(ICON)
Prudential
Structured
Maturity
Fund, Inc.
Income Portfolio
SEMI
ANNUAL
REPORT
June 30, 1998
(LOGO)
<PAGE>
Prudential Structured Maturity Fund, Inc.
Income Portfolio
Performance At A Glance.
Mounting concern about a prolonged financial crisis in Asia sparked renewed
selling in the bonds of countries such as Indonesia and South Korea. This
negative sentiment spread to other sectors of the emerging markets including
Latin America. Your Prudential Structured Maturity Fund beat the Lipper
Average because we sold all of our emerging markets bonds prior to the most
recent sell-off. Nevertheless, our considerable domestic corporate debt
exposure placed a bit of a drag on the Fund's returns because corporate bonds
did not rally as much as comparable U.S. Treasuries in late spring.
Cumulative Total Returns1 As of 6/30/98
<TABLE>
<CAPTION>
Six One Five Since
Months Year Years Inception2
<S> <C> <C> <C> <C>
Class A 3.49% 6.98% 31.78% 88.83% (83.86)
Class B 3.08 6.20 27.35 33.55
Class C 3.08 6.20 N/A 26.57
Class Z 3.53 7.08 N/A 11.45
Lipper Short/Intermediate
Invsmt. Grade Fund Avg.3 3.05 7.20 30.00 ***
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns1 As of 6/30/98
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A 3.50% 4.98% 7.07% (6.74)
Class B 3.20 4.95 5.35
Class C 5.20 N/A 6.21
Class Z 7.08 N/A 7.31
</TABLE>
<TABLE>
<CAPTION>
Dividends & Yields As of 6/30/98
Total Distributions 30-Day
Paid for Six Mos. SEC Yield
<S> <C> <C>
Class A $0.35 5.41%
Class B $0.31 4.93
Class C $0.31 4.94
Class Z $0.36 5.69
</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 Investments Fund Management and Lipper Analytical Services.
The cumulative total returns do not take into account sales charges. The
average annual total returns do take into account applicable sales charges.
The Fund charges a maximum front-end sales load of 3.25% for Class A shares
and a declining contingent deferred sales charge (CDSC) of 3%, 2%, 1% and 1%
for four years for Class B shares. Class B shares will automatically convert
to Class A shares, on a quarterly basis, approximately five years after
purchase. Class C shares have a 1% CDSC for one year. Class Z shares are not
subject to a sales charge or distribution fee. Without waiver of management
fees, and/or expense subsidization, the Fund's average annual total returns
would have been lower, as indicated in parenthesis ( ).
2Inception dates: Class A, 9/1/89; Class B, 12/9/92; Class C, 8/1/94; and
Class Z, 12/16/96.
3Lipper average returns are for all funds in each share class for the six-
month, one-, and five-year periods.
*** Lipper Since Inception returns are 85.72% for Class A; 38.94% for Class B;
28.81% for Class C; and 9.90% for Class Z based on all funds in each share
class.
How Investments Compared.
(As of 6/30/98)
(GRAPH)
U.S. General General U.S.
Growth Bond Muni Debt Taxable
Funds Funds Funds Money Funds
Source: Lipper Analytical Services. Financial markets change, so a mutual
fund's past performance should never be used to predict future results. The
risks to each of the investments listed above are different -- we provide 12-
month total returns for several Lipper mutual fund categories to show you that
reaching for higher returns means tolerating more risk. The greater the risk,
the larger the potential reward or loss. In addition, we've included
historical 20-year average annual returns. These returns assume the
reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors have received higher
historical total returns from stocks than from most other investments. Smaller
capitalization stocks offer greater potential for long-term growth but may be
more volatile than larger capitalization stocks.
General Bond Funds provide more income than stock funds, which can help smooth
out their total returns year by year. But their prices still fluctuate
(sometimes significantly) and their returns have been historically lower than
those of stock funds.
General Municipal Debt Funds invest in bonds issued by state governments,
state agencies and/or municipalities. This investment provides income that is
usually exempt from federal and state income taxes.
U.S. Taxable Money Funds attempt to preserve a constant share value; they
don't fluctuate much in price but, historically, their returns have been
generally among the lowest of the major investment categories.
<PAGE>
Tony Rodriguez, Fund Manager
(PHOTO)
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 investment grade corporate bonds and government
bonds. There can be no assurance that the Fund will achieve its investment
objective.
Bonds And More Bonds.
Gross issuance of investment grade U.S. corporate bonds soared in the first
half of 1998 to $155.9 billion, which beat the 12-month totals for the past
four years, based on Lehman Brothers data. Domestic companies rushed to sell
new bonds to take advantage of low borrowing costs.
Strategy Session.
New Year Brings New Hope.
The new year initially brought hopes for an early resolution to Asian
problems, which included banks burdened by bad loans, slumping local
currencies and soaring corporate bankruptcies. Market sentiment was so
positive that investors eagerly bought $4.0 billion of Republic of South
Korea bonds in early April. But instead of getting better, conditions worsened
as Japan slid into economic recession, raising doubts about the prospects for
recovery throughout the region.
Hope Fades.
In May, investors sentiment had soured so much that the Thai government
postponed the sale of $2.0 billion of bonds. Renewed selling emerged in Asian
stocks and bonds then spread to Latin American countries such as Brazil and
Argentina. Some investors feared a domino effect. A weakening Japanese yen
could spark a devaluation of the Chinese currency and Hong Kong dollar, which
in turn, might pressure the Brazilian currency. These concerns were heightened
in June when the Japanese yen sank to an eight-year low against the U.S.
dollar. As a result, nervous investors sought refuge in U.S. Treasuries and
federal agency securities. Treasuries rallied strongly, driving the 30-year
bond yield (which moves in the opposite direction of the price) to its lowest
level since regular sales of the securities began in 1977. Of course, your
Fund benefited from this trend, but its short- and intermediate-term debt
securities did not gain as sharply as bonds with longer maturities.
Portfolio Composition.
Sectors expressed as a percentage of
total investments as of 6/30/98
(PIE CHART)
<PAGE>
What Went Well.
Ciao (For Now) Emerging Markets.
We did not share the optimistic outlook that was prevalent earlier in the year
concerning the Asian crisis. Realizing that Asian problems are deeply
ingrained, we anticipate a prolonged economic downturn that will continue to
weigh on the region's stocks and bonds as well as other sectors of the
emerging markets for sometime to come. With this in mind, we sold our
emerging markets debt including that of the City of Moscow when bullish
investors temporarily drove prices higher. We briefly owned some of the new
Republic of South Korea bonds, but we sold them at a profit before Asian
financial markets came under renewed selling pressure in late spring.
Eliminating all of emerging market exposure cut the Fund's foreign bond
position to 5.0% of total investments as of June 30, 1998 from 11% as of
December 31, 1997.
Meanwhile, the Fund held no Treasuries at the end of 1997, but by the close of
June, the securities comprised 15% of its total investments. These shifts in
portfolio allocation worked well as emerging market bonds posted a negative
return for the six-month period as measured by the Lehman Brothers index,
while inter-mediate-term Treasuries gained.
And Not So Well.
Too Much Of A Good Thing.
Corporations took advantage of low borrowing costs over the past six months
by issuing a whopping $155.9 billion of U.S. investment grade corporate bonds,
which surpassed the 12-month totals for the past four years, based on Lehman
Brothers data. Investors eagerly purchased this burgeoning supply of debt as
long as the U.S. economy expanded rapidly. But slower economic growth in the
spring gave rise to concerns about weak corporate earnings. Not surprisingly,
investors balked at purchasing corporate bonds in June, causing corporate
bonds to lag gains in comparable U.S. Treasuries. Thus, the Fund's
considerable corporate bond holdings (80% of total investments as of June 30,
1998) proved to be a slight drag on our returns.
Five Largest Holdings.
5.3% U.S. Treasury Notes,
5.50%, 3/31/03
5.2% Advanta Corp.
5.2% U.S. Treasury Notes,
7.25%, 5/15/04
4.9% Continental
Cablevision, Inc.
4.6% Kansallis-Osake-
Pankki Bank
Expressed as a percentage of net assetsas of 6/30/98.
Looking Ahead.
U.S. corporate bond issuance will probably remain heavy, particularly if
interest rates edge lower as the economy loses steam. We plan to trim the
Fund's corporate debt exposure out of concern that this sector of the bond
market may not be able to keep pace with gains in Treasuries if companies
continue to sell a flood of new bonds.
- -------------------------------------------------------------------------------
1
<PAGE>
President's Letter August 4, 1998
(PHOTO)
Managing Expectations.
Dear Shareholder:
For nearly eight years we've enjoyed above-average, double-digit returns from
stocks--a bull market of unprecedented duration. As a result, many of us have
grown accustomed to seeing the Dow Jones Industrial Average, the S&P 500 and
other market indexes set new records. That's why the fluctuations normally
seen in financial markets may take investors by surprise.
Although the media has given ample coverage to the factors that have caused
concern in 1998, we'd like to remind you that there is also good news to
report: the US economy is healthy and continues to grow. Inflation remains
subdued and employment is strong.
Even with a sound economy, it isn't easy to maintain your investment
discipline when the market is fluctuating. Here are some thoughts that may
help:
- - Manage Your Expectations. Experienced mutual fund investors understand that
financial markets rise and fall. Over time, however, stocks and bonds have
produced attractive returns that have kept ahead of inflation.
- - Don't Invest Emotionally. If you have long-term (several years or longer)
investment goals, it may be counter-productive to sell an investment in
reaction to short-term market fluctuation. Over the course of several years,
it's not unusual for stocks and bonds to experience several periods of
market uncertainty.
- - Diversification Lessens Risk. Market sectors seldom move in tandem. A well-
diversified portfolio that includes stock, bond, and money market mutual
funds can lessen the effects of market volatility over time.
- - We're On Your Side. Your Prudential professional can help you understand
what's happening in the markets. He or she can assist you in making informed
decisions based upon a thorough knowledge of your financial needs and long-
term goals. Call your Prudential professional today.
Thank you for your continued confidence in Prudential mutual funds. We'll do
everything we can to keep you informed and to earn your trust.
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 maturityD categories.
- --------------------------------------------------------------------------------
Portfolio of Investments PRUDENTIAL STRUCTURED MATURITY FUND, INC.
as of June 30, 1998 (Unaudited) INCOME PORTFOLIO
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description Value (Note 1)
<S> <C> <C> <C>
- ------------------------------------------------------------
5-6 YEARS--16.6%
Ba1 $ 4,000 Contifinancial Corp.,
8.375%, 8/15/03 $ 4,162,200
Ba1 4,000 ITT Corp.,
6.75%, 11/15/03 3,868,400
Ba1 2,000 Niagara Mohawk Power
Corp.,
7.375%, 8/1/03 2,085,120
Baa1 2,500 PaineWebber Group, Inc.,
7.015%, 2/10/04 2,604,200
Ba1 2,300 Seagull Energy Corp.,
7.875%, 8/1/03 2,369,690
Aaa 6,300 United States Treasury
Notes,
7.25%, 5/15/04 6,835,500
-------------
21,925,110
- ------------------------------------------------------------
4-5 YEARS--16.3%
Ba2 1,500 Fred Meyer, Inc.,
7.15%, 3/1/03 1,507,395
Baa1 5,000 Lehman Brothers Holdings,
Inc.,
6.50%, 10/1/02 5,032,500
Aa3 3,000 Merrill Lynch & Co., Inc.,
6.00%, 2/12/03 2,988,360
Ba1 5,000 R & B Falcon Corp.,
6.50%, 4/15/03 4,975,800
Aaa 7,000 United States Treasury
Notes,
5.50%, 3/31/03 6,995,590
-------------
21,499,645
- ------------------------------------------------------------
3-4 YEARS--15.7%
Baa3 5,000 Capital One Bank,
7.08%, 10/30/01 5,107,700
Baa3 6,100 Continental Cablevision,
Inc.,
8.50%, 9/15/01 6,478,932
A2 $ 4,750 Salomon Smith Barney Inc.,
7.30%, 5/15/02 $ 4,921,475
Ba1 4,000 Westinghouse Electric
Corp.,
8.375%, 6/15/02 4,187,000
-------------
20,695,107
- ------------------------------------------------------------
2-3 YEARS--18.9%
Baa3 3,000 AT & T Capital Corp.,
6.25%, 5/15/01 3,003,420
Ba1 5,000 United States Filter
Corp.,
6.375%, 5/15/11D 4,994,150
Baa2 5,500 Federated Department
Stores, Inc.,
10.00%, 2/15/01 5,981,745
Baa2 5,000 First Industrial L. P.,
6.50%, 4/5/01 5,010,750
Baa2 2,000 Fort James Corp.,
6.234%, 3/15/01 2,000,100
Baa2 4,000 Mallinckrodt, Inc.,
6.30%, 3/15/01 3,980,000
-------------
24,970,165
- ------------------------------------------------------------
1-2 YEARS--16.0%
B2 7,000 Advanta Corp.,
7.25%, 8/16/99 6,916,490
Baa1 5,500 Ryder System, Inc.,
7.51%, 3/24/00 5,642,175
Baa3 3,000 TCI Communications, Inc.,
6.375%, 9/15/99 3,013,770
Aaa 5,600 United States Treasury
Notes,
5.50%, 2/29/00 5,598,264
-------------
21,170,699
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3
<PAGE>
<PAGE>
Portfolio of Investments PRUDENTIAL STRUCTURED MATURITY FUND, INC.
as of June 30, 1998 (Unaudited) INCOME PORTFOLIO
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description Value (Note 1)
<S> <C> <C> <C>
- ------------------------------------------------------------
WITHIN 1 YEAR--15.5%
Baa3 $ 3,500 AT & T Capital Corp.,
6.65%, 4/30/99 $ 3,515,400
Baa2 3,000 Crane Co.,
7.25%, 6/15/99 3,034,530
Baa2 1,000 Federal Express Corp.,
10.05%, 6/15/99 1,035,720
A3 6,000 Kansallis-Osake-Pankki
Bank,
(Finland)
9.75%, 12/15/98 6,094,620
6,915 Joint Repurchase Agreement
Account (Note 5),
5.72%, 7/1/98 6,915,000
-------------
20,595,270
- ------------------------------------------------------------
Total Investments--99.0%
(cost $131,188,827; Note
4) 130,855,996
Other assets in excess of
liabilities--1.0% 1,279,212
-------------
Net Assets--100% $ 132,135,208
-------------
-------------
</TABLE>
- ---------------
D Security is putable in May 2001.
The industry classification of portfolio holdings and other net assets shown as
a percentage of net assets as of June 30, 1998 were as follows:
<TABLE>
<S> <C>
Industrial Services................................... 22.4%
Financial Services.................................... 18.7
U.S. Government Securities............................ 14.7
Telecommunications.................................... 9.8
Banking............................................... 8.5
Repurchase Agreement.................................. 5.2
Consumer Finance...................................... 5.2
Retail................................................ 4.5
Transportation........................................ 4.2
Utilities............................................. 3.4
Forest Products....................................... 1.5
Consumer Services..................................... 0.9
Other assets in excess of liabilities................. 1.0
-----
100.0%
-----
-----
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 4
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL STRUCTURED MATURITY FUND, INC.
(Unaudited) INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
Assets June 30, 1998
<S> <C>
Investments, at value (cost $131,188,827)................................................................... $130,855,996
Cash........................................................................................................ 8,696
Interest receivable......................................................................................... 2,055,706
Receivable for Fund shares sold............................................................................. 66,784
Other assets................................................................................................ 2,761
-------------
Total assets............................................................................................. 132,989,943
-------------
Liabilities
Accrued expenses............................................................................................ 334,180
Payable for Fund shares reacquired.......................................................................... 243,033
Dividends payable........................................................................................... 191,729
Management fee payable...................................................................................... 43,676
Distribution fee payable.................................................................................... 42,117
-------------
Total liabilities........................................................................................ 854,735
-------------
Net Assets.................................................................................................. $132,135,208
-------------
-------------
Net assets were comprised of:
Common stock, at par..................................................................................... $ 115,835
Paid-in capital in excess of par......................................................................... 140,685,525
-------------
140,801,360
Accumulated net realized loss on investments............................................................. (8,333,321)
Net unrealized depreciation on investments............................................................... (332,831)
-------------
Net assets at June 30, 1998................................................................................. $132,135,208
-------------
-------------
Class A:
Net asset value and redemption price per share
($75,957,904 / 6,657,768 shares of common stock issued and outstanding)............................... $11.41
Maximum sales charge (3.25% of offering price)........................................................... .38
Maximum offering price to public......................................................................... $11.79
Class B:
Net asset value, offering price and redemption price per share
($53,595,844 / 4,699,480 shares of common stock issued and outstanding)............................... $11.40
Class C:
Net asset value, offering price and redemption price per share
($1,219,881 / 106,963 shares of common stock issued and outstanding).................................. $11.40
Class Z:
Net asset value, offering price and redemption price per share
($1,361,579 / 119,370 shares of common stock issued and outstanding).................................. $11.41
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5
<PAGE>
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
INCOME PORTFOLIO
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income June 30, 1998
<S> <C>
Income
Interest................................... $ 4,768,068
-------------
Expenses
Distribution fee--Class A.................. 34,308
Distribution fee--Class B.................. 240,347
Distribution fee--Class C.................. 5,050
Management fee............................. 270,263
Transfer agent's fees and expenses......... 117,000
Reports to shareholders.................... 45,000
Registration fees.......................... 42,000
Custodian's fees and expenses.............. 42,000
Audit fee.................................. 12,000
Directors' fees............................ 12,000
Legal fees and expenses.................... 8,000
Miscellaneous.............................. 6,894
-------------
Total expenses.......................... 834,862
-------------
Net investment income......................... 3,933,206
-------------
Realized and Unrealized Gain
on Investments
Net realized gain on investment
transactions............................... 231,994
Net change in unrealized depreciation of
investments................................ 455,346
-------------
Net gain on investments....................... 687,340
-------------
Net Increase in Net Assets
Resulting from Operations..................... $ 4,620,546
-------------
-------------
</TABLE>
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
INCOME PORTFOLIO
Statement of Changes in Net Assets (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) June 30, December 31,
in Net Assets 1998 1997
<S> <C> <C>
Operations
Net investment income.......... $ 3,933,206 $ 9,514,345
Net realized gain on investment
transactions................ 231,994 2,023,447
Net change in unrealized
appreciation (depreciation)
on investments.............. 455,346 (1,892,170)
------------ ------------
Net increase in net assets
resulting from operations... 4,620,546 9,645,622
------------ ------------
Dividends (Note 1)
Dividends from net investment
income
Class A..................... (2,103,778) (4,623,453)
Class B..................... (1,758,970) (4,791,826)
Class C..................... (36,926) (78,062)
Class Z..................... (33,532) (21,004)
------------ ------------
(3,933,206) (9,514,345)
------------ ------------
Dividends in excess of net
investment income
Class A..................... -- (114,961)
Class B..................... -- (124,751)
Class C..................... -- (2,340)
Class Z..................... -- (1,592)
------------ ------------
-- (243,644)
------------ ------------
Fund share transactions
(Net of share conversions) (Note 6)
Net proceeds from shares
subscribed.................. 10,151,758 13,181,656
Net asset value of shares
issued to shareholders in
reinvestment of dividends
and distributions........... 2,575,873 6,601,473
Cost of shares reacquired...... (19,839,042) (54,029,826)
------------ ------------
Net decrease in net assets from
Fund share transactions..... (7,111,411) (34,246,697)
------------ ------------
Total decrease.................... (6,424,071) (34,359,064)
Net Assets
Beginning of period............... 138,559,279 172,918,343
------------ ------------
End of period..................... $132,135,208 $138,559,279
------------ ------------
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 6
<PAGE>
Notes to Financial Statements PRUDENTIAL STRUCTURED MATURITY FUND, INC.
(Unaudited) 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. 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 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.
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. Effective July 1, 1998, Prudential Investment
Management Services LLC ('PIMS') will
- --------------------------------------------------------------------------------
7
<PAGE>
Notes to Financial Statements PRUDENTIAL STRUCTURED MATURITY FUND, INC.
(Unaudited) INCOME PORTFOLIO
- --------------------------------------------------------------------------------
become the distributor of the Fund and will serve the Fund under the same terms
and conditions as under the arrangement with PSI.
Pursuant to the Class A, B and C Plans, the Fund compensates PSI for
distribution-related activities at an annual rate of up to .30 of 1%, 1% and 1%,
of the average daily net assets of the Class A, B and C shares, respectively.
Such expenses under the Plans were .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
six months ended June 30, 1998.
PSI has advised the Portfolio that it has received approximately $11,800 in
front-end sales charges resulting from sales of Class A shares during the six
months ended June 30, 1998. 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 six months ended June 30, 1998, it
received approximately $30,400 and $50 in contingent deferred sales charges
imposed upon certain redemptions by Class B and Class C shareholders,
respectively.
PSI, PIFM, PIMS 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 six
months ended June 30, 1998. 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 six months ended June 30,
1998, the Portfolio incurred fees of approximately $98,000 for the services of
PMFS. As of June 30, 1998, approximately $16,300 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 six months ended June 30, 1998 were $231,003,704 and $236,138,448,
respectively.
The federal income tax basis of the Portfolio's investments is substantially the
same as for financial reporting purposes and accordingly, as of June 30, 1998
net unrealized depreciation for federal income tax purposes was $332,831 (gross
unrealized appreciation--$388,255; gross unrealized depreciation--$721,086).
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. 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 June 30,
1998, the Portfolio has a .56% undivided interest in the joint account. The
undivided interest for the Portfolio represents $6,915,000 in the principal
amount. As of such date, each repurchase agreement in the joint account and the
collateral therefor were as follows:
SBC Warburg Dillon Read, Inc., 5.93%, in the principal amount of $345,000,000,
repurchase price $345,056,829, due 7/1/98. The value of the collateral including
accrued interest was $352,174,874.
Bear Stearns, Inc., 5.85%, in the principal amount of $345,000,000, repurchase
price $345,056,063, due 7/1/98. The value of the collateral including accrued
interest is $353,215,323.
Goldman Sachs, 5.20%, in the principal amount of $206,264,000, repurchase price
$206,293,794, due 7/1/98. The value of the collateral including accrued interest
is $210,359,609.
Salomon Smith Barney Inc., 5.70%, in the principal amount of $345,000,000,
repurchase price $345,054,625, due 7/1/98. The value of the collateral including
accrued interest was $352,383,850.
- --------------------------------------------------------------------------------
8
<PAGE>
Notes to Financial Statements PRUDENTIAL STRUCTURED MATURITY FUND, INC.
(Unaudited) 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. 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>
Six months ended June 30, 1998:
Shares sold........................... 544,329 $ 6,226,733
Shares issued in reinvestment of
dividends........................... 122,990 1,402,758
Shares reacquired..................... (660,959) (7,534,933)
---------- ------------
Net decrease in shares outstanding
before conversion................... 6,360 94,558
Shares issued upon conversion from
Class B............................. 886,587 10,131,737
---------- ------------
Net increase in shares outstanding.... 892,947 $ 10,226,295
---------- ------------
---------- ------------
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 B Shares Amount
- -------------------------------------- ---------- ------------
<S> <C> <C>
Six months ended June 30, 1998:
Shares sold........................... 257,198 $ 2,930,268
Shares issued in reinvestment of
dividends........................... 97,252 1,109,097
Shares reacquired..................... (1,027,684) (11,717,380)
---------- ------------
Net decrease in shares outstanding
before conversion................... (673,234) (7,678,015)
Shares reacquired upon conversion into
Class A............................. (887,047) (10,131,737)
---------- ------------
Net increase in shares outstanding.... (1,560,281) $(17,809,752)
---------- ------------
---------- ------------
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)
---------- ------------
---------- ------------
Class C
- --------------------------------------
Six months ended June 30, 1998:
Shares sold........................... 19,037 $ 217,026
Shares issued in reinvestment of
dividends........................... 2,876 32,805
Shares reacquired..................... (30,783) (350,979)
---------- ------------
Net decrease in shares outstanding.... (8,870) $ (101,148)
---------- ------------
---------- ------------
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)
---------- ------------
---------- ------------
Class Z
- --------------------------------------
Six months ended June 30, 1998:
Shares sold........................... 68,252 $ 777,731
Shares issued in reinvestment of
dividends........................... 2,736 31,213
Shares reacquired..................... (20,682) (235,750)
---------- ------------
Net increase in shares outstanding.... 50,306 $ 573,194
---------- ------------
---------- ------------
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
---------- ------------
---------- ------------
</TABLE>
- --------------------------------------------------------------------------------
9
<PAGE>
<PAGE>
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
Financial Highlights (Unaudited) INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------------------
Six Months
Ended Year Ended December 31,
June 30, ---------------------------------------------------------
1998 1997 1996 1995 1994 1993
------------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 11.35 $ 11.36 $ 11.63 $ 10.97 $ 11.78 $ 11.79
------ ------- ------- ------- -------- --------
Income from investment operations:
Net investment income......................... .35 .74 .73 .73 .65 .71
Net realized and unrealized gain (loss) on
investment transactions.................... .06 .01 (.25) .66 (.80) .12
------ ------- ------- ------- -------- --------
Total from investment operations........... .41 .75 .48 1.39 (.15) .83
------ ------- ------- ------- -------- --------
Less distributions:
Dividends from net investment income.......... (.35) (.74) (.73) (.73) (.65) (.71)
Dividends in excess of net investment
income..................................... -- (.02) (.02) -- (.01) --
Distributions from net realized gains......... -- -- -- -- -- (.13)
------ ------- ------- ------- -------- --------
Total distributions........................ (.35) (.76) (.75) (.73) (.66) (.84)
------ ------- ------- ------- -------- --------
Net asset value, end of period................ $ 11.41 $ 11.35 $ 11.36 $ 11.63 $ 10.97 $ 11.78
------ ------- ------- ------- -------- --------
------ ------- ------- ------- -------- --------
TOTAL RETURN(a):.............................. 3.49% 6.81% 4.32% 13.12% (1.16)% 7.19%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $75,958 $65,431 $77,031 $88,982 $ 91,680 $119,449
Average net assets (000)...................... $69,184 $70,899 $81,745 $89,500 $106,737 $114,728
Ratios to average net assets:
Expenses, including distribution fees...... .92%(b) .94% .86% .82% .94% .80%
Expenses, excluding distribution fees...... .82%(b) .84% .76% .72% .84% .70%
Net investment income...................... 6.13%(b) 6.51% 6.38% 6.57% 5.88% 5.92%
For Class A, B, C and Z shares:
Portfolio turnover......................... 202% 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 period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(b) Annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 10
<PAGE>
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
Financial Highlights (Unaudited) INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
-----------------------------------------------------------------------------
Six Months
Ended Year Ended December 31,
June 30, -----------------------------------------------------------
1998 1997 1996 1995 1994 1993
------------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 11.35 $ 11.36 $ 11.63 $ 10.97 $ 11.78 $ 11.79
------ ------- -------- -------- -------- --------
Income from investment operations:
Net investment income......................... .31 .67 .65 .66 .58 .62
Net realized and unrealized gain (loss) on
investment transactions.................... .05 .01 (.25) .66 (.80) .12
------ ------- -------- -------- -------- --------
Total from investment operations........... .36 .68 .40 1.32 (.22) .74
------ ------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income.......... (.31) (.67) (.65) (.66) (.58) (.62)
Dividends in excess of net investment
income..................................... (.02) (.02) -- (.01) --
Distributions from net realized gains......... -- -- -- -- -- (.13)
------ ------- -------- -------- -------- --------
Total distributions........................ (.31) (.69) (.67) (.66) (.59) (.75)
------ ------- -------- -------- -------- --------
Net asset value, end of period................ $ 11.40 $ 11.35 $ 11.36 $ 11.63 $ 10.97 $ 11.78
------ ------- -------- -------- -------- --------
------ ------- -------- -------- -------- --------
TOTAL RETURN(a):.............................. 3.08% 6.13% 3.64% 12.40% (1.83)% 6.38%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $53,596 $71,030 $94,490 $120,188 $130,258 $123,306
Average net assets (000)...................... $64,624 $81,673 $106,224 $125,230 $134,985 $69,314
Ratios to average net assets:
Expenses, including distribution fees...... 1.57%(b) 1.59% 1.51% 1.47% 1.66% 1.55%
Expenses, excluding distribution fees...... .82%(b) .84% .76% .72% .84% .70%
Net investment income...................... 5.48%(b) 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. Total returns for periods of less than a full year are not
annualized.
(b) Annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 11
<PAGE>
PRUDENTIAL STRUCTURED MATURITY FUND, INC.
Financial Highlights (Unaudited) INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
------------------------------------------------------------------------
August 1,
Six Months 1994(c)
Ended Year Ended December 31, Through
June 30, ------------------------------------- December 31,
1998 1997 1996 1995 1994
------------- ------ ------------ --------- ------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 11.35 $11.36 $11.63 $ 10.97 $11.30
----- ------ ----- --------- -----
Income from investment operations:
Net investment income......................... .31 .67 .65 .66 .23
Net realized and unrealized gain (loss) on
investment transactions.................... .05 .01 (.25) .66 (.32)
----- ------ ----- --------- -----
Total from investment operations........... .36 .68 .40 1.32 (.09)
----- ------ ----- --------- -----
Less distributions:
Dividends from net investment income.......... (.31) (.67) (.65) (.66) (.23)
Dividends in excess of net investment
income..................................... -- (.02) (.02) -- (.01)
----- ------ ----- --------- -----
Total distributions........................ (.31) (.69) (.67) (.66) (.24)
----- ------ ----- --------- -----
Net asset value, end of period................ $ 11.40 $11.35 $11.36 $ 11.63 $10.97
----- ------ ----- --------- -----
----- ------ ----- --------- -----
TOTAL RETURN(a):.............................. 3.08% 6.13% 3.64% 12.40% (0.68)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $1,220 $1,314 $1,396 $1,050 $371
Average net assets (000)...................... $1,358 $1,329 $1,270 $667 $192
Ratios to average net assets:
Expenses, including distribution fees...... 1.57%(b) 1.59% 1.51% 1.47% 1.90%(b)
Expenses, excluding distribution fees...... .82%(b) .84% .76% .72% 1.15%(b)
Net investment income...................... 5.49%(b) 5.87% 5.73% 5.92% 5.30%(b)
<CAPTION>
Class Z
-----------------------------------------------
March 1,
Six Months Year 1996(d)
Ended Ended Through
June 30, December 31, December 31,
1998 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 11.35 $11.37 $11.41
----- ----- -----
Income from investment operations:
Net investment income......................... .36 .77 .09
Net realized and unrealized gain (loss) on
investment transactions.................... .06 .02 (.02)
----- ----- -----
Total from investment operations........... .42 .79 .07
----- ----- -----
Less distributions:
Dividends from net investment income.......... (.36) (.77) (.09)
Dividends in excess of net investment
income..................................... -- (.04) (.02)
----- ----- -----
Total distributions........................ (.36) (.81) (.11)
----- ----- -----
Net asset value, end of period................ $ 11.41 $11.35 $11.37
----- ----- -----
----- ----- -----
TOTAL RETURN(a):.............................. 3.53% 7.01% .59%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $1,362 $784 $200(e)
Average net assets (000)...................... $1,085 $313 $200(e)
Ratios to average net assets:
Expenses, including distribution fees...... .82%(b) .84% .76%(b)
Expenses, excluding distribution fees...... .82%(b) .84% .76%(b)
Net investment income...................... 6.23%(b) 6.71% 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 C shares.
(d) Commencement of offering of Class Z shares.
(e) Figures are actual and are not rounded to the nearest thousand.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 12
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.comm
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
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 Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Swidler Berlin Shereff Friedman, 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.
The accompanying financial statements as of June 30, 1998 were not audited
and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
<PAGE>
(LOGO)
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
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