<PAGE>
SEMI ANNUAL June 30,1994
REPORT
Prudential
GNMA Fund
(LOGO)
<PAGE>
Letter to Shareholders
August 12, 1994
Dear Shareholder:
In the past six months, mortgage-backed securities have been among the
strongest performers in an investment grade bond market dominated by rising
interest rates and falling bond prices. We are pleased to report
that the Prudential GNMA Fund produced above-average total returns
in this environment.
<TABLE>
HISTORICAL PERFORMANCE
As of June 30, 1994
<CAPTION>
6-Month 12-Month 30-Day NAV
Total Return1 Total Return1 SEC Yield 6/30/94
<S> <C> <C> <C> <C>
Class A -2.8% -2.1% 6.09% $13.89
Class B -3.1% -2.7% 5.76% $13.85
</TABLE>
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS2
As of June 30, 1994
<CAPTION>
One Year Five Year Ten Year Since Inception3
<S> <C> <C> <C> <C>
Class A -6.5% N/A N/A 5.7%
Class B -7.7% 5.9% 8.5% 8.8%
</TABLE>
1 These figures do not take into account sales charges.
2 Source: Prudential Mutual Fund Management. These figures take into account
applicable sales charges. The Fund charges a maximum sales load of 4.50%
for Class A shares. Class B shares are subject to a declining contingent
deferred sales charge of 5%, 4%, 3%, 2%, 1% and 1% respectively, over a
six-year period.
3 Inception of Class A 1/22/90; Class B 3/25/82
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.
Fund Overview
The Prudential GNMA Fund seeks a high level of income over the long-term,
consistent with reasonable safety in the value of each shareholder's
investment, by investing primarily in a portfolio of mortgage-backed
securities guaranteed as to timely payment of principal and interest by
the Government National Mortgage Association. The Fund may also invest in
other U.S. government obligations and high-quality, asset-backed securities.
-1-
<PAGE>
A Rough Market
The Federal Reserve has raised the federal funds rate (the interbank
overnight lending rate) from 3% to 4.25% (125 basis points) over the
last few months in a preemptive strike against inflation. Long-term rates
rose by about the same amount -- roughly 130 basis points. As a result, bond
prices have fallen to compensate for these higher yields, as well as
for the risk that the Fed will act to raise rates again this summer.
While mortgage-backed security total returns have fallen this year, they
have not dropped as much as those of other government bonds. Since mortgages
generally have higher coupons than ordinary governments, they are normally
better protected from interest rate increases. In addition, the
prepayment fears that racked this market last year, when rates were lower,
have abated. Actual prepayments are down about 70% this year, because
higher rates have made homeowner mortgage refinancing less attractive.
(CHART)
Our Strategy
In this environment, we have turned to a defensive strategy that still allows
us to take advantage of strength in some sectors. For instance, we
raised cash to as much as 18% of the portfolio in the first quarter.
Although we gave up some yield while our cash position was high, the
portfolio's value declined less than it otherwise would have. By the
second quarter, we put about one-half of our cash back to work, buying
mortgages at low prices.
To take advantage of strong sectors, we looked for securities that provided
higher yields. For instance, we increased our exposure to premium coupon
mortgages, which should benefit from the slowdown in prepayments. We purchased
new mortgages with coupons in the 7.5% to 8% range because these securities
have high yields, as well as low prepayment risk. In addition, we increased
our holdings of GNMA securities slightly to approximately 78% of the portfolio
as of June 30, 1994, from 75% on December 31, 1993.
-2-
<PAGE>
The Outlook
Economic growth in the U.S. remains moderate and inflation is still under
control. However, the apparent signs of strength in the leading economic
indicators are making the financial markets nervous about prices. Although
bond prices may decrease in this environment, bond fund yields should rise
over the next several months. If this occurs, mortgages can be a good
defensive holding because the benefits of higher coupons may help to offset
price losses.
As always, we appreciate having you as a shareholder of the Prudential
GNMA Fund and we welcome this opportunity to report our activities to you.
Sincerely,
Lawrence C. McQuade
President
David Graham
Portfolio Manager
-3-
<PAGE>
PRUDENTIAL GNMA FUND Portfolio of Investments
June 30, 1994 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
LONG-TERM INVESTMENTS--94.5%
U.S. Government Agency Mortgage
Pass-Through Obligations--92.2%
Federal Home Loan Mortgage
Corporation,
$29,000 8.75%, 6/15/20.............. $ 29,666,094
Federal National Mortgage
Association,
10,000 8.00%, 7/25/20, REMIC....... 10,146,875
Government National Mortgage
Association,
73,708 7.50%, 12/15/16 - 6/15/24... 70,302,081
73,054 8.00%, 3/15/17 - 6/15/24.... 71,854,439
29,055 8.50%, 5/15/18 - 1/1/99..... 29,362,613
31,685 9.50%, 3/15/16 - 12/15/20... 33,437,431
6,238 11.00%, 3/15/10 - 7/15/20... 6,955,633
10,066 11.50%, 3/15/10 - 8/15/18... 11,374,244
1,011 12.00%, 12/15/12 -
6/15/15................... 1,152,070
------------
Total U.S. Government Agency
Mortgage Pass-Through
Obligations
(cost $270,341,774)....... 264,251,480
------------
Collateralized Mortgage Obligation--2.3%
Greenwich Capital
Acceptance, Inc.,
$118,319 2.25%, 1/25/24, ARM/IO
(cost $8,268,858)......... $ 6,729,415
------------
Total long-term investments
(cost $278,610,632)....... 270,980,895
------------
SHORT-TERM INVESTMENTS--0.1%
Repurchase Agreement--0.1%
Joint Repurchase Agreement
Account,
161 4.26%, 7/1/94 (Note 5)
(cost $161,000)........... 161,000
------------
Total Investments--94.6%
(cost $278,771,632; Note
4)........................ 271,141,895
Other assets in excess of
liabilities--5.4%......... 15,585,803
------------
Net Assets--100%............ $286,727,698
------------
------------
</TABLE>
- ---------------
ARM/IO--Adjustable Rate Mortgage--Interest Only.
REMIC--Real Estate Mortgage Investment Conduit.
-4- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL GNMA FUND
Statement of Assets and Liabilities
(Unaudited)
<TABLE>
<CAPTION>
June 30,
Assets 1994
------------
<S> <C>
Investments, at value (cost $278,771,632)................................................. $271,141,895
Receivable for investments sold........................................................... 24,967,623
Interest receivable....................................................................... 2,151,234
Receivable for Fund shares sold........................................................... 138,304
Deferred expenses and other assets........................................................ 11,031
------------
Total assets.......................................................................... 298,410,087
------------
Liabilities
Bank overdraft............................................................................ 46,986
Payable for investments purchased......................................................... 10,187,500
Payable for Fund shares reacquired........................................................ 573,710
Dividends Payable......................................................................... 451,113
Due to Distributors....................................................................... 174,617
Accrued expenses.......................................................................... 128,752
Due to Manager............................................................................ 119,711
------------
Total liabilities..................................................................... 11,682,389
------------
Net Assets................................................................................ $286,727,698
------------
------------
Net assets were comprised of:
Common stock, at par.................................................................... $ 207,000
Paid-in capital in excess of par........................................................ 315,814,939
------------
316,021,939
Undistributed net investment income..................................................... 833,279
Accumulated net realized loss on investments............................................ (22,497,783)
Net unrealized depreciation on investments.............................................. (7,629,737)
------------
Net assets, June 30, 1994................................................................. $286,727,698
------------
------------
Class A:
Net asset value and redemption price per share
($9,923,589 / 714,591 shares of common stock issued and outstanding).................. $13.89
Maximum sales charge (4.5% of offering price)........................................... 0.65
------------
Maximum offering price to public........................................................ $14.54
------------
------------
Class B:
Net asset value, offering price and redemption price per share
($276,804,109 / 19,985,383 shares of common stock issued and outstanding)............. $13.85
------------
------------
</TABLE>
See Notes to Financial Statements.
-5-
<PAGE>
<PAGE>
PRUDENTIAL GNMA FUND
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
June 30,
Net Investment Income 1994
------------
<S> <C>
Income
Interest............................ $ 11,582,958
------------
Expenses
Distribution fee--Class A........... 7,687
Distribution fee--Class B........... 1,102,658
Management fee...................... 760,730
Transfer agent's fees and
expenses............................ 281,000
Custodian's fees and expenses....... 183,000
Reports to shareholders............. 42,000
Registration fees................... 29,000
Audit fee........................... 28,000
Directors' fees..................... 23,000
Franchise taxes..................... 23,000
Legal fees.......................... 5,000
Miscellaneous....................... 7,508
------------
Total expenses.................... 2,492,583
------------
Net investment income................. 9,090,375
------------
Realized and Unrealized
Loss on Investments
Net realized loss on investment
transactions........................ (11,173,711)
Net change in unrealized
appreciation/depreciation of
investments......................... (6,957,702)
------------
Net loss on investments............... (18,131,413)
------------
Net Decrease in Net Assets
Resulting from Operations............. $ (9,041,038)
------------
------------
</TABLE>
PRUDENTIAL GNMA FUND
Statement of Changes in Net Assets
(Unaudited)
<TABLE>
<CAPTION>
Six Months Year Ended
Increase (Decrease) Ended December 31,
in Net Assets June 30, 1994 1993
-------------- ------------
<S> <C> <C>
Operations
Net investment
income............... $ 9,090,375 $ 20,023,887
Net realized gain
(loss) on
investments.......... (11,173,711) 3,445,442
Net change in
unrealized
appreciation/depreciation
of investments....... (6,957,702) (9,007,572)
-------------- ------------
Net increase (decrease)
in net assets
resulting from
operations........... (9,041,038) 14,461,757
-------------- ------------
Dividends (Note 1)
Dividends to
shareholders from net
investment income
Class A.............. (336,867) (646,676)
Class B.............. (8,753,508) (19,377,211)
-------------- ------------
(9,090,375) (20,023,887)
-------------- ------------
Dividends to
shareholders in
excess of net
investment income
Class A.............. (7,061) (66,983)
Class B.............. (200,782) (2,007,109)
-------------- ------------
(207,843) (2,074,092)
-------------- ------------
Fund share transactions (Note 6)
Proceeds from shares
sold................. 17,945,077 67,747,553
Net asset value of
shares issued in
reinvestment of
dividends............ 5,426,505 13,613,736
Cost of shares
reacquired........... (48,567,997) (78,475,417)
-------------- ------------
Net increase (decrease)
in net assets from
Fund share
transactions......... (25,196,415) 2,885,872
-------------- ------------
Total decrease........... (43,535,671) (4,750,350)
Net Assets
Beginning of period...... 330,263,369 335,013,719
-------------- ------------
End of period............ $ 286,727,698 $330,263,369
-------------- ------------
-------------- ------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
-6-
<PAGE>
<PAGE>
PRUDENTIAL GNMA FUND
Notes to Financial Statements
(Unaudited)
Prudential-Bache GNMA Fund, Inc., doing business as Prudential GNMA Fund (the
``Fund''), is registered under the Investment Company Act of 1940 as a
diversified, open-end management investment company. The investment objective of
the Fund is to achieve a high level of income over the long-term consistent with
providing reasonable safety by investing primarily in mortgage-backed securities
guaranteed as to timely payment of principal and interest by the Government
National Mortgage Association (GNMA) and other readily marketable fixed-income
securities. The ability of issuers of debt securities, other than those issued
or guaranteed by the U.S. Government, held by the Fund to meet their obligations
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 Fund values portfolio securities on the basis of prices
provided by dealers or by a pricing service which uses information such as
market values, maturities, yields, call features and developments relating to
specific securities in determining values.
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 approximate market value.
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. 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 and losses on sales of investments
are calculated on the identified cost basis. Interest income is recorded on the
accrual basis. The Fund amortizes original issue discount paid on purchases of
portfolio securities as adjustments to interest income.
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.
Dollar Rolls: The Fund enters into mortgage dollar rolls in which the Fund sells
mortgage securities for delivery in the current month, realizing a gain or loss,
and simultaneously contracts to repurchase somewhat similar (same type, coupon
and maturity) 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. The difference between the
sale proceeds and the lower repurchase price is taken into income. The Fund
maintains a segregated account, the dollar value of which is equal to its
obligations, in respect of dollar rolls.
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 and net capital gains,
if any, to its shareholders. Therefore, no federal income tax provision is
required.
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.
Dividends and Distributions: Dividends from net investment income are declared
daily and paid monthly. The Fund will distribute at least annually any net
capital gains in excess of loss carryforwards. Dividends and distributions are
recorded on the ex-dividend date.
Income distributions and capital gain 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
-7-
<PAGE>
<PAGE>
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 .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 shares of the Fund (collectively the
``Distributors''). To reimburse the Distributors for their expenses incurred in
distributing the Fund's Class A and Class B shares, the Fund, pursuant to plans
of distribution, pays the Distributors a reimbursement accrued daily and payable
monthly.
Pursuant to the Class A Plan, the Fund reimburses PMFD for its expenses with
respect to Class A shares at an annual rate of up to .30 of 1% of the average
daily net assets of the Class A shares. Such expenses under the Class A Plan
were .15 of 1% of the average daily net assets of the Class A shares for the six
months ended June 30, 1994. PMFD pays various broker-dealers, including PSI and
Pruco Securities Corporation (``Prusec''), affiliated broker-dealers, for
account servicing fees and other expenses incurred by such broker-dealers.
Pursuant to the Class B Plan, the Fund reimburses PSI for its
distribution-related expenses with respect to Class B shares at an annual rate
of up to .75 of 1% of the average daily net assets of the Class B shares.
The Class B distribution expenses include commission credits for payments of
commissions and account servicing fees to financial advisers and an allocation
for overhead and other distribution-related expenses, interest and/or carrying
charges, the cost of printing and mailing prospectuses to potential investors
and of advertising incurred in connection with the distribution of shares.
The Distributors recover the distribution expenses and service fees incurred
through the receipt of reimbursement payments from the Fund under the plans and
the receipt of initial sales charges (Class A only) and contingent deferred
sales charges (Class B only) from shareholders.
PMFD has advised the Fund that it has received approximately $42,000 in
front-end sales charges resulting from sales of Class A shares during the six
months ended June 30, 1994. From these fees, PMFD paid such sales charges to
dealers (PSI and Prusec) which in turn paid commissions to salespersons.
With respect to the Class B Plan, at any given time, the amount of expenses
incurred by PSI in distributing the Fund's shares and not recovered through the
imposition of contingent deferred sales charges in connection with certain
redemptions of shares may exceed the total reimbursement made by the Fund
pursuant to the Class B Plan. PSI advised the Fund that for the six months ended
June 30, 1994, it received approximately $360,000 in contingent deferred sales
charges imposed upon certain redemptions by investors. PSI, as distributor, has
also advised the Fund that at June 30, 1994, the amount of distribution expenses
incurred by PSI and not yet reimbursed by the Fund or recovered through
contingent deferred sales charges approximated $11,225,000. This amount may be
recovered through future payments under the Class B plan or contingent deferred
sales charges.
In the event of termination or noncontinuation of the Class B Plan, the Fund
would not be contractually obligated to pay PSI, as distributor, for any
expenses not previously reimbursed or recovered through contingent deferred
sales charges.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
Note 3. Other Prudential Mutual Fund Ser-
Transactions vices, Inc. (``PMFS''), a
with Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent and
during the six months ended June 30, 1994, the Fund incurred fees of
approximately $196,600 for the services of PMFS. As of June 30, 1994,
approximately $32,700 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 and dollar rolls, for the
six months ended June 30, 1994 aggregated $1,043,052,885 and $1,015,833,188,
respectively.
The cost basis of investments for federal income tax purposes is
substantially the same as the basis for financial reporting purposes and,
accordingly, as of June 30, 1994 net unrealized depreciation of investments for
federal income tax purposes was $7,629,737 (gross unrealized appreciation --
$50,093; gross unrealized depreciation--$7,679,830).
-8-
<PAGE>
<PAGE>
The Fund had a capital loss carryforward as of December 31, 1993 of
approximately $11,324,000 of which $5,602,500 expires in 1996, $3,073,700
expires in 1997 and $2,647,800 expires in 1998. 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 Account ment companies, transfers
uninvested cash balances into a single joint
account, the daily aggregate balance of which is invested in one or more
repurchase agreements collateralized by U.S. Treasury or Federal agency
obligations. As of June 30, 1994, the Fund has a .02% undivided interest in the
joint account. The undivided interest for the Fund represents $161,000 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., 4.30%, in the principal amount of $300,000,000,
repurchase price $300,035,833, due 7/1/94. The value of the collateral including
accrued interest is $306,000,136.
Merrill Lynch, Pierce, Fenner & Smith, Inc., 4.15%, in the principal amount
of $232,000,000, repurchase price $232,026,744, due 7/1/94. The value of the
collateral including accrued interest is $236,645,037.
Nomura Securities International, Inc., 4.25%, in the principal amount of
$275,000,000, repurchase price $275,032,465, due 7/1/94. The value of the
collateral including accrued interest is $280,500,174.
Smith Barney, Inc., 4.35%, in the principal amount of $150,000,000,
repurchase price $150,018,125, due 7/1/94. The value of the collateral including
accrued interest is $153,000,285.
Note 6. Capital The Fund offers both Class A
and Class B shares. Class A shares are sold with a
front-end sales charge of up to 4.5%. Class B shares are sold with a contingent
deferred sales charge which declines from 5% to zero depending on the period of
time the shares are held. Both classes of shares have equal rights as to
earnings, assets and voting privileges except that each class bears different
distribution expenses and has exclusive voting rights with respect to its
distribution plan. There are 500 million shares of common stock, $.01 par value
per share, divided into two classes, designated Class A and Class B common
stock, each of which consists of 250 million authorized shares.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------- ------------ ------------
<S> <C> <C>
Six months ended June 30, 1994:
Shares sold.................... 96,457 $ 1,379,563
Shares issued in reinvestment
of dividends................. 11,225 160,516
Shares reacquired.............. (129,709) (1,858,324)
------------ ------------
Net decrease in shares
outstanding.................. (22,027) $ (318,245)
------------ ------------
------------ ------------
Year ended December 31, 1993:
Shares sold.................... 324,094 $ 4,896,635
Shares issued in reinvestment
of dividends................. 24,707 372,441
Shares reacquired.............. (212,210) (3,195,829)
------------ ------------
Net increase in shares
outstanding.................. 136,591 $ 2,073,247
------------ ------------
------------ ------------
<CAPTION>
Class B
- -------------------------------
<S> <C> <C>
Six months ended June 30, 1994:
Shares sold.................... 1,160,670 $ 16,565,514
Shares issued in reinvestment
of dividends................. 369,247 5,265,989
Shares reacquired.............. (3,261,261) (46,709,673)
------------ ------------
Net decrease in shares
outstanding.................. (1,731,344) $(24,878,170)
<CAPTION>
------------ ------------
------------ ------------
Year ended December 31, 1993:
Shares sold.................... 4,168,502 $ 62,850,918
Shares issued in reinvestment
of dividends................. 880,221 13,241,295
Shares reacquired.............. (5,009,649) (75,279,588)
------------ ------------
Net increase in shares
outstanding.................. 39,074 $ 812,625
<CAPTION>
------------ ------------
------------ ------------
</TABLE>
Note 7. Subsequent On July 19, 1994, a meeting
Event of the shareholders of the
Fund was held at which time the shareholders
approved among other things: a) amendments to the Fund's Articles of
Incorporation to permit a conversion feature for Class B shares to Class A
shares after 5 years, and b) amendments to the Class A and Class B Distribution
Plans, under which the Distribution Plans become compensation rather than
reimbursement plans. These changes were effective August 1, 1994.
-9-
<PAGE>
<PAGE>
PRUDENTIAL GNMA FUND
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Class A Class B
-------------------------------------------------- ------------------------------------------------------------
January 22,
Six Months Year Ended 1990* Six Months
Ended December 31, through Ended Year Ended December 31,
June 30, ----------------------- December 31, June 30, ------------------------------------------------
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990 1989
---------- ------- ------ ------ ------------- ---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset
value,
beginning
of
period..... $ 14.75 $ 15.07 $15.30 $14.84 $ 14.73(D)(D) $ 14.71 $ 15.04 $ 15.27 $ 14.81 $ 14.86 $ 14.29
---------- ------- ------ ------ ------ ---------- -------- -------- -------- -------- --------
Income from investment
operations
Net
investment
income..... .47 .95 1.10 1.14 1.17 .44 .87 1.02 1.06 1.15 1.19
Net realized
and
unrealized
gain (loss)
on
investment
transactions... (.85) (.21) (.15) .61 .15 (.85) (.23) (.16) .60 (.01) .59
---------- ------- ------ ------ ------ ---------- -------- -------- -------- -------- --------
Total from
investment
operations... (.38) .74 .95 1.75 1.32(D)(D) (.41) .64 .86 1.66 1.14 1.78
---------- ------- ------ ------ ------ ---------- -------- -------- -------- -------- --------
Less
distributions
Dividends to
shareholders
from net
investment
income..... (.47) (.95) (1.10) (1.14) (1.17) (.44) (.87) (1.02) (1.06) (1.15) (1.19)
Dividends to
shareholders
in excess
of net
investment
income..... (.01) (.11) (.08) (.15) (.04) (.01) (.10) (.07) (.14) (.04) (.02)
---------- ------- ------ ------ ------ ---------- -------- -------- -------- -------- --------
Total
distributions (.48) (1.06) (1.18) (1.29) (1.21) (.45) (.97) (1.09) (1.20) (1.19) (1.21)
---------- ------- ------ ------ ------ ---------- -------- -------- -------- -------- --------
Net asset
value, end
of
period..... $ 13.89 $ 14.75 $15.07 $15.30 $ 14.84 $ 13.85 $ 14.71 $ 15.04 $ 15.27 $ 14.81 $ 14.86
---------- ------- ------ ------ ------ ---------- -------- -------- -------- -------- --------
---------- ------- ------ ------ ------ ---------- -------- -------- -------- -------- --------
TOTAL
RETURN@:... (2.79)% 4.97% 6.42% 12.48% 9.41%(D)(D) (3.08)% 4.29% 5.80% 11.82% 8.10% 12.93%
RATIOS TO
AVERAGE NET
ASSETS:
Net assets,
end of
period
(000)...... $9,924 $10,863 $9,045 $6,268 $1,604 $276,804 $319,401 $325,969 $272,661 $226,605 $221,938
Average net
assets
(000)...... $10,335 $10,199 $6,651 $3,035 $756 $296,479 $332,731 $295,255 $243,749 $218,749 $223,251
Ratios to
average net
assets:
Expenses,
including
distribution
fees..... 1.06%(D) 1.00% 1.00% 1.11% 1.15%(D) 1.66%(D) 1.60% 1.60% 1.71% 1.74% 1.56%
Expenses,
excluding
distribution
fees..... .91%(D) .85% .85% .96% .99%(D) .91%(D) .85% .85% .96% .99% .98%
Net
investment
income..... 6.71%(D) 6.42% 7.26% 7.81% 9.16%(D) 6.08%(D) 5.82% 6.66% 7.21% 7.96% 8.16%
Portfolio
turnover... 364% 134% 33% 118% 481% 364% 134% 33% 118% 481% 200%
</TABLE>
- ---------------
* Commencement of offering of Class A shares.
(D) Annualized.
(D)(D) Restated.
@ 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.
-10-
<PAGE>
Directors
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Lawrence C. McQuade
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Officers
Lawrence C. McQuade, President
David W. Drasnin, Vice President
Robert F. Gunia, Vice President
Susan C. Cote, Treasurer
S. Jane Rose, Secretary
Deborah A. Docs, 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
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll free (800) 225-1852
Collect (908) 417-7555, or Toll free (800) 225-1852
The accompanying financial statements as of June 30, 1994 were not audited
and accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
743915209 (LOGO) MF102E2
743915100 Cat. #44400P5<PAGE>
