As filed with the Securities and Exchange Commission on February 2, 1998
Securities Act Registration No. 2-74139
Investment Company Act Registration No. 811-3264
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 27 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 28 /X/
(Check appropriate box or boxes)
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PRUDENTIAL GOVERNMENT SECURITIES TRUST
Exact name of registrant as specified in charter)
(Formerly, Prudential-Bache Government Securities Trust)
GATEWAY CENTER THREE
NEWARK, NEW JERSEY 07102-4077
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (973) 367-7530
S. JANE ROSE, ESQ.
GATEWAY CENTER THREE
NEWARK, NEW JERSEY 07102-4077
(NAME AND ADDRESS OF AGENT FOR SERVICE)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE
DATE OF THE REGISTRATION STATEMENT.
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IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX):
/X/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a) (1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective
date for a previously filed post-effective amendment
Title of Securities Being Registered........................Shares of Beneficial
Interest (Par Value $.01 per share)
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<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
<TABLE>
<CAPTION>
LOCATION
N-1A ITEM NO. ---------------------------------------
<S> <C> <C>
PART A
Item 1. Cover Page .................................................... Cover Page
Item 2. Synopsis ...................................................... Trust Expenses; Trust Highlights
Item 3. Condensed Financial Information ............................... Trust Expenses; Financial Highlights;
Calculation of Yield; How the Trust
Calculates Performance (Short-
Intermediate Series)
Item 4. General Description of Registrant ............................. Cover Page; Trust Highlights; How the
Trust Invests; General Information
Item 5. Management of Fund ............................................ Financial Highlights; How the Trust is
Managed
Item 5A. Management's Discussion of Fund Performance ................... Not Applicable
Item 6. Capital Stock and Other Securities ............................ Taxes, Dividends and Distributions;
General Information; Shareholder
Guide
Item 7. Purchase of Securities Being Offered .......................... Shareholder Guide; How the Trust
Values Its Shares; How the Trust is
Managed
Item 8. Redemption or Repurchase ...................................... Shareholder Guide; How the Trust
Values its Shares
Item 9. Pending Legal Proceedings ..................................... Not Applicable
PART B
Item 10. Cover Page .................................................... Cover Page
Item 11. Table of Contents ............................................. Table of Contents
Item 12. General Information and History ............................... General Information
Item 13. Investment Objectives and Policies ............................ Investment Objective(s) and Policies;
Investment Restrictions
Item 14. Management of the Fund ........................................ Trustees and Officers; Manager;
Distributor
Item 15. Control Persons and Principal Holders of Securities ........... Not Applicable
Item 16. Investment Advisory and Other Services ........................ Manager; Distributor; Custodian and
Transfer and Dividend Disbursing
Agent and Independent Accountants
Item 17. Brokerage Allocation and Other Practices ...................... Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other Securities ............................ Not Applicable
Item 19. Purchase, Redemption and Pricing of Securities Being Offered .. Shareholder Investment Account; Net
Asset Value
Item 20. Tax Status .................................................... Taxes
Item 21. Underwriters .................................................. Distributor
Item 22. Calculation of Performance Data .. ............................ Performance Information
Item 23. Financial Statements .......................................... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Post-Effective Amendment
to the Registration Statement.
<PAGE>
Prudential Government Securities Trust
(MONEY MARKET SERIES)
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PROSPECTUS DATED JANUARY 30, 1998
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Prudential Government Securities Trust (the Trust) is a diversified, open-end
management investment company whose shares of beneficial interest are offered
in three series. Each series operates as a separate fund with its own
investment objectives and policies designed to meet its specific investment
goals.
The investment objectives of the Money Market Series (the Series) are to obtain
high current income, preservation of capital and maintenance of liquidity by
investing principally in a diversified portfolio of short-term money-market
instruments issued or guaranteed by the United States Government or its
agencies or instrumentalities. There can be no assurance that the Series'
investment objective will be achieved. See "How the Trust Invests - Investment
Objectives and Policies."
AN INVESTMENT IN THE SERIES IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE SERIES WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. SEE "HOW THE TRUST VALUES
ITS SHARES."
The Trust's address is Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077, and its telephone number is (800) 225-1852.
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This Prospectus sets forth concisely the information about the Trust and the
Series that a prospective investor should know before investing. Additional
information about the Trust has been filed with the Securities and Exchange
Commission (SEC) in a Statement of Additional Information, dated January 30,
1998, which information is incorporated herein by reference (is legally
considered a part of this Prospectus) and is available without charge upon
request to the Trust at the address or telephone number noted above. The
Commission maintains a Website (http://www.sec.gov) that contains the Statement
of Additional material incorporated by reference, and other information
regarding the Trust.
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INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<PAGE>
TRUST HIGHLIGHTS
The following summary is intended to highlight certain information
contained in this prospectus and is qualified in its entirety by the more
detailed information appearing elsewhere herein.
WHAT IS PRUDENTIAL GOVERNMENT SECURITIES TRUST?
Prudential Government Securities Trust is a mutual fund whose shares are
offered in three series, each of which operates as a separate fund. A mutual
fund pools the resources of investors by selling its shares to the public and
investing the proceeds of such sale in a portfolio of securities designed to
achieve its investment objective. Technically, the Trust is an open-end,
diversified management investment company. Only the Money Market Series is
offered through this Prospectus.
WHAT ARE THE SERIES' INVESTMENT OBJECTIVES?
The Series' investment objectives are to obtain high current income,
preservation of capital and maintenance of liquidity by investing principally
in a diversified portfolio of short-term money-market instruments issued or
guaranteed by the United States Government or its agencies or
instrumentalities. There can be no assurance that the Series' investment
objectives will be achieved. See "How the Trust Invests - Investment Objectives
and Policies" at page 7.
WHAT ARE THE SERIES' RISK FACTORS AND SPECIAL CHARACTERISTICS?
It is anticipated that the net asset value of the Series will remain
constant at $1.00 per share, although this cannot be assured. In order to
maintain such constant net asset value, the Series will value its portfolio
securities at amortized cost. While this method provides certainty in
valuation, it may result in periods during which the value of a security in its
portfolio, as determined by amortized cost, is higher or lower than the price
the Series would receive if it sold such security. See "How the Trust Values
its Shares" at page 11. As with an investment in any Mutual Fund, an investment
in this Series can decrease in value and you can lose money.
WHO MANAGES THE TRUST?
Prudential Investments Fund Management LLC (PIFM or the Manager) is the
Manager of the Trust and is compensated for its services at an annual rate of
.40 of 1% of the Series' average daily net assets up to $1 billion, .375 of 1%
of the Series' average daily net assets between $1 billion and $1.5 billion and
.35 of 1% in excess of $1.5 billion. As of December 31, 1997, PIFM served as
manager or administrator to 64 investment companies, including 42 mutual
funds, with aggregate assets of approximately $62 billion. The Prudential
Investment Corporation, which does business under the name Prudential
Investments (PI, the Subadviser or the investment adviser), furnishes
investment advisory services in connection with the management of the Trust
under a Subadvisory Agreement with PIFM. See "How the Trust is Managed-Manager"
at page 9.
2
<PAGE>
WHO DISTRIBUTES THE SERIES' SHARES?
Prudential Securities Incorporated (Prudential Securities, PSI or the
Distributor), a major securities underwriter and securities and commodities
broker, acts as the Distributor of the Series' shares. The Distributor is paid
an annual service fee at the rate of .125 of 1% of the average daily net assets
of the Series' Class A shares. The Distributor incurs the expense of
distributing the Series' Class Z shares under a Distribution Agreement with the
Trust, none of which is reimbursed or paid for by the Trust. See "How the Trust
is Managed-Distributor" at page 10.
WHAT IS THE MINIMUM INVESTMENT
The minimum initial investment for Class A shares is $1,000. The
subsequent minimum investment for Class A shares is $100. There is no minimum
initial or subsequent investment requirement for investors who qualify to
purchase Class Z shares. There is no minimum investment requirement for certain
retirement and employee savings plans or custodial accounts for the benefit of
minors. For purchases made through the Automatic Savings Accumulation Plan, the
minimum initial and subsequent investment is $50. See "Shareholder Guide-How to
Buy Shares of the Trust" at page 14 and "Shareholder Guide-Shareholder
Services" at page 21.
HOW DO I PURCHASE SHARES?
You may purchase shares of the Series through Prudential Securities, Pruco
Securities Corporation (Prusec) or directly from the Trust, through its
transfer agent, Prudential Mutual Fund Services LLC (PMFS or the Transfer
Agent) at the net asset value per share (NAV) next determined after receipt of
your purchase order by the Transfer Agent or Prudential Securities. Class Z
shares are offered to a limited group of investors at NAV without any sales
charge or contingent deferred sales charge. See "How the Trust Values its
Shares" at page 11 and "Shareholder Guide-How to Buy Shares of the Trust" at
page 14.
HOW DO I SELL MY SHARES?
You may redeem your shares of the Series at any time at the NAV next
determined after Prudential Securities or the Transfer Agent receives your sell
order. See "Shareholder Guide-How to Sell Your Shares" at page 17. Participants
in programs sponsored by Prudential Retirement Services should contact their
client representative for more information about selling their Class Z shares.
HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?
The Series expects to declare daily and pay monthly dividends of net
investment income and short-term capital gains, if any. Dividends and
distributions will be automatically reinvested in additional shares of the
Series at NAV unless you request that they be paid to you in cash. See "Taxes,
Dividends and Distributions" at page 12.
3
<PAGE>
TRUST EXPENSES-MONEY MARKET SERIES
<TABLE>
<CAPTION>
CLASS A SHARES CLASS Z SHARES
SHAREHOLDER TRANSACTION EXPENSES ---------------- ---------------
<S> <C> <C>
Maximum Sales Load Imposed on Purchases ................... None None
Maximum Sales Load Imposed on Reinvested Dividends ........ None None
Maximum Deferred Sales Load ............................... None None
Redemption Fees ........................................... None None
Exchange Fees ............................................. None None
ANNUAL SERIES OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees ........................................... 0.400% 0.400%
12b-1 Fees ................................................ 0.125% None
Other Expenses ............................................ 0.245% 0.240%
===== =====
Total Series Operating Expenses ........................... 0.770% 0.640%
===== =====
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- -------- --------- --------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return, and (2)
redemption at the end of each time period:
Class A ......................................... $8 $25 $43 $95
Class Z ......................................... $7 $20 $36 $80
</TABLE>
The above example is based on data for the Series' fiscal year ended
November 30, 1997. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that an investor in the Series will bear, whether
directly or indirectly. For more complete descriptions of the various costs and
expenses, see "How the Trust is Managed." "Other Expenses" include operating
expenses of the Series, such as Trustees' and professional fees, registration
fees, reports to shareholders and transfer agent and custodian fees.
4
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share of beneficial interest outstanding throughout each of the periods
indicated) (Class A Shares)
The following financial highlights, with respect to the five-year period
ended November 30, 1997, for the Series' Class A shares have been audited by
Price Waterhouse LLP, independent accountants, whose report thereon was
unqualified. This information should be read in conjunction with the financial
statements and notes thereto, which appear in the Statement of Additional
Information. The following financial highlights contain selected data for a
Class A share of beneficial interest outstanding, total return, ratios to
average net assets and other supplemental data for each of the periods
indicated. The information is based on data contained in the financial
statements. Further performance information is contained in the annual report,
which may be obtained without charge. See "Shareholder Guide-Shareholder
Services-Reports to Shareholders."
<TABLE>
<CAPTION>
MONEY MARKET SERIES-CLASS A SHARES
----------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
----------------------------------------------------------------
1997 1996(a) 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<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 ........................ 0.48 .046 .052 .033 .026
======== ======== ======== ======== ========
Dividends from net investment income ......... (0.48) (.046) (.052) (.033) (.026)
======== ======== ======== ======== ========
Net asset value, end of year ............... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ========
TOTAL RETURN(B) .............................. 4.87% 4.74% 5.20% 3.29% 2.62%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) ............... $591,428 $552,123 $598,194 $637,343 $919,503
Average net assets (000) ..................... $586,513 $589,147 $597,599 $732,867 $950,988
Ratio to average net assets:
Expenses, including distribution fees ...... .77% .86% .78% .77% .72%
Expenses, excluding distribution fees ...... .64% .73% .65% .64% .59%
Net investment income ........................ 4.77% 4.63% 5.15% 3.19% 2.56%
<CAPTION>
1992 1991 1990 1989 1988(a)
-------------- -------------- -------------- ------------ -----------
<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 ........................ .035 .058 .076 .084 .067
========== ========== ========== ======== ========
Dividends from net investment income ......... (.035) (.058) (.076) (.084) (.067)
========== ========== ========== ======== ========
Net asset value, end of year ............... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
========== ========== ========== ======== ========
TOTAL RETURN(B) .............................. 3.57% 5.96% 7.83% 8.77% 6.99%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) ............... $1,026,187 $1,212,836 $1,355,058 $667,571 $470,727
Average net assets (000) ..................... $1,113,759 $1,255,014 $ 857,385 $528,820 $480,598
Ratio to average net assets:
Expenses, including distribution fees ...... .72% .65% .66% .68% .65%
Expenses, excluding distribution fees ...... .60% .53% .53% .56% .52%
Net investment income ........................ 3.42% 5.78% 7.52% 8.30% 6.69%
</TABLE>
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(a) On August 9, 1988, Prudential Mutual Fund Management, Inc. succeeded The
Prudential Insurance Company of America as investment adviser and since
then has acted as manager of the Trust. In September 1996, Prudential
Investments Fund Management LLC (PIFM) succeeded Prudential Mutual Fund
Management, Inc., which transferred its assets to PIFM. See "Manager" in
the Statement of Additional Information.
(b) 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.
5
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share of beneficial interest outstanding throughout the indicated
period) (Class Z Shares)
The following financial highlights have been audited by Price Waterhouse
LLP, independent accountants, whose report thereon was unqualified. This
information should be read in conjunction with the financial statements and
notes thereto, which appear in the Statement of Additional Information. The
following financial highlights contain selected data for a Class Z share of
beneficial interest outstanding, total return, ratios to average net assets and
other supplemental data for the period indicated. The information is based on
data contained in the financial statements. Further performance information is
contained in the annual report, which may be obtained without charge. See
"Shareholder Guide-Shareholder Services-Reports to Shareholders."
<TABLE>
<CAPTION>
MONEY MARKET SERIES-CLASS Z SHARES
----------------------------------
MARCH 1,
1996(A)
YEAR END THROUGH
NOVEMBER 30, NOVEMBER 30,
1997 1996
============== =================
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ...... $ 1.000 $ 1.000
---------
Net investment income ..................... .048 .038
Dividends from net investment income ...... (.048) (.038)
-------- ---------
Net asset value, end of period ............ $ 1.000 $ 1.000
======== =========
TOTAL RETURN (c) .......................... 5.03% 3.87%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ........... $ 581 $ 204(d)
Average net assets (000) .................. $ 672 $ 1,962
Ratio of average net assets:
Expenses ................................. .64% .68%(b)
Net investment income .................... 4.92 4.68%(b)
</TABLE>
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(a) Commencement of offering of Class Z shares. In September 1996, PIFM
succeeded Prudential Mutual Fund Management, Inc., which transferred its
assets to PIFM. See "Manager" in the Statement of Additional Information.
(b) Annualized.
(c) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of the period reported and includes
reinvestment of dividends and distributions. Total returns for periods of
less than a full year are not annualized.
(d) Figure is actual and not rounded to nearest thousand.
6
<PAGE>
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CALCULATION OF YIELD
THE SERIES CALCULATES ITS CURRENT YIELD based on the net change, exclusive
of realized and unrealized gains or losses, in the value of a hypothetical
account over a seven calendar day base period. The Series also calculates its
effective annual yield assuming weekly compounding. The following are examples
of the yield calculations as of November 30, 1997 for Class A and Class Z
shares of the Series:
<TABLE>
<S> <C>
CLASS A SHARES
--------------
Value of hypothetical account at end of period ............ $1.000944023
Value of hypothetical account at beginning of period ...... 1.000000000
------------
Base period return ....................................... $0.000944023
============
CURRENT YIELD (.000944023 x (365/7)) ..................... 4.92%
EFFECTIVE ANNUAL YIELD, assuming weekly compounding ...... 5.05%
CLASS Z SHARES
--------------
Value of hypothetical account at end of period ............ $1.000968170
Value of hypothetical account at beginning of period ...... 1.000000000
------------
Base period return ....................................... $0.000968170
============
CURRENT YIELD (.000968170 x (365/7)) ..................... 5.05%
EFFECTIVE ANNUAL YIELD, assuming weekly compounding ...... 5.18%
</TABLE>
THE YIELD WILL FLUCTUATE FROM TIME TO TIME AND IS NOT NECESSARILY
REPRESENTATIVE OF FUTURE PERFORMANCE.
The weighted average life to maturity of the portfolio of the Series on
November 30, 1997 was 69 days.
Yield is computed in accordance with a standardized formula described in
the Statement of Additional Information. In addition, comparative performance
information may be used from time to time in advertising or marketing the
Trust's shares, including data from Lipper Analytical Services, Inc.,
Morningstar Publications, Inc., Donoghue's Money Fund Report, The Bank Rate
Monitor, other industry publications, business periodicals, and market indices.
HOW THE TRUST INVESTS
INVESTMENT OBJECTIVES AND POLICIES
THE INVESTMENT OBJECTIVES OF THE SERIES ARE TO OBTAIN HIGH CURRENT INCOME,
PRESERVE CAPITAL AND MAINTAIN LIQUIDITY. THERE CAN BE NO ASSURANCE THAT THE
SERIES' OBJECTIVES WILL BE ACHIEVED.
THE SERIES' INVESTMENT OBJECTIVES ARE FUNDAMENTAL POLICIES, AND,
THEREFORE, MAY NOT BE CHANGED WITHOUT THE APPROVAL OF THE HOLDERS OF A MAJORITY
OF THE OUTSTANDING VOTING SECURITIES OF THE MONEY MARKET SERIES, AS DEFINED IN
THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE INVESTMENT COMPANY ACT).
POLICIES THAT ARE NOT FUNDAMENTAL MAY BE MODIFIED BY THE TRUSTEES.
THE SERIES WILL INVEST AT LEAST 80% OF ITS TOTAL ASSETS IN UNITED STATES
GOVERNMENT SECURITIES. These securities may include securities issued or
guaranteed by the United States Treasury, by various agencies of the United
States Government or by various instrumentalities which have been established
or sponsored by the United States Government including repurchase agreements
with respect to such securities. The Series may also invest in fully insured
certificates
7
<PAGE>
of deposit issued by banks or savings and loan associations subject to certain
restrictions and obligations of the International Bank for Reconstruction and
Development (the World Bank). Obligations of the World Bank are supported by
appropriated but unpaid commitments of its member countries, including the
United States, and there is no assurance these commitments will be undertaken
or met in the future. See "Investment Restrictions" in the Statement of
Additional Information.
THE SERIES MAY ALSO PURCHASE INSTRUMENTS OF THE TYPES DESCRIBED ABOVE
TOGETHER WITH THE RIGHT TO RESELL THE INSTRUMENTS AT AN AGREED-UPON PRICE OR
YIELD WITHIN A SPECIFIED PERIOD PRIOR TO THE MATURITY DATE OF THE INSTRUMENT,
COMMONLY KNOWN AS A PUT. The aggregate price that the Series pays for
instruments with a put may be higher than the price that otherwise would be
paid for the instruments. A put may also include the right to demand repayment
of interest and principal. See "Investment Objectives and Policies-Liquidity
Puts" in the Statement of Additional Information.
The Series seeks to maintain a $1.00 share price at all times. To achieve
this, the Series purchases only securities with remaining maturities of
thirteen months or less and limits the dollar-weighted average maturity of its
portfolio to 90 days or less. There is no assurance that the Series will be
able to maintain a stable net asset value. See "How the Trust Values its
Shares." As with an investment in any mutual fund, an investment in this Series
can decrease in value and you can lose money.
The Series utilizes the amortized cost method of valuation in accordance
with regulations issued by the SEC. See "How the Trust Values its Shares."
Accordingly, the Series will limit its portfolio investments to those
instruments which present minimal credit risks and which are of eligible
quality as determined by the Series' investment adviser under the supervision
of the Trustees. Eligible quality, for this purpose, means (i) a security rated
in one of the two highest rating categories by at least two major rating
agencies assigning a rating to the security or issuer (or, if only one agency
assigned a rating, that agency) or (ii) an unrated security deemed of
comparable quality by the Series' investment adviser under the supervision of
the Trustees. The purchase by the Series of a security of eligible quality that
is rated by only one rating agency or is unrated must be approved or ratified
by the Trustees.
OTHER INVESTMENTS AND POLICIES
REPURCHASE AGREEMENTS
The Series may enter into repurchase agreements, whereby the seller of a
security agrees to repurchase that security from the Series at a mutually
agreed-upon time and price. The period of maturity is usually quite short,
possibly overnight or a few days, although it may extend over a number of
months. The resale price is in excess of the purchase price, reflecting an
agreed-upon rate of return effective for the period of time the Series' money
is invested in the security. The Series' repurchase agreements will at all
times be fully collateralized in an amount at least equal to the resale price.
The instruments held as collateral are valued daily, and if the value of such
instruments declines, the Series will require additional collateral. If the
seller defaults and the value of the collateral securing the repurchase
agreement declines, the Series may incur a loss. The Series participates in a
joint repurchase account with other investment companies managed by Prudential
Investments Fund Management LLC pursuant to an order of the SEC. See
"Investment Objectives and Policies-Repurchase Agreements" in the Statement of
Additional Information.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Series may purchase or sell securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased or sold by the Series with payment and delivery taking
place
8
<PAGE>
in the future in order to secure what is considered to be an advantageous price
and yield to the Series at the time of entering into the transaction. The
Trust's Custodian will maintain, in a segregated account of the Series, cash,
U.S. Government securities, equity securities or other liquid assets having a
value equal to or greater than the Series' purchase commitments. The securities
so purchased are subject to market fluctuation and no interest accrues to the
purchaser during the period between purchase and settlement. At the time of
delivery of the securities the value may be more or less than the purchase
price and an increase in the percentage of the Series' assets commited to the
purchase of securities on a when-issued or delayed delivery basis may increase
the volatility of the Series' net asset value.
BORROWING
The Series may borrow an amount equal to no more than 20% of the value of
its total assets (calculated when the loan is made) from banks for temporary,
extraordinary or emergency purposes. The Series may pledge up to 20% of its
total assets to secure these borrowings. Borrowing for purposes other than
meeting redemptions may not exceed 5% of the value of the Series' total assets.
Investment securities will not be purchased while borrowings are outstanding.
ILLIQUID SECURITIES
The Series may hold up to 10% of its net assets in illiquid securities,
including repurchase agreements which have a maturity of longer than seven
days, securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable. Restricted
securities eligible for resale pursuant to Rule 144A under the Securities Act
of 1933, as amended (the Securities Act), privately placed commercial paper and
municipal lease obligations if in each case such investments have a readily
available market are not considered illiquid for purposes of this limitation.
The Series' investment in Rule 144A securities could have the effect of
increasing illiquidity to the extent that qualified institutional buyers
become, for a time, uninterested in purchasing Rule 144A securities. The
investment adviser will monitor the liquidity of such restricted securities
under the supervision of the Trustees. Repurchase agreements subject to demand
are deemed to have a maturity equal to the applicable notice period.
INVESTMENT RESTRICTIONS
The Series is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Series' outstanding securities, as defined in the Investment Company Act. See
"Investment Restrictions" in the Statement of Additional Information.
HOW THE TRUST IS MANAGED
THE TRUST HAS TRUSTEES WHO, IN ADDITION TO OVERSEEING THE ACTIONS OF THE
TRUST'S MANAGER, SUBADVISER AND DISTRIBUTOR, AS SET FORTH BELOW, DECIDE UPON
MATTERS OF GENERAL POLICY. THE TRUST'S MANAGER CONDUCTS AND SUPERVISES THE
DAILY BUSINESS OPERATIONS OF THE TRUST. THE TRUST'S SUBADVISER FURNISHES DAILY
INVESTMENT ADVISORY SERVICES.
For the fiscal year ended November 30, 1997, total expenses of the Series'
Class A and Class Z shares as a percentage of its average net assets were .77%
and .52%, respectively. See "Financial Highlights."
MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM OR THE MANAGER), GATEWAY
CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, IS THE
MANAGER OF THE TRUST AND IS COMPENSATED FOR ITS SERVICES AT AN ANNUAL
9
<PAGE>
RATE OF .40 OF 1% OF THE SERIES' AVERAGE DAILY NET ASSETS UP TO $1 BILLION,
.375 OF 1% OF THE SERIES' AVERAGE DAILY NET ASSETS BETWEEN $1 BILLION AND $1.5
BILLION AND .35 OF 1% IN EXCESS OF $1.5 BILLION. PIFM is organized in New York
as a limited liability company. It is the successor to Prudential Mutual Fund
Management, Inc., which transferred its assets to PIFM in September 1996. For
the fiscal year ended November 30, 1997, the Trust paid management fees to PIFM
of .40% of the average net assets of the Series. See "Manager" in the Statement
of Additional Information.
As of December 31, 1997, PIFM served as the manager to 42 open-end
investment companies, constituting all of the Prudential Mutual Funds, and as
manager or administrator to 22 closed-end investment companies with aggregate
assets of approximately $62 billion.
UNDER THE MANAGEMENT AGREEMENT WITH THE TRUST, PIFM MANAGES THE INVESTMENT
OPERATIONS OF THE TRUST AND ALSO ADMINISTERS THE TRUST'S CORPORATE AFFAIRS. SEE
"MANAGER" IN THE STATEMENT OF ADDITIONAL INFORMATION.
UNDER A SUBADVISORY AGREEMENT BETWEEN PIFM AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC) DOING BUSINESS AS PRUDENTIAL INVESTMENTS (PI, THE SUBADVISER
OR THE INVESTMENT ADVISER), THE SUBADVISER FURNISHES INVESTMENT ADVISORY
SERVICES IN CONNECTION WITH THE MANAGEMENT OF THE TRUST AND IS REIMBURSED BY
PIFM FOR ITS REASONABLE COSTS AND EXPENSES INCURRED IN PROVIDING SUCH SERVICES.
Under the Management Agreement, PIFM continues to have responsibility for all
investment advisory services and supervises the Subadviser's performance of
such services.
PIFM and PIC are indirect, wholly-owned subsidiaries of The Prudential
Insurance Company of America (Prudential), a major diversified insurance and
financial services company.
DISTRIBUTOR
PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES, PSI OR THE
DISTRIBUTOR), ONE SEAPORT PLAZA, NEW YORK, NEW YORK 10292, IS A CORPORATION
ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE AND SERVES AS THE DISTRIBUTOR
OF THE SERIES' SHARES. IT IS AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF
PRUDENTIAL.
UNDER A DISTRIBUTION AND SERVICE PLAN (THE CLASS A PLAN) ADOPTED BY THE
SERIES UNDER RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT AND A DISTRIBUTION AND
SERVICE AGREEMENT (THE DISTRIBUTION AGREEMENT), THE DISTRIBUTOR INCURS THE
EXPENSES OF DISTRIBUTING CLASS A SHARES OF THE SERIES. The Distributor also
incurs the expense of distributing the Series' Class Z shares under the
Distribution Agreement with the Trust, none of which is reimbursed by or paid
for by the Trust. These expenses include account servicing fees paid to, or on
account of, financial advisers of Prudential Securities and representatives of
Pruco Securities Corporation (Prusec), an affiliated broker-dealer, account
servicing fees paid to, or on account of, other broker-dealers or financial
institutions (other than national banks) which have entered into agreements
with the Distributor, advertising expenses, the cost of printing and mailing
prospectuses to potential investors and indirect and overhead costs of
Prudential Securities and Prusec associated with the sale of the Series' Class
A shares, including lease, utility, communications and sales promotion
expenses.
Under the Class A Plan, the Trust is obligated to pay a service fee to the
Distributor as compensation for its distribution and service activities on
behalf of the Class A shares of the Series, not as reimbursement for specific
expenses incurred. If the Distributor's expenses exceed its distribution and
service fees, the Trust will not be obligated to pay any additional expenses.
If the Distributor's expenses are less than such distribution and service fees,
it will retain its full fees and realize a profit.
UNDER THE CLASS A PLAN, THE TRUST PAYS THE DISTRIBUTOR FOR ITS
DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS A SHARES OF THE SERIES AT
AN ANNUAL RATE OF UP TO .125 OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE
SERIES' CLASS A SHARES. Account servicing fees are paid based on the average
balance of the Series' Class A shares held in accounts of customers of
financial advisers. The entire distribution fee may be used to pay account
servicing fees.
For the fiscal year ended November 30, 1997, the Series paid distribution
expenses of .125 of 1% of the average daily net assets of its Class A shares.
The Trust records all payments made under the Class A Plan as expenses in the
calculation of its net investment income.
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<PAGE>
The Class A Plan provides that it shall continue in effect from year to
year provided that each such continuance is approved annually by a majority
vote of the Trustees, including a majority of the Trustees who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Class A Plan or any agreements related to the
Class A Plan (Rule 12b-1 Trustees). The Trustees are provided with and review
quarterly reports of expenditures under the Plan. The Class A Plan may be
terminated at any time by vote of a majority of the Rule 12b-1 Trustees or of a
majority of the Series' outstanding Class A shares. The Trust will not be
obligated to pay expenses incurred under the Class A Plan if it is terminated
or not continued.
In addition to distribution and service fees paid by the Series under the
Class A Plan, the Manager (or one of its affiliates) may make payments out of
its own resources to dealers (including Prudential Securities) and other
persons who distribute shares of the Series (including Class Z shares). Such
payments may be calculated by reference to the net asset value of shares sold
by such persons or otherwise.
PORTFOLIO TRANSACTIONS
Prudential Securities may act as a broker for the Trust, provided that the
commissions, fees or other remuneration it receives are fair and reasonable.
See "Portfolio Transactions and Brokerage" in the Statement of Additional
Information.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian of the Trust's portfolio securities
and, in that capacity, maintains certain financial and accounting books and
records pursuant to an agreement with the Trust. Its mailing address is P.O.
Box 1713, Boston, Massachusetts 02105.
Prudential Mutual Fund Services LLC (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as Transfer and Dividend Disbursing Agent and, in those
capacities, maintains certain books and records for the Trust. PMFS is a
wholly-owned subsidiary of PIFM. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.
HOW THE TRUST VALUES ITS SHARES
THE SERIES' NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING
ITS LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS. THE
TRUSTEES HAVE FIXED THE SPECIFIC TIME OF DAY FOR THE COMPUTATION OF THE SERIES'
NAV TO BE AS OF 4:30 P.M., NEW YORK TIME, IMMEDIATELY AFTER THE DAILY
DECLARATION OF DIVIDENDS.
The Series will compute its NAV once daily on the days that the New York
Stock Exchange is open for trading, except on days on which no orders to
purchase, sell or redeem Series shares have been received or days on which
changes in the value of the Series' portfolio securities do not materially
affect the NAV.
The Series determines the value of its portfolio securities by the
amortized cost method. This method involves valuing a security at its cost at
the time of purchase and thereafter assuming a constant amortization to
maturity of any discount or premium regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method
provides certainty in valuation, it may result in periods during which value,
as determined by amortized cost, is higher or lower than the price the Series
would receive if it sold the instrument. During these periods, the yield to a
shareholder may differ somewhat from that which could be obtained from a
similar fund which marks its portfolio securities to the market each day. For
example, during periods of declining interest rates, if the use of the
amortized cost
11
<PAGE>
method resulted in a lower value of the Series' portfolio on a given day, a
prospective investor in the Series would be able to obtain a somewhat higher
yield and existing shareholders would receive correspondingly less income. The
converse would apply during periods of rising interest rates. The Trustees have
established procedures designed to stabilize, to the extent reasonably
possible, the NAV of the Series' shares at $1.00 per share. See "Net Asset
Value" in the Statement of Additional Information.
TAXES, DIVIDENDS AND DISTRIBUTIONS
TAXATION OF THE SERIES
EACH SERIES OF THE TRUST IS TREATED AS A SEPARATE ENTITY FOR FEDERAL
INCOME TAX PURPOSES AND EACH HAS ELECTED TO QUALIFY AND INTENDS TO REMAIN
QUALIFIED AS A REGULATED INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE.
ACCORDINGLY, THE SERIES WILL NOT BE SUBJECT TO FEDERAL INCOME TAXES ON ITS NET
INVESTMENT INCOME AND CAPITAL GAIN, IF ANY, IT DISTRIBUTES TO SHAREHOLDERS. To
the extent not distributed by the Series, taxable net investment income and net
capital gains are taxable to the Series. The performance and tax qualification
of one series will have no effect on the federal income tax liability of
shareholders of the other series. See "Taxes, Dividends and Distributions" in
the Statement of Additional Information.
TAXATION OF SHAREHOLDERS
Distributions of net investment income and net short-term capital gains
(I.E., the excess of net short-term capital gains over net long-term capital
losses), if any, will be taxable to shareholders of the Series as ordinary
income, whether or not reinvested. The Series does not expect to realize
long-term capital gains or losses. Because none of the income of the Series
will consist of dividends from domestic corporations, dividends of net
investment income and distributions of net short-term capital gains will not be
eligible for the dividends-received deduction for corporate shareholders.
Tax-exempt shareholders will generally not be required to pay taxes on amounts
distributed to them.
The Trust has obtained an opinion of counsel to the effect that the
exchange of one class of the Series' shares for another class of its shares
does not constitute a taxable event for federal income tax purposes. However,
such opinion is not binding on the Internal Revenue Service.
WITHHOLDING TAXES
Under the Internal Revenue Code, the Trust is required to withhold and
remit to the U.S. Treasury 31% of dividends, capital gain distributions and
redemption proceeds on the accounts of certain shareholders who fail to furnish
their tax identification numbers on IRS Form W-9 (or IRS Form W-8 in the case
of certain foreign shareholders). Withholding at this rate is also required
from dividends and capital gains distributions (but not redemption proceeds)
payable to shareholders who are otherwise subject to backup withholding.
Dividends from net investment income and short-term capital gains paid to a
foreign shareholder will generally be subject to U.S. withholding tax at the
rate of 30% (or lower treaty rate).
DIVIDENDS AND DISTRIBUTIONS
THE SERIES EXPECTS TO DECLARE DAILY AND PAY MONTHLY DIVIDENDS OF NET
INVESTMENT INCOME AND SHORT-TERM CAPITAL GAINS, IF ANY. A shareholder generally
begins to earn dividends on the first business day after his or her order is
placed
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<PAGE>
with the Series, as described below, and continues to earn dividends through
the day on which his or her shares are redeemed. In the case of certain
redemptions, however, Prudential Securities clients will not be entitled to
dividends declared on the date of redemption. See "How to Sell Your
Shares-Redemption of Shares Purchased Through Prudential Securities."
DIVIDENDS AND DISTRIBUTIONS WILL BE PAID IN ADDITIONAL SHARES OF THE SERIES
BASED ON THE NET ASSET VALUE OF EACH CLASS OF THE SERIES' SHARES ON THE PAYMENT
DATE, UNLESS THE SHAREHOLDER ELECTS IN WRITING NOT LESS THAN FIVE BUSINESS DAYS
PRIOR TO THE PAYMENT DATE TO RECEIVE SUCH DIVIDENDS AND DISTRIBUTIONS IN CASH.
Such election should be submitted to Prudential Mutual Fund Services LLC,
Attention: Account Maintenance, P.O. Box 15015, New Brunswick, New Jersey
08906-5015. If you hold shares through Prudential Securities, you should contact
your financial adviser to elect to receive dividends and distributions in cash.
The Trust will notify each shareholder after the close of the Trust's taxable
year of both the dollar amount and taxable status of that year's dividends and
distributions on a per share basis. Distributions may be subject to state and
local taxes. See "Taxation of Shareholders" above.
If you buy shares on or immediately prior to the record date (the date
that determines who receives the dividend), you will receive a portion of the
money you invested as a taxable dividend. Therefore, you should consider the
timing of dividends when buying shares of the Fund.
GENERAL INFORMATION
DESCRIPTION OF SHARES
THE TRUST, ORGANIZED IN 1981 AS AN UNINCORPORATED BUSINESS TRUST UNDER THE
LAWS OF MASSACHUSETTS, IS A TRUST FUND OF THE TYPE COMMONLY KNOWN AS A
MASSACHUSETTS BUSINESS TRUST. The Trust's activities are supervised by its
Trustees. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares in separate series and classes within such
series. The Series is authorized to issue an unlimited number of shares,
divided into two classes, designated Class A and Class Z.
The shareholders of the Money Market Series, the Short-Intermediate Term
Series and the U.S. Treasury Money Market Series are each entitled to a full
vote for each full share of beneficial interest (par value $.01 per share) held
(and fractional votes for fractional shares). Shares of each series are
entitled to vote as a class only to the extent required by the provisions of
the Investment Company Act or as otherwise permitted by the Trustees in their
sole discretion. Under the Investment Company Act, shareholders of each series
have to approve the adoption of any investment advisory agreement relating to
such series and of any changes in the investment policies related thereto.
Shares of the Money Market Series are currently divided into two classes
designated Class A and Class Z shares. Each class represents an interest in the
same assets of the Series and is identical in all respects except that (i) each
class is subject to different expenses which may affect performance, (ii) each
class has exclusive voting rights on any matter submitted to shareholders that
relates solely to its arrangement and has separate voting rights on any matter
submitted to shareholders in which the interests of one class differ from the
interests of the other class, (iii) each class has a different exchange
privilege and (iv) Class Z shares are offered exclusively for sale to a limited
group of investors. Since Class A shares are subject to distribution and/or
service expenses, the liquidation proceeds to shareholders of that class are
likely to be lower than to Class Z shareholders whose shares are not subject to
any distribution and/or service expenses. In accordance with the Trust's
Declaration of Trust, the Trustees may authorize the creation of additional
classes, with such preferences, privileges, limitations and voting and dividend
rights as the Trustees may determine.
It is the intention of the Trust not to hold annual meetings of
shareholders. The Trustees may call special meetings of shareholders for action
by shareholder vote as may be required by the Investment Company Act or the
Declaration
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<PAGE>
of Trust. Shareholders have certain rights, including the right to call a
meeting upon vote of 10% of the Trust's outstanding shares for the purpose of
voting on the removal of one or more Trustees.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which
has been incorporated by reference herein, does not contain all the information
set forth in the Registration Statement filed by the Trust with the SEC under
the Securities Act. Copies of the Registration Statement may be obtained at a
reasonable charge from the SEC or may be examined, without charge, at the
office of the SEC in Washington, D.C.
SHAREHOLDER GUIDE
HOW TO BUY SHARES OF THE TRUST
GENERAL INFORMATION
Shares of the Trust are available through Prudential Securities
Incorporated (Prudential Securities), Pruco Securities Corporation (Prusec) or
directly from the Trust, through its Transfer Agent, Prudential Mutual Fund
Services LLC (PMFS or the Transfer Agent), Attention: Investment Services, P.O.
Box 15020, New Brunswick, New Jersey 08906-5020. Participants in programs
sponsored by Prudential Retirement Services should contact their client
representative for more information about Class Z shares. Shareholders of the
Trust who are clients of Prudential Securities are subject to the procedures
under "Purchases through Prudential Securities" below.
The Trust offers two classes of shares: Class A shares and Class Z shares.
Class Z shares are offered to a limited group of investors. Payments may be
made by cash, wire, check or through your brokerage account.
The minimum initial investment for the Class A shares of the Series is
$1,000 and the minimum subsequent investment is $100. There is no minimum
initial or subsequent investment for investors who qualify to purchase Class Z
shares. All minimum investment requirements are waived for certain retirement
and employee savings plans and custodial accounts for the benefit of minors.
For purchases made through the Automatic Savings Accumulation Plan, the minimum
initial and subsequent investment is $50. See "Shareholder Services" below. For
automatic purchases made through Prudential Securities, the minimum initial
investment requirement for Class A shares of the Series is $1,000 and there is
no minimum subsequent investment requirement.
Shares of the Trust are sold through the Transfer Agent, without a sales
charge, at the NAV next determined after receipt and acceptance by the Transfer
Agent of a purchase order and payment in proper form (I.E., a check or Federal
Funds wired to State Street Bank and Trust Company (State Street), the Trust's
custodian). See "How the Trust Values its Shares." When payment is received by
the Transfer Agent prior to 4:30 P.M., New York time, in proper form, a share
purchase order will be entered at the price determined as of 4:30 P.M., on that
day, and the shares will begin to earn dividends on the following business day.
See "Taxes, Dividends and Distributions." If your purchase is made through an
account at Prudential Securities or through Prusec or another dealer, your
dealer will forward a purchase order and payment to the Trust.
Investors who purchase their shares through a dealer other than Prudential
Securities or Prusec, which dealer has a clearing arrangement with respect to
shares of the Trust, may be able to participate in the automatic sweep feature
described below under "Purchases through Prudential Securities-Automatic
Investment (Autosweep)" and "How to Sell Your Shares-Redemptions of Shares
Purchased through Prudential Securities." For further information, contact your
dealer.
Application forms for Prusec and direct accounts with the Transfer Agent
(E.G., non-Prudential Securities accounts) can be obtained from PMFS or Prusec.
If a stock certificate is desired, it must be requested in writing for each
transaction.
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<PAGE>
Certificates are issued only for full shares. Shareholders who hold their
shares through Prudential Securities will not receive stock certificates.
Shareholders cannot utilize Expedited Redemption or Check Redemption or have a
Systematic Withdrawal Plan if they have been issued certificates.
The Trust reserves the right, in its discretion, to reject any purchase
order (including an exchange into the Trust) or to suspend or modify the
continuous offering of its shares. See "How to Sell Your Shares" below.
Your dealer is responsible for forwarding payment promptly to the Trust.
The Distributor reserves the right to cancel any purchase order for which
payment has not been received by the third business day following the
investment.
Transactions in Trust shares may be subject to postage and other charges
imposed by your dealer.
In connection with the sale of shares of the Series, the Manager, the
Distributor or one of their affiliates may pay dealers, financial advisers and
other persons who distribute shares a finders' fee based on a percentage of the
net asset value of shares by such persons. For more information about shares of
the Trust contact your Prudential Securities financial adviser or Prusec
representative or telephone the Trust at (800) 225-1852. Participants in
programs sponsored by Prudential Retirement Services should contact their
client representative for more information about Class Z shares.
CLASS Z SHARES
Class Z shares are currently available for purchases by the following
categories of investors: (i) pension, profit-sharing or other employee benefit
plans qualified under Section 401 of the Internal Revenue Code, deferred
compensation and annuity plans under Sections 457 and 403(b)(7) of the Internal
Revenue Code, and non-qualified plans for which the Series is an available
option (collectively, Benefit Plans); provided that such Benefit Plans (in
combination with other plans sponsored by the same employer or group of related
employers) have at least $50 million in defined contribution assets, (ii)
participants in any fee-based program or trust program sponsored by Prudential
Securities. The Prudential Savings Bank, F.S.B. or any affiliate which includes
mutual funds as investment options and for which the Series is an available
option, (iii) certain participants in the MEDLEY Program (group variable
annuity contracts) sponsored by Prudential, for whom Class Z shares of the
Prudential Mutual Funds are an available investment option, (iv) Benefit Plans
for which Prudential Retirement Services serves as recordkeeper and as of
September 20, 1996 (a) were Class Z shareholders of the Prudential Mutual Funds
or (b) executed a letter of intent to purchase Class Z shares of the Prudential
Mutual Funds, (v) current and former Directors/Trustees of the Prudential
Mutual Funds (including the Series), and (vi) employees of Prudential and/or
Prudential Securities who participate in a Prudential-sponsored employee
savings plan.
PURCHASES THROUGH PRUDENTIAL SECURITIES
AUTOMATIC INVESTMENT (AUTOSWEEP) (FOR NON-COMMAND ACCOUNTS)
Prudential Securities has advised the Trust that it has automatic
investment procedures (Autosweep) pursuant to which it will make automatic
investments of free credit cash balances (Eligible Credit Balances) held in a
client's brokerage account in shares of the Series, if the Series is your
Primary Money Sweep Fund. You may designate the Series (or certain other
Prudential money market funds) as your Primary Money Sweep Fund. If the Series
is your Primary Money Sweep Fund you can purchase shares of the Series only
through the automatic investment procedures described below; no manual purchase
orders will be accepted. You may change your Primary Money Sweep Fund at any
time by notifying your Prudential Securities financial adviser. Under certain
circumstances, you may elect not to have a money market sweep feature for your
account when you open your account.
For accounts other than IRAs and Benefit Plans, as defined below, shares
of the Series will be purchased by Prudential Securities as follows: in the
case of Eligible Credit Balances of $1,000 or more resulting from the proceeds
of a securities sale, maturity of a bond or call and Eligible Credit Balances
of $10,000 or more resulting from a non-trade related credit (E.G., receipt of
a dividend or interest payment or a cash payment into the securities account),
orders to
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<PAGE>
purchase shares will be placed on the business day after such Eligible Credit
Balances become available in your account. For Eligible Credit Balances of
$1.00 or more not otherwise described above, orders to purchase shares will be
placed monthly on the last business day of the month. For IRAs and Benefit
Plans, having Eligible Credit Balances of $1.00 or more, orders to purchase
shares of the Series will be placed by Prudential Securities (i) on the
settlement date of the securities sale, in the case of Eligible Credit Balances
resulting from the proceeds of a securities sale, and (ii) on the business day
after receipt by Prudential Securities of the non-trade related credit
(including the maturity of a bond or a call), in the case of Eligible Credit
Balances resulting from a non-trade related credit. Each time an order
resulting from the settlement of a securities sale is placed, any non-trade
related credit in the client's account will also be invested.
The following chart shows the frequency and amount of the sweep for
accounts other than IRAs and Benefit Plans.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
DAILY MONTHLY
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Eligible Credit Balances resulting from the proceeds of a
securities sale, maturity of a bond or call $1,000 or more
- ----------------------------------------------------------------------------------------------------
Eligible Credit Balances resulting from a non-trade related
credit $10,000 or more
- ----------------------------------------------------------------------------------------------------
Remaining Eligible Credit Balances $1.00 or more
- ----------------------------------------------------------------------------------------------------
</TABLE>
All shares purchased pursuant to these automatic investment procedures
will be issued at the NAV computed on the business day the order is entered and
will begin earning dividends on the following business day. Purchases through
Autosweep are subject to the Series' minimum initial investment requirement of
$1,000 for Class A shares, which is waived for certain retirement and employee
savings plans and custodial accounts for the benefit of minors. There is no
minimum initial or subsequent investment requirement for investors who qualify
to purchase Class Z shares. Prudential Securities will have the use of, and
will retain the benefits of, Eligible Credit Balances in a client's brokerage
account until monies are delivered to the Trust. (Prudential Securities
delivers federal funds on the business day after settlement). Eligible Credit
Balances for purposes of Autosweep are measured as of the close of business on
the previous business day.
For the purposes of Autosweep, Benefit Plans include (i) employee benefit
plans as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974 (ERISA) other than governmental plans as defined in Section 3(32) of
ERISA and church plans as defined in Section 3(33) of ERISA, (ii) pension,
profit-sharing or other employee benefit plans qualified under Section 401 of
the Internal Revenue Code and (iii) deferred compensation and annuity plans
under Section 457 or 403(b)(7) of the Internal Revenue Code. IRAs are
Individual Retirement Accounts as defined in Section 408(a) of the Internal
Revenue Code.
MANUAL INVESTMENT
Prudential Securities will accept manual purchase orders for shares of the
Series only for those clients (i) who are purchasing shares of a Prudential
money market fund which is not their Primary Money Sweep Fund or (ii) who do
not have a money market sweep feature in their account, as described above
under "Automatic Investment." Prudential Securities clients eligible to make
manual purchases, as described above, are subject to the minimum initial
investment of $1,000 for Class A shares of the Series and the minimum
subsequent investment of $100, except that all minimum investment requirements
are waived for certain retirement and employee savings plans and custodial
accounts for the benefit of minors. There is no minimum initial or subsequent
investment requirement for investors who qualify to purchase Class Z shares. On
the business day after the purchase order is received, Prudential Securities
will place the order for shares of the Series for settlement that day. Shares
will be issued at the NAV determined on that day and will begin earning
dividends the next business day, which is the second business day after receipt
of the purchase
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<PAGE>
order by Prudential Securities. Prudential Securities will have the use of, and
will retain the benefits of, Eligible Credit Balances in the client's brokerage
account until monies are delivered to the Trust. (Prudential Securities delivers
Federal Funds on the business day after settlement).
PURCHASE THROUGH PRUSEC
You may purchase shares of the Series by placing an order with your Prusec
registered representative accompanied by payment for the purchase price of such
shares and, in the case of a new account, a completed Application Form. You
should also submit an IRS Form W-9. The Prusec registered representative will
then forward these items to the Transfer Agent. See "Purchase By Mail" below.
PURCHASE BY WIRE
For an initial purchase of shares of the Series by wire, you must first
telephone PMFS at (800) 225-1852 (toll free) to receive an account number. The
following information will be requested: your name, address, tax identification
number, dividend distribution election, amount being wired and wiring bank.
Instructions should then be given by you to your bank to transfer funds by wire
to State Street Bank and Trust Company (State Street), Boston, Massachusetts
02205, Services Division, Attention: Prudential Government Securities Trust
(Money Market Series), specifying on the wire the account number assigned by
PMFS and your name and identify the class in which you are eligible to invest
(Class A or Class Z shares).
If you arrange for receipt by State Street of Federal Funds prior to 4:30
P.M., New York time, on a business day, you may purchase shares of the Series
as of that day and earn dividends commencing on the next business day.
In making a subsequent purchase order by wire, you should wire State
Street directly, and should be sure that the wire specifies Prudential
Government Securities Trust (Money Market Series), Class A or Class Z shares
and your name and individual account number. It is not necessary to call PMFS
to make subsequent purchase orders by wire. The minimum amount which may be
invested by wire is $1,000.
PURCHASE BY MAIL
Purchase orders for which remittance is to be made by check or money order
may be submitted directly by mail to Prudential Mutual Fund Services LLC,
Attention: Investment Services, P.O. Box 15020, New Brunswick, New Jersey
08906-5020, together with payment of the purchase price of such shares and, in
the case of a new account, a completed Application Form. You should also submit
an IRS Form W-9. If PMFS receives your order to purchase shares of the Series
and payment in proper form prior to 4:30 P.M., New York time, the purchase
order will be effective on that day and you will begin earning dividends on the
following business day. See "Taxes, Dividends and Distributions." Checks should
be made payable to Prudential Government Securities Trust (Money Market Series)
and should indicate Class A or Class Z shares. Certified checks are not
necessary, but checks are accepted subject to collection at full face value in
United States funds and must be drawn on a bank located in the United States.
There are restrictions on the redemption of shares purchased by check while the
funds are being collected. See "How to Sell Your Shares."
HOW TO SELL YOUR SHARES
YOU CAN REDEEM YOUR SHARES AT ANY TIME FOR CASH AT THE NAV NEXT DETERMINED
AFTER THE REDEMPTION REQUEST IS RECEIVED IN PROPER FORM BY THE TRANSFER AGENT
OR PRUDENTIAL SECURITIES. SEE "HOW THE TRUST VALUES ITS SHARES."
Shares for which a redemption request is received prior to 4:30 P.M., New
York time, are entitled to a dividend on the day the request is received. By
pre-authorizing Expedited Redemption, you may arrange to have payment for
redeemed shares made in Federal Funds wired to your bank, normally on the next
bank business day following the date of receipt of the redemption instructions.
Should you redeem all of your shares, you will receive the amount of all
dividends declared for the month-to-date on those shares. See "Taxes, Dividends
and Distributions."
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If redemption is requested by a corporation, partnership, trust or
fiduciary, written evidence of authority acceptable to the Transfer Agent must
be submitted before such request will be accepted. All correspondence and
documents concerning redemptions should be sent to the Trust in care of its
Transfer Agent, Prudential Mutual Fund Services LLC, Attention: Redemption
Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid
to a person other than the record owner, (c) are to be sent to an address other
than the address on the Transfer Agent's records or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the
redemption request and on the certificates, if any, or stock power, must be
guaranteed by an eligible guarantor institution. An eligible guarantor
institution includes any bank, broker, dealer or credit union. The Transfer
Agent reserves the right to request additional information from, and make
reasonable inquiries of, any eligible guarantor institution. For clients of
Prusec a signature guarantee may be obtained from the agency or office manager
of most Prudential Insurance and Financial Services or Preferred Services
offices. In the case of redemptions from a benefit plan that participates in
the Prudential PruArray or Smartpath Program, if the proceeds of the redemption
are invested in another investment option of such plan, in the name of the
record holder and at the same address as reflected in the Transfer Agent's
records, a signature guarantee is not required.
NORMALLY, THE TRUST MAKES PAYMENT ON THE NEXT BUSINESS DAY FOR ALL SHARES
OF THE SERIES REDEEMED, BUT IN ANY EVENT, PAYMENT WILL BE MADE WITHIN SEVEN
DAYS AFTER RECEIPT BY PMFS OF SHARE CERTIFICATES AND/OR OF A REDEMPTION REQUEST
IN PROPER FORM. However, the Trust may suspend the right of redemption or
postpone the date of payment (a) for any periods during which the New York
Stock Exchange is closed (other than for customary weekend or holiday
closings), (b) for any periods when trading in the markets the Series normally
utilizes is closed or restricted or an emergency exists as determined by the
SEC so that disposal of the investments of the Series or determination of its
NAV is not reasonably practicable, or (c) for such other periods as the SEC may
permit for protection of the shareholders of the Money Market Series.
PAYMENT FOR REDEMPTION OF RECENTLY PURCHASED SHARES WILL BE DELAYED UNTIL
THE TRUST OR ITS TRANSFER AGENT HAS BEEN ADVISED THAT THE PURCHASE CHECK HAS
BEEN HONORED, UP TO 10 CALENDAR DAYS FROM THE TIME OF RECEIPT OF THE PURCHASE
CHECK BY THE TRANSFER AGENT. SUCH DELAY MAY BE AVOIDED IF SHARES ARE PURCHASED
BY WIRE OR BY CERTIFIED OR CASHIER'S CHECK.
REDEMPTION OF SHARES PURCHASED THROUGH PRUDENTIAL SECURITIES
Prudential Securities has advised the Trust that it has established
procedures pursuant to which shares of the Series held by a Prudential
Securities client having a deficiency in his or her Prudential Securities
account will be redeemed automatically to the extent of that deficiency to the
nearest highest dollar. The amount of the redemption will be the lesser of (a)
the total net asset value of the Series' shares held in the client's Prudential
Securities account or (b) the deficiency in the client's Prudential Securities
account at the close of business on the date such deficiency is due.
Accordingly, a Prudential Securities client who wishes to pay for a securities
transaction or satisfy any other debit balance in his or her account other than
through such automatic redemption procedure must do so prior to the day of
settlement for such securities transaction or the date the debit balance is
incurred. In the case of certain automatic redemptions, where Prudential
Securities cannot anticipate debits in the brokerage account (E.G., checks
written against the account), Prudential Securities clients will not be
entitled to dividends declared on the date of redemption; such dividends will
be retained by Prudential Securities.
REDEMPTION OF SHARES PURCHASED THROUGH PMFS
If you purchase shares of the Series through PMFS, you may use Check
Redemption, Expedited Redemption or Regular Redemption. Prudential Securities
clients for whom Prudential Securities has purchased shares may not use such
services.
REGULAR REDEMPTION. You may redeem your shares by sending a written
request to PMFS, Attention: Redemption Services, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010. In this case, all share certificates must be endorsed
18
<PAGE>
by you with signature guaranteed, as described above. PMFS may request further
documentation from corporations, executors, administrators, trustees or
guardians. Regular redemption is made by check mailed to the shareholder's
address.
EXPEDITED REDEMPTION. By pre-authorizing Expedited Redemption, you may
arrange to have payment for redeemed shares made in Federal Funds wired to your
bank, normally on the next business day following redemption. In order to use
Expedited Redemption, you may so designate at the time the initial investment
is made or at a later date. Once an Expedited Redemption authorization form has
been completed, the signature on the authorization form guaranteed as set forth
above and the form returned to PMFS, requests for redemption may be made by
telegraph, letter or telephone. To request Expedited Redemption by telephone,
you should call PMFS at (800) 225-1852. Calls must be received by PMFS before
4:30 P.M., New York time, to permit redemption as of such date. Requests by
letter should be addressed to Prudential Mutual Fund Services LLC, Attention:
Redemption Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010.
A signature guarantee is not required under Expedited Redemption once the
authorization form is properly completed and returned. The Expedited Redemption
privilege may be used to redeem shares in an amount of $200 or more, except
that if an account for which Expedited Redemption is requested has a net asset
value of less than $200, the entire account must be redeemed. The proceeds of
redeemed shares in the amount of $1,000 or more are transmitted by wire to your
account at a domestic commercial bank which is a member of the Federal Reserve
System. Proceeds of less than $1,000 are forwarded by check to your designated
bank account.
DURING PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS, EXPEDITED
REDEMPTION MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD REDEEM YOUR SHARES BY
MAIL AS DESCRIBED ABOVE.
CHECK REDEMPTION. At your request, State Street will establish a personal
checking account for you. Checks drawn on this account can be made payable to
the order of any person in any amount greater than $500. When such check is
presented to State Street for payment, State Street presents the check to the
Trust as authority to redeem a sufficient number of shares of the Series in
your account to cover the amount of the check. If insufficient shares are in
the account or, if the purchase was made by check within 10 calendar days, the
check will be returned marked "insufficient funds." Checks in an amount less
than $500 will not be honored. Shares for which certificates have been issued
cannot be redeemed by check. PMFS reserves the right to impose a service charge
to establish a checking account and order checks.
INVOLUNTARY REDEMPTION
Because of the relatively high cost of maintaining an account, the Trust
reserves the right to redeem, upon 60 days' written notice, an account which is
reduced to an NAV of $500 or less due to a redemption. You may avoid such
redemption by increasing the NAV of your account to an amount in excess of
$500.
REDEMPTION IN KIND
If the Trustees determine that it would be detrimental to the best
interests of the remaining shareholders of the Series to make payment wholly or
partly in cash, the Trust may pay the redemption price in whole or in part by a
distribution in kind of securities from the investment portfolio of the Series
in lieu of cash, in conformity with applicable rules of the SEC. Securities
will be readily marketable and will be valued in the same manner as in a
regular redemption. See "How the Trust Values its Shares." If your shares are
redeemed in kind, you would incur transaction costs in converting the assets
into cash. The Trust, however, has elected to be governed by Rule 18f-1 under
the Investment
19
<PAGE>
Company Act, under which the Trust is obligated to redeem shares solely in cash
up to the lesser of $250,000 or one percent of the net asset value of the Trust
during any 90-day period for any one shareholder.
90-DAY REPURCHASE PRIVILEGE
If you redeem your shares and have not previously exercised the repurchase
privilege, you may reinvest any portion or all of the proceeds of such
redemption in shares of the Trust at the NAV next determined after the order is
received, which must be within 90 days after the date of the redemption. Any
CDSC paid in connection with such redemption will be credited (in shares) to
your account. (If less than a full repurchase is made, the credit will be on a
pro rata basis.) You must notify the Trust's Transfer Agent, either directly or
through Prudential Securities, at the time the repurchase privilege is
exercised to adjust your account for the CDSC you previously paid. Thereafter,
any redemptions will be subject to the CDSC applicable at the time of the
redemption. Exercise of the repurchase privilege may affect the federal income
tax treatment of any gain or loss realized upon the redemption.
CLASS B AND CLASS C PURCHASE PRIVILEGE
You may direct that the proceeds of the redemption of your shares be
invested in Class B or Class C shares of any Prudential Mutual Fund by calling
your Prudential Securities financial adviser or the Transfer Agent at (800)
225-1852. The transaction will be effected on the basis of the relative NAV.
HOW TO EXCHANGE YOUR SHARES
AS A SHAREHOLDER OF THE SERIES, YOU MAY EXCHANGE YOUR SHARES FOR SHARES OF
OTHER SERIES OF THE TRUST AND CERTAIN OTHER PRUDENTIAL MUTUAL FUNDS, INCLUDING
MONEY MARKET FUNDS AND FUNDS SOLD WITH AN INITIAL SALES CHARGE, SUBJECT TO THE
MINIMUM INVESTMENT REQUIREMENTS OF SUCH FUNDS ON THE BASIS OF THE RELATIVE NAV.
You may exchange your Class A or Class Z shares for Class A or Class Z shares,
respectively, of the Prudential Mutual Funds on the basis of the relative NAV,
plus the applicable sales charge. No additional sales charge is imposed in
connection with subsequent exchanges. You may not exchange your shares for
Class B shares of the Prudential Mutual Funds, except that shares acquired
prior to January 22, 1990 subject to a contingent deferred sales charge can be
exchanged for Class B shares. You may not exchange your shares for Class C
shares of the Prudential Mutual Funds. See "How to Sell Your Shares-Class B and
Class C Purchase Privilege" above and "Shareholder Investment Account-Exchange
Privilege" in the Statement of Additional Information. An exchange will be
treated as a redemption and purchase for tax purposes.
Class Z shareholders of the Series may exchange their Class Z shares for
Class Z shares of other Prudential Mutual Funds on the basis of relative net
asset value. Shareholders who qualify to purchase Class Z shares (other than
participants in any fee-based program) will have their Class A shares exchanged
for Class Z shares on a quarterly basis. Participants in any fee-based program
for which the Series is an available option will have their Class A shares, if
any, exchanged for Class Z shares when they elect to have those assets become a
part of the fee-based program. Upon leaving the program (whether voluntarily or
not), such Class Z shares (and, to the extent provided for in the program,
Class Z shares acquired through participation in the program) will be exchanged
for Class A shares at net asset value. Similarly, participants in the PSI
401(k) Plan, an employee benefit plan sponsored by Prudential Securities (the
PSI 401(k) Plan) for which the Series' Class Z shares are an available option
and who wish to transfer their Class Z shares out of the PSI 401(k) Plan
following separation from service (I.E., voluntary or involuntary termination
of employment or retirement) will have their Class Z shares exchanged for Class
A shares at net asset value.
IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE TELEPHONE
EXCHANGES ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE TRANSFER
AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter, you may call the
Trust at (800) 225-1852 to execute a telephone exchange of shares, on weekdays,
except holidays, between the hours of 8:00 A.M. and 6:00 P.M., New York time.
For your protection and to prevent fradulent exchanges, your telephone call
will be recorded and you will be asked to provide your personal identification
number. A written confirmation of the
20
<PAGE>
exchange transaction will be sent to you. NEITHER THE TRUST NOR ITS AGENTS WILL
BE LIABLE FOR ANY LOSS, LIABILITY OR COST WHICH RESULTS FROM ACTING UPON
INSTRUCTIONS REASONABLY BELIEVED TO BE GENUINE UNDER THE FOREGOING PROCEDURES.
ALL EXCHANGES WILL BE MADE ON THE BASIS OF THE RELATIVE NAV OF THE TWO FUNDS
(OR SERIES) NEXT DETERMINED AFTER THE REQUEST IS RECEIVED IN GOOD ORDER. THE
EXCHANGE PRIVILEGE IS AVAILABLE ONLY IN STATES WHERE THE EXCHANGE MAY LEGALLY
BE MADE.
IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER. IF YOU HOLD
CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE FACE OF THE
CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE EXCHANGED. SEE
"HOW TO SELL YOUR SHARES" ABOVE.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services LLC, Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
IN PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS THE TELEPHONE EXCHANGE
OF SHARES MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD MAKE EXCHANGES BY MAIL
BY WRITING TO PRUDENTIAL MUTUAL FUND SERVICES LLC, AT THE ADDRESS NOTED ABOVE.
The Prudential Securities Cash Balance Pension Plan may only exchange its
Class Z shares for Class Z shares of those Prudential Mutual Funds which permit
investment by the Prudential Securities Cash Balance Pension Plan.
The Exchange Privilege is not a right and may be suspended, terminated or
modified at any time on 60 days' notice to shareholders.
FREQUENT TRADING. The Fund and the other Prudential Mutual Funds are not
intended to serve as vehicles for frequent trading in response to short-term
fluctuations in the market. Due to the disruptive effect that market timing
investment strategies and excessive trading can have on efficient portfolio
management, each Prudential Mutual Fund, including the Fund, reserves the right
to refuse purchase orders and exchanges by any person, group or commonly
controlled accounts, if, in the Manager's sole judgment, such person, group or
accounts were following a market timing strategy or were otherwise engaging in
excessive trading (Market Timers).
To implement this authority to protect the Fund and its shareholders from
excessive trading, the Fund will reject all exchanges and purchases from a
Market Timer unless the Market Timer has entered into a written agreement with
the Fund or its affiliates pursuant to which the Market Timer has agreed to
abide by certain procedures, which include a daily dollar limit on trading. The
Fund may notify the Market Timer of rejection of an exchange or purchase order
subsequent to the day on which the order was placed.
SHAREHOLDER SERVICES
In addition to the exchange privilege, as a shareholder in the Series, you
can take advantage of the following additional services and privileges:
o AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS. For your
convenience, all dividends and distributions are automatically reinvested in
full and fractional shares of the Series at NAV. You may direct the Transfer
Agent in writing not less than 5 full business days prior to the record date to
have subsequent dividends and/or distributions sent in cash rather than
reinvested. If you hold your shares through Prudential Securities, you should
contact your financial adviser.
o AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP you may make
regular purchases of Series' shares in amounts as little as $50 via an
automatic charge to a bank account or Prudential Securities account (including
a Command Account). For additional information about this service, you may
contact your Prudential Securities financial adviser, Prusec representative or
the Transfer Agent directly.
o TAX-DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
tax-sheltered accounts under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both
self-employed individuals and corporate employers. These plans permit either
self-direction of accounts by participants, or a pooled account arrangement.
Information
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<PAGE>
regarding the establishment of these plans, the administration, custodial fees
and other details is available from Prudential Securities or the Transfer
Agent. If you are considering adopting such a plan, you should consult with
your own legal or tax adviser with respect to the establishment and maintenance
of such a plan.
o SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available
for shareholders which provides for monthly or quarterly checks. For additional
information about this service, you may contact your Prudential Securities
financial adviser, Prusec representative or the Transfer Agent directly.
o MULTIPLE ACCOUNTS. Special procedures have been designed for banks and
other institutions that wish to open multiple accounts. An institution may open
a single master account by filing an Application Form with Prudential Mutual
Fund Services LLC (PMFS or the Transfer Agent), Attention: Customer Service,
P.O. Box 15005, New Brunswick, New Jersey 08906-5010, signed by personnel
authorized to act for the institution. Individual sub-accounts may be opened at
the time the master account is opened by listing them, or they may be added at
a later date by written advice or by filing forms supplied by the Trust.
Procedures are available to identify sub-accounts by name and number within the
master account name. The investment minimums set forth above are applicable to
the aggregate amounts invested by a group and not to the amount credited to
each sub-account.
o REPORTS TO SHAREHOLDERS. The Trust will send you the Series' annual and
semi-annual reports. The financial statements appearing in annual reports are
audited by independent accountants. In order to reduce duplicate mailing and
printing expenses the Trust will provide one annual report and semi-annual
shareholder report and annual prospectus per household. You may request
additional copies of such reports by calling (800) 225-1852 or by writing to
the Trust at Gateway Center Three, 100 Mulberry Street, Newark, New Jersey
07102-4077.
o SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Trust at
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, or by
telephone, at (800) 225-1852 (toll free) or, from outside the U.S.A., at (908)
417-7555 (collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
22
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
Prudential Investments Fund Management offers a broad range of mutual
funds designed to meet your individual needs. We welcome you to review the
investment options available through our family of funds. For more information
on the Prudential Mutual Funds, including charges and expenses, contact your
Prudential Securities financial adviser or Prusec registered representative or
telephone the Trust at (800) 225-1852 for a free prospectus. Read the
prospectus carefully before you invest or send money.
TAXABLE BOND FUNDS
Prudential Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Mortgage Income Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
TAX-EXEMPT BOND FUNDS
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Intermediate Series
Prudential Municipal Series Fund
Florida Series
Maryland Series
Massachusetts Series
Michigan Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
GLOBAL FUNDS
Prudential Emerging Growth Fund, Inc.
Prudential Europe Growth Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential International Bond Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
Global Utility Fund, Inc.
The Global Total Return Fund, Inc.
EQUITY FUNDS
Prudential Balanced Fund
Prudential Distressed Securities Fund, Inc.
Prudential Dryden Fund
Prudential Bond Market Index Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Jennison Series Fund, Inc.
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Multi-Sector Fund, Inc.
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
MONEY MARKET FUNDS
o TAXABLE MONEY MARKET FUNDS
Cash Accumulation Trust
National Money Market Fund
Liquid Assets Fund
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.
o TAX-FREE MONEY MARKET FUNDS
Prudential Tax-Free Money Fund, Inc.
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
o COMMAND FUNDS
Command Money Fund
Command Government Fund
Command Tax-Free Fund
o INSTITUTIONAL MONEY MARKET FUNDS
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
A-1
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained in this Prospectus,
and, if given or made, such other information or representations must not be
relied upon as having been authorized by the Trust or the Distributor. This
Prospectus does not constitute an offer by the Trust or by the Distributor to
sell or a solicitation of an offer to buy any of the securities offered hereby
in any jurisdiction to any person to whom it is unlawful to make such offer in
such jurisdiction.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
TRUST HIGHLIGHTS ........................... 2
What are the Series' Risk Factors
and Special Characteristics? ............ 2
TRUST EXPENSES ........................... 4
FINANCIAL HIGHLIGHTS ........................ 5
CALCULATION OF YIELD ........................ 7
HOW THE TRUST INVESTS ..................... 7
Investment Objectives and Policies ...... 7
Rating of Fund Shares .................. 8
Other Investments and Policies ......... 8
Investment Restrictions ............... 9
HOW THE TRUST IS MANAGED .................. 9
Manager ................................. 9
Distributor .............................. 10
Portfolio Transactions .................. 11
Custodian and Transfer and
Dividend Disbursing Agent ............... 11
HOW THE TRUST VALUES ITS SHARES ............ 11
TAXES, DIVIDENDS AND DISTRIBUTIONS ......... 12
GENERAL INFORMATION ........................ 13
Description of Shares .................. 13
Additional Information .................. 14
SHAREHOLDER GUIDE ........................... 14
How to Buy Shares of the Trust ......... 14
How to Sell Your Shares .................. 17
How to Exchange Your Shares ............ 20
Shareholder Services ..................... 21
THE PRUDENTIAL MUTUAL FUND FAMILY ......... A-1
</TABLE>
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MF100A
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Class A: 744342 10 6
CUSIP Nos.: Class Z: 744342 60 1
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Prudential Government
Securities
Trust
- --------------------------------------------------------------------------------
Money Market Series
[GRAPHIC OMITTED]
PROSPECTUS
JANUARY 30, 1998
WWW.PRUDENTIAL.COM
<PAGE>
Prudential Government Securities Trust
(U.S. TREASURY MONEY MARKET SERIES)
- --------------------------------------------------------------------------------
PROSPECTUS DATED JANUARY 30, 1998
- --------------------------------------------------------------------------------
Prudential Government Securities Trust (the Trust) is a diversified, open-end
management investment company whose shares of beneficial interest are offered
in three series. Each series operates as a separate fund with its own
investment objectives and policies designed to meet its specific investment
goals.
The investment objective of the U.S. Treasury Money Market Series (the Series)
is high current income consistent with the preservation of principal and
liquidity. The Series seeks to achieve its objective by investing exclusively
in U.S. Treasury obligations which have maturities of thirteen months or less.
Interest on U.S. Treasury obligations is specifically exempted from state and
local income taxes under federal law. All states allow the character of the
Series' income to pass through to the dividends distributed to its
shareholders. Interest on U.S. Treasury obligations is not exempt from federal
income tax. There can be no assurance that the Series' investment objective
will be achieved. See "How the Trust Invests-Investment Objective and Policies"
and "Taxes, Dividends and Distributions."
AN INVESTMENT IN THE SERIES IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE SERIES WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. SEE "HOW THE TRUST VALUES
ITS SHARES."
The Trust's address is Gateway Center Three, Newark, 100 Mulberry Street, New
Jersey 07102-4077, and its telephone number is (800) 225-1852.
- --------------------------------------------------------------------------------
This Prospectus sets forth concisely the information about the Trust and the
Series that a prospective investor should know before investing. Additional
information about the Trust and the Series has been filed with the Securities
and Exchange Commission (SEC) in a Statement of Additional Information, dated
January 30, 1998, which information is incorporated herein by reference (is
legally considered a part of this Prospectus) and is available without charge
upon request to the Trust at the address or telephone number noted above. The
Commission maintains a Website (http://www.sec.gov) that contains the Statement
of Additional Information, material incorporated by reference, and other
information regarding the Trust.
- --------------------------------------------------------------------------------
INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
TRUST HIGHLIGHTS
The following summary is intended to highlight certain information
contained in this prospectus and is qualified in its entirety by the more
detailed information appearing elsewhere herein.
WHAT IS PRUDENTIAL GOVERNMENT SECURITIES TRUST?
Prudential Government Securities Trust is a mutual fund whose shares are
offered in three series, each of which operates as a separate fund. A mutual
fund pools the resources of investors by selling its shares to the public and
investing the proceeds of such sale in a portfolio of securities designed to
achieve its investment objective. Technically, the Trust is an open-end,
diversified management investment company. Only the U.S. Treasury Money Market
Series is offered through this Prospectus.
WHAT IS THE SERIES' INVESTMENT OBJECTIVE?
The Series' investment objective is high current income consistent with
the preservation of principal and liquidity. The Series invests exclusively in
U.S. Treasury obligations which have effective maturities of thirteen months or
less. There can be no assurance that the Series' investment objective will be
achieved. See "How the Trust Invests-Investment Objective and Policies" at page
7.
WHAT ARE THE SERIES' RISK FACTORS AND SPECIAL CHARACTERISTICS?
It is anticipated that the net asset value of the Series will remain
constant at $1.00 per share, although this cannot be assured. In order to
maintain such constant net asset value, the Series will value its portfolio
securities at amortized cost. While this method provides certainty in
valuation, it may result in periods during which the value of a security in the
Series' portfolio, as determined by amortized cost, is higher or lower than the
price the Series would receive if it sold such security. See "How the Trust
Values its Shares" at page 11. As with an investment in any mutual fund, an
investment in this Series can decrease in value and you can lose money.
WHO MANAGES THE TRUST?
Prudential Investments Fund Management LLC (PIFM or the Manager) is the
Manager of the Trust and is compensated for its services at an annual rate of
.40 of 1% of the Series' average daily net assets. As of December 31, 1997,
PIFM served as manager or administrator to 64 investment companies, including
42 mutual funds, with aggregate assets of approximately $62 billion. The
Prudential Investment Corporation, which does business under the name
Prudential Investments (PI, the Subadviser or the investment adviser),
furnishes investment advisory services in connection with the management of the
Trust under a Subadvisory Agreement with PIFM. See "How the Trust is
Managed-Manager" at page 9.
2
<PAGE>
WHO DISTRIBUTES THE SERIES' SHARES?
Prudential Securities Incorporated (Prudential Securities, PSI or the
Distributor), a major securities underwriter and securities and commodities
broker, acts as the Distributor of the Series' shares. The Distributor is paid
an annual service fee at the rate of .125 of 1% of the average daily net assets
of the Series' Class A shares. The Distributor incurs the expense of
distributing the Series' Class Z shares under a Distribution Agreement with the
Trust, none of which is reimbursed or paid for by the Trust. See "How the Trust
is Managed-Distributor" at page 10.
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment for Class A shares is $2,500. The
subsequent minimum investment for Class A shares is $100. There is no minimum
initial or subsequent investment requirement for investors who qualify to
purchase Class Z shares. There is no minimum investment requirement for the
Command Account Program (if the Series is designated as your primary fund) and
certain retirement and employee savings plans or custodial accounts for the
benefit of minors. For purchases made through the Automatic Savings
Accumulation Plan, the minimum initial and subsequent investment is $50. See
"Shareholder Guide-How to Buy Shares of the Trust" at page 13 and "Shareholder
Guide-Shareholder Services" at page 22.
HOW DO I PURCHASE SHARES?
You may purchase shares of the Series through Prudential Securities, Pruco
Securities Corporation (Prusec) or directly from the Trust, through its
transfer agent, Prudential Mutual Fund Services LLC (PMFS or the Transfer
Agent) at the net asset value per share (NAV) next determined after receipt of
your purchase order by the Transfer Agent or Prudential Securities. Class Z
shares are offered to a limited group of investors at NAV without any sales
charge or contingent deferred sales charge. See "How the Trust Values its
Shares" at page 11 and "Shareholder Guide-How to Buy Shares of the Trust" at
page 13.
HOW DO I SELL MY SHARES?
You may redeem your shares of the Series at any time at the NAV next
determined after Prudential Securities or the Transfer Agent receives your sell
order. See "Shareholder Guide-How to Sell Your Shares" at page 18. Participants
in programs sponsored by Prudential Retirement Services should contact their
client representative for more information about selling their Class Z shares.
HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?
The Series expects to declare daily and pay monthly dividends of net
investment income and short-term capital gains, if any. Dividends and
distributions will be automatically reinvested in additional shares of the
Series at NAV unless you request that they be paid to you in cash. See "Taxes,
Dividends and Distributions" at page 11.
3
<PAGE>
TRUST EXPENSES-U.S. TREASURY MONEY MARKET SERIES
<TABLE>
<CAPTION>
CLASS A SHARES CLASS Z SHARES
SHAREHOLDER TRANSACTION EXPENSES ---------------- ---------------
<S> <C> <C>
Maximum Sales Load Imposed on Purchases .. ........... None None
Maximum Sales Load Imposed on Reinvested Dividends ... None None
Maximum Deferred Sales Load .. ...................... None None
Redemption Fees .. .................................. None None
Exchange Fees .. .................................... None None
ANNUAL SERIES OPERATING EXPENSES*
(as a percentage of average net assets) .. ............
Management Fees .. .................................. 0.400% 0.400%
12b-1 Fees .. ....................................... 0.125% None
Other Expenses .. ................................... 0.125% 0.12%
----- -----
Total Series Operating Expenses .. .................. 0.650% 0.52%
===== =====
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------- ------- ------- --------
<S> <C> <C> <C> <C>
YOU WOULD PAY THE FOLLOWING EXPENSES ON A $1,000
INVESTMENT, ASSUMING (1) 5% ANNUAL RETURN, AND (2)
REDEMPTION AT THE END OF EACH TIME PERIOD: .. ......
Class A ........................................... $7 $21 $36 $81
Class Z* .......................................... $5 $17 $29 $65
</TABLE>
The above example is based on data for the Series' fiscal year ended
November 30, 1997. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that an investor in the Series will bear, whether
directly or indirectly. For more complete descriptions of the various costs and
expenses, see "How the Trust is Managed." "Other Expenses" include an estimate
of operating expenses of the Series, such as trustees' and professional fees,
registration fees, reports to shareholders and transfer agency, and custodian
fees.
- -------------
* Estimated based on expenses expected to have been incurred if Class Z shares
had been in existence during the entire fiscal year ended November 30, 1997.
4
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share of beneficial interest outstanding throughout each period
indicated) (Class A Shares)
The following financial highlights, with respect to the five-year period
ended November 30, 1997, for the Series' Class A shares have been audited by
Price Waterhouse LLP, independent accountants, whose report thereon was
unqualified. This information should be read in conjunction with the financial
statements and notes thereto, which appear in the Statement of Additional
Information. The following financial highlights contain selected data for a
Class A share of beneficial interest outstanding, total return, ratios to
average net assets and other supplemental data for each of the periods
indicated. The information is based on data contained in the financial
statements. Further performance information is contained in the annual report
which may be obtained without charge. See "Shareholder Guide-Shareholder
Services-Reports to Shareholders."
U.S. TREASURY MONEY MARKET SERIES-CLASS A SHARES
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------------------------------------------------------------
1997 1996(e) 1995 1994 1993 1992
------------ --------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period ......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Net investment income ........... .047 .046 .050 .033 .025 .034
Dividends from net
investment income .............. (.047) (.046) (.050) (.033) (.025) (.034)
-------- -------- -------- -------- -------- --------
Net asset value, end of period .. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(D) ................. 4.80% 4.75% 5.08% 3.31% 2.54% 3.46%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000) .......................... $432,784 $305,330 $339,334 $293,984 $284,978 $233,600
Average net assets (000) ........ $402,634 $393,060 $345,369 $308,454 $273,313 $263,459
Ratio to average net assets:
Expenses, including
distribution fees .............. .65% .63% .62% .62% .66% .66%
Expenses, excluding
distribution fees .............. .52% .51% .50% .50% .53% .54%
Net investment income ........... 4.66% 4.57% 5.01% 3.21% 2.49% 3.29%
<CAPTION>
DECEMBER 3, 1990(a)
THROUGH
NOVEMBER 30,
1991
-----------------------
<S> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period ........................ $ 1.00
-----------
Net investment income .......... .057(c)
Dividends from net
investment income ............. (.057)
------------
Net asset value, end of period . $ 1.00
TOTAL RETURN(D) ................ 5.84%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000) ......................... $ 288,922
Average net assets (000) ....... $ 273,203
Ratio to average net assets:
Expenses, including
distribution fees ............. .50%(b)(c)
Expenses, excluding
distribution fees ............. .38%(b)(c)
Net investment income .......... 5.74%(b)(c)
</TABLE>
- ------------
(a) Commencement of investment operations.
(b) Annualized.
(c) Net of expense subsidy and management fee waiver.
(d) Total returns are 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 returns for periods
less than one year are not annualized.
(e) In September 1996, Prudential Investments Fund Management LLC (PIFM)
succeeded Prudential Mutual Fund Management Inc., which transferred its
assets to PIFM. See "Manager" in the Statement of Additional Information.
5
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share of beneficial interest outstanding throughout the indicated
period) (Class Z Shares)
The following financial highlights have been audited by Price Waterhouse
LLP, independent accountants, whose report thereon was unqualified. This
information should be read in conjunction with the financial statements and
notes thereto, which appear in the Statement of Additional Information. The
following financial highlights contain selected data for a Class Z share of
beneficial interest outstanding, total return, ratios to average net assets and
other supplemental data for the period indicated. The information is based on
data contained in the financial statements. Further performance information is
contained in the annual report, which may be obtained without charge. See
"Shareholder Guide-Shareholder Services-Reports to Shareholders."
<TABLE>
<CAPTION>
U.S. TREASURY MONEY MARKET SERIES-CLASS Z SHARES
- -------------------------------------------------------------
FEBRUARY 21,
1997(a)
THROUGH
NOVEMBER 30,
1997
-----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .. ...... $ 1.000
---------
Net investment income .. ..................... .039
Dividends from net investment income .. ...... (.039)
Net asset value, end of period .. ............ $ 1.000
=========
TOTAL RETURN (C) .. .......................... 3.96%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) .. ........... $ 205(d)
Average net assets (000) .. .................. $ 197(d)
Ratio of average net assets:
Expenses .. .52%(b)
Net investment income .. .................... 3.89%(b)
</TABLE>
- ------------
(a) Commencement of investment operations.
(b) Annualized.
(c) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of the period reported and includes
reinvestment of dividends and distributions. Total returns for periods of
less than a full year are not annualized.
(d) Figure is actual and not rounded to nearest thousand.
6
<PAGE>
- --------------------------------------------------------------------------------
CALCULATION OF YIELD
THE SERIES CALCULATES ITS CURRENT YIELD based on the net change, exclusive
of realized and unrealized gains or losses, in the value of a hypothetical
account over a seven calendar day base period. THE SERIES ALSO CALCULATES ITS
EFFECTIVE ANNUAL YIELD assuming weekly compounding. The following is an example
of the yield calculations as of November 30, 1997:
<TABLE>
<CAPTION>
CLASS A SHARES
- --------------------------------------------------------------
<S> <C>
Value of hypothetical account at end of period .. ....... $1.000886803
Value of hypothetical account at beginning of period .... 1.000000000
------------
Base period return .. ................................... $0.000886803
============
CURRENT YIELD (.000886803 x (365/7)) .. 4.62 %
EFFECTIVE ANNUAL YIELD, assuming weekly compounding ..... 4.74 %
CLASS Z SHARES
- --------------------------------------------------------------
Value of hypothetical account at end of period .. ....... $1.000975035
Value of hypothetical account at beginning of period .... 1.000000000
------------
Base period return .. ................................... $0.000975035
============
CURRENT YIELD (.000975035 x (365/7) .. .................. 5.08%
EFFECTIVE ANNUAL YIELD, assuming weekly compounding ..... 5.22%
</TABLE>
THE YIELD WILL FLUCTUATE FROM TIME TO TIME AND IS NOT NECESSARILY
REPRESENTATIVE OF FUTURE PERFORMANCE.
The weighted average maturity of the portfolio of the Series on November
30, 1997 was 64 days.
Yield is computed in accordance with a standardized formula described in
the Statement of Additional Information. In addition, comparative performance
information may be used from time to time in advertising or marketing the
Series' shares, including data from Lipper Analytical Services, Inc.,
Morningstar Publications, Inc., Donoghue's Money Fund Report, other industry
publications, business periodicals, and market indices.
HOW THE TRUST INVESTS
INVESTMENT OBJECTIVE AND POLICIES
THE INVESTMENT OBJECTIVE OF THE SERIES IS HIGH CURRENT INCOME CONSISTENT
WITH THE PRESERVATION OF PRINCIPAL AND LIQUIDITY. THE SERIES INVESTS
EXCLUSIVELY IN U.S. TREASURY OBLIGATIONS WHICH HAVE EFFECTIVE MATURITIES OF
THIRTEEN MONTHS OR LESS. THERE CAN BE NO ASSURANCE THAT THE SERIES' OBJECTIVE
WILL BE ACHIEVED.
THE SERIES' INVESTMENT OBJECTIVE IS A FUNDAMENTAL POLICY AND, THEREFORE,
MAY NOT BE CHANGED WITHOUT THE APPROVAL OF THE HOLDERS OF A MAJORITY OF THE
SERIES' OUTSTANDING VOTING SECURITIES, AS DEFINED IN THE INVESTMENT COMPANY ACT
OF 1940, AS AMENDED (THE INVESTMENT COMPANY ACT). POLICIES THAT ARE NOT
FUNDAMENTAL MAY BE MODIFIED BY THE TRUSTEES.
The Series will invest in the following instruments:
U.S. TREASURY SECURITIES. The Series will invest in U.S. Treasury
securities, including bills, notes and bonds. These instruments are direct
obligations of the U.S. Government and, as such, are backed by the "full faith
and credit" of the United States. They differ primarily in their interest rates
and the lengths of their maturities.
7
<PAGE>
COMPONENTS OF U.S. TREASURY SECURITIES. The Series may also invest in
component parts of U.S. Treasury notes or bonds, namely, either the corpus
(principal) of such Treasury obligations or one of the interest payments
scheduled to be paid on such obligations. These obligations may take the form
of (i) Treasury obligations from which the interest coupons have been stripped,
(ii) the interest coupons that are stripped, or (iii) book-entries at a Federal
Reserve member bank representing ownership of Treasury obligation components.
INTEREST ON U.S. TREASURY OBLIGATIONS IS SPECIFICALLY EXEMPTED FROM STATE
AND LOCAL TAXES UNDER FEDERAL LAW. While shareholders in the Series do not
directly receive interest on U.S. Treasury obligations, substantially all of
the dividends from the Series will be derived primarily from such interest. All
states allow the character of the Series' income to pass through to its
shareholders so that distributions from the Series derived from interest on
U.S. Treasury obligations will also be exempt from state and local income taxes
when earned by an individual shareholder through a distribution from the Trust.
See "Taxes, Dividends and Distributions."
THE SERIES DOES NOT ENGAGE IN REPURCHASE AGREEMENTS OR LEND ITS PORTFOLIO
SECURITIES BECAUSE THE INCOME FROM SUCH ACTIVITIES IS GENERALLY NOT EXEMPT FROM
STATE AND LOCAL INCOME TAXES.
INTEREST INCOME ON U.S. TREASURY OBLIGATIONS IS NOT, HOWEVER, EXEMPT FROM
FEDERAL INCOME TAX. IN ADDITION, CAPITAL GAINS, IF ANY, REALIZED BY THE SERIES
UPON THE SALE OF U.S. TREASURY OBLIGATIONS ARE NOT EXEMPT FROM FEDERAL TAXES
OR, GENERALLY, FROM STATE AND LOCAL TAXES. SEE "TAXES, DIVIDENDS AND
DISTRIBUTIONS."
The Series seeks to maintain a $1.00 share price at all times. To achieve
this, the Series purchases only securities with remaining maturities of
thirteen months or less and limits the dollar-weighted average maturity of its
portfolio to 90 days or less. There is no assurance that the Series will be
able to maintain a stable net asset value. See "How the Trust Values its
Shares." As with an investment in any mutual fund, an investment in this Series
can decrease in value and you can lose money.
The Series utilizes the amortized cost method of valuation in accordance
with regulations issued by the SEC. See "How the Trust Values its Shares."
Accordingly, the Series will limit its portfolio investments to those
instruments which present minimal credit risks and which are of eligible
quality as determined by the Series' investment adviser under the supervision
of the Trustees. "Eligible quality," for this purpose, means (i) a security
rated in one of the two highest rating categories by at least two major rating
agencies assigning a rating to the security or issuer (or, if only one agency
assigned a rating, that agency) or (ii) an unrated security deemed of
comparable quality by the Series' investment adviser under the supervision of
the Trustees. The purchase by the Series of a security of eligible quality that
is rated by only one rating agency or is unrated must be approved or ratified
by the Trustees.
OTHER INVESTMENTS AND POLICIES
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Series may purchase or sell securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased or sold by the Series with payment and delivery taking
place in the future in order to secure what is considered to be an advantageous
price and yield to the Series at the time of entering into the transaction. The
Trust's Custodian will maintain, in a segregated account of the Series, cash,
or other liquid assets having a value equal to or greater than the Series'
purchase commitments. The securities so purchased are subject to market
fluctuation and no interest accrues to the purchaser during the period between
purchase and settlement. At the time of delivery of the securities the value
may be more or less than the purchase price and an increase in the percentage
of the Series' assets committed to the purchase of securities on a when-issued
or delayed delivery basis may increase the volatility of the Series' net asset
value.
BORROWING
The Series may borrow an amount equal to no more than 20% of the value of
its total assets (calculated when the loan is made) for temporary,
extraordinary or emergency purposes. Such borrowings shall be made only from
banks,
8
<PAGE>
unless the Trust receives an order from the SEC to permit borrowing from
entities other than banks. The Series may pledge up to 20% of its total assets
to secure these borrowings. The Series will not purchase portfolio securities
if its borrowings exceed 5% of its assets.
ILLIQUID SECURITIES
The Series may hold up to 10% of its net assets in illiquid securities,
including repurchase agreements which have a maturity of longer than seven
days, securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable. Restricted
securities eligible for resale pursuant to Rule 144A under the Securities Act
of 1933, as amended (the Securities Act), that have a readily available market
are not considered illiquid for purposes of this limitation. The Series'
investment in Rule 144A securities could have the effect of increasing
illiquidity to the extent that qualified institutional buyers become, for a
time, uninterested in purchasing Rule 144A securities. The investment adviser
will monitor the liquidity of such restricted securities under the supervision
of the Trustees.
INVESTMENT RESTRICTIONS
The Series is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Series' outstanding voting securities, as defined in the Investment Company
Act. See "Investment Restrictions" in the Statement of Additional Information.
- --------------------------------------------------------------------------------
HOW THE TRUST IS MANAGED
THE TRUST HAS TRUSTEES WHO, IN ADDITION TO OVERSEEING THE ACTIONS OF THE
TRUST'S MANAGER, SUBADVISER AND DISTRIBUTOR, AS SET FORTH BELOW, DECIDE UPON
MATTERS OF GENERAL POLICY. THE TRUST'S MANAGER CONDUCTS AND SUPERVISES THE
DAILY BUSINESS OPERATIONS OF THE TRUST. THE TRUST'S SUBADVISER FURNISHES DAILY
INVESTMENT ADVISORY SERVICES.
For the fiscal year ended November 30, 1997, total expenses of the Series
Class A and Class Z shares as a percentage of its average net assets were .65%
and .66%, respectively. See "Financial Highlights."
MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM OR THE MANAGER), GATEWAY
CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, IS THE
MANAGER OF THE TRUST AND IS COMPENSATED FOR ITS SERVICES AT AN ANNUAL RATE OF
.40 OF 1% OF THE SERIES' AVERAGE DAILY NET ASSETS. PIFM is organized in New
York as a limited liability company. It is the successor to Prudential Mutual
Fund Management, Inc., which transferred its assets to PIFM in September 1996.
For the fiscal year ended November 30, 1996, the Trust paid management fees to
PIFM of .40% of the average net assets of the Series. See "Manager" in the
Statement of Additional Information.
As of December 31, 1997, PIFM served as the manager to 42 open-end
investment companies, constituting all of the Prudential Mutual Funds, and as
manager or administrator to 22 closed-end investment companies with aggregate
assets of approximately $62 billion.
UNDER THE MANAGEMENT AGREEMENT WITH THE TRUST, PIFM MANAGES THE INVESTMENT
OPERATIONS OF THE TRUST AND ALSO ADMINISTERS THE TRUST'S BUSINESS AFFAIRS. See
"Manager" in the Statement of Additional Information.
UNDER A SUBADVISORY AGREEMENT BETWEEN PIFM AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC) DOING BUSINESS AS PRUDENTIAL INVESTMENTS (PI, THE SUBADVISER
OR THE INVESTMENT ADVISER), THE SUBADVISER FURNISHES INVESTMENT ADVISORY
SERVICES IN CONNECTION WITH THE MANAGEMENT OF THE TRUST AND IS REIMBURSED BY
PIFM FOR ITS REASONABLE COSTS AND EXPENSES INCURRED IN PROVIDING SUCH SERVICES.
Under the Management Agreement, PIFM continues to have responsibility for all
investment advisory services and supervises the Subadviser's performance of
such services.
9
<PAGE>
PIFM and PIC are indirect, wholly-owned subsidiaries of The Prudential
Insurance Company of America (Prudential), a major diversified insurance and
financial services company.
DISTRIBUTOR
PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES, PSI OR THE
DISTRIBUTOR), ONE SEAPORT PLAZA, NEW YORK, NEW YORK 10292, IS A CORPORATION
ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE AND SERVES AS THE DISTRIBUTOR
OF THE SERIES' SHARES. IT IS AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF
PRUDENTIAL.
UNDER A DISTRIBUTION AND SERVICE PLAN (THE CLASS A PLAN) ADOPTED BY THE
SERIES UNDER RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT AND A DISTRIBUTION AND
SERVICE AGREEMENT (THE DISTRIBUTION AGREEMENT), THE DISTRIBUTOR INCURS THE
EXPENSES OF DISTRIBUTING THE CLASS A SHARES OF THE SERIES. The Distributor also
incurs the expense of distributing the Series' Class Z shares under the
Distribution Agreement with the Trust, none of which is reimbursed by or paid
for by the Trust. These expenses include account servicing fees paid to, or on
account of, financial advisers of Prudential Securities and representatives of
Pruco Securities Corporation (Prusec), affiliated broker-dealers, account
servicing fees paid to, or on account of, other broker-dealers or financial
institutions (other than national banks) which have entered into agreements
with the Distributor, advertising expenses, the cost of printing and mailing
prospectuses to potential investors and indirect and overhead costs of
Prudential Securities and Prusec associated with the sale of the Series'
shares, including lease, utility, communications and sales promotion expenses.
Under the Class A Plan, the Trust is obligated to pay a service fee to the
Distributor as compensation for its distribution and service activities on
behalf of the Class A shares of the Series, not as reimbursement for specific
expenses incurred. If the Distributor's expenses exceed its distribution and
service fees, the Trust will not be obligated to pay any additional expenses.
If the Distributor's expenses are less than such distribution and service fees,
it will retain its full fees and realize a profit.
UNDER THE CLASS A PLAN, THE TRUST PAYS THE DISTRIBUTOR FOR ITS
DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS A SHARES OF THE SERIES AT
AN ANNUAL RATE OF UP TO .125 OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE
SERIES' CLASS A SHARES. Account servicing fees are paid based on the average
balance of the Series' Class A shares held in the accounts of customers of
financial advisers. The entire distribution fee may be used to pay account
servicing fees.
For the fiscal year ended November 30, 1997, the Series paid distribution
expenses of .125 of 1% of the daily net assets of its Class A shares. The Trust
records all payments made under the Class A Plan as expenses in the calculation
of its net investment income.
The Class A Plan provides that it shall continue in effect from year to
year provided that each such continuance is approved annually by a majority
vote of the Trustees, including a majority of the Trustees who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Class A Plan or in any agreement related to
the Class A Plan (Rule 12b-1 Trustees). The Trustees are provided with and
review quarterly reports of expenditures under the Class A Plan. The Class A
Plan may be terminated at any time by vote of a majority of the Rule 12b-1
Trustees or of a majority of the Series' outstanding shares. The Trust will not
be obligated to pay expenses incurred under the Class A Plan if it is
terminated or not continued.
In addition to service fees paid by the Series under the Class A Plan, the
Manager (or one of its affiliates) may make payments out of its own resources
to dealers (including Prudential Securities) and other persons who distribute
shares of the Series (including Class Z shares). Such payments may be
calculated by reference to the net asset value of shares sold by such persons
or otherwise.
10
<PAGE>
PORTFOLIO TRANSACTIONS
Prudential Securities may act as a broker for the Trust, provided that the
commissions, fees or other remuneration it receives are fair and reasonable.
See "Portfolio Transactions and Brokerage" in the Statement of Additional
Information.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Trust's portfolio securities
and cash and, in that capacity, maintains certain financial and accounting
books and records pursuant to an agreement with the Trust. Its mailing address
is P.O. Box 1713, Boston, Massachusetts 02105.
Prudential Mutual Fund Services LLC (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as Transfer Agent and Dividend Disbursing Agent and, in
those capacities, maintains certain books and records for the Trust. PMFS is a
wholly-owned subsidiary of PIFM. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.
- --------------------------------------------------------------------------------
HOW THE TRUST VALUES ITS SHARES
THE SERIES' NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING
ITS LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS. THE
TRUSTEES HAVE FIXED THE SPECIFIC TIME OF DAY FOR THE COMPUTATION OF THE SERIES'
NAV TO BE AS OF 4:30 P.M., NEW YORK TIME, IMMEDIATELY AFTER THE DECLARATION OF
DIVIDENDS.
The Series will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase,
sell or redeem Series shares have been received or days on which changes in the
value of the Series' portfolio securities do not materially affect the NAV.
The Series determines the value of its portfolio securities by the
amortized cost method. This method involves valuing an instrument at its cost
and thereafter assuming a constant amortization to maturity of any discount or
premium regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Series would receive if it sold the
instrument. During these periods, the yield to a shareholder may differ
somewhat from that which could be obtained from a similar fund which marks its
portfolio securities to the market each day. For example, during periods of
declining interest rates, if the use of the amortized cost method resulted in a
lower value of the Series' portfolio on a given day, a prospective investor in
the Series would be able to obtain a somewhat higher yield and existing
shareholders would receive correspondingly less income. The converse would
apply during periods of rising interest rates. The Trustees have established
procedures designed to stabilize, to the extent reasonably possible, the NAV of
the shares of the Series at $1.00 per share. See "Net Asset Value" in the
Statement of Additional Information.
TAXES, DIVIDENDS AND DISTRIBUTIONS
TAXATION OF THE SERIES
EACH SERIES OF THE TRUST IS TREATED AS A SEPARATE ENTITY FOR FEDERAL
INCOME TAX PURPOSES AND EACH HAS ELECTED TO QUALIFY AND INTENDS TO REMAIN
QUALIFIED AS A REGULATED INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE.
ACCORDINGLY, THE SERIES WILL NOT BE SUBJECT TO FEDERAL INCOME TAXES ON ITS NET
INVESTMENT INCOME AND CAPITAL GAINS, IF ANY, THAT IT DISTRIBUTES TO ITS
SHAREHOLDERS. To the extent not distributed by the Series, taxable net
investment income and net capital gains are taxable to the Series. The
performance and tax qualification of one series will have no effect on the
federal income tax liability of shareholders of the other series. See "Taxes,
Dividends and Distributions" in the Statement of Additional Information.
TAXATION OF SHAREHOLDERS
Distributions of net investment income and realized net short-term capital
gains (I.E. excess of net short-term capital gains over net long-term capital
losses), if any, are taxable to shareholders of the Series for U.S. federal
income
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<PAGE>
tax purposes as ordinary income, whether or not reinvested. The Series does not
expect to realize long-term capital gains or losses. Because none of the income
of the Series will consist of dividends from domestic corporations, dividends
of net investment income and distributions of net short-term capital gains will
not be eligible for the dividends-received deduction for corporate
shareholders. Tax-exempt shareholders generally will not be required to pay
taxes on amounts distributed to them.
The Series will invest exclusively in U.S. Treasury obligations whose
interest is specifically exempted from state and local income taxes under
federal law. See "How the Trust Invests-Investment Objective and Policies" for
a discussion of the treatment of dividends from the Fund for state and local
income tax purposes. Investors should recognize that the state and local income
tax rules that apply to the Series and its shareholders may be subject to
change in the future and that such changes could have an adverse impact on the
Series and its shareholders.
The Trust has obtained an opinion of counsel to the effect that the
exchange of one class of the Series' shares for another class of its shares
does not constitute a taxable event for federal income tax purposes. However,
such opinion is not binding on the Internal Revenue Service.
WITHHOLDING TAXES
Under the Internal Revenue Code, the Trust is required to withhold and
remit to the U.S. Treasury 31% of dividend, capital gain distributions and
redemption proceeds on the accounts of certain shareholders who fail to furnish
their tax identification numbers on IRS Form W-9 (or IRS Form W-8 in the case
of certain foreign shareholders). Withholding at this rate is also required
from dividends and capital gains distributions (but not redemption proceeds)
payable to shareholders who are otherwise subject to backup withholding.
Dividends from net investment income and short-term capital gains paid to a
foreign shareholder will generally be subject to U.S. withholding tax at the
rate of 30% (or lower treaty rate).
DIVIDENDS AND DISTRIBUTIONS
THE SERIES EXPECTS TO DECLARE DAILY AND PAY MONTHLY DIVIDENDS OF NET
INVESTMENT INCOME AND SHORT-TERM CAPITAL GAINS, IF ANY. A shareholder generally
begins to earn dividends on the first business day after his or her order is
placed with the Series, as described below, and continues to earn dividends
through the day on which his or her shares are redeemed. In the case of certain
redemptions, however, Prudential Securities clients will not be entitled to
dividends declared on the date of redemption. See "How to Sell Your
Shares-Redemption of Shares Purchased Through Prudential Securities."
DIVIDENDS AND DISTRIBUTIONS WILL BE PAID IN ADDITIONAL SHARES OF THE SERIES
BASED ON THE NET ASSET VALUE OF EACH CLASS OF THE SERIES' SHARES ON THE PAYMENT
DATE, UNLESS THE SHAREHOLDER ELECTS IN WRITING NOT LESS THAN FIVE BUSINESS DAYS
PRIOR TO THE PAYMENT DATE TO RECEIVE SUCH DIVIDENDS AND DISTRIBUTIONS IN CASH.
Such election should be submitted to Prudential Mutual Fund Services LLC,
Attention: Account Maintenance, P.O. Box 15015, New Brunswick, New Jersey
08906-5015. If you hold shares through Prudential Securities, you should contact
your financial adviser to elect to receive dividends and distributions in cash.
The Trust will notify each shareholder after the close of the Trust's taxable
year of both the dollar amount and taxable status of that year's dividends and
distributions on a per share basis. Distributions may be subject to state and
local taxes. See "Taxation of Shareholders" above. IF YOU BUY SHARES ON OR
IMMEDIATELY PRIOR TO THE RECORD DATE (THE DATE THAT DETERMINES WHO RECEIVES THE
DIVIDEND), YOU WILL RECEIVE A PORTION OF THE MONEY YOU INVESTED AS A TAXABLE
DIVIDEND. THEREFORE, YOU SHOULD CONSIDER THE TIMING OF DIVIDENDS WHEN BUYING
SHARES OF THE FUND.
GENERAL INFORMATION
DESCRIPTION OF SHARES
THE TRUST, ORGANIZED IN 1981 AS AN UNINCORPORATED BUSINESS TRUST UNDER THE
LAWS OF MASSACHUSETTS, IS A TRUST FUND OF THE TYPE COMMONLY KNOWN AS A
MASSACHUSETTS BUSINESS TRUST. The Trust's activities are supervised by its
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<PAGE>
Trustees. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares in separate series and classes within such
series. The Series is authorized to issue an unlimited number of shares,
divided into two classes, designated Class A and Class Z.
The shareholders of the U.S. Treasury Money Market Series, the Money
Market Series and the Short-Intermediate Term Series are each entitled to a
full vote for each full share of beneficial interest (par value $.01 per share)
held (and fractional votes for fractional shares). Shares of each series are
entitled to vote as a class only to the extent required by the provisions of
the Investment Company Act or as otherwise permitted by the Trustees in their
sole discretion. Under the Investment Company Act, shareholders of each series
have to approve the adoption of any investment advisory agreement relating to
such series and of any changes in the investment policies related thereto.
Shares of the U.S. Treasury Money Market Series are currently divided into
two classes designated Class A and Class Z shares. Each class represents an
interest in the same assets of the Series and is identical in all respects
except that (i) each class is subject to different expenses which may affect
performance, (ii) each class has exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement and has
separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of the other class, (iii) each
class has a different exchange privilege and (iv) Class Z shares are offered
exclusively for sale to a limited group of investors. Since Class A shares are
subject to distribution and/or service expenses, the liquidation proceeds to
shareholders of that class are likely to be lower than to Class Z shareholders
whose shares are not subject to any distribution and/or service expenses. In
accordance with the Trust's Declaration of Trust, the Trustees may authorize
the creation of additional classes, with such preferences, privileges,
limitations and voting and dividend rights as the Trustees may determine.
IT IS THE INTENTION OF THE TRUST NOT TO HOLD ANNUAL MEETINGS OF
SHAREHOLDERS. THE TRUSTEES MAY CALL SPECIAL MEETINGS OF SHAREHOLDERS FOR ACTION
BY SHAREHOLDER VOTE AS MAY BE REQUIRED BY THE INVESTMENT COMPANY ACT OR THE
DECLARATION OF TRUST. SHAREHOLDERS HAVE CERTAIN RIGHTS, INCLUDING THE RIGHT TO
CALL A MEETING UPON A VOTE OF 10% OF THE TRUST'S OUTSTANDING SHARES FOR THE
PURPOSE OF VOTING ON THE REMOVAL OF ONE OR MORE TRUSTEES.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which
has been incorporated by reference herein, does not contain all the information
set forth in the Registration Statement filed by the Trust with the SEC under
the Securities Act of 1933, as amended (the Securities Act). Copies of the
Registration Statement may be obtained at a reasonable charge from the SEC or
may be examined, without charge, at the office of the SEC in Washington, D.C.
SHAREHOLDER GUIDE
HOW TO BUY SHARES OF THE TRUST
GENERAL INFORMATION
Shares of the Trust are available through Prudential Securities
Incorporated (Prudential Securities or PSI), Pruco Securities Corporation
(Prusec) or directly from the Trust, through its Transfer Agent, Prudential
Mutual Fund Services LLC (PMFS or the Transfer Agent), Attention: Investment
Services, P.O. Box 15020, New Brunswick, New Jersey 08906-5020. Participants in
programs sponsored by Prudential Retirement Services should contact their
client representative for more information about Class Z shares. Shareholders
of the Trust who are clients of Prudential Securities are subject to the
procedures under "Purchases through Prudential Securities" below.
The Trust offers two classes of shares: Class A shares and Class Z shares.
Class Z shares are to be offered to a limited group of investors. The minimum
initial investment for the Class A shares of the Series is $2,500 and the
minimum
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<PAGE>
subsequent investment is $100. There is no minimum initial or subsequent
investment for investors who qualify to purchase Class Z shares. All minimum
investment requirements are waived for certain retirement and employee savings
plans and custodial accounts for the benefit of minors. For purchases made
through the Automatic Savings Accumulation Plan, the minimum initial and
subsequent investment is $50. See "Shareholder Services" below. For automatic
purchases made through Prudential Securities, the minimum initial investment
requirement for Class A shares of the Series is $2,500 and there is no minimum
subsequent investment requirement.
Shares of the Trust are sold through the Transfer Agent, without a sales
charge, at the NAV next determined after receipt and acceptance by the Transfer
Agent of a purchase order and payment in proper form (I.E., a check or Federal
Funds wired to State Street Bank and Trust Company (State Street), the Trust's
custodian). See "How the Trust Values its Shares." When payment is received by
the Transfer Agent prior to 4:30 P.M., New York time, in proper form, a share
purchase order will be entered at the price determined as of 4:30 P.M., on that
day, and the shares will begin to earn dividends on the following business day.
See "Taxes, Dividends and Distributions." If your purchase is made through an
account at Prudential Securities or through Prusec or another dealer, your
dealer will forward a purchase order and payment to the Trust.
Investors who purchase their shares through a dealer other than Prudential
Securities or Prusec, which dealer has a clearing arrangement with respect to
shares of the Trust, may be able to participate in the automatic sweep feature
described below under "Purchases through Prudential Securities-Automatic
Investment (Autosweep)" and "How to Sell Your Shares-Redemptions of Shares
Purchased through Prudential Securities." For further information, contact your
dealer.
Application forms for Prusec and direct accounts with the Transfer Agent
(E.G., non-Prudential Securities accounts) can be obtained from PMFS or Prusec.
If a stock certificate is desired, it must be requested in writing for each
transaction. Certificates are issued only for full shares. Shareholders who
hold their shares through Prudential Securities will not receive stock
certificates. Shareholders cannot utilize Expedited Redemption or Check
Redemption or have a Systematic Withdrawal Plan if they have been issued
certificates.
The Trust reserves the right, in its discretion, to reject any purchase
order (including an exchange into the Trust) or to suspend or modify the
continuous offering of its shares. See "How to Sell Your Shares" below.
Your dealer is responsible for forwarding payment promptly to the Trust.
The Distributor reserves the right to cancel any purchase order for which
payment has not been received by the third business day following the
investment.
Transactions in Trust shares may be subject to postage and other charges
imposed by your dealer.
In connection with the sale of shares of the Series, the Manager, the
Distributor or one of their affiliates may pay dealers, financial advisers and
other persons who distribute shares a finders' fee based on a percentage of the
net asset value of shares by such persons. For more information about shares of
the Trust contact your Prudential Securities Financial Adviser or Prusec
representative or telephone the Trust at (800) 225-1852. Participants in
programs sponsored by Prudential Retirement Services should contact their
client representative for more information about Class Z shares.
CLASS Z SHARES
Class Z shares are currently available for purchases by the following
categories of investors: (i) pension, profit-sharing or other employee benefit
plans qualified under Section 401 of the Internal Revenue Code, deferred
compensation plans and annuity plans under Sections 457 and 403(b)(7) of the
Internal Revenue Code, and non-qualified plans for which the Series is an
available option (collectively, Benefit Plans); provided that such Benefit
Plans (in combination with other plans sponsored by the same employer or group
of related employers) have at least $50 million in defined contribution assets,
(ii) participants in any fee-based program or trust program sponsored by
Prudential Securities. The Prudential Savings Bank, F.S.B. or any affiliate
which includes mutual funds as investment options and for which the Series is
an available option, (iii) certain participants in the MEDLEY Program (group
variable annuity contracts) sponsored by Prudential, for whom Class Z shares of
the Prudential Mutual Funds are an available investment option, (iv) Benefit
Plans for which Prudential Retirement Services serves as recordkeeper and as of
September 20, 1996 (a) were Class Z shareholders of the Prudential Mutual Funds
or (b) executed a letter of intent to
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<PAGE>
purchase Class Z shares of the Prudential Mutual Funds, (v) current and former
Directors/Trustees of the Prudential Mutual Funds (including the Series), and
(vi) employees of Prudential and/or Prudential Securities who participate in a
Prudential-sponsored employee savings plan.
PURCHASES THROUGH PRUDENTIAL SECURITIES
AUTOMATIC INVESTMENT (AUTOSWEEP) (FOR NON-COMMAND ACCOUNTS)
Prudential Securities has advised the Trust that it has automatic
investment procedures (Autosweep) pursuant to which it will make automatic
investments of free credit cash balances (Eligible Credit Balances) held in a
client's brokerage account in shares of the Series, if the Series is your
Primary Money Sweep Fund. You may designate the Series (or certain other
Prudential money market funds) as your Primary Money Sweep Fund. If the Series
is your Primary Money Sweep Fund, you can purchase shares of the Series only
through the automatic investment procedures described below; no manual purchase
orders will be accepted. You may change your Primary Money Sweep Fund at any
time by notifying your Prudential Securities financial adviser. Under certain
circumstances, you may elect not to have a money market sweep feature for your
account when you open your account.
For accounts other than IRAs and Benefit Plans, as defined below, shares
of the Series will be purchased by Prudential Securities as follows: in the
case of Eligible Credit Balances of $1,000 or more resulting from the proceeds
of a securities sale, maturity of a bond or call and Eligible Credit Balances
of $10,000 or more resulting from a non-trade related credit (E.G., receipt of
a dividend or interest payment or a cash payment into the securities account),
orders to purchase shares will be placed on the business day after such
Eligible Credit Balances become available in your account. For Eligible Credit
Balances of $1.00 or more not otherwise described above, orders to purchase
shares will be placed monthly on the last business day of the month. For IRAs
and Benefit Plans, having Eligible Credit Balances of $1.00 or more, orders to
purchase shares of the Series will be placed by Prudential Securities (i) on
the settlement date of the securities sale, in the case of Eligible Credit
Balances resulting from the proceeds of a securities sale, and (ii) on the
business day after receipt by Prudential Securities of the non-trade related
credit (including the maturity of a bond or a call), in the case of Eligible
Credit Balances resulting from a non-trade related credit. Each time an order
resulting from the settlement of a securities sale is placed, any non-trade
related credit in the client's account will also be invested.
The following chart shows the frequency and amount of the sweep for
accounts other than IRAs and Benefit Plans.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
DAILY MONTHLY
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Eligible Credit Balances resulting from the proceeds of a
securities sale, maturity of a bond or call $1,000 or more
- -------------------------------------------------------------------------------------------------------------
Eligible Credit Balances resulting from a non-trade related credit $10,000 or more
- -------------------------------------------------------------------------------------------------------------
Remaining Eligible Credit Balances $1.00 or more
- -------------------------------------------------------------------------------------------------------------
</TABLE>
All shares purchased pursuant to these automatic investment procedures
will be issued at the NAV computed on the business day the order is entered and
will begin earning dividends on the following business day. Purchases through
Autosweep are subject to the Series' minimum initial investment requirement of
$2,500 for Class A shares, which is waived for certain retirement and employee
savings plans and custodial accounts for the benefit of minors. There is no
minimum initial or subsequent investment requirement for investors who qualify
to purchase Class Z shares. Prudential Securities will have the use of, and
will retain the benefits of, Eligible Credit Balances in a client's brokerage
account until monies are delivered to the Trust. (Prudential Securities
delivers federal funds on the business day after settlement). Eligible Credit
Balances for purposes of Autosweep are measured as of the close of business on
the previous business day.
For the purposes of Autosweep, Benefit Plans include (i) employee benefit
plans as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974 (ERISA) other than governmental plans as defined in Section 3(32) of
ERISA and church plans as defined in Section 3(33) of ERISA, (ii) pension,
profit-sharing or other employee benefit
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<PAGE>
plans qualified under Section 401 of the Internal Revenue Code and (iii)
deferred compensation and annuity plans under Section 457 or 403(b)(7) of the
Internal Revenue Code. IRAs are Individual Retirement Accounts as defined in
Section 408(a) of the Internal Revenue Code.
MANUAL INVESTMENT
Prudential Securities will accept manual purchase orders for shares of the
Series only for those clients (i) who are purchasing shares of a Prudential
money market fund which is not their Primary Money Sweep Fund or (ii) who do
not have a money market sweep feature in their account, as described above
under "Automatic Investment." Prudential Securities clients eligible to make
manual purchases, as described above, are subject to the minimum initial
investment of $2,500 for Class A shares of the Series and the minimum
subsequent investment of $100, except that all minimum investment requirements
are waived for certain retirement and employee savings plans and custodial
accounts for the benefit of minors. There is no minimum or subsequent
investment requirement for investors who qualify to purchase Class Z shares. On
the business day after the purchase order is received, Prudential Securities
will place the order for shares of the Trust for settlement that day. Shares
will be issued at the NAV determined on that day and will begin earning
dividends the next business day, which is the second business day after receipt
of the purchase order by Prudential Securities. Prudential Securities will have
the use of, and will retain the benefits of, Eligible Credit Balances in the
client's brokerage account until monies are delivered to the Trust. (Prudential
Securities delivers Federal Funds on the business day after settlement).
PURCHASES THROUGH PRUSEC
You may purchase shares of the Series by placing an order with your Prusec
registered representative accompanied by payment for the purchase price of such
shares and, in the case of a new account, a completed Application Form. You
should also submit an IRS Form W-9. The Prusec registered representative will
then forward these items to the Transfer Agent. See "Purchase By Mail" below.
PURCHASE BY WIRE
For an initial purchase of shares of the Series by wire, you must first
telephone PMFS at (800) 225-1852 (toll-free) to receive an account number. The
following information will be requested: your name, address, tax identification
number, dividend distribution election, amount being wired and wiring bank.
Instructions should then be given by you or your bank to transfer funds by wire
to State Street Bank and Trust Company, Boston, Massachusetts, Custody and
Shareholder Services Division, Attention: Prudential Government Securities
Trust, U.S. Treasury Money Market Series, specifying on the wire the account
number assigned by PMFS and your name and identify the class in which you are
eligible to invest (Class A or Class Z shares).
If you arrange for receipt by State Street of Federal Funds prior to 4:30
P.M., New York time, on a business day, you may purchase shares of the Series
as of that day and earn dividends commencing on the next business day.
In making a subsequent purchase order by wire, you should wire State
Street directly and should be sure that the wire specifies Prudential
Government Securities Trust (U.S. Treasury Money Market Series) Class A or
Class Z shares and your name and individual account number. It is not necessary
to call PMFS to make subsequent purchase orders by wire. The minimum amount
which may be invested by wire is $1,000.
PURCHASE BY MAIL
Purchase orders for which remittance is to be made by check or money order
may be submitted directly by mail to Prudential Mutual Fund Services LLC,
Attention: Investment Services, P.O. Box 15020, New Brunswick, New Jersey
08906-5020, together with payment of the purchase price of such shares and, in
the case of a new account, a completed Application Form. You should also submit
an IRS Form W-9. If PMFS receives an order to purchase shares of the Series and
payment in proper form prior to 4:30 P.M., New York time, the purchase order
will be effective on that day and you
16
<PAGE>
will begin earning dividends on the following business day. See "Taxes,
Dividends and Distributions." Checks should be made payable to Prudential
Government Securities Trust (U.S. Treasury Money Market Series) and should
indicate Class A or Class Z shares. Certified checks are not necessary, but
checks must be drawn on a bank located in the United States. There are
restrictions on the redemption of shares purchased by check while the funds are
being collected. See "How to Sell Your Shares."
THE PRUDENTIAL ADVANTAGE ACCOUNT PROGRAM
Shares of the Series are offered to participants in the Prudential
Advantage Account Program (the Advantage Account Program), a financial services
program available to clients of Pruco Securities Corporation. Investors
participating in the Advantage Account Program may select the Series as their
primary investment vehicle. Such investors will have the free credit cash
balances of $1.00 or more in their Securities Account (Available Cash) (a
component of the Advantage Account Program carried through Prudential
Securities) automatically invested in shares of the Series. Specifically, an
order to purchase shares of the Series is placed (i) in the case of Available
Cash resulting from the proceeds of securities sales, on the settlement date of
the securities sale, and (ii) in the case of Available Cash resulting from
non-trade related credits (I.E., receipt of dividends and interest payments, or
a cash payment by the participant into his or her Securities Account), on the
business day after receipt by Prudential Securities of the non-trade related
credit.
All shares purchased pursuant to these automatic purchase procedures will
begin earning dividends on the business day after the order is placed.
Prudential Securities will arrange for investment in shares of the Series at
4:30 P.M. on the day the order is placed and cause payment to be made in
Federal Funds for the shares on the next business day. Prudential Securities
will have the use of, and retain the benefits of, free credit cash balances
until monies are delivered to the Trust.
Redemptions will be automatically effected by Prudential Securities to
satisfy debit balances in a Securities Account created by activity therein or
existing under the Advantage Account Program, such as those incurred by use of
the Visa(Reg. TM) Account, including Visa purchases, cash advances and Visa
Account checks. Each Advantage Account Program Securities Account will be
automatically scanned for debits each business day as of the close of business
on that day and after application of any free credit cash balances in the
account to such debits, a sufficient number of shares of the Series (if
selected as the primary fund) and, if necessary, shares of other Advantage
Account funds owned by the Advantage Account Program participant which have not
been selected as his or her primary fund or shares of a participant's money
market funds managed by PMF which are not primary Advantage Account funds will
be redeemed as of that business day to satisfy any remaining debits in the
Securities Account. Shares may not be purchased until all debits, overdrafts
and other requirements in the Securities Account are satisfied.
Advantage Account Program charges and expenses are not reflected in the
table of Trust expenses. See "Trust Expenses." For information on participation
in the Advantage Account Program, you should telephone (800) 235-7637
(toll-free).
COMMAND ACCOUNT[SM] PROGRAM
Shares of the Series are offered to participants in the Prudential
Securities COMMAND AccountSM program, an integrated financial services program
of Prudential Securities. Investors having a Command Account may select the
Series as their primary fund. Such investors will have the free credit cash
balances of $1.00 or more in their Securities Account (Available Cash) (a
component of the COMMAND Account program) automatically invested in shares of
the Series as described below. Specifically, an order to purchase shares of the
Series is placed (i) in the case of Available Cash resulting from the proceeds
of securities sales, on the settlement date of the securities sale, and (ii) in
the case of Available Cash resulting from non-trade related credits (I.E.,
receipt of dividends and interest payments, or a cash payment by the
participant into his or her Securities Account), on the business day after
receipt by Prudential Securities of the non-trade related credit. These
automatic purchase procedures are also applicable for Corporate COMMAND
Accounts.
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<PAGE>
All shares purchased pursuant to these automatic purchase procedures will
begin earning dividends on the business day after the order is placed.
Prudential Securities will arrange for investment in shares of the Series at
4:30 P.M. on the day the order is placed and cause payment to be made in
Federal Funds for the shares on the next business day. Prudential Securities
will have the use of, and will retain the benefits of, free credit cash
balances until monies are delivered to the Trust. There are no minimum
investment requirements for participants in the COMMAND Account program.
Redemptions will be automatically effected by Prudential Securities to
satisfy debit balances in a Securities Account created by activity therein or
arising under the COMMAND program, such as those incurred by use of the
Visa(Reg. TM) Gold Account, including Visa purchases, cash advances and Visa
Account checks. Each COMMAND program Securities Account will be automatically
scanned for debits monthly for all Visa purchases incurred during the month and
each business day as of the close of business on that day for all cash advances
and check charges as incurred and after application of any free credit cash
balances in the account to such debits, a sufficient number of shares of the
Series and, if necessary, shares of other COMMAND funds owned by the COMMAND
program participant which have not been selected as his or her primary fund or
shares of a participant's money market funds managed by PIFM which are not
primary COMMAND funds will be redeemed as of that business day to satisfy any
remaining debits in the Securities Account. The single monthly debit for Visa
purchases will be made on the twenty-fifth day of each month, or the prior
business day if the twenty-fifth day falls on a weekend or holiday. Margin
loans will be utilized to satisfy debits remaining after the liquidation of all
shares of the Series in a Securities Account, and shares may not be purchased
until all debits, margin loans and other requirements in the Securities Account
are satisfied. COMMAND Account participants will not be entitled to dividends
declared on the date of redemption.
For information on participation in the COMMAND Account program, you
should telephone (800) 222-4321 (toll-free).
HOW TO SELL YOUR SHARES
YOU CAN REDEEM YOUR SHARES AT ANY TIME FOR CASH AT THE NAV NEXT DETERMINED
AFTER THE REDEMPTION REQUEST IS RECEIVED IN PROPER FORM BY THE TRANSFER AGENT
OR PRUDENTIAL SECURITIES. SEE "HOW THE TRUST VALUES ITS SHARES."
Shares for which a redemption request is received by PMFS prior to 4:30
P.M., New York time, are entitled to a dividend on the day on which the request
is received. By pre-authorizing Expedited Redemption, you may arrange to have
payment for redeemed shares made in Federal Funds wired to your bank, normally
on the next bank business day following the date of receipt of the redemption
instructions. Should you redeem all of your shares, you will receive the amount
of all dividends declared for the month-to-date on those shares. See "Taxes,
Dividends and Distributions."
If redemption is requested by a corporation, partnership, trust or
fiduciary, written evidence of authority acceptable to the Transfer Agent must
be submitted before such request will be accepted. All correspondence and
documents concerning redemptions should be sent to the Trust in care of its
Transfer Agent, Prudential Mutual Fund Services LLC, Attention: Redemption
Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid
to a person other than the record owner, (c) are to be sent to an address other
than the address on the Transfer Agent's records or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the
redemption request and on the certificates, if any, or stock power, must be
guaranteed by an eligible guarantor institution. An eligible guarantor
institution includes any bank, broker, dealer or credit union. The Transfer
Agent reserves the right to request additional information from, and make
reasonable inquiries of, any eligible guarantor institution. For clients of
Prusec, a signature guarantee may be obtained from the agency or office manager
of most Prudential Insurance and Financial Services or Preferred Services
offices. In the case of redemptions from a benefit plan that participates in
the Prudential PruArray or Smartpath Program, if the proceeds of the redemption
are invested in another investment option of such plan, in the name of the
record holder and at the same address as reflected in the Transfer Agent's
records, a signature guarantee is not required.
NORMALLY, THE TRUST MAKES PAYMENT ON THE NEXT BUSINESS DAY FOR ALL SHARES
OF THE SERIES REDEEMED, BUT IN ANY EVENT, PAYMENT WILL BE MADE WITHIN SEVEN
DAYS AFTER RECEIPT BY PMFS OF SHARE CERTIFICATES AND/OR OF A REDEMPTION
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<PAGE>
REQUEST IN PROPER FORM. However, the Trust may suspend the right of redemption
or postpone the date of payment (a) for any periods during which the New York
Stock Exchange is closed (other than for customary weekend or holiday
closings), (b) for any periods when trading in the markets which the Trust
normally utilizes is closed or restricted or an emergency exists as determined
by the SEC so that disposal of the Series' investments or determination of its
NAV is not reasonably practicable or (c) for such other periods as the SEC may
permit for protection of the Series' shareholders. PAYMENT FOR REDEMPTION
OF RECENTLY PURCHASED SHARES WILL BE DELAYED UNTIL THE TRUST OR ITS TRANSFER
AGENT HAS BEEN ADVISED THAT THE PURCHASE CHECK HAS BEEN HONORED, UP TO 10
CALENDAR DAYS FROM THE TIME OF RECEIPT OF THE PURCHASE CHECK BY THE TRANSFER
AGENT. SUCH DELAY MAY BE AVOIDED BY PURCHASING SHARES BY WIRE OR BY CERTIFIED
OR CASHIER'S CHECK.
REDEMPTION OF SHARES PURCHASED THROUGH PRUDENTIAL SECURITIES
Prudential Securities has advised the Trust that it has established
procedures pursuant to which shares of the Series held by a Prudential
Securities client having a deficiency in his or her Prudential Securities
account will be redeemed automatically to the extent of that deficiency to the
nearest highest dollar. The amount of the redemption will be the lesser of (a)
the total net asset value of Series' shares held in the client's Prudential
Securities account or (b) the deficiency in the client's Prudential Securities
account at the close of business on the date such deficiency is due.
Accordingly, a Prudential Securities client who wishes to pay for a securities
transaction or satisfy any other debit balance in his or her account other than
through such automatic redemption procedure must do so prior to the day of
settlement for such securities transaction or the date the debit balance is
incurred. In the case of certain automatic redemptions, where Prudential
Securities cannot anticipate debits in the brokerage account (E.G., checks
written against the account), Prudential Securities clients will not be
entitled to dividends declared on the date of redemption; such dividends will
be retained by Prudential Securities.
REDEMPTION OF SHARES PURCHASED THROUGH PMFS
If you purchase shares of the Series through PMFS, you may use Check
Redemption, Expedited Redemption or Regular Redemption. Prudential Securities
clients for whom Prudential Securities has purchased shares may not use such
services.
REGULAR REDEMPTION. You may redeem your shares by sending a written
request, accompanied by duly endorsed share certificates, if issued, to PMFS,
Attention: Redemption Services, P.O. Box 15010, New Brunswick, New Jersey
08906-5010. In this case, all share certificates must be endorsed by you with
signature guaranteed, as described above. PMFS may request further
documentation from corporations, executors, administrators, trustees or
guardians. Regular redemption is made by check sent to the shareholder's
address.
EXPEDITED REDEMPTION. By pre-authorizing Expedited Redemption, you may
arrange to have payment for redeemed shares made in Federal Funds wired to your
bank, normally on the next business day following redemption. In order to use
Expedited Redemption, you may so designate at the time the initial Application
Form is filed or at a later date. Once the Expedited Redemption authorization
form has been completed, the signature on the authorization form guaranteed as
set forth above and the form returned to PMFS, requests for redemption may be
made by telegraph, letter or telephone. To request Expedited Redemption by
telephone, you should call PMFS at (800) 255-1852. Calls must be received by
PMFS before 4:30 P.M., New York time to permit redemption as of such date.
Requests by letter should be addressed to Prudential Mutual Fund Services LLC,
Attention: Redemption Services, P.O. Box 15010, New Brunswick, New Jersey
08906-5010.
A signature guarantee is not required under Expedited Redemption once the
authorization form is properly completed and returned. The Expedited Redemption
privilege may be used only to redeem shares in an amount of $200 or more,
except that, if an account for which Expedited Redemption is requested has a
net asset value of less than $200, the entire account must be redeemed. The
proceeds of redeemed shares in the amount of $1,000 or more are transmitted by
wire to your account at a domestic commercial bank which is a member of the
Federal Reserve System. Proceeds of less than $1,000 are forwarded by check to
your designated bank account.
DURING PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS, EXPEDITED
REDEMPTION MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD REDEEM YOUR SHARES BY
MAIL AS DESCRIBED ABOVE.
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<PAGE>
CHECK REDEMPTION. At your request, State Street will establish a personal
checking account for you. Checks drawn on this account can be made payable to
the order of any person in any amount greater than $500. When such check is
presented to State Street for payment, State Street presents the check to the
Trust as authority to redeem a sufficient number of shares of the Series in
your account to cover the amount of the check. If insufficient shares are in
the account, or if the purchase was made by check within 10 calendar days, the
check will be returned marked "insufficient funds." Checks in an amount less
than $500 will not be honored. Shares for which certificates have been issued
cannot be redeemed by check. PMFS reserves the right to impose a service charge
to establish a checking account and order checks.
INVOLUNTARY REDEMPTION
Because of the relatively high cost of maintaining an account, the Trust
reserves the right to redeem, upon 60 days' written notice, an account which is
reduced by a shareholder to an NAV of $500 or less due to redemption. You may
avoid such redemption by increasing the NAV of your account to an amount in
excess of $500.
REDEMPTION IN KIND
If the Trustees determine that it would be detrimental to the best
interests of the remaining shareholders of the Series to make payment wholly or
partly in cash, the Trust may pay the redemption price in whole or in part by a
distribution in kind of securities from the portfolio of the Series, in lieu of
cash in conformity with applicable rules of the SEC. Securities will be readily
marketable and will be valued in the same manner as in a regular redemption.
See "How the Trust Values its Shares." If your shares are redeemed in kind, you
would incur transaction costs in converting the assets into cash. The Trust,
however, has elected to be governed by Rule 18f-1 under the Investment Company
Act pursuant to which the Trust is obligated to redeem shares solely in cash up
to the lesser of $250,000 or one percent of the net asset value of the Series
during any 90-day period for any one shareholder.
90-DAY REPURCHASE PRIVILEGE
If you redeem your shares and have not previously exercised the repurchase
privilege, you may reinvest any portion or all of the proceeds of such
redemption in shares of the Series at the NAV next determined after the order is
received, which must be within 90 days after the date of the redemption. Any
CDSC paid in connection with such redemption will be credited (in shares) to
your account. (If less than a full repurchase is made, the credit will be on a
pro rata basis.) You must notify the Trust's Transfer Agent, either directly or
through Prudential Securities, at the time the repurchase privilege is exercised
to adjust your account for the CDSC you previously paid. Thereafter, any
redemeptions will be subject to the CDSC applicable at the time of redemption.
Exercise of the repurchase privilege may affect the federal income tax treatment
of any gain or loss realized upon the redemption.
CLASS B AND CLASS C PURCHASE PRIVILEGE
You may direct that the proceeds of the redemption of your shares be
invested in Class B or Class C shares of any Prudential Mutual Fund by calling
your Prudential Securities financial adviser or the Transfer Agent at (800)
225-1852. The transaction will be effected on the basis of the relative NAV.
HOW TO EXCHANGE YOUR SHARES
AS A SHAREHOLDER OF THE SERIES, YOU MAY EXCHANGE YOUR SHARES FOR SHARES OF
OTHER SERIES OF THE TRUST AND CERTAIN OTHER PRUDENTIAL MUTUAL FUNDS, INCLUDING
MONEY MARKET FUNDS AND FUNDS SOLD WITH AN INITIAL SALES CHARGE, SUBJECT TO THE
MINIMUM INVESTMENT REQUIREMENTS OF SUCH FUNDS ON THE BASIS OF THE RELATIVE NAV.
You may exchange your Class A or Class Z shares for Class A or Class Z shares,
respectively, of the Prudential Mutual Funds on the basis of the relative
20
<PAGE>
NAV, plus the applicable sales charge. No additional sales charge is imposed in
connection with subsequent exchanges. You may not exchange your shares for
Class B shares of the Prudential Mutual Funds, except that shares acquired
prior to January 22, 1990 subject to a contingent deferred sales charge can be
exchanged for Class B shares. You may not exchange your shares for Class C
shares of the Prudential Mutual Funds. See "How to Sell Your Shares-Class B and
Class C Purchase Privilege" above and "Shareholder Investment Account-Exchange
Privilege" in the Statement of Additional Information. An exchange will be
treated as a redemption and purchase for tax purposes.
Class Z shareholders of the Series may exchange their Class Z shares for
Class Z shares of other Prudential Mutual Funds on the basis of relative net
asset value. Shareholders who qualify to purchase Class Z shares (other than
participants in any fee-based program) will have their Class A shares exchanged
for Class Z shares on a quarterly basis. Participants in any fee-based program
for which the Series is an available option will have their Class A shares, if
any, exchanged for Class Z shares when they elect to have those assets become a
part of the fee-based program. Upon leaving the program (whether voluntarily or
not), such Class Z shares (and, to the extent provided for in the program,
Class Z shares acquired through participation in the program) will be exchanged
for Class A shares at net asset value. Similarly, participants in the PSI
401(k) Plan, an employee benefit plan sponsored by Prudential Securities (the
PSI 401(k) Plan) for which the Series' Class Z shares are an available option
and who wish to transfer their Class Z shares out of the PSI 401(k) Plan
following separation from service (I.E., voluntary or involuntary termination
of employment or retirement) will have their Class Z shares exchanged for Class
A shares at net asset value.
IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE TELEPHONE
EXCHANGES ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE TRANSFER
AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter, you may call the
Trust at (800) 225-1852 to execute a telephone exchange of shares, on weekdays,
except holidays, between the hours of 8:00 A.M. and 6:00 P.M., New York time.
For your protection and to prevent fraudulent exchanges, your telephone call
will be recorded and you will be asked to provide your personal identification
number. A written confirmation of the exchange transaction will be sent to you.
NEITHER THE TRUST NOR ITS AGENTS WILL BE LIABLE FOR ANY LOSS, LIABILITY OR COST
WHICH RESULTS FROM ACTING UPON INSTRUCTIONS REASONABLY BELIEVED TO BE GENUINE
UNDER THE FOREGOING PROCEDURES. All exchanges will be made on the basis of the
relative NAV of the two funds (or series) next determined after the request is
received in good order. The Exchange Privilege is available only in states
where the exchange may legally be made.
IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER. IF YOU HOLD
CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE FACE OF THE
CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE EXCHANGED. SEE
"HOW TO SELL YOUR SHARES" ABOVE.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services LLC, Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
IN PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS THE TELEPHONE EXCHANGE
OF SHARES MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD MAKE EXCHANGES BY MAIL
IN WRITING TO PRUDENTIAL MUTUAL FUND SERVICES LLC, AT THE ADDRESS NOTED ABOVE.
The Prudential Securities Cash Balance Pension Plan may only exchange its
Class Z shares for Class Z shares of those Prudential Mutual Funds which permit
investment by the Prudential Securities Cash Balance Pension Plan.
The Exchange Privilege is not a right and may be suspended, terminated or
modified at any time on 60 days' notice to shareholders.
FREQUENT TRADING. The Fund and the other Prudential Mutual Funds are not
intended to serve as vehicles for frequent trading in response to short-term
fluctuations in the market. Due to the disruptive effect that market timing
investment strategies and excessive trading can have on efficient portfolio
management, each Prudential Mutual Fund, including the Fund, reserves the right
to refuse purchase orders and exchanges by any person, group or commonly
controlled accounts, if, in the Manager's sole judgment, such person, group or
accounts were following a market timing strategy or were otherwise engaging in
excessive trading (Market Timers).
To implement this authority to protect the Fund and its shareholders from
excessive trading, the Fund will reject all exchanges and purchases from a
Market Timer unless the Market Timer has entered into a written agreement with
the Fund or its affiliates pursuant to which the Market Timer has agreed to
abide by certain procedures, which include
21
<PAGE>
a daily dollar limit on trading. The Fund may notify the Market Timer of
rejection of an exchange or purchase order subsequent to the day on which the
order was placed.
SHAREHOLDER SERVICES
In addition to the exchange privilege, as a shareholder in the Series, you
can take advantage of the following additional services and privileges:
o AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS. For your
convenience, all dividends and distributions are automatically reinvested in
full and fractional shares of the Series at NAV. You may direct the Transfer
Agent in writing not less than 5 full business days prior to the record date to
have subsequent dividends and/or distributions sent in cash rather than
reinvested. If you hold shares through Prudential Securities, you should
contact your financial adviser.
o AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP you may make
regular purchases of Series shares in amounts as little as $50 via an automatic
charge to a bank account or Prudential Securities account (including a Command
Account). For additional information about this service, you may contact your
Prudential Securities financial adviser, Prusec representative or the Transfer
Agent directly.
o TAX-DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
tax-sheltered accounts under Section 403(b)(7) of the Internal Revenue Code
are available through the Distributor. These plans are for use by both
self-employed individuals and corporate employers. These plans permit either
self-direction of accounts by participants, or a pooled account arrangement.
Information regarding the establishment of these plans, the administration,
custodial fees and other details is available from Prudential Securities or the
Transfer Agent. If you are considering adopting such a plan, you should consult
with your own legal or tax adviser with respect to the establishment and
maintenance of such a plan.
o SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available
for shareholders having shares of the Series which provides for monthly or
quarterly checks. For additional information about this service, you may
contact your Prudential Securities financial adviser, Prusec representative or
the Transfer Agent directly.
o MULTIPLE ACCOUNTS. Special procedures have been designed for banks and
other institutions that wish to open multiple accounts. An institution may open
a single master account by filing an Application Form with Prudential Mutual
Fund Services LLC, (PMFS or the Transfer Agent), Attention: Customer Service,
P.O. Box 15005, New Brunswick, New Jersey 08906, signed by personnel authorized
to act for the institution. Individual sub-accounts may be opened at the time
the master account is opened by listing them, or they may be added at a later
date by written advice or by filing forms supplied by the Trust. Procedures are
available to identify sub-accounts by name and number within the master account
name. The investment minimums set forth above are applicable to the aggregate
amounts invested by a group and not to the amount credited to each sub-account.
o REPORTS TO SHAREHOLDERS. The Trust will send you the Series' annual and
semi-annual reports. The financial statements appearing in annual reports are
audited by independent accountants. In order to reduce duplicate mailing and
printing expenses the Trust will provide one annual report and semi-annual
shareholder report and annual prospectus per household. You may request
additional copies of such reports by calling (800) 225-1852 or by writing to
the Trust at Gateway Center Three, 100 Mulberry Street, Newark, New Jersey
07102-4077.
o SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Trust at
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, or by
telephone, at (800) 225-1852 (toll free) or, from outside the U.S.A., at (908)
417-7555 (collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
22
<PAGE>
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THE PRUDENTIAL MUTUAL FUND FAMILY
Prudential Investments Fund Management offers a broad range of mutual
funds designed to meet your individual needs. We welcome you to review the
investment options available through our family of funds. For more information
on the Prudential Mutual Funds, including charges and expenses, contact your
Prudential Securities financial adviser or Prusec registered representative or
telephone the Trust at (800) 225-1852 for a free prospectus. Read the
prospectus carefully before you invest or send money.
TAXABLE BOND FUNDS
Prudential Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Mortgage Income Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
TAX-EXEMPT BOND FUNDS
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Intermediate Series
Prudential Municipal Series Fund
Florida Series
Maryland Series
Massachusetts Series
Michigan Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
GLOBAL FUNDS
Prudential Emerging Growth Fund, Inc.
Prudential Europe Growth Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential International Bond Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
Global Utility Fund, Inc.
The Global Total Return Fund, Inc.
-------------------------------------------------------
EQUITY FUNDS
Prudential Balanced Fund
Prudential Distressed Securities Fund, Inc.
Prudential Dryden Fund
Prudential Bond Market Index Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Jennison Series Fund, Inc.
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Multi-Sector Fund, Inc.
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
MONEY MARKET FUNDS
o TAXABLE MONEY MARKET FUNDS
Cash Accumulation Trust
National Money Market Fund
Liquid Assets Fund
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.
o TAX-FREE MONEY MARKET FUNDS
Prudential Tax-Free Money Fund, Inc.
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
o COMMAND FUNDS
Command Money Fund
Command Government Fund
Command Tax-Free Fund
o INSTITUTIONAL MONEY MARKET FUNDS
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
A-1
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained in this Prospectus,
and, if given or made, such other information or representations must not be
relied upon as having been authorized by the Trust or the Distributor. This
Prospectus does not constitute an offer by the Trust or by the Distributor to
sell or a solicitation of an offer to buy any of the securities offered hereby
in any jurisdiction to any person to whom it is unlawful to make such offer in
such jurisdiction.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
TRUST HIGHLIGHTS ........................... 2
What are the Series' Risk Factors
and Special Characteristics? ............ 2
TRUST EXPENSES ........................... 4
FINANCIAL HIGHLIGHTS ........................ 5
CALCULATION OF YIELD ........................ 7
HOW THE TRUST INVESTS ..................... 7
Investment Objective and Policies ...... 7
Other Investments and Policies ......... 8
Investment Restrictions ............... 9
HOW THE TRUST IS MANAGED .................. 9
Manager ................................. 9
Distributor .............................. 10
Portfolio Transactions .................. 11
Custodian and Transfer and
Dividend Disbursing Agent ............... 11
HOW THE TRUST VALUES ITS SHARES ............ 11
TAXES, DIVIDENDS AND DISTRIBUTIONS ......... 11
GENERAL INFORMATION ........................ 12
Description of Shares .................. 12
Additional Information .................. 13
SHAREHOLDER GUIDE ........................... 13
How to Buy Shares of the Trust ......... 13
How to Sell Your Shares .................. 18
How to Exchange Your Shares ............ 20
Shareholder Services ..................... 22
THE PRUDENTIAL MUTUAL FUND FAMILY ......... A-1
</TABLE>
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MF145A
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Class A: 744342 10 6
CUSIP Nos.: Class Z: 744342 60 1
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Prudential Government
Securities
Trust
- --------------------------------------------------------------------------------
U.S. Treasury
Money Market Series
[GRAPHIC OMITTED]
PROSPECTUS
JANUARY 30, 1998
WWW.PRUDENTIAL.COM
<PAGE>
Prudential Government Securities Trust
(SHORT-INTERMEDIATE TERM SERIES)
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PROSPECTUS DATED JANUARY 30, 1998
- --------------------------------------------------------------------------------
Prudential Government Securities Trust (the Trust) is a diversified, open-end
management investment company whose shares of beneficial interest are presently
offered in three series. Each series operates as a separate fund with its own
investment objectives and policies designed to meet its specific investment
goals.
The investment objective of the Short-Intermediate Term Series (the Series) is
to achieve a high level of income consistent with providing reasonable safety.
The Series seeks to achieve its objective by investing at least 65% of its
total assets in U.S. Government securities, including U.S. Treasury Bills,
Notes, Bonds and other debt securities issued by the U.S. Treasury, and
obligations, including mortgage-backed securities, asset-backed securities and
other securities, issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. There can be no assurance that the Series' investment
objective will be achieved. See "How the Trust Invests-Investment Objective and
Policies."
The Series may also invest up to 35% of its assets in fixed-rate and adjustable
rate mortgage-backed securities, asset-backed securities, single corporate debt
securities (among other privately issued instruments), rated A or better by
Standard & Poor's Ratings Group or Moody's Investors Service, Inc. or
comparably rated by any other Nationally Recognized Statistical Rating
Organization (NRSRO) or, if unrated, determined to be of comparable quality by
the Series' investment adviser, and money market instruments of a comparable
short-term rating. See "How the Trust Invests-Other Investments and Policies."
The Series may also engage in various strategies using derivatives, including
the use of put and call options on securities and financial indices,
transactions involving futures contracts and related options, short selling and
use of leverage, including reverse repurchase agreements and dollar rolls,
which entail additional risks to the Series. See "How the Trust
Invests-Investment Objective and Policies-Other Investments and Investment
Techniques."
The Trust's address is Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077, and its telephone number is (800) 225-1852.
- --------------------------------------------------------------------------------
This Prospectus sets forth concisely the information about the Trust and the
Series that a prospective investor should know before investing. Additional
information about the Trust has been filed with the Securities and Exchange
Commission (SEC) in a Statement of Additional Information, dated January 30,
1998, which information is incorporated herein by reference (is legally
considered a part of this Prospectus) and is available without charge upon
request to the Trust at the address or telephone number noted above. The
Commission maintains a Website (http://www.sec.gov) that contains the Statement
of Additional Information, material incorporated by reference, and other
information regarding the Trust.
- --------------------------------------------------------------------------------
INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
TRUST HIGHLIGHTS
The following summary is intended to highlight certain information
contained in this prospectus and is qualified in its entirety by the more
detailed information appearing elsewhere herein.
WHAT IS PRUDENTIAL GOVERNMENT SECURITIES TRUST?
Prudential Government Securities Trust is a mutual fund whose shares are
offered in three series, each of which operates as a separate fund. A mutual
fund pools the resources of investors by selling its shares to the public and
investing the proceeds of such sale in a portfolio of securities designed to
achieve its investment objective. Technically, the Trust is an open-end,
diversified management investment company. Only the Short-Intermediate Term
Series is offered through this Prospectus.
WHAT IS THE SERIES' INVESTMENT OBJECTIVE?
The Series' investment objective is to achieve a high level of income
consistent with providing reasonable safety. There can be no assurance that the
Series' investment objective will be achieved. See "How the Trust
Invests-Investment Objective and Policies" at page 7.
WHAT ARE THE SERIES' RISK FACTORS AND SPECIAL CHARACTERISTICS?
In seeking to achieve its objective, the Series will under normal
circumstances invest at least 65% of its total assets in U.S. Government
securities, including U.S. Treasury Bills, Notes, Bonds and other debt
securities issued by the U.S. Treasury, and obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities. See "How the Trust
Invests-Investment Objective and Policies" at page 7. The Series may also
invest up to 35% of its assets in fixed-rate and adjustable rate
mortgage-backed securities, asset-backed securities, corporate debt securities
(among other privately issued instruments), rated A or better by Standard &
Poor's Ratings Group or Moody's Investors Service, Inc. or comparably rated by
any other Nationally Recognized Statistical Rating Organization (NRSRO) or, if
unrated, determined to be of comparable quality by the Series' investment
adviser, and money market instruments of a comparable short-term rating. See
"How the Trust Invests-Other Investments and Policies" at page 9. The Series
may also engage in various strategies using derivatives, including the use of
put and call options on securities and financial indices, transactions
involving futures contracts and related options, short selling and use of
leverage, including reverse repurchase agreements and dollar rolls, which
entail additional risks to the Series. See "How the Trust Invests-Investment
Objective and Policies-Other Investments and Investment Techniques" at page 12.
As with an investment in any mutual fund, an investment in this Series can
decrease in value and you can lose money.
WHO MANAGES THE TRUST?
Prudential Investments Fund Management LLC (PIFM or the Manager) is the
Manager of the Trust and is compensated for its services at an annual rate of
.40 of 1% of the Series' average daily net assets. As of December 31, 1997,
PIFM served as manager or administrator to 64 investment companies, including
42 mutual funds, with aggregate assets of approximately $62 billion. The
Prudential Investment Corporation, which does business under the name
Prudential Investments (PI, the Subadviser or the investment adviser),
furnishes
2
<PAGE>
investment advisory services in connection with the management of the Trust
under a Subadvisory Agreement with PIFM. See "How the Trust is Managed-Manager"
at page 18.
WHO DISTRIBUTES THE SERIES' SHARES?
Prudential Securities Incorporated (Prudential Securities, PSI or the
Distributor), a major securities underwriter and securities and commodities
broker, acts as the Distributor of the Series' Class A shares. The Distributor
is paid an annual service fee at the rate of up to .25 of 1% of the average
daily net assets of the Series' Class A shares. The Distributor incurs the
expense of distributing the Series' Class Z shares under a Distribution
Agreement with the Trust, none of which is reimbursed or paid for by the Trust.
See "How the Trust is Managed-Distributor" at page 19.
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment for Class A shares is $1,000. The
subsequent minimum investment for Class A shares is $100. There is no minimum
initial or subsequent investment requirement for investors who qualify to
purchase Class Z shares. There is no minimum investment requirement for certain
retirement and employee savings plans or custodial accounts for the benefit of
minors. For purchases made through the Automatic Savings Accumulation Plan the
minimum initial and subsequent investment is $50. See "Shareholder Guide-How to
Buy Shares of the Trust" at page 24 and "Shareholder Guide-Shareholder
Services" at page 29.
HOW DO I PURCHASE SHARES?
You may purchase shares of the Series through Prudential Securities
Incorporated (Prudential Securities or PSI), Pruco Securities Corporation
(Prusec) or directly from the Trust, through its transfer agent, Prudential
Mutual Fund Services LLC (PMFS or the Transfer Agent) at the net asset value
per share (NAV) next determined after receipt of your purchase order by the
Transfer Agent or Prudential Securities. Class Z shares are offered to a
limited group of investors at NAV without any sales charge or contingent
deferred sales charge. See "How the Trust Values its Shares" at page 20 and
"Shareholder Guide-How to Buy Shares of the Trust" at page 24.
HOW DO I SELL MY SHARES?
You may redeem your shares of the Series at any time at the NAV next
determined after Prudential Securities or the Transfer Agent receives your sell
order. See "Shareholder Guide-How to Sell Your Shares" at page 26. Participants
in programs sponsored by Prudential Retirement Services should contact their
client representative for more information about selling their Class Z shares.
HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?
The Series expects to declare daily and pay monthly dividends of net
investment income and make distributions annually of any net capital gains.
Dividends and distributions will be automatically reinvested in additional
shares of the Series at NAV unless you request that they be paid to you in
cash. See "Taxes, Dividends and Distributions" at page 21.
3
<PAGE>
TRUST EXPENSES-SHORT-TERM SERIES
<TABLE>
<CAPTION>
CLASS A SHARES CLASS Z SHARES
SHAREHOLDER TRANSACTION EXPENSES ================ ================
<S> <C> <C>
Maximum Sales Load Imposed on Purchases .. None None
Maximum Sales Load Imposed on Reinvested Dividends .. None None
Maximum Deferred Sales Load .. None None
Redemption Fees .. None None
Exchange Fees .. None None
ANNUAL SERIES OPERATING EXPENSES*
(as a percentage of average net assets)
Management Fees .. 0.40% 0.40%
12b-1 Fees .. 0.20% None
Other Expenses .. 0.37% 0.37%
----- -----
Total Series Operating Expenses .. 0.97% 0.77%
===== =====
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return, and (2)
redemption at the end of each time period:
Class A .. $10 $31 $54 $119
Class Z* .. $ 8 $25 $43 $ 95
</TABLE>
The above example is based on data for the Series' fiscal year ended
November 30, 1997. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that an investor in the Series will bear, whether
directly or indirectly. For more complete descriptions of the various costs and
expenses, see "How the Trust is Managed." "Other Expenses" include operating
expenses of the Series, such as Trustees' and professional fees, registration
fees, reports to shareholders and transfer agent and custodian fees.
- -------------
* Estimated based on expenses expected to have been incurred if Class Z shares
had been in existence during the entire fiscal year ended November 30, 1997.
4
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share of beneficial interest outstanding throughout each of the periods
indicated) (Class A Shares)
The following financial highlights, with respect to the five-year period
ended November 30, 1997, for the Series' Class A shares have been audited by
Price Waterhouse LLP, independent accountants, whose report thereon was
unqualified. This information should be read in conjunction with the financial
statements and notes thereto, which appear in the Statement of Additional
Information. The following financial highlights contain selected data for a
Class A share of beneficial interest outstanding, total return, ratios to
average net assets and other supplemental data for each of the periods
indicated. The information is based on data contained in the financial
statements. Further performance information is contained in the annual report,
which may be obtained without charge. See "Shareholder Guide-Shareholder
Services-Reports to Shareholders."
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE TERM SERIES-CLASS A SHARES
----------------------------------------------------
YEAR ENDED NOVEMBER 30,
----------------------------------------------------
1997 1996(a) 1995 1994
---- ------ ---- ----
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ...... $ 9.70 $ 9.74 $ 9.17 $ 10.06
-------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS: ......
Net investment income ..................... .56 .51 .56 .64
Net realized and unrealized gain (loss) on
investment transactions .................. - (.01) .55 (.89)
-------- -------- -------- --------
Total from investment operations ......... .56 50 1.11 (.25)
-------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income ...... (.52) (.54) (.54) (.52)
Tax return of capital distribution ...... - - - (.12)
-------- -------- -------- --------
Total distributions ..................... (.52) (.54) (.54) (.64)
-------- -------- -------- --------
Net asset value, end of period ............ $ 9.74 $ 9.70 $ 9.74 $ 9.17
======== ======== ======== ========
TOTAL RETURN(B) ........................... 5.96% 5.34% 12.37% ( 2.58)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ......... $149,162 $185,235 $212,996 $241,980
Average net assets (000) .................. $166,651 $186,567 $209,521 $307,382
Ratio to average net assets:
Expenses, including distribution fees ... .97% 1.01% .95% .84%
Expenses, excluding distribution fees ... .77% .79% .75% .63%
Net investment income .................. 5.76% 5.99% 5.82% 5.48%
Portfolio turnover rate .................. 210% 132% 217% 431%
<CAPTION>
1993 1992 1991 1990 1989 1988(a)
==== ==== ==== ==== ==== =======
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ...... $ 9.97 $ 10.00 $ 9.71 $ 9.96 $ 9.92 $ 10.24
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS: ......
Net investment income ..................... .69 .75 .82 .84 .92 .92
Net realized and unrealized gain (loss) on
investment transactions .................. .11 (.03) .31 (.21) .12 (.29)
-------- -------- -------- -------- -------- --------
Total from investment operations ......... .80 .72 1.13 .63 1.04 .63
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income ...... (.69) (.75) (.84) (.88) (1.00) (.95)
Tax return of capital distribution ...... (.02) - - - - -
-------- -------- -------- -------- -------- --------
Total distributions ..................... (.71) (.75) (.84) (.88) (1.00) (.95)
-------- -------- -------- -------- -------- --------
Net asset value, end of period ............ $ 10.06 $ 9.97 $ 10.00 $ 9.71 $ 9.96 $ 9.92
======== ======== ======== ======== ======== ========
TOTAL RETURN(B) ........................... 8.26% 7.40% 12.19% 6.73% 11.12% 6.47%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) ......... $347,944 $303,451 $298,086 $328,458 $396,519 $473,982
Average net assets (000) .................. $321,538 $294,388 $301,643 $354,064 $424,386 $537,422
Ratio to average net assets:
Expenses, including distribution fees ... .80% .79% .79% .88% .86% .83%
Expenses, excluding distribution fees ... .59% .58% .63% .63% .63% .59%
Net investment income .................. 6.80% 7.47% 8.36% 8.60% 9.16% 9.39%
Portfolio turnover rate .................. 44% 60% 151% 68% 186% 28%
</TABLE>
- ------------
(a) On August 9, 1988, Prudential Mutual Fund Management, Inc. succeeded The
Prudential Insurance Company of America as investment adviser and since
then has acted as manager of the Trust. In September 1996, Prudential
Investments Fund Management LLC (PIFM) succeeded Prudential Mutual Fund
Management, Inc., which transferred its assets to PIFM. See "Manager" in
the Statement of Additional Information.
(b) 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.
5
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share of beneficial interest outstanding throughout the indicated
period) (Class Z Shares)
The following financial highlights have been audited by Price Waterhouse
LLP, independent accountants, whose report thereon was unqualified. This
information should be read in conjunction with the financial statements and
notes thereto, which appear in the Statement of Additional Information. The
following financial highlights contain selected data for a Class Z share of
beneficial interest outstanding, total return, ratios to average net assets and
other supplemental data for the period indicated. The information is based on
data contained in the financial statements. Further performance information is
contained in the annual report, which may be obtained without charge. See
"Shareholder Guide-Shareholder Services-Reports to Shareholders."
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE TERM SERIES-CLASS Z SHARES
---------------------------------------------
CLASS Z
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)
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 ................................ ............................ 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 year reported and includes reinvestment
of dividends and distributions. Total returns 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.
6
<PAGE>
HOW THE TRUST INVESTS
INVESTMENT OBJECTIVE AND POLICIES
THE INVESTMENT OBJECTIVE OF THE SERIES IS TO ACHIEVE A HIGH LEVEL OF
INCOME CONSISTENT WITH PROVIDING REASONABLE SAFETY. THERE CAN BE NO ASSURANCE
THAT THE SERIES' OBJECTIVE WILL BE ACHIEVED.
THE SERIES' INVESTMENT OBJECTIVE IS A FUNDAMENTAL POLICY AND, THEREFORE,
MAY NOT BE CHANGED WITHOUT THE APPROVAL OF THE HOLDERS OF A MAJORITY OF THE
OUTSTANDING VOTING SECURITIES OF THE SERIES, AS DEFINED IN THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED (THE INVESTMENT COMPANY ACT). POLICIES THAT ARE
NOT FUNDAMENTAL MAY BE MODIFIED BY THE TRUSTEES.
THE SERIES SEEKS TO ACHIEVE ITS OBJECTIVE BY INVESTING, UNDER NORMAL
CIRCUMSTANCES, AT LEAST 65% OF ITS TOTAL ASSETS IN U.S. GOVERNMENT SECURITIES,
INCLUDING U.S. TREASURY BILLS, NOTES, BONDS AND OTHER DEBT SECURITIES ISSUED BY
THE U.S. TREASURY, AND OBLIGATIONS, INCLUDING MORTGAGE-BACKED SECURITIES,
ASSET-BACKED SECURITIES AND OTHER SECURITIES, ISSUED OR GUARANTEED BY THE U.S.
GOVERNMENT, ITS AGENCIES OR INSTRUMENTALITIES, INCLUDING, BUT NOT LIMITED TO,
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA), FEDERAL NATIONAL MORTGAGE
ASSOCIATION (FNMA) AND FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC)
SECURITIES. NEITHER THE VALUE NOR THE YIELD OF THE SERIES' SHARES OR OF THE
U.S. GOVERNMENT SECURITIES WHICH MAY BE INVESTED IN BY THE SERIES IS GUARANTEED
BY THE U.S. GOVERNMENT. See "Investment Objective and Policies" in the
Statement of Additional Information.
WITH RESPECT TO THE REMAINING 35% OF ITS ASSETS, THE SERIES MAY INVEST IN
FIXED RATE AND ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES, ASSET-BACKED
SECURITIES AND CORPORATE DEBT SECURITIES (AMONG OTHER PRIVATELY ISSUED
INSTRUMENTS) RATED A OR BETTER BY STANDARD & POOR'S RATINGS GROUP (S&P) OR
MOODY'S INVESTORS SERVICE, INC. (MOODY'S) OR COMPARABLY RATED BY ANY OTHER
NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO) OR, IF UNRATED,
DETERMINED TO BE OF COMPARABLE QUALITY BY THE SERIES' INVESTMENT ADVISER, AND
MONEY MARKET INSTRUMENTS OF A COMPARABLE SHORT-TERM RATING.
For temporary defensive purposes the Series may invest up to 100% of its
assets in cash, U.S. Government securities and high quality money market
instruments. See "How the Trust Invests-Other Investments and Policies" below.
The Series may also engage in various strategies using derivatives, including
the use of put and call options on securities and financial indices,
transactions involving futures contracts and related options, short selling and
use of leverage, including reverse repurchase agreements and dollar rolls, to
attempt to increase return and/or protect against interest rate changes. See
"Other Investments and Investment Techniques" below.
The Series' net asset value will vary with changes in the values of the
Series' portfolio securities. Such values will vary with changes in market
interest rates generally and the differentials in yields among various kinds of
United States Government securities. However, the Series seeks to achieve
reasonable safety by investing in a diversified portfolio of securities which
the investment adviser believes will, in the aggregate, be resistant to
significant fluctuations in market value. Various factors affect the volatility
of the Series' asset value, including the time to the next coupon reset date
for adjustable rate securities, payment characteristics of the security and the
dollar-weighted average life of the investment and, therefore, the Series will
seek to select particular securities for its portfolio which take into account
these factors. As with an investment in any mutual fund, an Investment in this
Series can decrease in value and you can lose money.
IT IS CURRENTLY ANTICIPATED THAT THE SERIES WILL INVEST PRIMARILY IN
SECURITIES WITH MATURITIES RANGING FROM 2 TO 5 YEARS, BUT DEPENDING ON MARKET
CONDITIONS AND CHANGING ECONOMIC CONDITIONS, THE SERIES MAY INVEST IN
SECURITIES OF ANY MATURITY OF 10 YEARS OR LESS OR, FOR HEDGING PURPOSES, IN
LONGER TERM SECURITIES INCLUDING THIRTY YEAR FUTURES. Certain securities with
maturities of ten years or less which are purchased at auction or on a
when-issued basis may mature later than ten years from date of purchase and are
eligible for purchase by the Series. The dollar-weighted average maturity of
the Series' investments will be more than 2 but less than 5 years. For purposes
of the Series' maturity limitation, the maturity of a mortgage-backed security
will be deemed to be equal to its remaining maturity (I.E., the
7
<PAGE>
average maturity of the mortgages underlying such security determined by the
investment adviser on the basis of assumed prepayment rates with respect to
such mortgages).
U.S. GOVERNMENT SECURITIES
UNDER NORMAL CIRCUMSTANCES, THE SERIES WILL INVEST AT LEAST 65% OF ITS
TOTAL ASSETS IN U.S. GOVERNMENT SECURITIES, INCLUDING U.S. TREASURY SECURITIES,
SECURITIES ISSUED OR GUARANTEED BY THE U.S. GOVERNMENT, ITS AGENCIES OR
INSTRUMENTALITIES, AND MORTGAGE-RELATED SECURITIES ISSUED BY U.S. GOVERNMENT
AGENCIES OR INSTRUMENTALITIES.
U.S. TREASURY SECURITIES
THE SERIES MAY INVEST IN U.S. TREASURY SECURITIES, INCLUDING BILLS, NOTES,
BONDS AND OTHER DEBT SECURITIES ISSUED BY THE U.S. TREASURY. These instruments
are direct obligations of the U.S. Government and, as such, are backed by the
full faith and credit of the United States. They differ primarily in their
interest rates, the lengths of their maturities and the dates of their
issuances.
SECURITIES ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES
THE SERIES MAY INVEST IN SECURITIES ISSUED OR GUARANTEED BY AGENCIES OR
INSTRUMENTALITIES OF THE U.S. GOVERNMENT, INCLUDING, BUT NOT LIMITED TO, GNMA,
FNMA AND FHLMC SECURITIES. Obligations of GNMA, the Farmers Home Administration
and the Export-lmport Bank are backed by the full faith and credit of the
United States. In the case of securities not backed by the full faith and
credit of the United States, the Series must look principally to the agency
issuing or guaranteeing the obligation for ultimate repayment. Such securities
include obligations issued by the Student Loan Marketing Association (SLMA ),
FNMA and FHLMC, each of which may borrow from the U.S. Treasury to meet its
obligations, although the U.S. Treasury is under no obligation to lend to such
entities. GNMA, FNMA and FHLMC investments may also include collateralized
mortgage obligations. See "Other Investments and Policies-Collateralized
Mortgage Obligations and Multiclass Pass-Through Securities" below.
THE SERIES MAY INVEST IN COMPONENT PARTS OF U.S. GOVERNMENT SECURITIES,
NAMELY EITHER THE CORPUS (PRINCIPAL) OF SUCH OBLIGATIONS OR ONE OR MORE OF THE
INTEREST PAYMENTS SCHEDULED TO BE PAID ON SUCH OBLIGATIONS. These obligations
may take the form of (i) obligations from which the interest coupons have been
stripped; (ii) the interest coupons that are stripped; (iii) book-entries at a
Federal Reserve member bank representing ownership of obligation components; or
(iv) receipts evidencing the component parts (corpus or coupons) of U.S.
Government obligations that have not actually been stripped. Such receipts
evidence ownership of component parts of U.S. Government obligations (corpus or
coupons) purchased by a third party (typically an investment banking firm) and
held on behalf of the third party in physical or book-entry form by a major
commercial bank or trust company pursuant to a custody agreement with the third
party. The Series may also invest in custodial receipts held by a third party
that are not U.S. Government securities. See "Investment Objectives and
Policies-Other Investments" in the Statement of Additional Information.
MORTGAGE-RELATED SECURITIES ISSUED OR GUARANTEED BY U.S. GOVERNMENT
AGENCIES AND INSTRUMENTALITIES
THE SERIES MAY INVEST IN MORTGAGE-BACKED SECURITIES AND OTHER DERIVATIVE
MORTGAGE PRODUCTS, INCLUDING THOSE REPRESENTING AN UNDIVIDED OWNERSHIP INTEREST
IN A POOL OF MORTGAGES, E.G., GNMA, FNMA AND FHLMC CERTIFICATES WHERE THE U.S.
GOVERNMENT OR ITS AGENCIES OR INSTRUMENTALITIES GUARANTEE THE PAYMENT OF
INTEREST AND PRINCIPAL OF THESE SECURITIES. However, these guarantees do not
extend to the securities' yield or value, which are likely to vary inversely
with fluctuations in interest rates, nor do these guarantees extend to the
yield or value of the Series' shares. See "Investment Objective and
Policies-U.S. Government Securities" in the Statement of Additional
Information. These certificates are in most cases pass-through instruments,
through which the holder receives a share of all interest and principal
payments from the mortgages underlying the certificate, net of certain fees.
See "Other Investments and Policies-Mortgage-Backed Securities" below.
8
<PAGE>
IN ADDITION TO GNMA, FNMA OR FHLMC CERTIFICATES THROUGH WHICH THE HOLDER
RECEIVES A SHARE OF ALL INTEREST AND PRINCIPAL PAYMENTS FROM THE MORTGAGES
UNDERLYING THE CERTIFICATE, THE SERIES MAY ALSO INVEST IN CERTAIN MORTGAGE
PASS-THROUGH SECURITIES ISSUED BY THE U.S. GOVERNMENT OR ITS AGENCIES AND
INSTRUMENTALITIES COMMONLY REFERRED TO AS MORTGAGE-BACKED SECURITY STRIPS OR
MBS STRIPS. MBS strips are usually structured with two classes that receive
different proportions of the interest and principal distributions on a pool of
mortgage assets. A common type of stripped mortgage security will have one
class receiving some of the interest and most of the principal from the
mortgage assets, while the other class will receive most of the interest and
the remainder of the principal. In the most extreme case, one class will
receive all of the interest (the interest-only or "IO" class), while the other
class will receive all of the principal (the principal-only or "PO" class). The
yields to maturity on IOs and POs are sensitive to the rate of principal
payments (including prepayments) on the related underlying mortgage assets, and
principal payments may have a material effect on yield to maturity. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, the Series may not fully recoup its initial investment in IOs.
Conversely, if the underlying mortgage assets experience less than anticipated
prepayments of principal, the yield on POs could be materially adversely
affected.
OTHER INVESTMENTS AND POLICIES
UNDER NORMAL CIRCUMSTANCES, THE SERIES MAY INVEST UP TO 35% OF ITS TOTAL
ASSETS IN THE FOLLOWING PRIVATELY ISSUED INSTRUMENTS RATED A OR BETTER BY S&P
OR MOODY'S OR COMPARABLY RATED BY ANY OTHER NRSRO OR, IF UNRATED, DETERMINED TO
BE OF COMPARABLE QUALITY BY THE SERIES' INVESTMENT ADVISER: (i) fixed rate and
adjustable rate mortgage-backed securities, including collateralized mortgage
obligations, multi-class pass-through securities and stripped mortgage-backed
securities, (ii) asset-backed securities, (iii) corporate debt securities and
(iv) money market instruments, including bank obligations, obligations of
savings institutions, fully insured certificates of deposit and commercial
paper of a comparable short-term rating.
MORTGAGE-BACKED SECURITIES
MORTGAGE-BACKED SECURITIES ARE SECURITIES THAT DIRECTLY OR INDIRECTLY
REPRESENT A PARTICIPATION IN, OR ARE SECURED BY AND PAYABLE FROM, MORTGAGE
LOANS SECURED BY REAL PROPERTY. There are currently three basic types of
mortgage-backed securities: (i) those issued or guaranteed by the U.S.
Government or one of its agencies or instrumentalities, such as GNMA, FNMA and
FHLMC, described under "U.S. Government Securities" above; (ii) those issued by
private issuers that represent an interest in or are collateralized by
mortgage-backed securities issued or guaranteed by the U.S. Government or one
of its agencies or instrumentalities; and (iii) those issued by private issuers
that represent an interest in or are collateralized by whole mortgage loans or
mortgage-backed securities without a government guarantee but usually having
some form of private credit enhancement.
ADJUSTABLE RATE MORTGAGE SECURITIES
THE SERIES MAY INVEST IN ADJUSTABLE RATE MORTGAGE SECURITIES (ARMS), WHICH
ARE PASS-THROUGH MORTGAGE SECURITIES COLLATERALIZED BY MORTGAGES WITH
ADJUSTABLE RATHER THAN FIXED RATES. ARMs eligible for inclusion in a mortgage
pool generally provide for a fixed initial mortgage interest rate for either
the first three, six, twelve, thirteen, thirty-six or sixty scheduled monthly
payments. Thereafter, the interest rates are subject to periodic adjustment
based on changes to a designated benchmark index.
ARMs contain maximum and minimum rates beyond which the mortgage interest
rate may not vary over the lifetime of the security. In addition, certain ARMs
provide for limitations on the maximum amount by which the mortgage interest
rate may adjust for any single adjustment period. Alternatively, certain ARMs
contain limitations on changes in the required monthly payment. In the event
that a monthly payment is not sufficient to pay the interest accruing on an
ARM, any such excess interest is added to the principal balance of the mortgage
loan, which is repaid through future monthly payments. If the monthly payment
for such an instrument exceeds the sum of the interest accrued at the
9
<PAGE>
applicable mortgage interest rate and the principal payment required at such
point to amortize the outstanding principal balance over the remaining term of
the loan, the excess is utilized to reduce the then outstanding principal
balance of the ARM.
PRIVATE MORTGAGE PASS-THROUGH SECURITIES
PRIVATE MORTGAGE PASS-THROUGH SECURITIES ARE STRUCTURED SIMILARLY TO GNMA,
FNMA AND FHLMC MORTGAGE PASS-THROUGH SECURITIES AND ARE ISSUED BY ORIGINATORS
OF AND INVESTORS IN MORTGAGE LOANS, INCLUDING DEPOSITORY INSTITUTIONS, MORTGAGE
BANKS, INVESTMENT BANKS AND SPECIAL PURPOSE SUBSIDIARIES OF THE FOREGOING.
These securities usually are backed by a pool of conventional fixed rate or
adjustable rate mortgage loans. Since private mortgage pass-through securities
typically are not guaranteed by an entity having the credit status of GNMA,
FNMA and FHLMC, such securities generally are structured with one or more types
of credit enhancement. Types of credit enhancements are described under "Asset
Backed Securities" below.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH SECURITIES
COLLATERALIZED MORTGAGE OBLIGATIONS OR "CMOS" ARE DEBT OBLIGATIONS
COLLATERALIZED BY MORTGAGE LOANS OR MORTGAGE PASS-THROUGH SECURITIES.
Typically, CMOs are collateralized by GNMA, FNMA or FHLMC Certificates, but
also may be collateralized by whole loans or private mortgage pass-through
securities (such collateral collectively hereinafter referred to as "Mortgage
Assets"). Multiclass pass-through securities are equity interests in a trust
composed of Mortgage Assets. Payments of principal of and interest on the
Mortgage Assets, and any reinvestment income thereon, provide the funds to pay
debt service on the CMOs or make scheduled distributions on the multiclass
pass-through securities. CMOs may be issued by agencies or instrumentalities of
the U.S. Government, or by private originators of, or investors in, mortgage
loans, including depository institutions, mortgage banks, investment banks and
special purpose subsidiaries of the foregoing. The issuer of a series of CMOs
may elect to be treated as a Real Estate Mortgage Investment Conduit (REMIC).
All future references to CMOs shall also be deemed to include REMICs.
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a tranche, is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final
distribution dates. Interest is paid or accrues on all classes of CMOs on a
monthly, quarterly or semi-annual basis. The principal of and interest on the
Mortgage Assets may be allocated among the several classes of a CMO series in a
number of different ways. Generally, the purpose of the allocation of the cash
flow of a CMO to the various classes is to obtain a more predictable cash flow
to the individual tranches than exists with the underlying collateral of the
CMO. As a general rule, the more predictable the cash flow on a CMO tranche,
the lower the anticipated yield will be on that tranche at the time of issuance
relative to prevailing market yields on mortgage-backed securities.
THE SERIES ALSO MAY INVEST IN, AMONG OTHER THINGS, PARALLEL PAY CMOS AND
PLANNED AMORTIZATION CLASS CMOS (PAC BONDS). Parallel pay CMOs are structured
to provide payments of principal on each payment date to more than one class.
These simultaneous payments are taken into account in calculating the stated
maturity date or final distribution date of each class, which, as with other
CMO structures, must be retired by its stated maturity date or final
distribution date but may be retired earlier. PAC Bonds generally require
payments of a specified amount of principal on each payment date. PAC Bonds
always are parallel pay CMOs with the required principal payment on such
securities having the highest priority after interest has been paid to all
classes.
In reliance on rules and interpretations of the SEC, the Series'
investments in certain qualifying CMOs and REMICs are not subject to the
Investment Company Act's limitation on acquiring interests in other investment
companies. See "Investment Objective and Policies-Collateralized Mortgage
Obligations" in the Statement of Additional Information.
10
<PAGE>
CMOs and REMICs issued by an agency or instrumentality of the U.S. Government
are considered U.S. Government Securities for purposes of this Prospectus.
STRIPPED MORTGAGE-BACKED SECURITIES
STRIPPED MORTGAGE-BACKED SECURITIES OR MBS STRIPS ARE DERIVATIVE
MULTICLASS MORTGAGE SECURITIES. IN ADDITION TO MBS STRIPS ISSUED BY AGENCIES OR
INSTRUMENTALITIES OF THE U.S. GOVERNMENT, THE SERIES MAY PURCHASE MBS STRIPS
ISSUED BY PRIVATE ORIGINATORS OF, OR INVESTORS IN, MORTGAGE LOANS, INCLUDING
DEPOSITORY INSTITUTIONS, MORTGAGE BANKS, INVESTMENT BANKS AND SPECIAL PURPOSE
SUBSIDIARIES OF THE FOREGOING. See "How the Trust Invests-U.S. Government
Securities-Mortgage-Related Securities Issued or Guaranteed by U.S. Government
Agencies and Instrumentalities" above.
CORPORATE AND OTHER DEBT OBLIGATIONS
THE SERIES MAY INVEST IN CORPORATE AND OTHER DEBT OBLIGATIONS RATED AT
LEAST "A" BY S&P OR MOODY'S OR COMPARABLY RATED BY ANY OTHER NRSRO OR, IF
UNRATED, DEEMED TO BE OF COMPARABLE CREDIT QUALITY BY THE SERIES' INVESTMENT
ADVISER. These debt securities may have adjustable or fixed rates of interest
and in certain instances may be secured by assets of the issuer. Adjustable
rate corporate debt securities may have features similar to those of adjustable
rate mortgage-backed securities, but corporate debt securities, unlike
mortgage-backed securities, are not subject to prepayment risk other than
through contractual call provisions which generally impose a penalty for
prepayment. Fixed rate debt securities may also be subject to call provisions.
ASSET-BACKED SECURITIES
THE SERIES MAY INVEST IN ASSET-BACKED SECURITIES. Through the use of
trusts and special purpose corporations, various types of assets, primarily
automobile and credit card receivables and home equity loans, have been
securitized in pass-through structures similar to the mortgage pass-through
structures or in a pay-through structure similar to the CMO structure. The
Series may invest in these and other types of asset-backed securities that may
be developed in the future. Asset-backed securities present certain risks that
are not presented by mortgage-backed securities. Primarily, these securities do
not have the benefit of a security interest in the related collateral. Credit
card receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, some of which
may reduce the ability to obtain full payment. In the case of automobile
receivables, the security interests in the underlying automobiles are often not
transferred when the pool is created, with the resulting possibility that the
collateral could be resold. In general, these types of loans are of shorter
average life than mortgage loans and are less likely to have substantial
prepayments.
TYPES OF CREDIT ENHANCEMENT
Mortgage-backed securities and asset-backed securities are often backed by
a pool of assets representing the obligations of a number of different parties.
To lessen the effect of failures by obligors on underlying assets to make
payments, those securities may contain elements of credit support which fall
into two categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to seek to ensure that the receipt of
payments on the underlying pool occurs in a timely fashion. Protection against
losses resulting from default seeks to ensure ultimate payment of the
obligations on at least a portion of the assets in the pool. This protection may
be provided through guarantees, insurance policies or letters of credit obtained
by the issuer or sponsor from third parties, through various means of
structuring the transaction or through a combination of such approaches. The
degree of credit support provided for each issue is generally based on
historical information respecting the level of credit risk associated with the
underlying assets. Delinquencies or losses in excess of those anticipated could
adversely affect the return on an investment in a security. The Series will not
pay any additional fees for credit support, although the existence of credit
support may increase the price of a security.
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RISK FACTORS RELATING TO INVESTING IN MORTGAGE-BACKED AND ASSET-BACKED
SECURITIES
The yield characteristics of mortgage-backed and asset-backed securities
differ from traditional debt securities. Among the major differences are that
interest and principal payments are made more frequently, usually monthly, and
that principal may be prepaid at any time because the underlying mortgage loans
or other assets generally may be prepaid at any time. As a result, if the
Series purchases such a security at a premium, a prepayment rate that is faster
than expected will reduce yield to maturity, while a prepayment rate that is
slower than expected will have the opposite effect of increasing yield to
maturity. Alternatively, if the Series purchases these securities at a
discount, faster than expected prepayments will increase, while slower than
expected prepayments will reduce, yield to maturity. The Series may invest a
portion of its assets in derivative mortgage-backed securities such as MBS
strips which are highly sensitive to changes in prepayment and interest rates.
The investment adviser will seek to manage these risks (and potential benefits)
by diversifying its investments in such securities and through hedging
techniques.
In addition, mortgage-backed securities which are secured by manufactured
(mobile) homes and multi-family residential properties, such as GNMA and FNMA
certificates, are generally subject to a higher risk of default than are other
types of mortgage-backed securities. See "Investment Objective and Policies" in
the Statement of Additional Information. The investment adviser will seek to
minimize this risk by investing in mortgage-backed securities rated at least
"A" by Moody's or S&P. See "Asset-Backed Securities" above.
Although the extent of prepayments on a pool of mortgage loans depends on
various economic and other factors, as a general rule prepayments on fixed rate
mortgage loans will increase during a period of falling interest rates and
decrease during a period of rising interest rates. Accordingly, amounts
available for reinvestment by the Series are likely to be greater during a
period of declining interest rates and, as a result, likely to be reinvested at
lower interest rates than during a period of rising interest rates.
Asset-backed securities, although less likely to experience the same prepayment
rates as mortgage-backed securities, may respond to certain of the same factors
influencing prepayments, while at other times different factors will
predominate. Mortgage-backed securities and asset-backed securities may
decrease in value as a result of increases in interest rates and may benefit
less than other fixed income securities from declining interest rates because
of the risk of prepayment.
As noted above, asset-backed securities involve certain risks that are not
posed by mortgage-backed securities, resulting mainly from the fact that
asset-backed securities do not usually contain the complete benefit of a
security interest in the related collateral. For example, credit card
receivables generally are unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, some of which
may reduce the ability to obtain full payment. In the case of automobile
receivables, due to various legal and economic factors, proceeds from
repossessed collateral may not always be sufficient to support payments on
these securities.
MONEY MARKET INSTRUMENTS
THE SERIES MAY INVEST IN HIGH QUALITY MONEY MARKET INSTRUMENTS, INCLUDING
COMMERCIAL PAPER OF A U.S. OR FOREIGN COMPANY OR FOREIGN GOVERNMENT;
CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME DEPOSITS OF DOMESTIC AND
FOREIGN BANKS; AND OBLIGATIONS ISSUED OR GUARANTEED BY THE U.S. GOVERNMENT, ITS
AGENCIES OR INSTRUMENTALITIES. These obligations will be U.S. dollar
denominated. Commercial paper will be rated, at the time of purchase, at least
"A-2" by S&P or "Prime-2" by Moody's, or, if not rated, issued by an entity
having an outstanding unsecured debt issue rated at least "A" or "A-2" by S&P
or "A" or "Prime-2" by Moody's.
OTHER INVESTMENTS AND INVESTMENT TECHNIQUES
The Series may also (i) engage in hedging and income enhancement techniques
through the purchase and sale of put and call options on securities and indices
and the purchase and sale of futures contracts and related options (including
futures contracts on U.S. Government securities and indices and options
thereon), (ii) enter into repurchase agreements, (iii) enter into reverse
repurchase agreements and dollar rolls, (iv) lend its securities, (v) make short
sales, (vi) purchase and sell securities on a when-issued and delayed delivery
basis, (vii) engage in interest rate swap transactions and (viii) borrow money
in all instances subject to the limitations described below and in the Statement
of Additional Information. See "Investment Objective and Policies" in the
Statement of Additional Information.
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HEDGING AND RETURN ENHANCEMENT STRATEGIES
THE SERIES MAY ENGAGE IN VARIOUS PORTFOLIO STRATEGIES TO REDUCE CERTAIN
RISKS OF ITS INVESTMENTS AND TO ATTEMPT TO ENHANCE RETURN. THE SERIES, AND THUS
ITS INVESTORS, MAY LOSE MONEY THROUGH THE UNSUCCESSFUL USE OF THESE STRATEGIES.
THESE STRATEGIES INCLUDE THE USE OF OPTIONS AND FUTURES CONTRACTS AND OPTIONS
ON FUTURES. THE SERIES' ABILITY TO USE THESE STRATEGIES MAY BE LIMITED BY
MARKET CONDITIONS, REGULATORY LIMITS AND TAX CONSIDERATIONS AND THERE CAN BE NO
ASSURANCE THAT ANY OF THESE STRATEGIES WILL SUCCEED. See "Investment Objective
and Policies" in the Statement of Additional Information.
OPTIONS TRANSACTIONS
THE SERIES MAY PURCHASE AND WRITE (I.E., SELL) PUT AND CALL OPTIONS ON
SECURITIES AND FINANCIAL INDICES THAT ARE TRADED ON NATIONAL SECURITIES
EXCHANGES OR IN THE OVER-THE-COUNTER MARKET TO ATTEMPT TO ENHANCE INCOME OR TO
HEDGE THE SERIES' PORTFOLIO. THESE OPTIONS WILL BE ON DEBT SECURITIES,
AGGREGATES OF DEBT SECURITIES, FINANCIAL INDICES AND U.S. GOVERNMENT SECURITIES
AND MAY BE TRADED ON NATIONAL SECURITIES EXCHANGES OR OVER-THE-COUNTER. See
"Investment Objective and Policies-Options Transactions and Related
Risks-Options on Securities" in the Statement of Additional Information. The
Series may write covered put and call options to attempt to generate additional
income through the receipt of premiums, purchase put options in an effort to
protect the value of a security that it owns against a decline in market value
and purchase call options in an effort to protect against an increase in the
price of securities it intends to purchase. The Series may also purchase put and
call options to offset previously written put and call options of the same
series. See "Investment Objectives and Policies-Additional Investment
Policies-Options Transactions and Related Risks-Options on Securities" in the
Statement of Additional Information. The Series may also purchase put and call
options on futures contracts.
A CALL OPTION GIVES THE PURCHASER, IN EXCHANGE FOR A PREMIUM PAID, THE
RIGHT FOR A SPECIFIED PERIOD OF TIME TO PURCHASE THE SECURITIES SUBJECT TO THE
OPTION AT A SPECIFIED PRICE (THE EXERCISE PRICE OR STRIKE PRICE). The writer of
a call option, in return for the premium, has the obligation, upon exercise of
the option, to deliver, depending upon the terms of the option contract, the
underlying securities or a specified amount of cash to the purchaser upon
receipt of the exercise price. When the Series writes a call option, the Series
gives up the potential for gain on the underlying securities in excess of the
exercise price of the option during the period that the option is open.
A PUT OPTION GIVES THE PURCHASER, IN RETURN FOR A PREMIUM, THE RIGHT, FOR
A SPECIFIED PERIOD OF TIME, TO SELL THE SECURITIES SUBJECT TO THE OPTION TO THE
WRITER OF THE PUT AT THE SPECIFIED EXERCISE PRICE. The writer of the put
option, in return for the premium, has the obligation, upon exercise of the
option, to acquire the securities underlying the option at the exercise price.
The Series might, therefore, be obligated to purchase the underlying securities
for more than their current market price.
THE SERIES WILL WRITE ONLY COVERED OPTIONS. An option is covered if, as
long as the Series is obligated under the option, it (i) owns an offsetting
position in the underlying security or (ii) maintains in a segregated account
cash or other liquid assets in an amount equal to or greater than its
obligations under the option. Under the first circumstance, the Series' losses
are limited because it owns the underlying security. Under the second
circumstance, in the case of a written call option, the Series' losses are
potentially unlimited. See "Investment Objective and Policies" in the Statement
of Additional Information.
FUTURES CONTRACTS AND OPTIONS THEREON
THE SERIES MAY PURCHASE AND SELL FINANCIAL FUTURES CONTRACTS AND OPTIONS
THEREON WHICH ARE TRADED ON A COMMODITIES EXCHANGE OR BOARD OF TRADE FOR
CERTAIN HEDGING AND RISK MANAGEMENT PURPOSES AND TO ATTEMPT TO
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ENHANCE RETURN IN ACCORDANCE WITH REGULATIONS OF THE COMMODITY FUTURES TRADING
COMMISSION. THE SERIES AND THUS ITS INVESTORS, MAY LOSE MONEY THROUGH THE
UNSUCCESSFUL USE OF THESE STRATEGIES. THESE FUTURES CONTRACTS AND RELATED
OPTIONS WILL BE ON DEBT SECURITIES, AGGREGATES OF DEBT SECURITIES, FINANCIAL
INDICES AND U.S. GOVERNMENT SECURITIES AND INCLUDE FUTURES CONTRACTS AND
OPTIONS THEREON WHICH ARE LINKED TO LIBOR. A FINANCIAL FUTURES CONTRACT IS AN
AGREEMENT TO PURCHASE OR SELL AN AGREED AMOUNT OF SECURITIES AT A SET PRICE FOR
DELIVERY IN THE FUTURE.
THE SERIES MAY NOT PURCHASE OR SELL FUTURES CONTRACTS AND RELATED OPTIONS
FOR OTHER THAN BONA FIDE HEDGING PURPOSES IF IMMEDIATELY THEREAFTER THE SUM OF
THE AMOUNT OF INITIAL MARGIN DEPOSITS ON THE SERIES' EXISTING FUTURES AND
OPTIONS ON FUTURES AND PREMIUMS PAID FOR SUCH RELATED OPTIONS WOULD EXCEED 5%
OF THE LIQUIDATION VALUE OF THE SERIES' TOTAL ASSETS.
THE SERIES' SUCCESSFUL USE OF FUTURES CONTRACTS AND RELATED OPTIONS
DEPENDS UPON THE INVESTMENT ADVISER'S ABILITY TO PREDICT THE DIRECTION OF THE
MARKET AND IS SUBJECT TO VARIOUS ADDITIONAL RISKS. The correlation between
movements in the price of a futures contract and the price of the securities
being hedged is imperfect and there is a risk that the value of the securities
being hedged may increase or decrease at a greater rate than a specified
futures contract resulting in losses to the Series.
THE SERIES' ABILITY TO ENTER INTO FUTURES CONTRACTS AND OPTIONS THEREON MAY
ALSO BE LIMITED BY THE REQUIREMENTS OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED (THE INTERNAL REVENUE CODE), FOR QUALIFICATION AS A REGULATED INVESTMENT
COMPANY. See "Investment Objective and Policies-Options Transactions and Related
Risks-Options on Futures Contracts" and "Taxes, Dividends and Distributions" in
the Statement of Additional Information.
SPECIAL RISKS OF HEDGING AND INCOME ENHANCEMENT STRATEGIES
PARTICIPATION IN THE OPTIONS OR FUTURES MARKETS INVOLVES INVESTMENT RISKS
AND TRANSACTION COSTS TO WHICH THE SERIES WOULD NOT BE SUBJECT ABSENT THE USE
OF THESE STRATEGIES. THE SERIES, AND THUS ITS INVESTORS, MAY LOSE MONEY THROUGH
THE UNSUCCESSFUL USE OF THESE STRATEGIES. If the investment adviser's
prediction of movements in the direction of the securities and interest rate
markets is inaccurate, the adverse consequences to the Series may leave the
Series in a worse position than if such strategies were not used. Risks
inherent in the use of options and futures contracts and options on futures
contracts include (1) dependence on the investment adviser's ability to predict
correctly movements in the direction of interest rates and securities prices;
(2) imperfect correlation between the price of options and futures contracts
and options thereon and movements in the prices of the securities being hedged;
(3) the fact that skills needed to use these strategies are different from
those needed to select portfolio securities; (4) the possible absence of a
liquid secondary market for any particular instrument at any time; (5) the
possible need to defer closing out certain hedged positions to avoid adverse
tax consequences; and (6) the possible inability of the Series to purchase or
sell a portfolio security at a time that otherwise would be favorable for it to
do so, or the possible need for the Series to sell the security at a
disadvantageous time, due to the requirement that the Series maintain cover or
segregate securities in connection with hedging transactions. See "Investment
Objective and Policies" and "Taxes, Dividends and Distributions" in the
Statement of Additional Information.
REPURCHASE AGREEMENTS
The Series may enter into repurchase agreements, whereby the seller of a
security agrees to repurchase that security from the Series at a mutually
agreed-upon time and price. The period of maturity is usually quite short,
possibly overnight or a few days, although it may extend over a number of
months. The resale price is in excess of the purchase price, reflecting an
agreed-upon rate of return effective for the period of time the Series' money is
invested in the security. The Series' repurchase agreements will at all times be
fully collateralized in an amount at least equal to the resale price. The
instruments held as collateral are valued daily, and if the value of such
instruments declines, the Series will require additional collateral. If the
seller defaults and the value of the collateral securing the repurchase
agreement declines, the Series may incur a loss. The Series participates in a
joint repurchase account with other investment companies managed by Prudential
Investments Fund Management LLC pursuant to an order of the SEC.
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SHORT SALES
The Series may sell a security it does not own in anticipation of a
decline in the market value of the security (short sales). To complete the
transaction, the Series will borrow the security to make delivery to the buyer.
The Series is then obligated to replace the security borrowed by purchasing it
at the market price at the time of replacement. The price at such time may be
more or less than the price at which the security was sold by the Series. Until
the security is replaced, the Series is required to pay to the lender any
interest which accrues during the period of the loan. To borrow the security,
the Series may be required to pay a premium which would increase the cost of
the security sold. The proceeds of the short sale will be retained by the
broker to the extent necessary to meet margin requirements until the short
position is closed out. Until the Series replaces the borrowed security, it
will (a) maintain in a segregated account cash or other liquid assets at such a
level that the amount deposited in the account plus the amount deposited with
the broker as collateral will equal the current market value of the security
sold short and will not be less than the market value of the security at the
time it was sold short, or (b) otherwise cover its short position.
The Series will incur a loss as a result of the short sale if the price of
the security increases between the date of the short sale and the date on which
the Series replaces the borrowed security. The Series will realize a gain if the
security declines in price between those dates. This result is the opposite of
what one would expect from a cash purchase of a long position in a security. The
amount of any gain will be decreased, and the amount of any loss will be
increased, by the amount of any premium or interest paid in connection with the
short sale. No more than 25% of the Series' net assets will be, when added
together: (i) deposited as collateral for the obligation to replace securities
borrowed to effect short sales and (ii) allocated to segregated accounts in
connection with short sales. The Series may also make short sales
against-the-box, without regard to this limitation. A short sale against-the-box
is a short sale in which the Series owns an equal amount of the securities sold
short or securities convertible into or exchangeable, without payment of any
further consideration, for securities of the same issue as, and equal in amount
to, the securities sold short.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Series may purchase or sell securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased or sold by the Series with payment and delivery taking
place in the future in order to secure what is considered to be an advantageous
price and yield to the Series at the time of entering into the transaction. The
Trust's Custodian will maintain, in a segregated account of the Series, cash or
other liquid assets having a value equal to or greater than the Series'
purchase commitments. The securities so purchased are subject to market
fluctuation and no interest accrues to the purchaser during the period between
purchase and settlement. At the time of delivery of the securities the value
may be more or less than the purchase price and an increase in the percentage
of the Series's assets committed to the purchase of securities on a when-issued
or delayed delivery basis may increase the volatility of the Series' net asset
value.
SECURITIES LENDING
The Series may lend its portfolio securities to brokers or dealers, banks
or other recognized institutional borrowers of securities, provided that the
borrower at all times maintains cash or 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 of 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 Series may pay
reasonable administration and custodial fees in connection with a loan.
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REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS
Reverse repurchase agreements involve sales by the Series of portfolio
assets concurrently with an agreement by the Series to repurchase the same
assets at a later date at a fixed price. During the reverse repurchase
agreement period, the Series continues to receive principal and interest
payments on these securities.
The Series may enter into dollar rolls in which the Series sells
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type and coupon) securities on a
specified future date from the same party. During the roll period, the Series
forgoes principal and interest paid on the securities. The Series is
compensated by the difference between the current sales price and the forward
price for the future purchase (often referred to as the drop) as well as by the
interest earned on the cash proceeds of the initial sale.
The Series will establish a segregated account with its custodian in which
it will maintain cash or other liquid assets equal in value to its obligations
in respect of reverse repurchase agreements and dollar rolls. Reverse
repurchase agreements and dollar rolls involve the risk that the market value
of the securities retained by the Series may decline below the price of the
securities the Series has sold but is obligated to repurchase under the
agreement. In the event the buyer of securities under a reverse repurchase
agreement files for bankruptcy or becomes insolvent, the Series' use of the
proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Series'
obligation to repurchase the securities.
Whenever the Series enters into a reverse repurchase or dollar roll
transaction, it will maintain an offsetting cash position or a cash equivalent
security position which matures on or before the forward settlement date of the
transaction.
Reverse repurchase agreements and dollar rolls are considered borrowings
by the Series for purposes of the percentage limitation applicable to
borrowings. See "Borrowing" below.
INTEREST RATE SWAP TRANSACTIONS
The Series may enter into interest rate swaps. Interest rate swaps involve
the exchange by the Series with another party of their respective commitments to
pay or receive interest, for example, an exchange of floating rate payments for
fixed rate payments. The Series expects to enter into these transactions
primarily to preserve a return or spread on a particular investment or portion
of its portfolio or to protect against any increase in the price of securities
the Fund anticipates purchasing at a later date. The Series intends to use these
transactions as a hedge and not as a speculative investment. See "Investment
Objective and Policies-U.S. Government Securities-Other Investments" in the
Statement of Additional Information. The risk of loss with respect to interest
rate swaps is limited to the net amount of interest payments that the Series is
contractually obligated to make and will not exceed 5% of the Fund's net assets.
The use of interest rate swaps may involve investment techniques and risks
different from those associated with ordinary portfolio transactions. If the
investment adviser is incorrect in its forecast of market values, interest rates
and other applicable factors, the investment performance of the Series would
diminish compared to what it would have been if this investment technique was
never used.
BORROWING
The Series may borrow an amount equal to no more than 331|M/3% of the value
of its total assets (computed at the time the loan is made) to take advantage of
investment opportunities, for temporary, extraordinary or emergency purposes, or
for the clearance of transactions. The Series may pledge up to 331|M/3% of its
total assets to secure these borrowings. If the Series' asset coverage for
borrowings falls below 300%, the Series will take prompt action to reduce its
borrowings. If the Series borrows to invest in securities, any investment gains
made on the securities in excess of interest paid on the borrowing will cause
the net asset value of the Series' shares to rise faster than would otherwise be
the case. On the other hand, if the investment performance of the additional
securities purchased fails to cover their cost (including any interest paid on
the money borrowed) to the Series, the net asset value of the Series' shares
will
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decrease faster than would otherwise be the case. This is the speculative
characteristic known as leverage. Reverse repurchase agreements, dollar rolls
and short sales (other than short sales against-the-box) also include leverage
and ar considered borrowings by the Series for purposes of the percentage
limitations applicable to borrowings. See "Reverse Repurchase Agreements and
Dollar Rolls" above. Leveraging exaggerates the effect on net asset value of any
increase or decrease in the market value of the Series' portfolio. Money
borrowed for leveraging will be subject to interest costs which may or may not
be recovered by appreciation of the securities purchased and may exceed the
income from the securities purchased. In addition, the Series may be required to
maintain minimum average balance in connection with such borrowing or pay a
commitment fee to maintain a line of credit which would increase the cost of
borrowing over the stated interest rate.
ILLIQUID SECURITIES
The Series may hold up to 15% of its net assets in illiquid securities,
including repurchase agreements which have a maturity of longer than seven
days, securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable. Restricted
securities eligible for resale pursuant to Rule 144A under the Securities Act
of 1933, as amended (the Securities Act), privately placed commercial paper and
municipal lease obligations if in each case such investments have a readily
available market are not considered illiquid for purposes of this limitation.
The Series' investment in Rule 144A securities could have the effect of
increasing illiquidity to the extent that qualified institutional buyers
become, for a time, uninterested in purchasing Rule 144A securities. The
investment adviser will monitor the liquidity of such restricted securities
under the supervision of the Trustees. Repurchase agreements subject to demand
are deemed to have a maturity equal to the applicable notice period.
The staff of the SEC has taken the position that purchased
over-the-counter options and the assets used as cover for written
over-the-counter options are illiquid securities unless the Series and the
counterparty have provided for the Series at the Series' option to unwind the
over-the-counter option. The exercise of such an option ordinarily would
involve the payment by the Series of an amount designed to reflect the
counterparty's economic loss from an early termination, but does allow the
Series to treat the assets used as cover as liquid. The Series will also treat
non-U.S. Government IOs and POs as illiquid so long as the staff of the SEC
maintains its position that such securities are illiquid.
PORTFOLIO TURNOVER
Although the Series has no fixed policy with respect to portfolio
turnover, it may sell portfolio securities without regard to the length of time
that they have been held in order to take advantage of new investment
opportunities or yield differentials, or because the Series desires to preserve
gains or limit losses due to changing economic conditions. Accordingly, it is
possible that the portfolio turnover rate of the Series may reach, or even
exceed, 250%. The portfolio turnover rate is computed by dividing the lesser of
the amount of the securities purchased or securities sold (excluding all
securities whose maturities at acquisition were one year or less) by the
average monthly value of such securities owned during the year. A higher rate
of turnover results in increased transaction costs to the Series. See
"Portfolio Turnover" in the Statement of Additional Information.
INVESTMENT RESTRICTIONS
The Series is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Series' outstanding securities, as defined in the Investment Company Act. See
"Investment Restrictions" in the Statement of Additional Information.
HOW THE TRUST IS MANAGED
THE TRUST HAS TRUSTEES WHO, IN ADDITION TO OVERSEEING THE ACTIONS OF THE
TRUST'S MANAGER, SUBADVISER AND DISTRIBUTOR, AS SET FORTH BELOW, DECIDE UPON
MATTERS OF GENERAL POLICY. THE TRUST'S MANAGER CONDUCTS AND SUPERVISES THE
DAILY BUSINESS OPERATIONS OF THE TRUST. THE TRUST'S SUBADVISER FURNISHES DAILY
INVESTMENT ADVISORY SERVICES.
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For the fiscal year ended November 30, 1997, total expenses of the Series'
Class A and Class Z shares as a percentage of its average net assets were .97%
and .77%, annualized respectively. See "Financial Highlights."
MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM OR THE MANAGER), GATEWAY
CENTER THREE, 100 MULBERRY STREET, NEWARK, NEW JERSEY 07102-4077, IS THE
MANAGER OF THE TRUST AND IS COMPENSATED FOR ITS SERVICES AT AN ANNUAL RATE OF
.40 OF 1% OF THE SERIES' AVERAGE DAILY NET ASSETS. PIFM is organized in New
York as a limited liability company. It is the successor to Prudential Mutual
Fund Management, Inc., which transferred its assets to PIFM in September 1996.
For the fiscal year ended November 30, 1997, the Trust paid management fees to
PIFM of .40% of the average net assets of the Series. See "Manager" in the
Statement of Additional Information.
As of December 31, 1997, PIFM served as the manager to 42 open-end
investment companies, constituting all of the Prudential Mutual Funds, and as
manager or administrator to 22 closed-end investment companies with aggregate
assets of approximately $62 billion.
UNDER THE MANAGEMENT AGREEMENT WITH THE TRUST, PIFM MANAGES THE INVESTMENT
OPERATIONS OF THE TRUST AND ALSO ADMINISTERS THE TRUST'S CORPORATE AFFAIRS. See
"Manager" in the Statement of Additional Information.
UNDER A SUBADVISORY AGREEMENT BETWEEN PIFM AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC) DOING BUSINESS AS PRUDENTIAL INVESTMENTS (PI, THE SUBADVISER
OR THE SUBADVISER), THE SUBADVISER FURNISHES INVESTMENT ADVISORY SERVICES IN
CONNECTION WITH THE MANAGEMENT OF THE TRUST AND IS REIMBURSED BY PIFM FOR ITS
REASONABLE COSTS AND EXPENSES INCURRED IN PROVIDING SUCH SERVICES. Under the
Management Agreement, PIFM continues to have responsibility for all investment
advisory services and supervises the Subadviser's performance of such services.
The portfolio managers of the Series are Barbara L. Kenworthy and Sharon
Fera. Ms. Kenworthy is a Managing Director and Senior Portfolio Manager and Ms.
Fera is a Vice President and Portfolio Manager of Prudential Investments, a
business group of The Prudential Insurance Company of America. Ms. Fera is
responsible for day-to-day management for the Series' portfolio under the
supervision of Ms. Kenworthy who remains responsible for overall portfolio
strategy for the Series. Ms. Kenworthy has managed the Series' portfolio since
May 1995. Ms. Kenworthy was previously employed by The Dreyfus Corporation
(June 1985-June 1994) and served as president and portfolio manager for several
Dreyfus fixed-income funds. Ms. Kenworthy has 20 years of investment management
experience in both U.S. and foreign securities and investment grade and high
yield quality bonds. Ms. Kenworthy also serves as the portfolio manager of
other investment companies managed by Prudential Investments. Ms. Fera joined
Prudential Investments in May 1996 as a fixed-income portfolio manager. Prior
thereto, she was employed by Aetna Life and Casualty (May 1993-May 1996) as a
Portfolio Manager responsible for the fixed-income portion of Aetna's Capital
and Surplus Portfolio and as a fixed-income analyst responsible for the Capital
Goods and Transportation sectors. Prior to joining Aetna, she was a fixed
income trader at Hartford Life Insurance Company (May 1992-May 1993) and at
Equitable Capital Management Corporation (August 1985-May 1992). She actively
manages the Series' portfolio according to the investment adviser's interest
rate outlook. Consistent with the Series' investment objective and policies,
she will, at times, invest in different sectors of the U.S. government and
other fixed-income markets seeking price discrepancies and more favorable
interest rates. The investment adviser conducts extensive analysis of U.S. and
overseas markets in an attempt to identify trends in interest rates supply and
demand and economic growth. The portfolio manager then selects the sectors,
maturities and individual bonds she believes provide the best value under these
conditions.
PIFM and PIC are indirect, wholly-owned subsidiaries of The Prudential
Insurance Company of America (Prudential), a major diversified insurance and
financial services company.
DISTRIBUTOR
PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES, PSI OR THE
DISTRIBUTOR), ONE SEAPORT PLAZA, NEW YORK, NEW YORK 10292, IS A CORPORATION
ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE AND SERVES AS THE DISTRIBUTOR
FOR THE SERIES' SHARES. IT IS AN INDIRECT, WHOLLY-OWNED SUBSIDIARY OF
PRUDENTIAL.
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UNDER A DISTRIBUTION AND SERVICE PLAN (THE CLASS A PLAN) ADOPTED BY THE
SERIES UNDER RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT AND A DISTRIBUTION AND
SERVICE AGREEMENT (THE DISTRIBUTION AGREEMENT), THE DISTRIBUTOR INCURS THE
EXPENSES OF DISTRIBUTING CLASS A SHARES OF THE SERIES. The Distributor also
incurs the expense of distributing the Series' Class Z shares under a
Distribution Agreement with the Trust, none of which is reimbursed by or paid
for by the Trust. These expenses include commission credits to Prudential
Securities Incorporated (Prudential Securities or PSI) branch offices for
payments of commissions and account servicing fees to financial advisers and an
allocation of overhead and other branch office distribution-related expenses.
Such account servicing fees are paid based on the average balance of Series'
shares held in the account of the customers of financial advisers. The
Distributor also pays the cost of printing and mailing prospectuses to
potential investors and advertising expenses. In addition, the Distributor pays
other broker-dealers, including Pruco Securities Corporation (Prusec), an
affiliated broker-dealer, for commissions and other expenses incurred by such
broker-dealers in distributing the Series' shares.
Under the Class A Plan, the Trust is obligated to pay a service fee to the
Distributor as compensation for its distribution and service activities on
behalf of the Class A shares of the Series, not as reimbursement for specific
expenses incurred. If the Distributor's expenses exceed its distribution and
service fees, the Trust will not be obligated to pay any additional expenses.
If the Distributor's expenses are less than such distribution and service fees,
it will retain its full fees and realize a profit.
UNDER THE CLASS A PLAN, THE TRUST PAYS THE DISTRIBUTOR FOR ITS
DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS A SHARES OF THE SERIES AT
THE ANNUAL RATE OF THE LESSER OF (A) .25 OF 1% PER ANNUM OF THE AGGREGATE SALES
OF THE SERIES' CLASS A SHARES, not including shares issued in connection with
reinvestment of dividends and capital gains distributions, issued on or after
July 1, 1985 (the effective date of the Class A Plan) less the aggregate net
asset value of any such shares redeemed, OR (B) .25 OF 1% PER ANNUM OF THE
AVERAGE DAILY NET ASSET VALUE OF THE SERIES' CLASS A SHARES ISSUED AFTER THE
EFFECTIVE DATE OF THE CLASS A PLAN. Such amounts are accrued daily and paid
monthly and average daily net assets are calculated on the basis of the Series'
fiscal year.
For the fiscal year ended November 30, 1997, the Series paid distribution
expenses under the Class A Plan of .20 of 1% of the average net assets of the
Class A shares of the Series. The Trust records all payments made under the
Plan as expenses in the calculation of its net investment income.
The Class A Plan provides that it shall continue in effect from year to
year provided that a majority of the Trustees, including a majority of the
Trustees who are not interested persons of the Trust (as defined in the
Investment Company Act) and who have no direct or indirect financial interest
in the operation of the Class A Plan or any agreement related to the Class A
Plan (the Rule 12b-1 Trustees), vote annually to continue the Class A Plan. The
Class A Plan may be terminated at any time by vote of a majority of the Rule
12b-1 Trustees or of a majority of the outstanding Class A shares of the
Series. In the event of termination or noncontinuation of the Class A Plan, the
Series would not be legally obligated to pay the Distributor for any expenses
incurred under the Class A Plan.
In addition to distribution and service fees paid by the Series under the
Class A Plan, the Manager (or one of its affiliates) may make payments out of
its own resources to dealers (including Prudential Securities) and other persons
who distribute shares of the Series (including Class Z shares). Such payments
may be calculated by reference to the net asset value of shares sold by such
persons or otherwise.
PORTFOLIO TRANSACTIONS
Prudential Securities may act as a broker for the Trust provided that the
commissions, fees or other remuneration it receives are fair and reasonable.
See "Portfolio Transactions and Brokerage" in the Statement of Additional
Information.
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CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian of the Trust's portfolio securities
and, in that capacity, maintains certain financial and accounting books and
records pursuant to an agreement with the Trust. Its mailing address is P.O.
Box 1713, Boston, Massachusetts 02105.
Prudential Mutual Fund Services LLC (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as Transfer and Dividend Disbursing Agent and, in those
capacities, maintains certain books and records for the Trust. PMFS is a
wholly-owned subsidiary of PIFM. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.
HOW THE TRUST VALUES ITS SHARES
THE SERIES' NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING
ITS LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS. THE
TRUSTEES HAVE FIXED THE SPECIFIC TIME OF DAY FOR THE COMPUTATION OF THE NAV OF
THE SERIES TO BE AS OF 4:15 P.M., NEW YORK TIME.
Portfolio securities are valued based on market quotations or, if not
readily available, at fair value as determined in good faith under procedures
established by the Trustees. See "Net Asset Value" in the Statement of
Additional Information.
The Series will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase,
sell or redeem Intermediate Term Series shares have been received or days on
which changes in the value of the Series' portfolio securities do not
materially affect the NAV. See "Net Asset Value" in the Statement of Additional
Information.
Although the legal rights of each class of shares are substantially
identical, the different expenses borne by each class will result in different
NAVs and dividends. The NAV of Class Z shares will generally be higher than the
NAV of Class A shares because Class Z shares are not subject to any
distribution and/or service fees. It is expected, however, that the NAV of the
two classes will tend to converge immediately after the recording of dividends,
which will differ by approximately the amount of distribution and/or service
fee expense accrued under the Class A Plan.
HOW THE TRUST CALCULATES PERFORMANCE
THE SERIES MAY FROM TIME TO TIME ADVERTISE ITS YIELD AND ITS TOTAL RETURN
(INCLUDING AVERAGE ANNUAL TOTAL RETURN AND AGGREGATE TOTAL RETURN) IN
ADVERTISEMENTS OR SALES LITERATURE. TOTAL RETURN AND YIELD ARE CALCULATED
SEPARATELY FOR CLASS A AND CLASS Z SHARES. THESE FIGURES ARE BASED ON HISTORICAL
EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The yield refers
to the income generated by an investment in the Series over a 30-day period.
This income is then annualized; that is, the amount of income generated by the
investment during that 30-day period is assumed to be generated each 30-day
period for twelve periods and is shown as a percentage of the investment. The
income earned on the investment is also assumed to be reinvested at the end of
the sixth 30-day period. The total return shows how much an investment in the
Series would have increased (decreased) over a specified period of time (I.E.,
one, five or ten years or since inception of the Trust) assuming that all
distributions and dividends by the Series were reinvested on the reinvestment
dates during the period and less all recurring fees. The aggregate total return
reflects actual performance over a stated period of time. Average annual total
return is a hypothetical rate of return that, if achieved annually, would have
produced the same aggregate total return if performance had been constant over
the entire period.
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TAXES, DIVIDENDS AND DISTRIBUTIONS
Average annual total return smooths out variations in performance. Neither
average annual nor aggregate total return takes into account any federal or
state income taxes which may be payable upon redemption. The Series may include
comparative performance information in advertising or marketing its shares. Such
performance information may include data from Lipper Analytical Services, Inc.,
Morningstar Publications, Inc., other industry publications, business
periodicals, and market indices. See "Performance Information" in the Statement
of Additional Information. Further performance information is contained in the
Trust's annual report to shareholders, which may be obtained without charge. See
"Shareholder Guide-Shareholder Services-Reports to Shareholders."
TAXATION OF THE SERIES
EACH SERIES OF THE TRUST IS TREATED AS A SEPARATE ENTITY FOR FEDERAL
INCOME TAX PURPOSES AND EACH HAS ELECTED TO QUALIFY AND INTENDS TO REMAIN
QUALIFIED AS A REGULATED INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE.
ACCORDINGLY, THE SERIES WILL NOT BE SUBJECT TO FEDERAL INCOME TAXES ON THE
TAXABLE INCOME IT DISTRIBUTES TO SHAREHOLDERS. The performance and tax
qualification of one series will have no effect on the federal income tax
liability of shareholders of the other series. See "Taxes, Dividends and
Distributions" in the Statement of Additional Information.
Gains or losses on sales of securities by the Series are generally treated
as long-term capital gains or losses if the securities have been held by it for
more than one year and otherwise as short-term capital gains or losses.
Gains and losses on the sale, lapse or other termination of options on
securities will generally be treated as gains and losses from the sale of
securities (assuming they do not qualify as Section 1256 contracts). If an
option written by the Series on securities lapses or is terminated through a
closing transaction, such as a repurchase by the Series of the option from its
holder, the Series should generally realize short-term capital gain or loss. If
securities are sold by the Series pursuant to the exercise of a call option
written by it, the Series will include the premium received in the sale
proceeds of the securities delivered in determining the amount of gain or loss
on the sale. Certain of the Series' transactions may be subject to wash sale
and short sale provisions of the Internal Revenue Code, which may, in general,
disallow or defer certain losses realized by the Series, recharacterize certain
of the Series' long-term capital gains as short-term capital gains (or
short-term capital losses as long-term capital losses), and toll the Series'
holding period in certain capital assets. In addition, debt securities acquired
by the Series may be subject to original issue discount and market discount
rules.
Regulated futures contracts and certain listed options which are not
equity options constitute Section 1256 contracts and will be required to be
marked to market for federal income tax purposes at the end of the Series'
taxable year; that is, treated as having been sold at market value. Sixty
percent of any gain or loss recognized on such deemed sales and on actual
dispositions will be treated as long-term capital gain or loss, and the
remainder will be treated as short-term capital gain or loss.
In addition, positions which are part of a straddle are subject to special
rules including modified wash sale and short sale rules. The Series generally
will be required to defer the recognition of losses on positions it holds as
part of a straddle to the extent of any unrecognized gain on offsetting
positions held by the Series, and will not be able to deduct net interest or
other charges incurred to purchase or carry straddle positions. Capital gains
realized by the Series in connection with a conversion transaction (generally, a
transaction the Series's return from which is attributable solely to the time
value of the Series' net investment) will generally be recharacterized as
ordinary income.
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The Series' ability to enter into Section 1256 contracts, straddles and
swaps may be limited by the asset requirements the Series must satisfy to
qualify as a regulated investment company. See "Taxes, Dividends and
Distributions" in the Statement of Additional Information.
TAXATION OF SHAREHOLDERS
Distributions of net investment income and realized net short-term capital
gains (I.E., the excess of net short-term capital gains over net long-term
capital losses) of the Series, if any, are taxable to shareholders of the
Series as ordinary income, whether such distributions are received in cash or
reinvested in additional shares. Distributions of net long-term capital gains,
if any, are taxable as long-term capital gains, whether paid in cash or
reinvested in additional shares, regardless of how long the shareholder has
held the Series' shares. Because none of the income of the Series will consist
of dividends from domestic corporations, dividends of net investment income and
distributions of net short-term or long-term capital gains will not be eligible
for the dividends-received deduction for corporate shareholders.
Any gain or loss realized upon a sale, redemption or exchange of shares of
the Series by a shareholder who is not a dealer in securities will generally be
treated as long-term capital gain or loss if the shares have been held for more
than one year, and otherwise as short-term capital gain or loss. Any loss
realized by a shareholder upon the sale, redemption or exchange of Series
shares held six months or less will be treated as a long-term capital loss,
however, to the extent of any net long-term capital gain distributions received
by the shareholder with respect to those shares. Any loss realized on a sale,
redemption or exchange will be disallowed to the extent the shares disposed of
are replaced (including by reinvestment of dividends) within the 61-day period
ending 30 days after the shares are disposed of.
The Trust has obtained an opinion of counsel to the effect that the
exchange of one class of the Series' shares for another class of its shares
does not constitute a taxable event for federal income tax purposes. However,
such opinion is not binding on the Internal Revenue Service.
WITHHOLDING TAXES
Under the Internal Revenue Code, the Series is required to withhold and
remit to the U.S. Treasury 31% of dividends, capital gain distributions and
redemption proceeds on the accounts of certain shareholders who fail to furnish
their tax identification numbers on IRS Form W-9 (or IRS Form W-8 in the case
of certain foreign shareholders). Withholding at this rate is also required
from dividends and capital gains distributions (but not redemption proceeds)
payable to shareholders who are otherwise subject to backup withholding.
Dividends from net investment income and short-term capital gains paid to a
foreign shareholder will generally be subject to U.S. withholding tax at the
rate of 30% (or lower treaty rate).
DIVIDENDS AND DISTRIBUTIONS
THE SERIES DECLARES DIVIDENDS ON A DAILY BASIS PAYABLE MONTHLY IN AN
AMOUNT BASED ON ACTUAL AND PROJECTED NET INVESTMENT INCOME DETERMINED IN
ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. Dividends paid by the
Series with respect to each class of shares, to the extent any dividends are
paid, will be calculated in the same manner, at the same time, on the same day
and will be in the same amount except that Class A will bear its own
distribution expenses, generally resulting in lower dividends for Class A
shares in relation to Class Z shares. Distribution of net capital gains, if
any, will be paid in the same amount for each class of shares. See "How the
Trust Values Its Shares."
DIVIDENDS AND DISTRIBUTIONS WILL BE PAID IN ADDITIONAL SHARES OF THE
SERIES, BASED ON THE NAV OF EACH CLASS OF THE SERIES ON THE PAYMENT DATE,
UNLESS THE SHAREHOLDER ELECTS IN WRITING NOT LESS THAN FIVE BUSINESS DAYS PRIOR
TO THE PAYMENT DATE TO RECEIVE SUCH DIVIDENDS AND DISTRIBUTIONS IN CASH. Such
election should be submitted to Prudential
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Mutual Fund Services LLC, Attention: Account Maintenance, P.O. Box 15015, New
Brunswick, New Jersey 08906-5015. If you hold shares through Prudential
Securities, you should contact your financial adviser to elect to receive
dividends and distributions in cash. The Trust will notify each shareholder
after the close of the Trust's taxable year of both the dollar amount and
taxable status of that year's dividends and distributions on a per share basis.
Distributions may be subject to state and local taxes. See "Taxation of
Shareholders" above.
As of November 30, 1997, the Series had a capital loss carryforward for
federal income tax purposes of approximately $33,664,000. Accordingly, no
capital gains distribution is expected to be paid to shareholders until net
gains have been realized in excess of such carryforward.
IF YOU BUY SHARES ON OR IMMEDIATELY PRIOR TO THE RECORD DATE (THE DATE
THAT DETERMINES WHO RECEIVES THE DIVIDEND), YOU WILL RECEIVE A PORTION OF THE
MONEY YOU INVESTED AS A TAXABLE DIVIDEND. THEREFORE, YOU SHOULD CONSIDER THE
TIMING OF DIVIDENDS WHEN BUYING SHARES OF THE FUND.
GENERAL INFORMATION
DESCRIPTION OF SHARES
THE TRUST, ORGANIZED IN 1981 AS AN UNINCORPORATED BUSINESS TRUST UNDER THE
LAWS OF MASSACHUSETTS, IS A TRUST FUND OF THE TYPE COMMONLY KNOWN AS A
MASSACHUSETTS BUSINESS TRUST. The Trust's activities are supervised by its
Trustees. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares in separate series and classes within such
series. The Series is authorized to issue an unlimited number of shares,
divided into two classes, designated Class A and Class Z.
The shareholders of the Money Market Series, the Short-Intermediate Term
Series and the U.S. Treasury Money Market Series are each entitled to a full
vote for each full share of beneficial interest (par value $.01 per share) held
(and fractional votes for fractional shares). Shares of each series are
entitled to vote as a class only to the extent required by the provisions of
the Investment Company Act or as otherwise permitted by the Trustees in their
sole discretion. Under the Investment Company Act, shareholders of each series
have to approve the adoption of any investment advisory agreement relating to
such series and of any changes in investment policies related thereto.
Shares of the Short-Intermediate Term Series are currently divided into
two classes designated Class A and Class Z shares. Each class represents an
interest in the same assets of the Series and is identical in all respects
except that (i) each class is subject to different expenses which may affect
performance, (ii) each class has exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement and has
separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of the other class, (iii) each
class has a different exchange privilege and (iv) Class Z shares are offered
exclusively for sale to a limited group of investors. Since Class A shares are
subject to distribution and/or service expenses, the liquidation proceeds to
shareholders of that class are likely to be lower than to Class Z shareholders
whose shares are not subject to any distribution and/or service expenses. In
accordance with the Trust's Declaration of Trust, the Trustees may authorize
the creation of additional classes, with such preferences, privileges,
limitations and voting and dividend rights as the Trustees may determine.
IT IS THE INTENTION OF THE TRUST NOT TO HOLD ANNUAL MEETINGS OF
SHAREHOLDERS. THE TRUSTEES MAY CALL SPECIAL MEETINGS OF SHAREHOLDERS FOR ACTION
BY SHAREHOLDER VOTE AS MAY BE REQUIRED BY THE INVESTMENT COMPANY ACT OR THE
DECLARATION OF TRUST. SHAREHOLDERS HAVE CERTAIN RIGHTS, INCLUDING THE RIGHT TO
CALL A MEETING UPON A VOTE OF 10% OF THE TRUST'S OUTSTANDING SHARES FOR THE
PURPOSE OF VOTING ON THE REMOVAL OF ONE OR MORE TRUSTEES.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which
has been incorporated by reference herein, does not contain all the information
set forth in the Registration Statement filed by the Trust with the SEC under
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the Securities Act. Copies of the Registration Statement may be obtained at a
reasonable charge from the SEC or may be examined, without charge, at the
office of the SEC in Washington, D.C.
SHAREHOLDER GUIDE
HOW TO BUY SHARES OF THE TRUST
YOU MAY PURCHASE SHARES OF THE SERIES THROUGH PRUDENTIAL SECURITIES OR
THROUGH PRUSEC OR DIRECTLY FROM THE TRUST THROUGH ITS TRANSFER AGENT,
PRUDENTIAL MUTUAL FUND SERVICES LLC (PMFS OR THE TRANSFER AGENT), ATTENTION:
INVESTMENT SERVICES, P.O. BOX 15020, NEW BRUNSWICK, NEW JERSEY 08906-5020.
Participants in programs sponsored by Prudential Retirement Services should
contact their client representative for more information about Class Z shares.
The minimum initial investment for Class A shares is $1,000. The minimum
subsequent investment is $100. There is no minimum initial or subsequent
investment requirement for investors who qualify to purchase Class Z shares.
All minimum investment requirements are waived for certain retirement and
employee savings plans and for custodial accounts for the benefit of minors.
For purchases through the Automatic Savings Accumulation Plan, the minimum
initial and subsequent investment is $50. See "Shareholder Services" below.
SHARES OF THE SERIES ARE SOLD, WITHOUT A SALES CHARGE, AT THE NAV NEXT
DETERMINED AFTER RECEIPT OF AN ORDER BY PMFS OF A PURCHASE ORDER AND PAYMENT IN
PROPER FORM (I.E., A CHECK OR FEDERAL FUNDS WIRED TO STATE STREET BANK AND
TRUST COMPANY (STATE STREET)). SEE "HOW THE TRUST VALUES ITS SHARES." When
payment is received by PMFS prior to 4:15 P.M., New York time, in proper form,
a share purchase order will be entered at the price determined as of 4:15 P.M.,
New York time, on that day, and dividends on the shares purchased will begin on
the business day following such investment. See "Taxes, Dividends and
Distributions."
Application forms can be obtained from PMFS, Prudential Securities or
Prusec. If a stock certificate is desired, it must be requested in writing for
each transaction. Certificates are issued only for full shares. Shareholders
who hold their shares through Prudential Securities will not receive stock
certificates. Shareholders cannot utilize Expedited Redemption or have a
Systematic Withdrawal Plan if they have been issued share certificates.
The Trust reserves the right to reject any purchase order (including an
exchange into the Series) or to suspend or modify the continuous offering of
its shares. See "How to Sell Your Shares" below.
Your dealer is responsible for forwarding payment promptly to the Trust.
The Distributor reserves the right to cancel any purchase order for which
payment has not been received by the third business day following the
investment.
Transactions in Trust shares may be subject to postage and handling
charges imposed by your dealer.
In connection with the sale of shares of the Series, the Manager, the
Distributor or one of their affiliates may pay dealers, financial advisers and
other persons which distribute shares a finders' fee based on a percentage of
the net asset value of shares by such persons. For more information about
shares of the Trust contact your Prudential Securities financial adviser or
Prusec representative or telephone the Trust at (800) 225-1852. Participants in
programs sponsored by Prudential Retirement Services should contact their
client representative for more information about Class Z shares.
CLASS Z
Class Z shares are currently available for purchases by the following
categories of investors: (i) pension, profit-sharing or other employee benefit
plans qualified under Section 401 of the Internal Revenue Code, deferred
compensation plans and annuity plans under Sections 457 and 403(b)(7) of the
Internal Revenue Code, and non-qualified plans for which the Series is an
available option (collectively, Benefit Plans); provided that such Benefit
Plans (in combination with other plans sponsored by the same employer or group
of related employers) have at least $50 million in defined contribution assets,
(ii) participants in any fee-based program or trust program sponsored by
Prudential Securities. The Prudential Savings Bank, F.S.B. or any affiliate
which includes mutual funds as investment options and for which the Series is
an available option, (iii) certain participants in the MEDLEY Program (group
variable annuity contracts) sponsored by Prudential, for whom Class Z shares of
the Prudential Mutual Funds are an available investment option, (iv) Benefit
Plans for which Prudential Retirement Services serves as recordkeeper and as of
September 20, 1996 (a) were Class Z shareholders of the Prudential Mutual Funds
or (b) executed a letter of intent to purchase Class Z shares of the Prudential
Mutual Funds, (v) current and former Directors/Trustees of the Prudential
Mutual Funds (including the Series), and (vi) employees of Prudential and/or
Prudential Securities who participate in a Prudential-sponsored employee
savings plan.
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PURCHASES THROUGH PRUDENTIAL SECURITIES. Shares of the Series may be
purchased through Prudential Securities at the net asset value next computed
after your order is received. Prudential Securities will transmit your order to
the Trust on the next business day for settlement that day and you will begin
earning dividends on the second business day after receipt of your order by
Prudential Securities. Prudential Securities will have the use of any free
credit balances (I.E., immediately available funds) held in your account until
they are delivered to the Trust in connection with your purchase.
Shares of the Series purchased by Prudential Securities on behalf of its
clients will be held by Prudential Securities as record holder. Prudential
Securities will thereafter receive statements and dividends directly from the
Trust and will in turn provide investors with Prudential Securities account
statements reflecting Series purchases, redemptions and dividend payments.
Prudential Securities clients wishing additional information concerning
investment in Series shares made through Prudential Securities should call
their Prudential Securities financial adviser.
PURCHASES THROUGH PRUSEC. You may purchase shares of the Series by placing
an order with your Prusec registered representative accompanied by payment for
the purchase price of such shares and, in the case of a new account, a
completed Application Form. You should also submit an IRS Form W-9. The Prusec
registered representative will then forward these items to the Transfer Agent.
See "Purchase by Mail" below.
PURCHASE BY WIRE. For an initial purchase of shares of the Series by wire,
you must first telephone PMFS at (800) 225-1852 to receive an account number.
The following information will be requested: your name, address, tax
identification number, dividend and distribution elections, amount being wired
and wiring bank. Instructions should then be given by you to your bank to
transfer funds by wire to State Street Bank and Trust Company, Boston,
Massachusetts, Custody and Shareholder Services Division, Attention: Prudential
Government Securities Trust (Short-Intermediate Term Series), specifying on
the wire the account number assigned and your name and identifying the class in
which you are eligible to invest (Class A or Class Z shares).
If you arrange for receipt by State Street of Federal Funds prior to 4:15
P.M., New York time, on a business day, you may purchase Series shares as of
that day and earn dividends commencing on the next business day.
In making a subsequent purchase utilizing Federal Funds, you should wire
State Street directly and should be sure that the wire specifies Prudential
Government Securities Trust (Short-Intermediate Term Series) Class A or Class Z
shares and your name and individual account number. It is not necessary to call
PMFS to make subsequent purchase orders utilizing Federal Funds. The minimum
amount which may be subsequently invested by wire is $1,000.
PURCHASE BY MAIL. Purchase orders for which remittance is to be made by
check must be submitted directly by mail to Prudential Mutual Fund Services LLC,
Attention: Investment Services, P.O. Box 15020, New Brunswick, New Jersey
08906-5020, together with payment for the purchase price of such shares and, in
the case of a new account, a completed Application Form. You should also submit
an IRS Form W-9. If PMFS receives your order to purchase shares of the Series
and payment in proper form prior to 4:15 P.M., New York time, the purchase order
will be effective on that day and you will begin earning dividends on the
following business day. See "Taxes, Dividends and Distributions."
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Checks should be made payable to Prudential Government Securities Trust
(Short-Intermediate Term Series) and should indicate Class A or Class Z shares.
Certified checks are not necessary, but checks are accepted subject to
collection at full face value in United States funds and must be drawn on a bank
located in the United States. There are restrictions on the redemption of shares
purchased by check while the funds are being collected. See "How to Sell Your
Shares."
HOW TO SELL YOUR SHARES
YOU CAN REDEEM YOUR SHARES AT ANY TIME FOR CASH AT THE NAV NEXT DETERMINED
AFTER THE REDEMPTION REQUEST IS RECEIVED IN PROPER FORM BY THE TRANSFER AGENT
OR PRUDENTIAL SECURITIES. SEE "HOW THE TRUST VALUES ITS SHARES."
Shares for which a redemption request is received by PMFS prior to 4:15
P.M., New York time, are entitled to a dividend on the day on which the request
is received. By pre-authorizing Expedited Redemption, a shareholder may arrange
to have payment for redeemed shares made in Federal Funds wired to the
shareholder's bank, normally on the next bank business day following the date
of receipt of the redemption instructions. Should a shareholder redeem all of
his or her shares, he or she will receive the amount of all dividends declared
for the month-to-date on those shares. Any capital gain or loss realized by a
shareholder upon any redemption of Trust shares must be recognized for federal
income tax purposes. See "Taxes, Dividends and Distributions."
Prudential Securities clients for whom Prudential Securities has purchased
shares of the Trust may have their shares redeemed by calling their Prudential
Securities financial adviser.
If redemption is requested by a corporation, partnership, trust or
fiduciary, written evidence of authority acceptable to the Transfer Agent must
be submitted before such request will be accepted. All correspondence and
documents concerning redemptions should be sent to the Trust in care of its
Transfer Agent, Prudential Mutual Fund Services LLC, Attention: Redemption
Services, P.O. Box 15010, New Brunswick, New Jersey 08906-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid
to a person other than the record owner, (c) are to be sent to an address other
than the address on the Transfer Agent's records or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the
redemption request and on the certificates, if any, or stock power must be
guaranteed by an eligible guarantor institution. An eligible guarantor
institution includes any bank, broker, dealer or credit union. The Transfer
Agent reserves the right to request additional information from, and make
reasonable inquiries of, any eligible guarantor institution. For clients of
Prusec, a signature guarantee may be obtained from the agency or office manager
of most Prudential Insurance and Financial Services or Preferred Services
offices. In the case of redemptions from a benefit plan that participates in
the Prudential PruArray or Smartpath Program, if the proceeds of the redemption
are invested in another investment option of such plan, in the name of the
record holder and at the same address as reflected in the Transfer Agent's
records, a signature guarantee is not required.
PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL ORDINARILY BE MADE BY
CHECK MAILED TO THE SHAREHOLDER'S ADDRESS WITHIN SEVEN DAYS AFTER RECEIPT OF
THE REDEMPTION REQUEST IN PROPER ORDER. Such payment may be postponed or the
right of redemption suspended at times (a) when the New York Stock Exchange is
closed, for other than customary weekends and holidays, (b) when trading on
such Exchange is restricted, (c) when an emergency exists as a result of which
disposal by the Trust of securities owned by it is not reasonably practicable
or it is not reasonably practicable for the Trust fairly to determine the value
of its net assets or (d) during any other period when the SEC, by order, so
permits; provided that applicable rules and regulations of the SEC shall govern
as to whether the conditions prescribed in (b), (c) or (d) exist.
PAYMENT FOR REDEMPTION OF RECENTLY PURCHASED SHARES WILL BE DELAYED UNTIL
THE TRUST OR ITS TRANSFER AGENT HAS BEEN ADVISED THAT THE PURCHASE CHECK HAS
BEEN HONORED, UP TO 10 CALENDAR DAYS FROM THE TIME OF RECEIPT OF THE PURCHASE
CHECK BY THE TRANSFER AGENT. SUCH DELAY MAY BE AVOIDED IF SHARES ARE PURCHASED
BY WIRE OR BY CERTIFIED OR CASHIER'S CHECK.
EXPEDITED REDEMPTION. By pre-authorizing Expedited Redemption, you may
arrange to have payment for redeemed shares made in Federal Funds wired to your
bank, normally on the next business day following redemption.
26
<PAGE>
In order to use Expedited Redemption, you may so designate at the time the
initial investment is made or at a later date. Once an Expedited Redemption
authorizat`ion form has been completed, the signature on the authorization form
guaranteed as set forth above and the form returned to PMFS, requests for
redemption may be made by telegraph, letter or telephone. To request Expedited
Redemption by telephone, you should call PMFS at (800) 225-1852. Calls must be
received by PMFS before 4:15 P.M., New York time, to permit redemption as of
such date. Requests by letter should be addressed to Prudential Mutual Fund
Services LLC, Attention: Redemption Services, P.O. Box 15010, New Brunswick, New
Jersey 08906-5010.
A signature guarantee is not required under Expedited Redemption once the
authorization form is properly completed and returned. The Expedited Redemption
privilege may be used to redeem shares in an amount of $200 or more, except
that if an account for which Expedited Redemption is requested has a net asset
value of less than $200, the entire account must be redeemed. The proceeds of
redeemed shares in the amount of $1,000 or more are transmitted by wire to your
account at a domestic commercial bank which is a member of the Federal Reserve
System. Proceeds of less than $1,000 are forwarded by check to your designated
bank account.
DURING PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS, EXPEDITED
REDEMPTIONS MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD REDEEM YOUR SHARES BY
MAIL AS DESCRIBED ABOVE.
REDEMPTION IN KIND. If the Trustees determine that it would be detrimental
to the best interests of the remaining shareholders of the Series to make
payment wholly or partly in cash, the Trust may pay the redemption price in
whole or in part by a distribution in kind of securities from the portfolio of
the Series, in lieu of cash in conformity with applicable rules of the SEC.
Securities will be readily marketable and will be valued in the same manner as
in a regular redemption. See "How the Trust Values its Shares." If your shares
are redeemed in kind, you would incur transaction costs in converting the assets
into cash. The Trust, however, has elected to be governed by Rule 18f-1 under
the Investment Company Act pursuant to which the Trust is obligated to redeem
shares solely in cash up to the lesser of $250,000 or one percent of the net
asset value of the Series during any 90-day period for any one shareholder.
INVOLUNTARY REDEMPTION. In order to reduce the expenses of the Trust, the
Trustees may redeem all of the shares of any shareholder whose account has a
net asset value of less than $500 due to a redemption. The Trust would give
shareholders whose shares were being redeemed 60 days' prior written notice in
which to purchase sufficient additional shares to avoid such redemption.
90-DAY REPURCHASE PRIVILEGE. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest any portion or
all of the proceeds of such redemption in shares of the Trust at the NAV next
determined after the order is received, which must be within 90 days after the
date of the redemption. Any CDSC paid in connection with such redemption will be
credited (in shares) to your account. (If less than a full repurchase is made,
the credit will be on a PRO RATA basis.) You must notify the Trust's Transfer
Agent, either directly or through Prudential Securities, at the time the
repurchase privilege is exercised to adjust your account for the CDSC you
previously paid. Thereafter, any redemptions will be subject to the CDSC
applicable at the time of the redemption. Exercise of the repurchase privilege
may affect the income tax treatment of any gain or loss realized upon the
redemption. See "Taxes, Dividends and Distributions" above and in the Statement
of Additional Information.
CLASS B AND CLASS C PURCHASE PRIVILEGE. You may direct that the proceeds
of the redemption of Fund shares be invested in Class B or Class C shares of
any Prudential Mutual Fund by calling your Prudential Securities financial
adviser or the Transfer Agent at (800) 225-1852. The transaction will be
effected on the basis of the relative NAV.
HOW TO EXCHANGE YOUR SHARES
AS A SHAREHOLDER OF THE SERIES, YOU MAY EXCHANGE YOUR SHARES FOR SHARES OF
OTHER SERIES OF THE TRUST AND CERTAIN OTHER PRUDENTIAL MUTUAL FUNDS, INCLUDING
MONEY MARKET FUNDS AND FUNDS SOLD WITH AN INITIAL SALES CHARGE, SUBJECT TO THE
MINIMUM INVESTMENT REQUIREMENTS OF SUCH FUNDS ON THE BASIS OF RELATIVE NAV. You
may exchange your Class A or Class Z shares for Class A or Class Z shares,
respectively, of the Prudential Mutual Funds on the basis of the relative
27
<PAGE>
NAV plus the applicable sales charge. No additional sales charge is imposed in
connection with subsequent exchanges. You may not exchange your shares for Class
B shares of the Prudential Mutual Funds, except that shares acquired prior to
January 22, 1990 subject to a contingent deferred sales charge can be exchanged
for Class B shares. You may not exchange your shares for Class C shares of the
Prudential Mutual Funds. See "How to Sell Your Shares-Class B and Class C
Purchase Privilege" above and "Shareholder Investment Account-Exchange
Privilege" in the Statement of Additional Information. An exchange will be
treated as a redemption and purchase for tax purposes. See "Taxes, Dividends and
Distributions" above and in the Statement of Additional Information.
Class Z shareholders of the Series may exchange their Class Z shares for
Class Z shares of other Prudential Mutual Funds on the basis of relative net
asset value. Shareholders who qualify to purchase Class Z shares (other than
participants in any fee-based program) will have their Class A shares exchanged
for Class Z shares on a quarterly basis. Participants in any fee-based program
for which the Series is an available option will have their Class A shares, if
any, exchanged for Class Z shares when they elect to have those assets become a
part of the fee-based program. Upon leaving the program (whether voluntarily or
not), such Class Z shares (and, to the extent provided for in the program,
Class Z shares acquired through participation in the program) will be exchanged
for Class A shares at net asset value. Similarly, participants in the PSI
401(k) Plan, an employee benefit plan sponsored by Prudential Securities (the
PSI 401(k) Plan) for which the Series' Class Z shares are an available option
and who wish to transfer their Class Z shares out of the PSI 401(k) Plan
following separation from service (I.E., voluntary or involuntary termination
of employment or retirement) will have their Class Z shares exchanged for Class
A shares at net asset value.
IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE TELEPHONE
EXCHANGES ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE TRANSFER
AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter, you may call the
Trust at (800) 225-1852 to execute a telephone exchange of shares, on weekdays,
except holidays, between the hours of 8:00 A.M. and 6:00 P.M., New York time.
For your protection and to prevent fradulent exchanges, your telephone call
will be recorded and you will be asked to provide your personal identification
number. A written confirmation of the exchange transaction will be sent to you.
NEITHER THE TRUST NOR ITS AGENTS WILL BE LIABLE FOR ANY LOSS, LIABILITY OR COST
WHICH RESULTS FROM ACTING UPON INSTRUCTIONS REASONABLY BELIEVED TO BE GENUINE
UNDER THE FOREGOING PROCEDURES. (THE TRUST OR ITS AGENTS COULD BE SUBJECT TO
LIABILITY IF THEY FAIL TO EMPLOY REASONABLE PROCEDURES.) All exchanges will be
made on the basis of the relative NAV of the two funds (or series) next
determined after the request is received in good order. The Exchange Privilege
is available only in states where the exchange may legally be made.
IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER. IF YOU HOLD
CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE FACE OF THE
CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE EXCHANGED. SEE
"PURCHASE AND REDEMPTION OF TRUST SHARES-HOW TO SELL YOUR SHARES" ABOVE.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services LLC, Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
IN PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS, THE TELEPHONE EXCHANGE
OF SHARES MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD MAKE EXCHANGES BY MAIL
BY WRITING TO PRUDENTIAL MUTUAL FUND SERVICES LLC, AT THE ADDRESS NOTED ABOVE.
The Prudential Securities Cash Balance Pension Plan may only exchange its
Class Z shares for Class Z shares of those Prudential Mutual Funds which permit
investment by the Prudential Securities Cash Balance Pension Plan.
The Exchange Privilege is not a right and may be suspended, terminated or
modified at any time on 60 days' notice to shareholders.
FREQUENT TRADING. The Fund and the other Prudential Mutual Funds are not
intended to serve as vehicles for frequent trading in response to short-term
fluctuations in the market. Due to the disruptive effect that market timing
28
<PAGE>
investment strategies and excessive trading can have on efficient portfolio
management, each Prudential Mutual Fund and the Fund reserves the right to
refuse purchase orders and exchanges by any person, group or commonly
controlled accounts, if, in the Manager's sole judgment, such person, group or
accounts were following a market timing strategy or were otherwise engaging in
excessive trading (Market Timers).
To implement this authority to protect the Fund and its shareholders from
excessive trading, the Fund will reject all exchanges and purchases from a
Market Timer unless the Market Timer has entered into a written agreement with
the Fund or its affiliates pursuant to which the Market Timer has agreed to
abide by certain procedures, which include a daily dollar limit on trading. The
Fund may notify the Market Timer of rejection of an exchange or purchase order
subsequent to the day on which the order was placed.
SHAREHOLDER SERVICES
In addition to the exchange privilege, as a shareholder in the Trust, you
can take advantage of the following additional services and privileges:
o AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS. For your
convenience, all dividends and distributions are automatically reinvested in
full and fractional shares of the Series at NAV. You may direct the Transfer
Agent in writing not less than 5 full business days prior to the record date to
have subsequent dividends and/or distributions sent in cash rather than
reinvested. If you hold your shares through Prudential Securities, you should
contact your financial adviser.
o AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP you may make
regular purchases of Series shares in amounts as little as $50 via an automatic
charge to a bank account or Prudential Securities account (including a Command
Account). For additional information about this service, you may contact your
Prudential Securities financial adviser, Prusec representative or the Transfer
Agent directly.
o TAX-DEFERRED RETIREMENT PLANS. Various tax-deferred retirement plans,
including a 401(k) plan, self-directed individual retirement accounts and
tax-sheltered accounts under Section 403(b)(7) of the Internal Revenue Code are
available through the Distributor. These plans are for use by both self-employed
individuals and corporate employers. These plans permit either self-direction of
accounts by participants, or a pooled account arrangement. Information regarding
the establishment of these plans, the administration, custodial fees and other
details is available from Prudential Securities or the Transfer Agent. If you
are considering adopting such a plan, you should consult with your own legal or
tax adviser with respect to the establishment and maintenance of such a plan.
o SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available for
shareholders which provides for monthly or quarterly checks. For additional
information about this service, you may contact your Prudential Securities
financial adviser, Prusec representative or the Transfer Agent directly.
o REPORTS TO SHAREHOLDERS. The Trust will send you the Series' annual and
semi-annual reports. The financial statements appearing in annual reports are
audited by independent accountants. In order to reduce duplicate mailing and
printing expenses the Trust will provide one annual report and semi-annual
shareholder report and annual prospectus per household. You may request
additional copies of such reports by calling (800) 225-1852 or by writing to the
Trust at Gateway Center Three, 100 Mulberry Street, Newark, New Jersey
07102-4077. In addition, monthly unaudited financial data is available upon
request from the Trust.
o SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Trust at
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, or
by telephone, at (800) 225-1852 (toll free) or, from outside the U.S.A., at
(908) 417-7555 (collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
29
<PAGE>
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<PAGE>
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<PAGE>
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THE PRUDENTIAL MUTUAL FUND FAMILY
Prudential Investments Fund Management offers a broad range of mutual
funds designed to meet your individual needs. We welcome you to review the
investment options available through our family of funds. For more information
on the Prudential Mutual Funds, including charges and expenses, contact your
Prudential Securities financial adviser or Prusec registered representative or
telephone the Trust at (800) 225-1852 for a free prospectus. Read the
prospectus carefully before you invest or send money.
Taxable Bond Funds
Prudential Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Mortgage Income Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
Tax-Exempt Bond Funds
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Intermediate Series
Prudential Municipal Series Fund
Florida Series
Maryland Series
Massachusetts Series
Michigan Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
Global Funds
Prudential Emerging Growth Fund, Inc.
Prudential Europe Growth Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential International Bond Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
Global Utility Fund, Inc.
The Global Total Return Fund, Inc.
Equity Funds
Prudential Balanced Fund
Prudential Distressed Securities Fund, Inc.
Prudential Dryden Fund
Prudential Bond Market Index Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Jennison Series Inc.
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Multi-Sector Fund, Inc.
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Money Market Funds
o TAXABLE MONEY MARKET FUNDS
Cash Accumulation Trust
National Money Market Fund
Liquid Assets Fund
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.
o TAX-FREE MONEY MARKET FUNDS
Prudential Tax-Free Money Fund, Inc.
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
o COMMAND FUNDS
Command Money Fund
Command Government Fund
Command Tax-Free Fund
o INSTITUTIONAL MONEY MARKET FUNDS
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
A-1
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained in this Prospectus,
and, if given or made, such other information or representations must not be
relied upon as having been authorized by the Trust or the Distributor. This
Prospectus does not constitute an offer by the Trust or by the Distributor to
sell or a solicitation of an offer to buy any of the securities offered hereby
in any jurisdiction to any person to whom it is unlawful to make such offer in
such jurisdiction.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
TRUST HIGHLIGHTS ........................... 2
What are the Series' Risk Factors
and Special Characteristics? ............ 2
TRUST EXPENSES ........................... 4
FINANCIAL HIGHLIGHTS ........................ 5
HOW THE TRUST INVESTS ........................ 7
Investment Objective and Policies ......... 7
Other Investments and Policies ............ 9
Other Investments and Investment Techniques 12
Investment Restrictions .................. 17
HOW THE TRUST IS MANAGED ..................... 18
Manager ................................. 18
Distributor .............................. 19
Portfolio Transactions .................. 20
Custodian and Transfer and
Dividend Disbursing Agent ............... 20
HOW THE TRUST VALUES ITS SHARES ............ 20
HOW THE TRUST CALCULATES PERFORMANCE . 20
TAXES, DIVIDENDS AND DISTRIBUTIONS ......... 21
GENERAL INFORMATION ........................ 23
Description of Shares ..................... 23
Additional Information .................. 24
SHAREHOLDER GUIDE ........................... 24
How to Buy Shares of the Trust ............ 24
How to Sell Your Shares .................. 26
How to Exchange Your Shares ............ 28
Shareholder Services ..................... 29
</TABLE>
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MF111A
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Class A: 744342 10 6
CUSIP Nos.: Class Z: 744342 60 1
- --------------------------------------------------------------------------------
Prudential Government
Series
Trust
- --------------------------------------------------------------------------------
Short-Intermediate
Term Series
[GRAPHIC OMITTED]
PROSPECTUS
JANUARY 30, 1998
WWW.PRUDENTIAL.COM
<PAGE>
PRUDENTIAL GOVERNMENT SECURITIES TRUST
Statement of Additional Information
dated January 30, 1998
Prudential Government Securities Trust (the Trust) is offered in three
series: the Money Market Series, the U.S. Treasury Money Market Series and the
Short-Intermediate Term Series. Each series operates as a separate fund with
its own investment objectives and policies designed to meet its specific
investment goals. The investment objectives of the Money Market Series and the
U.S. Treasury Money Market Series are to obtain high current income, preserve
capital and maintain liquidity. The investment objective of the
Short-Intermediate Term Series is to achieve a high level of income consistent
with providing reasonable safety. There can be no assurance that any series'
investment objective will be achieved.
The Trust's address is Gateway Center Three, 100 Mulberry Street, Newark,
NJ 07102-4077, and its telephone number is (800) 225-1852.
This Statement of Additional Information sets forth information about each
of the series. This Statement of Additional Information is not a prospectus and
should be read in conjunction with the Trust's Money Market Series Prospectus,
U.S. Treasury Money Market Series Prospectus or Short-Intermediate Term Series
Prospectus, each dated January 30, 1998, copies of which may be obtained from
the Trust upon request.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CROSS-REFERENCE CROSS-REFERENCE
CROSS-REFERENCE TO PAGE IN U.S. TO PAGE IN
TO PAGE IN TREASURY MONEY SHORT-INTERMEDIATE
MONEY MARKET MARKET SERIES TERM
PAGE SERIES PROSPECTUS PROSPECTUS SERIES PROSPECTUS
------ ------------------- ----------------- -------------------
<S> <C> <C> <C> <C>
General Information ....................................... B-2 13 12 23
Investment Objective(s) and Policies ..................... B-3
Money Market Series ....................................... B-4 7 -
U.S. Treasury Money Market Series ........................ B-5 - 7 -
Short-Intermediate Term Series ........................... B-6 - - 7
Portfolio Turnover ....................................... B-15 - - -
Investment Restrictions ................................. B-15 9 9 17
Trustees and Officers .................................... B-17 9 9 18
Manager ................................................... B-21 9 9 18
Distributor ............................................. B-23 10 10 19
Portfolio Transactions and Brokerage ..................... B-24 11 11 20
Shareholder Investment Account ........................... B-24 20 20 28
Net Asset Value .......................................... B-27 11 11 20
Performance Information ................................. B-28
Money Market Series and U.S. Treasury
Money Market Series-Calculation of Yield ............ B-28 7 7 -
Short-Intermediate Term Series-Calculation
of Yield and Total Return ........................... B-28 - - 20
Taxes, Dividends and Distributions ........................ B-29 12 11 21
Custodian and Transfer and Dividend Disbursing
Agent and Independent Accountants ..................... B-30 11 11 20
Financial Statements .................................... B-31 - - -
Report of Independent Accountants ........................ B-45 - - -
Appendix I-General Investment Information ............... I-1 - - -
Appendix II-Historical Performance Data .................. II-1 - - -
Appendix III-Information Relating to The Prudential ...... III-1
</TABLE>
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MF111B
B-1
<PAGE>
GENERAL INFORMATION
The Trust is a trust fund of the type commonly known as a Massachusetts
business trust. The Declaration of Trust and the By-Laws of the Trust are
designed to make the Trust similar in most respects to a Massachusetts business
corporation. The principal distinction between the two forms relates to
shareholder liability: under Massachusetts law, shareholders of a business
trust may, in certain circumstances, be held personally liable as partners for
the obligations of the Trust, which is not the case with a corporation. The
Declaration of Trust of the Trust provides that shareholders shall not be
subject to any personal liability for the acts or obligations of the Trust and
that every written obligation, contract, instrument or undertaking made by the
Trust shall contain a provision to the effect that the shareholders are not
individually bound thereunder.
Massachusetts counsel for the Trust are of the opinion that no personal
liability will attach to the shareholders under any undertaking containing such
provision when adequate notice of such provision is given, except possibly in a
few jurisdictions. With respect to all types of claims in the latter
jurisdictions and with respect to tort claims, contract claims where the
provision referred to is omitted from the undertaking, claims for taxes and
certain statutory liabilities in other jurisdictions, a shareholder may be held
personally liable to the extent that claims are not satisfied by the Trust.
However, upon payment of any such liability the shareholder will be entitled to
reimbursement from the general assets of the Trust. The Trustees intend to
conduct the operations of the Trust, with the advice of counsel, in such a way
so as to avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Trust.
The Declaration of Trust further provides that no trustee, officer,
employee or agent of the Trust is liable to the Trust or to a shareholder, nor
is any trustee, officer, employee or agent liable to any third persons in
connection with the affairs of the Trust, except as such liability may arise
from his or its own bad faith, wilful misfeasance, gross negligence, or
reckless disregard of his or its duties. It also provides that all third
persons shall look solely to the Trust property for satisfaction of claims
arising in connection with the affairs of the Trust. With the exceptions
stated, the Declaration of Trust permits the Trustees to provide for the
indemnification of trustees, officers, employees or agents of the Trust against
all liability in connection with the affairs of the Trust.
Other distinctions between a corporation and a Massachusetts business
trust include the absence of a requirement that business trusts issue share
certificates.
The Trust shall continue without limitation of time subject to the
provisions in the Declaration of Trust concerning termination by action of the
shareholders or by the Trustees by written notice to the shareholders.
Pursuant to the Declaration of Trust, the Trustees initially authorized
the issuance of an unlimited number of full and fractional shares of a single
class. In connection with the establishment of the Short-Intermediate Term
Series (formerly the Intermediate Term Series), on July 1, 1982, the Trustees
designated the outstanding shares and shares that may thereafter be issued
under previous authority as the shares of the Money Market Series. On November
1, 1991, the Trustees established the U.S. Treasury Money Market Series by
designating it out of the unissued shares of beneficial interest of the Trust.
In so designating, the Trustees did not change any of the existing
shareholders' preferences, privileges, limitations or voting rights. Each share
of the Money Market Series, the U.S. Treasury Money Market Series and the
Short-Intermediate Term Series represents an equal proportionate interest in
the assets of the Trust attributable to the respective series with each other
share of the respective series. The Declaration of Trust permits the Trustees
to divide or combine the shares of any series into a greater or lesser number
of shares without thereby changing the proportionate beneficial interests of
the shares of any series in the assets of the Trust attributable to such
series. If the assets attributable to one series of shares are insufficient to
satisfy its liabilities, the assets of other series could be subjected to such
liabilities. Upon liquidation of the Trust, shareholders are entitled to share
pro rata in the net assets of the Trust attributable to the series of which
shares are held and available for distribution to shareholders. Shares have no
preemptive, appraisal or conversion rights and, except as may be otherwise
indicated hereby, no preference rights. Shares are fully paid and nonassessable
by the Trust.
Pursuant to the Declaration of Trust, the Trustees may authorize the
creation of additional series of shares and classes within such series (the
proceeds of which would be invested in separate, independently managed
portfolios with distinct investment objectives and policies and share purchase,
redemption and net asset valuation procedures) and additional classes of shares
within any series (which would be used to distinguish among the rights of
different categories of shareholders, as might be required by future
regulations or other unforeseen circumstances) with such preferences,
privileges, limitations and voting and dividend rights as the Trustees may
determine. All consideration received by the Trust for shares of any additional
series or class, and all assets in which such consideration is invested, would
belong to that series or class (subject only to the rights of creditors of the
Trust) and would be subject to the liabilities related thereto. Pursuant to the
Investment Company Act of 1940, as amended (the Investment Company Act),
shareholders of any additional series or class of shares would normally have to
approve any changes in the management contract relating to such series or class
and of any changes in the investment policies related thereto.
The Trustees themselves have the power to alter the number and the terms
of office of the Trustees, and they may at any time lengthen their own terms or
make their terms of unlimited duration (subject to certain removal procedures)
and appoint their own successors, provided that always at least a majority of
the Trustees have been elected by the shareholders of the Trust. The voting
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rights of shareholders are not cumulative, so that holders of more than 50
percent of the shares voting can, if they choose, elect all trustees being
selected, while the holders of the remaining shares would be unable to elect
any trustees.
On May 2, 1995, the Trustees approved a change in the name of the
Intermediate Term Series to the Short-Intermediate Term Series.
INVESTMENT OBJECTIVES AND POLICIES
The Money Market Series, the U.S. Treasury Money Market Series and the
Short-Intermediate Term Series operate as separate funds with their own
investment objectives and policies. The investment objectives of the Money
Market Series and the U.S. Treasury Money Market Series are to obtain high
current income, preserve capital and maintain liquidity. The investment
objective of the Short-Intermediate Term Series is to achieve a high level of
income consistent with providing reasonable safety. For a further description
of the investment objectives and policies for each series see "How the Trust
Invests-Investment Objective and Policies" in their respective Prospectuses.
There can be no assurance that any series' investment objective will be
achieved.
The investment adviser maintains a credit unit which provides credit
analysis and research on taxable fixed-income securities. The portfolio manager
routinely consults with the credit unit in managing the Fund's portfolio. The
credit unit reviews on an ongoing basis issuers of tax-exempt and taxable
fixed-income obligations, including prospective purchases and portfolio
holdings of the Fund. Credit analysts have broad access to research and
financial reports, data retrieval services and industry analysts. They review
financial statements supplied by corporate (and governmental) issuers to
evaluate sales, earnings, projected growth and seek to achieve an allocation
among different sectors, coupons and maturities to achieve each Series'
investment goals. The portfolio manager also seeks bonds with a high level of
call protection.
In order to achieve their objectives, the Money Market Series, the U.S.
Treasury Money Market Series and the Short-Intermediate Term Series
(collectively referred to as the Series), each acting independently of the
other, may, when appropriate, invest in the types of instruments and use
certain strategies described below:
REPURCHASE AGREEMENTS
The Trust's repurchase agreements will be collateralized by U.S.
Government obligations. The Trust will enter into repurchase transactions only
with parties meeting creditworthiness standards approved by the Trustees. The
Trust's investment adviser will monitor the creditworthiness of such parties,
under the general supervision of the Trustees. In the event of a default or
bankruptcy by a seller, the Trust will promptly seek to liquidate the
collateral. To the extent that the proceeds from any sale of such collateral
upon a default in the obligation to repurchase are less than the repurchase
price, the Trust will suffer a loss.
The Trust participates in a joint repurchase account with other investment
companies managed by Prudential Investments Fund Management LLC (PIFM or the
Manager) pursuant to an order of the Securities and Exchange Commission (SEC).
On a daily basis, any uninvested cash balances of the Trust may be aggregated
with those of such investment companies and invested in one or more repurchase
agreements. Each fund participates in the income earned or accrued in the joint
account based on the percentage of its investment.
ILLIQUID SECURITIES
The Trust may not hold more than 10% of the net assets of any Series (15%
in the case of the Short-Intermediate Term Series) in repurchase agreements
which have a maturity of longer than seven days or in other illiquid
securities, including securities that are illiquid by virtue of the absence of
a readily available market or legal or contractual restrictions on resale.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (Securities Act),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have
an adverse effect on the marketability of portfolio securities and a mutual
fund might be unable to dispose of restricted or other illiquid securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions within seven days. A mutual fund might also have to
register such restricted securities in order to dispose of them resulting in
additional expense and delay. Adverse market conditions could impede such a
public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities, convertible and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold on an issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale to the
general public or to certain institutions may not be indicative of the
liquidity of such investments.
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Rule 144A under the Securities Act allows for a broader institutional
trading market for securities otherwise subject to restriction on resale to the
general public. Rule 144A establishes a safe harbor from the registration
requirements of the Securities Act for resales of certain securities to
qualified institutional buyers. The investment adviser anticipates that the
market for certain restricted securities such as institutional commercial paper
and foreign securities will expand further as a result of this regulation and
the development of automated systems for the trading, clearance and settlement
of unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc.
(NASD).
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act, commercial paper and municipal lease obligations for which
there is a readily available market will not be deemed to be illiquid. The
investment adviser will monitor the liquidity of such restricted securities
subject to the supervision of the Trustees. In reaching liquidity decisions,
the investment adviser will consider, inter alia, the following factors: (1)
the frequency of trades and quotes for the security; (2) the number of dealers
wishing to purchase or sell the security and the number of other potential
purchasers; (3) dealer undertakings to make a market in the security; and (4)
the nature of the security and the nature of the marketplace (E.G., the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer). With respect to municipal lease obligations, the
investment adviser will also consider: (1) the willingness of the municipality
to continue, annually or biannually, to appropriate funds for payment of the
lease; (2) the general credit quality of the municipality and the essentiality
to the municipality of the property covered by the lease; (3) in the case of
unrated municipal lease obligations, an analysis of factors similar to that
performed by nationally recognized statistical rating organizations in
evaluating the credit quality of a municipal lease obligation, including (i)
whether the lease can be cancelled; (ii) if applicable, what assurance there is
that the assets represented by the lease can be sold; (iii) the strength of the
lessee's general credit (E.G., its debt, administrative, economic and financial
characteristics); (iv) the likelihood that the municipality will discontinue
appropriating funding for the leased property because the property is no longer
deemed essential to the operations of the municipality (E.G., the potential for
an event of nonappropriation); (v) the legal recourse in the event of failure
to appropriate; and (4) any other factors unique to municipal lease obligations
as determined by the investment adviser. With respect to commercial paper that
is issued in reliance on Section 4(2) of the Securities Act, (i) it must be
rated in one of the two highest rating categories by at least two nationally
recognized statistical rating organizations (NRSRO), or if only one NRSRO rates
the securities, by that NRSRO, or, if unrated, be of comparable quality in the
view of the investment adviser; and (ii) it must not be traded flat (I.E.,
without accrued interest) or in default as to principal or interest. Repurchase
agreements subject to demand are deemed to have a maturity equal to the notice
period.
MONEY MARKET SERIES
The Money Market Series seeks to achieve its objectives by investing in
United States Government securities that mature within thirteen months from
date of purchase, including a variety of securities which are issued or
guaranteed by the United States Treasury, by various agencies of the United
States Government or by various instrumentalities which have been established
or sponsored by the United States Government. These obligations, including
those which are guaranteed by Federal agencies or instrumentalities, may or may
not be backed by the full faith and credit of the United States. Obligations of
the Government National Mortgage Association (GNMA), the Farmers Home
Administration and the Small Business Administration are backed by the full
faith and credit of the United States. In the case of securities not backed by
the full faith and credit of the United States, the Trust must look principally
to the agency issuing or guaranteeing the obligation for ultimate repayment and
may not be able to assert a claim against the United States itself in the event
the agency or instrumentality does not meet its commitments. Securities in
which the Money Market Series may invest which are not backed by the full faith
and credit of the United States include, but are not limited to, obligations of
the Tennessee Valley Authority, the Federal National Mortgage Association
(FNMA) and the United States Postal Service, each of which has the right to
borrow from the United States Treasury to meet its obligations, and obligations
of the Federal Farm Credit System and the Federal Home Loan Banks, whose
obligations may only be satisfied by the individual credits of each issuing
agency. Treasury securities include Treasury bills, Treasury notes and Treasury
bonds, all of which are backed by the full faith and credit of the United
States, as are obligations of the Government National Mortgage Association, the
Farmers Home Administration and the Export-Import Bank. The Money Market Series
will invest at least 80% of its assets in such types of government securities.
The Series may also invest in component parts of U.S. Treasury notes or
bonds, namely, either the corpus (principal) of such Treasury obligations or
one of the interest payments scheduled to be paid on such obligations. These
obligations may take the form of (i) Treasury obligations from which the
interest coupons have been stripped, (ii) the interest coupons that are
stripped, (iii) book-entries at a Federal Reserve member bank representing
ownership of Treasury obligation components, or (iv) receipts evidencing the
component parts (corpus or coupons) of Treasury obligations that have not
actually been stripped. Such receipts evidence ownership of component parts of
Treasury obligations (corpus or coupons) purchased by a third party (typically
an investment banking firm) and held on behalf of the third party in physical
or book-entry form by a major commercial bank or trust company pursuant to a
custody agreement with the third party. Treasury obligations, including those
underlying such receipts, are backed by the full faith and credit of the U.S.
Government.
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The Money Market Series may also invest in fully insured certificates of
deposit. The Federal Deposit Insurance Corporation and the Federal Savings and
Loan Insurance Corporation, which are agencies of the United States Government,
insure the deposits of insured banks and savings and loan associations,
respectively, up to $100,000 per depositor. Current federal regulations also
permit such institutions to issue insured negotiable certificates of deposit
(CDs) in amounts of $100,000 or more without regard to the interest rate
ceilings on other deposits. To remain fully insured as to principal, such CDs
must currently be limited to $100,000 per bank or savings and loan association.
Interest on such CDs is not insured. The Money Market Series may invest in such
CDs, limited to the insured amount of principal ($100,000) in each case and to
10% or less of the gross assets of the Money Market Series in all such CDs in
the aggregate. Such CDs may or may not have a readily available market, and the
investment of the Money Market Series in CDs which do not have a readily
available market is further limited by the restriction on investment by the
Money Market Series of not more than 10% of assets in securities for which
there is no readily available market. See "Investment Restrictions."
The Money Market Series will attempt to balance its objectives of high
income, capital preservation and liquidity by investing in securities of
varying maturities and risks. As a result, the Money Market Series may not
necessarily invest in securities with the highest available yield. The Money
Market Series will not, however, invest in securities with remaining maturities
of more than thirteen months or maintain a dollar-weighted average maturity
which exceeds 90 days. The amounts invested in obligations of various
maturities of thirteen months or less will depend on management's evaluation of
the risks involved. Longer-term issues, while frequently paying higher interest
rates, are subject to greater fluctuations in value resulting from general
changes in interest rates than are shorter-term issues. Thus, when rates on new
securities increase, the value of outstanding longer-term securities may
decline and vice versa. Such changes may also occur, but to a lesser degree,
with short-term issues. These changes, if realized, may cause fluctuations in
the amount of daily dividends and, in extreme cases, could cause the net asset
value per share to decline. See "Net Asset Value." In the event of unusually
large redemption demands, securities may have to be sold at a loss prior to
maturity or the Money Market Series may have to borrow money and incur interest
expense. Either occurrence would adversely affect the amount of daily dividends
and could result in a decline in daily net asset value per share or the
reduction by the Money Market Series of the number of shares held in a
shareholder's account. The Money Market Series will attempt to minimize these
risks by investing in longer-term securities, subject to the foregoing
limitations, when it appears to management that yields on such securities are
not likely to increase substantially during the period of expected holding, and
then only in securities which are readily marketable. However, there can be no
assurance that the Money Market Series will be successful in achieving this
objective.
LIQUIDITY PUTS
The Money Market Series may also purchase instruments of the types
described in this section together with the right to resell the instruments at
an agreed-upon price or yield within a specified period prior to the maturity
date of the instruments. Such a right to resell is commonly known as a put, and
the aggregate price which the Money Market Series pays for instruments with
puts may be higher than the price which otherwise would be paid for the
instruments. Consistent with the Money Market Series' investment objective and
applicable rules issued by the SEC and subject to the supervision of the
Trustees, the purpose of this practice is to permit the Money Market Series to
be fully invested while preserving the necessary liquidity to meet unusually
large redemptions and to purchase at a later date securities other than those
subject to the put. The Money Market Series may choose to exercise puts during
periods in which proceeds from sales of its shares and from recent sales of
portfolio securities are insufficient to meet redemption requests or when the
funds available are otherwise allocated for investment. In determining whether
to exercise puts prior to their expiration date and in selecting which puts to
exercise in such circumstances, the Money Market Series' investment adviser
considers, among other things, the amount of cash available to the Money Market
Series, the expiration dates of the available puts, any future commitments for
securities purchases, the yield, quality and maturity dates of the underlying
securities, alternative investment opportunities and the desirability of
retaining the underlying securities in the Money Market Series' portfolio.
Since the value of the put is dependent on the ability of the put writer
to meet its obligation to repurchase, the Money Market Series' policy is to
enter into put transactions only with such brokers, dealers or financial
institutions which present minimal credit risks. There is a credit risk
associated with the purchase of puts in that the broker, dealer or financial
institution might default on its obligation to repurchase an underlying
security. In the event such a default should occur, the Money Market Series is
unable to predict whether all or any portion of any loss sustained could
subsequently be recovered from the broker, dealer or financial institution.
The Money Market Series values instruments which are subject to puts at
amortized cost; no value is assigned to the put. The cost of the put, if any,
is carried as an unrealized loss from the time of purchase until it is
exercised or expires.
U.S. TREASURY MONEY MARKET SERIES
The U.S. Treasury Money Market Series seeks to achieve its objective by
investing in U.S. Treasury securities, including bills, notes and bonds. These
instruments are direct obligations of the U.S. Government and, as such, are
backed by the full faith and credit of the United States. They differ primarily
in their interest rates and the lengths of their maturities.
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The U.S. Treasury Money Market Series may also invest in component parts
of U.S. Treasury notes or bonds, namely, either the corpus (principal) of such
Treasury obligations or one of the interest payments scheduled to be paid on
such obligations. These obligations may take the form of (i) Treasury
obligations from which the interest coupons have been stripped, (ii) the
interest coupons that are stripped, or (iii) book-entries at a Federal Reserve
member bank representing ownership of Treasury obligation components.
The U.S. Treasury Money Market Series does not engage in repurchase
agreements or lend its portfolio securities because the income from such
activities is generally not exempt from state and local income taxes, but may
purchase or sell securities on a when-issued or delayed delivery basis.
When-issued or delayed delivery transactions arise when securities are
purchased or sold by the Series with payment and delivery taking place in the
future in order to secure what is considered to be an advantageous price and
yield to the Series at the time of entering into the transaction. The Trust's
Custodian will maintain, in a segregated account of the Series, cash or other
liquid assets having a value equal to or greater than the Series' purchase
commitments.
SHORT-INTERMEDIATE TERM SERIES
The Short-Intermediate Term Series' investment objective is to achieve a
high level of income consistent with providing reasonable safety. In seeking to
achieve its objective, the Series will under normal circumstances invest at
least 65% of its total assets in U.S. Government securities, including U.S.
Treasury Bills, Notes, Bonds and other debt securities issued by the U.S.
Treasury, and obligations issued, including mortage-backed securities, asset
backed securities and other securities, or guaranteed by the U.S. Government,
its agencies or instrumentalities. The Series may also invest up to 35% of its
assets in fixed-rate and adjustable rate mortgage-backed securities,
asset-backed securities, corporate debt securities (among other privately issued
instruments), rated A or better by Standard & Poor's Ratings Group or Moody's
Investors Service, Inc. or comparably rated by any other Nationally Recognized
Statistical Rating Organization (NRSRO) or, if unrated, determined to be of
comparable quality by the Series' investment adviser, and money market
instruments of a comparable short-term rating. The Series may also engage in
various strategies using derivatives, including the use of put and call options
on securities and financial indices, transactions involving futures contracts
and related options, short selling and use of leverage, including reverse
repurchase agreements and dollar rolls, which entail additional risks to the
Series. See "How the Trust Invests-Investment Objective and Policies" in the
Prospectus.
The Short-Intermediate Term Series intends to vary the proportion of its
holdings of longer and shorter-term debt securities in order to reflect its
assessment of prospective changes in interest rates even if such action may
adversely affect current income. For example, if, in the opinion of the
Short-Intermediate Term Series' investment adviser, interest rates generally
are expected to decline, the Short-Intermediate Term Series may sell its
shorter-term securities and purchase longer-term securities in order to benefit
from greater expected relative price appreciation; the securities sold may have
a higher current yield than those being purchased. The success of this strategy
will depend on the investment adviser's ability to forecast changes in interest
rates. Moreover, the Short-Intermediate Term Series intends to manage its
portfolio actively by taking advantage of trading opportunities such as sales
of portfolio securities and purchases of higher yielding securities of similar
quality due to distortions in normal yield differentials. In addition, if, in
the opinion of the investment adviser market conditions warrant, the
Short-Intermediate Term Series may purchase U.S. Government securities at a
discount or trade securities in response to fluctuations in interest rates to
provide for the prospect of modest capital appreciation at maturity.
U.S. GOVERNMENT SECURITIES
MORTGAGE-RELATED SECURITIES ISSUED OR GUARANTEED BY U.S. GOVERNMENT
AGENCIES AND INSTRUMENTALITIES. The Short-Intermediate Term Series may purchase
mortgage-related securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, including GNMA, FNMA and FHLMC certificates. See
"Mortgage-Backed Securities" below. Mortgages backing the securities which may
be purchased by the Short-Intermediate Term Series include conventional
thirty-year fixed rate mortgages, graduated payment mortgages, fifteen-year
mortgages, adjustable rate mortgages and balloon payment mortgages. A balloon
payment mortgage-backed security is an amortized mortgage security with
installments of principal and interest, the last installment of which is
predominately principal. All of these mortgages can be used to create
pass-through securities. A pass-through security is formed when mortgages are
pooled together and undivided interests in the pool or pools are sold. The cash
flow from the mortgages is passed through to the holders of the securities in
the form of periodic payments of interest, principal and prepayments (net of a
service fee). Prepayments occur when the holder of an undivided mortgage
prepays the remaining principal before the mortgage's scheduled maturity date.
As a result of the pass-through of prepayments of principal on the underlying
securities, mortgage-backed securities are often subject to more rapid
prepayment of principal than their stated maturity would indicate. The
remaining expected average life of a pool of mortgage loans underlying a
mortgage-backed security is a prediction of when the mortgage loans will be
repaid and is based upon a variety of factors, such as the demographic and
geographic characteristics of the borrowers and the mortgaged properties, the
length of time that each of the mortgage loans has been outstanding, the
interest rates payable on the mortgage loans and the current interest rate
environment.
During periods of declining interest rates, prepayment of mortgages
underlying mortgage-backed securities can be expected to accelerate. When
mortgage obligations are prepaid, the Short-Intermediate Term Series reinvests
the prepaid amounts in
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securities, the yields of which reflect interest rates prevailing at that time.
Therefore, the Short-Intermediate Term Series' ability to maintain a portfolio
of high-yielding mortgage-backed securities will be adversely affected to the
extent that prepayments of mortgages are reinvested in securities which have
lower yields than the prepaid mortgages. Moreover, prepayments of mortgages
which underlie securities purchased at a premium generally will result in
capital losses. During periods of rising interest rates, the rate of prepayment
of mortgages underlying mortgaged-backed securities can be expected to decline,
extending the projected average maturity of the mortgage-backed securities.
This maturity extension risk may effectively change a security which was
considered short- or intermediate-term at the time of purchase into a long-term
security. The value of long-term securities generally fluctuate more widely in
response to changes in interest rates than short- or intermediate-term
securities.
SPECIAL CONSIDERATIONS. Fixed income U.S. Government securities are
considered among the most creditworthy of fixed income investments. The yields
available from U.S. Government securities are generally lower than the yields
available from corporate debt securities. The values of U.S. Government
securities will change as interest rates fluctuate. To the extent U.S.
Government securities are not adjustable rate securities, these changes in
value in response to changes in interest rates generally will be more
pronounced. During periods of falling interest rates, the values of outstanding
long-term fixed rate U.S. Government securities generally rise. Conversely,
during periods of rising interest rates, the values of such securities
generally decline. The magnitude of these fluctuations will generally be
greater for securities with longer maturities. Although changes in the value of
U.S. Government securities will not affect investment income from those
securities, they may affect the net asset value of the Short-Intermediate Term
Series.
At a time when the Short-Intermediate Term Series has written call options
on a portion of its U.S. Government securities, its ability to profit from
declining interest rates will be limited. Any appreciation in the value of the
securities held in the portfolio above the strike price would likely be
partially or wholly offset by unrealized losses on call options written by the
Short-Intermediate Term Series. The termination of option positions under these
conditions would generally result in the realization of capital losses, which
would reduce the Short-Intermediate Term Series' capital gains distribution.
Accordingly, the Short-Intermediate Term Series would generally seek to realize
capital gains to offset realized losses by selling portfolio securities. In
such circumstances, however, it is likely that the proceeds of such sales would
be reinvested in lower yielding securities. See "Options Transactions and
Related Risks."
MORTGAGE-BACKED SECURITIES
As discussed in the Prospectus, the mortgage-backed securities purchased
by the Short-Intermediate Term Series evidence an interest in a specific pool
of mortgages. Such securities may be issued by GNMA, FNMA and FHLMC.
GNMA CERTIFICATES. GNMA is a wholly-owned corporate instrumentality of the
United States within the Department of Housing and Urban Development. The
National Housing Act of 1934, as amended (the Housing Act), authorizes GNMA to
guarantee the timely payment of the principal of and interest on certificates
that are based on and backed by a pool of mortgage loans issued by the Federal
Housing Administration under the Housing Act, or Title V of the Housing Act of
1949 (FHA Loans), or guaranteed by the Veterans' Administration under the
Servicemen's Readjustment Act of 1944, as amended (VA Loans), or by pools of
other eligible mortgage loans. The Housing Act provides that the full faith and
credit of the U.S. Government is pledged to the payment of all amounts that may
be required to be paid under the guarantee. In order to meet its obligations
under such guarantee, GNMA is authorized to borrow from the U.S. Treasury with
no limitations as to amount.
The GNMA Certificates will represent a pro rata interest in one or more
pools of the following types of mortgage loans: (i) fixed rate level payment
mortgage loans; (ii) fixed rate graduated payment mortgage loans; (iii) fixed
rate growing equity mortgage loans; (iv) fixed rate mortgage loans secured by
manufactured (mobile) homes; (v) mortgage loans on multifamily residential
properties under construction; (vi) mortgage loans on completed multifamily
projects; (vii) fixed rate mortgage loans as to which escrowed funds are used
to reduce the borrower's monthly payments during the early years of the
mortgage loans ("buydown" mortgage loans); (viii) mortgage loans that provide
for adjustments in payments based on periodic changes in interest rates or in
other payment terms of the mortgage loans; and (ix) mortgage-backed serial
notes. All of these mortgage loans will be FHA Loans or VA Loans and, except as
otherwise specified above, will be fully-amortizing loans secured by first
liens on one to four-family housing units.
FNMA CERTIFICATES. FNMA is a federally chartered and privately owned
corporation organized and existing under the Federal National Mortgage
Association Charter Act. FNMA provides funds to the mortgage market primarily
by purchasing home mortgage loans from local lenders, thereby replenishing
their funds for additional lending. FNMA acquires funds to purchase home
mortgage loans from many capital market investors that may not ordinarily
invest in mortgage loans directly.
Each FNMA Certificate will entitle the registered holder thereof to
receive amounts, representing such holder's pro rata interest in scheduled
principal payments and interest payments (at such FNMA Certificate's
pass-through rate, which is net of any servicing and guarantee fees on the
underlying mortgage loans), and any principal prepayments on the mortgage loans
in the pool represented by such FNMA Certificate and such holder's
proportionate interest in the full principal amount of any foreclosed or
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otherwise finally liquidated mortgage loan. The full and timely payment of
principal and interest on each FNMA Certificate will be guaranteed by FNMA,
which guarantee is not backed by the full faith and credit of the U.S.
Government.
Each FNMA Certificate will represent a pro rata interest in one or more
pools of FHA Loans, VA Loans or conventional mortgage loans (I.E., mortgage
loans that are not insured or guaranteed by any governmental agency) of the
following types: (i) fixed rate level payment mortgage loans; (ii) fixed rate
growing equity mortgage loans; (iii) fixed rate graduated payment mortgage
loans; (iv) variable rate California mortgage loans; (v) other adjustable rate
mortgage loans; and (vi) fixed rate mortgage loans secured by multifamily
projects.
FHLMC CERTIFICATES. FHLMC is a corporate instrumentality of the United
States created pursuant to the Emergency Home Finance Act of 1970, as amended
(the FHLMC Act). The principal activity of FHLMC consists of the purchase of
first lien, conventional, residential mortgage loans and participation
interests in such mortgage loans and the resale of the mortgage loans so
purchased in the form of mortgage securities, primarily FHLMC Certificates.
FHLMC guarantees to each registered holder of the FHLMC Certificate the
timely payment of interest at the rate provided for by such FHLMC Certificate,
whether or not received. FHLMC also guarantees to each registered holder of a
FHLMC Certificate ultimate collection of all principal on the related mortgage
loans, without any offset or deduction, but does not, generally, guarantee the
timely payment of scheduled principal. FHLMC may remit the amount due on
account of its guarantee of collection of principal at any time after default
on an underlying mortgage loan, but not later than 30 days following (i)
foreclosure sale, (ii) payment of a claim by any mortgage insurer or (iii) the
expiration of any right of redemption, whichever occurs later, but in any event
no later than one year after demand has been made upon the mortgagor for
accelerated payment of principal. The obligations of FHLMC under its guarantee
are obligations solely of FHLMC and are not backed by the full faith and credit
of the U.S. Government.
FHLMC Certificates represent a pro rata interest in a group of mortgage
loans (a FHLMC Certificate group) purchased by FHLMC. The mortgage loans
underlying the FHLMC Certificates will consist of fixed rate or adjustable rate
mortgage loans with original terms to maturity of between ten and thirty years,
substantially all of which are secured by first liens on one to four-family
residential properties or multifamily projects. Each mortgage loan must meet
the applicable standards set forth in the FHLMC Act. An FHLMC Certificate group
may include whole loans, participation interests in whole loans and undivided
interests in whole loans and participations comprising another FHLMC
Certificate group.
The market value of mortgage securities, like other securities, will
generally vary inversely with changes in market interest rates, declining when
interest rates rise and rising when interest rates decline. However, mortgage
securities, while having comparable risk of decline during periods of rising
rates, usually have less potential for capital appreciation than other
investments of comparable maturities due to the likelihood of increased
prepayments of mortgages as interest rates decline. In addition, to the extent
such mortgage securities are purchased at a premium, mortgage foreclosures and
unscheduled principal prepayments generally will result in some loss of the
holders' principal to the extent of the premium paid. On the other hand, if
such mortgage securities are purchased at a discount, an unscheduled prepayment
of principal will increase current and total returns and will accelerate the
recognition of income which when distributed to shareholders will be taxable as
ordinary income.
ADJUSTABLE RATE MORTGAGE SECURITIES. The Short-Intermediate Term Series
may invest in adjustable rate mortgage securities (ARMs), which are
pass-through mortgage securities collateralized by mortgages with adjustable
rather than fixed rates. Generally, ARMs have a specified maturity date and
amortize principal over their life. In periods of declining interest rates,
there is a reasonable likelihood that ARMs will experience increased rates of
prepayment of principal. However, the major difference between ARMs and fixed
rate mortgage securities is that the interest rate and the rate of amortization
of principal of ARMs can and do change in accordance with movements in a
particular, pre-specified, published interest rate index.
The amount of interest on an ARM is calculated by adding a specified
amount, the "margin," to the index, subject to limitations on the maximum and
minimum interest that can be charged to the mortgagor during the life of the
mortgage or to maximum and minimum changes to that interest rate during a given
period. Because the interest rate on ARMs generally moves in the same direction
as market interest rates, the market value of ARMs tends to be more stable than
that of long-term fixed rate securities.
There are two main categories of indices which serve as benchmarks for
periodic adjustments to coupon rates on ARMs; those based on U.S. Treasury
securities and those derived from a calculated measure such as a cost of funds
index or a moving average of mortgage rates. Commonly utilized indices include
the one-year and five-year constant maturity Treasury Note rates, the
three-month Treasury Bill rate, the 180-day Treasury Bill rate, rates on
longer-term Treasury securities, the 11th District Federal Home Loan Bank Cost
of Funds, the National Median Cost of Funds, the one-month or three-month
London Interbank Offered Rate (LIBOR), the prime rate of a specific bank, or
commercial paper rates. Some indices, such as the one-year constant maturity
Treasury Note rate, closely mirror changes in market interest rate levels.
Others, such as the 11th District Home Loan Bank Cost of Funds index (often
related to ARMs issued by FNMA), tend to lag changes in market rate levels and
tend to be somewhat less volatile.
COLLATERALIZED MORTGAGE OBLIGATIONS. Certain issuers of mortgage-backed
obligations (CMOs), including certain CMOs that have elected to be treated as
Real Estate Mortgage Investment Conduits (REMICs), are not considered
investment companies
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pursuant to a rule recently adopted by the SEC, and the Short-Intermediate Term
Series may invest in the securities of such issuers without the limitations
imposed by the Investment Company Act on investments by the Short-Intermediate
Term Series in other investment companies. In addition, in reliance on an
earlier SEC interpretation, the Short-Intermediate Term Series' investments in
certain other qualifying CMOs, which cannot or do not rely on the rule, are
also not subject to the limitation of the Investment Company Act on acquiring
interests in other investment companies. In order to be able to rely on the
SEC's interpretation, these CMOs must be unmanaged, fixed asset issuers, that
(a) invest primarily in mortgage-backed securities, (b) do not issue redeemable
securities, (c) operate under general exemptive orders exempting them from all
provisions of the Investment Company Act and (d) are not registered or
regulated under the Investment Company Act as investment companies.
OTHER INVESTMENTS. Obligations issued or guaranteed as to principal and
interest by the United States Government may be acquired by the
Short-Intermediate Term Series in the form of custodial receipts that evidence
ownership of future interest payments, principal payments or both on certain
United States Treasury notes or bonds. Such notes and bonds are held in custody
by a bank on behalf of the owners. These custodial receipts are known by
various names, including "Treasury Receipts," "Treasury Investment Growth
Receipts" (TIGRs) and "Certificates of Accrual on Treasury Securities" (CATS).
The Short-Intermediate Term Series will not invest more than 5% of its assets
in such custodial receipts.
OPTIONS TRANSACTIONS AND RELATED RISKS
The Short-Intermediate Term Series may purchase put and call options and
sell covered put and call options which are traded on national securities
exchanges and may also engage in over-the-counter options transactions with
recognized United States securities dealers (OTC Options).
OPTIONS ON SECURITIES. The purchaser of a call option has the right, for a
specified period of time, to purchase the securities subject to the option at a
specified price (the "exercise price" or "strike price"). By writing a call
option, the Short-Intermediate Term Series becomes obligated during the term of
the option, upon exercise of the option, to deliver the underlying securities
or a specified amount of cash to the purchaser against receipt of the exercise
price. When the Short-Intermediate Term Series writes a call option, the
Short-Intermediate Term Series loses the potential for gain on the underlying
securities in excess of the exercise price of the option during the period that
the option is open.
The purchaser of a put option has the right, for a specified period of
time, to sell the securities subject to the option to the writer of the put at
the specified exercise price. By writing a put option, the Short-Intermediate
Term Series becomes obligated during the term of the option, upon exercise of
the option, to purchase the securities underlying the option at the exercise
price. The Short-Intermediate Term Series might, therefore, be obligated to
purchase the underlying securities for more than their current market price.
The writer of an option retains the amount of any premium paid for the
writing of the option. The Series' maximum gain with respect to an option
written is the premium. In the case of a covered call option that is not
exercised, the amount of any premium may be offset or exceeded by a decline in
the value of the securities underlying the call option that the Series must
retain in order to maintain the "cover" on such option and, with respect to put
options written, the amount of any premium may be offset or exceeded by the
difference between the then current market price of the underlying security and
the strike price of the put option (the price at which the Series must purchase
the underlying security).
The Short-Intermediate Term Series may wish to protect certain portfolio
securities against a decline in market value at a time when put options on
those particular securities are not available for purchase. The
Short-Intermediate Term Series may therefore purchase a put option on other
carefully selected securities, the values of which the investment adviser
expects will have a high degree of positive correlation to the values of such
portfolio securities. If the investment adviser's judgment is correct, changes
in the value of the put options should generally offset changes in the value of
the portfolio securities being hedged. If the investment adviser's judgment is
not correct, the value of the securities underlying the put option may decrease
less than the value of the Short-Intermediate Term Series' investments and
therefore the put option may not provide complete protection against a decline
in the value of the Short-Intermediate Term Series' investments below the level
sought to be protected by the put option.
The Short-Intermediate Term Series may similarly wish to hedge against
appreciation in the value of debt securities that it intends to acquire at a
time when call options on such securities are not available. The
Short-Intermediate Term Series may, therefore, purchase call options on other
carefully selected debt securities the values of which the investment adviser
expects will have a high degree of positive correlation to the values of the
debt securities that the Short-Intermediate Term Series intends to acquire. In
such circumstances the Short-Intermediate Term Series will be subject to risks
analogous to those summarized above in the event that the correlation between
the value of call options so purchased and the value of the securities intended
to be acquired by the Short-Intermediate Term Series is not as close as
anticipated and the value of the securities underlying the call options
increases less than the value of the securities to be acquired by the
Short-Intermediate Term Series.
The Short-Intermediate Term Series may write options on securities in
connection with buy-and-write transactions; that is, the Short-Intermediate
Term Series may purchase a security and concurrently write a call option
against that security.
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The exercise price of a call option may be below ("in-the-money"), equal
to ("at-the-money") or above ("out-of-the-money") the current value of the
underlying security at the time the option is written. Buy-and-write
transactions using in-the-money call options may be used when it is expected
that the price of the underlying security will remain flat or decline
moderately during the option period. Buy-and-write transactions using
at-the-money call options may be used when it is expected that the price of the
underlying security will remain fixed or advance moderately during the option
period. A buy-and-write transaction using an out-of-the-money call option may
be used when it is expected that the premium received from writing the call
option plus the appreciation in the market price of the underlying security up
to the exercise price will be greater than the appreciation in the price of the
underlying security alone. If the call option is exercised in such a
transaction, the Short-Intermediate Term Series' maximum gain will be the
premium received by it for writing the option, adjusted upwards or downwards by
the difference between the Short-Intermediate Term Series' purchase price of
the security and the exercise price of the option. If the option is not
exercised and the price of the underlying security declines, the amount of the
decline will be offset in part, or entirely, by the premium received.
Prior to being notified of exercise of the option, the writer of an
exchange-traded option that wishes to terminate its obligation may effect a
"closing purchase transaction" by buying an option of the same series as the
option previously written. (Options of the same series are options with respect
to the same underlying security, having the same expiration date and the same
strike price.) The effect of the purchase is that the writer's position will be
cancelled by the exchange's affiliated clearing organization. Likewise, an
investor who is the holder of an exchange-traded option may liquidate a
position by effecting a "closing sale transaction" by selling an option of the
same series as the option previously purchased. There is no guarantee that
either a closing purchase or a closing sale transaction can be effected.
Exchange-traded options are issued by a clearing organization affiliated
with the exchange on which the option is listed which, in effect, gives its
guarantee to every exchange-traded option transaction. In contrast, OTC options
are contracts between the Short-Intermediate Term Series and its contra-party
with no clearing organization guarantee. Thus, when the Short-Intermediate Term
Series purchases an OTC option, it relies on the dealer from which it has
purchased the OTC option to make or take delivery of the securities underlying
the option. Failure by the dealer to do so would result in the loss of the
premium paid by the Short-Intermediate Term Series as well as the loss of the
expected benefit of the transaction. The Board of Trustees of the Trust has
approved a list of dealers with which the Short-Intermediate Term Series may
engage in OTC options.
When the Short-Intermediate Term Series writes an OTC option, it generally
will be able to close out the OTC options prior to its expiration only by
entering into a closing purchase transaction with the dealer to which the
Short-Intermediate Term Series originally wrote the OTC option. While the
Short-Intermediate Term Series will enter into OTC options only with dealers
which agree to, and which are expected to be capable of, entering into closing
transactions with the Short-Intermediate Term Series, there can be no assurance
that the Short-Intermediate Term Series will be able to liquidate an OTC option
at a favorable price at any time prior to expiration. Until the
Short-Intermediate Term Series is able to effect a closing purchase transaction
in a covered OTC call option the Short-Intermediate Term Series has written, it
will not be able to liquidate securities used as cover until the option expires
or is exercised or different cover is substituted. In the event of insolvency
of the contra-party, the Short-Intermediate Term Series may be unable to
liquidate an OTC option.
OTC options purchased by the Short-Intermediate Term Series will be
treated as illiquid securities subject to any applicable limitation on such
securities. Similarly, the assets used to "cover" OTC options written by the
Short-Intermediate Term Series will be treated as illiquid unless the OTC
options are sold to qualified dealers who agree that the Short-Intermediate
Term Series may repurchase any OTC options it writes for a maximum price to be
calculated by a formula set forth in the option agreement. The "cover" for an
OTC option written subject to this procedure would be considered illiquid only
to the extent that the maximum repurchase price under the formula exceeds the
intrinsic value of the option.
The Short-Intermediate Term Series may write only "covered" options. This
means that so long as the Short-Intermediate Term Series is obligated as the
writer of a call option, it will own the underlying securities subject to the
option or an option to purchase the same underlying securities, having an
exercise price equal to or less than the exercise price of the "covered"
option, or will establish and maintain with the Trust's Custodian for the term
of the option a segregated account consisting of cash or other liquid assets
having a value equal to or greater than the fluctuating market value of the
optioned securities (the exercise price of the option). In the case of a
straddle written by the Short-Intermediate Term Series, the amount maintained
in the segregated account will equal the amount, if any, by which the put is
"in-the-money."
OPTIONS ON SECURITIES INDICES. The Short-Intermediate Term Series also may
purchase and write put and call options on securities indices in an attempt to
hedge against market conditions affecting the value of securities that the
Short-Intermediate Term Series owns or intends to purchase, and not for
speculation. Through the writing or purchase of index options, the
Short-Intermediate Term Series can achieve many of the same objectives as
through the use of options on individual securities. Options on securities
indices are similar to options on a security except that, rather than the right
to take or make delivery of a
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security at a specified price, an option on a securities index gives the holder
the right to receive, upon exercise of the option, an amount of cash if the
closing level of the securities index upon which the option is based is greater
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option. This amount of cash is equal to such difference between
the closing price of the index and the exercise price of the option. The writer
of the option is obligated, in return for the premium received, to make
delivery of this amount. Unlike security options, all settlements are in cash
and gain or loss depends upon price movements in the market generally (or in a
particular industry or segment of the market), rather than upon price movements
in individual securities. Price movements in securities that the
Short-Intermediate Term Series owns or intends to purchase will probably not
correlate perfectly with movements in the level of an index and, therefore, the
Short-Intermediate Term Series bears the risk that a loss on an index option
would not be completely offset by movements in the price of such securities.
When the Short-Intermediate Term Series writes an option on a securities
index, it will be required to deposit with the Trust's Custodian, and
mark-to-market, eligible securities equal in value to 100% of the exercise
price in the case of a put, or the contract value in the case of a call. In
addition, where the Short-Intermediate Term Series writes a call option on a
securities index at a time when the contract value exceeds the exercise price,
the Short-Intermediate Term Series will segregate and mark-to-market, until the
option expires or is closed out, cash or cash equivalents equal in value to
such excess.
Options on a securities index involve risks similar to those risks
relating to transactions in financial futures contracts described below. Also,
an option purchased by the Short-Intermediate Term Series may expire worthless,
in which case the Short-Intermediate Term Series would lose the premium paid
therefor.
OPTIONS ON GNMA CERTIFICATES. Options on GNMA Certificates are not
currently traded on any Exchange. However, the Short-Intermediate Term Series
may purchase and write such options should they commence trading on any
Exchange and may purchase or write OTC Options on GNMA Certificates.
Since the remaining principal balance of GNMA Certificates declines each
month as a result of mortgage payments, the Short-Intermediate Term Series as a
writer of a covered GNMA call holding GNMA Certificates as "cover" to satisfy
its delivery obligation in the event of assignment of an exercise notice, may
find that its GNMA Certificates no longer have a sufficient remaining principal
balance for this purpose. Should this occur, the Short-Intermediate Term Series
will enter into a closing purchase transaction or will purchase additional GNMA
Certificates from the same pool (if obtainable) or replacement GNMA
Certificates in the cash market in order to remain covered.
A GNMA Certificate held by the Short-Intermediate Term Series to cover an
option position in any but the nearest expiration month may cease to represent
cover for the option in the event of a decline in the GNMA coupon rate at which
new pools are originated under the FHA/VA loan ceiling in effect at any given
time. Should this occur, the Short-Intermediate Term Series will no longer be
covered, and the Short-Intermediate Term Series will either enter into a
closing purchase transaction or replace the GNMA Certificate with a GNMA
Certificate which represents cover. When the Short-Intermediate Term Series
closes its position or replaces the GNMA Certificate, it may realize an
unanticipated loss and incur transaction costs.
RISKS OF OPTIONS TRANSACTIONS. An exchange-traded option position may be
closed out only on an Exchange which provides a secondary market for an option
of the same series. Although the Short-Intermediate Term Series will generally
purchase or write only those options for which there appears to be an active
secondary market, there is no assurance that a liquid secondary market on an
Exchange will exist for any particular option at any particular time, and for
some exchange-traded options, no secondary market on an Exchange may exist. In
such event, it might not be possible to effect closing transactions in
particular options, with the result that the Short-Intermediate Term Series
would have to exercise its exchange-traded options in order to realize any
profit and may incur transaction costs in connection therewith. If the
Short-Intermediate Term Series as a covered call option writer is unable to
effect a closing purchase transaction in a secondary market, it will not be
able to sell the underlying security until the option expires or it delivers
the underlying security upon exercise.
Reasons for the absence of a liquid secondary market on an Exchange
include the following: (a) insufficient trading interest in certain options;
(b) restrictions on transactions imposed by an Exchange; (c) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (d) interruption of the normal
operations on an Exchange; (e) inadequacy of the facilities of an Exchange or
The Options Clearing Corporation (the OCC) to handle current trading volume; or
(f) a decision by one or more Exchanges to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that Exchange (or in that class or series of options) would cease to
exist, although outstanding options on that Exchange that had been issued by
the OCC as a result of trades on that Exchange would generally continue to be
exercisable in accordance with their terms.
In the event of the bankruptcy of a broker through which the
Short-Intermediate Term Series engages in options transactions, the
Short-Intermediate Term Series could experience delays and/or losses in
liquidating open positions purchased or sold through the broker and/or incur a
loss of all or part of its margin deposits with the broker. Similarly, in the
event of the bankruptcy of the writer of an OTC option purchased by the
Short-Intermediate Term Series, the Short-Intermediate Term Series could
experience
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a loss of all or part of the value of the option. Transactions are entered into
by the Short-Intermediate Term Series only with brokers or financial
institutions deemed creditworthy by the investment adviser.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be
reflected in the option markets.
FUTURES CONTRACTS. As a purchaser of a futures contract (futures
contract), the Short-Intermediate Term Series incurs an obligation to take
delivery of a specified amount of the obligation underlying the futures
contract at a specified time in the future for a specified price. As a seller
of a futures contract, the Short-Intermediate Term Series incurs an obligation
to deliver the specified amount of the underlying obligation at a specified
time in return for an agreed upon price. The Short-Intermediate Term Series may
purchase futures contracts on debt securities, aggregates of debt securities,
financial indices and U.S. Government securities including futures contracts or
options linked to the London Interbank Offered Rate (LIBOR).
The Short-Intermediate Term Series will purchase or sell futures contracts
for the purpose of hedging its portfolio (or anticipated portfolio) securities
against changes in prevailing interest rates. If the investment adviser
anticipates that interest rates may rise and, concomitantly, the price of the
Short-Intermediate Term Series' portfolio securities may fall, the
Short-Intermediate Term Series may sell a futures contract. If declining
interest rates are anticipated, the Short-Intermediate Term Series may purchase
a futures contract to protect against a potential increase in the price of
securities the Short-Intermediate Term Series intends to purchase.
Subsequently, appropriate securities may be purchased by the Short-Intermediate
Term Series in an orderly fashion; as securities are purchased, corresponding
futures positions would be terminated by offsetting sales of contracts. In
addition, futures contracts will be bought or sold in order to close out a
short or long position in a corresponding futures contract.
Although most futures contracts call for actual delivery or acceptance of
securities, the contracts usually are closed out before the settlement date
without the making or taking of delivery. A futures contract sale is closed out
by effecting a futures contract purchase for the same aggregate amount of the
specific type of security and the same delivery date. If the sale price exceeds
the offsetting purchase price, the seller would be paid the difference and
would realize a gain. If the offsetting purchase price exceeds the sale price,
the seller would pay the difference and would realize a loss. Similarly, a
futures contract purchase is closed out by effecting a futures contract sale
for the same aggregate amount of the specific type of security and the same
delivery date. If the offsetting sale price exceeds the purchase price, the
purchaser would realize a gain, whereas if the purchase price exceeds the
offsetting sale price, the purchaser would realize a loss. There is no
assurance that the Short-Intermediate Term Series will be able to enter into a
closing transaction.
When the Short-Intermediate Term Series enters into a futures contract it
is initially required to deposit with the Trust's Custodian, in a segregated
account in the name of the broker performing the transaction, an "initial
margin" of cash or other liquid assets equal to approximately 2-3% of the
contract amount. Initial margin requirements are established by the Exchanges
on which futures contracts trade and may, from time to time, change. In
addition, brokers may establish margin deposit requirements in excess of those
required by the Exchanges. Under a recently adopted SEC rule,
Short-Intermediate Term Series may place and maintain cash or other liquid
assets with a futures commissions merchant in amounts necessary to effect such
Series' transactions in exchange-traded futures contracts and options thereon,
provided certain conditions are satisfied.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing
of funds by a broker's client but is, rather, a good faith deposit on a futures
contract which will be returned to the Short-Intermediate Term Series upon the
proper termination of the futures contract. The margin deposits made are
marked-to-market daily and the Short-Intermediate Term Series may be required
to make subsequent deposits into the segregated account, maintained at the
Trust's Custodian for that purpose, of cash or other liquid assets, called
"variation margin", in the name of the broker, which are reflective of price
fluctuations in the futures contract.
OPTIONS ON FUTURES CONTRACTS. The Short-Intermediate Term Series may
purchase and sell call and put options on futures contracts which are traded on
an Exchange and enter into closing transactions with respect to such options to
terminate an existing position. An option on a futures contract gives the
purchaser the right (in return for the premium paid), and the writer the
obligation, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the term of the option. Upon exercise of the
option, the assumption of an offsetting futures position by the writer and
holder of the option will be accompanied by delivery of the accumulated cash
balance in the writer's futures margin account which represents the amount by
which the market price of the futures contract at exercise exceeds, in the case
of a call, or is less than, in the case of a put, the exercise price of the
option on the futures contract.
The Short-Intermediate Term Series may only write "covered" put and call
options on futures contracts. The Short-Intermediate Term Series will be
considered "covered" with respect to a call option it writes on a futures
contract if the Short-Intermediate Term Series owns the assets which are
deliverable under the futures contract or an option to purchase that futures
contract having a strike price equal to or less than the strike price of the
"covered" option and having an expiration date
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not earlier than the expiration date of the "covered" option, or if it
segregates and maintains with the Custodian for the term of the option cash, or
other liquid equal assets to the fluctuating value of the optioned future. The
Short-Intermediate Term Series will be considered "covered" with respect to a
put option it writes on a futures contract if it owns an option to sell that
futures contract having a strike price equal to or greater than the strike
price of the "covered" option, or if it segregates and maintains with the
Custodian for the term of the option cash or other liquid assets at all times
equal in value to the exercise price of the put (less any initial margin
deposited by the Short-Intermediate Term Series with the Trust's Custodian with
respect to such option). There is no limitation on the amount of the
Short-Intermediate Term Series' assets which can be placed in the segregated
account.
The Short-Intermediate Term Series may purchase options on futures
contracts for identical purposes to those set forth above for the purchase of a
futures contract (purchase of a call option or sale of a put option) and the
sale of a futures contract (purchase of a put option or sale of a call option),
or to close out a long or short position in futures contracts. If, for example,
the investment adviser wished to protect against an increase in interest rates
and the resulting negative impact on the value of a portion of its U.S.
Government securities portfolio, it might purchase a put option on an interest
rate futures contract, the underlying security of which correlates with the
portion of the portfolio the investment adviser seeks to hedge.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. The
Short-Intermediate Term Series may sell a futures contract to protect against
the decline in the value of securities held by the Short-Intermediate Term
Series. However, it is possible that the futures market may advance and the
value of securities held in the Short-Intermediate Term Series' portfolio may
decline. If this were to occur, the Short-Intermediate Term Series would lose
money on the futures contracts and also experience a decline in value in its
portfolio securities.
If the Short-Intermediate Term Series purchases a futures contract to
hedge against the increase in value of securities it intends to buy, and the
value of such securities decreases, then the Short-Intermediate Term Series may
determine not to invest in the securities as planned and will realize a loss on
the futures contract that is not offset by a reduction in the price of the
securities.
In order to assure that the Short-Intermediate Term Series is entering
into transactions in futures contracts for hedging purposes as such term is
defined by the Commodities Futures Trading Commission, either: (1) a
substantial majority (I.E., approximately 75%) of all anticipatory hedge
transactions (transactions in which the Short-Intermediate Term Series does not
own at the time of the transaction, but expects to acquire, the securities
underlying the relevant futures contract) involving the purchase of futures
contracts will be completed by the purchase of securities which are the subject
of the hedge, or (2) the underlying value of all long positions in futures
contracts will not exceed the total value of (a) all short-term debt
obligations held by the Short-Intermediate Term Series; (b) cash held by the
Short-Intermediate Term Series; (c) cash proceeds due to the Short-Intermediate
Term Series on investments within thirty days; (d) the margin deposited on the
contracts; and (e) any unrealized appreciation in the value of the contracts.
If the Short-Intermediate Term Series maintains a short position in a
futures contract, it will cover this position by holding, in a segregated
account maintained at the Custodian, cash, U.S. Government securities, equity
securities or other liquid, unencumbered assets, marked-to-market daily equal
in value (when added to any initial or variation margin on deposit) to the
market value of the securities underlying the futures contract. Such a position
may also be covered by owning the securities underlying the futures contract,
or by holding a call option permitting the Short-Intermediate Term Series to
purchase the same contract at a price no higher than the price at which the
short position was established.
In addition, if the Short-Intermediate Term Series holds a long position
in a futures contract, it will hold cash equal to the purchase price of the
contract (less the amount of initial or variation margin on deposit) in a
segregated account maintained for the Short-Intermediate Term Series by the
Trust's Custodian. Alternatively, the Short-Intermediate Term Series could
cover its long position by purchasing a put option on the same futures contract
with an exercise price as high or higher than the price of the contract held by
the Short-Intermediate Term Series.
Exchanges limit the amount by which the price of a futures contract may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased. In the event of adverse price movements, the
Short-Intermediate Term Series would continue to be required to make daily cash
payments of variation margin on open futures positions. In such situations, if
the Short-Intermediate Term Series has insufficient cash, it may be
disadvantageous to do so. In addition, the Short-Intermediate Term Series may
be required to take or make delivery of the instruments underlying futures
contracts it holds at a time when it is disadvantageous to do so. The ability
to close out options and futures positions could also have an adverse impact on
the Short-Intermediate Term Series' ability to effectively hedge its portfolio.
In the event of the bankruptcy of a broker through which the
Short-Intermediate Term Series engages in transactions in futures or options
thereon, the Short-Intermediate Term Series could experience delays and/or
losses in liquidating open positions purchased or sold through the broker
and/or incur a loss of all or part of its margin deposits with the broker.
Transactions are entered into by the Short-Intermediate Term Series only with
brokers or financial institutions deemed creditworthy by the investment
adviser.
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There are risks inherent in the use of futures contracts and options
transactions for the purpose of hedging the Short-Intermediate Term Series'
portfolio securities. One such risk which may arise in employing futures
contracts to protect against the price volatility of portfolio securities is
that the prices of securities subject to futures contracts (and thereby the
futures contract prices) may correlate imperfectly with the behavior of the
cash prices of the Short-Intermediate Term Series' portfolio securities.
Another such risk is that prices of futures contracts may not move in tandem
with the changes in prevailing interest rates against which the
Short-Intermediate Term Series seeks a hedge. A correlation may also be
distorted by the fact that the futures market is dominated by short-term
traders seeking to profit from the difference between a contract or security
price objective and their cost of borrowed funds. Such distortions are
generally minor and would diminish as the contract approached maturity.
There may exist an imperfect correlation between the price movements of
futures contracts purchased by the Short-Intermediate Term Series and the
movements in the prices of the securities which are the subject of the hedge.
If participants in the futures market elect to close out their contracts
through offsetting transactions rather than meet margin deposit requirements,
distortions in the normal relationships between the debt securities and futures
market could result. Price distortions could also result if investors in
futures contracts elect to make or take delivery of underlying securities
rather than engage in closing transactions due to the resultant reduction in
the liquidity of the futures market. In addition, due to the fact that, from
the point of view of speculators, the deposit requirements in the futures
markets are less onerous than margin requirements in the cash market, increased
participation by speculators in the futures markets could cause temporary price
distortions. Due to the possibility of price distortions in the futures market
and because of the imperfect correlation between movements in the prices of
securities and movements in the prices of futures contracts, a correct forecast
of interest rate trends by the investment adviser may still not result in a
successful hedging transaction.
Compared to the purchase or sale of futures contracts, the purchase and
sale of call or put options on futures contracts involves less potential risk
to the Short-Intermediate Term Series because the maximum amount at risk is the
premium paid for the options (plus transaction costs). However, there may be
circumstances when the purchase of a call or put option on a futures contract
would result in a loss to the Short-Intermediate Term Series notwithstanding
that the purchase or sale of a futures contract would not result in a loss, as
in the instance where there is no movement in the prices of the futures
contracts or underlying U.S. Government securities.
SECURITIES LENDING
Consistent with applicable regulatory requirements, the Short-Intermediate
Term Series may lend its portfolio securities to brokers, dealers and other
financial institutions, provided that such loans are callable at any time by
the Short-Intermediate Term Series and are at all times secured by cash or cash
equivalents, which are maintained in a segregated account pursuant to
applicable regulations that are equal to at least the market value, determined
daily, of the loaned securities. The advantage of such loans is that the
Short-Intermediate Term Series continues to receive the income on the loaned
securities while at the same time earning interest on the cash amounts
deposited as collateral, which will be invested in short-term obligations.
A loan may be terminated by the borrower on one business day's notice, or
by the Short-Intermediate Term Series on two business days' notice. If the
borrower fails to deliver the loaned securities within two days after receipt
of notice, the Short-Intermediate Term Series could use the collateral to
replace the securities while holding the borrower liable for any excess of
replacement cost over collateral. As with any extensions of credit, 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. However,
these loans of portfolio securities will only be made to firms deemed by the
Short-Intermediate Term Series' investment adviser to be creditworthy and when
the income which can be earned from such loans justifies the attendant risks.
Upon termination of the loan, the borrower is required to return the securities
to the Short-Intermediate Term Series. Any gain or loss in the market price
during the loan period would inure to the Short-Intermediate Term Series. The
creditworthiness of firms to which the Short-Intermediate Term Series lends its
portfolio securities will be monitored on an ongoing basis by the investment
adviser pursuant to procedures adopted and reviewed, on an ongoing basis, by
the Board of Trustees of the Trust.
When voting or consent rights which accompany loaned securities pass to
the borrower, the Short-Intermediate Term Series will follow the policy of
calling the loaned securities, to be delivered within one day after notice, to
permit the exercise of such rights if the matters involved would have a
material effect on the Short-Intermediate Term Series' investment in such
loaned securities. The Short-Intermediate Term Series may pay reasonable
finders', administrative and custodial fees in connection with a loan of its
securities and may share the interest earned on collateral with the borrower.
INTEREST RATE SWAP TRANSACTIONS
The Short-Intermediate Term Series may enter into either asset-based
interest rate swaps or liability-based interest rate swaps, depending on
whether it is hedging its assets or its liabilities. The Short-Intermediate
Term Series will usually enter into
B-14
<PAGE>
interest rate swaps on a net basis, I.E., the two payment streams are netted
out, with the Short-Intermediate Term Series receiving or paying, as the case
may be, only the net amount of the two payments. Inasmuch as these hedging
transactions are entered into for good faith hedging purposes, the investment
adviser and the Short-Intermediate Term Series believe such obligations do not
constitute senior securities and, accordingly, will not treat them as being
subject to its borrowing restrictions. The net amount of the excess, if any, of
the Short-Intermediate Term Series' obligations over its entitlements with
respect to each interest rate swap will be accrued on a daily basis and an
amount of cash, U.S. Government securities, equity securities or other liquid,
unencumbered assets, marked-to-market daily having an aggregate net asset value
at least equal to the accrued excess will be maintained in a segregated account
by the Trust's Custodian. To the extent that the Short-Intermediate Term Series
enters into interest rate swaps on other than a net basis, the amount
maintained in the segregated account will be the full amount of the
Short-Intermediate Term Series' obligations, if any, with respect to such
interest rate swaps, accrued on a daily basis. If there is a default by the
other party to such a transaction, the Short-Intermediate Term Series will have
contractual remedies pursuant to the agreement related to the transaction. The
swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become relatively liquid.
The use of interest rate swaps is highly speculative activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. If the investment adviser is
incorrect in its forecast of market values, interest rates and other applicable
factors, the investment performance of the Short-Intermediate Term Series would
diminish compared to what it would have been if this investment technique was
never used.
The Short-Intermediate Term Series may only enter into interest rate swaps
to hedge its portfolio. Interest rate swaps do not involve the delivery of
securities or other underlying assets or principal. Accordingly, the risk of
loss with respect to interest rate swaps is limited to the net amount of
interest payments that the Short-Intermediate Term Series is contractually
obligated to make. If the other party to an interest rate swap defaults, the
Short-Intermediate Term Series' risk of loss consists of the net amount of
interest payments, if any, that the Short-Intermediate Term Series is
contractually entitled to receive. Since interest rate swaps are individually
negotiated, the Short-Intermediate Term Series expects to achieve an acceptable
degree of correlation between its rights to receive interest on its portfolio
securities and its rights and obligations to receive and pay interest pursuant
to interest rate swaps. The Short-Intermediate Term Series will enter into
interest rate swaps only with parties meeting creditworthiness standards
approved by the Trust's Board of Trustees. The investment adviser will monitor
the creditworthiness of such parties under the supervision of the Trust's Board
of Trustees.
SEGREGATED ACCOUNTS
When the Trust is required to segregate assets in connection with certain
hedging transactions, it will maintain cash or liquid securities in a
segregated account with the Trust's Custodian, "Liquid assets" mean cash, U.S.
Government securities, equity securities (including foreign securities), debt
obligations or liquid, unencumbered assets, marked-to-market daily.
PORTFOLIO TURNOVER
The Money Market Series and the U.S. Treasury Money Market Series intend
normally to hold their portfolio securities to maturity. The Money Market
Series and the U.S. Treasury Money Market Series do not normally expect to
trade portfolio securities although they may do so to take advantage of
short-term market movements. The Money Market Series and the U.S. Treasury
Money Market Series will make purchases and sales of portfolio securities with
a government securities dealer on a net price basis; brokerage commissions are
not normally charged on the purchase or sale of U.S. Treasury Securities. See
"Portfolio Transactions and Brokerage."
Although the Short-Intermediate Term Series has no fixed policy with
respect to portfolio turnover, it may sell portfolio securities without regard
to the length of time that they have been held in order to take advantage of
new investment opportunities or yield differentials, or because the
Short-Intermediate Term Series desires to preserve gains or limit losses due to
changing economic conditions. Accordingly, it is possible that the portfolio
turnover rate of the Short-Intermediate Term Series may reach, or even exceed,
250%. The portfolio turnover rate is computed by dividing the lesser of the
amount of the securities purchased or securities sold (excluding all securities
whose maturities at acquisition were one year or less) by the average monthly
value of such securities owned during the year. A 100% turnover rate would
occur, for example, if all of the securities held in the portfolio of the
Short-Intermediate Term Series were sold and replaced within one year. However,
when portfolio changes are deemed appropriate due to market or other
conditions, such turnover rate may be greater than anticipated. A higher rate
of turnover results in increased transaction costs to the Short-Intermediate
Term Series. The portfolio turnover rate for the Short-Intermediate Term Series
for the fiscal years ended November 30, 1996 and 1997 was 132% and 210%,
respectively.
INVESTMENT RESTRICTIONS
The Trust's fundamental policies as they affect a particular Series cannot
be changed without the approval of the outstanding shares of such Series by a
vote which is the lesser of (i) 67% or more of the voting securities of such
Series represented at a meeting
B-15
<PAGE>
at which more than 50% of the outstanding voting securities of such Series are
present in person or represented by proxy or (ii) more than 50% of the
outstanding voting securities of such Series. With respect to the submission of
a change in fundamental policy or investment objective to a particular Series,
such matters shall be deemed to have been effectively acted upon with respect
to all Series of the Trust if a majority of the outstanding voting securities
of the particular Series votes for the approval of such matters as provided
above, notwithstanding (1) that such matter has not been approved by a majority
of the outstanding voting securities of any other Series affected by such
matter and (2) that such matter has not been approved by a majority of the
outstanding voting securities of the Trust.
MONEY MARKET SERIES
The following investment restrictions are fundamental policies of the
Trust with respect to the Money Market Series of the Trust and may not be
changed except as described above.
The Trust may not:
1. Borrow money, except from banks for temporary or emergency purposes,
including the meeting of redemption requests which might otherwise require the
untimely disposition of securities; borrowing in the aggregate may not exceed
20%, and borrowing for purposes other than meeting redemptions may not exceed
5%, of the value of the Trust's total assets (including the amount borrowed),
less liabilities (not including the amount borrowed) at the time the borrowing
is made; investment securities will not be purchased while borrowings are
outstanding.
2. Pledge, hypothecate, mortgage or otherwise encumber its assets, except
in an amount up to 10% of the value of its net assets but only to secure
permitted borrowings of money.
3. Make loans to others, except through the purchase of the debt
obligations and the repurchase agreements covering government securities and
the lending of portfolio securities (limited to thirty percent of the Series'
total assets).
4. Purchase or sell real estate or real estate mortgage loans.
5. Purchase securities on margin or sell short.
6. Purchase or sell commodities or commodity futures contracts, or oil,
gas, or mineral exploration or development programs.
7. Underwrite securities of other issuers.
8. Purchase the securities of any other investment company, except in
connection with a merger, consolidation, reorganization or acquisition of
assets.
9. Issue senior securities as defined in the Investment Company Act except
insofar as the Trust may be deemed to have issued a senior security by reason
of: (a) entering into any repurchase agreement; (b) permitted borrowings of
money; or (c) purchasing securities on a when-issued or delayed delivery basis.
10. Purchase securities on a when-issued basis if, as a result, more than
15% of the Trust's net assets would be committed.
SHORT-INTERMEDIATE TERM SERIES
The following investment restrictions are fundamental policies of the
Trust with respect to the Short-Intermediate Term Series of the Trust and may
not be changed except as described above.
The Trust may not:
1. Issue senior securities, borrow money or pledge its assets, except that
the Series may borrow from banks or through dollar rolls or reverse repurchase
agreements up to 331|M/3% of the value of its total assets (calculated when the
loan is made) for temporary, extraordinary or emergency purposes, to take
advantage of investment opportunities or for the clearance of transactions and
may pledge up to 331|M/3% of the value of its total assets to secure such
borrowings. For purposes of this restriction, the purchase or sale of
securities on a "when-issued" or delayed delivery basis, collateral
arrangements with respect to interest rate swap transactions reverse repurchase
agreements or dollar rolls or the purchase and sale of futures contracts are
not deemed to be a pledge of assets and neither such arrangements nor the
purchase or sale of futures contracts nor the purchase and sale of related
options, nor obligations of the Series to the Trustees of the Trust pursuant to
deferred compensation arrangements are deemed to be the issuance of a senior
security.
2. Make loans to others, except through the purchase of the debt
obligations and the repurchase agreements covering government securities and
the lending of portfolio securities (limited to 30% of the Series' total
assets).
3. Purchase or sell real estate or real estate mortgage loans, except that
the Series may purchase and sell mortgaged-backed securities, securities
collateralized by mortgages, securities which are secured by real estate,
securities of companies which invest or deal in real estate and publicly traded
securities of real estate investment trusts. The Series may not purchase
interests in real estate limited partnerships which are not readily marketable.
4. Purchase securities on margin (but the Series may obtain such
short-term credits as may be necessary for the clearance of transactions);
provided that the deposit or payment by the Series of initial or variation
margin in connection with options or futures contracts is not considered the
purchase of a security on margin.
B-16
<PAGE>
5. Make short sales of securities, or maintain a short position if, when
added together, more than 25% of the value of the Series' net assets would be
(i) deposited as collateral for the obligation to replace securities borrowed
to effect short sales and (ii) allocated to segregated accounts in connection
with short sales. Short sales "against-the-box" are not subject to this
limitation.
6. Purchase or sell commodities or commodity futures contracts, or oil,
gas, or mineral exploration or development programs, except that the Fund may
purchase and sell financial futures contracts and options thereon.
7. Purchase the securities of any other investment company, except in
connection with a merger, consolidation, reorganization or acquisition of
assets.
8. Purchase securities on a when-issued basis if, as a result, more than
15% of the Series' net assets would be committed.
U.S. TREASURY MONEY MARKET SERIES
In connection with its investment objective and policies as set forth in
the Prospectus, the U.S. Treasury Money Market Series has adopted the following
investment restrictions.
The U.S. Treasury Money Market Series may not:
1. Invest in any securities other than U.S. Treasury obligations.
2. Purchase securities on margin (but the Series may obtain such
short-term credits as may be necessary for the clearance of transactions).
3. Make short sales of securities or maintain a short position.
4. Issue senior securities, borrow money or pledge its assets, except that
the Series may borrow up to 20% of the value of its total assets (calculated
when the loan is made) from banks and from entities other than banks if so
permitted pursuant to an order of the Securities and Exchange Commission for
temporary, extraordinary or emergency purposes. The Series may pledge up to 20%
of the value of its total assets to secure such borrowings.
5. Buy or sell real estate or interests in real estate.
6. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter
under certain federal laws.
7. Make investments for the purpose of exercising control or management.
8. Invest in interests in oil, gas or other mineral exploration or
development programs.
9. Buy or sell commodities or commodity contracts (including futures
contracts and options thereon).
Whenever any fundamental investment policy or investment restriction
states a maximum percentage of any Series' assets, it is intended that if the
percentage limitation is met at the time the investment is made, a later change
in percentage resulting from changing total or net asset values will not be
considered a violation of such policy. However, in the event that a Series'
asset coverage for borrowings falls below 300%, the Series will take prompt
action to reduce its borrowings, as required by applicable law.
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE(1) TRUST DURING PAST 5 YEARS
- -------------------------- --------------- ----------------------------------------------------------
<S> <C> <C>
Edward D. Beach (73) Trustee President and Director of BMC Fund, Inc., a closed-end
investment company; previously, Vice Chairman of
Broyhill Furniture Industries, Inc.; Certified Public
Accountant; Secretary and Treasurer of Broyhill Family
Foundation, Inc.; Member of the Board of Trustees of
Mars Hill College; President, Treasurer and Director of
The High Yield Plus Fund, Inc. and First Financial Fund.
Inc.; President and Director of Global Utility Fund, Inc.
- -----------
* "Interested" Trustee, as defined in the Investment Company Act, by reason of his affiliation with The
Prudential Insurance
Company of America (Prudential) or Prudential Securities.
</TABLE>
B-17
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE(1) TRUST DURING PAST 5 YEARS
- ---------------------------- ---------------- ------------------------------------------------------------
<S> <C> <C>
Eugene C. Dorsey (70) Trustee Retired President, Chief Executive Officer and Trustee of
the Gannett Foundation (now Freedom Forum); former
Publisher of four Gannett newspapers and Vice
President of Gannett Company; past Chairman of
Independent Sector (national coalition of philanthropic
organizations); former Chairman of the American
Council for the Arts; Director of the Advisory Board of
Chase Manhattan Bank of Rochester and The High Yield
Income Fund Inc.
Delayne Dedrick Gold (59) Trustee Marketing and Management Consultant.
*Robert F. Gunia (51) Vice President Chief Administrative Officer (July 1990-September 1996),
and Trustee Director (January 1989-September 1996), Executive
Vice President, Treasurer and Chief Financial Officer
(June 1987-September 1996) of Prudential Mutual Fund
Management, Inc.; Comptroller of Prudential
Investments (since May 1996); Senior Vice President
(since March 1987) of Prudential Securities
Incorporated (Prudential Securities); Vice President and
Director of The Asia Pacific Fund, Inc. (since May 1989).
*Harry A. Jacobs, Jr. (76) Trustee Senior Director (since January 1986) of Prudential
One New York Plaza Securities; formerly Interim Chairman and Chief
New York, NY Executive Officer of Prudential Mutual Fund
Management, Inc. (June-September 1993); formerly
Chairman of the Board of Prudential Securities
(1982-1985) and Chairman of the Board and Chief
Executive Officer of Bache Group, Inc. (1977-1982);
Director of the Center for National Policy, The First
Australia Fund, Inc. and The First Australia Prime
Income Fund, Inc.; Trustee of the Trudeau Institute.
*Mendel A. Melzer, CFA (36) Trustee Chief Investment Officer (since October 1996) of Prudential
751 Broad Street Mutual Funds; formerly Chief Financial Officer of
Newark, NJ Prudential Investments (November 1995-September
1996), Senior Vice President and Chief Financial Officer
of Prudential Preferred Financial Services (April 1993-
November 1995), Managing Director of Prudential
Investment Advisors (April 1991-April 1993) and Senior
Vice President of Prudential Capital Corporation (July
1989-April 1991).
Thomas T. Mooney (56) Trustee President of the Greater Rochester Metro Chamber of
Commerce; formerly Rochester City Manager; Trustee of
Center for Governmental Research, Inc.; Director of
Monroe County Water Authority, Rochester Jobs, Inc.,
Blue Cross of Rochester, Executive Service Corps of
Rochester, Monroe County Industrial Development
Corporation, Northeast Midwest Institute, First Financial
Fund. Inc., The Global Government Plus Fund, Inc. and
The High Yield Plus Fund, Inc.
- -----------
* "Interested" Trustee, as defined in the Investment Company Act, by reason of his affiliation with The
Prudential Insurance
Company of America (Prudential) or Prudential Securities.
</TABLE>
B-18
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE(1) TRUST DURING PAST 5 YEARS
- -------------------------- --------------------- -----------------------------------------------------------
<S> <C> <C>
Thomas H. O'Brien (73) Trustee President of O'Brien Associates (Financial and
Management Consultants) (since April 1984); formerly
President of Jamaica Water Securities Corp. (holding
company) (February 1989-August 1990); Chairman of
the Board and Chief Executive Officer (September 1987-
February 1989) of Jamaica Water Supply Company and
Director (September 1987-April 1991); Director of
Ridgewood Savings Bank; Trustee of Hofstra University.
*Richard A. Redeker (54) President Employee of Prudential Investments; formerly President,
and Trustee Chief Executive Officer and Director (October
1993-September 1996) of Prudential Mutual Fund
Management, Inc.; Executive Vice President, Director
and Member of Operating Committee (October 1993-
September 1996), Prudential Securities; Director (since
October 1993-September 1996), Prudential Securities
Group, Inc.; Executive Vice President, The Prudential
Investment Corporation (since January 1994);
previously Senior Executive Vice President and Director
of Kemper Financial Services, Inc. (September
1978-September 1993); President and Director of The
High Yield Income Fund, Inc.
Nancy H. Teeters (67) Trustee Economist; formerly Vice President and Chief Economist
(March 1986-June 1990) of International Business
Machines Corporation; Director of Inland Steel
Industries (since July 1991) and First Financial Fund,
Inc.
Louis A. Weil, III (56) Trustee Publisher and Chief Executive Officer (since January 1996)
and Director (since September 1991) of Central
Newspapers, Inc.; Chairman of the Board (since January
1996), Publisher and Chief Executive Officer (August
1991-December 1995) of Phoenix Newspapers, Inc.;
prior thereto, Publisher of Time Magazine (May
1989-March 1991); formerly President, Publisher and
Chief Executive Officer of The Detroit News (February
1986-August 1989); formerly member of the Advisory
Board, Chase Manhattan Bank-Westchester.
S. Jane Rose (51) Secretary Senior Vice President (January 1991-September 1996) and
Senior Counsel (June 1987-September 1996) of
Prudential Mutual Fund Management, Inc.; Senior Vice
President and Senior Counsel (since June 1992) of
Prudential Securities; formerly Vice President and
Associate General Counsel of Prudential Securities.
Grace C. Torres (38) Treasurer and First Vice President (since December 1996) of PIFM; First
Principal Financial Vice President (since March 1994) of Prudential
and Accounting Securities; formerly First Vice President (March 1994-
Officer September 1996) of Prudential Mutual Fund
Management, Inc. and Vice President (July 1989-
March 1994) of Bankers Trust Corporation.
- -----------
* "Interested" Trustee, as defined in the Investment Company Act, by reason of his affiliation with The Prudential
Insurance
Company of America (Prudential) or Prudential Securities.
</TABLE>
B-19
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE(1) TRUST DURING PAST 5 YEARS
- -------------------------- -------------- ---------------------------------------------------------
<S> <C> <C>
Stephen M. Ungerman (44) Assistant Tax Director of Prudential Investments and the Private
Treasurer Asset Group of Prudential (since March 1996); formerly prior
thereto, Senior Tax Manager of Price Waterhouse (1981-January
1993).
</TABLE>
- -----------
(1) Unless otherwise noted the address for each of the above persons is c/o:
Prudential Mutual Investments Management LLC, Gateway Center Three, 100
Mulberry Street, 9th Floor, Newark, New Jersey 07102-4077.
* "Interested" Trustee, as defined in the Investment Company Act, by reason of
his affiliation with Prudential Securities or PMF.
Trustees of the Trust are elected by the holders of the shares of all
Series of the Trust, and not separately by holders of each Series voting as a
class.
Trustees and officers of the Trust are also trustees, directors and
officers of some or all of the other investment companies distributed by
Prudential Securities or Prudential Mutual Fund Distributors, Inc.
The officers conduct and supervise the daily business operations of the
Trust, while the Trustees, in addition to their functions set forth under
"Manager," and "Distributor," review such actions and decide on general policy.
The Trust pays each of its directors who is not an affiliated person of
PMF or The Prudential Investment Corporation (PIC) annual compensation of
$9,000, in addition to certain out-of-pocket expenses. The Chairman of the
Audit Committee receives an additional $200 per year.
Trustees may receive their Trustee's fee pursuant to a deferred fee
agreement with the Trust. Under the terms of the agreement, the Trust accrues
daily the amount of such Trustee's fee which accrues interest at a rate
equivalent to the prevailing rate applicable to 90-day U.S. Treasury bills at
the beginning of each calendar quarter or, pursuant to an SEC exemptive order,
at the daily rate of return of the Trust (the Trust Rate). Payment of the
interest so accrued is also deferred and accruals become payable at the option
of the Trustee. The Trust's obligation to make payments of deferred Trustees'
fees, together with interest thereon, is a general obligation of the Trust.
The Trustees have adopted a retirement policy which calls for the
retirement of Trustees on December 31 of the year in which they reach the age
of 72, except that retirement is being phased in for Trustees who were age 68
or older as of December 31, 1993. Under this phase-in provision, Mr. Jacobs is
scheduled to retire on December 31, 1998, and Messrs. Beach and O'Brien are
scheduled to retire on December 31, 1999.
Pursuant to the terms of the Management Agreement with the Trust, the
Manager pays all compensation of officers and employees of the Trust as well as
the fees and expenses of all Trustees of the Trust who are affiliated persons
of the Manager.
On October 30, 1996, at an annual meeting of shareholders, shareholders of
record on August 9, 1996, voted to elect new Trustees of the Trust and to
continue the services of Ms. Gold and Messrs. Redeker and Weil as Trustees of
the Trust. The following table sets forth the aggregate compensation paid by
the Portfolio for the fiscal year ended November 30, 1997 to current Trustees
of the Trust, as well as to Trustees of the Trust who served during the Trust's
1997 fiscal year. The table also shows aggregate compensation paid to those
Trustees for service on Boards of all funds managed by Prudential Investments
Fund Management LLC, including the Trust, for the calendar year ended December
31, 1997.
B-20
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM TRUST
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL AND FUND
COMPENSATION AS PART OF TRUST BENEFITS UPON COMPLEX PAID
NAME AND POSITION FROM TRUST EXPENSES RETIREMENT TO TRUSTEES
- ----------------------------------------------- -------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Edward D. Beach-Trustee $4,500 None N/A $135,000(38/63)*
Eugene C. Dorsey-Trustee** $4,500 None N/A $ 70,000(16/43)*
Delayne Dedrick Gold-Trustee $4,500 None N/A $135,000(38/63)*
Robert F. Gunia-Trustee and Vice President(1) - - - -
Harry A. Jacobs, Jr.-Trustee(1) - - - -
Donald D. Lennox-Trustee $4,500 None N/A $ 90,000(26/50)*
Mendel A. Melzer-Trustee(1) - - - -
Thomas T. Mooney-Trustee** $4,500 None N/A $115,000(31/64)*
Thomas H. O'Brien-Trustee $4,500 None N/A $ 45,000(11/29)*
Richard A. Redeker-Trustee and Presidents(1) - None N/A -
Nancy H. Teeters-Trustee $4,500 None N/A $ 90,000(23/42)*
Louis A. Weil, III-Trustee $4,500 - - $ 90,000(26/50)*
</TABLE>
- -----------
* Indicates number of funds/portfolios in Fund Complex (including the Trust)
to which aggregate compensation relates.
(1) Directors who are "interested" do not receive compensation from the
Fund complex (including the Trust).
** Total compensation from all of the funds in the Fund complex for the
calendar year ended December 31, 1997, includes amounts deferred at the
election of Directors under the fund's deferred compensation plans.
Including accrued interest, total compensation amounted to $87,401 and
$143,909 for Dorsey and Mooney, respectively.
As of January 9, 1998, the Trustees and officers of the Trust, as a group,
owned less than 1% of the outstanding shares of beneficial interest of each of
the Money Market Series, U.S. Treasury Money Market Series and the
Short-Intermediate Term Series of the Trust.
As of January 9, 1998, Prudential Securities was the record holder for
other beneficial owners of 7,586,833 Short-Intermediate Term Series Class A
Shares (or 52% of such shares outstanding), and NO Short-Intermediate Term
Series Class Z Shares (or 0% of such shares outstanding), 381,944,248 Money
Market Series Class A Shares (or 56% of such shares outstanding), and NO Money
Market Series Class Z Shares (or 0% of such shares outstanding) and 628,240,468
U.S. Treasury Money Market Series Class A Shares (or 86% of such shares
outstanding) and NO U.S. Treasury Money Market Series Class Z Shares (or 0%
of such shares outstanding). In the event of any meetings of shareholders,
Prudential Securities will forward, or cause the forwarding of, proxy materials
to the beneficial owners for which it is the record holder.
As of January 9, 1998, the beneficial owners, directly or indirectly, of
more than 5% of the outstanding shares of any class of beneficial interest
were: Prudential Trust Company, FBO-PRU-Clients, Attn: John Sturdy, 30 Scranton
Office Park, Moosic PA, 18507-1796, who held 1,650 Class Z shares of the
Short-Term Intermediate Series (98%); Pru Defined Contributions SVCS, FBO
PRU-NON-Trust Accounts, Attn: John Sturdy, 30 Scranton Office Park, Moosic, PA
18507-1755, who held 569,367 Class Z shares of the Money Market Series (99%);
and Prudential Audit Acct, P.O. Box 15025, New Brunswick NJ, 08906-5025, who
held 205 Class Z shares of the U.S. Treasury Money Market Series (99%).
MANAGER
The Manager of the Trust is Prudential Investments Fund Management LLC
(PIFM or the Manager), Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077. PIFM serves as manager of all of the investment companies
that, together with the Trust, comprise the Prudential Mutual Funds. See "How
the Trust is Managed-Manager" in the Prospectus of each Series. As of December
31, 1997, PMF managed and/or administered open-end and closed-end management
investment companies with assets of approximately $62 billion. According to
the Investment Company Institute, as of August 31, 1997, the Prudential Mutual
Funds were the 17th largest family of mutual funds in the United States.
PIFM is a subsidiary of Prudential Securities and Prudential. Prudential
Mutual Fund Services LLC (PMFS or the Transfer Agent) serves as the transfer
agent for the Prudential Mutual Funds and, in addition, provides customer
service, recordkeeping and management and administration services to qualified
plans.
Pursuant to a management agreement with the Trust (the Management
Agreement), PIFM, subject to the supervision of the Trustees and in conformity
with the stated policies of the Trust, manages both the investment operations
of the Trust and the composition of the Trust's portfolio, including the
purchase, retention, disposition and loan of securities and other investments.
B-21
<PAGE>
PIFM is obligated to keep certain books and records of the Trust in connection
therewith. PIFM is also obligated to provide research and statistical analysis
and to pay costs of certain clerical and administrative services involved in
the portfolio management. The management services of PIFM to the Trust are not
exclusive under the terms of the Management Agreement and PIFM is free to, and
does, render management services to others.
PIFM has authorized any of its directors, officers and employees who have
been elected as trustees or officers of the Trust to serve in the capacities in
which they have been elected. Services furnished by PIFM under the Management
Agreement may be furnished by any such directors, officers or employees of
PIFM. In connection with the services it renders, PIFM bears the following
expenses:
(a) the salaries and expenses of all personnel of the Trust and the
Manager, except the fees and expenses of Trustees who are not affiliated
persons of the Manager;
(b) all expenses incurred by the Manager or by the Trust in connection
with managing the ordinary course of the Trust's business, other than those
assumed by the Trust, as described below; and
(c) the costs and expenses payable to The Prudential Investment
Corporation, doing business as Prudential Investments (PI, The Subadviser or
the investment adviser), pursuant to a subadvisory agreement between PIFM and
PI (the Subadvisory Agreement).
Under the terms of the Management Agreement, the Trust is responsible for
the payment of the following expenses, including (a) the fee payable to the
Manager, (b) the fees and expenses of Trustees who are not affiliated with PMF
or PIC, (c) the fees and certain expenses of the Trust's Custodian and Transfer
and Dividend Disbursing Agent, including the cost of providing records to the
Manager in connection with its obligation of maintaining required records of
the Trust and of pricing the Trust's shares, (d) the fees and expenses of the
Trust's legal counsel and independent accountants, (e) brokerage commissions
and any issue or transfer taxes chargeable to the Trust in connection with its
securities transactions, (f) all taxes and corporate fees payable by the Trust
to governmental agencies, (g) the fees of any trade association of which the
Trust is a member, (h) the cost of share certificates representing shares of
the Trust, (i) the cost of fidelity, directors and officers and errors and
omissions insurance, (j) the fees and expenses involved in registering and
maintaining registration of the Trust and of its shares with the SEC and
registering the Trust as a broker or dealer and qualifying its shares under
state securities laws, including the preparation and printing of the Trust's
registration statements and prospectuses for such purposes, (k) allocable
communications expenses with respect to investor services and all expenses of
shareholders' and Trustees' meetings and of preparing, printing and mailing
reports to shareholders, (l) litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of the Trust's
business and (m) distribution fees.
The Trust pays a fee to PIFM for the services performed and the facilities
furnished by PIFM, computed daily and payable monthly, at an annual rate of .40
of 1% of the Short-Intermediate Term Series' and the U.S. Treasury Money Market
Series' average daily net assets and at an annual rate of .40 of 1% of the
average daily net assets up to $1 billion, .375 of 1% on assets between $1
billion and $1.5 billion and .35 of 1% on assets in excess of $1.5 billion of
the average daily net assets of the Money Market Series. The Management
Agreement also provides that in the event the expenses of a Series (including
the fees of the Manager but excluding interest, taxes, brokerage commissions,
distribution fees, litigation and indemnification expenses and other
extraordinary expenses) for any fiscal year exceed the lowest applicable annual
expense limitation established and enforced pursuant to the statute or
regulations of any jurisdictions in which shares of the Series are then
qualified for offer and sale, PIFM will reduce its fee by the amount of such
excess. Reductions in excess of the total compensation payable to PIFM will be
paid by PIFM to the Series. Any such reductions are subject to readjustment
during the year. Currently, the Trust believes that the most restrictive
expense limitation of state securities commissions is 21|M/2% of the average
daily net assets of each Series up to $30 million, 2% of the average daily net
assets of each Series from $30 million to $100 million and 11|M/2% of any
excess over $100 million. The Management Agreement provides that the Manager
shall not be liable to the Trust for any error of judgment by the Manager or
for any loss sustained by the Trust except in the case of a breach of fiduciary
duty with respect to the receipt of compensation for services (in which case
any award of damages will be limited as provided in the Investment Company Act)
or of wilful misfeasance, bad faith, gross negligence or reckless disregard of
duty.
The Management Agreement provides that it shall terminate automatically if
assigned, and that it may be terminated without penalty by either party upon
not more than 60 days', nor less than 30 days', written notice. The Management
Agreement was last approved by the Trustees, including all of the Trustees who
are not interested persons as defined in the Investment Company Act, on May 8,
1996 and by a majority of the outstanding shares of the Money Market Series and
the Short-Intermediate Term Series on April 28, 1988 and a majority of the
outstanding shares of the U.S. Treasury Money Market Series on November 26,
1991.
For the fiscal year ended November 30, 1997, the Trust paid management
fees to PIFM of $2,348,740, $666,606 and $1,610,536 relating to the Money
Market Series, Short-Intermediate Term Series and U.S. Treasury Money Market
Series, respectively. For the fiscal year ended November 30, 1996, the Trust
paid management fees to PIFM of $2,362,419, $810,455 and
B-22
<PAGE>
$1,572,239 relating to the MoneyMarket Series, Short-Intermediate Term Series
and U.S. Treasury Money Market Series, respectively. For the fiscal year ended
November 30, 1995 the Trust paid management fees to PIFM of $2,390,395, $838,085
and $1,381,478 relating to the Money Market Series, Short-Intermediate Term
Series and U.S. Treasury Money Market Series, respectively.
PIFM has entered into the Subadvisory Agreement with PI (the Subadviser).
The Subadvisory Agreement provides that PI furnish investment advisory services
in connection with the management of the Trust. In connection therewith, PI is
obligated to keep certain books and records of the Trust. PIFM continues to
have responsibility for all investment advisory services pursuant to the
Management Agreement and supervises PI's performance of those services. PI is
reimbursed by PIFM for the reasonable costs and expenses incurred by PI in
furnishing those services. Investment advisory services are provided to the
Trust by a unit of the Subadviser known as Prudential Mutual Fund Investment
Management.
The Subadvisory Agreement was last approved by the Trustees, including all
of the Trustees who are not interested persons as defined in the Investment
Company Act, on May 22, 1997, and by the shareholders of each of the Money
Market Series and the Short-Intermediate Term Series on April 28, 1988 and the
shareholders of the U.S. Treasury Money Market Series on November 26, 1991.
The Subadvisory Agreement provides that it will terminate in the event of
its assignment or upon the termination of the Management Agreement. The
Subadvisory Agreement may be terminated by the Trust, PIFM or PI upon not less
than 30 days' nor more than 60 days' written notice. The Subadvisory Agreement
provides that it will continue in effect for a period of more than two years
only so long as such continuance is specifically approved at least annually in
accordance with the requirements of the Investment Company Act applicable to
continuance of investment advisory contracts.
DISTRIBUTOR
Prudential Securities Incorporated (Prudential Securities, PSI or the
Distributor), One Seaport Plaza, New York, New York 10292, has entered into an
agreement with the Trust under which Prudential Securities acts as distributor
for the Trust's shares. Prudential Securities is engaged in the securities
underwriting and securities and commodities brokerage business and is a member
of the New York Stock Exchange, other major securities and commodities
exchanges and the NASD. Prudential Securities is also engaged in the investment
advisory business. Prudential Securities is a wholly-owned subsidiary of
Prudential Securities Group Inc., which is an indirect, wholly-owned subsidiary
of Prudential. The services it provides to the Trust are discussed in each
Series' Prospectus. See "How the Trust is Managed-Distributor."
Distribution and Service Plans. See "How the Trust is Managed--Distributor"
in the Prospectus of each Series.
During the fiscal year ended November 30, 1997, PSI incurred distribution
expenses in the aggregate of $733,142 and $503,292 with respect to the Money
Market Series and the U.S. Treasury Money Market Series, respectively, all of
which was recovered through the distribution fee paid by each Series to PSI. It
is estimated that of these amounts approximately $528,800 (79.5%) and $395,100
(78.5%) was spent on payment of account servicing fees to financial advisers
for the Money Market Series and U.S. Treasury Money Market Series,
respectively, and $150,300 (20.5%) and $108.200 (21.5%) on allocation of
overhead and other branch office distribution-related expenses for the Money
Market Series and U.S. Treasury Money Market Series, respectively. The term
"overhead and other branch office distribution-related expenses" represents (a)
the expenses of operating Prudential Securities' branch offices in connection
with the sale of shares of the series, including lease costs, the salaries and
employee benefits of operations and sales support personnel, utility costs,
communications costs and the costs of stationary and supplies, (b) the costs of
client sales seminars, (c) travel expenses of mutual fund sales coordinators to
promote the sale of shares of the series, and (d) other incidental expenses
relating to branch promotion of sales of the series. Reimbursable distribution
expenses do not include any direct interest or carrying charges.
For the fiscal year ended November 30, 1997, Prudential Securities
received $329,158 from the Short-Intermediate Term Series under the Plan all of
which was spent on behalf of the Short-Intermediate Term Series or the payment
of account servicing fees to financial advisers.
On May 2, 1995, the Trustees, including a majority of the Trustees who are
not interested persons of the Trust and have no direct or indirect financial
interest in the operating of the Plans (Rule 12b-1 Trustees) at a meeting
called for the purpose of voting on each Plan, approved amendments to the plans
changing them from reimbursement type plans to compensation type plans. The
Plans were last approved by the Trustees, including a majority of the Rule
12b-1 Trustees, on May 22, 1997. The Plans were last approved by the Trustees,
including a majority of the Trustees who are not interested persons of the
Trust and who have no direct or indirect financial interest in the operation of
the Plans or in any agreements related to the Plans (the Rule 12b-1 Trustees),
cast in person at a meeting called for the purpose of voting on such Plans on
May 22, 1997 and, as amended, were approved by the shareholders of each Series
on July 19, 1995.
In each Distribution and Service Agreement, the Trust has agreed to
indemnify Prudential Securities or PMFD to the extent permitted by applicable
law against certain liabilities under the Securities Act.
B-23
<PAGE>
Pursuant to the Plans, the Trustees are provided at least quarterly with
written reports of the amounts expended under the Plans and the purposes for
which such expenditures were made. The Trustees review such reports on a
quarterly basis.
The Plans provide that they will continue in effect from year to year,
provided each such continuance is approved annually by a vote of the Trustees
in the manner described above. The Plans may not be amended to increase
materially the amount to be spent for the services described therein without
approval of the shareholders of the applicable Series, and all material
amendments of the Plans must also be approved by the Trustees in the manner
described above. Each Plan may be terminated at any time, without payment of
any penalty, by vote of a majority of the Rule 12b-1 Trustees, or by a vote of
a majority of the outstanding voting securities of the applicable Series (as
defined in the Investment Company Act). Each Plan will automatically terminate
in the event of its assignment (as defined in the Investment Company Act).
So long as the Plans are in effect, the selection and nomination of
Trustees who are not interested persons of the Trust shall be committed to the
discretion of the Trustees who are not interested persons. The Trustees have
determined that, in their judgment, there is a reasonable likelihood that the
Plans will benefit the Trust and its shareholders. In the Trustees' quarterly
review of the Plans, they consider the continued appropriateness and the level
of payments provided therein.
The Distribution Agreements provide that each shall terminate
automatically if assigned and that each may be terminated without penalty by
either party upon not more than 60 days' nor less than 30 days' written notice.
Each Distribution Agreement was last approved by the Trustees, including all of
the 12b-1 Trustees on May 22, 1997. On November 3, 1995, the Trustees approved
the transfer of the Distribution Agreements for the Money Market Series and
U.S. Treasury Money Market Series with PMFD to Prudential Securities.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Manager and PIC are responsible for decisions to buy and sell
securities for the Money Market Series, Short-Intermediate Term Series and U.S.
Treasury Money Market Series, arranging the execution of portfolio security
transactions on each Series' behalf, and the selection of brokers and dealers
to effect the transactions. Purchases of portfolio securities are made from
dealers, underwriters and issuers; sales, if any, prior to maturity, are made
to dealers and issuers. Each Series does not normally incur any brokerage
commission expense on such transactions. The instruments purchased by the
Series are generally traded on a "net" basis with dealers acting as principal
for their own accounts without a stated commission, although the price of the
security usually includes a profit to the dealer. Securities purchased in
underwritten offerings include a fixed amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
When securities are purchased or sold directly from or to an issuer, no
commissions or discounts are paid.
The policy of each of the Series regarding purchases and sales of
securities is that primary consideration will be given to obtaining the most
favorable price and efficient execution of transactions.
The Trust paid no brokerage commissions for the fiscal years ended
November 30, 1995, 1996 and 1997.
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of shares of the Trust, a Shareholder Investment
Account is established for each investor under which a record of the shares
held is maintained by the Transfer Agent. If a share certificate is desired, it
must be requested in writing for each transaction. Certificates are issued only
for full shares and may be redeposited in the account at any time. There is no
charge to the investor for issuance of a certificate. Whenever a transaction
takes place in the Shareholder Investment Account, the shareholder will be
mailed a statement showing the transaction and the status of such account.
PROCEDURE FOR MULTIPLE ACCOUNTS
Special procedures have been designed for banks and other institutions
that wish to open multiple accounts. An institution may open a single master
account by filing an Application Form with Prudential Mutual Fund Services LLC
(PMFS or the Transfer Agent), Attention: Customer Service, P.O. Box 15005, New
Brunswick, New Jersey 08906, signed by personnel authorized to act for the
institution. Individual sub-accounts may be opened at the time the master
account is opened by listing them, or they may be added at a later date by
written advice or by filing forms supplied by the Trust. Procedures are
available to identify sub-accounts by name and number within the master account
name. The investment minimums set forth above are applicable to the aggregate
amounts invested by a group and not to the amount credited to each sub-account.
PMFS provides each institution with a written confirmation for each
transaction in sub-accounts. Further, PMFS provides, to each institution on a
monthly basis, a statement which sets forth for each master account its share
balance and income earned for the month. In addition, each institution receives
a statement for each individual account setting forth transactions in the
sub-account for the year-to-date, the total number of shares owned as of the
dividend payment date and the dividends paid for the current month, as well as
for the year-to-date.
B-24
<PAGE>
Further information on the sub-accounting system and procedures is
available from the Transfer Agent, Prudential Securities or Prusec.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
For the convenience of investors, all dividends and distributions are
automatically invested in full and fractional shares of the applicable Series
at net asset value. An investor may direct the Transfer Agent in writing not
less than 5 full business days prior to the payable date to have subsequent
dividends and/or distributions sent in cash rather than invested. In the case
of recently purchased shares for which registration instructions have not been
received on the record date, cash payment will be made directly to the dealer.
Any shareholder who receives a cash payment representing a dividend or
distribution may reinvest such dividend or distribution at net asset value by
returning the check or the proceeds to the Transfer Agent within 30 days after
the payment date. Such investment will be made at the net asset value per share
next determined after receipt of the check or proceeds by the Transfer Agent.
EXCHANGE PRIVILEGE
The Trust makes available to its Money Market Series, Short-Intermediate
Term Series and U.S. Treasury Money Market Series shareholders the privilege of
exchanging their shares for shares of either of the other Series and certain
other Prudential Mutual Funds, including one or more specified money market
funds, subject in each case to the minimum investment requirements of such
funds. Class A or Class Z shares of such other Prudential Mutual Funds may also
be exchanged for Class A or Class Z shares of the Money Market Series and for
shares of the Short-Intermediate Term Series and U.S. Treasury Money Market
Series. All exchanges are made on the basis of relative net asset value next
determined after receipt of an order in proper form. An exchange will be
treated as a redemption and purchase for tax purposes. Shares may be exchanged
for shares of another fund only if shares of such fund may legally be sold
under applicable state laws.
It is contemplated that the exchange privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.
CLASS A. Shareholders of the Trust may exchange their Class A shares for
Class A shares of the Prudential Mutual Funds, and shares of the money market
funds specified below. No fee or sales load will be imposed upon the exchange.
The following money market funds participate in the Class A Exchange Privilege:
Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)
Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New York Money Market Series)
(New Jersey Money Market Series)
Prudential MoneyMart Assets
Prudential Tax-Free Money Fund, Inc.
Shareholders of the Trust may not exchange their shares for Class B or
Class C shares of the Prudential Mutual Funds or shares of Prudential Special
Money Market Fund, a money market fund, except that shares acquired prior to
January 22, 1990 subject to a contingent deferred sales charge can be exchanged
for Class B shares.
CLASS Z. Class Z shares may be exchanged for Class Z shares of other
Prudential Mutual Funds.
Additional details about the Exchange Privilege and prospectuses for each
of the Prudential Mutual Funds are available from the Trust's Transfer Agent,
Prudential Securities or Prusec. The Exchange Privilege may be modified,
terminated or suspended on sixty days' notice, and any fund, including the
Trust, or the Distributor, has the right to reject any exchange application
relating to such fund's shares.
DOLLAR COST AVERAGING-SHORT-INTERMEDIATE TERM SERIES
Dollar cost averaging is a method of accumulating shares by investing a
fixed amount of dollars in shares at set intervals. An investor buys more
shares when the price is low and fewer shares when the price is high. The
overall cost is lower than it would be if a constant number of shares were
bought at set intervals.
Dollar cost averaging may be used, for example, to plan for retirement, to
save for a major expenditure, such as the purchase of a home, or to finance a
college education. The cost of a year's education at a four-year college today
averages around $14,000
B-25
<PAGE>
at a private college and around $6,000 at a public university. Assuming these
costs increase at a rate of 7% a year, as has been projected, for the freshman
class beginning in 2011, the cost of four years at a private college could
reach $210,000 and over $90,000 at a public university.1
The following chart shows how much you would need in monthly investments
to achieve specified lump sums to finance your investment goals.2
<TABLE>
<CAPTION>
PERIOD OF MONTHLY INVESTMENTS: $100,000 $150,000 $200,000 $250,000
- -------------------------------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
25 Years .................. $ 110 $ 165 $ 220 $ 275
20 Years .................. 176 264 352 440
15 Years .................. 296 444 592 740
10 Years .................. 555 833 1,110 1,388
5 Years .................. 1,371 2,057 2,742 3,428
</TABLE>
See "Automatic Savings Accumulation Plan."
- -----------
1 Source information concerning the costs of education at public and private
universities is available from The College Board Annual Survey of Colleges,
1993. Average costs for private institutions include tuition, fees, room and
board for the 1993-94 academic year.
2 The chart assumes an effective rate of return of 8% (assuming monthly
compounding). This example is for illustrative purposes only and is not
intended to reflect the performance of an investment in shares of the Fund. The
investment return and principal value of an investment will fluctuate so that
an investor's shares when redeemed may be worth more or less than their
original cost.
AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP)
Under ASAP, an investor may arrange to have a fixed amount automatically
invested in any Series' shares each month by authorizing his or her bank
account or Prudential Securities Account (including a Command Account) to be
debited to invest specified dollar amounts in shares of that Series. The
investor's bank must be a member of the Automatic Clearing House System. Share
certificates are not issued to ASAP participants.
Further information about this program and an application form can be
obtained from the Transfer Agent, Prudential Securities or Prusec.
SYSTEMATIC WITHDRAWAL PLAN
A systematic withdrawal plan is available for shareholders having shares
of the Trust held through Prudential Securities or the Transfer Agent. Such
withdrawal plan provides for monthly or quarterly checks in any amount, except
as provided below, up to the value of the shares in the shareholder's account.
In the case of shares held through the Transfer Agent (i) a $10,000
minimum account value applies, (ii) withdrawals may not be for less than $100
and (iii) the shareholder must elect to have all dividends and/or distributions
automatically reinvested in additional full and fractional shares of the
applicable series at net asset value on shares held under this plan. See
"Shareholder Investment Account-Automatic Reinvestment of Dividends and
Distributions."
Prudential Securities and the Transfer Agent act as agents for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment. The systematic withdrawal plan may
be terminated at any time, and the Distributor reserves the right to initiate a
fee of up to $5 per withdrawal, upon 30 days' written notice to the
shareholder.
Withdrawal payments should not generally be considered as dividends, yield
or income. If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted. Furthermore, each withdrawal constitutes a
redemption of shares, and any gain or loss realized must generally be
recognized for federal income tax purposes. Each shareholder should consult his
or her own tax adviser with regard to the tax consequences of the plan,
particularly if used in connection with a retirement plan.
TAX-DEFERRED RETIREMENT PLANS
Various tax-deferred retirement plans, including a 401(k) Plan,
self-directed individual retirement accounts and "tax-sheltered accounts" under
Section 403(b)(7) of the Internal Revenue Code are available through the
Distributor. These plans are for use by both self-employed individuals and
corporate employers. These plans permit either self-direction of accounts by
participants, or a pooled account arrangement. Information regarding the
establishment of these plans, the administration, custodial fees and other
details are available from Prudential Securities or the Transfer Agent.
Investors who are considering the adoption of such a plan should consult
with their own legal counsel or tax adviser with respect to the establishment
and maintenance of any such plan.
INDIVIDUAL RETIREMENT ACCOUNTS
An individual retirement account (IRA) permits the deferral of federal
income tax on income earned in the account until the earnings are withdrawn.
The following chart represents a comparison of the earnings in a personal
savings account with those in
B-26
<PAGE>
an IRA, assuming a $2,000 annual contribution, an 8% rate of return and a 39.6%
federal income tax bracket and shows how much more retirement income can
accumulate within an IRA as opposed to a taxable individual savings account.
TAX-DEFERRED COMPOUNDING1
<TABLE>
<CAPTION>
CONTRIBUTIONS PERSONAL
MADE OVER: SAVINGS IRA
- ---------------------- ---------- ---------
<S> <C> <C>
10 years $ 26,165 $31,291
15 years 44,675 58,649
20 years 68,109 98,846
25 years 97,780 157,909
30 years 135,346 244,692
</TABLE>
- -----------
1 The chart is for illustrative purposes only and does not represent the
performance of the Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated. Earnings
in a traditional IRA account will be subject to tax when withdrawn from the
account. Distributions from a Roth IRA which meet the conditions required under
the Internal Revenue Code will not be subject to tax upon withdrawal from the
account.
MUTUAL FUND PROGRAMS
From time to time, a Series of the Fund may be included in a mutual fund
program with other Prudential Mutual Funds. Under such a program, a group of
portfolios will be selected and thereafter promoted collectively. Typically,
these programs are created with an investment theme, E.G., to seek greater
diversification, protection from interest rate movements or access to different
management styles. In the event such a program is instituted, there may be a
minimum investment requirement for the program as a whole. A Series may waive
or reduce the minimum initial investment requirements in connection with such a
program.
The mutual funds in the program may be purchased individually or as a part
of the program. Since the allocation of portfolios included in the program may
not be appropriate for all investors, investors should consult their Prudential
Securities Financial Adviser or Prudential/Pruco Securities Representative
concerning the appropriate blend of portfolios for them. If investors elect to
purchase the individual mutual funds that constitute the program in an
investment ratio different from that offered by the program, the standard
minimum investment requirements for the individual mutual funds will apply.
NET ASSET VALUE
MONEY MARKET SERIES AND U.S. TREASURY MONEY MARKET SERIES
AMORTIZED COST VALUATION. The Money Market Series and the U.S. Treasury
Money Market Series use the amortized cost method to determine the value of
their portfolio securities in accordance with regulations of the Securities and
Exchange Commission. The amortized cost method involves valuing a security at
its cost and amortizing any discount or premium over the period until maturity.
The method does not take into account unrealized capital gains and losses which
may result from the effect of fluctuating interest rates on the market value of
the security.
With respect to the Money Market Series and the U.S. Treasury Money Market
Series, the Trustees have determined to maintain a dollar-weighted average
maturity of 90 days or less, to purchase instruments having remaining
maturities of thirteen months or less and to invest only in securities
determined by the investment adviser under the supervision of the Trustees to
present minimal credit risks and to be of eligible quality in accordance with
the provisions of Rule 2a-7 of the Investment Company Act. The Trustees have
adopted procedures designed to stabilize, to the extent reasonably possible,
both Series' price per share as computed for the purpose of sales and
redemptions at $1.00. Such procedures will include review of the Series'
portfolio holdings by the Trustees, at such intervals as they may deem
appropriate, to determine whether the Series' net asset value calculated by
using available market quotations deviates from $1.00 per share based on
amortized cost. The extent of any deviation will be examined by the Trustees.
If such deviation exceeds 1/2 of 1%, the Trustees will promptly consider what
action, if any, will be initiated. In the event the Trustees determine that a
deviation exists which may result in material dilution or other unfair results
to prospective investors or existing shareholders, the Trustees will take such
corrective action as they consider necessary and appropriate, including the
sale of portfolio instruments prior to maturity to realize capital gains or
losses or to shorten average portfolio maturity, the withholding of dividends,
redemptions of shares in kind, or the use of available market quotations to
establish a net asset value per share.
SHORT-INTERMEDIATE TERM SERIES
Under the Investment Company Act, the Trustees are responsible for
determining in good faith the fair value of the Short-Intermediate Term Series'
securities. In accordance with procedures adopted by the Trustees, the value of
each U.S. Government security for which quotations are available will be based
on the valuation provided by an independent pricing service.
B-27
<PAGE>
Pricing services consider such factors as security prices, yields, maturities,
call features, ratings and developments relating to specific securities in
arriving at securities valuations. Securities for which market quotations are
not readily available are valued by appraisal at their fair value as determined
in good faith by the Manager under procedures established under the general
supervision and responsibility of the Trustees.
Short-term investments which mature in 60 days or less are valued at
amortized cost, if their term to maturity from date of purchase was 60 days or
less, or by amortizing their value on the 61st day prior to maturity if their
term to maturity when acquired by the Intermediate Series was more than 60
days, unless this is determined not to represent fair value by the Trustees.
TIME NET ASSET VALUE IS CALCULATED
The Trust will calculate its net asset value at 4:15 P.M., New York time,
for the Short-Intermediate Term Series and at 4:30 P.M. for the Money Market
Series and U.S. Treasury Money Market Series, on each day the New York Stock
Exchange is open for trading except on days on which no orders to purchase,
sell or redeem series shares have been received or days on which changes in the
value of a series' securities do not affect net asset value. In the event the
New York Stock Exchange closes early on any business day, the net asset value
of the Short-Intermediate Term Series' shares shall be determined at a time
between such closing and 4:15 P.M. New York time and at a time between such
closing and 4:30 PM for the Money Market Series' and US Treasury Money Market
Series' shares.
PERFORMANCE INFORMATION
MONEY MARKET SERIES AND U.S. TREASURY MONEY MARKET SERIES-CALCULATION OF YIELD
The Money Market Series and U.S. Treasury Money Market Series will each
prepare a current quotation of yield from time to time. The yield quoted will
be the simple annualized yield for an identified seven calendar day period. The
yield calculation will be based on a hypothetical account having a balance of
exactly one share at the beginning of the seven-day period. The base period
return will be the change in the value of the hypothetical account during the
seven-day period, including dividends declared on any shares purchased with
dividends on the shares but excluding any capital changes. The yield will vary
as interest rates and other conditions affecting money market instruments
change. Yield also depends on the quality, length of maturity and type of
instruments in the Money Market Series and U.S. Treasury Money Market Series'
portfolios and their operating expenses. The Money Market Series and U.S.
Treasury Money Market Series may also each prepare an effective annual yield
computed by compounding the unannualized seven-day period return as follows: by
adding 1 to the unannualized seven-day period return, raising the sum to a
power equal to 365 divided by 7, and subtracting 1 from the result.
Effective yield = [(base period return + 1)365/7 ]-1
The U.S. Treasury Money Market Series may also calculate the tax
equivalent yield over a 7-day period. The tax equivalent yield will be
determined by first computing the current yield as discussed above. The Series
will then determine what portion of the yield is attributable to securities,
the income of which is exempt for state and local income tax purposes. This
portion of the yield will then be divided by one minus the maximum state tax
rate of individual taxpayers and then added to the portion of the yield that is
attributable to other securities.
Comparative performance information may be used from time to time in
advertising or marketing the Money Market Series' and U.S. Treasury Money
Market Series' shares, including data from Lipper Analytical Services, Inc.,
Donoghue's Money Fund Report, The Bank Rate Monitor, other industry
publications, business periodicals, rating services and market indices.
The Money Market Series' and U.S. Treasury Money Market Series' yields
fluctuate, and annualized yield quotations are not a representation by the
Money Market Series or U.S. Treasury Money Market Series as to what an
investment in the Money Market Series and U.S. Treasury Money Market Series
will actually yield for any given period. Yield for the Money Market Series and
U.S. Treasury Money Market Series will vary based on a number of factors
including changes in market conditions, the level of interest rates and the
level of each series' income and expenses.
SHORT-INTERMEDIATE TERM SERIES-CALCULATION OF YIELD AND TOTAL RETURN
YIELD. The Short-Intermediate Term Series may from time to time advertise
its yield as calculated over a 30-day period. Yield will be computed by
dividing the Short-Intermediate Term Series' net investment income per share
earned during this 30-day period by the net asset value per share on the last
day of this period. Yield is calculated according to the following formula:
a - b
YIELD = 2 [(---- + 1)6-1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the net asset value per share on the last day of the period.
B-28
<PAGE>
Yield fluctuates and an annualized yield quotation is not a representation
by the Trust as to what an investment in the Intermediate Term Series will
actually yield for any given period.
The Short-Intermediate Term Series' 30-day yield for the period ended
November 30, 1997 was 5.69% for Class A and 6.53% for Class Z.
AVERAGE ANNUAL TOTAL RETURN. The Short-Intermediate Term Series may from
time to time advertise its average annual total return. See "How the Trust
Calculates Performance" in the Prospectus.
Average annual total return is computed according to the following
formula:
P (1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value at the end of the 1, 5 or 10 year
periods (or fractional portion thereof) of a hypothetical
$1,000 payment made at the beginning of the 1, 5 or 10 year
periods.
Average annual total return does not take into account any federal or
state income taxes that may be payable upon redemption.
The Short-Intermediate Term Series' average annual total return for the
one, five and ten year periods ended November 30, 1997 was 5.96%, 5.78% and
7.25%, respectively.
AGGREGATE TOTAL RETURN. The Short-Intermediate Term Series may also
advertise its aggregate total return. See "How the Trust Calculates
Performance" in the Prospectus.
Aggregate total return represents the cumulative change in the value of an
investment in the Fund and is computed according to the following formula:
ERV - P
-------
P
Where: P = a hypothetical initial payment of $1,000.
ERV = Ending Redeemable Value at the end of the 1, 5 or 10 year
periods (or fractional portion thereof) of a hypothetical
$1,000 investment made at the beginning of the 1, 5 or 10 year
periods.
Aggregate total return does not take into account any federal or state
income taxes that may be payable upon redemption.
The Short-Intermediate Term Series' aggregate total return for the one,
five and ten year periods ended November 30, 1997 was 5.96%, 32.42% and
101.27%, respectively.
TAXES, DIVIDENDS AND DISTRIBUTIONS
Each series of the Trust is treated as a separate entity for federal
income tax purposes and each has elected to qualify and intends to remain
qualified as a regulated investment company under the Internal Revenue Code of
1986, as amended (the Internal Revenue Code). If each series qualifies as a
regulated investment company, it will not be subject to federal income taxes on
the taxable income it distributes to shareholders, provided at least 90% of its
net investment income and net short-term capital gains earned in the taxable
year is so distributed. To qualify for this treatment, each series must, among
other things, (a) derive at least 90% of its gross income (without offset for
losses from the sale or other disposition of securities or foreign currencies)
from dividends, interest, payments with respect to securities loans, gains from
the sale or other disposition of securities or foreign currencies and certain
financial futures, options and forward contracts; (b) derive less than 30% of
its gross income (without offset for losses from the sale or other disposition
of securities or foreign currencies) from the gains on the sale or other
disposition of securities held for less than three months; and (c) diversify
its holdings so that, at the end of each quarter of the taxable year, (i) at
least 50% of the value of its assets is represented by cash, U.S. Government
securities and other securities limited in respect of any one issuer to an
amount no greater than 5% of its assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other than U.S.
Government securities). The performance and tax qualification of one series
will have no effect on the federal income tax liability of shareholders of the
other series.
The Internal Revenue Code imposes a 4% nondeductible excise tax to the
extent any series fails to meet certain minimum distribution requirements by
the end of each calendar year. For this purpose, dividends declared in October,
November and December payable to shareholders of record on a specified date in
October, November and December and paid in the following January will be
treated as having been paid by the Trust and received by shareholders in such
prior year. Under this rule, a shareholder may be taxed in one year on
dividends or distributions actually received in January of the following year.
See "Taxes, Dividends and Distributions" in the Prospectus of each series.
B-29
<PAGE>
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT AND
INDEPENDENT ACCOUNTANTS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, has been retained to act as Custodian of the Trust's
investments and in such capacity maintains certain financial and accounting
books and records pursuant to an agreement with the Trust.
Prudential Mutual Fund Services LLC (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as Transfer and Dividend Disbursing Agent and in those
capacities maintains certain books and records for the Trust. PMFS is a
wholly-owned subsidiary of PMF. PMFS provides customary transfer agency services
to the Trust, including the handling of shareholder communications, the
processing of shareholder transactions, the maintenance of shareholder account
records, payment of dividends and distributions and related functions. For these
services, PMFS receives an annual fee per shareholder account, a new account
set-up fee for each manually established account and a monthly inactive zero
balance account fee per shareholder account. PMFS is also reimbursed for its
out-of-pocket expenses, including but not limited to postage, stationery,
printing, allocable communications and other costs. For the fiscal year ended
November 30, 1997, the Short-Intermediate Term Series, Money Market Series and
U.S. Treasury Money Market Series incurred fees of $214,000, $1,190,000 and
$165,000, respectively, for the services of PMFS.
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York,
serves as the Trust's independent auditors and in that capacity audits the
Trust's annual financial statements.
B-30
<PAGE>
Portfolio of Investments PRUDENTIAL GOVERNMENT SECURITIES TRUST
as of November 30, 1997 MONEY MARKET SERIES
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Federal Farm Credit Bank--1.6%
$500 5.62%, 12/1/97 $ 500,000
1,600 5.51%, 12/5/97 1,599,020
7,000 5.70%, 9/2/98 6,993,783
------------
9,092,803
- ------------------------------------------------------------
Federal Home Loan Bank--17.5%
6,020 5.50%, 12/3/97 6,018,161
20,000 5.35%, 1/21/98 19,848,416
250 5.71%, 1/21/98 249,999
1,940 5.405%, 1/23/98 1,924,563
4,400 5.99%, 2/9/98 4,401,715
1,000 6.025%, 4/1/98 1,000,939
1,010 5.55%, 4/10/98 1,009,142
29,500 5.703%, 5/5/98, F.R.N. 29,496,211
2,710 6.04%, 5/6/98 2,710,372
1,000 5.87%, 6/17/98 1,000,539
18,000 5.80%, 10/27/98 17,992,188
18,000 5.81%, 11/4/98 17,990,884
------------
103,643,129
- ------------------------------------------------------------
Federal Home Loan Mortgage Corporation--2.5%
5,000 5.51%, 12/5/97 4,996,939
10,000 5.95%, 6/19/98 9,997,370
------------
14,994,309
- ------------------------------------------------------------
Federal National Mortgage Association--29.4%
30,000 5.48063%, 12/3/97, F.R.N. 29,999,886
2,000 5.40%, 12/5/97 1,999,942
26,000 5.54%, 12/11/97 25,959,989
6,000 5.52%, 1/15/98 5,998,927
2,500 5.51%, 2/24/98 2,498,980
1,100 8.20%, 3/10/98 1,107,161
1,475 5.71%, 3/18/98 1,475,162
6,000 6.00%, 4/17/98 6,007,410
20,000 5.89%, 5/21/98 19,989,913
8,000 12.00%, 6/26/98 8,273,658
25,000 5.405%, 7/15/98, F.R.N. 24,985,689
13,000 5.63%, 8/14/98 12,980,761
3,000 5.90%, 9/16/98 3,000,000
30,000 5.748%, 10/20/98, F.R.N. 29,988,452
------------
174,265,930
- ------------------------------------------------------------
Student Loan Marketing Association--0.5%
1,225 5.535%, 2/25/98 1,224,516
770 7.00%, 3/3/98 772,399
1,000 5.65%, 3/17/98 999,403
------------
2,996,318
- ------------------------------------------------------------
Repurchase Agreements(a)--47.7%
15,837 Bear Stearns & Co., 5.55%, dated
11/24/97, due 12/1/97 in the
amount of $15,854,091 (cost
$15,837,000; the value of the
collateral including accrued
interest is $16,152,181) 15,837,000
16,163 Bear Stearns & Co., 5.55%, dated
11/24/97, due 12/1/97 in the
amount of $16,180,443 (cost
$16,163,000; the value of the
collateral including accrued
interest is $16,495,915) 16,163,000
45,598 CS First Boston Corp., 5.56%, dated
11/24/97, due 12/1/97 in the
amount of $45,647,297 (cost
$45,598,000; the value of the
collateral including accrued
interest is $46,538,458) 45,598,000
2,130 Chase Manhattan Bancorp, 5.57%,
dated 11/19/97, due 12/3/97 in
the amount of $2,134,614 (cost
$2,130,000; the value of the
collateral including accrued
interest is $2,180,503) 2,130,000
25,000 Chase Manhattan Bancorp, 5.57%,
dated 11/19/97, due 12/3/97 in
the amount of $25,054,153 (cost
$25,000,000; the value of the
collateral including accrued
interest is $25,515,558) 25,000,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-31
<PAGE>
Portfolio of Investments PRUDENTIAL GOVERNMENT SECURITIES TRUST
as of November 30, 1997 MONEY MARKET SERIES
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Repurchase Agreements(a) (cont'd)
$20,050 Chase Manhattan Bancorp, 5.57%,
dated 11/19/97, due 12/3/97 in
the amount of $20,093,431 (cost
$20,050,000; the value of the
collateral including accrued
interest is $20,467,924) $ 20,050,000
2,820 Chase Manhattan Bancorp, 5.57%,
dated 11/19/97, due 12/3/97 in
the amount of $2,826,108 (cost
$2,820,000; the value of the
collateral including accrued
interest is $2,877,904) 2,820,000
12,867 Merrill Lynch, 5.60%, dated
11/25/97, due 12/2/97 in the
amount of $12,881,011 (cost
$12,867,000; the value of the
collateral including accrued
interest is $13,132,381) 12,867,000
1,728 Merrill Lynch, 5.67%, dated
11/28/97, due 12/2/97 in the
amount of $1,729,089 (cost
$1,728,000; the value of the
collateral including accrued
interest is $1,763,640) 1,728,000
59,000 Morgan Stanley, Dean Witter,
Discover & Co., 5.67%, dated
11/26/97, due 12/2/97 in the
amount of $59,055,755 (cost
$59,000,000; the value of the
collateral including accrued
interest is $60,216,875) 59,000,000
22,294 Smith Barney Inc., 5.59%, dated
11/26/97, due 12/11/97 in the
amount of $22,345,926 (cost
$22,294,000; the value of the
collateral including accrued
interest is $22,753,813) 22,294,000
30,000 UBS Securities, Inc., 5.55%, dated
11/24/97, due 12/1/97 in the
amount of $30,032,375 (cost
$30,000,000; the value of the
collateral including accrued
interest is $30,618,750) 30,000,000
29,000 UBS Securities, Inc., 5.65%, dated
11/26/97, due 12/1/97 in the
amount of $29,022,757 (cost
$29,000,000; the value of the
collateral including accrued
interest is $29,598,125) 29,000,000
------------
282,487,000
- ------------------------------------------------------------
Total Investments--99.2%
(amortized cost $587,479,489(b)) 587,479,489
Other assets in excess of
liabilities--0.8% 4,529,940
------------
Net Assets--100% $592,009,429
------------
------------
</TABLE>
- ---------------
F.R.N.--Floating Rate Note. The interest rate reflected is the rate in effect at
November 30, 1997.
(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.
B-32
<PAGE>
Portfolio of Investments PRUDENTIAL GOVERNMENT SECURITIES TRUST
as of November 30, 1997 SHORT-INTERMEDIATE TERM SERIES
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--88.7%
- ------------------------------------------------------------
Asset-Backed--28.9%
$2,500 Aesop Funding II LLC
6.40%, 10/20/03 $ 2,507,031
10,000 Contimortgage Home Equity Loan
Trust
Ser. 97-4 A3, 6.26%, 7/15/12 9,987,500
34,896 Federal Home Loan Mortgage
Corporation Loan Receivables
Trust
Ser. 97-A AX, 2.776%, 4/15/19,
I/O 5,457,943
5,000 GMAC Commercial Mortgage Securities
Inc.,
Ser. 97-C1 A3, 6.869%, 8/15/07 5,087,500
10,000(a) Green Tree Financial Corporation
7.65%, 4/15/27 10,609,375
5,000 IMC Home Equity Loan Trust
6.61%, 6/20/13 4,995,313
4,477(a) Student Loan Market Association
5.626%, 10/25/05, F.R.N. 4,447,979
------------
43,092,641
- ------------------------------------------------------------
Collateralized Mortgage Obligations--6.7%
4,740 Federal Home Loan Mortgage
Corporation
7.00%, 2/15/05 4,743,251
262 Resolution Trust Corporation
Ser. 92-CHF A2, 6.78%, 12/25/20,
F.R.N. 262,479
4,913 ICI Funding Corp. Secured Asset
Corp.,
Ser. 97-2 1A4, 7.60%, 7/25/28 5,020,472
------------
10,026,202
- ------------------------------------------------------------
Corporate Obligations--1.7%
2,500(a) Merck and Company
5.76%, 5/3/37 2,543,750
- ------------------------------------------------------------
U.S. Government Agency Mortgage Pass-Through
Obligations--33.7%
Federal Home Loan Mortgage
Corporation
3,708 8.207%, 8/1/24, ARM 3,816,802
Federal National Mortgage
Association
4,219 6.765%, 1/1/07 4,282,217
6,700 7.50%, 12/1/99, TBA 6,852,827
Government National Mortgage
Association
11,390 7.50%, 1/15/26 11,625,338
16,252 8.00%, 5/15/22 - 8/15/25 16,920,561
6,403 9.00%, 6/15/98 - 9/15/09 6,794,894
------------
50,292,639
- ------------------------------------------------------------
U.S. Government Agency Obligation--10.1%
Federal Home Loan Mortgage
Corporation
15,000(a) 6.45%, 6/4/99 15,030,450
- ------------------------------------------------------------
U.S. Treasury Notes--7.6%
6,000 6.25%, 5/31/99 6,040,320
5,000 6.625%, 5/15/07 5,258,600
------------
11,298,920
------------
Total long-term investments
(cost $130,302,673) 132,284,602
------------
SHORT-TERM INVESTMENTS--15.2%
- ------------------------------------------------------------
Federal Farm Credit Bank--0.6%
1,000 5.62%, 12/1/97 1,000,000
- ------------------------------------------------------------
Repurchase Agreement--4.4%
6,529 Joint Repurchase Agreement Account
5.703%, 12/1/97, (Note 5) 6,529,000
- ------------------------------------------------------------
U.S. Treasury Notes--10.2%
15,000(a) 8.25%, 7/15/98 15,234,300
Total short-term investments
(cost $22,739,380) 22,763,300
------------
- ------------------------------------------------------------
Total Investments--103.9%
(amortized cost $153,042,053; Note
4) 155,047,902
Liabilities in excess of other
assets--(3.9%) (5,885,535)
------------
Net Assets--100% $149,162,367
============
</TABLE>
- ---------------
ARM--Adjustable Rate Mortgage.
I/O--Interest Only.
F.R.N.--Floating Rate Note. The interest rate reflected is the rate in effect at
November 30, 1997.
TBA--To be announced.
(a) Asset segregated for dollar rolls.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-33
<PAGE>
PRUDENTIAL GOVERNMENT SECURITIES TRUST
U.S. TREASURY MONEY MARKET SERIES
Portfolio of Investments as of November 30, 1997
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
United States Treasury Bills--56.5%
$50,000 5.56%, 12/1/97 $ 49,884,167
7,061 5.10%, 1/22/98 7,008,984
23,859 5.16%, 1/22/98 23,681,171
4,419 5.165%, 1/22/98 4,386,032
55,000 5.175%, 1/22/98 54,588,875
23,600 5.1795%, 1/22/98 23,423,437
17,155 5.18%, 1/22/98 17,026,642
44,740 5.20%, 1/22/98 44,403,953
20,369 5.275%, 1/22/98 20,213,799
------------
244,617,060
- ------------------------------------------------------------
United States Treasury Notes--44.2%
119,363 5.25%, 12/31/97 119,356,121
64,287 5.625%, 1/31/98 64,305,622
5,295 7.875%, 4/15/98 5,338,805
2,270 5.875%, 4/30/98 2,267,367
------------
191,267,915
- ------------------------------------------------------------
Total Investments--100.7%
(amortized cost $435,884,975(a)) 435,884,975
Liabilities in excess of other
assets--(0.7%) (3,100,550)
------------
Net Assets--100% $432,784,425
============
</TABLE>
- ---------------
(a) Federal income tax basis of portfolio securities is the same as for
financial reporting purposes.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-34
<PAGE>
Statement of Assets and Liabilities
November 30, 1997 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 $587,479,489, $153,042,053 and $435,884,975,
respectively)............................................................ $587,479,489 $155,047,902 $435,884,975
Cash........................................................................ 675,387 6,797 --
Receivable for investments sold............................................. -- -- 49,928,472
Interest receivable......................................................... 2,577,768 1,812,336 3,896,336
Receivable for Series shares sold........................................... 7,223,505 7,010 11,428,538
Other assets................................................................ 12,195 3,993 7,175
------------ ------------ ------------
Total assets............................................................. 597,968,344 156,878,038 501,145,496
------------ ------------ ------------
Liabilities
Bank overdraft.............................................................. -- -- 6,769
Payable for investments purchased........................................... -- 6,876,573 49,884,167
Payable for Series shares reacquired........................................ 4,951,942 262,538 17,657,691
Dividends payable........................................................... 569,692 224,095 382,747
Management fee payable...................................................... 194,118 60,135 135,421
Distribution fee payable.................................................... 32,492 9,236 21,720
Accrued expenses and other liabilities...................................... 210,671 283,094 272,556
------------ ------------ ------------
Total liabilities........................................................ 5,958,915 7,715,671 68,361,071
------------ ------------ ------------
Net Assets.................................................................. $592,009,429 $149,162,367 $432,784,425
------------ ------------ ------------
------------ ------------ ------------
Net assets were comprised of:
Shares of beneficial interest, at par ($.01 per share)................... $ 5,920,094 $ 153,212 $ 4,327,842
Paid-in capital in excess of par......................................... 586,089,335 180,157,786 428,456,583
------------ ------------ ------------
592,009,429 180,310,998 432,784,425
Undistributed net investment income...................................... -- 508,830 --
Accumulated net realized losses.......................................... -- (33,663,310) --
Net unrealized appreciation of investments............................... -- 2,005,849 --
------------ ------------ ------------
Net assets, November 30, 1997............................................... $592,009,429 $149,162,367 $432,784,425
------------ ------------ ------------
------------ ------------ ------------
Net asset value
Class A:
Net asset value, offering price and redemption price per share
($591,427,989 / 591,427,989 shares of common stock issued and
outstanding).......................................................... $1.00
------------
------------
($149,162,160 / 15,321,141 shares of common stock issued and
outstanding).......................................................... $9.74
------------
------------
($432,784,220 / 432,784,220 shares of common stock issued and
outstanding).......................................................... $1.00
------------
------------
Class Z:
Net asset value, offering price and redemption price per share
($581,440 / 581,440 shares of common stock issued and outstanding).... $1.00
------------
------------
($207.14 / 21.192 shares of common stock issued and outstanding)...... $9.77
------------
------------
($205 / 205 shares of common stock issued and outstanding)............ $1.00
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-35
<PAGE>
Statement of Operations
Year Ended November 30, 1997 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................................................................. $32,592,447 $ 11,205,681 $ 21,353,158
----------- ------------ -------------
Expenses
Management fee........................................................... 2,348,740 666,606 1,610,536
Distribution fee......................................................... 733,142 329,158 503,292
Transfer agent's fees and expenses....................................... 1,190,000 214,000 165,000
Custodian's fees and expenses............................................ 81,000 98,000 70,000
Registration fees........................................................ 40,000 107,000 110,000
Reports to shareholders.................................................. 56,000 119,000 75,000
Audit fee................................................................ 25,000 25,000 25,000
Trustees' fees........................................................... 12,000 12,000 12,000
Insurance expense........................................................ 14,000 5,000 2,000
Legal fees............................................................... 11,000 22,000 13,000
Miscellaneous............................................................ 8,198 9,559 16,467
----------- ------------ -------------
Total expenses........................................................ 4,519,080 1,607,323 2,602,295
----------- ------------ -------------
Net investment income....................................................... 28,073,367 9,598,358 18,750,863
----------- ------------ -------------
Realized and Unrealized Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions.................................................. 106,570 163,221 121,988
Financial future contracts............................................... -- (73,257) --
----------- ------------ -------------
106,570 89,964 121,988
Net change in unrealized depreciation on investments........................ -- (324,291) --
----------- ------------ -------------
Net gain (loss) on investments.............................................. 106,570 (234,327) 121,988
----------- ------------ -------------
Net Increase in Net Assets Resulting from Operations........................ $28,179,937 $ 9,364,031 $ 18,872,851
----------- ------------ -------------
----------- ------------ -------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-36
<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 1997 1996 1997 1996 1997 1996
-------------- -------------- ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income....... $ 28,073,367 $ 27,251,983 $ 9,598,358 $ 11,177,077 $ 18,750,863 $ 17,996,266
Net realized gain (loss) on
investment
transactions............. 106,570 82,865 89,964 (1,939,815) 121,988 231,117
Net change in unrealized
appreciation/
depreciation on
investments.............. -- -- (324,291) 699,817 -- --
-------------- -------------- ------------ ------------ -------------- --------------
Net increase in net assets
resulting from
operations............... 28,179,937 27,334,848 9,364,031 9,937,079 18,872,851 18,227,383
-------------- -------------- ------------ ------------ -------------- --------------
Dividends and distributions to
shareholders:
Dividends to shareholders... (28,179,937) (27,334,848) (9,002,839) (11,380,459) (18,872,851) (18,227,383)
-------------- -------------- ------------ ------------ -------------- --------------
Series share transactions(a)
(Note 6):
Net proceeds from shares
subscribed............... 2,067,231,815 1,688,126,619 8,117,531 38,324,541 4,683,800,784 3,788,052,358
Net asset value of shares
issued to shareholders in
reinvestment of dividends
and distributions........ 26,745,177 26,320,285 5,839,123 7,194,984 17,070,655 16,677,439
Cost of shares reacquired... (2,054,090,306) (1,760,517,744) (50,390,144) (71,837,916) (4,573,416,591) (3,838,734,554)
-------------- -------------- ------------ ------------ -------------- --------------
Net increase (decrease) in
net assets from Series
share transactions....... 39,886,686 (46,070,840) (36,433,490) (26,318,391) 127,454,848 (34,004,757)
-------------- -------------- ------------ ------------ -------------- --------------
Total increase (decrease) in
net assets..................... 39,886,686 (46,070,840) (36,072,298) (27,761,771) 127,454,848 (34,004,757)
Net Assets
Beginning of year.............. 552,122,743 598,193,583 185,234,665 212,996,436 305,329,577 339,334,334
-------------- -------------- ------------ ------------ -------------- --------------
End of year.................... $ 592,009,429 $ 552,122,743 $149,162,367 $185,234,665 $ 432,784,425 $ 305,329,577
-------------- -------------- ------------ ------------ -------------- --------------
-------------- -------------- ------------ ------------ -------------- --------------
</TABLE>
- ---------------
(a) At $1.00 per share for the Money Market Series and the U.S. Treasury Money
Market Series.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
B-37
<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.
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.
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.
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.
Reclassification of Capital Accounts: The Fund accounts and reports for
distributions to shareholders in accordance with American Institute of Certified
Public Accountants (AICPA) Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies. For the
Short-Intermediate Term Series, the effect of applying this statement was to
decrease accumulated net realized losses by $19,097,241 and decrease
paid-in-capital in excess of par by $19,097,241 which represents the expiration
of a portion of the capital loss carryforward. Net realized gains and net assets
were not affected by this change.
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.
- --------------------------------------------------------------------------------
B-38
<PAGE>
Notes to Financial Statements PRUDENTIAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
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.
PIFM, PIC and PSI are (indirect) wholly-owned subsidiaries of The Prudential
Insurance Company of America.
The Fund, along with other affiliated registered investment companies (the
'Funds'), entered into a credit agreement (the 'Agreement') on December 31, 1996
with an unaffiliated lender. The maximum commitment under the Agreement is
$200,000,000. The Agreement expired on December 30, 1997 and was subsequently
extended through December 29, 1998. 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 November 30, 1997. 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.
- ------------------------------------------------------------
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 year ended November 30, 1997,
the Fund incurred fees of approximately $1,100,000, $172,000, and $146,000,
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.
- ------------------------------------------------------------
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, 1997 were
$346,850,364 and $372,720,043, respectively.
For the Short-Intermediate Term Series, the cost basis of investments for
federal income tax purposes was $153,042,053 and, accordingly, as of November
30, 1997, net unrealized appreciation of investments for federal income tax
purposes was $2,005,849 (gross unrealized appreciation $2,159,338; gross
unrealized depreciation--$153,489).
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
- --------------------------------------------------------------------------------
B-39
<PAGE>
Notes to Financial Statements PRUDENTIAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
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. 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, 1997, the
Short-Intermediate Term Series had a 0.59% undivided interest in the repurchase
agreements in the joint account. This undivided interest represented $6,529,000
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. Inc., 5.74%, in the principal amount of $330,000,000,
repurchase price $330,157,842, due 12/1/97. The value of the collateral
including accrued interest was $337,310,022.
Credit Suisse First Boston Corp., 5.70%, in the principal amount of
$330,000,000, repurchase price $330,156,750, due 12/1/97. The value of the
collateral including accrued interest was $342,024,757.
Deutsche Morgan Grenfell Inc., 5.70%, in the principal amount of $330,000,000,
repurchase price $330,156,750, due 12/1/97. The value of the collateral
including accrued interest was $336,600,387.
Morgan Stanley, Dean Witter, Discover & Co., 5.625%, in the principal amount of
$119,585,000, repurchase price $119,641,055, due 12/1/97. The value of the
collateral including accrued interest was $121,976,916.
- ------------------------------------------------------------
Note 6. 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 years ended November 30, 1996 and
1997 were as follows:
<TABLE>
<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 A Shares Amount
- ------------------------------------- ---------- ------------
<S> <C> <C>
Year ended November 30, 1996:
Shares sold.......................... 3,978,671 $ 38,324,541
Shares issued in reinvestment of
dividends and distributions........ 749,149 7,194,984
Shares reacquired.................... (7,501,561) (71,837,916)
---------- ------------
Net decrease in shares outstanding... (2,773,741) $(26,318,391)
---------- ------------
---------- ------------
<CAPTION>
Class Z
- -------------------------------------
February 26, 1997* 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>
- ---------------
* 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 years ended November 30, 1996 and 1997 were as follows:
<TABLE>
<CAPTION>
Year ended November 30,
---------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
Class A
- -------------------------------
Shares sold.................... 2,065,348,142 1,686,769,968
Shares issued in reinvestment
of dividends and
distributions................ 26,712,713 26,286,366
Shares reacquired.............. (2,052,755,405) (1,746,670,530)
--------------- ---------------
Net increase (decrease) in
shares
outstanding before
conversion................... 39,305,450 (33,614,196)
Shares reacquired upon
conversion into Class Z...... -- (12,456,848)
--------------- ---------------
Net increase (decrease) in
shares
outstanding.................. 39,305,450 (46,071,044)
--------------- ---------------
--------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
B-40
<PAGE>
Notes to Financial Statements PRUDENTIAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 1,
Year 1996*
ended through
November 30, November 30,
1997 1996
--------------- ---------------
<S> <C> <C>
Class Z
- -------------------------------
Shares sold.................... 1,883,673 1,356,651
Shares issued in reinvestment
of dividends and
distributions................ 32,464 33,919
Shares reacquired.............. (1,334,901) (13,847,214)
--------------- ---------------
Net increase (decrease) in
shares
outstanding before
conversion................... 581,236 (12,456,644)
Shares issued upon conversion
from Class A................. -- 12,456,848
--------------- ---------------
Net increase in shares
outstanding.................. 581,236 204
--------------- ---------------
--------------- ---------------
</TABLE>
- ---------------
* Commencement of offering of Class Z shares.
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 were as follows:
<TABLE>
<CAPTION>
Year
ended
November 30,
1997
---------------
<S> <C>
Class A
- ----------------------------------------------
Shares sold................................... 4,683,800,584
Shares issued in reinvestment of dividends and
distributions............................... 17,070,650
Shares reacquired............................. (4,573,416,591)
---------------
Net increase in shares outstanding............ 127,454,643
---------------
---------------
<CAPTION>
February 21,
1997*
through
November 30,
1997
---------------
<S> <C>
Class Z
- ----------------------------------------------
Shares sold................................... 200
Shares issued in reinvestment of dividends and
distributions............................... 5
---------------
Net increase in shares outstanding............ 205
---------------
---------------
</TABLE>
- ---------------
* Commencement of offering of Class Z shares.
- ------------------------------------------------------------
Note 7. Proposed 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 is subject to approval by the shareholders of the BlackRock Government
Income Trust at a shareholder meeting scheduled on January 23, 1998. If the Plan
is approved, it is expected that the reorganization will take place on or about
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.
- --------------------------------------------------------------------------------
B-41
<PAGE>
PRUDENTIAL GOVERNMENT SECURITIES TRUST
Financial Highlights MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class Z
-------------------------------------------------------------- ------------
Year Ended November 30, Year Ended
-------------------------------------------------------------- November 30,
1997 1996 1995 1994 1993 1997
---------- -------- -------- -------- -------- -----
<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.......... 0.048 0.046 0.052 0.033 0.026 0.048
Dividends from net investment
income....................... (0.048) (0.046) (0.052) (0.033) (0.026) (0.048)
---------- -------- -------- -------- -------- -----
Net asset value, end of
period....................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $1.000
---------- -------- -------- -------- -------- -----
---------- -------- -------- -------- -------- -----
TOTAL RETURN(a)................ 4.87% 4.74% 5.20% 3.29% 2.62% 5.03%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)........................ $591,428 $552,123 $598,194 $637,343 $919,503 $ 581
Average net assets (000)....... $586,513 $589,147 $597,599 $732,867 $950,988 $ 672
Ratios to average net assets:
Expenses, including
distribution fees........ 0.77% 0.86% 0.78% 0.77% 0.72% 0.65%
Expenses, excluding
distribution fees........ 0.65% 0.73% 0.65% 0.64% 0.59% 0.65%
Net investment income....... 4.77% 4.63% 5.15% 3.19% 2.56% 4.92%
<CAPTION>
March 1,
1996(b)
Through
November 30,
1996
-----
<S> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period....................... $ 1.000
Net investment income.......... 0.038
Dividends from net investment
income....................... (0.038)
-----
Net asset value, end of
period....................... $ 1.000
-----
-----
TOTAL RETURN(a)................ 3.87%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)........................ $ 204(c)
Average net assets (000)....... $ 1,962
Ratios to average net assets:
Expenses, including
distribution fees........ 0.68%(d)
Expenses, excluding
distribution fees........ 0.68%(d)
Net investment income....... 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.
B-42
<PAGE>
PRUDENTIAL GOVERNMENT SECURITIES TRUST
Financial Highlights SHORT-INTERMEDIATE TERM SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class Z
------------------------------------------------------------- ------------
February 26,
1997(b)
Year Ended November 30, Through
------------------------------------------------------------- November 30,
1997 1996 1995 1994 1993 1997
--------- -------- -------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period...................... $ 9.70 $ 9.74 $ 9.17 $ 10.06 $ 9.97 $ 9.64
--------- -------- -------- -------- -------- -----
Income from investment
operations:
Net investment income.......... 0.56 0.51 0.56 0.64 0.69 0.47
Net realized and unrealized
gain (loss) on investment
transactions................ -- (0.01) 0.55 (0.89) 0.11 0.07
--------- -------- -------- -------- -------- -----
Total from investment
operations............... 0.56 0.50 1.11 (0.25) 0.80 0.54
--------- -------- -------- -------- -------- -----
Less distributions:
Dividends from net investment
income...................... (0.52) (0.54) (0.54) (0.52) (0.69) (0.41)
Tax return of capital
distribution................ -- -- -- (0.12) (0.02) --
--------- -------- -------- -------- -------- -----
Total distributions............ (0.52) (0.54) (0.54) (0.64) (0.71) (0.41)
--------- -------- -------- -------- -------- -----
Net asset value, end of
period...................... $ 9.74 $ 9.70 $ 9.74 $ 9.17 $ 10.06 $ 9.77
--------- -------- -------- -------- -------- -----
--------- -------- -------- -------- -------- -----
TOTAL RETURN(a)................ 5.96% 5.34% 12.37% (2.58)% 8.26% 5.70%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)....................... $ 149,162 $185,235 $212,996 $241,980 $347,944 $ 207(c)
Average net assets (000)....... $ 166,651 $186,567 $209,521 $307,382 $321,538 $ 202(c)
Ratios to average net assets:
Expenses, including
distribution fees........ 0.97% 1.01% 0.95% 0.84% 0.80% 0.77%(d)
Expenses, excluding
distribution fees........ 0.77% 0.79% 0.75% 0.63% 0.59% 0.77%(d)
Net investment income....... 5.76% 5.99% 5.82% 5.48% 6.80% 6.52%(d)
Portfolio turnover rate........ 210% 132% 217% 431% 44% 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 year 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.
B-43
<PAGE>
PRUDENTIAL GOVERNMENT SECURITIES TRUST
Financial Highlights U.S. TREASURY MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class Z
------------------------------------------------------------ ------------
February 21,
1997(b)
Year Ended November 30, Through
------------------------------------------------------------ November 30,
1997 1996 1995 1994 1993 1997
-------- -------- -------- -------- -------- -----
<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.......... 0.047 0.046 0.050 0.033 0.025 0.039
Dividends from net investment
income....................... (0.047) (0.046) (0.050) (0.033) (0.025) (0.039)
-------- -------- -------- -------- -------- -----
Net asset value, end of
period....................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $1.000
-------- -------- -------- -------- -------- -----
-------- -------- -------- -------- -------- -----
TOTAL RETURN(a)................ 4.80% 4.75% 5.08% 3.31% 2.54% 3.96%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)........................ $432,784 $305,330 $339,334 $293,984 $284,978 $ 205(c)
Average net assets (000)....... $402,634 $393,060 $345,369 $308,454 $273,313 $ 197(c)
Ratios to average net assets:
Expenses, including
distribution fees........ 0.65% 0.63% 0.62% 0.62% 0.66% 0.52%(d)
Expenses, excluding
distribution fees........ 0.52% 0.51% 0.50% 0.50% 0.53% 0.52%(d)
Net investment income....... 4.66% 4.57% 5.01% 3.21% 2.49% 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 year reported and includes reinvestment
of dividends and distributions.
(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.
B-44
<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, 1997, 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, 1997 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where securities purchased had not been received, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
January 30, 1998
- --------------------------------------------------------------------------------
B-45
<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 15.04% of the dividends paid by the Money Market
Series*, 18.56% of the dividends paid by the Short-Intermediate Term Series* and
99.99% 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, 1997, you will
be advised as to the federal tax status of the dividends you received in
calendar 1997.
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.
- --------------------------------------------------------------------------------
B-46
<PAGE>
APPENDIX I
GENERAL INVESTMENT INFORMATION
The following terms are used in mutual fund investing.
ASSET ALLOCATION
Asset allocation is a technique for reducing risk and providing balance.
Asset allocation among different types of securities within an overall
investment portfolio helps to reduce risk and to potentially provide stable
returns, while enabling investors to work toward their financial goal(s). Asset
allocation is also a strategy to gain exposure to better performing asset
classes while maintaining investment in other asset classes.
DIVERSIFICATION
Diversification is a time-honored technique for reducing risk, providing
"balance" to an overall portfolio and potentially achieving more stable
returns. Owning a portfolio of securities mitigates the individual risks (and
returns) of any one security. Additionally, diversification among types of
securities reduces the risks (and general returns) of any one type of security.
DURATION
Debt securities have varying levels of sensitivity to interest rates. As
interest rates fluctuate, the value of a bond (or a bond portfolio) will
increase or decrease. Longer term bonds are generally more sensitive to changes
in interest rates. When interest rates fall, bond prices generally rise.
Conversely, when interest rates rise, bond prices generally fall.
Duration is an approximation of the price sensitivity of a bond (or a bond
portfolio) to interest rate changes. It measures the weighted average maturity
of a bond's (or a bond portfolio's) cash flows, I.E., principal and interest
rate payments. Duration is expressed as a measure of time in years-the longer
the duration of a bond (or a bond portfolio), the greater the impact of
interest rate changes on the bond's (or the bond portfolio's) price. Duration
differs from effective maturity in that duration takes into account call
provisions, coupon rates and other factors. Duration measures interest rate
risk only and not other risks, such as credit risk and, in the case of non-U.S.
dollar denominated securities, currency risk. Effective maturity measures the
final maturity dates of a bond (or a bond portfolio).
MARKET TIMING
Market timing-buying securities when prices are low and selling them when
prices are relatively higher-may not work for many investors because it is
impossible to predict with certainty how the price of a security will
fluctuate. However, owning a security for a long period of time may help
investors off-set short-term price volatility and realize positive returns.
POWER OF COMPOUNDING
Over time, the compounding of returns can significantly impact investment
returns. Compounding is the effect of continuous investment on long-term
investment results, by which the proceeds of capital appreciation (and income
distributions, if elected) are reinvested to contribute to the overall growth
of assets. The long-term investment results of compounding may be greater than
that of an equivalent initial investment in which the proceeds of capital
appreciation and income distributions are taken in cash.
I-1
<PAGE>
APPENDIX II
HISTORICAL PERFORMANCE DATA
The historical performance data contained in this Appendix relies on data
obtained from statistical services, reports and other services believed by the
Manager to be reliable. The information has not been independently verified by
the Manager.
The following chart shows the long-term performance of various asset
classes and the rate of inflation.
EACH INVESTMENT PROVIDES A DIFFERENT OPPORTUNITY
CHART
Source: Stocks, Bonds, Bills and Inflation 1997 Yearbook, Ibbotson
Associates, Chicago (annually updates work by Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved. This chart is for
illustrative purposes only and is not indicative of the past, present, or
future performance of any asset class or any Prudential Mutual Fund.
Generally, stock returns are attributable to capital appreciation and the
reinvesting any gains. Bond returns are due mainly to reinvesting interest.
Also, stock prices usually are more volatile than bond prices over the
long-term. Small stock returns for 1926-1989 are those of stocks comprising the
5th quintile of the New York Stock Exchange. Thereafter, returns are those of
the Dimensional Fund Advisors (DFA) Small Company Fund. Common stock returns
are based on the S&P Composite Index, a market-weighted, unmanaged index of 500
stocks (currently) in a variety of industries. It is often used as a broad
measure of stock market performance.
Long-term government bond returns are measured using a constant one-bond
portfolio with a maturity of roughly 20 years. Treasury bill returns are for a
one-month bill. Treasuries are guaranteed by the government as to the timely
payment of principal and interest; equities are not. Inflation is measured by
the consumer price index (CPI).
II-1
<PAGE>
Set forth below is historical performance data relating to various sectors
of the fixed-income securities markets. The chart shows the historical total
returns of U.S. Treasury bonds, U.S. mortgage securities, U.S. corporate bonds,
U.S. high yield corporate bonds and world government bonds on an annual basis
from 1987 through 1996. The total returns of the indices include accrued
interest, plus the price changes (gains or losses) of the underlying securities
during the period mentioned. The data is provided to illustrate the varying
historical total returns and investors should not consider this performance
data as an indication of the future performance of the Fund or of any sector in
which the Fund invests.
All information relies on data obtained from statistical services, reports
and other services believed by the Manager to be reliable. Such information has
not been verified. The figures do not reflect the operating expenses and fees
of a mutual fund. See "Trust Expenses" in each Series' prospectus. The net
effect of the deduction of the operating expenses of a mutual fund on these
historical total returns, including the compounded effect over time, could be
substantial.
HISTORICAL TOTAL RETURNS OF DIFFERENT BOND MARKET SECTORS
CHART
- -----------
1 Lehman Brothers Treasury Bond Index is an unmanaged index made up of over 150
public issues of the U.S. Treasury having maturities of at least one year.
2 Lehman Brothers Mortgage-Backed Securities Index is an unmanaged index that
includes over 600 15 and 30-year fixed-rate mortgaged-backed securities of
the Government National Mortgage Association (GNMA), Federal National
Mortgage Association (FNMA), and the Federal Home Loan Mortgage Corporation
(FHLMC).
3 Lehman Brothers Corporate Bond Index includes over 3,000 public fixed-rate,
nonconvertible investment-grade bonds. All bonds are U.S.
dollar-denominated issues and include debt issued or guaranteed by foreign
sovereign governments, municipalities, governmental agencies or
international agencies. All bonds in the index have maturities of at least
one year.
4 Lehman Brothers High Yield Bond Index is an unmanaged index comprising over
750 public, fixed-rate, nonconvertible bonds that are rated Ba1 or lower by
Moody's Investors Service (or rated BB+ or lower by Standard & Poor's or
Fitch Investors Service). All bonds in the index have maturities of at
least one year.
5 Salomon Brothers World Government Index (Non U.S.) includes 800 bonds issued
by various foreign governments or agencies, excluding those in the U.S.,
but including those in Japan, Germany, France, the U.K., Canada, Italy,
Australia, Belgium, Denmark, the Netherlands, Spain, Sweden, and Austria.
All bonds in the index have maturities of at least one year.
II-2
<PAGE>
This chart illustrates the performance of major world stock markets for
the period from 1986 through 1996. It does not represent the performance of any
Prudential Mutual Fund.
CHART
Source: Morgan Stanley Capital International (MSCI). Used with permission.
Morgan Stanley Country indices are unmanaged indices which include those stocks
making up the largest two-thirds of each country's total stock market
capitalization. Returns reflect the reinvestment of all distributions. This
chart is for illustrative purposes only and is not indicative of the past,
present or future performance of any specific investment. Investors cannot
invest directly in stock indices.
This chart shows the growth of a hypothetical $10,000 investment made in
the stocks representing the S&P 500 stock index with and without reinvested
dividends.
CHART
- -----------
Source: Stocks, Bonds, Bills, and Inflation 1997 Yearbook, Ibbotson
Associates, Chicago (annually updates work by Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved. This chart is used for
illustrative purposes only and is not intended to represent the past, present
or future perfomnance of any Prudential Mutual Fund. Common stock total return
is based on the Standard & Poor's 500 Stock Index, a market-value-weighted
index made up of 500 of the largest stocks in the U.S. based upon their stock
market value. Investors cannot invest directly in indices.
II-3
<PAGE>
CHART
Source: Morgan Stanley Capital Intenational, December 1995. Used with
permission. This chart represents the capitalization of major world stock
markets as measured by the Morgan Stanley Capital International (MSCI) World
Index. The total market capitalization is based on the value of 1579 companies
in 22 countries (representing approximately 60% of the aggregate market value
of the stock exchanges). This chart is for illustrative purposes only and does
not represent the allocation of any Prudential Mutual Fund.
This chart below shows the historical volatility of general interest rates
as measured by the long U.S. Treasury Bond.
CHART
- -----------
Source: Stocks, Bonds, Bills, and Inflation 1997 Yearbook, Ibbotson
Associates, Chicago (annually updates work by Roger G. Ibbotson and Rex A.
Sinquefield). Used with permission. All rights reserved. The chart illustrates
the historical yield of the long-term U.S. Treasury Bond from 1926-1995. Yields
represent that of an annually renewed one-bond portfolio with a remaining
maturity of approximately 20 years. This chart is for illustrative purposes and
should not be constnued to represent the yields of any Prudential Mutual Fund.
II-4
<PAGE>
The following chart, although not relevant to share ownership in the Trust, may
provide useful information about the effects of a hypothetical investment
diversified over different assets portfolios. The chart shows the range of
annual total returns for major stock and bond indices for the period from
December 31, 1975 through December 31, 1995. The horizontal "Best Returns Zone"
band shows that a hypothetical blended portfolio constructed one-third U.S.
stock (S&P 500), one-third foreign stock (EAFE Index), and one-third U.S. bonds
(Lehman Index) would have eliminated the "highest highs" and "lowest lows" of
any single asset class.
CHART
- -----------
*Source: Prudential Investment Corporation based on data from Lipper
Analytical New Application (LANA). Past perfomance is not indicative of future
results. The S&P 500 Index is a weighted, unmanaged index comprised of 500
stocks which provides a broad indication of stock price movements. The Morgan
Stanley EAFE Index is an unmanaged index comprised of 20 overseas stock markets
in Europe, Australia, New Zealand and the Far East. The Lehman Aggregate Index
includes all publicly-issued investment grade debt with maturities over one
year, including U.S. Government and agency issues, 15 and 30 year fixed-rate
government agency mortgage securites, dollar denominated SEC registered
corporate and government securities, as well as asset-backed securities.
Investors cannot invest directly in stock or bond market indices.
II-5
<PAGE>
APPENDIX III-INFORMATION RELATING TO THE PRUDENTIAL
Set forth below is information relating to The Prudential Insurance
Company of America (Prudential) and its subsidiaries as well as information
relating to the Prudential Mutual Funds. See "Management of the Fund-Manager"
in the Prospectus. The data will be used in sales materials relating to the
Prudential Mutual Funds. Unless otherwise indicated, the information is as of
December 31, 1995 and is subject to change thereafter. All information relies
on data provided by The Prudential Investment Corporation (PIC) or from other
sources believed by the Manager to be reliable. Such information has not been
verified by the Fund.
INFORMATION ABOUT PRUDENTIAL
The Manager and PIC1 are subsidiaries of Prudential, which is one of the
largest diversified financial services institutions in the world and, based on
total assets, the largest insurance company in North America as of December 31,
1995. Its primary business is to offer a full range of products and services in
three areas: insurance, investments and home ownership for individuals and
families; health-care management and other benefit programs for employees of
companies and members of groups; and asset management for institutional clients
and their associates. Prudential (together with its subsidiaries) employs more
than 92,000 persons worldwide, and maintains a sales force of approximately
13,000 agents and 5,600 financial advisors. Prudential is a major issuer of
annuities, including variable annuities. Prudential seeks to develop innovative
products and services to meet consumer needs in each of its business areas.
Prudential uses the rock of Gibraltar as its symbol. The Prudential rock is a
recognized brand name throughout the world.
Insurance. Prudential has been engaged in the insurance business since
1875. It insures or provides financial services to more than 50 million people
worldwide-one of every five people in the United States. Long one of the
largest issuers of individual life insurance, the Prudential has 19 million
life insurance policies in force today with a face value of $1 trillion.
Prudential has the largest capital base ($11.4 billion) of any life insurance
company in the United States. The Prudential provides auto insurance for more
than 1.7 million cars and insures more than 1.4 million homes.
Money Management. The Prudential is one of the largest pension fund
managers in the country, providing pension services to 1 in 3 Fortune 500
firms. It manages $36 billion of individual retirement plan assets, such as
401(k) plans. In July 1995, Institutional Investor ranked Prudential the third
largest institutional money manager of the 300 largest money management
organizations in the United States as of December 31, 1994. As of December
31,1995, Prudential had more than $314 billion in assets under management.
Prudential Investments, a business group of Prudential (of which Prudential
Mutual Funds is a key part) manages over $190 billion in assets of institutions
and individuals.
Real Estate. The Prudential Real Estate Affiliates, the fourth largest
real estate brokerage network in the United States, has more than 34,000
brokers and agents and more than 1,100 offices in the United States.2
Healthcare. Over two decades ago, the Prudential introduced the first
federally-funded, for-profit HMO in the country. Today, almost 5 million
Americans receive healthcare from a Prudential managed care membership.
Financial Services. The Prudential Bank, a wholly-owned subsidiary of the
Prudential, has nearly $3 billion in assets and serves nearly 1.5 million
customers across 50 states.
INFORMATION ABOUT THE PRUDENTIAL MUTUAL FUNDS
Prudential Mutual Fund Management is one of the sixteen largest mutual
fund companies in the country, with over 2.5 million shareholders invested in
more than 50 mutual fund portfolios and variable annuities with more than 3.7
million shareholder accounts.
The Prudential Mutual Funds have over 30 portfolio managers who manage
over $55 billion in mutual fund and variable annuity assets. Some of
Prudential's portfolio managers have over 20 years of experience managing
investment portfolios.
From time to time, there may be media coverage of portfolio managers and
other investment professionals associated with the Manager and the Subadviser
in national and regional publications, on television and in other media.
Additionally, individual mutual fund portfolios are frequently cited in surveys
conducted by national and regional publications and media organizations such as
The Wall Street Journal, The New York Times, Warrants and USA Today.
- -----------
1 Prudential Investment, a business group of PIC, serves as the Subadviser to
substantially all of the Prudential Mutual Funds. Wellington Management
Company serves as the subadviser to Global Utility Fund, Inc.,
Nicholas-Applegate Capital Management as subadviser to Nicholas-Applegate
Fund, Inc., Jennison Associates Capital Corp. as the subadviser to
Prudential Jennison Series Fund, Inc. and Prudential Active Balanced Fund,
a portfolio of Prudential Dryden Fund, Mercator Asset Management LP as the
Subadviser to International Stock Series, a portfolio of Prudential World
Fund, Inc. and BlackRock Financial Management Inc. as subadviser to The
BlackRock Government Income Trust. There are multiple subadvisers for The
Target Portfolio Trust.
2 As of December 31, 1994.
III-1
<PAGE>
Equity Funds. Forbes magazine listed Prudential Equity Fund among twenty mutual
funds on its Honor Roll in its mutual fund issue of August 28, 1995. Honorees
are chosen annually among mutual funds (excluding sector funds) which are open
to new investors and have had the same management for at least five years.
Forbes considers, among other criteria, the total return of a mutual fund in
both bull and bear markets as well as a fund's risk profile. Prudential Equity
Fund is managed with a "value" investment style by PIC. In 1995, Prudential
Securities introduced Prudential Jennison Fund, a growth-style equity fund
managed by Jennison Associates Capital Corp., a premier institutional equity
manager and a subsidiary of Prudential.
High Yield Funds. Investing in high yield bonds is a complex and research
intensive pursuit. A separate team of high yield bond analysts monitor the 167
issues held in the Prudential High Yield Fund (currently the largest fund of
its kind in the country) along with 100 or so other high yield bonds, which may
be considered for purchased.3 Non-investment grade bonds, also known as junk
bonds or high yield bonds, are subject to a greater risk of loss of principal
and interest including default risk than higher-rated bonds. Prudential high
yield portfolio managers and analysts meet face-to-face with almost every bond
issuer in the High Yield Fund's portfolio annually, and have additional
telephone contact throughout the year.
Prudential's portfolio managers are supported by a large and sophisticated
research organization. Fourteen investment grade bond analysts monitor the
financial viability of approximately 1,750 different bond issuers in the
investment grade corporate and municipal bond markets-from IBM to small
municipalities, such as Rockaway Township, New Jersey. These analysts consider
among other things sinking fund provisions and interest coverage ratios.
Prudential's portfolio managers and analysts receive research services from
almost 200 brokers and market service vendors. They also receive nearly 100
trade publications and newspapers-from Pulp and Paper Forecaster to Women's
Wear Daily-to keep them informed of the industries they follow.
Prudential Mutual Funds' traders scan over 100 computer monitors to collect
detailed information on which to trade. From natural gas prices in the Rocky
Mountains to the results of local municipal elections, a Prudential portfolio
manager or trader is able to monitor it if it's important to a Prudential
mutual fund.
Prudential Mutual Funds trade approximately $31 billion in U.S. and foreign
government securities a year. PIC seeks information from government policy
makers. In 1995, Prudential's portfolio managers met with several senior U.S.
and foreign government officials, on issues ranging from economic conditions in
foreign countries to the viability of index-linked securities in the United
States.
Prudential Mutual Funds' portfolio managers and analysts met with over 1,200
companies in 1995, often with the Chief Executive Officer (CEO) or Chief
Financial Officer (CFO). They also attended over 250 industry conferences.
Prudential Mutual Fund global equity managers conducted many of their visits
overseas, often holding private meetings with a company in a foreign language
(our global equity managers speak 7 different languages, including Mandarin
Chinese).
Trading Data4 On an average day, Prudential Mutual Funds' U.S. and foreign
equity trading desks traded $77 million in securities representing over 3.8
million shares with nearly 200 different firms. Prudential Mutual Funds' bond
trading desks traded $157 million in government and corporate bonds on an
average day. That represents more in daily trading than most bond funds tracked
by Lipper even have in assets.5 Prudential Mutual Funds' money market desk
traded $3.2 billion in money market securities on an average day, or over $800
billion a year. They made a trade every 3 minutes of every trading day. In
1994, the Prudential Mutual Funds effected more than 40,000 trades in money
market securities and held on average $20 billion of money market securities.6
Based on complex-wide data, on an average day, over 7,250 shareholders
telephoned Prudential Mutual Fund Services LLC the Transfer Agent of the
Prudential Mutual Funds, on the Prudential Mutual Funds' toll-free number. On
an annual basis, that represents approximately 1.8 million telephone calls
answered.
- -----------
3 As of December 31, 1995. The number of bonds and the size of the Fund are
subject to change.
4 Trading data represents average daily transactions for portfolios of the
Prudential Mutual Funds for which PIC serves as the subadviser, portfolios
of the Prudential Series Fund and institutional and non-US accounts
managed by Prudential Mutual Fund Investment Management, a division of
PIC, for the year ended December 31, 1995.
5 Based on 669 funds in Lipper Analytical Services categories of Short U.S.
Treasury, Short U.S. Government, Intermediate U.S. Treasury, Intermediate
U.S. Govemment, Short Investment Grade Debt, Intermediate Investment Grade
Debt, General U.S. Treasury, General U.S. Govemment and Mortgage Funds.
6 As of December 31, 1994.
III-2
<PAGE>
INFORMATION ABOUT PRUDENTIAL SECURITIES
Prudential Securities is the fifth largest retail brokerage firm in the
United States with approximately 5,600 financial advisors. It offers to its
clients a wide range of products, including Prudential Mutual Funds and
annuities. As of December 31, 1995, assets held by Prudential Securities for
its clients approximated $168 billion. During 1994, over 28,000 new customer
accounts were opened each month at PSI.7
Prudential Securities has a two-year Financial Advisor training program
plus advanced education programs, including Prudential Securities "university,"
which provides advanced education in a wide array of investment areas.
Prudential Securities is the only Wall Street firm to have its own in-house
Certified Financial Planner (CFP) program. In the December 1995 issue of
Registered Rep, an industry publication, Prudential Securities' Financial
Advisor training programs received a grade of A- (compared to an industry
average of B+).
In 1995, Prudential Securities' equity research team ranked 8th in
Institutional Investor magazine's 1995 "All America Research Team" survey. Five
Prudential Securities, analysts were ranked as first-team finishers.8
In addition to training, Prudential Securities provides its financial
advisors with access to firm economists and market analysts. It has also
developed proprietary tools for use by financial advisors, including the
Financial Architects/Financial Advisors to evaluate a client's objectives and
overall financial plan, and a comprehensive mutual fund information and
analysis system that compares different mutual funds.
For more complete information about any of the Prudential Mutual Funds,
including charges and expenses, call your Prudential Securities financial
adviser or Pruco/Prudential representative for a free prospectus. Read it
carefully before you invest or send money.
- -----------
7 As of December 31, 1994.
8 On an annual basis, Institutional Investor magazine surveys, more than 700
institutional money managers, chief investment officers and research
directors, asking them to evaluate analysts in 76 industry sectors. Scores
are produced by taxing the number of votes awarded to an individual
analyst and weighting them based on the size of the voting institution. In
total, the magazine sends its survey to approximately 2,000 institutions
and a group of European and Asian institutions.
III-3
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements:
(1) Financial Statements included in the Prospectuses constituting Part A
of this Post-Effective Amendment to this Registration Statement:
Financial Highlights for each of the ten years in the period ended
November 30, 1996 for the Short-Intermediate Term Series and the Money
Market Series and for the period December 3, 1990 through November 30,
1991 and each of the five years in the period ended November 30, 1996
for the U.S. Treasury Money Market Series.
(2) Financial statements included in the Statement of Additional
Information constituting Part B of this Post-Effective Amendment to
this Registration Statement:
(a) With respect to the Trust's Money Market Series and
Short-Intermediate Term Series:
Portfolio of Investments at November 30, 1997.
Statement of Assets and Liabilities at November 30, 1997.
Statement of Operations for the year ended November 30, 1997.
Statement of Changes in Net Assets for each of the two years in the
period ended November 30, 1997.
Notes to Financial Statements.
Financial Highlights for each of the five years in the period ended
November 30, 1997.
Report of Independent Accountants.
(b) With respect to the Trust's U.S. Treasury Money Market Series:
Portfolio of Investments at November 30, 1997.
Statement of Assets and Liabilities at November 30, 1997.
Statement of Operations for the year ended November 30, 1997.
Statement of Changes in Net Assets for each of the two years in the
period ended November 30, 1997.
Notes to Financial Statements.
Financial Highlights for the period ended November 30, 1991 and each
of the five years in the period ended November 30, 1997.
Report of Independent Accountants.
(b) Exhibits:
1 (a) Declaration of Trust, as amended and restated on September 6,
1988, of the Registrant.*
(b) Amendment to Declaration of Trust, dated March 1, 1991.*
(c) Amended Certificate of Designation dated July 27, 1995.
Incorporated by reference to Exhibit No. 1(c) to Post-Effective
Amendment No. 25 to the Registration Statement filed on Form N-1A
via EDGAR on January 25, 1996 (File No. 2-74139).
(d) Amended Certificate of Designation dated January 22, 1996.
Incorporated by reference to Exhibit No. 1(d) to Post-Effective
Amendment No. 25 to the Registration Statement filed on Form N-1A
via EDGAR on January 25, 1996 (File No. 2-74139).
(e) Form of Amended Certificate of Designation dated February 21,
1997. Incorporated by reference to Exhibit No. 1(e) to
Post-Effective Amendment No. 26 to the Registration Statement
filed on Form N-1A via EDGAR on February 4, 1997. (File No.
2-74139).
2. By-Laws of the Registrant.*
4. (a) Specimen certificate for shares of beneficial interest issued
by the Registrant. Incorporated by reference to Exhibit No. 4 to
Post-Effective Amendment No. 12 to the Registration Statement filed
on Form N-1A (File No. 2-74139).
(b) Specimen certificate for shares of beneficial interest issued
by the Registrant's U.S. Treasury Money
C-1
<PAGE>
Market Series. Incorporated by reference to Exhibit No. 4(b) to
Post-Effective Amendment No. 16 to the Registration Statement filed
on Form N-1A (File No. 2-74139.)
(c) Instruments defining rights of holders of the securities being
offered. Incorporated by reference to Exhibit 4(c) to
Post-Effective Amendment No. 19 to the Registration Statement
filed on Form N-1A via EDGAR on January 27, 1994 (File No.
2-74139).
5. (a) Management Agreement dated August 9, 1988, as amended on
November 19, 1993, between the Registrant and Prudential Mutual
Fund Management, Inc. Incorporated by reference to Exhibit 5(a) to
Post-Effective Amendment No. 19 to the Registration Statement
filed on Form N-1A via EDGAR on January 27, 1994 (File No.
2-74139).
(b) Subadvisory Agreement dated August 9, 1988, between Prudential
Mutual Fund Management, Inc. and The Prudential Investment
Corporation.*
6. (a) Distribution and Service Agreement, dated July 23, 1982, as
amended on July 1, 1993 between the Registrant and Prudential
Securities Incorporated. Incorporated by reference to Exhibit 6(a)
to Post-Effective Amendment No. 19 to the Registration Statement
filed on Form N-1A via EDGAR on January 27, 1994 (File No.
2-74139).
(b) Distribution and Service Agreement, as amended on July 1,
1993, between the Registrant (U.S. Treasury Money Market Series
and Money Market Series) and Prudential Mutual Fund Distributors,
Inc. Incorporated by reference to Exhibit 6(b) to Post-Effective
Amendment No. 19 to the Registration Statement filed on Form N-1A
via EDGAR on January 27, 1994 (File No. 2-74139).
(c) Distribution and Service Agreement between the Registrant and
Prudential Securities Incorporated. Incorporated by reference to
Exhibit 6(c) to Post-Effective Amendment No. 21 to the
Registration Statement filed on Form N-1A via EDGAR on June 1,
1995.
(d) Distribution and Service Agreement between the Registrant and
Prudential Mutual Fund Distributors, Inc. pursuant to Rule 12b-1
for U.S. Treasury Money Market Series and Money Market Series.
Incorporated by reference to Exhibit 6(d) to Post-Effective
Amendment No. 21 to the Registration Statement filed on Form N-1A
via EDGAR on June 1, 1995.
(e) Amended Distribution and Service Agreement between the
Registrant and Prudential Securities Incorporated. Incorporated by
reference to Exhibit 6(e) to Post-Effective Amendment No. 21 to
the Registration Statement filed on Form N-1A via EDGAR on June 1,
1995.
(f) Amended Distribution and Service Agreement between the
Registrant and Prudential Mutual Fund Distributors, Inc.
Incorporated by reference to Exhibit 6(f) to Post-Effective
Amendment No. 21 to the Registration Statement filed on Form N-1A
via EDGAR on June 1, 1995.
(g) Form of Distribution and Service Agreement between the
Registrant and Prudential Securities Incorporated for Class Z
Shares. Incorporated by reference to Post-Effective Amendment No.
23 to Registration Statement on Form N-1A filed via EDGAR on
October 20, 1995 (File No. 2-74139).
(h) Restated Distribution Agreement. Incorporated by reference to
Exhibit No. 6(h) to Post-Effective Amendment No. 26 to the
Registration Statement filed on Form N-1A via EDGAR on February
4, 1997 (File No. 2-74139).
8 Custodian Agreement between the Registrant and State Street Bank
and Trust Company.*
9. Transfer Agency Agreement between the Registrant and Prudential
Mutual Fund Services, Inc.*
10. Opinion of Sullivan & Worcester. Incorporated by reference to
Exhibit No. 10 to Post-Effective Amendment No. 26 to the
Registration Statement filed on Form N-1A via EDGAR on February 4,
1997 (File No. 2-74139).
11. Consent of Independent Accountants.*
13. Purchase Agreement. Incorporated by reference to Exhibit No. 13 to
Pre-Effective Amendment No. 1 to the Registration Statement filed
on Form N-1A (File No. 2-74139).
15. (a) Distribution and Service Plan pursuant to Rule 12b-1 as amended
on July 1, 1993 for the Intermediate Term Series. Incorporated by
reference to Exhibit 15(a) to Post-Effective Amendment No. 19 to
the
C-2
<PAGE>
Registration Statement filed on Form N-1A via EDGAR on January 27,
1994 (File No. 2-74139).
(b) Distribution and Service Plan pursuant to Rule 12b-1 as
amended on July 1, 1993 for the Money Market Series. Incorporated
by reference to Exhibit 15(b) to Post-Effective Amendment No. 19
to the Registration Statement filed on Form N-1A via EDGAR on
January 27, 1994 (File No. 2-74139).
(c) Amended Distribution and Service Plan pursuant to Rule 12b-1
for Intermediate Term Series. Incorporated by reference to
Exhibit 15(c) to Post-Effective Amendment No. 21 to the
Registration Statement filed on Form N-1A via EDGAR on June 1,
1995.
(d) Amended Distribution and Service Plan pursuant to Rule 12b-1
for U.S. Treasury Money Market Series and Money Market Series.
Incorporated by reference to Exhibit 15(d) to Post-Effective
Amendment No. 21 to the Registration Statement filed on Form N-1A
via EDGAR on June 1, 1995.
16. (a) Calculation of Yield and Total Return-Intermediate Series
(Class A and Class Z Shares).*
(b) Calculation of Yield and Total Return-Money Market Series
(Class A and Class Z Shares).*
17. Financial Data Schedule.*
18. (a) Rule 18f-3 Plan for Money Market Series. Incorporated by
reference to Exhibit 18 to Post Effective Amendment No. 25 to the
Registration Statement filed on Form N-1A via EDGAR on January 25,
1996.
(b) Rule 18f-3 Plan for Money Market Series, U.S. Treasury Money
Market Series and Short Intermediate Term Series. Incorporated by
reference to Exhibit No. 18(b) to Post-Effective Amendment No. 26
to the Registration Statement filed on Form N-1A via EDGAR on
February 4, 1997 (File No. 2-74139).
- -----------
* Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
No person is controlled by or under common control with the Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of January 9, 1998 the Registrant had 74,464 and 4 record holders of
its Class A and Class Z shares, respectively, of the Money Market Series,
10,712 and 2 record holders of its Class A and Class Z shares of the U.S.
Treasury Money Market Series and 9,936 and 4 record holders of its Class A and
Class Z shares, respectively of the Short-Intermediate Term Series.
ITEM 27. INDEMNIFICATION.
As permitted by Section 17(h) and (i) of the Investment Company Act of
1940, as amended, (the "Investment Company Act") and pursuant to Article V of
the Fund's Declaration of Trust with respect to trustees and officers and
Article VII of the Fund's By-Laws (Exhibit 2 to the Registration Statement),
trustees, officers, employees and agents of the Trust may be indemnified
against certain liabilities in connection with the Trust, and pursuant to
Section 9 of the Distribution Agreements (Exhibits 6(e) and 6(f) to the
Registration Statement), Prudential Securities Incorporated and Prudential
Mutual Fund Distributors, Inc., as distributors of the Trust, may be
indemnified against certain liabilities which they may incur. Such Article V of
the Declaration of Trust, Article VII of the By-Laws, as amended and Section 9
of the Distribution Agreements are hereby incorporated by reference in their
entirety.
The Trust has purchased an insurance policy insuring its officers and
trustees against certain liabilities, and certain costs of defending claims
against such officers and trustees, to the extent such officers and trustees
are not found to have committed conduct constituting willful misfeasance, bad
faith, gross negligence or reckless disregard in the performance of their
duties. The insurance policy also insures the Trust against the cost of
indemnification payments to officers and trustees under certain circumstances.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to trustees, officers and controlling
persons of the Registrant and the principal underwriter pursuant to the
foregoing provisions or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a trustee,
officer, or controlling person of the Registrant and the principal underwriter
in connection with the successful defense of any action, suit or proceeding) is
asserted against the Registrant by such trustee, officer or controlling person
or the principal underwriter in connection with the shares being registered,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws in a manner consistent with
C-3
<PAGE>
Release No. 11330 of the Securities and Exchange Commission under the
Investment Company Act so long as the interpretations of Sections 17(h) and
17(i) of such Act remain in effect and are consistently applied.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
(a) Prudential Investments Fund Management LLC
See "How the Trust Is Managed" in the Prospectus constituting Part A of
this Registration Statement and "Manager" in the Statement of Additional
Information constituting Part B of this Registration Statement.
The business and other connections of the officers of PMF are listed in
Schedules A and D of Form ADV of PMF as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104).
The business and other connections of PMF's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is Gateway Center Three, Newark, NJ 07102.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIFM PRINCIPAL OCCUPATIONS
- -------------------- ------------------------------- ---------------------------------------------------------------------
<S> <C> <C>
Thomas A. Early Executive Vice President, Vice President and General Counsel, PMF&A; Executive Vice President,
Secretary and General Secretary and General Counsel, PIFM
Counsel
Robert F. Gunia Executive Vice President Comptroller, Prudential Investments; Executive Vice President and
and Treasurer Treasurer, PIFM; Senior Vice President, Prudential Securities
Neil A. McGuinness Executive Vice President Executive Vice President and Director of Marketing, PMF&A; Executive
Vice President, PIFM
Brian Storms Officer-in-Charge, President, President, Prudential Mutual Funds & Annuities (PMF&A);
Chief Executive Officer and Officer-in-Charge, President, Chief Executive Officer and Chief
Chief Operating Officer Operating Officer, PIFM
Robert J. Sullivan Executive Vice President Executive Vice President, PMF&A; Executive Vice President, PIFM
</TABLE>
(b) The Prudential Investment Corporation (PIC). See "How the Fund is
Managed-Manager" in the Prospectus constituting Part A of the Regtistration
Statement and "Manager" in the Statement of Additional Information constituting
Part B of this Reistration Statement.
The business and other connections of PIC's directors and
executiveofficers are as set forth below. Except as otherwise indicated, the
address of each person is Prudential Plaza, Newark, NJ 07102.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATIONS
- ---------------------- ------------------------ --------------------------------------------------------------------
<S> <C> <C>
E. Michael Caulfield Chairman of the Board, Chief Executive Officer of Prudential Investments of The Prudential
President and Chief Insurance Company of America (Prudential)
Executive Officer and
Director
Jonathan M. Greene Senior Vice President President-Investment Management of Prudential Investments of
and Director Prudential
John R. Strangfeld Vice President and President of Private Asset Management Group of Prudential
Director
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Prudential Securities Incorporated
Prudential Securities Incorporated is distributor for Prudential Balanced
Fund, Prudential California Municipal Fund, Prudential Diversified Bond Fund,
Inc., Prudential Distressed Securities Fund, Inc., Prudential Dryden Fund,
Prudential Emerging Growth Fund, Inc., Prudential Equity Fund, Inc., Prudential
Equity Income Fund, Prudential Europe Growth Fund, Inc., Prudential Global
Genesis Fund, Inc., Prudential Global Limited Maturity Fund, Inc., Prudential
Government Income Fund, Inc., Prudential Government Securities Trust,
Prudential High Yield Fund, Inc., Prudential Institutional Liquidity Portfolio,
Inc., Prudential Intermediate Global Income Fund, Inc., Prudential
International Bond Fund, Inc., Prudential Jennison Series Fund, Inc.,
Prudential Money Mart Assets, Inc., Prudential Mortgage Income Fund, Inc.,
Prudential Multi-Sector Fund, Inc., Prudential Municipal Bond Fund, Prudential
Municipal Series Fund, Prudential Small-Cap Quantum Fund, Inc., Prudential
Small Company Value Fund, Inc.,
C-4
<PAGE>
Prudential Special Money Market Fund, Inc., Prudential National Municipals
Fund, Inc., Prudential Natural Resources Fund, Inc., Prudential Pacific Growth
Fund, Inc., Prudential Structured Maturity Fund, Inc., Prudential Utility Fund,
Inc., Prudential World Fund, Inc., Cash Accumulation Trust, Command Government
Fund, Command Money Fund, Command Tax-Free Fund, The Global Total Return Fund,
Inc., Global Utility Fund, Inc., Nicholas-Applegate Fund, Inc.
(Nicholas-Applegate Growth Equity Fund), The BlackRock Government Income Trust
and The Target Portfolio Trust. Prudential Securities is also a depositor for
the following unit investment trusts:
Corporate Investment Trust Fund
Prudential Equity Trust Shares
National Equity Trust
Prudential Unit Trusts
Government Securities Equity Trust
National Municipal Trust
(b) Information concerning the officers and directors of Prudential
Securities Incorporated is set forth below.
<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME(1) UNDERWRITER REGISTRANT
- --------------------------- ------------------------------------------- --------------
<S> <C> <C>
Alan D. Hogan ............ Executive Vice President, Chief None
Administrative Officer and Director
George A. Murray ......... Executive Vice President and Director None
Leland B. Paton ......... Executive Vice President and Director None
One New York Plaza
Director New York, NY
Martin Pfinsgraff ......... Executive Vice President, Chief Financial None
Officer and Director
Vincent T. Pica, II ...... Executive Vice President and Director None
One New York Plaza
New York, NY
Hardwick Simmons ......... Chief Executive Officer, President None
and Director
Lee B. Spencer ............ General Counsel, Executive Vice None
President, Secretary and Director
Brian Storms ............ Director None
Gateway Center Three
Newark, NJ
</TABLE>
(1) The address of each person named is One Seaport Plaza, New York, NY
10292 unless otherwise indicated.
(c) Registrant has no principal underwriter who is not an affiliated
person of the Registrant.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules thereunder are maintained at the
offices of State Street Bank and Trust Company, One Heritage Drive, North
Quincy, Massachusetts 02171, The Prudential Investment Corporation, Prudential
Plaza, 751 Broad Street, Newark, New Jersey 07102, the Registrant, Gateway
Center Three, Newark, New Jersey 07102, and Prudential Mutual Fund Services
LLC, Raritan Plaza One, Edison, New Jersey 08837. Documents required by Rules
31a-1(b)(5), (6), (7), (9), (10) and (11) and 31a-1(f) will be kept at Gateway
Center Three, documents required by Rules 31a-1(b)(4) and (11) and 31a-1(d) at
Gateway Center Three and the remaining accounts, books and other documents
required by such other pertinent provisions of Section 31(a) and the Rules
promulgated thereunder will be kept by State Street Bank and Trust Company and
Prudential Mutual Fund Services LLC.
C-5
<PAGE>
ITEM 31. MANAGEMENT SERVICES
Other than as set forth under the captions "How the Trust Is
Managed-Manager" and "How the Trust Is Managed-Distributor" in the Prospectus
and the captions "Manager" and "Distributor" in the Statement of Additional
Information, constituting Parts A and B, respectively, of this Registration
Statement, Registrant is not a party to any management-related service
contract.
ITEM 32. UNDERTAKINGS
The Registrant hereby undertakes to furnish each person to whom a
Prospectus is delivered with a copy of Registrant's latest annual report to
shareholders upon request and without charge.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment to the Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized in the City of New York, and State of New
York, on the 2nd day of February, 1998.
PRUDENTIAL GOVERNMENT SECURITIES TRUST
By /s/ Richard A. Redeker
-------------------
(RICHARD A. REDEKER, PRESIDENT)
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------- ---------------------------- -----------------
<S> <C> <C>
/s/ Edward D. Beach Trustee February 2, 1998
- ------------------------------
EDWARD D. BEACH
/s/ Eugene C. Dorsey Trustee February 2, 1998
- ------------------------------
EUGENE C. DORSEY
/s/ Delayne Dedrick Gold Trustee February 2, 1998
- ------------------------------
DELAYNE DEDRICK GOLD
/s/ Robert F. Gunia Vice President and Trustee February 2, 1998
- ------------------------------
ROBERT F. GUNIA
/s/ Harry A. Jacobs, Jr. Trustee February 2, 1998
- ------------------------------
HARRY A. JACOBS, JR.
/s/ Mendel A. Melzer Trustee February 2, 1998
- ------------------------------
MENDEL A. MELZER
/s/ Thomas T. Mooney Trustee February 2, 1998
- ------------------------------
THOMAS T. MOONEY
/s/ Thomas H. O'Brien Trustee February 2, 1998
- ------------------------------
THOMAS H. O'BRIEN
/s/ Richard A. Redeker President and Trustee February 2, 1998
- ------------------------------
RICHARD A. REDEKER
/s/ Nancy Hays Teeters Trustee February 2, 1998
- ------------------------------
NANCY HAYS TEETERS
/s/ Louis A. Weill, III Trustee February 2, 1998
- ------------------------------
LOUIS A. WEILL, III
/s/ Grace Torres Principal Financial and February 2, 1998
- ------------------------------
GRACE TORRES Accounting Officer
</TABLE>
C-7
<PAGE>
EXHIBIT INDEX
1. (a) Declaration of Trust, as amended and restated on September 6, 1988, of
the Registrant.*
(b) Amendment to Declaration of Trust, dated March 1, 1991.*
(c) Amended Certificate of Designation dated July 27, 1995. Incorporated by
reference to Exhibit No. 1(c) to Post-Effective Amendment No. 25 to the
Registration Statement filed on Form N-1A via EDGAR on January 25, 1996
(File No. 2-74139).
(d) Amended Certificate of Designation dated January 22, 1996. Incorporated
by reference to Exhibit No. 1(d) to Post-Effective Amendment No. 25 to the
Registration Statement filed on Form N-1A via EDGAR on January 25, 1996
(File No. 2-74139).
(e) Form of Amended certificate of designation dated February 21, 1997.
Incorporated by reference to Exhibit No. 1(e) to Post-Effective Amendment
No. 26 to the Registration Statement filed on Form N-1A via EDGAR on
February 4, 1997 (File No. 2-74139).
2. By-Laws of the Registrant.*
4. (a) Specimen certificate for shares of beneficial interest issued by the
Registrant. Incorporated by reference to Exhibit No. 4 to
Post-Effective Amendment No. 12 to the Registration Statement filed on
Form N-1A (File No. 2-74139).
(b) Specimen certificate for shares of beneficial interest issued by the
Registrant's U.S. Treasury Money Market Series. Incorporated by reference
to Exhibit No. 4(b) to Post-Effective Amendment No. 16 to the Registration
Statement filed on Form N-1A (File No. 2-74139).
(c) Instruments defining rights of holders of the securities being offered.
Incorporated by reference to Exhibit 4(c) to Post-Effective Amendment No.
19 to the Registration Statement filed on Form N-1A via EDGAR on January
27, 1994 (File No. 2-74139).
5. (a) Management Agreement dated August 9, 1988, as amended on November 19,
1993, between the Registrant and Prudential Mutual Fund Management,
Inc. Incorporated by reference to Exhibit 5(a) to Post-Effective
Amendment No. 19 to the Registration Statement filed on Form N-1A via
EDGAR on January 27, 1994 (File No. 2-74139).
(b) Subadvisory Agreement dated August 9, 1988, between Prudential Mutual
Fund Management, Inc. and The Prudential Investment Corporation.*
6. (a) Distribution and Service Agreement, dated July 23, 1982, as amended on
July 1, 1993 between the Registrant and Prudential Securities
Incorporated. Incorporated by reference to Exhibit 6(a) to
Post-Effective Amendment No. 19 to the Registration Statement filed
filed on Form N-1A via EDGAR on January 27, 1994 (File No. 2-74139).
(b) Distribution and Service Agreement, as amended on July 1, 1993, between
the Registrant (U.S. Treasury Money Market Series and Money Market Series)
and Prudential Mutual Fund Distributors, Inc. Incorporated by reference to
Exhibit 6(b) to Post-Effective Amendment No. 19 to the Registration
Statement filed on Form N-1A via EDGAR on January 27, 1994 (File No.
2-74139).
(c) Distribution and Service Agreement between the Registrant and Prudential
Securities Incorporated. Incorporated by reference to Exhibit 6(c) to
Post-Effective Amendment No. 21 to the Registration Statement filed on Form
N-1A via EDGAR on June 1, 1995.
(d) Distribution and Service Agreement between the Registrant and Prudential
Mutual Fund Distributors, Inc. pursuant to Rule 12b-1 for U.S. Treasury
Money Market Series and Money Market Series. Incorporated by reference to
Exhibit 6(d) to Post-Effective Amendment No. 21 to the Registration
Statement filed on Form N-1A via EDGAR on June 1, 1995.
(e) Amended Distribution and Service Agreement between the Registrant and
Prudential Securities Incorporated. Incorporated by reference to Exhibit
6(e) to Post-Effective Amendment No. 21 to the Registration Statement filed
on Form N-1A via EDGAR on June 1, 1995.
(f) Amended Distribution and Service Agreement between the Registrant and
Prudential Mutual Fund Distributors, Inc. Incorporated by reference to
Exhibit 6(f) to Post-Effective Amendment No. 21 to the Registration
Statement filed on Form N-1A via EDGAR on June 1, 1995.
C-8
<PAGE>
(g) Form of Distribution and Service Agreement between Registrant and
Prudential Securities Incorporated for Class Z Shares. Incorporated by
reference to Post-Effective Amendment No. 23 to Registration Statement on
Form N-1A filed via EDGAR on October 20, 1995 (File No. 2-74139).
(h) Restated Distribution Agreement. Incorporated by reference to Exhibit No.
6(h) to Post-Effective Amendment No. 26 to the Registration Statement
filed on Form N-1A via EDGAR filed on February 4, 1997 (File No. 2-74139).
8. Custodian Agreement between the Registrant and State Street Bank and Trust
Company.*
9. Transfer Agency Agreement between the Registrant and Prudential Mutual Fund
Services, Inc.*
10. Opinion of Sullivan & Worcester. Incorporated by reference Exhibit No. 10 to
Post-Effective Amendment No. 26 to the Registration Statement filed on form
N-1A via EDGAR on February 4, 1997 (File No. 2-74139).
11. Consent of Independent Accountants.*
13. Purchase Agreement. Incorporated by reference to Exhibit No. 13 to
Pre-Effective Amendment No. 1 to the Registration Statement filed on
Form N-1A(File No. 2-74139).
15. (a) Distribution and Service Plan pursuant to Rule 12b-1 as amended on July
1, 1993 for the Intermediate Term Series. Incorporated by reference to
Exhibit 15(a) to Post-Effective Amendment No. 19 to the Registration
Statement filed on Form N-1A via EDGAR on January 27, 1994 (File No.
2-74139).
(b) Distribution and Service Plan pursuant to Rule 12b-1 as amended on July
1, 1993 for the Money Market Series. Incorporated by reference to Exhibit
15(b) to Post-Effective Amendment No. 19 to the Registration Statement
filed on Form N-1A via EDGAR on January 27, 1994 (File No. 2-74139).
(c) Amended Distribution and Service Plan pursuant to Rule 12b-1 for
Intermediate Term Series. Incorporated by reference to Exhibit 15(c) to
Post-Effective Amendment No. 21 to the Registration Statement filed on Form
N-1A via EDGAR on June 1, 1995.
(d) Amended Distribution and Service Plan pursuant to Rule 12b-1 for U.S.
Treasury Money Market Series and Money Market Series. Incorporated by
reference to Exhibit 15(d) to Post-Effective Amendment No. 21 to the
Registration Statement filed on Form N-1A via EDGAR on June 1, 1995.
16. (a) Calculation of Yield and Total Return-Intermediate Series (Class A
and Class Z Shares).*
(b) Calculation of Yield and Total Return-Money Market Series (Class A and
Class Z Shares).*
17. Financial Data Schedule.*
18. (a) Rule 18f-3 Plan for Money Market Series. Incorporated by reference to
Exhibit 18 to Post Effective Amendment No. 25 to the Registration
Statement filed on Form N-1A via EDGAR on January 25, 1996.
(b) Rule 18f-3 Plan for Money Market Series, U.S. Treasury Money Market
Series and Short Intermediate Term Series. Incorporated by reference to
Exhibit No. 18(b) to Post-Effective Amendment No. 26 to the Registration
Statement filed on Form N-1A via EDGAR on February 4, 1997
(File No. 2-74139).
- -----------
* Filed herewith.
C-9
Exhibit 1(a)
PRUDENTIAL-BACHE GOVERNMENT SECURITIES TRUST
AMENDED AND RESTATED
DECLARATION OF TRUST
Dated September 6, 1988
<PAGE>
PAGE
ARTICLE I -- NAME AND DEFINITIONS 2
Section 1.1. Name 2
Section 1.2. Definitions 2
ARTICLE II -- TRUSTEES 4
Section 2.1. Number of Trustees 4
Section 2.2. Election and Term 4
Section 2.3. Resignation and Removal 4
Section 2.4. Vacancies 5
Section 2.5. Delegation of Power to
Other Trustees 5
ARTICLE III -- POWERS OF TRUSTEES 6
Section 3.1 General 6
Section 3.2 Investments 6
Section 3.3 Legal Title 7
Section 3.4 Issuance and Repurchase of Securities 8
Section 3.5 Borrowing Money; Lending Trust Assets
Section 3.6 Delegation; Committees 8
Section 3.7 Collection and Payment 8
Section 3.8 Expenses 8
Section 3.9 Manner of Acting; By-Laws 9
Section 3.10 Miscellaneous Powers 9
Section 3.11 Principal Transactions 10
ARTICLE IV -- MANAGER, DISTRIBUTOR AND TRANSFER AGENT 11
Section 4.1 Manager 11
Section 4.2 Distributor 11
Section 4.3 Transfer Agent 11
Section 4.4 Parties to Contract 12
<PAGE>
ARTICLE V -- LIMITATIONS OF LIABILITY
OF SHAREHOLDERS, TRUSTEES
AND OTHERS 13
Section 5.1. No Personal Liability of
Shareholders, Trustees, etc. 13
Section 5.2. Non-Liability of Trustees, etc. 13
Section 5.3. Indemnification 13
Section 5.4. No Bond Required of Trustees 14
Section 5.5. No Duty of Investigation;
Notice in Trust
Instruments, etc. 14
Section 5.6. Reliance on Experts, etc. 15
ARTICLE VI -- SHARES OF BENEFICIAL INTEREST 16
Section 6.1. Beneficial Interest 16
Section 6.2. Rights of Shareholders 16
Section 6.3. Trust Only 16
Section 6.4. Issuance of Shares 17
Section 6.5. Register of Shares 17
Section 6.6. Transfer of Shares 18
Section 6.7. Notices 18
Section 6.8. Voting Powers 18
Section 6.9. Series or Classes of Shares 19
ARTICLE VII -- REDEMPTIONS 22
Section 7.1. Redemptions 22
Section 7.2. Redemption of Shares;
Disclosure of Holding 22
Section 7.3. Redemptions of Accounts of $500 or Less 23
Section 7.4. Redemptions Pursuant to
Constant Net Asset Value Provisions 23
-ii-
<PAGE>
PAGE
ARTICLE VIII -- DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
Section 8.1. Net Asset Value 24
Section 8.2 Distributions to Shareholders 24
Section 8.3 Determination of Net Income;
Reduction of Outstanding
Shares 25
Section 8.4 Power to Modify Foregoing Procedures 25
ARTICLE IX - DURATION; TERMINATION OF TRUST;
AMENDMENT; MERGERS, ETC. 26
Section 9.1. Duration 26
Section 9.2. Termination of Trust 26
Section 9.3. Amendment Procedure 27
Section 9.4. Merger, Consolidation and
Sale of Assets 28
Section 9.5. Incorporation 28
ARTICLE X -- REPORTS TO SHAREHOLDERS 30
ARTICLE XI -- MISCELLANEOUS 31
Section 11.1. Filing 31
Section 11.2. Resident Agent 31
Section 11.3. Governing Law 31
Section 11.4. Counterparts 31
Section 11.5. Reliance by Third Parties 31
Section 11.6. Provisions in Conflict with
Law or Regulations 32
SIGNATURE PAGE 32
-iii-
<PAGE>
AMENDED AND RESTATED DECLARATION OF TRUST
OF
PRUDENTIAL-BACHE GOVERNMENT SECURITIES TRUST
(formerly Chancellor Government Securities Trust)
Dated September 6, 1988
THE AMENDED AND RESTATED DECLARATION OF TRUST of Prudential-Bache
Government Securities Trust is made this sixth day of September, 1988 by the
parties signatory hereto, as trustees (such persons, so long as they shall
continue in office in accordance with the terms of this Declaration of Trust,
and all other persons who at the time in question have been duly elected or
appointed as trustees in accordance with the provisions of this Declaration of
Trust and are then in office, being hereinafter called the "Trustees").
W I T N E S S E T H:
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WHEREAS, the Trustees desire to form a trust fund under the laws of
Massachusetts for the investment and reinvestment of funds contributed thereto;
and
WHEREAS, it is proposed that the beneficial interest in the trust
assets be divided into transferable shares of beneficial interest as hereinafter
provided;
NOW, THEREFORE, the Trustees hereby declare that they will hold in
trust all money and property contributed to the trust fund to manage and dispose
of the same for the benefit of the holders from time to time of the shares of
beneficial interest issued hereunder and subject to the provisions hereof, to
wit:
<PAGE>
ARTICLE I
NAME AND DEFINITIONS
SECTION 1.1. NAME. The name of the trust created hereby is the
Prudential-Bache Government Securities Trust.
SECTION 1.2. DEFINITIONS. Wherever they are used herein, the following
terms have the following respective meanings:
(a) "BY-LAWS" means the By-Laws referred to in Section 3.9 hereof, as
from time to time amended.
(b) the terms "COMMISSION", "AFFILIATED PERSON" and "INTERESTED PERSON"
have the meanings given them in the 1940 Act.
(c) "DECLARATION" means this Declaration of Trust as amended from time
to time. Reference in this Declaration of Trust to "DECLARATION", "HEREOF",
"HEREIN" and "HEREUNDER" shall be deemed to refer to this Declaration rather
than the article or section in which such words appear.
(d) "DISTRIBUTOR" means the party, other than the Trust, to the
contract described in Section 4.2 hereof.
(e) "FUNDAMENTAL POLICIES" shall mean the investment restrictions set
forth in the Prospectus and designated as fundamental policies therein.
(f) "MAJORITY SHAREHOLDER VOTE" means the vote of the holders of a
majority of Shares, which shall consist of: (i) a majority of Shares represented
in person or by proxy and entitled to vote at a meeting of Shareholders at which
a quorum, as determined in accordance with the By-Laws, is present; (ii) a
majority of Shares issued and outstanding and entitled to vote when action is
taken by written consent of Shareholders; and (iii) a "majority of the
outstanding voting securities", as that phrase is defined in the 1940 Act, when
action is taken by Shareholders with respect to approval of an investment
advisory or management contract or an underwriting or distribution agreement or
continuance thereof.
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(g) "MANAGER" means the party, other than the Trust, to the contract
described in Section 4.1 hereof.
(h) "1940 ACT" means the Investment Company Act of 1940 and the rules
and regulations thereunder as amended from time to time.
(i) "PERSON" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities, whether
or not legal entities, and governments and agencies and political subdivisions
thereof.
(j) "PROSPECTUS" means the prospectus constituting part of the
Registration Statement of the Trust under the Securities Act of 1933 as such
prospectus may be amended or supplemented and filed with the Commission from
time to time.
(k) "SHAREHOLDER" means a record owner of outstanding Shares.
(1) "SHARES" means the units of interest into which the beneficial
interest in the Trust shall be divided from time to time, including the shares
of any and all series or classes which may be established by the Trustees, and
includes fractions of Shares as well as whole Shares.
(m) "TRANSFER AGENT" means the party, other than the Trust, to the
contract described in Section 4.3 hereof.
(n) "TRUST" means the Prudential-Bache Government Securities Trust.
(o) "TRUST PROPERTY OR TRUST ESTATE" means any and all property, real
or personal, tangible or intangible, which is owned or held by or for the
account of the Trust or the Trustees.
(p) "TRUSTEES" mean the persons who have signed the Declaration, so
long as they shall continue in office in accordance with the terms hereof, and
all other persons who may from time to time be duly elected or appointed,
qualified and serving as Trustees in accordance with the provisions hereof, and
reference herein to a Trustee or the Trustees shall refer to such person or
persons in their capacity as trustees hereunder.
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<PAGE>
ARTICLE II
TRUSTEES
SECTION 2.1. NUMBER OF TRUSTEES. The number of Trustees shall be such
number as shall be fixed from time to time by a written instrument signed by a
majority of the Trustees then in office, provided, however, that the number of
Trustees shall in no event be less than three (3) nor more than fifteen (15).
SECTION 2.2. ELECTION AND TERM. The Trustees shall be elected by a
Majority Shareholder Vote at the first meeting of Shareholders following the
initial public offering of Shares of the Trust. The Trustees shall have the
power to set and alter the terms of office of the Trustees, and they may at any
time lengthen or lessen their own terms or make their terms of unlimited
duration, subject to the resignation and removal provisions of Section 2.3
hereof. Subject to Section 16(a) of the 1940 Act, the Trustees may elect their
own successors and may, pursuant to Section 2.4 hereof, appoint Trustees to fill
vacancies. The Trustees shall adopt By-Laws not inconsistent with this
Declaration or any provision of law to provide for election of Trustees by
Shareholders at such time or times as the Trustees shall determine to be
necessary or advisable.
SECTION 2.3. RESIGNATION AND REMOVAL. Any Trustee may resign his trust
(without need for prior or subsequent accounting) by an instrument in writing
signed by him and delivered to the other Trustees and such resignation shall be
effective upon such delivery, or at a later date according to the terms of the
instrument. Any of the Trustees may be removed (provided the aggregate number of
Trustees after such removal shall not be less than the number required by
Section 2.1 hereof) with cause, by the action of two-thirds of the remaining
Trustees. Upon the resignation or removal of a Trustee, or his otherwise ceasing
to be a Trustee, he shall execute and deliver such documents as the remaining
Trustees shall require for the purpose of conveying to the Trust or the
remaining Trustees any Trust Property held in the name of the resigning or
removed Trustee. Upon the incapacity or death of any Trustee, his legal
representative shall execute and deliver on his behalf such documents as the
remaining Trustees shall require as provided in the preceding sentence.
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SECTION 2.4. VACANCIES. The term of office of a Trustee shall terminate
and a vacancy shall occur in the event of the death, resignation, removal,
bankruptcy, adjudicated incompetence or other incapacity to perform the duties
of the office of a Trustee. No such vacancy shall operate to annul the
Declaration or to revoke any existing agency created pursuant to the terms of
the Declaration. In the case of an existing vacancy, including a vacancy
existing by reason of an increase in the number of Trustees, subject to the
provisions of Section 16(a) of the 1940 Act, the remaining Trustees or, prior to
the public offering of Shares of the Trust, if only one Trustee shall then
remain in office, the remaining Trustee, shall fill such vacancy by the
appointment of such other person as they or he, in their or his discretion shall
see fit, made by a written instrument signed by a majority of the remaining
Trustees or by the remaining Trustee, as the case may be. Any such appointment
shall not become effective, however, until the person named in the written
instrument of appointment shall have accepted in writing such appointment and
agreed in writing to be bound by the terms of the Declaration. An appointment of
a Trustee may be made in anticipation of a vacancy to occur at a later date by
reason of retirement, resignation or increase in the number of Trustees,
provided that such appointment shall not become effective prior to such
retirement, resignation or increase in the number of Trustees. Whenever a
vacancy in the number of Trustees shall occur, until such vacancy is filled as
provided in this Section 2.4, the Trustees in office, regardless of their
number, shall have all the powers granted to the Trustees and shall discharge
all the duties imposed upon the Trustees by the Declaration. A written
instrument certifying the existence of such vacancy signed by a majority of the
Trustees shall be conclusive evidence of the existence of such vacancy.
SECTION 2.5. DELEGATION OF POWER TO OTHER TRUSTEES. Any Trustee may, by
power of attorney, delegate his power for a period not exceeding six (6) months
at any one time to any other Trustee or Trustees; provided that in no case shall
less than two (2) Trustees personally exercise the powers granted to the
Trustees under this Declaration except as herein otherwise expressly provided.
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ARTICLE III
POWERS OF TRUSTEES
SECTION 3.1. GENERAL. The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust to the same
extent as if the Trustees were the sole owners of the Trust Property and
business in their own right, but with such powers of delegation as may be
permitted by the Declaration. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices both within and without the Commonwealth of Massachusetts,
in any and all states of the United States of America, in the District of
Columbia, in foreign countries and in any and all commonwealths, territories,
dependencies, colonies, possessions, agencies or instrumentalities of the United
States of America and of foreign governments, and to do all such other things
and execute all such instruments as they deem necessary, proper or desirable in
order to promote the interests of the Trust although such things are not herein
specifically mentioned. Ally determination as to what is the interests of the
Trust made by the Trustees in good faith shall be conclusive. In construing the
provisions of the Declaration, the presumption shall be in favor of a grant of
power to the Trustees.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trustees may be exercised
without order of or resort to any court.
SECTION 3.2. INVESTMENTS. The Trustees shall have the power to:
(a) conduct, operate and carry on the business of an investment
company;
(b) subscribe for, invest in reinvest in, purchase or otherwise
acquire, hold, pledge, sell, assign, transfer, exchange, distribute, lend
or otherwise deal in or dispose of securities, negotiable or non-negotiable
instruments, obligations, evidences of indebtedness, certificates of
deposit or indebtedness, commercial paper, repurchase agreements, reverse
repurchase agreements, options and other securities of any kind, including,
without limitation, those issued, guaranteed or sponsored
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<PAGE>
by any and all Persons including, without limitation, states, territories
and possessions of the United States, the District of Columbia and any of
the political subdivisions, agencies or instrumentalities thereof, and by
the United States Government or its agencies or instrumentalities, or
international instrumentalities, or by any bank or savings institution, or
by any corporation or organization organized under the laws of the United
States or of any state, territory or possession thereof, and of
corporations or organizations organized under foreign laws, or in "when
issued" or "delayed delivery" contracts for any such securities, or retain
Trust assets in cash and from time to time change the investments of the
assets of the Trust; and to exercise any and all rights, powers and
privileges of ownership or interest in respect of any and all such
investments of every kind and description, including, without limitation,
the right to consent and otherwise act with respect thereto, with power to
designate one or more persons, firms, associations or corporations to
exercise any of said rights, power and privileges in respect of any of
said instruments; and the Trustees shall be deemed to have the foregoing
powers with respect to any additional securities in which the Trust may
invest should the Fundamental Policies be amended.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
SECTION 3.3. LEGAL TITLE. Legal title to all the Trust Property shall
be vested in the Trustees as joint tenants except that the Trustees shall have
power to cause legal title to any Trust Property to be held by or in the name of
one or more of the Trustees, or in the name of the Trust, or in the name of any
other Person as nominee, on such terms as the Trustees may determine, provided
that the interest of the Trust therein is appropriately protected. The right,
title and interest of the Trustees in the Trust Property shall vest
automatically in each Person who may hereafter become a Trustee. Upon the
resignation, removal or death of a Trustee he shall automatically cease to have
any right, title or interest in any of the Trust Property, and
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<PAGE>
the right, title and interest of such Trustee in the Trust Property shall vest
automatically in the remaining Trustees. Such vesting and cessation of title
shall be effective whether or not conveyancing documents have been executed and
delivered.
3.4. ISSUANCE AND REPURCHASE OF SECURITIES. The Trustees shall have the
power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold, resell,
reissue, dispose of, transfer, and otherwise deal in Shares and, subject to the
provisions set forth in Articles VII, VIII and IX and Section 6.9 hereof, to
apply to any such repurchase, redemption, retirement, cancellation or
acquisition of Shares any funds or property of the Trust, whether capital or
surplus or otherwise, to the full extent now or hereafter permitted by the laws
of the Commonwealth of Massachusetts governing business corporations.
SECTION 3.5. BORROWING MONEY; LENDING TRUST ASSETS. Subject to the
Fundamental Policies, the Trustees shall have power to borrow money or otherwise
obtain credit and to secure the same by mortgaging, pledging or otherwise
subjecting as security the assets of the Trust, to endorse, guarantee, or
undertake the performance of any obligation, contract or engagement of any other
Person and to lend Trust assets.
SECTION 3.6. DELEGATION; COMMITTEES. The Trustees shall have power,
consistent with their continuing exclusive authority over the management of the
Trust and the Trust Property, to delegate from time to time to such of their
number or to officers, employees or agents of the Trust the doing of such things
and the execution of such instruments either in the name of the Trust or the
names of the Trustees or otherwise as the Trustees may deem expedient.
SECTION 3.7. COLLECTION AND PAYMENT. The Trustees shall have power to
collect all property due to the Trust; to pay all claims, including taxes,
against the Trust Property; to prosecute, defend, compromise or abandon any
claims relating to the Trust Property; to foreclose any security interest
securing any obligations, by virtue of which any property is owed to the Trust;
and to enter into releases, agreements and other instruments.
SECTION 3.8. EXPENSES. The Trustees shall have the power to incur and
pay any expenses which in the opinion of the Trustees are necessary or
incidental to carry out any of the purposes of the Declaration, and to pay
reasonable
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<PAGE>
compensation from the funds of the Trust to themselves as Trustees. The Trustees
shall fix the compensation of all officers, employees and Trustees.
SECTION 3.9. MANNER OF ACTING; BY-LAWS. Except as otherwise provided
herein or in the By-Laws or by any provision of law, any action to be taken by
the Trustees may be taken by a majority of the Trustees present at a meeting of
Trustees (a quorum being present), including any meeting held by means of a
conference telephone circuit or similar communications equipment by means of
which all persons participating in the meeting can hear each other, or by
written consents of all the Trustees. The Trustees may adopt By-Laws not
inconsistent with this Declaration to provide for the conduct of the business of
the Trust and may amend or repeal such By-Laws to the extent such power is not
reserved to the Shareholders.
SECTION 3.10. MISCELLANEOUS POWERS. The Trustees shall have the power
to: (a) employ or contract with such Persons as the Trustees may deem desirable
for the transaction of the business of the Trust; (b) enter into joint ventures,
partnerships and any other combinations or associations; (c) remove Trustees or
fill vacancies in or add to their number, elect and remove such officers and
appoint and terminate such agents or employees as they consider appropriate, and
appoint from their own number, and terminate, any one or more committees which
may exercise some or all of the power and authority of the Trustees as the
Trustees may determine; (d) purchase, and pay for out of Trust Property,
insurance policies insuring the Shareholders, Trustees, officers, employees,
agents, managers, investment advisers, distributors, selected dealers or
independent contractors of the Trust against all claims arising by reason of
holding any such position or by reason of any action taken or omitted to be
taken by any such Person in such capacity, whether or not constituting
negligence, or whether or not the Trust would have the power to indemnify such
Person against such liability; (e) establish pension, profit-sharing, Share
purchase, and other retirement, incentive and benefit plans for any Trustees,
officers, employees and agents of the Trust; (f) to the extent permitted by law,
indemnify any person with whom the Trust has dealings, including the Manager,
Distributor, Transfer Agent and selected dealers, to such extent as the Trustees
shall determine; (g) guarantee indebtedness or contractual obligations of
others; (h) determine and change the fiscal year of the Trust and the method by
which its accounts shall be kept; and (i) adopt a seal for the Trust, but the
absence of such seal shall not impair the validity of any instrument executed on
behalf of the Trust.
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SECTION 3.11. PRINCIPAL TRANSACTIONS. Except in transactions permitted
by the 1940 Act or any order of exemption issued by the Commission, or effected
to implement the provisions of any agreement to which the Trust is a party, the
Trustees shall not, on behalf of the Trust, buy any securities (other than
Shares) from or sell any securities (other than Shares) to, or lend any assets
of the Trust to, any Trustee or officer of the Trust or any firm of which any
such Trustee or officer is a member acting as principal, or have any such
dealings with the Manager, Distributor or Transfer Agent or with any Affiliated
Person of such Person; but the Trust may employ any such Person, or firm or
company in which such Person is an Interested Person, as broker, legal counsel,
registrar, transfer agent, dividend disbursing agent or custodian upon customary
terms.
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ARTICLE IV
MANAGER, DISTRIBUTOR AND TRANSFER AGENT
SECTION 4.1. MANAGER. Subject to approval by a Majority Shareholder
Vote, the Trustees may in their discretion from time to time enter into an
investment advisory or management contract whereby the other party to such
contract shall undertake to furnish the Trust such management, investment
advisory, administration, accounting, legal, statistical and research facilities
and services, promotional activities, and such other facilities and services, if
any, as the Trustees shall from time to time consider desirable and all upon
such terms and conditions as the Trustees may in their discretion determine.
Notwithstanding any provisions of the Declaration, the Trustees may authorize
the Manager (subject to such general or specific instructions as the Trustees
may from time to time adopt) to effect purchases, sales, loans or exchanges of
portfolio securities of the Trust on behalf of the Trustees or may authorize any
officer, employee or Trustee to effect such purchases, sales, loans or exchanges
pursuant to recommendations of the Manager (and all without further action by
the Trustees). Any such purchases, sales, loans and exchanges shall be deemed to
have been authorized by all of the Trustees. The Trustees may, in their sole
discretion, call a meeting of Shareholders in order to submit to a vote of
Shareholders at such meeting the approval of continuance of any such investment
advisory or management contract.
SECTION 4.2. DISTRIBUTOR. The Trustees may in their discretion from
time to time enter into a contract providing for the sale of Shares to net the
Trust not less than the net asset value per Share (as described in Article VIII
hereof) and pursuant to which the Trust may either agree to sell the Shares to
the other party to the contract or appoint such other party its sales agent for
such Shares. In either case, the contract shall be on such terms and conditions
as the Trustees may in their discretion determine not inconsistent with the
provisions of this Article IV, including, without limitation, the provision for
the repurchase or sale of Shares of the Trust by such other party as principal
or as agent of the Trust.
SECTION 4.3. TRANSFER AGENT. The Trustees may in their discretion from
time to time enter into a transfer agency and shareholder service contract
whereby the other party to such contract shall undertake to furnish transfer
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agency and shareholder services to the Trust. The contract shall have such terms
and conditions as the Trustees may in their discretion determine not
inconsistent with the Declaration. Such services may be provided by one or more
Persons.
SECTION 4.4. PARTIES TO CONTRACT. Any contract of the character
described in Section 4.1, 4.2 or 4.3 of this Article IV and any other contract
may be entered into with any Person, although one or more of the Trustees or
officers of the Trust may be such other party to the contract or an officer,
director, trustee, shareholder, or member of such other party to the contract,
and no such contract shall be invalidated or rendered voidable by reason of the
existence of any such relationship; nor shall any Person holding such
relationship be liable merely by reason of such relationship for any loss or
expense to the Trust under or by reason of said contract or accountable for any
profit realized directly or indirectly therefrom, provided that the contract
when entered into was not inconsistent with the provisions of this Article IV.
The same Person may be the other party to any contracts entered into pursuant to
Sections 4.1, 4.2 and 4.3 above or otherwise, and any Trustee, officer, employee
or agent of the Trust may be financially interested or otherwise affiliated with
Persons who are parties to any or all of the contracts mentioned in this
Section 4.4.
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ARTICLE V
LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS
SECTION 5.1. NO PERSONAL LIABILITY OF SHAREHOLDERS, TRUSTEES, ETC. No
Shareholder shall be subject to any personal liability whatsoever to any Person
in connection with Trust Property or the acts, obligations or affairs of the
Trust. No Trustee, officer, employee or agent of the Trust shall be subject to
any personal liability whatsoever to any Person, other than the Trust or its
Shareholders, in connection with Trust Property or the affairs of the Trust,
save only that arising from bad faith, wilful misfeasance, gross negligence or
reckless disregard for his or its duty to such Person; and all such Persons
shall look solely to the Trust Property for satisfaction of claims of any nature
arising in connection with the affairs of the Trust. If any Shareholder,
Trustee, officer, employee or agent, as such, of the Trust is made a party to
any suit or proceeding to enforce any such liability, he or it shall not, on
account thereof, be held to any personal liability. The Trust shall indemnify
and hold each Shareholder harmless from and against all claims and liabilities
to which such Shareholder may become subject by reason of his being or having
been a Shareholder, and shall reimburse such Shareholder for all legal and other
expenses reasonably incurred by him in connection with any such claim or
liability. The rights accruing to a Shareholder under this Section 5.1 shall not
exclude any other right to which such Shareholder may be lawfully entitled, nor
shall anything herein contained restrict the right of the Trust to indemnify or
reimburse a Shareholder in any appropriate situation even though not
specifically provided herein.
SECTION 5.2. NON-LIABILITY OF TRUSTEES, ETC. No Trustee, officer,
employee or agent of the Trust shall be liable to the Trust, its Shareholders,
or to any Shareholder, Trustee, officer, employee, or agent thereof for any
action or failure to act (including without limitation the failure to compel in
any way any former or acting Trustee to redress any breach of trust) except for
his or its own bad faith, wilful misfeasance, gross negligence or reckless
disregard of his or its duties.
SECTION 5.3. INDEMNIFICATION.
(a) The Trustees shall provide for indemnification by the Trust of
every person who is, or has been, a Trustee or officer of the Trust against all
liability and against all expenses reasonably incurred or paid by him in
connection
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with any claim, action, suit or proceeding in which he becomes involved as a
party or otherwise by virtue of his being or having been a Trustee or officer
and against amounts paid or incurred by him in the settlement thereof, in such
manner not otherwise prohibited or limited by law as the Trustees may provide
from time to time in the By-Laws.
(b) The words "claim," "action," "suit," or proceeding" shall apply to
all claims, actions, suits or proceedings (civil, criminal, or other, including
appeals), actual or threatened; and the words "liability" and "expenses" shall
include, without limitation, "attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
SECTION 5.4. NO BOND REQUIRED OF TRUSTEES. No Trustee shall be
obligated to give any bond or other security for the performance of any of his
duties hereunder.
SECTION 5.5. NO DUTY OF INVESTIGATION; NOTICE IN TRUST INSTRUMENTS,
ETC. No purchaser, lender, transfer agent or other Person dealing with the
Trustees or any officer, employee or agent of the Trust shall be bound to make
any inquiry concerning the validity of any transaction purporting to be made by
the Trustees or by said officer, employee or agent or be liable for the
application of money or property paid, loaned, or delivered to or on the order
of the Trustees or of said officer, employee or agent. Every obligation,
contract, instrument, certificate, Share, other security of the Trust or
undertaking, and every other act or thing whatsoever executed in connection with
the Trust shall be conclusively presumed to have been executed or done by the
executors thereof only in their capacity as Trustees under the Declaration or in
their capacity as officers, employees or agents of the Trust. Every written
obligation, contract, instrument, certificate, Share, other security of the
Trust or undertaking made or issued by the Trustees shall recite that the same
is executed or made by them not individually, but as Trustees under the
Declaration, and that the obligations of any such instrument are not binding
upon any of the Trustees or Shareholders, individually, but bind only the Trust
Estate, and may contain any further recital which they or he may deem
appropriate, but the omission of such recital shall not operate to bind the
Trustees or Shareholders individually. The Trustees shall at all times maintain
insurance for the protection of the Trust Property, its Shareholders, Trustees,
officers, employees and agents in such amount as the Trustees shall deem
adequate to cover possible tort liability, and such other insurance as the
Trustees in their sole judgment shall deem advisable.
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SECTION 5.6. RELIANCE ON EXPERTS, ETC. Each Trustee and officer or
employee or the Trust shall, in the performance of his duties, be fully and
completely justified and protected with regard to any act or any failure to act
resulting from reliance in good faith upon the books of account or other records
of the Trust, upon an opinion of counsel, or upon reports made to the Trust by
any of its officers or employees or by the Manager, the Distributor, Transfer
Agent, selected dealers, accountants, appraisers or other experts or consultants
selected with reasonable care by the Trustees, officers or employees of the
Trust, regardless of whether such counsel or expert may also be a Trustee.
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ARTICLE VI
SHARES OF BENEFICIAL INTEREST
SECTION 6.1. BENEFICIAL INTEREST. The interest of the beneficiaries
hereunder shall be divided into transferable shares of beneficial interest, par
value $.01 per share. The number of such shares of beneficial interest
authorized hereunder is unlimited. The Trustees may initially issue whole and
fractional shares of a single class, each of which shall represent an equal
proportionate share in the Trust with each other Share. The Trustees may divide
or combine the shares into a greater or lesser number of shares without thereby
changing the proportionate beneficial interests in the Trust. Subject to the
provisions of Section 6.9 hereof, the Trustees may also authorize the creation
of additional series of shares (the proceeds of which may be invested in
separate, independently managed portfolios) and additional classes of shares
within any series. All Shares issued hereunder including, without limitation,
Shares issued in connection with a dividend in Shares or a split in Shares,
shall be fully paid and nonassessable.
SECTION 6.2. RIGHTS OF SHAREHOLDERS. The ownership of the Trust
Property of every description and the right to conduct any business hereinbefore
described are vested exclusively in the Trustees, and the Shareholders shall
have no interest therein other than the beneficial interest conferred by their
Shares, and they shall have no right to call for any partition or division of
any property, profits, rights or interests of the Trust nor can they be called
upon to assume any losses of the Trust or suffer an assessment of any kind by
virtue of their ownership of Shares. The Shares shall be personal property
giving only the rights in the Declaration specifically set forth. The Shares
shall not entitle the holder to preference, preemptive, appraisal, conversion
or exchange rights, except as the Trustees may determine with respect to any
series or class of Shares. Upon liquidation of the Trust, holders of the Shares
are entitled to share pro rata in the net assets of the Trust available for
distribution to the holders except as provided by Section 6.9(c) with respect to
the holders of different series or classes of Shares as provided in Section 6.9.
SECTION 6.3. TRUST ONLY. It is the intention of the Trustees to create
only the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint
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stock association, corporation, bailment or any form of legal relationship other
than a trust. Nothing in the Declaration shall be construed to make the
Shareholders, either by themselves or with the Trustees, partners or members of
a joint stock association.
SECTION 6.4. ISSUANCE OF SHARES. The Trustees in their discretion may,
from time to time without vote of the Shareholders, issue Shares, in addition to
the then issued and outstanding Shares and Shares held in the treasury, to such
party or parties and for such amount and type of consideration, including cash
or property, at such time or times (including, without limitation, each business
day in accordance with the maintenance of a constant net asset value per Share),
and on such terms as the Trustees may deem best, and may in such manner acquire
other assets (including the acquisition of assets subject to, and in connection
with the assumption of liabilities) and businesses. In connection with any
issuance of Shares, the Trustees may issue fractional Shares. The Trustees may
from time to time divide or combine the Shares into a greater or lesser number
without thereby changing the proportionate beneficial interests in the Trust.
Reductions in the number of outstanding Shares may be made pursuant to the
provisions of Section 8.3 in order to maintain a constant net asset value per
Share. Contributions to the Trust may be accepted for, and Shares shall be
redeemed as, whole Shares and/or fractions of a Share as described in the
Prospectus.
SECTION 6.5. REGISTER OF SHARES. A register shall be kept at the
principal office of the Trust or at an office of the Transfer Agent which shall
contain the names and addresses of the Shareholders and the number of Shares
held by them respectively and a record of all transfers thereof. Such register
may be in written form or any other form capable of being converted into written
form within a reasonable time for visual inspection. Such register shall be
conclusive as to who are the holders of the Shares and who shall be entitled to
receive dividends or distributions or otherwise to exercise or enjoy the rights
of Shareholders. No Shareholder shall be entitled to receive payment of any
dividend or distribution, nor to have notice given to him as herein or in the
By-Laws provided, until he has given his address to the Transfer Agent or such
other officer or agent of the Trustees as shall keep the said register for entry
thereon. It is not contemplated that certificates will be issued for the Shares;
however, the Trustees, in their discretion, may authorize the issuance of Share
certificates and promulgate appropriate rules and regulations as to their use.
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SECTION 6.6. TRANSFER OF SHARES. Shares shall be transferable on the
records of the Trust only by the record holder thereof or by his agent thereunto
duly authorized in writing, upon delivery to the Trustees or the Transfer Agent
of a duly executed instrument of transfer, together with such evidence of the
genuineness of each such execution and authorization and of other matters as may
reasonably be required. Upon such delivery the transfer shall be recorded on the
register of the Trust. Until such record is made, the Shareholder of record
shall be deemed to be the holder of such Shares for all purposes hereunder and
neither the Trustees nor any Transfer Agent or registrar nor any officer,
employee or agent of the Trust shall be affected by any notice of the proposed
transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees or the Transfer
Agent, but until such record is made, the Shareholder of record shall be deemed
to be the holder of such Shares for all purposes hereunder and neither the
Trustees nor any Transfer Agent or registrar nor any officer or agent of the
Trust shall be affected by any notice of such death, bankruptcy or incompetence,
or other operation of law, except as may otherwise be provided by the laws of
the Commonwealth of Massachusetts.
SECTION 6.7. NOTICES. Any and all notices to which any Shareholder may
be entitled and any and all communications shall be deemed duly served or given
if mailed, postage prepaid, addressed to any Shareholder of record at his last
known address as recorded on the register of the Trust.
SECTION 6.8. VOTING POWERS. The Shareholders shall have power to vote
only (i) for the election of Trustees as provided in Section 2.2 hereof, (ii)
with respect to any investment advisory or management contract as provided in
Section 4.1, (iii) with respect to termination of the Trust as provided in
Section 9.2, (iv) with respect to any amendment of the Declaration to the extent
and as provided in Section 9.3, (1) with respect to any merger, consolidation or
sale of assets as provided in Section 9.4, (vi) with respect to incorporation of
the Trust to the extent and as provided in Section 9.5, (vii) to the same extent
as the stockholders of a Massachusetts business corporation as to whether or not
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a court action, proceeding or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the Trust or the
Shareholders, and (viii) with respect to such additional matters relating to the
Trust as may be required by law, the Declaration, the By-Laws or any
registration of the Trust with the Commission (or any successor agency) or any
state, or as and when the Trustees may consider necessary or desirable. Each
whole Share shall be entitled to one vote as to any matter on which it is
entitled to vote and each fractional Share shall be entitled to a proportionate
fractional vote, except that Shares held in the treasury of the Trust as of the
record date, as determined in accordance with the By-Laws, shall not be voted
and except that the Trustees may, in conjunction with the establishment of any
series or classes of Shares, establish conditions under which the several series
or classes shall have separate voting rights or no voting rights. Unless and
until otherwise determined by the Trustees, any vote of Shareholders shall be
taken without regard to class or series. There shall be no cumulative voting in
the election of Trustees. Until Shares are issued, the Trustees may exercise
all rights of Shareholders and may take any action required by law, the
Declaration or the By-Laws to be taken by Shareholders. The By-Laws may include
further provisions for Shareholders' votes and meetings and related matters.
SECTION 6.9. SERIES OR CLASSES OF SHARES. If the Trustees shall divide
the Shares of the Trust into two or more series or two or more classes of any
series, as provided in Section 6.1 hereof, the following provisions shall be
applicable:
(a) The number of authorized Shares and the number of Shares of each
series or of each class that may be issued shall be unlimited. The Trustees may
classify or reclassify any unissued Shares or any Shares previously issued and
registered series or class into one or more series or one or more classes that
may be established and designated from time to time. The Trustees may hold as
treasury shares (of the same or some other series or class), reissue for such
consideration and on such terms as they may determine, or cancel any Shares of
any series or any class reacquired by the Trust at their discretion from time to
time.
(b) The power of the Trustees to invest and reinvest the Trust Property
shall be governed by Section 3.2 of this Declaration with respect to any one or
more series which represents the interests in the assets of the Trust
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immediately prior to the establishment of two or more series and the power of
the Trustees to invest and reinvest assets applicable to any other series shall
be as set forth in the instrument of the Trustees establishing such series.
(c) All consideration received by the Trust for the issue or sale of
Shares of a particular series or class together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that series or class for all purposes, subject only to the
rights of creditors, and shall be so recorded upon the books of account of the
Trust. In the event that there are any assets, income, earnings, profits, and
proceeds thereof, funds, or payments which are not readily identifiable as
belonging to any particular series or class, the Trustees shall allocate them
among any one or more of the series or classes established and designated from
time to time in such manner and on such basis as they, in their sole discretion,
deem fair and equitable. Each such allocation by the Trustees shall be
conclusive and binding upon the Shareholders of all series or classes for all
purposes.
(d) The assets belonging to each particular series shall be charged
with the liabilities of the Trust in respect of that series and all expenses,
costs, charges and reserves attributable to that series, and any general
liabilities, expenses, costs, charges or reserves of the Trust which are not
readily identifiable as belonging to any particular series shall be allocated
and charged by the Trustees to and among any one or more of the series
established and designated from time to time in such manner and on such basis as
the Trustees in their sole discretion deem fair and equitable. Each allocation
of liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the holders of all series for all purposes. The
Trustees shall have full discretion, to the extent not inconsistent with the
1940 Act, to determine which items shall be treated as income and which items as
capital; and each such determination and allocation shall be conclusive and
binding upon the Shareholders.
(e) The power of the Trustees to pay dividends and make distributions
shall be governed by Section 8.2 of
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this Declaration with respect to any one or more series or classes which
represents the interests in the assets of the Trust immediately prior to the
establishment of two or more series or classes. With respect to any other series
or class, dividends and distributions on Shares of a particular series or class
may be paid with such frequency as the Trustees may determine, which may be
daily or otherwise, pursuant to a standing resolution or resolutions adopted
only once or with such frequency as the Trustees may determine, to the holders
of Shares of that series or class, from such of the income and capital gains,
accrued or realized, from the assets belonging to that series or class, as the
Trustees may determine, after providing for actual and accrued liabilities
belonging to that series or class. All dividends and distributions on Shares of
a particular series or class shall be distributed pro rata to the holders of
that series or class in proportion to the number of Shares of that series or
class held by such holders at the date and time of record established for the
payment of such dividends or distributions.
(f) The Trustees shall have the power to determine the designations,
preferences, privileges, limitations and rights, including voting and dividend
rights, of each class and series of Shares.
(g) The establishment and designation of any series or class of Shares
shall be effective upon the execution by a majority of the then Trustees of an
instrument setting forth such establishment and designation and the relative
rights and preferences of such series or class, or as otherwise provided in such
instrument. At any time that there are no Shares outstanding of any particular
series or class previously established and designated, the Trustees may by an
instrument executed by a majority of their number abolish that series or class
and the establishment and designation thereof. Each instrument referred to in
this paragraph shall have the status of an amendment to this Declaration.
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ARTICLE VII
REDEMPTIONS
7.1. REDEMPTIONS. All outstanding Shares may be redeemed at the option
of the holders thereof, upon and subject to the terms and conditions provided in
this Article VII. The Trust shall, upon application of any Shareholder or
pursuant to authorization from any Shareholder, redeem or repurchase from such
Shareholder outstanding Shares for an amount per share determined by the
Trustees in accordance with any applicable laws and regulations; provided that
(a) such amount per Share shall not exceed the cash equivalent of the
proportionate interest of each Share or of any class or series of Shares in the
assets of the Trust at the time of the redemption or repurchase and (b) if so
authorized by the Trustees, the Trust may, at any time and from time to time,
charge fees for effecting such redemption or repurchase, at such rates as the
Trustees may establish, as and to the extent permitted under the 1940 Act, and
may, at any time and from time to time, pursuant to the 1940 Act, suspend such
right of redemption. The procedures for and fees, if any, chargeable in
connection with effecting and suspending redemption shall be as set forth in the
Prospectus from time to time. Payment will be made in such manner as described
in the Prospectus.
7.2. REDEMPTION OF SHARES; DISCLOSURE OF HOLDING. If the Trustees
shall, at any time and in good faith, be of the opinion that direct or indirect
ownership of Shares or other securities of the Trust has or may become
concentrated in any Person to an extent which would disqualify the Trust as a
regulated investment company under the Internal Revenue Code, then the Trustees
shall have the power by lot or other means deemed equitable by them (i) to call
for redemption by any such Person a number, or principal amount, of Shares or
other securities of the Trust sufficient, in the opinion of the Trustees, to
maintain or bring the direct or indirect ownership of Shares or other securities
of the Trust into conformity with the requirements for such qualification and
(ii) to refuse to transfer or issue Shares or other securities of the Trust to
any Person whose acquisition of the Shares or other securities of the Trust in
question could in the opinion of the Trustees result in such disqualification.
The redemption shall be effected at a redemption price determined in accordance
with Section 7.1.
The holders of Shares or other securities of the Trust shall upon
demand disclose to the Trustees in writing such information with respect to
direct and indirect ownership of Shares or other securities of the Trust as the
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Trustees deem necessary to comply with the provisions of the Internal Revenue
Code, or to comply with the requirements of any other authority.
SECTION 7.3. REDEMPTIONS OF ACCOUNTS OF $500 OR LESS. The Trustees
shall have the power at any time to redeem Shares of any Shareholder at a
redemption price determined in accordance with Section 7.1 if at such time the
aggregate net asset value of the Shares in such Shareholder's account is $500
or less. If the Trustees chose to so redeem Shares, a Shareholder will be
notified that the value of his account is $500 or less and be allowed sixty (60)
days to make an additional investment before redemption is processed.
SECTION 7.4. REDEMPTIONS PURSUANT TO CONSTANT NET ASSET VALUE
PROVISIONS. The Trust may also reduce the number of outstanding Shares pursuant
to the provisions of Section 8.3.
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ARTICLE VIII
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
SECTION 8.1. NET ASSET VALUE. The net asset value of each outstanding
Share of the Trust shall be determined on such days and at such time or times as
the Trustees may determine. The method of determination of net asset value shall
be determined by the Trustees and shall be as set forth in the Prospectus. The
power and duty to make the daily calculations may be delegated by the Trustees
to the Manager, the Custodian, the Transfer Agent or such other person as the
Trustees by resolution may determine. The Trustees may suspend the daily
determination of net asset value to the extent permitted by the 1940 Act.
SECTION 8.2. DISTRIBUTIONS TO SHAREHOLDERS. The Trustees shall from
time to time distribute ratably among the Shareholders such proportion of the
net profits, surplus (including paid-in surplus), capital, or assets held by
the Trustees as they may deem proper. Such distribution may be made in cash or
property (including without limitation any type of obligations of the Trust or
any assets thereof), and the Trustees may distribute ratably among the
Shareholders additional Shares issuable hereunder in such manner, at such times,
and on such terms as the Trustees may deem proper. Such distributions may be
among the Shareholders of record at the time of declaring a distribution or
among the Shareholder. of record at such later date as the Trustees shall
determine. The Trustees may always retain from the net profits such amount as
they may deem necessary to pay the debts or expenses of the Trust or to meet
obligations of the Trust, or as they may deem desirable to use in the conduct of
its affairs or to retain for future requirements or extensions of the business.
The Trustees may adopt and offer to Shareholders such dividend reinvestment
plans, cash dividend payout plans or related plans as the Trustees shall deem
appropriate.
Inasmuch as the computation of net income and gains for Federal income
tax purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust to avoid or reduce liability for taxes.
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SECTION 8.3. DETERMINATION OF NET INCOME; REDUCTION OF OUTSTANDING
SHARES. The Trustees shall have the power to determine the net income of the
Trust one or more times on each business day and at each such determination
declare such net income as dividends in additional Shares. The determination of
net income and the resultant declaration of dividends shall be as set forth in
the Prospectus. It is expected that the Trust will have a positive net income at
the time of each determination. If for any reason the net income of the Trust is
a negative amount, the Trust shall have authority to reduce the number of its
outstanding Shares. Such reduction will be effected by having each Shareholder
proportionately contribute to the Trust's capital the necessary Shares that
represent the amount of the excess upon such determination. Each Shareholder
will be deemed to have agreed to such contribution in these circumstances by his
investment in the Trust. The Trustees shall have full discretion to determine
whether any cash or property received shall be treated as income or as principal
and whether any item of expenses shall be charged to the income or the principal
account, and their determination made in good faith shall be conclusive upon the
Shareholders. In the case of stock dividends received, the Trustees shall have
full discretion to determine, in the light of the particular circumstances, how
much, if any, of the value thereof shall be treated as income, the balance, if
any, to be treated as principal.
SECTION 8.4. POWER TO MODIFY FOREGOING PROCEDURES. Notwithstanding any
of the foregoing provisions of this Article VIII, the Trustees may prescribe, in
their absolute discretion, such other bases and times for determining the per
Share net asset value of the Shares or net income, or the declaration and
payment of dividends and distributions, as they may deem necessary or desirable
to enable the Trust to comply with any provision of the 1940 Act, including any
rule or regulation adopted pursuant to Section 22 of the 1940 Act by the
Commission or any securities association registered under the Securities
Exchange Act of 1934, or any order of exemption issued by said Commission, all
as in effect now or hereafter amended or modified. Without limiting the
generality of the foregoing, the Trustees may establish classes or series of
Shares in accordance with Section 6.9.
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ARTICLE IX
DURATION; TERMINATION OF
TRUST; AMENDMENT, MERGERS, ETC.
SECTION 9.1. DURATION. The Trust shall continue without limitation of
time but subject to the provisions of this Article IX.
SECTION 9.2. TERMINATION OF TRUST. (a) The Trust may be terminated (i)
by the affirmative vote of the holders of not less than two-thirds of the Shares
outstanding and entitled to vote at any meeting of Shareholders, or (ii) by an
instrument in writing, without a meeting, signed by a majority of the Trustees
and consented to by the holders of not less than two-thirds of such Shares, or
by such other vote as may be established by the Trustees with respect to any
class or series of Shares, or (iii) by the Trustees by written notice to the
Shareholders. Upon the termination of the Trust:
(i) The Trust shall carry on no business except for the
purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the
Trust and all of the powers of the Trustees under this Declaration
shall continue until the affairs of the Trust shall have been wound up,
including the power to fulfill or discharge the contracts of the Trust,
collect its assets, sell, convey, assign, exchange, transfer or
otherwise dispose of all or any part of the remaining Trust Property to
one or more persons at public or private sale for consideration which
may consist in whole or in part of cash, securities or other property
of any kind, discharge or pay its liabilities, and to do all other acts
appropriate to liquidate its business; provided that any sa1e,
conveyance, assignment, exchange, transfer or other disposition of all
or substantially all the Trust Property shall require Shareholder
approval in accordance with Section 9.4 hereof.
(iii) After paying or adequately providing for the payment of
all liabilities, and upon receipt of such releases, indemnities and
refunding
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agreements, as they deem necessary for their protection, the Trustees
may distribute the remaining Trust Property, in cash or in kind or
partly each, among the Shareholders according to their respective
rights.
(b) After termination of the Trust and distribution to the Shareholders
as herein provided, a majority of the Trustees shall execute and lodge among the
records of the Trust an instrument in writing setting forth the fact of such
termination, and the Trustees shall thereupon be discharged from all further
liabilities and duties hereunder, and the rights and interests of all
Shareholders shall thereupon cease.
SECTION 9.3. AMENDMENT PROCEDURE. (a) This Declaration may be amended
by a Majority Shareholder Vote. The Trustees may also amend this Declaration
without the vote or consent of Shareholders to change the name of the Trust, to
supply any omission, to cure, correct or supplement any ambiguous, defective or
inconsistent provision hereof, or if they deem it necessary to conform this
Declaration to the requirements of applicable federal or state laws or
regulations or the requirements of the regulated investment company provisions
of the Internal Revenue Code, but the Trustees shall not be liable for failing
so to do.
(b) No amendment may be made under this Section 9.3 which would change
any rights with respect to any Shares of the Trust by reducing the amount
payable thereon upon liquidation of the Trust or by diminishing or eliminating
any voting rights pertaining thereto, except with the vote or consent of the
holders of two-thirds of the Shares outstanding and entitled to vote, or by such
other vote as may be established by the Trustees with respect to any series or
class of Shares. Nothing contained in this Declaration shall permit the
amendment of this Declaration to impair the exemption from personal liability of
the Shareholders, Trustees, officers, employees and agents of the Trust or to
permit assessments upon Shareholders.
(c) A certificate signed by a majority of the Trustees or by the
Secretary or any Assistant Secretary of the Trust, setting forth an amendment
and reciting that it was duly adopted by the Shareholders or by the Trustees as
aforesaid or a copy of the Declaration, as amended, and
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executed by a majority of the Trustees or certified by the Secretary or any
Assistant Secretary of the Trust, shall be conclusive evidence of such amendment
when lodged among the records of the Trust.
Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of securities of the Trust shall have become
effective, this Declaration may be terminated or amended in any respect by the
affirmative vote of a majority of the Trustees or by an instrument signed by a
majority of the Trustees.
SECTION 9.4. MERGER, CONSOLIDATION AND SALE OF ASSETS. The Trust may
merge or consolidate with any other corporation, association, trust or other
organization or may sell, lease or exchange all or substantially all of the
Trust Property, including its good will, upon such terms and conditions and for
such consideration when and as authorized, at any meeting of Shareholders called
for the purpose, by the affirmative vote of the holders of not less than
two-thirds of the Shares outstanding and entitled to vote, or by an instrument
or instruments in writing without a meeting, consented to by the holders of not
less than two-thirds of such Shares, or by such other vote as may be established
by the Trustees with respect to any series or class of Shares; provided,
however, that, if such merger, consolidation, sale, lease or exchange is
recommended by the Trustees, a Majority Shareholder Vote shall be sufficient
authorization; and any such merger, consolidation, sale, lease or exchange shall
be deemed for all purposes to have been accomplished under and pursuant to the
statutes of the Commonwealth of Massachusetts. In respect of any such merger,
consolidation, sale or exchange of assets, any Shareholder shall be entitled to
rights of appraisal of his Shares to the same extent as a shareholder of a
Massachusetts business corporation in respect of a merger, consolidation, sale
or exchange of assets of a Massachusetts business corporation, and such rights
shall be his exclusive remedy in respect of his dissent from any such action.
SECTION 9.5. INCORPORATION. With approval of a Majority Shareholder
Vote, or by such other vote as may be established by the Trustees with respect
to any series or class of Shares, the Trustees may cause to be organized or
assist in organizing a corporation or corporations under the laws of any
jurisdiction or any other trust, partnership, association or other organization
to take over all of the
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Trust Property or to carry on any business in which the Trust shall directly or
indirectly have any interest, and to sell, convey and transfer the Trust
Property to any such corporation, trust, association or organization in exchange
for the shares or securities thereof or otherwise, and to lend money to,
subscribe for the Shares or securities of, and enter into any contracts with any
such corporation, trust, partnership, association or organization in which the
Trust holds or is about to acquire shares or any other interest. The Trustees
may also cause a merger or consolidation between the Trust or any successor
thereto and any such corporation, trust, partnership, association or other
organization if and to the extent permitted by law, as provided under the law
then in effect. Nothing contained herein shall be construed as requiring
approval of Shareholders for the Trustees to organize or assist in organizing
one or more corporations, trusts, partnerships, associations or other
organizations and selling, conveying or transferring a portion of the Trust
Property to such organization or entities.
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ARTICLE X
REPORTS TO SHAREHOLDERS
The Trustees shall at least semi-annually submit to the Shareholders a
written financial report of the transactions of the Trust, including financial
statements which shall at least annually be certified by independent public
accountants.
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ARTICLE XI
MISCELLANEOUS
SECTION 11.1. FILING. This Declaration and any amendment hereto shall
be filed in the office of the Secretary of the Commonwealth of Massachusetts and
in such other places as may be required under the laws of Massachusetts and may
also be filed or recorded in such other places as the Trustees deem appropriate.
Each amendment so filed shall be accompanied by a certificate signed and
acknowledged by a Trustee or by the Secretary or any Assistant Secretary of the
Trust stating that such action was duly taken in a manner provided herein, and
unless such amendment or such certificate sets forth some later time for the
effectiveness of such amendment, such amendment shall be effective upon its
filing. A restated Declaration, integrating into a single instrument all of the
provisions of the Declaration which are then in effect and operative, may be
executed from time to time by a majority of the Trustees and shall, upon filing
with the Secretary of the Commonwealth of Massachusetts, be conclusive evidence
of all amendments contained therein and may thereafter be referred to in lieu
of the original Declaration and the various amendments thereto.
SECTION 11.2. RESIDENT AGENT. The Trust may appoint and maintain a
resident agent in the Commonwealth of Massachusetts.
SECTION 11.3. GOVERNING LAW. This Declaration is executed by the
Trustees with reference to the laws of the Commonwealth of Massachusetts, and
the rights of all parties and the validity and construction of every provision
hereof shall be subject to and construed according to the laws of said State.
SECTION 11.4. COUNTERPARTS. The Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.
SECTION 11.5. RELIANCE BY THIRD PARTIES. Any certificate executed by an
individual who, according. to the records of the Trust, appears to be a Trustee
hereunder, or Secretary or Assistant Secretary of the Trust, certifying to: (a)
the number or identity of Trustees or Shareholders, (b) the due authorization of
the execution of any instrument or
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writing, (c) the form of any vote passed at a meeting of Trustees or
Shareholders, (d) the fact that the number of Trustees or Shareholders present
at any meeting or executing any written instrument satisfies the requirements of
this Declaration, (e) the form of any By-Laws adopted by or the identity of any
officers elected by the Trustees, or (f) the existence of any fact or facts
which in any manner relate to the affairs of the Trust, shall be conclusive
evidence as to the matters so certified in favor of any Person dealing with the
Trustees and their successors.
SECTION 11.6. PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS. (a) The
provisions of the Declaration are severable, and if the Trustee shall determine,
with the advice of counsel, that any of such provisions is in conflict with the
1940 Act, the regulated investment company provisions of the Internal Revenue
Code or with other applicable laws and regulations, the conflicting provisions
shall be deemed never to have constituted a part of the Declaration; provided,
however, that such determination shall not affect any of the remaining
provisions of the Declaration or render invalid or improper any action taken or
omitted prior to such determination.
(b) If any provision of the Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attain only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of the
Declaration in any jurisdiction.
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CERTIFICATE
The undersigned, Secretary of Prudential-Bache Government Securities
Trust, a business trust organized under the laws of Massachusetts pursuant to a
Declaration of Trust dated September 22, 1981, as heretofore amended (the
"Declaration of Trust"), hereby certifies that the amendments to the Declaration
of Trust contained in the Amended and Restated Declaration of Trust attached
hereto were duly adopted in the manner provided in Section 9.3(a) of the
Declaration of Trust.
/s/ S. JANE ROSE, SECRETARY
Dated: September 6, 1988 ----------------------------------
S. Jane Rose, Secretary
State of New York )
: ss:
County of New York )
On this sixth day of September, 1988, S. Jane Rose, known to me and
known to be the individual described in and who executed the foregoing
instrument, personally appeared before me and acknowledged the foregoing
instrument to be her free act and deed.
RONALD AMBLARD
Notary Public, State of New York
No. 41-4851945
Qualified in Queens County
Commission Expires /s/ RONALD AMBLARD
----------------------------------
Ronald Amblard
Notary Public
My Commission Expires: 1/6/90
PRUDENTIAL-BACHE GOVERNMENT SECURITIES TRUST
Certificate of Amendment of
Declaration of Trust
The undersigned, being the duly elected and acting Assistant Secretary
of PRUDENTIAL-BACHE GOVERNMENT SECURITIES TRUST, a trust with transferable
shares under Massachusetts law (the "Trust"), established under a Declaration of
Trust dated September 22, 1981, as amended and restated September 6, 1988, (as
so amended, the "DECLARATION"), DO HEREBY CERTIFY that the Trustees of the
Trust, acting pursuant to Section 9.3 of the Declaration, by vote duly adopted
at a meeting of the Trustees, duly called and held, at which a quorum was
present and acting, have amended Section 1.1 of the Declaration to read as
follows:
"SECTION 1.1. NAME. The name of the trust created hereby is the
Prudential Government Securities Trust."
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of the
Trust, this 1st day of March, 1991.
/s/ RONALD AMBLARD
----------------------------------
Name: Ronald Amblard
Title: Assistant Secretary
(TRUST SEAL]
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK)
Then personally appeared the above named Ronald Amblard, Assistant
Secretary, who acknowledged the foregoing instrument to his free act and deed,
this 1st day of March, 1991.
Before me
/s/ ANITA L. WHELAN
-------------------------------
Anita L. Whelan
Notary Public
My Commission Expires 5/31/92
(NOTARIAL SEAL] Anita L. Whelan
NOTARY PUBLIC, State of New York
No. 02WH4815288
Qualified in Queens County
Commission Expires May 31, 1992
EXHIBIT 2
PRUDENTIAL-BACHE GOVERNMENT SECURITIES TRUST
By-Laws
ARTICLE I
SHAREHOLDERS
Section 1. PLACE OF MEETING. All meetings of the Shareholders shall be
held at the principal office of the Trust in the Commonwealth of Massachusetts
or at such other place within the United States as may from time to time be
designated by the Trustees and stated in the notice of such meeting.
Section 2. SPECIAL OR EXTRAORDINARY MEETING. Special or extraordinary
meetings of the Shareholders for any purpose or purposes may be called by the
President or a majority of the Trustees, and shall be called by the Secretary
upon receipt of the request in writing signed by Shareholders holding not less
than twenty-five per cent (25%) of the common Share issued and outstanding and
entitled to vote thereat. Such request shall state the purpose or purposes of
the proposed meeting. The Secretary shall inform such Shareholders of the
reasonably estimated costs of preparing and mailing such notice of meeting and
upon payment to the Trust of such costs, the Secretary shall give notice stating
the purpose or purposes of the meeting as required in this Article I to all
Shareholders
<PAGE>
entitled to notice of such meeting. No special meeting need be called upon the
request of the holders of Shares entitled to cast less than a majority of all
votes entitled to be cast at such meeting to consider any matter which is
substantially the same as a matter voted upon at any special meeting of
Shareholders held during the preceding twelve months.
Section 3. NOTICE OF MEETINGS. Not less than ten days' or more than
ninety days' written or printed notice of every meeting of Shareholders, stating
the time and place thereof (and the general nature of the business proposed to
be transacted at any special or extraordinary meeting), shall be given to each
Shareholder entitled to vote thereat by leaving the same with him or at his
residence or usual place of business or by mailing it, postage prepaid, and
addressed to him at his address as it appears upon the books of the Trust. If
mailed, notice shall be deemed to be given when deposited in the United States
mail addressed to the Shareholder as aforesaid.
No notice of the time, place or purpose of any meeting of Shareholders
need be given to any Shareholder who attends in person or by proxy or to any
Shareholder who executes a written waiver of such notice, either before or after
the meeting is held, and which notice is filed with the records of the meeting.
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<PAGE>
Section 4. RECORD DATES. The Trustees may fix, in advance, a date not
more than sixty (60) or less than ten (10) days preceding the date of any
meeting of Shareholders, as a record date for the determination of the
Shareholders entitled to notice of and to vote at such meeting; and only
Shareholders of record on such date shall be entitled to notice of and to vote
at such meeting.
Section 5. QUORUM AND ADJOURNMENT OF MEETINGS. The presence in person
or by proxy of the holders of record of a majority of the Shares of the Trust
issued and outstanding and entitled to vote thereat shall constitute a quorum at
all meetings of the Shareholders except as otherwise provided in the Declaration
of Trust. If, however, such quorum shall not be present or represented at any
meeting of the Shareholders, the holders of a majority of the Shares present in
person or by proxy shall have power to adjourn the meeting from time to time;
without notice other than announcement at the meeting, until the requisite
number of Shareholders entitled to vote at such meeting shall be present. At
such adjourned meeting at which the requisite amount of Shares entitled to vote
thereat shall be represented any business may be transacted which might have
been transacted at the meeting as originally notified.
Section 6. VOTING AND INSPECTORS. At all meetings, Shareholders of
record entitled to vote thereat shall have on vote for each Share standing in
his name on the books of the Trust (and such Shareholders of record
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<PAGE>
holding fractional shares, if any, shall have proportionate voting rights) on
the date for the determination of Shareholders entitled to vote at such meeting,
to be exercised either in person or by proxy appointed by instrument in writing
subscribed by such Shareholder or his duly authorized attorney. No proxy shall
be valid eleven months after its date.
All elections shall be had and all questions decided by a majority of
the votes cast at a duly constituted meeting, except as otherwise provided by
law or by the Declaration of Trust or by these By-Laws.
At any election of Trustees, the Chairman of the meeting may, and upon
the request of the holders of ten percent (10%) of the Shares entitled to vote
at such election shall, appoint two inspectors of election who shall first
subscribe an oath or affirmation to execute faithfully the duties of inspectors
at such election with strict impartiality and according to the best of their
ability, and shall after the election make a certificate of the result of the
vote taken. No candidate for the office of Trustee shall be appointed such
Inspector.
Section 7. CONDUCT OF MEETINGS. The meetings of the Shareholders shall
be presided over by the President, or if he is not present, by a Vice-President,
or if none of them is present by a Chairman to be elected at the meeting. The
Secretary of the Trust, if present, shall act as a Secretary of such meetings,
or if
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he is not present, an Assistant Secretary shall so act; if neither the Secretary
nor the Assistant Secretary is present, then the meeting shall elect its
Secretary.
Section 8. CONCERNING VALIDITY OF PROXIES, BALLOTS, ETC. At every
meeting of the Shareholders, all proxies shall be received and taken in charge
of and all ballots shall be received and canvassed by the Secretary of the
meeting, who shall decide all questions concerning upon the qualification of
voters, the validity of the proxies and the acceptance or rejection of votes,
unless inspectors of election shall have been appointed by the Chairman of the
meeting, in which event such inspectors of election shall decide all such
questions.
Section 9. ACTION WITHOUT MEETING. Except as otherwise provided by law,
the provisions of these By-Laws relating to notices and meetings to the contrary
notwithstanding, any action required or permitted to be taken at any meeting of
Shareholders may be taken without a meeting if a meeting of Shareholders may be
taken without a meeting if a majority of the Shareholders entitled to vote upon
the action consent to the action in writing and such consents are filed with the
records of the Trust. Such consent shall be treated for all purposes as a vote
taken as a meeting of Shareholders.
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<PAGE>
ARTICLE II
TRUSTEES
--------
Section 1. NUMBER AND TENURE OF OFFICE. The property of the Trust shall
be controlled by and the business and affairs of the Trust shall be conducted
and managed by not less than three (3) or more than fifteen (15) Trustees, as
may be fixed from time to time by a written instrument signed by a majority of
the Trustees then in office. Trustees need not be Shareholders. The tenure of
office of each Trustee shall be set by resolution of the Trustees, except that
any Trustee may resign his office or be removed from office for cause pursuant
to the provisions of the Declaration of Trust.
Section 2. VACANCIES. Pursuant to the provisions of the Declaration of
Trust, in case of any vacancy in the office of Trustee through death,
resignation or other cause, other than an increase in the number of Trustees, a
majority of the remaining Trustees, although a majority is less than quorum, by
an affirmative vote, or the sole remaining Trustee, may elect a successor or
successors, as the case may be, to hold office.
Section 3. INCREASE OR DECREASE IN NUMBER OF TRUSTEES. Pursuant to the
provisions of the Declaration of Trust, the Trustees, by the vote of a majority
of all the Trustees then in office, may increase the number of
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<PAGE>
Trustees and may elect Trustees to fill the vacancies created by any such
increase in the number of Trustees. The Trustees, by the vote of a majority of
all the Trustees then in office, may likewise decrease the number of Trustees to
a number not less than three.
Section 4. PLACE OF MEETING. The Trustees may hold their meetings, have
one or more offices, and keep the books of the Trust, outside the Commonwealth
of Massachusetts, at any office or offices of the Trust or at any other place as
they may from time to time by resolution determine, or in the case of meetings,
as they may from time to time by resolution determine or as shall be specified
or fixed in the respective notices or waivers of notice thereof.
Section 5. REGULAR MEETINGS. Regular meetings of the Trustees shall be
held at such time and on such notice as the Trustees may from time to time
determine.
Section 6. SPECIAL MEETINGS. Special meetings of the Trustees may be
held from time to time upon call of the President, the Secretary or two or more
of the Trustees, by oral or telegraphic or written notice duly served on or sent
or mailed to each Trustee not less than one day before such meeting. No notice
of any special meeting need be given to any Trustee who executes a written
waiver of such notice either before or after the meeting is held and which
notice is filed with the records of the meeting. Such notice or waiver of notice
need not state the purpose or purposes of such meeting.
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<PAGE>
Section 7. QUORUM. One-third of the Trustees then in office shall
constitute a quorum for the transaction of business, provided that a quorum
shall in no case be less than two Trustees. If at any meeting of the Trustees
there shall be less than a quorum present, a majority of those present may
adjourn the meeting from time to time until a quorum shall be obtained. The act
of the majority of the Trustees present at any meeting at which there is a
quorum shall be the act of the Trustees, except as may be otherwise specifically
provided by statute or by the Declaration of Trust or by these By-Laws.
Section 8. EXECUTIVE COMMITTEE. The Trustees may, by the affirmative
vote of a majority of the Trustees then in office, appoint from the Trustees an
Executive Committee to consist of such number of Trustees (not less than three)
as the Trustees may from time to time determine. The Chairman of the Committee
shall be elected by the Trustees. The Trustees by such affirmative vote shall
have power at any time to change the members of such Committee and may fill
vacancies in the Committee by election from the Trustees. When the Trustees are
not in session, to the extent permitted by law the Executive Committee shall
have and may exercise any or all of the powers of the Trustees in the management
of the business and affairs of the Trust. The Executive Committee may fix its
own rules of procedure, and may meet when and as provided by such rules or by
resolution of the Trustees,
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<PAGE>
but in every case the presence of a majority shall be necessary to constitute a
quorum. During the absence of a member of the Executive Committee, the remaining
members may appoint a Trustee to act in his place.
Section 9. OTHER COMMITTEES. The Trustees, by the majority vote of all
the Trustees then in office, may appoint from the Trustees other committees
which shall in each case consist of such number of Trustees (not less than two)
and shall have and may exercise such powers as the Trustees may determine in the
resolution appointing them. A majority of all the members of any such committee
may determine its action and fix the time and place of its meetings, unless the
Trustees shall otherwise provide. The Trustees shall have power at any time to
change the members and powers of any such committee, to fill vacancies and to
discharge any such committee.
Section 10. TELEPHONE MEETINGS. Trustees or a committee of the Trustees
may participate in a meeting by means of a conference telephone or similar
communications equipment if all persons participation in the meeting can hear
each other at the same time. Participation in a meeting by these means
constitutes presence in person at the meeting.
Section 11. ACTION WITHOUT A MEETING. Any action required or permitted
to be taken at any meeting of the Trustees or any committee thereof may be taken
without a meeting, if a written consent to such action is signed by
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<PAGE>
all Trustees then in office or all members of such committee, as the case may
be, and such written consent is filed without the minutes of the proceedings of
the Trustees or committee.
Section 12. COMPENSATION. No Trustee shall receive any stated salary or
fees from the Trust for his services as such if such Trustee is, otherwise than
by reason of being such Trustee, an interested person (as such term is defined
by the Investment Company Act of 1940) of the Trust or of its investment adviser
or manager or principal underwriter or distributor. Except as provided in the
preceding sentence, Trustees shall be entitled to receive such compensation from
the Trust for their services as may from time to time be voted by the Trustees.
Section 13. NOMINATING COMMITTEE. The Board of Trustees may be the
affirmative vote of a majority of the entire Board appoint from its members a
Nominating Committee composed of two or more trustees who are not "interested
persons" (as defined in the Investment Company Act of 1940) of the Trust, as the
Board may from time to time determine. The nominating Committee shall be
empowered to elect its own chairman who may call, or direct the Secretary of the
Trust to call, meetings in accordance with the notice provisions of these
By-Laws otherwise applicable to meetings of the Board of Trustees. The
Nominating Committee shall recommend to the Board a slate of persons who are not
"interested persons" (as defined in
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<PAGE>
the Investment Company Act of 1940) of the Trust, which may include members of
the Nominating Committee, to be nominated for election as trustees by the
shareholders at each annual meeting of shareholders and to fill any vacancy
occurring for any reason among the trustees who are not such "interested
persons."
ARTICLE III
OFFICERS
--------
Section 1. EXECUTIVE OFFICERS. The executive officers of the Trust
shall be chosen by the Trustees. These may include a Chairman of the Trust and
shall include a President (who shall be a Trustee), one or more Vice-Presidents
(the number thereof to be determined by the Trustees), a Secretary and a
Treasurer. The Trustees or the Executive Committee may also in their or its
discretion, as the case may be, appoint Assistant Secretaries, Assistant
Treasurers and other officers, agents and employees, who shall have such
authority and perform such duties as the Trustees or the Executive Committee may
determine. The Trustees may fill any vacancy which may occur in any office. Any
two officers, except those of President and Vice-President, may be held by the
same person, but no officer shall execute, acknowledge or verify any instrument
in more than one capacity, if such instrument is required by law or these
By-Laws to be executed, acknowledge or verified by two or more officers.
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<PAGE>
Section 2. TERM OF OFFICE. The term of office of all officers shall be
one year and until their respective successors are chosen and qualified. Any
officer may be removed from office an any time with or without cause by the vote
of a majority of the Trustees then in office.
Section 3. POWERS AND DUTIES. The officers of the Trust shall have such
powers and duties as generally pertain to their respective offices as well as
such powers and duties as may from time to time be conferred by the Trustees or
by the Executive Committee.
ARTICLE IV
SHARE INTEREST
--------------
Section 1. CERTIFICATES FOR SHARES. Shareholders are not entitled to
receive certificates evidencing their Share ownership, unless the Trustees shall
by resolution otherwise determine.
Section 2. TRANSFER OF SHARES. Shares of the Trust shall be
transferable on the register of the Trust by the holder thereof in person by his
agent duly authorized in writing, upon delivering to the Trustees or the
Transfer Agent of a duly executed instrument of transfer, together with such
evidence of the genuineness of each such execution and authorization of such
other matter as the Trust or its agents may reasonably require.
Section 3. REGISTER OF SHARES. A register of the Trust, containing the
names and addresses of the Shareholders and the number of Shares held by them
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<PAGE>
respectively and a record of all transfers thereof, shall be kept at the
principal offices of the Trust or, if the Trust employs a Transfer Agent, at the
offices of the Transfer Agent of the Trust.
ARTICLE V
SEAL
----
The Trustee may provide for a suitable seal, in such form and bearing
such inscriptions as they may determine.
ARTICLE VI
FISCAL YEAR
-----------
The fiscal year of the Trust shall begin on the first day of December
and shall end on the last day of November in each year.
ARTICLE VII
INDEMNIFICATION
---------------
A representative of the Trust shall be indemnified by the Trust with
respect to each proceeding against such representative, except a proceeding
brought by or on behalf of the Trust, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such representative in connection with such proceeding, provided
that such representative acted in good faith and in a manner he
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<PAGE>
reasonably believed to be in or not opposed to the best interests of the Trust
and, with respect to any criminal proceeding, had no reasonable cause to believe
his conduct was unlawful. The termination of any proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in a good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Trust and, with respect to any criminal proceeding,
had reasonable cause to believe that his conduct was unlawful.
A representative of the Trust shall be indemnified by the Trust, with
respect to each proceeding brought by or on behalf of the Trust to obtain a
judgment or decree in its favor, against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such proceeding, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the Trust;
except that no indemnification shall be made in respect of any claim, issue, or
matter as to which such representative has been adjudged to be liable for
negligence or misconduct in the performance of his duty to the Trust, unless and
only to the extent that the court in which the proceeding was brought, or a
court of equity in the county in which the Trust has its principal office,
determines upon application that, despite the adjudication of liability but
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<PAGE>
in view of all circumstances in the case, such corporate representative is
fairly and reasonably entitled to indemnity for the expenses which the court
considers proper.
To the extent that the representative of the Trust has been successful
on the merits or otherwise in defense of any proceeding referred to in the
preceding two paragraphs, or in defense of any claim, issue or matter therein,
the Trust shall indemnify him against all expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
Except as provided in the preceding paragraph any indemnification under
the first two paragraphs of this Article (unless ordered by a court) shall be
made by the Trust only as authorized in the specific case upon a determination
that indemnification of the representative of the Trust is proper in the
circumstances because he has met the applicable standard of conduct set forth in
such paragraphs. The determination shall be made (1) by the Trustees by a
majority vote of a quorum consisting of Trustees who were not parties to the
proceeding, or (2) if a quorum is not obtainable or if a quorum of disinterested
Trustees so directs, by independent legal counsel in a written opinion, or (3)
by the Shareholders.
Expenses (including attorneys' fees) incurred in defending a proceeding
may be paid by the Trust advance of the final disposition thereof if (1)
authorized by the
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<PAGE>
Trustees in the specific case, and (2) the Trust receives an undertaking by or
on behalf of the representative of the Trust to repay the advance if it is not
ultimately determined that he is entitled to be indemnified by the Trust as
authorized in this Article.
The indemnification provided by this Article shall not be deemed
exclusive of any other rights to which a representative of the Trust or other
person may be entitled under any agreement, vote of Shareholders or
disinterested Trustees or otherwise, both as to action in his official capacity
and as to action in another capacity while holding the office, and shall
continue as to a person who has ceased to be a Trustee, officer, employee or
agent and inure to the benefit of his heirs and personal representatives.
The Trust may purchase and maintain insurance on behalf of any person
who is or was Trustee, officer, employee or agent of the Trust, or is or was
serving at the request of the Trust as a trustee, director, officer, employee or
agent of another trust, corporation, partnership, joint venture or other
enterprise against any liability asserted against him and incurred by him in any
such capacity or arising out of his status as such, regardless of whether the
Trust would have the power to indemnify him against the liability under the
provisions of this Article.
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<PAGE>
Nothing contained in this Section shall be construed to indemnify any
representative of the Trust against any liability to the Trust or its security
holders to which he would otherwise be subject by reason of bad faith, willful
misfeasance, gross negligence or reckless disregard or reckless disregard of the
duties involved in the conduct of his office.
As used in this Article "representative of the Trust" means an
individual (1) who is a present or former Trustee, officer, agent or employee of
the Trust or who serves or has served another trust corporation, partnership,
joint venture or other enterprise in one of such capacities at the request of
the Trust, and (2) who by reason of his position is, has been or is threatened
to be made a party to a proceeding; and "Proceeding" includes any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative.
ARTICLE VIII
CUSTODIAN
---------
Section 1. The Trust shall have as custodian or custodians one or more
trust companies or banks of good standing, each having a capital, surplus and
undivided profits aggregating not less than fifty million dollars ($50,000,000),
and, to the extent required by the Investment Company Act of 1940, the funds and
securities held by the Trust shall be kept in the custody of one or more such
custodians, provided such custodian or custodians
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<PAGE>
can be found ready and willing to act, and further provided that the Trust may
use as subcustodians, for the purpose of holding any foreign securities and
related funds of the Trust such foreign banks as the Trustees may approve and as
shall be permitted by law.
Section 2. The Trust shall upon the resignation or inability to serve
of its custodian or upon change of the custodian:
(i) in case of such resignation or inability to serve, use its best
efforts to obtain a successor custodian;
(ii) require that the cash and securities owned by the Trust be
delivered directly to the successor custodian; and
(iii) in the event that no successor custodian can be found, submit
to the Shareholders before permitting delivery of the cash and
securities owned by the Trust otherwise than to a successor
custodian, the question whether the Trust shall be liquidated or
shall function without a custodian.
ARTICLE IX
AMENDMENT OF BY-LAWS
--------------------
The By-Laws of the Trust may be altered, amended, added to or repealed
by the Shareholders or by majority vote of all the Trustees then in office;
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<PAGE>
but any such alteration, amendment, addition or repeal of the By-Laws by action
of the Trustees may be altered or repealed by Shareholders.
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EXHIBIT 5(b)
PRUDENTIAL-BACHE GOVERNMENT SECURITIES TRUST
SUBADVISORY AGREEMENT
Agreement made as of this 9th day of August, 1988 between Prudential
Mutual Fund Management Inc., a Delaware Corporation ("PMF" or the "Manager"),
and The Prudential Investment Corporation, a New Jersey Corporation (the
"Subadviser").
WHEREAS, the manager entered into a Management Agreement, dated August
9, 1988 (the "Management Agreement"), with Prudential-Bache Government
Securities Trust (the "Fund"), a Massachusetts business trust and a diversified
open-end management investment company registered under the Investment Company
Act of 1940 (the "1940 Act"), pursuant to which PMF will act as Manager of the
Fund.
WHEREAS the shares of beneficial interest of the Fund are divided into
separate series, each of which is established pursuant to a written instrument
executed by the Trustees of the Fund, and the Trustees may from time to time
terminate such series or establish and terminate additional series; and
WHEREAS, PMF desires to retain the Subadviser to provide investment
advisory services to the Fund in connection with the management of the Fund and
the Subadviser is willing to render such investment advisory services.
NOW, THEREFORE, the Parties agree as follows:
1. (a) Subject to the supervision of the Manger and of the Trustees
of the Fund, the Subadviser shall manage the investment operations
of each series of the Fund and the composition of the portfolio of
each series, including the purchase, retention and disposition
thereof, in accordance with the investment objectives, policies
and restrictions of each such series as stated in the Prospectus,
(such Prospectus and Statement of Additional Information as
currently in effect and as amended or supplemented from time to
time, being herein called the "Prospectus"), and subject to the
following understandings:
(i) The Subadviser shall provide supervision of each series'
investments and determine from time to time what
investments and securities will be purchased, retained,
sold or loaned by each series of the Fund, and what
portion of the assets will be invested or held uninvested
as cash.
(ii) In the performance of its duties and obligations under
this Agreement, the Subadviser shall act in conformity
with the Declaration of Trust, By-Laws and Prospectus of
the Fund and with the instructions and directions of the
Manager and of the Trustees of the Fund and will conform
to and comply with the requirements of the 1940 Act, the
Internal Revenue Code of 1986 all other applicable federal
and state laws and regulations.
<PAGE>
(iii) The Subadviser shall determine the securities and
futures contracts to be purchased or sold by each series
of the Fund and will place orders with or through such
persons, brokers, dealers or futures commission merchants
(including but not limited to Prudential-Bache Securities
Inc.) to carry out the policy with respect to brokerage as
set forth in the Fund's Registration Statement and
Prospectus or as the Trustees may direct from time to
time. In providing the Fund with investment supervision,
it is recognized that the Subadviser will give primary
consideration to securing the most favorable price and
efficient execution. Within the framework of this policy,
the Subadviser may consider the financial responsibility,
research and investment information and other services
provided by brokers, dealers, or futures commission
merchants who may effect or be a party to any such
transaction or other transactions to which the
Subadviser's other clients may be a party. It is
understood that Prudential-Bache Securities Inc. may be
used as principal broker for securities transactions but
that no formula has been adopted for allocation of the
Fund's investment transaction business. It is also
understood that is desirable for the Fund that the
Subadviser have access to supplemental investment and
market research and security and economic analysis
provided by brokers or futures commission merchants who
may execute brokerage transactions at a higher cost to the
Fund than may result when allocating brokerage to other
brokers on the basis of seeking the most favorable price
and efficient execution. Therefore, the Subadviser is
authorized to place orders for the purchase and sale of
securities and futures contracts for each series of the
Fund with such brokers or futures commission merchant,
subject to review by the Fund's Trustees from time to time
with respect to the extent and continuation of this
practice. It is understood that the services provided by
such brokers or futures commission merchants may be useful
to the Subadviser in connection with the Subadviser's
services to other clients.
On occasions when the Subadviser deems the
purchase or sale of a security or futures contract to be
in the best interest of the Fund (and each series of the
Fund) as well as other clients of the Subadviser, the
Subadviser, to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to,
aggregate the securities or futures contracts to be sold
or purchased in order to obtain the most favorable price
or lower brokerage commissions and efficient execution. In
such event, allocation of the securities or futures
contracts so purchased or sold, as well as the expenses
incurred in the transaction, will be made by the
Subadviser in the manner the Subadviser considers to be
the most equitable and consistent with its fiduciary
obligations to the Fund (and each series of the Fund) and
to such other clients.
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<PAGE>
(iv) The Subadviser shall maintain all books and records
with respect to the Fund's portfolio transactions required
by subparagraphs (b)(5), (6), (7), (9), (10) and (11) and
paragraph (f) of Rule 31a-1 under the 1940 Act and shall
render to the Fund's Trustees such periodic and special
reports as the Trustees may reasonably request.
(v) The Subadviser shall provide the relating Fund's
Custodian on each business day with information relation
to all transactions concerning the Fund's assets and shall
provide the Manager with such information upon request of
the Manager.
(vi) The investment management services provided by the
Subadviser hereunder are not to be deemed exclusive, and
the Subadviser shall be free to render similar services to
others.
(b) The Subadviser shall authorize and permit any of its
directors, officers and employees who may be elected as Trustees
or officers of the Fund to serve in the capacities in which they
are elected. Services to be furnished by the Subadviser under this
Agreement may be furnished through the medium of any of such
directors, officers or employees.
(c) The Subadviser shall keep the Fund's books and records
required to be maintained by the Subadviser pursuant to paragraph
1(a) hereof and shall timely furnish to the Manager all
information relation to the Subadviser's services hereunder needed
by the Manager to keep the other books and records of the Fund
required by Rule 31a-1 under the 1940 Act. The Subadviser agrees
that all records which it maintains for the Fund are the property
of the Fund and the Subadviser will surrender promptly to the Fund
any of such records upon the Fund's request, provided however that
the Subadviser may retain a copy of such records. The Subadviser
further agrees to preserve for the periods prescribed by Rule
31a-2 of the Commission under the 1940 Act any such records as are
required to be maintained by it pursuant to paragraph 1(a) hereof.
2. The Manager shall continue to have responsibility for all
services to be provided to the Fund pursuant to the Management
Agreement and shall oversee and review the Subadviser's
performance of its duties under this Agreement.
3. The Manager shall reimburse the Subadviser for reasonable costs
and expenses incurred by the Subadviser determined in a manner
acceptable to the Manager in furnishing the services described in
paragraph 1 hereof.
4. The Subadviser shall not be liable for any error of judgment or
for any loss suffered by the Fund or the Manager in connection
with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence
on the Subadviser's part in the performance of its duties or form
its reckless disregard of its obligations and duties under this
Agreement.
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<PAGE>
5. This Agreement shall continue in effect for a period of more
than two years from the date hereof only so long as such
continuance is specifically approved at least annually with
respect to each series in conformity with the requirements of the
1940 Act; provided, however, that this Agreement may be terminated
with respect to any series by the Fund at any time, without the
payment of any penalty, by the Trustees of the Fund or by vote of
a majority of the outstanding voting securities (as defined in the
1940 Act) of the Fund, or by the Manager or the Subadviser at any
time, without the payment of any penalty, on not more than 60
days' nor less than 30 days' written notice to the other party.
This agreement shall terminate automatically in the event of its
assignment (as defined in the 1940 Act) or upon the termination of
the Management Agreement.
6. Nothing in this Agreement shall limit or restrict the right of
any of the Subadviser's directors, officers, or employees who may
also be a Trustee, officer or employee of the Fund to engage in
any other business or to devote his or her time and attention in
part to the management or other aspects of any business, whether
of a similar or a dissimilar nature, nor limit or restrict the
Subadviser's right to engage in any other business or to render
services of any kind to any other corporation, firm, individual or
association.
7. During the term of this Agreement, the Manager agrees to
furnish the Subadviser at its principal office all prospectuses,
proxy statements, reports to shareholders, sales literature or
other material prepared for distribution to shareholders of the
Fund or the public, which refer to the Subadviser in any way,
prior to use thereof and not to use material if the Subadviser
reasonably objects in writing five business days (or such other
time as may be mutually agreed) after receipt thereof. Sales
literature may be furnished to the Subadviser hereunder by
first-class or overnight mail, facsimile transmission equipment or
hand delivery.
8. This agreement may be amended by mutual consent, but the
consent of a series of the Fund must be obtained in conformity
with the requirements of the 1940 Act.
9. This Agreement shall be governed by the laws of the State of
New York.
IN WITNESS WHEREOF, the Parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC.
By /s/ illegible
---------------
PRESIDENT
THE PRUDENTIAL INVESTMENT CORPORATION
B /s/ illegible
---------------
- 4 -
EXHIBIT 8
CUSTODIAN CONTRACT
Between
EACH OF THE PARTIES INDICATED ON APPENDIX A
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
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<S> <C> <C>
1. Employment of Custodian and Property to be Held By It................. 1
2. Duties of the Custodian with Respect to Property of the Fund Held by
the Custodian in the United States.................................... 2
2.1 Holding Securities............................................. 2
2.2 Delivery of Securities......................................... 3
2.3 Registration of Securities..................................... 8
2.4 Bank Accounts.................................................. 8
2.5 Availability of Federal Funds.................................. 9
2.6 Collection of Income........................................... 10
2.7 Payment of Fund Monies......................................... 10
2.8 Liability for Payment in Advance of Receipt of Securities
Purchased...................................................... 13
2.9 Appointment of Agents.......................................... 14
2.10 Deposit of Securities in Securities System..................... 14
2.10A Fund Assets Held in the Custodian's Direct Paper System........ 17
2.11 Segregated Account............................................. 19
2.12 Ownership Certificates for Tax Purposes........................ 20
2.13 Proxies........................................................ 20
2.14 Communications Relating to Fund Portfolio Securities........... 20
2.15 Reports to Fund by Independent Public Accountants.............. 21
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States.......................................... 22
3.1 Appointment of Foreign Sub-Custodians.......................... 22
3.2 Assets to be Held.............................................. 22
3.3 Foreign Securities Depositories................................ 23
3.4 Segregation of Securities...................................... 23
3.5 Agreements with a Foreign Banking Institutions................. 24
3.6 Access of Independent Accountants of the Fund.................. 24
3.7 Reports by Custodian........................................... 25
3.8 Transactions in Foreign Custody Account........................ 25
3.9 Liability of Foreign Sub-Custodians............................ 26
3.10 Liability of Custodian......................................... 27
3.11 Reimbursement for Advances..................................... 28
3.12 Monitoring Responsibilities.................................... 28
3.13 Branches of U.S. Banks......................................... 29
4. Payments for Repurchases or Redemptions and Sales of Shares of the
Fund.................................................................. 29
5. Proper Instructions................................................... 30
6. Actions Permitted Without Express Authority........................... 32
7. Evidence of Authority................................................. 32
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
8. Duties of Custodian with Respect to the Books of Account and
Calculations of Net Asset Value and Net Income........................ 33
9. Records............................................................... 33
10. Opinion of Fund's Independent Accountant.............................. 34
11. Compensation of Custodian............................................. 34
12. Responsibility of Custodian........................................... 34
13. Effective Period, Termination and Amendment........................... 37
14. Successor Custodian................................................... 38
15. Interpretive and Additional Provisions................................ 40
16. Massachusetts Law to Apply............................................ 40
17. Prior Contracts....................................................... 40
18. The Parties........................................................... 40
19. Limitation of Liability............................................... 41
</TABLE>
<PAGE>
CUSTODIAN CONTRACT
This Contract between State Street Bank and Trust Company, a
Massachusetts trust company, having its Principal place of business at 225
Franklin Street, Boston Massachusetts, O2110, hereinafter called the
"Custodian", and each Fund listed on Appendix A which evidences its agreement to
be bound hereby by executing a copy of this Contract (each such Fund
individually hereinafter referred to as the "Fund").
WITNESSETH: That in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO HE HELD BY IT
The Fund hereby employs the Custodian as the custodian of its assets,
including securities it desires to be held in places within the United States
("domestic securities") and securities it desires to he held outside the United
States ("foreign securities") pursuant to the provisions of the Articles of
Incorporation/Declaration of Trust. The Fund agrees to deliver to the Custodian
all securities and cash owned by it and all payments of income, payments of
principal or capital distributions received by it with respect to all securities
owned by the Fund from time to time, and the cash consideration received by it
for such new or treasury shares of capital stock, ("Shares" of the Fund as may
be Issued or sold from time to time. The Custodian shall not be responsible for
any property of the Fund held or received by the Fund and not delivered to the
Custodian.
<PAGE>
Upon receipt of "Proper Instructions" (within the meaning of Article
5), the Custodian shall from time to time employ one or more sub-custodians
located in the United States, but only in accordance with an applicable vote by
the Board of Directors/Trustees of the Fund, and provided that the Custodian
shall have the same responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed as any such sub-custodian
has to the Custodian, provided that the Custodian agreement with any such
domestic sub-custodian shall impose on such sub-custodian responsibilities and
liabilities similar in nature and scope to those imposed by this Agreement with
respect to the functions to be performed by such sub-custodian. The Custodian
may employ as sub-custodians for the Fund's securities and other assets the
foreign banking institutions and foreign securities depositories designated in
Schedule "A" hereto but only in accordance with the provisions of Article 3.
2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD
BV THE CUSTODIAN IN THE UNITED STATES
2.1 HOLDING SECURITIES. The Custodian shall hold and physically segregate
for the account of the Fund all non-cash property. to be held by it in
the United States9 including all domestic securities owned by the Fund,
other than (a) securities which are maintained pursuant to Section 2.10
in a clearing agency which acts as a securities depository or in a
book-entry system authorized by the U.S. Department of the Treasury,
-2-
<PAGE>
collectively referred to herein as "Securities System" and (b)
commercial paper of an issuer for which State Street Bank and Trust
Company acts as issuing and paying agent ("Direct Paper") which is
deposited and/or maintained in the Direct Paper System of the Custodian
pursuant to Section 2.10A.
2.2 DELIVERY OF SECURITIES. The Custodian shall release and deliver
domestic securities owned by the Fund held by the Custodian or in a
Securities System account of the Custodian or in the Custodian's Direct
Paper hook-entry system account ("Direct Paper System") only upon
receipt of Proper Instructions, which may be continuing instructions
when deemed appropriate by the parties, and only in the following
cases:
1) Upon sale of such securities for the account of the Fund and
receipt of payment therefore:
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Fund:
3) In the case of a sale effected through Securities System, in
accordance with provisions of Section 2.10 hereof:
4) To the depository agent in connection with tender or other similar
offers for portfolio securities of the Fund:
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or
-3-
<PAGE>
otherwise become payable: provided that, in any such case, the
cash or other consideration is to be delivered to the Custodian:
6) To the issuer thereof, or its agent, for transfer into the name of
the Fund or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent appointed
pursuant to Section 2.9or into the name or nominee name of any
sub-custodian appointed pursuant to Article 1: or for exchange for
a different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units:
PROVIDED that, in any such case, the new securities are to be
delivered to the Custodian:
7) Upon the sale of such securities for the account of the Fund, to
the broker or its clearing agent against a receipt, for
examination in accordance with "street delivery" custom: provided
that in any such case, the Custodian shall have no responsibility
or liability for any loss arising from the delivery of such
securities prior to receiving payment for such securities except
as may arise from the
-4-
<PAGE>
Custodian's own negligence or willful misconduct:
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, -reorganization or readjustment
of the securities of the issuer of such securities, or pursuant to
provisions for conversion contained in such securities, or
pursuant to any deposit agreement: provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that, in
any such case, the new securities and cash, If any, are to he
delivered to the Custodian:
10) For delivery in connection with any loans of securities made by
the Fund, BUT ONLY against receipt of adequate collateral as
agreed upon from time to time by the Custodian and the Fund, which
may be in the form of cash or obligations issued by the United
States government, its agencies or
-5-
<PAGE>
instrumentalities, except that in connection with any loans for
which collateral is to be credited to the Custodian's account in
the book-entry system authorized by the U.S. Department of the
Treasury, the Custodian will not be held liable or responsible for
the delivery of securities owned by the Fund prior to the receipt
of such collateral;
11) For delivery as security in connection with any borrowings by the
Fund requiring a pledge of assets by the Fund, BUT ONLY against
receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any agreement
among the Fund, the Custodian and a broker-dealer registered under
the Securities Exchange Act of 1934 (the "Exchange Act") and a
member of The National Association of Securities Dealers, Inc.
("NASD"), relating to compliance with the rules of The Options
Clearing Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Fund;
13) For delivery in accordance with the provisions of any agreement
among the Fund,
-6-
<PAGE>
the Custodian, and a Futures Commission Merchant registered under
the Commodity Exchange Act, relating to compliance with the rules
of the Commodity Futures Trading Commission and/or any Contract
Market, or any similar organization or organizations, regarding
account deposits in connection with transactions by the Fund;
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to
the holders of shares in connection with distributions in kind, as
may be described from time to time in the Fund's currently
effective prospectus and statement of additional information
("prospectus"), in satisfaction of requests by holders of Shares
for repurchase or redemption; and
15) For any other proper business purpose, BUT ONLY upon receipt of,
in addition to Proper Instructions, a certified copy of a
resolution of the Board of Directors/Trustees or of the Executive
Committee signed by an officer of the Fund and certified by the
Secretary or an Assistant Secretary, specifying the securities to
be delivered, setting forth the purpose for which such
-7-
<PAGE>
delivery is to be made, declaring such purpose to be a proper
business purpose, and naming the person or persons to whom
delivery of such securities shall be made.
2.3 REGISTRATION OF SECURITIES. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Fund or in the name of any nominee of the Fund or of any nominee of the
Custodian which nominee shall be assigned exclusively to the Fund,
UNLESS the Fund has authorized in writing the appointment of a nominee
to be used in common with other registered investment companies having
the same investment adviser as the Fund, or in the name or nominee name
of any agent appointed pursuant to Section 2.9 or in the name or
nominee name of any sub-custodian appointed pursuant to Article 1. All
securities accepted by the Custodian on behalf of the Fund under the
terms of this Contract shall be in "street name" or other good delivery
form. If, however, the Fund directs the Custodian maintain securities
in "street name", the Custodian shall utilize its best efforts to
timely collect income due the Fund on such securities and to notify the
Fund on a best efforts basis of relevant corporate actions including,
without limitation, pendency or calls, maturities, tender or exchange
offers.
2.4 BANK ACCOUNTS. The Custodian shall open and maintain a separate bank
account or accounts in the United States in
-8-
<PAGE>
the name of the Fund, subject on1y to draft or order by the Custodian
acting pursuant to the terms of this Contract, and shall hold in such
account or accounts, subject to the provisions hereof, all cash
received by it from or for the account of the Fund, other than cash
maintained by the Fund in a bank account established and used in
accordance with Rule 17f-3 under the Investment Company Act of 1940.
Funds held by the Custodian for the Fund may be deposited by it to its
credit as Custodian in the Banking Department of the Custodian or in
such other banks or trust companies as it may in its discretion deem
necessary or desirable; PROVIDED, however, that every such bank or
trust company shall be qualified to act as a custodian under the
Investment Company Act of 1940 and that each such bank or trust company
and the funds to be deposited with each such bank or trust company
shall be approved by vote of a majority of the Board of
Directors/Trustees of the Fund. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity.
2.5 AVAILABILITY OF FEDERAL FUNDS. Upon mutual agreement between the Fund
and the Custodlan1 the Custodian shall, upon the receipt of Proper
Instructions, make federal funds avai1able to the Fund as of specified
times agreed upon from time to time by the Fund and the Custodian in
the amount of checks received in payment for Shares of the Fund which
are deposited into the Fund's account.
-9-
<PAGE>
2.6 COLLECTION OF INVOICE. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered securities held hereunder to which the Fund
shall be entitled either by law or pursuant to custom in the securities
business, and shall collect on a timely basis all income and other
payments with respect to bearer securities if, on the date of payment
by the issuer, such securities are held by the Custodian or its agent
thereof and shall credit such income, as collected, to the Fund's
custodian account. Without limiting the generality of the foregoing,
the Custodian shall detach and present for payment all coupons and
other income items requiring presentation as and when they become due
and shall collect interest when due on securities held hereunder.
Income due the Fund on securities loaned pursuant to the provisions of
Section 2.2 (10) shall be the responsibility of the Fund. The Custodian
will have no duty or responsibility in connection therewith, other than
to provide the Fund with such Information or data as may be necessary
to assist the Fund in arranging for the timely delivery to the
Custodian of the income to which the Fund is properly entitled.
2.7 PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions, which may
be continuing instructions when deemed appropriate by the parties, the
Custodian shall pay out monies of the Fund in the following cases only:
-10-
<PAGE>
1) Upon the purchase of securities held domestically, options, futures
contracts or options on futures contracts for the account of the Fund
but only (a) against the delivery of such securities, or evidence of
title to such options, futures contracts or options on futures
contracts, to the Custodian (or any bank, banking firm or trust company
doing business in the United States or abroad which is qualified under
the Investment Company Act of 1940, as amended, to act as a custodian
and has been designated by the Custodian as its agent for this purpose)
registered in the name of the Fund or in the name of a nominee of the
Custodian referred to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected through a Securities
System, in accordance with the conditions set forth in Section 2.10
hereof; (c) in the case of a purchase involving the Direct Paper
System, in accordance with the conditions set forth in Section 2.lOA;
(d) in the case of repurchase agreement entered into between the Fund
and the Custodian, or another bank, or a broker-dealer which is a
member of NASD, (i) against delivery of the securities either in
certificate form or
-11-
<PAGE>
through an entry crediting the Custodian's account at the Federal
Reserve Bank with such securities or (ii) against delivery of the
receipt evidencing purchase by the Fund of securities owned by the
Custodian along with written evidence of the agreement by the Custodian
to repurchase such securities from the Fund or (e) for transfer to a
time deposit account of the Fund in any bank, whether domestic or
foreign; such transfer may be effected prior to receipt of a
confirmation from a broker and/or the applicable bank pursuant to
Proper Instructions from the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of securities
owned by the Fund as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by the Fund as set
forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the Fund,
including but not limited to the following payments for the account of
the Fund: interest, taxes, management, accounting, transfer agent and
legal fees, and operating expenses of the
-12-
<PAGE>
Fund whether or not such expenses are to be in whole or part
capitalized or treated as deferred expenses;
5) For the payment of any dividends declared pursuant to the governing
documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, BUT ONLY upon receipt of, in addition to
Proper Instructions, a certified copy of a resolution of the Board of
Directors/Trustees or of the Executive Committee of the Fund signed by
an officer of the Fund and certified by its Secretary or an Assistant
Secretary, specifying the amount of such payment, setting forth the
purpose for which such payment is to be made, declaring such purpose to
be a proper purpose, and naming the person or persons to whom such
payment is to be made.
2.8 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES PURCHASED.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of securities for the account of
the Fund is made by the Custodian in advance of receipt of the
securities purchased in the absence of specific written
-13-
<PAGE>
instructions from the Fund to so pay in advance, the Custodian shall be
absolutely liable to the Fund for such securities to the same extent as
if the securities had been received by the Custodian.
2.9 APPOINTMENT OF AGENTS. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such
of the provisions of this Article 2 as the Custodian may from time to
time direct; PROVIDED, however, that the appointment of any agent shall
not relieve the Custodian of its responsibilities or liabilities
hereunder.
2.10 DEPOSIT OF SECURITIES IN SECURITIES SYSTEMS. The Custodian may deposit
and/or maintain domestic securities owned by the Fund in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal agencies,
collectively referred to herein as "Securities System" in accordance
with applicable Federal Reserve Board and Securities and Exchange
Commission rules and regulations, if any, and subject to the following
provisions:
1) The Custodian may keep domestic securities of the Fund in a
Securities System provided that
-14-
<PAGE>
such securities are represented in an account ("Account") of
the Custodian in the Securities System which shall not
include any assets of the Custodian other than assets held
as a fiduciary, custodian or otherwise for customers;
2) The records of the Custodian with respect to domestic
securities of the Fund which are maintained in a Securities
System shall identify by book-entry those securities
belonging to the Fund;
3) The Custodian shall pay for domestic securities purchased
for the account of the Fund upon (i) receipt of advice from
the Securities System that such securities have been
transferred to the Account, and (i) the making of an entry
on the records of the Custodian to reflect such payment and
transfer for the account of the Fund. The Custodian shall
transfer domestic securities sold for the account of the
Fund upon ( i) receipt of advice from the Securities System
that payment for such securities has been transferred to the
Account, and (ii) the making of an entry on the records of
the Custodian to reflect such transfer and payment for the
account of the Fund. Copies
-15-
<PAGE>
of all advices from the Securities System of transfers of
domestic securities for the account of the Fund in the shall
identity the Fund, be maintained for the Fund by the
Custodian and be provided to the Fund at its request. Upon
request, the Custodian shall furnish the Fund confirmation
of each transfer to or from the account of the Fund in the
form of a written advice or notice and shall furnish
promptly to the Fund copies of daily transaction sheets
reflecting each day's transactions in the Securities System
for the account of the Fund.
4) The Custodian shall provide the Fund with any report
obtained by the Custodian on the Securities System's
accounting system, internal accounting control and
procedures for safeguarding securities deposited in the
Securities System;
5) The Custodian shall have received the initial or annual
certificate, as the case may be, required by Article 13
hereof;
6) Anything to the contrary in this Contract notwithstanding,
the Custodian shall be liable to the Fund for any loss or
damage to the Fund resulting from use of the Securities
System by reason of any negligence,
-16-
<PAGE>
misfeasance or misconduct of the Custodian or any of its
agents or of any of its or their employees or from failure
of the Custodian or any such agent to enforce effectively
such rights as it may have against the Securities System; at
the election of the Fund, it shall be entitled to be
subrogated to the rights of the Custodian with respect to
any claim against the Securities System or any other person
which the Custodian may have as a consequence of any such
loss or damage if to the extent that the Fund has not been
whole for any such loss or damage.
2.10A FUND ASSETS HELD IN THE CUSTODIAN'S DIRECT PAPER SYSTEM
The Custodian may deposit and/or maintain securities owned by the Fund
in the Direct Paper System of Custodian subject to the following
provisions:
1) No transaction relating to securities Direct Paper System
will be effected absence of Proper Instructions;
2) The Custodian may keep securities of the Fund in the Direct
Paper System only If such securities are represented in an
account ("Account") of the Custodian in the Direct Paper
System which shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or
otherwise for customers;
-17-
<PAGE>
3) The records of the Custodian with respect to securities of
the Fund which are maintained in the Direct Paper System
shall identify by book-entry those securities belonging to
the Fund;
4) The Custodian shall pay for securities purchased for the
account of the Fund upon the making of an entry on the
records of the Custodian to reflect such payment and
transfer of securities to the account of the Fund. The
Custodian shall transfer securities sold for the account of
the Fund upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment
for the account of the Fund;
5) The Custodian shall furnish the Fund confirmation of each
transfer to or from the account of the Fund, in the form of
a written advice or notice, of Direct Paper on the next
business day following such transfer and shall furnish to
the Fund copies of daily transaction sheets reflecting each
day's transaction in the Direct Paper System for the account
of the Fund;
6) The Custodian shall provide the Fund with any report on its
system of internal accounting
-18-
<PAGE>
control as the Fund may reasonably request from time to
time;
2.11 Segregated Account. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or accounts
for and on behalf of the Fund, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.10 hereof, ( i ) in
accordance with the provisions of any agreement among the Fund, the
Custodian and a broker-dealer registered under the Exchange Act and a
member of the NASD (or any futures commission merchant registered under
the Commodity Exchange Act), relating to compliance with the rules of
The Options Clearing Corporation and of any registered national
securities exchange (or the Commodity Futures Trading Commission or any
registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in connection
with transactions by the Fund, (ii) for purposes of segregating cash,
government securities or liquid, high-grade debt obligations in
connection with options purchased, sold or written by the Fund or
commodity futures contracts or options thereon purchased or sold by the
Fund, (iii) for the purposes of compliance by the Fund with the
procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange
Commission
-19-
<PAGE>
relating to the maintenance or segregated accounts by registered
investment companies and (iv) for other proper corporate BUT ONLY, in
the case of clause (iv), upon receipt of, in addition to Proper
Instructions, a certified copy of a resolution of the Board of
Directors/Trustees or of the Executive Committee signed by an officer
of the Fund and certified by the Secretary or an Assistant Secretary,
setting forth the purpose or purposes of such segregated account and
declaring such purposes to be proper corporate purposes.
2.12 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of the Fund held by it and
in connection with transfers of such securities.
2.13 PROXIES. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Fund or a nominee of the Fund, all proxies, without
indication of the manner in which such proxies are to be voted, and
shall promptly deliver to the Fund such proxies, all proxy soliciting
materials and all notices relating to such securities.
2.14 COMMUNICATIONS RELATING TO FUND PORTFOLIO SECURITIES Subject to the
provisions of Section 2.3, the Custodian
-20-
<PAGE>
shall transmit promptly to the Fund all written information (including,
without limitation, pendency of calls and maturities of securities held
domestically and expirations of rights in connection therewith and
notices of exercise of call and put options written by the Fund and the
maturity of futures contracts purchased or sold by the Fund) received
by the Custodian from issuers of the securities being held for the
Fund. With respect to tender or exchange offers, the Custodian shall
transmit promptly to the Fund all written information received by the
Custodian from Issuers of the securities whose tender or exchange is
sought and from the party (or his agents) making the tender or exchange
offer. If the Fund desires to take action with respect to any tender
offer, exchange offer or any other similar transaction, the Fund shall
notify the Custodian at least three business days prior to the date on
which the Custodian is to take such action.
2.15 REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS The Custodian shall
provide the Fund, at such times as the Fund may reasonably require,
with reports by independent public accountants on the accounting
system, internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts,
including securities deposited and/or maintained in a Securities
System, relating to the services provided by the Custodian under this
Contract; such reports shall be of sufficient scope and in
-21-
<PAGE>
sufficient detail, as may reasonably be required by the Fund to provide
reasonable assurance that any material inadequacies would be disclosed
by such examination, and, if there are no such inadequacies, the
reports shall so state.
3. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD
OUTSIDE OF THE UNITED STATES
3.1 APPOINTMENT OF FOREIGN SUB-CUSTODIANS
The Fund hereby authorizes and instructs the Custodian to employ as
sub-custodians for the Fund's securities and other assets maintained
outside the United States the foreign banking institutions and foreign
securities depositories designated on Schedule A hereto ("foreign
sub-custodians"). Upon receipt of "Proper Instructions", as defined in
Section 5 of this Contract, together with a certified resolution of the
Fund's Board of Directors/Trustees, the Custodian and the Fund may
agree to amend Schedule A hereto from time to time to designate
additional foreign banking institutions and foreign securities
depositories to act as sub-custodian. Upon receipt of Proper
Instructions, the Fund may instruct the Custodian to cease the
employment of any one or more such sub-custodians for maintaining
custody of the Fund's assets.
3.2 ASSETS TO BE HELD. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities",
-22-
<PAGE>
as defined in paragraph (c)(1) of Rule l7f~S under the Investment
Company Act of 1940, and (b) cash and cash equivalents in such amounts
as the Custodian or the Fund may determine to be reasonably necessary
to effect the Fund's foreign securities transactions.
3.3 FOREIGN SECURITIES DEPOSITORIES. Except as may otherwise be agreed upon
in writing by the Custodian and the Fund, assets of the Fund shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as
sub-custodians pursuant to the terms hereof. Where possible, such
arrangements shall include entry into agreements containing the
provisions set forth in Section 3.5 hereof.
3.4 SEGREGATION OF SECURITIES
The Custodian shall identify on its books as belonging to the Fund, the
foreign securities of the Fund held by each foreign sub-custodian Each
agreement pursuant to which the Custodian employs a foreign banking
institution shall require that such institution establish a custody
account for the Custodian on behalf of the Fund and physically
segregate in that account, securities and other assets of the Fund,
and, in the event that such institution deposits the Fund's securities
in a foreign securities depository, that it shall identify on its books
as belonging to the Custodian, as agent for the Fund, the securities so
deposited.
-23-
<PAGE>
3.5 AGREEMENTS WITH FOREIGN BANKING INSTITUTIONS. Each agreement with a
foreign. banking institution shall be substantially in the form set
forth in Exhibit 1 hereto and shall provide that: (a) the Fund's assets
will not be subject to any right, charge, security interest, lien or
claim of any kind in favor of the foreign banking institution or its
creditors or agent, except a claim of payment for their safe custody or
administration; (b) beneficial ownership of the Fund's assets will be
freely transferable without the payment of money or value other than
for custody or administration; (c) adequate records will be maintained
identifying the assets as belonging to the Fund; (d) officers of or
auditors employed by, or other representatives of the Custodian,
including to the extent permitted under applicable law the independent
public accountants for the Fund, will be given access to the books and
records of the foreign banking institution relating to its actions
under its agreement with the Custodian; and (e) assets of the Fund held
by the foreign sub-custodian will be subject only to the instructions
of the Custodian or its agents.
3.6 ACCESS OF INDEPENDENT ACCOUNTANTS OF THE FUND. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to
-24-
<PAGE>
the performance of such foreign banking institution under its agreement
with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Fund held by foreign sub-custodians,
including but not limited to an identification of entities having
possession of the Fund's securities and other assets and advices or
notifications of any transfers of securities to or from each custodial
account maintained by a foreign banking institution for the Custodian
on behalf of the Fund indicating, as to securities acquired for the
Fund, the identity of the entity having physical possession of such
securities.
3.8 TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT
(a) Except as otherwise provided in paragraph (b) of this Section 3.8,
the provision of Sections 2.2 and 2.7 of this Contract shall apply, in
their entirety to the foreign securities of the Fund held outside the
United States by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of the
Fund and delivery of securities maintained for the account of the Fund
may be effected in accordance with the customary established securities
trading or securities processing practices and procedures in the
jurisdiction or market in which the transaction
-25-
<PAGE>
occurs, including, without limitation, delivering securities to the
purchaser thereof or to a dealer therefor (or an agent for such
purchaser or dealer) against a. receipt with the expectation of
receiving later payment for such securities from such purchaser or
dealer. (c) Securities maintained in the custody of a foreign
sub-custodian may be maintained in the name of such entity's nominee to
the same extent as set forth in Section 2.3 of this Contract, and the
Fund agrees to hold any such nominee harmless from any liability as a
holder of record of such securities.
3.9 LIABILITY OF FOREIGN SUB-CUSTODIANS. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable care
in the performance of its duties and to indemnify, and hold harmless,
the Custodian and each Fund from and against any loss, damage, cost,
expense, liability or claim arising out of or in connection with the
institution's performance of such obligations. At the election of the
Fund, it shall he entitled to be subrogated to the rights of the
Custodian with respect to any claims against a foreign banking
institution as a consequence of any such loss, damage, cost, expense,
liability or claim if and to the extent that the Fund has not been made
whole for any such loss, damage, cost, expense, liability or claim.
-26-
<PAGE>
3.10 LIABILITY OF CUSTODIAN. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a
U.S. bank as contemplated by paragraph 3.13 hereof, the Custodian shall
not liable for any loss, damage, cost, expense, liability or claim
resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism or any loss where the sub-custodian has
otherwise exercised reasonable care. Notwithstanding the foregoing
provisions of this paragraph 3.10, in delegating custody duties to
State Street London Ltd., the Custodian shall not be relieved of any
responsibility to the Fund for any loss due to such delegation, except
such loss as may result from (a) political risk (including, but not
limited to, exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or
(b) other losses (excluding a bankruptcy or insolvency of State Street
London Ltd. not caused by political risk) due to Acts of God, nuclear
incident or other losses under circumstances where the Custodian and
State Street London Ltd. have exercised reasonable care.
-27-
<PAGE>
3.11 REIMBURSEMENT FOR ADVANCES. If the Fund requires the Custodian to
advance cash or securities for any purpose including the purchase or
sale of foreign exchange or of contracts for foreign exchange, or in
the event that the Custodian or its nominee shall incur or be assessed
any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may
arise from its or its nominee's own negligent action, negligent failure
to act or willful misconduct, any property at any time held for the
account of the Fund shall be security therefor and should the Fund fail
to repay the Custodian promptly, the Custodian shall be entitled to
utilize available cash and to dispose of the Fund assets to the extent
necessary to obtain reimbursement.
3.12 MONITORING RESPONSIBILITIES. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns of
a material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive order
from the Securities
-28-
<PAGE>
and Exchange Commission is notified by such foreign sub-custodian that
there appears to be a substantial likelihood that shareholders equity
will decline below $200 million (U.S. dollars or the equivalent
thereof) or that its shareholders' equity has declined below $200
million (in each case computed in accordance with generally accepted
U.S. accounting principles).
3.13 BRANCHES OF U.S. BANKS
(a) Except as otherwise set forth in this Contract, the provisions of
Article 3 shall not apply where the custody of the Fund assets are
maintained in a foreign branch of a banking institution which is a
"bank" as defined by Section 2(a)(S) of the Investment Company Act of
1940 meeting the qualification set forth in Section 26(a) of said Act.
The appointment of any such branch as a sub-custodian shall be governed
by paragraph 1 of this Contract.
(b) Cash held for the Fund in the United Kingdom shall be maintained in
an interest bearing account established for the Fund with the
Custodian's London branch, which account shall be subject to the
direction of the Custodian, State Street London Ltd. or both.
4. PAYMENTS FOR REPURCHASES OR REDEMPTIONS AND SALES OF SHARES OF THE FUND
From such funds as may be available for the purpose but subject to the
limitations of the Articles of Incorporation/ Declaration of Trust and any
applicable votes of the Board of
-29-
<PAGE>
Directors Trustees of the Fund pursuant thereto, the Custodian shall, upon
receipt of instructions from the Transfer Agent, make funds available for
payment to ho1ders of Shares who have delivered to the Transfer Agent a request
for redemption or repurchase of their Shares. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the redemption
or repurchase of Shares in the Fund, the Custodian shall honor checks drawn on
the Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in accordance with
such procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
The Custodian shall receive from the distributor for the Fund's Shares
or from the Transfer Agent of the Fund and deposit into the Fund's account such
payments as are received for Shares of the Fund issued or sold from time to time
by the Fund. The Custodian will provide timely notification to the Fund and the
Transfer Agent of any receipt by it of payments for Shares of the Fund.
5. PROPER INSTRUCTIONS
Proper Instructions as used herein means a writing signed or initialled
by one or more person or persons as the officers of the Fund shall have from
time to time authorized. Each such writing shall set forth the specific
transaction or type of
-30-
<PAGE>
transaction involved, including a specific statement of the purpose for which
such action is requested. Oral instructions will be considered Proper
Instructions if the Custodian reasonably believes them to have been given by a
person authorized to give such instructions with respect to the transaction
involved. The Fund shall cause all oral instructions to be confirmed in writing.
It is understood and agreed that the Board of Directors/Directors/Trustees has
authorized (1) Prudential Mutual Fund Management, Inc., as Manager of the Fund,
and (ii) The Prudential Investment Corporation (or Prudential-Bache Securities
Inc.), as Subadviser to the Fund, to deliver proper instructions with respect to
all matters for which proper instructions are required by this Article 5. The
Custodian may rely upon the certificate of an officer of the Manager or
Subadviser, as the case may be, with respect to the person or persons authorized
on behalf of the Manager and Subadviser, respectively, to sign, initial or give
proper instructions for the purpose of this Article 5. Proper Instructions may
include communications effected directly between electro-mechanical or
electronic devices provided that the Fund and the Custodian are satisfied that
such procedures afford adequate safeguards for the Fund's assets. For purposes
of this Section, Proper Instructions shall include instructions received by the
Custodian pursuant to any three-party agreement which requires a segregated
asset account in accordance with Section 2.11.
-31-
<PAGE>
6. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY
The Custodian may in its discretion, without express authority from the
Fund:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this Contract,
PROVIDED that all such payments shall be accounted for to the Fund;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Fund, checks, drafts and
other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and other dealings
with the securities and property of the Fund except as otherwise directed by the
Board of Directors/Trustees of the Fund.
7. EVIDENCE OF AUTHORITY
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the Fund.
The Custodian may receive and accept a certified copy of a vote of the Board of
Directors/Trustees of the Fund as conclusive evidence (a) of the authority of
any person to act in accordance with such vote or (b) of any determination or of
any action by the Board of Directors/Trustees pursuant to the Articles of
Incorporation/
-32-
<PAGE>
Declaration of Trust as described in such vote, and such vote may be considered
as in full force and effect until receipt by the Custodian of written notice to
the contrary.
8. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND
CALCULATION OF NET ASSET VALUE AND NET INCOME
The Custodian shall cooperate with and supply necessary information to
the entity or entitles appointed by the Board of Directors/Trustees of the Fund
to keep the books of account of the Fund and/or compute the net, asset value per
share of the outstanding shares of the Fund or, if directed in writing to do so
by the Fund, shall itself keep such books of account and/or compute such net
asset value per share. If so directed, the Custodian shall also calculate daily
the net income of the Fund as described in the Fund's currently effective
prospectus and shall advise the Fund and the Transfer Agent daily of the total
amounts of such net income and, if instructed in writing by an officer of the
Fund to do 'so, shall advise the Transfer Agent periodically of the division of
such net income among its various components. The calculations of the net asset
value per share and the daily income of the Fund shall be made at the time or
times described from time to time in the Fund's currently effective prospectus.
9. RECORDS
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet the
obligations of the Fund under the Investment Company Act of 1940, with
particular attention to
-33-
<PAGE>
Section 31 thereof and Rules 31a-l and 31a-2 thereunder. All such records shall
be the property of the Fund and shall at all times during the regular business
hours of the Custodian be open for inspection by duly authorized officers,
employees or agents of the Fund and employees and agents of the Securities and
Exchange Commission. The Custodian shall, at the Fund's request, supply the Fund
with a tabulation of securities owned by the Fund and held by the Custodian and
shall, when requested to do so by the Fund and for such compensation as shall be
agreed upon between the Fund and the Custodian, include certificate numbers in
such tabulations.
10. OPINION OF FUND'S INDEPENDENT ACCOUNTANT
The Custodian shall take all reasonable action, as the Fund may from
time to time request, to obtain from year to year favorable opinions from the
Fund's Independent accountants with respect to its activities hereunder in
connection with the preparation of the Fund's Form N-lA, Form N-2 (in the case
of a closed end Fund) and Form N-SAR or other periodic reports to the Securities
and Exchange Commission and with respect to any other requirements of such
Commission.
11. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund and the Custodian.
12. RESPONSIBILITY OF CUSTODIAN
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for
-34-
<PAGE>
the title, validity or genuineness of any property or evidence of title thereto
received by it or delivered by it pursuant to this Contract and shall be held
harmless in acting upon any notice, request, consent, certificate or other
instrument reasonably believed by it to be genuine and to be signed by the
proper party or parties, including any futures commission merchant acting
pursuant to the terms of a three-party futures or options agreement. The
Custodian shall be held to the exercise of reasonable care in carrying out the
provisions of this Contract, but shall be kept indemnified by and shall be
without liability to the Fund for any action taken or omitted by it in good
faith without negligence. It shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Fund) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant to such
advice. Notwithstanding the foregoing9 the responsibility of the Custodian with
respect to redemptions effected by check shall be in accordance with a separate
Agreement entered into between the Custodian and the Fund.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States and, regardless of whether assets are maintained in
the custody of a foreign banking institution, a foreign securities depository or
a branch of a U.S. bank as contemplated by paragraph 3.11 hereof, the Custodian
shall not be liable for
-35-
<PAGE>
any loss, damage, cost, expense, liability or claim resulting from, or caused
by, the direction of or authorization by the Fund to maintain custody or any
securities or cash of the Fund in a foreign country including, but not limited
to, losses resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Fund being liable for the payment of money or incurring liability of some
other form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian to advance cash or securities for
any purpose or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the Fund shall be
security therefor and should the Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of the Fund
assets to the extent necessary to obtain reimbursement provided, however that,
prior to disposing of Fund assets hereunder, the Custodian shall give the Fund
notice of its intention to dispose
-36-
<PAGE>
of assets identifying such assets and the Fund shall have one business day from
receipt of such notice to notify the Custodian if the Fund wishes the Custodian
to dispose of Fund assets of equal value other than those identified in such
notice.
13. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than sixty (60) days after the date of such delivery or mailing; PROVIDED,
however that the Custodian shall not act under Section 2.10 hereof in the
absence of receipt of an initial certificate of the Secretary or an Assistant
Secretary that the Board of Directors/Trustees of the Fund has approved the
initial use of a particular Securities System and the receipt of an annual
certificate of the Secretary. or an Assistant Secretary that the Board of
Directors/Trustees has reviewed the use by the Fund of such Securities System,
as required in each case by Rule 17f-4 under the Investment Company Act of 1940,
as amended and that the Custodian shall not act under Section 2.10A hereof in
the absence of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Directors/Trustees has approved the
initial use of the Direct Paper System and the receipt of an annual certificate
of the Secretary or an Assistant Secretary that the Board of Directors/Trustees
has reviewed the
-37-
<PAGE>
use by the Fund of the Direct Paper System; PROVIDED fURTHER, however, that the
Fund shall not amend or terminate this Contract in contravention of any
applicable federal or state regulations, or any provision of the Article of
Incorporation/Declaration of Trust, and further provided, that the Fund may at
any time by action of its Board of Directors/Trustees (i) substitute another
bank or trust company for the Custodian by giving notice as described above to
the Custodian, or (ii) Immediately terminate this Contract in the event of the
appointment of a conservator or receiver for the Custodian by the Comptroller of
the Currency or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund shall pay to the Custodian
such compensation as may be due as of the date of such termination and shall
likewise reimburse the Custodian for its costs, expenses and disbursements.
14. SUCCESSOR CUSTODIAN
If a successor custodian shall be appointed by the Board of
Directors/Trustees of the Fund, the Custodian shall, upon termination, deliver
to such successor custodian at the office of the Custodian, duly endorsed and in
the form for transfer, all securities then held by it hereunder and shall
transfer to an account of the successor custodian all of the Fund's securities
held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Board of
Directors/Trustees of the Fund, deliver
-38-
<PAGE>
at the office of the Custodian and transfer such securities, funds and other
properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors/Trustees shall have been
delivered to the Custodian on or before the date when such termination shall
become effective, then the Custodian shall have the right to deliver to a bank
or trust company, which is a "bank" as defined in the Investment Company Act of
1940, doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian and all instruments held by the Custodian
relative thereto an4 all other property held by it under this Contract and to
transfer to an account of such successor custodian all of the Fund's securities
held in any Securities System. Thereafter, such bank or trust company shall be
the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Directors/Trustees to appoint a successor custodian, the Custodian
shall be entitled to fair compensation for its services during such period as
the Custodian retains possession of such securities, funds and other properties
and the provisions of this Contract relating to the duties and obligations of
the Custodian shall remain in full force and effect.
-39-
<PAGE>
15. INTERPRETIVE AND ADDITIONAL PROVISIONS
In connection with the operation of this Contract, the Custodian and
the Fund may from-time to time to agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, PROVIDED that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision of
the Articles of Incorporation/Declaration of Trust of the Fund. No interpretive
or additional provisions made as provided in the preceding sentence shall be
deemed to be an amendment of this Contract.
16. MASSACHUSETTS LAW TO APPLY
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of the Commonwealth of Massachusetts.
17. PRIOR CONTRACTS
This Contract supersedes and terminates, as of the date prior contracts
between the Fund and the Custodian the custody of the Fund's assets.
18. THE PARTIES
All references herein to the "Fund" are to each of the Funds listed on
Appendix A individually, as if this Contract were between such Individual Fund
and the Custodian. With respect to any Fund listed on Appendix A which is
organized as a
-40-
<PAGE>
Massachusetts Business Trust, references to Board of Directors and Articles of
Incorporation shall be deemed a reference to Board of Directors/Trustees and
Articles of Incorporation/ Declaration of Trust respectively and reference to
shares of capital stock shall be deemed a reference to shares of beneficial
interest.
19. LIMITATION OF LIABILITY
Each Fund listed on Appendix A that is referenced as a Massachusetts.
Business Trust is the designation of the Directors/Trustees under a Articles of
Incorporation/Declaration of Trust, dated (see Appendix A) and all persons
dealing with the Fund must look solely to the property of the Fund for the
enforcement of any claims against the Fund as neither the Directors/Trustees,
officers, agents or shareholders assume any personal liability for obligations
entered into on behalf of the Fund.
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the dates set forth on Appendix A.
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ illegible By /s/ illegible
- ------------------- --------------
Assistant Secretary Vice President
ATTEST EACH OF THE FUNDS LISTED ON APPENDIX A
/s/ illegible By /s/ illegible
- ------------- ---------------
Secretary Vice President
-41-
<PAGE>
<TABLE>
<CAPTION>
PRUDENTIAL MUTUAL FUNDS
STATE STREET
GLOBAL CUSTODY NETWORK
SECURITIES DEPOSITORY OR CLEARING
COUNTRY BANK AGENCY
- ------- ---- ------
<S> <C> <C>
Argentina Citibank, N.A. Caja de Valores S.A.
Australia Westpac Banking Corporation Austraclear Limited; and Reserve
Bank Information and Transfer
System (RITS)
Austria GiroCredit Bank Aktiengesellschaft der Oesterreichische Kontrollbank AG
Sparkassen (Werpapiersammelbank Division)
Bangladesh* Standard Chartered Bank None
Belgium Generale Bank Caisse Interprofessionnelle de
Depots et de Virements de Tites
S.A. (CIK); Banque Nationale de
Belgique
Brazil Citibank, N.A. Bolsa de Valores de Sao Paulo
(Bovespa); Banco Central do
Brasil, Systema Especial de
Liquidacao e Custodia (SELIC)
Canada Canada Trustco Mortgage Company The Canadian Depository for
Securities Limited (CDS)
Chile Citibank, N.A. None
China The HongKong and Shanghai Banking Shanghai Securities Central
Corporation Limited, Shanghai and Shenzhen Clearing and Registration
branches Corporation (SSCCRC)
Shenzhen Securities Central
Clearing Co. Ltd. (SSCC)
Columbia Cititrust Columbia S.A. None
Sociedad Fiduciaria
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SECURITIES DEPOSITORY OR CLEARING
COUNTRY BANK AGENCY
- ------- ---- ------
<S> <C> <C>
Cyprus* Barclays Bank PLC Cyprus Offshore Banking None
Unit
Czech Republic Ceskoclovenska Obchodni Banka A.S. Stredisko Cennych Papiru (SCP);
Czech National Bank (CNB)
Denmark Den Danske Bank Vaerdipapircentralen, The Danish
Securities Center (VP)
Egypt* National Bank of Egypt None
Finland Merita Bank Limited The Central Share Register of
Finland
France Banque Paribas Societe Interprofessionelle pour
la Compensation des Valeurs
Mobilieres (SICOVA) Banque de
France, Saturne System
Germany Dresdner Bank AG The Deutscher Kassenvere AG
Greece National Bank of Greece S.A. The Central Depository
(Apothetirio Tition A.E.)
Hong Kong Standard Chartered Bank The Central Clearing and
Settlement System (CCASS)
Hungary Citibank Budapest Rt. The Central Depository and
Clearing House (Budapest) Ltd.
(KELLER Ltd.)
India The HongKong and Shanghai Banking None
Corporation Limited
Deutsche Bank AG
Indonesia Standard Chartered Bank None
Ireland Bank of Ireland The Central Bank of Ireland
The Gilt Settlement Office (GSO)
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
SECURITIES DEPOSITORY OR CLEARING
COUNTRY BANK AGENCY
- ------- ---- ------
<S> <C> <C>
Israel Bank Hapoalim B.M. The Clearing House of the Tel
Aviv Stock Exchange
Italy Morgan Guaranty Trust Company Monte Titoli, S.p.A; Banca
d'Italia
Bank Paribas
Japan The Daiwa Bank, Limited Japan Securities Depository
Sumitomo Trust & Banking Center (JASDEC); Bank of Japan
Co., Ltd. Net System
The Fuji Bank, Limited
Korea SEOULBANK Korea Securities Depository (KSD)
Luxembourg -- Cedel
Malaysia Standard Chartered Bank Malaysian Central Depositor
Malaysia Berhad Sdn. Bhd. (MCD)
Mexico Citibank Mexico, N.A. S.D. INDEVAL, S.A. de C.V.
(Instituto para el Deposito
de Valores); Banco de Mexico
Morocco* Banque Commerciale du Marco None
Netherlands MeesPierson N.V. Nederlands Centraal
Instituut voor Giraal
Effectneverkeer B.V.
(NECIGEF)
New Zealand ANZ Banking Group New Zealand Central Securities
(New Zealand) Limited Depository Limited (NZCSD)
Norway Christiania Bank og Verdipapirsentraien,
Kreditkasse The Norwegian Registry
of Securities (VPS)
Pakistan Deutsche Bank AG None
Peru Citibank, N.A. Caja de Valores (CAVAL)
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
SECURITIES DEPOSITORY OR CLEARING
COUNTRY BANK AGENCY
- ------- ---- ------
<S> <C> <C>
Philippines Standard Chartered Bank None
Poland Citibank Poland, S.A. The National Depository of
Securities (Krajowy Depozyt
Papierow Wartosciawych); National
Bank of Poland
Portugal Banco Comercial Portugues Central de Valores Mobilarios
(Central)
Signapore The Development Bank of The Central Depository (Pte)
Signapore Ltd. Limited (CDP)
Slovak Republic Cekoslovenska Obchodna Banka A.S. Strediski Cennych Papiero (SCP);
National Bank of Sloakia
South Africa Standard Bank of South Africa Ltd. The Central Depository Limited
Spain Banco Santander, S.A. Servicio de Compensacion
Liquidacion de Valores (SCLV);
Banco de Espana, Anotaciones en
Cuenta
Sri Lanka* The Hong Kong and Shanghai Banking The Central Depository System
Corporation Limited (Pvt) Limited
Sweden Skandinaviska Enskilda Banken Vardepapperscentralen, VPC, AB,
The Swedish Securities Depository
Switzerland Union Bank of Switzerland Schweizerische Effekten-Giro AG
(SEGA)
Taiwan Central Trust of China The Taiwan Securities Central
Depository Company Ltd. (TSCD)
Thailand Standard Chartered Bank Thailand Securities Central
Depository Company, Ltd. (TSCD)
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
SECURITIES DEPOSITORY OR CLEARING
COUNTRY BANK AGENCY
- ------- ---- ------
<S> <C> <C>
Turkey Citibank, N.A. Takas ve Saklama Bankasi
A.S. (TAKASBANK); Central
Bank of Turkey
Transnational -- The Euroclear System Cedel
United Kingdom State Street Bank and Trust The Bank of England, The Central
Company, London branch, and State Gifts Office (CGO); The Central
Street Limited, a subsidiary of London Moneymarkets Office (CMC)
State Street Bank and Trust
Company
Uruguay Citibank, N.A. None
Venezuela Citibank, N.A. None
</TABLE>
- ------------------
* Funds marked by an asterisk have been approved only for The Target
Portfolio Trust
5
<PAGE>
PRUDENTIAL MUTUAL FUNDS
STATE STREET GLOBAL CUSTODY NETWORK
NAME OF FUND BOARD APPROVAL DATE:
Global Utility Fund, Inc. August 29, 1996
Prudential Allocation Fund August 28, 1996
Prudential Equity Fund, Inc. August 28, 1996
Prudential Equity Income Fund August 28, 1996
Prudential Diversified Bond Fund, Inc. July 9, 1996
Prudential Distressed Securities Fund, Inc. August 27, 1996
Prudential Emerging Growth Fund, Inc. October 12, 1996
Prudential Global Genesis Fund, Inc. August 28, 1996
Prudential Global Limited Maturity Fund, Inc. July 11, 1996
Prudential Intermediate Global Income Fund, Inc. August 27, 1996
Prudential Jennison Series Fund, Inc. July 9, 1996
Prudential Multi-Sector Fund, Inc. August 28, 1996
Prudential Natural Resources Fund, Inc. August 28, 1996
Prudential Pacific Growth Fund, Inc. July 11, 1996
Prudential Small Companies Fund, Inc. August 27, 1996
Prudential Utility Fund, Inc. July 10, 1996
Prudential World Fund, Inc. July 11, 1996
The Target Portfolio Trust July 9, 1996
The Global Government Plus Fund, Inc. August 28, 1996
The Global Total Return Fund, Inc. August 29, 1996
/s/______________________
Fund's Authorized Officer
Date: November 26, 1996
6
EXHIBIT 9
TRANSFER AGENCY AND SERVICE AGREEMENT
between
PRUDENTIAL-BACHE GOVERNMENT SECURITIES TRUST
(a Massachusetts Business Trust)
and
PRUDENTIAL MUTUAL FUND SERVICES, INC.
<PAGE>
TABLE OF CONTENTS
Article 1 Terms of Appointment; Duties of the Agent....................1
Article 2 Fees and Expenses............................................4
Article 3 Representations and Warranties of the Agent..................5
Article 4 Representations of Warranties of the Fund....................5
Article 5 Duty of Care and Indemnification.............................6
Article 6 Documents and Covenants of the Fund and the Agent............8
Article 7 Termination of Agreement....................................10
Article 8 Assignment..................................................10
Article 9 Affiliations................................................11
Article 10 Amendment...................................................11
Article 11 Applicable Law..............................................12
Article 12 Miscellaneous...............................................12
Article 13 Merger of Agreement.........................................13
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 1st January day of January, 1988 by and
between PRUDENTIAL-BACHE GOVERNMENT SECURITIES TRUST, a Massachusetts business
trust, having its principal office and place of business at One Seaport Plaza,
New York, New York 10292 (the "Fund"), and PRUDENTIAL MUTUAL FUND SERVICES,
INC., a New Jersey corporation, having its principal office and place of
business at Raritan Plaza I, Edison, New Jersey 08818 (the "Agent" or "PMFS").
WHEREAS, the Fund desires to appoint PMFS as its transfer agent,
dividend disbursing agent and shareholder servicing agent in connection with
certain other activities, and PMFS desires to accept such appointment;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Article 1. TERMS OF APPOINTMENT; DUTIES OF PMFS
1.01 Subject to the terms and conditions set forth in this Agreement,
the Fund hereby employs and appoints PMFS to act as, and PMFS agrees to act as,
the transfer agent for the authorized and issue shares of beneficial interest of
each series of the Fund, $.01 par value ("Shares"), dividend disbursing agent
and shareholder servicing agent in connection with any accumulation,
open-account or similar plans provided to the shareholders of the Fund or any
series thereof ("Shareholders") and set out in the currently effective
prospectus and statement of additional information ("prospectus") of the Fund,
including without limitation any periodic investment plan or periodic withdrawal
program.
-1-
<PAGE>
1.02 PMFS agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund and PMFS, PMFS shall:
(i) Receive for acceptance, orders for the purchase of Shares, and
promptly deliver payment and appropriate documentation therefor to the Custodian
of the Fund authorized pursuant to the Declaration of trust of the Fund (the
"Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation therefor to the Custodian;
(iv) At the appropriate time as and when it receives monies paid to it
by the Custodian with respect to any redemption, pay over or cause to be paid
over in the appropriate manner such monies as instructed by the redeeming
Shareholders;
(v) Effect transfers of Shares by the registered owners thereof upon
receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and distributions
declared by the Fund;
(vii) Calculate any sales charges payable by a Shareholder on purchases
and/or redemptions of Shares of the Fund as such charges may be reflected in the
prospectus;
(viii) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
-2-
<PAGE>
(ix) Record the issuance of Shares of the Fund and maintain pursuant to
Rule 17Ad-10(e) under the Securities Exchange Act of 1934 ("1934 Act") a record
of the total number of Shares of the Fund which are authorized, based upon data
provided to it by the Fund, and issued and outstanding. PMFS shall also provide
to the Fund on a regular basis the total number of Shares which are authorized,
issued and outstanding. When recording the issuance of Shares, PMFS shall have
no obligation to take cognizance of any Blue Sky laws relating to the issue or
sale of such Shares, which functions shall be the sole responsibility of the
Fund.
(b) In addition to and not in lieu of the services set forth in the
above paragraph (a), PMFS shall: (i) perform all of the customary services of a
transfer agent, dividend disbursing agent and, as relevant, shareholder
servicing agent in connection with accumulation, open-account or similar plans
(including without limitation any periodic investment plan or periodic
withdrawal program), including but not limited to, maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing proxies, receiving and
tabulating proxies, mailing Shareholder reports and prospectuses to current
Shareholders, withholding taxes on non-resident alien accounts, preparing and
filing appropriate forms required with respect to dividends and distributions by
federal tax authorities for all Shareholders, preparing and mailing confirmation
forms and statements of account to Shareholders for all purchases and
redemptions of Shares and other confirmable transactions in Shareholder
accounts, preparing and mailing activity statements for Shareholders and
providing Shareholder account information and (ii) provide a system which will
enable the Fund to monitor the total number of Shares sold in each State or
other jurisdiction.
(c) In addition, the Fund shall (I) identify to PMFS in writing
-3-
<PAGE>
those transactions and assets to be treated as exempt from Blue Sky reporting
for each State and (ii) verify the establishment of transactions for each State
on the system prior to activation and thereafter monitor the daily activity for
each State. The responsibility of PMFS for the Fund's registration status under
the Blue Sky or securities laws of any State or other jurisdiction is solely
limited to the initial establishment of transactions subject to Blue Sky
compliance by the Fund and the reporting of such transactions to the Fund as
provided above and as agreed from time to time by the Fund and PMFS.
PMFS may also provide such additional services and functions not
specifically described herein as may be mutually agreed between PMFS and the
Fund and set forth in Schedule B hereto.
Procedures applicable to certain of these services may be established
from time to time by agreement between the Fund and PMFS
Article 2. FEES AND EXPENSES
2.01 For performance by PMFS pursuant to this Agreement, the Fund
agrees to pay PMFS an annual maintenance fee for each Shareholder account and
certain transactional fees as set out in the fee schedule attached hereto as
Schedule A. Such fees and out-of-pocket expenses and advances identified under
Section 2.02 below may be changed from time to time subject to mutual written
agreement between the Fund and PMFS.
2.02 In addition to the fees paid under Section 2.01 above, the Fund
agrees to reimburse PMFS for out-of-pocket expenses or advances incurred by PMFS
for the items set out in Schedule A attached hereto. In addition, any other
expenses incurred by PMFS at the request or with the consent of the Fund will be
reimbursed by the Fund.
2.03 The Fund agrees to pay all fees and reimbursable expenses within a
reasonable period of time following the mailing of the respective
-4-
<PAGE>
billing notice. Postage for mailing of dividends, proxies, Fund reports and
other mailings to all Shareholder accounts shall be advanced to PMFS by the Fund
upon request prior to the mailing date of such materials.
Article 3. REPRESENTATIONS AND WARRANTIES OF PMFS
PMFS represents and warrants to the Fund that:
3.01 It is a corporation duly organized and existing and in good
standing under the laws of New Jersey and it is duly qualified to carry on its
business in New Jersey.
3.02 It is and will remain registered with the U.S. Securities and
Exchange Commission ("SEC") as a Transfer Agent pursuant to the requirements of
Section 17A of the 1934 Act.
3.03 It is empowered under applicable laws and by its charter and
By-Laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
Article 4. REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to PMFS that:
4.01 It is a business trust duly organized and existing and in good
standing under the laws of the Commonwealth of Massachusetts.
4.02 It is empowered under applicable laws and by its Declaration of
Trust and By-Laws to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Declaration of Trust
and By-Laws have been taken to authorize it to enter into and perform
-5-
<PAGE>
this Agreement.
4.04 It is an investment company registered with the SEC under the
Investment Company Act of 1940, as amended (the "1940 Act").
4.05 A registration statement under the Securities Act of 1933 (the
"1933 Act") is currently effective and will remain effective, and appropriate
State securities law filings have been made and will continue to be made, with
respect to all Shares of the Fund being offered for sale.
Article 5. DUTY OF CARE AND INDEMNIFICATION
5.01 PMFS shall not be responsible for, and the Fund shall indemnify
and hold PMFS harmless from and against, any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liability arising out of or
attributable to:
(a) All actions of PMFS or its agents or subcontractors required to be
taken pursuant to this Agreement, provided that such actions are taken in good
faith and without negligence or willful misconduct.
(b) The Fund's refusal or failure to comply with the terms of this
Agreement, or which arise our of the Fund's lack of good faith, negligence or
willful misconduct or which arise out of the breach of any representation or
warranty of the Fund hereunder.
(c) The reliance on or use by PMFS or its agents or subcontractors of
information, records and documents which (i) are received by PMFS or its agents
or subcontractors and furnished to it by or on behalf of the Fund, and (ii) have
been prepared and/or maintained by the Fund or any other person or firm on
behalf of the Fund.
(d) The reliance on, or the carrying out by PMFS or its agents or
subcontractors of, any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any requirement under
-6-
<PAGE>
the federal securities laws or regulations or the securities or Blue Sky laws of
any State or other jurisdiction that such Shares be registered in such State or
other jurisdiction or in violation of any stop order or other determination or
ruling by any federal agency or any State or other jurisdiction with respect to
the offer or sale of such Shares in such State or other jurisdiction.
5.02 PMFS shall indemnify and hold the Fund harmless from and against
any and all losses, damages, costs, charges, counsel fees, payments, expenses
and liability arising out of or attributable to any action or failure or
omission to act by PMFS as a result of PMFS' lack of good faith, negligence or
willful misconduct.
5.03 At any time PMFS may apply to any officer of the Fund for
instructions, and may consult with legal counsel, with respect to any matter
arising in connection with the services to be performed by PMFS under this
Agreement, and PMFS and its agents or subcontractors shall not be liable and
shall be indemnified by the Fund for any action taken or omitted by it in
reliance upon such instructions or upon the opinion of such counsel. PMFS, its
agents and subcontractors shall be protected and indemnified in acting upon any
paper or document furnished by or on behalf of the Fund, reasonably believed to
be genuine and to have been signed by the proper person or persons, or upon any
instruction, information, data, records or documents provided to PMFS or its
agents or subcontractors by machine readable input, telex, CRT data entry or
other similar means authorized by the Fund, and shall not be held to have notice
of any change of authority of any person, until receipt of written notice
therefrom from the Fund. PMFS, its agents and subcontractors shall also be
protected and indemnified in recognizing share certificates which are reasonably
believed to bear the proper manual or facsimile signature of the officers of the
Fund, and the proper countersignature of any former transfer
-7-
<PAGE>
agent or registrar, or of a co-transfer agent or co-registrar.
5.04 In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.
5.05 Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement or for any act
or failure to act hereunder.
5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
Article 6. DOCUMENTS AND COVENANTS OF THE FUND AND PMFS
6.01 The Fund shall promptly furnish to PMFS the following:
(a) A certified copy of the resolution of the Trustees of the Fund
authorizing the appointment of PMFS and the execution and delivery of this
Agreement;
(b) A certified copy of the Declaration of Trust and By-Laws of the
Fund and all amendments thereto;
-8-
<PAGE>
(c) The current registration statements and any amendments and
supplements thereto filed with the SEC pursuant to the requirements of the 1933
Act and the 1940 Act;
(d) A specimen of the certificate for Shares of the Fund in the form
approved by the Trustees with a certificate of the Secretary of the Fund as to
such approval;
(e) All account application forms or other documents relating to
Shareholder accounts and/or relating to any plan program or service offered or
to be offered by the Fund; and
(f) Such other certificates, documents or opinions as the Agent deems
to be appropriate or necessary for the proper performance of its duties.
6.02 PMFS hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of share
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
6.03 PMFS shall prepare and keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the 1940 Act, and the Rules and Regulations
thereunder, PMFS agrees that all such records prepared or maintained by PMFS
relating to the services to be performed by PMFS hereunder are the property of
the Fund and will be preserved, maintained and made available in accordance with
such Section 31 of the 1940 Act, and the Rules and Regulations thereunder, and
will be surrendered promptly to the Fund on and in accordance with its request.
6.04 PMFS and the Fund agree that all books, records, information and
data pertaining to the business of the other party which are exchanged or
-9-
<PAGE>
received pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential and shall not be voluntarily disclosed to any other person
except as may be required by law or with the prior consent of PMFS and the Fund.
6.05 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, PMFS will endeavor to notify the Fund and to
secure instructions from an authorized officer of the Fund as to such
inspection. PMFS reserves the right, however, to exhibit the Shareholder records
to any person whenever it is advised by its counsel that it may be held liable
for the failure to exhibit the Shareholder records to such person.
Article 7. TERMINATION OF AGREEMENT
7.01 This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other.
7.02 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and other materials will be
borne by the Fund. Additionally, PMFS reserves the right to charge for any other
reasonable fees and expenses associated with such termination.
Article 8. ASSIGNMENT
8.01 Except as provided in Section 8.03 below, neither this Agreement
nor any rights or obligations hereunder may be assigned by either party without
the written consent of the other party.
8.02 This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns.
8.03 PMFS may, in its sole discretion and without further consent by
the Fund, subcontract, in whole or in part, for the performance of its
obligations and duties hereunder with any person or entity including but not
limited to: (i) Prudential-Bache Securities Inc. ("Prudential-Bache"), a
-10-
<PAGE>
registered broker-dealer, (ii) The Prudential Insurance Company of America
("Prudential"), (iii) Pruco Securities Corporation, a registered broker-dealer,
(iv) any Prudential-Bache or Prudential subsidiary or affiliate duly registered
as a broker-dealer and/or a transfer agent pursuant to the 1934 Act of (vi) any
other Prudential-Bache or Prudential affiliate or subsidiary; provided, however,
that PMFS shall be as fully responsible to the Fund for the acts and omissions
of any agent or subcontractor as it is for its own acts and omissions.
Article 9. AFFILIATIONS
9.01 PMFS may now or hereafter, without the consent of or notice to the
Fund, function as Transfer Agent and/or Shareholder Servicing Agent for any
other investment company registered with the SEC under the 1940 Act, including
without limitation any investment company whose adviser, administrator, sponsor
or principal underwriter is or may become affiliated with Prudential-Bache
and/or Prudential or any of its or their direct or indirect subsidiaries or
affiliates.
9.02 It is understood and agreed that the directors, officers,
employees, agents, and Shareholders of the Fund, and the directors, officers,
employees, agents, and shareholders of the Fund's investment adviser and/or
distributor, are or may be interested in the Agent as directors, officers,
employees, agents, shareholders or otherwise, and that the directors, officers,
employees, agents or shareholders of the Agent may be interested in the Fund as
directors, officers, employees, agents, Shareholders or otherwise, or in the
investment adviser and/or distributor as officers, directors, employees, agents,
shareholders or otherwise.
Article 10. AMENDMENT
10.01 This Agreement may be amended or modified by a written
-11-
<PAGE>
agreement executed by both parties and authorized or approved by a resolution of
the Board of Directors of the Fund.
Article 11. APPLICABLE LAW
11.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the State of New Jersey.
Article 12. MISCELLANEOUS
12.01 In the event of an alleged loss or destruction of any Share
certificate, no new certificate shall be issued in lieu thereof, unless there
shall first be furnished to PMFS an affidavit of loss or non-receipt by the
holder of Shares with respect to which a certificate has been lost or destroyed,
supported by an appropriate bond satisfactory to PMFS and the Fund issued by a
surety company satisfactory to PMFS, except that PMFS may accept an affidavit of
loss and indemnity agreement executed by the registered holder (or legal
representative) without surety in such form as PMFS deems appropriate
indemnifying PMFS and the Fund for the issuance of a replacement certificate, in
cases where the alleged loss is in the amount of $1000 or less. 12.02 In the
event that any check or other order for payment of money on the account of any
Shareholder or new investor is returned unpaid for any reason, PMFS will (a)
give prompt notification to the Fund's distributor ("Distributor") of such
non-payment; and (b) take such other action, including imposition of a
reasonable processing or handling fee, as PMFS may, in its sole discretion, deem
appropriate or as the Fund and the Distributor may instruct PMFS.
12.03 Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Fund or to PMFS shall be sufficiently
given if addressed to that party and received by it at its office set forth
below or at such other place as it may from time to time designate in
-12-
<PAGE>
writing.
To the Fund:
Prudential-Bache Government Securities Trust
One Seaport Plaza
New York, NY 10292
Attention: President
To PMFS:
Prudential Mutual Fund Services, Inc.
Raritan Plaza I
Edison, NJ 08818
Attention: President
12.04 All references to actions of or by Trustees herein shall require
action by such Trustees acting as a board or a formally constituted group and
not individually. The name "Prudential-Bache Government Securities Trust" is the
designation of the Trustees under the Declaration of Trust, and all persons
dealing with the Fund must look solely to the Fund for the enforcement of any
claims against the Fund as none of the Trustees, officers, agents or
Shareholders assume any personal responsibility for obligations entered into on
behalf of the Fund.
Article 13. MERGER OF AGREEMENT
13.01 This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.
-13-
<PAGE>
PRUDENTIAL-BACHE GOVERNMENT SECURITIES TRUST
BY: /s/ illegible
--------------
ATTEST:
/s/ illegible
- -------------
PRUDENTIAL MUTUAL FUND SERVICES, INC.
BY: /s/ illegible
-----------------
ATTEST:
/s/ illegible
- -------------
-14-
<PAGE>
SCHEDULE A
Prudential Mutual Fund Services, Inc.
Fee Schedule
Fee Information for Services as
Transfer Agent, Dividend Disbursing Agent
and Shareholder Servicing Agent
PRUDENTIAL-BACHE GOVERNMENT SECURITIES TRUST
(U.S. Treasury Money Market Series)
GENERAL - Fees are based on an annual per shareholder account charge for account
maintenance plus out-of-pocket expenses. In addition, there is a one time set up
charge per account for manually established accounts and a monthly charge for
inactive zero balance accounts. The effective period of this fee schedule is
January 1, 1990 through December 31, 1990 and shall continue thereafter from
year to year, unless otherwise amended.
ANNUAL MAINTENANCE CHARGES - The annual maintenance charge includes the
processing of all transactions and correspondence. The fee is billable on a
monthly basis at the rate of 1/12 of the annual fee. A charge is made for an
account in the month that an account opens or closes.
Annual Maintenance Per Account Fee $12.00
OTHER CHARGES
New Account Set-Up Fee for Manually
Established Accounts $ 2.00
Monthly Inactive Zero Balance Account Fee $ .20
OUT OF POCKET EXPENSES - Out-of-pocket expenses include but are not limited to:
postage, stationery and printing, allocable communication costs, microfilm,
microfiche, and expenses incurred at the specific direction of the Fund.
PAYMENT - An invoice will be presented to the Fund on a monthly basis assessing
the Fund the appropriate fee and out-of-pocket expenses.
PRUDENTIAL-BACHE GOVERNMENT PRUDENTIAL MUTUAL FUND
SECURITIES TRUST SERVICES, INC.
NAME:/s/illegible NAME:/s/ illegible
------------ -------------
TITLE: Treasurer TITLE: President
--------- ----------
DATE: November 20, 1990 DATE: November 20, 1990
----------------- -----------------
<PAGE>
SCHEDULE A
Prudential Mutual Fund Services, Inc.
Fee Schedule
Fee Information for Services as
Transfer Agent, Dividend Disbursing Agent
and Shareholder Servicing Agent
PRUDENTIAL-BACHE GOVERNMENT SECURITIES TRUST
(Money-Market Series)
GENERAL - Fees are based on an annual per shareholder account charge for account
maintenance plus out-of-pocket expenses. In addition, there is a one time set-up
charge per account for manually established accounts and a monthly charge for
inactive zero balance accounts. The effective period of this fee schedule is
January 1, 1990 through December 31, 1990 and shall continue thereafter from
year to year, unless otherwise amended.
ANNUAL MAINTENANCE CHARGES - The annual maintenance charge includes the
processing of all transactions and correspondence. The fee is billable on a
monthly basis at the rate of 1/12 of the annual fee. A charge is made for an
account in the month that an account opens or closes.
Annual Maintenance Per Account Fee $12.00
OTHER CHARGES
New Account Set-up Fee for Manually
Established Accounts $ 2.00
Monthly Inactive Zero Balance Account Fee $ .20
OUT OF POCKET EXPENSES - Out-of-pocket expenses include but are not limited to:
postage, stationery and printing, allocable communication costs, microfilm,
microfiche, and expenses incurred at the specific direction of the Fund.
PAYMENT - An invoice will be presented to the Fund on a monthly basis assessing
the Fund the appropriate fee and out-of-pocket expenses.
PRUDENTIAL-BACHE GOVERNMENT PRUDENTIAL MUTUAL FUND
SECURITIES TRUST SERVICES, INC.
NAME: /s/ illegible NAME:/s/ illegible
---------------- -------------
TITLE: Treasurer TITLE: President
--------- ---------
DATE: January 1, 1990 DATE: January 1, 1990
--------------- ---------------
<PAGE>
SCHEDULE A
Prudential Mutual Fund Services, Inc.
Fee Schedule
Fee Information for Services as
Transfer Agent, Dividend Disbursing Agent
and Shareholder Servicing Agent
PRUDENTIAL-BACHE GOVERNMENT SECURITIES TRUST
(Short-Intermediate Term Series)
GENERAL - Fees are based on an annual per shareholder account charge for account
maintenance plus out-of-pocket expenses. In addition, there is a one time set-up
charge per account for manually established accounts and a monthly charge for
inactive zero balance accounts. The effective period of this fee schedule is
January 1, 1990 through December 31, 1990 and shall continue thereafter from
year to year, unless otherwise amended.
ANNUAL MAINTENANCE CHARGES - The annual maintenance charge includes the
processing of all transactions and correspondence. The fee is billable on a
monthly basis at the rate of 1/12 of the annual fee. A charge is made for an
account in the month that an account opens or closes.
Annual Maintenance Per Account Fee $12.00
OTHER CHARGES
New Account Set-Up Fee for Manually
Established Accounts $ 2.00
Monthly Inactive Zero Balance Account Fee $ .20
OUT OF POCKET EXPENSES - Out-of-pocket expenses include but are not limited to:
postage, stationery and printing, allocable communication costs, microfilm,
microfiche, and expenses incurred at the specific direction of the Fund.
PAYMENT - An invoice will be presented to the Fund on a monthly basis assessing
the Fund the appropriate fee and out-of-pocket expenses.
PRUDENTIAL-BACHE GOVERNMENT PRUDENTIAL MUTUAL FUND
SECURITIES TRUST SERVICES, INC.
NAME: /s/ illegible NAME: /s/ illegible
------------- -------------
TITLE: Treasurer TITLE: President
--------- ---------
DATE: January 1, 1990 DATE: January 1, 1990
---------------- ---------------
<PAGE>
ACKNOWLEDGMENT
STATE OF NEW JERSEY )
) ss February 21, 1997
COUNTY OF ESSEX )
Then personally before me the above named Deborah A. Docs, known to me
and known to me to be the Assistant Secretary of Prudential Government
Securities Trust, and acknowledged the foregoing instrument to be her free act
and deed.
/s/ illegible
-------------
[NOTARY SEAL]
1-20-97
1-20-02
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 27 to the registration
statement on Form N-1A (the "Registration Statement") of our reports dated
January 30, 1998, relating to the financial statements and financial highlights
of Prudential Government Securities Trust; Money Market Series, U.S. Treasury
Money Market Series, and Short-Intermediate Term Series, which appear in such
Statement of Additional Information, and to the incorporation by reference of
our reports into the Prospectus which constitutes part of this Registration
Statement. We also consent to the reference to us under the heading "Custodian,
Transfer and Dividend Disbursing Agent and Independent Accountants" in such
Statement of Additional Information and to the reference to us under the heading
"Financial Highlights" in such Prospectus.
/s/PRICE WATERHOUSE LLP
- -----------------------
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
January 30, 1998
PRUDENTIAL GOVERNMENT SECURITIES TRUST
Short-Intermediate Term Series
EXHIBIT
AVERAGE ANNUAL TOTAL RETURN
CALCULATION
n
P(1+T) = ERV
P = hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years
ERV = ending redeemable value.
- --------------------------------------------------------------------------------
ONE YEAR ENDED FIVE YEARS ENDED TEN YEARS ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1997 1997 1997
-------------- ---------------- ---------------
Class A Class A Class A
-------------- ---------------- ---------------
P = $1,000 $1,000 $1,000
ERV = $1,070 $1,056 $1,073
n = 1.0 5.0 10.0
T = 6.99% 5.63% 7.32%
SINCE INCEPTION
NOVEMBER 30, 1997
-------------- ----------------
Class A Class Z
-------------- ----------------
P = $1,000 $1,000
ERV = $1,084 $1,057
n = 17.2 0.9
T = 8.42% 5.70%
<PAGE>
GOVERNMENT SECURITIES TRUST
---------------------------
MONEY MARKET SERIES - CLASS A
-----------------------------
ANNUALIZED YIELD CALCULATION
----------------------------
DATE SHARES DIVIDEND RATE DIVIDEND
- ---- ------ ------------- --------
24-Nov-97 1.000000000 X 0.000134546 = 0.000134546
25-Nov-97 1.000134546 X 0.000134095 = 0.000134113
26-Nov-97 1.000268659 X 0.000270202 = 0.000270275
28-Nov-97 1.000538934 X 0.000404871 = 0.000405089
1.000944023
CURRENT YIELD
-------------
0.000944023 X 365/7 = 0.049224048
===========
~ 4.92%
=====
ANNUALIZED YIELD
----------------
FORMULA
-------
=(1+0.000944023/7)^365-1 = 0.05045219 = 5.05%
========== =====
<PAGE>
GOVERNMENT SECURITIES TRUST
---------------------------
MONEY MARKET SERIES - CLASS Z
-----------------------------
ANNUALIZED YIELD CALCULATION
----------------------------
DATE SHARES DIVIDEND RATE DIVIDEND
- ---- ------ ------------- --------
24-Nov-97 1.000000000 X 0.000137960 = 0.000137960
25-Nov-97 1.000137960 X 0.000137568 = 0.000137587
26-Nov-97 1.000275547 X 0.000277028 = 0.000277104
28-Nov-97 1.000552651 X 0.000415269 = 0.000415498
1.000968150
===========
CURRENT YIELD
-------------
0.00096815 X 365/7 = 0.050482097
===========
~ 5.05%
=====
ANNUALIZED YIELD
----------------
FORMULA
-------
=(1+0.000968150/7)^365-1 = 0.05177546 = 5.18%
========== =====
<PAGE>
GOVERNMENT SECURITIES TRUST
---------------------------
MONEY MARKET SERIES - CLASS A and Z
-----------------------------------
AVERAGE ANNUAL TOTAL RETURN CALCULATION
---------------------------------------
CLASS A CLASS Z
-------------- ----------------
P = $1,000 $1,000
n = 1.0 1.0
ERV = 1,049 1,050
T = 4.87% 5.03%
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000355605
<NAME> PRUDENTIAL GOVERNMENT SECURITIES TRUST MONEY MARKET SERIES
<SERIES>
<NUMBER> 001
<NAME> PRUDENTIAL MONEY MARKET SERIES (CLASS A)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 587,479,489
<INVESTMENTS-AT-VALUE> 587,479,489
<RECEIVABLES> 9,801,273
<ASSETS-OTHER> 687,582
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 597,968,344
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,958,915
<TOTAL-LIABILITIES> 5,958,915
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 592,009,429
<SHARES-COMMON-STOCK> 592,009,429
<SHARES-COMMON-PRIOR> 552,122,743
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 592,009,429
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 32,592,447
<OTHER-INCOME> 0
<EXPENSES-NET> 4,519,080
<NET-INVESTMENT-INCOME> 28,073,367
<REALIZED-GAINS-CURRENT> 106,570
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 28,179,937
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (28,179,937)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,067,231,815
<NUMBER-OF-SHARES-REDEEMED> (2,054,090,306)
<SHARES-REINVESTED> 26,745,177
<NET-CHANGE-IN-ASSETS> 39,886,686
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,348,740
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,519,080
<AVERAGE-NET-ASSETS> 586,513,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.77
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000355605
<NAME> PRUDENTIAL GOVERNMENT SECURITIES TRUST MONEY MARKET SERIES
<SERIES>
<NUMBER> 002
<NAME> PRUDENTIAL MONEY MARKET SERIES (CLASS Z)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 587,479,489
<INVESTMENTS-AT-VALUE> 587,479,489
<RECEIVABLES> 9,801,273
<ASSETS-OTHER> 687,582
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 597,968,344
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,958,915
<TOTAL-LIABILITIES> 5,958,915
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 592,009,429
<SHARES-COMMON-STOCK> 592,009,429
<SHARES-COMMON-PRIOR> 552,122,743
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 592,009,429
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 32,592,447
<OTHER-INCOME> 0
<EXPENSES-NET> 4,519,080
<NET-INVESTMENT-INCOME> 28,073,367
<REALIZED-GAINS-CURRENT> 106,570
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 28,179,937
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (28,179,937)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,067,231,815
<NUMBER-OF-SHARES-REDEEMED> (2,054,090,306)
<SHARES-REINVESTED> 26,745,177
<NET-CHANGE-IN-ASSETS> 39,886,686
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,348,740
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,519,080
<AVERAGE-NET-ASSETS> 672,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000355605
<NAME> PRUDENTIAL SHORT-INTERMEDIATE TERM SERIES
<SERIES>
<NUMBER> 003
<NAME> PRUDENTIAL SHORT-INTERMEDIATE TERM SERIES (CLASS A)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 153,042,053
<INVESTMENTS-AT-VALUE> 155,047,902
<RECEIVABLES> 1,819,346
<ASSETS-OTHER> 10,790
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 156,878,038
<PAYABLE-FOR-SECURITIES> 6,876,573
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 839,098
<TOTAL-LIABILITIES> 7,715,671
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 180,310,998
<SHARES-COMMON-STOCK> 15,342,333
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 508,830
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (33,663,310)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,005,849
<NET-ASSETS> 149,162,367
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,205,681
<OTHER-INCOME> 0
<EXPENSES-NET> 1,607,323
<NET-INVESTMENT-INCOME> 9,598,358
<REALIZED-GAINS-CURRENT> 89,964
<APPREC-INCREASE-CURRENT> (324,291)
<NET-CHANGE-FROM-OPS> 9,364,031
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (9,002,839)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,117,531
<NUMBER-OF-SHARES-REDEEMED> (50,390,144)
<SHARES-REINVESTED> 5,839,123
<NET-CHANGE-IN-ASSETS> (36,072,298)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (52,850,515)
<OVERDISTRIB-NII-PRIOR> (86,689)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 666,606
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,607,323
<AVERAGE-NET-ASSETS> 166,651,000
<PER-SHARE-NAV-BEGIN> 9.70
<PER-SHARE-NII> 0.56
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.52)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.74
<EXPENSE-RATIO> 0.97
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000355605
<NAME> PRUDENTIAL SHORT-INTERMEDIATE TERM SERIES
<SERIES>
<NUMBER> 004
<NAME> PRUDENTIAL SHORT-INTERMEDIATE TERM SERIES (CLASS Z)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 153,042,053
<INVESTMENTS-AT-VALUE> 155,047,902
<RECEIVABLES> 1,819,346
<ASSETS-OTHER> 10,790
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 156,878,038
<PAYABLE-FOR-SECURITIES> 6,876,573
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 839,098
<TOTAL-LIABILITIES> 7,715,671
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 180,310,998
<SHARES-COMMON-STOCK> 15,342,333
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 508,830
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (33,663,310)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,005,849
<NET-ASSETS> 149,162,367
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,205,681
<OTHER-INCOME> 0
<EXPENSES-NET> 1,607,323
<NET-INVESTMENT-INCOME> 9,598,358
<REALIZED-GAINS-CURRENT> 89,964
<APPREC-INCREASE-CURRENT> (324,291)
<NET-CHANGE-FROM-OPS> 9,364,031
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (9,002,839)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,117,531
<NUMBER-OF-SHARES-REDEEMED> (50,390,144)
<SHARES-REINVESTED> 5,839,123
<NET-CHANGE-IN-ASSETS> (36,072,298)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (52,850,515)
<OVERDISTRIB-NII-PRIOR> (86,689)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 666,606
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,607,323
<AVERAGE-NET-ASSETS> 202,000
<PER-SHARE-NAV-BEGIN> 9.64
<PER-SHARE-NII> 0.47
<PER-SHARE-GAIN-APPREC> 0.07
<PER-SHARE-DIVIDEND> (0.41)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.77
<EXPENSE-RATIO> 0.77
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000355605
<NAME> PRUDENTIAL U.S. TREASURY MONEY MARKET SERIES
<SERIES>
<NUMBER> 005
<NAME> PRUDENTIAL U.S. TREASURY MONEY MARKET SERIES (CLASS A)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 435,884,975
<INVESTMENTS-AT-VALUE> 435,884,975
<RECEIVABLES> 65,253,346
<ASSETS-OTHER> 7,175
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 501,145,496
<PAYABLE-FOR-SECURITIES> 49,884,167
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 18,476,904
<TOTAL-LIABILITIES> 68,361,071
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 432,784,425
<SHARES-COMMON-STOCK> 432,784,425
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 432,784,425
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 21,353,158
<OTHER-INCOME> 0
<EXPENSES-NET> 2,602,295
<NET-INVESTMENT-INCOME> 18,750,863
<REALIZED-GAINS-CURRENT> 121,988
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 18,872,851
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (18,872,851)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,683,800,784
<NUMBER-OF-SHARES-REDEEMED> (4,573,416,591)
<SHARES-REINVESTED> 17,070,655
<NET-CHANGE-IN-ASSETS> 127,454,848
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,610,536
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,602,295
<AVERAGE-NET-ASSETS> 402,634,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000355605
<NAME> PRUDENTIAL U.S. TREASURY MONEY MARKET SERIES
<SERIES>
<NUMBER> 006
<NAME> PRUDENTIAL U.S. TREASURY MONEY MARKET SERIES (CLASS Z)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 435,884,975
<INVESTMENTS-AT-VALUE> 435,884,975
<RECEIVABLES> 65,253,346
<ASSETS-OTHER> 7,175
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 501,145,496
<PAYABLE-FOR-SECURITIES> 49,884,167
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 18,476,904
<TOTAL-LIABILITIES> 68,361,071
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 432,784,425
<SHARES-COMMON-STOCK> 432,784,425
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 432,784,425
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 21,353,158
<OTHER-INCOME> 0
<EXPENSES-NET> 2,602,295
<NET-INVESTMENT-INCOME> 18,750,863
<REALIZED-GAINS-CURRENT> 121,988
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 18,872,851
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (18,872,851)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,683,800,784
<NUMBER-OF-SHARES-REDEEMED> (4,573,416,591)
<SHARES-REINVESTED> 17,070,655
<NET-CHANGE-IN-ASSETS> 127,454,848
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,610,536
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,602,295
<AVERAGE-NET-ASSETS> 197,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.52
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
