<PAGE>
(ICON)
Prudential
Diversified Conservative Growth Fund
Semi Annual Report
January 31, 2000
(LOGO)
<PAGE>
A Message From the Fund's President March 16, 2000
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(PHOTO)
Dear Shareholder,
The six months ended January 31, 2000, were generally very difficult for any
investment securities except technology and biotechnology stocks. Prudential
Diversified Conservative Growth Fund's Class A shares returned 5.47% over the
period, three percentage points above the 2.09% Lipper Balanced Fund Average.
Including sales charges, the Fund's Class A shares returned 0.20%. This
performance primarily reflected the focus on technology in its growth stock
holdings. In a period in which S&P 500 technology stocks had almost 10 times
the average return of the next highest performing sector, the amount of
technology stock in a portfolio was a dominant factor. The bond holdings, which
together make up about 60% of the Fund's holdings, outperformed their
respective benchmarks, but the return on bonds over this period was generally
low, as fear of rising interest rates hurt fixed-income securities. Similarly,
value stocks declined in value over this reporting period, as did the average
stock in most economic sectors of the S&P 500.
With the high returns on stocks in recent years, it is important to remember
the stabilizing role bonds played in August 1997. Although bonds did fall in
value then, they were far less volatile than stocks. Diversification can dilute
the impact that the occasional extreme market movement can have on your
portfolio. The diversification of Prudential Diversified Conservative Growth
Fund allowed you to benefit from the strong, but narrow, technology gains
without being wholly exposed to this volatile sector.
Our reporting period included the falling markets in January 2000 as well as
the exuberant technology stock surge at the end of 1999. In an uncertain
environment, diversification is particularly important. Prudential Diversified
Funds' one-purchase selection makes it easy.
Yours sincerely,
John R. Strangfeld
President
Prudential Diversified Funds
<PAGE>
Investment Advisers' Report
- -------------------------------------------------------------------------------
Investment Advisers
Prudential Investments Fund Management LLC
- - John Van Belle, Ph.D.
- - Stacie Mintz
Sub-Advisers
(PRUDENTIAL INVESTMENTS LOGO)
(LAZARD LOGO)
(FRANKLIN TEMPLETON LOGO)
(JENNISON ASSOCIATES LOGO)
(DREYFUS LOGO)
(PIMCO LOGO)
Investment Goals and Style
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.
The investment context
For five of the six months that made up our reporting period, the economy was
beset by uncertainties about how information systems would behave during the
changeover to the year 2000. Many businesses and homeowners stocked up on vital
supplies, while the U.S. Federal Reserve allowed the money supply to rise.
However, this drove the U.S. economy to a pace widely believed to be
unsustainable. The Federal Reserve raised short-term interest rates shortly
before our reporting period (June 30), twice during the period (August 24 and
November 16), and again right afterward (February 2). This hurt the prices of
most existing fixed-income securities.
The S&P 500 (large-cap stocks) returned 5.6% over this period. However, almost
all of this gain was by technology stocks. Stocks of basic materials companies,
consumer staples, financials, energy firms, utilities, and even communications
services declined, while S&P 500 technology stocks rose about 30%.
The extreme narrowness of this stock market was disconcerting to investment
professionals, as it was clearly disproportionate to differences in earnings
potential. Moreover, volatility in the market--the ups and downs of individual
stock prices--has been increasing for some time and is unusually high. This
increases the uncertainty about whether most investors will continue with their
current enthusiasm for technology or search out the less expensive stocks on
the market. Prudential Diversified Conservative Growth Fund, with its
allocation to both growth and value stock investment styles and to bonds, is
wholly exposed to neither alternative.
Our performance
Core bonds. The overall bond market, as measured by the Lehman Aggregate Bond
Index, had a small positive 0.66% return over the six months ended January 31,
despite the actions of the Federal Reserve to increase interest rates.
Prudential Diversified Conservative Growth Fund's core bond holdings
outperformed the Index slightly, primarily because they had a shorter average
duration than the benchmark, which made them less exposed to these rising
rates. The return on the core bond holdings also was enhanced by mortgage-
related bonds, which benefit during periods of rising interest rates from the
slower pace of prepayments due to refinancing. The Fund's high-quality emerging
market bonds also contributed to its performance, as better
<PAGE>
economic prospects reduced the amount of extra yield emerging market borrowers
had to pay to attract investors. The price of existing bonds in this sector
benefited from the falling yield on new bonds. However, the Fund's holdings
were relatively light in investment-grade corporate bonds, and so it failed to
benefit from the similar narrowing of the pricing differential for corporate
bonds over Treasuries.
High-yield bonds. About 20% of the Fund's assets are allocated to high-yield
holdings, or "junk bonds." These outperformed their benchmark more
substantially than the core holdings, producing a solidly positive return while
the benchmark fell. Among these lower-rated bonds, those with a "B" credit
rating performed best over this reporting period, and these were overweighted
in the Fund's holdings. Both the higher-rated BB bonds and the lower-rated CCCs
had poorer returns, and both were underrepresented in the Fund's holdings.
Large-cap stocks. More than a third of the Fund's large-cap growth portfolio
was invested in technology stocks on January 31, including the seven largest
contributors to the period's large-cap growth return. These included
Cumulative Total Returns1 As of 1/31/00
<TABLE>
<CAPTION>
Six One Since
Months Year Inception2
<S> <C> <C> <C>
Class A 5.47% 5.49% 11.11%
Class B 5.08 4.60 10.09
Class C 5.08 4.60 10.09
Class Z 5.62 5.75 11.52
Lipper Balanced Fund Avg.3 2.09 4.08 9.54
</TABLE>
Average Annual Total Returns1 As of 1/31/00
<TABLE>
<CAPTION>
One Since
Year Inception2
<S> <C> <C>
Class A 0.21% 4.60%
Class B -0.40 5.04
Class C 2.56 6.60
Class Z 5.75 9.49
</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 LLC and Lipper Inc. The
cumulative total returns do not take into account sales charges. The average
annual total returns do take into account applicable sales charges. The Fund
charges a maximum front-end sales 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 and service (12b-1) fees.
2 Inception date: Class A, B, C, and Z, 11/18/98.
3 Lipper average returns are for all funds in each share class for the
six-month, one-year, and since inception periods in the Balanced Fund category.
The Lipper average is unmanaged. Funds in this category generally seek to
conserve principal by maintaining at all times a balanced portfolio of both
stocks and bonds. Typically, the stock/bond ratio ranges around 60/40%.
1
<PAGE>
Investment Advisers' Report Cont'd.
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Cisco Systems, Nokia, and JDS Uniphase. The large-cap growth investments are
focused on stocks the managers believe have substantial potential for earnings
growth over a longer time horizon than many growth investors use, so sometimes
they can benefit when a well-managed company has a short-term disappointment.
The growth holdings also had above-benchmark returns from their focuses on the
consumer staples (such as Home Depot), healthcare, and intermediate goods and
services (business-to-business commerce) sectors. The strength of these
holdings more than offset the weakness of the Fund's large-cap value stocks.
Although the value portion of the portfolio benefited from some technology
stocks purchased at bargain prices--including Seagate Technology, National
Semiconductor, and Hitachi (and took its profits on National Semiconductor and
Hitachi)--the gains of these holdings were outweighed by the poor performance
of its focuses on hospital management, tobacco, forest products, and insurance.
The value portion of the portfolio lost ground.
Small-cap stocks. Among small-cap stocks, the very strong gains of our growth
holdings were more than double the 29.7% gain of the Russell 2000 Growth Index.
Our growth holdings had a substantial focus on technology. This sector
benefited as technology investors looked for better value among small-cap
stocks, given that large-cap technology stocks had become very expensive.
Small-cap technology stocks rose sharply over our reporting period. The
interest in smaller companies did not extend to value stocks, however. The
Russell 2000 Value Index fell by 6.6% over our reporting period. Our small-cap
value holdings fared particularly poorly because they had a focus on financial
stocks whose earnings prospects are hurt by rising interest rates.
Glossary of Terms
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 earnings 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 short-term loans that mature in 13 months or less.
Bonds and money market instruments are called fixed-income securities.
High yield bonds are also known as "junk bonds." They are subject to greater
risk of loss of principal and interest, including default risk, than
higher-rated bonds.
Standard & Poor's 500 Composite Stock Price Index (S&P 500) is an unmanaged
index of 500 stocks of large U.S. companies.
The Russell 2000 Growth Index comprises securities in the Russell 2000 Index
with a greater-than-average growth orientation. Companies in this Index tend to
exhibit higher price-to-book and price/earnings ratios.
The Russell 2000 Value Index comprises securities in the Russell 2000 Index
with a less-than-average growth orientation. Companies in this Index generally
have low price-to-book and price/earnings ratios.
2
<PAGE>
What Is Diversification?
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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.
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 security
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. Prudential
Diversified Funds provide more of this buffering than a fund investing in only
one asset class. We believe this will result in more consistent returns over
time.
Prudential Conservative Growth Fund Diversification Target
(GRAPH)
Rebalancing--Diversified Conservative Growth Fund has a target allocation for
each asset class. As some perform better than others, the portfolio will drift
from this original target: asset classes with the best performance 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 certain securities in appreciated asset classes 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 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.
3
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED CONSERVATIVE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--96.8%
COMMON STOCKS--40.0%
- ------------------------------------------------------------
Advertising--0.3%
2,600 Omnicom Group, Inc. $ 243,588
525 True North Communications, Inc. 21,820
----------
265,408
- ------------------------------------------------------------
Aerospace/Defense--0.5%
2,200 Boeing Co. 97,488
2,000 Gencorp, Inc. 16,250
1,400 General Motors Corp., Class H 112,612
6,300 Loral Space & Communications, Inc.(a) 123,637
----------
349,987
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Airlines
800 Alaska Air Group, Inc.(a) 25,500
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Aluminum--0.4%
4,300 Alcoa, Inc. 299,656
862 Reliance Steel & Aluminum Co. 17,887
----------
317,543
- ------------------------------------------------------------
Apparel--0.1%
625 American Eagle Outfitters, Inc.(a) 22,695
1,300 Kellwood Co. 22,913
----------
45,608
- ------------------------------------------------------------
Audio/Visual--0.2%
800 Gemstar International Group Ltd.(a) 53,100
325 Harman International Industries, Inc. 18,972
1,000 Polycom, Inc. 60,375
----------
132,447
- ------------------------------------------------------------
Auto & Truck--0.1%
925 Arvin Industries, Inc. 21,448
875 Borg-Warner Automotive, Inc. $ 29,422
768 Delphi Automotive Systems Corp. 13,296
----------
64,166
- ------------------------------------------------------------
Auto/Equipment Rental
1,000 Rent-Way, Inc. 18,000
- ------------------------------------------------------------
Banking--1.2%
1,325 Bancorpsouth, Inc. 20,372
4,200 Bank America Corp. 203,437
5,500 Bank of New York Co., Inc. 223,437
200 Bank United Corp. 5,188
875 BankNorth Group, Inc. 23,078
650 BSB Bancorp, Inc. 12,472
2,200 Chase Manhattan Corp. 176,962
525 City National Corp. 18,309
550 Corus Bankshares, Inc. 13,647
2,325 Cullen/Frost Bankers, Inc. 57,834
1,367 CVB Financial Corp. 32,125
75 First Citizens Bancshares, Inc. 4,566
2,300 Golden State Bancorp, Inc.(a) 32,488
775 Harbor Florida Bancshares, Inc. 8,719
1,325 MAF Bancorp, Inc. 25,092
1,225 North Fork Bancorporation, Inc. 20,825
1,725 Peoples Heritage Financial Group,
Inc. 25,336
550 Queens County Savings Bank, Inc. 12,547
712 Washington Federal, Inc. 11,926
625 Westamerica Bancorporation 15,781
450 Whitney Holding Corp. 14,737
----------
958,878
- ------------------------------------------------------------
Building & Construction--0.5%
1,800 American Standard Co.(a) 67,500
750 Building One Services Corp. 7,453
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED CONSERVATIVE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Building & Construction (cont'd.)
2,500 Centex Corp. $ 55,000
3,225 D.R. Horton, Inc. 37,289
1,125 M.D.C. Holdings, Inc. 15,891
2,975 Pulte Corp. 51,876
475 Southdown, Inc. 23,780
450 Texas Industries, Inc. 16,453
1,425 Thomas Industries, Inc.(a) 26,541
900 Toll Brothers, Inc. 15,300
775 U.S. Home Corp.(a) 18,551
1,500 Webb Delaware Corp. 27,375
----------
363,009
- ------------------------------------------------------------
Cable
850 Belden, Inc. 18,328
- ------------------------------------------------------------
Casinos
225 Anchor Gaming 10,041
- ------------------------------------------------------------
Chemicals--0.3%
800 Cytec Industries, Inc.(a) 20,200
1,800 Eastman Chemical Co. 71,775
250 H.B. Fuller Co. 16,250
2,000 Omnova Solutions, Inc. 15,000
875 Spartech Corp. 22,422
475 The Geon Co. 13,805
800 The Lubrizol Corp. 23,700
1,450 W.R. Grace & Co.(a) 17,128
----------
200,280
- ------------------------------------------------------------
Commercial Services--0.1%
1,400 Luminant Worldwide Corp.(a) 43,925
2,700 Pacific Gateway Exchange, Inc.(a) 52,988
----------
96,913
- ------------------------------------------------------------
Computers--3.0%
900 Brooktrout, Inc. 24,131
3,875 Catapult Communications Corp.(a) 44,078
1,100 Citrix Systems, Inc.(a) 150,975
7,300 Compaq Computer Corp. $ 199,838
700 Comverse Technology, Inc.(a) 100,363
4,300 Dell Computer Corp.(a) 165,281
2,600 EMC Corp.(a) 276,900
1,900 Equant N V(a) 196,531
4,900 Hewlett-Packard Co. 530,425
1,500 International Business Machine Corp. 168,281
1,275 Micro Warehouse, Inc.(a) 24,225
4,900 Seagate Technology, Inc.(a) 196,306
3,200 Sun Microsystems, Inc.(a) 251,400
----------
2,328,734
- ------------------------------------------------------------
Computer Services--1.3%
2,500 Affiliated Computer Services, Inc.(a) 99,375
100 AnswerThink Consulting Group(a) 3,256
725 Ciber, Inc.(a) 16,358
5,400 Cisco Systems, Inc.(a) 591,300
3,800 NetSolve, Inc.(a) 138,938
487 RadiSys Corp.(a) 19,845
925 Wallace Computer Services, Inc. 10,117
3,600 Whittman Hart, Inc.(a) 127,800
----------
1,006,989
- ------------------------------------------------------------
Consumer Products--0.3%
37 Fossil, Inc.(a) 16,269
3,800 Tandy Corp. 185,725
750 Tupperware Corp. 12,235
----------
214,229
- ------------------------------------------------------------
Consumer Services
900 1-800-Flowers.Com, Inc.(a) 8,775
6,600 Service Corp. International 30,113
----------
38,888
- ------------------------------------------------------------
Diversified Manufacturing--0.7%
375 Aptargroup, Inc. 8,250
500 Carpenter Technology Corp. 12,000
800 Corning, Inc. 123,400
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED CONSERVATIVE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Diversified Manufacturing (cont'd.)
800 Cuno, Inc. $ 18,700
2,800 General Electric Co. 373,450
----------
535,800
- ------------------------------------------------------------
Electrical Services--0.1%
650 NorthWestern Corp. 14,381
975 NSTAR 40,889
300 PerkinElmer, Inc. 15,019
275 RGS Energy Group, Inc. 5,552
----------
75,841
- ------------------------------------------------------------
Electronic Components--2.2%
700 Alpha Industries, Inc.(a) 58,625
200 Applied Micro Circuits Corp. 29,550
4,500 Arrow Electronics, Inc.(a) 94,500
600 ATMI, Inc.(a) 20,850
1,700 Avnet, Inc. 91,269
500 Broadcom Corp.(a) 144,656
175 Credence Systems Corp. 14,853
425 CTS Corp. 29,830
450 Electroglas, Inc.(a) 13,247
1,200 Flextronics International, Ltd.(a) 59,625
3,100 Gentex Corp.(a) 93,000
375 Hadco Corp.(a) 14,906
600 Kemet Corp.(a) 28,538
400 L3 Communications Holdings Corp.(a) 16,100
2,100 Novellus Systems, Inc.(a) 103,162
800 Optical Coating Lab, Inc. 303,900
750 Pioneer-Standard Electronics, Inc. 10,230
900 PMC-Sierra, Inc.(a) 162,450
575 Rogers Corp. 21,850
575 Semtech Corp.(a) 34,500
3,200 Texas Instruments, Inc. 345,200
300 Veeco Instruments, Inc.(a) 16,463
----------
1,707,304
Entertainment
450 Gaylord Entertainment Co. $ 12,544
500 SFX Entertainment, Inc.(a) 16,281
----------
28,825
- ------------------------------------------------------------
Fertilizers--0.1%
800 Potash Corp. of Saskatchewan, Inc. 41,850
- ------------------------------------------------------------
Financial Services--1.9%
400 Allied Capital Corp. 7,400
900 American Express Co. 148,331
450 Arthur J. Gallagher & Co. 24,188
500 Chittenden Corp. 14,156
8,600 Citigroup, Inc. 493,962
225 Dain Rauscher Corp. 11,334
1,425 Doral Financial Corp. 14,784
1,300 Downey Financial Corp. 25,025
875 Eaton Vance Corp. 35,820
1,700 Federated Investors, Inc. 33,575
1,475 Financial Security Assurance
Holdings, Ltd. 81,402
300 Knight/Trimark Group, Inc.(a) 9,488
1,600 LaBranche & Co., Inc. 22,000
200 Mortgage.com, Inc.(a) 1,088
600 Merrill Lynch & Co., Inc. 52,050
900 Metris Companies, Inc. 32,963
400 Morgan (J.P.) & Co., Inc. 49,125
4,400 Morgan Stanley Dean Witter & Co. 291,500
1,500 Silicon Valley Bancshares 83,625
1,000 Webster Financial Corp. 23,250
----------
1,455,066
- ------------------------------------------------------------
Food & Beverage--0.4%
250 Adolph Coors Co. 12,125
575 Corn Products International, Inc. 13,225
600 J & J Snack Foods Corp.(a) 11,475
1,500 Mettler-Toledo International, Inc.(a) 47,812
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 6
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED CONSERVATIVE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Food & Beverage (cont'd.)
8,200 Nabisco Group Holding Corp.(a) $ 70,725
675 Performance Food Group Co.(a) 15,567
1,225 Riviana Foods, Inc. 20,059
4,900 Sara Lee Corp. 90,344
700 Universal Foods Corp. 12,863
----------
294,195
- ------------------------------------------------------------
Health Care--2.0%
1,125 Apria Healthcare Group, Inc.(a) 22,500
12,800 Columbia/HCA Healthcare Corp. 349,600
575 Datascope Corp.(a) 20,772
9,300 Foundation Health Systems, Inc.(a) 95,325
10,400 HEALTHSOUTH Corp.(a) 57,200
405 Lifepoint Hospitals, Inc.(a) 5,467
2,000 Pacificare Health Systems, Inc.(a) 84,625
1,800 Parexel International Corp.(a) 23,850
425 Patterson Dental Co.(a) 18,514
14,400 Tenet Healthcare Corp.(a) 327,600
405 Triad Hospitals, Inc.(a) 6,936
575 Trigon Healthcare, Inc. 17,501
3,900 United Healthcare Corp. 206,700
5,100 Wellpoint Health Networks, Inc.(a) 346,800
----------
1,583,390
- ------------------------------------------------------------
Home Furnishings--0.1%
1,400 Ethan Allen Interiors, Inc. 35,000
1,000 Furniture Brands International,
Inc.(a) 17,000
----------
52,000
- ------------------------------------------------------------
Hotels--0.1%
6,700 Hilton Hotels Corp. 56,532
8,500 Meristar Hotels & Resorts, Inc.(a) 28,156
1,300 Park Place Entertainment Corp.(a) 13,650
----------
98,338
- ------------------------------------------------------------
Human Resources--0.1%
2,300 Careerbuilder, Inc.(a) 14,519
500 CDI Corp.(a) 11,656
825 Interim Services, Inc.(a) $ 20,677
1,600 RemedyTemp, Inc.(a) 34,500
----------
81,352
- ------------------------------------------------------------
Insurance--2.1%
1,100 American Financial Group, Inc. 23,513
900 American General Corp. 55,294
3,775 American International Group, Inc. 393,072
600 Annuity & Life Reinsurance Holdings,
Ltd. 14,775
4,600 Axa Financial, Inc. 149,787
275 Blanch (E.W.) Holdings, Inc. 13,303
4,500 Chubb Corp. 253,125
450 Commerce Group, Inc. 11,644
690 Fidelity National Financial, Inc. 8,625
600 First American Financial Corp. 7,125
675 Foremost Corp. of America 19,280
3,100 John Hancock Financial Services,
Inc.(a) 54,056
564 Medical Assurance, Inc.(a) 12,334
775 The MONY Group, Inc. 20,925
700 Mutual Risk Management, Ltd. 11,463
6,100 Old Republic International Corp. 73,962
525 Partnerre Ltd. 15,225
1,450 Presidential Life Corp. 23,925
825 Professionals Group, Inc. 18,563
575 Protective Life Corp. 15,992
400 Quotesmith.com, Inc.(a) 4,075
743 Radian Group, Inc. 29,952
2,600 Reinsurance Group of America, Inc. 57,525
6,600 SAFECO Corp. 161,700
2,200 St. Paul Companies, Inc. 66,412
1,500 Tokio Marine & Fire Insurance Ltd. 78,844
----------
1,594,496
- ------------------------------------------------------------
Internet--0.3%
100 Alteon Websystems, Inc.(a) 9,837
2,400 America Online, Inc.(a) 136,650
200 Bluestone Software, Inc.(a) 17,625
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED CONSERVATIVE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Internet (cont'd.)
100 Chemdex Corp.(a) $ 9,750
200 ITXC Corp. 21,500
200 Liberate Technologies, Inc.(a) 15,762
775 OneMain.com, Inc.(a) 9,494
125 Proxicom, Inc.(a) 12,625
100 Software.com, Inc.(a) 6,788
200 U.S. Interactive, Inc.(a) 10,400
----------
250,431
- ------------------------------------------------------------
Machinery--0.5%
300 Helix Technology Corp. 14,588
1,250 IDEX Corp. 33,594
550 Imation Corp.(a) 16,637
1,100 JLG Industries, Inc. 9,213
625 Kulicke & Soffa Industries, Inc.(a) 32,695
2,450 Lincoln Electric Holdings, Inc.(a) 47,928
500 Mannesmann A.G. (ADR) (Germany) 135,751
600 Milacron, Inc. 7,238
400 Tecumseh Products Co.(a) 18,250
850 Terex Corp. 19,337
625 The Manitowoc Co., Inc. 17,070
----------
352,301
- ------------------------------------------------------------
Manufactering/Distributing
325 Libbey, Inc. 8,369
625 Trinity Industrial, Inc. 14,609
----------
22,978
- ------------------------------------------------------------
Media--1.6%
5,000 AT&T Corp. Liberty Media 255,625
6,900 CBS Corp.(a) 402,356
3,800 Clear Channel Communications, Inc.(a) 328,225
400 Cumulus Media, Inc.(a) 15,625
275 Entercom Communications Corp. 14,609
800 Time Warner, Inc. 63,950
1,700 Univision Communications, Inc.(a) 182,113
----------
1,262,503
Medical Technology--0.6%
3,800 Amgen, Inc.(a) $ 242,012
1,025 Cell Genesys Inc. 15,119
1,100 Genetech, Inc.(a) 154,550
500 Gliatech, Inc.(a) 7,531
75 PE Corp. 15,108
325 Resmed, Inc. 13,955
350 TLC Laser Eye Ctrs, Inc. 4,769
----------
453,044
- ------------------------------------------------------------
Metals--0.1%
600 Cleveland-Cliffs, Inc. 16,762
925 Commercial Metals Co. 29,427
550 Kaydon Corp. 14,884
400 Precision Castparts Corp. 10,250
----------
71,323
- ------------------------------------------------------------
Mining--0.3%
8,400 Freeport-McMoRan Copper & Gold,
Inc.(a) 134,400
6,000 Newmont Mining Corp. 122,250
----------
256,650
- ------------------------------------------------------------
Networking--0.4%
600 Ancor Communications, Inc.(a) 22,575
200 C-COR.net Corp.(a) 4,275
900 Juniper Networks, Inc.(a) 121,781
2,100 Metromedia Fiber Network, Inc.(a) 142,144
----------
290,775
- ------------------------------------------------------------
Office Equipment & Supplies--0.2%
5,500 Harris Corp. 159,500
675 Kimball International, Inc. 10,336
5,500 Lanier Worldwide, Inc.(a) 19,250
----------
189,086
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 8
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED CONSERVATIVE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Oil & Gas--1.3%
400 Amerada Hess Corp. $ 21,275
2,400 Atlantic Richfield Co. 184,800
1,550 Energen Corp. 26,737
925 Equitable Resources, Inc. 31,913
2,075 Helmerich & Payne, Inc. 48,762
1,280 Kerr-McGee Corp. 70,880
2,500 Keyspan Corp. 58,594
3,500 Marine Drilling Co., Inc.(a) 67,375
3,400 Newfield Exploration Co.(a) 93,500
2,200 Nuevo Energy Co. 40,700
2,700 Occidental Petroleum Corp. 53,662
1,000 Oneok, Inc. 26,125
375 SEACOR Holdings, Inc.(a) 17,297
1,600 Southwestern Energy Co. 9,100
3,344 Total SA, ADR (France) 208,164
525 Valero Energy Corp. 11,911
1,150 Varco International, Inc. 11,644
675 Wicor, Inc. 19,955
----------
1,002,394
- ------------------------------------------------------------
Oil & Gas Exploration/Production--0.1%
500 Atwood Oceanics, Inc. 20,406
850 Berry Petroleum Co. 12,378
800 Mitchell Energy & Development Corp. 18,000
450 Ultramar Diamond Shamrock Corp. 9,844
----------
60,628
- ------------------------------------------------------------
Paper & Packaging--1.7%
725 Ball Corp. 26,372
500 Chesapeake Corp. 13,031
1,500 Fort James Corp. 40,125
5,800 Georgia-Pacific Corp. 236,350
2,100 Georgia-Pacific Corp. (Timber Group) 45,544
4,100 International Paper Co. 195,262
4,300 Mead Corp. 160,175
1,000 P.H. Glatfelter Co. 12,313
1,500 Rayonier, Inc. 64,500
2,500 Temple-Inland, Inc. $ 139,844
3,100 Weyerhaeuser Co. 177,862
4,700 Willamette Industries, Inc. 192,700
----------
1,304,078
- ------------------------------------------------------------
Paper & Forest Products--0.1%
1,000 Pope & Talbot, Inc. 16,000
725 Potlatch Corp. 29,181
----------
45,181
- ------------------------------------------------------------
Pharmaceuticals--1.7%
350 Alpharma, Inc. 11,900
4,400 American Home Products Corp. 207,075
850 Bindley Western, Inc. 14,503
2,400 Bristol-Myers Squibb Co. 158,400
750 Dura Pharmaceuticals, Inc.(a) 11,625
2,600 Glaxo Wellcome PLC, ADR
(United Kingdom) 137,150
1,800 Inhale Therapeutic Systems, Inc.(a) 105,187
375 King Pharmaceuticals, Inc. 22,125
1,900 Merck & Co., Inc. 149,744
1,075 Ocular Sciences, Inc.(a) 21,769
4,600 Warner-Lambert Co. 436,712
900 Waters Corp.(a) 66,488
----------
1,342,678
- ------------------------------------------------------------
Photography--0.5%
5,900 Eastman Kodak Co. 365,062
- ------------------------------------------------------------
Printing
475 Banta Corp. 9,025
- ------------------------------------------------------------
Real Estate Investment Trust--0.4%
200 Alexandria Real Estate Equities, Inc. 5,900
975 Bradley Real Estate, Inc. 16,575
800 BRE Properties, Inc. 17,600
950 Cabot Industrial Trust Corp. 18,525
1,475 Catellus Development Corp.(a) 18,438
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 9
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED CONSERVATIVE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Real Estate Investment Trust (cont'd.)
600 Developers Diversified Reality Corp. $ 7,800
1,525 Franchise Finance Corp. of America 36,600
675 Gables Residential Trust 14,639
300 General Growth Properties, Inc. 8,550
2,100 Glenborough Realty Trust, Inc. 28,612
1,100 Health Care Property Investors, Inc. 28,119
800 Health Care REIT, Inc. 12,900
725 Hospitality Properties Trust 14,183
2,300 Meristar Hospitality Corp. 37,519
1,400 Nationwide Health Properties, Inc. 18,900
1,500 Reckson Assocs Reality Corp. 29,625
200 Sl Green Reality Corp. 4,350
----------
318,835
- ------------------------------------------------------------
Restaurants--0.6%
3,500 CKE Restaurants, Inc. 22,531
15,400 Darden Restaurants, Inc. 244,475
300 Jack in the Box, Inc.(a) 6,169
4,400 McDonald's Corp. 163,625
4,425 Ryan's Family Steak Houses, Inc.(a) 39,548
----------
476,348
- ------------------------------------------------------------
Retail--2.6%
600 BJ's Wholesale Club, Inc.(a) 21,000
675 Buckle, Inc.(a) 10,589
3,500 Consolidated Stores Corp.(a) 49,875
525 Department 56, Inc.(a) 10,073
6,700 Dillards, Inc. 128,556
2,500 Estee Lauder Cos., Inc. 127,813
5,675 Gap, Inc. 253,602
8,400 Home Depot, Inc. 475,650
9,700 Ikon Office Solutions, Inc. 78,206
14,400 Kmart Corp.(a) 120,600
3,100 Kohl's Corp.(a) 217,388
700 Pep Boys - Manny, Moe & Jack, Inc. $ 5,075
2,225 Ross Stores, Inc. 28,369
1,500 Sears, Roebuck & Co. 46,406
2,000 Tiffany & Co. 148,000
4,500 Toys 'R' Us, Inc.(a) 46,406
3,700 Wal-Mart Stores, Inc. 202,575
725 Zale Corp.(a) 25,919
----------
1,996,102
- ------------------------------------------------------------
Semiconductors--1.1%
2,000 Applied Materials, Inc.(a) 274,500
750 Cypress Semiconductor Corp.(a) 25,125
975 ESS Technology, Inc.(a) 15,844
1,125 Integrated Device Technology, Inc.(a) 32,062
4,300 Intel Corp. 425,431
1,800 KLA Instruments Corp.(a) 105,525
----------
878,487
- ------------------------------------------------------------
Software--2.2%
500 Activision, Inc.(a) 7,813
100 Ardent Software, Inc. 4,300
625 Aspen Technology Corp., Inc.(a) 22,656
900 Broadvision, Inc.(a) 114,581
1,100 HNC Software, Inc.(a) 99,206
1,200 i2 Technologies, Inc.(a) 231,150
2,400 Intuit, Inc.(a) 144,750
900 Legato Systems, Inc.(a) 22,669
5,900 Microsoft Corp.(a) 577,462
100 Mission Critical Software, Inc.(a) 5,750
300 NetIQ Corp.(a) 16,800
800 Progress Software Corp.(a) 17,300
600 RSA Security, Inc.(a) 32,625
100 Sapient Corp.(a) 8,838
775 Sybase, Inc.(a) 18,455
2,100 VERITAS Software Corp.(a) 306,337
1,000 Verity, Inc.(a) 34,000
----------
1,664,692
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 10
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED CONSERVATIVE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Steel - Producers
800 AK Steel Holding Corp. $ 8,100
- ------------------------------------------------------------
Telecommunications--4.2%
200 Airgate PCS, Inc.(a) 12,225
1,700 Allegiance Telecom, Inc.(a) 179,138
2,400 ALLTEL Corp.(a) 160,200
3,500 AT&T Corp. 184,625
950 AVT Corp.(a) 21,256
900 Carrier Access Corp.(a) 39,600
400 Exodus Communications, Inc.(a) 45,950
500 Intermedia Communications, Inc. 21,500
1,100 JDS Uniphase Corp.(a) 224,331
1,300 Level 3 Communications, Inc.(a) 153,319
1,500 Millicom International Cellular S
A(a) 107,063
2,000 Motorola, Inc. 273,500
1,000 Nextel Communications, Inc.(a) 106,375
1,400 Nextlink Communications(a) 118,125
2,700 Nokia Corp. (ADR Finland)(a) 494,100
2,275 NTL, Inc.(a) 286,223
200 Plantronics, Inc.(a) 14,325
200 Qualcomm, Inc.(a) 25,400
8,600 Qwest Communications International,
Inc.(a) 338,625
1,300 Tellabs, Inc.(a) 70,200
7,150 Vodafone Airtouch Group PLC, ADR
(United Kingdom) 400,400
----------
3,276,480
- ------------------------------------------------------------
Tobacco--0.5%
4,100 Loews Corp. 229,600
4,500 Philip Morris Companies, Inc. 94,219
2,700 R.J. Reynolds Tobacco Holdings, Inc. 46,406
1,225 Universal Corp. 25,036
----------
395,261
Transportation--0.3%
3,900 Air Express International Corp. $ 127,237
650 Alexander & Baldwin, Inc. 13,122
1,225 Roadway Express, Inc. 28,175
625 Sea Containers, Ltd. 18,008
750 U.S. Freightways Corp. 27,281
----------
213,823
- ------------------------------------------------------------
Utilities--0.5%
600 California Water Service Group 15,975
325 Calpine Corp.(a) 23,766
575 Cleco Corp. 19,334
850 Conectiv, Inc. 14,822
1,500 General Public Utilities Corp. 43,500
450 Idacorp, Inc. 15,103
1,775 Public Service Company of New
Mexico(a) 28,178
2,500 Reliant Energy, Inc. 57,031
2,500 Unicom Corp. 97,812
2,525 Washington Gas Light Co. 63,441
----------
378,962
- ------------------------------------------------------------
Waste Management--0.1%
2,200 Casella Waste Systems, Inc.(a) 33,138
3,700 Waste Management, Inc. 64,750
----------
97,888
----------
Total common stocks
(cost $25,400,446) 30,986,520
----------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 11
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED CONSERVATIVE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount Description Value (Note 1)
Rating (000)
<S> <C> <C> <C>
- ------------------------------------------------------------
ASSET BACKED SECURITIES--1.9%
- ------------------------------------------------------------
Baa2 US$ 600 Capital One Bank Corp.,
Notes,
6.76%, 7/23/02 $ 585,941
Baa1 900 MBNA Corp.,
MTN,
6.875%, 7/15/04 865,404
-----------
Total asset backed
securities
(cost $1,491,297) 1,451,345
- ------------------------------------------------------------
CORPORATE BONDS--24.9%
- ------------------------------------------------------------
Aerospace/Defense--0.1%
B1 50 BE Aerospace, Inc.,
Sr. Sub. Notes,
9.50%, 11/1/08 46,250
- ------------------------------------------------------------
Airlines--0.2%
Ba2 150 Continental Airlines, Inc.,
Sr. Notes,
8.00%, 12/15/05 135,674
B3 50 U.S. Air, Inc.,
Sr. Notes,
9.625%, 2/1/01 49,622
-----------
185,296
- ------------------------------------------------------------
Apparel--0.1%
Ba2 100 Burlington Industries,
Inc.,
Debs.,
7.25%, 8/1/27 73,000
B1 15 Phillips-Van Heusen Corp.,
Sr. Sub. Notes,
9.50%, 5/1/08 13,950
-----------
86,950
- ------------------------------------------------------------
Auto/Equipment Rental--0.1%
B1 50 United Rentals, Inc.,
Sr. Sub. Notes,
9.25%, 1/15/09 46,875
- ------------------------------------------------------------
Automotive Parts--0.7%
B2 US$ 10 Collins & Aikman Products
Co.,
Sr. Sub. Notes,
11.50%, 4/15/06 $ 9,700
B3 50 Eagle Picher Industries,
Inc.,
Sr. Sub. Notes,
9.375%, 3/1/08 42,750
B3 200 Hayes Wheels, Inc.,
Sr. Sub. Notes,
9.125%, 7/15/07 192,500
B1 60 JPS Automotive Products
Corp., Sr. Notes,
11.125%, 6/15/01 60,450
Ba1 250 Lear Corp.,
Sr. Notes,
8.11%, 5/15/09 232,500
B2 40 Tenneco Inc.,
Sr. Sub. Notes,
11.625%, 10/15/09 40,800
-----------
578,700
- ------------------------------------------------------------
Banks--0.5%
Ba2 180 Export-Import Bank of
Korea,
Sr. Notes,
7.25%, 6/25/01 179,255
Ba3 200 Sovereign Bancorp, Inc.,
Sr. Notes,
10.50%, 11/15/06 203,000
-----------
382,255
- ------------------------------------------------------------
Building & Products--0.3%
Ba3 250 Building Materials Corp.,
Sr. Notes,
8.00%, 12/1/08 220,625
Ba2 10 Standard Pacific Corp.,
Sr. Sub. Notes,
8.50%, 4/1/09 8,775
-----------
229,400
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 12
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED CONSERVATIVE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount Description Value (Note 1)
Rating (000)
<S> <C> <C> <C>
- ------------------------------------------------------------
Cable--1.3%
Adelphia Communications Corp.,
Sr. Notes,
B1 US$ 200 7.875%, 5/1/09 $ 173,500
B1 280 8.125%, 7/15/03 261,800
Charter Communication
Holdings,
Sr. Notes,
B2 150 8.625%, 4/1/09 138,000
NR 100 10.25%, 1/15/10 100,000
B3 20 Classic Cable, Inc.,
Sr. Sub. Notes,
9.375%, 8/1/09 18,850
B2 50 Rogers Cablesystems Ltd.,
Sr. Sub. Gtd. Debs.,
11.00%, 12/1/15 56,250
B2 300 United Pan-European
Communications
(Netherlands), Sr. Notes,
10.875%, 8/1/09 291,750
------------
1,040,150
- ------------------------------------------------------------
Cellular Communications--0.2%
B3 10 Clearnet Communications,
Inc.,
Sr. Disc. Notes,
Zero Coupon (until
5/01/04),
10.125%, 5/1/09 5,900
B3 20 Triton PCS Holdings, Inc.,
Sr. Sub. Disc. Notes,
Zero Coupon (until
5/01/03),
11.00%, 5/1/08 14,150
Voicestream Wire Co.,
B2 60 Sr. Disc. Notes,
Zero Coupon (until
11/15/04),
11.875%, 11/15/09 36,600
B2 80 Sr. Notes,
10.375%, 11/15/09 82,000
------------
138,650
- ------------------------------------------------------------
Chemicals--0.5%
B2 US$ 75 Huntsman ICI Chemicals,
Inc.,
Sr. Sub. Notes,
10.125%, 7/1/09 $ 75,750
B1 50 Huntsman Polymers Corp.,
Sr. Notes,
11.75%, 12/1/04 52,500
Ba3 100 Lyondell Chemical Co.,
Sr. Sec'd. Notes,
9.875%, 5/1/07 98,750
Sterling Chemical Holdings,
Inc., Sr. Sub. Notes,
B3 45 12.375%, 7/15/06 46,575
B3 40 11.75%, 8/15/06 32,000
B2 60 ZSC Specialty Corp.,
Sr. Notes,
11.00%, 7/1/09 61,500
------------
367,075
- ------------------------------------------------------------
Coal
Ba3 20 P & L Coal Holdings Corp.,
Sr. Notes,
8.875%, 5/15/08(b) 19,050
- ------------------------------------------------------------
Commercial Services--0.2%
Ba3 150 Metris Cos, Inc.,
Sr. Notes,
10.125%, 7/15/06 144,000
- ------------------------------------------------------------
Computer Services--0.1%
NR 100 Globix Corp.,
Sr. Notes,
12.50%, 2/1/10 101,000
- ------------------------------------------------------------
Containers--0.1%
B3 50 Packaged Ice, Inc.,
Sr. Notes,
9.75%, 2/1/05 44,500
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 13
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED CONSERVATIVE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount Description Value (Note 1)
Rating (000)
<S> <C> <C> <C>
- ------------------------------------------------------------
Entertainment--0.4%
B2 US$ 100 Hollywood Park, Inc.,
Sr. Sub. Notes,
9.25%, 2/15/07 $ 96,375
B3 250 Premier Parks, Inc.,
Sr. Notes,
9.75%, 6/15/07 243,750
-----------
340,125
- ------------------------------------------------------------
Financial Services--3.6%
A1 600 AT & T Capital Corp.,
MTN, Ser. G,
6.31%, 4/23/02 598,482
Ba1 100 Americredit Corp.,
Sr. Notes,
9.875%, 4/15/06 100,250
A2 300 The Bear Stearns Cos.,
Inc.,
Sr. Notes,
6.42375%, 8/1/02 299,719
A3 300 Lehman Brothers Holdings,
Inc.,
MTN,
6.90%, 4/2/02 301,314
A1 600 Morgan Stanley Dean Witter,
MTN,
6.165%, 1/28/02 599,830
Ba3 275 RBF Finance Co.,
Sr. Secured Notes,
11.00%, 3/15/06 294,250
B2 10 Stone Container Finance
Co.,
Sr. Notes,
11.50%, 8/15/06 10,575
Aa3 600 Wells Fargo & Co.,
Notes,
6.625%, 7/15/04 578,616
-----------
2,783,036
- ------------------------------------------------------------
Food & Beverage--0.4%
B3 US$ 50 Agrilink Foods, Inc.,
Sr. Sub. Notes,
11.875%, 11/1/08 $ 49,250
B3 5 Domino's, Inc.,
Sr. Sub. Notes,
10.375%, 1/15/09 4,688
B1 100 Pilgrim's Pride Corp.,
Sr. Sub. Notes,
10.875%, 8/1/03 101,000
B2 65 Stater Brothers Holdings,
Inc.,
Sr. Notes,
10.75%, 8/15/06 65,650
B2 105 Vlasic Foods International,
Inc.,
Sr. Sub. Notes,
10.25%, 7/1/09 94,500
-----------
315,088
- ------------------------------------------------------------
Gaming--1.7%
B3 75 Coast Hotels & Casinos,
Inc.,
Sr. Sub. Notes,
9.50%, 4/1/09 69,375
Ba2 350 Harrahs Casinos, Inc.,
Gtd. Sr. Sub. Notes,
7.875%, 12/15/05 329,875
B2 150 Horseshoe Gaming Holding
Corp., Sr. Sub. Notes,
8.625%, 5/15/09 138,750
Ba1 600 International Game
Technology Corp., Sr.
Notes,
7.875%, 5/15/04 568,500
Baa3 100 Mandalay Resort Group,
Debs.,
6.70%, 11/15/96 92,448
Ba2 150 Mohegan Tribal Gaming
Auth.,
Sr. Notes,
8.125%, 1/1/06 141,000
-----------
1,339,948
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 14
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED CONSERVATIVE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount Description Value (Note 1)
Rating (000)
<S> <C> <C> <C>
- ------------------------------------------------------------
Health Care--1.4%
B3 US$ 140 Abbey Healthcare Group,
Inc.,
Sr. Sub. Notes,
9.50%, 11/1/02 $ 136,500
B2 100 Biovail International,
Inc.,
Sr. Notes,
10.875%, 11/15/05 105,000
Columbia/HCA Healthcare
Corp.,
Debs.,
Ba2 55 7.05%, 12/1/27 40,975
Ba2 20 7.50%, 11/15/95 15,900
MTN,
Ba2 300 6.73%, 7/15/45 278,250
Notes,
Ba2 100 7.69%, 6/15/25 80,500
B3 25 Concentra Operating Corp.,
Sr. Sub. Notes,
13.00%, 8/15/09 21,250
Baa3 75 HEALTHSOUTH Corp.,
Sr. Notes,
6.875%, 6/15/05 65,186
B3 30 Iasis Healthcare Corp.,
Sr. Sub. Notes,
13.00%, 10/15/09 30,750
C 350 Integrated Health Services,
Inc.,
Sr. Sub. Notes,
9.25%, 1/15/08 24,500
B3 100 Lifepoint Hospitals
Holdings, Inc.,
Sr. Sub. Notes,
10.75%, 5/15/09 102,750
B3 100 Magellan Health Services,
Inc.,
Sr. Sub. Notes,
9.00%, 2/15/08 80,000
B3 125 Triad Hospitals Holdings,
Inc.,
Sr. Sub. Notes,
11.00%, 5/15/09 129,375
-----------
1,110,936
- ------------------------------------------------------------
Industrials--0.4%
B2 US$ 350 Purina Mills, Inc.,
Sr. Sub. Notes,
9.00%, 3/15/10 $ 87,500
B3 350 United International
Holdings Inc.,
Sr. Disc. Notes,
Zero Coupon (until
2/15/03),
10.75%, 2/15/08 229,250
-----------
316,750
- ------------------------------------------------------------
Internet--0.3%
B3 20 Covad Communications Group
Inc.,
12.00%, 2/15/10 20,150
NR 50 Exodus Communications,
Inc.,
Sr. Notes,
10.75%, 12/15/09 50,875
B3 150 PSI Net, Inc.,
Sr. Notes,
11.00%, 8/1/09 154,500
Verio, Inc.,
Sr. Notes,
B3 5 11.25%, 12/1/08 5,238
B3 30 10.625%, 11/15/09 31,050
-----------
261,813
- ------------------------------------------------------------
Lodging--0.2%
Ba1 115 ITT Corp.,
Debs.,
7.375%, 11/15/15 92,079
Ba2 50 La Quinta Inns, Inc.,
Sr. Notes,
7.25%, 3/15/04 39,686
-----------
131,765
- ------------------------------------------------------------
Machinery--0.2%
B1 150 Applied Power, Inc.,
Sr. Sub. Notes,
8.75%, 4/1/09 157,500
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 15
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED CONSERVATIVE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount Description Value (Note 1)
Rating (000)
<S> <C> <C> <C>
- ------------------------------------------------------------
Manufacturing--0.2%
B3 US$ 50 Corning Consumer Products
Co., Sr. Sub. Notes,
9.625%, 5/1/08 $ 37,250
B2 75 Gentek, Inc.,
Sr. Sub. Notes,
11.00%, 8/1/09 77,250
B2 40 Venture Holdings, Inc.,
Sr. Notes,
9.50%, 7/1/05 36,400
-----------
150,900
- ------------------------------------------------------------
Media--1.9%
B2 350 Ackerley Group, Inc.,
Sr. Sub. Notes,
9.00%, 1/15/09 330,750
B2 30 Alliance Atlantis
Communications, Inc.,
Sr. Sub. Notes,
13.00%, 12/15/09 29,400
B1 75 Chancellor Media Corp.,
Sr. Sub. Notes,
9.00%, 10/1/08 76,687
Ba2 250 Imax Corp.,
Sr. Notes,
7.875%, 12/1/05(b) 233,125
B3 25 Paxson Communications
Corp.,
Sr. Sub. Notes,
11.625%, 10/1/02 25,875
Baa3 200 Seagram, Joseph E. & Sons,
Inc.,
Sr. Notes,
6.25%, 12/15/01 195,020
Baa3 600 Time Warner, Inc.,
Sr. Notes,
6.10%, 12/30/01 586,200
-----------
1,477,057
- ------------------------------------------------------------
Metals
B2 US$ 20 Golden Northwest Aluminum,
Inc., First Mtge. Notes,
12.00%, 12/15/06 $ 20,850
- ------------------------------------------------------------
Miscellaneous Services--0.3%
200 Fresenius Med Care Cap
Trust III, Gtd. Notes,
7.875%, 2/1/08 179,000
B2 50 IT Group, Inc.,
Sr. Sub. Notes,
11.25%, 4/1/09 47,500
B2 5 Sun World International,
Inc.,
First Mtge. Notes,
11.25%, 4/15/04 5,050
-----------
231,550
- ------------------------------------------------------------
Networking--0.5%
B3 15 Intersil Corp.,
Sr. Sub. Notes,
13.25%, 8/15/09 16,800
B2 60 Metromedia Fiber Network,
Inc., Sr. Notes,
10.00%, 12/15/09 60,150
B2 275 Williams Communications
Group, Inc.,
Sr. Notes,
10.875%, 10/1/09 283,250
-----------
360,200
- ------------------------------------------------------------
Oil & Gas--0.8%
B3 105 Chesapeake Energy Corp.,
Sr. Notes,
9.625%, 5/1/05 98,175
Ba2 30 Eott Energy Partners LP,
Sr. Notes,
11.00%, 10/1/09 30,338
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 16
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED CONSERVATIVE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount Description Value (Note 1)
Rating (000)
<S> <C> <C> <C>
- ------------------------------------------------------------
Oil & Gas (cont'd.)
Gulf Canada Resources Ltd.,
Sr. Notes,
Ba1 US$ 335 8.35%, 8/1/06 $ 320,762
Sr. Sub. Debs.,
Ba2 15 9.625%, 7/1/05 15,375
Ba2 25 Leviathan Gas Pipeline
L.P>,
Sr. Sub. Notes,
10.375%, 6/1/09 25,875
B1 60 Parker Drilling Co.,
Sr. Notes,
9.75%, 11/15/06 57,900
B2 20 Plains Resources, Inc.,
Sr. Sub. Notes,
10.25%, 3/15/06 19,300
B2 40 Swift Energy Co.,
Sr. Sub. Notes,
10.25%, 8/1/09 39,400
-----------
607,125
- ------------------------------------------------------------
Paper & Packaging--1.1%
B1 350 Ball Corp.,
Sr. Sub. Notes,
8.25%, 8/1/08 329,875
B1 25 Doman Industries Ltd.
(Canada),
Sr. Notes,
8.75%, 3/15/04 21,000
Caa 100 Repap New Brunswick
(Canada), Inc.,
Sr. Sec'd. Notes,
10.625%, 4/15/05 91,000
B1 250 S.D. Warren Co.,
Sr. Sub. Notes,
12.00%, 12/15/04(b) 260,000
B3 200 Stone Container Corp.,
Sr. Sub. Deb.,
12.25%, 4/1/02 202,000
-----------
903,875
- ------------------------------------------------------------
Pharmaceuticals--0.1%
Ba3 US$ 100 ICN Pharmaceuticals, Inc.,
Sr. Notes,
8.75%, 11/15/08 $ 93,000
- ------------------------------------------------------------
Printing & Publishing--0.7%
B1 250 Mail-Well I Corp.,
Sr. Sub. Notes,
8.75%, 12/15/08 228,750
B2 150 Transwestern Publishing
Co.,
Sr. Sub. Notes,
9.625%, 11/15/07 145,125
Baa3 150 World Color Press, Inc.,
Sr. Sub. Notes,
7.75%, 2/15/09 139,500
-----------
513,375
- ------------------------------------------------------------
Real Estate--0.4%
Ba2 235 HMH Properties, Inc.,
Sr. Notes,
8.45%, 12/1/08 210,912
B1 100 Intrawest Corp.,
Sr. Notes,
10.50%, 2/1/10 99,000
-----------
309,912
- ------------------------------------------------------------
Recreation--0.1%
B3 100 Ballys Total Fitness
Holdings, Sr. Sub. Notes,
9.875%, 10/15/07 94,000
- ------------------------------------------------------------
Restaurants--1.0%
B3 150 Advantica Restaurant
Group, Inc.,
Sr. Notes,
11.25%, 1/15/08 100,500
B2 350 Carrols Corp.,
Sr. Sub. Notes,
9.50%, 12/1/08 304,500
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 17
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED CONSERVATIVE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount Description Value (Note 1)
Rating (000)
<C> <C> <S> <C>
- ------------------------------------------------------------
Restaurants (cont'd.)
Ba1 US$ 350 Felcor Suites LP,
Gtd. Sr. Notes,
7.375%, 10/1/04 $ 309,750
Ba3 25 Sbarro, Inc.,
Sr. Notes,
11.00%, 9/15/09 25,625
-----------
740,375
- ------------------------------------------------------------
Schools--0.1%
B3 80 Kindercare Learning Center,
Inc., Sr. Sub. Notes,
9.50%, 2/15/09 76,000
- ------------------------------------------------------------
Semiconductors--0.1%
B2 40 SCG Holding Corp.,
Sr. Notes,
12.00%, 8/1/09 42,400
- ------------------------------------------------------------
Steel--0.5%
B2 15 Algoma Steel, Inc.,
First Mtge. Notes,
12.375%, 7/15/05 14,025
Ba3 60 The LTV Corp.,
Sr. Notes,
11.75%, 11/15/09 61,500
Ba3 50 National Steel Corp.,
Notes,
9.875%, 3/1/09 50,000
Caa2 20 Sheffield Steel Corp.,
First Mtge. Notes,
11.50%, 12/1/05 17,000
B2 250 UCAR Global Enterprises,
Inc.,
Sr. Sub. Notes,
12.00%, 1/15/05 258,750
-----------
401,275
- ------------------------------------------------------------
Telecommunications--2.1%
Ba2 US$ 125 Global Crossing Holdings
Ltd.,
Sr. Notes,
9.50%, 11/15/09 $ 120,625
B3 40 Hyperion Telecom,
Sr. Disc. Notes,
Zero Coupon (until
4/15/01),
13.00%, 4/15/03 35,800
Level 3 Communications,
Inc.,
Sr. Disc. Notes,
Zero Coupon (until
12/1/03),
B3 130 10.50%, 12/1/08 78,000
Sr. Notes,
B3 55 9.125%, 5/1/08 51,013
B1 95 McleodUSA, Inc.,
Sr. Notes,
8.125%, 2/15/09 85,500
Nextel Communications,
Inc.,
Sr. Notes,
B1 250 9.375%, 11/15/09 241,250
B3 325 10.75%, 6/1/09 327,437
Sr. Disc. Notes,
B1 10 Zero Coupon (until
9/15/02),
10.65%, 9/15/07 7,450
B3 250 NTL Communications Corp.,
Sr. Notes,
Zero Coupon (until
10/01/03),
12.375%, 10/1/08 171,250
RCN Corp.,
Sr. Notes,
B3 5 10.00%, 10/15/07 4,850
B3 40 10.125%, 1/15/10 38,900
B1 200 Telewest PLC,
Sr. Disc. Debs.,
Zero Coupon (until
10/01/00),
11.00%, 10/1/07 186,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 18
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED CONSERVATIVE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount Description Value (Note 1)
Rating (000)
<C> <C> <S> <C>
- ------------------------------------------------------------
Telecommunications (cont'd.)
B3 US$ 200 Tritel PCS, Inc.,
Sr. Sub. Disc. Notes,
Zero Coupon (until
5/15/04),
12.75%, 5/15/09 $ 126,000
B3 100 Primus Telecommunications,
Inc.,
Sr. Notes,
12.75%, 10/15/09 102,000
B3 30 Worldwide Fiber, Inc.,
Sr. Notes,
12.00%, 8/1/09 31,425
-----------
1,607,500
- ------------------------------------------------------------
Transportation--0.1%
B1 50 American Commercial
Lines LLC, Sr. Notes,
10.25%, 6/30/08 45,500
- ------------------------------------------------------------
Utilities--1.4%
Ba1 250 AES Corp.,
Sr. Notes,
9.50%, 6/1/09 248,125
Baa2 700 Cinergy Corp.,
Debs.,
6.125%, 4/15/04 651,667
Baa2 151 Niagara Mohawk Power Corp.,
Sr. Notes,
7.125%, 7/1/01 150,640
-----------
1,050,432
- ------------------------------------------------------------
Waste Management--0.5%
Allied Waste of North
America, Inc.,
Ba3 200 Sr. Notes,
7.875%, 1/1/09 172,000
B2 100 Sr. Sub. Notes,
10.00%, 8/1/09 87,000
Baa2 US$ 150 Waste Management, Inc.,
Sr. Notes,
6.00%, 5/15/01 $ 145,332
-----------
404,332
-----------
Total corporate bonds
(cost $20,455,541) 19,296,770
-----------
- ------------------------------------------------------------
CONVERTIBLE BONDS--0.6%
Financial Services--0.6%
A2 EURO500 Hellenic Finance Corp.,
Bonds,
2.00%, 7/15/03 481,510
- ------------------------------------------------------------
Utilities
Alliant Energy Resources,
Inc.,
Sub. Notes,
A3 US$ 1 7.25%, 2/15/30 33,375
-----------
Total convertible bonds
(cost $560,750) 514,885
-----------
- ------------------------------------------------------------
MORTGAGE-RELATED SECURITIES--7.3%
Aaa 583 Commercial Mortgage
Acceptance Corp.,
Series 1999-C1, Class A-1
6.79%, 8/15/08 561,577
NR 479 DLJ Mortgage Acceptance
Corp., Series 1999-2,
Class 1PA1
6.50%, 5/19/29 443,827
NR 450 GE Capital Mortgage
Services, Inc.,
Series 1999-15, Class 16,
6.75%, 8/25/29 440,186
Aaa 461 GMAC Commercial Mortgage,
Inc., Series 1998-C2,
Class A-1,
6.15%, 11/15/07 434,726
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 19
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED CONSERVATIVE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount Description Value (Note 1)
Rating (000)
<C> <C> <S> <C>
- ------------------------------------------------------------
MORTGAGE-RELATED SECURITIES (cont'd.)
Aaa US$ 500 Mellon Residental Funding
Corp.,
Series 1999, Class A-3,
6.58%, 7/25/29 $ 499,858
NA 236 Merrill Lynch Mortgage
Investments, Inc.,
Series 1998-F1,
5.53125%, 1/20/28 235,455
Aaa 500 Nationslink Funding Corp.,
Series 1999-Sl, Class A-3,
6.297%, 12/10/02 487,245
PNC Mortgage Securities
Corp.,
Aa1 600 Series 1995-2, Class A-4,
6.75%, 6/25/16 586,146
Aa1 733 Series 1999-8, Class A-5,
6.75%, 8/25/29 716,863
Aa1 500 Series 1999, Class A-3,
7.25%, 10/25/29 477,185
NR 823 Residential Funding
Mortgage, Inc.,
Series 1997 S-19, Class
A-3,
6.50%, 12/25/12 769,676
-----------
Total mortgage-related
securities
(cost $5,844,853) 5,652,744
-----------
- ------------------------------------------------------------
FOREIGN SECURITIES--1.6%
- ------------------------------------------------------------
A2 1,000 Government of Poland,
3.50% (until 10/27/00)
5.00%, 10/27/24 610,000
Baa3 600 United Mexican States,
Notes,
9.875%, 2/1/10 591,750
-----------
Total foreign securities
(cost $1,827,566) 1,201,750
-----------
- ------------------------------------------------------------
U.S. GOVERNMENT AND AGENCIES SECURITIES--21.3%
US$ 2,032 Federal Home Loan Mortgage
Corp., Debs.,
10.00%, 5/15/20 $ 2,134,685
596 Federal National Mortgage
Association,
6.50%, 9/1/05 581,992
Government National
Mortgage Association,
8,000 6.50%, 12/31/29 7,392,480
100 6.75%, 9/20/22 101,018
United States Treasury
Bonds,
1,100 8.75%, 8/15/20 1,348,017
500 8.00%, 11/15/21 575,000
1,900 6.00%, 2/15/26 1,758,089
United States Treasury
Notes,
630 3.625%, 7/15/02 623,559
319 3.375%, 1/15/07 300,834
1,747 3.875%, 1/15/09, TIPS 1,689,488
-----------
Total U. S. government and
agencies securities
(cost $16,525,043) 16,505,162
-----------
Total debt obligations
(cost $46,091,417) 44,622,656
-----------
- ------------------------------------------------------------
WARRANTS Units
- ------------------------------------------------------------
15 Intersil Holding Corp.,
Expiring 08/15/09 3,750
-----------
Total long-term investments
(cost $71,491,863) 75,612,926
-----------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 20
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED CONSERVATIVE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount Description Value (Note 1)
Rating (000)
<C> <C> <S> <C>
- ------------------------------------------------------------
SHORT-TERM INVESTMENTS--14.0%
- ------------------------------------------------------------
ASSET BACKED SECURITIES--0.9%
A2 US$ 700 General Motors Acceptance
Corp.,
6.25%, 4/5/00
(cost $699,744) $ 698,362
- ------------------------------------------------------------
CORPORATE BONDS--3.4%
A2 2,100 TCI Communications, Inc.,
MTN,
6.46%, 3/6/00 2,101,407
Ba2 529 Niagara Mohawk Power Corp.,
Sr. Notes,
7.00%, 10/1/00 528,099
-----------
Total corporate bonds
(cost $2,634,465) 2,629,506
-----------
- ------------------------------------------------------------
U.S. GOVERNMENT SECURITIES--1.2%
Federal Home Loan Mortgage
Corp., Disc. Notes,
900 Zero Coupon, 2/2/00
(cost $899,862) 899,809
- ------------------------------------------------------------
REPURCHASE AGREEMENT--4.4%
3,423 Joint Repurchase Agreement
Account,
5.71%, 2/1/00
(cost $3,423,000; Note 5) 3,423,000
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <C> <S> <C>
- ------------------------------------------------------------
COMMERCIAL PAPER--3.3%
US$ 1,000 IBM Credit Corp.,
6.29%, 2/8/00 $ 998,777
U.S. West Capital Funding,
Inc.,
600 6.25%, 2/8/00 599,318
1,000 6.64%, 3/24/00 991,128
-----------
Total commercial paper
(cost $2,588,457) 2,589,223
-----------
Total short-term
investments
(cost $10,245,528) 10,239,900
-----------
- ------------------------------------------------------------
Total Investments--110.8%
(cost $81,737,391; Note 4) 85,852,826
Liabilities in excess of
other
assets--(10.8%) (8,376,563)
-----------
Net Assets--100% $77,476,263
-----------
-----------
</TABLE>
- ---------------
(a) Non-income producing security.
(b) All or partial principal amount segregated as collateral.
ADR--American Depository Receipt.
FRN--Floating Rate Note.
LP--Limited Partnership.
MTN--Medium-Term Notes.
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).
TIPS--Treasury Inflation Protection Securities.
The Fund's current Prospectus contains a description of Moody's and Standard &
Poor's ratings.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 21
<PAGE>
PRUDENTIAL DIVERSIFIED FUNDS
Statement of Assets and Liabilities PRUDENTIAL DIVERSIFIED CONSERVATIVE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets January 31, 2000
<S> <C>
Investments, at value (cost $81,737,391).................................................................. $ 85,852,826
Receivable for investments sold........................................................................... 5,336,116
Interest and dividends receivable......................................................................... 611,852
Receivable for Fund shares sold........................................................................... 271,345
Forward currency contracts - net amount receivable from counterparty...................................... 26,883
Deferred expenses and other assets........................................................................ 1,529
----------------
Total assets........................................................................................... 92,100,551
----------------
Liabilities
Bank overdraft............................................................................................ 1,121,220
Payable for investments purchased......................................................................... 12,983,928
Accrued expenses and other liabilities.................................................................... 243,886
Payable for Fund shares reacquired........................................................................ 179,198
Management fee payable.................................................................................... 51,000
Distribution fee payable.................................................................................. 45,056
----------------
Total liabilities...................................................................................... 14,624,288
----------------
Net Assets................................................................................................ $ 77,476,263
----------------
----------------
Net assets were comprised of:
Shares of beneficial interest, at par.................................................................. $ 7,290
Paid-in capital in excess of par....................................................................... 72,404,305
----------------
72,411,595
Undistributed net investment income.................................................................... 159,889
Accumulated net realized gain on investments........................................................... 762,845
Net unrealized appreciation on investments and foreign currency translations........................... 4,141,934
----------------
Net assets, January 31, 2000.............................................................................. $ 77,476,263
----------------
----------------
Class A:
Net asset value and redemption price per share
($14,817,111 / 1,393,325 shares of beneficial interest issued and outstanding)...................... $10.63
Maximum sales charge (5% of offering price)............................................................ .56
----------------
Maximum offering price to public....................................................................... $11.19
----------------
----------------
Class B:
Net asset value, offering price and redemption price per share
($35,976,458 / 3,386,612 shares of beneficial interest issued and outstanding)...................... $10.62
----------------
----------------
Class C:
Net asset value and redemption price per share
($12,952,048 / 1,219,255 shares of beneficial interest issued and outstanding)...................... $10.62
Sales charge (1% of offering price).................................................................... .11
----------------
Offering price to public............................................................................... $10.73
----------------
----------------
Class Z:
Net asset value, offering price and redemption price per share
($13,730,646 / 1,290,473 shares of beneficial interest issued and outstanding)...................... $10.64
----------------
----------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 22
<PAGE>
PRUDENTIAL DIVERSIFED FUNDS
PRUDENTIAL DIVERSIFIED CONSERVATIVE
GROWTH FUND
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
ended
Net Investment Income January 31, 2000
<S> <C>
Income
Interest............................ $1,704,573
Dividends (net of foreign
withholding taxes of $293)....... 141,922
-----------
Total income..................... 1,846,495
-----------
Expenses
Management fee...................... 288,242
Distribution fee--Class A........... 13,482
Distribution fee--Class B........... 167,237
Distribution fee--Class C........... 68,227
Custodian's fees and expenses....... 151,000
Reports to shareholders............. 32,000
Registration fees................... 31,000
Amortization of offering cost....... 29,535
Transfer agent's fees and
expenses......................... 29,000
Legal fees.......................... 15,000
Audit fee and expenses.............. 12,500
Trustees' fees and expenses......... 3,000
Miscellaneous....................... 4,163
-----------
Total expenses................... 844,386
-----------
Net investment income.................. 1,002,109
-----------
Realized and Unrealized Gain (Loss)
on Investment and Foreign Currency
Transactions
Net realized gain on:
Investment transactions............. 1,058,792
Foreign currency transactions....... 18,394
Options written..................... 633
-----------
1,077,819
-----------
Net change in unrealized appreciation
on:
Investments......................... 1,845,866
Foreign currencies.................. 51,739
-----------
1,897,605
-----------
Net gain on investments................ 2,975,424
-----------
Net Increase in Net Assets
Resulting from Operations $3,977,533
-----------
-----------
</TABLE>
PRUDENTIAL DIVERSIFIED FUNDS
PRUDENTIAL DIVERSIFIED CONSERVATIVE
GROWTH FUND
Statement of Changes in Net Assets (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months November 18, 1998(a)
Ended Through
Increase (Decrease) January 31, July 31,
in Net Assets 2000 1999
<S> <C> <C>
Operations
Net investment income..... $ 1,002,109 $ 1,315,456
Net realized gain on
investment and foreign
currency
transactions........... 1,077,819 577,710
Net change in unrealized
appreciation of
investments and foreign
currencies............. 1,897,605 2,244,329
------------ --------------------
Net increase in net assets
resulting from
operations............. 3,977,533 4,137,495
------------ --------------------
Dividends and distributions (Note 1)
Dividends from net
investment income
Class A................ (149,418) (118,082)
Class B................ (383,307) (278,242)
Class C................ (155,926) (155,747)
Class Z................ (313,458) (637,575)
------------ --------------------
(1,002,109) (1,189,646)
------------ --------------------
Dividends in excess of net
investment income
Class A................ (11,477) --
Class B................ (29,443) --
Class C................ (11,977) --
Class Z................ (24,078) --
------------ --------------------
(76,975) --
------------ --------------------
Distributions from net
realized gains on
investment transactions
Class A................ (113,245) --
Class B................ (387,774) --
Class C................ (152,973) --
Class Z................ (219,765) --
------------ --------------------
(873,757) --
------------ --------------------
Fund share transactions (net
of share conversions)
(Note 6)
Net proceeds from shares
sold................... 19,060,786 107,208,098
Net asset value of shares
issued in reinvestment
of dividends and
distributions.......... 1,889,736 1,162,526
Cost of shares
reacquired............. (19,709,174) (37,138,250)
------------ --------------------
Net increase in net assets
from Fund share
transactions........... 1,241,348 71,232,374
------------ --------------------
Total increase............... 3,266,040 74,180,223
Net Assets
Beginning of period.......... 74,210,223 30,000
------------ --------------------
End of period(b)............. $ 77,476,263 $ 74,210,223
------------ --------------------
------------ --------------------
- ---------------
(a) Commencement of investment operations.
(b) Includes undistributed
net investment income
of....................... $ 159,889 $ 236,864
------------ --------------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 23
<PAGE>
PRUDENTIAL DIVERSIFIED FUNDS
PRUDENTIAL DIVERSIFIED CONSERVATIVE
Notes to Financial Statements (Unaudited) 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 July 29, 1998. 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' or the 'Manager'). The Fund commenced
investment operations on November 18, 1998.
The investment objective of the Fund is 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 Trust 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 Adviser, 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 Adviser
feel this is representative of market value, after that period, 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
- --------------------------------------------------------------------------------
24
<PAGE>
PRUDENTIAL DIVERSIFIED FUNDS
PRUDENTIAL DIVERSIFIED CONSERVATIVE
Notes to Financial Statements (Unaudited) 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 and 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.
Options: The Fund may either purchase or write options in order to hedge against
adverse market movements or fluctuations in value caused by changes in
prevailing interest rates or foreign currency exchange rates with respect to
securities or currencies which the Fund currently owns or intends to purchase.
When the Fund purchases an option, it pays a premium and an amount equal to that
premium is recorded as an investment. When the Fund writes an option, it
receives a premium and an amount equal to that premium is recorded as a
liability. The investment or liability is adjusted daily to reflect the current
market value of the option. If an option expires unexercised, the Fund realizes
a gain or loss to the extent of the premium received or paid. If an option is
exercised, the premium received or paid is an adjustment to the proceeds from
the sale or the cost basis of the purchase in determining whether the Fund has
realized a gain or loss. The difference between the premium and the amount
received or paid on effecting a closing purchase or sale transaction is also
treated as a realized gain or loss. Gain or loss on purchased options is
included in net realized gain (loss) on investment transactions. Gain or loss on
written options is presented separately as net realized gain (loss) on written
option transactions.
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 initial offering of the Fund. Offering costs were amortized over a
period of 12 months ended 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 Adviser'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
- --------------------------------------------------------------------------------
25
<PAGE>
PRUDENTIAL DIVERSIFIED FUNDS
PRUDENTIAL DIVERSIFIED CONSERVATIVE
Notes to Financial Statements (Unaudited) GROWTH FUND
- --------------------------------------------------------------------------------
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 .375%1
Corporation ('PIC')
Pacific Investment Management .25%
Company
Franklin Advisers, Inc. .50%
The Dreyfus Corporation .45%
1Prior to January 1, 2000, PIC was 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 six month period
ended January 31, 2000.
PIMS has advised the Fund that it has received approximately $48,000 and $11,200
in front-end sales charges resulting from sales of Class A and Class C shares,
respectively, during the six month period ended January 31, 2000.
PIMS has advised the Fund that for the six month period ended January 31, 2000,
it has received approximately $59,100 and $16,300 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 Fund, along with other affiliated registered investment companies (the
'Funds'), entered into a syndicated credit agreement ('SCA') with an
unaffiliated lender. The maximum commitment under the SCA is $1 billion and
interest on any borrowings will be at market rates. For the period
3/11/99-3/9/00, the commitment fee on the unused portion of the credit facility
was .065 of 1%. Subsequent to March 9, 2000, the SCA was renewed with a maximum
commitment of $1 billion at a commitment fee of .080 of 1% of the unused portion
of the credit facility. The expiration date of the SCA is March 9, 2001. The
commitment fee is accrued and paid quarterly on a pro rata basis by the Funds.
Prior to March 11, 1999, the Funds had a credit agreement with a maximum
commitment of $200,000,000. The commitment fee was .055 of 1% on the unused
portion of the credit facility. The Fund did not borrow any amounts during the
year ended January 31, 2000. The purpose of the credit agreements is to serve as
an alternative source of funding for capital share redemptions.
- ------------------------------------------------------------
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 six month period ended January
31, 2000, the Fund incurred fees of approximately $60,400 for the services of
PMFS. As of January 31, 2000 approximately $5,500 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 six month period ended January 31, 2000 were $96,142,862 and
$96,589,592, respectively.
At January 31, 2000, the Fund had outstanding forward currency contracts to sell
foreign currencies as follows:
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date Current
Sale Contracts Payable Value Appreciation
- ----------------------- --------------- -------- -------------
<S> <C> <C> <C>
Euro,
expiring 2/17/00..... $ 507,850 $485,679 $22,171
Japanese Yen,
expiring 3/30/00..... 98,790 94,078 4,712
--------------- -------- -------------
$ 606,640 $579,757 $26,883
--------------- -------- -------------
--------------- -------- -------------
</TABLE>
- --------------------------------------------------------------------------------
26
<PAGE>
PRUDENTIAL DIVERSIFIED FUNDS
PRUDENTIAL DIVERSIFIED CONSERVATIVE
Notes to Financial Statements (Unaudited) GROWTH FUND
- --------------------------------------------------------------------------------
Transactions in options written during the six month period ended January 31,
2000, were as follows:
<TABLE>
<CAPTION>
Number of Premiums
Contracts Received
--------- --------
<S> <C> <C>
Options outstanding at July 31, 1999... -- --
Options written........................ 3 $ 1,758
Options expired........................ (3) (1,758)
-- --------
Options outstanding at January 31,
2000................................. -- --
-- --------
-- --------
</TABLE>
The United States federal income tax basis of the Fund's investments, including
short-term investments, as of January 31, 2000 was $81,796,553; accordingly, net
unrealized appreciation on investments for federal income tax purposes was
$4,056,273 (gross unrealized appreciation--$8,015,727, gross unrealized
depreciation--$3,959,454).
- ------------------------------------------------------------
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, 2000, the Fund
had a 0.5% undivided interest in the repurchase agreements in the joint account.
The undivided interest for the Fund represents $3,423,000 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., 5.72%, in the principal amount of $150,000,000
repurchase price $150,023,833, due 2/01/00. The value of the collateral
including accrued interest was $153,133,078.
Credit Suisse First Boston Corporation, 5.74%, in the principal amount of
$75,000,000 repurchase price $75,011,958, due 2/01/00. The value of the
collateral including accrued interest was $77,491,043.
Credit Suisse First Boston Corporation, 5.73%, in the principal amount of
$125,000,000 repurchase price $125,019,895, due 2/01/00. The value of the
collateral including accrued interest was $129,169,641.
Greenwich Capital Markets, Inc., 5.73%, in the principal amount of $100,000,000
repurchase price $100,015,888, due 2/01/00. The value of the collateral
including accrued interest was $102,001,008.
Goldman, Sachs & Co., 5.70%, in the principal amount of $230,536,000 repurchase
price $230,572,501, due 2/01/00. The value of the collateral including accrued
interest was $235,147,150.
Merrill Lynch, Pierce, Fenner & Smith, Inc., 5.60%, in the principal amount of
$25,000,000 repurchase price $25,003,888, due 2/01/00. The value of the
collateral including accrued interest was $25,501,335.
- ------------------------------------------------------------
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
7,289,665 shares of beneficial interest issued and outstanding at January 31,
2000, Prudential owned 1,224,866 shares.
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>
Six months ended January 31, 2000:
Shares sold....................... 828,470 $ 8,780,679
Shares issued in reinvestment of
dividends and distributions..... 25,579 266,987
Shares reacquired................. (346,834) (3,638,228)
----------- -------------
Net increase in shares outstanding
before conversion............... 507,215 5,409,438
Shares issued upon conversion..... 8,326 87,413
----------- -------------
Net increase in shares
outstanding..................... 515,541 $ 5,496,851
----------- -------------
----------- -------------
</TABLE>
- --------------------------------------------------------------------------------
27
<PAGE>
PRUDENTIAL DIVERSIFIED FUNDS
PRUDENTIAL DIVERSIFIED CONSERVATIVE
Notes to Financial Statements (Unaudited) GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Shares Amount
- ---------------------------------- ----------- -------------
<S> <C> <C>
November 18, 1998(a) through
July 31, 1999:
Shares sold....................... 1,042,412 $ 10,711,221
Shares issued in reinvestment of
dividends....................... 10,808 113,563
Shares reacquired................. (177,770) (1,852,189)
----------- -------------
Net increase in shares outstanding
before conversion............... 875,450 8,972,595
Shares issued upon conversion from
Class B......................... 1,585 16,195
----------- -------------
Net increase in shares
outstanding..................... 877,034 $ 8,988,790
----------- -------------
----------- -------------
Class B
- ----------------------------------
Six months ended January 31, 2000:
Shares sold....................... 866,586 $ 9,039,455
Shares issued in reinvestment of
dividends and distributions..... 73,455 766,993
Shares reacquired................. (467,045) (4,904,930)
----------- -------------
Net increase in shares outstanding
before conversion............... 472,996 4,901,518
Shares issued upon conversion..... (8,336) (87,413)
----------- -------------
Net increase in shares
outstanding..................... 464,660 $ 4,814,105
----------- -------------
----------- -------------
Class B
- ----------------------------------
November 18, 1998(a) through
July 31, 1999:
Shares sold....................... 3,203,723 $ 32,945,049
Shares issued in reinvestment of
dividends....................... 25,247 265,233
Shares reacquired................. (306,183) (3,184,477)
----------- -------------
Net increase in shares outstanding
before conversion............... 2,922,787 30,025,805
Shares issued upon conversion into
Class A......................... (1,585) (16,195)
----------- -------------
Net increase in shares
outstanding..................... 2,921,202 $ 30,009,610
----------- -------------
----------- -------------
Class C Shares Amount
- ---------------------------------- ----------- -------------
Six months ended January 31, 2000:
Shares sold....................... 113,985 $ 1,186,478
Shares issued in reinvestment of
dividends and distributions..... 28,617 298,684
Shares reacquired................. (279,731) (2,929,433)
----------- -------------
Net decrease in shares
outstanding..................... (137,129) $ (1,444,271)
----------- -------------
----------- -------------
November 18, 1998(a) through
July 31, 1999:
Shares sold....................... 1,533,354 $ 15,566,209
Shares issued in reinvestment of
dividends....................... 13,956 146,297
Shares reacquired................. (191,676) (1,993,717)
----------- -------------
Net increase in shares
outstanding..................... 1,355,634 $ 13,718,789
----------- -------------
----------- -------------
Class Z
- ----------------------------------
Six months ended January 31, 2000:
Shares sold....................... 5,210 $ 54,174
Shares issued in reinvestment of
dividends and distributions..... 53,379 557,072
Shares reacquired................. (778,604) (8,236,583)
----------- -------------
Net decrease in shares
outstanding..................... (720,015) $ (7,625,337)
----------- -------------
----------- -------------
November 18, 1998(a) through
July 31, 1999:
Shares sold....................... 4,798,062 $ 47,985,619
Shares issued in reinvestment of
dividends....................... 61,120 637,433
Shares reacquired................. (2,849,444) (30,107,867)
----------- -------------
Net increase in shares
outstanding..................... 2,009,738 $ 18,515,185
----------- -------------
----------- -------------
</TABLE>
- ---------------
(a) Commencement of investment operations.
- --------------------------------------------------------------------------------
28
<PAGE>
PRUDENTIAL DIVERSIFIED FUNDS
PRUDENTIAL DIVERSIFIED CONSERVATIVE
Notes to Financial Statements (Unaudited) GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B
----------------------------------------- ----------------
Six Months November 18, 1998(a) Six Months
Ended Through Ended
January 31, 2000 July 31, 1999(d) January 31, 2000
---------------- -------------------- ----------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......................... $ 10.36 $10.00 $ 10.35
------ ----- ------
Income from investment operations:
Net investment income........................................ .16 .19 .12
Net realized and unrealized gain on investments and foreign
currencies................................................ .40 .35 .40
------ ----- ------
Total from investment operations.......................... .56 .54 .52
------ ----- ------
Less distributions
Dividends from net investment income......................... (.17) (.18) (.13)
Distributions from net realized capital gains................ (.12) -- (.12)
------ ----- ------
Total dividends and distributions......................... (.29) (.18) (.25)
------ ----- ------
Net asset value, end of period............................... $ 10.63 $10.36 $ 10.62
------ ----- ------
------ ----- ------
TOTAL RETURN(b).............................................. 5.47% 5.34% 5.08%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............................. $ 14,817 $9,097 $ 35,976
Average net assets (000)..................................... $ 10,727 $6,157 $ 33,266
Ratios to average net assets:(c)
Expenses, including distribution fees..................... 1.80% 1.92% 2.55%
Expenses, excluding distribution fees..................... 1.55% 1.67% 1.55%
Net investment income..................................... 3.01% 2.69% 2.26%
Portfolio turnover rate...................................... 121% 180% 121%
<CAPTION>
<S> <C>
November 18, 1998(a)
Through
July 31, 1999(d)
--------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......................... $ 10.00
------
Income from investment operations:
Net investment income........................................ .14
Net realized and unrealized gain on investments and foreign
currencies................................................ .34
------
Total from investment operations.......................... .48
------
Less distributions
Dividends from net investment income......................... (.13)
Distributions from net realized capital gains................ --
------
Total dividends and distributions......................... (.13)
------
Net asset value, end of period............................... $ 10.35
------
------
TOTAL RETURN(b).............................................. 4.77%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............................. $ 30,235
Average net assets (000)..................................... $ 19,308
Ratios to average net assets:(c)
Expenses, including distribution fees..................... 2.67%
Expenses, excluding distribution fees..................... 1.67%
Net investment income..................................... 1.94%
Portfolio turnover rate...................................... 180%
</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 and includes reinvestment of dividends and distributions. Total
return for periods of less than a full year are not annualized.
(c) Annualized.
(d) Calculated based upon weighted average shares outstanding during the period.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 29
<PAGE>
PRUDENTIAL DIVERSIFIED FUNDS
PRUDENTIAL DIVERSIFIED CONSERVATIVE
Notes to Financial Statements (Unaudited) GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C Class Z
----------------------------------------- ----------------
Six Months November 18, 1998(a) Six Months
Ended Through Ended
January 31, 2000 July 31, 1999(d) January 31, 2000
---------------- -------------------- ----------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......................... $ 10.35 $ 10.00 $ 10.37
------ ------ ------
Income from investment operations:
Net investment income........................................ .12 .14 .18
Net realized and unrealized gain on investments and foreign
currencies................................................ .40 .34 .40
------ ------ ------
Total from investment operations.......................... .52 .48 .58
------ ------ ------
Less distributions
Dividends from net investment income......................... (.13) (.13) (.19)
Distributions from net realized capital gains................ (.12) -- (.12)
------ ------ ------
Total dividends and distributions......................... (.25) (.13) (.31)
------ ------ ------
Net asset value, end of period............................... $ 10.62 $ 10.35 $ 10.64
------ ------ ------
------ ------ ------
TOTAL RETURN(b).............................................. 5.08% 4.77% 5.62%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............................. $ 12,952 $ 14,035 $ 13,731
Average net assets (000)..................................... $ 13,571 $ 12,039 $ 18,883
Ratios to average net assets:(c)
Expenses, including distribution fees..................... 2.55% 2.67% 1.55%
Expenses, excluding distribution fees..................... 1.55% 1.67% 1.55%
Net investment income..................................... 2.25% 1.91% 3.25%
Portfolio turnover rate...................................... 121% 180% 121%
<CAPTION>
<S> <C>
November 18, 1998(a)
Through
July 31, 1999(d)
--------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......................... $ 10.00
------
Income from investment operations:
Net investment income........................................ .21
Net realized and unrealized gain on investments and foreign
currencies................................................ .35
------
Total from investment operations.......................... .56
------
Less distributions
Dividends from net investment income......................... (.19)
Distributions from net realized capital gains................ --
------
Total dividends and distributions......................... (.19)
------
Net asset value, end of period............................... $ 10.37
------
------
TOTAL RETURN(b).............................................. 5.58%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............................. $ 20,843
Average net assets (000)..................................... $ 38,460
Ratios to average net assets:(c)
Expenses, including distribution fees..................... 1.67%
Expenses, excluding distribution fees..................... 1.67%
Net investment income..................................... 2.89%
Portfolio turnover rate...................................... 180%
</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 and includes reinvestment of dividends and distributions. Total
return for periods of less than a full year are not annualized.
(c) Annualized.
(d) Calculated based upon weighted average shares outstanding during the period.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 30
<PAGE>
PRUDENTIAL DIVERSIFIED FUNDS
PRUDENTIAL DIVERSIFIED CONSERVATIVE
Supplemental Proxy Information (Unaudited) GROWTH FUND
- --------------------------------------------------------------------------------
A Special Meeting of Shareholders of Prudential Diversified Funds was held on
November 8, 1999 for the following purposes:
<TABLE>
<S> <C> <C> <C> <C> <C>
(1) To elect nine trustees;
(2) To ratify the selection of PricewaterhouseCoopers LLP as independent accountants for the
fiscal year ending July 31, 2000; and
(3) To approve certain changes to each Fund's fundamental investment restrictions.
The results of the voting at the Special Meeting of Shareholders with respect to these matters was as
follows:
With respect to all Funds of Prudential Diversified Funds:
<CAPTION>
Votes for Votes withheld
----------- --------------
<C> <S> <C> <C>
(1) Election of Trustees
(A) Eugene C. Dorsey................ 16,149,330 212,677
(B) Robert F. Gunia................. 16,144,315 217,692
(C) Robert E. LaBlanc............... 16,153,554 208,453
(D) Douglas H. McCorkindale......... 16,156,578 205,429
(E) Thomas T. Mooney................ 16,137,871 224,136
(F) David R. Odenath, Jr............ 16,160,076 201,931
(G) Stephen Stoneburn............... 16,158,803 203,204
(H) John R. Strangfeld, Jr.......... 16,160,076 201,931
(I) Clay T. Whitehead............... 16,140,906 221,101
With respect to all Funds of Prudential Diversified Funds:
<CAPTION>
Votes for Votes against Abstentions
----------- ------------- --------------
<C> <S> <C> <C> <C>
(2) PricewaterhouseCoopers LLP............ 16,014,097 55,890 292,020
(3) Approval of certain changes to the Moderate Conservative Growth Fund's fundamental
investment restrictions regarding
(A) Diversification................. 3,405,197 31,552 167,545
(B) Engaging in margin
transactions.................... 3,407,251 19,144 177,899
(C) Issuing senior securities,
borrowing and pledging assets... 3,391,626 38,597 174,071
(D) Investing in real estate........ 3,426,117 31,053 147,124
(E) Making loans.................... 3,405,754 41,410 157,130
(F) Concentration................... 3,388,465 22,710 193,119
(G) Selling securities short........ 3,338,609 81,319 184,366
(H) Investing for the purpose of
exercising control.............. 3,381,849 55,977 166,468
</TABLE>
- --------------------------------------------------------------------------------
31
<PAGE>
Prudential Mutual Fund Family
- -------------------------------------------------------------------------------
Prudential offers a broad range of mutual funds designed to meet your
individual needs. For information about these funds, contact your financial
adviser or call us at (800) 225-1852. Read the prospectus carefully before you
invest or send money.
STOCK FUNDS
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Index Series Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
The Prudential Investment Portfolios, Inc.
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Mid-Cap Value Fund
Prudential Real Estate Securities Fund
Prudential Sector Funds, Inc.
Prudential Financial Services Fund
Prudential Health Sciences Fund
Prudential Technology Fund
Prudential Utility Fund
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Tax-Managed Funds
Prudential Tax-Managed Equity Fund
Prudential 20/20 Focus Fund
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Target Funds
Large Capitalization Growth Fund
Large Capitalization Value Fund
Small Capitalization Growth Fund
Small Capitalization Value Fund
Asset Allocation/Balanced Funds
Prudential Balanced Fund
Prudential Diversified Funds
Conservative Growth Fund
Moderate Growth Fund
High Growth Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund
GLOBAL FUNDS
Global Stock Funds
Prudential Developing Markets Fund
Prudential Developing Markets Equity Fund
Prudential Latin America Equity Fund
Prudential Europe Growth Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Index Series Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Prudential Global Growth Fund
Prudential International Value Fund
Prudential Jennison International Growth Fund
Global Utility Fund, Inc.
Target Funds
International Equity Fund
Global Bond Funds
Prudential Global Total Return Fund, Inc.
Prudential International Bond Fund, Inc.
BOND FUNDS
Taxable Bond Funds
Prudential Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential High Yield Total Return Fund, Inc.
Prudential Index Series Fund
Prudential Bond Market Index Fund
Prudential Structured Maturity Fund, Inc.
Income Portfolio
Target Funds
Total Return Bond Fund
Tax-Exempt Bond Funds
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Income Series
Insured Series
Prudential Municipal Series Fund
Florida Series
Massachusetts Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
MONEY MARKET FUNDS
Taxable Money Market Funds
Cash Accumulation Trust
Liquid Assets Fund
National Money Market Fund
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.
Tax-Free Money Market Funds
Prudential Tax-Free Money Fund, Inc.
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
COMMAND Funds
COMMAND Money Fund
COMMAND Government Fund
COMMAND Tax-Free Fund
Institutional Money Market Funds
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
- ---------------------------------------
visit our website at www.prudential.com
- ---------------------------------------
Fund Symbols NASDAQ CUSIP
Class A -- 74432F109
Class B -- 74432F208
Class C -- 74432F307
Class Z PDCZX 74432F406
Trustees
Eugene C. Dorsey
Robert F. Gunia
Robert E. LaBlanc
Douglas H. McCorkindale
Thomas T. Mooney
David R. Odenath, Jr.
Stephen Stoneburn
John R. Strangfeld
Clay T. Whitehead
Officers
John R. Strangfeld, President
Robert F. Gunia, Vice President
David R. Odenath, Jr., Vice President
Grace C. Torres, Treasurer
David F. Connor, Secretary
William V. Healey, Assistant Secretary
Stephen M. Ungerman, Assistant Treasurer
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 Dr., 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
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, 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, 2000, 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.
(LOGO) Printed on Recycled Paper
<PAGE>
(LOGO)
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
BULK RATE
U.S. POSTAGE
PAID
Permit 6807
New York, NY
MF186E6 74432F109 74432F208 74432F307 74432F406
(LOGO) Printed on Recycled Paper
<PAGE>
(ICON)
Semi Annual Report January 31, 2000
Prudential
Diversified High Growth Fund
(LOGO)
<PAGE>
A Message From the Fund's President March 16, 2000
- -------------------------------------------------------------------------------
(PHOTO)
Dear Shareholder,
The six months ended January 31, 2000, were generally very difficult for any
investment securities except technology and biotechnology stocks, yet
Prudential Diversified High Growth Fund's Class A shares returned 12.19%. They
beat the 9.37% Lipper Multi-Cap Core Fund Average primarily because of their
growth stocks and some value technology investments. Including sales charges,
the Fund's Class A shares returned 6.58%.
Diversification can dilute the impact that the occasional extreme market
movement can have on your portfolio. Over this reporting period, many economic
sectors of the S&P 500 Index (primarily value sectors) faced falling average
prices, while technology stocks in that Index averaged almost 10 times the
return of the second-highest performing sector. The result was the largest
price gap in the past 30 years between the most expensive fifth of the Index's
stocks and the others. Among small caps, Russell 2000 technology stocks rose
74%, while most other sectors declined. The diversification of Prudential
Diversified High Growth Fund allowed you to benefit from the large, but narrow,
technology gains without being wholly exposed to this volatile sector.
Our reporting period included the falling markets in January 2000 as well as
the exuberant technology stock surge at the end of 1999. In an uncertain
environment, diversification is particularly important. Prudential Diversified
Funds' one-purchase selection makes it easy.
Yours sincerely,
John R. Strangfeld
President
Prudential Diversified Funds
<PAGE>
Investment Advisers' Report
- -------------------------------------------------------------------------------
Investment Advisers
Prudential Investments Fund
- - John Van Belle, Ph.D
- - Stacie Mintz
Sub-Advisers
(PRUDENTIAL INVESTMENTS LOGO)
(LAZARD LOGO)
(FRANKLIN TEMPLETON LOGO)
(JENNISON ASSOCIATES LOGO)
(DREYFUS LOGO)
(PIMCO LOGO)
Investment Goals and Style
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.
The investment context
For five of the six months that made up our reporting period, the economy was
beset by uncertainties about how information systems would behave during the
changeover to the year 2000. Many businesses and homeowners stocked up on vital
supplies, while the U.S. Federal Reserve allowed the money supply to rise.
However, this drove the U.S. economy to a pace widely believed to be
unsustainable. The S&P 500 returned 5.6% over this period, but almost all of
this gain was contributed by technology stocks. Stocks of basic materials
companies, consumer staples, financials, energy firms, utilities, and even
communications services declined, while S&P 500 technology stocks rose about
30%.
The extreme narrowness of this market was disconcerting to investment
professionals because it was clearly disproportionate to differences in
earnings potential. Moreover, volatility in the market--the ups and downs of
individual stock prices--has been increasing for some time and is unusually
high. This increases the uncertainty about whether most investors will continue
with their current enthusiasm for technology or search out the less expensive
stocks on the market. Prudential Diversified High Growth Fund, with its
allocation to both growth and value stock investment styles, is wholly exposed
to neither alternative.
Internationally, developed country markets performed somewhat better than the
large-cap U.S. market average. However, the preference for technology stocks
is becoming widespread. The Morgan Stanley Capital International (MSCI) World
Information Technology Index rose 42%, almost five times the gain of the
overall MSCI World Index.
Our performance
Prudential Diversified High Growth Fund benefited from the 40% of its assets
allocated to growth-style investing and from the strong performance of its
growth managers. More than a third of its large-cap growth portfolio was
invested in technology stocks on January 31, including the seven largest
contributors to the period's large-cap growth return. These included Cisco
Systems, Nokia, and JDS Uniphase. However, the growth holdings also had
above-benchmark returns from the Fund's focuses on the consumer staples (such
as Home Depot), healthcare, and intermediate goods and services (business-to-
business commerce) sectors. The strength of these holdings more than offset
the weakness of the Fund's large-cap value stocks. Although the value portion
of the portfolio benefited from some technology stocks pur-
<PAGE>
chased at bargain prices--including National Semiconductor, Seagate Technology,
and Hitachi--the gains of these holdings were outweighed by the poor
performance of the Fund's focuses in hospital management, tobacco, forest
products, and insurance. The value portion of the portfolio lost ground.
Among small-cap stocks, the very strong gains of our growth holdings again
compensated for the poor performance of the value stocks. Our growth holdings
had a substantial focus in technology, which benefited as technology investors
looked for better prices among small-cap stocks. Small-cap technology stocks
rose very sharply over our reporting period. The interest in smaller companies
did not extend to value stocks, however. They fell in value over our reporting
period. Our small-cap value holdings fared particularly poorly because of an
emphasis on financial stocks, whose earnings prospects are hurt by rising
interest rates. The Federal Reserve raised short-term interest rates four times
between June 30, 1999, and February 2, 2000.
Although our international holdings made a significant positive contribution to
the Fund's return, they trailed their benchmark index. The movement toward
growth stocks--and technology in particular--was global, whereas our holdings
are managed in a value style. They were focused on companies with strong global
brands and excellent long-term earnings prospects. However, the prices of many
of these companies are now at historic lows in comparison to their earnings and
represent exceptional value. Historically, although not indicative of future
performance, when prices of the most and least expensive stocks have diverged
this widely, they have returned toward normal relationships either by a decline
in the high-priced stocks or a gain in the inexpensive ones. In either case, we
believe that the relative performance of our international holdings should
benefit.
Cumulative Total Returns1 As of 1/31/00
<TABLE>
<CAPTION>
Six One Since
Months Year Inception2
<S> <C> <C> <C>
Class A 12.19% 18.24% 29.24%
Class B 11.70 17.43 28.12
Class C 11.70 17.43 28.12
Class Z 12.16 18.51 29.65
Lipper Multi-Cap Core Fund Avg.3 9.37 13.44 23.39
</TABLE>
Average Annual Total Returns1 As of 1/31/00
<TABLE>
<CAPTION>
One Since
Year Inception2
<S> <C> <C>
Class A 12.33% 18.62%
Class B 12.43 19.69
Class C 15.26 21.07
Class Z 18.51 24.12
</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 LLC and Lipper Inc. The
cumulative total returns do not take into account sales charges. The average
annual total returns do take into account applicable sales charges. The Fund
charges a maximum front-end sales 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 and service (12b-1) fees.
2 Inception date: Class A, B, C, and Z, 11/18/98.
3 Lipper average returns are for all funds in each share class for the
six-month, one-year, and since inception periods in the Multi-Cap Core Fund
category. The Lipper average is unmanaged. Multi-Cap Core funds, by portfolio
practice, invest in a variety of market capitalization ranges, without
concentrating 75% of their equity assets in any one market capitalization range
over an extended period of time. Multi-Cap Core funds will generally have
between 25% and 75% of their assets invested in companies with market
capitalizations (on a three-year weighted basis) above 300% of the
dollar-weighted median market capitalization of the S&P(R) Mid-Cap 400 Index.
Multi-Cap Core funds have wide latitude in the companies in which they invest.
S&P(R) is a registered trademark of The McGraw-Hill Companies, Inc.
1
<PAGE>
What Is Diversification?
- -------------------------------------------------------------------------------
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.
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. Prudential
Diversified Funds provide more of this buffering than a fund investing in only
one asset class. We believe this will result in more consistent returns over
time.
Rebalancing--Diversified High Growth Fund has a target allocation for each
asset class. As some perform better than others, the portfolio will drift from
this original target: 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
certain securities in appreciated asset classes 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 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.
Glossary of Terms
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 earnings prospects,
including the impact of broader economic conditions.
Standard & Poor's 500 Composite Stock Price Index (S&P 500) is an unmanaged
index of 500 stocks of large U.S. companies.
The Morgan Stanley Capital International (MSCI) World Index is a weighted,
unmanaged index of performance of approximately 1,500 securities listed on the
stock exchanges of the United States, Europe, Canada, Australasia, and the Far
East.
The MSCI World Information Technology Index invests across 22 countries in
companies that are represented in the Software and Services and the Technology
Hardware and Equipment industries.
2
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 (Unaudited) PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--91.6%
COMMON STOCKS
- ------------------------------------------------------------
Advertising--0.5%
6,700 Omnicom Group Inc. $ 627,706
2,700 True North Communications, Inc. 112,219
------------
739,925
- ------------------------------------------------------------
Aerospace/Defense--0.7%
6,100 Boeing Co. 270,306
55,700 British Aerospace PLC
(United Kingdom)(a) 298,182
10,450 Gencorp Inc. 84,906
20,500 Loral Space & Communications, Inc. 402,313
------------
1,055,707
- ------------------------------------------------------------
Airlines--0.3%
4,200 Alaska Air Group, Inc.(a) 133,875
15,000 Deutsche Lufthansa AG (Germany)(a) 308,087
------------
441,962
- ------------------------------------------------------------
Aluminum--0.7%
12,500 Alcoa Inc. 871,094
4,475 Reliance Steel & Aluminum Co. 92,856
------------
963,950
- ------------------------------------------------------------
Apparel--0.1%
6,800 Kellwood Co. 119,850
- ------------------------------------------------------------
Appliances--0.2%
16,400 Electrolux AB, Ser. B (Sweden) 346,733
- ------------------------------------------------------------
Audio/Video--0.3%
1,750 Harman International Industries,
Inc. 102,156
5,000 Gemstar International Group Ltd.(a) 331,875
------------
434,031
- ------------------------------------------------------------
Auto-Rental--0.1%
5,200 Rent-Way, Inc.(a) $ 93,600
- ------------------------------------------------------------
Auto & Truck--1.0%
4,800 Arvin Industries, Inc. 111,300
4,600 Borg-Warner Automotive, Inc. 154,675
4,760 DaimlerChrysler AG (Germany) 306,645
1,947 Delphi Automotive Systems Corp. 33,707
3,900 General Motors Corp. 313,706
8,400 GKN PLC (United Kingdom) 105,368
112,000 Nissan Motor Co., Ltd. (Japan)(a) 532,439
------------
1,557,840
- ------------------------------------------------------------
Banking--4.9%
6,950 BancorpSouth, Inc. 106,856
16,500 Bank of New York Co., Inc. 670,312
1,300 Bank United Corp. (Class 'A' Stock) 33,719
4,600 Banknorth Group, Inc. 121,325
3,400 Banque Nationale de Paris (France) 268,018
3,350 BSB Bancorp, Inc. 64,278
6,100 Chase Manhattan Corp. 490,669
2,800 City National Corp. 97,650
2,850 CORUS BankShares, Inc. 70,716
12,200 Cullen/Frost Bankers, Inc. 303,475
7,140 CVB Financial Corp. 167,790
400 First Citizens BancShares, Inc. 24,350
27,000 Fuji Bank Ltd. (Japan) 268,289
12,000 Golden State Bancorp, Inc.(a) 169,500
4,050 Harbor Florida Bancshares, Inc. 45,562
33,600 HSBC Holdings PLC (United Kingdom) 398,381
4,100 Hypo Vereinsbank (Germany) 242,647
31,000 Industrial Bank of Japan, Ltd.
(Japan) 298,499
7,500 ING Groep NV (Netherlands) 375,468
6,900 MAF Bancorp, Inc. 130,669
19,300 Merita PLC (Finland) 106,919
9,800 National Westminster Bank PLC
(United Kingdom) 187,962
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 (Unaudited) PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Banking (cont'd.)
6,350 North Fork Bancorporation, Inc. $ 107,950
36,850 Overseas-Chinese Banking Corp.,
Ltd. (Singapore) 313,939
9,100 Peoples Heritage Financial Group,
Inc. 133,656
2,900 Queens County Bancorp Inc. 66,156
23,000 Sakura Bank, Ltd. (Japan) 145,787
20,100 Sao Paolo Imi SpA (Italy) 238,303
7,600 Silicon Valley Bancshares(a) 423,700
65,105 Sumitomo Trust & Banking Co., Ltd.
(Japan) 397,912
20,000 Svenska Handelsbanken, Ser. A
(Sweden) 232,283
42,904 United Overseas Bank, Ltd.
(Singapore) 315,100
3,750 Washington Federal, Inc. 62,812
3,250 WestAmerica Bancorporation 82,062
------------
7,162,714
- ------------------------------------------------------------
Building & Construction--1.1%
6,300 American Standard Companies Inc.(a) 236,250
4,000 Building One Services Corp.(a) 39,750
7,600 Centex Corp. 167,200
16,900 D.R. Horton, Inc. 195,406
5,900 M.D.C. Holdings, Inc. 83,338
15,550 Pulte Corp. 271,153
2,550 Southdown, Inc. 127,659
2,300 Texas Industries, Inc. 84,094
7,450 Thomas Industries, Inc. 138,756
4,700 Toll Brothers Inc.(a) 79,900
4,050 U.S. Home Corp.(a) 96,947
7,800 Webb (Del E.) Corp. 142,350
------------
1,662,803
- ------------------------------------------------------------
Casino Services--0.0%
1,200 Anchor Gaming(a) 53,550
- ------------------------------------------------------------
Chemicals--1.0%
6,100 Akzo Nobel NV (Netherlands) 251,761
4,175 Cytec Industries Inc.(a) 105,419
5,900 Eastman Chemical Co. 235,263
2,550 Geon Co. 74,109
7,550 Grace (W.R.) & Co.(a) $ 89,184
1,250 H.B. Fuller Co. 81,250
30,500 Imperial Chemical Industries PLC
(United Kingdom) 243,373
4,150 Lubrizol Corp. 122,944
10,450 Omnova Solutions Inc. 78,375
4,550 Spartech Corp. 116,594
------------
1,398,272
- ------------------------------------------------------------
Computer Services--4.4%
12,700 Affiliated Computer Services,
Inc.(a) 504,825
3,100 Ancor Communications, Inc.(a) 116,637
500 AnswerThink Consulting Group,
Inc.(a) 16,281
4,750 Brooktrout Inc.(a) 127,359
17,500 Catapult Communications Corp.(a) 199,062
3,800 CIBER, Inc.(a) 85,738
14,500 Cisco Systems, Inc.(a) 1,587,750
3,300 Comverse Technology, Inc.(a) 473,137
5,400 Equant NV (Netherlands)(a) 558,562
2,000 Exodus Communications, Inc.(a) 229,750
600 Getronics NV (Netherlands)(a) 38,566
2,400 Juniper Networks, Inc.(a) 324,750
6,200 Luminant Worldwide Corp.(a) 194,525
16,200 NetSolve, Inc.(a) 592,312
2,625 RadiSys Corp.(a) 106,969
3,400 RSA Security, Inc.(a) 184,875
500 Sapient Corp.(a) 44,188
8,500 Sun Microsystems, Inc.(a) 667,781
16,000 Whittman-Hart, Inc.(a) 568,000
------------
6,621,067
- ------------------------------------------------------------
Computers--3.5%
6,000 Citrix Systems, Inc.(a) 823,500
22,500 Compaq Computer Corp. 615,938
11,400 Dell Computer Corp.(a) 438,188
7,000 EMC Corp.(a) 745,500
14,000 Hewlett-Packard Co. 1,515,500
3,900 International Business Machines
Corp. 437,531
14,400 Seagate Technology, Inc.(a) 576,900
------------
5,153,057
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 (Unaudited) PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Consumer Products--0.5%
4,375 Fossil Inc.(a) $ 85,039
300 Hitachi Ltd. ADR (Japan) 42,900
1,600 Libbey, Inc. 41,200
11,600 Tandy Corp. 566,950
3,900 Tupperware Corp. 63,619
------------
799,708
- ------------------------------------------------------------
Cosmetics/Toiletries--0.5%
6,600 Estee Lauder Co., Inc. (Class 'A'
Stock) 337,425
13,000 Kao Corp. (Japan) 355,052
------------
692,477
- ------------------------------------------------------------
Diversified Manufacturing--2.0%
2,100 Corning, Inc. 323,925
4,100 CUNO, Inc.(a) 95,838
7,600 General Electric Co. 1,013,650
53,100 Invensys PLC (United Kingdom) 258,265
5,250 Siemens AG (Germany) 708,564
9,500 Thyssen Krupp AG (Germany)(a) 239,547
6,900 Veba AG (Germany) 286,854
------------
2,926,643
- ------------------------------------------------------------
Diversified Operations--0.7%
44,200 Granada Group PLC (United Kingdom) 440,686
9,105 Sumitomo Electric Industries, Ltd.
(Japan) 120,687
5,198 Vivendi (France) 529,526
------------
1,090,899
- ------------------------------------------------------------
Electronics--1.6%
900 Credence Systems Corp.(a) 76,388
2,000 Hadco Corp.(a) 79,500
2,950 Koninklijke (Royal) Phillips
Electronics NV (Netherlands) 430,745
2,150 L-3 Communications Holdings,
Inc.(a) 86,537
4,500 Polycom, Inc.(a) 271,687
3,000 Sony Corp. (Japan) 753,915
5,100 TDK Corp. ADR (Japan) $ 545,700
2,150 Tecumseh Products Co.(a) 98,094
------------
2,342,566
- ------------------------------------------------------------
Electronic Components--5.4%
4,058 ABB Ltd. (Switzerland) 446,714
1,200 Applied Micro Circuits Corp.(a) 177,300
15,100 Arrow Electronics, Inc.(a) 317,100
3,100 ATMI, Inc.(a) 107,725
5,500 Avnet, Inc. 295,281
4,450 Belden, Inc. 95,953
2,250 CTS Corp. 157,922
4,000 Cypress Semiconductor Corp.(a) 134,000
2,400 Electroglas, Inc.(a) 70,650
7,800 Flextronics International Ltd.
(Singapore)(a) 387,563
16,500 Gentex Corp.(a) 495,000
2,300 Idacorp Inc. 77,194
3,100 KEMET Corp.(a) 147,444
12,000 Novellus Systems, Inc.(a) 589,500
5,900 Optical Coating Laboratory, Inc. 2,241,262
4,000 Pioneer-Standard Electronics, Inc. 54,563
4,600 PMC-Sierra, Inc.(a) 830,300
2,950 Rogers Corp.(a) 112,100
2,950 Semtech Corp.(a) 177,000
8,600 Texas Instruments, Inc. 927,725
2,800 Veeco Instruments Inc.(a) 153,650
------------
7,995,946
- ------------------------------------------------------------
Fertilizers--0.1%
2,400 Potash Corp. of Saskatchewan Inc. 125,550
- ------------------------------------------------------------
Fiber Optics--0.7%
800 C-COR.net Corp.(a) 17,100
2,800 JDS Uniphase Corp.(a) 571,025
5,900 Metromedia Fiber Network, Inc.(a) 399,356
------------
987,481
- ------------------------------------------------------------
Financial Services--4.8%
800 Acom Co., Ltd. (Japan)(a) 93,289
2,100 Allied Capital Corp. 38,850
2,700 American Express Company 444,994
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 (Unaudited) PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Financial Services (cont'd.)
12,200 Bank of America Corp. $ 590,937
1,250 Blanch (E.W.) Holdings, Inc. 60,469
2,600 Chittenden Corp. 73,612
22,950 Citigroup Inc. 1,318,191
1,100 Dain Rauscher Corp. 55,413
7,500 Doral Financial Corp. 77,812
6,850 Downey Financial Corp. 131,862
4,550 Eaton Vance Corp. 186,266
8,600 Federated Investors Inc. 169,850
11,600 Financial Security Assurance
Holdings Ltd. 640,175
29,400 Halifax Group PLC
(United Kingdom)(a) 255,533
10,200 John Hancock Financial Services 177,862
1,600 Knight/Trimark Group, Inc.(a) 50,600
8,500 Labranche & Co., Inc.(a) 116,875
1,800 Merrill Lynch & Co., Inc. 156,150
5,000 Metris Companies Inc. 183,125
1,200 Morgan (J.P.) & Co., Inc. 147,375
12,000 Morgan Stanley Dean Witter Discover
& Co. 795,000
1,300 Mortgage.com, Inc.(a) 7,069
3,000 Orix Corp. (Japan) 559,284
3,800 Promise Co., Ltd. (Japan) 261,764
3,913 Radian Group Inc. 157,743
5,200 Webster Financial Corp. 120,900
2,400 Whitney Holding Corp. 78,600
------------
6,949,600
- ------------------------------------------------------------
Food & Beverage--1.5%
1,350 Adolph Coors Co. 65,475
30,000 Asahi Breweries, Ltd. (Japan) 293,904
29,500 Cadbury Schweppes PLC
(United Kingdom) 164,012
2,950 Corn Products International, Inc. 67,850
30,800 Diageo PLC (United Kingdom) 229,316
4,500 Flowers Industries, Inc. 43,875
6,900 Heineken NV (Netherlands) 355,137
3,200 J & J Snack Foods Corp.(a) 61,200
25,100 Nabisco Group Holding Corp. 216,487
3,500 Performance Food Group Co.(a) $ 80,719
6,450 Riviana Foods Inc. 105,619
15,800 Sara Lee Corp. 291,312
33,425 Unilever PLC (United Kingdom) 205,445
3,650 Universal Foods Corp. 67,069
------------
2,247,420
- ------------------------------------------------------------
Forestry & Paper--0.1%
7,500 Georgia-Pacific Corp. (Timber
Group) 162,656
- ------------------------------------------------------------
Funeral Services--0.1%
19,900 Service Corp. International(a) 90,794
- ------------------------------------------------------------
Gas Distribution--0.4%
8,100 Energen Corp. 139,725
7,900 KeySpan Corp. 185,156
5,200 ONEOK, Inc. 135,850
3,500 WICOR, Inc. 103,469
------------
564,200
- ------------------------------------------------------------
Health Care--3.4%
5,850 Apria Healthcare Group, Inc.(a) 117,000
39,100 Columbia/HCA Healthcare Corp. 1,067,919
30,600 Foundation Health Systems, Inc. 313,650
3,400 Healthsouth Corp.(a) 183,700
1,163 LifePoint Hospitals, Inc.(a) 15,700
6,900 PacifiCare Health Systems, Inc.(a) 291,956
9,000 PAREXEL International Corp.(a) 119,250
46,100 Tenet Healthcare Corp.(a) 1,048,775
1,063 Triad Hospitals, Inc.(a) 18,204
2,950 Trigon Healthcare, Inc.(a) 89,791
12,500 United Healthcare Corp. 662,500
14,400 Wellpoint Health Networks Inc.(a) 979,200
------------
4,907,645
- ------------------------------------------------------------
Home Furnishings--0.2%
7,325 Ethan Allen Interiors, Inc. 183,125
5,250 Furniture Brands International,
Inc.(a) 89,250
------------
272,375
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 6
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 (Unaudited) PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Hotels--0.2%
22,100 Hilton Hotels Corp. $ 186,469
39,400 MeriStar Hotels & Resorts, Inc.(a) 130,512
4,300 Park Place Entertainment Corp.(a) 45,150
------------
362,131
- ------------------------------------------------------------
Human Resources--0.3%
2,650 CDI Corp.(a) 61,778
4,300 Interim Services Inc.(a) 107,769
10,000 RemedyTemp, Inc.(a) 215,625
------------
385,172
- ------------------------------------------------------------
Instruments--0.4%
7,400 Mettler-Toledo International
Inc.(a) 235,875
3,900 Waters Corp.(a) 288,112
------------
523,987
- ------------------------------------------------------------
Insurance--4.6%
1,241 Allianz AG (Germany) 404,309
3,900 American Financial Group Inc. 83,362
2,800 American General Corp. 172,025
9,800 American International Group, Inc. 1,020,425
2,800 Annuity And Life Re (Holdings),
Ltd. 68,950
2,300 Arthur J. Gallagher & Co. 123,625
2,900 AXA (France) 362,671
14,700 AXA Financial, Inc. 478,669
14,200 Chubb Corp. 798,750
2,400 Commerce Group, Inc. 62,100
3,340 Fidelity National Financial, Inc. 41,750
3,100 First American Financial Corp. 36,813
3,500 Foremost Corporation of America 99,969
3,003 Medical Assurance, Inc.(a) 65,691
3,200 Milacron Inc. 38,600
4,050 MONY Group Inc. 109,350
4,000 Mutual Risk Management, Ltd. 65,500
19,400 Old Republic International Corp. 235,225
2,800 PartnerRe Ltd. 81,200
7,650 Presidential Life Corp. 126,225
4,400 Professionals Group, Inc.(a) 99,000
2,950 Protective Life Corp. 82,047
16,700 Prudential Corp. PLC (United
Kingdom) 309,491
1,500 Quotesmith.com, Inc.(a) 15,281
13,700 Reinsurance Group of America, Inc. 303,112
40,617 Royal & Sun Alliance Insurance
Group (United Kingdom) $ 265,592
19,200 SAFECO Corp. 470,400
6,100 St. Paul Companies, Inc. 184,144
4,400 Terex Corp. 100,100
4,200 Tokio Marine & Fire Insurance Co.
Ltd, ADR (Japan) 220,762
605 Zurich Versicherungs-Gesellschaft
(Switzerland) 279,902
------------
6,805,040
- ------------------------------------------------------------
Leisure--0.1%
2,400 Gaylord Entertainment Co.(a) 66,900
3,400 SFX Entertainment, Inc.(a) 110,712
------------
177,612
- ------------------------------------------------------------
Machinery--0.8%
1,600 Helix Technology Corp. 77,800
6,550 IDEX Corp. 176,031
2,850 Imation Corp.(a) 86,213
5,800 JLG Industries, Inc. 48,575
3,250 Kulicke & Soffa Industries, Inc.(a) 170,016
12,800 Lincoln Electric Holdings Inc. 250,400
3,250 Manitowoc Co., Inc. 88,766
1,200 Mannesmann AG, ADR (Germany) 325,803
3,150 Trinity Industrial Corp. (Japan) 73,631
------------
1,297,235
- ------------------------------------------------------------
Manufacturing--0.5%
1,900 AptarGroup, Inc. 41,800
1,750 Compagnie de Saint Gobain (France) 246,188
4,100 Compagnie Generale des
Etablissements Michelin, Ser. B
(France) 143,639
1,500 Nintendo Co., Ltd. (Japan) 276,287
------------
707,914
- ------------------------------------------------------------
Media--1.9%
18,400 CBS Corp.(a) 1,072,950
10,000 Clear Channel Communications,
Inc.(a) 863,750
2,200 Cumulus Media Inc.(a) 85,938
1,450 Entercom Communications Corp.(a) 77,031
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 (Unaudited) PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Media (cont'd.)
2,200 Time Warner, Inc. $ 175,863
4,500 Univision Communications, Inc.(a) 482,062
100 Wink Communications, Inc.(a) 5,825
------------
2,763,419
- ------------------------------------------------------------
Medical Products & Services--2.7%
9,900 Amgen Inc.(a) 630,506
9,569 AstraZeneca Group PLC
(United Kingdom)(a) 353,899
6,500 Bristol-Myers Squibb Co. 429,000
5,450 Cell Genesys, Inc.(a) 80,387
2,950 Datascope Corp.(a) 106,569
4,000 Dura Pharmaceuticals, Inc.(a) 62,000
2,900 Genetech Inc.(a) 407,450
6,900 Glaxo Holdings PLC, ADR
(United Kingdom) 363,975
2,550 Gliatech Inc.(a) 38,409
10,000 Inhale Therapeutic Systems, Inc.(a) 584,375
400 P E Corp-Celera Genomics(a) 80,575
2,250 Patterson Dental Co.(a) 98,016
2,300 PerkinElmer, Inc. 115,144
1,750 ResMed, Inc.(a) 75,141
11,000 Sankyo Co., Ltd. (Japan)(a) 257,364
15,100 Smithkline Beecham PLC
(United Kingdom) 180,857
1,850 TLC Laser Eye Centers Inc.(a) 25,206
------------
3,888,873
- ------------------------------------------------------------
Metals--0.6%
41,100 Broken Hill Proprietary Co., Ltd.
(Australia) 489,717
3,100 Cleveland-Cliffs Inc. 86,606
4,850 Commercial Metals Co. 154,291
2,850 Kaydon Corp. 77,128
2,150 Precision Castparts Corp. 55,094
------------
862,836
- ------------------------------------------------------------
Mining--0.5%
26,300 Freeport-McMoRan Copper & Gold,
Inc.(a) 420,800
19,200 Newmont Mining Corp. 391,200
------------
812,000
- ------------------------------------------------------------
Office Equipment & Supplies--0.6%
2,550 Banta Corp. $ 48,450
16,000 Canon, Inc. (Japan) 654,735
3,500 Kimball International, Inc.
(Class 'B' Stock) 53,594
18,100 Lanier Worldwide, Inc.(a) 63,350
4,800 Wallace Computer Services, Inc. 52,500
------------
872,629
- ------------------------------------------------------------
Oil Field Machinery & Equipment--0.0%
6,050 Varco International, Inc. 61,256
- ------------------------------------------------------------
Oil & Gas--2.7%
2,200 Amerada Hess Corp. 117,013
6,900 Atlantic Richfield Co. 531,300
52,400 ENI SpA (Italy) 246,058
10,850 Helmerich & Payne, Inc. 254,975
3,977 Kerr-McGee Corp. 220,226
14,800 Marine Drilling Companies, Inc.(a) 284,900
17,200 Newfield Exploration Co.(a) 473,000
9,700 Nuevo Energy Co.(a) 179,450
8,100 Occidental Petroleum Corp. 160,987
1,900 SEACOR SMIT Inc. 87,638
11,433 Total Fina SA ADR (France) 711,704
4,520 Total Fina SA (France) 557,811
2,400 Ultramar Diamond Shamrock Corp. 52,500
2,800 Valero Energy Corp. 63,525
------------
3,941,087
- ------------------------------------------------------------
Oil & Gas Exploration/Production--0.6%
2,650 Atwood Oceanics, Inc.(a) 108,153
4,450 Berry Petroleum Company 64,803
49,500 BP Amoco PLC (United Kingdom) 436,645
4,800 Equitable Resources, Inc. 165,600
4,150 Mitchell Energy & Development
Corp.(a) 93,375
------------
868,576
- ------------------------------------------------------------
Paper & Related Products--3.3%
3,750 Ball Corp. 136,406
2,650 Chesapeake Corp. 69,066
5,200 Fort James Corp. 139,100
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 8
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 (Unaudited) PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Paper & Related Products (cont'd.)
17,100 Georgia-Pacific Group $ 696,825
5,200 Glatfelter (P.H.) Co. 64,025
12,200 International Paper Co. 581,025
14,800 Mead Corp. 551,300
10,000 Nippon Paper Industries Co., Ltd.
(Japan) 68,978
5,200 Pope & Talbot, Inc. 83,200
3,750 Potlatch Corp. 150,938
5,500 Rayonier Inc. 236,500
7,600 Temple-Inland Inc. 425,125
8,200 UPM-Kymmene Oyj (Finland) 304,701
9,600 Weyerhaeuser Co. 550,800
15,600 Willamette Industries, Inc. 639,600
------------
4,697,589
- ------------------------------------------------------------
Pharmaceuticals--2.4%
1,850 Alpharma Inc. 62,900
11,700 American Home Products Corp. 550,631
12,051 Aventis SA (France) 632,531
4,450 Bindley Western Industries Inc. 75,928
2,025 King Pharmaceuticals, Inc.(a) 119,475
5,200 Merck & Co., Inc. 409,825
5,650 Ocular Sciences, Inc.(a) 114,413
32 Roche Holdings AG (Switzerland) 343,578
12,200 Warner-Lambert Co. 1,158,237
------------
3,467,518
- ------------------------------------------------------------
Photography--0.8%
18,600 Eastman Kodak Co. 1,150,875
- ------------------------------------------------------------
Publishing--0.3%
41,600 Reed International PLC
(United Kingdom) 356,858
- ------------------------------------------------------------
Real Estate-Development--0.1%
7,650 Catellus Development Corp.(a) 95,625
- ------------------------------------------------------------
Real Estate Investment Trust--1.1%
700 Alexandria Real Estate Equities,
Inc. 20,650
5,100 Bradley Real Estate, Inc. 86,700
4,200 BRE Properties, Inc. 92,400
5,000 Cabot Industrial Trust 97,500
2,700 Developers Diversified Reality
Corp. $ 35,100
7,950 Franchise Finance Corp. of America 190,800
3,500 Gables Residential Trust 75,906
1,500 General Growth Properties, Inc. 42,750
10,800 Glenborough Realty Trust Inc. 147,150
3,400 Health Care Property Investors Inc. 86,913
4,200 Health Care REIT, Inc. 67,725
3,750 Hospitality Properties Trust 73,359
16,400 MeriStar Hospitality Corp. 267,525
7,350 Nationwide Health Properties, Inc. 99,225
7,900 Reckson Associates Reality Corp. 156,025
1,100 SL Green Reality Corp. 23,925
------------
1,563,653
- ------------------------------------------------------------
Restaurants--1.0%
11,700 CKE Restaurants, Inc. 75,319
48,300 Darden Restaurants, Inc. 766,762
11,400 McDonald's Corp. 423,938
23,150 Ryan's Family Steak Houses, Inc.(a) 206,903
------------
1,472,922
- ------------------------------------------------------------
Retail--4.3%
3,600 American Eagle Outfitters Inc.(a) 130,725
3,100 BJ's Wholesale Club, Inc.(a) 108,500
3,500 Buckle, Inc. 54,906
600 Chemdex Corp.(a) 58,500
10,500 Consolidated Stores Corp.(a) 149,625
2,700 Department 56, Inc. 51,806
22,100 Dillard's, Inc. (Class 'A' Stock) 424,044
15,325 GAP, Inc. 684,836
36,100 Great Universal Stores PLC
(United Kingdom) 231,966
22,100 Home Depot, Inc. 1,251,412
32,300 IKON Office Solutions Inc. 260,419
2,700 Jack in the Box Inc.(a) 55,519
45,300 Kmart Corp.(a) 379,387
8,100 Kohl's Corp.(a) 568,012
6,600 Micro Warehouse Inc.(a) 125,400
6,700 Pep Boys--Manny, Moe & Jack 48,575
11,650 Ross Stores, Inc. 148,538
5,200 Sears, Roebuck & Co. 160,875
40,400 Tesco PLC (United Kingdom)(a) 106,912
5,400 Tiffany & Co. 399,600
15,000 Toys 'R' Us, Inc.(a) 154,687
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 9
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 (Unaudited) PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Retail (cont'd.)
9,800 Wal-Mart Stores, Inc. $ 536,550
3,800 Zale Corp.(a) 135,850
------------
6,226,644
- ------------------------------------------------------------
Semiconductors--1.9%
4,000 Alpha Industries, Inc.(a) 335,000
5,400 Applied Materials, Inc.(a) 741,150
5,100 ESS Technology, Inc.(a) 82,875
5,900 Integrated Device Technology,
Inc.(a) 168,150
11,400 Intel Corp. 1,127,887
5,200 KLA-Tencor Corp.(a) 304,850
------------
2,759,912
- ------------------------------------------------------------
Software--5.4%
5,000 Activision, Inc.(a) 78,125
200 Allaire Corp.(a) 25,000
100 Alteon Websystems, Inc.(a) 9,838
600 Ardent Software, Inc.(a) 25,800
6,500 America Online, Inc.(a) 370,094
3,250 Aspen Technology, Inc.(a) 117,813
4,900 AVT Corp.(a) 109,637
400 Bluestone Software, Inc.(a) 35,250
5,100 BroadVision, Inc.(a) 649,294
10,000 HNC Software Inc.(a) 901,875
5,900 I2 Technologies Inc.(a) 1,136,487
600 ITXC Corp.(a) 64,500
12,600 Intuit, Inc.(a) 759,937
4,600 Legato Systems, Inc.(a) 115,863
1,000 Liberate Technologies, Inc.(a) 78,813
15,700 Microsoft Corp.(a) 1,536,637
700 Mission Critical Software, Inc.(a) 40,250
900 NetIQ Corp.(a) 50,400
4,050 OneMain.com, Inc.(a) 49,612
4,100 Progress Software Corp.(a) 88,663
650 Proxicom, Inc.(a) 65,650
300 Software.com, Inc.(a) 20,363
4,000 Sybase, Inc.(a) 95,250
1,200 U.S. Interactive, Inc.(a) 62,400
9,000 VERITAS Software Corp.(a) 1,312,875
4,800 Verity, Inc.(a) 163,200
------------
7,963,626
- ------------------------------------------------------------
Steel - Producers--0.1%
4,250 AK Steel Holding Corp. $ 43,031
2,300 Carpenter Technology Corp. 55,200
------------
98,231
- ------------------------------------------------------------
Telecommunications--9.8%
100 AirGate PCS, Inc.(a) 6,113
3,500 Alcatel (France) 692,723
4,500 Allegiance Telecom, Inc.(a) 474,187
6,700 ALLTEL Corp. 447,225
24,200 AT&T Corp. 1,254,775
7,400 British Telecommunications PLC
(United Kingdom) 143,877
1,400 Broadcom Corp. (Class 'B' Stock)(a) 405,037
4,700 Carrier Access Corp.(a) 206,800
4,134 Deutsche Telekom AG (Germany)(a) 278,350
18,100 Harris Corp.(a) 524,900
2,200 Intermedia Communications Inc.(a) 94,600
3,500 Level 3 Communications, Inc.(a) 412,781
7,400 Millicom International Cellular SA
(Luxembourg)(a) 528,175
5,300 Motorola, Inc. 724,775
2,700 Nextel Communications, Inc.(a) 287,212
3,800 NEXTLINK Communications, Inc.(a) 320,625
28 Nippon Telegraph & Telephone Corp.
(Japan) 422,819
7,100 Nokia Corp. ADR (Finland)(a) 1,299,300
6,000 NTL Inc.(a) 754,875
22 NTT Mobile Communications (Japan) 746,458
13,325 Pacific Gateway Exchange, Inc.(a) 261,503
1,100 Plantronics Inc. 78,788
40,900 Portugal Telecom SA (Portugal) 484,111
600 QUALCOM, Inc.(a) 76,200
23,500 Qwest Communications International,
Inc.(a) 925,312
6,400 Tele Danmark A/S (Denmark) 453,259
33,215 Telefonica SA (Spain) 834,633
3,600 Tellabs, Inc.(a) 194,400
18,900 Vodafone Airtouch PLC, ADR
(United Kingdom)(a) 1,058,400
------------
14,392,213
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 10
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 (Unaudited) PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Tobacco--0.9%
12,100 Loews Corp. $ 677,600
13,900 Philip Morris Co., Inc. 291,031
8,333 Reynolds (R.J.) Tobacco Holdings
Inc. 143,223
6,450 Universal Corp. 131,822
------------
1,243,676
- ------------------------------------------------------------
Trucking & Shipping--0.8%
20,000 Air Express International Corp. 652,500
3,400 Alexander & Baldwin, Inc. 68,637
6,350 Roadway Express, Inc. 146,050
3,250 Sea Containers, Ltd. (Bermuda) 93,641
4,000 USFreightways Corp. 145,500
------------
1,106,328
- ------------------------------------------------------------
Utilities--1.8%
30,297 British Energy PLC (Class 'A'
Stock) (United Kingdom) 137,304
3,100 California Water Service Group 82,538
1,750 Calpine Corp.(a) 127,969
3,050 Cleco Corp. 102,556
4,450 Conectiv Inc. 77,597
21,500 Endesa SA (Spain) 396,327
4,100 GPU, Inc. 118,900
3,450 NorthWestern Corp. 76,331
5,050 NSTAR 211,784
9,300 Public Service Company of New
Mexico(a) 147,637
7,300 Reliant Energy, Inc. 166,531
1,750 RGS Energy Group Inc. 35,328
8,350 Southwestern Energy Co. 47,491
1,760 Suez Lyonnaise des Eaux (France) 251,864
7,600 Unicom Corp. 297,350
13,200 Washington Gas Light Co. 331,650
------------
2,609,157
- ------------------------------------------------------------
Waste Management--0.3%
12,000 Casella Waste Systems Inc.(a) $ 180,750
11,300 Waste Management, Inc. 197,750
------------
378,500
Total long-term investments
(cost $112,754,223) 133,874,115
------------
Principal
Amount
(000)
SHORT-TERM INVESTMENTS--8.3%
- ------------------------------------------------------------
REPURCHASE AGREEMENT
Joint Repurchase Agreement Account,
$ 12,176 5.71%, 2/1/00
(cost $12,176,000; Note 5) 12,176,000
------------
Total Investments--99.9%
(cost $124,930,223; Note 4) 146,050,115
Other assets in excess of
liabilities--0.1% 89,611
------------
Net Assets--100% $146,139,726
------------
------------
</TABLE>
- ---------------
(a) Non-income producing security.
AB--Aktiebolag (Swedish Stock Company).
ADR--American Depository Receipt.
AG--Aktiengesellschaft (German Stock Company).
A/S--Arsreqnskab (Damark Corporation).
NV--Naamloze Vennootschop (Dutch Corporation).
PLC--Public Limited Company (British Corporation).
SA-- Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation).
SpA--Societa per Azioni (Italian Corporation).
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 11
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL DIVERSIFIED FUNDS
(Unaudited) PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets January 31, 2000
<S> <C>
Investments, at value (cost $124,930,223)................................................................. $146,050,115
Foreign currency, at value (cost $8,281).................................................................. 7,939
Cash...................................................................................................... 71,796
Receivable for Fund shares sold........................................................................... 809,728
Receivable for investments sold........................................................................... 776,838
Dividends and interest receivable......................................................................... 95,165
Prepaid assets............................................................................................ 1,111
----------------
Total assets........................................................................................... 147,812,692
----------------
Liabilities
Payable for investments purchased......................................................................... 1,162,033
Payable for Fund shares reacquired........................................................................ 192,089
Accrued expenses.......................................................................................... 144,097
Due to Manager............................................................................................ 94,403
Due to Distributor........................................................................................ 78,481
Foreign wtihholding tax payable........................................................................... 1,863
----------------
Total liabilities...................................................................................... 1,672,966
----------------
Net Assets................................................................................................ $146,139,726
----------------
----------------
Net assets were comprised of:
Shares of beneficial interest, at par.................................................................. $ 12,003
Paid-in capital in excess of par....................................................................... 125,389,407
----------------
125,401,410
Distribution in excess of net investment income........................................................ (4,912,305)
Accumulated net realized gain on investments........................................................... 4,546,176
Net unrealized appreciation on investments and foreign currency transactions........................... 21,104,445
----------------
Net assets, January 31, 2000.............................................................................. $146,139,726
----------------
----------------
Class A:
Net asset value and redemption price per share
($26,013,582 / 2,133,074 shares of beneficial interest issued and outstanding)...................... $12.20
Maximum sales charge (5% of offering price)............................................................ .64
----------------
Maximum offering price to public....................................................................... $12.84
----------------
----------------
Class B:
Net asset value, offering price and redemption price per share
($60,106,079 / 4,944,845 shares of beneficial interest issued and outstanding)...................... $12.16
----------------
----------------
Class C:
Net asset value and redemption price per share
($26,339,769 / 2,166,920 shares of beneficial interest issued and outstanding)...................... $12.16
Sales charge (1% of offering price).................................................................... .12
----------------
Offering price to public............................................................................... $12.28
----------------
----------------
Class Z:
Net asset value, offering price and redemption price per share
($33,680,296 / 2,758,303 shares of beneficial interest issued and outstanding)...................... $12.21
----------------
----------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 12
<PAGE>
PRUDENTIAL DIVERSIFIED FUNDS
PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
January 31,
Net Investment Loss 2000
<S> <C>
Income
Dividends (net of foreign withholding
taxes of $18,121)................. $ 612,475
Interest............................. 227,437
--------------------
Total income...................... 839,912
--------------------
Expenses
Management fee....................... 495,390
Distribution fee--Class A............ 29,608
Distribution fee--Class B............ 249,913
Distribution fee--Class C............ 114,397
Custodian's fees and expenses........ 160,000
Transfer agent's fees and expenses... 75,000
Prepaid offering cost................ 29,535
Registration fees.................... 29,000
Reports to shareholders.............. 28,000
Legal fees........................... 15,000
Audit fees and expenses.............. 13,000
Trustees' fees and expenses.......... 3,000
Miscellaneous........................ 1,805
--------------------
Total expenses.................... 1,243,648
--------------------
Net investment loss..................... (403,736)
--------------------
Realized and Unrealized Gain (Loss)
on Investment and Foreign Currency
Transactions
Net realized gain (loss) on:
Investment transactions.............. 6,137,960
Foreign currency transactions........ (140,660)
--------------------
5,997,300
--------------------
Net unrealized appreciation
(depreciation) of:
Investments.......................... 9,493,599
Foreign currencies................... (903)
--------------------
9,492,696
--------------------
Net gain on investments and foreign
currencies........................... 15,489,996
--------------------
Net Increase in Net Assets
Resulting from Operations............... $ 15,086,260
--------------------
--------------------
</TABLE>
PRUDENTIAL DIVERSIFIED FUNDS
PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND
Statement of Changes in Net Assets (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended November 18, 1998(a)
Increase (Decrease) January 31, to
in Net Assets 2000 July 31, 1999
<S> <C> <C>
Operations
Net investment loss...... $ (403,736) $ (131,077)
Net realized gain on
investments and
foreign currency
transactions.......... 5,997,300 1,469,897
Net change in unrealized
appreciation of
investments and
foreign currencies.... 9,492,696 11,611,749
---------------- --------------------
Net increase in net
assets resulting from
operations............ 15,086,260 12,950,569
---------------- --------------------
Dividends and distributions (Note 1)
Dividends in excess of
net investment income
Class A............... (798,745) --
Class B............... (1,548,981) --
Class C............... (694,850) --
Class Z............... (1,329,649) --
---------------- --------------------
(4,372,225) --
---------------- --------------------
Distributions from net
realized gains
Class A............... (510,817) --
Class B............... (1,183,116) --
Class C............... (530,788) --
Class Z............... (794,899) --
---------------- --------------------
(3,019,620) --
---------------- --------------------
Fund share transactions (net
of share conversions)
(Note 6)
Net proceeds from shares
sold.................. 33,121,090 130,702,522
Net asset value of shares
issued in
reinvestment of
dividends and
distributions......... 7,276,355 --
Cost of shares
reacquired............ (20,574,938) (25,070,287)
---------------- --------------------
Net increase in net
assets from Fund share
transactions.......... 19,822,507 105,632,235
---------------- --------------------
Total increase.............. 27,516,922 118,582,804
Net Assets
Beginning of period......... 118,622,804 40,000
---------------- --------------------
End of period............... $146,139,726 $118,622,804
---------------- --------------------
---------------- --------------------
- ---------------
(a) Commencement of investment operations.
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 13
<PAGE>
Notes to Financial Statements PRUDENTIAL DIVERSIFIED FUNDS
(Unaudited) PRUDENTIAL DIVERSIFIED 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 High Growth
Fund ('the Fund'), Prudential Diversified Conservative Growth Fund and
Prudential Diversified Moderate Growth Fund. The Trust was organized as a
business trust in Delaware on July 29, 1998. 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' or the
'Manager'). 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
Trust and the Fund 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 subadviser, to be over-the-counter, are valued by an
independent pricing agent or 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
subadviser 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 the 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 subadviser 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.
- --------------------------------------------------------------------------------
14
<PAGE>
Notes to Financial Statements PRUDENTIAL DIVERSIFIED FUNDS
(Unaudited) PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND
- --------------------------------------------------------------------------------
Net realized gains (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.
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 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 initial offering of the Fund. Offering costs were being amortized over
a period of 12 months ended 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 Adviser'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 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
Corporation ('PIC') N/A1
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 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, 2000.
- --------------------------------------------------------------------------------
15
<PAGE>
Notes to Financial Statements PRUDENTIAL DIVERSIFIED FUNDS
(Unaudited) PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND
- --------------------------------------------------------------------------------
PIMS has advised the Fund that it has received approximately $76,700 and $51,500
in front-end sales charges resulting from sales of Class A and Class C shares,
respectively, during the period ended January 31, 2000.
PIMS has advised the Fund that for the period ended January 31, 2000, it has
received approximately $49,400 and $15,900 in contingent deferred sales charges
imposed upon certain redemptions by Class B and Class C shareholders,
respectively.
PIMS, PIC and PIFM are wholly owned subsidiaries of The Prudential Insurance
Company of America ('Prudential').
The Fund, along with other affiliated registered investment companies (the
'Funds'), entered into a syndicated credit agreement ('SCA') with an
unaffiliated lender. The maximum commitment under the SCA is $1 billion and
interest on any borrowings will be at market rates. For the period
3/11/99-3/9/00, the commitment fee on the unused portion of the credit facility
was .065 of 1%. Subsequent to March 9, 2000, the SCA was renewed with a maximum
commitment of $1 billion at a commitment fee of .080 of 1% of the unused portion
of the credit facility. The expiration date of the SCA is March 9, 2001. The
commitment fee is accrued and paid quarterly on a pro rata basis by the Funds.
Prior to March 11, 1999, the Funds had a credit agreement with a maximum
commitment of $200,000,000. The commitment fee was .055 of 1% on the unused
portion of the credit facility. The Fund did not borrow any amounts during the
six months ended January 31, 2000. The purpose of the credit agreements is to
serve as an alternative source of funding for capital share redemptions.
- ------------------------------------------------------------
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, 2000,
the Fund incurred fees of approximately $73,400 for the services of PMFS. As of
January 31, 2000 approximately $13,600 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.
For the period ended January 31, 2000, PSI earned approximately $77,900 in
brokerage commissions from portfolio transactions executed on behalf of the
Fund.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of portfolio securities, excluding short-term investments,
for the period ended January 31, 2000 were $43,755,055 and $38,362,786,
respectively.
The United States federal income tax basis of the Funds' investments as of
January 31, 2000 was $124,980,492 and accordingly, net unrealized appreciation
on investments for federal income tax purposes was $21,069,623 (gross unrealized
appreciation--$31,387,044, gross unrealized depreciation--$10,317,421).
- ------------------------------------------------------------
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, 2000, the Fund
had a 1.7% undivided interest in the repurchase agreements in the joint account.
The undivided interest for the Fund represents $12,176,000 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., 5.72%, in the principal amount of $150,000,000
repurchase price $150,023,833, due 02/01/00. The value of the collateral
including accrued interest was $153,133,078.
Credit Suisse First Boston Corporation, 5.74%, in the principal amount of
$75,000,000 repurchase price $75,011,958, due 02/01/00. The value of the
collateral including accrued interest was $77,491,043.
Credit Suisse First Boston Corporation, 5.73%, in the principal amount of
$125,000,000 repurchase price $125,019,896, due 02/01/00. The value of the
collateral including accrued interest was $129,169,641.
Greenwich Capital Markets, Inc., 5.72%, in the principal amount of $100,000,000
repurchase price $100,015,889, due 02/01/00. The value of the collateral
including accrued interest was $102,001,008.
Goldman, Sachs & Co., 5.70%, in the principal amount of $230,536,000 repurchase
price $230,572,502, due 02/01/00. The value of the collateral including accrued
interest was $235,147,150.
Merrill Lynch, Pierce, Fenner & Smith, Inc., 5.60%, in the principal amount of
$25,000,000 repurchase price $25,003,889, due 02/01/00. The value of the
collateral including accrued interest was $25,501,335.
- ------------------------------------------------------------
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%
- --------------------------------------------------------------------------------
16
<PAGE>
Notes to Financial Statements PRUDENTIAL DIVERSIFIED FUNDS
(Unaudited) PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND
- --------------------------------------------------------------------------------
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 12,003,142 shares of beneficial interest issued and
outstanding at January 31, 2000, PIFM owned 4,000,000.
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>
Six months ended January 31, 2000:
Shares sold.......................... 747,138 $ 8,966,006
Shares issued in reinvestment of
dividends and distributions........ 106,417 1,264,231
Shares reacquired.................... (589,474) (7,287,224)
---------- -----------
Net increase in shares outstanding
before conversion.................. 264,081 2,943,013
Shares issued upon conversion from
Class B............................ 25,312 302,304
---------- -----------
Net increase in shares outstanding... 289,393 $ 3,245,317
---------- -----------
---------- -----------
November 18, 1998(a) through
July 31, 1999:
Shares sold.......................... 2,085,850 $22,693,721
Shares reacquired.................... (264,575) (2,915,672)
---------- -----------
Net increase in shares outstanding
before conversion.................. 1,842,681 19,778,049
Shares issued upon conversion from
Class B............................ 21,406 236,761
---------- -----------
Net increase in shares outstanding... 1,842,681 $20,014,810
---------- -----------
---------- -----------
Class B
- -------------------------------------
Six months ended January 31, 2000:
Shares sold.......................... 1,469,340 $17,456,392
Shares issued in reinvestment of
dividends and distributions........ 226,817 2,687,787
Shares reacquired.................... (303,771) (3,621,462)
---------- -----------
Net increase in shares outstanding
before conversion.................. 1,392,386 16,522,717
Shares reacquired upon conversion
into
Class A............................ (25,416) (302,304)
---------- -----------
Net increase in shares outstanding... 1,366,970 $16,220,413
---------- -----------
---------- -----------
Class B Shares Amount
- ------------------------------------- ---------- -----------
November 18, 1998(a) through
July 31, 1999:
Shares sold.......................... 3,792,825 $40,686,002
Shares reacquired.................... (194,476) (2,146,432)
---------- -----------
Net increase in shares outstanding
before conversion.................. 3,598,349 38,539,570
Shares reacquired upon conversion
into Class A....................... (21,474) (236,761)
---------- -----------
Net increase in shares outstanding... 3,576,875 $38,302,809
---------- -----------
---------- -----------
Class C
- -------------------------------------
Six months ended January 31, 2000:
Shares sold.......................... 550,866 $ 6,563,161
Shares issued in reinvestment of
dividends and distributions........ 101,310 1,200,525
Shares reacquired.................... (220,855) (2,639,467)
---------- -----------
Net increase in shares outstanding... 431,321 $ 5,124,219
---------- -----------
---------- -----------
November 18, 1998(a) through
July 31, 1999:
Shares sold.......................... 1,902,895 $19,882,224
Shares reacquired.................... (168,296) (1,835,812)
---------- -----------
Net increase in shares outstanding... 1,734,599 $18,046,412
---------- -----------
---------- -----------
Class Z
- -------------------------------------
Six months ended January 31, 2000:
Shares sold.......................... 10,943 $ 135,531
Shares issued in reinvestment of
dividends and distributions........ 178,772 2,123,813
Shares reacquired.................... (582,274) (7,026,785)
---------- -----------
Net decrease in shares outstanding... (392,559) $(4,767,441)
---------- -----------
---------- -----------
November 18, 1998(a) through
July 31, 1999:
Shares sold.......................... 4,741,404 $47,440,575
Shares reacquired.................... (1,591,542) (18,172,371)
---------- -----------
Net increase in shares outstanding... 3,149,862 $29,268,204
---------- -----------
---------- -----------
</TABLE>
- ---------------
(a) Commencement of investment operations.
- --------------------------------------------------------------------------------
17
<PAGE>
PRUDENTIAL DIVERSIFIED FUNDS
Financial Highlights (Unaudited) PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Class C
---------------------------- ---------------------------- -----------
November 18, November 18,
Six Months 1998(a) Six Months 1998(a) Six Months
Ended Through Ended Through Ended
January 31, July 31, January 31, July 31, January 31,
2000(d) 1999(d) 2000(d) 1999(d) 2000(d)
----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $ 11.52 $ 10.00 $ 11.47 $ 10.00 $ 11.47
----------- ------ ----------- ------ -----------
Income from investment operations:
Net investment income (loss)............ (0.02) --(e) (0.06) (0.05) (0.06)
Net realized and unrealized gain on
investment and foreign currency
transactions......................... 1.41 1.52 1.39 1.52 1.39
----------- ------ ----------- ------ -----------
Total from investment operations..... 1.39 1.52 1.33 1.47 1.33
----------- ------ ----------- ------ -----------
Less distributions
Dividends in excess of net investment
income............................... (0.43) -- (0.36) -- (0.36)
Distributions from net realized gains... (0.28) -- (0.28) -- (0.28)
----------- ------ ----------- ------ -----------
Total distributions.................. (0.71) -- (0.64) -- (0.64)
----------- ------ ----------- ------ -----------
Net asset value, end of period.......... $ 12.20 $ 11.52 $ 12.16 $ 11.47 $ 12.16
----------- ------ ----------- ------ -----------
----------- ------ ----------- ------ -----------
TOTAL RETURN(b)......................... 12.19% 15.20% 11.70% 14.70% 11.70%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $26,014 $ 21,248 $60,106 $ 41,049 $26,340
Average net assets (000)................ $23,558 $ 10,442 $49,711 $ 24,260 $22,755
Ratios to average net assets:(c)
Expenses, including distribution
fees.............................. 1.54% 1.73% 2.29% 2.48% 2.29%
Expenses, excluding distribution
fees.............................. 1.29% 1.48% 1.29% 1.48% 1.29%
Net investment income (loss)......... (0.27)% 0.02% (1.01)% (0.70)% (1.01)%
Portfolio turnover rate................. 31% 38% 31% 38% 31%
<CAPTION>
Class Z
----------------------------
<S> <C> <C> <C>
November 18, November 18,
1998(a) Six Months 1998(a)
Through Ended Through
July 31, January 31, July 31,
1999(d) 2000(d) 1999(d)
------------ ----------- ------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $ 10.00 $ 11.56 $ 10.00
------ ----------- ------
Income from investment operations:
Net investment income (loss)............ (0.05) --(e) 0.02
Net realized and unrealized gain on
investment and foreign currency
transactions......................... 1.52 1.39 1.54
------ ----------- ------
Total from investment operations..... 1.47 1.39 1.56
------ ----------- ------
Less distributions
Dividends in excess of net investment
income............................... -- (0.46) --
Distributions from net realized gains... -- (0.28) --
------ ----------- ------
Total distributions.................. -- (0.74) --
------ ----------- ------
Net asset value, end of period.......... $ 11.47 $ 12.21 $ 11.56
------ ----------- ------
------ ----------- ------
TOTAL RETURN(b)......................... 14.70% 12.16% 15.60%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $ 19,914 $33,680 $ 36,413
Average net assets (000)................ $ 15,204 $35,362 $ 45,999
Ratios to average net assets:(c)
Expenses, including distribution
fees.............................. 2.48% 1.29% 1.48%
Expenses, excluding distribution
fees.............................. 1.48% 1.29% 1.48%
Net investment income (loss)......... (0.75)% (0.02)% 0.21%
Portfolio turnover rate................. 38% 31% 38%
</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 and includes reinvestment of dividends and distributions. Total
return for periods of less than a full year is not annualized.
(c) Annualized.
(d) Based on weighted average shares outstanding during the period.
(e) Less than $.005 per share.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 18
<PAGE>
Supplemental Proxy Information PRUDENTIAL DIVERSIFIED FUNDS
(Unaudited) PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND
- --------------------------------------------------------------------------------
A Special Meeting of Shareholders of Prudential Diversified Funds was held on
November 8, 1999 for the following purposes:
<TABLE>
<S> <C> <C> <C> <C> <C>
(1) To elect nine trustees;
(2) To ratify the selection of PricewaterhouseCoopers LLP as independent accountants for the
fiscal year ending July 31, 2000; and
(3) To approve certain changes to each Fund's fundamental investment restrictions.
The results of the voting at the Special Meeting of Shareholders with respect to these matters was as
follows:
With respect to all Funds of Prudential Diversified Funds:
<CAPTION>
Votes for Votes withheld
----------- --------------
<S> <C> <C> <C> <C>
(1) Election of Trustees
(A) Eugene C. Dorsey................ 16,149,330 212,677
(B) Robert F. Gunia................. 16,144,315 217,692
(C) Robert E. LaBlanc............... 16,153,554 208,453
(D) Douglas H. McCorkindale......... 16,156,578 205,429
(E) Thomas T. Mooney................ 16,137,871 224,136
(F) David R. Odenath, Jr............ 16,160,076 201,931
(G) Stephen Stoneburn............... 16,158,803 203,204
(H) John R. Strangfeld, Jr.......... 16,160,076 201,931
(I) Clay T. Whitehead............... 16,140,906 221,101
With respect to all Funds of Prudential Diversified Funds:
<CAPTION>
Votes for Votes against Abstentions
----------- ------------- --------------
<S> <C> <C> <C> <C> <C>
(2) PricewaterhouseCoopers LLP............ 16,014,097 55,890 292,020
(3) Approval of certain changes to the High Growth Fund's fundamental investment restrictions
regarding
(A) Diversification................. 4,454,866 37,979 96,559
(B) Engaging in margin
transactions.................... 4,432,846 55,907 100,652
(C) Issuing senior securities,
borrowing and pledging assets... 4,415,875 57,694 115,835
(D) Investing in real estate........ 4,437,125 49,113 103,167
(E) Making loans.................... 4,414,781 61,180 113,443
(F) Concentration................... 4,417,655 48,013 123,736
(G) Selling securities short........ 4,395,877 76,848 116,679
(H) Investing for the purpose of
exercising control.............. 4,428,439 47,706 113,260
</TABLE>
- --------------------------------------------------------------------------------
19
<PAGE>
Prudential Mutual Fund Family
- -------------------------------------------------------------------------------
Prudential offers a broad range of mutual funds designed to meet your
individual needs. For information about these funds, contact your financial
adviser or call us at (800) 225-1852. Read the prospectus carefully before you
invest or send money.
STOCK FUNDS
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Index Series Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
The Prudential Investment Portfolios, Inc.
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Mid-Cap Value Fund
Prudential Real Estate Securities Fund
Prudential Sector Funds, Inc.
Prudential Financial Services Fund
Prudential Health Sciences Fund
Prudential Technology Fund
Prudential Utility Fund
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Tax-Managed Funds
Prudential Tax-Managed Equity Fund
Prudential 20/20 Focus Fund
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Target Funds
Large Capitalization Growth Fund
Large Capitalization Value Fund
Small Capitalization Growth Fund
Small Capitalization Value Fund
Asset Allocation/Balanced Funds
Prudential Balanced Fund
Prudential Diversified Funds
Conservative Growth Fund
Moderate Growth Fund
High Growth Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund
GLOBAL FUNDS
Global Stock Funds
Prudential Developing Markets Fund
Prudential Developing Markets Equity Fund
Prudential Latin America Equity Fund
Prudential Europe Growth Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Index Series Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Prudential Global Growth Fund
Prudential International Value Fund
Prudential Jennison International Growth Fund
Global Utility Fund, Inc.
Target Funds
International Equity Fund
Global Bond Funds
Prudential Global Total Return Fund, Inc.
Prudential International Bond Fund, Inc.
BOND FUNDS
Taxable Bond Funds
Prudential Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential High Yield Total Return Fund, Inc.
Prudential Index Series Fund
Prudential Bond Market Index Fund
Prudential Structured Maturity Fund, Inc.
Income Portfolio
Target Funds
Total Return Bond Fund
Tax-Exempt Bond Funds
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Income Series
Insured Series
Prudential Municipal Series Fund
Florida Series
Massachusetts Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
MONEY MARKET FUNDS
Taxable Money Market Funds
Cash Accumulation Trust
Liquid Assets Fund
National Money Market Fund
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.
Tax-Free Money Market Funds
Prudential Tax-Free Money Fund, Inc.
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
COMMAND Funds
COMMAND Money Fund
COMMAND Government Fund
COMMAND Tax-Free Fund
Institutional Money Market Funds
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
- ---------------------------------------
visit our website at www.prudential.com
- ---------------------------------------
Fund Symbols NASDAQ CUSIP
Class A -- 74432F885
Class B -- 74432F877
Class C -- 74432F869
Class Z PDHZX 74432F851
Trustees
Eugene C. Dorsey
Robert F. Gunia
Robert E. LaBlanc
Douglas H. McCorkindale
Thomas T. Mooney
David R. Odenath, Jr.
Stephen Stoneburn
John R. Strangfeld
Clay T. Whitehead
Officers
John R. Strangfeld, President
Robert F. Gunia, Vice President
David R. Odenath, Jr., Vice President
Grace C. Torres, Treasurer
David F. Connor, Secretary
William V. Healey, Assistant Secretary
Stephen M. Ungerman, Assistant Treasurer
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
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, 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, 2000, 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.
(LOGO) Printed on Recycled Paper
<PAGE>
(LOGO)
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
BULK RATE
U.S. POSTAGE
PAID
Permit 6807
New York, NY
MF186E2 74432F885 74432F877 74432F869 74432F851
(LPGO)Printed on Recycled Paper
<PAGE>
(ICON)
Semi Annual Report January 31, 2000
Prudential
Diversified Moderate Growth Fund
(LOGO)
<PAGE>
A Message From the Fund's President March 16, 2000
- -------------------------------------------------------------------------------
(PHOTO)
Dear Shareholder,
The six months ended January 31, 2000, were generally very difficult for any
investment securities except technology and biotechnology stocks. Prudential
Diversified Moderate Growth Fund's Class A shares returned 7.36% over the
period, trailing the 9.37% Lipper Multi-Cap Core Fund Average primarily because
most funds in that category hold no bonds. Including sales charges, the Fund's
Class A shares returned 1.99%. The return on bonds over this period was low, as
rising interest rates hurt fixed-income securities. Similarly, value stocks
declined in price over this reporting period, as did the average stock in most
economic sectors of the S&P 500. S&P 500 technology stocks had almost 10 times
the average return of the next highest performing sector.
With the high returns on stocks in recent years, it is important to remember
the stabilizing role bonds played in August 1997. Although bonds did fall in
value then, they were far less volatile than stocks. Diversification can dilute
the impact that the occasional extreme market movement can have on your
portfolio. The diversification of Prudential Diversified Moderate Growth Fund
allowed you to benefit from the strong, but narrow, technology gains without
being wholly exposed to this volatile sector.
Our reporting period included the falling markets in January 2000 as well as
the exuberant technology stock surge at the end of 1999. In an uncertain
environment, diversification is particularly important. Prudential Diversified
Funds' one-purchase selection makes it easy.
Yours sincerely,
John R. Strangfeld
President
Prudential Diversified Funds
<PAGE>
Investment Advisers' Report
- -------------------------------------------------------------------------------
Investment Advisers
Prudential Investments Fund
Management LLC
- - John Van Belle, Ph.D.
- - Stacie Mintz
Sub-Advisers
(PRUDENTIAL INVESTMENTS LOGO)
(LAZARD LOGO)
(FRANKLIN TEMPLETON LOGO)
(JENNISON ASSOCIATES LOGO)
(DREYFUS LOGO)
(PIMCO LOGO)
Investment Goals and Style
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.
The investing context
For five of the six months that made up our reporting period, the economy was
beset by uncertainties about how information systems would behave during the
changeover to the year 2000. Many businesses and homeowners stocked up on vital
supplies, while the U.S. Federal Reserve allowed the money supply to rise.
However, this drove the U.S. economy to a pace widely believed to be
unsustainable. Short-term interest rates rose as investors anticipated Federal
Reserve actions to slow the economy early in 2000. This drove down the prices
of most existing fixed-income securities.
The S&P 500 returned 5.6% over this period. However, almost all of this gain
was by technology stocks. Stocks of basic materials companies, consumer
staples, financials, energy firms, utilities, and even communications services
declined, while S&P 500 technology stocks rose about 30%.
The extreme narrowness of this market was disconcerting to investment
professionals, as it was clearly disproportionate to differences in earnings
potential. Moreover, volatility in the market--the ups and downs of individual
stock prices--has been increasing for some time and is unusually high. This
increases the uncertainty about whether most investors will continue with their
current enthusiasm for technology or search out the less expensive stocks on
the market. Prudential Diversified Moderate Growth Fund, with its allocation
to both growth and value stock investment styles and to bonds, is wholly
exposed to neither alternative.
Our performance
Large-cap stocks. Prudential Diversified Moderate Growth Fund benefited from
the 27.5% of its assets allocated to growth-style investing (20% large cap,
7.5% small cap) and from the strong performance of its growth managers. More
than a third of its large-cap growth portfolio was invested in technology
stocks on January 31, including the seven largest contributors to the period's
large-cap growth return. These included Cisco Systems, Nokia, and JDS Uniphase.
The large-cap growth managers have a longer time horizon than many growth
investors, so sometimes they can benefit when a well-managed company has a
short-term disappointment. The growth holdings also had above-benchmark returns
from their focuses on the consumer staples (such as Home Depot), healthcare,
and intermediate goods and services (business-to-business commerce) sectors.
The strength of these holdings more than offset the weakness of the Fund's
large-cap value stocks. Although the value por-
<PAGE>
tion of the portfolio benefited from some technology stocks purchased at
bargain prices--including National Semiconductor, Seagate Technology, and
Hitachi--the gains of these holdings were outweighed by the poor performance
of its focuses on hospital management, tobacco, forest products, and insurance.
The value portion of the portfolio lost ground.
Small-cap stocks. Among small-cap stocks, the very strong gains of our growth
holdings again compensated for the poor performance of the value stocks. Our
growth holdings had a substantial focus on technology. This sector benefited as
technology investors looked for better prices among small-cap stocks, given
that large-cap technology stocks had become very expensive. Small-cap
technology stocks rose very sharply over our reporting period. The interest in
smaller companies did not extend to value stocks, however. They fell in value
over our reporting period. Our small-cap value holdings fared particularly
poorly because of an emphasis on financial stocks, whose earnings prospects are
hurt by rising interest rates. The Federal Reserve raised short-term interest
rates four times between June 30, 1999, and February 2, 2000.
International stocks. Although our international holdings made a significant
positive contribution to the Fund's return, they trailed their benchmark index.
The movement toward growth stocks--and technology in particular--was global,
whereas our holdings are managed in a value style. The Morgan Stanley Capital
International (MSCI) AC World Growth Index rose 20 percentage points more than
the corresponding Value Index. Our holdings were
Cumulative Total Returns1 As of 1/31/00
<TABLE>
<CAPTION>
Six One Since
Months Year Inception2
<S> <C> <C> <C>
Class A 7.36% 9.87% 17.52%
Class B 6.70 8.90 16.29
Class C 6.70 8.90 16.29
Class Z 7.45 10.15 17.87
Lipper Multi-Cap Core Fund Avg.3 9.37 13.44 19.59
</TABLE>
Average Annual Total Returns1 As of 1/31/00
<TABLE>
<CAPTION>
One Since
Year Inception2
<S> <C> <C>
Class A 4.38% 9.60%
Class B 3.90 10.13
Class C 6.81 11.62
Class Z 10.15 14.66
</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 LLC and Lipper Inc. The
cumulative total returns do not take into account sales charges. The average
annual total returns do take into account applicable sales charges. The Fund
charges a maximum front-end sales 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 and service (12b-1) fees.
2 Inception date: Class A, B, C, and Z, 11/18/98.
3 Lipper average returns are for all funds in each share class for the
six-month, one-year, and since inception periods in the Multi-Cap Core Fund
category. The Lipper average is unmanaged. Multi-Cap Core funds generally
invest in a variety of market capitalization ranges, without concentrating 75%
of their equity assets in any one market capitalization range over an extended
period of time. Multi-Cap Core funds will generally have between 25% and 75% of
their assets invested in companies with market capitalizations (on a three-year
weighted basis) above 300% of the dollar-weighted median market capitalization
of the S&P(R) Mid-Cap 400 Index. Multi-Cap Core funds have wide latitude in the
companies in which they invest. These funds normally have an above-average
price/earnings ratio, price-to-book ratio, and three-year earnings growth
figure, compared to the U.S. diversified multi-cap funds universe average.
S&P(R) is a registered trademark of The McGraw-Hill Companies, Inc.
1
<PAGE>
Investment Advisers' Report Cont'd.
- -------------------------------------------------------------------------------
focused on companies with strong global brands and excellent long-term earnings
prospects. However, the prices of many of these companies are now at historic
lows in comparison to their earnings. They represent exceptional value.
Historically, when prices of the most and least expensive stocks have diverged
this widely, they have returned toward normal relationships either by a
decline in the high-priced stocks or a gain in the inexpensive ones. In either
case, we believe that the relative performance of our international holdings
should benefit.
Core bonds. The overall bond market, as measured by the Lehman Aggregate Bond
Index, had a small positive 0.66% return over the six months ended January 31,
despite the actions of the Federal Reserve to increase interest rates.
Prudential Diversified Moderate Growth Fund's core bond holdings outperformed
the Index slightly, primarily because they had a shorter average duration than
the benchmark, which made them less exposed to these rising rates. The return
on the core bond holdings also was enhanced by mortgage-related bonds, which
benefit during periods of rising interest rates from the slower pace of
prepayments due to refinancing. The Fund's high-quality emerging market bonds
also contributed to its performance, as better economic prospects reduced the
amount of extra yield emerging market borrowers had to pay to attract
investors. The price of existing bonds in this sector benefited from the
falling yield. However, the Fund's holdings were relatively light in
investment-grade corporate bonds, and so it failed to benefit from the similar
narrowing of the pricing differential for corporate bonds over Treasuries.
High-yield bonds. About 15% of the Fund's assets are allocated to high-yield
holdings, or "junk bonds." These outperformed their benchmark more
substantially than the core holdings, producing a solidly positive return
while the benchmark fell. Among these lower-rated bonds, those with a "B"
credit rating performed best over this reporting period, and these were
overweighted in the Fund's holdings. Both the higher-rated BB bonds and the
lower-rated CCCs had poorer returns, and both were underrepresented in the
Fund's holdings.
Glossary of Terms
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 earnings 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 short-term loans that mature in 13 months or less.
Bonds and money market instruments are called fixed-income securities.
High yield bonds are also known as "junk bonds." They are subject to greater
risk of loss of principal and interest, including default risk, than
higher-rated bonds.
Standard & Poor's 500 Composite Stock Price Index (S&P 500) is an unmanaged
index of 500 stocks of large U.S. companies.
The Lehman Brothers Aggregate Bond Index is an unmanaged index of
investment-grade securities issued by the U.S. government and its agencies and
by corporations with between one and ten years remaining to maturity.
The Morgan Stanley Capital International (MSCI) AC World Growth Index consists
of the most expensive stocks in price-to-book value in the MSCI AC World
Index. It includes the top 50% by market capitalization.
2
<PAGE>
What Is Diversification?
- -------------------------------------------------------------------------------
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
nd buy low. Over time, this may improve your return.
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 security
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. Prudential
Diversified Funds provide more of this buffering than a fund investing in only
one asset class. We believe this will result in more consistent returns over
time.
Rebalancing--Diversified Moderate Growth Fund has a target allocation for each
asset class. As some perform better than others, the portfolio will drift from
this original target: 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
certain securities in appreciated asset classes 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 Prudential
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.
Prudential Moderate Growth Fund Diversification Target
(GRAPH
3
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--94.5%
COMMON STOCKS--61.6%
- ------------------------------------------------------------
Aerospace--0.5%
25,200 British Aerospace PLC
(United Kingdom)(a) $ 134,905
5,025 GenCorp, Inc. 40,828
14,900 Loral Space & Communications, Inc. 292,412
4,900 The Boeing Co. 217,131
----------
685,276
- ------------------------------------------------------------
Airlines--0.2%
2,025 Alaska Air Group, Inc.(a) 64,547
6,800 Deutsche Lufthansa AG 139,666
----------
204,213
- ------------------------------------------------------------
Aluminum--0.6%
10,200 Alcoa, Inc. 710,812
2,162 Reliance Steel & Aluminum Co. 44,862
----------
755,674
- ------------------------------------------------------------
Apparel--0.1%
1,700 American Eagle Outfitters, Inc.(a) 61,731
3,275 Kellwood Co. 57,722
----------
119,453
- ------------------------------------------------------------
Audio/Visual--0.5%
2,600 Gemstar International Group Ltd.(a) 172,575
850 Harman International Industries, Inc. 49,619
2,300 Polycom, Inc.(a) 138,862
1,400 Sony Corp. (Japan) 351,827
----------
712,883
- ------------------------------------------------------------
Auto & Truck--0.5%
2,300 Arvin Industries, Inc. 53,331
2,225 Borg-Warner Automotive, Inc. 74,816
2,130 Daimlerchrysler AG (Germany) 137,217
1,737 Delphi Automotive Systems Corp. $ 30,072
4,100 GKN PLC (United Kingdom) 51,429
50,000 Nissan Motor Co. Ltd. (Japan)(a) 237,696
2,500 Rent-Way, Inc. 45,000
----------
629,561
- ------------------------------------------------------------
Banking--3.3%
3,350 BancorpSouth, Inc. 51,506
13,400 Bank of New York Co., Inc. 544,375
500 Bank United Corp. (Class A) 12,969
10,600 BankAmerica Corp. 513,437
2,225 Banknorth Group, Inc. 58,684
1,570 Banque Nationale de Paris (France) 123,761
1,900 Bayerische Vereinsbank AG (Germany) 112,446
1,600 BSB Bancorp, Inc. 30,700
4,800 Chase Manhattan Corp. 386,100
1,350 City National Corp. 47,081
1,375 CORUS Bankshares, Inc. 34,117
5,875 Cullen/Frost Bankers, Inc. 146,141
3,435 CVB Financial Corp. 80,722
275 First Citizens BancShares, Inc.
(Class A) 16,741
12,000 Fuji Bank (Japan) 119,239
6,000 Golden State Bancorp, Inc.(a) 84,750
13,300 Halifax Group PLC 115,598
1,950 Harbor Florida BancShares, Inc. 21,938
15,200 HSBC Holdings PLC (Hong Kong)(a) 180,220
14,000 IND Bank (Japan) 134,806
3,400 ING Groep N.V. (Netherlands) 170,212
4,000 LaBranche & Co., Inc.(a) 55,000
3,325 MAF Bancorp, Inc. 62,967
9,200 Merita PLC, Series A (Finland) 50,967
600 Mortgage.com, Inc.(a) 3,263
4,500 National Westminster Bank PLC (United
Kingdom)(a) 86,309
3,075 North Fork Bancorporation, Inc. 52,275
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Banking (cont'd.)
17,400 Overseas-Chinese Banking Corp. Ltd.
(Singapore) $ 148,237
4,375 Peoples Heritage Financial Group,
Inc. 64,258
1,400 Queens County Bancorp, Inc. 31,938
9,100 Sao Paolo Imi SpA ( Italy) 107,888
3,800 Silicon Valley Bancshares 211,850
29,000 Sumitomo Trust & Banking Co. Ltd.
(Japan) 180,304
8,960 Svenska Handelsbanken, Series A
(Sweden) 104,063
10,000 The Sakura Bank Ltd. (Japan) 63,386
16,896 United Overseas Bank Ltd. (Singapore) 124,089
1,800 Washington Federal, Inc. 30,150
1,575 Westamerica Bancorporation 39,769
1,150 Whitney Holding Corp. 37,663
----------
4,439,919
- ------------------------------------------------------------
Broadcasting
100 Wink Communications, Inc.(a) 5,825
- ------------------------------------------------------------
Building & Products--0.9%
1,815 ABB AG (Sweden) 199,799
4,400 American Standard Companies, Inc.(a) 165,000
1,925 Building One Services Corp.(a) 19,130
5,900 Centex Corp. 129,800
8,125 D.R. Horton, Inc. 93,945
2,850 M.D.C. Holdings, Inc. 40,256
7,475 Pulte Corp. 130,345
3,900 Rayonier, Inc. 167,700
1,225 Southdown, Inc. 61,327
1,125 Texas Industries, Inc. 41,133
3,600 Thomas Industries, Inc. 67,050
2,275 Toll Brothers, Inc.(a) 38,675
1,950 U S Home Corp.(a) 46,678
3,775 Webb Delaware Corp. 68,894
----------
1,269,732
- ------------------------------------------------------------
Cable
2,150 Belden, Inc. 46,359
- ------------------------------------------------------------
Casinos
575 Anchor Gaming(a) $ 25,659
- ------------------------------------------------------------
Chemicals--0.5%
2,700 Akzo Nobel N.V. (Netherlands) 111,435
2,000 Cytec Industries, Inc.(a) 50,500
4,200 Eastman Chemical Co. 167,475
625 H.B. Fuller Co. 40,625
13,700 Imperial Chemical Industries PLC
(United Kingdom) 109,318
5,025 Omnova Solutions, Inc. 37,688
2,175 Spartech Corp. 55,734
1,225 The Geon Co. 35,602
2,000 The Lubrizol Corp. 59,250
3,650 W.R. Grace & Co.(a) 43,116
----------
710,743
- ------------------------------------------------------------
Commercial Services--0.1%
300 Chemdex Corp.(a) 29,250
2,900 Luminant Worldwide Corp.(a) 90,988
----------
120,238
- ------------------------------------------------------------
Communications
2,400 AVT Corp.(a) 53,700
- ------------------------------------------------------------
Computers--3.6%
2,300 Brooktrout, Inc.(a) 61,669
8,900 Catapult Communications Corp.(a) 101,238
2,600 Citrix Systems, Inc.(a) 356,850
18,800 Compaq Computer Corp. 514,650
1,600 Comverse Technology, Inc.(a) 229,400
9,000 Dell Computer Corp.(a) 345,937
5,600 EMC Corp.(a) 596,400
4,500 Equant(a) 465,469
11,200 Hewlett-Packard Co. 1,212,400
3,100 International Business Machines Corp. 347,781
11,700 Seagate Technology, Inc.(a) 468,731
2,300 TDK Corp. 246,100
----------
4,946,625
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Computer Services--2.1%
6,300 Affiliated Computer Services, Inc.(a) $ 250,425
300 AnswerThink Consulting Group, Inc.(a) 9,769
1,575 Aspen Technology, Inc.(a) 57,094
1,850 CIBER, Inc.(a) 41,741
11,500 Cisco Systems, Inc.(a) 1,259,250
300 Getronics N.V. (Netherlands) 19,283
7,500 NetSolve, Inc.(a) 274,219
1,275 RadiSys Corp.(a) 51,956
1,700 RSA Security, Inc.(a) 92,437
300 Sapient Corp.(a) 26,512
6,700 Sun Microsystems, Inc.(a) 526,369
8,500 Whittman-Hart, Inc.(a) 301,750
----------
2,910,805
- ------------------------------------------------------------
Consumer Products--0.8%
2,112 Fossil, Inc. 41,052
200 Hitachi Ltd., ADR 28,600
1,000 PerkinElmer, Inc. 50,063
2,360 Siemens AG (Germany) 318,516
8,900 Tandy Corp. 434,987
1,875 Tupperware Corp. 30,586
15,942 Unilever PLC (United Kingdom) 97,987
2,100 Waters Corp.(a) 155,137
----------
1,156,928
- ------------------------------------------------------------
Cosmetics/Toiletries--0.3%
6,000 Kao Corp. (Japan) 163,870
5,100 The Estee Lauder Co., Inc. 260,738
----------
424,608
- ------------------------------------------------------------
Dental Supplies
1,075 Patterson Dental Co.(a) 46,830
- ------------------------------------------------------------
Diversified Manufacturing--1.0%
1,600 Corning, Inc. 246,800
2,000 CUNO, Inc.(a) 46,750
6,000 General Electric Co. 800,250
23,900 Invensys PLC (United Kingdom) $ 116,243
1,625 Trinity Industries, Inc. 37,984
3,100 Veba AG (Germany) 128,877
----------
1,376,904
- ------------------------------------------------------------
Diversified Operations--0.3%
20,000 Granada Group PLC (United Kingdom)(a) 199,405
2,329 Vivendi (France) 237,258
----------
436,663
- ------------------------------------------------------------
Drugs & Medical Supplies--0.3%
1,425 Datascope Corp.(a) 51,478
5,000 Sankyo Co. Ltd. (Japan) 116,984
7,300 Smithkline Beecham PLC
(United Kingdom)(a) 87,434
4,333 Zeneca Group PLC(a) 160,251
----------
416,147
- ------------------------------------------------------------
Electrical Utilities--0.4%
14,677 British Energy PLC (United Kingdom) 66,515
2,150 Conectiv, Inc. 37,491
9,720 Endesa SA (Spain) 179,177
1,650 NorthWestern Corp. 36,506
2,450 NSTAR 102,747
4,500 Public Service Co. of New Mexico 71,437
700 RGS Energy Group, Inc. 14,131
----------
508,004
- ------------------------------------------------------------
Electronic Components--4.3%
1,800 Alpha Industries, Inc.(a) 150,750
1,000 Applied Micro Circuits Corp.(a) 147,750
10,800 Arrow Electronics, Inc.,(a) 226,800
1,500 ATMI, Inc.(a) 52,125
4,000 Avnet, Inc. 214,750
1,100 Broadcom Corp.(a) 318,244
1,450 Cleco Corp. 48,756
400 Credence Systems Corp.(a) 33,950
1,075 CTS Corp. 75,452
8,540 Electrolux AB, Series B (Sweden) 180,555
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 6
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Electronic Components (cont'd.)
1,150 Electroglas, Inc.(a) $ 33,853
2,450 ESS Technology, Inc.(a) 39,812
3,200 Flextronics International Ltd.(a) 159,000
8,000 Gentex Corp.(a) 240,000
3,700 General Motors Corp. (Class H) 297,619
950 Hadco Corp.(a) 37,763
1,125 Idacorp, Inc. 37,758
4,200 Motorola, Inc. 574,350
5,700 Novellus Systems, Inc.(a) 280,012
2,600 Optical Coating Lab, Inc. 987,675
1,346 Philips Electronics N.V.
(Netherlands) 196,536
1,925 Pioneer-Standard Electronics, Inc. 26,258
2,200 PMC-Sierra, Inc.(a) 397,100
5,900 Reliant Energy, Inc. 134,594
1,425 Rogers Corp.(a) 54,150
1,425 Semtech Corp.(a) 85,500
6,800 Texas Instruments, Inc. 733,550
700 Veeco Instruments, Inc.(a) 38,413
----------
5,803,075
- ------------------------------------------------------------
Entertainment--0.1%
1,150 Gaylord Entertainment Co. 32,056
1,700 SFX Entertainment, Inc.(a) 55,356
----------
87,412
- ------------------------------------------------------------
Fertilizer--0.1%
1,500 Potash Corp. of Saskatchewan, Inc. 78,469
- ------------------------------------------------------------
Financial Services--2.9%
400 ACOM Co. Ltd. (Japan) 46,644
1,600 Alcatel Alsthom (France) 316,673
1,100 Allied Capital Corp. 20,350
2,100 American Express Co. 346,106
1,125 Arthur J. Gallagher & Co. 60,469
1,250 Chittenden Corp. 35,391
18,250 Citigroup, Inc. 1,048,234
525 Dain Rauscher Corp. 26,447
3,600 Doral Financial Corp. 37,350
3,300 Downey Financial Corp. 63,525
2,175 Eaton Vance Corp. $ 89,039
4,300 Federated Investment, Inc. 84,925
4,225 Financial Security Assurance
Holdings Ltd. 233,167
700 Knight-Trimark Group, Inc.(a) 22,138
1,400 Merrill Lynch & Co., Inc. 121,450
2,500 Metris Co., Inc. 91,562
1,400 Morgan (J.P.) & Co., Inc. 171,938
9,400 Morgan Stanley Dean Witter 622,750
1,400 Orix Corp. (Japan) 260,999
1,700 Promise Co. Ltd. (Japan) 117,105
2,500 Webster Financial Corp. 58,125
----------
3,874,387
- ------------------------------------------------------------
Food & Beverage--0.9%
650 Adolph Coors Co. 31,525
14,000 Asahi Breweries Ltd. (Japan) 137,155
13,900 Cadbury Schweppes PLC
(United Kingdom) 77,280
1,425 Corn Products International, Inc. 32,775
14,500 Diageo PLC (United Kingdom) 107,957
3,100 Heineken N.V. (Netherlands) 159,554
1,525 J & J Snack Foods Corp.(a) 29,166
21,000 Nabisco Group Holding Corp. 181,125
1,700 Performance Food Group Co.(a) 39,206
3,100 Riviana Foods, Inc. 50,763
12,700 Sara Lee Corp. 234,156
19,300 Tesco PLC 51,074
1,775 Universal Foods Corp. 32,616
----------
1,164,352
- ------------------------------------------------------------
Gold Mines
1,150 Commerce Group Corp.(a) 29,756
- ------------------------------------------------------------
Health Care--2.8%
2,800 Apria Healthcare Group, Inc.(a) 56,000
30,600 Columbia/HCA Healthcare Corp. 835,763
22,500 Foundation Health Systems, Inc. 230,625
26,200 HEALTHSOUTH Corp.(a) 144,100
926 LifePoint Hospitals, Inc.(a) 12,501
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Health Care (cont'd.)
3,525 Nationwide Health Properties, Inc. $ 47,588
5,700 PacifiCare Health Systems, Inc.(a) 241,181
4,500 PAREXEL International Corp.(a) 59,625
850 ResMed, Inc.,(a) 36,497
37,200 Tenet Healthcare Corp.(a) 846,300
875 TLC The Laser Center, Inc.(a) 11,922
826 Triad Hospital, Inc.(a) 14,145
1,425 Trigon Healthcare, Inc.(a) 43,373
9,200 United Healthcare Corp. 487,600
11,700 Wellpoint Health Networks, Inc.(a) 795,600
----------
3,862,820
- ------------------------------------------------------------
Home Furnishings--0.1%
3,525 Ethan Allen Interiors, Inc. 88,125
2,525 Furniture Brands International,
Inc.(a) 42,925
----------
131,050
- ------------------------------------------------------------
Hotels--0.2%
15,800 Hilton Hotels Corp. 133,312
19,400 MeriStar Hotels & Resorts, Inc. 64,263
2,900 Park Place Entertainment Corp.(a) 30,450
----------
228,025
- ------------------------------------------------------------
Household Products
775 Libbey, Inc. 19,956
- ------------------------------------------------------------
Human Resources--0.1%
1,275 CDI Corp.(a) 29,723
2,075 Interim Services, Inc.(a) 52,005
4,000 RemedyTemp, Inc.(a) 86,250
----------
167,978
- ------------------------------------------------------------
Insurance--3.3%
544 Allianz AG (Germany) 177,232
2,800 American Financial Group, Inc. 59,850
2,300 American General Corp. 141,306
7,775 American International Group, Inc. 809,572
1,400 Annuity & Life Ltd. 34,475
12,200 AXA Financial, Inc. $ 397,262
1,290 AXA-UAP (France) 161,326
11,400 Chubb Corp. 641,250
650 E.W. Blanch Holdings, Inc. 31,444
1,640 Fidelity National Financial, Inc. 20,500
1,500 First American Financial Corp. 17,813
1,700 Foremost Corporation of America 48,556
7,700 John Hancock Financial Services,
Inc.(a) 134,269
1,444 Medical Assurance, Inc.(a) 31,582
2,200 Mutual Risk Management Ltd. 36,025
14,600 Old Republic International Corp. 177,025
1,350 PartnerRe Ltd. 39,150
3,675 Presidential Life Corp. 60,637
2,117 Professionals Group, Inc. 47,633
1,425 Protective Life Corp. 39,633
7,500 Prudential Corp. PLC (United Kingdom) 138,993
800 Quotesmith.com, Inc.(a) 8,150
1,879 Radian Group, Inc. 75,747
6,500 Reinsurance Group of America, Inc. 143,812
19,271 Royal & Sun Alliance Insurance Group
PLC (United Kingdom)(a) 126,012
16,100 SAFECO Corp. 394,450
4,700 St. Paul Companies, Inc. 141,881
1,950 The MONY Group, Inc. 52,650
3,800 Tokio Marine & Fire Insurance Co.
Ltd., ADR 199,737
253 Zurich Versicherungs-Gesellschaft
(Switzerland) 117,050
----------
4,505,022
- ------------------------------------------------------------
Machinery & Equipment--0.6%
775 Helix Technology Corp. 37,684
3,150 IDEX Corp. 84,656
1,375 Imation Corp.(a) 41,594
2,800 JLG Industries, Inc. 23,450
1,575 Kulicke & Soffa Industries, Inc.(a) 82,392
6,175 Lincoln Electric Holdings, Inc. 120,799
1,000 Mannesmann AG, ADR (Germany) 271,503
1,525 Milacron, Inc. 18,395
1,025 Tecumseh Products Co. 46,766
2,100 Terex Corp.(a) 47,775
1,575 The Manitowoc Co., Inc. 43,017
----------
818,031
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 8
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Manufacturing--0.5%
950 AptarGroup, Inc. $ 20,900
810 Cie De Saint Gobain (France) 113,950
1,970 Compagnie Generale des
Etablissements, Series B (France) 69,017
1,500 KEMET Corp.(a) 71,344
3,800 Mettler-Toledo International, Inc.(a) 121,125
700 Nintendo Co. Ltd. (Japan) 128,934
4,220 Thyssen AG (Germany) 106,409
----------
631,679
- ------------------------------------------------------------
Media--1.6%
14,500 CBS Corp.(a) 845,531
8,000 Clear Channel Communications, Inc.(a) 691,000
1,000 Cumulus Media, Inc. 39,063
5,000 Omnicom Group, Inc. 468,438
1,700 Time Warner, Inc. 135,894
----------
2,179,926
- ------------------------------------------------------------
Medical Technology--0.9%
7,800 Amgen, Inc.(a) 496,762
200 Celera Genomics(a) 40,288
2,625 Cell Genesys, Inc.(a) 38,719
2,300 Genetech, Inc. 323,150
1,225 Gliatech, Inc.(a) 18,452
5,000 Inhale Therapeutic Systems, Inc.(a) 292,187
----------
1,209,558
- ------------------------------------------------------------
Metals--0.3%
18,600 Broken Hill Proprietary Co. Ltd.
(Australia) 221,624
1,500 Cleveland-Cliffs, Inc. 41,906
2,350 Commercial Metals Co. 74,759
1,375 Kaydon Corp. 37,211
1,025 Precision Castparts Corp. 26,266
----------
401,766
- ------------------------------------------------------------
Mining--0.5%
21,400 Freeport-McMoRan Copper & Gold,
Inc.(a) $ 342,400
13,900 Newmont Mining Corp. 283,213
----------
625,613
- ------------------------------------------------------------
Networking--0.2%
1,500 Ancor Communications, Inc.(a) 56,438
400 C-COR.net Corp.(a) 8,550
1,800 Juniper Networks, Inc.(a) 243,562
----------
308,550
- ------------------------------------------------------------
Office Equipment & Supplies--0.7%
7,000 Canon, Inc. (Japan) 286,447
13,000 Harris Corp. 377,000
23,400 IKON Office Solutions, Inc. 188,662
1,700 Kimball International, Inc.
(Class B) 26,031
13,000 Lanier Worldwide, Inc.(a) 45,500
2,300 Wallace Computer Services, Inc. 25,156
----------
948,796
- ------------------------------------------------------------
Oil & Gas Services--2.3%
1,400 Amerada Hess Corp. 74,463
5,500 Atlantic Richfield Co. 423,500
1,275 Atwood Oceanics, Inc.(a) 52,036
2,150 Berry Petroleum Co. 31,309
22,400 BP Amoco PLC (United Kingdom) 197,593
3,925 Energen Corp. 67,706
23,700 ENI SpA (Italy) 111,290
2,300 Equitable Resources, Inc. 79,350
5,225 Helmerich & Payne, Inc. 122,788
2,876 Kerr-McGee Corp. 159,258
5,900 Keyspan Energy 138,281
7,300 Marine Drilling Companies, Inc.(a) 140,525
2,000 Mitchell Energy & Development Corp. 45,000
7,000 Newfield Exploration Co.(a) 192,500
5,200 Nuevo Energy Co. 96,200
6,900 Occidental Petroleum Corp. 137,137
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 9
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Oil & Gas Services (cont'd.)
2,500 Oneok, Inc. $ 65,313
925 SEACOR SMIT, Inc.(a) 42,666
4,025 Southwestern Energy Co. 22,892
8,985 Total SA, ADR 559,316
2,033 Total SA, Ser. B (France) 250,891
1,150 Ultramar Diamond Shamrock Corp. 25,156
1,350 Valero Energy Corp. 30,628
2,925 Varco International, Inc. 29,616
1,700 Wicor, Inc. 50,256
----------
3,145,670
- ------------------------------------------------------------
Paper & Packaging--2.4%
1,800 Ball Corp. 65,475
1,250 Chesapeake Corp. 32,578
3,900 Fort James Corp. 104,325
4,900 Georgia-Pacific Corp. (Timber Group) 106,269
13,500 Georgia-Pacific Group 550,125
10,200 International Paper Co. 485,775
10,600 Mead Corp. 394,850
2,000 Nippon Paper Industries Co. Ltd.
(Japan) 13,796
2,500 P.H. Glatfelter Co. 30,781
2,500 Pope & Talbot, Inc. 40,000
1,800 Potlatch Corp. 72,450
5,900 Temple-Inland, Inc. 330,031
3,700 UPM-Kymmene Oy (Finland) 137,487
8,100 Weyerhaeuser Co. 464,738
11,000 Willamette Industries, Inc. 451,000
----------
3,279,680
- ------------------------------------------------------------
Pharmaceuticals--2.2%
875 Alpharma, Inc. 29,750
9,300 American Home Products Corp. 437,681
2,150 Bindley Western Industries, Inc. 36,685
5,100 Bristol-Myers Squibb Co. 336,600
1,925 Dura Pharmaceuticals, Inc.(a) 29,837
5,500 Glaxo Holdings PLC, ADR 290,125
975 King Pharmaceuticals, Inc.(a) 57,525
4,100 Merck & Co., Inc. 323,131
2,725 Ocular Sciences, Inc.(a) $ 55,181
5,850 Rhone Poulenc SA, Series A (France) 307,054
15 Roche Holdings AG (Switzerland) 161,052
9,600 Warner-Lambert Co. 911,400
----------
2,976,021
- ------------------------------------------------------------
Photography--0.7%
14,700 Eastman Kodak Co. 909,563
- ------------------------------------------------------------
Power Generation
850 Calpine Corp. 62,156
- ------------------------------------------------------------
Printing & Publishing--0.1%
1,225 Banta Corp. 23,275
18,700 Reed International PLC (United
Kingdom) 160,414
----------
183,689
- ------------------------------------------------------------
Radio & Television
700 Entercom Communications Corp.(a) 37,188
- ------------------------------------------------------------
Real Estate--0.5%
400 Alexandria Real Estate Equities, Inc. 11,800
2,450 Bradley Real Estate, Inc. 41,650
2,025 BRE Properties, Inc. 44,550
2,425 Cabot Industrial Trust 47,287
1,400 Developers Diversified Reality Corp. 18,200
3,850 Franchise Finance Corp. of America 92,400
1,700 Gables Residential Trust 36,869
800 General Growth Properties, Inc. 22,800
4,900 Glenborough Realty Trust, Inc. 66,762
1,600 Health Care Property Investments,
Inc. 40,900
2,025 Health Care REIT, Inc. 32,653
1,800 Hospitality Properties Trust 35,213
9,500 MeriStar Hospitality Corp. 154,969
3,800 Reckson Associates Reality Corp. 75,050
600 SL Green Reality Corp. 13,050
----------
734,153
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 10
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Real Estate-Development
3,650 Catellus Development Corp.(a) $ 45,625
- ------------------------------------------------------------
Restaurants--0.8%
9,000 CKE Restaurants, Inc. 57,938
34,800 Darden Restaurants, Inc. 552,450
1,300 Jack in the Box, Inc.(a) 26,731
9,100 McDonald's Corp. 338,406
11,175 Ryan's Family Steak Houses, Inc.(a) 99,877
----------
1,075,402
- ------------------------------------------------------------
Retail--3.1%
2,200 1-800-FLOWERS.COM, Inc.(a) 21,450
1,500 BJ's Wholesale Club, Inc.(a) 52,500
1,700 Buckle, Inc. 26,669
8,000 Consolidated Stores Corp.(a) 114,000
1,300 Department 56, Inc. 24,944
15,800 Dillards, Inc. (Class A) 303,162
12,100 Gap, Inc. 540,719
16,300 Great Universal Stores PLC
(United Kingdom) 104,738
17,600 Home Depot, Inc. 996,600
37,200 Kmart Corp.(a) 311,550
6,500 Kohl's Corp.(a) 455,812
3,175 Micro Warehouse, Inc.(a) 60,325
4,700 Pep Boys - Manny, Moe & Jack 34,075
5,600 Ross Stores, Inc. 71,400
3,900 Sears, Roebuck & Co. 120,656
4,300 Tiffany & Co. 318,200
10,700 Toys 'R' Us, Inc.(a) 110,344
7,800 Wal-Mart Stores, Inc. 427,050
1,850 Zale Corp.(a) 66,138
----------
4,160,332
- ------------------------------------------------------------
Semiconductors--1.4%
4,300 Applied Materials, Inc.(a) 590,175
1,925 Cypress Semiconductor Corp.(a) 64,487
2,850 Integrated Device Technology, Inc.(a) $ 81,225
9,000 Intel Corp. 890,438
4,000 KLA Tencor Corp.(a) 234,500
----------
1,860,825
- ------------------------------------------------------------
Services--0.1%
16,100 Service Corp. International(a) 73,456
- ------------------------------------------------------------
Software--3.3%
2,100 Activision, Inc.(a) 32,813
100 Alteon Websystems, Inc.(a) 9,838
5,100 America Online, Inc.(a) 290,381
300 Ardent Software, Inc.(a) 12,900
200 Bluestone Software, Inc.(a) 17,625
2,500 BroadVision, Inc.(a) 318,281
800 Exodus Communications, Inc.(a) 91,900
5,000 HNC Software, Inc.(a) 450,937
2,900 I2 Technologies, Inc.(a) 558,612
5,000 Intuit, Inc.(a) 301,563
300 ITXC Corp.(a) 32,250
2,500 Legato Systems, Inc.(a) 62,969
600 Liberate Technologies(a) 47,288
12,400 Microsoft Corp.(a) 1,213,650
300 Mission Critical Software, Inc.(a) 17,250
500 NetIQ Corp.(a) 28,000
1,950 OneMain.com, Inc.(a) 23,888
2,000 Progress Software Corp.(a) 43,250
300 Proxicom, Inc.(a) 30,300
200 Software.com, Inc.(a) 13,575
2,000 Sybase, Inc.(a) 47,625
600 U.S. Interactive, Inc.(a) 31,200
5,100 VERITAS Software Corp.(a) 743,962
2,200 Verity, Inc.(a) 74,800
----------
4,494,857
- ------------------------------------------------------------
Steel
2,050 AK Steel Holding Corp. 20,756
1,200 Carpenter Technology Corp. 28,800
----------
49,556
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 11
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Telecommunications--6.8%
100 AirGate PCS, Inc.(a) $ 6,113
3,600 Allegiance Telecommunications,
Inc.(a) 379,350
5,500 ALLTEL Corp. 367,125
19,600 AT&T Corp.(a) 1,016,675
3,300 British Telecommunications PLC
(United Kingdom) 64,161
2,100 Carrier Access Corp.(a) 92,400
1,812 Deutsche Telekom (Germany) 122,005
1,100 Intermedia Communications, Inc.(a) 47,300
2,300 JDS Uniphase Corp.(a) 469,056
3,825 Level 3 Communications, Inc.(a) 371,481
4,600 Metromedia Fiber Network, Inc. 311,362
3,600 Millicom International Cellular SA(a) 256,950
2,100 Nextel Communications, Inc.(a) 223,388
3,100 Nextlink Communications, Inc. 261,563
11 Nippon Telegraph & Telephone Corp.
(Japan) 166,107
5,600 Nokia Corp., ADR(a) 1,024,800
4,750 NTL, Inc.(a) 597,609
10 NTT Mobile Communications (Japan) 339,299
6,500 Pacific Gateway Exchange, Inc.(a) 127,563
500 Plantronics, Inc.(a) 35,813
18,500 Portugal Telecom SA 218,974
500 QUALCOMM, Inc.(a) 63,500
18,600 Qwest Communications International,
Inc.(a) 732,375
2,900 Tele Danmark AS (Denmark) 205,383
15,009 Telefonica SA (Spain) 377,149
2,800 Tellabs, Inc.(a) 151,200
1,300 True North Communications, Inc. 54,031
3,600 Univision Communications, Inc.(a) 385,650
15,000 Vodafone AirTouch PLC, ADR 840,000
----------
9,308,382
- ------------------------------------------------------------
Tobacco--0.7%
10,200 Loews Corp. 571,200
11,200 Philip Morris Co., Inc. 234,500
6,833 R.J. Reynolds Tobacco Holdings, Inc. 117,442
3,100 Universal Corp. 63,356
----------
986,498
- ------------------------------------------------------------
Transportation--0.1%
1,650 Alexander & Baldwin, Inc. $ 33,309
3,075 Roadway Express, Inc. 70,725
1,575 Sea Containers Ltd. 45,380
----------
149,414
- ------------------------------------------------------------
Trucking & Shipping--0.3%
10,700 Air Express International Corp. 349,087
1,925 US Freightways Corp. 70,022
----------
419,109
- ------------------------------------------------------------
Utilities--0.5%
1,500 California Water Service Group 39,938
3,800 General Public Utilities Corp. 110,200
840 Suez Lyonnaise des Eaux (France) 120,208
5,900 Unicom Corp. 230,837
6,375 Washington Gas Light Co. 160,172
----------
661,355
- ------------------------------------------------------------
Waste Management--0.2%
6,000 Casella Waste Systems, Inc.(a) 90,375
9,000 Waste Management, Inc. 157,500
----------
247,875
- ------------------------------------------------------------
Wire & Cable
1,000 Sumitomo Electric Industries (Japan) 13,255
----------
Total common stocks
(cost $71,125,281) 83,953,031
----------
------------------------------------------------------------
WARRANTS(a)
- ------------------------------------------------------------
Units
25 Intersil Corp., expiring 8/15/09
(cost $0) 6,250
----------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 12
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description Value (Note 1
<S> <C> <C> <C>
- ------------------------------------------------------------
CORPORATE BONDS--18.3%
- ------------------------------------------------------------
Aerospace
B2 $ 50 BE Aerospace, Inc.,
Sr. Sub. Notes,
9.50%, 11/1/08 $ 46,250
- ------------------------------------------------------------
Airlines--0.2%
Ba2 200 Continental Airlines Inc.,
Sr. Notes,
8.00%, 12/15/05 180,898
B3 50 US Airways, Inc.,
Sr. Notes,
9.625%, 2/1/01 49,622
------------
230,520
- ------------------------------------------------------------
Audio/Visual--0.2%
Ba2 250 Imax Corp.,
Sr. Notes,
7.875%, 12/1/05 233,125
- ------------------------------------------------------------
Auto Rental
B1 55 United Rentals, Inc.,
Gtd. Notes,
9.25%, 1/15/09 51,563
- ------------------------------------------------------------
Automotive Parts--0.4%
B2 10 Collins & Aikman Products Co.,
Sr. Sub. Notes,
11.50%, 4/15/06 9,700
B3 75 Eagle-Picher, Inc.,
Gtd. Notes,
9.375%, 3/1/08 64,125
B3 250 Hayes Wheels Int'l, Inc.,
Sr. Sub. Notes,
9.125%, 7/15/07 240,625
Ba1 250 Lear Corp.,
Sr. Notes, Series B,
8.11%, 5/15/09 232,500
------------
546,950
- ------------------------------------------------------------
Banking--0.6%
B1 $ 100 Chevy Chase Savings Bank,
Sub. Deb.,
9.25%, 12/1/05 $ 96,000
Korea Development Bank,
Sr. Notes,
Baa3 200 7.125%, 9/17/01 197,978
Baa3 300 7.90%, 2/1/02 299,508
Ba3 200 Sovereign Bancorp,
Sr. Notes,
10.50%, 11/15/06 203,000
------------
796,486
- ------------------------------------------------------------
Broadcasting
B3 30 Paxson Communications Corp.,
Sr. Sub. Notes,
11.625%, 10/1/02 31,050
- ------------------------------------------------------------
Building & Products--0.3%
B2 250 Ainsworth Lumber Ltd.,
Sr. Notes,
12.50%, 7/15/07 272,500
Ba3 150 Building Materials Corp. of
America,
Sr. Notes,
8.00%, 12/1/08 132,375
Ba2 15 Standard Pacific Corp.,
Sr. Notes,
8.50%, 4/1/09 13,162
------------
418,037
- ------------------------------------------------------------
Cable--0.8%
Adelphia Communications Corp.,
Sr. Notes,
B1 200 8.125%, 7/15/03 187,000
B1 100 7.875%, 5/1/09 86,750
B3 25 Classic Cable, Inc.,
Sr. Sub. Notes,
9.375%, 8/1/09 23,563
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 13
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description Value (Note 1
<S> <C> <C> <C>
- ------------------------------------------------------------
Cable (cont'd.)
B3 $ 150 Diamond Cable Comm. Co.
(United Kingdom),
Sr. Disc. Notes,
13.25%, 9/30/04 $ 160,875
B2 250 Mediacom LLC Capital Corp.,
Sr. Notes,
7.875%, 2/15/11 214,375
Ba3 100 Rogers Cablesystems, Inc.,
Sr. Notes,
9.625%, 8/1/02 102,000
United Pan-Europe
Communications
(Netherlands),
Sr. Disc. Notes,
B2 100 12.50%, 8/1/09 53,500
Sr. Notes,
B2 335 10.875%, 8/1/09 325,787
------------
1,153,850
- ------------------------------------------------------------
Casinos--0.8%
B2 150 Aztar Corp.,
Sr. Sub. Notes,
8.875%, 5/15/07 138,750
Ba2 250 Harrahs Operating, Inc.,
Gtd. Sr. Sub. Notes,
7.875%, 12/15/05 235,625
B2 250 Hollywood Park, Inc.,
Sr. Sub. Notes, Series B,
9.25%, 2/15/07 240,937
B2 150 Horseshoe Gaming LLC,
Sr. Sub. Notes,
8.625%, 5/15/09 138,750
B2 15 Isle Capri Casinos, Inc.,
Sr. Sub. Notes,
8.75%, 4/15/09 13,425
Ba2 100 Mandalay Resort Group,
Sr. Sub. Deb.,
7.625%, 7/15/13 85,500
Ba2 250 Mohegan Tribal Gaming
Authority,
Sr. Notes,
8.125%, 1/1/06 235,000
------------
1,087,987
- ------------------------------------------------------------
Chemicals--0.3%
B2 $ 75 Huntsman ICI Chemicals, Inc.,
Sr. Sub. Notes,
10.125%, 7/1/09 $ 75,750
B1 50 Huntsman Polymers Corp.,
Sr. Notes,
11.75%, 12/1/04 52,500
Ba3 100 Lyondell Chemical Co.,
Sr. Sub. Notes,
9.875%, 5/1/07 98,750
Sterling Chemicals, Inc.,
Sr. Sub. Notes,
B3 55 12.375%, 7/15/06 56,925
B3 55 11.75%, 8/15/06 44,000
B2 65 ZSC Specialty Chemicals PLC,
Sr. Notes,
11.00%, 7/1/09 66,625
------------
394,550
- ------------------------------------------------------------
Coal
Ba3 25 P & L Coal Holdings Corp.,
Sr. Notes,
8.875%, 5/15/08 23,813
- ------------------------------------------------------------
Commercial Services--0.1%
B2 100 Iron Mountain, Inc.,
Sr. Sub. Notes, MTN,
8.25%, 7/1/11 88,250
- ------------------------------------------------------------
Computer Services--0.3%
NR 100 Globix Corp.,
Sr. Notes,
12.50%, 2/1/10 101,000
Ba1 250 Unisys Corp.,
Sr. Notes, Series B,
12.00%, 4/15/03 266,875
------------
367,875
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 14
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description Value (Note 1
<S> <C> <C> <C>
- ------------------------------------------------------------
Containers--0.1%
Ba1 $ 50 Owens-Illinois, Inc.,
Sr. Deb. Notes,
7.50%, 5/15/10 $ 44,946
B3 75 Packaged Ice, Inc.,
Sr. Notes,
9.75%, 2/1/05 66,750
------------
111,696
- ------------------------------------------------------------
Diversified Manufacturing--0.3%
B3 200 Corning Consumer Products,
Sr. Sub. Notes,
9.625%, 5/1/08 149,000
B2 150 Gentek, Inc.,
Gtd. Notes,
11.00%, 8/1/09 154,500
B2 145 Tenneco, Inc.,
Sr. Sub. Notes,
11.625%, 10/15/09 147,900
------------
451,400
- ------------------------------------------------------------
Diversified Operations
B2 55 SCG Holding Co.,
Sr. Sub. Notes,
12.00%, 8/1/09 58,300
- ------------------------------------------------------------
Electrical Utilities
A3 500 Alliant Energy Resources, Inc.,
Sub. Notes,
7.25%, 2/15/30 33,375
- ------------------------------------------------------------
Engineering & Construction--0.1%
B1 129 CSC Holdings, Inc.,
Sr. Sub. Deb.,
10.50%, 5/15/16 142,223
- ------------------------------------------------------------
Financial Services--3.1%
Ba1 100 Americredit Corp.,
Sr. Notes,
9.875%, 4/15/06 100,250
A2 300 Bear Stearns Cos., Inc.,
Sr. Notes,
6.15%, 3/2/04 282,498
Baa2 $ 500 Capital One Bank,
Sr. Notes,
6.76%, 7/23/02 $ 488,284
NR 100 Coinstar, Inc.,
Sr. Disc. Notes,
13.00%, 10/1/06 102,000
NR 268 Credit Asset Receivable LLC,
Sr. Sec'd. Notes,
6.274%, 10/31/03 260,959
Baa1 300 Finova Capital Corp.,
MTN,
5.98%, 2/27/01 296,343
Ba1 100 GS Escrow Corp.,
Notes,
7.05%, 8/1/03 95,346
A2 700 Household Finance Corp.,
Notes,
7.00%, 8/1/03 683,649
Baa1 500 MBNA America Bank NA,
MTN,
6.875%, 7/15/04 480,780
Ba3 150 Metris Co., Inc.,
Sr. Deb. Notes,
10.125%, 7/15/06 144,000
A1 300 Morgan J.P. & Co., Inc.,
Sr. Notes,
5.75%, 2/25/04 280,977
Baa2 300 Orix Credit Alliance, Inc.,
MTN,
6.785%, 4/16/01 298,317
Ba3 275 RBF Finance Co.,
Sr. Notes,
11.00%, 3/15/06 294,250
Aa3 500 Wells Fargo & Co.,
Notes,
6.625%, 7/15/04 482,180
------------
4,289,833
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 15
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description Value (Note 1
<S> <C> <C> <C>
- ------------------------------------------------------------
Food & Beverage--0.4%
B3 $ 50 Agrilink Foods, Inc.,
Sr. Sub. Notes,
11.875%, 11/1/08 $ 49,250
B2 20 Ameriserve Food Distribution,
Inc.,
Sr. Notes,
8.875%, 10/15/06 6,900
B1 250 Cott Corp.,
Sr. Notes,
8.50%, 5/1/07 231,875
Caa 25 Del Monte Foods Co.,
Sr. Disc. Notes, Series B,
Zero Coupon (until 12/15/02)
12.50%, 12/15/07 20,000
B3 5 Dominos, Inc.,
Sr. Sub. Notes,
10.375%, 1/15/09 4,688
B2 150 Pilgrim's Pride Corp.,
Sr. Sub. Notes,
10.875%, 8/1/03 151,500
B2 100 Vlasic Foods Intl., Inc.,
Sr. Sub. Notes,
10.25%, 7/1/09 90,000
------------
554,213
- ------------------------------------------------------------
Gaming--0.1%
B3 75 Coast Hotels & Casinos, Inc.,
Gtd. Notes,
9.50%, 4/1/09 69,375
- ------------------------------------------------------------
Health Care--1.0%
B3 100 Apria Healthcare Group,
Sr. Sub. Notes,
9.50%, 11/1/02 97,500
B2 100 Biovail Corp. International,
Sr. Notes,
10.875%, 11/15/05 105,000
Columbia/HCA Healthcare Corp.,
Deb. Notes,
Ba2 55 7.05%, 12/1/27 40,975
Ba2 25 7.50%, 11/15/95 19,875
MTN,
Ba2 $ 100 7.69%, 6/15/25 $ 80,500
Ba2 200 6.73%, 7/15/45 185,500
B3 30 Concentra Operating Corp.,
Sr. Sub. Notes, Series A,
13.00%, 8/15/09 25,500
Fresenius MedCare Cap. Trust,
Gtd. Notes,
Ba3 125 9.00%, 12/1/06 118,750
Ba3 75 7.875%, 2/1/08 67,125
Baa3 250 HEALTHSOUTH Corp.,
Sr. Notes,
7.00%, 6/15/08 204,767
B3 40 Iasis Healthcare Corp.,
Sr. Sub. Notes,
13.00%, 10/15/09 41,000
C 250 Integrated Health Services,
Inc.,
Sr. Sub. Notes, Series A,
9.25%, 1/15/08 17,500
B3 100 LifePoint Hospitals Holdings,
Inc.,
Sr. Sub. Notes,
10.75%, 5/15/09 102,750
B3 100 Magellan Health Services, Inc.,
Sr. Sub. Notes,
9.00%, 2/15/08 80,000
Ba1 100 Tenet Healthcare Corp.,
Sr. Notes,
7.875%, 1/15/03 96,500
B3 125 Triad Hospitals Holdings, Inc.,
Sr. Sub. Notes,
11.00%, 5/15/09 129,375
------------
1,412,617
- ------------------------------------------------------------
Hotels--0.1%
Ba2 50 Meditrust,
Sr. Notes,
7.25%, 3/15/04 39,686
Ba1 120 Starwood Hotel & Resorts,
Deb. Notes,
7.375%, 11/15/15 96,083
------------
135,769
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 16
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description Value (Note 1
<S> <C> <C> <C>
- ------------------------------------------------------------
Industrials--0.2%
B3 $ 25 Intersil Corp.,
Sr. Sub. Notes,
13.25%, 8/15/09 $ 28,000
B2 250 Purina Mills, Inc.,
Sr. Sub. Notes,
9.00%, 3/15/10 62,500
B3 250 United Int'l. Holdings, Inc.,
Sr. Disc. Notes,
Zero Coupon (until 2/15/03)
10.75%, 2/15/08 163,750
------------
254,250
- ------------------------------------------------------------
Machinery & Equipment--0.1%
B1 150 Applied Power, Inc.,
Sr. Sub. Notes,
8.75%, 4/1/09 157,500
- ------------------------------------------------------------
Manufacturing--0.1%
B1 60 JPS Products,
Sr. Notes,
11.125%, 6/15/01 60,450
B1 50 Phillips Van-Heusen,
Sr. Sub. Notes,
9.50%, 5/1/08 46,500
B2 5 Sun World International, Inc.,
First Mtg., Series B,
11.25%, 4/15/04 5,050
B2 40 Venture Holdings Trust,
Sr. Notes,
9.50%, 7/1/05 36,400
------------
148,400
- ------------------------------------------------------------
Media--0.4%
B2 250 Ackerley Group, Inc.,
Sr. Sub. Notes,
9.00%, 1/15/09 236,250
B1 75 Chancellor Media Corp.,
Sr. Sub. Notes,
9.00%, 10/1/08 76,687
Baa3 $ 265 Time Warner, Inc.,
Series 97-1,
6.10%, 12/30/01 $ 258,905
------------
571,842
- ------------------------------------------------------------
Metals--0.2%
B2 30 Golden Northwest Aluminum,
Gtd. Notes,
12.00%, 12/15/06 31,275
B1 225 Kaiser Aluminum & Chemical
Corp.,
Sr. Notes,
9.875%, 2/15/02 219,375
------------
250,650
- ------------------------------------------------------------
Miscellaneous--0.4%
B2 65 Metromedia Fiber Network,
Sr. Notes,
10.00%, 12/15/09 65,163
Baa1 450 Midamerican Funding LLC,
Sr. Notes,
5.85%, 3/1/01 443,349
------------
508,512
- ------------------------------------------------------------
Oil & Gas Services--1.0%
B3 160 Chesapeake Energy Corp.,
Sr. Notes,
9.625%, 5/1/05 149,600
Ba2 85 Eott Energy Partners LP,
Sr. Notes,
11.00%, 10/1/09 85,956
Gulf Canada Resources Ltd.,
Sr. Notes,
Ba1 220 8.35%, 8/1/06 210,650
Sr. Sub. Deb.,
Ba2 30 9.625%, 7/1/05 30,750
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 17
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description Value (Note 1
<S> <C> <C> <C>
- ------------------------------------------------------------
Oil & Gas (cont'd.)
B1 $ 200 Parker Drilling Co.,
Sr. Notes,
9.75%, 11/15/06 $ 193,000
Ba2 200 Petroleos Mexicanos (Mexico),
Gtd. Notes,
9.375%, 12/2/08 205,000
Plains Resources, Inc.,
Gtd. Notes, Series D,
B2 100 10.25%, 3/15/06 96,000
Sr. Sub. Notes, Series B,
B2 20 10.25%, 3/15/06 19,300
B2 55 Swift Energy Co.,
Sr. Sub. Notes,
10.25%, 8/1/09 54,175
B1 250 Triton Energy Ltd.,
Sr. Notes,
9.25%, 4/15/05 252,500
------------
1,296,931
- ------------------------------------------------------------
Paper & Packaging--0.7%
B1 250 Ball Corp.,
Sr. Sub. Notes,
8.25%, 8/1/08 235,625
Doman Industries Ltd. (Canada),
Sr. Notes,
Caa 50 8.75%, 3/15/04 42,000
Caa 25 9.25%, 11/15/07 19,875
Caa 100 Repap New Brunswick (Canada),
Sr. Notes,
10.625%, 4/15/05 91,000
B1 250 S.D. Warren Co.,
Sr. Sub. Notes,
12.00%, 12/15/04 260,000
Stone Container Corp.,
Sr. Notes Deb.,
B2 15 11.50%, 8/15/06 15,862
Sr. Sub. Deb.,
B3 250 12.25%, 4/1/02 252,500
------------
916,862
- ------------------------------------------------------------
Pharmaceuticals--0.1%
Ba3 $ 100 ICN Pharmaceuticals, Inc.,
Sr. Notes,
8.75%, 11/15/08 $ 93,000
- ------------------------------------------------------------
Printing & Publishing--0.5%
B1 250 Mail Well I Corp.,
Sr. Sub. Notes,
8.75%, 12/15/08 228,750
B2 250 Transwestern Publishing Co. LP,
Sr. Sub. Notes, Series D,
9.625%, 11/15/07 241,875
B1 250 World Color Press, Inc.,
Sr. Sub. Notes,
7.75%, 2/15/09 232,500
------------
703,125
- ------------------------------------------------------------
Real Estate--0.2%
Ba2 250 HMH Properties, Inc.,
Sr. Notes,
8.45%, 12/1/08 224,375
- ------------------------------------------------------------
Real Estate-Development--0.1%
B1 100 Intrawest Corp.,
Sr. Notes,
10.50%, 2/1/10 99,000
- ------------------------------------------------------------
Recreation--0.3%
B3 100 Ballys Total Fitness Holdings,
Sr. Sub. Notes, Series C,
9.875%, 10/15/07 94,000
B3 350 Premier Parks, Inc.,
Sr. Notes,
9.75%, 6/15/07 341,250
------------
435,250
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 18
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description Value (Note 1
<S> <C> <C> <C>
- ------------------------------------------------------------
Restaurants--0.4%
B2 $ 125 Advantica Restaurant Group,
Inc.,
Sr. Notes,
11.25%, 1/15/08 $ 83,750
B2 250 Carrols Corp.,
Sr. Sub. Notes,
9.50%, 12/1/08 217,500
B2 50 CKE Restaurants, Inc.,
Sr. Sub. Notes,
9.125%, 5/1/09 38,000
Ba1 250 Felcor Suites LP,
Gtd. Sr. Notes,
7.375%, 10/1/04 221,250
Ba3 30 Sbarro, Inc.,
Sr. Notes,
11.00%, 9/15/09 30,750
------------
591,250
- ------------------------------------------------------------
Retail--0.1%
Caa 50 Pathmark Stores, Inc.,
Sr. Sub. Notes,
9.625%, 5/1/03 40,000
B2 75 Stater Brothers Holdings, Inc.,
Sr. Notes,
10.75%, 8/15/06 75,750
------------
115,750
- ------------------------------------------------------------
Schools--0.1%
B3 90 Kindercare Learning Center,
Inc.,
Sr. Sub. Notes,
9.50%, 2/15/09 85,500
B3 25 La Petite Holdings,
Sr. Notes,
10.00%, 5/15/08 16,875
------------
102,375
- ------------------------------------------------------------
Services--0.1%
B2 $ 35 Alliance Atlantis Commerce,
Inc.,
Sr. Sub. Notes,
13.00%, 12/15/09 $ 34,300
B3 50 IT Group, Inc.,
Sr. Sub. Notes, Series B,
11.25%, 4/1/09 47,500
------------
81,800
- ------------------------------------------------------------
Software--0.2%
B3 25 Covad Commerce Group,
Sr. Notes,
12.00%, 2/15/10 25,187
NR 50 Exodus Communications,
Sr. Notes,
10.75%, 12/15/09 50,875
B3 150 Psinet, Inc.,
Sr. Notes,
11.00%, 8/1/09 154,500
Verio, Inc.,
Sr. Notes,
B3 5 11.25%, 12/1/08 5,238
B3 100 10.625%, 11/15/09 103,500
------------
339,300
- ------------------------------------------------------------
Steel--0.4%
Ba2 20 AK Steel Corp.,
Sr. Notes,
7.875%, 2/15/09 18,000
B2 15 Algoma Steel, Inc.,
First Mtg. Notes,
12.375%, 7/15/05 14,025
Ba2 25 Leviathan Corp.,
Sr. Sub. Notes,
10.375%, 6/1/09 25,875
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 19
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description Value (Note 1
<S> <C> <C> <C>
- ------------------------------------------------------------
Steel (cont'd.)
Ba3 $ 150 National Steel Corp.,
First Mtg., Series D,
9.875%, 3/1/09 $ 150,000
Caa2 25 Sheffield Steel Corp.,
First Mtg., Series B,
11.50%, 12/1/05 21,250
B2 250 UCAR Global Enterprises, Inc.,
Sr. Sub. Notes,
12.00%, 1/15/05 258,750
------------
487,900
- ------------------------------------------------------------
Telecommunications--2.6%
Baa3 600 AT&T Corp.,
MTN, Series G,
6.31%, 4/23/02 598,482
B3 85 Adelphia Business Solutions,
Sr. Disc. Notes,
Zero Coupon (until 4/15/01)
13.00%, 4/15/03 76,075
B2 250 Charter Communication Holdings,
Sr. Notes,
8.625%, 4/1/09 230,000
B3 110 Clearnet Communications, Inc.,
Sr. Disc. Notes,
Zero Coupon (until 5/1/04)
10.125%, 5/1/09 64,900
B1 250 Global Crossing Holdings Ltd.,
Sr. Notes,
9.50%, 11/15/09 241,250
Level 3 Communications, Inc.,
Sr. Disc. Notes,
B3 30 9.125%, 5/1/08 27,825
B3 130 Zero Coupon (until 12/1/03)
10.50%, 12/1/08 78,000
B1 95 Mcleodusa, Inc.,
Sr. Notes,
8.125%, 2/15/09 85,500
Nextel Communications, Inc.,
Sr. Disc. Notes,
B1 $ 15 Zero Coupon (until 9/15/02)
10.65%, 9/15/07 $ 11,175
Sr. Notes,
B1 425 9.375%, 11/15/09 410,125
B2 330 Nextlink Communications, Inc.,
Sr. Disc. Notes,
10.75%, 6/1/09 332,475
B3 250 NTL Communications Corp.,
Sr. Notes,
Zero Coupon (until 10/1/03)
12.38%, 10/1/08 171,250
B3 100 Primus Telecomm Group,
Sr. Notes,
12.75%, 10/15/09 102,000
RCN Corp.,
Sr. Notes,
B3 5 10.00%, 10/15/07 4,850
B3 55 10.125%, 1/15/10 53,488
Telewest Communications PLC
(United Kingdom),
Sr. Disc. Deb.,
B1 250 Zero Coupon (until 10/1/00)
11.00%, 10/1/07 232,500
Sr. Disc. Notes,
B1 235 Zero Coupon (2/1/05)
11.375%, 2/1/10 138,650
B3 250 Tritel PCS, Inc.,
Sr. Sub. Disc. Notes,
Zero Coupon (until 5/15/04)
12.75%, 5/15/09 157,500
B3 125 Triton PCS, Inc.,
Gtd. Notes,
11.00%, 5/1/08 88,437
VSTR Wire Co.,
Sr. Disc. Notes,
B2 65 Zero Coupon (11/15/04)
11.875%, 11/15/09 39,650
Sr. Notes,
B2 90 10.375%, 11/15/09 92,250
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 20
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description Value (Note 1
<S> <C> <C> <C>
- ------------------------------------------------------------
Telecommunications (cont'd.)
B2 $ 245 Williams Communications Group,
Inc.,
Sr. Notes,
10.875%, 10/1/09 $ 252,350
B3 30 Worldwide Fiber, Inc.,
Sr. Notes,
12.00%, 8/1/09 31,425
------------
3,520,157
- ------------------------------------------------------------
Textile-Apparel Manufacturing--0.2%
Baa3 250 Burlington Industries, Inc.,
Sr. Disc. Deb.,
7.25%, 8/1/27 182,500
B3 25 Collins & Aikman Floorcovering,
Sr. Sub. Notes,
10.00%, 1/15/07 24,125
------------
206,625
- ------------------------------------------------------------
Transportation
B1 50 American Commercial Lines LLC,
Sr. Notes,
10.25%, 6/30/08 45,500
- ------------------------------------------------------------
Utilities--0.4%
Ba1 250 AES Corp.,
Sr. Notes,
9.50%, 6/1/09 248,125
Ba3 250 CMS Energy Corp.,
Sr. Notes,
7.50%, 1/15/09 227,500
Ba2 151 Niagara Mohawk Power Corp.,
Sr. Notes, Series C,
7.125%, 7/1/01 150,640
------------
626,265
- ------------------------------------------------------------
Waste Management--0.3%
Allied Waste of North America,
Inc.,
Sr. Notes,
Ba3 250 7.875%, 1/1/09 215,000
Sr. Sub. Notes,
B2 $ 100 10.00%, 8/1/09 $ 87,000
Ba1 150 Waste Management, Inc.,
Gtd. Notes,
6.00%, 5/15/01 145,332
------------
447,332
------------
Total corporate bonds
(cost $26,110,578) 24,953,058
------------
- ------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS--4.9%
Aaa 134 Capital Asset Research Funding
LP,
Series 97-A, Class I,
6.40%, 12/15/04 130,825
Aaa 500 Contimortgage Home Equity Loan
Trust,
Series 1998-2, Class A4,
6.19%, 1/15/14 487,500
Aaa 192 DLJ Mortgage Acceptance Corp.,
6.50%, 5/19/29 177,531
Federal Home Loan Mortgage
Corp.,
Debs.
1,000 6.00%, 12/31/29 948,750
1,800 7.50%, 12/31/29 1,754,712
Series 119, Class H,
729 7.50%, 1/15/21 717,345
Series 1599, Class A,
47 5.80%, 6/15/19 46,722
Series 7, Class A,
252 7.00%, 9/17/31 238,318
525 Federal National Mortgage
Assoc.,
Series 1998-73, Class MZ,
6.30%, 10/17/38 390,601
Aaa 300 GE Capital Mortgage Services,
Inc.,
Series 1999-S, Class A29,
6.50%, 5/25/29 269,784
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 21
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description Value (Note 1
<S> <C> <C> <C>
- ------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS (cont'd.)
Aaa $ 400 PNC Mortgage Secs. Corp.,
Series 1999-5, Class A1,
7.25%, 10/25/29 $ 381,748
Residential Funding Mortgage,
Series 1993-S36, Class A9,
Aaa 200 6.48%, 10/25/08 197,750
Series 1994-S5, Class A6,
Aa1 500 6.50%, 2/25/24 433,905
Series 1999-S8, Class A1,
Aaa 208 6.25%, 3/25/14 191,803
Aaa 370 Salomon Brothers Mortgage,
Series 1999-LB1, Class A,
5.39%, 6/25/29 369,793
------------
Total collateralized mortgage
obligations
(cost $7,040,237) 6,737,087
------------
- ------------------------------------------------------------
CONVERTIBLE BONDS--0.4%
- ------------------------------------------------------------
Financial Services
A2 EURO500 Hellenic Finance,
2.00%, 7/15/03,
(cost $526,875) 481,510
------------
- ------------------------------------------------------------
MUNICIPAL BONDS--0.2%
New York City Gen. Oblig.,
Series B,
NR $ 300 6.00%, 8/1/01
(cost $303,420) 293,085
------------
- ------------------------------------------------------------
SOVEREIGN BONDS--0.3%
Ba1 74 Republic of Phillippines,
9.50%, 10/21/24 73,783
United Mexican States,
Ba1 300 7.44%, 6/27/02 297,750
------------
Total sovereign bonds
(cost $355,534) 371,533
------------
- ------------------------------------------------------------
U.S. GOVERNMENT AGENCIES AND SECURITIES--8.8%
Government National Mortgage
Assoc.,
Single Family,
$ 91 6.75%, 9/20/22 $ 91,774
250 6.00%, 12/31/29 223,282
5,800 6.50%, 12/31/29 5,359,548
420 7.00%, 12/31/29 399,592
United States Treasury Bonds,
400 8.75%, 8/15/20 490,188
1,700 8.00%, 11/15/21 1,955,000
300 6.00%, 2/15/26 277,593
312 3.625%, 4/15/28, TIPS 279,775
United States Treasury Notes,
1,261 3.625%, 7/15/02, TIPS 1,246,859
425 3.375%, 1/15/07, TIPS 401,259
500 4.75%, 11/15/08 435,000
821 3.875%, 1/15/09, TIPS 794,024
------------
Total U.S. government agencies
and securities
(cost $11,969,446) 11,953,894
------------
Total debt obligations
(cost $46,306,090) 44,790,167
------------
Total long-term investments
(cost $117,431,371) 128,749,448
------------
SHORT-TERM INVESTMENTS--11.7%
- ------------------------------------------------------------
CORPORATE BONDS--2.6%
- ------------------------------------------------------------
Banking--0.3%
Baa1 300 Banco Latinoamericano SA,
MTN,
6.15%, 5/2/00 298,950
NR 97 Central Bank Corp.,
Bonds,
6.93%, 7/5/00 95,265
------------
394,215
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 22
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS
January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE
(Unaudited) GROWTH FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description Value (Note 1
<S> <C> <C> <C>
- ------------------------------------------------------------
Chemicals--0.2%
Ba3 $ 250 Arco Chemical Co.,
Deb. Notes,
9.90%, 11/1/00 $ 252,500
- ------------------------------------------------------------
Financial Services--0.7%
A2 400 General Motors Acceptance
Corp.,
MTN,
6.25%, 4/5/00 399,064
Aa3 600 Morgan Stanley Dean Witter,
Sr. Notes,
6.29%, 4/24/00 600,096
------------
999,160
- ------------------------------------------------------------
Multimedia--0.1%
Baa3 200 Paramount Communications, Inc.,
Sr. Notes,
5.87%, 7/15/00 199,018
- ------------------------------------------------------------
Oil & Gas--0.8%
Baa2 1,100 Public Services Enterprise
Group,
Notes, Series C,
6.52%, 3/15/00 1,100,049
- ------------------------------------------------------------
Telecommunications--0.3%
A2 300 AT&T Corp.,
MTN,
6.46%, 3/6/00 300,201
- ------------------------------------------------------------
Utilities--0.2%
Ba2 227 Niagara Mohawk Power Corp.,
Sr. Notes, Series B,
7.00%, 10/1/00 226,328
------------
Total corporate bonds
(cost $3,472,479) 3,471,471
------------
- ------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS--0.1%
Aaa 196 Merrill Lynch Mortgage
Investors, Inc.,
Series 1998-FF1, Class A,
5.95%, 2/20/00
(cost $195,816) 196,213
------------
<CAPTION>
Principal
Amount
(000) Description Value (Note 1
<S> <C> <C> <C>
- ------------------------------------------------------------
COMMERCIAL PAPER--0.8%
$ 700 IBM Credit Corp.,
6.29%, 2/8/00 $ 699,144
400 US West Capital Funding, Inc.,
5.957%, 3/24/00 396,451
------------
Total commercial paper
(cost $1,095,702) 1,095,595
------------
- ------------------------------------------------------------
REPURCHASE AGREEMENT--8.2%
11,165 Joint Repurchase Agreement
Account,
4.72%, 02/01/00
(cost $11,165,000; Note 5) 11,165,000
------------
Total short-term investments
(cost $15,928,997) 15,928,279
------------
- ------------------------------------------------------------
Total Investments--106.2%
(cost $133,360,368) 144,677,727
Liabilities in excess of other
assets--(6.2%) (8,453,551)
------------
Net Assets--100% $136,224,176
------------
------------
</TABLE>
- ---------------
(a) Non-income producing security.
AB--Antiebolay (Swedish Stock Company).
ADR--American Depository Receipt.
AG--Aktiengesellschaft (German Stock Company).
LLC--Limited Liability Company.
LP--Limited Partnership.
MTN--Medium Term Note.
NR--Not Rated by Moody's or Standard & Poor's.
N.V.--Naamloze Vennootschap (Dutch Corporation).
Oy--Osakeyhtio (Finland Stock Company).
PLC--Public Limited Company (British Corporation).
SA-- Sociedad Anonima (Spanish Corporation or Societe Anonyme or French
Corporation).
SpA--Societa per Azione (Italian Corporation).
TIPS--Treasury Inflation Protection Securities.
The Fund's current Statement of Additional Information contains a description of
Moody's and Standard & Poor's ratings.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 23
<PAGE>
PRUDENTIAL DIVERSIFIED FUNDS
Statement of Assets and Liabilities PRUDENTIAL DIVERSIFIED MODERATE
(Unaudited) GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets January 31, 2000
<S> <C>
Investments, at value (cost $133,360,368)................................................................. $144,677,727
Foreign currency, at value ($1,490)....................................................................... 1,483
Cash...................................................................................................... 36,687
Receivable for investments sold........................................................................... 2,898,380
Receivable for Fund shares sold........................................................................... 774,651
Dividends and interest receivable......................................................................... 740,687
Forward currency contracts - amount receivable from counterparties........................................ 32,563
Prepaid expenses.......................................................................................... 1,068
----------------
Total assets........................................................................................... 149,163,246
----------------
Liabilities
Payable for investments purchased......................................................................... 12,149,757
Payable for Fund shares reacquired........................................................................ 426,092
Accrued expenses and other liabilities.................................................................... 177,300
Distribution fee payable.................................................................................. 95,201
Management fee payable.................................................................................... 88,361
Forward currency contracts - amount payable to counterparties............................................. 1,636
Withholding taxes payable................................................................................. 723
----------------
Total liabilities...................................................................................... 12,939,070
----------------
Net Assets................................................................................................ $136,224,176
----------------
----------------
Net assets were comprised of:
Shares of beneficial interest, at par.................................................................. $ 11,917
Paid-in capital in excess of par....................................................................... 122,921,536
----------------
122,933,453
Undistributed net investment income.................................................................... 1,016
Accumulated net realized gain on investments........................................................... 1,942,093
Net unrealized appreciation on investments and foreign currency transactions........................... 11,347,614
----------------
Net assets, January 31, 2000.............................................................................. $136,224,176
----------------
----------------
Class A:
Net asset value and redemption price per share
($32,365,646 / 2,827,278 shares of beneficial interest issued and outstanding)...................... $11.45
Maximum sales charge (5% of offering price)............................................................ .60
----------------
Maximum offering price to public....................................................................... $12.05
----------------
----------------
Class B:
Net asset value, offering price and redemption price per share
($77,600,427 / 6,791,420 shares of beneficial interest issued and outstanding)...................... $11.43
----------------
----------------
Class C:
Net asset value and redemption price per share
($26,066,833 / 2,281,281 shares of beneficial interest issued and outstanding)...................... $11.43
Sales charge (1% of offering price).................................................................... .12
----------------
Offering price to public............................................................................... $11.55
----------------
----------------
Class Z:
Net asset value, offering price and redemption price per share
($191,270 / 16,698 shares of beneficial interest issued and outstanding)............................ $11.45
----------------
----------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 24
<PAGE>
PRUDENTIAL DIVERSIFIED FUNDS
PRUDENTIAL DIVERSIFIED MODERATE
GROWTH FUND
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income January 31, 2000
<S> <C>
Income
Interest............................ $1,759,465
Dividends (net of foreign
withholding taxes of $8,397)..... 380,207
-----------
Total income..................... 2,139,672
-----------
Expenses
Management fee...................... 478,195
Distribution fee--Class A........... 33,268
Distribution fee--Class B........... 345,421
Distribution fee--Class C........... 122,362
Custodian's fees and expenses....... 176,000
Transfer agent's fees and
expenses......................... 70,000
Registration fees................... 35,000
Amortization of offering costs...... 29,535
Reports to shareholders............. 21,000
Audit fees and expenses............. 12,500
Legal fees.......................... 6,000
Trustees' fees and expenses......... 2,500
Miscellaneous....................... 3,141
-----------
Total expenses................... 1,334,922
-----------
Net investment income.................. 804,750
-----------
Realized and Unrealized Gain (Loss)
on Investment and Foreign Currency
Transactions
Net realized gain (loss) on:
Investment transactions............. 2,771,765
Foreign currency transactions....... (6,223)
-----------
2,765,542
-----------
Net change in unrealized appreciation
of:
Investments......................... 5,031,804
Foreign currencies.................. 55,657
-----------
5,087,461
-----------
Net gain on investments and foreign
currencies....................... 7,853,003
-----------
Net Increase in Net Assets
Resulting from Operations $8,657,753
-----------
-----------
</TABLE>
PRUDENTIAL DIVERSIFIED FUNDS
PRUDENTIAL DIVERSIFIED MODERATE
GROWTH FUND
Statement of Changes in Net Assets (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
November 18,
Six Months 1998(a)
Ended Through
Increase (Decrease) January 31, July 31,
in Net Assets 2000 1999
<S> <C> <C>
Operations
Net investment income.......... $ 804,750 $ 711,879
Net realized gain on investment
and foreign currency
transactions................ 2,765,542 66,328
Net change in unrealized
appreciation of
investments................. 5,087,461 6,260,153
------------ ------------
Net increase in net assets
resulting from operations... 8,657,753 7,038,360
------------ ------------
Dividends and distributions (Note
1)
Dividends from net investment
income
Class A..................... (259,944) (132,253)
Class B..................... (623,246) (170,151)
Class C..................... (209,353) (73,278)
Class Z..................... (1,543) (152,622)
------------ ------------
(1,094,086) (528,304)
------------ ------------
Distributions from net realized
capital gains
Class A..................... (197,082) --
Class B..................... (490,277) --
Class C..................... (167,209) --
Class Z..................... (35,210) --
------------ ------------
(889,778) --
------------ ------------
Fund share transactions (Net of
share conversions) (Note 6)
Net proceeds from shares
sold........................ 42,711,829 132,889,254
Net asset value of shares
issued in reinvestment of
dividends and
distributions............... 1,929,600 516,607
Cost of shares reacquired...... (30,094,843) (24,942,216)
------------ ------------
Net increase in net assets from
Fund shares transactions.... 14,546,586 108,463,645
------------ ------------
Total increase.................... 21,220,475 114,973,701
Net Assets
Beginning of period............... 115,003,701 30,000
------------ ------------
End of period(b).................. $136,224,176 $115,003,701
------------ ------------
------------ ------------
- ---------------
(a) Commencement of investment operations.
(b) Includes undistributed net
investment income of........... $ 1,016 $ 296,575
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 25
<PAGE>
PRUDENTIAL DIVERSIFIED FUNDS
PRUDENTIAL DIVERSIFIED MODERATE
Notes to Financial Statements (Unaudited) 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 Moderate Growth
Fund (the 'Fund'), Prudential Diversified Conservative Growth Fund and
Prudential Diversified High Growth Fund. The Trust was organized as a business
trust in Delaware on July 29, 1998. 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' or the 'Manager'). The Fund commenced
investment operations on November 18, 1998.
The investment objective of the Fund is 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
Fund 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 subadviser,
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
Subadviser feel this is representative of market value; after that period, such
securities and other 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.
All securities are valued as of 4:15 p.m., New York time.
Repurchase Agreements: 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.
Options: The Fund may either purchase or write options in order to hedge against
adverse market movements or fluctuations in value caused by changes in
prevailing interest rates or foreign currency exchange rates with respect to
securities or currencies which the Fund currently owns or intends to purchase.
When the Fund purchases an option, it pays a premium and an amount equal to that
premium is recorded as an investment. When the Fund writes an option, it
receives a premium and an amount equal to that premium is recorded as a
liability. The investment or liability is adjusted daily to reflect the current
market value of the option. If an option expires unexercised, the Fund realizes
a gain or loss to the extent of the premium received or paid. If an option is
exercised, the premium received or paid is an adjustment to the proceeds from
the sale or the cost basis of the purchase in determining whether the Fund has
realized a gain or loss. The difference between the premium and the amount
received or paid on effecting a closing purchase or sale transaction is also
treated as a realized gain or loss. Gain or loss on purchased options is
included in net realized gain (loss) on investment transactions. Gain or loss on
written options is presented separately as net realized gain (loss) on written
option transactions.
The Fund, as writer of an option, has no control over whether the underlying
securities or currencies may be sold (called) or purchased (put). As a result,
the Fund bears the market risk of an unfavorable change in the price of the
security or currency underlying the written option. The Fund, as purchaser of an
option, bears the risk of the potential inability of the counterparties to meet
the terms of their contracts.
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:
- --------------------------------------------------------------------------------
26
<PAGE>
PRUDENTIAL DIVERSIFIED FUNDS
PRUDENTIAL DIVERSIFIED MODERATE
Notes to Financial Statements (Unaudited) GROWTH FUND
- --------------------------------------------------------------------------------
(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 and losses
are included in the reported net realized gains and losses on investment
transactions.
Net realized gains and 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.
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 and 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 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 were being amortized over
a period of 12 months, that ended in November 1999.
Reclassification of Capital Accounts: The Fund accounts for and reports
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants (AICPA) Statement of Position 93-2: Determination,
Disclosure and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies. The effect of applying
this statement was to increase accumulated net realized gain on investments and
decrease undistributed net investment income by $6,223, which is due to
- --------------------------------------------------------------------------------
27
<PAGE>
PRUDENTIAL DIVERSIFIED FUNDS
PRUDENTIAL DIVERSIFIED MODERATE
Notes to Financial Statements (Unaudited) GROWTH FUND
- --------------------------------------------------------------------------------
the reclass of net realized foreign currency losses. Net investment income, net
realized gains and net assets were not affected by this change.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with PIFM. Pursuant to this agreement, PIFM
manages the investment operations of the Fund, administers the Fund's affairs
and supervises the Advisers' 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 .375%1
Corporation ('PIC')
Lazzard Asset Management .40%
Pacific Investment Management
Company .25%
Franklin Advisers, Inc. .50%
The Dreyfus Corporation .45%
1Prior to January 1, 2000, PIC was 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 six months ended
January 31, 2000.
PIMS has advised the Fund that it has received approximately $113,300 and
$46,600 in front-end sales charges resulting from sales of Class A and Class C
shares, respectively, during the six months ended January 31, 2000.
PIMS has advised the Fund that for the six months ended January 31, 2000, it has
received approximately $68,100 and $20,600 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 Fund, along with other affiliated registered investment companies (the
'Funds'), entered into a syndicated credit agreement ('SCA') with an
unaffiliated lender. The maximum commitment under the SCA is $1 billion and
interest on any borrowings will be at market rates. For the period
3/11/99-3/9/00, the commitment fee on the unused portion of the credit facility
was .065 of 1%. Subsequent to March 9, 2000, the SCA was renewed with a maximum
commitment of $1 billion at a commitment fee of .080 of 1% of the unused portion
of the credit facility. The expiration date of the SCA is March 9, 2001. The
commitment fee is accrued and paid quarterly on a pro rata basis by the Funds.
Prior to March 11, 1999, the Funds had a credit agreement with a maximum
commitment of $200,000,000. The commitment fee was .055 of 1% on the unused
portion of the credit facility. The Fund did not borrow any amounts during the
year ended January 31, 2000. The purpose of the credit agreements is to serve as
an alternative source of funding for capital share redemptions.
- ------------------------------------------------------------
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 six months ended January 31,
2000, the Fund incurred fees of approximately $63,300 for the services of PMFS.
As of January 31, 2000 approximately $12,200 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.
- --------------------------------------------------------------------------------
28
<PAGE>
PRUDENTIAL DIVERSIFIED FUNDS
PRUDENTIAL DIVERSIFIED MODERATE
Notes to Financial Statements (Unaudited) GROWTH FUND
- --------------------------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of portfolio securities, excluding short-term investments,
for the six months ended January 31, 2000 were $98,992,136 and $93,983,901,
respectively.
At January 31, 2000, the Fund had outstanding forward currency contracts both to
purchases and sell foreign currencies, as follows:
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date Current
Purchase Contracts Payable Value Depreciation
- --------------------- --------------- -------- ---------------
<S> <C> <C> <C>
Euro Dollars,
expiring 2/2/00.... $ 114,006 $112,523 $(1,483)
Japanese Yen,
expiring 2/2/00.... 15,279 15,209 (70)
--------------- -------- -------
$ 129,285 $127,732 $(1,553)
--------------- -------- -------
--------------- -------- -------
</TABLE>
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date Current Appreciation
Sale Contracts Receivable Value (Depreciation)
- --------------------- --------------- -------- ---------------
<S> <C> <C> <C>
Euro Dollars,
expiring 2/17/00... $ 507,850 $485,679 $22,171
Great Britain Pounds,
expiring 2/4/00.... 22,926 23,009 (83)
Japanese Yen,
expiring 3/30/00... 217,337 206,971 10,366
Swedish Krona,
expiring 2/2/00.... 44,870 44,844 26
--------------- -------- -------
$ 792,983 $760,503 $32,480
--------------- -------- -------
--------------- -------- -------
</TABLE>
The United States federal income tax cost basis of the Fund's investments as of
January 31, 2000 was $133,443,343 and accordingly, net unrealized appreciation
of investments for federal income tax purposes was $11,234,384 (gross unrealized
appreciation--$19,311,999, gross unrealized depreciation--$8,077,615).
For federal income tax purposes, the Fund is electing to treat net currency
losses of approximately $19,300 incurred in the nine month period ended July 31,
1999 as being incurred in the current fiscal year.
- ------------------------------------------------------------
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, 2000, the Fund
had a 1.58% undivided interest in the repurchase agreements in the joint
account. The undivided interest for the Fund represents $11,165,000 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., 5.72% in the principal amount of $150,000,000,
repurchase price $150,023,833, due 02/01/00. The value of the collateral
including accrued interest is $153,133,078.
Credit Suisse First Boston Corporation, 5.74% in the principal amount of
$75,000,000, repurchase price $75,011,958, due 02/01/00. The value of the
collateral including accrued interest is $77,491,043.
Credit Suisse First Boston Corporation, 5.73% in the principal amount of
$125,000,000, repurchase price $125,019,895, due 02/01/00. The value of the
collateral including accrued interest is $129,169,641.
Greenwich Capital Markets, Inc., 5.72% in the principal amount of $100,000,000,
repurchase price $100,015,888, due 02/01/00. The value of the collateral
including accrued interest is $102,001,008.
Goldman, Sachs & Co., 5.70% in the principal amount of $230,536,000, repurchase
price $230,572,501, due 02/01/00. The value of the collateral including accrued
interest is $235,147,150.
Merrill Lynch, Pierce, Fenner & Smith, Inc., 5.60% in the principal amount of
$25,000,000, repurchase price $25,003,888, due 02/01/00. The value of the
collateral including accrued interest is $25,501,335.
- ------------------------------------------------------------
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.
The Fund has authorized an unlimited number of shares of beneficial interest at
$.001 par value per share.
- --------------------------------------------------------------------------------
29
<PAGE>
PRUDENTIAL DIVERSIFIED FUNDS
PRUDENTIAL DIVERSIFIED MODERATE
Notes to Financial Statements (Unaudited) GROWTH FUND
- --------------------------------------------------------------------------------
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ----------------------------------- ---------- ------------
<S> <C> <C>
Six months ended January 31, 2000:
Shares sold........................ 1,410,445 $ 15,736,690
Shares issued in reinvestment of
dividends and distributions...... 46,636 526,056
Shares reacquired.................. (529,023) (5,896,916)
---------- ------------
Net increase in shares outstanding
before conversion................ 928,058 10,365,830
Shares issued upon conversion from
Class B.......................... 24,016 270,219
---------- ------------
Net increase in shares
outstanding...................... 952,074 $ 10,636,049
---------- ------------
---------- ------------
November 18, 1998(a) through July
31, 1999:
Shares sold........................ 2,104,901 $ 22,082,276
Shares issued in reinvestment of
dividends........................ 11,721 130,122
Shares reacquired.................. (257,414) (2,765,509)
---------- ------------
Net increase in shares outstanding
before conversion................ 1,859,208 19,446,889
Shares issued upon conversion from
Class B.......................... 15,246 163,070
---------- ------------
Net increase in shares
outstanding...................... 1,874,454 $ 19,609,959
---------- ------------
---------- ------------
Class B
- -----------------------------------
Six months ended January 31, 2000:
Shares sold........................ 1,941,548 $ 21,482,545
Shares issued in reinvestment of
dividends and distributions...... 86,355 974,081
Shares reacquired.................. (617,939) (6,913,104)
---------- ------------
Net increase in shares outstanding
before conversion................ 1,409,964 15,543,522
Shares reacquired upon conversion
from Class A..................... (24,047) (270,219)
---------- ------------
Net increase in shares
outstanding...................... 1,385,917 $ 15,273,303
---------- ------------
---------- ------------
November 18, 1998(a) through July
31, 1999:
Shares sold........................ 5,754,697 $ 60,238,518
Shares issued in reinvestment of
dividends........................ 14,797 163,946
Shares reacquired.................. (349,450) (3,747,204)
---------- ------------
Net increase in shares outstanding
before conversion................ 5,420,044 56,655,260
Shares reacquired upon conversion
into Class A..................... (15,291) (163,070)
---------- ------------
Net increase in shares
outstanding...................... 5,404,753 $ 56,492,190
---------- ------------
---------- ------------
Class C Shares Amount
- ----------------------------------- ---------- ------------
Six months ended January 31, 2000:
Shares sold........................ 491,811 $ 5,461,426
Shares issued in reinvestment of
dividends and distributions...... 29,216 329,554
Shares reacquired.................. (301,173) (3,389,674)
---------- ------------
Net increase in shares
outstanding...................... 219,854 $ 2,401,306
---------- ------------
---------- ------------
November 18, 1998(a) through July
31, 1999:
Shares sold........................ 2,362,554 $ 24,279,763
Shares issued in reinvestment of
dividends........................ 6,349 69,993
Shares reacquired.................. (308,226) (3,281,900)
---------- ------------
Net increase in shares
outstanding...................... 2,060,677 $ 21,067,856
---------- ------------
---------- ------------
Class Z
- -----------------------------------
Six months ended January 31, 2000:
Shares sold........................ 2,803 $ 31,168
Shares issued in reinvestment of
dividends and distributions...... 8,865 99,909
Shares reacquired.................. (1,244,187) (13,895,149)
---------- ------------
Net decrease in shares
outstanding...................... (1,232,519) $(13,764,072)
---------- ------------
---------- ------------
November 18, 1998(a) through July
31, 1999:
Shares sold........................ 2,627,588 $ 26,288,697
Shares issued in reinvestment of
dividends........................ 14,003 152,546
Shares reacquired.................. (1,393,124) (15,147,603)
---------- ------------
Net increase in shares
outstanding...................... 1,248,467 $ 11,293,640
---------- ------------
---------- ------------
</TABLE>
- ---------------
(a) Commencement of investment operations.
- --------------------------------------------------------------------------------
30
<PAGE>
PRUDENTIAL DIVERSIFIED FUNDS
PRUDENTIAL DIVERSIFIED MODERATE
Financial Highlights (Unaudited) GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B
---------------------------- -----------
Six Six
Months November 18, Months
Ended 1998(a) Ended
January 31, Through July January 31,
2000 31, 1999 2000
----------- ------------ -----------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............................... $ 10.86 $ 10.00 $ 10.85
----------- ------ -----------
Income from investment operations:
Net investment income(b)........................................... .10 .12 .06
Net realized and unrealized gain on investments and foreign
currencies...................................................... .70 .83 .68
----------- ------ -----------
Total from investment operations................................ .80 .95 .74
----------- ------ -----------
Less distributions:
Dividends from net investment income............................... (.13) (.09) (.08)
Distributions from net realized gains.............................. (.08) -- (.08)
----------- ------ -----------
Total distributions............................................. (.21) (.09) (.16)
----------- ------ -----------
Net asset value, end of period..................................... $ 11.45 $ 10.86 $ 11.43
----------- ------ -----------
----------- ------ -----------
TOTAL RETURN(c).................................................... 7.36% 9.47% 6.70%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).................................... $32,366 $ 20,372 $77,600
Average net assets (000)........................................... $26,470 $ 12,286 $68,709
Ratios to average net assets:(d)
Expenses, including distribution fees........................... 1.56% 1.88% 2.31%
Expenses, excluding distribution fees........................... 1.31% 1.63% 1.31%
Net investment income........................................... 1.80% 1.59% 1.05%
Portfolio turnover rate............................................ 76% 96% 76%
<CAPTION>
<S> <C>
November 18,
1998(a)
Through July
31, 1999
-------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............................... $ 10.00
------
Income from investment operations:
Net investment income(b)........................................... .06
Net realized and unrealized gain on investments and foreign
currencies...................................................... .83
------
Total from investment operations................................ .89
------
Less distributions:
Dividends from net investment income............................... (.04)
Distributions from net realized gains.............................. --
------
Total distributions............................................. (.04)
------
Net asset value, end of period..................................... $ 10.85
------
------
TOTAL RETURN(c).................................................... 8.99%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).................................... $58,678
Average net assets (000)........................................... $36,645
Ratios to average net assets:(d)
Expenses, including distribution fees........................... 2.63%
Expenses, excluding distribution fees........................... 1.63%
Net investment income........................................... .85%
Portfolio turnover rate............................................ 96%
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) Calculated based upon weighted average shares outstanding during the period.
(c) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(d) Annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 31
<PAGE>
PRUDENTIAL DIVERSIFIED FUNDS
PRUDENTIAL DIVERSIFIED MODERATE
Financial Highlights (Unaudited) GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C Class Z
---------------------------- -----------
Six Six
Months November 18, Months
Ended 1998(a) Ended
January 31, Through July January 31,
2000 31, 1999 2000
----------- ------------ -----------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............................... $ 10.85 $ 10.00 $ 10.87
----------- ------ -----------
Income from investment operations:
Net investment income(b)........................................... .06 .06 .13
Net realized and unrealized gain (loss) on investment
transactions.................................................... .68 .83 .67
----------- ------ -----------
Total from investment operations................................ .74 .89 .80
----------- ------ -----------
Less distributions:
Dividends from net investment income............................... (.08) (.04) (.14)
Distributions from net realized gains.............................. (.08) -- (.08)
----------- ------ -----------
Total distributions............................................. (.16) (.04) (.22)
----------- ------ -----------
Net asset value, end of period..................................... $ 11.43 $ 10.85 $ 11.45
----------- ------ -----------
----------- ------ -----------
TOTAL RETURN(c).................................................... 6.70% 8.99% 7.45%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).................................... $26,067 $ 22,375 $ 191
Average net assets (000)........................................... $24,339 $ 18,346 $ 7,308
Ratios to average net assets:(d)
Expenses, including distribution fees........................... 2.31% 2.63% 1.31%
Expenses, excluding distribution fees........................... 1.31% 1.63% 1.31%
Net investment income........................................... 1.05% .79% 2.03%
Portfolio turnover rate............................................ 76% 96% 76%
<CAPTION>
<S> <C>
November 18,
1998(a)
Through July
31, 1999
-------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............................... $ 10.00
------
Income from investment operations:
Net investment income(b)........................................... .13
Net realized and unrealized gain (loss) on investment
transactions.................................................... .84
------
Total from investment operations................................ .97
------
Less distributions:
Dividends from net investment income............................... (.10)
Distributions from net realized gains.............................. --
------
Total distributions............................................. (.10)
------
Net asset value, end of period..................................... $ 10.87
------
------
TOTAL RETURN(c).................................................... 9.70%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).................................... $13,578
Average net assets (000)........................................... $21,914
Ratios to average net assets:(d)
Expenses, including distribution fees........................... 1.63%
Expenses, excluding distribution fees........................... 1.63%
Net investment income........................................... 1.68%
Portfolio turnover rate............................................ 96%
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) Calculated based upon weighted average shares outstanding during the period.
(c) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(d) Annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 32
<PAGE>
PRUDENTIAL DIVERSIFIED FUNDS
PRUDENTIAL DIVERSIFIED MODERATE
Supplemental Proxy Information (Unaudited) GROWTH FUND
- --------------------------------------------------------------------------------
A Special Meeting of Shareholders of Prudential Diversified Funds was held on
November 8, 1999 for the following purposes:
<TABLE>
<S> <C>
(1) To elect nine trustees;
(2) To ratify the selection of PricewaterhouseCoopers LLP as independent accountants for the
fiscal year ending July 31, 2000; and
(3) To approve certain changes to each Fund's fundamental investment restrictions.
</TABLE>
The results of the voting at the Special Meeting of Shareholders with respect
to these matters was as follows:
With respect to all Funds of Prudential Diversified Funds:
<TABLE>
<CAPTION>
Votes for Votes withheld
----------- --------------
<S> <C> <C> <C> <C>
(1) Election of Trustees
(A) Eugene C. Dorsey................ 16,149,330 212,677
(B) Robert F. Gunia................. 16,144,315 217,692
(C) Robert E. LaBlanc............... 16,153,554 208,453
(D) Douglas H. McCorkindale......... 16,156,578 205,429
(E) Thomas T. Mooney................ 16,137,871 224,136
(F) David R. Odenath, Jr............ 16,160,076 201,931
(G) Stephen Stoneburn............... 16,158,803 203,204
(H) John R. Strangfeld, Jr.......... 16,160,076 201,931
(I) Clay T. Whitehead............... 16,140,906 221,101
</TABLE>
With respect to all Funds of Prudential Diversified Funds:
<TABLE>
<CAPTION>
Votes for Votes against Abstentions
----------- ------------- --------------
<S> <C> <C> <C> <C>
(2) PricewaterhouseCoopers LLP............ 16,014,097 55,890 292,020
(3) Approval of certain changes to the Moderate Growth Fund's fundamental investment
restrictions regarding
(A) Diversification................. 4,084,552 69,686 163,162
(B) Engaging in margin
transactions.................... 4,028,569 94,664 194,167
(C) Issuing senior securities,
borrowing and pledging assets... 4,018,420 81,560 217,420
(D) Investing in real estate........ 4,045,259 81,096 191,045
(E) Making loans.................... 4,018,534 102,654 196,212
(F) Concentration................... 4,034,914 84,768 197,718
(G) Selling securities short........ 3,843,012 169,024 305,364
(H) Investing for the purpose of
exercising control.............. 4,005,621 94,268 217,511
</TABLE>
- --------------------------------------------------------------------------------
33
<PAGE>
Getting the Most from Your Prudential Mutual Fund
How many times have you read these reports--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
Some mutual fund shareholders won't ever read this--they don't read annual and
semiannual reports. It's quite understandable. These annual and semi-annual
reports are prepared to comply with federal regulations, and are often written
in language that is difficult to understand. So, when most people run into
those particularly daunting sections of these reports, they don't read them.
We think that's a mistake.
At Prudential Mutual Funds, we've made some changes to our report to make it
easier to understand and more pleasant to read. We hope you'll find it
profitable to spend a few minutes familiarizing yourself with your investment.
Here's what you'll find in the report:
Performance at a Glance
Since an investment's performance is often a shareholder's primary concern, we
present performance information in two different formats. You'll find it first
on the "Performance at a Glance" page where we compare the Fund and the
comparable average calculated by Lipper, Inc., a nationally recognized mutual
fund rating agency. We report both the cumulative total returns and the average
annual total returns. The cumulative total return is the total amount of income
and appreciation the Fund has achieved in various time periods. The average
annual total return is an annualized representation of the Fund's performance.
It gives you an idea of how much the Fund has earned in an average year for a
given time period. Under the performance box, you'll see legends that explain
the performance information, whether fees and sales charges have been included
in returns, and the inception dates for the Fund's share classes.
See the performance comparison charts at the back of the report for more
performance information. Please keep in mind that past performance is not
indicative of future results.
Portfolio Manager's Report
The portfolio manager, who invests your money for you, reports on successful--
and not-so-successful--strategies in this section of your report. Look for
recent purchases and sales here, as well as information about the sectors the
portfolio manager favors, and any changes that are on the drawing board.
Portfolio of Investments
This is where the report begins to appear technical, but it's really just a
listing of each security held at the end of the reporting period, along with
valuations and other information. Please note that sometimes we discuss a
security in the Portfolio Manager's Report that doesn't appear in this listing
because it was sold before the close of the reporting period.
<PAGE>
Statement of Assets and Liabilities
The balance sheet shows the assets (the value of the Fund's holdings),
liabilities (how much the Fund owes), and net assets (the Fund's equity, or
holdings after the Fund pays its debts) as of the end of the reporting period.
It also shows how we calculate the net asset value per share for each class of
shares. The net asset value is reduced by payment of your dividend, capital
gain, or other distribution, but remember that the money or new shares are
being paid or issued to you. The net asset value fluctuates daily, along with
the value of every security in the portfolio.
Statement of Operations
This is the income statement, which details income (mostly interest and
dividends earned) and expenses (including what you pay us to manage your
money). You'll also see capital gains here--both realized and unrealized.
Statement of Changes in Net Assets
This schedule shows how income and expenses translate into changes in net
assets. The Fund is required to pay out the bulk of its income to shareholders
every year, and this statement shows you how we do it--through dividends and
distributions--and how that affects the net assets. This statement also shows
how money from investors flowed into and out of the Fund.
Notes to Financial Statements
This is the kind of technical material that can intimidate readers, but it does
contain useful information. The Notes provide a brief history and explanation
of your Fund's objectives. In addition, they outline how Prudential Mutual
Funds prices securities. The Notes also explain who manages and distributes the
Fund's shares and, more importantly, how much they are paid for doing so.
Finally, the Notes explain how many shares are outstanding and the number
issued and redeemed over the period.
Financial Highlights
This information contains many elements from prior pages, but on a per-share
basis. It is designed to help you understand how the Fund performed, and to
compare this year's performance and expenses to those of prior years.
Independent Auditor's Report
Once a year, an outside auditor looks over our books and certifies that the
information is fairly presented and complies with generally accepted accounting
principles.
Tax Information
This is information which we report annually about how much of your total
return is taxable. Should you have any questions, you may want to consult a
tax adviser.
Performance Comparison
These charts are included in the annual report and are required by the
Securities Exchange Commission. Performance is presented here as a hypothetical
$10,000 investment in the Fund since its inception or for 10 years (whichever
is shorter). To help you put that return in context, we are required to include
the performance of an unmanaged, broad-based securities index as well. The
index does not reflect the cost of buying the securities it contains or the
cost of managing a mutual fund. Of course, the index holdings do not mirror
those of the Fund--the index is a broad-based reference point commonly used by
investors to measure how well they are doing. A definition of the selected
index is also provided. Investors cannot invest directly in an index.
<PAGE>
The Prudential Mutual Fund Family
- -------------------------------------------------------------------------------
Prudential offers a broad range of mutual funds designed to meet your
individual needs. For information about these funds, contact your financial
adviser or call us at (800) 225-1852. Read the prospectus carefully before you
invest or send money.
STOCK FUNDS
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Index Series Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
The Prudential Investment Portfolios, Inc.
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Mid-Cap Value Fund
Prudential Real Estate Securities Fund
Prudential Sector Funds, Inc.
Prudential Financial Services Fund
Prudential Health Sciences Fund
Prudential Technology Fund
Prudential Utility Fund
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Tax-Managed Funds
Prudential Tax-Managed Equity Fund
Prudential 20/20 Focus Fund
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Target Funds
Large Capitalization Growth Fund
Large Capitalization Value Fund
Small Capitalization Growth Fund
Small Capitalization Value Fund
Asset Allocation/Balanced Funds
Prudential Balanced Fund
Prudential Diversified Funds
Conservative Growth Fund
Moderate Growth Fund
High Growth Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund
GLOBAL FUNDS
Global Stock Funds
Prudential Developing Markets Fund
Prudential Developing Markets Equity Fund
Prudential Latin America Equity Fund
Prudential Europe Growth Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Index Series Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Prudential Global Growth Fund
Prudential International Value Fund
Prudential Jennison International Growth Fund
Global Utility Fund, Inc.
Target Funds
International Equity Fund
Global Bond Funds
Prudential Global Total Return Fund, Inc.
Prudential International Bond Fund, Inc.
BOND FUNDS
Taxable Bond Funds
Prudential Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential High Yield Total Return Fund, Inc.
Prudential Index Series Fund
Prudential Bond Market Index Fund
Prudential Structured Maturity Fund, Inc.
Income Portfolio
Target Funds
Total Return Bond Fund
Tax-Exempt Bond Funds
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Income Series
Insured Series
Prudential Municipal Series Fund
Florida Series
Massachusetts Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
MONEY MARKET FUNDS
Taxable Money Market Funds
Cash Accumulation Trust
Liquid Assets Fund
National Money Market Fund
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.
Tax-Free Money Market Funds
Prudential Tax-Free Money Fund, Inc.
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
COMMAND Funds
COMMAND Money Fund
COMMAND Government Fund
COMMAND Tax-Free Fund
Institutional Money Market Funds
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
- ---------------------------------------
visit our website at www.prudential.com
- ---------------------------------------
Fund Symbols NASDAQ CUSIP
Class A -- 74432F505
Class B DMGBX 74432F604
Class C -- 74432F703
Class Z PDMZX 74432F802
Trustees
Eugene C. Dorsey
Robert F. Gunia
Robert E. LaBlanc
Douglas H. McCorkindale
Thomas T. Mooney
David R. Odenath, Jr.
Stephen Stoneburn
John R. Strangfeld
Clay T. Whitehead
Officers
John R. Strangfeld, President
Robert F. Gunia, Vice President
David R. Odenath, Jr., Vice President
Grace C. Torres, Treasurer
David F. Connor, Secretary
William V. Healey, Assistant Secretary
Stephen M. Ungerman, Assistant Treasurer
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 Dr.Newport Beach, CA 92660
Distributor
Prudential Investment Management Services LLC
Gateway Center Three
100 Mulberry StreetNewark, NJ 07102-4077
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, 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, 2000, 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.
(LOGO) Printed on Recycled Paper
<PAGE>
(LOGO)
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
BULK RATE
U.S. POSTAGE
PAID
Permit 6807
New York, NY
MF186E4 74432F505 74432F604 74432F703 74432F802
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