<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 16, 1999
REGISTRATION NO. 333-82641
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-14
<TABLE>
<S> <C> <C>
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
PRE-EFFECTIVE AMENDMENT NO. 2 /X/
POST-EFFECTIVE AMENDMENT NO. / /
</TABLE>
(CHECK APPROPRIATE BOX OR BOXES)
------------------------
PRUDENTIAL GLOBAL TOTAL RETURN FUND, INC.
(formerly, the Global Total Return Fund, Inc.)
(Exact Name of Registrant as Specified in Charter)
GATEWAY CENTER THREE
100 MULBERRY STREET, 9(TH) FLOOR
NEWARK, NEW JERSEY 07102-4077
(Address Of Principal Executive Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (973) 367-7525
Marguerite E.H. Morrison, Esq.
100 Mulberry Street
Gateway Center Three, 9(th) Floor
Newark, New Jersey 07102-4077
(Name and Address of Agent for Service)
------------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT.
------------------------
NO FILING FEE IS REQUIRED BECAUSE OF RELIANCE ON SECTION 24(f) OF THE
INVESTMENT COMPANY ACT OF 1940. PURSUANT TO RULE 429 UNDER THE SECURITIES ACT OF
1933, THE PROSPECTUS AND PROXY STATEMENT RELATES TO SHARES PREVIOUSLY REGISTERED
ON FORM N-1A (FILE NO. 33-63943).
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE ON SEPTEMBER 15, 1999,
PURSUANT TO RULE 488.
<TABLE>
<S> <C>
TITLE OF SECURITIES BEING REGISTERED..... SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PRUDENTIAL GLOBAL TOTAL RETURN FUND, INC.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following papers and documents:
Facing Page
Contents of Registration Statement
Notice of Special Meeting
Part A--Proxy Statement and Prospectus
Part B--Statement of Additional Information
Part C--Other Information
Signature Page
Exhibits
1. Solicitation Letter to Shareholders
2. Form of Proxy Card
<PAGE>
PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
Gateway Center Three
100 Mulberry Street, 9(th) Floor
Newark, New Jersey 07102-4077
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
---------------------
To our Shareholders:
Notice is hereby given that a Special Meeting of Shareholders (the Meeting)
of Prudential Global Limited Maturity Fund, Inc. (Limited Maturity Fund) will be
held at Prudential Plaza, 751 Broad Street, 9(th) Floor, Newark, New Jersey
07102, on October 7, 1999, at 9:00 a.m. Eastern time, for the following
purposes:
1. To approve an Agreement and Plan of Reorganization and Liquidation
between Limited Maturity Fund and Prudential Global Total Return Fund, Inc.
(Total Return Fund) providing for the transfer of all of the assets of Limited
Maturity Fund to Total Return Fund in exchange solely for Class A, Class B,
Class C and Class Z shares of common stock of Total Return Fund and the
assumption by Total Return Fund of Limited Maturity Fund's liabilities, followed
by the distribution of Total Return Fund Class A, Class B, Class C and Class Z
shares to shareholders of Limited Maturity Fund in liquidation of Limited
Maturity Fund.
2. To transact such other business as may properly come before the Meeting
or any adjournments of the Meeting.
The Board of Directors has fixed the close of business on July 30, 1999 as
the record date for the determination of the shareholders of Limited Maturity
Fund entitled to notice of, and to vote at, this Meeting and any adjournments.
Marguerite E. H. Morrison
SECRETARY
Dated: August , 1999
PROXY CARDS FOR YOUR FUND ARE ENCLOSED ALONG WITH THE PROXY STATEMENT. PLEASE
VOTE YOUR SHARES TODAY BY SIGNING AND RETURNING THE ENCLOSED PROXY CARD IN THE
POSTAGE PREPAID ENVELOPE PROVIDED. THE BOARD OF YOUR FUND RECOMMENDS THAT YOU
VOTE "FOR" THE PROPOSAL.
<PAGE>
PRUDENTIAL GLOBAL TOTAL RETURN FUND, INC.
PROSPECTUS
PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
PROXY STATEMENT
GATEWAY CENTER THREE
100 MULBERRY STREET, 9(TH) FLOOR
NEWARK NEW JERSEY 07102-4077
(800) 225-1852
------------------------
AUGUST , 1999
---------------------
This Proxy Statement and Prospectus (Proxy Statement) is being furnished to
shareholders of Prudential Global Limited Maturity Fund, Inc. (Limited Maturity
Fund) in connection with the solicitation of proxies by the Limited Maturity
Fund's Board of Directors for use at the Special Meeting of Shareholders of
Limited Maturity Fund and at any adjournments of the meeting (the Meeting). The
Meeting will be held on Thursday, October 7, 1999, at 9:00 a.m. Eastern time at
Prudential Plaza, 751 Broad Street, 9(th) Floor, Newark, New Jersey 07102.
The purpose of the Meeting is to vote on a proposed reorganization
(Reorganization) between Limited Maturity Fund and Prudential Global Total
Return Fund, Inc. (Total Return Fund). Under an Agreement and Plan of
Reorganization and Liquidation (the Agreement), Limited Maturity Fund would
transfer all of its assets to Total Return Fund in exchange solely for Class A,
Class B, Class C and Class Z shares of common stock of Total Return Fund and the
assumption by Total Return Fund of Limited Maturity Fund's liabilities. The
number of shares issued to shareholders of Limited Maturity Fund in the proposed
Reorganization will be based upon the relative net asset values per share of the
two Funds at the time of the exchange. Limited Maturity Fund will distribute
Class A, Class B, Class C and Class Z shares of Total Return Fund to its
shareholders in liquidation of Limited Maturity Fund on October 15, 1999, or
such later date as the parties may agree (the Closing Date).
Total Return Fund is a non-diversified taxable bond fund registered as an
open-end management investment company and is organized as a Maryland
corporation. Total Return Fund's investment objective is to seek total return,
made up of current income and capital appreciation. Total Return Fund seeks to
achieve its investment objective by investing at least 65% of total assets in
income-producing debt securities. These securities include securities issued by
the U.S. and foreign governments, supranational organizations, semi-governmental
entities, government agencies, authorities or instrumentalities and short-term
bank debt securities or bank deposits. As a "global" fund, the Fund usually
invests in issuers in at least three different countries, including the United
States. The Fund maintains a dollar weighted average maturity of not more than
10 years. As of June 30, 1999, Total Return Fund's average duration was 4.2
years and its average maturity was 6.5 years. Although the majority of the
Fund's investments are investment grade, up to 15% of the Fund's total assets
may be invested in lower-rated securities, known as junk bonds, which are
riskier and considered "speculative" with respect to their capacity to pay
principal and interest.
Limited Maturity Fund is a non-diversified taxable bond fund registered as
an open-end management investment company and is organized as a Maryland
corporation. Limited Maturity Fund's investment objective is to maximize total
return, made up of current income and capital appreciation. The Fund normally
seeks to achieve its objective by investing at least 65% of its total assets in
income producing
<PAGE>
securities. As a "global" fund, the Fund usually invests in issuers in at least
five different countries, including the United States. Income-producing
securities include U.S. and foreign government and agency securities, securities
of supranatural organizations, corporate debt instruments, commercial paper,
loan participations, certificates of deposit, bankers' acceptances and time
deposits. Limited Maturity Fund is a "short duration" fund, which means it has a
dollar-weighted average maturity of more than 2 but less than 5 years with the
maturity of individual securities generally not more than 10 years. Limited
Maturity Fund's average duration as of June 30, 1999 was 2.9 years, while its
average maturity was 4.0 years. Although the majority of the Fund's investments
are investment grade, up to 20% of the Fund's total assets may be invested in
lower-rated securities, known as junk bonds.
This Proxy Statement should be retained for your future reference. It sets
forth concisely the information about the Reorganization and Total Return Fund
that a shareholder should know before voting on the proposed Reorganization. A
Statement of Additional Information dated August , 1999, which relates to this
Proxy Statement, has been filed with the Securities and Exchange Commission
(Commission) and is incorporated into this Proxy Statement by reference. This
Proxy Statement is accompanied by the Prospectus, dated March 1, 1999 and
Prospectus Supplements dated July 23, 1999 and August 9, 1999, which offer
shares of Total Return Fund. The Statement of Additional Information for Total
Return Fund, dated March 1, 1999 and the Statement of Additional Information
Supplement dated July 23, 1999 are available upon request. Attachment I to this
Proxy Statement contains the Performance Overview from the Annual Report of
Total Return Fund for the year ended December 31, 1998. The Prospectus,
Prospectus Supplements and Statement of Additional Information and Supplement
for Total Return Fund have been filed with the Commission and are incorporated
into this Proxy Statement by reference. The Prospectus dated January 22, 1999
and Prospectus Supplements dated May 27, 1999 and July 23, 1999 and Statement of
Additional Information dated January 22, 1999 and Statement of Additional
Information Supplement dated July 23, 1999 for Limited Maturity Fund, have been
filed with the Commission and are incorporated into this Proxy Statement by
reference. Copies of the documents referred to above may be obtained without
charge by contacting Prudential Mutual Fund Services LLC at Post Office Box
15005, New Brunswick, New Jersey 08906-5005, or by calling (800) 225-1852.
The Securities and Exchange Commission has not approved or disapproved the Total
Return Fund's shares, nor has the Commission determined that this proxy
statement and prospectus is complete or accurate. It is a criminal offense to
state otherwise.
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1 VOTING INFORMATION
2 SYNOPSIS
2 Investment Objectives and Policies
3 Expense Structures
4 The Proposed Reorganization
5 Fund Operating Expenses
5 Comparative Fee Tables
6 Examples of the Effect of Fund Expenses
7 Pro Forma Capitalization and Ratios
8 Forms of Organization
9 Performance Comparisons of the Funds
10 INVESTMENT OBJECTIVES AND POLICIES
10 Investment Objectives
10 Principal Investment Strategies
11 COMPARISON OF OTHER POLICIES OF THE FUNDS
11 Diversification
11 Borrowing
11 Lending
11 Illiquid Securities
11 Temporary Defensive Investments
11 COMPARISON OF PRINCIPAL RISK FACTORS
12 OPERATIONS OF TOTAL RETURN FUND FOLLOWING THE REORGANIZATION
12 PURCHASES, REDEMPTIONS AND EXCHANGES
12 Purchasing Shares
13 Redeeming Shares
13 Minimum Investment Requirements
13 Purchases and Redemptions of Limited Maturity Fund
13 Exchanges of Fund Shares
13 Dividends and Other Distributions
14 FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION
14 THE PROPOSED TRANSACTION
14 Reorganization Plan
15 Reasons for the Reorganization
16 Description of the Securities to be Issued
17 Federal Income Tax Considerations
18 Conclusion
18 ADDITIONAL INFORMATION ABOUT TOTAL RETURN FUND
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
18 MISCELLANEOUS
18 Legal Matters
18 Independent Accountants
18 Available Information
19 Notice to Banks, Broker-Dealers and Voting Trustees and the Their Nominees
19 SHAREHOLDER PROPOSALS
19 OTHER BUSINESS
20 ATTACHMENT I: Performance Overview from the Annual Report of Total Return Fund dated
December 31, 1998
A-1 APPENDIX A: Agreement and Plan of Reorganization and Liquidation between Prudential
Global Limited Maturity Fund, Inc. and Prudential Global Total Return Fund, Inc.
</TABLE>
iv
<PAGE>
SPECIAL MEETING OF SHAREHOLDERS OF
PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
TO BE HELD ON OCTOBER 7, 1999 AT:
PRUDENTIAL PLAZA
751 BROAD STREET
9TH FLOOR
NEWARK, NEW JERSEY 07102-4077
------------------------
PROXY STATEMENT AND PROSPECTUS
------------------------
VOTING INFORMATION
This Proxy Statement and Prospectus (Proxy Statement) is furnished in
connection with a solicitation of proxies made by, and on behalf of, the Board
of Directors of Prudential Global Limited Maturity Fund, Inc. (Limited Maturity
Fund) to be used at the Special Meeting of Shareholders of Limited Maturity Fund
and at any adjournments of the Special Meeting (the Meeting), to be held on
Thursday, October 7, 1999 at 9:00 a.m. Eastern time at Prudential Plaza, 751
Broad Street, 9th Floor, Newark, New Jersey 07102, the principal executive
office of The Prudential Investment Corporation (PIC). PIC serves as the
investment adviser to Prudential Global Total Return Fund, Inc. (Total Return
Fund) and the Limited Maturity Fund (each a Fund, and collectively, the Funds).
The purpose of the Meeting is described in the accompanying Notice. The
solicitation is made primarily by the mailing of this Proxy Statement and the
accompanying proxy card on or about August , 1999. Supplementary solicitations
may be made by mail, telephone, telegraph, facsimile, electronic means or by
personal interview by representatives of Limited Maturity Fund. In addition,
Shareholder Communications Corporation, a proxy solicitation firm, may be
retained to solicit shareholders on behalf of Limited Maturity Fund. The
expenses of the Reorganization and the solicitation of proxies will be borne by
Limited Maturity Fund and Total Return Fund in proportion to their respective
assets and will include reimbursement of brokerage firms and others for expenses
in forwarding proxy solicitation materials to the shareholders of Limited
Maturity Fund.
Even if you sign and return the enclosed proxy card, you may revoke your
proxy at any time prior to its use by written notification received by the
Limited Maturity Fund, by submitting a later-dated proxy card, or by attending
the Meeting and voting in person.
All proxy cards that are properly completed and received by the Secretary of
Limited Maturity Fund before the Meeting, and that are not revoked, will be
voted at the Meeting. Shares represented by proxies will be voted in accordance
with the instructions you provide. If no instruction is made on a proxy card, it
will be voted FOR Proposal No. 1. Only proxies that are actually voted will be
counted toward establishing a quorum, which is the minimum number of shares
necessary to transact business at the Meeting.
If a proxy that is properly signed and returned is accompanied by
instructions to withhold authority to vote (an abstention) or represents a
broker "non-vote" (that is, a proxy from a broker or nominee indicating that
they have not received instructions from the beneficial owner or other person
entitled to vote shares on this matter for which the broker or nominee does not
have discretionary power), the shares represented by the proxy will be
considered present for purposes of determining the existence of a quorum for the
transaction of business, but will have the effect of a vote against Proposal No.
1.
Limited Maturity Fund also may arrange to have votes recorded by telephone.
The expenses associated with telephone voting will be borne by Limited Maturity
Fund and Total Return Fund in proportion to their respective assets. If Limited
Maturity Fund takes votes by telephone, it will use procedures designed to
authenticate shareholders' identities, to allow shareholders to authorize the
voting of their shares in accordance with their instructions, and to confirm
that their instructions have been
<PAGE>
properly recorded. Proxies given by telephone may be revoked at any time before
they are voted in the same manner that proxies voted by mail may be revoked.
If a quorum is not present at the Meeting, or if a quorum is present at the
Meeting but sufficient votes to approve Proposal No. 1 are not received, or if
other matters arise requiring shareholder attention, the persons named as proxy
agents may propose one or more adjournments of the Meeting to permit the further
solicitation of proxies. An adjournment will require the affirmative vote of a
majority of shares present at the Meeting or represented by proxy. When voting
on a proposed adjournment, the persons named as proxy agents will vote FOR the
proposed adjournment all shares that they are entitled to vote with respect to
Proposal No. 1, unless directed to vote AGAINST the Proposal, in which case such
shares will be voted against the proposed adjournment. A shareholder vote may be
taken on the Reorganization described in this Proxy Statement or on any other
business properly presented at the Meeting prior to adjournment if sufficient
votes have been received.
On July 30, 1999, there were 7,079,984 Class A shares, 102,900 Class B
Shares, 4,369 Class C shares and 6,335 Class Z shares issued and outstanding for
Limited Maturity Fund. Shareholders of record at the close of business on July
30, 1999 will be entitled to vote at the Meeting. Each such shareholder will be
entitled to one vote for each share (each fractional share shall be entitled to
a proportionate fractional vote) held on that date. The following shareholders
held 5% or more of each class of shares of Limited Maturity Fund on July 30,
1999:
As of July 30, 1999, the Directors and officers of both Limited Maturity
Fund and Total Return Fund owned, in the aggregate, less than 1% of each Fund's
total outstanding shares. Prudential intends to vote any shares for which it has
direct voting authority FOR the Proposal.
VOTE REQUIRED
APPROVAL OF THE REORGANIZATION REQUIRES THE AFFIRMATIVE VOTE OF A MAJORITY OF
THE OUTSTANDING SHARES OF COMMON STOCK OF LIMITED MATURITY FUND.
SYNOPSIS
The following is a summary of information contained elsewhere in this Proxy
Statement, in the Agreement, and in the Prospectuses of Limited Maturity Fund
and Total Return Fund, which are incorporated into this Proxy Statement by
reference. Shareholders should read the Proxy Statement and the Prospectus of
Total Return Fund for more complete information.
The Reorganization would transfer the assets and liabilities of Limited
Maturity Fund to Total Return Fund, a larger mutual fund also managed by
Prudential Investments Fund Management LLC (PIFM). If the Reorganization is
approved, Limited Maturity Fund will be liquidated and current shareholders of
Limited Maturity Fund will become shareholders of Total Return Fund instead.
INVESTMENT OBJECTIVES AND POLICIES
Limited Maturity Fund and Total Return Fund have substantially similar
investment objectives and policies. Both Funds seek total return (Limited
Maturity Fund seeks to maximize total return) made up of current income and
capital appreciation by investing at least 65% of total assets in
income-producing debt securities. These securities are issued by U.S. and
foreign governments, supranational organizations, government agencies or any of
their political subdivisions or instrumentalities.
Limited Maturity Fund typically invests at least 30% of its total assets in
U.S. dollar denominated securities and at least 50% of total assets in
securities denominated in U.S., Canadian, Australian or New Zealand dollars.
Limited Maturity Fund can also invest 25% or more of total assets in a
particular country or countries. Total Return Fund generally limits investments
in securities denominated in any one foreign currency to 40% of the Fund's total
assets, except for the euro (up to 65%). Total Return Fund usually
2
<PAGE>
invests in issuers from at least three different countries while Limited
Maturity Fund usually invests in issuers from at least five different countries.
Both Funds can invest in securities of developing countries.
Total Return Fund maintains a dollar-weighted average maturity of not more
than 10 years. As of June 30, 1999, Total Return Fund's average duration was 4.2
years and its average maturity was 6.5 years. Limited Maturity Fund is a "short
duration" fund, which means it has a dollar-weighted average maturity of more
than 2, but less than 5 years. The Limited Maturity Fund's average duration as
of June 30, 1999, was 2.9 years, while its average maturity was 4.0 years. The
majority of both Funds' investments are investment grade. However, up to 20% of
Limited Maturity Fund's total assets may be invested in lower-rated securities
and up to 15% of the Total Return Fund's assets may be invested in such
securities.
Each Fund may borrow money for temporary or emergency purposes and for the
clearance of transactions from banks or through reverse repurchase agreements.
In addition, Total Return Fund may borrow money for investment purposes.
The Funds have the same Manager (PIFM), the same investment adviser The
Prudential Investment Corporation (PIC), the same sub-adviser (PRICOA Asset
Management Ltd.) and the same portfolio managers (Gabriel Irwin and Simon
Wells). The address of PIFM is Gateway Center Three, 100 Mulberry Street, 9(th)
Floor, Newark, New Jersey 07102-4077.
One benchmark index for both Limited Maturity Fund and Total Return Fund is
the Lipper Global Income Funds average (the Lipper average), an average of
global income mutual funds. PIC manages each Fund with the goal of having
overall interest rate risk similar to that of the Lipper average.
Limited Maturity Fund declares daily and distributes dividends, if any,
every month. Total Return Fund pays any dividends from net investment income
every quarter. Net realized capital gains for both Funds, if any, are also
distributed annually.
EXPENSE STRUCTURES
Limited Maturity Fund and Total Return Fund pay a monthly management fee to
PIFM. PIFM, in turn, reimburses the investment adviser, PIC, for its reasonable
costs and expenses in providing advisory services to each Fund. PIC has entered
into an agreement with PRICOA Asset Management Ltd. (PRICOA), a subsidiary of
The Prudential Insurance Company of America, for the provision of investment
advisory services to the Fund and compensates PRICOA for its reasonable costs
and expenses in providing such services. PRICOA, an indirect wholly-owned
subsidiary of Prudential, is located at Cutlers Court, 115 Houndsditch, London
EC3A 7BR England. It was incorporated under U.K. law in January 1997 and as of
December 31, 1998 had approximately $2.58 billion under management. Total Return
Fund and Limited Maturity Fund pay management fees to PIFM at an annual rate of
0.75% and 0.55%, respectively, of their average net assets.
The management fee paid by both Funds covers PIFM's oversight of the Funds'
respective investment portfolios. PIFM also administers each Fund's corporate
affairs and furnishes the Funds with office facilities, together with those
ordinary clerical and bookkeeping services that are not furnished by the Funds'
custodian or transfer and dividend disbursing agent. Officers of PIFM serve as
officers and Directors of the Funds without compensation by the Funds.
Both Funds expense structures are similar but the rates paid are different.
Prudential Investment Management Services LLC (PIMS), the Funds' Distributor,
has voluntarily waived a portion of the distribution and service (12b-1) fee to
limit fees payable by Class A shares of Limited Maturity Fund to .15 of 1% of
average daily net assets and .75 of 1% of average daily net assets for Class B
and C shares of Limited Maturity Fund.
PIMS has contractually agreed to waive a portion of the distribution and
service (12b-1) fee to limit fees payable by Class A shares of Total Return Fund
to .25 of 1% of average daily net assets and by Class B
3
<PAGE>
and C shares of Total Return Fund to .25 of 1% of average daily net assets for
the fiscal year ending December 31, 1999.
Giving effect to the reorganization, the 12b-1 fees for Class A shares for
Global Total Return Fund's Class A shares will be charged at .25 of 1%, which is
higher than the current fee charged of .15 of 1% after the voluntary waiver for
Limited Maturity Fund. The 12b-1 fees for Class B and Class C shares are .75 of
1% for Total Return Fund and Limited Maturity Fund, although the rate is
contractually required for Total Return Fund through December 31, 1999 and a
result of voluntary waiver for Limited Maturity Fund. Class Z shares have no
12b-1 fees.
AS OF APRIL 30, 1999, THE NET OPERATING EXPENSES (TAKING INTO ACCOUNT THE
1999 FEE WAIVER) FOR CLASS A SHARES OF LIMITED MATURITY FUND WERE 1.39% AND WERE
1.43% FOR CLASS A SHARES OF TOTAL RETURN FUND FOR THE YEAR ENDED DECEMBER 31,
1998; FOR CLASS B SHARES OF LIMITED MATURITY FUND NET OPERATING EXPENSES WERE
1.99% AND WERE 1.93% FOR CLASS B SHARES OF TOTAL RETURN FUND; FOR CLASS C SHARES
OF LIMITED MATURITY FUND NET OPERATING EXPENSES WERE 1.99% AND WERE 1.93% FOR
CLASS C SHARES OF TOTAL RETURN FUND; FOR CLASS Z SHARES OF INTERMEDIATE FUND
WERE 1.24% AND WERE 1.18% FOR CLASS Z SHARES OF TOTAL RETURN FUND.
The voluntary waiver by PIMS for the Limited Maturity Fund can be terminated
at any time without prior notice which would increase operating expenses payable
by shareholders. If the Reorganization is not approved, the Distributor is
likely to change its reduction of Limited Maturity Fund's Class A shares from
.15 of 1% to .05 of 1% or to remove the waiver entirely. In addition, the
voluntary waivers for Class B and Class C shares may or may not continue.
The contractual waivers by PIMS for Total Return Fund are enforceable for
one-year periods and may be terminated with respect to any subsequent fiscal
year on not less than 30 days' notice prior to the end of a current fiscal year.
The contractual waivers for the Total Return Fund extend through December 31,
1999.
Overall, the proposed Reorganization would provide Limited Maturity Fund
shareholders with the following benefits:
- the opportunity to participate in a larger fund;
- investment in a fund with an investment objective and policies similar to
Limited Maturity Fund's investment objective and policies;
- annual operating expenses that are estimated to be lower than those of
Limited Maturity Fund (aside from any Limited Maturity Fund expense
waivers which may or may not continue past this fiscal year).
THE BOARD OF DIRECTORS BELIEVES THAT THE REORGANIZATION WILL BENEFIT LIMITED
MATURITY FUND SHAREHOLDERS AND RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR OF THE
REORGANIZATION.
THE PROPOSED REORGANIZATION
Shareholders of Limited Maturity Fund will be asked at the Meeting to vote
upon and approve the Reorganization and the Agreement, which provide for the
acquisition by Total Return Fund of all of the assets of Limited Maturity Fund
in exchange solely for Class A, Class B, Class C and Class Z shares of Total
Return Fund and the assumption by Total Return Fund of the liabilities of
Limited Maturity Fund. Class A, Class B, Class C and Class Z shares of Total
Return Fund will be distributed to Limited Maturity Fund Class A, Class B, Class
C and Class Z shareholders, so that each shareholder will receive the number of
full and fractional shares of Total Return Fund equal in value to the aggregate
net asset value of the shareholders' shares of Limited Maturity Fund on or about
Friday, October 15, 1999 (the Closing Date). The exchange of Limited Maturity
Fund's assets, subject to its liabilities, for Total Return Fund's shares will
occur as of the close of business of the New York Stock Exchange (NYSE) on the
Closing Date or such
4
<PAGE>
other time and date as the parties may agree. Limited Maturity Fund will then be
liquidated as soon as practicable after the Closing Date. Approval of the
Reorganization will be determined solely by approval of the shareholders of
Limited Maturity Fund. No vote by shareholders of Total Return Fund is required.
The Funds have received an opinion of counsel that the Reorganization will
not result in any gain or loss for federal income tax purposes to either Limited
Maturity Fund, Total Return Fund, or the shareholders of each Fund. The rights
and privileges of the former shareholders of Limited Maturity Fund will be
effectively unchanged by the Reorganization.
FUND OPERATING EXPENSES
Each Fund pays a management fee to PIFM for managing its investments and
business affairs which is calculated and paid to PIFM every month. Total Return
Fund and Limited Maturity Fund pay PIFM a management fee at an annual rate of
0.75% and 0.55%, respectively, of their average net assets.
In addition to the management fee, each Fund incurs other expenses for
services such as maintaining shareholder records and furnishing shareholder
statements and financial reports. If shareholders approve the Reorganization,
the combined fund will retain Total Return Fund's expense structure. ASSUMING
CONTINUATION OF TOTAL RETURN FUND'S CURRENT EXPENSE STRUCTURE, FEE WAIVERS AND
REDUCED ANNUAL OPERATING EXPENSES FOR A LARGER TOTAL RETURN FUND, IT IS
ESTIMATED THAT SHAREHOLDERS OF ALL SHARE CLASSES WOULD ENJOY LOWER NET ANNUAL
OPERATING EXPENSES. THIS EXPENSE STRUCTURE IS EXPECTED TO DECREASE THE TOTAL
OPERATING EXPENSES INCURRED BY CLASS B AND CLASS C SHAREHOLDERS OF LIMITED
MATURITY FUND FROM 1.99% TO 1.90% OF AVERAGE NET ASSETS AND FROM 1.24% TO 1.15%
OF AVERAGE NET ASSETS FOR CLASS Z SHAREHOLDERS. CLASS A SHAREHOLDERS OF LIMITED
MATURITY FUND ARE CURRENTLY PAYING NET OPERATING EXPENSES OF 1.39% OF AVERAGE
NET ASSETS WHICH IS .01 OF 1% LOWER THAN THE ESTIMATED TOTAL OPERATING EXPENSES
OF 1.40% OF AVERAGE DAILY NET ASSETS FOR CLASS A SHARES OF TOTAL RETURN FUND.
HOWEVER, IF THE PROPOSED REORGANIZATION IS NOT APPROVED, IT IS UNLIKELY THAT
LIMITED MATURITY FUND WILL MAINTAIN ITS CURRENT NET FEE STRUCTURE AND THE WAIVER
FOR CLASS A SHARES WILL EITHER BE REDUCED FROM .15 OF 1% TO .05 OF 1% OR REMOVED
ENTIRELY. For more information about the Funds' current fees, refer to their
Prospectuses. See the Pro Forma Capitalization and Ratios below for estimates of
expenses if the Reorganization is approved.
It is important to note that the Board of Directors of Total Return Fund has
also approved an Agreement and Plan of Reorganization and Liquidation of
Prudential Intermediate Global Income Fund, Inc. (Intermediate Fund) into Total
Return Fund. If that separate reorganization is approved by shareholders of
Intermediate Fund, the total net fund operating expenses of Total Return Fund
are estimated to decrease further to 1.39% of average net assets for Class A
shares, 1.89% of average net assets for Class B and Class C shares and 1.14% for
Class Z shares.
COMPARATIVE FEE TABLES
The following table shows the fees and expenses of Class A, Class B, Class C
and Class Z shares of Limited Maturity Fund and Total Return Fund, and pro forma
fees for the combined fund after giving effect to the Reorganization, including
the effect of PIMS' expense waivers previously described and the Fund's
increased size.
Fund operating expenses are paid out of each Fund's assets. Expenses are
factored into each Fund's share price or dividends and are not charged directly
to shareholder accounts. The following figures are based on historical expenses,
adjusted to reflect current fees, of Limited Maturity Fund for the six-month
period ended April 30, 1999 (annualized) and Total Return Fund for the fiscal
year ended December 31, 1998 and are calculated as a percentage of average net
assets of each Fund. The pro forma combined figures are based on December 31,
1998 amounts.
5
<PAGE>
CLASS A SHARES
<TABLE>
<CAPTION>
LIMITED MATURITY TOTAL RETURN PRO FORMA
FUND FUND CLASS A COMBINED FUND
CLASS A SHARES SHARES CLASS A SHARES
------------------ ---------------- ----------------
<S> <C> <C> <C>
Management fees................................................ .55% .75% .75%
+ Distribution and service (12b-1) fees........................ .30% .30% .30%
+ Other expenses............................................... .69% .43% .40%
= Total annual operating expenses.............................. 1.54% 1.48% 1.45%
- - Fee waiver................................................... (.15)% (.05)% (.05)%
----- ----- -----
= NET ANNUAL OPERATING EXPENSES................................ 1.39% 1.43% 1.40%
</TABLE>
CLASS B SHARES
<TABLE>
<CAPTION>
LIMITED MATURITY TOTAL PRO FORMA
FUND RETURN FUND COMBINED FUND
CLASS B SHARES CLASS B SHARES CLASS B SHARES
------------------ ---------------- ---------------
<S> <C> <C> <C>
Management fees................................................ .55% .75% .75%
+ Distribution and service (12b-1) fees........................ 1.00% 1.00% 1.00%
+ Other expenses............................................... .69% .43% .40%
= Total annual operating expenses.............................. 2.24% 2.18% 2.15%
- - Fee waiver................................................... (.25)% (.25)% (.25)%
----- ----- -----
= NET ANNUAL OPERATING EXPENSES................................ 1.99% 1.93% 1.90%
</TABLE>
CLASS C SHARES
<TABLE>
<CAPTION>
LIMITED MATURITY TOTAL PRO FORMA
FUND RETURN FUND COMBINED FUND
CLASS C SHARES CLASS C SHARES CLASS C SHARES
------------------ ---------------- ----------------
<S> <C> <C> <C>
Management fees................................................ .55% .75% .75%
+ Distribution and service (12b-1) fees........................ 1.00% 1.00% 1.00%
+ Other expenses............................................... .69% .43% .40%
= Total annual operating expenses.............................. 2.24% 2.18% 2.15%
- - Fee waiver................................................... (.25)% (.25)% (.25)%
----- ----- -----
= NET ANNUAL OPERATING EXPENSES................................ 1.99% 1.93% 1.90%
</TABLE>
CLASS Z SHARES
<TABLE>
<CAPTION>
LIMITED MATURITY TOTAL PRO FORMA
FUND RETURN FUND COMBINED FUND
CLASS Z SHARES CLASS Z SHARES CLASS Z SHARES
----------------- --------------- -----------------
<S> <C> <C> <C>
Management fees................................................ .55% .75% .75%
+ Distribution and service (12b-1) fees........................ None None None
+ Other expenses............................................... .69% .43% .40%
= Total annual operating expenses.............................. 1.24% 1.18% 1.15%
- - Fee waiver................................................... None None None
----- ----- -----
= NET ANNUAL OPERATING EXPENSES................................ 1.24% 1.18% 1.15%
</TABLE>
EXAMPLES OF THE EFFECT OF FUND EXPENSES
The following table illustrates the expenses on a hypothetical $10,000
investment in each Fund under the current and pro forma (combined fund) expenses
calculated at the rates stated above for the first year,
6
<PAGE>
and thereafter using gross expenses with no fee waivers, assuming a 5% annual
return, and assuming that you sell your shares at the end of each period.
CLASS A SHARES
<TABLE>
<CAPTION>
LIMITED MATURITY TOTAL PRO FORMA
FUND RETURN FUND COMBINED FUND
CLASS A SHARES CLASS A SHARES CLASS A SHARES
----------------- --------------- ---------------
<S> <C> <C> <C>
1 Year......................................................... $ 437 $ 540 $ 537
3 Years........................................................ $ 758 $ 844 $ 836
5 Years........................................................ $ 1,101 $ 1,171 $ 1,156
10 Years....................................................... $ 2,067 $ 2,094 $ 2,062
</TABLE>
CLASS B SHARES
<TABLE>
<CAPTION>
LIMITED MATURITY TOTAL PRO FORMA
FUND RETURN FUND COMBINED FUND
CLASS B SHARES CLASS B SHARES CLASS B SHARES
----------------- --------------- ---------------
<S> <C> <C> <C>
1 Year......................................................... $ 702 $ 696 $ 693
3 Years........................................................ $ 976 $ 958 $ 949
5 Years........................................................ $ 1,277 $ 1,247 $ 1,231
10 Years....................................................... $ 2,333 $ 2,233 $ 2,201
</TABLE>
CLASS C SHARES
<TABLE>
<CAPTION>
LIMITED MATURITY TOTAL PRO FORMA
FUND RETURN FUND COMBINED FUND
CLASS C SHARES CLASS C SHARES CLASS C SHARES
----------------- --------------- ---------------
<S> <C> <C> <C>
1 Year......................................................... $ 400 $ 394 $ 391
3 Years........................................................ $ 770 $ 752 $ 743
5 Years........................................................ $ 1,265 $ 1,235 $ 1,220
10 Years....................................................... $ 2,630 $ 2,569 $ 2,538
</TABLE>
CLASS Z SHARES
<TABLE>
<CAPTION>
LIMITED MATURITY TOTAL PRO FORMA
FUND RETURN FUND COMBINED FUND
CLASS Z SHARES CLASS Z SHARES CLASS Z SHARES
----------------- --------------- ---------------
<S> <C> <C> <C>
1 Year......................................................... $ 126 $ 120 $ 117
3 Years........................................................ $ 393 $ 375 $ 365
5 Years........................................................ $ 681 $ 649 $ 633
10 Years....................................................... $ 1,500 $ 1,432 $ 1,398
</TABLE>
These examples assume that all dividends and other distributions are
reinvested. These examples illustrate the effect of expenses, but are not meant
to suggest actual or expected expenses, which may vary. The assumed return of 5%
is not a prediction of, and does not represent, actual or expected performance
of any Fund.
PRO FORMA CAPITALIZATION AND RATIOS
The following table shows the capitalization of Global Limited Fund as of
April 30, 1999 and the Total Return Fund as of December 31, 1998 and the pro
forma combined capitalization as if the Reorganization had occurred on December
31, 1998.
7
<PAGE>
<TABLE>
<CAPTION>
GLOBAL LIMITED TOTAL RETURN PRO FORMA
FUND FUND COMBINED
-------------- ------------ -----------
<S> <C> <C> <C>
Net Assets (000s)
Class A................................................................. $ $ 165,267 $ 229,064
Class B................................................................. 3,625 4,621
Class C................................................................. 275 309
Class Z................................................................. 2,435 2,486
Net Assets Value per share
Class A................................................................. 7.81 8.03 8.03
Class B................................................................. 7.86 8.03 8.03
Class C................................................................. 7.86 8.03 8.03
Class Z................................................................. 7.84 8.03 8.03
Shares Outstanding (000s)
Class A................................................................. 19,801 27,578
Class B................................................................. 452 606
Class C................................................................. 34 41
Class Z................................................................. 303 309
</TABLE>
The following table shows the ratio of expenses to average net assets and
the ratio of net investment income to average net assets (based upon weighted
average shares outstanding during the relevant period) of Global Limited Fund
for the six months ended April 30, 1999 (annualized) and of Total Return Fund
for the fiscal year ended December 31, 1998. The ratios also are shown on a pro
forma combined basis as of December 31, 1998.
<TABLE>
<CAPTION>
GLOBAL LIMITED TOTAL RETURN PRO FORMA
FUND FUND COMBINED
--------------- ------------- -----------
<S> <C> <C> <C>
Ratios of expenses to average net assets
Class A................................................................. 1.39% 1.43% 1.40%
Class B................................................................. 1.99% 1.93% 1.90%
Class C................................................................. 1.99% 1.93% 1.90%
Class Z................................................................. 1.24% 1.18% 1.15%
Ratio of net investment income to average net assets
Class A................................................................. 6.28% 6.42% 5.83%
Class B................................................................. 5.68% 5.86% 5.23%
Class C................................................................. 5.68% 5.84% 5.23%
Class Z................................................................. 6.43% 6.65% 5.98%
</TABLE>
FORMS OF ORGANIZATION
Limited Maturity Fund is a non-diversified, open-end management investment
company. It was organized as a Maryland corporation on February 21, 1990 and
commenced investment operations on November 1, 1990. Limited Maturity Fund is
authorized to issue 2 billion shares of common stock, $.001 per share, divided
equally into 500 million shares per class.
Total Return Fund is also a non-diversified, open-end management investment
company. It was organized as a Maryland corporation on May 6, 1986 and commenced
investment operations as a closed-end fund on July 7, 1986. Effective January
15, 1996, the Fund became an open-end investment company. Total Return Fund is
authorized to issue 2 billion shares of common stock, $.01 per share, divided
equally into 500 million shares per class.
Because the Funds are both organized as Maryland corporations under
substantially similar Articles of Incorporation, and because each Fund has
adopted substantially similar Bylaws, the rights of security holders of each
Fund under state law and the governing documents would be expected to remain
unchanged after the Reorganization.
8
<PAGE>
PERFORMANCE COMPARISONS OF THE FUNDS
The following table compares the average annual total returns for Limited
Maturity Fund and Total Return Fund for the one, five and ten year and since
inception periods ended June 30, 1999. Average annual total returns include the
deduction of applicable sales charges, are based on past results and are not an
indication of future performance.
AVERAGE ANNUAL TOTAL RETURNS (CLASS A SHARES)
(PERIODS ENDED JUNE 30, 1999)
<TABLE>
<CAPTION>
1 YEAR* 5 YEARS* 10 YEARS* SINCE INCEPTION*
----------- ----------- ------------- --------------------
<S> <C> <C> <C> <C>
Limited Maturity Fund................................... (3.93)% 4.41% N/A 4.39% (11-1-90)
Total Return Fund....................................... (3.09)% 8.25% 8.48% 9.37% (7-7-86)
</TABLE>
- ------------------------
* If the Fund's Distributor had not waived a portion of its fees during the
periods shown, total returns would have been lower.
AVERAGE ANNUAL TOTAL RETURNS (CLASS B SHARES)
(PERIODS ENDED JUNE 30, 1999)
<TABLE>
<CAPTION>
1 YEAR* 5 YEARS* 10 YEARS* SINCE INCEPTION*
----------- ----------- ------------- --------------------
<S> <C> <C> <C> <C>
Limited Maturity Fund................................... (4.47)% 4.51% N/A 4.08% (11-1-90)
Total Return Fund....................................... (4.66)% N/A N/A 5.26% (1-15-96)
</TABLE>
- ------------------------
* If the Fund's Distributor had not waived a portion of its fees during the
periods shown, total returns would have been lower.
AVERAGE ANNUAL TOTAL RETURNS (CLASS C SHARES)
(PERIODS ENDED JUNE 30, 1999)
<TABLE>
<CAPTION>
1 YEAR* SINCE INCEPTION*
----------- ---------------------
<S> <C> <C>
Limited Maturity Fund...................................................... (3.45)% 4.58% (8-1-94)
Total Return Fund.......................................................... (1.66)% 5.46% (1-15-96)
</TABLE>
- ------------------------
* If the Fund's Distributor had not waived a portion of its fees during the
periods shown, total returns would have been lower.
AVERAGE ANNUAL TOTAL RETURNS (CLASS Z SHARES)
(PERIODS ENDED JUNE 30, 1999)
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
----------- ---------------------
<S> <C> <C>
Limited Maturity Fund...................................................... (0.74)% 2.94% (1-27-97)
Total Return Fund.......................................................... 1.23% 4.85% (3-17-97)
</TABLE>
9
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES
Limited Maturity Fund and Total Return Fund have substantially similar
investment objectives and policies. Limited Maturity Fund seeks to maximize
total return made up of current income and capital appreciation. Total Return
Funds seeks total return made up of current income and capital appreciation.
Each Fund normally invests at least 65% of total assets in income-producing debt
securities. These securities are issued by the U.S. and foreign governments,
supranational organizations, and government agencies, authorities or
instrumentalities and also include short-term bank debt securities or bank
deposits. Limited Maturity Fund and Total Return Fund have the same Manager
(PIFM), the same investment adviser (PIC), the same subadviser (PRICOA) and the
same portfolio managers (Gabriel Irwin and Simon Wells).
One benchmark index for both Limited Maturity Fund and Total Return Fund is
the Lipper Global Income Funds (the Lipper average), an average of global income
mutual funds. PIC manages each Fund with the goal of having overall interest
rate risk similar to that of the Lipper average.
The investment objective of each Fund is a fundamental policy. This means
that the objective cannot be changed without the approval of shareholders of the
Fund. There can be no assurance that either Limited Maturity Fund or Total
Return Fund will achieve its objective. With the exception of fundamental
policies, investment policies (other than specified investment restrictions) of
the Funds can be changed without shareholder approval.
PRINCIPAL INVESTMENT STRATEGIES
Limited Maturity Fund and Total Return Fund have similar investment
objectives, stating total return as the primary goal. Typically, both Funds
invest at least 65% of total assets in U.S. and foreign income-producing debt
securities. Limited Maturity Fund typically invests at least 30% of its total
assets in U.S. dollar denominated securities and at least 50% of total assets in
securities denominated in U.S., Canadian, Australian or New Zealand dollars.
Limited Maturity Fund can also invest 25% or more of total assets in a
particular country or countries. Total Return Fund generally limits investments
in securities denominated in any one foreign currency to 40% of the Fund's total
assets, except for the euro (up to 65%). Total Return Fund usually invests in
issuers from at least three different countries while Limited Maturity Fund
usually invests in issuers from at least five different countries. Both Funds
can invest in securities of developing countries.
Total Return Fund maintains a dollar-weighted average maturity of not more
than 10 years. As of June 30, 1999, Total Return Fund's average duration was 4.2
years and its average maturity was 6.5 years. Limited Maturity Fund is a "short
duration" fund, which means it has a dollar-weighted average maturity more than
2 but less than 5 years. The Fund's average duration as of June 30, 1999, was
2.9 years, while its average maturity was 4.0 years. The majority of the Funds'
investments are investment grade. However, up to 20% of the Limited Maturity
Fund's total assets may be invested in lower rated securities; up to 15% of
Total Return Fund's total assets may be invested in these securities.
The investment adviser has a team of fixed-income professionals, including
credit analysts and traders, with experience in many foreign fixed-income
securities markets. In selecting portfolio securities, the investment adviser
considers country and currency selection, economic conditions and interest rate
fundamentals. The investment adviser also evaluates individual debt securities
within each fixed-income sector based upon their relative investment merit and
considers factors such as yield, duration and potential for price or currency
appreciation as well as credit quality, maturity and risk.
10
<PAGE>
COMPARISON OF OTHER POLICIES OF THE FUNDS
DIVERSIFICATION
Limited Maturity Fund and Total Return Fund are both non-diversified funds.
This means that each Fund may invest more than 5% of its total assets in the
securities of a single issuer.
BORROWING
Each Fund may borrow money for temporary or emergency purposes and for the
clearance of transactions from banks or through reverse repurchase agreements.
In addition, Total Return Fund may borrow money for investment purposes. Neither
Fund may borrow money in an amount exceeding 20% of its total assets.
LENDING
The Limited Maturity Fund may lend assets to brokers, dealers and financial
institutions of up to 30% of its total assets, but this limitation does not
apply to purchases of debt securities or to repurchase agreements. Total Return
Fund may not make loans except through repurchase agreements and the purchase of
debt obligations and bank deposits.
ILLIQUID SECURITIES
Each Fund may invest in illiquid securities, including those without a
readily available market and repurchase agreements with maturities longer than
seven days. Each Fund may hold up to 15% of its net assets in illiquid
securities.
TEMPORARY DEFENSIVE INVESTMENTS
Although PIC and PRICOA normally invest each Fund's assets according to the
Fund's investment strategy, there are times when each Fund may temporarily
invest up to 100% of its assets in money market instruments in response to
adverse market, economic or political conditions.
For more information about the risks and restrictions associated with these
policies, see each Fund's Prospectus, and for a more detailed discussion of the
Funds' investments, see their Statements of Additional Information, all of which
are incorporated into this Proxy Statement by reference.
COMPARISON OF PRINCIPAL RISK FACTORS
Each Fund is subject to the risks normally associated with funds that invest
in debt obligations of foreign companies and governmental entities. As described
more fully above, each Fund has substantially similar investment objectives,
policies and permissible investments.
Because each Fund normally invests in similarly-rated debt obligations, the
Funds have substantially similar levels of risk. These include credit risks,
market risks and interest rate risks. In addition, Total Return Fund has a
slightly lower exposure to lower-rated debt securities with the ability to
invest 15% of its total assets in such securities. Prior to August 9, 1999,
Total Return Fund had the ability to invest up to 10% of its total assets in
lower-rated debt securities. Limited Maturity Fund has the ability to invest up
to 20% of its total assets in these securities.
Both Funds may also use investment strategies--such as derivatives--that
involve above-average risks. The Funds may use these risk management techniques
to try to preserve assets or enhance return. Derivatives may not fully offset
the underlying positions and this could result in losses to the Fund that would
not otherwise have occurred. The Total Return Fund may borrow for investment
purposes, I.E. use "leverage". Leverage risk is the risk associated with
investments or trading strategies that relatively small market movements may
result in large changes in the value of an investment.
11
<PAGE>
Like any mutual fund, an investment in either Limited Maturity Fund or Total
Return Fund could lose value. For a more complete discussion of the risks
associated with either Fund, please refer to the "Risk/ Return Summary" or the
section entitled "Investment Risks" of each Fund's Prospectus.
OPERATIONS OF TOTAL RETURN FUND
FOLLOWING THE REORGANIZATION
PIFM, PIC and PRICOA do not expect Total Return Fund to revise its
investment policies, management or general investment approach as a result of
the Reorganization. In addition, Gabriel Irwin and Simon Wells serve as
co-portfolio managers of both Limited Maturity Fund and Total Return Fund. The
agents that provide Total Return Fund with services, such as its Custodian and
Transfer Agent, which also provide these services to Limited Maturity Fund, are
not expected to change. The Directors and the officers of the Funds are the
same.
On August 9, 1999, Total Return Fund changed its name to "Prudential Global
Total Return Fund, Inc." and changed the percentage of its total assets that may
be invested in lower-rated securities (junk bonds) from 10% to 15%.
All of the current investments of Limited Maturity Fund are permissible
investments for Total Return Fund. Nevertheless, PIC may sell securities held by
Limited Maturity Fund or Total Return Fund between shareholder approval and the
Closing Date of the Reorganization as may be necessary or desirable in the
ongoing management of each Fund and the adjustment of each Fund's portfolio in
anticipation of the Reorganization. Transaction costs associated with such
adjustments will be borne by the Fund that incurred them. Transaction costs
associated with such adjustments that occur after the Closing Date will be borne
by Total Return Fund.
PURCHASES, REDEMPTIONS AND EXCHANGES
PURCHASING SHARES
The price to buy one share of each Fund is each Fund's net asset value, or
NAV, plus, in the case of Class A and Class C shares, a front-end sales charge.
Each Fund offers Class A, Class B, Class C and Class Z shares. Limited Maturity
Fund charges a lower front-end sales charge on Class A shares (3% of the Class A
shares' offering price) than is charged by Total Return Fund (4% of the Class A
shares' offering price).
The Class A shares you receive in the Reorganization are not subject to a
front-end sales charge although additional purchases after the Reorganization
will be subject to the Total Return Class A sales charge schedule.
The contingent deferred sales charge (CDSC) imposed by Class B shares of
Limited Maturity Fund is 3% over five years, lower than the 5% CDSC on Total
Return Fund's Class B shares over seven years. Each CDSC declines by 1% every
year. In addition, Class B shares of Total Return Fund automatically convert to
Class A shares (which have a lower 12b-1 fee) approximately seven years after
they are purchased. Class B shares of Limited Maturity Fund convert to Class A
shares approximately five years after purchased. If you are a Class B
shareholder of the Limited Maturity Fund, we will "add" two years to the number
of years you have held your class B shares of Limited Maturity Fund so that you
are not subject to a longer CDSC period than you would otherwise be. However, if
you purchase additional Total Return Fund Class B shares after the
Reorganization, those shares will be subject to the higher CDSC and longer
conversion period.
The sales charge imposed on Class C shares of Total Return Fund is identical
to that charged by Limited Maturity Fund. Class C shares are sold with a 1%
front-end load and a 1% CDSC for shares redeemed within 18 months of purchase.
12
<PAGE>
The Class B or Class C shares you receive in the Reorganization will be
subject to the identical CDSC that is applicable to your Limited Maturity Fund
investment (except that as noted above, the holding period for your Class B
shares will be aged by two years). In other words, the CDSC will be calculated
from the first day of the month after your purchase of shares of Limited
Maturity Fund, exclusive of any time during which you may have been invested in
a money market fund.
Both Funds also offer Class Z shares, which are sold without either a
front-end load or a CDSC and are available only to a limited group of investors.
You will receive the same class of shares in Total Return Fund that you own in
Limited Maturity Fund, except that you may exchange your shares for Class Z
shares if you qualify for Class Z shares.
Shares in both Funds are purchased at the next NAV calculated after your
investment is received and accepted. Each Fund's NAV is normally calculated each
business day at 4:15 p.m., New York time. Refer to each Fund's Prospectus for
more information regarding how to buy shares.
REDEEMING SHARES
The redemption policies for each Fund are identical, except for the
different Class B contingent deferred sales charge mentioned above. Your shares
will be sold at the next NAV, less any applicable CDSC imposed on Class B and
Class C shares, calculated after your order is received and accepted. Refer to
each Fund's Prospectus for more information regarding how to sell shares.
MINIMUM INVESTMENT REQUIREMENTS
For both Funds, the minimum initial investment amount is $1,000 for Class A
and Class B shares and $2,500 for Class C shares. The minimum additional
investment amount is $100. There is no minimum investment for Class Z shares.
PURCHASES AND REDEMPTIONS OF LIMITED MATURITY FUND
On May 27, 1999, Limited Maturity Fund stopped accepting orders to purchase
or exchange into its shares of any class, except for purchases by certain
automatic investment, retirement and employee plans (excluding IRA accounts).
Limited Maturity Fund shareholders may continue to acquire shares through
dividend reinvestment.
Shareholders of Limited Maturity Fund may redeem shares of Limited Maturity
Fund through the Closing Date of the Reorganization. If the Reorganization is
approved, the purchase and redemption policies of the combined fund will be the
same as the current policies of Total Return Fund.
EXCHANGES OF FUND SHARES
The exchange privilege currently offered by each Fund is the same and is not
expected to change after the Reorganization. Shareholders of the Funds may
exchange their shares for shares of the same class of any other Prudential
Mutual Fund. If you hold Class B or Class C shares and wish to exchange into a
money market fund, you must exchange into Prudential Special Money Market Fund,
Inc. During the time you are invested in Prudential Special Money Market Fund,
Inc., the period of time during which your contingent deferred sales charge is
calculated is frozen. Refer to each Fund's Prospectus for restrictions governing
exchanges.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund distributes substantially all of its net investment income and
capital gains to shareholders each year. Limited Maturity Fund declares daily
and distributes dividends, if any, every month. Total Return Fund pays any
dividends from net investment income every quarter. Net realized capital gains
for both Funds, if any, are also distributed annually. On or before the Closing
Date, Limited Maturity Fund
13
<PAGE>
may declare additional dividends or other distributions in order to distribute
substantially all of its investment company taxable income and net realized
capital gains.
FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION
Each Fund will receive an opinion of outside counsel that the Reorganization
will constitute a tax-free reorganization within the meaning of Section
368(a)(1)(C) of the Internal Revenue Code of 1986, as amended (the Code).
Accordingly, no gain or loss will be recognized to the Funds or their
shareholders as a result of the Reorganization. Please see the section entitled
"The Proposed Transaction--Federal Income Tax Considerations" for more
information.
During the period between shareholder approval and the Closing Date, PRICOA
may sell certain securities to make portfolio adjustments to Limited Maturity
Fund and Total Return Fund in connection with the Reorganization. Selling these
securities may result in realization of capital gains, which, when distributed,
would be taxable to the selling fund's shareholders.
As of October 31, 1998, Limited Maturity Fund had capital loss carryforwards
for federal income tax purposes of approximately $52.7 million. Under current
federal tax law, Total Return Fund may be limited to using only a portion, if
any, of the capital loss carryforwards transferred by Limited Maturity Fund at
the time of the Reorganization. It is estimated that Total Return Fund may use a
maximum of $11.7 million of the approximately $52.7 million of Limited Maturity
Fund's capital loss carryforwards after the reorganization. There is no
assurance that Total Return Fund will be able to realize sufficient capital
gains to use the capital loss carryforwards before they expire.
THE PROPOSED TRANSACTION
REORGANIZATION PLAN
The Agreement and Plan of Reorganization describes the terms and conditions
under which the proposed transaction may be completed. Significant provisions of
the Agreement are summarized below; however, this summary is qualified in its
entirety by reference to the Agreement, a copy of which is attached as Appendix
A to this Proxy Statement.
The Agreement contemplates (a) Total Return Fund acquiring as of the Closing
Date all of the assets of Limited Maturity Fund in exchange solely for shares of
Total Return Fund and the assumption by Total Return Fund of Limited Maturity
Fund's liabilities; and (b) the distribution of shares of Total Return Fund to
the shareholders of Limited Maturity Fund as provided for in the Agreement.
The assets of Limited Maturity Fund to be acquired by Total Return Fund
include all cash, cash equivalents, securities, receivables (including interest
or dividends receivable), claims and other property owned by Limited Maturity
Fund, and any deferred or prepaid expenses shown as an asset on the books of
Limited Maturity Fund on the Closing Date. Total Return Fund will assume from
Limited Maturity Fund all liabilities, debts and obligations of Limited Maturity
Fund of whatever kind or nature, whether absolute, accrued, contingent or
otherwise, whether or not arising in the ordinary course of business, whether or
not determinable on the Closing Date and whether or not specifically referred to
in the Agreement; provided, however, that Limited Maturity Fund will use its
best efforts, to the extent practicable, to discharge all of its known
liabilities prior to the Closing Date, other than liabilities incurred in the
ordinary course of business.
Total Return Fund will deliver to Limited Maturity Fund the number of full
and fractional shares of Total Return Fund having an aggregate net asset value
equal to the value of the assets of Limited Maturity Fund less the liabilities
of Limited Maturity Fund as of the Closing Date. Limited Maturity Fund will then
distribute the Total Return Fund shares PRO RATA to its shareholders, Class A
shares for Class A shares, Class B shares for Class B shares, Class C shares for
Class C shares and Class Z shares for Class Z shares.
14
<PAGE>
The value of Limited Maturity Fund's assets to be acquired by Total Return
Fund and the amount of its liabilities to be assumed by Total Return Fund will
be determined as of the close of business on the Closing Date, using the
valuation procedures set forth in Limited Maturity Fund's Prospectus and
Statement of Additional Information. The net asset value of a share of Total
Return Fund will be determined as of the same time using the valuation
procedures set forth in its Prospectus and Statement of Additional Information.
As of the Closing Date, Limited Maturity Fund will distribute to its
shareholders of record the shares of Total Return Fund it receives, so that each
Limited Maturity Fund shareholder will receive the number of full and fractional
shares of Total Return Fund equal in value to the aggregate net asset value of
shares of Limited Maturity Fund held by such shareholder on the Closing Date.
Limited Maturity Fund will then be liquidated as soon as practicable. The
distribution of shares of Total Return Fund will be accomplished by opening
accounts on the books of Total Return Fund in the names of the Limited Maturity
Fund shareholders and by transferring to such accounts shares of Total Return
Fund. Each Limited Maturity Fund shareholder's account will be credited with the
respective PRO RATA number of full and fractional shares of Total Return Fund
due that shareholder. If requested, Total Return Fund will issue certificates
representing its shares only upon surrender of shares of Limited Maturity Fund.
Immediately after the Reorganization, each former Limited Maturity Fund
shareholder will own shares of Total Return Fund equal to the aggregate net
asset value of that shareholder's shares of Limited Maturity Fund immediately
prior to the Reorganization. The net asset value per share of Total Return Fund
will not be affected by the transaction. Thus, the Reorganization will not
result in a dilution of any shareholder interests.
Any transfer taxes payable upon issuance of shares of Total Return Fund in a
name other than that of the registered holder of the shares on the books of
Limited Maturity Fund as of that time will be payable by the person to whom such
shares are to be issued as a condition of such transfer. Any reporting
responsibility of Limited Maturity Fund is and will continue to be its
responsibility up to and including the Closing Date and such later date on which
Limited Maturity Fund is liquidated.
The completion of the Reorganization is subject to a number of conditions
set forth in the Agreement, some of which may be waived by a Fund. In addition,
the Agreement may be amended in any mutually agreeable manner, except that no
amendment that may have a materially adverse effect on the shareholders'
interests may be made subsequent to the Meeting.
REASONS FOR THE REORGANIZATION
The Board of Directors (the Board) of the Funds have each determined that
the Reorganization is in the best interests of the shareholders of both Funds
and that the Reorganization will not result in a dilution of the interests of
shareholders of either Fund.
In considering the Reorganization, the Boards each considered a number of
factors, including the following:
- the compatibility of the Funds' investment objectives, policies and
restrictions;
- the relative past and current growth in assets and investment historical
performance of the Funds and future prospects for Total Return Fund;
- the effect of the Reorganization on the expense ratios of the Funds;
- the estimated costs of the Reorganization;
- the tax consequences of the Reorganization;
- the relative size of the Funds and decrease in the number of shareholders
of Limited Maturity Fund; and
15
<PAGE>
- the benefits to the shareholders of the Funds.
PIFM and PIC recommended the Reorganization to the Board of Directors at the
meeting of the Board held on May 26, 1999. In recommending the Reorganization,
PIFM and PIC advised the Board that the Funds have similar investment
objectives, policies and investment portfolios. PIFM and PIC informed the Board
that the Funds differed primarily with respect to the Funds' expense structures.
The Board considered that, if the Reorganization is approved, shareholders
of Limited Maturity Fund would likely incur lower total combined fund operating
expenses. It is expected that if the Reorganization is consummated, total
operating expenses would change, from 1.39% (after voluntary waivers) to 1.40%
of average daily net assets for Class A shares, from 1.99% (after voluntary
waivers) to 1.90% of average daily net assets for Class B shares, from 1.99%
(after voluntary waivers) to 1.90% of average daily net assets for Class C
shares, and 1.24% to 1.15% of average daily net assets for Class Z shares,
assuming Total Return Fund's current expense limitations. As stated previously,
it is unlikely that the Class A voluntary fee waiver will continue at its
current level or at all.
DESCRIPTION OF THE SECURITIES TO BE ISSUED
Total Return Fund was incorporated in Maryland on May 6, 1986. It is
registered with the Commission as an open-end management investment company.
Total Return Fund is authorized to issue 2 billion of shares of common stock,
$.01 par value per share, divided equally into four classes of shares,
designated as Class A, Class B, Class C and Class Z common stock. Each class of
common stock represents an interest in the same assets of Total Return Fund and
is identical in all respects except that:
- each class is subject to different sales charges and distribution and/or
service (12b-1) fees, except for Class Z shares, which are not subject to
any sales charges or distribution and/or service fees;
- each class has exclusive voting rights on any matter submitted to
shareholders that relates solely to its arrangement and has separate
voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class;
- each class has a different exchange privilege;
- only Class B shares have a conversion feature whereby Class B shares held
for at least 6 years will automatically convert to Class A shares, on a
quarterly basis, approximately seven years after purchase; and
- Class Z shares are offered exclusively for sale to a limited group of
investors.
Shares of Total Return Fund, when issued, are fully paid, nonassessable,
fully transferable and redeemable at the option of the shareholder. Except for
the conversion feature applicable to Class B shares, there are no conversion,
preemptive or other subscription rights. The voting and dividend rights, the
right of redemption and the privilege of exchange are described in the Total
Return Fund's Prospectus.
Total Return Fund does not hold annual meetings of shareholders. There will
normally be no meetings of shareholders for the purpose of electing Directors
unless less than a majority of the Directors holding office have been elected by
shareholders, at which time the Directors then in office will call a shareholder
meeting for the election of Directors. Under the Investment Company Act of 1940
(the 1940 Act), shareholders of record of at least two-thirds of the outstanding
shares of an investment company may remove a Director by votes cast in person or
by proxy at a meeting called for that purpose. The Directors are required to
call a meeting of shareholders for the purpose of voting upon the question of
removal of any Director, or to transact any other business, when requested in
writing to do so by the shareholders of record holding at least 10% of the Total
Return Fund's outstanding shares.
16
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
The exchange of Limited Maturity Fund's assets for Total Return Fund's
shares and the assumption of the liabilities of Limited Maturity Fund by Total
Return Fund is intended to qualify for federal income tax purposes as a tax-free
reorganization under the Internal Revenue Code. With respect to the
Reorganization, the Funds will receive an opinion from Gardner, Carton &
Douglas, counsel to Total Return Fund, based upon representations made by both
Limited Maturity Fund and Total Return Fund, substantially to the effect that,
for federal income tax purposes:
(1) The acquisition by Total Return Fund of the assets of Limited Maturity
Fund in exchange solely for voting shares of Total Return Fund and the
assumption by Total Return Fund of Limited Maturity Fund's liabilities,
if any, followed by the distribution of Total Return Fund's voting shares
by Limited Maturity Fund PRO RATA to its shareholders, as a liquidating
distribution and the liquidation of Limited Maturity Fund pursuant to the
Reorganization and constructively in exchange for their Limited Maturity
Fund shares, will constitute a reorganization within the meaning of
section 368(a)(1)(C) of the Code, and Limited Maturity Fund and Total
Return Fund each will be "a party to a reorganization" within the meaning
of section 368(b) of the Code;
(2) No gain or loss will be recognized by Limited Maturity Fund upon the
transfer of all of its assets to Total Return Fund in exchange solely for
Class A, Class B, Class C and Class Z shares of Total Return Fund shares
and the assumption by Total Return Fund of Limited Maturity Fund's
liabilities, if any. In addition, no gain or loss will be recognized by
Limited Maturity Fund on the distribution of such shares to the Limited
Maturity Fund shareholders in liquidation of Limited Maturity Fund;
(3) No gain or loss will be recognized by Total Return Fund upon the
acquisition of Limited Maturity Fund's assets in exchange solely for
Class A, Class B, Class C and Class Z shares of Total Return Fund and the
assumption of Limited Maturity Fund's liabilities, if any;
(4) Limited Maturity Fund's shareholders will recognize no gain or loss upon
the receipt of Class A, Class B, Class C and Class Z shares of Total
Return Fund solely in exchange for and in cancellation of Limited
Maturity Fund shares of common stock, as described above and in the
Agreement;
(5) Total Return Fund's basis in the assets acquired from Limited Maturity
Fund will be the same as the basis of such assets in the hands of Limited
Maturity Fund immediately before the Reorganization, and the holding
period of such assets acquired by Total Return Fund will include the
holding period thereof when held by Limited Maturity Fund immediately
before the Reorganization;
(6) Limited Maturity Fund shareholders' basis in the Class A, Class B, Class
C and Class Z shares of Total Return Fund to be received by them pursuant
to the Reorganization will be the same as their basis in the Class A,
Class B, Class C and Class Z shares of Limited Maturity Fund to be
constructively surrendered in exchange therefor; and
(7) The holding period of Total Return Fund shares to be received by Limited
Maturity Fund shareholders will include the period during which Limited
Maturity Fund shares to be constructively surrendered in exchange
therefor were held; provided such Limited Maturity Fund shares were held
as capital assets by those shareholders on the date of the
Reorganization.
Shareholders of Limited Maturity Fund should consult their tax advisers
regarding the effect, if any, of the proposed Reorganization in light of their
individual circumstances. Because the foregoing discussion relates only to the
federal income tax consequences of the Reorganization, shareholders also should
consult their tax advisers as to state and local tax consequences, if any, of
the Reorganization.
17
<PAGE>
CONCLUSION
The Agreement and Plan of Reorganization was approved by the Board of
Directors of Limited Maturity Fund and Total Return Fund at the Board meeting
held on May 26, 1999. The Board of Directors of both Funds determined that the
proposed Reorganization is in the best interests of shareholders of each Fund
and that the interests of existing shareholders of Limited Maturity Fund and
Total Return Fund would not be diluted as a result of the Reorganization. If the
Reorganization is not completed, Limited Maturity Fund will continue to engage
in business as a registered investment company and the Board of Directors of
Limited Maturity Fund will consider other proposals for the Fund, including
proposals for the reorganization or liquidation of the Fund.
ADDITIONAL INFORMATION ABOUT TOTAL RETURN FUND
Total Return Fund's Prospectus dated March 1, 1999, as supplemented July 23,
1999 and August 9, 1999, is enclosed with this Proxy Statement and is
incorporated into this Proxy Statement by reference. The Prospectus contains
additional information about Total Return Fund, including its investment
objective and policies, Manager, investment adviser, subadviser, advisory fees
and expenses and procedures for purchasing and redeeming shares. The Prospectus
also contains Total Return Fund's financial highlights for the fiscal period
ended December 31, 1998. The performance overview from Total Return Fund's
Annual Report for the period ended December 31, 1998 is attached as Attachment I
to this Proxy Statement.
MISCELLANEOUS
LEGAL MATTERS
Certain legal matters in connection with the issuance of Total Return Fund
shares have been passed upon by Piper & Marbury L.L.P., Maryland counsel to
Total Return Fund. Certain legal and tax matters in connection with the
reorganization have been passed upon by Gardner, Carton & Douglas, counsel to
Limited Maturity Fund and Total Return Fund.
INDEPENDENT ACCOUNTANTS
The audited financial statements of Limited Maturity Fund and Total Return
Fund, incorporated by reference into the Statement of Additional Information,
have been examined by PricewaterhouseCoopers LLP, independent accountants, whose
reports thereon are included in the Annual Report to Shareholders for the each
Fund's fiscal year ending October 31, 1998 and December 31, 1998, respectively.
The financial statements audited by PricewaterhouseCoopers LLP have been
incorporated by reference in reliance on their reports given on their authority
as experts in auditing and accounting.
AVAILABLE INFORMATION
Limited Maturity Fund and Total Return Fund are each subject to the
informational requirements of the Securities Exchange Act of 1934 and the 1940
Act, and in accordance with these laws, they each file reports, proxy material
and other information with the Commission. Such reports, proxy material and
other information can be inspected and copied at the Public Reference Room
maintained by the Commission at 450 Fifth Street, N.W., Washington D.C. 20549
and 7 World Trade Center, New York, NY 10048. Copies of such material can also
be obtained from the Public Reference Branch, Office of Consumer Affairs and
Information Services, Securities and Exchange Commission, Washington D.C. 20549,
at prescribed rates.
18
<PAGE>
NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR NOMINEES
Please advise Total Return Fund, in care of Prudential Investment Management
Services LLC, Gateway Center Three, 100 Mulberry Street, 9(th) Floor, Newark,
New Jersey 07102-4077, whether other persons are beneficial owners of shares for
which proxies are being solicited and, if so, the number of copies of the Proxy
Statement you wish to receive in order to supply copies to the beneficial owners
of the shares.
SHAREHOLDER PROPOSALS
Any shareholder of Limited Maturity Fund who wishes to submit a proposal to
be considered by the Fund's shareholders at the next meeting of shareholders
should send the proposal to Limited Maturity Fund c/o Marguerite E H. Morrison,
Secretary, at Gateway Center Three, 100 Mulberry Street, 9th Floor, Newark, New
Jersey 07102-4077, so as to be received within a reasonable time before the
Board of Directors of Limited Maturity Fund makes the solicitation relating to
such meeting. Shareholder proposals that are submitted in a timely manner will
not necessarily be included in the Limited Maturity Fund's proxy materials.
Including shareholder proposals in proxy materials is subject to limitations
under federal securities laws. If the Reorganization is approved, it is unlikely
that Limited Maturity Fund will hold any more shareholders' meetings.
The Limited Maturity Fund's By-Laws provide that the Fund will not be
required to hold annual meetings of shareholders if the election of Directors is
not required under the 1940 Act. It is the present intention of the Board of
Directors not to hold annual meetings of shareholders unless required to do so
by the 1940 Act.
OTHER BUSINESS
Management of Limited Maturity Fund knows of no business to be presented at
the Meeting other than the Proposal described in this Proxy Statement. However,
if any other matter requiring a shareholder vote should arise, the proxies will
vote according to their best judgment in the interest of Limited Maturity Fund.
By order of the Board of Directors,
MARGUERITE E. H. MORRISON
SECRETARY
August , 1999
IT IS IMPORTANT THAT YOU EXECUTE AND RETURN YOUR PROXY PROMPTLY.
19
<PAGE>
ATTACHMENT I -- PERFORMANCE OVERVIEW
YEAR ENDED DECEMBER 31, 1998
20
<PAGE>
ATTACHMENT I--
PERFORMANCE OVERVIEW FROM THE
ANNUAL REPORT OF TOTAL RETURN
FUND DATED DECEMBER 31, 1998
<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%.
<PAGE>
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>
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>
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION
Agreement and Plan of Reorganization and Liquidation (Agreement) made as of
the day of August, 1999, by and between Prudential Global Limited Maturity
Fund, Inc. (Limited Maturity Fund) and Prudential Global Total Return Fund, Inc.
(Total Return Fund) (collectively, the Funds and each individually, a Fund).
Limited Maturity Fund and Total Return Fund are both corporations organized
under the laws of the State of Maryland. Each Fund maintains its principal place
of business at Gateway Center Three, 100 Mulberry Street, Newark, New Jersey
07102-4077. Shares of both Funds are divided into four classes, designated Class
A, Class B, Class C and Class Z.
This Agreement is intended to be, and is adopted as, a plan of
reorganization pursuant to Section 368(a)(1)(C) of the Internal Revenue Code of
1986, as amended (Internal Revenue Code). Upon receipt of such representations
from each of the Funds as Gardner, Carton & Douglas may require, Gardner, Carton
& Douglas will deliver the opinion referenced in paragraph 8.6 herein. The
reorganization will comprise the transfer of all of the assets of Limited
Maturity Fund, in exchange solely for shares of common stock of Total Return
Fund, and Total Return Fund's assumption of Limited Maturity Fund's liabilities,
if any, and the constructive distribution, after the Closing Date hereinafter
referred to, of such shares of Total Return Fund to the shareholders of Limited
Maturity Fund, in liquidation of Limited Maturity Fund as provided herein, all
upon the terms and conditions as hereinafter set forth.
In consideration of the premises and of the covenants and agreements set
forth herein, the parties covenant and agree as follows:
1. TRANSFER OF ASSETS OF LIMITED MATURITY FUND IN EXCHANGE FOR SHARES OF
TOTAL RETURN FUND AND ASSUMPTION OF LIABILITIES, IF ANY, AND LIQUIDATION OF
LIMITED MATURITY FUND.
1.1 Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, Limited Maturity Fund
agrees to sell, assign, transfer and deliver its assets, as set forth in
paragraph 1.2, to Total Return Fund, and Total Return Fund, agrees (a) to issue
and deliver to Limited Maturity Fund in exchange therefor the number of shares
in Total Return Fund determined by dividing the net asset value of Limited
Maturity Fund allocable to Class A, Class B, Class C and Class Z shares of
common stock (computed in the manner and as of the time and date set forth in
paragraph 2.1) by the net asset value allocable to a Class A, Class B, Class C
and Class Z share of Total Return Fund (rounded to the third decimal place)
(computed in the manner and as of the time and date set forth in paragraph 2.2);
and (b) to assume all of Limited Maturity Fund's liabilities, if any, as set
forth in paragraph 1.3. Such transactions shall take place at the closing
provided for in paragraph 3 (Closing).
1.2 The assets of Limited Maturity Fund to be acquired by Total Return Fund
shall include without limitation all cash, cash equivalents, securities,
receivables (including interest and dividends receivable) and other property of
any kind owned by Limited Maturity Fund and any deferred or prepaid expenses
shown as assets on the books of Limited Maturity Fund on the closing date
provided in paragraph 3 (Closing Date). Total Return Fund has no plan or intent
to sell or otherwise dispose of any assets of Limited Maturity Fund, other than
in the ordinary course of business.
1.3 Except as otherwise provided herein, Total Return Fund will assume from
Limited Maturity Fund all debts, liabilities, obligations and duties of Limited
Maturity Fund of whatever kind or nature, whether absolute, accrued, contingent
or otherwise, whether or not arising in the ordinary course of business, whether
or not determinable as of the Closing Date and whether or not specifically
referred to in this Agreement; provided, however, that Limited Maturity Fund
agrees to utilize its best efforts to discharge all of its known debts,
liabilities, obligations and duties prior to the Closing Date.
1.4 On or immediately prior to the Closing Date, Limited Maturity Fund will
declare and pay to its shareholders of record dividends and/or other
distributions so that it will have distributed substantially all
A-1
<PAGE>
(and in any event not less than ninety-eight percent) of its investment company
taxable income (computed without regard to any deduction for dividends paid),
and realized net capital gains, if any, for all taxable years through the
Closing Date so as to retain its qualification as a regulated investment company
pursuant to Section 851 of the Internal Revenue Code.
1.5 On a date (Liquidation Date), as soon after the Closing Date as is
conveniently practicable but in any event within 30 days of the Closing Date,
Limited Maturity Fund will distribute PRO RATA to its Class A, Class B, Class C
and Class Z shareholders of record, determined as of the close of business on
the Closing Date, the Class A, Class B, Class C and Class Z shares of Total
Return Fund received by Limited Maturity Fund pursuant to paragraph 1.1 in
exchange for their interest in Limited Maturity Fund. Such distribution will be
accomplished by opening accounts on the books of Total Return Fund in the names
of Limited Maturity Fund shareholders and transferring thereto the shares
credited to the account of Limited Maturity Fund on the books of Total Return
Fund. Each account opened shall be credited with the respective PRO RATA number
of Total Return Fund Class A, Class B, Class C and Class Z shares due Limited
Maturity Fund's Class A, Class B, Class C and Class Z shareholders,
respectively. Fractional shares of Total Return Fund shall be rounded to the
third decimal place. On or about the Closing Date, Total Return Fund will file
Articles of Transfer with the State Department of Assessments and Taxation of
the State of Maryland. Upon the receipt of an order from the Securities and
Exchange Commission (SEC) indicating acceptance of the Form N-8F that Limited
Maturity Fund must file pursuant to the Investment Company Act of 1940, as
amended (Investment Company Act) to deregister as an investment company, Limited
Maturity Fund will file with the State of Maryland Articles of Dissolution, but
in any event such liquidation will be completed within twelve months following
the Closing Date.
1.6 Total Return Fund shall not issue certificates representing its shares
in connection with such exchange. With respect to any Limited Maturity Fund
shareholder holding Limited Maturity Fund stock certificates as of the Closing
Date, until Total Return Fund is notified by Limited Maturity Fund's transfer
agent that such shareholder has surrendered his or her outstanding Limited
Maturity Fund stock certificates or, in the event of lost, stolen or destroyed
stock certificates, posted adequate bond or submitted a lost certificate form,
as the case may be, Total Return Fund will not permit such shareholder to (1)
receive dividends or other distributions on Total Return Fund shares in cash
(although such dividends and distributions shall be credited to the account of
such shareholder established on Total Return Fund's books pursuant to paragraph
1.5, as provided in the next sentence), (2) exchange Total Return Fund shares
credited to such shareholder's account for shares of other Prudential Mutual
Funds, or (3) pledge or redeem such shares. In the event that a shareholder is
not permitted to receive dividends or other distributions on Total Return Fund
shares in cash as provided in the preceding sentence, Total Return Fund shall
pay such dividends or other distributions in additional Total Return Fund
shares, notwithstanding any election such shareholder shall have made previously
with respect to the payment of dividends or other distributions on shares of
Limited Maturity Fund. Limited Maturity Fund will, at its expense, request its
shareholders to surrender their outstanding Limited Maturity Fund stock
certificates, post adequate bond or submit a lost certificate form, as the case
may be.
1.7 Ownership of Total Return Fund shares will be shown on the books of
Total Return Fund's transfer agent. Shares of Total Return Fund will be issued
in the manner described in Total Return Fund's then-current prospectus and
statement of additional information.
1.8 Any transfer taxes payable upon issuance of shares of Total Return Fund
in a name other than the registered holder of the shares on the books of Limited
Maturity Fund as of that time shall be paid by the person to whom such shares
are to be issued as a condition to the registration of such transfer.
1.9 Any reporting responsibility with the SEC or any state securities
commission of Limited Maturity Fund is, and shall remain, the responsibility of
Limited Maturity Fund up to and including the Liquidation Date.
A-2
<PAGE>
1.10 All books and records of Limited Maturity Fund, including all books
and records required to be maintained under the Investment Company Act and the
rules and regulations thereunder, shall be available to Total Return Fund from
and after the Closing Date and shall be turned over to Total Return Fund on or
prior to the Liquidation Date.
2. VALUATION
2.1 The value of Limited Maturity Fund's assets and liabilities to be
acquired and assumed, respectively, by Total Return Fund shall be the net asset
value per share of Limited Maturity Fund computed as of 4:15 p.m., New York
time, on the Closing Date (such time and date being hereinafter called the
Valuation Time), using the valuation procedures set forth in Limited Maturity
Fund's then-current prospectus and statement of additional information.
2.2 The net asset value of Class A, Class B, Class C and Class Z shares of
Total Return Fund shall be the net asset value for Class A, Class B, Class C and
Class Z shares computed as of the Valuation Time, using the valuation procedures
set forth in Total Return Fund's then-current prospectus and statement of
additional information.
2.3 The number of Total Return Fund shares to be issued (including
fractional shares, if any) in exchange for Limited Maturity Fund's net assets
shall be calculated as set forth in paragraph 1.1.
2.4 All computations of net asset value shall be made by or under the
direction of Prudential Investments Fund Management LLC (PIFM) in accordance
with its regular practice as manager of the Funds.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be October 15, 1999 or such later date as the
parties may agree. All acts taking place at the Closing shall be deemed to take
place simultaneously as of the close of business on the Closing Date unless
otherwise provided. The Closing shall be at the office of Total Return Fund or
at such other place as the parties may agree.
3.2 State Street Bank and Trust Company (State Street), as custodian for
Limited Maturity Fund, shall deliver to Total Return Fund at the Closing a
certificate of an authorized officer of State Street stating that (a) Limited
Maturity Fund's portfolio securities, cash and any other assets have been
transferred in proper form to Total Return Fund on the Closing Date and (b) all
necessary taxes, if any, have been paid, or provision for payment has been made,
in conjunction with the transfer of portfolio securities.
3.3 In the event that immediately prior to the Valuation Time (a) the New
York Stock Exchange (NYSE) or other primary exchange is closed to trading or
trading thereon is restricted or (b) trading or the reporting of trading on the
NYSE or other primary exchange or elsewhere is disrupted so that accurate
appraisal of the value of the net assets of Limited Maturity Fund and of the net
asset value per share of Total Return Fund is impracticable, the Closing Date
shall be postponed until the first business day after the date when such trading
shall have been fully resumed and such reporting shall have been restored.
3.4 Limited Maturity Fund shall deliver to Total Return Fund on or prior to
the Liquidation Date the names and addresses of its shareholders and the number
of outstanding shares owned by each such shareholder, all as of the close of
business on the Closing Date, certified by the Transfer Agent of Limited
Maturity Fund. Total Return Fund shall issue and deliver to Limited Maturity
Fund at the Closing a confirmation or other evidence satisfactory to Limited
Maturity Fund that shares of Total Return Fund have been or will be credited to
the accounts of shareholders of Limited Maturity Fund on the books of the Total
Return Fund. At the Closing each party shall deliver to the other such bills of
sale, checks, assignments, share certificates, receipts and other documents as
such other party or its counsel may reasonably request to effect the
transactions contemplated by this Agreement.
A-3
<PAGE>
4. REPRESENTATIONS AND WARRANTIES
4.1 Limited Maturity Fund represents and warrants as follows:
4.1.1 Limited Maturity Fund is a corporation duly organized and validly
existing under the laws of the State of Maryland;
4.1.2 Limited Maturity Fund is an open-end management investment
company duly registered under the Investment Company Act, and such
registration is in full force and effect;
4.1.3 Limited Maturity Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of any provision
of the Articles of Incorporation or By-Laws of Limited Maturity Fund or of
any material agreement, indenture, instrument, contract, lease or other
undertaking to which Limited Maturity Fund is a party or by which Limited
Maturity Fund is bound;
4.1.4 All material contracts or other commitments to which Limited
Maturity Fund, or the properties or assets of Limited Maturity Fund, is
subject, or by which Limited Maturity Fund is bound, except this Agreement,
will be terminated on or prior to the Closing Date without Limited Maturity
Fund or Total Return Fund incurring any liability or penalty with respect
thereto;
4.1.5 No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against Limited Maturity Fund or any
of its properties or assets. Limited Maturity Fund knows of no facts that
might form the basis for the institution of such proceedings, and Limited
Maturity Fund is not a party to or subject to the provisions of any order,
decree or judgment of any court or governmental body that materially and
adversely affects its business or its ability to consummate the transactions
herein contemplated;
4.1.6 The Portfolio of Investments, Statement of Assets and
Liabilities, Statement of Operations, Statement of Changes in Net Assets,
and Financial Highlights of Limited Maturity Fund at October 31, 1998 and
for the year then ended (copies of which have been furnished to Total Return
Fund) have been audited by PricewaterhouseCoopers LLP, independent
accountants, in accordance with generally accepted auditing standards. Such
financial statements are prepared in accordance with generally accepted
accounting principles and present fairly, in all material respects, the
financial position, results of operations, changes in net assets and
financial highlights of Limited Maturity Fund as of and for the period ended
on such date, and there are no material known liabilities of Limited
Maturity Fund (contingent or otherwise) not disclosed therein;
4.1.7 Since October 31, 1998, there has not been any material adverse
change in Limited Maturity Fund's financial condition, assets, liabilities
or business other than changes occurring in the ordinary course of business,
or any incurrence by Limited Maturity Fund of indebtedness maturing more
than one year from the date such indebtedness was incurred, except as
otherwise disclosed to and accepted by Total Return Fund. For the purposes
of this paragraph 4.1.7, a decline in net asset value, net asset value per
share or change in the number of shares outstanding shall not constitute a
material adverse change;
4.1.8 At the date hereof and at the Closing Date, all federal and other
tax returns and reports of Limited Maturity Fund required by law to have
been filed on or before such dates shall have been timely filed, and all
federal and other taxes shown as due on said returns and reports shall have
been paid insofar as due, or provision shall have been made for the payment
thereof, and, to the best of Limited Maturity Fund's knowledge, all federal
or other taxes required to be shown on any such return or report have been
shown on such return or report, no such return is currently under audit and
no assessment has been asserted with respect to such returns;
4.1.9 For each past taxable year since it commenced operations, Limited
Maturity Fund has met the requirements of Subchapter M of the Internal
Revenue Code for qualification and treatment as a regulated investment
company and will meet those requirements for the current taxable year; and,
for
A-4
<PAGE>
each past calendar year since it commenced operations, Limited Maturity Fund
has made such distributions as are necessary to avoid the imposition of
federal excise tax or has paid or provided for the payment of any excise tax
imposed; and Limited Maturity Fund has no earnings and profits accumulated
in any taxable year in which the provisions of Subchapter M of the Internal
Revenue Code did not apply to it;
4.1.10 All issued and outstanding shares of Limited Maturity Fund are,
and at the Closing Date will be, duly and validly authorized, issued and
outstanding, fully paid and non-assessable. All issued and outstanding
shares of Limited Maturity Fund will, at the time of the Closing, be held in
the name of the persons and in the amounts set forth in the list of
shareholders submitted to Total Return Fund in accordance with the
provisions of paragraph 3.4. Limited Maturity Fund does not have outstanding
any options, warrants or other rights to subscribe for or purchase any of
its shares, nor is there outstanding any security convertible into any of
its shares, except for the Class B shares which have the conversion feature
described in Limited Maturity Fund's current prospectus;
4.1.11 At the Closing Date, Limited Maturity Fund will have good and
marketable title to its assets to be transferred to Total Return Fund
pursuant to paragraph 1.1, and full right, power and authority to sell,
assign, transfer and deliver such assets hereunder free of any liens,
claims, charges or other encumbrances, and, upon delivery and payment for
such assets, Total Return Fund will acquire good and marketable title
thereto;
4.1.12 The execution, delivery and performance of this Agreement has
been duly authorized by the Board of Directors of Limited Maturity Fund and
by all necessary corporate action, other than shareholder approval, on the
part of Limited Maturity Fund, and this Agreement constitutes a valid and
binding obligation of Limited Maturity Fund, subject to shareholder
approval;
4.1.13 The information furnished and to be furnished by Limited
Maturity Fund for use in applications for orders, registration statements,
proxy materials and other documents that may be necessary in connection with
the transactions contemplated hereby is and shall be accurate and complete
in all material respects and is in compliance and shall comply in all
material respects with applicable federal securities and other laws and
regulations; and
4.1.14 On the effective date of the registration statement filed with
the SEC by Total Return Fund on Form N-14 relating to the shares of Total
Return Fund issuable hereunder, and any supplement or amendment thereto
(Registration Statement), at the time of the meeting of the shareholders of
Limited Maturity Fund and on the Closing Date, the Proxy Statement of
Limited Maturity Fund, the Prospectus of Total Return Fund and the
Statements of Additional Information of both Funds and each other document
to be included in the Registration Statement (collectively, Proxy Statement)
(i) will comply in all material respects with the provisions and regulations
of the Securities Act of 1933 (1933 Act), Securities Exchange Act of 1934
(1934 Act) and the Investment Company Act and the rules and regulations
thereunder and (ii) will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein in light of
the circumstances under which they were made or necessary to make the
statements therein not misleading; provided, however, that the
representations and warranties in this paragraph 4.1.14 shall not apply to
statements in or omissions from the Proxy Statement and Registration
Statement made in reliance upon and in conformity with information furnished
by Total Return Fund for use therein.
4.2 Total Return Fund represents and warrants as follows:
4.2.1 Total Return Fund is a corporation duly organized and validly
existing under the laws of the State of Maryland;
4.2.2 Total Return Fund is an open-end management investment company
duly registered under the Investment Company Act, and such registration is
in full force and effect;
A-5
<PAGE>
4.2.3 Total Return Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of any provision
of its Articles of Incorporation or By-Laws or of any material agreement,
indenture, instrument, contract, lease or other undertaking to which Total
Return Fund is a party or by which Total Return Fund is bound;
4.2.4 No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently
pending or threatened against Total Return Fund or any of its properties or
assets, except as previously disclosed in writing to Limited Maturity Fund.
Total Return Fund knows of no facts that might form the basis for the
institution of such proceedings, and Total Return Fund is not a party to or
subject to the provisions of any order, decree or judgment of any court or
governmental body that materially and adversely affects its business or its
ability to consummate the transactions herein contemplated;
4.2.5 The Portfolio of Investments, Statement of Assets and
Liabilities, Statement of Operations, Statement of Changes in Net Assets,
and Financial Highlights of Total Return Fund at December 31, 1998 and for
the fiscal year then ended (copies of which have been furnished to Limited
Maturity Fund) have been audited by PricewaterhouseCoopers LLP, independent
accountants, in accordance with generally accepted auditing standards. Such
financial statements are prepared in accordance with generally accepted
accounting principles and present fairly, in all material respects, the
financial position, results of operations, changes in net assets and
financial highlights of Total Return Fund as of and for the period ended on
such date, and there are no known material liabilities of Total Return Fund
(contingent or otherwise) not disclosed therein;
4.2.6 Since December 31, 1998, there has not been any material adverse
change in Total Return Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business, or
any incurrence by Total Return Fund of indebtedness maturing more than one
year from the date such indebtedness was incurred, except as otherwise
disclosed to and accepted by Limited Maturity Fund. For the purposes of this
paragraph, a decline in net asset value, net asset value per share or a
decrease in the number of shares outstanding shall not constitute a material
adverse change;
4.2.7 At the date hereof and at the Closing Date, all federal and other
tax returns and reports of Total Return Fund required by law to have been
filed on or before such dates shall have been filed, and all federal and
other taxes shown as due on said returns and reports shall have been paid
insofar as due, or provision shall have been made for the payment thereof,
and, to the best of Total Return Fund's knowledge, all federal or other
taxes required to be shown on any such return or report are shown on such
return or report, no such return is currently under audit and no assessment
has been asserted with respect to such returns;
4.2.8 For each past taxable year since it commenced operations, Total
Return Fund has met the requirements of Subchapter M of the Internal Revenue
Code for qualification and treatment as a regulated investment company and
intends to meet those requirements for the current taxable year; and, for
each past calendar year since it commenced operations, Total Return Fund has
made such distributions as are necessary to avoid the imposition of federal
excise tax or has paid or provided for the payment of any excise tax
imposed; and Total Return Fund has no earnings and profits accumulated in
any taxable year in which the provisions of Subchapter M of the Internal
Revenue Code did not apply to it;
4.2.9 All issued and outstanding shares of Total Return Fund are, and
at the Closing Date shall be, duly and validly authorized, issued and
outstanding, fully paid and non-assessable. Except as contemplated by this
Agreement, Total Return Fund does not have outstanding any options, warrants
or other rights to subscribe for or purchase any of its shares nor is there
outstanding any security convertible into any of its shares, except for
Class B shares which have a conversion feature described in Total Return
Fund's current prospectus;
A-6
<PAGE>
4.2.10 The execution, delivery and performance of this Agreement has
been duly authorized by the Board of Directors of Total Return Fund and by
all necessary corporate action on the part of Total Return Fund, and this
Agreement constitutes a valid and binding obligation of Total Return Fund;
4.2.11 The shares of Total Return Fund to be issued and delivered to
Limited Maturity Fund pursuant to this Agreement shall, at the Closing Date,
have been duly authorized and, when issued and delivered as provided in this
Agreement, shall be duly and validly issued and outstanding shares of Total
Return Fund, fully paid and non-assessable and no shareholder of Total
Return Fund has any pre-emptive right to subscribe therefor or purchase such
shares;
4.2.12 The information furnished and to be furnished by Total Return
Fund for use in applications for orders, registration statements, proxy
materials and other documents which may be necessary in connection with the
transactions contemplated hereby is and shall be accurate and complete in
all material respects and is and shall comply in all material respects with
applicable federal securities and other laws and regulations; and
4.2.13 On the effective date of the Registration Statement, at the time
of the meeting of the shareholders of Limited Maturity Fund and on the
Closing Date, the Proxy Statement and the Registration Statement (i) shall
comply in all material respects with the provisions of the 1933 Act, the
1934 Act and the Investment Company Act and the rules and regulations under
such Acts, (ii) shall not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading and (iii) with respect to the
Registration Statement, at the time it becomes effective, it shall not
contain an untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein in the light of the
circumstances under which they were made, not misleading; provided, however,
that the representations and warranties in this paragraph 4.2.13 shall not
apply to statements in or omissions from the Proxy Statement and the
Registration Statement made in reliance upon and in conformity with
information furnished by Limited Maturity Fund for use therein.
5. COVENANTS OF TOTAL RETURN FUND AND LIMITED MATURITY FUND
5.1 Limited Maturity Fund and Total Return Fund each covenants to operate
its respective business in the ordinary course between the date hereof and the
Closing Date, it being understood that the ordinary course of business shall
include declaring and paying customary dividends and other distributions and
such changes in operations as are contemplated by the normal operations of the
Funds, except as may otherwise be required by paragraph 1.4 hereof.
5.2 Limited Maturity Fund covenants to call a shareholders' meeting to
consider and act upon this Agreement and to take all other action necessary to
obtain approval of the transactions contemplated hereby (including the
determinations of its Board of Directors as set forth in Rule 17a-8(a) under the
Investment Company Act).
5.3 Limited Maturity Fund covenants that Total Return Fund shares to be
received by Limited Maturity Fund in accordance herewith are not being acquired
for the purpose of making any distribution thereof other than in accordance with
the terms of this Agreement.
5.4 Limited Maturity Fund covenants that it will assist Total Return Fund
in obtaining such information as Total Return Fund reasonably requests
concerning the beneficial ownership of Limited Maturity Fund's shares.
5.5 Subject to the provisions of this Agreement, each Fund will take, or
cause to be taken, all action, and will do, or cause to be done, all things
reasonably necessary, proper or advisable to consummate and make effective the
transactions contemplated by this Agreement.
5.6 Limited Maturity Fund covenants to prepare the Proxy Statement in
compliance with the 1934 Act, the Investment Company Act and the rules and
regulations under each such Act.
A-7
<PAGE>
5.7 Limited Maturity Fund covenants that it will, from time to time, as and
when requested by Total Return Fund, execute and deliver or cause to be executed
and delivered all such assignments and other instruments, and will take or cause
to be taken such further action, as Total Return Fund may deem necessary or
desirable in order to vest in and confirm to Total Return Fund title to and
possession of all the assets of Limited Maturity Fund to be sold, assigned,
transferred and delivered hereunder and otherwise to carry out the intent and
purpose of this Agreement.
5.8 Total Return Fund covenants to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the Investment Company
Act (including the determinations of its Board of Directors as set forth in Rule
17a-8(a) thereunder) and such of the state Blue Sky or securities laws as it may
deem appropriate in order to continue its operations after the Closing Date.
5.9 Total Return Fund covenants that it will, from time to time, as and
when requested by Limited Maturity Fund, execute and deliver or cause to be
executed and delivered all such assignments and other instruments, and will take
or cause to be taken such further action, as Limited Maturity Fund may deem
necessary or desirable in order to (i) vest in and confirm to Limited Maturity
Fund title to and possession of all the shares of Total Return Fund to be
transferred to Limited Maturity Fund pursuant to this Agreement and (ii) assume
all of Limited Maturity Fund's liabilities in accordance with this Agreement.
5.10 Limited Maturity Fund and Total Return Fund each covenants to take
such action as is required to continue to meet the requirements of Subchapter M
of the Internal Revenue Code for qualification and treatment as a registered
investment company through the Closing Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF LIMITED MATURITY FUND
The obligations of Limited Maturity Fund to consummate the transactions
provided for herein shall be subject to the performance by Total Return Fund of
all the obligations to be performed by it hereunder on or before the Closing
Date and the following further conditions:
6.1 All representations and warranties of Total Return Fund contained in
this Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date.
6.2 Total Return Fund shall have delivered to Limited Maturity Fund on the
Closing Date a certificate executed in its name by the President or a Vice
President of Total Return Fund, in form and substance satisfactory to Limited
Maturity Fund and dated as of the Closing Date, to the effect that the
representations and warranties of Total Return Fund in this Agreement are true
and correct at and as of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement, and as to such other matters as
Limited Maturity Fund shall reasonably request.
6.3 Limited Maturity Fund shall have received on the Closing Date a
favorable opinion from Piper & Marbury LLP, Maryland counsel to Total Return
Fund, dated as of the Closing Date, to the effect that:
6.3.1 Total Return Fund is duly incorporated and validly existing as a
Maryland corporation, with power under its Articles of Incorporation to own
all of its properties and assets and, to the knowledge of such counsel, to
carry on its business described in its current prospectus;
6.3.2 This Agreement has been duly authorized for execution and
delivery by an authorized officer of Total Return Fund and assuming due
authorization, execution and delivery of the Agreement by Limited Maturity
Fund, is a valid and binding obligation of Total Return Fund enforceable in
accordance with its terms, except to the extent that enforcement thereof may
be limited by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles (regardless of
whether enforcement is sought in a proceeding at law or in equity), provided
further that such counsel
A-8
<PAGE>
may state that they express no opinion as to the validity or enforceability
of any provision regarding New York law to govern this Agreement;
6.3.3 The shares of Total Return Fund to be distributed to Limited
Maturity Fund shareholders under this Agreement, assuming their due
authorization and delivery as contemplated by this Agreement, will be
validly issued and outstanding and fully paid and non-assessable, and no
shareholder of Total Return Fund has any statutory pre-emptive right under
Maryland law to subscribe therefor or purchase such shares;
6.3.4 The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, (i) conflict
with Total Return Fund's Articles of Incorporation or By-Laws or (ii) result
in a default or a breach of (a) the Management Agreement dated October 3,
1988 and amended and restated on January 15, 1996 between Total Return Fund
and Prudential Investments Fund Management LLC as successor to Prudential
Mutual Fund Management, Inc., (b) the Custodian Contract dated September 5,
1990 between Total Return Fund and State Street Bank and Trust Company, (c)
the Distribution Agreement with respect to Total Return Fund dated May 9,
1996, as amended and restated on June 1, 1998, between Total Return Fund and
Prudential Investment Management Services LLC, and (d) the Transfer Agency
and Service Agreement dated January 15, 1996 between Total Return Fund and
Prudential Mutual Fund Services LLC as successor to Prudential Mutual Fund
Services, Inc.; provided, however, that such counsel may state that they
express no opinion in their opinion with respect to this paragraph 6.3.4
with respect to federal or state securities laws, other antifraud laws and
fraudulent transfer laws; and provided further that insofar as performance
by Total Return Fund of its obligations under the Agreement is concerned,
such counsel may state that they express no opinion as to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws
of general applicability relating to or affecting creditors' rights and to
general equity principles;
6.3.5 To the knowledge of such counsel and without independent inquiry
or investigation, no consent, approval, authorization, filing or order of
any court or governmental authority is required for the consummation by
Total Return Fund of the transactions contemplated herein, except such as
have been obtained under the 1933 Act, the 1934 Act and the Investment
Company Act and such as may be required under state Blue Sky or securities
laws;
6.3.6 Total Return Fund is registered with the SEC as an investment
company, and, to the knowledge of such counsel, no order has been issued or
proceeding instituted by the SEC to suspend such registration; and
6.3.7 To the knowledge of such counsel and without independent inquiry
or investigation, no litigation or government proceeding has been instituted
or is threatened against Total Return Fund that would be required to be
disclosed in its Registration Statement on Form N-1A, as amended, and is not
so disclosed.
In rendering such opinion, such counsel may state that insofar as such
opinion involves factual matters, they have relied to the extent they deem
proper, upon certificates of officers of Total Return Fund and certificates of
public officials. In rendering such opinion, such counsel also may (i) make
assumptions regarding the authenticity, genuineness and/or conformity of
documents and copies thereof without independent verification thereof, (ii)
limit such opinion to applicable federal and state law and (iii) define the word
"knowledge" and related terms to mean the knowledge of attorneys then with such
firm who have devoted substantive attention to matters directly related to this
Agreement and the reorganization.
A-9
<PAGE>
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF TOTAL RETURN FUND
The obligations of Total Return Fund to complete the transactions provided
for herein shall be subject to the performance by Limited Maturity Fund of all
the obligations to be performed by it hereunder on or before the Closing Date
and the following further conditions:
7.1 All representations and warranties of Limited Maturity Fund contained
in this Agreement shall be true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions contemplated
by this Agreement, as of the Closing Date with the same force and effect as if
made on and as of the Closing Date.
7.2 Limited Maturity Fund shall have delivered to Total Return Fund on the
Closing Date a statement of its assets and liabilities, which statement shall be
prepared in accordance with generally accepted accounting principles
consistently applied, together with a list of its portfolio securities showing
the adjusted tax bases of such securities by lot, as of the Closing Date,
certified by the Treasurer or Assistant Treasurer of Limited Maturity Fund.
7.3 Limited Maturity Fund shall have delivered to Total Return Fund on the
Closing Date a certificate executed in its name by the President or a Vice
President of Limited Maturity Fund, in form and substance satisfactory to Total
Return Fund and dated as of the Closing Date, to the effect that the
representations and warranties of Limited Maturity Fund made in this Agreement
are true and correct at and as of the Closing Date except as they may be
affected by the transactions contemplated by this Agreement, and as to such
other matters as Total Return Fund shall reasonably request.
7.4 On or immediately prior to the Closing Date, Limited Maturity Fund
shall have declared and paid to its shareholders of record one or more dividends
and/or other distributions so that it will have distributed substantially all
(and in any event not less than ninety-eight percent) of such Fund's investment
company taxable income (computed without regard to any deduction for dividends
paid), and realized net capital gain, if any, of Limited Maturity Fund for all
completed taxable years from the inception of the Fund through the Closing Date.
7.5 Total Return Fund shall have received on the Closing Date a favorable
opinion from Gardner, Carton & Douglas, counsel to Limited Maturity Fund, dated
as of the Closing Date, to the effect that:
7.5.1 Limited Maturity Fund is duly incorporated and validly existing
as a Maryland corporation, with power under its Articles of Incorporation to
own all of its properties and assets and, to the knowledge of such counsel,
to carry on its business as described in its current prospectus;
7.5.2 This Agreement has been duly authorized for execution and
delivery by an authorized officer of Limited Maturity Fund and assuming due
authorization, execution and delivery of the Agreement by Total Return Fund,
constitutes a valid and binding obligation of Limited Maturity Fund
enforceable in accordance with its terms, except to the extent that
enforcement thereof may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles (regardless of whether enforcement is sought in a
proceeding at law or in equity), provided that such counsel may state that
they express no opinion as to the validity or enforceability of any
provision regarding New York law to govern this Agreement;
7.5.3 The execution and delivery of the Agreement did not, and the
consummation of the transactions contemplated hereby will not, (i) conflict
with Limited Maturity Fund's Articles of Incorporation or By-Laws or (ii)
result in a default or a breach of (a) the Management Agreement, dated
October 25, 1990, between Limited Maturity Fund and Prudential Investments
Fund Management LLC as successor to Prudential Mutual Fund Management, Inc.,
(b) the Custodian Contract, dated October 25, 1990, between Limited Maturity
Fund and State Street Bank and Trust Company, (c) the Distribution Agreement
dated April 11, 1996 as amended and restated as of June 1, 1998,
A-10
<PAGE>
between Limited Maturity Fund and Prudential Investment Management Services
LLC, and (d) the Transfer Agency and Service Agreement, dated October 25,
1990, between Limited Maturity Fund and Prudential Mutual Fund Services LLC
as successor to Prudential Mutual Fund Services, Inc.; provided, however,
that such counsel may state that they express no opinion in their opinion
pursuant to this paragraph 7.5.3 with respect to federal or state securities
laws, other antifraud laws and fraudulent transfer laws; and provided
further that insofar as performance by Limited Maturity Fund of its
obligations under this Agreement is concerned, such counsel may state that
they express no opinion as to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles;
7.5.4 To the knowledge of such counsel and without independent inquiry
or investigation, no consent, approval, authorization, filing or order of
any court or governmental authority is required for the consummation by
Limited Maturity Fund of the transactions contemplated herein, except such
as have been obtained under the 1933 Act, the 1934 Act and the Investment
Company Act (other than such as may be required under Maryland securities
laws or Blue Sky laws as to which such counsel may state that they express
no opinion);
7.5.5 To the knowledge of such counsel and without independent inquiry
or investigation, no litigation or government proceeding has been instituted
or is threatened against Limited Maturity Fund that would be required to be
disclosed in its Registration Statement on Form N-1A, as amended, and is not
so disclosed; and
7.5.6 Limited Maturity Fund is registered with the SEC as an investment
company, and, to the knowledge of such counsel, no order has been issued or
proceeding instituted by the SEC to suspend such registration.
In rendering such opinion, such counsel may state that insofar as such
opinion involves factual matters, they have relied, to the extent they deem
proper, upon certificates of officers of Limited Maturity Fund and certificates
of public officials. Such opinion may rely on an opinion of Maryland counsel to
the extent it addresses Maryland law. As to paragraph 7.5.2, such counsel may
state that they have assumed that the agreement is governed by the laws of the
State of Illinois. In rendering such opinion, such counsel also may (i) make
assumptions regarding the authenticity, genuineness and/or conformity of
documents and copies thereof without independent verification thereof, (ii)
limit such opinion to applicable federal and state law and (iii) define the word
"knowledge" and related terms to mean the knowledge of attorneys then with such
firm who have devoted substantive attention to matters directly related to the
Agreement and the reorganization.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF TOTAL RETURN FUND AND
LIMITED MATURITY FUND
The obligations of each Fund hereunder are subject to the further conditions
that on or before the
Closing Date:
8.1 This Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of (a) the Board of Directors of Limited Maturity
Fund and the Board of Directors of Total Return Fund, as to the determinations
set forth in Rule 17a-8(a) under the Investment Company Act, (b) the Board of
Directors of Total Return Fund as to the assumption by Total Return Fund of the
liabilities of Limited Maturity Fund and (c) the holders of the outstanding
shares of Limited Maturity Fund in accordance with the provisions of Limited
Maturity Fund's Articles of Incorporation, and certified copies of the
resolutions evidencing such approvals shall have been delivered to Total Return
Fund and Limited Maturity Fund, as applicable.
8.2 Any proposed change to Total Return Fund's operations that may be
approved by the Board of Directors of Total Return Fund subsequent to the date
of this Agreement but in connection with and as a condition to implementing the
transactions contemplated by this Agreement, for which the approval of Total
Return Fund's shareholders is required pursuant to the Investment Company Act or
otherwise, shall
A-11
<PAGE>
have been approved by the requisite vote of the holders of the outstanding
shares of the Total Return Fund in accordance with the Investment Company Act
and Maryland law, and certified copies of the resolutions evidencing such
approval shall have been delivered to Limited Maturity Fund.
8.3 On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein.
8.4 All consents of other parties and all consents, orders and permits of
federal, state and local regulatory authorities (including those of the SEC and
of state Blue Sky or securities authorities, including "no-action" positions of
such authorities) deemed necessary by Total Return Fund or Limited Maturity Fund
to permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to obtain any
such consent, order or permit would not involve a risk of a material adverse
effect on the assets or properties of Total Return Fund or Limited Maturity
Fund, provided that either party hereto may for itself waive any part of this
condition.
8.5 The Registration Statement shall have become effective under the 1933
Act, and no stop orders suspending the effectiveness thereof shall have been
issued, and to the best knowledge of the parties hereto, no investigation or
proceeding under the 1933 Act for that purpose shall have been instituted or be
pending, threatened or contemplated.
8.6 Limited Maturity Fund and Total Return Fund shall have received on or
before the Closing Date an opinion of Gardner, Carton & Douglas satisfactory to
Limited Maturity Fund and to Total Return Fund, substantially to the effect that
for federal income tax purposes:
8.6.1 The acquisition by Total Return Fund of the assets of Limited
Maturity Fund in exchange solely for voting shares of Total Return Fund and
the assumption by Total Return Fund of Limited Maturity Fund's liabilities,
if any, followed by the distribution of Total Return Fund's voting shares by
Limited Maturity Fund PRO RATA to its shareholders, as a liquidating
distribution and the liquidation of Limited Maturity Fund pursuant to the
reorganization and constructively in exchange for their Limited Maturity
Fund shares, will constitute a reorganization within the meaning of Section
368(a)(1)(C) of the Internal Revenue Code, and Limited Maturity Fund and
Total Return Fund each will be "a party to a reorganization" within the
meaning of Section 368(b) of the Internal Revenue Code;
8.6.2 Limited Maturity Fund's shareholders will recognize no gain or
loss upon the receipt of Class A, Class B, Class C and Class Z shares of
Total Return Fund solely in exchange for and in cancellation of Limited
Maturity Fund shares of common stock, as described above and in the
Agreement;
8.6.3 No gain or loss will be recognized by Limited Maturity Fund upon
the transfer of all of its assets to Total Return Fund in exchange solely
for Class A, Class B, Class C and Class Z shares of Total Return Fund and
the assumption by Total Return Fund of Limited Maturity Fund's liabilities,
if any. In addition, no gain or loss will be recognized by Limited Maturity
Fund on the distribution of such shares to the Limited Maturity Fund
shareholders in liquidation of Limited Maturity Fund;
8.6.4 No gain or loss will be recognized by Total Return Fund upon the
acquisition of Limited Maturity Fund's assets in exchange solely for Class
A, Class B, Class C, and Class Z shares of Total Return Fund and the
assumption of Limited Maturity Fund's liabilities, if any;
8.6.5 Total Return Fund's basis in the assets acquired from Limited
Maturity Fund will be the same as the basis of such assets in the hands of
Limited Maturity Fund immediately before the reorganization, and the holding
period of such assets acquired by Total Return Fund will include the holding
period thereof when held by Limited Maturity Fund immediately before the
reorganization;
A-12
<PAGE>
8.6.6 Limited Maturity Fund shareholders' basis in the Class A, Class
B, Class C and Class Z shares of Total Return Fund to be received by them
pursuant to the reorganization will be the same as their basis in the Class
A, Class B, Class C and Class Z shares of Limited Maturity Fund to be
constructively surrendered in exchange therefor; and
8.6.7 The holding period of Total Return Fund shares to be received by
Limited Maturity Fund shareholders will include the period during which
Limited Maturity Fund shares to be constructively surrendered in exchange
therefor were held; provided such Limited Maturity Fund shares were held as
capital assets by those shareholders on the date of the reorganization.
In rendering such opinion, such counsel may rely as to factual matters,
exclusively and without independent verification, on the representations made in
this Agreement (or in separate letters addressed to such counsel) and the
certificates delivered pursuant to paragraph 3.4.
9. FINDER'S FEES AND EXPENSES
9.1 Each Fund represents and warrants to the other that there are no
finder's fees payable in connection with the transactions provided for herein.
9.2 The expenses incurred in connection with the entering into and carrying
out of the provisions of this Agreement shall be allocated to Limited Maturity
Fund and Total Return Fund PRO RATA in a fair and equitable manner in proportion
to their respective assets.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 This Agreement constitutes the entire agreement between the Funds.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder.
11. TERMINATION
Either Fund may at its option terminate this Agreement at or prior to the
Closing Date because of:
11.1 A material breach by the other of any representation, warranty or
covenant contained herein to be performed at or prior to the Closing Date; or
11.2 A condition herein expressed to be precedent to the obligations of
either party not having been met and it reasonably appearing that it will not or
cannot be met; or
11.3 A mutual written agreement of Limited Maturity Fund and Total Return
Fund.
In the event of any such termination, there shall be no liability for
damages on the part of either Fund (other than the liability of the Funds to pay
their allocated expenses pursuant to paragraph 9.2) or any Director or officer
of Total Return Fund or Limited Maturity Fund.
12. AMENDMENT
This Agreement may be amended, modified or supplemented only in writing by
the parties; provided, however, that following the shareholders' meeting called
by Limited Maturity Fund pursuant to paragraph 5.2, no such amendment may have
the effect of changing the provisions for determining the number of shares of
Total Return Fund to be distributed to Limited Maturity Fund shareholders under
this Agreement to the detriment of such shareholders without their further
approval.
13. NOTICES
Any notice, report, demand or other communication required or permitted by
any provision of this Agreement shall be in writing and shall be given by hand
delivery, or prepaid certified mail or overnight
A-13
<PAGE>
service addressed to Prudential Investments Fund Management LLC, Gateway Center
Three, 100 Mulberry Street, Newark, New Jersey, 07102, Attention: Marguerite E.
H. Morrison.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT
14.1 The paragraph headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of
which will be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with
the laws of the State of New York; provided that, in the case of any conflict
between such laws and the federal securities laws, the latter shall govern.
14.4 This Agreement shall bind and inure to the benefit of the parties and
their respective successors and assigns, and no assignment or transfer hereof or
of any rights or obligations hereunder shall be made by either party without the
written consent of the other party. Nothing herein expressed or implied is
intended or shall be construed to confer upon or give any person, firm or
corporation other than the parties and their respective successors and assigns
any rights or remedies under or by reason of this Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed by its President or Vice President.
<TABLE>
<S> <C> <C>
Prudential Global Limited Maturity Fund, Inc.
By: ------------------------------------------
Its: ------------------------------------------
Prudential Global Total Return Fund, Inc.
By: ------------------------------------------
Its: ------------------------------------------
</TABLE>
A-14
<PAGE>
PRUDENTIAL GLOBAL TOTAL RETURN FUND, INC.
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 0712-4077
(800) 225-1852
STATEMENT OF ADDITIONAL INFORMATION
dated August , 1999
PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(800) 225-1852
By and in Exchange for Class A, Class B, Class C and Class Z Shares of
PRUDENTIAL GLOBAL TOTAL RETURN FUND, INC.
This Statement of Additional Information specifically relates to the
proposed transfer of all of the assets and the assumption of all of the
liabilities, if any, of Prudential Global Limited Maturity Fund, Inc. (Limited
Maturity Fund) by Prudential Global Total Return Fund, Inc. (Total Return Fund).
This Statement of Additional Information consists of this cover page and the
following described documents, each of which is attached hereto and incorporated
herein by reference:
1. Pro Forma Financial Statements as of December 31, 1998.
2. Statement of Additional Information of Total Return Fund dated March 1,
1999 and Statement of Additional Information Supplement dated July 23, 1999.
3. Annual Report of the Total Return Fund for the fiscal year ended
December 31, 1998.
4. Annual Report of Limited Maturity Fund for the fiscal year ended October
31, 1998.
5. Semi-annual Report of Limited Maturity Fund for the period ended April
30, 1999. The semi-annual report which is unaudited reflects all adjustments,
which in the opinion of management are necessary to a fair statement of the
results for the six month period ended April 30, 1999.
This Statement of Additional Information is not a prospectus and should be
read only in conjunction with the Prospectus and Proxy Statement dated August
, 1999, relating to the above-referred matter. A copy of the Prospectus and
Proxy Statement may be obtained from Total Return Fund without charge by writing
or calling Total Return Fund at the address or phone number listed above.
B-1
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following are pro forma financial statements which give effect to the
proposed transaction whereby all the assets of Prudential Global Limited
Maturity Fund, Inc. will be exchanged for shares of Prudential Global Total
Return Fund, Inc. and Prudential Global Total Return Fund, Inc. will assume the
liabilities, if any, of Prudential Global Limited Maturity Fund, Inc.
Immediately thereafter, the shares of Prudential Global Total Return Fund, Inc.
will be distributed to the shareholders of Prudential Global Limited Maturity
Fund, Inc. in a total liquidation of Prudential Global Limited Maturity Fund,
Inc. which will subsequently be dissolved. The following pro forma financial
statements include a pro forma Portfolio of Investments at December 31, 1998, a
pro forma Statement of Assets and Liabilities at December 31, 1998 and a pro
forma Statement of Operations for the year ended December 31, 1998.
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
PRO FORMA PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT (000) VALUE
- --------------------------- -------------------------------------------
PRUDENTIAL PRUDENTIAL
GLOBAL PRUDENTIAL GLOBAL PRUDENTIAL
LIMITED GLOBAL TOTAL LIMITED GLOBAL TOTAL
MATURITY RETURN FUND, MATURITY RETURN FUND, PRO FORMA
FUND, INC. INC. TOTAL DESCRIPTION(A) FUND, INC. INC. COMBINED
- ------------ ------------- ------------ --------------------------------- ------------- ------------- -------------
<C> <C> <C> <S> <C> <C> <C>
LONG-TERM INVESTMENTS--85.8%
AUSTRALIA--7.5%
$ 3,750 $ 2,750 $ 6,500 Federal National Mortgage $ 2,420,076 $ 1,774,722 $ 4,194,798
Association, 6.375%, 8/15/07
-- 13,700 13,700 New South Wales Treasury -- 8,960,622 8,960,622
Corporation, 6.50% 5/1/06
6,000 -- 6,000 Queensland Treasury Corporation, 4,089,326 -- 4,089,326
8.00%, 5/14/03
------------- ------------- -------------
6,509,402 10,735,344 17,244,746
------------- ------------- -------------
CANADA--3.7%
2,000 -- 2,000 British Columbia Municipal Fin. 1,428,609 -- 1,428,609
Authority, 6.75%, 4/24/07
-- 3,250 3,250 British Columbia Provincial Bond, -- 2,233,543 2,233,543
6.00%, 6/9/08
2,500 4,500 7,000 Province of Quebec, 6.50%, 1,749,821 3,149,678 4,899,499
10/1/07
------------- ------------- -------------
3,178,430 5,383,221 8,561,651
------------- ------------- -------------
DENMARK--6.2%
Danish Government Bonds,
23,000 20,000 43,000 7.00%, 12/15/04 4,163,865 3,620,752 7,784,617
-- 32,750 32,750 8.00%, 3/15/06 -- 6,343,850 6,343,850
------------- ------------- -------------
4,163,865 9,964,602 14,128,467
------------- ------------- -------------
GERMANY--18.5%
German Government Bonds,
4,250 7,700 11,950 6.00%, 1/5/06 2,884,437 5,225,921 8,110,358
-- 15,500 15,500 6.25%, 1/4/24 -- 11,261,516 11,261,516
-- 18,000 18,000 7.375%, 1/3/05 -- 12,910,983 12,910,983
7,000 -- 7,000 Zero Coupon, 7/4/07 3,002,571 -- 3,002,571
600 -- 600 Ministry of Finance (Russia), 211,500 -- 211,500
9.25%, 11/27/01
3,000 5,000 8,000 Republic of Cloumbia, 7.25%, 1,831,479 3,052,465 4,883,944
12/21/00
3,000 -- 3,000 Tokyo Gas, Co. Ltd., 7.00%, 2,095,596 -- 2,095,596
7/27/05
------------- ------------- -------------
10,025,583 32,450,885 42,476,468
------------- ------------- -------------
GREECE--2.9%
Hellenic Republic, FRN
-- 430,000 430,000 8.60%, 3/26/08, -- 1,695,138 1,695,138
40,000 350,000 390,000 9.20%, 3/21/02, 146,962 1,285,914 1,432,876
325,000 680,000 1,005,000 12.70%, 12/31/03 1,165,207 2,437,973 3,603,180
------------- ------------- -------------
1,312,169 5,419,025 6,731,194
------------- ------------- -------------
</TABLE>
B-2
<PAGE>
PRO FORMA PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT (000) VALUE
- --------------------------- -------------------------------------------
PRUDENTIAL PRUDENTIAL
GLOBAL PRUDENTIAL GLOBAL PRUDENTIAL
LIMITED GLOBAL TOTAL LIMITED GLOBAL TOTAL
MATURITY RETURN FUND, MATURITY RETURN FUND, PRO FORMA
FUND, INC. INC. TOTAL DESCRIPTION(A) FUND, INC. INC. COMBINED
- ------------ ------------- ------------ --------------------------------- ------------- ------------- -------------
<C> <C> <C> <S> <C> <C> <C>
HUNGARY--0.7%
$ 50,000 $ 300,000 $ 350,000 Hungarian Government Bonds, $ 233,783 $ 1,402,700 $ 1,636,483
16.00%, 4/12/00
------------- ------------- -------------
NETHERLANDS--3.5%
Dutch Government Bonds,
2,500 -- 2,500 6.50%, 4/15/03 1,480,481 -- 1,480,481
-- 6,000 6,000 7.00%, 6/15/05 -- 3,764,500 3,764,500
-- 3,750 3,750 7.50%, 1/15/23 -- 2,767,957 2,767,957
------------- ------------- -------------
1,480,481 6,532,457 8,012,938
------------- ------------- -------------
NEW ZEALAND--4.5%
2,800 6,700 9,500 Federal National Mortgage 1,528,078 3,656,473 5,184,551
Association, 7.25%, 6/20/02
1,400 3,300 4,700 International Bank for 766,992 1,807,909 2,574,901
Reconstruction & Development,
7.25%, 5/27/03
1,200 3,100 4,300 New Zealand Government Bond, 706,775 1,825,837 2,532,612
8.00%, 4/15/04
------------- ------------- -------------
3,001,845 7,290,219 10,292,064
------------- ------------- -------------
RUSSIA--0.1%
European Bank for
Reconstruction & Development,
2,200 5,300 7,500 31.00%, 5/5/00 25,522 61,485 87,007
3,500 8,600 12,100 Zero Coupon, 5/28/02 9,745 23,944 33,689
------------- ------------- -------------
35,267 85,429 120,696
------------- ------------- -------------
SPAIN--3.2%
Spanish Government Bonds,
225,000 -- 225,000 8.00%, 5/30/04 1,924,986 -- 1,924,986
-- 650,000 650,000 6.15%, 1/31/13 -- 5,406,026 5,406,026
------------- ------------- -------------
1,924,986 5,406,026 7,331,012
------------- ------------- -------------
SWEDEN--2.5%
13,000 29,000 42,000 Swedish Government Bonds, 6.00%, 1,777,845 3,965,962 5,743,807
2/9/05
------------- ------------- -------------
</TABLE>
B-3
<PAGE>
PRO FORMA PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT (000) VALUE
- --------------------------- -------------------------------------------
PRUDENTIAL PRUDENTIAL
GLOBAL PRUDENTIAL GLOBAL PRUDENTIAL
LIMITED GLOBAL TOTAL LIMITED GLOBAL TOTAL
MATURITY RETURN FUND, MATURITY RETURN FUND, PRO FORMA
FUND, INC. INC. TOTAL DESCRIPTION(A) FUND, INC. INC. COMBINED
- ------------ ------------- ------------ --------------------------------- ------------- ------------- -------------
<C> <C> <C> <S> <C> <C> <C>
UNITED KINGDOM--4.1%
$ 447 $ -- $ 447 Banco Central del Uruguay, $ 628,139 $ -- $ 628,139
8.875%, 2/19/07
900 -- 900 Powergen PLC, 8.875%, 3/26/03 1,652,087 -- 1,652,087
-- 9,100 9,100 United Kingdom Treasury Strip, -- 7,176,140 7,176,140
Zero Coupon, 12/7/15
------------- ------------- -------------
2,280,226 7,176,140 9,456,366
------------- ------------- -------------
CENTRAL BANKS--0.7%
750 -- 750 Banco del Estado Chile, 8.39%, 742,035 -- 742,035
8/1/01
1,000 -- 1,000 Central Bank of Tunisia, 7.50%, 900,000 -- 900,000
9/19/07
------------- ------------- -------------
1,642,035 -- 1,642,035
------------- ------------- -------------
SOVEREIGN BONDS--4.8%
500 -- 500 Jamaican Government Bonds, 430,000 -- 430,000
9.625%, 7/2/02
1,000 3,500 4,500 Ministry of Finance (Russia), 285,000 997,500 1,282,500
10.00%, 6/26/07
-- 1,000 1,000 Republic of Columbia, 7.25%, -- 896,000 896,000
2/23/04
Republic of Croatia, FRN,
1,466 2,000 3,466 6.5625%, 7/31/06 1,157,934 1,429,551 2,587,485
-- 960 960 6.5625%, 7/31/10 -- 758,400 758,400
400 800 1,200 Republic of Lithuania, 7.125%, 374,000 748,000 1,122,000
7/22/02
-- 1,400 1,400 Republic of Peru, 4.00%, 3/7/17 -- 878,500 878,500
-- 1,675 1,675 Russian Federation, 11.00%, -- 414,563 414,563
7/24/18
500 1,000 1,500 Sultan of Oman, 7.125%, 3/20/02 510,000 1,020,000 1,530,000
1,015 -- 1,015 Trinidad & Tobago Republic, 1,015,000 1,015,000
9.75%, 11/3/00
------------- ------------- -------------
3,771,934 7,142,514 10,914,448
------------- ------------- -------------
SUPRANATIONAL BONDS--4.1%
500 4,800 5,300 Corporacion Andina de Formento, 488,750 4,847,664 5,336,414
7.357%, 7/21/00
1,000 1,200 2,200 General Motors Acceptance Corp., 1,007,760 1,209,312 2,217,072
5.75%, 11/10/03
-- 1,700 1,700 Household Finance Corporation, -- 1,755,335 1,755,335
6.40%, 6/17/08
------------- ------------- -------------
1,496,510 7,812,311 9,308,821
------------- ------------- -------------
</TABLE>
B-4
<PAGE>
PRO FORMA PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT (000) VALUE
- --------------------------- -------------------------------------------
PRUDENTIAL PRUDENTIAL
GLOBAL PRUDENTIAL GLOBAL PRUDENTIAL
LIMITED GLOBAL TOTAL LIMITED GLOBAL TOTAL
MATURITY RETURN FUND, MATURITY RETURN FUND, PRO FORMA
FUND, INC. INC. TOTAL DESCRIPTION(A) FUND, INC. INC. COMBINED
- ------------ ------------- ------------ --------------------------------- ------------- ------------- -------------
<C> <C> <C> <S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS--18.8%
United States Treasury Bonds,
$ 4,600 $ 13,810 $ 18,410 6.25%, 2/15/07 $ 5,045,602 $15,147,775 $ 20,193,377
-- 9,250 9,250 6.625%, 2/15/27 -- 10,940,992 10,940,992
United States Treasury Notes,
4,750 5,000 9,750 6.125%, 9/30/00 4,866,517 5,122,650 9,989,167
1,000 -- 1,000 7.7875%, 11/15/04 1,158,590 -- 1,158,590
1,000 -- 1,000 Zero Coupon, 5/15/05, P/O 739,970 -- 739,970
------------- ------------- -------------
11,810,679 31,211,417 43,022,096
------------- ------------- -------------
18,721,158 46,166,242 64,887,400
------------- ------------- -------------
TOTAL LONG-TERM INVESTMENTS (COST 54,645,040 141,978,252 196,623,292
$56,292,000, $141,404,772 AND
$197,696,772, RESPECTIVELY.)
------------- ------------- -------------
SHORT-TERM INVESTMENTS--10.3%
GREECE--0.3%
200,000 -- 200,000 Hellenic Republic, 11.00%, 695,742 -- 695,742
11/26/99
------------- ------------- -------------
HUNGARY--0.9%
Hungarian Government Bonds,
65,000 -- 65,000 16.50%, 4/12/99 301,087 -- 301,087
130,000 250,000 380,000 16.50%, 7/24/99 603,583 1,160,737 1,764,320
------------- ------------- -------------
904,670 1,160,737 2,065,407
------------- ------------- -------------
NETHERLANDS--0.5%
2,000 -- 2,000 Republic of Argentina, 7.625%, 1,048,784 -- 1,048,784
7/5/99
------------- ------------- -------------
POLAND--1.2%
Polish Treasury Bills,
1,700 3,800 5,500 Zero Coupon, 2/17/99 475,568 1,057,221 1,532,789
600 1,200 1,800 Zero Coupon, 3/3/99 166,933 333,344 500,277
900 2,000 2,900 Zero Coupon, 4/28/99 245,049 543,912 788,961
------------- ------------- -------------
887,550 1,934,477 2,822,027
------------- ------------- -------------
</TABLE>
B-5
<PAGE>
PRO FORMA PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT (000) VALUE
- --------------------------- -------------------------------------------
PRUDENTIAL PRUDENTIAL
GLOBAL PRUDENTIAL GLOBAL PRUDENTIAL
LIMITED GLOBAL TOTAL LIMITED GLOBAL TOTAL
MATURITY RETURN FUND, MATURITY RETURN FUND, PRO FORMA
FUND, INC. INC. TOTAL DESCRIPTION(A) FUND, INC. INC. COMBINED
- ------------ ------------- ------------ --------------------------------- ------------- ------------- -------------
<C> <C> <C> <S> <C> <C> <C>
UNITED STATES--7.4%
SOVEREIGN BONDS--3.0%
$ 1,000 $ -- $ 1,000 Cadbury Schweppes PLC, 6.25%, $ 1,006,500 $ -- $ 1,006,500
10/4/99
-- 1,000 1,000 Banco Gandero Colombian Bond -- 1,006,250 1,006,250
(Columbia), 9.75%, 8/26/99
-- 2,900 2,900 Financiera Energica National -- 2,900,000 2,900,000
(Columbia), 9.00%, 11/8/99
1,000 1,000 2,000 Petroleas Mexicano (Mexico), FRN, 987,300 987,300 1,974,600
6.71875%, 3/8/99
------------- ------------- -------------
1,993,800 4,893,550 6,887,350
------------- ------------- -------------
REPURCHASE AGREEMENT--1.7%
826 3,061 3,887 Joint Repurchase Agreement 826,000 3,061,000 3,887,000
Account, 4.69%, 1/4/99
------------- ------------- -------------
U.S. GOVERNMENT OBLIGATIONS--2.7%
-- 6,000 6,000 United States Treasury Bills, -- 6,063,720 6,063,720
6.75%, 6/30/99
------------- ------------- -------------
2,819,800 14,018,270 16,838,070
------------- ------------- -------------
TOTAL SHORT-TERM INVESTMENTS 6,356,546 17,113,484 23,470,030
(COST $6,464,652, $17,281,427
AND $23,746,079, RESPECTIVELY.)
------------- ------------- -------------
TOTAL INVESTMENTS--96.1% (COST 61,001,586 159,091,736 220,093,322
$62,756,652, $158,686,199 AND
$221,442,851, RESPECTIVELY.)
OTHER ASSETS IN EXCESS OF 2,794,895 6,175,538 8,970,433
LIABILITIES--3.9%
------------- ------------- -------------
NET ASSETS--100% $ 63,796,481 $165,267,274 $ 229,063,755
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
B-6
<PAGE>
PRO-FORMA STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRUDENTIAL GLOBAL PRUDENTIAL
LIMITED MATURITY GLOBAL TOTAL PRO FORMA PRO FORMA
FUND RETURN FUND ADJUSTMENTS COMBINED
----------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Investments, at value (cost $62,756,652, $158,686,199
and $221,442,851).................................. $ 61,001,586 $159,091,736 $220,093,322
Foreign currency, at value (cost $2,065,161,
$1,767,880 and $3,833,041)......................... 2,056,809 1,757,476 3,814,285
Interest receivable.................................. 1,408,117 4,747,224 6,155,341
Forward currency contracts--amount receivable from
counterparties 112,197 355,541 467,738
Receivable for investments sold...................... -- 253,165 253,165
Receivable for Fund shares sold...................... 3,277 22,770 26,047
Other assets......................................... 2,070 5,231 7,301
----------------- ------------ ------------
Total assets....................................... 64,584,056 166,233,143 230,817,199
----------------- ------------ ------------
LIABILITIES
Bank Overdraft....................................... -- 88,425 88,425
Payable for Fund shares reacquired................... 450,197 404,297 854,494
Accrued expenses and other liabilities............... 285,658 192,405 478,063
Management fee payable............................... 30,416 106,493 136,909
Dividends payable.................................... 11,510 -- 11,510
Distribution fee payable............................. 9,032 22,982 32,014
Withholding tax payable.............................. 762 -- 762
Forward currency contracts--amount payable to
counterparties..................................... -- 151,267 151,267
----------------- ------------ ------------
Total liabilities.................................. 787,575 965,869 1,753,444
----------------- ------------ ------------
NET ASSETS........................................... $ 63,796,481 $165,267,274 $229,063,755
----------------- ------------ ------------
----------------- ------------ ------------
Net assets were comprised of:
Common stock, at par............................... $ 8,171 $ 205,901 $ 71,188(a) $ 285,260
Paid in capital in excess of par................... 118,424,491 164,988,534 (71,188)(a) 283,341,837
----------------- ------------ ------------
118,432,662 165,194,435 283,627,097
Distributions in excess of net investment income..... (161,293) -- (161,293)
Accumulated net realized loss on investment.......... (52,814,203) (600,027) (53,414,230)
Net unrealized depreciation of investments........... (1,660,685) 672,866 (987,819)
----------------- ------------ ------------
Net assets, December 31, 1998........................ $ 63,796,481 $165,267,274 $229,063,755
----------------- ------------ ------------
----------------- ------------ ------------
Class A:
Net asset value and redemption price per share..... $ 7.81 $ 8.03 $ 8.03
Maximum sales charge (3% and 4% of offering
price)........................................... 0.24 0.33 0.33
----------------- ------------ ------------
Shares outstanding 7,999,829, 19,800,984 and
27,569,418 respectively. $ 8.05 $ 8.36 $ 8.36
----------------- ------------ ------------
----------------- ------------ ------------
Class B:
Net asset value, offering price and redemption
price per share.................................. $ 7.86 $ 8.03 $ 8.03
----------------- ------------ ------------
----------------- ------------ ------------
Shares outstanding 157,845, 451,664 and 605,874
respectively.
Class C:
Net asset value and redemption price per share..... $ 7.86 $ 8.03 $ 8.03
Maximum sales charge (1% of offering price)........ 0.08 0.08 0.08
----------------- ------------ ------------
Maximum offering price............................. $ 7.94 $ 8.11 $ 8.11
----------------- ------------ ------------
----------------- ------------ ------------
Shares outstanding 7,091, 34,209 and 41,160
respectively.
Class Z:
Net asset value, offering price and redemption
price per share.................................. $ 7.84 $ 8.03 $ 8.03
----------------- ------------ ------------
----------------- ------------ ------------
Shares outstanding 6,423, 303,197 and 309,545
respectively.
</TABLE>
- --------------------------
(a) Adjustment to reflect change in par value per share to the Prudential Global
Limited Maturity Fund, Inc.
B-7
<PAGE>
PRO-FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRUDENTIAL GLOBAL PRUDENTIAL
LIMITED MATURITY GLOBAL TOTAL PRO FORMA PRO FORMA
FUND RETURN FUND ADJUSTMENTS COMBINED
------------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
NET INVESTMENT INCOME
Income
Interest and discount
earned.................... $ 5,808,579 $ 13,687,048 $ -- $19,495,627
------------------- ------------ ----------- -----------
Expenses
Distribution Fee--Class A... 105,945 257,141 363,086
Distribution Fee--Class B... 15,163 22,860 38,023
Distribution Fee--Class C... 409 1,647 2,056
Management fee.............. 400,136 1,323,490 145,504(a) 1,869,130
Custodian's fees &
expenses.................. 153,000 225,000 (118,780)(b) 259,220
Transfer agent's fees &
expenses.................. 142,000 320,000 462,000
Reports to shareholders..... 88,000 50,000 (40,000)(b) 98,000
Registration fees........... 49,000 50,000 (33,000)(b) 66,000
Audit fee................... 30,000 36,000 (27,000)(b) 39,000
Directors'/Trustees' fees... 18,000 18,000 (9,000)(b) 27,000
Legal fees.................. 11,000 45,000 4,000(b) 60,000
Insurance expense........... -- 4,000 -- 4,000
Miscellaneous............... 6,254 12,608 (4,839)(b) 14,023
------------------- ------------ ----------- -----------
Total Expenses............ 1,018,907 2,365,746 83,115 3,301,538
------------------- ------------ ----------- -----------
Net investment income......... 4,789,672 11,321,302 (83,115) 16,194,089
------------------- ------------ ----------- -----------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized gain (loss) on:
Investment transactions..... (1,601,836) 2,920,023 -- 1,318,187
Foreign currency
transactions.............. (2,106,325) (1,349,135) -- (3,455,460)
------------------- ------------ ----------- -----------
(3,708,161) 1,570,888 -- (2,137,273)
------------------- ------------ ----------- -----------
Net change in unrealized
appreciation (depreciation)
of:
Investments................. 1,857,624 2,767,090 -- 4,624,714
Foreign currencies.......... (319,331) (909,628) -- (1,228,959)
------------------- ------------ ----------- -----------
1,538,293 1,857,462 -- 3,395,755
------------------- ------------ ----------- -----------
Net gain (loss) on
investments................. (2,169,868) 3,428,350 -- 1,258,482
------------------- ------------ ----------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS... $ 2,619,804 $ 14,749,652 $ 83,115 $17,452,571
------------------- ------------ ----------- -----------
------------------- ------------ ----------- -----------
</TABLE>
- ------------------------
(a) Adjustment to reflect increase of .20 of 1% in management fee expense.
(b) Adjustment to reflect elimination of duplicative expenses.
B-8
<PAGE>
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
Prudential Global Total Return Fund, Inc. (the Fund) is an open-end, non
diversified management investment company. The Fund's investment objective is to
seek total return made up of current income and capital appreciation. The Fund
seeks to achieve this objective by investing at least 65% of its total assets in
income-producing debt securities of the U.S. and foreign governments,
supranational organizations, semi-governmental entities or governmental
agencies, authorities or instrumentalities and short-term bank debt securities
or bank deposits. The Fund looks primarily for investment-grade securities
denominated in U.S. dollars and in foreign currencies.
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 VALUATIONS: 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. Foreign currency
forward 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 tri-party 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) purchase 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
price of the securities held at year-end.
Similarly, the Fund does not isolate the effect of change in foreign
exchange rates from the fluctuations arising from changes in the market prices
of long-term debt securities sold during the year.
B-9
<PAGE>
NOTES TO PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 1. ACCOUNTING POLICIES (CONTINUED)
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 foreign currency forward 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 amount actually received or paid. Net currency gains and
losses from valuing foreign currency denominated assets (excluding investment)
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.
FOREIGN CURRENCY FORWARD CONTRACTS: A foreign currency forward contract is a
commitment to purchase or sell a foreign currency at a future date at a
negotiated forward rate. The Fund enters into foreign currency forward 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 fee), 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.
B-10
<PAGE>
NOTES TO PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 1. ACCOUNTING POLICIES (CONTINUED)
REORGANIZATION AND SOLICITATION EXPENSES: Expenses of reorganization and
solicitation will be borne by the Fund and Prudential Global Limited Maturity
Fund, Inc. in proportion to their respective assets and will include
reimbursement of brokerage firms and others for expenses in forwarding proxy
solicitation material to shareholders.
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"), 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.
Prudential Investment Management Service LLC ("PIMS") became the distributor
of the Fund effective June 1, 1998 and distributes 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 are paid
to PIMS as distributor of the Class Z shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates 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 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.
PIMS (and its predecessor) has advised the Fund that it 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.
PIMS (and its predecessor) has advised the Fund that for the year ended
December 31, 1998, it received approximately $27,800 and $800 in contingent
deferred sales charge imposed upon certain redemptions by Class B and Class C
shareholders, respectively.
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 borrowing 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,
B-11
<PAGE>
NOTES TO PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 2. AGREEMENTS (CONTINUED)
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.
The expense adjustments do not include the one time estimated cost of the
reorganization of $61,000 that is being borne by the Fund and Prudential Global
Limited Maturity Fund, Inc. in proportion to their respective assets.
B-12
<PAGE>
Prudential Mutual Funds
- ------------------------------------------------------------------------------
SUPPLEMENT TO STATEMENT OF ADDITIONAL INFORMATION
DATED JULY 23, 1999
PURCHASE, REDEMPTION AND PRICING OF FUND SHARES
The section entitled "Purchase, Redemption and Pricing of Fund Shares" is
amended as follows:
The first five paragraphs under "Reduction and Waiver of Initial Sales
Charge--Class A Shares" are amended to read in their entirety as follows:
BENEFIT PLANS. Certain group retirement and savings plans may purchase
Class A shares without the initial sales charge if they meet the required
minimum for amount of assets, average account balance or number of eligible
employees. For more information about these requirements, call Prudential
at (800) 353-2847.
The following is added after the end of the first paragraph under
"Reduction and Waiver of Initial Sales Charge--Class A Shares--Other Waivers":
Class A shares may also be purchased at NAV by members of the Board of
Directors of The Prudential Insurance Company of America.
Broker-dealers, investment advisers or financial planners sponsoring
fee-based programs (such as mutual fund "wrap" or asset allocation programs
and mutual fund "supermarket" programs) may offer their clients more than one
class of shares in the Fund(s) in connection with different pricing options
for their programs. Investors should consider carefully any separate
transaction and other fees charged by these programs in connection with
investing in each available share class before selecting a share class.
The section entitled "Reduction and Waiver of Initial Sales Charge--Class A
Shares--Letters of Intent" is amended as follows:
MF990C9
<PAGE>
Retirement and group plans no longer qualify to purchase Class A shares at
NAV by entering into a Letter of Intent. All references to "Participant
Letters of Intent" are hereby deleted.
The first two paragraphs under "Waiver of Initial Sales Charge--Class C
Shares" are amended to read in their entirety as follows (not applicable to
Prudential Government Securities Trust):
BENEFIT PLANS. Certain group retirement plans may purchase Class C shares
without the initial sales charge. For more information, call Prudential at
(800) 353-2847.
The first two paragraphs under "Class Z Shares" are amended to read in their
entirety as follows (not applicable to Prudential Distressed Securities Fund,
Inc.):
BENEFIT PLANS. Certain group retirement plans may purchase Class Z shares
if they meet the required minimum for amount of assets, average account
balance or number of eligible employees. For more information about these
requirements, call Prudential at (800) 353-2847.
MUTUAL FUND PROGRAMS. Class Z shares can also be purchased by participants
in any fee-based program or trust program sponsored by Prudential or an
affiliate that includes the Fund(s) as an available option. Class Z shares
can also be purchased by investors in certain programs sponsored by
broker-dealers, investment advisers and financial planners who have
agreements with Prudential Investments Advisory Group relating to:
- Mutual fund "wrap" or asset allocation programs, where the sponsor
places Fund trades, links its clients' accounts to a master account in
the sponsor's name and charges its clients a management, consulting or
other fee for its services; or
- Mutual fund "supermarket" programs, where the sponsor links its clients'
accounts to a master account in the sponsor's name and the sponsor
charges a fee for its services.
Broker-dealers, investment advisers or financial planners sponsoring
these mutual fund programs may offer their clients more than one class of
shares in the Fund(s) in connection with different pricing options for
their programs. Investors should consider carefully any separate
transaction and other fees charged by these programs in connection with
investing in each available share class before selecting a share class.
<PAGE>
OTHER TYPES OF INVESTORS. Class Z shares are also available for
purchase by the following categories of investors:
- Certain participants in the MEDLEY Program (group variable annuity
contracts) sponsored by Prudential for whom Class Z shares of the
Prudential mutual funds are an available investment option;
- Current and former Directors/Trustees of the Prudential mutual funds
(including the Fund/Company); and
- Prudential, with an investment of $10 million or more.
The second and third paragraphs under "Sale of Shares--Waiver of Contingent
Deferred Sales Charge--Class B Shares" are amended to read in their entirety as
follows (not applicable to Prudential Government Securities Trust):
The CDSC will also be waived in the case of a total or partial
redemption in connection with certain distributions made without penalty
under the Internal Revenue Code from a tax-deferred retirement plan, an IRA
or Section 403(b) custodial account. For more information, call Prudential at
(800) 353-2847.
The section entitled "Sale of Shares--Waiver of Contingent Deferred Sales
Charge--Class C Shares" is amended to read in its entirety as follows (not
applicable to Prudential Government Securities Trust):
BENEFIT PLANS. The CDSC will be waived for redemptions by certain group
retirement plans for which Prudential or brokers not affiliated with
Prudential provide administrative or recordkeeping services. The CDSC will
also be waived for certain redemptions by benefit plans sponsored by
Prudential and its affiliates. For more information, call Prudential at
(800) 353-2847.
Listed below are the names of the Prudential mutual funds and the date of
each Statement of Additional Information (SAI) to which this supplement relates.
<TABLE>
<CAPTION>
<S> <C>
Name of Fund SAI Date
- ----------------------------------------- ------------------
Nicholas-Applegate Fund, Inc. March 15, 1999
Prudential Distressed Securities Fund,
Inc. February 5, 1999
Prudential Diversified Bond Fund, Inc. March 2, 1999
Prudential Emerging Growth Fund, Inc. January 14, 1999
Prudential Equity Fund, Inc. March 1, 1999
Prudential Equity Income Fund January 14, 1999
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Name of Fund SAI Date
- ----------------------------------------- ------------------
Prudential Global Limited Maturity Fund,
Inc. January 22, 1999
Prudential Government Income Fund, Inc. May 18, 1999
Prudential High Yield Fund, Inc. March 3, 1999
Prudential High Yield Total Return Fund,
Inc. June 1, 1999
Prudential Intermediate Global Income
Fund, Inc. March 16, 1999
Prudential International Bond Fund, Inc. March 16, 1999
Prudential Mid-Cap Value Fund April 28, 1999
Prudential Pacific Growth Fund, Inc. February 25, 1999
Prudential Real Estate Securities Fund June 2, 1999
Prudential Sector Funds, Inc. May 20, 1999
Prudential Financial Services Fund
Prudential Health Sciences Fund
Prudential Technology Fund
Prudential Utility Fund
Prudential Small-Cap Quantum Fund, Inc. May 27, 1999
Prudential Structured Maturity Fund, Inc. March 1, 1999
Prudential Tax-Managed Equity Fund January 20, 1999
Prudential World Fund, Inc. January 20, 1999
Global Series
International Stock Series
Prudential 20/20 Focus Fund April 26, 1999
The Global Total Return Fund, Inc. March 1, 1999
</TABLE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION OF TOTAL RETURN FUND
DATED MARCH 1, 1999
<PAGE>
THE GLOBAL TOTAL RETURN FUND, INC.
Statement of Additional Information
dated March 1, 1999
The Global Total Return Fund, Inc. (the Fund) is an open-end,
non-diversified management investment company. The Fund's investment objective
is to seek total return made up of current income and capital appreciation. The
Fund seeks to achieve this objective by investing at least 65% of its total
assets in income-producing debt securities of the U.S. and foreign governments,
supranational organizations, semi-governmental entities or governmental
agencies, authorities or instrumentalities and short-term bank debt securities
or bank deposits. We look primarily for investment-grade securities denominated
in U.S. dollars and in foreign currencies. There can be no assurance that the
Fund's investment objective will be achieved.
The Fund's address is Gateway Center Three, 100 Mulberry Street, Newark,
New Jersey 07102-4077, and its telephone number is (800) 225-1852.
This Statement of Additional Information is not a prospectus and should
only be read in conjunction with the Fund's Prospectus, dated March 1, 1999, a
copy of which may be obtained from the Fund upon request.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-2
Description of the Fund, Its Investments and Risks . . . . . . . . . . . . B-2
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . .B-19
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . .B-21
Control Persons and Principal Holders of Securities. . . . . . . . . . . .B-24
Investment Advisory and Other Services . . . . . . . . . . . . . . . . . .B-25
Brokerage Allocation and Other Practices . . . . . . . . . . . . . . . . .B-29
Capital Shares, Other Securities and Organization. . . . . . . . . . . . .B-30
Purchase, Redemption and Pricing of Fund Shares. . . . . . . . . . . . . .B-31
Shareholder Investment Account . . . . . . . . . . . . . . . . . . . . . .B-40
Net Asset Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-44
Taxes, Dividends and Distributions . . . . . . . . . . . . . . . . . . . .B-45
Performance Information. . . . . . . . . . . . . . . . . . . . . . . . . .B-48
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . .B-50
Report of Independent Accountants. . . . . . . . . . . . . . . . . . . . .B-61
Appendix A--Description of Security Ratings. . . . . . . . . . . . . . . . A-1
Appendix I--General Investment Information . . . . . . . . . . . . . . . . I-1
Appendix II--Historical Performance Data . . . . . . . . . . . . . . . . .II-1
Appendix III--Information Relating to Prudential . . . . . . . . . . . . III-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
FUND HISTORY
The Global Total Return Fund, Inc. was incorporated under the laws of
Maryland on May 6, 1986 under the name "The Global Yield Fund, Inc." as a
closed-end, non-diversified management investment company. In connection with a
change in the Fund's investment objective approved by shareholders in November,
1994, shareholders approved a change in the name of the Fund to The Global Total
Return Fund, Inc. The Fund operated as a closed-end fund prior to January 15,
1996. On December 6, 1995, shareholders approved open-ending the Fund, and since
January 15, 1996, the Fund has operated as an open-end fund.
DESCRIPTION OF THE FUND, ITS INVESTMENTS AND RISKS
(A) CLASSIFICATION. The Fund is a "non-diversified" management investment
company and may invest more than 5% of its total assets in the securities of one
or more issuers. However, the Fund intends to limit its investments in the
securities of any one issuer, except for securities issued or guaranteed as to
payment of principal and interest by any one government, supranational issuer,
semi-government or government agency, authority or instrumentality, to 5% of its
total assets at the time of purchase. Except for securities issued or guaranteed
by the U.S. government, its agencies, authorities or instrumentalities, the Fund
will not invest 25% or more of its total assets at the time of purchase in the
securities of a central government or a supranational issuer and not more than
10% of its total assets in securities of a semi-government or government agency,
authority or instrumentality. Investment in a non-diversified investment company
involves greater risk than investment in a diversified investment company
because a loss resulting from the default of a single issuer may represent a
greater portion of the total assets of a non-diversified portfolio.
(B) AND (C) INVESTMENT STRATEGIES, POLICIES AND RISKS. The Fund's
investment objective is to seek total return, made up of current income and
capital appreciation. While the principal investment policies and strategies for
seeking to achieve this objective are described in the Fund's prospectus, the
Fund may from time to time also use the securities, instruments, policies and
strategies described below in seeking to achieve its objective. The Fund may not
be successful in achieving its objective and you could lose money.
FOREIGN SECURITIES
Foreign securities include securities of any foreign country the investment
adviser considers appropriate for investment by the Fund. Foreign securities may
also include securities of foreign issuers that are traded in U.S. dollars in
the United States although the underlying security is usually denominated in a
foreign currency. These securities include but are not limited to securities
traded in the form of American Depositary Receipts and American Depositary
Shares. In many instances, foreign securities may provide higher yields but may
be subject to greater fluctuations in price than securities of domestic issuers
which have similar maturities and quality. Under certain market conditions these
investments may be less liquid and more volatile than the securities of U.S.
corporations and are certainly less liquid than securities issued or guaranteed
by the U.S. government, its instrumentalities or agencies.
Foreign securities involve certain risks, which should be considered
carefully by an investor in the Fund. These risks include political, economic or
social instability in the country of the issuer, the difficulty of predicting
international trade patterns, the possibility of imposition of exchange controls
and the risk of currency fluctuations. Such securities may be subject to greater
fluctuations in price than securities issued by U.S. corporations or issued or
guaranteed by the U.S. government, its instrumentalities or agencies. In
addition, there may be less publicly available information about a foreign
company than about a domestic company. Foreign companies generally are not
subject to uniform accounting, auditing and financial reporting standards
comparable to those applicable to U.S. companies. There is generally less
government regulation of securities exchanges, brokers and listed companies
abroad than in the United States, and, for certain foreign countries, there is a
possibility of expropriation, confiscatory taxation or diplomatic developments
which could affect investment in those countries and potential difficulties in
enforcing contractual obligations and extended settlement periods. Finally, in
the event of a default of any such foreign debt obligations, it may be more
difficult for the Fund to obtain, or to enforce a judgment against, the issuers
of such securities.
The costs attributable to foreign investing are higher than the costs of
domestic investing. For example, the cost of maintaining custody of foreign
securities generally exceeds custodian costs for domestic securities, and
transaction and settlement costs of foreign investing are frequently higher than
those attributable to domestic investing. Costs are incurred in connection with
conversions between various currencies. In addition, foreign brokerage
commissions are generally higher than in the U.S., and the foreign securities
markets may be less liquid and more volatile than in the U.S. Foreign investment
income may be subject to foreign withholding or other government taxes that
could reduce the return to the Fund on those securities. Tax treaties between
the United States and certain foreign countries may, however, reduce or
eliminate the amount of foreign tax to which the Fund would be subject.
B-2
<PAGE>
The Fund invests in debt securities denominated in the currencies of
developed countries and developing or emerging market countries whose
governments are considered stable by the Fund's investment adviser. An issuer of
debt securities purchased by the Fund may be domiciled in a country other than
the country in whose currency the instrument is denominated. Companies in
emerging markets may have limited product lines, markets or financial resources
and may lack management depth. The securities of these companies may have
limited marketability and may be subject to more abrupt or erratic market
movements than securities of larger, more established companies or the market
averages in general. Investing in the fixed-income markets of emerging market
countries involves exposure to economies that are generally less diverse and
mature, and to political systems which can be expected to have less stability
than those of developed countries. Historical experience indicates that the
markets of developing countries have been more volatile than the markets of
developed countries. The risks associated with investments in foreign
securities, described above, may be greater with respect to investments in
developing countries.
The Fund may invest in debt securities issued by supranational
organizations such as the World Bank, the European Investment Bank, the European
Coal and Steel Community, and the Asian Development Bank. The Fund may invest in
debt securities issued by "semi-governmental entities" such as entities owned by
a national, state or equivalent government or are obligations of a political
unit that are not backed by the national government's "full faith and credit"
and general taxing powers. Examples of semi-governmental issuers include, among
others, the Province of Ontario and the City of Stockholm.
The Fund may also invest in mortgage-backed securities issued or guaranteed
by foreign government entities including semi-governmental entities, and Brady
Bonds, which are long-term bonds issued by government entities in developing
countries as part of a restructuring of their commercial loans.
The Fund may invest in component parts of debt securities of foreign
governments or semi-governmental entities, namely either the corpus (principal)
of such obligations or one or more of the interest payments scheduled to be paid
on such obligations. These securities may take the form of (1) obligations from
which the interest coupons have been stripped (principal only); (2) the interest
coupons that are stripped (interest only); (3) book-entries at a bank
representing ownership of obligation components; or (4) receipts evidencing the
component parts (corpus or coupons) of obligations that have not actually been
stripped. Such receipts evidence ownership of component parts of obligations
(corpus or coupons) purchased by a third party (typically an investment banking
firm) and held on behalf of the third party in physical or book-entry form by a
major commercial bank or trust company pursuant to a custody agreement with the
third party. The Fund may also invest in custodial receipts held by a third
party. Stripped securities are, in general, more sensitive to interest rate
changes than securities that have not been stripped. Combined with investments
in similar U.S. Government securities, the Fund will not invest more than 10% of
its total assets in such securities.
A change in the value of a foreign currency against the U.S. dollar will
result in a corresponding change in the U.S. dollar value of the Fund's assets
denominated in that currency. These currency fluctuations can result in gains or
losses for the Fund. For example, if a foreign security increases in value as
measured in its currency, an increase in value of the U.S. dollar, relative to
the currency in which the foreign security is denominated can offset some or all
of such gains. These currency changes will also affect the Fund's return, income
and distributions to shareholders. In addition, although the Fund will receive
income in such currencies, the Fund will be required to compute and distribute
its income in U.S. dollars. Therefore, if the exchange rate for any such
currency decreases after the Fund's income has been accrued and translated into
U.S. dollars, the Fund would experience a foreign currency loss and could be
required to liquidate portfolio securities to make such distributions.
Similarly, if an exchange rate for any such currency decreases between the time
the Fund incurs expenses in U.S. dollars and the time such expenses are paid,
the amount of such currency required to be converted into U.S. dollars in order
to pay such expenses in U.S. dollars will be greater than the equivalent amount
of such currency at the time such expenses were incurred. Under the Internal
Revenue Code of 1986, as amended (the Internal Revenue Code), changes in an
exchange rate which occur between the time the Fund accrues interest or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or pays such
liabilities will result in foreign currency gains or losses that increase or
decrease distributable net investment income. Similarly, dispositions of certain
debt securities (by sale, at maturity or otherwise) at a U.S. dollar amount that
is higher or lower than the Fund's original U.S. dollar cost may result in
foreign exchange gains or losses, which will increase or decrease distributable
net investment income. The exchange rates between the U.S. dollar and other
currencies can be volatile and are determined by such factors as supply and
demand in the currency exchange markets, international balances of payments,
government intervention, speculation and other economic and political
conditions. Gains and losses on security and currency transactions cannot be
predicted. This fact coupled with the different tax and accounting treatment of
certain currency gains and losses increases the likelihood of distributions in
whole or in part constituting a return of capital to shareholders.
The Fund's interest income from foreign government securities issued in
local markets may, in some cases, be subject to applicable withholding taxes
imposed by governments in such markets. The Fund may sell a foreign security it
owns prior to
B-3
<PAGE>
maturity in order to avoid foreign withholding taxes on dividend and interest
income and buy back the same security for a future settlement date. Interest on
foreign government securities is not generally subject to foreign withholding
taxes. See "Taxes, Dividends and Distributions."
Returns available from foreign currency denominated debt instruments can be
adversely affected by changes in exchange rates. The Fund's investment adviser
believes that the use of foreign currency hedging techniques, including
"cross-currency hedges" may assist, under certain conditions, in helping to
protect against declines in the U.S. dollar value of income available for
distribution to shareholders and declines in the net asset value of the Fund's
shares resulting from adverse changes in currency exchange rates. For example,
the return available from securities denominated in a particular foreign
currency would diminish in the event the value of the U.S. dollar increased
against such currency. Such a decline could be partially or completely offset by
an increase in value of cross-currency hedge involving a forward currency
contract to sell a different foreign currency, where such contract is available
on terms more advantageous to the Fund than a contract to sell the currency in
which the position being hedged is denominated. Cross-currency hedges can,
therefore, under certain conditions, provide protection of net asset value in
the event of a general rise in the U.S. dollar against foreign currencies.
However, there can be no assurance that the Fund will be able to engage in
cross-currency hedging or that foreign exchange rate relationships will be
sufficiently predictable to enable the investment adviser to employ
cross-currency hedging techniques successfully. A cross-currency hedge cannot
protect against exchange rate risks perfectly, and if the investment adviser is
incorrect in its judgment of future exchange rate relationships, the Fund could
be in a less advantageous position than if such a hedge had not been
established.
If a security is denominated in a foreign currency, it may be affected by
changes in currency rates and in exchange control regulations, and costs may be
incurred in connection with conversions between currencies. The Fund may enter
into foreign currency forward contracts for the purchase or sale of foreign
currency for hedging purposes. See "Risk Management and Return Enhancement
Strategies" below.
SPECIAL CONSIDERATIONS OF INVESTING IN EURO-DENOMINATED SECURITIES. On
January 1, 1999, 11 of the 15 member states of the European Monetary Union
introduced the "euro" as a common currency. During a three-year transitional
period, the euro will coexist with each participating state's currency and, on
July 1, 2002, the euro is expected to become the sole currency of the
participating states. During the transition period, the Fund will treat the
euro as a separate currency from that of any participating state.
The conversion may adversely affect the Fund if the euro does not take
effect as planned; if a participating state withdraws from the European Monetary
Union; or if the computing, accounting and trading systems used by the Fund's
service providers, or by entities with which the Fund or its service providers
do business, are not capable of recognizing the euro as a distinct currency at
the time of, and following, euro conversion. In addition, the conversion could
cause markets to become more volatile.
The overall effect of the transition of member states' currencies to the
euro is not known at this time. It is likely that more general short- and
long-term ramifications can be expected, such as changes in the economic
environment and change in the behavior of investors, which would affect the
Fund's investments and its net asset value. In addition, although U.S. Treasury
regulations generally provide that the euro conversion will not, in itself,
cause a U.S. taxpayer to realize gain or loss, other changes that may occur at
the time of the conversion, such as accrual periods, holiday conventions,
indices, and other features may require the realization of a gain or loss by the
Fund as determined under existing tax law.
The Fund's Manager has taken steps: (1) that it believes will reasonably
address euro-related changes to enable the Fund and its service providers to
process transactions accurately and completely with minimal disruption to
business activities and (2) to obtain reasonable assurances that appropriate
steps have been taken by the Fund's other service providers to address the
conversion. The Fund has not borne any expenses related to these actions.
FIXED-INCOME SECURITIES
The Fund may invest in medium grade securities (i.e., rated Baa by Moody's,
BBB by S&P's or comparably rated by another NRSRO) and up to 10% of its total
assets in lower-rated securities (i.e., rated lower than Baa by Moody's, lower
than BBB by S&P's or comparably rated by another NRSRO) or, in either case if
unrated, deemed to be of equivalent quality by the investment adviser. However,
the Fund will not purchase a security rated lower than B by Moody's or S&P's or
comparably rated by another NRSRO or if unrated, deemed to be of equivalent
quality by the investment adviser.
Fixed-income securities are subject to the risk of an issuer's inability to
meet principal and interest payments on the obligations (credit risk) and may
also be subject to price volatility due to such factors as interest rate
sensitivity, the market perception of the creditworthiness of the issuer and
general market liquidity (market risk). Lower rated (i.e., high yield or "junk
bonds") securities are more likely to react to developments affecting market and
credit risk than are more highly rated securities, which react primarily to
movements in the general level of interest rates. The investment adviser
considers both credit risk and market risk in making investment decisions for
the Fund.
B-4
<PAGE>
Generally, lower-rated securities and unrated securities of comparable
quality (i.e., securities rated lower than Baa by Moody's or BBB by S&P's or
comparably rated by another NRSRO), offer a higher current yield than is offered
by higher-rated securities, but also (1) will likely have some quality and
protective characteristics that, in the judgment of the rating organizations,
are outweighed by large uncertainties or major risk exposures to adverse
conditions and (2) are predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms of the
obligation. The market values of certain of these securities also tend to be
more sensitive to individual issuer developments and changes in economic
conditions than higher-quality bonds. In addition, medium and lower-rated
securities and comparable unrated securities generally present a higher degree
of credit risk. The risk of loss due to default by these issuers is
significantly greater because medium and lower-rated securities and unrated
securities of comparable quality generally are unsecured and frequently are
subordinated to the prior payment of senior indebtedness. The investment
adviser, under the supervision of the Manager, the Subadviser and the Board of
Directors, in evaluating the creditworthiness of an issuer whether rated or
unrated, takes various factors into consideration, which may include, as
applicable, the issuer's financial resources, its sensitivity to economic
conditions and trends and regulatory matters.
In addition, the market value of securities in lower-rated categories is
more volatile than that of higher-quality securities, and the markets in which
medium and lower-rated or unrated securities are traded are more limited than
those in which higher-rated securities are traded. The existence of limited
markets may make it more difficult for the Fund to obtain accurate market
quotations for purposes of valuing its portfolio and calculating its net asset
value. Moreover, the lack of a liquid trading market may restrict the
availability of securities for the Fund to purchase and may also have the effect
of limiting the ability of the Fund to sell securities at their fair value
either to meet redemption requests or to respond to changes in the economy or
the financial markets.
Under adverse economic conditions, there is a risk that highly leveraged
issuers may be unable to service their debt obligations or to repay their
obligations upon maturity. Under adverse market or economic conditions, the
secondary market for high yield securities could contract further, independent
of any specific adverse changes in the condition of a particular issuer. As a
result, the investment adviser could find it more difficult to sell these
securities or may be able to sell the securities only at prices lower than if
such securities were widely traded. Prices realized upon the sale of such lower
rated or unrated securities, under these circumstances, may be less than the
prices used in calculating the Fund's net asset value.
Lower rated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, the Fund may
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. Also, as the principal value of bonds moves
inversely with movements in interest rates, in the event of rising interest
rates the value of the securities held by the Fund may decline proportionately
more than a portfolio consisting of higher-rated securities. If the Fund
experiences unexpected net redemptions, it may be forced to sell its higher
rated securities, resulting in a decline in the overall credit quality of the
Fund's portfolio and increasing the exposure of the Fund to the risks of high
yield securities.
Ratings of fixed-income securities represent the rating agency's opinion
regarding their credit quality and are not a guarantee of quality. Rating
agencies attempt to evaluate the safety of principal and interest payments and
do not evaluate the risks of fluctuations in market value. Also, rating agencies
may fail to make timely changes in credit ratings in response to subsequent
events, so that an issuer's current financial condition may be better or worse
than a rating indicates. See Appendix A--"Description of Security Ratings."
Subsequent to its purchase by the Fund, an issue of securities may cease to
be rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither event will require sale of these securities by the Fund, but
the investment adviser will consider this event in its determination of whether
the Fund should continue to hold the securities.
During the year ended December 31, 1998, the monthly dollar-weighted
average ratings of the debt obligations held by the Fund, expressed as a
percentage of the Fund's total investments, were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
RATING TOTAL INVESTMENTS
------- -----------------
<S> <C>
AAA/Aaa = 70.7%
AA/Aa = 3.9%
A/A = 10.0%
BBB/Baa = 10.3%
BB/Ba = 1.1%
CCC/Caa = 1.0%
Unrated = 3.0%
</TABLE>
B-5
<PAGE>
U.S. GOVERNMENT SECURITIES
U.S. TREASURY SECURITIES. The Fund may invest in U.S. Treasury securities,
including bills, notes, bonds and other debt securities issued by the U.S.
Treasury. These instruments are direct obligations of the U.S. government and,
as such, are backed by the "full faith and credit" of the United States. They
differ primarily in their interest rates, the lengths of their maturities and
the dates of their issuances.
OBLIGATIONS ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES. The Fund may invest in debt securities issued or guaranteed
by agencies or instrumentalities of the U.S. government, including but not
limited to, Government National Mortgage Association (GNMA), Federal National
Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC)
securities. Obligations of GNMA, the Farmers Home Administration and the
Export-Import Bank are backed by the "full faith and credit" of the United
States. In the case of securities not backed by the "full faith and credit" of
the United States, the Fund must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment. Such securities include
obligations issued by the Student Loan Marketing Association (SLMA), FNMA and
FHLMC, each of which may borrow from the U.S. Treasury to meet its obligations,
although the U.S. Treasury is under no obligation to lend to such entities.
Obligations issued or guaranteed as to principal and interest by the U.S.
government may be acquired by the Fund in the form of U.S. Treasury notes or
bonds. Such notes and bonds are held in custody by a bank on behalf of the
owners. These custodial receipts are commonly referred to as Treasury Strips.
The Fund may invest in component parts of U.S. government debt securities,
namely either the corpus (principal) of such obligations or one or more of the
interest payments scheduled to be paid on such obligations. These obligations
may take the form of (1) obligations from which the interest coupons have been
stripped; (2) the interest coupons that are stripped; (3) book-entries at a
Federal Reserve member bank representing ownership of obligation components; or
(4) receipts evidencing the component parts (corpus or coupons) of U.S.
government obligations that have not actually been stripped. Such receipts
evidence ownership of component parts of U.S. government obligations (corpus or
coupons) purchased by a third party (typically an investment banking firm) and
held on behalf of the third party in physical or book-entry form by a major
commercial bank or trust company pursuant to a custody agreement with the third
party. The Fund may also invest in custodial receipts held by a third party that
are not U.S. government securities. Combined with investments in similar foreign
government and semi-governmental entity securities, the Fund will not invest
more than 10% of its total assets in such securities.
SPECIAL CONSIDERATIONS. U.S. government securities are considered among the
most creditworthy of fixed-income investments. The yields available from U.S.
government securities are generally lower than the yields available from
corporate debt securities. The values of U.S. government securities (like those
of fixed-income securities generally) will change as interest rates fluctuate.
During periods of falling U.S. interest rates, the values of outstanding
long-term U.S. government securities generally rise. Conversely, during periods
of rising interest rates, the values of such securities generally decline. The
magnitude of those fluctuations will generally be greater for securities with
longer maturities. Although changes in the value of U.S. government securities
will not affect investment income from those securities, they will affect the
net asset value (NAV) of the Fund.
At a time when the Fund has written call options on a portion of its U.S.
government securities, its ability to profit from declining interest rates will
be limited. Any appreciation in the value of the securities held in the
portfolio above the strike price would likely be partially or wholly offset by
unrealized losses on call options written by the Fund. The termination of option
positions under these conditions would generally result in the realization of
capital losses, which would reduce the Fund's capital gains distributions.
Accordingly, the Fund would generally seek to realize capital gains to offset
realized losses by selling portfolio securities. In such circumstances, however,
it is likely that the proceeds of such sales would be reinvested in lower
yielding securities.
MORTGAGE-RELATED SECURITIES ISSUED OR GUARANTEED BY U.S. GOVERNMENT
AGENCIES AND INSTRUMENTALITIES
The Fund may invest in mortgage-backed securities and other derivative
mortgage products, including those representing an undivided ownership interest
in a pool of mortgages, e.g., GNMA, FNMA and FHLMC Certificates where the U.S.
government or its agencies or instrumentalities guarantees the payment of
interest and principal of these securities. However, these guarantees do not
extend to the securities' yield or value, which are likely to vary inversely
with fluctuations in interest rates nor do these guarantees extend to the yield
or value of the Fund's shares. These certificates are in most cases
"pass-through" instruments, through which the holder receives a share of all
interest and principal payments from the mortgages underlying the certificate,
net of certain fees.
In addition to GNMA, FNMA or FHLMC certificates through which the holder
receives a share of all interest and principal payments from the mortgages
underlying the certificate, the Fund may also invest in certain mortgage
pass-through securities
B-6
<PAGE>
issued by the U.S. government or its agencies and instrumentalities commonly
referred to as mortgage-backed security strips or MBS strips. MBS strips are
usually structured with two classes that receive different proportions of the
interest and principal distributions on a pool of mortgage assets. A common type
of stripped mortgage security will have one class receiving some of the interest
and most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the interest-only or
"IO" class), while the other class will receive all of the principal (the
principal-only or "PO" class). The yields to maturity on IOs and POs are
sensitive to the rate of principal payments (including prepayments) on the
related underlying mortgage assets, and principal payments may have a material
effect on yield to maturity. If the underlying mortgage assets experience
greater than anticipated prepayments of principal, the Fund may not fully recoup
its initial investment in IOs. Conversely, if the underlying mortgage assets
experience less than anticipated prepayments of principal, the yield on POs
could be materially adversely affected.
The Fund will invest in both Adjustable Rate Mortgage Securities (ARMs),
which are pass-through mortgage securities collateralized by adjustable rate
mortgages, and Fixed-Rate Mortgage Securities (FRMs), which are collateralized
by fixed-rate mortgages. For purposes of the Fund's maturity limitation, the
maturity of a mortgage-backed security will be deemed to be equal to its
remaining maturity (i.e., the average maturity of the mortgages underlying such
security determined by the investment adviser on the basis of assumed prepayment
rates with respect to such mortgages).
FHLMC SECURITIES. FHLMC presently issues two types of mortgage pass-through
securities, mortgage participation certificates (PCs) and guaranteed mortgage
certificates (GMCs). The Fund does not intend to invest in GMCs. PCs resemble
GNMA Certificates in that each PC represents a pro rata share of all interest
and principal payments made and owed on the underlying pool. FHLMC guarantees
timely monthly payment of interest on PCs and the stated principal amount.
ADJUSTABLE RATE MORTGAGE SECURITIES. Generally, ARMs have a specified
maturity date and amortize principal over their life. In periods of declining
interest rates, there is a reasonable likelihood that ARMs will experience
increased rates of prepayment of principal. However, the major difference
between ARMs and FRMs is that the interest rate and the rate of amortization of
principal of ARMs can and do change in accordance with movements in a
particular, pre-specified, published interest rate index. Because the interest
rate on ARMs generally moves in the same direction as market interest rates, the
market value of ARMs tends to be more stable than that of long-term fixed-rate
securities.
FIXED-RATE MORTGAGE SECURITIES. The Fund anticipates investing in
high-coupon fixed-rate mortgage securities. Such securities are collateralized
by fixed-rate mortgages and tend to have high prepayment rates when the level of
prevailing interest rates declines significantly below the interest rates on the
mortgages. Thus, under those circumstances, the securities are generally less
sensitive to interest rate movements than lower coupon FRMs.
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized mortgage obligations
(CMOs) are debt instruments collateralized by GNMA, FNMA or FHLMC Certificates,
but also may be collateralized by whole loans or private mortgage pass-through
securities (such collateral collectively hereinafter referred to as Mortgage
Assets). Multi-class pass-through securities are equity interests in a trust
composed of Mortgage Assets. Payments of principal of and interest on the
Mortgage Assets, and any reinvestment income thereon, provide the funds to pay
debt service on the CMOs or make scheduled distributions on the multi-class
pass-through securities. CMOs may be issued by agencies or instrumentalities of
the U.S. government, or by private originators of, or investors in, mortgage
loans, including depository institutions, mortgage banks, investment banks and
special-purpose subsidiaries of the foregoing. The issuer of a series of CMOs
may elect to be treated as a Real Estate Mortgage Investment Conduit (REMIC).
All future references to CMOs include REMICs and multi-class pass-through
securities.
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche," is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates. Interest is paid or accrues on all classes of the CMOs on a monthly,
quarterly or semi-annual basis. The principal of and interest on the Mortgage
Assets may be allocated among the several classes of a CMO series in a number of
different ways.
SPECIAL CONSIDERATIONS OF MORTGAGE-BACKED SECURITIES. The underlying
mortgages which collateralize the ARMs, CMOs and REMICs in which the Fund
invests will frequently have caps and floors which limit the maximum amount by
which the loan rate to the residential borrower may change up or down (1) per
reset or adjustment interval and (2) over the life of the loan. Some residential
mortgage loans restrict periodic adjustments by limiting changes in the
borrower's monthly principal and interest payments rather than limiting interest
rate changes. These payment caps may result in negative amortization. In
addition, because of the pass-through of prepayments of principal on the
underlying securities, mortgage-backed securities are often subject to more
rapid prepayment of principal than their stated maturity would indicate.
The market value of mortgage securities, like other U.S. government
securities, will generally vary inversely with changes in market interest rates,
declining when interest rates rise and rising when interest rates decline.
However, mortgage securities,
B-7
<PAGE>
while having comparable risk of decline during periods of rising rates, usually
have less potential for capital appreciation than other investments of
comparable maturities due to the likelihood of increased prepayments of
mortgages as interest rates decline. In addition, to the extent such mortgage
securities are purchased at a premium, mortgage foreclosures and unscheduled
principal prepayments generally will result in some loss of the holders'
principal to the extent of the premium paid. On the other hand, if such mortgage
securities are purchased at a discount, an unscheduled prepayment of principal
will increase current and total returns and will accelerate the recognition of
income which when distributed to shareholders will be taxable as ordinary
income.
Because the prepayment characteristics of the underlying mortgages vary, it
is not possible to predict accurately the average life of a particular issue of
pass-through certificates. Mortgage-backed securities are often subject to more
rapid prepayment than their stated maturity date would indicate as a result of
the pass-through of prepayments on the underlying mortgage obligations. During
periods of declining interest rates, prepayments of mortgages underlying
mortgage-backed securities can be expected to accelerate. When mortgage
obligations are prepaid, the Fund reinvests the prepaid amounts in securities,
the yields of which reflect interest rates prevailing at that time. Therefore,
the Fund's ability to maintain a portfolio of high-yielding mortgage-backed
securities will be adversely affected to the extent that prepayments of
mortgages must be reinvested in securities which have lower yields than the
prepaid mortgages. Moreover, prepayments of mortgages which underlie securities
purchased at a premium generally will result in capital losses. During periods
of rising interest rates, the rate of prepayment mortgages underlying
mortgage-backed securities can be expected to decline, extending the projected
average maturity of the mortgage-backed securities. This maturity extension risk
may effectively change a security which was considered short- or
intermediate-term at the time of purchase into a long-term security. Long-term
securities generally fluctuate more widely in response to changes in interest
rates than short- or intermediate-term securities.
CORPORATE AND OTHER NON-GOVERNMENT DEBT SECURITIES
The Fund may invest in corporate and other nongovernment debt obligations
of domestic and foreign issuers including convertible securities and (subject to
the Fund's maturity limitations) in intermediate-term and long-term bank debt
securities in the United States and in foreign countries denominated in U.S.
dollars or in foreign currencies. Issuers are not limited to the corporate form
of organization.
ZERO COUPON, PAY-IN-KIND OR DEFERRED PAYMENT SECURITIES
The Fund may also invest in zero coupon, pay-in-kind or deferred payment
securities. Zero coupon securities are securities that are sold at a discount to
par value and on which interest payments are not made during the life of the
security. Upon maturity, the holder is entitled to receive the par value of the
security. While interest payments are not made on such securities, holders of
such securities are deemed to have received annually "phantom income." These
investments benefit the issuer by mitigating its need for cash to meet debt
service, but also require a higher rate of return to attract investors who are
willing to defer receipt of cash. These investments may experience greater
volatility in market value than securities that make regular payments of
interest. The Fund accrues income on these investments for tax and accounting
purposes, which is distributable to shareholders and which, because no cash is
received at the time of accrual, may require the liquidation of other portfolio
securities to satisfy the Fund's distribution obligations, in which case the
Fund will forego the purchase of additional income producing assets with these
funds. Zero coupon securities include both corporate and U.S. and foreign
government securities. Pay-in-kind securities are securities that have interest
payable by delivery of additional securities. Upon maturity, the holder is
entitled to receive the aggregate par value of the securities. Deferred payment
securities are securities that remain a zero coupon security until a
predetermined date, at which time the stated coupon rate becomes effective and
interest becomes payable at regular intervals. Zero coupon, pay-in-kind and
deferred payment securities may be subject to greater fluctuation in value and
lesser liquidity in the event of adverse market conditions than comparably rated
securities paying cash interest at regular intervals.
CUSTODIAL RECEIPTS
Obligations issued or guaranteed as to principal and interest by the U.S.
government, foreign governments or semi-governmental entities may be acquired by
the Fund in the form of custodial receipts that evidence ownership of future
interest payments, principal payments or both on certain notes or bonds. Such
notes and bonds are held in custody by a bank on behalf of the owners. These
U.S. government custodial receipts are known by various names, including
"Treasury Receipts," "Treasury Investment Growth Receipts" (TIGRs) and
"Certificates of Accrual on Treasury Securities" (CATS). The Fund will not
invest more than 5% of its assets in such custodial receipts.
RISK MANAGEMENT AND RETURN ENHANCEMENT STRATEGIES
The Fund also may engage in various portfolio strategies, including using
derivatives, to seek to reduce certain risks of its investments and to enhance
return but not for speculation. The Fund, and thus its investors, may lose money
through any
B-8
<PAGE>
unsuccessful use of these strategies. These strategies currently include the use
of options on securities and foreign currencies, foreign currency forward
contracts and futures contracts and options on such contracts (including
interest rate futures contracts and currency futures contracts and options
thereon). The Fund's ability to use these strategies may be limited by various
factors, such as market conditions, regulatory limits and tax considerations,
and there can be no assurance that any of these strategies will succeed. If new
financial products and risk management techniques are developed, the Fund may
use them to the extent consistent with its investment objective and policies.
OPTIONS ON SECURITIES
The Fund may purchase and write (that is, sell) put and call options on
securities and currencies that are traded on U.S. and foreign securities
exchanges or in the over-the-counter market to seek to enhance return or to
protect against adverse price fluctuations in securities in the Fund's
portfolio. These options will be on debt securities, aggregates of debt
securities, indices of prices thereof, other financial indices (for example, the
S&P 500), U.S. Government securities (listed on an exchange and
over-the-counter), foreign government securities and foreign currencies.
The Fund may write covered put and call options to generate additional
income through the receipt of premiums, purchase put options in an effort to
protect the value of a security that it owns against a decline in market value
and purchase call options in an effort to protect against an increase in the
price of securities (or currencies) it intends to purchase. The Fund may also
purchase put and call options to offset previously written put and call options
of the same series.
A call option gives the purchaser, in exchange for a premium paid, the
right for a specified period of time to purchase the securities or currency
subject to the option at a specified price (the exercise price or strike price).
The writer of a call option, in return for the premium, has the obligation, upon
exercise of the option, to deliver, depending upon the terms of the option
contract, the underlying securities or a specified amount of cash to the
purchaser upon receipt of the exercise price. When the Fund writes a call
option, the Fund gives up the potential for gain on the underlying securities or
currency in excess of the exercise price of the option during the period that
the option is open.
A put option gives the purchaser, in return for a premium, the right for a
specified period of time to sell the securities or currency subject to the
option to the writer of the put at the specified exercise price. The writer of
the put option, in return for the premium, has the obligation, upon exercise of
the option, to acquire the securities or currency underlying the option at the
exercise price. The Fund, as the writer of a put option, might, therefore, be
obligated to purchase the underlying securities or currency for more than their
current market price.
The Fund may wish to protect certain portfolio securities against a decline
in market value through purchase of put options on other securities or
currencies which The Prudential Investment Corporation, doing business as
Prudential Investments (Prudential Investments), and PRICOA Asset Management Ltd
(PRICOA, and collectively with Prudential Investments, the Subadviser or
investment adviser) believes may move in the same direction as those portfolio
securities. If the Subadviser's judgment is correct, changes in the value of the
put options should generally offset changes in the value of the portfolio
securities being hedged. If the Subadviser's judgment is not correct, the value
of the securities underlying the put option may decrease less than the value of
the Fund's investments and therefore the put option may not provide complete
protection against a decline in the value of the Fund's investments below the
level sought to be protected by the put option.
The Fund may similarly wish to hedge against appreciation in the value of
debt securities that it intends to acquire through purchase of call options on
other debt securities which the Subadviser believes may move in the same
direction as those portfolio securities. In such circumstances the Fund will be
subject to risks analogous to those summarized above in the event that the
correlation between the value of call options so purchased and the value of the
securities intended to be acquired by the Fund is not as close as anticipated
and the value of the securities underlying the call options increases less than
the value of the securities to be acquired by the Fund.
The Fund may write options in connection with buy-and-write transactions;
that is, it may purchase a security and concurrently write a call option against
that security. If the call option is exercised, the Fund's maximum gain will be
the premium it received for writing the option, adjusted upwards or downwards by
the difference between the Fund's purchase price of the security and the
exercise price of the option. If the option is not exercised and the price of
the underlying security declines, the amount of the decline will be offset in
part, or entirely, by the premium received.
The exercise price of a call option may be below (in-the-money), equal to
(at-the-money) or above (out-of-the-money) the current value of the underlying
security at the time the option is written. Buy-and-write transactions using
in-the-money call options may be used when it is expected that the price of the
underlying security will remain flat or decline moderately during the option
period. Buy-and-write transactions using at-the-money call options may be used
when it is expected that the price of the underlying security will remain fixed
or advance moderately during the option period. A buy-and-write transaction
using an
B-9
<PAGE>
out-of-the-money call option may be used when it is expected that the premium
received from writing the call option plus the appreciation in the market price
of the underlying security up to the exercise price will be greater than the
appreciation in the price of the underlying security alone. If the call option
is exercised in such a transaction, the Fund's maximum gain will be the premium
received by it for writing the option, adjusted upwards or downwards by the
difference between the Fund's purchase price of the security and the exercise
price of the option. If the option is not exercised and the price of the
underlying security declines, the amount of the decline will be offset in part,
or entirely, by the premium received.
The Fund may also buy and write straddles (i.e., a combination of a call
and a put written on the same security at the same strike price where the same
segregated collateral is considered "cover" for both the put and the call). In
such cases, the Fund will segregate with its Custodian cash or other liquid
assets equivalent to the amount, if any, by which the put is "in-the-money,"
i.e., the amount by which the exercise price of the put exceeds the current
market value of the underlying security. It is contemplated that the Fund's use
of straddles will be limited to 5% of the Fund's net assets (meaning that the
securities used for cover or segregated as described above will not exceed 5% of
the Fund's net assets at the time the straddle is written). The writing of a
call and a put on the same security at the same price where the call and put are
covered by different securities is not considered a straddle for the purposes of
this limit.
The Fund may write both American style options and European style options.
An American style option is an option which may be exercised by the holder at
any time prior to its expiration. A European style option may only be exercised
as of the expiration of the option.
Prior to being notified of exercise of the option, the writer of an
exchange-traded option that wishes to terminate its obligation may effect a
"closing purchase transaction" by buying an option of the same series as the
option previously written. (Options of the same series are options with respect
to the same underlying security, having the same expiration date and the same
strike price.) The effect of the purchase is that the writer's position will be
cancelled by the exchange's affiliated clearing organization. Likewise, an
investor who is the holder of an option may liquidate a position by effecting a
"closing sale transaction" by selling an option of the same series as the option
previously purchased. There is no guarantee that either a closing purchase or a
closing sale transaction can be effected.
Exchange-traded options in the U.S. are issued by a clearing organization
affiliated with the exchange on which the option is listed which, in effect,
gives its guarantee to the fulfillment of every exchange-traded option
transaction. In contrast, OTC Options are contracts between the Fund and its
counterparty with no clearing organization guarantee. Thus, when the Fund
purchases an OTC option, it relies on the dealer from which it has purchased the
OTC option to make or take delivery of the securities underlying the option.
Failure by the dealer to do so would result in the loss of the premium paid by
the Fund as well as the loss of the expected benefit of the transaction.
Exchange-traded options generally have a continuous liquid market while OTC
options may not. When the Fund writes an OTC option, it generally will be able
to close out the OTC option prior to its expiration only by entering into a
closing purchase transaction with the dealer to which the Fund originally wrote
the OTC option. While the Fund will enter into OTC options only with dealers
which agree to, and which are expected to be capable of, entering into closing
transactions with the Fund, there can be no assurance that the Fund will be able
to liquidate an OTC option at a favorable price at any time prior to expiration.
Until the Fund is able to effect a closing purchase transaction in a covered OTC
call option the Fund has written, it will not be able to liquidate securities
used as cover until the option expires or is exercised or different cover is
substituted. In the event of insolvency of the counterparty, the Fund may be
unable to liquidate an OTC option. With respect to options written by the Fund,
the inability to enter into a closing purchase transaction could result in
material losses to the Fund.
OTC options purchased by the Fund will be treated as illiquid securities
subject to any applicable limitation on such securities. Similarly, the assets
used to "cover" OTC options written by the Fund will be treated as illiquid
unless the OTC options are sold to qualified dealers who agree that the Fund may
repurchase any OTC options it writes for a maximum price to be calculated by a
formula set forth in the option agreement. The "cover" for an OTC option written
subject to this procedure would be considered illiquid only to the extent that
the maximum repurchase price under the formula exceeds the intrinsic value of
the option.
The Fund will write only "covered" options. An option is covered if, as
long as the Fund is obligated under the option, it (1) owns an offsetting
position in the underlying security or (2) segregates cash or other liquid
assets in an amount equal to or greater than its obligation under the option.
Under the first circumstance, the Fund's losses are limited because it owns the
underlying security; under the second circumstance, in the case of a written
call option, the Fund's losses are potentially unlimited.
There is no limitation on the amount of covered call options the Fund may
write. The Fund may write covered put options to the extent that cover for such
options does not exceed 25% of the Fund's net assets.
B-10
<PAGE>
SPECIAL CONSIDERATIONS APPLICABLE TO OPTIONS
ON TREASURY BONDS AND NOTES. Because trading interest in Treasury bonds and
notes tends to center on the most recently auctioned issues, the exchanges will
not indefinitely continue to introduce new series of options with expirations to
replace expiring options on particular issues. Instead, the expirations
introduced at the commencement of options trading on a particular issue will be
allowed to run their course, with the possible addition of a limited number of
new expirations as the original ones expire. Options trading on each series of
bonds or notes will thus be phased out as new options are listed on the more
recent issues, and a full range of expiration dates will not ordinarily be
available for every series on which options are traded.
ON TREASURY BILLS. Because the deliverable Treasury bill changes from week
to week, writers of Treasury bill call options cannot provide in advance for
their potential exercise settlement obligations by acquiring and holding the
underlying security. However, if the Fund holds a long position in Treasury
bills with a principal amount corresponding to the option contract size, the
Fund may be hedged from a risk standpoint. In addition, the Fund will segregate
with its Custodian Treasury bills maturing no later than those which would be
deliverable in the event of an assignment of an exercise notice to ensure that
it can meet its open option obligations.
ON GNMA CERTIFICATES. The Fund may purchase and write options on GNMA
Certificates in the over-the-counter market and, to the extent available, on any
exchange.
Since the remaining principal balance of GNMA Certificates declines each
month as a result of mortgage payments, the Fund, as a writer of a covered GNMA
call option holding GNMA Certificates as "cover" to satisfy its delivery
obligation in the event of assignment of an exercise notice, may find that its
GNMA Certificates no longer have sufficient remaining principal balance for this
purpose. Should this occur, the Fund will enter into a closing purchase
transaction or will purchase additional GNMA Certificates from the same pool (if
obtainable) or replacement GNMA Certificates in the cash market in order to
remain covered or substitute cover.
A GNMA Certificate held by the Fund to cover a call option the Fund has
written in any but the nearest expiration month may cease to represent cover for
the option in the event of a decline in the GNMA coupon rate at which new pools
are originated under the FHA/VA loan ceiling in effect at any given time. Should
this occur, the Fund will no longer be covered, and the Fund will either enter
into a closing purchase transaction or replace the Certificate with a
Certificate which represents cover. When the Fund closes its option position or
replaces the Certificate, it may realize an unanticipated loss and incur
transaction costs.
OPTIONS ON CURRENCIES
Instead of purchasing or selling futures or foreign currency forward
contracts, the Fund may attempt to accomplish similar objectives by purchasing
put or call options on currencies either on exchanges or in over-the-counter
markets or by writing put options or covered call options on currencies. A put
option gives the Fund the right to sell a currency at the exercise price until
the option expires. A call option gives the Fund the right to purchase a
currency at the exercise price until the option expires. Both options serve to
insure against adverse currency price movements in the underlying portfolio
assets designated in a given currency. Currency options may be subject to
position limits which may limit the ability of the Fund to fully hedge its
positions by purchasing the options. The Fund's use of options on currencies
will be subject to the same limitations as its use of options on securities,
described above. The Fund will not purchase put or call options if, as a result
thereof, the value of the options would exceed 5% of the Fund's net assets.
FOREIGN CURRENCY FORWARD CONTRACTS
The Fund may enter into foreign currency forward contracts to protect the
value of its portfolio against future changes in the level of currency exchange
rates. The Fund may enter into such contracts on a spot, i.e., cash, basis at
the rate then prevailing in the currency exchange market or on a forward basis,
by entering into a forward contract to purchase or sell currency. A forward
contract on foreign currency is an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days agreed upon by
the parties from the date of the contract at a price set on the date of the
contract. The risks involved in entering into a foreign currency forward
contract are generally the same as for a futures contract having similar terms.
The Fund's transactions in foreign currency forward contracts will be
limited to risk management involving either specific transactions or portfolio
positions. Transaction risk management is the forward purchase or sale of
currency with respect to specific receivables or payables of the Fund generally
arising in connection with the purchase or sale of its portfolio securities and
accruals of interest receivable and Fund expenses. Position risk management is
the forward sale of currency with respect to portfolio security positions
denominated or quoted in that currency or in a currency bearing a high degree of
positive correlation to the value of that currency. The Fund may also cross
hedge its currency exposure under circumstances where the investment adviser
believes that the currency in which a security is denominated may deteriorate
against the dollar and the possible loss in
B-11
<PAGE>
value can be hedged, return can be enhanced and risks can be managed by entering
into forward contracts to sell the deteriorating currency and buy a currency
that is expected to appreciate in relation to the dollar.
Although there are no limits on the number of forward contracts that the
Fund may enter into, the Fund may not position "hedge" (including "cross
hedges") with respect to a particular currency for an amount greater than the
aggregate market value (determined at the time of making any sale of forward
currency) of the securities being hedged. If the Fund enters into a position
hedging transaction, the transaction will be "covered" by the position being
hedged or the Fund's Custodian will segregate cash or other liquid assets of the
Fund (less the value of the "covering" positions, if any) in an amount equal to
the value of the Fund's total assets committed to the consummation of the given
forward contract. If the value of the assets segregated declines, additional
assets will be segregated so that the value of the account will, at all times,
equal the amount of the Fund's net commitment with respect to the forward
contract.
The use of foreign currency contracts does not eliminate fluctuations in
the underlying prices of the securities, but it does establish a rate of
exchange that can be achieved in the future. In addition, although forward
currency contracts limit the risk of loss due to a decline in the value of the
hedged currency, they also limit any potential gain that might result if the
value of the currency increases. The Fund is not required to enter into forward
contracts with regard to its foreign currency denominated securities.
The Fund will not enter into forward contracts to purchase or sell currency
if, as a result, the net market value of all such contracts exceeds 5% of the
Fund's net assets.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Fund may enter into futures contracts and options on futures contracts
to seek to reduce certain risks of its investments and to attempt to enhance
return. The Fund may enter into futures contracts for the purchase or sale of
debt securities, aggregates of debt securities or indices of prices thereof,
other financial indices, U.S. government securities, corporate debt securities
and certain foreign government debt securities (collectively, interest rate
futures contracts). It may also enter into futures contracts for the purchase or
sale of foreign currencies or composite foreign currencies in which securities
held or to be acquired by the Fund are denominated, or the value of which have a
high degree of positive correlation to the value of such currencies as to
constitute, in the investment adviser's judgment, an appropriate vehicle for
hedging. The Fund may enter into such futures contracts both on U.S. and foreign
exchanges.
The Fund may not purchase or sell futures contracts and related options to
attempt to enhance return or for risk management purposes, if immediately
thereafter the sum of the amount of initial margin deposits on the Fund's
existing futures and options on futures and premiums paid for such related
options would exceed 5% of the market value of the Fund's total assets. The Fund
may purchase and sell futures contracts and related options without limitation,
for BONA FIDE hedging purposes in accordance with regulations of the Commodity
Futures Trading Commission (CFTC) (i.e., to reduce certain risks of its
investments). The total contract value of all futures contracts sold will not
exceed the total market value of the Fund's investments.
Under regulations of the Commodity Exchange Act, investment companies
registered under the Investment Company Act are exempt from the definition of
"commodity pool operator," subject to compliance with certain conditions. The
exemption is conditioned upon the Fund's purchasing and selling futures
contracts and options thereon for BONA FIDE hedging transactions, except that
the Fund may purchase and sell futures contracts and options thereon for any
other purpose to the extent that the aggregate initial margin and option
premiums on such non-hedging transactions do not exceed 5% of the market value
of the Fund's total assets. Although there are no other limits applicable to
futures contracts, the value of all futures contracts sold will not exceed the
total market value of the Fund's investments.
The ordinary spreads between values in the cash and futures markets, due to
differences in the character of those markets, are subject to distortions. In
addition, futures contracts entail risks. For example, all participants in the
futures market are subject to initial and variation margin requirements. Rather
than meeting additional variation margin requirements, investors may close
futures contracts through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Also, the liquidity of the
futures market depends on participants entering into offsetting transactions
rather than making or taking delivery. To the extent participants decide to make
or take delivery, liquidity in the futures market could be reduced, thus
producing price distortions. In addition, from the point of view of speculators,
the margin deposit requirements in the futures market are less onerous than
margin requirements in the securities market. Increased participation by
speculators in the futures market may cause temporary price distortions. Due to
the possibility of distortion, a correct forecast of general interest rate
trends by the investment adviser may still not result in a successful
transaction.
The Fund may only write "covered" put and call options on futures
contracts. The Fund will be considered "covered" with respect to a call option
it writes on a futures contract if the Fund owns the assets which are
deliverable under the futures contract
B-12
<PAGE>
or an option to purchase that futures contract having a strike price equal to or
less than the strike price of the "covered" option and having an expiration date
not earlier than the expiration date of the "covered" option, or if it
segregates with the Fund's Custodian for the term of the option cash or other
liquid assets equal to the fluctuating value of the optioned future. The Fund
will be considered "covered" with respect to a put option it writes on a futures
contract if it owns an option to sell that futures contract having a strike
price equal to or greater than the strike price of the "covered" option or if it
segregates with the Custodian for the term of the option cash or other liquid
assets at all times equal in value to the exercise price of the put (less any
initial margin deposited by the Fund with the Custodian with respect to such put
option). There is no limitation on the amount of the Fund's assets which can be
segregated.
INTEREST RATE FUTURES CONTRACTS AND OPTIONS THEREON
The Fund will purchase or sell interest rate futures contracts to take
advantage of or to protect the Fund against fluctuations in interest rates
affecting the value of debt securities which the Fund holds or intends to
acquire. For example, if interest rates are expected to increase, the Fund might
sell futures contracts on debt securities, the values of which historically have
a high degree of positive correlation to the values of the Fund's portfolio
securities. Such a sale would have an effect similar to selling an equivalent
value of the Fund's portfolio securities. If interest rates increase, the value
of the Fund's portfolio securities will decline, but the value of the futures
contracts to the Fund will increase at approximately an equivalent rate thereby
keeping the net asset value of the Fund from declining as much as it otherwise
would have. The Fund could accomplish similar results by selling debt securities
with longer maturities and investing in debt securities with shorter maturities
when interest rates are expected to increase. However, since the futures market
may be more liquid than the cash market, the use of futures contracts as a risk
management technique allows the Fund to maintain a defensive position without
having to sell its portfolio securities.
Similarly, the Fund may purchase interest rate futures contracts when it is
expected that interest rates may decline. The purchase of futures contracts for
this purpose constitutes a hedge against increases in the price of debt
securities (caused by declining interest rates) which the Fund intends to
acquire. Since fluctuations in the value of appropriately selected futures
contracts should approximate that of the debt securities that will be purchased,
the Fund can take advantage of the anticipated rise in the cost of the debt
securities without actually buying them. Subsequently, the Fund can make the
intended purchase of the debt securities in the cash market and currently
liquidate its futures position. To the extent the Fund enters into futures
contracts for this purpose, it will segregate with the Fund's Custodian cash or
other liquid assets from its portfolio in an amount equal to the difference
between the fluctuating market value of such futures contracts and the aggregate
value of the initial margin deposited by the Fund with its Custodian with
respect to such futures contracts sufficient to cover the Fund's obligations
with respect to such futures contracts.
The purchase of a call option on a futures contract is similar in some
respects to the purchase of a call option on an individual security. Depending
on the pricing of the option compared to either the price of the futures
contract upon which it is based or the price of the underlying debt securities,
it may or may not be less risky than ownership of the futures contract or
underlying debt securities. As with the purchase of futures contracts, when the
Fund is not fully invested it may purchase a call option on a futures contract
to hedge against a market advance due to declining interest rates.
The purchase of a put option on a futures contract is similar to the
purchase of protective put options on portfolio securities. The Fund will
purchase a put option on a futures contract to hedge the Fund's portfolio
against the risk of rising interest rates and consequent reduction in the value
of portfolio securities.
The amount of risk the Fund assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the securities which are deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is below the exercise price, the Fund will retain the full amount of the
option premium which provides a partial hedge against any decline that may have
occurred in the Fund's portfolio holdings. The writing of a put option on a
futures contract constitutes a partial hedge against increasing prices of the
securities which are deliverable upon exercise of the futures contract. If the
futures price at expiration of the option is higher than the exercise price, the
Fund will retain the full amount of the option premium which provides a partial
hedge against any increase in the price of debt securities which the Fund
intends to purchase. If a put or call option the Fund has written is exercised,
the Fund will incur a loss which will be reduced by the amount of the premium it
received. Depending on the degree of correlation between changes in the value of
its portfolio securities and changes in the value of its futures positions, the
Fund's losses from options on futures it has written may to some extent be
reduced or increased by changes in the value of its portfolio securities.
In addition, futures contracts entail risks. Although the Fund believes
that use of such contracts will benefit the Fund, if the investment adviser's
investment judgment about the general direction of interest rates is incorrect,
the Fund's overall
B-13
<PAGE>
performance would be poorer than if it had not entered into any such contracts.
For example, if the Fund has hedged against the possibility of an increase in
interest rates which would adversely affect the price of bonds held in its
portfolio and interest rates decrease instead, the Fund will lose part or all of
the benefit of the increased value of its bonds which it has hedged because it
will have offsetting losses in its futures positions. In addition, particularly
in such situations, if the Fund has insufficient cash, it may have to sell bonds
from its portfolio to meet daily variation margin requirements. Such sales of
bonds may be, but will not necessarily be, at increased prices which reflect the
rising market. The Fund may have to sell securities at a time when it may be
disadvantageous to do so.
CURRENCY FUTURES AND OPTIONS THEREON
Generally, foreign currency futures contracts and options thereon are
similar to the interest rate futures contracts and options thereon discussed
previously. By entering into currency futures and options thereon on U.S. and
foreign exchanges, the Fund will seek to establish the rate at which it will be
entitled to exchange U.S. dollars for another currency at a future time. By
selling currency futures, the Fund will seek to establish the number of dollars
it will receive at delivery for a certain amount of a foreign currency. In this
way, whenever the Fund anticipates a decline in the value of a foreign currency
against the U.S. dollar, the Fund can attempt to "lock in" the U.S. dollar value
of some or all of the securities held in its portfolio that are denominated in
that currency. By purchasing currency futures, the Fund can establish the number
of dollars it will be required to pay for a specified amount of a foreign
currency in a future month. Thus if the Fund intends to buy securities in the
future and the investment adviser expects the U.S. dollar to decline against the
relevant foreign currency during the period before the purchase is effected, the
Fund can attempt to "lock in" the price in U.S. dollars of the securities it
intends to acquire.
The purchase of options on currency futures will allow the Fund, for the
price of the premium and related transaction costs it must pay for the option,
to decide whether or not to buy (in the case of a call option) or to sell (in
the case of a put option) a futures contract at a specified price at any time
during the period before the option expires. If the investment adviser, in
purchasing an option, has been correct in its judgment concerning the direction
in which the price of a foreign currency would move as against the U.S. dollar,
the Fund may exercise the option and thereby take a futures position to hedge
against the risk it had correctly anticipated or close out the option position
at a gain that will offset, to some extent, currency exchange losses otherwise
suffered by the Fund. If exchange rates move in a way the investment adviser did
not anticipate, however, the Fund will have incurred the expense of the option
without obtaining the expected benefit; any such movement in exchange rates may
also thereby reduce rather than enhance the Fund's profits on its underlying
securities transactions. The Fund's use of options on currencies will be subject
to the same limitations as its use of options on securities described above.
Currency options may be subject to position limits which may limit the ability
of the Fund to fully hedge its positions by purchasing the options.
As in the case of interest rate futures contracts and options thereon, the
Fund may hedge against the risk of a decrease or increase in the U.S. dollar
value of a foreign currency denominated debt security which the Fund owns or
intends to acquire by purchasing or selling options contracts, futures contracts
or options thereon with respect to a foreign currency other than the foreign
currency in which such debt security is denominated, where the values of such
different currencies (vis-a-vis the U.S. dollar) historically have a high degree
of positive correlation.
RISKS OF RISK MANAGEMENT AND RETURN ENHANCEMENT STRATEGIES
Participation in the options, futures and currency markets involves
investment risks and transaction costs to which the Fund would not be subject
absent the use of these strategies. The Fund, and thus investors, may lose money
through any unsuccessful use of these strategies. If the Subadviser's
predictions of movements in the direction of the securities, foreign currency or
interest rate markets are inaccurate, the adverse consequences to the Fund may
leave the Fund in a worse position than if such strategies were not used. Risks
inherent in the use of these strategies include: (1) dependence on the
Subadviser's ability to predict correctly movements in the direction of interest
rates, securities prices and currency markets; (2) imperfect correlation between
the price of options and futures contracts and options thereon and movements in
the prices of the securities or currencies being hedged; (3) the fact that the
skills needed to use these strategies are different from those needed to select
portfolio securities; (4) the possible absence of a liquid secondary market for
any particular instrument at any time; (5) the risk that the counterparty may be
unable to complete the transaction; and (6) the possible inability of the Fund
to purchase or sell a portfolio security at a time that otherwise would be
favorable for it to do so, or the possible need for the Fund to sell a portfolio
security at a disadvantageous time, due to the need for the Fund to maintain
"cover" or to segregate assets in connection with hedging transactions.
The Fund will generally purchase or sell options and futures on an exchange
only if there appears to be a liquid secondary market for such options or
futures; the Fund will generally purchase or sell OTC options only if the
investment adviser believes that the other party to the options will continue to
make a market for such options.
B-14
<PAGE>
ADDITIONAL RISKS OF OPTIONS ON SECURITIES AND
CURRENCIES, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Certain of the options, futures contracts and options thereon purchased or
sold by the Fund may be traded on foreign exchanges. Such transactions may not
be regulated as effectively as similar transactions in the U.S., may not involve
a clearing mechanism and related guarantees, and are subject to the risk of
governmental actions affecting trading in, or the prices of, the instrument
being traded. The value of such positions also could be adversely affected by
(1) other complex foreign political, legal and economic factors, (2) lesser
availability than in the U.S. of data on which to make trading decisions, (3)
delays in the Fund's ability to act upon economic events occurring in the
foreign markets during non-business hours in the U.S., (4) the imposition of
different exercise and settlement terms and procedures and margin requirements
than in the U.S. and (5) lesser trading volume.
Exchanges on which options, futures and options on futures are traded may
impose limits on the positions that the Fund may take in certain circumstances.
If so,this could limit the ability of the Fund fully to protect against these
risks. In addition, the hours of trading of financial futures contracts and
options thereon may not conform to the hours during which the Fund may trade the
underlying securities. To the extent the futures markets close before the
securities markets, significant price and rate movements can take place in the
securities markets that cannot be reflected in the futures markets.
An exchange-traded option position may be closed out only where there
exists a secondary market for an option of the same series. If a secondary
market does not exist, it might not be possible to effect closing transactions
in particular options the Fund has purchased with the result that the Fund would
have to exercise the options in order to realize any profit. If the Fund is
unable to effect a closing purchase transaction in a secondary market in an
option the Fund has written, it will not be able to sell the underlying security
until the option expires or it delivers the underlying security upon exercise or
it otherwise covers its position. Reasons for the absence of a liquid secondary
market include the following: (1) there may be insufficient trading interest in
certain options; (2) restrictions may be imposed by a securities exchange on
opening transactions or closing transactions or both; (3) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities; (4) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (5) the facilities
of an exchange or clearing organization may not at all times be adequate to
handle current trading volume; or (6) one or more exchanges could, for economic
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that exchange (or a particular class or series of options)
would cease to exist, although outstanding options would continue to be
exercisable in accordance with their terms.
SPECIAL RISKS RELATED TO FOREIGN CURRENCY FORWARD CONTRACTS
At or before the maturity of a forward sale contract, the Fund may either
sell a portfolio security and make delivery of the currency, or retain the
security and offset its contractual obligations to deliver the currency by
purchasing a second contract pursuant to which the Fund will obtain, on the same
maturity date, the same amount of the currency which it is obligated to deliver.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund, at the time of execution of the offsetting transaction,
will incur a gain or a loss to the extent that movement has occurred in forward
contract prices. Should forward prices decline during the period between the
Fund's entering into a forward contract for the sale of a currency and the date
it enters into an offsetting contract for the purchase of the currency, the Fund
will realize a gain to the extent the price of the currency it has agreed to
purchase is less than the price of the currency it has agreed to sell. Should
forward prices increase, the Fund will suffer a loss to the extent the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. Closing out forward purchase contracts involves similar
offsetting transactions.
SPECIAL RISK CONSIDERATIONS RELATING TO FUTURES AND OPTIONS THEREON
Certain risks are inherent in the Fund's use of futures contracts and
options on futures. One such risk arises because the correlation between
movements in the price of futures contracts or options on futures and movements
in the price of the securities hedged or used for cover will not be perfect.
Another risk is that the price of futures contracts or options on futures may
not move inversely with changes in interest rates. If the Fund has sold futures
contracts to hedge securities held by the Fund and the value of the futures
position declines more than the price of such securities increases, the Fund
will realize a loss on the futures contracts which is not completely offset by
the appreciation in the price of the hedged securities. Similarly, if the Fund
has written a call on a futures contract and the value of the call increases by
more than the increase in the value of the securities held as cover, the Fund
may realize a loss on the call which is not completely offset by the
appreciation in the price of the securities held as cover and the premium
received for writing the call.
B-15
<PAGE>
The Fund's ability to establish and close out positions in futures
contracts and options on futures contracts will be subject to the development
and maintenance of liquid markets. Although the Fund generally will purchase or
sell only those futures contracts and options thereon for which there appears to
be a liquid market, there is no assurance that a liquid market on an exchange
will exist for any particular futures contract or option thereon at any
particular time. In the event no liquid market exists for a particular futures
contract or option thereon in which the Fund maintains a position, it will not
be possible to effect a closing transaction in that contract or to do so at a
satisfactory price and the Fund would have to either make or take delivery under
the futures contract or, in the case of a written option, wait to sell the
underlying securities until the option expires or is exercised or, in the case
of a purchased option, exercise the option. In the case of a futures contract or
an option on a futures contract which the Fund has written and which the Fund is
unable to close, the Fund would be required to maintain margin deposits on the
futures contract or option and to make variation margin payments until the
contract is closed.
Futures exchanges may establish daily limits in the amount that the price
of a futures contract or related options contract may vary either up or down
from the previous day's settlement price. Once the daily limit has been reached
in a particular contract, no trades may be made that day at a price beyond the
limit. The daily limit governs only price movements during a particular trading
day and therefore does not limit potential losses because the limit may prevent
the liquidation of unfavorable positions. Futures or options contract prices
could move to the daily limit for several consecutive trading days with little
or no trading and thereby prevent prompt liquidation of positions and subject
some traders to substantial losses. In such event, it may not be possible for
the Fund to close out a position, and in the event of adverse price movements,
the Fund would have to make daily cash payments of variation margin (except in
the case of purchased options).
Successful use of futures contracts and options thereon and forward
contracts by the Fund depends significantly on the ability of the investment
adviser to forecast movements in the direction of the market and interest and
foreign currency rates and requires skills and techniques different from those
used in selecting portfolio securities. The correlation between movements in the
price of a futures contract and movements in the price of the securities being
hedged is imperfect and the risk from imperfect correlation increases as the
composition of the Fund's portfolio diverges from the composition of the
relevant index. There is also a risk that the value of the securities being
hedged may increase or decrease at a greater rate than the related futures
contracts, resulting in losses to the Fund. If the investment adviser's
expectations are not met, the Fund would be in a worse position than if a
hedging strategy had not been pursued. In addition, in such situations, if the
Fund has insufficient cash to meet daily variation margin requirements, it may
have to sell securities to meet the requirements. These sales may, but will not
necessarily, be at increased prices which reflect the rising market. The Fund
may have to sell securities at a time when it is disadvantageous to do so.
Pursuant to the requirements of the Commodity Exchange Act, as amended, all
U.S. futures contracts and options thereon must be traded on an exchange. Since
a clearing corporation effectively acts as the counterparty on every futures
contract and option thereon, the counterparty risk depends on the strength of
the clearing or settlement corporation associated with the exchange.
Additionally, although the exchanges provide a means of closing out a position
previously established, there can be no assurance that a liquid market will
exist for a particular contract at a particular time. In the case of options on
futures, if such a market does not exist, the Fund, as the holder of an option
on futures contracts, would have to exercise the option and comply with the
margin requirements for the underlying futures contract to realize any profit,
and if the Fund were the writer of the option, its obligation would not
terminate until the option expired or the Fund was assigned an exercise notice.
LIMITATIONS ON THE PURCHASE AND SALE OF FUTURES CONTRACTS, OPTIONS ON FUTURES
CONTRACTS AND FOREIGN CURRENCY FORWARD CONTRACTS
The Fund will engage in transactions in futures contracts and options
thereon only to seek to reduce certain risks of its investments and to attempt
to enhance return in each case in accordance with the rules and regulations of
the CFTC, and not for speculation.
In accordance with CFTC regulations, the Fund may not purchase or sell
futures contracts or options thereon if the initial margin and premiums therefor
exceed 5% of the market value of the Fund's total assets after taking into
account unrealized profits and unrealized losses on any such contracts;
provided, however, that in the case of an option that is in-the-money at the
time of the purchase, the in-the-money amount may be excluded in calculating the
5% limitation. The above restriction does not apply to the purchase and sale of
futures contracts and options thereon for BONA FIDE hedging purposes within the
meaning of CFTC regulations. In instances involving the purchase of futures
contracts or call options thereon or the writing of put options thereon by the
Fund, an amount of cash or other liquid assets equal to the market value of the
futures contracts and options thereon (less any related margin deposits), will
be deposited in a segregated account with the Custodian to cover the position,
or alternative cover will be employed, thereby insuring that the use of such
instruments is unleveraged.
CFTC regulations may impose limitations on the Fund's ability to engage in
certain return enhancement and risk management strategies. There are no
limitations on the Fund's use of futures contracts and options on futures
contracts beyond the restrictions set forth above.
B-16
<PAGE>
When the investment adviser believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar, the
Fund may enter into a forward contract for a fixed amount of dollars to sell the
amount of foreign currency approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign currency. The precise matching
of the forward contract amounts and the value of the securities involved will
not generally be possible since the future value of securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date on which the forward contract is entered into
and the date it matures. The projection of short-term currency market movement
is extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. The Fund does not intend to enter into such
forward contracts to protect the value of its portfolio securities on a regular
or continuous basis. The Fund will also not enter into such forward contracts or
maintain a net exposure to such contracts where the consummation of the
contracts would obligate the Fund to deliver an amount of foreign currency in
excess of the value of the Fund's portfolio securities or other assets
denominated in that currency. Under normal circumstances, consideration of the
prospect for currency parities will be incorporated into the long-term
investment decisions made with regard to overall diversification strategies.
However, the Fund believes that it is important to have the flexibility to enter
into such forward contracts when it determines that the best interest of the
Fund will thereby be served. If the Fund enters into a position hedging
transaction the transaction will be "covered" by the position being hedged or
the Fund's Custodian or sub-custodian will segregate cash or other liquid assets
of the Fund (less the value of the "covering" positions, if any) in an amount
equal to the value of the Fund's total assets committed to the consummation of
the given forward contract.
The Fund generally will not enter into a forward contract with a term of
greater than one year. At the maturity of a forward contract, the Fund may
either sell the portfolio security and make delivery of the foreign currency, or
it may retain the security and terminate its contractual obligation to deliver
the foreign currency by purchasing an "offsetting" contract with the same
currency trader obligating it to purchase, on the same maturity date, the same
amount of the foreign currency.
It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the contract. Accordingly, it
may be necessary for the Fund to purchase additional foreign currency on the
spot market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency that the Fund is obligated
to deliver and if a decision is made to sell the security and make delivery of
the foreign currency.
Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend physically to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. It will do so from time to time, and investors should
be aware of the costs of currency conversion. Although foreign exchange dealers
do not charge a fee for conversion, they do realize a profit based on the
difference (the spread) between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
ILLIQUID SECURITIES
The Fund may hold up to 15% of its net assets in illiquid securities,
including repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable in securities markets
either within or outside of the United States. Repurchase agreements subject to
demand are deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the Securities Act),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities, convertible securities and corporate bonds and notes. Institutional
investors depend on an efficient institutional market in which the unregistered
security can be readily resold or on an issuer's ability to honor a demand for
repayment. The fact that there are contractual or legal restrictions on resale
to the general public or to certain institutions may not be indicative of the
liquidity of such investments.
B-17
<PAGE>
Rule 144A under the Securities Act allows for a broader institutional
trading market for securities otherwise subject to restriction on resale to the
general public. Rule 144A establishes a "safe harbor" from the registration
requirements of the Securities Act for resales of certain securities to
qualified institutional buyers. The investment adviser anticipates that the
market for certain restricted securities such as institutional commercial paper
and foreign securities will expand further as a result of this regulation and
the development of automated systems for the trading, clearance and settlement
of unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc.
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and privately placed commercial paper for which there is a
readily available market are treated as liquid only when deemed liquid under
procedures established by the Directors. The Fund's investment in Rule 144A
securities could have the effect of increasing illiquidity to the extent that
qualified institutional buyers become, for a limited time, uninterested in
purchasing Rule 144A securities. The investment adviser will monitor the
liquidity of such restricted securities subject to the supervision of the Board
of Directors. In reaching liquidity decisions, the investment adviser will
consider, among others, the following factors: (1) the frequency of trades and
quotes for the security; (2) the number of dealers wishing to purchase or sell
the security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades (for example, the time needed
to dispose of the security, the method of soliciting offers and the mechanics of
the transfer). In addition, in order for commercial paper that is issued in
reliance on Section 4(2) of the Securities Act, to be considered liquid (a) it
must be rated in one of the two highest rating categories by at least two
nationally recognized statistical rating organizations (NRSRO), or if only one
NRSRO rates the securities, by that NRSRO, or, if unrated, be of comparable
quality in the view of the investment adviser; and (b) it must not be "traded
flat" (that is, without accrued interest) or in default as to principal or
interest.
The staff of the Securities and Exchange Commission (Commission) has taken
the position that purchased over-the-counter options and the assets used as
"cover" for written over-the-counter options are illiquid securities unless the
Fund and the counterparty have provided for the Fund, at the Fund's election, to
unwind the over-the-counter option. The exercise of such an option ordinarily
would involve the payment by the Fund of an amount designed to reflect the
counterparty's economic loss from an early termination, but does allow the Fund
to treat the assets used as "cover" as "liquid." The Fund will also treat
non-U.S. Government interest-only and principal-only mortgage backed security
strips as illiquid so long as the staff of the Commission maintains its position
that such securities are illiquid.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Fund may purchase or sell securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased or sold by the Fund with payment and delivery taking
place in the future in order to secure what is considered to be an advantageous
price and yield to the Fund at the time of entering into the transaction. The
Fund's Custodian will segregate cash or other liquid assets having a value equal
to or greater than the Fund's purchase commitments. The securities so purchased
are subject to market fluctuation and no interest accrues to the purchaser
during the period between purchase and settlement. At the time of delivery of
the securities the value may be more or less than the purchase price and an
increase in the percentage of the Fund's assets committed to the purchase of
securities on a when-issued or delayed delivery basis may increase the
volatility of the Fund's net asset value. Subject to the segregation
requirement, the Fund may purchase such securities without limit.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements, whereby the seller of a
security agrees to repurchase that security from the Fund at a mutually
agreed-upon time and price. The period of maturity is usually quite short,
possibly overnight or a few days, although it may extend over a number of
months. The Fund does not currently intend to invest in repurchase agreements
whose maturities exceed one year. The resale price is in excess of the purchase
price, reflecting an agreed-upon rate of return effective for the period of time
the Fund's money is invested in the repurchase agreement. The Fund's repurchase
agreements will at all times be fully collateralized by U.S. Government
obligations in an amount at least equal to the resale price. The instruments
held as collateral are valued daily, and if the value of instruments declines,
the Fund will require additional collateral. If the seller defaults and the
value of the collateral securing the repurchase agreement declines, the Fund may
incur a loss.
The Fund will enter into repurchase transactions only with parties meeting
creditworthiness standards approved by the Fund's Directors. The investment
adviser will monitor the creditworthiness of such parties under the general
supervision of the Directors. In the event of a default or bankruptcy by a
seller, the Fund will promptly seek to liquidate the collateral.
The Fund participates in a joint repurchase account with other investment
companies managed by Prudential Investments Fund Management LLC (the Manager)
pursuant to an order of the Commission. On a daily basis, any uninvested cash
balances of the Fund may be aggregated with those of such investment companies
and invested in one or more repurchase agreements. Each fund participates in the
income earned or accrued in the joint account based on the percentage of its
investment.
B-18
<PAGE>
BORROWING
The Fund may borrow up to 20% of the value of its total assets (calculated
when the loan is made) from banks for temporary, extraordinary or emergency
purposes, or for the clearance of transactions and to take advantage of
investment opportunities. The Fund may pledge up to 20% of its total assets to
secure these borrowings. If the Fund borrows to invest in securities, any
investment gains made on the securities in excess of interest paid on the
borrowing will cause the net asset value of the shares to rise faster than would
otherwise be the case. On the other hand, if the investment performance of the
additional securities purchased fails to cover their cost (including any
interest paid on the money borrowed) to the Fund, the net asset value of the
Fund's shares will decrease faster than would otherwise be the case. This is the
speculative factor known as "leverage." If the Fund's asset coverage of
borrowings falls below 300%, the Fund will take prompt action (within 3 days) to
reduce its borrowings. If the 300% asset coverage should decline as a result of
market fluctuations or other reasons, the Fund may be required to sell portfolio
securities to reduce the debt and restore the 300% asset coverage, even though
it may be disadvantageous from an investment standpoint to sell securities at
that time. The Fund will not purchase portfolio securities when borrowings
exceed 5% of the value of its total assets.
SEGREGATED ASSETS
The Fund will segregate with its Custodian, State Street Bank and Trust
Company (State Street), cash, U.S. government securities, equity securities
(including foreign securities), debt securities or other liquid, unencumbered
assets, equal in value to its obligations in respect of potentially leveraged
transactions. These include forward contracts, when-issued and delayed delivery
securities, futures contracts, written options and options on futures contracts
(unless otherwise covered). If collateralized or otherwise covered, in
accordance with Commission guidelines, these will not be deemed to be senior
securities. The assets segregated will be marked-to-market daily.
(D) DEFENSIVE STRATEGY AND SHORT-TERM INVESTMENTS
When conditions dictate a defensive strategy, the Fund may temporarily
invest without limit in U.S. Treasury or other U.S. dollar-denominated
securities or high quality money market instruments, including commercial paper
of domestic and foreign corporations, foreign government securities,
certificates of deposit, bankers' acceptances and time deposits of domestic and
foreign banks, and short-term obligations issued or guaranteed by the U.S.
Government and its agencies denominated in either U.S. dollars or foreign
currencies. Such investments may be subject to certain risks, including future
political and economic developments, the possible imposition of withholding
taxes on interest income, the seizure or nationalization of foreign deposits and
foreign exchange controls or other restrictions.
(E) PORTFOLIO TURNOVER
The portfolio turnover rate is generally the percentage computed by
dividing the lesser of portfolio purchases or sales (excluding all securities,
including options, whose maturities or expiration date at acquisition were one
year or less) by the monthly average value of the long-term portfolio. High
portfolio turnover (100% or more) involves correspondingly greater brokerage
commissions and other transaction costs, which are borne directly by the Fund.
In addition, high portfolio turnover may also mean that a proportionately
greater amount of distributions to shareholders will be taxed as ordinary income
rather than long-term capital gains compared to investment companies with lower
portfolio turnover. See "Brokerage Allocation and Other Practices" and "Taxes,
Dividends and Distributions."
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies. Fundamental policies
are those which cannot be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities. A "majority of the Fund's
outstanding voting securities," when used in this Statement of Additional
Information, means the lesser of (1) 67% of the voting shares represented at a
meeting at which more than 50% of the outstanding voting shares are present in
person or represented by proxy or (2) more than 50% of the outstanding voting
shares.
The Fund may not:
1. Purchase securities on margin, except such short-term credits as
may be necessary for the clearance of transactions; provided that the
deposit or payment by the Fund of initial or maintenance margin in
connection with futures or options is not considered the purchase of a
security on margin.
2. Make short sales of securities or maintain a short position.
3. Issue senior securities, borrow money or pledge its assets, except
that the Fund may borrow from banks up to 20% of the value of its total
assets (calculated when the loan is made) for temporary, extraordinary or
emergency purposes, for
B-19
<PAGE>
the clearance of transactions or for investment purposes. The Fund may
pledge up to 20% of the value of its total assets to secure such
borrowings. For purposes of this restriction, the purchase or sale of
securities on a when-issued or delayed delivery basis, forward foreign
currency exchange contracts and collateral arrangements relating thereto,
and collateral arrangements with respect to interest rate swap
transactions, reverse repurchase agreements, dollar roll transactions,
options, futures contracts and options thereon and obligations of the Fund
to Directors pursuant to deferred compensation arrangements are not deemed
to be pledge of assets or the issuance of a senior security.
4. Buy or sell commodities, commodity contracts, real estate or
interests in real estate. Transactions in foreign currencies, financial
futures contracts and forward contracts and any related options thereon are
not considered by the Fund to be transactions in commodities or commodity
contracts.
5. Make loans, except through (i) repurchase agreements and (ii) the
purchase of debt obligations and bank deposits.
6. Make investments for the purpose of exercising control or
management.
7. Act as an underwriter (except to the extent the Fund may be deemed
to be an underwriter in connection with the sale of securities in the
Fund's investment portfolio).
8. Except for securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities, invest 25% or more of its total assets
at the time of purchase in any one industry or in the securities of any
central government or supranational issuer.
Whenever any fundamental investment policy or investment restriction states
a maximum percentage of the Fund's assets, it is intended that if the percentage
limitation is met at the time the investment is made, a later change in
percentage resulting from changing total or net asset values will not be
considered a violation of such policy. However, in the event that the Fund's
asset coverage for borrowings falls below 300%, the Fund will take prompt action
to reduce its borrowings, as required by applicable law.
B-20
<PAGE>
MANAGEMENT OF THE FUND
<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS
NAME AND ADDRESS** (AGE) WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- ----------------------
<S> <C> <C>
Edward D. Beach (74) Director President and Director of BMC Fund, Inc., a closed-end investment
company; formerly Vice Chairman of Broyhill Furniture Industries,
Inc.; Certified Public Accountant; Secretary and Treasurer of
Broyhill Family Foundation Inc.; Member of the Board of Trustees of
Mars Hill College and Director or Trustee of 44 funds within the
Prudential Mutual Funds.
Delayne Dedrick Gold (60) Director Marketing and Management Consultant and Director or Trustee of 44 funds
within the Prudential Mutual Funds.
*Robert F. Gunia (52) Vice Vice President (since September 1997) of The Prudential Insurance Company
President of America (Prudential); Executive Vice President and Treasurer
and Director (since December 1996) of Prudential Investments Fund Management LLC
(PIFM); Senior Vice President (since March 1987) of Prudential
Securities Incorporated (Prudential Securities); formerly Chief
Administrative Officer (July 1990-September 1996), Director (January
1989-September 1996) and Executive Vice President, Treasurer and
Chief Financial Officer (June 1987-September 1996) of Prudential
Mutual Fund Management, Inc. (PMF); Vice President and Director
(since May 1989) of The Asia Pacific Fund, Inc. and Director or
Trustee of 44 funds within the Prudential Mutual Funds.
Douglas H. McCorkindale (59) Director Vice Chairman (since March 1984) and President (since September 1997) of
Gannett Co. Inc. (publishing and media); Director of Continental
Airlines, Inc., Gannett Co. Inc. and Frontier Corporation and
Director or Trustee of 23 funds within the Prudential Mutual Funds.
*Mendel A. Melzer, CFA (38) Director Chief Investment Officer (since October 1998) of Prudential Investments;
751 Broad Street Chief Investment Officer (October 1996-October 1998) of Prudential
Newark, NJ 07102 Mutual Funds; formerly Chief Financial Officer (November
1955-September 1996) of Prudential Investments, Senior Vice President
and Chief Financial Officer (April 1993-November 1995) of Prudential
Preferred Financial Services, Managing Director (April 1991-April
1993) of Prudential Investment Advisors and Senior Vice President
(July 1989-April 1991) of Prudential Capital Corporation; Chairman
and Director of Prudential Series Fund, Inc. and Director or Trustee
of 44 other funds within the Prudential Mutual Funds.
Thomas T. Mooney (57) Director President of the Greater Rochester Metro Chamber of Commerce; former
Rochester City Manager; Trustee of Center for Governmental Research,
Inc.; Director of Blue Cross of Rochester, Executive Service Corps of
Rochester, Monroe County Water Authority, Inc., Monroe County
Industrial Development Corporation and Northeast Midwest Institute;
President, Director and Treasurer of First Financial Fund, Inc. and
The High Yield Plus Fund, Inc. and Director or Trustee of 33 other
funds within the Prudential Mutual Funds.
Stephen P. Munn (55) Director Chairman (since January 1994), Director and President (since 1988) and
Chief Executive Officer (1988-December 1993) of Carlisle Companies
Incorporated (manufacturer of industrial products) and Director or
Trustee of 18 funds within the Prudential Mutual Funds.
B-21
<PAGE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS
NAME AND ADDRESS** (AGE) WITH FUND DURING PAST FIVE YEARS
- ------------------------ --------- ----------------------
<S> <C> <C>
*Richard A. Redeker (55) Director Formerly President, Chief Executive Officer and Director (October
1993-September 1996) of Prudential Mutual Fund Management, Inc.
(PMF); Executive Vice President, Director and Member of the Operating
Committee (October 1993-September 1996) of Prudential Securities;
Director (October 1993-September 1996) of Prudential Securities
Group, Inc.; Executive Vice President (July 1994-September 1996) of
The Prudential Investment Corporation; Director (January
1994-September 1996) of Prudential Mutual Fund Distributors, Inc. and
Prudential Mutual Fund Services, Inc.; Senior Executive Vice
President and Director (September 1978-September 1993) of Kemper
Financial Services, Inc. and Director or Trustee of 30 funds within
the Prudential Mutual Funds.
Robin B. Smith (59) Director Chairman and Chief Executive Officer (since August 1996), formerly
President and Chief Executive Officer (January 1989-August 1996) and
President and Chief Operating Officer (September 1981-December 1988)
of Publishers Clearing House; Director of BellSouth Corporation,
Texaco Inc., Spring Industries Inc. and Kmart Corporation and
Director or Trustee of 32 funds within the Prudential Mutual Funds.
Brian M. Storms (44) President and President (since October 1998) of Prudential Investments; formerly
Director President (September 1996-October 1998) of Prudential Mutual Funds,
Annuities and Investment Management Services; Managing Director (July
1991-September 1996) of Fidelity Investment Institutional Services
Company, Inc.; President, (October 1989-September 1991) of J.K.
Schofield; Senior Vice President (September 1982-October 1989) of
INVEST Financial Corporation and President and Director or Trustee of
47 funds within the Prudential Mutual Funds.
Louis A. Weil, III (57) Director Chairman (since January 1999), President and Chief Executive Officer
(since January 1996) and Director (since September 1991) of Central
Newspapers, Inc.; Chairman of the Board (since January 1996),
Publisher and Chief Executive Officer (August 1991-December 1995) of
Phoenix Newspapers, Inc.; formerly Publisher (May 1989-March 1991) of
Time Magazine, President, Publisher and Chief Executive Officer
(February 1986-August 1989) of The Detroit News and member of the
Advisory Board, Chase Manhattan Bank-Westchester and Director or
Trustee of 30 funds within the Prudential Mutual Funds.
Clay T. Whitehead (60) Director President (since May 1983) of National Exchange Inc. (new business
development firm) and Director or Trustee of 18 funds within the
Prudential Mutual Funds.
Grace C. Torres (39) Treasurer First Vice President (since December 1996) of PIFM; First Vice President
and Principal (since March 1993) of Prudential Securities; formerly First Vice
Financial and President (March 1994-September 1996) of PMF and Vice President (July
Accounting 1989-March 1994) of Bankers Trust Corporation.
Officer
Marguerite E. H. Morrison (42) Secretary Vice President and Associate General Counsel (since December 1996) of
PIFM, Vice President and Associate General Counsel (since September
1987) of Prudential Securities; formerly Vice President and Associate
General Counsel (June 1991-September 1996) of PMF.
Stephen M. Ungerman (45) Assistant Tax Director (since March 1996) of Prudential Investments; formerly First
Treasurer Vice President (February 1993-September 1996) of PMF.
</TABLE>
- ----------------
* "Interested" Director, as defined in the Investment Company Act, by reason
of affiliation with Prudential Securities. The
Prudential Insurance Company of America or the Manager.
** Unless otherwise stated, the address of the Directors and officers is c/o
Prudential Investments Fund Management LLC, Gateway
Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077.
B-22
<PAGE>
The Fund has Directors who, in addition to overseeing the actions of the
Fund's Manager, Subadviser and Distributor, decide upon matters of general
policy. The Directors also review the actions of the Fund's officers, who
conduct and supervise the daily business operations of the Fund.
The Directors have adopted a retirement policy which calls for the
retirement of Directors on December 31 of the year in which they reach the age
of 72, except that retirement is being phased in for Directors who were age 68
or older as of December 31, 1993. Under this phase-in provision, Mr. Beach is
scheduled to retire on December 31, 1999.
Pursuant to the Management Agreement with the Fund, the Manager pays all
compensation of officers and employees of the Fund as well as the fees and
expenses of all Directors of the Fund who are affiliated persons of the Manager.
The Fund currently pays each of its Directors who is not an affiliated person of
PIFM or the investment adviser annual compensation of $2000, in addition to
certain out-of-pocket expenses. The amount of annual compensation paid to each
Director may change as a result of the introduction of additional funds on the
boards of which the Directors will be asked to serve.
Directors may receive their Directors' fees pursuant to a deferred fee
agreement with the Fund. Under the terms of the agreement, the Fund accrues
daily the amount of such Directors' fees which accrue interest at a rate
equivalent to the prevailing rate applicable to 90-day U.S. Treasury bills at
the beginning of each calendar quarter or, pursuant to a Commission exemptive
order, at the daily rate of return of the Fund. Payment of the interest so
accrued is also deferred and accruals become payable at the option of the
Director. The Fund's obligation to make payments of deferred Directors' fees,
together with interest thereon, is a general obligation of the Fund.
The following table sets forth the aggregate compensation paid by the Fund
to the Directors who are not affiliated with the Manager for the fiscal year
ended December 31, 1998 and the aggregate compensation paid to such Directors
for service on the Fund's Board and the boards of all other investment companies
managed by PIFM (Fund Complex) for the calendar year ended December 31, 1998.
<TABLE>
<CAPTION>
TOTAL 1998
COMPENSATION
FROM FUND
AGGREGATE AND FUND
COMPENSATION COMPLEX PAID
NAME OF DIRECTOR FROM FUND TO DIRECTORS
---------------- --------- --------------
<S> <C> <C>
Edward D. Beach .......................... $2,250 $135,000(44/71)**
Delayne Dedrick Gold ..................... $2,250 $135,000(44/71)**
Robert F. Gunia+ ......................... -- None
Douglas H. McCorkindale* ................. $2,250 $ 70,000(23/40)**
Mendel A. Melzer+ ........................ -- None
Thomas T. Mooney* ........................ $2,250 $115,000(35/70)**
Stephen P. Munn .......................... $2,250 $ 45,000(18/24)**
Richard A. Redeker+ ...................... -- None
Robin B. Smith* .......................... $2,250 $ 99,000(32/41)**
Brian M. Storms+ ......................... -- None
Louis A. Weil III ........................ $2,250 $ 90,000(30/54)**
Clay T. Whitehead ........................ $2,250 $ 45,000(18/24)**
</TABLE>
- ----------
+ Directors who are "interested" do not receive compensation from the Fund or
any fund in the Fund Complex. Mr. Redeker is no longer an interested
director.
* Total compensation from all of the funds in the Fund Complex for the
calendar year ended December 31, 1998 includes amounts deferred at the
election of Directors under the funds' deferred compensation plans.
Including accrued interest, total compensation amounted to approximately
$71,145, $119,740 and $116,225 for Messrs. McCorkindale and Mooney and Ms.
Smith, respectively.
** Indicates number of funds/portfolios in Fund Complex (including the Fund)
to which aggregate compensation relates.
B-23
<PAGE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Directors of the Fund are eligible to purchase Class Z shares of the Fund
which are sold without either an initial sales charge or contingent deferred
sales charge to a limited group of investors. As of February 5, 1999, the
Directors and officers of the Fund, as a group, owned less than 1% of the
outstanding common stock of the Fund.
As of February 5, 1999, Prudential Securities was record holder of
4,349,865 Class A shares (22.26%), 318,671 Class B shares (69.66%), 21,374 Class
C shares (59.8%) and 274 Class Z shares (31%) of the Fund. In the event of any
meetings of shareholders, Prudential Securities will forward, or cause the
forwarding of, proxy materials to the beneficial owners for which it is the
record holder.
As of February 5, 1999 the beneficial owners, directly or indirectly, of
more than 5% of the outstanding shares of any class of shares of the Fund were:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME ADDRESS CLASS OF SHARES (% OF CLASS)
- ---- ------- --------------- --------------
<S> <C> <C> <C>
Smith Barney Inc. 333 West 34th St Class A 1,285,985(6.5%)
New York, NY 10001-2483
Mr. Marcelo Klysch & Rua Inconfidentes, 900 Savassi Class C 3,690(10.3%)
Mrs. Fania Klysch JTTEN Belo Horizonte, Brazil MG 30140
Donaldson, Lufkin & P.O. Box 2052, Class C 2,730(7.6%)
Jenrette Securities Corporation Jersey City, NJ 07303-2052
Richard Headley 2045 N. Green Bay Rd. Class C 2,175(6.1%)
Racine, WI 53405-1503
Prudential Bank and Trust Co., 53 W. Shore Dr., Class C 2,482(6.9%)
C/F The IRA of Leona N. Murphy Arcadia, OK 73007-7107
Mrs. Mildred Weintraub TTEE, 274 Running Springs Dr. Class C 4,241(11.8%)
Mildred Weintraub Trust, Palm Desert, CA 92211-3200
UA DTD 07/30/89
Brookie Rosenkrantz, 3725 S. Ocean Dr. Class C 3,105(8.6%)
Irwin Pechman & Apt. 1206
William Elstein CO-TTEES Hollywood, Fl 33019
Brookie Rosenkrantz
Rev. Liv. Tr. Va DTD 09/17/87
</TABLE>
B-24
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
(A) MANAGER AND INVESTMENT ADVISER
The manager of the Fund is Prudential Investments Fund Management LLC (the
Manager or PIFM), Gateway Center Three, 100 Mulberry Street, Newark, New Jersey
07102-4077. The Manager serves as manager to all of the other investment
companies that, together with the Fund, comprise the "Prudential Mutual Funds."
See "How the Fund is Managed--Manager" in the Prospectus. As of January 31,
1999, the Manager managed and/or administered open-end and closed-end management
investment companies with assets of approximately $71.5 billion. According to
the Investment Company Institute, as of December 31, 1998, the Prudential Mutual
Funds were the 18th largest family of mutual funds in the United States.
The Manager is a subsidiary of Prudential Securities and The Prudential
Insurance Company of America (Prudential). Prudential Mutual Fund Services LLC
(the Transfer Agent), a wholly-owned subsidiary of the Manager, serves as the
transfer agent for the Prudential Mutual Funds and in addition, provides
customer service, recordkeeping and management and administration services to
qualified plans.
Pursuant to the Management Agreement with the Fund (the Management
Agreement), the Manager, subject to the supervision of the Fund's Board and in
conformity with the stated policies of the Fund, manages both the investment
operations of the Fund and the composition of the Fund's portfolio, including
the purchase, retention, disposition and loan of securities. In connection
therewith, the Manager is obligated to keep certain books and records of the
Fund. The Manager also administers the Fund's corporate affairs and, in
connection therewith, furnishes the Fund with office facilities, together with
those ordinary clerical and bookkeeping services which are not being furnished
by State Street Bank and Trust Company, the Fund's custodian (the Custodian) and
the Fund's Transfer Agent. The management services of the Manager for the Fund
are not exclusive under the terms of the Management Agreement and the Manager is
free to, and does, render management services to others.
For its services, the Manager receives, pursuant to the Management
Agreement, a fee 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 fee is
computed daily and payable monthly. The Management Agreement also provides that,
in the event the expenses of the Fund (including the fees of the Manager, but
excluding interest, taxes, brokerage commissions, distribution fees and
litigation and indemnification expenses and other extraordinary expenses not
incurred in the ordinary course of the Fund's business) for any fiscal year
exceed the lowest applicable annual expense limitation established and enforced
pursuant to the statutes or regulations of any jurisdiction in which the Fund's
shares are qualified for offer and sale, the compensation due to the Manager
will be reduced by the amount of such excess. No jurisdiction currently limits
the Fund's expenses.
In connection with its management of the business affairs of the Fund, the
Manager bears the following expenses:
(a) the salaries and expenses of all of its and the Fund's personnel except
the fees and expenses of Directors who are not affiliated persons of the Manager
or the Fund's investment adviser;
(b) all expenses incurred by the Manager or by the Fund in connection with
managing the ordinary course of the Fund's business, other than those assumed by
the Fund as described below; and
(c) the costs and expenses payable to The Prudential Investment
Corporation, doing business as Prudential Investments (the Subadviser, PI or the
investment adviser), pursuant to the subadvisory agreement between the Manager
and the Subadviser (the Subadvisory Agreement).
Under the terms of the Management Agreement, the Fund is responsible for
the payment of the following expenses: (a) the fees payable to the Manager, (b)
the fees and expenses of Directors who are not affiliated persons of the Manager
or the Fund's investment adviser, (c) the fees and certain expenses of the
Custodian and Transfer Agent, including the cost of providing records to the
Manager in connection with its obligation of maintaining required records of the
Fund and of pricing the Fund's shares, (d) the charges and expenses of legal
counsel and independent accountants for the Fund, (e) brokerage commissions and
any issue or transfer taxes chargeable to the Fund in connection with its
securities transactions, (f) all taxes and corporate fees payable by the Fund to
governmental agencies, (g) the fees of any trade associations of which the Fund
may be a member, (h) the cost of stock certificates representing shares of the
Fund, (i) the cost of fidelity and liability insurance, (j) certain organization
expenses of the Fund and the fees and expenses involved in registering and
maintaining registration of the Fund and of its shares with the Commission and
the states, including the preparation and printing of the Fund's registration
statements and prospectuses for such purposes, (k) allocable communications
expenses with respect to investor services and all expenses of shareholders' and
Directors' meetings and of preparing, printing and mailing reports, proxy
statements and prospectuses to shareholders in the amount necessary for
distribution to the shareholders, (l) litigation and indemnification expenses
and other extraordinary expenses not incurred in the ordinary course of the
Fund's business and (m) distribution fees.
B-25
<PAGE>
The Management Agreement provides that the Manager will not be liable for
any error of judgment or for any loss suffered by the Fund in connection with
the matters to which the Management Agreement relates, except a loss resulting
from willful misfeasance, bad faith, gross negligence or reckless disregard of
duty. The Management Agreement provides that it will terminate automatically if
assigned, and that it may be terminated without penalty by either party upon not
more than 60 days' nor less than 30 days' written notice. The Management
Agreement will continue in effect for a period of more than two years from the
date of execution only so long as such continuance is specifically approved at
least annually in conformity with the Investment Company Act.
For the fiscal years ended December 31, 1998, 1997 and 1996, the Manager
received management fees of $1,323,490, $1,549,812 and $2,317,938, respectively,
from the Fund.
The Manager has entered into a Subadvisory Agreement with the Subadviser, a
wholly-owned subsidiary of Prudential. The PI Subadvisory Agreement provides
that the Subadviser will furnish investment advisory services in connection with
the management of the Fund. In connection therewith, the Subadviser is obligated
to keep certain books and records of the Fund. The Subadviser has entered into
an agreement with PRICOA Asset Management Ltd. (PRICOA or the investment
adviser) under which PRICOA provides investment advisory services to the Fund.
The Manager continues to have responsibility for all investment advisory
services pursuant to the Management Agreement and supervises the investment
adviser's performance of such services. The Subadviser is reimbursed by the
Manager for the reasonable costs and expenses incurred by the Subadviser in
furnishing those services and PRICOA is reimbursed for its reasonable costs and
expenses incurred in furnishing advisory services.
The PI Subadvisory Agreement provides that it will terminate in the event
of its assignment (as defined in the Investment Company Act) or upon the
termination of the Management Agreement. The PI Subadvisory Agreement may be
terminated by the Fund, the Manager or the Subadviser upon not more than 60
days', nor less than 30 days', written notice. The PI Subadvisory Agreement
provides that it will continue in effect for a period of more than two years
from its execution only so long as such continuance is specifically approved at
least annually in accordance with the requirements of the Investment Company
Act. The PRICOA Subadvisory Agreement provides that PRICOA can terminate it on
60 days' written notice and that the Subadviser can terminate it any time and
the termination would take effect immediately. The PRICOA Subadvisory Agreement
also provides that it will terminate automatically in the event of its
assignment (as defined in the Investment Company Act).
(B) PRINCIPAL UNDERWRITER, DISTRIBUTOR AND RULE 12b-1 PLANS
Prudential Investment Management Services LLC (the Distributor), Gateway
Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, acts as the
distributor of the shares of the Fund. Prior to June 1, 1998 Prudential
Securities Incorporated (Prudential Securities) was the Fund's Distributor. The
Distributor and Prudential Securities are subsidiaries of Prudential.
Pursuant to separate Distribution and Service Plans (the Class A Plan, the
Class B Plan and the Class C Plan, collectively the Plans) adopted by the Fund
under Rule 12b-1 under the Investment Company Act and a distribution agreement
(the Distribution Agreement), the Distributor incurs the expenses of
distributing the Fund's Class A, Class B and Class C shares. The Distributor
also incurs the expenses of distributing the Fund's Class Z shares under a
Distribution Agreement, none of which are reimbursed or paid for by the Fund.
The expenses incurred under the Plans include commissions and account
servicing fees paid to, or on account of brokers or financial institutions which
have entered into agreements with the Distributor, advertising expenses, the
cost of printing and mailing prospectuses to potential investors and indirect
and overhead costs of the Distributor associated with the sale of Fund shares,
including lease, utility, communications and sales promotion expenses.
Under the Plans, the Fund is obligated to pay distribution and/or service
fees to the Distributor as compensation for its distribution and service
activities, not as reimbursement for specific expenses incurred. If the
Distributor's expenses exceed its distribution and service fees, the Fund will
not be obligated to pay any additional expenses. If the Distributor's expenses
are less than such distribution and service fees, it will retain its full fees
and realize profit.
The distribution and/or service fees may also be used by the Distributor to
compensate on a continuing basis brokers in consideration for the distribution,
marketing, administrative and other services and activities provided by brokers
with respect to the promotion of the sale of the Fund's shares and the
maintenance of related shareholder accounts.
CLASS A. PLAN. Under the Class A Plan, the Fund may pay the Distributor for
its distribution-related activities with respect to Class A shares at an annual
rate of .30 of 1% of the average daily net assets of the Class A shares. The
Class A Plan provides that (1) .25 of 1% of the average daily net assets of the
Class A shares may be used to pay for personal service and/or the maintenance of
shareholder accounts (service fee) and (2) total distribution fees (including
the service fee of .25 of 1%) may not exceed .30 of
B-26
<PAGE>
1%. The Distributor has contractually limited its distribution related fees
payable under the Class A Plan to .25 of 1% of the average daily net assets of
the Class A shares for the fiscal year ending December 31, 1999. Prior to
January 1, 1999, the Distributor limited its distribution related fees under the
Class A Plan to .15 of 1%.
For the fiscal year ended December 31, 1998, the Distributor and Prudential
Securities received payments of approximately $257,141, under the Class A Plan.
These amounts were primarily expended for payments of account servicing fees to
financial advisers and other persons who sell Class A shares. For the fiscal
year ended December 31, 1998, the Distributor and Prudential Securities also
received approximately $12,200 in initial sales charges.
CLASS B AND CLASS C PLANS. Under the Class B and Class C Plans, the Fund
may pay the Distributor for its distribution-related activities with respect to
Class B and Class C shares at an annual rate of 1% of the average daily net
assets of each of the Class B and Class C shares. The Class B and Class C Plans
provides that (1) .25 of 1% of the average daily net assets of the shares may be
paid as a service fee and (2) .75 of 1% (not including the service fee) of the
average daily net assets of the shares (asset based sales charge) may be paid
for distribution-related expenses with respect to the Class B shares. The
service fee (.25 of 1% of average daily net assets) is used to pay for personal
service and/or the maintenance of shareholder accounts. The Distributor has
contractually limited its distribution related fees payable under both the Class
B and Class C Plan to .75 of 1% of the average daily net assets of the shares of
each class for the fiscal year ending December 31, 1999. The Distributor also
receives contingent deferred sales charges from certain redeeming shareholders.
CLASS B PLAN. For the fiscal year ended December 31, 1998, the Distributor
and Prudential Securities collectively received $22,860, from the Fund under the
Class B Plan and spent $71,953 in distributing the Fund's Class B shares. It is
estimated that of the latter total amount, 7.0% ($5,061), was spent on printing
and mailing of prospectuses to other than current shareholders; 22.7% ($16,331)
was spent on compensation to broker-dealers for commissions to their
representatives and other expenses, including an allocation of overhead and
other branch office distribution-related expenses, incurred for distribution of
Fund shares; and 70.3% ($50,561) in the aggregate for (1) payments of
commissions and account servicing fees to financial advisers 23.5% ($16,865) and
(2) an allocation of overhead and other branch office distribution-related
expenses for payments of related expenses 46.8% ($33,696). The term "overhead
and other branch office distribution-related expenses" represents (a) the
expenses of operating Prudential Securities' and Pruco Securities Corporation's
(Prusec's) branch offices in connection with the sale of Fund shares, including
lease costs, the salaries and employee benefits of operations and sales support
personnel, utility costs, communications costs and the costs of stationery and
supplies, (b) the costs of client sales seminars, (c) expenses of mutual fund
sales coordinators to promote the sale of Fund shares and (d) other incidental
expenses relating to branch promotion of Fund sales.
The Distributor (and Prudential Securities as its predecessor) also
receives the proceeds of contingent deferred sales charges paid by investors
upon certain redemptions of Class B shares. For the fiscal year ended December
31, 1998, the Distributor and Prudential Securities received approximately
$27,800 in contingent deferred sales charges attributable to Class B shares.
CLASS C PLAN. For the fiscal year ended December 31, 1998, the Distributor
and Prudential Securities collectively received $1,647, under the Class C Plan
and spent $2,134 in distributing Class C shares. It is estimated that of the
latter total amount, 8.9% ($189) was spent on printing and mailing of
prospectuses to other than current shareholders; 9.7% ($207) on compensation to
broker-dealers for commissions to representatives and other expenses, including
an allocation of overhead and other branch office distribution related expenses
incurred for distribution of Fund shares and 81.4% ($1,738) in the aggregate of
(1) payments of commissions and account servicing fees to financial advisers
51.2% ($1,092) and (2) an allocation of overhead and other branch office
distribution-related expenses 30.2% ($646).
The Distributor (and Prudential Securities as its predecessor) also
receives the proceeds of contingent deferred sales charges paid by investors
upon certain redemptions of Class C shares. For the fiscal year ended December
31, 1998, the Distributor and Prudential Securities collectively received
approximately $800 in contingent deferred sales charges attributable to Class C
shares. For the fiscal year ended December 31, 1998, the Distributor received
approximately $300 in initial sales charges attributable to Class C shares.
Distribution expenses attributable to the sale of Class A, Class B and
Class C shares of the Fund are allocated to each such class based upon the ratio
of sales of each such class to the sales of Class A, Class B and Class C shares
of the Fund other than expenses allocable to a particular class. The
distribution fee and sales charge of one class will not be used to subsidize the
sale of another class.
The Class A, Class B and Class C Plans continue in effect from year to
year, provided that each such continuance is approved at least annually by a
vote of the Directors, including a vote of the Directors who are not interested
persons of the Fund and who have no direct or indirect financial interest in the
Class A, Class B or Class C Plan or in any agreement related to the Plans (Rule
12b-1 Directors), cast in person at a meeting called for the purpose of voting
on such continuance. A Plan may be terminated at
B-27
<PAGE>
any time, without penalty, by the vote of a majority of the Rule 12b-1 Directors
or by the vote of the holders of a majority of the outstanding shares of the
applicable class of the Fund on not more than 30 days' written notice to any
other party to the Plan. The Plans may not be amended to increase materially the
amounts to be spent for the services described therein without approval by the
shareholders of the applicable class (by both Class A and Class B shareholders,
voting separately, in the case of material amendments to the Class A Plan), and
all material amendments are required to be approved by the Directors in the
manner described above. Each Plan will automatically terminate in the event of
its assignment. The Fund will not be contractually obligated to pay expenses
incurred under any Plan if it is terminated or not continued.
Pursuant to each Plan, the Directors will review at least quarterly a
written report of the distribution expenses incurred on behalf of each class of
shares of the Fund by the Distributor. The report will include an itemization of
the distribution expenses and the purposes of such expenditures. In addition, as
long as the Plans remain in effect, the selection and nomination of Rule 12b-1
Directors shall be committed to the Rule 12b-1 Directors.
Pursuant to the Distribution Agreement, the Fund has agreed to indemnify
the Distributor to the extent permitted by applicable law against certain
liabilities under federal securities laws.
In addition to distribution and service fees paid by the Fund under the
Class A, Class B and Class C Plans, the Manager (or one of its affiliates) may
make payments to dealers (including Prudential Securities) and other persons
which distribute shares of the Fund (including Class Z shares). Such payments
may be calculated by reference to the net asset value of shares sold by such
persons or otherwise.
FEE WAIVERS/SUBSIDIES
PIFM may from time to time waive all or a portion of its management fee and
subsidize all or a portion of the operating expenses of the Fund. In addition,
the Distributor has waived a portion of its distribution fees for the Class A,
Class B and Class C shares as described above. These voluntary waivers may be
terminated at any time without notice. Fee waivers and subsidies will increase
the Fund's total return.
NASD MAXIMUM SALES CHARGE RULE
Pursuant to rules of the NASD, the Distributor is required to limit
aggregate initial sales charges, deferred sales charges and asset-based sales
charges to 6.25% of total gross sales of each class of shares. Interest charges
on unreimbursed distribution expenses equal to the prime rate plus one percent
per annum may be added to the 6.25% limitation. Sales from the reinvestment of
dividends and distributions are not included in the calculation of the 6.25%
limitation. The annual asset-based sales charge on shares of the Fund may not
exceed .75 of 1% per class. The 6.25% limitation applies to each class of the
Fund rather than on a per shareholder basis. If aggregate sales charges were to
exceed 6.25% of total gross sales of any class, all sales charges on shares of
that class would be suspended.
(C) OTHER SERVICE PROVIDERS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities and
cash, and in that capacity maintains certain financial and accounting books and
records pursuant to an agreement with the Fund. Subcustodians provide custodial
services for the Fund's foreign assets held outside the United States.
The Transfer Agent, Raritan Plaza One, Edison, New Jersey 08837, serves as
the transfer and dividend disbursing agent of the Fund. The Transfer Agent is a
wholly-owned subsidiary of the Manager. The Transfer Agent provides customary
transfer agency services to the Fund, including the handling of shareholder
communications, the processing of shareholder transactions, the maintenance of
shareholder account records, the payment of dividends and distributions, and
related functions. For these services, the Transfer Agent receives an annual fee
of $13.00 per shareholder account, a new account set-up fee of $2.00 for each
manually-established account and a monthly inactive zero balance account fee of
$.20 per shareholder account. The Transfer Agent is also reimbursed for its
out-of-pocket expenses, including but not limited to postage, stationery,
printing, allocable communications expenses and other costs.
1177 Avenue of the Americas, New York, New York 10036, serves as the
Fund's independent accountants and, in that capacity, audits the Fund's
annual financial statements.
B-28
<PAGE>
BROKERAGE ALLOCATION AND OTHER PRACTICES
The Manager is responsible for decisions to buy and sell securities,
futures contracts and options on such securities and futures for the Fund, the
selection of brokers, dealers and futures commission merchants to effect the
transactions and the negotiation of brokerage commissions, if any. (For purposes
of this section, the term "Manager" includes the investment adviser.) On a
national securities exchange, broker-dealers may receive negotiated brokerage
commissions on Fund portfolio transactions, including options, futures, and
options on futures transactions and the purchase and sale of underlying
securities upon the exercise of options. On a foreign securities exchange,
commissions may be fixed. Orders may be directed to any broker or futures
commission merchant including, to the extent and in the manner permitted by
applicable law, Prudential Securities and its affiliates.
In the over-the-counter market, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission, although the price of the security usually includes a profit to the
dealer. In underwritten offerings, securities are purchased at a fixed price
which includes an amount of compensation to the underwriter, generally referred
to as the underwriter's concession or discount. On occasion, certain money
market instruments and U.S. government agency securities may be purchased
directly from the issuer, in which case no commissions or discounts are paid.
The Fund will not deal with Prudential Securities or any affiliate in any
transaction in which Prudential Securities or any affiliate acts as principal
except in accordance with the rules of the Commission. Thus, it will not deal in
the over-the-counter market with Prudential Securities acting as market maker,
and it will not execute a negotiated trade with Prudential Securities if
execution involves Prudential Securities' acting as principal with respect to
any part of the Fund's order.
In placing orders for portfolio securities of the Fund, the Manager's
overriding objective is to obtain the best possible combination of price and
execution. The Manager seeks to effect such transaction at a price and
commission that provides the most favorable total cost of proceeds reasonably
attainable in the circumstances.
The factors that the Manager may consider in selecting a particular broker,
dealer of futures commission merchant (firms) are the Manager's knowledge of
negotiated commission rates currently available and other current transaction
costs; the nature of the portfolio transaction; the size of the transaction; the
desired timing of the trade; the activity existing and expected in the market
for the particular transaction; confidentiality; the execution, clearance and
settlement capabilities of the firms; the availability of research and research
related services provided through such firms; the Manager's knowledge of the
financial stability of the firms; the Manager's knowledge of actual or apparent
operational problems of firms; and the amount of capital, if any, that would be
contributed by firms executing the transaction. Given these factors, the Fund
may pay transactions costs in excess of that which another firm might have
charged for effecting the same transaction.
When the Manager selects a firm that executes orders or is a party to
portfolio transactions, relevant factors taken into consideration are whether
that firm has furnished research and research related products and/or services,
such as research reports, research compilations, statistical and economic data,
computer data bases, quotation equipment and services, research oriented
computer software, hardware and services, reports concerning the performance of
accounts, valuations of securities, investment related periodicals, investment
seminars and other economic services and consultations. Such services are used
in connection with some or all of the Manager's investment activities; some of
such services, obtained in connection with the execution of transactions for one
investment account, may be used in managing other accounts, and not all of these
services may be used in connection with the Fund.
The Manager maintains an internal allocation procedure to identify those
firms who have provided it with research and research related products and/or
services, and the amount that was provided, and to endeavor to direct sufficient
commissions to them to ensure the continued receipt of those services that the
Manager believes provides a benefit to the Fund and its other clients. The
Manager makes a good faith determination that the research and/or service is
reasonable in light of the type of service provided and the price and execution
of the related portfolio transactions.
When the Manager deems the purchase or sale of equities to be in the best
interests of the Fund or its other clients, including Prudential, the Manager
may, but is under no obligation to, aggregate the transactions in order to
obtain the most favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the transactions, as well as the
expenses incurred in the transaction, will be made by the Manager in the manner
it considers to be most equitable and consistent with its fiduciary obligations
to its clients. The allocation of orders among firms and the commission rates
paid are reviewed periodically by the Fund's Directors. Portfolio securities may
not be purchased from any underwriting or selling syndicate of which Prudential
Securities or any affiliate, during the existence of the syndicate, is a
principal underwriter (as defined in the Investment Company Act), except in
accordance with rules of the Commission. This limitation, in the opinion of the
Fund, will not significantly affect the Fund's ability to pursue its present
investment objective. However, in the future in other circumstances, the Fund
may be at a disadvantage because of this limitation in comparison to other funds
with similar objectives but not subject to such limitations.
B-29
<PAGE>
Subject to the above considerations, Prudential Securities may act as a
broker or futures commission merchant for the Fund. In order for Prudential
Securities or any affiliate to effect any portfolio transactions for the Fund,
the commissions, fees or other remuneration received by Prudential Securities or
any affiliate must be reasonable and fair compared to the commissions, fees or
other remuneration paid to other firms in connection with comparable
transactions involving similar securities or futures being purchased or sold on
an exchange or board of trade during a comparable period of time. This standard
would allow Prudential Securities or any affiliate to receive no more than the
remuneration which would be expected to be received by an unaffiliated firm in a
commensurate arm's-length transaction. Furthermore, the Directors of the Fund,
including a majority of the non-interested Directors, have adopted procedures
which are reasonably designed to provide that any commissions, fees or other
remuneration paid to Prudential Securities or any affiliate are consistent with
the foregoing standard. In accordance with Section 11(a) of the Securities
Exchange Act of 1934, as amended, Prudential Securities may not retain
compensation for effecting transactions on a national securities exchange for
the Fund unless the Fund has expressly authorized the retention of such
compensation. Prudential Securities must furnish to the Fund at least annually a
statement setting forth the total amount of all compensation retained by
Prudential Securities from transactions effected for the Fund during the
applicable period. Brokerage transactions with Prudential Securities or any
affiliate are also subject to such fiduciary standards as may be imposed upon
Prudential Securities or such affiliates by applicable law.
The Fund paid no brokerage commissions, including none to Prudential
Securities or any affiliate, for the fiscal years ended December 31, 1998, 1997
and 1996.
The Fund is required to disclose its holdings of securities of its regular
brokers and dealers (as defined under Rule 10b-1 of the Investment Company Act)
and their parents at December 31, 1998. As of December 31, 1998, the Fund did
not hold any securities of its regular brokers or dealers.
CAPITAL SHARES, OTHER SECURITIES AND ORGANIZATION
The Fund is authorized to issue 2 billion shares of common stock, $.01 per
share divided equally into four classes, designated Class A, Class B, Class C
and Class Z shares, initially all of one series. Each class of common stock
represents an interest in the same assets of the Fund and is identical in all
respects except that (1) each class is subject to different sales charges and
distribution and/or service fees (except for Class Z shares, which are not
subject to any sales charges and distribution and/or service fees), which may
affect performance, (2) each class has exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement and has
separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class, (3) each
class has a different exchange privilege, (4) only Class B shares have a
conversion feature and (5) Class Z shares are offered exclusively for sale to a
limited group of investors. In accordance with the Fund's Articles of
Incorporation, the Directors may authorize the creation of additional series and
classes within such series, with such preferences, privileges, limitations and
voting and dividend rights as the Directors may determine. The voting rights of
the shareholders of a series or class can be modified only by the majority vote
of shareholders of that series or class.
Shares of the Fund, when issued, are fully paid, nonassessable, fully
transferable and redeemable at the option of the holder. Shares are also
redeemable at the option of the Fund under certain circumstances. Each share
class is equal as to earnings, assets and voting privileges, except as noted
above, and each class of shares (with the exception of Class Z shares, which are
not subject to any distribution or service fees) bears the expenses related to
the distribution of its shares. Except for the conversion feature applicable to
the Class B shares, there are no conversion, preemptive or other subscription
rights. In the event of liquidation, each share of the Fund is entitled to its
portion of all of the Fund's assets after all debt and expenses of the Fund have
been paid. Since Class B and Class C shares generally bear higher distribution
expenses than Class A shares, the liquidation proceeds to shareholders of those
classes are likely to be lower than to Class A shareholders and to Class Z
shareholders, whose shares are not subject to any distribution and/or service
fees.
The Fund does not intend to hold annual meetings of shareholders unless
otherwise required by law. The Fund will not be required to hold meetings of
shareholders unless, for example, the election of Directors is required to be
acted on by shareholders under the Investment Company Act. Shareholders have
certain rights, including the right to call a meeting upon the vote of 10% of
the Fund's outstanding shares for the purpose of voting on the removal of one or
more Directors or to transact any other business.
Under the Articles of Incorporation, the Directors may authorize the
creation of additional series of shares (the proceeds of which would be invested
in separate, independently managed portfolios with distinct investment
objectives and policies and share purchase, redemption and net asset value
procedures) with such preferences, privileges, limitations and voting and
dividend rights as the Directors may determine. All consideration received by
the Fund for shares of any additional series, and all assets in which such
consideration is invested, would belong to that series (subject only to the
rights of creditors of that series) and would be subject to the liabilities
related thereto. Under the Investment Company Act, shareholders of any
additional series of
B-30
<PAGE>
shares would normally have to approve the adoption of any advisory contract
relating to such series and of any changes in the investment policies related
thereto. The Directors do not intend to authorize additional series at the
present time.
The Directors have the power to alter the number and the terms of office of
the Directors and they may at any time lengthen their own terms or make their
terms of unlimited duration and appoint their own successors, provided that
always at least a majority of the Directors have been elected by the
shareholders of the Fund. The voting rights of shareholders are not cumulative,
so that holders of more than 50 percent of the shares voting can, if they
choose, elect all Directors being selected, while the holders of the remaining
shares would be unable to elect any Directors.
PURCHASE, REDEMPTION AND PRICING OF FUND SHARES
Shares of the Fund may be purchased at a price equal to the next determined
net asset value (NAV) per share plus a sales charge which, at the election of
the investor, may be imposed either (1) at the time of purchase (Class A or
Class C shares) and/or (2) on a deferred basis (Class B or Class C shares).
Class Z shares of the Fund are offered to a limited group of investors at NAV
without any sales charge. See "How to Buy, Sell and Exchange Shares of the Fund"
in the Prospectus.
PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire, an
investor must complete an application and telephone the Transfer Agent at (800)
225-1852 (toll-free) to receive an account number. The following information
will be requested: the investor's name, address, tax identification number,
class election, dividend distribution election, amount being wired and wiring
bank. Instructions should then be given by the investor to his/her bank to
transfer funds by wire to the Fund's Custodian, State Street Bank and Trust
Company, Boston, Massachusetts, Custody and Shareholder Services Division,
Attention: The Global Total Return Fund, Inc., specifying on the wire the
account number assigned by the Transfer Agent and the investor's name and
identifying the class in which the investor is eligible to invest (Class A,
Class B, Class C or Class Z shares).
If an investor arranges for receipt by the Custodian of Federal Funds prior
to the calculation of NAV (4:15 P.M., New York time), on a business day, the
investor may purchase shares of the Fund as of that day.
In making a subsequent purchase order by wire, an investor should wire the
Custodian directly and should be sure that the wire specifies The Global Total
Return Fund, Inc. Class A, Class B, Class C or Class Z shares and the investor's
name and individual account number. It is not necessary to call the Transfer
Agent to make subsequent purchase orders utilizing Federal Funds. The minimum
amount which may be invested by wire is $1,000.
ISSUANCE OF FUND SHARES FOR SECURITIES
Transactions involving the issuance of Fund shares for securities (rather
than cash) will be limited to (1) reorganizations,(2) statutory mergers, or (3)
other acquisitions of portfolio securities that: (a) meet the investment
objective and policies of the Fund, (b) are liquid and not subject to
restrictions on resale, (c) have a value that is readily ascertainable via
listing on or trading in a recognized United States or international exchange or
market, and (d) are approved by the Fund's investment adviser.
B-31
<PAGE>
SPECIMEN PRICE MAKE-UP
Under the current distribution arrangements between the Fund and the
Distributor, Class A* shares of the Fund are sold at a maximum sales charge of
4%, Class C* shares are sold with a 1% sales charge and Class B* and Class Z
shares are sold at NAV. Using the Fund's NAV at December 31, 1998, the maximum
offering price of the Fund's shares is as follows:
<TABLE>
<CAPTION>
<S> <C>
CLASS A
Net asset value and redemption price per Class A share ....................................................... $8.03
Maximum sales charge (4% of offering price) .................................................................. .33
Maximum offering price to public ............................................................................. $8.36
-----
-----
CLASS B
Net asset value, offering price and redemption price to public per Class B share* ............................ $8.03
-----
-----
CLASS C
Net asset value and redemption price per Class C share* ...................................................... $8.03
Sales charge (1% of offering price) .......................................................................... .08
-----
Offering price to public ..................................................................................... $8.11
-----
-----
CLASS Z
Net asset value, redemption price and offering price to public per Class Z share ............................. $8.03
-----
-----
</TABLE>
- ----------
* Class B and Class C shares are subject to a contingent deferred sales
charge on certain redemptions.
SELECTING A PURCHASE ALTERNATIVE
The following is provided to assist investors in determining which method
of purchase best suits their individual circumstances and is based on current
fees and expenses being charged to the Fund:
If you intend to hold your investment in the Fund for less than 4 years and
do not qualify for a reduced sales charge on Class A shares, since Class A
shares are subject to a maximum initial sales charge of 4% and Class B shares
are subject to a CDSC of 5% which declines to zero over a 6-year period, you
should consider purchasing Class C shares over either Class A or Class B shares.
If you intend to hold your investment for more than 4 years, but less than
5 years, and do not qualify for a reduced sales charge on Class A shares, the
sales charges and cumulative annual distribution-related fees would be
approximately the same for Class A, Class B and Class C shares. However, you
should consider purchasing Class B shares over Class A shares or Class C shares
because all of your money would be invested initially in the case of Class B
shares.
If you intend to hold your investment for longer than 5 years, you should
consider purchasing Class A shares over either Class B or Class C shares. This
is because the maximum sales charge plus the cumulative annual
distribution-related fee on Class A shares would be less than those of the Class
B and Class C shares.
If you qualify for a reduced sales charge on Class A shares, it may be more
advantageous for you to purchase Class A shares over either Class B or class C
shares regardless of how long you intend to hold your investment. However,
unlike Class B shares, you would not have all of your money invested initially
because the sales charge on Class A shares is deducted at the time of purchase.
If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class B and Class C shares, you would have to hold your investment for
more than 6 years in the case of Class B shares and for more than 5 years in the
case of Class C shares for the higher cumulative annual distribution-related fee
on those shares plus, in the case of Class C shares, the 1% initial sales charge
to exceed the initial sales charge plus cumulative annual distribution-related
fees on Class A shares. This does not take into account the time value of money,
which further reduces the impact of the higher Class B or Class C
distribution-related fee on the investment, fluctuations in NAV, the effect of
the return on the investment over this period of time or redemptions when the
CDSC is applicable.
REDUCTION AND WAIVER OF INITIAL SALES CHARGES--CLASS A SHARES
BENEFIT PLANS. Class A shares may be purchased at NAV, without payment of
an initial sales charge, by pension, profit-sharing or other employee benefit
plans qualified under Section 401 of the Internal Revenue Code, deferred
compensation or annuity plans under Sections 401(a), 403(b)(7) and 457 of the
Internal Revenue Code, "rabbi" trusts and non-qualified deferred compensation
plans that are sponsored by any employer that has a tax-qualified plan with
Prudential (collectively, Benefit Plans),
B-32
<PAGE>
provided that the Benefit Plan has existing assets of at least $1 million
invested in shares of Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) or 250 eligible
employees or participants. In the case of Benefit Plans whose accounts are held
directly with the Transfer Agent or Prudential Securities and for which the
Transfer Agent or Prudential Securities does individual account recordkeeping
(Direct Account Benefit Plans) and Benefit Plans sponsored by Prudential,
Prudential Securities or its subsidiaries (Prudential Securities or subsidiary
Prototype Benefit Plans), Class A shares may be purchased at NAV by participants
who are repaying loans made from such plans to the participant.
PRUDENTIAL RETIREMENT PROGRAMS. Class A shares may be purchased at NAV by
certain savings, retirement and deferred compensation plans, qualified or
non-qualified under the Internal Revenue Code, for which Prudential provides
administrative or recordkeeping services, provided that (1) the plan has at
least $1 million in existing assets or 250 eligible employees and (2) the Fund
is an available investment option. These plans include pension, profit-sharing,
stock-bonus or other employee benefit plans under Section 401 of the Internal
Revenue Code, deferred compensation and annuity plans under Sections 457 and
403(b)(7) of the Internal Revenue Code and plans that participate in a PruArray
Program (benefit plan recordkeeping service) (hereafter referred to as a
PruArray Plan). All Benefit Plans of a company (or affiliated companies under
common control) for which Prudential serves as plan administrator or
recordkeeper are aggregated in meeting the $1 million threshold provided that
Prudential has been notified in advance of the entitlement to the waiver of the
sales charge based on the aggregated assets. The term "existing assets" includes
stock issued by a plan sponsor, shares of Prudential Mutual Funds and shares of
certain unaffiliated mutual funds that participate in a PruArray Plan
(Participating Funds). "Existing assets" also include monies invested in The
Guaranteed Investment Account (GIA), a group annuity insurance product issued by
Prudential, The Guaranteed Insulated Separate Account, a separate account
operated by Prudential, and units of The Stable Value Fund (SVF), an
unaffiliated bank collective fund. Class A shares may also be purchased at NAV
by plans that have monies invested in GIA and SVF, provided (1) the purchase is
made with the proceeds of a redemption from either GIA or SVF and (2) Class A
shares are an investment option of the plan.
PRUARRAY ASSOCIATION BENEFIT PLANS. Class A shares also offered at NAV to
Benefit Plans or non-qualified plans sponsored by employers which are members of
a common trade, professional or membership association (Association) that
participate in a PruArray Plan provided that the Association enters into a
written agreement with Prudential. Such Benefit Plans or non-qualified plans may
purchase Class A shares at NAV without regard to the assets or number of
participants in the individual employer's qualified Plan(s) or non-qualified
plans so long as the employers in the Association (1) have retirement plan
assets in the aggregate of at least $1 million or 250 participants in the
aggregate and (2) maintain their accounts with the Transfer Agent.
PRUARRAY SAVINGS PROGRAM. Class A shares are also offered at NAV to
employees of companies that enter into a written agreement with Prudential
Retirement Services to participate in the PruArray Savings Program. Under this
Program, a limited number of Prudential Mutual Funds are available for purchase
at NAV by Individual Retirement Accounts and Savings Accumulation Plans of the
company's employees. The Program is available only to (1) employees who open an
IRA or Savings Accumulation Plan account with the Transfer Agent and (2) spouses
of employees who open an IRA account with the Transfer Agent. The program is
offered to companies that have at least 250 eligible employees.
SPECIAL RULES APPLICABLE TO RETIREMENT PLANS. After a Benefit Plan or
PruArray Plan qualifies to purchase Class A shares at NAV, all subsequent
purchases will be made at NAV.
OTHER WAIVERS. In addition, Class A shares may be purchased at NAV, through
the Distributor or the Transfer Agent, by:
- officers of the Prudential Mutual Funds (including the Fund),
- employees of the Distributor, Prudential Securities, the Manager and
their subsidiaries and members of the families of such persons who
maintain an "employee related" account at Prudential Securities or the
Transfer Agent,
- employees of subadvisers of the Prudential Mutual Funds provided that
purchases at NAV are permitted by such person's employer,
- Prudential, employees and special agents of Prudential and its
subsidiaries and all persons who have retired directly from active
service with Prudential or one of its subsidiaries,
- registered representatives and employees of brokers who have entered
into a selected dealer agreement with the Distributor provided that
purchases at NAV are permitted by such person's employer,
- investors who have a business relationship with a financial adviser
who joined Prudential Securities from another investment firm,
provided that (1) the purchase is made within 180 days of the
commencement of the financial adviser's employment at Prudential
Securities, or within one year in the case of Benefit Plans, (2) the
purchase is made with proceeds of a redemption of shares of any
open-end non-money market fund sponsored by the financial adviser's
previous employer (other than a fund which imposes a distribution or
service fee of .25 of 1% or less) and (3) the financial adviser served
as the client's broker on the previous purchase,
B-33
<PAGE>
- investors in Individual Retirement Accounts, provided the purchase is
made in a directed rollover to such Individual Retirement Account or
with the proceeds of a tax-free rollover of assets from a Benefit Plan
for which Prudential provides administrative or recordkeeping services
and further provided that such purchase is made within 60 days of
receipt of the Benefit Plan distribution,
- orders placed by broker-dealers, investment advisers or financial
planners who have entered into a agreement with the Distributor, who
place trades for their own accounts or the accounts of their clients
and who charge a management, consulting or other fee for their
services (for example, mutual fund "wrap" or asset allocation
programs), and
- orders placed by clients of broker-dealers, investment advisers or
financial planners who place trades for customer accounts if the
accounts are linked to the master account of such broker-dealer,
investment adviser or financial planner and the broker-dealer,
investment adviser or financial planner charges its clients a separate
fee for its services (for example, mutual fund "supermarket
programs").
For an investor to obtain any reduction or waiver of the initial sales
charges, at the time of the sale either the Transfer Agent must be notified
directly by the investor or the Distributor must be notified by the broker
facilitating the transaction that the sale qualifies for the reduced or waived
sales charge. The reduction or waiver will be granted subject to confirmation of
your entitlement. No initial charges are imposed upon Class A shares acquired
upon the reinvestment of dividends and distributions.
COMBINED PURCHASE AND CUMULATIVE PURCHASE PRIVILEGE. If an investor or
eligible group of related investors purchases Class A shares of the Fund
concurrently with Class A shares of other Prudential Mutual Funds, the purchases
may be combined to take advantage of the reduced sales charges applicable to
larger purchases. See "How to Buy, Sell and Exchange Shares of the Fund--How to
Buy Shares--Reducing or Waiving Class A's Initial Sales Charge" in the
Prospectus.
An eligible group of related Fund investors includes any combination of the
following:
- an individual,
- the individual's spouse, their children and their parents,
- the individual's and spouse's Individual Retirement Account (IRA),
- any company controlled by the individual (a person, entity or group
that holds 25% or more of the outstanding voting securities of a
company will be deemed to control the company, and a partnership will
be deemed to be controlled by each of its general partners),
- a trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children,
- a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account
created by the individual or the individual's spouse and
- one or more employee benefit plans of a company controlled by an
individual.
In addition, an eligible group of related Fund investors may include an
employer (or group of related employers) and one or more qualified retirement
plans of such employer or employers (an employer controlling, controlled by or
under common control with another employer is deemed related to that employer).
The Transfer Agent, the Distributor or your broker must be notified at the
time of purchase that the investor is entitled to a reduced sales charge. The
reduced sales charges will be granted subject to confirmation of the investor's
holdings. The Combined Purchase and Cumulative Purchase Privilege does not apply
to individual participants in any retirement or group plans.
RIGHTS OF ACCUMULATION. Reduced sales charges are also available through
Rights of Accumulation, under which an investor or an eligible group of related
investors, as described above under "Combined Purchase and Cumulative Purchase
Privilege," may aggregate the value of their existing holdings of shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) to determine the
reduced sales charge. However, the value of shares held directly with the
Transfer Agent and through your broker will not be aggregated to determine the
reduced sales charge. The value of existing holdings for purposes of determining
the reduced sales charge is calculated using the maximum offering price (NAV
plus maximum sales charge) as of the previous business day. The Distributor or
the Transfer Agent must be notified at the time of purchase that the investor is
entitled to a reduced sales charge. The reduced sales charges will be granted
subject to confirmation of the investor's holdings. Rights of accumulation are
not available to individual participants in any retirement or group plans.
LETTERS OF INTENT. Reduced sales charges also are available to investors
(or an eligible group of related investors), including retirement and group
plans, who enter into a written Letter of Intent providing for the purchase,
within a thirteen-month period, of shares of the Fund and shares of other
Prudential Mutual Funds (Investment Letter of Intent). Retirement and group
plans may also qualify to purchase Class A shares at NAV by entering into a
Letter of Intent whereby they agree to enroll, within a thirteen-month period, a
specified number of eligible employees or participants (Participant Letter of
Intent).
B-34
<PAGE>
For purposes of the Investment Letter of Intent, all shares of the Fund and
shares of other Prudential Mutual Funds (excluding money market funds other than
those acquired pursuant to the exchange privilege) which were previously
purchased and are still owned are also included in determining the applicable
reduction. However, the value of shares held directly with the Transfer Agent,
Prudential or its affiliates, and through your broker will not be aggregated to
determine the reduced sales charge.
A Letter of Intent permits a purchaser, in the case of an Investment Letter
of Intent, to establish a total investment goal to be achieved by any number of
investments over a thirteen-month period and, in the case of a Participant
Letter of Intent, to establish a minimum eligible employee or participant
enrollment goal over a thirteen-month period. Each investment made during the
period, in the case of an Investment Letter of Intent will receive the reduced
sales charge applicable to the amount represented by the goal, as if it were a
single investment. In the case of a Participant Letter of Intent, each
investment made during the period will be made at net asset value. Escrowed
Class A shares totaling 5% of the dollar amount of the Letter of Intent will be
held by the Transfer Agent in the name of the purchaser, except in the case of
retirement and group plans where the employer or plan sponsor will be
responsible for paying any applicable sales charge. The effective date of an
Investment Letter of Intent (except in the case of retirement and group plans)
may be back-dated up to 90 days, in order that any investments made during this
90-day period, valued at the purchaser's cost, can be applied to the fulfillment
of the Letter of Intent goal.
The Investment Letter of Intent does not obligate the investor to purchase,
nor the Fund to sell, the indicated amount. Similarly, the Participant Letter of
Intent does not obligate the retirement or group plan to enroll the indicated
number of eligible employees or participants. In the event the Letter of Intent
goal is not achieved within the thirteen-month period, the purchaser (or the
employer or plan sponsor in the case of any retirement or group plan) is
required to pay the difference between the sales charge otherwise applicable to
the purchases made during this period and sales charge actually paid. Such
payment may be made directly to the Distributor or, if not paid, the Distributor
will liquidate sufficient escrowed shares to obtain such difference. If the goal
is exceeded in an amount which qualifies for a lower sales charge, a price
adjustment is made by refunding to the purchaser the amount of excess sales
charge, if any, paid during the thirteen-month period. Investors electing to
purchase Class A shares of the Fund pursuant to a Letter of Intent should
carefully read such Letter of Intent.
The Distributor must be notified at the time of purchase that the investor
is entitled to a reduced sales charge. The reduced sales charge will, in the
case of an Investment Letter of Intent, be granted subject to confirmation of
the investor's holdings or in the case of a Participant Letter of Intent,
subject to confirmation of the number of eligible employees or participants in
the retirement or group plan. Letters of Intent are not available to individual
participants in any retirement or group plans.
CLASS B SHARES
The offering price of Class B shares for investors choosing one of he
deferred sales charge alternatives is the NAV next determined following receipt
of an order in proper form by the Transfer Agent, a broker or the Distributor.
Although there is no sales charge imposed at the time of purchase, redemptions
of Class B shares may be subject to a CDSC. See "Sale of Shares--Contingent
Deferred Sales Charge", below.
The Distributor will pay, from its own resources, sales commissions of up
to 4% of the purchase price of Class B shares to brokers, financial advisers and
other persons who sell Class B shares at the time of sale. This facilitates the
ability of the Fund to sell the Class B shares without an initial sales charge
being deducted at the time of purchase. The Distributor anticipates that it will
recoup its advancement of sales commissions from the combination of the CDSC and
the distribution fee.
CLASS C SHARES
The offering price of Class C shares is the next determined NAV plus a 1%
sales charge. In connection with the sale of Class C shares, the Distributor
will pay, from its own resources, brokers, financial advisers and other persons
which distribute Class C shares a sales commission of up to 2% of the purchase
price at the time of the sale.
WAIVER OF INITIAL SALES CHARGE--CLASS C SHARES
BENEFIT PLANS. Class C shares may be purchased at NAV, without payment of
an initial sales charge, by Benefit Plans (as defined above). In the case of
Benefit Plans whose accounts are held directly with the Transfer Agent or
Prudential Securities and for which the Transfer Agent or Prudential Securities
does individual account recordkeeping (Direct Account Benefit Plans) and Benefit
Plans sponsored by Prudential, Prudential Securities or its subsidiaries
(Prudential Securities or Subsidiary Prototype Benefit Plans). Class C shares
may be purchased at NAV by participants who are repaying the loans made from
such plans to the participant.
PRUDENTIAL RETIREMENT PLANS. The initial sales charge will be waived with
respect to purchases of Class C shares by qualified and non-qualified retirement
and deferred compensation plans participating in a PruArray Plan and other plans
for which Prudential provides administrative or recordkeeping services.
B-35
<PAGE>
INVESTMENT OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES.
Investors may purchases Class C shares at NAV, without the initial sales charge,
with the proceeds from the redemption of shares of any unaffiliated registered
investment company which were not held through an account with any Prudential
affiliate. Such purchases must be made within 60 days of the redemption.
Investors eligible for this waiver include: (1) investors purchasing shares
through an account at Prudential Securities; (2) investors purchasing shares
through an ADVANTAGE Account or an Investor Account with Prusec; and (3)
investors purchasing shares through other brokers. This waiver is not available
to investors who purchase shares directly from the Transfer Agent. You must
notify the Transfer Agent directly or through you broker if you are entitled to
this waiver and provide the Transfer Agent with such supporting documents as it
may deem appropriate.
CLASS Z SHARES
Class Z shares of the Fund currently are available for purchase by the
following categories of investors:
- pension, profit-sharing or other employee benefit plans qualified
under Section 401 of the Internal Revenue Code, deferred compensation
and annuity plans under Sections 457 and 403(b)(7) of the Internal
Revenue Code and non-qualified plans for which the Fund is an
available option (collectively, Benefit Plans), provided such Benefit
Plans (in combination with other plans sponsored by the same employer
or group of related employers) have at least $50 million in defined
contribution assets,
- participants in any fee-based program or trust program sponsored by an
affiliate of the Distributor which includes mutual funds as investment
options and for which the Fund is an available investment option,
- certain participants in the MEDLEY Program (group variable annuity
contracts) sponsored by Prudential for whom Class Z shares of the
Prudential Mutual Funds are an available investment option,
- Benefit Plans for which an affiliate of the Distributor provides
administrative or recordkeeping services and as of September 20, 1996
(1) were Class Z shareholders of the Prudential Mutual Funds or (2)
executed a letter of intent to purchase Class Z shares of the
Prudential Mutual Funds,
- current and former Directors/Trustees of he Prudential Mutual Funds
(including the Fund),
- employees of Prudential and/or Prudential Securities who participate
in a Prudential-sponsored employee savings plan, and
- Prudential with an investment of $10 million or more.
After a Benefit Plan qualifies to purchase Class Z shares, all subsequent
purchases will be for Class Z shares.
In connection with the sale of Class Z shares, the Manager, the Distributor
or one of their affiliates may pay brokers, financial advisers and other persons
which distribute shares a finder's fee from its own resources, based on a
percentage of the net asset value of shares sold by such persons.
Class Z shares of the Fund may also be purchased by certain savings,
retirement and deferred compensation plans, qualified or non-qualified under the
Internal Revenue Code of 1986, as amended (the Internal Revenue Code), provided
that (1) the plan purchases shares of the Fund pursuant to an investment
management agreement with The Prudential Insurance Company of America or its
affiliates, (2) the Fund is an available investment option under the agreement
and (3) the plan will participate in the PruArray Plan (benefit plan
recordkeeping services) sponsored by Prudential Mutual Fund Services LLC. These
plans include pension, profit-sharing, stock-bonus or other employee benefit
plans under Section 401 of the Internal Revenue Code and deferred compensation
and annuity plans under Sections 457 or 403(b)(7) of the Internal Revenue Code.
SALE OF SHARES
An investor can redeem shares at any time for cash at the NAV next
determined after the redemption request is received in proper form (in
accordance with procedures established by the Transfer Agent in connection with
investors' accounts) by the Transfer Agent, the Distributor or the investor's
broker. In certain cases, however, redemption proceeds will be reduced by the
amount of any applicable CDSC, as described below. See "Contingent Deferred
Sales Charge" below. If an investor is redeeming shares through a broker, the
broker must receive the sell order before the Fund computes its NAV for that day
(that is, 4:15 P.M., New York time) in order to receive that day's NAV. The
investor's broker will be responsible for furnishing all necessary documentation
to the Distributor and may charge the investor for its services in connection
with redeeming shares of the Fund.
If an investor holds shares of the Fund through Prudential Securities, he
or she must redeem the shares through Prudential Securities. Please contact your
Prudential Securities financial adviser.
If an investor holds shares in non-certificate form, a written request for
redemption signed by the investor exactly as the account is registered is
required. If an investor holds certificates, the certificates, signed in the
name(s) shown on the face of the
B-36
<PAGE>
certificates, must be received by the Transfer Agent, the Distributor or the
investor's broker in order for the redemption request to be processed. If
redemption is requested by a corporation, partnership, trust or fiduciary,
written evidence of authority acceptable to the Transfer Agent must be submitted
before such request will be accepted. All correspondence and documents
concerning redemptions should be sent to the Fund in care of its Transfer Agent,
Prudential Mutual Fund Services LLC, Attention: Redemption Services, P.O. Box
15010, New Brunswick, New Jersey 08906-5010, the Distributor or to the
investor's broker.
SIGNATURE GUARANTEE. If the proceeds of the redemption (1) exceed $50,000,
(2) are to be paid to a person other than the record owner, (3) are to be sent
to an address other than the address on the Transfer Agent's records, or (4) are
to be paid to a corporation, partnership, trust or fiduciary, and your shares
are held directly with the Transfer Agent, the signature(s) on the redemption
request and on the certificates, if any, or stock power must be guaranteed by an
"eligible guarantor institution." An "eligible guarantor institution" includes
any bank, broker. dealer or credit union. The Transfer Agent reserves the right
to request additional information from, and make reasonable inquiries of, any
eligible guarantor institution. For clients of Prusec, a signature guarantee may
be obtained from the agency or office manager of most Prudential Insurance and
Financial Services or Preferred Services offices. In the case of redemptions
from a PruArray Plan, if the proceeds of the redemption are invested in another
investment option of the plan in the name of the record holder and at the same
address as reflected in the Transfer Agent's records, a signature guarantee is
not required.
Payment for shares presented for redemption will be made by check within
seven days after receipt by the Transfer Agent, the Distributor or the broker of
the certificate and/or written request, except as indicated below. If an
investor holds shares through Prudential Securities, payment for shares
presented for redemption will be credited to the investor's account at his or
her broker, unless the investor indicates otherwise. Such payment may be
postponed or the right of redemption suspended at times (1) when the New York
Stock Exchange is closed for other than customary weekends and holidays, (2)
when trading on such Exchange is restricted, (3) when an emergency exists as a
result of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (4) during any other period when the Commission,
by order, so permits; provided that applicable rules and regulations of the
Commission shall govern as to whether the conditions prescribed in (2), (3) or
(4) exist.
REDEMPTION IN KIND. If the Directors determine that it would be detrimental
to the best interests of the remaining shareholders of the Fund to make payment
wholly or partly in cash, the Fund may pay the redemption price in whole or in
part by a distribution in kind of securities from the investment portfolio of
the Fund, in lieu of cash, in conformity with applicable rules of the
Commission. Securities will be readily marketable and will be valued in the same
manner as in a regular redemption. If your shares are redeemed in kind, you
would incur transaction costs in converting the assets into cash. The Fund,
however, has elected to be governed by Rule 18f-1 under the Investment Company
Act, under which the Fund is obligated to redeem shares solely in cash up to the
lesser of $250,000 or 1% of the NAV of the Fund during any 90-day period for any
one shareholder.
INVOLUNTARY REDEMPTION. In order to reduce expenses of the Fund, the
Directors may redeem all of the shares of any shareholder, other than a
shareholder which is an IRA or other tax-deferred retirement plan, whose account
has a net asset value of less than $500 due to a redemption. The Fund will give
such shareholders 60 days' prior written notice in which to purchase sufficient
additional shares to avoid such redemption. No CDSC will be imposed on any such
involuntary redemption.
90-DAY REPURCHASE PRIVILEGE. If a shareholder redeems his or her shares and
has not previously exercised the repurchase privilege, the shareholder may
reinvest any portion or all of the proceeds of such redemption in shares of the
Fund at the NAV next determined after the order is received, which must be
within 90 days after the date of the redemption. Any CDSC paid in connection
with such redemption will be credited (in shares) to the shareholder's account.
(If less than a full repurchase is made, the credit will be on a pro rata
basis.) The shareholder must notify the Transfer Agent, either directly or
through the Distributor or the shareholder's broker, at the time the repurchase
privilege is exercised to adjust your account for the CDSC you previously paid.
Thereafter, any redemptions will be subject to the CDSC applicable at the time
of the redemption. See "Contingent Deferred Sales Charge" below. Exercise of the
repurchase privilege will generally not affect federal tax treatment of any gain
realized upon redemption. However, if the redemption was made within a 30 day
period of the repurchase and if the redemption resulted in a loss, some or all
of the loss, depending on the amount reinvested, may not be allowed for federal
income tax purposes.
CONTINGENT DEFERRED SALES CHARGE
Redemptions of Class B shares will be subject to a contingent deferred
sales charge or CDSC declining from 4% to zero over a seven year period. Class C
shares redeemed within 18 months of purchase (one year for Class C shares
purchased before November 2, 1998) will be subject to a 1% CDSC. The CDSC will
be deducted from the redemption proceeds and reduce the amount paid to the
shareholder. The CDSC will be imposed on any redemption by a shareholder which
reduces the current value of your Class B or Class C shares to an amount which
is lower than the amount of all payments by the shareholders for shares during
B-37
<PAGE>
the preceding six years, in the case of Class B shares, and 18 months, in the
case of Class C shares (one year for Class C shares purchased before November 2,
1998). A CDSC will be applied on the lesser of the original purchase price or
the current value of the shares being redeemed. Increases in the value of shares
or shares acquired through reinvestment of dividends or distributions are not
subject to a CDSC. The amount of any CDSC will be paid to and retained by the
Distributor.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of shares until the time of redemption
of such shares. Solely for purposes of determining the number of years from the
time of any payment for the purchase of shares, all payments during a month will
be aggregated and deemed to have been made on the last day of the month. The
CDSC will be calculated from the first day of the month after the initial
purchase, excluding the time shares were held in a money market fund.
The following table sets forth the rates of the CDSC applicable to
redemptions of Class B shares:
<TABLE>
<CAPTION>
CONTINENT DEFERRED SALES
CHARGE AS A PERCENTAGE
YEARS' SINCE PURCHASE OF DOLLARS INVESTED OR
PAYMENTS MADE REDEMPTION PROCEEDS
- --------------------- ------------------------
<S> <C>
First .................................................. 5.0%
Second ................................................. 4.0%
Third .................................................. 3.0%
Fourth ................................................. 2.0%
Fifth .................................................. 1.0%
Sixth .................................................. 1.0%
Seventh and thereafter ................................. None
</TABLE>
In determining whether a CDSC is applicable to a redemption, the
calculation will be made in a manner that results in the lowest possible rate.
It will be assumed that the redemption is made first of amounts representing
shares acquired pursuant to the reinvestment of dividends and distributions;
then of amounts representing the increase in NAV above the total amount of
payment for the purchase of Fund shares made during the preceding six years for
Class B shares and 18 months for Class C shares (one year for Class C shares
bought before November 2, 1998); then of amounts representing the cost of shares
held beyond the applicable CDSC period; and finally, of amounts representing the
cost of shares held for the longest period of time within the applicable CDSC
period.
For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase you decided to
redeem $500 of your investment. Assuming at the time of the redemption the NAV
had appreciated to $12 per share, the value of your Class B shares would be
$1,260 (105 shares at $12 per share). The CDSC would not be applied to the value
of the reinvested dividend shares and the amount which represents appreciation
($260). Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would
be charged at a rate of 4% (the applicable rate in the second year after
purchase) for a total CDSC of $9.60.
For federal income tax purposes, the amount of the CDSC will reduce the
gain or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES. The CDSC will
be waived in the case of a redemption following the death or disability of a
shareholder in, or the case of a trust account, following the death or
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint tenancy
(with rights of survivorship), at the time of death or initial determination of
disability, provided that the shares were purchased prior to death or
disability.
The CDSC will also be waived in the case of a total or partial redemption
in connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or Section 403(b)
custodial account. These distributions are:
(1) in the case of a tax-deferred retirement plan, a lump-sum or other
distribution after retirement;
(2) in the case of an IRA (including a Roth IRA), a lump-sum or other
distribution after attaining age 59-1/2 or a periodic distribution based on life
expectancy;
(3) in the case of a Section 403(b) custodial account, a lump sum or other
distribution after attaining age 59-1/2; and
(4) a tax-free return of an excess contribution or plan distributions
following the death or disability of the shareholder, provided that the shares
were purchased prior to death or disability.
B-38
<PAGE>
The waiver does not apply in the case of a tax-free rollover or transfer of
assets, other than one following a separation from service (that is, following
voluntary or involuntary termination of employment or following retirement).
Under no circumstances will the CDSC be waived on redemptions resulting from the
termination of a tax-deferred retirement plan, unless such redemptions otherwise
qualify for a waiver as described above. In the case of Direct Account and
Prudential Securities or Subsidiary Prototype Benefit Plans, the CDSC will be
waived on redemptions which represent borrowings from such plans. Shares
purchased with amounts used to repay a loan from such plans on which a CDSC was
not previously deducted will thereafter be subject to a CDSC without regard to
the time such amounts were previously invested. In the case of a 401(k) plan,
the CDSC will also be waived upon the redemption of shares purchased with
amounts used to repay loans made from the account to the participant and from
which a CDSC was previously deducted.
Finally, the CDSC will be waived to the extent that the proceeds from
shares redeemed are invested in Prudential Mutual Funds, the Guaranteed
Investment Account, the Guaranteed Insulated Separate Account or units of The
Stable Value Fund.
SYSTEMATIC WITHDRAWAL PLAN. The CDSC will be waived (or reduced) on certain
redemptions from a Systematic Withdrawal Plan. On an annual basis, up to 12% of
the total dollar amount subject to the CDSC may be redeemed without charge. The
Transfer Agent will calculate the total amount available for this waiver
annually on the anniversary date of your purchase or, for shares purchased prior
to March 1, 1997, on March 1 of the current year. The CDSC will be waived (or
reduced) on redemptions until this threshold 12% is reached.
In addition, the CDSC will be waived on redemptions of shares held by
Directors of the Fund.
Shareholders must notify the Fund's Transfer Agent either directly or
through the brokers, at the time of redemption, that they are entitled to waiver
of the CDSC and provide the Transfer Agent with such supporting documentation as
it may deem appropriate. The waiver will be granted subject to confirmation of
your entitlement.
In connection with these waivers, the Transfer Agent will require you to
submit the supporting documentation set forth below.
CATEGORY OF WAIVER
Death
Disability--An individual will be considered disabled if he or she is unable to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or to be of long-continued and indefinite duration.
Distribution from an IRA or 403(b) Custodial Account
Distribution from Retirement Plan
Excess Contributions
REQUIRED DOCUMENTATION
A copy of the shareholder's death certificate or, in the case of a trust, a copy
of the grantor's death certificate, plus a copy of the trust agreement
identifying the grantor.
A copy of the Social Security Administration award letter or a letter from a
physician on the physician's letterhead stating that the shareholder (or, in the
case of a trust, the grantor) is permanently disabled. The letter must also
indicate the date of disability.
A copy of the distribution form from the custodial firm indicating (i) the date
of birth of the shareholder and (ii) that the shareholder is over age 59-1/2 and
is taking a normal distribution--signed by the shareholder.
A letter signed by the plan administrator/trustee indicating the reason for the
distribution.
A letter from the shareholder (for an IRA) or the plan administrator/trustee on
company letterhead indicating the amount of the excess and whether or not taxes
have been paid.
The Transfer Agent reserves the right to request such additional documents
as it may deem appropriate.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE--CLASS C SHARES
PRUDENTIAL RETIREMENT PLANS. The CDSC will be waived on redemptions from
qualified and non-qualified retirement and deferred compensation plans that
participate in a PruArray Plan and other plans for which Prudential provides
administrative or recordkeeping services. The CDSC will also be waived on
redemptions from Benefit Plans sponsored by Prudential and its affiliates to the
extent that the redemption proceeds are invested in The Guaranteed Investment
Account, the Guaranteed Insulated Separate Account and units of The Stable Value
Fund.
B-39
<PAGE>
OTHER BENEFIT PLANS. The CDSC will be waived on redemptions from Benefit
Plans holding shares through a broker not affiliated with Prudential and for
which the broker provides administrative or recordkeeping services.
CONVERSION FEATURE--CLASS B SHARES
Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. Conversions will be effected at
relative net asset value without the imposition of any additional sales charge.
Since the Fund tracks amounts paid rather than the number of shares bought
on each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will be
determined on each conversion date in accordance with the following formula: (1)
the ratio of (a) the amounts paid for Class B shares purchased at least seven
years prior to the conversion date to (b) the total amount paid for all Class B
shares purchased and then held in your account (2) multiplied by the total
number of Class B shares purchased and then held in your account. Each time any
Eligible Shares in your account convert to Class A shares, all shares or amounts
representing Class B shares then in your account that were acquired through the
automatic reinvestment of dividends and other distributions will convert to
Class A shares.
For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible Shares
calculated as described above will generally be either more or less than the
number of shares actually purchased approximately seven years before such
conversion date. For example, if 100 shares were initially purchased at $10 per
share (for a total of $1,000) and a second purchase of 100 shares was
subsequently made at $11 per share (for a total of $1,100), 95.24 shares would
convert approximately seven years from the initial purchase (i.e., $1,000
divided by $2,100 (47.60%), multiplied by 200 shares equals 95.24 shares). The
Manager reserves the right to modify the formula for determining the number of
Eligible Shares in the future as it deems appropriate on notice to shareholders.
Since annual distribution-related fees are lower for Class A Shares than
Class B shares, the per share NAV of the Class A shares may be higher than that
of the Class B Shares at the time of conversion. Thus, although the aggregate
dollar value will be the same, you may receive fewer Class A shares than Class B
shares converted.
For purposes of calculating the applicable holding period for conversions,
all payments for Class B shares during a month will be deemed to have been made
on the last day of the month, or for Class B shares acquired through exchange,
or a series of exchanges, on the last day of the month in which the original
payment for purchases of such Class B shares was made. For Class B shares
previously exchanged for shares of a money market fund, the time period during
which such shares were held in the money market fund will be excluded. For
example, Class B shares held in a money market fund for one year would not
convert to Class A shares until approximately eight years from purchase. For
purposes of measuring the time period during which shares are held in a money
market fund, exchanges will be deemed to have been made on the last day of the
month. Class B shares acquired through exchange will convert to Class A shares
after expiration of the conversion period applicable to the original purchase of
such shares.
The conversion feature may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service (1) that the
dividends and other distributions paid on Class A, Class B, Class C and Class Z
shares will not constitute "preferential dividends" under the Internal Revenue
Code and (2) that the conversion of shares does not constitute a taxable event.
The conversion of Class B shares into Class A shares may be suspended if such
opinions or rulings are no longer available. If conversions are suspended, Class
B shares of the Fund will continue to be subject, possibly indefinitely, to
their higher annual distribution and service fee.
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of Fund shares, a Shareholder Investment Account
is established for each investor under which the shares are held for the
investor by the Transfer Agent. If a stock certificate is desired, it must be
requested in writing for each transaction. Certificates are issued only for full
shares and may be redeposited in the Account at any time. There is no charge to
the investor for issuance of a certificate. The Fund makes available to its
shareholders the following privileges and plans.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS
For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund at net asset
value on the record date. An investor may direct the Transfer Agent in writing
not less than five (5) full business days prior to the record date to have
subsequent dividends and/or distributions sent in cash rather than reinvested.
In the case of recently purchased shares for which registration instructions
have not been received on the record date, cash payment will be made directly to
the broker. Any shareholder who receives a cash payment representing a dividend
or distribution may
B-40
<PAGE>
reinvest such distribution at NAV by returning the check or the proceeds to the
Transfer Agent within 30 days after the payment date. Such investment will be
made at the NAV per share next determined after receipt of the check or proceeds
by the Transfer Agent. Such shareholder will receive credit for any CDSC paid in
connection with the amount of proceeds being reinvested.
EXCHANGE PRIVILEGE
The Fund makes available to its shareholders the privilege of exchanging
their shares of the Fund for shares of certain other Prudential Mutual Funds,
including one or more specified money market funds, subject in each case to the
minimum investment requirements of such funds. Shares of such other Prudential
Mutual Funds may also be exchanged for shares of the Fund. All exchanges are
made on the basis of the relative NAV next determined after receipt of an order
in proper form. An exchange will be treated as a redemption and purchase for tax
purposes. For retirement and group plans having a limited menu of Prudential
Mutual Funds, the exchange privilege is available for those funds eligible for
investment in the particular program.
It is contemplated that the exchange privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.
In order to exchange shares by telephone, an investor must authorize
telephone exchanges on his or her initial application form or by written notice
to the Transfer Agent and hold shares in non-certificate form. Thereafter, the
investor may call the Fund at (800) 225-1852 to execute a telephone exchange of
shares, on weekdays, except holidays, between the hours of 8:00 A.M. and 6:00
P.M., New York time. For the investor's protection and to prevent fraudulent
exchanges, telephone calls will be recorded and the investor will be asked to
provide his or her personal identification number. A written confirmation of the
exchange transaction will be sent to the investor. Neither the Fund nor its
agents will be liable for any loss, liability or cost which results from acting
upon instructions reasonably believed to be genuine under the foregoing
procedures. All exchanges will be made on the basis of the relative NAV of the
two funds next determined after the request is received in good order.
If an investor holds shares through Prudential Securities, the shares must
be exchanged by contacting the investor's Prudential Securities financial
adviser.
If an investor holds certificates, the certificates, signed in the name(s)
shown on the face of the certificates, must be returned in order for the shares
to be exchanged.
An investor may also exchange shares by mail by writing to the Fund's
Transfer Agent, Prudential Mutual Fund Services LLC, Attention: Exchange
Processing, P.O. Box 15010, New Brunswick, New Jersey 08906-5010.
In periods of severe market or economic conditions the telephone exchange
of shares may be difficult to implement and investors should make exchanges by
mail by writing to the Transfer Agent, at the address noted above.
CLASS A. Shareholders of the Fund will be able to exchange their Class A
shares for Class A shares of certain other Prudential Mutual Funds, shares of
Prudential Government Securities Trust (Short-Intermediate Term Series) and
shares of the money market funds specified below. No fee or sales load will be
imposed upon the exchange. Shareholders of money market funds who acquired such
shares upon exchange of Class A shares may use the exchange privilege only to
acquire Class A shares, of the Prudential Mutual Funds participating in the
Class A exchange privilege.
The following money market funds participate in the Class A exchange
privilege:
Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)
Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New Jersey Money Market Series)
(New York Money Market Series)
Prudential MoneyMart Assets, Inc. (Class A Shares)
Prudential Tax-Free Money Fund, Inc.
CLASS B AND CLASS C. Shareholders of the Fund may exchange their Class B
and Class C shares of the Fund for Class B and Class C shares, respectively, of
certain other Prudential Mutual Funds and shares of Prudential Special Money
Market Fund, Inc.
B-41
<PAGE>
No CDSC may be payable upon such exchange, but a CDSC may be payable upon the
redemption of Class B and Class C shares acquired as a result of the exchange.
The applicable sales charge will be that imposed by the Fund in which shares
were initially purchased and the purchase date will be deemed to be the first
day of the month after the initial purchase, rather than the date of the
exchange.
Class B and Class C shares of the Fund may also be exchanged for Class B
and Class C shares, respectively, of Prudential Special Money Market Fund, Inc.
without imposition of any CDSC at the time of exchange. Upon subsequent
redemption from such money market fund or after re-exchange into the Fund, such
shares will be subject to the CDSC calculated without regard to the time such
shares were held in the money market fund. In order to minimize the period of
time in which shares are subject to a CDSC, shares exchanged out of the money
market fund will be exchanged on the basis of their remaining holding periods,
with the longest remaining holding periods being transferred first. In measuring
the time period shares are held in a money market fund and "tolled" for purposes
of calculating the CDSC holding period, exchanges are deemed to have been made
on the last day of the month. Thus, if shares are exchanged into the Fund from a
money market fund during the month (and are held in the Fund at the end of the
month), the entire month will be included in the CDSC holding period.
Conversely, if shares are exchanged into a money market fund prior to the last
day of the month (and are held in the money market fund on the last day of the
month), the entire month will be excluded from the CDSC holding period. For
purposes of calculating the seven year holding period applicable to the Class B
conversion feature, the time period during which Class B shares were held in a
money market fund will be excluded.
At any time after acquiring shares of other funds participating in the
Class B or Class C exchange privilege, a shareholder may again exchange those
shares (and any reinvested dividends and distributions) for Class B or Class C
shares of the Fund, respectively without subjecting such shares to any CDSC.
Shares of any fund participating in the Class B or Class C exchange privilege
that were acquired through reinvestment of dividends or distributions may be
exchanged for Class B or Class C shares, respectively of other funds without
being subject to any CDSC.
CLASS Z. Class Z shares may be exchanged for Class Z shares of other
Prudential Mutual Funds.
SPECIAL EXCHANGE PRIVILEGES. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV and for shareholders
who qualify to purchase Class Z shares. Under this exchange privilege, amounts
representing any Class B and Class C Shares which are not subject to a CDSC held
in such a shareholder's account will be automatically exchanged for Class A
shares for shareholders who qualify to purchase Class A shares at NAV on a
quarterly basis, unless the shareholder elects otherwise.
Shareholders who qualify to purchase Class Z shares will have their Class B
and Class C shares which are not subject to a CDSC and their Class A shares
exchanged for Class Z shares on a quarterly basis. Eligibility for this exchange
privilege will be calculated on the business day prior to the date of the
exchange. Amounts representing Class B or Class C shares which are not subject
to a CDSC include the following: (1) amounts representing Class B or Class C
shares acquired pursuant to the automatic reinvestment of dividends and
distributions, (2) amounts representing the increase in the net asset value
above the total amount of payments for the purchase of Class B or Class C shares
and (3) amounts representing Class B or Class C shares held beyond the
applicable CDSC period. Class B and Class C shareholders must notify the
Transfer Agent either directly or through Prudential Securities, Prusec or
another broker that they are eligible for this special exchange privilege.
Participants in any fee-based program for which the Fund is an available
option will have their Class A shares, if any, exchanged for Class Z shares when
they elect to have those assets become a part of the fee-based program. Upon
leaving the program (whether voluntarily or not), such Class Z shares (and, to
the extent provided for in the program, Class Z shares acquired through
participation in the program) will be exchanged for Class A shares at net asset
value.
Additional details about the exchange privilege and prospectuses for each
of the Prudential Mutual Funds are available from the Transfer Agent, the
Distributor or the investor's broker. The exchange privilege may be modified,
terminated or suspended on sixty days' notice, and any fund, including the Fund,
or the Distributor, has the right to reject any exchange application relating to
such fund's shares.
DOLLAR COST AVERAGING
Dollar cost averaging is a method of accumulating shares by investing a
fixed amount of dollars in shares at set intervals. An investor buys more shares
when the price is low and fewer shares when the price is high. The average cost
per share is lower than it would be if a constant number of shares were bought
at set intervals.
Dollar cost averaging may be used, for example, to plan for retirement, to
save for a major expenditure, such as the purchase of a home, or to finance a
college education. The cost of a year's education at a four-year college today
averages around $14,000 at a private college and around $6,000 at a public
university. Assuming these costs increase at a rate of 7% a year, as has been
projected, for the freshman class of 2011, the cost of four years at a private
college could reach $210,000 and over $90,000 at a public university.(1)
B-42
<PAGE>
The following chart shows how much you would need in monthly investments to
achieve specified lump sums to finance your investment goals.(2)
<TABLE>
<CAPTION>
PERIOD OF
MONTHLY INVESTMENTS: $100,000 $150,000 $200,000 $250,000
- -------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
25 Years .................................. $ 105 $ 158 $ 210 $ 263
20 Years .................................. 170 255 340 424
15 Years .................................. 289 433 578 722
10 Years .................................. 547 820 1,093 1,366
5 Years .................................. 1,361 2,041 2,721 3,402
See "Automatic Investment Plan."
</TABLE>
- ----------
(1) Source information concerning the costs of education at public and
private universities is available from The College Board Annual Survey of
Colleges, 1993. Average costs for private institutions include tuition, fees,
room and board for the 1993-94 academic years.
(2) The chart assumes an effective rate of return of 8% (assuming monthly
compounding). This example is for illustrative purposes only and is not intended
to reflect the performance of an investment in shares of the Fund. The
investment return and principal value of an investment will fluctuate so that an
investor's shares when redeemed may be worth more or less than their original
cost.
AUTOMATIC INVESTMENT PLAN (AIP)
Under AIP, an investor may arrange to have a fixed amount automatically
invested in shares of the Fund monthly by authorizing his or her bank account or
brokerage account (including a Prudential Securities Command Account) to be
debited to invest specified dollar amounts in shares of the Fund. The investor's
bank must be a member of the Automatic Clearing House System. Share certificates
are not issued to AIP participants.
Further information about this program and an application form can be
obtained from the Transfer Agent, the Distributor or your broker.
SYSTEMATIC WITHDRAWAL PLAN
A systematic withdrawal plan is available to shareholders through the
Transfer Agent, the Distributor or an investor's broker. Such withdrawal plan
provides for monthly or quarterly checks in any amount, except as provided
below, up to the value of the shares in the shareholder's account. Withdrawals
of Class B or Class C shares may be subject to a CDSC.
In the case of shares held through the Transfer Agent (1) a $10,000 minimum
account value applies, (2) withdrawals may not be for less than $100 and (3) the
shareholder must elect to have all dividends and/or distributions automatically
reinvested in additional full and fractional shares at NAV on shares held under
this plan.
The Transfer Agent, the Distributor or an investor's broker acts as an
agent for the shareholder in redeeming sufficient full and fractional shares to
provide the amount of the periodic withdrawal payment. The systematic withdrawal
plan may be terminated at any time, and the Distributor reserves the right to
initiate a fee of up to $5 per withdrawal, upon 30 days' written notice to the
shareholder.
Withdrawal payments should not be considered as dividends, yield or income.
If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.
Furthermore, each withdrawal constitutes a redemption of shares, and any
gain or loss realized must be recognized for federal income tax purposes. In
addition, withdrawals made concurrently with purchases of additional shares are
inadvisable because of the applicable sales charges to (1) the purchase of Class
A and Class C shares and (2) the redemption of Class B and Class C shares. Each
shareholder should consult his or her own tax adviser with regard to the tax
consequences of the plan, particularly used in connection with a retirement
plan.
B-43
<PAGE>
TAX-DEFERRED RETIREMENT PLANS
Various qualified retirement plans, including a 401(k) plan, self-directed
individual retirement accounts and "tax-deferred accounts" under Section
403(b)(7) of the Internal Revenue Code are available through the Distributor.
These plans are for use by both self-employed individuals and corporate
employers. These plans permit either self-direction of accounts by participants,
or a pooled account arrangement. Information regarding the establishment of
these plans, the administration, custodial fees and other details are available
from the Distributor or the Transfer Agent.
Investors who are considering the adoption of such a plan should consult
with their own legal counsel or tax adviser with respect to the establishment
and maintenance of any such plan.
TAX-DEFERRED RETIREMENT ACCOUNTS
INDIVIDUAL RETIREMENT ACCOUNTS. An individual retirement account (IRA)
permits the deferral of federal income tax on income earned in the account until
the earnings are withdrawn. The following chart represents a comparison of the
earnings in a personal savings account with those in an IRA, assuming a $2,000
annual contribution, and 8% rate of return and a 39.6% federal income tax
bracket and shows how much more retirement income can accumulate within an IRA
as opposed to a taxable individual savings account.
<TABLE>
<CAPTION>
TAX-DEFERRED COMPOUNDING(1)
CONTRIBUTIONS PERSONAL
MADE OVER: SAVINGS IRA
- ----------- --------- -------
<S> <C> <C>
10 years ................................... $ 26,165 $ 31,291
15 years ................................... 44,675 58,649
20 years ................................... 68,109 98,846
25 years ................................... 97,780 157,909
30 years ................................... 135,346 244,692
</TABLE>
- ----------
(1)The chart is for illustrative purposes only and does not represent the
performance of the Fund or any specific investment. It shows taxable versus
tax-deferred compounding for the periods and on the terms indicated. Earnings in
a traditional IRA account will be subject to tax when withdrawn from the
account. Distributions from a Roth IRA which meet the conditions required under
the Internal Revenue Code will not be subject to tax upon withdrawal from the
account.
MUTUAL FUND PROGRAMS
From time to time, the Fund may be included in a mutual fund program with
other Prudential Mutual Funds. Under such a program, a group of portfolios will
be selected and thereafter marketed collectively. Typically, these programs are
created with an investment theme, such as to seek greater diversification,
protection from interest rate movements or access to different management
styles. In the event such a program is instituted, there may be a minimum
investment requirement for the program as a whole. The Fund may waive or reduce
the minimum initial investment requirements in connection with such a program.
The mutual funds in the program may be purchased individually or as part of
a program. Since the allocation of portfolios included in the program may not be
appropriate for all investors, investors should consult their financial adviser
concerning the appropriate blend of portfolios for them. If investors elect to
purchase the individual mutual funds that constitute the program in an
investment ratio different from that offered by the program, the standard
minimum investment requirements for the individual mutual funds will apply.
NET ASSET VALUE
The Fund's net asset value per share or NAV is determined by subtracting
its liabilities from the value of its assets and dividing the remainder by the
number of outstanding shares. NAV is calculated separately for each class. The
Directors have fixed the specific time of day for the computation of the Fund's
NAV to be as of 4:15 p.m., New York time. The Fund will compute its NAV at 4:15
P.M., New York time, on each day the New York Stock Exchange is open for trading
except days on which no orders to purchase, sell or redeem Fund shares have been
received or on days on which changes in the value of the Fund's portfolio
investments do not affect NAV. In the event the New York Stock Exchange closes
early on any business day, the NAV of the Fund's
B-44
<PAGE>
shares will be determined at a time between such closing and 4:15 P.M., New York
time. The New York Stock Exchange is closed on the following holidays: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Under the Investment Company Act, the Directors are responsible for
determining in good faith the fair value of securities of the Fund. In
accordance with procedures adopted by the Directors, the value of investments
listed on a securities exchange and NASDAQ National Market System securities
(other than options on stock and stock indices) are valued at the last sale
price of such exchange system on the day of valuation or, if there was no sale
on such day, the mean between the last bid and asked prices on such day, or at
the bid price on such day in the absence of an asked price. Corporate bonds
(other than convertible debt securities) and U.S. Government securities that are
actively traded in the over-the-counter market, including listed securities for
which the primary market is believed by the Manager in consultation with the
Subadviser to be over-the-counter, are valued on the basis of valuations
provided by an independent pricing agent or principal market maker which uses
information with respect to transactions in bonds, quotations from bond dealers,
agency ratings, market transactions in comparable securities and various
relationships between securities in determining value. Convertible debt
securities that are actively traded in the over-the-counter market, including
listed securities for which the primary market is believed by the Manager in
consultation with the Subadviser to be over-the-counter, are valued at the mean
between the last reported bid and asked prices provided by principal market
makers. Options on stock and stock indices traded on an exchange are valued at
the mean between the most recently quoted bid and asked prices on the respective
exchange and futures contracts and options thereon are valued at their last sale
prices as of the close of trading on the applicable commodities exchange or
board of trade or, if there was no sale on the applicable commodities exchange
or board of trade on such day, at the mean between the most recently quoted bid
and asked prices on such exchange or board of trade. Quotations of foreign
securities in a foreign currency are converted to U.S. dollar equivalents at the
current rate obtained from a recognized bank or dealer, and foreign currency
forward contracts are valued at the current cost of covering or offsetting such
contracts. Should an extraordinary event, which is likely to affect the value of
the security, occur after the close of an exchange on which a portfolio security
is traded, such security will be valued at fair value considering factors
determined in good faith by the investment adviser under procedures established
by and under the general supervision of the Fund's Board of Directors.
Securities or other assets for which reliable market quotations are not
readily available or for which the pricing agent or principal market maker does
not provide a valuation or methodology or provides a valuation or methodology
that, in the judgment of the Manager or Subadviser (or Valuation Committee or
Board of Directors) does not represent fair value, are valued by the Valuation
Committee or Board of Directors in consultation with the Manager or Subadviser,
including its portfolio manager, traders, and its research and credit analysts,
on the basis of the following factors: cost of the security, transactions in
comparable securities, relationships among various securities and such other
factors as may be determined by the Manager, Subadviser, Board of Directors or
Valuation Committee to materially affect the value of the security. Short-term
debt securities are valued at cost, with interest accrued or discount amortized
to the date of maturity, if their original maturity was 60 days or less, unless
this is determined by the Directors not to represent fair value. Short-term
securities with remaining maturities of more than 60 days, for which market
quotations are readily available, are valued at their current market quotations
as supplied by an independent pricing agent or principal market maker.
Although the legal rights of each class of shares are substantially
identical, the different expenses borne by each class will result in different
NAVs and dividends. The NAV of Class B and Class C shares will generally be
lower than the NAV of Class A shares as a result of the larger
distribution-related fee to which Class B and Class C shares are subject. The
NAV of Class Z shares will generally be higher than the NAV of Class A, Class B
or Class C shares as a result of the fact that the Class Z shares are not
subject to any distribution or service fee. it is expected, however, that the
NAV of the four classes will tend to converge immediately after the recording of
dividends, if any, which will differ by approximately the amount of the
distribution and/or service fee expense accrual differential among the classes.
TAXES, DIVIDENDS AND DISTRIBUTIONS
The Fund has elected to qualify and intends to remain qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code.
This relieves the Fund (but not its shareholders) from paying federal income tax
on income and capital gains which are distributed to shareholders, and permits
net capital gains of the Fund (i.e., the excess of net long-term capital gains
over net short-term capital losses) to be treated as long-term capital gains of
the shareholders, regardless of how long shareholders have held their shares in
the Fund. Net capital gains of the Fund which are available for distribution to
shareholders will be computed by taking into account any capital loss
carryforward of the Fund.
Qualification of the Fund as a regulated investment company requires, among
other things, that (a) the Fund derive at least 90% of its annual gross income
(without reduction for losses from the sale or other disposition of securities
or foreign
B-45
<PAGE>
currencies) from dividends, interest, payments with respect to securities loans
and gains from the sale or other disposition of securities or options thereon or
foreign currencies, or other income (including but not limited to, gains from
options, futures or forward contracts) derived with respect to its business of
investing in such securities or currencies; (b) the Fund diversify its holdings
so that, at the end of each quarter of the taxable year, (i) at least 50% of the
value of the Fund's assets is represented by cash, U.S. Government securities
and other securities limited in respect of any one issuer to an amount not
greater than 5% of the value of the Fund's assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other than U.S.
Government securities); and (c) the Fund distribute to its shareholders at least
90% of its net investment income and net short-term gains (i.e., the excess of
net short-term capital gains over net long-term capital losses) in each year.
Gains or losses on sales of securities by the Fund will be treated as
long-term capital gains or losses if the securities have been held by it for
more than one year, except in certain cases where the Fund acquires a put or
writes a call thereon or otherwise holds on offsetting position with respect to
the securities. Other gains or losses on the sale of securities will be
short-term capital gains or losses. Gains and losses on the sale, lapse or other
termination of options on securities will be treated as gains and losses from
the sale of securities. If an option written by the Fund on securities lapses or
is terminated through a closing transaction, such as a repurchase by the Fund of
the option from its holder, the Fund will generally realize short-term capital
gain or loss. If securities are sold by the Fund pursuant to the exercise of a
call option written by it, the Fund will include the premium received in the
sale proceeds of the securities delivered in determining the amount of gain or
loss on the sale. Certain of the Fund's transactions may be subject to wash
sale, short sale, constructive sale, anti-conversion and straddle provisions of
the Internal Revenue Code which may, among other things, require the Fund to
defer recognition of losses. In addition, debt securities acquired by the Fund
may be subject to original issue discount and market discount rules which,
respectively, may cause the Fund to accrue income in advance of the receipt of
cash with respect to interest or cause gains to be treated as ordinary income.
Special rules apply to most options on stock indices, futures contracts and
options thereon, and forward currency exchange contracts in which the Fund may
invest. See "Description of the Fund, Its Investments and Its Risks." These
investments will generally constitute Section 1256 contracts and will be
required to be "marked to market" for federal income tax purposes at the end of
the Fund's taxable year; that is, treated as having been sold at market value.
Except with respect to certain foreign currency forward contracts, sixty percent
of any gain or loss recognized on such deemed sales and on actual dispositions
will be treated as long-term capital gain or loss, and the remainder will be
treated as short-term capital gain or loss.
Gain or loss on the sale, lapse or other termination of options on stock
and on narrowly-based stock indices will be capital gain or loss and will be
long-term or short-term depending on the holding period of the option. In
addition, positions which are part of a "straddle" will be subject to certain
wash sale, short sale and constructive sale provisions of the Internal Revenue
Code. In the case of a straddle, the Fund may be required to defer the
recognition of losses on positions it holds to the extent of any unrecognized
gain on offsetting positions held by the Fund.
Gains or losses attributable to fluctuations in exchange rates which occur
between the time the Fund accrues interest or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time the
Fund actually collects such receivables or pays such liabilities are treated as
ordinary income or ordinary loss. Similarly, gains or losses on foreign currency
forward contracts or dispositions of debt securities dominated in a foreign
currency attributable to fluctuations in the value of the foreign currency
between the date of acquisition of the security and the date of disposition also
are treated as ordinary gain or loss. These gains, referred to under the
Internal Revenue Code as "Section 988" gains or losses, increase or decrease the
amount of the Fund's investment company taxable income available to be
distributed to its shareholders as ordinary income, rather than increasing or
decreasing the amount of the Fund's net capital gain. If Section 988 losses
exceed other investment company taxable income during a taxable year, the Fund
would not be able to make any ordinary dividend distributions, or distributions
made before the losses were realized would be recharacterized as a return of
capital to shareholders, rather than as an ordinary dividend, reducing each
shareholder's basis in his or her Fund shares.
Shareholders electing to receive dividends and distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share of the Fund on the
reinvestment date.
Any dividends or distributions paid shortly after a purchase by an investor
may have the effect of reducing the per share net asset value of the investor's
shares by the per share amount of the dividends or distributions. Furthermore,
such dividends or distributions, although in effect a return of capital, are
subject to federal income taxes. Therefore, prior to purchasing shares of the
Fund, the investor should carefully consider the impact of dividends or capital
gains distributions which are expected to be or have been announced.
Any loss realized on a sale, redemption or exchange of shares of the Fund
by a shareholder will be disallowed to the extent the shares are replaced within
a 61-day period (beginning 30 days before the disposition of shares). Shares
purchased pursuant to the reinvestment of a dividend will constitute a
replacement of shares.
B-46
<PAGE>
A shareholder who acquires shares of the Fund and sells or otherwise
disposes of such shares within 90 days of acquisition may not be allowed to
include certain sales charges incurred in acquiring such shares for purposes of
calculating gain or loss realized upon a sale or exchange of shares of the Fund.
Dividends of net investment income and distributions of net short-term
capital gains paid to a shareholder (including a shareholder acting as a nominee
or fiduciary) who is a nonresident alien individual, a foreign corporation or a
foreign partnership (foreign shareholder) are subject to a 30% (or lower treaty
rate) withholding tax upon the gross amount of the dividends unless the
dividends are effectively connected with a U.S. trade or business conducted by
the foreign shareholder. Net capital gain distributions paid to a foreign
shareholder are generally not subject to withholding tax. A foreign shareholder
will, however, be required to pay U.S. income tax on any dividends and capital
gain distributions which are effectively connected with a U.S. trade or business
of the foreign shareholder.
Dividends received by corporate shareholders are eligible for a
dividends-received deduction of 70% to the extent the Fund's income is derived
from qualified dividends received by the Fund from domestic corporations.
Dividends attributable to foreign corporations, interest income, capital and
currency gain, gain or loss from Section 1256 contracts (described above) and
income from certain other sources will not constitute qualified dividends.
Individual shareholders are not eligible for the dividends-received deduction.
The per share dividends on Class B and Class C shares will be lower than
the per share dividends on Class A and Class Z shares as a result of the higher
distribution-related fee applicable to the Class B and Class C shares. The per
share distributions of net capital gains, if any, will be paid in the same
amount for Class A, Class B, Class C and Class Z shares. See "Net Asset Value."
The Fund is required to distribute 98% of its ordinary income in the same
calendar year in which it is earned. The Fund is also required to distribute
during the calendar year 98% of the capital gain net income it earned during the
twelve months ending on October 31 of such calendar year. In addition, the Fund
must distribute during the calendar year all undistributed ordinary income and
undistributed capital gain net income from the prior year or the twelve-month
period ending on October 31 of such prior calendar year, respectively. To the
extent it does not meet these distribution requirements, the Fund will be
subject to a non-deductible 4% excise tax on the undistributed amount. For
purposes of this excise tax, income on which the Fund pays income tax is treated
as distributed.
The Fund may, from time to time, invest in Passive Foreign Investment
Companies (PFICs). PFICs are foreign corporations that, in general, meet either
of the following tests: (a) at least 75% of its gross income is passive or (b)
an average of at least 50% of its assets produce, or are held for the production
of, passive income. If a Fund acquires and holds stock in a PFIC beyond the end
of the year of its acquisition, the Fund will be subject to federal income tax
on a portion of any "excess distribution" received on the stock or of any gain
from disposition of the stock (collectively, PFIC income), plus interest
thereon, even if the Fund distributes the PFIC income as a taxable dividend to
its shareholders. The balance of the PFIC income will be included in the Fund's
investment company taxable income and, accordingly, will not be taxable to it to
the extent that income is distributed to its shareholders. A Fund may make a
"mark-to-market" election with respect to any marketable stock it holds of a
PFIC. If the election is in effect, at the end of the Fund's taxable year, the
Fund will recognize the amounts of gains, if any, as ordinary income with
respect to PFIC stock. No loss will be recognized on PFIC stock, except to the
extent of gains recognized in prior years. Alternatively, a Fund, if it meets
certain requirements, may elect to treat any PFIC in which it invests as a
"qualified electing fund," in which case, in lieu of the foregoing tax and
interest obligation, the Fund will be required to include in income each year
its PRO RATA share of the qualified electing fund's annual ordinary earnings and
net capital gain, even if they are not distributed to the Fund; those amounts
would be subject to the distribution requirements applicable to the Fund
described above.
Income received by the Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Income tax
treaties between certain countries and the United States may reduce or eliminate
such taxes. It is impossible to determine in advance the effective rate of
foreign tax to which the Fund will be subject, since the amount of the Fund's
assets to be invested in various countries will vary, The Fund does not expect
to pass through to its shareholders any foreign income taxes paid.
Dividends and distributions may also be subject to state and local taxes.
Foreign shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund.
B-47
<PAGE>
PERFORMANCE INFORMATION
AVERAGE ANNUAL TOTAL RETURN. The Fund may from time to time advertise its
average annual total return. Average annual total return is determined
separately for Class A, Class B, Class C and Class Z shares.
Average annual total return is computed according to the following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1, 5 or 10 year periods at the end of the 1, 5 or
10 year periods (or fractional portion thereof).
Average annual total return takes into account any applicable initial or
contingent deferred sales charges but does not take into account any federal or
state income taxes that may be payable upon redemption.
Below are the average annual total returns for the Fund's share classes for
the periods ended December 31, 1998.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS 10 YEARS INCEPTION
------ ------- -------- ---------
<S> <C> <C> <C> <C>
Class A 4.56% 7.67% 9.03% 10.05% (7-7-86)
Class B 3.13 N/A N/A 7.22 (1-15-96)
Class C 6.05 N/A N/A 7.73 (1-15-96)
Class Z 9.07 N/A N/A 8.19 (3-17-97)
</TABLE>
Before January 15, 1996, the Fund was a closed-end investment
company.
AGGREGATE TOTAL RETURN. The Fund may also advertise its aggregate total
return. Aggregate total return is determined separately for the Class A, Class
B, Class C and Class Z shares.
Aggregate total return represents the cumulative change in the value of an
investment in the Fund and is computed according to the following formula:
ERV-P
-----
P
Where: P = a hypothetical initial payment of $1,000.
ERV = ending redeemable value at the end of the one, five
or ten year periods of a hypothetical $1,000 payment made at the beginning of
the 1, 5 or 10 year periods (or fractional portion thereof).
Aggregate total return does not take into account any federal or state
income taxes that may be payable upon redemption or any applicable initial or
contingent deferred sales charges.
Below are the aggregate total returns for the Fund's share classes for the
periods ended December 31, 1998.
<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS 10 YEARS INCEPTION
------ ------- -------- ---------
<S> <C> <C> <C> <C>
Class A 8.92% 50.69% 147.21% 244.44% (7-7-86)
Class B 8.13 N/A N/A 25.91 (1-15-96)
Class C 8.13 N/A N/A 25.92 (1-15-96)
Class Z 9.07 N/A N/A 15.13 (3-17-97)
</TABLE>
YIELD. The Fund may from time to time advertise its yield as calculated
over a 30-day period. Yield is calculated separately for Class A, Class B, Class
C and Class Z shares. The yield will be computed by dividing the Fund's net
investment income per share earned during this 30-day period by the maximum
offering price per share on the last day of this period. Yield is calculated
according to the following formula:
_ _
| 6 |
| ( a - b ) |
2 | ( ----- + 1 ) - 1 |
|_ ( cd ) _|
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of
the period.
B-48
<PAGE>
Yield fluctuates and an annualized yield quotation is not a representation
by the Fund as to what an investment in the Fund will actually yield for any
given period.
The Fund's 30-day yields for the 30 days ended December 31, 1998, were
4.75%, 4.34%, 4.31% and 5.11% for the Class A, Class B, Class C and Class Z
shares, respectively.
The Fund also may include comparative performance information in
advertising or marketing the Fund's shares. Such performance information may
include data from Lipper, Inc., Morningstar Publication, Inc., other industry
publications, business periodicals and market indices. Set forth below is a
chart which compares the performance of different types of investments over the
long term and the rate of inflation.(1)
<TABLE>
<CAPTION>
PERFORMANCE
COMPARISON OF DIFFERENT
TYPES OF INVESTMENTS
OVER THE LONG TERM
(1/1926 - 9/1998)
<S> <C>
Common Stocks 11.0%
Long-Term
Govt. Bonds 5.1%
Inflation 3.1%
</TABLE>
(1)Source: Ibbotson Associates. Used with permission. All rights reserved.
Common stock returns are based on the Standard & Poor's 500 Stock Index, a
market-weighted, unmanaged index of 500 common stocks in a variety of industry
sectors. It is a commonly used indicator of broad stock price movements. This
chart is for illustrative purposes only, and is not intended to represent the
performance of any particular investment or fund. Investors cannot invest
directly in an index. Past Performance is not a guarantee of future results.
B-49
<PAGE>
Portfolio of Investments as of
December 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. B-50
<PAGE>
Portfolio of Investments as of
December 31, 1998 THE GLOBAL TOTAL RETURN FUND, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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. B-51
<PAGE>
Portfolio of Investments as of
December 31, 1998 THE GLOBAL TOTAL RETURN FUND, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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. B-52
<PAGE>
Statement of Assets and Liabilities THE GLOBAL TOTAL RETURN FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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. B-53
<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. B-54
<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
- --------------------------------------------------------------------------------
B-55
<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
- --------------------------------------------------------------------------------
B-56
<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.
- --------------------------------------------------------------------------------
B-57
<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.
- --------------------------------------------------------------------------------
B-58
<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. B-59
<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. B-60
<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.
1177 Avenue of the Americas
New York, New York
February 16, 1999
- --------------------------------------------------------------------------------
B-61
<PAGE>
DESCRIPTION OF SECURITY RATINGS
MOODY'S INVESTORS SERVICE
BOND RATINGS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
SHORT-TERM DEBT RATINGS
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted.
PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This normally will
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
A-1
<PAGE>
STANDARD & POOR'S RATINGS GROUP
DEBT RATINGS
AAA: An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA: An obligation rated AA differs from the highest rated obligations only
in small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A: An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB: An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
BB, B, CCC, CC: OBLIGATIONS rated BB, B, CCC and CC are regarded as having
significant speculative characteristics. BB indicates the least degree of
speculation and CC the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
COMMERCIAL PAPER RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
A-1: This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-2
<PAGE>
APPENDIX I--GENERAL INVESTMENT INFORMATION
The following terms are used in mutual fund investing.
ASSET ALLOCATION
Asset allocation is a technique for reducing risk, providing balance.
Asset allocation among different types of securities within an overall
investment portfolio helps to reduce risk and to potentially provide stable
returns, while enabling investors to work toward their financial goal(s). Asset
allocation is also a strategy to gain exposure to better performing asset
classes while maintaining investment in other asset classes.
DIVERSIFICATION
Diversification is a time-honored technique for reducing risk, providing
"balance" to an overall portfolio and potentially achieving more stable returns.
Owning a portfolio of securities mitigates the individual risks (and returns) of
any one security. Additionally, diversification among types of securities
reduces the risks and (general returns) of any one type of security.
DURATION
Debt securities have varying levels of sensitivity to interest rates. As
interest rates fluctuate, the value of a bond (or a bond portfolio) will
increase or decrease. Longer term bonds are generally more sensitive to changes
in interest rates. When interest rates fall, bond prices generally rise.
Conversely, when interest rates rise, bond prices generally fall.
Duration is an approximation of the price sensitivity of a bond (or a bond
portfolio) to interest rate changes. It measures the weighted average maturity
of a bond's (or a bond portfolio's) cash flows, i.e., principal and interest
rate payments. Duration is expressed as a measure of time in years--the longer
the duration of a bond (or a bond portfolio), the greater the impact of interest
rate changes on the bond's (or the bond portfolio's) price. Duration differs
from effective maturity in that duration takes into account call provisions,
coupon rates and other factors. Duration measures interest rate risk only and
not other risks, such as credit risk and, in the case of non-U.S. dollar
denominated securities, currency risk. Effective maturity measures the final
maturity dates of a bond (or a bond portfolio).
MARKET TIMING
Market timing--buying securities when prices are low and selling them when
prices are relatively higher--may not work for many investors because it is
impossible to predict with certainty how the price of a security will fluctuate.
However, owning a security for a long period of time may help investors offset
short-term price volatility and realize positive returns.
POWER OF COMPOUNDING
Over time, the compounding of returns can significantly impact investment
returns. Compounding is the effect of continuous investment on long-term
investment results, by which the proceeds of capital appreciation (and income
distributions, if elected) are reinvested to contribute to the overall growth of
assets. The long-term investment results of compounding may be greater than that
of an equivalent initial investment in which the proceeds of capital
appreciation and income distributions are taken in cash.
STANDARD DEVIATION
Standard deviation is an absolute (non-relative) measure of volatility
which, for a mutual fund, depicts how widely the returns varied over a certain
period of time. When a fund has a high standard deviation, its range of
performance has been very wide, implying greater volatility potential. Standard
deviation is only one of several measures of a fund's volatility.
I-1
<PAGE>
APPENDIX II--HISTORICAL PERFORMANCE DATA
The historical performance data contained in this Appendix relies on data
obtained from statistical services, reports and other services believed by the
Manager to be reliable. The information has not been independently verified by
the Manager.
This chart shows the long-term performance of various asset classes and
the rate of inflation.
[GRAPHICAL REPRESENTATION OF LINE CHART]
<TABLE>
<CAPTION>
VALUE OF $1.00 INVESTED ON 1/1/26 THROUGH 12/31/98
<S> <C>
Small Stocks $5,116.95
Common Stocks $2,350.89
Long-Term Bonds $44.18
Treasury Bills $14.94
Inflation $9.16
</TABLE>
Source: Ibbotson Associates. Used with permission. This chart is for
illustrative purposes only and is not indicative of the past, present or future
performance of any asset class or any Prudential Mutual Fund.
Generally, stock returns are due to capital appreciation and the reinvestment of
any gains. Bond returns are due to reinvesting interest. Also, stock prices
usually are more volatile than bond prices over the long-term. Small stock
returns for 1926-1980 are those of stocks comprising the 5th quintile of the New
York Stock Exchange. Thereafter, returns are those of the Dimensional Fund
Advisors (DFA) Small Company Fund. Common stock returns are based on the S&P
Composite Index, a market-weighted, unmanaged index of 500 stocks (currently) in
a variety of industries. It is often used as a broad measure of stock market
performance.
Long-term government bond returns are measured using a constant one-bond
portfolio with a maturity of roughly 20 years. Treasury bill returns are for a
one-month bill. Treasuries are guaranteed by the government as to the timely
payment of principal and interest; equities are not. Inflation is measured by
the consumer price index (CPI).
II-1
<PAGE>
Set forth below is historical performance data relating to various sectors
of the fixed-income securities markets. The chart shows the historical total
returns of U.S. Treasury bonds, U.S. mortgage securities, U.S. corporate bonds,
U.S. high yield bonds and world government bonds on an annual basis from 1988
through 1998. The total returns of the indices include accrued interest, plus
the price changes (gains or losses) of the underlying securities during the
period mentioned. The data is provided to illustrate the varying historical
total returns and investors should not consider this performance data as an
indication of the future performance of the Fund or of any sector in which the
Fund invests.
All information relies on data obtained from statistical services, reports
and other services believed by the Manager to be reliable. Such information has
not been verified. The figures do not reflect the operating expenses and fees of
a mutual fund. See "Risk/Return Summary--Fees and Expenses" in the prospectus.
The net effect of the deduction of the operating expenses of a mutual fund on
these historical total returns, including the compounded effect over time, could
be substantial.
HISTORICAL TOTAL RETURNS OF DIFFERENT BOND MARKET SECTORS
<TABLE>
<CAPTION>
YEAR 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
Treasury
Bonds(1) 7.0% 14.4% 8.5% 15.3% 7.2% 10.7% (3.4)% 18.4% 2.7% 9.6% 10.0%
- -------------------------------------------------------------------------------------------------------------
U.S. Government
Mortgage
Securities(2) 8.7% 15.4% 10.7% 15.7% 7.0% 6.8% (1.6)% 16.8% 5.4% 9.5% 7.0%
- -------------------------------------------------------------------------------------------------------------
U.S. Investment Grade
Corporate Bonds(3) 9.2% 14.1% 7.1% 18.5% 8.7% 12.2% (3.9)% 22.3% 3.3% 10.2% 8.6%
- -------------------------------------------------------------------------------------------------------------
U.S. High Yield
Bonds(4) 12.5% 0.8% (9.6)% 46.2% 15.8% 17.1% (1.0)% 19.2% 11.4% 12.8% 1.6%
- -------------------------------------------------------------------------------------------------------------
World Government
Bonds(5) 2.3% (3.4)% 15.3% 16.2% 4.8% 15.1% 6.0% 19.6% 4.1% (4.3)% 5.3%
- -------------------------------------------------------------------------------------------------------------
Difference between
highest and lowest
returns percent 10.2% 18.8% 24.9% 30.9% 11.0% 10.3% 9.9% 5.5% 8.7% 17.1% 8.4%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) LEHMAN BROTHERS TREASURY BOND INDEX is an unmanaged index made up of over
150 public issues of the U.S. Treasury having maturities of at least one year.
(2) LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX is an unmanaged index that
includes over 600 15- and 30-year fixed-rate mortgage-backed securities of the
Government National Mortgage Association (GNMA), Federal National Mortgage
Association (FNMA), and the Federal Home Loan Mortgage Corporation (FHLMC).
(3) LEHMAN BROTHERS CORPORATE BOND INDEX includes over 3,000 public fixed-rate,
nonconvertible investment-grade bonds. All bonds are U.S. dollar-denominated
issues and include debt issued or guaranteed by foreign sovereign governments,
municipalities, governmental agencies or international agencies. All bonds in
the index have maturities of at least one year.
(4) LEHMAN BROTHERS HIGH YIELD BOND INDEX is an unmanaged index comprising over
750 public, fixed-rate, nonconvertible bonds that are rated Ba1 or lower by
Moody's Investors Service (or rated BB+ or lower by Standard & Poor's or Fitch
Investors Service). All bonds in the index have maturities of at least one year.
Source: Lipper Inc.
(5) SALOMON SMITH BARNEY BROTHERS WORLD GOVERNMENT INDEX (NON U.S.) includes
over 800 bonds issued by various foreign governments or agencies, excluding
those in the U.S., but including those in Japan, Germany, France, the U.K.,
Canada, Italy, Australia, Belgium, Denmark, the Netherlands, Spain, Sweden, and
Austria. All bonds in the index have maturities of at least one year.
II-2
<PAGE>
This chart illustrates the performance of major world stock markets for the
period from 12/31/85 through 12/31/98. It does not represent the performance of
any Prudential Mutual Fund.
AVERAGE ANNUAL TOTAL RETURNS OF MAJOR WORLD STOCK
MARKETS 12/31/85-12/31/98 (IN U.S. DOLLARS)
<TABLE>
<S> <C>
Belgium 22.7%
Spain 22.5%
The Netherlands 20.8%
Sweden 19.9%
Switzerland 18.3%
USA 18.1%
Hong Kong 17.8%
France 17.4%
UK 16.7%
Germany 13.4%
Austria 8.9%
Japan 6.5%
</TABLE>
Source: Morgan Stanley Capital International (MSCI) and Lipper Inc. as of
12/31/98. Used with permission. Morgan Stanley Country indices are unmanaged
indices which include those stocks making up the largest two-thirds of each
country's total stock market capitalization. Return reflect the reinvestment of
all distributions. This chart is for illustrative purposes only and is not
indicative of the past, present or future performance of any specific
investment. Investors cannot invest directly in stock indices.
This chart shows the growth of a hypothetical $10,000 investment made in the
stocks representing the S&P 500 stock index with and without reinvested
dividends.
<TABLE>
<S> <C> <C>
450000
400000
350000 Capital Appreciation and Reinvesting Dividends $391,707
300000 Capital Appreciation only $133,525
250000
200000
150000
100000
50000
0
</TABLE>
1969 1973 1977 1980 1984 1988 1991 1994 1998
Source: Lipper Inc. Used with permission. All rights reserved. This chart is
used for illustrative purposes only and is not intended to represent the past,
present or future performance of any Prudential Mutual Fund. Common stock total
return is based on the Standard & Poor's 500 Stock Index, a
market-value-weighted index made up of 500 of the largest stocks in the U.S.
based upon their stock market value. Investors cannot invest directly in
indices.
WORLD STOCK MARKET CAPITALIZATION BY REGION
<TABLE>
World Total: $15.8 Trillion
<S> <C>
Canada 1.8%
Pacific Basin 12.5%
U.S. 51.0%
Europe 34.7%
</TABLE>
Source: Morgan Stanley Capital International December 31, 1998. Used with
permission. This chart represents the capitalization of major world stock
markets as measured by the Morgan Stanley Capital International (MSCI) World
Index. The total market capitalization is based on the value of approximately
1577 companies in 22 countries (representing approximately 60% of the aggregate
market value of the stock exchanges). This chart is for illustrative purposes
only and does not represent the allocation of any Prudential Mutual Fund.
II-3
<PAGE>
This chart below shows the historical volatility of general interest rates
as measured by the long U.S. Treasury Bond.
LONG TERM U.S. TREASURY BOND YIELD IN PERCENT (1926-1998)
[GRAPHICAL REPRESENTATION OF LINE CHART]
Source: Ibbotson Associates, Chicago (annually updates work by Roger G. Ibbotson
and Rex A. Sinquefield). Used with permission. All rights reserved. The chart
illustrates the historical yield of the long-term U.S. Treasury Bond from
1926-1997. Yields represent that of an annually renewed one-bond portfolio with
a remaining maturity of approximately 20 years. This chart is for illustrative
purposes and should not be construed to represent the yields of any Prudential
Mutual Fund.
II-4
<PAGE>
APPENDIX III--INFORMATION RELATING TO PRUDENTIAL
Set forth below is information relating to The Prudential Insurance
Company of America (Prudential) and its subsidiaries as well as information
relating to the Prudential Mutual Funds. See "How the Fund is Managed--Manager"
in the Prospectus. The data will be used in sales materials relating to the
Prudential Mutual Funds. Unless otherwise indicated, the information is as of
December 31, 1997 and is subject to change thereafter. All information relies on
data provided by The Prudential Investment Corporation (PIC) or from other
sources believed by the Manager to be reliable. Such information has not been
verified by the Fund.
INFORMATION ABOUT PRUDENTIAL
The Manager and PIC(1) are subsidiaries of Prudential, which is one of the
largest diversified financial services institutions in the world and, based on
total assets, the largest insurance company in North America as of December 31,
1997. Principal products and services include life and health insurance, other
healthcare products, property and casualty insurance, securities brokerage,
asset management, investment advisory services and real estate brokerage.
Prudential (together with its subsidiaries) employs more than 81,000 persons
worldwide, and maintains a sales force of approximately 10,100 agents and 6,500
domestic and international financial advisors. Prudential is a major issuer of
annuities, including variable annuities. Prudential seeks to develop innovative
products and services to meet consumer needs in each of its business areas.
Prudential uses the rock of Gibraltar as its symbol. The Prudential rock is a
recognized brand name throughout the world.
INSURANCE. Prudential has been engaged in the insurance business since
1875. It insures or provides financial services to nearly 40 million people
worldwide. Long one of the largest issuers of life insurance, the Prudential has
25 million life insurance policies in force today with a face value of almost $1
trillion. Prudential has the largest capital base ($12.1 billion) of any life
insurance company in the United States. Prudential provides auto insurance for
more than 1.5 million cars and insures more than 1.2 million homes.
MONEY MANAGEMENT. Prudential is one of the largest pension fund managers
in the country, providing pension services to 1 in 3 Fortune 500 firms. It
manages $36 billion of individual retirement plan assets, such as 401(k) plans.
As of December 31, 1997, Prudential had more than $370 billion in assets under
management. Prudential Investments, a business group of Prudential (of which
Prudential Mutual Funds is a key part), manages over $211 billion in assets of
institutions and individuals. In INSTITUTIONAL INVESTOR, JULY 1998, Prudential
was ranked eighth in terms of total assets under management as of December 31,
1997.
REAL ESTATE. The Prudential Real Estate Affiliates is one of the leading
real estate residential and commercial brokerage networks in North America and
has more than 37,000 real estate brokers and agents with over 1,100 offices
across the United States.(2)
HEALTHCARE. Over two decades ago, Prudential introduced the first
federally-funded, for-profit HMO in the country. Today, approximately 4.9
million Americans receive healthcare from a Prudential managed care
membership.(3)
FINANCIAL SERVICES. The Prudential Savings Bank FSB, a wholly-owned
subsidiary of the Prudential, has nearly $1 billion in assets and serves nearly
1.5 million customers across 50 states.
INFORMATION ABOUT THE PRUDENTIAL MUTUAL FUNDS
As of October 30, 1997 Prudential Investments Fund Management was the 18th
largest mutual fund company in the country, with over 2.5 million shareholders
invested in more than 50 mutual fund portfolios and variable annuities with more
than 3.7 million shareholder accounts.
The Prudential Mutual Funds have over 30 portfolio managers who manage
over $55 billion in mutual fund and variable annuity assets. Some of
Prudential's portfolio managers have over 20 years of experience managing
investment portfolios.
From time to time, there may be media coverage of portfolio managers and
other investment professionals associated with the Manager and the Subadviser in
national and regional publications, on television and in other media.
Additionally, individual mutual fund portfolios are frequently cited in surveys
conducted by national and regional publications and media organizations such as
THE WALL STREET JOURNAL, THE NEW YORK TIMES, BARRON'S and USA TODAY.
- ----------
(1) PIC serves as the Subadviser to substantially all of the Prudential Mutual
Funds. Wellington Management Company serves as the subadviser to Global
Utility Fund, Inc., Nicholas-Applegate Capital Management as the subadviser
to Nicholas-Applegate Fund, Inc., Jennison Associates LLC as one of the
subadvisers to The Prudential Investment Portfolios, Inc. and Mercator Asset
Management LP, as the subadviser to International Stock Series, a portfolio
of Prudential World Fund, Inc. There are multiple subadvisers for The Target
Portfolio Trust.
(2) As of December 31, 1996.
(3) On December 10, 1998 Prudential announced its intention to sell Prudential
Health Care to Aetna Inc. for $1 billion.
III-1
<PAGE>
EQUITY FUNDS. Prudential Equity Fund is managed with a "value" investment
style by PIC. In 1995, Prudential Securities introduced Prudential Jennison
Growth Fund, a growth-style equity fund managed by Jennison Associates LLC, a
premier institutional equity manager and a subsidiary of Prudential.
HIGH YIELD FUNDS. Investing in high yield bonds is a complex and research
intensive pursuit. A separate team of high yield bond analysts monitor
approximately 200 issues held in the Prudential High Yield Fund (one of the
largest funds of its kind in the country) along with 100 or so other high yield
bonds, which may be considered for purchase.(4) Non-investment grade bonds, also
known as junk bonds or high yield bonds, are subject to a greater risk of loss
of principal and interest including default risk than higher-rated bonds.
Prudential high yield portfolio managers and analysts meet face-to-face with
almost every bond issuer in the High Yield Fund's portfolio annually, and have
additional telephone contact throughout the year.
Prudential's portfolio managers are supported by a large and sophisticated
research organization. Investment grade bond analysts monitor the financial
viability of approximately 1,750 different bond issuers in the investment grade
corporate and municipal bond markets--from IBM to small municipalities, such as
Rockaway Township, New Jersey. These analysts consider among other things
sinking fund provisions and interest coverage ratios.
Prudential's portfolio managers and analysts receive research services
from almost 200 brokers and market service vendors. They also receive nearly 100
trade publications and newspapers--from PULP AND PAPER FORECASTER to WOMEN'S
WEAR DAILY--to keep them informed of the industries they follow.
Prudential Mutual Funds' traders scan over 100 computer monitors to
collect detailed information on which to trade. From natural gas prices in the
Rocky Mountains to the results of local municipal elections, a Prudential
portfolio manager or trader is able to monitor it if it's important to a
Prudential Mutual Fund.
Prudential Mutual Funds trade billions in U.S. and foreign government
securities a year. PIC seeks information from government policy makers.
Prudential's portfolio managers have met with several senior U.S. and foreign
government officials, on issues ranging from economic conditions in foreign
countries to the viability of index-linked securities in the United States.
INFORMATION ABOUT PRUDENTIAL SECURITIES
Prudential Securities is the fifth largest retail brokerage firm in the
United States with approximately 6,000 financial advisors. It offers to its
clients a wide range of products, including Prudential Mutual Funds and
Annuities. As of December 31, 1998, assets held by Prudential Securities for its
clients approximated $268 billion. During 1998, over 31,000 new customer
accounts were opened each month at Prudential Securities.(5)
Prudential Securities has a two-year Financial Advisor training program
plus advanced education programs, including Prudential Securities "university,"
which provides advanced education in a wide array of investment and financial
planning areas.
In addition to training, Prudential Securities provides its financial
advisors with access to firm economists and market analysts. It has also
developed proprietary tools for use by financial advisors, including the
Financial ArchitectsSM, a state-of-the-art asset allocation software program
which helps Financial Advisors to evaluate a client's objectives and overall
financial plan, and a comprehensive mutual fund information and analysis system
that compares different mutual funds.
For more complete information about any of the Prudential Mutual Funds,
including charges and expenses, call your Prudential Securities financial
advisor or Pruco/Prudential representative for a free prospectus. Read it
carefully before you invest or send money.
- ----------
(4) As of December 31, 1997. The number of bonds and the size of the Fund are
subject to change.
(5) As of December 31, 1998.
III-2
<PAGE>
ANNUAL REPORT OF
TOTAL RETURN FUND
FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1998
<PAGE>
(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.
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
<PAGE>
ANNUAL REPORT OF LIMITED MATURITY FUND
FOR FISCAL YEAR
ENDED OCTOBER 31, 1998
<PAGE>
(ICON)
Prudential
Global
Limited
Maturity
Fund, Inc.
- ----------------
Limited Maturity
Portfolio
ANNUAL
REPORT
Oct. 31, 1998
(LOGO)
<PAGE>
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Performance At A Glance.
Government securities such as those of Germany and the U.S. rallied during the
year ended October 31, 1998 as a financial crisis spread beyond Asia to global
stock, bond and currency markets. While your Prudential Global Limited Maturity
Fund, Inc. -- Limited Maturity Portfolio held German bonds and U.S. Treasuries,
its returns trailed the average global income fund as measured by Lipper, Inc.
The Fund is restricted to holding short- and intermediate-term debt securities.
These securities rallied modestly but the Lipper average performed better since
some of its funds invested in longer term bonds, which posted stronger gains.
The Fund also held emerging market bonds that declined in value.
Cumulative Total Returns1 As of 10/31/98
<TABLE>
<CAPTION>
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A 3.01% 25.27% 49.38%
Class B 2.48 21.85 41.57
Class C 2.48 N/A 26.07
Class Z 3.28 N/A 6.93
Lipper Global Inc
Fund Avg.3 4.28 30.23 ***
</TABLE>
Average Annual Total Returns1 As of 9/30/98
<TABLE>
<CAPTION>
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A -1.36% 4.19% 4.76%
Class B -1.83 4.22 4.46
Class C 0.17 N/A 5.65
Class Z 1.83 N/A 3.80
</TABLE>
Distributions and Yields As of 10/31/98
<TABLE>
<CAPTION>
Total Distributions 30-Day
Paid for 12 Mos. SEC Yield
<S> <C> <C>
Class A $0.86 7.64%
Class B $0.80 7.26
Class C $0.80 7.27
Class Z $0.87 8.02
</TABLE>
Past performance is not indicative of future results. Principal and investment
return will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
1 Source: Prudential 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 3% for Class A shares. Class B
shares are subject to a declining contingent deferred sales charge (CDSC) of
3%, 2%, 1% and 1% for four years. Class B shares will automatically convert to
Class A shares, on a quarterly basis, approximately five years after purchase.
As of November 2, 1998, Class C shares carry a front-end sales charge of 1%
and a CDSC of 1% for 18 months. Class Z shares are not subject to a sales
charge or distribution fee.
2 Inception dates: Class A and B, 11/1/90; Class C, 8/1/94; Class Z, 1/27/97.
3 Lipper average returns are for all funds in each share class for the one- and
five-year periods in the Global Income Fund category.
***Lipper Since Inception returns are74.45% for Class A and Class B, 37.49%
for Class C, and 8.26% for Class Z based on all funds in each share class.
How Investments Compared.
(As of 10/31/98)
(GRAPH)
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 returns means tolerating more risk. The greater the risk, the
larger the potential reward or loss. In addition, we've included historical
20-year average annual returns. These returns assume the reinvestment of
dividends.
U.S. Growth Funds will fluctuate a great deal. Investors have received higher
historical total returns from stocks than from most other investments. Smaller
capitalization stocks offer greater potential for long-term growth but may be
more volatile than larger capitalization stocks.
General Bond Funds provide more income than stock funds, which can help smooth
out their total returns year by year. But their prices still fluctuate
(sometimes significantly) and their returns have been historically lower than
those of stock funds.
General Municipal Debt Funds invest in bonds issued by state governments,
state agencies and/or municipalities. This investment provides income that is
usually exempt from federal and state income taxes.
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
The Fund seeks total return by investing primarily in debt securities
denominated in the U.S. dollar and a range of foreign currencies. The Fund's
weighted average maturity ranges from more than two but less than five years,
with each security generally maturing in no more than 10 years. The Fund may
invest up to 20% of total investments in securities rated below investment
grade, but with a minimum rating of single-B by Moody's Investors Service or
Standard & Poor's Ratings Services or another nationally recognized credit
rating organization. The Fund is nondiversified, meaning it may invest more
than five percent of its total assets in the securities of one or more
issuers. This carries greater risk and greater share price volatility than
investments held in a more diversified portfolio.
Record Rally.
Prices of German government securities climbed sharply as investors favored
bonds that could easily be sold at their true value despite the turbulent
market conditions of the past 12 months. The 10-year German government bond
yield, which falls as bond prices rise, reached a record low of 3.74% in early
October of 1998.
Strategy Session.
Financial woes that first emerged in East Asia in 1997 grew into a global
crisis during the fiscal year. At the crux of the problem were poorly
regulated Asian banks and finance companies that lent freely on risky
projects. With local and foreign institutions pumping money into the region,
some Asian economies expanded rapidly and prices of assets such as real estate
and stocks soared. But these financial bubbles burst last year, spreading a
contagion that infected world stock, bond and currency markets. Investors
sought refuge in government securities of Western European countries and the
U.S.
The global financial crisis seemed to have eased early in the spring of 1998.
But the situation deteriorated in August as Russia succumbed to the financial
contagion, leaving investors to wonder if Latin America would be next. Soon
after, global equity markets crumbled and a severe contraction in liquidity
occurred as lenders and investors were reluctant to provide businesses with
money.
Such turbulent market conditions fueled a renewed stampede into "safe haven"
securities. To reassure investors, the Federal Reserve lowered the federal
funds rate (the rate banks charge each other to borrow money overnight) by a
quarter percentage point to 5.25% in late September. But disappointment over
this modest change stirred such great demand for Treasuries that the 30-year
Treasury bond yield, which falls when bond prices rise, slid to 4.71% in early
October. This was the lowest level in more than 30 years. Then the federal
funds rate was unexpectedly cut to 5.00%. The unusual timing of this move
(between the Federal Reserve's regularly scheduled meetings) helped convince
investors that the central bank would do what it could to prevent a recession
in the U.S. that could damage an already-fragile global economy.
Portfolio Composition.
Sectors expressed as a percentage of
total investments as of 10/31/98.
(PIE CHART)
<PAGE>
What Went Well.
A Wise Choice.
Focusing on top-quality government bonds proved to be a very wise choice since
global financial markets remained volatile. During the final months of the
fiscal year, the greatest concern in the bond markets was about the lack of
liquidity rather than the risk of default or the future direction of interest
rates. This lack of liquidity meant there was little trading in the market
except in the most popular securities such as U.S. Treasuries and German
government bonds. For example, the difference between buy and sell prices of
emerging market bonds widened significantly, indicating that some investors
were not willing to take a chance on these riskier debt securities.
We had increased bonds denominated in the German currency to nearly 15% of the
Portfolio's total investments as of October 31, 1998 from 6% a year earlier.
Of these, German government bonds rallied strongly as investors dumped stocks
and bought good quality securities amid fear that a downturn in the world
economy would crimp corporate profits. In early October of 1998, this flight
to quality drove down the 10-year German government bond yield to a record
low of 3.74%. Not surprisingly, this historic level was reached right around
the same time that the 30-year U.S. Treasury bond yield fell to its lowest
level in 30 years. Bonds denominated in the U.S. dollar comprised more than
30% of the Portfolio's total investments throughout the 12-month period.
We also held small positions in government bonds of Poland (1.3%) and Greece
(3.0%) as of October 31, 1998 that performed well. Anticipation that Poland
will join the European union and Greece will meet its goal of joining the
single European currency in 2001 buoyed prices of these bonds.
And Not So Well.
Maturity Restrictions.
During a strong rally, the Portfolio's returns tend to lag the Lipper average
because we are required to primarily hold bonds maturing in 10 years or less.
These bonds gain less than longer term bonds of comparable credit quality as
interest rates fall. Therefore, the Portfolio's returns reflected modest gains
in the prices of short- and intermediate-term bonds, while the Lipper average
included funds that benefitted from the sharp rally in long-term bonds. (Keep
in mind, however, the Portfolio also exhibits defensive characteristics when
interest rates rise because short- and intermediate-term bond prices generally
tumble less than prices of bonds with longer maturities.)
Another factor that hurt the Portfolio's performance was its modest holdings
of Russian Finance Ministry bonds. They took a beating after that nation's
stock, bond and currency markets collapsed during the summer.
Five Largest Issuers.
19.5% U.S. Treasury Bonds
8.8% German Gov't Bonds
6.8% Danish Gov't Bonds
6.3% Queensboro Treasury
Corp. Gov't Bonds
5.5% Spanish Gov't Bonds
Expressed as a percentage of net assetsas of 10/31/98.
Looking Ahead.
We believe the global economy will continue to slow in 1999. Japan remains
mired in a recession. In the West, the German and French economies will
probably grow more slowly than expected; the U.K. may be headed toward
recession and many U.S. manufacturing companies are admittedly worried about
their business prospects. If this scenario unfolds next year, inflation should
remain low, interest rates fall and bond prices rise further, at least among
core government bond markets such as the U.S., France, Germany and the U.K.
In the emerging markets, however, our outlook remains guarded. Latin American
bond prices could decline if governments and corporations that were unable to
borrow money in the bond markets during the fourth quarter issue a flood of
debt securities in the new year.
- -------------------------------------------------------------------------------
1
<PAGE>
President's Letter December 18, 1998
(PHOTO)
Dear Shareholder:
As 1998 draws to a close, the news from the financial markets is decidedly
mixed. After a series of sharp sell-offs in late summer, some stock prices
began to rebound in early fall, helped by three interest rate cuts by the
Federal Reserve.
There was other good news. U.S. Treasuries and Western European bonds
appreciated during the year as investors fled troubled Asian markets and other
emerging markets. The U.S. economy remained strong with steady growth and low
inflation.
The periods of uncertainty we experienced in 1998 illustrate why it is
important to manage your expectations and diversify your portfolio.
Keep A Good Perspective.
Experienced mutual fund investors understand that financial markets will
always rise and fall - that's what markets do. Although past performance may
not be indicative of future results, stocks and bonds have, over time,
consistently produced attractive returns that have kept ahead of inflation.
In fact, investors who remained focused on the long term and did not sell
during summer's volatility were rewarded. Stock prices, as measured by the
Standard & Poor's 500 Index, recovered strongly in November regaining lost
ground and even setting a new record high.
Diversify. Diversify. Diversify.
Because asset classes seldom move in lockstep, owning a mix of stock, bond,
and money market mutual funds can help lessen the effects of a market
downturn over time. In fact, a well-diversified portfolio may retain or
perhaps even gain value during times of uncertainty.
We're Here To Help.
How diversified is your portfolio? Your Prudential professional will be glad
to review your current allocations. He or she will recommend adjustments
based upon your goals, market conditions, risk tolerance, and potential
investment opportunities.
Thank you for your confidence in Prudential mutual funds. We'll continue to do
our part in keeping you informed.
Sincerely,
Brian M. Storms
President
- -------------------------------------------------------------------------------
2
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
Portfolio of Investments as of October 31, 1998 LIMITED MATURITY PORTFOLIO
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal US$
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--85.0%
- ------------------------------------------------------------
Australia--10.1%
A$ 3,750 Federal National Mortgage
Association,
6.375%, 8/15/07 $ 2,477,437
6,000 Queensland Treasury Corporation,
8.00%, 5/14/03 4,202,212
-----------
6,679,649
- ------------------------------------------------------------
Canada--4.7%
C$ 2,000 British Columbia Municipal Fin.
Auth.,
6.75%, 4/24/07 1,386,734
2,500 Province of Quebec,
6.50%, 10/1/07 1,697,052
-----------
3,083,786
- ------------------------------------------------------------
Denmark--6.8%
DKr 25,000 Danish Government Bonds,
7.00%, 12/15/04 4,511,015
- ------------------------------------------------------------
Germany--14.6%
DM 7,000 Deutsche Bundesrepublik Principal
Strip,
Zero Coupon, 7/4/07 2,936,999
4,250 German Government Bonds,
6.00%, 1/5/06 2,863,698
3,000 Republic of Columbia,
7.25%, 12/21/00 1,763,321
3,000 Tokyo Gas Co. Ltd.,
7.00%, 7/27/05 2,085,035
-----------
9,649,053
- ------------------------------------------------------------
Greece--3.0%
Hellenic Republic,
GRD 200,000 11.00%, 11/26/99 695,278
40,000 9.20%, 3/21/02 141,329
325,000 12.70%, 12/31/03, FRN 1,151,189
-----------
1,987,796
Hungary--0.4%
HUF 50,000 Hungarian Government Bonds,
16.00%, 4/12/00 $ 228,985
- ------------------------------------------------------------
Netherlands--2.2%
NLG 2,500 Dutch Government Bonds,
6.50%, 4/15/03 1,486,414
- ------------------------------------------------------------
New Zealand--4.5%
NZ$ 2,800 Federal National Mortgage
Association,
7.25%, 6/20/02 1,534,829
1,400 Int'l. Bank Recon. & Dev.,
7.25%, 5/27/03 768,895
1,200 New Zealand Government Bonds,
8.00%, 4/15/04 713,948
-----------
3,017,672
- ------------------------------------------------------------
Russia--0.1%
European Bank Recon. & Dev.,
Rub 2,200 31.00%, 5/5/00 13,174
3,500 Zero Coupon, 5/28/02 7,335
-----------
20,509
- ------------------------------------------------------------
Spain--5.5%
Spanish Government Bonds,
Pts 200,000 10.30%, 6/15/02 1,731,629
225,000 8.00%, 5/30/04 1,909,745
-----------
3,641,374
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
Portfolio of Investments as of October 31, 1998 LIMITED MATURITY PORTFOLIO
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal US$
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Sweden--2.7%
SEK 13,000 Swedish Government Bonds,
6.00%, 2/9/05 $ 1,809,068
- ------------------------------------------------------------
United Kingdom--3.5%
BP 447 Banco Central Del Uruguay, FRN,
8.875%, 2/19/07 642,026
900 Powergen PLC,
8.875%, 3/26/03 1,639,056
-----------
2,281,082
- ------------------------------------------------------------
United States--26.9%
Central Banks--1.1%
US$ 750 Banco del Estado Chile,
8.39%, 8/1/01 746,295
- ------------------------------------------------------------
Sovereign Bonds--5.6%
500 Jamaican Government Bonds,
9.625%, 7/2/02 400,000
Ministry of Finance (Russia),
600 9.25%, 11/27/01 172,800
1,000 10.00%, 6/26/07 241,250
1,466 Republic of Croatia, FRN,
6.5625%, 7/31/06 1,069,989
400 Republic of Lithuania,
7.125%, 7/22/02 360,000
500 Sultan of Oman,
7.125%, 3/20/02 505,000
1,015 Trinidad & Tobago Republic,
9.75%, 11/3/00 982,013
-----------
3,731,052
Supranational Bonds--0.7%
US$ 500 Corporacion Andina de Formento,
6.1625%, 4/3/01 $ 490,000
- ------------------------------------------------------------
U.S. Government Obligations--19.5%
United States Treasury Bonds,
4,750 6.125%, 9/30/00 4,904,375
1,000 7.875%, 11/15/04 1,175,780
1,000 5/15/05, P/O 739,330
5,500 6.25%, 2/15/07 6,099,830
-----------
12,919,315
-----------
17,886,662
-----------
Total long-term investments
(cost US$57,978,825) 56,283,065
-----------
- ------------------------------------------------------------
SHORT-TERM INVESTMENTS--13.2%
- ------------------------------------------------------------
Hungary--1.4%
Hungarian Government Bonds,
HUF 65,000 16.50%, 4/12/99 298,800
130,000 16.50%, 7/24/99 598,188
-----------
896,988
- ------------------------------------------------------------
Netherlands--1.6%
NLG 2,000 Republic of Argentina,
7.625%, 7/5/99 1,027,975
- ------------------------------------------------------------
Poland--1.3%
Polish Treasury Bills,
PLN 1,700 15.30%, 2/17/99 469,788
600 15.25%, 3/3/99 164,755
900 15.25%, 4/28/99 240,374
-----------
874,917
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 4
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
LIMITED MATURITY PORTFOLIO
Portfolio of Investments as of October 31, 1998
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal US$
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
United States--2.9%
US$ 1,000 Cadbury Schweppes, PLC,
6.25%, 10/4/99 $ 1,009,500
1,000 Petroleas Mexicano, FRN,
6.59375%, 3/8/99 987,000
-----------
1,996,500
- ------------------------------------------------------------
Repurchase Agreement--6.0%
3,956 Joint Repurchase Agreement
Account,
5.40%, 11/2/98, (Note 5) 3,956,000
-----------
Total short-term investments
(cost US$8,923,920) 8,752,380
-----------
- ------------------------------------------------------------
Total Investments--98.2%
(cost US$66,902,745; Note 4) 65,035,445
Other assets in excess of
liabilities--1.8% 1,163,701
-----------
Net Assets--100% $66,199,146
-----------
-----------
</TABLE>
- ---------------
Portfolio securities are classified by country according to the security's
currency denomination.
FRN--Floating Rate Note.
P/O--Principal Only.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
Statement of Assets and Liabilities LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
Assets October 31, 1998
<S> <C>
Investments, at value (cost $66,902,745).................................................................. $ 65,035,445
Foreign currency, at value (cost $693).................................................................... 725
Cash...................................................................................................... 918
Interest receivable....................................................................................... 1,706,869
Forward currency contracts--net amount receivable from counterparties..................................... 33,575
Other assets.............................................................................................. 2,346
----------------
Total assets........................................................................................... 66,779,878
----------------
Liabilities
Accrued expenses.......................................................................................... 211,379
Payable for Fund shares reacquired........................................................................ 147,287
Dividends payable......................................................................................... 119,982
Forward currency contracts - net amount payable to counterparties......................................... 60,939
Management fee payable.................................................................................... 31,222
Distribution fee payable.................................................................................. 9,324
Withholding taxes payable................................................................................. 599
----------------
Total liabilities...................................................................................... 580,732
----------------
Net Assets................................................................................................ $ 66,199,146
----------------
----------------
Net assets were comprised of:
Common stock, at par................................................................................... $ 8,481
Paid-in capital in excess of par....................................................................... 120,850,582
----------------
120,859,063
Distributions in excess of net investment income....................................................... (93,217)
Accumulated net realized loss on investments........................................................... (52,716,140)
Net unrealized depreciation on investments and foreign currencies...................................... (1,850,560)
----------------
Net assets, October 31, 1998.............................................................................. $ 66,199,146
----------------
----------------
Class A:
Net asset value and redemption price per share
($64,537,552 / 8,269,780 shares of common stock issued and outstanding)............................. $7.80
Maximum sales charge (3.00% of offering price)......................................................... .24
----------------
Maximum offering price to public....................................................................... $8.04
----------------
----------------
Class B:
Net asset value, offering price and redemption price per share
($1,561,964 / 198,916 shares of common stock issued and outstanding)................................ $7.85
----------------
----------------
Class C:
Net asset value, offering price and redemption price per share
($50,932 / 6,486 shares of common stock issued and outstanding)..................................... $7.85
----------------
----------------
Class Z:
Net asset value, offering price and redemption price per share
($48,698 / 6,212 shares of common stock issued and outstanding)..................................... $7.84
----------------
----------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 6
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
LIMITED MATURITY PORTFOLIO
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income October 31, 1998
<S> <C>
Income
Interest (net of foreign withholding tax of
$564)................................... $ 6,122,897
----------------
Expenses
Management fee............................. 419,960
Distribution fee--Class A.................. 110,779
Distribution fee--Class B.................. 17,979
Distribution fee--Class C.................. 477
Custodian's fees and expenses.............. 150,000
Transfer agent's fees and expenses......... 136,000
Reports to shareholders.................... 96,000
Registration fees.......................... 55,000
Audit fees and expenses.................... 30,000
Directors' fees and expenses............... 19,000
Legal fees and expenses.................... 15,000
Miscellaneous.............................. 7,247
----------------
Total expenses.......................... 1,057,442
----------------
Net investment income......................... 5,065,455
----------------
Realized and Unrealized
Gain (Loss) on Investments and
Foreign Currency Transactions
Net realized gain (loss) on:
Investment transactions.................... (3,154,390)
Foreign currency transactions.............. (589,791)
----------------
(3,744,181)
----------------
Net change in unrealized appreciation (depreciation) of:
Investments................................ 608,777
Foreign currencies......................... 601,701
----------------
1,210,478
----------------
Net loss on investments and foreign
currencies................................. (2,533,703)
----------------
Net Increase in Net Assets
Resulting from Operations..................... $ 2,531,752
----------------
----------------
</TABLE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
LIMITED MATURITY PORTFOLIO
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended October 31,
in Net Assets 1998 1997
<S> <C> <C>
Operations
Net investment income......... $ 5,065,455 $ 6,948,119
Net realized gain (loss) on
investment and foreign
currency transactions...... (3,744,181) 3,939,377
Net change in unrealized
appreciation (depreciation)
of investments and foreign
currencies................. 1,210,478 (5,664,378)
---------------- ------------
Net increase in net assets
resulting from operations..... 2,531,752 5,223,118
---------------- ------------
Dividends and distributions (Note
1):
Dividends from net investment income
Class A.................... (4,900,891) (5,803,256)
Class B.................... (157,098) (1,137,460)
Class C.................... (4,724) (7,370)
Class Z.................... (2,742) (33)
---------------- ------------
(5,065,455) (6,948,119)
---------------- ------------
Distributions in excess of net
investment income
Class A.................... (2,132,264) (2,383,691)
Class B.................... (68,349) (802,612)
Class C.................... (2,055) (1,338)
Class Z.................... (1,193) (4)
---------------- ------------
(2,203,861) (3,187,645)
---------------- ------------
Tax return of capital
distributions
Class A.................... (964,282) --
Class B.................... (30,910) --
Class C.................... (929) --
Class Z.................... (539) --
---------------- ------------
(996,660) --
---------------- ------------
Fund share transactions (net of
share conversions) (Note 6)
Net proceeds from shares
sold....................... 910,000 15,362,799
Net asset value of shares
issued in reinvestment of
dividends and
distributions.............. 4,998,800 5,830,223
Cost of shares reacquired..... (23,133,758) (41,030,001)
---------------- ------------
Net decrease in net assets from
Fund share transactions....... (17,224,958) (19,836,979)
---------------- ------------
Total decrease................... (22,959,182) (24,749,625)
Net Assets
Beginning of year................ 89,158,328 113,907,953
---------------- ------------
End of year(a)................... $ 66,199,146 $ 89,158,328
---------------- ------------
---------------- ------------
- ---------------
(a) Includes undistributed net
investment income of: $ -- $ 4,198,301
---------------- ------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
Notes to Financial Statements LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
Prudential Global Limited Maturity Fund, Inc. (the "Fund") is registered under
the Investment Company Act of 1940 as a nondiversified, open-end, management
investment company. The Fund was incorporated in Maryland on February 21, 1990.
The Limited Maturity Portfolio (the "Portfolio") commenced investment operations
on November 1, 1990. The investment objective of the Portfolio is to maximize
total return, the components of which are current income and capital
appreciation, by investing primarily in a portfolio of investment grade debt
securities. The ability of the issuers of the debt securities held by the Fund
to meet their obligations may be affected by economic developments in a specific
country or industry.
- ------------------------------------------------------------
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. Government securities for which quotations are
available will be based on prices provided by an independent pricing service or
broker-dealer. Other 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, will be valued at the average of the
quoted bid and asked prices provided by an independent pricing service or 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, at the mean between the last bid
and asked prices on such day or at the bid price on such day in the absence of
an asked price. Securities 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.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost which approximates market value.
In connection with transactions in repurchase agreements with U.S. financial
institutions, it is the Fund's policy that its custodian or designated
subcustodians, as the case may be under triparty repurchase agreements, take
possession of the underlying collateral securities, the value of which exceeds
the principal amount of the repurchase transaction including accrued interest.
If the seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
Foreign Currency Translation: The books and records of the Fund are maintained
in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on
the following basis:
(i) market value of investment securities, other assets and liabilities--at the
closing daily rate of exchange;
(ii) purchases and sales of investment securities, income and expenses--at the
rate 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 fiscal period, 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 securities held at the end of the fiscal period. 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 fiscal period. Accordingly, such realized foreign
currency gains and losses are included in the reported net realized gains
(losses) on investment transactions.
Net realized gain on foreign currency transactions represents net foreign
exchange gains or losses from sales and maturities of short-term securities,
holding of foreign currencies, currency gains or losses realized between the
trade and settlement dates on security transactions, and the difference between
the amounts of interest and foreign taxes recorded on the Fund's books and the
U.S. dollar equivalent amounts actually received or paid. Net unrealized
currency gains and losses from valuing foreign currency denominated assets and
liabilities at fiscal period end exchange rates are reflected as a component of
net unrealized appreciation/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 and 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
- --------------------------------------------------------------------------------
8
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
Notes to Financial Statements LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
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.
Securities Transactions and Net Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses from security and currency
transactions are calculated on the identified cost basis. Interest income is
recorded on the accrual basis. The Fund amortizes discounts on purchases of debt
securities as adjustments to income. 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.
Dividends and Distributions: The Fund declares daily and pays dividends from
book basis net investment income monthly and makes distributions at least
annually of any net capital gains. 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 Portfolio accounts and reports for
distributions to shareholders in accordance with American Institute of Certified
Public Accountants (AICPA) 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
$1,090,997, decrease accumulated net realized losses by $2,087,657 and decrease
paid-in capital in excess of par by $996,660. This was primarily the result of
net foreign currency losses and an overdistribution of taxable income for the
year ended October 31, 1998. Net investment income, net realized gains and net
assets were not affected by this change.
Federal Income Taxes: It is the intent of the Fund 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 tax provision is required.
- ------------------------------------------------------------
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 services of PIC, the cost of
compensation of officers of the Fund, occupancy and certain clerical and
bookkeeping costs of the Fund. PIC pays for the services of PRICOA. The Fund
bears all other costs and expenses.
The management fee paid PIFM is computed daily and payable monthly at an annual
rate of .55 of 1% of the average daily net assets of the Portfolio.
The Fund had a distribution agreement with Prudential Securities Incorporated
("PSI"), which acted as the distributor of the Class A, Class B, Class C and
Class 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 are 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 1% and .75 of
1% of the average daily net assets of the Class A, B and C shares, respectively,
for the year ended October 31, 1998.
PSI and PIMS have advised the Fund that they received approximately $2,400 in
front-end sales charges resulting from sales of Class A shares during the year
ended October 31, 1998. From these fees, PSI and PIMS
- --------------------------------------------------------------------------------
9
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
Notes to Financial Statements LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
paid such sales charges to affiliated broker-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 October 31, 1998,
they received approximately $6,900 and $600 in contingent deferred sales charges
imposed upon certain redemptions by Class B and C shareholders, respectively.
The Fund, along with other affiliated registered investment companies (the
"Funds"), has 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 for the year ended
October 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 30, 1997 and has been extended through December 29, 1998 under the same
terms.
PSI, PIFM, PIC, PIMS and PRICOA are indirect, wholly owned subsidiaries of The
Prudential Insurance Company of America.
- ------------------------------------------------------------
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 October 31, 1998,
the Portfolio incurred fees of approximately $118,000 for the services of PMFS.
As of October 31, 1998, approximately $8,000 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 October 31, 1998 aggregated $27,944,541 and $49,294,551,
respectively.
The United States federal income tax basis of the Portfolio's investments at
October 31, 1998 was substantially the same as for financial reporting purposes
and, accordingly, net unrealized depreciation of investments was $1,867,300
(gross unrealized appreciation--$2,062,528; gross unrealized
depreciation--$3,929,828).
For federal income tax purposes, the Portfolio had a capital loss carryforward
as of October 31, 1998, of approximately $52,716,100 of which $4,207,200 expires
in 2000, $32,949,600 expires in 2001, $12,011,000 expires in 2002, $1,565,600
expires in 2003, $326,200 expires in 2004 and $1,656,500 expires in 2006.
Accordingly, no capital gains distributions are expected to be paid to
shareholders until future net gains have been realized in excess of such
carryforward.
At October 31, 1998, the Portfolio had outstanding forward currency contracts to
sell foreign currencies as follows:
<TABLE>
<CAPTION>
Value at
Forward Currency Settlement Date Current Appreciation
Sale Contracts Receivable Value (Depreciation)
- ------------------------- --------------- ----------- ------------
<S> <C> <C> <C>
Australian Dollars,
expiring 11/25/98...... $ 9,521,535 $ 9,569,245 $(47,710)
Canadian Dollars,
expiring 11/25/98...... 2,868,793 2,865,538 3,255
French Francs,
expiring 11/25/98...... 3,834,724 3,822,747 11,977
Japanese Yen,
expiring 11/25/98...... 848,293 861,522 (13,229)
Swiss Francs,
expiring 11/25/98...... 5,282,738 5,264,395 18,343
--------------- ----------- ------------
$22,356,083 $22,383,447 $(27,364)
--------------- ----------- ------------
--------------- ----------- ------------
</TABLE>
- ------------------------------------------------------------
Note 5. Joint Repurchase Agreement Account
The Portfolio, 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 October 31,
1998, the Portfolio has a 0.4% undivided interest in the repurchase agreements
in the joint account. The undivided interest for the Portfolio represents
$3,956,000 in principal amount. As of such date, each repurchase agreement in
the joint account and the value of the collateral therefor were as follows:
Bear, Stearns & Co., Inc., 5.40%, in the principal amount of $260,000,000,
repurchase price $260,117,000, due 11/2/98. The value of the collateral
including accrued interest was $265,935,719.
Deutsche Bank Securities, Inc., 5.41%, in the principal amount of $260,000,000,
repurchase price $260,117,217, due 11/2/98. The value of the collateral
including accrued interest was $265,200,735.
- --------------------------------------------------------------------------------
10
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
Notes to Financial Statements LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
Salomon Smith Barney Inc., 5.40%, in the principal amount of $260,000,000,
repurchase price $260,117,000, due 11/2/98. The value of the collateral
including accrued interest was $265,365,298.
Warburg Dillon Read LLC, 5.38%, in the principal amount of $160,825,000,
repurchase price $160,897,103, due 11/2/98. The value of the collateral
including accrued interest was $164,045,205.
- ------------------------------------------------------------
Note 6. Capital
The Portfolio 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 3.0%. Class B shares are
sold with a contingent deferred sales charge which declines from 3% to zero
depending on the period of time the shares are held. Prior to November 2, 1998,
Class C shares were sold with a contingent deferred sales charge of 1% during
the first year. Effective November 2, 1998, 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. Class B shares will automatically convert to Class A shares
on a quarterly basis approximately five 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. The Portfolio has authorized 2 billion shares of common stock at
$.001 par value per share equally divided into Class A, B, C and Z shares.
Transactions in shares of common stock for the fiscal years ended October 31,
1998 and 1997 were as follows.
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------------ ---------- ------------
<S> <C> <C>
Year ended October 31, 1998:
Shares sold......................... 60,910 $ 492,071
Shares issued in reinvestment of
dividends and distributions....... 595,087 4,814,179
Shares reacquired................... (2,675,177) (21,698,873)
---------- ------------
Net decrease in shares outstanding
before conversion................. (2,019,180) (16,392,623)
Shares issued upon conversion from
Class B........................... 165,902 1,366,795
---------- ------------
Net decrease in shares
outstanding....................... (1,853,278) $(15,025,828)
---------- ------------
---------- ------------
<CAPTION>
Class A Shares Amount
- ------------------------------------ ---------- ------------
<S> <C> <C>
Year ended October 31, 1997:
Shares sold......................... 1,677,463 $ 14,801,446
Shares issued in reinvestment of
dividends and distributions....... 550,154 4,710,600
Shares reacquired................... (2,618,160) (22,399,789)
---------- ------------
Net decrease in shares outstanding
before conversion................. (390,543) (2,887,743)
Shares issued upon conversion from
Class B........................... 2,682,675 22,909,615
---------- ------------
Net increase in shares
outstanding....................... 2,292,132 $ 20,021,872
---------- ------------
---------- ------------
<CAPTION>
Class B
- ------------------------------------
Year ended October 31, 1998:
Shares sold......................... 42,084 $ 342,479
Shares issued in reinvestment of
dividends and distributions....... 21,298 173,540
Shares reacquired................... (165,425) (1,347,329)
---------- ------------
Net decrease in shares outstanding
before conversion................. (102,043) (831,310)
Shares reacquired upon conversion
into Class A...................... (165,049) (1,366,795)
---------- ------------
Net decrease in shares
outstanding....................... (267,092) $ (2,198,105)
---------- ------------
---------- ------------
Year ended October 31, 1997:
Shares sold......................... 53,550 $ 462,980
Shares issued in reinvestment of
dividends and distributions....... 128,673 1,112,119
Shares reacquired................... (2,106,270) (18,586,016)
---------- ------------
Net decrease in shares outstanding
before conversion................. (1,924,047) (17,010,917)
Shares reacquired upon conversion
into Class A...................... (2,672,625) (22,909,615)
---------- ------------
Net decrease in shares
outstanding....................... (4,596,672) $(39,920,532)
---------- ------------
---------- ------------
<CAPTION>
Class C
- ------------------------------------
Year ended October 31, 1998:
Shares sold......................... 3,889 $ 32,000
Shares issued in reinvestment of
dividends and distributions....... 820 6,683
Shares reacquired................... (10,850) (87,472)
---------- ------------
Net decrease in shares
outstanding....................... (6,141) $ (48,789)
---------- ------------
---------- ------------
</TABLE>
- --------------------------------------------------------------------------------
11
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
Notes to Financial Statements LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C Shares Amount
- ------------------------------------ ---------- ------------
<S> <C> <C>
Year ended October 31, 1997:
Shares sold......................... 10,910 $ 94,072
Shares issued in reinvestment of
dividends and distributions....... 872 7,480
Shares reacquired................... (5,205) (44,196)
---------- ------------
Net increase in shares
outstanding....................... 6,577 $ 57,356
---------- ------------
---------- ------------
<CAPTION>
Class Z
- ------------------------------------
Year ended October 31, 1998:
Shares sold......................... 5,175 $ 43,450
Shares issued in reinvestment of
dividends and distributions....... 543 4,398
Shares reacquired................... (11) (84)
---------- ------------
Net increase in shares
outstanding....................... 5,707 $ 47,764
---------- ------------
---------- ------------
January 27, 1997(a) through
October 31, 1997:
Shares sold......................... 502 $ 4,301
Shares issued in reinvestment of
dividends and distributions....... 3 24
---------- ------------
Increase in shares outstanding...... 505 $ 4,325
---------- ------------
---------- ------------
</TABLE>
- ---------------
(a) Commencement of offering of Class Z shares.
- --------------------------------------------------------------------------------
12
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
Financial Highlights LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------
Year Ended October 31,
-------------------------------------------------------
1998(b) 1997(b) 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............ $ 8.41 $ 8.82 $ 8.39 $ 8.56 $ 9.29
------- ------- ------- ------- -------
Income from investment operations
Net investment income......................... .54 .60 .60 .61 .70
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions............................... (.29) (.16) .40 (.21) (.86)
------- ------- ------- ------- -------
Total from investment operations........... .25 .44 1.00 .40 (.16)
------- ------- ------- ------- -------
Less distributions
Dividends from net investment income.......... (.54) (.60) (.57) (.48) --
Distributions in excess of net investment
income..................................... (.22) (.25) -- -- --
Tax return of capital distributions........... (.10) -- -- (.09) (.57)
------- ------- ------- ------- -------
Total distributions........................ (.86) (.85) (.57) (.57) (.57)
------- ------- ------- ------- -------
Net asset value, end of year.................. $ 7.80 $ 8.41 $ 8.82 $ 8.39 $ 8.56
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN(a):.............................. 3.01% 5.14% 12.35% 4.92% (1.89)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $64,538 $85,109 $69,051 $18,216 $28,841
Average net assets (000)...................... $73,853 $83,590 $53,284 $20,153 $38,000
Ratios to average net assets:
Expenses, including distribution fees...... 1.36% 1.35% 1.32% 1.21% 1.17%
Expenses, excluding distribution fees...... 1.21% 1.20% 1.17% 1.06% 1.02%
Net investment income...................... 6.65% 6.94% 7.12% 7.25% 7.67%
For Class A, B, C and Z shares:
Portfolio turnover rate.................... 40% 53% 101% 199% 232%
</TABLE>
- ---------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each year reported and includes reinvestment of dividends and
distributions.
(b) Calculated based upon average shares outstanding during the year.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 13
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
Financial Highlights LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
-----------------------------------------------------------
Year Ended October 31,
-----------------------------------------------------------
1998(b) 1997(b) 1996 1995 1994
--------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............ $ 8.45 $ 8.85 $ 8.42 $ 8.56 $ 9.29
--------- ------- ------- -------- --------
Income from investment operations
Net investment income......................... .51 .55 .55 .56 .62
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions............................... (.31) (.16) .40 (.19) (.86)
--------- ------- ------- -------- --------
Total from investment operations........... .20 .39 .95 .37 (.24)
--------- ------- ------- -------- --------
Less distributions
Dividends from net investment income.......... (.51) (.55) (.52) (.43) --
Distributions in excess of net investment
income..................................... (.19) (.24) -- -- --
Tax return of capital distributions........... (.10) -- -- (.08) (.49)
--------- ------- ------- -------- --------
Total distributions........................ (.80) (.79) (.52) (.51) (.49)
--------- ------- ------- -------- --------
Net asset value, end of year.................. $ 7.85 $ 8.45 $ 8.85 $ 8.42 $ 8.56
--------- ------- ------- -------- --------
--------- ------- ------- -------- --------
TOTAL RETURN(a):.............................. 2.48% 4.59% 11.61% 4.60% (2.62)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $ 1,562 $ 2,397 $44,804 $108,454 $188,966
Average net assets (000)...................... $ 2,397 $17,941 $70,794 $139,248 $281,143
Ratios to average net assets:
Expenses, including distribution fees...... 1.96% 1.95% 1.92% 1.83% 1.97%
Expenses, excluding distribution fees...... 1.21% 1.20% 1.17% 1.08% 1.02%
Net investment income...................... 6.03% 6.34% 6.51% 6.61% 6.82%
</TABLE>
- ---------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each year reported and includes reinvestment of dividends and
distributions.
(b) Calculated based upon average shares outstanding during the year.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 14
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
Financial Highlights LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
-----------------------------------------------------------------------
August 1,
1994(c)
Year Ended October 31, Through
------------------------------------------------------- October 31,
1998(f) 1997(f) 1996 1995 1994
--------- --------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 8.45 $ 8.85 $ 8.42 $ 8.56 $ 8.61
--------- --------- ----- ----- -----
Income from investment operations
Net investment income......................... .50 .55 .55 .54 .14
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions............................... (.30) (.16) .40 (.17) (.06)
--------- --------- ----- ----- -----
Total from investment operations........... .20 .39 .95 .37 .08
--------- --------- ----- ----- -----
Less distributions
Dividends from net investment income.......... (.50) (.55) (.52) (.43) --
Distributions in excess of net investment
income..................................... (.20) (.24) -- -- --
Tax return of capital distributions........... (.10) -- -- (.08) (.13)
--------- --------- ----- ----- -----
Total distributions........................ (.80) (.79) (.52) (.51) (.13)
--------- --------- ----- ----- -----
Net asset value, end of period................ $ 7.85 $ 8.45 $ 8.85 $ 8.42 $ 8.56
--------- --------- ----- ----- -----
--------- --------- ----- ----- -----
TOTAL RETURN(a):.............................. 2.48% 4.59% 11.61% 4.60% 0.75%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $ 51 $ 107 $ 54 $ 755(e) $ 200(e)
Average net assets (000)...................... $ 64 $ 116 $ 4 $ 1,461(e) $ 199(e)
Ratios to average net assets:
Expenses, including distribution fees...... 1.96% 1.95% 1.92% 1.70% .93%(b)
Expenses, excluding distribution fees...... 1.21% 1.20% 1.17% .95% .18%(b)
Net investment income...................... 6.07% 6.36% 6.35% 6.43% 7.02%(b)
<CAPTION>
Class Z
---------------------------
January 27,
1997(d)
Year Ended Through
October 31, October 31,
1998(f) 1997(f)
<S> <C> <C>
----------- -----
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 8.44 $ 8.57
----------- -----
Income from investment operations
Net investment income......................... .55 .43
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions............................... (.28) (.11)
----------- -----
Total from investment operations........... .27 .32
----------- -----
Less distributions
Dividends from net investment income.......... (.55) (.43)
Distributions in excess of net investment
income..................................... (.22) (.02)
Tax return of capital distributions........... (.10) --
----------- -----
Total distributions........................ (.87) (.45)
----------- -----
Net asset value, end of period................ $ 7.84 $ 8.44
----------- -----
----------- -----
TOTAL RETURN(a):.............................. 3.28% 3.53%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $ 49 $ 4
Average net assets (000)...................... $ 43 $ 308(e)
Ratios to average net assets:
Expenses, including distribution fees...... 1.21% 1.20%(b)
Expenses, excluding distribution fees...... 1.21% 1.20%(b)
Net investment income...................... 6.83% 14.07%(b)
</TABLE>
- ---------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(b) Annualized.
(c) Commencement of offering of Class C shares.
(d) Commencement of offering of Class Z shares.
(e) Figures are actual and not rounded to the nearest thousand.
(f) Calculated based upon average shares outstanding during the period.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 15
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
Report of Independent Accountants LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
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 Prudential Global Limited Maturity
Fund, Inc., Limited Maturity Portfolio (the "Fund") at October 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 October
31, 1998 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above. The accompanying financial highlights for each of
the three periods in the period ended October 31, 1996 were audited by other
independent accountants, whose opinion dated December 12, 1996 was unqualified.
1177 Avenue of the Americas
New York, New York
December 21, 1998
PRUDENTIAL GLOBAL LIMITED
Important Notice for Certain Shareholders MATURITY FUND, INC.
(Unaudited) LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
We are required by Massachusetts, Missouri and Oregon to inform you that
dividends which have been derived from interest on federal obligations are not
taxable to shareholders providing the mutual fund meets certain requirements
mandated by the prospective state's taxing authorities. We are pleased to report
that 7% of the dividends paid by the Prudential Global Limited Maturity Fund,
Inc., Limited Maturity Portfolio qualify for such deduction.
For more information regarding your state and local taxes, you should contact
your tax advisor or the state/local taxing authorities.
- --------------------------------------------------------------------------------
16
<PAGE>
Comparing A $10,000 Investment.
Prudential Global Limited Maturity Fund, Inc. - Limited
Maturity Portfolio vs. J.P. Morgan Global Short-Term Index.
Past performance is not indicative of future results. Principal and investment
return will fluctuate so an investor's shares, when redeemed, may be worth
more or less than their original cost. The boxes on top of the graphs are
designed to give you an idea of 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.
[EDGAR Representation of Graph]
<TABLE>
<CAPTION>
Class A 11/1/90 to 10/31/98
<S> <C>
Prudential Global Limited Maturity Fund $14,490
J.P. Morgan Global ST Index $17,295
<CAPTION>
<S> <C> <C>
Best Year 1996 12.73%
Worst Year 1994 -4.70%
</TABLE>
<TABLE>
<CAPTION>
Class B 11/1/90 to 10/31/98
<S> <C>
Prudential Global Limited Maturity Fund $14,156
J.P. Morgan Global ST Index $17,295
<CAPTION>
<S> <C> <C>
Best Year 1996 11.98%
Worst Year 1994 -5.13%
</TABLE>
<TABLE>
<CAPTION>
Class C 8/1/94 to 10/31/98
<S> <C>
Prudential Global Limited Maturity Fund $12,481
J.P. Morgan Global ST Index $13,206
<CAPTION>
<S> <C> <C>
Best Year 1996 11.98%
Worst Year 1994 3.28%
</TABLE>
<TABLE>
<CAPTION>
Class Z 1/27/97 to 10/31/98
<S> <C>
Prudential Global Limited Maturity Fund $10,693
J.P. Morgan Global ST Index $11,146
</TABLE>
AVERAGE ANNUAL TOTAL
RETURNS - CLASS A
----------------------
WITH SALES LOAD
4.75% Since Inception
3.97% for 5 Years
-0.08% for 1 Year
WITHOUT SALES LOAD
5.15% Since Inception
4.61% for 5 Years
3.01% for 1 Year
AVERAGE ANNUAL TOTAL
RETURNS - CLASS B
----------------------
WITH SALES LOAD
4.44% Since Inception
4.03% for 5 Years
-0.52% for 1 Year
WITHOUT SALES LOAD
4.44% Since Inception
4.03% for 5 Years
2.48% for 1 Year
AVERAGE ANNUAL TOTAL
RETURNS - CLASS C
----------------------
WITH SALES LOAD
5.60% Since Inception
1.48% for 1 Year
WITHOUT SALES LOAD
5.60% Since Inception
2.48% for 1 Year
AVERAGE ANNUAL TOTAL
RETURNS - CLASS Z
----------------------
WITH SALES LOAD
3.89% Since Inception
3.28% for 1 Year
These graphs are furnished to you in accordance with SEC regulations. They
compare a $10,000 investment in the Prudential Global Limited Maturity Fund,
Inc. -- Limited Maturity Portfolio (Class A, B, C, and Z shares) with a
similar investment in the J.P. Morgan Global Short-Term Index (GSTI) by
portraying the initial account values at the commencement of operations of
each class, and subsequent account values at the end of each fiscal year
(October 31), as measured on a quarterly basis, beginning in 1990 for Class A
shares and Class B shares, 1994 for 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 (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 charges were
deducted from the value of the investment in Class B and Class C shares,
assuming full redemption on October 31, 1998; (c) beginning November 2, 1998,
Class C shares are subject to a front-end sales charge of 1% and a CDSC of 1%
for 18 months. This change is not reflected in the charts to the right;(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 J.P. Morgan GSTI is a weighted index of liquid, short-term government
bonds of the following nations: Belgium, Sweden, Germany, Australia, Canada,
Denmark, France, Italy, Japan, the Netherlands, Spain, the United States, and
the United Kingdom. The J.P. Morgan GSTI is an unmanaged index and changes in
market capitalization are revised monthly. The J.P. Morgan GSTI does not
reflect the payment of transaction costs and advisory fees associated with an
investment in the Fund. The securities which comprise the J.P. Morgan GSTI may
differ substantially from securities held by the Fund. The J.P. Morgan GSTI is
not the only index that may be used to characterize performance of global
income 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 Houndsditch
London EC3A7BU
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.
74433F108 74433F207 74433F504 74433F603 MF144E
<PAGE>
SEMI-ANNUAL REPORT OF LIMITED MATURITY FUND
FOR THE SEMI-ANNUAL PERIOD ENDED
APRIL 30, 1999
<PAGE>
(ICON)
Prudential
Global
Limited
Maturity
Fund, Inc.
- -------------------------------
Limited Maturity
Portfolio
SEMI
ANNUAL
REPORT
April 30, 1999
(LOGO)
<PAGE>
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Performance At A Glance
As a global financial crisis faded during the six months ended April 30, 1999,
many investors sold conservative securities, such as U.S. Treasuries, and
purchased emerging market bonds and other higher-yielding assets. Although we
adopted this strategy in the Prudential Global Limited Maturity Fund--Limited
Maturity Portfolio, the Fund's still sizable exposure to Treasuries hurt its
performance. The Fund is also restricted to owning short- and intermediate-term
debt securities, while the Lipper Average primarily includes funds that also
invest in longer-term bonds. Among European and emerging market bonds,
longer-term bonds rallied the most. Therefore, the Fund's returns trailed the
Lipper Average for the six months.
<TABLE>
Cumulative Total Returns1 As of 4/30/99
<CAPTION>
Six One Five Since
Months Year Years Inception2
<S> <C> <C> <C> <C>
Class A 1.12% -0.11% 27.31% 51.05%
Class B 0.84 -0.68 23.93 42.75
Class C 0.84 -0.68 N/A 27.13
Class Z 1.09 -0.05 N/A 8.10
Lipper Global Inc. Fund Avg.3 1.48 2.49 38.07 ***
</TABLE>
<TABLE>
Average Annual Total Returns1 As of 3/31/99
<CAPTION>
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A -3.48% 4.29% 4.54%
Class B -3.95 4.36 4.22
Class C -2.94 N/A 4.88
Class Z -0.19 N/A 3.30
</TABLE>
<TABLE>
Distributions andYields As of 4/30/99
<CAPTION>
Total Distributions 30-Day
Paid for Six Mos. SEC Yield
<S> <C> <C>
Class A $0.27 4.76%
Class B $0.25 4.41
Class C $0.25 4.37
Class Z $0.28 5.17
</TABLE>
Past performance is not indicative of future results. Principal and investment
return will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
1 Source: Prudential 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 charge of 3% for Class A shares. Class B shares are
subject to a declining contingent deferred sales charge (CDSC) of 3%, 2%, 1% and
1% for four years. Class B shares will automatically convert to Class A shares,
on a quarterly basis, approximately five years after purchase. Class C shares
are subject to a front-end sales charge 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 and Class B, 11/1/90; Class C, 8/1/94; Class Z,
1/27/97.
3 Lipper average returns are for all funds in each share class for the
six-month, one-, and five-year periods in the Global Income Fund category.
***Lipper Since Inception returns are 76.98% for Class A and Class B, 39.45% for
Class C, and 10.10% for Class Z based on all funds in each share class.
How Investments Compared
(As of 4/30/99)
(GRAPH)
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
returns means tolerating more risk. The greater the risk, the larger the
potential reward or loss. In addition, we've included historical 20-year average
annual returns. These returns assume the reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors have received higher
historical total returns from stocks than from most other investments. Smaller
capitalization stocks offer greater potential for long-term growth, but may be
more volatile than larger capitalization stocks.
General Bond Funds provide more income than stock funds, which can help smooth
out their total returns year by year. But their prices still fluctuate
(sometimes significantly), and their returns have been historically lower than
those of stock funds.
General Municipal Debt Funds invest in bonds issued by state governments, state
agencies and/or municipalities. This investment provides income that is usually
exempt from federal and state income taxes.
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>
Portfolio Managers' Report
(PHOTO)
Simon Wells and Gabriel Irwin
Fund Managers
Investment Goals and Style
The Fund seeks total return by investing primarily in debt securities
denominated in the U.S. dollar and a range of foreign currencies. The Fund's
weighted average maturity ranges from more than two to less than five years,
with each security generally maturing in no more than 10 years. The Fund may
invest up to 20% of its total investments in securities rated below investment
grade, but with a minimum rating of single-B by Moody's Investors Service,
Standard & Poor's Ratings Service, or another nationally recognized
credit-rating organization. The Fund is nondiversified, meaning it may invest
more than 5% of its total assets in the securities of one or more issuers. This
carries greater risk and greater share price volatility than investments held in
a more diversified portfolio.
Performance Review
Market sentiment shifted in favor of higher-yielding bonds When our reporting
period began in November 1998, a dramatic shift in market sentiment was under
way. Many investors who had previously purchased the safest government
securities, such as U.S. Treasuries, began to sell them and buy corporate bonds,
emerging market bonds, and other higher-yielding assets. This change occurred
largely because the Federal Reserve took steps to prevent a global financial
crisis from causing a recession in the United States that could have harmed the
fragile world economy. The Federal Reserve cut the Federal funds rate (the rate
U.S. 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%.
Reducing rates stimulates economic growth by lowering borrowing costs. Reassured
by the Federal Reserve's effort to protect the U.S. economy, financial markets
calmed down, and many investors saw less need to own conservative assets such as
Treasuries.
Owning Treasuries hurt our performance
As 1998 drew to a close, concern about a potential recession in the United
States was replaced by fears that the economy was growing rapidly enough to
ignite higher inflation. Investors dislike inflation because it erodes the value
of a bond's fixed interest payments. Investors therefore typically push bond
yields higher and prices lower in order to compensate for an anticipated rise in
inflation. Under this scenario, we expected the sell-off in Treasuries to
continue--and it did. We cut Treasuries from 19.5% of the Fund's total
investments as of October 31, 1998 to 11.8% as of April 30, 1999 primarily by
selling Treasury notes maturing in eight years. Trimming Treasuries helped to
lower the Fund's duration from 3.9 years to 3.3 years. Duration is a measure of
the Fund's sensitivity to changes in interest rates. The shorter duration made
the Fund less sensitive to the rise in Treasury yields and the decline in their
prices. Nevertheless, the Fund's still considerable exposure to Treasuries and
the bonds of other dollar-bloc nations (Canada, Australia, and New Zealand) hurt
its performance.
Merger Proposal
The Directors have approved a proposal to merge the Fund into The Global Total
Return Fund, Inc., which is also managed by Gabriel Irwin and Simon Wells. The
proposal will have to be approved by a shareholder proxy vote in July 1999. If
approved, the merger is set to occur in September 1999.
<PAGE>
Buying emerging market bonds helped the Fund In contrast to the dismal
performance of Treasuries, prices of emerging market bonds climbed, helped by
positive developments in Brazil. After the Brazilian currency, the real, was
devalued in January 1999, the nation's government acted quickly to regain the
confidence of global investors. It cut spending, raised taxes, and appointed a
new central bank president who lowered interest rates as the value of the real
stabilized. Encouraged by these moves, investor demand increased for Brazilian
debt securities and other emerging market bonds. A portion of our proceeds from
selling Treasuries was invested in the government bonds of emerging market
nations such as Argentina, Panama, and Venezuela, some of which were denominated
in U.S. dollars. We also bought bonds of Corporacion Andina de Formento, a
supranational entity. Increasing exposure to emerging market bonds from 17.25%
of the Fund's total investments as of October 31, 1998 to 22% at the end of
April 1999 helped its performance.
Similarly, the Fund benefited from owning government bonds of Germany and
several other European nations (35.7% of its total investments as of the end of
April 1999). Their prices rose amid lackluster economic growth and continued low
inflation. Among emerging market and European debt securities, long-term bonds
posted the sharpest price increases. Because the Fund is generally limited to
holding bonds maturing in 10 years or less, it failed to reap the full benefit
of this rally.
Looking Ahead
European bonds favored over Treasuries In the first four months of 1999, the new
European single currency, the euro, lost more than 9% against the U.S. dollar.
This trend reflected concern about the Kosovo conflict and the superior
performance of the U.S. economy relative to that of Europe. U.S. economic growth
has remained so strong that the Federal Reserve is considering increasing
short-term rates due to concern about the potential buildup of inflation. By
contrast, the combination of sluggish economic growth and tame inflation in the
11-nation euro currency zone continues to bode well for its bonds. That is why
we will continue to favor European government bonds over Treasuries in coming
months. We believe European economic growth will begin to rebound as the weak
euro has made the region's exports more competitive.
Five Largest Issuers
Expressed as a percentage of net assets as of 4/30/99
U.S. Treasury Bonds 11.8%
Danish Government Bonds 6.7
Queensland Treasury Corp. 5.1
German Government Bonds 4.1
Federal National Mortgage 3.2
Association (AUD)
1
<PAGE>
A Message to Our Shareholders June 18, 1999
(PHOTO)
Dear Shareholder:
In the last couple of years, the recurring possibility of a global economic
crisis caused investors to focus on securities they perceived to be safe. In the
equity market, they focused on the stocks of a handful of very large companies
that were perceived to be well-buffeted from an economic slowdown. These stocks
became very expensive--out of proportion to their earnings expectations. As a
result, there was a substantial disparity in value between large and small
companies, and between growth and value stocks.
Since earlier this year, however, that gap has narrowed significantly amid news
of strong U.S. economic growth and faster-than-expected global stability. While
the long-term prospects of U.S. growth stocks are still very good, many of the
smaller and economically sensitive companies favored by our value managers now
are posting very attractive returns.
In the bond market, U.S. Treasuries and select European government bonds were
the major beneficiaries of the flight to quality that occurred in recent years.
When this trend reversed itself toward the end of 1998, other sectors of the
bond market rebounded. However, with a strong U.S. economy comes the threat of
higher inflation-- which erodes the value of bonds' fixed interest payments. The
recent inflation concerns jolted the bond market and helped send long-term
interest rates to a 19-month high.
The winds of change in the equity market and the recent turbulence in the bond
market not only highlight the value of professional portfolio management, they
illustrate why investors should have a well-diversified asset allocation
strategy. It is also a good practice to rebalance your holdings, when necessary,
to keep your asset allocation consistent with your long-term objectives and risk
tolerance. A properly diversified portfolio of value- and growth-oriented equity
funds, international bond funds, and money market funds could help you weather
inevitable market turbulence and achieve more consistent returns over time.
Prudential offers a wide range of mutual funds to help our shareholders
diversify, as well as several balanced and diversified funds to allow
one-decision diversification.
Thank you for your continued confidence in Prudential mutual funds.
Sincerely,
John R. Strangfeld
Chief Investment Officer
Prudential Investments
2
<PAGE>
Portfolio of Investments as PRUDENTIAL GLOBAL LIMITED
of April 30, 1999 MATURITY FUND, INC.
(Unaudited) LIMITED MATURITY PORTFOLIO
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal US$
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- -----------------------------------------------------------
LONG-TERM INVESTMENTS--83.0%
- -----------------------------------------------------------
Australia--8.3%
A$ 2,675 Federal National Mortgage
Association,
6.375%, 8/15/07 $ 1,838,320
4,000 Queensland Treasury Corporation,
8.00%, 5/14/03 2,900,248
-----------
4,738,568
- ------------------------------------------------------------
Canada--5.8%
C$ 2,000 British Columbia Municipal Fin.
Auth.,
6.75%, 4/24/07 1,479,507
2,500 Province of Quebec,
6.50%, 10/1/07 1,827,810
-----------
3,307,317
- ------------------------------------------------------------
Denmark--6.7%
DKr 23,000 Danish Government Bonds,
7.00%, 12/15/04 3,818,166
- ------------------------------------------------------------
Euro--8.3%
EUR 1,134 Dutch Government Bonds,
6.50%, 4/15/03 1,349,870
German Government Bonds,
1,303 6.00%, 1/5/06 1,573,163
1,000 Zero Coupon, 7/4/07 773,903
800 Spanish Government Bonds,
8.00%, 5/30/04 1,029,368
-----------
4,726,304
Germany--6.1%
DM 3,000 Republic of Columbia,
7.25%, 12/21/00 $ 1,682,312
3,000 Tokyo Gas Co. Ltd.,
7.00%, 7/27/05 1,825,954
-----------
3,508,266
- ------------------------------------------------------------
Greece--1.9%
GRD 325,000 Hellenic Republic,
11.90%, 12/31/03, FRN 1,094,912
- ------------------------------------------------------------
Hungary--0.2%
HUF 30,000 Hungarian Government Bonds,
15.00%, 7/24/01 129,871
- ------------------------------------------------------------
New Zealand--5.6%
NZ$ 2,800 Federal National Mortgage
Association,
7.25%, 6/20/02 1,631,628
1,400 Int'l Bank Recon. & Dev.,
7.25%, 5/27/03 819,529
1,200 New Zealand Government Bonds,
8.00%, 4/15/04 744,189
-----------
3,195,346
- ------------------------------------------------------------
Russia--0.1%
European Bank Recon. & Dev.,
Rub 2,200 31.00%, 5/5/00 46,307
3,500 Zero Coupon, 5/28/02 14,167
-----------
60,474
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as PRUDENTIAL GLOBAL LIMITED
of April 30, 1999 MATURITY FUND, INC.
(Unaudited) LIMITED MATURITY PORTFOLIO
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal US$
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Sweden--3.0%
SEK 13,000 Swedish Government Bonds,
6.00%, 2/9/05 $ 1,729,114
- ------------------------------------------------------------
United Kingdom--5.7%
BP 421 Banco Central del Uruguay,
6.00%, 2/19/07, FRN 620,369
500 United Kingdom Treasury Notes,
9.00%, 10/13/08 1,064,777
900 Powergen PLC,
8.875%, 3/26/03 1,584,002
-----------
3,269,148
- ------------------------------------------------------------
United States--31.3%
Central Banks--3.0%
US$ 750 Banco del Estado Chile,
8.39%, 8/1/01 771,218
1,000 Central Bank of Tunisia,
7.50%, 9/19/07 970,000
-----------
1,741,218
- ------------------------------------------------------------
Sovereign Bonds--12.2%
500 Jamaican Government Bonds,
9.625%, 7/2/02 460,000
1,000 Ministry of Finance (Russia),
10.00%, 6/26/07 401,250
500 National Republic of Bulgaria,
2.50%, 7/28/12 303,150
465 Republic of Argentina, FRB,
5.9375%, 3/31/05 413,292
246 Republic of Brazil, IDU,
6.0625%, 1/1/01 233,405
US$ 1,434 Republic of Croatia, FRN,
5.8125%, 7/31/06 $ 1,182,947
1,000 Republic of Italy,
7.00%, 9/18/01 1,029,500
400 Republic of Lithuania,
7.125%, 7/22/02 372,000
400 Republic of Panama,
7.875%, 2/13/02 389,000
214 Republic of Venezuela,
5.9375%, 12/18/07 171,963
500 Sultan of Oman,
7.125%, 3/20/02 504,375
1,015 Trinidad & Tobago Republic,
9.75%, 11/3/00 1,025,150
500 United Mexican States,
9.75%, 2/6/01 521,375
-----------
7,007,407
- ------------------------------------------------------------
Supranational Bonds--4.3%
500 Corporacion Andina de Formento,
5.9261%, 4/3/01 490,000
2,000 General Motors Acceptance Corp.,
Global Note,
5.75%, 11/10/03 1,975,800
-----------
2,465,800
- ------------------------------------------------------------
U.S. Government Obligations--11.8%
United States Treasury Bonds,
3,500 6.125%, 9/30/00 3,549,770
1,000 7.875%, 11/15/04 1,120,620
2,000 6.25%, 2/15/07 2,105,320
-----------
6,775,710
-----------
17,990,135
-----------
Total long-term investments
(cost US$50,014,433) 47,567,621
-----------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 4
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
LIMITED MATURITY PORTFOLIO
Portfolio of Investments as of April 30, 1999
(Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal US$
Amount Value
(000) Description (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
SHORT-TERM INVESTMENTS--13.4%
- ------------------------------------------------------------
Hungary--1.3%
Hungarian Government Bonds,
HUF 130,000 16.50%, 7/24/99 $ 550,624
50,000 16.00%, 4/12/00 213,921
-----------
764,545
- ------------------------------------------------------------
Netherlands--1.7%
NLG 2,000 Republic of Argentina,
7.625%, 7/5/99 957,262
- ------------------------------------------------------------
United States--1.8%
US$ 1,000 Cadbury Schweppes PLC,
6.25%, 10/4/99 1,002,500
- ------------------------------------------------------------
Repurchase Agreement--8.6%
4,958 Joint Repurchase Agreement
Account,
4.90%, 5/3/99, (Note 5) 4,958,000
-----------
Total short-term investments
(cost US$7,941,623) 7,682,307
-----------
- ------------------------------------------------------------
Total Investments--96.4%
(cost US$57,956,056; Note 4) 55,249,928
Other assets in excess of
liabilities--3.6% 2,080,909
-----------
Net Assets--100% $57,330,837
-----------
-----------
</TABLE>
- ---------------
Portfolio securities are classified by country according to the security's
currency denomination.
FRB--Floating Rate Bond.
FRN--Floating Rate Note.
IDU--Interest Due and Unpaid Bonds.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5
<PAGE>
PRUDENTIAL GLOBAL LIMITED
Statement of Assets and Liabilities MATURITY FUND, INC.
(Unaudited) LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets April 30, 1999
<S> <C>
Investments, at value (cost $57,956,056).................................................................... $ 55,249,928
Foreign currency, at value (cost $766,895).................................................................. 764,479
Interest receivable......................................................................................... 1,129,372
Receivable for investments sold............................................................................. 728,499
Forward currency contracts - net amount receivable from counterparties...................................... 64,705
Receivable for Fund shares sold............................................................................. 3,997
Other assets................................................................................................ 1,708
--------------
Total assets............................................................................................. 57,942,688
--------------
Liabilities
Bank overdraft.............................................................................................. 7,704
Forward currency contracts - net amount payable to counterparties........................................... 161,375
Payable for Fund shares reacquired.......................................................................... 141,078
Accrued expenses............................................................................................ 135,713
Dividends payable........................................................................................... 127,352
Due to Manager.............................................................................................. 26,276
Due to Distributor.......................................................................................... 12,353
--------------
Total liabilities........................................................................................ 611,851
--------------
Net Assets.................................................................................................. $ 57,330,837
--------------
--------------
Net assets were comprised of:
Common stock, at par..................................................................................... $ 7,530
Paid-in capital in excess of par......................................................................... 113,506,668
--------------
113,514,198
Distributions in excess of net investment income......................................................... (834,963)
Accumulated net realized loss on investments............................................................. (52,493,525)
Net unrealized depreciation on investments and foreign currencies........................................ (2,854,873)
--------------
Net assets, April 30, 1999.................................................................................. $ 57,330,837
--------------
--------------
Class A:
Net asset value and redemption price per share
($56,249,371 / 7,388,612 shares of common stock issued and outstanding)............................... $7.61
Maximum sales charge (3.00% of offering price)........................................................... .24
--------------
Maximum offering price to public......................................................................... $7.85
--------------
--------------
Class B:
Net asset value, offering price and redemption price per share
($996,379 / 130,014 shares of common stock issued and outstanding).................................... $7.66
--------------
--------------
Class C:
Net asset value and redemption price per share
($33,842 / 4,416 shares of common stock issued and outstanding)....................................... $7.66
Sales charge (1.00% of offering price)................................................................... .08
--------------
Offering price to public................................................................................. $7.74
--------------
--------------
Class Z:
Net asset value, offering price and redemption price per share
($51,245 / 6,697 shares of common stock issued and outstanding)....................................... $7.65
--------------
--------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 6
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
LIMITED MATURITY PORTFOLIO
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income April 30, 1999
<S> <C>
Income
Interest (net of foreign withholding tax
of $378)............................... $ 2,391,622
--------------
Expenses
Management fee............................ 170,136
Distribution fee--Class A................. 64,993
Distribution fee--Class B................. 4,641
Distribution fee--Class C................. 178
Custodian's fees and expenses............. 89,000
Transfer agent's fees and expenses........ 60,000
Reports to shareholders................... 19,000
Audit fees and expenses................... 16,000
Legal fees and expenses................... 12,000
Directors' fees and expenses.............. 10,000
Registration fees......................... 7,000
Miscellaneous............................. 1,780
--------------
Total expenses......................... 454,728
--------------
Net investment income........................ 1,936,894
--------------
Realized and Unrealized
Loss on Investments and
Foreign Currency Transactions
Net realized loss on:
Investment transactions................... (211,654)
Foreign currency transactions............. (77,266)
--------------
(288,920)
--------------
Net change in unrealized appreciation (depreciation) of:
Investments............................... (838,828)
Foreign currencies........................ (165,485)
--------------
(1,004,313)
--------------
Net loss on investments and foreign
currencies................................ (1,293,233)
--------------
Net Increase in Net Assets
Resulting from Operations.................... $ 643,661
--------------
--------------
</TABLE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
LIMITED MATURITY PORTFOLIO
Statement of Changes in Net Assets (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) April 30, October 31,
in Net Assets 1999 1998
<S> <C> <C>
Operations
Net investment income........... $ 1,936,894 $ 5,065,455
Net realized loss on investment
and foreign currency
transactions................. (288,920) (3,744,181)
Net change in unrealized
appreciation (depreciation)
of investments and foreign
currencies................... (1,004,313) 1,210,478
----------- ------------
Net increase in net assets
resulting from operations....... 643,661 2,531,752
----------- ------------
Dividends and distributions (Note 1):
Dividends from net investment
income
Class A...................... (1,898,543) (4,900,891)
Class B...................... (35,445) (157,098)
Class C...................... (1,356) (4,724)
Class Z...................... (1,550) (2,742)
----------- ------------
(1,936,894) (5,065,455)
----------- ------------
Distributions in excess of net
investment income
Class A...................... (225,653) (2,132,264)
Class B...................... (4,213) (68,349)
Class C...................... (161) (2,055)
Class Z...................... (184) (1,193)
----------- ------------
(230,211) (2,203,861)
----------- ------------
Tax return of capital distributions
Class A...................... -- (964,282)
Class B...................... -- (30,910)
Class C...................... -- (929)
Class Z...................... -- (539)
----------- ------------
-- (996,660)
----------- ------------
Fund share transactions (net of share conversions) (Note 6):
Net proceeds from shares sold... 288,399 910,000
Net asset value of shares issued
in reinvestment of dividends
and distributions............ 1,307,551 4,998,800
Cost of shares reacquired....... (8,940,815) (23,133,758)
----------- ------------
Net decrease in net assets from
Fund share transactions......... (7,344,865) (17,224,958)
----------- ------------
Total decrease..................... (8,868,309) (22,959,182)
Net Assets
Beginning of period................ 66,199,146 89,158,328
----------- ------------
End of period...................... $57,330,837 $ 66,199,146
----------- ------------
----------- ------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7
<PAGE>
PRUDENTIAL GLOBAL LIMITED
Notes to Financial Statements MATURITY FUND, INC.
(Unaudited) LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
Prudential Global Limited Maturity Fund, Inc. (the 'Fund') is registered under
the Investment Company Act of 1940 as a nondiversified, open-end, management
investment company. The Fund was incorporated in Maryland on February 21, 1990.
The Limited Maturity Portfolio (the 'Portfolio') commenced investment operations
on November 1, 1990. The investment objective of the Portfolio is to maximize
total return, the components of which are current income and capital
appreciation, by investing primarily in a portfolio of investment grade debt
securities. The ability of the issuers of the debt securities held by the Fund
to meet their obligations may be affected by economic developments in a specific
country or industry.
- ------------------------------------------------------------
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. Government securities for which quotations are
available will be based on prices provided by an independent pricing service or
broker-dealer. Other 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, will be valued at the average of the
quoted bid and asked prices provided by an independent pricing service or 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, at the mean between the last bid
and asked prices on such day or at the bid price on such day in the absence of
an asked price. Securities 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.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost which approximates market value.
In connection with transactions in repurchase agreements with U.S. financial
institutions, it is the Fund's policy that its custodian or designated
subcustodians, as the case may be under triparty repurchase agreements, take
possession of the underlying collateral securities, the value of which exceeds
the principal amount of the repurchase transaction including accrued interest.
If the seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
Foreign Currency Translation: The books and records of the Fund are maintained
in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on
the following basis:
(i) market value of investment securities, other assets and liabilities--at the
closing daily rate of exchange;
(ii) purchases and sales of investment securities, income and expenses--at the
rate 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 fiscal period, 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 securities held at the end of the fiscal period. 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 fiscal period. Accordingly, such realized foreign
currency gains and losses are included in the reported net realized gains
(losses) on investment transactions.
Net realized gain on foreign currency transactions represents net foreign
exchange gains or losses from sales and maturities of short-term securities,
holding of foreign currencies, currency gains or losses realized between the
trade and settlement dates on security transactions, and the difference between
the amounts of interest and foreign taxes recorded on the Fund's books and the
U.S. dollar equivalent amounts actually received or paid. Net unrealized
currency gains and losses from valuing foreign currency denominated assets and
liabilities at fiscal period end exchange rates are reflected as a component of
net unrealized appreciation/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 and 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
- --------------------------------------------------------------------------------
8
<PAGE>
PRUDENTIAL GLOBAL LIMITED
Notes to Financial Statements MATURITY FUND, INC.
(Unaudited) LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
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.
Securities Transactions and Net Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses from security and currency
transactions are calculated on the identified cost basis. Interest income is
recorded on the accrual basis. The Fund amortizes discounts on purchases of debt
securities as adjustments to income. 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.
Dividends and Distributions: The Fund declares daily and pays dividends from
book basis net investment income monthly and makes distributions at least
annually of any net capital gains. 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 Portfolio accounts and reports for
distributions to shareholders in accordance with American Institute of Certified
Public Accountants (AICPA) 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 of Position was to reclassify $511,535 of foreign currency losses
from accumulated net realized losses on investments to distributions in excess
of net investment income. Net investment income, net realized gains and net
assets were not affected by this change.
Taxes: It is the intent of the Fund 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 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.
- ------------------------------------------------------------
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 services of PIC (which in
turn pays PRICOA), the cost of 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 .55 of 1% of the average daily net assets of the Portfolio.
The Fund has a distribution agreement with Prudential Investment Management
Services LLC ('PIMS'), which acts as the distributor of the Class A, B, C and Z
shares of the Fund. The Fund compensates 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
PIMS. The distribution fees are accrued daily and payable monthly. No
distribution or service fees are paid to PIMS as distributor of the Class Z
shares of the Fund. Pursuant to the Class A, B and C Plans, the Fund compensates
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 1% and .75 of
1% of the average daily net assets of the Class A, B and C shares, respectively,
for the period November 1, 1998 through December 31, 1998. Effective January 1,
1999, such expenses under the Plans were .25 of 1%, .75 of 1% and .75 of 1% of
the average daily net assets of the Class A, B and C shares, respectively.
- --------------------------------------------------------------------------------
9
<PAGE>
PRUDENTIAL GLOBAL LIMITED
Notes to Financial Statements MATURITY FUND, INC.
(Unaudited) LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
PIMS has advised the Fund that it has received approximately $300 in front-end
sales charges resulting from sales of Class A and Class C shares during the six
months ended April 30, 1999. From these fees, PIMS paid such sales charges to
affiliated broker-dealers, which in turn paid commissions to salespersons and
incurred other distribution costs.
PIMS has advised the Fund that for the six months ended April 30, 1999, it
received approximately $2,400 and $200 in contingent deferred sales charges
imposed upon certain redemptions by Class B and C shareholders, respectively.
As of March 11, 1999, the Fund, along with other affiliated registered
investment companies (the 'Funds'), entered into a syndicated credit agreement
('SCA') with an unaffiliated lender. The maximum commitment under the SCA is $1
billion. The Funds pay a commitment fee at an annual rate of .065 of 1% on the
unused portion of the credit facility, which is accrued and paid quarterly on a
pro rata basis by the Funds. The SCA expires on March 9, 2000. Prior to March
11, 1999, the Funds had a credit agreement with a maximum commitment of
$200,000,000. The commitment fee was .055 of 1% on the unused portion of the
credit facility. The Fund did not borrow any amounts pursuant to either
agreement during the six months ended March 31, 1999. The purpose of the
agreements is to serve as an alternative source of funding for capital share
redemptions.
PIMS, PIFM, PIC and PRICOA are indirect, wholly owned subsidiaries of The
Prudential Insurance Company of America.
- ------------------------------------------------------------
Note 3. Other Transactions With Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent and during the six months ended April 30,
1999, the Portfolio incurred fees of approximately $50,800 for the services of
PMFS. As of April 30, 1999, approximately $9,100 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
and options, for the six months ended April 30, 1999 aggregated $14,015,745 and
$23,224,785, respectively.
The United States federal income tax basis of the Portfolio's investments at
April 30, 1999 was substantially the same as for financial reporting purposes
and, accordingly, net unrealized depreciation of investments was $2,706,128
(gross unrealized appreciation--$766,622; gross unrealized
depreciation--$3,472,750).
For federal income tax purposes, the Portfolio had a capital loss
carryforward as of October 31, 1998, of approximately $52,716,100 of which
$4,207,200 expires in 2000, $32,949,600 expires in 2001, $12,011,000 expires
in 2002, $1,565,600 expires in 2003, $326,200 expires in 2004 and $1,656,500
expires in 2006. Accordingly, no capital gains distributions are expected to
be paid to shareholders until future net gains have been realized in excess
of such carryforward.
At April 30, 1999, the Portfolio had outstanding forward currency contracts
both to purchase and sell foreign currencies as follows:
<TABLE>
<CAPTION>
Value at
Forward Currency Settlement Date Current
Purchase Contracts Payable Value Depreciation
- -------------------------- --------------- ----------- --------------
<S> <C> <C> <C>
Euros,
expiring 5/25/99........ $ 2,058,109 $ 2,056,442 $ (1,667)
Swedish Krona,
expiring 5/6/99......... 882,620 867,506 (15,114)
--------------- ----------- --------------
$ 2,940,729 $ 2,923,948 $(16,781)
--------------- ----------- --------------
--------------- ----------- --------------
</TABLE>
<TABLE>
<CAPTION>
Value at
Forward Currency Settlement Date Current Appreciation/
Sale Contracts Receivable Value Depreciation
- ------------------------- --------------- ----------- ------------
<S> <C> <C> <C>
Canadian Dollars,
expiring 5/25/99....... $ 2,303,523 $ 2,330,497 $(26,974)
Euros,
expiring 5/6/99........ 882,620 862,750 19,870
Greek Drachma,
expiring 5/25/99....... 1,109,380 1,110,955 (1,575)
Japanese Yen,
expiring 5/25/99....... 847,249 842,478 4,771
New Zealand Dollars,
expiring 5/25/99....... 6,884,717 7,000,182 (115,465)
Pound Sterling,
expiring 5/25/99....... 948,729 949,309 (580)
Swiss Francs,
expiring 5/25/99....... 4,714,475 4,674,411 40,064
--------------- ----------- ------------
$17,690,693 $17,770,582 $(79,889)
--------------- ----------- ------------
--------------- ----------- ------------
</TABLE>
- --------------------------------------------------------------------------------
10
<PAGE>
PRUDENTIAL GLOBAL LIMITED
Notes to Financial Statements MATURITY FUND, INC.
(Unaudited) LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
Note 5. Joint Repurchase Agreement Account
The Portfolio, 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 April 30,
1999, the Portfolio has a 0.9% undivided interest in the repurchase agreements
in the joint account. The undivided interest for the Portfolio represents
$4,958,000 in principal amount. As of such date, each repurchase agreement in
the joint account and the value of the collateral therefor were as follows:
Bear, Stearns & Co., Inc., 4.90%, in the principal amount of $150,000,000,
repurchase price $150,061,250, due 5/3/99. The value of the collateral including
accrued interest was $153,641,618.
Merrill Lynch, Pierce, Fenner & Smith, Inc., 4.90%, in the principal amount of
$121,448,000, repurchase price $121,497,591, due 5/3/99. The value of the
collateral including accrued interest was $123,877,485.
Salomon Smith Barney, Inc., 4.90%, in the principal amount of $150,000,000,
repurchase price $150,061,250, due 5/3/99. The value of the collateral including
accrued interest was $153,037,359.
Warburg Dillon Read LLC, 4.90%, in the principal amount of $150,000,000,
repurchase price $150,061,250, due 5/3/99. The value of the collateral including
accrued interest was $153,001,025.
- ------------------------------------------------------------
Note 6. Capital
The Portfolio 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 3.0%. Class B shares are
sold with a contingent deferred sales charge which declines from 3% 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 five years after purchase. A special exchange privilege is also
available for shareholders who qualify 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. The Portfolio has
authorized 2 billion shares of common stock at $.001 par value per share equally
divided into Class A, B, C and Z shares.
Transactions in shares of common stock for the six months ended April 30,
1999 and the year ended October 31, 1998 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------------ ---------- ------------
<S> <C> <C>
Six months ended April 30, 1999:
Shares sold......................... 29,104 $ 226,905
Shares issued in reinvestment of
dividends and distributions....... 165,599 1,281,405
Shares reacquired................... (1,114,134) (8,599,958)
---------- ------------
Net decrease in shares outstanding
before conversion................. (919,431) (7,091,648)
Shares issued upon conversion from
Class B........................... 38,263 297,545
---------- ------------
Net decrease in shares
outstanding....................... (881,168) $ (6,794,103)
---------- ------------
---------- ------------
Year ended October 31, 1998:
Shares sold......................... 60,910 $ 492,071
Shares issued in reinvestment of
dividends and distributions....... 595,087 4,814,179
Shares reacquired................... (2,675,177) (21,698,873)
---------- ------------
Net decrease in shares outstanding
before conversion................. (2,019,180) (16,392,623)
Shares issued upon conversion from
Class B........................... 165,902 1,366,795
---------- ------------
Net decrease in shares
outstanding....................... (1,853,278) $(15,025,828)
---------- ------------
---------- ------------
<CAPTION>
Class B
- ------------------------------------
<S> <C> <C>
Six months ended April 30, 1999:
Shares sold......................... 5,623 $ 43,747
Shares issued in reinvestment of
dividends and distributions....... 3,013 23,486
Shares reacquired................... (39,519) (308,390)
---------- ------------
Net decrease in shares outstanding
before conversion................. (30,883) (241,157)
Shares reacquired upon conversion
into Class A...................... (38,019) (297,545)
---------- ------------
Net decrease in shares
outstanding....................... (68,902) $ (538,702)
---------- ------------
---------- ------------
Year ended October 31, 1998:
Shares sold......................... 42,084 $ 342,479
Shares issued in reinvestment of
dividends and distributions....... 21,298 173,540
Shares reacquired................... (165,425) (1,347,329)
---------- ------------
Net decrease in shares outstanding
before conversion................. (102,043) (831,310)
Shares reacquired upon conversion
into Class A...................... (165,049) (1,366,795)
---------- ------------
Net decrease in shares
outstanding....................... (267,092) $ (2,198,105)
---------- ------------
---------- ------------
</TABLE>
- --------------------------------------------------------------------------------
11
<PAGE>
PRUDENTIAL GLOBAL LIMITED
Notes to Financial Statements MATURITY FUND, INC.
(Unaudited) LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C Shares Amount
- ------------------------------------ ---------- ------------
<S> <C> <C>
Six months ended April 30, 1999:
Shares sold......................... 2,015 $ 15,747
Shares issued in reinvestment of
dividends and distributions....... 115 897
Shares reacquired................... (4,200) (32,467)
---------- ------------
Net decrease in shares
outstanding....................... (2,070) $ (15,823)
---------- ------------
---------- ------------
Year ended October 31, 1998:
Shares sold......................... 3,889 $ 32,000
Shares issued in reinvestment of
dividends and distributions....... 820 6,683
Shares reacquired................... (10,850) (87,472)
---------- ------------
Net decrease in shares
outstanding....................... (6,141) $ (48,789)
---------- ------------
---------- ------------
<CAPTION>
Class Z
- ------------------------------------
<S> <C> <C>
Six months ended April 30, 1999:
Shares sold......................... 258 $ 2,000
Shares issued in reinvestment of
dividends and distributions....... 227 1,763
---------- ------------
Net increase in shares
outstanding....................... 485 $ 3,763
---------- ------------
---------- ------------
Year ended October 31, 1998:
Shares sold......................... 5,175 $ 43,450
Shares issued in reinvestment of
dividends and distributions....... 543 4,398
Shares reacquired................... (11) (84)
---------- ------------
Net increase in shares
outstanding....................... 5,707 $ 47,764
---------- ------------
---------- ------------
</TABLE>
- ------------------------------------------------------------
Note 7. Proposed Merger
On May 26, 1999, the Directors approved an Agreement and Plan of Reorganization
and Liquidation of the Fund (the 'Plan of Reorganization') which provides for
the transfer of substantially all of the assets and liabilities of the Fund to
The Global Total Return Fund, Inc. Class A, B, C, and Z shares of the Fund will
be exchanged at net asset value for Class A, B, C, and Z shares of the
equivalent value of The Global Total Return Fund, Inc. The Fund will then cease
operations.
- --------------------------------------------------------------------------------
12
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
Financial Highlights (Unaudited) LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
----------------------------------------------------------------------
Six Months
Ended Year Ended October 31,
April 30, -------------------------------------------------------
1999(b) 1998(b) 1997(b) 1996 1995 1994
---------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 7.80 $ 8.41 $ 8.82 $ 8.39 $ 8.56 $ 9.29
---------- ------- ------- ------- ------- -------
Income from investment operations
Net investment income......................... .24 .54 .60 .60 .61 .70
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions............................... (.16) (.29) (.16) .40 (.21) (.86)
---------- ------- ------- ------- ------- -------
Total from investment operations........... .08 .25 .44 1.00 .40 (.16)
---------- ------- ------- ------- ------- -------
Less distributions
Dividends from net investment income.......... (.24) (.54) (.60) (.57) (.48) --
Distributions in excess of net investment
income..................................... (.03) (.22) (.25) -- -- --
Tax return of capital distributions........... -- (.10) -- -- (.09) (.57)
---------- ------- ------- ------- ------- -------
Total distributions........................ (.27) (.86) (.85) (.57) (.57) (.57)
---------- ------- ------- ------- ------- -------
Net asset value, end of period................ $ 7.61 $ 7.80 $ 8.41 $ 8.82 $ 8.39 $ 8.56
---------- ------- ------- ------- ------- -------
---------- ------- ------- ------- ------- -------
TOTAL RETURN(a):.............................. 1.12% 3.01% 5.14% 12.35% 4.92% (1.89)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $ 56,249 $64,538 $85,109 $69,051 $18,216 $28,841
Average net assets (000)...................... $ 61,035 $73,853 $83,590 $53,284 $20,153 $38,000
Ratios to average net assets:
Expenses, including distribution fees...... 1.46%(c) 1.36% 1.35% 1.32% 1.21% 1.17%
Expenses, excluding distribution fees...... 1.24%(c) 1.21% 1.20% 1.17% 1.06% 1.02%
Net investment income...................... 6.27%(c) 6.65% 6.94% 7.12% 7.25% 7.67%
For Class A, B, C and Z shares:
Portfolio turnover rate.................... 25% 40% 53% 101% 199% 232%
</TABLE>
- ---------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods less than a full year are not
annualized.
(b) Calculated based upon average shares outstanding during the period.
(c) Annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 13
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
Financial Highlights (Unaudited) LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
--------------------------------------------------------------------------
Six Months
Ended Year Ended October 31,
April 30, -----------------------------------------------------------
1999(b) 1998(b) 1997(b) 1996 1995 1994
----- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 7.85 $ 8.45 $ 8.85 $ 8.42 $ 8.56 $ 9.29
----- ------- -------- -------- -------- --------
Income from investment operations
Net investment income......................... .22 .51 .55 .55 .56 .62
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions............................... (.16) (.31) (.16) .40 (.19) (.86)
----- ------- -------- -------- -------- --------
Total from investment operations........... .06 .20 .39 .95 .37 (.24)
----- ------- -------- -------- -------- --------
Less distributions
Dividends from net investment income.......... (.22) (.51) (.55) (.52) (.43) --
Distributions in excess of net investment
income..................................... (.03) (.19) (.24) -- -- --
Tax return of capital distributions........... -- (.10) -- -- (.08) (.49)
----- ------- -------- -------- -------- --------
Total distributions........................ (.25) (.80) (.79) (.52) (.51) (.49)
----- ------- -------- -------- -------- --------
Net asset value, end of period................ $ 7.66 $ 7.85 $ 8.45 $ 8.85 $ 8.42 $ 8.56
----- ------- -------- -------- -------- --------
----- ------- -------- -------- -------- --------
TOTAL RETURN(a):.............................. 0.84% 2.48% 4.59% 11.61% 4.60% (2.62)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $ 996 $ 1,562 $ 2,397 $ 44,804 $108,454 $188,966
Average net assets (000)...................... $1,248 $ 2,397 $ 17,941 $ 70,794 $139,248 $281,143
Ratios to average net assets:
Expenses, including distribution fees...... 1.99%(c) 1.96% 1.95% 1.92% 1.83% 1.97%
Expenses, excluding distribution fees...... 1.24%(c) 1.21% 1.20% 1.17% 1.08% 1.02%
Net investment income...................... 5.73%(c) 6.03% 6.34% 6.51% 6.61% 6.82%
</TABLE>
- ---------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods less than a full year are not
annualized.
(b) Calculated based upon average shares outstanding during the period.
(c) Annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 14
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
Financial Highlights (Unaudited) LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
--------------------------------------------------------------------------
August 1,
Six Months 1994(b)
Ended Year Ended October 31, Through
April 30, ------------------------------------------- October 31,
1999(e) 1998(e) 1997(e) 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
----- ------- ------- ------- ------- ---
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 7.85 $ 8.45 $ 8.85 $ 8.42 $ 8.56 $8.61
----- ------- ------- ------- ------- ---
Income from investment operations
Net investment income......................... .22 .50 .55 .55 .54 .14
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions............................... (.16) (.30 ) (.16) .40 (.17) (.06)
----- ------- ------- ------- ------- ---
Total from investment operations........... .06 .20 .39 .95 .37 .08
----- ------- ------- ------- ------- ---
Less distributions
Dividends from net investment income.......... (.22) (.50 ) (.55) (.52) (.43) --
Distributions in excess of net investment
income..................................... (.03) (.20 ) (.24) -- -- --
Tax return of capital distributions........... -- (.10 ) -- -- (.08) (.13)
----- ------- ------- ------- ------- ---
Total distributions........................ (.25) (.80 ) (.79) (.52) (.51) (.13)
----- ------- ------- ------- ------- ---
Net asset value, end of period................ $ 7.66 $ 7.85 $ 8.45 $ 8.85 $ 8.42 $8.56
----- ------- ------- ------- ------- ---
----- ------- ------- ------- ------- ---
TOTAL RETURN(a):.............................. 0.84% 2.48 % 4.59% 11.61% 4.60% 0.75%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $ 34 $ 51 $ 107 $ 54 $ 755(d) $ 200(d)
Average net assets (000)...................... $ 48 $ 64 $ 116 $ 4 $ 1,461(d) $ 199(d)
Ratios to average net assets:
Expenses, including distribution fees...... 1.99%(c) 1.96 % 1.95% 1.92% 1.70% .93%(c)
Expenses, excluding distribution fees...... 1.24%(c) 1.21 % 1.20% 1.17% .95% .18%(c)
Net investment income...................... 5.70%(c) 6.07 % 6.36% 6.35% 6.43% 7.02%(c)
</TABLE>
- ---------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(b) Commencement of offering of Class C shares.
(c) Annualized.
(d) Figures are actual and not rounded to the nearest thousand.
(e) Calculated based upon average shares outstanding during the period.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 15
<PAGE>
PRUDENTIAL GLOBAL LIMITED
MATURITY FUND, INC.
Financial Highlights (Unaudited) LIMITED MATURITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class Z
------------------------------------------
January 27,
Six Months Year 1997(c)
Ended Ended Through
April 30, October 31, October 31,
1999(e) 1998(e) 1997(e)
<S> <C> <C> <C>
----- ----- -----
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 7.84 $ 8.44 $ 8.57
----- ----- -----
Income from investment operations
Net investment income......................... .25 .55 .43
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions............................... (.16) (.28) (.11)
----- ----- -----
Total from investment operations........... .09 .27 .32
----- ----- -----
Less distributions
Dividends from net investment income.......... (.25) (.55) (.43)
Distributions in excess of net investment
income..................................... (.03) (.22) (.02)
Tax return of capital distributions........... -- (.10) --
----- ----- -----
Total distributions........................ (.28) (.87) (.45)
----- ----- -----
Net asset value, end of period................ $ 7.65 $ 7.84 $ 8.44
----- ----- -----
----- ----- -----
TOTAL RETURN(a):.............................. 1.09% 3.28% 3.53%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $ 51 $ 49 $ 4
Average net assets (000)...................... $ 50 $ 43 $ 308(d)
Ratios to average net assets:
Expenses, including distribution fees...... 1.24%(b) 1.21% 1.20%(b)
Expenses, excluding distribution fees...... 1.24%(b) 1.21% 1.20%(b)
Net investment income...................... 6.50%(b) 6.83% 14.07%(b)
</TABLE>
- ---------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(b) Annualized.
(c) Commencement of offering of Class Z shares.
(d) Figures are actual and not rounded to the nearest thousand.
(e) Calculated based upon average shares outstanding during the period.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 16
<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
Thomas T. Mooney
Stephen P. Munn
Richard A. Redeker
Robin B. Smith
John R. Strangfeld
Louis A. Weil, III
Clay T. Whitehead
Officers
John R. Strangfeld, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
Marguerite 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 Houndsditch
London EC3A7BU
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.
The accompanying financial statements as of April 30, 1999, were not audited
and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
<PAGE>
(LOGO)
Prudential Mutual Funds BULK RATE
Gateway Center Three U.S. POSTAGE
100 Mulberry Street PAID
Newark, NJ 07102-4077 Permit 6807
(800) 225-1852 New York, NY
74433F108
74433F207 MF144E2
74433F504 74433F603
<PAGE>
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
As permitted by Section 17(h) and (i) of the Investment Company Act of 1940
(the 1940 Act) and pursuant to Article VII of the Fund's By-Laws (Exhibit 2 to
the Registration Statement), officers, directors, employees and agents of the
Registrant will not be liable to the Registrant, any shareholder, officer,
director, employee, agent or other person for any action or failure to act,
except for bad faith, willful misfeasance, gross negligence or reckless
disregard of duties, and those individuals may be indemnified against
liabilities in connection with the Registrant, subject to the same exceptions.
Section 2-418 of the Maryland General Corporation Law permits indemnification of
directors who acted in good faith and reasonably believed that the conduct was
in the best interests of the Registrant. As permitted by Section 17(i) of the
1940 Act, pursuant to Section 10 of the Distribution Agreement (Exhibit 7 to the
Registration Statement), the Distributor of the Registrant may be indemnified
against liabilities which it may incur, except liabilities arising from bad
faith, gross negligence, willful misfeasance or reckless disregard of duties.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (Securities Act) may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provision or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
1940 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of successful defense of any action, suit or proceeding) is asserted
against the Registrant by such director, officer or controlling person in
connection with the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1940 Act and
will be governed by the final adjudication of such issue.
The Registrant has purchased an insurance policy insuring its officers and
directors against liabilities, and certain costs of defending claims against
such officers and directors, to the extent such officers and directors are not
found to have committed conduct constituting willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of indemnification
payments to officers and directors under certain circumstances.
Section 9 of the Management Agreement (Exhibit 6(a))to the Registration
Statement) and Section 4 of the Subadvisory Agreement (Exhibit 6(b)) to the
Registration Statement) and Schedule E of the Sub-investment Management
Agreement (Exhibit 6(c) to the Registration Statement) limit the liability of
Prudential Investments Fund Management LLC (PIFM), The Prudential Investment
Corporation (PIC) and PRICOA Asset Management Ltd., respectively, to liabilities
arising from willful misfeasance, bad faith or gross negligence in the
performance of their respective duties or from reckless disregard by them of
their respective obligations and duties under the agreements.
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws and the Distribution Agreement in a manner consistent
with Release No. 11330 of the Securities and Exchange Commission under the 1940
Act so long as that interpretation of Section 17(h) and 17(i) of such Act
remains in effect and is consistently applied.
Under Section 17(h) of the 1940 Act, it is the position of the staff of the
Securities and Exchange Commission that if there is neither a court
determination on the merits that the defendant is not liable nor a court
determination that the defendant was not guilty of willful misfeasance, bad
faith, gross negligence
C-1
<PAGE>
or reckless disregard of the duties involved in the conduct of one's office, no
indemnification will be permitted unless an independent legal counsel (not
including a counsel who does work for either the Registrant, its investment
adviser, its principal underwriter or persons affiliated with these persons)
determines, based upon a review of the facts, that the person in question was
not guilty of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
Under its Articles of Incorporation, the Registrant may advance funds to
provide for indemnification. Pursuant to the Securities and Exchange Commission
staff's position on Section 17(h), advances will be limited in the following
respect:
(1) Any advances must be limited to amounts used, or to be used, for the
preparation and/or presentation of a defense to the action (including
cost connected with preparation of a settlement);
(2) Any advances must be accompanied by a written promise by, or on behalf
of, the recipient to repay that amount of the advance which exceeds the
amount to which it is ultimately determined that he is entitled to
receive from the Registrant by reason of indemnification;
(3) Such promise must be secured by a surety bond or other suitable
insurance and;
(4) Such surety bond or other insurance must be paid for by the recipient or
such advance
ITEM 16. EXHIBITS
<TABLE>
<S> <C>
1. (a) Amended and Restated Articles of Incorporation.(1)
(b) Amendment to the Articles of Incorporation.(1)
(c) Articles Supplementary.(2)
(d) Articles Supplementary.(3)
2. Amended and Restated By-Laws.(1)
4. Agreement and Plan of Reorganization and Liquidation filed herewith as
Appendix A to the Proxy Statement and Prospectus.*
5. Instruments defining rights of shareholders.(1)
6. (a) Form of Amended Management Agreement between the Registrant and
Prudential Mutual Fund Management, Inc.(1)
(b) Form of Amended Subadvisory Agreement between Prudential Mutual Fund
Management, Inc. and The Prudential Investment Corporation.(1)
(c) Sub-Investment Management Agreement between The Prudential Investment
Corporation and PRICOA Asset Management Limited.(4)
(d) First Amendment to Sub-Investment Management Agreement between The
Prudential Investment Corporation and PRICOA Asset Management Limited.(4)
(e) Second Amendment to Sub-Investment Management Agreement between The
Prudential Investment Corporation and PRICOA Asset Management Limited.(4)
(f) Third Amendment to Sub-Investment Management Agreement between The
Prudential Investment Corporation and PRICOA Asset Management Limited.(4)
7. (a) Distribution Agreement between the Registrant and Prudential
Investment Management Services LLC.(3)
(b) Form of Selected Dealer Agreement.(3)
9. (a) Form of Custodian Contract between the Registrant and State Street
Bank and Trust Company.(1)
</TABLE>
C-2
<PAGE>
<TABLE>
<S> <C>
10. (a) Amended and Restated Distribution and Service Plan for Class A
Shares.(4)
(b) Amended and Restated Distribution and Service Plan for Class B
Shares.(4)
(c) Amended and Restated Distribution and Service Plan for Class C
Shares.(4)
(d) Amended Rule 18f-3 Plan.(3)
11. Opinion and Consent of Counsel.*
12. Tax Opinion and Consent.*
13. Transfer Agency and Service Agreement.(1)
14. Consent of Independent Accountants.*
17. (a) Proxy*
(b) Copy of Registrant's declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940.(5)
(c) Prospectus of Prudential Global Limited Maturity Fund, Inc. dated
January 22, 1999.(5)
(d) Supplement dated May 27, 1999 to Prudential Global Limited Maturity
Fund, Inc. Prospectus.*
(e) Supplement dated July 23, 1999 to The Global Total Return Fund, Inc.
and Prudential Global Limited Maturity Fund, Inc. Prospectuses.(6)
(f) Prospectus of The Global Total Return Fund, Inc. dated March 1,
1999.(5)
(g) Supplement dated August 9, 1999 to The Global Total Return Fund, Inc.
Prospectus.(6)
(h) President's Letter.*
</TABLE>
- ------------------------
(1) Incorporated by reference to the Registration Statement on Form N-1A filed
on or about November 3, 1995 (File No. 33-63943).
(2) Incorporated by reference to Post-Effective Amendment No. 2 to the
Registration Statement on Form N-1A filed on or about February 28, 1997
(File No. 33-63943).
(3) Incorporated by reference to Post-Effective Amendment No. 4 to the
Registration Statement on Form N-1A filed on or about December 31, 1998
(File No. 33-63943).
(4) Incorporated by reference to Post-Effective Amendment No. 5 to the
Registration Statement on Form N-1A filed on or about March 1, 1999 (File
No. 33-63943).
(5) Incorporated herein by reference to the Registration Statement on Form N-14
filed on or about July 9, 1999 (File No. 333-86241).
(6) Incorporated herein by reference to Pre-Effective Amendment No. 2 to the
Registration Statement on Form N-14 filed on or about August 16, 1999 (File
No. 333-82551).
* Filed herewith.
ITEM 17. UNDERTAKINGS.
(1) The undersigned registrant agrees that prior to any public reoffering of the
securities through the use of a prospectus which is a part of this statement
by any person or party who is deemed to be an underwriter within the meaning
of Rule 145(c) of the Securities Act, the reoffering prospectus will contain
the information called for by the applicable registration form for
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The undersigned registrant agrees that every prospectus that is filed under
paragraph (1) above will be filed as part of an amendment to the
registration statement and will not be used until the amendment is
effective, and that, in determining any liability under the 1933 Act, each
post-effective amendment shall be deemed to be a new registration statement
for the securities offered therein, and the offering of the securities at
that time shall be deemed to be the initial bona fide offering of them.
C-3
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has
been signed on behalf of the Registrant, in the City of Newark, and the State of
New Jersey, on the 13th day of August, 1999.
<TABLE>
<S> <C> <C>
PRUDENTIAL GLOBAL TOTAL RETURN FUND, INC.
By: /s/ JOHN R. STRANGFELD, JR.
-----------------------------------------
John R. Strangfeld, Jr., PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dated indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ EDWARD D. BEACH
- ------------------------------ Director August 13, 1999
Edward D. Beach
/s/ DELAYNE D. GOLD
- ------------------------------ Director August 13, 1999
Delayne D. Gold
/s/ ROBERT F. GUNIA
- ------------------------------ Director August 13, 1999
Robert F. Gunia
/s/ DOUGLAS H. MCCORKINDALE
- ------------------------------ Director August 13, 1999
Douglas H. McCorkindale
/s/ THOMAS T. MOONEY
- ------------------------------ Director August 13, 1999
Thomas T. Mooney
/s/ STEPHEN P. MUNN
- ------------------------------ Director August 13, 1999
Stephen P. Munn
/s/ RICHARD A. REDEKER
- ------------------------------ Director August 13, 1999
Richard A. Redeker
/s/ ROBIN E. SMITH
- ------------------------------ Director August 13, 1999
Robin E. Smith
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
DATE
SIGNATURE TITLE -
- ------------------------------ --------------------------
<C> <S> <C>
/s/ JOHN R. STRANGFELD, JR.
- ------------------------------ President and Director August 13, 1999
John R. Strangfeld, Jr.
/s/ LOUIS A. WEIL, III
- ------------------------------ Director August 13, 1999
Louis A. Weil, III
/s/ CLAY T. WHITEHEAD
- ------------------------------ Director August 13, 1999
Clay T. Whitehead
/s/ GRACE C. TORRES Treasurer and Principal
- ------------------------------ Financial and Accounting August 13, 1999
Grace C. Torres Officer
</TABLE>
C-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS
- ------
<S> <C> <C>
1. (a) Amended and Restated Articles of Incorporation.(1)
(b) Amendment to the Articles of Incorporation.(1)
(c) Articles Supplementary.(2)
(d) Articles Supplementary.(3)
2. Amended and Restated By-Laws.(1)
4. Agreement and Plan of Reorganization and Liquidation filed herewith as
Appendix A to the Proxy Statement and Prospectus.*
5. Instruments defining rights of shareholders.(1)
6. (a) Form of Amended Management Agreement between the Registrant and
Prudential Mutual Fund Management, Inc.(1)
(b) Form of Amended Subadvisory Agreement between Prudential Mutual Fund
Management, Inc. and The Prudential Investment Corporation.(1)
(c) Sub-Investment Management Agreement between The Prudential Investment
Corporation and PRICOA Asset Management Limited.(4)
(d) First Amendment to Sub-Investment Management Agreement between The
Prudential Investment Corporation and PRICOA Asset Management
Limited.(4)
(e) Second Amendment to Sub-Investment Management Agreement between The
Prudential Investment Corporation and PRICOA Asset Management
Limited.(4)
(f) Third Amendment to Sub-Investment Management Agreement between The
Prudential Investment Corporation and PRICOA Asset Management
Limited.(4)
7. (a) Distribution Agreement between the Registrant and Prudential
Investment Management Services LLC.(3)
(b) Form of Selected Dealer Agreement.(3)
9. (a) Custodian Contract between the Registrant and State Street Bank and
Trust Company.(1)
10. (a) Amended and Restated Distribution and Service plan for Class A
Shares.(4)
(b) Amended and Restated Distribution and Service Plan for Class B
Shares.(4)
(c) Amended and Restated Distribution and Service Plan for Class C
Shares.(4)
(d) Amended Rule 18f-3 Plan.(3)
11. Opinion and Consent of Counsel.*
12. Tax Opinion and Consent.*
13. Transfer Agency and Service Agreement.(1)
14. Consent of Independent Accountants.*
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
17. (a) Proxy*
(b) Copy of Registrant's declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940.(5)
(c) Prospectus of Prudential Global Limited Maturity Fund, Inc. dated
January 22, 1999.(5)
(d) Supplement dated May 27, 1999 to Prudential Global Limited Maturity
Fund, Inc. Prospectus.*
(e) Supplement dated July 23, 1999 to The Global Total Return Fund, Inc.
and Prudential Global Limited Maturity Fund, Inc. Prospectuses.(6)
(f) Prospectus of The Global Total Return Fund, Inc. dated March 1,
1999.(5)
(g) Supplement dated August 9, 1999 to The Global Total Return Fund, Inc.
Prospectus.(6)
(h) President's Letter.*
</TABLE>
- ------------------------
(1) Incorporated by reference to the Registration Statement on Form N-1A filed
on or about November 3, 1995 (File No. 33-63943).
(2) Incorporated by reference to Post-Effective Amendment No. 2 to the
Registration Statement on Form N-1A filed on or about February 28, 1997
(File No. 33-63943).
(3) Incorporated by reference to Post-Effective Amendment No. 4 to the
Registration Statement on Form N-1A filed on or about December 31, 1998
(File No. 33-63943).
(4) Incorporated by reference to Post-Effective Amendment No. 5 to the
Registration Statement on Form N-1A filed on or about March 1, 1999 (File
No. 33-63943).
(5) Incorporated herein by reference to the Registration Statement on Form N-14
filed on or about July 9, 1999 (File No. 333-86241).
(6) Incorporated herein by reference to Pre-Effective Amendment No. 2 to the
Registration Statement on Form N-14 filed on or about August 16, 1999 (File
No. 333-82551).
* Filed herewith.
<PAGE>
PIPER & MARBURY
L.L.P.
CHARLES CENTER SOUTH
36 SOUTH CHARLES STREET
BALTIMORE, MARYLAND 21201-3018
410-539-2530 WASHINGTON
FAX: 410-539-0489 NEW YORK
PHILADELPHIA
EASTON
August 9, 1999
Prudential Global Total Return Fund, Inc
Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102
Re: Registration Statement on Form N-14
-----------------------------------
Ladies and Gentlemen:
We have acted as special Maryland counsel to Prudential Global Total Return
Fund, Inc., a Maryland corporation (the "Acquiring Fund"), in connection with
its proposed acquisition of the Prudential Intermediate Global Income Fund,
Inc., a Maryland corporation (the "Acquired Fund"), in exchange for Class A,
Class B, Class C and Class Z shares of the Acquiring Fund (collectively, the
"Acquiring Fund Shares"), par value $.01 per share, pursuant to an Agreement and
Plan of Reorganization and Liquidation by and between the Acquiring Fund and the
Acquired Fund (the "Agreement").
In our capacity as special Maryland counsel, we have reviewed originals or
copies, certified or otherwise identified to our satisfaction, of the following
documents:
(a) The Charter of the Acquiring Fund certified by the Maryland State
Department of Assessments and Taxation (the "MSDAT").
(b) The By-Laws of the Acquiring Fund.
(c) The Prospectus/Proxy Statement contained in the Acquiring Fund's
Registration Statement on Form N-14 (the "Registration Statement").
(d) The Agreement.
<PAGE>
Piper & Marbury
LLP
Prudential Global Total Return Fund, Inc.
August 9, 1999
Page 2
(e) Resolutions of the Board of Directors of the Acquiring Fund relating
to the authorization of (i) the issuance of the Acquiring Fund Shares;
(ii) the Registration Statement and the transactions contemplated
thereby and (iii) the Agreement and the transactions contemplated
thereby.
(f) A short-form Good Standing Certificate for the Acquiring Fund, dated
a recent date, issued by the MSDAT.
(g) A Certificate of Secretary of the Acquiring Fund, dated as of the date
hereof, as to certain factual matters (the "Certificate").
(h) Such other documents as we have considered necessary to the rendering
of the opinions expressed below.
In such examination of the aforesaid documents, we have assumed, without
independent investigation, the genuineness of all signatures, the legal capacity
of all individuals who have executed any of the aforesaid documents, the
authenticity of all documents submitted to us as originals, the conformity with
originals of all documents submitted to us as copies (and the authenticity of
the originals of such copies), and the accuracy and completeness of all public
records reviewed by us. As to factual matters, we have relied on the Certificate
and have not independently verified the matters stated therein.
Based upon the foregoing, having regard for such legal considerations as we
deem relevant, and limited in all respects to applicable Maryland law, we are of
the opinion and advise you that:
1. The Acquiring Fund is a corporation validly existing and in good
standing under the laws of the State of Maryland.
2. The Acquiring Fund Shares to be issued as contemplated in the Agreement
have been, to the extent of the number of shares of the class authorized in the
Charter of the Acquiring Fund and then unissued, duly authorized, and, subject
to the receipt by the Acquiring Fund of consideration equal to the net asset
value thereof, when issued pursuant to the Agreement and in the manner referred
to in the Registration Statement, will constitute validly issued shares, fully
paid and nonassessable, under the laws of the State of Maryland.
This opinion is limited to the laws of the State of Maryland, exclusive of
the securities or "blue sky" laws of the State of Maryland. This opinion is
rendered as of the
<PAGE>
Prudential Global Total Return Fund, Inc.
August 9, 1999
Page 2
date hereof. We assume no obligation to update such opinion to reflect any facts
or circumstances which may hereafter come to our attention or changes in the law
which may hereafter occur. This opinion is limited to the matters set forth
herein, and no other opinion should be inferred beyond the matters expressly
stated. To the extent that any documents referred to herein are governed by the
law of a jurisdiction other than Maryland, we have assumed that the laws of such
jurisdiction are the same as the laws of the State of Maryland.
Gardner Carton & Douglas are authorized to rely on this opinion in
rendering their opinion to the Acquiring Fund which is to be filed as an exhibit
to the Registration Statement. We hereby consent to the filing of this opinion
with the Commission as Exhibit 11 to the Registration Statement and to the
reference to our firm under the heading "Legal Matters" in the Registration
Statement. This opinion is limited to the matters set forth herein, and no other
opinion should be inferred beyond the matters expressly stated.
Very truly yours,
/s/ Piper & Marbury L.L.P.
<PAGE>
GARDNER, CARTON & DOUGLAS
Suite 3400 Quaker Tower
321 North Clark Street
Chicago, Illinois 60610-4795
(312) 644-3000
Telecopier: (312) 644-3381
August 12, 1999
Prudential Global Limited Maturity Fund, Inc. The Global Total Return Fund, Inc.
Gateway Center Three Gateway Center Three
100 Mulberry Street 100 Mulberry Street
Newark, New Jersey 07102-4077 Newark, New Jersey 07102-4077
RE: REORGANIZATION OF PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC. AND
THE GLOBAL TOTAL RETURN FUND, INC.
----------------------------------
Ladies and Gentlemen:
We are outside counsel to Prudential Global Limited Maturity Fund, Inc.
("Limited Maturity Fund") and The Global Total Return Fund, Inc. ("Total Return
Fund"). An Agreement and Plan of Reorganization and Liquidation (the
"Agreement") has been proposed pursuant to which Limited Maturity Fund will
transfer to Total Return Fund all or substantially all of the assets of Limited
Maturity Fund in exchange solely for Class A, Class B, Class C, and Class Z
shares of Total Return Fund and the assumption by Total Return Fund of the
liabilities, if any, of Limited Maturity Fund whether or not incurred in the
ordinary course of business. Limited Maturity Fund will then distribute the
Class A, Class B, Class C, and Class Z shares of Total Return Fund acquired in
the exchange to the respective Limited Maturity Fund Class A, Class B, Class C,
and Class Z shareholders in liquidation of Limited Maturity Fund (the
"Reorganization"). You have requested our opinion as to certain federal income
tax consequences of the Reorganization. The opinion that follows is based on the
Internal Revenue Code of 1986, as amended through the date hereof (the "Code"),
judicial decisions, administrative rulings and regulations, and such other
sources of legal authority as we deemed necessary to consult in rendering this
opinion. The opinion is also based on factual representations, including those
set forth herein, the representations made by the parties in the Agreement, and
on our understanding that the Reorganization will take place substantially as
set out in the Agreement and as described in the Prospectus/Proxy Statement (the
"Proxy Statement") included in the Registration Statement on Form N-14 filed by
Total Return Fund with the Securities and Exchange Commission on or about August
16, 1999 in connection with the meeting of shareholders of Limited Maturity
Fund currently scheduled to be held on or about October 7, 1999.
<PAGE>
Prudential Global Limited Maturity Fund, Inc.
Global Total Return Fund, Inc.
August 12, 1999
Page 2
SUMMARY OF THE TRANSACTION
In the Reorganization, Limited Maturity Fund will transfer all or
substantially all of its assets and liabilities to Total Return Fund in exchange
for Class A, Class B, Class C, and Class Z shares of the Total Return Fund.
Limited Maturity Fund will then distribute as a liquidating distribution to its
shareholders all of such Class A, Class B, Class C, and Class Z shares of Total
Return Fund in exchange for and in cancellation of each respective outstanding
Class A, Class B, Class C, and Class Z share of Limited Maturity Fund, and
Limited Maturity Fund will liquidate pursuant to the Agreement.
BUSINESS PURPOSE
Our opinion is based in part upon our understanding that the primary
business purpose of this transaction is to achieve certain cost savings by
combining the assets of Limited Maturity Fund and Total Return Fund as is
represented below. A description of the business purposes of the Reorganization
is set out in the Proxy Statement.
REPRESENTATIONS
In rendering our opinion we are, with your permission, assuming that the
transaction will occur substantially as described in the Agreement and the Proxy
Statement. We are also relying on the following additional representations which
have been certified to us by either Limited Maturity Fund, Total Return Fund or
both:
1. The primary business purpose of this transaction is to achieve certain
cost savings by combining the assets of Limited Maturity Fund and the Total
Return Fund. The Funds have similar investment objectives, policies, strategies,
and investment portfolios, and the combination would lead to more opportunities
for economies of scale.
2. The fair market value of the Class A, Class B, Class C, and Class Z
shares of Total Return Fund received by each Limited Maturity Fund shareholder
will be approximately equal to the fair market value of the respective Class A,
Class B, Class C, and Class Z shares of Limited Maturity Fund surrendered in
exchange therefor.
3. No cash or property, other than Total Return Fund Class A, Class B,
Class C, and Class Z shares, will be transferred to Limited Maturity Fund or
distributed to Limited Maturity Fund shareholders pursuant to the
Reorganization.
4. Total Return Fund will acquire at least 90 percent of the fair market
value of the net assets and at least 70 percent of the fair market value of the
gross assets held by Limited Maturity Fund immediately prior to the
Reorganization. For purposes of this representation, amounts used by Limited
Maturity Fund to pay its Reorganization expenses, amounts paid by Limited
Maturity Fund to shareholders who receive cash or other property, and all
redemptions
<PAGE>
Prudential Global Limited Maturity Fund, Inc.
Global Total Return Fund, Inc.
August 12, 1999
Page 3
and distributions (except for redemptions and distributions occurring in the
ordinary course of Limited Maturity Fund's business as an open-end investment
company pursuant to section 22(e) of the Investment Company Act of 1940 (the
"Act")) made by Limited Maturity Fund immediately preceding the transfer will be
included as assets of Limited Maturity Fund held immediately prior to the
Reorganization. There will be no payments to dissenters, as shareholders may
redeem their shares at any time.
5. There is no plan or intention by Total Return Fund or any person related
to Total Return Fund (as defined in section 1.368(e)(3) of the Income Tax
Regulations (the "Regulations")) to acquire or redeem any Class A, Class B,
Class C, or Class Z shares of Total Return Fund issued in the Reorganization
either directly or through any transaction, agreement, or arrangement with any
other person, other than redemptions in the ordinary course of Total Return
Fund's business as an open-end investment company as required by section 22(e)
of the Act.
6. During the five-year period ending on the date of the Reorganization,
neither Limited Maturity Fund nor any person related to Limited Maturity Fund
(as defined in section 1.368-1(e)(3) of the Regulations without regard to
section 1.368-1(e)(3)(i)(A) of the Regulations) will have directly or through
any transaction, agreement, or arrangement with any other person, (i) acquired
stock of Limited Maturity Fund with consideration other than Class A, Class B,
Class C, or Class Z shares of Total Return Fund or Limited Maturity Fund, except
for stock redeemed in the ordinary course of Limited Maturity Fund's business as
an open-end investment company as required by section 22(e) of the Act, or (ii)
made distributions with respect to Limited Maturity Fund stock, except for (a)
distributions described in sections 852 and 4982 of the Internal Revenue Code of
1986, as amended (the "Code"), and (b) additional distributions, to the extent
such distributions do not exceed 50 percent of the value (without giving effect
to such distributions) of the proprietary interest in Limited Maturity Fund on
the effective date of the Reorganization.
7. Prior to or in the transaction, neither Total Return Fund nor any person
related to Total Return Fund (as defined in section 1.368-1(e)(3) of the
Regulations) will have acquired directly or indirectly or through any
transaction, agreement, or arrangement with any other person, any Class A, Class
B, Class C, or Class Z shares of Limited Maturity Fund with consideration other
than Class A, Class B, Class C, or Class Z shares of the Total Return Fund.
8. Total Return Fund has no plan or intention to sell or otherwise dispose
of any of the assets of Limited Maturity Fund acquired in the transaction,
except for dispositions made in the ordinary course of Total Return Fund's
business as an investment company (i.e., dispositions resulting from investment
decisions made on the basis of investment considerations arising after and
independent of the Reorganization).
9. Following the Reorganization, Total Return Fund will continue the
historic business of Limited Maturity Fund or will use a significant portion of
Limited Maturity Fund's
<PAGE>
Prudential Global Limited Maturity Fund, Inc.
Global Total Return Fund, Inc.
August 12, 1999
Page 4
historic business assets in its business, except for those assets that are
disposed of by Total Return Fund in the ordinary course of business.
10. All expenses incurred in connection with the Reorganization will be
borne PRO RATA by Limited Maturity Fund and Total Return Fund in proportion to
their assets.
11. There is no intercorporate indebtedness existing between Total Return
Fund and Limited Maturity Fund that was issued, acquired, or will be settled at
a discount.
12. Each of Total Return Fund and Limited Maturity Fund meets the
requirements of a regulated investment company as referred to in Section
368(a)(2)(F) of the Code. Each of Total Return Fund and Limited Maturity Fund
has elected to be taxed as a regulated investment company under section 851 of
the Code and, for all its taxable periods (including the last short taxable
period ending on the date of the Reorganization) has qualified for the special
tax treatment afforded regulated investment companies under the Code.
13. Total Return Fund does not own, directly or indirectly, nor has it
owned during the past five years, directly or indirectly, any Class A, Class B,
Class C, or Class Z shares of Limited Maturity Fund.
14. The liabilities of Limited Maturity Fund assumed by Total Return Fund
in the Reorganization, if any, plus the liabilities to which the transferred
assets are subject, if any, were incurred by Limited Maturity Fund in the
ordinary course of its business and are associated with the assets to be
transferred.
15. The fair market value and the adjusted basis of Limited Maturity Fund's
assets transferred to Total Return Fund will equal or exceed the sum of the
liabilities, if any, assumed by Total Return Fund plus the liabilities, if any,
to which the transferred assets are subject.
16. The amount of cash, if any, retained by Limited Maturity Fund to meet
expenses, plus liabilities, if any, of Limited Maturity Fund to be assumed by
Total Return Fund in the Reorganization, plus the liabilities, if any, to which
the transferred assets are subject, will not equal or exceed 20 percent of the
fair market value of all property held by Limited Maturity Fund immediately
prior to the Reorganization.
17. As soon as practicable after the closing date, and in any event within
30 days thereafter, Limited Maturity Fund will, in pursuance of the Agreement,
distribute the shares it receives in the Reorganization, and as soon as
practicable after the closing date and in any event within 12 months of the
closing date, Limited Maturity Fund will then be liquidated for federal income
tax purposes. Limited Maturity Fund will have no assets to distribute other than
the shares of Total Return Fund received in the Reorganization.
18. Neither Limited Maturity Fund nor persons who were shareholders of
Limited Maturity Fund immediately before the closing date of the Reorganization
will own, immediately
<PAGE>
Prudential Global Limited Maturity Fund, Inc.
Global Total Return Fund, Inc.
August 12, 1999
Page 5
after the closing date of the Reorganization, Total Return Fund shares
constituting "control" of Total Return Fund within the meaning of section 304(c)
or section 368(c) of the Code.
19. Limited Maturity Fund is not under the jurisdiction of a court in a
title 11 or similar case within the meaning of section 368(a)(3)(A) of the Code.
20. In connection with the Reorganization, Limited Maturity Fund has not
and will not distribute to its creditors any Class A, Class B, Class C, or Class
Z shares of Limited Maturity Fund, any Class A, Class B, Class C, or Class Z
shares of Total Return Fund to be received, or rights to acquire any Class A,
Class B, Class C, or Class Z shares of either Limited Maturity Fund or the Total
Return Fund.
21. It is anticipated that there will be no amount remaining in the hands
of Limited Maturity Fund after the payment of the liabilities of Limited
Maturity Fund.
OPINION
Based upon the foregoing, and based upon our review of the relevant legal
authorities, it is our opinion that:
1. The acquisition by Total Return Fund of the assets of Limited Maturity
Fund in exchange solely for voting shares of Total Return Fund and the
assumption by Total Return Fund of Limited Maturity Fund's liabilities, if any,
followed by the distribution of Total Return Fund's voting shares by Limited
Maturity Fund pro rata to its shareholders, as a liquidating distribution and
the liquidation of Limited Maturity Fund pursuant to the Agreement and
constructively in exchange for their Limited Maturity Fund shares, will
constitute a reorganization within the meaning of Section 368(a)(1)(C) of the
Code, and Limited Maturity Fund and Total Return Fund each will be "a party to a
reorganization" within the meaning of Section 368(b) of the Code.
2. Limited Maturity Fund's shareholders will recognize no gain or loss upon
the receipt of Class A, Class B, Class C, and Class Z shares of Total Return
Fund solely in exchange for and in cancellation of Limited Maturity Fund shares
of common stock, as described above and in the Agreement. Code Section
354(a)(1).
3. No gain or loss will be recognized by Limited Maturity Fund upon the
transfer of all of its assets to Total Return Fund in exchange solely for Class
A, Class B, Class C, and Class Z shares of Total Return Fund and the assumption
by Total Return Fund of Limited Maturity Fund's liabilities, if any. Code
Sections 361(a) and 357(a). In addition, no gain or loss will be recognized by
Limited Maturity Fund on the distribution of such shares to the Limited Maturity
Fund shareholders in liquidation of Limited Maturity Fund. Code Section
361(c)(1).
4. No gain or loss will be recognized by Total Return Fund upon the
acquisition of Limited Maturity Fund's assets in exchange solely for Class A,
Class B, Class C, and Class Z
<PAGE>
Prudential Global Limited Maturity Fund, Inc.
Global Total Return Fund, Inc.
August 12, 1999
Page 6
shares of Total Return Fund and the assumption of Limited Maturity Fund's
liabilities, if any. Code Section 1032(a).
5. Total Return Fund's basis in the assets acquired from Limited Maturity
Fund will be the same as the basis of such assets in the hands of Limited
Maturity Fund immediately before the Reorganization, and the holding period of
such assets acquired by Total Return Fund will include the holding period
thereof when held by Limited Maturity Fund immediately before the
Reorganization. Code Sections 362(b) and 1223(2).
6. Limited Maturity Fund shareholders' basis in the Class A, Class B, Class
C, and Class Z shares of Total Return Fund to be received by them pursuant to
the Reorganization will be the same as their basis in the Class A, Class B,
Class C, and Class Z shares of Limited Maturity Fund to be constructively
surrendered in exchange therefor. Code Section 358(a)(1).
7. The holding period of Total Return Fund shares to be received by Limited
Maturity Fund shareholders will include the period during which Limited Maturity
Fund shares to be constructively surrendered in exchange therefor were held,
provided such Limited Maturity Fund shares were held as capital assets by those
shareholders on the date of the Reorganization. Code Section 1223(1).
You should be aware that this opinion is not binding on the Internal
Revenue Service or the courts and that no ruling of the Internal Revenue Service
has been requested. No opinion is expressed concerning the state, local or
foreign tax consequences of the Reorganization.
This opinion is being delivered to you pursuant to paragraph 8.6 of the
Agreement.
We hereby give you our consent to your inclusion of this opinion as an
exhibit to the Registration Statement on Form N-14 filed by Total Return Fund
with the Securities and Exchange Commission. In giving such consent, we do not
thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the Rules
and Regulations of the Securities and Exchange Commission promulgated
thereunder.
Very truly yours,
/s/ GARDNER, CARTON & DOUGLAS
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and Proxy
Statement and Statement of Additional Information constituting parts of this
registration statement on Form N-14 (the "N-14 Registration Statement") of our
report dated February 16, 1999, relating to the financial statements and
financial highlights appearing in the December 31, 1998 Annual Report to
Shareholders of The Global Total Return Fund, Inc. (the "Fund"). We also
consent to the reference to us under the heading "Independent Accountants" in
the Prospectus and Proxy Statement constituting part of such N-14 Registration
Statement. We also consent to the use of such report and to the reference to
us under the heading "Investment Advisory and Other Services" in the Statement
of Additional Information which constitutes part of Post-Effective
Amendment No. 5 to the registration statement on Form N-1A of the Fund
(the "N-1A Registration Statement"), which is included in the N-14
Registration Statement and the Prospectus and Proxy Statement constituting part
of such N-14 Registration Statement. We also consent to the reference to us
under the heading "Financial Highlights" in the Prospectus of such N-1A
Registration Statement, which is included in the N-14 Registration Statement.
We also consent to the use of our report dated December 21, 1998, relating to
the financial statements and financial highlights appearing in the October 31,
1998 Annual Report to Shareholders of Prudential Global Limited Maturity
Fund, Inc. (the "Global Limited Maturity Fund") which is included in the N-14
Registration Statement. We also consent to the use of
such report and the reference to us under the heading "Investment Advisory
and Other Services" included in the Statement of Additional Information which
constitutes part of Post-Effective Amendment No. 15 to the registration
statement on Form N-1A of the Global Limited Maturity Fund (the "Global
Limited Maturity N-1A Registration Statement"), which is incorporated by
reference in the Prospectus and Proxy Statement constituting part of the N-14
Registration Statement. We also consent to the reference to us under the
heading "Financial Highlights" included in the Prospectus which constitutes
part of the Global Limited Maturity N-1A Registration Statement, which is
incorporated by reference in the Prospectus and Proxy Statement constituting
part of the N-14 Registration Statement.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
August 11, 1999
<PAGE>
PRUDENTIAL INVESTMENTS
751 BROAD STREET - 9TH FLOOR
NEWARK, NY 07102
PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned, revoking previous proxies, hereby appoint(s) Robert F.
Gunia, Marguerite E. H. Morrison and Grace C. Torres, or any one or more of
them, with full power of substitution, to vote all shares of Prudential Global
Limited Maturity Fund, Inc., which the undersigned is entitled to vote at the
Special Meeting of Shareholders of the Fund to be held at 751 Broad Street, 9th
Floor, Newark, New Jersey 07102, on October 7, 1999 at 9:00 a.m. Eastern time
and at any adjournments thereof. All powers may be exercised by a majority of
said proxy holders or substitutes voting or acting or, if only one votes and
acts, then by that one. This Proxy shall be voted on the proposal described in
the Proxy Statement as specified below. Receipt of the Notice of the Meeting
and the accompanying Proxy Statement is hereby acknowledged.
NOTE: Please sign exactly as your name appears on this Proxy. When signing in a
fiduciary capacity, such as executor, administrator, trustee, attorney,
guardian, etc., please so indicate. Corporate and partnership proxies should be
signed by an authorized person indicating the person's title.
PLEASE SIGN, DATE, AND RETURN PROMPTLY IN
ENCLOSED ENVELOPE
Please refer to the enclosed Proxy Statement for a complete
discussion of this matter.
IF NO SPECIFICATION IS MADE, THE PROXY SHALL BE
VOTED FOR THE PROPOSAL
As to any other matter, said attorneys shall vote in accordance
with their best judgment.
VOTE THIS PROXY CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE THE EXPENSE OF ADDITIONAL MAILINGS.
PLEASE DETACH AT PERFORATION BEFORE MAILING.
<TABLE>
<S><C>
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
PRUGLO KEEP THIS PORTION FOR YOUR RECORDS
- ----------------------------------------------------------------------------------------------------------------------------------
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION ONLY
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING:
VOTE ON PROPOSAL
1. To approve an Agreement and Plan of Reorganization between Prudential Global Limited Maturity Fund, Inc. and Prudential Global
Total Return Fund, Inc. providing for the transfer of all of the assets of Prudential Global Limited Maturity Fund, Inc. to
Prudential Global Total Return Fund, Inc. in exchange solely for shares of common stock of Prudential Global Total Return Fund,
Inc. and the assumption by Prudential Global Total Return Fund, Inc. of Prudential Global Limited Maturity Fund, Inc.'s
liabilities, followed by the distribution of Prudential Global Total Return Fund, Inc.'s shares to shareholders of Prudential
Global Limited Maturity Fund, Inc. in liquidation of Prudential Global Limited Maturity Fund, Inc.
FOR AGAINST ABSTAIN
/ / / / / /
- ------------------------------------------------- -------------------------------------------------
- ------------------------------------------------- -------------------------------------------------
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Prudential Global Limited Maturity Fund, Inc.
Supplement dated May 27, 1999 to
Prospectus dated January 22, 1999
The Board of Directors of Prudential Global Limited Maturity Fund, Inc.
(the Fund) has recently approved a proposal to exchange the assets and
liabilities of the Fund for shares of The Global Total Return Fund, Inc. Class
A, Class B, Class C and Class Z shares of the Fund would be exchanged at net
asset value for respective Class A, Class B, Class C and Class Z shares of
equivalent value of The Global Total Return Fund, Inc. The Board determined
that, based upon the Manager's recommendation, the Fund should be reorganized
due to a declining asset base which is unlikely to improve and the opportunity
to participate in a larger fund with a similar objective and policies.
The transfer is subject to approval by the shareholders of the Fund. The
shareholders' meeting is scheduled to occur in September 1999. It is anticipated
that a proxy statement/prospectus relating to the transaction will be mailed to
the Fund's shareholders in July 1999.
Under the terms of the proposal, shareholders of the Fund would become
shareholders of The Global Total Return Fund, Inc. No sales charges would be
imposed on the proposed transfer. The Fund anticipates obtaining an opinion of
its counsel that the transaction will not result in gain or loss to shareholders
of the Fund for federal income tax purposes.
EFFECTIVE IMMEDIATELY, THE FUND WILL NO LONGER ACCEPT ORDERS TO PURCHASE OR
EXCHANGE INTO ITS SHARES OF ANY CLASS, EXCEPT FOR PURCHASES BY CERTAIN AUTOMATIC
INVESTMENT, RETIREMENT AND EMPLOYEE PLANS (EXCLUDING IRA ACCOUNTS). Existing
shareholders may continue to acquire shares through dividend reinvestment. The
current exchange privilege of obtaining shares of other Prudential Mutual Funds
and the current redemption rights will remain in effect until the transaction is
consummated, which is anticipated to occur by the end of September 1999.
The investment objective of The Global Total Return Fund, Inc. is to seek
total return, made up of current income and capital appreciation. J. Gabriel
Irwin and Simon Wells are the portfolio managers for both funds.
<PAGE>
PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
Gateway Center Three
100 Mulberry Street, 9(th) Floor
Newark, New Jersey 07102-4077
------------------------
IMPORTANT PROXY MATERIALS PLEASE VOTE NOW!
---------------------
August , 1999
Dear Shareholder:
I am inviting you to vote on an important proposal to merge Prudential
Global Limited Maturity Fund, Inc. into Prudential Global Total Return Fund,
Inc. A shareholder meeting of Prudential Global Limited Maturity Fund, Inc. is
scheduled for October 7, 1999. This package contains information about the
proposal and includes materials you will need to vote by mail.
The Board of Directors of Prudential Global Limited Maturity Fund, Inc. has
reviewed the merger proposal and has recommended that it be presented to
shareholders for their consideration. Although the Directors have determined
that a merger is in the shareholders' best interest, the final decision is
yours.
If approved, the merger would give you the opportunity to participate in a
larger fund with similar investment policies. It is estimated that the combined
fund would also have lower expenses. To help you understand the proposal, we are
including a section that answers commonly asked questions about merger
transactions. The accompanying proxy statement includes a detailed description
of the proposed merger.
Please read the enclosed materials carefully and cast your vote. Remember,
your vote is extremely important, no matter how large or small your holdings. By
voting now, you can help avoid additional costs that are incurred with follow-up
letters and calls.
TO VOTE, YOU MAY USE ANY OF THE FOLLOWING METHODS:
- BY MAIL. Please complete, date and sign your proxy card before mailing it
in the enclosed postage-paid envelope.
- BY INTERNET. Have your proxy card available. Go to the web site:
WWW.PROXYVOTE.COM. Enter your 12-digit control number from your proxy
card. Follow the simple instructions found on the web site.
- BY TELEPHONE. Call 1-800-690-6903 toll free. Enter your 12-digit control
number from your proxy card. Follow the simple instructions.
SPECIAL NOTE FOR SYSTEMATIC INVESTMENT PLANS AND THOSE WITH OUTSTANDING
CERTIFICATES (E.G., AUTOMATIC INVESTMENT PLAN, SYSTEMATIC EXCHANGE, ETC.)
Shareholders on systematic investment plans must contact their Financial Advisor
or call our customer service division, toll free, at 1-800-225-1852 to change
their options. Otherwise, starting October , 1999, future purchases shall be
made in shares of the Prudential Global Total Return Fund, Inc. if the merger is
approved.
Shareholders with outstanding certificates are also urged to contact their
Financial Advisors or call our customer service division to deposit their
certificates.
If you have any questions before you vote, please call us at 1-800-225-1852.
We're glad to help you understand the proposal and assist you in voting. Thank
you for your participation.
Sincerely,
John R. Strangfeld, Jr.
PRESIDENT
<PAGE>
IMPORTANT INFORMATION TO HELP YOU UNDERSTAND AND VOTE ON THE PROPOSAL
Please read the enclosed proxy statement for a complete description of the
merger proposal. As a quick reference, the following provides a brief overview
of the proposal.
WHAT PROPOSAL AM I BEING ASKED TO VOTE ON?
You are being asked to approve a merger of Prudential Global Limited
Maturity Fund, Inc. (Limited Maturity Fund) into Prudential Global Total Return
Fund, Inc. (Total Return Fund).
WHAT IS THE REASON FOR THIS MERGER?
The proposed merger is intended to combine two similarly managed funds with
the goal of overall lower expenses. The merger is also desirable because of the
inability of Limited Maturity Fund to attract investors and build an investment
portfolio that can effectively pursue the Fund's objective. The Total Return
Fund, which is a larger fund, has built an investment portfolio that can more
fully implement its objective of total return made up of current income and
capital appreciation.
DO THE FUNDS BEING MERGED HAVE SIMILAR INVESTMENT POLICIES?
Yes. Both Funds are classified as "global" funds, which means they have the
ability to invest in many countries, including the United States. As a result,
they are grouped in the same Lipper Global Income investment category. In
addition, both Funds have very similar investment objectives. Limited Maturity
Fund seeks to maximize total return. Total Return Fund states total return as
the primary goal. Typically, both Funds invest at least 65% of total assets in
U.S. and foreign income producing debt securities. Limited Maturity Fund
typically invests at least 30% of its total assets in U.S. dollar denominated
securities and at least 50% of its total assets in securities denominated in
U.S., Canadian, Australian or New Zealand dollars. Total Return Fund generally
limits investments in securities denominated in any one foreign currency to 40%
of the Fund's total assets, except for the euro (up to 65%).
WHO ARE THE FUND PORTFOLIO MANAGERS FOR THESE FUNDS?
Gabriel Irwin and Simon Wells currently manage both Funds and are expected
to manage the combined fund.
HOW DO THE EXPENSE STRUCTURES OF THE FUNDS COMPARE?
Ratios for the fiscal periods ending April 30, 1999 for Limited Maturity
Fund and December 31, 1998 for Total Return Fund and pro forma combined:
<TABLE>
<CAPTION>
LIMITED TOTAL PRO FORMA
MATURITY FUND* RETURN FUND** COMBINED
-------------- -------------- ----------
<S> <C> <C> <C>
Class A.............................................................. 1.39% 1.43% 1.40%
Class B.............................................................. 1.99% 1.93% 1.90%
Class C.............................................................. 1.99% 1.93% 1.90%
Class Z.............................................................. 1.24% 1.18% 1.15%
</TABLE>
- ------------------------
* The Distributor of the Fund voluntarily reduced its distribution and service
fee for Class A shares from .30 of 1% to .15 of 1% of the average daily net
assets and from 1% to .75 of 1% for both the Class B and Class C shares.
These voluntary reductions may be terminated at any time without notice.
** For the fiscal year ended December 31, 1999, the Distributor contractually
agreed to waive .05 of 1% of its distribution and service fee for Class A
shares to .25 of 1% of the average daily net assets of the Class A shares and
.25 of 1% of its distribution and service fees to .75 of 1% for both Class B
and Class C shares.
<PAGE>
IS THE REORGANIZATION A TAXABLE EVENT FOR FEDERAL INCOME TAX PURPOSES?
Typically, the exchange of shares pursuant to a reorganization does not
result in a gain or loss for federal income tax purposes. A description of the
conditions necessary to avoid tax recognition is included in the proxy
statement.
WHAT WILL BE THE SIZE OF THE GLOBAL TOTAL RETURN FUND, INC. AFTER THE MERGER?
If the proposal is approved, the combined fund is expected to have over $220
million in assets.
WHAT HAS BEEN THE COMPARATIVE PERFORMANCE OF THE FUNDS?
A. The table below shows average annual total returns (which includes the
deduction of sales charges) for both Total Return Fund, its Lipper peer group
and a comparable index over the 1, 5 and 10 year and since inception periods.
Please keep in mind that past performance is no guarantee of future results and
you may have a gain or loss when you sell your shares.
AVERAGE ANNUAL TOTAL RETURN AS OF JUNE 30, 1999*
PRUDENTIAL GLOBAL TOTAL RETURN FUND, INC.
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR SINCE INCEPTION
--------- --------- ---------- -------------------
<S> <C> <C> <C> <C>
Class A shares............................................ (3.09)% 8.25% 8.48% 9.37% (7-7-86)
Class B shares............................................ (4.66)% N/A N/A 5.26% (1-15-96)
Class C shares............................................ (1.66)% N/A N/A 5.46% (1-15-96)
Class Z shares............................................ 1.23% N/A N/A 4.85% (3-17-97)
Lipper Global Income Funds Average**...................... (0.05)% 6.25% 7.26% N/A+
JP Morgan Government Bond Index-Global++.................. 3.63% 6.56% 8.19% N/A++
</TABLE>
- ------------------------
* Average annual total returns are historical and include changes in share
price, reinvestment of dividends and capital gains, if any. Share price,
yield and return will vary. Returns were for all funds in each share class
for the periods shown in the Global Income Fund category.
** Lipper, Inc. is a nationally recognized organization that reports on mutual
fund total return performance and calculates fund rankings. Lipper average
returns were for all funds in each share class for the periods shown in the
Global Income Funds category. Peer group averages include reinvested
dividends and capital gains, if any, and exclude sales charges.
+ Lipper since inception returns are 8.26% for Class A shares, 3.96% for Class
B and Class C shares and 3.43% for Class Z shares based on all funds in each
share class.
++ 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. The Index since inception returns are % for Class A shares,
% for Class B and Class C shares and % for Class Z shares.
B. The table below shows average annual total returns (which includes the
deduction of sales charges) for Limited Maturity Fund, its Lipper peer group and
a comparable index over the 1 and 5 year
<PAGE>
and since inception periods. Please keep in mind that past performance is no
guarantee of future results and you may have a gain or loss when you sell your
shares.
AVERAGE ANNUAL TOTAL RETURN AS OF JUNE 30, 1999*
PRUDENTIAL GLOBAL LIMITED MATURITY FUND, INC.
<TABLE>
<CAPTION>
1 YEAR 5 YEAR SINCE INCEPTION
--------- --------- -------------------
<S> <C> <C> <C>
Class A shares........................................................ (3.93)% 4.41% 4.39% (11-1-90)
Class B shares........................................................ (4.47)% 4.51% 4.08% (11-1-90)
Class C shares........................................................ (3.45)% N/A 4.58% (8-1-94)
Class Z shares........................................................ (0.74)% N/A 2.94% (1-27-97)
Lipper Global Income Funds Average.................................... 6.23% 5.57% N/A+
JP Morgan Government Bond Index-Global................................ N/A++
</TABLE>
- ------------------------
* Average annual total returns are historical and include changes in share
price, reinvestment of dividends and capital gains, if any. Share price,
yield and return will vary.
+ Lipper since inception returns are 8.26% for Class A shares, 3.96% for Class
B and Class C shares and 3.43% for Class Z shares based on all funds in each
share class.
++The Index since inception returns are % for Class A shares % for Class
B and Class C shares and % for Class Z shares.
HOW WILL YOU DETERMINE THE NUMBER OF SHARES OF PRUDENTIAL GLOBAL TOTAL RETURN
FUND, INC. THAT I WILL RECEIVE?
As of the close of business of the New York Stock Exchange on the "Closing
Date" of the merger, shareholders will receive the number of full and fractional
Class A, Class B, Class C or Class Z shares of Total Return Fund, respectively,
that is equal in value to the net asset value of their Class A, Class B, Class C
or Class Z shares of Limited Maturity Fund on that date. The anticipated closing
date is October 15, 1999.
WHAT IF THERE ARE NOT ENOUGH VOTES TO REACH QUORUM BY THE SCHEDULED SHAREHOLDER
MEETING DATE?
If we do not receive sufficient votes to hold the meeting, we or Shareholder
Communications Corporation, a proxy solicitation firm, may contact you by mail
or telephone to encourage you to vote. Shareholders should review the proxy
materials and cast their vote to avoid additional mailings or telephone calls.
If there are not sufficient votes to approve the proposal by the time of the
Shareholder Meeting (October 7, 1999), the meeting may be adjourned to permit
further solicitation of proxy votes.
HAS THE FUND'S BOARD OF DIRECTORS APPROVED THE PROPOSAL?
Yes. The Board of Directors of both Funds has unanimously approved the
proposal and recommends that you vote to approve it.
HOW MANY VOTES AM I ENTITLED TO CAST?
As a shareholder, you are entitled to one vote for each share you own of
Limited Maturity Fund on the record date. The record date is July 30, 1999.
HOW DO I VOTE MY SHARES?
You can vote your shares by completing and signing the enclosed proxy card,
and mailing it in the enclosed postage paid envelope. If you need any
assistance, or have any questions regarding the proposal or how to vote your
shares, please call Prudential at (800) 225-1852.
<PAGE>
HOW DO I SIGN THE PROXY CARD?
INDIVIDUAL ACCOUNTS: Shareholders should sign exactly as their names appear
on the account registration shown on the card.
JOINT ACCOUNTS: Both owners must sign and the signatures should conform
exactly to the names shown on the account registration.
ALL OTHER ACCOUNTS: The person signing must indicate his or her capacity.
For example, a trustee for a trust should include his/her title, such as
"Jane Doe, Trustee"; or an authorized officer of a company should indicate
his/her position with the company, such as "John Smith, President."
