(ICON)
The Global
Total Return
Fund, Inc.
ANNUAL
REPORT
Dec. 31, 1997
(LOGO)
<PAGE>
The Global Total Return Fund, Inc.
Performance At A Glance.
Global bonds generated modest returns as an Asian economic
crisis
pushed bond prices lower (and yields higher) in many
developing
countries. The Global Total Return Fund rode out this market
volatility and beat the average comparable fund because of
its investments in key European bonds and U.S. Treasuries
coupled with a heavy exposure to dollar bloc currencies.
<TABLE>
<CAPTION>
Cumulative Total Returns1 As of 12/31/97
One Five Ten
Since
Year Years Years
Inception2
<S> <C> <C> <C>
<C>
Class A 4.55% 63.42% 132.82%
216.24%
Class B 3.98 N/A N/A
16.44
Class C 3.98 N/A N/A
16.45
Class Z N/A N/A N/A
5.56
Lipper Gen. World Inc. Avg3 3.00 39.72 99.46
***
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns1 As of
12/31/97
One Five Ten
Since
Year Years Years
Inception2
<S> <C> <C> <C>
<C>
Class A 0.37% 9.43% 8.38%
10.15%
Class B -1.02% N/A N/A
6.17%
Class C 2.98% N/A N/A
8.08%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Dividends & Yields As
of 12/31/97
Total Distributions 30-Day
Paid for 12 Mos. SEC Yield
Class A $0.87 5.38%
Class B $0.83 5.01
Class C $0.83 4.75
Class Z $0.88 5.78
</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 original cost.
Past
performance numbers, with the exception of one-year returns,
do
not fully reflect the higher operating expenses incurred
since
the Fund commenced operations as an open-end mutual fund on
January 15, 1996. If these expenses had been applied since
the Fund's inception, past performance returns would have
been lower. Prior to January 15, 1996, the Fund operated as
a closed-end fund with shares being traded on the New York
Stock Exchange.
1 Source: 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. Class
B
shares are subject to a declining contingent deferred sales
charge (CDSC) of 5%, 4%, 3%, 2%, 1% and 1% for six years.
Class C
shares have a 1% CDSC for one year. Class B shares
automatically
convert to Class A shares on a quarterly basis, after
approximately
seven years. Class Z shares are not subject to a sales
charge or a
distribution fee. Since Class Z shares have been in
existence
less than a year, no average annual total returns are
presented.
2 Inception dates: Class A, 7/7/86; Class B and Class C,
1/15/96;
Class Z, 3/17/97.
3 These are the cumulative total returns of all funds in
each share
class in the Lipper General World Income Fund category.
*** Lipper Since Inception returns are: Class A, 190.37%;
Class B
and Class C, 11.98%; and Class Z, 5.38% for all funds in
each
Lipper share class.
How Investments Compared.
(As of 12/31/97)
(GRAPH)
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 yields 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.
U.S. Taxable Money 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>
Gabriel Irwin and Simon Wells, Fund Managers (PICTURE)
(PICTURE)
Portfolio
Managers'Report
Your Fund seeks to maximize total return, which is current
income
plus any capital appreciation of its underlying bonds. The
Fund
invests primarily in intermediate-term, investment grade
debt
securities issued throughout the world. The Fund may also
invest
up to 10% of total net assets in bonds rated below
investment
grade with a minimum rating of "B" by Standard & Poor's or
Moody's or of comparable quality in our view. Lower rated
securities carry a greater risk of loss of principal and
interest than higher rated securities. There are special
risk associated with foreign investing, including social,
political and currency risks as well as potential
illiquidity.
There can be no assurance that the Fund will achieve its
investment objective.
Dodging
A Bullet.
Your Fund avoided the huge losses stemming from the Asian
economic
crisis because its exposure to the region accounted for less
than
one percent of its total investments. When signs of trouble
emerged
early in the summer, we took steps to protect the Fund by
entering
into forward contracts to sell Indonesian rupiahs. This
removed
the risk of owning rupiahs from the Fund's small exposure to
Indonesian money market securities.
Strategy Session.
Asian Tigers Whimper.
Fueled by imprudent lending practices at Asian banks and
finance
companies, economic problems had been brewing in Asia for
some
time when the crisis erupted in October, igniting a sharp
sell-off in global stocks and emerging market bonds. By
contrast, Treasuries and major European bond markets gained
as investors fled embattled Asian markets. Treasuries also
rallied because investors realized the Federal Reserve would
leave monetary policy unchanged in November and December
since increasing the federal funds rate (what banks charge
each other to borrow overnight) would attract even more cash
to the U.S. from Asia. During this time, we enhanced your
Fund's
returns by lengthening duration (a measure of sensitivity to
interest rate fluctuations) through purchasing attractively
priced long-term Treasuries along with government bonds
of the United Kingdom, Germany and Canada.
U.S. Economy Roars.
While Asia occupied center stage late in the year, investors
focused on the U.S. early in the reporting period. The U.S.
economy expanded in 1997 at its fastest pace in nine years.
Because a strong economy can ignite higher inflation,
investors
expected the federal reserve to increase the federal funds
rate
to rein in robust economic growth. They did not have to wait
long because U.S. central bankers voted in March to raise
the
federal funds rate by a quarter percentage point to 5.50%.
Some investors thought a second change in monetary policy
was
imminent so they continued pushing bond yields higher until
the yield on the 30-year U.S. Treasury bond reached 7.16% in
April, its peak for the year. To protect the value of your
Fund during this period, we shortened duration. We
lengthened
duration later in the year, however, as it became clear that
surprisingly subdued inflation and Asian economic turmoil
would prevent the Federal Reserve from moving again.
<PAGE>
What Went Well.
A Flight To Quality.
Your Fund was well-positioned in currencies and bonds that
appreciated in value as investors fled to safer shores from
chaotic Asian economic conditions. For example, the U.S.
dollar
strengthened during the report-ing period, hitting a
five-and-a-half-year high against the Japanese yen in
December. The yen came under heavy pressure as a widely
watched survey showed business sentiment among Japanese
manufacturers had taken a decidedly negative turn. Your
Fund did not own Japanese yen, and we used forward contracts
to remove its Indonesian rupiah exposure. On the other hand,
a hefty 80% exposure as of December 31, 1997 to dollar-bloc
currencies (U.S., Australia, New Zealand and Canada)
enhanced
your Fund's performance.
Among the debt securities that gained from flight-to-quality
buying were government bonds of the United Kingdom and
Germany,
which respectively comprised 8.6% and 13.3% of your Fund's
total
investments at the end of the year. We extended duration in
the
fourth quarter to 5.1 years from 4.6 years. The longer
duration
helped your Fund take better advantage of the rally in these
key
bond markets.Portfolio Breakdown.
Expressed as a percentage of
total investments as of 12/31/97.
And Not So Well.
Trek Through
Fjord Country.
Initially, the outlook for the Norwegian krone looked very
promising in 1997. So we were not surprised when the krone
got off to a good start early in the year, strengthening to
about 3.9 per German mark in late January. As it turned out,
that level was the peak for the year. Falling oil prices, a
weakened coalition government, and periods of slower-than-
expected
economic growth weighed on the Norwegian currency. The krone
sank
to a low for the year of about 4.22 per German mark in June.
While the krone comprised as much as 3% of your Fund's
currency
weighting in 1997, disappointment over the Norwegian
currency's
lackluster performance led us to sell the position shortly
after the reporting period ended.Looking Ahead.We expect the
U.S. dollar to remain strong provided there is no serious
deterioration in the U.S. balance of trade. This could
happen
if consumers in struggling Asian countries purchase fewer
U.S.
imports, while American shoppers snap up cheaply priced
Asian
exports. At any rate, global economic growth will likely
slow
and inflationary pressures subside, so we believe the rally
in Treasuries and major European bonds has not run out of
steam. Emerging market bonds in Asia and to a lesser extent
in Latin America and Eastern Europe will probably remain
under pressure over the next several months as investors
wait to see if real progress is made toward resolving Asia's
problems. Five Largest Issuers.
22.9% U.S. Treasury Obligations
11.3% German Government
Bonds
7.7% United Kingdom
Treasury Bonds
6.4% Danish Government
Bonds
4.0% Canadian Government
Bonds
Expressed as a percentage of total net assets as of
12/31/97.
1
<PAGE>
President's Letter February
2, 1998
(PICTURE)
Investing Smart.
Dear Shareholder:
This is the season when many investors receive income tax
refunds
or have a CD or two maturing. What will you do with these
assets?
Investing smart can be a challenge especially given today's
new
investment choices.
The Federal Taxpayer Relief Act of 1997 is changing the way
Americans invest and accumulate wealth, save for college or
build a nest egg for retirement. While the law offers
opportunity,
it is also complex. You may need help to put things in
perspective.
Now may be an excellent time for you and your Prudential
Financial
Professional to update your investment strategy and
retirement plan.
A wise investor does so periodically. You could find the tax
law
opening doors that may benefit you now or over the long
term, such
as --
- -- Revised Capital Gains Tax Rates & Exclusions. Long-term
rates are down. Is your portfolio positioned to benefit?
Also,
new rules allow you to keep more of the profit from the sale
of
your home (perhaps up to $500,000 more).
- -- New Roth IRAs. The Roth IRA features tax-free
distributions
and does not require mandatory withdrawals, which should be
of
particular interest to retirees seeking to shelter assets in
a
tax-free account.
- -- New Education IRAs. Similar to a traditional IRA, but
specifically designed for higher education. The new law also
creates credits and deductions to help defray college costs.
- -- Expanded IRAs. Rules governing traditional IRAs have
been
extensively revised. Deductibility and contribution limits
have been broadened as has the list for penalty-free early
withdrawals, including first-time home buyers.
As you can see, what you don't know may cost you! That's why
I recommend you call your Prudential Financial Professional
and get a free investment plan checkup. Let us give you the
information and tools to invest smart.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
2
<PAGE>
Portfolio of Investments as of THE
GLOBAL TOTAL RETURN
December 31, 1997
FUND, INC.
- ------------------------------------------------------------
- -------------------
- ------------------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Principal
Amount US$
(000) Description Value (Note
1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--87.6%
- ------------------------------------------------------------
Australia--6.5%
A$ 2,750 Federal National Mortgage
Association,
6.375%, 8/15/07 $
1,806,237
7,000 New South Wales Treasury
Corporation,
6.50%, 5/1/06
4,619,277
8,000 Queensland Treasury
Corporation,
8.00%, 8/14/01
5,586,800
------
- ------
12,012,314
- ------------------------------------------------------------
Canada--8.6%
C$ 7,000 British Columbia Provincial
Bond,
7.75%, 6/16/03
5,377,849
8,800 Canadian Government Bond,
9.00%, 12/1/04
7,344,955
4,500 Province of Quebec,
6.50%, 10/1/07
3,246,710
------
- ------
15,969,514
- ------------------------------------------------------------
Denmark--6.4%
Danish Government Bonds,
DKr 40,000 7.00%, 12/15/04
6,379,066
32,750 8.00%, 3/15/06
5,544,112
------
- ------
11,923,178
- ------------------------------------------------------------
Germany--12.8%
German Government Bonds,
DM 2,000 6.75%, 4/22/03
1,204,309
18,000 7.375%, 1/3/05
11,279,753
6,200 6.00%, 1/5/06
3,605,635
8,500 6.25%, 1/4/24
4,926,645
5,000 Republic of Colombia,
7.25%, 12/21/00
2,871,579
------
- ------
23,887,921
Greece--1.2%
GRD 680,000 Hellenic Republic,
12.60%, 12/31/03 $
2,314,638
- ------------------------------------------------------------
Netherlands--3.4%
Dutch Government Bonds,
NLG 7,500 7.00%, 6/15/05
4,103,372
3,750 7.50%, 1/15/23
2,245,276
------
- ------
6,348,648
- ------------------------------------------------------------
Spain--3.7%
Spanish Government Bonds,
Pts 125,000 10.30%, 6/15/02
992,504
750,000 8.20%, 2/28/09
5,931,302
------
- ------
6,923,806
- ------------------------------------------------------------
Sweden--2.0%
SEK 29,000 Swedish Government Bond,
6.00%, 2/9/05
3,684,177
- ------------------------------------------------------------
United Kingdom--8.3%
BP 300 Powergen PLC,
8.875%, 3/26/03
526,984
400 Republic of Argentina,
11.50%, 8/14/01
665,163
United Kingdom Treasury Bonds,
3,650 7.75%, 9/8/06
6,536,909
3,700 8.75%, 8/25/17
7,749,874
------
- ------
15,478,930
- ------------------------------------------------------------
United States--34.7%
Corporate Bonds--3.2%
US$ 1,000 Banco Ganadero Colombian Bond
(Colombia),
9.75%, 8/26/99
1,027,500
2,900 Financiera Energetica Nacional
(Colombia),
9.00%, 11/8/99
3,016,000
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as of THE
GLOBAL TOTAL RETURN
December 31, 1997
FUND, INC.
- ------------------------------------------------------------
- -------------------
- ------------------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Principal
Amount US$
(000) Description Value (Note
1)
<C> <S> <C>
- ------------------------------------------------------------
Corporate Bonds (cont'd.)
US$ 1,000 Petroleas Mexicano (Mexico),
FRN,
6.71875%, 3/8/99 $
985,000
1,000 Romanian Commercial Bank,
9.125%, 3/10/00
995,000
------
- ------
6,023,500
Sovereign Bonds--6.0%
3,500 Ministry of Finance (Russia),
10.00%, 6/26/07
3,249,750
1,250 Municipality of Rio De Janeiro
(Brazil),
10.375%, 7/12/99
1,253,125
1,440 Republic of Argentina, FRN,
6.6875%, 3/31/05, Ser. L
1,287,072
1,963 Republic of Brazil, IDU, FRN,
6.8125%, 1/1/01
1,869,281
1,888 Republic of Croatia, FRN,
6.625%, 7/31/06
1,718,293
800 Republic of Lithuania,
7.125%, 7/22/02
758,000
1,000 Oman Sultanate (India),
7.125%, 3/20/02
1,012,500
------
- ------
11,148,021
Supranational Bonds--2.6%
4,800 Corporacion Andina de Fomento,
7.375%, 7/21/00
4,884,000
- ------------------------------------------------------------
U.S. Government Obligations--22.9%
United States Treasury Bond,
8,250 6.625%, 2/15/27
8,949,022
United States Treasury Notes,
12,000 6.75%, 6/30/99
12,185,640
5,000 6.125%, 9/30/00
5,052,350
11,810 7.875%, 11/15/04
13,203,226
3,100 6.25%, 2/15/07
3,198,797
------
- ------
42,589,035
------
- ------
64,644,556
------
- ------
Total long-term investments
(cost US$164,252,387)
163,187,682
------
- ------
SHORT-TERM INVESTMENTS--8.8%
- ------------------------------------------------------------
Hungarian--0.6%
HUF 230,000 Hungarian Government Bond,
23.50%, 5/17/98 $
1,139,835
- ------------------------------------------------------------
Indonesia--0.3%
IDR 2,000,000 Asia Pulp And Paper, NCD,
14.45%(a), 1/27/98
356,059
2,000,000 Bakrie Brothers, NCD,
17.50%(a), 2/19/98
163,643
------
- ------
519,702
- ------------------------------------------------------------
United States--7.9%
Repurchase Agreement--7.6%
US$ 14,222 Joint Repurchase Agreement
Account,
6.63%, 1/2/98 (Note 5)
14,222,000
- ------------------------------------------------------------
Supranational Bonds--0.3%
500 Corporacion Andina de Fomento,
6.625%, 10/14/98
503,750
------
- ------
14,725,750
------
- ------
Total short-term investments
(cost US$17,682,135)
16,385,287
------
- ------
- ------------------------------------------------------------
Total Investments--96.4%
(cost $181,934,522)
179,572,969
Other assets in excess of
liabilities--3.6%
6,657,003
------
- ------
Net Assets--100%
$186,229,972
------
- ------
------
- ------
</TABLE>
- ---------------
Portfolio securities are classified according to the
security's
currency denomination.
(a) Percentages quoted represent yield-to-maturity as of
purchase date.
FRN--Floating Rate Note.
IDU--Interest Due and Unpaid Bonds.
NCD--Negotiable Certificate of Deposit.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 4
<PAGE>
Statement of Assets and Liabilities THE GLOBAL
TOTAL RETURN FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Assets
December 31, 1997
<S>
<C>
Investments, at value (cost
$181,934,522)...............................................
................ $ 179,572,969
Foreign currency, at value (cost
$1,532,836).................................................
........... 1,520,037
Cash........................................................
............................................
10,280
Interest
receivable..................................................
................................... 4,625,891
Forward currency contracts--amount receivable from
counterparties.......................................
1,584,875
Receivable for Fund shares
sold........................................................
................. 48,024
Other
assets......................................................
...................................... 6,339
- -----------------
Total
assets......................................................
................................... 187,368,415
- -----------------
Liabilities
Payable for Fund shares
reacquired..................................................
.................... 453,313
Forward currency contracts--amount payable to
counterparties............................................
299,519
Accrued
expenses....................................................
.................................... 238,472
Management fee
payable.....................................................
............................. 121,481
Distribution fee
payable.....................................................
........................... 25,658
- -----------------
Total
liabilities.................................................
................................... 1,138,443
- -----------------
Net
Assets......................................................
........................................ $
186,229,972
- -----------------
- -----------------
Net assets were comprised of:
Common stock, at
par.........................................................
........................ $ 236,284
Paid-in capital in excess of
par.........................................................
............ 189,707,864
- -----------------
189,944,148
Undistributed net investment
income......................................................
............ 785,449
Accumulated net realized loss on
investments.................................................
........ (3,315,029)
Net unrealized depreciation on investments and foreign
currencies....................................
(1,184,596)
- -----------------
Net assets, December 31,
1997........................................................
................... $ 186,229,972
- -----------------
- -----------------
Class A:
Net asset value and redemption price per share
($183,054,467 / 23,225,736 shares of common stock
issued and outstanding).........................
$7.88
Maximum sales charge (4% of offering
price)......................................................
....... .33
- -----------------
Maximum offering price to
public......................................................
.................. $8.21
- -----------------
- -----------------
Class B:
Net asset value, offering price and redemption price per
share
($2,300,087 / 291,662 shares of common stock issued
and outstanding)..............................
$7.89
- -----------------
- -----------------
Class C:
Net asset value, offering price and redemption price per
share
($189,569 / 24,042 shares of common stock issued and
outstanding).................................
$7.89
- -----------------
- -----------------
Class Z:
Net asset value, offering price and redemption price per
share
($685,849 / 86,983 shares of common stock issued and
outstanding).................................
$7.88
- -----------------
- -----------------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 5
<PAGE>
THE GLOBAL TOTAL RETURN FUND, INC.
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income December 31,
1997
<S> <C>
Income
Interest and discount earned (net of
foreign withholding taxes of
$290).............................. $ 16,779,396
----------------
- -
Expenses
Management fee........................ 1,549,812
Distribution fee--Class A............. 307,192
Distribution fee--Class B............. 9,344
Distribution fee--Class C............. 2,984
Transfer agent's fees and expenses.... 405,000
Custodian's fees and expenses......... 224,000
Reports to shareholders............... 128,000
Registration fees..................... 111,000
Legal fees and expenses............... 42,000
Audit fee and expenses................ 36,000
Directors' fees....................... 27,000
Insurance............................. 6,000
Miscellaneous......................... 27,101
----------------
- -
Total expenses..................... 2,875,433
----------------
- -
Net investment income.................... 13,903,963
----------------
- -
Realized and Unrealized Gain
(Loss) on Investments and Foreign
Currency Transactions
Net realized gain on:
Investment transactions............... (1,564,339)
Foreign currency transactions......... 9,410,711
----------------
- -
7,846,372
----------------
- -
Net change in unrealized appreciation (depreciation) on:
Investments........................... (13,503,125)
Foreign currencies.................... 912,282
----------------
- -
(12,590,843)
----------------
- -
Net loss on investments and foreign
currencies............................ (4,744,471)
----------------
- -
Net Increase in Net Assets
Resulting from Operations................ $ 9,159,492
----------------
- -
----------------
- -
</TABLE>
THE GLOBAL TOTAL RETURN FUND, INC.
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended December
31,
in Net Assets 1997
1996
<S> <C> <C>
Operations:
Net investment income........ $ 13,903,963 $
20,756,821
Net realized gain on
investment and foreign
currency transactions..... 7,846,372
24,249,957
Net change in unrealized
appreciation
(depreciation) on
investments and foreign
currencies transactions... (12,590,843)
(12,340,523)
------------- ---------
- --------
Net increase in net assets
resulting from
operations................ 9,159,492
32,666,255
------------- ---------
- --------
Dividends and distributions
(Note 1)
Dividends from net
investment income
Class A................... (16,523,696)
(20,751,908)
Class B................... (108,586)
(4,899)
Class C................... (32,330)
(14)
Class Z................... (23,135)
- --
------------- ---------
- --------
(16,687,747)
(20,756,821)
------------- ---------
- --------
Distributions in excess of
net investment income
Class A................... (4,744,012)
(14,747,171)
Class B................... (44,626)
(8,065)
Class C................... (14,046)
(12)
Class Z................... (11,622)
- --
------------- ---------
- --------
(4,814,306)
(14,755,248)
------------- ---------
- --------
Fund share transactions (net of
conversions) (Note 6)
Net proceeds from shares
sold...................... 6,921,618
12,515,494
Net asset value of shares
issued in reinvestment of
dividends and
distributions............. 4,960,184
5,694,812
Cost of shares reacquired.... (43,255,074)
(344,489,874)(a)
------------- ---------
- --------
Net decrease in net assets
from Fund share
transactions.............. (31,373,272)
(326,279,568)
------------- ---------
- --------
Total decrease.................. (43,715,833)
(329,125,382)
------------- ---------
- --------
Net Assets
Beginning of year............... 229,945,805
559,071,187
------------- ---------
- --------
End of year..................... $ 186,229,972 $
229,945,805
------------- ---------
- --------
------------- ---------
- --------
</TABLE>
- ---------------
(a) Net of $4,870,794 redemption fee retained by the Fund.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 6
<PAGE>
Notes to Financial Statements THE GLOBAL
TOTAL RETURN FUND, INC.
- ------------------------------------------------------------
- --------------------
The Global Total Return Fund, Inc., (the 'Fund') is an open-
end, non-diversified
management investment company whose investment objective is
to seek total
return, the components of which are current income and
capital appreciation. The
Fund invests primarily in governmental (including
supranational),
semi-governmental or governmental agency debt securities or
in short-term bank
debt securities or deposits in the United States and in
foreign countries
denominated in U.S. dollars or in foreign currencies,
including debt securities
issued or guaranteed by the U.S. Government and foreign
governments, their
agencies, authorities or instrumentalities (U.S. Government
Securities and
Foreign Government Securities, respectively). The remainder
is generally
invested in corporate debt securities or longer term bank
debt securities. The
bonds are primarily of investment grade, i.e., bonds rated
within the four
highest quality grades as determined by Moody's Investor's
Service or Standard &
Poor's Rating's Group, or in unrated securities of
equivalent quality. In
addition the Fund is permitted to invest up to 10% of the
Fund's total assets in
bonds rated below investment grade with a minimum rating of
B, or on unrated
securities of equivalent quality. The ability of the issuers
of debt securities
held by the Fund to meet their obligations may be affected
by economic and
political developments in a specific country 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.
Securities Valuation: In valuing the Fund's assets,
quotations of foreign
securities in a foreign currency are converted to U.S.
dollar equivalents at the
then current currency value. Portfolio securities that are
actively traded in
the over-the-counter market, including listed securities for
which the primary
market is believed to be over-the-counter, are valued at the
mean between the
most recently quoted bid and asked prices provided by
principal market makers.
Any security for which the primary market is on an exchange
is valued at the
last sale price on such exchange on the day of valuation or,
if there was no
sale on such day, the last bid price quoted on such day.
Forward currency
exchange contracts are valued at the current cost of
covering or offsetting the
contract on the day of valuation. Securities and assets for
which market
quotations are not readily available are valued at fair
value as determined in
good faith by or under the direction of the Board of
Directors of the Fund.
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 transactions in repurchase agreements
with U.S. financial
institutions, it is the Fund's policy that its custodian or
designated
subcustodians under triparty repurchase agreements as the
case may be, 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.
Foreign Currency Translation: The books and records of the
Fund are maintained
in United States dollars. Foreign currency amounts are
translated into United
States dollars on the following basis:
(i) market value of investment securities, other assets and
liabilities--at the
current rates of exchange.
(ii) purchases and sales of investment securities, income
and expenses--at the
rates of exchange prevailing on the respective dates of such
transactions.
Although the net assets of the Fund are presented at the
foreign exchange rates
and market values at the close of the year, the Fund does
not isolate that
portion of the results of operations arising as a result of
changes in the
foreign exchange rates from the fluctuations arising from
changes in the market
prices of the securities held at year-end. Similarly, the
Fund does not isolate
the effect of changes in foreign exchange rates from the
fluctuations arising
from changes in the market prices of long-term debt
securities sold during the
year. Accordingly, such realized foreign currency gains and
losses are included
in the reported net realized gains on investment
transactions.
Net realized gains or losses on foreign currency
transactions represent net
foreign exchange gains or losses from sales and maturities
of short-term
securities and forward currency contracts, disposition of
foreign currencies,
currency gains or losses realized between the trade and
settlement dates on
securities transactions, and the difference between the
amounts of interest,
discount and foreign taxes recorded on the Fund's books and
the U.S. dollar
equivalent amounts actually received or paid. Net currency
gains and losses from
valuing foreign currency denominated assets (excluding
investments) and
liabilities at year-end exchange rates are reflected as a
component of net
unrealized appreciation or depreciation on investments and
foreign currencies.
Foreign security and currency transactions may involve
certain considerations
and risks not typically associated with those of U.S.
companies as a result of,
among other factors, the possibility of political or
economic instability and
the level of governmental supervision and regulation of
foreign securities
markets.
Forward Currency Contracts: A forward currency contract is a
commitment to
purchase or sell a foreign currency at a future date at a
negotiated forward
rate. The Fund enters into forward currency contracts in
order to hedge its
exposure to changes in foreign currency exchange rates on
its
- ------------------------------------------------------------
- --------------------
7
<PAGE>
Notes to Financial Statements THE GLOBAL
TOTAL RETURN FUND, INC.
- ------------------------------------------------------------
- --------------------
foreign portfolio holdings or on specific receivables and
payables denominated
in a foreign currency. The contracts are valued daily at
current exchange rates
and any unrealized gain or loss is included in net
unrealized appreciation or
depreciation on investments and foreign currencies. Gain or
loss is realized on
the settlement date of the contract equal to the difference
between the
settlement value of the original and renegotiated forward
contracts. This gain
or loss, if any, is included in net realized gain (loss) on
foreign currency
transactions. Risks may arise upon entering into these
contracts from the
potential inability of the counterparties to meet the terms
of their contracts.
Security Transactions and Net Investment Income: Security
transactions are
recorded on the trade date. Realized and unrealized gains
and losses from
security and currency transactions are calculated on the
identified cost basis.
Interest income, which is comprised of three elements: state
coupon, original
issue discount and market discount, is recorded on the
accrual basis. Expenses
are recorded on the accrual 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.
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 income to shareholders.
Therefore, no federal
income or excise tax provision is required.
Withholding taxes on foreign interest have been provided for
in accordance with
the Fund's understanding of the applicable country's tax
rules and rates.
Dividends and Distributions: Dividends are declared
quarterly. Distributions of
capital gains, if any, will be declared at least annually.
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. These differences are primarily due to differing
treatments for
foreign currency transactions.
Reclassification of Capital Accounts: The Fund accounts for
and reports
distributions to shareholders in accordance with the
American Institute of
Certified Public Accountants' Statement of Position 93-2:
Determination,
Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and
Return of Capital Distributions by Investment Companies. The
effect of applying
this statement was to increase undistributed net investment
income by
$5,599,755, increase accumulated net realized loss on
investments by $5,422,120,
and decrease paid in capital in excess of
par by $177,635 for realized foreign currency gains realized
and recognized
during the year ended December 31, 1997. Net investment
income, net realized
gains and net assets were not affected by this change.
- ------------------------------------------------------------
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, through an agreement
with PRICOA Asset
Management Ltd. ('PRICOA'), furnishes investment advisory
services in connection
with the management of the Fund. PIFM pays for the cost of
the subadviser's
services, 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 PIFM is computed daily and payable
monthly at an annual
rate of .75 of 1% of the Fund's average daily net assets up
to $500 million, .70
of 1% of such assets between $500 million and $1 billion,
and .65 of 1% of such
assets in excess of $1 billion.
The Fund has a distribution agreement with Prudential
Securities Incorporated
('PSI'), which acts as the distributor of the Class A, B, C
and 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
PSI. The
distribution fees 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
distribution-related activities at an annual rate of up to
.30 of 1%, 1% and 1%
of the average daily net assets of the Class A, B, and C
shares, respectively.
Such expenses under the Plans were .15 of 1%, .75 of 1% and
.75 of 1% of the
average daily net assets of the Class A, B and C shares,
respectively, for the
year ended December 31, 1997.
PSI has advised the Fund that it has received approximately
$37,800 in front-end
sales charges resulting from sales of Class A shares during
the year ended
December 31, 1997. From these fees, PSI paid such sales
charges to Pruco
Securities Corporation, an affiliated broker-dealer, which
in turn paid
commissions to salespersons and incurred other distribution
costs.
PSI has advised the Fund that for the year ended December
31, 1997, it received
approximately $6,000 and $4,900 in contingent deferred sales
charges imposed
upon certain redemptions by Class B and Class C
shareholders, respectively.
PSI, PIFM, PIC and PRICOA are indirect, wholly owned
subsidiaries of The
Prudential Insurance Company of America.
- ------------------------------------------------------------
- --------------------
8
<PAGE>
Notes to Financial Statements THE GLOBAL
TOTAL RETURN FUND, INC.
- ------------------------------------------------------------
- --------------------
The Fund, along with other affiliated registered investment
companies (the
'Funds'), entered into a credit agreement (the 'Agreement')
with an unaffiliated
lender. The maximum commitment under the Agreement is
$200,000,000. 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 did not borrow any amounts pursuant to
the Agreement
during the year ended December 31, 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.
The Agreement expired on December 30, 1997 and has been
extended through
December 29, 1998 under the same terms.
- ------------------------------------------------------------
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 year
ended December 31, 1997,
the Fund incurred fees of approximately $288,000 for the
services of PMFS. As of
December 31, 1997, approximately $22,000 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 nonaffiliates.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than
short-term investments
for the year ended December 31, 1997, aggregated $76,351,527
and $101,047,961,
respectively.
At December 31, 1997, the Fund had outstanding forward
currency contracts to
purchase and sell foreign currencies as follows:
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date Current
Appreciation
Purchase Contracts Payable Value
(Depreciation)
- ---------------------- ---------------- -----------
- --------------
<S> <C> <C>
<C>
German Deutschemarks,
expiring 4/30/98..... $ 3,938,862 $ 3,794,268
$ (144,594)
Greek Drachma,
expiring 4/30/98..... 1,736,178 1,686,859
(49,319)
Norwegian Krone,
expiring 1/29/98..... 5,830,150 5,728,556
(101,594)
---------------- -----------
- --------------
$ 11,505,190 $11,209,683
$ (295,507)
---------------- -----------
- --------------
---------------- -----------
- --------------
</TABLE>
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date Current
Sale Contracts Receivable Value
Appreciation
- ---------------------- ---------------- -----------
- -------------
<S> <C> <C>
<C>
Australian Dollars,
expiring 1/29/98..... $ 12,191,648 $12,038,352
$ 153,296
French Francs,
expiring 1/29/98..... 8,748,331 8,651,912
96,419
Greek Drachma,
expiring 4/30/98..... 3,938,862 3,941,094
(2,232)
Indonesian Rupiah,
expiring 1/27/98..... 764,380 361,304
403,076
Indonesian Rupiah,
expiring 2/19/98..... 761,084 358,551
402,533
Netherlands Guilders,
expiring 1/29/98..... 26,991,491 26,671,790
319,701
Swiss Francs,
expiring 1/29/98..... 11,157,895 10,949,825
208,070
---------------- -----------
- -------------
$ 64,553,691 $62,972,828
$ 1,580,863
---------------- -----------
- -------------
---------------- -----------
- -------------
</TABLE>
The United States federal income tax basis of the Fund's
investments at December
31, 1997 was $181,964,820 and, accordingly, net unrealized
depreciation for
United States federal income tax purposes was $2,391,851
(gross unrealized
appreciation--$5,515,033; gross unrealized depreciation--
$(7,906,884)).
For federal income tax purposes, the Fund had a capital loss
carryforward as of
December 31, 1997 of approximately $2,165,900 which expires
in 2002. Such
carryforward is after utilization of approximately
$2,817,100 to offset net
taxable gains recognized during the year ended December 31,
1997. Accordingly,
no capital gains distribution is expected to be paid to
shareholders until net
capital gains have been realized in excess of such amount.
- ------------------------------------------------------------
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
December 31, 1997, the
Fund had a 1.21% undivided interest in the joint account.
The undivided interest
for the Fund represents $14,222,000 in the principal amount.
As of such date,
each repurchase agreement in the joint account and the
collateral therefor were
as follows:
Credit Suisse First Boston Corp., 6.75%, in the principal
amount of
$342,000,000, repurchase price $342,128,250, due 1/2/98. The
value of the
collateral including accrued interest was $353,486,750.
Deutsche Morgan Grenfell, 6.80%, in the principal amount of
$200,000,000,
repurchase price $200,075,555, due 1/2/98. The value of the
collateral including
accrued interest was $204,000,314.
- ------------------------------------------------------------
- --------------------
9
<PAGE>
Notes to Financial Statements THE GLOBAL
TOTAL RETURN FUND, INC.
- ------------------------------------------------------------
- --------------------
SBC Warburg Dillon Read, Inc., 6.55%, in the principal
amount of $142,000,000,
repurchase price $142,051,672, due 1/2/98. The value of the
collateral including
accrued interest was $144,862,841.
Morgan Stanely, Dean Witter, Discover & Co., 5.95%, in the
principal amount of
$151,553,000, repurchase price $151,603,097, due 1/2/98. The
value of the
collateral including accrued interest was $154,584,932.
Salomon Smith Barney Inc., 6.75%, in the principal amount of
$342,000,000,
repurchase price $342,128,250, due 1/2/98. The value of the
collateral including
accrued interest was $350,295,372.
- ------------------------------------------------------------
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 17, 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 a limited group of investors.
There are 2 billion authorized shares of common stock at
$.01 par value per
share, divided equally into Class A, B, C and Z shares. As
of December 31, 1997
Prudential owned 13,481 Class A shares, 25 Class B shares,
26 Class C shares and
26 Class Z shares.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ---------------------------------- ----------- ---------
- ----
<S> <C> <C>
Year ended December 31, 1997:
Shares sold....................... 376,715 $
3,080,935
Shares issued in reinvestment of
dividends and distributions..... 594,942
4,768,393
Shares reacquired................. (5,157,652)
(42,386,320)
----------- ---------
- ----
Net decrease in shares outstanding
before conversion............... (4,185,995) $
(34,536,992)
Shares issued upon conversion from
Class B......................... 2,660
21,866
----------- ---------
- ----
Net decrease in shares
outstanding..................... (4,183,335) $
(34,515,126)
----------- ---------
- ----
----------- ---------
- ----
January 15, 1996(a) through
December 31, 1996:
Shares sold....................... 1,452,073 $
12,309,850
Shares issued in reinvestment of
dividends and distributions..... 677,779
5,685,377
Shares reacquired................. (40,928,480)
(344,455,702)(b)
----------- ---------
- ----
Net decrease in shares
outstanding..................... (38,798,628)
$(326,460,475)
----------- ---------
- ----
----------- ---------
- ----
<CAPTION>
Class B Shares Amount
- ---------------------------------- ----------- ---------
- ----
<S> <C> <C>
Year ended December 31, 1997:
Shares sold....................... 288,417 $
2,365,066
Shares issued in reinvestment of
dividends and distributions..... 14,347
114,426
Shares reacquired................. (29,348)
(240,044)
----------- ---------
- ----
Net increase in shares outstanding
before conversion............... 273,416 $
2,239,448
Shares reacquired upon conversion
into Class A.................... (2,660)
(21,866)
----------- ---------
- ----
Net increase in shares
outstanding..................... 270,756 $
2,217,582
----------- ---------
- ----
----------- ---------
- ----
January 15, 1996(a) through
December 31, 1996:
Shares sold....................... 23,745 $
205,444
Shares issued in reinvestment of
dividends and distributions..... 1,121
9,422
Shares reacquired................. (3,960)
(34,172)
----------- ---------
- ----
Net increase in shares
outstanding..................... 20,906 $
180,694
----------- ---------
- ----
----------- ---------
- ----
<CAPTION>
Class C
- ----------------------------------
<S> <C> <C>
Year ended December 31, 1997:
Shares sold....................... 95,257 $
776,731
Shares issued in reinvestment of
dividends and distributions..... 5,489
43,719
Shares reacquired................. (76,729)
(605,145)
----------- ---------
- ----
Net increase in shares
outstanding..................... 24,017 $
215,305
----------- ---------
- ----
----------- ---------
- ----
January 15, 1996(a) through
December 31, 1996:
Shares sold....................... 23 $
200
Shares issued in reinvestment of
dividends and distributions..... 2
13
----------- ---------
- ----
Net increase in shares
outstanding..................... 25 $
213
----------- ---------
- ----
----------- ---------
- ----
<CAPTION>
Class Z
- ----------------------------------
<S> <C> <C>
March 17, 1997(c) through
December 31, 1997:
Shares sold....................... 85,634 $
698,886
Shares issued in reinvestment of
dividends and distributions..... 4,243
33,646
Shares reacquired................. (2,894)
(23,565)
----------- ---------
- ----
Net increase in shares
outstanding..................... 86,983 $
708,967
----------- ---------
- ----
----------- ---------
- ----
</TABLE>
- ---------------
(a) Prior to January 15, 1996, the Fund operated as a closed-
end, investment
company.
(b) Net of $4,870,794 redemption fee retained by the Fund.
(c) Commencement of offering of Class Z shares.
- ------------------------------------------------------------
- --------------------
10
<PAGE>
Financial Highlights THE GLOBAL
TOTAL RETURN FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class A (b)
- ------------------------------------------------------------
Year Ended December 31,
- ------------------------------------------------------------
1997(c) 1996 1995 1994 1993
- -------- -------- -------- -------- --------
<S>
<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year........................
$ 8.38 $ 8.44 $ 7.46 $ 8.76 $ 8.10
- -------- -------- -------- -------- --------
Income from investment operations
Net investment income.....................................
.55 .62 .54 .52 .64
Net realized and unrealized gain (loss) on investment and
foreign currencies.....................................
(.18) .32 1.25 (1.22) .74
- -------- -------- -------- -------- --------
Total from investment operations.......................
.37 .94 1.79 (.70) 1.38
- -------- -------- -------- -------- --------
Less distributions
Dividends from net investment income......................
(.68) (.62) (.54) (.17) (.30)
Distributions in excess of net investment income..........
(.19) (.50) (.27) -- --
Distributions from capital gains..........................
- -- -- -- (.13) (.23)
Distributions in excess of capital gains..................
- -- -- -- -- (.19)
Tax return of capital distributions.......................
- -- -- -- (.30) --
- -------- -------- -------- -------- --------
Total distributions....................................
(.87) (1.12) (.81) (.60) (.72)
- -------- -------- -------- -------- --------
Redemption fee retained by Fund...........................
- -- .12 -- -- --
- -------- -------- -------- -------- --------
Net asset value, end of year..............................
$ 7.88 $ 8.38 $ 8.44 $ 7.46 $ 8.76
- -------- -------- -------- -------- --------
- -------- -------- -------- -------- --------
Per share market price, end of year.......................
N/A N/A $ 8.25 $ 6.13 $ 8.00
- -------- -------- --------
- -------- -------- --------
TOTAL INVESTMENT RETURN BASED ON (a):
Market price...........................................
N/A N/A 49.23% (16.12)% 16.50%
Net asset value........................................
4.55% 13.15% 25.45% (8.10)% 18.12%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000).............................
$183,054 $229,770 $559,071 $493,645 $579,942
Average net assets (000)..................................
$204,795 $299,026 $549,407 $536,230 $567,128
Ratios to average net assets:
Expenses, including distribution fees..................
1.39% 1.33% 1.02% 1.04% 1.02%
Expenses, excluding distribution fees..................
1.24% 1.18% 1.02% 1.04% 1.02%
Net investment income..................................
6.73% 7.01% 6.50% 6.45% 7.67%
For Class A, B, C, and Z shares:
Portfolio turnover rate................................
43% 32% 256% 583% 370%
</TABLE>
- ---------------
(a) Total investment return based on net asset value is
calculated assuming a
purchase of shares on the first day and a sale on the
last day of each year
reported and includes reinvestment of dividends and
distributions. Total
return does not consider the effect of sales load. Prior
to January 15, 1996
the Fund operated as a closed-end investment company and
total investment
return was calculated based on market value assuming a
purchase of common
stock at the current market value on the first day and a
sale at the current
market value on the last day of each year reported.
Dividends and
distributions are assumed for purposes of this
calculation to be reinvested
at prices obtained under the dividend reinvestment plan.
This calculation
does not reflect brokerage commissions.
(b) Prior to January 15, 1996 the Fund operated as a closed-
end investment
company.
(c) Calculated based upon weighted average shares
outstanding during the year.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 11
<PAGE>
Financial Highlights THE GLOBAL
TOTAL RETURN FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class B Class C
- ----------------------------- --------------------------
- ---
January 15, January 15,
1996(d) 1996(d)
Year Ended Through Year Ended Through
December 31, December 31, December 31, December
31,
1997(f) 1996 1997(f) 1996
- ------------ ------------ ------------ ---------
- ---
<S>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......................
$ 8.39 $ 8.51 $ 8.39 $ 8.51
- ----- ----- ----- -----
Income from investment operations
Net investment income.....................................
.49 .57 .49 .57
Net realized and unrealized gain (loss) on investment and
foreign currencies.....................................
(.16) .26 (.16) .26
- ----- ----- ----- -----
Total from investment operations.......................
.33 .83 .33 .83
- ----- ----- ----- -----
Less distributions
Dividends from net investment income......................
(.64) (.57) (.64) (.57)
Distributions in excess of net investment income..........
(.19) (.50) (.19) (.50)
- ----- ----- ----- -----
Total distributions....................................
(.83) (1.07) (.83) (1.07)
- ----- ----- ----- -----
Redemption fee retained by Fund...........................
- -- .12 -- .12
- ----- ----- ----- -----
Net asset value, end of period............................
$ 7.89 $ 8.39 $ 7.89 $ 8.39
- ----- ----- ----- -----
- ----- ----- ----- -----
TOTAL INVESTMENT RETURN(a):...............................
3.98% 11.99% 3.98% 11.99%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...........................
$2,300 $ 175 $ 190 $ 210(b)
Average net assets (000)..................................
$1,246 $ 52 $ 397 $ 204(b)
Ratios to average net assets:
Expenses, including distribution fees..................
1.99% 1.93%(c) 1.99% 1.93%(c)
Expenses, excluding distribution fees..................
1.24% 1.18%(c) 1.24% 1.18%(c)
Net investment income..................................
6.13% 6.41%(c) 6.05% 6.41%(c)
<CAPTION>
Class Z
- ------------
<S>
<C>
March 17,
1997(e)
through
December 31,
1997(f)
- ------------
<S>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......................
$ 8.32
- -----
Income from investment operations
Net investment income.....................................
.39
Net realized and unrealized gain (loss) on investment and
foreign currencies.....................................
.05
- -----
Total from investment operations.......................
.44
- -----
Less distributions
Dividends from net investment income......................
(.69)
Distributions in excess of net investment income..........
(.19)
- -----
Total distributions....................................
(.88)
- -----
Redemption fee retained by Fund...........................
- --
- -----
Net asset value, end of period............................
$ 7.88
- -----
- -----
TOTAL INVESTMENT RETURN(a):...............................
5.56%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...........................
$ 686
Average net assets (000)..................................
$ 257
Ratios to average net assets:
Expenses, including distribution fees..................
1.24%(c)
Expenses, excluding distribution fees..................
1.24%(c)
Net investment income..................................
5.41%(c)
</TABLE>
- ---------------
(a) Total investment 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
return does not consider
the effect of sales load. Total returns for periods of
less than a full year
are not annualized.
(b) Figure is actual and not rounded to nearest thousand.
(c) Annualized.
(d) Commencement of offering of Class B and Class C shares.
(e) Commencement of offering of Class Z shares.
(f) Calculated based upon weighted average shares
outstanding during the period.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 12
<PAGE>
Report of Independent Accountants THE GLOBAL
TOTAL RETURN FUND, INC.
- ------------------------------------------------------------
- --------------------
To the Shareholders and Board of Directors of
The Global Total Return Fund, Inc.
In our opinion, the accompanying statement of assets and
liabilities, including
the portfolio of investments, and the related statements of
operations and of
changes in net assets and the financial highlights present
fairly, in all
material respects, the financial position of The Global
Total Return Fund, Inc.
(the 'Fund') at December 31, 1997, the results of its
operations and the changes
in its net assets and the financial highlights for the year
then ended, in
conformity with generally accepted accounting principles.
These financial
statements and financial highlights (hereafter referred to
as 'financial
statements') are the responsibility of the Fund's
management; our responsibility
is to express an opinion on these financial statements based
on our audit. We
conducted our audit of these financial statements in
accordance with generally
accepted auditing standards which require that we plan and
perform the audit to
obtain reasonable assurance about whether the financial
statements are free of
material misstatement. An audit includes examining, on a
test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing
the accounting principles used and significant estimates
made by management, and
evaluating the overall financial statement presentation. We
believe that our
audit, which included confirmation of securities at December
31, 1997 by
correspondence with the custodian and brokers, provides a
reasonable basis for
the opinion expressed above. The accompanying Statement of
Changes in Net Assets
for the year ended December 31, 1996, and Financial
Highlights for each of the
four years in the period ended December 31, 1996 were
audited by other
independent accountants, whose opinion dated February 14,
1997 was unqualified.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 13, 1998
- ------------------------------------------------------------
- --------------------
13
<PAGE>
Change of Auditors THE GLOBAL
TOTAL RETURN FUND, INC.
- ------------------------------------------------------------
- --------------------
Effective March 1, 1997, Deloitte & Touche LLP was
terminated as the Fund's
auditors. For the years ended December 31, 1993 through
December 31, 1996,
Deloitte & Touche LLP expressed an unqualified opinion on
the Fund's financial
statements. There were no disagreements between Fund
management and Deloitte &
Touche LLP prior to their termination. The Board of
Directors approved the
termination of Deloitte & Touche LLP and the appointment of
Price Waterhouse LLP
as the Fund's independent accountants.
Federal Income Tax Information THE GLOBAL
TOTAL RETURN FUND, INC.
- ------------------------------------------------------------
- --------------------
We are required by the Internal Revenue Code to advise you
within 60 days of the
Fund's fiscal year end (December 31, 1997) as to the federal
tax status of
distributions paid by the Fund during such fiscal year.
Accordingly, during its
fiscal year ended December 31, 1997, the Fund paid
distributions of $.873 per
Class A share, $.828 per Class B share, $.828 per Class C
share, and $.882 per
Class Z share which represent dividends from ordinary income
(net investment
income and currency gains).
We wish to advise you that the dividends received deduction
for the Fund is
zero. Only funds that invest in U.S. equity securities are
entitled to
pass-through a corporate dividends received deduction.
- ------------------------------------------------------------
- --------------------
14
<PAGE>
Getting
The Most
From Your
Prudential
Mutual
Fund.
Change Your Mind.
You can exchange your shares in most Prudential Mutual Funds
for shares in most other Prudential Mutual Funds, without
charges. This may be most helpful if your investment needs
change.
Reinvest Dividends Free Of Charge.
Reinvest your dividends and/or capital gains distributions
automatically -- without charge.
Invest For Retirement.
There is no minimum investment for an IRA. Plus, you defer
taxes on your investment earnings by investing in an IRA.
If you'd like, you can contribute up to $2,000 a year in an
IRA. And if you are married and not covered by a retirement
plan at work, you and your spouse may each contribute $2,000
a year to an IRA for a total of $4,000.
Change Your Job.
You can take your pension with you. Use a rollover IRA to
manage your company-sponsored retirement plan while
retaining
the special tax-deferred advantages.
Invest In Your Children.
There's no fee to open a custodial account for a child's
education or other needs.
Take Income.
Would you like to receive monthly or quarterly checks in
any amount from your fund account? Just let us know. We'll
take care of it. Of course, there are minimum amounts. And
shares redeemed may be subject to tax, and Class B and C
shares may be subject to contingent deferred sales charges.
We'll gladly answer your questions.
Keep Informed.
We want to keep you up-to-date. Of course, you receive
account activity statements every quarter. But you also
receive annual and semi-annual fund reports, as well as
other important updates on events that affect your
investments,
including tax information.
This material is only authorized for distribution when
preceded
or accompanied by a current prospectus. Read the prospectus
carefully before you invest or send money.
<PAGE>
Getting
The Most
From Your
Prudential
Mutual
Fund.
How many times have you read these letters -- or other
financial
materials -- and stumbled across a word that you don't
understand?
Many shareholders have run into the same problem. We'd like
to
help. So we'll use this space from time to time to explain
some
of the words you might have read, but not understood. And if
you
have a favorite word that no one can explain to your
satisfaction,
please write to us.
Basis Point: One 1/100th of 1%. For example, one half of one
percentage point is 50 basis points.
Call Option: A contract giving the holder a right to buy
stocks
or bonds at a predetermined price (called the strike price)
before a predetermined expiration date. A buyer of a call
option generally expects to benefit from a rise in the price
of the stock or bond.
Capital Gain/Capital Loss: The difference between the cost
of
a capital asset (for example, a stock, bond or mutual fund
share)
and its selling price. Under current law the federal income
tax
rate for individuals on a long-term capital gain is up to
28%.
Collateralized Mortgage Obligations (CMOs): Pools of
mortgage-backed securities sliced in maturity ranges
that bear differing interest rates. These instruments
are sensitive to changes in interest rates and homeowner
refinancing activity. They are subject to prepayment and
maturity extension risk.
Derivatives: Securities that derive their value from another
security. The rate of return of these financial products
rises and falls -- sometimes very suddenly -- in response
to changes in some specific interest rate, currency, stock
or other variable.
Discount Rate: The interest rate charged by the Federal
Reserve
on loans to banks and other depository institutions.
Federal Funds Rate: The interest rate charged by one bank to
another on overnight loans.
Futures Contract: An agreement to deliver a specific amount
of a commodity or financial instrument at a set price at a
stipulated time in the future.
Leverage: The use of borrowed assets to enhance return on
equity. The expectation is that the interest rate charged
will be lower than the return on the investment. While
leverage can increase profits, it can also magnify losses.
Liquidity: The ease with which a financial instrument (or
mutual fund) can be bought or sold (converted into cash)
in the financial markets.
Price/Earnings Ratio: The price of a share of stock divided
by the earnings per share for a 12-month period.
Option: An agreement to sell something, such as shares of
stock, by a certain time for a specified price. An option
need not be exercised.
Spread: The difference between two values; most often used
to describe the difference between prices bid and asked
for a security.
Yankee Bond: A bond denominated in U.S. dollars but sold
by a foreign company or government in the U.S. market.
<PAGE>
Comparing A $10,000 Investment.
- -----------------------------------
The Global Total Return Fund, Inc. vs.
the J.P. Morgan Government Bond Index.
- --The Global TotalReturn Fund, Inc.
//J.P. Morgan GovernmentBond Index
Past performance is not indicative of future results.
Investment return and principal value will fluctuate
so an investor's shares, when redeemed, may be worth
more or less than their original cost. The box on top
of the charts are designed to give you an idea how much
the Fund's returns can fluctuate from year to year by
measuring the best and worst calendar years in terms of
total annual return since inception of each share class.
These graphs are furnished to you in accordance with SEC
regulations. They compare a $10,000 investment in The
Global Total Return Fund, Inc. (Class A, Class B, Class
C and Class Z) with a similar investment in the J.P.
Morgan Government Bond Index by portraying the initial
account values at the commencement of operations for
Class B, Class C and Class Z shares and for 10 years
for Class A shares, and subsequent account values at
the end of this reporting period (December 31), as
measured on a quarterly basis, beginning in 1987 for
Class A shares, in 1996 for Class B and C shares, and
in 1997 for Class Z shares. For purposes of the graphs,
and unless otherwise indicated, in the accompanying tables
it has been assumed (a) that the maximum applicable
front-end 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, 1997;
(c) all recurring fees (including management fees) were
deducted; and (d) all dividends and distributions were
reinvested. Class Z shares do not carry a sales charge
or a distribution fee. Since Class Z shares have been
in existence for less than a year no average annual
returns are presented. 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 graphs.
This global Index is traded, unhedged, and measured in
U.S. dollars. The Index is market weighted and represents
the total return of government bonds from 13 countries,
including Australia, Belgium, Canada, Denmark, France,
Germany, Italy, Japan, the Netherlands, Spain, Sweden,
the United Kingdom and the United States. It provides a
broad measure of market performance.
It 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 Index may
differ substantially from the securities in the Fund.
The Index is not the only one that may be used to
characterize performance of global bond funds, and
other indexes may portray different comparative
performance.
Average Annual
Total Returns - Class A
- --------------------------
With Sales Load
10.15% Since Inception
8.38% for 10 Years
9.43% for 5 Years
0.37% for 1 Year
Class A (GRAPH)
Without Sales Load
10.54% Since Inception
8.82% for 10 Years
10.32% for 5 Years
4.55% for 1 Year
Average Annual
Total Returns - Class B
- --------------------------
With Sales Load
6.17% Since Inception
(1.02%) for 1 Year
Class B (GRAPH)
Without Sales Load
8.08% Since Inception
3.98% for 1 Year
Average Annual
Total Returns - Class C
- -------------------------
With Sales Load
8.08% Since Inception
2.98% for 1 Year
Class C (GRAPH)
Without Sales Load
8.08% Since Inception
3.98% for 1 Year
Class Z (GRAPH)
<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
Delayne Dedrick Gold
Robert F. Gunia
Douglas H. McCorkindale
Mendel A. Melzer, CFA
Thomas T. Mooney
Stephen P. Munn
Richard A. Redeker
Robin B. Smith
Louis A. Weil, III
Clay T. Whitehead
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Marguerite E.H. Morrison, 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
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
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.
This report is not authorized for distribution to
prospective
investors unless preceded or accompanied by a current
prospectus.
37936L302 MF169E
37936L401 Cat. #42M186K
37936L500
37936L203
