SEMI ANNUAL REPORT April 30, 1995
Prudential
U.S. Government
Fund
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(ICON)
(LOGO)
<PAGE>
Letter to Shareholders
June 12, 1995
Dear Shareholder:
Powered by the dramatic bond market rally in 1995, the Prudential U.S.
Government Fund has regained much of the ground it lost last year. Over
the past six months bonds have earned coupon income, which is higher than
last year, plus some capital appreciation as prices rose. We are pleased
to report the Fund has significantly outperformed the average general U.S.
government fund as measured by Lipper Analytical Services. That's primarily
due to the Fund's longer average maturity, which provided greater price gains
as interest rates fell.
Source: Prudential Mutual Fund Management,
Inc. U.S. Stocks: S&P 500; U.S. Bonds:
Lehman Brothers government/corporate
aggregate; Municipal bonds: Lehman Bros.
Municipal Bond Index; and Money Markets:
IBC/Donoghue taxable funds average. Note:
Total return figures are for the 12-month
period ended 4/30/95 and assume reinvestment
of dividends and distributions. All bond
returns are market value weighted inclusive
of accrued interest. This chart is for
comparison purposes only. There are different
risks associated with each investment sector
which should be considered carefully before
investing. Past performance is not indicative
of future results.
<TABLE>
CUMULATIVE TOTAL RETURNS
*As of 4/30/95
<CAPTION>
Since
6 mos 1 Year 5 Years Inception**
<S> <C> <C> <C> <C>
Class A 8.1% 6.6% 53.1% 47.8%
Class B 7.8% 5.7% 47.0% 69.6%
Class C 7.8% N/A N/A 4.7%
Lipper U.S. Gvt. 5.4% 5.3% 48.8% N/A
Fund Average***
</TABLE>
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS*
As of 3/31/95
<CAPTION>
1 Year 5 Years Since Inception2
<S> <C> <C> <C>
Class A 2.3% 6.1% 6.9%
Class B 0.7% 7.9% 6.4%
Class C N/A N/A 3.7%
</TABLE>
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 investor's shares, when
redeemed, may be worth more or less than their original cost.
N/A -- Not applicable.
*** Source: Prudential Mutual Fund Management, Inc. and Lipper Analytical
Services, Inc. Cumulative total returns do not take into account sales
charges. The average annual returns do take into account applicable sales
charges.The Fund charges a maximum front-end sales load of 4% for Class A
shares. Class B shares are subject to a declining contingent deferred
sales charge (CDSC) of 5%, 4%, 3%, 2%, 1% and 1%, for six years. Class
C shares have a 1% CDSC for one year. Class B shares will automatically
convert to Class A shares on a quarterly basis, after approximately seven
years.
*** Inception of Class A is 1/22/90; Class B is 11/7/86; Class C is 8/1/94.
*** These are average returns of 173 funds for six months; 150 funds for
one year and 89 funds for five years.
-1-
<PAGE>
Senate Considers
"Dream Account"
The U.S. Senate will soon be considering
a tax-deferred savings vehicle called the
"American Dream Savings Account," which was
approved by the House of Representatives
earlier in the year as part of the "Contract
with America" legislative agenda.
While similar to a traditional individual
retirement account or IRA, the American
Dream Savings Account goes further by raising
the contribution ceiling for non-working
spouses and permitting tax-free and penalty-free
withdrawals prior to age 59 1/2for certain
major expenses. Prudential Mutual Funds
supports the American Dream Savings Account
and we urge you to share your opinion with
your legislators.
Our Objective.
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 may also invest up to 35% of its assets in corporate bonds and other
debt securities. The Fund had an effective maturity of about 8.9 years
on April 30, 1995.
New Manager.
Barbara L. Kenworthy, who manages the Prudential Government Income Fund
and the Prudential Diversified Bond Fund, has taken over management of
the Prudential U.S. Government Fund. Barbara joined The Prudential in
1994 after a distinguished career as a portfolio manager and president
of several taxable fixed-income funds for the Dreyfus Corp.
1995 Opened With A Stunning Bond Rally.
An extraordinary rally swept through the bond market in the first four
months of this year, its best showing since 1991. Investor sentiment
turned around on speculation that the Federal Reserve's efforts to slow
the economy and keep inflation under control had finally succeeded.
Since February 1994, the Federal Reserve has doubled short-term interest
rates, to 6% from 3%, hoping to slow the economy down to a more moderate,
sustainable growth rate: what economists consider a "soft landing."
Investors were heartened in late April when the government announced
that the economy had grown at an annualized rate of 2.8% in the first
quarter, much lower than last year's 4.1% rate. If the economy continues
to grow at this pace, or slower, market participants believe the Federal
Reserve will keep short-term interest rates steady, or perhaps even
lower them.
(GRAPH)
Last year, when the Federal Reserve raised short-term interest rates,
the bond market forced longer term interest rates higher as well. The
benchmark 30-year U.S. Treasury yield reached a peak of nearly 8.2% in
November, then began to fall in December, reaching 7.3% on April 30, the
close of our
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<PAGE>
reporting period. Since then, the yield has fallen below 7%.
Of course, as yields fall, bond prices rise, and vice versa.
Fund Update
Starting in February 1995, Class B shareholders may have begun to notice
a change in their Fund holdings. That's when Class B shares began to
automatically convert to Class A shares, on a quarterly basis, approximately
seven years after purchase. As you may know, Class A shares generally carry
lower annual distribution expenses than Class B shares. Accordingly, after
conversion as a Class A shareholder, you will earn higher total returns on
your investment than you would have as a Class B shareholder.
Conversions of eligible Class B shares and special exchanges of Class B and
C shares will take place each calendar quarter (March, June, September and
December) starting in September 1995.
Inflation Fears Diminished.
Inflation fears have dimmed considerably thus far this year. Investors spent
much of 1994 looking for higher inflation, but it appears at this writing that
the Federal Reserve may have contained the threat by raising short-term
interest rates. Inflation remains below 3% with few price pressures in
sight. The Consumer Price Index (CPI), one measure of inflation, has
remained in a range of 2.5% to 2.9% throughout the year, and wages (another
leading indicator) have remained flat. With economic growth now slowing,
we don't expect wage or price pressures to develop any time soon.
Longer Maturity Enhanced Performance.
The Fund is positioned with an effective maturity which is about one-third
longer than most of its competitors. Our longer maturity helped the Fund
perform significantly better than its peers as long-term interest rates fell
over the last six months. Should interest rates rise, however, this longer
maturity will detract from the Fund's performance. So we have gradually
reduced the maturity of the Fund to 8.9 years as of April 30, 1995.
The Fund's longer maturity also enables it to offer a higher yield than
shorter maturity government bond funds. Class A, B and C shares offered
30-day SEC yields of 6.2%. 5.7% and 5.8% as of April 30, up from 5.9% for
Class A shares and 5.5% for Class B shares a year earlier (Class C shares
have not yet been in existence for one year).
We Restructured The Portfolio to Profit From the Rally.
As bond prices rose early in 1995, we took profits by gradually selling
our corporate bond position, which had represented about 20% of the Fund.
We reinvested the proceeds in mortgage backed securities and A-rated CMOs
(collateralized mortgage obligations). Since we expect the economy to
continue to slow in the coming months, selected mortgages should offer more
stability than corporates, which can fall in value should corporate profits
or the economy slow unexpectedly. As of April 30, the CMOs were yielding
close to two percentage points higher than comparable U.S. Treasurys.
We also hold 27% of assets in 30-year mortgage pass-throughs, mostly GNMAs
with 7% coupons, but some FNMAs with 8.5% and 9% coupons.
The Advantage of "Staying the Course"
Past performance doesn't guarantee future results, but we can certainly
learn from it. While there is a tremendous temptation to sell fund shares
when prices fall, we've counseled shareholders over the years to stay the
course and invest for the long term (five years or more). A shareholder who
followed this philosophy during the difficult days of 1994 would have
-3-
<PAGE>
recouped much of the Fund's NAV decline and received a higher stream of income.
Statistically, we can show this for the broad market by looking at the Lehman
Brothers U.S. Government Bond Index, a widely recognized barometer of bond
prices. In all of 1994, the index lost 3.4% on a total return basis
(including interest). In the first four months of 1995, the index has
gained 6.1% in total return. (For the past 12 months, the index has gained
6.5% in total return.) Clearly, the long-term investor who stayed the course
would have recovered from last year.
The Outlook.
Bonds have appreciated substantially in 1995. Certainly we don't expect the
market to perform for the entire year the way it has for the first four
months, but there may be room for some modest capital appreciation later
this year.
We have shortened our maturities slightly, expecting that bond prices may
dip slightly after the rally. We're also emphasizing intermediate- to
long-term bonds with attractive yields. We believe they offer the best
value because we think bond yields will remain fairly flat or decline slightly
later this year.
As always, it is a pleasure to work for you. We appreciate the confidence
you have shown in us by choosing the Prudential U.S. Government Fund.
Sincerely,
Barbara L. Kenworthy
Portfolio Manager
Richard A. Redeker
President
-4-
<PAGE>
PORTFOLIO Q&A
(PICTURE)
Dennis Bushe
The bond market has been a strong performer in the first four months of 1995.
If you are contemplating putting cash into the bond market, you might want to
consider some of the following points. We talked with Prudential Mutual Funds
chief fixed-income strategist Dennis Bushe about why bonds and bond mutual
funds may make some sense in today's investment environment.
Q. What are the prospects for bonds for the rest of 1995?
A. I believe bonds will perform well over the remainder of the year, although
I do not expect to see the same kind of price appreciation we saw in the first
four months. That's because interest rates have already fallen dramatically
this year. For example, the yield on the 30-year Treasury bond has declined
by more than one percentage point since reaching its peak last November. But
as long as the economy maintains a sustainable growth rate of 2.5% or lower,
bonds should provide coupon income and possibly a modest amount of capital
appreciation. And municipal bond supply is very low right now -- if that
scenario continues, it could help prices rise. The principal risk to this
outlook would be an acceleration of the U.S. economy, which could put upward
pressure on interest rates.
Q. What is a flat tax and why are municipal bond investors worried about it?
A. Congress is considering a move to simplify the income tax code by
implementing a "flat" tax or an income tax at a single, flat rate rather
than the different tax brackets in existence now. Most tax deductions would
be disallowed under the proposal, including municipal bond income. Therefore,
under this proposal, municipal bond income would not be as valuable as it
currently is for individuals in the higher tax brackets. I believe there is
little chance such a proposal could pass Congress, certainly not before the
1996 elections. However, I do expect municipal bond prices will be very
sensitive to any proposal designed to drastically reduce the federal income
tax paid by the nation's wealthier individuals. Municipal bond investors
should be prepared to weather some volatility this year as a consequence.
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<PAGE>
PRUDENTIAL U.S. GOVERNMENT FUND Portfolio of Investments
April 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
LONG-TERM INVESTMENTS--92.3%
Mortgage-Related Securities--42.0%
Chase Mortgage Finance Corp.,
Series 1994-1, Class B-1,
$ 3,620 7.869%, 11/25/25 (CMO).......... $ 3,381,020
Federal National Mortgage
Assoc.,
6,933 8.50%, 7/1/17 - 2/1/25.......... 7,044,088
6,965 9.00%, 8/1/24 - 4/1/25.......... 7,182,661
Government National Mortgage
Assoc.,
20,839 7.00%, 4/15/24.................. 19,725,192
Prudential Home Mortgage
Securities Co.,
Series 1995-A, Class B-2,
5,000 8.68%, 3/28/25 (CMO)............ 4,939,844
Resolution Trust Corp.,
Series 1994-1, Class B-2,
5,962 7.75%, 9/25/29 (CMO)............ 5,682,684
Structured Asset Securities
Corp.,
Series 1995-C1, Class C,
5,000 7.375%, 9/25/24 (CMO)........... 4,565,000
------------
Total mortgage-related
securities
(cost $51,846,573).............. 52,520,489
------------
U.S. Treasury Securities--35.6%
U.S. Treasury Bond,
5,000 8.125%, 8/15/19................. 5,353,900
U.S. Treasury Notes,
3,000 6.875%, 2/28/97................. 3,015,000
6,000 7.25%, 2/15/98.................. 6,082,500
4,000 5.00%, 1/31/99.................. 3,762,480
1,000 6.375%, 8/15/02................. 964,220
24,000 7.875%, 11/15/04................ 25,312,560
------------
Total U. S. treasury securities
(cost $43,447,441).............. 44,490,660
------------
U.S. Government Agency
Stripped Security--9.9%
Federal National Mortgage
Assoc.,
Zero Coupon, 7/5/14
$55,000 (cost $11,633,935).............. $ 12,357,950
------------
Corporate Bond--4.8%
Bellaire Finance Inc.,
9.32%, 2/1/08
5,800 (cost $6,005,719)............... 5,992,125
------------
Total long-term investments
(cost $112,933,668)............. 115,361,224
------------
SHORT-TERM INVESTMENT--7.3%
Joint Repurchase Agreement
Account,
5.93%, 5/1/95, (Note 5)
9,086 (cost $9,086,000)............... 9,086,000
------------
Total Investments--99.6%
(cost $122,019,668; Note 4)..... 124,447,224
Other assets in excess of
liabilities--0.4%............... 490,431
------------
Net Assets--100%................ $124,937,655
------------
------------
</TABLE>
- ---------------
CMO--Collateralized Mortgage Obligation.
-6- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL U.S. GOVERNMENT FUND
Statement of Assets and Liabilities
(Unaudited)
<TABLE>
<CAPTION>
Assets
April 30, 1995
--------------
<S>
<C>
Investments, at value (cost
$122,019,668)......................................................
$124,447,224
Cash.........................................................................
.................. 32,523
Receivable for investments
sold................................................................
4,432,888
Interest
receivable...................................................................
......... 1,587,404
Receivable for Fund shares
sold................................................................
129,585
Deferred expenses and other
assets.............................................................
5,531
--------------
Total
assets.......................................................................
.......... 130,635,155
--------------
Liabilities
Payable for investments
purchased..............................................................
4,552,083
Payable for Fund shares
reacquired.............................................................
818,684
Dividends
payable......................................................................
........ 161,774
Distribution fee
payable.......................................................................
62,567
Management fee
payable.........................................................................
51,967
Accrued
expenses.....................................................................
.......... 50,425
--------------
Total
liabilities..................................................................
.......... 5,697,500
--------------
Net
Assets.......................................................................
.............. $124,937,655
--------------
--------------
Net assets were comprised of:
Shares of beneficial interest, at
par........................................................ $ 130,156
Paid-in capital in excess of
par............................................................. 137,485,933
--------------
137,616,089
Accumulated net realized loss on
investments................................................. (15,105,990)
Net unrealized appreciation on
investments................................................... 2,427,556
--------------
Net assets, April 30,
1995...................................................................
$124,937,655
--------------
--------------
Class A:
Net asset value and redemption price per share
($44,427,303 / 4,629,198 shares of beneficial interest issued and
outstanding)............. $ 9.60
Maximum sales charge (4.0% of offering
price)................................................ .40
Maximum offering price to
public.............................................................
$10.00
--------------
--------------
Class B:
Net asset value, offering price and redemption price per share
($80,379,639 / 8,372,750 shares of beneficial interest issued and
outstanding)............. $ 9.60
--------------
--------------
Class C:
Net asset value, offering price and redemption price per share
($130,713 / 13,616 shares of beneficial interest issued and
outstanding)................... $ 9.60
--------------
--------------
</TABLE>
See Notes to Financial Statements.
-7-
<PAGE>
<PAGE>
PRUDENTIAL U.S. GOVERNMENT FUND
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
April 30,
Net Investment Income 1995
-----------
<S> <C>
Income
Interest and discount earned........... $ 4,913,814
-----------
Expenses
Distribution fee--Class A.............. 18,026
Distribution fee--Class B.............. 434,832
Distribution fee--Class C.............. 343
Management fee......................... 316,098
Transfer agent's fees.................. 134,000
Custodian's fees....................... 51,000
Registration fees...................... 31,000
Reports to shareholders................ 30,000
Trustees' fees......................... 27,000
Audit fee.............................. 15,000
Legal fees............................. 12,000
Miscellaneous.......................... 5,206
-----------
Total expenses....................... 1,074,505
-----------
Net investment income.................... 3,839,309
-----------
Net Realized and Unrealized
Gain (Loss) on Investments
Net realized loss on investment
transactions........................... (4,051,149)
Net change in unrealized
appreciation/depreciation on
investments............................ 9,906,280
-----------
Net gain on investments.................. 5,855,131
-----------
Net Increase in Net Assets
Resulting from Operations................ $ 9,694,440
-----------
-----------
</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 1995 1994
------------ ------------
<S> <C> <C>
Operations
Net investment income..... $ 3,839,309 $ 8,705,238
Net realized loss on
investment transactions.. (4,051,149) (1,123,882)
Net change in unrealized
appreciation/depreciation
on investments.......... 9,906,280 (21,394,608)
------------ ------------
Net increase (decrease) in
net assets resulting from
operations.............. 9,694,440 (13,813,252)
------------ ------------
Dividends to shareholders
from net investment income
(Note 1)
Class A................... (796,859) (450,567)
Class B................... (3,039,680) (8,254,322)
Class C................... (2,770) (349)
------------ ------------
(3,839,309) (8,705,238)
------------ ------------
Fund share transactions (net
of share conversions)
(Note 6)
Net proceeds from shares
sold.................... 13,251,549 39,812,693
Net asset value of shares
issued in reinvestment
of dividends............ 2,482,464 5,677,995
Cost of shares
reacquired.............. (27,567,934) (65,811,259)
------------ ------------
Net decrease in net assets
from Fund share
transactions............ (11,833,921) (20,320,571)
------------ ------------
Total decrease.............. (5,978,790) (42,839,061)
Net Assets
Beginning of period......... 130,916,445 173,755,506
------------ ------------
End of period............... $124,937,655 $130,916,445
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
-8-
<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 September 22, 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.
All securities are valued as of 4:15 P.M., New York time.
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 carryforwards, 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.
-9-
<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 with Prudential Securities Incorporated (``PSI''), which
acts as distributor of the Class B and Class C shares of the Fund (collectively
the ``Distributors''). The Fund compensates the Distributors for distributing
and servicing the Fund's Class A, Class B and C shares, pursuant to plans of
distribution, (the ``Class A, B and C Plans'') regardless of expenses actually
incurred by them. The distribution fees are accrued daily and payable monthly.
Pursuant to the Class A , B and C Plans, the Fund compensates the
Distributors for distribution-related activities at an annual rate of up to .30
of 1%, 1% and 1%, of the average daily net assets of the Class A, B and C
shares, respectively. Such expenses under the Plans were .15 of 1%, .85 of 1%
and .75 of 1% of the average daily net assets of Class A, B and C shares,
respectively, for the six months ended April 30, 1995.
PMFD has advised the Fund that it has received approximately $27,100 in
front-end sales charges resulting from sales of Class A shares during the six
months ended April 30, 1995. From these fees, PMFD paid such sales charges to
PSI and Pruco Securities Corporation, affiliated broker-dealers, which in turn
paid commissions to sales persons and incurred other distribution costs.
PSI has advised the Fund that for the six months ended April 30, 1995, it
received approximately $224,500 in contingent deferred sales charges imposed
upon certain redemptions by Class B and Class C shareholders.
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, 1995, the Fund incurred fees of approximately
$102,400 for the services of PMFS. As of April 30, 1995, approximately $18,600
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, 1995 were $206,391,094 and $220,658,925, respectively.
The federal income tax basis of the Fund's investments at April 30, 1995 was
substantially the same as the basis for financial statement reporting purposes
and, accordingly, net unrealized appreciation of investments for federal income
tax purposes was $2,427,556 (gross unrealized appreciation-$2,450,999; gross
unrealized depreciation-$23,443).
For federal income tax purposes, the Fund had a capital loss carryforward as
of October 31, 1994 of approximately $11,054,800 of which $1,017,200 expires in
1997, $8,301,600 expires in 1998 and $1,736,000 expires in 2002. Accordingly,
no
capital gains 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 ment companies, transfers
Account uninvested cash balances into
a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements collateralized
by U.S. Treasury or federal agency obligations. As of April 30, 1995, the Fund
has a 1.35% undivided interest in the repurchase agreements in the joint
account. The undivided interest for the Fund represents $9,086,000 in principal
amount. As of such date, each repurchase agreement in the joint account and the
value of the collateral therefor were as follows:
Bear, Stearns & Co., 5.92%, in the principal amount of $125,000,000,
repurchase price $125,061,667, due 5/1/95. The value of the collateral including
accrued interest is $127,647,875.
UBS Securities Inc., 5.93%, in the principal amount of $100,000,000,
repurchase price $100,049,417, due 5/1/95. The value of the collateral including
accrued interest is $102,001,215.
Morgan Stanley and Co., Inc., 5.93%, in the principal amount of $225,000,000,
repurchase price $225,111,188, due 5/1/95. The value of the collateral including
accrued interest is $229,982,534.
CS First Boston Corp., 5.93%, in the principal amount of $225,000,000,
repurchase price $225,111,188, due 5/1/95. The value of the collateral including
accrued interest is $229,725,279.
Note 6. Capital The Fund offers Class A,
Class B and Class C shares. Class A shares are
sold with a front-end sales charge of up to 4.0%. Class B shares are sold with
a
contingent deferred sales charge which declines from 5% to zero depending on
-10-
<PAGE>
<PAGE>
the period of time the shares are held. Class C shares are sold with a
contingent deferred sales charge of 1% during the first year. Commencing in
February 1995, Class B shares will automatically convert to Class A shares on
a
quarterly basis approximately seven years after purchase. A special exchange
priviledge is also available for shareholders who qualified to purchase Class
A
shares at net asset value.
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, 1995 and for the fiscal year ended October
31, 1994 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- -------------------------------- -------------- ------------
<S> <C> <C>
Six months ended April 30, 1995:
Shares sold..................... 249,512 $ 2,331,320
Shares issued in reinvestment of
dividends..................... 47,755 451,454
Shares reacquired............... (340,177) (3,206,575)
-------------- ------------
Net decrease in shares
outstanding before
conversion.................... (42,910) (423,801)
Shares issued upon conversion
from Class B.................. 3,932,258 36,923,615
-------------- ------------
Net increase in shares
outstanding................... 3,889,348 $ 36,499,814
-------------- ------------
-------------- ------------
Year ended October 31, 1994:
Shares sold..................... 359,574 $ 3,519,655
Shares issued in reinvestment of
dividends..................... 31,480 306,085
Shares reacquired............... (297,934) (2,879,593)
-------------- ------------
Net increase in shares
outstanding................... 93,120 $ 946,147
-------------- ------------
-------------- ------------
<CAPTION>
Class B
- --------------------------------
<S> <C> <C>
Six months ended April 30, 1995:
Shares sold..................... 1,166,750 $ 10,821,937
Shares issued in reinvestment of
dividends..................... 218,515 2,028,773
Shares reacquired............... (2,623,590) (24,340,961)
-------------- ------------
Net decrease in shares
outstanding before
conversion.................... (1,238,325) (11,490,251)
Shares reaquired upon conversion
into Class A.................. (3,932,258) (36,923,615)
-------------- ------------
Net decrease in shares
outstanding................... (5,170,583) $(48,413,866)
-------------- ------------
-------------- ------------
Year ended October 31, 1994:
Shares sold..................... 3,633,315 $ 36,246,363
Shares issued in reinvestment of
dividends..................... 550,260 5,371,630
Shares reacquired............... (6,392,542) (62,931,666)
-------------- ------------
Net decrease in shares
outstanding................... (2,208,967) $(21,313,673)
-------------- ------------
-------------- ------------
<CAPTION>
Class C Shares Amount
- -------------------------------- -------------- ------------
<S> <C> <C>
Six months ended April 30, 1995:
Shares sold..................... 10,535 $ 98,292
Shares issued in reinvestment of
dividends..................... 239 2,237
Shares reacquired............... (2,150) (20,398)
-------------- ------------
Net increase in shares
outstanding................... 8,624 $ 80,131
-------------- ------------
-------------- ------------
August 1, 1994* through
October 31, 1994:
Shares sold..................... 4,962 $ 46,675
Shares issued in reinvestment of
dividends..................... 30 280
-------------- ------------
Net increase in shares
outstanding................... 4,992 $ 46,955
-------------- ------------
-------------- ------------
</TABLE>
- ---------------
* Commencement of offering of Class C shares.
-11-
<PAGE>
<PAGE>
PRUDENTIAL U.S. GOVERNMENT FUND
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Class A
- ---------------------------------------------------------------------
Six
January 22,
Months
1990(D)
Ended Year Ended October 31,
Through
April 30,
- --------------------------------------- October 31,
1995 1994 1993 1992
1991 1990
<S> <C> <C> <C> <C>
<C> <C>
--------- ------ ------ ------
------ -----------
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period....................... $ 9.16 $10.59 $ 9.69 $ 9.49
$ 8.97 $ 9.31
--------- ------ ------ ------
------ -----------
Income from investment
operations
Net investment income.......... .29 .61 .64 .68
.66 .55
Net realized and unrealized
gain (loss) on investment
transactions................. .44 (1.43) .90 .20
.52 (.34)
--------- ------ ------ ------
------ -----------
Total from investment
operations................. .73 (.82) 1.54 .88
1.18 .21
Less distributions
Dividends from net investment
income....................... (.29) (.61) (.64) (.68)
(.66) (.55)
--------- ------ ------ ------
------ -----------
Net asset value, end of
period....................... $ 9.60 $ 9.16 $10.59 $ 9.69
$ 9.49 $ 8.97
--------- ------ ------ ------
------ -----------
--------- ------ ------ ------
------ -----------
TOTAL RETURN#.................. 8.14% (7.80)% 16.43% 9.39%
13.72% 2.16%
RATIOS / SUPPLEMENTAL DATA:
Net assets, end of period
(000)........................ $ 44,427 $6,776 $6,849 $5,024
$2,574 $ 1,617
Average net assets (000)....... $ 24,234 $7,093 $6,339 $3,769
$2,158 $ 918
Ratios to average net assets:
Expenses, including
distribution fees.......... 1.13%* 1.09% .96% .94%
1.24% 1.08%*
Expenses, excluding
distribution fees.......... .98%* .94% .81% .79%
1.09% .94%*
Net investment income........ 6.64%* 6.35% 6.35% 6.92%
7.24% 7.16%*
Portfolio turnover............. 172% 39% 66% 66%
236% 608%
</TABLE>
- ---------------
* Annualized.
(D) 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.
-12-
<PAGE>
<PAGE>
PRUDENTIAL U.S. GOVERNMENT FUND
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Class C
--------
Class B
Six
- -----------------------------------------------------------------------------
Months
Six Months
Ended
Ended Year Ended
October 31, April
April 30,
- ------------------------------------------------------------ 30,
1995 1994 1993 1992
1991 1990 1995
<S> <C> <C> <C> <C>
<C> <C> <C>
------------ -------- -------- --------
-------- -------- --------
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period.... $ 9.16 $ 10.60 $ 9.70 $ 9.50
$ 8.97 $ 9.54 $ 9.16
------------ -------- -------- --------
-------- -------- --------
Income from investment
operations
Net investment income.... .26 .53 .55 .59
.59 .62 .27
Net realized and
unrealized gain (loss)
on investment
transactions........... .44 (1.44) .90 .20
.53 (.57) .44
------------ -------- -------- --------
-------- -------- --------
Total from investment
operations........... .70 (.91) 1.45 .79
1.12 .05 .71
Less distributions
Dividends from net
investment income...... (.26) (.53) (.55)
(.59) (.59) (.62) (.27)
------------ -------- -------- --------
-------- -------- --------
Net asset value, end of
period................. $ 9.60 $ 9.16 $ 10.60 $ 9.70
$ 9.50 $ 8.97 $ 9.60
------------ -------- -------- --------
-------- -------- --------
------------ -------- -------- --------
-------- -------- --------
TOTAL RETURN#............ 7.78% (8.57)% 15.44%
8.46% 12.86% .64% 7.82%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).................. $ 80,380 $124,094 $166,907 $155,143
$158,790 $172,521 $ 131
Average net assets
(000).................. $ 103,161 $146,123 $162,107 $154,502
$168,421 $174,276 $ 92
Ratios to average net
assets:
Expenses, including
distribution fees.... 1.83%* 1.75% 1.81%
1.79% 2.09% 1.99% 1.73%*
Expenses, excluding
distribution fees.... .98%* .94% .81%
.79% 1.09% .99% .98%*
Net investment
income............... 5.94%* 5.65% 5.50%
6.07% 6.39% 6.89% 6.04%*
Portfolio turnover....... 172% 39% 66%
66% 236% 608% 172%
<CAPTION>
August 1,
1994(D)
Through
October 31,
1994
<S> <C>
-----------
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period.... $ 9.58
-----------
Income from investment
operations
Net investment income.... .15
Net realized and
unrealized gain (loss)
on investment
transactions........... (.42)
-----------
Total from investment
operations........... (.27)
Less distributions
Dividends from net
investment income...... (.15)
-----------
Net asset value, end of
period................. $ 9.16
-----------
-----------
TOTAL RETURN#............ (3.03)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).................. $ 46
Average net assets
(000).................. $ 23
Ratios to average net
assets:
Expenses, including
distribution fees.... 1.82%*
Expenses, excluding
distribution fees.... 1.07%*
Net investment
income............... 6.25%*
Portfolio turnover....... 39%
</TABLE>
- ---------------
* Annualized.
(D) Commencement of offering of Class C 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.
-13-
<PAGE>
Trustees
Stephen C. Eyre
Delayne D. Gold
Don G. Hoff
Harry A. Jacobs, Jr.
Sidney R. Knafel
Robert E. La Blanc
Thomas A. Owens, Jr.
Richard A. Redeker
Clay T. Whitehead
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Eugene S. Stark, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Ellyn C. Acker, 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 LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Shereff, Friedman, Hoffman & Goodman LLP
919 Third Avenue
New York, NY 10022
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852, Collect (908) 417-7555
The accompanying financial statements as of April 30, 1995 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.
73914202
73914103 MF130E2
73914301 (LOGO) Cat. #4401169
