<PAGE>
PROSPECTUS May 4, 2000
PRUDENTIAL
GOVERNMENT INCOME FUND, INC.
FUND TYPE Government securities
INVESTMENT OBJECTIVE High current return
[GRAPHIC -- BUILD ON THE ROCK]
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.
[PRUDENTIAL LOGO]
<PAGE>
TABLE OF CONTENTS
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<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 and Strategies
11 Investment Risks
16 HOW THE FUND IS MANAGED
16 Board of Directors
16 Manager
16 Investment Adviser
18 Distributor
19 FUND DISTRIBUTIONS AND TAX ISSUES
19 Distributions
20 Tax Issues
21 If You Sell or Exchange Your Shares
23 HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND
23 How to Buy Shares
31 How to Sell Your Shares
35 How to Exchange Your Shares
36 Telephone Redemptions or Exchanges
38 FINANCIAL HIGHLIGHTS
38 Class A Shares
39 Class B Shares
40 Class C Shares
41 Class Z Shares
44 THE PRUDENTIAL MUTUAL FUND FAMILY
FOR MORE INFORMATION (Back Cover)
</TABLE>
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PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
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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.
The Fund may actively and frequently trade its portfolio securities. High
portfolio turnover results in higher transaction costs and can affect the Fund's
performance and have adverse tax consequences.
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.
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1
<PAGE>
RISK/RETURN SUMMARY
- ------------------------------------------------
EVALUATING PERFORMANCE
A number of factors--including risk--can 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 bar chart and table below demonstrate the
risk of investing in the Fund by showing how returns can change from year to
year and by showing how the Fund's average annual total returns compare with
those of a broad measure of market performance and a group of similar mutual
funds. Past performance does not mean that the Fund will achieve similar results
in the future.
ANNUAL RETURNS* (CLASS B SHARES)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
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%
1999 -3.60%
</TABLE>
BEST QUARTER: 6.49% (2nd quarter of 1995)
WORST QUARTER: -3.45% (1st quarter of 1994)
* THESE ANNUAL RETURNS DO NOT INCLUDE SALES CHARGES. IF THE SALES CHARGES WERE
INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN. WITHOUT THE
DISTRIBUTION AND SERVICE (12b-1) FEE WAIVER, THE ANNUAL RETURNS WOULD HAVE
BEEN LOWER, TOO.
AVERAGE ANNUAL RETURNS(1) (AS OF 12-31-99)
<TABLE>
<CAPTION>
1 YR 5 YRS 10 YRS SINCE INCEPTION
<S> <C> <C> <C> <C>
Class A shares (7.03)% 6.09% N/A 6.47% (since 1-22-90)
Class B shares (8.60)% 6.13% 5.99% 6.95% (since 4-22-85)
Class C shares (5.49)% 6.16% N/A 5.34% (since 8-1-94)
Class Z shares (2.93)% N/A N/A 4.65% (since 3-4-96)
Lehman Bros. Government Bond
Index(2) (2.23)% 7.44% 7.48% N/A
Lipper Average(3) (3.02)% 6.50% 6.63% N/A
</TABLE>
1 THE FUND'S RETURNS ARE AFTER DEDUCTION OF SALES CHARGES AND EXPENSES.
WITHOUT THE DISTRIBUTION AND SERVICE (12b-1) FEE WAIVER FOR CLASS A,
CLASS B, AND CLASS C SHARES, THE RETURNS WOULD HAVE BEEN LOWER.
2 THE LEHMAN BROTHERS 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 OR OPERATING EXPENSES OF A MUTUAL FUND. THESE RETURNS WOULD
BE LOWER IF THEY INCLUDED THE EFFECT OF SALES CHARGES AND OPERATING
EXPENSES. GOV'T BOND INDEX RETURNS SINCE THE INCEPTION OF EACH CLASS ARE
108.70% FOR CLASS A, 242.76% FOR CLASS B, 41.64% FOR CLASS C AND 22.72% FOR
CLASS Z SHARES. SOURCE: LEHMAN BROTHERS.
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
INCEPTION OF EACH CLASS ARE 93.23% FOR CLASS A, 190.44% FOR CLASS B, 35.24%
FOR CLASS C AND 18.42% FOR CLASS Z SHARES. SOURCE: LIPPER INC.
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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 shares of each 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 .19% .19% .19% .19%
= Total annual Fund
operating expenses .99% 1.69% 1.69% .69%
- Fee waiver or expense
reimbursement(4) .05% .175% .25% None
= NET ANNUAL FUND OPERATING
EXPENSES .94% 1.52% 1.44% .69%
</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 FOR THE FISCAL YEAR ENDING FEBRUARY 28, 2001, THE DISTRIBUTOR OF THE FUND
HAS CONTRACTUALLY AGREED TO REDUCE ITS DISTRIBUTION AND SERVICE (12b-1)
FEES FOR CLASS A, CLASS B AND CLASS C SHARES TO .25 OF 1%, .825 OF 1% AND
.75 OF 1% OF THE AVERAGE DAILY NET ASSETS OF CLASS A, CLASS B AND CLASS C
SHARES, RESPECTIVELY.
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3
<PAGE>
RISK/RETURN SUMMARY
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EXAMPLE
This example will help you compare the fees and expenses of the Fund's different
share classes and compare 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, except for the Distributor's
reduction of distribution and service (12b-1) fees for Class A, Class B and
Class C shares during the first year. 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 $492 $698 $921 $1,560
Class B shares $654 $816 $1,001 $1,710
Class C shares $345 $603 $985 $2,057
Class Z shares $70 $221 $384 $859
</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 $492 $698 $921 $1,560
Class B shares $154 $516 $901 $1,710
Class C shares $245 $603 $985 $2,057
Class Z shares $70 $221 $384 $859
</TABLE>
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4 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
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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.
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 are
all 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.
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. 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 or "Freddie Mac"), the Federal Home Loan Bank, 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,
depend entirely upon their own resources to repay their debt obligations.
The Fund has no limitations with respect to the maturities of portfolio
securities in which it may invest.
The Fund invests in MORTGAGE-RELATED SECURITIES issued or guaranteed by U.S.
governmental entities. The Fund may also invest in privately issued
MORTGAGE-RELATED SECURITIES. 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 mortgages. Mortgage-related
securities issued by the U.S. Government or its agencies
- ------------------------------------------------------------------------------
5
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------
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. Privately issued mortgage-related securities are not guaranteed by
U.S. governmental entities and generally have one or more types of credit
enhancement to ensure timely receipt of payments and to protect against default.
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 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 changes 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
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6 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------
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-related securities and CMOs generally.
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. In addition, active trading may
result in greater transaction costs, which will reduce the Fund's return.
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 AND STRATEGIES
In addition to the principal strategies, we also may use the following
investment strategies to increase the Fund's returns or protect its assets if
market conditions warrant.
ASSET-BACKED SECURITIES
The Fund may invest up to 20% of the Fund's total assets in PRIVATELY-ISSUED
ASSET-BACKED 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.
FOREIGN BANK OBLIGATIONS
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).
- ------------------------------------------------------------------------------
7
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------
The Fund may invest in 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.
FIXED AND ADJUSTABLE RATE DEBT SECURITIES
The Fund is permitted to invest in both fixed and adjustable rate debt
securities. FIXED RATE DEBT SECURITIES are securities that have an interest rate
that is set at the time the security is issued. ADJUSTABLE RATE DEBT SECURITES
are securities that have an interest rate that is adjusted based on the market
rate at a specified period. 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 Ratings Group ("S&P") or Moody's Investors Service, Inc.
("Moody's") or, if unrated, are deemed to be of comparable credit quality by the
Fund's investment adviser.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
The Fund may use REPURCHASE AGREEMENTS, where a party agrees to sell a security
to the Fund and then repurchases it at an agreed-upon price at a stated time. A
repurchase agreement is like a loan by the Fund to the other party which creates
a fixed return for the Fund. Repurchase agreements are used for cash management
purposes.
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.
MONEY MARKET INSTRUMENTS
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. Investments in money market instruments for
coverage purposes will be excluded in calculating
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8 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------
the 20%. 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.
TEMPORARY DEFENSIVE INVESTMENTS
In response to adverse market, economic or political conditions, we may
temporarily invest up to 100% of the Fund's total assets in high-quality money
market instruments, cash, repurchase agreements or U.S. Government securities.
Investing heavily in these securities limits our ability to achieve our
investment objective, but can help to preserve the Fund's assets.
DERIVATIVE STRATEGIES
We may use various DERIVATIVE STRATEGIES to try to improve the Fund's returns.
We may use hedging techniques to try to protect the Fund's assets. We cannot
guarantee that these strategies and techniques will work, that the instruments
necessary to implement these strategies and techniques will be available, or
that the Fund will not lose money. Derivatives--such as futures contracts,
including interest rate futures contracts and Eurodollar instruments, options,
including straddles, options on futures, and interest rate swaps--involve costs
and can be volatile. With derivatives, the investment adviser tries to predict
if the underlying investment, whether a security, market index, currency,
interest rate, or some other investment, will go up or down at some future date.
We may use derivatives to try to 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 instrument. Any derivatives we may use
may not match the Fund's underlying holdings.
OPTIONS
The Fund may buy and sell call or put options on U.S. Government securities
traded on U.S. securities exchanges or in the over-the-counter market. An OPTION
is the right to buy or sell a security in exchange for a premium. The Fund will
sell only covered options.
The Fund may use straddles. 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.
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9
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------
FUTURES CONTRACTS AND RELATED OPTIONS
The Fund may purchase and sell financial futures contracts and related options
on financial futures. 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. 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.
The Fund may invest in Eurodollar instruments. 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.
INTEREST RATE SWAP TRANSACTIONS
The Fund may enter into INTEREST RATE SWAP TRANSACTIONS. 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.
DOLLAR ROLLS
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.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
The Fund may 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.
ZERO COUPON BONDS
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
- -------------------------------------------------------------------
10 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------
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.
SHORT SALES AGAINST-THE-BOX
The Fund may use SHORT SALES AGAINST-THE-BOX. In a short sale "against the box,"
the Fund owns or has the right to acquire the security at no additional cost
through conversion or exchange of other securities it owns. 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.
For more information about these strategies, see the SAI, "Description of
the Fund, Its Investments and Risks."
ADDITIONAL STRATEGIES
The Fund also follows certain policies when it LENDS ITS SECURITIES to others
(the Fund may lend up to 30% of the value of its total assets); BORROWS MONEY
(the Fund can borrow up to 20% of the value of its total assets); and HOLDS
ILLIQUID SECURITIES (the Fund may hold up to 15% of its net assets in illiquid
securities, including securities with legal or contractual restrictions on
resale, those 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 the indexes.
This chart outlines the key risks and potential rewards of the Fund's principal
investments and certain other non-principal investments the Fund may make. See,
too, "Description of the Fund, Its Investments and Risks" in the SAI.
- ------------------------------------------------------------------------------
11
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------
INVESTMENT TYPE
<TABLE>
<CAPTION>
% OF FUND'S TOTAL 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
UP TO 100%; AT LEAST money borrowed or than lower quality
65% make interest debt securities and
payments (relatively equity securities
low for U.S. -- The U.S. Government
Government guarantees interest
securities) and principal
-- Market risk--the risk payments on certain
that obligations U.S. Government
will lose value in securities
the market because -- May preserve the
interest rates rise Fund's assets
or there is a lack
of confidence in the
borrower
-- Not all U.S.
Government
securities are
insured or
guaranteed by the
U.S.
Government--some are
backed by the
issuing agency
- ---------------------------------------------------------------------------------
MORTGAGE-RELATED -- Prepayment risk--the -- Regular interest
SECURITIES risk that the income
underlying mortgages -- The U.S. Government
PERCENTAGE VARIES; UP may be pre-paid, guarantees interest
TO 100% IN U.S. partially or and principal
GOVERNMENT BACKED 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
-- See market risk
- ---------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------
12 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------
INVESTMENT TYPE (CONT'D)
<TABLE>
<CAPTION>
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
<S> <C> <C>
- ---------------------------------------------------------------------------------
ASSET-BACKED SECURITIES -- The security interest -- Regular interest
in the underlying income
UP TO 20% collateral may not -- Prepayment risk is
be as great as with generally lower than
mortgage-related with
securities mortgage-related
-- Credit risk--the risk securities
that the underlying -- Pass-through
receivables will not instruments provide
be paid by debtors greater
or by credit diversification than
insurers or direct ownership of
guarantors of such loans
instruments. Some
asset-backed
securities are
unsecured or secured
by lower-rated
insurers or
guarantors and thus
may involve greater
risk
-- See market risk and
prepayment risk
- ---------------------------------------------------------------------------------
DERIVATIVES -- Derivatives such as -- The Fund could make
futures, options, money and protect
PERCENTAGE VARIES options on futures against losses if
and interest rate the investment
swaps that are used analysis proves
for hedging purposes correct
may not fully offset -- One way to manage the
the underlying Fund's risk/return
positions and this balance is to lock
could result in in the value of an
losses to the Fund investment ahead of
that would not have time
otherwise occurred -- Derivatives used for
-- Derivatives used for return enhancement
risk management may purposes involve a
not have the type of leverage and
intended effects and could generate
may result in losses substantial gains at
or missed low cost
opportunities
-- The other party to a
derivatives contract
could default
-- Certain types of
derivatives
involve costs to the
Fund that can reduce
returns
-- Derivatives used for
return enhancement
purposes involve a
type of leverage
(borrowing for
investment) and
could magnify losses
- ---------------------------------------------------------------------------------
</TABLE>
- ------------------------------------------------------------------------------
13
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------
INVESTMENT TYPE (CONT'D)
<TABLE>
<CAPTION>
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
<S> <C> <C>
- ---------------------------------------------------------------------------------
MONEY MARKET -- Limits potential for -- May preserve the
INSTRUMENTS capital appreciation Fund's assets
-- See credit risk and
UP TO 20%; UP TO 100% market risk (which
ON A TEMPORARY BASIS are less of a
concern for money
market instruments)
- ---------------------------------------------------------------------------------
ILLIQUID SECURITIES -- Illiquidity risk--the -- May offer a more
risk that bonds may attractive yield or
UP TO 15% OF NET ASSETS be difficult to potential for growth
value precisely and than more widely
sell at time or traded securities
price desired, in
which case valuation
would depend more on
investment adviser's
judgment than is
generally the case
with higher-rated
securities
- ---------------------------------------------------------------------------------
FOREIGN BANK -- Foreign markets, -- Investors can
OBLIGATIONS economies and participate in the
political systems growth of foreign
LESS THAN 10% may not be as stable markets and
as those in the companies operating
U.S., particularly in those markets
those in developing -- Changing value of
countries foreign currencies
-- May be less liquid can cause gains
than U.S. debt -- Opportunities for
securities diversification
-- Differences in
foreign laws,
accounting
standards, public
information, custody
and settlement
practices provide
less reliable
information on
foreign investments
and involve more
risks
-- Currency risk--
changing value of
foreign currencies
can cause losses
- ---------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------
14 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
- ------------------------------------------------
INVESTMENT TYPE (CONT'D)
<TABLE>
<CAPTION>
% OF FUND'S TOTAL ASSETS RISKS POTENTIAL REWARDS
<S> <C> <C>
- ---------------------------------------------------------------------------------
WHEN-ISSUED AND -- May magnify -- May magnify
DELAYED-DELIVERY underlying underlying
SECURITIES, REPURCHASE investment losses investment gains
AGREEMENTS, REVERSE -- Investment costs may
REPURCHASE AGREEMENTS, exceed potential
DOLLAR ROLLS AND SHORT underlying
SALES investment gains
PERCENTAGE VARIES
- ---------------------------------------------------------------------------------
ZERO COUPON BONDS -- Typically subject to -- Value rises faster
greater volatility when interest rates
PERCENTAGE VARIES; and less liquidity fall
USUALLY LESS THAN 5% in adverse markets
than other debt
securities
-- See credit risk and
market risk
- ---------------------------------------------------------------------------------
</TABLE>
- ------------------------------------------------------------------------------
15
<PAGE>
HOW THE FUND IS MANAGED
- -------------------------------------
BOARD OF DIRECTORS
The Fund's 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 operations 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. PIFM also is
responsible for supervising the Fund's investment adviser. For the fiscal year
ended February 29, 2000, the Fund paid PIFM management fees of .50% of the
Fund's average daily net assets.
PIFM and its predecessors have served as manager or administrator to
investment companies since 1987. As of January 31, 2000, PIFM served as the
manager to all 43 of the Prudential mutual funds, and as manager or
administrator to 22 closed-end investment companies, with aggregate assets of
approximately $74.9 billion.
INVESTMENT ADVISER
The Prudential Investment Corporation, called Prudential Investments, is the
Fund's investment adviser and has served as an investment adviser to investment
companies since 1984. Its address is Prudential Plaza, 751 Broad Street, Newark,
NJ 07102. PIFM has responsibility for all investment advisory services,
supervises Prudential Investments and pays Prudential Investments for its
services.
Prudential Investments' Fixed Income Group manages more than $135 billion
for Prudential's retail investors, institutional investors, and policyholders.
Senior Managing Directors James J. Sullivan and Jack W. Gaston head the Group,
which is organized into teams specializing in different market sectors.
Top-down, broad investment decisions are made by the Fixed Income Policy
Committee, whereas bottom-up security selection is made by the sector teams.
- -------------------------------------------------------------------
16 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW THE FUND IS MANAGED
- ------------------------------------------------
Mr. Sullivan has overall responsibility for overseeing portfolio management
and credit research. Prior to joining Prudential Investments in 1998, he was a
managing director in Prudential's Capital Management Group, where he oversaw
portfolio management and credit research for Prudential's General Account and
subsidiary fixed-income portfolios. He has more than 16 years of experience in
risk management, arbitrage trading, and corporate bond investing.
Mr. Gaston has overall responsibility for overseeing quantitative research
and risk management. Prior to this appointment in 1999, he was senior managing
director of the Capital Management Group where he was responsible for the
investment performance and risk management for Prudential's General Account and
subsidiary fixed-income portfolios. He has more than 20 years of experience in
investment management, including extensive experience applying quantitative
techniques to portfolio management.
The Fixed Income Investment Policy Committee is comprised of key senior
investment managers. Members include seven sector team leaders, the chief
investment strategist, and the head of risk management. The Committee uses a
top-down approach to investment strategy, asset allocation, and general risk
management, identifying sectors in which to invest.
The U.S. Liquidity Team, headed by Michael Lillard, is primarily responsible
for overseeing the day-to-day management of the Fund. This Team uses a bottom-up
approach, which focuses on individual securities, while staying within the
guidelines of the Investment Policy Committee and the Fund's investment
restrictions and policies. In addition, the Credit Research team of analysts
supports the sector teams using bottom-up fundamentals, as well as economic and
industry trends. Other sector teams may contribute to securities selection when
appropriate.
U.S. LIQUIDITY
ASSETS UNDER MANAGEMENT: $22.6 billion (as of December 31, 1999).
TEAM LEADER: Michael Lillard. GENERAL INVESTMENT EXPERIENCE: 12 years.
PORTFOLIO MANAGERS: 9. AVERAGE GENERAL INVESTMENT EXPERIENCE: 10 years, which
includes team members with significant mutual fund experience.
SECTOR: U.S. Treasuries, agencies and mortgages.
- ------------------------------------------------------------------------------
17
<PAGE>
HOW THE FUND IS MANAGED
- ------------------------------------------------
INVESTMENT STRATEGY: Focus is on high quality, liquidity and controlled risk.
DISTRIBUTOR
Prudential Investment Management Services LLC (PIMS) distributes the Fund's
shares under a Distribution Agreement with the Fund. 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.
- -------------------------------------------------------------------
18 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 distributes DIVIDENDS of ordinary income and
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 or tax-deferred plan
or account. Dividends and distributions from the Fund also may be subject to
state and local income tax in the state where you live.
Also, if you sell shares of the Fund for a profit, you may have to pay
capital gains taxes on the amount of your profit, again unless you hold your
shares in a qualified or tax-deferred plan or account.
The following briefly discusses some of the important 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 distributes DIVIDENDS out 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 distributions of dividends and 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 if your account is with
the Transfer Agent. 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 or 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.
- ------------------------------------------------------------------------------
19
<PAGE>
FUND DISTRIBUTIONS AND TAX ISSUES
- ------------------------------------------------
TAX ISSUES
FORM 1099
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 or 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 or
tax-deferred plan or account.
Fund distributions are generally taxable to you in the calendar 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
If federal law requires you to provide the Fund with your taxpayer
identification number and certifications as to your tax status, and you fail to
do this, or if you are otherwise subject to backup withholding, we will 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.
IF YOU PURCHASE JUST BEFORE RECORD DATE
If you buy shares of the Fund just before the record date for a distribution
(the date that determines who receives the distribution), that distribution will
be paid to you. As explained above, the distribution may be subject to income or
capital gains taxes. You may think you've done well, since you bought shares one
day and soon thereafter received a distribution. That is not so because when
dividends are paid out, the value of each share of the Fund decreases by the
amount of the dividend to reflect the payout although this may not be apparent
because the value of each share of the Fund also will be affected by market
changes, if any. The distribution you receive makes up for the decrease in share
value. However, the timing of your purchase does mean that part of your
investment came back to you as taxable income.
- -------------------------------------------------------------------
20 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
FUND DISTRIBUTIONS AND TAX ISSUES
- ------------------------------------------------
QUALIFIED OR TAX-DEFERRED 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, 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.
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 the shares are held in a qualified or
tax-deferred plan or account. For individuals, the maximum capital gains tax
rate is 20% for shares held for more than twelve 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>
<CAPTION>
- ---------------------------------------------------------------------
<S> <C> <C>
+$ CAPITAL GAIN
(taxes owed)
Receipts from Sale $ OR
-$ CAPITAL LOSS
(offset against gain)
- ---------------------------------------------------------------------
</TABLE>
If you sell shares and realize a loss, you will not be permitted to use the
loss to the extent you replace the shares (including pursuant to the
reinvestment of a dividend) within a 61-day period (beginning 30 days before the
sale of the shares). Under certain circumstances, if you acquire shares of the
Fund and sell or exchange your shares within 90 days, you may not be allowed to
include certain charges incurred in acquiring the shares for purposes of
calculating gain or loss realized upon the sale of the shares.
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 Form 1099; however, proceeds from the sale or exchange will
be reported on Form 1099-B. Therefore, unless you hold your
- ------------------------------------------------------------------------------
21
<PAGE>
FUND DISTRIBUTIONS AND TAX ISSUES
- ------------------------------------------------
shares in a qualified or 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". 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.
- -------------------------------------------------------------------
22 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<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
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
-- Whether you qualify for any reduction or waiver of sales charges
- ------------------------------------------------------------------------------
23
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
-- The fact that Class B shares automatically convert to Class A shares
approximately seven years after purchase
-- 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>
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 Sales None If sold during: 1% on sales None
Charge (CDSC)(2) Year 1 5% made within
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% None
service (12b-1) fees (shown (.25 of 1% $3 billion, (.75 of 1%
as a percentage currently) .80 of 1% next currently)
of average net assets)(3) $1 billion, and
.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 CHARGE (CDSC)." CLASS C SHARES
BOUGHT BEFORE NOVEMBER 2, 1998 HAVE A 1% CDSC IF SOLD WITHIN ONE YEAR.
3 THESE DISTRIBUTION AND SERVICE (12b-1) 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.
CLASS A SHARES MAY PAY A SERVICE FEE OF UP TO .25 OF 1%. CLASS B AND
CLASS C SHARES WILL PAY A SERVICE FEE OF .25 OF 1%. THE DISTRIBUTION FEE
FOR CLASS A SHARES IS LIMITED TO .30 OF 1% (INCLUDING UP TO .25 OF 1% AS A
SERVICE FEE), IS .75 OF 1% UP TO $3 BILLION, .55 OF 1% OF THE NEXT
$1 BILLION, AND .25 OF 1% OVER $4 BILLION FOR CLASS B SHARES AND IS .75 OF
1% FOR CLASS C SHARES. FOR THE FISCAL YEAR ENDING FEBRUARY 28, 2001, THE
DISTRIBUTOR OF THE FUND HAS CONTRACTUALLY AGREED TO REDUCE ITS DISTRIBUTION
AND SERVICE (12b-1) FEES FOR CLASS A, CLASS B, AND CLASS C SHARES TO .25 OF
1%, .825 OF 1%, AND .75 OF 1% OF THE AVERAGE DAILY NET ASSETS OF CLASS A,
CLASS B, AND CLASS C SHARES, RESPECTIVELY.
- -------------------------------------------------------------------
24 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<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
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>
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(1) None None None
</TABLE>
1 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 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
current 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)
-- 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.
The Distributor may reallow Class A's sales charge to dealers.
BENEFIT PLANS. Certain group retirement and savings plans may purchase Class A
shares without the initial sales charge if they meet the required minimum for
amount of assets, average account balance or number of eligible employees. For
more information about these requirements, call Prudential at (800) 353-2847.
- ------------------------------------------------------------------------------
25
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
MUTUAL FUND PROGRAMS. The initial sales charge will be waived for investors in
certain programs sponsored by broker-dealers, 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
clients' accounts to a master account in the sponsor's name and the
sponsor charges a fee for its services.
Broker-dealers, investment advisers or financial planners sponsoring these
mutual fund programs may offer their clients more than one class of shares in
the Fund in connection with different pricing options for their programs.
Investors should consider carefully any separate transaction and other fees
charged by these programs in connection with investing in each available share
class before selecting a share class.
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
registered representatives and employees 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 about reducing or eliminating
Class A's sales charge, see the SAI, "Purchase, Redemption and Pricing of Fund
Shares--Reduction and Waiver of Initial Sales Charge--Class A Shares."
WAIVING CLASS C'S INITIAL SALES CHARGE
BENEFIT PLANS. Certain group retirement plans may purchase Class C shares
without the initial sales charge. For more information, call Prudential at
(800) 353-2847.
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
- -------------------------------------------------------------------
26 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
unaffiliated investment company, as long as the shares were not held in an
account at Prudential Securities Incorporated (Prudential Securities) 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
-- Purchase your shares through another broker.
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
BENEFIT PLANS. Certain group retirement plans may purchase Class Z shares if
they meet the required minimum for amount of assets, average account balance or
number of eligible employees. For more information about these requirements,
call Prudential at (800) 353-2847.
MUTUAL FUND PROGRAMS. Class Z shares also can be purchased by participants in
any fee-based program or trust program sponsored by Prudential or an affiliate
that includes the Fund as an available option. Class Z shares also can be
purchased by investors in certain programs sponsored by broker-dealers,
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, links its clients' accounts to a master account
in the sponsor's name and charges its clients a management,
consulting or other fee for its services
-- Mutual fund "supermarket" programs, where the sponsor links its
clients' accounts to a master account in the sponsor's name and the
sponsor charges a fee for its services.
Broker-dealers, investment advisers or financial planners sponsoring these
mutual fund programs may offer their clients more than one class of shares in
the Fund in connection with different pricing options for their programs.
Investors should consider carefully any separate transaction and
- ------------------------------------------------------------------------------
27
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
other fees charged by these programs in connection with investing in each
available share class before selecting a share class.
OTHER TYPES OF INVESTORS. Class Z shares also can be purchased by any of the
following:
-- 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
-- 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 A or 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
- -------------------------------------------------------------------
28 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<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 (NYSE) is open for trading.
The NYSE is closed on most national holidays and Good Friday. Because the Fund
may invest in foreign securities, its NAV may change on days when you cannot buy
or sell Fund shares. 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.
- -------------------------------------------------------------------
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29
<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 declines--is available to investors who purchase their shares through
Prudential. Eligible investors who apply for PruTector coverage after the
initial 6-month enrollment period will need to provide satisfactory
- -------------------------------------------------------------------
30 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
evidence of insurability. This insurance is subject to other restrictions and is
not available in all states.
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available that will
provide you with monthly, quarterly, semi-annual or annual redemption 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, your broker 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.
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31
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
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. As permitted by the
Securities and Exchange Commission, this may happen only 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
payable or sent to someone or some place that is not in our records, or you are
a business or a trust and if you hold your shares directly with the Transfer
Agent, you will need to have the signature on your sell order signature
guaranteed by an "eligible guarantor institution." An "eligible guarantor
institution" includes any bank, broker-dealer or credit union. For more
information, see the SAI, "Purchase, Redemption and Pricing of Fund Shares--Sale
of Shares--Signature Guarantee."
CONTINGENT DEFERRED SALES CHARGE (CDSC)
If you sell Class B shares within six years of purchase or Class C shares within
18 months of purchase (one year for Class C shares purchased before November 2,
1998), 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 six years for Class B shares
and 18 months for Class C shares (one year for Class C shares
purchased before November 2, 1998)
-- 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.
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32 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
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HOW TO BUY, SELL AND
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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 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 (one year for Class C shares purchased
before November 2, 1998). 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 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, provided the shares were purchased before the death or
disability
-- To provide for certain distributions--made without IRS penalty--from
a qualified or tax-deferred retirement plan, IRA or Section 403(b)
custodial account
-- On certain sales from a Systematic Withdrawal Plan.
For more information on the above and other waivers, see the SAI, "Purchase,
Redemption and Pricing of Fund Shares--Contingent Deferred Sales Charge--Waiver
of Contingent Deferred Sales Charge--Class B Shares."
- ------------------------------------------------------------------------------
33
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
- ------------------------------------------------
WAIVER OF THE CDSC--CLASS C SHARES
BENEFIT PLANS. The CDSC will be waived for redemptions by certain group
retirement plans for which Prudential or brokers not affiliated with Prudential
provide administrative or recordkeeping services. The CDSC also will be waived
for certain redemptions by benefit plans sponsored by Prudential and its
affiliates. For more information, call Prudential at (800) 353-2847.
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 qualified or 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 back into your account 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 account with the appropriate
number of shares to reflect the amount of the CDSC you paid on that reinvested
portion of your redemption proceeds. 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."
- -------------------------------------------------------------------
34 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<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 is no sales charge for exchanges. If, however, you exchange--and then
sell--Class B shares within approximately six 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 in calculating the required holding period for CDSC liability.
- ------------------------------------------------------------------------------
35
<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. We
make such exchanges on a quarterly basis if 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
into the Fund by any person, group or commonly controlled account. The decision
may be based upon dollar amount, volume and frequency of trading. 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.
TELEPHONE REDEMPTIONS OR EXCHANGES
You may redeem or exchange your shares in any amount by calling the Fund at
(800) 225-1852 before 4:15 p.m. New York time. You will receive a redemption
amount based on that day's NAV.
- -------------------------------------------------------------------
36 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
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- ------------------------------------------------
The Fund's Transfer Agent will record your telephone instructions and
request specific account information before redeeming or exchanging shares. The
Fund will not be liable if it follows instructions that it reasonably believes
are made by the shareholder. If the Fund does not follow reasonable procedures,
it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
In the event of drastic economic or market changes, you may have difficulty
in redeeming or exchanging your shares by telephone. If this occurs, you should
consider redeeming or exchanging your shares by mail.
The telephone redemption and exchange privileges may be modified or
terminated at any time. If this occurs, you will receive a written notice from
the Fund.
- ------------------------------------------------------------------------------
37
<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 three years ended February 29, 2000, were
audited by PricewaterhouseCoopers LLP, independent accountants, and the
financial highlights for the two years ended February 28, 1997, were audited by
other independent auditors, whose reports were unqualified.
CLASS A SHARES (FISCAL YEARS ENDED 2-28/29)
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $8.98 $9.05 $8.76 $9.04 $8.59
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.55 0.55 0.58 0.60 0.60
Net realized and unrealized gain
(loss) on investment transactions (0.57) (0.07) 0.29 (0.28) 0.45
TOTAL FROM INVESTMENT OPERATIONS (0.02) 0.48 0.87 0.32 1.05
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment
income (0.55) (0.55) (0.58) (0.60) (0.60)
NET ASSET VALUE, END OF YEAR $8.41 $8.98 $9.05 $8.76 $9.04
TOTAL RETURN(1) (0.15)% 5.40% 10.26% 3.70% 12.41%
- --------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 2000 1999 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000) $806,620 $895,039 $819,536 $860,319 $945,038
Average net assets (000) $857,586 $836,143 $842,431 $884,862 $909,169
RATIOS TO AVERAGE NET ASSETS:(2)
Expenses, including distribution
and service (12b-1) fees 0.94% 0.84% 0.86% 0.90% 0.91%
Expenses, excluding distribution
and service (12b-1) fees 0.69% 0.68% 0.71% 0.75% 0.76%
Net investment income 6.39% 6.05% 6.52% 6.78% 6.65%
Portfolio turnover rate 68% 106% 88% 107% 123%
</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.
2 NET OF EXPENSE SUBSIDY AND/OR FEE WAIVER.
- -------------------------------------------------------------------
38 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------
CLASS B SHARES
The financial highlights for the three years ended February 29, 2000, were
audited by PricewaterhouseCoopers LLP, independent accountants, and the
financial highlights for the two years ended February 28, 1997, were audited by
other independent auditors, whose reports were unqualified.
CLASS B SHARES (FISCAL YEARS ENDED 2-28/29)
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $8.99 $9.05 $8.77 $9.04 $8.60
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.50 0.49 0.52 0.54 0.54
Net realized and unrealized gain
(loss) on investment transactions (0.58) (0.06) 0.28 (0.27) 0.44
TOTAL FROM INVESTMENT OPERATIONS (0.08) 0.43 0.80 0.27 0.98
- ----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment
income (0.50) (0.49) (0.52) (0.54) (0.54)
NET ASSET VALUE, END OF YEAR $8.41 $8.99 $9.05 $8.77 $9.04
TOTAL RETURN(1) (0.83)% 4.83% 9.40% 3.12% 11.54%
- ----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 2000 1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000) $193,394 $343,425 $346,059 $461,988 $641,946
Average net assets (000) $262,863 $322,626 $385,145 $543,796 $647,515
RATIOS TO AVERAGE NET ASSETS:(2)
Expenses, including distribution
and service (12b-1) fees 1.52% 1.50% 1.53% 1.57% 1.58%
Expenses, excluding distribution
and service (12b-1) fees 0.69% 0.68% 0.71% 0.75% 0.76%
Net investment income 5.77% 5.39% 5.85% 6.11% 5.99%
Portfolio turnover 68% 106% 88% 107% 123%
</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.
2 NET OF EXPENSE SUBSIDY AND/OR FEE WAIVER.
- ------------------------------------------------------------------------------
39
<PAGE>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------
CLASS C SHARES
The financial highlights for the three years ended February 29, 2000, were
audited by PricewaterhouseCoopers LLP, independent accountants, and the
financial highlights for the two years ended February 28, 1997, were audited by
other independent auditors, whose reports were unqualified.
CLASS C SHARES (FISCAL YEARS ENDED 2-28/29)
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $8.99 $9.05 $8.77 $9.04 $8.60
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) 0.51 0.50 0.53 0.54 0.54
Net realized and unrealized gain
(loss) on investment transactions (0.58) (0.06) 0.28 (0.27) 0.44
TOTAL FROM INVESTMENT OPERATIONS (0.07) 0.44 0.81 0.27 0.98
- -------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment
income (0.51) (0.50) (0.53) (0.54) (0.54)
NET ASSET VALUE, END OF YEAR $8.41 $8.99 $9.05 $8.77 $9.04
TOTAL RETURN(1) (0.76)% 4.91% 9.48% 3.20% 11.63%
- -------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 2000 1999 1998 1997 1996
- -------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000) $8,508 $8,236 $2,840 $2,569 $1,799
Average net assets (000) $9,014 $4,878 $2,523 $2,440 $765
RATIOS TO AVERAGE NET ASSETS:(2)
Expenses, including distribution
and service (12b-1) fees 1.44% 1.43% 1.46% 1.50% 1.51%
Expenses, excluding distribution
and service (12b-1) fees 0.69% 0.68% 0.71% 0.75% 0.76%
Net investment income 5.90% 5.50% 5.92% 6.19% 5.99%
Portfolio turnover 68% 106% 88% 107% 123%
</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.
2 NET OF EXPENSE SUBSIDY AND/OR FEE WAIVER.
- -------------------------------------------------------------------
40 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------
CLASS Z SHARES
The financial highlights for the three years ended February 29, 2000, 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 YEARS ENDED 2-28/29)
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE 2000 1999 1998 1997(1)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $8.97 $9.04 $8.76 $9.13
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.57 0.57 0.59 0.61
Net realized and unrealized gain
(loss) on investment transactions (0.57) (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) (0.57) (0.59) (0.61)
NET ASSET VALUE, END OF YEAR $8.40 $8.97 $9.04 $8.76
TOTAL RETURN(2) 0.09% 5.58% 10.30% 3.16%
- -------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 2000 1999 1998 1997
- -------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000) $93,390 $97,629 $84,733 $73,411
Average net assets (000) $97,811 $86,892 $71,425 $39,551
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.69% 0.68% 0.71% 0.75%(3)
Net investment income 6.64% 6.22% 6.67% 6.76%(3)
Portfolio turnover 68% 106% 88% 107%
</TABLE>
1 INFORMATION SHOWN IS FOR THE PERIOD FROM MARCH 4, 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 YEAR REPORTED. TOTAL RETURNS FOR PERIODS OF LESS THAN
A FULL YEAR ARE NOT ANNUALIZED.
3 ANNUALIZED.
- ------------------------------------------------------------------------------
41
<PAGE>
- -------------------------------------
NOTES
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42 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
- ------------------------------------------------
NOTES
- ------------------------------------------------------------------------------
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 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 FUNDS
PRUDENTIAL TAX-MANAGED EQUITY FUND
PRUDENTIAL 20/20 FOCUS FUND
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
TARGET FUNDS
LARGE CAPITALIZATION GROWTH FUND
LARGE CAPITALIZATION VALUE FUND
SMALL CAPITALIZATION GROWTH FUND
SMALL CAPITALIZATION VALUE 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.
PRUDENTIAL GLOBAL GROWTH FUND
PRUDENTIAL INTERNATIONAL VALUE FUND
PRUDENTIAL JENNISON INTERNATIONAL GROWTH FUND
GLOBAL UTILITY FUND, INC.
TARGET FUNDS
INTERNATIONAL EQUITY FUND
GLOBAL BOND FUNDS
PRUDENTIAL GLOBAL TOTAL RETURN FUND, INC.
PRUDENTIAL INTERNATIONAL BOND FUND, INC.
- -------------------------------------------------------------------
44 PRUDENTIAL GOVERNMENT INCOME FUND, INC. [LOGO] (800) 225-1852
<PAGE>
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 SHORT-TERM CORPORATE BOND
FUND, INC.
INCOME PORTFOLIO
TARGET FUNDS
TOTAL RETURN BOND FUND
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) 482-7555 (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 website 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 20549-0102
BY ELECTRONIC REQUEST
[email protected]
(The SEC charges a fee to copy documents.)
IN PERSON
Public Reference Room in Washington, DC
(For hours of operation, call)
1-202-942-8090
VIA THE INTERNET
on the EDGAR Database at
http://www.sec.gov
CUSIP Numbers NASDAQ Symbols
Class A Shares--744339-10-2 PGVAX
Class B Shares--744339-20-1 PBGPX
Class C Shares--744339-30-0 --
Class Z Shares--744339-40-9 PGVZX
Investment Company Act File No. 811-3712
MF128A
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