UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: | 811-03712 | |
Exact name of registrant as specified in charter: | Prudential Investment Portfolios, Inc. 14 | |
Address of principal executive offices: | Gateway Center 3, | |
100 Mulberry Street, | ||
Newark, New Jersey 07102 | ||
Name and address of agent for service: | Deborah A. Docs | |
Gateway Center 3, | ||
100 Mulberry Street, | ||
Newark, New Jersey 07102 | ||
Registrant’s telephone number, including area code: | 800-225-1852 | |
Date of fiscal year end: | 2/28/2014 | |
Date of reporting period: | 8/31/2013 |
Item 1 – Reports to Stockholders
PRUDENTIAL INVESTMENTS»MUTUAL FUNDS
PRUDENTIAL GOVERNMENT INCOME FUND
SEMIANNUAL REPORT · AUGUST 31, 2013
Fund Type
Government Bond
Objective
Seek high current return
This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus.
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 August 31, 2013, were not audited and, accordingly, no auditor’s opinion is expressed on them.
Mutual funds are distributed by Prudential Investment Management Services LLC (PIMS). Prudential Fixed Income is a unit of Prudential Investment Management, Inc. (PIM), a registered investment adviser. PIMS and PIM are Prudential Financial companies. © 2013 Prudential Financial, Inc., and its related entities. Prudential Investments, Prudential, the Prudential logo, Bring Your Challenges, and the Rock symbol are service marks of Prudential Financial, Inc., and its related entities, registered in many jurisdictions worldwide.
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October 15, 2013
Dear Shareholder:
We hope you find the semiannual report for the Prudential Government Income Fund informative and useful. The report covers performance for the six-month period that ended August 31, 2013.
We recognize that ongoing market volatility may make it a difficult time to be an investor. We continue to believe a prudent response to uncertainty is to maintain a diversified portfolio of funds consistent with your tolerance for risk, time horizon, and financial goals.
Your financial advisor can help you create a diversified investment plan that may include funds covering all the basic asset classes and that reflects your personal investor profile and risk tolerance. Keep in mind, however, that diversification and asset allocation strategies do not assure a profit or protect against loss in declining markets.
Prudential Investments® is dedicated to helping you solve your toughest investment challenges—whether it’s capital growth, reliable income, or protection from market volatility and other risks. We offer the expertise of Prudential Financial’s affiliated asset managers* that strive to be leaders in a broad range of funds to help you stay on course to the future you envision. They also manage money for major corporations and pension funds around the world, which means you benefit from the same expertise, innovation, and attention to risk demanded by today’s most sophisticated investors.
Thank you for choosing the Prudential Investments family of funds.
Sincerely,
Stuart S. Parker, President
Prudential Government Income Fund
*Most of Prudential Investments’ equity funds are advised by Jennison Associates LLC, Quantitative Management Associates LLC (QMA), or Prudential Real Estate Investors. Prudential Investments’ fixed income and money market funds are advised by Prudential Investment Management, Inc. (PIM) through its Prudential Fixed Income unit. Jennison Associates, QMA, and PIM are registered investment advisers and Prudential Financial companies. Prudential Real Estate Investors is a unit of PIM.
Prudential Government Income Fund | 1 |
Your Fund’s Performance (Unaudited)
Performance data quoted represent past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the past performance data quoted. An investor may obtain performance data as of the most recent month-end by visiting our website at www.prudentialfunds.com or by calling (800) 225-1852.
Cumulative Total Returns (Without Sales Charges) as of 8/31/13 |
| |||||||||||||||||||
Six Months | One Year | Five Years | Ten Years | Since Inception | ||||||||||||||||
Class A | –2.82 | % | –2.64 | % | 26.52 | % | 49.81 | % | — | |||||||||||
Class B | –3.29 | –3.45 | 21.71 | 38.98 | — | |||||||||||||||
Class C | –3.19 | –3.36 | 22.40 | 41.50 | — | |||||||||||||||
Class R | –3.04 | –2.97 | 24.81 | N/A | 44.07% (5/17/04) | |||||||||||||||
Class Z | –2.70 | –2.40 | 28.00 | 53.63 | — | |||||||||||||||
Barclays U.S. Government Bond Index | –2.36 | –2.91 | 21.34 | 53.75 | — | |||||||||||||||
Barclays U.S. Aggregate ex-Credit Index | –2.26 | –2.58 | 23.53 | 55.88 | — | |||||||||||||||
Lipper General U.S. Government Funds Average | –3.42 | –4.18 | 21.08 | 45.21 | — | |||||||||||||||
Average Annual Total Returns (With Sales Charges) as of 9/30/13 |
| |||||||||||||||||||
One Year | Five Years | Ten Years | Since Inception | |||||||||||||||||
Class A | –6.36 | % | 4.09 | % | 3.45 | % | — | |||||||||||||
Class B | –7.34 | 4.12 | 3.15 | — | ||||||||||||||||
Class C | –3.60 | 4.36 | 3.33 | — | ||||||||||||||||
Class R | –2.28 | 4.79 | N/A | 4.08% (5/17/04) | ||||||||||||||||
Class Z | –1.70 | 5.33 | 4.19 | — | ||||||||||||||||
Barclays U.S. Government Bond Index | –1.98 | 4.00 | 4.17 | — | ||||||||||||||||
Barclays U.S. Aggregate ex-Credit Index | –1.58 | 4.47 | 4.40 | — | ||||||||||||||||
Lipper General U.S. Government Funds Average | –3.25 | 4.07 | 3.58 | — |
2 | Visit our website at www.prudentialfunds.com |
Distributions and Yields as of 8/31/13 | ||||||||
Total Distributions Paid for Six Months | 30-Day SEC Yield | |||||||
Class A | $ | 0.08 | 1.58 | % | ||||
Class B | 0.05 | 0.90 | ||||||
Class C | | 0.05 | | 0.91 | ||||
Class R | 0.07 | 1.40 | ||||||
Class Z | 0.10 | 1.91 |
Source: Prudential Investments LLC and Lipper Inc.
Inception returns are provided for any share class with less than 10 calendar years of returns. The returns in the tables reflect the share class expense structure in effect at the close of the fiscal period. The fund’s returns do not reflect the deduction of income taxes on an individual’s investment. Taxes may reduce your actual investment returns on income or gains paid by the fund or any gains you may realize if you sell your shares.
The average annual total returns take into account applicable sales charges, which are described for each share class in the table below.
Class A | Class B | Class C | Class R | Class Z | ||||||
Maximum Initial Sales Charge | 4.50% of the public offering price | None | None | None | None | |||||
Contingent deferred sales charge (CDSC) | 1% on sales of $1 million or more made within 12 months of purchase | 5% (Yr. 1) 4% (Yr. 2) 3% (Yr. 3) 2% (Yr. 4) 1% (Yr. 5) 1% (Yr. 6) 0% (Yr. 7) | 1% on sales made within 12 months of purchase | None | None | |||||
Annual Distribution and Service (12b-1) fees (shown as a percentage of average daily net assets) | .30% (.25% currently) | 1% up to $3 billion, .80% next $1 billion, and .50% over $4 billion | 1% | .75% (.50% currently) | None |
Benchmark Definitions
Barclays U.S. Government Bond Index
The Barclays U.S. Government Bond Index is an unmanaged index of securities issued or backed by the U.S. government, its agencies, and instrumentalities with between one and 30 years remaining to maturity. It gives a broad look at how U.S. government bonds have performed. Barclays U.S. Government Bond Index Closest Month-End to Inception cumulative total return as of 8/31/13 is 50.87% for Class R. Barclays U.S. Government Bond Index Closest Month-End to Inception average annual total return as of 9/30/13 is 4.58% for Class R.
Prudential Government Income Fund | 3 |
Your Fund’s Performance (continued)
Barclays U.S. Aggregate ex-Credit Index
The Barclays U.S. Aggregate ex-Credit Index is an unmanaged index which represents securities that are SEC-registered, taxable, and dollar-denominated. The index covers the U.S. investment-grade fixed-rate bond market, with index components for government securities, mortgage pass-through securities, and asset-backed securities. These major sectors are subdivided into more specific indexes that are calculated and reported on a regular basis. Barclays U.S. Aggregate ex-Credit Index Closest Month-End to Inception cumulative total return as of 8/31/13 is 52.43% for Class R. Barclays U.S. Aggregate ex-Credit Index Closest Month-End to Inception average annual total return as of 9/30/13 is 4.73% for Class R.
Lipper General U.S. Government Funds Average
The Lipper General U.S. Government Funds Average (Lipper Average) represents returns based on an average return of all funds in the Lipper General U.S. Government Funds category for the periods noted. Funds in the Lipper Average invest primarily in U.S. government and agency issues. Lipper Average Closest Month-End to Inception cumulative total return as of 8/31/13 is 42.76% for Class R. Lipper Average Closest Month-End to Inception average annual total return as of 9/30/13 is 3.94% for Class R.
Investors cannot invest directly in an index or average. The returns for the Indexes would be lower if they included the effects of sales charges, operating expenses of a mutual fund, or taxes. Returns for the Lipper Average reflect the deduction of operating expenses, but not sales charges or taxes.
Five Largest Issues expressed as a percentage of net assets as of 8/31/13 |
| |||
Federal National Mortgage Association, 3.500%, TBA | 7.4 | % | ||
Federal National Mortgage Association, 4.000%, TBA | 5.9 | |||
U.S. Treasury Notes, 1.375%, 07/31/18 | 5.5 | |||
U.S. Treasury Bonds, 2.875%, 05/15/43 | 5.0 | |||
U.S. Treasury Notes, 0.625%, 08/15/16 | 2.8 |
Holdings reflect only long-term investments and are subject to change.
4 | Visit our website at www.prudentialfunds.com |
Fees and Expenses (Unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemptions, as applicable, and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Fund expenses, as applicable. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested on March 1, 2013, at the beginning of the period, and held through the six-month period ended August 31, 2013. The example is for illustrative purposes only; you should consult the Prospectus for information on initial and subsequent minimum investment requirements.
Actual Expenses
The first line for each share class in the table on the following page provides information about actual account values and actual expenses. You may use the information on this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value ÷ $1,000 = 8.6), then multiply the result by the number on the first line under the heading “Expenses Paid During the Six-Month Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the table on the following page provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses should not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
The Fund’s transfer agent may charge additional fees to holders of certain accounts that are not included in the expenses shown in the table on the following page. These fees apply to individual retirement accounts (IRAs) and Section 403(b) accounts. As of the close of the six-month period covered by the table, IRA fees included an annual maintenance fee of $15 per account (subject to a maximum annual maintenance fee of $25 for all accounts held by the same shareholder). Section 403(b) accounts are charged an annual $25 fiduciary maintenance fee. Some of the fees may vary in amount, or may be waived, based on your total account balance or the number of
Prudential Government Income Fund | 5 |
Fees and Expenses (continued)
Prudential Investments funds, including the Fund, that you own. You should consider the additional fees that were charged to your Fund account over the six-month period when you estimate the total ongoing expenses paid over the period and the impact of these fees on your ending account value, as these additional expenses are not reflected in the information provided in the expense table. Additional fees have the effect of reducing investment returns.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as sales charges (loads). Therefore, the second line for each share class in the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Prudential Government Income Fund | Beginning Account Value March 1, 2013 | Ending Account August 31, 2013 | Annualized Expense Ratio Based on the Six-Month Period | Expenses Paid During the Six-Month Period* | ||||||||||||||
Class A | Actual | $ | 1,000.00 | $ | 971.80 | 0.95 | % | $ | 4.72 | |||||||||
Hypothetical | $ | 1,000.00 | $ | 1,020.42 | 0.95 | % | $ | 4.84 | ||||||||||
Class B | Actual | $ | 1,000.00 | $ | 967.10 | 1.70 | % | $ | 8.43 | |||||||||
Hypothetical | $ | 1,000.00 | $ | 1,016.64 | 1.70 | % | $ | 8.64 | ||||||||||
Class C | Actual | $ | 1,000.00 | $ | 968.10 | 1.70 | % | $ | 8.43 | |||||||||
Hypothetical | $ | 1,000.00 | $ | 1,016.64 | 1.70 | % | $ | 8.64 | ||||||||||
Class R | Actual | $ | 1,000.00 | $ | 969.60 | 1.20 | % | $ | 5.96 | |||||||||
Hypothetical | $ | 1,000.00 | $ | 1,019.16 | 1.20 | % | $ | 6.11 | ||||||||||
Class Z | Actual | $ | 1,000.00 | $ | 973.00 | 0.70 | % | $ | 3.48 | |||||||||
Hypothetical | $ | 1,000.00 | $ | 1,021.68 | 0.70 | % | $ | 3.57 |
*Fund expenses (net of fee waivers or subsidies, if any) for each share class are equal to the annualized expense ratio for each share class (provided in the table), multiplied by the average account value over the period, multiplied by the 184 days in the six-month period ended August 31, 2013, and divided by the 365 days in the Fund’s fiscal year ending February 28, 2014 (to reflect the six-month period). Expenses presented in the table include the expenses of any underlying portfolios in which the Fund may invest.
6 | Visit our website at www.prudentialfunds.com |
The Fund’s annualized expense ratios for the six-month period ended August 31, 2013 are as follows:
Class | Gross Operating Expenses | Net Operating Expenses | ||
A | 1.00% | 0.95% | ||
B | 1.70% | 1.70% | ||
C | 1.70% | 1.70% | ||
R | 1.45% | 1.20% | ||
Z | 0.70% | 0.70% |
Net operating expenses shown above reflect fee waivers and/or expense reimbursements. Additional information on Fund expenses and any fee waivers and/or expense reimbursements can be found in the “Financial Highlights” tables in this report and in the Notes to the Financial Statements in this report.
Prudential Government Income Fund | 7 |
Portfolio of Investments
as of August 31, 2013 (Unaudited)
Description | Interest Rate | Maturity Date | Principal Amount (000)# | Value (Note 1) | ||||||||
LONG-TERM INVESTMENTS 99.0% |
| |||||||||||
COMMERCIAL MORTGAGE-BACKED SECURITIES 19.9% |
| |||||||||||
Citigroup Commercial Mortgage Trust, Series 2007-C6, Class A4 | 5.885%(a) | 12/10/49 | 3,000 | $ | 3,359,910 | |||||||
Citigroup/Deutsche Bank Commercial Mortgage Trust, Series 2007-CD4, Class A3 | 5.293% | 12/11/49 | 3,000 | 3,064,020 | ||||||||
COBALT Commercial Mortgage Trust, Series 2006-C1, Class A4 | 5.223% | 08/15/48 | 3,000 | 3,232,344 | ||||||||
Commercial Mortgage Pass-Through Certificates, Series 2012-CR5, Class A3 | 2.540% | 12/10/45 | 2,000 | 1,818,336 | ||||||||
Credit Suisse Mortgage Capital Certificates, Series 2006-C1, Class AM | 5.567%(a) | 02/15/39 | 300 | 319,612 | ||||||||
Fannie Mae-ACES, Series 2012-M2, Class A2 | 2.717% | 02/25/22 | 270 | 257,944 | ||||||||
Federal National Mortgage Association, Series 2012-M13, Class A2 | 2.377% | 05/25/22 | 3,250 | 3,008,512 | ||||||||
FHLMC Multifamily Structured Pass-Through Certificates, Series K003, Class A5 | 5.085% | 03/25/19 | 500 | 564,234 | ||||||||
FHLMC Multifamily Structured Pass-Through Certificates, Series K004, Class A2 | 4.186% | 08/25/19 | 8,500 | 9,189,987 | ||||||||
FHLMC Multifamily Structured Pass-Through Certificates, Series K005, Class A2 | 4.317% | 11/25/19 | 1,900 | 2,065,456 | ||||||||
FHLMC Multifamily Structured Pass-Through Certificates, Series K010, Class A2 | 4.333% | 10/25/20 | 6,400 | 6,921,043 | ||||||||
FHLMC Multifamily Structured Pass-Through Certificates, Series K011, Class A2 | 4.084%(a) | 11/25/20 | 6,400 | 6,819,731 | ||||||||
FHLMC Multifamily Structured Pass-Through Certificates, Series K013, Class A2 | 3.974%(a) | 01/25/21 | 6,600 | 6,997,142 | ||||||||
FHLMC Multifamily Structured Pass-Through Certificates, Series K016, Class A2(b) | 2.968% | 10/25/21 | 4,700 | 4,631,206 |
See Notes to Financial Statements.
Prudential Government Income Fund | 9 |
Portfolio of Investments
as of August 31, 2013 (Unaudited) continued
Description | Interest Rate | Maturity Date | Principal Amount (000)# | Value (Note 1) | ||||||||
COMMERCIAL MORTGAGE-BACKED SECURITIES (Continued) |
| |||||||||||
FHLMC Multifamily Structured Pass-Through Certificates, Series K020, Class X1, I/O | 1.611%(a) | 05/25/22 | 15,379 | $ | 1,490,441 | |||||||
FHLMC Multifamily Structured Pass-Through Certificates, Series K021, Class A2 | 2.396% | 06/25/22 | 6,400 | 5,953,389 | ||||||||
FHLMC Multifamily Structured Pass-Through Certificates, Series K021, Class X1, I/O | 1.646%(a) | 06/25/22 | 16,636 | 1,679,520 | ||||||||
FHLMC Multifamily Structured Pass-Through Certificates, Series K024, Class A2 | 2.573% | 09/25/22 | 3,125 | 2,931,625 | ||||||||
FHLMC Multifamily Structured Pass-Through Certificates, Series K026, Class A2 | 2.510% | 11/25/22 | 6,400 | 5,931,072 | ||||||||
FHLMC Multifamily Structured Pass-Through Certificates, Series K029, Class A2 | 3.320%(a) | 02/25/23 | 6,400 | 6,296,288 | ||||||||
FHLMC Multifamily Structured Pass-Through Certificates, Series K501, Class X1A, I/O | 1.876%(a) | 08/25/16 | 7,061 | 262,703 | ||||||||
FHLMC Multifamily Structured Pass-Through Certificates, Series K710, Class X1, I/O | 1.914%(a) | 05/25/19 | 13,438 | 1,129,191 | ||||||||
FHLMC Multifamily Structured Pass-Through Certificates, Series K711, Class X1, I/O | 1.833%(a) | 07/25/19 | 12,968 | 1,063,535 | ||||||||
FHLMC Multifamily Structured Pass-Through Certificates, Series KSMC, Class A2 | 2.615% | 01/25/23 | 688 | 638,529 | ||||||||
Greenwich Capital Commercial Mortgage Trust I, Series 2007-GG9, Class A2 | 5.381% | 03/10/39 | 1,204 | 1,243,166 | ||||||||
GS Mortgage Securities Corp. II, Series 2007-GG10, Class A2 | 5.778%(a) | 08/10/45 | 1,437 | 1,451,521 | ||||||||
JPMorgan Chase Commercial Mortgage Securities Corp., Series 2007-LD11, Class A3 | 6.003%(a) | 06/15/49 | 1,600 | 1,671,544 | ||||||||
Merrill Lynch/Countrywide Commercial Mortgage Trust, Series 2006-4, Class A3 | 5.172%(a) | 12/12/49 | 3,300 | 3,593,370 |
See Notes to Financial Statements.
10 |
Description | Interest Rate | Maturity Date | Principal Amount (000)# | Value (Note 1) | ||||||||
COMMERCIAL MORTGAGE-BACKED SECURITIES (Continued) |
| |||||||||||
Merrill Lynch/Countrywide Commercial Mortgage Trust, Series 2007-9, Class A2 | 5.590% | 09/12/49 | 944 | $ | 946,299 | |||||||
Morgan Stanley Capital I Trust, Series 2005-IQ10, Class A4B | 5.284%(a) | 09/15/42 | 1,192 | 1,259,487 | ||||||||
NCUA Guaranteed Notes, Series 2010-C1, Class A2 | 2.900% | 10/29/20 | 4,000 | 4,128,264 | ||||||||
UBS-Barclays Commercial Mortgage Trust, Series 2012-C4, Class A4 | 2.792% | 12/10/45 | 2,400 | 2,194,440 | ||||||||
Wachovia Bank Commercial Mortgage Trust, Series 2006-C23, Class A5 | 5.416%(a) | 01/15/45 | 2,000 | 2,177,552 | ||||||||
Wachovia Bank Commercial Mortgage Trust, Series 2006-C25, Class A5 | 5.915%(a) | 05/15/43 | 3,000 | 3,310,305 | ||||||||
Wachovia Bank Commercial Mortgage Trust, Series 2006-C27, Class A3 | 5.765%(a) | 07/15/45 | 4,440 | 4,747,023 | ||||||||
|
| |||||||||||
TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES |
| 106,348,741 | ||||||||||
|
| |||||||||||
CORPORATE BONDS 1.1% | ||||||||||||
Depfa ACS Bank (Ireland), Covered Notes, 144A | 5.125% | 03/16/37 | 1,145 | 951,781 | ||||||||
DNB Boligkreditt AS (Norway), Covered Notes, 144A | 1.450% | 03/21/19 | 1,320 | 1,277,364 | ||||||||
Kommunalbanken AS (Norway), Sr. Unsec’d. Notes, 144A | 1.125% | 05/23/18 | 1,868 | 1,799,071 | ||||||||
Kreditanstalt Fuer Wiederaufbau (Germany), Gov’t. Notes(b) | 2.375% | 08/25/21 | 1,080 | 1,048,896 | ||||||||
Stadshypotek AB (Sweden), Covered Notes, 144A(b) | 1.250% | 05/23/18 | 700 | 672,280 | ||||||||
|
| |||||||||||
TOTAL CORPORATE BONDS |
| 5,749,392 | ||||||||||
|
| |||||||||||
MUNICIPAL BONDS 1.3% | ||||||||||||
New York City Water & Sewer System, BABs, Revenue Bonds, Series EE | 5.000% | 06/15/47 | 2,775 | 2,774,806 | ||||||||
Ohio State Turnpike Commission, BABs, Revenue Bonds, Series A-1 | 5.000% | 02/15/48 | 1,325 | 1,287,807 |
See Notes to Financial Statements.
Prudential Government Income Fund | 11 |
Portfolio of Investments
as of August 31, 2013 (Unaudited) continued
Description | Interest Rate | Maturity Date | Principal Amount (000)# | Value (Note 1) | ||||||||
MUNICIPAL BONDS (Continued) |
| |||||||||||
Pennsylvania Turnpike Commission, Series C | 5.000% | 12/01/43 | 1,595 | $ | 1,544,151 | |||||||
Utah St., BABs, Series D, GO | 4.554% | 07/01/24 | 1,170 | 1,255,176 | ||||||||
|
| |||||||||||
TOTAL MUNICIPAL BONDS |
| 6,861,940 | ||||||||||
|
| |||||||||||
RESIDENTIAL MORTGAGE-BACKED SECURITIES 0.2% |
| |||||||||||
MLCC Mortgage Investors, Inc., Series 2003-E, Class A1 | 0.804%(a) | 10/25/28 | 217 | 205,600 | ||||||||
Structured Adjustable Rate Mortgage Loan Trust, Series 2004-1, Class 4A3 | 2.487%(a) | 02/25/34 | 804 | 793,791 | ||||||||
|
| |||||||||||
TOTAL RESIDENTIAL MORTGAGE-BACKED SECURITIES |
| 999,391 | ||||||||||
|
| |||||||||||
SMALL BUSINESS ADMINISTRATION AGENCIES 0.6% |
| |||||||||||
Small Business Administration Participation Certificates, Series 1995-20B, Class 1 | 8.150% | 02/01/15 | 133 | 139,210 | ||||||||
Small Business Administration Participation Certificates, Series 1995-20L, Class 1 | 6.450% | 12/01/15 | 636 | 665,692 | ||||||||
Small Business Administration Participation Certificates, Series 1996-20H, Class 1 | 7.250% | 08/01/16 | 575 | 604,026 | ||||||||
Small Business Administration Participation Certificates, Series 1996-20K, Class 1 | 6.950% | 11/01/16 | 623 | 656,526 | ||||||||
Small Business Administration Participation Certificates, Series 1997-20A, Class 1 | 7.150% | 01/01/17 | 194 | 205,250 | ||||||||
Small Business Administration Participation Certificates, Series 1998-20I, Class 1 | 6.000% | 09/01/18 | 1,007 | 1,082,631 | ||||||||
|
| |||||||||||
TOTAL SMALL BUSINESS ADMINISTRATION AGENCIES |
| 3,353,335 | ||||||||||
|
|
See Notes to Financial Statements.
12 |
Description | Interest Rate | Maturity Date | Principal Amount (000)# | Value (Note 1) | ||||||||
U.S. GOVERNMENT AGENCY OBLIGATIONS 45.6% |
| |||||||||||
Federal Home Loan Mortgage Corp.(b) | 0.750% | 01/12/18 | 1,425 | $ | 1,375,906 | |||||||
Federal Home Loan Mortgage Corp. | 2.354%(a) | 05/01/34 | 1,373 | 1,456,022 | ||||||||
Federal Home Loan Mortgage Corp.(c) | 3.500% | TBA | 1,000 | 1,043,906 | ||||||||
Federal Home Loan Mortgage Corp.(c) | 3.500% | TBA | 2,000 | 1,993,359 | ||||||||
Federal Home Loan Mortgage Corp. | 3.500% | 09/01/26 | 879 | 919,212 | ||||||||
Federal Home Loan Mortgage Corp. | 4.000% | 06/01/26-12/01/40 | 5,929 | 6,159,485 | ||||||||
Federal Home Loan Mortgage Corp. | 4.500% | 09/01/39 | 5,420 | 5,705,258 | ||||||||
Federal Home Loan Mortgage Corp. | 5.000% | 10/15/17-05/01/34 | 11,490 | 12,372,636 | ||||||||
Federal Home Loan Mortgage Corp. | 5.500% | 09/15/17-01/01/38 | 4,106 | 4,394,346 | ||||||||
Federal Home Loan Mortgage Corp. | 6.000% | 08/01/32-09/01/34 | 565 | 619,229 | ||||||||
Federal Home Loan Mortgage Corp. | 6.500% | 09/01/32-09/01/32 | 599 | 671,749 | ||||||||
Federal Home Loan Mortgage Corp. | 7.000% | 09/01/32 | 129 | 147,726 | ||||||||
Federal Home Loan Mortgage Corp. | 8.000% | 03/01/22-08/01/22 | 61 | 62,734 | ||||||||
Federal Home Loan Mortgage Corp. | 8.500% | 01/01/17-09/01/19 | 57 | 60,817 | ||||||||
Federal Home Loan Mortgage Corp. | 9.000% | 01/01/20 | 29 | 29,845 | ||||||||
Federal Home Loan Mortgage Corp. | 11.500% | 10/01/19 | 27 | 27,330 | ||||||||
Federal National Mortgage Association | 0.875% | 05/21/18 | 935 | 898,172 | ||||||||
Federal National Mortgage Association | 1.875% | 09/18/18 | 6,905 | 6,903,018 | ||||||||
Federal National Mortgage Association | 2.157%(a) | 07/01/33 | 4,121 | 4,358,904 | ||||||||
Federal National Mortgage Association | 2.249%(a) | 06/01/34 | 1,122 | 1,186,359 | ||||||||
Federal National Mortgage Association | 2.255%(a) | 04/01/34 | 533 | 562,028 | ||||||||
Federal National Mortgage Association | 2.500% | TBA | 9,500 | 9,427,266 | ||||||||
Federal National Mortgage Association | 2.549%(a) | 04/01/34 | 990 | 1,046,238 | ||||||||
Federal National Mortgage Association | 3.000% | TBA | 12,500 | 12,791,015 | ||||||||
Federal National Mortgage Association | 3.000% | TBA | 1,000 | 1,020,937 | ||||||||
Federal National Mortgage Association(c) | 3.000% | TBA | 6,500 | 6,233,144 | ||||||||
Federal National Mortgage Association | 3.000% | 01/01/27 | 1,901 | 1,948,065 | ||||||||
Federal National Mortgage Association | 3.500% | TBA | 4,000 | 3,988,125 |
See Notes to Financial Statements.
Prudential Government Income Fund | 13 |
Portfolio of Investments
as of August 31, 2013 (Unaudited) continued
Description | Interest Rate | Maturity Date | Principal Amount (000)# | Value (Note 1) | ||||||||
U.S. GOVERNMENT AGENCY OBLIGATIONS (Continued) |
| |||||||||||
Federal National Mortgage Association(c) | 3.500% | TBA | 500 | $ | 522,734 | |||||||
Federal National Mortgage Association(c) | 3.500% | TBA | 39,500 | 39,487,656 | ||||||||
Federal National Mortgage Association | 3.500% | 06/01/39-03/01/42 | 1,451 | 1,452,293 | ||||||||
Federal National Mortgage Association(c) | 4.000% | TBA | 30,500 | 31,415,002 | ||||||||
Federal National Mortgage Association(c) | 4.500% | TBA | 10,000 | 10,562,891 | ||||||||
Federal National Mortgage Association | 4.500% | 01/01/20 | 281 | 298,427 | ||||||||
Federal National Mortgage Association | 5.000% | 07/01/18-05/01/36 | 6,487 | 6,941,541 | ||||||||
Federal National Mortgage Association | 5.500% | 08/01/15-11/01/36 | 18,244 | 19,828,593 | ||||||||
Federal National Mortgage Association | 6.000% | 11/01/14-05/01/36 | 5,739 | 6,287,472 | ||||||||
Federal National Mortgage Association | 6.500% | 02/01/14-10/01/37 | 6,187 | 6,919,220 | ||||||||
Federal National Mortgage Association | 7.000% | 12/01/13-02/01/36 | 2,125 | 2,380,400 | ||||||||
Federal National Mortgage Association | 8.500% | 06/01/17 | 298 | (d) | 299 | |||||||
Federal National Mortgage Association | 9.000% | 04/01/25-04/01/25 | 23 | 25,327 | ||||||||
Federal National Mortgage Association | 9.500% | 01/01/25-02/01/25 | 24 | 24,427 | ||||||||
Government National Mortgage Association(c) | 3.500% | TBA | 7,000 | 7,068,907 | ||||||||
Government National Mortgage Association | 4.000% | TBA | 2,000 | 2,079,375 | ||||||||
Government National Mortgage Association(c) | 4.500% | TBA | 4,500 | 4,774,219 | ||||||||
Government National Mortgage Association(c) | 4.500% | TBA | 2,500 | 2,662,500 | ||||||||
Government National Mortgage Association | 4.500% | 01/20/41-02/20/41 | 4,026 | 4,305,800 | ||||||||
Government National Mortgage Association | 5.000% | 07/15/33-04/15/34 | 3,588 | 3,904,210 |
See Notes to Financial Statements.
14 |
Description | Interest Rate | Maturity Date | Principal Amount (000)# | Value (Note 1) | ||||||||
U.S. GOVERNMENT AGENCY OBLIGATIONS (Continued) |
| |||||||||||
Government National Mortgage Association | 5.500% | 02/15/34-02/15/36 | 1,930 | $ | 2,125,766 | |||||||
Government National Mortgage Association | 7.000% | 03/15/22-02/15/29 | 2,814 | 3,198,595 | ||||||||
Government National Mortgage Association | 7.500% | 01/15/23-07/15/24 | 368 | 400,539 | ||||||||
Government National Mortgage Association | 8.500% | 04/15/25 | 347 | 381,826 | ||||||||
Government National Mortgage Association | 9.500% | 09/15/16-08/20/21 | 142 | 145,584 | ||||||||
|
| |||||||||||
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS |
| 244,596,434 | ||||||||||
|
| |||||||||||
U.S. TREASURY OBLIGATIONS 30.3% |
| |||||||||||
U.S. Treasury Bonds | 2.875% | 05/15/43 | 31,470 | 26,788,837 | ||||||||
U.S. Treasury Bonds(b) | 6.125% | 11/15/27 | 2,805 | 3,755,194 | ||||||||
U.S. Treasury Bonds | 8.125% | 08/15/19 | 10,965 | 14,855,009 | ||||||||
U.S. Treasury Notes | 0.500% | 07/31/17 | 7,200 | 7,004,246 | ||||||||
U.S. Treasury Notes(b) | 0.625% | 08/15/16 | 15,055 | 14,997,369 | ||||||||
U.S. Treasury Notes | 0.750% | 10/31/17 | 2,500 | 2,442,188 | ||||||||
U.S. Treasury Notes | 1.375% | 06/30/18 | 5,295 | 5,251,152 | ||||||||
U.S. Treasury Notes(b) | 1.375% | 07/31/18 | 29,875 | 29,590,261 | ||||||||
U.S. Treasury Notes | 2.000% | 07/31/20 | 1,070 | 1,057,043 | ||||||||
U.S. Treasury Notes | 2.125% | 08/31/20 | 3,015 | 2,998,276 | ||||||||
U.S. Treasury Notes(b) | 2.500% | 08/15/23 | 10,465 | 10,239,354 | ||||||||
U.S. Treasury Notes(e)(f) | 4.250% | 11/15/17 | 3,050 | 3,418,861 | ||||||||
U.S. Treasury Notes(b) | 4.750% | 08/15/17 | 2,725 | 3,099,050 | ||||||||
U.S. Treasury STRIPS, I/O | 2.933%(g) | 02/15/22 | 6,660 | 5,320,401 | ||||||||
U.S. Treasury STRIPS, I/O | 3.013%(g) | 05/15/22 | 14,120 | 11,152,894 | ||||||||
U.S. Treasury STRIPS, I/O | 4.012%(g) | 02/15/26 | 2,030 | 1,346,911 | ||||||||
U.S. Treasury STRIPS, I/O(b) | 4.135%(g) | 08/15/26 | 6,885 | 4,460,509 | ||||||||
U.S. Treasury STRIPS, I/O | 4.526%(g) | 05/15/28 | 9,405 | 5,613,892 | ||||||||
U.S. Treasury STRIPS, I/O(b) | 4.580%(g) | 08/15/28 | 14,400 | 8,495,338 | ||||||||
U.S. Treasury STRIPS, P/O | 7.195%(g) | 02/15/43 | 2,205 | 699,885 | ||||||||
|
| |||||||||||
TOTAL U.S. TREASURY OBLIGATIONS |
| 162,586,670 | ||||||||||
|
| |||||||||||
TOTAL LONG-TERM INVESTMENTS |
| 530,495,903 | ||||||||||
|
|
See Notes to Financial Statements.
Prudential Government Income Fund | 15 |
Portfolio of Investments
as of August 31, 2013 (Unaudited) continued
Description | Shares | Value (Note 1) | ||||||||||
SHORT-TERM INVESTMENTS 38.9% | ||||||||||||
AFFILIATED MUTUAL FUNDS | ||||||||||||
Prudential Investment Portfolios 2 - Prudential Core Short-Term Bond Fund | 9,299,243 | $ | 86,389,967 | |||||||||
Prudential Investment Portfolios 2 - Prudential Core Taxable Money Market Fund | 122,145,636 | 122,145,636 | ||||||||||
|
| |||||||||||
TOTAL SHORT-TERM INVESTMENTS | 208,535,603 | |||||||||||
|
| |||||||||||
TOTAL INVESTMENTS 137.9% | 739,031,506 | |||||||||||
Liabilities in excess of other assets(j) (37.9)% | (203,225,422 | ) | ||||||||||
|
| |||||||||||
NET ASSETS 100.0% | $ | 535,806,084 | ||||||||||
|
|
The following abbreviations are used in the portfolio descriptions:
144A—Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may not be resold subject to that rule except to qualified institutional buyers. Unless otherwise noted, 144A securities are deemed to be liquid.
ACES—Alternative Credit Enhancement Securities
BABs—Build America Bonds
FHLMC—Federal Home Loan Mortgage Corp.
GO—General Obligation
I/O—Interest Only
LIBOR—London Interbank Offered Rate
P/O—Principal Only
STRIPS—Separate Trading of Registered Interest and Principal of Securities.
TBA—To Be Announced
# | Principal amount or notional amount shown in U.S. dollars unless otherwise stated. |
(a) | Variable rate instrument. The interest rate shown reflects the rate in effect at August 31, 2013. |
(b) | All or a portion of security is on loan. The aggregate market value of such securities, including those sold and pending settlement, is $55,651,772; cash collateral of $56,829,103 (included with liabilities) was received with which the Fund purchased highly liquid short-term investments. |
(c) | All or a partial principal amount of $60,000,000 represents a to-be announced (“TBA”) mortgage dollar roll. |
(d) | Amount is actual; not rounded to thousands. |
(e) | Represents security, or a portion thereof, segregated as collateral for futures contracts. |
(f) | Represents security, or a portion thereof, segregated as collateral for swap agreements. |
(g) | Rates shown are the yield to maturity at purchase date. |
See Notes to Financial Statements.
16 |
(h) | Prudential Investments LLC, the manager of the Fund, also serves as manager of the Prudential Investment Portfolios 2 - Prudential Core Taxable Money Market Fund and the Prudential Investment Portfolios 2 - Prudential Core Short-Term Bond Fund. |
(i) | Represents security, or a portion thereof, purchased with cash collateral received for securities on loan. |
(j) | Includes net unrealized appreciation (depreciation) on the following derivative contracts held at reporting period end: |
Open futures contracts outstanding at August 31, 2013:
Number of Contracts | Type | Expiration Date | Value at Trade Date | Value at August 31, 2013 | Unrealized Appreciation (Depreciation) | |||||||||||||||
Long Positions: | ||||||||||||||||||||
633 | 5 Year U.S. Treasury Notes | Dec. 2013 | $ | 75,512,297 | $ | 75,757,242 | $ | 244,945 | ||||||||||||
Short Positions: | ||||||||||||||||||||
223 | 2 Year U.S. Treasury Notes | Sep. 2013 | 49,122,444 | 49,087,875 | 34,569 | |||||||||||||||
160 | 10 Year U.S. Treasury Notes | Dec. 2013 | 19,887,491 | 19,885,000 | 2,491 | |||||||||||||||
271 | U.S. Long Treasury Bonds | Dec. 2013 | 35,437,042 | 35,746,594 | (309,552 | ) | ||||||||||||||
90 | U.S. Ultra Treasury Bonds | Dec. 2013 | 12,536,694 | 12,768,750 | (232,056 | ) | ||||||||||||||
|
| |||||||||||||||||||
$ | (259,603 | ) | ||||||||||||||||||
|
|
Interest rate swap agreements outstanding at August 31, 2013:
Notional | Termination Date | Fixed Rate | Floating | Fair Value | Upfront Premiums Paid (Received) | Unrealized Appreciation (Depreciation) | Counterparty | |||||||||||||||||||
| Over-the-counter swap agreements: |
| ||||||||||||||||||||||||
9,555 | 08/31/16 | 0.975% | 3 Month LIBOR(1) | $ | (11,276 | ) | $ | — | $ | (11,276 | ) | JPMorgan Chase Bank NA | ||||||||||||||
9,555 | 08/31/16 | 0.978% | 3 Month LIBOR(1) | (12,275 | ) | — | (12,275 | ) | JPMorgan Chase Bank NA | |||||||||||||||||
4,755 | 11/30/16 | 0.945% | 3 month LIBOR(1) | 3,169 | — | 3,169 | Citibank NA | |||||||||||||||||||
8,190 | 08/31/17 | 0.751% | 3 Month LIBOR(1) | 199,989 | — | 199,989 | Bank of Nova Scotia | |||||||||||||||||||
11,410 | 11/30/17 | 1.155% | 3 month LIBOR(1) | 157,080 | — | 157,080 | Morgan Stanley Capital Services | |||||||||||||||||||
1,868 | 05/17/18 | 0.989% | 3 month LIBOR(1) | 51,665 | — | 51,665 | Credit Suisse International | |||||||||||||||||||
5,000 | 08/23/18 | 1.773% | 3 month LIBOR(1) | (7,074 | ) | 172 | (7,246 | ) | Citibank NA |
See Notes to Financial Statements.
Prudential Government Income Fund | 17 |
Portfolio of Investments
as of August 31, 2013 (Unaudited) continued
Notional | Termination Date | Fixed Rate | Floating | Fair Value | Upfront Premiums Paid (Received) | Unrealized Appreciation (Depreciation) | Counterparty | |||||||||||||||||||
7,700 | 02/15/19 | 1.656% | 3 month LIBOR(1) | $ | 103,304 | $ | — | $ | 103,304 | Citibank NA | ||||||||||||||||
34,025 | 01/28/23 | 1.895% | 3 month LIBOR(1) | 2,743,248 | — | 2,743,248 | Morgan Stanley Capital Services | |||||||||||||||||||
19,365 | 06/07/16 | 0.654% | 3 Month LIBOR(2) | (82,160 | ) | — | (82,160 | ) | JPMorgan Chase Bank NA | |||||||||||||||||
1,460 | 09/14/16 | 1.206% | 3 month LIBOR(2) | (18,415 | ) | — | (18,415 | ) | Deutsche Bank AG | |||||||||||||||||
15,965 | 02/28/17 | 0.680% | 3 month LIBOR(2) | (258,373 | ) | — | (258,373 | ) | Citibank NA | |||||||||||||||||
7,700 | 02/15/19 | 1.794% | 3 month LIBOR(2) | (46,676 | ) | — | (46,676 | ) | JPMorgan Chase Bank NA | |||||||||||||||||
9,095 | 02/15/20 | 1.355% | 3 Month LIBOR(2) | (488,081 | ) | — | (488,081 | ) | Morgan Stanley Capital Services | |||||||||||||||||
19,895 | 08/05/23 | 4.210% | 3 month LIBOR(2) | (79,077 | ) | — | (79,077 | ) | Citibank NA | |||||||||||||||||
7,960 | 08/06/23 | 4.220% | 3 month LIBOR(2) | (28,340 | ) | — | (28,340 | ) | Citibank NA | |||||||||||||||||
10,630 | 08/09/23 | 4.231% | 3 month LIBOR(2) | (33,323 | ) | 196 | (33,519 | ) | Citibank NA | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||
$ | 2,193,385 | $ | 368 | $ | 2,193,017 | |||||||||||||||||||||
|
|
|
|
|
|
(1) | The Fund pays the fixed rate and receives the floating rate. |
(2) | The Fund pays the floating rate and receives the fixed rate. |
# | Notional Amount is shown in U.S. dollars unless otherwise stated. |
Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in the three broad levels listed below.
Level 1—quoted prices generally in active markets for identical securities.
Level 2—other significant observable inputs including, but not limited to, quoted prices for similar securities, interest rates and yield curves, prepayment speeds, foreign currency exchange rates, and amortized cost.
Level 3—significant unobservable inputs for securities valued in accordance with Board approved fair valuation procedures.
See Notes to Financial Statements.
18 |
The following is a summary of the inputs used as of August 31, 2013 in valuing such portfolio securities:
Level 1 | Level 2 | Level 3 | ||||||||||
Investments in Securities | ||||||||||||
Commercial Mortgage-Backed Securities | $ | — | $ | 106,348,741 | $ | — | ||||||
Corporate Bonds | — | 5,749,392 | — | |||||||||
Municipal Bonds | — | 6,861,940 | — | |||||||||
Residential Mortgage-Backed Securities | — | 999,391 | — | |||||||||
Small Business Administration Agencies | — | 3,353,335 | — | |||||||||
U.S. Government Agency Obligations | — | 244,596,434 | — | |||||||||
U.S. Treasury Obligations | — | 162,586,670 | — | |||||||||
Affiliated Mutual Funds | 208,535,603 | — | — | |||||||||
Other Financial Instruments* | ||||||||||||
Futures Contracts | (259,603 | ) | — | — | ||||||||
Interest Rate Swaps | — | 2,193,017 | — | |||||||||
|
|
|
|
|
| |||||||
Total | $ | 208,276,000 | $ | 532,688,920 | $ | — | ||||||
|
|
|
|
|
|
* | Other financial instruments are derivative instruments not reflected in the Portfolio of Investments, such as futures, forwards and swaps contracts, which are recorded at the unrealized appreciation/depreciation of the instrument. |
The industry classification of portfolio holdings and liabilities in excess of other assets shown as a percentage of net assets as of August 31, 2013 was as follows:
U.S. Government Agency Obligations | 45.6 | % | ||
Affiliated Mutual Funds (including 10.6% of collateral received for securities on loan) | 38.9 | |||
U.S. Treasury Obligations | 30.3 | |||
Commercial Mortgage-Backed Securities | 19.9 | |||
Municipal Bonds | 1.3 | |||
Corporate Bonds | 1.1 | % | ||
Small Business Administration Agencies | 0.6 | |||
Residential Mortgage-Backed Securities | 0.2 | |||
|
| |||
137.9 | ||||
Liabilities in excess of other assets | (37.9 | ) | ||
|
| |||
100.0 | % | |||
|
|
See Notes to Financial Statements.
Prudential Government Income Fund | 19 |
Portfolio of Investments
as of August 31, 2013 (Unaudited) continued
The Fund invested in derivative instruments during the reporting period. The primary type of risk associated with these derivative instruments is interest rate risk. The effect of such derivative instruments on the Fund's financial position and financial performance as reflected in the Statement of Assets and Liabilities and Statement of Operations is presented in the summary below.
Fair values of derivative instruments as of August 31, 2013 as presented in the Statement of Assets and Liabilities:
Derivatives not accounted for | Asset Derivatives | Liability Derivatives | ||||||||||
Balance | Fair Value | Balance Sheet | Fair Value | |||||||||
Interest rate contracts | Due to broker—variation margin | $ | 282,005 | * | Due to broker—variation margin | $ | 541,608 | * | ||||
Interest rate contracts | Unrealized appreciation on over-the-counter swap agreements | 3,258,455 | Unrealized depreciation on over-the-counter swap agreements | 1,065,438 | ||||||||
Interest rate contracts | Premiums paid for swap agreements | 368 | — | — | ||||||||
|
|
|
| |||||||||
Total | $ | 3,540,828 | $ | 1,607,046 | ||||||||
|
|
|
|
* | Includes cumulative appreciation/depreciation as reported in schedule of open futures. Only unsettled variation margin receivable (payable) is reported within the Statement of Assets and Liabilities. |
The effects of derivative instruments on the Statement of Operations for the six months ended August 31, 2013 are as follows:
Amount of Realized Gain or (Loss) on Derivatives Recognized in Income | ||||||||||||||||
Derivatives not accounted for as hedging | Futures | Written Options | Swaps | Total | ||||||||||||
Interest rate contracts | $ | (867,156 | ) | $ | (12,193 | ) | $ | 1,045,242 | $ | 165,893 | ||||||
|
|
|
|
|
|
|
|
Change in Unrealized Appreciation or (Depreciation) on Derivatives Recognized in Income | ||||||||||||
Derivatives not accounted for as hedging | Futures | Swaps | Total | |||||||||
Interest rate contracts | $ | (241,773 | ) | $ | 2,164,106 | $ | 1,922,333 | |||||
|
|
|
|
|
|
See Notes to Financial Statements.
20 |
For the six months ended August 31, 2013, the Fund's average volume of derivative activities are as follows:
Purchased Options(1) | Futures Contracts—Long Positions(2) | Futures Contracts—Short Positions(2) | Interest rate swap agreements(3) | |||||||||||
$ | 61,327 | $ | 70,097,119 | $ | 59,461,999 | $ | 205,755,333 |
(1) | Cost. |
(2) | Value at Trade Date. |
(3) | Notional Amount. |
The Fund invested in financial instruments and derivatives during the reporting period that are either offset in accordance with current requirements or are subject to enforceable master netting arrangements or similar arrangements that permit offsetting. The information about offsetting and related netting arrangements for assets and liabilities, where the legal right to set-off exists, is presented in the summary below.
Offsetting of financial instrument and derivative assets and liabilities:
Description | Gross Amounts Recognized | Gross Amounts not subject to netting | Gross Amounts Offset in the Statement of Financial Position | Net Amounts Presented in the Statement of Financial Position | ||||||||||
Assets: | ||||||||||||||
Securities on loan | $ | 55,651,772 | $ | — | $ — | $ | 55,651,772 | |||||||
Over-the-counter derivatives | 3,258,455 | — | — | 3,258,455 | ||||||||||
|
| |||||||||||||
58,910,227 | ||||||||||||||
|
| |||||||||||||
Liabilities: | ||||||||||||||
Exchange-traded and cleared derivatives | (138,356 | ) | — | — | (138,356 | ) | ||||||||
Over-the-counter derivatives | (1,065,438 | ) | — | — | (1,065,438 | ) | ||||||||
|
| |||||||||||||
(1,203,794 | ) | |||||||||||||
|
| |||||||||||||
Collateral Amounts | ||||||||||||||
Securities on loan | (55,651,772 | ) | ||||||||||||
Exchange-traded and | 138,356 | |||||||||||||
Over-the-counter derivatives | (2,339,209 | ) | ||||||||||||
|
| |||||||||||||
Net Amount | $ | (146,192 | ) | |||||||||||
|
|
See Notes to Financial Statements.
Prudential Government Income Fund | 21 |
Statement of Assets & Liabilities
as of August 31, 2013 (Unaudited)
Assets | ||||
Investments at value, including securities on loan of $55,651,772: | ||||
Unaffiliated investments (cost $532,732,681) | $ | 530,495,903 | ||
Affiliated investments (cost $212,843,956) | 208,535,603 | |||
Cash | 114,144 | |||
Receivable for investments sold | 146,072,955 | |||
Unrealized appreciation on over-the-counter swap agreements | 3,258,455 | |||
Dividends and interest receivable | 1,758,481 | |||
Receivable for Fund shares sold | 213,895 | |||
Premium paid for swap agreements | 368 | |||
Prepaid expenses | 8,099 | |||
|
| |||
Total assets | 890,457,903 | |||
|
| |||
Liabilities | ||||
Payable for investments purchased | 293,154,618 | |||
Payable to broker for collateral for securities on loan | 56,829,103 | |||
Payable for Fund shares reacquired | 2,805,920 | |||
Unrealized depreciation on over-the-counter swap agreements | 1,065,438 | |||
Management fee payable | 233,898 | |||
Accrued expenses | 148,464 | |||
Due to broker—variation margin | 138,356 | |||
Distribution fee payable | 114,869 | |||
Dividends payable | 83,832 | |||
Affiliated transfer agent fee payable | 59,173 | |||
Deferred directors’ fees | 18,148 | |||
|
| |||
Total liabilities | 354,651,819 | |||
|
| |||
Net Assets | $ | 535,806,084 | ||
|
| |||
Net assets were comprised of: | ||||
Common stock, at par | $ | 568,942 | ||
Paid-in capital in excess of par | 542,024,674 | |||
|
| |||
542,593,616 | ||||
Distributions in excess of net investment income | (760,049 | ) | ||
Accumulated net realized loss on investment transactions | (1,413,726 | ) | ||
Net unrealized depreciation on investments | (4,613,757 | ) | ||
|
| |||
Net assets, August 31, 2013 | $ | 535,806,084 | ||
|
|
See Notes to Financial Statements.
22 |
Class A | ||||
Net asset value and redemption price per share | ||||
($428,374,977 ÷ 45,478,255 shares of common stock issued and outstanding) | $ | 9.42 | ||
Maximum sales charge (4.50% of offering price) | 0.44 | |||
|
| |||
Maximum offering price to public | $ | 9.86 | ||
|
| |||
Class B | ||||
Net asset value, offering price and redemption price per share | ||||
($7,127,831 ÷ 755,566 shares of common stock issued and outstanding) | $ | 9.43 | ||
|
| |||
Class C | ||||
Net asset value, offering price and redemption price per share | ||||
($14,875,330 ÷ 1,575,874 shares of common stock issued and outstanding) | $ | 9.44 | ||
|
| |||
Class R | ||||
Net asset value, offering price and redemption price per share | ||||
($9,633,975 ÷ 1,021,355 shares of common stock issued and outstanding) | $ | 9.43 | ||
|
| |||
Class Z | ||||
Net asset value, offering price and redemption price per share | ||||
($75,793,971 ÷ 8,063,164 shares of common stock issued and outstanding) | $ | 9.40 | ||
|
|
See Notes to Financial Statements.
Prudential Government Income Fund | 23 |
Statement of Operations
Six Months Ended August 31, 2013 (Unaudited)
Net Income | ||||
Income | ||||
Interest income | $ | 6,449,436 | ||
Affiliated dividend income | 655,000 | |||
Affiliated income from securities loaned, net | 41,262 | |||
|
| |||
Total income | 7,145,698 | |||
|
| |||
Expenses | ||||
Management fee | 1,470,326 | |||
Distribution fee—Class A | 570,939 | |||
Distribution fee—Class B | 41,908 | |||
Distribution fee—Class C | 91,700 | |||
Distribution fee—Class R | 26,420 | |||
Transfer agent’s fees and expenses (including affiliated expense of $175,700) (Note 3) | 364,000 | |||
Custodian’s fees and expenses | 93,000 | |||
Registration fees | 37,000 | |||
Shareholders’ reports | 27,000 | |||
Audit fee | 17,000 | |||
Legal fees and expenses | 12,000 | |||
Director’s fees | 12,000 | |||
Insurance | 6,000 | |||
Miscellaneous | 8,153 | |||
|
| |||
Total expenses | 2,777,446 | |||
|
| |||
Net investment income | 4,368,252 | |||
|
| |||
Realized and Unrealized Gain (Loss) on Investments | ||||
Net realized gain (loss) on: | ||||
Investment transactions | (2,595,364 | ) | ||
Swap agreements transactions | 1,045,242 | |||
Financial futures transactions | (867,156 | ) | ||
Options written transactions | (12,193 | ) | ||
|
| |||
(2,429,471 | ) | |||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments (including affiliated: ($186,462)) | (20,757,013 | ) | ||
Financial futures contracts | (241,773 | ) | ||
Swap agreements | 2,164,106 | |||
|
| |||
(18,834,680 | ) | |||
|
| |||
Net loss on investment transactions | (21,264,151 | ) | ||
|
| |||
Net Decrease In Net Assets Resulting From Operations | $ | (16,895,899 | ) | |
|
|
See Notes to Financial Statements.
24 |
Statement of Changes in Net Assets
(Unaudited)
Six Months Ended August 31, 2013 | Year Ended | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations | ||||||||
Net investment income | $ | 4,368,252 | $ | 11,192,473 | ||||
Net realized gain (loss) on investment transactions | (2,429,471 | ) | 13,809,616 | |||||
Net change in unrealized appreciation (depreciation) on investments | (18,834,680 | ) | (6,118,476 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in net assets resulting from operations | (16,895,899 | ) | 18,883,613 | |||||
|
|
|
| |||||
Dividends and Distributions (Note 1) | ||||||||
Dividends from net investment income | ||||||||
Class A | (3,980,242 | ) | (11,032,625 | ) | ||||
Class B | (41,556 | ) | (154,840 | ) | ||||
Class C | (90,721 | ) | (303,907 | ) | ||||
Class R | (78,799 | ) | (183,765 | ) | ||||
Class Z | (936,729 | ) | (2,301,065 | ) | ||||
|
|
|
| |||||
(5,128,047 | ) | (13,976,202 | ) | |||||
|
|
|
| |||||
Distributions from net realized gains | ||||||||
Class A | — | (14,796,796 | ) | |||||
Class B | — | (301,371 | ) | |||||
Class C | — | (646,860 | ) | |||||
Class R | — | (314,987 | ) | |||||
Class Z | — | (2,831,597 | ) | |||||
|
|
|
| |||||
— | (18,891,611 | ) | ||||||
|
|
|
| |||||
Fund share transactions (Net of share conversions) (Note 6) | ||||||||
Net proceeds from shares sold | 37,645,636 | 93,645,514 | ||||||
Net asset value of shares issued in reinvestment of dividends and distributions | 4,608,182 | 29,331,266 | ||||||
Cost of shares reacquired | (89,319,627 | ) | (178,837,574 | ) | ||||
|
|
|
| |||||
Net decrease in net assets from Fund share transactions | (47,065,809 | ) | (55,860,794 | ) | ||||
|
|
|
| |||||
Total decrease | (69,089,755 | ) | (69,844,994 | ) | ||||
Net Assets: | ||||||||
Beginning of period | 604,895,839 | 674,740,833 | ||||||
|
|
|
| |||||
End of period | $ | 535,806,084 | $ | 604,895,839 | ||||
|
|
|
|
See Notes to Financial Statements.
Prudential Government Income Fund | 25 |
Notes to Financial Statements
(Unaudited)
Prudential Investment Portfolios, Inc. 14 (the “Company”) is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended, (“1940 Act”). The Company consists of two funds: Prudential Government Income Fund (the “Fund”) and Prudential Floating Rate Income Fund. These financial statements relate to Prudential Government Income Fund. The Fund’s investment objective is to seek high current return.
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements.
Securities Valuations: The Fund holds portfolio securities and other assets that are fair valued at the close of each day the New York Stock Exchange (“NYSE”) is open for trading. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The Board of Trustees (the “Board”) has delegated fair valuation responsibilities to Prudential Investments LLC (“PI” or “Manager”) through the adoption of Valuation Procedures for valuation of the Fund’s securities. Under the current Valuation Procedures, a Valuation Committee is established and responsible for supervising the valuation of portfolio securities and other assets. The Valuation Procedures allow the Fund to utilize independent pricing vendor services, quotations from market makers and other valuation methods in events when market quotations are not readily available or not representative of the fair value of the securities. A record of the Valuation Committee’s actions is subject to review, approval and ratification by the Board at its next regularly scheduled quarterly meeting.
Various inputs are used in determining the value of the Fund’s investments, which are summarized in the three broad level hierarchies based on any observable inputs used as described in the table following the Portfolio of Investments. The valuation methodologies and significant inputs used in determining the fair value of securities and other assets classified as Level 1, Level 2 and Level 3 of the hierarchy are as follows:
Common stocks, exchange-traded funds and financial derivative instruments (including futures contracts and certain options and swap contracts on securities), that are traded on a national securities exchange are valued at the last sale price as of the
26 |
close of trading on the applicable exchange. Securities traded via NASDAQ are valued at the NASDAQ official closing price. To the extent these securities are valued at the last sale price or NASDAQ official closing price, they are classified as Level 1 of the fair value hierarchy.
In the event there is no sale or official closing price on such day, these securities are valued at the mean between the last reported bid and asked prices, or at the last bid price in absence of an asked price. These securities are classified as Level 2 of the fair value hierarchy as these inputs are considered as significant other observable inputs to the valuation.
Common stocks traded on foreign securities exchanges are valued using pricing vendor services that provide model prices derived using adjustment factors based on information such as local closing price, relevant general and sector indices, currency fluctuations, depositary receipts, and futures, as applicable. Securities valued using such model prices are classified as Level 2 in the fair value hierarchy, as the adjustment factors are observable and considered to be significant to the valuation.
Investments in open-end, non-exchange-traded mutual funds are valued at their net asset value as of the close of the NYSE on the date of valuation. These securities are classified as Level 1 as these securities have the ability to be purchased or sold at their net asset value on the date of valuation.
Fixed income securities traded in the over-the-counter market, such as corporate bonds, municipal bonds, U.S. Government agencies issues and guaranteed obligations, U.S. Treasury obligations, and sovereign issues are usually valued at prices provided by approved independent pricing vendors. The pricing vendors provide these prices usually after evaluating observable inputs including yield curves, credit rating, yield spreads, default rates, cash flows as well as broker/dealer quotations and reported trades. Securities valued using such vendor prices are classified as Level 2 of the fair value hierarchy.
Asset-backed and mortgage-related securities are usually valued by approved independent pricing vendors. The pricing vendors provide the prices using their internal pricing models with inputs from deal terms, tranche level attributes, yield curves, prepayment speeds, default rates and broker/dealer quotes. Securities valued using such vendor prices are classified as Level 2 of the fair value hierarchy.
Over-the-counter financial derivative instruments, such as option contracts, foreign currency contracts and swaps agreements, are usually valued using pricing vendor services, which derive the valuation based on underlying asset prices, indices,
Prudential Government Income Fund | 27 |
Notes to Financial Statements
(Unaudited) continued
spreads, interest rates, exchange rates and other inputs. These instruments are categorized as Level 2 of the fair value hierarchy.
Securities and other assets that cannot be priced using the methods described above are valued with pricing methodologies approved by the Board of Directors. In the event there are unobservable inputs used when determining such valuations, the securities will be classified as Level 3 of the fair value hierarchy.
When determining the fair value of securities, some of the factors influencing the valuation include: the nature of any restrictions on disposition of the securities; assessment of the general liquidity of the securities; the issuer’s financial condition and the markets in which it does business; the cost of the investment; the size of the holding and the capitalization of the issuer; the prices of any recent transactions or bids/offers for such securities or any comparable securities; any available analyst media or other reports or information deemed reliable by the investment adviser regarding the issuer or the markets or industry in which it operates. Using fair value to price securities may result in a value that is different from a security’s most recent closing price and from the price used by other mutual funds to calculate their net asset values.
Options: The Fund purchased and wrote options in order to hedge against adverse market movements or fluctuations in value caused by changes in prevailing interest rates or foreign currency exchange rates with respect to securities or financial instruments which the Fund currently owns or intends to purchase. The Fund also purchased options to gain exposure to certain securities and foreign currencies. The Fund’s principal reason for writing options is to realize, through receipt of premiums, a greater current return than would be realized on the underlying security alone.
When the Fund purchases an option, it pays a premium and an amount equal to that premium is recorded as an asset. When the Fund writes an option, it receives a premium and an amount equal to that premium is recorded as a liability. The asset or liability is adjusted daily to reflect the current market value of the option.
If an option expires unexercised, the Fund realizes a gain or loss to the extent of the premium received or paid. If an option is exercised, the premium received or paid is recorded as an adjustment to the proceeds from the sale or the cost basis of the purchase in determining whether the Fund has realized a gain or loss. The difference
28 |
between the premium and the amount received or paid on at a closing purchase or sale transaction is also treated as a realized gain or loss. Gain or loss on purchased options is included in net realized gain or loss on investment transactions. Gain or loss on written options is presented separately as net realized gain or loss on options written.
The Fund, as writer of an option, may have no control over whether the underlying securities may be sold (called) or purchased (put). As a result, the Fund bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Over-the-counter options involve the risk of the potential inability of the counterparties to meet the terms of their contracts.
When a Fund writes an option on a swap contract, an amount equal to any premium received by the Fund is recorded as a liability and is subsequently adjusted to the current market value of the written option on the swap. If a call option on a swap is exercised, the Fund becomes obligated to pay a fixed interest rate (noted as the strike price) and receive a variable interest rate on a notional amount. If a put option on a swap is exercised, the Fund becomes obligated to pay a variable interest rate and receive a fixed interest rate (noted as the strike price) on a notional amount. Premiums received from writing options on swaps that expire or are exercised are treated as realized gains upon the expiration or exercise of such options on swaps. The risk associated with writing put and call options on swaps is that the Fund will be obligated to be party to a swap agreement if an option on a swap is exercised.
Financial Futures Contracts: A financial futures contract is an agreement to purchase (long) or sell (short) an agreed amount of securities at a set price for delivery on a future date. Upon entering into a financial futures contract, the Fund is required to pledge to the broker an amount of cash and/or other assets equal to a certain percentage of the contract amount. This amount is known as the “initial margin.” Subsequent payments, known as “variation margin,” are made or received by the Fund each day, depending on the daily fluctuations in the value of the underlying security. Such variation margin is recorded for financial statement purposes on a daily basis as unrealized gain or loss. When the contract expires or is closed, the gain or loss is realized and is presented in the Statement of Operations as net realized gain or loss on financial futures contracts.
The Fund invests in financial futures contracts in order to hedge its existing portfolio securities, or securities the Fund intends to purchase, against fluctuations in value caused by changes in prevailing interest rates. Should interest rates move unexpectedly, the Fund may not achieve the anticipated benefits of the financial futures contracts and may realize a loss. The use of futures transactions involves the
Prudential Government Income Fund | 29 |
Notes to Financial Statements
(Unaudited) continued
risk of imperfect correlation in movements in the price of futures contracts, interest rates and the underlying hedged assets. Financial futures contracts involve elements of risk in excess of the amounts reflected on the Statement of Assets and Liabilities.
With exchange-traded futures and options contracts, there is minimal counterparty credit risk to the Fund since the exchanges’ clearinghouse acts as counterparty to all exchange traded futures and options, and guarantees the futures and options contracts against default.
Swap Agreements: The Fund may enter into credit default, interest rate, total return and other forms of swap agreements. A swap agreement is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Swap agreements are negotiated in the over-the-counter market and may be executed either directly with the counterparty (“OTC Traded”) or through a central clearing facility, such as a registered commodities exchange (“Exchange Traded”). The swap agreements are valued daily at current market value and any change in value is included in the net unrealized appreciation or depreciation on investments. Upon entering into an exchange traded swap, the Fund pledges with the clearing broker an initial margin and thereafter, pays or receives an amount, known as “variation margin”, based on daily changes in valuation of swap contract. Payments received or paid by the Fund are recorded as realized gains or losses upon termination or maturity of the swap. Risk of loss may exceed amounts recognized on the Statements of Assets and Liabilities. Swap agreements outstanding at period end, if any, are listed on the Portfolio of Investments.
Interest Rate Swaps: Interest rate swaps represent an agreement between counterparties to exchange cash flows based on the difference between two interest rates, applied to a notional principal amount for a specified period. The Fund is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. The Fund used interest rate swaps to generate steady cash flow by receiving a stream of fixed rate payments and to increase exposure to prevailing market rates by receiving floating rate payments. The Fund’s maximum risk of loss from counterparty credit risk is the discounted net value of the cash flows to be received from the counterparty over the contract’s remaining life. This risk may be mitigated by having a master netting arrangement between the Fund and the counterparty which may permit the Fund to offset amounts payable by the Fund to the same counterparty against amounts to be received; and by the receipt of collateral
30 |
from the counterparty by the Fund to cover the Fund’s exposure to the counterparty. However, there is no assurance that such mitigating factors are easily enforceable.
Inflation Swaps: The Fund entered into inflation swap agreements to provide a measure of protection against the effect of inflation on yield. Inflation swap agreements involve two parties exchanging cash flows at a later date at rates related to inflation indices.
Master Netting Arrangements: Certain Portfolios are subject to various Master Agreements, or netting arrangements, with select counterparties. A master netting arrangement between the Portfolio and the counterparty permits the Portfolio to offset amounts payable by the Portfolio to the same counterparty against amounts to be received; and by the receipt of collateral from the counterparty by the Portfolio to cover the Portfolio’s exposure to the counterparty. However, there is no assurance that such mitigating factors are easily enforceable. The right to set-off exists when all the conditions are met such that each of the parties owes the other a determinable amount, the reporting party has the right to set-off the amount owed with the amount owed by the other party, the reporting party intends to set-off, and the right of set-off is enforceable by law. During the reporting period, no instances occurred where the right to set-off existed and management has not elected to offset.
Certain Portfolios are parties to ISDA (International Swaps and Derivatives Association, Inc.) Master Agreements (Master Agreements) with certain counterparties that govern over-the-counter derivative and foreign exchange contracts entered into from time to time. The Master Agreements may contain provisions regarding, among other things, the parties’ general obligations, representations, agreements, collateral requirements, events of default and early termination. With respect to certain counterparties, in accordance with the terms of the Master Agreements, collateral posted to the Portfolio is held in a segregated account by the Portfolio’s custodian and with respect to those amounts which can be sold or re-pledged, are presented in the Schedule of Investments. Collateral pledged by the Portfolio is segregated by the Portfolio’s custodian and identified in the Schedule of Investments. Collateral can be in the form of cash or debt securities issued by the U.S. Government or related agencies or other securities as agreed to by the Portfolio and the applicable counterparty. Collateral requirements are determined based on the Portfolio’s net position with each counterparty. Termination events applicable to the Portfolio may occur upon a decline in the Portfolio’s net assets below a specified threshold over a certain period of time. Termination events applicable to counterparties may occur upon a decline in the counterparty’s long-term and short-term credit ratings below a specified level. In each case, upon occurrence, the other party may elect to terminate early and cause settlement of all derivative and foreign exchange contracts
Prudential Government Income Fund | 31 |
Notes to Financial Statements
(Unaudited) continued
outstanding, including the payment of any losses and costs resulting from such early termination, as reasonably determined by the terminating party. Any decision by one or more of the Portfolio’s counterparties to elect early termination could impact the Portfolio’s future derivative activity.
In addition to each instrument’s primary underlying risk exposure (e.g. interest rate, credit, equity or foreign exchange, etc.), swap agreements involve, to varying degrees, elements of credit, market and documentation risk. Such risks involve the possibility that no liquid market for these agreements will exist, the counterparty to the agreement may default on its obligation to perform or disagree on the contractual terms of the agreement, and changes in net interest rates will be unfavorable. In connection with these agreements, securities in the portfolio may be identified or received as collateral from the counterparty in accordance with the terms of the respective swap agreements to provide or receive assets of value and to serve as recourse in the event of default or bankruptcy/insolvency of either party. Such over-the-counter derivative agreements include conditions which, when materialized, give the counterparty the right to cause an early termination of the transactions under those agreements. Any election by the counterparty for early termination of the contract(s) may impact the amounts reported on financial statements.
As of August 31, 2013, none of the Portfolios have met conditions under such agreements which give the counterparty the right to call for an early termination.
Written options, short sales, swaps and financial futures contracts involve elements of both market and credit risk in excess of the amounts reflected on the Statement of Assets and Liabilities. Such risks may be mitigated by engaging in master netting arrangements.
Securities Lending: The Fund may lend its portfolio securities to banks and broker-dealers. The loans are secured by collateral at least equal to the market value of the securities loaned. Collateral pledged by each borrower is invested in a highly liquid short-term money market fund and is marked to market daily, based on the previous day’s market value, such that the value of the collateral exceeds the value of the loaned securities. Loans are subject to termination at the option of the borrower or the Fund. Upon termination of the loan, the borrower will return to the Fund securities identical to the loaned securities. Should the borrower of the securities fail financially, the Fund has the right to repurchase the securities using the collateral in the open
32 |
market. The Fund recognizes income, net of any rebate and securities lending agent fees, for lending its securities, and any interest on the investment of cash received as collateral. The Fund also continues to receive interest and dividends or amounts equivalent thereto, on the securities loaned and recognizes any unrealized gain or loss in the market price of the securities loaned that may occur during the term of the loan.
Dollar Rolls: The Fund enters into mortgage dollar rolls in which the Fund sells mortgage securities for delivery in the current month, realizing a gain (loss), and simultaneously contracts to repurchase somewhat similar (same type, coupon and maturity) securities on a specified future date. During the roll period, the Fund forgoes principal and interest paid on the securities. The Fund is compensated by the interest earned on the cash proceeds of the initial sale and by the lower repurchase price at the future date. The difference between the sales proceeds and the lower repurchase price is recorded as a realized gain. The Fund maintains a segregated account, the dollar value of which is at least equal to its obligations, with respect to dollar rolls. The Fund accounts for mortgage dollar roll transactions as purchases and sales which, as a result, can increase its portfolio turnover rate.
Securities Transactions and Net Investment Income: Securities transactions are recorded on the trade date. Realized gains or losses from investment and currency transactions are calculated on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income, including amortization of premium and accretion of discount on debt securities, as required, is recorded on the accrual basis. Expenses are recorded on the accrual basis, which may require the use of certain estimates by management, that may differ from actual.
Net investment income or loss (other than distribution fees which are charged directly to the respective class) and unrealized and realized gains or losses are allocated daily to each class of shares based upon the relative proportion of adjusted net assets of each class at the beginning of the day.
Dividends and Distributions: The Fund declares daily dividends from net investment income. Payment of dividends is made monthly. Distributions of net capital gains, if any, are made annually. Dividends and distributions are determined in accordance with federal income tax regulations which may differ from generally accepted accounting principles, and are recorded on the ex-dividend date. Permanent book/tax differences relating to income and gains are reclassified amongst distributions in excess of net income, accumulated net realized gain or loss and paid-in-capital in excess of par, as appropriate.
Prudential Government Income Fund | 33 |
Notes to Financial Statements
(Unaudited) continued
Taxes: It is the Fund’s policy to continue to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable net income and capital gains, if any, to its shareholders. Therefore, no federal income tax provision is required.
Estimates: The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
Note 2. Agreements
The Fund has a management agreement with PI. Pursuant to this agreement, PI has responsibility for all investment advisory services and supervises the subadviser’s performance of such services. PI has entered into a subadvisory agreement with Prudential Investment Management, Inc. (“PIM”). The subadvisory agreement provides that PIM will furnish investment advisory services in connection with the management of the Fund. In connection therewith, PIM is obligated to keep certain books and records of the Fund. PI pays for the services of PIM, the cost of 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 to PI is accrued daily and payable monthly at an annual rate of .50% of the Fund’s average daily net assets up to and including $1 billion, .45% of the Fund’s average daily net assets of the next $1 billion, .35% of the Fund’s average daily net assets of the next $1 billion, and .30% of the average daily net assets of the Fund in excess of $3 billion. The effective management fee rate was .50% for the six months ended August 31, 2013.
The Fund has a distribution agreement with Prudential Investment Management Services LLC (“PIMS”), which acts as the distributor of the Class A, Class B, Class C, Class R and Class Z shares of the Fund. The Fund compensates PIMS for distributing and servicing the Fund’s Class A, Class B, Class C and Class R shares pursuant to plans of distribution (the “Class A, B, C and R Plans”), regardless of expenses actually incurred by PIMS. The distribution fees are accrued daily and payable monthly. No distribution or service fees are paid to PIMS as distributor of the Class Z shares of the Fund.
34 |
Pursuant to the Class A, C and R Plans, the Fund compensates PIMS for distribution related activities at an annual rate of up to .30%, 1% and .75% of the average daily net assets of the Class A, C and R shares, respectively. For the six months ended August 31, 2013, PIMS contractually agreed to limit such fees to .25% and .50% of the average daily net assets of the Class A and R shares, respectively. Pursuant to the Class B Plan, the Fund compensates PIMS for distribution related activities at an annual rate of up to 1% of the average daily net assets of the Class B shares up to $3 billion, .80% of the next $1 billion of such assets and .50% of such assets in excess of $4 billion. The effective distribution fee rate for Class B was 1% for the six months ended August 31, 2013.
PIMS has advised the Fund that it has received $47,679 in front-end sales charges resulting from sales of Class A shares, for the six months ended August 31, 2013. From these fees, PIMS paid a substantial portion of such sales charges to affiliated broker-dealers, which in turn paid commissions to salespersons and incurred other distribution costs.
PIMS has advised the Fund that for the six months ended August 31, 2013, it received $853, $10,396 and $2,228 in contingent deferred sales charges imposed upon redemptions by certain Class A, Class B, and Class C shareholders, respectively.
PI, PIM and PIMS are indirect, wholly-owned subsidiaries of Prudential Financial, Inc. (“Prudential”).
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC (“PMFS”), an affiliate of PI and an indirect, wholly-owned subsidiary of Prudential, serves as the Fund’s transfer agent. Transfer agent fees and expenses in the Statement of Operations include certain out-of-pocket expenses paid to non-affiliates, where applicable.
Prudential Investment Management, Inc., (“PIM”), an indirect, wholly-owned subsidiary of Prudential, is the Fund’s security lending agent. For the six months ended August 31, 2013, PIM has been compensated $12,325 for these services.
The Fund invests in the Prudential Core Short-Term Bond Fund, pursuant to an exemptive order received from the Securities and Exchange Commission, and in the Prudential Core Taxable Money Market Fund (the “Core Funds”), each a portfolio of the Prudential Investment Portfolios 2 registered under the 1940 Act and managed by PI. Earnings from the Core Funds are disclosed on the Statement of Operations as affiliated dividend income.
Prudential Government Income Fund | 35 |
Notes to Financial Statements
(Unaudited) continued
Note 4. Portfolio Securities
Purchases and sales of portfolio securities, excluding short-term investments, for the six months ended August 31, 2013, aggregated $3,672,052,239 and $3,716,662,359, respectively.
The average balance of dollar rolls outstanding during the six months ended August 31, 2013 was approximately $101,008,152. The amount of dollar rolls outstanding at August 31, 2013 was $61,612,326 (Principal $60,000,000), which was 11.5% of net assets.
Transactions in options written during the six months ended August 31, 2013, were as follows:
Contracts | Premiums Received | |||||||
Options outstanding at February 28, 2013 | — | $ | — | |||||
Options written | 18,662,074 | 91,804 | ||||||
Options terminated in closing purchase transactions | (18,662,000 | ) | (66,535 | ) | ||||
Options expired | (74 | ) | (25,269 | ) | ||||
|
|
|
| |||||
Options outstanding at August 31, 2013 | — | $ | — | |||||
|
|
|
|
Note 5. Distributions and Tax Information
The United States federal income tax basis of investments and net unrealized depreciation as of August 31, 2013, were as follows:
Tax Basis | $ | 747,890,442 | ||
|
| |||
Appreciation | 5,535,036 | |||
Depreciation | (14,393,972 | ) | ||
|
| |||
Net Unrealized Depreciation | $ | (8,858,936 | ) | |
|
|
The book basis may differ from tax basis due to certain tax related adjustments.
36 |
Note 6. Capital
The Fund offers Class A, Class B, Class C, Class R and Class Z shares. Class A shares are sold with a front-end sales charge of up to 4.50% and all investors who purchase Class A shares in an amount of $1 million or more and sell these shares within 12 months of purchase are subject to a contingent deferred sales charge (“CDSC”) of 1%, including investors who purchase their shares through broker-dealers affiliated with Prudential. Class B shares are sold with a contingent deferred sales charge which declines from 5% to zero depending on the period of time the shares are held. Class B shares automatically convert to Class A shares on a quarterly basis approximately seven years after purchase. Class C shares purchased are subject to a CDSC of 1% for 12 months from the date of purchase. A special exchange privilege is also available for shareholders who qualified to purchase Class A shares at net asset value. Class R and Class Z shares are not subject to any sales or redemption charge and are available exclusively for sale to a limited group of investors.
Under certain circumstances, an exchange may be made from specified share classes of the Fund to one or more other share classes of the Fund as presented in the table of transactions in shares of common stock.
There are 2.5 billion shares of common stock, $.01 par value per share, divided into five classes, designated Class A, Class B, Class C, Class R and Class Z common stock, each of which consists of 500,000,000 authorized shares.
Prudential Government Income Fund | 37 |
Notes to Financial Statements
(Unaudited) continued
Transactions in shares of common stock were as follows:
Class A | Shares | Amount | ||||||
Six months ended August 31, 2013: | ||||||||
Shares sold | 1,981,112 | $ | 19,151,185 | |||||
Shares issued in reinvestment of dividends | 366,143 | 3,520,710 | ||||||
Shares reacquired | (4,768,150 | ) | (45,836,697 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (2,420,895 | ) | (23,164,802 | ) | ||||
Shares issued upon conversion from Class B and Class Z | 74,056 | 716,744 | ||||||
Shares reacquired upon conversion into Class Z | (131,989 | ) | (1,283,014 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding | (2,478,828 | ) | $ | (23,731,072 | ) | |||
|
|
|
| |||||
Year ended February 28, 2013: | ||||||||
Shares sold | 4,383,056 | $ | 43,961,434 | |||||
Shares issued in reinvestment of dividends and distributions | 2,277,474 | 22,670,866 | ||||||
Shares reacquired | (12,442,194 | ) | (124,667,454 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (5,781,664 | ) | (58,035,154 | ) | ||||
Shares issued upon conversion from Class B and Class Z | 276,649 | 2,777,375 | ||||||
Shares reacquired upon conversion into Class Z | (39,837 | ) | (395,748 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding | (5,544,852 | ) | $ | (55,653,527 | ) | |||
|
|
|
| |||||
Class B | ||||||||
Six months ended August 31, 2013: | ||||||||
Shares sold | 29,015 | $ | 280,779 | |||||
Shares issued in reinvestment of dividends | 3,695 | 35,612 | ||||||
Shares reacquired | (164,697 | ) | (1,579,970 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (131,987 | ) | (1,263,579 | ) | ||||
Shares reacquired upon conversion into Class A | (72,577 | ) | (703,186 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding | (204,564 | ) | $ | (1,966,765 | ) | |||
|
|
|
| |||||
Year ended February 28, 2013: | ||||||||
Shares sold | 186,445 | $ | 1,873,120 | |||||
Shares issued in reinvestment of dividends and distributions | 39,722 | 395,571 | ||||||
Shares reacquired | (308,895 | ) | (3,095,138 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (82,728 | ) | (826,447 | ) | ||||
Shares reacquired upon conversion into Class A | (276,022 | ) | (2,775,593 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding | (358,750 | ) | $ | (3,602,040 | ) | |||
|
|
|
|
38 |
Class C | Shares | Amount | ||||||
Six months ended August 31, 2013: | ||||||||
Shares sold | 106,512 | $ | 1,035,537 | |||||
Shares issued in reinvestment of dividends | 8,425 | 81,259 | ||||||
Shares reacquired | (573,400 | ) | (5,508,830 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (458,463 | ) | (4,392,034 | ) | ||||
Shares reacquired upon conversion into Class Z | (33,460 | ) | (319,498 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding | (491,923 | ) | $ | (4,711,532 | ) | |||
|
|
|
| |||||
Year ended February 28, 2013: | ||||||||
Shares sold | 665,793 | $ | 6,686,130 | |||||
Shares issued in reinvestment of dividends and distributions | 81,973 | 816,566 | ||||||
Shares reacquired | (819,513 | ) | (8,202,504 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (71,747 | ) | (699,808 | ) | ||||
Shares reacquired upon conversion into Class Z | (6,825 | ) | (67,439 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding | (78,572 | ) | $ | (767,247 | ) | |||
|
|
|
| |||||
Class R | ||||||||
Six months ended August 31, 2013 | ||||||||
Shares sold | 343,035 | $ | 3,329,527 | |||||
Shares issued in reinvestment of dividends | 6,475 | 62,367 | ||||||
Shares reacquired | (381,150 | ) | (3,672,807 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding | (31,640 | ) | $ | (280,913 | ) | |||
|
|
|
| |||||
Year ended February 28, 2013: | ||||||||
Shares sold | 640,738 | $ | 6,428,100 | |||||
Shares issued in reinvestment of dividends and distributions | 41,902 | 417,270 | ||||||
Shares reacquired | (525,706 | ) | (5,251,396 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding | 156,934 | $ | 1,593,974 | |||||
|
|
|
| |||||
Class Z | ||||||||
Six months ended August 31, 2013: | ||||||||
Shares sold | 1,443,199 | $ | 13,848,608 | |||||
Shares issued in reinvestment of dividends | 94,639 | 908,234 | ||||||
Shares reacquired | (3,442,074 | ) | (32,721,323 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (1,904,236 | ) | (17,964,481 | ) | ||||
Shares issued upon conversion from Class A and Class C | 165,862 | 1,602,512 | ||||||
Shares reacquired upon conversion into Class A | (1,391 | ) | (13,558 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding | (1,739,765 | ) | $ | (16,375,527 | ) | |||
|
|
|
| |||||
Year ended February 28, 2013: | ||||||||
Shares sold | 3,477,516 | $ | 34,696,730 | |||||
Shares issued in reinvestment of dividends and distributions | 506,295 | 5,030,993 | ||||||
Shares reacquired | (3,765,799 | ) | (37,621,082 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | 218,012 | 2,106,641 | ||||||
Shares issued upon conversion from Class A and Class C | 46,770 | 463,187 | ||||||
Shares reacquired upon conversion into Class A | (180 | ) | (1,782 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding | 264,602 | $ | 2,568,046 | |||||
|
|
|
|
Prudential Government Income Fund | 39 |
Notes to Financial Statements
(Unaudited) continued
Note 7. Borrowing
The Fund, along with other affiliated registered investment companies (the “Funds”), is a party to a Syndicated Credit Agreement (“SCA”) with a group of banks. The purpose of the SCA is to provide an alternative source of temporary funding for capital share redemptions. The SCA provides for a commitment of $900 million for the period November 15, 2012 through November 14, 2013. The Funds pay an annualized commitment fee of .08% of the unused portion of the SCA. Prior to November 15, 2012, the Funds had another Syndicated Credit Agreement with substantially similar terms. Interest on any borrowings under the SCA is paid at contracted market rates. The commitment fee for the unused amount is accrued daily and paid quarterly.
The Fund did not utilize the SCA during the six months ended August 31, 2013.
40 |
Financial Highlights
(Unaudited)
Class A Shares | ||||||||||||||||||||||||||
Six Months Ended August 31, | Year Ended February 28/29, | |||||||||||||||||||||||||
2013 | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||||||||
Per Share Operating Performance: | ||||||||||||||||||||||||||
Net Asset Value, Beginning Of Period | $9.78 | $10.01 | $9.57 | $9.39 | $8.78 | $8.94 | ||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||
Net investment income | .07 | .17 | .22 | .25 | .28 | .30 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investment transactions | (.35 | ) | .12 | .46 | .20 | .61 | (.15 | ) | ||||||||||||||||||
Total from investment operations | (.28 | ) | .29 | .68 | .45 | .89 | .15 | |||||||||||||||||||
Less Dividends and Distributions: | ||||||||||||||||||||||||||
Dividends from net investment income | (.08 | ) | (.22 | ) | (.24 | ) | (.27 | ) | (.28 | ) | (.31 | ) | ||||||||||||||
Distributions from net realized gains | - | (.30 | ) | - | - | - | - | |||||||||||||||||||
Total dividends and distributions | (.08 | ) | (.52 | ) | (.24 | ) | (.27 | ) | (.28 | ) | (.31 | ) | ||||||||||||||
Capital Contributions(e): | - | - | - | - | (f) | - | - | |||||||||||||||||||
Net asset value, end of period | $9.42 | $9.78 | $10.01 | $9.57 | $9.39 | $8.78 | ||||||||||||||||||||
Total Return(a): | (2.82)% | 2.87% | 7.18% | 4.79% | 10.25% | 1.73% | ||||||||||||||||||||
Ratios/Supplemental Data: | ||||||||||||||||||||||||||
Net assets, end of period (000) | $428,375 | $469,188 | $535,682 | $527,773 | $559,817 | $562,826 | ||||||||||||||||||||
Average net assets (000) | $452,737 | $511,930 | $533,151 | $557,516 | $561,947 | $608,533 | ||||||||||||||||||||
Ratios to average net assets(b): | ||||||||||||||||||||||||||
Expenses(c) | .95% | (g) | .93% | .94% | .93% | .90% | .94% | |||||||||||||||||||
Net investment income | 1.49% | (g) | 1.73% | 2.21% | 2.67% | 3.09% | 3.48% | |||||||||||||||||||
Portfolio turnover rate(d) | 556% | (h) | 1,251% | 1,404% | 1,277% | 971% | 2,216% |
(a) Total return does not consider the effects of sales loads. Total return is calculated assuming a purchase of a share on the first day and a sale on the last day of each period reported and includes reinvestment of dividends and distributions. Total returns may reflect adjustments to conform to generally accepted accounting principles. Total returns for periods of less than one full year are not annualized.
(b) Does not include expenses of the underlying portfolios in which the Fund invests.
(c) The distributor of the Fund contractually agreed to limit its distribution and service (12b-1) fees to .25% of the average daily net assets of the Class A shares.
(d) The Fund accounts for mortgage dollar roll transactions as purchases and sales which, as a result, can increase its portfolio turnover rate.
(e) The Fund received payments related to a former affiliate’s settlement of regulatory proceedings involving allegations of improper trading in Fund shares during the fiscal year ended February 28, 2011. The Fund was not involved in the proceedings or in the calculation of the amount of settlement.
(f) | Less than $.005 per share. |
(g) | Annualized. |
(h) | Not annualized. |
See Notes to Financial Statements.
Prudential Government Income Fund | 41 |
Financial Highlights
(Unaudited) continued
Class B Shares | ||||||||||||||||||||||||||
Six Months Ended August 31, | Year Ended February 28/29, | |||||||||||||||||||||||||
2013 | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||||||||
Per Share Operating Performance: | ||||||||||||||||||||||||||
Net Asset Value, Beginning Of Period | $9.80 | $10.03 | $9.59 | $9.41 | $8.79 | $8.95 | ||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||
Net investment income | .02 | .08 | .14 | .16 | .20 | .23 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investment transactions | (.34 | ) | .13 | .47 | .22 | .63 | (.15 | ) | ||||||||||||||||||
Total from investment operations | (.32 | ) | .21 | .61 | .38 | .83 | .08 | |||||||||||||||||||
Less Dividends and Distributions: | ||||||||||||||||||||||||||
Dividends from net investment income | (.05 | ) | (.14 | ) | (.17 | ) | (.20 | ) | (.21 | ) | (.24 | ) | ||||||||||||||
Distributions from net realized gains | - | (.30 | ) | - | - | - | - | |||||||||||||||||||
Total dividends and distributions | (.05 | ) | (.44 | ) | (.17 | ) | (.20 | ) | (.21 | ) | (.24 | ) | ||||||||||||||
Capital Contributions(d): | - | - | - | - | (e) | - | - | |||||||||||||||||||
Net asset value, end of period | $9.43 | $9.80 | $10.03 | $9.59 | $9.41 | $8.79 | ||||||||||||||||||||
Total Return(a): | (3.29)% | 2.11% | 6.37% | 4.01% | 9.54% | .98% | ||||||||||||||||||||
Ratios/Supplemental Data: | ||||||||||||||||||||||||||
Net assets, end of period (000) | $7,128 | $9,408 | $13,225 | $14,454 | $25,219 | $38,126 | ||||||||||||||||||||
Average net assets (000) | $8,296 | $10,975 | $12,988 | $18,360 | $30,299 | $44,738 | ||||||||||||||||||||
Ratios to average net assets(b): | ||||||||||||||||||||||||||
Expenses | 1.70% | (f) | 1.68% | 1.69% | 1.68% | 1.65% | 1.69% | |||||||||||||||||||
Net investment income | .74% | (f) | .98% | 1.46% | 1.92% | 2.33% | 2.73% | |||||||||||||||||||
Portfolio turnover rate(c) | 556% | (g) | 1,251% | 1,404% | 1,277% | 971% | 2,216% |
(a) Total return does not consider the effects of sales loads. Total return is calculated assuming a purchase of a share on the first day and a sale on the last day of each period reported and includes reinvestment of dividends and distributions. Total returns may reflect adjustments to conform to generally accepted accounting principles. Total returns for periods of less than one full year are not annualized.
(b) Does not include expenses of the underlying portfolios in which the Fund invests.
(c) The Fund accounts for mortgage dollar roll transactions as purchases and sales which, as a result, can increase its portfolio turnover rate.
(d) The Fund received payments related to a former affiliate’s settlement of regulatory proceedings involving allegations of improper trading in Fund shares during the fiscal year ended February 28, 2011. The Fund was not involved in the proceedings or in the calculation of the amount of settlement.
(e) Less than $.005 per share.
(f) Annualized.
(g) Not annualized.
See Notes to Financial Statements.
42 |
Class C Shares | ||||||||||||||||||||||||||
Six Months Ended August 31, | Year Ended February 28/29, | |||||||||||||||||||||||||
2013 | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||||||||
Per Share Operating Performance: | ||||||||||||||||||||||||||
Net Asset Value, Beginning Of Period | $9.80 | $10.03 | $9.59 | $9.41 | $8.80 | $8.96 | ||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||
Net investment income | .04 | .10 | .15 | .19 | .24 | .26 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investment transactions | (.35 | ) | .11 | .46 | .19 | .60 | (.15 | ) | ||||||||||||||||||
Total from investment operations | (.31 | ) | .21 | .61 | .38 | .84 | .11 | |||||||||||||||||||
Less Dividends and Distributions: | ||||||||||||||||||||||||||
Dividends from net investment income | (.05 | ) | (.14 | ) | (.17 | ) | (.20 | ) | (.23 | ) | (.27 | ) | ||||||||||||||
Distributions from net realized gains | - | (.30 | ) | - | - | - | - | |||||||||||||||||||
Total dividends and distributions | (.05 | ) | (.44 | ) | (.17 | ) | (.20 | ) | (.23 | ) | (.27 | ) | ||||||||||||||
Capital Contributions(e): | - | - | - | - | (f) | - | - | |||||||||||||||||||
Net asset value, end of period | $9.44 | $9.80 | $10.03 | $9.59 | $9.41 | $8.80 | ||||||||||||||||||||
Total Return(a): | (3.19)% | 2.11% | 6.37% | 4.10% | 9.69% | 1.23% | ||||||||||||||||||||
Ratios/Supplemental Data: | ||||||||||||||||||||||||||
Net assets, end of period (000) | $14,875 | $20,274 | $21,535 | $17,294 | $18,375 | $17,295 | ||||||||||||||||||||
Average net assets (000) | $18,150 | $21,678 | $18,831 | $20,013 | $17,575 | $12,733 | ||||||||||||||||||||
Ratios to average net assets(b): | ||||||||||||||||||||||||||
Expenses(c) | 1.70% | (g) | 1.68% | 1.69% | 1.60% | 1.40% | 1.44% | |||||||||||||||||||
Net investment income | .73% | (g) | .97% | 1.45% | 1.99% | 2.59% | 2.96% | |||||||||||||||||||
Portfolio turnover rate(d) | 556% | (h) | 1,251% | 1,404% | 1,277% | 971% | 2,216% |
(a) Total return does not consider the effects of sales loads. Total return is calculated assuming a purchase of a share on the first day and a sale on the last day of each period reported and includes reinvestment of dividends and distributions. Total returns may reflect adjustments to conform to generally accepted accounting principles. Total returns for periods of less than one full year are not annualized.
(b) | Does not include expenses of the underlying portfolios in which the Fund invests. |
(c) The distributor of the Fund contractually agreed to limit its distribution and service (12b-1) fees to .75% of the average daily net assets of the Class C shares through June 30, 2010.
(d) The Fund accounts for mortgage dollar roll transactions as purchases and sales which, as a result, can increase its portfolio turnover rate.
(e) The Fund received payments related to a former affiliate’s settlement of regulatory proceedings involving allegations of improper trading in Fund shares during the fiscal year ended February 28, 2011. The Fund was not involved in the proceedings or in the calculation of the amount of settlement.
(f) Less than $.005 per share.
(g) Annualized.
(h) Not annualized.
See Notes to Financial Statements.
Prudential Government Income Fund | 43 |
Financial Highlights
(Unaudited) continued
Class R Shares | ||||||||||||||||||||||||||
Six Months Ended August 31, 2013 | Year Ended February 28/29, | |||||||||||||||||||||||||
2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||||
Per Share Operating Performance: | ||||||||||||||||||||||||||
Net Asset Value, Beginning Of Period | $9.80 | $10.03 | $9.58 | $9.41 | $8.79 | $8.95 | ||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||
Net investment income | .06 | .15 | .19 | .23 | .26 | .28 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investment transactions | (.36 | ) | .11 | .48 | .18 | .62 | (.15 | ) | ||||||||||||||||||
Total from investment operations | (.30 | ) | .26 | .67 | .41 | .88 | .13 | |||||||||||||||||||
Less Dividends and Distributions: | ||||||||||||||||||||||||||
Dividends from net investment income | (.07 | ) | (.19 | ) | (.22 | ) | (.24 | ) | (.26 | ) | (.29 | ) | ||||||||||||||
Distributions from net realized gains | - | (.30 | ) | - | - | - | - | |||||||||||||||||||
Total dividends and distributions | (.07 | ) | (.49 | ) | (.22 | ) | (.24 | ) | (.26 | ) | (.29 | ) | ||||||||||||||
Capital Contributions(e): | - | - | - | - | (f) | - | - | |||||||||||||||||||
Net asset value, end of period | $9.43 | $9.80 | $10.03 | $9.58 | $9.41 | $8.79 | ||||||||||||||||||||
Total Return(a): | (3.04)% | 2.62% | 7.01% | 4.42% | 10.09% | 1.49% | ||||||||||||||||||||
Ratios/Supplemental Data: | ||||||||||||||||||||||||||
Net assets, end of period (000) | $9,634 | $10,316 | $8,984 | $6,131 | $3,565 | $2,028 | ||||||||||||||||||||
Average net assets (000) | $10,473 | $9,701 | $7,400 | $5,062 | $2,868 | $1,328 | ||||||||||||||||||||
Ratios to average net assets(b): | ||||||||||||||||||||||||||
Expenses(c) | 1.20% | (g) | 1.18% | 1.19% | 1.18% | 1.15% | 1.19% | |||||||||||||||||||
Net investment income | 1.23% | (g) | 1.47% | 1.94% | 2.41% | 2.84% | 3.22% | |||||||||||||||||||
Portfolio turnover rate(d) | 556% | (h) | 1,251% | 1,404% | 1,277% | 971% | 2,216% |
(a) Total return is calculated assuming a purchase of a share on the first day and a sale on the last day of each period reported and includes reinvestment of dividends and distributions. Total returns may reflect adjustments to conform to generally accepted accounting principles. Total returns for periods of less than one full year are not annualized.
(b) Does not include expenses of the underlying portfolios in which the Fund invests.
(c) The distributor of the Fund contractually agreed to limit its distribution and service (12b-1) fees to .50% of the average daily net assets of the Class R shares.
(d) The Fund accounts for mortgage dollar roll transactions as purchases and sales which, as a result, can increase its portfolio turnover rate.
(e) The Fund received payments related to a former affiliate’s settlement of regulatory proceedings involving allegations of improper trading in Fund shares during the fiscal year ended February 28, 2011. The Fund was not involved in the proceedings or in the calculation of the amount of settlement.
(f) Less than $.005 per share.
(g) Annualized.
(h) Not annualized.
See Notes to Financial Statements.
44 |
Class Z Shares | ||||||||||||||||||||||||||
Six Months 2013 | Year Ended February 28/29, | |||||||||||||||||||||||||
2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||||
Per Share Operating Performance: | ||||||||||||||||||||||||||
Net Asset Value, Beginning Of Period | $9.76 | $9.99 | $9.55 | $9.37 | $8.76 | $8.92 | ||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||
Net investment income | .08 | .20 | .24 | .28 | .30 | .33 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investment transactions | (.34 | ) | .11 | .46 | .19 | .61 | (.16 | ) | ||||||||||||||||||
Total from investment operations | (.26 | ) | .31 | .70 | .47 | .91 | .17 | |||||||||||||||||||
Less Dividends and Distributions: | ||||||||||||||||||||||||||
Dividends from net investment income | (.10 | ) | (.24 | ) | (.26 | ) | (.29 | ) | (.30 | ) | (.33 | ) | ||||||||||||||
Distributions from net realized gains | - | (.30 | ) | - | - | - | - | |||||||||||||||||||
Total dividends and distributions | (.10 | ) | (.54 | ) | (.26 | ) | (.29 | ) | (.30 | ) | (.33 | ) | ||||||||||||||
Capital Contributions(d): | - | - | - | - | (e) | - | - | |||||||||||||||||||
Net asset value, end of period | $9.40 | $9.76 | $9.99 | $9.55 | $9.37 | $8.76 | ||||||||||||||||||||
Total Return(a): | (2.70)% | 3.13% | 7.45% | 5.06% | 10.55% | 1.98% | ||||||||||||||||||||
Ratios/Supplemental Data: | ||||||||||||||||||||||||||
Net assets, end of period (000) | $75,794 | $95,710 | $95,314 | $98,552 | $95,895 | $102,905 | ||||||||||||||||||||
Average net assets (000) | $93,181 | $95,810 | $100,654 | $99,126 | $97,887 | $106,949 | ||||||||||||||||||||
Ratios to average net assets(b): | ||||||||||||||||||||||||||
Expenses | .70% | (f) | .68% | .69% | .68% | .65% | .69% | |||||||||||||||||||
Net investment income | 1.74% | (f) | 1.97% | 2.46% | 2.92% | 3.34% | 3.73% | |||||||||||||||||||
Portfolio turnover rate(c) | 556% | (g) | 1,251% | 1,404% | 1,277% | 971% | 2,216% |
(a) Total return is calculated assuming a purchase of a share on the first day and a sale on the last day of each period reported and includes reinvestment of dividends and distributions. Total returns may reflect adjustments to conform to generally accepted accounting principles. Total returns for periods of less than one full year are not annualize.
(b) Does not include expenses of the underlying portfolios in which the Fund invests.
(c) The Fund accounts for mortgage dollar roll transactions as purchases and sales which, as a result, can increase its portfolio turnover rate.
(d) The Fund received payments related to a former affiliate’s settlement of regulatory proceedings involving allegations of improper trading in Fund shares during the fiscal year ended February 28, 2011. The Fund was not involved in the proceedings or in the calculation of the amount of settlement.
(e) Less than $.005 per share.
(f) Annualized.
(g) Not annualized.
See Notes to Financial Statements.
Prudential Government Income Fund | 45 |
Approval of Advisory Agreements
The Fund’s Board of Directors
The Board of Directors (the “Board”) of Prudential Government Income Fund (the “Fund”)1 consists of ten individuals, eight of whom are not “interested persons” of the Fund, as defined in the Investment Company Act of 1940, as amended (the “1940 Act”) (the “Independent Directors”).2 The Board is responsible for the oversight of the Fund and its operations, and performs the various duties imposed on the directors of investment companies by the 1940 Act. The Independent Directors have retained independent legal counsel to assist them in connection with their duties. The Chair of the Board is an Independent Director. The Board has established three standing committees: the Audit Committee, the Nominating and Governance Committee, and the Investment Committee. Each committee is chaired by, and composed of, Independent Directors.
Annual Approval of the Fund’s Advisory Agreements
As required under the 1940 Act, the Board determines annually whether to renew the Fund’s management agreement with Prudential Investments LLC (“PI”) and the Fund’s subadvisory agreement with Prudential Investment Management, Inc. (“PIM”). In considering the renewal of the agreements, the Board, including all of the Independent Directors, met on June 4-6, 2013 and approved the renewal of the agreements through July 31, 2014, after concluding that the renewal of the agreements was in the best interests of the Fund and its shareholders.
In advance of the meetings, the Board received materials relating to the agreements, and had the opportunity to ask questions and request further information in connection with its consideration. Among other things, the Board considered comparative fee information from PI and PIM. Also, the Board considered comparisons with other mutual funds in relevant Peer Universes and Peer Groups, as is further discussed below.
In approving the agreements, the Board, including the Independent Directors advised by independent legal counsel, considered the factors it deemed relevant, including the nature, quality and extent of services provided by PI and the subadviser, the performance of the Fund, the profitability of PI and its affiliates, expenses and fees, and the potential for economies of scale that may be shared with the Fund and its shareholders as the Fund’s assets grow. In their deliberations, the Directors did not identify any single factor which alone was responsible for the Board’s decision to approve the agreements with respect to the Fund. In connection with its deliberations,
1 | Prudential Government Income Fund is a series of Prudential Investment Portfolios, Inc. 14. |
2 | Ms. Alberding and Messrs. Hartstein and Quinn were elected to the Board effective September 1, 2013. |
Prudential Government Income Fund
Approval of Advisory Agreements (continued)
the Board considered information provided by PI throughout the year at regular Board meetings, presentations from portfolio managers and other information, as well as information furnished at or in advance of the meetings on June 4-6, 2013.
meetings, presentations from portfolio managers and other information, as well as information furnished at or in advance of the meetings on June 4-6, 2013.
The Directors determined that the overall arrangements between the Fund and PI, which serves as the Fund’s investment manager pursuant to a management agreement, and between PI and PIM, which serves as the Fund’s subadviser pursuant to the terms of a subadvisory agreement with PI, are in the best interests of the Fund and its shareholders in light of the services performed, fees charged and such other matters as the Directors considered relevant in the exercise of their business judgment.
The material factors and conclusions that formed the basis for the Directors’ reaching their determinations to approve the continuance of the agreements are separately discussed below.
Nature, Quality and Extent of Services
The Board received and considered information regarding the nature, quality and extent of services provided to the Fund by PI and PIM. The Board considered the services provided by PI, including but not limited to the oversight of the subadviser for the Fund, as well as the provision of fund recordkeeping, compliance, and other services to the Fund. With respect to PI’s oversight of the subadviser, the Board noted that PI’s Strategic Investment Research Group (“SIRG”), which is a business unit of PI, is responsible for monitoring and reporting to PI’s senior management on the performance and operations of the subadviser. The Board also considered that PI pays the salaries of all of the officers and non-independent Directors of the Fund. The Board also considered the investment subadvisory services provided by PIM, as well as adherence to the Fund’s investment restrictions and compliance with applicable Fund policies and procedures. The Board considered PI’s evaluation of the subadviser as well as PI’s recommendation, based on its review of the subadviser, to renew the subadvisory agreement.
The Board considered the qualifications, backgrounds and responsibilities of PI’s senior management responsible for the oversight of the Fund and PIM, and also considered the qualifications, backgrounds and responsibilities of PIM’s portfolio managers who are responsible for the day-to-day management of the Fund’s portfolio. The Board was provided with information pertaining to PI’s and PIM’s organizational structure, senior management, investment operations, and other relevant information pertaining to both PI and PIM. The Board also noted that it received favorable
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compliance reports from the Fund’s Chief Compliance Officer (“CCO”) as to both PI and PIM. The Board noted that PIM is affiliated with PI.
The Board concluded that it was satisfied with the nature, extent and quality of the investment management services provided by PI and the subadvisory services provided to the Fund by PIM, and that there was a reasonable basis on which to conclude that the Fund benefits from the services provided by PI and PIM under the management and subadvisory agreements.
Costs of Services and Profits Realized by PI
The Board was provided with information on the profitability of PI and its affiliates in serving as the Fund’s investment manager. The Board discussed with PI the methodology utilized in assembling the information regarding profitability and considered its reasonableness. The Board recognized that it is difficult to make comparisons of profitability from fund management contracts because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocations and the adviser’s capital structure and cost of capital. The Board separately considered information regarding the profitability of the subadviser, an affiliate of PI. Taking these factors into account, the Board concluded that the profitability of PI and its affiliates in relation to the services rendered was not unreasonable.
Economies of Scale
The Board noted that the management fee schedule for the Fund includes breakpoints, which have the effect of decreasing the fee rate as net assets increase, but at the current level of net assets, the Fund does not realize the effect of those rate reductions. The Board received and discussed information concerning whether PI realizes economies of scale as the Fund’s net assets grow beyond current levels. The Board took note that the Fund’s fee structure would result in benefits to Fund shareholders when (and if) net assets reach the levels at which the fee rate is reduced. These benefits will accrue whether or not PI is then realizing any economies of scale. The Board recognized the inherent limitations of any analysis of economies of scale, stemming largely from the Board’s understanding that most of PI’s costs are not specific to any individual funds, but rather are incurred across a variety of products and services.
Other Benefits to PI and PIM
The Board considered potential ancillary benefits that might be received by PI and PIM and their affiliates as a result of their relationship with the Fund. The Board
Prudential Government Income Fund
Approval of Advisory Agreements (continued)
concluded that potential benefits to be derived by PI included fees received by affiliates of PI for serving as the Fund’s securities lending agent, transfer agency fees received by the Fund’s transfer agent (which is affiliated with PI), as well as benefits to its reputation or other intangible benefits resulting from PI’s association with the Fund. The Board concluded that the potential benefits to be derived by PIM included its ability to use soft dollar credits, as well as the potential benefits consistent with those generally resulting from an increase in assets under management, specifically, potential access to additional research resources and benefits to its reputation. The Board concluded that the benefits derived by PI and PIM were consistent with the types of benefits generally derived by investment managers and subadvisers to mutual funds.
Performance of the Fund / Fees and Expenses
The Board considered certain additional specific factors and made related conclusions relating to the historical performance of the Fund for the one-, three-, five- and ten-year periods ended December 31, 2012.
The Board also considered the Fund’s actual management fee, as well as the Fund’s net total expense ratio, for the fiscal year ended February 29, 2012. The Board considered the management fee for the Fund as compared to the management fee charged by PI to other funds and the fee charged by other advisers to comparable mutual funds in a Peer Group. The actual management fee represents the fee rate actually paid by Fund shareholders and includes any fee waivers or reimbursements. The net total expense ratio for the Fund represents the actual expense ratio incurred by Fund shareholders.
The mutual funds included in the Peer Universe (the Lipper General U.S. Government Funds Performance Universe) and the Peer Group were objectively determined by Lipper Inc. (“Lipper”), an independent provider of mutual fund data. The comparisons placed the Fund in various quartiles, with the first quartile being the best 25% of the mutual funds (for performance, the best performing mutual funds and, for expenses, the lowest cost mutual funds).
The section below summarizes key factors considered by the Board and the Board’s conclusions regarding the Fund’s performance, fees and overall expenses. The table sets forth gross performance comparisons (which do not reflect the impact on performance of fund expenses, or any subsidies, expense caps or waivers that may be applicable) with the Peer Universe, actual management fees with the Peer Group (which reflect the impact of any subsidies or fee waivers), and net total expenses with the Peer Group, each of which were key factors considered by the Board.
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Performance | 1 Year | 3 Years | 5 Years | 10 Years | ||||
1st Quartile | 1st Quartile | 1st Quartile | 2nd Quartile | |||||
Actual Management Fees: 3rd Quartile | ||||||||
Net Total Expenses: 2nd Quartile |
• | The Board noted that the Fund outperformed its benchmark index over all periods. |
• | The Board concluded that, in light of the Fund’s competitive performance, it would be in the best interests of the Fund and its shareholders to renew the agreements. |
• | The Board concluded that the management fees (including subadvisory fees) and total expenses were reasonable in light of the services provided. |
* * *
After full consideration of these factors, the Board concluded that the approval of the agreements was in the best interests of the Fund and its shareholders.
Prudential Government Income Fund
n MAIL | n TELEPHONE | n WEBSITE | ||
Gateway Center Three 100 Mulberry Street Newark, NJ 07102 | (800) 225-1852 | www.prudentialfunds.com |
PROXY VOTING |
The Board of Directors of the Fund has delegated to the Fund’s investment subadviser the responsibility for voting any proxies and maintaining proxy recordkeeping with respect to the Fund. A description of these proxy voting policies and procedures is available without charge, upon request, by calling (800) 225-1852. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the Fund’s website and on the Securities and Exchange Commission’s website. |
DIRECTORS |
Ellen S. Alberding • Kevin J. Bannon • Scott E. Benjamin • Linda W. Bynoe • Keith F. Hartstein • Michael S. Hyland • Douglas H. McCorkindale • Stephen P. Munn • Stuart S. Parker • James E. Quinn • Richard A. Redeker • Robin B. Smith • Stephen G. Stoneburn |
OFFICERS |
Stuart S. Parker, President • Scott E. Benjamin, Vice President • Grace C. Torres, Treasurer and Principal Financial and Accounting Officer • Raymond A. O’Hara, Chief Legal Officer • Deborah A. Docs, Secretary • Bruce Karpati, Chief Compliance Officer • Theresa C. Thompson, Deputy Chief Compliance Officer • Richard W. Kinville, Anti-Money Laundering Compliance Officer • Jonathan D. Shain, Assistant Secretary • Claudia DiGiacomo, Assistant Secretary • Amanda S. Ryan, Assistant Secretary • Andrew R. French, Assistant Secretary • M. Sadiq Peshimam, Assistant Treasurer • Peter Parrella, Assistant Treasurer |
MANAGER | Prudential Investments LLC | Gateway Center Three 100 Mulberry Street Newark, NJ 07102 | ||
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INVESTMENT SUBADVISER | Prudential Investment Management, Inc. | Gateway Center Two 100 Mulberry Street Newark, NJ 07102 | ||
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DISTRIBUTOR | Prudential Investment Management Services LLC | Gateway Center Three 100 Mulberry Street Newark, NJ 07102 | ||
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CUSTODIAN | The Bank of New York Mellon | One Wall Street New York, NY 10286 | ||
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TRANSFER AGENT | Prudential Mutual Fund Services LLC | PO Box 9658 Providence, RI 02940 | ||
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INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | KPMG LLP | 345 Park Avenue New York, NY 10154 | ||
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FUND COUNSEL | Willkie Farr & Gallagher LLP | 787 Seventh Avenue New York, NY 10019 |
An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. The prospectus and summary prospectus contain this and other information about the Fund. An investor may obtain a prospectus and summary prospectus by visiting our website at www.prudentialfunds.com or by calling (800) 225-1852. The prospectus and summary prospectus should be read carefully before investing. |
E-DELIVERY |
To receive your mutual fund documents online, go to www.prudentialfunds.com/edelivery and enroll. Instead of receiving printed documents by mail, you will receive notification via email when new materials are available. You can cancel your enrollment or change your email address at any time by visiting the website address above. |
SHAREHOLDER COMMUNICATIONS WITH DIRECTORS |
Shareholders can communicate directly with the Board of Directors by writing to the Chair of the Board, Prudential Government Income Fund, Prudential Investments, Attn: Board of Directors, 100 Mulberry Street, Gateway Center Three, Newark, NJ 07102. Shareholders can communicate directly with an individual Director by writing to the same address. Communications are not screened before being delivered to the addressee. |
AVAILABILITY OF PORTFOLIO SCHEDULE |
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation and location of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund’s schedule of portfolio holdings is also available on the Fund’s website as of the end of each month. |
Mutual Funds:
ARE NOT INSURED BY THE FDIC OR ANY FEDERAL GOVERNMENT AGENCY | MAY LOSE VALUE | ARE NOT A DEPOSIT OF OR GUARANTEED BY ANY BANK OR ANY BANK AFFILIATE |
PRUDENTIAL GOVERNMENT INCOME FUND
SHARE CLASS | A | B | C | R | Z | |||||||
NASDAQ | PGVAX | PBGPX | PRICX | JDRVX | PGVZX | |||||||
CUSIP | 74439V107 | 74439V206 | 74439V305 | 74439V503 | 74439V404 |
MF128E2 0252515-00001-00
PRUDENTIAL INVESTMENTS»MUTUAL FUNDS
PRUDENTIAL FLOATING RATE INCOME FUND
SEMIANNUAL REPORT · AUGUST 31, 2013
Fund Type
Floating Rate
Objective
Primary objective is to seek to maximize current income. Secondary objective is to seek capital appreciation when consistent with primary objective.
This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus.
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 August 31, 2013, were not audited and, accordingly, no auditor’s opinion is expressed on them.
Mutual funds are distributed by Prudential Investment Management Services LLC (PIMS). Prudential Fixed Income is a unit of Prudential Investment Management, Inc. (PIM), a registered investment adviser. PIMS and PIM are Prudential Financial companies. © 2013 Prudential Financial, Inc., and its related entities. Prudential Investments, Prudential, the Prudential logo, Bring Your Challenges, and the Rock symbol are service marks of Prudential Financial, Inc., and its related entities, registered in many jurisdictions worldwide.
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October 15, 2013
Dear Shareholder:
We hope you find the semiannual report for the Prudential Floating Rate Income Fund informative and useful. The report covers performance for the six-month period that ended August 31, 2013.
We recognize that ongoing market volatility may make it a difficult time to be an investor. We continue to believe a prudent response to uncertainty is to maintain a diversified portfolio of funds consistent with your tolerance for risk, time horizon, and financial goals.
Your financial advisor can help you create a diversified investment plan that may include funds covering all the basic asset classes and that reflects your personal investor profile and risk tolerance. Keep in mind, however, that diversification and asset allocation strategies do not assure a profit or protect against loss in declining markets.
Prudential Investments® is dedicated to helping you solve your toughest investment challenges—whether it’s capital growth, reliable income, or protection from market volatility and other risks. We offer the expertise of Prudential Financial’s affiliated asset managers* that strive to be leaders in a broad range of funds to help you stay on course to the future you envision. They also manage money for major corporations and pension funds around the world, which means you benefit from the same expertise, innovation, and attention to risk demanded by today’s most sophisticated investors.
Thank you for choosing the Prudential Investments family of funds.
Sincerely,
Stuart S. Parker, President
Prudential Floating Rate Income Fund
*Most of Prudential Investments’ equity funds are advised by Jennison Associates LLC, Quantitative Management Associates LLC (QMA), or Prudential Real Estate Investors. Prudential Investments’ fixed income and money market funds are advised by Prudential Investment Management, Inc. (PIM) through its Prudential Fixed Income unit. Jennison Associates, QMA, and PIM are registered investment advisers and Prudential Financial companies. Prudential Real Estate Investors is a unit of PIM.
Prudential Floating Rate Income Fund | 1 |
Your Fund’s Performance (Unaudited)
Performance data quoted represent past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the past performance data quoted. An investor may obtain performance data as of the most recent month-end by visiting our website at www.prudentialfunds.com or by calling (800) 225-1852.
Cumulative Total Returns (Without Sales Charges) as of 8/31/13 | ||||||||||
Six Months | One Year | Since Inception | ||||||||
Class A | 1.65 | % | 5.48 | % | 11.82% (3/30/11) | |||||
Class C | 1.26 | 4.69 | 9.89 (3/30/11) | |||||||
Class Z | 1.78 | 5.74 | 12.69 (3/30/11) | |||||||
Credit Suisse Leveraged Loan Index | 2.40 | 6.66 | 12.83 (3/30/11) | |||||||
Lipper Flexible Loan Participation Funds Average | 1.94 | 5.98 | 11.83 (3/30/11) | |||||||
Average Annual Total Returns (With Sales Charges) as of 9/30/13 | ||||||||||
One Year | Since Inception | |||||||||
Class A | 1.18 | % | 3.25% (3/30/11) | |||||||
Class C | 2.78 | 3.87 (3/30/11) | ||||||||
Class Z | | 4.93 | | 4.95 (3/30/11) | ||||||
Credit Suisse Leveraged Loan Index | 5.83 | 5.07 (3/30/11) | ||||||||
Lipper Flexible Loan Participation Funds Average | 5.12 | 4.67 (3/30/11) |
Source: Prudential Investments LLC and Lipper Inc.
Inception returns are provided for any share class with less than 10 calendar years of returns. The returns in the tables reflect the share class expense structure in effect at the close of the fiscal period. The Fund’s returns do not reflect the deduction of income taxes or an individual’s investment. Taxes may reduce your actual investment returns or income or gains paid by the fund or any gains you may realize if you sell your shares.
2 | Visit our website at www.prudentialfunds.com |
The average annual total returns take into account applicable sales charges, which are described for each share class in the table below.
Class A | Class C | Class Z | ||||
Maximum initial sales charge | 3.25% of the public offering price | None | None | |||
Contingent deferred sales charge (CDSC) (as a percentage of the lower of original purchase price or sale proceeds) | 1% on sales of $1 million or more made within 12 months of purchase | 1% on sales made within 12 months of purchase | None | |||
Annual distribution and service (12b-1) fees (shown as a percentage of average daily net assets) | .30% (.25% currently) | 1% | None |
Benchmark Definitions
Credit Suisse Leveraged Loan Index
The Credit Suisse Leveraged Loan Index is an unmanaged index that represents the investable universe of the dollar-denominated leveraged loan market.
Lipper Flexible Loan Participation Funds Average
The Lipper Flexible Loan Participation Funds Average (Lipper Average) is based on the average return of all mutual funds in the Lipper Loan Participation category.
Investors cannot invest directly in an index or average. The returns for the Index would be lower if they included the effects of sales charges, operating expenses of a mutual fund, or taxes. Returns for the Lipper Average reflect the deduction of operating expenses, but not sales charges or taxes. The Since Inception returns for the Credit Suisse Leveraged Loan Index and the Lipper Average are measured from the closest month-end to inception date, and not from the Fund’s actual inception date.
Distributions and Yields as of 8/31/13 | ||||||||
Total Distributions | 30-Day | |||||||
Class A | $ | 0.17 | 2.85 | % | ||||
Class C | | 0.14 | | 2.19 | ||||
Class Z | 0.19 | 3.19 |
Prudential Floating Rate Income Fund | 3 |
Your Fund’s Performance (continued)
Five Largest Holdings expressed as a percentage of net assets as of 8/31/13 | ||||
Valeant Pharmaceuticals International, Inc., Healthcare & Pharmaceutical | 1.02 | % | ||
Gardner Denver Inc., Capital Goods | 0.87 | |||
Generic Drug Holdings, Healthcare & Pharmaceutical | 0.86 | |||
Allflex Holdings III, Inc., Capital Goods | 0.81 | |||
CDW Corp., Technology | 0.80 | |||
Holdings reflect only long-term investments and are subject to change. |
Credit Quality* expressed as a percentage of net assets as of 8/31/13 | ||||
Baa | 1.2 | % | ||
Ba | 33.8 | |||
B | 51.8 | |||
Caa or Lower | 2.5 | |||
Not Rated** | 16.8 | |||
Total Investments | 106.1 | |||
Liabilities in excess of other assets | –6.1 | |||
Net Assets | 100.0 | % | ||
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*Source: Moody’s rating, defaulting to S&P when not rated by Moody’s.
**Approximately 16.8% of Not Rated is invested in an affiliated money market mutual fund.
Credit Quality is subject to change.
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Fees and Expenses (Unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemptions, as applicable, and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Fund expenses, as applicable. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested on March 1, 2013, at the beginning of the period, and held through the six-month period ended August 31, 2013. The example is for illustrative purposes only; you should consult the Prospectus for information on initial and subsequent minimum investment requirements.
Actual Expenses
The first line for each share class in the table on the following page provides information about actual account values and actual expenses. You may use the information on this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value ÷ $1,000 = 8.6), then multiply the result by the number on the first line under the heading “Expenses Paid During the Six-Month Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the table on the following page provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses should not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
The Fund’s transfer agent may charge additional fees to holders of certain accounts that are not included in the expenses shown in the table on the following page. These fees apply to individual retirement accounts (IRAs) and Section 403(b) accounts. As of the close of the six-month period covered by the table, IRA fees included an annual maintenance fee of $15 per account (subject to a maximum annual maintenance fee of $25 for all accounts held by the same shareholder). Section 403(b) accounts are charged an annual $25 fiduciary maintenance fee. Some of the fees may vary in
Prudential Floating Rate Income Fund | 5 |
Fees and Expenses (continued)
amount, or may be waived, based on your total account balance or the number of Prudential Investments funds, including the Fund, that you own. You should consider the additional fees that were charged to your Fund account over the six-month period when you estimate the total ongoing expenses paid over the period and the impact of these fees on your ending account value, as these additional expenses are not reflected in the information provided in the expense table. Additional fees have the effect of reducing investment returns.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as sales charges (loads). Therefore, the second line for each share class in the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Prudential Floating Rate Income Fund | Beginning Account Value March 1, 2013 | Ending Account Value August 31, 2013 | Annualized Expense Ratio | Expenses Paid During the Six-Month Period* | ||||||||||||||
Class A | Actual | $ | 1,000.00 | $ | 1,016.50 | 1.20 | % | $ | 6.10 | |||||||||
Hypothetical | $ | 1,000.00 | $ | 1,019.16 | 1.20 | % | $ | 6.11 | ||||||||||
Class C | Actual | $ | 1,000.00 | $ | 1,012.60 | 1.95 | % | $ | 9.89 | |||||||||
Hypothetical | $ | 1,000.00 | $ | 1,015.38 | 1.95 | % | $ | 9.91 | ||||||||||
Class Z | Actual | $ | 1,000.00 | $ | 1,017.80 | 0.95 | % | $ | 4.83 | |||||||||
Hypothetical | $ | 1,000.00 | $ | 1,020.42 | 0.95 | % | $ | 4.84 |
*Fund expenses (net of fee waivers or subsidies, if any) for each share class are equal to the annualized expense ratio for each share class (provided in the table), multiplied by the average account value over the period, multiplied by the 184 days in the six-month period ended August 31, 2013, and divided by the 365 days in the Fund’s fiscal year ending February 28, 2014 (to reflect the six-month period). Expenses presented in the table include the expenses of any underlying portfolios in which the Fund may invest.
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The Fund’s annualized expense ratios for the six-month period ended August 31, 2013 are as follows:
Class | Gross Operating Expenses | Net Operating Expenses | ||
A | 1.53% | 1.20% | ||
C | 2.23% | 1.95% | ||
Z | 1.23% | 0.95% |
Net operating expenses shown above reflect fee waivers and/or expense reimbursements. Additional information on Fund expenses and any fee waivers and/or expense reimbursements can be found in the “Financial Highlights” tables in this report and in the Notes to the Financial Statements in this report.
Prudential Floating Rate Income Fund | 7 |
Portfolio of Investments
as of August 31, 2013 (Unaudited)
Description | Moody’s Ratings† | Interest Rate | Maturity Date | Principal Amount (000)# | Value (Note 1) | |||||||||||
LONG-TERM INVESTMENTS 89.3% | ||||||||||||||||
BANK LOANS(a) 80.1% | ||||||||||||||||
Aerospace & Defense 1.5% | ||||||||||||||||
Booz Allen & Hamilton, Inc. | Ba3 | 3.750% | 07/31/19 | 248 | $ | 247,918 | ||||||||||
Dundee Holding, Inc. | B2 | 5.500 | 04/09/20 | 499 | 503,114 | |||||||||||
Tasc, Inc. | B1 | 4.500 | 12/18/15 | 247 | 245,310 | |||||||||||
Transdigm, Inc. | Ba3 | 3.750 | 02/28/20 | 800 | 798,571 | |||||||||||
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1,794,913 | ||||||||||||||||
Airlines 1.0% | ||||||||||||||||
American Airlines, Inc. | D(b) | 4.750 | 06/27/19 | 590 | 582,773 | |||||||||||
United Airlines | Ba2 | 4.000 | 04/01/19 | 324 | 325,079 | |||||||||||
US Airways, Inc. | B2 | 4.250 | 05/23/19 | 350 | 345,406 | |||||||||||
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1,253,258 | ||||||||||||||||
Automotive 1.3% |
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ASP HHI Acquisition Co., Inc. | B2 | 5.000 | 10/05/18 | 225 | 226,588 | |||||||||||
Chrysler Group LLC | Ba1 | 4.250 | 05/24/17 | 761 | 769,752 | |||||||||||
KAR Auctions Services, Inc. | Ba3 | 3.750 | 05/19/17 | 146 | 146,604 | |||||||||||
Schaeffler AG | Ba3 | 4.250 | 01/27/17 | 450 | 451,233 | |||||||||||
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1,594,177 | ||||||||||||||||
Brokerage 0.9% |
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BATS Global Markets, Inc. | B1 | 7.000 | 12/14/18 | 178 | 177,944 | |||||||||||
Cetera Financial Group, Inc. | B3 | 6.500 | 08/07/19 | 300 | 298,500 | |||||||||||
KCG Holdings, Inc. | Ba3 | 5.750 | 12/05/17 | 450 | 448,875 | |||||||||||
VFH Parent LLC | Ba2 | 5.775 | 07/08/16 | 226 | 227,172 | |||||||||||
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1,152,491 | ||||||||||||||||
Building Materials & Construction 2.0% |
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Apex Tool Group, LLC | B1 | 4.500 | 01/31/20 | 499 | 499,919 | |||||||||||
Armstrong World Industries, Inc. | B1 | 3.500 | 03/16/20 | 200 | 198,902 | |||||||||||
CHI Overhead Doors, Inc. | B3 | 5.500 | 03/18/19 | 197 | 196,785 | |||||||||||
Continental Building Products LLC | B1 | 4.500 | 08/28/20 | 500 | 499,166 | |||||||||||
QS0001 Corp./Tomkins Air Distribution | B1 | 5.000 | 11/09/18 | 249 | 250,512 | |||||||||||
Summit Materials LLC | B1 | 5.000 | 01/30/19 | 272 | 272,255 | |||||||||||
Wilsonart LLC | B2 | 4.000 | 10/31/19 | 499 | 494,760 | |||||||||||
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2,412,299 |
See Notes to Financial Statements.
Prudential Floating Rate Income Fund | 9 |
Portfolio of Investments
as of August 31, 2013 (Unaudited) continued
Description | Moody’s Ratings† | Interest Rate | Maturity Date | Principal Amount (000)# | Value (Note 1) | |||||||||||
BANK LOANS(a) (Continued) | ||||||||||||||||
Cable 3.5% |
| |||||||||||||||
Bragg Communications, Inc. | Ba3 | 3.500% | 02/28/18 | 199 | $ | 199,239 | ||||||||||
Cequel Comm LLC | Ba2 | 3.500 | 02/14/19 | 499 | 498,735 | |||||||||||
Charter Communications Operating LLC | Baa3 | 3.000 | 07/01/20 | 500 | 494,531 | |||||||||||
CSC Holdings LLC | Baa3 | 2.682 | 04/17/20 | 500 | 493,750 | |||||||||||
Media Gen, Inc. | B1 | 0.500 | 07/31/20 | 600 | 599,994 | |||||||||||
Nine Entertainment Co. Pty Ltd. | Ba2 | 3.504 | 02/05/20 | 499 | 495,009 | |||||||||||
Virgin Media Investment Holdings Ltd. | Ba3 | 3.500 | 06/08/20 | 500 | 497,050 | |||||||||||
WideOpenWest Finance LLC | B1 | 4.750 | 04/01/19 | 494 | 497,107 | |||||||||||
Yankee Cable Acquisition LLC | B1 | 5.250 | 03/01/20 | 546 | 547,901 | |||||||||||
|
| |||||||||||||||
4,323,316 | ||||||||||||||||
Capital Goods 7.4% |
| |||||||||||||||
ADS Waste Holdings, Inc. | B1 | 4.250 | 10/09/19 | 423 | 423,668 | |||||||||||
Allflex Holdings III, Inc. | B1 | 4.250 | 07/17/20 | 1,000 | 1,000,313 | |||||||||||
Brand Energy & Infrastructure Services | B2 | 6.250 | 10/23/18 | 248 | 250,683 | |||||||||||
Brand Energy & Infrastructure Services | Caa2 | 11.000 | 10/23/19 | 200 | 204,167 | |||||||||||
CeramTec GmbH | Ba3 | 4.250 | 08/30/20 | 600 | 599,250 | |||||||||||
Colfax Corp. | Ba2 | 3.250 | 01/11/19 | 249 | 248,491 | |||||||||||
CPM Acquisition Corp. | B1 | 6.250 | 08/29/17 | 720 | 720,912 | |||||||||||
Gardner Denver Inc | B1 | 4.250 | 07/30/20 | 1,075 | 1,069,381 | |||||||||||
Generac Power Systems, Inc. | B2 | 3.500 | 05/31/20 | 127 | 125,366 | |||||||||||
Hupah Finance, Inc. | B1 | 4.500 | 01/21/19 | 622 | 625,689 | |||||||||||
Husky Injection Molding Systems Ltd. | Ba3 | 4.250 | 06/30/18 | 223 | 222,696 | |||||||||||
Laureate Education, Inc. | B1 | 5.250 | 06/15/18 | 249 | 249,123 | |||||||||||
MX Holdings US, Inc. | B2 | 4.500 | 08/16/20 | 375 | 377,344 | |||||||||||
Pelican Products, Inc. | B1 | 7.000 | 07/11/18 | 125 | 124,740 | |||||||||||
Pro Mach, Inc. | B2 | 5.000 | 07/06/17 | 344 | 345,684 | |||||||||||
RBS Global, Inc./Rexnord LLC | B2 | 4.000 | 08/21/20 | 750 | 743,162 | |||||||||||
Silver II Borrower S.C.A. | B1 | 4.000 | 12/13/19 | 498 | 494,002 | |||||||||||
Synagro Infrastructure Co., Inc. | B3 | 6.250 | 08/21/20 | 250 | 245,625 | |||||||||||
TriNet HR Corp. | B1 | 5.000 | 08/13/20 | 250 | 248,125 | |||||||||||
Unifrax I LLC | B2 | 4.250 | 11/28/18 | 133 | 132,729 |
See Notes to Financial Statements.
10 |
Description | Moody’s Ratings† | Interest Rate | Maturity Date | Principal Amount (000)# | Value (Note 1) | |||||||||||
BANK LOANS(a) (Continued) | ||||||||||||||||
Capital Goods (cont’d.) | ||||||||||||||||
W3 Co. | B2 | 5.750% | 03/13/20 | 200 | $ | 200,747 | ||||||||||
WCA Waste Corp. | B1 | 4.000 | 03/23/18 | 99 | 98,750 | |||||||||||
Wesco Distribution, Inc. | Ba3 | 4.500 | 12/12/19 | 245 | 246,454 | |||||||||||
WireCo WorldGroup, Inc. | Ba2 | 6.000 | 02/15/17 | 149 | 148,875 | |||||||||||
|
| |||||||||||||||
9,145,976 | ||||||||||||||||
Chemicals 4.8% | ||||||||||||||||
Arysta LifeScience SPC LLC | Ba3 | 4.500 | 05/29/20 | 650 | 650,000 | |||||||||||
Arysta LifeScience SPC LLC | Caa1 | 8.250 | 11/30/20 | 125 | 124,844 | |||||||||||
Cyanco Intermediate Corp. | B2 | 5.500 | 05/01/20 | 150 | 150,937 | |||||||||||
Emerald Performance Materials LLC | B1 | 6.750 | 05/18/18 | 198 | 199,485 | |||||||||||
Houghton International, Inc. | B1 | 4.000 | 12/20/19 | 498 | 495,633 | |||||||||||
Macdermid, Inc. | Ba3 | 4.000 | 06/08/20 | 250 | 249,687 | |||||||||||
Macdermid, Inc. | Caa1 | 7.750 | 12/07/20 | 150 | 151,500 | |||||||||||
Nexeo Solutions LLC | B2 | 5.000 | 09/08/17 | 293 | 290,317 | |||||||||||
Nusil Technology LLC(c) | B1 | 5.250 | 04/07/17 | 203 | 199,171 | |||||||||||
Oxea Fin LLC | B1 | 4.250 | 01/15/20 | 500 | 498,750 | |||||||||||
Oxea Fin LLC | Caa1 | 8.250 | 06/06/20 | 250 | 248,750 | |||||||||||
Royal Adhesives & Sealants LLC | B1 | 5.500 | 07/31/18 | 300 | 302,625 | |||||||||||
Tata Chemicals NA, Inc. | Ba3 | 3.750 | 08/07/20 | 750 | 748,750 | |||||||||||
Tronox Pigments Netherlands BV | Ba2 | 4.500 | 03/19/20 | 541 | 545,776 | |||||||||||
Univar, Inc. | B2 | 5.000 | 06/30/17 | 243 | 237,633 | |||||||||||
U.S. Coatings Acquistion, Inc. | B1 | 4.750 | 02/03/20 | 748 | 752,427 | |||||||||||
|
| |||||||||||||||
5,846,285 | ||||||||||||||||
Consumer 4.1% | ||||||||||||||||
Bombardier Recreational Products, Inc. | B1 | 4.000 | 01/30/19 | 377 | 376,554 | |||||||||||
Bright Horizons Family Solutions | B1 | 4.000 | 01/30/20 | 224 | 224,211 | |||||||||||
Fender Musical Instruments Corp. | B2 | 5.750 | 04/03/19 | 100 | 99,999 | |||||||||||
Huish Detergents, Inc. | B1 | 5.500 | 03/23/20 | 499 | 481,294 | |||||||||||
Party City Holdings, Inc.(c) | B1 | 4.250 | 07/29/19 | 298 | 297,737 | |||||||||||
Prestige Brands Holdings, Inc. | Ba3 | 3.750 | 01/31/19 | 241 | 242,033 | |||||||||||
Revlon Consumer Products Corp. | Ba2 | 4.000 | 08/19/19 | 190 | 190,081 | |||||||||||
Serta Simmons Holdings LLC | B2 | 5.000 | 10/01/19 | 498 | 498,744 | |||||||||||
ServiceMaster Co. | B1 | 4.440 | 01/31/17 | 500 | 485,250 | |||||||||||
Spectrum Brands, Inc. | Ba3 | 3.000 | 09/11/17 | 550 | 549,537 | |||||||||||
Spectrum Brands, Inc. | Ba3 | 3.500 | 08/13/19 | 300 | 299,847 |
See Notes to Financial Statements.
Prudential Floating Rate Income Fund | 11 |
Portfolio of Investments
as of August 31, 2013 (Unaudited) continued
Description | Moody’s Ratings† | Interest Rate | Maturity Date | Principal Amount (000)# | Value (Note 1) | |||||||||||
BANK LOANS(a) (Continued) | ||||||||||||||||
Consumer (cont’d.) | ||||||||||||||||
SRAM Corp. | B1 | 4.018% | 04/10/20 | 342 | $ | 340,123 | ||||||||||
Tempur-Pedic International, Inc. | Ba3 | 3.500 | 03/18/20 | 426 | 421,053 | |||||||||||
Travelport LLC | B1 | 6.250 | 06/26/19 | 200 | 201,833 | |||||||||||
Water Pik, Inc. | B(b) | 5.750 | 07/08/20 | 250 | 245,313 | |||||||||||
Wolverine Worldwide, Inc. | Ba2 | 4.160 | 10/09/19 | 136 | 136,631 | |||||||||||
|
| |||||||||||||||
5,090,240 | ||||||||||||||||
Electric 2.0% | ||||||||||||||||
AES Corp. (The) | Ba1 | 3.750 | 06/01/18 | 498 | 500,920 | |||||||||||
Dynegy, Inc. | B1 | 4.000 | 04/23/20 | 92 | 91,615 | |||||||||||
Freif North American Power I LLC | Ba3 | 4.750 | 03/29/19 | 237 | 236,636 | |||||||||||
Gim Channelview Cogeneration LLC | Ba3 | 4.250 | 05/08/20 | 140 | 139,825 | |||||||||||
Intergen NV | B1 | 5.500 | 06/15/20 | 525 | 516,469 | |||||||||||
Star West Generation LLC | Ba3 | 4.250 | 03/13/20 | 499 | 502,491 | |||||||||||
TPF Generation Holdings LLC | B2 | 4.750 | 12/31/17 | 425 | 429,250 | |||||||||||
|
| |||||||||||||||
2,417,206 | ||||||||||||||||
Energy - Other 2.0% | ||||||||||||||||
Drillships Financial Holding, Inc. | B2 | 5.500 | 07/15/16 | 325 | 327,437 | |||||||||||
EP Energy LLC | Ba3 | 4.500 | 04/30/19 | 103 | 102,803 | |||||||||||
Exco Resources Inc | Ba3 | 5.000 | 08/19/19 | 350 | 346,500 | |||||||||||
Frac Tech Services LLC | B3 | 8.500 | 05/06/16 | 249 | 243,646 | |||||||||||
HGIM Corp. | B1 | 5.500 | 06/18/20 | 125 | 125,312 | |||||||||||
Pacific Drilling SA | B1 | 4.500 | 06/01/18 | 525 | 526,969 | |||||||||||
Pilot Travel Centers LLC | Ba2 | 3.750 | 03/30/18 | 500 | 498,750 | |||||||||||
Power Buyer LLC | B2 | 3.250 | 05/06/20 | 39 | 38,306 | |||||||||||
Power Buyer LLC | B2 | 4.250 | 05/06/20 | 311 | 307,222 | |||||||||||
|
| |||||||||||||||
2,516,945 | ||||||||||||||||
Foods 3.3% | ||||||||||||||||
AdvancePierre Foods, Inc. | B1 | 5.750 | 07/10/17 | 249 | 251,030 | |||||||||||
Albertson’s, LLC | B1 | 4.250 | 03/21/16 | 151 | 151,541 | |||||||||||
Albertson’s, LLC | B1 | 4.750 | 03/21/19 | 98 | 98,512 | |||||||||||
ARAMARK Corp. | B1 | 4.000 | 08/22/19 | 250 | 251,406 | |||||||||||
Bellisio Foods, Inc. | B2 | 4.526 | 08/01/19 | 375 | 373,548 | |||||||||||
California Pizza Kitchen, Inc. | B2 | 5.250 | 03/29/18 | 150 | 148,690 | |||||||||||
Del Monte Foods Co. | B1 | 4.000 | 03/08/18 | 465 | 464,550 | |||||||||||
DS Waters of America, Inc. | Ba3 | 5.250 | 08/31/20 | 175 | 175,656 |
See Notes to Financial Statements.
12 |
Description | Moody’s Ratings† | Interest Rate | Maturity Date | Principal Amount (000)# | Value (Note 1) | |||||||||||
BANK LOANS(a) (Continued) | ||||||||||||||||
Foods (cont’d.) | ||||||||||||||||
GFA Brands, Inc./UHF Acquisition Corp. | B1 | 5.000% | 07/09/20 | 250 | $ | 250,156 | ||||||||||
H.J. Heinz Co. | Ba2 | 3.500 | 06/08/20 | 750 | 753,750 | |||||||||||
Landry’s Restaurants, Inc. | Ba3 | 4.750 | 04/24/18 | 246 | 247,167 | |||||||||||
Michael Foods, Inc. | Ba3 | 4.250 | 02/25/18 | 135 | 136,429 | |||||||||||
Mill US Acquisition, LLC | B1 | 4.750 | 07/03/20 | 175 | 173,141 | |||||||||||
PF Changs China Bistro, Inc.(c) | Ba3 | 5.250 | 06/22/19 | 74 | 75,275 | |||||||||||
Pinnacle Foods Finance LLC | Ba3 | 3.250 | 04/29/20 | 289 | 286,021 | |||||||||||
Wendy’s International, Inc. | B1 | 3.250 | 05/15/19 | 171 | 170,598 | |||||||||||
|
| |||||||||||||||
4,007,470 | ||||||||||||||||
Gaming 3.0% | ||||||||||||||||
Affinity Gaming LLC | Ba2 | 5.500 | 11/09/17 | 120 | 121,489 | |||||||||||
Bally Technologies, Inc. | Ba3 | 0.000 | 06/30/21 | 625 | 623,906 | |||||||||||
Boyd Gaming Corp. | Ba3 | 4.000 | 08/14/20 | 500 | 501,094 | |||||||||||
Caesars Entertainment Operating Co., Inc. | B3 | 5.434 | 01/29/18 | 190 | 169,836 | |||||||||||
Cannery Casino Resorts LLC | B2 | 6.000 | 10/02/18 | 244 | 243,679 | |||||||||||
CCM Merger, Inc. | B2 | 5.000 | 03/01/17 | 472 | 474,957 | |||||||||||
Global Cash Access, Inc. | B1 | 4.000 | 03/01/16 | 60 | 60,127 | |||||||||||
Pinnacle Entertainment, Inc. | Ba2 | 3.750 | 08/13/20 | 500 | 501,550 | |||||||||||
Station Casinos LLC | B2 | 5.000 | 03/02/20 | 299 | 301,307 | |||||||||||
Yonkers Racing Corp. | Ba3 | 4.250 | 08/20/19 | 500 | 497,500 | |||||||||||
Yonkers Racing Corp. | B3 | 8.750 | 08/20/20 | 150 | 148,875 | |||||||||||
|
| |||||||||||||||
3,644,320 | ||||||||||||||||
Healthcare & Pharmaceutical 8.2% | ||||||||||||||||
Alere, Inc. | Ba3 | 4.250 | 06/30/17 | 222 | 222,882 | |||||||||||
Alliance HealthCare Services, Inc. | Ba3 | 4.250 | 06/03/19 | 750 | 750,000 | |||||||||||
Apria Healthcare Group, Inc. | B2 | 6.750 | 04/06/20 | 374 | 376,396 | |||||||||||
BioScrip, Inc. | B2 | 6.500 | 07/31/20 | 501 | 506,563 | |||||||||||
Boston Luxembourg III SARL | Ba3 | 4.000 | 08/28/19 | 250 | 250,312 | |||||||||||
Catalent Pharma Solutions, Inc. | Ba3 | 4.250 | 09/15/17 | 395 | 396,496 | |||||||||||
Catalent Pharma Solutions, Inc. | Caa1 | 6.500 | 12/29/17 | 250 | 250,781 | |||||||||||
Emergency Medical Services Corp. | B1 | 4.000 | 05/25/18 | 465 | 464,971 | |||||||||||
Generic Drug Holdings | B1 | 5.000 | 08/31/20 | 1,048 | 1,054,375 | |||||||||||
Grifols, Inc. | Ba1 | 4.250 | 06/01/17 | 488 | 490,754 | |||||||||||
HCA, Inc. | BB(b) | 2.932 | 05/01/18 | 750 | 749,062 | |||||||||||
HCR Healthcare LLC | B1 | 5.000 | 04/06/18 | 193 | 188,687 |
See Notes to Financial Statements.
Prudential Floating Rate Income Fund | 13 |
Portfolio of Investments
as of August 31, 2013 (Unaudited) continued
Description | Moody’s Ratings† | Interest Rate | Maturity Date | Principal Amount (000)# | Value (Note 1) | |||||||||||
BANK LOANS(a) (Continued) | ||||||||||||||||
Healthcare & Pharmaceutical (cont’d.) | ||||||||||||||||
Hologic, Inc. | Ba2 | 3.750% | 08/01/19 | 436 | $ | 438,074 | ||||||||||
IASIS Healthcare Corp. | Ba3 | 4.500 | 05/03/18 | 494 | 496,239 | |||||||||||
MModal, Inc. | B1 | 7.500 | 08/17/19 | 334 | 324,980 | |||||||||||
Multiplan, Inc. | Ba2 | 4.000 | 08/26/17 | 242 | 243,008 | |||||||||||
One Call Medical, Inc. | Ba3 | 5.500 | 08/19/19 | 200 | 200,500 | |||||||||||
Par Pharmaceutical Cos., Inc.(c) | B1 | 4.250 | 09/28/19 | 397 | 395,020 | |||||||||||
RadNet, Inc. | Ba3 | 4.253 | 10/10/18 | 298 | 297,564 | |||||||||||
Select Medical Corp. | Ba2 | 4.002 | 06/01/18 | 116 | 115,721 | |||||||||||
Truven Health Analytics, Inc. | Ba3 | 4.500 | 06/06/19 | 99 | 99,188 | |||||||||||
Valeant Pharmaceuticals International, Inc. | Ba1 | 4.500 | 08/05/20 | 1,244 | 1,250,687 | |||||||||||
Vanguard Health Holding Co. LLC | Ba2 | 3.750 | 01/29/16 | 274 | 274,141 | |||||||||||
Warner Chilcott Corp. | Ba3 | 4.250 | 03/15/18 | 187 | 186,934 | |||||||||||
|
| |||||||||||||||
10,023,335 | ||||||||||||||||
Insurance 1.4% | ||||||||||||||||
AmWINS Group, Inc | B1 | 5.000 | 09/06/19 | 249 | 249,434 | |||||||||||
Asurion LLC | Ba2 | 3.500 | 07/08/20 | 259 | 247,973 | |||||||||||
Asurion LLC | Ba2 | 4.500 | 05/24/19 | 483 | 476,796 | |||||||||||
CCC Information Services, Inc. | B1 | 4.000 | 12/20/19 | 324 | 324,186 | |||||||||||
Sedgwick Claims Management Services, Inc. | B1 | 4.250 | 06/12/18 | 375 | 375,703 | |||||||||||
|
| |||||||||||||||
1,674,092 | ||||||||||||||||
Lodging 0.9% | ||||||||||||||||
Four Seasons Holdings, Inc. | B1 | 4.250 | 06/29/20 | 600 | 606,000 | |||||||||||
Playa Resorts Holding BV | B2 | 4.750 | 08/09/19 | 450 | 451,688 | |||||||||||
|
| |||||||||||||||
1,057,688 | ||||||||||||||||
Media & Entertainment 6.8% | ||||||||||||||||
AMC Entertainment, Inc. | Ba2 | 3.500 | 04/30/20 | 499 | 498,594 | |||||||||||
Audio Visual Services Group, Inc. | B1 | 6.750 | 11/09/18 | 347 | 350,849 | |||||||||||
Clear Channel Communcations, Inc. | Caa1 | 3.832 | 01/29/16 | 500 | 465,834 | |||||||||||
Crown Media Holdings, Inc. | Ba2 | 4.000 | 07/16/18 | 82 | 82,109 | |||||||||||
Emerald Expositions Holding, Inc. | B2 | 5.500 | 06/17/20 | 375 | 376,641 | |||||||||||
EMI Group North America Holdings, Inc. | Ba3 | 4.250 | 06/29/18 | 347 | 348,246 | |||||||||||
Entravision Communications Corp. | B2 | 3.500 | 05/29/20 | 250 | 246,875 |
See Notes to Financial Statements.
14 |
Description | Moody’s Ratings† | Interest Rate | Maturity Date | Principal Amount (000)# | Value (Note 1) | |||||||||||||
BANK LOANS(a) (Continued) | ||||||||||||||||||
Media & Entertainment (cont’d.) | ||||||||||||||||||
FoxCo Acquisition Sub LLC | B2 | 5.500 | % | 07/14/17 | 348 | $ | 349,067 | |||||||||||
Getty Images, Inc. | B1 | 4.750 | 10/18/19 | 498 | 478,999 | |||||||||||||
Granite Broadcasting Corp. | B2 | 6.750 | 05/23/18 | 92 | 92,527 | |||||||||||||
Gray Television, Inc. | B2 | 4.750 | 10/14/19 | 241 | 242,045 | |||||||||||||
Great Wolf Resorts, Inc. | B3 | 4.500 | 08/06/20 | 300 | 299,250 | |||||||||||||
Intelsat Jackson Holdings SA | Ba3 | 4.250 | 04/02/18 | 541 | 544,465 | |||||||||||||
Kasima LLC | Baa2 | 3.250 | 05/17/21 | 500 | 497,708 | |||||||||||||
Live Nation Entertainment, Inc. | Ba3 | 3.500 | 08/17/20 | 350 | 350,000 | |||||||||||||
Mood Media Corp. | Ba2 | 7.000 | 05/06/18 | 44 | 44,125 | |||||||||||||
NEP/NCP Holdco, Inc. | B1 | 4.750 | 01/22/20 | 498 | 499,055 | |||||||||||||
NEP/NCP Holdco, Inc. | Caa1 | 9.500 | 07/22/20 | 57 | 58,429 | |||||||||||||
RentPath, Inc. | B2 | 6.250 | 05/29/20 | 325 | 319,719 | |||||||||||||
Salem Communications Corp. | B2 | 4.500 | 03/13/20 | 148 | 148,678 | |||||||||||||
SuperMedia, Inc. | Caa1 | 11.600 | 12/30/16 | 459 | 357,987 | |||||||||||||
Telesat LLC | Ba3 | 3.500 | 03/28/19 | 396 | 396,008 | |||||||||||||
Tribune Co. | Ba3 | 4.000 | 12/31/19 | 473 | 473,807 | |||||||||||||
TWCC Holding Corp. | B3 | 7.000 | 06/26/20 | 175 | 179,375 | |||||||||||||
Univision Communications, Inc. | B2 | 4.500 | 03/01/20 | 399 | 397,606 | |||||||||||||
WMG Acquisition Corp. | Ba3 | 3.750 | 07/01/20 | 275 | 274,828 | |||||||||||||
|
| |||||||||||||||||
8,372,826 | ||||||||||||||||||
Metals & Mining 2.4% | ||||||||||||||||||
Alpha Natural Resources, Inc. | Ba1 | 3.500 | 05/22/20 | 499 | 477,909 | |||||||||||||
Arch Coal, Inc. | Ba3 | 5.750 | 05/16/18 | 371 | 359,534 | |||||||||||||
Atlas Iron Ltd. | B2 | 8.750 | 12/11/17 | 199 | 196,264 | |||||||||||||
Fairmount Minerals Ltd. | B1 | 4.262 | 03/15/17 | 100 | 99,969 | |||||||||||||
Fairmount Minerals Ltd. | B1 | 5.000 | 09/05/19 | 250 | 250,156 | |||||||||||||
FMG Resources (August 2006) Pty. Ltd. | Ba1 | 5.250 | 10/18/17 | 248 | 248,780 | |||||||||||||
JMC Steel Group, Inc. | B1 | 4.750 | 04/01/17 | 246 | 245,919 | |||||||||||||
Murray Energy Corp. | Ba3 | 4.750 | 05/24/19 | 250 | 249,375 | |||||||||||||
Oxbow Carbon & Minerals LLC | Ba3 | 4.250 | 07/19/19 | 200 | 200,750 | |||||||||||||
Oxbow Carbon LLC | B2 | 8.000 | 01/17/20 | 225 | 227,250 | |||||||||||||
Phoenix Services International LLC | B1 | 7.750 | 06/30/17 | 100 | 100,246 | |||||||||||||
SunCoke Energy, Inc. | Ba1 | 4.000 | 07/26/18 | 53 | 52,819 | |||||||||||||
Walter Energy, Inc. | B2 | 6.750 | 04/02/18 | 288 | 272,954 | |||||||||||||
|
| |||||||||||||||||
2,981,925 |
See Notes to Financial Statements.
Prudential Floating Rate Income Fund | 15 |
Portfolio of Investments
as of August 31, 2013 (Unaudited) continued
Description | Moody’s Ratings† | Interest Rate | Maturity Date | Principal Amount (000)# | Value (Note 1) | |||||||||||
BANK LOANS(a) (Continued) | ||||||||||||||||
Non-Captive Finance 2.5% | ||||||||||||||||
Altisource Portfolio Solutions | B1 | 5.750% | 11/27/19 | 349 | $ | 350,432 | ||||||||||
Flying Fortress, Inc. | Ba2 | 3.500 | 06/30/17 | 271 | 270,833 | |||||||||||
Guggenheim Partners Investment Management | Ba2 | 4.250 | 07/22/20 | 375 | 378,047 | |||||||||||
HarbourVest Partners LLC | Ba3 | 4.750 | 11/21/17 | 235 | 235,768 | |||||||||||
ION Trading Technologies Ltd. | B2 | 4.500 | 05/22/20 | 250 | 249,896 | |||||||||||
iStar Financial, Inc. | B1 | 4.500 | 10/15/17 | 216 | 216,385 | |||||||||||
Mondrian Investment Partners Ltd. | Ba2 | 4.000 | 03/09/20 | 66 | 66,085 | |||||||||||
National Financial Partners Corp. | B2 | 5.250 | 07/01/20 | 250 | 250,781 | |||||||||||
RBS Worldpay, Inc. | Ba3 | 4.750 | 11/29/19 | 475 | 476,188 | |||||||||||
SNL Financial LC | B2 | 5.500 | 10/23/18 | 369 | 368,608 | |||||||||||
StoneRiver Holdings, Inc. | B1 | 4.500 | 11/30/19 | 200 | 198,000 | |||||||||||
|
| |||||||||||||||
3,061,023 | ||||||||||||||||
Other Industry 2.9% | ||||||||||||||||
Acosta, Inc. | B1 | 5.000 | 03/02/18 | 200 | 200,597 | |||||||||||
AlixPartners LLP | B1 | 5.000 | 07/10/20 | 500 | 502,870 | |||||||||||
Alliance Laundry Holdings LLC | B2 | 9.500 | 12/10/19 | 205 | 206,080 | |||||||||||
Expert Global Solutions, Inc. | Ba3 | 8.500 | 04/03/18 | 148 | 150,212 | |||||||||||
GCA Services Group, Inc. | B1 | 5.250 | 11/01/19 | 100 | 99,570 | |||||||||||
Genpact International, Inc. | Ba2 | 3.500 | 08/30/19 | 500 | 500,000 | |||||||||||
ISS A/S | Ba3 | 3.750 | 04/30/18 | 650 | 649,391 | |||||||||||
Spin Holdco, Inc. | B2 | 4.250 | 11/14/19 | 175 | 175,350 | |||||||||||
USIC Holdings, Inc. | B2 | 4.750 | 07/10/20 | 375 | 375,187 | |||||||||||
Valleycrest Cos. LLC | B3 | 5.500 | 06/13/19 | 250 | 249,609 | |||||||||||
West Corp. | Ba3 | 3.750 | 06/30/18 | 398 | 397,683 | |||||||||||
|
| |||||||||||||||
3,506,549 | ||||||||||||||||
Packaging 1.1% | ||||||||||||||||
BWAY Holding Co. | B1 | 4.500 | 08/06/17 | 498 | 501,231 | |||||||||||
Exopack LLC | B2 | 5.000 | 05/31/17 | 245 | 246,838 | |||||||||||
Pact Group USA, Inc. | Ba3 | 3.750 | 05/29/20 | 125 | 123,985 | |||||||||||
Reynolds Group Holdings, Inc. | B1 | 4.750 | 09/30/18 | 261 | 262,864 | |||||||||||
Tricorbraun, Inc.(c) | B1 | 4.000 | 05/03/18 | 248 | 247,706 | |||||||||||
|
| |||||||||||||||
1,382,624 |
See Notes to Financial Statements.
16 |
Description | Moody’s Ratings† | Interest Rate | Maturity Date | Principal Amount (000)# | Value (Note 1) | |||||||||||
BANK LOANS(a) (Continued) | ||||||||||||||||
Paper 0.3% | ||||||||||||||||
Appvion, Inc. | Ba3 | 6.750% | 06/28/19 | 275 | $ | 273,625 | ||||||||||
Expera Specialty Solutions LLC | Caa1 | 7.500 | 12/26/18 | 150 | 149,625 | |||||||||||
|
| |||||||||||||||
423,250 | ||||||||||||||||
Pipelines & Other 0.6% | ||||||||||||||||
Atlas Energy LP | B3 | 6.500 | 07/31/19 | 500 | 506,850 | |||||||||||
EP Energy LLC | Ba3 | 3.500 | 05/24/18 | 200 | 198,875 | |||||||||||
Ruby Western Pipeline Holdings LLC | Ba2 | 3.500 | 03/27/20 | 97 | 96,825 | |||||||||||
|
| |||||||||||||||
802,550 | ||||||||||||||||
Real Estate 0.8% | ||||||||||||||||
CBRE Services | Ba1 | 2.937 | 03/26/21 | 449 | 448,501 | |||||||||||
Realogy Corp. | Ba3 | 4.433 | 10/10/16 | 15 | 14,821 | |||||||||||
Realogy Corp. | Ba3 | 4.500 | 03/05/20 | 249 | 250,622 | |||||||||||
Starwood Property Trust, Inc. | B1 | 3.500 | 04/17/20 | 249 | 249,064 | |||||||||||
|
| |||||||||||||||
963,008 | ||||||||||||||||
Retailers 3.2% | ||||||||||||||||
Academy, Ltd. | B1 | 4.500 | 08/03/18 | 197 | 197,658 | |||||||||||
Advantage Sales & Marketing LLC | B1 | 4.250 | 12/18/17 | 498 | 498,744 | |||||||||||
Bass Pro Group LLC(c) | B1 | 4.000 | 11/20/19 | 244 | 245,209 | |||||||||||
BJ’s Wholesale Club, Inc. | B3 | 4.250 | 09/26/19 | 496 | 496,101 | |||||||||||
Calceus Acquisition, Inc.(c) | B2 | 5.750 | 01/31/20 | 249 | 250,495 | |||||||||||
Harbor Freight Tools USA, Inc. | B1 | 4.750 | 07/26/19 | 369 | 371,819 | |||||||||||
Leslie’s Poolmart, Inc.(c) | B2 | 5.250 | 10/16/19 | 244 | 245,904 | |||||||||||
Neiman Marcus Group, Inc. | B2 | 4.000 | 05/16/18 | 266 | 265,871 | |||||||||||
Petco Animal Supplies, Inc.(c) | Ba3 | 4.000 | 11/24/17 | 199 | 200,174 | |||||||||||
Rite Aid Corp. | B1 | 4.000 | 02/21/20 | 374 | 374,526 | |||||||||||
Rite Aid Corp. | B3 | 5.750 | 08/21/20 | 375 | 384,258 | |||||||||||
Sprouts Farmers LLC | B1 | 4.000 | 04/23/20 | 206 | 205,972 | |||||||||||
Toys “R” Us Delaware, Inc. | B2 | 5.250 | 05/25/18 | 237 | 228,868 | |||||||||||
|
| |||||||||||||||
3,965,599 | ||||||||||||||||
Technology 8.7% | ||||||||||||||||
Alcatel-Lucent USA, Inc. | B1 | 5.750 | 01/30/19 | 250 | 251,131 | |||||||||||
Ancestry.com, Inc. | B1 | 4.250 | 05/15/18 | 238 | 237,500 | |||||||||||
Ancestry.com, Inc. | B1 | 5.250 | 12/28/18 | 182 | 183,211 | |||||||||||
Avaya, Inc. | B1 | 4.762 | 10/26/17 | 440 | 391,413 |
See Notes to Financial Statements.
Prudential Floating Rate Income Fund | 17 |
Portfolio of Investments
as of August 31, 2013 (Unaudited) continued
Description | Moody’s Ratings† | Interest Rate | Maturity Date | Principal Amount (000)# | Value (Note 1) | |||||||||||
BANK LOANS(a) (Continued) | ||||||||||||||||
Technology (cont’d.) | ||||||||||||||||
Avaya, Inc. | B1 | 8.000% | 03/30/18 | 199 | $ | 187,661 | ||||||||||
Blackboard, Inc. | B1 | 6.250 | 10/04/18 | 445 | 447,828 | |||||||||||
BMC Software Finance, Inc. | B1 | 5.000 | 09/10/20 | 450 | 449,438 | |||||||||||
CDW Corp. | Ba3 | 3.500 | 04/29/20 | 999 | 987,306 | |||||||||||
Ceridian Corp. | B1 | 4.433 | 05/09/17 | 499 | 497,970 | |||||||||||
CompuCom Systems, Inc. | B1 | 4.250 | 05/11/20 | 300 | 298,875 | |||||||||||
Deltek, Inc.(c) | B1 | 5.000 | 10/10/18 | 373 | 373,358 | |||||||||||
Eastman Kodak Co. | B1 | 7.250 | 09/03/19 | 250 | 244,063 | |||||||||||
Edwards (Cayman Islands II) Ltd. | B2 | 4.750 | 03/26/20 | 585 | 585,765 | |||||||||||
Evertec Group LLC | B1 | 3.500 | 04/17/20 | 275 | 273,488 | |||||||||||
First Data Corp. | B1 | 4.184 | 03/26/18 | 569 | 563,515 | |||||||||||
First Data Corp | B1 | 4.184 | 09/24/18 | 250 | 246,750 | |||||||||||
Freescale Semiconductor, Inc. | B1 | 5.000 | 02/28/20 | 745 | 748,143 | |||||||||||
Genesys Telecom Holdings U.S., Inc. | B1 | 4.000 | 02/10/20 | 100 | 99,557 | |||||||||||
Hyland Software, Inc. | B2 | 5.500 | 10/25/19 | 249 | 249,372 | |||||||||||
Interactive Data Corp. | Ba3 | 3.750 | 02/12/18 | 487 | 485,994 | |||||||||||
IPC Systems, Inc. | B1 | 7.750 | 07/31/17 | 150 | 148,500 | |||||||||||
Kronos, Inc. | Ba3 | 9.750 | 04/30/20 | 450 | 465,187 | |||||||||||
MMI International Ltd. | Ba3 | 7.250 | 11/20/18 | 150 | 144,000 | |||||||||||
NXP BV | B1 | 4.500 | 03/03/17 | 417 | 422,637 | |||||||||||
RP Crown Parent LLC | B1 | 6.750 | 12/21/18 | 249 | 251,030 | |||||||||||
Sophia LP | B1 | 4.500 | 07/19/18 | 145 | 145,311 | |||||||||||
SunGard Data Systems, Inc. | Ba3 | 4.000 | 03/06/20 | 249 | 251,033 | |||||||||||
SunGard Data Systems, Inc. | Ba3 | 4.500 | 01/31/20 | 249 | 251,441 | |||||||||||
Syniverse Holdings, Inc. | B1 | 4.498 | 04/23/19 | 498 | 499,027 | |||||||||||
Ultima US Holdings LLC | B2 | 5.500 | 07/02/20 | 275 | 269,500 | |||||||||||
|
| |||||||||||||||
10,650,004 | ||||||||||||||||
Telecommunications 2.9% | ||||||||||||||||
Cincinnati Bell, Inc. | Ba3 | 4.000 | 09/10/20 | 425 | 422,131 | |||||||||||
Cricket Communications, Inc. | Ba3 | 4.750 | 03/09/20 | 250 | 250,625 | |||||||||||
Crown Castle Operating Co. | Ba2 | 3.250 | 01/31/19 | 200 | 198,036 | |||||||||||
Fibertech Networks LLC | B2 | 4.500 | 12/18/19 | 191 | 191,697 | |||||||||||
Global Tel*Link Corp. | B2 | 5.000 | 05/25/20 | 346 | 338,661 | |||||||||||
Hargray Comm Group, Inc. | B2 | 4.750 | 06/26/19 | 450 | 453,375 | |||||||||||
Level 3 Finance, Inc. | Ba3 | 4.000 | 01/15/20 | 500 | 500,150 | |||||||||||
Level 3 Finance, Inc. | Ba3 | 4.750 | 08/01/19 | 500 | 501,065 | |||||||||||
LTS Buyer LLC | B1 | 4.500 | 04/13/20 | 100 | 99,958 |
See Notes to Financial Statements.
18 |
Description | Moody’s Ratings† | Interest Rate | Maturity Date | Principal Amount (000)# | Value (Note 1) | |||||||||||
BANK LOANS(a) (Continued) | ||||||||||||||||
Telecommunications (cont’d.) | ||||||||||||||||
nTelos, Inc. | B1 | 5.750% | 11/09/19 | 248 | $ | 246,574 | ||||||||||
Securus Technologies, Inc. | B2 | 4.750 | 04/30/20 | 50 | 49,188 | |||||||||||
Zayo Group LLC | B1 | 4.500 | 07/02/19 | 298 | 298,490 | |||||||||||
|
| |||||||||||||||
3,549,950 | ||||||||||||||||
Transportation 0.6% | ||||||||||||||||
Avis Budget Car Rental LLC | Ba1 | 3.000 | 03/15/19 | 248 | 246,964 | |||||||||||
Fly Funding II SARL | B1 | 4.500 | 08/08/18 | 241 | 242,010 | |||||||||||
Navios Maritime Partners LP | Ba3 | 5.250 | 06/27/18 | 250 | 253,750 | |||||||||||
|
| |||||||||||||||
742,724 | ||||||||||||||||
|
| |||||||||||||||
TOTAL BANK LOANS | 98,356,043 | |||||||||||||||
|
| |||||||||||||||
CORPORATE BONDS 9.2% | ||||||||||||||||
Capital Goods 0.8% | ||||||||||||||||
SPX Corp., | Ba3 | 6.875 | 09/01/17 | 350 | 387,625 | |||||||||||
United Rentals North America, Inc., Gtd. Notes | B3 | 9.250 | 12/15/19 | 550 | 616,687 | |||||||||||
|
| |||||||||||||||
1,004,312 | ||||||||||||||||
Chemicals 0.3% | ||||||||||||||||
NOVA Chemicals Corp. (Canada), | Ba2 | 8.625 | 11/01/19 | 200 | 221,500 | |||||||||||
Rentech Nitrogen Partners LP/Rentech Nitrogen Finance Corp., Sec’d. Notes, 144A | B1 | 6.500 | 04/15/21 | 170 | 166,600 | |||||||||||
|
| |||||||||||||||
388,100 | ||||||||||||||||
Consumer 0.7% | ||||||||||||||||
First Quality Finance Co., Inc., | B2 | 4.625 | 05/15/21 | 250 | 232,500 | |||||||||||
PVH Corp., | Ba3 | 7.375 | 05/15/20 | 200 | 216,000 | |||||||||||
Service Corp. International, | B1 | 7.625 | 10/01/18 | 250 | 284,063 | |||||||||||
Sr. Unsec’d. Notes, 144A | B1 | 5.375 | 01/15/22 | 125 | 121,406 | |||||||||||
|
| |||||||||||||||
853,969 |
See Notes to Financial Statements.
Prudential Floating Rate Income Fund | 19 |
Portfolio of Investments
as of August 31, 2013 (Unaudited) continued
Description | Moody’s Ratings† | Interest Rate | Maturity Date | Principal Amount (000)# | Value (Note 1) | |||||||||||
CORPORATE BONDS (Continued) | ||||||||||||||||
Energy - Other 0.2% | ||||||||||||||||
SESI LLC, | Ba2 | 7.125 % | 12/15/21 | 250 | $ | 270,625 | ||||||||||
Foods 0.7% | ||||||||||||||||
ARAMARK Corp., | B3 | 5.750 | 03/15/20 | 250 | 255,000 | |||||||||||
Ingles Markets, Inc., | B1 | 5.750 | 06/15/23 | 350 | 342,125 | |||||||||||
Landry’s, Inc., | B3 | 9.375 | 05/01/20 | 250 | 266,563 | |||||||||||
|
| |||||||||||||||
863,688 | ||||||||||||||||
Gaming 0.5% | ||||||||||||||||
PNK Finance Corp., | B2 | 6.375 | 08/01/21 | 250 | 249,375 | |||||||||||
SugarHouse HSP Gaming LP, | B3 | 6.375 | 06/01/21 | 375 | 356,250 | |||||||||||
|
| |||||||||||||||
605,625 | ||||||||||||||||
Healthcare & Pharmaceutical 1.0% | ||||||||||||||||
Accellent, Inc., | B1 | 8.375 | 02/01/17 | 275 | 282,563 | |||||||||||
CHS/Community Health Systems, Inc., | B3 | 8.000 | 11/15/19 | 375 | 393,750 | |||||||||||
Mallinckrodt International Finance SA (Luxembourg), | Ba2 | 4.750 | 04/15/23 | 200 | 189,634 | |||||||||||
VPII Escrow Corp. (Canada), | B1 | 6.750 | 08/15/18 | 350 | 370,562 | |||||||||||
|
| |||||||||||||||
1,236,509 | ||||||||||||||||
Lodging 0.2% | ||||||||||||||||
RHP Hotel Properties LP/RHP Finance Corp., | B1 | 5.000 | 04/15/21 | 250 | 232,500 |
See Notes to Financial Statements.
20 |
Description | Moody’s Ratings† | Interest Rate | Maturity Date | Principal Amount (000)# | Value (Note 1) | |||||||||||
CORPORATE BONDS (Continued) | ||||||||||||||||
Media & Entertainment 1.3% | ||||||||||||||||
AMC Entertainment, Inc., Gtd. Notes | Caa1 | 9.750 % | 12/01/20 | 200 | $ | 228,500 | ||||||||||
Cedar Fair, L.P., | B1 | 5.250 | 03/15/21 | 250 | 238,750 | |||||||||||
Cinemark USA, Inc., | B2 | 5.125 | 12/15/22 | 250 | 233,750 | |||||||||||
Lamar Media Corp., | Ba2 | 9.750 | 04/01/14 | 100 | 104,250 | |||||||||||
Nielsen Finance LLC/Nielsen Finance Co., | B2 | 7.750 | 10/15/18 | 250 | 271,875 | |||||||||||
Gtd. Notes | B2 | 11.625 | 02/01/14 | 200 | 208,260 | |||||||||||
SSI Investments II Ltd./SSI Co. - Issuer LLC, | Caa1 | 11.125 | 06/01/18 | 200 | 220,500 | |||||||||||
|
| |||||||||||||||
1,505,885 | ||||||||||||||||
Metals & Mining 0.5% | ||||||||||||||||
ArcelorMittal SA (Luxembourg), | Ba1 | 9.500 | 02/15/15 | 300 | 329,250 | |||||||||||
CONSOL Energy, Inc., | B1 | 8.000 | 04/01/17 | 275 | 290,125 | |||||||||||
|
| |||||||||||||||
619,375 | ||||||||||||||||
Real Estate Investment Trusts 0.4% | ||||||||||||||||
Felcor Lodging LP, | B2 | 5.625 | 03/01/23 | 350 | 325,500 | |||||||||||
Sabra Health Care LP/Sabra Capital Corp., | B1 | 5.375 | 06/01/23 | 200 | 190,000 | |||||||||||
|
| |||||||||||||||
515,500 | ||||||||||||||||
Retailers 0.5% | ||||||||||||||||
Dufry Finance SCA (Luxembourg), Gtd. Notes, 144A | Ba3 | 5.500 | 10/15/20 | 200 | 204,110 | |||||||||||
Hot Topic, Inc., | B2 | 9.250 | 06/15/21 | 100 | 101,500 |
See Notes to Financial Statements.
Prudential Floating Rate Income Fund | 21 |
Portfolio of Investments
as of August 31, 2013 (Unaudited) continued
Description | Moody’s Ratings† | Interest Rate | Maturity Date | Principal Amount (000)# | Value (Note 1) | |||||||||||
CORPORATE BONDS (Continued) | ||||||||||||||||
Retailers (cont’d.) | ||||||||||||||||
Petco Holdings, Inc., | Caa1 | 8.500 % | 10/15/17 | 250 | $ | 255,000 | ||||||||||
|
| |||||||||||||||
560,610 | ||||||||||||||||
Technology 1.0% |
| |||||||||||||||
CDW LLC/CDW Finance Corp., Gtd. Notes | B3 | 12.535 | 10/12/17 | 92 | 96,025 | |||||||||||
CommScope Holding Co., Inc., Sr. Unsec’d. Notes, PIK, 144A | Caa1 | 6.625 | 06/01/20 | 332 | 328,680 | |||||||||||
Freescale Semiconductor, Inc., Sr. Sec’d. Notes, 144A | B1 | 9.250 | 04/15/18 | 200 | 216,000 | |||||||||||
Sensata Technologies BV (Netherlands), | B1 | 6.500 | 05/15/19 | 250 | 266,250 | |||||||||||
TransUnion LLC/TransUnion Financing Corp., | B2 | 11.375 | 06/15/18 | 300 | 333,750 | |||||||||||
|
| |||||||||||||||
1,240,705 | ||||||||||||||||
Telecommunications 1.1% | ||||||||||||||||
Qwest Communications International, Inc., | Ba1 | 7.125 | 04/01/18 | 330 | 342,787 | |||||||||||
Sprint Communications, Inc., Sr. Unsec’d. Notes | B1 | 6.000 | 12/01/16 | 600 | 636,000 | |||||||||||
Sprint Nextel Corp., | Ba2 | 9.000 | 11/15/18 | 300 | 350,250 | |||||||||||
|
| |||||||||||||||
1,329,037 | ||||||||||||||||
|
| |||||||||||||||
TOTAL CORPORATE BONDS | 11,226,440 | |||||||||||||||
|
| |||||||||||||||
TOTAL LONG-TERM INVESTMENTS | 109,582,483 | |||||||||||||||
|
|
See Notes to Financial Statements.
22 |
Description | Shares | Value (Note 1) | ||||||
SHORT-TERM INVESTMENT 16.8% |
| |||||||
AFFILIATED MONEY MARKET MUTUAL FUND |
| |||||||
Prudential Investment Portfolios 2 - Prudential Core Taxable Money Market Fund | 20,678,596 | $ | 20,678,596 | |||||
|
| |||||||
TOTAL INVESTMENTS 106.1% | 130,261,079 | |||||||
Liabilities in excess of other assets (6.1)% | (7,439,963 | ) | ||||||
|
| |||||||
NET ASSETS 100.0% | $ | 122,821,116 | ||||||
|
|
The following abbreviations are used in the Portfolio descriptions:
144A—Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may not be resold subject to that rule except to qualified institutional buyers. Unless otherwise noted, 144A securities are deemed to be liquid.
PIK—Payment-in-Kind
† | The ratings reflected are as of August 31, 2013. Ratings of certain bonds may have changed subsequent to that date. The Fund’s current Statement of Additional Information contains a description of Moody’s and Standard & Poor’s ratings. |
# | Principal amount is shown in U.S. dollars unless otherwise stated. |
(a) | Variable rate instrument. The interest rate shown reflects the rate in effect at August 31, 2013. |
(b) | Standard & Poor’s Rating. |
(c) | Indicates a security or securities that have been deemed illiquid. |
(d) | Indicates a restricted security; the aggregate cost of the restricted securities is $1,248,869. The aggregate value, $1,257,023, is approximately 1.0% of net assets. |
(e) | Prudential Investments LLC, the manager of the Portfolio, also serves as manager of the Prudential Investment Portfolios 2 - Prudential Core Taxable Money Market Fund. |
Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in the three broad levels listed below.
Level 1—quoted prices generally in active markets for identical securities.
Level 2—other significant observable inputs including, but not limited to, quoted prices for similar securities, interest rates and yield curves, prepayment speeds, foreign currency exchange rates, and amortized cost.
Level 3—significant unobservable inputs for securities valued in accordance with Board approved fair valuation procedures.
See Notes to Financial Statements.
Prudential Floating Rate Income Fund | 23 |
Portfolio of Investments
as of August 31, 2013 (Unaudited) continued
The following is a summary of the inputs used as of August 31, 2013 in valuing such portfolio securities:
Level 1 | Level 2 | Level 3 | ||||||||||
Investments in Securities | ||||||||||||
Bank Loans | $ | — | $ | 86,484,886 | $ | 11,871,157 | ||||||
Corporate Bonds | — | 11,226,440 | — | |||||||||
Affiliated Money Market Mutual Fund | 20,678,596 | — | — | |||||||||
|
|
|
|
|
| |||||||
Total | $ | 20,678,596 | $ | 97,711,326 | $ | 11,871,157 | ||||||
|
|
|
|
|
|
The following is a reconciliation of assets in which significant unobservable inputs (Level 3) were used in determining fair value:
Bank Loans | ||||
Balance as of 2/28/13 | $ | 6,042,023 | ||
Realized gain (loss) | 22,113 | |||
Change in unrealized appreciation (depreciation)* | 654,880 | |||
Purchases | 8,680,477 | |||
Sales | (1,718,473 | ) | ||
Accrued discount/premium | 4,693 | |||
Transfers into Level 3 | 977,826 | |||
Transfers out of Level 3 | (2,792,382 | ) | ||
|
| |||
Balance as of 8/31/13 | $ | 11,871,157 | ||
|
|
* | Of which, $654,880 was included in Net Assets relating to securities held at the reporting period end. |
It is the Fund’s policy to recognize transfers in and transfers out at the fair value as of the beginning of period. At the reporting period end, there were 5 Bank Loans transferred out of Level 3 as a result of no longer using a single broker quote and 6 Bank Loans transferred into Level 3 as a result of using a single broker quote.
Included in the table above, under Level 3, are securities that were fair valued using pricing methodologies approved by the Valuation Committee, which contain unobservable inputs. Such methodologies may include, but are not limited to, using prices provided by a single broker/dealer, the cost of the investment, and prices of any recent transactions or bids/offers for such securities or any comparable securities.
See Notes to Financial Statements.
24 |
The industry classification of portfolio holdings and liabilities in excess of other assets shown as a percentage of net assets as of August 31, 2013 was as follows:
Affiliated Money Market Mutual Fund | 16.8 | % | ||
Technology | 9.7 | |||
Healthcare & Pharmaceutical | 9.2 | |||
Capital Goods | 8.2 | |||
Media & Entertainment | 8.1 | |||
Chemicals | 5.1 | |||
Consumer | 4.8 | |||
Telecommunications | 4.0 | |||
Foods | 4.0 | |||
Retailers | 3.7 | |||
Cable | 3.5 | |||
Gaming | 3.5 | |||
Metals & Mining | 2.9 | |||
Other Industry | 2.9 | |||
Non-Captive Finance | 2.5 | |||
Energy—Other | 2.2 | |||
Electric | 2.0 | |||
Building Materials & Construction | 2.0 | |||
Aerospace & Defense | 1.5 | % | ||
Insurance | 1.4 | |||
Automotive | 1.3 | |||
Packaging | 1.1 | |||
Lodging | 1.1 | |||
Airlines | 1.0 | |||
Brokerage | 0.9 | |||
Real Estate | 0.8 | |||
Pipelines & Other | 0.6 | |||
Transportation | 0.6 | |||
Real Estate Investment Trusts | 0.4 | |||
Paper | 0.3 | |||
|
| |||
106.1 | ||||
Liabilities in excess of other assets | (6.1 | ) | ||
|
| |||
100.0 | % | |||
|
|
See Notes to Financial Statements.
Prudential Floating Rate Income Fund | 25 |
Statement of Assets and Liabilities
as of August 31, 2013 (Unaudited)
Assets | ||||
Investments at value: | ||||
Unaffiliated Investments (cost $109,201,640) | $ | 109,582,483 | ||
Affiliated Investments (cost $20,678,596) | 20,678,596 | |||
Cash | 279,388 | |||
Receivable for investments sold | 1,913,837 | |||
Receivable for Fund shares sold | 1,702,071 | |||
Dividends and interest receivable | 667,751 | |||
Prepaid expenses | 1,354 | |||
|
| |||
Total assets | 134,825,480 | |||
|
| |||
Liabilities | ||||
Payable for investments purchased | 11,682,800 | |||
Payable for Fund shares reacquired | 157,909 | |||
Accrued expenses | 80,451 | |||
Management fee payable | 43,904 | |||
Distribution fee payable | 24,975 | |||
Dividends payable | 12,924 | |||
Affiliated transfer agent fee payable | 1,401 | |||
|
| |||
Total liabilities | 12,004,364 | |||
|
| |||
Net Assets | $ | 122,821,116 | ||
|
| |||
Net assets were comprised of: | ||||
Common stock, at par | $ | 121,333 | ||
Paid-in capital in excess of par | 122,120,576 | |||
|
| |||
122,241,909 | ||||
Undistributed net investment income | 79,225 | |||
Accumulated net realized gain on investment and foreign currency transactions | 119,139 | |||
Net unrealized appreciation on investments | 380,843 | |||
|
| |||
Net assets, August 31, 2013 | $ | 122,821,116 | ||
|
|
See Notes to Financial Statements.
26 |
Class A | ||||
Net asset value and redemption price per share | $ | 10.11 | ||
Maximum sales charge (3.25% of offering price) | 0.34 | |||
|
| |||
Maximum offering price to public | $ | 10.45 | ||
|
| |||
Class C | ||||
Net asset value, offering price and redemption price per share | $ | 10.12 | ||
|
| |||
Class Z | ||||
Net asset value, offering price and redemption price per share | $ | 10.13 | ||
|
|
See Notes to Financial Statements.
Prudential Floating Rate Income Fund | 27 |
Statement of Operations
Six Months Ended August 31, 2013 (Unaudited)
Net Income | ||||
Income | ||||
Interest income (net of foreign withholding taxes of $307) | $ | 1,920,101 | ||
Affiliated dividend income | 9,310 | |||
|
| |||
Total income | 1,929,411 | |||
|
| |||
Expenses | ||||
Management fee | 282,418 | |||
Distribution fee—Class A | 33,188 | |||
Distribution fee—Class C | 67,186 | |||
Custodian’s fees and expenses | 129,000 | |||
Audit fee | 25,000 | |||
Registration fees | 21,000 | |||
Legal fees and expenses | 11,000 | |||
Transfer agent’s fees and expenses (including affiliated expense of $3,200) (Note 3) | 11,000 | |||
Shareholders’ reports | 8,000 | |||
Director’s fees | 5,000 | |||
Miscellaneous | 5,958 | |||
|
| |||
Total expenses | 598,750 | |||
Less: Expense reimbursement (Note 2) | (115,024 | ) | ||
|
| |||
Net expenses | 483,726 | |||
|
| |||
Net investment income | 1,445,685 | |||
|
| |||
Realized And Unrealized Gain (Loss) On Investment And Foreign Currency Transactions | ||||
Net realized gain on: | ||||
Investment transactions | 169,081 | |||
Foreign currency transactions | 67 | |||
|
| |||
169,148 | ||||
|
| |||
Net change in unrealized appreciation (depreciation) on investments | (430,961 | ) | ||
|
| |||
Net loss on investment and foreign currency transactions | (261,813 | ) | ||
|
| |||
Net Increase In Net Assets Resulting From Operations | $ | 1,183,872 | ||
|
|
See Notes to Financial Statements.
28 |
Statement of Changes in Net Assets
(Unaudited)
Six Months Ended August 31, 2013 | Year Ended February 28, 2013 | |||||||
Increase (Decrease) In Net Assets | ||||||||
Operations | ||||||||
Net investment income | $ | 1,445,685 | $ | 1,945,145 | ||||
Net realized gain on investment and foreign currency transactions | 169,148 | 156,484 | ||||||
Net change in unrealized appreciation (depreciation) on investments | (430,961 | ) | 997,113 | |||||
|
|
|
| |||||
Net increase in net assets resulting from operations | 1,183,872 | 3,098,742 | ||||||
|
|
|
| |||||
Dividends and Distributions (Note 1) | ||||||||
Dividends from net investment income | ||||||||
Class A | (450,521 | ) | (522,690 | ) | ||||
Class C | (174,704 | ) | (102,219 | ) | ||||
Class Z | (735,267 | ) | (1,250,391 | ) | ||||
|
|
|
| |||||
(1,360,492 | ) | (1,875,300 | ) | |||||
|
|
|
| |||||
Distributions from net realized gains | ||||||||
Class A | — | (67,017 | ) | |||||
Class C | — | (14,389 | ) | |||||
Class Z | — | (100,135 | ) | |||||
|
|
|
| |||||
— | (181,541 | ) | ||||||
|
|
|
| |||||
Fund share transactions (Net of share conversions) (Note 6) | ||||||||
Net proceeds from shares sold | 79,998,383 | 29,270,637 | ||||||
Net asset value of shares issued in reinvestment of dividends and distributions | 1,307,063 | 2,027,427 | ||||||
Cost of shares reacquired | (17,657,842 | ) | (7,356,487 | ) | ||||
|
|
|
| |||||
Net increase in net assets from Fund share transactions | 63,647,604 | 23,941,577 | ||||||
|
|
|
| |||||
Total increase | 63,470,984 | 24,983,478 | ||||||
Net Assets: | ||||||||
Beginning of period | 59,350,132 | 34,366,654 | ||||||
|
|
|
| |||||
End of period(a) | $ | 122,821,116 | $ | 59,350,132 | ||||
|
|
|
| |||||
(a) Includes undistributed net investment income of: | $ | 79,225 | $ | — | ||||
|
|
|
|
See Notes to Financial Statements.
Prudential Floating Rate Income Fund | 29 |
Notes to Financial Statements
(Unaudited)
Prudential Investment Portfolios, Inc. 14 (the “Company”) is an open-end management investment company, registered under the Investment Company Act of 1940, as amended (“1940 Act”). The Company consists of two funds: Prudential Floating Rate Income Fund (the “Fund”) and Prudential Government Income Fund. These financial statements relate to Prudential Floating Rate Income Fund. Investment operations of the Fund commenced on March 30, 2011. The Fund’s primary investment objective is to maximize current income. The secondary investment objective is to seek capital appreciation when consistent with the Fund’s primary investment objective.
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements.
Securities Valuations: The Fund holds portfolio securities and other assets that are fair valued at the close of each day the New York Stock Exchange (“NYSE”) is open for trading. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The Board of Trustees (the “Board”) has delegated fair valuation responsibilities to Prudential Investments LLC (“PI” or “Manager”) through the adoption of Valuation Procedures for valuation of the Fund’s securities. Under the current Valuation Procedures, a Valuation Committee is established and responsible for supervising the valuation of portfolio securities and other assets. The Valuation Procedures allow the Fund to utilize independent pricing vendor services, quotations from market makers and other valuation methods in events when market quotations are not readily available or not representative of the fair value of the securities. A record of the Valuation Committee’s actions is subject to review, approval and ratification by the Board at its next regularly scheduled quarterly meeting.
Various inputs are used in determining the value of the Funds’ investments, which are summarized in the three broad levels hierarchies based on any observable inputs used as described in the table following each Fund’s Portfolio of Investments. The valuation methodologies and significant inputs used in determining the fair value of securities and other assets classified as Level 1, Level 2 and Level 3 of the hierarchy are as follows:
Common stocks, exchange-traded funds and financial derivative instruments (including futures contracts and certain options and swap contracts on securities), that
30 |
are traded on a national securities exchange are valued at the last sale price as of the close of trading on the applicable exchange. Securities traded via NASDAQ are valued at the NASDAQ official closing price. To the extent these securities are valued at the last sale price or NASDAQ official closing price, they are classified as Level 1 of the fair value hierarchy.
In the event there is no sale or official closing price on such day, these securities are valued at the mean between the last reported bid and asked prices, or at the last bid price in absence of an asked price. These securities are classified as Level 2 of the fair value hierarchy as these inputs are considered as significant other observable inputs to the valuation.
Common stocks traded on foreign securities exchanges are valued using pricing vendor services that provide model prices derived using adjustment factors based on information such as local closing price, relevant general and sector indices, currency fluctuations, depositary receipts, and futures, as applicable. Securities valued using such model prices are classified as Level 2 in the fair value hierarchy, as the adjustment factors are observable and considered to be significant to the valuation.
Investments in open-end, non-exchange-traded mutual funds are valued at their net asset values as of the close of the NYSE on the date of valuation. These securities are classified as Level 1 as these securities have the ability to be purchased or sold at their net asset value on the date of valuation.
Fixed income securities traded in the over-the-counter market, such as corporate bonds, municipal bonds, U.S. Government agencies issues and guaranteed obligations, U.S. Treasury obligations, and sovereign issues are usually valued at prices provided by approved independent pricing vendors. The pricing vendors provide these prices usually after evaluating observable inputs including yield curves, credit rating, yield spreads, default rates, cash flows as well as broker/dealer quotations and reported trades. Securities valued using such vendor prices are classified as Level 2 of the fair value hierarchy.
Asset-backed and mortgage-related securities are usually valued by approved independent pricing vendors. The pricing vendors provide the prices using their internal pricing models with inputs from deal terms, tranche level attributes, yield curves, prepayment speeds, default rates and broker/dealer quotes. Securities valued using such vendor prices are classified as Level 2 of the fair value hierarchy.
Short-term debt securities of sufficient credit quality, which mature in sixty days or less, are valued using amortized cost method, which approximates fair value. The
Prudential Floating Rate Income Fund | 31 |
Notes to Financial Statements
(Unaudited) continued
amortized cost method involves valuing a security at its cost on the date of purchase and thereafter assumes a constant amortization to maturity of the difference between the principal amount due at maturity and cost. These securities are categorized as Level 2 of the fair value hierarchy.
Over-the-counter financial derivative instruments, such as option contracts, foreign currency contracts and swap agreements, are usually valued using pricing vendor services, which derive the valuation based on underlying asset prices, indices, spreads, interest rates, exchange rates and other inputs. These instruments are categorized as Level 2 of the fair value hierarchy.
Securities and other assets that cannot be priced using the methods described above are valued with pricing methodologies approved by the Board of Trustees. In the event there are unobservable inputs used when determining such valuations, the securities will be classified as Level 3 of the fair value hierarchy.
When determining the fair value of securities, some of the factors influencing the valuation include, the nature of any restrictions on disposition of the securities; assessment of the general liquidity of the securities; the issuer’s financial condition and the markets in which it does business; the cost of the investment; the size of the holding and the capitalization of the issuer; the prices of any recent transactions or bids/offers for such securities or any comparable securities; any available analyst media or other reports or information deemed reliable by the investment adviser regarding the issuer or the markets or industry in which it operates. Using fair value to price securities may result in a value that is different from a security’s most recent closing price and from the price used by other mutual funds to calculate their net asset values.
Restricted and Illiquid Securities: The Fund may invest up to 15% of its net assets in illiquid securities. Illiquid securities are those that, because of the absence of a readily available market or due to legal or contractual restrictions on resale, cannot be sold within seven days in the ordinary course of business at approximately the amount at which the Fund has valued the investment. Therefore, the Fund may find it difficult to sell illiquid securities at the time considered most advantageous by its Subadviser and may incur expenses that would not be incurred in the sale of securities that were freely marketable. Certain securities that would otherwise be considered illiquid because of legal restrictions on resale to the general public may be traded among
32 |
qualified institutional buyers under Rule 144A of the Securities Act of 1933. These Rule 144A securities, as well as commercial paper that is sold in private placements under Section 4(2) of the Securities Act, may be deemed liquid by the Fund’s Subadviser under the guidelines adopted by the Fund. However, the liquidity of the Fund’s investments in Rule 144A securities could be impaired if trading does not develop or declines.
Foreign Currency Translation: The books and records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on the following basis:
(i) market value of investment securities, other assets and liabilities—at the current rates of exchange.
(ii) purchases and sales of investment securities, income and expenses—at the rates of exchange prevailing on the respective dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange rates and market values at the close of the period, the Fund does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the fluctuations arising from changes in the market prices of securities held at the end of the period. Similarly, the Fund does not isolate the effect of changes in foreign exchange rates from the fluctuations arising from changes in the market prices of securities sold during the period. Accordingly, realized foreign currency gains or losses are included in the reported net realized gains or losses on investment transactions.
Securities Transactions and Net Investment Income: Securities transactions are recorded on the trade date. Realized gains or losses from investment and currency transactions are calculated on the identified cost basis. Interest income, including amortization of premium and accretion of discount on debt securities, as required, is recorded on the accrual basis. Expenses are recorded on the accrual basis which may require the use of certain estimates by management, that may differ from actual. The Fund amortizes premiums and accretes discounts on purchases of debt securities as adjustments to interest income.
Net investment income or loss (other than distribution fees, which are charged directly to respective class) and unrealized and realized gains or losses are allocated daily to each class of shares based upon the relative proportion of adjusted net assets of each class at the beginning of the day.
Prudential Floating Rate Income Fund | 33 |
Notes to Financial Statements
(Unaudited) continued
Dividends and Distributions: The Fund declares daily dividends from net investment income. Payment of dividends is made monthly. Distributions of net realized capital gains, if any, are made annually. Dividends and distributions to shareholders, which are determined in accordance with federal income tax regulations and which may differ from generally accepted accounting principles, are recorded on the ex-dividend date. Permanent book/tax differences relating to income and gains are reclassified amongst undistributed net investment income, accumulated net realized gain or loss and paid-in capital in excess of par, as appropriate.
Taxes: It is the Fund’s policy to continue to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable net income and capital gains, if any, to its shareholders. Therefore, no federal income tax provision is required.
Withholding taxes on foreign interests are recorded, net of reclaimable amounts, at the time the related income is earned.
Estimates: The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
Note 2. Agreements
The Fund has a management agreement with PI. Pursuant to this agreement, PI has responsibility for all investment advisory services and supervises the subadvisor’s performance of such services. PI has entered into a subadvisory agreement with Prudential Investment Management, Inc. (“PIM”). The subadvisory agreement provides that PIM will furnish investment advisory services in connection with the management of the Fund. In connection therewith, PIM is obligated to keep certain books and records of the Fund. PI pays for the services of PIM, the cost of 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 to PI is accrued daily and payable monthly at an annual rate of ..70% of the Fund’s average daily net assets. PI has contractually agreed through June 30, 2014 to limit net annual Fund operating expenses (excluding distribution and service (12b-1) fees, extraordinary and certain other expenses,
34 |
including taxes, interest and brokerage commissions) to each class of shares to .95% of the Fund’s average daily net assets.
The Fund has a distribution agreement with Prudential Investment Management Services LLC (“PIMS”), which acts as the distributor of the Class A, Class C and Class Z shares of the Fund. The Fund compensates PIMS for distributing and servicing the Fund’s Class A and Class C shares pursuant to plans of distribution (the “Class A and C Plans”), regardless of expenses actually incurred by PIMS. The distribution fees are accrued daily and payable monthly. No distribution or service fees are paid to PIMS as distributor of the Class Z shares of the Fund.
Pursuant to the Class A and C Plans, the Fund compensates PIMS for distribution related activities at an annual rate of up to .30% and 1% of the average daily net assets of the Class A and C shares, respectively. PIMS has contractually agreed to limit such expenses to .25% of the average net assets of the Class A shares through contractual reduction date of June 30, 2014.
PIMS has advised the Fund that it has received $59,887 in front-end sales charges resulting from sales of Class A shares during the six months ended August 31, 2013. From these fees, PIMS paid a substantial portion of such sales charges to affiliated broker-dealers, which in turn paid commissions to salespersons and incurred other distribution costs.
PIMS has advised the Fund that for the six months ended August 31, 2013, it received $1,102 and $8,089 in contingent deferred sales charges imposed upon redemptions by certain Class A and Class C shareholders, respectively.
PI, PIM and PIMS are indirect, wholly-owned subsidiaries of Prudential Financial, Inc. (“Prudential”).
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC (“PMFS”), an affiliate of PI and an indirect, wholly-owned subsidiary of Prudential, serves as the Fund’s transfer agent. Transfer agent fees and expenses in the Statement of Operations include certain out-of-pocket expenses paid to non-affiliates, where applicable.
The Fund invests in the Prudential Core Taxable Money Market Fund (the “Core Fund”), a portfolio of the Prudential Investment Portfolios 2, registered under the 1940 Act and managed by PI. Earnings from the Core Fund are disclosed on the Statement of Operations as affiliated dividend income.
Prudential Floating Rate Income Fund | 35 |
Notes to Financial Statements
(Unaudited) continued
Note 4. Portfolio Securities
Purchases and sales of portfolio securities, other than short-term investments and U.S. Government securities, for the six months ended August 31, 2013 were $74,984,033 and $22,901,429, respectively.
Note 5. Tax Information
The United States federal income tax basis of investments and net unrealized appreciation as of August 31, 2013 were as follows:
Tax Basis | $ | 129,946,780 | ||
|
| |||
Appreciation | 820,674 | |||
Depreciation | (506,375 | ) | ||
|
| |||
Net Unrealized Appreciation | $ | 314,299 | ||
|
|
The book basis may differ from tax basis due to certain tax related adjustments.
Note 6. Capital
The Fund offers Class A, Class C and Class Z shares. Class A shares are sold with a front-end sales charge of up to 3.25%. All investors who purchase Class A shares in an amount of $1 million or more and sell these shares within 12 months of purchase are subject to a contingent deferred sales charge (“CDSC”) of 1% effective October 1, 2012, including investors who purchase their shares through broker-dealers affiliated with Prudential. Class C shares purchased are subject to a CDSC of 1% for 12 months from the date of 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 available exclusively for sale to a limited group of investors.
At August 31, 2013, Prudential through its affiliates owned 111 Class A shares, 109 Class C shares and 2,531,614 Class Z shares of the Fund.
There are 900 million shares of common stock, $.01 par value per share, divided into three classes, designated Class A, Class C and Class Z common stock, each of which consists of 300,000,000 authorized shares.
36 |
Transactions in shares of common stock were as follows:
Class A | Shares | Amount | ||||||
Six months ended August 31, 2013: | ||||||||
Shares sold | 2,279,279 | $ | 23,094,957 | |||||
Shares issued in reinvestment of dividends | 42,394 | 429,987 | ||||||
Shares reacquired | (904,152 | ) | (9,184,228 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding | 1,417,521 | $ | 14,340,716 | |||||
|
|
|
| |||||
Year ended February 28, 2013: | ||||||||
Shares sold | 1,969,903 | $ | 19,702,668 | |||||
Shares issued in reinvestment of dividends and distributions | 56,721 | 569,499 | ||||||
Shares reacquired | (366,508 | ) | (3,676,095 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding | 1,660,116 | $ | 16,596,072 | |||||
|
|
|
| |||||
Class C | ||||||||
Six months ended August 31, 2013: | ||||||||
Shares sold | 1,724,634 | $ | 17,509,619 | |||||
Shares issued in reinvestment of dividends | 16,754 | 170,055 | ||||||
Shares reacquired | (219,218 | ) | (2,224,913 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding | 1,522,170 | $ | 15,454,761 | |||||
|
|
|
| |||||
Year ended February 28, 2013: | ||||||||
Shares sold | 639,541 | $ | 6,451,732 | |||||
Shares issued in reinvestment of dividends and distributions | 11,181 | 112,382 | ||||||
Shares reacquired | (96,170 | ) | (965,585 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding | 554,552 | $ | 5,598,529 | |||||
|
|
|
| |||||
Class Z | ||||||||
Six months ended August 31, 2013: | ||||||||
Shares sold | 3,879,639 | $ | 39,393,807 | |||||
Shares issued in reinvestment of dividends | 69,601 | 707,021 | ||||||
Shares reacquired | (614,072 | ) | (6,248,701 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding | 3,335,168 | $ | 33,852,127 | |||||
|
|
|
| |||||
Year ended February 28, 2013: | ||||||||
Shares sold | 311,402 | $ | 3,116,237 | |||||
Shares issued in reinvestment of dividends and distributions | 134,227 | 1,345,546 | ||||||
Shares reacquired | (272,050 | ) | (2,714,807 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding | 173,579 | $ | 1,746,976 | |||||
|
|
|
|
Note 7. Borrowing
The Fund, along with other affiliated registered investment companies (the “Funds”), is a party to a Syndicated Credit Agreement (“SCA”) with a group of banks. The purpose of the SCA is to provide an alternative source of temporary funding for
Prudential Floating Rate Income Fund | 37 |
Notes to Financial Statements
(Unaudited) continued
capital share redemptions. The SCA provides for a commitment of $900 million through November 14, 2013. The Funds pay an annualized commitment fee of 0.08% on the unused portion of the SCA. Interest on any borrowings under the SCA is paid at contracted market rates. The commitment fee for the unused amount is accrued daily and paid quarterly.
The Fund did not utilize the SCA during the six months ended August 31, 2013.
38 |
Financial Highlights
(Unaudited)
Class A Shares | ||||||||||||||||
Six Months Ended August 31, | Year Ended February 28, | March 30, 2011(a) through February 29, | ||||||||||||||
2013 | 2013 | 2012 | ||||||||||||||
Per Share Operating Performance: | ||||||||||||||||
Net Asset Value, Beginning Of Period | $10.12 | $9.89 | $10.00 | |||||||||||||
Income (loss) from investment operations: | ||||||||||||||||
Net investment income | .17 | .43 | .35 | |||||||||||||
Net realized and unrealized gain (loss) on investment transactions | (.01 | ) | .26 | (.09 | ) | |||||||||||
Total from investment operations | .16 | .69 | .26 | |||||||||||||
Less Dividends and Distributions: | ||||||||||||||||
Dividends from net investment income | (.17 | ) | (.42 | ) | (.37 | ) | ||||||||||
Distributions from net realized gains | - | (.04 | ) | - | (b) | |||||||||||
Total dividends and distributions | (.17 | ) | (.46 | ) | (.37 | ) | ||||||||||
Net asset value, end of period | $10.11 | $10.12 | $9.89 | |||||||||||||
Total Return(c): | 1.65% | 7.11% | 2.70% | |||||||||||||
Ratios/Supplemental Data: | ||||||||||||||||
Net assets, end of period (000) | $36,378 | $22,059 | $5,136 | |||||||||||||
Average net assets (000) | $26,338 | $12,454 | $2,434 | |||||||||||||
Ratios to average net assets(d): | ||||||||||||||||
Expense after advisory fee waiver and expense reimbursement(e) | 1.20% | (f) | 1.20% | 1.20% | (f) | |||||||||||
Expense before advisory fee waiver and expense reimbursement | 1.48% | (f) | 1.87% | 2.40% | (f) | |||||||||||
Net investment income | 3.60% | (f) | 4.35% | 4.10% | (f) | |||||||||||
Portfolio turnover rate | 29% | (g) | 106% | 163% | (g) |
(a) Commencement of Fund.
(b) Less than $.005 per share.
(c) Total return does not consider the effects of sales loads. Total return is calculated assuming a purchase of a share on the first day and a sale on the last day of each period reported, and includes reinvestment of dividends and distributions. Total returns may reflect adjustments to conform to generally accepted accounting principles. Total returns for periods less than a full year are not annualized.
(d) Does not include expenses of the underlying portfolio in which the Fund invests.
(e) The distributor of the Fund has contractually agreed to limit its distribution and service (12b-1) fees to .25% of the average daily net assets of the Class A shares through contractual reduction date of June 30, 2014.
(f) | Annualized. |
(g) | Not annualized. |
See Notes to Financial Statements.
Prudential Floating Rate Income Fund | 39 |
Financial Highlights
(Unaudited) continued
Class C Shares | ||||||||||||||||
Six Months Ended August 31, | Year Ended February 28, | March 30, 2011(a) through February 29, | ||||||||||||||
2013 | 2013 | 2012 | ||||||||||||||
Per Share Operating Performance: | ||||||||||||||||
Net Asset Value, Beginning Of Period | $10.13 | $9.90 | $10.00 | |||||||||||||
Income (loss) from investment operations: | ||||||||||||||||
Net investment income | .13 | .36 | .28 | |||||||||||||
Net realized and unrealized gain (loss) on investment transactions | .00 | .26 | (.08 | ) | ||||||||||||
Total from investment operations | .13 | .62 | .20 | |||||||||||||
Less Dividends and Distributions: | ||||||||||||||||
Dividends from net investment income | (.14 | ) | (.35 | ) | (.30 | ) | ||||||||||
Distributions from net realized gains | - | (.04 | ) | - | (b) | |||||||||||
Total dividends and distributions | (.14 | ) | (.39 | ) | (.30 | ) | ||||||||||
Net asset value, end of period | $10.12 | $10.13 | $9.90 | |||||||||||||
Total Return(c): | 1.26% | 6.29% | 2.10% | |||||||||||||
Ratios/Supplemental Data: | ||||||||||||||||
Net assets, end of period (000) | $22,805 | $7,403 | $1,742 | |||||||||||||
Average net assets (000) | $13,328 | $2,997 | $1,235 | |||||||||||||
Ratios to average net assets(d): | ||||||||||||||||
Expense after advisory fee waiver and expense reimbursement | 1.95% | (e) | 1.95% | 1.95% | (e) | |||||||||||
Expense before advisory fee waiver and expense reimbursement | 2.23% | (e) | 2.62% | 3.15% | (e) | |||||||||||
Net investment income | 2.81% | (e) | 3.57% | 3.43% | (e) | |||||||||||
Portfolio turnover rate | 29% | (f) | 106% | 163% | (f) |
(a) Commencement of Fund.
(b) Less than $.005 per share.
(c) Total return does not consider the effects of sales loads. Total return is calculated assuming a purchase of a share on the first day and a sale on the last day of each period reported, and includes reinvestment of dividends and distributions. Total returns may reflect adjustments to conform to generally accepted accounting principles. Total returns for periods less than a full year are not annualized.
(d) Does not include expenses of the underlying portfolio in which the Fund invests.
(e) Annualized.
(f) Not annualized.
See Notes to Financial Statements.
40 |
Class Z Shares | ||||||||||||||||
Six Months Ended August 31, | Year Ended February 28, | March 30, 2011(a) through February 29, | ||||||||||||||
2013 | 2013 | 2012 | ||||||||||||||
Per Share Operating Performance: | ||||||||||||||||
Net Asset Value, Beginning Of Period | $10.14 | $9.91 | $10.00 | |||||||||||||
Income (loss) from investment operations: | ||||||||||||||||
Net investment income | .19 | .46 | .37 | |||||||||||||
Net realized and unrealized gain (loss) on investment transactions | (.01 | ) | .26 | (.07 | ) | |||||||||||
Total from investment operations | .18 | .72 | .30 | |||||||||||||
Less Dividends and Distributions: | ||||||||||||||||
Dividends from net investment income | (.19 | ) | (.45 | ) | (.39 | ) | ||||||||||
Distributions from net realized gains | - | (.04 | ) | - | (b) | |||||||||||
Total dividends and distributions | (.19 | ) | (.49 | ) | (.39 | ) | ||||||||||
Net asset value, end of period | $10.13 | $10.14 | $9.91 | |||||||||||||
Total Return(c): | 1.78% | 7.36% | 3.13% | |||||||||||||
Ratios/Supplemental Data: | ||||||||||||||||
Net assets, end of period (000) | $63,638 | $29,889 | $27,488 | |||||||||||||
Average net assets (000) | $40,373 | $27,983 | $25,812 | |||||||||||||
Ratios to average net assets(d): | ||||||||||||||||
Expense after advisory fee waiver and expense reimbursement | .95% | (e) | .95% | .95% | (e) | |||||||||||
Expense before advisory fee waiver and expense reimbursement | 1.23% | (e) | 1.62% | 2.15% | (e) | |||||||||||
Net investment income | 3.82% | (e) | 4.63% | 4.08% | (e) | |||||||||||
Portfolio turnover rate | 29% | (f) | 106% | 163% | (f) |
(a) Commencement of Fund.
(b) Less than $.005 per share.
(c) Total return is calculated assuming a purchase of a share on the first day and a sale on the last day of each period reported, and includes reinvestment of dividends and distributions. Total returns may reflect adjustments to conform to generally accepted accounting principles. Total returns for periods less than a full year are not annualized.
(d) Does not include expenses of the underlying portfolio in which the Fund invests.
(e) Annualized.
(f) Not annualized.
See Notes to Financial Statements.
Prudential Floating Rate Income Fund | 41 |
Approval of Advisory Agreements
The Fund’s Board of Directors
The Board of Directors (the “Board”) of Prudential Floating Rate Income Fund (the “Fund”)1 consists of ten individuals, eight of whom are not “interested persons” of the Fund, as defined in the Investment Company Act of 1940, as amended (the “1940 Act”) (the “Independent Directors”).2 The Board is responsible for the oversight of the Fund and its operations, and performs the various duties imposed on the Directors of investment companies by the 1940 Act. The Independent Directors have retained independent legal counsel to assist them in connection with their duties. The Chair of the Board is an Independent Director. The Board has established three standing committees: the Audit Committee, the Nominating and Governance Committee, and the Investment Committee. Each committee is chaired by, and composed of, Independent Directors.
Annual Approval of the Fund’s Advisory Agreements
As required under the 1940 Act, the Board determines annually whether to renew the Fund’s management agreement with Prudential Investments LLC (“PI”) and the Fund’s subadvisory agreement with Prudential Investment Management, Inc. (“PIM”). In considering the renewal of the agreements, the Board, including all of the Independent Directors, met on June 4-6, 2013 and approved the renewal of the agreements through July 31, 2014, after concluding that the renewal of the agreements was in the best interests of the Fund and its shareholders.
In advance of the meetings, the Board requested and received materials relating to the agreements, and had the opportunity to ask questions and request further information in connection with its consideration. Among other things, the Board considered comparative fee information from PI and PIM. Also, the Board considered comparisons with other mutual funds in relevant Peer Universes and Peer Groups, as is further discussed below.
In approving the agreements, the Board, including the Independent Directors advised by independent legal counsel, considered the factors it deemed relevant, including the nature, quality and extent of services provided by PI and the subadviser, the performance of the Fund, the profitability of PI and its affiliates, expenses and fees, and the potential for economies of scale that may be shared with the Fund and its shareholders as the Fund’s assets grow. In their deliberations, the Directors did not identify any single factor which alone was responsible for the Board’s decision to approve the agreements with respect to the Fund. In connection with its deliberations, the Board considered information provided by PI throughout the year at regular Board
1 | Prudential Floating Rate Income Fund is a series of Prudential Investment Portfolios, Inc. 14. |
2 | Ms. Alberding and Messrs. Hartstein and Quinn were elected to the Board effective September 1, 2013. |
Prudential Floating Rate Income Fund
Approval of Advisory Agreements (continued)
meetings, presentations from portfolio managers and other information, as well as information furnished at or in advance of the meetings on June 4-6, 2013.
The Directors determined that the overall arrangements between the Fund and PI, which serves as the Fund’s investment manager pursuant to a management agreement, and between PI and PIM, which serves as the Fund’s subadviser pursuant to the terms of a subadvisory agreement with PI, are in the interest of the Fund and its shareholders in light of the services performed, fees charged and such other matters as the Directors considered relevant in the exercise of their business judgment.
The material factors and conclusions that formed the basis for the Directors’ reaching their determinations to approve the continuance of the agreements are separately discussed below.
Nature, Quality and Extent of Services
The Board received and considered information regarding the nature, quality and extent of services provided to the Fund by PI and PIM. The Board considered the services provided by PI, including but not limited to the oversight of the subadviser for the Fund, as well as the provision of fund recordkeeping, compliance, and other services to the Fund. With respect to PI’s oversight of the subadviser, the Board noted that PI’s Strategic Investment Research Group (“SIRG”), which is a business unit of PI, is responsible for monitoring and reporting to PI’s senior management on the performance and operations of the subadviser. The Board also considered that PI pays the salaries of all of the officers and non-independent Directors of the Fund. The Board also considered the investment subadvisory services provided by PIM, including investment research and security selection, as well as adherence to the Fund’s investment restrictions and compliance with applicable Fund policies and procedures. The Board considered PI’s evaluation of the subadviser, as well as PI’s recommendation, based on its review of the subadviser, to renew the subadvisory agreement.
The Board considered the qualifications, backgrounds and responsibilities of PI’s senior management responsible for the oversight of the Fund and PIM, and also considered the qualifications, backgrounds and responsibilities of PIM’s portfolio managers who are responsible for the day-to-day management of the Fund’s portfolio. The Board was provided with information pertaining to PI’s and PIM’s organizational structure, senior management, investment operations, and other relevant information pertaining to both PI and PIM. The Board also noted that it received favorable compliance reports from the Fund’s Chief Compliance Officer (“CCO”) as to both PI and PIM. The Board noted that PIM is affiliated with PI.
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The Board concluded that it was satisfied with the nature, extent and quality of the investment management services provided by PI and the subadvisory services provided to the Fund by PIM, and that there was a reasonable basis on which to conclude that the Fund benefits from the services provided by PI and PIM under the management and subadvisory agreements.
Costs of Services and Profits Realized by PI
The Board was provided with information on the profitability of PI and its affiliates in serving as the Fund’s investment manager. The Board discussed with PI the methodology utilized in assembling the information regarding profitability and considered its reasonableness. The Board recognized that it is difficult to make comparisons of profitability from fund management contracts because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocations and the adviser’s capital structure and cost of capital. However, the Board considered that the cost of services provided by PI for the year ended December 31, 2012 exceeded the management fees received by PI, resulting in an operating loss to PI. The Board separately considered information regarding the profitability of the subadviser, an affiliate of PI. Taking these factors into account, the Board concluded that the profitability of PI and its affiliates in relation to the services rendered was not unreasonable.
Economies of Scale
The Board noted that the management fee schedule for the Fund does not contain breakpoints that would reduce the fee rate on assets above specified levels. The Board received and discussed information concerning whether PI realizes economies of scale as the Fund’s assets grow beyond current levels. In light of the Fund’s current size, performance and expense structure, the Board concluded that the absence of breakpoints in the Fund’s fee schedule is acceptable at this time.
Other Benefits to PI and PIM
The Board considered potential ancillary benefits that might be received by PI and PIM and their affiliates as a result of their relationship with the Fund. The Board concluded that potential benefits to be derived by PI included fees received by affiliates of PI for serving as the Fund’s securities lending agent, transfer agency fees received by the Fund’s transfer agent (which is affiliated with PI), as well as benefits to the reputation or other intangible benefits resulting from PI’s association with the Fund. The Board concluded that the potential benefits to be derived by PIM included the ability to use soft dollar credits, as well as the potential benefits consistent with those generally resulting from an increase in assets under management, specifically,
Prudential Floating Rate Income Fund
Approval of Advisory Agreements (continued)
potential access to additional research resources and benefits to the reputation. The Board concluded that the benefits derived by PI and PIM were consistent with the types of benefits generally derived by investment managers and subadvisers to mutual funds.
Performance of the Fund / Fees and Expenses
The Board considered certain additional specific factors and made related conclusions relating to the historical performance of the Fund for the one-year period ended December 31, 2012. The Board considered that the Fund commenced operations on March 30, 2011 and that longer-term performance was not yet available.
The Board also considered the Fund’s actual management fee, as well as the Fund’s net total expense ratio, for the fiscal year ended February 29, 2012. The Board considered the management fee for the Fund as compared to the management fee charged by PI to other funds and the fee charged by other advisers to comparable mutual funds in a Peer Group. The actual management fee represents the fee rate actually paid by Fund shareholders and includes any fee waivers or reimbursements. The net total expense ratio for the Fund represents the actual expense ratio incurred by Fund shareholders.
The mutual funds included in the Peer Universe (the Lipper Loan Participation Funds Performance Universe) and the Peer Group were objectively determined by Lipper Inc. (“Lipper”), an independent provider of mutual fund data. The comparisons placed the Fund in various quartiles, with the first quartile being the best 25% of the mutual funds (for performance, the best performing mutual funds and, for expenses, the lowest cost mutual funds).
The section below summarizes key factors considered by the Board and the Board’s conclusions regarding the Fund’s performance, fees and overall expenses. The table sets forth gross performance comparisons (which do not reflect the impact on performance of fund expenses, or any subsidies, expense caps or waivers that may be applicable) with the Peer Universe, actual management fees with the Peer Group (which reflect the impact of any subsidies or fee waivers), and net total expenses with the Peer Group, each of which were key factors considered by the Board.
Performance | 1 Year | 3 Years | 5 Years | 10 Years | ||||
3rd Quartile | N/A | N/A | N/A | |||||
Actual Management Fees: 1st Quartile | ||||||||
Net Total Expenses: 4th Quartile |
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• | The Board noted that the Fund outperformed its benchmark index for the one-year period. |
• | The Board accepted PI’s recommendation to continue the existing expense cap of 0.95% (exclusive of 12b-1 fees and certain other fees) through June 30, 2014. |
• | The Board considered PI’s assertion that the Fund’s relatively small asset size resulted in high fixed costs, which significantly impacted the Fund’s expense ranking. |
• | The Board concluded that, in light of the Fund’s strong performance against its benchmark index, it would be in the best interests of the Fund and its shareholders to renew the agreements. |
• | The Board concluded that the management fees (including subadvisory fees) and total expenses were reasonable in light of the services provided. |
* * *
After full consideration of these factors, the Board concluded that the approval of the agreements was in the interest of the Fund and its shareholders.
Prudential Floating Rate Income Fund
n MAIL | n TELEPHONE | n WEBSITE | ||
Gateway Center Three 100 Mulberry Street Newark, NJ 07102 | (800) 225-1852 | www.prudentialfunds.com |
PROXY VOTING |
The Board of Directors of the Fund has delegated to the Fund’s investment subadviser the responsibility for voting any proxies and maintaining proxy recordkeeping with respect to the Fund. A description of these proxy voting policies and procedures is available without charge, upon request, by calling (800) 225-1852. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the Fund’s website and on the Securities and Exchange Commission’s website. |
DIRECTORS |
Ellen S. Alberding • Kevin J. Bannon • Scott E. Benjamin • Linda W. Bynoe • Keith F. Hartstein • Michael S. Hyland • Douglas H. McCorkindale • Stephen P. Munn • Stuart S. Parker • James E. Quinn • Richard A. Redeker • Robin B. Smith • Stephen G. Stoneburn |
OFFICERS |
Stuart S. Parker, President • Scott E. Benjamin, Vice President • Grace C. Torres, Treasurer and Principal Financial and Accounting Officer • Raymond A. O’Hara, Chief Legal Officer • Deborah A. Docs, Secretary • Bruce Karpati, Chief Compliance Officer • Theresa C. Thompson, Deputy Chief Compliance Officer • Richard W. Kinville, Anti-Money Laundering Compliance Officer • Jonathan D. Shain, Assistant Secretary • Claudia DiGiacomo, Assistant Secretary • Amanda S. Ryan, Assistant Secretary • Andrew R. French, Assistant Secretary • M. Sadiq Peshimam, Assistant Treasurer • Peter Parrella, Assistant Treasurer |
MANAGER | Prudential Investments LLC | Gateway Center Three 100 Mulberry Street Newark, NJ 07102 | ||
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INVESTMENT SUBADVISER | Prudential Investment Management, Inc. | Gateway Center Two 100 Mulberry Street Newark, NJ 07102 | ||
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DISTRIBUTOR | Prudential Investment Management Services LLC | Gateway Center Three 100 Mulberry Street Newark, NJ 07102 | ||
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CUSTODIAN | The Bank of New York Mellon | One Wall Street New York, NY 10286 | ||
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TRANSFER AGENT | Prudential Mutual Fund Services LLC | PO Box 9658 Providence, RI 02940 | ||
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INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | KPMG LLP | 345 Park Avenue New York, NY 10154 | ||
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FUND COUNSEL | Willkie Farr & Gallagher LLP | 787 Seventh Avenue New York, NY 10019 |
An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. The prospectus and summary prospectus contain this and other information about the Fund. An investor may obtain a prospectus and summary prospectus by visiting our website at www.prudentialfunds.com or by calling (800) 225-1852. The prospectus and summary prospectus should be read carefully before investing. |
E-DELIVERY |
To receive your mutual fund documents online, go to www.prudentialfunds.com/edelivery and enroll. Instead of receiving printed documents by mail, you will receive notification via email when new materials are available. You can cancel your enrollment or change your email address at any time by visiting the website address above. |
SHAREHOLDER COMMUNICATIONS WITH DIRECTORS |
Shareholders can communicate directly with the Board of Directors by writing to the Chair of the Board, Prudential Floating Rate Income Fund, Prudential Investments, Attn: Board of Directors, 100 Mulberry Street, Gateway Center Three, Newark, NJ 07102. Shareholders can communicate directly with an individual Director by writing to the same address. Communications are not screened before being delivered to the addressee. |
AVAILABILITY OF PORTFOLIO SCHEDULE |
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation and location of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund’s schedule of portfolio holdings is also available on the Fund’s website as of the end of each month. |
Mutual Funds:
ARE NOT INSURED BY THE FDIC OR ANY FEDERAL GOVERNMENT AGENCY | MAY LOSE VALUE | ARE NOT A DEPOSIT OF OR GUARANTEED BY ANY BANK OR ANY BANK AFFILIATE |
PRUDENTIAL FLOATING RATE INCOME FUND
SHARE CLASS | A | C | Z | |||
NASDAQ | FRFAX | FRFCX | FRFZX | |||
CUSIP | 74439V602 | 74439V701 | 74439V800 |
MF211E2 0252773-00001-00
Item 2 – Code of Ethics – Not required, as this is not an annual filing.
Item 3 – Audit Committee Financial Expert – Not required, as this is not an annual filing.
Item 4 – Principal Accountant Fees and Services – Not required, as this is not an annual filing.
Item 5 – Audit Committee of Listed Registrants – Not applicable.
Item 6 – Schedule of Investments – The schedule is included as part of the report to shareholders filed under Item 1 of this Form.
Item 7 – Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies – Not applicable.
Item 8 – Portfolio Managers of Closed-End Management Investment Companies – Not applicable.
Item 9 – Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers –
Not applicable.
Item 10 – Submission of Matters to a Vote of Security Holders – Not applicable.
Item 11 – Controls and Procedures
(a) | It is the conclusion of the registrant’s principal executive officer and principal financial officer that the effectiveness of the registrant’s current disclosure controls and procedures (such disclosure controls and procedures having been evaluated within 90 days of the date of this filing) provide reasonable assurance that the information required to be disclosed by the registrant has been recorded, processed, summarized and reported within the time period specified in the Commission’s rules and forms and that the information required to be disclosed by the registrant has been accumulated and communicated to the registrant’s principal executive officer and principal financial officer in order to allow timely decisions regarding required disclosure. |
(b) | There has been no significant change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter of the period covered by this report that has materially affected, or is likely to materially affect, the registrant’s internal control over financial reporting. |
Item 12 – Exhibits
(a) (1) | Code of Ethics – Not required, as this is not an annual filing. |
(2) | Certifications pursuant to Section 302 of the Sarbanes-Oxley Act – Attached hereto as Exhibit EX-99.CERT. |
(3) | Any written solicitation to purchase securities under Rule 23c-1. – Not applicable. |
(b) | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act – Attached hereto as Exhibit EX-99.906CERT. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: Prudential Investment Portfolios, Inc. 14
By: | /s/ Deborah A. Docs | |
Deborah A. Docs | ||
Secretary | ||
Date: | October 21, 2013 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ Stuart S. Parker | |
Stuart S. Parker | ||
President and Principal Executive Officer | ||
Date: | October 21, 2013 |
By: | /s/ Grace C. Torres | |
Grace C. Torres | ||
Treasurer and Principal Financial Officer | ||
Date: | October 21, 2013 |