ANNUAL REPORT December 31, 1994
Prudential
IncomeVertible(R)
Fund, Inc.
(ICON)
(LOGO)
<PAGE>
Prudential
IncomeVertible(R)
Fund, Inc. AT A GLANCE
The Prudential IncomeVertible(R) Fund, Inc. seeks both current income and
capital appreciation. It invests primarily in convertible securities and/or
in combinations of securities, comprising nonconvertible fixed-income
securities and warrants or call options, which resemble convertible
securities in many respects.
<TABLE>
Cumulative Total Returns1
As of 12/31/94
<CAPTION>
One Year Five Year Since Inception2
<S> <C> <C> <C>
Class A -3.6% N/A +40.3%
Class B -4.2 +29.6% +112.5
Class C N/A N/A -2.5
Lipper Convertible Sec. Avg.3 -3.8 +57.1 +116.8
<CAPTION>
Average Annual Total Returns1
As of 12/31/94
<CAPTION>
One Year Five Year Since Inception2
<S> <C> <C> <C>
Class A -8.4% N/A +6.0%
Class B -9.2 +5.2% +8.7
Class C N/A N/A -3.5
</TABLE>
Past performance is not indicative of future results. Principal and investment
return will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost.
1 Source: Prudential Mutual Fund Management Inc. and Lipper Analytical
Services, Inc. The 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 5% for Class A
shares and a contingent deferred sales charge (CDSC) of 5%, 4%, 3%, 2%, 1%
and 1% for six years, for Class B shares. Class C shares have a 1% CDSC for
one year. Beginning in February 1995, Class B shares will automatically
convert to Class A shares on a quarterly basis, after approximately
seven years.
2 Inception dates: 1/22/90 Class A; 12/5/85 Class B; 8/1/94 Class C.
3 Lipper average returns are for 24 funds for one year, 18 funds for
five years and 8 funds since inception of Class B shares on 12/5/85.
<PAGE>
<TABLE>
Five Largest Holdings
<CAPTION>
% of Total
As of 12/31/94 Portfolio
<S> <C>
1. Amoco Canada
Petroleum Corp. 4.2%
Integrated oil and gas
production
2. U.S. Treasury Bonds 4.0%
3. Silicon Graphics, Inc. 4.0%
Computer hardware and
services
4. National Semiconductor 3.3%
Corp.
Engineering and construction
5. Alumax, Inc. 3.1%
Non-ferrous metals
</TABLE>
Understanding
Performance
Historical Investment Results represent the cumulative total returns for
a specified period. These returns assume the reinvestment of dividends and
distributions but do not take into account the applicable sales charges.
Average Annual Total Returns are not actual yearly results but even out
performance so that investors can compare different funds on an equal
basis. These returns take into account sales charges and would produce
the same results as the historic total returns for the same period if
performance had been constant.
Growth of an Assumed
Investment of $10,000 in the
Prudential IncomeVertible(R) Fund, Inc.
Class A
from inception on
1/22/90 through 12/31/94
(GRAPH)
The above chart represents historical performance of Class A shares and
assumes a front-end sales load of 5%. The net amount invested, after
taking into account the front-end sales load, was $9,500.
Class B
from inception on
12/5/85 through 12/31/94
(GRAPH)
The above chart represents historical performance of Class B shares and
does not assume the effects of a contingent deferred sales charge. (Class
B shares are subject to a CDSC of 5%, 4%, 3%, 2%, 1% and 1% during the
first six years.)
Key
/ / Value of shares initially purchased plus shares acquired through
reinvestment of all dividends and distributions.
// Value of shares initially purchased with all distributions taken in cash.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate and an investor's shares may be worth more
or less than the original amount when redeemed. Performance data for Class
C shares is not included since the share class commenced operations less
than one year ago.
<PAGE>
Letter to Shareholders
February 1, 1995
Dear Shareholder:
Convertible securities had a rough year in 1994, and the main reason was
rising U.S. interest rates. Convertible securities generally act like bonds
and their value declined as rates rose. We are pleased to report that the
Prudential IncomeVertible(R) Fund performed on a comparable level with other
convertible securities funds for the year, according to Lipper Analytical
Services, Inc. Unfortunately, these returns were negative. Still, this is
a marked turnaround in the Fund's overall performance and one we will
endeavor to maintain.
1994 Investment Results
Total Returns
(GRAPH)
Source: Prudential Investment Corporation. For purposes of comparison only.
Bonds as measured by the Lehman Brothers government/corporate aggregate.
U.S. stocks as measured by the S&P 500 Index. Global stocks as measured
by the Morgan Stanley Capital International World Index. U.S. money markets
as measured by IBC/Donoghue's all taxable funds average.
The Fund's Objective.
The Prudential IncomeVertible(R) Fund seeks both current income and capital
appreciation. It invests primarily in convertible securities and/or in
combinations of securities, comprising nonconvertible fixed-income securities
and warrants or call options, which resemble convertible securities in many
respects. Under normal circumstances, the Fund intends to invest at least
65% of its total assets in convertible securities and/or synthetic
convertibles.The balance of the Fund's assets may be invested in other
debt and equity securities.
It may also write (i.e., sell) covered calls on debt and equity securities
and on stock indices, and engage in hedging transactions using options and
futures. The Fund also invests significantly in lower-rated and unrated
bonds, commonly known as "junk bonds," which are subject to greater risk
of loss of principal and interest, including default risk, than higher-rated
bonds.
The Market.
Since the Federal Reserve began raising short-term interest rates in early
1994, stock and bond markets around the world were hurt. Investors worried
about the effectiveness of the Federal Reserve's monetary policy on the one
hand, and the U.S. economy's ability to maintain growth in the face of it,
on the other. The S&P 500, a weighted index comprising 500 stocks that
provide a broad indicator of stock prices movements, was up 1.3% for the
12 months ended December 31, 1994.
Convertible securities, along with the rest of the market, suffered.
They also came under increased pressure in the fourth quarter from dealers
and hedge funds looking to reduce their convertible inventories for year-end
reporting purposes. Many dealers sold their positions, increasing supplies in
-1-
<PAGE>
a weak market, which hurt prices. The Merrill Lynch Convertible Index,
an unmanaged index of approximately 500 convertible securities with minimum
$25 million par values, was down 7.1% for the 12 months ended December 31,
1994. Government and corporate bonds, as measured by the Lehman Government
Corporate Bond Index, fell 3.5% over the same time period.
On the Hill:
In 1995, Congress is set to consider an initiative that would restore
full income tax deductibility for individual retirement account
contributions for middle-income wage earners. In addition, Congress
will also debate creation of a new tax-deferred savings account, called
"the American Dream Savings Account." Prudential Mutual Funds supports
both of these proposals, and we urge you to share your own opinion with
your Congressional representatives. We will keep you updated on the
proposals as they make their way through the legislative process.
What we did well...
In our last writing, we indicated that we were working towards turning
the Fund's performance around, and that we had begun restructuring the
portfolio to improve performance. As of this writing, it appears our
new strategy is working. While the Fund has generally underperformed
the averages since its inception, it outperformed them in 1994. We
attribute the Fund's improved performance to the following factors:
- --Renewed Emphasis on Common Stocks. In the beginning of the year, we
restructured the portfolio, shifting a higher percentage of assets to
common stocks. Now at 18%, this represents a significant increase from
its December 1993 level of 5%, and has helped to boost the Fund's
performance relative to its peers. For the one-year period ending
December 31, 1994, the Fund was ranked 12th (Class A) and 15th (Class
B) among 26 comparable funds according to Lipper Analytical Services.
For the three-year period ending December 31, 1994, the Fund was ranked
19th (Class A) and 22nd (Class B) among 23 funds; for the five-year
period, Class B shares were ranked last among 21 funds.
- --Emphasis on Equity-Sensitive Convertibles. In restructuring the portfolio,
we also became focused on equity sensitive convertibles, those which tend to
follow the performance of the stock market. The main reason behind this focus
is the value afforded by such securities. The premiums paid for
equity-sensitive convertibles are generally 25% or less. This is
considerably lower than the premiums paid for convertible securities
on average. Moreover, because these issues were priced attractively
when we bought them, they held up better in 1994's less than robust market.
- --Elimination of All Synthetic Convertible Positions. As the final leg of
the Fund's restructuring, we eliminated remaining synthetic convertible
positions. While these securities were attractive at one time, because
the number of opportunities in the convertible market were limited, we no
longer find them advantageous. The convertible market has grown considerably
over the last few years, allowing access to more companies and far greater
diversification than was previously available. What's more, unlike true
convertibles, synthetics have an option attached to them, which requires
the payment of a premium -- an added cost we don't deem necessary in this
environment.
- --Stressing the Right Sectors. We increased our position relative to the
S&P 500 in the basic industry and capital spending, technology and energy
sectors. We believe these sectors of the market will continue to benefit
from the worldwide economic recovery/expansion that is now in full swing.
-2-
<PAGE>
..And where we could have done better.
The fourth quarter offered some challenges. Aside from the lackluster
performance of convertibles in general, the last three weeks of December
were particularly difficult for a portion of our international holdings.
As of December 31, 1994 the Fund had a 7% weighting in Mexican convertibles,
which were down 30% to 40% during the month. This fall was prompted by the
devaluation of the peso by the Mexican government, which negatively impacted
peso-denominated investments. However, we expect Mexican securities will
bottom sometime in first quarter 1995, and remain bullish on Mexican
stocks long term.
Fund Update:
Beginning in February 1995, Class B shareholders should begin to notice
a change in their Fund holdings. That's when Class B shares will begin
to 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, you will earn higher total returns on your investment
than you would have as a Class B shareholder. This conversion will be
processed automatically and won't require any further action on your part.
Looking Ahead to 1995...
We believe the Fund is well-positioned to benefit from a worldwide economic
recovery that continues to gain steam, and believe true convertible issues
and common stocks will benefit from this growth.
But uncertainty regarding U.S. interest rates may continue to hold back
healthy returns. We expect interest rates to stabilize early in 1995. In
the meantime, we remain focused on issues that meet our criteria for growth.
Moreover, we will continue to pursue investments in the basic industry and
capital spending, technology and energy sectors, as we believe these sectors
of the market offer the greatest potential for long-term growth.
In closing, we remain decidedly optimistic on the markets in 1995. Thank you
for your confidence and we remain committed to improving Fund performance.
Sincerely,
Lawrence C. McQuade
President
Gregory Goldberg
Portfolio Manager
-3-
<PAGE>
PRUDENTIAL INCOMEVERTIBLE(R) FUND, INC.
Portfolio ofInvestments
December
31,1994
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Shares Description (Note
1)
<C> <C> <S> <C>
LONG-TERM INVESTMENTS--92.1%
Aerospace/Defense--1.2%
$ 3,131 GenCorp, Inc., Conv. Sub. Deb., 8.00%, 8/1/02.......................... $
2,876,606
- ------------
Airlines--1.6%
5,000 AMR Corp., Conv. Bond, 6.125%, 11/1/24.................................
4,012,500
- ------------
Automobiles & Trucks--2.5%
2,177 Careline, Inc., Conv. Bond, 8.00%, 5/1/01..............................
1,654,520
108,000 Ford Motor Co., Conv. Pfd. Stock.......................................
3,024,000
100,000 Masco Tech, Inc., Conv. Pfd. Stock.....................................
1,375,000
- ------------
6,053,520
- ------------
Banks--6.4%
3,750 Banco Nacionale de Mexico, Conv. Bond, 7.00%, 12/15/99 (ADR)
(Mexico).............................................................
2,990,625
38,000 Citicorp, Conv. Pfd. Stock.............................................
4,389,000
63,900 First Commerce Corp., Conv. Pfd. Stock.................................
1,725,300
65,500 Nacional Financiera, Conv. Pfd. Stock (ADR) (Mexico)...................
2,718,250
74,500 Republic New York Corp., Conv. Pfd. Stock..............................
3,762,250
- ------------
15,585,425
- ------------
Communications Equipment--1.6%
2,802 General Instrument Corp., Conv. Bond, 5.00%, 6/15/00...................
3,796,710
- ------------
Computer Hardware--8.6%
1,392 LSI Logic Corp., Conv. Sub. Deb., 5.50%, 3/15/01.......................
2,423,820
5,530 Quantum Corp., Conv. Bond, 6.375%, 4/1/02..............................
5,350,275
18,200 Silicon Graphics, Inc., Zero Coupon Conv. Bond, 11/2/13................
9,555,000
160,000 Verifone, Inc., Common Stock*..........................................
3,560,000
- ------------
20,889,095
- ------------
Computer Software & Services--7.9%
200,000 Cisco Systems, Inc., Common Stock*.....................................
7,025,000
65,000 Computer Associates International, Inc., Common Stock..................
3,152,500
</TABLE>
-4- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL INCOMEVERTIBLE(R) FUND, INC.
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Shares Description (Note
1)
<C> <C> <S> <C>
Computer Software & Services (cont'd.)
125,000 Cyrix Corp., Common Stock*............................................. $
2,453,125
115,000 General Motors Corp., Series E, Conv. Pfd. Stock.......................
6,598,125
- ------------
19,228,750
- ------------
Conglomerates--6.2%
250,000 Canadian Pacific Limited, Common Stock (Canada)........................
3,750,000
75,000 Hanson PLC, Common Stock (ADR) (United Kingdom)........................
1,350,000
$ 1,717 Mark IV Inds., Inc., Conv. Sub. Deb., 6.25%, 2/15/07...................
2,294,341
3,245 Nippon Denro Ispat, Ltd., Conv. Bond, 3.00%, 4/1/01 (ADR) (India)......
2,239,050
3,175 Stone Container Corp., Conv. Sub. Deb., 8.875%, 7/15/00................
5,365,750
- ------------
14,999,141
- ------------
Drug & Medical Supplies--1.0%
7,500 Alza Corp., Conv. Bond, 7/14/14........................................
2,503,125
- ------------
Engineering & Construction--4.8%
92,000 McDermott International, Inc., Conv. Pfd. Stock........................
3,772,000
109,600 National Semiconductor Corp., Conv. Pfd. Stock.........................
7,946,000
- ------------
11,718,000
- ------------
Exploration & Production--1.5%
2,275 Cross Timbers Oil Co., Conv. Deb., 5.25%, 11/1/03......................
1,825,687
2,600 Oryx Energy Co., Conv. Bond, 7.50%, 5/15/14............................
1,807,001
- ------------
3,632,688
- ------------
Financial Services--1.2%
125,000 MBNA Corp., Common Stock...............................................
2,921,875
- ------------
Foods--2.2%
896,000 RJR Nabisco Holdings Corp., Conv. Pfd. Stock*..........................
5,376,000
- ------------
</TABLE>
-5- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL INCOMEVERTIBLE(R) FUND, INC.
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Shares Description (Note
1)
<C> <C> <S> <C>
Gas Pipelines--2.1%
54,900 Tejas Gas Corp., Conv. Pfd. Stock...................................... $
2,346,975
58,000 Transco Energy Co., Conv. Pfd. Stock...................................
2,639,000
- ------------
4,985,975
- ------------
Hospital Management--2.3%
225,000 FHP International Corp., Conv. Pfd. Stock..............................
5,512,500
- ------------
Housing Related--1.0%
$ 2,300 Owens-Corning Fiberglass Corp., Conv. Jr. Sub. Deb., 8.00%, 12/30/05...
2,547,250
- ------------
Industrials--2.3%
3,360 Cemex, Conv. Bond, 4.25%, 11/1/97......................................
2,688,000
4,300 Empresas Ica Sociedad Control, Conv. Sub. Deb., 5.00%, 3/15/04 (ADR)
(Mexico).............................................................
2,838,000
- ------------
5,526,000
- ------------
Insurance--1.0%
5,375 USF&G Corp., Zero Coupon Conv. Sub. Note, 3/3/09.......................
2,472,500
- ------------
Integrated Producers--10.8%
8,810 Amoco Canada Petroleum Corp., Conv. Bond, 7.375%, 9/1/13 (Canada)......
10,131,500
253,500 Atlantic Richfield Co., Conv. Pfd. Stock...............................
6,622,687
89,100 Occidental Petroleum Corp., Conv. Pfd. Stock...........................
4,343,625
4,608 Pennzoil Co., Conv. Sub. Deb., 6.50%, 1/15/03..........................
5,218,560
- ------------
26,316,372
- ------------
Media--3.7%
4,869 Comcast Corp., Conv. Sub. Deb., 3.375%, 9/9/05.........................
3,846,510
10,000 News America Hldgs., Inc., Zero Coupon Conv. Sr. Deb., 3/11/13.........
3,687,500
1,578 Time Warner, Inc., Conv. Sub. Deb., 8.75%, 1/10/15.....................
1,491,210
- ------------
9,025,220
- ------------
Non - Ferrous Metals--4.4%
62,400 Alumax, Inc., Conv. Pfd. Stock.........................................
7,534,800
150,000 Pegasus Gold, Inc., Common Stock* (Canada).............................
1,706,250
31,400 Reynolds Metals Co., Conv. Pfd. Stock..................................
1,518,975
- ------------
10,760,025
- ------------
</TABLE>
-6- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL INCOMEVERTIBLE(R) FUND, INC
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Shares Description (Note
1)
<C> <C> <S> <C>
Oil Services--2.8%
130,700 BJ Services Co., Common Stock*......................................... $
2,205,563
89,700 Reading & Bates Corp., Conv. Pfd. Stock................................
1,850,063
$ 3,038 Seacor Holdings, Inc., Conv. Deb., 6.00%, 7/15/03......................
2,813,947
- ------------
6,869,573
- ------------
Railroads--2.3%
106,600 Burlington Northern, Inc., Conv. Pfd. Stock............................
5,676,450
- ------------
Retail--1.9%
1,895 Pier 1 Imports, Inc., Conv. Sr. Sub. Deb., 6.875%, 4/1/02..............
1,771,825
3,127 Price/Costco, Inc., Conv. Sub. Deb., 6.75%, 3/1/01.....................
2,814,300
- ------------
4,586,125
- ------------
Specialty Chemicals--1.1%
7,000 RPM, Inc., Zero Coupon Conv. Deb., 9/30/12.............................
2,660,000
- ------------
Steel--0.4%
61,900 National Steel Corp., Common Stock*....................................
897,550
- ------------
Technology--0.3%
42,000 Aspen Technology, Inc., Common Stock*..................................
824,250
- ------------
Telecommunication Services--2.2%
115,000 Comsat Corp., Common Stock.............................................
2,141,875
225,000 NEXTEL Communications, Inc., Common Stock*.............................
3,234,375
- ------------
5,376,250
- ------------
Trucking & Shipping--1.5%
140,000 Carolina Freight Corp., Common Stock*..................................
1,347,500
3,000 China Travel International, Conv. Bond, 4.25%, 11/18/98 (ADR) (Hong
Kong)................................................................
2,197,500
- ------------
3,545,000
- ------------
U. S. Government Securities--5.3%
45,000 Federal National Mortgage Association, Common Stock....................
3,279,375
10,000 U. S. Treasury Bonds, 7.50%, 11/15/24..................................
9,565,600
- ------------
12,844,975
- ------------
Total long-term investments--92.1%
(cost $232,724,544)....................................................
224,019,450
</TABLE>
-7- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL INCOMEVERTIBLE(R) FUND, INC.
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note
1)
<C> <C> <S> <C>
SHORT-TERM INVESTMENT--6.9%
$16,843 Joint Repurchase Agreement Account, 5.82%, due 1/3/95 (Note 5)......... $
16,843,000
- ------------
Total Investments--99.0%
(cost $249,567,544; Note 4)............................................
240,862,450
Other assets in excess of liabilities--1.0%............................
2,416,654
- ------------
Net Assets--100%.......................................................
$243,279,104
- ------------
- ------------
</TABLE>
- ---------------
* Non-income producing security.
ADR--American Depository Receipt.
-8- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL INCOMEVERTIBLE(R) FUND, INC.
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
December 31,
Assets 1994
-----------------
<S> <C>
Investments, at value (cost $249,567,544)............................................. $ 240,862,450
Receivable for investments sold....................................................... 2,004,922
Dividends and interest receivable..................................................... 1,957,819
Receivable for Fund shares sold....................................................... 81,996
Other assets.......................................................................... 9,139
-----------------
Total assets...................................................................... 244,916,326
-----------------
Liabilities
Payable for Fund shares reacquired.................................................... 1,027,598
Accrued expenses and other liabilities................................................ 246,781
Distribution fee payable.............................................................. 203,867
Management fee payable................................................................ 158,976
-----------------
Total liabilities................................................................. 1,637,222
-----------------
Net Assets............................................................................ $ 243,279,104
-----------------
-----------------
Net assets were comprised of:
Common stock, at par................................................................ $ 2,236,942
Paid-in capital in excess of par.................................................... 245,698,758
-----------------
247,935,700
Undistributed net investment income................................................. 327,996
Accumulated net realized gain on investments........................................ 3,720,502
Net unrealized depreciation on investments.......................................... (8,705,094)
-----------------
Net assets, December 31, 1994......................................................... $ 243,279,104
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($12,364,434 / 1,137,665 shares of common stock issued and outstanding)........... $10.87
Maximum sales charge (5% of offering price)......................................... .57
-----------------
Maximum offering price to public.................................................... $11.44
-----------------
-----------------
Class B:
Net asset value, offering price and redemption price per share
($230,914,481 / 21,231,739 shares of common stock issued and outstanding)......... $10.88
-----------------
-----------------
Class C:
Net asset value, offering price and redemption price per share
($188.92 / 17.37 shares of common stock issued and outstanding)................... $10.88
-----------------
-----------------
</TABLE>
See Notes to Financial Statements.
-9-
<PAGE>
PRUDENTIAL INCOMEVERTIBLE(R) FUND, INC.
Statement of Operations
<TABLE>
<CAPTION>
Year Ended
December 31,
Net Investment Income 1994
------------
<S> <C>
Income
Interest (net of foreign
withholding
taxes of $37,926)................ $ 8,474,860
Dividends (net of foreign
withholding
taxes of $16,142)................ 5,093,040
------------
Total income..................... 13,567,900
------------
Expenses
Distribution fee--Class A.......... 29,311
Distribution fee--Class B.......... 2,704,958
Management fee..................... 2,116,651
Transfer agent's fees and
expenses........................... 450,000
Reports to shareholders............ 209,000
Custodian's fees and expenses...... 97,000
Legal fees......................... 55,000
Registration fees.................. 51,000
Franchise taxes.................... 47,000
Audit fee.......................... 41,000
Directors' fees.................... 34,000
Insurance expense.................. 10,000
Miscellaneous...................... 7,585
------------
Total expenses................... 5,852,505
------------
Net investment income before
nonrecurring item.................. 7,715,395
Proceeds from litigation
settlement......................... 1,077,504
------------
Net investment income including
nonrecurring item.................. 8,792,899
------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain on investment
transactions....................... 22,871,648
Net change in unrealized depreciation
of investments..................... (42,907,216)
------------
Net loss on investments.............. (20,035,568)
------------
Net Decrease in Net Assets
Resulting from Operations............ $(11,242,669)
------------
------------
</TABLE>
PRUDENTIAL INCOMEVERTIBLE(R) FUND, INC.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended December 31,
Increase (Decrease) ------------------------------
in Net Assets 1994 1993
------------- -------------
<S> <C> <C>
Operations
Net investment
income............. $ 8,792,899 $ 10,375,444
Net realized gain on
investments........ 22,871,648 20,730,000
Net change in
unrealized
appreciation/depreciation
of investments..... (42,907,216) 8,209,944
------------- -------------
Net increase
(decrease) in net
assets resulting
from operations.... (11,242,669) 39,315,388
------------- -------------
Net equalization
debits............... (381,058) (319,489)
------------- -------------
Dividends and distributions (Note 1)
Dividends to shareholders from
net investment income
Class A............ (374,482) (435,906)
Class B............ (8,218,618) (9,939,538)
Class C............ (3) --
------------- -------------
(8,593,103) (10,375,444)
------------- -------------
Distributions to
shareholders
from net realized
capital gains
Class A............ (402,007) --
Class B............ (10,141,618) --
Class C............ (8) --
------------- -------------
(10,543,633) --
------------- -------------
Distributions to
shareholders in
excess of net
investment income
Class A............ -- (5,217)
Class B............ -- (118,949)
------------- -------------
-- (124,166)
------------- -------------
Fund share transactions
(Note 5)
Proceeds from shares
sold............... 152,308,757 227,053,576
Net asset value of
shares issued in
reinvestment of
dividends and
distributions...... 16,008,785 8,680,364
Cost of shares
reacquired......... (219,563,960) (282,748,610)
------------- -------------
Net decrease in net
assets from Fund
share
transactions....... (51,246,418) (47,014,670)
------------- -------------
Total decrease......... (82,006,881) (18,518,381)
Net Assets
Beginning of year...... 325,285,985 343,804,366
------------- -------------
End of year............ $ 243,279,104 $ 325,285,985
------------- -------------
------------- -------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
-10-
<PAGE>
<PAGE>
PRUDENTIAL INCOMEVERTIBLE(R) FUND, INC.
Notes to Financial Statements
Prudential IncomeVertible(R) Fund, Inc. (the ``Fund'') is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. Investment operations commenced on December 5, 1985. The investment
objective of the Fund is to seek both high current income and appreciation of
capital. The Fund seeks to achieve its investment objective by investing
primarily in convertible securities and/or in combinations of securities,
comprised of non-convertible fixed-income securities and warrants or call
options. The ability of issuers of debt securities held by the Fund to meet
their obligations may be affected by economic and political developments in a
specific industry or region.
Note 1. Accounting The following is a summary
Policies of significant accounting pol-
icies followed by the Fund in
the preparation of its financial statements.
Security Valuation: Any security for which the primary market is on an exchange
and NASDAQ National Market System equity securities are valued at the last sale
price on such exchange on the day of valuation or, if there was no sale on such
day, the mean between the last bid and asked prices quoted on such day.
Corporate bonds and U.S. Government securities that are actively traded in the
over-the-counter market are valued on the basis of valuations provided by a
pricing service which uses information with respect to transactions in bonds,
quotations from bond dealers and market transactions in comparable securities in
determining value. Other securities are valued at the mean between the most
recently quoted bid and asked prices. Securities which are otherwise not readily
marketable or securities for which market quotations are not readily available
are valued in good faith at fair value in accordance with procedures adopted by
the Fund's Board of Directors.
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.
In connection with repurchase agreement transactions, it is the Fund's policy
that its custodian or designated sub-custodians, 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.
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. Dividend income is recorded on the
ex-dividend date and 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.
Options: The Fund may either purchase or write options in order to hedge against
adverse market movements or fluctuations in value caused by changes in
prevailing interest rates with respect to securities which the Fund currently
owns or intends to purchase. When the Fund purchases an option, it pays a
premium and an amount equal to that premium is recorded as an investment. When
the Fund writes an option, it receives a premium and an amount equal to that
premium is recorded as a liability. The investment or liability is valued daily
to reflect the current market value of the option. If an option expires
unexercised, the Fund realizes a gain or loss to the extent of the premium
received or paid. If an option is exercised, the premium received or paid is
added to the proceeds from the sale or the cost of the purchase in determining
whether the Fund has realized a gain or loss. The difference between the premium
and the amount received or paid on effecting a closing purchase or sale
transaction is also treated as a realized gain or loss. Gain or loss on
purchased options is included in net realized gain (loss) on investment
transactions. Gain or loss on written options is presented separately as net
realized gain (loss) on written option transactions.
The Fund, as writer of an option, may have no control over whether the
underlying securities may be sold (called) or purchased (put). As a result, the
Fund bears the market risk of an unfavorable change in the price of the security
underlying the written option.
Dividends and Distributions: Dividends from net investment income are declared
and paid quarterly. The Fund will distribute at least annually any net capital
gains in excess of
-11-
<PAGE>
<PAGE>
loss carryforwards. Dividends and distributions are recorded on the ex-dividend
date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles.
Equalization: The Fund follows the accounting practice known as equalization by
which a portion of the proceeds from sales and costs of reacquisitions of Fund
shares, equivalent on a per share basis to the amount of distributable net
investment income on the date of the transaction, is credited or charged to
undistributed net investment income. As a result, undistributed net investment
income per share is unaffected by sales or reacquisitions of the Fund's shares.
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 shareholders. Therefore, no federal
income tax provision is required.
Withholding taxes on foreign dividends and interest have been provided for in
accordance with the Fund's understanding of the applicable country's tax rates.
Note 2. Agreements The Fund has a manage-
ment agreement with Pru-
dential 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.
The management fee paid PMF is computed daily and payable monthly, at an
annual rate of .75% of the Fund's average daily net assets up to $500 million,
.70% of the next $250 million, .65% of the next $250 million and .60% of the
Fund's average daily net assets in excess of $1 billion.
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 shares 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 Class 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.
On July 19, 1994, shareholders of the Fund approved amendments to the Class A
and Class B Plans under which the distribution plans became compensation plans,
effective August 1, 1994. Prior thereto, the distribution plans were
reimbursement plans, under which PMFD and PSI were reimbursed for expenses
actually incurred by them up to the amount permitted under the Class A and Class
B Plans, respectively. The Fund is not obligated to pay any prior or future
excess distribution costs (costs incurred by the Distributors in excess of
distribution fees paid by the Fund or contingent deferred sales charges received
by the Distributors). The rate of the distribution fees charged to Class A and
Class B shares of the Fund did not change under the amended plans of
distribution. The Fund began offering Class C shares on August 1, 1994.
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 .25 of 1%, 1% and 1% of the
average daily net assets of the Class A, B and C shares, respectively, for the
fiscal year ended December 31, 1994.
PMFD has advised the Fund that it has received approximately $24,000 in
front-end sales charges resulting from sales of Class A shares during the fiscal
year ended December 31, 1994. From these fees, PMFD paid such sales charges to
PSI and Pruco Securities Corporation, affiliated broker-dealers, which in turn
paid commissions to salespersons and incurred other distribution costs.
PSI has advised the Fund that for the fiscal year ended December 31, 1994, it
received approximately $354,300 in contingent deferred sales charges imposed
upon certain redemptions by Class B 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 year ended December 31, 1994, the Fund incurred fees
of approximately $370,000 for the services of PMFS. As of December 31, 1994,
approximately $28,000 of such fees were due to PMFS. Transfer agent fees and
expenses in the Statement of Operations
-12-
<PAGE>
<PAGE>
also include certain out-of-pocket expenses paid to non-affiliates.
For the year ended December 31, 1994, PSI earned approximately $25,700 in
brokerage commissions from portfolio transactions executed on behalf of the
Fund.
Note 4. Portfolio Purchases and sales of
Securities investment securities, other
than short-term investments,
for the year ended December 31, 1994, were $195,498,875 and $261,704,193,
respectively.
The cost basis of the Fund's investments for federal income tax purposes, at
December 31, 1994 was substantially the same as for reporting purposes and
accordingly, net unrealized depreciation of investments for federal income tax
purposes was $8,705,094 (gross unrealized appreciation--$15,012,066; gross
unrealized depreciation--$23,717,160).
The Fund utilized its capital loss carryforward of approximately $8,607,500
to offset taxable gains realized and recognized subsequent to December 31, 1993.
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
December 31, 1994, the Fund has a 2.2% undivided interest in the joint account.
The undivided interest for the Fund represents $16,843,000 in the principal
amount. As of such date, each repurchase agreement in the joint account and the
collateral therefor were as follows:
Goldman, Sachs & Co., 5.75%, in the principal amount of $250,000,000,
repurchase price $250,159,722, due 1/3/95. The value of the collateral including
accrued interest is $255,000,108.
Lehman Government Securities, Inc., 5.90%, in the principal amount of
$70,000,000, repurchase price $70,045,889, due 1/3/95. The value of the
collateral including accrued interest is $71,379,084.
Morgan Stanley & Co., 5.75%, in the principal amount of $250,000,000,
repurchase price $250,159,722, due 1/3/95. The value of the collateral including
accrued interest is $255,146,220.
Smith Barney, Inc., 5.95%, in the principal amount of $200,000,000,
repurchase price $200,132,222, due 1/3/95. The value of the collateral including
accrued interest is $204,036,161.
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 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. Class C shares are
sold with a contingent deferred sales charge of 1% during the first year. Class
B shares will automatically convert to Class A shares on a quarterly basis
approximately seven
years after purchase commencing on or about February 1995.
The Fund has authorized 2 billion shares of common stock at $.10 par value
per share equally divided into three classes, designated Class A, Class B and
Class C common stock. Transactions in shares of common stock for the years ended
December 31, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
----------- -------------
<S> <C> <C>
Year ended December 31, 1994:
Shares sold................... 8,319,804 $ 98,336,113
Shares issued in reinvestment
of dividends and
distributions............... 65,244 729,890
Shares reacquired............. (8,505,822) (101,128,946)
----------- -------------
Net decrease in shares
outstanding................. (120,774) $ (2,062,943)
----------- -------------
----------- -------------
Year ended December 31, 1993:
Shares sold................... 7,288,701 $ 87,136,035
Shares issued in reinvestment
of dividends and
distributions............... 35,217 422,950
Shares reacquired............. (6,896,685) (82,819,899)
----------- -------------
Net increase in shares
outstanding................. 427,233 $ 4,739,086
----------- -------------
----------- -------------
</TABLE>
-13-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Class B Shares Amount
----------- -------------
Year ended December 31, 1994:
<S> <C> <C>
Shares sold................... 4,517,035 $ 53,972,444
Shares issued in reinvestment
of dividends and
distributions............... 1,368,841 15,278,889
Shares reacquired............. (9,907,704) (118,435,014)
----------- -------------
Net decrease in shares
outstanding................. (4,021,828) $ (49,183,681)
----------- -------------
----------- -------------
Year ended December 31, 1993:
Shares sold................... 11,741,389 $ 139,917,541
Shares issued in reinvestment
of dividends and
distributions............... 688,770 8,257,414
Shares reacquired............. (16,702,547) (199,928,711)
----------- -------------
Net decrease in shares
outstanding................. (4,272,388) $ (51,753,756)
----------- -------------
----------- -------------
<CAPTION>
Class C
<S> <C> <C>
August 1, 1994* through
December 31, 1994
Shares sold................... 17 $ 200
Shares issued in reinvestment
of dividends and
distributions............... -- 6
----------- -------------
Net increase in shares
outstanding................. 17 $ 206
----------- -------------
----------- -------------
</TABLE>
- ---------------
* Commencement of offering of Class C shares.
-14-
<PAGE>
<PAGE>
PRUDENTIAL INCOMEVERTIBLE(R) FUND, INC.
Financial Highlights
<TABLE>
<CAPTION>
Class A Class B
Class C
----------------------------------------------------
- ---------------------------------------------------- ------------
January 22,
August 1,
PER 1990*
1994@
SHARE Year Ended December 31, Through Year Ended December 31,
Through
OPERATING --------------------------------- December 31,
- ---------------------------------------------------- December 31,
PERFORMANCE: 1994 1993 1992D 1991 1990 1994 1993 1992D 1991
1990 1994
------- ------ ------ ------- ------------ --------- --------- -------- --------
- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<C> <C>
Net
asset
value,
beginning
of
period...$ 12.26 $11.33 $11.07 $ 9.87 $10.88 $ 12.27 $ 11.33 $ 11.08 $ 9.87
$ 11.35 $11.90
------- ------ ------ ------- ------------ --------- --------- -------- --------
- -------- --------------
Income
from
investment
operations
Net
investment
income... 0.46 0.48 0.59 0.66 0.75 0.38 0.38 0.51 0.59
0.66 0.20
Net
realized
and
unrealized
gain
(loss)
on
investment
trans-
actions.. (0.89) 0.93 0.31 1.31 (0.88) (0.89) 0.94 0.30 1.31
(1.35) (0.49)
------- ------ ------ ------- ------------ --------- --------- -------- --------
- -------- --------------
Total
from
investment
oper-
ations.. (0.43) 1.41 0.90 1.97 (0.13) (0.51) 1.32 0.81 1.90
(0.69) (0.29)
------- ------ ------ ------- ------------ --------- --------- -------- --------
- -------- --------------
Less
distributions
Dividends
from
net
investment
income... (0.46) (0.48) (0.59) (0.66) (0.75) (0.38) (0.38) (0.51) (0.59)
(0.66) (0.23)
Distributions
from net
realized
capital
gains... (0.50) -- -- -- (0.09) (0.50) -- -- --
(0.09) (0.50)
Distributions
to
shareholders
in
excess
of net
investment
income... -- -- (0.05) (0.11) (0.04) -- -- (0.05) (0.10)
(0.04) --
------- ------ ------ ------- ------------ --------- --------- -------- --------
- -------- --------------
Total
distri-
butions... (0.96) (0.48) (0.64) (0.77) (0.88) (0.88) (0.38) (0.56) (0.69)
(0.79) (0.73)
------- ------ ------ ------- ------------ --------- --------- -------- --------
- -------- --------------
Net
asset
value,
end
of
period.. $ 10.87 $ 12.26 $ 11.33 $ 11.07 $ 9.87 $ 10.88 $ 12.27 $ 11.33 $ 11.08
$ 9.87 $10.88
------- ------ ------ ------- ------------ --------- --------- -------- --------
- -------- --------------
------- ------ ------ ------- ------------ --------- --------- -------- --------
- -------- --------------
TOTAL
RETURN#... (3.58)% 12.60% 8.31% 20.55% (1.18)% (4.22)% 11.77% 7.43% 19.76%
(6.10)% (2.49)%
RATIOS/SUPPLEMENTAL
DATA:
Net
assets,
end
of
period
(000)... $12,364 $15,432 $ 9,422 $11,475 $7,397 $230,914 $309,854 $334,383 $400,961
$423,390 $189@@
Average
net
assets
(000)... $11,724 $12,954 $11,096 $ 8,486 $5,980 $270,496 $327,995 $357,956 $412,869
$492,335 $200@@
Ratios
to
average
net
assets:##
Expenses,
including
distribution
fees... 1.34% 1.29% 1.34% 1.30% 1.37%** 2.09% 2.09% 2.14% 2.10%
2.12% 1.27%**
Expenses,
excluding
distribution
fees... 1.09% 1.09% 1.14% 1.10% 1.17%** 1.09% 1.09% 1.14% 1.10%
1.12% 0.27%**
Net
investment
income... 3.45%DD 3.85% 5.39% 6.18% 7.05%** 2.70%DD 3.01% 4.64% 5.43%
6.33% 2.92%DD/**
Portfolio
turnover... 70% 84% 109% 82% 76% 70% 84% 109% 82%
76% 70%
</TABLE>
- ---------------
* Commencement of offering of Class A shares.
** Annualized.
@ Commencement of offering of Class C shares.
@@ Figures are actual and not rounded to the nearest thousand.
D Calculated based upon weighted average shares outstanding during the year.
DD The net investment income ratio including nonrecurring item would be 3.84%,
3.09% and 4.13% for the Class A, B and C shares, respectively.
# 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 one
full year are not annualized.
## Because of the event referred to in @ and the timing of such, the ratios
for Class C shares are not necessarily comparable to that of Class A or
Class B shares and are not necessarily indicative of future ratios.
See Notes to Financial Statements.
-15-
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors
Prudential IncomeVertible(R) Fund, Inc.
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Prudential IncomeVertible(R) Fund,
Inc., as of December 31, 1994, the related statements of operations for the year
then ended and of changes in net assets for each of the years in the two year
period then ended, and the financial highlights for each of the years in the
five year period then ended. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
December 31, 1994 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Prudential
IncomeVertible(R) Fund, Inc., as of December 31, 1994, the results of its
operations, the changes in its net assets and its financial highlights for the
respective stated periods, in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
New York, New York
February 2, 1995
TAX INFORMATION
We are required by the Internal Revenue Code to advise you within 60 days of
the Fund's fiscal year end (December 31, 1994) as to the federal tax status of
dividends paid by the Fund during such fiscal year.
During 1994, the Fund paid aggregate dividends from net investment income
totalling $.46 per share for Class A shares, $.38 per share for Class B shares
and $.23 per share for Class C shares, all of which is taxable as ordinary
income. In addition, the Fund paid a long-term capital gain distribution of $.50
per share (Class A, B and C) which is taxable as such. Further, we wish to
advise you that 62.58% of the dividends paid in 1994 qualified for the corporate
dividends received deduction available to corporate taxpayers.
For the purpose of preparing your annual federal income tax return, however,
you should report the amounts as reflected on the appropriate Form 1099-DIV or
substitute Form 1099-DIV.
-16-
<PAGE>
Prudential IncomeVertible(R) Fund
Comparison of Change in Value of $10,000 Investment in the Prudential
IncomeVertible(R) Fund and the S&P 500 Index
<TABLE>
Average Annual Total Returns
<CAPTION>
With Sales Load
1 Year Since Inception (1/22/90)
<S> <C> <C>
- -8.4% 6.0%
<CAPTION>
Without Sales Load
1 Year Since Inception (1/22/90)
<S> <C> <C>
- -3.6% 7.1%
</TABLE>
Class A
(GRAPH)
<TABLE>
Average Annual Total Returns
<CAPTION>
With Sales Load
1 Year 5 Year Since Inception (12/5/85)
<S> <C> <C> <C>
- -9.2% 5.2% 8.7%
Without Sales Load
1 Year 5 Year Since Inception (12/5/85)
<S> <C> <C> <C>
- -4.2% 5.3% 8.7%
</TABLE>
Class B
(GRAPH)
<TABLE>
Average Annual Total Returns
<CAPTION>
With Sales Load
1 Year Since Inception (8/1/94)
<S> <C> <C>
N/A% -3.5%
<CAPTION>
Without Sales Load
1 Year Since Inception (8/1/94)
<S> <C> <C>
N/A% -2.5%
</TABLE>
Class C
(GRAPH)
S&P 500 Prudential IncomeVertible(R) Fund
Past performance is not predictive of future performance and an
investor's shares when redeemed may be worth more or less than their
original cost.
These graphs are furnished to you in accordance with SEC regulations.
They compare a $10,000 investment in Prudential IncomeVertible(R) Fund
(Class A, Class B and Class C) with a similar investment in the Standard
& Poor's 500 Index by portraying the initial account values at the
commencement of operations of each class, and subsequent account values
at the end of each fiscal year (December 31), as measured on a quarterly
basis, beginning in 1990 for Class A shares, in 1985 for Class B shares and
in 1994 for Class C shares. For purposes of the graphs, and unless otherwise
indicated, in the accompanying tables it has been assumed (a) that the maximum
applicable contingent deferred sales charge was deducted from the initial
$10,000 investment in Class A shares; (b) the maximum applicable contingent
deferred sales charge was deducted from the value of the investment in Class
B and Class C shares, assuming full redemption on December 31, 1994; (c) all
recurring fees (including management fees) were deducted; and (d) all
dividends and distributions were reinvested. Class B shares will automatically
convert to Class A shares, on a quarterly basis, beginning approximately
seven years after purchase. This conversion feature is not reflected in
the graph.
The S&P 500 is a capital-weighted index, representing the aggregate market
value of the common equity of 500 stocks primarily traded on the New York
Stock Exchange. The S&P 500 is an unmanaged index and includes the
reinvestment of all dividends, but does not reflect the payment of
transaction costs and advisory fees associated with an investment in
the Fund. The securities in the S&P 500 may differ substantially from
the securities in the Fund. The S&P 500 is not the only index that may
be used to characterize performance of convertible bond funds and other
indexes may portray different comparative performance.
<PAGE>
Directors
Thomas R. Anderson
Robert R. Fortune
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Lawrence C. McQuade
Thomas A. Owens, Jr.
Richard A. Redeker
Merle T. Welshans
Officers
Lawrence C. McQuade, President
David W. Drasnin, Vice President
Robert F. Gunia, Vice President
Susan C. Cote, Treasurer
S. Jane Rose, Secretary
Marguerite E.H. Morrison, 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
Fulbright & Jaworski, L.L.P.
666 Fifth Avenue
New York, NY 10103-0229
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852, Collect (908) 417-7555
This report is not authorized for distribution to prospective
investors unless preceded or accompanied by a current prospectus.
743912206 MF129E
743912107 (LOGO)
743912305
