(ICON)
Prudential
International
Bond Fund,
Inc.
- ---------------------------
(formerly The Global
Government Plus
Fund, Inc.)
ANNUAL
REPORT
Dec. 31, 1997
(LOGO)
<PAGE>
Prudential International Bond Fund, Inc.
Performance At A Glance.
Global bonds generated modest returns as an Asian economic
crisis pushed
bond prices lower (and yields higher) in many developing
countries
throughout Asia and Latin America. But core European bond
markets
and U.S. Treasury securities rallied
as investors sought refuge from turmoil in the Far East.
Your
Prudential International Bond Fund beat the average
comparable
fund tracked by Lipper Analytical Services. Its investments
in
key European bonds and U.S. Treasuries helped the Fund ride
out
volatile market conditions spawned by Asian economic
turbulence.
<TABLE>
<CAPTION>
Cumulative Total Returns1 As of
12/31/97
One Five Ten Since
Year Years Years
Inception2
<S> <C> <C> <C> <C>
Class A 3.62% 65.32% 122.22%
145.74%
Class B 3.25 N/A N/A 16.53
Class C 3.25 N/A N/A 16.53
Class Z N/A N/A N/A 4.97
Lipper Gen.
World Inc. Avg3 3.00 39.72 99.46 ***
</TABLE>
<TABLE>
Average Annual Total Returns1 As of
12/31/97
<CAPTION>
One Five Ten Since
Year Years Years
Inception2
<S> <C> <C> <C> <C>
Class A -0.53% 9.68% 7.87%
8.53%
Class B -1.75 N/A N/A 6.21
Class C 2.25 N/A N/A 8.12
</TABLE>
<TABLE>
Dividends & Yields As of
12/31/97
<CAPTION>
Total Distributions 30-Day
Paid for 12 Mos. SEC Yield
<S> <C> <C>
Class A $0.82 4.79%
Class B $0.78 4.38
Class C $0.78 4.39
Class Z $0.83 5.13
</TABLE>
Past performance is not indicative of future results.
Principal
and investment return will fluctuate so that an investor's
shares,
when redeemed, may be worth more or less than original cost.
Past
performance numbers, with the exception of one-year returns,
do
not fully reflect the higher operating expenses incurred
since
the Fund commenced operations as an open-end mutual fund on
January 15, 1996. If these expenses had been applied since
the Fund's inception, past performance returns would have
been lower. Prior to January 15, 1996, the Fund operated as
a closed-end fund with shares being traded on the New York
Stock Exchange.
1 Source: Prudential Investments Fund Management and Lipper
Analytical Services. The cumulative total returns do not
take
into account sales charges. The average annual returns do
take
into account applicable sales charges. The Fund charges a
maximum front-end sales load of 4% for Class A shares. Class
B shares are subject to a declining contingent deferred
sales
charge (CDSC) of 5%, 4%, 3%, 2%, 1% and 1% for six years.
Class
C shares have a 1% CDSC for one year. Class B shares
automatically
convert to Class A shares on a quarterly basis, after
approximately
seven years. Class Z shares are not subject to a sales
charge
or a distribution fee. Since Class Z shares have been in
existence
less than a year, no average annual total returns are
presented.
2 Inception dates: Class A, 7/31/87; Class B and Class C,
1/15/96;
and Class Z; 3/17/97.
3 These are the average cumulative total returns of all
funds in
each share class in the Lipper General World Income Fund
category.
*** Lipper Since Inception returns are: Class A, 121.54%;
Class
B and Class C, 11.98%; and Class Z, 5.38% for all funds in
each
Lipper share class.
How Investments Compared.
(As of 12/31/97)
(GRAPH)
Source: Lipper Analytical Services. Financial markets
change, so
a mutual fund's past performance should never be used to
predict
future results. The risks to each of the investments listed
above
are different -- we provide 12-month total returns for
several
Lipper mutual fund categories to show you that reaching for
higher 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 (PICTURE)
(PICTURE)
Portfolio
Managers'
Report
Dodging A
Bullet.
Your Fund avoided the huge losses stemming from the
Asian economic crisis because its exposure to the
region accounted for less than 1% of its total
investments. When signs of trouble emerged early
in the summer, we took steps to protect the Fund
by entering into forward contracts to sell
Indonesian rupiahs. This removed the risk of
owning rupiahs from the Fund's small exposure
to Indonesian money market securities.
Your Fund seeks to maximize total return, which is current
income plus any capital appreciation of its underlying
bonds.
The Fund invests primarily in intermediate-term, investment
grade debt securities issued outside the U.S. (However, up
to
35% of total investments can be held in U.S. securities.)
The
Fund may also invest up to 15% 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 in our view.
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 will achieve its investment
objective.
Strategy Session.
Asian Tigers Whimper.
Economic problems had been brewing in Asia for some time
when
the crisis erupted in October, igniting a sharp sell-off in
global stocks and emerging market bonds. By contrast, U.S.
Treasuries and major European bond markets gained as
investors
fled embattled Asian markets. Treasuries also rallied
because
investors realized the Federal Reserve would leave monetary
policy unchanged in November and December since increasing
the federal funds rate (what banks charge each other for
overnight loans) would attract even more cash to the U.S.
from Asia. During this time, we enhanced your Fund's returns
by lengthening duration (a measure of sensitivity to
interest
rate fluctuations) by purchasing attractively priced long-
term
Treasuries along with government bonds of the United
Kingdom,
Germany and Canada.
U.S. Economy Roars.
Investors focused on the U.S. early in the reporting period.
The U.S. economy expanded in 1997 at its fastest pace in
nine
years. Because a strong economy can lead to higher
inflation,
investors expected the Federal Reserve to increase the
federal
funds rate to rein in robust economic growth. They did not
have to wait long. U.S. central bankers voted in March to
raise the federal funds rate by a quarter percentage point
to 5.50%.
In April, some investors thought another increase in
interest
rates was imminent so they continued pushing bond yields
higher.
To protect the value of your Fund during this period, we
shortened duration. We lengthened duration later in the
year as it became clear the Federal Reserve would not move
again.
<PAGE>
What Went Well.
A Flight To Quality.
Your Fund was well-positioned in currencies and bonds that
appreciated in value as investors fled to safer shores from
chaotic Asian economic conditions. For example, the U.S.
dollar strengthened during the reporting period, hitting
a five-and-a-half-year high against the Japanese yen in
December. The yen came under heavy pressure as a widely
watched survey showed business sentiment among Japanese
manufacturers had taken a decidedly negative turn. Your
Fund did not own Japanese yen, and we used forward
contracts to remove its Indonesian rupiah exposure.
On the other hand, a hefty 75% exposure as of December
31, 1997 to dollar-bloc currencies (U.S., Australia,
New Zealand and Canada) enhanced your Fund's performance.
Among the debt securities that gained from flight-to-quality
buying were government bonds of the United Kingdom and
Germany,
which respectively comprised 9% and 14% of your Fund's total
investments at the end of the year. We extended duration
in the fourth quarter to 5.1 years from 4.8 years. The
longer duration helped your Fund take better advantage
of the rally in these key bond markets.
Portfolio Composition.
Expressed as a percentage of
total investments as of 12/31/97.
(PIE)
And Not So Well.
Trek Through
Fjord Country.
Initially, the outlook for the Norwegian krone looked very
promising
in 1997. So we were not surprised when the krone got off to
a good
start early in the year, strengthening to about 3.9 per
German
mark in late January. As it turned out, that level was the
peak
for 1997. The krone sank to a low for the year of about 4.22
per German mark in June. While the krone comprised as much
as
3% of your Fund's currency weighting in 1997, disappointment
over the Norwegian currency's lackluster performance led us
to sell the position shortly after the reporting period
ended.
Looking Ahead.
We expect the U.S. dollar to remain strong provided there
is no serious deterioration in the U.S. balance of trade.
This could happen if consumers in struggling Asian countries
purchase fewer U.S. imports, while American shoppers snap up
cheaply priced Asian exports. At any rate, global economic
growth will likely slow and inflationary pressures subside,
so we believe the rally in Treasuries and major European
bonds has not run out of steam. Emerging market bonds in
Asia, and to a lesser extent in Latin America and Eastern
Europe, will probably remain under pressure over the next
several months as investors wait to see if real progress
is made toward resolving Asia's problems.
Five Largest Issuers.
11.9% U.S. Treasury
Obligations
11.3% German Government
Bonds
7.0% U.K. Treasury Bonds
6.8% Danish Government
Bonds
4.1% Spanish Government
Bonds
Expressed as a percentage of net assets
as of 12/31/97.
1
<PAGE>
President's Letter February 2,
1998
(PICTURE)
Investing Smart.
Dear Shareholder:
This is the season when many investors receive income tax
refunds
or have a CD or two maturing. What will you do with these
assets?
Investing smart can be a challenge especially given today's
new
investment choices.
The Federal Taxpayer Relief Act of 1997 is changing the way
Americans invest and accumulate wealth, save for college or
build a nest egg for retirement. While the law offers
opportunity, it is also complex. You may need help to
put things in perspective.
Now may be an excellent time for you and your Prudential
Financial Professional to update your investment strategy
and retirement plan. A wise investor does so periodically.
You could find the tax law opening doors that may benefit
you now or over the long term, such as --
- -- Revised Capital Gains Tax Rates & Exclusions.
Long-term rates are down. Is your portfolio positioned
to benefit? Also, new rules allow you to keep more of the
profit from the sale of your home (perhaps up to $500,000
more).
- -- New Roth IRAs. The Roth IRA features tax-free
distributions
and does not require mandatory withdrawals, which should be
of
particular interest to retirees seeking to shelter assets in
a tax-free account.
- -- New Education IRAs. Similar to a traditional IRA, but
specifically designed for higher education. The new law
also creates credits and deductions to help defray college
costs.
- -- Expanded IRAs. Rules governing traditional IRAs have
been extensively revised. Deductibility and contribution
limits have been broadened as has the list for penalty-free
early withdrawals, including first-time home buyers.
As you can see, what you don't know may cost you! That's why
I recommend you call your Prudential Financial Professional
and get a free investment plan checkup. Let us give you the
information and tools to invest smart.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
2
<PAGE>
Portfolio of Investments as of PRUDENTIAL
INTERNATIONAL BOND
December 31, 1997 FUND, INC.
- ------------------------------------------------------------
- -------------------
- ------------------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Principal
Amount US$
(000) Description Value (Note
1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--87.5%
- ------------------------------------------------------------
Australia--6.7%
A$ 1,500 Federal National Mortgage
Association,
6.375%, 8/15/07 $
985,220
3,700 New South Wales Treasury
Corporation,
6.50%, 5/1/06
2,441,618
4,500 Queensland Treasury Corporation,
8.00%, 8/14/01
3,142,575
-------
- ----
6,569,413
- ------------------------------------------------------------
Canada--10.2%
C$ 4,000 British Columbia Provincial Bond,
7.75%, 6/16/03
3,073,056
4,600 Canadian Government Bond,
9.00%, 12/1/04
3,839,408
1,500 Ontario Hydro
7.75%, 11/3/05
1,176,481
2,600 Province of Quebec,
6.50%, 10/1/07
1,875,877
-------
- ----
9,964,822
- ------------------------------------------------------------
Denmark--6.8%
Danish Government Bonds,
DKr 21,000 7.00%, 12/15/04
3,349,009
19,250 8.00%, 3/15/06
3,258,753
-------
- ----
6,607,762
- ------------------------------------------------------------
Germany--13.0%
German Government Bonds,
DM 5,500 6.75%, 4/22/03
3,311,851
5,300 7.375%, 1/3/05
3,321,261
3,000 6.00%, 1/5/06
1,744,662
4,500 6.25%, 1/4/24
2,608,223
3,000 Republic of Colombia,
7.25%, 12/21/00
1,722,948
-------
- ----
12,708,945
Greece--1.3%
GRD 370,000 Hellenic Republic,
12.60%, 12/31/03 $
1,246,384
- ------------------------------------------------------------
Netherlands--3.7%
Dutch Government Bonds,
NLG 4,400 7.00%, 6/15/05
2,407,311
2,000 7.50%, 1/15/23
1,197,481
-------
- ----
3,604,792
- ------------------------------------------------------------
Spain--4.0%
Pts 500,000 Spanish Government Bond,
8.20%, 2/28/09
3,954,201
- ------------------------------------------------------------
Sweden--1.9%
SEK 15,000 Swedish Government Bond,
6.00%, 2/9/05
1,905,609
- ------------------------------------------------------------
United Kingdom--8.6%
BP 200 Republic of Argentina,
11.50%, 8/14/01
332,581
United Kingdom Treasury Bonds,
1,850 7.75%, 9/8/06
3,313,228
1,700 8.75%, 8/25/17
3,560,753
650 Powergen PLC,
8.875%, 3/26/03
1,141,800
-------
- ----
8,348,362
- ------------------------------------------------------------
United States--31.3%
Corporate Bonds--5.0%
US$ 650 Banco Ganadero Colombian Bond
(Colombia),
9.75%, 8/26/99
664,625
1,900 Financiera Energetica Nacional
(Colombia),
9.00%, 11/8/99
1,976,000
1,000 Petroleas Mexicano (Mexico), FRN,
6.71875%, 3/8/99
985,000
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as of PRUDENTIAL
INTERNATIONAL BOND
December 31, 1997 FUND, INC.
- ------------------------------------------------------------
- -------------------
- ------------------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Principal
Amount US$
(000) Description Value (Note
1)
<C> <S> <C>
- ------------------------------------------------------------
United States (cont'd.)
US$ 750 Rio De Janeiro Municipality
(Brazil),
10.375%, 7/12/99 $
750,000
500 Romanian Commercial Bank,
9.125%, 3/10/00
492,500
-------
- ----
4,868,125
- ------------------------------------------------------------
Sovereign Bonds--10.1%
2,500 Ministry of Finance (Russia),
10.00%, 6/26/07
2,215,625
960 Republic of Argentina, FRN,
6.6875%, 3/31/05, Ser. L
858,048
1,570 Republic of Brazil, FRN,
6.8125%, 1/1/01, IDU
1,495,425
944 Republic of Croatia, FRN,
6.625%, 7/31/06
862,687
400 Republic of Lithuania,
7.125%, 7/22/02
381,000
1,500 Republic of Poland, FRN,
6.6875%, 10/27/24
1,456,950
500 Oman Sultanate (India),
7.125%, 3/20/02
503,750
2,000 United Mexican States, FRN,
9.75%, 2/6/01
2,088,000
-------
- ----
9,861,485
- ------------------------------------------------------------
Supranational Bonds--4.3%
4,100 Corporacion Andina de Formento,
7.375%, 7/21/00
4,171,750
- ------------------------------------------------------------
U.S. Government Obligations--11.9%
United States Treasury Bond,
4,000 6.625%, 2/15/27
4,338,920
United States Treasury Notes,
2,700 6.125%, 9/30/00
2,728,269
2,500 7.875%, 11/15/04
2,794,925
1,700 6.25%, 2/15/07
1,754,179
-------
- ----
11,616,293
-------
- ----
30,517,653
-------
- ----
Total long-term investments
(cost US$86,347,229)
85,427,943
-------
- ----
SHORT-TERM INVESTMENTS--8.4%
- ------------------------------------------------------------
Hungarian--0.7%
HUF 130,000 Hungarian Government Bond,
23.50%, 5/17/98 $
644,503
- ------------------------------------------------------------
Indonesia--0.3%
IDR 1,000,000 Asia Pulp And Paper, NCD,
14.45%(a), 1/27/98
178,155
1,000,000 Bakrie Brothers, NCD,
17.50%(a), 2/19/98
81,822
-------
- ----
259,977
- ------------------------------------------------------------
United States--7.4%
Repurchase Agreement
US$ 7,271 Joint Repurchase Agreement
Account,
6.63%, 1/2/98 (Note 5)
7,271,000
-------
- ----
Total short-term investments
(cost US$8,840,602)
8,175,480
-------
- ----
- ------------------------------------------------------------
Total Investments--95.9%
(cost $95,187,831; Note 4)
93,603,423
Other assets in excess of
liabilities--4.1%
3,996,308
-------
- ----
Net Assets--100%
$97,599,731
-------
- ----
-------
- ----
</TABLE>
- ---------------
Portfolio securities are classified according to the
security's currency
denomination.
(a) Percentages quoted represent yield-to-maturity as of
purchase date.
FRN--Floating Rate Note.
IDU--Interest Due and Unpaid.
NCD--Negotiable Certificates of Deposit.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 4
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL
INTERNATIONAL BOND FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Assets
December 31, 1997
<S>
<C>
Investments, at value (cost
$95,187,831)................................................
................ $ 93,603,423
Foreign currency, at value (cost
$1,274,185).................................................
........... 1,379,320
Interest
receivable..................................................
................................... 2,625,010
Forward currency contracts--amount receivable from
counterparties.......................................
609,427
Receivable for Fund shares
sold........................................................
................. 176,334
Other
assets......................................................
...................................... 3,601
- -----------------
Total
assets......................................................
................................... 98,397,115
- -----------------
Liabilities
Accrued expenses and other
liabilities.................................................
................. 291,613
Payable for Fund shares
reacquired..................................................
.................... 246,258
Forward currency contracts--amount payable to
counterparties............................................
182,954
Management fee
payable.....................................................
............................. 63,615
Distribution fee
payable.....................................................
........................... 12,944
- -----------------
Total
liabilities.................................................
................................... 797,384
- -----------------
Net
Assets......................................................
........................................ $
97,599,731
- -----------------
- -----------------
Net assets were comprised of:
Common stock, at
par.........................................................
........................ $ 137,754
Paid-in capital in excess of
par.........................................................
............ 99,840,912
- -----------------
99,978,666
Undistributed net investment
income......................................................
............ 147,690
Accumulated net realized loss on
investments.................................................
........ (1,424,980)
Net unrealized depreciation on investments and foreign
currencies....................................
(1,101,645)
- -----------------
Net assets, December 31,
1997........................................................
................... $ 97,599,731
- -----------------
- -----------------
Class A:
Net asset value and redemption price per share
($96,364,971 / 13,601,467 shares of common stock
issued and outstanding)..........................
$7.08
Maximum sales charge (4% of offering
price)......................................................
.... .30
- -----------------
Maximum offering price to
public......................................................
............... $7.38
- -----------------
- -----------------
Class B:
Net asset value, offering price and redemption price per
share
($530,998 / 74,833 shares of common stock issued and
outstanding).................................
$7.10
- -----------------
- -----------------
Class C:
Net asset value, offering price and redemption price per
share
($76,091 / 10,724 shares of common stock issued and
outstanding)..................................
$7.10
- -----------------
- -----------------
Class Z:
Net asset value, offering price and redemption price per
share
($627,671 / 88,387 shares of common stock issued and
outstanding).................................
$7.10
- -----------------
- -----------------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 5
<PAGE>
PRUDENTIAL INTERNATIONAL BOND FUND, INC.
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income December 31,
1997
<S> <C>
Income
Interest and discount earned (net of
foreign withholding taxes of
$3,533)............................ $ 9,105,386
----------------
- -
Expenses
Management fee........................ 835,254
Distribution fee--Class A............. 166,365
Distribution fee--Class B............. 2,512
Distribution fee--Class C............. 197
Transfer agent's fees and expenses.... 269,000
Custodian's fees and expenses......... 229,000
Reports to shareholders............... 155,000
Registration fees..................... 75,000
Audit fees............................ 36,000
Directors' fees....................... 27,000
Legal fees and expenses............... 17,000
Miscellaneous......................... 12,117
----------------
- -
Total expenses..................... 1,824,445
----------------
- -
Net investment income.................... 7,280,941
----------------
- -
Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency
Transactions
Net realized gain on:
Investment transactions............... 610,062
Foreign currency transactions......... 4,820,378
----------------
- -
5,430,440
----------------
- -
Net change in unrealized appreciation (depreciation) on:
Investments........................... (8,938,100)
Foreign currencies.................... 345,033
----------------
- -
(8,593,067)
----------------
- -
Net loss on investments and foreign
currencies............................ (3,162,627)
----------------
- -
Net Increase in Net Assets
Resulting from Operations................ $ 4,118,314
----------------
- -
----------------
- -
</TABLE>
PRUDENTIAL INTERNATIONAL BOND FUND, INC.
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended December
31,
in Net Assets 1997
1996
<S> <C> <C>
Operations
Net investment income..... $ 7,280,941 $
11,655,072
Net realized gain on
investment and foreign
currency
transactions........... 5,430,440
17,611,229
Net change in unrealized
appreciation
(depreciation) on
investments and foreign
currencies............. (8,593,067)
(9,292,986)
----------------- --------
- ---------
Net increase in net assets
resulting from
operations............. 4,118,314
19,973,315
----------------- --------
- ---------
Dividends and distributions
(Note 1)
Dividends from net
investment income
Class A................ (8,710,279)
(14,407,707)
Class B................ (31,668)
(1,274)
Class C................ (1,906)
(459)
Class Z................ (8,615)
- --
----------------- --------
- ---------
(8,752,468)
(14,409,440)
----------------- --------
- ---------
Distributions in excess of
net investment income
Class A................ (3,222,672)
(6,550,634)
Class B................ (10,128)
(4,741)
Class C................ (757)
(747)
Class Z................ (10,368)
- --
----------------- --------
- ---------
(3,243,925)
(6,556,122)
----------------- --------
- ---------
Fund share transactions (Note
6)
Net proceeds from shares
sold................... 3,218,583
25,036,772
Net asset value of shares
issued in reinvestment
of dividends and
distributions.......... 2,720,812
3,183,726
Cost of shares
reacquired............. (26,185,590)
(251,843,155)(a)
----------------- --------
- ---------
Net decrease in net assets
from Fund share
transactions........... (20,246,195)
(223,622,657)
----------------- --------
- ---------
Total decrease............... (28,124,274)
(224,614,904)
Net Assets
Beginning of year............ 125,724,005
350,338,909
----------------- --------
- ---------
End of year.................. $ 97,599,731 $
125,724,005
----------------- --------
- ---------
----------------- --------
- ---------
</TABLE>
- ---------------
(a) Net of $4,291,995 redemption fee retained by the the
Fund.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 6
<PAGE>
Notes to Financial Statements PRUDENTIAL
INTERNATIONAL BOND FUND, INC.
- ------------------------------------------------------------
- --------------------
Prudential International Bond Fund, Inc., formerly known as
The Global
Government Plus 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 debt securities of issuers located
in at least three
countries, excluding the United States (except in periods of
weakness). The Fund
invests in foreign debt securities issued by foreign
corporate issuers as well
as securities issued or guaranteed by foreign governments,
semi-governmental
entities, governmental agencies, supernational entities and
other governmental
entities. 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
15% of the Fund's
total assets in bonds rated below investment grade with a
minimum rating of B,
or in unrated securities of equivalent quality. The ability
of 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
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, as the case may be under triparty repurchase
agreements, takes
possession of the underlying collateral securities, the
value of which exceeds
the principal amount of the repurchase transaction including
accrued interest.
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 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 US dollar
equivalent amounts
actually received or paid. Net currency gains (losses) from
valuing foreign
currency denominated assets (excluding investments) and
liabilities at year-end
exchange rates are reflected as a component of net
unrealized appreciation or
depreciation on investments and foreign currencies.
Foreign security and currency transactions may involve
certain considerations
and risks not typically associated with those of U.S.
companies as a result of,
among other factors, the possibility of political or
economic instability and
the level of governmental supervision and regulation of
foreign securities
markets.
- ------------------------------------------------------------
- --------------------
7
<PAGE>
Notes to Financial Statements PRUDENTIAL
INTERNATIONAL BOND FUND, INC.
- ------------------------------------------------------------
- --------------------
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.
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 Fund accounts for
and reports
distributions to shareholders in accordance with the
American Institute of
Certified Public Accountants' Statement of Position 93-2:
Determination,
Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and
Return of Capital Distributions by Investment Companies. The
effect of applying
this statement was to increase undistributed net investment
income and increase
accumulated net realized loss on investments by $3,391,615
for foreign currency
gains realized and recognized during the year ended December
31, 1997. Net
investment income, net realized gains and net assets were
not affected by this
change.
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.
- ------------------------------------------------------------
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 $1 billion and
.70 of 1% of such assets in excess of $1 billion.
The Fund has a distribution agreement with Prudential
Securities Incorporated
('PSI'), which acts as distributor of the Class A, Class B,
Class C and Class Z
shares of the Fund. The Fund compensates PSI for
distributing and servicing the
Fund's Class A, Class B, and Class C shares, pursuant to a
plan of distribution,
(the 'Class A, B and C Plan') regardless of expenses
actually incurred by them.
The distribution fees are accrued daily and payable monthly.
No distribution or
service fees are paid to PSI as distributor of the Class Z
shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates
PSI for
distribution-related activities at an annual rate of up to
.30 of 1%, 1% and 1%
of the average daily net assets of the Class A, B, and C
shares respectively.
Such expenses under the Plans were .15 of 1%, .75 of 1% and
.75 of 1% of the
average daily net assets of the Class A, B and C shares,
respectively, for the
year ended December 31, 1997.
PSI has advised the Fund that it has received approximately
$20,900 in front-end
sales charges resulting from sales of Class A shares during
the year ended
December 31, 1997. From these fees, PSI paid such sales
charges to Pruco
Securities Corporation, an affiliated broker-dealer,
- ------------------------------------------------------------
- --------------------
8
<PAGE>
Notes to Financial Statements PRUDENTIAL
INTERNATIONAL BOND FUND, INC.
- ------------------------------------------------------------
- --------------------
which in turn paid commissions to sales-persons and incurred
other distribution
costs.
PSI has advised the Series that for the year ended December
31, 1997, it
received approximately $200 in contingent deferred sales
charges imposed upon
certain redemptions by Class B shareholders.
PSI, PIFM, PIC 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'), 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
during the year ended
December 31, 1997. The Funds pay a commitment fee at an
annual rate of .055 of
1% on the unused portion of the credit facility. The
commitment fee is accrued
and paid quarterly on a pro rata basis by the Funds. The
Agreement expired on
December 30, 1997 and has been extended through December 29,
1998 under the same
terms.
- ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned
subsidiary of PIFM,
serves as the Fund's transfer agent. During the year ended
December 31, 1997 the
Fund incurred fees of approximately $212,000 for the
services of PMFS. As of
December 31, 1997 approximately $19,000 of such fees were
due to PMFS. Transfer
agent fees and expenses in the Statement of Operations
include certain
out-of-pocket expenses paid to nonaffiliates.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than
short-term investments,
for the year ended December 31, 1997 aggregated $52,519,353
and $73,743,786,
respectively.
At December 31, 1997, the Fund had outstanding forward
currency contracts to
sell and purchase foreign currencies, as follows:
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date Current
Appreciation
Sale Contracts Receivable Value
(Depreciation)
- ------------------- --------------- ----------- ----------
- -----
<S> <C> <C> <C>
Australian Dollars,
expiring
1/27/98.......... $ 6,527,174 $ 6,564,113 $
(36,939)
<CAPTION>
Value at
Foreign Currency Settlement Date Current
Appreciation
Sale Contracts Receivable Value
(Depreciation)
- ------------------- --------------- ----------- ----------
- -----
<S> <C> <C> <C>
French Francs,
expiring
1/27/98.......... $ 4,965,767 $ 4,914,843 $
50,924
Netherlands
Guilders,
expiring
1/27/98.......... 10,502,179 10,436,199
65,980
Indonesian Rupiah,
expiring
1/27/98.......... 762,732 359,928
402,804
Greek Drachma,
expiring
4/30/98.......... 2,168,774 2,169,960
(1,186)
Swiss Francs,
expiring
1/27/98.......... 5,872,073 5,783,352
88,721
--------------- ----------- ----------
- -----
$30,798,699 $30,228,395 $
570,304
--------------- ----------- ----------
- -----
--------------- ----------- ----------
- -----
</TABLE>
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date Current
Purchase Contracts Payable Value
Depreciation
- ------------------- --------------- ----------- ----------
- -----
<S> <C> <C> <C>
German Deutschmark
expiring
4/30/98.......... $ 2,168,775 $ 2,089,160 $
(79,615)
Norwegian Krone
expiring
1/27/98.......... 3,094,636 3,058,052
(36,584)
Greek Drachma
expiring
4/30/98.......... 972,778 945,145
(27,633)
--------------- ----------- ----------
- -----
$ 6,236,189 $ 6,092,357
$(143,832)
--------------- ----------- ----------
- -----
--------------- ----------- ----------
- -----
</TABLE>
The United States federal income tax basis of the Fund's
investments at December
31, 1997 was $95,200,433 and, accordingly, net unrealized
depreciation for
United States federal income tax purposes was $1,597,010
(gross unrealized
appreciation--$2,641,361; gross unrealized depreciation--
$4,238,371).
For federal income tax purposes, the Fund had a capital loss
carryforward as of
December 31, 1997 of approximately $949,500 which will
expire in 2002. Such
carryforward is after utilization of approximately
$2,217,400 to offset net
taxable gains recognized during the year ended December 31,
1997. Accordingly,
no capital gains distribution is expected to be paid to
shareholders until net
capital gains have been realized in excess of such amount.
- ------------------------------------------------------------
Note 5. Joint Repurchase Agreement Account
The Fund, along with other affiliated registered investment
companies, transfers
uninvested cash balances into a single joint account, the
daily aggregate
balance of which is invested in one or more repurchase
agreements collateralized
by U.S. Treasury or federal agency obligations. As of
December 31, 1997, the
Fund had a 0.62% undivided interest in the joint
- ------------------------------------------------------------
- --------------------
9
<PAGE>
Notes to Financial Statements PRUDENTIAL
INTERNATIONAL BOND FUND, INC.
- ------------------------------------------------------------
- --------------------
account. The undivided interest for the Fund represented
$7,271,000 in the
principal amount. As of such date, each repurchase agreement
in the joint
account and the collateral therefor were as follows:
Credit Suisse First Boston Corp., 6.75%, in the principal
amount of
$342,000,000, repurchase price $342,128,250, due 1/2/98. The
value of the
collateral including accrued interest was $353,486,750.
Deutsche Morgan Grenfell, 6.80%, in the principal amount of
$200,000,000,
repurchase price $200,075,555, due 1/2/98. The value of the
collateral including
accrued interest was $204,000,314.
SBC Warburg Dillon Read, Inc., 6.55%, in the principal
amount of $142,000,000,
repurchase price $142,051,672, due 1/2/98. The value of the
collateral including
accrued interest was $144,862,841.
Morgan Stanley, Dean Witter, Discover & Co., 5.95%, in the
principal amount of
$151,553,000, repurchase price $151,603,097, due 1/2/98. The
value of the
collateral including accrued interest was $154,584,932.
Salomon Smith Barney Inc., 6.75%, in the principal amount of
$342,000,000,
repurchase price $342,128,250, due 1/2/98. The value of the
collateral including
accrued interest was $350,295,372.
- ------------------------------------------------------------
Note 6. Capital
The Fund offers Class A, Class B, Class C and Class Z
shares. Class A shares are
sold with a front-end sales charge of up to 4%. Class B
shares are sold with a
contingent deferred sales charge which declines from 5% to
zero depending on the
period of time the shares are held. Class C shares are sold
with a contingent
deferred sales charge of 1% during the first year. Class B
shares automatically
convert to Class A shares on a quarterly basis approximately
seven years after
purchase. A special exchange privilege is also available for
shareholders who
qualified to purchase Class A shares at net asset value.
Effective March 17,
1997, the Fund commenced offering Class Z shares. Class Z
shares are not subject
to any sales or redemption charge and are offered
exclusively for sale to a
limited group of investors.
There are 2 billion shares of common stock, $.01 par value
per share, authorized
divided into four classes, designated Class A, Class B,
Class C and Class Z
common stock, consisting of 500 million shares of each
class. As of December 31,
1997 Prudential owned 11,470 Class A shares.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- --------------------------------- ----------- ---------
- ----
<S> <C> <C>
Year ended December 31, 1997:
Shares sold...................... 269,214 $
1,994,094
Shares issued in reinvestment of
dividends and distributions.... 365,841
2,666,579
Shares reacquired................ (3,501,592)
(26,103,706)
----------- ---------
- ----
Net decrease in shares
outstanding.................... (2,866,537) $
(21,443,033)
----------- ---------
- ----
----------- ---------
- ----
January 15, 1996(b) through
December 31, 1996:
Shares sold...................... 3,220,486 $
24,951,678
Shares issued in reinvestment of
dividends and distributions.... 414,016
3,178,814
Shares reacquired................ (32,809,008)
(251,843,149)(a)
----------- ---------
- ----
Net decrease in shares
outstanding.................... (29,174,506)
$(223,712,657)
----------- ---------
- ----
----------- ---------
- ----
<CAPTION>
Class B
- ---------------------------------
<S> <C> <C>
Year ended December 31, 1997:
Shares sold...................... 62,322 $
465,398
Shares issued in reinvestment of
dividends and distributions.... 4,402
31,994
Shares reacquired................ (1,673)
(12,403)
----------- ---------
- ----
Net increase in shares
outstanding.................... 65,051 $
484,989
----------- ---------
- ----
----------- ---------
- ----
January 15, 1996(b) through
December 31, 1996:
Shares sold...................... 9,299 $
73,644
Shares issued in reinvestment of
dividends and distributions.... 484
3,719
Shares reacquired................ (1)
(6)
----------- ---------
- ----
Net increase in shares
outstanding.................... 9,782 $
77,357
----------- ---------
- ----
----------- ---------
- ----
<CAPTION>
Class C
- ---------------------------------
<S> <C> <C>
Year ended December 31, 1997:
Shares sold...................... 14,124 $
102,477
Shares issued in reinvestment of
dividends and distributions.... 149
1,087
Shares reacquired................ (5,201)
(38,465)
----------- ---------
- ----
Net increase in shares
outstanding.................... 9,072 $
65,099
----------- ---------
- ----
----------- ---------
- ----
January 15, 1996(b) through
December 31, 1996:
Shares sold...................... 1,497 $
11,450
Shares issued in reinvestment of
dividends and distributions.... 155
1,193
----------- ---------
- ----
Net increase in shares
outstanding.................... 1,652 $
12,643
----------- ---------
- ----
----------- ---------
- ----
</TABLE>
- ------------------------------------------------------------
- --------------------
10
<PAGE>
Notes to Financial Statements PRUDENTIAL
INTERNATIONAL BOND FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class Z Shares Amount
- --------------------------------- ----------- ---------
- ----
<S> <C> <C>
March 17, 1997(c) through
December 31, 1997:
Shares sold...................... 89,636 $
656,614
Shares issued in reinvestment of
dividends and distributions.... 2,944
21,152
Shares reacquired................ (4,193)
(31,016)
----------- ---------
- ----
Net increase in shares
outstanding.................... 88,387
646,750
----------- ---------
- ----
----------- ---------
- ----
</TABLE>
- ---------------
(a) Net of $4,291,995 redemption fee retained by the Fund.
(b) Prior to January 15, 1996, the Fund operated as a closed-
end investment
company.
(c) Commencement of offering of Class Z shares.
- ------------------------------------------------------------
- --------------------
11
<PAGE>
Financial Highlights PRUDENTIAL
INTERNATIONAL BOND FUND, INC.
- ------------------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Class A(b)
Year Ended December 31,
- -----------------------------------------------
1997(c) 1996 1995 1994
<S>
<C> <C> <C> <C>
- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
year........................................... $ 7.63
$ 7.68 $ 6.76 $ 7.84
- -------- -------- -------- --------
Income from investment operations:
Net investment
income......................................................
.. .49 .56 .48 .45
Net realized and unrealized gain (loss) on investments and
foreign
currencies..................................................
.............. (.22) .28 1.13
(.97)
- -------- -------- -------- --------
Total from investment
operations..........................................
.27 .84 1.61 (.52)
- -------- -------- -------- --------
Less distributions:
Dividends from net investment
income......................................... (.58)
(.67) (.48) (.23)
Distributions in excess of net investment
income............................. (.24)
(.40) (.21) --
Distributions from net realized capital
gains................................ -- --
- -- (.10)
Distributions in excess of net capital
gains................................. -- --
- -- --
Tax return of capital
distributions..........................................
- -- -- -- (.23)
- -------- -------- -------- --------
Total dividends and
distributions.........................................
(.82) (1.07) (.69) (.56)
- -------- -------- -------- --------
Redemption fee retained by
Fund(c)........................................... --
.18 -- --
- -------- -------- -------- --------
Net asset value, end of
year................................................. $
7.08 $ 7.63 $ 7.68 $ 6.76
- -------- -------- -------- --------
- -------- -------- -------- --------
Per share market price, end of
year.......................................... N/A
N/A $ 7.375 $ 5.625
- -------- --------
- -------- --------
TOTAL INVESTMENT RETURN BASED ON(a):
Market
price.......................................................
....... N/A N/A 44.39% (12.04)%
Net asset
value.......................................................
.... 3.62% 14.02% 25.14% (5.62)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000)................................................ $
96,365 $125,637 $350,339 $308,703
Average net assets
(000).....................................................
$110,910 $180,588 $342,741 $331,421
Ratios to average net assets:
Expenses, including distribution
fees..................................... 1.64%
1.48% 1.05% 1.11%
Expenses, excluding distribution
fees..................................... 1.49%
1.34% 1.05% 1.11%
Net investment
income.....................................................
6.54% 6.45% 6.37% 6.21%
Portfolio turnover
rate......................................................
53% 38% 203% 526%
<CAPTION>
1993
<S>
<C>
- --------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
year........................................... $ 7.38
- --------
Income from investment operations:
Net investment
income......................................................
.. .55
Net realized and unrealized gain (loss) on investments and
foreign
currencies..................................................
.............. .74
- --------
Total from investment
operations..........................................
1.29
- --------
Less distributions:
Dividends from net investment
income......................................... (.23)
Distributions in excess of net investment
income............................. --
Distributions from net realized capital
gains................................ (.54)
Distributions in excess of net capital
gains................................. (.06)
Tax return of capital
distributions..........................................
- --
- --------
Total dividends and
distributions.........................................
(.83)
- --------
Redemption fee retained by
Fund(c)........................................... --
- --------
Net asset value, end of
year................................................. $
7.84
- --------
- --------
Per share market price, end of
year.......................................... $ 7.00
- --------
- --------
TOTAL INVESTMENT RETURN BASED ON(a):
Market
price.......................................................
....... 11.57%
Net asset
value.......................................................
.... 18.38%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000)................................................
$357,783
Average net assets
(000).....................................................
$361,374
Ratios to average net assets:
Expenses, including distribution
fees..................................... 1.07%
Expenses, excluding distribution
fees..................................... 1.07%
Net investment
income.....................................................
6.93%
Portfolio turnover
rate......................................................
441%
</TABLE>
- ---------------
(a) Total investment return based on net asset value is
calculated assuming a
purchase of common stock at the current net asset value
on the first day and
a sale at the current net asset value on the last day of
each year reported.
Total investment 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, non-diversified
management investment company.
(c) Calculated based upon weighted average shares
outstanding during the year.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 12
<PAGE>
Financial Highlights PRUDENTIAL
INTERNATIONAL BOND FUND, INC.
- ------------------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Class B Class C
- ----------------------------- ------------
January 15,
Year 1996(c) Year
Ended Through Ended
December 31, December 31, December 31,
1997(d) 1996 1997(d)
<S>
<C> <C> <C>
- ------------ ------------ ------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................................... $
7.64 $ 7.72 $ 7.64
- ------------ ------------ ------------
Income from investment operations:
Net investment
income......................................................
.. .44 .52 .40
Net realized and unrealized gain (loss) on investments and
foreign
currencies..................................................
.............. (.20) .25
(.16)
- ------------ ------------ ------------
Total from investment
operations..........................................
.24 .77 .24
- ------------ ------------ ------------
Less distributions:
Dividends from net investment
income.........................................
(.54) (.63) (.54)
Distributions in excess of net investment
income............................. (.24)
(.40) (.24)
- ------------ ------------ ------------
Total dividends and
distributions.........................................
(.78) (1.03) (.78)
- ------------ ------------ ------------
Redemption fee retained by
Fund(d)........................................... --
.18 --
- ------------ ------------ ------------
Net asset value, end of
period............................................... $
7.10 $ 7.64 $ 7.10
- ------------ ------------ ------------
- ------------ ------------ ------------
TOTAL INVESTMENT
RETURN(a)...................................................
3.25% 12.86% 3.25%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)..............................................
$531 $75 $76
Average net assets
(000).....................................................
$335 $23 $26
Ratios to average net assets:
Expenses, including distribution
fees..................................... 2.24%
2.09%(b) 2.24%
Expenses, excluding distribution
fees..................................... 1.49%
1.34%(b) 1.49%
Net investment
income.....................................................
6.00% 5.85%(b) 5.96%
Portfolio turnover
rate......................................................
53% 38% 53%
<CAPTION>
Class Z
- ------------
January 15, March 17,
1996(c) 1997(c)
Through Through
December 31, December 31,
1996 1997(d)
<S>
<C> <C>
- ------------ ------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................................... $ 7.72
$ 7.57
- ------------ ------------
Income from investment operations:
Net investment
income......................................................
.. .52 .38
Net realized and unrealized gain (loss) on investments and
foreign
currencies..................................................
.............. .25 (.04)
- ------------ ------------
Total from investment
operations..........................................
.77 .34
- ------------ ------------
Less distributions:
Dividends from net investment
income......................................... (.63)
(.59)
Distributions in excess of net investment
income............................. (.40)
(.24)
- ------------ ------------
Total dividends and
distributions.........................................
(1.03) (.83)
- ------------ ------------
Redemption fee retained by
Fund(d)...........................................
.18 --
- ------------ ------------
Net asset value, end of
period............................................... $
7.64 $ 7.10
- ------------ ------------
- ------------ ------------
TOTAL INVESTMENT
RETURN(a)...................................................
12.86% 4.97%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)..............................................
$13 $628
Average net assets
(000).....................................................
$8 $121
Ratios to average net assets:
Expenses, including distribution
fees..................................... 2.09%(b)
1.49%(b)
Expenses, excluding distribution
fees..................................... 1.34%(b)
1.49%(b)
Net investment
income.....................................................
5.85%(b) 6.82%(b)
Portfolio turnover
rate......................................................
38% 53%
</TABLE>
- ---------------
(a) Total investment return is based on a purchase of common
stock at the
current net asset value on the first day and a sale at
the current net asset
value on the last day of each period reported. Total
investment return does
not consider the effect of sales load. Total investment
returns for periods
of less than one full year are not annualized.
(b) Annualized.
(c) Commencement of offering of Class B, Class C and Class Z
shares.
(d) Calculated based upon weighted average shares
outstanding during the period.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 13
<PAGE>
Report of Independent Accountants PRUDENTIAL
INTERNATIONAL BOND FUND, INC.
- ------------------------------------------------------------
- -------------------
To the Shareholders and Board of Directors of
Prudential International Bond 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 Prudential
International Bond Fund,
Inc. (formerly The Global Government Plus Fund, Inc., the
'Fund') at December
31, 1997, the results of its operations for the year then
ended, the changes in
its net assets for each of the two years in the period then
ended and the
financial highlights for each of the periods presented, 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, 1997 by
correspondence with the custodian and brokers, provide a
reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 13, 1998
Federal Income Tax Information PRUDENTIAL
INTERNATIONAL BOND FUND, INC.
- ------------------------------------------------------------
- -------------------
We are required by the Internal Revenue Code to advise you
within 60 days of the
Fund's fiscal year end (December 31, 1997) as to the federal
tax status of
distributions paid by the Fund during such fiscal year.
Accordingly, during its
fiscal year ended December 31, 1997, the Fund paid
distributions of $.8216 per
Class A share, $.7772 per Class B share, $.7772 per Class C
share, and $.8269
per Class Z share which represent dividends from ordinary
income (net investment
income and currency gains).
We wish to advise you that the dividends received deduction
for the Fund is
zero. Only funds that invest in U.S. equity securities are
entitled to
pass-through a corporate dividends received deduction.
- ------------------------------------------------------------
- --------------------
14
<PAGE>
Getting
The Most
From Your
Prudential
Mutual
Fund.
How many times have you read these letters -- or other
financial materials -- and stumbled across a word that
you don't understand?
Many shareholders have run into the same problem. We'd like
to help.
So we'll use this space from time to time to explain some of
the words you
might have read, but not understood. And if you have a
favorite
word that no one can explain to your satisfaction, please
write
to us.
Basis Point: One 1/100th of 1%. For example, one half of one
percentage point is 50 basis points.
Call Option: A contract giving the holder a right to buy
stocks
or bonds at a predetermined price (called the strike price)
before a predetermined expiration date.
A buyer of a call option generally expects to benefit from a
rise in the price of the stock or bond.
Capital Gain/Capital Loss: The difference between the cost
of a
capital asset (for example, a stock, bond or mutual fund
share)
and its selling price. Under current law the federal income
tax
rate for individuals on a long-term capital gain is up to
28%.
Collateralized Mortgage Obligations (CMOs): Pools of
mortgage-backed securities sliced in maturity ranges
that bear differing interest rates. These instruments
are sensitive to changes in interest rates and homeowner
refinancing activity. They are subject to prepayment and
maturity extension risk.
Derivatives: Securities that derive their value from
another security. The rate of return of these financial
products rises and falls -- sometimes very suddenly -- in
response to changes in some specific interest rate,
currency,
stock or other variable.
Discount Rate: The interest rate charged by the Federal
Reserve on loans to banks and other depository institutions.
Federal Funds Rate: The interest rate charged by one bank
to another on overnight loans.
Futures Contract: An agreement to deliver a specific amount
of a commodity or financial instrument at a set price at a
stipulated time in the future.
Leverage: The use of borrowed assets to enhance return on
equity. The expectation is that the interest rate charged
will be lower than the return on the investment. While
leverage can increase profits, it can also magnify losses.
Liquidity: The ease with which a financial instrument
(or mutual fund) can be bought or sold (converted into
cash) in the financial markets.
Price/Earnings Ratio: The price of a share of stock divided
by the earnings per share for a 12-month period.
Option: An agreement to sell something, such as shares of
stock, by a certain time for a specified price. An option
need not be exercised.
Spread: The difference between two values; most often used
to describe the difference between prices bid and asked
for a security.
Yankee Bond: A bond denominated in U.S. dollars but sold by
a foreign company or government in the U.S. market.
<PAGE>
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.
- -------------------------------------------------
Prudential International Bond Fund, Inc. vs. the
J.P. Morgan Government Bond Index.
- --The Prudential International Bond Fund, Inc.
//J.P. Morgan Government Bond Index
Past performance is not indicative of future results.
Investment
return and principal value will fluctuate so an investor's
shares,
when redeemed, may be worth more or less than their original
cost.
The box on top of the chart is designed to give you an idea
how
much the Fund's returns can fluctuate from year to year by
measuring the best and worst calendar years in terms of
total
annual return since inception of each share class.
These graphs are furnished to you in accordance with SEC
regulations. They compare a $10,000 investment in the
Prudential International Bond Fund, Inc. (Class A, Class
B, Class C and Class Z) with a similar investment in the
J.P. Morgan Government Bond Index by portraying the initial
account values at the commencement of operations of each
share class, (10 years for Class A shares) and subsequent
account values at the end of this reporting period (December
31, 1997), as measured on a quarterly basis, beginning in
1987 for Class A shares, in 1996 for Class B and C shares,
and in 1997 for Class Z shares. For purposes of the graphs,
and unless otherwise indicated, in the accompanying tables
it has been assumed (a) that the maximum applicable front-
end
sales charge was deducted from the initial $10,000
investment
in Class A shares; (b) the maximum applicable contingent
deferred sales charge was deducted from the value of the
investment in Class B and Class C shares, assuming full
redemption on December 31, 1997; (c) all recurring fees
(including management fees) were deducted; and (d) all
dividends and distributions were reinvested. Class B
shares will automatically convert to Class A shares,
on a quarterly basis, beginning approximately seven
years after purchase. This conversion feature is not
reflected in the graph. Class Z shares do not carry a
sales charge or a distribution fee. Since Class Z shares
have been in existence less than a year, no average annual
total returns are presented.
This global Index is traded, unhedged, and measured in U.S.
dollars. The Index is market weighted and represents the
total return of government bonds from 13 countries,
including Australia, Belgium, Canada, Denmark, France,
Germany, Italy, Japan, the Netherlands, Spain, Sweden,
the United Kingdom and the United States. It provides a
broad measure of market performance.
It is an unmanaged Index and includes the reinvestment
of all dividends, but does not reflect the payment of
transaction costs and advisory fees associated with an
investment in the Fund. The securities in the Index may
differ substantially from the securities in the Fund.
The Index is not the only one that may be used to
characterize performance of global bond funds, and
other indexes may portray different comparative performance.
Average Annual
Total Returns -- Class A
- ---------------------------
With Sales Load
8.53% Since Inception
7.87% for 10 Years
9.68% for 5 Years
- -0.53% for 1 Year
Without Sales Load
8.95% Since Inception
8.31% for 10 Years
10.58% for 5 Years
3.62% for 1 Year
Class A (GRAPH)
Average Annual
Total Returns - Class B
- -------------------------
With Sales Load
6.21% Since Inception
- -1.75% for 1 Year
Without Sales Load
8.12% Since Inception
3.25% for 1 Year
Class B (GRAPH)
Average Annual
Total Returns - Class C
- -------------------------
With Sales Load
8.12% Since Inception
2.25% for 1 Year
Without Sales Load
8.12% Since Inception
3.25% for 1 Year
Class C (GRAPH)
Class Z (GRAPH)
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Directors
Edward D. Beach
Delayne Dedrick Gold
Robert F. Gunia
Douglas H. McCorkindale
Mendel A. Melzer, CFA
Thomas T. Mooney
Stephen P. Munn
Richard A. Redeker
Robin B. Smith
Louis A. Weil, III
Clay T. Whitehead
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Marguerite E.H. Morrison, Assistant Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
Distributor
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
The views expressed in this report and information about the
Fund's portfolio holdings are for the period covered by this
report and are subject to change thereafter.
This report is not authorized for distribution to
prospective investors
unless preceded or accompanied by a current prospectus.
74436 Q101 MF170E
74436 Q200 Cat. #42M183Q
74436 Q309
74436 Q408
