(ICON)
Prudential
Diversified FundsSM
Prudential
Diversified
High Growth
Fund
SEMI
ANNUAL
REPORT
Jan. 31, 1999
(LOGO)
<PAGE>
Prudential Diversified
High Growth Fund
Performance At A Glance.
The Prudential Diversified High Growth Fund trailed the
Lipper Growth Fund
Average in part because we target 20% of our assets to
foreign stocks which
most of our peers do not hold. Foreign stocks trailed U.S.
shares over our
reporting period. The largest contribution to our return
came from our growth
stocks while our value stocks trailed the average. Value and
growth styles of
stock investing diverged in performance, as investors
strongly preferred growth
companies, particularly large familiar ones.
Cumulative Total Returns1 As of
1/31/99
<TABLE>
<CAPTION>
Since Since
Inception2
Inception2
(Without Sales Charge) (With Sales
Charge)
<S> <C> <C>
Class A 9.30% 3.84%
Class B 9.10 4.10
Class C 9.10 7.01
Class Z 9.40 9.40
Lipper Growth
Fund Avg.3 12.41 N/A
</TABLE>
Past performance is not indicative of future results.
Principal and investment
return will fluctuate so that an investor's shares, when
redeemed, may be worth
more or less than their original cost.
1 Source: Prudential Investments Fund Management and Lipper,
Inc. Since the
Fund has been in existence less than one year, no average
annual total returns
are presented. The Fund charges a maximum front-end sales
charge of 5% for
Class A shares. Class B shares are subject to a declining
contingent deferred
sales charge (CDSC) of 5%, 4%, 3%, 2%, 1%, and 1% for six
years. Class B shares
will automatically convert to Class A shares, on a quarterly
basis,
approximately seven years after purchase. Class C shares are
subject to a
front-end sales charge of 1% and a CDSC of 1% for 18 months.
Class Z shares are
not subject to a sales charge or distribution fee.
2 Inception dates: Class A, B, C, and Z, 11/18/98.
3 The Lipper Since Inception return is for all funds in each
share class.
Investment
Advisers' Report
Prudential Investments
Fund Management LLC
- - John Van Belle, Ph.D.
- - Stacie Mintz
Sub-Advisers
The Dreyfus Corporation
Franklin Advisers, Inc.
Jennison Associates LLC
Lazard Asset Management
The Prudential Investment
Corporation
The Fund seeks to provide long-term capital appreciation. It
invests in a
diversified portfolio of stocks. There can be no assurance
that the Fund will
achieve its investment objective.
<PAGE>
High Growth Fund Diversification Target
(GRAPH)
Diversification -- spreading your investments over many
different securities --
is a basic principle of investing. It helps to reduce the
overall risk of your
portfolio. Moreover, when we rebalance our portfolio to
restore the original
weighting of different asset and style classes, the
discipline forces us to
sell high and buy low. Over time, this may improve your
return.
What Is Diversification?
Diversification -- This is how diversification works:
Mutual funds not only
provide professional money management, they also allow a
relatively small
investment to be spread over many different securities. When
you own a large
number of different securities, the impact of any one on
your return is
reduced. In addition, if you diversify your investments
among asset classes
and investment styles -- between domestic and foreign
stocks, among stocks of
companies with different market capitalizations, and between
value and growth
stocks -- it is less likely that all the securities you own
will move in the
same direction at one time. The Prudential Diversified Funds
provide more of
this buffering than a fund investing in only one asset
class. We believe this
will result in smoother returns over time.
Rebalancing -- The Diversified High Growth Fund has a target
balance of the
various asset classes. As some perform better than others,
the portfolio will
drift from this original balance: the securities that rise
most will become a
larger proportion of the invested assets. We direct new
investments to the
asset classes that have fallen below their target ratio and,
when necessary,
sell appreciated securities to maintain the balance. This
not only keeps your
risk exposure from changing too much, but it may reduce the
average cost of our
investments and increase our average selling price over
time.
Although an individual investor can diversify and rebalance,
it would require a
large investment to own the range of asset classes
represented in the
Prudential Diversified High Growth Fund. Moreover,
calculating the amounts to
allocate to each kind of security in a rebalancing would be
difficult.
Prudential Diversified Funds do it all for you.
Asset classes are classifications of investments. The most
basic distinction
among securities is among stocks, bonds, and money market
investments. Stocks
are shares of ownership in a firm. Owners share in the
profits, after debts are
paid, and share in the firm's appreciation in value.
Generally, the prices of
stocks vary with investors' estimates of a firm's earning
prospects, including
the impact of broader economic conditions. Historically,
they have been more
volatile than the prices of bonds or money market
instruments, but have greater
long-term returns. To provide greater control over
diversification, stocks are
often subdivided into more homogeneous classes by geography,
company size, or
economic sector.
Bonds are loans to a company, government, or agency. They
carry a fixed
interest rate or one that varies according to a rule that is
specified in the
bond. They have a maturity date at which they must be
repaid. Generally, bond
prices vary with current interest rates for new bonds and
with changes in the
debtor's prospects of repaying the loan. Money market
instruments are very
short-term loans, 13 months or less. Bonds and money market
instruments are
called fixed-income securities.
<PAGE>
The Economic Context.
- -------------------------------------------------
At the time we opened the Prudential Diversified Funds in
November 1998, global
financial markets had been unsettled first by an economic
recession in Asia and
then by debt defaults in Russia and China. Both stock and
bond prices had
fallen sharply, except for United States Treasury bonds,
which increased in
price as investors tried to avoid any risk at all. In
response to the turmoil,
European central banks reduced interest rates to reassure
investors about
European economic growth and the U.S. Federal Reserve Bank
made the dramatic
move of reducing rates three times within a two-month
period. (Lower interest
rates are expected to stimulate economic activity.) U.S.
stock markets began to
climb again in October, rebounding from their earlier fall.
However, as the
economy heats up, interest rates normally rise again as
demand for credit
increases. This was the setting for our initial investments
in mid-November.
Early in 1999, it became clearer that the U.S. economy was
growing rapidly, but
concerns about economies elsewhere continued. Brazil
devalued its currency --
raising the prices of all imported goods for Brazilians --
and slipped into a
recession that threatened to spread to its Latin American
trading partners.
There were signs of economic stabilization in Asia. Japan's
economy has been
contracting, despite the Japanese government's announcements
of steps to reform
and revive its economy.
The Financial Markets.
- -------------------------------------------------
Investors continued to feel insecure despite the market
bounce, so stock
advances in the United States were focused on the very
largest growth
companies. A standard benchmark for U.S. large-cap stocks is
the S&P 500 Index.
The S&P 500 rose 12% during our reporting period -- November
18, 1998 through
the end of January 1999 -- while the stocks of smaller
companies rose only 9%
(measured by the Russell 2000 Small-Cap Index).
Growth & Value.
Growth-style stocks also were significantly favored over
value stocks in all
market-cap sectors. In the large caps, growth stocks
returned 16%, while value
returned only 8%. Among small caps, the difference was even
more marked. These
differences were generally due to the strong performance of
a few of the larger
growth-style stocks, while most other stocks languished. The
concentration of
performance
Continued...
United States Treasury bonds are backed by the full faith
and credit of the
U.S. government, so investors view them as among the safest
investments.
Because of their safety, they generally carry a lower yield
than corporate or
foreign government bonds. When investors are more fearful,
the demand for these
safest of all securities increases and their price rises,
while other bonds
generally fall in value. A decline in value makes the bond's
fixed interest
payments amount to a higher yield on its purchase price.
A currency devaluation is a decline in purchasing power
compared to currencies
of other countries. One way that can happen is if a country
that has been
maintaining some control over its exchange rate, such as
Brazil, changes its
policy. The result is a sharp increase in inflation for the
Brazilian people
and a loss of purchasing power. Moreover, Brazilian
borrowers will find it much
harder to raise enough cash in local currency to service
debt denominated in
foreign currencies.
Market capitalization -- shortened to "market cap" -- is
what it would cost to
buy all of a company's stock at the current market price. It
is calculated by
multiplying the price of a share of stock by the number of
outstanding shares.
Often it is spoken of as the value the market is putting on
the entire company.
Although it is often used to represent the size of the
company, market cap is
strongly affected by the demand for the firm's stock and is
not closely tied to
other measures of size, such as number of employees,
earnings, or book value.
However, the stocks of smaller firms tend to be more
volatile, reacting more
strongly to changes in the economy or to their individual
business prospects.
Since they generally have a smaller base of earnings than
larger firms,
percentage increases up or down can be very large.
1
<PAGE>
was unusually tightly focused, a sign that investors were
sticking to the most
familiar companies.
International.
Over the same period, international stocks averaged a 6%
return, as measured by
the Morgan Stanley EAFE (Europe, Australasia, and the Far
East) Index. The
advance came mostly in the three weeks ending January 8,
1999, with a great
deal of market volatility around it. The Pacific region was
recovering from a
steep plunge over the prior two years. Although the European
return also was
substantial for such a short period, it trailed the world
average slightly. It
also represented a sharp bounce from its more brief and
shallow decline in the
summer of 1998. Japan's return to U.S. investors during this
period was
overwhelmingly due to the rise of the yen against the
dollar. This rise of the
yen was not helpful to Japan's economic recovery and, in
fact, reversed early
in January 1999.
Two popular investment styles are growth and value. Growth
managers look among
the most rapidly growing companies for those with the best
long-term prospects,
while value managers look among neglected and inexpensive
companies for those
with the best earnings prospects or asset values for the
dollar. Historically,
at any given time one style has worked better than the
other, but they have
alternated in periods of superior performance.
Our Performance.
- -------------------------------------------------
Growth-style investing in U.S. stocks -- both large- and
small-cap stocks, but
primarily large -- was the most successful strategy during
our reporting
period. Since about a fifth of our assets are allocated to
international
stocks and about half of our domestic stocks to value-style
investing, we
trailed our Lipper Growth Fund Average benchmark.
Portfolio managers who follow a disciplined approach are
clearly focused on
what they are looking for; we believe that they will
generally perform better
over the long term than less methodical investors, although
no one investment
style is superior in all markets. So we divided our stock
allocation into
portions to be invested in value and growth styles by
different managers. Our
large growth stocks were tightly focused on companies with
above-average
current and projected earnings growth. In a market that
strongly favored that
style, they performed even better than the growth-stock
average, by a
substantial margin. They had a focus on the technology and
health-care sectors,
which were market favorites. Our large value stocks also
were invested in a
very disciplined manner, and they suffered more than most in
an environment
hostile to their style. As we hoped, however, our growth-
stock winners beat
their benchmark by a much greater margin than our value
stocks trailed theirs.
In all the other asset classes, our holdings performed about
in line with their
benchmarks.
2
<PAGE>
A Message to Our Shareholders
March 26, 1999
- ------------------------------------------------------------
- -------------------
(PHOTO)
Dear Shareholder,
When I think about how Prudential's clients can benefit from
their investments,
one of my recent concerns is how misleading today's equity
markets have become.
Major index advances continue to be driven by the stocks of
a handful of very
large companies. These stocks are getting more and more
expensive, out of
proportion to their earnings expectations. As a result, a
substantial disparity
in value continues to grow between large and small companies
and between
growth and value stocks.
Since not all stocks are benefiting from the highly
publicized euphoria
surrounding each record-breaking milestone, it is unlikely
that these trends
will continue. In fact, history shows that markets generally
bring prices in
line with earnings performance sooner or later.
Diversification Is Critical.
Instead of chasing recent market winners, investors should
have a
well-diversified asset allocation strategy in place and keep
to it. It is also
a good practice to rebalance your holdings when necessary to
keep your asset
allocation consistent with your long-term objectives and
risk tolerance. A
properly diversified portfolio of value- and growth-oriented
mutual funds, bond
funds and money market funds could help you weather
inevitable market
turbulence and receive more consistent returns over time.
Prudential offers a
wide range of mutual funds to help our shareholders
diversify.
Thank you for your continued confidence in Prudential mutual
funds.
Sincerely,
John R. Strangfeld
Chief Investment Officer
Prudential Investments
<PAGE>
Portfolio of Investments as of January 31, 1999
PRUDENTIAL DIVERSIFIED FUNDS
(Unaudited)
PRUDENTIAL HIGH GROWTH FUND
- ------------------------------------------------------------
- -------------------
- ------------------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--92.3%
COMMON STOCKS
- ------------------------------------------------------------
Advertising--0.5%
700 Catalina Marketing Corp.(a) $
46,725
5,600 Omnicom Group Inc.
358,400
--------
- ---
405,125
- ------------------------------------------------------------
Aerospace/Defense--0.9%
55,500 British Aerospace PLC (United
Kingdom)(a)
421,517
900 Cordant Technologies Inc.
28,575
5,100 Gencorp Inc.
119,213
2,100 Raytheon Co. (Class 'A' Stock)
117,075
1,700 Raytheon Co. (Class 'B' Stock)
95,094
--------
- ---
781,474
- ------------------------------------------------------------
Airlines--0.7%
2,500 Alaska Air Group, Inc.(a)
125,937
3,500 Continental Airlines, Inc.(a)
119,438
18,000 Mesaba Holdings, Inc.(a)
360,000
--------
- ---
605,375
- ------------------------------------------------------------
Aluminum--0.3%
3,200 Alcoa Inc.
267,600
- ------------------------------------------------------------
Apparel--0.8%
3,500 Kellwood Co.
97,125
8,700 Tropical Sportswear Intl., Corp.(a)
294,712
27,200 Wolverine World Wide, Inc.
300,900
--------
- ---
692,737
- ------------------------------------------------------------
Appliances--0.2%
12,800 Electrolux AB, Series B (Sweden)
198,516
- ------------------------------------------------------------
Auto & Truck--1.7%
2,800 Arvin Industries, Inc.
110,775
2,600 Borg-Warner Automotive, Inc.
125,125
2,200 DaimlerChrysler AG (Germany) $
229,348
101,200 LucasVarity PLC (United Kingdom)
482,980
2,000 General Motors Corp.
179,500
31,000 Nissan Motor Co., Ltd. (Japan)(a)
111,923
3,000 Varlen Corp.
72,000
4,800 Volvo AB, Series B (Sweden)
130,738
--------
- ---
1,442,389
- ------------------------------------------------------------
Banking--7.0%
11,600 Argentina, Caja Postal y Banco
Hipotecario de Espana SA,
(Spain)(a)
297,509
4,100 BancorpSouth, Inc.
70,469
8,500 Bank of New York Co., Inc.
301,750
1,400 Bank United Corp. (Class 'A' Stock)
56,000
6,200 BankAmerica Corp.
414,625
1,400 Banknorth Group, Inc.
41,825
3,600 Banque Nationale de Paris (France)
327,208
11,800 Chase Manhattan Corp.
907,862
1,500 City National Corp.
51,844
6,200 Commercial Federal Corp.
141,825
900 CORUS Bankshares, Inc.
30,600
3,600 Cullen/Frost Bankers, Inc.
186,975
3,940 CVB Financial Corp.
76,337
200 First Citizens BancShares, Inc.
(Class 'A' Stock)
17,650
18,400 Golden State Bancorp Inc.(a)
343,850
2,300 Harbor Florida Bancshares, Inc.
25,588
6,400 HSBC Holdings PLC (Hong Kong)(a)
159,401
1,500 ING Groep N.V. (Netherlands)(a)
87,481
4,200 MAF Bancorp, Inc.
101,850
11,800 Merita PLC, Series A (Finland)
75,794
15,100 National Westminster Bank PLC
(United Kingdom)(a)
277,824
10,800 Nordbanken Holding AB (Sweden)
74,751
3,700 North Fork Bancorporation, Inc.
77,700
7,500 Peoples Heritage Financial Group,
Inc.
135,000
1,400 Queens County Bancorp Inc.
44,362
1,800 Republic New York Corp.
65,925
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as of January 31, 1999
PRUDENTIAL DIVERSIFIED FUNDS
(Unaudited)
PRUDENTIAL HIGH GROWTH FUND
- ------------------------------------------------------------
- -------------------
- ------------------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Banking (cont'd.)
19,100 Sao Paolo Imi SpA (Italy) $
311,593
2,300 St Paul Bancorp, Inc.
53,188
52,000 Sumitomo Trust & Banking Co., Ltd.
(Japan)
143,488
5,500 Svenska Handelsbanken, Series A
(Sweden)
218,537
2,260 Unidanmark AS (Denmark)
188,279
31,000 United Overseas Bank Ltd.
(Singapore)
185,102
1,900 Washington Federal, Inc.
48,806
5,500 Washington Mutual, Inc.
231,000
3,600 Westamerica Bancorporation
126,675
22,500 Westpac Banking Corp. (Australia)
155,764
--------
- ---
6,054,437
- ------------------------------------------------------------
Building & Construction--2.4%
3,400 American Standard Companies Inc.(a)
116,875
4,200 Centex Corp.
181,387
1,810 Compagnie de Saint Gobain (France)
253,508
9,600 D.R. Horton, Inc.
202,800
5,800 Lone Star Industries, Inc.
213,150
3,300 M.D.C. Holdings, Inc.
69,300
8,800 Pulte Corp.
265,650
2,900 Southdown, Inc.
161,131
4,300 Thomas Industries Inc.
79,013
8,100 Toll Brothers, Inc.(a)
186,300
5,100 U.S. Home Corp.(a)
181,050
8,500 Webb (Delaware E.) Corp.
221,000
--------
- ---
2,131,164
- ------------------------------------------------------------
Cable & Pay Television Systems--0.5%
11,000 Jones Intercable, Inc.(a)
396,000
- ------------------------------------------------------------
Chemicals--1.0%
1,900 Dow Chemical Co.
167,319
3,200 Eastman Chemical Co.
130,000
6,800 Hoechst AG (Germany)
292,216
20,500 Imperial Chemical Industries PLC
(United Kingdom)
184,540
2,600 Spartech Corp.
62,075
--------
- ---
836,150
Computer Services--3.5%
7,900 3Com Corp.(a) $
371,300
9,300 Affiliated Computer Services,
Inc.(a)
448,725
2,300 Ascend Communications, Inc.(a)
200,819
5,900 Autodesk, Inc.
260,706
6,500 Cisco Systems, Inc.(a)
725,156
1,200 Computer Task Group, Inc.
31,425
3,300 Hypercom Corp.(a)
42,281
15,100 Platinum Technology International
Inc.(a)
200,075
6,400 Symbol Technologies, Inc.
403,200
18,400 Xylan Corp.(a)
372,600
--------
- ---
3,056,287
- ------------------------------------------------------------
Computers--6.0%
12,000 Aspect Development, Inc.(a)
346,500
7,900 Cadence Design Systems, Inc.(a)
252,800
2,000 Citrix Systems, Inc.(a)
181,250
18,400 Compaq Computer Corp.
876,300
4,600 Dell Computer Corp.(a)
460,000
9,000 Hewlett-Packard Co.
705,375
2,200 International Business Machines
Corp.
403,150
4,500 Microsoft Corp.(a)
787,500
2,900 NeoMagic Corp.(a)
40,781
11,700 Oracle Corp.(a)
647,888
600 SCM Microsystems, Inc.(a)
47,250
10,700 Seagate Technology, Inc.(a)
435,356
--------
- ---
5,184,150
- ------------------------------------------------------------
Consumer Products--1.4%
6,700 Avon Products, Inc.
247,481
1,700 Fossil, Inc.(a)
50,416
1,800 Hitachi Ltd. (ADR)
128,925
5,100 Mikasa, Inc.
58,013
9,200 Tandy Corp.
496,800
17,200 Unilever PLC (United Kingdom)
170,544
--------
- ---
1,152,179
- ------------------------------------------------------------
Distribution/Wholesalers--0.4%
15,500 Brightpoint, Inc.(a)
271,250
1,200 Ingram Micro Inc.(a)
36,375
--------
- ---
307,625
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 5
<PAGE>
Portfolio of Investments as of January 31, 1999
PRUDENTIAL DIVERSIFIED FUNDS
(Unaudited)
PRUDENTIAL HIGH GROWTH FUND
- ------------------------------------------------------------
- -------------------
- ------------------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Diversfied Consumer Products--0.1%
2,200 Franklin Covey Co.(a) $
36,575
2,300 InaCom Corp.(a)
30,044
--------
- ---
66,619
- ------------------------------------------------------------
Diversified Operations--0.8%
14,900 Granada Group PLC (United Kingdom)
266,175
1,550 Vivendi (France)
453,569
--------
- ---
719,744
- ------------------------------------------------------------
Diversified Manufacturing--1.5%
1,600 Crane Co.
43,500
3,900 CUNO, Inc.(a)
54,600
6,000 General Electric Co.
629,250
52,000 BTR Siebe PLC (United Kingdom)
176,287
3,650 Siemens AG (Germany)
259,551
95 Swatch Group AG (Switzerland)(a)
51,397
2,600 SPS Technologies, Inc.(a)
127,888
--------
- ---
1,342,473
- ------------------------------------------------------------
Electronics--0.5%
2,500 Koninklijke (Royal) Philips
Electronics N.V. (Netherlands)
181,896
2,700 Sony Corp. (Japan)
196,123
1,200 Tecumseh Products Co.
53,625
--------
- ---
431,644
- ------------------------------------------------------------
Electronic Components--2.7%
5,600 AMP Inc.
294,700
8,200 Arrow Electronics, Inc.(a)
135,300
2,900 Avnet, Inc.
130,319
5,100 CHS Electronics, Inc(a)
76,181
1,800 CTS Corp.
85,612
20,600 Gentex Corp.(a)
471,225
1,400 Idacorp Inc.
46,025
1,400 Innovex, Inc.
26,775
10,000 Matsushita Electric Industrial Co.,
Ltd. (Japan)
169,861
3,000 Omron Corp. (Japan)
32,752
1,900 Pittway Corp. $
53,319
5,000 Sanmina Corp.
331,250
4,800 Texas Instruments Inc.
474,600
--------
- ---
2,327,919
- ------------------------------------------------------------
Engineering & Construction--0.2%
15,500 ABB AB, Series A (Sweden)
151,982
- ------------------------------------------------------------
Entertainment--0.1%
10,900 EMI Group PLC (United Kingdom)
69,959
- ------------------------------------------------------------
Fertilizer--0.1%
1,900 Potash Corp. of Saskatchewan Inc.
114,950
- ------------------------------------------------------------
Financial Services--5.8%
1,300 American Express Co.
133,737
1,400 Arthur J. Gallagher & Co.
70,000
7,700 Associates First Capital Corp.
312,331
1,500 Chittenden Corp.
42,563
16,900 Citigroup Inc.
947,456
500 Dain Rauscher Corp.
15,438
4,200 Downey Financial Corp.
92,663
4,600 Eaton Vance Corp.
94,875
8,200 Financial Security Assurance
Holdings Ltd.
450,487
2,100 Lehman Brothers Holdings Inc.
114,844
17,000 MBNA Corp.
474,937
1,200 Morgan (J.P.) & Co., Inc.
126,600
13,200 Morgan Stanley Dean Witter Discover
& Co.
1,145,925
3,600 Orix Corp. (Japan)
245,405
3,300 Promise Co., Ltd. (Japan)
158,291
8,300 Resource Bancshares Mortgage Group,
Inc.
123,462
4,850 Schwab (Charles) Corp.
341,016
2,100 Webster Financial Corp.
62,738
--------
- ---
4,952,768
- ------------------------------------------------------------
Food & Beverage--1.5%
600 Adolph Coors Co.
38,437
14,000 Asahi Breweries Ltd. (Japan)
188,705
7,700 Cadbury Schweppes PLC (United
Kingdom)
122,917
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 6
<PAGE>
Portfolio of Investments as of January 31, 1999
PRUDENTIAL DIVERSIFIED FUNDS
(Unaudited)
PRUDENTIAL HIGH GROWTH FUND
- ------------------------------------------------------------
- -------------------
- ------------------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Food & Beverage (cont'd.)
1,600 Corn Products International, Inc. $
42,500
21,800 Diageo PLC (United Kingdom)
244,138
5,100 Heineken NV (Netherlands)
275,402
1,800 J & J Snack Foods Corp.(a)
43,650
99 Nestle SA (Switzerland)
181,687
1,100 Richfood Holdings, Inc.
25,506
3,600 Riviana Foods, Inc.
81,900
2,200 Universal Foods Corp.
49,500
--------
- ---
1,294,342
- ------------------------------------------------------------
Forestry--0.1%
4,100 Georgia-Pacific Corp. (Timber Group)
92,250
- ------------------------------------------------------------
Gas Distribution--0.4%
4,600 Energen Corp.
78,488
4,300 KeySpan Energy
116,369
2,200 ONEOK, Inc.
64,350
5,800 WICOR, Inc.
116,362
--------
- ---
375,569
- ------------------------------------------------------------
Health Care--2.9%
19,900 Columbia/HCA Healthcare Corp.
360,687
1,700 Curative Health Services, Inc.
50,894
16,800 Foundation Health Systems, Inc.
154,350
3,053 McKesson HBOC, Inc.
229,357
2,800 PacifiCare Health Systems, Inc.(a)
198,100
13,200 PAREXEL International Corp.(a)
343,200
672 Priority Healthcare Corp.
26,124
1,000 Safeskin Corp.(a)
23,375
2,200 Serologicals Corp.(a)
58,025
17,700 Tenet Healthcare Corp.(a)
367,275
3,200 United Healthcare Corp.
143,200
7,300 Wellpoint Health Networks Inc.(a)
546,131
--------
- ---
2,500,718
- ------------------------------------------------------------
Home Furnishings--0.7%
11,300 Ethan Allen Interiors Inc.
539,575
3,000 Furniture Brands International,
Inc.(a)
70,500
--------
- ---
610,075
Hotels--0.5%
12,000 Hilton Hotels Corp. $
173,250
12,000 Park Place Entertainment Corp.(a)
81,750
5,800 Promus Hotel Corp.(a)
173,275
--------
- ---
428,275
- ------------------------------------------------------------
Human Resources--0.5%
22,100 RemedyTemp, Inc.(a)
403,325
- ------------------------------------------------------------
Industrial Technology/Instruments--0.1%
3,700 EG&G, Inc.
104,987
- ------------------------------------------------------------
Insurance--6.6%
9,000 ACE Ltd.
252,000
633 Allianz AG (Germany)
232,439
12,200 Allied Zurich PLC (United Kingdom)
188,327
2,100 American Financial Group, Inc.
76,125
1,500 American General Corp.
106,969
4,200 American International Group, Inc.
432,337
1,800 Amerin Corp.(a)
41,850
2,000 Axa-UAP (France)
290,579
2,900 Capital Re Corp.
52,744
7,300 Chubb Corp.
428,875
5,100 Equitable Companies Inc.
355,725
2,190 Fidelity National Financial, Inc.
58,309
1,800 First American Financial Corp.
55,013
3,200 Harleysville Group Inc.
67,600
1,310 Medical Assurance Inc.(a)
39,955
6,600 Mutual Risk Management Ltd.
242,550
10,700 Old Republic International Corp.
209,319
1,400 Orion Capital Corp.
49,875
1,500 PartnerRe Ltd.
67,969
4,400 Presidential Life Corp.
81,950
3,300 Protective Life Corp.
114,056
3,800 Provident Companies, Inc.
162,925
20,100 Prudential Corp. PLC (United
Kingdom)
310,442
5,400 Reinsurance Group of America, Inc.
363,487
28,900 Royal & Sun Alliance Insurance Group
PLC (United Kingdom)(a)
220,325
9,900 SAFECO Corp.
384,862
5,500 St. Paul Companies Inc.
161,563
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 7
<PAGE>
Portfolio of Investments as of January 31, 1999
PRUDENTIAL DIVERSIFIED FUNDS
(Unaudited)
PRUDENTIAL HIGH GROWTH FUND
- ------------------------------------------------------------
- -------------------
- ------------------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Insurance (cont'd.)
2,200 Tokio Marine & Fire Insurance Co.
Ltd, ADR $
125,400
1,900 UNUM Corp.
114,831
545 Zurich Versicherungs-Gesellschaft
(Switzerland)
403,547
--------
- ---
5,691,948
- ------------------------------------------------------------
Machinery--0.5%
3,600 IDEX Corp.
82,125
3,200 JLG Industries, Inc.
50,400
6,400 Lincoln Electric Holdings, Inc.
135,200
1,800 Milacron Inc.
35,213
1,600 Regal-Beloit Corp.
36,800
2,600 Terex Corp.(a)
64,025
--------
- ---
403,763
- ------------------------------------------------------------
Manufacturing--0.3%
2,400 Compagnie Generale des
Etablissements Michelin, Series B
(France)
91,894
2,000 Nintendo Co. Ltd. (Japan)
185,679
--------
- ---
277,573
- ------------------------------------------------------------
Media--1.5%
16,800 CBS Corp.(a)
571,200
6,100 Clear Channel Communications,
Inc.(a)
377,437
8,000 Infinity Broadcasting Corp.(a)
221,500
3,600 King World Productions, Inc.(a)
98,550
--------
- ---
1,268,687
- ------------------------------------------------------------
Metals--0.5%
27,600 Broken Hill Proprietary Co. Ltd.
(Australia)
202,900
1,800 Cleveland-Cliffs Inc.
73,575
2,800 Commercial Metals Co.
68,950
1,400 Kaydon Corp.
46,987
2,200 RTI International Metals, Inc.
27,225
--------
- ---
419,637
Mining--0.4%
13,300 Freeport-McMoRan Copper & Gold
Inc.(a) $
127,181
10,600 Newmont Mining Corp.
187,488
--------
- ---
314,669
- ------------------------------------------------------------
Miscellaneous--0.2%
75 SGS Societe Generale de Surveillance
Holding SA (Switzerland)
66,248
520 Thyssen AG (Germany)
88,083
--------
- ---
154,331
- ------------------------------------------------------------
Office Equipment & Supplies--1.1%
9,800 Harris Corp.
367,500
1,900 Kimball International, Inc. (Class
'B' Stock)
33,487
24,000 Ricoh Co., Ltd. (Japan)
233,130
2,400 Xerox Corp.
297,600
--------
- ---
931,717
- ------------------------------------------------------------
Oil & Gas--2.8%
1,200 Amerada Hess Corp.
57,000
3,900 Atlantic Richfield Co.
223,762
2,700 BOC Group PLC, ADR
76,275
19,500 BP Amoco PLC (United Kingdom)
265,715
3,000 Devon Energy Corp.
78,563
8,000 Elf Aquitaine SA, ADR
437,000
2,270 Elf Aquitaine SA (France)
246,194
36,300 ENI SPA (Italy)
215,417
6,300 Helmerich & Payne, Inc.
110,644
16,900 Newfield Exploration Co.(a)
314,762
4,200 Occidental Petroleum Corp.
63,263
5,900 Oryx Energy Co.(a)
71,906
1,490 R & B Falcon Corp.(a)
10,523
1,100 SEACOR SMIT Inc.
48,950
6,400 Tesoro Petroleum Corp
69,600
2,800 Total SA, ADR
143,325
--------
- ---
2,432,899
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 8
<PAGE>
Portfolio of Investments as of January 31, 1999
PRUDENTIAL DIVERSIFIED FUNDS
(Unaudited)
PRUDENTIAL HIGH GROWTH FUND
- ------------------------------------------------------------
- -------------------
- ------------------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Paper & Packaging--2.6%
2,200 Ball Corp. $
99,000
1,600 Caraustar Industries, Inc.
45,200
2,500 Fort James Corp
89,688
6,000 Georgia-Pacific Group
387,000
6,200 International Paper Co.
245,287
7,900 Mead Corp.
226,138
2,900 Rayonier Inc.
127,600
3,000 Rock-Tenn Co. (Class 'A' Stock)
54,000
4,200 Temple-Inland Inc.
239,662
3,200 Universal Forest Products Inc.
63,200
2,600 UPM-Kymmene Oyj (Finland)
67,984
4,800 Weyerhaeuser Co.
259,800
8,500 Willamette Industries, Inc.
297,500
--------
- ---
2,202,059
- ------------------------------------------------------------
Pharmaceuticals--4.7%
1,000 Alpharma Inc.
34,625
7,600 American Home Products Corp.
446,025
13,300 Astra AB, Series B (Sweden)
284,687
1,600 Bindley Western Industries Inc.
40,400
3,600 Eli Lilly & Co.
337,275
1,535 Medtronic, Inc.
122,282
2,600 Merck & Co., Inc.
381,550
1,600 Ocular Sciences, Inc.(a)
37,000
3,300 Pfizer Inc.
424,463
4,300 Pharmacia & Upjohn, Inc.
247,250
6,800 Rhone-Poulenc SA, Series A (France)
357,926
1,900 Roberts Pharmaceutical Corp.
37,050
16 Roche Holding AG (Switzerland)
209,222
9,700 Schering-Plough Corp.
528,650
3,500 ThermoQuest Corp.(a)
39,375
6,600 Warner-Lambert Co.
476,437
--------
- ---
4,004,217
- ------------------------------------------------------------
Photography--0.2%
3,100 Eastman Kodak Co.
202,662
Printing & Publishing--0.3%
1,000 Consolidated Graphics, Inc.(a) $
72,500
2,300 Hollinger International Inc.
30,188
10,400 Mirror Group PLC (United Kingdom)
36,113
1,100 Valassis Communications, Inc.(a)
56,237
1,800 World Color Press, Inc.(a)
44,325
--------
- ---
239,363
- ------------------------------------------------------------
Real Estate Investment Trusts--0.9%
4,400 Franchise Finance Corp. of America
101,200
17,400 Glenborough Realty Trust Inc.
305,587
15,200 MeriStar Hospitality Corp.
292,600
4,300 Rouse Co.
101,588
--------
- ---
800,975
- ------------------------------------------------------------
Restaurants--1.6%
12,500 CKE Restaurants, Inc.
296,875
27,100 Darden Restaurants, Inc.
508,125
1,000 IHOP Corp.
43,000
4,600 McDonald's Corp.
362,537
13,100 Ryan's Family Steak Houses, Inc.(a)
180,944
--------
- ---
1,391,481
- ------------------------------------------------------------
Retail--5.2%
1,000 American Eagle Outfitters, Inc.(a)
68,375
1,000 BJ's Wholesale Club, Inc.(a)
44,500
1,900 Buckle Inc.
50,825
1,500 Department 56, Inc.
47,438
12,000 Dillard's Inc. (Class 'A' stock)
297,750
6,050 GAP, Inc.
388,334
13,700 Great Universal Stores PLC (United
Kingdom)
175,521
9,600 Home Depot, Inc.
579,600
17,500 IKON Office Solutions Inc.
280,000
23,000 Kmart Corp.(a)
403,937
6,700 Kohl's Corp.(a)
453,925
4,840 Metro AG (Germany)
393,418
6,800 Pep Boys - Manny, Moe & Jack
107,100
4,300 Rite Aid Corp.
211,238
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 9
<PAGE>
Portfolio of Investments as of January 31, 1999
PRUDENTIAL DIVERSIFIED FUNDS
(Unaudited)
PRUDENTIAL HIGH GROWTH FUND
- ------------------------------------------------------------
- -------------------
- ------------------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Retail (cont'd.)
3,400 Ross Stores, Inc. $
134,300
2,500 Sears, Roebuck & Co.
100,313
10,500 Staples, Inc.(a)
300,562
8,100 Toys 'R' Us, Inc.(a)
121,500
2,200 Wal-Mart Stores, Inc.
189,200
2,200 Zale Corp.(a)
72,188
--------
- ---
4,420,024
- ------------------------------------------------------------
Semiconductors--1.8%
5,500 Applied Materials, Inc.(a)
347,531
5,300 Etec Systems, Inc.(a)
284,544
3,600 Intel Corp.
507,375
5,000 KLA-Tencor Corp.(a)
288,750
8,500 National Semiconductor Corp.
109,969
--------
- ---
1,538,169
- ------------------------------------------------------------
Software--3.1%
14,500 Cambridge Technology Partners,
Inc.(a)
429,563
2,700 Check Point Software Technologies
Ltd.
130,950
2,000 Dialogic Corp.(a)
51,000
6,400 Documentum Inc.(a)
149,200
12,300 HNC Software Inc.(a)
355,163
15,100 I2 Technologies Inc.(a)
526,612
2,900 Intuit, Inc.(a)
263,900
7,300 Rational Software Corp.(a)
241,356
5,900 VERITAS Software Corp.(a)
493,387
--------
- ---
2,641,131
- ------------------------------------------------------------
Steel - Producers--0.4%
9,900 AK Steel Holding Corp.
206,044
4,900 Reliance Steel & Aluminum Co.
134,137
--------
- ---
340,181
- ------------------------------------------------------------
Telecommunications--6.4%
3,900 Air Touch Communications, Inc.(a)
376,594
1,850 Alcatel (France)
215,785
2,900 Aliant Communications Inc.
123,250
3,700 ALLTEL Corp.
238,881
38,500 Aspect Telecommunications Corp.(a)
346,500
3,100 AT&T Corp.
281,325
12,500 Excel Switching Corporation
346,094
11,200 Loral Space & Communications Ltd.(a) $
246,400
12,900 MCI WorldCom, Inc.(a)
1,028,775
31,000 Natural MicroSystems Corp.(a)
211,188
19 Nippon Telegraph & Telephone Corp.
(Japan)
153,202
2,200 Nokia Corp. ADR(a)
316,800
6 NTT Mobile Communications (Japan)
252,729
7,800 Pacific Gateway Exchange, Inc.(a)
258,375
600 Plantronics Inc.
48,413
5,200 Qwest Communications International,
Inc.(a)
311,675
2,200 Tekelec(a)
44,000
54,000 Telecom Italia SpA (Italy)
365,270
8,200 Telefonica SA (Spain)
375,217
--------
- ---
5,540,473
- ------------------------------------------------------------
Tobacco--2.2%
26,100 British America Tobacco PLC (United
Kingdom)
270,388
28 Japan Tobacco, Inc. (Japan)
271,985
6,100 Loews Corp.
513,543
7,200 Philip Morris Co., Inc.
338,400
12,800 RJR Nabisco Holdings Corp.
345,600
3,600 Universal Corp
109,125
--------
- ---
1,849,041
- ------------------------------------------------------------
Trucking & Shipping--0.4%
15,700 Air Express International Corp.
296,337
2,300 USFreightways Corp.
80,213
--------
- ---
376,550
- ------------------------------------------------------------
Utilities--2.2%
3,200 Atmos Energy Corp.
95,400
3,200 BEC Energy
122,400
6,200 California Water Service Group
161,587
4,300 Calpine Corp.(a)
159,100
1,700 Cleco Corp.
53,550
2,600 Conectiv Inc.
58,500
8,200 Endesa SA (Spain)
228,300
2,100 GPU, Inc.
89,513
3,700 Houston Industries, Inc.(a)
112,387
4,600 Public Service Company of New
Mexico(a)
86,538
900 Rochester Gas & Electric Corp.
25,875
1,250 Suez Lyonnaise des Eaux (France)
257,781
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 10
<PAGE>
Portfolio of Investments as of January 31, 1999
PRUDENTIAL DIVERSIFIED FUNDS
(Unaudited)
PRUDENTIAL HIGH GROWTH FUND
- ------------------------------------------------------------
- -------------------
- ------------------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Utilities (cont'd.)
1,800 TNP Enterprises, Inc. $
64,013
3,900 Unicom Corp.
138,937
65 Viag AG (Germany)
35,248
7,600 Washington Gas Light Co.
182,400
1,800 WPS Resources Corp.
58,950
--------
- ---
1,930,479
- ------------------------------------------------------------
Waste Management--0.6%
23,000 Safety-Kleen Corp.(a)
347,875
3,600 Waste Management, Inc.
179,775
--------
- ---
527,650
--------
- ---
Total long-term investments
(cost $73,818,555)
79,398,486
--------
- ---
Principal
Amount
(000)
SHORT-TERM INVESTMENTS--9.2%
- ------------------------------------------------------------
REPURCHASE AGREEMENT
$ 7,860 Joint Repurchase Agreement Account,
4.72%, 2/1/99
(Cost $7,860,000; Note 5)
7,860,000
--------
- ---
- ------------------------------------------------------------
Total Investments--101.5%
(cost $81,678,555; Note 4)
87,258,486
Liabilities in excess of other
assets--(1.5%)
(1,265,514)
--------
- ---
Net Assets--100%
$85,992,972
--------
- ---
--------
- ---
</TABLE>
- ---------------
(a) Non-income producing security.
ADR--American Depository Receipt.
AG--Aktiengesellschaft (German Stock Company).
PLC--Public Limited Company (British Corporation).
SA-- Sociedad Anonima (Spanish Corporation) or Societe
Anonyme (French
Corporation).
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 11
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL
DIVERSIFIED FUNDS
(Unaudited) PRUDENTIAL
HIGH GROWTH FUND
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Assets
January 31, 1999
<S>
<C>
Investments, at value (cost
$81,678,555)................................................
.................. $ 87,258,486
Foreign currency, at value (cost
$103,033)...................................................
............. 100,455
Cash........................................................
..............................................
87,440
Receivable for Fund shares
sold........................................................
................... 955,332
Receivable for investments
sold........................................................
................... 163,086
Deferred offering
costs.......................................................
............................ 78,132
Dividends and interest
receivable..................................................
....................... 52,916
Forward currency contracts - net amount receivable from
counterparties....................................
307
- ----------------
Total
assets......................................................
..................................... 88,696,154
- ----------------
Liabilities
Payable for investments
purchased...................................................
...................... 2,366,881
Accrued expenses and other
liabilities.................................................
................... 142,958
Payable for Fund shares
reacquired..................................................
...................... 112,873
Management fee
payable.....................................................
............................... 52,185
Distribution fee
payable.....................................................
............................. 23,557
Forward currency contracts - net amount payable to
counterparties.........................................
3,762
Withholding taxes
payable.....................................................
............................ 966
- ----------------
Total
liabilities.................................................
..................................... 2,703,182
- ----------------
Net
Assets......................................................
.......................................... $
85,992,972
- ----------------
- ----------------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
......... $ 7,868
Paid-in capital in excess of
par.........................................................
.............. 79,286,869
- ----------------
79,294,737
Accumulated net investment
loss........................................................
................ (66,080)
Accumulated net realized gain on investments and foreign
currency transactions.........................
1,187,220
Net unrealized appreciation on investments and foreign
currency........................................
5,577,095
- ----------------
Net assets, January 31,
1999........................................................
...................... $ 85,992,972
- ----------------
- ----------------
Class A:
Net asset value and redemption price per share
($6,491,347 / 593,865 shares of beneficial interest
issued and outstanding).........................
$10.93
Maximum sales charge (5% of offering
price)......................................................
...... .58
- ----------------
Maximum offering price to
public......................................................
................. $11.51
- ----------------
- ----------------
Class B:
Net asset value, offering price and redemption price per
share
($16,933,926 / 1,551,895 shares of beneficial interest
issued and outstanding)......................
$10.91
- ----------------
- ----------------
Class C:
Net asset value and redemption price per share
($13,604,080 / 1,246,477 shares of beneficial interest
issued and outstanding)......................
$10.91
Sales charge (1% of offering
price)......................................................
.............. .11
- ----------------
Offering price to
public......................................................
......................... $11.02
- ----------------
- ----------------
Class Z:
Net asset value, offering price and redemption price per
share
($48,963,619 / 4,475,514 shares of beneficial interest
issued and outstanding)......................
$10.94
- ----------------
- ----------------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 12
<PAGE>
PRUDENTIAL DIVERSIFIED FUNDS
PRUDENTIAL HIGH GROWTH FUND
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
November 18,
1998(a)
Through
Net Investment Loss January 31, 1999
<S> <C>
Income
Interest............................ $ 112,325
Dividends (net of foreign
withholding taxes of $1,477)..... 122,212
-----------
Total income..................... 234,537
-----------
Expenses
Management fee...................... 113,635
Distribution fee--Class A........... 2,282
Distribution fee--Class B........... 21,727
Distribution fee--Class C........... 21,517
Custodian's fees and expenses....... 54,000
Amortization of offering costs...... 19,868
Registration fees................... 19,500
Reports to shareholders............. 16,000
Transfer agent's fees and
expenses......................... 13,500
Legal fees.......................... 8,700
Audit fee and expenses.............. 7,300
Trustees' fees and expenses......... 1,250
Miscellaneous....................... 1,338
-----------
Total expenses................... 300,617
-----------
Net investment loss.................... (66,080)
-----------
Realized and Unrealized Gain (Loss)
on Investment and Foreign Currency
Transactions
Net realized gain (loss) on:
Investment transactions............. 1,204,388
Foreign currency transactions....... (17,168)
-----------
1,187,220
-----------
Net unrealized appreciation
(depreciation) on:
Investments......................... 5,579,931
Foreign currency.................... (2,836)
-----------
5,577,095
-----------
Net gain on investments and foreign
currencies.......................... 6,764,315
-----------
Net Increase in Net Assets
Resulting from Operations $6,698,235
-----------
-----------
</TABLE>
- ---------------
(a) Commencement of investment operations.
PRUDENTIAL DIVERSIFIED FUNDS
PRUDENTIAL HIGH GROWTH FUND
Statement of Changes in Net Assets (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
November 18,
1998(a)
Increase (Decrease) In Through
Net Assets January 31,
1999
<S> <C>
Operations
Net investment loss..................... $
(66,080)
Net realized gain on investments and
foreign currency transactions........
1,187,220
Net unrealized appreciation of
investments and foreign currencies...
5,577,095
---------------
- -----
Net increase in net assets resulting
from operations......................
6,698,235
---------------
- -----
Fund share transactions (net of share
conversions) (Note 6)
Net proceeds from shares subscribed.....
83,526,501
Cost of shares reacquired...............
(4,271,764)
---------------
- -----
Net increase in net assets from Fund
share transactions...................
79,254,737
---------------
- -----
Total increase.............................
85,952,972
Net Assets
Beginning of period........................
40,000
---------------
- -----
End of period.............................. $
85,992,972
---------------
- -----
---------------
- -----
</TABLE>
- ---------------
(a) Commencement of investment operations.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 13
<PAGE>
PRUDENTIAL
DIVERSIFIED FUNDS
Notes to Financial Statements (Unaudited) PRUDENTIAL
HIGH GROWTH FUND
- ------------------------------------------------------------
- --------------------
Prudential Diversified Funds (the 'Trust') is registered
under the Investment
Company Act of 1940, as an open-end, diversified management
investment company
presently consisting of three Portfolios: Prudential
Diversified Conservative
Growth Fund, Prudential Diversified Moderate Growth Fund and
Prudential
Diversified High Growth Fund (the 'Fund'). The Trust was
organized as a business
trust in Delaware on October 24, 1997. The Fund had no
significant operations
other than the issuance of 1,000 shares each of Class A,
Class B, Class C and
Class Z shares for each Portfolio of beneficial interest for
$40,000 on June 16,
1998 to Prudential Investments Fund Management LLC ('PIFM').
The Fund commenced
investment operations on November 18, 1998.
The investment objective of the Fund is to seek to provide
long-term capital
appreciation. The Fund pursues its objective by investing in
a diversified
portfolio of equity securities issued by U.S. and foreign
companies. Under
normal circumstances, substantially all of the Fund's assets
will be invested in
equity securities, including common stock, securities
convertible into common
stock and preferred stock.
- ------------------------------------------------------------
Note 1. Accounting Policies
The following is a summary of significant accounting
policies followed by the
Fund and the Series in the preparation of its financial
statements.
Securities Valuation: Securities listed on a securities
exchange are valued at
the last sales price on such exchange on the day of
valuation, or, if there was
no sale on such day, at the mean between the last bid and
asked prices on such
day or at the bid price on such day in the absence of an
asked price. Securities
that are actively traded in the over-the-counter market,
including listed
securities for which the primary market is believed by the
Manager, in
consultation with the subadvisor, to be over-the-counter,
are valued by an
independent pricing agent of principal market maker.
Convertible debt securities
that are actively traded in the over-the-counter market,
including listed
securities for which the primary market is believed by the
Manager and the
Subadvisor to be over-the-counter, are valued at the mean
between the last
reported bid and asked prices provided by a principal market
maker. Options on
securities and indices traded on an exchange are valued at
the last sale price,
or if there was no sale on such day, at mean between the
most recently quoted
bid and asked prices on such exchange. Futures contracts and
options thereon
traded on a commodities exchange or board of trade are
valued at the last sales
price at the close of trading on such exchange or board of
trade or, if there
was no sale on the applicable commodities exchange or board
of trade on such
day, at the mean between the most recently quoted bid and
asked prices on such
exchange or board of trade. Privately placed securities
including equity
securities for which market prices may be obtained from
primary dealers shall be
valued at the bid prices provided by such primary dealers.
Securities for which
market quotations are not readily available, may be valued
using the last
available market quotation for a period not to exceed five
days, provided the
Manager and Subadvisor feel this is representative of market
value.
Short-term securities which mature in more than 60 days are
valued at current
market quotations. Short-term securities which mature in 60
days or less are
valued at amortized cost.
In connection with transactions in repurchase agreements
with U.S. financial
institutions, it is the Funds' policy that its custodian or
designated
subcustodians, as the case may be under triparty repurchase
agreements, take
possession of the underlying securities, the value of which
exceeds the
principal amount of the repurchase transaction including
accrued interest. If
the seller defaults and the value of the collateral declines
or if bankruptcy
proceedings are commenced with respect to the seller of the
security,
realization of the collateral by the Fund may be delayed or
limited.
All securities are valued as of 4:15 p.m., New York time.
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
closing daily rates of exchange.
(ii) purchases and sales of investment securities, income
and expenses - at the
rate 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 fiscal 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 long-term
portfolio securities sold
during the period. Accordingly, these realized foreign
currency (losses) are
included in the reported net realized (losses) on investment
transactions.
Net realized (losses) on foreign currency transactions
represent net foreign
exchange gains or losses from holdings of foreign
currencies, currency gains or
losses realized between the trade and settlement dates on
security
- ------------------------------------------------------------
- --------------------
14
<PAGE>
PRUDENTIAL
DIVERSIFIED FUNDS
Notes to Financial Statements (Unaudited) PRUDENTIAL
HIGH GROWTH FUND
- ------------------------------------------------------------
- --------------------
transactions, and the difference between the amounts of
dividends, interest and
foreign taxes recorded on the Fund's books and the U.S.
dollar equivalent
amounts actually received or paid. Net unrealized currency
gains or losses from
valuing foreign currency denominated assets and liabilities
(other than
investments) at fiscal period end exchange rates are
reflected as a component of
net unrealized appreciation on investments and foreign
currencies.
Foreign security and currency transactions may involve
certain considerations
and risks not typically associated with those of domestic
origin as a result of,
among other factors, the possibility of political and
economic instability and
the level of governmental supervision and regulation of
foreign securities
markets.
Forward Currency Contracts: A forward currency contract is a
commitment to
purchase or sell a foreign currency at a future date at a
negotiated forward
rate. The Fund enters into forward currency contracts in
order to hedge its
exposure to changes in foreign currency exchange rates on
its foreign portfolio
holdings or on specific receivables and payables denominated
in a foreign
currency. The contracts are valued daily at current exchange
rates any
unrealized gain or loss is included in net unrealized
appreciation or
depreciation on investments. Gain or loss is realized on the
settlement date of
the contract equal to the difference between the settlement
value of the
original and renegotiated forward contracts. This gain or
loss, if any, is
included in net realized gain (loss) on foreign currency
transactions. Risks may
arise upon entering into these contracts from the potential
inability of the
counterparties to meet the terms of their contracts.
Securities Transactions and Net Investment Income:
Securities transactions are
recorded on the trade date. Realized gains and losses from
investment and
currency transactions are calculated on the identified cost
basis. Dividend
income is recorded on the ex-dividend date; interest income
is recorded on the
accrual basis. Expenses are recorded on the accrual basis
which may require the
use of certain estimates by management.
Net investment income (loss), other than distribution fees,
and unrealized and
realized gains or losses are allocated daily to each class
of shares based upon
the relative proportion of net assets of each class at the
beginning of the day.
Dividends and Distributions: The Fund expects to pay
dividends of net investment
income quarterly, and distributions of net realized capital
and currency gains,
if any, annually. Dividends and distributions are recorded
on the ex-dividend
date.
Income distributions and capital gain distributions are
determined in accordance
with income tax regulations which may differ from generally
accepted accounting
principles.
Taxes: For federal income tax purposes, each Fund in the
Trust is treated as a
separate taxpaying entity. It is the intent of the Fund to
continue to meet the
requirements of the Internal Revenue Code applicable to
regulated investment
companies and to distribute all of its taxable income to
shareholders.
Therefore, no federal income tax provision is required.
Withholding taxes on foreign dividends have been provided
for in accordance with
the Fund's understanding of the applicable country's tax
rules and rates.
Deferred Offering Cost: The Fund incurred approximately
$98,000 in connection
with the organization of the Fund. Offering costs are being
amortized over a
period of 12 months ending November 1999.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with PIFM. Pursuant to
this agreement, PIFM
manages the investment operations of the Fund, administers
the Fund's affairs
and supervises the subadviser's performance of all
investment advisory services
services. PIFM pays for the costs pursuant to the advisory
agreements, the cost
of compensation of officers of the Fund, occupancy and
certain clerical and
accounting costs of the Fund. The management fee paid PIFM
is computed daily and
payable monthly at an annual rate of .75% of the average
daily net assets of the
Fund. PIFM, in turn, pays the Advisers' fees, computed daily
and paid monthly,
equal to the annual rate specified below based on the
average daily net assets
of the Fund segments they manage.
<TABLE>
<CAPTION>
Fee Paid By PIFM
Advisers to Advisers
- ------------------------------ --------------------------
- -------
<S> <C>
Jennison Associates LLC .30% with respect to the
first
$300 million; .25% for
amounts
in excess of $300 million
The Prudential Investment N/A1
Corporation
Lazard Asset Management .40%
Franklin Advisers, Inc. .50%
The Dreyfus Corporation .45%
1Under the Advisory Agreement between PIFM and PIC, PIC is
reimbursed by PIFM for its reasonable costs and expenses.
</TABLE>
The Fund has a distribution agreement with Prudential
Investment Management
Services LLC ('PIMS') which acts as the distributor of the
Class
- ------------------------------------------------------------
- --------------------
15
<PAGE>
PRUDENTIAL DIVERSIFIED FUNDS
Notes to Financial Statements (Unaudited)
PRUDENTIAL HIGH GROWTH FUND
- ------------------------------------------------------------
- --------------------
A, Class B, Class C and Class Z shares of the Fund. The Fund
compensates PIMS
for distributing and servicing the Fund's Class A, Class B
and Class C shares,
pursuant to plans of distribution, (the 'Class A, B and C
plans'), regardless of
expenses actually incurred by PIMS. The distribution fees
are accrued daily and
payable monthly. No distribution or service fees are paid to
PIMS as distributor
for Class Z shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates
PIMS for
distribution-related activities at an annual rate of up to
.30 of 1%, 1% and 1%
of the average daily net assets of the Class A, B and C
shares, respectively.
Such expenses under the Plans were .25 of 1%, 1% and 1% of
the average daily net
assets of the Class A, B and C shares respectively, for the
period ended January
31, 1999.
PIMS has advised the Fund that it has received approximately
$131,800 and
$42,100 in front-end sales charges resulting from sales of
Class A and Class C
shares, respectively, during the period ended January 31,
1999.
PIMS has advised the Fund that for the period ended January
31, 1999, it has
received approximately $1,700 and $700 in contingent
deferred sales charges
imposed upon certain redemptions by Class B and Class C
shareholders,
respectively.
PIMS, PIC and PIFM are indirect, wholly owned subsidiaries
of The Prudential
Insurance Company of America.
The Trust, along with other affiliated registered investment
companies (the
'Funds'), entered into a credit agreement (the 'Agreement')
with an unaffiliated
lender. The maximum commitment under the Agreement is
$200,000,000. Interest on
any such borrowings outstanding will be at market rates. The
purpose of the
Agreement is to serve as an alternative source of funding
for capital share
redemptions. The Fund did not borrow any amounts pursuant to
the Agreement
during the period ended January 31, 1999. The Funds pay a
commitment fee at an
annual rate of .055 of 1% on the unused portion of the
credit facility. The
commitment fee is accrued and paid quarterly on a pro rata
basis by the Funds.
The Agreement expired on February 28, 1999 and has been
extended through March
12, 1999 under the same terms.
- ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned
subsidiary of PIFM,
serves as the Trust's transfer agent. During the period
ended January 31, 1999,
the Fund incurred fees of approximately $2,900 for the
services of PMFS. As of
January 31, 1999 approximately $1,700 of such fees were due
to PMFS. Transfer
agent fees and expenses in the Statement of Operations
include certain
out-of-pocket expenses paid to nonaffiliates.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of portfolio securities, excluding short-
term investments,
for the period ended January 31, 1999 were $77,030,728 and
$4,416,561,
respectively.
At January 31, 1999, the Fund had outstanding forward
currency contracts to
purchase and sell foreign currencies as follows:
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date Current
Appreciation
Purchase Contracts Payable Value
(Depreciation)
- --------------------------------- --------------- -------
- - ---------------
<S> <C> <C>
<C>
Euro Currency,
expiring 2/26/99................ $ 96,127 $
94,575 $(1,552)
Pound Sterling,
expiring 2/2/99................. 46,618
46,230 (388)
Pound Sterling,
expiring 2/1/99................. 111,089
110,306 (783)
Japanese Yen,
expiring 2/1/99................. 168,656
167,714 (942)
Japanese Yen,
expiring 2/2/99................. 18,779
18,682 (97)
------- -------
- - ------
$ 441,269
$437,507 $(3,762)
------- -------
- - ------
------- -------
- - ------
</TABLE>
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date Current
Appreciation
Sales Contracts Payable Value
(Depreciation)
- --------------------------------- --------------- -------
- - ---------------
<S> <C> <C>
<C>
Euro Currency,
expiring 2/1/99................. $ 104,729
$104,511 $ 218
Pound Sterling,
expiring 2/1/99................. 16,724
16,635 89
------- -------
- - ---
$ 121,453
$121,146 $ 307
------- -------
- - ---
------- -------
- - ---
</TABLE>
The United States federal income tax basis of the Funds'
investments as of
January 31, 1999 was substantially the same as for financial
reporting purposes
and accordingly, net unrealized appreciation on investments
for federal income
tax purposes was $5,579,931 (gross unrealized appreciation--
$8,731,725, gross
unrealized depreciation--$3,151,794).
- ------------------------------------------------------------
Note 5. Joint Repurchase Agreement Account
The Fund, along with other affiliated registered investment
companies, transfers
uninvested cash balances into a single joint account, the
daily aggregate
balance of which is invested in one or more repurchase
agreements collateralized
by U.S. Treasury or federal agency obligations. As of
January 31, 1999, the
Series had a 1.2% undivided interest in the repurchase
agreements in the joint
account. The undivided interest for the Series represents
$7,860,000 in
principal amount. As of such date, each
- ------------------------------------------------------------
- --------------------
16
<PAGE>
PRUDENTIAL
DIVERSIFIED FUNDS
Notes to Financial Statements (Unaudited) PRUDENTIAL
HIGH GROWTH FUND
- ------------------------------------------------------------
- --------------------
repurchase agreement in the joint account and the collateral
therefore were as
follows:
Bear, Stearns & Co. Inc., 4.75%, in the principal amount of
$200,000,000
repurchase price $200,079,167, due 2/1/99. The value of the
collateral including
accrued interest was $206,615,704.
Salomon Brothers, Inc., 4.73%, in the principal amount of
$200,000,000,
repurchase price $200,078,833, due 2/1/99. The value of the
collateral including
accrued interest was $204,209,880.
Morgan (J.P.) Securities Inc., 4.72%, in the principal
amount of $200,000,000,
repurchase price $200,078,667, due 2/1/99. The value of the
collateral including
accrued interest was $204,000,313.
Warburg Dillon Read LLC, 4.62%, in the principal amount of
$80,255,000,
repurchase price of $80,285,898, due 2/1/99. The value of
the collateral
including accrued interest was $81,862,553.
- ------------------------------------------------------------
Note 6. Capital
The Fund offers Class A, Class B, Class C and Class Z
shares. Class A shares are
sold with a front-end sales charge of up to 5%. 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 C shares are sold
with a front-end
sales charge of 1% and a contingent deferred sales charge of
1% during the first
18 months. Class B shares automatically convert to Class A
shares on a quarterly
basis approximately seven years after purchase. A special
exchange privilege is
also available for shareholders who qualified to purchase
Class A shares at net
asset value. Class Z shares are not subject to any sales or
redemption charge
and are offered exclusively for sale to a limited group of
investors. Of the
7,867,751 shares of beneficial interest issued and
outstanding at January 31,
1999, Prudential owned 4,471,689.
The Fund has authorized an unlimited number of shares of
beneficial interest at
$.001 par value.
Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- -------------------------------------- --------- -------
- ----
<S> <C> <C>
November 18, 1998(a) through
January 31, 1999:
Shares sold........................... 692,206 $
7,114,794
Shares reacquired..................... (99,607)
(1,014,320)
--------- -------
- ----
Net increase in shares outstanding
before conversion................... 592,599
6,100,474
Shares issued upon conversion from
Class B............................. 266
2,685
--------- -------
- ----
Net increase in shares outstanding.... 592,865 $
6,103,159
--------- -------
- ----
--------- -------
- ----
<CAPTION>
Class B
- --------------------------------------
<S> <C> <C>
November 18, 1998(a) through
January 31, 1999:
Shares sold........................... 1,575,853
$16,237,667
Shares reacquired..................... (24,691)
(264,138)
--------- -------
- ----
Net increase in shares outstanding
before conversion................... 1,551,162
15,973,529
Shares reacquired upon conversion into
Class A............................. (267)
(2,685)
--------- -------
- ----
Net increase in shares outstanding.... 1,550,895
$15,970,844
--------- -------
- ----
--------- -------
- ----
<CAPTION>
Class C
- --------------------------------------
<S> <C> <C>
November 18, 1998(a) through
January 31, 1999:
Shares sold........................... 1,278,342
$13,005,290
Shares reacquired..................... (32,865)
(342,060)
--------- -------
- ----
Net increase in shares outstanding.... 1,245,477
$12,663,230
--------- -------
- ----
--------- -------
- ----
<CAPTION>
Class Z
- --------------------------------------
<S> <C> <C>
November 18, 1998(a) through
January 31, 1999:
Shares sold........................... 4,716,512
$47,168,750
Shares reacquired..................... (241,998)
(2,651,246)
--------- -------
- ----
Net increase in shares outstanding.... 4,474,514
$44,517,504
--------- -------
- ----
--------- -------
- ----
</TABLE>
- ---------------
(a) Commencement of investment operations.
- ------------------------------------------------------------
- --------------------
17
<PAGE>
PRUDENTIAL
DIVERSIFIED FUNDS
Financial Highlights (Unaudited) PRUDENTIAL
HIGH GROWTH FUND
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class A Class B Class C
- ------------ ------------ ------------
<S>
<C> <C> <C>
November 18, November 18, November 18,
1998(a) 1998(a) 1998(a)
Through Through Through
January 31, January 31, January 31,
1999(d) 1999(d) 1999(d)
- ------------ ------------ ------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period........................................ $10.00
$ 10.00 $ 10.00
- ----- ------ ------
Income from investment operations:
Net investment
income......................................................
. (0.01) (0.02) (0.02)
Net realized and unrealized gain on investment and foreign
currency
transactions................................................
............. 0.94 0.93
0.93
- ----- ------ ------
Total from investment
operations.........................................
0.93 0.91 0.91
- ----- ------ ------
Net asset value, end of
period..............................................
$10.93 $ 10.91 $ 10.91
- ----- ------ ------
- ----- ------ ------
TOTAL
RETURN(b)...................................................
.......... 9.30% 9.10% 9.10%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).............................................
$6,491 $ 1,934 $ 13,604
Average net assets
(000)....................................................
$4,442 $ 10,574 $ 10,471
Ratios to average net assets:(c)
Expenses, including distribution
fees.................................... 1.96%
2.71% 2.71%
Expenses, excluding distribution
fees.................................... 1.71%
1.71% 1.71%
Net investment
loss......................................................
(0.44)% (1.24)% (1.19)%
Portfolio turnover
rate.....................................................
6% 6% 6%
<CAPTION>
Class Z
- ------------
<S>
<C>
November 18,
1998(a)
Through
January 31,
1999(d)
- ------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period........................................ $ 10.00
- ------
Income from investment operations:
Net investment
income......................................................
. --
Net realized and unrealized gain on investment and foreign
currency
transactions................................................
............. 0.94
- ------
Total from investment
operations.........................................
0.94
- ------
Net asset value, end of
period.............................................. $
10.94
- ------
- ------
TOTAL
RETURN(b)...................................................
.......... 9.40%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)............................................. $
48,248
Average net assets
(000)....................................................
$ 48,964
Ratios to average net assets:(c)
Expenses, including distribution
fees.................................... 1.71%
Expenses, excluding distribution
fees.................................... 1.71%
Net investment
loss......................................................
(0.10)%
Portfolio turnover
rate.....................................................
6%
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) Total return does not consider the effect of sales
loads. Total return is
calculated assuming a purchase of shares on the first
day and a sale on the
last day of each period reported and includes
reinvestment of dividends and
distributions. Total return for periods of less than a
full year are not
annualized.
(c) Annualized.
(d) Based on weighted average shares outstanding during the
period.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 18
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
How many times have you read these letters -- or other
financial
materials -- and stumbled across a word that you don't
understand?
Many shareholders have run into the same problem. We'd like
to
help. So we'll use this space from time to time to explain
some
of the words you might have read, but not understood. And if
you have a favorite word that no one can explain to your
satisfaction, please write to us.
Basis Point: 1/100th of 1%. For example, one-half of one
percent is 50 basis points.
Collateralized Mortgage Obligations (CMOs): Mortgage-backed
bonds that separate mortgage pools into different maturity
classes, called tranches. These instruments are sensitive
to changes in interest rates and homeowner refinancing
activity. They
are subject to prepayment and maturity extension risk.
Derivatives: Securities that derive their value from other
securities. The rate of return of these financial
instruments
rises and falls -- sometimes very suddenly -- in response to
changes in some specific interest rate, currency, stock, or
other
variable.
Discount Rate: The interest rate charged by the Federal
Reserve on loans to member banks.
Federal Funds Rate: The interest rate charged by one bank
to another on overnight loans.
Futures Contract: An agreement to purchase or sell a
specific amount of a commodity or financial instrument
at a set price at a specified date in the future.
Leverage: The use of borrowed assets to enhance return.
The expectation is that the interest rate charged on
borrowed
funds will be lower than the return on the investment. While
leverage can increase profits, it can also magnify losses.
Liquidity: The ease with which a financial instrument (or
product) can be bought or sold (converted into cash) in
the financial markets.
Price/Earnings Ratio: The price of a share of stock divided
by the earnings per share for a 12-month period.
Option: An agreement to purchase or sell something, such
as shares of stock, by a certain time for a specified
price. An option need not be exercised.
Spread: The difference between two values; often used to
describe the difference between "bid" and "asked" prices
of a security, or between the yields of two similar maturity
bonds.
Yankee Bond: A bond sold by a foreign company or government
in the U.S. market and denominated in U.S. dollars.
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
When you invest through Prudential Mutual Funds, you receive
financial advice through a Prudential Securities financial
advisor or Prudential/Pruco Securities registered
representative.
Your advisor or representative can provide you with the
following services:
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial advisor or registered representative can help
you match the reward you seek with the risk you can
tolerate.
And risk can be difficult to gauge -- sometimes even the
simplest
investments bear surprising risks. The educated investor
knows that markets seldom move in just one direction --
there
are times when a market sector or asset class will lose
value
or provide little in the way of total return. Managing your
own expectations is easier with help from someone who
understands
the markets and who knows you!
Keeping Up With The Joneses.
A financial advisor or registered representative can help
you
wade through the numerous mutual funds available to find the
ones that fit your own individual investment profile and
risk
tolerance. While the newspapers and popular magazines are
full
of advice about investing, they are aimed at generic groups
of
people or representative individuals, not at you personally.
Your financial advisor or registered representative will
review
your investment objectives with you. This means you can make
financial decisions based on the assets and liabilities in
your
current portfolio and your risk tolerance -- not just based
on
the current investment fad.
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the
bottom
are among the most common investor mistakes. But sometimes
it's
difficult to hold on to an investment when it's losing value
every month. Your financial advisor or registered
representative can answer questions when you're confused or
worried about your investment, and remind you that you're
investing for the long haul.
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Trustees
Eugene C. Dorsey
Douglas H. McCorkindale
Thomas T. Mooney
Officers
Robert F. Gunia, President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
David F. Connor, Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Sub-Advisers
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
Jennison Associates LLC
466 Lexington Avenue
New York, NY 10017
Franklin Advisers, Inc.
777 Mariners Island Blvd.
San Mateo, CA 94404
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
Lazard Asset Management
30 Rockefeller Plaza
New York, NY 10112
Distributor
Prudential Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
Raritan Plaza One
Edison, NJ 08837
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Kirkpatrick & Lockhart LLP
1800 Massachusetts Ave., N.W.
Washington, DC 20036
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 January 31, 1999
were not audited
and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to
prospective investors unless
preceded or accompanied by a current prospectus.
<PAGE>
(LOGO)
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
74432F885
74432F877 MF186E2
74432F869
74432F851
Prudential
Diversified FundsSM
(ICON)
Prudential
Diversified
Conservative
Growth
Fund
SEMI
ANNUAL
REPORT
Jan. 31, 1999
(LOGO)
<PAGE>
Prudential Diversified Conservative Growth Fund
Performance At A Glance.
Over the period from its inception on November 18, 1998
through
January 31, 1999, the Prudential Diversified Conservative
Growth
Fund performed in line with the Lipper Balanced Fund Index,
even
though the Fund's 40% of assets allocated to stocks is
less than typical balanced portfolios. The largest
contribution
to our return came from our growth stocks. Returns of two
popular
styles of stock investing -- value and growth -- diverged
considerably
in performance over this short period. Investors
strongly preferred growth companies, particularly large
familiar ones.
<TABLE>
Cumulative Total Returns1 As of
1/31/99
<CAPTION>
Since Since
Inception2 Inception2
(Without Sales Charge) (With Sales
Charge)
<S> <C> <C>
Class A 5.33% 0.06%
Class B 5.25 0.25
Class C 5.25 3.19
Class Z 5.45 5.45
Lipper Balanced
Fund Avg.3 6.24 N/A
</TABLE>
Past performance is not indicative of future results.
Principal
and investment return will fluctuate so that an investor's
shares,
when redeemed, may be worth more or less than their original
cost.
1 Source: Prudential Investments Fund Management and Lipper,
Inc.
Since the Fund has been in existence less than one year, no
average
annual total returns are presented. The Fund charges a
maximum
front-end sales charge of 5% for Class A shares.
Class B shares are subject to a declining contingent
deferred
sales charge (CDSC) of 5%, 4%, 3%, 2%, 1%, and 1% for six
years.
Class B shares will automatically convert to Class A shares,
on
a quarterly basis, approximately seven years after
purchase. Class C shares are subject to a front-end sales
charge of 1% and a CDSC of 1% for 18 months. Class Z shares
are not subject to a sales charge or distribution fee.
2 Inception dates: Class A, B, C, and Z, 11/18/98.
3 The Lipper Since Inception return is for all funds in each
share class.
Investment
Advisers' Report
Prudential Investments
Fund Management LLC
- - John Van Belle, Ph.D.
- - Stacie Mintz
Sub-Advisers
The Dreyfus Corporation
Franklin Advisers, Inc.
Jennison Associates LLC
Pacific Investment
Management Company
The Prudential Investment
Corporation
The Fund seeks to provide current income and a reasonable
level
of capital appreciation. It invests in a diversified
portfolio
of bonds and stocks. There can be no assurance that the Fund
will achieve its investment objective.
<PAGE>
Conservative Growth Fund Diversification Target
(PIE CHART)
Diversification -- spreading your investments over many
different securities -- is a basic principle of investing.
It helps to reduce the overall risk of your portfolio.
Moreover, when we rebalance our portfolio to restore the
original weighting of different asset classes, the
discipline
forces us to sell high and buy low. Over time, this may
improve your return.
What Is Diversification?
Diversification -- This is how diversification works: Mutual
funds
not only provide professional money management, they also
allow a
relatively small investment to be spread over many different
securities. When you own a large number of different
securities, the impact of any one on your return is reduced.
In addition, if you diversify your investments among asset
classes and investment styles -- between stocks and bonds,
value and growth stocks, and investment grade and high yield
bonds -- it is less likely that all the securities you own
will move in the same direction at one time. The Prudential
Diversified Funds provide more of this buffering than a
fund investing in only one asset class. We believe this
will result in smoother returns over time.
Rebalancing -- The Diversified Conservative Growth Fund
has a target balance of the various asset classes. As some
perform better than others, the portfolio will drift from
this original balance: the securities that rise most will
become a larger proportion of the invested assets. We direct
new investments to the asset classes that have fallen below
their target ratio and, when necessary, sell appreciated
securities to maintain the balance. This not only keeps
your risk exposure from changing too much, but it may
reduce the average cost of our investments and increase
our average selling price over time.
Although an individual investor can diversify and rebalance,
it would require a large investment to own the range of
asset
classes represented in the Prudential Diversified
Conservative
Growth Fund. Moreover, calculating the amounts to allocate
to
each kind of security in a rebalancing would be difficult.
Prudential Diversified Funds do it all for you.
Asset classes are classifications of
investments. The most basic classification
of securities is among stocks, bonds, and
money market investments. Stocks are shares
of ownership in a firm. Owners share in the
profits, after debts are paid, and
share in the firm's appreciation in value.
Generally, the prices of stocks vary with
investors' estimates of a firm's earning
prospects, including the impact of broader
economic conditions. Bonds are loans to a
company, government, or agency. They
carry a fixed interest rate or one that
varies according to a rule that is specified
in the bond. They have a maturity date at
which they must be repaid. Generally bond
prices vary with current interest rates
for new bonds and with changes in the
debtor's prospects of repaying the loan.
Money market instruments are very short-term
loans, 13 months or less. Bonds and money
market instruments are called fixed-income
securities.
<PAGE>
The Economic Context.
At the time we opened the Prudential Diversified Funds
in November 1998, global financial markets had been
unsettled first by an economic recession in Asia and
then by debt defaults in Russia and China. Both stock
and bond prices had fallen sharply, except for United
States Treasury bonds, which increased in price as
investors tried to avoid any risk at all. In response
to the turmoil, European central banks reduced interest
rates to reassure investors about European economic
growth and the U.S. Federal Reserve Bank made the
dramatic move of reducing rates three times within
a two-month period. (Lower interest rates are expected
to stimulate economic activity.) U.S. stock markets
began to climb again in October, rebounding from their
earlier fall. Lower interest rates mean higher bond
prices for older bonds because they provide a larger
stream of interest payments. However, as the economy
heats up, interest rates normally rise again as demand
for credit increases. This was the
setting for our initial investments in mid-November.
Early in 1999, it became clearer that the U.S. economy
was growing rapidly, but concerns about economies
elsewhere continued.
The Financial Markets.
Investors continued to feel insecure despite the market
bounce, so stock market advances in the United States
were focused on the very largest growth companies. A
standard benchmark for U.S. large-cap stocks is the
S&P 500 Index. The S&P 500 rose 12% during our reporting
period -- November 18, 1998 through the end of January
1999 -- while the stocks of smaller companies rose only
9% (measured by the Russell 2000 Small-Cap Index).
Growth & Value.
Growth-style stocks also were significantly favored over
value stocks in all market-cap sectors. In the large caps,
growth stocks returned 16%, while value returned only 8%.
Among small caps, the difference was even more marked.
These differences were generally due to the strong
performance
of a few of the larger growth-style stocks, while most other
stocks languished. The concentration of performance was
unusually tightly focused,a
United States Treasury bonds are backed by the full faith
and
credit of the U.S. government, so investors view them as
among the safest investments. Because of their safety,
they generally carry a lower yield than corporate or
foreign government bonds. When investors are more fearful,
the demand for these safest of all securities increases
and their price rises, while other bonds generally fall
in value. A decline in value makes the bond's fixed
interest payments amount to a higher yield on
its purchase price.
Market capitalization -- shortened to "market cap" -- is
what
it would cost to buy all of a company's stock at the current
market price. It is calculated by multiplying the price of a
share of stock by the number of outstanding shares. Often it
is
spoken of as the value the market is putting on the entire
company. Although it is often used to represent the size of
the company, market cap is strongly affected by the demand
for the firm's stock and is not closely tied to other
measures
of size, such as number of employees, earnings, or book
value.
Stock portfolios can be invested in either of two different
investment styles: growth or value. Growth managers look
among the most rapidly growing companies for those with
the best long-term prospects, while value managers look
among neglected and inexpensive companies for those with
the best earnings growth prospects or asset values for
the dollar. Historically, one style has worked better
than the other at any given time, but they have alternated
in periods of superior performance.
Continued...
1
<PAGE>
The Financial Markets Cont'd
sign that investors were sticking to the most familiar
companies.
Bonds.
Bond index returns were one to two percentage points,
generally
much more modest than stock index gains over this period. It
is
worth mentioning that when stock markets around the world
plunged
in August 1998, bonds were an important stabilizing
factor. Although they also fell, they fell much less than
stocks. Similarly, when U.S. stock markets dropped in
February 1999, after our reporting period ended, bonds
again were a stabilizing factor. However, high yield bonds
often perform differently from other fixed-income
securities.
In December, when investors still were jumpy, they lost a
little ground. In January, however, they more than made it
up, the Lehman High Yield Index provided twice the return
of the Lehman Aggregate Index.
Our Performance.
Our large growth stocks made the most substantial return
to our Fund over our reporting period. Our 60% allocation
to bonds is somewhat higher than the typical balanced fund.
This would have kept our return well below the Lipper
Balanced Fund
Average over this period if our large growth stocks had not
performed so well.
Portfolio managers who follow a disciplined approach are
clearly
focused on what they are looking for; we believe that they
will
generally perform better over the long term than less
methodical
investors. However, no one investment style is superior
in all markets. Consequently, our stock allocation is
divided
into portions to be invested in a value and in a growth
style.
Our growth stocks were tightly focused on companies with
above-average current and projected earnings growth. In a
market
that strongly favored that style, they performed even better
than the growth-stock average, by a substantial margin. They
had a focus on the technology and health-care sectors, which
were market favorites. Our value stocks also were invested
in a
very disciplined manner, and they suffered more than most in
an environment hostile to their style. As we hoped, however,
our growth-stock winners were ahead of the average by a much
greater margin than our value stocks trailed. In all the
other
asset classes, our holdings performed about in line with
their
benchmarks.
2
<PAGE>
A Message to Our Shareholders
March 26, 1999
(PHOTO)
Dear Shareholder,
When I think about how Prudential's clients can benefit from
their
investments, one of my recent concerns is how misleading
today's
equity markets have become. Major index advances continue to
be
driven by the stocks of a handful of very large
companies. These stocks are getting more and more expensive,
out of proportion to their earnings expectations. As a
result,
a substantial disparity in value continues to grow between
large
and small companies and between growth and value stocks.
Since not all stocks are benefiting from the highly
publicized
euphoria surrounding each record-breaking milestone, it is
unlikely that these trends will continue. In fact, history
shows that markets generally bring prices in line with
earnings
performance sooner or later.
Diversification Is Critical.
Instead of chasing recent market winners, investors should
have
a well-diversified asset allocation strategy in place and
keep
to it. It is also a good practice to rebalance your holdings
when necessary to keep your asset allocation consistent with
your long-term objectives and risk tolerance. A properly
diversified portfolio of value- and growth-oriented mutual
funds, bond funds and money market funds could help you
weather
inevitable market turbulence and receive more consistent
returns over
time. Prudential offers a wide range of mutual funds to help
our
shareholders diversify.
Thank you for your continued confidence in Prudential mutual
funds.
Sincerely,
John R. Strangfeld
Chief Investment Officer
Prudential Investments
3
<PAGE>
Portfolio of Investments as
of January 31, 1999 PRUDENTIAL DIVERSIFIED
FUNDS
(Unaudited) PRUDENTIAL
CONSERVATIVE GROWTH FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S> <C>
--------------------------------------------------------
- ----
LONG-TERM INVESTMENTS--86.1%
COMMON STOCKS--39.1%
--------------------------------------------------------
- ----
Advertising--0.3%
250 Catalina Marketing Corp.(a) $
16,687
3,200 Omnicom Group, Inc.
204,800
-------
- ---
221,487
- ------------------------------------------------------------
Aerospace/Defense--0.5%
275 Cordant Technologies, Inc.
8,731
1,675 Gencorp, Inc.
39,153
1,100 General Motors Corp., Class H
98,725
6,200 Loral Space & Communications, Inc.
136,400
1,200 Raytheon Co. (Class 'A' Stock)
66,900
1,000 Raytheon Co. (Class 'B' Stock)
55,938
-------
- ---
405,847
- ------------------------------------------------------------
Airlines--0.3%
800 Alaska Air Group, Inc.(a)
40,300
1,150 Continental Airlines, Inc.(a)
39,244
6,500 Mesaba Holdings, Inc.(a)
130,000
-------
- ---
209,544
- ------------------------------------------------------------
Aluminum--0.2%
1,800 Alcoa, Inc.
150,525
1,600 Reliance Steel & Aluminum Co.
43,800
-------
- ---
194,325
- ------------------------------------------------------------
Apparel--0.3%
300 American Eagle Outfitters, Inc.
20,513
1,100 Kellwood Co.
30,525
3,300 Tropical Sportswear Intl., Inc.
111,787
9,500 Wolverine World Wide, Inc.
105,094
-------
- ---
267,919
- ------------------------------------------------------------
Auto & Truck--0.6%
900 Arvin Industries, Corp.(a)
35,607
825 Borg-Warner Automotive, Inc.
39,703
53,400 Lucas Varity PLC (United Kingdom) $
254,853
8,000 Safety Kleen Corp.
121,000
975 Varlen Corp.
23,400
-------
- ---
474,563
- ------------------------------------------------------------
Banking--2.0%
1,325 BancorpSouth, Inc.
22,773
4,600 Bank of New York Co., Inc.
163,300
200 Bank United Corp. (Class 'A' Stock)
8,000
3,500 BankAmerica Corp.
234,062
450 Banknorth Group, Inc.
13,444
6,500 Chase Manhattan Corp.
500,094
475 City National Corp.
16,417
2,000 Commercial Federal Corp.
45,750
275 CORUS Bankshares, Inc.
9,350
1,175 Cullen/Frost Bankers, Inc.
61,027
1,293 CVB Financial Corp. (Class 'A' Stock)
25,042
75 First Citizens Bancshares, Inc.
6,619
6,500 Golden State Bancorp, Inc.(a)
121,469
775 Harbor Florida Bancshares, Inc.
8,622
1,350 MAF Bancorp, Inc.
32,737
1,225 North Fork Bancorporation, Inc.
25,725
2,425 Peoples Heritage Financial Group,
Inc.
43,650
450 Queens County Bancorp, Inc.
14,259
800 Republic New York Corp.
29,300
775 St Paul Bancorp, Inc.
17,922
625 Washington Federal, Inc.
16,055
3,200 Washington Mutual, Inc.
134,400
1,175 Westamerica Bancorporation
41,345
-------
- ---
1,591,362
- ------------------------------------------------------------
Building & Construction--0.8%
1,900 American Standard Companies, Inc.(a)
65,313
2,300 Centex Corp.
99,331
1,850 Lone Star Industries, Inc.
67,987
1,075 M.D.C. Holdings, Inc.
22,575
2,875 Pulte Corp.
86,789
925 Southdown, Inc.
51,395
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as
of January 31, 1999 PRUDENTIAL DIVERSIFIED
FUNDS
(Unaudited) PRUDENTIAL
CONSERVATIVE GROWTH FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S> <C>
-------------------------------------------------------
- -----
Building & Construction (cont'd.)
1,375 Thomas Industries, Inc.(a) $
25,266
2,625 Toll Brothers, Inc.
60,375
1,675 U.S. Home Corp.(a)
59,463
2,350 Webb Delaware Corp.
61,100
-------
- ---
599,594
- ------------------------------------------------------------
Cable & Pay Television Systems--0.2%
4,000 Jones Intercable, Inc.(a)
144,000
- ------------------------------------------------------------
Chemicals--0.2%
1,000 Dow Chemical Co.
88,062
1,800 Eastman Chemical Co.
73,125
825 Spartech Corp.
19,697
-------
- ---
180,884
- ------------------------------------------------------------
Computer Services--2.0%
4,700 3Com Corp.(a)
220,900
3,200 Affiliated Computer Services, Inc.(a)
154,400
925 Alliant Communications, Inc.
39,313
1,300 Ascend Communications, Inc.(a)
113,506
3,500 Autodesk, Inc.
154,656
3,700 Cisco Systems, Inc.(a)
412,781
375 Computer Task Group, Inc.
9,820
1,075 Hypercom Corp.(a)
13,774
8,900 Platinum Technology, Inc.(a)
117,925
3,800 Symbol Technologies, Inc.
239,400
6,400 Xylan Corp.(a)
129,600
-------
- ---
1,606,075
- ------------------------------------------------------------
Computers--3.6%
4,000 Aspect Development, Inc.(a)
115,500
4,600 Cadence Design Systems, Inc.(a)
147,200
650 Citrix Systems, Inc.(a)
58,906
10,300 Compaq Computer Corp.
490,538
2,700 Dell Computer Corp.(a)
270,000
5,000 Hewlett-Packard Co.
391,875
1,200 International Business Machines Corp.
219,900
2,800 Microsoft Corp.(a)
490,000
925 Neomagic Corp.(a) $
13,008
6,800 Oracle Systems Corp.(a)
376,550
5,900 Seagate Technology, Inc.(a)
240,056
200 Sun Microsystems, Inc.
15,750
-------
- ---
2,829,283
- ------------------------------------------------------------
Consumer Products--0.6%
3,900 Avon Products, Inc.
144,056
550 Fossil, Inc.(a)
16,311
900 Hitachi Ltd. ADR
64,463
1,675 Mikasa, Inc.
19,053
4,800 Tandy Corp.
259,200
-------
- ---
503,083
- ------------------------------------------------------------
Distribution/ Wholesalers--0.2%
7,000 Brightpoint, Inc.(a)
122,500
375 Ingram Micro, Inc.(a)
11,367
-------
- ---
133,867
- ------------------------------------------------------------
Diversified Manufacturing--0.5%
525 Crane Co.
14,273
1,200 Cuno, Inc.
16,800
3,500 General Electric Co.
367,063
825 SPS Technologies, Inc.(a)
40,580
-------
- ---
438,716
- ------------------------------------------------------------
Electronic Components--1.2%
3,100 AMP, Inc.
163,137
4,500 Arrow Electronics, Inc.(a)
74,250
1,700 Avnet, Inc.
76,394
1,675 CHS Electronics, Inc.(a)
25,020
600 CTS Corp.
28,538
7,000 Gentex Corp.(a)
160,125
450 Idacorp, Inc.
14,794
450 Innovex, Inc.
8,606
625 Pittway Corp.
17,539
2,000 Sanmina Corp.
132,500
2,800 Texas Instruments, Inc.
276,850
-------
- ---
977,753
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 5
<PAGE>
Portfolio of Investments as
of January 31, 1999 PRUDENTIAL DIVERSIFIED
FUNDS
(Unaudited) PRUDENTIAL
CONSERVATIVE GROWTH FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S> <C>
-------------------------------------------------------
- -----
Fertilizer--0.1%
875 Potash Corp. of Saskatchewan Inc. $
52,938
- ------------------------------------------------------------
Financial Services--2.9%
600 American Express Co.
61,725
450 Arthur J. Gallagher & Co.
22,500
4,700 Associates First Capital Corp.
190,644
475 Chittenden Corp.
13,478
9,500 Citigroup, Inc.
532,594
175 Dain Rauscher Corp.
5,403
1,350 Downey Financial Corp.
29,784
1,500 Eaton Vance Corp.
30,937
2,850 Financial Security Holdings, Ltd.
156,572
500 Morgan (J.P.) & Co., Inc.
52,750
1,000 Lehman Brothers Holdings, Inc.
54,687
10,000 MBNA Corp.
279,375
7,500 Morgan Stanley Dean Witter
Discover & Co.
651,094
2,700 Resource Bancshares Mortgage Group,
Inc.
40,162
2,850 Schwab Charles Corp.
200,391
700 Webster Financial Corp.
20,913
-------
- ---
2,343,009
- ------------------------------------------------------------
Food & Beverage--0.1%
200 Adolph Coors Co.
12,813
525 Corn Products International, Inc.
13,945
600 J & J Snack Foods Corp.(a)
14,550
350 Richfood Holdings, Inc.
8,116
1,175 Riviana Foods, Inc.
26,731
725 Universal Foods Corp.
16,312
-------
- ---
92,467
- ------------------------------------------------------------
Gas Distribution--0.2%
1,500 Energen Corp.
25,594
2,300 KeySpan Energy Corp.
62,244
725 ONEOK, Inc.
21,206
1,875 WICOR, Inc.
37,617
-------
- ---
146,661
Health Care--1.6%
10,900 Columbia/HCA Healthcare Corp. $
197,562
550 Curative Health Services, Inc.
16,466
9,200 Foundation Health Systems, Inc.
84,525
1,754 Mckesson HBOC, Inc.
131,769
1,500 PacifiCare Health Systems, Inc.(a)
106,125
4,400 PAREXEL International Corp.(a)
114,400
300 Safeskin Corp.(a)
7,012
725 Serologicals Corp.(a)
19,122
9,600 Tenet Healthcare Corp.(a)
199,200
1,700 United Healthcare Corp.
76,075
3,900 Wellpoint Health Networks, Inc.(a)
291,769
-------
- ---
1,244,025
- ------------------------------------------------------------
Home Furnishings--0.3%
3,900 Ethan Allen Interiors, Inc.
186,225
975 Furniture Brands International,
Inc.(a)
22,913
-------
- ---
209,138
- ------------------------------------------------------------
Hotels--0.3%
6,600 Hilton Hotels Corp.
95,287
6,600 Park Place Entertainment Corp.(a)
44,963
3,400 Promus Hotel Corp.(a)
101,575
-------
- ---
241,825
- ------------------------------------------------------------
Human Resources--0.2%
7,800 RemedyTemp, Inc.(a)
142,350
- ------------------------------------------------------------
Insurance--2.6%
5,300 ACE, Ltd.
148,400
1,000 American Financial Group, Inc.
36,250
800 American General Corp.
57,050
2,500 American International Group, Inc.
257,344
600 Amerin Corp.(a)
13,950
925 Capital Re Corp.
16,823
3,900 Chubb Corp.
229,125
715 Fidelity National Financial, Inc.
19,037
600 First American Financial Corp.
18,338
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 6
<PAGE>
Portfolio of Investments as
of January 31, 1999 PRUDENTIAL DIVERSIFIED
FUNDS
(Unaudited) PRUDENTIAL
CONSERVATIVE GROWTH FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S> <C>
-------------------------------------------------------
- -----
Insurance (cont'd.)
1,050 Harleysville Group, Inc. $
22,181
413 Medical Assurance, Inc.(a)
12,581
4,000 Mutual Risk Management, Ltd.
147,000
6,000 Old Republic International Corp.
117,375
450 Orion Capital Corp.
16,031
475 Partnerre Ltd.
21,523
1,425 Presidential Life Corp.
26,541
235 Priority Healthcare Corp.
9,143
1,075 Protective Life Corp.
37,155
2,300 Provident Companies, Inc.
98,613
1,900 Reinsurance Group of America, Inc.
127,894
5,600 SAFECO Corp.
217,700
3,000 St. Paul Companies, Inc.
88,125
2,800 The Equitable Companies, Inc.
195,300
1,200 Tokio Marine & Fire Insurance Ltd.
ADR
68,400
1,100 UNUM Corp.
66,481
-------
- ---
2,068,360
- ------------------------------------------------------------
Machinery--0.2%
1,175 IDEX Corp.
26,805
1,025 JLG Industries, Inc.
16,144
2,075 Lincoln Electric Holdings, Inc.(a)
43,834
575 Milacron, Inc.
11,248
525 Regal Beloit Corp.
12,075
825 Terex Corp.(a)
20,316
-------
- ---
130,422
- ------------------------------------------------------------
Media--0.9%
10,000 CBS Corp.(a)
340,000
3,700 Clear Channel Communications, Inc.(a)
228,937
4,700 Infinity Broadcasting Corp.(a)
130,131
1,175 King World Productions, Inc.(a)
32,166
-------
- ---
731,234
- ------------------------------------------------------------
Metals--0.1%
600 Cleveland-Cliffs, Inc.
24,525
900 Commercial Metals Co.
22,162
450 Kaydon Corp.
15,103
725 RTI International Metals, Inc.
8,972
-------
- ---
70,762
Mining--0.2%
7,200 Freeport-McMoRan Copper & Gold,
Inc.(a) $
68,850
5,900 Newmont Mining Corp.
104,356
-------
- ---
173,206
- ------------------------------------------------------------
Miscellaneous--0.2%
3,125 D.R.Horton, Inc.
66,016
1,000 EG&G Inc.
28,375
725 Franklin Covey Co.
12,053
775 Inacom Corp.(a)
10,123
475 R & B Falcon Corp.
3,355
1,375 Rouse Co.
32,484
350 SEACOR Holdings, Inc.
15,575
375 Tecumseh Products Co.
16,758
-------
- ---
184,739
- ------------------------------------------------------------
Office Equipment & Supplies--0.5%
5,300 Harris Corp.
198,750
625 Kimball International, Inc. Class 'B'
Stock
11,016
1,400 Xerox Corp.
173,600
-------
- ---
383,366
- ------------------------------------------------------------
Oil & Gas--1.0%
600 Amerada Hess Corp.
28,500
2,100 Atlantic Richfield Co.
120,487
1,400 BOC Group, PLC, ADR
39,550
975 Devon Energy Corp.
25,533
4,300 Elf Aquitaine SA Corp. (France)
234,887
2,050 Helmerich & Payne, Inc.
36,003
5,900 Newfield Exploration Co.(a)
109,888
2,300 Occidental Petroleum Corp.
34,644
3,200 Oryx Energy Co.(a)
39,000
2,075 Tesoro Petroleum Corp.
22,566
1,500 Total SA, ADR
76,781
-------
- ---
767,839
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 7
<PAGE>
Portfolio of Investments as
of January 31, 1999 PRUDENTIAL DIVERSIFIED
FUNDS
(Unaudited) PRUDENTIAL
CONSERVATIVE GROWTH FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S> <C>
-------------------------------------------------------
- -----
Paper & Packaging--1.4%
725 Ball Corp. $
32,625
525 Caraustar Industries, Inc.
14,831
1,300 Fort James Corp.
46,638
3,200 Georgia-Pacific Corp.
206,400
2,200 Georgia-Pacific Corp. (Timber Group)
49,500
3,400 International Paper Co.
134,512
4,200 Mead Corp.
120,225
1,500 Rayonier Inc.
66,000
975 Rock-Tenn Co. (Class 'A' Stock)
17,550
2,300 Temple-Inland, Inc.
131,244
1,025 Universal Forest Products, Inc.
20,244
2,700 Weyerhaeuser Co.
146,137
4,600 Willamette Industries, Inc.
161,000
-------
- ---
1,146,906
- ------------------------------------------------------------
Pharmaceuticals--2.2%
300 Alpharma, Inc.
10,388
4,500 American Home Products Corp.
264,094
525 Bindley Western Industry, Inc.
13,256
2,100 Eli Lilly & Co.
196,744
499 Medtronic, Inc.
39,742
1,500 Merck & Co., Inc.
220,125
525 Ocular Sciences, Inc.(a)
12,141
1,800 Pfizer, Inc.
231,525
2,500 Pharmacia & Upjohn, Inc.
143,750
625 Roberts Pharmaceutical Corp.
12,187
5,800 Schering-Plough Corp.
316,100
1,150 Thermoquest Corp.(a)
12,937
3,600 Warner-Lambert Co.
259,875
-------
- ---
1,732,864
- ------------------------------------------------------------
Photography--0.1%
1,700 Eastman Kodak Co.
111,138
- ------------------------------------------------------------
Printing & Publishing--0.1%
300 Consolidated Graphics, Inc.
21,750
775 Hollinger International Inc.
10,172
350 Valassis Communications, Inc.(a)
17,894
600 World Color Press, Inc.(a)
14,775
-------
- ---
64,591
Real Estate Investment Trusts--0.2%
1,425 Franchise Finance Corp. of America $
32,775
3,500 Glenborough Realty Trust, Inc.
61,469
5,500 MeriStar Hospitality Corp.
105,875
-------
- ---
200,119
- ------------------------------------------------------------
Restaurants--0.8%
4,500 CKE Restaurants, Inc.
106,875
14,900 Darden Restaurants, Inc.
279,375
300 IHOP Corp.
12,900
2,700 McDonald's Corp.
212,794
4,275 Ryan's Family Steak Houses, Inc.(a)
59,048
-------
- ---
670,992
- ------------------------------------------------------------
Retail--2.6%
300 BJ's Wholesale Club, Inc.(a)
13,350
625 Buckle, Inc.
16,719
475 Department 56, Inc.
15,022
6,500 Dillards, Inc. (Class 'A' Stock)
161,281
3,450 Gap, Inc.
221,447
5,600 Home Depot, Inc.
338,100
9,600 IKON Office Solutions, Inc.
153,600
12,500 Kmart Corp.(a)
219,531
4,000 Kohl's Corp.(a)
271,000
3,800 Pep Boys - Manny, Moe & Jack
59,850
2,500 Rite Aid Corp.
122,812
1,100 Ross Stores, Inc.
43,450
1,300 Sears, Roebuck & Co.
52,163
6,000 Staples, Inc.(a)
171,750
4,500 Toys 'R' Us, Inc.(a)
67,500
1,200 Wal-Mart Stores, Inc.
103,200
725 Zale Corp.(a)
23,789
-------
- ---
2,054,564
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 8
<PAGE>
Portfolio of Investments as
of January 31, 1999 PRUDENTIAL DIVERSIFIED
FUNDS
(Unaudited) PRUDENTIAL
CONSERVATIVE GROWTH FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S> <C>
-------------------------------------------------------
- -----
Semiconductors--1.1%
3,300 Applied Materials, Inc.(a) $
208,519
1,800 Etec Systems, Inc.(a)
96,637
2,200 Intel Corp.
310,062
2,900 KLA Instruments Corp.(a)
167,475
4,600 National Semiconductor Corp.
59,513
-------
- ---
842,206
- ------------------------------------------------------------
Software--1.3%
5,000 Cambridge Technology Partners,
Inc.(a)
148,125
875 Check Point Software Technology
Ltd.(a)
42,438
650 Dialogic Corp.(a)
16,575
2,200 Documentum, Inc.(a)
51,287
5,200 HNC Software, Inc.(a)
150,150
4,500 I2 Technologies, Inc.(a)
156,937
1,700 Intuit, Inc.(a)
154,700
4,300 Rational Software Corp.
142,169
2,000 VERITAS Software Corp.
167,250
-------
- ---
1,029,631
- ------------------------------------------------------------
Steel - Producers--0.1%
3,225 AK Steel Holding Corp.
67,120
- ------------------------------------------------------------
Telecommunications--2.4%
2,300 AirTouch Communications, Inc.(a)
222,094
2,100 ALLTEL Corp.
135,581
12,500 Aspect Telecommunications Corp.(a)
112,500
1,700 AT&T Corp.
154,275
4,500 Excel Switching Corp.
124,594
7,500 MCI WorldCom, Inc.(a)
598,125
10,500 Natural Microsystems Corp.(a)
71,531
1,300 Nokia Corp. ADR (Sweden)(a)
187,200
2,800 Pacific Gateway Exchange, Inc.(a)
92,750
200 Plantronics, Inc.
16,138
3,000 Qwest Communications International,
Inc.(a)
179,812
725 Tekelec, Inc.
14,500
-------
- ---
1,909,100
Tobacco--0.9%
3,400 Loews Corp. $
286,238
3,900 Philip Morris Co., Inc.
183,300
7,000 RJR Nabisco Holdings Corp.
189,000
1,175 Universal Corp.
35,617
-------
- ---
694,155
- ------------------------------------------------------------
Trucking & Shipping--0.2%
6,000 Air Express International Corp.
113,250
775 US Freightways Corp.
27,028
-------
- ---
140,278
- ------------------------------------------------------------
Utilities--0.7%
1,050 Atmos Energy Corp.
31,303
1,050 BEC Energy Corp.
40,162
2,000 California Water Service Group
52,125
1,375 Calpine Corp.(a)
50,875
550 Cleco Corp.
17,325
825 Conectiv, Inc.
18,563
1,200 GPU, Inc.(a)
51,150
2,000 Houston Industries, Inc.
60,750
1,450 Public Service Company of New Mexico
27,278
275 Rochester Gas & Electric Corp.
7,906
600 TNP Enterprises, Inc.
21,338
2,000 Unicom Corp.
71,250
2,475 Washington Gas Light Co.
59,400
600 WPS Resources Corp.
19,650
-------
- ---
529,075
- ------------------------------------------------------------
Waste Management--0.1%
2,000 Waste Management, Inc.
99,875
-------
- ---
Total common stocks
(cost $28,273,636)
31,053,257
-------
- ---
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 9
<PAGE>
Portfolio of Investments as
of January 31, 1999 PRUDENTIAL DIVERSIFIED
FUNDS
(Unaudited) PRUDENTIAL
CONSERVATIVE GROWTH FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description
Value (Note 1)
<S> <C> <C> <C>
- ------------------------------------------------------------
CORPORATE BONDS--22.6%
- ------------------------------------------------------------
Airlines--0.6%
Ba2 $ 500 Continental Airlines Inc.,
Sr. Notes,
8.00%, 12/15/05 $
491,915
- ------------------------------------------------------------
Audio/Visual--0.6%
Ba2 500 Imax Corp.,
Sr. Notes,
7.875%, 12/1/05
501,875
- ------------------------------------------------------------
Automotive Parts--0.7%
B3 500 Hayes Wheels Int'l., Inc.,
Sr. Sub. Notes,
9.125%, 7/15/07
525,000
- ------------------------------------------------------------
Building Products--0.6%
Ba3 500 Building Materials Corp. of
America,
Sr. Notes,
8.00%, 12/1/08
501,250
- ------------------------------------------------------------
Cable--4.0%
B1 500 Adelphia Communications
Corp.
Sr. Notes,
7.75%, 1/15/09
506,250
B3 500 Avalon Cable, Inc.
Sr. Sub. Notes,
9.375%, 12/1/08
525,625
Baa3 2,100 TCI Communications, Inc.
Medium Term Notes,
6.46%, 3/6/00
2,128,077
----
- --------
3,159,952
- ------------------------------------------------------------
Casinos--0.6%
Ba2 500 Harrahs Operating Inc.,
Gtd. Sr. Sub. Notes,
7.875%, 12/15/05
505,000
Cinema--0.3%
B2 $ 250 Carmike Cinemas, Inc.
Sr. Sub. Notes,
9.375%, 2/1/09 $
250,000
- ------------------------------------------------------------
Coal--0.7%
Ba3 500 P & L Coal Holdings Corp.,
Sr. Notes,
8.875%, 5/15/08
516,875
- ------------------------------------------------------------
Communications--0.2%
B2 150 Bresnan Communications Group
Sr. Notes,
8.00%, 2/1/09
153,000
- ------------------------------------------------------------
Data Processing & Reproduction--0.6%
B2 500 Integrated Health Svcs.,
Inc.,
Sr. Sub. Notes, Ser. A
9.25%, 1/15/08
470,000
- ------------------------------------------------------------
Fertilizer--0.1%
B2 60 Scotts Company,
Sr. Sub. Notes,
8.625%, 1/15/09
61,950
- ------------------------------------------------------------
Financial Services--0.6%
Aa3 500 Morgan Stanley Group Inc.,
Global Notes,
5.625%, 1/20/04
497,685
- ------------------------------------------------------------
Industrials--1.0%
B2 500 Purina Mills, Inc.,
Sr. Sub. Notes,
9.00%, 3/15/10
490,000
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 10
<PAGE>
Portfolio of Investments as
of January 31, 1999 PRUDENTIAL DIVERSIFIED
FUNDS
(Unaudited) PRUDENTIAL
CONSERVATIVE GROWTH FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description
Value (Note 1)
<S> <C> <C> <C>
- ------------------------------------------------------------
Industrials (cont'd.)
B3 $ 500 United Int'l. Holdings,
Inc.,
Sr. Disc. Notes,
Zero Coupon (until 2/15/03)
10.75%, 2/15/08 $
330,625
----
- --------
820,625
- ------------------------------------------------------------
Manufacturing--0.7%
B1 500 Westinghouse Air Brake Co.,
Sr. Notes,
9.375%, 6/15/05
520,000
- ------------------------------------------------------------
Media--1.7%
B2 500 Ackerly Group, Inc.,
Sr. Sub. Notes,
9.00%, 1/15/09
520,000
Baa3 200 Seagram Joseph E & Sons,
Inc.,
Sr. Notes,
6.25%, 12/15/01
200,944
Baa3 600 Time Warner, Inc., Ser.
97-1,
6.10%, 12/30/01
610,500
----
- --------
1,331,444
- ------------------------------------------------------------
Oil & Gas--1.5%
Ba2 500 Gulf Canada Resources Ltd.,
Sr. Sub. Deb.,
9.625%, 7/1/05
510,000
Ba2 750 Petroleos Mexicanos,
Gtd. Notes, (Mexico)
9.375%, 12/2/08
712,500
----
- --------
1,222,500
- ------------------------------------------------------------
Paper & Packaging--1.3%
B1 500 S.D. Warren Co.,
Sr. Sub. Notes,
12.00%, 12/15/04
542,500
B3 $ 500 Stone Container Corp.,
Sr. Sub. Deb.,
12.75%, 4/1/02 $
505,000
----
- --------
1,047,500
- ------------------------------------------------------------
Printing & Publishing--1.0%
B1 500 Mail Well I Corp.,
Sr. Sub. Notes,
8.75%, 12/15/08
512,500
B3 250 Transwestern Publishing Co.,
L.P.
Sr. Sub. Notes,
9.625%, 11/15/07
261,562
----
- --------
774,062
- ------------------------------------------------------------
Real Estate--0.6%
Ba2 500 HMH Properties, Inc.,
Sr. Notes,
8.45%, 12/1/08
500,000
- ------------------------------------------------------------
Restaurants--1.6%
B2 250 Advantica Restaurant Group,
Inc.,
Sr. Notes,
11.25%, 1/15/08
257,500
B2 500 Carrols Corp.,
Sr. Sub. Notes,
9.50%, 12/1/08
506,250
Ba1 500 Felcor Suites LP,
Gtd. Sr. Notes,
7.375%, 10/1/04
478,750
----
- --------
1,242,500
- ------------------------------------------------------------
Schools--0.2%
B3 150 Kindercare Learning Center,
Inc.,
Sr. Sub. Notes,
9.50%, 2/15/09
150,000
- ------------------------------------------------------------
Steel--0.7%
B2 500 UCAR Global Enterprises,
Inc.,
Sr. Sub. Notes,
12.00%, 1/15/05
525,000
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 11
<PAGE>
Portfolio of Investments as
of January 31, 1999 PRUDENTIAL DIVERSIFIED
FUNDS
(Unaudited) PRUDENTIAL
CONSERVATIVE GROWTH FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description
Value (Note 1)
<S> <C> <C> <C>
- ------------------------------------------------------------
Telecommunications--1.1%
B2 $ 300 Intermedia Communications,
Inc.,
Sr. Notes,
8.60%, 6/1/08 $
288,000
B3 300 Level 3 Communications,
Inc.,
Sr. Disc. Notes,
Zero Coupon (until 12/1/03)
10.50%, 12/1/08
177,000
B1 500 Telewest PLC,
Sr. Disc. Deb.,
Zero Coupon (until 10/1/00)
11.00%, 10/1/07
(United Kingdom)
442,500
----
- --------
907,500
- ------------------------------------------------------------
Utilities--.9%
Ba2 200 Calpine Corp.
Sr. Notes,
7.875%, 4/1/08
202,000
CMS Energy Corp.
Sr. Notes,
Ba3 75 6.75%, 1/15/04
75,000
Ba3 250 7.50%, 1/15/09
257,500
Ba2 200 Niagara Mohawk Power Corp.,
Sr. Notes, Series C
7.125%, 7/1/01
203,162
----
- --------
737,662
- ------------------------------------------------------------
Waste Management--0.6%
Ba2 500 Allied Waste North America
Corp., Notes,
7.875%, 1/1/09
512,500
----
- --------
Total corporate bonds
(cost $18,617,203)
18,720,275
----
- --------
ASSET BACKED SECURITIES--1.0%
NR $ 800 TMA Mortgage Funding Trust,
Asset Backed Notes,
6.25%, 1/25/29 $
794,480
- ------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS--1.7%
Aaa 500 DLJ Mortgage Acceptance
Corp.
7.75%, 1/1/21
499,687
NR 862 Residential Funding
Mortgage, Inc. Series 1997
S-19,
Class A-3
6.50%, 12/25/12
874,017
----
- --------
Total collateralized
mortgage obligations
(cost $1,368,492)
1,373,704
----
- --------
- ------------------------------------------------------------
U.S. GOVERNMENT AGENCIES AND SECURITIES--21.7%
129 Government National Mortgage
Assn.,
6.625%, 9/20/22
131,540
United States Treasury
Bonds,
5,000 14.00%, 11/15/11
7,892,950
2,600 6.00%, 2/15/26
2,853,916
United States Treasury
Notes,
3,200 5.375%, 7/31/00
3,233,504
1,200 7.00%, 7/15/06
1,366,500
1,700 3.875%, 1/15/09
1,714,875
----
- --------
Total U.S. government
agencies and securities
(cost $17,183,026)
17,193,285
----
- --------
Total debt obligations
(cost $37,168,721)
37,287,264
----
- --------
Total long-term investments
(cost $65,442,357)
68,340,521
----
- --------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 12
<PAGE>
Portfolio of Investments as
of January 31, 1999 PRUDENTIAL DIVERSIFIED
FUNDS
(Unaudited) PRUDENTIAL
CONSERVATIVE GROWTH FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description
Value (Note 1)
<S> <C> <C> <C>
- ------------------------------------------------------------
SHORT-TERM INVESTMENTS--23.2%
Commercial Paper--4.8%
P-1 $ 1,000 American Information
Technologies Corp.,
4.76%, 3/5/99 $
995,769
P-1 800 Du Pont (E. I.) De Nemours &
Co., Inc.,
4.79%, 2/26/99
797,339
P-1 1,000 IBM Credit Corp.,
4.84%, 2/19/99
997,580
P-1 1,000 Shell Oil Company,
4.81%, 2/12/99
998,530
----
- --------
3,789,218
- ------------------------------------------------------------
Corporate Bonds--0.6%
Ba2 500 Cleveland Electric
Illuminating Co.,
Medium Term Notes,
9.30%, 7/26/99
508,097
- ------------------------------------------------------------
U.S. Goverment Agencies--10.2%
8,000 Government National Mortgage
Assn.,
6.50%, 12/31/99
(cost $8,000,000)
8,082,500
<CAPTION>
Principal
Amount
(000) Description
Value (Note 1)
<S> <C> <C> <C>
- ------------------------------------------------------------
REPURCHASE AGREEMENT--7.6%
$ 6,024 Joint Repurchase Agreement
Account,
4.72%, 2/1/99 (Note 5) $
6,024,000
----
- --------
Total short-term investments
(cost $18,318,791)
18,403,815
----
- --------
- ------------------------------------------------------------
Total Investments--109.3%
(cost $83,761,148; Note 4)
86,744,336
Liabilities in excess of
other
assets--(9.3%)
(7,392,127)
----
- --------
Net Assets--100% $
79,352,209
----
- --------
----
- --------
</TABLE>
- ---------------
(a) Non-income producing security.
ADR--American Depository Receipt.
LP--Limited Partnership.
NR--Not Rated by Moody's or Standard & Poor's
The Fund's current Prospectus contains a description of
Moody's and Standard &
Poor's ratings.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 13
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL
DIVERSIFIED FUNDS
(Unaudited) PRUDENTIAL
CONSERVATIVE GROWTH FUND
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Assets
January 31, 1999
<S>
<C>
Investments, at value (cost
$83,761,148)................................................
.................. $ 86,744,336
Foreign currency, at value (cost
$42)........................................................
............. 41
Cash........................................................
..............................................
751,397
Receivable for investments
sold........................................................
................... 9,360,235
Receivable for Fund shares
sold........................................................
................... 708,396
Interest and dividends
receivable..................................................
....................... 606,401
Deferred offering
costs.......................................................
............................ 78,131
Forward currency contracts - net amount receivable from
counterparties....................................
2,349
- ----------------
Total
assets......................................................
..................................... 98,251,286
- ----------------
Liabilities
Payable for investments
purchased...................................................
...................... 18,626,114
Accrued expenses and other
liabilities.................................................
................... 144,715
Payable for Fund shares
reacquired..................................................
...................... 56,445
Management fee
payable.....................................................
............................... 48,795
Distribution fee
payable.....................................................
............................. 20,625
Forward currency contracts - net amount payable to
counterparties.........................................
2,352
Withholding taxes
payable.....................................................
............................ 31
- ----------------
Total
liabilities.................................................
..................................... 18,899,077
- ----------------
Net
Assets......................................................
.......................................... $
79,352,209
- ----------------
- ----------------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
......... $ 7,554
Paid-in capital in excess of
par.........................................................
.............. 75,719,899
- ----------------
75,727,453
Undistributed net investment
income......................................................
.............. 104,955
Accumulated net realized gain on
investments.................................................
.......... 536,618
Net unrealized appreciation on investments and foreign
currencies......................................
2,983,183
- ----------------
Net assets, January 31,
1999........................................................
...................... $ 79,352,209
- ----------------
- ----------------
Class A:
Net asset value and redemption price per share
($5,246,048 / 499,529 shares of beneficial interest
issued and outstanding).........................
$10.50
Maximum sales charge (5% of offering
price)......................................................
...... .55
- ----------------
Maximum offering price to
public......................................................
................. $11.05
- ----------------
- ----------------
Class B:
Net asset value, offering price and redemption price per
share
($14,315,369 / 1,363,790 shares of beneficial interest
issued and outstanding)......................
$10.50
- ----------------
- ----------------
Class C:
Net asset value and redemption price per share
($11,781,577 / 1,122,369 shares of beneficial interest
issued and outstanding)......................
$10.50
Sales charge (1% of offering
price)......................................................
.............. .11
- ----------------
Offering price to
public......................................................
......................... $10.61
- ----------------
- ----------------
Class Z:
Net asset value, offering price and redemption price per
share
($48,009,215 / 4,567,816 shares of beneficial interest
issued and outstanding)......................
$10.51
- ----------------
- ----------------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 14
<PAGE>
PRUDENTIAL DIVERSIFIED FUNDS
PRUDENTIAL CONSERVATIVE GROWTH FUND
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
November 18,
1998(a)
Through
Net Investment Income January 31, 1999
<S> <C>
Income
Interest............................ $ 569,708
Dividends (net of foreign
withholding taxes of $31)........ 54,973
-----------
Total income..................... 624,681
-----------
Expenses
Management fee...................... 109,759
Distribution fee--Class A........... 1,724
Distribution fee--Class B........... 20,947
Distribution fee--Class C........... 19,813
Custodian's fees and expenses....... 55,000
Reports to shareholders............. 20,000
Amortization of offering cost....... 19,868
Registration fees................... 19,000
Audit fee and expenses.............. 12,500
Legal fees.......................... 9,000
Transfer agent's fees and
expenses......................... 3,000
Trustees' fees and expenses......... 2,000
Miscellaneous....................... 3,699
-----------
Total expenses................... 296,310
-----------
Net investment income.................. 328,371
-----------
Realized and Unrealized Gain (Loss)
on Investment and Foreign Currency
Transactions
Net realized gain on:
Investment transactions............. 535,574
Foreign currency transactions....... 1,044
-----------
536,618
-----------
Net unrealized appreciation
(depreciation) on:
Investments......................... 2,983,188
Foreign currencies.................. (5)
-----------
2,983,183
-----------
Net gain on investments................ 3,519,801
-----------
Net Increase in Net Assets
Resulting from Operations $3,848,172
-----------
-----------
</TABLE>
- ---------------
(a) Commencement of investment operations.
PRUDENTIAL DIVERSIFIED FUNDS
PRUDENTIAL CONSERVATIVE GROWTH FUND
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
November 18,
1998(a)
Increase (Decrease) In Through
Net Assets January 31,
1999
<S> <C>
Operations
Net investment income................... $
328,371
Net realized gain on investment and
foreign currency transactions........
536,618
Net unrealized appreciation of
investments and foreign currencies...
2,983,183
---------------
- -----
Net increase in net assets resulting
from operations......................
3,848,172
---------------
- -----
Dividends from net investment income (Note 1)
Class A..............................
(12,004)
Class B..............................
(25,001)
Class C..............................
(23,526)
Class Z..............................
(162,885)
---------------
- -----
(223,416)
---------------
- -----
Fund share transactions (net of share
conversions) (Note 6)
Net proceeds from shares sold...........
78,815,675
Net asset value of shares issued in
reinvestment of dividends............
219,247
Cost of shares reacquired...............
(3,337,469)
---------------
- -----
Net increase in net assets from Fund
share transactions...................
75,697,453
---------------
- -----
Total increase.............................
79,322,209
Net Assets
Beginning of period........................
30,000
---------------
- -----
End of period(b)........................... $
79,352,209
---------------
- -----
---------------
- -----
- ---------------
(a) Commencement of investment
operations.
(b) Includes undistributed net
investment
income of............................ $
104,955
---------------
- -----
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 15
<PAGE>
PRUDENTIAL
DIVERSIFIED FUNDS
Notes to Financial Statements
(Unaudited) PRUDENTIAL
CONSERVATIVE GROWTH FUND
- ------------------------------------------------------------
- --------------------
Prudential Diversified Funds (the 'Trust') is registered
under the Investment
Company Act of 1940, as an open-end, diversified management
investment company
presently consisting of three Portfolios: Prudential
Diversified Conservative
Growth Fund (the 'Fund'), Prudential Diversified Moderate
Growth Fund and
Prudential Diversified High Growth Fund. The Trust was
organized as a business
trust in Delaware on October 24, 1997. The Fund had no
significant operations
other than the issuance of 750 shares each of Class A, Class
B, Class C and
Class Z shares of beneficial interest for $30,000 on
September 2, 1998 to
Prudential Investments Fund Management LLC ('PIFM'). The
Fund commenced
investment operations on November 18, 1998.
The investment objective of the Fund is to seek to provide
current income and a
reasonable level of capital appreciation. The Fund seeks to
achieve its
investment objective by investing in a diversified portfolio
of debt obligations
and equity securities. The ability of the issuers of the
debt securities held by
the Fund to meet their obligations may be affected by
economic developments in a
specific industry or country.
- ------------------------------------------------------------
Note 1. Accounting Policies
The following is a summary of significant accounting
policies followed by the
Fund and the Series in the preparation of its financial
statements.
Securities Valuation: Securities for which the primary
market is on an exchange
and NASDAQ National Market Securities are valued at the last
sales price on such
exchange on the day of valuation, or, if there was no sale
on such day, at the
mean between the last bid and asked prices on such day or at
the bid price on
such day in the absence of an asked price. Securities that
are actively traded
in the over-the-counter market, including listed securities
for which the
primary market is believed by the Manager, in consultation
with the subadvisor,
to be over-the-counter, are valued by an independent pricing
agent or principal
market maker. U.S. Government securities for which market
quotations are
available shall be valued at a price provided by an
independent pricing agent or
broker-dealer. Privately placed securities including equity
securities for which
market prices may be obtained from primary dealers shall be
valued at the bid
prices provided by such primary dealers. Securities for
which market quotations
are not readily available, may be valued using the last
available market
quotation for a period not to exceed five days, provided the
Manager and
Subadvisor feel this is representative of market value,
afterwards, such
securities are valued in good faith under procedures adopted
by the Trustees.
Short-term securities which mature in more than 60 days are
valued at current
market quotations. Short-term securities which mature in 60
days or less are
valued at amortized cost.
In connection with transactions in repurchase agreements
with U.S. financial
institutions, it is the Fund's policy that its custodian or
designated
subcustodians, as the case may be under triparty repurchase
agreements, take
possession of the underlying securities, the value of which
exceeds the
principal amount of the repurchase transaction including
accrued interest. If
the seller defaults and the value of the collateral declines
or if bankruptcy
proceedings are commenced with respect to the seller of the
security,
realization of the collateral by the Fund may be delayed or
limited.
All securities are valued as of 4:15 p.m., New York time.
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
closing daily rates of exchange.
(ii) purchases and sales of investment securities, income
and expenses - at the
rate 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 fiscal 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 long-term
portfolio securities sold
during the period. Accordingly, these realized foreign
currency gains (losses)
are included in the reported net realized gains (losses) on
investment
transactions.
Net realized gains on foreign currency transactions
represent net foreign
exchange gains or losses from holdings of foreign
currencies, currency gains or
losses realized between the trade and settlement dates on
security transactions,
and the difference between the amounts of dividends,
interest and foreign taxes
recorded on the Fund's books and the U.S. dollar equivalent
amounts actually
received or paid. Net unrealized currency gains or losses
from valuing foreign
currency denominated assets and liabilities (other than
investments) at fiscal
period end exchange rates are
- ------------------------------------------------------------
- --------------------
16
<PAGE>
PRUDENTIAL
DIVERSIFIED FUNDS
Notes to Financial Statements
(Unaudited) PRUDENTIAL
CONSERVATIVE GROWTH FUND
- ------------------------------------------------------------
- --------------------
reflected as a component of net unrealized appreciation on
investments and
foreign currencies.
Foreign security and currency transactions may involve
certain considerations
and risks not typically associated with those of domestic
origin as a result of,
among other factors, the possibility of political and
economic instability and
the level of governmental supervision and regulation of
foreign securities
markets.
Forward Currency Contracts: A forward currency contract is a
commitment to
purchase or sell a foreign currency at a future date at a
negotiated forward
rate. The Fund enters into forward currency contracts in
order to hedge its
exposure to changes in foreign currency exchange rates on
its foreign portfolio
holdings or on specific receivables and payables denominated
in a foreign
currency. The contracts are valued daily at current exchange
rates any
unrealized gain or loss is included in net unrealized
appreciation or
depreciation on investments. Gain or loss is realized on the
settlement date of
the contract equal to the difference between the settlement
value of the
original and renegotiated forward contracts. This gain or
loss, if any, is
included in net realized gain (loss) on foreign currency
transactions. Risks may
arise upon entering into these contracts from the potential
inability of the
counterparties to meet the terms of their contracts.
Securities Transactions and Net Investment Income:
Securities transactions are
recorded on the trade date. Realized gains and losses from
investment and
currency transactions are calculated on the identified cost
basis. Dividend
income is recorded on the ex-dividend date; interest income
is recorded on the
accrual basis. Expenses are recorded on the accrual basis
which may require the
use of certain estimates by management.
Net investment income (loss), other than distribution fees,
and unrealized and
realized gains or losses are allocated daily to each class
of shares based upon
the relative proportion of net assets of each class at the
beginning of the day.
Dividends and Distributions: The Fund expects to pay
dividends of net investment
income quarterly, and distributions of net realized capital
and currency gains,
if any, annually. Dividends and distributions are recorded
on the ex-dividend
date.
Income distributions and capital gain distributions are
determined in accordance
with income tax regulations which may differ from generally
accepted accounting
principles.
Taxes: For federal income tax purposes, each Fund in the
Trust is treated as a
separate taxpaying entity. It is the intent of the Fund to
meet the requirements
of the Internal Revenue Code applicable to regulated
investment companies and to
distribute all of its taxable income to shareholders.
Therefore, no federal
income tax provision is required.
Withholding taxes on foreign dividends have been provided
for in accordance with
the Fund's understanding of the applicable country's tax
rules and rates.
Deferred Offering Cost: The Fund incurred approximately
$98,000 in connection
with the initial offering of the Fund. Offering costs are
being amortized over a
period of 12 months ending November 1999.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with PIFM. Pursuant to
this agreement, PIFM
manages the investment operations of the Fund, administers
the Fund's affairs
and supervises the subadviser's performance of all
investment advisory services.
PIFM pays for the costs pursuant to the advisory agreements,
the cost of
compensation of officers of the Fund, occupancy and certain
clerical and
accounting costs of the Fund. The Fund bears all other costs
and expenses. The
management fee paid PIFM is computed daily and payable
monthly at an annual rate
of .75% of the average daily net assets of the Fund. PIFM,
in turn, pays each
adviser a fee, computed daily and paid monthly, equal to the
annual rate
specified below based on the average daily net assets of the
Fund segments they
manage.
<TABLE>
<CAPTION>
Fee Paid By PIFM
Advisers to Advisers
- ------------------------------ --------------------------
- -------
<S> <C>
Jennison Associates LLC .30% with respect to the
first
$300 million; .25% for
amounts
in excess of $300 million
The Prudential Investment N/A1
Corporation
Pacific Investment Management .25%
Company
Franklin Advisers, Inc. .50%
The Dreyfus Corporation .45%
1Under the Advisory Agreement between PIFM and PIC. PIC is
reimbursed by PIFM for its reasonable costs and expenses.
</TABLE>
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 and Class Z shares of the Fund. The Fund compensates
PIMS for
distributing and servicing the Fund's Class A, Class B and
- ------------------------------------------------------------
- --------------------
17
<PAGE>
PRUDENTIAL DIVERSIFIED
FUNDS
Notes to Financial Statements
(Unaudited) PRUDENTIAL CONSERVATIVE
GROWTH FUND
- ------------------------------------------------------------
- --------------------
Class C shares, pursuant to plans of distribution, (the
'Class A, B 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 for Class Z shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates
PIMS for
distribution-related activities at an annual rate of up to
.30 of 1%, 1% and 1%
of the average daily net assets of the Class A, B and C
shares, respectively.
Such expenses under the Plans were .25 of 1%, 1% and 1% of
the average daily net
assets of the Class A, B and C shares respectively, for the
period ended January
31, 1999.
PIMS has advised the Fund that it has received approximately
$49,600 in
front-end sales charges resulting from sales of Class A and
Class C shares
during the period ended January 31, 1999.
PIMS has advised the Fund that for the period ended January
31, 1999, it has
received approximately $200 and $100 in contingent deferred
sales charges
imposed upon certain redemptions by Class B and Class C
shareholders,
respectively.
PIMS, PIC and PIFM are indirect, wholly owned subsidiaries
of The Prudential
Insurance Company of America.
The Trust, along with other affiliated registered investment
companies (the
'Funds'), entered into a credit agreement (the 'Agreement')
with an unaffiliated
lender. The maximum commitment under the Agreement is
$200,000,000. Interest on
any such borrowings outstanding will be at market rates. The
purpose of the
Agreement is to serve as an alternative source of funding
for capital share
redemptions. The Fund did not borrow any amounts pursuant to
the Agreement
during the period ended January 31, 1999. The Funds pay a
commitment fee at an
annual rate of .055 of 1% on the unused portion of the
credit facility. The
commitment fee is accrued and paid quarterly on a pro rata
basis by the Funds.
The Agreement expired on February 28, 1999 and has been
extended through March
12, 1999 under the same terms.
- ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned
subsidiary of PIFM,
serves as the Trust's transfer agent. During the period
ended January 31, 1999,
the Fund incurred fees of approximately $2,900 for the
services of PMFS. As of
January 31, 1999 approximately $1,700 of such fees were due
to PMFS. Transfer
agent fees and expenses in the Statement of Operations
include certain
out-of-pocket expenses paid to nonaffiliates.
Note 4. Portfolio Securities
Purchases and sales of portfolio securities, excluding short-
term investments,
for the period ended January 31, 1999 were $100,684,530 and
$27,247,659,
respectively.
At January 31, 1999, the Fund had an outstanding forward
currency contract to
purchase foreign currency as follows:
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date
Current
Purchase Contracts Payable Value
Depreciation
- ---------------------------------- --------------- ------
- - ---------------
<S> <C> <C>
<C>
Pound-Sterling,
expiring 3/31/99................. $ 2,353 $2,349
$ (4)
----- ------
- - ---
----- ------
- - ---
</TABLE>
The United States federal income tax basis of the Funds'
investments as of
January 31, 1999 was substantially the same as for financial
reporting purposes
and accordingly, net unrealized appreciation on investments
for federal income
tax purposes was $2,983,188 (gross unrealized appreciation--
$4,467,785, gross
unrealized depreciation--$1,481,597).
- ------------------------------------------------------------
Note 5. Joint Repurchase Agreement Account
The Fund, along with other affiliated registered investment
companies, transfers
uninvested cash balances into a single joint account, the
daily aggregate
balance of which is invested in one or more repurchase
agreements collateralized
by U.S. Treasury or federal agency obligations. As of
January 31, 1999, the Fund
had a 0.8% undivided interest in the repurchase agreements
in the joint account.
The undivided interest for the Fund represents $6,024,000 in
principal amount.
As of such date, each repurchase agreement in the joint
account and the
collateral therefore were as follows:
Bear, Stearns & Co. Inc., 4.75%, in the principal amount of
$200,000,000
repurchase price $200,079,167, due 2/1/99. The value of the
collateral including
accrued interest was $206,615,704.
J.P. Morgan Inc., 4.72%, in the principal amount of
$200,000,000, repurchase
price $200,078,667, due 2/1/99. The value of the collateral
including accrued
interest was $204,000,313.
Salomon Smith Barney Inc., 4.73%, in the principal amount of
$200,000,000,
repurchase price $200,078,883, due 2/1/99. The value of the
collateral including
accrued interest was $204,209,880.
Warburg Dillon Read LLC, 4.62%, in the principal amount of
$80,255,000,
repurchase price of $80,285,898, due 2/1/99. The value of
the collateral
including accrued interest was $81,862,553.
- ------------------------------------------------------------
- --------------------
18
<PAGE>
PRUDENTIAL DIVERSIFIED
FUNDS
Notes to Financial Statements
(Unaudited) PRUDENTIAL CONSERVATIVE
GROWTH FUND
- ------------------------------------------------------------
- --------------------
Note 6. Capital
The Fund offers Class A, Class B, Class C and Class Z
shares. Class A shares are
sold with a front-end sales charge of up to 5%. 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 C shares are sold
with a front-end
sales charge of 1% and a contingent deferred sales charge of
1% during the first
18 months. Class B shares automatically convert to Class A
shares on a quarterly
basis approximately seven years after purchase. A special
exchange privilege is
also available for shareholders who qualified to purchase
Class A shares at net
asset value. Class Z shares are not subject to any sales or
redemption charge
and are offered exclusively for sale to a limited group of
investors. Of the
7,553,504 shares of beneficial interest issued and
outstanding at January 31,
1999, Prudential owned 4,718,590.
The Fund has authorized an unlimited number of shares of
beneficial interest at
$.001 par value.
Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ---------------------------------- ----------- ---------
- ----
<S> <C> <C>
November 18, 1998(a) through
January 31, 1999:
Shares sold....................... 519,735 $
5,263,736
Shares issued in reinvestment of
dividends....................... 1,147
11,758
Shares reacquired................. (22,883)
(234,295)
----------- ---------
- ----
Net increase in shares outstanding
before conversion............... 497,999
5,041,199
Shares issued upon conversion..... 780
7,855
----------- ---------
- ----
Net increase in shares
outstanding..................... 498,779 $
5,049,054
----------- ---------
- ----
----------- ---------
- ----
<CAPTION>
Class B Shares Amount
- ---------------------------------- ----------- ---------
- ----
<S> <C> <C>
November 18, 1998(a) through
January 31, 1999:
Shares sold....................... 1,398,105 $
14,148,535
Shares issued in reinvestment of
dividends....................... 2,246
23,026
Shares reacquired................. (36,531)
(373,767)
----------- ---------
- ----
Net increase in shares outstanding
before conversion............... 1,363,820
13,797,794
Shares reacquired upon
conversion...................... (780)
(7,855)
Net increase in shares
outstanding..................... 1,363,040 $
13,789,939
----------- ---------
- ----
----------- ---------
- ----
<CAPTION>
Class C
- ----------------------------------
<S> <C> <C>
November 18, 1998(a) through
January 31, 1999:
Shares sold....................... 1,141,888 $
11,494,804
Shares issued in reinvestment of
dividends....................... 2,108
21,604
Shares reacquired................. (22,377)
(229,008)
----------- ---------
- ----
Net increase in shares
outstanding..................... 1,121,619 $
11,287,400
----------- ---------
- ----
----------- ---------
- ----
<CAPTION>
Class Z
- ----------------------------------
<S> <C> <C>
November 18, 1998(a) through
January 31, 1999:
Shares sold....................... 4,790,679 $
47,908,600
Shares issued in reinvestment of
dividends....................... 15,889
162,859
Shares reacquired................. (239,502)
(2,500,399)
----------- ---------
- ----
Net increase in shares
outstanding..................... 4,567,066 $
45,571,060
----------- ---------
- ----
----------- ---------
- ----
</TABLE>
- ---------------
(a) Commencement of investment operations.
- ------------------------------------------------------------
- --------------------
19
<PAGE>
PRUDENTIAL
DIVERSIFIED FUNDS
Financial Highlights (Unaudited) PRUDENTIAL
CONSERVATIVE GROWTH FUND
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
November 18, 1998(a) Through January 31,
1999
- -------------------------------------------
Class A Class B Class C Class Z
- ------- ------- ------- -------
<S>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period........................................ $10.00
$ 10.00 $ 10.00 $ 10.00
- ------- ------- ------- -------
Income from investment operations:
Net investment
income......................................................
. .02 .02 .02 .02
Net realized and unrealized gain on investments and foreign
currencies...... .51 .50 .50
.52
- ------- ------- ------- -------
Total from investment
operations.........................................
.53 .52 .52 .54
- ------- ------- ------- -------
Less distributions
Dividends from net investment
income........................................ (.03 )
(.02) (.02) (.03)
- ------- ------- ------- -------
Net asset value, end of
period..............................................
$10.50 $ 10.50 $ 10.50 $ 10.51
- ------- ------- ------- -------
- ------- ------- ------- -------
TOTAL
RETURN(b)...................................................
.......... 5.33 % 5.25% 5.25% 5.45%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)............................................. $5,246
$14,315 $11,782 $48,009
Average net assets
(000)....................................................
$2,718 $ 8,860 $ 9,015 $48,404
Ratios to average net assets:(c)
Expenses, including distribution
fees.................................... 1.98%
2.73% 2.73% 1.73%
Expenses, excluding distribution
fees.................................... 1.73%
1.73% 1.73% 1.73%
Net investment
income....................................................
2.28% 1.53% 1.53% 2.53%
Portfolio turnover
rate.....................................................
40% 40% 40% 40%
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) Total return does not consider the effect of sales
loads. Total return is
calculated assuming a purchase of shares on the first
day and a sale on the
last day of each period reported and includes
reinvestment of dividends and
distributions. Total return for periods of less than a
full year are not
annualized.
(c) Annualized.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 20
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Trustees
Eugene C. Dorsey
Douglas H. McCorkindale
Thomas T. Mooney
Officers
Robert F. Gunia, President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
David F. Connor, Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Sub-Advisers
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
Jennison Associates LLC
466 Lexington Avenue
New York, NY 10017
Franklin Advisers, Inc.
777 Mariners Island Blvd.
San Mateo, CA 94404
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
Pacific Investment Management Company
840 Newport Center Drive
Newport Beach, CA 92660
Distributor
Prudential Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
Raritan Plaza One
Edison, NJ 08837
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Kirkpatrick & Lockhart LLP
1800 Massachusetts Ave., N.W.
Washington, DC 20036
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 January 31, 1999
were not audited and, accordingly, no opinion is expressed
on them.
This report is not authorized for distribution to
prospective
investors unless preceded or accompanied by a current
prospectus.
<PAGE>
(LOGO)
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
74432F109
74432F208 MF186E6
74432F307
74432F406
Prudential
Diversified FundsSM
(ICON)
Prudential
Diversified
Moderate
Growth
Fund
SEMI
ANNUAL
REPORT
Jan. 31, 1999
(LOGO)
<PAGE>
Prudential Diversified
Moderate Growth Fund
Performance At A Glance.
In the short time since the inception of the Prudential
Diversified
Moderate Growth Fund on November 18, 1998, the importance of
diversification was very evident. Returns of two popular
styles
of stock investing -- value and growth -- diverged
considerably over
this period in the stocks of both large and small companies.
Investors strongly preferred growth companies, particularly
large
familiar ones. Our performance was helped during this period
by
our growth stock holdings. We performed in line with the
Lipper
Growth and Income Index, even though we hold about 35% of
our
assets in bonds, while most funds in the Index have little
or
no bond holdings.
<TABLE>
Cumulative Total Returns1 As of
1/31/99
<CAPTION>
Since Since
Inception2 Inception2
(Without Sales Charge) (With Sales Charge)
<S> <C> <C>
Class A 6.96% 1.62%
Class B 6.79 1.79
Class C 6.79 4.72
Class Z 7.01 7.01
Lipper Growth
& Income Fund Avg.3 6.24 N/A
</TABLE>
Past performance is not indicative of future results.
Principal and
investment return will fluctuate so that an investor's
shares, when
redeemed, may be worth more or less than their original
cost.
1 Source: Prudential Investments Fund Management and Lipper,
Inc. Since
the Fund has been in existence less than one year, no
average annual
total returns are presented. The Fund charges a maximum
front-end
sales charge of 5% for Class A shares. Class B shares are
subject
to a declining contingent deferred sales charge (CDSC) of
5%, 4%,
3%, 2%, 1%, and 1% for six years. Class B shares will
automatically
convert to Class A shares, on a quarterly basis,
approximately seven
years after purchase. Class C shares are subject to a front-
end
sales charge of 1% and a CDSC of 1% for 18 months. Class Z
shares
are not subject to a sales charge or distribution fee.
2 Inception dates: Class A, B, C, and Z, 11/18/98.
3 The Lipper Since Inception return is for all funds in each
share class.
Investment
Advisers' Report
Prudential Investments Fund Management LLC
- -John Van Belle, Ph.D.
- -Stacie Mintz
Sub-Advisers
The Dreyfus Corporation
Franklin Advisers, Inc.
Jennison Associates LLC
Lazard Asset Management
Pacific Investment
Management Company
The Prudential Investment
Corporation
The Fund seeks to provide capital appreciation and
a reasonable level of current income. It invests in
a diversified portfolio of stocks and bonds. There
can be no assurance that the Fund will achieve its
investment objective.
<PAGE>
Moderate Growth Fund Diversification Target
(PIE CHART)
Diversification -- spreading your investments over many
different
securities -- is a basic principle of investing. It helps to
reduce
the overall risk of your portfolio. Moreover, when we
rebalance
our portfolio to restore the original weighting of
different asset classes, the discipline forces us to sell
high and buy low. Over time, this may improve your return.
What Is Diversification?
Diversification -- This is how diversification works: Mutual
funds
not only provide professional money management, they also
allow a
relatively small investment to be spread over many different
securities. When you own a large number of different
securities, the impact of any one on your return is reduced.
In addition, if you diversify your investments among asset
classes and investment styles -- between stocks and bonds,
large-cap stocks and small-/mid-cap stocks, value and growth
styles,
and investment grade and high yield bonds -- it is less
likely
that all the securities you own will move in the same
direction
at one time. The Prudential Diversified Funds provide more
of
this buffering than a fund investing in only one asset
class. We believe this will result in smoother returns over
time.
Rebalancing -- The Diversified Moderate Growth Fund has a
target balance of the various asset classes. As some perform
better than others, the portfolio will drift from this
original
balance: the securities that rise most will become a larger
proportion of the invested assets. We direct new investments
to
the asset classes that have fallen below their target ratio
and,
when necessary, sell appreciated securities to maintain the
balance. This not only keeps your risk exposure from
changing too much, but it may reduce the average cost of our
investments and increase our average selling price over
time.
Although an individual investor can diversify and rebalance,
it would require a large investment to own the range of
asset
classes represented in the Prudential Diversified Moderate
Growth Fund. Moreover, calculating the amounts to allocate
to each kind of security in a rebalancing would be
difficult.
Prudential Diversified Funds do it all for you.
Asset classes are classifications of investments.
The most basic distinction among securities is
among stocks, bonds, and money market investments.
Stocks are shares of ownership in a firm. Owners
share in the profits, after debts are paid, and
share in the firm's appreciation in value.
Generally, the prices of stocks vary with
investors' estimates of a firm's earning
prospects, including the impact of broader
economic conditions. Bonds are loans to a
company, government, or agency. They
carry a fixed interest rate or one that
varies according to a rule that is specified
in the bond. They have a maturity date at
which they must be repaid. Generally, bond
prices vary with current interest rates for
new bonds and with changes in the
debtor's prospects of repaying the loan.
Money market instruments are very short-term
loans, 13 months or less. Bonds and money
market instruments are called fixed-income
securities.
<PAGE>
The Economic Context.
At the time we opened the Prudential Diversified Funds in
November
1998, global financial markets had been unsettled first by
an
economic recession in Asia and then by debt defaults in
Russia
and China. Both stock and bond prices had fallen sharply,
except for United States Treasury bonds, which increased in
price as investors tried to avoid any risk at all. In
response
to the turmoil, European central banks reduced interest
rates
to reassure investors about European economic growth and the
U.S. Federal Reserve Bank made the dramatic move of reducing
rates three times within a two-month period. (Lower interest
rates are expected to stimulate economic activity.) Lower
interest rates mean higher bond prices for older bonds
because they
provide a larger stream of interest payments. U.S. stock
markets began to climb again in October, rebounding from
their earlier fall. This was the setting for our initial
investments in mid-November.
Early in 1999, it became clearer that the U.S. economy was
growing rapidly, but concerns about Europe continued. Brazil
devalued its currency -- raising the prices of all imported
goods for Brazilians -- and slipped into a recession that
threatened
to spread to its Latin American trading partners. There were
signs of economic stabilization in Asia. Japan's economy
has been contracting, despite the Japanese government's
announcements of steps to reform and revive its economy.
The Financial Markets.
Investors continued to feel insecure despite the market
bounce,
so stock market advances in the United States were focused
on
the very largest growth companies. A standard benchmark for
U.S.
large-cap stocks is the S&P 500 Index. The S&P 500 rose
12% during our reporting period -- November 18, 1998 through
the end of January 1999 -- while the stocks of smaller
companies rose only 9% (measured by the Russell 2000
Small-Cap Index).
Growth & Value.
Growth-style stocks also were significantly favored over
value
stocks in all market-cap sectors. In the large caps, growth
stocks returned 16%, while value stocks returned only 8%.
Among small caps, the difference was even more marked.
These differences were generally due to the strong
performance
of a few of the larger growth-style stocks, while most other
stocks languished. The concentration
United States Treasury bonds are backed by the
full faith and credit of the U.S. government,
so investors view them as among the safest
investments. Because of their safety, they
generally carry a lower yield than corporate
or foreign government bonds. When investors
are more fearful, the demand for these safest
of all securities increases and their price rises,
while other bonds generally fall in value. A decline
in value makes the bond's fixed interest payments
amount to a higher yield on
its purchase price.
A currency devaluation is a decline in purchasing
power compared to currencies of other countries.
One way that can happen is if a country that has
been maintaining some control over its exchange
rate, such as Brazil, changes its policy. The result
is a sharp increase in inflation for the Brazilian
people and a loss of purchasing power. Moreover,
Brazilian borrowers will find it much harder to
raise enough cash in local currency to service
debt denominated in foreign currencies.
Market capitalization -- shortened to "market
cap" -- is what it would cost to buy all of a
company's stock at the current market price. It
is calculated by multiplying the price of a
share of stock by the number of outstanding
shares. Often it is spoken of as the value
the market is putting on the entire company.
Although it is often used to represent the size
of the company, market cap is strongly affected
by the demand for the firm's stock and is not
closely tied to other measures of size,
such as number of employees, earnings, or
book value.
Continued...
1
<PAGE>
The Financial Markets Cont'd
of performance was unusually tightly focused, a sign
that investors were sticking to the most familiar
companies.
International.
Over the same period, international stocks averaged
a 6% return, as measured by the Morgan Stanley EAFE
(Europe, Australasia, and the Far East) Index. The
advance came mostly in the three weeks ending January
8, 1999, with a great deal of market
volatility around it. The Pacific region was
recovering from a steep plunge over the prior
two years. Although the European return also was
substantial for such a short period, it trailed
the world average slightly. It also represented a sharp
bounce from its more brief and shallow decline
in the summer of 1998.
Bonds.
Bond returns generally were much more modest over this
period -- one to two percentage points. It is worth
mentioning that when stock markets around the world
plunged in August 1998, bonds were an important
stabilizing factor. Although they also
fell, they fell much less than stocks. Similarly,
when U.S. stock markets dropped in February 1999,
after our reporting period ended, bonds again were
a stabilizing factor.
Two popular stock investment styles are growth and value.
Growth managers look among the most rapidly growing
companies for those with the best long-term prospects,
while value managers look among neglected and
inexpensive companies for those with the best
earnings prospects or asset values for the
dollar. Historically, at any given time one
style has worked better than the other, but
they alternate in periods of superior performance.
Our Performance.
The return on our bonds, both core fixed-income and high
yield bonds, was modest compared with that on our stocks
over our reporting period. Of the asset and style classes
in our Fund, only the large-cap value stocks performed
worse. Our target allocation of 35% bonds constrained
our overall return, which nonetheless was close to our
Lipper Growth and Income Fund Average benchmark. Although
few of the other funds in that category hold bonds, the
strong performance of our large-cap growth
stocks compensated for our lower-return assets.
Portfolio managers who follow a disciplined approach are
clearly focused on what they are looking for; we believe
that they will generally perform better over the long
term than less methodical investors. However, no one
investment style is superior in all markets. Consequently,
our stocks are divided into portions to be invested in a
value and in a growth style. Our growth stocks were
tightly focused on companies with above-average current
and projected earnings growth. In a market that
strongly favored that style, they performed even better
than the growth-stock average by a substantial margin.
They had a focus on the technology and health-care sectors,
which were market favorites. Our value stocks also were
invested in a very disciplined manner, and they suffered
more than most in an environment hostile to their style.
As we hoped, however, our winners were ahead of the average
by a much greater margin than our value stocks trailed.
In all the other asset classes, our
holdings performed about in line with their benchmarks.
2
<PAGE>
A Message to Our Shareholders
March 26, 1999
(PHOTO)
Dear Shareholder,
When I think about how Prudential's clients can benefit from
their investments, one of my recent concerns is how
misleading
today's equity markets have become. Major index advances
continue
to be driven by the stocks of a handful of very large
companies. These stocks are getting more and more expensive,
out of proportion to their earnings expectations. As a
result,
a substantial disparity in value continues to grow between
large and small companies and between growth and value
stocks.
Since not all stocks are benefiting from the highly
publicized
euphoria surrounding each record-breaking milestone, it is
unlikely that these trends will continue. In fact, history
shows that markets generally bring prices in line with
earnings
performance sooner or later.
Diversification Is Critical.
Instead of chasing recent market winners, investors should
have
a well-diversified asset allocation strategy in place and
keep
to it. It is also a good practice to rebalance your holdings
when necessary to keep your asset allocation consistent with
your long-term objectives and risk tolerance. A properly
diversified portfolio of value- and growth-oriented mutual
funds, bond funds and money market funds could help you
weather inevitable market turbulence and receive more
consistent returns over time. Prudential offers a wide
range of mutual funds to help our shareholders diversify.
Thank you for your continued confidence in Prudential
mutual funds.
Sincerely,
John R. Strangfeld
Chief Investment Officer
Prudential Investments
3
<PAGE>
Portfolio of Investments as
of January 31, 1999 PRUDENTIAL DIVERSIFIED
FUNDS
(Unaudited) PRUDENTIAL MODERATE
GROWTH FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S> <C>
--------------------------------------------------------
- ----
LONG-TERM INVESTMENTS--90.7%
COMMON STOCKS--61.7%
--------------------------------------------------------
- ----
Advertising--0.3%
7,000 Cambridge Technology Partners,
Inc.(a) $
207,375
325 Catalina Marketing Corp.(a)
21,694
-------
- ---
229,069
- ------------------------------------------------------------
Aerospace/Defense--0.7%
27,800 British Aerospace PLC (United
Kingdom)(a)
211,138
400 Cordant Technologies, Inc.
12,700
7,700 Loral Space & Communications, Inc.
169,400
1,500 Raytheon Co. (Class 'A' Stock)
83,625
1,400 Raytheon Co. (Class 'B' Stock)
78,313
-------
- ---
555,176
- ------------------------------------------------------------
Airlines--0.4%
1,250 Alaska Air Group, Inc.(a)
62,969
1,800 Continental Airlines, Inc.(a)
61,425
8,500 Mesaba Holdings, Inc.(a)
170,000
-------
- ---
294,394
- ------------------------------------------------------------
Aluminum & Steel--0.5%
4,875 AK Steel Holding Corp.
101,461
2,100 Alcoa, Inc.
175,612
2,900 Reliance Steel & Aluminum Co.
79,388
-------
- ---
356,461
- ------------------------------------------------------------
Apparel--0.5%
450 American Eagle Outfitters, Inc.
30,769
1,575 Kellwood Co.
43,706
4,500 Tropical Sportswear Intl., Corp.(a)
152,438
14,000 Wolverine World Wide, Inc.
154,875
-------
- ---
381,788
Audio/Visual--0.1%
1,400 Sony Corp. (Japan) $
101,693
- ------------------------------------------------------------
Auto & Truck--1.2%
1,425 Arvin Industries, Inc.
56,377
1,300 Borg-Warner Automotive, Inc.
62,562
1,210 Daimlerchrysler AG (Germany)
126,141
67,800 Lucas Varity PLC (United Kingdom)
323,578
16,000 Nissan Motor Co., Ltd.(a) (Japan)
57,767
500 Safeskin Corp.
11,688
11,000 Safety Kleen Corp.
166,375
1,500 Varlen Corp.
36,000
2,700 Volvo AB, Ser. B (Sweden)
73,540
-------
- ---
914,028
- ------------------------------------------------------------
Banking--4.3%
1,750 BancorpSouth, Inc.
30,078
5,700 Bank of New York Co., Inc.
202,350
500 Bank United Corp. (Class 'A' Stock)
20,000
4,400 BankAmerica Corp.
294,250
675 Banknorth Group, Inc.
20,166
1,740 Banque Nationale de Paris (France)
158,151
8,600 Chase Manhattan Corp.
661,662
775 City National Corp.
26,786
3,100 Commercial Federal Corp.
70,913
5,680 Corporacion Bancaria de Espana
(Spain)
145,677
425 CORUS Bankshares, Inc.
14,450
1,825 Cullen/Frost Bankers, Inc.
94,786
2,010 CVB Financial Corp.
38,944
150 First Citizens BancShares, Inc.
(Class 'A' Stock)
13,238
8,500 Golden State Bancorp, Inc.(a)
158,844
1,025 Harbor Florida Bancshares, Inc.
11,403
3,200 HSBC Holdings PLC (Hong Kong)(a)
79,701
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as
of January 31, 1999 PRUDENTIAL DIVERSIFIED
FUNDS
(Unaudited) PRUDENTIAL MODERATE
GROWTH FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S> <C>
-------------------------------------------------------
- -----
Banking (cont'd.)
600 ING Groep N.V. (Netherlands) $
34,992
2,075 MAF Bancorp, Inc.
50,319
6,900 Merita PLC, Series A (Finland)
44,320
7,400 National Westminster Bank PLC (United
Kingdom)(a)
136,152
6,700 Nordbanken Holding AB (Sweden)
46,373
1,900 North Fork Bancorporation, Inc.
39,900
3,275 Peoples Heritage Financial Group,
Inc.
58,950
625 Queens County Bancorp., Inc.
19,805
1,100 Republic New York Corp.
40,288
9,600 Sao Paolo Imi SpA (Italy)
156,612
1,050 St. Paul Bancorp, Inc.
24,281
19,000 Sumitomo Trust & Banking Co., Ltd.
(Japan)
52,428
2,520 Svenska Handelsbanken, Series A
(Sweden)
100,129
1,220 Unidanmark AS (Denmark)
101,637
13,000 United Overseas Bank, Ltd.
(Singapore)
77,623
1,000 Washington Federal, Inc.
25,688
4,100 Washington Mutual, Inc.
172,200
1,825 Westamerica Bancorporation
64,217
10,700 Westpac Banking Corp. (Australia)
74,074
-------
- ---
3,361,387
- ------------------------------------------------------------
Building & Construction--1.5%
8,300 ABB AB, Ser. A (Sweden)
81,384
2,300 American Standard Companies, Inc.(a)
79,062
3,000 Centex Corp.
129,562
870 Compagnie De Saint Gobain (France)
121,852
4,800 D.R. Horton, Inc.
101,400
2,900 Lone Star Industries, Inc.
106,575
1,675 M.D.C. Holdings, Inc.
35,175
4,425 Pulte Corp.
133,580
1,275 Southdown, Inc.
70,842
1,900 Thomas Industries, Inc.
34,913
4,075 Toll Brothers, Inc.(a)
93,725
2,575 U.S. Home Corp.(a) $
91,413
4,275 Webb Delaware Corp.
111,150
-------
- ---
1,190,633
- ------------------------------------------------------------
Cable--0.2%
5,000 Jones Intercable, Inc.(a)
180,000
- ------------------------------------------------------------
Chemicals--0.7%
1,400 Dow Chemical Co.
123,287
2,100 Eastman Chemical Co.
85,312
2,550 Gencorp, Inc.
59,606
3,100 Hoechst AG (Germany)
133,216
10,500 Imperial Chemical Industries PLC
(United Kingdom)
94,521
1,300 Spartech Corp.
31,038
-------
- ---
526,980
- ------------------------------------------------------------
Computers--4.6%
5,000 Aspect Development, Inc.(a)
144,375
5,900 Cadence Design Systems, Inc.(a)
188,800
925 Citrix Systems, Inc.(a)
83,828
13,100 Compaq Computer Corp.
623,887
3,500 Dell Computer Corp.(a)
350,000
6,500 Hewlett-Packard Co.
509,437
1,700 International Business Machines Corp.
311,525
3,400 Microsoft Corp.(a)
595,000
1,500 Neomagic Corp.(a)
21,094
8,700 Oracle Systems Corp.(a)
481,762
350 SCM Microsystems, Inc.
27,563
7,400 Seagate Technology, Inc.(a)
301,088
-------
- ---
3,638,359
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 5
<PAGE>
Portfolio of Investments as
of January 31, 1999 PRUDENTIAL DIVERSIFIED
FUNDS
(Unaudited) PRUDENTIAL MODERATE
GROWTH FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S> <C>
-------------------------------------------------------
- -----
Computer Services--3.0%
6,000 3Com Corp.(a) $
282,000
4,600 Affiliated Computer Services, Inc.(a)
221,950
1,700 Ascend Communications, Inc.(a)
148,431
4,400 Autodesk, Inc.
194,425
4,900 Cisco Systems, Inc.(a)
546,656
625 Computer Task Group, Inc.
16,367
1,475 Hypercom Corp.
18,899
11,300 Platinum Technology, Inc.(a)
149,725
4,800 Symbol Technologies, Inc.
302,400
9,000 Xylan Corp.(a)
182,250
-------
- ---
2,063,103
- ------------------------------------------------------------
Consumer Products--1.6%
5,000 Avon Products, Inc.
184,688
875 Fossil, Inc.
25,949
1,200 Hitachi Ltd. ADR
85,950
2,550 Mikasa, Inc.
29,007
1,530 Siemens AG (Germany)
108,798
6,300 Tandy Corp.
340,200
3,600 Texas Instruments, Inc.
355,950
8,600 Unilever PLC (United Kingdom)
85,272
-------
- ---
1,215,814
- ------------------------------------------------------------
Distribution/Wholesalers--0.2%
9,000 Brightpoint, Inc.
157,500
625 Ingram Micro, Inc.
18,945
-------
- ---
176,445
Diversified Manufacturing--0.8%
29,200 BTR Siebe PLC (United Kingdom) $
98,992
800 Crane Co.
21,750
1,500 CUNO, Inc.(a)
21,000
4,500 General Electric Co.
471,937
1,300 SPS Technologies, Inc.(a)
63,944
40 Swatch Group (Switzerland)(a)
21,641
-------
- ---
699,264
- ------------------------------------------------------------
Diversified Operations--0.2%
8,200 Granada Group PLC (United Kingdom)
146,485
- ------------------------------------------------------------
Electrical Utilities--0.6%
1,600 BEC Energy
61,200
2,150 Calpine Corp.
79,550
875 Cleco Corp.
27,563
1,275 Conectiv, Inc.
28,687
4,020 Endesa SA (Spain)
111,923
1,800 Public Service Company of New Mexico
33,863
350 Rochester Gas & Electric Corp.
10,063
900 TNP Enterprises, Inc.
32,006
900 WPS Resources Corp.
29,475
-------
- ---
414,330
- ------------------------------------------------------------
Electronic Components--1.8%
3,800 AMP, Inc.
199,975
5,600 Arrow Electronics, Inc.(a)
92,400
2,000 Avnet, Inc.
89,875
2,575 CHS Electronics, Inc.(a)
38,464
825 CTS Corp.
39,239
6,140 Electrolux AB, Series B (Sweden)
95,226
1,400 General Motors Corp., Class H
125,650
8,400 Gentex Corp.(a)
192,150
675 Idacorp, Inc.
22,191
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 6
<PAGE>
Portfolio of Investments as
of January 31, 1999 PRUDENTIAL DIVERSIFIED
FUNDS
(Unaudited) PRUDENTIAL MODERATE
GROWTH FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S> <C>
-------------------------------------------------------
- -----
Electronic Components (cont'd.)
600 Innovex, Inc. $
11,475
6,000 Matsushita Electric Industrial Co.,
Ltd. (Japan)
101,917
2,000 Omron Corp. (Japan)
21,834
1,000 Pittway Corp.
28,063
1,390 Royal Philips Electronics N.V.
(Netherlands)
101,134
2,800 Sanmina Corp.
185,500
1,725 Thermoquest Corp.
19,406
-------
- ---
1,364,499
- ------------------------------------------------------------
Fertilizer--0.1%
1,125 Potash Corp. of Saskatchewan, Inc.
68,063
- ------------------------------------------------------------
Financial Services--4.0%
1,000 Alcatel Alsthom (France)
116,641
900 American Express Co.
92,587
675 Arthur J. Gallagher & Co.
33,750
5,700 Associates First Capital Corp.
231,206
750 Chittenden Corp.
21,281
12,200 Citigroup, Inc.
683,962
250 Dain Rauscher Corp.
7,719
1,950 Downey Financial Corp.
43,022
2,325 Eaton Vance Corp.
47,953
1,025 Inacom Corp.(a)
13,389
1,400 Lehman Brothers Holdings, Inc.
76,563
12,800 MBNA Corp.
357,600
800 Morgan (J.P.) & Co., Inc.
84,400
9,500 Morgan Stanley Dean Witter Discover &
Co.
824,719
1,800 Orix Corp. (Japan)
122,703
1,500 Promise Co., Ltd. (Japan)
71,950
4,150 Resource Bancshares Mortgage Group,
Inc.
61,731
3,700 Schwab Charles Corp.
260,156
1,075 Webster Financial Corp.
32,116
-------
- ---
3,183,448
Food & Beverage--0.8%
350 Adolph Coors Co. $
22,422
7,000 Asahi Breweries, Ltd. (Japan)
94,352
3,270 Cadbury Schweppes PLC
(United Kingdom)
52,200
825 Corn Products International, Inc.
21,914
11,700 Diageo PLC (United Kingdom)
131,028
2,600 Heineken N.V. (Netherlands)
140,401
900 J & J Snack Foods Corp.(a)
21,825
40 Nestle SA (Switzerland)
73,409
425 Richfood Holdings, Inc.
9,854
1,825 Riviana Foods, Inc.
41,519
1,000 Universal Foods Corp.
22,500
-------
- ---
631,424
- ------------------------------------------------------------
Forestry--0.1%
2,600 Georgia-Pacific Corp.
58,500
1,600 Universal Forest Product, Inc.
31,600
-------
- ---
90,100
- ------------------------------------------------------------
Health Care--2.0%
13,600 Columbia/HCA Healthcare Corp.
246,500
875 Curative Health Services, Inc.
26,195
11,600 Foundation Health Systems, Inc.
106,575
2,287 Mckesson HBOC, Inc.
171,811
1,900 PacifiCare Health Systems, Inc.(a)
134,425
6,500 PAREXEL International Corp.(a)
169,000
12,100 Tenet Healthcare Corp.(a)
251,075
2,100 United Healthcare Corp.
93,975
4,800 Wellpoint Health Networks, Inc.(a)
359,100
-------
- ---
1,558,656
- ------------------------------------------------------------
Home Furnishings--0.4%
5,425 Ethan Allen Interiors, Inc.
259,044
1,450 Furniture Brands International,
Inc.(a)
34,075
-------
- ---
293,119
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 7
<PAGE>
Portfolio of Investments as
of January 31, 1999 PRUDENTIAL DIVERSIFIED
FUNDS
(Unaudited) PRUDENTIAL MODERATE
GROWTH FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S> <C>
-------------------------------------------------------
- -----
Hotels--0.6%
8,200 Hilton Hotels Corp.
118,388
7,000 Meristar Hospitality Corp.
134,750
8,200 Park Place Entertainment Corp.(a)
55,863
4,300 Promus Hotel Corp.(a)
128,462
-------
- ---
437,463
- ------------------------------------------------------------
Human Resources--0.2%
10,000 RemedyTemp, Inc.(a)
182,500
- ------------------------------------------------------------
Industrial Technology/Instruments--0.1%
2,000 EG&G, Inc.
56,750
- ------------------------------------------------------------
Insurance--4.7%
6,800 ACE, Ltd.
190,400
290 Allianz AG (Germany)
106,489
5,600 Allied Zurich PLC (United Kingdom)
86,445
1,400 American Financial Group, Inc.
50,750
1,000 American General Corp.
71,313
3,200 American International Group, Inc.
329,400
900 Amerin Corp.(a)
20,925
930 Axa-UAP (France)
135,119
1,500 Capital Re Corp.
27,281
4,900 Chubb Corp.
287,875
1,115 Fidelity National Financial, Inc.
29,687
4,050 Financial Security Assurance
Holdings, Ltd.
222,497
900 First American Financial Corp.
27,506
1,400 Harleysville Group, Inc.
29,575
625 Medical Assurance, Inc.(a)
19,063
5,100 Mutual Risk Management, Ltd.
187,425
7,400 Old Republic International Corp.
144,762
550 Orion Capital Corp.
19,594
775 PartnerRe Ltd.
35,117
2,200 Presidential Life Corp.
40,975
291 Priority Healthcare Corp.
11,320
1,675 Protective Life Corp.
57,892
2,800 Provident Companies, Inc. $
120,050
9,800 Prudential Corp. PLC (United Kingdom)
151,360
2,500 Reinsurance Group of America, Inc.
168,281
15,000 Royal & Sun Alliance Insurance Group
PLC (United Kingdom)(a)
114,356
6,800 SAFECO Corp.
264,350
3,700 St. Paul Companies, Inc.
108,687
3,500 The Equitable Companies, Inc.
244,125
1,500 Tokio Marine & Fire Insurance Co.,
Ltd. ADR
85,500
1,400 UNUM Corp.
84,613
245 Zurich Versicherungs-Gesellschaft AG
(Switzerland)
181,411
-------
- ---
3,654,143
- ------------------------------------------------------------
Leisure
4,400 EMI Group PLC (United Kingdom)
28,240
- ------------------------------------------------------------
Machinery--0.3%
1,625 IDEX Corp.
37,070
1,600 JLG Industries, Inc.
25,200
625 Kaydon Corp.
20,976
2,875 Lincoln Electric Holdings, Inc.
60,735
875 Milacron, Inc.
17,117
300 Plantronics, Inc.
24,206
800 Regal Beloit Corp.
18,400
550 Tecumseh Products Co.
24,578
1,275 Terex Corp.(a)
31,397
-------
- ---
259,679
- ------------------------------------------------------------
Manufacturing--0.2%
1,370 Compagnie Generale des Etablissements
Michelin, Series B (France)
52,456
900 Nintendo Co., Ltd. (Japan)
83,555
-------
- ---
136,011
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 8
<PAGE>
Portfolio of Investments as
of January 31, 1999 PRUDENTIAL DIVERSIFIED
FUNDS
(Unaudited) PRUDENTIAL MODERATE
GROWTH FUND
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S> <C>
-------------------------------------------------------
- -----
Media--1.5%
12,500 CBS Corp.(a) $
425,000
4,700 Clear Channel Communications, Inc.(a)
290,812
6,000 Infinity Broadcasting, Corp.(a)
166,125
1,850 King World Productions, Inc.(a)
50,644
4,200 Mirror Group Newspapers PLC
(United Kingdom)
14,584
4,200 Omnicom Group, Inc.
268,800
1,050 Tekelec, Inc.
21,000
-------
- ---
1,236,965
- ------------------------------------------------------------
Metals--0.2%
14,400 Broken Hill Proprietary Co., Ltd.
(Australia)
105,861
900 Cleveland-Cliffs, Inc.
36,787
1,425 Commercial Metals Co.
35,091
1,125 RTI International Metals, Inc.
13,922
-------
- ---
191,661
- ------------------------------------------------------------
Mining--0.3%
9,100 Freeport-McMoRan Copper & Gold,
Inc.(a)
87,019
7,200 Newmont Mining Corp.
127,350
-------
- ---
214,369
- ------------------------------------------------------------
Miscellaneous--0.1%
550 SEACOR Holdings, Inc.
24,475
30 Societe Generale Surveillance SA
(Switzerland)
26,499
277 Thyssen AG (Germany)
46,921
-------
- ---
97,895
Office Equipment & Supplies--0.2%
6,700 Harris Corp. $
251,250
1,000 Kimball International, Inc., (Class
'B' stock)
17,625
11,000 Ricoh Co., Ltd. (Japan)
106,851
2,000 Xerox Corp.
248,000
-------
- ---
623,726
- ------------------------------------------------------------
Oil & Gas Services--2.1%
800 Amerada Hess Corp.
38,000
2,500 Atlantic Richfield Co.
143,437
1,900 BOC Group PLC, ADR
53,675
9,800 BP Amoco PLC (United Kingdom)
133,539
1,350 Devon Energy Corp.
35,353
5,500 Elf Aquitaine SA, ADR
300,438
1,200 Elf Aquitaine SA (France)
130,147
2,325 Energen Corp.
39,670
19,800 ENI SpA (Italy)
117,500
3,150 Helmerich & Payne, Inc.
55,322
3,000 Keyspan Energy
81,187
7,500 Newfield Exploration Co.(a)
139,687
3,000 Occidental Petroleum Corp.
45,188
1,075 Oneok, Inc.
31,444
4,000 Oryx Energy Co.(a)
48,750
660 R & B Falcon Corp.(a)
4,661
3,250 Tesoro Petroleum Corp.
35,344
1,900 Total SA, ADR
97,256
2,875 Wicor, Inc.
57,680
-------
- ---
1,588,278
- ------------------------------------------------------------
Paper & Packaging--1.8%
1,075 Ball Corp.
48,375
825 Caraustar Industries, Inc.
23,306
1,600 Fort James Corp.
57,400
4,200 Georgia-Pacific Group (Japan)
270,900
4,300 International Paper Co.
170,119
5,400 Mead Corp.
154,575
1,900 Rayonier, Inc.
83,600
1,525 Rock-Tenn Co., (Class 'A' Stock)
27,450
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 9
<PAGE>
Portfolio of Investments as
of January 31, 1999 PRUDENTIAL DIVERSIFIED
FUNDS
(Unaudited) PRUDENTIAL MODERATE
GROWTH FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S> <C>
-------------------------------------------------------
- -----
Paper & Packaging (cont'd.)
3,000 Temple-Inland, Inc. $
171,187
1,050 UPM-Kymmene OYJ (Finland)
27,455
3,400 Weyerhaeuser Co.
184,025
5,700 Willamette Industries, Inc.
199,500
-------
- ---
1,417,892
- ------------------------------------------------------------
Pharmaceuticals--3.4%
500 Alpharma, Inc.
17,313
5,700 American Home Products Corp.
334,519
5,900 Astra AB, Series B (Sweden)
126,290
750 Bindley Western Industries, Inc.
18,938
2,700 Eli Lilly & Co.
252,956
710 Medtronic, Inc.
56,555
2,000 Merck & Co., Inc.
293,500
800 Ocular Sciences, Inc.(a)
18,500
2,500 Pfizer, Inc.
321,562
3,200 Pharmacia & Upjohn, Inc.
184,000
3,400 Rhone-Poulenc SA, Series A (France)
178,963
1,000 Roberts Pharmaceutical Corp.
19,500
8 Roche Holdings AG (Switzerland)
104,611
7,300 Schering-Plough Corp.
397,850
1,125 Serologicals Corp.
29,672
4,900 Warner-Lambert Co.
353,719
-------
- ---
2,708,448
- ------------------------------------------------------------
Photography--0.3%
2,100 Eastman Kodak Co.
137,288
- ------------------------------------------------------------
Printing & Publishing--0.1%
450 Consolidated Graphics, Inc.
32,625
1,075 Franklin Covey Co.
17,872
1,175 Hollinger International, Inc.
15,422
550 Valassis Communications, Inc.(a)
28,118
950 World Color Press, Inc.(a)
23,394
-------
- ---
117,431
Real Estate Investment Trusts--0.4%
2,200 Franchise Finance Corp., of America $
50,600
8,500 Glenborough Realty Trust, Inc.
149,281
1,900 The Rouse Co.
44,888
-------
- ---
244,769
- ------------------------------------------------------------
Restaurants--1.1%
6,000 CKE Restaurants, Inc.
142,500
18,700 Darden Restaurants, Inc.
350,625
450 IHOP Corp.
19,350
3,400 McDonald's Corp.
267,962
6,600 Ryan's Family Steak Houses, Inc.(a)
91,163
-------
- ---
871,600
- ------------------------------------------------------------
Retail--3.7%
425 BJ's Wholesale Club, Inc.(a)
18,913
1,000 Buckle, Inc.
26,750
775 Department 56, Inc.
24,509
8,200 Dillards, Inc. (Class 'A' stock)
203,462
4,100 Gap, Inc.
263,169
7,700 Great Universal Stores PLC
(United Kingdom)
98,651
7,200 Home Depot, Inc.
434,700
12,000 IKON Office Solutions, Inc.
192,000
15,800 Kmart Corp.(a)
277,487
5,000 Kohl's Corp.(a)
338,750
2,420 Metro AG (Germany)
196,709
4,700 Pep Boys - Manny, Moe & Jack
74,025
3,200 Rite Aid Corp.
157,200
1,700 Ross Stores, Inc.
67,150
1,600 Sears, Roebuck & Co.
64,200
7,800 Staples, Inc.(a)
223,275
5,500 Toys 'R' Us, Inc.(a)
82,500
1,600 Wal-Mart Stores, Inc.
137,600
1,125 Zale Corp.(a)
36,914
-------
- ---
2,917,964
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 10
<PAGE>
Portfolio of Investments as
of January 31, 1999 PRUDENTIAL DIVERSIFIED
FUNDS
(Unaudited) PRUDENTIAL MODERATE
GROWTH FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S> <C>
-------------------------------------------------------
- -----
Semiconductors--1.3%
3,800 Applied Materials, Inc.(a) $
240,112
2,200 Etec Systems, Inc.(a)
118,113
2,700 Intel Corp.
380,531
3,700 KLA Tencor Corp.(a)
213,675
5,700 National Semiconductor Corp.
73,744
-------
- ---
1,026,175
- ------------------------------------------------------------
Softwares--1.5%
7,000 12 Technologies, Inc.(a)
244,125
1,175 Check Point Software Technologies,
Ltd.(a)
56,988
900 Dialogic Corp.(a)
22,950
3,000 Documentum, Inc.(a)
69,938
6,100 HNC Software, Inc.(a)
176,137
2,200 Intuit, Inc.(a)
200,200
5,700 Rational Software Corp.(a)
188,456
3,000 VERITAS Software Corp.(a)
250,875
-------
- ---
1,209,669
- ------------------------------------------------------------
Telecommunications--4.0%
2,900 AirTouch Communications, Inc.(a)
280,031
1,275 Alliant Communications, Inc.
54,188
2,500 ALLTEL Corp.
161,406
18,000 Aspect Telecommunications Corp.(a)
162,000
2,000 AT&T Corp.
181,500
5,000 Excel Switching Corp.
138,438
9,700 MCI WorldCom, Inc.(a)
773,575
3 NTT Mobile Communications (Japan)
126,365
12,500 Natural Microsystems Corp.(a)
85,156
8 Nippon Telegraph & Telephone Corp.
(Japan)
64,506
1,700 Nokia Corp., ADR(a)
244,800
3,700 Qwest Communications International,
Inc.(a)
221,769
28,000 Telecom. Italia SpA (Italy)
189,399
4,039 Telefonica SA (Spain)
181,202
-------
- ---
2,864,335
Tobacco--1.5%
11,200 British America Tobacco PLC
(United Kingdom) $
116,029
14 Japan Tobacco, Inc. (Japan)
135,992
4,300 Loews Corp.
362,006
4,800 Philip Morris Co., Inc.
225,600
8,900 RJR Nabisco Holdings Corp.
240,300
1,825 Universal Corp.
55,320
-------
- ---
1,135,247
- ------------------------------------------------------------
Trucking & Shipping--0.2%
8,000 Air Express International Corp.
151,000
1,175 US Freightways Corp.
40,978
-------
- ---
191,978
- ------------------------------------------------------------
Utilities--1.2%
1,600 Atmos Energy Corp.
47,700
3,125 California Water Service Group
81,445
780 Cie General des Eaux (France)
228,248
1,500 GPU, Inc.
63,938
2,500 Houston Industries, Inc.(a)
75,937
3,900 Pacific Gateway Exchange, Inc.(a)
129,188
630 Suez Lyonnaise des Eaux (France)
129,921
2,500 Unicom Corp.
89,062
3,775 Washington Gas Light Co.
90,600
-------
- ---
936,039
- ------------------------------------------------------------
Waste Management--0.1%
2,500 Waste Management, Inc.
124,844
-------
- ---
Total common stocks
(cost $44,505,056)
48,246,077
-------
- ---
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 11
<PAGE>
Portfolio of Investments as
of January 31, 1999 PRUDENTIAL DIVERSIFIED
FUNDS
(Unaudited) PRUDENTIAL MODERATE
GROWTH FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description
Value (Note 1)
<S> <C> <C> <C>
- ------------------------------------------------------------
CORPORATE BONDS--11.7%
- ------------------------------------------------------------
Airlines--0.3%
Ba2 $ 250 Continental Airlines, Inc.,
Sr. Notes,
8.00%, 12/15/05 $
245,958
- ------------------------------------------------------------
Audio/Visual--0.3%
Ba2 250 Imax Corp.,
Sr. Notes,
7.875%, 12/1/05
250,938
- ------------------------------------------------------------
Automotive Parts--0.3%
B3 250 Hayes Wheels Int'l., Inc.,
Sr. Sub. Notes,
9.125%, 7/15/07
262,500
- ------------------------------------------------------------
Building Products--0.3%
Ba3 250 Building Materials Corp. of
America,
Sr. Notes,
8.00%, 12/1/08
250,625
- ------------------------------------------------------------
Cable--1.1%
B1 250 Adelphia Communications
Corp.,
Sr. Notes,
7.75%, 1/15/09
253,125
B3 250 Avalon Cable, Inc.,
Sr. Sub. Notes,
9.375%, 12/1/08
262,812
Baa3 300 TCI Communications, Inc.,
MTN,
6.46%, 3/6/00
304,011
---
- --------
819,948
- ------------------------------------------------------------
Casinos--0.3%
Ba2 250 Harrahs Operating, Inc.,
Gtd. Sr. Sub. Notes,
7.875%, 12/15/05
252,500
Coal--0.3%
Ba3 $ 250 P & L Coal Holdings Corp.,
Sr. Notes,
8.875%, 5/15/08 $
258,437
- ------------------------------------------------------------
Engineering & Construction--0.2%
B1 129 CSC Holdings, Inc.,
Sr. Sub. Deb.,
10.50%, 5/15/16
154,478
- ------------------------------------------------------------
Entertainment--0.3%
B3 250 AMC Entertainment, Inc.,
Sr. Sub. Notes,
9.50%, 2/1/11
250,000
- ------------------------------------------------------------
Fertilizer--0.1%
B2 40 Scotts Company,
Sr. Sub. Notes,
8.625%, 1/15/09
41,300
- ------------------------------------------------------------
Financial Services--0.1%
Ba1 100 GS Escrow Corp.,
Sr. Notes,
6.75%, 8/1/03
96,520
- ------------------------------------------------------------
Health Care--0.6%
Ba2 250 Columbia/HCA Healthcare
Corp.,
Notes,
6.91%, 6/15/05
244,265
B2 250 Integrated Health Services,
Inc.,
Sr. Sub. Notes, Ser. A,
9.25%, 1/15/08
235,000
---
- --------
479,265
- ------------------------------------------------------------
Industrials--0.5%
B2 250 Purina Mills, Inc.,
Sr. Sub. Notes,
9.00%, 3/15/10
245,000
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 12
<PAGE>
Portfolio of Investments as
of January 31, 1999 PRUDENTIAL DIVERSIFIED
FUNDS
(Unaudited) PRUDENTIAL MODERATE
GROWTH FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description
Value (Note 1)
<S> <C> <C> <C>
- ------------------------------------------------------------
Industrials (cont'd.)
B3 $ 250 United Int'l. Holdings, Inc.,
Sr. Disc. Notes,
Zero Coupon (until 2/15/03)
10.75%, 2/15/08 $
165,312
---
- --------
410,312
- ------------------------------------------------------------
Manufacturing--0.3%
NR 250 Westinghouse Air Brake Co.,
Sr. Notes,
9.375%, 6/15/05
260,000
- ------------------------------------------------------------
Media--0.7%
B2 250 Ackerly Group, Inc.,
Sr. Sub. Notes,
9.00%, 1/15/09
260,000
Baa3 265 Time Warner, Inc.,
Series 97-1,
6.10%, 12/30/01
269,637
---
- --------
529,637
- ------------------------------------------------------------
Oil & Gas--0.9%
Ba2 250 Gulf Canada Resources Ltd.,
Sr. Sub. Deb.,
9.625%, 7/1/05
255,000
Ba2 450 Petroleos Mexicanos,
Gtd. Notes, (Mexico)
9.375%, 12/2/08
427,500
---
- --------
682,500
- ------------------------------------------------------------
Paper & Packaging--0.7%
B1 250 S.D. Warren Co.,
Sr. Sub. Notes,
12.00%, 12/15/04
271,250
B3 250 Stone Container Corp.,
Sr. Sub. Deb.,
12.75%, 4/1/02
252,500
---
- --------
523,750
Printing & Publishing--0.7%
B1 $ 250 Mail Well I Corp.,
Sr. Sub. Notes,
8.75%, 12/15/08 $
256,250
B2 250 Transwestern Publishing Co.,
LP,
Sr. Sub. Notes,
9.625%, 11/15/07
261,562
---
- --------
517,812
- ------------------------------------------------------------
Real Estate--0.3%
Ba2 250 HMH Properties, Inc.,
Sr. Notes,
8.45%, 12/1/08
250,000
- ------------------------------------------------------------
Restaurants--0.8%
B2 125 Advantica Restaurant Group,
Inc., Sr. Notes,
11.25%, 1/15/08
128,750
B2 250 Carrols Corp.,
Sr. Sub. Notes,
9.50%, 12/1/08
253,125
Ba1 250 Felcor Suites, LP,
Gtd. Sr. Notes,
7.375%, 10/1/04
239,375
---
- --------
621,250
- ------------------------------------------------------------
Schools--0.1%
B3 100 Kindercare Learning Center,
Inc.,
Sr. Sub. Notes,
9.50%, 2/15/09
100,000
- ------------------------------------------------------------
Steel--0.3%
B2 250 UCAR Global Enterprises,
Inc.,
Sr. Sub. Notes,
12.00%, 1/15/05
262,500
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 13
<PAGE>
Portfolio of Investments as
of January 31, 1999 PRUDENTIAL DIVERSIFIED
FUNDS
(Unaudited) PRUDENTIAL MODERATE
GROWTH FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description
Value (Note 1)
<S> <C> <C> <C>
- ------------------------------------------------------------
Telecommunications--0.9%
B2 $ 100 Bresnan Communications Group,
Sr. Notes,
8.00%, 2/1/09 $
102,000
B2 200 Intermedia Communications,
Inc.,
Sr. Notes,
8.60%, 6/1/08
192,000
B3 150 Level 3 Communications, Inc.,
Sr. Disc. Notes,
Zero Coupon (until 12/1/03)
10.50%, 12/1/08
88,500
B1 250 Telewest PLC,
Sr. Disc. Deb.,
Zero Coupon (until 10/1/00)
11.00%, 10/1/07 (United
Kingdom)
221,250
---
- --------
603,750
- ------------------------------------------------------------
Utilities--1.0%
Ba2 250 Calpine Corp.,
Sr. Notes,
7.875%, 4/1/08
252,500
CMS Energy Corp.,
Sr. Notes,
Ba3 50 6.75%, 1/15/04
50,000
Ba3 250 7.50%, 1/15/09
257,500
Ba2 200 Niagara Mohawk Power Corp.,
Sr. Notes, Series C,
7.125%, 7/1/01
203,162
---
- --------
763,162
- ------------------------------------------------------------
Waste Management--0.3%
Ba2 250 Allied Waste North America
Corp., Notes,
7.875%, 1/1/09
256,250
---
- --------
Total corporate bonds
(cost $9,085,571)
9,143,392
---
- --------
- ------------------------------------------------------------
U.S. GOVERNMENT AGENCIES AND SECURITIES--15.3%
$ 117 Government National Mortgage
Assoc.,
6.625%, 9/20/22 $
119,502
Government National Mortgage
Assoc., Single Family,
$ 250 6.00%, 2/22/29 $
247,970
2,800 6.50%, 3/23/29
2,828,875
United States Treasury Bonds,
1,100 6.00%, 2/15/26
1,207,426
300 8.50%, 2/15/20
417,936
2,100 14.00%, 11/15/11
3,315,039
United States Treasury Notes,
800 3.875%, 1/15/09
807,000
1,650 5.375%, 7/31/00
1,667,275
1,200 7.00%, 7/15/06
1,366,500
---
- --------
Total U.S. government
agencies and securities
(cost $11,920,947)
11,977,523
---
- --------
- ------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS--1.2%
Aaa 200 DLJ Mortgage Acceptance
Corp.,
7.75%, 1/1/21
199,875
276 Federal Home Loan Mortgage
Corp.,
Series 7-A, Class P/T-WM,
7.00%, 9/17/31
280,201
490 Federal National Mortgage
Assoc.,
Series 1998-73, Class MZ,
6.30%, 10/17/38
478,363
---
- --------
Total collateralized mortgage
obligations
(cost $961,492)
958,439
---
- --------
- ------------------------------------------------------------
MUNICIPAL BONDS--0.4%
NR 300 New York, New York,
Series B,
6.00%, 8/1/01
(cost $304,281)
305,217
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 14
<PAGE>
Portfolio of Investments as
of January 31, 1999 PRUDENTIAL DIVERSIFIED
FUNDS
(Unaudited) PRUDENTIAL MODERATE
GROWTH FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description
Value (Note 1)
<S> <C> <C> <C>
- ------------------------------------------------------------
ASSET-BACKED SECURITIES--0.4%
Aaa $ 300 TMA Mortgage Funding Trust,
Series 1998-1A, Collateral
Asset Bkd. Note,
6.251%, 1/25/29
(cost $299,790) $
297,930
---
- --------
Total long-term investments
(cost $67,077,137)
70,928,578
---
- --------
- ------------------------------------------------------------
SHORT-TERM INVESTMENTS--13.4%
COMMERCIAL PAPER--3.0%
- ------------------------------------------------------------
P-1 600 American Information
Technologies Corp.,
4.81%, 2/17/99
598,717
P-1 400 Du Pont (E. I.) De Nemours &
Co., Inc.,
4.82%, 2/26/99
398,664
P-1 600 IBM Credit Corp.,
4.81%, 2/19/99
598,557
P-1 200 National Rural Utilities
Corp.,
4.88%, 3/23/99
198,645
P-1 600 Shell Oil Co.,
4.81%, 2/12/99
599,118
---
- --------
Total commercial paper
(cost $2,393,701)
2,393,701
---
- --------
CORPORATE BOND--0.3%
Ba2 $ 200 Cleveland Electric
Illuminating Co., MTN,
9.30%, 7/26/99
(cost $202,654) $
203,239
- ------------------------------------------------------------
REPURCHASE AGREEMENT--10.1%
7,914 Joint Repurchase Agreement
Account,
4.72%, 2/1/99
(cost $7,914,000; Note 5)
7,914,000
---
- --------
Total short-term investments
(cost $10,510,355)
10,510,940
---
- --------
- ------------------------------------------------------------
Total Investments--104.1%
(cost $77,587,492; Note 4)
81,439,518
Liabilities in excess of
other assets--(4.1%)
(3,238,914)
---
- --------
Net Assets--100%
$78,200,604
---
- --------
---
- --------
</TABLE>
- ---------------
(a) Non-income producing security.
ADR--American Depository Receipt.
AG--Aktiengesellschaft (German Stock Company).
LP--Limited Partnership.
MTN--Medium Term Note.
NR--Not Rated by Moody's or Standard & Poor's
PLC--Public Limited Company (British Corporation).
SA-- Sociedad Anonima (Spanish Corporation or Societe
Anonyme French
Corporation).
The Fund's current Prospectus contains a description of
Moody's and Standard &
Poor's ratings.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 15
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL
DIVERSIFIED FUNDS
(Unaudited) PRUDENTIAL
MODERATE GROWTH FUND
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Assets
January 31, 1999
<S>
<C>
Investments, at value (cost
$77,587,492)................................................
.................. $ 81,439,518
Cash........................................................
..............................................
39,974
Foreign currency, at value
($33,754)...................................................
................... 33,202
Receivable for investments
sold........................................................
................... 3,431,841
Receivable for Fund shares
sold........................................................
................... 1,040,757
Interest and dividends
receivable..................................................
....................... 317,568
Deferred offering
costs.......................................................
............................ 78,132
Forward currency contracts - amount receivable from
counterparties........................................
11,414
- ----------------
Total
assets......................................................
..................................... 86,392,406
- ----------------
Liabilities
Payable for investments
purchased...................................................
...................... 7,638,805
Payable for Fund shares
reacquired..................................................
...................... 319,539
Accrued expenses and other
liabilities.................................................
................... 139,208
Management fee
payable.....................................................
............................... 47,214
Distribution fee
payable.....................................................
............................. 34,939
Forward currency contracts - amount payable from
counterparties...........................................
11,636
Withholding taxes
payable.....................................................
............................ 461
- ----------------
Total
liabilities.................................................
..................................... 8,191,802
- ----------------
Net
Assets......................................................
.......................................... $
78,200,604
- ----------------
- ----------------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
......... $ 7,324
Paid-in capital in excess of
par.........................................................
.............. 73,761,214
- ----------------
73,768,538
Distributions in excess of net investment
income......................................................
. (19,083)
Accumulated net realized gain on
investments.................................................
.......... 599,981
Net unrealized appreciation on investments and foreign
currency translations...........................
3,851,168
- ----------------
Net assets, January 31,
1999........................................................
...................... $ 78,200,604
- ----------------
- ----------------
Class A:
Net asset value and redemption price per share
($9,189,761 / 860,423 shares of beneficial interest
issued and outstanding).........................
$10.68
Maximum sales charge (5% of offering
price)......................................................
...... .56
- ----------------
Maximum offering price to
public......................................................
................. $11.24
- ----------------
- ----------------
Class B:
Net asset value, offering price and redemption price per
share
($27,075,361 / 2,537,432 shares of beneficial interest
issued and outstanding)......................
$10.67
- ----------------
- ----------------
Class C:
Net asset value and redemption price per share
($16,940,277 / 1,587,350 shares of beneficial interest
issued and outstanding)......................
$10.67
Sales charge (1% of offering
price)......................................................
.............. .11
- ----------------
Offering price to
public......................................................
......................... $10.78
- ----------------
- ----------------
Class Z:
Net asset value, offering price and redemption price per
share
($24,995,205 / 2,338,721 shares of beneficial interest
issued and outstanding)......................
$10.69
- ----------------
- ----------------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 16
<PAGE>
PRUDENTIAL DIVERSIFIED FUNDS
PRUDENTIAL MODERATE GROWTH FUND
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
November 18,
1998(a)
Through
Net Investment Income January 31, 1999
<S> <C>
Income
Interest............................ $ 321,833
Dividends (net of foreign
withholding taxes of $702)....... 72,037
-----------
Total income..................... 393,870
-----------
Expenses
Management fee...................... 100,704
Distribution fee--Class A........... 3,424
Distribution fee--Class B........... 38,181
Distribution fee--Class C........... 28,497
Custodian's fees and expenses....... 63,000
Amortization of offering costs...... 19,868
Registration fees................... 19,500
Reports to shareholders............. 18,000
Transfer agent's fees and
expenses......................... 9,000
Legal fees.......................... 8,700
Audit fee and expenses.............. 7,300
Trustees' fees and expenses......... 2,000
Miscellaneous....................... 1,924
-----------
Total expenses................... 320,098
-----------
Net investment income.................. 73,772
-----------
Realized and Unrealized Gain (Loss)
on Investment and Foreign Currency
Transactions
Net realized gain (loss) on:
Investment transactions............. 608,288
Foreign currency transactions....... (8,307)
-----------
599,981
-----------
Net unrealized
appreciation/depreciation on:
Investments......................... 3,852,026
Foreign currencies.................. (858)
-----------
3,851,168
-----------
Net gain on investments................ 4,451,149
-----------
Net Increase in Net Assets
Resulting from Operations $4,524,921
-----------
-----------
</TABLE>
- ---------------
(a) Commencement of investment operations.
PRUDENTIAL DIVERSIFIED FUNDS
PRUDENTIAL MODERATE GROWTH FUND
Statement of Changes in Net Assets (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
November 18,
1998(a)
Increase (Decrease) In Through
Net Assets January 31,
1999
<S> <C>
Operations
Net investment income................... $
73,772
Net realized gain on investments and
foreign currency transactions........
599,981
Net unrealized appreciation of
investments and foreign currencies...
3,851,168
---------------
- -----
Net increase in net assets resulting
from operations......................
4,524,921
---------------
- -----
Dividends from net investment income (Note
1)
Class A..............................
(10,982)
Class B..............................
(17,394)
Class C..............................
(12,269)
Class Z..............................
(52,210)
---------------
- -----
(92,855)
---------------
- -----
Fund share transactions (net of share
conversions) (Note 6)
Net proceeds from shares sold...........
78,082,738
Net asset value of shares issued to
shareholders in reinvestment of
dividends............................
90,968
Cost of shares reacquired...............
(4,435,168)
---------------
- -----
Net increase in net assets from Fund
share transactions...................
73,738,538
---------------
- -----
Total increase.............................
78,170,604
Net Assets
Beginning of period........................
30,000
---------------
- -----
End of period.............................. $
78,200,604
---------------
- -----
---------------
- -----
</TABLE>
- ---------------
(a) Commencement of investment operations.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 17
<PAGE>
PRUDENTIAL
DIVERSIFIED FUNDS
Notes to Financial Statements
(Unaudited) PRUDENTIAL MODERATE
GROWTH FUND
- ------------------------------------------------------------
- --------------------
Prudential Diversified Funds (the 'Trust'), is registered
under the Investment
Company Act of 1940 as an open-end, diversified management
investment company
presently consisting of three portfolios: Prudential
Diversified Conservative
Growth Fund, Prudential Diversified Moderate Growth Fund
(the 'Fund') and
Prudential Diversified High Growth Fund. The Trust was
organized as a business
trust in Delaware on October 24, 1997. The Fund had no
significant operations
other than the issuance of 750 shares each of Class A, Class
B, Class C and
Class Z shares of beneficial interest for $30,000 on
September 2, 1998 to
Prudential Investments Fund Management LLC ('PIFM'). The
Fund commenced
investment operations on November 18, 1998.
The investment objective of the Fund is to seek to provide
capital appreciation
and a reasonable level of current income. The Fund seeks to
achieve its
investment objective by investing in a diversified portfolio
of equity and fixed
income securities. The ability of the issuers of the debt
securities held by the
Fund to meet their obligations may be affected by economic
developments in a
specific industry or country.
- ------------------------------------------------------------
Note 1. Accounting Policies
The following is a summary of significant accounting
policies followed by the
Funds in the preparation of its financial statements.
Securities Valuation: Securities for which the primary
market is on an exchange
and NASDAQ National Market Securities are valued at the last
sales price on such
exchange on the day of valuation, or, if there was no sale
on such day, at the
mean between the last bid and asked prices on such day or at
the bid price on
such day in the absence of an asked price. Securities that
are actively traded
in the over-the-counter market, including listed securities
for which the
primary market is believed by the Manager, in consultation
with the subadvisor,
to be over-the-counter, are valued by an independent pricing
agent or principal
market maker. U.S. Government securities for which market
quotations are
available shall be valued at a price provided by an
independent pricing agent or
broker-dealer. Privately placed securities including equity
securities for which
market prices may be obtained from primary dealers shall be
valued at the bid
prices provided by such primary dealers. Securities for
which market quotations
are not readily available, may be valued using the last
available market
quotation for a period not to exceed five days, provided the
Manager and
Subadvisor feel this is representative of market value,
afterwards, such
securities are valued in good faith under procedures adopted
by the Trustees.
Short-term securities which mature in more than 60 days are
valued at current
market quotations. Short-term securities which mature in 60
days or less are
valued at amortized cost.
In connection with transactions in repurchase agreements
with U.S. financial
institutions, it is the Fund's policy that its custodian or
designated
subcustodians, as the case may be under triparty repurchase
agreements, take
possession of the underlying securities, the value of which
exceeds the
principal amount of the repurchase transaction including
accrued interest. If
the seller defaults and the value of the collateral declines
or if bankruptcy
proceedings are commenced with respect to the seller of the
security,
realization of the collateral by the Fund may be delayed or
limited.
All securities are valued as of 4:15 p.m., New York time.
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
closing daily rates of exchange.
(ii) purchases and sales of investment securities, income
and expenses - at the
rate 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 fiscal 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 long-term
portfolio securities sold
during the period. Accordingly, these realized foreign
currency losses are
included in the reported net realized losses on investment
transactions.
Net realized losses on foreign currency transactions
represent net foreign
exchange gains or losses from holdings of foreign
currencies, currency gains or
losses realized between the trade and settlement dates on
security transactions,
and the difference between the amounts of dividends,
interest and foreign taxes
recorded on the Fund's books and the U.S. dollar equivalent
amounts actually
received or paid. Net unrealized currency gains or losses
from valuing foreign
currency denominated assets and liabilities (other than
investments) at fiscal
period end exchange rates are reflected as a component of
net unrealized
appreciation on investments and foreign currencies.
- ------------------------------------------------------------
- --------------------
18
<PAGE>
PRUDENTIAL
DIVERSIFIED FUNDS
Notes to Financial Statements
(Unaudited) PRUDENTIAL MODERATE
GROWTH FUND
- ------------------------------------------------------------
- --------------------
Foreign security and currency transactions may involve
certain considerations
and risks not typically associated with those of domestic
origin as a result of,
among other factors, the possibility of political and
economic instability and
the level of governmental supervision and regulation of
foreign securities
markets.
Securities Transactions and Net Investment Income:
Securities transactions are
recorded on the trade date. Realized gains and losses from
investment and
currency transactions are calculated on the identified cost
basis. Dividend
income is recorded on the ex-dividend date; interest income
is recorded on the
accrual basis. Expenses are recorded on the accrual basis
which may require the
use of certain estimates by management.
Net investment income (loss), other than distribution fees,
and unrealized and
realized gains or losses are allocated daily to each class
of shares based upon
the relative proportion of net assets of each class at the
beginning of the day.
Dividends and Distributions: The Fund expects to pay
dividends of net investment
income semi-annually, and distributions of net realized
capital and currency
gains, if any, annually. Dividends and distributions are
recorded on the
ex-dividend date.
Income distributions and capital gain distributions are
determined in accordance
with income tax regulations which may differ from generally
accepted accounting
principles.
Taxes: For federal income tax purposes, each Fund is treated
as a separate
taxpaying entity. It is the intent of the Fund to meet the
requirements of the
Internal Revenue Code applicable to regulated investment
companies and to
distribute all of its taxable income to shareholders.
Therefore, no federal
income tax provision is required.
Withholding taxes on foreign dividends have been provided
for in accordance with
the Fund's understanding of the applicable country's tax
rules and rates.
Deferred Offering Cost: The Fund incurred approximately
$98,000 in connection
with the initial offering of the Fund. Offering costs are
being amortized over a
period of 12 months ending November 1999.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with PIFM. Pursuant to
this agreement, PIFM
manages the investment operations of the Fund, administers
the Fund's affairs
and supervises the subadviser's performance of all
investment advisory services.
PIFM pays for the costs pursuant to the advisory agreements,
the cost of
compensation of officers of the Fund, occupancy and certain
clerical and
accounting costs of the Fund. The Fund bears all other costs
and expenses. The
management fee paid PIFM is computed daily and payable
monthly at an annual rate
of .75% of the average daily net assets of the Fund. PIFM,
in turn, pays the
Advisers' fees, computed daily and paid monthly, equal to
the annual rate
specified below based on the average daily net assets of the
Fund segments they
manage.
<TABLE>
<CAPTION>
Fee Paid By PIFM
Advisers to Advisers
- ------------------------------ --------------------------
- -------
<S> <C>
Jennison Associates LLC .30% with respect to the
first
$300 million; .25% for
amounts
in excess of $300 million
The Prudential Investment N/A1
Corporation
Lazzard Asset Management .40%
Pacific Investment Management .25%
Company
Franklin Advisers, Inc. .50%
The Dreyfus Corporation .45%
1Under the Advisory Agreement between PIFM and PIC, PIC is
reimbursed by PIFM for its reasonable costs and expenses.
</TABLE>
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 and Class Z shares of the Fund. The Fund compensates
PIMS for
distributing and servicing the Fund's Class A, Class B and
Class C shares,
pursuant to plans of distribution, (the 'Class A, B and C
plans'), regardless of
expenses actually incurred by PIMS. The distribution fees
are accrued daily and
payable monthly. No distribution or service fees are paid to
PIMS as distributor
for Class Z shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates
PIMS for
distribution-related activities at an annual rate of up to
.30 of 1%, 1% and 1%
of the average daily net assets of the Class A, B and C
shares, respectively.
Such expenses under the Plans were .25 of 1%, 1% and 1% of
the average daily net
assets of the Class A, B and C shares respectively, for the
period ended January
31, 1999.
PIMS has advised the Fund that it has received approximately
$192,400 and
$46,500 in front-end sales charges resulting from sales of
Class A and Class C
shares, respectively, during the period ended January 31,
1999.
PIMS has advised the Fund that for the period ended January
31, 1999, it has
received approximately $200 and $3,400 in contingent
deferred sales charges
imposed upon certain redemptions by Class B and Class C
shareholders,
respectively.
- ------------------------------------------------------------
- --------------------
19
<PAGE>
PRUDENTIAL
DIVERSIFIED FUNDS
Notes to Financial Statements
(Unaudited) PRUDENTIAL MODERATE
GROWTH FUND
- ------------------------------------------------------------
- --------------------
PIMS, PIC and PIFM are indirect, wholly owned subsidiaries
of The Prudential
Insurance Company of America.
The Trust, along with other affiliated registered investment
companies (the
'Funds'), entered into a credit agreement (the 'Agreement')
with an unaffiliated
lender. The maximum commitment under the Agreement is
$200,000,000. Interest on
any such borrowings outstanding will be at market rates. The
purpose of the
Agreement is to serve as an alternative source of funding
for capital share
redemptions. The Fund did not borrow any amounts pursuant to
the Agreement
during the period ended January 31, 1999. The Funds pay a
commitment fee at an
annual rate of .055 of 1% on the unused portion of the
credit facility. The
commitment fee is accrued and paid quarterly on a pro rata
basis by the Funds.
The Agreement expired on February 28, 1999 and has been
extended through March
12, 1999 under the same terms.
- ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned
subsidiary of PIFM,
serves as the Fund's transfer agent. During the period ended
January 31, 1999,
the Fund incurred fees of approximately $7,200 for the
services of PMFS. As of
January 31, 1999 approximately $4,200 of such fees were due
to PMFS. Transfer
agent fees and expenses in the Statement of Operations
include certain
out-of-pocket expenses paid to nonaffiliates.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of portfolio securities, excluding short-
term investments,
for the period ended January 31, 1999 were $82,523,167 and
$15,640,911,
respectively.
At January 31, 1999, the Fund had outstanding forward
currency contracts to
purchase foreign currency, as follows:
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date Current
Purchase Contracts Payable Value
Depreciation
- --------------------- --------------- -------- -----------
- ----
<S> <C> <C> <C>
Euro Dollars,
expiring 2/1/99.... $11,636 $11,414 $(222)
------- -------- -----
------- -------- -----
</TABLE>
The United States federal income tax basis of the Fund's
investments as of
January 31, 1999 was substantially the same as for financial
reporting purposes
and accordingly, net unrealized appreciation on investments
for federal income
tax purposes was $3,852,026 (gross unrealized appreciation--
$5,788,613, gross
unrealized depreciation--$1,936,587).
Note 5. Joint Repurchase Agreement Account
The Fund, along with other affiliated registered investment
companies, transfers
uninvested cash balances into a single joint account, the
daily aggregate
balance of which is invested in one or more repurchase
agreements collateralized
by U.S. Treasury or federal agency obligations. As of
January 31, 1999, the Fund
had a 1.16% undivided interest in the repurchase agreements
in the joint
account. The undivided interest for the Fund represents
$7,914,000 in principal
amount. As of such date, each repurchase agreement in the
joint account and the
collateral therefore were as follows:
Bear, Stearns & Co., Inc., 4.75%, in the principal amount of
$200,000,000
repurchase price $200,079,167, due 2/1/99. The value of the
collateral including
accrued interest was $206,615,704.
Morgan (J.P.) Securities, Inc., 4.72%, in the principal
amount of $200,000,000,
repurchase price $200,078,667, due 2/1/99. The value of the
collateral including
accrued interest was $204,000,313.
Salomon Smith Barney, Inc., 4.73%, in the principal amount
of $200,000,000,
repurchase price $200,078,883, due 2/1/99. The value of the
collateral including
accrued interest was $204,209,880.
Warburg Dillon Read, LLC, 4.62%, in the principal amount of
$80,225,000,
repurchase price of $80,285,898, due 2/1/99. The value of
the collateral
including accrued interest was $81,862,553.
- ------------------------------------------------------------
Note 6. Capital
The Fund offers Class A, Class B, Class C and Class Z
shares. Class A shares are
sold with a front-end sales charge of up to 5%. 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 C shares are sold
with a front-end
sales charge of 1% and a contingent deferred sales charge of
1% during the first
18 months. Class B shares automatically convert to Class A
shares on a quarterly
basis approximately seven years after purchase. A special
exchange privilege is
also available for shareholders who qualified to purchase
Class A shares at net
asset value. Class Z shares are not subject to any sales or
redemption charge
and are offered exclusively for sale to a limited group of
investors. Of the
7,323,926 shares of beneficial interest issued and
outstanding at January 31,
1999, Prudential owned 2,326,045.
The Fund has authorized an unlimited number of shares of
beneficial interest at
$.001 par value.
- ------------------------------------------------------------
- --------------------
20
<PAGE>
PRUDENTIAL
DIVERSIFIED FUNDS
Notes to Financial Statements
(Unaudited) PRUDENTIAL
MODERATE GROWTH FUND
- ------------------------------------------------------------
- --------------------
Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------------ --------- --------
- ---
<S> <C> <C>
November 18, 1998(a) through
January 31, 1999:
Shares sold......................... 896,352 $
9,111,438
Shares issued in reinvestment of
dividends......................... 1,037
10,789
Shares reacquired................... (37,811)
(391,550)
--------- --------
- ---
Net increase in shares outstanding
before conversion................. 859,578
8,730,677
Shares issued upon conversion from
Class B........................... 95
962
--------- --------
- ---
Net increase in shares
outstanding....................... 859,673 $
8,731,639
--------- --------
- ---
--------- --------
- ---
<CAPTION>
Class B
- ------------------------------------
<S> <C> <C>
November 18, 1998(a) through
January 31, 1999:
Shares sold......................... 2,578,188
$26,201,851
Shares issued in reinvestment of
dividends......................... 1,558
16,203
Shares reacquired................... (42,969)
(444,552)
--------- --------
- ---
Net increase in shares outstanding
before conversion................. 2,536,777
25,773,502
Shares reacquired upon conversion
into Class A...................... (95)
(962)
--------- --------
- ---
Net increase in shares
outstanding....................... 2,536,682
$25,772,540
--------- --------
- ---
--------- --------
- ---
<CAPTION>
Class C
- ------------------------------------
<S> <C> <C>
November 18, 1998(a) through
January 31, 1999:
Shares sold......................... 1,642,099
$16,600,945
Shares issued in reinvestment of
dividends......................... 1,133
11,781
Shares reacquired................... (56,632)
(590,580)
--------- --------
- ---
Net increase in shares
outstanding....................... 1,586,600
$16,022,146
--------- --------
- ---
--------- --------
- ---
<CAPTION>
Class Z
- ------------------------------------
<S> <C> <C>
November 18, 1998(a) through
January 31, 1999:
Shares sold......................... 2,615,746
$26,168,504
Shares issued in reinvestment of
dividends......................... 5,019
52,195
Shares reacquired................... (282,794)
(3,008,486)
--------- --------
- ---
Net increase in shares
outstanding....................... 2,337,971
$23,212,213
--------- --------
- ---
--------- --------
- ---
</TABLE>
- ---------------
(a) Commencement of investment operations.
- ------------------------------------------------------------
- --------------------
21
<PAGE>
PRUDENTIAL
DIVERSIFIED FUNDS
Financial Highlights (Unaudited) PRUDENTIAL
MODERATE GROWTH FUND
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
November 18, 1998(a) Through January 31, 1999
- ----------------------------------------------
Class A Class B Class C
- ------------ ------------ ------------
<S>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period........................................ $10.00
$ 10.00 $ 10.00
- ----- ------ ------
Income from investment operations:
Net investment
income......................................................
. .02 -- --
Net realized and unrealized gain on investments and foreign
currencies...... .68 .68
.68
- ----- ------ ------
Total from investment
operations.........................................
.70 .68 .68
- ----- ------ ------
Less distributions:
Dividends from net investment
income........................................ (.02)
(.01) (.01)
- ----- ------ ------
Net asset value, end of
period..............................................
$10.68 $ 10.67 $ 10.67
- ----- ------ ------
- ----- ------ ------
TOTAL
RETURN(b)...................................................
.......... 6.96% 6.79% 6.79%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).............................................
$9,190 $ 27,075 $ 16,940
Average net assets
(000)....................................................
$6,756 $ 18,833 $ 14,056
Ratios to average net assets:(c)
Expenses, including distribution
fees.................................... 2.11%
2.86% 2.86%
Expenses, excluding distribution
fees.................................... 1.86%
1.86% 1.86%
Net investment
income....................................................
0.80% 0.05% 0.07%
Portfolio turnover
rate.....................................................
26% 26% 26%
<CAPTION>
Class Z
- ------------
<S>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period........................................ $ 10.00
- ------
Income from investment operations:
Net investment
income......................................................
. .02
Net realized and unrealized gain on investments and foreign
currencies...... .69
- ------
Total from investment
operations.........................................
.71
- ------
Less distributions:
Dividends from net investment
income........................................ (.02)
- ------
Net asset value, end of
period.............................................. $
10.69
- ------
- ------
TOTAL
RETURN(b)...................................................
.......... 7.01%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)............................................. $
24,995
Average net assets
(000)....................................................
$ 26,557
Ratios to average net assets:(c)
Expenses, including distribution
fees.................................... 1.86%
Expenses, excluding distribution
fees.................................... 1.86%
Net investment
income....................................................
1.10%
Portfolio turnover
rate.....................................................
26%
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) Total return is calculated assuming a purchase of shares
on the first day
and a sale on the last day of each period reported and
includes reinvestment
of dividends and distributions. Total return for periods
of less than a full
year are not annualized.
(c) Annualized.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 22
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
How many times have you read these letters -- or other
financial
materials -- and stumbled across a word that you don't
understand?
Many shareholders have run into the same problem. We'd like
to
help. So we'll use this space from time to time to explain
some
of the words you might have read, but not understood. And if
you have a favorite word that no one can explain to your
satisfaction, please write to us.
Basis Point: 1/100th of 1%. For example, one-half of one
percent is 50 basis points.
Collateralized Mortgage Obligations (CMOs): Mortgage-backed
bonds that separate mortgage pools into different maturity
classes, called tranches. These instruments are sensitive
to changes in interest rates and homeowner refinancing
activity. They
are subject to prepayment and maturity extension risk.
Derivatives: Securities that derive their value from other
securities. The rate of return of these financial
instruments
rises and falls -- sometimes very suddenly -- in response to
changes in some specific interest rate, currency, stock, or
other
variable.
Discount Rate: The interest rate charged by the Federal
Reserve on loans to member banks.
Federal Funds Rate: The interest rate charged by one bank
to another on overnight loans.
Futures Contract: An agreement to purchase or sell a
specific amount of a commodity or financial instrument
at a set price at a specified date in the future.
Leverage: The use of borrowed assets to enhance return.
The expectation is that the interest rate charged on
borrowed
funds will be lower than the return on the investment. While
leverage can increase profits, it can also magnify losses.
Liquidity: The ease with which a financial instrument (or
product) can be bought or sold (converted into cash) in
the financial markets.
Price/Earnings Ratio: The price of a share of stock divided
by the earnings per share for a 12-month period.
Option: An agreement to purchase or sell something, such
as shares of stock, by a certain time for a specified
price. An option need not be exercised.
Spread: The difference between two values; often used to
describe the difference between "bid" and "asked" prices
of a security, or between the yields of two similar maturity
bonds.
Yankee Bond: A bond sold by a foreign company or government
in the U.S. market and denominated in U.S. dollars.
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
When you invest through Prudential Mutual Funds, you receive
financial advice through a Prudential Securities financial
advisor or Prudential/Pruco Securities registered
representative.
Your advisor or representative can provide you with the
following services:
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial advisor or registered representative can help
you match the reward you seek with the risk you can
tolerate.
And risk can be difficult to gauge --sometimes even the
simplest
investments bear surprising risks. The educated investor
knows that markets seldom move in just one direction --
there
are times when a market sector or asset class will lose
value
or provide little in the way of total return. Managing your
own expectations is easier with help from someone who
understands
the markets and who knows you!
Keeping Up With The Joneses.
A financial advisor or registered representative can help
you
wade through the numerous mutual funds available to find the
ones that fit your own individual investment profile and
risk
tolerance. While the newspapers and popular magazines are
full
of advice about investing, they are aimed at generic groups
of
people or representative individuals, not at you personally.
Your financial advisor or registered representative will
review
your investment objectives with you. This means you can make
financial decisions based on the assets and liabilities in
your
current portfolio and your risk tolerance -- not just based
on
the current investment fad.
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the
bottom
are among the most common investor mistakes. But sometimes
it's
difficult to hold on to an investment when it's losing value
every month. Your financial advisor or registered
representative can answer questions when you're confused or
worried about your investment, and remind you that you're
investing for the long haul.
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Trustees
Eugene C. Dorsey
Douglas H. McCorkindale
Thomas T. Mooney
Officers
Robert F. Gunia, President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
David F. Connor, Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Sub-Advisers
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
Jennison Associates LLC
466 Lexington Avenue
New York, NY 10017
Franklin Advisers, Inc.
777 Mariners Island Blvd.
San Mateo, CA 94404
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
Lazard Asset Management
30 Rockefeller Plaza
New York, NY 10112
Pacific Investment Management Company
840 Newport Center Drive
Newport Beach, CA 92660
Distributor
Prudential Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
Raritan Plaza One
Edison, NJ 08837
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Kirkpatrick & Lockhart LLP
1800 Massachusetts Ave., N.W.
Washington, DC 20036
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 January 31, 1999
were not audited and, accordingly, no opinion is expressed
on
them.
This report is not authorized for distribution to
prospective
investors unless preceded or accompanied by a current
prospectus.
<PAGE>
(LOGO)
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
74432F505
74432F604 MF186E4
74432F703
74432F802
