(ICON)
The Global
Total Return
Fund, Inc.
ANNUAL
REPORT
Dec. 31, 1998
(LOGO)
<PAGE>
The Global Total Return Fund, Inc.
Performance At A Glance.
A financial crisis that simmered in Asia early in 1998
finally spread to
Russia and Latin America in the second half of the year.
Investors responded
by fleeing to the government securities of major developed
Western economies
and by selling assets that carried greater credit risk. The
Global Total
Return Fund provided higher returns than the average
comparable fund, as
measured by Lipper Analytical Services, primarily because we
invested heavily
in long-term German government bonds, U.S. Treasuries, and
other "safe haven"
debt securities that rallied sharply.
<TABLE>
<CAPTION>
Cumulative Total Returns1
As of 12/31/98
One Five Ten
Since
Year Years Years
Inception2
<S> <C> <C> <C>
<C>
Class A 8.92% 50.69%
147.21% 244.44%
Class B 8.13 N/A
N/A 25.91
Class C 8.13 N/A
N/A 25.92
Class Z 9.07 N/A
N/A 15.13
Lipper Global
Income Fund Avg.3 6.23 31.79
108.57 ***
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns1
As of 12/31/98
One Five Ten
Since
Year Years Years
Inception2
<S> <C> <C> <C>
<C>
Class A 4.56% 7.67%
9.03% 10.05%
Class B 3.13 N/A
N/A 7.22
Class C 6.05 N/A
N/A 7.73
Class Z 9.07 N/A
N/A 8.19
</TABLE>
<TABLE>
Distributions & Yields
As of 12/31/98
<CAPTION>
Total Distributions
30-Day
Paid for 12 Mos.
SEC Yield
<S> <C>
<C>
Class A $0.53
4.75%
Class B $0.48
4.34
Class C $0.48
4.31
Class Z $0.54
5.11
</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. 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,
Inc. The
cumulative total returns do not take into account sales
charges. The average
annual total 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 B shares
will automatically
convert to Class A shares, on a quarterly basis,
approximately seven years
after purchase. Class C shares are subject to a front-end
sales load of 1%
and a CDSC of 1% for 18 months. Class C shares bought before
November 2, 1998
have a 1% CDSC if sold within one year. Class Z shares are
not subject to a
sales charge or distribution fee.
2 Inception dates: Class A, 7/7/86; Class B and Class C,
1/15/96; and Class Z,
3/17/97.
3 Lipper average returns are for all funds in each share
class for the one-,
five-, and ten-year periods in the Global Income Fund
category.
***Lipper Since Inception returns are 190.10% for Class A;
18.66% for Class B
and Class C; and 12.10% for Class Z based on all funds in
each share class.
How Investments Compared.
(As of 12/31/98)
(Graph)
U.S. General General U.S.
Growth Bond Muni Debt Taxable
Funds Funds Funds Money Funds
Source: Lipper, Inc. 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
(PHOTOS)
Portfolio
Managers'Report
Your Fund seeks 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
around the world.
The Fund may also invest up to 10% of total assets in bonds
rated below
investment grade with a minimum rating of "B" by Standard &
Poor's or Moody's
or of comparable quality. Lower-rated securities carry a
greater risk of loss
of principal and interest than higher-rated securities.
There are special
risks associated with foreign investing, including social,
political and
currency risks as well as potential illiquidity. There can
be no assurance
that the Fund's investment objective will be achieved.
New Year Brings New Currency.
The new single European currency, the euro, debuted on
January 1, 1999. The
individual currencies of the 11 member nations will continue
to exist at
fixed exchange rates until euro bills and coins are
introduced into
circulation in 2002.
Strategy Session.
Thriving Despite Global Turmoil.
Global economic growth was bound to slow, and commodity
prices were set to
decline in 1998 as struggling Asian nations imported fewer
goods and services
from abroad. In this deflationary environment, we expected
interest rates to
fall and bond prices to rise. Therefore, we positioned the
Fund to take
advantage of this anticipated rally by extending its
duration, which is a
measure of sensitivity to interest rate fluctuations. A
longer duration
enables Fund shares to gain more rapidly when interest rates
decline.
The Fund's duration lengthened to 6.1 years as of December
31, 1998 from 5.1
years at the end of 1997. We accomplished this through
buying European debt
securities such as German bonds, which comprised 20.4% of
the Fund's total
investments as of December 31, 1998, up from 13.3% a year
earlier. Most of
these purchases took place in the summer both before and
while the spreading
global financial crisis spurred increased demand for German
government
securities.
While we added to certain European bond holdings, we reduced
others. U.K.
government bonds and currency fell to 4.5% of the Fund's
total investments
as of December 31, 1998 from 8.6% at the end of 1997. We
took profits because
we anticipated the decline in sterling that occurred as the
economy weakened
and the Bank of England cut its benchmark interest rate to
stimulate growth.
Exposure to both Norwegian bonds and currency was eliminated
early on amid
concern that declining crude prices would hurt the nation's
oil-based economy.
We also began to cut the Fund's emerging market exposure
before the deepening
global financial turmoil battered the bonds of most
developing countries. By
the end of the year, our exposure to below-investment-grade
emerging market
debt fell to 2.0% from 5.9%.
What Went Well.
The Flight to Quality.
In August, the Russian government devalued the ruble and
defaulted on some
ruble-denominated debt. Latin America also fell prey to the
financial
contagion. Investors took refuge in U.S. Treasuries and the
government
securities of major Western European nations and dumped
riskier assets. A
lack of liquidity was the greatest concern in the bond
markets. There was
little trading, except in the most popular securities such
as Treasuries and
German government bonds, which rallied to record levels in
early October.
This trend benefited the Fund as it was heavily invested in
both.
In order to calm financial markets and restore confidence in
the U.S. economy,
the Federal Reserve cut the Federal funds rate (the rate
banks charge each
other for overnight loans) by a quarter percentage point on
September 29,
October 15, and November 17, leaving the key rate at 4.75%.
Some other
central banks also eased monetary policy, and the flight to
quality began to
reverse.
Bonds of Greece, Hungary and Poland rallied nicely in 1998
as the three
countries are expected to become part of the European Union
and adopt the
euro currency early in the next century. Our exposure to
these government
securities rose to 6.2% by the end of 1998 from 1.9% a year
earlier.
And Not So Well.
Lack of Japanese Yen Exposure.
The Fund's lack of exposure to the Japanese yen hurt its
performance in the
fourth quarter.
The Japanese yen gained more than 17% against the U.S.
dollar in the final
three months of 1998. Hedge fund managers began purchasing
yen to repay
low-cost yen loans that were used partly to finance
investments in higher-
yielding U.S. dollar assets. Renewed hope that Japan would
heal its ailing
banking system and revitalize its economy also helped boost
the nation's
currency.
Looking Ahead.
The Fund began 1999 with a 27.4% exposure to the euro that
will probably
decrease by a slight amount in coming months. Because of
slowing economic
growth in Europe, there is political pressure in the short
term to allow the
euro to soften versus the U.S. dollar. This would enhance
the competitiveness
of European exports, which would strengthen the economy
there. On a longer-
term basis, Euroland (the 11 founding members of the new
currency) boasts a
large current account surplus that could help support the
value of the euro.
Five Largest Issuers.
22.6% U.S.Treasury Obligations
17.8% German Government Bonds
6.0% Danish Government Bonds
5.4% New South Wales
Treasury Corporation
4.3% United Kingdom
Treasury Strip
Expressed as a percentage of net assets as of 12/31/98.
Portfolio Breakdown.
Expressed as a percentage of
total investments as of 12/31/98.
(PIE CHART)
- ------------------------------------------------------------
- -------------------
1
<PAGE>
President's Letter February
16, 1999
(PHOTO)
Dear Shareholder:
Many major equity market indexes ended 1998 on the upswing -
- - posting an
unprecedented fourth consecutive year of double-digit
returns -- as many
stocks rebounded off their early October lows. Bond
investors were also
cheered by healthy returns on U.S. Treasuries and investment-
grade corporate
debt, as well as certain Western European bonds.
Unfortunately, the equity market's advance was neither broad
nor deep. It was
limited primarily to stocks of larger companies with
established records of
growth. Investors ignored the stocks of both undervalued
companies and smaller
companies in a "flight to quality" stemming from financial
turmoil in Asia and
fears of a recession in the United States. Accordingly,
growth-style investors
in large-company stocks outperformed value-style investors
by the widest
margins in nearly 24 years -- and not since the Great
Depression have large-
company stocks so outperformed stocks of small companies.
The rally in bonds was not universal either. While
government bonds --
especially Treasuries -- enjoyed strong appeal, investors
were cool toward
lower-rated issues. High yield bonds, therefore, saw yields
rise while prices
fell.
What We Can Learn From '98
The volatility of 1998 underscores points all investors
should keep in mind:
Financial markets will rise and fall, sometimes
dramatically. Because asset
classes seldom move in lockstep, owning a mix of value- and
growth-oriented
mutual funds in addition to bond and money market funds can
help lessen the
effects of market volatility.
Generally speaking, long-term success in investment
management comes from
remaining true to an investment discipline -- even when it
is out of favor.
Investors who maintain a long-term perspective and don't
sell during market
lows are more likely to regain lost ground, and while past
events cannot
foretell future performance, stocks and bonds have produced
attractive returns
ahead of inflation over time.
Thank you for your continued confidence in Prudential mutual
funds.
Sincerely,
Brian M. Storms
President
- ------------------------------------------------------------
- -------------------
2
<PAGE>
Portfolio of Investments as of Deccember 31, 1998 THE
GLOBAL TOTAL RETURN FUND,
INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount US$
(000) Description Value (Note
1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--85.9%
- ------------------------------------------------------------
Australia--6.5%
A$ 2,750 Federal National Mortgage
Association,
6.375%, 8/15/07 $
1,774,722
13,700 New South Wales Treasury
Corporation,
6.50%, 5/1/06
8,960,622
------
- ------
10,735,344
- ------------------------------------------------------------
Canada--3.3%
C$ 3,250 British Columbia Provincial
Bond,
6.00%, 6/9/08
2,233,543
4,500 Province of Quebec,
6.50%, 10/1/07
3,149,678
------
- ------
5,383,221
- ------------------------------------------------------------
Denmark--6.0%
Danish Government Bonds,
DKr 20,000 7.00%, 12/15/04
3,620,752
32,750 8.00%, 3/15/06
6,343,850
------
- ------
9,964,602
- ------------------------------------------------------------
Germany--19.6%
German Government Bonds,
DM 18,000 7.375%, 1/3/05
12,910,983
7,700 6.00%, 1/5/06
5,225,921
15,500 6.25%, 1/4/24
11,261,516
5,000 Republic of Colombia,
7.25%, 12/21/00
3,052,465
------
- ------
32,450,885
- ------------------------------------------------------------
Greece--3.3%
Hellenic Republic, FRN,
GRD 350,000 9.20%, 3/21/02
1,285,914
680,000 12.70%, 12/31/03
2,437,973
GRD 430,000 Republic of Greece,
8.60%, 3/26/08 $
1,695,138
------
- ------
5,419,025
- ------------------------------------------------------------
Hungary--0.8%
HUF 300,000 Hungarian Government Bonds,
16.00%, 4/12/00
1,402,700
- ------------------------------------------------------------
Netherlands--4.0%
Dutch Government Bonds,
NLG 6,000 7.00%, 6/15/05
3,764,500
3,750 7.50%, 1/15/23
2,767,957
------
- ------
6,532,457
- ------------------------------------------------------------
New Zealand--4.4%
NZ$ 6,700 Federal National Mortgage
Association,
7.25%, 6/20/02
3,656,473
3,300 International Bank of
Reconstruction Development,
7.25%, 5/27/03
1,807,909
3,100 New Zealand Government Bond,
8.00%, 4/15/04
1,825,837
------
- ------
7,290,219
- ------------------------------------------------------------
Russia--0.1%
European Bank of Reconstruction
Development,
RUB 5,300 31.00%, 5/5/00
61,485
8,600 Zero Coupon, 5/28/02
23,944
------
- ------
85,429
- ------------------------------------------------------------
Spain--3.3%
Pts 650,000 Spanish Government Bond,
6.15%, 1/31/13
5,406,026
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 3
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount US$
(000) Description Value (Note
1)
<C> <S> <C>
- ------------------------------------------------------------
Sweden--2.4%
SEK 29,000 Swedish Government Bond,
6.00%, 2/9/05 $
3,965,962
- ------------------------------------------------------------
United Kingdom--4.3%
BP 9,100 United Kingdom Treasury Strip,
Zero Coupon, 12/7/15
7,176,140
- ------------------------------------------------------------
United States--27.9%
Corporate Bonds--1.8%
1,200 General Motors Acceptance
Corp.,
5.75%, 11/10/03
1,209,312
1,700 Household Finance Corporation,
6.40%, 6/17/08
1,755,335
------
- ------
2,964,647
- ------------------------------------------------------------
Sovereign Bonds--4.3%
3,500 Ministry Of Finance (Russia),
10.00%, 6/26/07
997,500
1,000 Oman Sultanate (India),
7.125%, 3/20/02
1,020,000
1,000 Republic of Colombia,
7.25%, 2/23/04
896,000
2,000 Republic of Croatia, FRN,
6.56%, 7/31/06
1,429,551
960 Republic of Croatia,
6.5625%, 7/31/10
758,400
1,400 Republic of Peru,
4.00%, 3/7/17
878,500
800 Republic of Lithuania,
7.125%, 7/22/02
748,000
1,675 Russian Federation,
11.00%, 7/24/18
414,563
------
- ------
7,142,514
- ------------------------------------------------------------
Supranational Bonds--2.9%
4,800 Corporacion Andina de Fomento,
7.375%, 7/21/00
4,847,664
U.S. Government Obligations--18.9%
US$ 9,250 United States Treasury Bond,
6.625%, 2/15/27 $
10,940,992
United States Treasury Notes,
5,000 6.125%, 9/30/00
5,122,650
13,810 6.25%, 2/15/07
15,147,775
------
- ------
31,211,417
------
- ------
46,166,242
Total long-term investments
(cost US$141,404,772)
141,978,252
------
- ------
SHORT-TERM INVESTMENTS--10.4%
- ------------------------------------------------------------
Hungary--0.7%
HUF 250,000 Hungarian Government Bonds,
16.50%, 7/24/99
1,160,737
- ------------------------------------------------------------
Poland--1.2%
Polish Treasury Bills,
PLZ 3,800 14.00%(a), 2/17/99
1,057,221
1,200 18.55%(a), 3/3/99
333,344
2,000 13.57%(a), 4/28/99
543,912
------
- ------
1,934,477
- ------------------------------------------------------------
United States--8.5%
Corporate Bonds--3.0%
US$ 1,000 Banco Ganadero Colombian Bond
(Colombia),
9.75%, 8/26/99
1,006,250
2,900 Financiera Energetica Nacional
(Colombia),
9.00%, 11/8/99
2,900,000
1,000 Petroleas Mexicano (Mexico),
FRN,
6.20%, 3/8/99
987,300
------
- ------
4,893,550
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 4
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount US$
(000) Description Value (Note
1)
<C> <S> <C>
- ------------------------------------------------------------
Repurchase Agreement--1.8%
US$ 3,061 Joint Repurchase Agreement
Account,
4.69% 1/4/99 (Note 5) $
3,061,000
- ------------------------------------------------------------
U.S. Government Obligations--3.7%
6,000 United States Treasury Notes,
6.75%, 6/30/99
6,063,720
------
- ------
14,018,270
------
- ------
Total short-term Investments
(cost US$17,281,427)
17,113,484
------
- ------
- ------------------------------------------------------------
Total Investments--96.3%
(cost $158,686,199)
159,091,736
Other assets in excess of
liabilities--3.7%
6,175,538
------
- ------
Net Assets--100%
$165,267,274
------
- ------
------
- ------
</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.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 5
<PAGE>
Statement of Assets and Liabilities THE GLOBAL
TOTAL RETURN FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
Assets
December 31, 1998
<S>
<C>
Investments, at value (cost
$158,686,199)...............................................
.................... $159,091,736
Foreign currency, at value (cost
$1,767,880).................................................
............... 1,757,476
Interest
receivable..................................................
....................................... 4,747,224
Forward currency contracts--amount receivable from
counterparties...........................................
355,541
Receivable for investments
sold........................................................
..................... 253,165
Receivable for Fund shares
sold........................................................
..................... 22,770
Other
assets......................................................
.......................................... 5,231
- -------------
Total
assets......................................................
....................................... 166,233,143
- -------------
Liabilities
Payable for Fund shares
reacquired..................................................
........................ 404,297
Accrued expenses and other
liabilities.................................................
..................... 192,405
Forward currency contracts--amount payable to
counterparties..............................................
.. 151,267
Management fee
payable.....................................................
................................. 106,493
Bank
overdraft...................................................
...........................................
88,425
Distribution fee
payable.....................................................
............................... 22,982
- -------------
Total
liabilities.................................................
....................................... 965,869
- -------------
Net
Assets......................................................
............................................
$165,267,274
- -------------
- -------------
Net assets were comprised of:
Common stock, at
par.........................................................
............................ $ 205,901
Paid-in capital in excess of
par.........................................................
................ 164,988,534
- -------------
165,194,435
Accumulated net realized loss on
investments.................................................
............ (600,027 )
Net unrealized appreciation on investments and foreign
currencies........................................
672,866
- -------------
Net assets, December 31,
1998........................................................
....................... $165,267,274
- -------------
- -------------
Class A:
Net asset value and redemption price per share
($158,932,007 / 19,800,984 shares of common stock
issued and outstanding).............................
$8.03
Maximum sales charge (4% of offering
price)......................................................
........... .33
- -------------
Maximum offering price to
public......................................................
...................... $8.36
- -------------
- -------------
Class B:
Net asset value and redemption price per share
($3,625,180 / 451,664 shares of common stock issued
and outstanding)..................................
$8.03
- -------------
- -------------
Class C:
Net asset value, offering price and redemption price per
share
($274,811 / 34,209 shares of common stock issued and
outstanding).....................................
$8.03
Maximum sales charge (1% of offering
price)......................................................
........ .08
- -------------
Maximum offering price to
public......................................................
................... $8.11
- -------------
- -------------
Class Z:
Net asset value, offering price and redemption price per
share
($2,435,276 / 303,197 shares of common stock issued
and outstanding)..................................
$8.03
- -------------
- -------------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 6
<PAGE>
THE GLOBAL TOTAL RETURN FUND, INC.
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income December 31,
1998
<S> <C>
Income
Interest and discount earned (net of
foreign withholding taxes of
$16,405)........................... $13,687,048
----------------
- -
Expenses
Management fee........................ 1,323,490
Distribution fee--Class A............. 257,141
Distribution fee--Class B............. 22,860
Distribution fee--Class C............. 1,647
Transfer agent's fees and expenses.... 320,000
Custodian's fees and expenses......... 225,000
Reports to shareholders............... 50,000
Registration fees..................... 50,000
Legal fees and expenses............... 45,000
Audit fee and expenses................ 36,000
Directors' fees....................... 18,000
Insurance............................. 4,000
Miscellaneous......................... 12,608
----------------
- -
Total expenses..................... 2,365,746
----------------
- -
Net investment income.................... 11,321,302
----------------
- -
Realized and Unrealized Gain
(Loss) on Investments and Foreign
Currency Transactions
Net realized gain (loss) on:
Investment transactions............... 2,920,023
Foreign currency transactions......... (1,349,135)
----------------
- -
1,570,888
----------------
- -
Net change in unrealized appreciation (depreciation) on:
Investments........................... 2,767,090
Foreign currencies.................... (909,628)
----------------
- -
1,857,462
----------------
- -
Net gain on investments and foreign
currencies............................ 3,428,350
----------------
- -
Net Increase in Net Assets
Resulting from Operations................ $14,749,652
----------------
- -
----------------
- -
</TABLE>
THE GLOBAL TOTAL RETURN FUND, INC.
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended December
31,
in Net Assets 1998 1997
<S> <C> <C>
Operations:
Net investment income.......... $ 11,321,302 $
13,903,963
Net realized gain on investment
and foreign currency
transactions................ 1,570,888
7,846,372
Net change in unrealized
appreciation (depreciation)
on investments and foreign
currencies.................. 1,857,462
(12,590,843)
------------ --------
- ----
Net increase in net assets
resulting from operations... 14,749,652
9,159,492
------------ --------
- ----
Dividends and distributions (Note
1)
Dividends from net investment
income
Class A..................... (7,425,915)
(16,523,696)
Class B..................... (127,509)
(108,586)
Class C..................... (8,896)
(32,330)
Class Z..................... (83,453)
(23,135)
------------ --------
- ----
(7,645,773)
(16,687,747)
------------ --------
- ----
Distributions in excess of net
investment income
Class A..................... (432,992)
(4,744,012)
Class B..................... (7,435)
(44,626)
Class C..................... (519)
(14,046)
Class Z..................... (4,866)
(11,622)
------------ --------
- ----
(445,812)
(4,814,306)
------------ --------
- ----
Distributions from net realized
gains
Class A..................... (3,221,486) --
Class B..................... (55,316) --
Class C..................... (3,859) --
Class Z..................... (36,203) --
------------ --------
- ----
(3,316,864) --
------------ --------
- ----
Fund share transactions (net of
conversions) (Note 6)
Net proceeds from shares
sold........................ 8,184,792
6,921,618
Net asset value of shares
issued in reinvestment of
dividends and
distributions............... 2,953,974
4,960,184
Cost of shares reacquired...... (35,442,667)
(43,255,074)
------------ --------
- ----
Net decrease in net assets from
Fund share transactions..... (24,303,901)
(31,373,272)
------------ --------
- ----
Total decrease.................... (20,962,698)
(43,715,833)
------------ --------
- ----
Net Assets
Beginning of year................. 186,229,972
229,945,805
------------ --------
- ----
End of year(a).................... $165,267,274
$186,229,972
------------ --------
- ----
------------ --------
- ----
- ---------------
(a) Includes undistributed net
investment income of $ -- $
785,449
------------ --------
- ----
------------ --------
- ----
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 7
<PAGE>
Notes to Financial Statements THE GLOBAL
TOTAL RETURN FUND, INC.
- ------------------------------------------------------------
- --------------------
The Global Total Return Fund, Inc., (the 'Fund') is an open-
end, nondiversified
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
- ------------------------------------------------------------
- --------------------
8
<PAGE>
Notes to Financial Statements THE GLOBAL
TOTAL RETURN FUND, INC.
- ------------------------------------------------------------
- --------------------
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 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:
stated 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 decrease undistributed net investment
income by
$4,015,166, decrease accumulated net realized loss on
investments by $4,460,978,
and decrease paid in capital in excess of par by $445,812
for foreign currency
losses realized and recognized during the year ended
December 31, 1998. 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 had a distribution agreement with Prudential
Securities Incorporated
('PSI'), which acted as the distributor of the Class A, B, C
and Z shares of the
Fund through May 31, 1998. Prudential Investment Management
Services LLC
('PIMS') became the distributor of the Fund effective June
1, 1998 and is
serving the Fund under the same terms and conditions as
under the arrangement
with PSI. The Fund compensated PSI and PIMS 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 were accrued daily and payable
monthly. No
distribution or service fees were paid to PSI or PIMS as
distributor of the
Class Z shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensated
PSI and PIMS 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
- ------------------------------------------------------------
- --------------------
9
<PAGE>
Notes to Financial Statements THE GLOBAL
TOTAL RETURN FUND, INC.
- ------------------------------------------------------------
- --------------------
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, 1998.
Effective January 1, 1999
the expense under the Class A plan is .25 of 1% of the
average daily net assets
of the Class A shares.
PSI and PIMS have advised the Fund that they have received
approximately $12,200
and $300 in front-end sales charges resulting from sales of
Class A and Class C
shares, respectively, during the year ended December 31,
1998. From these fees,
PSI and PIMS paid such sales charges to dealers, which in
turn paid commissions
to salespersons and incurred other distribution costs.
PSI and PIMS have advised the Fund that for the year ended
December 31, 1998,
they received approximately $27,800 and $800 in contingent
deferred sales
charges imposed upon certain redemptions by Class B and
Class C shareholders,
respectively.
PSI, PIFM, PIC, PIMS and PRICOA 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')
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, 1998. 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 29, 1998 and has been
extended through
February 28, 1999 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, 1998,
the Fund incurred fees of approximately $256,500 for the
services of PMFS. As of
December 31, 1998, approximately $21,300 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, 1998, aggregated $73,159,908
and $90,689,180,
respectively.
At December 31, 1998, the Fund had outstanding forward
currency contracts to
sell foreign currencies as follows:
<TABLE>
<CAPTION>
Value at
Foreign Currency Current Settlement Date
Appreciation/
Sale Contracts Value Receivable
(Depreciation)
- ---------------------- ----------- ----------------
- --------------
<S> <C> <C>
<C>
Canadian Dollars,
expiring 1/28/99..... $ 4,978,172 $ 4,969,156
$ (9,016)
French Francs,
expiring 1/28/99..... 3,186,794 3,211,230
24,436
Japanese Yen,
expiring 1/28/99..... 2,103,532 2,042,829
(60,703)
New Zealand Dollars,
expiring 1/28/99..... 16,119,414 16,037,866
(81,548)
Swiss Francs,
expiring 1/28/99..... 12,224,948 12,556,053
331,105
----------- ----------------
- --------------
$38,612,860 $ 38,817,134
$ 204,274
----------- ----------------
- --------------
----------- ----------------
- --------------
</TABLE>
The United States federal income tax basis of the Fund's
investments at December
31, 1998 was $158,716,497 and, accordingly, net unrealized
depreciation for
United States federal income tax purposes was $375,239
(gross unrealized
appreciation--$7,265,530; gross unrealized depreciation--
$(6,890,291).
The Fund utilized its capital loss carryforward of
approximately $2,165,900 to
offset net taxable gains realized and recognized during the
fiscal year ended
December 31, 1998.
The Fund has elected to treat approximately $283,907 of net
currency losses
incurred in the two month period ended December 31, 1998 as
having been incurred
in the following fiscal year.
- ------------------------------------------------------------
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, 1998, the
Fund had a .44% undivided interest in the joint account. The
undivided interest
for the Fund represents $3,061,000 in the principal amount.
As of such date,
each repurchase agreement in the joint account and the
collateral therefor were
as follows:
Bear, Stearns & Co. Inc., 4.75%, in the principal amount of
$165,000,000,
repurchase price $165,087,083, due 1/4/99. The value of the
collateral including
accrued interest was $169,478,699.
Deutsche Bank Securities Inc., 4.80%, in the principal
amount of $100,000,000,
repurchase price $100,053,333, due 1/4/99. The value of the
collateral including
accrued interest was $102,001,052.
Goldman Sachs & Co. Inc., 4.25%, in the principal amount of
$93,088,000,
repurchase price $93,131,958, due 1/4/99. The value of the
collateral including
accrued interest was $94,950,662.
- ------------------------------------------------------------
- --------------------
10
<PAGE>
Notes to Financial Statements THE GLOBAL
TOTAL RETURN FUND, INC.
- ------------------------------------------------------------
- --------------------
Morgan (J.P.) Securities Inc., 4.75%, in the principal
amount of $165,000,000,
repurchase price $165,087,083, due 1/4/99. The value of the
collateral including
accrued interest was $168,300,696.
Warburg Dillon Read Inc., 4.75%, in the principal amount of
$165,000,000,
repurchase price $165,087,083, due 1/4/99. The value of the
collateral including
accrued interest was $168,529,699.
- ------------------------------------------------------------
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 front-end
sales charge of 1% and a contingent deferred sales charge of
1% during the first
18 months. Prior to November 2, 1998, Class C shares were
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. 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, 1998
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, 1998:
Shares sold......................... 339,598 $
2,730,063
Shares issued in reinvestment of
dividends and distributions....... 333,052
2,661,857
Shares reacquired................... (4,101,283)
(32,833,746)
---------- --------
- ----
Net decrease in shares outstanding
before conversion................. (3,428,633)
(27,441,826)
Shares issued upon conversion from
Class B........................... 3,881
31,322
---------- --------
- ----
Net decrease in shares
outstanding....................... (3,424,752)
$(27,410,504)
---------- --------
- ----
---------- --------
- ----
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)
---------- --------
- ----
---------- --------
- ----
<CAPTION>
Class B Shares
Amount
- ------------------------------------ ---------- --------
- ----
<S> <C> <C>
Year ended December 31, 1998:
Shares sold......................... 237,833 $
1,906,388
Shares issued in reinvestment of
dividends and distributions....... 20,064
160,430
Shares reacquired................... (94,011)
(752,207)
---------- --------
- ----
Net increase in shares outstanding
before conversion................. 163,886
1,314,611
Shares reacquired upon conversion
into Class A...................... (3,884)
(31,322)
---------- --------
- ----
Net increase in shares
outstanding....................... 160,002 $
1,283,289
---------- --------
- ----
---------- --------
- ----
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
---------- --------
- ----
---------- --------
- ----
<CAPTION>
Class C
- ------------------------------------
<S> <C> <C>
Year ended December 31, 1998:
Shares sold......................... 11,948 $
95,300
Shares issued in reinvestment of
dividends and distributions....... 1,404
11,227
Shares reacquired................... (3,185)
(25,475)
---------- --------
- ----
Net increase in shares
outstanding....................... 10,167 $
81,052
---------- --------
- ----
---------- --------
- ----
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
---------- --------
- ----
---------- --------
- ----
<CAPTION>
Class Z
- ------------------------------------
<S> <C> <C>
Year ended December 31, 1998:
Shares sold......................... 429,296 $
3,453,041
Shares issued in reinvestment of
dividends and distributions....... 15,060
120,460
Shares reacquired................... (228,142)
(1,831,239)
---------- --------
- ----
Net increase in shares
outstanding....................... 216,214 $
1,742,262
---------- --------
- ----
---------- --------
- ----
March 17, 1997(a) 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) Commencement of offering of Class Z shares.
- ------------------------------------------------------------
- --------------------
11
<PAGE>
Financial Highlights THE GLOBAL
TOTAL RETURN FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class A (b)
-----------
- ----------------------------------------------------
Year Ended December 31,
-----------
- ----------------------------------------------------
1998(c)
1997(c) 1996 1995 1994
-----------
- -------- -------- -------- --------
<S> <C>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............ $ 7.88
$ 8.38 $ 8.44 $ 7.46 $ 8.76
-----------
- -------- -------- -------- --------
Income from investment operations
Net investment income......................... .52
.55 .62 .54 .52
Net realized and unrealized gain (loss) on
investment and foreign currencies.......... .16
(.18) .32 1.25 (1.22)
-----------
- -------- -------- -------- --------
Total from investment operations........... .68
.37 .94 1.79 (.70)
-----------
- -------- -------- -------- --------
Less distributions
Dividends from net investment income.......... (.35)
(.68) (.62) (.54) (.17)
Distributions in excess of net investment
income..................................... (.02)
(.19) (.50) (.27) --
Distributions from net realized capital
gains...................................... (.16)
- -- -- -- (.13)
Tax return of capital distributions........... --
- -- -- -- (.30)
-----------
- -------- -------- -------- --------
Total distributions........................ (.53)
(.87) (1.12) (.81) (.60)
-----------
- -------- -------- -------- --------
Redemption fee retained by Fund............... --
- -- .12 -- --
-----------
- -------- -------- -------- --------
Net asset value, end of year.................. $ 8.03
$ 7.88 $ 8.38 $ 8.44 $ 7.46
-----------
- -------- -------- -------- --------
-----------
- -------- -------- -------- --------
Per share market price, end of year........... N/A
N/A N/A $ 8.25 $ 6.13
- -------- --------
- -------- --------
TOTAL INVESTMENT RETURN BASED ON (a):
Market price............................... N/A
N/A N/A 49.23% (16.12)%
Net asset value............................ 8.92%
4.55% 13.15% 25.45% (8.10)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $ 158,932
$183,054 $229,770 $559,071 $493,645
Average net assets (000)...................... $ 171,427
$204,795 $299,026 $549,407 $536,230
Ratios to average net assets:
Expenses, including distribution fees...... 1.33%
1.39% 1.33% 1.02% 1.04%
Expenses, excluding distribution fees...... 1.18%
1.24% 1.18% 1.02% 1.04%
Net investment income...................... 6.42%
6.73% 7.01% 6.50% 6.45%
For Class A, B, C, and Z shares:
Portfolio turnover rate.................... 46%
43% 32% 256% 583%
</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. 12
<PAGE>
Financial Highlights THE GLOBAL
TOTAL RETURN FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class B Class C
----------
- ------------------------------- ------------------------
January 15,
1996(d)
Year Ended Through Year Ended
December 31, December 31, December 31,
1998(f)
1997(f) 1996 1998(f) 1997(f)
----------
- --------- ------------ --------- ----------
<S> <C>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 7.89
$ 8.39 $ 8.51 $ 7.89 $ 8.39
-----
- --------- ----- --------- -----
Income from investment operations
Net investment income......................... .46
.49 .57 .46 .49
Net realized and unrealized gain (loss) on
investment and foreign currencies.......... .16
(.16) .26 .16 (.16)
-----
- --------- ----- --------- -----
Total from investment operations........... .62
.33 .83 .62 .33
-----
- --------- ----- --------- -----
Less distributions
Dividends from net investment income.......... (.30)
(.64) (.57) (.30) (.64)
Distributions in excess of net investment
income..................................... (.02)
(.19) (.50) (.02) (.19)
Distributions from net realized capital
gains...................................... (.16)
- -- -- (.16) --
-----
- --------- ----- --------- -----
Total distributions........................ (.48)
(.83) (1.07) (.48) (.83)
-----
- --------- ----- --------- -----
Redemption fee retained by Fund............... --
- -- .12 -- --
-----
- --------- ----- --------- -----
Net asset value, end of period................ $ 8.03
$ 7.89 $ 8.39 $ 8.03 $ 7.89
-----
- --------- ----- --------- -----
-----
- --------- ----- --------- -----
TOTAL INVESTMENT RETURN(a):................... 8.13%
3.98% 11.99% 8.13% 3.98%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $3,625
$ 2,300 $ 175 $ 275 $ 190
Average net assets (000)...................... $3,048
$ 1,246 $ 52 $ 220 $ 397
Ratios to average net assets:
Expenses, including distribution fees...... 1.93%
1.99% 1.93%(c) 1.93% 1.99%
Expenses, excluding distribution fees...... 1.18%
1.24% 1.18%(c) 1.18% 1.24%
Net investment income...................... 5.86%
6.13% 6.41%(c) 5.84% 6.05%
<CAPTION>
Class Z
- -----------------------------
January 15,
March 17,
1996(d)
1997(e)
Through
Year Ended through
December 31,
December 31, December 31,
1996
1998(f) 1997(f)
------------
- ------------ ------------
<S> <C>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 8.51
$ 7.88 $ 8.32
-----
- ----- -----
Income from investment operations
Net investment income......................... .57
.52 .39
Net realized and unrealized gain (loss) on
investment and foreign currencies.......... .26
.17 .05
-----
- ----- -----
Total from investment operations........... .83
.69 .44
-----
- ----- -----
Less distributions
Dividends from net investment income.......... (.57)
(.36) (.69)
Distributions in excess of net investment
income..................................... (.50)
(.02) (.19)
Distributions from net realized capital
gains...................................... --
(.16) --
-----
- ----- -----
Total distributions........................ (1.07)
(.54) (.88)
-----
- ----- -----
Redemption fee retained by Fund............... .12
- -- --
-----
- ----- -----
Net asset value, end of period................ $ 8.39
$ 8.03 $ 7.88
-----
- ----- -----
-----
- ----- -----
TOTAL INVESTMENT RETURN(a):................... 11.99%
9.07% 5.56%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $ 210(b)
$2,435 $ 686
Average net assets (000)...................... $ 204(b)
$1,771 $ 257
Ratios to average net assets:
Expenses, including distribution fees......
1.93%(c) 1.18% 1.24%(c)
Expenses, excluding distribution fees......
1.18%(c) 1.18% 1.24%(c)
Net investment income......................
6.41%(c) 6.65% 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
investment return does
not consider the effect of sales load. Total investment
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. 13
<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, 1998, the results of its
operations for the year
then ended, and the changes in its net assets and the
financial highlights for
each of the two years in the period 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 audits.
We conducted our
audits 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
audits, which included confirmation of securities at
December 31, 1998 by
correspondence with the custodian and brokers, provide a
reasonable basis for
the opinion expressed above. The accompanying Financial
Highlights for each of
the three years in the period ended December 31, 1996 were
audited by other
independent accountants, whose opinion dated February 14,
1997 was unqualified.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 16, 1999
- ------------------------------------------------------------
- --------------------
14
<PAGE>
Federal Income Tax Information (Unaudited) 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, 1998) as to the federal
tax status of
distributions paid by the Fund during such fiscal year.
Accordingly, during its
fiscal year ended December 31, 1998, the Fund paid
distributions of $.526 per
Class A share, $.478 per Class B share, $.478 per Class C
share and $.538 per
Class Z share. Of these amounts, $.152 per Class A, B, C and
Z shares represent
distributions from long-term capital gains. The remaining
$.374 per Class A
share, $.326 per Class B share, $.326 per Class C share and
$.386 per Class Z
share represents dividends from ordinary income (net
investment income and
short-term capital 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.
- ------------------------------------------------------------
- --------------------
15
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
When you invest through Prudential Mutual Funds, you receive
financial advice
through a Prudential Securities financial advisor or
Prudential/Pruco
Securities registered representative. Your advisor or
representative can
provide you with the following services:
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial advisor or registered representative can help
you match the
reward you seek with the risk you can tolerate. And risk can
be difficult to
gauge --sometimes even the simplest investments bear
surprising risks. The
educated investor knows that markets seldom move in just one
direction --
there are times when a market sector or asset class will
lose value or provide
little in the way of total return. Managing your own
expectations is easier
with help from someone who understands the markets and who
knows you!
Keeping Up With The Joneses.
A financial advisor or registered representative can help
you wade through the
numerous mutual funds available to find the ones that fit
your own individual
investment profile and risk tolerance. While the newspapers
and popular
magazines are full of advice about investing, they are aimed
at generic groups
of people or representative individuals, not at you
personally. Your financial
advisor or registered representative will review your
investment objectives
with you. This means you can make financial decisions based
on the assets and
liabilities in your current portfolio and your risk
tolerance -- not just
based on the current investment fad.
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the
bottom are among the
most common investor mistakes. But sometimes it's difficult
to hold on to an
investment when it's losing value every month. Your
financial advisor or
registered representative can answer questions when you're
confused or worried
about your investment, and remind you that you're investing
for the long haul.
<PAGE>
Comparing A $10,000 Investment.
The Global Total Return Fund, Inc. vs. the
J.P. Morgan Government Bond Index Global (GBI).
// The Global Total Return Fund, Inc.
- -- J.P. Morgan Gov't Bond Index Global (GBI)
(Class A)
Average Annual
Total Returns - Class A
With Sales Load
10.05% Since Inception
9.03% for 10 Years
7.67% for 5 Years
4.56% for 1 Year
Without Sales Load
10.41% Since Inception
9.48% for 10 Years
8.55% for 5 Years
8.92% for 1 Year
(Class B)
Average Annual
Total Returns - Class B
With Sales Load
7.22% Since Inception
3.13% for 1 Year
Without Sales Load
8.10% Since Inception
8.13% for 1 Year
(Class C)
Average Annual
Total Returns - Class C
With Sales Load
7.73% Since Inception
6.05% for 1 Year
Without Sales Load
8.10% Since Inception
8.13% for 1 Year
(Class Z)
Average Annual
Total Returns - Class Z
8.19% Since Inception
9.07% for 1 Year
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.
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,
B, C, and Z shares) with a similar investment in the J.P.
Morgan Government
Bond Index Global (GBI) (the Index) by portraying the
initial account values
at the commencement of operations of Class B, C, and Z
shares, and for 10
years for Class A shares, and subsequent account values at
the end of each
fiscal year (December 31), as measured on a quarterly basis,
beginning in
1988 for Class A shares, 1996 for Class B and Class C
shares, and 1997 for
Class Z shares. For purposes of the graphs, and unless
otherwise indicated
in the accompanying tables, it has been assumed that (a) the
maximum
applicable front-end sales load was deducted from the
initial $10,000
investment in Class A shares; (b) the maximum applicable
contingent deferred
sales charges were deducted from the value of the investment
in Class B and
Class C shares, assuming full redemption on December 31,
1998; (c) Class C
shares are subject to a front-end sales load of 1% and a
CDSC of 1% for 18
months. Class C shares bought before November 2, 1998 have a
1% CDSC if sold
within one year; (d) all recurring fees (including
management fees) were
deducted; and (e) all dividends and distributions were
reinvested. Class B
shares will automatically convert to Class A shares, on a
quarterly basis,
approximately seven years after purchase. This conversion
feature is not
reflected in the graphs. Class Z shares are not subject to a
sales charge
or distribution fee.
The 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. The Index provides a broad measure of market
performance.
The Index is unmanaged 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 Index is not
the only
index that may be used to characterize performance of global
bond funds,
and other indexes may portray different comparative
performance. Investors
cannot invest directly in an index.
<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
Brian M. Storms
Louis A. Weil, III
Clay T. Whitehead
Officers
Brian M. Storms, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
Marguerite E.H. Morrison, 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
PRICOA Asset Management, Ltd.
115 Houndstitch
London EC3A 7BU
Distributor
Prudential Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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
PricewaterhouseCoopers 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
37936L500
37936L203
