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<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 60,949
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (15,056)
<AVERAGE-NET-ASSETS> 4,860,000
<PER-SHARE-NAV-BEGIN> 11.79
<PER-SHARE-NII> 0.39
<PER-SHARE-GAIN-APPREC> 3.24
<PER-SHARE-DIVIDEND> (0.26)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.16
<EXPENSE-RATIO> 2.79
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001005459
<NAME> PRUDENTIAL DISTRESSED SECURITIES FUND, INC.
<SERIES>
<NUMBER> 003
<NAME> PRUDENTIAL DISTRESSED SECURITIES FUND, INC. (CLASS C)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 6,879,280
<INVESTMENTS-AT-VALUE> 7,852,184
<RECEIVABLES> 72,001
<ASSETS-OTHER> 82,235
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,006,420
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 170,543
<TOTAL-LIABILITIES> 170,543
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,511,530
<SHARES-COMMON-STOCK> 516,528
<SHARES-COMMON-PRIOR> 870,267
<ACCUMULATED-NII-CURRENT> 253,972
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 97,471
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 972,904
<NET-ASSETS> 7,835,877
<DIVIDEND-INCOME> 74,540
<INTEREST-INCOME> 394,937
<OTHER-INCOME> 0
<EXPENSES-NET> 210,813
<NET-INVESTMENT-INCOME> 258,664
<REALIZED-GAINS-CURRENT> 465,952
<APPREC-INCREASE-CURRENT> 1,413,109
<NET-CHANGE-FROM-OPS> 2,137,725
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (228,312)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 909,156
<NUMBER-OF-SHARES-REDEEMED> (5,475,625)
<SHARES-REINVESTED> 216,983
<NET-CHANGE-IN-ASSETS> (2,440,073)
<ACCUMULATED-NII-PRIOR> 163,021
<ACCUMULATED-GAINS-PRIOR> (368,481)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 60,949
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (15,056)
<AVERAGE-NET-ASSETS> 1,100,000
<PER-SHARE-NAV-BEGIN> 11.79
<PER-SHARE-NII> 0.39
<PER-SHARE-GAIN-APPREC> 3.24
<PER-SHARE-DIVIDEND> (0.26)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.16
<EXPENSE-RATIO> 2.79
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
January 21, 1998
To the Shareholders and Board of Directors of
Prudential Distressed Securities Fund, Inc.
In planning and performing our audit of the
financial statements of Prudential Distressed
Securities Fund, Inc. (the "Fund") for the
year ended November 30, 1997, we considered
its internal control, including control
activities for safeguarding securities, in
order to determine our auditing procedures
for the purpose of expressing our opinion on
the financial statements and to comply with
the requirements of Form N-SAR, not to
provide assurance on internal control.
The management of the Fund is responsible for
establishing and maintaining internal
control. In fulfilling this responsibility,
estimates and judgments by management are
required to assess the expected benefits and
related costs of control activities.
Generally, control activities that are
relevant to an audit pertain to the entity's
objective of preparing financial statements
for external purposes that are fairly
presented in conformity with generally
accepted accounting principles. Those
control activities include the safeguarding
of assets against unauthorized acquisition,
use, or disposition.
Because of inherent limitations in internal
control, errors or irregularities may occur
and not be detected. Also, projection of any
evaluation of internal control to future
periods is subject to the risk that it may
become inadequate because of changes in
conditions or that the effectiveness of the
design and operation may deteriorate.
Our consideration of internal control would
not necessarily disclose all matters in
internal control that might be material
weaknesses under standards established by the
American Institute of Certified Public
Accountants. A material weakness is a
condition in which the design or operation of
any specific internal control components does
not reduce to a relatively low level the risk
that errors or irregularities in amounts that
would be material in relation to the
financial statements being audited may occur
and not be detected within a timely period by
employees in the normal course of performing
their assigned functions. However, we noted
no matters involving internal control,
including control activities for safeguarding
securities, that we consider to be material
weaknesses as defined above as of November
30, 1997.
This report is intended solely for the
information and use of management and the
Board of Directors of the Fund and the
Securities and Exchange Commission.
- 2 -
Board of Directors or Trustees of:
Prudential Adjustable Rate Prudential
High Yield
Securities Fund* Fund
Prudential Allocation Fund (2 Prudential
Portfolios)
IncomeVertible Fund*
The BlackRock Government Income Prudential
Trust Intermediate
Global
Global Utility Fund Income Fund
Nicholas-Applegate Fund Prudential
Jennison
Prudential California Municipal Fund
Fund (2 Portfolios) Prudential
MoneyMart
Prudential Distressed Assets
Securities Fund Prudential
Mortgage
Prudential Diversified Bond Income Fund
Fund Prudential
Multi-
Prudential Equity Fund Sector Fund
Prudential Equity Income Fund Prudential
Municipal
Prudential Global Genesis Fund Bond Fund (3
Prudential Global Limited Portfolios)
Maturity Fund Prudential
Municipal
Prudential Global Natural Series Fund
(10
Resources Fund current
The Global Government Plus Fund
Portfolios and 3
The Global Total merged
Portfolios*)
Return Fund Prudential
National
Prudential Government Municipals
Fund
Income Fund Prudential
Pacific
Prudential Government Growth Fund
Securities Trust - Prudential
Small
Money Companies
Fund
Market Series Prudential
Structured
Maturity
Fund
Prudential
U.S.
Government
Fund*
Prudential
Utility
Fund
Prudential
World Fund
* As of June 30, 1996, the Fund/Portfolio
was no longer in operation.
The Fund/Portfolio merged into
another Fund within the Prudential Mutual
Fund Family.
We have examined the accompanying description
of the Prudential
Multiple Class Pricing Worksheet (the
"Worksheet") application of
State Street Bank and Trust Company ("State
Street"), custodian and
recordkeeper for the Prudential Mutual Funds
(the "Funds"). Our
examination included procedures to obtain
reasonable assurance about
whether (1) the accompanying description
presents fairly, in all
material respects, the aspects of State
Street's policies and
procedures that may be relevant to a Fund's
internal control structure
relating to the Worksheet, (2) the control
structure policies and
procedures included in the description were
suitably designed to
achieve the control objectives specified in
the description, if those
policies and procedures were complied with
satisfactorily, and (3)
such policies and procedures had been placed
in operation as of
June 30, 1996. The control objectives were
specified by Prudential
Mutual Fund Management, Inc. Our examination
was performed in
accordance with standards established by the
American Institute of
Certified Public Accountants and included
those procedures we
considered necessary in the circumstances to
obtain a reasonable basis
for rendering our opinion.
In our opinion, the accompanying description
of the aforementioned
application presents fairly, in all material
respects, the relevant
aspects of State Street's policies and
procedures that had been placed
in operation as of June 30, 1996. Also, in
our opinion, the policies
and procedures, as described, are suitably
designed to provide
reasonable assurance that the specified
control objectives would be
achieved if the described policies and
procedures were complied with
satisfactorily.
In addition to the procedures we considered
necessary to render our
opinion as expressed in the previous
paragraph, we applied tests to
specific policies and procedures, listed in
Section I, to obtain
evidence about their effectiveness in meeting
the control objectives,
described in Section I during the period from
July 1, 1995 to June 30,
1996. The nature, timing, extent, and
results of the tests are listed
in Section II. In our opinion the policies
and procedures that were
tested, as described in Section II, were
operating with sufficient
effectiveness to provide reasonable, but not
absolute, assurance that
the control objectives specified in Section I
were achieved during the
period from July 1, 1995 to June 30, 1996.
However, the scope of our
engagement did not include tests to determine
whether control
objectives not listed in Section I were
achieved; accordingly we
express no opinion on the achievement of
control objectives not
included in Section I.
The relative effectiveness and significance
of specific policies and
procedures at State Street, and their effect
on assessments of control
risk on the Funds are dependent on their
interaction with the
policies, procedures, and other factors
present at individual Funds.
We have performed no procedures to evaluate
the effectiveness of
policies and procedures at individual Funds
in connection with this
report.
The description of policies and procedures at
State Street is as of
June 30, 1996, and information about tests of
the operating
effectiveness of specified policies and
procedures covers the period
from July 1, 1995 to June 30, 1996. Any
projection of such
information to the future is subject to the
risk that, because of
change, the description may no longer portray
the system in existence.
The potential effectiveness of specified
policies and procedures at
State Street is subject to inherent
limitations and, accordingly,
errors or irregularities may occur and not be
detected. Furthermore,
the projection of any conclusions, based on
our findings, to future
periods is subject to the risk that changes
may alter the validity of
such conclusions.
This report is intended solely for use by the
management and Boards of
Directors/Trustees of the Funds, the
independent auditors of the Funds
and the Securities and Exchange Commission.
August 23, 1996
SECTION I
Policies and Procedures
Placed in Operation
Prudential Multiple Class
Pricing Worksheet
The Prudential Mutual Funds (the "Funds")
have adopted a multiple
class pricing system. The multiple class
pricing system consists of
four classes of shares (Class A, Class B,
Class C and Class Z). Class
A shares are subject to an initial sales
charge, Class B and Class C
shares are subject to a contingent deferred
sales charge and Class Z
shares have no sales charge (Class Z shares
which were first offered
on March 1, 1996, are offered exclusively for
sale to the PSI Pension
Plan). Each of the classes of shares
represent interests in the same
portfolio of investments of the respective
Fund and are identical in
all respects, except that each class is
subject to different
distribution expenses and has exclusive
voting rights with respect to
the Rule 12b-1 distribution plan pursuant to
which such distribution
expenses are paid.
In order to allocate income and expenses
among the classes of shares,
State Street Bank and Trust Company (the
Funds' custodian and
recordkeeper) utilizes the Prudential
Multiple Class Pricing Worksheet
(the "Worksheet") (see Exhibit I). The
Worksheet is a manual
supplementary application that extracts
relevant data from the Funds'
primary accounting system, allocates income
and expenses among the
classes of shares and computes the daily net
asset value and, if
applicable, the dividend/distribution for
each class of shares.
Internal accounting controls that are
relevant to the Fund can be
divided into two components - controls
related to the mutual fund
accounting system resident at State Street
Bank and Trust Company (the
"primary accounting system") and controls
related to the Worksheet.
The specific control objectives and policies
and procedures relating
to the Worksheet are described on pages 4 and
5. A description of the
tests of the policies and procedures designed
to obtain evidence about
the operating effectiveness of those policies
and procedures in
achieving the specific control objectives is
included in Section II.
Control Objectives and
Policies and Procedures
Prudential Multiple Class
Pricing Worksheet
The Worksheet is a supplementary manual
application to the Funds'
primary accounting system. Certain data is
extracted from the primary
accounting system to allocate income and
expenses and to calculate the
daily net asset value and, if applicable,
dividends/distributions for
each class of shares. The primary accounting
system includes the
details of transactions in accordance with
the Investment Company Act
of 1940, as amended.
The following represents the internal
accounting control objectives
and policies and procedures for the
allocation of income and expenses
and the computation of the net asset value
and, if applicable, the
dividend/distribution for each class of
shares utilizing the
Worksheet. It does not cover the internal
accounting control policies
and procedures surrounding the processing of
information into the
Funds' primary accounting system.
CONTROL POLICIES
CONTROL OBJECTIVES
AND PROCEDURES
A. Capital share activity as 1.
Daily, the transfer
reported by the Fund's transfer agent
forwards
agent is recorded for each class reports
of capital
in an accurate and timely manner share
activity for
by the Fund. each
class which
includes
a summary
of
subscriptions,
redemptions,
exchanges and other
information (the
"Supersheet"). The
opening
day's
balance
for shares
outstanding and
current
day activity
is
recorded on the
Worksheet.
2.
Estimated interim
share
activity for
the
current day not
recorded
in the
Supersheet is
received
via telefax
from the
transfer
agent
and is
recorded
for each
class on
the
Worksheet.
3. A report
of
outstanding shares
eligible
for
dividends is
received
from the
transfer
agent and
is
recorded for each
class on
the
Worksheet.
B. Net Asset Value ("NAV") and, if 1. The
prior days
applicable, the ending
NAV per
dividend/distribution for each share
(b) for each
class are accurately computed on class is
agreed to
a daily basis. the
prior day's
Worksheet.
2. The
daily net
capital
stock
activity
for each
class
for the
current
day is
agreed
to the
Supersheet as
described in
Control
Procedures
A.1., 2.
and 3.,
above.
3.
Percentage Assets
by Class
and
Percentage Dividend
Assets
by Class are
calculated for each
class
based upon
information from
the
prior day
Worksheet, the
Supersheet and the
telefax
from the
transfer
agent.
CONTROL POLICIES
CONTROL OBJECTIVES
AND PROCEDURES
4.
Allocate investment
income
among
classes
based on
the
appropriate
asset
allocation
percentage for each
class.
5. Agree
composite
income
accounts,
management fees,
other
expenses,
realized
gains and
losses,
and
unrealized
appreciation/deprec
iation
to the
primary
accounting
system
of the Fund.
6. Allocate
expenses
among
classes as
follows:
a.
Expenses
directly
attributable to
each
class (12b-
1
distribution
expenses) are
calculated and
recorded to that
class.
b.
Expenses
attributable to
both
classes are
allocated in
accordance with
the
appropriate
asset allocation
percentage for
each
class.
7.
Allocate realized
and
unrealized
gains
and losses
among
the classes
in
accordance with
the
appropriate
asset
allocation
percentage of each
class.
8. Record
dividends/distribut
ions to
shareholders of
each
class in the
primary
accounting
system.
9.
Aggregate the net
assets
for each
class
and agree to
the
total net
assets
per the
primary
accounting
system.
10.For each
class,
reconcile the
current
day's NAV
and, if
applicable,
the
dividend/distributi
on to
the previous
day's
NAV and
dividend/
distribution for
each
class.
11.The
above
procedures are
reviewed
by the
Fund
supervisor or
manager.
SECTION II
Tests of Operating
Effectiveness
Prudential Multiple Class
Pricing Worksheet
July 1, 1995 to
June 30, 1996
We reviewed the methodology and procedures
for calculating the daily
net asset value and, if applicable, the
dividends/distributions of the
classes of shares and the allocation of
income and expenses among the
classes of shares.
The following are the detailed procedures
which we performed with
respect to the Worksheet. These procedures
were performed for
selected days encompassing all Funds subject
to multiple class pricing
during the year ended June 30, 1996, which we
believe is a
representative sample, to test compliance
with the control policies
and procedures as described in Section I.
Prudential Mutual Fund Management, Inc. is
the manager of the Funds
and has represented to us that adequate
facilities are in place to
ensure implementation of the methodology and
procedures for
calculating the net asset value and
dividends/distributions of the
classes of shares and the allocation of
income and expenses among the
classes of shares. Based on our review of
the description of the
policies and procedures of the Worksheet, as
described in Section I,
and performance of tests of operating
effectiveness as described in
Section II, we concur with such
representation.
Agreed "Prior Day NAV Per Share" to the
previous day's Worksheet.
Agreed "Shares Outstanding Beginning of
the Day" to the previous
day's Worksheet and to the transfer agency
records for each class.
Recalculated "Activity/Estimate" by adding
the estimated interim
share activity reported via fax from the
transfer agent and the
current day's "Capital Stock Activity"
reported on the Supersheet
for each class.
Recalculated "Current Shares Outstanding"
by adding "Shares
Outstanding Beginning of the Day" and
"Activity/Estimate" for each
class.
Recalculated for each class "Adjusted
Total Assets" by multiplying
"Prior Day NAV Per Share" by "Current
Shares Outstanding".
Recalculated "Percentage Assets-Class
A/Front End" by dividing
"Adjusted Total Assets-Class A/Front End"
by "Adjusted Total
Assets Composite".
Recalculated "Percentage Assets-Class
B(C)/Back End" by dividing
"Adjusted Total Assets-Class B(C)/Back
End" by "Adjusted Total
Assets Composite".
Recalculated "Percentage Assets-Class Z/No
Fee" where applicable,
by dividing "Adjusted Total Assets-Class
Z/No Fee" by "Adjusted
Total Assets Composite".
Agreed "Dividend Shares" to the transfer
agency records for each
class.
Recalculated "Current Dividend Shares" by
adding "Dividend Shares
Beginning of Day" and "Activity/Estimate"
for each class.
Recalculated for each class "Adjusted
Dividend Assets" by
multiplying "Prior Day NAV Per Share" by
"Current Dividend
Shares".
Recalculated "Percentage Dividend Assets-
Class A/Front End" by
dividing "Adjusted Dividend Assets-Class
A/Front End" by "Adjusted
Dividend Assets Composite".
Recalculated "Percentage Dividend Assets-
Class B(C)/Back End" by
dividing "Adjusted Dividend Assets-Class
B(C)/Back End" by
"Adjusted Dividend Assets Composite".
Recalculated "Percentage Dividend Assets-
Class Z/No Fee" where
applicable, by dividing "Adjusted Dividend
Assets-Class Z" by
"Adjusted Dividend Assets Composite".
Agreed composite total of each component
of income to the primary
accounting system.
Recalculated the allocation for each class
of each component of
income for daily dividend funds by
multiplying the composite total
by "Percentage Dividend Assets-Class
A/Front End", "Percentage
Dividend Assets-Class B(C)/Back End" and
where applicable,
"percentage Dividend Assets-Class Z/No
Fee", and for non-daily
dividend funds by multiplying the
composite total by "Percentage
Assets-Class A/Front End", "Percentage
Assets-Class B(C)/Back End"
and where applicable, "Percentage Assets-
Class Z/No Fee".
Recalculated "Daily Income," composite and
for each class, by
totaling each component of income.
Agreed composite total "Management Fee"
and "Other Fixed Expenses"
to the primary accounting system.
Recalculated the allocation for each class
of "Management Fee" and
"Other Fixed Expenses" for daily dividend
funds by multiplying the
composite total by "Percentage Dividend
Assets-Class A/Front End",
"Percentage Dividend Assets-Class
B(C)/Back End" and where
applicable, "percentage Dividend Assets-
Class Z/No Fee", and non-
daily dividend funds by multiplying the
composite total by
"Percentage Assets-Class A/Front End",
"Percentage Assets-Class
B(C)/Back End" " and where applicable,
"Percentage Assets-Class
Z/No Fee"
Agreed the "12b-1 Fee-Class A/Front End"
and "12b-1 Fee-Class
B(C)/Back End" to the respective "PC
Expense Worksheet".
Recalculated "Daily Expense," composite
and for each class, by
totaling "Management Fee," "12b-1 Fee" and
"Other Fixed Expenses".
Recalculated "Daily Net Income" for each
class by subtracting
"Daily Expense" from "Daily Income".
Recalculated "Dividend Rate" for each
class for daily dividend
funds by dividing "Daily Net Income" by
"Dividend Shares Beginning
of Day-Class A/Front End", "Dividend
Shares Beginning of Day-Class
B(C)/Back End" and where applicable,
"Dividend Shares Beginning of
Day-Class Z/No Fee".
Agreed "Daily Income" and "Income
Distribution" for each class to
the primary accounting system.
Agreed the "Capital Gain Distribution" to
the amount recorded in
the primary accounting system.
Agreed composite total "Realized
Gain/Loss" and "Unrealized
Appreciation/Depreciation" to the primary
accounting system.
Recalculated the allocation for each class
of "Realized Gain/Loss"
and "Unrealized Appreciation/Depreciation"
by multiplying the
composite amount by the "Percentage Assets-
Class A/Front End",
"Percentage Assets-Class B(C)/Back End"
and where applicable,
"Percentage Assets-Class Z/No Fee".
Agreed "Prior Days Net Assets" to the
previous day's Worksheet.
Recalculated "Net Assets", composite and
for each class, by
totaling "Daily Net Income", "Income
nDistributed", "Capital Stock
Activity", "Capital Gain Distribution",
"Realized Gain/Loss",
"Unrealized Appreciation/Depreciation",
and "Prior Days Net
Assets".
Recalculated "NAV Per Share" dividing the
"Net Assets-Class
A/Front End", "Net Assets - Class
B(C)/Back End" and where
applicable, "Net Assets-Class Z/No Fee" by
"Current Shares
Outstanding - Class A/Front End", "Current
Shares Outstanding -
Class B(C)/Back End" and where applicable,
"Current Shares
Outstanding-Class Z/No Fee", respectively.
Recalculated "Offering Price" for Class A
shares by applying the
"Load" percentage as stated in the fund's
prospectus.
For the fiscal year ended November 30, 1997.
File number: 811-7491
SUB-ITEM 77 D
EXHIBITS
Policies with respect to security investment
On October 25, 1997 the Directors
authorized a modification of the investment
policies of the Fund to expand the
definition of equity-related securities to
include common stocks, preferred stocks,
rights, warrants and debt securities or
preferred stocks which are convertible or
exchangeable for common stocks or preferred
stocks and master limited partnerships,
among others.
N-SAR\DIS\1-98\77D
For the period ended (a) November 30, 1997
File number (c) 811-7491
SUB-ITEM 77J
Restatement of Capital Share Account
The Prudential Distressed Securities
Fund accounts for and reports distributions
to shareholders in accordance with the
American Institute of Certified Public
Accountants' Statement of Position 93-2:
Determination, Disclosure, and Financial
Statement Presentation of Income, Capital
Gain, and Return of Capital Distributions by
Investment Companies. The effect of applying
this Statement of Position on the Distressed
Securities Fund was to increase undistributed
net investment income by $60,599, and
decrease paid-in capital by $60,599, due to a
non-deductible prior year expense. Net
investment income, net realized gains and net
assets were not affected by this change.
For the fiscal year ended November 30, 1997.
File number: 811-7491
SUB-ITEM 77-0
EXHIBITS
Transactions Effected Pursuant to
Rule 10f-3
I. Prudential Distressed Securities Fund,
Inc.
1. Name of Issuer
JLK Direct Distribution, Inc.
2. Date of Purchase
6/27/97
3. Number of Securities Purchased
3,152.7
4. Dollar Amount of Purchase
$80,000
5. Price Per Unit
$25.375
6. Name of Underwriter or Dealer
from whom purchased:
Lazard Feres
7. Other members of the Underwriting
Syndicate
Merrill Lynch & Company
Goldman Sachs & Co.
Prudential Securities Incorporated
N-SAR\DIS\1-98\77O
