<PAGE>
(LOGO)
ANNUAL REPORT
DECEMBER 31, 1999
Prudential
International Bond Fund, Inc.
(GRAPHIC)
<PAGE>
A Message from the Fund's President February 3, 2000
(PHOTO)
Dear Shareholder,
Prudential International Bond Fund provided negative
returns for 1999, as did its benchmark, the Lipper Global
Income Funds Average. Returns were hampered by rising
interest rates, especially in the United States where
the economic expansion was much stronger than expected.
The Fund's Class A shares posted a negative return of
4.27% for the year, which lagged the negative 2.43%
return of the Lipper Average. On a longer-term basis,
the Fund's Class A shares provided positive returns
that beat the Lipper Average for the five- and 10-year periods.
Vigorous U.S. economic growth prompted the Federal Reserve
to increase its main short-term interest rate three times
during 1999, while intermediate- and long-term market rates
rose even more, resulting in poor performance of the Fund's
U.S. Treasury securities. Although the Fund was helped by
its increased exposure to emerging market bonds, a light
emphasis on both the government debt securities and
currency of Japan was the major reason that the Fund's
returns moderately underperformed their benchmark Lipper Average.
While 1999 was certainly a very challenging year for many
major bond markets, any asset class is subject to occasional
periods of weakness. We believe that global bonds can
continue to be an important diversification tool,
helping investors to enhance returns and minimize
risk. The focus of the Fund has always been on
identifying and capitalizing on important,
longer-term trends in world debt markets, and
its strong performance over the past 10 years
demonstrates its ability to do this effectively.
Thank you for your continued confidence in Prudential mutual funds.
Sincerely,
John R. Strangfeld
President
Prudential International Bond Fund, Inc.
<PAGE>
Performance Review
(PHOTO) (PHOTO)
Team portfolio managers Gabriel Irwin (Global Bond
[Sector] Team Leader) and Simon Wells
Investment Goals and Style
Your Fund seeks total return made up of current
income and capital appreciation. The Fund invests
primarily in intermediate- and long-term investment-grade
debt securities of issuers outside the United States.
However, up to 35% of total investments can be in U.S.
securities. The Fund may invest in debt securities of
developing countries. It 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's investment objective will be achieved.
Higher rates battered many bond markets
The year 1999 was a difficult one for global bond funds,
with interest rates on the rise in virtually all of the
markets in which Prudential International Bond Fund
invests. Economic growth was stronger than expected
in the United States and much of Asia, and central
bankers worldwide were quick to hike short-term
interest rates as a way of fending off a return
to higher inflation. In the United States, for
example, the Federal Reserve raised the federal
funds rate (what U.S. banks charge each other
for overnight loans) in June, August, and
November 1999, bringing the closely watched
rate up to 5.50%.
Meanwhile, the 30-year U.S. Treasury bond yield, which
typically anticipates inflationary pressures, crept
up to the 6.48% level by year end, almost 140 basis
points higher than where it began the year. (A basis
point is one one-hundredth of a percent.) Bond yields
move in the opposite direction of bond prices.
Therefore, rising bond yields all along the
maturity spectrum resulted in negative returns
for the Fund and most of its peers, as reflected
in the global funds average monitored by Lipper Inc.
We increased exposure to emerging market bonds
Although robust economic growth hurt U.S. fixed-income
markets, a resurgence in the global economy benefited
emerging market bonds, which typically provide higher
yields than better-rated bonds because they are viewed
as carrying greater credit risk. Emerging market bonds
began 1999 trading cheaply relative to higher-quality
bonds, but they soon became more expensive on a relative
basis. Improving economic conditions and strengthening
currencies in many developing countries boosted investor
confidence in these bonds. As a result, the Lehman
Brothers Emerging Markets Index returned a stellar
23.07% in 1999, beating all other debt securities markets.
Near the end of the first quarter of 1999, we began
to increase the Fund's holdings of emerging market
bonds. This trend continued throughout the year,
with emerging market debt securities reaching 28.7%
of the Fund's total investments by the end of 1999.
We targeted the upper end of the emerging market
quality spectrum, and about half of these holdings
were in countries with investment-grade ratings.
Our purchases included bonds from Chile, South
Africa, and Hungary. The negative effect of higher
interest rates on the Fund was partially offset by
its increased exposure to emerging market bonds.
<PAGE>
We cut the Fund's duration
Duration was another area where we continued our policy from
the first half of the year. (Duration measures how much a
portfolio's bonds will fluctuate in price for a change
in the level of interest rates. It is expressed in years.)
We shortened the Fund's duration from 5.8 years at the
beginning of 1999 to 4.2 years at the end of the year.
Most of this reduction came in the first half of the
year. Our rationale was that a shorter duration would
make the Fund less sensitive to the decline in bond
prices caused by higher interest rates. In fact,
that strategy had a modestly positive effect on
the Fund's performance relative to its peer group.
We underestimated the Japanese market
Despite our increased position in emerging market
bonds and lower duration, the Fund moderately
underperformed its benchmark Lipper Average
primarily because of its slight exposure to
the bonds and currency of Japan. The rally in
Japanese bonds was one of the big surprises of
1999. At the beginning of the year, we expected
the Japanese yen to weaken against most other
currencies. Instead, the yen gained dramatically,
especially in the third quarter. That, together
with the apparent beginnings of an
Performance at a Glance
<TABLE>
Cumulative Total Returns1 As of 12/31/99
<CAPTION>
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A -4.27% 52.85% 110.80% 154.70%
Class B -4.76 N/A N/A 19.10
Class C -4.76 N/A N/A 19.10
Class Z -4.14 N/A N/A 8.84
Lipper Global Income Funds Avg.3 -2.43 37.01 90.18 ***
</TABLE>
<TABLE>
Average Annual Total Returns1 As of 12/31/99
<CAPTION>
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A -8.10% 7.97% 7.30% 7.47%
Class B -9.76 N/A N/A 4.07
Class C -6.71 N/A N/A 4.25
Class Z -4.14 N/A N/A 3.08
</TABLE>
<TABLE>
Distributions and Yields As of 12/31/99
<CAPTION>
Total Distributions 30-Day
Paid for 12 Mos. SEC Yield
<S> <C> <C>
Class A $0.53 5.22%
Class B $0.49 4.95
Class C $0.49 4.90
Class Z $0.55 5.71
</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 LLC
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 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 charge of 1%
and a CDSC of 1% for 18 months. Class Z shares are not
subject to a sales charge or distribution and service
(12b-1) fees.
2 Inception dates: Class A, 7/31/87; 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 Funds category. The Lipper average is
unmanaged. Global Income funds invest primarily in
U.S. dollar debt securities of issuers located in at
least three countries, one of which may be the United States.
*** Lipper Since Inception returns are 134.73% for Class
A, 15.26% for Class B and Class C, and 8.83% for Class Z,
based on all funds in each share class.
1
<PAGE>
Review Cont'd.
economic rebound and the Japanese government's assistance
for its troubled financial sector, caused investors to flock
to Japanese bonds. We increased the Fund's holdings of
Japanese securities to roughly 2.0% of its total investments
by the end of 1999--a relatively modest weighting reflecting
our view that many serious financial problems continue to
plague Japan. We believe that the exceptionally strong
debt market there represents a short-term rather than
long-term opportunity.
Euro's drop also hurt the Fund
While the Japanese yen unexpectedly strengthened in
1999, the euro--the common currency of the European
Monetary Union (EMU), which debuted on January 1,
1999--performed very poorly during its first year.
The euro tumbled 14% against the U.S. dollar and 23%
versus the Japanese yen in 1999. Unexpectedly, sluggish
growth in some major EMU countries led the euro to
weaken, detracting from the performance of the Fund's
euro-based positions. However, the Fund had a relatively
modest 19% exposure to the euro at the end of 1999 (taking
into account currency hedging), with another 14% exposure
to euro-peripheral currencies, such as the Swedish krona
and the British pound.
Looking Ahead
Slowing growth may ease upward pressure on rates
There are signs that the long move up in bond yields may
end in the coming months. With central banks steadily
raising short-term interest rates, economic growth
should moderate, allowing the worldwide expansion to
continue without rekindling inflation. That should be
a favorable combination for global debt markets. While
bond yields may edge higher from current levels, they
are unlikely to rise to levels seen at the beginning
of the 1990s. We believe there will continue to be
selective opportunities to enhance the Fund's returns
through holding emerging market and corporate bonds.
In 2000, however, emerging market and corporate bonds
will probably not outperform the U.S. Treasury market
by as great a magnitude as in 1999.
The Fund's currency policy in 2000 is expected to
modestly favor the euro. It is very cheap, particularly
in relation to the Japanese yen. While we are not certain
that a substantial euro rebound will occur, the relatively
positive growth outlook for Europe, rising euro interest
rates, a healthy current account picture, and some
supply-side reforms should support the currency.
Five Largest Issuers
Expressed as a percentage of net assets as of 12/31/99
U.S. Treasury Obligations 15.0%
German Government Bonds 9.3
Italian Government Bonds 4.9
Spanish Government Bonds 4.9
United Kingdom Treasury Strip 4.6
Geographic/Currency Concentration
Expressed as a percentage of total investments as of 12/31/99
United States 43%
Euro 23
Other Europe 10
Australia 5
Denmark 5
United Kingdom 5
Asia/Africa 3
Canada 3
New Zealand 3
2
<PAGE>
Portfolio of Investments as
of December 31, 1999 PRUDENTIAL INTERNATIONAL BOND FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount US$
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--82.9%
- ------------------------------------------------------------
Australia--4.6%
A$ 1,865 Commonwealth of Australia,
9.75%, 3/15/02 $ 1,305,488
2,960 New South Wales Treasury
Corporation,
6.50%, 5/1/06 1,866,720
-----------
3,172,208
- ------------------------------------------------------------
Canada--3.0%
C$ 2,000 British Columbia Provincial Bond,
6.00%, 6/9/08 1,324,320
1,040 Province of Quebec,
6.50%, 10/1/07 709,669
-----------
2,033,989
- ------------------------------------------------------------
Denmark--4.5%
Danish Government Bonds,
DKr 10,500 7.00%, 12/15/04 1,525,889
10,215 8.00%, 3/15/06 1,564,044
-----------
3,089,933
- ------------------------------------------------------------
Eurobonds--23.2%
EURO 700 Bank of Scotland Treasury
Services PLC (United Kingdom),
5.50%, 7/27/09 662,214
140 Esat Telecom Group PLC (United
Kingdom),
11.875%, 11/1/09 160,441
German Government Bonds,
690 5.00%, 8/20/01 704,946
1,265 6.00%, 1/15/06 1,335,142
155 5.38%, 1/4/10 156,482
4,000 6.25%, 1/4/24 4,177,416
EURO 450 Global Telesystems (Netherlands),
10.50%, 12/1/06 $ 454,075
Kingdom of Spain,
577 3.00%, 1/31/03 552,546
2,990 3.25%, 1/31/05 2,763,766
Republic of Italy,
510 3.00%, 6/15/02 496,204
2025 4.50%, 5/1/09 1,895,268
930 6.50%, 11/1/27 970,780
360 Staples Inc. (United Kingdom),
5.875%, 11/15/04 357,015
1,135 Treuhandanstalt (Germany),
6.88%, 6/11/03 1,219,683
-----------
15,905,978
- ------------------------------------------------------------
Hungary--0.5%
HUF 80,000 Hungarian Government Bonds,
15.00%, 7/24/01 329,475
- ------------------------------------------------------------
Japan--2.1%
Y 128,600 Japanese Government Bond,
4.20%, 3/20/03 1,400,769
- ------------------------------------------------------------
New Zealand--2.7%
NZ$ 3,500 Federal National Mortgage
Association,
7.25%, 6/20/02 1,819,210
- ------------------------------------------------------------
Russia
RUB 4,500 European Bank of Reconstruction
Development,
Zero Coupon, 5/28/02 40,018
- ------------------------------------------------------------
South Africa--1.0%
ZAR 4,250 South African Government Bonds,
13.00%, 8/31/10 663,885
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as
of December 31, 1999 PRUDENTIAL INTERNATIONAL BOND FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount US$
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Sweden--3.7%
Swedish Government Bond,
SEK 6,400 5.00%, 1/15/04 $ 743,488
15,000 6.00%, 2/9/05 1,807,031
-----------
2,550,519
- ------------------------------------------------------------
United Kingdom--4.6%
BP 2,025 United Kingdom Treasury Bond,
5.00%, 6/7/04 3,132,275
- ------------------------------------------------------------
United States--33.0%
Corporate Bonds--2.5%
US$ 650 General Motors Acceptance Corp.,
5.75%, 11/10/03 618,904
850 Household Finance Corporation,
6.40%, 6/17/08 785,791
300 Philippine Long Distance
Telephone Company,
10.50%, 4/15/09 303,000
-----------
1,707,695
- ------------------------------------------------------------
Sovereign Bonds--10.3%
400 Kingdom of Jordan,
6.00%, 12/23/23 266,344
900 Ministry of Finance (Russia),
10.00%, 6/26/07 572,625
500 Oman Sultante (India),
7.125%, 3/20/02 494,063
440 Republic of Argentina FRN,
6.8125%, 3/31/05, Ser. L 400,400
1,588 Republic of Brazil,
5.00%, 4/15/14 1,192,703
277 Republic of Brazil, FRN,
6.50%, 1/1/01 273,983
750 Republic of Bulgaria,
2.75%, 7/28/12 540,000
500 Republic of Colombia,
7.25%, 2/23/04 450,000
865 Republic of Croatia, FRN,
6.45625%, 7/31/06 801,614
400 Republic of Lithuania,
7.125%, 7/22/02 382,000
US$ 600 Republic of Panama,
7.875%, 2/13/02 $ 577,500
700 Republic of Peru,
4.50%, 3/7/17 484,750
762 Republic of Venezuela,
7.00%, 12/18/07 598,091
-----------
7,034,073
- ------------------------------------------------------------
Foreign Government Bonds--1.3%
900 Province of Ontario
6.00%, 2/21/06 855,450
- ------------------------------------------------------------
Supranational Bonds--3.9%
300 Chonhung Bank,
11.0725%, 1/7/05 305,250
400 Embotelladora Andina SA,
7.875%, 10/1/97 307,562
2,000 Nuevo Grupo Iusacell SA,
14.25%, 12/1/06 2,085,000
-----------
2,697,812
- ------------------------------------------------------------
U.S. Government Obligations--15.0%
United States Treasury Bonds,
570 6.625%, 2/15/27 564,921
United States Treasury Notes,
1,570 5.00%, 4/30/01 1,546,937
600 5.875%, 11/15/05 582,468
4,000 6.25%, 2/15/07 3,935,640
1,185 6.125%, 8/15/07 1,155,375
2,570 6.00%, 8/15/09 2,489,688
-----------
10,275,029
-----------
22,570,059
-----------
Total long-term investments
(cost US$60,393,864) 56,708,318
-----------
SHORT-TERM INVESTMENTS--15.4%
- ------------------------------------------------------------
Germany--2.6%
DM 3,000 Republic of Colombia,
7.25%, 12/21/00 1,562,461
400 Union Bank Of Estonia,
3.49%, 6/16/00 205,214
-----------
1,767,675
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 4
<PAGE>
PRUDENTIAL INTERNATIONAL BOND FUND, INC.
Portfolio of Investments as of December 31, 1999
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount US$
(000) Description Value (Note 1)
<C> <S> <C>
------------------------------------------------------------
Hungary--2.2%
Hungarian Government Bonds,
HUF 150,000 16.00%, 4/12/00 $ 598,378
225,000 15.50%, 7/24/00 902,139
-----------
1,500,517
- ------------------------------------------------------------
Poland--1.3%
Poland Treasury Bills,
PLZ 1,500 16.14%(a), 3/22/00 349,392
2,400 16.34%(a), 6/23/00 537,695
-----------
887,087
- ------------------------------------------------------------
Russia
RUB 2,700 European Bank of Reconstruction
Development,
31.00%, 5/5/00 80,363
- ------------------------------------------------------------
United States--9.3%
Supranational Bonds--6.0%
US$ 4,100 Corporacion Andina de Formento,
7.375%, 7/21/00 4,108,979
- ------------------------------------------------------------
Repurchase Agreement--3.3%
2,242 Joint Repurchase Agreement
Account,
2.83%, 1/3/00 (Note 5) 2,242,000
-----------
6,350,979
-----------
Total short-term investments
(cost US$11,516,976) 10,586,621
-----------
- ------------------------------------------------------------
Total Investments--98.3%
(cost $71,910,840; Note 4) 67,294,939
Other assets in excess of
liabilities--1.7% 1,139,557
-----------
Net Assets--100% $68,434,496
-----------
-----------
</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 PRUDENTIAL INTERNATIONAL BOND FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets December 31, 1999
<S> <C>
Investments, at value (cost $71,910,840)................................................................ $67,294,939
Foreign currency, at value (cost $201,186).............................................................. 203,647
Cash.................................................................................................... 3,373
Interest receivable..................................................................................... 1,456,295
Forward currency contracts-amount receivable from counterparties........................................ 423,049
Receivable for investments sold......................................................................... 25,141
Other assets............................................................................................ 3,198
-----------------
Total assets......................................................................................... 69,409,642
-----------------
Liabilities
Forward currency contracts-amount payable to counterparties............................................. 347,261
Accrued expenses and other liabilities.................................................................. 327,514
Payable for Fund shares reacquired...................................................................... 228,445
Management fee payable.................................................................................. 44,203
Distribution fee payable................................................................................ 14,913
Dividends payable....................................................................................... 12,810
-----------------
Total liabilities.................................................................................... 975,146
-----------------
Net Assets.............................................................................................. $68,434,496
-----------------
-----------------
Net assets were comprised of:
Common stock, at par................................................................................. $ 107,595
Paid-in capital in excess of par..................................................................... 74,763,757
-----------------
74,871,352
Accumulated net realized loss on investments......................................................... (1,868,281)
Net unrealized depreciation on investments and foreign currencies.................................... (4,568,575)
-----------------
Net assets, December 31, 1999........................................................................... $68,434,496
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($63,343,235 / 9,961,041 shares of common stock issued and outstanding)........................... $6.36
Maximum sales charge (4% of offering price).......................................................... .27
-----------------
Maximum offering price to public..................................................................... $6.63
-----------------
-----------------
Class B:
Net asset value, offering price and redemption price per share
($1,763,992 / 276,609 shares of common stock issued and outstanding).............................. $6.38
-----------------
-----------------
Class C:
Net asset value and redemption price per share
($247,648 / 38,834 shares of common stock issued and outstanding)................................. $6.38
Sales charge (1% of offering price).................................................................. .06
-----------------
Offering price to public............................................................................. $6.44
-----------------
-----------------
Class Z:
Net asset value, offering price and redemption price per share
($3,079,621 / 483,032 shares of common stock issued and outstanding).............................. $6.38
-----------------
-----------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 6
<PAGE>
PRUDENTIAL INTERNATIONAL BOND FUND, INC.
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income December 31, 1999
<S> <C>
Income
Interest and discount earned (net of
foreign withholding taxes of
$7,560)............................... $ 5,874,926
-----------------
Expenses
Management fee........................... 577,058
Distribution fee--Class A................ 181,033
Distribution fee--Class B................ 11,700
Distribution fee--Class C................ 1,863
Transfer agent's fees and expenses....... 205,000
Custodian's fees and expenses............ 192,000
Reports to shareholders.................. 115,000
Legal fees and expenses.................. 65,000
Audit fees and expenses.................. 36,000
Registration fees........................ 30,000
Directors' fees and expenses............. 15,000
Miscellaneous............................ 4,723
-----------------
Total expenses........................ 1,434,377
-----------------
Net investment income....................... 4,440,549
-----------------
Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency
Transactions
Net realized gain (loss) on:
Investment transactions.................. (568,162)
Foreign currency transactions............ (2,932,657)
-----------------
(3,500,819)
-----------------
Net change in unrealized appreciation (depreciation) on:
Investments.............................. (4,464,832)
Foreign currencies....................... (35,706)
-----------------
(4,500,538)
-----------------
Net loss on investments and foreign
currencies............................... (8,001,357)
-----------------
Net Decrease in Net Assets
Resulting from Operations................... $(3,560,808)
-----------------
-----------------
</TABLE>
PRUDENTIAL INTERNATIONAL BOND FUND, INC.
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended December 31,
in Net Assets 1999 1998
<S> <C> <C>
Operations
Net investment income.......... $ 4,440,549 $ 5,610,162
Net realized gain (loss) on
investment and foreign
currency transactions....... (3,500,819) 471,049
Net change in unrealized
appreciation (depreciation)
on investments and foreign
currencies.................. (4,500,538) 1,033,608
------------ ------------
Net increase (decrease) in net
assets resulting from
operations.................. (3,560,808) 7,114,819
------------ ------------
Dividends and distributions (Note
1)
Dividends from net investment
income
Class A..................... (2,402,993) (3,147,035)
Class B..................... (43,976) (24,528)
Class C..................... (6,974) (3,873)
Class Z..................... (97,964) (51,961)
------------ ------------
(2,551,907) (3,227,397)
------------ ------------
Distributions in excess of net
investment income
Class A..................... -- (2,100,081)
Class B..................... -- (16,368)
Class C..................... -- (2,584)
Class Z..................... -- (34,675)
------------ ------------
-- (2,153,708)
------------ ------------
Distributions from net realized
gains
Class A..................... (946,356) (575,748)
Class B..................... (18,501) (4,487)
Class C..................... (3,103) (709)
Class Z..................... (31,869) (9,506)
------------ ------------
(999,829) (590,450)
------------ ------------
Tax return of capital
distributions
Class A..................... (2,195,215) --
Class B..................... (47,298) --
Class C..................... (7,507) --
Class Z..................... (83,223) --
------------ ------------
(2,333,243) --
------------ ------------
Fund share transactions (net of
share conversions) (Note 6)
Net proceeds from shares
sold........................ 6,001,617 6,408,174
Net asset value of shares
issued in reinvestment of
dividends and
distributions............... 2,006,537 1,664,187
Cost of shares reacquired...... (17,864,198) (19,079,029)
------------ ------------
Net decrease in net assets from
Fund share transactions..... (9,856,044) (11,006,668)
------------ ------------
Total decrease.................... (19,301,831) (9,863,404)
Net Assets
Beginning of year................. 87,736,327 97,599,731
------------ ------------
End of year....................... $ 68,434,496 $ 87,736,327
------------ ------------
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7
<PAGE>
Notes to Financial Statements PRUDENTIAL INTERNATIONAL BOND FUND, INC.
- --------------------------------------------------------------------------------
Prudential International Bond 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 it'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 on the basis of valuations
provided by an independent pricing agent or principal market maker. Any security
for which the primary market is on an exchange or NASDAQ National Market System
securities are 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 last bid price on such day in the absence
of an asked price. 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.
All securities are valued as of 4:15 p.m., New York time.
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 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
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 (losses) from
valuing foreign currency denominated assets (excluding investments) and
liabilities at year-end exchange rates are
- --------------------------------------------------------------------------------
8
<PAGE>
Notes to Financial Statements PRUDENTIAL INTERNATIONAL BOND FUND, INC.
- --------------------------------------------------------------------------------
reflected as a component of net unrealized appreciation or depreciation on
investments and foreign currencies.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of U.S. companies as a result of,
among other factors, the possibility of political or economic instability and
the level of governmental supervision and regulation of foreign securities
markets.
Forward Currency Contracts: A forward currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. The Fund enters into forward currency contracts in order to hedge its
exposure to changes in foreign currency exchange rates on its 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 federal income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for foreign currency transactions.
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.
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 and decrease
accumulated net realized loss on investments by $1,888,642. This was primarily
the result of net foreign currency losses for the year ended December 31, 1999.
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 $1 billion and
.70 of 1% of such assets in excess of $1 billion.
The Fund has a distribution agreement with Prudential Investment Management
Services LLC ('PIMS'). 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 them. 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.
- --------------------------------------------------------------------------------
9
<PAGE>
Notes to Financial Statements PRUDENTIAL INTERNATIONAL BOND FUND, INC.
- --------------------------------------------------------------------------------
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 .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, for the
year ended December 31, 1999.
PIMS has advised the Fund that it has received approximately $9,500 in front-end
sales charges resulting from sales of Class A shares and $1,200 from sales of
Class C shares during the year ended December 31, 1999. From these fees, PIMS
paid such sales charges to dealers, which in turn paid commissions to
salespersons and incurred other distribution costs.
PIMS has advised the Fund that for the year ended December 31, 1999, it received
approximately $3,700 and $100 in contingent deferred sales charges 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 ('Prudential').
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. Interest on any such borrowings outstanding will be at market rates.
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 year ended December 31, 1999. The purpose of the agreements
is to serve as an alternative source of funding for capital share redemptions.
- ------------------------------------------------------------
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, 1999,
the Fund incurred fees of approximately $176,000 for the services of PMFS. As of
December 31, 1999, approximately $14,400 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, 1999 aggregated $77,364,574 and $86,692,322,
respectively.
At December 31, 1999, the Fund had outstanding forward currency contracts to
purchase and sell foreign currencies, as follows:
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date Current Appreciation
Purchase Contracts Payable Value (Depreciation)
- ------------------- --------------- ----------- ---------------
<S> <C> <C> <C>
Australian Dollar,
expiring
1/13/00.......... $ 855,179 $ 867,872 $ 12,693
Euro Currency,
expiring
1/18/00.......... 3,081,756 3,007,689 (74,067)
Japanese Yen,
expiring
1/18/00.......... 1,422,648 1,429,340 6,692
New Zealand Dollar,
expiring
1/25/00.......... 943,397 971,767 28,370
Norwegian Krone,
expiring
2/8/00........... 1,483,286 1,474,644 (8,642)
Swiss Franc,
expiring
1/12/00.......... 2,125,369 1,951,124 (174,245)
--------------- ----------- ---------------
$ 9,911,635 $ 9,702,436 $(209,199)
--------------- ----------- ---------------
--------------- ----------- ---------------
<CAPTION>
Value at
Foreign Currency Settlement Date Current Appreciation
Sale Contracts Receivable Value (Depreciation)
- ------------------- --------------- ----------- ---------------
<S> <C> <C> <C>
Canadian Dollar,
expiring
1/13/00.......... $ 277,754 $ 283,249 $ (5,495)
Danish Krone,
expiring
1/12/00.......... 556,057 521,418 34,639
Euro Currency,
expiring 1/18/00
- 1/19/00........ 5,414,636 5,379,532 35,104
Japanese Yen,
expiring
1/18/00.......... 2,181,055 2,198,910 (17,855)
New Zealand Dollar,
expiring
1/25/00.......... 2,873,242 2,918,430 (45,188)
</TABLE>
- --------------------------------------------------------------------------------
10
<PAGE>
Notes to Financial Statements PRUDENTIAL INTERNATIONAL BOND FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date Current Appreciation
Sale Contracts Receivable Value (Depreciation)
- ------------------- --------------- ----------- ---------------
<S> <C> <C> <C>
Pound Sterling,
expiring
1/18/00.......... 1,002,368 1,010,908 (8,540)
Swedish Krona,
expiring
1/13/00.......... 546,937 541,557 5,380
Swiss Franc,
expiring
1/12/00.......... 4,189,189 3,902,247 286,942
--------------- ----------- ---------------
$17,041,238 $16,756,251 $ 284,987
--------------- ----------- ---------------
--------------- ----------- ---------------
</TABLE>
The United States federal income tax basis of the Fund's investments at December
31, 1999 was $71,933,247 and, accordingly, net unrealized depreciation for
United States federal income tax purposes was $4,638,308 (gross unrealized
appreciation--$355,586; gross unrealized depreciation--$4,993,894).
For federal income tax purposes, the Fund had a capital loss carryforward as of
December 31, 1999 of approximately $422,200 which will expire in 2007.
Accordingly, no capital gain distribution is expected to be paid to shareholders
until net capital gains have been realized in excess of such amount.
The Fund has elected to treat approximately $136,100 of net capital losses and
approximately $1,239,400 of net foreign currency losses incurred in the two
months ended December 31, 1999 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, 1999, the
Fund had a .32% undivided interest in the joint account. The undivided interest
for the Fund represented $2,242,000 in the principal amount. As of such date,
each repurchase agreement in the joint account and the collateral therefor were
as follows:
ABN AMRO Incorporated, 2.75%, in the principal amount of $90,000,000, repurchase
price $90,020,625, due 1/3/2000. The value of the collateral including accrued
interest was $91,800,968.
Bear, Stearns & Co., Inc. 2.75%, in the principal amount of $210,000,000,
repurchase price $210,048,125, due 1/3/2000. The value of the collateral
including accrued interest was $221,923,528.
Lehman Brothers, Inc., 2.50%, in the principal amount of $100,000,000,
repurchase price $100,020,833, due 1/3/2000. The value of the collateral
including accrued interest was $101,979,049.
Morgan (J.P.) Securities, Inc., 3.00%, in the principal amount of $120,000,000,
repurchase price $120,030,000, due 1/3/2000. The value of the collateral
including accrued interest was $122,400,783.
Morgan (J.P.) Securities, Inc., 4.50%, in the principal amount of $78,685,000,
repurchase price $78,714,507, due 1/3/2000. The value of the collateral
including accrued interest was $80,259,686.
Salomon Smith Barney, Inc., 2.00%, in the principal amount of $110,000,000,
repurchase price $110,018,333, due 1/3/2000. The value of the collateral
including accrued interest was $112,231,078.
- ------------------------------------------------------------
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. 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. 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,
1999, Prudential owned 11,679 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, 1999:
Shares sold...................... 302,079 $ 1,995,054
Shares issued in reinvestment of
dividends and distributions.... 254,193 1,701,726
Shares reacquired................ (2,303,857) (15,461,489)
----------- -------------
Net decrease in shares
outstanding before
conversion..................... (1,747,585) (11,764,709)
Shares issued upon conversion
from Class B................... 201 1,323
----------- -------------
Net decrease in shares
outstanding.................... (1,747,384) $ (11,763,386)
----------- -------------
----------- -------------
</TABLE>
- --------------------------------------------------------------------------------
11
<PAGE>
Notes to Financial Statements PRUDENTIAL INTERNATIONAL BOND FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Shares Amount
- --------------------------------- ----------- -------------
<S> <C> <C>
Year ended December 31, 1998:
Shares sold...................... 372,024 $ 2,657,375
Shares issued in reinvestment of
dividends and distributions.... 214,448 1,531,157
Shares reacquired................ (2,481,487) (17,676,855)
----------- -------------
Net decrease in shares
outstanding before
conversion..................... (1,895,015) (13,488,323)
Shares issued upon conversion
from Class B................... 1,973 14,203
----------- -------------
Net decrease in shares
outstanding.................... (1,893,042) $ (13,474,120)
----------- -------------
----------- -------------
<CAPTION>
Class B
- ---------------------------------
<S> <C> <C>
Year ended December 31, 1999:
Shares sold...................... 200,931 $ 1,360,681
Shares issued in reinvestment of
dividends and distributions.... 14,238 94,984
Shares reacquired................ (107,807) (721,299)
----------- -------------
Net increase in shares
outstanding before
conversion..................... 107,362 734,366
Shares reacquired upon conversion
into Class A................... (201) (1,323)
----------- -------------
Net increase in shares
outstanding.................... 107,161 $ 733,043
----------- -------------
----------- -------------
Year ended December 31, 1998:
Shares sold...................... 138,265 $ 988,889
Shares issued in reinvestment of
dividends and distributions.... 5,180 37,028
Shares reacquired................ (46,855) (334,557)
----------- -------------
Net increase in shares
outstanding before
conversion..................... 96,590 691,360
Shares reacquired upon conversion
into Class A................... (1,975) (14,203)
----------- -------------
Net increase in shares
outstanding.................... 94,615 $ 677,157
----------- -------------
----------- -------------
<CAPTION>
Class C Shares Amount
- --------------------------------- ----------- -------------
<S> <C> <C>
Year ended December 31, 1999:
Shares sold...................... 6,775 $ 45,628
Shares issued in reinvestment of
dividends and distributions.... 2,269 15,192
Shares reacquired................ (6,039) (40,929)
----------- -------------
Net increase in shares
outstanding.................... 3,005 $ 19,891
----------- -------------
----------- -------------
Year ended December 31, 1998:
Shares sold...................... 33,210 $ 237,920
Shares issued in reinvestment of
dividends and distributions.... 671 4,790
Shares reacquired................ (8,776) (62,577)
----------- -------------
Net increase in shares
outstanding.................... 25,105 $ 180,133
----------- -------------
----------- -------------
<CAPTION>
Class Z
- ---------------------------------
<S> <C> <C>
Year ended December 31, 1999:
Shares sold...................... 386,570 $ 2,600,254
Shares issued in reinvestment of
dividends and distributions.... 29,107 194,635
Shares reacquired................ (245,883) (1,640,481)
----------- -------------
Net increase in shares
outstanding.................... 169,794 $ 1,154,408
----------- -------------
----------- -------------
Year ended December 31, 1998:
Shares sold...................... 352,766 $ 2,523,990
Shares issued in reinvestment of
dividends and distributions.... 12,769 91,212
Shares reacquired................ (140,684) (1,005,040)
----------- -------------
Net increase in shares
outstanding.................... 224,851 $ 1,610,162
----------- -------------
----------- -------------
</TABLE>
- --------------------------------------------------------------------------------
12
<PAGE>
Financial Highlights PRUDENTIAL INTERNATIONAL BOND FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A(b)
----------------------------------------------------------
Year Ended December 31,
----------------------------------------------------------
1999(c) 1998(c) 1997(c) 1996 1995
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............ $ 7.17 $ 7.08 $ 7.63 $ 7.68 $ 6.76
------- ------- -------- -------- --------
Income from investment operations:
Net investment income......................... .39 .43 .49 .56 .48
Net realized and unrealized gain (loss) on
investments and foreign currencies......... (.68) .12 (.22) .28 1.13
------- ------- -------- -------- --------
Total from investment operations........... (.29) .55 .27 .84 1.61
------- ------- -------- -------- --------
Less distributions:
Dividends from net investment income.......... (.22) (.25) (.58) (.67) (.48)
Distributions in excess of net investment
income..................................... -- (.17) (.24) (.40) (.21)
Distributions from net realized capital
gains...................................... (.09) (.04) -- -- --
Tax return of capital distributions........... (.21) -- -- -- --
------- ------- -------- -------- --------
Total dividends and distributions.......... (.52) (.46) (.82) (1.07) (.69)
------- ------- -------- -------- --------
Redemption fee retained by Fund............... -- -- -- .18 --
------- ------- -------- -------- --------
Net asset value, end of year.................. $ 6.36 $ 7.17 $ 7.08 $ 7.63 $ 7.68
------- ------- -------- -------- --------
------- ------- -------- -------- --------
Per share market price, end of year........... N/A N/A N/A N/A $ 7.375
------- ------- -------- -------- --------
------- ------- -------- -------- --------
TOTAL INVESTMENT RETURN BASED ON(a):
Market price............................... N/A N/A N/A N/A 44.39%
Net asset value............................ (4.27)% 8.00% 3.62% 14.02% 25.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $63,343 $84,008 $ 96,365 $125,637 $350,339
Average net assets (000)...................... $72,413 $89,970 $110,910 $180,588 $342,741
Ratios to average net assets:
Expenses, including distribution fees...... 1.86% 1.63% 1.64% 1.48% 1.05%
Expenses, excluding distribution fees...... 1.61% 1.48% 1.49% 1.34% 1.05%
Net investment income...................... 5.77% 6.08% 6.54% 6.45% 6.37%
For Class A, B, C and Z shares:
Portfolio turnover rate....................... 110% 46% 53% 38% 203%
</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. 13
<PAGE>
Financial Highlights PRUDENTIAL INTERNATIONAL BOND FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Class C
-------------------------------------------------- ---------------------
January 15,
1996(c) Year Ended December
Year Ended December 31, Through 31,
--------------------------------- December 31, ---------------------
1999(d) 1998(d) 1997(d) 1996 1999(d) 1998(d)
--------- ------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 7.19 $ 7.10 $ 7.64 $ 7.72 $ 7.19 $ 7.10
--------- ------- ------- ----- --------- -------
Income from investment operations:
Net investment income......................... .35 .37 .44 .52 .35 .37
Net realized and unrealized gain (loss) on
investments and foreign currencies......... (.68) .11 (.20 ) .25 (.68) .11
--------- ------- ------- ----- --------- -------
Total from investment operations........... (.33) .48 .24 .77 (.33) .48
--------- ------- ------- ----- --------- -------
Less distributions:
Dividends from net investment income.......... (.18) (.21 ) (.54 ) (.63) (.18) (.21)
Distributions in excess of net investment
income..................................... -- (.14 ) (.24 ) (.40) -- (.14)
Distributions from net realized gains......... (.09) (.04 ) -- -- (.09) (.04)
Tax return of capital distributions........... (.21) -- -- -- (.21) --
--------- ------- ------- ----- --------- -------
Total dividends and distributions.......... (.48) (.39 ) (.78 ) (1.03) (.48) (.39)
--------- ------- ------- ----- --------- -------
Redemption fee retained by Fund............... -- -- -- .18 -- --
--------- ------- ------- ----- --------- -------
Net asset value, end of period................ $ 6.38 $ 7.19 $ 7.10 $ 7.64 $ 6.38 $ 7.19
--------- ------- ------- ----- --------- -------
--------- ------- ------- ----- --------- -------
TOTAL INVESTMENT RETURN(a).................... (4.76)% 7.32 % 3.25 % 12.86% (4.76)% 7.32%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $1,764 $1,218 $531 $75 $248 $257
Average net assets (000)...................... $1,560 $785 $335 $23 $248 $126
Ratios to average net assets:
Expenses, including distribution fees...... 2.36% 2.23 % 2.24 % 2.09%(b) 2.36% 2.23%
Expenses, excluding distribution fees...... 1.61% 1.48 % 1.49 % 1.34%(b) 1.61% 1.48%
Net investment income...................... 5.29% 5.51 % 6.00 % 5.85%(b) 5.29% 5.53%
<CAPTION>
<S> <C> <C>
January 15,
1996(c)
Through
December 31,
1997(d) 1996
------- ------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 7.64 $ 7.72
------- -----
Income from investment operations:
Net investment income......................... .40 .52
Net realized and unrealized gain (loss) on
investments and foreign currencies......... (.16 ) .25
------- -----
Total from investment operations........... .24 .77
------- -----
Less distributions:
Dividends from net investment income.......... (.54 ) (.63)
Distributions in excess of net investment
income..................................... (.24 ) (.40)
Distributions from net realized gains......... -- --
Tax return of capital distributions........... -- --
------- -----
Total dividends and distributions.......... (.78 ) (1.03)
------- -----
Redemption fee retained by Fund............... -- .18
------- -----
Net asset value, end of period................ $ 7.10 $ 7.64
------- -----
------- -----
TOTAL INVESTMENT RETURN(a).................... 3.25 % 12.86%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $76 $13
Average net assets (000)...................... $26 $8
Ratios to average net assets:
Expenses, including distribution fees...... 2.24 % 2.09%(b)
Expenses, excluding distribution fees...... 1.49 % 1.34%(b)
Net investment income...................... 5.96 % 5.85%(b)
</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 and Class C shares.
(d) Calculated based upon weighted average shares outstanding during the period.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 14
<PAGE>
Financial Highlights PRUDENTIAL INTERNATIONAL BOND FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class Z
-------------------------------------------
March 17,
1997(c)
Year Ended December 31, Through
-------------------------- December 31,
1999(d) 1998(d) 1997(d)
--------- ------------ ------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 7.19 $ 7.10 $ 7.57
--------- ----- -----
Income from investment operations:
Net investment income......................... .40 .44 .38
Net realized and unrealized gain (loss) on
investments and foreign currencies......... (.68) .10 (.02)
--------- ----- -----
Total from investment operations........... (.28) .54 .36
--------- ----- -----
Less distributions:
Dividends from net investment income.......... (.23) (.25) (.59)
Distributions in excess of net investment
income..................................... -- (.16) (.24)
Distributions from net realized gains......... (.09) (.04) --
Tax return of capital distributions........... (.21) -- --
--------- ----- -----
Total dividends and distributions.......... (.53) (.45) (.83)
--------- ----- -----
Net asset value, end of period................ $ 6.38 $ 7.19 $ 7.10
--------- ----- -----
--------- ----- -----
TOTAL INVESTMENT RETURN(a).................... (4.14)% 8.16% 4.97%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $3,080 $2,253 $628
Average net assets (000)...................... $2,720 $1,487 $121
Ratios to average net assets:
Expenses, including distribution fees...... 1.61% 1.48% 1.49%(b)
Expenses, excluding distribution fees...... 1.61% 1.48% 1.49%(b)
Net investment income...................... 6.04% 6.29% 6.82%(b)
</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 Z shares.
(d) Calculated based upon weighted average shares outstanding during the period.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 15
<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. (the 'Fund') at December 31, 1999, 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 accounting principles generally accepted in the
United States. 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 auditing standards generally accepted in the
United States 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, 1999 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 16, 2000
Federal Income Tax Information
(Unaudited) 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, 1999) as to the federal tax status of
distributions paid by The Fund during such fiscal year. Accordingly, during its
fiscal year ended December 31, 1999, the Fund paid dividends of $.22 per Class A
share, $.18 per Class B share, $.18 per Class C share, and $.23 per Class Z
share which represent dividends from ordinary income (net investment income and
currency gains). In addition, the Fund paid to Class A, B, C and Z shares a
long-term capital gain distribution of $.086 which is taxable as such. Also, the
Fund distributed to Class A, B, C and Z shares a tax return of capital of $.21
which is taxable as such.
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.
- --------------------------------------------------------------------------------
16
<PAGE>
Getting the Most from Your Prudential Mutual Fund
How many times have you read these reports--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: 1/100th of 1%. For example, one-half
of one percent is 50 basis points.
Collateralized Mortgage Obligations (CMOs):
Mortgage-backed bonds that separate mortgage
pools into different maturity classes, called
tranches. 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 other securities. The rate of
return of these financial instruments 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 member banks.
Federal Funds Rate: The interest rate charged
by one bank to another on overnight loans.
Futures Contract: An agreement to purchase or
sell a specific amount of a commodity or
financial instrument at a set price at a
specified date in the future.
Leverage: The use of borrowed assets to enhance
return. The expectation is that the interest
rate charged on borrowed funds 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 product) 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 purchase or 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; often
used to describe the difference between "bid" and
"asked" prices of a security, or between the yields
of two similar maturity bonds.
Yankee Bond: A bond sold by a foreign company
or government in the U.S. market and denominated
in U.S. dollars.
<PAGE>
Comparing a $10,000 Investment
- ---------------------------------------------------------
Prudential International Bond Fund, Inc. vs. the J.P.
Morgan Government Bond Index--Global (GBI)
Class A
(GRAPH)
Average Annual Total Returns
With Sales Charge As of 12/31/99
Since Inception (7/31/87) 7.47%
Ten Years 7.30
Five Years 7.97
One Year -8.10
Without Sales Charge As of 12/31/99
Since Inception 7.82%
Ten Years 7.74
Five Years 8.86
One Year -4.27
Class B
(GRAPH)
Average Annual Total Returns
With Sales Charge As of 12/31/99
Since Inception 4.07%
One Year -9.76
Without Sales Charge As of 12/31/99
Since Inception 4.52%
One Year -4.76
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. The
information beneath the graphs is 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 (or for
the past ten years for Class A shares).
These graphs compare a $10,000 investment in the
Prudential International Bond Fund, Inc. (Class A,
B, C, and Z shares) with a similar investment in
the J.P. Morgan Government Bond Index--Global
(the GBI) by portraying the initial account
values of Class B, C, and Z shares at the
commencement of operations, at the beginning
of the ten-year period for Class A shares, and
at the end of the fiscal year (December 31), as
measured on a quarterly basis, beginning in 1989
for Class A, 1996 for Class B and Class C, 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 charge
was deducted from the initial $10,000 investment
in Class A and Class C shares; (b) the maximum
applicable contingent deferred sales charges
were deducted from the value of the investment
in Class B and
<PAGE>
Class C
(GRAPH)
Average Annual Total Returns
With Sales Charge As of 12/31/99
Since Inception 4.25%
One Year -6.71
Without Sales Charge As of 12/31/99
Since Inception 4.52%
One Year -4.76
Class Z
(GRAPH)
Average Annual Total Returns As of 12/31/99
Since Inception 3.08%
One Year -4.14%
Class C shares, assuming full redemption on December
31, 1999; (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, approximately seven years after
purchase. Class Z shares are not subject to a sales
charge or distribution and service (12b-1) fees.
The GBI is a market-weighted index of the total return
of government bonds of the following nations: Australia,
Belgium, Canada, Denmark, France, Germany, Italy, Japan,
the United Kingdom, and the United States. The GBI is an
unmanaged index and is traded, unhedged, and measured in
U.S. dollars. The returns include 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.
These graphs are furnished to you in accordance with SEC regulations.
<PAGE>
The Prudential Mutual Fund Family
Prudential offers a broad range of mutual funds designed
to meet your individual needs. For information about these
funds, contact your financial adviser or call us at (800)
225-1852. Read the prospectus carefully before you invest or
send money.
STOCK FUNDS
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Index Series Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
The Prudential Investment Portfolios, Inc.
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Mid-Cap Value Fund
Prudential Real Estate Securities Fund
Prudential Sector Funds, Inc.
Prudential Financial Services Fund
Prudential Health Sciences Fund
Prudential Technology Fund
Prudential Utility Fund
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Tax-Managed Funds
Prudential Tax-Managed Equity Fund
Prudential 20/20 Focus Fund
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Target Funds
Large Capitalization Growth Fund
Large Capitalization Value Fund
Small Capitalization Growth Fund
Small Capitalization Value Fund
Asset Allocation/Balanced Funds
Prudential Balanced Fund
Prudential Diversified Funds
Conservative Growth Fund
Moderate Growth Fund
High Growth Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund
GLOBAL FUNDS
Global Stock Funds
Prudential Developing Markets Fund
Prudential Developing Markets Equity Fund
Prudential Latin America Equity Fund
Prudential Europe Growth Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Index Series Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Prudential Global Growth Fund
Prudential International Value Fund
Prudential Jennison International Growth Fund
Global Utility Fund, Inc.
Target Funds
International Equity Fund
Global Bond Funds
Prudential Global Total Return Fund, Inc.
Prudential International Bond Fund, Inc.
BOND FUNDS
Taxable Bond Funds
Prudential Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential High Yield Total Return Fund, Inc.
Prudential Index Series Fund
Prudential Bond Market Index Fund
Prudential Structured Maturity Fund, Inc.
Income Portfolio
Target Funds
Total Return Bond Fund
Tax-Exempt Bond Funds
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Income Series
Insured Series
Prudential Municipal Series Fund
Florida Series
Massachusetts Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
MONEY MARKET FUNDS
Taxable Money Market Funds
Cash Accumulation Trust
Liquid Assets Fund
National Money Market Fund
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.
Tax-Free Money Market Funds
Prudential Tax-Free Money Fund, Inc.
Prudential California Municipal Fund
California 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
Command Funds
Command Money Fund
Command Government Fund
Command Tax-Free Fund
Institutional Money Market Funds
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
visit our website at www.prudential.com
Fund Symbols
NASDAQ CUSIP
Class A GGPAX 74436Q101
Class B -- 74436Q200
Class C -- 74436Q309
Class Z -- 74436Q408
Directors
Delayne Dedrick Gold
Robert F. Gunia
Douglas H. McCorkindale
Thomas T. Mooney
Stephen P. Munn
David R. Odenath, Jr.
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
Marguerite E.H. Morrison, Secretary
Stephen M. Ungerman, Assistant Treasurer
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 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.
(ICON) Printed on Recycled Paper
<PAGE>
Fund Symbols
NASDAQ CUSIP
Class A GGPAX 74436Q101
Class B -- 74436Q200
Class C -- 74436Q309
Class Z -- 74436Q408
visit our website at www.prudential.com
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.
MF170E (ICON) Printed on Recycled Paper
