ANNUAL REPORT December 31, 1994
Prudential
Structured
Maturity Fund
(ICON)
Income Portfolio
(LOGO)
<PAGE>
Letter to Shareholders
February 1, 1995
Dear Shareholder:
Rising interest rates made 1994 a difficult year for the bond market.
Since bond prices fall when interest rates rise, the Prudential Structured
Maturity Fund-Income Portfolio produced a negative total return during
the year, as did the average Lipper short-term investment grade bond
fund. The good news is that yields are substantially higher -- nearly
three percentage points more than they were a year ago -- on Class A and
B shares.
<TABLE>
CUMULATIVE TOTAL RETURNS1
As of 12/31/94
<CAPTION>
1 Year 5 Years Since Inception2
<S> <C> <C> <C>
Class A -1.2% 40.5% 44.8%
Class B -1.8 N/A 4.8
Class C N/A N/A -0.7
Lipper Short Inv. Avg.3 -0.4 36.3 39.7
</TABLE>
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS1
As of 12/31/94
<CAPTION>
1 Year 5 Years Since Inception2
<S> <C> <C> <C>
Class A -4.4% 6.3% 6.5%
Class B -4.8 N/A 1.8
Class C N/A N/A -1.7
</TABLE>
Past performance is not indicative of future results. Principal and
investment return will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
1 Source: Prudential Mutual Fund Management Inc. and Lipper Analytical
Services, Inc. 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 3.25%
for Class A shares and a contingent deferred sales charge of 3%, 2%, 1%
and 1% for four years, for Class B shares. Class C shares have a 1% CDSC
for one year. Beginning in February 1995, Class B shares will automatically
convert to Class A shares on a quarterly basis, approximately five years
after purchase.
2 Inception dates: 9/1/89 Class A; 12/9/92, Class B; 8/1/94 Class C.
3 Lipper average returns are for 112 funds for one year, 30 funds for
five years, and 27 funds since inception of the Class A shares on 9/1/89.
-1-
<PAGE>
Our Objective.
The Prudential Structured Maturity Fund-Income Portfolio seeks
high current income, consistent with the preservation of capital,
from a portfolio of short- to intermediate-term investment grade
corporate bonds and U.S. government obligations.
Our Strategy.
The Fund is structured by laddering maturities -- assets are allocated
along six rungs or maturities, rising from one year or less to between
five and six years. As new assets come into the portfolio and older
bonds mature, we purchase new securities to keep the six annual maturity
categories in balance. By holding the average effective maturity steady
between 2.5 and 3.5 years, this Fund should decline less than a long-term
bond fund when interest rates rise. Of course, there can be no assurance
that the Fund will achieve its objective.
The Fed Tightened.
In 1994, the U.S. economy grew at a robust annual rate of 4%, the
strongest pace in 10 years. Because growth was so rapid, the Federal
Reserve feared inflation could begin to rise. So the Central Bank
raised short-term interest rates six times during the year by increasing
the federal funds interest rate (the interbank overnight lending rate)
by 2.5 percentage points to 5.5%.
Despite rising interest rates, the economy continued to surge all year
long. December unemployment fell to 5.4%, its lowest in four and a half
years as the economy finished its best year for job creation in a decade.
By almost every measure, 1994 set a record -- the highest retail sales since
1984, the most housing starts in six years, and the highest industrial
production rate since 1979. Some argued that the economy was so robust
that labor and materials shortages must surely follow, driving up their
costs. Yet inflation in 1994 was 2.7%, the same low level as 1993. So,
it was the fear of rising inflation that scared the markets in 1994 -- the
prospect, rather than the reality -- of an increase.
Yields Rose Dramatically, But Prices Fell.
As interest rates rose during the year, so did the Fund's yield. The
increases were almost three full percentage points, nearly doubling in
the case of B shares. The 30-day SEC yield of Class A shares at year-end
1994 rose to 6.76%, up from 3.98% at year-end 1993. The 30-day SEC yield
of Class B shares rose to 6.32% at year-end 1994, up from 3.36% at year-end
1993, while Class C shares closed 1994 at 6.30%.
-2-
<PAGE>
Although bond prices fall as yields rise, short- and intermediate-term bonds
lost less in 1994 than longer maturities, because shorter term bonds are
generally less volatile when interest rates rise. The difference in
performance last year was quite dramatic, as demonstrated by the Lehman
Brothers intermediate-term government/corporate index, which fell 1.9%
during the year, while the long-term index fell 7.1%.
Strategy: Varies By Maturity Range.
The Fund holds about 16.5% of assets in each of the six maturity ranges,
from less than one year to between five to six years. This disciplined
approach helped cushion the Fund from extreme interest rate swings, but
it also forced us to maintain a slightly longer maturity than we might
otherwise have chosen for a short-term fund in a market of rising interest
rates.
We held mostly corporate bonds in the one- to three-year maturity range
because their total return was generally higher than that of Treasury
securities. In the three- to six-year range, we held more of a mix of
corporate bonds and Treasury securities because the total return advantage
of corporate bonds in this maturity range was not as compelling. In the
corporate sector, we favored financial and industrial companies, which
performed well.
Asset backed securities also benefited this year, so we doubled our
holdings overall to 8% by the end of the year from about 4% at year-end
1993. The securities we purchased are bundles of home equity and credit
card loans. We also increased our holdings of mortgages over the year to
5% from less than 2%. Mortgage-backed securities became more valuable in
1994 because when interest rates rose, prepayments declined as fewer
homeowners refinanced. We believe that mortgages have limited
appreciation potential left and therefore expect to reduce our
holdings in the months ahead.
As of December 31, we held 61% of assets in corporates, 25% in Treasuries,
8% in asset backed securities, 5% in mortgage-backed securities and 1% in
cash.
Introducing a New Fund Manager.
Effective January 1, the Fund has a new manager: Tony Rodriguez. Tony
manages more than $2 billion in bond portfolios, including the bond
portion of the Prudential Allocation Fund/Conservatively Managed and
Strategy Portfolios. Prior to joining the investment grade bond group
in 1993, Tony spent four years as a lead portfolio manager for money market
mutual funds and various other Prudential portfolios. He received his M.B.A.
from New York University.
-3-
<PAGE>
The Outlook.
The economy has not yet slowed sufficiently to prevent the threat of
rising inflation. We expect short-term interest rates will continue
to rise until the Federal Reserve is satisfied that this risk has subsided.
We anticipate that there will be further credit tightening in 1995.
As always, it is a pleasure to work for you. Thank you for the confidence
you have shown in us by choosing the Prudential Structured Maturity
Fund-Income Portfolio.
Sincerely,
Lawrence C. McQuade
President
Tony Rodriguez
Portfolio Manager
-4-
<PAGE>
Commentary on Presentation of Portfolio of Investments:
The Portfolio of Investments, following hereto, is presented in a ``laddered''
maturity structure. The Income Portfolio invests in investment grade corporate
debt securities and in obligations of the U.S. Government, its agencies and
instrumentalities with maturities of six years or less. These securities are
categorized within six annual maturity categories.
- --------------------------------------------------------------------------------
PRUDENTIAL STRUCTURED MATURITY FUND Portfolio of Investments
INCOME PORTFOLIO December 31, 1994
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (Note 1)
<C> <C> <S> <C>
5-6 YEARS--15.8%
EQCC Home Equity Loan
Trust
(Asset Backed)
(Average Life 5.6
Years)
Aaa $ 3,000 7.85%, 6/15/07.......... $ 2,941,875
Sovereign Bancorp Inc.
(Banking)
BB+* 3,000 6.75%, 9/1/00........... 2,678,700
United States Treasury
Note
28,600 8.50%, 2/15/00.......... 29,381,924
------------
35,002,499
------------
4-5 YEARS--16.5%
Columbia Republic
(Foreign Government)
Ba1 2,000 8.75%, 10/6/99.......... 1,907,500
Crane Co.
(Industrial Services)
Baa3 3,000 7.25%, 6/15/99.......... 2,842,020
Enterprise Rent A Car
(Industrial Services)
Baa3 2,000 8.75%, 12/15/99......... 1,996,995
Federal Express Corp.
(Consumer Services)
Baa3 1,000 10.05%, 6/15/99......... 1,042,110
General Motors
Acceptance Corp.
(Financial Services)
Baa1 1,700 8.40%, 10/15/99......... 1,699,303
Great Lakes Power Inc.
(Utilities)
Baa3 1,500 8.90%, 12/1/99.......... 1,497,926
Korea Development Bank
(Banking)
A1 1,200 8.09%, 10/1/99.......... 1,156,800
Penske Truck Leasing Co.
(Industrial Services)
Baa3 2,000 7.75%, 5/15/99.......... 1,934,520
South Africa Republic
(Foreign Government)
Baa3 $ 3,000 9.625%, 12/15/99........ $ 2,910,000
United States Treasury
Note
21,900 5.00%, 1/31/99.......... 19,747,668
------------
36,734,842
------------
3-4 YEARS--16.5%
Aristar, Inc.
(Financial Services)
A3 2,000 5.75%, 7/15/98.......... 1,837,600
Associates Corp. of
North America
(Consumer Finance)
A1 200 8.375%, 1/15/98......... 199,998
Bank One Credit Card
Trust
(Asset Backed)
(Average Life 3.0
years)
A2 2,000 7.75%, 12/15/99......... 1,975,000
Carnival Cruise Lines,
Inc.
(Leisure)
A3 2,500 5.75%, 3/15/98.......... 2,305,675
Countrywide Funding
Corp.
(Financial Services)
A3 3,000 6.88%, 8/3/98........... 2,858,280
Federal Home Loan
Mortgage Corp.
(Average Life 3.3
Years)
7,842 7.50%, 6/1/01........... 7,604,546
Federal National
Mortgage
Association
(Average Life 3.6
Years)
2,737 11.00%, 11/1/20......... 2,954,741
First Union Corp.
(Banking)
A2 2,000 6.75%, 1/15/98.......... 1,906,760
Ford Motor Credit Co.
(Consumer Finance)
A2 2,000 6.25%, 2/26/98.......... 1,884,060
</TABLE>
-5- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL STRUCTURED MATURITY FUND
INCOME PORTFOLIO
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (Note 1)
<C> <C> <S> <C>
3-4 YEARS (cont'd.)
Goldman Sachs Group,
L.P.
(Financial Services)
A1 $ 1,500 6.10%, 4/15/98.......... $ 1,392,735
Hospitality Franchise
Systems, Inc.
(Industrial Services)
Baa3 2,000 5.875%, 12/15/98........ 1,820,560
MBNA America Bank N A
(Financial Services)
A2 3,000 7.30%, 8/17/98.......... 2,908,380
NationsBank Corp.
(Financial Services)
A2 1,500 6.625%, 1/15/98......... 1,429,605
Southern California
Edison Co.
(Utilities)
A1 2,000 5.875%, 2/1/98.......... 1,858,500
Texas Utilities Electric
Co.
(Utilities)
Baa2 3,000 5.875%, 4/1/98.......... 2,777,190
United States Treasury
Note
1,000 5.125%, 3/31/98......... 923,440
------------
36,637,070
------------
2-3 YEARS--16.3%
Banco Ganadero S.A.
(Foreign Government)
NR 3,000 9.75%, 8/26/97.......... 2,910,000
Comdisco, Inc.
(Leasing)
Baa2 1,500 9.75%, 1/15/97.......... 1,532,295
General Motors
Acceptance Corp.
(Financial Services)
Baa1 2,000 7.50%, 11/4/97.......... 1,946,940
Green Tree Financial
Corp.
(Asset Backed)
(Average Life 2.0
Years)
NR 3,516 7.85%, 7/15/04.......... 3,449,771
Greyhound Financial
Corp.
(Industrial Finance)
Baa2 2,100 9.67%, 7/1/97........... 2,152,920
International Bank for
Reconstruction &
Development
(Financial Services)
Aaa $ 1,000 9.61%, 12/3/97.......... $ 1,038,640
ITT Financial Corp.
(Financial Services)
Baa1 4,225 8.85%, 7/10/97.......... 4,393,493
Korea Development Bank
(Banking)
A1 1,200 7.71%, 5/5/97........... 1,175,592
MBNA Master Card Trust
(Asset Backed)
(Average Life 2.5
Years)
NR 4,000 7.25%, 6/15/99.......... 3,918,720
Mellon Financial Co.
(Financial Services)
A2 1,000 6.50%, 12/1/97.......... 956,100
Mitchell Energy &
Development Corp.
(Industrial Services)
Baa3 1,300 5.10%, 2/15/97.......... 1,216,046
Olympic Automobile Receivables Trust
(Asset Backed)
(Average Life 2.2 Years)
Aaa 2,000 6.85%, 6/15/01.......... 1,941,875
Potomac Capital
Investment Corp.
(Financial Services)
A3 3,500 6.19%, 4/28/97.......... 3,323,355
Tenneco Credit Corp.
(Financial Services)
Baa2 1,850 10.125%, 12/1/97........ 1,926,313
United States Treasury
Note
4,600 5.50%, 9/30/97.......... 4,341,986
------------
36,224,046
------------
1-2 YEARS--16.4%
Ashland Oil, Inc.
(Oil)
Baa1 1,000 8.95%, 1/17/96.......... 1,010,990
</TABLE>
-6- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL STRUCTURED MATURITY FUND
INCOME PORTFOLIO
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (Note 1)
<C> <C> <S> <C>
1-2 YEARS (cont'd.)
Associates Corp. of
North America
(Consumer Finance)
A1 $ 3,500 4.56%, 10/29/96......... $ 3,297,735
Centex Corp.
(Industrial Finance)
Baa2 4,000 9.05%, 5/1/96........... 4,024,720
Chrysler Financial Corp.
(Financial Services)
Baa 1,600 5.39%, 8/27/96.......... 1,535,520
CIT Group Holdings, Inc.
(Financial Services)
Aa3 1,000 8.75%, 2/15/96.......... 1,009,200
Grand Metropolitan
Investment Corp.
(Industrial Finance)
A2 2,195 8.125%, 8/15/96......... 2,199,104
Hanson Overseas
(Diversified
Industrial)
A1 2,000 5.50%, 1/15/96.......... 1,953,980
New Zealand Government
(Foreign Government)
Aa2 4,300 8.25%, 9/25/96.......... 4,299,828
Norwest Financial, Inc.
(Consumer Finance)
A1 2,000 4.85%, 11/15/96......... 1,889,600
Oryx Energy Co.,
(Oil)
Ba3 2,500 6.05%, 2/1/96........... 2,409,375
TransAmerica Finance
Corp.
(Financial Services)
A2 2,000 5.85%, 7/15/96.......... 1,937,120
Union Bank Finland, Ltd.
(Banking)
A3 1,500 5.25%, 6/15/96.......... 1,436,265
Virginia Electric &
Power Co.
(Utilities)
A2 1,350 9.70%, 5/6/96........... 1,382,400
Westinghouse Credit
Corp.
(Financial Services)
Ba1 4,000 8.75%, 6/3/96........... 4,010,720
Westinghouse Electric
Corp.
(Consumer Finance)
Ba1 $ 1,530 7.75%, 4/15/96.......... $ 1,516,199
Ba1 600 8.70%, 6/20/96.......... 601,248
World Omni 94 A
(Asset Backed)
(Average Life 1.9
Years)
Aaa 2,000 6.45%, 9/25/00.......... 1,933,740
------------
36,447,744
------------
WITHIN 1 YEAR--16.7%
Alcan Aluminum Ltd.
(Aluminum)
A2 1,000 9.40%, 6/1/95........... 1,009,380
Cemex S.A.
(Industrial Services)
NR 1,000 6.25%, 10/25/95......... 980,000
Central Fidelity Bank
(Financial Services)
A2 1,000 4.70%, 2/15/95.......... 998,710
Central Maine Power Co.
(Utilities)
Baa3 4,000 7.025%, 8/3/95.......... 4,000,000
Chrysler Financial Corp.
(Financial Services)
A3 1,300 5.26%, 7/6/95........... 1,286,038
Citicorp
(Financial Services)
A2 1,000 7.80%, 3/24/95.......... 1,002,550
Comdisco, Inc.
(Leasing)
Baa2 1,000 8.95%, 5/15/95.......... 1,005,860
General Motors
Acceptance Corp.
(Financial Services)
Baa1 2,000 7.05%, 4/13/95.......... 1,999,600
Greyhound Financial
Corp.
(Industrial Finance)
Baa2 2,000 4.625%, 4/19/95......... 1,987,240
Hydro Quebec
(Utilities)
A1 2,000 5.50%, 9/30/49,
F.R.N................. 1,700,000
</TABLE>
-7- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL STRUCTURED MATURITY FUND
INCOME PORTFOLIO
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (Note 1)
<C> <C> <S> <C>
WITHIN 1 YEAR (cont'd.)
International Lease
Finance Corp.
(Equipment Leasing)
A2 $ 1,000 9.80%, 7/31/95.......... $ 1,013,730
Morgan Stanley Group,
Inc.
(Financial Services)
A1 1,000 9.875%, 5/1/95.......... 1,008,860
Norwest Financial, Inc.
(Consumer Finance)
Aa3 2,500 7.25%, 11/1/95.......... 2,493,075
Occidental Petroleum
Corp.
(Oil)
Baa3 3,750 5.37%, 9/11/95.......... 3,691,463
Pacific-Tel Capital
Resources Group
(Utilities)
A1 2,000 8.95%, 6/20/95.......... 2,016,880
PaineWebber Group, Inc.
(Financial Services)
A3 3,000 9.625%, 5/1/95.......... 3,021,060
Petroleos Mexicanos
(Foreign Government)
Ba2 2,500 5.563%, 3/8/99,
F.R.N................. 2,462,500
Philip Morris Cos., Inc.
(Tobacco)
A2 1,000 9.20%, 11/2/95.......... 1,012,120
Standard Credit Card
Trust
(Asset Backed)
(Average Life 0.3
Years)
A2 $ 2,000 9.375%, 3/10/96......... $ 2,013,125
Union Pacific Corp.
(Oil)
A2 1,750 9.33%, 10/12/95......... 1,773,765
Joint Repurchase
Agreement Account
691 5.82%, 1/3/95 (Note
5).................... 691,000
------------
37,166,956
------------
Total Investments--98.2%
(cost $226,333,199; Note
4).................... 218,213,157
Other assets in excess
of
liabilities--1.8%..... 4,095,744
------------
Net Assets--100%........ $222,308,901
------------
------------
- ------------------
F.R.N.-Floating Rate Note. The maturity date of such
securities is considered to be the later of the next date on
which the security can be redeemed of par or the next date
on which the rate of interest is adjusted.
NR-Not Rated.
</TABLE>
-8- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL STRUCTURED MATURITY FUND
INCOME PORTFOLIO
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
Assets December 31,
1994
- -----------------
<S> <C>
Investments, at value (cost $226,333,199).................................................. $
218,213,157
Cash.......................................................................................
21,310
Receivable for investments sold............................................................
4,475,340
Interest receivable........................................................................
4,237,319
Receivable for Fund shares sold............................................................
335,329
Deferred expenses and other assets.........................................................
191
- -----------------
Total assets...........................................................................
227,282,646
- -----------------
Liabilities
Payable for investments purchased..........................................................
2,877,813
Payable for Fund shares reacquired.........................................................
1,801,971
Accrued expenses...........................................................................
124,260
Distribution fee payable...................................................................
92,502
Management fee payable.....................................................................
77,199
- -----------------
Total liabilities......................................................................
4,973,745
- -----------------
Net Assets................................................................................. $
222,308,901
- -----------------
- -----------------
Net assets were comprised of:
Common stock, at par..................................................................... $
202,684
Paid-in capital in excess of par.........................................................
239,108,590
- -----------------
239,311,274
Accumulated net realized loss on investments.............................................
(8,882,331)
Net unrealized depreciation on investments...............................................
(8,120,042)
- -----------------
Net assets at December 31, 1994.......................................................... $
222,308,901
- -----------------
- -----------------
Class A:
Net asset value and redemption price per share
($91,679,738 / 8,356,909 shares of common stock issued and outstanding)................
$10.97
Maximum sales charge (3.25% of offering price)...........................................
.37
- -----------------
Maximum offering price to public.........................................................
$11.34
- -----------------
- -----------------
Class B:
Net asset value, offering price and redemption price per share
($130,258,395 / 11,877,663 shares of common stock issued and outstanding)..............
$10.97
- -----------------
- -----------------
Class C:
Net asset value, offering price and redemption price per share
($370,768 / 33,809 shares of common stock issued and outstanding)......................
$10.97
- -----------------
- -----------------
</TABLE>
See Notes to Financial Statements.
-9-
<PAGE>
PRUDENTIAL STRUCTURED MATURITY FUND
INCOME PORTFOLIO
Statement of Operations
<TABLE>
<CAPTION>
Year
Ended
December 31,
Net Investment Income 1994
------------
<S> <C>
Income
Interest............................... $ 16,503,790
------------
Expenses
Distribution fee--Class A.............. 106,737
Distribution fee--Class B.............. 1,089,616
Distribution fee--Class C.............. 596
Management fee......................... 967,204
Transfer agent's fees and expenses..... 315,000
Reports to shareholders................ 255,000
Registration fees...................... 168,000
Custodian's fees and expenses.......... 155,000
Legal fees............................. 75,000
Audit fee.............................. 34,000
Directors' fees........................ 29,000
Amortization of deferred organization
expenses............................... 21,000
Miscellaneous.......................... 26,076
------------
Total expenses....................... 3,242,229
------------
Net investment income.................... 13,261,561
------------
Realized and Unrealized Gain (Loss) on
Investments
Net realized loss on Investments......... (8,461,299)
Net change in unrealized appreciation
(depreciation)
of Investments......................... (8,556,463)
------------
Net loss on investments.................. (17,017,762)
------------
Net Decrease in Net Assets
Resulting from Operations................ $ (3,756,201)
------------
------------
</TABLE>
PRUDENTIAL STRUCTURED MATURITY FUND
INCOME PORTFOLIO
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended December 31,
Increase (Decrease) ------------------------------
in Net Assets 1994 1993
------------- -------------
<S> <C> <C>
Operations
Net investment income..... $ 13,261,561 $ 10,305,665
Net realized gain (loss)
on investment
transactions............ (8,461,299) 1,676,837
Net change in unrealized
appreciation
(depreciation) on
investments............. (8,556,463) (1,001,998)
------------- -------------
Net increase (decrease) in
net assets resulting
from operations......... (3,756,201) 10,980,504
------------- -------------
Dividends and distributions
(Note 1)
Dividends from net
investment income
Class A................. (6,272,073) (6,786,531)
Class B................. (6,985,271) (3,519,134)
Class C................. (4,217) --
------------- -------------
(13,261,561) (10,305,665)
------------- -------------
Distributions in excess of
net investment income
Class A................. (83,531) --
Class B................. (118,895) --
Class C................. (331) --
------------- -------------
(202,757) --
------------- -------------
Distributions from net
realized gains
Class A................. -- (1,295,162)
Class B................. -- (1,027,120)
Class C................. -- --
------------- -------------
-- (2,322,282)
------------- -------------
Fund share transactions
(Note 6)
Net proceeds from shares
subscribed.............. 71,130,664 155,140,884
Net asset value of shares
issued to shareholders
in reinvestment of
dividends and
distributions........... 8,878,646 8,391,229
Cost of shares
reacquired.............. (83,235,470) (40,937,219)
------------- -------------
Net increase (decrease) in
net assets from Fund
share transactions...... (3,226,160) 122,594,894
------------- -------------
Total increase (decrease)... (20,446,679) 120,947,451
Net Assets
Beginning of year........... 242,755,580 121,808,129
------------- -------------
End of year................. $ 222,308,901 $ 242,755,580
------------- -------------
------------- -------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
-10-
<PAGE>
<PAGE>
PRUDENTIAL STRUCTURED MATURITY FUND
INCOME PORTFOLIO
Notes to Financial Statements
Prudential Structured Maturity Fund (the ``Fund''), is registered under the
Investment Company Act of 1940, as a diversified, open-end management investment
company. The Fund consists of two portfolios--the Income Portfolio (the
``Portfolio'') and the Municipal Income Portfolio. The Municipal Income
Portfolio has not yet begun operations. The Fund was incorporated in Maryland on
June 8, 1988 and had no operations until July 1989 when 8,613 shares of the
Portfolio's common stock were sold for $100,000 to Prudential Mutual Fund
Management, Inc. (``PMF''). Investment operations commenced on September 1,
1989. The Portfolio's investment objective is high current income consistent
with the preservation of principal. The ability of issuers of debt securities
held by the Portfolio to meet their obligations may be affected by economic
developments in a specific industry or region.
Note 1. Accounting The following is a summary
Policies of significant accounting poli-
cies followed by the Portfolio in the preparation
of its financial statements.
Securities Valuation: The Board of Directors has authorized the use of an
independent pricing service to determine valuations of U.S. Government and
corporate obligations. The pricing service considers such factors as security
prices, yields, maturities, call features, ratings and developments relating to
specific securities in arriving at securities valuations. When market quotations
are not readily available, a security is valued by appraisal at its fair value
as determined in good faith under procedures established under the general
supervision and responsibility of the Board of Directors.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost.
In connection with transactions in repurchase agreements, the Portfolio's
custodian or designated subcustodians, as the case may be under triparty
repurchase agreements, takes possession of the underlying collateral securities,
the value of which at least equals 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 Portfolio may be delayed or limited.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis.
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.
Federal Income Taxes: It is the Portfolio'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 net income and capital gains, if
any, to its shareholders. Therefore, no federal income tax provision is
required.
Dividends and Distributions: The Portfolio declares daily and pays monthly
dividends from net investment income. Distributions from net capital gains, if
any, are made at least annually. Dividends and distributions are recorded on the
ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles.
Reclassification of Capital Accounts: The Portfolio accounts for and reports
distributions to shareholders in accordance with Statement of Position 93-2:
Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies. The
effect of applying this statement was to increase undistributed net investment
income by $202,757 and decrease accumulated net realized gain on investments by
$202,757 for market discount incurred during the fiscal year. Net investment
income, net realized gains and net assets were not affected by this change.
Deferred Organization Expenses: Approximately $160,000 of expenses were incurred
in connection with the organization and initial registration of the Portfolio.
These expenses have been deferred and were amortized ratably during the period
of benefit of 60 months from the date of commencement of investment operations
through August, 1994.
-11-
<PAGE>
<PAGE>
Note 2. Agreements The Fund has a management
agreement with PMF. Pursuant to this agreement,
PMF has responsibility for all investment advisory services and supervises the
subadviser's performance of such services. PMF has entered into a subadvisory
agreement with The Prudential Investment Corporation (``PIC''); PIC furnishes
investment advisory services in connection with the management of the Fund. PMF
pays for the cost of the subadviser's services, the compensation of officers and
employees 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 PMF is computed daily and payable monthly, at an
annual rate of .40 of 1% of the average daily net assets of the Portfolio.
The Fund has distribution agreements with Prudential Mutual Fund
Distributors, Inc. (``PMFD''), which acts as the distributor of the Class A
shares of the Fund, and with Prudential Securities Incorporated (``PSI''), which
acts as distributor of the Class B and Class C shares of the Fund (collectively
the ``Distributors''). The Fund compensates the Distributors 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.
On July 19, 1994, shareholders of the Fund approved amendments to the Class A
and Class B distribution plans under which the distribution plans became
compensation plans, effective August 1, 1994. Prior thereto, the distribution
plans were reimbursement plans, under which PMFD and PSI were reimbursed for
expenses actually incurred by them up to the amount permitted under the Class A
and Class B Plans, respectively. The Fund is not obligated to pay prior or
future excess distribution costs (costs incurred by the Distributors in excess
of distribution fees paid by the Fund or contingent deferred sales charges
received by the Distributors). The Fund began offering Class C shares on August
1, 1994.
Pursuant to the Class A, B and C Plans, the Fund compensates the Distributors
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 .10 of 1%, of the average daily
net assets of the Class A shares for the fiscal year ended December 31, 1994 and
.75 of 1% of the average daily net assets of Class B and C shares for the period
August 1, 1994 through December 31, 1994. Prior to August 1, 1994, the rate of
distribution fee charged to Class B shares was .85 of 1% of the average daily
net assets.
PMFD has advised the Portfolio that it has received approximately $342,000 in
front-end sales charges resulting from sales of Class A shares during the year
ended December 31, 1994. From these fees, PMFD paid such sales charges to
dealers (PSI and Prusec) which in turn paid commissions to salespersons.
PSI advised the Portfolio that for the year ended December 31, 1994, it
received approximately $427,000 in contingent deferred sales charges imposed
upon certain redemptions by Class B and Class C shareholders.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
Note 3. Other Prudential Mutual Fund Ser-
Transactions vices, Inc. (``PMFS''), a
with Affiliates wholly-owned subsidiary of
PMF, serves as the Portfolio's transfer agent.
During the year ended December 31, 1994, the Portfolio incurred fees of
approximately $251,000 for the services of PMFS. As of December 31, 1994,
approximately $21,000 of such fees were due to PMFS. Transfer agent fees and
expenses in the Statement of Operations also include certain out-of-pocket
expenses paid to non-affiliates.
Note 4. Portfolio Purchases and sales of port-
Securities folio securities, excluding
short-term investments, for the year ended
December 31, 1994 were $291,424,254 and $289,034,060, respectively.
The federal income tax basis of the Portfolio's investments at December 31,
1994 was substantially the same as for financial reporting purposes, and
accordingly, net unrealized depreciation for federal income tax purposes was
$8,120,042 (gross unrealized appreciation--$23,066; gross unrealized
depreciation--$8,143,108).
The Portfolio elected to treat approximately $249,000 of net capital losses
incurred during the two month period ended December 31, 1993 as having occurred
in the current year. The Portfolio also elected to treat approximately $758,200
of net capital losses incurred during the two month period ended December 31,
1994 as having incurred in the following fiscal year.
For federal income tax purposes, the Portfolio has a capital loss
carryforward as of December 31, 1994 of approximately $8,148,900 which expires
in 2002. Accordingly, no
-12-
<PAGE>
<PAGE>
capital gain distributions are expected to be paid to shareholders until net
gains have been realized in excess of such carryforward.
Note 5. Joint The Portfolio, along with
Repurchase other affiliated registered
Agreement investment companies, trans-
Account fers 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, 1994, the
Portfolio had a 0.09% undivided interest in the repurchase agreements in the
joint account. The undivided interest for the Portfolio represented $691,000 in
principal amount. As of such date, each repurchase agreement in the joint
account and the collateral therefor was as follows:
Goldman, Sachs & Co., 5.75%, in the principal amount of $250,000,000,
repurchase price $250,159,722, due 1/3/95. The value of the collateral including
accrued interest is $255,000,108.
Lehman Government Securities Inc., 5.90%, in the principal amount of
$70,000,000, repurchase price $70,045,889, due 1/3/95. The value of the
collateral including accrued interest is $71,379,084.
Morgan Stanley & Co., 5.75%, in the principal amount of $250,000,000,
repurchase price $250,159,722, due 1/3/95. The value of the collateral including
accrued interest is $255,146,220.
Smith Barney Inc., 5.95%, in the principal amount of $200,000,000, repurchase
price $200,132,222, due 1/3/95. The value of the collateral including accrued
interest is $204,036,161.
Note 6. Capital The Portfolio currently offers
Class A, Class B and Class C shares. Class A
shares are sold with a front-end sales charge of up to 3.25%. Class B shares are
sold with a contingent deferred sales charge which declines from 3% to zero
depending on the period of time the shares are held. Class C shares are sold
with a contingent deferred sale charge of 1% during the first year. Class B
shares will automatically convert to Class A shares on a quarterly basis
approximately five years after purchase commencing in or about February 1995.
There are 250 million authorized shares of $.01 par value common stock,
divided into three classes, designated Class A, Class B and Class C common
stock, each of which consists of 83,333,333 1/3 authorized shares. Transactions
in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- -------------------------------- ---------- ------------
<S> <C> <C>
Year ended December 31, 1994:
Shares sold..................... 1,327,030 $ 15,172,253
Shares issued in reinvestment of
dividends and distributions... 352,857 3,992,113
Shares reacquired............... (3,461,380) (39,309,298)
---------- ------------
Decrease in shares
outstanding................... (1,781,493) $(20,144,932)
---------- ------------
---------- ------------
Year ended December 31, 1993:
Shares sold..................... 2,594,107 $ 31,677,141
Shares issued in reinvestment of
dividends and distributions... 434,693 5,183,611
Shares reacquired............... (2,208,544) (26,405,354)
---------- ------------
Increase in shares
outstanding................... 820,256 $ 10,455,398
---------- ------------
---------- ------------
Class B
- --------------------------------
Year ended December 31, 1994:
Shares sold..................... 4,868,067 $ 55,579,090
Shares issued in reinvestment of
dividends and distributions... 432,507 4,882,473
Shares reacquired............... (3,888,211) (43,919,636)
---------- ------------
Increase in shares
outstanding................... 1,412,363 $ 16,541,927
---------- ------------
---------- ------------
Year ended December 31, 1993:
Shares sold..................... 10,395,504 $123,463,743
Shares issued in reinvestment of
dividends and distributions... 269,387 3,207,618
Shares reacquired............... (1,216,010) (14,531,865)
---------- ------------
Increase in shares
outstanding................... 9,448,881 $112,139,496
---------- ------------
---------- ------------
Class C
- --------------------------------
August 1, 1994* through
December 31, 1994:
Shares sold..................... 34,035 $ 379,321
Shares issued in reinvestment of
dividends and distributions... 368 4,060
Shares reacquired............... (594) (6,536)
---------- ------------
Increase in shares
outstanding................... 33,809 $ 376,845
---------- ------------
---------- ------------
- ---------------
* Commencement of offering of Class C shares.
</TABLE>
-13-
<PAGE>
<PAGE>
PRUDENTIAL STRUCTURED MATURITY FUND
INCOME PORTFOLIO
Financial Highlights
<TABLE>
<CAPTION>
Class A Class B
Class C
----------------------------------------------------------
- ------------------------------------ ------------
December 9, August 1,
Year ended
1992** 1994***
PER SHARE Year ended December 31, December 31,
through through
OPERATING ---------------------------------------------------------- --------------------
December 31, December 31,
PERFORMANCE: 1994 1993 1992 1991 1990 1994 1993
1992 1994
---------- -------- -------- -------- -------- -------- --------
- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<C>
Net asset
value,
beginning
of
period.... $ 11.78 $ 11.79 $ 12.13 $ 11.67 $ 11.63 $ 11.78 $ 11.79 $
11.79 $ 11.30
---------- -------- -------- -------- -------- -------- --------
- ------------ ------------
Income from
investment
operations:
Net
investment
income.... .65 .71 .86D .93D 1.00D .58 .62
.04 .23
Net realized
and
unrealized
gain
(loss) on
investment
transactions (.80) .12 (.08) .56 .04 (.80) .12
-- (.32)
---------- -------- -------- -------- -------- -------- --------
- ------------ ------------
Total from
investment
operations... (.15) .83 .78 1.49 1.04 (.22) .74
.04 (.09)
---------- -------- -------- -------- -------- -------- --------
- ------------ ------------
Less
distributions:
Dividends
from net
investment
income.... (.65) (.71) (.86) (.93) (1.00) (.58) (.62)
(.04) (.23)
Distributions
in excess
of net
investment
income.... (.01) -- -- -- -- (.01) --
-- (.01)
Distributions
from net
realized
gains..... -- (.13) (.26) (.10) -- -- (.13)
-- --
---------- -------- -------- -------- -------- -------- --------
- ------------ ------------
Total
distributions. (.66) (.84) (1.12) (1.03) (1.00) (.59) (.75)
(.04) (.24)
---------- -------- -------- -------- -------- -------- --------
- ------------ ------------
Net asset
value, end
of
period.... $ 10.97 $ 11.78 $ 11.79 $ 12.13 $ 11.67 $ 10.97 $ 11.78 $
11.79 $ 10.97
---------- -------- -------- -------- -------- -------- --------
- ------------ ------------
---------- -------- -------- -------- -------- -------- --------
- ------------ ------------
TOTAL
RETURN#:... (1.16)% 7.19% 6.67% 13.35% 9.40% (1.83)% 6.38%
.32% (0.68)%
RATIOS/SUPPLEMENTAL DATA:
Net assets,
end of
period
(000)..... $ 91,680 $119,449 $109,828 $109,997 $113,125 $130,258 $123,306 $
11,981 $ 371
Average net
assets
(000)..... $ 106,737 $114,728 $107,937 $113,010 $107,276 $134,985 $ 69,314 $
5,474 $ 192
Ratios to
average
net
assets:##
Expenses,
including
distribution
fees.... .94% .80% .70%D .37%D .13%D 1.66% 1.55%
1.67%* 1.90%*
Expenses,
excluding
distribution
fees.... .84% .70% .60%D .27%D .10%D .84% .70%
.82%* 1.15%*
Net
investment
income... 5.88% 5.92% 7.15%D 7.89%D 8.67%D 5.17% 5.08%
6.31%* 5.30%*
Portfolio
turnover... 123% 137% 91% 117% 46% 123% 137%
91% 123%
</TABLE>
- ---------------
* Annualized.
** Commencement of offering of Class B shares.
*** Commencement of offering of Class C shares.
D Net of expense subsidy and/or fee waiver
# Total return does not consider the effects of sales loads. Total
return is calculated assuming a purchase of shares on the first
day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total returns for
periods of less than one full year are not annualized.
## Because of the event referred to in *** and the timing of such,
the ratios for Class C shares are not necessarily comparable to
that of Class A or Class B shares and are not necessarily indicative
of future ratios.
See Notes to Financial Statements.
-14-
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors of
Prudential Structured Maturity Fund, Income Portfolio
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Prudential Structured Maturity Fund,
Income Portfolio, as of December 31, 1994, the related statements of operations
for the year then ended and of changes in net assets for each of the years in
the two year period then ended, and the financial highlights for each of the
years in the five year period then ended. These financial statements and the
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
December 31, 1994 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Prudential
Structured Maturity Fund, Income Portfolio, as of December 31, 1994, the results
of its operations, the changes in its net assets and the financial highlights
for the respective stated periods in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
New York, New York
February 2, 1995
TAX INFORMATION
We are required by the Internal Revenue Code to advise you within 60 days of
the Portfolio's fiscal year end (December 31, 1994) as to the federal tax status
of dividends paid by the Portfolio during such fiscal year.
During 1994, dividends paid from net investment income of $.66 per share for
Class A shares, $.59 per share for Class B shares and $.24 for Class C shares
are taxable as ordinary income.
For the purpose of preparing your annual federal income tax return, however,
you should report the amounts as reflected on the appropriate Form 1099-DIV or
substitute Form 1099-DIV.
We are required by Massachusetts and Oregon to inform you that dividends
which have been derived from interest on federal obligations are not taxable to
shareholders. Please be advised that 27.35% of the dividends paid by the Fund
qualify for each of these states' tax exclusion.
-15-
<PAGE>
Prudential Structured Maturity Fund--Income Portfolio
Comparison of Change in Value of $10,000 Investment in Prudential
Structured Maturity Fund--Income Portfolio and Lehman Intermediate Gov't.
Corp. Bond Index
<TABLE>
Average Annual Total Returns
<CAPTION>
With Sales Load
1 Year Since Inception (9/1/89)
<S> <C> <C>
-4.4% 6.5%
<CAPTION>
Without Sales Load
1 Year Since Inception (9/1/89)
<S> <C> <C>
- -1.2% 7.2%
</TABLE>
Class A
(GRAPH)
<TABLE>
Average Annual Total Returns
<CAPTION>
With Sales Load
1 Year 5 Year Since Inception (12/9/92)
<S> <C> <C> <C>
-4.8% N/A 1.7%
<CAPTION>
Without Sales Load
1 Year 5 Year Since Inception (12/9/92)
<S> <C> <C> <C>
-1.8% N/A -.7%
</TABLE>
Class B
(GRAPH)
<TABLE>
Average Annual Total Returns
<CAPTION>
With Sales Load
1 Year Since Inception (8/1/94)
<S> <C> <C>
N/A -1.7%
<CAPTION>
Without Sales Load
1 Year Since Inception (8/1/94)
<S> <C> <C>
N/A -.7%
</TABLE>
Class C
(GRAPH)
Lehman Intermediate Gov't. Prudential Structured Maturity
Corp. Bond Index Fund--Income Portfolio
Past performance is not predictive of future performance and an investor's
shares when redeemed may be worth more or less than their original cost.
These graphs are furnished to you in accordance with SEC regulations. They
compare a $10,000 investment in the Prudential Structured Maturity
Fund--Income Portfolio (Class A, Class B and Class C) with a similar
investment in the Lehman Brothers Intermediate Government/Corporate
Bond Index by portraying the initial account values at the commencement
of operations of each class, and subsequent account values at the end of
each fiscal year (December 31), as measured on a quarterly basis, beginning
in 1989 for Class A shares, in 1992 for Class B shares and in 1994 for Class
C 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, 1994; (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.
The Intermediate Government/Corporate Index is a weighted index comprised
of securities issues by the U.S. government and its agencies and securities
publicly issued by corporations with one to 9.99 years remaining to maturity,
rated investment grade and have $50 million or more in publicly issued debt
outstanding. The index is an un 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 that comprise the index may differ substantially
from the securities in the Fund's portfolio. The Intermediate
Government/Corporate Index is not the only index that may be used
to characterize performance of bond funds and other indexes may portray
different comparative performance.
<PAGE>
Trustees
Thomas R. Anderson
Robert R. Fortune
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Lawrence C. McQuade
Thomas A. Owens, Jr.
Merle T. Welshans
Officers
Lawrence C. McQuade, President
Robert F. Gunia, Vice President
Susan C. Cote, Treasurer
S. Jane Rose, Secretary
Marguerite E. H. Morrison, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributors
Prudential Mutual Fund Distributors, Inc.
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, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852, Collect (908) 417-7555
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
743924102 MF140E
743924201 (LOGO)
743924300
