continues to balloon. In April, the trade gap
increased to its largest size in six years as U.S. exports declined more
rapidly than imports. This imbalance will likely worsen as the Asian economic
crisis continues, leading to slower U.S. economic growth in the second half of
the year and stable monetary policy.
Recently, Japan occupied the center of Asian economic turbulence. The yen
tumbled to an eight-year low against the U.S. dollar before Japan and the U.S.
joined forces to rescue the ailing currency. As the yen sank, jittery investors
rushed to buy Treasuries, sending the 30-year Treasury bond yield to its lowest
level since regular sales of the securities began in 1977. Should economic
conditions in Japan worsen, the yield could slide as low as five percent by
the end of the year. We therefore believe both Treasuries and federal
government agency securities will provide attractive returns in coming months.
(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
(PICTURE)
Sharon A. Fera
Portfolio Manager
Short-Intermediate Term Series
2
<PAGE>
President's Letter July 13, 1998
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(PICTURE)
See You On the Net!
Dear Shareholder:
We are proud to be part of the worldwide web and we invite you to visit our two
web sites, if you have not already done so. Yes, we currently offer two
sites -- each with its own distinctive identity.
http://www.prudential.com
The Prudential web site features information on personal investing, retirement
planning, commercial and residential real estate opportunities, as well as
insurance products for life, health, home and property.
You can look up performance data on your Prudential mutual funds, learn about
proven investment strategies, or take one of our many interactive quizzes that
will help guide you in determining long-term goals -- like how much to save
for your child's college education or for your retirement.
http://www.prusec.com
The Prudential Securities Virtual Branch Office is a full-service brokerage web
site specifically designed to provide investors with the information they need
to make informed financial decisions. It was rated the No. 1 full-service
brokerage web site of its type by Financial Net News (February 1998), a
subsidiary of Institutional Investor magazine, and was also rated among the
top corporate web sites by Fortune magazine (Winter 1998).
What investors can find here are -- daily market commentaries, stock quotes,
economic forecasts, product news, and current market research, in addition to
interactive investing programs. Investors, through their Prudential Securities
Financial Advisors, may also enroll in Prudential OnlineR and have access to
their personal account information which includes balances, security values,
transactions and account activities. They can also easily E-mail their
Financial Advisor.
Both sites also contain professional opportunities for people who are
searching for employment or considering a change of career paths.
We plan to make further enhancements to our web pages as the year progresses.
So please, the next time you are "web browsing" or "surfing the net," pay us
a visit. Let us know what you think and what you'd like to see added in the
future.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
3
<PAGE>
Portfolio of Investments as of PRUDENTIAL GOVERNMENT SECURITIES TRUST
May 31, 1998 (Unaudited) MONEY MARKET SERIES
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Federal Farm Credit Bank--1.7%
$2,500 5.50%, 6/1/98 $ 2,500,000
7,000 5.70%, 9/2/98 6,997,898
------------
9,497,898
- ------------------------------------------------------------
Federal Home Loan Bank--27.1%
1,000 5.72%, 6/12/98 999,964
1,000 5.87%, 6/17/98 1,000,044
50,000 5.418%, 7/23/98 49,992,204
47,000 5.426%, 8/4/98 46,991,542
7,000 5.80%, 10/27/98 6,998,638
18,000 5.81%, 11/4/98 17,995,793
2,500 5.53%, 12/24/98 2,499,294
10,000 5.58%, 3/11/99 10,001,323
7,000 5.50%, 3/26/99 6,991,778
12,000 5.54%, 4/7/99 11,977,810
------------
155,448,390
- ------------------------------------------------------------
Federal Home Loan Mortgage Corporation--6.9%
10,000 5.95%, 6/19/98 9,999,763
22,550 5.448%, 1/26/99 22,539,768
7,000 6.45%, 6/4/99 7,001,820
------------
39,541,351
- ------------------------------------------------------------
Federal National Mortgage Association--23.9%
8,000 12.00%, 6/26/98 8,033,050
2,000 5.75%, 6/30/98 2,000,118
1,000 7.00%, 7/13/98 1,001,507
25,000 5.436%, 7/15/98 24,997,214
2,000 6.41%, 7/17/98 2,001,842
1,400 5.68%, 7/31/98 1,400,192
13,000 5.63%, 8/14/98 12,994,439
30,000 5.545%, 10/20/98 29,994,959
22,000 5.41%, 2/23/99 21,978,290
8,000 5.37%, 2/26/99 7,984,743
25,000 5.48%, 3/16/99 24,990,137
------------
137,376,491
Student Loan Marketing Association--3.2%
$2,600 5.79%, 9/16/98 $ 2,601,731
2,000 5.345%, 9/28/98 1,997,986
13,966 5.58%, 3/11/99 13,963,351
------------
18,563,068
- ------------------------------------------------------------
Repurchase Agreements(a)--36.6%
22,000 Bear Stearns & Co., 5.54%, dated
5/26/98, due 6/2/98 in the amount
of $22,023,699 (cost $22,000,000;
the value of the collateral
including accrued interest is
$22,950,521) 22,000,000
4,981 CS First Boston Corp., 5.64%, dated
5/29/98, due 6/2/98 in the amount
of $4,984,121 (cost $4,981,000;
the value of the collateral
including accrued interest is
$5,082,176) 4,981,000
9,621 CIBC Oppenheimer Corp., 5.60%, dated
5/28/98, due 6/4/98 in the amount
of $9,631,476 (cost $9,621,000;
the value of the collateral
including accrued interest is
$9,804,751) 9,621,000
25,724 J.P. Morgan Securities, Inc., 5.53%,
dated 4/23/98, due 7/29/98 in the
amount of $26,107,295 (cost
$25,724,000; the value of the
collateral including accrued
interest is $26,254,557) 25,724,000
10,000 J.P. Morgan Securities, Inc., 5.53%,
dated 4/24/98, due 7/29/98 in the
amount of $10,147,467 (cost
$10,000,000; the value of the
collateral including accrued
interest is $10,206,250) 10,000,000
38,617 Merrill Lynch Pierce Fenner & Smith,
Inc., 5.59%, dated 5/28/98, due
6/4/98 in the amount of
$38,658,975 (cost $38,617,000;
the value of the collateral
including accrued interest is
$39,413,475) 38,617,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as of PRUDENTIAL GOVERNMENT SECURITIES TRUST
May 31, 1998 (Unaudited) MONEY MARKET SERIES
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
$21,000 Morgan Stanley Dean Witter Discover
& Co., 5.51%, dated 5/20/98, due
6/10/98 in the amount of
$21,067,498 (cost $21,000,000;
the value of the collateral
including accrued interest is
$21,433,125) $ 21,000,000
10,653 Morgan Stanley Dean Witter Discover
& Co., 5.54%, dated 5/26/98, due
6/2/98 in the amount of
$10,664,476 (cost $10,653,000;
the value of the collateral
including accrued interest is
$10,872,718) 10,653,000
17,019 Morgan Stanley Dean Witter Discover
& Co., 5.56%, dated 5/27/98, due
6/3/98 in the amount of
$17,037,399 (cost $17,019,000;
the value of the collateral
including accrued interest is
$17,370,016) 17,019,000
30,000 Salomon Smith Barney Inc., 5.62%,
dated 5/28/98, due 6/1/98 in the
amount of $30,018,733 (cost
$30,000,000; the value of the
collateral including accrued
interest is $30,618,750) 30,000,000
20,000 Salomon Smith Barney Inc., 5.59%,
dated 5/27/98, due 6/3/98 in the
amount of $20,021,739 (cost
$20,000,000; the value of the
collateral including accrued
interest is $20,412,500) 20,000,000
------------
209,615,000
- ------------------------------------------------------------
Total Investments--99.4%
(amortized cost $570,042,198(b)) 570,042,198
Other assets in excess of
liabilities--0.6% 3,657,199
------------
Net Assets--100% $573,699,397
------------
------------
</TABLE>
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(a) Repurchase Agreements are collateralized by 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 of PRUDENTIAL GOVERNMENT SECURITIES TRUST
May 31, 1998 (Unaudited) SHORT-INTERMEDIATE TERM SERIES
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--99.9%
- ------------------------------------------------------------
Asset-Backed--14.8%
$10,000 ContiMortgage Home Equity Loan
Trust, Ser. 98-1 A3, 6.22%,
1/15/13 $ 10,028,125
5,017 EQCC Home Equity Loan Trust,
Ser. 98-1 A3F, 6.225%, 12/15/12 5,013,864
33,993 Federal Home Loan Mortgage
Corporation Loan Receivables
Trust,
Ser. 97-A AX, 2.782%, 4/15/19,
I/O 5,290,105
3,871(a) Student Loan Marketing Association,
Ser. 97-1 A1, 5.647%, 10/25/05,
F.R.N. 3,855,175
------------
Total asset-backed
(cost $23,943,807) 24,187,269
- ------------------------------------------------------------
Collateralized Mortgage Obligations--22.8%
5,000 Bayview Financial Acquisition
Trust,
Ser. 98-1 AI, 7.01%, 5/25/29 5,012,500
5,000 Deutsche Mortgage & Asset
Receiving Corp.,
Ser. 98-1 C1, 6.861%, 3/15/08 5,095,313
Federal Home Loan Mortgage
Corporation,
7.00%, 2/15/05 3,126,560
3,113
736 Ser. 19 F, 6.544%, 6/1/28, STRIP 736,097
13,153 Federal National Mortgage
Association,
Ser. 92-21 H. 6.65%, 3/25/02,
REMIC 13,231,236
5,000 First Union-Lehman Brothers
Commercial Mortgage,
Ser. 98-C2 A2, 6.56%, 11/18/08 5,096,875
4,913 ICI Funding Corp. Secured Asset
Corp.,
Ser. 97-2 1A4, 7.60%, 7/25/28 4,977,483
------------
Total collateralized mortgage
obligations
(cost $37,145,368) 37,276,064
Corporate Bonds--1.6%
$2,500(a) Merck and Company,
5.76%, 5/3/37
(cost $2,500,000) $ 2,556,250
- ------------------------------------------------------------
U.S. Government Agency Securities--3.0%
5,000(a) Federal National Mortgage
Association,
6,30%, 9/25/02
(cost $5,055,414) 5,027,350
- ------------------------------------------------------------
U.S. Government Agency Mortgage Pass-Through
Obligations--34.3%
Federal Home Loan Mortgage
Corporation,
311 7.375%, 3/1/06 317,254
49 8.076%, 8/1/24, ARM 50,745
1,694 9.00%, 9/1/05 - 11/01/05 1,756,010
Federal National Mortgage
Association,
4,199 6.765%, 1/1/07 4,258,525
4,067 7.50%, 4/1/10 - 12/1/10 4,200,049
1,086 8.00%, 3/1/08 1,126,382
1,772 8.50%, 6/1/08 - 1/1/16 1,849,430
18,614 10.00%, 12/1/20 20,603,451
Government National Mortgage
Association,
8,010 7.00%, 1/15/25 - 11/15/25 8,150,204
654 7.375%, 1/20/25, ARM 672,704
6,936 8.00%, 5/15/22 - 11/15/22 7,244,158
5,571 9.00%, 6/15/98 - 9/15/09 5,866,095
------------
Total U.S. government agency
mortgage pass-through
obligations
(cost $55,744,762) 56,095,007
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 6
<PAGE>
Portfolio of Investments as of PRUDENTIAL GOVERNMENT SECURITIES TRUST
May 31, 1998 (Unaudited) SHORT-INTERMEDIATE TERM SERIES
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
U.S. Government Obligations--23.4%
United States Treasury Notes,
$300 6.25%, 5/31/99 $ 302,016
2,950(a) 5.875%, 7/31/99 2,959,676
500(a) 5.75%, 9/30/99 501,170
500 6.375%, 5/15/00 507,420
4,750(a) 6.00%, 8/15/00 4,792,323
2,500(a) 6.00%, 7/31/02 2,535,150
2,300(a) 5.75%, 11/30/02 2,311,132
4,200(a) 5.50%, 1/31/03 4,182,948
5,000(b) 6.625%, 5/15/07 5,326,550
11,500(b) 6.125%, 8/15/07 11,866,505
3,000(b) 5.50%, 2/15/08 2,977,500
------------
Total U.S. government obligations
(cost $38,002,812) 38,262,390
------------
- ------------------------------------------------------------
Total Investments--99.9%
(amortized cost $162,392,163; Note
4) 163,404,330
Other assets in excess of
liabilities--0.1% 100,282
------------
Net Assets--100% $163,504,611
------------
------------
</TABLE>
- ---------------
ARM--Adjustable Rate Mortgage.
I/O--Interest Only.
REMIC--Real Estate Mortgage Investment Conduit.
F.R.N.-- Floating Rate Note. The interest rate reflected is the rate in effect
at May 31, 1998.
(a) Asset segregated for dollar rolls.
(b) All or portion of securities on loan; (Note 1).
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7
<PAGE>
PRUDENTIAL GOVERNMENT SECURITIES TRUST
U.S. TREASURY MONEY MARKET SERIES
Portfolio of Investments as of May 31, 1998 (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
United States Treasury Bills--2.4%
$4,415 4.84%, 6/18/98 $ 4,390,120
4,255 4.95%, 7/23/98 4,211,299
------------
8,601,419
- ------------------------------------------------------------
United States Treasury Notes--66.1%
30,000 6.00%, 5/31/98 30,000,000
115,320 6.25%, 6/30/98 115,436,711
25,000 6.25%, 7/31/98 25,044,861
29,270 6.25%, 3/31/99 29,445,242
10,000 7.00%, 4/15/99 10,121,097
15,617 6.375%, 4/30/99 15,730,469
10,000 6.50%, 4/30/99 10,087,863
------------
235,866,243
- ------------------------------------------------------------
Total Investments--68.5%
(amortized cost $244,467,662(a)) 244,467,662
Other assets in excess of
liabilities--31.5% 112,297,911
------------
Net Assets--100% $356,765,573
------------
------------
</TABLE>
- ---------------
(a) Federal income tax basis of portfolio securities is the same as for
financial reporting purposes.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 8
<PAGE>
Statement of Assets and Liabilities
May 31, 1998 (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 $570,042,198, $162,392,163 and $244,467,662,
respectively)............................................................ $570,042,198 $163,404,330 $244,467,662
Cash........................................................................ 31,843 -- --
Receivable for investments sold............................................. -- -- 104,888,611
Interest receivable......................................................... 3,750,092 1,502,444 4,991,505
Stock loan receivable....................................................... -- 29,231 --
Receivable for Series shares sold........................................... 5,327,214 63,818 5,507,456
Other assets................................................................ 9,275 3,380 5,922
------------ ------------ ------------
Total assets............................................................. 579,160,622 165,003,203 359,861,156
------------ ------------ ------------
Liabilities
Bank overdraft.............................................................. -- 924,490 55,913
Dividends payable........................................................... 465,044 246,973 286,740
Payable for Series shares reacquired........................................ 4,735,050 130,177 2,367,707
Due to Manager.............................................................. 199,747 55,843 142,881
Due to Distributor.......................................................... 32,636 11,972 24,094
Accrued expenses and other liabilities...................................... 28,748 129,137 218,248
------------ ------------ ------------
Total liabilities........................................................ 5,461,225 1,498,592 3,095,583
------------ ------------ ------------
Net Assets.................................................................. $573,699,397 $163,504,611 $356,765,573
------------ ------------ ------------
------------ ------------ ------------
Net assets were comprised of:
Shares of beneficial interest, at par ($.01 per share)................... $ 5,736,994 $ 168,004 $ 3,567,654
Paid-in capital in excess of par......................................... 567,962,403 194,624,916 353,197,919
------------ ------------ ------------
573,699,397 194,792,920 356,765,573
Undistributed net investment income...................................... -- 496,193 --
Accumulated net realized losses.......................................... -- (32,796,669) --
Net unrealized appreciation of investments............................... -- 1,012,167 --
------------ ------------ ------------
Net assets, May 31, 1998.................................................... $573,699,397 $163,504,611 $356,765,573
------------ ------------ ------------
------------ ------------ ------------
Class A:
Net asset value, offering price and redemption price per share
($554,518,556 / 554,518,556 shares of common stock issued and
outstanding).......................................................... $1.00
------------
------------
($159,126,190 / 16,352,312 shares of common stock issued and
outstanding).......................................................... $9.73
------------
------------
($353,765,365 / 353,765,365 shares of common stock issued and
outstanding).......................................................... $1.00
------------
------------
Class Z:
Net asset value, offering price and redemption price per share
($19,180,841 / 19,180,841 shares of common stock issued and
outstanding).......................................................... $1.00
------------
------------
($4,378,421 / 448,060 shares of common stock issued and
outstanding).......................................................... $9.77
------------
------------
($208 / 208 shares of common stock issued and outstanding)............ $1.00
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 9
<PAGE>
Statement of Operations
Six Months Ended May 31, 1998
(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................................................................. $17,775,984 $ 5,136,829 $ 13,463,644
Income from securities lending........................................... -- 58,127 --
----------- ------------ -------------
17,775,984 5,194,956 13,463,644
----------- ------------ -------------
Expenses
Management fee........................................................... 1,258,708 319,151 1,011,356
Distribution fee......................................................... 385,832 149,317 316,049
Transfer agent's fees and expenses....................................... 677,000 104,000 82,000
Reports to shareholders.................................................. 25,000 45,000 37,000
Custodian's fees and expenses............................................ 42,000 50,000 40,000
Legal fees............................................................... 5,000 25,000 6,000
Audit fees............................................................... 12,500 17,000 12,500
Registration fees........................................................ 15,000 42,000 25,000
Trustees' fees........................................................... 6,000 6,000 6,000
Insurance expense........................................................ 6,000 2,000 2,090
Miscellaneous............................................................ 7,063 1,250 12,314
----------- ------------ -------------
Total expenses........................................................ 2,440,103 760,718 1,550,309
----------- ------------ -------------
Net investment income....................................................... 15,335,881 4,434,238 11,913,335
----------- ------------ -------------
Realized and Unrealized Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions.................................................. 19,025 875,676 223,625
Financial futures contracts.............................................. -- (9,035) --
----------- ------------ -------------
19,025 866,641 223,625
Net change in unrealized depreciation on investment transactions............ -- (993,682) --
----------- ------------ -------------
Net gain (loss) on investments.............................................. 19,025 (127,041) 223,625
----------- ------------ -------------
Net Increase in Net Assets Resulting from Operations........................ $15,354,906 $ 4,307,197 $ 12,136,960
----------- ------------ -------------
----------- ------------ -------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 10
<PAGE>
Statement of Changes in Net Assets
(Unaudited) PRUDENTIAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Short- U.S. Treasury
Money Market Intermediate Money Market
Series Term Series Series
--------------------------------- --------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
Six Months Six Months Six Months
Ended Year Ended Ended Year Ended Ended Year Ended
Increase (Decrease) May 31, November 30, May 31, November 30, May 31, November 30,
in Net Assets 1998 1997 1998 1997 1998 1997
--------------- --------------- --------------- --------------- --------------- ---------------
Operations:
Net investment
income.......... $ 15,335,881 $ 28,073,367 $ 4,434,238 $ 9,598,358 $ 11,913,335 $ 18,750,863
Net realized gain
on investment
transactions.... 19,025 106,570 866,641 89,964 223,625 121,988
Net change in
unrealized
depreciation on
investments..... -- -- (993,682) (324,291) -- --
--------------- --------------- --------------- --------------- --------------- ---------------
Net increase in net
assets resulting
from
operations...... 15,354,906 28,179,937 4,307,197 9,364,031 12,136,960 18,872,851
--------------- --------------- --------------- --------------- --------------- ---------------
Dividends and
distributions to
shareholders:
Dividends to
shareholders.... (15,354,906) (28,179,937) (4,446,875) (9,002,839) (12,136,960) (18,872,851)
--------------- --------------- --------------- --------------- --------------- ---------------
Series share
transactions(a) (Note
5):
Net proceeds from
shares
subscribed...... 1,229,258,302 2,067,231,815 40,230,951 8,117,531 3,562,399,171 4,683,800,784
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions... 14,571,766 26,745,177 2,985,975 5,839,123 10,500,042 17,070,655
Cost of shares
reacquired...... (1,262,140,100) (2,054,090,306) (28,735,004) (50,390,144) (3,648,918,065) (4,573,416,591)
--------------- --------------- --------------- --------------- --------------- ---------------
Net increase
(decrease) in
net assets from
Series share
transactions.... (18,310,032) 39,886,686 14,481,922 (36,433,490) (76,018,852) 127,454,848
--------------- --------------- --------------- --------------- --------------- ---------------
Total increase
(decrease) in net
assets................ (18,310,032) 39,886,686 14,342,244 (36,072,298) (76,018,852) 127,454,848
Net Assets
Beginning of period... 592,009,429 552,122,743 149,162,367 185,234,665 432,784,425 305,329,577
--------------- --------------- --------------- --------------- --------------- ---------------
End of period(b)...... $ 573,699,397 $ 592,009,429 $ 163,504,611 $ 149,162,367 $ 356,765,573 $ 432,784,425
--------------- --------------- --------------- --------------- --------------- ---------------
--------------- --------------- --------------- --------------- --------------- ---------------
- ---------------
(a) At $1.00 per share for the Money Market Series and the U.S. Treasury Money Market Series.
(b) Includes
undistributed net
investment income
of................. $ -- $ -- $ 496,193 $ 508,830 $ -- $ --
--------------- --------------- --------------- --------------- --------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 11
<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 and the U.S. Treasury Money Market Series; the
monies of each series are invested in separate, independently managed
portfolios.
- ------------------------------------------------------------
Note 1. 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.
Financial Futures Contracts: The Short-Intermediate Term Series enters into a
financial futures contract which is an agreement to purchase (long) or sell
(short) an agreed amount of securities at a set price for delivery on a future
date. Upon entering into a financial futures contract, the Series is required to
pledge to the broker an amount of cash and/or other assets equal to a certain
percentage of the contract amount. This amount is known as the 'initial margin.'
Subsequent payments, known as 'variation margin,' are made or received by the
Series each day, depending on the daily fluctuations in the value of the
underlying security. Such variation margin is recorded for financial statement
purposes on a daily basis as unrealized gain or loss. When the contract expires
or is closed, the gain or loss is realized and is presented in the statement of
operations as net realized gain (loss) on financial futures contracts.
Securities Lending: The Short-Intermediate Term Series may lend its portfolio
securities to brokers or dealers, banks or other recognized institutional
borrowers of securities, provided that the borrower at all times maintains cash
or other liquid assets or secures an irrevocable letter of credit in favor of
the Series in an amount equal to at least 100% of the market value of the
securities loaned. During the time portfolio securities are on loan, the
borrower will pay the Series an amount equivalent to any dividend or interest
paid on such securities and the Series may invest the cash collateral and earn
additional income, or it may receive an agreed-upon amount of interest income
from the borrower. In these transactions, there are risks of delay in recovery
and in some cases even loss of rights in the collateral should the borrower of
the securities fail financially. Loans are subject to termination at the option
of the borrower or the Series. The Series may pay reasonable finders',
administrative and custodial fees in connection with a loan of its securities
and may share the interest earned on the collateral with the borrower. As a
matter of fundamental policy the Series may not lend more than 30% of the value
of its total assets.
The Short-Intermediate Term Series invests in financial futures contracts in
order to hedge its existing portfolio securities, or securities the Series
intends to purchase, against fluctuations in value caused by changes in
prevailing interest rates. Should interest rates move unexpectedly, the Series
may not achieve the anticipated benefits of the financial futures contracts and
may realize a loss. The use of futures transactions involves the risk of
imperfect correlation in movements in the price of futures contracts, interest
rates and the underlying hedged assets.
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.
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 May 31, 1998.
- --------------------------------------------------------------------------------
12
<PAGE>
Notes to Financial Statements
(Unaudited) PRUDENTIAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
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.
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 Investments Fund Management
LLC ('PIFM'). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PIFM 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. PIFM 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 PIFM 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 has a distribution agreement with Prudential Securities Incorporated
('PSI'), which acts as the distributor of the shares of the Money Market Series
and the U.S. Treasury Money Market Series. 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.
Effective July 1, 1998, Prudential Investment Management Services LLC ('PIMS')
will become the distributor of the Fund and will serve the Fund under the same
terms and conditions as under the arrangement with PSI.
PIFM, PIC, PSI and PIMS are (indirect) wholly owned subsidiaries of The
Prudential Insurance Company of America.
The Fund, along with other affiliated registered investment companies (the
'Funds'), has a credit agreement (the 'Agreement') with an unaffiliated lender.
The maximum commitment under the Agreement is $200,000,000. Interest on any such
borrowings outstanding will be at market rates. The purpose of the Agreement is
to serve as an alternative source of funding for capital share redemptions. The
Fund has not borrowed any amounts pursuant to the Agreement as of May 31, 1998.
The Funds pay a commitment fee at an annual rate of .055 of 1% on the unused
portion of the credit facility. The commitment fee is accrued and paid quarterly
on a pro rata basis by the Funds. The Agreement expired on December 30, 1997 and
has been extended through December 29, 1998 under the same terms.
- ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the six months ended May 31, 1998,
the Fund incurred fees of approximately $645,000, $102,900 and $80,000,
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
nonaffiliates.
- --------------------------------------------------------------------------------
13
<PAGE>
Notes to Financial Statements
(Unaudited) 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 six months ended May 31, 1998
were $112,184,135 and $106,006,685, respectively.
As of May 31, 1998, the Short-Intermediate Term Series had securities on loan
with an aggregate market value of $16,043,075. As of this date, the collateral
held for securities on loan was comprised of U.S. cash with an aggregate market
value of $16,821,632.
For the Short-Intermediate Term Series, the cost basis of investments for
federal income tax purposes at May 31, 1998 was substantially the same as for
financial reporting purposes and, accordingly, net unrealized appreciation of
investments for federal income tax purposes was $1,012,167 (gross unrealized
appreciation $1,275,702; gross unrealized depreciation--$263,535).
For federal income tax purposes, the Short-Intermediate Term Series has a
capital loss carryforward as of November 30, 1997 of approximately $33,664,000
of which $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 2004.
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, 1997, approximately $19,097,000 of the
capital loss carryforward expired unused.
- ------------------------------------------------------------
Note 5. Capital
Each series has authorized an unlimited number of shares of beneficial interest
at $.01 par value. Effective February 26, 1997 the Short-Intermediate Term
Series commenced offering Class Z shares. Class Z shares are not subject to any
sales or redemption charge and are offered exclusively to a limited group of
investors. Transactions in shares of beneficial interest for the
Short-Intermediate Term Series for the fiscal year ended November 30, 1997 and
the six months ended May 31, 1998 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------------- ---------- ------------
<S> <C> <C>
Six months ended May 31, 1998:
Shares sold.......................... 3,616,539 $ 35,295,044
Shares issued in reinvestment of
dividends and distributions........ 298,858 2,911,457
Shares reacquired.................... (2,884,226) (28,122,603)
---------- ------------
Net increase in shares outstanding... 1,031,171 $ 10,083,898
---------- ------------
---------- ------------
<CAPTION>
Class A Shares Amount
- ------------------------------------- ---------- ------------
<S> <C> <C>
Year ended November 30, 1997:
Shares sold.......................... 842,329 $ 8,117,331
Shares issued in reinvestment of
dividends and distributions........ 605,236 5,839,119
Shares reacquired.................... (5,221,544) (50,390,144)
---------- ------------
Net decrease in shares outstanding... (3,773,979) $(36,433,694)
---------- ------------
---------- ------------
<CAPTION>
Class Z
- -------------------------------------
<S> <C> <C>
Six months ended May 31, 1998:
Shares sold.......................... 503,103 $ 4,935,907
Shares issued in reinvestment of
dividends and distributions........ 7,631 74,518
Shares reacquired.................... (62,695) (612,401)
---------- ------------
Net increase in shares outstanding... 448,039 $ 4,398,024
---------- ------------
---------- ------------
February 26, 1997(a) through
November 30, 1997:
Shares sold.......................... 21 $ 200
Shares issued in reinvestment of
dividends and distributions........ -- 4
---------- ------------
Net increase in shares outstanding... 21 $ 204
---------- ------------
---------- ------------
</TABLE>
- ---------------
(a) Commencement of offering of Class Z shares.
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 fiscal year ended November 30, 1997 and the six months ended May 31, 1998
were as follows:
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
May 31, November 31,
1998 1997
<S> <C> <C>
Class A
- -------------------------------
Shares sold.................... 1,208,403,524 2,065,348,142
Shares issued in reinvestment
of dividends and
distributions................ 14,282,636 26,712,713
Shares reacquired.............. (1,259,595,592) (2,052,755,405)
--------------- ---------------
Net increase (decrease) in
shares
outstanding.................. (36,909,432) 39,305,450
--------------- ---------------
--------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
14
<PAGE>
Notes to Financial Statements
(Unaudited) PRUDENTIAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
May 31, November 30,
1998 1997
--------------- ---------------
<S> <C> <C>
Class Z
- -------------------------------
Shares sold.................... 20,854,778 1,883,673
Shares issued in reinvestment
of dividends and
distributions................ 289,130 32,464
Shares reacquired.............. (2,544,508) (1,334,901)
--------------- ---------------
Net increase in shares
outstanding.................. 18,599,400 581,236
--------------- ---------------
--------------- ---------------
</TABLE>
Effective February 21, 1997 the U.S. Treasury 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 U.S. Treasury Money Market
Series for the fiscal year ended November 30, 1997 and the six months ended May
31, 1998 were as follows:
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
May 31, November 30,
1998 1997
--------------- ---------------
<S> <C> <C>
Class A
- -------------------------------
Shares sold.................... 3,562,399,171 4,683,800,584
Shares issued in reinvestment
of dividends and
distributions................ 10,500,039 17,070,650
Shares reacquired.............. (3,648,918,065) (4,573,416,591)
--------------- ---------------
Net increase (decrease) in
shares outstanding........... (76,018,855) 127,454,643
--------------- ---------------
--------------- ---------------
<CAPTION>
February 21,
Six Months 1997*
Ended Through
May 31, November 30,
1998 1997
--------------- ---------------
<S> <C> <C>
Class Z
- -------------------------------
Shares sold.................... -- 200
Shares issued in reinvestment
of dividends and
distributions................ 3 5
--------------- ---------------
Net increase in shares
outstanding.................. 3 205
--------------- ---------------
--------------- ---------------
</TABLE>
- ---------------
* Commencement of offering of Class Z shares.
- ------------------------------------------------------------
Note 6. Reorganization
On October 24, 1997, the Board of Trustees of the Fund approved an Agreement and
Plan of Reorganization (the 'Plan') which provides for the transfer of all of
the assets of the BlackRock Government Income Trust to the Short-Intermediate
Term Series in exchange for Class A shares of the Short-Intermediate Term Series
and the Short-Intermediate Term Series' assumption of the liabilities, if any,
of the BlackRock Government Income Trust.
The Plan was approved by the shareholders of the BlackRock Government Income
Trust at a shareholder meeting held on January 23, 1998. The reorganization took
place on January 30, 1998. The BlackRock Government Income Trust and the
Short-Intermediate Term Series will each bear their pro rata share of the costs
of the reorganization, including cost of proxy solicitation.
- --------------------------------------------------------------------------------
15
<PAGE>
PRUDENTIAL GOVERNMENT SECURITIES TRUST
Financial Highlights (Unaudited) MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------------------
Six Months
Ended Year Ended November 30,
May 31, ------------------------------------------------------------
1998 1997 1996 1995 1994 1993
---------- -------- -------- -------- -------- --------
<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............... 0.025 0.048 0.046 0.052 0.033 0.026
Dividends from net
investment
income............... (0.025) (0.048) (0.046) (0.052) (0.033) (0.026)
---------- -------- -------- -------- -------- --------
Net asset value, end of
period............... $ 1.00 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
---------- -------- -------- -------- -------- --------
---------- -------- -------- -------- -------- --------
TOTAL RETURN(a)........ 2.52% 4.87% 4.74% 5.20% 3.29% 2.62%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000)......... $554,518 $591,428 $552,123 $598,194 $637,343 $919,503
Average net assets
(000)................ $619,026 $586,513 $589,147 $597,599 $732,867 $950,988
Ratios to average net
assets:
Expenses, including
distribution
fees............. .78%(d) 0.77% 0.86% 0.78% 0.77% 0.72%
Expenses, excluding
distribution
fees............. .65%(d) 0.65% 0.73% 0.65% 0.64% 0.59%
Net investment
income........... 4.87%(d) 4.77% 4.63% 5.15% 3.19% 2.56%
</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. 16
<PAGE>
PRUDENTIAL GOVERNMENT SECURITIES TRUST
Financial Highlights (Unaudited) MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class Z
-----------------------------------------------
<S> <C> <C> <C>
March 1,
Six Months 1996(b)
Ended Year Ended Through
May 31, November 30, November 30,
1997 1997 1996
---------- ------ ------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period.......................... $ 1.000 $ 1.000 $ 1.000
Net investment income............. 0.024 0.048 0.038
Dividends from net investment
income.......................... (0.024) (0.048) (0.038)
---------- ------ ------
Net asset value, end of period.... $ 1.00 $ 1.000 $ 1.000
---------- ------ ------
---------- ------ ------
TOTAL RETURN(a)................... 2.46% 5.03% 3.87%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)... $ 19,181 $ 581 $ 204(c)
Average net assets (000).......... $ 12,057 $ 672 $ 1,962
Ratios to average net assets:
Expenses, including
distribution fees........... .65%(d) 0.65% 0.68%(d)
Expenses, excluding
distribution fees........... .65%(d) 0.65% 0.68%(d)
Net investment income.......... 5.10%(d) 4.92% 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. 17
<PAGE>
PRUDENTIAL GOVERNMENT SECURITIES TRUST
Financial Highlights (Unaudited) SHORT-INTERMEDIATE TERM SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class Z
--------------------------------------------------------------------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Six Months Six Months
Ended Year Ended November 30, Ended
May 31, ------------------------------------------------------------ May 31,
1998 1997 1996 1995 1994 1993 1998
---------- -------- -------- -------- -------- -------- ----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period.......................... $ 9.74 $ 9.70 $ 9.74 $ 9.17 $ 10.06 $ 9.97 $ 9.77
---------- -------- -------- -------- -------- -------- -----
Income from investment operations:
Net investment income............. 0.27 0.56 0.51 0.56 0.64 0.69 0.23
Net realized and unrealized gain
(loss) on investment
transactions.................... (0.01) -- (0.01) 0.55 (0.89) 0.11 0.05
---------- -------- -------- -------- -------- -------- -----
Total from investment
operations.................. 0.26 0.56 0.50 1.11 (0.25) 0.80 0.28
---------- -------- -------- -------- -------- -------- -----
Less distributions:
Dividends from net investment
income.......................... (0.27) (0.52) (0.54) (0.54) (0.52) (0.69) (0.28)
Tax return of capital
distribution.................... -- -- -- -- (0.12) (0.02) --
---------- -------- -------- -------- -------- -------- -----
Total distributions............... (0.27) (0.52) (0.54) (0.54) (0.64) (0.71) (0.28)
---------- -------- -------- -------- -------- -------- -----
Net asset value, end of period.... $ 9.73 $ 9.74 $ 9.70 $ 9.74 $ 9.17 $ 10.06 $ 9.77
---------- -------- -------- -------- -------- -------- -----
---------- -------- -------- -------- -------- -------- -----
TOTAL RETURN(a)................... 2.70% 5.96% 5.34% 12.37% (2.58)% 8.26% 2.90%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)... $159,126 $149,162 $185,235 $212,996 $241,980 $347,944 $4,378
Average net assets (000).......... $157,246 $166,651 $186,567 $209,521 $307,382 $321,538 $2,768
Ratios to average net assets:
Expenses, including
distribution fees........... 0.97%(d) 0.97% 1.01% 0.95% 0.84% 0.80% 0.77%(d)
Expenses, excluding
distribution fees........... 0.77%(d) 0.77% 0.79% 0.75% 0.63% 0.59% 0.77%(d)
Net investment income.......... 5.56%(d) 5.76% 5.99% 5.82% 5.48% 6.80% 5.69%(d)
Portfolio turnover rate........... 68% 210% 132% 217% 431% 44% 68%
<CAPTION>
February 26,
1997(b)
Through
November 30,
1997
------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period.......................... $ 9.64
---
Income from investment operations:
Net investment income............. 0.47
Net realized and unrealized gain
(loss) on investment
transactions.................... 0.07
---
Total from investment
operations.................. 0.54
---
Less distributions:
Dividends from net investment
income.......................... (0.41)
Tax return of capital
distribution.................... --
---
Total distributions............... (0.41)
---
Net asset value, end of period.... $ 9.77
---
---
TOTAL RETURN(a)................... 5.70%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)... $ 207(c)
Average net assets (000).......... $ 202(c)
Ratios to average net assets:
Expenses, including
distribution fees........... 0.77%(d)
Expenses, excluding
distribution fees........... 0.77%(d)
Net investment income.......... 6.52%(d)
Portfolio turnover rate........... 210%
</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. 18
<PAGE>
PRUDENTIAL GOVERNMENT SECURITIES TRUST
Financial Highlights (Unaudited) U.S. TREASURY MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class Z
--------------------------------------------------------------------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Six Months Six Months
Ended Year Ended November 30, Ended
May 31, ------------------------------------------------------------ May 31,
1998 1997 1996 1995 1994 1993 1998
---------- -------- -------- -------- -------- -------- -----
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............. 0.024 0.047 0.046 0.050 0.033 0.025 0.025
Dividends from net investment
income.......................... (0.024) (0.047) (0.046) (0.050) (0.033) (0.025) (0.025)
---------- -------- -------- -------- -------- -------- -----
Net asset value, end of period.... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $1.000
---------- -------- -------- -------- -------- -------- -----
---------- -------- -------- -------- -------- -------- -----
TOTAL RETURN(a)................... 2.38% 4.80% 4.75% 5.08% 3.31% 2.54% 2.57%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)... $356,765 $432,784 $305,330 $339,334 $293,984 $284,978 $ 208(c)
Average net assets (000).......... $507,067 $402,634 $393,060 $345,369 $308,454 $273,313 $ 209(c)
Ratios to average net assets:
Expenses, including
distribution fees........... 0.61%(d) 0.65% 0.63% 0.62% 0.62% 0.66% 0.49%(d)
Expenses, excluding
distribution fees........... 0.49%(d) 0.52% 0.51% 0.50% 0.50% 0.53% 0.49%(d)
Net investment income.......... 4.71%(d) 4.66% 4.57% 5.01% 3.21% 2.49% 1.25%(d)
<CAPTION>
February 21,
1997(b)
Through
November 30,
1997
------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period.......................... $ 1.000
Net investment income............. 0.039
Dividends from net investment
income.......................... (0.039)
------------
Net asset value, end of period.... $ 1.000
------------
------------
TOTAL RETURN(a)................... 3.96%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)... $ 205(c)
Average net assets (000).......... $ 197(c)
Ratios to average net assets:
Expenses, including
distribution fees........... 0.52%(d)
Expenses, excluding
distribution fees........... 0.52%(d)
Net investment income.......... 3.89%(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. 19
<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: 1/100th of 1%. For example, one half of one percent 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 maximum federal income tax rate for individuals on a
long-term capital gain is 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
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Robert F. Gunia
Harry A. Jacobs, Jr.
Mendel A. Melzer, CFA
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
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
Distributor
Prudential Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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 Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Shereff, Freidman, Hoffman & Goodman, LLP
919 Third Avenue
New York, NY 10022
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.
The accompanying financial statements as of May 31, 1998 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.
<PAGE
(LOGO)
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
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