(ICON)
Prudential
Mortgage
Income
Fund, Inc.
SEMI
ANNUAL
REPORT
June 30, 1997
(LOGO)
<PAGE>
Prudential Mortgage Income Fund,
Inc.
Performance At A Glance.
Mortgage backed securities were the
top performers in the investment
grade,
taxable U.S. bond market during the
first half of the year. With long-
term
interest rates finishing the period
slightly higher than where they
began,
investors sought opportunities to
earn higher yields than those
offered by
U.S. Treasuries. Mortgage backed
securities seemed to fit the bill
perfectly.
The Prudential Mortgage Income Fund
delivered competitive returns over
the
past six months, compared to the
average U.S. mortgage fund tracked
by Lipper
Analytical Services.
<TABLE>
<CAPTION>
Cumulative
Total
Returns1
As of 6/30/97
Six One Five
Since
Months Year Years
Inception2
<S> <C>
<C> <C> <C>
Class A
3.2% 8.4% 32.2%
67.2%
Class B
2.9 7.9 28.4
250.5
Class C
2.9 7.9 N/A
20.7
Class Z
N/A N/A N/A
2.8
Lipper U.S.
Mortgage Fd Avg3
3.2 8.1 32.4
***
</TABLE>
<TABLE>
<CAPTION>
Average
Annual Total
Returns1
As of 6/30/97
One Five Ten
Since
Year Years Years
Inception2
<S>
<C> <C> <C>
<C>
Class A
4.1%(3.9)4 4.9% N/A
6.6%(6.5)4
Class B 2.9
(2.6)4 5.0 (4.9)4 6.7%
8.6
Class C 6.9
(6.6)4 N/A N/A
6.7 (6.6)4
</TABLE>
<TABLE>
<CAPTION>
Dividends
& Yields
As of 6/30/97
Total Dividends 30-Day
Paid for Six Mos. SEC Yield
<S> <C>
<C>
Class A
$0.53
6.11%(5.91)4
Class B
$0.47 5.77
(5.57)4
Class C
$0.47 5.76
(5.56)4
Class Z
$0.38 6.50
(6.30)4
</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.
1Source: Prudential Investments
Fund Management and Lipper
Analytical Services.
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 4% for Class A shares and a
declining, six-year contingent
deferred sales charge (CDSC) of 5%,
4%, 3%, 2%,
1% and 1% for Class B shares. Class
C shares have a 1% CDSC for one
year.
Class B shares automatically
convert to Class A shares on a
quarterly basis,
after approximately seven years.
Class Z shares are not subject to a
sales
charges or distribution fee. Since
Class Z shares have been in
existence less
than a year, no average annual
returns are presented.
2Inception dates: 1/22/90 Class A;
3/25/82 Class B; 8/1/94 Class C;
and
3/18/97 Class Z.
3This includes all funds in the
Lipper U.S. Mortgage Fund average
for six
months, one-, five-, and 10-year
periods since inception of Class B
shares
on 3/25/82.
4The numbers in parentheses () show
the Series' average annual returns
and 30-
day SEC yield without waiver of
management fees and/or expense
subsidization.
*** Lipper Since Inception returns
are: Class A, 71.7%; Class B,
303.3%; Class
C, 23.1%, and Class Z, 3.4% for all
funds in each Lipper share class.
How Investments Compared.
(As of 6/30/97)
(GRAPH)
U.S. General General
U.S.
Growth Bond Muni Debt
Taxable
Funds Funds Funds
Money Funds
Source: Lipper Analytical Services.
Financial markets change, so a
mutual
fund's past performance should
never be used to predict future
results. The
risks to each of the investments
listed above are different -- we
provide 12-
month total returns for several
Lipper mutual fund categories to
show you that
reaching for higher returns means
tolerating more risk. The greater
the risk,
the larger the potential reward or
loss. In addition, we've included
historical
20-year average annual returns.
These returns assume the
reinvestment of
dividends.
U.S. Growth Funds will fluctuate a
great deal. Investors have received
higher
historical total returns from
stocks than from most other
investments. Smaller
capitalization stocks offer greater
potential for long-term growth but
may be
more volatile than larger
capitalization stocks.
General Bond Funds provide more
income than stock funds, which can
help smooth
out their total returns year by
year. But their prices still
fluctuate
(sometimes significantly) and their
returns have been historically
lower than
those of stock funds.
General Municipal Debt Funds invest
in bonds issued by state
governments,
state agencies and/or
municipalities. This investment
provides income that is
usually exempt from federal and
state income taxes.
Money Market Funds attempt to
preserve a constant share value;
they don't
fluctuate much in price but,
historically, their returns have
been generally
among the lowest of the major
investment categories.
<PAGE>
Barbara L. Kenworthy and Sharon A.
Fera, Fund Managers
(PHOTOS)
Portfolio Managers' Report
The Prudential Mortgage Income Fund
seeks a high level of income over
the long
term by investing primarily in a
portfolio of mortgage backed
securities
including those issued by the
Government National Mortgage
Association (GNMA)
and Federal National Mortgage
Association (FNMA). It may also
invest in
obligations using mortgages as
collateral as well as other U.S.
government
obligations, corporate debt, and
high quality money market
instruments. The
Fund's credit quality is investment
grade and the effective maturity is
generally in the intermediate-term
range. There can be no assurance
that the
Fund will achieve its investment
objective.
Mortgages Were Best.
Mortgage backed securities
performed better than all other
types of investment
grade, taxable debt instruments
during the first half of 1997, as
measured by
Lehman Brothers. They beat the
return on U.S. Treasury securities
by more than
one full percentage point. A
winning combination of higher
yields and
investment grade quality attracted
investors to securities backed by
home
loans.
Strategy Session.
Plump Yields & Hefty Price Gains.
The U.S. economy got off to a
strong start in 1997. Jobs were
plentiful and
consumers spent freely in January
and February on big ticket items
such as
automobiles and personal computers.
With the economy growing rapidly,
the
Federal Reserve pushed up the
Federal Funds rate (what banks
charge each other
for overnight loans) by a quarter
percentage point to 5.5% on March
25 to slow
economic growth and avoid higher
inflation.
Forecasting the direction of
interest rates was difficult during
the reporting
period because the economy sent
mixed signals. Consumer spending
dropped
significantly after the Federal
Funds rate increase, yet the job
market
remained solid.
Your Fund performed well over the
past six months because we
emphasized
investing in securities that
offered higher yields rather than
trying to
predict the direction of interest
rates. As a result, we kept
duration (a
measure of the Fund's sensitivity
to interest rate changes) in line
with
that of our competition. Duration
stood at 4 years on June 30, 1997
compared
to 4.15 years on December 31, 1996.
Even though interest rates
fluctuated over the past six
months, the yield on
the average 30-year U.S. Treasury
bond hovered in a trading range of
6.50% to
7.15%. These market conditions
fueled investor demand for
securities that
carry higher yields than Treasuries
because the additional yield adds
to total
return. We carefully selected asset
backed and mortgage backed
securities that
provided both additional yield and
the potential for price gains.
Portfolio Breakdown.
Expressed as a percentage of
total investments as of 6/30/97.
(PIE CHART)
<PAGE>
What Went Well.
When to Hold . . .
The Fund's holdings of mortgage
backed securities reached nearly
90% of total
investments at one point during the
past six-months. This worked well
since
these securities beat all other
types of investment grade debt
instruments in
an environment where bond yields
remained in a narrow range.
With interest rates remaining
fairly stable, there was less
concern about
prepayment and extension risks,
which also contributed to the
superior
performance of mortgage backed
securities. Prepayment risk is the
danger that
homeowners will refinance existing
mortgages to take advantage of
lower
interest rates. By contrast,
extension risk is the danger that
investors can
hold lower-yielding mortgage backed
securities for longer than expected
when
interest rates soar. With both
kinds of risk minimized by the
established
trading range, we purchased newly
issued securities yielding 8% that
fared
well.
. . .When to Fold.
Switching out of Treasuries into
higher yielding mortgage backed and
asset
backed securities also helped to
boost your Fund's return. For
example, we
sold Treasuries and purchased
securities backed by home equity
loans. Reducing
our exposure to Treasuries proved a
good choice since their six-month
return
as measured by Lehman Brothers
lagged that of all other types of
investment
grade bonds.
And Not So Well.
Rates Fell Fast.
Interest rates began to fall in
earnest during the second quarter
amid
continued signs of benign
inflation. Inflation hurts bonds by
eroding the
value of the fixed stream of
interest and principal payments
received by
investors. So data showing low
inflation coupled with moderating
economic
growth boosted bonds prices and
pushed interest rates lower. The
Federal
Reserve's decision to leave short-
term interest rates unchanged at
its meeting
on May 20 also added to the
positive sentiment in the bond
market. We would
have lengthened the Fund's duration
had we more accurately anticipated
the
steep drop in interest rates. When
interest rates fall, a longer
duration
helps the Fund to gain in value.
Five Largest Holdings.
3.9% Green Tree Fin. Corp.
3.8% FNMA
3.5% Money Store Home
Impt. Ln. Trust
2.8% Merck & Co.
2.8% ICI Funding Corp.
Expressed as a percentage of total
investments as of 6/30/97.
Looking Ahead.
Should the upbeat inflation news
continue, investors could send bond
prices
higher and interest rates tumbling.
While this would benefit the
economy,
significantly lower interest rates
could trigger faster prepayments on
mortgage backed securities. With
this in mind, we already took
profits in
July on some of the newly issued
home loan backed securities and
purchased
10-year U.S. Treasuries, which
would tend to fare better if
interest rates
sink. We may undertake similar
transactions in the future if
interest rates
break free of the current trading
range and head lower.
- -----------------------------------
- -----------------------------------
- ---------
1
<PAGE>
President's Letter
August 4, 1997
(PHOTO)
Dear Shareholder:
With the midpoint of 1997 behind
us, I'm pleased to report that the
recent
news from the financial markets has
been decidedly upbeat. The Dow
Jones
Industrial Average has gained more
than 20% through the end of June,
while
lower long-term interest rates have
made bonds an attractive
investment.
This stands in contrast to April
when the Dow fell 10% from a record
high on
fears of higher interest rates and
surging inflation. Interest rates
have
since fallen as the economy slowed
and the Dow has reached several new
highs.
The market swings we've seen this
year illustrate the importance of
"staying
the course" to your financial goal.
We realize that maintaining
investment
discipline when faced with market
uncertainty isn't easy. Here are
some
thoughts that may help:
- - Keep Your Expectations
Realistic. The best investors know
that financial
markets rise and fall -- and so
too, will the value of their
investments.
Over time, however, stocks have
been shown to produce very
attractive
returns that were well ahead of
inflation. And where income is the
primary
goal, bonds have also provided
attractive returns.
- - Remember Your Time Horizon. If
your investment goals are long term
(several
years or more), so should your
time horizon. During this period,
it's not
unusual for stocks and bonds to
experience several periods of
market
uncertainty.
- - We're On Your Side. Your
Prudential Securities Financial
Advisor or Pruco
Securities Registered
Representative can help you
understand what's
happening in the financial
markets. They can assist you in
making informed
decisions based upon a thorough
knowledge of your financial needs
and long-
term goals. Call him or her
today.
Thank you for your continued
confidence in Prudential mutual
funds. We'll do
everything we can to keep you
informed and to earn your trust.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds
& Annuities
- -----------------------------------
- -----------------------------------
- ---------
2
<PAGE>
Portfolio of Investments
as of June 30, 1997 (Unaudited)
PRUDENTIAL MORTGAGE INCOME FUND,
INC.
- -----------------------------------
- -------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description
Value (Note 1)
<C> <S>
<C>
- -----------------------------------
- -------------------------
LONG-TERM INVESTMENTS--99.2%
- -----------------------------------
- -------------------------
Obligations--4.6%$2,000 United
States Treasury Bond,
7.125%, 2/15/23
$ 2,060,000
United States Treasury
Notes,
2,000 6.625%, 5/15/07
2,016,560
3,000 12.375%, 5/15/04
3,963,270
- ------------
Total U.S. government
obligations
(cost $8,226,256)
8,039,830
- ------------
- -----------------------------------
- -------------------------
U.S. Government Agency Mortgage
Pass-Through Obligations--74.6%
Federal National
Mortgage
Association,
8 7.00%, 4/01/08
7,508
27,135 7.50%, 3/01/24 -
9/01/25 27,343,753
23,915 8.00%, 10/01/24 -
1/01/26 24,459,578
Government National
Mortgage
Association,
22,599 7.50%, 7/15/07 -
6/15/25 22,900,189
34,903 8.00%, 2/15/04 -
11/15/25 36,008,902
14,191 9.00%, 4/15/01 -
4/15/25 15,188,475
- ------------
Total U.S. government
agency
mortgage pass-
through obligations
(cost $124,186,691)
125,908,405
- ------------
- -----------------------------------
- -------------------------
Collateralized Mortgage Obligations-
- -8.6%
2,875 Contimortgage Home
Equity Loan,
Ser. 97-1 M2, 7.67%,
3/15/28 2,890,273
6,657 Federal National
Mortgage
Association,
Ser. 97-M3 C,
7.26589%, 7/17/17 6,731,891
4,913 ICI Funding Corp.
Secured Asset
Corp.,
Ser. 97-2 1A4,
7.60%, 7/25/28 4,959,059
$ 53,441 Merrill Lynch Mortgage
Investors,
Inc.,
Ser. 1996-C2,
1.5312%, 11/21/28,
(Interest Only)
$ 4,770,442
- ------------
Total collateralized
mortgage
obligations
(cost $19,211,912)
19,351,665
- ------------
- -----------------------------------
- -------------------------
Asset-Backed Securities--8.6%
Green Tree Financial
Corporation,
6,875 Ser. 96-10 A6, 7.30%,
11/15/28 6,828,809
2,000 Ser. 97-1 B2, 7.76%,
3/15/28 1,982,813
6,125 Money Store Home Impt.
Ln. Trust,
Ser. 97-1 M2, 8.07%,
5/15/23 6,214,961
- ------------
Total asset-backed
securities
(cost $14,993,802)
15,026,583
- ------------
- -----------------------------------
- -------------------------
Corporate Bonds--2.8%
5,000 Merck and Co.,
5.76%, 5/03/37
(cost $5,000,000)
4,999,650
- ------------
Total long-term
investments
(cost $171,618,661)
173,326,133
- ------------
SHORT-TERM INVESTMENT--1.8%
- -----------------------------------
- -------------------------
Repurchase Agreement
3,240 Joint Repurchase
Agreement Account,
5.955139%, 7/01/97
(cost $3,240,000;
Note 5) 3,240,000
- ------------
- -----------------------------------
- -------------------------
Total Investments--101.0%
(cost $174,858,661;
Note 4) 176,566,133
Liabilities in excess
of other
assets--(1.0%)
(1,815,053)
- ------------
Net Assets--100%
$174,751,080
- ------------
- ------------
</TABLE>
- -----------------------------------
- -----------------------------------
- ----------
- -----
See Notes to Financial Statements.
3
<PAGE>
Statement of Assets and Liabilities
(Unaudited)
PRUDENTIAL MORTGAGE INCOME FUND,
INC.
- -----------------------------------
- -----------------------------------
- ----------
<TABLE>
<CAPTION>
Assets
June 30, 1997
<S>
<C>
Investments, at value (cost
$174,858,661)......................
...................................
.......... $176,566,133
Cash...............................
...................................
...................................
... 5,029
Receivable for investments
sold...............................
...................................
........... 32,837,132
Interest
receivable.........................
...................................
.............................
1,168,980
Receivable for Fund shares
sold...............................
...................................
........... 198,793
Due from broker - variation
margin.............................
...................................
.......... 20,250
Prepaid
assets.............................
...................................
..............................
5,905
- -------------
Total
assets.............................
...................................
.............................
210,802,222
- -------------
Liabilities
Payable for investments
purchased..........................
...................................
.............. 35,136,078
Accrued
expenses...........................
...................................
..............................
329,804
Dividends
payable............................
...................................
............................
241,754
Payable for Fund shares
reacquired.........................
...................................
.............. 201,190
Distribution fee
payable............................
...................................
.....................
63,525
Management fee
payabe.............................
...................................
.......................
43,308
Deferred Director's
fees...............................
...................................
..................
35,483
- -------------
Total
liabilities........................
...................................
.............................
36,051,142
- -------------
Net
Assets.............................
...................................
..................................
$174,751,080
- -------------
- -------------
Net assets were comprised of:
Common stock, at
par................................
...................................
.................. $
122,559
Paid-in capital in excess of
par................................
...................................
...... 197,462,752
- -------------
197,585,311
Undistributed net investment
income.............................
...................................
...... 490,547
Accumulated net realized loss on
investments........................
...................................
.. (24,948,000)
Net unrealized appreciation on
investments........................
...................................
.... 1,623,222
- -------------
Net assets, June 30,
1997...............................
...................................
................. $174,751,080
- -------------
- -------------
Class A:
Net asset value and redemption
price per share
($91,630,588 / 6,419,126
shares of common stock issued and
outstanding).......................
........ $14.27
Maximum sales charge (4% of
offering
price).............................
.................................
.59
- -------------
Maximum offering price to
public.............................
...................................
......... $14.86
- -------------
- -------------
Class B:
Net asset value, offering price
and redemption price per share
($82,309,411 / 5,779,826
shares of common stock issued and
outstanding).......................
........ $14.24
- -------------
- -------------
Class C:
Net asset value, offering price
and redemption price per share
($800,797 / 56,231 shares of
common stock issued and
outstanding).......................
.............. $14.24
- -------------
- -------------
Class Z:
Net asset value, offering price
and redemption price per share
($10,283.72 / 719.709 shares
of common stock issued and
outstanding).......................
........... $14.29
- -------------
- -------------
</TABLE>
- -----------------------------------
- -----------------------------------
- ----------
- -----
See Notes to Financial Statements.
4
<PAGE>
PRUDENTIAL MORTGAGE INCOME FUND,
INC.
Statement of Operations (Unaudited)
- -----------------------------------
- -------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income
June 30, 1997
<S>
<C>
Income
Interest...........................
........ $ 6,957,575
- -------------
Expenses
Management
fee.............................
449,279
Distribution fee--Class
A.................. 67,682
Distribution fee--Class
B.................. 332,418
Distribution fee--Class
C.................. 3,087
Transfer agent's fees and
expenses......... 198,000
Custodian's fees and
expenses..............
152,000
Reports to
shareholders....................
50,000
Registration
fees..........................
36,000
Legal fees and
expenses....................
18,000
Audit fee and
expenses.....................
14,000
Directors' fees and
expenses...............
14,000
Miscellaneous......................
........ 5,060
- -------------
Total
expenses..........................
1,339,526
Less: Management fee
waiver...................
(179,711)
- -------------
Net
expenses...........................
. 1,159,815
- -------------
Net investment
income.........................
5,797,760
- -------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized loss on:
Investment
transactions....................
(7,727)
Financial futures
transactions.............
(57,942)
- -------------
(65,669)
Net change in unrealized
appreciation/depreciation of:
Investments........................
........ 25,755
Financial futures
contracts................
(84,250)
- -------------
(58,495)
- -------------
Net loss on
investments.......................
(124,164)
- -------------
Net Increase in Net Assets
Resulting from
Operations.....................
$ 5,673,596
- -------------
- -------------
</TABLE>
PRUDENTIAL MORTGAGE INCOME FUND,
INC.
Statement of Changes in Net Assets
(Unaudited)
- -----------------------------------
- -------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease)
June 30, December 31,
in Net Assets
1997 1996
<S>
<C> <C>
Operations
Net investment income....... $
5,797,760 $ 12,727,289
Net realized gain (loss) on
investments..............
(65,669) 186,036
Net change in unrealized
depreciation of
investments..............
(58,495) (6,315,745)
--
- ----------- -----------------
Net increase in net assets
resulting from
operations...............
5,673,596 6,597,580
--
- ----------- -----------------
Dividends and distributions
(Note 1)
Dividends to shareholders
from net investment
income
Class A..................
(2,875,324) (5,930,278)
Class B..................
(2,548,167) (6,261,553)
Class C..................
(23,679) (42,633)
Class Z..................
(40) --
--
- ----------- -----------------
(5,447,210) (12,234,464)
--
- ----------- -----------------
Fund share transactions (net of
share conversions) (Note 6)
Proceeds from shares sold...
2,515,206 8,736,035
Net asset value of shares
issued in
reinvestment of
dividends................
3,265,790 7,670,064
Cost of shares reacquired...
(21,681,389) (45,644,609)
--
- ----------- -----------------
Net decrease in net assets
from Fund share
transactions.............
(15,900,393) (29,238,510)
--
- ----------- -----------------
Total decrease.................
(15,674,007) (34,875,394)
Net Assets
Beginning of period............
190,425,087 225,300,481
--
- ----------- -----------------
End of period.................. $
174,751,080 $ 190,425,087
--
- ----------- -----------------
--
- ----------- -----------------
</TABLE>
- -----------------------------------
- -----------------------------------
- ----------
- -----
See Notes to Financial Statements.
5
<PAGE>
Notes to Financial Statements
(Unaudited) PRUDENTIAL MORTGAGE
INCOME FUND, INC.
- -----------------------------------
- -----------------------------------
- ----------
The Prudential Mortgage Income
Fund, Inc. (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-
related instruments, including
securities
guaranteed as to timely payment of
principal and interest by the
Government
National Mortgage Association
(GNMA), other mortgage-backed
securities issued or
guaranteed by agencies or
instrumentalities of the U.S.
Government, and
non-agency mortgage instruments,
along with obligations using
mortgages as
collateral. The ability of issuers
of debt securities, held by the
Fund, other
than those issued or guaranteed by
the U.S. Government, to meet their
obligations may be affected by
economic developments in a specific
industry or
region.
- -----------------------------------
- -------------------------
Note 1. Accounting Policies
The following is a summary of
significant accounting policies
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
approximates market value.
In connection with transactions in
repurchase agreements with U.S.
financial
institutions, it is the Fund's
policy that its custodian or
designated
subcustodians, as the case may be
under triparty repurchase
agreements, takes
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 Net
Investment Income: Securities
transactions are
recorded on the trade date. Since
certain mortgage-backed securities,
such as
GNMAs, only settle on one day each
month, there can be occasions when,
pending
settlement, there may be
substantial short-term securities
in the portfolio
available to fund the purchases of
these mortgage-backed securities.
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. Expenses are
recorded on the accural basis which
may require
the use of certain estimates by
management.
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.
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 Investments Fund
Management
LLC ('PIFM'). Pursuant to this
agreement, PIFM has responsibility
for all
investment advisory services and
supervises the subadviser's
performance of such
services. PIFM 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. PIFM pays for the cost of
the
subadviser's services, the
compensation of officers of the
Fund, occupancy and
certain
- -----------------------------------
- -----------------------------------
- ----------
- -----
6
<PAGE>
Notes to Financial Statements
(Unaudited) PRUDENTIAL MORTGAGE
INCOME FUND, INC.
- -----------------------------------
- -----------------------------------
- ----------
clerical and bookkeeping costs of
the Fund. The Fund bears all other
costs and
expenses.
The management fee paid to PIFM is
computed daily and payable monthly,
at an
annual rate of .50 of 1% of the
average daily net assets of the
Fund. PIFM has
agreed to waive a portion (.20 of
1% of the Fund's average daily net
assets) of
its management fee, which amounted
to $179,711 ($0.01 per share; .20%
of average
net assets, annualized) for the six
months ended June 30, 1997. The
Fund is not
required to reimburse PIFM for such
waiver.
The Fund has a distribution
agreement with Prudential
Securities Incorporated
('PSI') which acts as the
distributor of the Class A, Class
B, Class C and Class
Z shares of the Fund. The Fund
compensates PSI 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 for Class A, B and C shares
are accrued
daily and payable monthly. No
distribution or service fees are
paid to PSI as
distributor of the Class Z shares
of the Fund.
Pursuant to the Class A, B and C
Plans, the Fund compensates PSI for
its
distribution related activities at
an annual rate of up to .30 of 1%,
.75 of 1%
and 1%, of the average daily net
assets of the Class A, B and C
shares,
respectively. Such expenses under
the Class A Plan were .15 of 1% of
the average
daily net assets of Class A shares
and under the Class B and C Plans,
.75 of 1%
of the average daily net assets of
both the Class B and Class C
shares,
respectively, for the period ended
June 30, 1997.
PSI has advised the Fund that it
has received approximately $5,700
in front-end
sales charges resulting from sales
of Class A shares for the six
months ended
June 30, 1997. From these fees, PSI
paid such sales charges to dealers,
which in
turn paid commissions to
salespersons and incurred other
distribution costs.
PSI advised the Fund that for the
six months ended June 30, 1997, it
received
approximately $91,500 in contingent
deferred sales charges imposed upon
certain
redemptions by Class B and C
shareholders.
PSI, PIFM and PIC are indirect,
wholly-owned subsidiaries of The
Prudential
Insurance Company of America.
The Fund, along with other
affiliated registered investment
companies (the
'Funds'), entered into a credit
agreement (the 'Agreement') on
December 31, 1996
with an unaffiliated lender. The
maximum commitment under the
Agreement is
$200,000,000. The Agreement expires
on December 30, 1997. Interest on
any such
borrowings outstanding will be at
market rates. The purpose of the
Agreement is
to serve as an alternative source
of funding for capital share
redemptions. The
Fund has not borrowed any amounts
pursuant to the Agreement as of
June 30, 1997.
The Funds pay a commitment fee at
an annual rate of .055 of 1% on the
unused
portion of the credit facility. The
commitment fee is accrued and paid
quarterly
on a pro-rata basis by the Funds.
- -----------------------------------
- -------------------------
Note 3. Other Transactions with
Affiliates
Prudential Mutual Fund Services LLC
('PMFS'), a wholly-owned subsidiary
of PIFM,
serves as the Fund's transfer agent
and during the six months ended
June 30,
1997, the Fund incurred fees of
approximately $138,000 for the
services of PMFS.
As of June 30, 1997, approximately
$23,000 of such fees were due to
PMFS.
Transfer agent fees and expenses in
the Statement of Operations include
certain
out-of-pocket expenses paid to non-
affiliates.
- -----------------------------------
- -------------------------
Note 4. Portfolio Securities
Purchases and sales of investment
securities, other than short-term
investments
and dollar rolls, for the six
months ended June 30, 1997
aggregated $90,375,944
and $98,395,202, 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, 1997 net unrealized
appreciation of investments for
federal income tax
purposes was $1,707,472 (gross
unrealized appreciation--
$2,158,061; gross
unrealized depreciation--$450,589).
At June 30, 1997, the Portfolio
sold 36 financial futures contracts
on U.S.
Treasury Bonds which expires in
September 1997. The value at
disposition of such
contracts is $3,914,000. The value
of such contracts on June 30, 1997
was
$3,998,250, thereby resulting in an
unrealized loss of $84,250.
The Fund had a capital loss
carryforward as of December 31,
1996 of
approximately $21,942,300 of which
$3,073,700 expires in 1997,
$2,647,800
expires in 1998 and $16,220,800
expires in 2002. Such carryforward
is after
utilization of approximately
$1,853,500 of net taxable gains
realized and
recognized during the year ended
December 31, 1996. Accordingly, no
capital
gains distribution is expected to
be paid to shareholders until net
gains have
been realized in excess of such
carryforward.
The Fund will elect to treat net
capital losses of approximately
$1,667,500
incurred in the two month period
ended December 31, 1996 as having
been incurred
in the current fiscal year.
- -----------------------------------
- -----------------------------------
- ----------
- -----
7
<PAGE>
Notes to Financial Statements
(Unaudited) PRUDENTIAL MORTGAGE
INCOME FUND, INC.
- -----------------------------------
- -----------------------------------
- ----------
Note 5. Joint Repurchase Agreement
Account
The Fund, along with other
affiliated registered investment
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, 1997,
the Fund
has a .48% undivided interest in
the joint account. The undivided
interest for
the Fund represents $3,240,000 in
the principal amount. As of such
date, each
repurchase agreement in the joint
account and the collateral
therefore were as
follows:
Dean Witter, Morgan Stanley, 5.90%,
in the principal amount of
$100,000,000,
repurchase price $100,016,389, due
7/1/97. The value of the collateral
including
accrued interest is $102,000,893.
Deutsche Morgan Grenfell, 5.95%, in
the principal amount of
$184,000,000,
repurchase price $184,030,411, due
7/1/97. The value of the collateral
including
accrued interest is $187,680,112.
J.P. Morgan Securities, 6.00%, in
the principal amount of
$170,000,000,
repurchase price $170,028,333, due
7/1/97. The value of the collateral
including
accrued interest is $173,400,988.
SBC Warburg, Ltd., 5.95%, in the
principal amount of $227,000,000,
repurchase
price $227,037,518, due 7/1/97. The
value of the collateral including
accrued
interest is $232,448,194.
- -----------------------------------
- -------------------------
Note 6. Capital
The Fund offers Class A, Class B,
Class C and Class Z shares. Class A
shares are
sold with a front-end sales charge
of up to 4%. 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. A special
exchange privilege is also
available for
shareholders who qualified to
purchase Class A shares at net
asset value.
Effective March 18, 1997 the Fund
commenced offering Class Z shares.
Class Z
shares are not subject to any sales
or redemption charge and are
offered
exclusively for sale to the
participants of the Prudential
Securities 401 (k)
Plan, a defined contribution plan
sponsored by Prudential Securities
Incorporated. Each class of shares
has 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. The Fund
has authorized 500 million shares
of common stock, $.01 par value per
share,
equally divided into three classes,
designated Class A, Class B, Class
C and
Class Z.
Transactions in shares of common
stock were as follows:
<TABLE>
<CAPTION>
Class A
Shares Amount
- -----------------------------------
- - ---------- -------------
<S>
<C> <C>
Six months ended June 30, 1997:
Shares
sold.........................
47,065 $ 667,157
Shares issued in reinvestment of
dividends and
distributions....... 132,171
1,876,078
Shares
reacquired...................
(638,554) (9,055,669)
- ---------- -------------
Net decrease in shares outstanding
before
conversion.................
(459,318) (6,512,434)
Shares issued upon conversion from
Class
B...........................
313,373 4,457,974
- ---------- -------------
Net decrease in shares
outstanding.......................
(145,945) $ (2,054,460)
- ---------- -------------
- ---------- -------------
Year ended December 31, 1996:
Shares
sold.........................
223,806 $ 3,184,988
Shares issued in reinvestment of
dividends and
distributions....... 287,916
4,090,240
Shares
reacquired...................
(1,327,376) (18,847,332)
- ---------- -------------
Net decrease in shares outstanding
before
conversion.................
(815,654) (11,572,104)
Shares issued upon conversion from
Class
B...........................
590,405 8,336,520
- ---------- -------------
Net decrease in shares
outstanding.......................
(225,249) $ (3,235,584)
- ---------- -------------
- ---------- -------------
<CAPTION>
Class B
- -----------------------------------
- -
Six months ended June 30, 1997:
Shares
sold.........................
127,598 $ 1,803,721
Shares issued in reinvestment of
dividends and
distributions....... 97,497
1,380,355
Shares
reacquired...................
(885,542) (12,528,042)
- ---------- -------------
Net decrease in shares outstanding
before
conversion.................
(660,447) (9,343,966)
Shares reacquired upon conversion
into Class
A......................
(314,145) (4,457,974)
- ---------- -------------
Net decrease in shares
outstanding.......................
(974,592) $ (13,801,940)
- ---------- -------------
- ---------- -------------
Year ended December 31, 1996:
Shares
sold.........................
375,530 $ 5,342,866
Shares issued in reinvestment of
dividends and
distributions....... 251,545
3,565,389
Shares
reacquired...................
(1,892,789) (26,787,821)
- ---------- -------------
Net decrease in shares outstanding
before
conversion.................
(1,265,714) (17,879,566)
Shares reacquired upon conversion
into Class
A......................
(592,011) (8,336,520)
- ---------- -------------
Net decrease in shares
outstanding.......................
(1,857,725) $ (26,216,086)
- ---------- -------------
- ---------- -------------
</TABLE>
- -----------------------------------
- -----------------------------------
- ----------
- -----
8
<PAGE>
Notes to Financial Statements
(Unaudited) PRUDENTIAL MORTGAGE
INCOME FUND, INC.
- -----------------------------------
- -----------------------------------
- ----------
<TABLE>
<CAPTION>
Class C
Shares Amount
- -----------------------------------
- - ---------- -------------
<S>
<C> <C>
Six months ended June 30, 1997:
Shares
sold.........................
1,868 $ 26,482
Shares issued in reinvestment of
dividends and
distributions....... 659
9,335
Shares
reacquired...................
(6,387) (90,059)
- ---------- -------------
Net decrease in shares
outstanding.......................
(3,860) $ (54,242)
- ---------- -------------
- ---------- -------------
Year ended December 31, 1996:
Shares
sold.........................
14,791 $ 208,181
Shares issued in reinvestment of
dividends and
distributions....... 1,020
14,435
Shares
reacquired...................
(665) (9,456)
- ---------- -------------
Net increase in shares
outstanding.......................
15,146 $ 213,160
- ---------- -------------
- ---------- -------------
<CAPTION>
Class Z
- -----------------------------------
- -
March 18, 1997(a) through
June 30, 1997:
Shares
sold.........................
1,251 $ 17,846
Shares issued in reinvestment of
dividends and
distributions....... 1
22
Shares
reacquired...................
(532) (7,619)
- ---------- -------------
Net increase in shares
outstanding.......................
720 $ 10,249
- ---------- -------------
- ---------- -------------
</TABLE>
- ---------------
(a) Commencement of offering of
Class Z shares.
- -----------------------------------
- -----------------------------------
- ----------
- -----
9
<PAGE>
Financial Highlights (Unaudited)
PRUDENTIAL MORTGAGE INCOME FUND,
INC.
- -----------------------------------
- -----------------------------------
- ----------
<TABLE>
<CAPTION>
Class A
- -----------------------------------
- -----------------------------------
Six Months
Ended Year
Ended December 31,
June 30, ---------------------
- ----------------------------------
1997 1996 1995(a)
1994(a) 1993(a) 1992(a)
- ---------- ------- -------
- ------- ------- -------
<S>
<C> <C> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period................ $ 14.25
$ 14.61 $ 13.50 $14.75
$ 15.07 $15.30
- ---------- ------- -------
- ------- ------- -------
Income from investment operations
Net investment
income.............................
.. .48(d) .93(d)
.89 .90 .95
1.10
Net realized and unrealized gain
(loss) on
investment
transactions.......................
... (.01) (.39)
1.18 (1.19) (.21)
(.15)
- ---------- ------- -------
- ------- ------- -------
Total from investment
operations.................
.47 .54 2.07
(.29) .74 .95
- ---------- ------- -------
- ------- ------- -------
Less distributions
Dividends to shareholders from net
investment
income.............................
.............. (.45)
(.90) (.89) (.90)
(.95) (1.10)
Dividends to shareholders in excess
of net
investment
income.............................
... -- --
(.07) -- (.11)
(.08)
Tax return of capital
distributions..............
- -- -- --
(.06) -- --
- ---------- ------- -------
- ------- ------- -------
Total
distributions......................
........ (.45) (.90)
(.96) (.96) (1.06)
(1.18)
- ---------- ------- -------
- ------- ------- -------
Net asset value, end of
period...................... $
14.27 $ 14.25 $ 14.61
$13.50 $ 14.75 $15.07
- ---------- ------- -------
- ------- ------- -------
- ---------- ------- -------
- ------- ------- -------
TOTAL
RETURN(b):.........................
........... 3.21%
4.12% 15.53% (2.01)%
4.97% 6.42%
RATIOS TO AVERAGE NET ASSETS:
Net assets, end of period
(000).....................
$91,631 $93,555 $99,183
$8,762 $10,863 $9,045
Average net assets
(000)............................
$90,990 $93,766 $90,854
$9,874 $10,199 $6,651
Ratios to average net assets:
Expenses, including distribution
fees............ .99%(c)(d)
1.12%(d) 1.27% 1.13%
1.00% 1.00%
Expenses, excluding distribution
fees............ .84%(c)(d)
.97%(d) 1.12% .98%
.85% .85%
Net investment
income............................
6.75%(c)(d) 6.56%(d) 6.27%
6.42% 6.42% 7.26%
For Class A, B, C and Z Shares:
Portfolio turnover
rate.............................
50% 65% 193%
560% 134% 33%
</TABLE>
- ---------------
(a) Based on average shares
outstanding, by class.
(b) 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.
(c) Annualized.
(d) Net of management fee waiver.
- -----------------------------------
- -----------------------------------
- ----------
- -----
See Notes to Financial Statements.
10
<PAGE>
Financial Highlights (Unaudited)
PRUDENTIAL MORTGAGE INCOME FUND,
INC.
- -----------------------------------
- -----------------------------------
- ----------
<TABLE>
<CAPTION>
Class B
- -----------------------------------
- -----------------------------------
- -----
Six Months
Ended Year
Ended December 31,
June 30, ---------------------
- -----------------------------------
- ----
1997 1996 1995(a)
1994(a) 1993(a) 1992(a)
- ---------- -------- -------
- - -------- -------- ---
- -----
<S>
<C> <C> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period................ $ 14.22
$ 14.57 $ 13.47 $ 14.71
$ 15.04 $ 15.27
- ---------- -------- -------
- - -------- -------- ---
- -----
Income from investment operations
Net investment
income.............................
.. .44(d) .85(d)
.82 .82 .87
1.02
Net realized and unrealized gain
(loss) on
investment
transactions.......................
... (.01) (.39)
1.15 (1.19) (.23)
(.16)
- ---------- -------- -------
- - -------- -------- ---
- -----
Total from investment
operations.................
.43 .46 1.97
(.37) .64 .86
- ---------- -------- -------
- - -------- -------- ---
- -----
Less distributions
Dividends to shareholders from net
investment
income.............................
.............. (.41)
(.81) (.82) (.82)
(.87) (1.02)
Dividends to shareholders in excess
of net
investment
income.............................
... -- --
(.05) -- (.10)
(.07)
Tax return of capital
distributions.................
- -- -- --
(.05) -- --
- ---------- -------- -------
- - -------- -------- ---
- -----
Total
distributions......................
........ (.41) (.81)
(.87) (.87) (.97)
(1.09)
- ---------- -------- -------
- - -------- -------- ---
- -----
Net asset value, end of
period...................... $
14.24 $ 14.22 $ 14.57
$ 13.47 $ 14.71 $ 15.04
- ---------- -------- -------
- - -------- -------- ---
- -----
- ---------- -------- -------
- - -------- -------- ---
- -----
TOTAL RETURN(b):
2.91% 3.53% 14.78%
(2.57)% 4.29% 5.80%
RATIOS TO AVERAGE NET ASSETS:
Net assets, end of period
(000).....................
$82,309 $96,016 $125,463
$245,437 $319,401 $325,969
Average net assets
(000)............................
$89,380 $109,812 $146,290
$279,946 $332,731 $295,255
Ratios to average net assets:
Expenses, including distribution
fees............ 1.59%(c)(d)
1.72%(d) 1.87% 1.73%
1.60% 1.60%
Expenses, excluding distribution
fees............ .84%(c)(d)
.97%(d) 1.12% .98%
.85% .85%
Net investment
income............................
6.13%(c)(d) 5.95%(d) 5.82%
5.82% 5.82% 6.66%
</TABLE>
- ---------------
(a) Based on average shares
outstanding, by class.
(b) 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.
(c) Annualized.
(d) Net of management fee waiver.
- -----------------------------------
- -----------------------------------
- ----------
- -----
See Notes to Financial Statements.
11
<PAGE>
Financial Highlights (Unaudited)
PRUDENTIAL MORTGAGE INCOME FUND,
INC.
- -----------------------------------
- -----------------------------------
- ----------
<TABLE>
<CAPTION>
Class C
Class Z
- -----------------------------------
- ------------------ ---------
August 1, March 18,
Six Months Year Ended December
1994(c) 1997(d)
Ended 31,
through through
June 30, ---------------------
December 31, June 30,
1997 1996 1995(a)
1994(a) 1997
- ---------- -------- -------
- - ------------ ---------
<S>
<C> <C> <C>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period................ $ 14.22
$ 14.57 $ 13.47 $
14.01 $ 14.13
- ---------- -------- -------
- - ------ ---------
Income from investment operations
Net investment
income.............................
.. .44(f) .85(f)
.81 .30
.26(f)
Net realized and unrealized gain
(loss) on
investment
transactions.......................
... (.01) (.39)
1.16 (.49) .16
- ---------- -------- -------
- - ------ ---------
Total from investment
operations.................
.43 .46 1.97
(.19) .42
- ---------- -------- -------
- - ------ ---------
Less distributions
Dividends to shareholders from net
investment
income.............................
.............. (.41)
(.81) (.81) (.30)
(.26)
Dividends to shareholders in excess
of net
investment
income.............................
... -- --
(.06) -- --
Tax return of capital
distributions.................
- -- -- --
(.05) --
- ---------- -------- -------
- - ------ ---------
Total
distributions......................
........ (.41) (.81)
(.87) (.35) (.26)
- ---------- -------- -------
- - ------ ---------
Net asset value, end of
period...................... $
14.24 $ 14.22 $ 14.57
$ 13.47 $ 14.29
- ---------- -------- -------
- - ------ ---------
- ---------- -------- -------
- - ------ ---------
TOTAL RETURN(b):
2.91% 3.53% 14.78%
(1.32)% 2.84%
RATIOS TO AVERAGE NET ASSETS:
Net assets, end of period
(000).....................
$801 $854 $655
$515 $10
Average net assets
(000)............................
$830 $746 $599
$460 $455(g)
Ratios to average net assets:
Expenses, including distribution
fees............ 1.59%(e)(f)
1.72%(f) 1.87% 1.82%(e)
.84%(e)(f)
Expenses, excluding distribution
fees............ .84%(e)(f)
.97%(f) 1.12% 1.08%(e)
.84%(e)(f)
Net investment
income............................
6.13%(e)(f) 5.95%(f) 5.72%
5.32%(e) 6.89%(e)(f)
</TABLE>
- ---------------
(a) Based on average shares
outstanding, by class.
(b) 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.
(c) Commencement of offering of
Class C shares.
(d) Commencement of offering of
Class Z shares.
(e) Annualized.
(f) Net of management fee waiver.
(g) Figures are actual and not
rounded to the nearest thousand.
- -----------------------------------
- -----------------------------------
- ----------
- -----
See Notes to Financial Statements.
12
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Directors
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Robert F. Gunia
Harry A. Jacobs, Jr.
Donald D. Lennox
Mendel A. Melzer
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Richard A. Redeker, President
Thomas A. Early, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant
Treasurer
S. Jane Rose, Secretary
Deborah A. Docs, Assistant
Secretary
Manager
Prudential Investments Fund
Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment
Corporation
Prudential Plaza
Newark, NJ 07102-3777
Distributor
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 LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Shereff, Friedman, Hoffman &
Goodman LLP
919 Third Avenue
New York, NY 10022
The views expressed in this report
and information about the Fund's
portfolio
holdings are for the period covered
by this report and are subject to
change
thereafter.
The accompanying financial
statements as of June 30, 1997 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.
<PAGE>
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Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
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