(ICON)
Prudential
Government
Securities
Trust
- ---------------------------------
Money Market Series
Short-Intermediate Term Series
U.S. Treasury Money Market Series
ANNUAL
REPORT
Nov. 30, 1997
(LOGO)
<PAGE>
Portfolio Managers' Report
Short- and intermediate-term interest rates rose, then fell, ending the
12-month reporting period about where they began.
Our fiscal year started with a strong U.S. economy powered by increased
consumer spending and a solid jobs market. By late February, investors began
pushing up yields on U.S. Treasury securities. In March, the Federal Reserve
raised the federal funds rate (what banks charge each other for overnight
loans) by a quarter percentage point to 5.50%. Yields on Treasuries rose in
April because some investors expected the central bank to move a second time.
By mid spring, yields began to edge lower as reports showed inflation remained
in check. However, it was more than good inflation news that drove the
Treasury rally. A financial crisis in Southeast Asia boiled over in the
autumn, engulfing global foreign exchange and financial markets. In late
October, the Dow Jones Industrial Average tumbled a record 554 points, while
the yield on one-year Treasuries fell to 5.21%, its lowest of the reporting
period. Doubts about the earnings of U.S. companies with strong business ties
to Asia prompted skittish investors to sell stocks in favor of Treasuries.
When central bankers kept the federal funds rate at 5.50% in November, many
investors attributed the decision to a fear that higher U.S. interest rates
could lure even more funds away from embattled Asian markets into Treasuries.
Money Market Series
Class A shares seven-day current yield was 4.92% and Class Z shares was 5.05%
on November 30, 1997, which was in line with the 4.95% provided by the average
U.S. government money market fund tracked by IBC Financial Data. We maintained
a weighted average maturity (WAM) that was usually longer than that of the
Series' competition, which allowed us to preserve yield.
U.S. Treasury Money Market Series
Class A shares seven-day current yield was 4.62% and Class Z shares was 5.08%
on November 30, 1997, which beat the 4.59% of the average U.S. Treasury money
fund as measured by IBC Financial Data. We increased the Series' yield
primarily through timely shifts between Treasury notes and cash management
bills, whose yields surged periodically as supply outstripped demand.
Short-Intermediate Term Series
Class A shares 30-day SEC yield was 5.69% and Class Z shares was 6.53% on
November 30, 1997, compared to 5.23% for similar funds tracked by Lipper
Analytical Services. The Series benefitted from the ample interest payments
on its mortgage backed and asset backed securities.
How Investments Compared.
(As of 11/30/97)
(GRAPH)
U.S. General General U.S.
Growth Bond Muni Debt Taxable
Funds Funds Funds Money Funds
Source: Lipper Analytical Services. Financial markets change, so a mutual
fund's past performance should never be used to predict future results. The
risks to each of the investments listed above are different -- we provide 12-
month total returns for several Lipper mutual fund categories to show you that
reaching for higher yields means tolerating more risk. The greater the risk,
the larger the potential reward or loss. In addition, we've included
historical 20-year average annual returns. These returns assume the
reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors have received higher
historical total returns from stocks than from most other investments. Smaller
capitalization stocks offer greater potential for long-term growth but may be
more volatile than larger capitalization stocks.
General Bond Funds provide more income than stock funds, which can help smooth
out their total returns year by year. But their prices still fluctuate
(sometimes significantly) and their returns have been historically lower than
those of stock funds.
General Municipal Debt Funds invest in bonds issued by state governments,
state agencies and/or municipalities. This investment provides income that is
usually exempt from federal and state income taxes.
Money Market Funds attempt to preserve a constant share value; they don't
fluctuate much in price but, historically, their returns have been generally
among the lowest of the major investment categories.
Money Market Series
The Money Market Series seeks high current income, preservation of capital and
maintenance of liquidity from a portfolio of money market securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities. There
can be no assurance that the Fund will achieve its investment objective.
<TABLE>
<CAPTION>
7-Day Weighted Net Asset
Current Avg.Maturity Value Total Net
Yield* (WAM) (NAV) Assets
<S> <C> <C> <C> <C>
Performance
As of
11/30/97
Class A 4.92% 69 days $1 $591.43 million
Class Z 5.05 69 days $1 $0.58 million
IBC Financial Data
Money Fund Average** 4.95 47 days $1 N/A
</TABLE>
*Yields will fluctuate from time to time and past performance is not
indicative of future results.
**IBC Financial Data reports a seven-day current yield, WAM and NAV on
Tuesdays. This is the data of all funds in IBC's Money Fund Average as of
December 2, 1997, which was the closest date to our reporting period end. An
investment in the Series is neither insured nor guaranteed by the U.S.
government and there can be no assurance the Series will be able to maintain a
stable net asset value of $1 per share.
Longer Maturities.
The Series performed competitively as we kept the weighted average maturity
(WAM) generally longer than that of comparable funds. Extending the WAM
enabled us to lock in higher yields, which proved a good choice since the
federal funds rate was raised only once during the past year.
For much of the reporting period, yields fluctuated without moving
dramatically higher or lower. Correctly anticipating no change in monetary
policy in May, we sold U.S. Treasuries and purchased higher yielding federal
agency securities maturing in six months to one year. These transactions were
reversed in mid year after prices on federal agency securities rose (and
yields fell.)
We further enhanced the Series' yield by entering into repurchase agreements.
Essentially, repurchase agreements are collateralized loans in which we lend
cash to an investment bank that provides securities as collateral. The
difference between the securities' sale price and repurchase price is the
dollar interest cost of the loan. These repurchase agreements provided the
Series with a profitable place to put assets on a temporary basis.
- -------------------------------------------------------------------------------
U.S. Treasury Money Market Series
The U.S. Treasury Money Market Series seeks high current income consistent
with the preservation of capital and maintenance of liquidity from a portfolio
of U.S. Treasury obligations with maturities of 13 months or less. There can
be no assurance that the Series will achieve its investment objective.
<TABLE>
<CAPTION>
7-Day Weighted Net Asset
Current Avg.Maturity Value Total Net
Yield* (WAM) (NAV) Assets
<S> <C> <C> <C> <C>
Performance
As of
11/30/97
Class A 4.62% 48 days $1 $433 million
Class Z 5.08 48 days $1 $205
IBC Financial Data
100% U.S. Treasury
Money Fund Average** 4.59 61 days $1 N/A
</TABLE>
*Yields will fluctuate from time to time and past performance is not
indicative of future results.
**IBC Financial Data reports a seven-day current yield, WAM and NAV on
Tuesdays. This is the data of all funds in the IBC 100% U.S. Treasury Money
Fund Average as of December 2, 1997 which was the closest date to our
reporting period end. An investment in the Series is neither insured nor
guaranteed by the U.S. government and there can be no assurance the Series
will be able to maintain a stable net asset value of $1 per share.
Opportunity Knocked.
Taking advantage of imbalances in the supply and demand of money market
securities helped increase the Series' yield.
In 1997, the U.S. Treasury periodically flooded the market with billions of
dollars of cash management bills, which are issued by the Treasury when it is
temporarily short of funds. The unusually large supply pushed up yields,
prompting us to purchase cash management bills and sell Treasury notes
maturing in two to three months.
Later in the year, demand increased for Treasury notes maturing on September
30 as corporations prepared for their quarterly tax payments. We were able to
sell some of these notes at a profit and purchase attractively priced Treasury
notes maturing on October 31. This proved beneficial to us.
<PAGE>
Short-Intermediate Term Series
The Short-Intermediate Term Series invests at least 65% of assets in
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities. As much as 35% of the Series' assets may be invested in
mortgage backed or asset backed securities as well as corporate debt. The
dollar-weighted average maturity of the Series will be more than two, but
less than five years.
<TABLE>
<CAPTION>
One Five Ten Since
Year Years Years Inception**
<S> <C> <C> <C> <C>
Cumulative
Total Returns*
As of
11/30/97
Class A 5.96% 32.42% 101.27% 242.36%
Class Z N/A N/A N/A 5.70
Lipper Short/Intermediate
U.S. Government
Fund Average*** 5.5 30.8 105.3 ****
</TABLE>
/
<TABLE>
<CAPTION>
One Five Ten Since
Year Years Years Inception**
<S> <C> <C> <C> <C>
Average
Annual Total
Returns*
As of 12/31/97
Short-Intermediate
Term Series 6.99% 5.63% 7.32% 8.42%
</TABLE>
<TABLE>
<CAPTION>
Dividends & Yields
As of 11/30/97
Total Dividends 30-Day
Paid for 12 Mos. SEC Yield
<S> <C>
Class A $0.52 5.69%
Class Z $0.41 6.53%
</TABLE>
Past performance is not indicative of future returns. Investment return and
principal will fluctuate so that an investor's shares, when redeemed, may be
worth more less than their original cost.
* Source: Prudential Investments Fund Management and Lipper Analytical
Services. Shares of this Series are sold without an initial or contingent
deferred sales charge. Since Z shares have been in existence less than one
year, no average annual total returns are presented.
** Inception date: Class A, 9/13/82; Class Z, 2/26/97.
*** These are the average returns of all funds in the Lipper Short/
Intermediate U.S. Government Fund category.
**** Lipper Since Inception returns are: Class A, 241% and Class Z, 5.27%.
Smooth Start.
Our strategy of emphasizing asset backed and mortgage backed securities that
offered incremental yield over U.S. Treasuries worked well for most of the
reporting period as inflationary pressures were unusually subdued. Although a
strong U.S. jobs market helped spark a surprisingly robust economic expansion,
consumer prices crept up at an annual rate of 1.8% for the first 11 months of
1997, its lowest level in more than a decade. This trend soothed investors'
fears that surging inflation could erode their bonds' fixed interest and
principal payments.
As a result, U.S. bond markets rallied, leaving investors hungry for higher
yields. We satisfied our appetite by increasing the Series' holdings of asset
backed securities to 32% of total investments as of November 30, 1997 (up
from 11% a year earlier). Mortgage backed securities remained more than 30%
of total investments throughout the reporting period. By contrast, we cut
Treasuries to 18% of total investments by the end of the reporting period from
28% a year earlier.
Bumpy Finish.
While U.S. citizens enjoyed brisk economic growth coupled with modest
inflation, conditions across the Pacific were rapidly becoming critical.
Signs of severe financial difficulties emerged in Southeast Asia during the
summer as the Thai baht and neighboring currencies plunged in value versus
the U.S. dollar. By autumn, the financial malaise had infected world stock
markets. Investors seeking a safe haven snapped up Treasuries in October,
driving prices of U.S. government securities higher.
At first, prices of asset backed securities held up. But when investors balked
at purchasing a flood of new asset backed securities issued in November,
prices of newly issued and older securities declined sharply. This hurt the
Series' performance because asset backed securities comprised a significant
percentage of its total investments in November.
- -------------------------------------------------------------------------------
1
<PAGE>
Looking Ahead.
Under most circumstances when the U.S. unemployment rate falls to a quarter-
century low of 4.6% and workers' average hourly earnings rise a hefty 0.6% (as
both did recently), central bankers would probably be inclined to increase the
federal funds rate to head-off inflation. But we expect monetary policy to
remain unchanged for the immediate future because the Federal Reserve does not
want to create more problems for Southeast Asia. The Asian economic crisis
might also put a damper on U.S. economic growth, giving further reason to
leave interest rates alone. Meanwhile, the rally in Treasuries may be somewhat
limited by concern that rising labor costs, which account for two-thirds of
consumer prices, could eventually lead to higher inflation.
(PHOTOS)
Bernard D. Whitsett, II
Portfolio Manager
Money Market Series &
U.S. Treasury Money Market Series
Barbara L. Kenworthy
Portfolio Manager
Short-Intermediate Term Series
Sharon A. Fera
Portfolio Manager
Short-Intermediate Term Series
- -------------------------------------------------------------------------------
2
<PAGE>
President's Letter January 22, 1998
New Opportunities for You.
(PHOTO)
Dear Shareholder:
By many measures, 1997 was very good for investors. Thanks to a sixth-straight
year of moderate economic growth and subdued inflation, the stock market
enjoyed its third year of double-digit returns while bond values rose as
yields declined. But it's time to close the books on 1997 and look ahead to
the opportunities of 1998.
Perhaps the best thing you can do at this time of year is review your
investment strategy. Wise investors know that the only thing constant in life
is change, and now, more than ever before, it's important to review your
situation. Why?
The Federal Taxpayer Relief Act of 1997 is changing the way America invests
and creating exciting new opportunities for you to accumulate wealth, save for
college or build a nest egg for retirement. Consider --
- - Expanded IRAs. Rules governing traditional Individual Retirement Accounts
have been extensively revised. Deductibility and contribution limits have been
broadened as has the list for penalty-free early withdrawals, including first-
time home buyers.
- - New Roth IRAs. The Roth IRA features tax-free distributions and does not
require mandatory withdrawals, which should be of particular interest to
retirees seeking to shelter assets in a tax-free account.
- - New Education IRAs. Similar to a traditional IRA, but specifically designed
for higher education. The new law also creates credits and deductions to help
defray college costs.
- - Revised Capital Gains Tax Rates. The good news is long-term rates are down,
which may benefit certain mutual fund investors. The bad news is there are now
three separate tax rates covering short-, mid- and long-term capital gains,
and you'll probably need a professional tax preparer to sort things out in
1998.
To learn more about the Taxpayer Relief Act and how it may benefit you, please
contact your Prudential Securities Financial Advisor or Pruco Securities
Registered Representative.
Thank you for your continued confidence in Prudential Mutual Funds & Annuities.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
- -------------------------------------------------------------------------------
3
<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. 4
<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. 5
<PAGE>
<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. 6
<PAGE>
<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. 7
<PAGE>
<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. 8
<PAGE>
<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. 9
<PAGE>
<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. 10
<PAGE>
<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.
- --------------------------------------------------------------------------------
11
<PAGE>
<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
- --------------------------------------------------------------------------------
12
<PAGE>
<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>
- --------------------------------------------------------------------------------
13
<PAGE>
<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.
- --------------------------------------------------------------------------------
14
<PAGE>
<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. 15
<PAGE>
<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. 16
<PAGE>
<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. 17
<PAGE>
<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 21, 1998
- --------------------------------------------------------------------------------
18
<PAGE>
Important Notice
for Certain Shareholders PRUDENTIAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
We are required by New York, California, Massachusetts, Missouri and Oregon to
inform you that dividends which have been derived from interest on federal
obligations are not taxable to shareholders providing the mutual fund meets
certain requirements mandated by the respective states' taxing authorities. We
are pleased to report that 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.
- --------------------------------------------------------------------------------
19
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
How many times have you read these letters -- or other financial materials --
and stumbled across a word that you don't understand?
Many shareholders have run into the same problem. We'd like to help. So we'll
use this space from time to time to explain some of the words you might have
read, but not understood. And if you have a favorite word that no one can
explain to your satisfaction, please write to us.
Basis Point: One 1/100th of 1%. For example, one half of one percentage point
is 50 basis points.
Call Option: A contract giving the holder a right to buy stocks or bonds at a
predetermined price (called the strike price) before a predetermined
expiration date. A buyer of a call option generally expects to benefit from a
rise in the price of the stock or bond.
Capital Gain/Capital Loss: The difference between the cost of a capital asset
(for example, a stock, bond or mutual fund share) and its selling price. Under
current law the federal income tax rate for individuals on a long-term capital
gain is up to 28%.
Collateralized Mortgage Obligations (CMOs): Pools of mortgage-backed securities
sliced in maturity ranges that bear differing interest rates. These instruments
are sensitive to changes in interest rates and homeowner refinancing activity.
They are subject to prepayment and maturity extension risk.
Derivatives: Securities that derive their value from another security. The
rate of return of these financial products rises and falls -- sometimes very
suddenly -- in response to changes in some specific interest rate, currency,
stock or other variable.
Discount Rate: The interest rate charged by the Federal Reserve on loans to
banks and other depository institutions.
Federal Funds Rate: The interest rate charged by one bank to another on
overnight loans.
Futures Contract: An agreement to deliver a specific amount of a commodity or
financial instrument at a set price at a stipulated time in the future.
Leverage: The use of borrowed assets to enhance return on equity. The
expectation is that the interest rate charged will be lower than the return
on the investment. While leverage can increase profits, it can also magnify
losses.
Liquidity: The ease with which a financial instrument (or mutual fund) can be
bought or sold (converted into cash) in the financial markets.
Price/Earnings Ratio: The price of a share of stock divided by the earnings
per share for a 12-month period.
Option: An agreement to sell something, such as shares of stock, by a certain
time for a specified price. An option need not be exercised.
Spread: The difference between two values; most often used to describe the
difference between prices bid and asked for a security.
Yankee Bond: A bond denominated in U.S. dollars but sold by a foreign company
or government in the U.S. market.
<PAGE>
Comparing A $10,000 Investment.
Prudential Government Securities Trust:
Short-Intermediate Term Series vs. the Lehman
Brothers Intermediate Gov't Bond Index.
// Prudential Gov't Sec Trust: Short-Intermediate Term Series
- - Lehman Bros. Inter. Gov't Bond Index
Class A
Average Annual Total Returns
Without Sales Load
8.44% Since Inception
7.25% for 10 Years
5.78% for 5 Years
5.96% for 1 Year
Best Year: 1995 17.01%
(GRAPH)
Worst Year: 1994 -2.35%
Class Z
(GRAPH)
Past performance is not indicative of future results. Investment return and
principal value will fluctuate so an investor's shares, when redeemed, may be
worth more or less than their original cost. The chart above the graph is
designed to give you an idea of how much the Series' returns can fluctuate
from year to year by measuring the best and worst years in terms of total
annual return since inception of the Series.
These graphs are furnished to you in accordance with SEC regulations. They
compare a $10,000 investment in the Prudential Government Securities Trust:
Short-Intermediate Term Series (Class A and Class Z shares) with a similar
investment in the Lehman Brothers Intermediate Government Bond Index by
portraying the account value of Class A shares and Class Z shares and
subsequent account value at the end of this reporting period (November 30),
as measured on a quarterly basis, beginning in 1987 for Class A shares, and
since inception for Class Z shares. For purposes of the graph, and unless
otherwise indicated, in the accompanying table it has been assumed all
recurring fees (including management fees) were deducted; and all dividends
and distributions were reinvested. Since Class Z shares have been in existence
less than one year, no average annual total returns are presented.
The Index is a weighted index comprised of securities issued or backed by the
U.S. government, its agencies and instrumentalities with a remaining maturity
of one to 10 years. The index is unmanaged and includes the reinvestment of
all dividends, but does not reflect the payment of transactions costs and
advisory fees associated with an investment in the Series. The securities]
that comprise the Index may differ substantially from the securities in the
Series' portfolio. The Index is not the only one that may be used to
characterize performance of short-intermediate U.S. government bond funds and
other indexes may portray different comparative performance.
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Robert F. Gunia
Harry A. Jacobs, Jr.
Mendel A. Melzer
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Richard A. Redeker, President
Thomas A. Early, Vice President
Eugene S. Stark, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Deborah Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributor
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Auditors
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Shereff, Freidman, Hoffman & Goodman, LLP
919 Third Avenue
New York, NY 10022
The views expressed in this report and information about the Fund's portfolio
holdings are for the period covered by this report and are subject to change
thereafter.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
744342106 MF100E
744342205 Cat. #444437V
744342304
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