<PAGE>
FUND TYPE:
- -------------------------------------
Government securities
INVESTMENT OBJECTIVE:
- -------------------------------------
High current return
[LOGO]
PRUDENTIAL
GOVERNMENT
INCOME FUND, INC.
- ---------------------------------------------------------------
PROSPECTUS: MAY 18, 1999
As with all mutual funds, the Securities and
Exchange Commission has not approved or
disapproved the Fund's shares, nor has the SEC
determined that this prospectus is complete or
accurate. It is a criminal offense to state
otherwise. [LOGO]
<PAGE>
TABLE OF CONTENTS
- -------------------------------------
<TABLE>
<S> <C>
1 RISK/RETURN SUMMARY
1 Investment Objective and Principal Strategies
1 Principal Risks
2 Evaluating Performance
3 Fees and Expenses
5 HOW THE FUND INVESTS
5 Investment Objective and Policies
7 Other Investments
8 Derivative Strategies
9 Additional Strategies
10 Investment Risks
14 HOW THE FUND IS MANAGED
14 Board of Directors
14 Manager
14 Investment Adviser
14 Portfolio Manager
15 Distributor
15 Year 2000 Readiness Disclosure
17 FUND DISTRIBUTIONS AND TAX ISSUES
17 Distributions
18 Tax Issues
19 If You Sell or Exchange Your Shares
20 HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND
20 How to Buy Shares
28 How to Sell Your Shares
32 How to Exchange Your Shares
34 FINANCIAL HIGHLIGHTS
34 Class A Shares
35 Class B Shares
36 Class C Shares
37 Class Z Shares
44 THE PRUDENTIAL MUTUAL FUND FAMILY
FOR MORE INFORMATION (Back Cover)
</TABLE>
- -------------------------------------------------------------------
PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
- -------------------------------------
This section highlights key information about the PRUDENTIAL GOVERNMENT INCOME
FUND, INC. which we refer to as "the Fund." Additional information follows this
summary.
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
Our investment objective is HIGH CURRENT RETURN. We normally invest at least 65%
of the Fund's total assets in U.S. Government securities, including U.S.
Treasury bills, notes, bonds, strips and other debt securities issued by the
U.S. Treasury, and obligations, including mortgage-related securities, issued or
guaranteed by U.S. Government agencies or instrumentalities. We may also engage
in active trading. While we make every effort to achieve our objective, we can't
guarantee success.
The investment adviser has a team of fixed-income professionals, including
credit analysts and traders, with experience in many sectors of the U.S. and
foreign fixed-income securities markets. In deciding which portfolio securities
to buy and sell, the investment adviser will consider economic conditions and
interest rate fundamentals. The investment adviser will also evaluate individual
issues within each bond sector based upon their relative investment merit and
will consider factors such as yield and potential for price appreciation, as
well as credit quality, maturity and risk.
PRINCIPAL RISKS
Although we try to invest wisely, all investments involve risk. The debt
obligations in which the Fund invests are subject to the risk of losing value
because interest rates change or there is a lack of confidence in the borrower.
In addition, these securities may be subject to the risk that the issuer may be
unable to make principal and interest payments when they are due.
Mortgage-related securities are also subject to prepayment risk, which means
that if they are prepaid, the Fund may have to replace them with lower-yielding
securities. Active trading may result in greater transaction costs, which will
be borne directly by the Fund.
Like any mutual fund, an investment in the Fund could lose value, and you
could lose money. For more detailed information about the risks associated with
the Fund, see "How the Fund Invests--Investment Risks."
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
- --------------------------------------------------------------------------------
1
<PAGE>
RISK/RETURN SUMMARY
- ------------------------------------------------
EVALUATING PERFORMANCE
A number of factors--including risk--affect how the Fund performs. The following
bar chart shows the Fund's performance for each full calendar year of operation
for the last 10 years. The table shows how the Fund's average annual returns for
the periods indicated compare with those of a broad based securities index and a
group of similar mutual funds. They demonstrate the risk of investing in the
Fund and how returns can change from year to year. Past performance does not
mean that the Fund will achieve similar results in the future.
ANNUAL RETURNS(1) (CLASS B SHARES)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1989 12.07%
1990 7.07%
1991 14.32%
1992 5.83%
1993 6.90%
1994 -4.76%
1995 19.01%
1996 0.81%
1997 8.56%
1998 8.02%
BEST QUARTER: 6.49% (2nd quarter of 1995)
WORST QUARTER: -3.45% (1st quarter of 1994)
</TABLE>
1 THESE ANNUAL RETURNS DO NOT INCLUDE SALES CHARGES. IF THE SALES CHARGES WERE
INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN. RETURN FOR THE
QUARTER ENDED MARCH 31, 1999 WAS -1.87% WITH RESPECT TO CLASS B SHARES.
AVERAGE ANNUAL RETURNS(1) (AS OF 12-31-98)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
1 YR 5 YRS 10 YRS SINCE INCEPTION
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares 4.39% 5.86% N/A 7.61% (since 1-22-90)
Class B shares 3.02% 5.87% 7.60% 7.79% (since 4-22-85)
Class C shares 6.02% N/A N/A 7.46% (since 8-1-94)
Class Z shares 8.91% N/A N/A 7.46% (since 3-4-96)
Lehman Bros. Government Bond
Index2 9.85% 7.18% 9.17% N/A
Lipper Average3 8.07% 6.15% 8.19% N/A
</TABLE>
1 THE FUND'S RETURNS ARE AFTER DEDUCTION OF SALES CHARGES AND EXPENSES.
2 THE LEHMAN BROS. GOVERNMENT BOND INDEX (GOV'T BOND INDEX) -- AN UNMANAGED
INDEX OF SECURITIES ISSUED OR BACKED BY THE U.S. GOVERNMENT, ITS AGENCIES
AND INSTRUMENTALITIES WITH BETWEEN ONE AND THIRTY YEARS REMAINING TO
MATURITY -- GIVES A BROAD LOOK AT HOW U.S. GOVERNMENT BONDS WITH SUCH
MATURITIES HAVE PERFORMED. THESE RETURNS DO NOT INCLUDE THE EFFECT OF ANY
SALES CHARGES. THESE RETURNS WOULD BE LOWER IF THEY INCLUDED THE EFFECT OF
SALES CHARGES. GOV'T BOND INDEX RETURNS SINCE THE CLOSEST MONTH-END DATE TO
THE INCEPTION OF EACH CLASS ARE 8.87% FOR CLASS A, 9.61% FOR CLASS B, 8.75%
FOR CLASS C AND 8.33% FOR CLASS Z SHARES. SOURCE: LEHMAN BROS.
3 THE LIPPER AVERAGE IS BASED ON THE AVERAGE RETURN OF ALL MUTUAL FUNDS IN
THE LIPPER GENERAL U.S. GOVERNMENT BOND FUND CATEGORY. THESE RETURNS DO NOT
INCLUDE THE EFFECT OF ANY SALES CHARGES. THESE RETURNS WOULD BE LOWER IF
THEY INCLUDED THE EFFECT OF SALES CHARGES. LIPPER RETURNS SINCE THE CLOSEST
MONTH-END DATE TO THE INCEPTION OF EACH CLASS ARE 7.97% FOR CLASS A, 8.28%
FOR CLASS B, 7.81% FOR CLASS C AND 7.20% FOR CLASS Z SHARES. SOURCE:
LIPPER, INC.
- -------------------------------------------------------------------
2 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
- ------------------------------------------------
FEES AND EXPENSES
These tables show the sales charges, fees and expenses that you may pay if you
buy and hold each share class of the Fund--Class A, B, C and Z. Each share class
has different sales charges--known as loads--and expenses, but represents an
investment in the same fund. Class Z shares are available only to a limited
group of investors. For more information about which share class may be right
for you, see "How to Buy, Sell and Exchange Shares of the Fund."
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Z
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge (load)
imposed on purchases (as a
percentage of offering
price) 4% None 1% None
Maximum deferred sales
charge (load) (as a
percentage of the lower of
original purchase price or
sale proceeds) None 5%(2) 1%(3) None
Maximum sales charge (load)
imposed on reinvested
dividends and other
distributions None None None None
Redemption fees None None None None
Exchange fee None None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Z
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fees .50% .50% .50% .50%
+ Distribution and service
(12b-1) fees(4) .30% 1.00% 1.00% None
+ Other expenses .18% .18% .18% .18%
= Total annual Fund
operating expenses .98% 1.68% 1.68% .68%
- Fee waiver(4) .05% .175% .25% 0%
= NET ANNUAL FUND OPERATING
EXPENSES .93% 1.50% 1.43% .68%
</TABLE>
1 YOUR BROKER MAY CHARGE YOU A SEPARATE OR ADDITIONAL FEE FOR PURCHASES AND
SALES OF SHARES.
2 THE CONTINGENT DEFERRED SALES CHARGE (CDSC) FOR CLASS B SHARES DECREASES BY
1% ANNUALLY TO 1% IN THE FIFTH AND SIXTH YEARS AND 0% IN THE SEVENTH YEAR.
CLASS B SHARES CONVERT TO CLASS A SHARES APPROXIMATELY SEVEN YEARS AFTER
PURCHASE.
3 THE CDSC FOR CLASS C SHARES IS 1% FOR SHARES REDEEMED WITHIN 18 MONTHS OF
PURCHASE.
4 THE FUND'S DISTRIBUTION AND SERVICE (12B-1) FEES HAVE BEEN RESTATED TO
REFLECT CURRENT FEE LEVELS FOR CLASS A SHARES. FOR THE FISCAL YEAR ENDING
FEBRUARY 29, 2000, THE DISTRIBUTOR OF THE FUND HAS CONTRACTUALLY AGREED TO
REDUCE ITS DISTRIBUTION AND SERVICE (12B-1) FEES TO .25 OF 1%, .825 OF 1%
AND .75 OF 1% OF THE AVERAGE DAILY NET ASSETS FOR CLASS A, CLASS B AND
CLASS C SHARES, RESPECTIVELY.
- --------------------------------------------------------------------------------
3
<PAGE>
RISK/RETURN SUMMARY
- ------------------------------------------------
EXAMPLE
This example will help you compare the fees and expenses of the Fund's different
share classes and the cost of investing in the Fund with the cost of investing
in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. After the first year, the example
does not take into consideration the Distributor's agreement to reduce
distribution and service (12b-1) fees for Class A, Class B and Class C shares.
Although your actual costs may be higher or lower, based on these assumptions,
your costs would be:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
1 YR 3 YRS 5 YRS 10 YRS
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $491 $695 $915 $1,549
Class B shares $653 $811 $994 $1,695
Class C shares $344 $600 $980 $2,046
Class Z shares $69 $218 $379 $847
</TABLE>
You would pay the following expenses on the same investment if you did not sell
your shares:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
1 YR 3 YRS 5 YRS 10 YRS
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $491 $695 $915 $1,549
Class B shares $153 $511 $894 $1,695
Class C shares $244 $600 $980 $2,046
Class Z shares $69 $218 $379 $847
</TABLE>
- -------------------------------------------------------------------
4 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
- -------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is HIGH CURRENT RETURN. While we make every
effort to achieve our objective, we can't guarantee success.
U.S. GOVERNMENT SECURITIES
The Fund seeks to achieve its objective by investing under normal market
conditions at least 65% of its total assets in U.S. GOVERNMENT SECURITIES. These
include DEBT OBLIGATIONS ISSUED BY THE U.S. TREASURY. Treasury securities have
varying interest rates and maturities, but they are all backed by the full faith
and credit of the U.S. Government.
The Fund may also acquire U.S. Government securities in the form of
custodial receipts that show ownership of future interest payments, principal
payments or both on certain U.S. Treasury notes or bonds. Such notes or bonds
are held in custody by a bank on behalf of the owners. These custodial receipts
are commonly referred to as TREASURY STRIPS.
The Fund may also invest in other DEBT OBLIGATIONS ISSUED OR GUARANTEED BY
THE U.S. GOVERNMENT and government-related entities. Some of these debt
securities are backed by the full faith and credit of the U.S. Government, which
means that payment of interest and principal is guaranteed, but yield and market
value are not. These include obligations of the Government National Mortgage
Association (GNMA or "Ginnie Mae"), the Farmers Home Administration and the
Export-Import Bank. Debt securities issued by other government entities, like
obligations of the Federal National Mortgage Association (FNMA or "Fannie Mae"),
the Federal Home Loan Mortgage Corporation (FHLMC), the Tennessee Valley
Authority and the United States Postal Service are not backed by the full faith
and credit of the U.S. Government. However, these issuers have the right to
borrow from the U.S. Treasury to meet their obligations. In contrast, the debt
securities of other issuers, like the Farm Credit System and the Federal Home
Loan Bank, depend entirely upon their own resources to repay their debt.
The Fund has no limitations with respect to the maturities of portfolio
securities in which it may invest.
MORTGAGE-RELATED SECURITIES
As mentioned above, the Fund invests in MORTGAGE-RELATED SECURITIES issued or
guaranteed by U.S. governmental entities. These securities are usually
pass-through instruments that pay investors a share of all interest and
principal payments from an underlying pool of fixed or adjustable rate
- --------------------------------------------------------------------------------
5
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------
mortgages. Mortgage-related securities issued by the U.S. Government or its
agencies include FNMAs, GNMAs and FHLMCs. The U.S. Government or the issuing
agency directly or indirectly guarantees the payment of interest and principal
on these securities.
Mortgage pass-through securities include collateralized mortgage
obligations, real estate mortgage investment conduits, multi-class pass-through
securities, stripped mortgage-backed securities and balloon payment
mortgage-backed securities. A COLLATERALIZED MORTGAGE OBLIGATION (CMO) is a
security backed by an underlying portfolio of mortgages or mortgage-backed
securities that may be issued or guaranteed by a bank or by U.S. governmental
entities. A REAL ESTATE MORTGAGE INVESTMENT CONDUIT (REMIC) is a security issued
by a U.S. Government agency or private issuer and secured by real property.
REMICs consist of classes of regular interest, some of which may be adjustable
rate, and a single class of residual interests. The Fund does not intend to
invest in residual interests. A MULTI-CLASS PASS-THROUGH SECURITY is an equity
interest in a trust composed of underlying 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 CMO or to make scheduled
distributions on the multi-class pass-through security. A STRIPPED
MORTGAGE-BACKED SECURITY (MBS STRIP) may be issued by U.S. governmental entities
or by private institutions. MBS strips take the pieces of a debt security
(principal and interest) and break them apart. The resulting securities may be
sold separately and may perform differently. The Fund may also invest in BALLOON
PAYMENT MORTGAGE-BACKED SECURITIES, which are amortizing mortgage securities
offering payments of principal and interest, the last payment of which is
predominantly principal.
The values of mortgage-related securities vary with changes in market
interest rates generally and in yields among various kinds of mortgage-related
securities. Such values are particularly sensitive to changes in prepayments of
the underlying mortgages. For example, during periods of falling interest rates,
prepayments tend to accelerate as homeowners and others refinance their higher
rate mortgages; these prepayments reduce the anticipated duration of the
mortgage-related securities. Conversely, during periods of rising interest
rates, prepayments can be expected to decelerate, which has the effect of
extending the anticipated duration at the same time that the value of the
securities declines. MBS strips tend to be even more highly sensitive to changes
in prepayment and interest rates than mortgage-
- -------------------------------------------------------------------
6 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------
related securities and CMOs generally.
ACTIVE TRADING
The Fund may also engage in ACTIVE TRADING--that is, frequent trading of its
securities--in order to take advantage of new investment opportunities or yield
differentials. There may be tax consequences, such as a possible increase in
short-term capital gains or losses, when the Fund sells a security without
regard to how long it has held the security. Active trading may also result in
high portfolio turnover and correspondingly greater transaction costs, which the
Fund will bear directly.
For more information, see "Investment Risks" below and the Statement of
Additional Information, "Description of the Fund, Its Investments and Risks."
The Statement of Additional Information--which we refer to as the SAI--contains
additional information about the Fund. To obtain a copy, see the back cover page
of this prospectus.
The Fund's investment objective is a fundamental policy that cannot be
changed without shareholder approval. The Board of the Fund can change
investment policies of the Fund that are not fundamental.
OTHER INVESTMENTS
In addition to the above principal strategies, we may also make the following
investments to try to increase the Fund's returns or protect its assets if
market conditions warrant.
We may invest up to 20% of the Fund's total assets in privately-issued
ASSET-BACKED DEBT SECURITIES. An asset-backed security is another type of
pass-through instrument that pays interest based upon the cash flow of an
underlying pool of assets, such as automobile loans and credit card receivables.
The Fund may also invest in PRIVATELY-ISSUED MORTGAGE-RELATED SECURITIES
that are not guaranteed by U.S. Governmental entities. Such securities generally
have one or more types of credit enhancement to ensure timely receipt of
payments and to protect against default.
The Fund may invest in OBLIGATIONS OF FOREIGN BANKS AND FOREIGN BRANCHES OF
U.S. BANKS only if, after making that investment, all such investments would
make up less than 10% of the Fund's total assets (determined at the time of
investment).
The Fund may also purchase 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 U.S., and there is no assurance these commitments will be
undertaken or met in the future.
- --------------------------------------------------------------------------------
7
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------
The Fund is permitted to invest in both FIXED AND ADJUSTABLE RATE DEBT
SECURITIES. The value of adjustable rate debt securities will, like other debt
securities, generally vary inversely with changes in prevailing interest rates.
The value of adjustable rate debt securities is unlikely to rise in periods of
declining interest rates to the same extent as fixed rate instruments. In
periods of rising interest rates, changes in the coupon will lag behind changes
in the market rate, resulting in a lower net asset value until the coupon resets
to market rates.
The debt obligations in which the Fund may invest are rated at least A by
Standard & Poor's or Moody's or, if unrated, are deemed to be of comparable
credit quality by the Fund's investment adviser.
The Fund may use REPURCHASE AGREEMENTS where a party agrees to sell a
security to the Fund and then repurchase it at an agreed-upon price at a stated
time. A repurchase agreement is like a loan by the Fund to the other party that
creates a fixed return for the Fund.
TEMPORARY DEFENSIVE STRATEGY AND SHORT-TERM INVESTMENTS
The Fund may, under normal circumstances, invest up to 20% of its total assets
in high-quality MONEY MARKET INSTRUMENTS, including commercial paper of domestic
companies, certificates of deposit, bankers' acceptances and other obligations
of domestic and foreign banks. The Fund will only purchase money market
instruments that are in one of the two highest quality grades of a major rating
service or that we determine are of comparable equality. In response to adverse
market, economic or political conditions, the Fund may temporarily invest up to
100% of its total assets in high-quality money market instruments, cash and U.S.
Government securities. Investing heavily in these securities may limit our
ability to achieve our investment objective, but may help preserve the Fund's
assets.
DERIVATIVE STRATEGIES
The Fund may use various derivative strategies to try to improve its returns or
protect its assets, although we cannot guarantee that these strategies will
work, that the instruments necessary to implement these strategies will be
available, or that the Fund will not lose money. Derivatives--such as futures,
including interest rate futures, options and options on futures, straddles and
Eurodollar instruments--involve costs and can be volatile. With derivatives, the
investment adviser tries to predict whether the underlying investment--a
security, market index, currency, interest rate or some other benchmark-- will
go up or down at some future date. We may use derivatives to try to
- -------------------------------------------------------------------
8 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------
reduce risk or to increase return consistent with the Fund's overall investment
objective. The investment adviser will consider other factors (such as cost) in
deciding whether to employ any particular strategy or use any particular
investment. Any derivatives we may use may not match the Fund's underlying
holdings.
A FUTURES CONTRACT is an agreement to buy or sell a set quantity of an
underlying product at a future date, or to make or receive a cash payment based
on the value of a securities index. An OPTION is the right to buy (a call
option) or sell (a put option) securities, or in the case of an option on a
futures contract, the right to buy or sell a futures contract in exchange for a
premium. The Fund may invest up to 5% of its total assets for initial margin
deposits on existing futures and options on futures and for premiums paid for
these types of options. A STRADDLE is a combination of a call and a put written
on the same security at the same exercise price. The Fund's use of straddles
will not exceed 5% of its net assets. EURODOLLAR INSTRUMENTS are essentially
U.S. dollar-denominated futures contracts linked to the London Interbank Offered
Rate (LIBOR). Eurodollar instruments enable purchasers to obtain a fixed rate
for the lending of funds and sellers to obtain a fixed rate for borrowings.
For more information about these strategies, see the SAI, "Description of
the Fund, Its Investments and Risks--Risks of Hedging and Return Enhancement
Strategies."
ADDITIONAL STRATEGIES
The Fund may use REVERSE REPURCHASE AGREEMENTS, where the Fund borrows money on
a temporary basis by selling a security with an obligation to repurchase it at
an agreed-upon price and time.
The Fund may enter into DOLLAR ROLLS in which the Fund sells securities to
be delivered in the current month and repurchases substantially similar (same
type and coupon) securities to be delivered on a specified future date by the
same party. The Fund is paid the difference between the current sales price and
the forward price for the future purchase as well as the interest earned on the
cash proceeds of the initial sale.
The Fund may also purchase money market obligations on a WHEN-ISSUED or
DELAYED-DELIVERY basis. When the Fund makes this type of purchase, the price and
interest rate are fixed at the time of purchase, but delivery and payment for
the obligations take place at a later time. The Fund does not earn interest
income until the date the obligations are delivered.
- --------------------------------------------------------------------------------
9
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------
The Fund may invest up to 5% of its total assets in zero coupon U.S.
Government securities. ZERO COUPON BONDS do not pay interest during the life of
the security. An investor makes money by purchasing the security at a price that
is less than the money the investor will receive when the borrower repays the
amount borrowed (face value). The Fund records the amount zero coupon bonds rise
in price each year (phantom income) for accounting and federal income tax
purposes, but does not receive income currently. Because the Fund is required
under federal tax laws to distribute income to its shareholders, in certain
circumstances, the Fund may have to dispose of its portfolio securities under
disadvantageous conditions or borrow to generate enough cash to distribute
phantom income.
The Fund may enter into INTEREST RATE SWAP TRANSACTIONS for hedging
purposes. In a swap transaction, the Fund and another party "trade" income
streams. The swap is done to preserve a return or spread on a particular
investment or portion of a portfolio or to protect against any increase in the
price of securities the Fund anticipates purchasing at a later date.
The Fund also follows certain policies when it LENDS ITS SECURITIES to
others (the Fund may lend its portfolio securities to brokers, dealers and
financial institutions, provided that the outstanding loans do not exceed in
aggregate 30% of the value of the Fund's total assets and are at all times
secured by cash or equivalent collateral); BORROWS MONEY (the Fund may borrow no
more than 20% of the value of its total assets, calculated at the time of the
borrowing, for temporary, extraordinary or emergency purposes or for the
clearance of transactions); MAKES SHORT SALES AGAINST-THE-BOX (the Fund may
engage in such short sales only to the extent that not more than 10% of the
Fund's net assets (as determined at the time of the short sale) are held as
collateral for such sales); and HOLDS ILLIQUID SECURITIES (the Fund may hold up
to 15% of its net assets in illiquid securities, including securities without a
readily available market and repurchase agreements with maturities longer than
seven days). The Fund is subject to certain investment restrictions that are
fundamental policies, which means they cannot be changed without shareholder
approval. For more information about these restrictions, see the SAI.
INVESTMENT RISKS
As noted, all investments involve risk, and investing in the Fund is no
exception. Since the Fund's holdings can vary significantly from broad market
indexes, performance of the Fund can deviate from performance of
- -------------------------------------------------------------------
10 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------
such indexes. This chart outlines the key risks and potential rewards of the
Fund's principal investments and other investments. See, too, "Description of
the Fund, Its Investments and Risks" in the SAI.
INVESTMENT TYPE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
% OF FUND'S ASSETS RISKS POTENTIAL REWARDS
- --------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------
U.S. GOVERNMENT -- Credit risk--the risk -- Regular interest
SECURITIES that the borrower income
can't pay back the -- Generally more secure
AT LEAST 65% OF TOTAL money borrowed or than lower-quality
ASSETS make interest debt securities and
payments stock and other
-- Market risk--the risk equity securities
that bonds or other
debt instruments may
lose value in the
market because
interest rates rise
or there is a lack
of confidence in the
borrower
-- Not all U.S.
Government
securities are
insured or
guaranteed by the
government--some are
backed by the
issuing agency
- --------------------------------------------------------------------------------
MORTGAGE-RELATED -- Prepayment risk--the -- Regular interest
SECURITIES risk that the income
(U.S. GOVERNMENT AND underlying mortgage -- The U.S. Government
PRIVATELY BACKED) may be pre-paid guarantees interest
partially or and principal
PERCENTAGE VARIES completely, payments on certain
generally during securities
periods of falling -- May benefit from
interest rates, security interest in
which could real estate
adversely affect collateral
yield to maturity -- Pass-through
and could require instruments provide
the Fund to reinvest greater
in lower-yielding diversification than
securities direct ownership of
-- Credit risk--the risk loans
that the underlying
mortgages will not
be paid by debtors
or by credit
insurers or
guarantors of such
instruments. Some
private mortgage
securities are
unsecured or secured
by lower-rated
insurers or
guarantors and thus
may involve greater
risk
-- Market risk
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
11
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------
INVESTMENT TYPE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
% OF FUND'S ASSETS RISKS POTENTIAL REWARDS
- --------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ASSET-BACKED -- Prepayment risk -- Regular interest
SECURITIES (PRIVATELY -- The security interest income
BACKED) in the underlying -- Prepayment risk for
collateral asset-backed
UP TO 20% OF TOTAL -- Credit risk--the risk securities is
ASSETS that the underlying generally lower than
receivables will not with
be paid by debtors mortgage-related
or by credit securities.
insurers or -- Pass-through
guarantors of such instruments provide
instruments. Some greater
private asset-backed diversification than
securities are direct ownership of
unsecured or secured loans.
by lower-rated
insurers or
guarantors and thus
may involve greater
risk
-- Market risk
- --------------------------------------------------------------------------------
DERIVATIVES -- Derivatives such as -- The Fund could make
futures and options money and protect
PERCENTAGE VARIES may not fully offset against losses if
the underlying the investment
positions and this analysis proves
could result in correct
losses to the Fund -- One way to manage the
that would not have Fund's risk/return
otherwise occurred balance is to lock
-- Derivatives used for in the value of an
risk management may investment ahead of
not have the time
intended effects and -- Derivatives that
may result in losses involve leverage
or missed could generate
opportunities substantial gains at
-- The other party to a low cost
derivatives contract
could default
-- Certain types of
derivatives
involve costs to the
Fund that can reduce
returns
- --------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------
12 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------
INVESTMENT TYPE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
% OF FUND'S ASSETS RISKS POTENTIAL REWARDS
- --------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MONEY MARKET -- Limits potential for -- May preserve the
INSTRUMENTS high current return Fund's assets
-- Credit risk
UP TO 20% / UP TO 100% -- Market risk
OF TOTAL ASSETS ON A
TEMPORARY BASIS
- --------------------------------------------------------------------------------
ILLIQUID SECURITIES -- May be difficult to -- May offer a more
value precisely attractive yield or
UP TO 15% OF NET -- May be difficult to potential for growth
ASSETS sell at the time or than more widely
price desired traded securities
- --------------------------------------------------------------------------------
FOREIGN BANK -- Foreign markets, -- Investors can
OBLIGATIONS economies and participate in the
political systems, growth of foreign
LESS THAN 10% OF TOTAL particularly those markets and
ASSETS in developing companies operating
countries, may not in those markets
be as stable as in -- Changing values of
the U.S. foreign currencies
-- May be less liquid -- Opportunities for
than U.S. securities diversification
-- Differences in
foreign laws,
accounting
standards, public
information, custody
and settlement
practices
-- Currency risk--
changing values of
foreign currencies
-- Euro conversion
risk--If conversion
to euro currency is
difficult, or has
adverse accounting
consequences, the
Fund may be
negatively impacted
-- Year 2000 conversion
may be more of a
problem for some
foreign issuers
- --------------------------------------------------------------------------------
WHEN-ISSUED AND -- Use of such -- Use of instruments
DELAYED-DELIVERY instruments and may magnify
SECURITIES, REPURCHASE strategies may underlying
AGREEMENTS, REVERSE magnify underlying investment gains
REPURCHASE AGREEMENTS, investment losses
DOLLAR ROLLS AND SHORT -- Investment costs may
SALES exceed potential
underlying
PERCENTAGE VARIES investment gains
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
13
<PAGE>
HOW THE FUND IS MANAGED
- -------------------------------------
BOARD OF DIRECTORS
The Board of Directors oversees the actions of the Manager, Investment Adviser
and Distributor and decides on general policies. The Board also oversees the
Fund's officers who conduct and supervise the daily business operation of the
Fund.
MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM)
GATEWAY CENTER THREE, 100 MULBERRY STREET
NEWARK, NJ 07102-4077
Under a management agreement with the Fund, PIFM manages the Fund's
investment operations and administers its business affairs. For the fiscal year
ended February 28, 1999, the Fund paid PIFM management fees of .50% of the
Fund's average net assets.
As of March 31, 1999, PIFM served as the Manager to all 46 of the Prudential
mutual funds, and as Manager or administrator to 22 closed-end investment
companies, with aggregate assets of approximately $71.6 billion.
INVESTMENT ADVISER
The Prudential Investment Corporation, called Prudential Investments, is the
Fund's investment adviser. Its address is Prudential Plaza, 751 Broad Street,
Newark, NJ 07102. PIFM has responsibility for all investment advisory services,
supervises Prudential Investments and reimburses Prudential Investments for its
reasonable costs and expenses.
PORTFOLIO MANAGER
Prudential Investments' fixed-income group is organized by teams that specialize
by sector. The Fixed Income Investment Policy Committee, which is comprised of
senior investment staff from each sector team, provides guidance to the teams
regarding duration risk, asset allocations and general risk parameters.
Portfolio manager BARBARA KENWORTHY contributes bottom-up securities selection
within those guidelines and is responsible for the day-to-day management of the
Fund.
MS. KENWORTHY, a Managing Director of Prudential Investments, has managed
the Fund since July 1994. Before joining Prudential in 1994, she served as
president and portfolio manager for several Dreyfus fixed-income funds. She
earned a B.A. from Wilson College and an M.B.A. from New York University. Ms.
Kenworthy has over 30 years of investment experience
- -------------------------------------------------------------------
14 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND IS MANAGED
- ------------------------------------------------
and is a member of the Treasury Borrowing Advisory Committee of the Public
Securities Association.
Ms. Kenworthy conducts extensive analyses of U.S. and overseas markets to
identify trends in interest rates, supply and demand and economic growth. She
then selects the sectors, maturities and individual bonds she believes provide
the best value under those conditions.
DISTRIBUTOR
Prudential Investment Management Services LLC (PIMS) distributes the Fund's
shares under a Distribution Agreement. The Fund has Distribution and Service
Plans under Rule 12b-1 under the Investment Company Act. Under the Plans and the
Distribution Agreement, PIMS pays the expenses of distributing the Fund's Class
A, B, C and Z shares and provides certain shareholder support services. The Fund
pays distribution and other fees to PIMS as compensation for its services for
each class of shares other than Class Z. These fees--known as 12b-1 fees--are
shown in the "Fees and Expenses" tables.
YEAR 2000 READINESS DISCLOSURE
The services provided to the Fund and the shareholders by the Manager, the
Distributor, the Transfer Agent and the Custodian depend on the smooth
functioning of their computer systems and those of outside service providers.
Many computer software systems in use today cannot distinguish the year 2000
from the year 1900 because of the way dates are encoded and calculated. Such an
event could have a negative impact on handling securities trades, payments of
interest and dividends, pricing and account services. Although, at this time,
there can be no assurance that there will be no adverse impact on the Fund, the
Manager, the Distributor, the Transfer Agent and the Custodian have advised the
Fund that they have been actively working on necessary changes to their computer
systems to prepare for the year 2000. The Fund and its Board receive, and have
received since early 1998, satisfactory quarterly reports from the principal
service providers as to their preparations for year 2000 readiness, although
there can be no assurance that the service providers (or other securities market
participants) will successfully complete the necessary changes in a timely
manner or that there will be no adverse impact on the Fund. Moreover, the Fund
at this time has not considered retaining alternative
- --------------------------------------------------------------------------------
15
<PAGE>
HOW THE FUND IS MANAGED
- ------------------------------------------------
service providers or directly undertaken efforts to achieve year 2000 readiness,
the latter of which would involve substantial expenses without an assurance of
success.
Additionally, issuers of securities generally as well as those purchased by
the Fund may confront year 2000 compliance issues which, if material and not
resolved, could have an adverse impact on securities markets and/or a specific
issuer's performance and could result in a decline in the value of the
securities held by the Fund.
- -------------------------------------------------------------------
16 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
FUND DISTRIBUTIONS
AND TAX ISSUES
- -------------------------------------
Investors who buy shares of the Fund should be aware of some important tax
issues. For example, the Fund pays DIVIDENDS of ordinary income and distributes
LONG-TERM CAPITAL GAINS, if any, to shareholders. These distributions are
subject to federal income taxes, unless you hold your shares in a 401(k) plan,
an Individual Retirement Account (IRA), or some other qualified tax-deferred
plan or account. Distributions from, and gain from the sale of shares of, the
Fund may also be subject to state income tax in the state in which you reside.
The following briefly discusses some of the important federal income tax
issues you should be aware of, but is not meant to be tax advice. For tax
advice, please speak with your tax adviser.
DISTRIBUTIONS
The Fund pays DIVIDENDS of any net investment income, plus short-term capital
gains, to shareholders typically every quarter. For example, if the Fund owns a
U.S. Government bond and the bond pays interest, the Fund will pay out a portion
of this interest as a dividend to its shareholders, assuming the Fund's income
is more than its costs and expenses. The dividends you receive from the Fund
will be taxed as ordinary income whether or not they are reinvested in the Fund.
The Fund also distributes LONG-TERM CAPITAL GAINS to shareholders (typically
once a year). Long-term capital gains are generated when the Fund sells assets
that it held for more than 12 months for a profit. For an individual, the
maximum long-term capital gains rate is 20%.
For your convenience, Fund dividends and distributions of capital gains are
AUTOMATICALLY REINVESTED in the Fund without any sales charge. If you ask us to
pay the distributions in cash, we will send you a check instead of purchasing
more shares of the Fund. Otherwise, if your account is with a broker, you will
receive a credit to your account. Either way, the distributions may be subject
to taxes, unless your shares are held in a qualified tax-deferred plan or
account. For more information about automatic reinvestment and other shareholder
services, see "Step 4: Additional Shareholder Services" in the next section.
- --------------------------------------------------------------------------------
17
<PAGE>
FUND DISTRIBUTIONS
AND TAX ISSUES
- ------------------------------------------------
TAX ISSUES
FORM 1099
During the tax season every year, you will receive a Form 1099, which reports
the amount of dividends and long-term capital gains we distributed to you during
the prior year. If you own shares of the Fund as part of a qualified
tax-deferred plan or account, your taxes are deferred, so you will not receive a
Form 1099. However, you will receive a Form 1099 when you take any distributions
from your qualified tax-deferred plan or account.
Fund distributions are generally taxable to you in the year they are
received, except when we declare certain dividends in the fourth quarter and
actually pay them in January of the following year. In such cases, the dividends
are treated as if they were paid on December 31 of the prior year.
WITHHOLDING TAXES
Federal tax law requires you to provide the Fund with your tax identification
number and certifications as to your tax status. If you fail to do this, you are
subject to backup withholding and we will generally withhold and pay to the U.S.
Treasury 31% of your taxable distributions and gross sale proceeds. Dividends of
net investment income and short-term capital gains paid to a nonresident foreign
shareholder generally will be subject to a U.S. withholding tax of 30%. This
rate may be lower, depending on any tax treaty the U.S. may have with the
shareholder's country.
QUALIFIED RETIREMENT PLANS
Retirement plans and accounts allow you to defer paying taxes on investment
income and capital gains. Contributions to these plans may also be tax
deductible, although distributions from these plans generally are taxable. In
the case of Roth IRA accounts--available to certain taxpayers beginning in
1998--contributions are not tax deductible, but distributions from the plan may
be tax free. Please contact your financial adviser for information on a variety
of Prudential mutual funds that are suitable for retirement plans offered by
Prudential.
- -------------------------------------------------------------------
18 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
FUND DISTRIBUTIONS
AND TAX ISSUES
- ------------------------------------------------
IF YOU SELL OR EXCHANGE YOUR SHARES
If you sell any shares of the Fund for a profit, you have REALIZED A CAPITAL
GAIN, which is subject to tax, unless you hold shares in a qualified tax-
deferred plan or account. For individuals, the maximum capital gains tax rate is
20% for shares held for more than 12 months. If you sell shares of the Fund for
a loss, you may have a capital loss, which you may use to offset certain capital
gains you have.
<TABLE>
<S> <C> <C>
+$ CAPITAL GAIN
(Taxes owed)
Receipts from Sale $ OR
-$ CAPITAL LOSS
(offset against
gain)
</TABLE>
Exchanging your shares of the Fund for the shares of another Prudential
mutual fund is considered a sale for tax purposes. In other words, it's a
"taxable event." Therefore, if the shares you exchanged have increased in value
since you purchased them, you have capital gains, which are subject to the taxes
described above.
Any gain or loss you may have from selling or exchanging Fund shares will
not be reported on the Form 1099; however, proceeds from the sale or exchange
will be reported on Form 1099-B. Therefore, unless you hold your shares in a
qualified tax-deferred plan or account, you or your financial adviser should
keep track of the dates on which you buy and sell--or exchange--Fund shares, as
well as the amount of any gain or loss on each transaction. For tax advice,
please see your tax adviser.
AUTOMATIC CONVERSION OF CLASS B SHARES
We have obtained a legal opinion that the conversion of Class B shares into
Class A shares--which happens automatically approximately seven years after
purchase--is not a "taxable event" because it does not involve an actual sale of
your Class B shares. This opinion, however, is not binding on the Internal
Revenue Service. For more information about the automatic conversion of Class B
shares, see "Class B Shares Convert to Class A Shares After Approximately Seven
Years" in the next section.
- --------------------------------------------------------------------------------
19
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- -------------------------------------
HOW TO BUY SHARES
STEP 1: OPEN AN ACCOUNT
If you don't have an account with us or a securities firm that is permitted to
buy or sell shares of the Fund for you, call Prudential Mutual Fund Services LLC
(PMFS) at (800) 225-1852 or contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: INVESTMENT SERVICES
P.O. BOX 15020
NEW BRUNSWICK, NJ 08906-5020
To purchase by wire, call the number above to obtain an application. After
PMFS receives your completed application, you will receive an account number.
For additional information about purchasing shares of the Fund, see the back
cover page of this prospectus. We have the right to reject any purchase order
(including an exchange into the Fund) or suspend or modify the Fund's sale of
its shares.
STEP 2: CHOOSE A SHARE CLASS
Individual investors can choose among Class A, Class B, Class C and Class Z
shares of the Fund, although Class Z shares are available only to a limited
group of investors.
Multiple share classes let you choose a cost structure that meets your
needs. With Class A shares, you pay the sales charge at the time of purchase,
but the operating expenses each year are lower than the expenses of Class B and
Class C shares. With Class B shares, you only pay a sales charge if you sell
your shares within six years (that is why it is called a Contingent Deferred
Sales Charge or CDSC), but the operating expenses each year are higher than the
Class A share expenses. With Class C shares, you pay a 1% front-end sales charge
and a 1% CDSC if you sell within 18 months of purchase, but the operating
expenses are also higher than the expenses for Class A shares.
When choosing a share class, you should consider the following:
-- The amount of your investment
-- The length of time you expect to hold the shares and the impact of
the varying distribution fees
-- The different sales charges that apply to each share class-- Class
A's front-end sales charge vs. Class B's CDSC vs. Class C's lower
front-end sales charge and low CDSC
- -------------------------------------------------------------------
20 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
-- Whether you qualify for any reduction or waiver of sales charges
-- The fact that Class B shares automatically convert to Class A shares
approximately seven years after purchase and
-- Whether you qualify to purchase Class Z shares.
See "How to Sell Your Shares" for a description of the impact of CDSCs.
SHARE CLASS COMPARISON. Use this chart to help you compare the Fund's different
share classes. The discussion following this chart will tell you whether you are
entitled to a reduction or waiver of any sales charges.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Z
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Minimum purchase
amount(1) $1,000 $1,000 $2,500 None
Minimum amount for $100 $100 $100 None
subsequent
purchases(1)
Maximum initial sales 4% of the None 1% of the None
charge public public
offering offering
price price
Contingent Deferred None If sold during: 1% on sales None
Sales Charge Year 1 5% made within
(CDSC)(2) Year 2 4% 18 months
of
Year 3 3% purchase(2)
Year 4 2%
Year 5 1%
Year 6 1%
Year 7 0%
Annual distribution and .30 of 1% 1% up to 1.00% None
service (12b-1) fees (.25 of 1% $3 billion, (.75% of 1%
(shown as a percentage currently) .80 of 1% next $1 currently)
of average net billion, and
assets)(3) .50 of 1% over $4
billion
(.825 of 1%
currently)
</TABLE>
1 THE MINIMUM INVESTMENT REQUIREMENTS DO NOT APPLY TO CERTAIN RETIREMENT AND
EMPLOYEE SAVINGS PLANS AND CUSTODIAL ACCOUNTS FOR MINORS. THE MINIMUM
INITIAL AND SUBSEQUENT INVESTMENT FOR PURCHASES MADE THROUGH THE AUTOMATIC
INVESTMENT PLAN IS $50. FOR MORE INFORMATION, SEE "STEP 4: ADDITIONAL
SHAREHOLDER SERVICES--AUTOMATIC INVESTMENT PLAN."
2 FOR MORE INFORMATION ABOUT THE CDSC AND HOW IT IS CALCULATED, SEE "HOW TO
SELL YOUR SHARES-- CONTINGENT DEFERRED SALES CHARGES (CDSC)." CLASS C
SHARES BOUGHT BEFORE NOVEMBER 2, 1998, HAVE A 1% CDSC IF SOLD WITHIN ONE
YEAR.
3 THESE DISTRIBUTION FEES ARE PAID FROM THE FUND'S ASSETS ON A CONTINUOUS
BASIS. OVER TIME, THE FEES WILL INCREASE THE COST OF YOUR INVESTMENT AND
MAY COST YOU MORE THAN PAYING OTHER TYPES OF SALES CHARGES. THE SERVICE FEE
FOR CLASS A, CLASS B AND CLASS C SHARES IS .25 OF 1%. THE DISTRIBUTION FEE
FOR CLASS A SHARES IS LIMITED TO .25 OF 1% (INCLUDING THE .25 OF 1% SERVICE
FEE), .825 OF 1% PER ANNUM OF THE AVERAGE DAILY NET ASSETS OF THE CLASS B
SHARES AND .75 OF 1% FOR CLASS C SHARES.
- --------------------------------------------------------------------------------
21
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
REDUCING OR WAIVING CLASS A'S INITIAL SALES CHARGE
The following describes the different ways investors can reduce or avoid
paying Class A's initial sales charge.
INCREASE THE AMOUNT OF YOUR INVESTMENT. You can reduce Class A's initial
sales charge by increasing the amount of your investment. This table shows
you how the sales charge decreases as the amount of your investment
increases.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
SALES CHARGE AS % SALES CHARGE AS % DEALER
AMOUNT OF PURCHASE OF OFFERING PRICE OF AMOUNT INVESTED REALLOWANCE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Less than $50,000 4.00% 4.17% 3.75%
$50,000 to $99,999 3.50% 3.63% 3.25%
$100,000 to $249,999 2.75% 2.83% 2.50%
$250,000 to $499,999 2.00% 2.04% 1.90%
$500,000 to $999,999 1.50% 1.52% 1.40%
$1,000,000 and above* None None None
</TABLE>
* IF YOU INVEST $1 MILLION OR MORE, YOU CAN BUY ONLY CLASS A SHARES, UNLESS
YOU QUALIFY TO BUY CLASS Z SHARES.
To satisfy the purchase amounts above, you can:
-- Invest with an eligible group of related investors
-- Buy the Class A shares of two or more Prudential mutual funds at the
same time
-- Use your RIGHTS OF ACCUMULATION, which allow you to combine the value
of Prudential mutual fund shares you already own with the value of
the shares you are purchasing for purposes of determining the
applicable sales charge (note: you must notify the Transfer Agent if
you qualify for Rights of Accumulation) or
-- Sign a LETTER OF INTENT, stating in writing that you or an eligible
group of related investors will purchase a certain amount of shares
in the Fund and other Prudential mutual funds within 13 months.
BENEFIT PLANS. Benefit Plans can avoid Class A's initial sales charges if the
Benefit Plan has existing assets of at least $1 million invested in shares of
Prudential mutual funds (excluding money market funds other than those acquired
under the exchange privilege) or 250 eligible employees or participants. For
these purposes, a Benefit Plan is a pension, profit-sharing or other employee
benefit plans qualified under Section 401 of the Internal Revenue Code and
deferred compensation and annuity plans under Sections 457 and 403(b) of the
Internal Revenue Code, a "rabbi" trust, or
- -------------------------------------------------------------------
22 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
a nonqualified deferred compensation plan sponsored by an employer that has a
tax-qualified benefit plan with Prudential. Class A shares may also be purchased
without a sales charge by participants who are repaying loans from Benefit Plans
where Prudential or its affiliates provide administrative or recordkeeping
services, sponsor the product or provide account services.
Certain Prudential retirement programs--such as PruArray Association Benefit
Plans and PruArray Savings Programs--may also be exempt from Class A's sales
charge. For more information, see the SAI or contact your financial adviser. In
addition, waivers are available to investors in certain programs sponsored by
brokers, investment advisers and financial planners who have agreements with
Prudential Investments Advisory Group relating to:
-- Mutual fund "wrap" or asset allocation programs, where the sponsor
places Fund trades and charges its clients a management, consulting
or other fee for its services
-- Mutual fund "supermarket" programs, where the sponsor links its
customers' accounts to a master account in the sponsor's name and the
sponsor charges a fee for its services.
OTHER TYPES OF INVESTORS. Other investors may pay no sales charges, including
certain officers, employees or agents of Prudential and its affiliates, the
Prudential mutual funds, the subadvisers of the Prudential mutual funds and
clients of brokers that have entered into a selected dealer agreement with the
Distributor. To qualify for a reduction or waiver of the sales charge, you must
notify the Transfer Agent or your broker at the time of purchase. For more
information, see the SAI, "Purchase, Redemption and Pricing of Fund
Shares--Reduction and Waiver of Initial Sales Charges--Class A Shares."
WAIVING CLASS C'S INITIAL SALES CHARGE
BENEFIT PLANS. Benefit Plans (as defined above) may purchase Class C shares
without paying an initial sales charge. Class C shares may also be purchased
without an initial sales charge by participants who are repaying loans from
Benefit Plans where Prudential or its affiliates provide administrative or
recordkeeping services, sponsor the product or provide account services.
- --------------------------------------------------------------------------------
23
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
PRUDENTIAL RETIREMENT PLANS. The initial sales charge will be waived for
purchases of Class C shares by both qualified and nonqualified retirement and
deferred compensation plans participating in a PruArray Plan and other plans if
Prudential also provides administrative or recordkeeping services.
INVESTMENT OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES. The initial
sales charge will be waived for purchases of Class C shares if the purchase is
made with money from the redemption of shares of any unaffiliated investment
company, as long as the shares were not held in an account at Prudential
Securities Incorporated or one of its affiliates. These purchases must be made
within 60 days of redemption. To qualify for this waiver you must do one of the
following:
-- Purchase your shares through an account at Prudential Securities
-- Purchase your shares through an ADVANTAGE Account or an Investor
Account with Pruco Securities Corporation or
-- Purchase your shares through other brokers.
This waiver is not available to investors who purchase shares directly from
the Transfer Agent. If you are entitled to the waiver, you must notify either
the Transfer Agent or your broker. The Transfer Agent may require any supporting
documents it considers to be appropriate.
QUALIFYING FOR CLASS Z SHARES
Class Z shares of the Fund can be purchased by any of the following:
-- Any Benefit Plan, as defined above, and certain nonqualified plans,
provided the Benefit Plan--in combination with other plans sponsored
by the same employer or group of related employers--has at least $50
million in defined contribution assets
-- Participants in any fee-based program or trust program sponsored by
Prudential or an affiliate which includes mutual funds as investment
options and the Fund as an available option
-- 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 option
-- Benefit Plans for which an affiliate of the Distributor provides
administrative or recordkeeping services and, as of September 20,
1996, were either Class Z shareholders of the Prudential mutual
- -------------------------------------------------------------------
24 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
funds or executed a letter of intent to purchase Class Z shares of
the Prudential mutual funds
-- Current and former Directors/Trustees of the Prudential mutual funds
(including the Fund)
-- Prudential with an investment of $10 million or more.
In connection with the sale of shares, the Manager, the Distributor or one
of their affiliates may pay brokers, financial advisers and other persons a
commission of up to 4% of the purchase price for Class B shares, up to 2% of the
purchase price for Class C shares, and a finder's fee for Class Z shares from
their own resources based on a percentage of the net asset value of shares sold
or otherwise.
CLASS B SHARES CONVERT TO CLASS A SHARES AFTER APPROXIMATELY SEVEN YEARS
If you buy Class B shares and hold them for approximately seven years, we will
automatically convert them into Class A shares without charge. At that time, we
will also convert any Class B shares that you purchased with reinvested
dividends and other distributions. Since the 12b-1 fees for Class A shares are
lower than for Class B shares, converting to Class A shares lowers your Fund
expenses.
When we do the conversion, you will get fewer Class A shares than the number
of converted Class B shares if the price of the Class A shares is higher than
the price of Class B shares. The total dollar value will be the same, so you
will not have lost any money by getting fewer Class A shares. We do the
conversions quarterly, not on the anniversary date of your purchase. For more
information, see the SAI, "Purchase, Redemption and Pricing of Fund
Shares--Class B Shares."
STEP 3: UNDERSTANDING THE PRICE YOU'LL PAY
The price you pay for each share of the Fund is based on the share value. The
share value of a mutual fund--known as the NET ASSET VALUE or NAV--is determined
by a simple calculation: it's the total value of the Fund
- --------------------------------------------------------------------------------
25
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
(assets minus liabilities) divided by the total number of shares outstanding.
For example, if the value of the investments held by fund XYZ (minus its
liabilities) is $1,000 and there are 100 shares of fund XYZ owned by
shareholders, the price of one share of the fund--or the NAV--is $10 ($1,000
divided by 100). Portfolio securities are valued based upon market quotations
or, if not readily available, at fair value as determined in good faith under
procedures established by the Fund's Board. Most national newspapers report the
NAVs of most mutual funds, which allows investors to check the price of mutual
funds daily.
We determine the NAV of our shares once each business day at 4:15 p.m. New
York Time on days that the New York Stock Exchange is open for trading. We do
not determine the NAV on days when we have not received any orders to purchase,
sell, or exchange Fund shares, or when changes in the value of the Fund's
portfolio do not materially affect the NAV.
WHAT PRICE WILL YOU PAY FOR SHARES OF THE FUND?
For Class A and Class C shares, you'll pay the public offering price, which is
the NAV next determined after we receive your order to purchase, plus an initial
sales charge (unless you're entitled to a waiver). For Class B and Class Z
shares, you will pay the NAV next determined after we receive your order to
purchase (remember, there are no up-front sales charges for these share
classes). Your broker may charge you a separate or additional fee for purchases
of shares.
- -------------------------------------------------------------------
MUTUAL FUND SHARES
The NAV of mutual fund shares changes every day because the value of a fund's
portfolio changes constantly. For example, if fund XYZ holds ACME Corp. bonds in
its portfolio and the price of ACME bonds goes up while the value of the fund's
other holdings remains the same and expenses don't change, the NAV of fund XYZ
will increase.
- -------------------------------------------------------------------
- -------------------------------------------------------------------
26 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
STEP 4: ADDITIONAL SHAREHOLDER SERVICES
As a Fund shareholder, you can take advantage of the following services and
privileges:
AUTOMATIC REINVESTMENT. As we explained in the "Fund Distributions and Tax
Issues" section, the Fund pays out--or distributes--its net investment income
and capital gains to all shareholders. For your convenience, we will
automatically reinvest your distributions in the Fund at NAV, without any sales
charge. If you want your distributions paid in cash, you can indicate this
preference on your application, notify your broker, or notify the Transfer Agent
in writing (at the address below) at least five business days before the date we
determine who receives dividends.
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: ACCOUNT MAINTENANCE
P.O. BOX 15015
NEW BRUNSWICK, NJ 08906-5015
AUTOMATIC INVESTMENT PLAN. You can make regular purchases of the Fund for as
little as $50 by having the money automatically withdrawn from your bank or
brokerage account at specified intervals.
RETIREMENT PLAN SERVICES. Prudential offers a wide variety of retirement plans
for individuals and institutions, including large and small businesses. For
information on IRAs, including Roth IRAs or SEP-IRAs for a one-person business,
please contact your financial adviser. If you are interested in opening a 401(k)
or other company-sponsored retirement plan (SIMPLES, SEP plans, Keoghs, 403(b)
plans, pension and profit-sharing plans), your financial adviser will help you
determine which retirement plan best meets your needs. Complete instructions
about how to establish and maintain your plan and how to open accounts for you
and your employees will be included in the retirement plan kit you receive in
the mail.
THE PRUTECTOR PROGRAM. Optional group term life insurance--which protects the
value of your Prudential mutual fund investment for your beneficiaries against
market downturns--is available to investors who purchase their shares through
Prudential. This insurance is subject to various restrictions and charges and is
not available in all states.
- --------------------------------------------------------------------------------
27
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available that will
provide you with monthly or quarterly checks. Remember, the sale of Class B and
Class C shares may be subject to a CDSC.
REPORTS TO SHAREHOLDERS. Every year, we will send you an annual report (along
with an updated prospectus) and a semi-annual report, which contain important
financial information about the Fund. To reduce Fund expenses, we will send one
annual shareholder report, one semi-annual shareholder report and one annual
prospectus per household, unless you instruct us or your broker otherwise.
HOW TO SELL YOUR SHARES
You can sell your shares of the Fund for cash (in the form of a check) at any
time, subject to certain restrictions.
When you sell shares of the Fund--also known as redeeming your shares--the
price you will receive will be the NAV next determined after the Transfer Agent,
the Distributor or your broker receives your order to sell (less any applicable
CDSC). If your broker holds your shares, he must receive your order to sell by
4:15 p.m. New York time to process the sale on that day. Otherwise, contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: REDEMPTION SERVICES
P.O. BOX 15010
NEW BRUNSWICK, NJ 08906-5010
Generally, we will pay you for the shares that you sell within seven days
after the Transfer Agent, the Distributor or your broker receives your sell
order. If you hold shares through a broker, payment will be credited to your
account. If you are selling shares you recently purchased with a check, we may
delay sending you the proceeds until your check clears, which can take up to 10
days from the purchase date. You can avoid delay if you purchase by wire,
certified check or cashier's check. Your broker may charge you a separate or
additional fee for sales of shares.
RESTRICTIONS ON SALES
There are certain times when you may not be able to sell shares of the Fund, or
when we may delay paying you the proceeds from a sale. This
- -------------------------------------------------------------------
28 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
may happen during unusual market conditions or emergencies when the Fund can't
determine the value of its assets or sell its holdings. For more information,
see the SAI, "Purchase, Redemption and Pricing of Fund Shares--Sale of Shares."
If you are selling more than $100,000 of shares, if you want the check sent
to someone or someplace that is not in our records, or you are a business or a
trust and you hold your shares directly with the Transfer Agent, you will need
to have the signature on your sell order guaranteed by a financial institution.
For more information, see the SAI, "Purchase, Redemption and Pricing of Fund
Shares--Sale of Shares--Signature Guarantee."
CONTINGENT DEFERRED SALES CHARGES (CDSC)
If you sell Class B shares within six years of purchase or Class C shares within
18 months of purchase, you will have to pay a CDSC. To keep the CDSC as low as
possible, we will sell amounts representing shares in the following order:
-- Amounts representing shares you purchased with reinvested dividends
and distributions
-- Amounts representing the increase in NAV above the total amount of
payments for shares made during the past three years for Class B
shares and 18 months for Class C shares (one year for Class C shares
purchased before November 2, 1998) and
-- Amounts representing the cost of shares held beyond the CDSC period
(six years for Class B shares and 18 months for Class C shares).
Since shares that fall into any of the categories listed above are not
subject to the CDSC, selling them first helps you to avoid--or at least
minimize--the CDSC.
Having sold the exempt shares first, if there are any remaining shares that
are subject to the CDSC, we will apply the CDSC to amounts representing the cost
of shares held for the longest period of time within the applicable CDSC period.
As we noted before in the "Share Class Comparison" chart, the CDSC for Class
B shares is 5% in the first year, 4% in the second, 3% in the third, 2% in the
fourth, and 1% in the fifth and sixth years. The rate decreases on
- --------------------------------------------------------------------------------
29
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
the first day of the month following the anniversary date of your purchase, not
on the anniversary date itself. The CDSC is 1% for Class C shares-- which is
applied to shares sold within 18 months of purchase. For both Class B and Class
C shares, the CDSC is calculated based on the lesser of the original purchase
price or the redemption proceeds. For purposes of determining how long you've
held your shares, all purchases during the month are grouped together and
considered to have been made on the last day of the month.
The holding period for purposes of determining the applicable CDSC will be
calculated from the first day of the month after initial purchase, excluding any
time shares were held in a money market fund.
WAIVER OF THE CDSC--CLASS B SHARES
The CDSC will be waived if the Class B shares are sold:
-- After a shareholder is deceased or disabled (or, in the case of a
trust account, the death or disability of the grantor). This waiver
applies to individual shareholders, as well as shares owned in joint
tenancy (with rights of survivorship), provided the shares were
purchased before the death or disability
-- To provide for certain distributions--made without IRS penalty-- from
a tax-deferred retirement plan, IRA or Section 403(b) custodial
account or
-- On certain sales from a Systematic Withdrawal Plan.
For more information on the above and the other waivers, see the SAI,
"Purchase, Redemption and Pricing of Fund Shares--Contingent Deferred Sales
Charges--Waiver of Contingent Deferred Sales Charges--Class B Shares."
WAIVER OF THE CDSC--CLASS C SHARES
PRUDENTIAL RETIREMENT PLANS. The CDSC will be waived for purchases of Class C
shares by both qualified and nonqualified retirement and deferred compensation
plans participating in a PruArray Plan and other plans if Prudential also
provides administrative or recordkeeping services. The CDSC will also be waived
on redemptions sponsored by Prudential and its affiliates to the extent that the
redemption proceeds are invested in the Guaranteed Investment Account, a group
annuity insurance product sponsored by
- -------------------------------------------------------------------
30 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
Prudential, The Guaranteed Insulated Separate Account, a separate account
offered by Prudential, and shares of The Stable Value Fund, an unaffiliated bank
collective fund.
OTHER BENEFIT PLANS. The CDSC will be waived on redemptions from Benefit Plans
holding shares through a broker not affiliated with Prudential and for which the
broker provides administrative and recordkeeping services.
REDEMPTION IN KIND
If the sales of Fund shares you make during any 90-day period reach the lesser
of $250,000 or 1% of the value of the Fund's net assets, we can then give you
securities from the Fund's portfolio instead of cash. If you want to sell the
securities for cash, you would have to pay the costs charged by a broker.
SMALL ACCOUNTS
If you make a sale that reduces your account value to less than $500, we may
sell the rest of your shares (without charging any CDSC) and close your account.
We would do this to minimize the Fund's expenses paid by other shareholders. We
will give you 60 days' notice, during which time you can purchase additional
shares to avoid this action. This involuntary sale does not apply to
shareholders who own their shares as part of a 401(k) plan, an IRA, or some
other tax-deferred plan or account.
90-DAY REPURCHASE PRIVILEGE
After you redeem your shares, you have a 90-day period during which you may
reinvest any of the redemption proceeds in shares of the same Fund without
paying an initial sales charge. Also, if you paid a CDSC when you redeemed your
shares, we will credit your new account with the appropriate number of shares to
reflect the amount of the CDSC you paid. In order to take advantage of this
one-time privilege, you must notify the Transfer Agent or your broker at the
time of the repurchase. See the SAI, "Purchase, Redemption and Pricing of Fund
Shares--Sale of Shares."
- --------------------------------------------------------------------------------
31
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
RETIREMENT PLANS
To sell shares and receive a distribution from your retirement account, call
your broker or the Transfer Agent for a distribution request form. There are
special distribution and income tax withholding requirements for distributions
from retirement plans and you must submit a withholding form with your request
to avoid delay. If your retirement plan account is held for you by your employer
or plan trustee, you must arrange for the distribution request to be signed and
sent by the plan administrator or trustee. For additional information, see the
SAI.
HOW TO EXCHANGE YOUR SHARES
You can exchange your shares of the Fund for shares of the same class in certain
other Prudential mutual funds--including certain money market funds--if you
satisfy the minimum investment requirements. For example, you can exchange Class
A shares of the Fund for Class A shares of another Prudential mutual fund, but
you can't exchange Class A shares for Class B, Class C or Class Z shares. Class
B and Class C shares may not be exchanged into money market funds other than
Prudential Special Money Market Fund, Inc. After an exchange, at redemption the
CDSC will be calculated from the first day of the month after initial purchase,
excluding any time shares were held in a money market fund. We may change the
terms of the exchange privilege after giving you 60 days' notice.
If you hold shares through a broker, you must exchange shares through your
broker. Otherwise contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: EXCHANGE PROCESSING
P.O. BOX 15010
NEW BRUNSWICK, NJ 08906-5010
There are no sales charges for such exchanges, however, if you exchange--and
then sell--Class B shares within approximately five years of your original
purchase, or Class C shares within 18 months of your original purchase, you must
still pay the applicable CDSC. If you have exchanged Class B or Class C shares
into a money market fund, the time you hold the shares in the money market
account will not be counted for purposes of calculating the required holding
period for CDSC liability.
- -------------------------------------------------------------------
32 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
Remember, as we explained in the section entitled "Fund Distributions and
Tax Issues--If You Sell or Exchange Your Shares," exchanging shares is
considered a sale for tax purposes. Therefore, if the shares you exchange are
worth more than you paid for them, you may have to pay capital gains tax. For
additional information about exchanging shares, see the SAI, "Shareholder
Investment Account--Exchange Privilege."
If you own Class B or Class C shares and qualify to purchase Class A shares
without paying an initial sales charge, we will automatically exchange your
Class B or Class C shares which are not subject to a CDSC for Class A shares, as
appropriate. We make such exchanges on a quarterly basis, if you notify the
Transfer Agent that you qualify for this exchange privilege. We have obtained a
legal opinion that this exchange is not a "taxable event" for federal income tax
purposes. This opinion is not binding on the IRS.
FREQUENT TRADING
Frequent trading of Fund shares in response to short-term fluctuations in the
market--also known as "market timing"--may make it very difficult to manage the
Fund's investments. When market timing occurs, the Fund may have to sell
portfolio securities to have the cash necessary to redeem the market timer's
shares. This can happen at a time when it is not advantageous to sell any
securities, so the Fund's performance may be hurt. When large dollar amounts are
involved, market timing can also make it difficult to use long-term investment
strategies because we cannot predict how much cash the Fund will have to invest.
When, in our opinion, such activity would have a disruptive effect on portfolio
management, the Fund reserves the right to refuse purchase orders and exchanges
by any person, group or commonly controlled accounts. The Fund may notify a
market timer of rejection of an exchange or purchase order after the day the
order is placed. If the Fund allows a market timer to trade Fund shares, it may
require the market timer to enter into a written agreement to follow certain
procedures and limitations.
- --------------------------------------------------------------------------------
33
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------
The financial highlights will help you evaluate the Fund's financial
performance. The TOTAL RETURN in each chart represents the rate that a
shareholder earned on an investment in that share class of the Fund, assuming
reinvestment of all dividends and other distributions. The information is for
each share class for the periods indicated.
Review each chart with the financial statements and the report of
independent accountants, which appear in the annual report and the SAI and are
available upon request. Additional performance information for each share class
is contained in the annual report, which you can receive at no charge.
CLASS A SHARES
The financial highlights for the two years ended February 28, 1999, were audited
by PricewaterhouseCoopers LLP, independent accountants, and the financial
highlights for the three years ended February 28, 1997, were audited by other
independent auditors, whose reports were unqualified.
CLASS A SHARES (FISCAL YEARS ENDED 2-28)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $9.05 $8.76 $9.04 $8.59 $9.13
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.55 0.58 0.60 0.60 0.59
Net realized and unrealized gain
(loss) on investment transactions (0.07) 0.29 (0.28) 0.45 (0.54)
TOTAL FROM INVESTMENT OPERATIONS 0.48 0.87 0.32 1.05 0.05
LESS DISTRIBUTIONS:
Dividends from net investment
income (0.55) (0.58) (0.60) (0.60) (0.59)
NET ASSET VALUE, END OF YEAR $8.98 $9.05 $8.76 $9.04 $8.59
TOTAL RETURN(1) 5.40% 10.26% 3.70% 12.41% 0.83%
- ----------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000) $895,039 $819,536 $860,319 $945,038 $871,145
Average net assets (000) $836,143 $842,431 $884,862 $909,169 $95,560
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution
fees 0.84% 0.86% 0.90% 0.91% 0.98%
Expenses, excluding distribution
fees 0.68% 0.71% 0.75% 0.76% 0.83%
Net investment income 6.05% 6.52% 6.78% 6.65% 7.45%
Portfolio turnover rate 106% 88% 107% 123% 206%
</TABLE>
1 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER DISTRIBUTIONS,
BUT DOES NOT INCLUDE THE EFFECT OF SALES CHARGES. IT IS CALCULATED ASSUMING
SHARES ARE PURCHASED ON THE FIRST DAY AND SOLD ON THE LAST DAY OF EACH YEAR
REPORTED.
- -------------------------------------------------------------------
34 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------
CLASS B SHARES
The financial highlights for the two years ended February 28, 1999, were audited
by PricewaterhouseCoopers LLP, independent accountants, and the financial
highlights for the three years ended February 28, 1997, were audited by other
independent auditors, whose reports were unqualified.
CLASS B SHARES (FISCAL YEARS ENDED 2-28)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $9.05 $8.77 $9.04 $8.60 $9.13
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.49 0.52 0.54 0.54 0.53
Net realized and unrealized gain
(loss) on investment transactions (0.06) 0.28 (0.27) 0.44 (0.53)
TOTAL FROM INVESTMENT OPERATIONS 0.43 0.80 0.27 0.98 0.00
LESS DISTRIBUTIONS:
Dividends from net investment
income (0.49) (0.52) (0.54) (0.54) (0.53)
NET ASSET VALUE, END OF YEAR $8.99 $9.05 $8.77 $9.04 $8.60
TOTAL RETURN(1) 4.83% 9.40% 3.12% 11.54% 0.24%
- ----------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000) $343,425 $346,059 $461,988 $641,946 $705,732
Average net assets (000) $322,626 $385,145 $543,796 $647,515 $1,735,413
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution
fees 1.50% 1.53% 1.57% 1.58% 1.66%
Expenses, excluding distribution
fees 0.68% 0.71% 0.75% 0.76% 0.80%
Net investment income 5.39% 5.85% 6.11% 5.99% 6.17%
Portfolio turnover 106% 88% 107% 123% 206%
</TABLE>
1 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER DISTRIBUTIONS,
BUT DOES NOT INCLUDE THE EFFECT OF SALES CHARGES. IT IS CALCULATED ASSUMING
SHARES ARE PURCHASED ON THE FIRST DAY AND SOLD ON THE LAST DAY OF EACH YEAR
REPORTED.
- --------------------------------------------------------------------------------
35
<PAGE>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------
CLASS C SHARES
The financial highlights for the two years ended February 28, 1999, were audited
by PricewaterhouseCoopers LLP, independent accountants, and the financial
highlights for the two years ended February 28, 1997, and the period from August
1, 1994, through February 28, 1995, were audited by other independent auditors,
whose reports were unqualified.
CLASS C SHARES (FISCAL PERIODS ENDED 2-28)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1999 1998 1997 1996 1995(1)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $9.05 $8.77 $9.04 $8.60 $8.69
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.50 0.53 0.54 0.54 0.31
Net realized and unrealized gain
(loss) on investment transactions (0.06) 0.28 (0.27) 0.44 (0.09)
TOTAL FROM INVESTMENT OPERATIONS 0.44 0.81 0.27 0.98 0.22
LESS DISTRIBUTIONS:
Dividends from net investment
income (0.50) (0.53) (0.54) (0.54) (0.31)
NET ASSET VALUE, END OF PERIOD $8.99 $9.05 $8.77 $9.04 $8.60
TOTAL RETURN(2) 4.91% 9.48% 3.20% 11.63% 2.75%
- ----------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000) $8,236 $2,840 $2,569 $1,799 $204
Average net assets (000) $4,878 $2,523 $2,440 $765 $111
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution
fees 1.43% 1.46% 1.50% 1.51% 1.63%(3)
Expenses, excluding distribution
fees 0.68% 0.71% 0.75% 0.76% 0.88%(3)
Net investment income 5.50% 5.92% 6.19% 5.99% 6.69%(3)
Portfolio turnover 106% 88% 107% 123% 206%
</TABLE>
1 FOR THE PERIOD FROM AUGUST 1, 1994 (WHEN CLASS C SHARES WERE FIRST OFFERED)
THROUGH FEBRUARY 28, 1995.
2 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER DISTRIBUTIONS,
BUT DOES NOT INCLUDE THE EFFECT OF SALES CHARGES. IT IS CALCULATED ASSUMING
SHARES ARE PURCHASED ON THE FIRST DAY AND SOLD ON THE LAST DAY OF EACH
PERIOD REPORTED. TOTAL RETURN FOR PERIODS OF LESS THAN A FULL YEAR IS NOT
ANNUALIZED.
3 ANNUALIZED.
- -------------------------------------------------------------------
36 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------
CLASS Z SHARES
The financial highlights for the two years ended February 28, 1999, were audited
by PricewaterhouseCoopers LLP, independent accountants, and the financial
highlights for the period from March 1, 1996 through February 28, 1997, were
audited by other independent auditors, whose reports were unqualified.
CLASS Z SHARES (FISCAL PERIODS ENDED 2-28)
<TABLE>
<CAPTION>
- --------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1999 1998 1997(1)
- --------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $9.04 $8.76 $9.13
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.57 0.59 0.61
Net realized and unrealized gain
(loss) on
investment transactions (0.07) 0.28 (0.37)
TOTAL FROM INVESTMENT OPERATIONS 0.50 0.87 0.24
LESS DISTRIBUTIONS:
Dividends from net investment
income (0.57) (0.59) (0.61)
NET ASSET VALUE, END OF PERIOD $8.97 $9.04 $8.76
TOTAL RETURN(2) 5.58% 10.30% 3.16%
- --------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 1999 1998 1997
- --------------------------------------------------------------
NET ASSETS, END OF PERIOD (000) $97,629 $84,733 $73,411
Average net assets (000) $86,892 $71,425 $39,551
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.68% 0.71% 0.75%(3)
Net investment income 6.22% 6.67% 6.76%(3)
Portfolio turnover 106% 88% 107%
</TABLE>
1 INFORMATION SHOWN IS FOR THE PERIOD FROM MARCH 1, 1996 (WHEN CLASS Z SHARES
WERE FIRST OFFERED) THROUGH FEBRUARY 28, 1997.
2 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER DISTRIBUTIONS.
IT IS CALCULATED ASSUMING SHARES ARE PURCHASED ON THE FIRST DAY AND SOLD ON
THE LAST DAY OF EACH PERIOD REPORTED. TOTAL RETURN FOR PERIODS OF LESS THAN
A FULL YEAR IS NOT ANNUALIZED.
3 ANNUALIZED.
- --------------------------------------------------------------------------------
37
<PAGE>
- -------------------------------------
[This page has been left blank intentionally.]
- -------------------------------------------------------------------
38 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
- ------------------------------------------------
[This page has been left blank intentionally.]
- --------------------------------------------------------------------------------
39
<PAGE>
- ------------------------------------------------
[This page has been left blank intentionally.]
- -------------------------------------------------------------------
40 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
- ------------------------------------------------
[This page has been left blank intentionally.]
- --------------------------------------------------------------------------------
41
<PAGE>
- ------------------------------------------------
[This page has been left blank intentionally.]
- -------------------------------------------------------------------
42 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
- ------------------------------------------------
[This page has been left blank intentionally.]
- --------------------------------------------------------------------------------
43
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
- -------------------------------------
Prudential offers a broad range of mutual funds designed to meet your individual
needs. For information about these funds, contact your financial adviser or call
us at (800) 225-1852. Read the prospectus carefully before you invest or send
money.
STOCK FUNDS
PRUDENTIAL DISTRESSED SECURITIES FUND, INC.
PRUDENTIAL EMERGING GROWTH FUND, INC.
PRUDENTIAL EQUITY FUND, INC.
PRUDENTIAL EQUITY INCOME FUND
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL SMALL-CAP INDEX FUND
PRUDENTIAL STOCK INDEX FUND
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH FUND
PRUDENTIAL JENNISON GROWTH & INCOME FUND
PRUDENTIAL MID-CAP VALUE FUND
PRUDENTIAL REAL ESTATE SECURITIES FUND
PRUDENTIAL SECTOR FUNDS, INC.
PRUDENTIAL FINANCIAL SERVICES FUND
PRUDENTIAL HEALTH SCIENCES FUND
PRUDENTIAL TECHNOLOGY FUND
PRUDENTIAL UTILITY FUND
PRUDENTIAL SMALL-CAP QUANTUM FUND, INC.
PRUDENTIAL SMALL COMPANY VALUE FUND, INC.
PRUDENTIAL TAX-MANAGED EQUITY FUND
PRUDENTIAL 20/20 FOCUS FUND
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
ASSET ALLOCATION/BALANCED FUNDS
PRUDENTIAL BALANCED FUND
PRUDENTIAL DIVERSIFIED FUNDS
CONSERVATIVE GROWTH FUND
MODERATE GROWTH FUND
HIGH GROWTH FUND
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL ACTIVE BALANCED FUND
GLOBAL FUNDS
GLOBAL STOCK FUNDS
PRUDENTIAL DEVELOPING MARKETS FUND
PRUDENTIAL DEVELOPING MARKETS EQUITY FUND
PRUDENTIAL LATIN AMERICA EQUITY FUND
PRUDENTIAL EUROPE GROWTH FUND, INC.
PRUDENTIAL GLOBAL GENESIS FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL EUROPE INDEX FUND
PRUDENTIAL PACIFIC INDEX FUND
PRUDENTIAL NATURAL RESOURCES FUND, INC.
PRUDENTIAL PACIFIC GROWTH FUND, INC.
PRUDENTIAL WORLD FUND, INC.
GLOBAL SERIES
INTERNATIONAL STOCK SERIES
GLOBAL UTILITY FUND, INC.
GLOBAL BOND FUNDS
PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
LIMITED MATURITY PORTFOLIO
PRUDENTIAL INTERMEDIATE GLOBAL INCOME FUND, INC.
PRUDENTIAL INTERNATIONAL BOND FUND, INC.
THE GLOBAL TOTAL RETURN FUND, INC.
- -------------------------------------------------------------------
44 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
- -------------------------------------
BOND FUNDS
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 HIGH YIELD TOTAL RETURN FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL BOND MARKET INDEX FUND
PRUDENTIAL BOND MARKET INDEX FUND
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 INCOME SERIES
INSURED SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
MASSACHUSETTS SERIES
NEW JERSEY SERIES
NEW YORK SERIES
NORTH CAROLINA SERIES
OHIO SERIES
PENNSYLVANIA SERIES
PRUDENTIAL NATIONAL MUNICIPALS
FUND, INC.
MONEY MARKET FUNDS
TAXABLE MONEY MARKET FUNDS
CASH ACCUMULATION TRUST
LIQUID ASSETS FUND
NATIONAL MONEY MARKET 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.
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
COMMAND FUNDS
COMMAND MONEY FUND
COMMAND GOVERNMENT FUND
COMMAND TAX-FREE FUND
INSTITUTIONAL MONEY MARKET FUNDS
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES
- --------------------------------------------------------------------------------
45
<PAGE>
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
Please read this prospectus before you invest in the Fund and keep it for future
reference. For information or shareholder questions contact:
PRUDENTIAL MUTUAL FUND SERVICES LLC
P.O. BOX 15005
NEW BRUNSWICK, NJ 08906-5005
(800) 225-1852
(732) 417-7555
(if calling from outside the U.S.)
- --------------------------------
Outside Brokers Should Contact:
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
P.O. BOX 15035
NEW BRUNSWICK, NJ 08906-5035
(800) 778-8769
- ------------------------------------
Visit Prudential's Web Site At
http://www.prudential.com
- --------------------------------
Additional information about the Fund can be obtained without charge and can be
found in the following documents:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
(incorporated by reference into this prospectus)
ANNUAL REPORT
(contains a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance)
SEMI-ANNUAL REPORT
You can also obtain copies of Fund documents from the Securities and Exchange
Commission as follows:
By Mail:
Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-6009
(The SEC charges a fee to copy documents.)
In Person:
Public Reference Room in
Washington, DC
(For hours of operation, call 1(800) SEC-0330.)
Via the Internet:
http://www.sec.gov
- --------------------------------
CUSIP Numbers:
Class A: 744339-10-2
Class B: 744339-20-1
Class C: 744339-30-0
Class Z: 744339-40-9
Investment Company Act File No:
811-3712
MF128A M Printed on Recycled Paper
