Prudential
U.S. Government
Fund
S E M I A N N U A L R E P O R T
April 30,1994
Prudential Mutual Funds
Building Your Future (LOGO)
On Our Strength
<PAGE>
Letter to
Shareholders
June 6, 1994
Dear Shareholder:
In the last six months, U.S. government bond investors have seen uneven returns
in a market defined first by relatively stable interest rates and, later, by
rapidly rising rates. In this environment, the Prudential U.S. Government Fund
provided returns within market averages.
<TABLE>
<CAPTION>
Performance
As of April 30, 1994
6-Month 12-Month 30-Day NAV
Total Return Total Return SEC Yield 4/30/94
<S> <C> <C> <C> <C>
Class A -6.3% 0.5% 5.9% $9.63
Class B -6.6 -0.3 5.5 9.64
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns1
As of March 31, 1994
One Year Five Year Since Inception2
<S> <C> <C> <C>
Class A -2.4% N/A 7.2%
Class B -3.5 8.7% 6.6
</TABLE>
1 Source: Prudential Mutual Fund Management. These figures take into account
applicable sales charges. The Fund charges a maximum sales load of 4.50% for
Class A shares. Class B shares are subject to a declining contingent deferred
sales charge of 5%, 4%, 3%, 2%, 1% and 1% respectively, over a six year period.
2 Inception of Class A 1/22/90; Class B 11/07/86
An investment in the Fund is neither insured nor guaranteed by the U.S.
government. Past performance is no guarantee of future results. Investment
return and principal value will fluctuate so that an investors shares when
redeemed may be worth more or less than their original cost.
Fund Overview
The Prudential U.S. Government Fund seeks to provide high total return through
a
combination of capital appreciation plus high current income by investing
primarily in U.S. government securities and obligations issued or guaranteed by
U.S. government agencies or instrumentalities. It also may invest up to 35% of
assets in corporate and other debt securities. As of April 30, 1994, the Fund
had an effective maturity of 10.6 years.
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<PAGE>
What Goes Up Must Come Down
After stabilizing last summer, bond prices halted their long upward course
and began to fall last October as the apparent strength of the U.S. economy
precipitated a reverse in interest rates. Economic growth, which had been
sputtering along at about 2.0% all year, rocketed to nearly 7.0% in the last
months of 1993. Bond investors, anticipating higher inflation as a result
(inflation erodes the value of fixed-income securities), began to demand higher
yields for bonds. When the Federal Reserve raised the Federal Funds rate twice
in the first quarter and once in April, interest rates across the yield curve
shifted upward. The latest increases in the Fed Funds rate and the discount
rate in May, however, helped to stabilize long-term bond yields.
While the Fed's moves were only designed to increase short-term rates, the
market's reaction was considerably more dramatic. Long-term Treasury yields
rose by as much as 110 basis points (currently at 7.4% for 30-year Treasurys) to
as much as 160 basis points for the three-year note. The Fund's total returns
reflect that volatility.
It is important to note, however, that most fundamental economic trends do
not point to much higher long-term interest rates this year. It appears that
the bond market has yet to register the effects of higher federal income taxes,
reduced government spending, and low inflation. Still, volatility is expected
to continue until the bond markets are satisfied with the Fed's commitment to
maintain low inflation.
Intermediate-term Securities Provided a Cushion
The long-term average maturity of the portfolio benefitted the Fund during
last year's bond rally, but once rates began rising we reduced the Fund's
weighted average maturity slightly by decreasing our exposure to 30-year
Treasury bonds. These bonds react more sharply to changes in rates because of
their long-term maturities. In today's environment, we have recently purchased
some intermediate-term securities to cushion against market volatility. These
bonds have been more attractive and the demand for them has helped support their
prices relative to short-and long-term securities. For income-hungry investors,
rising rates generally mean larger dividends, although bond prices fall at the
same time, reducing net asset value, and dividend rates can never be guaranteed.
Corporate Bonds Added
In addition to reducing the Fund's weighted average maturity, we continued to
purchase good quality corporate and yankee securities (U.S.-dollar denominated
bonds issued by foreign countries and companies). Corporates offer higher
coupons than similar-maturity government bonds, which can help cushion the
portfolio against falling bond prices. Bonds in the financial sector have
performed particularly well recently and Star Bank (approximately 0.8% of the
portfolio as of April 30, 1994) is one security we added to the
-2-
<PAGE>
portfolio. In addition to domestic corporates, we have found value in high-
quality yankees. A recent purchase includes Coles Myer Finance (approximately
1.1% of the portfolio as of April 30, 1994), a retail store operator in
Australia and New Zealand.
Mortgages Rebound On Rising Rates
As rates have risen we have added to our mortgage holdings, up to 31% of net
assets as of April 30, 1994, from 17% as of October 31, 1993 (See accompanying
pie chart). We generally rely on mortgage-backed securities to deliver higher
yields than comparable maturity Treasurys, without undue credit risk. However,
while rates were falling, we underweighted mortgages in the portfolio
throughout, because of high prepayment risk. Now that rates have turned around,
we have found some fairly priced securities in this sector.
Looking Forward
Looking to the rest of 1994, we expect market volatility to continue through
the summer, or until the Fed acts decisively to quell inflationary fears.
However, we do not anticipate a sharp increase in long-term rates over the
course of 1994. For instance, most increases in economic productivity during
this recovery seem to be as a result of capital expenditures and not through
rising job growth. In addition, wages have remained rather steady throughout,
so prices should stay fairly level. This points to the low inflation, moderate
growth environment that can produce reasonable bond fund returns. Still, bond
investors will be ever vigilant for signs of inflation and bond prices may
remain soft until the Federal Reserve reassures them.
As always, we appreciate having you as a Prudential U.S. Government Fund
shareholder and remain committed to managing the portfolio for your long-term
benefit.
Sincerely,
Lawrence C. McQuade
President
Annamarie Carlucci
Portfolio Manager
U.S. Government Fund
Asset Allocation*
(As of April 30, 1994)
(CHART)
(As of October 31, 1993)
(CHART)
*Percent of net assets
-3-
<PAGE>
PRUDENTIAL U.S. GOVERNMENT FUND Portfolio of Investments
April 30, 1994 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
LONG-TERM INVESTMENTS--98.0%
U. S. Treasury Securities--19.1%
U.S. Treasury Bonds,
$ 2,500 10.75%, 8/15/05................ $ 3,180,475
6,400(D) 12.00%, 8/15/13................ 8,984,000
6,000(D) 11.25%, 2/15/15................ 8,385,000
U.S. Treasury Notes,
1,000 3.875%, 9/30/95................ 979,840
1,000(D) 7.75%, 3/31/96................. 1,036,410
3,000(D) 6.75%, 5/31/97................. 3,045,480
Zero Coupon Treasury Bonds,
16,000 Zero Coupon, 11/15/15.......... 3,153,600
------------
Total U. S. Treasury Securities
(cost $30,343,967)............. 28,764,805
------------
U. S. Government Agencies--19.8%
Federal National Mortgage
Assoc.,
40,000 Zero Coupon, 7/05/14........... 8,350,000
Resolution Funding Corp.,
15,000 8.875%, 7/15/20................ 17,310,900
Tennessee Valley Auth.,
4,000 8.75%, 10/01/19................ 4,240,000
------------
Total U. S. Government Agencies
(cost $26,943,997)............. 29,900,900
------------
Mortgage-Related Securities--31.0%
Federal Home Loan Mortgage
Corp.,
1,500 7.50%, 9/15/05, (CMO).......... 1,511,715
2,200 7.50%, 7/15/07, (CMO).......... 2,222,000
Federal National Mortgage
Assoc.,
3,475 11.00%, 11/01/00............... 3,872,179
3,944 8.50%, 3/25/09, (CMO).......... 3,998,955
5,000 6.50%, 7/25/20, (CMO).......... 4,601,550
5,000 8.25%, 3/25/21, (CMO).......... 5,145,300
17,500 7.00%, 11/01/23 - 5/01/24...... 16,531,900
Government National Mortgage
Assoc.,
2,789 9.00%, 11/15/15 - 8/15/21...... 2,901,346
2,983 8.50%, 11/15/20 - 6/15/24...... 3,045,356
Nomura Asset Securities Corp.,
$ 3,000 Ser. 94, Class A,
7.53%, 1/15/01............... $ 2,973,750
------------
Total Mortgage-Related
Securities
(cost $46,982,559)............. 46,804,051
------------
Corporate Bonds--22.1%
Domestic--18.0%
Bausch & Lomb, Inc.,
3,500 6.80%, 12/12/96................ 3,533,915
(Medical supplies)
Coles Myer Finance,
2,000 6.47%, 2/18/04................. 1,823,900
(Financial services)
Comsat Corp.,
3,000 8.125%, 4/01/04................ 3,077,010
(Telecommunications)
Dean Witter Discover & Co.,
1,500 6.00%, 3/01/98................. 1,441,155
(Financial services)
Ford Motor Credit Co.,,
2,000 6.25%, 2/26/98................. 1,944,620
(Financial services)
Georgia Power Co.,
2,000 4.75%, 3/01/96................. 1,952,960
(Electric utility)
Hoechst Celanese Corp.,
2,000 6.125%, 2/01/04................ 1,803,718
(Miscellaneous)
NationsBank Corp.,
2,500 6.625%, 1/15/98................ 2,481,550
(Financial services)
Republic N.Y. Corp.,
2,000 9.70%, 2/01/09................. 2,290,380
(Financial services)
Star Bank,
1,500 6.375%, 3/01/04................ 1,368,720
(Financial services)
USLIFE Corp.,
2,000 6.375%, 6/15/00................ 1,897,820
(Insurance)
</TABLE>
-4- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL U.S. GOVERNMENT FUND
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
Corporate Bonds (cont'd.)
Zeneca Wilmington, Inc.,
$ 2,000 6.30%, 6/15/03................. $ 1,819,500
(Pharmaceuticals)
Zurich Reinsurance Centre
Holdings, Inc.,
2,000 7.125%, 10/15/23............... 1,722,820
(Insurance)
------------
Total Domestic Corporate Bonds
(cost $29,192,269)............. 27,158,068
------------
Yankee--4.1%
Australia & New Zealand Banking
Group,
3,000 6.25%, 2/01/04................. 2,709,780
(Financial services)
Hanson PLC.,
2,000 7.375%, 1/15/03................ 1,951,660
(Miscellaneous)
Svenska Handelsbanken,
1,500 8.125%, 8/15/07................ 1,517,655
(Financial services)
------------
Total Yankee Corporate Bonds
(cost $6,593,442).............. 6,179,095
------------
Total Corporate Bonds
(cost $35,785,711)............. 33,337,163
------------
Foreign Government Bonds*--2.6%
Province of Quebec,
$ 2,000 9.125%, 3/01/00................ $ 2,169,620
Republic of Italy,
2,000 6.875%, 9/27/23................ 1,691,780
------------
Total Foreign Government Bonds
(cost $4,185,700).............. 3,861,400
------------
Asset Backed Securities--3.4%
Chase Manhattan Credit Card
Trust,
5,000 7.40%, 5/15/00
(cost $4,993,900).............. 5,106,250
------------
Total Long-Term Investments
(cost $149,235,834)............ 147,774,569
------------
SHORT-TERM INVESTMENT
Repurchase Agreement--12.4%
Joint Repurchase Agreement
Account,,
18,630 3.54%, 5/02/94, (Note 5)
(cost $18,630,000)............. 18,630,000
------------
Total Investments--110.4%
(cost $167,865,834; Note 4).... 166,404,569
Liabilities in excess of other
assets--(10.4%)................ (15,656,625)
------------
Net Assets--100%............... $150,747,944
------------
------------
</TABLE>
- ---------------
CMO--Collateralized Mortgage Obligations.
(D) Entire principal amount segregated for dollar rolls.
* U.S. dollar denominated.
-5- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL U.S. GOVERNMENT FUND
Statement of Assets and Liabilities
(Unaudited)
<TABLE>
<CAPTION>
Assets
April 30, 1994
----------------
<S>
<C>
Investments, at value (cost
$167,865,834)................................................... $166,404,569
Interest
receivable....................................................................
..... 1,702,277
Receivable for Fund shares
sold.............................................................
274,061
Other
assets........................................................................
........ 7,026
----------------
Total
assets........................................................................
...... 168,387,933
----------------
Liabilities
Payable for Investments
purchased...........................................................
16,646,875
Payable for Fund shares
reacquired..........................................................
489,729
Dividends
payable.......................................................................
.... 228,176
Accrued
expenses......................................................................
...... 109,672
Distribution fee
payable....................................................................
102,663
Management fee
payable......................................................................
62,874
----------------
Total
liabilities...................................................................
...... 17,639,989
----------------
Net
Assets........................................................................
.......... $150,747,944
----------------
----------------
Net assets were comprised of:
Shares of beneficial interest, at
par..................................................... $ 156,431
Paid-in capital in excess of
par.......................................................... 161,992,003
----------------
162,148,434
Accumulated net realized losses on
investments............................................ (9,939,225)
Net unrealized depreciation on
investments................................................ (1,461,265)
----------------
Net Assets at April 30,
1994................................................................
$150,747,944
----------------
----------------
Class A:
Net asset value and redemption price per share
($7,300,950 / 757,980 shares of beneficial interest issued and
outstanding)............. $ 9.63
Maximum sales charge (4.5% of offering
price)............................................. .45
Maximum offering price to
public.......................................................... $10.08
----------------
----------------
Class B:
Net asset value, offering price and redemption price per share
($143,446,994 / 14,885,109 shares of beneficial interest issued and
outstanding)........ $ 9.64
----------------
----------------
</TABLE>
See Notes to Financial Statements.
-6-
<PAGE>
<PAGE>
PRUDENTIAL U.S. GOVERNMENT FUND
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
April 30,
Net Investment Income 1994
------------
<S> <C>
Income
Interest and discount earned......... $ 5,706,729
------------
Expenses
Distribution fee--Class A............ 5,284
Distribution fee--Class B............ 721,179
Management fee....................... 405,992
Transfer agent's fees and expenses... 136,000
Custodian's fees and expenses........ 60,000
Trustees' fees....................... 27,000
Registration fees.................... 22,000
Audit fee............................ 15,000
Shareholder reports.................. 15,000
Legal fees........................... 12,000
Miscellaneous........................ 4,937
------------
Total expenses..................... 1,424,392
------------
Net investment income.................. 4,282,337
------------
Realized and Unrealized Loss
on Investments
Net realized loss on investment
transactions......................... (8,266)
Net change in unrealized appreciation
(depreciation) on investments...... (15,377,149)
------------
Net loss on investments................ (15,385,415)
------------
Net Decrease in Net Assets Resulting
from Operations........................ $(11,103,078)
------------
------------
</TABLE>
PRUDENTIAL U.S. GOVERNMENT FUND
Statement of Changes in Net Assets
(Unaudited)
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
Increase (Decrease) April 30, October 31,
in Net Assets 1994 1993
------------ ------------
<S> <C> <C>
Operations
Net investment income..... $ 4,282,337 $ 9,312,413
Net realized gain (loss)
on investments.......... (8,266) 6,101,139
Net change in unrealized
appreciation/depreciation
on investments.......... (15,377,149) 8,892,501
------------ ------------
Net increase (decrease) in
net assets
resulting from
operations.............. (11,103,078) 24,306,053
------------ ------------
Dividends to shareholders
from net
investment income
(Note1).................
Class A................. (202,512) (402,303)
Class B................. (4,079,825) (8,910,110)
------------ ------------
(4,282,337) (9,312,413)
------------ ------------
Fund share transactions
(Note 6)
Net proceeds from shares
subscribed.............. 28,942,465 83,709,350
Net asset value of shares
issued in reinvestment
of dividends............ 2,772,324 6,045,712
Cost of shares
reacquired.............. (39,336,936) (91,160,162)
------------ ------------
Net decrease in net assets
from Fund share
transactions............ (7,622,147) (1,405,100)
------------ ------------
Total increase (decrease)... (23,007,562) 13,588,540
Net Assets
Beginning of period......... 173,755,506 160,166,966
------------ ------------
End of period............... $150,747,944 $173,755,506
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements.
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<PAGE>
<PAGE>
PRUDENTIAL U.S. GOVERNMENT FUND
Notes to Financial Statements
(Unaudited)
Prudential U.S. Government Fund (the ``Fund'') was organized as a
Massachusetts business trust on October 2, 1986. Investment operations commenced
on November 7, 1986. The Fund's primary investment objective is to seek a high
total return, capital appreciation plus high current income, primarily through
investment in U.S. Government securities and obligations issued or guaranteed by
U.S. Government agencies or instrumentalities. The ability of issuers of debt
securities, other than those issued or guaranteed by the U.S. Government, may be
affected by economic developments in a specific industry or region.
Note 1. Accounting The following is a summary
Policies of significant accounting poli-
cies followed by the Fund in the preparation of
its financial statements.
Security Valuation: The Board of Trustees has authorized the use of an
independent pricing service to determine valuations for normal institutional
size trading units of securities. The pricing service considers such factors as
security prices, yields, maturities, call features, ratings and developments
relating to specific securities in arriving at securities valuations. Options
and financial futures contracts listed on exchanges are valued at their closing
price on the applicable exchange. When market quotations are not readily
available, a security is valued at fair value as determined in good faith by or
under the direction of the Board of Trustees.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost which approximates market value.
In connection with transactions in repurchase agreements, it is the Fund's
policy that its custodian or designated subcustodians, as the case may be under
triparty repurchase agreements, take possession of the underlying collateral
securities, the value of which exceeds the principal amount of the repurchase
transaction, including accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to ensure the adequacy of the collateral. If
the seller defaults, and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
Dollar Rolls: The Fund enters into dollar rolls in which the Fund sells
securities for delivery in the current month and simultaneously contracts to
repurchase somewhat similar securities on a specified future date. During the
roll period the Fund forgoes principal and interest paid on the securities. The
Fund is compensated by the interest earned on the cash proceeds of the initial
sale and by the lower repurchase price at the future date.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains or losses on sales of investments are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis.
Net investment income, other than distribution fees, and unrealized and
realized gains or losses are allocated daily to each class of shares based upon
the relative proportion of net assets of each class at the beginning of the day.
Federal Income Taxes: It is the Fund's policy to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable net income to its shareholders.
Therefore, no federal income tax provision is required.
Dividends and Distributions: Dividends from net investment income are accrued
daily and payable monthly. The Fund will distribute annually any net realized
capital gains in excess of capital loss carry-forwards, if any. Dividends and
distributions are recorded on the ex-dividend date.
Income distributions and capital gains distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
Note 2. Agreements The Fund has a management
agreement with Prudential Mutual Fund Management,
Inc. (``PMF''). Pursuant to this agreement, PMF has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PMF has entered into a subadvisory agreement with The Prudential
Investment Corporation (``PIC''); PIC furnishes investment advisory services in
connection with the management of the Fund. PMF pays for the cost of the
subadviser's services, the compensation of officers of the Fund, occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.
-8-
<PAGE>
<PAGE>
The management fee paid PMF is computed daily and payable monthly at an
annual rate of .50 of 1% of the Fund's average daily net assets.
The Fund has distribution agreements with Prudential Mutual Fund
Distributors, Inc. (``PMFD''), which acts as the distributor of the Class A
shares of the Fund, and Prudential Securities Incorporated (``PSI''), which acts
as distributor of the Class B shares of the Fund (collectively the
``Distributors''). To reimburse the Distributors for their expenses incurred in
distributing the Fund's Class A and B shares, the Fund, pursuant to plans of
distribution, pays the Distributors a reimbursement, accrued daily and payable
monthly.
Pursuant to the Class A Plan, the Fund reimburses PMFD for its
distribution-related expenses with respect to Class A shares, accrued daily and
payable monthly, at an annual rate of up to .30 of 1% of the average daily net
assets of the Class A shares. Such expenses under the Class A Plan were .15 of
1% of the average daily net assets of the Class A shares for the period ended
April 30, 1994. PMFD pays various broker-dealers, including PSI and Pruco
Securities Corporation (``Prusec''), affiliated broker-dealers, for account
servicing fees and other expenses incurred by such broker-dealers.
Pursuant to the Class B Plan, the Fund reimburses PSI for its
distribution-related expenses with respect to the Class B shares, accrued daily
and paid monthly, at an annual rate of up to 1% of the average daily net assets
of the Class B shares. Such expenses under the Class B Plan were 1% of the
average daily net assets of the Class B shares for the three months ended
January 31, 1994. Effective February 1, 1994, the Class B Plan distribution
expenses were decreased to .85 of 1% of the average daily net assets.
The Class B distribution expenses include commission credits for payments of
commissions and account servicing fees to financial advisers and an allocation
for overhead and other distribution-related expenses, interest and/or carrying
charges, the cost of printing and mailing prospectuses to potential investors
and of advertising incurred in connection with the distribution of shares.
The Distributors recover the distribution expenses and service fees incurred
through the receipt of reimbursement payments from the Fund under the Plans and
the receipt of initial sales charges (Class A only) and contingent deferred
sales charges (Class B only) from shareholders.
PMFD has advised the Fund that it has received approximately $44,300 in
front-end sales charges resulting from sales of Class A shares during the six
months ended April 30, 1994. From these fees, PMFD paid such sales charges to
dealers which in turn paid commissions to sales persons.
With respect to the Class B Plan, at any given time the amount of expenses
incurred by PSI in distributing the Fund's shares and not recovered through the
imposition of contingent deferred sales charges in connection with certain
redemptions of shares may exceed the total reimbursement made by the Fund
pursuant to the Class B Plan. For the six months ended April 30, 1994, PSI
advised the Fund that it received approximately $181,600 in contingent deferred
sales charges imposed upon redemptions by shareholders. PSI, as distributor, has
also advised the Fund that at April 30, 1994, the amount of distribution
expenses incurred by PSI and not yet reimbursed by the Fund or recovered through
contingent deferred sales charges approximated $66,400. This amount may be
recovered through future payments under the Class B Plan or contingent deferred
sales charges.
In the event of termination or noncontinuation of the Class B Plan, the Fund
would not be contractually obligated to pay PSI, as distributor, for any
expenses not previously reimbursed or recovered through contingent deferred
sales charges.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
Note 3. Other Prudential Mutual Fund Ser-
Transactions vices, Inc. (``PMFS''), a
with Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During
the six months ended April 30, 1994, the Fund incurred fees of approximately
$115,000 for the services of PMFS. As of April 30, 1994, approximately $23,000
of such fees were due to PMFS. Transfer agent fees and expenses in the Statement
of Operations include certain out-of-pocket expenses paid to non-affiliates.
Note 4. Portfolio Purchases and sales of invest-
Securities ment securities, other than
short-term investments, for the six months ended
April 30, 1994 were $38,430,746 and $43,042,396, respectively.
The federal income tax basis of the Fund's investments at April 30, 1994 was
substantially the same as the basis for financial statement reporting purposes
and, accordingly, net unrealized depreciation of investments for federal income
tax purposes was $1,461,265 (gross unrealized appreciation-$3,630,850; gross
unrealized depreciation-$5,092,115).
For federal income tax purposes, the Fund has a capital loss carryforward as
of October 31, 1993 of approximately $9,319,000 of which $1,017,000 expires in
1997 and $8,302,000 expires in 1998. Accordingly, no capital gains
-9-
<PAGE>
<PAGE>
distribution is expected to be paid to shareholders until net gains have been
realized in excess of such carryforward.
Note 5. Joint The Fund, along with other
Repurchase affiliated registered invest-
Agreement Account ment companies, transfers
uninvested cash balances into a single joint
account, the daily aggregate balance of which is invested in one or more
repurchase agreements collateralized by U.S. Treasury or federal agency
obligations. At April 30, 1994, the Fund had a 1.90% undivided interest in the
repurchase agreements in the joint account. The undivided interest for the Fund
represented $18,630,000 in principal amount. As of such date, each repurchase
agreement in the joint account and the value of the collateral therefor were as
follows:
Barclays de Zoete Wedd, Inc., 3.55%, in the principal amount of $53,000,000,
repurchase price $53,015,679, due 5/2/94. The value of the collateral including
accrued interest is $54,060,428.
Goldman Sachs & Co., 3.50%, in the principal amount of $315,000,000,
repurchase price $315,091,875, due 5/2/94. The value of the collateral including
accrued interest is $321,300,231.
Merrill Lynch, Pierce, Fenner & Smith, Inc., 3.55%, in the principal amount
of $315,000,000, repurchase price $315,093,188, due 5/2/94. The value of the
collateral including accrued interest is $321,300,584.
Morgan (J.P.) Securities, Inc., 3.58%, in the principal amount of
$295,000,000, repurchase price $295,088,008, due 5/2/94. The value of the
collateral including accrued interest is $300,901,625.
Note 6. Capital The Fund offers both Class A
and Class B shares. Class A shares are sold with
a
front-end sales charge of up to 4.5%. Class B shares are sold with a contingent
deferred sales charge which declines from 5% to zero depending on the period of
time the shares are held. Both classes of shares have equal earnings, assets and
voting privileges except that each class bears different distribution expenses
and has exclusive voting rights with respect to its distribution plan.
The Fund has authorized an unlimited number of shares of beneficial interest
of each class at $.01 par value. Transactions in shares of beneficial interest
for the six months ended April 30, 1994 and for the fiscal year ended October
31, 1993 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- -------------------------------- -------------- ------------
<S> <C> <C>
Six months ended April 30, 1994:
Shares sold..................... 207,140 $ 2,079,120
Shares issued in reinvestment of
dividends..................... 13,643 137,976
Shares reacquired............... (109,533) (1,102,102)
-------------- ------------
Net increase in shares
outstanding................... 111,250 $ 1,114,994
-------------- ------------
-------------- ------------
Year ended October 31, 1993:
Shares sold..................... 750,713 $ 7,553,655
Shares issued in reinvestment of
dividends..................... 26,658 272,022
Shares reacquired............... (649,104) (6,560,954)
-------------- ------------
Net increase in shares
outstanding................... 128,267 $ 1,264,723
-------------- ------------
-------------- ------------
Class B
- --------------------------------
Six months ended Apri 30, 1994:
Shares sold..................... 2,643,899 $ 26,863,345
Shares issued in reinvestment of
dividends..................... 259,839 2,634,348
Shares reacquired............... (3,770,929) (38,234,834)
-------------- ------------
Net decrease in shares
outstanding................... (867,191) $ (8,737,141)
-------------- ------------
-------------- ------------
Year ended October 31, 1993:
Shares sold..................... 7,467,812 $ 76,155,695
Shares issued in reinvestment of
dividends..................... 565,555 5,773,690
Shares reacquired............... (8,280,106) (84,599,208)
-------------- ------------
Net decrease in shares
outstanding................... (246,739) $ (2,669,823)
-------------- ------------
-------------- ------------
</TABLE>
-10-
<PAGE>
<PAGE>
PRUDENTIAL U.S. GOVERNMENT FUND
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Class A
Class B
----------------------------------------------------
- -----------------------------------------------------------------
January 22,
Six Months 1990@ Six Months
Ended Year Ended October 31, Through Ended
Year Ended October 31,
April 30, ------------------------ October 31, April 30,
- ----------------------------------------------------
1994 1993 1992 1991 1990 1994
1993 1992 1991 1990 1989
---------- ------ ------ ------ ------------ ----------
- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
<C> <C> <C> <C>
PER
SHARE
OPERATING
PERFORMANCE:
Net asset
value,
beginning of
period... $10.59 $ 9.69 $ 9.49 $ 8.97 $ 9.31 $ 10.60 $
9.70 $ 9.50 $ 8.97 $ 9.54 $ 9.05
------ ------ ------ ------ ------ ---------
- -------- -------- -------- -------- --------
Income
from
investment
operations
Net
investment
income... .30 .64 .68 .66 .55 .27
.55 .59 .59 .62 .64
Net realized
and unrealized
gain loss) on
investment
trans
actions... (.96) .90 .20 .52 (.34) (.96)
.90 .20 .53 (.57) .52
------ ------ ------ ------ ------ ---------
- -------- -------- -------- -------- --------
Total from
investment
operations.. (.66) 1.54 .88 1.18 .21 (.69)
1.45 .79 1.12 .05 1.16
------ ------ ------ ------ ------ ---------
- -------- -------- -------- -------- --------
Less
distributions
Dividends
from net
investment
income... (.30) (.64) (.68) (.66) (.55) (.27)
(.55) (.59) (.59) (.62) (.64)
Distributions
from
paid-in-
capital... -- -- -- -- -- --
-- -- -- -- (.03)
------ ------ ------ ------ ------ ---------
- -------- -------- -------- -------- --------
Total
distribu
tions... (.30) (.64) (.68) (.66) (.55) (.27)
(.55) (.59) (.59) (.62) (.67)
------ ------ ------ ------ ------ ---------
- -------- -------- -------- -------- --------
Net asset
value,
end of
period.. $ 9.63 $10.59 $ 9.69 $ 9.49 $ 8.97 $ 9.64 $
10.60 $ 9.70 $ 9.50 $ 8.97 $ 9.54
------ ------ ------ ------ ------ ---------
- -------- -------- -------- -------- --------
------ ------ ------ ------ ------ ---------
- -------- -------- -------- -------- --------
TOTAL
RETURN#... (6.28)% 16.43% 9.39% 13.72% 2.16% (6.64)%
15.44% 8.46% 12.86% .64% 13.53%
RATIOS/SUPPLEMENTAL
DATA:
Net assets,
end of
period
(000).. $7,301 $6,849 $5,024 $2,574 $1,617 $ 143,447
$166,907 $155,143 $158,790 $172,521 $169,825
Average
net assets
(000)... $7,104 $6,339 $3,769 $2,158 $ 918 $ 156,639
$162,107 $154,502 $168,421 $174,276 $156,322
Ratios to
average
net assets:
Expenses,
including
distribution
fees... 1.01%* .96% .94% 1.24% 1.08%* 1.79%*
1.81% 1.79% 2.09% 1.99% 2.05%
Expenses,
excluding
distribution
fees... .86%* .81% .79% 1.09% .94%* .86%*
.81% .79% 1.09% .99% 1.06%
Net
investment
income... 6.03%* 6.35% 6.92% 7.24% 7.16%* 5.25%*
5.50% 6.07% 6.39% 6.89% 6.95%
Portfolio
turnover... 24% 66% 66% 236% 608% 24%
66% 66% 236% 608% 392%
</TABLE>
- ---------------
* Annualized.
@ Commencement of offering of Class A shares.
# Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
See Notes to Financial Statements.
-11-
<PAGE>
<PAGE>
Trustees
Stephen C. Eyre
Delayne Dedrick Gold
Don G. Hoff
Harry A. Jacobs, Jr.
Sidney R. Knafel
Robert E. La Blanc
Lawrence C. McQuade
Thomas A. Owens, Jr.
Richard A. Redeker
Clay T. Whitehead
Officers
Lawrence C. McQuade, President
Robert F. Gunia, Vice President
Susan C. Cote, Treasurer
S. Jane Rose, Secretary
Domenick Pugliese, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributors
Prudential Mutual Fund Distributors, Inc.
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Deloitte & Touche
1633 Broadway
New York, NY 10019
Legal Counsel
Shereff, Friedman, Hoffman & Goodman
919 Third Avenue
New York, NY 10022
One Seaport Plaza
New York, NY 10292
Toll free (800) 225-1852
Collect (908) 417-7555
The accompanying financial statements as of April 30, 1994 were not audited
and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
743914202 MF 130E-2
743914103 Cat #4401169
