(ICON)
Prudential
Structured
Maturity
Fund, Inc.
- ------------------
Income Portfolio
ANNUAL
REPORT
Dec. 31, 1997
(LOGO)
<PAGE>
Prudential Structured Maturity Fund, Inc.
Income Portfolio
Performance At A Glance.
Gains on bonds issued by U.S. media and
financial services firms
proved resilient as a wave of consolidation
and fresh investments
swept through these industries. For the 12-
month period ended
December 31, 1997, the Prudential Structured
Maturity Fund
performed in line with the average short-term
bond fund
measured by Lipper Analytical Services because
we were
heavily invested in the bonds of recently
merged companies,
such as Salomon Inc.
<TABLE>
<CAPTION>
Cumulative Total Returns1
As of 12/31/97
One
Five Since
Year
Years Inception2
<S> <C>
<C> <C>
Class A 6.81%
33.54 82.47%
Class B 6.13
29.15 29.57
Class C 6.13
N/A 22.79
Class Z 7.01
N/A 7.64
Lipper S-T Inv. Grade Debt Fds Avg3 6.62
33.14 ***
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns1
As of 12/31/97
One
Five Since
Year
Years Inception2
<S> <C>
<C> <C>
Class A 3.34%
5.26% 7.06% (6.66%)
Class B 3.13
5.25 5.25
Class C 5.13
N/A 6.19
Class Z 7.01
N/A 7.33
</TABLE>
<TABLE>
<CAPTION>
Dividends & Yields
As of 12/31/97
Total Distributions
30-Day
Paid for 12 Mos.
SEC Yield
<S> <C>
<C>
Class A $0.76
6.12%
Class B $0.69
5.66
Class C $0.69
5.66
Class Z $0.81
6.42
</TABLE>
Past performance is not indicative of future
results. Principal and
investment return will fluctuate so that an
investor's shares,
when redeemed, may be worth more or less than
their original cost.
1 Source: Prudential Investments Fund
Management and Lipper
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% 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. The
numbers in
parentheses () show the Fund's average annual
returns
and 30-day SEC yield without waiver of
management fees
and/or expense subsidization. Class B shares
automatically
convert to Class A shares on a quarterly
basis, after
approximately five years. Class Z shares do
not carry
a distribution fee or a sales charge.
2 Inception dates: Class A, 9/1/89; Class B,
12/9/92;
Class C, 8/1/94; and Class Z, 12/16/96.
3 The Lipper Short-Term Investment Grade Debt
average
includes 88 funds for one year and 37 funds
for five
years since inception of the Class A shares on
9/1/89.
***Lipper Since Inception returns are: Class
A, 79.55%;
Class B, 34.72%; Class C, 24.92%; and Class Z,
6.62% for
all funds in each share class.
How Investments Compared.
(As of 12/31/97)
(GRAPH)
Source: Lipper Analytical Services. Financial
markets change,
so a mutual fund's past performance should
never be used to
predict future results. The risks to each of
the investments
listed above are different -- we provide 12-
month total returns
for several Lipper mutual fund categories to
show you that
reaching for higher 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
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.
Inflation Conquered?
Inflation inched up 1.7% during 1997 and will
likely remain
subdued this year because U.S. companies face
increased
competition from cheaper Asian imports. This
is good news
for bondholders who fear that mounting
inflationary
pressures will erode the value of their bonds'
fixed
interest and principal payments.
Strategy Session.
Spring, Summer
Were Nearly Ideal.
During the past 12 months, investors initially
drove bond
prices lower (and yields higher ) because they
correctly
expected an increase in the federal funds rate
that was
designed to slow U.S. economic growth and head
off higher
inflation. Inflation is the archenemy of
bondholders because
it erodes the value of a bond's fixed interest
and principal
payments. Therefore, many investors believed
the U.S. central
bank made a pre-emptive strike against
inflation when it
raised the federal funds rate by a quarter
percentage point
to 5.50% last March.
In the spring, bond prices began to climb
because investors
realized a second change in monetary policy
was unnecessary
since inflationary pressures remained subdued.
As the bond
market rally continued, investors increasingly
sought
corporate bonds that provided incremental
yield over
U.S. Treasury securities. Emerging market
bonds, such
as those issued by South American governments,
were
also prized for their attractive yields. On
the whole,
nearly ideal conditions persisted in the
spring and summer.
Autumn's Chill.
Autumn, however, bought more than a change in
weather. A
financial crisis simmering in Asia boiled over
in October,
engulfing global financial markets. The Dow
Jones Industrial
Average plunged a record 554 points on October
27. Frightened
investors sold emerging market bonds and
purchased Treasuries,
which were viewed as a safe haven from the
turmoil. The strong
rally in Treasuries drove the 30-year
benchmark bond yield
down to 5.87% on December 23, its lowest level
of the year.
By contrast, yields on emerging market debt
securities moved
sharply higher, while U.S. corporate bond
yields rose to a
lesser extent.
Portfolio Composition.
Sectors expressed as a percentage of
total investments as of 12/31/97.
(PIE)
<PAGE>
What Went Well.
The Song of Salomon,
(Brothers, That Is).
Wall Street cheered the news that Salomon
Brothers would soon
join the family of insurance giant Travelers
Group. Following
the announcement in September, prices of
Salomon Brothers
bonds rallied sharply. Investors received
further
encouragement in December when Standard &
Poor's
upgraded Salomon's ratings, noting that
holders of
Salomon bonds now own debt of a bigger company
with
better credit quality. Your Fund figured among
the
fortunate as Salomon debt securities comprised
5%
of its total investments as of December 31,
1997.
Channel Surfing.
Cable television bonds got a shot in the arm
after Microsoft
announced plans to invest $1 billion in
Comcast, and
Cablevision Systems agreed to purchase Tele-
Communications
Inc.'s cable television subsidiary located in
the New York
area. Tele-Communications Inc. also reported
several joint
ventures this year that enabled it to cut debt
on its balance
sheet and better organize its cable systems
around the
country. Similarly, growing enthusiasm for the
cable
television industry helped bolster Time Warner
bonds.
The nation's largest media and entertainment
company
also slashed costs this year, and investors
expect Time
Warner to benefit from increased advertising
revenues
at its cable television networks. These
positive
developments enhanced the Fund's returns as
both
Tele-Communications and Time Warner comprised
6% of
its total investments at the end of the year.
Five Largest
Issuers.
6.2% Tele-Communications
Media
6.0% Time Warner, Inc.
Media
5.9% News America Holdings
Media
5.2% Capital One Bank
Banking
5.2% RJR Nabisco
Industrial Services
Expressed as a percentage of net assetsas of
12/31/97.
And Not So Well.
Asian Flu.
Thailand was the first to show symptoms of the
economic
malaise that spread beyond Southeast Asia and
infected
stock, bond, and currency markets around the
world. In
early July, the Thai baht was freed from its
peg with the
U.S. dollar and quickly tumbled more than 15%.
Neighboring
currencies soon suffered sharp declines as
well. As fear
about Asian economic turmoil grew, emerging
market
bonds were particularly hard hit so that the
difference
between their yields and yields on Treasuries
increased
significantly. For example, money managers
sold Russian
debt securities out of fear that troubled
South Korean
banks would have to liquidate substantial
holdings of
these bonds. Your Fund suffered because
Russian bonds
comprised 8% of its total investments as the
reporting
period ended.
Looking Ahead.
We believe the U.S. corporate
bond sell-off that began in late October was
exaggerated.
The fundamental strength of the corporate
sector will not
crumble even if Asian economic weakness places
a slight
drag on the U.S. economy. Indeed, Federal
Reserve Chairman
Alan Greenspan said the difficulty in Asia and
other regions should not imperil prosperity in
the U.S. or the fitness of the country's
financial system. We believe a less robust
economic expansion and a strong U.S. dollar
could help stave off any
incipient inflationary pressures and that
would be positive news for corporate bonds. As
for monetary policy, we expect the federal
funds rate to remain at 5.50% for the
immediate future since an increase would risk
drawing more investments into the
U.S. from fragile Asian markets.
1
<PAGE>
President's Letter
February 2, 1998
(PICTURE)
Investing Smart.
Dear Shareholder:
This is the season when many investors receive
income tax refunds
or have a CD or two maturing. What will you do
with these assets?
Investing smart can be a challenge especially
given today's new
investment choices.
The Federal Taxpayer Relief Act of 1997 is
changing the way
Americans invest and accumulate wealth, save
for college or
build a nest egg for retirement. While the law
offers
opportunity, it is also complex. You may need
help to
put things in perspective.
Now may be an excellent time for you and your
Prudential
Financial Professional to update your
investment strategy
and retirement plan. A wise investor does so
periodically.
You could find the tax law opening doors that
may benefit
you now or over the long term, such as --
- -- Revised Capital Gains Tax Rates &
Exclusions. Long-term
rates are down. Is your portfolio positioned
to benefit? Also,
new rules allow you to keep more of the profit
from the sale
of your home (perhaps up to $500,000 more).
- -- New Roth IRAs. The Roth IRA features tax-
free distributions
and does not require mandatory withdrawals,
which should be of
particular interest to retirees seeking to
shelter assets in a
tax-free account.
- -- New Education IRAs. Similar to a
traditional IRA, but
specifically designed for higher education.
The new law also
creates credits and deductions to help defray
college costs.
- -- Expanded IRAs. Rules governing
traditional IRAs have
been extensively revised. Deductibility and
contribution
limits have been broadened as has the list for
penalty-free
early withdrawals, including first-time home
buyers.
As you can see, what you don't know may cost
you! That's why
I recommend you call your Prudential Financial
Professional
and get a free investment plan checkup. Let us
give you the
information and tools to invest smart.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
2
<PAGE>
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. (See D below.)
- ----------------------------------------------
- ----------------------------------
Portfolio of Investments as
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
of December 31, 1997 INCOME
PORTFOLIO
- ----------------------------------------------
- --------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Description
Value (Note 1)
(Unaudited) (000)
<S> <C> <C>
<C>
- ----------------------------------------------
- --------------
5-6 YEARS--17.3%
Baa3 $ 7,000 RJR Nabisco, Inc.,
(Industrial
Services)
7.63%, 9/15/03
$ 7,154,840
Ba1 2,300 Seagull Energy
Corp.,
(Utilities)
7.88%, 8/1/03
2,409,250
Ba1 8,000 Tele-
Communications, Inc.,
(Telecommunications)
8.25%, 1/15/03
8,543,120
Ba2 6,000 Viacom, Inc.,
(Media)
6.75%, 1/15/03
5,895,480
- -------------
24,002,690
- ----------------------------------------------
- --------------
4-5 YEARS--15.2%
Ba1 7,500 Industrial Finance
Corp.,
(Financial
Services)
7.75%, 8/4/07DD
7,125,000
Baa1 7,000 Lehman Brothers
Holdings,
Inc.,
(Investment
Banking)
6.50%, 10/1/02
6,987,400
A2 6,750 Salomon Smith
Barney Inc.,
(Investment
Banking)
7.30%, 5/15/02
6,966,068
- -------------
21,078,468
3-4 YEARS--17.9%
Baa3 $ 7,000 Capital One Bank,
(Banking)
7.08%, 10/30/01
$ 7,162,540
Baa3 6,100 Continental
Cablevision,
Inc.,
(Telecommunications)
8.50%, 9/15/01
6,478,932
Baa2 4,000 Federated
Department
Stores, Inc.,
(Retail)
10.00%, 2/15/01
4,394,000
Ba2 7,000 Ministry of
Finance,
(Foreign
Government)
(Russia)
9.25%, 11/27/01
6,685,000
- -------------
24,720,472
- ----------------------------------------------
- --------------
2-3 YEARS--16.7%
BBB* 2,000 Banco de Commercio,
(Banking)
(Colombia)
8.63%, 6/2/00
2,045,000
Ba2 5,000 City of Moscow,
(Foreign
Government)
(Russia)
9.50%, 5/31/00
4,725,000
Baa3 8,000 News America
Holdings,
Inc.,
(Media)
7.50%, 3/1/00
8,179,680
Ba1 8,000 Time Warner, Inc.,
(Media)
7.95%, 2/1/00
8,245,920
- -------------
23,195,600
</TABLE>
- ----------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
of December 31, 1997 INCOME
PORTFOLIO
- ----------------------------------------------
- --------------
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description
Value (Note 1)
<S> <C> <C>
<C>
- ----------------------------------------------
- --------------
1-2 YEARS--16.4%
Ba3 $ 7,000 Advanta Corp.,
(Consumer Finance)
7.25%, 8/16/99
$ 6,901,790
NR 3,000 Banco Ganadero S.A.,
(Banking) (Colombia)
9.75%, 8/26/99
3,082,500
Aaa 5,500 California
Infrastructure &
Economic Development
Bank, (Asset-Backed)
(Average Life 1.79
years)D
6.14%, 3/25/02
5,511,000
Baa2 3,000 Crane Co.,
(Industrial
Services)
7.25%, 6/15/99
3,041,850
Baa2 1,000 Federal Express
Corp.,
(Consumer Services)
10.05%, 6/15/99
1,055,290
Baa3 3,000 Republic of
Colombia,
(Foreign Government)
8.75%, 10/6/99
3,089,460
- ---------------
22,681,890
- ----------------------------------------------
- --------------
WITHIN 1 YEAR--15.0%
Baa2 6,500 Enterprise Rent-A-
Car
Finance Co.,
(Financial Services)
7.88%, 3/15/98
6,524,180
A3 6,000 Kansallis-Osake-
Pankki
Bank,
(Banking) (Finland)
9.75%, 12/15/98
6,185,100
8,058 Joint Repurchase
Agreement Account,
(Note
5)
6.63%, 1/2/98
8,058,000
- ---------------
20,767,280
- ----------------------------------------------
- --------------
Total Investments--98.5%
(cost $137,234,577;
Note
4)
136,446,400
Other assets in
excess
of liabilities--1.5%
2,112,879
- ---------------
Net Assets--100%
$ 138,559,279
- ---------------
- ---------------
* Standard & Poor's Rating.
D Average life is defined as the weighted
average time to the return
of a dollar of principal and is commonly
used as the measure of investment
life for pass-through securities such as
asset-backed and mortgage-backed
securities.
DD Security is putable in August 2002.
The industry classification of portfolio
holdings and other net assets shown as
a percentage of net assets as of December 31,
1997 were as follows:
</TABLE>
<TABLE>
<S>
<C>
Media.........................................
........ 16.1%
Banking.......................................
........ 13.3
Telecommunications............................
........ 10.8
Foreign
Government....................................
10.5
Investment
Banking....................................
10.1
Financial
Services....................................
9.8
Industrial
Services...................................
7.4
Repurchase
Agreement..................................
5.8
Consumer
Finance......................................
5.0
Asset-
Backed........................................
.. 4.0
Retail........................................
........ 3.2
Utilities.....................................
........ 1.7
Consumer
Services.....................................
0.8
Other assets in excess of
liabilities................. 1.5
- -----
100.0%
- -----
- -----
</TABLE>
- ----------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 4
<PAGE>
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
Statement of Assets and Liabilities INCOME
PORTFOLIO
- ----------------------------------------------
- ----------------------------------
<TABLE>
<CAPTION>
Assets
December 31, 1997
<S>
<C>
Investments, at value (cost
$137,234,577).................................
.............................. $
136,446,400
Cash..........................................
..............................................
............ 43,864
Interest
receivable....................................
..............................................
... 2,679,997
Receivable for Fund shares
sold..........................................
...............................
121,744
Prepaid expenses and other
assets........................................
...............................
4,069
- -----------------
Total
assets........................................
..............................................
... 139,296,074
- -----------------
Liabilities
Payable for Fund shares
reacquired....................................
..................................
308,221
Accrued
expenses......................................
..............................................
.... 305,362
Distribution fee
payable.......................................
.........................................
52,004
Management fee
payable.......................................
...........................................
47,138
Dividends
payable.......................................
..............................................
.. 24,070
- -----------------
Total
liabilities...................................
..............................................
... 736,795
- -----------------
Net
Assets........................................
..............................................
........ $ 138,559,279
- -----------------
- -----------------
Net assets were comprised of:
Common stock, at
par...........................................
......................................
$ 122,085
Paid-in capital in excess of
par...........................................
..........................
147,790,686
- -----------------
147,912,771
Accumulated net realized loss on
investments...................................
...................... (8,565,315)
Net unrealized depreciation on
investments...................................
........................ (788,177)
- -----------------
Net assets at December 31,
1997..........................................
............................... $
138,559,279
- -----------------
- -----------------
Class A:
Net asset value and redemption price per
share
($65,430,640 / 5,763,821 shares of
common stock issued and
outstanding)...........................
$11.35
Maximum sales charge (3.25% of offering
price)........................................
............... .38
Maximum offering price to
public........................................
.............................
$11.73
Class B:
Net asset value, offering price and
redemption price per share
($71,030,410 / 6,259,761 shares of
common stock issued and
outstanding)...........................
$11.35
Class C:
Net asset value, offering price and
redemption price per share
($1,314,380 / 115,833 shares of common
stock issued and
outstanding)..............................
$11.35
Class Z:
Net asset value, offering price and
redemption price per share
($783,849 / 69,064 shares of common
stock issued and
outstanding).................................
$11.35
</TABLE>
- ----------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 5
<PAGE>
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
INCOME PORTFOLIO
Statement of Operations
- ----------------------------------------------
- --------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income
December 31, 1997
<S>
<C>
Income
Interest..............................
$11,501,621
--
- ---------------
Expenses
Distribution fee--Class A.............
70,899
Distribution fee--Class B.............
612,548
Distribution fee--Class C.............
9,967
Management fee........................
616,855
Transfer agent's fees and expenses....
285,000
Reports to shareholders...............
130,000
Registration fees.....................
85,000
Custodian's fees and expenses.........
77,000
Audit fee.............................
38,000
Directors' fees.......................
30,000
Legal fees............................
15,000
Miscellaneous.........................
17,007
--
- ---------------
Total expenses.....................
1,987,276
--
- ---------------
Net investment income....................
9,514,345
--
- ---------------
Realized and Unrealized Gain (Loss)
on Investments
Net realized gain on investment
transactions..........................
2,023,447
Net change in unrealized depreciation of
investments...........................
(1,892,170)
--
- ---------------
Net gain on investments..................
131,277
--
- ---------------
Net Increase in Net Assets
Resulting from Operations................
$ 9,645,622
--
- ---------------
--
- ---------------
</TABLE>
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
INCOME PORTFOLIO
Statement of Operations
Statement of Changes in Net Assets
- ----------------------------------------------
- --------------
<TABLE>
<CAPTION>
Increase (Decrease) Year
Ended December 31,
in Net Assets 1997
1996
<S> <C>
<C>
Operations
Net investment income..... $ 9,514,345
$ 11,370,833
Net realized gain (loss)
on investment
transactions........... 2,023,447
(3,071,885)
Net change in unrealized
depreciation on
investments............
(1,892,170) (1,511,234)
---------------
- -- -----------------
Net increase in net assets
resulting from
operations............. 9,645,622
6,787,714
---------------
- -- -----------------
Dividends (Note 1)
Dividends from net
investment income
Class A................
(4,623,453) (5,213,753)
Class B................
(4,791,826) (6,084,170)
Class C................
(78,062) (72,909)
Class Z................
(21,004) (1)
---------------
- -- -----------------
(9,514,345) (11,370,833)
---------------
- -- -----------------
Dividends in excess of net
investment income
Class A................
(114,961) (136,132)
Class B................
(124,751) (166,601)
Class C................
(2,340) (2,408)
Class Z................
(1,592) (1)
---------------
- -- -----------------
(243,644) (305,142)
---------------
- -- -----------------
Fund share transactions
(Net of share conversions) (Note 6)
Net proceeds from shares
subscribed............. 13,181,656
25,615,019
Net asset value of shares
issued to shareholders
in reinvestment of
dividends and
distributions.......... 6,601,473
7,793,568
Cost of shares
reacquired.............
(54,029,826) (65,822,535)
---------------
- -- -----------------
Net decrease in net assets
from
Fund share
transactions...........
(34,246,697) (32,413,948)
---------------
- -- -----------------
Total decrease...............
(34,359,064) (37,302,209)
Net Assets
Beginning of year............ 172,918,343
210,220,552
---------------
- -- -----------------
End of year.................. $ 138,559,279
$ 172,918,343
---------------
- -- -----------------
---------------
- -- -----------------
</TABLE>
- ----------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 6
<PAGE>
PRUDENTIAL
STRUCTURED MATURITY FUND, INC.
Notes to Financial Statements INCOME
PORTFOLIO
- ----------------------------------------------
- ----------------------------------
Prudential Structured Maturity Fund, Inc. (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.
Reclassification of Capital Accounts: The Fund
accounts and reports for
distributions to shareholders in accordance
with the American Institute of
Certified Public Accountants' Statement of
Position 93-2: Determination,
Disclosure, and Financial Statement
Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment
Companies. The effect of applying
this statement was to increase undistributed
net investment income and increase
accumulated net realized loss by $243,644 due
to the sale of securities
purchased with market discount. Net investment
income, net realized gains and
net assets were not affected by this change.
- ----------------------------------------------
- --------------
Note 2. Agreements
The Fund has a management agreement with
Prudential Investments Fund Management
LLC ('PIFM'). Pursuant to this agreement, PIFM
has responsibility for all
investment advisory services and supervises
the subadviser's performance of such
services. PIFM has entered into a subadvisory
agreement with The Prudential
Investment Corporation ('PIC'); PIC furnishes
investment advisory services in
connection with the management of the Fund.
PIFM 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.
- ----------------------------------------------
- ----------------------------------
7
<PAGE>
PRUDENTIAL
STRUCTURED MATURITY FUND, INC.
Notes to Financial Statements INCOME
PORTFOLIO
- ----------------------------------------------
- ----------------------------------
The management fee paid PIFM 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 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 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, 1997 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,
1997.
PSI has advised the Portfolio that it has
received approximately $33,000 in
front-end sales charges resulting from sales
of Class A shares during the year
ended December 31, 1997. From these fees, PSI
paid such sales charges to Pruco
Securities Corporation, an affiliated broker-
dealer, which in turn paid
commissions to salespersons and incurred other
distribution costs.
PSI advised the Portfolio that for the year
ended December 31, 1997, it received
approximately $141,000 and $1,000 in
contingent deferred sales charges imposed
upon certain redemptions by Class B and Class
C shareholders, respectively.
PSI, PIFM 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'), has a credit agreement (the
'Agreement') with an unaffiliated lender.
The maximum commitment under the Agreement is
$200,000,000. Interest on any such
borrowings outstanding will be at market
rates. The purpose of the Agreement is
to serve as an alternative source of funding
for capital share redemptions. The
Fund did not borrowed any amounts pursuant to
the Agreement during the year
ended December 31, 1997. The Funds pay a
commitment fee at an annual rate of
.055 of 1% on the unused portion of the credit
facility. The commitment fee is
accrued and paid quarterly on a pro rata basis
by the Funds. The Agreement
expired on December 30, 1997 and has been
extended through December 29, 1998
under the same terms.
- ----------------------------------------------
- --------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'),
a wholly owned subsidiary of PIFM,
serves as the Portfolio's transfer agent.
During the year ended December 31,
1997, the Portfolio incurred fees of
approximately $207,000 for the services of
PMFS. As of December 31, 1997, approximately
$16,500 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
nonaffiliates.
- ----------------------------------------------
- --------------
Note 4. Portfolio Securities
Purchases and sales of portfolio securities,
excluding short-term investments,
for the year ended December 31, 1997 were
$266,446,730 and $307,519,349,
respectively.
The federal income tax basis of the
Portfolio's investments at December 31, 1997
was $137,234,577 and accordingly, net
unrealized depreciation for federal income
tax purposes was $788,177 (gross unrealized
appreciation--$932,679; gross
unrealized depreciation--$1,720,856).
For federal income tax purposes, the Portfolio
had a capital loss carryforward
as of December 31, 1997 of approximately
$8,540,000, of which $5,391,000 expires
in 2002 and $3,149,000 expires in 2004. Such
carryforward is after utilization
of approximately $1,789,000 to offset the
Portfolio's net taxable gains
recognized in the year ended December 31,
1997. 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, 1997, the Portfolio has a .68% undivided
interest in the joint account. The
undivided interest for the Portfolio
represents $8,058,000 in the principal
amount. As of such date, each repurchase
agreement in the joint account and the
collateral therefor were as follows:
- ----------------------------------------------
- ----------------------------------
8
<PAGE>
PRUDENTIAL
STRUCTURED MATURITY FUND, INC.
Notes to Financial Statements INCOME
PORTFOLIO
- ----------------------------------------------
- ----------------------------------
Credit Suisse First Boston Corp., 6.75%, in
the principal amount of
$342,000,000, repurchase price $342,128,250,
due 1/2/98. The value of the
collateral including accrued interest is
$353,486,750.
Deutsche Morgan Grenfell, Inc., 6.80%, in the
principal amount of $200,000,000,
repurchase price $200,075,555, due 1/2/98. The
value of the collateral including
accrued interest is $204,000,314.
SBC Warburg Asia Ltd., 6.55%, in the principal
amount of $142,000,000,
repurchase price $142,051,672, due 1/2/98. The
value of the collateral including
accrued interest is $144,862,841.
Morgan Stanley, Dean Witter, Discover & Co.,
5.95%, in the principal amount of
$151,553,000, repurchase price $151,603,097,
due 1/2/98. The value of the
collateral including accrued interest is
$154,584,932.
Salomon Smith Barney Inc, 6.75%, in the
principal amount of $342,000,000,
repurchase price $342,128,250, due 1/2/98. The
value of the collateral including
accrued interest is $350,295,372.
- ----------------------------------------------
- --------------
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, 1997:
Shares sold...........................
516,648 $ 5,870,704
Shares issued in reinvestment of
dividends...........................
285,589 3,247,978
Shares reacquired.....................
(2,158,614) (24,539,475)
------
- ---- ------------
Net decrease in shares outstanding
before conversion...................
(1,356,377) (15,420,793)
Shares issued upon conversion from
Class B.............................
340,959 3,874,591
------
- ---- ------------
Net decrease in shares outstanding....
(1,015,418) $(11,546,202)
------
- ---- ------------
------
- ---- ------------
<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)
------
- ---- ------------
------
- ---- ------------
<CAPTION>
Class B
- --------------------------------------
<S> <C>
<C>
Year ended December 31, 1997:
Shares sold...........................
503,206 $ 5,716,542
Shares issued in reinvestment of
dividends...........................
286,879 3,260,990
Shares reacquired.....................
(2,508,326) (28,509,261)
------
- ---- ------------
Net decrease in shares outstanding
before conversion...................
(1,718,241) (19,531,729)
Shares reacquired upon conversion into
Class A.............................
(340,959) (3,874,591)
------
- ---- ------------
Net decrease in shares outstanding....
(2,059,200) $(23,406,320)
------
- ---- ------------
------
- ---- ------------
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)
------
- ---- ------------
------
- ---- ------------
Class C
- --------------------------------------
Year ended December 31, 1997:
Shares sold...........................
34,321 $ 390,314
Shares issued in reinvestment of
dividends...........................
6,203 70,513
Shares reacquired.....................
(47,631) (540,812)
------
- ---- ------------
Net decrease in shares outstanding....
(7,107) $ (79,985)
------
- ---- ------------
------
- ---- ------------
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
------
- ---- ------------
------
- ---- ------------
Class Z
- --------------------------------------
Year ended December 31, 1997:
Shares sold...........................
105,897 $ 1,204,096
Shares issued in reinvestment of
dividends...........................
1,931 21,992
Shares reacquired.....................
(38,782) (440,278)
------
- ---- ------------
Net increase in shares outstanding....
69,046 $ 785,810
------
- ---- ------------
------
- ---- ------------
Year ended December 31, 1996:
Shares sold...........................
18 $ 200
------
- ---- ------------
------
- ---- ------------
</TABLE>
- ----------------------------------------------
- ----------------------------------
9
<PAGE>
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
Financial Highlights INCOME
PORTFOLIO
- ----------------------------------------------
- ----------------------------------
<TABLE>
<CAPTION>
Class A
- ----------------------------------------------
- -----------
Year ended December 31,
- ----------------------------------------------
- -----------
1997 1996 1995 1994
1993
- ------- ------- ------- --------
- --------
<S>
<C> <C> <C> <C>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
year.................. $ 11.36 $ 11.63
$ 10.97 $ 11.78 $ 11.79
- ------- ------- ------- --------
- --------
Income from investment operations:
Net investment
income...............................
.74 .73 .73 .65
.71
Net realized and unrealized gain (loss) on
investment
transactions..........................
.01 (.25) .66 (.80)
.12
- ------- ------- ------- --------
- --------
Total from investment
operations................. .75
.48 1.39 (.15) .83
- ------- ------- ------- --------
- --------
Less distributions:
Dividends from net investment
income................ (.74) (.73)
(.73) (.65) (.71)
Dividends in excess of net investment
income........ (.02) (.02) --
(.01) --
Distributions from net realized
gains............... -- --
- -- -- (.13)
- ------- ------- ------- --------
- --------
Total
distributions..............................
(.76) (.75) (.73) (.66)
(.84)
- ------- ------- ------- --------
- --------
Net asset value, end of
year........................ $ 11.35 $
11.36 $ 11.63 $ 10.97 $ 11.78
- ------- ------- ------- --------
- --------
- ------- ------- ------- --------
- --------
TOTAL
RETURN(a):....................................
6.81% 4.32% 13.12% (1.16)%
7.19%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000)....................... $65,431
$77,031 $88,982 $ 91,680 $119,449
Average net assets
(000)............................ $70,899
$81,745 $89,500 $106,737 $114,728
Ratios to average net assets:
Expenses, including distribution
fees............ .94% .86%
.82% .94% .80%
Expenses, excluding distribution
fees............ .84% .76%
.72% .84% .70%
Net investment
income............................ 6.51%
6.38% 6.57% 5.88% 5.92%
For Class A, B, C and Z shares:
Portfolio
turnover...............................
180% 170% 160% 123%
137%
</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.
- ----------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 10
<PAGE>
PRUDENTIAL
STRUCTURED MATURITY FUND, INC.
Financial Highlights INCOME
PORTFOLIO
- ----------------------------------------------
- ----------------------------------
<TABLE>
<CAPTION>
Class B
- ----------------------------------------------
- -------------
Year ended December 31,
- ----------------------------------------------
- -------------
1997 1996 1995 1994
1993
- ------- -------- -------- --------
- --------
<S>
<C> <C> <C> <C>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
year........................ $ 11.36 $
11.63 $ 10.97 $ 11.78 $ 11.79
- ------- -------- -------- --------
- --------
Income from investment operations:
Net investment
income.....................................
.67 .65 .66 .58
.62
Net realized and unrealized gain (loss) on
investment
transactions..................................
......... .01 (.25) .66
(.80) .12
- ------- -------- -------- --------
- --------
Total from investment
operations....................... .68
.40 1.32 (.22) .74
- ------- -------- -------- --------
- --------
Less distributions:
Dividends from net investment
income...................... (.67)
(.65) (.66) (.58) (.62)
Dividends in excess of net investment
income.............. (.02) (.02)
- -- (.01) --
Distributions from net realized
gains..................... -- -
- - -- -- (.13)
- ------- -------- -------- --------
- --------
Total
distributions.................................
... (.69) (.67) (.66)
(.59) (.75)
- ------- -------- -------- --------
- --------
Net asset value, end of
year.............................. $ 11.35
$ 11.36 $ 11.63 $ 10.97 $
11.78
- ------- -------- -------- --------
- --------
- ------- -------- -------- --------
- --------
TOTAL
RETURN(a):....................................
...... 6.13% 3.64% 12.40%
(1.83)% 6.38%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000)............................. $71,030
$94,490 $120,188 $130,258 $123,306
Average net assets
(000)..................................
$81,673 $106,224 $125,230 $134,985
$69,314
Ratios to average net assets:
Expenses, including distribution
fees.................. 1.59%
1.51% 1.47% 1.66% 1.55%
Expenses, excluding distribution
fees.................. .84%
.76% .72% .84% .70%
Net investment
income..................................
5.87% 5.73% 5.92% 5.17%
5.08%
</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.
- ----------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 11
<PAGE>
PRUDENTIAL
STRUCTURED MATURITY FUND, INC.
Financial Highlights INCOME
PORTFOLIO
- ----------------------------------------------
- ----------------------------------
<TABLE>
<CAPTION>
Class C Class Z
- ---------------------------------------------
- ------------
August 1,
1994(d)
Year ended December 31, Through
Year ended
- ---------------------------- December 31,
December 31,
1997 1996 1995 1994
1997
- ------ ------ ------ ------------
- ------------
<S>
<C> <C> <C> <C>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period...................... $11.36
$11.63 $10.97 $11.30
$11.37
- ------ ------ ------ -----
- -----
Income from investment operations:
Net investment
income.....................................
.67 .65 .66 .23
.77
Net realized and unrealized gain (loss) on
investment
transactions..................................
......... .01 (.25) .66
(.32) .02
- ------ ------ ------ -----
- -----
Total from investment
operations....................... .68
.40 1.32 (.09) .79
- ------ ------ ------ -----
- -----
Less distributions:
Dividends from net investment
income...................... (.67)
(.65) (.66) (.23)
(.77)
Dividends in excess of net investment
income.............. (.02) (.02)
- -- (.01) (.04)
- ------ ------ ------ -----
- -----
Total
distributions.................................
... (.69) (.67) (.66)
(.24) (.81)
- ------ ------ ------ -----
- -----
Net asset value, end of
period............................ $11.35
$11.36 $11.63 $10.97
$11.35
- ------ ------ ------ -----
- -----
- ------ ------ ------ -----
- -----
TOTAL
RETURN(a):....................................
...... 6.13% 3.64% 12.40%
(0.68)% 7.01%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)........................... $1,314
$1,396 $1,050 $371
$784
Average net assets
(000)..................................
$1,329 $1,270 $667 $192
$313
Ratios to average net assets:
Expenses, including distribution
fees.................. 1.59% 1.51%
1.47% 1.90%(b) .84%
Expenses, excluding distribution
fees.................. .84% .76%
.72% 1.15%(b) .84%
Net investment
income..................................
5.87% 5.73% 5.92% 5.30%(b)
6.71%
<CAPTION>
December 16,
1996(e)
Through
December 31,
1996
- ------------
<S>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period...................... $11.41
- -----
Income from investment operations:
Net investment
income.....................................
.09
Net realized and unrealized gain (loss) on
investment
transactions..................................
......... (.02)
- -----
Total from investment
operations....................... .07
- -----
Less distributions:
Dividends from net investment
income...................... (.09)
Dividends in excess of net investment
income.............. (.02)
- -----
Total
distributions.................................
... (.11)
- -----
Net asset value, end of
period............................ $11.37
- -----
- -----
TOTAL
RETURN(a):....................................
...... .59%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)........................... $200(f)
Average net assets
(000)..................................
$200(f)
Ratios to average net assets:
Expenses, including distribution
fees.................. .76%(b)
Expenses, excluding distribution
fees.................. .76%(b)
Net investment
income..................................
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.
(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. 12
<PAGE>
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
Report of Independent Accountants INCOME
PORTFOLIO
- ----------------------------------------------
- ----------------------------------
To the Shareholders and Board of Directors of
Prudential Structured Maturity Fund, Inc.,
Income Portfolio:
In our opinion, the accompanying statement of
assets and liabilities, including
the portfolio of investments, and the related
statements of operations and of
changes in net assets and the financial
highlights present fairly, in all
material respects, the financial position of
Prudential Structured Maturity
Fund, Inc., Income Portfolio (the 'Fund') at
December 31, 1997, the results of
its operations, the changes in its net assets
and the financial highlights for
the year then ended, in conformity with
generally accepted accounting
principles. These financial statements and
financial highlights (hereafter
referred to as 'financial statements') are the
responsibility of the Fund's
management; our responsibility is to express
an opinion on these financial
statements based on our audit. We conducted
our audit of these financial
statements in accordance with generally
accepted auditing standards which
require that we plan and perform the audit to
obtain reasonable assurance about
whether the financial statements are free of
material misstatement. An audit
includes examining, on a test basis, evidence
supporting the amounts and
disclosures in the financial statements,
assessing the accounting principles
used and significant estimates made by
management, and evaluating the overall
financial statement presentation. We believe
that our audit, which included
confirmation of securities at December 31,
1997 by correspondence with the
custodian and brokers, provides a reasonable
basis for the opinion expressed
above. The accompanying statement of changes
in net assets for the year ended
December 31, 1996 and the financial highlights
for the periods other than the
year ended December 31, 1997 were audited by
other independent accountants,
whose opinion dated February 14, 1997 was
unqualified.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 13, 1998
- ----------------------------------------------
- ----------------------------------
13
<PAGE>
PRUDENTIAL
STRUCTURED MATURITY FUND, INC.
Change of Auditors INCOME PORTFOLIO
- ----------------------------------------------
- ----------------------------------
Effective March 1, 1997, Deloitte & Touche LLP
was terminated as the Fund's
auditors. For the years ended December 31,
1989 through December 31, 1996,
Deloitte & Touche LLP expressed an unqualified
opinion on the Portfolio's
financial statements. There were no
disagreements between Fund management and
Deloitte & Touche LLP prior to their
termination. The Board of Directors
approved the termination of Deloitte & Touche
LLP and the appointment of Price
Waterhouse LLP as the Fund's independent
accountants.
Federal Income Tax Information (Unaudited)
- ----------------------------------------------
- ----------------------------------
We are required by the Internal Revenue Code
to advise you within 60 days of the
Portfolio's fiscal year end (December 31,
1997) as to the federal tax status of
dividends paid by the Portfolio during such
fiscal year.
During 1997, dividends were paid from net
investment income of $.74 per share
for Class A shares, $.67 per share for Class B
and C shares and $.77 for Class Z
shares and are taxable as ordinary income. In
addition, the Fund paid a special
taxable income distribution of $.02 per share
for Class A, B and C shares and
$.04 per share for Class Z shares, which is
taxable as such. We are required by
Massachusetts, Missouri and Oregon to inform
you that dividends which have been
derived from interest on federal obligations
are not taxable to shareholders
providing the Mutual Fund meets certain
requirements mandated by the respective
state's taxing authorities. We are pleased to
report that 6.95% of the dividends
paid by Prudential Structured Maturity Fund,
Inc., Income Portfolio qualifies
for such deduction.
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.
- ----------------------------------------------
- ----------------------------------
14
<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, 1997), 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, 1997;
(c) all recurring fees (including management
fees) were
deducted; and (d) all dividends and
distributions were
reinvested. 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. Class Z shares
do
not carry a distribution fee or a sales
charge.
*The numbers in parentheses ( ) show the
Fund's average
annual return without waiver of management
fees and/or
expense subsidization.
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.
Average Annual Total
Returns - Class A
- ------------------------
With Sales Load
7.06% Since Inception (6.66%)*
5.26% for 5 Years
3.34% for 1 Year
Class A
(GRAPH)
Without Sales Load
7.49% Since Inception
5.96% for 5 Years
6.81% for 1
Average Annual Total
Returns - Class B
- -----------------------
With Sales Load
5.25% Since Inception
5.25% for 5 Years
3.13% for 1 Year
Class B
(GRAPH)
Without Sales Load
5.25% Since Inception
5.25% for 5 Years
6.13% for 1 Year
Average Annual Total
Returns - Class C
- -----------------------
With Sales Load
6.19% Since Inception
5.13% for 1 Year
Class C
(GRAPH)
Without Sales Load
6.19% Since Inception
6.13% for 1 Year
Average Annual Total
Returns - Class Z
- ------------------------
Without Sales Load
7.33% Since Inception Class Z
(GRAPH)
7.01% for 1 Year
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Directors
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Robert F. Gunia
Harry A. Jacobs, Jr.
Mendel A. Melzer, CFA
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
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
Distributor
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, NY 10022
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
