(ICON)
Prudential
Structured
Maturity
Fund, Inc.
- ---------------------
Income Portfolio
ANNUAL
REPORT
Dec. 31, 1996
(LOGO)
<PAGE>
Prudential Structured Maturity Fund, Inc.
Income Portfolio
Performance At A Glance.
Interest rates fluctuated throughout much of 1996, ending the
year higher, which limited bond investors' gains. Intermediate-term
bonds did produce moderate total returns, but they were held back
because bond prices fall when interest rates rise. Your Prudential
Structured Maturity Fund finished 1996 with returns which were
either in line with, or behind, those of the average short-term
bond fund tracked by Lipper Analytical Services.
<TABLE>
Cumulative Total Returns1 As of 12/31/96
<CAPTION>
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A 4.3% 33.4% 70.8%
Class B 3.6 N/A 22.1
Class C 3.6 N/A 15.7
Class Z N/A N/A 0.6
Lipper S-T Inv. Grade Debt Fds Avg3 4.3 31.7 **
<CAPTION>
Average Annual Total Returns1 As of 12/31/96
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A 0.9% 5.2% 7.1%
Class B 0.6 N/A 5.0
Class C 2.6 N/A 6.2
</TABLE>
<TABLE>
<CAPTION>
Total Dividends 30-Day
Paid for 12 Mos. SEC Yield
<S> <C> <C> <C>
Dividends
& Yields Class A $0.75 5.39%
As of Class B $0.67 4.91
12/31/96 Class C $0.67 4.91
Class Z $0.11 N/A
</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.
1Source: Prudential Mutual Fund Management and Lipper Analytical
Services. The cumulative total returns do not take into account
sales charges. The average annual returns do take into account
applicable sales charges. The Fund charges a maximum front-end sales
load of 3.25% for Class A shares and a four-year, declining
contingent deferred sales charge (CDSC) of 3%, 2%, 1% and 1% for
Class B shares. Class C shares have a 1% CDSC for one year. Class
B shares automatically convert to Class A shares on a quarterly basis,
after approximately five years. Since Class Z shares have been in
existence less than one year, no average annual returns are shown.
2Inception dates: 9/1/89 Class A; 12/9/92 Class B; 8/1/94 Class C;
12/16/96 Class Z
3These are the cumulative total returns of 72 funds in the Lipper
Short-Term Investment Grade Debt average for one year, and 22 funds
for five years.
** Lipper since inception returns were Class A: 66.0% for 10
funds; Class B: 24.3% for 33 funds; and Class C: 16.6% for 50
funds . Lipper provides data on a monthly basis, so for comparative
purposes, these returns reflect the Fund's first full calendar month
of performance.
How Investments Compared.
(As of 12/31/96)
<GRAPH)
Source: Lipper Analytical Services. Financial markets change, so a
mutual fund's past performance should never be used to predict future
results. The risks to each of the investments listed above are
different -- we provide 12-month total returns for several Lipper
mutual fund categories to show you that reaching for higher yields
means tolerating more risk. The greater the risk, the larger the
potential reward or loss. In addition, we've included historical
20-year average annual returns. These returns assume the reinvestment
of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors have received
higher historical total returns from stocks than from most other
investments. Smaller capitalization stocks offer greater potential
for long-term growth but may be more volatile than larger capitalization
stocks.
General Bond Funds provide more income than stock funds, which can
help smooth out their total returns year by year. But their prices
still fluctuate (sometimes significantly) and their returns have been
historically lower than those of stock funds.
General Municipal Debt Funds invest in bonds issued by state
governments, state agencies and/or municipalities. This
investment provides income that is usually exempt from federal
and state income taxes.
Money Market Funds attempt to preserve a constant share value;
they don't fluctuate much in price but, historically, their returns
have been generally among the lowest of the major investment categories.
<PAGE>
Tony Rodriguez, Fund Manager (PICTURE)
Portfolio
Manager's Report
The Prudential Structured Maturity Fund -- Income Portfolio
features a fixed or laddered maturity format where assets are
allocated evenly among six maturity ranges or rungs of from
one to six years. Within this structure, your Fund seeks high
current income consistent with the preservation of principal
by primarily investing in corporate bonds, government bonds
and U.S. dollar-denominated "Yankee bonds"of foreign corporations
or governments. There can be no assurance that the Fund will
achieve its investment objective.
What Are Yankee Bonds?
Yankee bonds are U.S. dollar-denominated bonds
issued by foreign corporations and governments.
Because they are issued in U.S. dollars, these
securities carry less currency risk for U.S.
investors than foreign bonds issued in foreign
currencies. They also represent one way your Fund
seeks to diversify and counter potential negative
returns in the U.S. bond market. On December 31,
1996, about 16% of your Fund was invested in
foreign bonds.
Strategy Session.
A Bumpy Ride.
Bond investors faced a bumpy ride early in 1996 as interest
rates rose sharply and surging economic growth rekindled fears
of rising inflation. A strong employment report released in March
startled many investors who had expected slow growth. After all,
the Federal Reserve had just lowered the discount rate
(the interest banks pay for loans) for the first time since
1992. This doesn't usually happen when economic growth is
accelerating. These events created uncertainty, so many
investors sold their bonds.
By early summer, the bond market started to recover. Investor
confidence was buoyed as growth moderated and inflation remained
benign.
What happened? We now know that the economy was accelerating very
quickly. Second quarter Gross Domestic Product (GDP), the total
value of goods and services produced by the U.S. and a widely used
barometer for growth, was a strong 4.7%. By the third quarter, the
growth spurt fizzled and GDP fell to 2.1%. Bonds rallied as interest
rates fell.
Our strategy revolves about a balanced, laddered investment structure
that targets attractive investment opportunities. Throughout the year
our shorter duration -- 2.5 to 2.6 years -- helped to deflect the
negative impact that rising interest rates had on our longer term
bonds. (Duration is a measure of a fund's sensitivity to changes
in interest rates. When interest rates decline, a longer duration
helps the Fund appreciate more. When rates rise, a shorter duration
helps protect principal.) We also favored corporate bonds and foreign
securities that we believed would enhance return.
Portfolio Breakdown.
Expressed as a percentage of
total investments as of 12/31/96.
(PIE CHART)
<PAGE>
What Went Well.
A Good Year
To Go Corporate.
Corporate bonds (56% of total net assets on December 31, 1996) were
especially attractive to us during the past year. A strengthening
economy, soaring stock market, strong corporate earnings, and modest
supply, made prospects for increasing corporate bond prices compelling.
While corporate bonds returned a modest 3.3% for the year, they
returned a solid 5.6% over the past six months, according to Lehman
Brothers. We found value in consumer & financial services (Advanta
National Bank, Lehman Brothers); media (Paramount Communications,
Time Warner, Inc.); and retail consumer services (Federated
Department Stores, Federal Express).
"Yankees, Si!"
It was hard to ignore Yankee bonds in 1996 (and we didn't),
especially when their returns led domestic corporate bonds and
Treasurys over the past six months. These U.S. dollar-denominated
securities lessen (but do not eliminate) currency risk associated
with foreign investing. We modestly increased our share of Yankee
bonds to 16% of total net assets on December 31, 1996 from 14% a
year previous. Yankees returned 5.2% over the past six months
and 3.3% for the year, according to Lehman Brothers. Our most
favored nation list included Mexico, Brazil and Columbia,
where political and economic reforms were comforting to bond
holders.
Five Largest
Issuers.
13.7% U.S. Treasury Note
6.375%, 8/15/02
5.8% Advanta Corp.
Consumer Finance
5.0% Paramount Communications
Media
5.0% Salomon, Inc.
Financial Serivces
4.8% Time Warner, Inc.
Media
Expressed as a percentage of total net
assets as of 12/31/96.
And Not So Well.
In retrospect, we could have added to the Fund's return by
increasing our investment in Yankee bonds earlier. We also
should have eliminated our holdings in Fleming Companies, the
nation's largest grocery distributor, more quickly.
Fleming's business was hurt by increased competition and
litigation. We did not sell our entire position until May 1996.
Looking Ahead.
We are cautiously optimistic. Interest rates have stabilized somewhat,
but we believe that the uncertainty in the U.S. bond markets is not over
yet. The economy apparently ended the year growing at a relatively
moderate, non-inflationary pace. However, we remain unconvinced
that a clear economic trend has been established. Accordingly, we
must remain vigilant to changing market conditions and will continue
to pursue a moderate course for your Fund, keeping to our structured
duration format while looking for attractive investment opportunities
as they become available.
1
<PAGE>
President's Letter February 3, 1997
(PICTURE)
Dear Shareholder:
For many investors, 1996 was the second year of back-to-back, double-digit
stock market returns. In late November, the Dow Jones Industrial Average
passed 6500 -- only weeks after breaking the 6000 mark in mid-October --
and another record high was reached in January 1997. America's economic
expansion is entering its sixth year and there seems little evidence
of an end to the continued modest growth and low inflation we've
enjoyed for the last several years.
This is good news. For most investors it's meant an increase in their
share values for college funds, retirement nest eggs or other
long-term financial goals. However, as you read your year-end
account statements and make plans for 1997, it's important to
remember that there never is a "sure thing" when it comes to
investment returns. Stock and bond markets go down just as they
go up. (Did you notice the brief period of decline this past summer?)
No one likes to see the value of their investments fall but such
periods remind us we must keep our expectations realistic.
Regardless of the market's direction, a wise investor plans for
tomorrow's needs today. Your Financial Advisor or Registered
Representative can help you:
- -- Review your portfolio and suggest strategies for 1997, such as
diversifying across different types of investments. Financial markets
seldom move in lockstep. By investing in a mix of stock and bond funds
(foreign & domestic) and money market funds you may be in a better
position to achieve your long-term goals and to weather periods of
uncertainty.
- -- See why annuities have become popular retirement planning tools.
The choices are broader than ever. Our new Discovery SelectSM Variable
Annuity offers you many of the keys to successful retirement
planning, including a personalized asset allocation program and a
choice of 21 variable- or fixed-rate investment options offering a
broad array of investment objectives and styles.
- -- Explain new retirement savings developments. For example,
Congress has expanded the contribution limit on spousal IRAs. And
don't forget, it's not too late for you to make a contribution to
your IRA or open one for 1996. The IRS deadline is April 15, 1997,
but it's best to act sooner.
Why not contact your Financial Advisor or Registered Representative
today? If you are interested in Discovery SelectSM call for a prospectus,
which contains more complete information. Read it carefully before you
invest.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
P.S. Your 1997 Prudential IRA contribution may qualify you for a
waiver of the annual custodial fee. Ask your financial representative
for details.
2
<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.
- --------------------------------------------------------------------------------
Portfolio of Investments PRUDENTIAL STRUCTURED MATURITY FUND
as of December 31, 1996 INCOME PORTFOLIO
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
<S> <C> <C> <C>
- ------------------------------------------------------------
5-6 YEARS--17.5%
Ba1 $ 6,400 Federated Department
Stores, Inc.,
(Retail)
8.125%, 10/15/02 $ 6,550,656
23,500 United States Treasury
Note,
6.375%, 8/15/02 23,654,160
-------------
30,204,816
- ------------------------------------------------------------
4-5 YEARS--16.0%
Baa1 4,800 Comdisco, Inc.,
(Leasing)
6.375%, 11/30/01 4,722,720
A1 5,000 Petroliam Nasional Berhad,
(Energy) (Malaysia)
6.625%, 10/18/01 4,996,350
A3 4,000 Rite Aid Corp.,
(Retail)
6.70%, 12/15/01 3,992,360
Ba1 7,250 Tele Communications, Inc.,
(Media)
7.35%, 8/27/01 7,311,843
United States Treasury
Notes,
1,000 5.625%, 2/28/01 980,160
5,500 6.25%, 10/31/01 5,505,170
100 5.875%, 11/30/01 98,547
-------------
27,607,150
- ------------------------------------------------------------
3-4 YEARS--15.6%
Baa3 2,000 Banco de Comercio,
(Banking) (Colombia)
8.625%, 6/2/00 2,070,000
Ba2 9,000 Paramount Communications,
Inc.,
(Media)
5.875%, 7/15/00 8,694,630
Ba1 $ 8,000 Time Warner, Inc.,
(Media)
7.95%, 2/1/00 $ 8,261,520
United States Treasury
Notes,
2,000 7.125%, 2/29/00 2,059,060
6,000 6.125%, 7/31/00 6,000,000
-------------
27,085,210
- ------------------------------------------------------------
2-3 YEARS--16.7%
Capital One Bank,
(Banking)
Baa3 3,000 6.90%, 4/15/99 3,020,070
Baa3 2,500 7.20%, 7/19/99 2,528,025
Baa2 3,000 Crane Co.,
(Industrial Services)
7.25%, 6/15/99 3,028,560
Baa2 1,000 Federal Express Corp.,
(Consumer Services)
10.05%, 6/15/99 1,078,160
Baa3 3,000 Republic of Colombia,
(Foreign Government)
8.75%, 10/6/99 3,135,000
B1 3,000 Rio De Janeiro
Municipality,
(Foreign Government)
10.375%, 7/12/99 3,082,500
Baa1 8,500 Salomon, Inc.,
(Financial Services)
7.00%, 5/15/99 8,567,150
4,500 United States Treasury
Notes,
5.875%, 11/15/99 4,482,405
-------------
28,921,870
- ------------------------------------------------------------
1-2 YEARS--16.4%
Ba2 2,000 Bancomer S.A.,
(Banking) (Mexico)
8.00%, 7/7/98 1,995,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3 -----
<PAGE>
Portfolio of Investments PRUDENTIAL STRUCTURED MATURITY FUND
as of December 31, 1996 INCOME PORTFOLIO
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
<S> <C> <C> <C>
- ------------------------------------------------------------
1-2 YEARS (cont'd.)
Baa2 $ 6,500 Enterprise Rent-A-Car
Finance Co.,
(Financial Services)
7.875%, 3/15/98 $ 6,644,625
A3 6,000 Kansallis-Osake-Pankki
Bank,
(Banking) (Finland)
9.75%, 12/15/98 6,368,400
Baa1 7,000 Lehman Brothers Holdings,
Inc.,
(Financial Services)
6.84%, 9/25/98 7,052,990
Ba2 2,000 Nacional Financiera,
(Foreign Government)
8.125%, 4/9/98 2,017,500
Baa2 4,200 Transco Energy Co.,
(Utilities)
9.125%, 5/1/98 4,359,348
-------------
28,437,863
- ------------------------------------------------------------
WITHIN 1 YEAR--15.7%
Baa2 10,000 Advanta Corp.,
(Consumer Finance)
6.24%, 2/7/97 10,019,500
Baa3 3,000 Banco Ganadero S.A.,
(Banking) (Colombia)
9.75%, 8/26/99, Put
8/26/97 3,157,500
A2 2,000 Bank One Credit Card
Trust,
(Asset Backed)
(Average Life 1 year)
7.75%, 12/15/99 2,030,620
Baa3 2,500 Capital One Bank,
(Banking)
8.625%, 1/15/97 2,501,400
Baa1 1,500 Comdisco, Inc.,
(Leasing)
9.75%, 1/15/97 1,501,290
Baa2 2,100 Finova Financial Corp.,
(Industrial Finance)
9.67%, 7/1/97 2,138,640
A3 $ 2,000 General Motors Acceptance
Corp.,
(Financial Services)
7.50%, 11/4/97 $ 2,027,180
A3 3,500 Potomac Capital Investment
Corp.,
(Financial Services)
6.19%, 4/28/97 3,502,380
235 Joint Repurchase Agreement
Account,
6.61%, 1/2/97 235,000
-------------
27,113,510
- ------------------------------------------------------------
Total Investments--97.9%
(cost $168,266,426) 169,370,419
Other assets in excess of
liabilities--2.1% 3,547,924
-------------
Net Assets--100% $ 172,918,343
-------------
-------------
</TABLE>
The industry classification of portfolio holdings and other net
assets shown as a percentage of net assets as of December 31, 1996
were as follows:
<TABLE>
<S> <C>
U.S. Treasury Notes................................... 24.7%
Financial Services.................................... 16.1
Media................................................. 14.0
Banking............................................... 12.5
Retail................................................ 6.1
Consumer Finance...................................... 5.8
Foreign Government.................................... 4.8
Leasing............................................... 3.6
Energy................................................ 2.9
Utilities............................................. 2.5
Industrial Services................................... 1.8
Asset Backed.......................................... 1.2
Industrial Finance.................................... 1.2
Consumer Services..................................... .6
Repurchase Agreement.................................. .1
Other assets in excess of liabilities................. 2.1
-----
100.0%
-----
-----
</TABLE>
- --------------------------------------------------------------------------------
- -----4 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL STRUCTURED MATURITY FUND
Statement of Assets and Liabilities INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets December 31, 1996
<S> <C>
Investments, at value (cost $168,266,426)............................................................... $ 169,370,419
Cash.................................................................................................... 12,694
Interest receivable..................................................................................... 4,126,854
Receivable for Fund shares sold......................................................................... 78,653
Deferred expenses and other assets...................................................................... 5,007
-----------------
Total assets......................................................................................... 173,593,627
-----------------
Liabilities
Payable for Fund shares reacquired...................................................................... 352,805
Accrued expenses........................................................................................ 165,215
Distribution fee payable................................................................................ 71,309
Management fee payable.................................................................................. 59,376
Dividends payable....................................................................................... 26,579
-----------------
Total liabilities.................................................................................... 675,284
-----------------
Net Assets.............................................................................................. $ 172,918,343
-----------------
-----------------
Net assets were comprised of:
Common stock, at par................................................................................. $ 152,212
Paid-in capital in excess of par..................................................................... 182,007,256
-----------------
182,159,468
Accumulated net realized loss on investments......................................................... (10,345,118)
Net unrealized appreciation on investments........................................................... 1,103,993
-----------------
Net assets at December 31, 1996......................................................................... $ 172,918,343
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($77,031,337 / 6,779,239 shares of common stock issued and outstanding)........................... $11.36
Maximum sales charge (3.25% of offering price)....................................................... .38
Maximum offering price to public..................................................................... $11.74
Class B:
Net asset value, offering price and redemption price per share
($94,490,400 / 8,318,961 shares of common stock issued and outstanding)........................... $11.36
Class C:
Net asset value, offering price and redemption price per share
($1,396,407 / 122,940 shares of common stock issued and outstanding).............................. $11.36
Class Z:
Net asset value, offering price and redemption price per share
($199.35 / 17.537 shares of common stock issued and outstanding).................................. $11.37
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5 -----
<PAGE>
PRUDENTIAL STRUCTURED MATURITY FUND
INCOME PORTFOLIO
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income December 31, 1996
<S> <C>
Income
Interest.............................. $ 13,695,218
-----------------
Expenses
Distribution fee--Class A............. 81,745
Distribution fee--Class B............. 796,677
Distribution fee--Class C............. 9,527
Management fee........................ 756,955
Transfer agent's fees and expenses.... 277,000
Reports to shareholders............... 130,000
Registration fees..................... 90,000
Custodian's fees and expenses......... 77,000
Audit fee............................. 38,000
Directors' fees....................... 30,000
Legal fees............................ 15,000
Miscellaneous......................... 22,481
-----------------
Total expenses..................... 2,324,385
-----------------
Net investment income.................... 11,370,833
-----------------
Realized and Unrealized Loss
on Investments
Net realized loss on investment
transactions.......................... (3,071,885)
Net change in unrealized appreciation of
investments........................... (1,511,234)
-----------------
Net loss on investments.................. (4,583,119)
-----------------
Net Increase in Net Assets
Resulting from Operations................ $ 6,787,714
-----------------
-----------------
</TABLE>
PRUDENTIAL STRUCTURED MATURITY FUND
INCOME PORTFOLIO
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended December 31,
in Net Assets 1996 1995
<S> <C> <C>
Operations
Net investment income.......... $ 11,370,833 $ 13,324,650
Net realized gain (loss) on
investment transactions..... (3,071,885) 1,914,240
Net change in unrealized
appreciation on
investments................. (1,511,234) 10,735,269
------------ ------------
Net increase in net assets
resulting from operations... 6,787,714 25,974,159
------------ ------------
Dividends (Note 1)
Dividends from net investment
income
Class A..................... (5,213,753) (5,877,430)
Class B..................... (6,084,170) (7,407,642)
Class C..................... (72,909) (39,578)
Class Z..................... (1) --
------------ ------------
(11,370,833) (13,324,650)
------------ ------------
Dividends in excess of net
investment income
Class A..................... (136,132) --
Class B..................... (166,601) --
Class C..................... (2,408) --
Class Z..................... (1) --
------------ ------------
(305,142) --
------------ ------------
Fund share transactions
(Net of share conversions) (Note 6)
Net proceeds from shares
subscribed.................. 25,615,019 30,676,035
Net asset value of shares
issued to shareholders in
reinvestment of dividends
and distributions .......... 7,793,568 8,591,299
Cost of shares reacquired...... (65,822,535) (64,005,192)
------------ ------------
Net decrease in net assets from
Fund share transactions..... (32,413,948) (24,737,858)
------------ ------------
Total decrease.................... (37,302,209) (12,088,349)
Net Assets
Beginning of year................. 210,220,552 222,308,901
------------ ------------
End of year....................... $172,918,343 $210,220,552
------------ ------------
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
- -----6 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL STRUCTURED MATURITY FUND
Notes to Financial Statements INCOME PORTFOLIO
- --------------------------------------------------------------------------------
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. 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 Policies
The following is a summary of significant accounting policies 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 Net 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. 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.
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.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential Mutual Fund Management LLC
(``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 had a distribution agreement with Prudential Securities Incorporated
(``PSI''), which acts as the distributor of the Class A, Class B, Class C and
Class Z shares of the Fund. The Fund compensates PSI for distributing and
servicing the Fund's Class A, Class B and Class C shares, pursuant to plans of
distribution, (the ``Class A, B and C plans''), regardless of expenses actually
incurred by them. The distribution fees for Class A, B and C shares are accrued
daily and payable monthly. No distribution
- --------------------------------------------------------------------------------
7 -----
<PAGE>
PRUDENTIAL STRUCTURED MATURITY FUND
Notes to Financial Statements INCOME PORTFOLIO
- --------------------------------------------------------------------------------
or service fees are paid to PSI as distributor of the Class Z shares of the
Fund.''
Pursuant to the Class A, B and C Plans, the Fund compensates PSI for the year
ended December 31, 1996 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%, .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, 1996.
PSI has advised the Portfolio that it has received approximately $65,000 in
front-end sales charges resulting from sales of Class A shares during the year
ended December 31, 1996. From these fees, PSI paid such sales charges to Pruco
Securities Corporation, an affiliated broker-dealer, which in turn paid
commissions to salespersons and incurred other distribution costs.
PSI advised the Portfolio that for the year ended December 31, 1996, it received
approximately $187,000 and $2,000 in contingent deferred sales charges imposed
upon certain redemptions by Class B and Class C shareholders, respectively.
PSI, PMF and PIC are indirect, wholly-owned subsidiaries of The Prudential
Insurance Company of America.
The Fund, along with other affiliated registered investment companies (the
``Funds''), entered into a credit agreement (the ``Agreement'') on December 31,
1996 with an unaffiliated lender. The maximum commitment under the Agreement is
$200,000,000. The Agreement expires on December 30, 1997. Interest on any such
borrowings outstanding will be at market rates. The purpose of the Agreement is
to serve as an alternative source of funding for capital share redemptions. The
Fund has not borrowed any amounts pursuant to the Agreement as of December 31,
1996. The Funds pay a commitment fee at an annual rate of .055 of 1% on the
unused portion of the credit facility. The commitment fee is accrued and paid
quarterly on a pro-rata basis by the Funds.
- ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC (``PMFS''), a wholly-owned subsidiary of
PMF, serves as the Portfolio's transfer agent. During the year ended December
31, 1996, the Portfolio incurred fees of approximately $236,000 for the services
of PMFS. As of December 31, 1996, approximately $8,400 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 Securities
Purchases and sales of portfolio securities, excluding short-term investments,
for the year ended December 31, 1996 were $311,572,582 and $343,859,562,
respectively.
The federal income tax basis of the Portfolio's investments at December 31, 1996
was $168,283,105 and accordingly, net unrealized appreciation for federal income
tax purposes was $1,087,314 (gross unrealized appreciation--$1,698,070; gross
unrealized depreciation--$610,756).
For federal income tax purposes, the Portfolio had a capital loss carryforward
as of December 31, 1996 of approximately $10,329,900, of which $7,180,600
expires in 2002 and $3,149,300 expires in 2004. Accordingly, no capital gain
distributions are expected to be paid to shareholders until net gains have been
realized in excess of such carryforward.
- ------------------------------------------------------------
Note 5. Joint Repurchase Agreement Account
The Portfolio, along with other affiliated registered investment companies,
transfers uninvested cash balances into a single joint account, the daily
aggregate balance of which is invested in one or more repurchase agreements
collateralized by U.S. Treasury or federal agency obligations. As of December
31, 1996, the Portfolio had a 0.02% undivided interest in the repurchase
agreements in the joint account. The undivided interest for the Portfolio
represented $235,000 in principal amount. As of such date, each repurchase
agreement in the joint account and the collateral therefor was as follows:
Bear, Stearns & Co., 6.75%, in the principal amount of $341,000,000, repurchase
price $341,127,875, due 1/2/97. The value of the collateral including accrued
interest was $349,151,276.
Goldman, Sachs & Co. Inc., 6.60%, in the principal amount of $341,000,000,
repurchase price $341,125,033, due 1/2/97. The value of the collateral including
accrued interest was $347,820,889.
J.P. Morgan Securities, 6.60%, in the principal amount of $341,000,000,
repurchase price $341,125,033, due 1/2/97. The value of the collateral including
accrued interest was $347,822,540.
Sanwa Securities USA, 6.00%, in the principal amount of $68,014,000, repurchase
price $68,036,671, due 1/2/97. The value of the collateral including accrued
interest was $69,375,117.
- --------------------------------------------------------------------------------
- -----8
<PAGE>
PRUDENTIAL STRUCTURED MATURITY FUND
Notes to Financial Statements INCOME PORTFOLIO
- --------------------------------------------------------------------------------
Note 6. Capital
The Portfolio offers Class A, Class B, Class C and Class Z shares. Class A
shares are sold with a front-end sales charge of up to 3.25%. 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 automatically convert to Class A shares on a quarterly basis
approximately five years after purchase. A special exchange privilege is also
available for shareholders who qualified to purchase Class A shares at net asset
value. Effective December 16, 1996, the Fund commenced offering Class Z shares.
Class Z shares are not subject to any sales or redemption charge and are offered
exclusively for sale to a limited group of investors.
There are 250 million authorized shares of $.01 par value common stock, divided
into four classes, designated Class A, Class B, Class C and Class Z common
stock, each of which consists of 62,500,000 authorized shares. Transactions in
shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- -------------------------------------- ---------- ------------
<S> <C> <C>
Year ended December 31, 1996:
Shares sold........................... 1,150,292 $ 13,199,197
Shares issued in reinvestment of
dividends........................... 311,003 3,533,398
Shares reacquired..................... (2,636,204) (30,074,596)
---------- ------------
Net decrease in shares outstanding
before conversion................... (1,174,909) (13,342,001)
Shares issued upon conversion from
Class B............................. 305,819 3,462,886
---------- ------------
Net decrease in shares outstanding.... (869,090) $ (9,879,115)
---------- ------------
---------- ------------
Year ended December 31, 1995:
Shares sold........................... 812,745 $ 9,281,283
Shares issued in reinvestment of
dividends........................... 325,730 3,698,766
Shares reacquired..................... (2,387,143) (26,982,383)
---------- ------------
Net decrease in shares outstanding
before conversion................... (1,248,668) (14,002,334)
Shares issued upon conversion from
Class B............................. 540,088 6,039,105
---------- ------------
Net decrease in shares outstanding.... (708,580) $ (7,963,229)
---------- ------------
---------- ------------
<CAPTION>
Class B Shares Amount
- -------------------------------------- ---------- ------------
<S> <C> <C>
Year ended December 31, 1996:
Shares sold........................... 1,010,371 $ 11,499,424
Shares issued in reinvestment of
dividends........................... 369,545 4,198,055
Shares reacquired..................... (3,089,496) (35,143,225)
---------- ------------
Net decrease in shares outstanding
before conversion................... (1,709,580) (19,445,746)
Shares reacquired upon conversion into
Class A............................. (305,885) (3,462,886)
---------- ------------
Net decrease in shares outstanding.... (2,015,465) $(22,908,632)
---------- ------------
---------- ------------
Year ended December 31, 1995:
Shares sold........................... 1,817,442 $ 20,499,580
Shares issued in reinvestment of
dividends........................... 428,576 4,863,912
Shares reacquired..................... (3,249,167) (36,739,116)
---------- ------------
Net decrease in shares outstanding
before conversion................... (1,003,149) (11,375,624)
Shares reacquired upon conversion into
Class A............................. (540,088) (6,039,105)
---------- ------------
Net decrease in shares outstanding.... (1,543,237) $(17,414,729)
---------- ------------
---------- ------------
Class C
- --------------------------------------
Year ended December 31, 1996:
Shares sold........................... 80,524 $ 916,198
Shares issued in reinvestment of
dividends........................... 5,471 62,115
Shares reacquired..................... (53,376) (604,714)
---------- ------------
Net increase in shares outstanding.... 32,619 $ 373,599
---------- ------------
---------- ------------
Year ended December 31, 1995:
Shares sold........................... 78,793 $ 895,172
Shares issued in reinvestment of
dividends........................... 2,515 28,621
Shares reacquired..................... (24,796) (283,693)
---------- ------------
Net increase in shares outstanding.... 56,512 $ 640,100
---------- ------------
---------- ------------
Class Z
- --------------------------------------
Year ended December 31, 1996:
Shares sold........................... 18 $ 200
---------- ------------
---------- ------------
</TABLE>
- --------------------------------------------------------------------------------
9 -----
<PAGE>
PRUDENTIAL STRUCTURED MATURITY FUND
Financial Highlights INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
----------------------------------------------------------
Year ended December 31,
----------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
year...................... $ 11.63 $ 10.97 $ 11.78 $ 11.79 $ 12.13
------- ------- -------- -------- --------
Income from investment
operations:
Net investment income........ .73 .73 .65 .71 .86(b)
Net realized and unrealized
gain (loss) on investment
transactions.............. (.25) .66 (.80) .12 (.08)
------- ------- -------- -------- --------
Total from investment
operations............. .48 1.39 (.15) .83 .78
------- ------- -------- -------- --------
Less distributions:
Dividends from net investment
income.................... (.73) (.73) (.65) (.71) (.86)
Dividends in excess of net
investment income......... (.02) -- (.01) -- --
Distributions from net
realized gains............ -- -- -- (.13) (.26)
------- ------- -------- -------- --------
Total distributions....... (.75) (.73) (.66) (.84) (1.12)
------- ------- -------- -------- --------
Net asset value, end of
year...................... $ 11.36 $ 11.63 $ 10.97 $ 11.78 $ 11.79
------- ------- -------- -------- --------
------- ------- -------- -------- --------
TOTAL RETURN(a):............. 4.32% 13.12% (1.16)% 7.19% 6.67%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000)..................... $77,031 $88,982 $ 91,680 $119,449 $109,828
Average net assets (000)..... $81,745 $89,500 $106,737 $114,728 $107,937
Ratios to average net assets:
Expenses, including
distribution fees...... .86% .82% .94% .80% .70(b)
Expenses, excluding
distribution fees...... .76% .72% .84% .70% .60(b)
Net investment income..... 6.38% 6.57% 5.88% 5.92% 7.15(b)
For Class A, B, C and Z
shares:
Portfolio turnover........ 170% 160% 123% 137% 91%
</TABLE>
- ---------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each year reported and includes reinvestment of dividends and
distributions.
(b) Net of expense subsidy and/or fee waiver.
- --------------------------------------------------------------------------------
- -----10 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL STRUCTURED MATURITY FUND
Financial Highlights INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Class C
---------------------------------------------------------------- -------------------------
December 9,
1992(c)
Year ended December 31, Through Year ended December 31,
----------------------------------------------- December 31, -------------------------
1996 1995 1994 1993 1992 1996 1995
-------- -------- -------- -------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period........................ $ 11.63 $ 10.97 $ 11.78 $ 11.79 $ 11.79 $ 11.63 $ 10.97
-------- -------- -------- -------- ------ -------- ------------
Income from investment
operations:
Net investment income............ .65 .66 .58 .62 .04 .65 .66
Net realized and unrealized gain
(loss) on investment
transactions.................. (.25) .66 (.80) .12 -- (.25) .66
-------- -------- -------- -------- ------ -------- ------------
Total from investment
operations................. .40 1.32 (.22) .74 .04 .40 1.32
-------- -------- -------- -------- ------ -------- ------------
Less distributions:
Dividends from net investment
income........................ (.65) (.66) (.58) (.62) (.04) (.65) (.66)
Dividends in excess of net
investment income............. (.02) -- (.01) -- -- (.02) --
Distributions from net realized
gains......................... -- -- -- (.13) -- -- --
-------- -------- -------- -------- ------ -------- ------------
Total distributions........... (.67) (.66) (.59) (.75) (.04) (.67) (.66)
-------- -------- -------- -------- ------ -------- ------------
Net asset value, end of period... $ 11.36 $ 11.63 $ 10.97 $ 11.78 $ 11.79 $ 11.36 $ 11.63
-------- -------- -------- -------- ------ -------- ------------
-------- -------- -------- -------- ------ -------- ------------
TOTAL RETURN(a):................. 3.64% 12.40% (1.83)% 6.38% .32% 3.64% 12.40%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)......................... $94,490 $120,188 $130,258 $123,306 $11,981 $1,396 $1,050
Average net assets (000)......... $106,224 $125,230 $134,985 $69,314 $5,474 $1,270 $667
Ratios to average net assets:
Expenses, including
distribution fees.......... 1.51% 1.47% 1.66% 1.55% 1.67%(b) 1.51% 1.47%
Expenses, excluding
distribution fees.......... .76% .72% .84% .70% .82%(b) .76% .72%
Net investment income......... 5.73% 5.92% 5.17% 5.08% 6.31%(b) 5.73% 5.92%
<CAPTION>
Class Z
------------
August 1, December 16,
1994(d) 1996(e)
Through Through
December 31, December 31,
1994 1996
------------ ------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period........................ $ 11.30 $ 11.41
------ ------
Income from investment
operations:
Net investment income............ .23 .09
Net realized and unrealized gain
(loss) on investment
transactions.................. (.32) (.02)
------ ------
Total from investment
operations................. (.09) .07
------ ------
Less distributions:
Dividends from net investment
income........................ (.23) (.09)
Dividends in excess of net
investment income............. (.01) (.02)
Distributions from net realized
gains......................... -- --
------ ------
Total distributions........... (.24) (.11)
------ ------
Net asset value, end of period... $ 10.97 $ 11.37
------ ------
------ ------
TOTAL RETURN(a):................. (0.68)% .59%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)......................... $371 $200(f)
Average net assets (000)......... $192 $200(f)
Ratios to average net assets:
Expenses, including
distribution fees.......... 1.90%(b) .76%(b)
Expenses, excluding
distribution fees.......... 1.15%(b) .76%(b)
Net investment income......... 5.30%(b) 6.48%(b)
</TABLE>
- ---------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than one full year are not
annualized.
(b) Annualized.
(c) Commencement of offering of Class B shares.
(d) Commencement of offering of Class C shares.
(e) Commencement of offering of Class Z shares.
(f) Figures are actual and are not rounded to the nearest thousand.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 11 -----
<PAGE>
PRUDENTIAL STRUCTURED MATURITY FUND
Independent Auditors' Report INCOME PORTFOLIO
- --------------------------------------------------------------------------------
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, 1996, the related statements of operations for the
year then ended and of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and 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 securities owned as of
December 31, 1996 by correspondence with the custodian. 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, 1996, the results
of its operations, the changes in its net assets and its financial highlights
for the respective stated periods in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
February 14, 1997
PRUDENTIAL STRUCTURED MATURITY FUND
Tax Information INCOME PORTFOLIO
- --------------------------------------------------------------------------------
We are required by the Internal Revenue Code to advise you within 60 days of the
Portfolio's fiscal year end (December 31, 1996) as to the federal tax status of
dividends paid by the Portfolio during such fiscal year.
During 1996, dividends were paid from net investment income of $.75 per share
for Class A shares, $.67 per share for Class B and C shares and $.11 for Class Z
shares and are taxable as ordinary income. We wish to advise you that the
corporate 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.
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.
- --------------------------------------------------------------------------------
- -----12
<PAGE>
PRUDENTIAL STRUCTURED MATURITY FUND
Supplemental Proxy Information INCOME PORTFOLIO
- --------------------------------------------------------------------------------
The Annual Meeting of Shareholders of the Prudential Structured Maturity Fund
(the ``Fund'') was held on Wednesday, October 30, 1996 at the offices of
Prudential Securities Incorporated, One Seaport Plaza, New York, New York. The
meeting was held for the following purposes:
(1) To elect Directors as follows: Edward D. Beach, Eugene C. Dorsey, Delayne
Dedrick Gold, Robert F. Gunia, Harry A. Jacobs, Jr., Donald D. Lennox,
Mendel A. Melzer, Thomas T. Mooney, Thomas H. O'Brien, Richard A. Redeker,
Nancy H. Teeters and Louis A. Weil, III.
(2) To ratify the selection of Deloitte & Touche LLP as independent public
accountants for the fiscal year ending December 31, 1996.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
Director/Matter Votes for Votes against Abstentions
---------------- ------------- -----------
<S> <C> <C> <C>
(1) Edward D. Beach 15,342,743 -- 215,999
Eugene C. Dorsey 15,350,417 -- 208,325
Delayne Dedrick Gold 15,349,707 -- 209,035
Robert F. Gunia 15,361,867 -- 196,875
Harry A. Jacobs, Jr. 15,350,430 -- 208,312
Donald D. Lennox 15,345,622 -- 213,120
Mendel A. Melzer 15,357,309 -- 201,403
Thomas T. Mooney 15,361,453 -- 197,289
Thomas H. O'Brien 15,349,265 -- 209,477
Richard A. Redeker 15,361,676 -- 197,066
Nancy H. Teeters 15,350,029 -- 208,713
Louis A.Weil, III 15,356,025 -- 202,717
(2) Deloitte & Touche LLP 15,267,744 95,560 195,438
</TABLE>
- --------------------------------------------------------------------------------
13 -----
<PAGE>
<PAGE>
Comparing A $10,000 Investment.
- --------------------------------------------------------
Prudential Structured Maturity Fund, Inc. vs. the Lehman
Bros. Intermediate Government/Corporate Bond Index.
- -- Prudential Structured
Maturity Fund, Inc.
Income Portfolio
// Lehman Bros. Gov't/Corp
Bond Index
Past performance is not indicative of future results.
Investment return and principal value will fluctuate so
an investor's shares, when redeemed, may be worth more or
less than their original cost. The boxes on top of the graphs
are designed to give you an idea how much the Fund's returns
can fluctuate from year to year by measuring the best and
worst years in terms of total annual return since inception
of each share class.
These graphs are furnished to you in accordance with SEC
regulations. They compare a $10,000 investment in the Prudential
Structured Maturity Fund (Class A, Class B, Class C and Class
Z) 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 the
most recent reporting period (December 31, 1996), as measured
on a quarterly basis, beginning in 1989 for Class A shares,
in 1992 for Class B shares, in 1994 for Class C shares and
in 1996 for Class Z shares. For purposes of the graphs, and
unless otherwise indicated, in the accompanying tables it
has been assumed (a) that the maximum applicable front-end
sales charge was deducted from the initial $10,000 investment
in Class A shares; (b) the maximum applicable contingent
deferred sales charge was deducted from the value of the
investment in Class B and Class C shares, assuming full
redemption on December 31, 1996; (c) all recurring fees
(including management fees) were deducted; and (d) all
dividends and distributions were reinvested. Class Z shares
do not have a sales charge. Class B shares automatically
convert to Class A shares, on a quarterly basis, approximately
five years after purchase. This conversion feature is not
reflected in the graph. Since Class Z shares have been in
existence less than a year, no average annual returns are shown.
The Intermediate Government/Corporate Index is a weighted
index comprised of securities issued 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 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 Index is not the only index that
may be used to characterize performance of bond funds and
other indexes may portray different comparative performance.
Class A
(GRAPH)
Class B
(GRAPH)
Class C
(GRAPH)
Class Z
(GRAPH)
<PAGE>
Prudential Mutual Funds
Gateway Center Three100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
(LOGO)
Directors
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Robert F. Gunia
Harry A. Jacobs, Jr.
Donald D. Lennox
Mendel A. Melzer
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Eugene S. Stark, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Marguerite E.H. Morrison, Assistant Secretary
Manager
Prudential Mutual Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributor
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Auditors
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
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.
743924102 MF140E
743924201 Cat. #444113B
743924300
743924706
