<PAGE>
(ICON)
ANNUAL REPORT JULY 31, 2000
Prudential
Diversified Conservative Growth Fund
Fund Type Balanced
Objective Current income and a reasonable level of capital appreciation
This report is not authorized for distribution to
prospective investors unless preceded
or accompanied by a current prospectus.
Build On The Rock
(GRAPHIC)
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.
(LOGO)
<PAGE>
Build on the Rock
Investment Goals and Style
The Prudential Diversified Conservative Growth Fund seeks
to provide current income and a reasonable level of
capital appreciation. It invests in a diversified
portfolio of equity and fixed-income securities. There
can be no assurance that the Fund will achieve its
investment objective.
MANAGER
Prudential Investments Fund Management LLC
Investment Sub-Advisers
(PRUDENTIAL LOGO)
(FRANKLIN TEMPLETON LOGO)
(DREYFUS LOGO)
(JENNISON ASSOCIATES LOGO)
(PIMCO LOGO)
(LAZARD LOGO)
<PAGE>
www.prudential.com (800) 225-1852
Performance at a Glance
Cumulative Total Returns1 As of 7/31/00
<TABLE>
<CAPTION>
One Since
Year Inception2
<S> <C> <C>
Class A 11.73% 17.69%
Class B 10.89 16.18
Class C 10.89 16.18
Class Z 11.84 18.08
Lipper Balanced Fund Avg.3 6.07 14.04
</TABLE>
Average Annual Total Returns1 As of 7/31/00
<TABLE>
<CAPTION>
One Since
Year Inception2
<S> <C> <C>
Class A 6.14% 6.78%
Class B 5.89 7.00
Class C 8.78 8.58
Class Z 11.84 10.27
</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 one-year and since inception periods in the
Balanced Fund category. The Lipper average is unmanaged.
The Lipper Balanced Fund average includes funds that
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>
(LOGO)
Dear Shareholder,
The Prudential Diversified Conservative Growth Fund's
Class A shares had a cumulative total return of 11.73%
over the 12-month period ended July 31, 2000, almost
twice the 6.07% Lipper Balanced Fund Average. This was
6.14% to those paying the maximum one-time Class A share
sales charge. Although its core bonds, the Fund's largest
allocation, generated a good return, its outperformance
was due to its small-cap and large-cap growth holdings.
Both substantially exceeded even their high benchmark
returns. The Fund's high-yield bonds posted a small
positive return, while its value stocks made a net
negative contribution over the period.
This was a good period to be in a diversified fund. The
markets changed with dizzying frequency and rapidity. To
illustrate this point, the graph on the next page
represents the monthly returns of three different
indexes: the Standard & Poor's Electronics Index, which
represents a model growth industry; the Standard & Poor's
SmallCap Gaming Index, which represents stocks that can
be found in many value funds; and the Morgan Stanley
Capital International EAFE Index, which represents the
major world markets excluding the United States. As you
can see, each had dramatic month-to-month changes,
including some negative months, and they behaved in
very different ways. A diversified fund-one that is
invested in several companies within a number of different
industries that have different growth characteristics-is
more likely to exhibit steady performance.
Sincerely,
John R. Strangfeld, President
Prudential Diversified Conservative Growth Fund
2
<PAGE>
September 15, 2000
Monthly Returns of Selected Indexes
(GRAPH)
1 The S&P Electronics (semiconductors) Index is an
unmanaged capitalization-weighted index of all stocks
designed to measure performance of the electronics
(semiconductors) sector of the S&P 500 Index.
2 The S&P SmallCap Gaming, Lottery, and Parimutuel
Companies Index is an unmanaged capitalization-weighted
index that measures the performance of the gaming,
lottery, and parimutuel sector of the S&P SmallCap Index.
3 The Morgan Stanley Capital International Europe,
Australia, Far East Index (MSCI EAFE Index) is an
unmanaged weighted index of performance that reflects
stock price movements in Europe, Australasia, and the Far
East.
The performance cited does not represent the performance
of the Prudential Diversified Conservative Growth Fund.
Past performance is not indicative of future results.
Investors cannot invest directly in an index.
3
<PAGE>
Prudential Diversified Conservative Growth Fund
Annual Report July 31, 2000
Investment Adviser's Report
The Investing Context
Good news about the global economy dominated in the
fiscal year ended July 31, 2000. During the early part of
the period, uncertainties about how information systems
would behave during the turnover to the year 2000 caused
a flood of investment activity as companies updated their
information system support. The uncertainty also led the
U.S. Federal Reserve to increase the money supply to
ensure that any unexpected failure would not freeze the
financial system. During this period, technology and
telecommunications stocks around the world shot up to
extraordinarily high prices in comparison to even
optimistic earnings projections.
In the latter half of 1999, the Federal Reserve began
increasing interest rates to prevent the U.S. economy
from overheating. The series of interest rate increases
continued into 2000, leading investors to take a second
look at stock prices that were based upon expectations of
a long stream of future earnings. In addition, many
investors feared that rising interest rates would choke
off economic growth. In the wake of increasing investor
uncertainty, many of the most expensive stocks declined
in value, and stock markets faced unprecedented
volatility as every additional piece of economic
news was scrutinized and acted upon. Growth and value
investing styles alternated in success, sometimes from
day to day. Investors with well-diversified portfolios
were better positioned to weather these style turnovers
because some holdings might have experienced gains as
others lost ground.
Over the full 12 months, growth-style investing performed
best. Among stocks of small-capitalization companies, the
advantage was entirely in the early part of the period,
as small-cap value stocks were significantly favored in
the second half. Among large caps, market favor continued
to alternate through the summer of 2000. International
stocks gained modestly, mostly early in the period. As in
the U.S. market, style volatility and increased
caution held back international returns in 2000.
4
<PAGE>
www.prudential.com (800) 225-1852
The threat of rising interest rates depressed bond prices
early in the fiscal period because bonds lose value when
market interest rates rise. However, the U.S. budget
surplus led to Treasury buybacks that reduced the supply
of long-term Treasury bonds. Consequently, their prices
increased and yields fell. The yield premium on corporate
over government bonds widened in 2000.
Our Performance
Core bonds. The Fund's core bond holdings provided a
substantial return, in line with their benchmark. Its
managers had underweighted corporate bonds and emphasized
several better-performing sectors: mortgage-backed
securities, real-return bonds (whose yields are adjusted
for inflation), and emerging market bonds. Corporates
performed relatively poorly because of increased concerns
about credit quality. Mortgage-backed securities and
real-return bonds had attractive yields, while emerging
market bonds appreciated sharply in value as the improving
global economy reduced credit concerns. In contrast, bonds
of less strong U.S. companies (high-yield bonds) declined
in value as credit concerns undermined their higher yields.
High-yield bonds. About 15% of the Fund's assets are
allocated to high-yield debt securities, or "junk bonds."
Although their benchmark had a negative return over our reporting
period, the Fund's investments produced positive returns.
Growth stocks. The Prudential Diversified Conservative
Growth Fund continued to benefit from the 20% of its assets
allocated to growth-style investing (15% large cap and 5%
small cap) and from the strong performance of its growth
managers. They far exceeded the returns of their respective
benchmarks. In small-cap stocks, the portfolio benefited
from its focus on technology. Early in the period, an
emphasis was placed on Internet-related stocks, and these
were market favorites. The managers reduced their Internet
position in time to protect much of these gains from the sharp
technology stock correction that occurred in the second quarter of
2000. The cash was reinvested in more established companies as the market
declined.
5
<PAGE>
Prudential Diversified Conservative Growth Fund
Annual Report July 31, 2000
Value stocks. Largely because of the growth-oriented
environment early in the period, value benchmarks posted
negative performances over the reporting period. Our
style-consistent managers were more affected than most by
changes in market favor, and both underperformed their
benchmarks. In large-cap stocks, the strong contribution
of rebounding health management companies and gains by
oil companies failed to offset the impact of a low
representation in technology and a high weighting in
paper companies. With regard to the latter, a 1999
recovery of paper stocks was cut short in 2000 when
investors focused on the threats to continuing economic
growth. In small caps, the portfolio's return relative to
its peers was hurt by the absence of biotechnology
holdings, which received an unexpected boost in the
second quarter from the publicity following the mapping
of the human genome.
Prudential Diversified Conservative Growth Fund Management Team
6
<PAGE>
www.prudential.com (800) 225-1852
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 the Fund 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, but 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 buffer
than a fund investing in only one asset class. We believe
this will result in more consistent returns over time.
Rebalancing
The 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 the Prudential Diversified Conservative Growth Fund.
Moreover, calculating the amounts to allocate to each
kind of security in a rebalancing would be difficult.
Prudential Diversified Funds do it all for you.
7
<PAGE>
Prudential Diversified Conservative Growth Fund
Annual Report July 31, 2000
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 the terms specified in the bond. They have a maturity
date at which they must be repaid. Generally, bond prices
fluctuate with current interest rates and with events
that affect 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.
Prudential Diversified Conservative Growth Fund Diversification Target
(GRAPH)
<PAGE>
Prudential Diversified Conservative Growth Fund
Annual Report July 31, 2000
Financial
Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C> <C>
----------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS 107.6%
Common Stocks 36.1%
-------------------------------------------------------------------------------------
Advertising 0.2%
1,300 Omnicom Group, Inc. $ 110,500
400 Penton Media, Inc. 13,850
475 True North Communications, Inc. 23,186
----------------
147,536
-------------------------------------------------------------------------------------
Aerospace/Defense 0.2%
275 ADVO, Inc. 11,258
1,525 Gencorp, Inc. 12,105
1,053 General Motors Corp., Class H 59,955
6,300 Loral Space & Communications, Inc.(a) 32,681
625 Scott Technologies, Inc. 12,031
----------------
128,030
-------------------------------------------------------------------------------------
Airlines
800 Airborne Freight Corp. 12,350
350 Skywest, Inc. 15,619
----------------
27,969
-------------------------------------------------------------------------------------
Aluminum 0.4%
8,600 Alcoa, Inc. 260,150
787 Reliance Steel & Aluminum Co. 16,527
----------------
276,677
-------------------------------------------------------------------------------------
Apparel 0.1%
575 American Eagle Outfitters, Inc.(a) 8,553
600 Kellwood Co. 13,425
1,050 Polo Ralph Lauren Corp. 16,997
675 Russell Corp. 13,289
375 Springs Industries, Inc. 12,094
----------------
64,358
</TABLE>
10 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
----------------------------------------------------------------------------------------
<C> <S> <C> <C>
Audio/Visual 0.1%
300 Harman International Industries, Inc. $ 18,975
700 Polycom, Inc. 66,402
----------------
85,377
-------------------------------------------------------------------------------------
Auto & Truck 0.1%
850 Arvinmeritor, Inc. 13,281
400 Borg-Warner Automotive, Inc. 13,575
768 Delphi Automotive Systems Corp. 11,376
1,675 Dura Automotive Systems, Inc.(a) 17,274
825 Lear Corp. 19,233
375 Superior Industries International, Inc. 11,273
----------------
86,012
-------------------------------------------------------------------------------------
Banking 0.9%
1,225 Bancorpsouth, Inc. 18,605
575 BancWest Corp. 10,602
4,200 Bank America Corp. 198,975
980 Bank of New York Co., Inc. 45,876
500 Bank United Corp. 18,219
1,505 BankNorth Group, Inc. 23,045
600 BSB Bancorp, Inc. 12,825
500 City National Corp. 18,344
525 Corus Bankshares, Inc. 15,356
1,550 Cullen/Frost Bankers, Inc. 44,078
1,558 CVB Financial Corp. 24,538
75 First Citizens Bancshares, Inc. 4,575
900 Fulton Financial Corp. 19,350
2,300 Golden State Bancorp, Inc.(a) 43,987
375 Greater Bay Bancorp 20,180
725 Harbor Florida Bancshares, Inc. 8,247
1,225 MAF Bancorp, Inc. 24,423
800 PFF Bancorp, Inc. 13,900
525 Queens County Savings Bank, Inc. 12,141
600 Southwest Bancorp(a) 15,712
1,212 Washington Federal, Inc. 22,725
825 Westamerica Bancorporation 22,894
</TABLE>
See Notes to Financial Statements 11
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
----------------------------------------------------------------------------------------
<C> <S> <C> <C>
425 Whitney Holding Corp. $ 15,805
----------------
654,402
-------------------------------------------------------------------------------------
Building & Construction 0.5%
1,800 American Standard Co.(a) 80,212
2,500 Centex Corp. 59,844
1,400 D.R. Horton, Inc. 21,700
200 Dycom Industries, Inc.(a) 8,550
675 Kaufman & Broad Home Corp. 13,205
1,325 M.D.C. Holdings, Inc. 26,500
1,600 Pulte Corp. 36,700
400 Texas Industries, Inc. 12,975
1,300 Thomas Industries, Inc.(a) 27,137
500 Toll Brothers, Inc. 12,094
1,375 Webb Delaware Corp. 20,969
----------------
319,886
-------------------------------------------------------------------------------------
Cable 0.1%
500 Belden, Inc. 12,563
425 Cable Design Technologies Corp. 14,981
1,125 General Cable Corp. 9,703
----------------
37,247
-------------------------------------------------------------------------------------
Chemicals 0.4%
375 Albany Molecular Research, Inc. 20,766
800 Albemarle Corp. 19,750
475 Arch Chemicals, Inc. 9,500
100 Cambrex Corp. 4,519
725 Cytec Industries, Inc.(a) 22,656
1,800 Eastman Chemical Co. 84,375
225 H.B. Fuller Co. 8,690
1,100 Olin Corp. 17,256
250 Om Group, Inc. 11,859
800 Spartech Corp. 21,450
450 The Geon Co. 7,397
725 The Lubrizol Corp. 15,497
875 W.R. Grace & Co.(a) 18,516
----------------
262,231
</TABLE>
12 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
----------------------------------------------------------------------------------------
<C> <S> <C> <C>
Commercial Products/Services 0.1%
700 John H. Harland Co.(a) $ 9,362
1,400 Luminant Worldwide Corp.(a) 11,375
800 Potash Corp. of Saskatchewan, Inc. 42,950
325 United Stationers, Inc. 9,466
100 Ventro Corp. 1,206
----------------
74,359
-------------------------------------------------------------------------------------
Computers 2.2%
1,500 ASM Lithography Holding N.V. (Netherlands) 59,625
700 Axent Technologies, Inc.(a) 17,238
600 Brooktrout, Inc.(a) 18,150
3,200 Catapult Communications Corp.(a) 42,600
1,500 Citrix Systems, Inc.(a) 22,875
12,000 Compaq Computer Corp. 336,750
1,400 Comverse Technology, Inc.(a) 122,850
2,300 Dell Computer Corp.(a) 101,056
2,900 EMC Corp.(a) 246,862
2,800 Hewlett-Packard Co. 305,725
525 InFocus Corp.(a) 18,375
775 Phoenix Technologies, Ltd.(a) 13,175
1,500 Sun Microsystems, Inc.(a) 158,156
500 Verisign, Inc.(a) 79,344
----------------
1,542,781
-------------------------------------------------------------------------------------
Computer Services 0.8%
1,700 Affiliated Computer Services, Inc.(a) 76,606
100 AnswerThink Consulting Group(a) 1,681
6,000 Cisco Systems, Inc.(a) 392,625
2,700 NetSolve, Inc.(a) 63,450
475 Onyx Software Corp.(a) 11,489
100 Predictive Systems, Inc.(a) 2,200
325 PurchasePro.Com, Inc.(a) 12,675
337 RadiSys Corp.(a) 20,726
600 Virage Logic Corp.(a) 7,200
----------------
588,652
-------------------------------------------------------------------------------------
Consumer Products/Services 0.1%
787 Fossil, Inc.(a) 14,363
6,600 Service Corp. International(a) 16,912
700 Tupperware Corp. 13,606
----------------
44,881
</TABLE>
See Notes to Financial Statements 13
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
----------------------------------------------------------------------------------------
<C> <S> <C> <C>
Diversified Manufacturing 0.5%
325 Aptargroup, Inc. $ 8,105
1,125 Carpenter Technology Corp. 34,453
500 Corning, Inc. 116,969
600 Cuno, Inc. 18,150
3,100 General Electric Co. 159,456
825 Hon Industries, Inc. 22,017
275 Libbey, Inc. 8,577
500 Trinity Industries, Inc. 9,625
----------------
377,352
-------------------------------------------------------------------------------------
Electrical Services 0.1%
225 Littelfuse, Inc. 7,931
300 PerkinElmer, Inc. 19,181
250 RGS Energy Group, Inc. 5,735
----------------
32,847
-------------------------------------------------------------------------------------
Electronic Components 1.9%
1,000 Alpha Industries, Inc.(a) 34,063
700 Applied Micro Circuits Corp. 104,475
4,500 Arrow Electronics, Inc.(a) 148,781
425 ATMI, Inc.(a) 10,944
1,700 Avnet, Inc. 96,794
400 Broadcom Corp.(a) 89,700
125 Brooks Automation, Inc.(a) 6,203
150 Electro Scientific Industries, Inc.(a) 6,816
425 Electroglas, Inc.(a) 8,500
900 Flextronics International, Ltd.(a) 63,717
2,300 Gentex Corp.(a) 52,325
275 Integrated Silicon Solution, Inc. 5,775
525 Kemet Corp.(a) 12,600
1,700 Novellus Systems, Inc.(a) 91,694
700 PMC-Sierra, Inc.(a) 135,712
75 Power-One, Inc.(a) 8,855
100 QLogic Corp.(a) 7,450
700 Rogers Corp. 25,025
2,100 STMicroelectronics N.V. (Netherlands) 119,569
900 Tektronix, Inc. 55,350
3,500 Texas Instruments, Inc. 205,406
175 Varian Semiconductor Equipment, Inc. 8,498
300 Veeco Instruments, Inc.(a) 23,625
----------------
1,321,877
</TABLE>
14 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
----------------------------------------------------------------------------------------
<C> <S> <C> <C>
Entertainment 0.1%
200 Anchor Gaming(a) $ 10,837
425 Gaylord Entertainment Co. 10,545
500 SFX Entertainment, Inc.(a) 23,000
----------------
44,382
-------------------------------------------------------------------------------------
Financial Services 2.2%
1,175 Allied Capital Corp. 22,252
3,800 American Express Co. 215,412
725 Arthur J. Gallagher & Co. 35,570
5,600 Citigroup, Inc. 395,150
200 Dain Rauscher Corp. 13,563
1,300 Doral Financial Corp. 16,900
850 Downey Financial Corp. 29,750
450 Eaton Vance Corp. 23,316
2,550 Federated Investors, Inc. 66,779
250 Investment Technology Group 12,156
1,100 LaBranche & Co., Inc.(a) 22,412
1,200 Merrill Lynch & Co., Inc. 155,100
1,350 Metris Companies, Inc. 39,572
3,300 Morgan Stanley Dean Witter & Co. 301,125
425 National Discount Brokers Group, Inc.(a) 13,998
2,000 Schwab (Charles) Corp. 72,250
2,375 Silicon Valley Bancshares 104,055
400 Triad Guaranty, Inc. 9,700
900 Webster Financial Corp. 20,137
----------------
1,569,197
-------------------------------------------------------------------------------------
Food & Beverage 0.7%
175 Adolph Coors Co. 11,025
475 Dean Foods Co. 16,536
600 Fleming Cos., Inc. 9,413
900 Mettler-Toledo International, Inc.(a) 36,450
725 Michael Foods, Inc. 17,400
8,200 Nabisco Group Holding Corp.(a) 217,300
625 Performance Food Group Co.(a) 20,586
1,125 Riviana Foods, Inc. 18,281
</TABLE>
See Notes to Financial Statements 15
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
----------------------------------------------------------------------------------------
<C> <S> <C> <C>
4,900 Sara Lee Corp. $ 90,344
700 Smithfield Foods, Inc.(a) 19,906
650 Universal Foods Corp. 12,675
----------------
469,916
-------------------------------------------------------------------------------------
Health Care 3.3%
1,025 Apria Healthcare Group, Inc.(a) 15,311
1,350 Bergen Brunswig Corp. 11,813
525 Datascope Corp.(a) 19,819
9,300 Foundation Health Systems, Inc.(a) 135,431
12,800 HCA Healthcare Co. 435,200
1,100 Health Care Properties Investments, Inc. 32,725
10,400 HEALTHSOUTH Corp.(a) 61,750
100 Oxford Health Plans, Inc.(a) 2,394
2,000 Pacificare Health Systems, Inc.(a) 130,000
1,300 Parexel International Corp.(a) 12,919
500 Patterson Dental Co.(a) 13,250
3,975 Pharmacia Corp. 217,631
14,400 Tenet Healthcare Corp.(a) 438,300
525 Trigon Healthcare, Inc.(a) 27,825
3,900 UnitedHealth Group, Inc. 319,068
525 Varian Med Systems, Inc. 22,575
5,100 Wellpoint Health Networks, Inc.(a) 444,656
----------------
2,340,667
-------------------------------------------------------------------------------------
Home Furnishings 0.1%
525 Ethan Allen Interiors, Inc. 13,387
925 Furniture Brands International, Inc.(a) 13,702
----------------
27,089
-------------------------------------------------------------------------------------
Hotels 0.1%
6,700 Hilton Hotels Corp. 68,675
8,500 Meristar Hotels & Resorts, Inc.(a) 22,844
----------------
91,519
-------------------------------------------------------------------------------------
Human Resources 0.1%
2,300 Careerbuilder, Inc.(a) 18,040
450 CDI Corp.(a) 8,944
</TABLE>
16 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
----------------------------------------------------------------------------------------
<C> <S> <C> <C>
775 Spherion Corp.(a) $ 14,822
----------------
41,806
-------------------------------------------------------------------------------------
Insurance 2.1%
800 Alfa Corp. 14,600
1,100 American Financial Group, Inc. 27,500
900 American General Corp. 60,019
2,363 American International Group, Inc. 207,162
600 Annuity & Life Reinsurance Holdings, Ltd. 14,775
4,600 AXA Financial, Inc. 175,950
4,500 Chubb Corp. 333,000
675 Commerce Group, Inc. 18,731
415 Fidelity National Financial, Inc. 7,340
550 First American Financial Corp. 8,559
3,100 John Hancock Financial Services, Inc.(a) 73,238
650 Leucadia National Corp. 17,347
725 MONY Group, Inc. 25,919
6,100 Old Republic International Corp. 136,106
1,350 Presidential Life Corp. 19,491
400 Quotesmith.com, Inc.(a) 975
468 Radian Group, Inc. 28,490
2,600 Reinsurance Group of America, Inc. 82,713
6,600 SAFECO Corp. 152,212
2,200 St. Paul Companies, Inc. 97,762
400 StanCorp Financial Group, Inc. 13,800
----------------
1,515,689
-------------------------------------------------------------------------------------
Internet 0.3%
350 Agency Common Limited 7,547
100 Alteon Websystems, Inc.(a) 13,194
2,100 America Online, Inc.(a) 111,956
100 Go2Net, Inc.(a) 5,906
100 Interwoven, Inc.(a) 6,456
100 ITXC Corp.(a) 1,813
375 Keynote Systems, Inc.(a) 14,227
400 Liberate Technologies, Inc.(a) 9,175
225 Proxicom, Inc.(a) 9,295
100 Software.com, Inc.(a) 10,087
</TABLE>
See Notes to Financial Statements 17
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
----------------------------------------------------------------------------------------
<C> <S> <C> <C>
100 Viant Corp.(a) $ 3,300
100 Ziff-Davis, Inc.(a) 1,713
----------------
194,669
-------------------------------------------------------------------------------------
Machinery 0.2%
275 Helix Technology Corp. 8,938
400 IDEX Corp. 13,200
1,025 JLG Industries, Inc. 10,442
450 Kulicke & Soffa Industries, Inc.(a) 20,306
1,425 Lincoln Electric Holdings, Inc.(a) 21,553
575 Manitowoc Co., Inc. 14,159
575 Milacron, Inc. 8,266
775 Terex Corp. 12,787
575 Toro Co. 17,322
100 Varian, Inc.(a) 4,212
----------------
131,185
-------------------------------------------------------------------------------------
Media 0.9%
6,600 AT&T Corp. Liberty Media 146,850
450 Banta Corp. 8,690
2,400 Clear Channel Communications, Inc.(a) 182,850
300 Cumulus Media, Inc.(a) 2,925
250 Entercom Communications Corp. 9,703
600 Gemstar TV Guide International, Inc. 36,488
650 Lee Enterprises, Inc. 16,562
1,000 Primedia, Inc. 92,250
250 Scholastic, Corp.(a) 15,969
300 Time Warner, Inc. 23,006
1,100 Univision Communications, Inc.(a) 136,675
----------------
671,968
-------------------------------------------------------------------------------------
Medical Products/Services 0.5%
2,300 Amgen, Inc.(a) 149,356
700 Genentech, Inc.(a) 106,488
125 Quest Diagnostics, Inc.(a) 12,617
2,200 Serono SA (Switzerland) 59,400
----------------
327,861
</TABLE>
18 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
----------------------------------------------------------------------------------------
<C> <S> <C> <C>
Metals 0.3%
550 Cleveland-Cliffs, Inc. $ 13,647
850 Commercial Metals Co. 24,969
525 Kaydon Corp. 10,992
2,300 Phelps Dodge Corp. 93,581
375 Precision Castparts Corp. 23,977
850 Worthington Industries, Inc. 8,978
----------------
176,144
-------------------------------------------------------------------------------------
Mining 0.3%
8,400 Freeport-McMoRan Copper & Gold, Inc.(a) 71,925
6,000 Newmont Mining Corp. 106,500
----------------
178,425
-------------------------------------------------------------------------------------
Networking 0.3%
100 Adaptec, Inc.(a) 2,475
475 Anixter International, Inc.(a) 13,805
200 C-COR.net Corp.(a) 5,287
500 Juniper Networks, Inc.(a) 71,219
2,100 Metromedia Fiber Network, Inc.(a) 73,762
500 Network Appliance, Inc.(a) 43,094
----------------
209,642
-------------------------------------------------------------------------------------
Office Equipment & Supplies 0.3%
5,500 Harris Corp. 188,375
5,500 Lanier Worldwide, Inc.(a) 3,781
----------------
192,156
-------------------------------------------------------------------------------------
Oil & Gas 1.5%
400 Amerada Hess Corp. 24,200
3,936 BP Amoco PLC 205,902
1,425 Energen Corp. 32,063
775 Helmerich & Payne, Inc. 24,800
1,280 Kerr-McGee Corp. 70,240
2,500 Keyspan Corp. 79,375
2,600 Marine Drilling Co., Inc.(a) 56,550
2,200 Newfield Exploration Co.(a) 74,938
</TABLE>
See Notes to Financial Statements 19
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
----------------------------------------------------------------------------------------
<C> <S> <C> <C>
1,600 Nuevo Energy Co. $ 24,400
2,700 Occidental Petroleum Corp. 54,675
900 Oneok, Inc. 24,019
525 Patterson Energy, Inc. 13,092
1,400 Schlumberger, Ltd. 103,512
3,344 Total SA, ADR (France) 245,993
750 Valero Energy Corp. 19,453
----------------
1,053,212
-------------------------------------------------------------------------------------
Oil & Gas Exploration/Production 0.1%
775 Berry Petroleum Co. 14,095
725 Mitchell Energy & Development Corp. 23,110
250 St. Mary Land & Exploration Co. 7,484
425 Ultramar Diamond Shamrock Corp. 9,722
----------------
54,411
-------------------------------------------------------------------------------------
Paper & Packaging 1.5%
450 Chesapeake Corp. 11,784
1,500 Fort James Corp. 45,844
6,900 Georgia-Pacific Corp. 171,206
2,100 Georgia-Pacific Corp. (Timber Group) 63,656
4,100 International Paper Co. 139,400
4,800 Mead Corp. 121,800
1,850 Pactiv Corp. 17,113
900 Pope & Talbot, Inc. 17,325
2,050 Rayonier, Inc. 83,410
2,700 Temple-Inland, Inc. 117,281
3,100 Weyerhaeuser Co. 141,631
4,700 Willamette Industries, Inc. 142,469
----------------
1,072,919
-------------------------------------------------------------------------------------
Pharmaceuticals 1.2%
325 Alpharma, Inc. 21,287
3,100 American Home Products Corp. 164,494
775 Bindley Western Industries, Inc. 20,392
1,200 Lilly (Eli) & Co. 124,650
1,300 Inhale Therapeutic Systems, Inc.(a) 105,544
7,950 Pfizer, Inc. 342,844
</TABLE>
20 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
----------------------------------------------------------------------------------------
<C> <S> <C> <C>
600 Waters Corp.(a) $ 71,175
----------------
850,386
-------------------------------------------------------------------------------------
Photography 0.5%
6,100 Eastman Kodak Co. 334,737
-------------------------------------------------------------------------------------
Real Estate Investment Trusts 0.7%
200 Alexandria Real Estate Equities, Inc. 7,163
900 Amli Residential Properties Trust 21,937
925 Arden Reality, Inc. 24,512
500 Avalonbay Communities, Inc. 23,562
900 Bradley Real Estate, Inc. 19,350
750 BRE Properties, Inc. 24,328
875 Cabot Industrial Trust Corp. 17,937
450 Camden Property Trust 14,063
300 Catellus Development Corp.(a) 5,175
600 Developers Diversified Reality Corp. 9,450
625 First Industrial Reality Trust, Inc. 20,000
750 Franchise Finance Corp. of America 18,000
625 Gables Residential Trust 16,992
300 General Growth Properties, Inc. 10,163
750 Health Care REIT, Inc. 13,500
950 Highwoods Properties, Inc. 25,650
650 Hospitality Properties Trust 16,088
1,800 JDN Realty Corp. 18,900
2,300 Meristar Hospitality Corp. 51,031
1,300 Nationwide Health Properties, Inc. 20,475
1,375 Reckson Associates Reality Corp. 36,094
850 Regency Reality Corp. 20,400
200 SL Green Reality Corp. 5,938
875 Summit Properties, Inc. 20,891
550 Weingarten Realty Investors 22,756
----------------
484,355
-------------------------------------------------------------------------------------
Restaurants 0.4%
3,500 CKE Restaurants, Inc. 10,281
15,400 Darden Restaurants, Inc. 251,213
300 Jack in the Box, Inc.(a) 6,431
</TABLE>
See Notes to Financial Statements 21
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
----------------------------------------------------------------------------------------
<C> <S> <C> <C>
950 Ruby Tuesday, Inc. $ 11,697
2,225 Ryan's Family Steak Houses, Inc.(a) 20,303
----------------
299,925
-------------------------------------------------------------------------------------
Retail 2.6%
575 Alberto-Culver Co. 17,466
1,225 Ames Department Stores, Inc. 8,728
550 BJ's Wholesale Club, Inc.(a) 16,466
3,500 Consolidated Stores Corp.(a) 41,781
6,700 Dillards, Inc. (Class 'A' Stock) 91,706
500 Dress Barn, Inc.(a) 10,375
1,200 Estee Lauder Cos., Inc. 52,800
275 Factory 2 U, Inc. 11,413
4,075 Gap, Inc. 145,936
6,800 Home Depot, Inc. 351,900
9,700 IKON Office Solutions, Inc. 39,406
2,100 J.C. Penney Co., Inc. 33,862
14,400 Kmart Corp.(a) 100,800
3,800 Kohl's Corp.(a) 215,650
400 Michaels Stores, Inc.(a) 17,325
700 Pep Boys - Manny, Moe & Jack, Inc. 4,069
1,350 Pier 1 Imports, Inc. 16,116
3,800 RadioShack Corp. 214,225
1,350 Ross Stores, Inc. 20,756
100 Sears, Roebuck & Co. 2,988
3,400 Tiffany & Co. 116,450
4,500 Toys 'R' Us, Inc.(a) 74,250
1,300 Venator Group, Inc. 18,363
3,800 Wal-Mart Stores, Inc. 208,762
675 Zale Corp.(a) 25,228
----------------
1,856,821
-------------------------------------------------------------------------------------
Semiconductors 0.7%
1,600 Applied Materials, Inc.(a) 121,400
100 Cirrus Logic, Inc.(a) 1,938
550 Gasonics International Corp.(a) 13,200
5,400 Intel Corp. 360,450
</TABLE>
22 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
----------------------------------------------------------------------------------------
<C> <S> <C> <C>
100 Micrel, Inc.(a) $ 5,007
----------------
501,995
-------------------------------------------------------------------------------------
Shipbuilding
275 Newport News Shipbuilding, Inc. 11,103
-------------------------------------------------------------------------------------
Software 0.9%
125 Allaire Corp.(a) 3,857
100 Broadbase Software, Inc.(a) 2,356
1,800 Broadvision, Inc.(a) 65,138
1,400 Computer Associates International, Inc. 34,738
100 E Piphany, Inc. 9,306
100 Exchange Applications, Inc.(a) 2,200
800 HNC Software, Inc.(a) 35,300
100 Informatica Corp.(a) 8,000
3,600 Marchfirst, Inc. 74,475
800 Microsoft Corp.(a) 55,850
394 NetIQ Corp.(a) 19,011
725 Progress Software Corp.(a) 10,920
600 RSA Security, Inc.(a) 38,025
100 Sapient Corp.(a) 11,375
700 Sybase, Inc.(a) 16,888
1,850 VERITAS Software Corp.(a) 188,584
700 Verity, Inc.(a) 25,506
----------------
601,529
-------------------------------------------------------------------------------------
Telecommunications 4.1%
200 Advanced Fibre Communications, Inc.(a) 8,575
1,450 Allegiance Telecom, Inc.(a) 80,566
2,400 ALLTEL Corp. 147,900
2,700 AT&T Corp. 83,531
500 Audiovox Corp. 7,750
100 Copper Mountain Networks, Inc.(a) 7,886
100 Ditech Communications Corp.(a) 4,787
100 Dobson Communications Corp.(a) 2,188
6,400 Ericsson (L.M.) AB (ADR) (Sweden) 125,600
600 Exodus Communications, Inc.(a) 26,662
4,907 General Motors Corp., Class H 126,969
</TABLE>
See Notes to Financial Statements 23
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
----------------------------------------------------------------------------------------
<C> <S> <C> <C>
5,100 Global Crossing Ltd.(a) $ 123,994
500 Intermedia Communications, Inc. 8,812
2,368 JDS Uniphase Corp.(a) 279,720
325 Leap Wireless International, Inc.(a) 20,596
700 Level 3 Communications, Inc.(a) 47,906
1,000 Millicom International Cellular SA
(Luxembourg)(a) 44,125
2,100 Motorola, Inc. 69,431
900 Net2000 Communications, Inc.(a) 8,550
2,400 Nextel Communications, Inc.(a) 134,250
1,600 NEXTLINK Communications(a) 52,900
6,700 Nokia Corp. (ADR) (Finland)(a) 296,895
2,800 Nortel Networks Corp. 208,250
2,218 NTL, Inc.(a) 99,949
5,500 Qwest Communications International, Inc.(a) 258,156
4,940 Viacom, Inc.(a) 327,584
7,098 Vodafone Airtouch Group PLC, (ADR) (United
Kingdom) 306,101
----------------
2,909,633
-------------------------------------------------------------------------------------
Tobacco 0.6%
4,100 Loews Corp. 257,275
4,500 Philip Morris Companies, Inc. 113,625
2,700 R.J. Reynolds Tobacco Holdings, Inc. 76,613
----------------
447,513
-------------------------------------------------------------------------------------
Transportation 0.1%
600 Alexander & Baldwin, Inc. 15,112
1,125 Roadway Express, Inc. 26,719
575 Sea Containers, Ltd. 15,094
700 U.S. Freightways Corp. 19,425
----------------
76,350
-------------------------------------------------------------------------------------
Utilities 0.6%
550 California Water Service Group 13,131
475 CH Energy Group, Inc. 15,497
525 Cleco Corp. 19,359
775 Conectiv, Inc. 12,836
1,500 General Public Utilities Corp. 39,750
850 Equitable Resources, Inc. 44,253
</TABLE>
24 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
----------------------------------------------------------------------------------------
<C> <S> <C> <C>
650 Idacorp, Inc. $ 24,050
1,500 Minnesota Power & Light Co. 31,969
1,650 Public Service Company of New Mexico(a) 29,906
2,500 Reliant Energy, Inc. 83,750
775 Sierra Pacific Resources 10,947
2,500 Unicom Corp. 102,656
975 Washington Gas Light Co. 24,010
----------------
452,114
-------------------------------------------------------------------------------------
Waste Management 0.1%
700 Waste Connections, Inc. 14,175
3,700 Waste Management, Inc. 69,144
----------------
83,319
----------------
Total common stocks (cost $22,264,619) 25,345,111
----------------
</TABLE>
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------
ASSET BACKED SECURITIES 2.6%
Capital One Bank Corp., Notes,
Baa2 US$ 300 6.76%, 7/23/02 294,673
General Motors Acceptance Corp.,
MTN,
A2 700 7.02%, 10/5/00 698,467
MBNA Corp., MTN,
Baa1 900 6.875%, 7/15/04 861,526
----------------
Total asset backed securities
(cost $1,893,241) 1,854,666
----------------
CORPORATE BONDS 31.9%
-------------------------------------------------------------------------------------
Aerospace/Defense 0.1%
BE Aerospace, Inc., Sr. Sub.
Notes,
B1 50 9.50%, 11/1/08 47,375
Sequa Corp.,
Ba2 35 9.00%, 8/1/09 33,950
----------------
81,325
</TABLE>
See Notes to Financial Statements 25
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------
Airlines 0.4%
Continental Airlines, Inc., Sr.
Notes,
Ba2 US$ 75 8.00%, 12/15/05 $ 70,036
Delta Air Lines, Inc., Debs.,
Baa3 100 9.75%, 5/15/21 105,222
Notes,
Baa3 100 8.30%, 12/15/29 89,652
United Airlines, Inc., Debs.,
Baa3 5 9.75%, 8/15/21 4,927
U.S. Air, Inc., Sr. Notes,
B3 50 9.625%, 2/1/01 49,507
----------------
319,344
-------------------------------------------------------------------------------------
Apparel 0.1%
Burlington Inds., Inc., Debs.,
Ba2 100 7.25%, 8/1/27 60,000
Phillips-Van Heusen Corp., Sr.
Sub. Notes,
B1 15 9.50%, 5/1/08 13,650
----------------
73,650
-------------------------------------------------------------------------------------
Auto/Equipment Rental 0.1%
United Rentals, Inc., Sr. Sub.
Notes,
B1 50 9.25%, 1/15/09 46,500
-------------------------------------------------------------------------------------
Automotive Parts 1.3%
Collins & Aikman Products Co.,
Sr. Sub. Notes,
B2 110 11.50%, 4/15/06 106,700
Eagle Picher Industries, Inc.,
Sr. Sub. Notes,
B3 50 9.375%, 3/1/08 41,500
Federal Mogul Corp., Sr. Notes,
Ba2 70 7.50%, 1/15/09 53,550
Hayes Wheels, Inc., Sr. Sub.
Notes,
B2 200 9.125%, 7/15/07 183,000
Lear Corp., Sr. Notes,
Ba1 250 8.11%, 5/15/09 229,375
</TABLE>
26 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tenneco, Inc., Sr. Sub. Notes,
B2 US$ 40 11.625%, 10/15/09 $ 35,600
TRW, Inc., Notes,
Baa1 250 8.34%, 5/15/06 255,764
----------------
905,489
-------------------------------------------------------------------------------------
Banks 1.0%
Bank Tokyo Mitsubishi, Ltd.,
Global Sr. Sub. Notes,
A3 400 8.40%, 4/15/10 403,555
Export-Import Bank of Korea,
Sr. Notes,
Ba2 180 7.25%, 6/25/01 178,911
Sovereign Bancorp Inc., Sr. Note,
Ba3 50 10.50%, 11/15/06 50,000
Ba3 150 10.25%, 5/15/04 148,113
----------------
780,579
-------------------------------------------------------------------------------------
Building & Products 0.1%
Lennar Corp., Sr. Notes,
Ba1 15 9.95%, 5/1/10 15,150
Nortek, Inc., Sr. Sub. Notes,
B1 40 9.125%, 9/1/07 37,600
----------------
52,750
-------------------------------------------------------------------------------------
Cable 1.0%
Adelphia Communications Corp., Sr.
Notes,
B1 130 8.125%, 7/15/03 120,900
Century Communications Corp.,
B1 40 9.50%, 8/15/00 39,900
Classic Cable, Inc., Sr. Sub.
Notes,
B3 20 9.375%, 8/1/09 16,200
B3 20 10.50%, 3/1/10 17,700
Coaxial Communications, Inc., Sr.
Notes,
B3 25 10.00%, 8/15/06 23,875
</TABLE>
See Notes to Financial Statements 27
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fox Family Worldwide, Inc.,
Sr. Notes,
B1 US$ 15 9.25%, 11/1/07 $ 14,175
International Wire Group, Inc.,
Sr. Sub. Notes
B3 100 11.75%, 6/1/05 100,000
Lin Holdings Corp.,
Sr. Disc. Notes, Zero Coupon
(until 3/1/03),
B3 115 10.00%, 3/1/08 77,337
Pecunia 1 Vermogeensverwaltung,
Sr. Disc. Notes, Zero Coupon
(until 7/15/05),
B3 50 16.00%, 7/15/10 22,250
Sr. Notes,
B3 50 14.00%, 7/15/10 49,250
Rogers Cablesystems Ltd.,
Sr. Sub. Gtd. Debs.,
Ba3 50 11.00%, 12/1/15 55,000
United Pan-European Communications
(Netherlands), Sr. Notes,
B2 200 10.875%, 8/1/09 175,000
----------------
711,587
-------------------------------------------------------------------------------------
Chemicals 0.5%
Avecia Group PLC, Sr. Sub. Notes,
B2 45 11.00%, 7/1/09 44,887
Huntsman ICI Chemicals, Inc.,
Sr. Sub. Notes,
B2 70 10.125%, 7/1/09 71,400
Huntsman Polymers Corp., Sr.
Notes,
B1 50 11.75%, 12/1/04 50,750
Lyondell Chemical Co., Sr. Sec'd.
Notes,
Ba3 100 9.875%, 5/1/07 100,000
NL Industries, Inc., Sr. Sec'd.
Notes,
B1 15 11.75%, 10/15/03 15,263
</TABLE>
28 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sterling Chemical Holdings, Inc.,
Sr. Sub. Notes,
B3 US$ 45 12.375%, 7/15/06 $ 46,125
B3 60 11.75%, 8/15/06 48,000
Texas Petrochemicals Corp.,
Sr. Sub. Notes,
B3 5 11.125%, 7/1/06 4,450
----------------
380,875
-------------------------------------------------------------------------------------
Commercial Services 0.6%
Cox Enterprises, Inc.,
Baa1 300 7.5525%, 5/1/03 300,825
Metris Cos, Inc., Sr. Notes,
Ba3 150 10.125%, 7/15/06 142,500
----------------
443,325
-------------------------------------------------------------------------------------
Computer Services 0.2%
Globix Corp., Sr. Notes,
B-Pound 150 12.50%, 2/1/10 117,000
Unisys Corp., Sr. Sub. Notes,
Ba1 50 11.75%, 10/15/04 53,000
----------------
170,000
-------------------------------------------------------------------------------------
Distribution/Wholesalers
Core Mark International, Inc.,
Sr. Sub. Notes,
B3 10 11.375%, 9/15/03 9,300
-------------------------------------------------------------------------------------
Electronics 0.2%
Flextronics International Ltd.,
Sr. Sub. Notes,
Ba3 50 9.875%, 7/1/10 50,563
TNP Enterprises, Inc., Sr. Sub.
Notes,
Ba3 100 10.25%, 4/1/10 104,250
----------------
154,813
</TABLE>
See Notes to Financial Statements 29
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Energy 1.6%
Aes Drax Energy Ltd., Sr. Sec'd
Notes,
Ba2 US$ 100 11.50%, 8/30/10 $ 102,750
Cinergy Corp., Debs.,
Baa2 700 6.125%, 4/15/04 653,513
Hollywood Park, Inc., Sr. Sub.
Notes
B2 100 9.25%, 2/15/07 101,250
Premier Parks, Inc., Sr. Notes,
B3 250 9.75%, 6/15/07 237,500
----------------
1,095,013
-------------------------------------------------------------------------------------
Financial Services 5.9%
AT & T Capital Corp., MTN, Ser. G
A1 600 7.01%, 4/23/02 601,275
A1 600 6.60%, 5/15/05 571,926
Americredit Corp., Sr. Notes,
Ba1 100 9.875%, 4/15/06 98,000
The Bear Stearns Cos., Inc., Sr.
Notes,
A2 300 6.76625%, 8/1/02 300,193
Donaldson Lufkin & Jenrette,
A3 300 7.25%, 7/18/03 300,000
Ford Motor Credit Co.,
A2 600 7.50%, 3/15/05 596,592
GS Escrow Corp. Sr. Note,
Ba1 100 6.75%, 8/1/01 96,750
Lehman Brothers Holdings, Inc.,
MTN,
Ser. E,
A3 300 7.68%, 4/1/02 301,271
Midland Funding Corp.,
Sr. Sec'd. Note, Ser. A
Ba3 50 11.75%, 7/23/05 55,507
Morgan Stanley Dean Witter, MTN,
Aa3 600 6.838%, 1/28/02 600,672
Orion Power Holdings, Inc., Sr.
Notes
Ba3 100 12.00%, 5/1/10 105,500
</TABLE>
30 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RBF Finance Co., Sr. Sec'd. Notes,
Ba3 US$ 175 11.00%, 3/15/06 $ 189,000
Salomon Smith Barney, Inc.,
Sr. Notes,
Aa3 300 7.06%, 7/18/07 299,919
Stone Container Finance Co., Sr.
Notes,
B2 10 11.50%, 8/15/06 10,363
----------------
4,126,968
-------------------------------------------------------------------------------------
Food & Beverage 0.5%
Agrilink Foods, Inc., Sr. Sub.
Notes,
B3 50 11.875%, 11/1/08 38,000
Aurora Foods, Inc., Sr. Sub.
Notes,
B1 90 9.875%, 2/15/07 56,025
Del Monte Foods Co., Sr. Disc.
Notes, Zero Coupon (until
12/15/02),
Caa1 50 12.50%, 12/15/07 37,500
Pilgrim's Pride Corp., Sr. Sub.
Notes,
B1 100 10.875%, 8/1/03 100,250
Stater Brothers Holdings, Inc.,
Sr. Notes,
B2 35 10.75%, 8/15/06 30,975
Vlasic Foods International, Inc.,
Sr. Sub. Notes,
B2 105 10.25%, 7/1/09 53,025
----------------
315,775
-------------------------------------------------------------------------------------
Gaming 1.8%
Boyd Gaming Corp., Sr. Sub. Notes,
B1 50 9.50%, 7/15/07 48,000
Circus Circus Enterprises, Inc.,
Debs.,
Baa3 100 6.70%, 11/15/96 91,967
Sr. Sub. Notes,
Ba2 100 6.45%, 2/1/06 86,577
Coast Hotels & Casinos, Inc.,
Sr. Sub. Notes,
B3 75 9.50%, 4/1/09 71,625
</TABLE>
See Notes to Financial Statements 31
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Harrahs Casinos, Inc., Gtd. Sr.
Sub. Notes,
Ba2 US$ 60 7.875%, 12/15/05 $ 56,925
Harveys Casino Resorts, Sr. Sub.
Notes,
B2 100 10.625%, 6/1/06 102,000
Horseshoe Gaming Holding Corp.,
Sr. Sub. Notes,
B2 30 8.625%, 5/15/09 28,538
International Game Technology
Corp.,
Sr. Notes,
Ba1 600 7.875%, 5/15/04 579,000
Mohegan Tribal Gaming Auth., Sr.
Notes,
Ba2 150 8.125%, 1/1/06 143,625
Park Place Entertainment Corp.,
Sr. Sub. Notes,
Ba2 20 9.375%, 2/15/07 20,100
Station Casinos, Inc., Sr. Notes,
B1 40 9.875%, 7/1/10 40,000
----------------
1,268,357
-------------------------------------------------------------------------------------
Health Care 1.9%
Abbey Healthcare Group, Inc.,
Sr. Sub. Notes,
B2 140 9.50%, 11/1/02 138,600
Columbia/HCA Healthcare Corp.,
Debs.,
Ba2 55 7.05%, 12/1/27 42,350
Ba2 20 7.50%, 11/15/95 15,100
Ba2 300 6.73%, 7/15/45 278,250
Ba2 100 7.69%, 6/15/25 83,000
Concentra Operating Corp.,
Sr. Sub. Notes,
B3 25 13.00%, 8/15/09 21,500
HEALTHSOUTH Corp., Sr. Notes,
Baa3 45 6.875%, 6/15/05 38,569
</TABLE>
32 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Integrated Health Services, Inc.,
Sr. Sub. Notes,
C US$ 350(b) 9.25%, 1/15/08 $ 6,564
Lifepoint Hospitals Holdings,
Inc.,
Sr. Sub. Notes,
B3 25 10.75%, 5/15/09 26,000
Long Island College Hosp.,
Rev., FHA Mtge., Ser. B,
Aa2 500 8.90%, 8/15/30 507,341
Magellan Health Services, Inc.,
Sr. Sub. Notes,
B3 50 9.00%, 2/15/08 26,250
Tenet Healthcare Corp.,
Sr. Sub. Notes, Ser. B,
Ba3 85 8.125%, 12/1/08 80,112
Triad Hospitals, Sr. Sub. Notes,
B3 50 11.00%, 5/15/09 51,750
----------------
1,315,386
-------------------------------------------------------------------------------------
Industrials 0.7%
AES Drax Holdings, Ltd., Sr.
Sec'd. Notes,
Baa3 100 10.41%, 12/31/20 103,536
Purina Mills, Inc., Sr. Sub.
Notes,
B2 350 9.00%, 3/15/10 101,500
United International Holdings,
Inc., Sr. Disc.
Notes, Zero Coupon (until
2/15/03),
B3 350 10.75%, 2/15/08 252,000
----------------
457,036
-------------------------------------------------------------------------------------
Internet 0.3%
Exodus Communications, Inc., Sr.
Notes,
B3 50 10.75%, 12/15/09 48,750
B3 70 11.625%, 7/15/10 70,525
PSI Net, Inc., Sr. Notes,
B3 80 11.00%, 8/1/09 64,800
</TABLE>
See Notes to Financial Statements 33
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Verio, Inc., Sr. Notes,
B3 US$ 5 11.25%, 12/1/08 $ 5,788
B3 30 10.625%, 11/15/09 33,900
----------------
223,763
-------------------------------------------------------------------------------------
Lodging 0.1%
ITT Corp., Debs.,
Ba1 115 7.375%, 11/15/15 96,283
-------------------------------------------------------------------------------------
Machinery 0.2%
Applied Power, Inc., Sr. Sub.
Notes,
B1 150 8.75%, 4/1/09 164,625
-------------------------------------------------------------------------------------
Manufacturing 0.3%
Corning Consumer Products Co.,
Sr. Sub. Notes,
B3 50 9.625%, 5/1/08 32,500
Foamex JPS Automotive LLC,
Sr. Sub. Notes,
B1 60 11.125%, 6/15/01 61,200
Gentek, Inc., Sr. Sub. Notes,
B2 75 11.00%, 8/1/09 75,750
Polymer Group, Inc., Sr. Sub.
Notes,
B2 20 8.75%, 3/1/08 16,400
Venture Holdings, Inc., Sr. Notes,
B2 40 9.50%, 7/1/05 30,400
----------------
216,250
-------------------------------------------------------------------------------------
Media 1.6%
Ackerley Group, Inc., Sr. Sub.
Notes,
B2 200 9.00%, 1/15/09 187,000
Alliance Atlantis Communications,
Inc.,
Sr. Sub. Notes,
B2 20 13.00%, 12/15/09 51,250
Imax Corp., Sr. Notes,
Ba2 15 7.875%, 12/1/05 14,400
</TABLE>
34 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Paxson Communications Corp.,
Sr. Sub. Notes,
B3 US$ 50 11.625%, 10/1/02 $ 51,125
Seagram, Joseph E. & Sons, Inc.,
Sr. Notes,
Baa3 200 6.25%, 12/15/01 196,598
Time Warner, Inc., Sr. Notes,
Baa3 600 6.10%, 12/30/01 589,200
----------------
1,089,573
-------------------------------------------------------------------------------------
Metals 0.3%
Golden Northwest Aluminum, Inc.,
First Mtge. Notes,
B2 10 12.00%, 12/15/06 10,150
Kaiser Aluminum & Chemical Corp.,
Sr. Notes,
B1 75 9.875%, 2/15/02 72,094
LTV Corp., Sr. Notes,
Ba3 70 11.75%, 11/15/09 59,850
WHX Corp., Sr. Sub. Notes,
B3 65 10.50%, 4/15/05 52,000
----------------
194,094
-------------------------------------------------------------------------------------
Miscellaneous Services 0.3%
Fresenius Med. Care Cap. Trust
III,
Gtd. Notes,
Ba3 200 7.875%, 2/1/08 187,000
IT Group, Inc., Sr. Sub. Notes,
B3 50 11.25%, 4/1/09 44,500
Sun World International, Inc.,
First Mtge. Notes,
B2 5 11.25%, 4/15/04 4,763
----------------
236,263
-------------------------------------------------------------------------------------
Networking 0.5%
Intersil Corp., Sr. Sub. Notes,
B1 35 13.25%, 8/15/09 40,250
</TABLE>
See Notes to Financial Statements 35
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Metromedia Fiber Network, Inc.,
Sr. Notes,
B2 US$ 85 10.00%, 12/15/09 $ 82,450
Williams Communications Group,
Inc.,
Sr. Notes,
B2 275 10.875%, 10/1/09 261,250
----------------
383,950
-------------------------------------------------------------------------------------
Oil & Gas 0.6%
Canadian Forest Oil, Ltd., Sr.
Sub. Notes,
B2 30 8.75%, 9/15/07 28,800
Comstock Resources, Inc., Sr. Sub.
Notes,
B2 55 11.25%, 5/1/07 55,550
Eott Energy Partners LP, Sr.
Notes,
Ba2 80 11.00%, 10/1/09 81,600
Houston Exploration Co., Sr. Sub.
Notes,
B2 15 8.625%, 1/1/08 14,400
Leviathan Gas Pipeline LP, Sr.
Sub. Notes,
Ba2 25 10.375%, 6/1/09 25,750
Parker Drilling Co., Sr. Notes,
B1 55 9.75%, 11/15/06 53,075
Plains Resources, Inc., Sr. Sub.
Notes,
B2 20 10.25%, 3/15/06 20,150
Swift Energy Co., Sr. Sub. Notes,
B2 40 10.25%, 8/1/09 40,600
Vintage Petroleum, Inc., Sr. Sub.
Notes,
B1 70 9.75%, 6/30/09 71,400
----------------
391,325
-------------------------------------------------------------------------------------
Paper & Packaging 1.3%
Ball Corp., Sr. Sub. Notes,
B1 200 8.25%, 8/1/08 192,000
Doman Industries Ltd. (Canada),
Sr. Notes,
B1 45 8.75%, 3/15/04 36,900
</TABLE>
36 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sr. Notes, Ser. B,
B1 US$ 20 9.25%, 11/15/07 $ 15,200
Norampac, Inc., Sr. Notes,
B2 10 9.50%, 2/1/08 9,800
Owens-Illinois, Inc., Sr. Notes,
Ba1 100 7.85%, 5/15/04 92,171
Packaged Ice, Inc., Sr. Notes,
B3 106 9.75%, 2/1/05 90,100
Radnor Holdings, Inc., Sr. Notes,
B2 100 10.00%, 12/1/03 89,000
Repap New Brunswick (Canada),
Inc.,
Sr. Sec'd. Notes,
Caa 75 10.625%, 4/15/05 68,625
Silgan Holdings, Inc., Sr. Sub.
Deb.,
B1 100 9.00%, 6/1/09 91,500
Stone Container Corp., Mtg. Notes,
B1 10 10.75%, 10/1/02 10,100
Sr. Sub. Deb.,
B3 200 12.25%, 4/1/02 201,000
----------------
896,396
-------------------------------------------------------------------------------------
Pharmaceuticals 0.2%
Bio Rad Labs, Inc., Sr. Sub.
Notes,
B2 20 11.625%, 2/15/07 20,900
ICN Pharmaceuticals, Inc., Sr.
Notes,
Ba3 100 8.75%, 11/15/08 98,250
----------------
119,150
-------------------------------------------------------------------------------------
Printing & Publishing 0.3%
Mail-Well Corp., Sr. Sub. Notes,
B1 250 8.75%, 12/15/08 215,000
Transwestern Publishing Co.,
Sr. Sub. Notes,
B2 20 9.625%, 11/15/07 19,500
----------------
234,500
</TABLE>
See Notes to Financial Statements 37
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Real Estate 0.4%
HMH Properties, Inc., Sr. Notes,
Ba2 US$ 185 8.45%, 12/1/08 $ 172,050
Intrawest Corp., Sr. Notes,
B1 100 10.50%, 2/1/10 103,500
----------------
275,550
-------------------------------------------------------------------------------------
Recreation 0.1%
Bally's Total Fitness Holdings,
Sr. Sub. Notes,
B3 80 9.875%, 10/15/07 73,200
-------------------------------------------------------------------------------------
Restaurants 1.0%
Advantica Restaurant Group, Inc.,
Sr. Notes,
B3 70 11.25%, 1/15/08 46,200
Carrols Corp., Sr. Sub. Notes,
B2 350 9.50%, 12/1/08 290,500
Felcor Suites LP, Gtd. Sr. Notes,
Ba2 350 7.375%, 10/1/04 317,625
Sbarro, Inc., Sr. Notes,
Ba3 25 11.00%, 9/15/09 25,750
----------------
680,075
-------------------------------------------------------------------------------------
Retail 0.1%
Musicland Group, Inc., Sr. Sub.
Notes,
B2 50 9.00%, 6/15/03 46,500
-------------------------------------------------------------------------------------
Schools 0.1%
Kindercare Learning Center, Inc.,
Sr. Sub. Notes,
B3 80 9.50%, 2/15/09 73,200
-------------------------------------------------------------------------------------
Semiconductors
SCG Holding Corp., Sr. Notes,
B2 32 12.00%, 8/1/09 34,400
</TABLE>
38 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sovereign Bonds 0.3%
State of Qatar, Sr. Notes,
Baa2 US$ 200 9.75%, 6/15/30 $ 202,500
-------------------------------------------------------------------------------------
Steel 0.1%
Algoma Steel, Inc., First Mtge.
Notes,
B2 40 12.375%, 7/15/05 35,600
National Steel Corp., Notes,
Ba3 15 9.875%, 3/1/09 13,238
Sheffield Steel Corp., First Mtge.
Notes,
Caa2 20 11.50%, 12/1/05 12,800
----------------
61,638
-------------------------------------------------------------------------------------
Telecommunications 3.3%
Clearnet Communications, Inc.,
Sr. Disc. Notes, Zero Coupon
(until 5/01/04)
B3 10 10.125%, 5/1/09 5,800
Fairpoint Commerce, Sr. Sub. Note,
B3 40 12.50%, 5/1/10 40,400
Focal Communications Corp., Sr.
Notes,
B3 125 11.875%, 1/15/10 124,375
Global Crossing Holdings Ltd., Sr.
Notes,
Ba2 250 9.50%, 11/15/09 243,750
Hyperion Telecom, Sr. Disc. Notes,
Zero Coupon (until 4/15/01)
B3 40 13.00%, 4/15/03 35,400
Level 3 Communications, Inc., Sr.
Disc. Notes, Zero Coupon (until
12/1/03),
B3 30 10.50%, 12/1/08 17,625
Zero Coupon (until 3/15/05)
B3 250 12.875%, 3/15/10 132,500
Sr. Notes,
B3 55 11.00%, 3/15/08 52,250
McleodUSA, Inc., Sr. Notes,
B1 95 8.125%, 2/15/09 85,261
</TABLE>
See Notes to Financial Statements 39
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Microcell Telecommunications, Sr.
Disc. Notes, Zero Coupon (until
6/1/04),
B3 US$ 250 12.00%, 6/1/09 $ 168,750
Millicom International Cellular,
Sr. Disc. Notes, Zero Coupon
(until 6/1/01),
B3 45 13.50%, 6/1/06 39,375
Netia Holdings BV, (Poland), Gtd.
Sr. Disc. Notes, Zero Coupon
(until 11/1/01),
B2 100 11.25%, 11/1/07 71,500
Nextel Communications, Inc., Sr.
Notes,
B2 175 10.75%, 6/1/09 171,500
B1 130 9.375%, 11/15/09 124,150
Sr. Disc. Notes, Zero Coupon
(until 9/15/02)
B1 155 10.65%, 9/15/07 120,900
NTL Communications Corp., Sr.
Notes,
Zero Coupon (until 10/01/03)
B2 250 12.375%, 10/1/08 161,250
Primus Telecommunications, Inc.,
Sr. Notes,
B3 100 12.75%, 10/15/09 60,000
RCN Corp., Sr. Notes,
B3 25 10.125%, 1/15/10 20,000
Spectrasite Holdings, Inc., Sr.
Disc. Notes, Zero Coupon (until
3/15/05),
B3 140 12.875%, 3/15/10 78,400
Tritel PCS, Inc., Sr. Sub. Disc.
Notes,
Zero Coupon (until 5/15/04)
B3 55 12.75%, 5/15/09 40,425
Vodafone Airtouch PLC, Notes,
A2 300 7.00%, 12/19/01 301,038
Voicestream Wireless Corp., Sr.
Disc. Notes, Zero Coupon (until
11/15/04),
>B2 120 11.875%, 11/15/09 84,600
Sr. Notes,
B2 80 10.375%, 11/15/09 86,400
</TABLE>
40 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Worldwide Fiber, Inc. Sr. Sub.
Notes,
B3 US$ 30 12.00%, 8/1/09 $ 26,850
----------------
2,292,499
-------------------------------------------------------------------------------------
Transportation 0.1%
American Commercial Lines LLC, Sr.
Notes,
B1 50 10.25%, 6/30/08 42,000
-------------------------------------------------------------------------------------
Utilities 1.2%
AES Corp., Sr. Notes,
Ba1 150 9.50%, 6/1/09 151,500
Niagara Mohawk Power Corp., Sr.
Notes,
Ba2 529 7.00%, 10/1/00 528,464
Baa3 151 7.125%, 7/1/01 150,709
----------------
830,673
-------------------------------------------------------------------------------------
Waste Management 1.2%
Atlanta Georgia Wtr. and
Wastewtr.,
Rev. Ref. Ser. A,
Aaa 600 5.00%, 11/1/38 526,482
Allied Waste of North America,
Inc.,
Sr. Notes,
Ba3 150 7.875%, 1/1/09 132,000
Sr. Sub. Notes,
B2 25 10.00%, 8/1/09 21,625
Waste Management, Inc., Sr. Notes,
Ba1 150 6.00%, 5/15/01 146,316
----------------
826,423
----------------
Total corporate bonds (cost
$23,542,704) 22,392,902
----------------
CONVERTIBLE BONDS 1.0%
-------------------------------------------------------------------------------------
Financial Services 0.6%
Hellenic Finance Corp.,
A3 EURO 500 2.00%, 7/15/03 451,839
</TABLE>
See Notes to Financial Statements 41
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Utilities 0.4%
Alliant Energy Resources, Inc.,
A3 US$ 5 7.25%, 2/15/30 $ 303,125
----------------
Total convertible bonds (cost
$560,750) 754,964
----------------
MORTGAGE-RELATED SECURITIES 6.5%
<CAPTION>
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bear Stearns Mortgage Securities,
Inc.,
Series 1997-7, Class A-9
Aaa 600 7.00%, 2/25/28 565,308
GE Capital Mortgage Services,
Inc.,
Series 1999-15, Class 16,
AAAPound 403 6.75%, 8/25/29 396,852
Mellon Residental Funding Corp.,
Series 1999, Class A-3,
Aaa 500 6.58%, 7/25/29 490,927
Merrill Lynch Mortgage Investors,
Inc., Series 1998-F1,
AAAPound 63 6.78%, 1/20/28 63,119
Nationslink Funding Corp.,
Series 1999-Sl, Class A-3,
Aaa 500 6.297%, 12/10/02 490,190
PNC Mortgage Securities Corp.,
Series 1995-2, Class A-4,
Aa1 550 6.75%, 6/25/16 540,928
Series 1999, Class A-3,
AAAPound 500 7.25%, 10/25/29 482,104
Series 1999-8, Class A-5,
AAAPound 676 6.75%, 8/25/29 666,240
Residential Funding Mortgage,
Inc.,
Series 1997 S-19, Class A-3,
AAAPound 805 6.50%, 12/25/12 762,472
----------------
Total mortgage-related securities
(cost $4,537,483) 4,458,140
----------------
</TABLE>
42 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C> <C>
-----------------------------------------------------------------------------------------
FOREIGN GOVERNMENT SECURITIES 0.6%
Government of Germany,
EURO 20 6.25%, 1/4/24 $ 20,316
70 6.25%, 1/4/30 73,009
PLN 500 Government of Poland,
3.50% (until 10/27/00)
5.00%, 10/27/24 333,467
----------------
Total foreign government securities (cost
$397,149) 426,792
----------------
U.S. GOVERNMENT AND AGENCY SECURITIES 28.9%
US$ 1,000 Federal Home Loan Mortgage Corp.,
7.00%, 3/31/26 966,560
1,799 Debs.,
10.00%, 5/15/20 1,877,284
Federal National Mortgage Association,
546 6.50%, 5/1/06 535,958
262 5.00%, 4/1/14 239,072
348 5.00%, 4/1/14 317,031
1,000 7.50%, 1/31/27 985,310
Government National Mortgage Association,
91 6.75%, 9/20/22 91,949
585 7.50%, 12/15/28 579,569
3,500 6.00%, 9/30/27 3,222,205
2,500 6.50%, 3/31/27 2,370,325
600 7.50%, 1/31/26 594,564
2,000 8.50%, 12/31/24 2,041,880
1,500 8.50%, 12/31/24 1,524,367
1,075 United States Department Veteran Affairs,
6.83501%, 1/15/30 1,026,648
1,500 United States Treasury Bond, Principal Only,
11.25%, 02/15/15 624,405
United States Treasury Notes,
645 3.625%, 7/15/02 642,838
324 3.375%, 1/15/07 312,392
1,776 3.875%, 1/15/09, TIPS 1,755,107
</TABLE>
See Notes to Financial Statements 43
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
-----------------------------------------------------------------------------------------
<C> <S> <C> <C>
United States Treasury Security, Interest only,
$ 1,000 Zero Coupon, 5/15/11 $ 516,710
----------------
Total U. S. government and agency securities (cost
$20,213,183) 20,224,174
----------------
Total debt obligations (cost $51,144,510) 50,111,638
----------------
Total long-term investments (cost $73,409,129) 75,456,749
----------------
SHORT-TERM INVESTMENTS 10.6%
COMMERCIAL PAPER 2.7%
Edison Mission Midwest Holdings,
400 6.85%, 9/7/00 397,184
1,000 6.78%, 9/13/00 991,902
200 Reseau Ferre De France,
6.52%, 10/26/00 196,885
Washington Mutual Finance,
300 6.70%, 8/28/00 298,492
----------------
Total commercial paper (cost $1,884,463) 1,884,463
----------------
REPURCHASE AGREEMENT 7.9%
5,540 Joint Repurchase Agreement Account,
6.538%, 8/1/00
(cost $5,540,000; Note 5) 5,540,000
----------------
Total short-term investments (cost $7,424,463) 7,424,463
----------------
Total Investments 118.2%
(cost $80,833,592; Note 4) 82,881,212
Liabilities in excess of other assets (18.2)% (12,756,727)
----------------
Net Assets 100% $ 70,124,485
----------------
----------------
</TABLE>
44 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
------------------------------
(a) Non-income producing security.
(b) Represents issuer in default on interest payments, non income producing
security.
Pound S&P rating.
AB--Aktiebolag (Swedish stock company).
ADR--American Depository Receipt.
FHA--Federal Housing Administration.
LLC--Limited Liability Company.
LP--Limited Partnership.
MTN--Medium-Term Note.
NR--Not Rated by Moody's or Standard & Poor's.
N.V.--Naamloze Vennootschaap (Dutch Corporation).
PLC--Public Limited Company.
SA--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 45
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
July 31, 2000
----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at value (cost $80,833,592) $ 82,881,212
Cash 192,862
Foreign currency, at value (cost $7,661) 7,499
Receivable for investments sold 3,116,083
Interest and dividends receivable 553,306
Receivable for Fund shares sold 168,946
Unrealized appreciation on forward currency contracts 3,595
Deferred expenses and other assets 368
-------------
Total assets 86,923,871
-------------
LIABILITIES
Payable for investments purchased 15,944,320
Payable for Fund shares reacquired 556,549
Accrued expenses and other liabilities 176,487
Distribution fee payable 49,613
Management fee payable 44,439
Payable for swaps purchased 16,228
Unrealized depreciation on interest rate swaps 11,016
Foreign withholding tax payable 734
-------------
Total liabilities 16,799,386
-------------
NET ASSETS $ 70,124,485
-------------
-------------
Net assets were comprised of:
Shares of beneficial interest, at par $ 6,344
Paid-in capital in excess of par 61,755,125
-------------
61,761,469
Undistributed net investment income 392,105
Accumulated net realized gain on investments 5,937,943
Net unrealized appreciation on investments, foreign currency
and interest rate swaps transactions 2,032,968
-------------
Net assets, July 31, 2000 $ 70,124,485
-------------
-------------
</TABLE>
46 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund
Statement of Assets and Liabilities Cont'd.
<TABLE>
<CAPTION>
July 31, 2000
----------------------------------------------------------------------------------------
<S> <C> <C>
Class A:
Net asset value and redemption price per share ($14,514,046 /
1,312,702 shares of beneficial interest issued and
outstanding) $11.06
Maximum sales charge (5% of offering price) .58
-------------
Maximum offering price to public $11.64
-------------
-------------
Class B:
Net asset value, offering price and redemption price per
share ($43,837,693 / 3,965,946 shares of beneficial
interest issued and outstanding) $11.05
-------------
-------------
Class C:
Net asset value and redemption price per share ($11,301,315 /
1,022,356 shares of beneficial interest issued and
outstanding) $11.05
Sales charge (1% of offering price) .11
-------------
Offering price to public $11.16
-------------
-------------
Class Z:
Net asset value, offering price and redemption price per
share ($471,430 / 42,653 shares of beneficial interest
issued and outstanding) $11.05
-------------
-------------
</TABLE>
See Notes to Financial Statements 47
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund
Statement of Operations
<TABLE>
<CAPTION>
Year
Ended
July 31,
2000
<S> <C> <C>
---------------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Interest $3,500,952
Dividends (net of foreign withholding taxes of $1,304) 297,390
------------
Total income 3,798,342
------------
Expenses
Management fee 558,132
Distribution fee--Class A 31,338
Distribution fee--Class B 365,743
Distribution fee--Class C 129,543
Custodian's fees and expenses 300,000
Transfer agent's fees and expenses 63,000
Reports to shareholders 63,000
Registration fees 60,000
Audit fee 25,000
Legal fees 14,000
Amortization of offering costs 9,033
Trustees' fees and expenses 6,000
Miscellaneous 2,929
------------
Total expenses 1,627,718
------------
Net investment income 2,170,624
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS
Net realized gain on:
Investment transactions 6,219,031
Foreign currency transactions 65,465
Swaps 52,224
------------
6,336,720
------------
Net change in unrealized appreciation (depreciation) on:
Investments (221,530)
Foreign currencies 21,185
Swaps (11,016)
------------
(211,361)
------------
Net gain on investments 6,125,359
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $8,295,983
------------
------------
</TABLE>
48 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year November 18, 1998(a)
Ended Through
July 31, 2000 July 31, 1999
<S> <C> <C> <C>
-----------------------------------------------------------------------------------
INCREASE (DECREASE)
IN NET ASSETS
Operations
Net investment income $ 2,170,624 $ 1,315,456
Net realized gain on investment and
foreign currency transactions 6,336,720 577,710
Net change in unrealized
appreciation/(depreciation) of
investments, foreign currencies and
swaps (211,361) 2,244,329
------------- --------------------
Net increase in net assets resulting
from operations 8,295,983 4,137,495
------------- --------------------
Dividends and distributions (Note 1)
Dividends from net investment income
Class A (419,711) (118,082)
Class B (1,002,217) (278,242)
Class C (337,721) (155,747)
Class Z (348,570) (637,575)
------------- --------------------
(2,108,219) (1,189,646)
------------- --------------------
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 $ 35,877,305 $107,208,098
Net asset value of shares issued in
reinvestment of dividends and
distributions 2,861,038 1,162,526
Cost of shares reacquired (48,138,088) (37,138,250)
------------- --------------------
Net decrease in net assets from Fund
share transactions (9,399,745) 71,232,374
------------- --------------------
Total increase/(decrease) (4,085,738) 74,180,223
NET ASSETS
Beginning of year 74,210,223 30,000
------------- --------------------
End of year(b) $ 70,124,485 $ 74,210,223
------------- --------------------
------------- --------------------
------------------------------
(a) Commencement of investment operations.
(b) Includes undistributed net investment
income of $ 392,105 $ 236,864
------------- --------------------
</TABLE>
See Notes to Financial Statements 49
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund
Notes to Financial Statements
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.
Jennison Associates, The Prudential Investment Corporation, Pacific Investment
Management Company, Franklin Advisers, Inc. and The Dreyfus Corporation are the
Fund's 'Advisers'.
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.
50
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund
Notes to Financial Statements Cont'd.
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 reflected as a component of net unrealized
appreciation on investments and foreign currencies.
51
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund
Notes to Financial Statements Cont'd.
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.
Interest Rate Swaps: In a simple interest rate swap, one investor pays
a floating rate of interest on a notional principal amount and receives a fixed
rate of interest on the same notional principal amount for a specified period of
time. Alternatively, an investor may pay a fixed rate and receive a floating
rate. Interest rate swaps were conceived as asset/liability management tools. In
more complex swaps, the notional principal amount may decline (or amortize) over
time.
During the term of the swap, changes in the value of the swap are
recognized as unrealized gains or losses by 'marking-to-market' to reflect the
market value of the swap. When the swap is terminated, the Fund will record a
realized gain or loss equal to the difference between the proceeds from (or cost
of) the closing transaction and the Fund's basis in the contract, if any.
The Fund is exposed to credit loss in the event of non-performance by the
other party to the interest rate swap. However, the Fund does not anticipate
non-performance by any counterparty.
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.
52
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund
Notes to Financial Statements Cont'd.
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 $77,498 in connection with
the initial offering of the Fund. Offering costs were amortized over a period of
12 months ended November 1999.
Reclassification of Capital Accounts: The Fund accounts for and reports
distributions to shareholders in accordance with the American Institute of
Certified
53
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund
Notes to Financial Statements Cont'd.
Public Accountants Statement of Position 93-2: Determination, Disclosure, and
Financial Statement Presentation of Income, Capital Gains, and Return of Capital
Distributions by Investment Companies. The effect of applying this statement was
to increase undistributed net investment income by $92,836, decrease accumulated
net realized gain on investments by $83,803, and decrease paid-in capital by
$9,033 for the period ended July 31, 2000, due to realized and recognized
currency gains during the period and certain expenses not deductible for tax
purposes. 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 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
('Jennison') $300 million; .25% for amounts
in excess of $300 million
The Prudential Investment
Corporation ('PIC') .375%1
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
54
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund
Notes to Financial Statements Cont'd.
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 year ended July 31,
2000.
PIMS has advised the Fund that it has received approximately $90,500 and
$28,800 in front-end sales charges resulting from sales of Class A and Class C
shares, respectively, during the year ended July 31, 2000.
PIMS has advised the Fund that for the year ended July 31, 2000, it has
received approximately $112,000 and $33,700 in contingent deferred sales charges
imposed upon certain redemptions by Class B and Class C shareholders,
respectively.
Jennison, 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.
Interest on any such borrowings will be at market rates. The purpose of the
agreement is to serve as an alternative source of funding for capital share
redemptions. The Funds pay a commitment fee of .080 of 1% of the unused portion
of the credit facility. The commitment fee is accrued and paid quarterly on a
pro rata basis by the Funds. The expiration date of the SCA is March 9, 2001.
Prior to March 9, 2000, the commitment fee was .065 of 1% of the unused portion
of the credit facility. The Fund did not borrow any amounts pursuant to the SCA
during the period ended July 31, 2000.
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 year ended July 31, 2000, the
Fund incurred fees of approximately $54,000 for the services of PMFS. As of July
31, 2000 approximately $5,200 of such fees were due to PMFS. Transfer agent fees
and expenses in the Statement of Operations include certain out-of-pocket
expenses paid to nonaffiliates.
Note 4. Portfolio Securities
Purchases and sales of portfolio securities, excluding short-term investments,
for the year ended July 31, 2000 were $190,136,013 and $196,606,023,
respectively.
55
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund
Notes to Financial Statements Cont'd.
At July 31, 2000, the Fund had outstanding forward currency contracts to
sell foreign currencies as follows:
<TABLE>
<CAPTION>
Value at
Foreign Currency Settlement Date Value at
Sale Contracts Payable July 31, 2000 Appreciation
----------------------------------- --------------- ------------- ------------
<S> <C> <C> <C>
Euro,
expiring 8/14/00 $ 558,385 $ 554,790 $3,595
--------------- ------------- ------------
--------------- ------------- ------------
</TABLE>
The Fund entered into 6 interest rate swap agreements. Under the agreement
the Fund receives a floating rate and pays a respective fixed rate. Details of
the swaps at July 31, 2000 are as follows:
<TABLE>
<CAPTION>
Notional Unrealized
Amount Fixed Floating Termination Appreciation
(000) Rate Rate Date (Depreciation)
-------- ------ -------------- ------------ --------------
<C> <S> <C> <C> <C>
$ 20 6.25% 6 month LIBOR 1/4/24(c) $ (3,573)
80 6.175 6 month LIBOR 5/22/30(a) (1,479)
2,500 7.75 3 month LIBOR 1/1/01(b) 6,250
1,300 7.498 3 month LIBOR 5/8/03(b) (11,546)
500 7.00 3 month LIBOR 9/15/00(b) (353)
500 7.00 3 month LIBOR 9/22/00(a) (315)
--------------
$(11,016)
--------------
--------------
</TABLE>
------------------------------
(a) Counterparty--Goldman Sachs
(b) Counterparty--Morgan Stanley Dean Witter
(c) Counterparty--J.P. Morgan
The United States federal income tax basis of the Fund's investments,
including short-term investments, as of July 31, 2000 was $81,030,809;
accordingly, net unrealized appreciation on investments for federal income tax
purposes was $1,850,403 (gross unrealized appreciation--$5,941,922, gross
unrealized depreciation--$4,091,519).
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 July 31, 2000, the Fund
had a 1.0% undivided interest in the repurchase agreements in the joint account.
The undivided interest for the Fund represents $5,540,000 in principal amount.
As of such date, each repurchase agreement in the joint account and the
collateral therefore were as follows:
56
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund
Notes to Financial Statements Cont'd.
ABN AMRO Incorporated, 6.56%, in the principal amount of $100,000,000,
repurchase price $100,018,222, due 8/1/00. The value of the collateral including
accrued interest was $102,000,029.
Bear, Stearns & Co. Inc., 6.55%, in the principal amount of $100,000,000,
repurchase price $100,018,194, due 8/1/00. The value of the collateral including
accrued interest was $102,926,906.
Greenwich Capital Markets, Inc., 6.57%, in the principal amount of
$110,000,000, repurchase price $110,020,075, due 8/1/00. The value of the
collateral including interest was $112,201,716.
Merrill Lynch, Pierce, Fenner & Smith, Inc., 6.45%, in the principal
amount of $97,030,000, repurchase price $97,047,384, due 8/1/00. The value of
the collateral including accrued interest was $98,970,864.
Salomon Smith Barney, Inc., 6.55%, in the principal amount of
$155,000,000, repurchase price $155,028,201, due 8/1/00. The value of the
collateral including accrued interest was $158,174,190.
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.
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
----------------------------------------------------------- ---------- ------------
<S> <C> <C>
Year ended July 31, 2000:
Shares sold 1,090,045 $ 11,650,462
Shares issued in reinvestment of dividends and
distributions 47,988 515,634
Shares reacquired (812,925) (8,741,195)
---------- ------------
Net increase in shares outstanding before conversion 325,108 3,424,901
Shares issued upon conversion from Class B 109,810 1,201,204
---------- ------------
Net increase in shares outstanding 434,918 $ 4,626,105
---------- ------------
---------- ------------
</TABLE>
57
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund
Notes to Financial Statements Cont'd.
<TABLE>
<CAPTION>
Class A Shares Amount
----------------------------------------------------------- ---------- ------------
November 18, 1998(a) through
July 31, 1999:
<S> <C> <C>
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 1,584 16,195
---------- ------------
Net increase in shares outstanding 877,034 $ 8,988,790
---------- ------------
---------- ------------
<CAPTION>
Class B
-----------------------------------------------------------
<S> <C> <C>
Year ended July 31, 2000:
Shares sold 1,916,483 $ 20,536,163
Shares issued in reinvestment of dividends and
distributions 123,462 1,322,329
Shares reacquired (885,951) (9,503,752)
---------- ------------
Net increase in shares outstanding before conversion 1,153,994 12,354,740
Shares issued upon conversion into Class A (110,000) (1,201,204)
---------- ------------
Net increase in shares outstanding 1,043,994 $ 11,153,536
---------- ------------
---------- ------------
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
---------- ------------
---------- ------------
------------------------------
(a) Commencement of investment operations.
</TABLE>
58
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund
Notes to Financial Statements Cont'd.
<TABLE>
<CAPTION>
Class C Shares Amount
----------------------------------------------------------- ---------- ------------
Year ended July 31, 2000:
<S> <C> <C>
Shares sold 304,558 $ 3,288,339
Shares issued in reinvestment of dividends and
distributions 42,720 455,132
Shares reacquired (681,306) (7,334,166)
---------- ------------
Net decrease in shares outstanding (334,028) $ (3,590,695)
---------- ------------
---------- ------------
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
---------- ------------
---------- ------------
<CAPTION>
Class Z
-----------------------------------------------------------
<S> <C> <C>
Year ended July 31, 2000:
Shares sold 37,256 $ 402,341
Shares issued in reinvestment of dividends and
distributions 54,363 567,943
Shares reacquired (2,059,454) (22,558,975)
---------- ------------
Net decrease in shares outstanding (1,967,835) $(21,588,691)
---------- ------------
---------- ------------
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.
59
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund
Financial Highlights
<TABLE>
<CAPTION>
Class A
--------------------------------------
November 18, 1998(a)
Year Ended Through
July 31, 2000 July 31, 1999
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(d):
Net asset value, beginning of period $ 10.36 $10.00
------------- -------
Income from investment operations:
Net investment income .37 .19
Net realized and unrealized gain on
investments and foreign currencies .82 .35
------------- -------
Total from investment operations 1.19 .54
------------- -------
Less distributions
Dividends from net investment income (.37) (.18)
Distributions from net realized capital
gains (.12) --
------------- -------
Total dividends and distributions (.49) (.18)
------------- -------
Net asset value, end of period $ 11.06 $10.36
------------- -------
------------- -------
TOTAL RETURN(b) 11.73% 5.34%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $14,514 $9,097
Average net assets (000) $12,535 $6,157
Ratios to average net assets:
Expenses, including distribution fees 1.73% 1.92%(c)
Expenses, excluding distribution fees 1.48% 1.67%(c)
Net investment income 3.46% 2.69%(c)
For Class A, B, C and Z shares:
Portfolio turnover rate 244% 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.
60 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class B
--------------------------------------
November 18, 1998(a)
Year Ended Through
July 31, 2000 July 31, 1999
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(d):
Net asset value, beginning of period $ 10.35 $ 10.00
------------- --------
Income from investment operations:
Net investment income .29 .14
Net realized and unrealized gain on
investments and foreign currencies .82 .34
------------- --------
Total from investment operations 1.11 .48
------------- --------
Less distributions
Dividends from net investment income (.29) (.13)
Distributions from net realized capital
gains (.12) --
------------- --------
Total dividends and distributions (.41) (.13)
------------- --------
Net asset value, end of period $ 11.05 $ 10.35
------------- --------
------------- --------
TOTAL RETURN(b) 10.89% 4.77%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $43,838 $ 30,235
Average net assets (000) $36,574 $ 19,308
Ratios to average net assets:
Expenses, including distribution fees 2.48% 2.67%(c)
Expenses, excluding distribution fees 1.48% 1.67%(c)
Net investment income 2.70% 1.94%(c)
</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 61
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class C
-----------------------------------------
November 18, 1998(a)
Year Ended Through
July 31, 2000 July 31, 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(d):
Net asset value, beginning of period $ 10.35 $ 10.00
-------- --------
Income from investment operations:
Net investment income .28 .14
Net realized and unrealized gain on
investments and foreign currencies .83 .34
-------- --------
Total from investment operations 1.11 .48
-------- --------
Less distributions
Dividends from net investment income (.29) (.13)
Distributions from net realized capital
gains (.12) --
-------- --------
Total dividends and distributions (.41) (.13)
-------- --------
Net asset value, end of period $ 11.05 $ 10.35
-------- --------
-------- --------
TOTAL RETURN(b) 10.89% 4.77%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 11,301 $ 14,035
Average net assets (000) $ 12,954 $ 12,039
Ratios to average net assets:
Expenses, including distribution fees 2.48% 2.67%(c)
Expenses, excluding distribution fees 1.48% 1.67%(c)
Net investment income 2.63% 1.91%(c)
</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.
62 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class Z
-----------------------------------------
November 18, 1998(a)
Year Ended Through
July 31, 2000 July 31, 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(d):
Net asset value, beginning of period $ 10.37 $ 10.00
-------- --------
Income from investment operations:
Net investment income .35 .21
Net realized and unrealized gain on
investments and foreign currencies .85 .35
-------- --------
Total from investment operations 1.20 .56
-------- --------
Less distributions
Dividends from net investment income (.40) (.19)
Distributions from net realized capital
gains (.12) --
-------- --------
Total dividends and distributions (.52) (.19)
-------- --------
Net asset value, end of period $ 11.05 $ 10.37
-------- --------
-------- --------
TOTAL RETURN(b) 11.84% 5.58%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 471 $ 20,843
Average net assets (000) $ 12,354 $ 38,460
Ratios to average net assets:
Expenses, including distribution fees 1.48% 1.67%(c)
Expenses, excluding distribution fees 1.48% 1.67%(c)
Net investment income 3.30% 2.89%(c)
</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 63
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund
Report of Independent Accountants
To the Shareholders and Trustees of
Prudential Diversified Funds--
Prudential Diversified Conservative Growth Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Diversified
Funds--Prudential Diversified Conservative Growth Fund (the 'Fund') at July 31,
2000, the results of its operations for the year then ended, and the changes in
its net assets and the financial highlights for the year then ended and for the
period November 18, 1998 (commencement of operations) through July 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements and financial highlights (hereafter referred to as
'financial statements') are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at July 31, 2000 by correspondence with the custodian and brokers,
provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
September 22, 2000
64
<PAGE>
Prudential Diversified Funds Prudential Diversified Conservative
Growth Fund
Federal Income Tax Information
We are required by the Internal Revenue Code to advise you within 60 days
of the Fund's fiscal year end (July 31, 2000) as to the federal tax status of
dividends paid by the Fund during such fiscal period. Accordingly, we are
advising you that during the fiscal period, the Fund paid dividends for Class A,
Class B, Class C and Class Z shares totaling $.37, $.29, $.29 and $.40 per
share, of ordinary income, which is taxable as such, respectively. In addition,
the Fund paid to Class A, B, C and Z shares a short-term capital gain
distribution of $.12 which is taxable as such. Further, we wish to advise you
that 6.96% of the ordinary income dividends paid in the fiscal year ended July
31, 2000 qualified for the corporate dividend received deduction available to
corporate taxpayers.
In January 2001, you will be advised on IRS Form 1099 DIV or substitute
1099 DIV as to the federal tax status of the distributions received by you in
calendar year 2000.
IMPORTANT NOTICE FOR CERTAIN SHAREHOLDERS
We are required by Massachusetts, Missouri and Oregon to inform you that
dividends which have been derived from interest on federal obligations are not
taxable to shareholders providing the mutual fund meets certain requirements
mandated by the respective state's taxing authorities. We are pleased to report
that 6.73% of the dividends paid by the Prudential Diversified Conservative
Growth Fund qualify for such deduction.
For more detailed information regarding your state and local taxes, you
should contact your tax advisor or the state/local taxing authorities.
65
<PAGE>
Prudential Diversified Conservative Growth Fund
Class A Growth of a $10,000 Investment
(GRAPH)
Average Annual Total Returns as of 7/31/00
<TABLE>
<CAPTION>
One Year Five Years Ten Years Since Inception
<S> <C> <C> <C> <C>
With Sales Charge 6.14% N/A N/A 6.78%
Without Sales Charge 11.73% N/A N/A 10.06%
</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. The graph compares a
$10,000 investment in the Prudential Diversified
Conservative Growth Fund (Class A shares) with a similar
investment in the Standard & Poor's 500 Composite Stock
Price Index (S&P 500 Index) by portraying the initial
account value at the commencement of operations of Class
A shares, and the account value at the end of the current
fiscal year (July 31, 2000), as measured on a quarterly
basis, beginning in November 1998 for Class A shares. For
purposes of the graph, and unless otherwise indicated, it
has been assumed that (a) the maximum applicable front-
end sales charge was deducted from the initial $10,000
investment in Class A shares; (b) all recurring fees
(including management fees) were deducted; and (c) all
dividends and distributions were reinvested.
The S&P 500 Index is an unmanaged index of 500 stocks of
large U.S. companies. It gives a broad look at how stock
prices have performed. The S&P 500 Index total returns
include the reinvestment of all
dividends, but do not include the effect of sales charges
or operating expenses of a mutual fund. The securities
that comprise the Index may differ substantially from the
securities in the Fund. The Index is not the only one
that may be used to characterize performance of large-
capitalization stock funds. Other indexes may portray
different comparative performance. Investors cannot
invest directly in an index.
This graph is furnished to you in accordance with SEC
regulations.
<PAGE>
www.prudential.com (800) 225-1852
Class B Growth of a $10,000 Investment
(GRAPH)
Average Annual Total Returns as of 7/31/00
<TABLE>
<CAPTION>
One Year Five Years Ten Years Since Inception
<S> <C> <C> <C> <C>
With Sales Charge 5.89% N/A N/A 7.00%
Without Sales Charge 10.89% N/A N/A 9.22%
</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. The graph compares a
$10,000 investment in the Prudential Diversified
Conservative Growth Fund (Class B shares) with a similar
investment in the Standard & Poor's 500 Composite Stock
Price Index (S&P 500 Index) by portraying the initial
account values at the commencement of operations of Class
B shares, and the account value at the end of the current
fiscal year (July 31, 2000), as measured on a quarterly
basis, beginning in November 1998 for Class B shares. For
purposes of the graph, and unless otherwise indicated, it
has been assumed that (a) the maximum applicable
contingent deferred sales charge was deducted from the
value of the investment in Class B shares, assuming full
redemption on July 31, 2000; (b) all recurring fees
(including management fees) were deducted; and (c) all
dividends and distributions were reinvested. Class B
shares will automatically convert to Class A shares, on a
quarterly basis, beginning approximately seven years
after purchase. This conversion feature is not reflected
in the graph.
The S&P 500 Index is an unmanaged index of 500 stocks of
large U.S. companies. It gives a broad look at how stock
prices have performed. The S&P 500 Index total returns
include the reinvestment of all
dividends, but do not include the effect of sales charges
or operating expenses of a mutual fund. The securities
that comprise the Index may differ substantially from the
securities in the Fund. The Index is not the only one
that may be used to characterize performance of large-
capitalization stock funds. Other indexes may portray
different comparative performance. Investors cannot
invest directly in an index.
This graph is furnished to you in accordance with SEC
regulations.
<PAGE>
Prudential Diversified Conservative Growth Fund
Class C Growth of a $10,000 Investment
Average Annual Total Returns as of 7/31/00
<TABLE>
<CAPTION>
One Year Five Years Ten Years Since Inception
<S> <C> <C> <C> <C>
With Sales Charge 8.78% N/A N/A 8.58%
Without Sales Charge 10.89% N/A N/A 9.22%
</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. The graph compares a
$10,000 investment in the Prudential Diversified
Conservative Growth Fund (Class C shares) with a similar
investment in the Standard & Poor's 500 Composite Stock
Price Index (S&P 500 Index) by portraying the initial
account value at the commencement of operations of Class
C shares, and the account value at the end of the current
fiscal year (July 31, 2000), as measured on a quarterly
basis, beginning in November 1998 for Class C shares. For
purposes of the graph, and unless otherwise indicated, it
has been assumed that (a) the maximum applicable front-
end sales charge was deducted from the initial $10,000
investment in Class C shares; (b) the maximum applicable
contingent deferred sales charge was deducted from the
value of the investment in Class C shares, assuming full
redemption on July 31, 2000; (c) all recurring fees
(including management fees) were deducted; and (d) all
dividends and distributions were reinvested.
The S&P 500 Index is an unmanaged index of 500 stocks of
large U.S. companies. It gives a broad look at how stock
prices have performed. The S&P 500 Index total returns
include the reinvestment of all
dividends, but do not include the effect of sales charges
or operating expenses of a mutual fund. The securities
that comprise the Index may differ substantially from the
securities in the Fund. The Index is not the only one
that may be used to characterize performance of large-
capitalization stock funds. Other indexes may portray
different comparative performance. Investors cannot
invest directly in an index.
This graph is furnished to you in accordance with SEC
regulations.
<PAGE>
www.prudential.com (800) 225-1852
Class Z Growth of a $10,000 Investment
Average Annual Total Returns as of 7/31/00
<TABLE>
<CAPTION>
One Year Five Years Ten Years Since Inception
<S> <C> <C> <C> <C>
With Sales Charge 11.84% N/A N/A 10.27%
Without Sales Charge 11.84% N/A N/A 10.27%
</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. The graph compares a
$10,000 investment in the Prudential Diversified
Conservative Growth Fund (Class Z shares) with a similar
investment in the Standard & Poor's 500 Composite Stock
Price Index (S&P 500 Index) by portraying the initial
account value at the commencement of operations of Class
Z shares, and the account value at the end of the current
fiscal year (July 31, 2000), as measured on a quarterly basis,
beginning in November 1998 for Class Z shares. For purposes
of the graph, and unless otherwise indicated, it has been
assumed that (a) all recurring fees (including management
fees) were deducted, and (b) all dividends and distributions
were reinvested. Class Z shares are not subject to a sales
charge or distribution and service (12b-1) fees.
The S&P 500 Index is an unmanaged index of 500 stocks of
large U.S. companies. It gives a broad look at how stock
prices have performed. The S&P 500 Index total returns
include the reinvestment of all dividends, but do not include
the effect of sales charges or operating expenses of a
mutual fund. The securities that comprise the Index may
differ substantially from the securities in the Fund. The
Index is not the only one that may be used to characterize
performance of large-capitalization stock funds. Other
indexes may portray different comparative performance.
Investors cannot invest directly in an index.
This graph is furnished to you in accordance with SEC
regulations.
<PAGE>
FOR MORE INFORMATION
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
Visit Prudential's web site at:
http://www.prudential.com
Trustees
Eugene C. Dorsey
Saul K. Fenster, Ph.D.
Robert F. Gunia
Prof. Maurice F. Holmes
Robert E. LaBlanc
Douglas H. McCorkindale
W. Scott McDonald, Jr.
Thomas T. Mooney
David R. Odenath, Jr.
Stephen Stoneburn
John R. Strangfeld
Joseph Weber
Clay T. Whitehead
Officers
John R. Strangfeld, President
Robert F. Gunia, Vice President
David R. Odenath, Jr., Vice President
Grace C. Torres, Treasurer
William V. Healey, Assistant Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Sub-Advisers
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
Jennison Associates LLC
466 Lexington Avenue
New York, NY 10017
Franklin Advisers, Inc.
777 Mariners Island Blvd.
San Mateo, CA 94404
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
Pacific Investment Management Company LLC
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 8098
Philadelphia, PA 19101
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
Fund Symbols NASDAQ CUSIP
Class A N/A 74432F109
Class B PBCFX 74432F208
Class C PCCFX 74432F307
Class Z PDCZX 74432F406
MF186E5
(LOGO) Printed on Recycled Paper
<PAGE>
(ICON)
ANNUAL REPORT JULY 31, 2000
Prudential
Diversified High Growth Fund
Fund Type Stock
Objective Long-term capital appreciation
This report is not authorized for distribution to
prospective investors unless preceded or accompanied by a
current prospectus.
Build On The Rock
(GRAPHIC)
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.
(LOGO)
<PAGE>
Build on the Rock
Investment Goals and Style
The Prudential Diversified High Growth Fund seeks to
provide long-term capital appreciation. It invests in a
diversified portfolio of equity securities. There can be
no assurance that the Fund will achieve its investment
objective.
MANAGER
Prudential Investments Fund Management LLC
INVESTMENT SUB-ADVISERS
(LOGO)
<PAGE>
www.prudential.com (800) 225-1852
Performance at a Glance
Cumulative Total Returns1 As of 7/31/00
<TABLE>
<CAPTION>
One Since
Year Inception2
<S> <C> <C>
Class A 18.99% 37.08%
Class B 18.13 35.49
Class C 18.13 35.49
Class Z 19.23 37.83
Lipper Multi-Cap Core Fund Avg.3 13.29 28.56
</TABLE>
Average Annual Total Returns1 As of 7/31/00
<TABLE>
<CAPTION>
One Since
Year Inception2
<S> <C> <C>
Class A 13.04% 16.80%
Class B 13.13 17.47
Class C 15.95 18.86
Class Z 19.23 20.77
</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 one-year and since inception periods in the
Multi-Cap Core Fund category. The Lipper average is
unmanaged. The Lipper Multi-Cap Core Fund average
includes funds that invest in a variety of market
capitalization ranges, generally have between 25% and 75%
of their equity assets invested in companies with market
capitalizations above 300% of the dollar-weighted median
of the S&P(r) Mid-Cap 400 Index, have wide latitude in
the companies in which they invest, and have an above-
average price/earnings ratio, price-to-book ratio, and
three-year earnings growth figure.
S&P(r) is a registered trademark of The McGraw-Hill
Companies, Inc.
1
<PAGE>
(LOGO)
Dear Shareholder,
The Prudential Diversified High Growth Fund's Class A
shares had a cumulative total return of 18.99% over the
12-month period ended July 31, 2000, more than five
percentage points above the 13.29% Lipper Multi-Cap Core
Fund Average. This was 13.04% to those paying the maximum
one-time Class A share sales charge. Although value
stocks had a net negative return over the period, the
Fund's small-cap and large-cap growth holdings each
substantially exceeded the return on their benchmarks,
contributing most of the positive return for the period.
This was a good period to be in a diversified fund. The
markets changed with dizzying frequency and rapidity. To
illustrate this point, the graph on the next page
represents the monthly returns of three different
indexes: the Standard & Poor's Electronics Index, which
represents a model growth industry; the Standard & Poor's
SmallCap Gaming Index, which represents stocks that can
be found in many value funds; and the Morgan Stanley
Capital International EAFE Index, which represents the
major world markets excluding the United States. As you
can see, each had dramatic month-to-month changes,
including some negative months, and they behaved in very
different ways. A diversified fund-one that is invested
in several companies within a number of different industries
that have different growth characteristics-is more likely to
exhibit steady performance.
Sincerely,
John R. Strangfeld, President
Prudential Diversified High Growth Fund
2
<PAGE>
September 15, 2000
Monthly Returns of Selected Indexes
(GRAPH)
1 The S&P Electronics (semiconductors) Index is an
unmanaged capitalization-weighted index of all stocks
designed to measure performance of the electronics
(semiconductors) sector of the S&P 500 Index.
2 The S&P SmallCap Gaming, Lottery, and Parimutuel
Companies Index is an unmanaged capitalization-weighted
index that measures the performance of the gaming,
lottery, and parimutuel sector of the S&P SmallCap Index.
3 The Morgan Stanley Capital International Europe,
Australia, Far East Index (MSCI EAFE Index) is an
unmanaged weighted index of performance that reflects
stock price movements in Europe, Australasia, and the Far
East.
The performance cited does not represent the performance
of the Prudential Diversified High Growth Fund. Past
performance is not indicative of future results.
Investors cannot invest directly in an index.
<PAGE>
Prudential Diversified High Growth Fund
Annual Report July 31, 2000
Investment Adviser's Report
The Investing Context
Good news about the global economy dominated in the
fiscal year ended July 31, 2000. During the early part of
the period, uncertainties about how information systems
would behave during the turnover to the year 2000 caused
a flood of investment activity as companies updated their
information system support. The uncertainty also led the
U.S. Federal Reserve to increase the money supply to
ensure that any unexpected failure would not freeze the
financial system. During this period, technology and
telecommunications stocks around the world shot up to
extraordinarily high prices in comparison to even
optimistic earnings projections.
In the latter half of 1999, the Federal Reserve began
increasing interest rates to prevent the U.S. economy
from overheating. The series of interest rate increases
continued into 2000, leading investors to take a second
look at stock prices that were based upon expectations of
a long stream of future earnings. In addition, many
investors feared that rising interest rates would choke
off economic growth. In the wake of increasing investor
uncertainty, many of the most expensive stocks declined
in value, and stock markets faced unprecedented
volatility as every additional piece of economic
news was scrutinized and acted upon. Growth and value
investing styles alternated in success, sometimes from
day to day. Investors with well-diversified portfolios
were better positioned to weather these style turnovers
because some holdings might have experienced gains as
others lost ground.
Over the full 12 months, growth-style investing performed
best. Among stocks of small-capitalization companies, the
advantage was entirely in the early part of the period,
as small-cap value stocks were significantly favored in
the second half. Among large caps, market favor continued
to alternate through the summer of 2000. International
stocks gained modestly, mostly early in the period. As in
the U.S. market, style volatility and increased caution
held back international returns in 2000.
4
<PAGE>
www.prudential.com (800) 225-1852
Our Performance
Growth stocks. The Prudential Diversified High Growth
Fund continued to benefit from the 40% of its assets
allocated to growth-style investing (25% large cap and
15% small cap) and from the strong performance of its
growth managers. They far exceeded the returns of their
respective benchmarks. In small-cap stocks, the portfolio
benefited from its focus on technology. Early in the
period, an emphasis was placed on Internet-related
stocks, and these were market favorites. The managers
reduced their Internet position in time to protect much
of these gains from the sharp technology stock correction
that occurred in the second quarter of 2000. The cash was
reinvested in more established companies as the market
declined.
Value stocks. Largely because of the growth-oriented
environment early in the period, value benchmarks posted
negative performances over the reporting period. Our
style-consistent managers were more affected than most by
changes in market favor, and both underperformed their
benchmarks. In large-cap stocks, the strong contribution
of rebounding health management companies and gains by
oil companies failed to offset the impact of a low
representation in technology and a high weighting in
paper companies. With regard to the latter, a 1999
recovery of paper stocks was cut short in 2000 when
investors focused on the threats to continuing economic
growth. In small caps, the portfolio's return relative to
its peers was hurt by the absence of biotechnology
holdings, which received an unexpected boost in the
second quarter from the publicity following the mapping
of the human genome. After several years of poor
performance compared with growth investing, the value
style has been more competitive in the year 2000.
International stocks. The positive contribution of
international stocks came primarily early in the period.
The value orientation of the Fund's international
holdings made them sensitive to concerns about global
economic growth. Many investors feared that the European
Central Bank's raising of interest rates would slow
growth. Moreover, the return from international stocks
was hurt by the rise of the value of the dollar compared
to other
5
<PAGE>
Prudential Diversified High Growth Fund
Annual Report July 31, 2000
currencies, particularly the euro. It is widely believed
that the euro is undervalued, and a correction of this
imbalance would boost the relative value of euro-
denominated stocks generally.
Prudential Diversified High Growth Fund Management Team
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 the Fund 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, but 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 buffer
than a fund investing in only one asset class. We believe
this will result in more consistent returns over time.
Rebalancing
The 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.
6
<PAGE>
www.prudential.com (800) 225-1852
Although an individual investor can diversify and
rebalance, it would require a large investment to own the
range of asset classes represented in the Prudential
Diversified High Growth Fund. Moreover, calculating the
amounts to allocate to each kind of security in a
rebalancing would be difficult. Prudential Diversified
Funds do it all for you.
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.
Prudential Diversified High Growth Fund Diversification Target
(GRAPH)
7
<PAGE>
<PAGE>
Prudential Diversified Funds Prudential Diversified High Growth Fund
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C> <C>
------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS 87.5%
Common Stocks
-------------------------------------------------------------------------------------
Advertising 0.4%
1,750 ADVO, Inc. $ 71,641
4,300 Omnicom Group, Inc. 365,500
2,550 Penton Media, Inc. 88,294
2,900 True North Communications, Inc. 141,556
----------------
666,991
-------------------------------------------------------------------------------------
Aerospace/Defense 0.4%
59,500 British Aerospace PLC (United Kingdom)(a) 401,210
9,450 Gencorp, Inc. 75,009
20,000 Loral Space & Communications, Inc. 103,750
3,850 Scott Technologies, Inc. 74,113
----------------
654,082
-------------------------------------------------------------------------------------
Airlines 0.3%
15,900 Deutsche Lufthansa AG (Germany)(a) 392,002
2,200 SkyWest, Inc. 98,175
----------------
490,177
-------------------------------------------------------------------------------------
Auto & Truck 1.3%
5,250 ArvinMeritor, Inc. 82,031
2,400 Borg-Warner Automotive, Inc. 81,450
1,847 Delphi Automotive Systems Corp. 27,359
10,350 Dura Automotive Systems, Inc.(a) 106,734
18,767 General Motors Corp. 574,373
17,500 GKN PLC (United Kingdom) 224,074
5,200 Lear Corp.(a) 121,225
136,000 Nissan Motor Co., Ltd. (Japan)(a) 679,162
2,350 Superior Industries International, Inc. 70,647
----------------
1,967,055
-------------------------------------------------------------------------------------
Banking 5.4%
7,600 BancorpSouth, Inc. 115,425
3,550 BancWest Corp. 65,453
3,200 Bank of New York Co., Inc. 149,800
1,300 Bank United Corp. (Class 'A' Stock) 47,369
9,301 Banknorth Group, Inc. 142,422
</TABLE>
8 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified High Growth Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
3,700 Banque Nationale de Paris (France) $ 365,225
10,600 Bayerische Vereinsbank AG (Germany) 615,512
3,700 BSB Bancorp, Inc. 79,088
3,050 City National Corp. 111,897
3,200 CORUS BankShares, Inc. 93,600
9,650 Cullen/Frost Bankers, Inc. 274,422
9,475 CVB Financial Corp. 149,231
450 First Citizens BancShares, Inc. 27,450
31,000 Fuji Bank Ltd. (Japan) 200,374
5,650 Fulton Financial Corp. 121,475
12,000 Golden State Bancorp, Inc.(a) 229,500
2,250 Greater Bay Bancorp 121,078
4,450 Harbor Florida Bancshares, Inc. 50,619
36,500 HSBC Holdings PLC (United Kingdom) 494,155
33,000 Industrial Bank of Japan, Ltd. (Japan)(a) 211,795
8,200 ING Groep NV (Netherlands)(a) 548,276
7,550 MAF Bancorp, Inc. 150,528
55,850 Overseas-Chinese Banking Corp., Ltd. (Singapore) 406,147
5,050 PFF Bancorp, Inc. 87,744
3,250 Queens County Bancorp, Inc. 75,156
69,000 Sakura Bank, Ltd. (Japan) 400,009
21,300 San Paolo Imi SpA (Italy) 361,277
17,450 Silicon Valley Bancshares(a) 764,528
3,750 Southwest Bancorpoation of Texas, Inc.(a) 98,203
58,000 Sumitomo Trust & Banking Co., Ltd. (Japan) 373,835
22,000 Svenska Handelsbanken, Ser. A (Sweden) 330,968
72,904 United Overseas Bank, Ltd. (Singapore) 521,750
7,600 Washington Federal, Inc. 142,500
5,200 WestAmerica Bancorporation 144,300
----------------
8,071,111
-------------------------------------------------------------------------------------
Building & Construction 1.4%
6,200 American Standard Companies, Inc.(a) 276,287
1,500 Catellus Development Corp.(a) 25,875
7,400 Centex Corp. 177,137
8,700 D.R. Horton, Inc. 134,850
1,300 Dycom Industries, Inc. 55,575
</TABLE>
See Notes to Financial Statements 9
<PAGE>
Prudential Diversified Funds Prudential Diversified High Growth Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
4,200 Kaufman & Broad Home Corp. $ 82,163
8,200 M.D.C. Holdings, Inc. 164,000
10,000 Pulte Corp. 229,375
2,500 Texas Industries, Inc. 81,094
8,100 Thomas Industries, Inc. 169,088
3,100 Toll Brothers, Inc.(a) 74,981
5,018 Vivendi SA (France) 400,911
8,500 Webb (Del E.) Corp. 129,625
----------------
2,000,961
-------------------------------------------------------------------------------------
Chemicals 1.4%
8,900 Akzo Nobel NV (Netherlands) 395,868
2,250 Albany Molecular Research, Inc. 124,594
4,950 Albemarle Corp. 122,203
2,900 Arch Chemicals, Inc. 58,000
200 Cambrex Corp. 9,038
4,525 Cytec Industries, Inc.(a) 141,406
5,700 Eastman Chemical Co. 267,187
2,750 Geon Co. 45,203
11,700 Grace (W.R.) & Co.(a) 115,537
1,350 H.B. Fuller Co. 52,144
19,300 Imperial Chemical Industries PLC (United
Kingdom) 138,672
4,550 Lubrizol Corp. 97,256
6,900 Olin Corp. 108,244
1,650 OM Group, Inc. 78,272
2,300 Potash Corp. of Saskatchewan, Inc. 123,481
4,950 Spartech Corp. 132,722
----------------
2,009,827
-------------------------------------------------------------------------------------
Computer Services 3.2%
13,200 Affiliated Computer Services, Inc.(a) 594,825
500 AnswerThink Consulting Group, Inc.(a) 8,406
5,100 ASM Lithography Holding NV (Netherlands)(a) 202,725
4,400 AXENT Technologies, Inc.(a) 108,350
3,700 Brooktrout, Inc.(a) 111,925
14,000 Catapult Communications Corp.(a) 186,375
20,300 Cisco Systems, Inc.(a) 1,328,381
</TABLE>
10 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified High Growth Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
18,900 Getronics NV (Netherlands)(a) $ 318,818
3,250 InFocus Corp.(a) 113,750
2,000 Liberate Technologies, Inc.(a) 45,875
6,200 Luminant Worldwide Corp.(a) 50,375
16,000 MarchFirst, Inc.(a) 331,000
16,200 NetSolve, Inc.(a) 380,700
2,125 RadiSys Corp.(a) 130,688
3,400 RSA Security, Inc.(a) 215,475
500 Sapient Corp.(a) 56,875
4,800 Sun Microsystems, Inc.(a) 506,100
----------------
4,690,643
-------------------------------------------------------------------------------------
Computers 2.6%
9,000 Citrix Systems, Inc.(a) 137,250
41,200 Compaq Computer Corp. 1,156,175
7,900 Dell Computer Corp.(a) 347,106
9,800 EMC Corp.(a) 834,225
13,000 Fujitsu, Ltd. (Japan) 365,545
9,500 Hewlett-Packard Co. 1,037,281
200 Nuance Communications, Inc.(a) 28,075
100 Predictive Systems, Inc.(a) 2,200
----------------
3,907,857
-------------------------------------------------------------------------------------
Consumer Products 1.9%
3,550 Alberto-Culver Co. (Class 'B' Stock) 107,831
20,500 Eastman Kodak Co. 1,124,938
17,300 Electrolux AB, Ser. B (Sweden) 257,432
4,000 Estee Lauder Co., Inc. (Class 'A' Stock) 176,000
4,825 Fossil, Inc.(a) 88,056
14,000 Kao Corp. (Japan) 414,114
13,600 Philip Morris Co., Inc. 343,400
8,133 Reynolds (R.J.) Tobacco Holdings, Inc. 230,774
4,350 Tupperware Corp. 84,553
----------------
2,827,098
-------------------------------------------------------------------------------------
Consumer Services 0.3%
2,000 PurchasePro.com, Inc.(a) 78,000
19,500 Service Corp. International(a) 49,969
</TABLE>
See Notes to Financial Statements 11
<PAGE>
Prudential Diversified Funds Prudential Diversified High Growth Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
4,350 Waste Connections, Inc.(a) $ 88,088
11,100 Waste Management, Inc. 207,431
----------------
423,488
-------------------------------------------------------------------------------------
Diversified Manufacturing 1.7%
1,800 Corning, Inc. 421,088
4,100 CUNO, Inc.(a) 124,025
10,700 General Electric Co. 550,381
104,700 Invensys PLC (United Kingdom) 375,354
3,250 KEMET Corp.(a) 78,000
2,130 Siemens AG (Germany) 329,690
10,200 Thyssen Krupp AG (Germany)(a) 175,086
8,300 Veba AG (Germany) 463,879
----------------
2,517,503
-------------------------------------------------------------------------------------
Electronics 1.1%
1 Agilent Technologies, Inc.(a) 41
9,350 Minnesota Power, Inc. 199,272
36,600 National Grid Group PLC (United Kingdon) 300,541
4,500 Polycom, Inc.(a) 426,867
6,100 Sony Corp. (Japan) 560,798
13,000 Sumitomo Electric Industries, Ltd. (Japan) 210,545
----------------
1,698,064
-------------------------------------------------------------------------------------
Electronic Components 4.8%
4,108 ABB Ltd. (Switzerland) 489,677
2,400 Applied Micro Circuits Corp.(a) 358,200
14,700 Arrow Electronics, Inc.(a) 486,019
2,700 ATMI, Inc.(a) 69,525
3,050 Audiovox Corp.(a) 47,275
5,300 Avnet, Inc. 301,769
3,050 Belden, Inc. 76,631
2,700 Cable Design Technologies Corp.(a) 95,175
2,600 Electroglas, Inc.(a) 52,000
900 Electronic Scientific Industries, Inc.(a) 40,894
7,800 Flextronics International, Ltd. (Singapore)(a) 552,216
14,500 Gentex Corp.(a) 329,875
13,000 Hitachi, Ltd. (Japan) 155,475
</TABLE>
12 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified High Growth Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
3,950 Idacorp, Inc. $ 146,150
1,750 Integrated Silicon Solution, Inc. 36,750
7,780 KPN NV (Netherlands)(a) 352,469
1,400 Littelfuse, Inc.(a) 49,350
12,000 Novellus Systems, Inc.(a) 647,250
4,600 PMC-Sierra, Inc.(a) 891,825
4,400 Rogers Corp.(a) 157,300
200 Silicon Laboratories, Inc.(a) 11,512
7,300 STMicroelectronics NV (France) 415,644
5,000 TDK Corp. ADR (Japan) 635,000
13,100 Texas Instruments, Inc. 768,806
----------------
7,166,787
-------------------------------------------------------------------------------------
Financial Services 5.4%
1,700 Acom Co., Ltd. (Japan)(a) 128,817
6,900 Allied Capital Corp. 130,669
12,900 American Express Co. 731,269
11,900 Bank of America Corp. 563,762
6,900 Charles Schwab Corp. 249,262
19,050 Citigroup, Inc. 1,344,216
1,200 Dain Rauscher Corp. 81,375
8,150 Doral Financial Corp. 105,950
5,250 Downey Financial Corp. 183,750
2,750 Eaton Vance Corp. 142,484
12,900 Federated Investors, Inc. 337,819
32,400 Halifax Group PLC (United Kingdom)(a) 253,915
1,600 Investment Technology, Inc.(a) 77,800
33,500 Investor AB (Sweden) 485,714
9,400 John Hancock Financial Services, Inc. 222,075
8,700 Labranche & Co., Inc.(a) 177,262
4,300 Merrill Lynch & Co., Inc. 555,775
7,500 Metris Companies, Inc. 219,844
11,600 Morgan Stanley Dean Witter & Co. 1,058,500
2,700 National Discount Brokers Group, Inc.(a) 88,931
2,800 Orix Corp. (Japan) 361,711
2,813 Radian Group, Inc. 171,241
</TABLE>
See Notes to Financial Statements 13
<PAGE>
Prudential Diversified Funds Prudential Diversified High Growth Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
2,550 Triad Guaranty, Inc. $ 61,838
5,650 Webster Financial Corp. 126,419
2,600 Whitney Holding Corp. 96,688
----------------
7,957,086
-------------------------------------------------------------------------------------
Food & Beverage 2.6%
1,150 Adolph Coors Co. 72,450
53,500 Cadbury Schweppes PLC (United Kingdom) 346,121
11,500 CKE Restaurants, Inc. 33,781
53,100 Darden Restaurants, Inc. 866,194
2,900 Dean Foods Co. 100,956
45,600 Diageo PLC (United Kingdom) 400,410
3,750 Fleming Cos., Inc. 58,828
7,500 Heineken NV (Netherlands) 428,900
4,450 Michael Foods, Inc. 106,800
24,500 Nabisco Group Holding Corp. 649,250
3,900 Performance Food Group Co.(a) 128,456
6,850 Riviana Foods, Inc. 111,313
13,850 Ryan's Family Steak Houses, Inc.(a) 126,381
15,400 Sara Lee Corp. 283,938
4,350 Smithfield Foods, Inc.(a) 123,703
4,050 Universal Foods Corp. 78,975
----------------
3,916,456
-------------------------------------------------------------------------------------
Gas Distribution 0.5%
3,000 CH Energy Group, Inc. 97,875
8,850 Energen Corp. 199,125
7,700 KeySpan Corp. 244,475
5,500 ONEOK, Inc. 146,781
----------------
688,256
-------------------------------------------------------------------------------------
Health Care 4.1%
6,400 Apria Healthcare Group, Inc.(a) 95,600
29,900 Foundation Health Systems, Inc. 435,419
38,200 HCA-The Healthcare Corp. 1,298,800
32,600 HEALTHSOUTH Corp.(a) 193,563
700 Oxford Health Plans, Inc.(a) 16,756
9,000 PAREXEL International Corp.(a) 89,438
</TABLE>
14 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified High Growth Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
45,000 Tenet Healthcare Corp.(a) $ 1,369,687
3,250 Trigon Healthcare, Inc.(a) 172,250
12,200 UnitedHealth Group, Inc. 998,112
15,200 Wellpoint Health Networks, Inc.(a) 1,325,250
----------------
5,994,875
-------------------------------------------------------------------------------------
Home Furnishings 0.3%
3,275 Ethan Allen Interiors, Inc. 83,512
5,750 Furniture Brands International, Inc.(a) 85,172
5,100 HON INDUSTRIES, Inc. 136,106
8,350 Pier 1 Imports, Inc. 99,678
2,250 Springs Industries, Inc. 72,563
----------------
477,031
-------------------------------------------------------------------------------------
Hotels & Leisure 0.4%
1,300 Anchor Gaming(a) 70,444
2,600 Gaylord Entertainment Co. 64,513
21,600 Hilton Hotels Corp. 221,400
39,400 MeriStar Hotels & Resorts, Inc.(a) 105,887
3,400 SFX Entertainment, Inc.(a) 156,400
----------------
618,644
-------------------------------------------------------------------------------------
Human Resources 0.1%
2,850 CDI Corp.(a) 56,644
4,750 Spherion Corp.(a) 90,844
----------------
147,488
-------------------------------------------------------------------------------------
Insurance 5.4%
5,050 Alfa Corp. 92,163
12,295 Alleanza Assicurazioni (Italy) 153,271
1,771 Allianz AG (Germany) 656,597
3,800 American Financial Group, Inc. 95,000
2,800 American General Corp. 186,725
7,950 American International Group, Inc. 697,116
2,800 Annuity and Life Re (Holdings), Ltd. 68,950
4,450 Arthur J. Gallagher & Co. 218,328
2,680 AXA Financial, Inc. (France) 407,369
14,400 AXA Financial, Inc. 550,800
13,900 Chubb Corp. 1,028,600
</TABLE>
See Notes to Financial Statements 15
<PAGE>
Prudential Diversified Funds Prudential Diversified High Growth Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
4,200 Commerce Group, Inc. $ 116,550
2,640 Fidelity National Financial, Inc. 46,695
3,400 First American Financial Corp. 52,913
4,050 Leucadia National Corp. 108,084
11,800 Loews Corp. 740,450
3,550 Milacron, Inc. 51,031
4,450 MONY Group, Inc. 159,088
18,900 Old Republic International Corp. 421,706
8,350 Presidential Life Corp. 120,553
18,500 Prudential Corp. PLC (United Kingdom) 252,541
1,500 Quotesmith.com, Inc.(a) 3,656
13,700 Reinsurance Group of America, Inc. 435,831
18,700 SAFECO Corp. 431,269
6,000 St. Paul Companies, Inc. 266,625
2,550 StanCorp Financial Group, Inc. 87,975
4,800 Terex Corp. 79,200
940 Zurich Versicherungs-Gesellschaft (Switzerland) 506,754
----------------
8,035,840
-------------------------------------------------------------------------------------
Machinery 0.3%
1,700 Helix Technology Corp. 55,250
2,500 IDEX Corp. 82,500
6,400 JLG Industries, Inc. 65,200
8,850 Lincoln Electric Holdings, Inc. 133,856
3,600 Manitowoc Co., Inc. 88,650
3,050 Trinity Industrial Corp. (Japan) 58,713
----------------
484,169
-------------------------------------------------------------------------------------
Manufacturing 1.1%
2,050 AptarGroup, Inc. 51,122
850 Brooks Automation, Inc. 42,181
300 Coherent, Inc. 17,963
2,050 Compagnie de Saint Gobain (France) 301,157
8,000 Mettler-Toledo International Inc.(a) 324,000
4,900 Tektronix, Inc.(a) 301,350
3,550 The Toro Co. 106,944
100 Varian, Inc.(a) 4,213
</TABLE>
16 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified High Growth Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
3,900 Waters Corp.(a) $ 462,637
----------------
1,611,567
-------------------------------------------------------------------------------------
Media 2.7%
2,750 Banta Corp. 53,109
8,300 Clear Channel Communications, Inc.(a) 632,356
2,200 Cumulus Media, Inc.(a) 21,450
1,550 Entercom Communications Corp.(a) 60,159
5,000 Gemstar-TV Guide International, Inc.(a) 304,062
6,950 General Cable Corp. 59,944
1,900 Harman International Industries, Inc. 120,175
3,200 Lagardere SCA (France) 207,170
3,900 Lee Enterprises, Inc. 103,350
7,200 Metromedia Fiber Network, Inc.(a) 252,900
44,400 Reed International PLC (United Kingdom) 354,944
1,650 Scholastic Corp.(a) 105,394
1,100 Time Warner, Inc. 84,356
3,800 Univision Communications, Inc.(a) 472,150
17,024 Viacom, Inc.(a) 1,128,904
100 Wink Communications, Inc.(a) 2,450
500 Ziff Davis, Inc.(a) 8,563
----------------
3,971,436
-------------------------------------------------------------------------------------
Medical Products & Services 3.2%
7,600 Amgen, Inc.(a) 493,525
9,269 AstraZeneca Group PLC (United Kingdom)(a) 399,452
8,350 Bergen Brunswig Corp. 73,063
3,250 Datascope Corp.(a) 122,687
2,400 Genetech, Inc.(a) 365,100
9,000 Inhale Therapeutic Systems, Inc.(a) 730,687
6,800 PacifiCare Health Systems, Inc.(a) 442,000
3,100 Patterson Dental Co.(a) 82,150
2,300 PerkinElmer, Inc. 147,056
12,901 Pharmacia Corp. 706,330
850 Quest Diagnostics, Inc.(a) 85,797
11,000 Sankyo Co., Ltd. (Japan)(a) 258,091
7,700 Serono SA (Switzerland)(a) 207,900
</TABLE>
See Notes to Financial Statements 17
<PAGE>
Prudential Diversified Funds Prudential Diversified High Growth Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
41,100 Smithkline Beecham PLC (United Kingdom) $ 529,642
3,350 Varian Medical Systems, Inc. 144,050
----------------
4,787,530
-------------------------------------------------------------------------------------
Metals 1.4%
24,400 Alcoa, Inc. 738,100
33,600 Broken Hill Proprietary Co., Ltd. (Australia) 355,533
3,900 Carpenter Technology Corp. 119,438
3,400 Cleveland-Cliffs, Inc. 84,363
5,300 Commercial Metals Co. 155,687
3,200 Kaydon Corp. 67,000
7,700 Phelps Dodge Corp. 313,294
2,350 Precision Castparts Corp. 150,253
4,775 Reliance Steel & Aluminum Co. 100,275
5,250 Worthington Industries, Inc. 55,453
----------------
2,139,396
-------------------------------------------------------------------------------------
Mining 0.4%
25,700 Freeport-McMoRan Copper & Gold, Inc.(a) 220,056
18,700 Newmont Mining Corp. 331,925
----------------
551,981
-------------------------------------------------------------------------------------
Networking 0.5%
600 Adaptec, Inc.(a) 14,850
2,900 Anixter International, Inc.(a) 84,281
1,200 Broadcom Corp.(a) 269,100
1,700 Juniper Networks, Inc.(a) 242,144
1,800 Network Appliance, Inc.(a) 155,138
----------------
765,513
-------------------------------------------------------------------------------------
Office Equipment & Supplies 0.4%
10,000 Canon, Inc. (Japan) 445,519
4,400 John H. Harland Co. 58,850
17,700 Lanier Worldwide, Inc.(a) 12,169
2,000 United Stationers, Inc. 58,250
----------------
574,788
</TABLE>
18 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified High Growth Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Oil & Gas 2.7%
2,100 Amerada Hess Corp. $ 127,050
57,300 ENI SpA (Italy) 320,775
4,750 Helmerich & Payne, Inc. 152,000
3,877 Kerr-McGee Corp. 212,750
13,800 Marine Drilling Companies, Inc.(a) 300,150
14,200 Newfield Exploration Co.(a) 483,687
9,700 Nuevo Energy Co.(a) 147,925
7,900 Occidental Petroleum Corp. 159,975
3,250 Patterson Energy, Inc.(a) 81,047
4,800 Schlumberger, Ltd. (France) 354,900
11,233 Total Fina SA ADR (France) 826,328
4,510 Total Fina SA, (France) 668,397
2,600 Ultramar Diamond Shamrock Corp. 59,475
4,600 Valero Energy Corp. 119,313
----------------
4,013,772
-------------------------------------------------------------------------------------
Oil & Gas Exploration/Production 1.1%
4,900 Berry Petroleum Co. 89,119
55,300 BP Amoco PLC (United Kingdom) 483,928
12,464 BP Amoco PLC 652,023
5,250 Equitable Resources, Inc. 273,328
4,300 Mitchell Energy & Development Corp.(a) 137,062
1,650 St. Mary Land & Exploration Co. 49,397
----------------
1,684,857
-------------------------------------------------------------------------------------
Paper & Packaging 2.8%
2,850 Chesapeake Corp. 74,634
5,100 Fort James Corp. 155,869
7,300 Georgia-Pacific Corp. (Timber Group) 221,281
23,500 Georgia-Pacific Group 583,094
13,700 International Paper Co. 465,800
16,300 Mead Corp. 413,612
26,000 Nippon Paper Industries Co., Ltd.(Japan) 189,894
11,500 Pactiv Corp.(a) 106,375
5,650 Pope & Talbot, Inc. 108,763
8,750 Rayonier, Inc. 356,016
9,200 Temple-Inland, Inc. 399,625
</TABLE>
See Notes to Financial Statements 19
<PAGE>
Prudential Diversified Funds Prudential Diversified High Growth Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
10,100 UPM-Kymmene Oyj (Finland) $ 249,008
9,400 Weyerhaeuser Co. 429,462
15,200 Willamette Industries, Inc. 460,750
----------------
4,214,183
-------------------------------------------------------------------------------------
Pharmaceuticals 2.4%
2,000 Alpharma, Inc. 131,000
10,700 American Home Products Corp. 567,769
9,051 Aventis SA, (France) 697,119
4,900 Bindley Western Industries, Inc. 128,931
4,200 Eli Lilly & Co. 436,275
27,500 Pfizer, Inc. 1,185,937
43 Roche Holdings AG (Switzerland) 403,870
----------------
3,550,901
-------------------------------------------------------------------------------------
Real Estate Investment Trusts 2.1%
700 Alexandria Real Estate Equities, Inc. 25,069
5,600 Amli Residential Properties Trust 136,500
5,800 Arden Realty, Inc. 153,700
3,100 Avalonbay Communities, Inc. 146,087
5,600 Bradley Real Estate, Inc. 120,400
4,600 BRE Properties, Inc. 149,212
5,350 Cabot Industrial Trust 109,675
2,850 Camden Property Trust 89,063
2,700 Developers Diversified Realty Corp. 42,525
3,850 First Industrial Reality Trust, Inc. 123,200
4,700 Franchise Finance Corp. of America 112,800
3,900 Gables Residential Trust 106,031
1,500 General Growth Properties, Inc. 50,813
3,400 Health Care Property Investors, Inc. 101,150
4,600 Health Care REIT, Inc. 82,800
5,900 Highwoods Properties, Inc. 159,300
4,100 Hospitality Properties Trust 101,475
11,300 JDN Realty Corp. 118,650
16,400 MeriStar Hospitality Corp. 363,875
8,000 Nationwide Health Properties, Inc. 126,000
8,600 Reckson Associates Reality Corp. 225,750
</TABLE>
20 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified High Growth Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
5,300 Regency Realty Corp. $ 127,200
1,100 SL Green Realty Corp. 32,656
5,400 Summit Properties, Inc. 128,925
3,400 Weingarten Realty Investors 140,675
----------------
3,073,531
-------------------------------------------------------------------------------------
Retail 5.1%
3,600 American Eagle Outfitters, Inc.(a) 53,550
7,650 Ames Department Stores, Inc. 54,506
3,400 BJ's Wholesale Club, Inc.(a) 101,787
10,200 Consolidated Stores Corp.(a) 121,762
21,600 Dillard's, Inc. (Class 'A' Stock) 295,650
3,050 Dress Barn, Inc.(a) 63,288
1,750 Factory 2-U Stores, Inc.(a) 72,625
13,925 GAP, Inc. 498,689
50,000 Great Universal Stores PLC (United Kingdom) 330,783
23,100 Home Depot, Inc. 1,195,425
31,500 IKON Office Solutions, Inc. 127,969
6,800 J.C. Penney Co., Inc. 109,650
2,700 Jack In The Box, Inc.(a) 57,881
3,700 Kellwood Co. 82,788
44,200 Kmart Corp.(a) 309,400
13,100 Kohl's Corp.(a) 743,425
1,700 Libbey, Inc. 53,019
2,500 Michaels Stores, Inc.(a) 108,281
6,700 Pep Boys - Manny, Moe & Jack 38,944
6,550 Polo Ralph Lauren Corp.(a) 106,028
11,400 RadioShack Corp. 642,675
8,450 Ross Stores, Inc. 129,919
5,900 Ruby Tuesday, Inc. 72,644
4,250 Russell Corp. 83,672
1,100 Sears, Roebuck & Co. 32,863
131,900 Tesco PLC (United Kingdom)(a) 434,820
10,800 Tiffany & Co. 369,900
14,700 Toys 'R' Us, Inc.(a) 242,550
8,000 Venator Group, Inc. 113,000
13,000 Wal-Mart Stores, Inc. 714,187
</TABLE>
See Notes to Financial Statements 21
<PAGE>
Prudential Diversified Funds Prudential Diversified High Growth Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
4,200 Zale Corp.(a) $ 156,975
----------------
7,518,655
-------------------------------------------------------------------------------------
Semiconductors 1.6%
6,000 Alpha Industries, Inc.(a) 204,375
5,400 Applied Materials, Inc.(a) 409,725
1,300 Cirrus Logic, Inc.(a) 25,187
3,400 GaSonics International Corp.(a) 81,600
18,600 Intel Corp. 1,241,550
2,750 Kulicke & Soffa Industries, Inc.(a) 124,094
300 Micrel, Inc.(a) 15,019
400 QLogic Corp.(a) 29,800
1,150 Varian Semiconductor Equipment Associates,
Inc.(a) 55,847
2,800 Veeco Instruments, Inc.(a) 220,500
----------------
2,407,697
-------------------------------------------------------------------------------------
Shipbuilding
1,700 Newport News Shipbuilding, Inc. 68,638
-------------------------------------------------------------------------------------
Software 3.0%
100 Actuate Corp.(a) 4,925
2,150 Agency.com, Inc.(a) 46,359
1,200 Allaire Corp.(a) 37,031
100 Alteon Websystems, Inc.(a) 13,194
7,300 America Online, Inc.(a) 389,181
500 Broadbase Software, Inc.(a) 11,781
15,300 BroadVision, Inc.(a) 553,669
100 Clarus Corp.(a) 3,700
4,800 Computer Associates International, Inc. 119,100
200 EPiphany, Inc. 18,613
200 Exchange Applications, Inc.(a) 4,400
4,000 Exodus Communications, Inc.(a) 177,750
8,200 HNC Software, Inc.(a) 361,825
200 Informatica Corp.(a) 16,000
200 Interwoven, Inc.(a) 12,913
600 ITXC Corp.(a) 10,875
2,150 Keynote Systems, Inc. 81,525
2,700 Microsoft Corp.(a) 188,494
</TABLE>
22 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified High Growth Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
1,558 NetIQ Corp.(a) $ 75,173
2,900 ONYX Software Corp.(a) 70,144
4,800 Phoenix Technologies Ltd. 81,600
4,550 Progress Software Corp.(a) 68,534
1,350 Proxicom, Inc.(a) 55,772
300 Software.com, Inc.(a) 30,262
4,400 Sybase, Inc.(a) 106,150
1,200 U.S. Interactive, Inc.(a) 16,200
1,600 VeriSign, Inc.(a) 253,900
13,500 VERITAS Software Corp.(a) 1,376,156
4,800 Verity, Inc. 174,900
400 Viant Corp.(a) 13,200
----------------
4,373,326
-------------------------------------------------------------------------------------
Telecommunications 9.6%
1,300 Advanced Fibre Communications, Inc.(a) 55,738
7,900 Alcatel (France) 582,840
4,900 Allegiance Telecom, Inc.(a) 272,256
6,600 ALLTEL Corp. 406,725
31,200 AT&T Corp. 770,650
26,500 British Telecommunications PLC (United Kingdom) 350,233
800 C-COR.net Corp.(a) 21,150
6,600 Comverse Technology, Inc.(a) 579,150
700 Copper Mountain Networks, Inc.(a) 55,202
2,154 Deutsche Telekom AG (Germany)(a) 93,852
600 Ditech Communications Corp.(a) 28,724
800 Dobson Communications Corp.(a) 17,500
21,600 Ericsson (L.M.) AB (ADR) (Sweden) 423,900
17,600 Global Crossing Ltd.(a) 427,900
600 Go2Net, Inc.(a) 35,438
17,100 Harris Corp. 585,675
2,200 Intermedia Communications, Inc.(a) 38,775
11,500 JDS Uniphase Corp.(a) 1,358,437
2,200 Leap Wireless International, Inc.(a) 139,425
2,200 Level 3 Communications, Inc.(a) 150,563
7,400 Millicom International Cellular SA
(Luxembourg)(a) 326,525
7,300 Motorola, Inc. 241,356
</TABLE>
See Notes to Financial Statements 23
<PAGE>
Prudential Diversified Funds Prudential Diversified High Growth Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
5,650 Net2000 Communications, Inc.(a) $ 53,675
8,100 Nextel Communications, Inc.(a) 453,094
5,700 NEXTLINK Communications, Inc.(a) 188,456
43 Nippon Telegraph & Telephone Corp. (Japan) 514,265
23,000 Nokia Corp. ADR (Finland)(a) 1,019,187
9,600 Nortel Networks Corp 714,000
7,400 NTL, Inc.(a) 333,462
13 NTT Mobile Communication (Japan) 326,380
45,300 Portugal Telecom SA (Portugal) 493,339
19,200 Qwest Communications International, Inc.(a) 901,200
5,800 Tele Danmark A/S (Denmark) 356,837
14,915 Telefonica SA (Spain) 313,804
600 Ventro Corp.(a) 7,238
122,275 Vodafone Airtouch PLC, ADR (United Kingdom)(a) 1,483,932
----------------
14,120,883
-------------------------------------------------------------------------------------
Trucking & Shipping 0.4%
4,950 Airborne Freight Corp. 76,416
3,750 Alexander & Baldwin, Inc. 94,453
6,950 Roadway Express, Inc. 165,062
3,600 Sea Containers, Ltd. (Bermuda) 94,500
4,400 USFreightways Corp. 122,100
----------------
552,531
-------------------------------------------------------------------------------------
Utilities 1.7%
38,597 British Energy PLC (Class 'A' Stock) (United
Kingdom) 138,806
3,400 California Water Service Group 81,175
3,350 Cleco Corp. 123,531
4,900 Conectiv, Inc. 81,156
26,800 Endesa SA (Spain) 556,158
4,000 GPU, Inc. 106,000
10,200 Public Service Company of New Mexico(a) 184,875
7,100 Reliant Energy, Inc. 237,850
1,550 RGS Energy Group, Inc. 35,553
4,800 Sierra Pacific Resources 67,800
2,310 Suez Lyonnaise des Eaux (France) 377,891
</TABLE>
24 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified High Growth Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
7,400 Unicom Corp. $ 303,862
6,100 Washington Gas Light Co. 150,213
----------------
2,444,870
----------------
Total long-term investments (cost $112,321,225) 129,837,544
----------------
SHORT-TERM INVESTMENTS 13.3%
<CAPTION>
Principal
Amount
(000)
<C> <S> <C> <C>
-------------------------------------------------------------------------------------
Repurchase Agreement
$ 19,783 Joint Repurchase Agreement Account,
6.56%, 8/1/00 (cost $19,783,000; Note 5) 19,783,000
----------------
Total Investments 100.8%
(cost $132,104,225; Note 4) 149,620,544
Liabilities in excess of other
assets (0.8%) (1,195,137)
----------------
Net Assets 100% $ 148,425,407
----------------
----------------
</TABLE>
------------------------------
(a) Non-income producing security.
AB--Aktiebolag (Swedish Stock Company)
ADR--American Depository Receipt.
AG--Aktiengesellschaft (German Stock Company).
NV--Naamloze Vennoutschop (Dutch Corporation).
PLC--Public Limited Company (British Corporation).
SA-- Sociedada Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation).
SCA--Societe Capital Anonyme (French Corporation).
See Notes to Financial Statements 25
<PAGE>
Prudential Diversified Funds Prudential Diversified High Growth Fund
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
July 31, 2000
<S> <C> <C>
---------------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $112,321,225) $ 129,837,544
Joint repurchase agreement, at value (cost $19,783,000) 19,783,000
Foreign currency, at value (cost $160,606) 157,352
Cash 92,289
Receivable for investments sold 1,397,240
Receivable for Fund shares sold 723,388
Dividends and interest receivable 117,355
Prepaid assets 143
-------------
Total assets 152,108,311
-------------
LIABILITIES
Payable for investments purchased 2,880,584
Payable for Fund shares reacquired 513,088
Due to Distributor 102,253
Due to Manager 94,593
Accrued expenses 89,322
Foreign withholding tax payable 3,064
-------------
Total liabilities 3,682,904
-------------
NET ASSETS $ 148,425,407
-------------
-------------
Net assets were comprised of:
Shares of beneficial interest, at par $ 11,524
Paid-in capital in excess of par 119,510,520
-------------
119,522,044
Distributions in excess of net investment income (241,221)
Accumulated net realized gain on investments 11,632,832
Net unrealized appreciation on investments and foreign
currency transactions 17,511,752
-------------
Net assets, July 31, 2000 $ 148,425,407
-------------
-------------
</TABLE>
26 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified High Growth Fund
Statement of Assets and Liabilities Cont'd.
<TABLE>
<CAPTION>
July 31, 2000
---------------------------------------------------------------------------------------
<S> <C> <C>
Class A:
Net asset value and redemption price per share ($35,677,785
/ 2,756,080 shares of beneficial interest issued and
outstanding) $12.95
Maximum sales charge (5% of offering price) .68
-------------
Maximum offering price to public $13.63
-------------
-------------
Class B:
Net asset value, offering price and redemption price per
share ($79,793,490 / 6,206,110 shares of beneficial
interest issued and outstanding) $12.86
-------------
-------------
Class C:
Net asset value and redemption price per share ($31,636,329
/ 2,460,442 shares of beneficial interest issued and
outstanding) $12.86
Sales charge (1% of offering price) .13
-------------
Offering price to public $12.99
-------------
-------------
Class Z:
Net asset value, offering price and redemption price per
share ($1,317,803 / 101,507 shares of beneficial interest
issued and outstanding) $12.98
-------------
-------------
</TABLE>
See Notes to Financial Statements 27
<PAGE>
Prudential Diversified Funds Prudential Diversified High Growth Fund
Statement of Operations
<TABLE>
<CAPTION>
Year
Ended
July 31, 2000
<S> <C> <C>
----------------------------------------------------------------------------------------
NET INVESTMENT LOSS
Income
Dividends (net of foreign withholding taxes of $71,319) $ 1,508,810
Interest 660,653
-------------
Total income 2,169,463
-------------
Expenses
Management fee 1,055,456
Distribution fee--Class A 68,819
Distribution fee--Class B 609,935
Distribution fee--Class C 264,132
Custodian's fees and expenses 316,000
Transfer agent's fees and expenses 208,000
Reports to shareholders 105,000
Registration fees 56,000
Legal fees 27,000
Audit fees 25,000
Trustees' fees and expenses 14,000
Offering expense 9,034
Miscellaneous 4,840
-------------
Total expenses 2,763,216
-------------
Net investment loss (593,753)
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS
Net realized gain (loss) on:
Investment transactions 18,037,391
Foreign currency transactions (101,823)
-------------
17,935,568
-------------
Net change in unrealized appreciation (depreciation) of:
Investments 5,905,191
Foreign currency (5,188)
-------------
5,900,003
-------------
Net gain on investments 23,835,571
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 23,241,818
-------------
-------------
</TABLE>
28 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified High Growth Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year November 18, 1998(a)
Ended Through
July 31, 2000 July 31, 1999
<S> <C> <C> <C>
-----------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment loss $ (593,753) $ (131,077)
Net realized gain on investments and
foreign currency transactions 17,935,568 1,469,897
Net unrealized appreciation of
investments 5,900,003 11,611,749
------------- --------------------
Net increase in net assets resulting
from operations 23,241,818 12,950,569
------------- --------------------
Dividends and distributions (Note 1)
Distributions in excess of net
investment income
Class A (798,740) --
Class B (1,548,906) --
Class C (694,850) --
Class Z (1,329,649) --
------------- --------------------
(4,372,145) --
------------- --------------------
Distributions from net realized gains
Class A (510,822) --
Class B (1,183,192) --
Class C (530,788) --
Class Z (794,899) --
------------- --------------------
(3,019,701) --
------------- --------------------
Fund share transactions (net of share
conversions) (Note 6)
Net proceeds from shares sold 75,419,062 130,702,522
Net asset value of shares issued to
shareholders in reinvestment of
dividends and distributions 7,276,356 --
Cost of shares reacquired (68,742,787) (25,070,287)
------------- --------------------
Net increase in net assets from Fund
share transactions 13,952,631 105,632,235
------------- --------------------
Total increase 29,802,603 118,582,804
NET ASSETS
Beginning of period 118,622,804 40,000
------------- --------------------
End of period $ 148,425,407 $118,622,804
------------- --------------------
------------- --------------------
---------------
(a) Commencement of investment operations.
</TABLE>
See Notes to Financial Statements 29
<PAGE>
Prudential Diversified Funds Prudential Diversified High Growth Fund
Notes to Financial Statements
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 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
30
<PAGE>
Prudential Diversified Funds Prudential Diversified High Growth Fund
Notes to Financial Statements Cont'd.
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.
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
31
<PAGE>
Prudential Diversified Funds Prudential Diversified High Growth Fund
Notes to Financial Statements Cont'd.
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.
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.
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.
32
<PAGE>
Prudential Diversified Funds Prudential Diversified High Growth Fund
Notes to Financial Statements Cont'd.
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 $77,955 in connection with
the initial offering of the Fund. Offering costs were amortized over a period of
12 months ended 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' Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gains, and
Return of Capital Distributions by Investment Companies. The effect of applying
this statement was to decrease distributions in excess of net investment loss by
$4,861,021, decrease accumulated net realized gain on investments by $4,851,531
and decrease paid-in capital by $9,490 for the year ended July 31, 2000, due to
dividend distribution reclasses, realized and recognized currency gains during
the period and certain expenses not deductible for tax purposes. 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 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
('Jennison') $300 million; .25% for amounts
in excess of $300 million
The Prudential Investment
Corporation ('PIC') .375%1
Lazard Asset Management .40%
Franklin Advisers, Inc. .50%
The Dreyfus Corporation .45%
1Under the Advisory Agreement between PIFM and PIC, PIC was
reimbursed by PIFM for its reasonable costs and expenses for the
period August 1, 1999 through December 31, 1999.
</TABLE>
33
<PAGE>
Prudential Diversified Funds Prudential Diversified High Growth Fund
Notes to Financial Statements Cont'd.
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 year ended July 31,
2000.
PIMS has advised the Fund that it has received approximately $189,200 and
$116,400 in front-end sales charges resulting from sales of Class A and Class C
shares, respectively, during the year ended July 31, 2000.
PIMS has advised the Fund that for the year ended July 31, 2000, it has
received approximately $137,300 and $32,000 in contingent deferred sales charges
imposed upon certain redemptions by Class B and Class C shareholders,
respectively.
Jennison, PIMS, PIC and PIFM are 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.
Interest on any such borrowings will be at market rates. The purpose of the
agreement is to serve as an alternative source of funding for capital share
redemptions. The Funds pay a commitment fee of .080 of 1% of the unused portion
of the credit facility. The commitment fee is accrued and paid quarterly on a
pro rata basis by the Funds. The expiration date of the SCA is March 9, 2001.
Prior to March 9, 2000, the commitment fee was .065 of 1% of the unused portion
of the credit facility. The Fund did not borrow any amounts pursuant to the SCA
during the period ended July 31, 2000.
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 year ended July 31, 2000, the
Fund incurred fees of approximately $175,000 for the services of PMFS. As of
July 31,
34
<PAGE>
Prudential Diversified Funds Prudential Diversified High Growth Fund
Notes to Financial Statements Cont'd.
2000 approximately $18,000 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 year ended July 31, 2000, PSI earned approximately $1,000 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 year ended July 31, 2000 were $96,819,710 and $85,830,743, respectively.
The United States federal income tax basis of the Funds' investments as of
July 31, 2000 was $133,166,809 and accordingly, net unrealized appreciation on
investments for federal income tax purposes was $16,453,735 (gross unrealized
appreciation $25,878,600, gross unrealized depreciation $9,424,865).
The Fund will elect, for United States Federal income tax purposes, to
treat net currency losses of approximately $84,593 incurred in the nine month
period ended July 31, 2000 as having been incurred in the following 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 July 31, 2000, the Fund
had a 3.5% undivided interest in the repurchase agreements in the joint account.
The undivided interest for the Fund represents $19,783,000 in principal amount.
As of such date, each repurchase agreement in the joint account and the
collateral therefore were as follows:
ABN AMRO Incorporated, 6.56%, in the principal amount of $100,000,000,
repurchase price $100,018,222, due 8/1/00. The value of the collateral including
accrued interest was $102,000,029.
Bear, Stearns & Co. Inc., 6.55%, in the principal amount of $100,000,000,
repurchase price $100,018,194, due 8/1/00. The value of the collateral including
accrued interest was $102,926,906.
Greenwich Capital Markets, Inc., 6.57%, in the principal amount of
$110,000,000, repurchase price $110,020,075, due 8/1/00. The value of the
collateral including accrued interest was $112,201,716.
Merrill Lynch, Pierce, Fenner & Smith, Inc., 6.45%, in the principal
amount of $97,030,000, repurchase price $97,047,384, due 8/1/00. The value of
the collateral including accrued interest was $98,970,864.
35
<PAGE>
Prudential Diversified Funds Prudential Diversified High Growth Fund
Notes to Financial Statements Cont'd.
Salomon Smith Barney, Inc., 6.55%, in the principal amount of
$155,000,000, repurchase price $155,028,201, due 8/1/00. The value of the
collateral including accrued interest was $158,174,190.
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.
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
------------------------------------------------------------ ---------- ------------
<S> <C> <C>
Year ended July 31, 2000:
Shares sold 1,540,352 $ 19,257,931
Shares issued in reinvestment of dividends and distributions 106,417 1,264,231
Shares reacquired (967,716) (12,147,899)
---------- ------------
Net increase in shares outstanding before conversion 679,053 8,374,263
Shares issued upon conversion from Class B 233,346 3,014,476
---------- ------------
Net increase in shares outstanding 912,399 $ 11,388,739
---------- ------------
---------- ------------
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 1,821,275 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
---------- ------------
---------- ------------
<CAPTION>
Class B
------------------------------------------------------------
<S> <C> <C>
Year ended July 31, 2000:
Shares sold 3,291,551 $ 40,858,317
Shares issued in reinvestment of dividends and distributions 226,817 2,687,787
Shares reacquired (655,599) (8,105,781)
---------- ------------
Net increase in shares outstanding before conversion 2,862,769 35,440,323
Shares reacquired upon conversion into Class A (234,534) (3,014,476)
---------- ------------
Net increase in shares outstanding 2,628,235 $ 32,425,847
---------- ------------
---------- ------------
</TABLE>
36
<PAGE>
Prudential Diversified Funds Prudential Diversified High Growth Fund
Notes to Financial Statements Cont'd.
<TABLE>
<CAPTION>
Class B Shares Amount
------------------------------------------------------------ ---------- ------------
November 18, 1998(a) through July 31, 1999:
<S> <C> <C>
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
---------- ------------
---------- ------------
<CAPTION>
Class C
------------------------------------------------------------
<S> <C> <C>
Year ended July 31, 2000:
Shares sold 1,132,420 $ 14,053,104
Shares issued in reinvestment of dividends and distributions 101,310 1,200,525
Shares reacquired (508,887) (6,343,433)
---------- ------------
Net increase in shares outstanding 724,843 $ 8,910,196
---------- ------------
---------- ------------
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
---------- ------------
---------- ------------
<CAPTION>
Class Z
------------------------------------------------------------
<S> <C> <C>
Year ended July 31, 2000:
Shares sold 96,668 $ 1,249,710
Shares issued in reinvestment of dividends and distributions 178,772 2,123,813
Shares reacquired (3,324,795) (42,145,674)
---------- ------------
Net decrease in shares outstanding (3,049,355) $(38,772,151)
---------- ------------
---------- ------------
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.
37
<PAGE>
Prudential Diversified Funds Prudential Diversified High Growth Fund
Financial Highlights
<TABLE>
<CAPTION>
Class A
-----------------------------------------
Year November 18, 1998(a)
Ended Through
July 31, 2000 July 31, 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(d):
Net asset value, beginning of period $ 11.52 $ 10.00
-------- --------
Income from investment operations:
Net investment income (loss) --(e) --(e)
Net realized and unrealized gain on
investment and foreign currency
transactions 2.14 1.52
-------- --------
Total from investment operations 2.14 1.52
-------- --------
Less distributions:
Dividends in excess of net investment
income (0.43) --
Distributions from net realized gains (0.28) --
-------- --------
Total dividends and distributions (0.71) --
-------- --------
Net asset value, end of period $ 12.95 $ 11.52
-------- --------
-------- --------
TOTAL RETURN(b) 18.99% 15.20%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 35,678 $ 21,248
Average net assets (000) $ 27,528 $ 10,442
Ratios to average net assets:
Expenses, including distribution fees 1.54% 1.73%(c)
Expenses, excluding distribution fees 1.29% 1.48%(c)
Net investment income (loss) 0.01% 0.02%(c)
For Classes A, B, C and Z shares:
Portfolio turnover rate 67% 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 are not annualized.
(c) Annualized.
(d) Based on weighted average shares outstanding during the period.
(e) Less than $.005 per share.
38 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified High Growth Fund
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class B
-----------------------------------------
Year November 18, 1998(a)
Ended Through
July 31, 2000 July 31, 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(d):
Net asset value, beginning of period $ 11.47 $ 10.00
-------- --------
Income from investment operations:
Net investment income (loss) (0.09) (0.05)
Net realized and unrealized gain on
investment and foreign currency
transactions 2.12 1.52
-------- --------
Total from investment operations 2.03 1.47
-------- --------
Less distributions:
Dividends in excess of net investment
income (0.36) --
Distributions from net realized gains (0.28) --
-------- --------
Total dividends and distributions (0.64) --
-------- --------
Net asset value, end of period $ 12.86 $ 11.47
-------- --------
-------- --------
TOTAL RETURN(b) 18.13% 14.70%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 79,793 $ 41,049
Average net assets (000) $ 60,994 $ 24,260
Ratios to average net assets:
Expenses, including distribution fees 2.29% 2.48%(c)
Expenses, excluding distribution fees 1.29% 1.48%(c)
Net investment income (loss) (0.71)% (0.70)%(c)
</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) Based on weighted average shares outstanding during the period.
See Notes to Financial Statements 39
<PAGE>
Prudential Diversified Funds Prudential Diversified High Growth Fund
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class C
-----------------------------------------
Year November 18, 1998(a)
Ended Through
July 31, 2000 July 31, 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(d):
Net asset value, beginning of period $ 11.47 $ 10.00
-------- --------
Income from investment operations:
Net investment income (loss) (0.09) (0.05)
Net realized and unrealized gain on
investment and foreign currency
transactions 2.12 1.52
-------- --------
Total from investment operations 2.03 1.47
-------- --------
Less distributions:
Dividends in excess of net investment
income (0.36) --
Distributions from net realized gains (0.28) --
-------- --------
Total dividends and distributions (0.64) --
-------- --------
Net asset value, end of period $ 12.86 $ 11.47
-------- --------
-------- --------
TOTAL RETURN(b) 18.13% 14.70%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 31,636 $ 19,914
Average net assets (000) $ 26,413 $ 15,204
Ratios to average net assets:
Expenses, including distribution fees 2.29% 2.48%(c)
Expenses, excluding distribution fees 1.29% 1.48%(c)
Net investment income (loss) (0.73)% (0.75)%(c)
</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) Based on weighted average shares outstanding during the period.
40 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified High Growth Fund
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class Z
-----------------------------------------
Year November 18, 1998(a)
Ended Through
July 31, 2000 July 31, 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(d):
Net asset value, beginning of period $ 11.56 $ 10.00
-------- --------
Income from investment operations:
Net investment income (loss) 0.02 0.02
Net realized and unrealized gain on
investment and foreign currency
transactions 2.14 1.54
-------- --------
Total from investment operations 2.16 1.56
-------- --------
Less distributions:
Dividends in excess of net investment
income (0.46) --
Distributions from net realized gains (0.28) --
-------- --------
Total dividends and distributions (0.74) --
-------- --------
Net asset value, end of period $ 12.98 $ 11.56
-------- --------
-------- --------
TOTAL RETURN(b) 19.23% 15.60%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 1,318 $ 36,413
Average net assets (000) $ 25,793 $ 45,999
Ratios to average net assets:
Expenses, including distribution fees 1.29% 1.48%(c)
Expenses, excluding distribution fees 1.29% 1.48%(c)
Net investment income (loss) 0.12% 0.21%(c)
</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) Based on weighted average shares outstanding during the period.
See Notes to Financial Statements 41
<PAGE>
Prudential Diversified Funds Prudential Diversified High Growth Fund
Report of Independent Accountants
To the Shareholders and Board of Trustees of
Prudential Diversified Funds--
Prudential Diversified High Growth Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Diversified
Funds--Prudential Diversified High Growth Fund (the 'Fund') at July 31, 2000,
the results of its operations for the year then ended, and the changes in its
net assets and the financial highlights for the year then ended and for the
period November 18, 1998 (commencement of operations) through July 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements and financial highlights (hereafter referred to as
'financial statements') are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at July 31, 2000 by correspondence with the custodian and brokers,
provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
September 22, 2000
42 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified High Growth Fund
Federal Tax Information (Unaudited)
We are required by the Internal Revenue Code to advise you within 60 days
of the Fund's fiscal year end (March 31, 2000) as to the federal tax status of
dividends paid by the Fund during such fiscal period. Accordingly, we are
advising you that in the fiscal period ended March 31, 2000, dividends were paid
of $.43, $.36, $.36 and $.46 per share (representing net investment income for
Class A, B, C and Z shares respectively, which are taxable as ordinary income)
and a short-term capital gain distribution of $.28 per share which is taxable as
ordinary icome. Further, we wish to advise you that 15.51% of the ordinary
income dividends paid in the fiscal period ended March 31, 2000 qualified for
the corporate dividends received deduction available to corporate taxpayers.
In January 2001, you will be advised on IRS Form 1099 DIV or substitute
1099 DIV as to the federal tax status of the dividends received by you in
calendar year 2000.
See Notes to Financial Statements 43
<PAGE>
Prudential Diversified High Growth Fund
Prudential Mutual Funds
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
Large Capitalization Stock Funds
Prudential 20/20 Focus Fund
Prudential Equity Fund, Inc.
Prudential Stock Index Fund
Prudential Tax-Managed Funds
Prudential Tax-Managed Equity Fund
Strategic Partners Focused Growth Fund
Target Funds
Large Capitalization Growth Fund
Large Capitalization Value Fund
The Prudential Investment Portfolios, Inc.
Prudential Jennison Growth Fund
Prudential Value Fund
Small- to Mid-Capitalization Stock Funds
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Prudential Small Company Fund, Inc.
Prudential Tax-Managed Small-Cap Fund, Inc.
Prudential U.S. Emerging Growth Fund, Inc.
Target Funds
Small Capitalization Growth Fund
Small Capitalization Value Fund
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
Sector Stock Funds
Prudential Natural Resources Fund, Inc.
Prudential Real Estate Securities Fund
Prudential Sector Funds, Inc.
Prudential Financial Services Fund
Prudential Health Sciences Fund
Prudential Technology Fund
Prudential Utility Fund
Global/International Stock Funds
Global Utility Fund, Inc.
Prudential Europe Growth Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Prudential Global Growth Fund
Prudential International Value Fund
Prudential Jennison International Growth Fund
Target Funds
International Equity Fund
BALANCED/ALLOCATION FUNDS
Prudential Diversified Funds
Conservative Growth Fund
Moderate Growth Fund
High Growth Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund
<PAGE>
www.prudential.com (800) 225-1852
BOND FUNDS
Taxable Bond Funds
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 Short-Term Corporate Bond Fund, Inc.
Income Portfolio
Prudential Total Return Bond Fund, Inc.
Target Funds
Total Return Bond Fund
Tax-Free 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.
Global/International Bond Funds
Prudential Global Total Return Fund, Inc.
Prudential International Bond 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 Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
Prudential MoneyMart Assets, Inc.
Prudential Special Money Market Fund, Inc.
Money Market Series
Tax-Free Money Market Funds
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
Prudential Tax-Free Money Fund, Inc.
Other Money Market Funds
COMMAND Government Fund
COMMAND Money Fund
COMMAND Tax-Free Fund
<PAGE>
Prudential Diversified High Growth Fund
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 semiannual 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.
<PAGE>
www.prudential.com (800) 225-1852
INVESTMENT ADVISER'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
"Investment Adviser's Report" section that doesn't appear
in this listing because it was sold before the close of
the reporting period.
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.
<PAGE>
Prudential Diversified High Growth Fund
Getting the Most from Your Prudential Mutual Fund
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 ACCOUNTANT'S REPORT
Once a year, an outside auditor looks over our books and
certifies that the financial statements are fairly presented and
comply with generally accepted accounting principles.
TAX INFORMATION
This is information that 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.
<PAGE>
www.prudential.com (800) 225-1852
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.
<PARA>
Prudential Diversified High Growth Fund
Class A Growth of a $10,000 Investment
(GRAPH)
Average Annual Total Returns as of 7/31/00
<TABLE>
<CAPTION>
One Year Five Years Ten Years Since Inception
<S> <C> <C> <C> <C>
With Sales Charge 13.04% N/A N/A 16.80%
Without Sales Charge 18.99% N/A N/A 20.38%
</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. The graph
compares a $10,000 investment in the Prudential
Diversified High Growth Fund (Class A shares) with a
similar investment in the Standard & Poor's 500 Composite
Stock Price Index (S&P 500 Index) by portraying the
initial account value at the commencement of operations
of Class A shares, and the account value at the end of
the current fiscal year (July 31, 2000), as measured on a
quarterly basis, beginning in November 1998 for Class A
shares. For purposes of the graph, and unless otherwise
indicated, it has been assumed that (a) the maximum
applicable front-end sales charge was deducted from the
initial $10,000 investment in Class A shares; (b) all
recurring fees (including management fees) were
deducted; and (c) all dividends and distributions were
reinvested.
The S&P 500 Index is an unmanaged index of 500 stocks of
large U.S. companies. It gives a broad look at how stock
prices have performed. The S&P 500 Index total returns
include the reinvestment of all
dividends, but do not include the effect of sales charges
or operating expenses of a mutual fund. The securities
that comprise the Index may differ substantially from the
securities in the Fund. The Index is not the only one
that may be used to characterize performance of large-
capitalization stock funds. Other indexes may portray
different comparative performance. Investors cannot
invest directly in an index.
This graph is furnished to you in accordance with SEC regulations.
<PAGE>
www.prudential.com (800) 225-1852
Class B Growth of a $10,000 Investment
(GRAPH)
Average Annual Total Returns as of 7/31/00
<TABLE>
<CAPTION>
One Year Five Years Ten Years Since Inception
<S> <C> <C> <C> <C>
With Sales Charge 13.13% N/A N/A 17.47%
Without Sales Charge 18.13% N/A N/A 19.56%
</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. The graph
compares a $10,000 investment in the Prudential
Diversified High Growth Fund (Class B shares) with a
similar investment in the Standard & Poor's 500 Composite
Stock Price Index (S&P 500 Index) by portraying the
initial account values at the commencement of operations
of Class B shares, and the account value at the end of
the current fiscal year (July 31, 2000), as measured on a
quarterly basis, beginning in November 1998 for Class B
shares. For purposes of the graph, and unless otherwise
indicated, it has been assumed that (a) the maximum
applicable contingent deferred sales charge was deducted
from the value of the investment in Class B shares,
assuming full redemption on July 31, 2000; (b) all
recurring fees (including management fees) were deducted;
and (c) all dividends and distributions were reinvested.
Class B shares will automatically convert to Class A
shares, on a quarterly basis, beginning approximately
seven years after purchase. This conversion feature is
not reflected in the graph.
The S&P 500 Index is an unmanaged index of 500 stocks of
large U.S. companies. It gives a broad look at how stock
prices have performed. The S&P 500 Index total returns
include the reinvestment of all
dividends, but do not include the effect of sales charges
or operating expenses of a mutual fund. The securities
that comprise the Index may differ substantially from the
securities in the Fund. The Index is not the only one
that may be used to characterize performance of large-
capitalization stock funds. Other indexes may portray
different comparative performance. Investors cannot
invest directly in an index.
This graph is furnished to you in accordance with SEC
regulations.
<PAGE>
Prudential Diversified High Growth Fund
Class C Growth of a $10,000 Investment
(GRAPH)
Average Annual Total Returns as of 7/31/00
<TABLE>
<CAPTION>
One Year Five Years Ten Years Since Inception
<S> <C> <C> <C> <C>
With Sales Charge 15.95% N/A N/A 18.86%
Without Sales Charge 18.13% N/A N/A 19.56%
</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. The graph
compares a $10,000 investment in the Prudential
Diversified High Growth Fund (Class C shares) with a
similar investment in the Standard & Poor's 500 Composite
Stock Price Index (S&P 500 Index) by portraying the
initial account value at the commencement of operations
of Class C shares, and the account value at the end of
the current fiscal year (July 31, 2000), as measured on a
quarterly basis, beginning in November 1998 for Class C
shares. For purposes of the graph, and unless otherwise
indicated, it has been assumed that (a) the maximum
applicable front-end sales charge was deducted from the
initial $10,000 investment in Class C shares; (b) the
maximum applicable contingent deferred sales charge was
deducted from the value of the investment in Class C
shares, assuming full redemption on July 31, 2000; (c)
all recurring fees (including management fees) were
deducted; and (d) all dividends and distributions were
reinvested.
The S&P 500 Index is an unmanaged index of 500 stocks of
large U.S. companies. It gives a broad look at how stock
prices have performed. The S&P 500 Index total returns
include the reinvestment of all
dividends, but do not include the effect of sales charges
or operating expenses of a mutual fund. The securities
that comprise the Index may differ substantially from the
securities in the Fund. The Index is not the only one
that may be used to characterize performance of large-
capitalization stock funds. Other indexes may portray
different comparative performance. Investors cannot
invest directly in an index.
This graph is furnished to you in accordance with SEC
regulations.
<PAGE>
www.prudential.com (800) 225-1852
Class Z Growth of a $10,000 Investment
(GRAPH)
Average Annual Total Returns as of 7/31/00
<TABLE>
<CAPTION>
One Year Five Years Ten Years Since Inception
<S> <C> <C> <C> <C>
With Sales Charge 19.23% N/A N/A 20.77%
Without Sales Charge 19.23% N/A N/A 20.77%
</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. The graph
compares a $10,000 investment in the Prudential
Diversified High Growth Fund (Class Z shares) with a
similar investment in the Standard & Poor's 500 Composite
Stock Price Index (S&P 500 Index) by portraying the
initial account value at the commencement of operations
of Class Z shares, and the account value at the end of
the current fiscal year (July 31, 2000), as measured on a
quarterly basis, beginning in November 1998 for Class Z
shares. For purposes of the graph, and unless otherwise
indicated, it has been assumed that (a) all recurring
fees (including management fees) were deducted, and (b)
all dividends and distributions were reinvested. Class Z
shares are not subject to a sales charge or distribution
and service (12b-1) fees.
The S&P 500 Index is an unmanaged index of 500 stocks of
large U.S. companies. It gives a broad look at how stock
prices have performed. The S&P 500 Index total returns
include the reinvestment of all
dividends, but do not include the effect of sales charges
or operating expenses of a mutual fund. The securities
that comprise the Index may differ substantially from the
securities in the Fund. The Index is not the only one
that may be used to characterize performance of large-
capitalization stock funds. Other indexes may portray
different comparative performance. Investors cannot
invest directly in an index.
This graph is furnished to you in accordance with SEC
regulations.
<PAGE>
FOR MORE INFORMATION
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
Visit Prudential's web site at:
http://www.prudential.com
Trustees
Eugene C. Dorsey
Saul K. Fenster, Ph.D.
Robert F. Gunia
Prof. Maurice F. Holmes
Robert E. LaBlanc
Douglas H. McCorkindale
W. Scott McDonald, Jr.
Thomas T. Mooney
David R. Odenath, Jr.
Stephen Stoneburn
John R. Strangfeld
Joseph Weber
Clay T. Whitehead
Officers
John R. Strangfeld, President
Robert F. Gunia, Vice President
David R. Odenath, Jr., Vice President
Grace C. Torres, Treasurer
William V. Healey, Assistant Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Sub-Advisers
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
Jennison Associates LLC
466 Lexington Avenue
New York, NY 10017
Franklin Advisers, Inc.
777 Mariners Island Blvd.
San Mateo, CA 94404
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
Lazard Asset Management
30 Rockefeller Plaza
New York, NY 10112
Distributor
Prudential Investment
Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 8098
Philadelphia, PA 19101
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
Fund Symbols NASDAQ CUSIP
Class A PHGAX 74432F885
Class B PIHGX 74432F877
Class C PHGCX 74432F869
Class Z PDHZX 74432F851
MF186E
(LOGO) Printed on Recycled Paper
<PAGE>
(ICON)
ANNUAL REPORT JULY 31, 2000
Prudential
Diversified Moderate Growth Fund
Fund Type Balanced
Objective Capital appreciation and a reasonable level of current income
(GRAPHIC)
This report is not authorized for distribution to
prospective investors unless preceded or accompanied by a
current prospectus.
The views expressed in this report and information about
the Fund's portfolio holdings are for the period covered
by this report and are subject to change thereafter.
(LOGO)
<PAGE>
Build on the Rock
Investment Goals and Style
The Prudential Diversified Moderate Growth Fund seeks to
provide capital appreciation and a reasonable level of
current income. It invests in a diversified portfolio of
equity and fixed-income securities. There can be no
assurance that the Fund will achieve its investment
objective.
Manager
Prudential Investments Fund Management LLC
Investment Sub-Advisers
(PRUDENTIAL LOGO)
(FRANKLIN TEMPLETON LOGO)
(DREYFUS LOGO)
(JENNISON ASSOCIATES LOGO)
(PIMCO LOGO)
(LAZARD LOGO)
<PAGE>
www.prudential.com (800) 225-1852
Performance at a Glance
Cumulative Total Returns1 As of 7/31/00
One Since
Year Inception2
Class A 13.96% 24.75%
Class B 12.88 23.02
Class C 12.88 23.02
Class Z 14.18 25.25
Lipper Multi-Cap
Core Fund Avg.3 13.29 28.56
Average Annual Total Returns1 As of 7/31/00
One Since
Year Inception2
Class A 8.26% 10.51%
Class B 7.88 10.78
Class C 10.75 12.29
Class Z 14.18 14.16
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 one-year and since inception periods in the
Multi-Cap Core Fund category. The Lipper average is
unmanaged. The Lipper Multi-Cap Core Fund average
includes funds that invest in a variety of market
capitalization ranges, generally have between 25% and 75%
of their equity assets invested in companies with market
capitalizations above 300% of the dollar-weighted median
of the S&P(r) Mid-Cap 400 Index, have wide latitude in
the companies in which they invest, and have an above-
average price/earnings ratio, price-to-book ratio, and
three-year earnings growth figure.
S&P(r) is a registered trademark of The McGraw-Hill
Companies, Inc.
1
<PAGE>
(LOGO)
Dear Shareholder,
The Prudential Diversified Moderate Growth Fund's Class A
shares had a cumulative total return of 13.96% over the
12-month period ended July 31, 2000, in line with the
13.29% Lipper Multi-Cap Core Fund Average, despite the
fact that most funds in that Lipper category hold no
bonds. This was 8.26% to those paying the maximum one-
time Class A share sales charge. The return on bonds over
this period was low, as rising interest rates hurt fixed-
income securities. Value stocks had a net negative return
over the period. The Fund's small-cap and large-cap
growth holdings each substantially exceeded the return on
their benchmarks, contributing most of the positive
return for the period.
This was a good period to be in a diversified fund. The
markets changed with dizzying frequency and rapidity. To
illustrate this point, the graph on the next page
represents the monthly returns of three different
indexes: the Standard & Poor's Electronics Index, which
represents a model growth industry; the Standard & Poor's
SmallCap Gaming Index, which represents stocks that can
be found in many value funds; and the Morgan Stanley
Capital International EAFE Index, which represents the
major world markets excluding the United States. As you
can see, each had dramatic month-to-month changes,
including some negative months, and they behaved in very
different ways. A diversified fund-one that is invested
in several companies within a number of different
industries that have different growth characteristics-is
more likely to exhibit steady performance.
Sincerely,
John R. Strangfeld, President
Prudential Diversified Moderate Growth Fund
2
<PAGE>
September 15, 2000
Monthly Returns of Selected Indexes
(GRAPH)
1 The S&P Electronics (semiconductors) Index is an
unmanaged capitalization-weighted index of all stocks
designed to measure performance of the electronics
(semiconductors) sector of the S&P 500 Index.
2 The S&P SmallCap Gaming, Lottery, and Parimutuel
Companies Index is an unmanaged capitalization-weighted
index that measures the performance of the gaming,
lottery, and parimutuel sector of the S&P SmallCap Index.
3 The Morgan Stanley Capital International Europe,
Australia, Far East Index (MSCI EAFE Index) is an
unmanaged weighted index of performance that reflects
stock price movements in Europe, Australasia, and the Far
East.
The performance cited does not represent the performance
of the Prudential Diversified Moderate Growth Fund. Past
performance is not indicative of future results.
Investors cannot invest directly in an index.
3
<PAGE>
Prudential Diversified Moderate Growth Fund
Annual Report July 31, 2000
Investment Adviser's Report
The Investing Context
Good news about the global economy dominated in the
fiscal year ended July 31, 2000. During the early part of
the period, uncertainties about how information systems
would behave during the turnover to the year 2000 caused
a flood of investment activity as companies updated their
information system support. The uncertainty also led the
U.S. Federal Reserve to increase the money supply to
ensure that any unexpected failure would not freeze the
financial system. During this period, technology and
telecommunications stocks around the world shot up to
extraordinarily high prices in comparison to even
optimistic earnings projections.
In the latter half of 1999, the Federal Reserve began
increasing interest rates to prevent the U.S. economy
from overheating. The series of interest rate increases
continued into 2000, leading investors to take a second
look at stock prices that were based upon expectations of
a long stream of future earnings. In addition, many
investors feared that rising interest rates would choke
off economic growth. In the wake of increasing investor
uncertainty, many of the most expensive stocks declined
in value, and stock markets faced unprecedented
volatility as every additional piece of economic news was
scrutinized and acted upon. Growth and value investing
styles alternated in success, sometimes from day to day.
Investors with well-diversified
portfolios were better positioned to weather these style
turnovers because some holdings might have experienced
gains as others lost ground.
Over the full 12 months, growth-style investing performed
best. Among stocks of small-capitalization companies, the
advantage was entirely in the early part of the period,
as small-cap value stocks were significantly favored in
the second half. Among large caps, market favor continued
to alternate through the summer of 2000. International
stocks gained modestly, mostly early in the period. As in
the U.S. market, style volatility and increased caution
held back international returns in 2000.
4
<PAGE>
www.prudential.com (800) 225-1852
The threat of rising interest rates depressed bond prices
early in the fiscal period because bonds lose value when
market interest rates rise. However, the U.S. budget
surplus led to Treasury buybacks that reduced the supply
of long-term Treasury bonds. Consequently, their prices
increased and yields fell. The yield premium on corporate
over government bonds widened in 2000.
Our Performance
Growth stocks. The Prudential Diversified Moderate Growth
Fund continued to benefit from the 27.5% of its assets
allocated to growth-style investing (20% large cap and
7.5% small cap) and from the strong performance of its
growth managers. They far exceeded the returns of their
respective benchmarks. In small-cap stocks, the portfolio
benefited from its focus on technology. Early in the
period, an emphasis was placed on Internet-related
stocks, and these were market favorites. The managers
reduced their Internet position in time to protect much
of these gains from the sharp technology stock correction
that occurred in the second quarter of 2000. The cash was
reinvested in more established companies as the market
declined.
Value stocks. Largely because of the growth-oriented
environment early in the period, value benchmarks posted
negative performances over the reporting period. Our
style-consistent managers were more affected than most by
changes in market favor, and both underperformed their
benchmarks. In large-cap stocks, the strong contribution
of rebounding health management companies and gains by
oil companies failed to offset the impact of a low
representation in technology and a high weighting in
paper companies. With regard to the latter, a 1999
recovery of paper stocks was
cut short in 2000 when investors focused on the threats
to continuing economic growth. In small caps, the portfolio's return
relative to its peers was hurt by the absence of
biotechnology holdings, which received an
unexpected boost in the second quarter from the publicity
following the mapping of the human genome.
5
<PAGE>
Prudential Diversified Moderate Growth Fund
Annual Report July 31, 2000
International stocks. The positive contribution of
international stocks came primarily early in the period.
The value orientation of the Fund's international
holdings made them sensitive to concerns about global
economic growth. Many investors feared that the European
Central Bank's raising of interest rates would slow
growth. Moreover, the return from international stocks
was hurt by the rise of the value of the dollar compared
to other currencies, particularly the euro. It is widely believed that the
euro is undervalued, and a correction of this imbalance
would boost the value of euro-denominated stocks
generally.
Core bonds. The Fund's core bond holdings provided a
substantial return, in line with their benchmark. Its
managers had underweighted corporate bonds and emphasized
several better-performing sectors: mortgage-backed
securities, real-return bonds (whose yields are adjusted
for inflation), and emerging market bonds. Corporates
performed relatively poorly because of increased concerns
about credit quality. Mortgage-backed securities and
real-return bonds had attractive yields, while emerging
market bonds appreciated sharply in value as the
improving global economy reduced credit concerns. In
contrast, bonds of less strong U.S. companies (high-yield
bonds) declined in value as credit concerns undermined
their higher yields.
High-yield bonds. About 15% of the Fund's assets are
allocated to high-yield debt securities, or "junk bonds." Although
their benchmark had a negative return over our reporting
period, the Fund's investments produced positive returns.
Prudential Diversified Moderate Growth Fund Management Team
6
<PAGE>
www.prudential.com (800) 225-1852
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 the Fund 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, but 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 buffer
than a fund investing in only one asset class. We believe
this will result in more consistent returns over time.
Rebalancing
The 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 keeps your risk exposure from changing too
much; by forcing us to sell high, it may also increase
our average selling price over time.
7
<PAGE>
Prudential Diversified Moderate Growth Fund
Annual Report July 31, 2000
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 the terms specified in the bond. They have a maturity
date at which they must be repaid. Generally, bond prices
fluctuate with current interest rates and with events
that affect 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.
Prudential Diversified Moderate Growth Fund
Diversification Target
(PIE CHART)
8
<PAGE>
Prudential Diversified Moderate Growth Fund
Annual Report July 31, 2000
Financial
Statements
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C> <C>
----------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS 96.7%
Common Stocks 58.8%
-------------------------------------------------------------------------------------
Aerospace 0.3%
37,900 British Aerospace PLC (United Kingdom)(a) $ 255,560
5,825 GenCorp., Inc. 46,236
19,300 Loral Space & Communications, Inc. 100,119
1,350 Skywest, Inc. 60,244
----------------
462,159
-------------------------------------------------------------------------------------
Agriculture & Equipment
2,175 Toro Co. 65,522
-------------------------------------------------------------------------------------
Airlines 0.1%
10,100 Deutsche Lufthansa AG (Germany) 249,008
-------------------------------------------------------------------------------------
Aluminum 0.5%
26,400 Alcoa, Inc. 798,600
3,012 Reliance Steel & Aluminum Co. 63,252
----------------
861,852
-------------------------------------------------------------------------------------
Apparel 0.1%
2,225 American Eagle Outfitters, Inc.(a) 33,097
2,300 Kellwood Co. 51,462
----------------
84,559
-------------------------------------------------------------------------------------
Audio/Visual 0.4%
1,175 Harman International Industries, Inc. 74,319
3,000 Polycom, Inc.(a) 284,578
3,800 Sony Corp. (Japan) 349,349
----------------
708,246
-------------------------------------------------------------------------------------
Auto & Truck 0.6%
1,475 Borg-Warner Automotive, Inc. 50,058
2,237 Delphi Automotive Systems Corp. 33,136
6,375 Dura Automotive Systems, Inc.(a) 65,742
3,610 General Motors Corp. 205,544
11,100 GKN PLC (United Kingdom) 142,127
</TABLE>
10 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
----------------------------------------------------------------------------------------
<C> <S> <C> <C>
3,200 Lear Corp.(a) $ 74,600
87,000 Nissan Motor Co., Ltd. (Japan)(a) 434,464
1,450 Superior Industries Int'l, Inc. 43,591
----------------
1,049,262
-------------------------------------------------------------------------------------
Banking 3.4%
4,650 BancorpSouth, Inc. 70,622
3,000 Bank of New York Co., Inc. 140,438
1,000 Bank United Corp. (Class A) 36,438
13,700 BankAmerica Corp. 649,037
5,758 Banknorth Group, Inc. 88,169
2,320 Banque Nationale de Paris (France) 229,006
6,600 Bayerische Vereinsbank AG (Germany) 383,243
2,275 BSB Bancorp, Inc. 48,628
1,875 City National Corp. 68,789
1,975 CORUS Bankshares, Inc. 57,769
5,950 Cullen/Frost Bankers, Inc. 169,203
5,968 CVB Financial Corp. 93,996
250 First Citizens BancShares, Inc. (Class A) 15,250
17,000 Fuji Bank (Japan) 109,883
6,000 Golden State Bancorp, Inc.(a) 114,750
1,400 Greater Bay Bancorp 75,338
20,700 Halifax Group PLC (United Kingdom) 162,224
2,750 Harbor Florida BancShares, Inc. 31,281
23,300 HSBC Holdings PLC (Hong Kong)(a) 315,447
19,000 IND Bank (Japan) 121,943
5,100 ING Groep N.V. (Netherlands) 341,001
20,500 Investor AB (Sweden) 297,228
5,700 LaBranche & Co., Inc.(a) 116,138
4,650 MAF Bancorp, Inc. 92,709
35,400 Overseas-Chinese Banking Corp. Ltd. (Singapore) 257,432
2,000 Queens County Bancorp, Inc. 46,250
13,200 Sao Paolo Imi SpA (Italy) 223,890
9,800 Silicon Valley Bancshares 429,362
2,325 Southwest Bancorp of Texas(a) 60,886
35,000 Sumitomo Trust & Banking Co. Ltd. (Japan) 225,590
12,460 Svenska Handelsbanken, Ser. A (Sweden) 187,448
</TABLE>
See Notes to Financial Statements 11
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
----------------------------------------------------------------------------------------
<C> <S> <C> <C>
41,000 The Sakura Bank Ltd. (Japan) $ 237,687
45,896 United Overseas Bank Ltd. 328,462
4,675 Washington Federal, Inc. 87,656
3,200 Westamerica Bancorporation 88,800
1,625 Whitney Holding Corp. 60,430
----------------
6,062,423
-------------------------------------------------------------------------------------
Broadcasting
100 Wink Communications, Inc.(a) 2,450
-------------------------------------------------------------------------------------
Building & Products 1.0%
2,565 ABB AG (Switzerland) 305,750
5,700 American Standard Companies, Inc.(a) 254,006
7,600 Centex Corp. 181,925
5,375 D.R.Horton, Inc. 83,313
775 Dycom Industries, Inc.(a) 33,131
2,575 Kaufman & Broad Home Corp. 50,373
5,050 M.D.C. Holdings, Inc. 101,000
6,175 Pulte Corp. 141,639
7,150 Rayonier, Inc. 290,916
1,525 Texas Industries, Inc. 49,467
5,000 Thomas Industries, Inc. 104,375
1,925 Toll Brothers, Inc.(a) 46,561
5,250 Webb Delaware Corp. 80,063
----------------
1,722,519
-------------------------------------------------------------------------------------
Cable 0.1%
1,875 Belden, Inc. 47,109
1,650 Cable Design Technologies Corp. 58,163
4,275 General Cable Corp. 36,872
7,000 Sumitomo Electric Industries (Japan) 113,370
----------------
255,514
-------------------------------------------------------------------------------------
Casinos
775 Anchor Gaming(a) 41,995
</TABLE>
12 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
----------------------------------------------------------------------------------------
<C> <S> <C> <C>
Chemicals 0.7%
5,700 Akzo Nobel N.V. (Netherlands) $ 253,533
3,050 Albemarle Corp. 75,297
1,800 Arch Chemicals, Inc. 36,000
200 Cambrex Corp. 9,038
2,800 Cytec Industries, Inc.(a) 87,500
5,400 Eastman Chemical Co. 253,125
825 H.B. Fuller Co. 31,866
12,300 Imperial Chemical Industries PLC (United Kingdom) 88,376
4,250 Olin Corp. 66,672
1,000 OM Group, Inc. 47,437
3,050 Spartech Corp. 81,778
1,700 The Geon Co. 27,944
2,800 The Lubrizol Corp. 59,850
7,200 W.R. Grace & Co.(a) 71,100
----------------
1,189,516
-------------------------------------------------------------------------------------
Commercial Services
2,900 Luminant Worlwide Corp.(a) 23,562
-------------------------------------------------------------------------------------
Computers 2.7%
5,300 ASM Lithography Holding N.V. (Netherlands)(a) 210,675
2,275 Brooktrout, Inc.(a) 68,819
7,200 Catapult Communications Corp.(a) 95,850
1,200 Citrix Systems, Inc.(a) 18,300
40,800 Compaq Computer Corp. 1,144,950
4,500 Comverse Technology, Inc.(a) 394,875
8,300 Dell Computer Corp.(a) 364,681
10,100 EMC Corp.(a) 859,763
9,800 Hewlett-Packard Co. 1,070,037
2,000 InFocus Corp.(a) 70,000
2,700 Microsoft Corp.(a) 188,494
3,100 TDK Corp. 393,700
----------------
4,880,144
-------------------------------------------------------------------------------------
Computer Services 1.8%
8,400 Affiliated Computer Services, Inc.(a) 378,525
</TABLE>
See Notes to Financial Statements 13
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
----------------------------------------------------------------------------------------
<C> <S> <C> <C>
300 AnswerThink Consulting Group, Inc.(a) $ 5,044
2,700 Axent Technologies, Inc.(a) 66,488
21,000 Cisco Systems, Inc.(a) 1,374,187
100 E Piphany, Inc. 9,306
8,500 Marchfirst, Inc.(a) 175,844
7,500 NetSolve, Inc.(a) 176,250
100 Predictive Systems, Inc.(a) 2,200
1,300 RadiSys Corp.(a) 79,950
2,000 RSA Security, Inc.(a) 126,750
300 Sapient Corp.(a) 34,125
4,700 Sun Microsystems, Inc.(a) 495,556
1,600 Verisign, Inc.(a) 253,900
----------------
3,178,125
-------------------------------------------------------------------------------------
Consumer Products 0.4%
2,962 Fossil, Inc. 54,056
2,000 PerkinElmer, Inc. 127,875
1,340 Siemens AG (Germany) 207,411
2,675 Tupperware Corp. 51,995
2,400 Waters Corp.(a) 284,700
----------------
726,037
-------------------------------------------------------------------------------------
Cosmetics/Toiletries 0.3%
9,000 Kao Corp. (Japan) 266,216
4,100 The Estee Lauder Co., Inc. 180,400
----------------
446,616
-------------------------------------------------------------------------------------
Dental Supplies
1,925 Patterson Dental Co.(a) 51,013
-------------------------------------------------------------------------------------
Diversified Manufacturing 0.9%
1,800 Corning, Inc. 421,087
2,000 CUNO, Inc.(a) 60,500
11,000 General Electric Co. 565,812
66,800 Invensys PLC (United Kingdom) 239,481
1,875 Trinity Industries, Inc. 36,094
5,350 Veba AG (Germany) 299,007
----------------
1,621,981
</TABLE>
14 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
----------------------------------------------------------------------------------------
<C> <S> <C> <C>
Diversified Operations 0.3%
2,000 Lagardere S.A. (France) $ 129,481
7,075 Pactiv Corp.(a) 65,444
1,225 United Stationers, Inc. 35,678
3,239 Vivendi (France) 258,778
----------------
489,381
-------------------------------------------------------------------------------------
Drugs & Medical Supplies 0.5%
2,000 Datascope Corp.(a) 75,500
7,000 Sankyo Co. Ltd. (Japan) 164,240
26,000 Smithkline Beecham PLC (United Kingdom)(a) 335,054
5,433 Zeneca Group PLC (United Kingdom)(a) 234,138
----------------
808,932
-------------------------------------------------------------------------------------
Electrical Utilities 0.5%
24,277 British Energy 87,307
1,825 CH Energy Group, Inc. 59,541
3,025 Conectiv, Inc. 50,101
17,020 Endesa S.A. (Spain) 353,202
5,775 Minnesota Power, Inc. 123,080
6,300 Public Service Co. of New Mexico 114,187
950 RGS Energy Group, Inc. 21,791
2,975 Sierra Pacific Resources 42,022
----------------
851,231
-------------------------------------------------------------------------------------
Electronic Components 3.3%
4,700 Alpha Industries, Inc.(a) 160,094
2,500 Applied Micro Circuits Corp.(a) 373,125
13,900 Arrow Electronics, Inc.(a) 459,569
1,650 ATMI, Inc.(a) 42,488
5,200 Avnet, Inc. 296,075
1,300 Broadcom Corp.(a) 291,525
2,050 Cleco Corp. 75,594
575 Electro Scientific Industries, Inc.(a) 26,127
1,625 Electroglas, Inc.(a) 32,500
11,040 Electrolux AB, Ser. B (Sweden) 164,280
3,200 Flextronics International Ltd.(a) 226,550
</TABLE>
See Notes to Financial Statements 15
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
----------------------------------------------------------------------------------------
<C> <S> <C> <C>
17,101 General Motors Corp (Class H) $ 442,488
10,000 Gentex Corp.(a) 227,500
8,000 Hitachi Ltd. (Japan) 95,677
2,450 Idacorp, Inc. 90,650
1,100 Integrated Silicon Solution, Inc.(a) 23,100
7,500 Motorola, Inc. 247,969
6,000 Novellus Systems, Inc.(a) 323,625
4,904 Philips Electronic N.V. (Netherlands) 222,173
2,500 PMC-Sierra, Inc.(a) 484,687
225 Power-One, Inc.(a) 26,564
300 Q-Logic Corp. 22,350
7,600 Reliant Energy, Inc. 254,600
2,700 Rogers Corp.(a) 96,525
7,400 Stmicroelectronics N.V. (Netherlands) 421,337
13,300 Texas Instruments, Inc. 780,544
700 Veeco Instruments, Inc.(a) 55,125
----------------
5,962,841
-------------------------------------------------------------------------------------
Entertainment 0.1%
1,625 Gaylord Entertainment Co. 40,320
1,900 SFX Entertainment, Inc.(a) 87,400
----------------
127,720
-------------------------------------------------------------------------------------
Fertilizers 0.1%
2,000 Potash Corp. of Saskatchewan, Inc. 107,375
-------------------------------------------------------------------------------------
Financial Services 3.2%
900 ACOM Co. Ltd. (Japan) 68,197
4,075 Allied Capital Corp. 77,170
13,700 American Express Co. 776,619
2,750 Arthur J. Gallagher & Co. 134,922
2,175 Bancwest Corp. 40,102
19,850 Citigroup, Inc. 1,400,666
750 Dain Rauscher Corp. 50,859
5,025 Doral Financial Corp. 65,325
3,250 Downey Financial Corp. 113,750
1,700 Eaton Vance Corp. 88,081
9,000 Federated Investment, Inc. 235,687
</TABLE>
16 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
----------------------------------------------------------------------------------------
<C> <S> <C> <C>
3,500 Fulton Financial Corp. $ 75,250
12,000 Getronics N.V. (Netherlands) 202,424
2,700 John H. Harland Co. 36,113
4,300 Merrill Lynch & Co., Inc. 555,775
5,250 Metris Co., Inc. 153,891
11,900 Morgan Stanley Dean Witter 1,085,875
1,800 Orix Corp. (Japan) 232,528
3,100 PFF Bancorp, Inc. 53,863
7,100 Schwab Charles Corp. 256,487
3,500 Webster Financial Corp. 78,313
----------------
5,781,897
-------------------------------------------------------------------------------------
Food & Beverage 1.4%
700 Adolph Coors Co. 44,100
34,300 Cadbury Schweppes PLC (United Kingdom) 221,906
1,800 Dean Foods Co. 62,663
29,100 Diageo PLC (United Kingdom) 255,525
2,325 Fleming Cos., Inc. 36,473
4,800 Heineken N.V. (Netherlands) 274,496
2,750 Michael Foods, Inc. 66,000
27,200 Nabisco Group Holding Corp. 720,800
2,400 Performance Food Group Co.(a) 79,050
4,350 Riviana Foods, Inc. 70,687
16,400 Sara Lee Corp. 302,375
2,675 Smithfield Foods, Inc.(a) 76,070
84,200 Tesco PLC (United Kingdom) 277,573
2,500 Universal Foods Corp. 48,750
----------------
2,536,468
-------------------------------------------------------------------------------------
Gold Mines
2,575 Commerce Group Corp.(a) 71,456
-------------------------------------------------------------------------------------
Health Care 3.0%
3,925 Apria Healthcare Group, Inc.(a) 58,630
29,200 Foundation Health Systems, Inc. 425,225
39,600 HCA-The Healthcare Corp. 1,346,400
33,900 HEALTHSOUTH Corp.(a) 201,281
4,950 Nationwide Health Properties, Inc. 77,962
</TABLE>
See Notes to Financial Statements 17
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
----------------------------------------------------------------------------------------
<C> <S> <C> <C>
7,400 PacifiCare Health Systems, Inc.(a) $ 481,000
4,500 PAREXEL International Corp.(a) 44,719
48,100 Tenet Healthcare Corp.(a) 1,464,044
2,000 Trigon Healthcare, Inc.(a) 106,000
2,050 Varian Med Systems, Inc. 88,150
11,700 Wellpoint Health Networks, Inc.(a) 1,020,094
----------------
5,313,505
-------------------------------------------------------------------------------------
Home Furnishings 0.1%
2,000 Ethan Allen Interiors, Inc. 51,000
3,550 Furniture Brands International, Inc.(a) 52,584
----------------
103,584
-------------------------------------------------------------------------------------
Hotels 0.2%
20,500 Hilton Hotels Corp. 210,125
27,400 MeriStar Hotels & Resorts, Inc. 73,638
----------------
283,763
-------------------------------------------------------------------------------------
Household Products
1,050 Libbey, Inc. 32,747
-------------------------------------------------------------------------------------
Human Resources 0.1%
1,750 CDI Corp.(a) 34,781
2,925 Spherion Corp.(a) 55,941
----------------
90,722
-------------------------------------------------------------------------------------
Industrial
525 Brooks Automation, Inc.(a) 26,053
1,400 Springs Industries, Inc. 45,150
----------------
71,203
-------------------------------------------------------------------------------------
Insurance 4.1%
3,100 Alfa Corp. 56,575
7,700 Alleanza Assicurazionni (Italy)(a) 95,989
1,124 Allianz AG (Germany) 416,722
3,600 American Financial Group, Inc. 90,000
2,900 American General Corp. 193,394
8,213 American International Group, Inc. 720,134
</TABLE>
18 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
----------------------------------------------------------------------------------------
<C> <S> <C> <C>
2,000 Annuity & Life Ltd. $ 49,250
15,800 AXA Financial, Inc. 604,350
1,700 AXA-UAP (France) 258,406
14,800 Chubb Corp. 1,095,200
1,640 Fidelity National Financial, Inc. 29,008
2,100 First American Financial Corp. 32,681
10,000 John Hancock Financial Services, Inc.(a) 236,250
2,500 Leucadia National Corp. 66,719
18,900 Old Republic International Corp. 421,706
500 Oxford Health Plans, Inc.(a) 11,969
5,150 Presidential Life Corp. 74,353
11,600 Prudential Corp. PLC (United Kingdom) 158,350
800 Quotesmith.com, Inc.(a) 1,950
1,779 Radian Group, Inc. 108,297
9,000 Reinsurance Group of America, Inc. 286,312
20,900 SAFECO Corp. 482,006
6,100 St. Paul Companies, Inc. 271,069
1,575 Stancorp Financial Group, Inc. 54,337
2,750 The MONY Group, Inc. 98,312
1,575 Triad Guaranty, Inc.(a) 38,194
11,900 Unitedhealth Group, Inc. 973,569
598 Zurich Versicherungs-Gesellschaft (Switzerland) 322,382
----------------
7,247,484
-------------------------------------------------------------------------------------
Internet 0.1%
475 Allaire Corp.(a) 14,658
400 Go2Net, Inc.(a) 23,625
100 Interwoven, Inc.(a) 6,456
1,000 Investment Technology Group, Inc.(a) 48,625
1,650 National Discount Brokers Group, Inc.(a) 54,347
1,225 PurchasePro.com Inc.(a) 47,775
300 Viant Corp.(a) 9,900
300 Ziff-Davis, Inc.(a) 5,138
----------------
210,524
</TABLE>
See Notes to Financial Statements 19
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
----------------------------------------------------------------------------------------
<C> <S> <C> <C>
Machinery & Equipment 0.2%
1,050 Helix Technology Corp. $ 34,125
1,525 IDEX Corp. 50,325
3,925 JLG Industries, Inc. 39,986
1,700 Kulicke & Soffa Industries, Inc.(a) 76,712
5,475 Lincoln Electric Holdings, Inc. 82,809
2,175 Milacron, Inc. 31,266
2,975 Terex Corp.(a) 49,088
2,225 The Manitowoc Co., Inc. 54,791
----------------
419,102
-------------------------------------------------------------------------------------
Manufacturing 0.4%
1,275 AptarGroup, Inc. 31,795
1,290 Cie De Saint Gobain (France) 189,508
900 Cirrus Logic, Inc.(a) 17,438
2,100 GaSonics International Corp.(a) 50,400
2,000 KEMET Corp.(a) 48,000
4,900 Mettler-Toledo International, Inc.(a) 198,450
2,350 Scott Technologies, Inc. 45,237
6,520 Thyssen AG (Germany) 111,918
100 Varian, Inc.(a) 4,213
----------------
696,959
-------------------------------------------------------------------------------------
Media 1.4%
8,500 Clear Channel Communications, Inc.(a) 647,594
1,400 Cumulus Media, Inc. 13,650
3,600 Gemstar-TV Guide Int'l, Inc.(a) 218,925
4,400 Omnicom Group, Inc. 374,000
1,575 Penton Media Inc. 54,534
1,200 Time Warner, Inc. 92,025
17,330 Viacom, Inc. (Class B)(a) 1,149,196
----------------
2,549,924
-------------------------------------------------------------------------------------
Medical Products & Services
5,150 Bergen Brunswig Corp. (Class A) 45,062
200 Coherent, Inc.(a) 11,975
----------------
57,037
</TABLE>
20 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
----------------------------------------------------------------------------------------
<C> <S> <C> <C>
Medical Technology 0.9%
1,400 Albany Molecular Research, Inc. $ 77,525
8,000 Amgen, Inc.(a) 519,500
2,600 Genetech, Inc. 395,525
5,500 Inhale Therapeutic Systems, Inc.(a) 446,531
7,900 Serono S.A., ADR(a) 213,300
----------------
1,652,381
-------------------------------------------------------------------------------------
Metals 0.5%
21,500 Broken Hill Proprietary Co. Ltd. (Australia) 227,499
2,100 Cleveland-Cliffs, Inc. 52,106
3,275 Commercial Metals Co. 96,203
1,975 Kaydon Corp. 41,352
8,400 Phelps Dodge Corp. 341,775
1,450 Precision Castparts Corp. 92,709
3,225 Worthington Industries, Inc. 34,064
----------------
885,708
-------------------------------------------------------------------------------------
Mining 0.3%
27,600 Freeport-McMoRan Copper & Gold, Inc.(a) 236,325
18,000 Newmont Mining Corp. 319,500
----------------
555,825
-------------------------------------------------------------------------------------
Networking 0.3%
400 Adaptec, Inc.(a) 9,900
1,800 Anixter International, Inc.(a) 52,313
400 C-COR.net Corp.(a) 10,575
1,800 Juniper Networks, Inc.(a) 256,387
1,800 Network Appliance, Inc.(a) 155,137
----------------
484,312
-------------------------------------------------------------------------------------
Office Equipment & Supplies 0.6%
6,000 Canon, Inc. (Japan) 267,312
15,200 Harris Corp. 520,600
3,150 HON Industries, Inc. 84,065
30,200 IKON Office Solutions, Inc. 122,687
16,900 Lanier Worldwide, Inc.(a) 11,619
----------------
1,006,283
</TABLE>
See Notes to Financial Statements 21
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
----------------------------------------------------------------------------------------
<C> <S> <C> <C>
Oil & Gas Services 2.9%
5,000 Alliant Energy Resources, Inc. $ 303,125
1,800 Amerada Hess Corp. 108,900
3,025 Berry Petroleum Co. 55,017
35,200 BP Amoco PLC (United Kingdom) 308,033
10,004 BP Amoco PLC, ADR 523,334
5,475 Energen Corp. 123,188
36,500 ENI SpA (Italy) 204,333
3,225 Equitable Resources, Inc. 167,902
2,925 Helmerich & Payne, Inc. 93,600
3,676 Kerr-McGee Corp. 201,721
7,600 Keyspan Energy 241,300
9,000 Marine Drilling Companies, Inc.(a) 195,750
2,775 Mitchell Energy & Development Corp. 88,453
8,500 Newfield Exploration Co.(a) 289,531
5,200 Nuevo Energy Co. 79,300
8,900 Occidental Petroleum Corp. 180,225
3,475 Oneok, Inc. 92,739
2,000 Patterson Energy, Inc 49,875
525 Quest Diagnostics, Inc.(a) 52,992
5,000 Schlumberger Ltd. 369,687
1,000 St. Mary Land & Exploration Co. 29,937
11,585 Total S.A., ADR 852,222
2,853 Total S.A., Ser. B (France) 422,824
1,625 Ultramar Diamond Shamrock Corp. 37,172
2,850 Valero Energy Corp. 73,922
1 Varco International, Inc.(a) 9
----------------
5,145,091
-------------------------------------------------------------------------------------
Paper & Packaging 1.9%
1,750 Chesapeake Corp. 45,828
5,000 Fort James Corp. 152,813
6,300 Georgia-Pacific Corp. (Timber Group) 190,969
25,100 Georgia-Pacific Group 622,793
13,200 International Paper Co. 448,800
15,700 Mead Corp. 398,387
14,000 Nippon Paper Industries Co. Ltd. (Japan) 102,250
</TABLE>
22 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
----------------------------------------------------------------------------------------
<C> <S> <C> <C>
3,500 Pope & Talbot, Inc. $ 67,375
8,800 Temple- Inland, Inc. 382,250
6,300 UPM-Kymmene OY (Finland) 155,322
10,400 Weyerhaeuser Co. 475,150
14,300 Willamette Industries, Inc. 433,469
----------------
3,475,406
-------------------------------------------------------------------------------------
Pharmaceuticals 2.2%
1,225 Alpharma, Inc. 80,238
11,000 American Home Products Corp. 583,687
3,025 Bindley Western Industries, Inc. 79,595
4,300 Eli Lilly & Co. 446,663
28,325 Pfizer, Inc. 1,221,516
14,078 Pharmacia Corp. 770,770
5,800 Rhone Poulenc S.A., Ser. A (France) 446,723
27 Roche Holdings AG (Switzerland) 253,592
----------------
3,882,784
-------------------------------------------------------------------------------------
Photography 0.7%
22,400 Eastman Kodak Co. 1,229,200
-------------------------------------------------------------------------------------
Printing & Publishing 0.3%
1,700 Banta Corp. 32,831
2,400 Lee Enterprises, Inc. 63,600
1,000 Primedia, Inc. 92,250
28,200 Reed International PLC (United Kingdom) 225,438
1,000 Scholastic Corp.(a) 63,875
----------------
477,994
-------------------------------------------------------------------------------------
Radio & Television
950 Entercom Communications Corp.(a) 36,872
-------------------------------------------------------------------------------------
Real Estate Development
700 Catellus Development Corp.(a) 12,075
-------------------------------------------------------------------------------------
Real Estate 1.0%
400 Alexandria Real Estate Equities, Inc. 14,325
3,450 Amli Residential Properties Trust 84,094
3,575 Arden Realty, Inc. 94,737
</TABLE>
See Notes to Financial Statements 23
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
----------------------------------------------------------------------------------------
<C> <S> <C> <C>
1,925 Avalonbay Communities, Inc. $ 90,716
3,450 Bradley Real Estate, Inc. 74,175
2,850 BRE Properties, Inc. 92,447
3,375 Cabot Industrial Trust 69,188
1,750 Camden Property Trust 54,688
2,000 Developers Diversified Realty Corp. 31,500
2,350 First Industrial Realty Trust, Inc. 75,200
2,875 Franchise Finance Corp. of America 69,000
2,400 Gables Residential Trust 65,250
800 General Growth Properties, Inc. 27,100
1,600 Health Care Property Investments, Inc. 47,600
2,850 Health Care REIT, Inc. 51,300
3,625 Highwoods Properties, Inc. 97,875
2,525 Hospitality Properties Trust 62,494
6,950 JDN Realty Corp. 72,975
9,000 MeriStar Hospitality Corp. 199,687
5,300 Reckson Associates Realty Corp. 139,125
3,275 Regency Realty Corp. 78,600
600 SL Green Realty Corp. 17,813
3,325 Summit Properties, Inc. 79,384
2,100 Weingarten Realty Investors 86,887
----------------
1,776,160
-------------------------------------------------------------------------------------
Restaurants 0.5%
11,600 CKE Restaurants, Inc. 34,075
38,400 Darden Restaurants, Inc. 626,400
1,900 Jack in the Box, Inc.(a) 40,731
3,625 Ruby Tuesday, Inc. 44,633
8,525 Ryan's Family Steak Houses, Inc.(a) 77,791
----------------
823,630
-------------------------------------------------------------------------------------
Retail 3.5%
2,175 Alberto-Culver Co. (Class B) 66,066
4,725 Ames Department Stores, Inc.(a) 33,666
2,100 BJ's Wholesale Club, Inc.(a) 62,869
10,300 Consolidated Stores Corp.(a) 122,956
20,500 Dillards, Inc. (Class A) 280,594
</TABLE>
24 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
----------------------------------------------------------------------------------------
<C> <S> <C> <C>
1,875 Dress Barn, Inc.(a) $ 38,906
1,100 Factory 2-U Stores, Inc.(a) 45,650
14,400 Gap, Inc. 515,700
31,900 Great Universal Stores PLC (United Kingdom) 211,039
23,800 Home Depot, Inc. 1,231,650
5,000 J.C. Penney Co., Inc. 80,625
48,100 Kmart Corp.(a) 336,700
13,500 Kohl's Corp.(a) 766,125
1,525 Michaels Stores, Inc.(a) 66,052
4,700 Pep Boys - Manny, Moe & Jack 27,319
5,150 Pier 1 Imports, Inc. 61,478
4,025 Polo Ralph Lauren Corp.(a) 65,155
11,500 RadioShack Corp. 648,312
5,200 Ross Stores, Inc. 79,950
2,625 Russell Corp. 51,680
700 Sears, Roebuck & Co. 20,912
11,000 Tiffany & Co. 376,750
13,800 Toys 'R' Us, Inc.(a) 227,700
4,950 Venator Group, Inc. 69,919
300 Ventro Corp. 3,619
13,400 Wal-Mart Stores, Inc. 736,162
2,575 Zale Corp.(a) 96,241
----------------
6,323,795
-------------------------------------------------------------------------------------
Semiconductors 1.0%
5,800 Applied Materials, Inc.(a) 440,075
19,200 Intel Corp. 1,281,600
200 Micrel, Inc.(a) 10,012
200 Silicon Laboratories, Inc.(a) 23,025
700 Varian Semiconductor Equipment, Inc. 33,994
----------------
1,788,706
-------------------------------------------------------------------------------------
Services 0.3%
1,100 ADVO, Inc. 45,031
8,000 Fujitsu (Japan) 224,951
875 Littelfuse, Inc. 30,844
</TABLE>
See Notes to Financial Statements 25
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
----------------------------------------------------------------------------------------
<C> <S> <C> <C>
23,400 National Grid Co. PLC (United Kingdom) $ 192,149
20,900 Service Corp. International(a) 53,556
----------------
546,531
-------------------------------------------------------------------------------------
Shipbuilding
1,050 Newport News Shipbuilding, Inc. 42,394
-------------------------------------------------------------------------------------
Software 1.2%
100 Actuate Corp.(a) 4,925
1,300 Agency.com, Inc.(a) 28,031
100 Alteon Websystems, Inc.(a) 13,194
7,500 America Online, Inc.(a) 399,844
300 Broadbase Software, Inc.(a) 7,069
5,400 BroadVision, Inc.(a) 195,412
100 Clarus Corp.(a) 3,700
4,700 Computer Associates International, Inc.(a) 116,619
1,600 Exodus Communications, Inc.(a) 71,100
4,200 HNC Software, Inc.(a) 185,325
100 Informatica Corp.(a) 8,000
300 ITXC Corp.(a) 5,438
1,400 Keynote Systems, Inc.(a) 53,062
700 Liberate Technologies(a) 16,056
782 NetIQ Corp.(a) 37,732
200 Nuance Communications, Inc.(a) 28,075
1,800 Onyx Software Corp.(a) 43,537
2,975 Phoenix Technologies Ltd.(a) 50,575
2,800 Progress Software Corp.(a) 42,175
825 Proxicom, Inc.(a) 34,083
200 Software.com, Inc.(a) 20,175
2,700 Sybase, Inc.(a) 65,137
600 U.S. Interactive, Inc.(a) 8,100
6,850 VERITAS Software Corp.(a) 698,272
2,200 Verity, Inc.(a) 80,162
----------------
2,215,798
</TABLE>
26 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
----------------------------------------------------------------------------------------
<C> <S> <C> <C>
Steel
2,400 Carpenter Technology Corp. $ 73,500
-------------------------------------------------------------------------------------
Telecommunications 6.7%
900 Advanced Fibre Communications, Inc.(a) 38,588
5,000 Alcatel (France) 368,886
4,800 Allegiance Telecommunications, Inc.(a) 266,700
7,100 ALLTEL Corp. 437,538
32,600 AT&T Corp.(a) 808,750
1,875 Audiovox Corp.(a) 29,062
16,800 British Telecommunications PLC (United Kingdom) 222,034
500 Copper Mountain Networks, Inc.(a) 39,430
1,382 Deutsche Telekom (Germany) 60,215
400 Ditech Communications Corp.(a) 19,150
500 Dobson Communications Corp. (Class A)(a) 10,938
22,300 Ericsson (L.M.) Telephone Co., Inc., ADR 437,638
18,000 Global Crossing Ltd.(a) 437,625
1,600 Intermedia Communications, Inc.(a) 28,200
9,200 JDS Uniphase Corp.(a) 1,086,750
1,375 Leap Wireless International, Inc. 87,141
2,300 Level 3 Communications, Inc.(a) 157,406
7,400 Metromedia Fiber Network, Inc. 259,925
3,600 Millicom International Cellular S.A., ADR(a) 158,850
3,500 Net2000 Communication, Inc.(a) 33,250
8,300 Nextel Communications, Inc.(a) 464,281
5,700 Nextlink Communications, Inc. 188,456
24 Nippon Telegraph & Telephone Corp. (Japan) 287,032
23,600 Nokia Corp., ADR(a) 1,045,775
9,800 Nortel Networks Corp. 728,875
7,537 NTL, Inc.(a) 339,636
8 NTT Mobile Communications (Japan) 200,849
28,800 Portugal Telecom S.A. (Portugal) 313,646
19,000 Qwest Communications International, Inc.(a) 891,812
3,200 Tektronix, Inc. 196,800
3,700 Tele Danmark AS (Denmark) 227,637
</TABLE>
See Notes to Financial Statements 27
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
----------------------------------------------------------------------------------------
<C> <S> <C> <C>
9,509 Telefonica S.A. (Spain) $ 200,065
1,800 True North Communications, Inc. 87,863
3,900 Univision Communications, Inc.(a) 3484,575
25,196 Vodafone AirTouch PLC, ADR 1,086,577
62,500 Vodafone Group PLC (United Kingdom) 276,277
----------------
12,008,232
-------------------------------------------------------------------------------------
Tobacco 0.8%
13,200 Loews Corp. 828,300
14,500 Philip Morris Co., Inc. 366,125
8,833 R.J. Reynolds Tobacco Holdings, Inc. 250,636
----------------
1,445,061
-------------------------------------------------------------------------------------
Transportation 0.2%
2,325 Alexander & Baldwin, Inc. 58,561
3,225 ArvinMeritor, Inc. 50,391
4,275 Roadway Express, Inc. 101,531
2,225 Sea Containers Ltd. 58,406
----------------
268,889
-------------------------------------------------------------------------------------
Trucking & Shipping 0.1%
3,050 Airborne Freight Corp. 47,084
2,700 US Freightways Corp. 74,925
----------------
122,009
-------------------------------------------------------------------------------------
Utilities 0.5%
2,100 California Water Service Group 50,137
4,900 General Public Utilities Corp. 129,850
1,470 Suez Lyonnaise des Eaux (France) 240,476
7,600 Unicom Corp. 312,075
3,750 Washington Gas Light Co. 92,344
----------------
824,882
</TABLE>
28 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
----------------------------------------------------------------------------------------
<C> <S> <C> <C>
Waste Management 0.1%
2,675 Waste Connections, Inc.(a) $ 54,169
11,600 Waste Management, Inc. 216,775
----------------
270,944
----------------
Total common stocks (cost $92,948,043) 104,870,820
----------------
</TABLE>
<TABLE>
CORPORATE BONDS 20.9%
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
<C> <C> <S> <C> <C>
--------------------------------------------------------------------------------------------
Aerospace 0.2%
BE Aerospace, Inc., Sr. Sub. Notes,
B1 $ 50 9.50%, 11/1/08 47,375
Sequa Corp., Sr. Notes,
Ba2 250 9.00%, 8/1/09 242,500
----------------
289,875
-------------------------------------------------------------------------------------
Airlines 0.3%
Continental Airlines Inc., Sr.
Notes,
Ba2 140 8.00%, 12/15/05 130,733
Delta Air Lines, Inc., Sr. Notes,
Baa3 250 9.75%, 5/15/21 263,055
Baa3 100 8.30%, 12/15/29 89,652
United Airlines, Inc., Sr. Deb.
Notes,
Baa3 15 9.75%, 8/15/21 14,783
US Airways, Inc., Sr. Notes,
B3 50 9.625%, 2/1/01 49,517
----------------
547,740
-------------------------------------------------------------------------------------
Audio/Visual
Imax Corp., Sr. Notes,
Ba2 45 7.875%, 12/1/05 43,200
-------------------------------------------------------------------------------------
Auto & Truck 0.1%
Federal-Mogul Corp., Sr. Notes,
Ba2 50 7.375%, 1/15/06 40,500
Ba2 105 7.50%, 1/15/09 80,325
</TABLE>
See Notes to Financial Statements 29
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
--------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C>
Lear Seating Corp., Sr. Sub. Notes,
Ba3 $ 75 8.25%, 2/1/02 $ 73,427
----------------
194,252
-------------------------------------------------------------------------------------
Auto Rental
United Rentals, Inc., Gtd. Notes,
B1 55 9.25%, 1/15/09 51,150
-------------------------------------------------------------------------------------
Automotive Parts 0.4%
Collins & Aikman Products Co., Gtd.
Notes,
B2 110 11.50%, 4/15/06 106,700
Eagle-Picher, Inc., Gtd. Notes
B3 75 9.375%, 3/1/08 62,250
Hayes Wheels Int'l, Inc., Sr. Sub.
Notes,
B2 250 9.125%, 7/15/07 228,750
Lear Corp. Sr. Notes, Ser. B
Ba1 250 8.11%, 5/15/09 229,375
----------------
627,075
-------------------------------------------------------------------------------------
Banking 1.1%
Bank of Tokyo-Mitsubishi Ltd., Sr. Sub. Notes,
A3 400 8.40%, 4/15/10 403,554
Central Bank of Philippines, Bonds,
NR 88 7.8125%, 1/5/05 82,129
Chevy Chase Savings Bank, Sub. Deb.
B1 100 9.25%, 12/1/05 94,000
KBC Bank Funding Trust, Gtd. Notes,
A1 300 9.86%, 11/29/49 306,822
Korea Development Bank, Sr. Notes,
Baa2 200 7.125%, 9/17/01 198,652
Baa2 300 7.90%, 2/1/02 300,081
Royal Bank of Scotland Group PLC,
Sr. Notes,
A1 300 9.118%, 3/31/49 312,213
Sovereign Bancorp, Inc., Sr. Notes,
Ba3 110 10.25%, 5/15/04 108,616
</TABLE>
30 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
--------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C>
Sovereign Bancorp, Sr. Notes,
Ba3 $ 90 10.50%, 11/15/06 $ 90,000
----------------
1,896,067
-------------------------------------------------------------------------------------
Broadcasting
Paxson Communications Corp., Sr.
Sub. Notes,
B3 80 11.625%, 10/1/02 81,800
-------------------------------------------------------------------------------------
Building & Products
Lennar Corp., Sr. Notes,
Ba1 20 9.95%, 5/1/10 20,200
Nortek, Inc., Sr. Notes,
B1 70 9.125%, 9/1/07 65,800
----------------
86,000
-------------------------------------------------------------------------------------
Cable 0.8%
Adelphia Communications Corp., Sr.
Notes,
B1 300 8.125%, 7/15/03 279,000
Callahan NRH (Denmark), Sr. Disc.
Notes,
Zero Coupon, (until 7/15/05)
B3 50 16.00%, 7/15/10 22,250
Sr. Notes,
B3 100 14.00%, 7/15/10 98,500
Charter Communications Holdings
LLC.,
Sr. Disc. Notes, Zero Coupon
(until 4/1/04)
B2 100 9.92%, 4/1/11 57,000
Classic Cable, Inc., Sr. Sub.
Notes,
B3 25 9.375%, 8/1/09 20,250
B3 30 10.50%, 3/1/10 26,550
Diamond Cable Comm. Co. (United
Kingdom), Sr. Disc. Notes,
B2 150 13.25%, 9/30/04 157,500
Fox Family Worldwide, Inc., Sr.
Notes,
B1 30 9.25%, 11/1/07 28,350
</TABLE>
See Notes to Financial Statements 31
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
--------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C>
International Wire Group, Inc.,
Sr. Sub. Notes,
B3 $ 150 11.75%, 6/1/05 $ 150,000
Metromedia Fiber Network, Sr.
Notes,
B2 90 10.00%, 12/15/09 87,300
Mediacom LLC Capital Corp., Sr.
Notes,
B2 250 7.875%, 2/15/11 215,000
Rogers Cablesystems, Inc., Sr.
Notes,
Ba1 100 9.625%, 8/1/02 102,000
United Pan Europe Communications
(Netherlands), Sr. Disc. Notes,
Zero Coupon (until 8/1/04)
B2 100 12.50%, 8/1/09 46,000
Sr. Notes,
B2 200 10.875%, 8/1/09 175,000
----------------
1,464,700
-------------------------------------------------------------------------------------
Casinos 0.7%
Aztar Corp., Sr. Sub. Notes,
B2 150 8.875%, 5/15/07 142,500
Boyd Gaming Corp., Sr. Sub. Notes,
B1 50 9.50%, 7/15/07 48,000
Harrahs Operating, Inc., Gtd. Sr. Sub. Notes,
Ba2 90 7.875%, 12/15/05 85,388
Harvey Casino & Resorts, Sr. Sub.
Notes,
B2 100 10.625%, 6/1/06 102,000
Hollywood Park, Inc., Sr. Sub. Notes, Ser. B,
B2 250 9.25%, 2/15/07 253,125
Horseshoe Gaming LLC, Sr. Sub.
Notes,
B2 65 8.625%, 5/15/09 61,831
Mandalay Resort Group,
Deb. Notes,
Ba2 100 6.70%, 11/15/96 91,967
Sr. Sub. Deb.
Ba2 100 7.625%, 7/15/13 79,250
</TABLE>
32 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
--------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C>
Mohegan Tribal Gaming Authority,
Sr. Notes,
Ba2 $ 250 8.125%, 1/1/06 $ 239,375
Park Place Entertainment Corp.,
Sr. Sub. Notes,
Ba2 40 9.375%, 2/15/07 40,200
Station Casinos, Inc, Sr. Sub
Notes,
B1 70 9.875%, 7/1/10 70,000
----------------
1,213,636
-------------------------------------------------------------------------------------
Chemicals 0.5%
Arco Chemical Co., Deb. Notes
Ba3 250 9.90%, 11/1/00 249,375
Avecia Group PLC, Sr. Notes,
B2 80 11.00%, 7/1/09 79,800
Huntsman ICI Chemicals, Inc., Sr.
Sub. Notes,
B2 115 10.125%, 7/1/09 117,300
Huntsman Polymers Corp., Sr. Notes
B1 50 11.75%, 12/1/04 50,750
Lyondell Chemical Co., Sr. Sub.
Notes,
Ba3 100 9.875%, 5/1/07 100,000
NL Industries, Inc., Sr. Sec'd.
Notes,
B1 30 11.75%, 10/15/03 30,525
Sterling Chemicals, Inc., Sr. Sub.
Notes,
B3 55 12.375%, 7/15/06 56,375
B3 75 11.75%, 8/15/06 60,000
Texas Petrochemicals Corp., Sr.
Sub. Notes,
Caa1 20 11.125%, 7/1/06 17,800
USEC, Inc., Sr. Notes,
Ba1 100 6.75%, 1/20/09 72,400
----------------
834,325
-------------------------------------------------------------------------------------
Commercial Services 0.1%
Iron Mountain, Inc., Sr. Sub.
Notes, MTN,
B2 100 8.25%, 7/1/11 88,000
</TABLE>
See Notes to Financial Statements 33
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
--------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C>
Computer Services 0.1%
Globix Corp., Sr. Notes,
B-* $ 200 12.50%, 2/1/10 $ 156,000
Unisys Corp., Sr. Notes,
Ba1 100 11.75%, 10/15/04 106,000
----------------
262,000
-------------------------------------------------------------------------------------
Containers 0.3%
Norampac, Inc., Sr. Notes,
B1 20 9.50%, 2/1/08 19,600
Owens-Illinois, Inc., Deb. Notes,
Ba1 50 7.50%, 5/15/10 41,117
Sr. Notes,
Ba1 100 7.85%, 5/15/04 92,171
Packaged Ice, Inc., Sr. Notes,
B3 135 9.75%, 2/1/05 114,750
Radnor Holdings Corp., Sr. Notes,
B2 150 10.00%, 12/1/03 133,500
Silgan Holdings, Inc., Sr. Sub.
Deb.,
B1 150 9.00%, 6/1/09 137,250
----------------
538,388
-------------------------------------------------------------------------------------
Distribution
Core- Mark Int'l, Inc., Sr. Sub.
Notes,
B3 15 11.375%, 9/15/03 13,950
-------------------------------------------------------------------------------------
Diversified Manufacturing 0.2%
Corning Consumer Products,
Sr. Sub. Notes,
B3 200 9.625%, 5/1/08 130,000
Gentek, Inc., Gtd. Notes,
B2 150 11.00%, 8/1/09 151,500
Tenneco, Inc., Sr. Sub. Notes,
B2 55 11.625%, 10/15/09 48,950
----------------
330,450
</TABLE>
34 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
--------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C>
Diversified Operations 0.2%
Cox Enterprises, Inc., Sr. Notes,
Baa1 $ 300 7.55%, 8/1/00 $ 300,825
SCG Holding Corp., Sr. Sub. Notes,
B2 49 12.00%, 8/1/09 52,675
----------------
353,500
-------------------------------------------------------------------------------------
Electrical Utilities 0.6%
Calpine Corp., Sr. Notes,
Ba1 500 10.50%, 5/15/06 525,000
Sierra Pacific Resources, Sr.
Notes,
Baa2 500 7.39%, 4/20/02 500,000
----------------
1,025,000
-------------------------------------------------------------------------------------
Electrical Equipment 0.1%
Motors & Gears, Inc., Sr. Notes,
B3 125 10.75%, 11/15/06 121,250
-------------------------------------------------------------------------------------
Electrical Services 0.1%
TNP Enterprises, Inc., Sr. Sub.
Notes,
NR 225 10.25%, 4/1/10 234,563
-------------------------------------------------------------------------------------
Electronics 0.1%
Flextronics Int'l Ltd., Sr. Sub.
Notes,
Ba3 100 9.875%, 7/1/10 101,125
-------------------------------------------------------------------------------------
Engineering & Construction 0.2%
CSC Holdings, Inc., Sr. Sub. Deb.,
Ba3 329 10.50%, 5/15/16 348,740
-------------------------------------------------------------------------------------
Financial Services 4.9%
AT&T Capital Corp., MTN,
A1 500 6.60%, 5/15/05 476,605
Americredit Corp., Sr. Notes,
Ba1 100 9.875%, 4/15/06 98,000
Associates Corp. of North America,
Sr. Notes,
A1 600 6.96%, 5/8/03 605,430
</TABLE>
See Notes to Financial Statements 35
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
--------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C>
Bear Stearns Cos., Inc., Sr. Notes,
A2 $ 300 6.15%, 3/2/04 $ 284,349
Capital One Bank, Sr. Notes,
Baa2 500 6.76%, 7/23/02 491,121
Coinstar, Inc., Sr. Disc. Notes,
NR 100 13.00%, 10/1/06 101,000
Credit Asset Receivable LLC, Sr. Sec'd. Notes,
NR 247 6.274%, 10/31/03 242,374
Finova Capital Corp., MTN,
Baa2 300 5.98%, 2/27/01 288,639
Ford Motor Credit Co., Sr. Notes,
A2 500 7.50%, 3/15/05 497,160
A2 500 6.75%, 5/15/05 481,970
General Motors Acceptance Corp.,
MTN,
A2 400 6.54%, 4/5/04 399,124
GS Escrow Corp., Sr. Notes,
Ba1 100 6.75%, 8/1/01 96,750
Ba1 50 7.125%, 8/1/05 45,436
GS Escrow Corp., Notes,
Ba1 100 7.05%, 8/1/03 95,211
Heller Financial, Inc., MTN,
A3 500 6.50%, 7/22/02 490,525
Household Finance Corp., Notes,
A2 700 7.00%, 8/1/03 688,112
MBNA America Bank NA, MTN,
Baa1 500 6.875%, 7/15/04 478,625
Metris Co., Inc., Sr. Deb. Notes,
Ba3 150 10.125%, 7/15/06 142,500
Midland Funding Corp., Sec. Deb.
Notes,
Ba3 100 11.75%, 7/23/05 111,014
Morgan J.P. & Co., Inc., Sr. Notes,
A1 300 5.75%, 2/25/04 283,839
Morgan Stanley Dean Witter, Sr.
Notes,
Aa3 600 6.99%, 4/22/04 599,619
Orion Power Holdings, Inc., Sr.
Notes,
Ba3 500 12.00%, 5/1/10 527,500
</TABLE>
36 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
--------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C>
Orix Credit Alliance, Inc., MTN,
Baa2 $ 300 6.785%, 4/16/01 $ 299,040
Paine Webber Group, Inc., Sr.
Notes,
Baa1 300 7.29%, 7/15/02 299,778
RBF Finance Co., Sr. Notes,
Ba3 275 11.00%, 3/15/06 297,000
Salomon Smith Barney Holdings,
Inc., Sr. Notes,
Aa3 300 7.06%, 7/18/03 299,919
----------------
8,720,640
-------------------------------------------------------------------------------------
Food & Beverage 0.4%
Agrilink Foods., Inc., Sr. Sub.
Notes,
B3 150 11.875%, 11/1/08 114,000
Aurora Foods, Inc., Sr. Sub. Notes,
Caa1 90 9.875%, 2/15/07 56,025
Cott Corp., Sr. Notes,
B1 250 8.50%, 5/1/07 228,750
Del Monte Foods Co., Sr. Disc.
Notes,
Ser. B, Zero Coupon (until
Caa 125 12/15/02) 12.50%, 12/15/07 93,750
Pilgrim's Pride Corp., Sr. Sub.
Notes,
B1 150 10.875%, 8/1/03 150,375
Vlasic Foods Intl., Inc., Sr. Sub.
Notes,
B2 200 10.25%, 7/1/09 101,000
----------------
743,900
-------------------------------------------------------------------------------------
Gaming
Coast Hotels & Casinos, Inc., Gtd.
Notes,
B3 75 9.50%, 4/1/09 71,625
-------------------------------------------------------------------------------------
Health Care 0.8%
Apria Healthcare Group, Sr. Sub.
Notes,
B2 100 9.50%, 11/1/02 99,000
Bio-Rad Labs, Inc., Sr. Sub. Notes,
B2 40 11.625%, 2/15/07 41,800
</TABLE>
See Notes to Financial Statements 37
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
--------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C>
Columbia/HCA Healthcare Co.,
Deb. Notes,
Ba2 $ 50 8.36%, 4/15/24 $ 45,000
Ba2 55 7.05%, 12/1/27 42,350
Ba2 175 7.50%, 11/15/50 132,125
MTN,
Ba2 100 7.69%, 6/15/25 83,000
Ba2 200 6.73%, 7/15/45 185,500
Concentra Operating Corp., Sr. Sub.
Notes, Ser. A,
B3 30 13.00%, 8/15/09 25,800
Fresenius MedCare CapTrust, Gtd.
Notes,
Ba3 125 9.00%, 12/1/06 123,125
Ba3 75 7.875%, 2/1/08 70,125
Healthsouth Corp., Sr. Notes,
Ba1 85 6.875%, 6/15/05 72,853
HEALTHSOUTH Corp., Sr. Notes,
Baa3 250 7.00%, 6/15/08 197,730
Integrated Health Services, Inc.,
Sr. Sub. Notes, Ser. A,
C 250(b) 9.25%, 1/15/08 4,687
LifePoint Hospitals Holdings, Inc.,
Sr. Sub. Notes,
B3 55 10.75%, 5/15/09 57,200
Magellan Health Services, Inc., Sr.
Sub. Notes,
B3 50 9.00%, 2/15/08 26,250
Tenet Healthcare Corp. Sr. Sub.
Notes,
Ba3 60 8.125%, 12/1/08 56,550
Triad Hospitals Holdings, Inc., Sr.
Sub. Notes,
B3 90 11.00%, 5/15/09 93,150
----------------
1,356,245
</TABLE>
38 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
--------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C>
Hotels
Starwood Hotel & Resorts, Deb.
Notes,
Ba1 $ 120 7.375%, 11/15/15 $ 100,469
-------------------------------------------------------------------------------------
Industrial 0.3%
Aes Drax Holdings Ltd., Sr. Sec.
Notes,
Ba2 175 10.41%, 12/31/20 181,188
Intersil Corp., Sr. Notes,
B1 41 13.25%, 8/15/09 47,150
Purina Mills, Inc., Sr. Sub. Notes,
NR 250(b) 9.00%, 3/15/10 72,500
United Int'l. Holdings, Inc., Sr.
Disc. Notes, Zero Coupon (until
B3 250 2/15/03) 10.75%, 2/15/08 180,000
----------------
480,838
-------------------------------------------------------------------------------------
Machinery & Equipment 0.1%
Applied Power, Inc., Sr. Sub.
Notes,
B1 150 8.75%, 4/1/09 164,625
-------------------------------------------------------------------------------------
Manufacturing 0.1%
JPS Products, Sr. Notes,
B1 75 11.125%, 6/15/01 76,500
Phillips Van-Heusen, Sr. Sub.
Notes,
B1 50 9.50%, 5/1/08 45,500
Polymer Group, Inc., Sr. Sub.
Notes,
B2 20 9.00%, 7/1/07 16,600
B2 25 8.75%, 3/1/08 20,500
Sun World International, Inc.,
First Mtge., Ser. B,
B2 5 11.25%, 4/15/04 4,763
Venture Holdings Trust, Sr. Notes,
B2 40 9.50%, 7/1/05 30,400
----------------
194,263
-------------------------------------------------------------------------------------
Media 0.6%
Ackerley Group, Inc., Sr. Sub.
Notes,
B2 250 9.00%, 1/15/09 233,750
</TABLE>
See Notes to Financial Statements 39
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
--------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C>
Adelphia Communications Corp., Sr.
Notes, Ser. B,
B2 $ 500 9.25%, 10/1/02 $ 495,000
Lin Holdings Corp., Sr. Disc.
Notes, Zero Coupon, 8/1/00 Zero
B3 175 Coupon (until 3/1/03) 117,687
Time Warner, Inc., Series 97-1
Baa3 265 6.10%, 12/30/01 260,230
----------------
1,106,667
-------------------------------------------------------------------------------------
Metals 0.1%
Golden Northwest Aluminum, Gtd.
Notes,
B2 15 12.00%, 12/15/06 15,225
Kaiser Aluminum & Chemical Corp.,
Sr. Notes,
B1 225 9.875%, 2/15/02 216,281
----------------
231,506
-------------------------------------------------------------------------------------
Oil & Gas 1.2%
Canadian Forest Oil Ltd., Sr. Sub.
Notes,
B2 60 8.75%, 9/15/07 57,600
Comstock Resources, Inc., Sr.
Notes,
B2 55 11.25%, 5/1/07 55,550
Eott Energy Partners, Sr. Notes,
Ba2 85 11.00%, 10/1/09 86,700
Houston Exploration Co., Sr. Sub.
Notes,
B2 20 8.625%, 1/1/08 19,200
Parker Drilling Co., Sr. Notes,
B1 80 9.75%, 11/15/06 77,200
Petroleos Mexicanos (Mexico), Gtd. Notes,
Baa3 200 9.375%, 12/2/08 205,000
Plains Resources, Inc., Sr. Sub.
Notes,
B2 120 10.25%, 3/15/06 121,150
Public Service Enterprise Group,
Notes,
NR 1,100 7.01%, 6/15/01 1,099,993
</TABLE>
40 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
--------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C>
Swift Energy Co., Sr. Sub. Notes,
B2 $ 55 10.25%, 8/1/09 $ 55,825
Triton Energy Ltd., Sr. Notes,
B1 250 9.25%, 4/15/05 250,000
Vintage Petroleum, Inc., Sr. Sub.
Notes,
B1 95 9.75%, 6/30/09 96,900
----------------
2,125,118
-------------------------------------------------------------------------------------
Paper & Packaging 0.4%
Ball Corp., Sr. Sub. Notes,
B1 250 8.25%, 8/1/08 240,000
Doman Industries Ltd. (Canada), Sr.
Notes,
B1 60 8.75%, 3/15/04 49,200
B1 100 9.25%, 11/15/07 76,000
Repap New Brunswick (Canada), Sr.
Notes,
Caa 50 11.50%, 6/1/04 50,875
Caa 75 10.625%, 4/15/05 68,625
Stone Container Corp., First Mtge.,
B1 20 10.75%, 10/1/02 20,200
Sr. Notes,
B2 15 11.50%, 8/15/06 15,544
Sr. Sub. Deb.,
B3 250 12.25%, 4/1/02 251,250
----------------
771,694
-------------------------------------------------------------------------------------
Pharmaceuticals 0.1%
ICN Pharmaceuticals, Inc., Sr.
Notes,
Ba3 100 8.75%, 11/15/08 98,250
-------------------------------------------------------------------------------------
Printing & Publishing 0.1%
Mail Well I Corp., Sr. Sub. Notes,
B1 250 8.75%, 12/15/08 215,000
Transwestern Publishing Co., LP Sr.
Sub. Notes, Series D,
B2 40 9.625%, 11/15/07 39,000
----------------
254,000
</TABLE>
See Notes to Financial Statements 41
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
--------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C>
Real Estate 0.2%
HMH Properties, Inc., Sr. Notes,
Ba2 $ 300 8.45%, 12/1/08 $ 279,000
Intrawest Corp. Sr. Notes,
B1 100 10.50%, 2/1/10 103,500
----------------
382,500
-------------------------------------------------------------------------------------
Recreation 0.2%
Ballys Total Fitness Holdings, Sr.
Sub. Notes, Ser. C,
B3 100 9.875%, 10/15/07 91,500
Premier Parks, Inc., Sr. Notes,
B3 350 9.75%, 6/15/07 332,500
----------------
424,000
-------------------------------------------------------------------------------------
Restaurants 0.3%
Advantica Restaurant Group, Inc., Sr. Notes,
B3 125 11.25%, 1/15/08 82,500
Carrols Corp., Sr. Sub. Notes,
B2 250 9.50%, 12/1/08 207,500
CKE Restaurants, Inc., Sr. Notes,
B3 50 9.125%, 5/1/09 32,500
Felcor Suites LP, Gtd. Sr. Notes,
Ba2 250 7.375%, 10/1/04 226,875
Sbarro, Inc., Sr. Notes,
Ba3 30 11.00%, 9/15/09 30,900
----------------
580,275
-------------------------------------------------------------------------------------
Retail 0.1%
Musicland Group, Inc., Sr. Sub.
Notes,
B2 80 9.00%, 6/15/03 74,400
Stater Brothers Holdings, Inc., Sr.
Notes,
B2 65 10.75%, 8/15/06 57,525
----------------
131,925
</TABLE>
42 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
--------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C>
Schools 0.1%
Kindercare Learning Center, Inc., Sr. Sub. Notes,
B3 $ 190 9.50%, 2/15/09 $ 173,850
La Petite Holdings, Sr. Notes,
B3 25 10.00%, 5/15/08 15,250
----------------
189,100
-------------------------------------------------------------------------------------
Services 0.4%
Alliance Atlantis Commerce, Inc., Sr. Sub. Notes,
B2 150 13.00%, 12/15/09 153,750
IT Group, Inc., Sr. Sub. Notes,
Ser. B,
B3 50 11.25%, 4/1/09 44,500
Midamerican Funding LLC, Sr. Notes,
Baa1 450 5.85%, 3/1/01 445,625
----------------
643,875
-------------------------------------------------------------------------------------
Software 0.3%
Exodus Communications, Sr. Notes,
B3 50 10.75%, 12/15/09 48,750
B3 170 11.625%, 7/15/10 171,275
Psinet, Inc., Sr. Notes,
B3 145 11.00%, 8/1/09 117,450
Verio, Inc., Sr. Notes,
B3 5 11.25%, 12/1/08 5,788
B3 100 10.625%, 11/15/09 113,000
----------------
456,263
-------------------------------------------------------------------------------------
Steel 0.2%
Algoma Steel, Inc., First Mtge.
Notes,
B2 75 12.375%, 7/15/05 66,750
Leviathan Corp., Sr. Sub. Notes,
Ba2 25 10.375%, 6/1/09 25,750
LTV Corp., Sr. Notes,
Ba3 100 11.75%, 11/15/09 85,500
National Steel Corp., First Mtge.,
Ser. D,
Ba3 25 9.875%, 3/1/09 22,062
</TABLE>
See Notes to Financial Statements 43
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
--------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C>
Sheffield Steel Corp., First Mtge.,
Ser. B,
Caa2 $ 25 11.50%, 12/1/05 $ 16,000
WHX Corp., Sr. Notes,
B3 145 10.50%, 4/15/05 116,000
----------------
332,062
-------------------------------------------------------------------------------------
Telecommunications 2.9%
AT&T Corp., MTN, Ser. G,
A1 600 6.31%, 4/23/02 600,984
Adelphia Business Solution, Sr. Disc. Notes,
Zero Coupon (until 4/15/01)
B3 85 13.00%, 4/15/03 75,225
Caprock Communications Corp., Sr.
Notes,
B3 250 11.50%, 5/1/09 155,000
Clearnet Communications, Inc., Sr.
Disc. Notes, Zero Coupon (until
B3 110 5/1/04) 10.125%, 5/1/09 63,800
Coaxial Communications, Inc., Sr.
Notes,
B3 25 10.00%, 8/15/06 24,000
Fairpoint Communications, Sr. Sub.
Notes,
B3 95 12.50%, 5/1/10 95,950
Focal Communications Corp., Sr.
Notes,
B3 125 11.875%, 1/15/10 124,375
Global Crossing Holdings Ltd., Sr.
Notes,
Ba2 500 9.50%, 11/15/09 487,500
Level 3 Communications, Inc., Sr. Disc. Notes,
Zero Coupon (until 3/15/05)
B3 500 12.875%, 3/15/10 265,000
Zero Coupon (until 12/1/03)
B3 130 10.50%, 12/1/08 76,375
Sr. Notes,
B3 30 11.00%, 3/15/08 28,500
Mcleodusa, Inc., Sr. Notes,
B1 95 8.125%, 2/15/09 85,262
</TABLE>
44 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds Prudential Diversified Moderate Growth
Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
--------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C>
Microcell Telecommunications, Sr.
Disc. Notes, Zero Coupon (until
6/1/04)
B3 $ 250 12.00%, 6/1/09 $ 168,750
Millicom Int'l. Cellular, Sr. Disc.
Notes, Zero Coupon (until 6/1/01)
Caa1 65 13.50%, 6/1/06 56,875
Netia Holdings BV (Poland), Gtd.
Sr. Disc. Notes, Zero Coupon
B2 250 (until 11/1/01) 11.25%, 11/1/07 178,750
Nextel Communications, Inc., Sr.
Disc. Notes, Zero Coupon (until
B1 300 9/15/02) 10.65%, 9/15/07 234,000
Sr. Notes,
B1 200 9.375%, 11/15/09 191,000
Nextlink Communications, Inc., Sr.
Disc. Notes,
B2 330 10.75%, 6/1/09 323,400
NTL Communications Corp., Sr.
Notes, Zero Coupon (until 10/1/03)
B2 250 12.375%, 10/1/08 161,250
Primus Telecomm Group, Sr. Notes,
B3 100 12.75%, 10/15/09 60,000
RCN Corp., Sr. Notes,
B3 45 10.125%, 1/15/10 36,000
RSL Communications PLC (United
Kingdom), Gtd. Sr. Notes,
B3 150 9.875%, 11/15/09 46,500
Spectrasite Holdings, Inc., Sr.
Disc. Notes, Zero Coupon (until
3/15/05)
B3 305 12.875%, 3/15/10 170,800
Telewest Communications PLC (United
Kingdom), Sr. Disc. Notes, (Zero
Coupon until 2/1/05, 11.375%,
B1 235 2/1/10 131,600
Tritel PCS, Inc., Sr. Sub. Disc.
Notes, Zero Coupon (until 5/15/04)
B3 110 12.75%, 5/15/09 80,850
</TABLE>
See Notes to Financial Statements 45
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
--------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C>
Vodafone Airtouch PLC (United
Kingdom), Sr. Notes,
A2 $ 300 6.96%, 12/19/01 $ 301,038
Voicestream Wireless Corp.,
Sr. Disc. Notes,
Zero Coupon (until 11/15/04)
B2 240 11.875%, 11/15/09 169,200
Sr. Notes,
B2 130 10.375%, 11/15/09 140,400
Williams Communications Group,
Inc., Sr. Notes,
B2 25 10.70%, 10/1/07 24,125
B2 245 10.875%, 10/1/09 232,750
Worldcom, Inc., FRN,
A3 300 7.05%, 11/26/01 301,113
Worldwide Fiber, Inc., Sr. Notes,
B3 30 12.00%, 8/1/09 26,850
----------------
5,117,222
-------------------------------------------------------------------------------------
Textile-Apparel Manufacturing 0.1%
Burlington Industries, Inc., Sr.
Disc. Deb.,
Ba2 250 7.25%, 8/1/27 150,000
Collins & Aikman Floorcovering, Sr. Sub. Notes,
B3 15 10.00%, 1/15/07 14,700
----------------
164,700
-------------------------------------------------------------------------------------
Transportation
American Commercial Lines LLC, Sr.
Notes,
B1 50 10.25%, 6/30/08 42,000
Kitty Hawk, Inc., Gtd. Notes,
Ca 60(a) 9.95%, 11/15/04 24,900
----------------
66,900
-------------------------------------------------------------------------------------
Utilities 0.6%
AES Corp., Sr. Notes,
Ba1 250 9.50%, 6/1/09 252,500
</TABLE>
46 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
--------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C>
Sr. Sub. Debs.,
Ba3 $ 100 8.875%, 11/1/27 $ 84,000
Aes Drax Energy Ltd., (United
Kingdom),
Sr. Sec. Notes,
Ba2 100 11.50%, 8/30/10 102,750
CMS Energy Corp., Sr. Notes,
Ba3 250 7.50%, 1/15/09 226,250
Niagara Mohawk Power Corp., Sr.
Notes, Ser. C,
Ba2 227 7.00%, 10/1/00 226,485
Baa3 151 7.125%, 7/1/01 150,709
----------------
1,042,694
-------------------------------------------------------------------------------------
Waste Management 0.3%
Allied Waste of North America, Inc., Sr. Notes,
Ba3 250 7.875%, 1/1/09 220,000
Sr. Sub. Notes,
B2 45 10.00%, 8/1/09 38,925
Waste Management, Inc.,
Gtd. Notes,
Ba1 150 6.00%, 5/15/01 146,316
Sr. Deb Notes,
Ba1 100 8.75%, 5/1/18 98,040
----------------
503,281
----------------
Total corporate bonds (cost
$38,656,267) 37,201,423
----------------
CONVERTIBLE BONDS 0.3%
-------------------------------------------------------------------------------------
Financial Services
Hellenic Finance,
2.00%, 7/15/03
A2 Euro 500 (cost $526,875) 451,840
----------------
FOREIGN GOVERNMENT BONDS 0.1%
German Government Bonds, 6.25%,
$ 30,000 1/4/24 30,475
German Government Bonds, 6.25%,
80,000 1/4/30 83,439
----------------
113,914
----------------
Total foreign government bonds
(cost $106,815) 37,201,423
----------------
</TABLE>
See Notes to Financial Statements 47
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
--------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C>
SOVEREIGN BONDS 0.3%
Republic Of Phillippines, Bonds,
Ba1 $ 74 9.50%, 10/21/24 $ 68,820
United Mexican States, Sr. Notes,
Baa3 500 8.50%, 2/1/06 499,000
----------------
Total soverign bonds (cost
$570,673) 567,820
----------------
COLLATERALIZED MORTGAGE OBLIGATIONS 3.2%
Bear Stearns Mortgage Secs, Inc.,
Series 97-7, Class 1,
Aaa 500 7.00%, 2/25/28 471,090
Capital Asset Research Funding LP,
Series 97-A, Class I,
Aaa 110 6.40%, 12/15/04 109,515
Contimortgage Home Equity Loan
Trust, Series 1998-2, Class A4,
Aaa 500 6.19%, 1/15/14 491,875
Federal Home Loan Mortgage Corp.,
Debs.,
1,000 7.00%, 12/31/30 966,560
Series 7, Class A,
243 7.00%, 9/17/31 241,008
Series 119, Class H,
670 7.50%, 1/15/21 664,469
Series 1599, Class A,
31 5.80%, 6/15/19 30,795
Federal National Mortgage Assoc.,
Series 1998-73, Class MZ,
541 6.30%, 10/17/38 434,021
GE Capital Mortgage Services, Inc.,
Series 1999-S, Class A29,
Aaa 300 6.50%, 5/25/29 273,177
Istar Receivables Trust, Mtge.
Bonds,
Class A,
Aaa 497 6.92%, 9/25/22 497,263
</TABLE>
48 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
--------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C>
Merrill Lynch Mortgage Investors,
Inc., Series 1998-FF1, Class A,
Aaa $ 53 6.80%, 1/20/28 $ 52,599
PNC Mortgage Secs. Corp., Series
1999-5, Class A1,
Aaa 400 7.25%, 10/25/29 385,683
Residential Funding Mortgage,
Series 1993-S36, Class A9,
Aaa 163 6.48%, 10/25/08 161,442
Series 1994-S5, Class A6,
Aa1 500 6.50%, 2/25/24 435,465
Series 1999-S8, Class A1,
Aaa 203 6.25%, 3/25/14 191,338
Salomon Brothers Mortgage, Series
1999-LB1, Class A,
Aaa 330 6.95%, 6/25/29 329,860
----------------
Total collateralized mortgage
obligations (cost $3,474,689) 5,736,160
----------------
MUNICIPAL BONDS 0.6%
Central Puget Sound Washington
Regional, Revenue Bonds,
Aaa 500 4.75%, 2/1/28 423,974
New York City Gen. Oblig., Series
B,
A3 300 6.00%, 8/1/01 296,500
New York State Twy. Auth. Gen.
Rev., Series E,
Aa3 300 5.00%, 1/1/25 257,910
----------------
Total municipal bond (cost
$566,909) 978,384
----------------
</TABLE>
See Notes to Financial Statements 49
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C> <C>
-----------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES AND SECURITIES 12.5%
Federal National Mortgage Assoc.,
$ 993 6.00%, 8/1/06 $ 948,196
2,500 6.00%, 12/31/30 2,293,750
700 7.50%, 12/31/30 689,717
Government National Mortgage Assoc.,
1,900 7.50%, 12/15/28 1,883,599
2,038 6.50%, 5/15/29 1,932,151
462 6.50%, 6/15/29 438,384
500 6.50%, 7/15/29 474,060
470 7.50%, 11/15/29 465,738
30 7.50%, 3/15/30 29,731
1,750 6.00%, 12/31/30 1,611,102
3,300 6.50%, 12/31/30 3,128,829
1,470 7.50%, 12/31/30 1,456,682
1,500 8.50%, 12/31/30 1,524,367
83 6.75%, 9/20/22 83,535
United States Treasury Bonds,
800 11.25%, 2/15/15 1,187,376
318 3.625%, 4/15/28, TIPS 305,215
United States Treasury Notes,
645 3.625%, 7/15/02, TIPS 642,838
973 3.375%, 1/15/07, TIPS 937,176
209 3.875%, 1/15/09, TIPS 206,483
United States
Treasury Strips,
3,800 Zero Coupon, 2/15/11 1,992,720
----------------
Total U. S. government agencies and securities
(cost $24,607,793) 22,231,649
----------------
Total debt obligations (cost $68,510,021) 67,281,190
----------------
Total long-term investments (cost $161,458,064) 172,152,010
----------------
SHORT-TERM INVESTMENTS 10.0%
-------------------------------------------------------------------------------------
Commercial Paper 0.9%
1,100 General Dynamics Corp.,
6.61%, 9/6/00 1,087,714
</TABLE>
50 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund Cont'd.
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
-----------------------------------------------------------------------------------------
<C> <S> <C> <C>
General Electric Credit Capital of Puerto Rico,
$ 200 6.61%, 9/6/00 $ 198,678
200 6.57%, 12/6/00 195,365
100 Washington Mutual Finance Corp.,
6.85%, 8/30/00 99,152
----------------
Total commercial paper (cost $1,586,293) 1,580,909
----------------
REPURCHASE AGREEMENT 9.1%
16,263 Joint Repurchase Agreement Account, 6.54%, 8/1/00
(cost $16,263,000; Note 5) 16,263,000
----------------
Total short-term investments (cost $17,849,293) 17,843,909
----------------
Total investments 106.7%
(cost $179,307,357; Note 4) 189,995,919
Liabilities in excess of other assets (6.7%) (11,871,807)
----------------
Net Assets 100% $ 178,124,112
----------------
----------------
</TABLE>
------------------------------
(a) Non-income producing security.
(b) Represents issuer in default on interest payments.
* Rated by Standard and Poor's.
AB--Antiebolay (Swedish Stock Company).
ADR--American Depository Receipt.
AG--Aktiengesellschate (German Stock Company).
FRN--Flating Rate Note.
LLC--Limited Liability Company.
LP--Limited Partnership.
MTN--Medium Term Note.
NR--Not Rated by Moody's or Standard & Poor's
N.V.--Naamkee Vennootachap (Dutch Corporation).
OY--Osakeyhtio (Finland Stock Company).
PLC--Public Limited Company (British Corporation).
S.A.--Sociedad Anomima (Spanish Corpiration or Societe Anonyme or French
Corporation).
SpA--Societa par Atione (Italian 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 51
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
July 31, 2000
<S> <C> <C>
---------------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $179,307,357) $ 189,995,919
Foreign currency, at value (cost $397,278) 389,771
Cash 304,736
Receivable for investments sold 1,534,905
Interest and dividends receivable 1,000,964
Receivable for Fund shares sold 601,446
Unrealized appreciation on forward currency contracts 3,880
Receivable for interest rate swaps 3,737
Unrealized appreciation on interest rate swaps (Note 1 & 4) 3,410
Other assets 4,416
-------------
Total assets 193,843,184
-------------
LIABILITIES
Payable for investments purchased 15,152,708
Payable for Fund shares reacquired 270,619
Distribution fee payable 118,911
Management fee payable 113,495
Accrued expenses and other liabilities 59,940
Withholding taxes payable 2,586
Unrealized depreciation on forward currency contracts 813
-------------
Total liabilities 15,719,072
-------------
NET ASSETS $ 178,124,112
-------------
-------------
Net assets were comprised of:
Shares of beneficial interest, at par $ 14,826
Paid-in capital in excess of par 157,912,523
-------------
157,927,349
Undistributed net investment income 403,745
Accumulated net realized gain on investments 9,104,720
Net unrealized appreciation on investments 10,688,298
-------------
Net assets, July 31, 2000 $ 178,124,112
-------------
-------------
</TABLE>
52 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund
Statement of Assets and Liabilities Cont'd.
<TABLE>
<CAPTION>
July 31, 2000
---------------------------------------------------------------------------------------
<S> <C> <C>
Class A:
Net asset value and redemption price per share ($48,786,361
/ 4,054,185 shares of beneficial interest issued and
outstanding) $12.03
Maximum sales charge (5% of offering price) 0.63
-------------
Maximum offering price to public $12.66
-------------
-------------
Class B:
Net asset value, offering price and redemption price per
share ($99,950,347 / 8,324,305 shares of beneficial
interest issued and outstanding) $12.01
-------------
-------------
Class C:
Net asset value and redemption price per share ($28,039,543
/ 2,335,158 shares of beneficial interest issued and
outstanding) $12.01
Sales charge (1% of offering price) 0.12
-------------
Offering price to public $12.13
-------------
-------------
Class Z:
Net asset value, offering price and redemption price per
share ($1,347,861 / 111,898 shares of beneficial interest
issued and outstanding) $12.05
-------------
-------------
</TABLE>
See Notes to Financial Statements 53
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund
Statement of Operations
<TABLE>
<CAPTION>
Year
Ended
July 31, 2000
<S> <C> <C>
----------------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Interest (net of foreign withholding taxes of $3,139) $ 4,358,879
Dividends (net of foreign withholding taxes of $41,475) 1,015,803
-------------
Total income 5,374,682
-------------
Expenses
Management fee 1,084,509
Distribution fee--Class A 87,021
Distribution fee--Class B 798,551
Distribution fee--Class C 258,352
Custodian's fees and expenses 323,000
Transfer agent's fees and expenses 189,500
Registration fees 62,000
Reports to shareholders 56,000
Legal fees 30,000
Audit fees 25,000
Trustees' fees and expenses 15,300
Amortization of offering costs 10,535
Miscellaneous 3,445
-------------
Total expenses 2,943,213
-------------
Net investment income 2,431,469
-------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on:
Investment transactions 10,006,048
Interest Rate Swaps 55,483
Foreign currency transactions 25,824
-------------
10,087,355
-------------
Net change in unrealized appreciation on:
Investments 4,403,007
Foreign currencies 21,728
Interest Rate Swaps 3,410
-------------
4,428,145
-------------
Net gain on investments and foreign currency transactions 14,515,500
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 16,946,969
-------------
-------------
</TABLE>
54 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
November 18,
1998(a)
Year Ended Through
July 31, 2000 July 31, 1999
<S> <C> <C> <C>
----------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income $ 2,431,469 $ 711,879
Net realized gain on investment and foreign
currency transactions 10,087,355 66,328
Net change in unrealized appreciation of
investments and foreign currencies 4,428,145 6,260,153
------------- -------------
Net increase in net assets resulting from
operations 16,946,969 7,038,360
------------- -------------
Dividends and distributions (Note 1)
Dividends to shareholders from net investment
income
Class A (845,618) (132,253)
Class B (1,192,915) (170,151)
Class C (367,691) (73,278)
Class Z (80,073) (152,622)
------------- -------------
(2,486,297) (528,304)
------------- -------------
Distributions from net realized gains on
investment transactions
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 $96,274,299 $ 132,889,254
Net asset value of shares issued to
shareholders in reinvestment of dividends
and distributions 3,273,405 516,607
Cost of shares reacquired (49,998,187) (24,942,216)
------------- -------------
Net increase in net assets from Fund shares
transactions 49,549,517 108,463,645
------------- -------------
Total increase 63,120,411 114,973,701
NET ASSETS
Beginning of period 115,003,701 30,000
------------- -------------
End of period(b) $ 178,124,112 $ 115,003,701
------------- -------------
------------- -------------
------------------------------
(a) Commencement of investment operations.
(b) Includes undistributed net investment income
of $ 333,724 $ 296,575
------------- -------------
------------- -------------
</TABLE>
See Notes to Financial Statements 55
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund
Notes to Financial Statements
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.
56
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund
Notes to Financial Statements Cont'd.
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.
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:
(i) market value of investment securities, other assets and liabilities -
at the closing daily rates of exchange.
57
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund
Notes to Financial Statements Cont'd.
(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.
Interest Rate Swaps: In a simple interest rate swap, one investor pays
a floating rate of interest on a notional principal amount and receives a fixed
rate of
58
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund
Notes to Financial Statements Cont'd.
interest on the same notional principal amount for a specified period of time.
Alternatively, an investor may pay a fixed rate and receive a floating rate.
Interest rate swaps were conceived as asset/liability management tools. In more
complex swaps, the notional principal amount may decline (or amortize) over
time.
During the term of the swap, changes in the value of the swap are
recognized as unrealized gains or losses by 'marking-to-market' to reflect the
market value of the swap. When the swap is terminated, the Fund will record a
realized gain or loss equal to the difference between the proceeds from (or cost
of) the closing transaction and the Fund's basis in the contract, if any.
The Fund is exposed to credit loss in the event of non-performance by the
other party to the interest rate swap. However, the Fund does not anticipate
non-performance by any counterparty.
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.
59
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund
Notes to Financial Statements Cont'd.
Deferred Offering Cost: The Fund incurred approximately $77,500 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 decrease accumulated net realized gain on investments and
foreign currency transactions by $152,963, increase undistributed net investment
income by $161,998 and decrease paid-in capital in excess of par by $9,035 due
to nondeductible stock issuance expenses, the reclass of net realized foreign
currency gains and the reclass of passive foreign investment company gains. 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.
Fee Paid By PIFM
Advisers to Advisers
--------------------------------- ----------------------------
Jennison Associates LLC .30% with respect to the
('Jennison') first
$300 million; .25% for
amounts
in excess of $300 million
The Prudential Investment
Corporation ('PIC') .375%1
Lazard 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.
60
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund
Notes to Financial Statements Cont'd.
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 fiscal year ended
July 31, 2000.
PIMS has advised the Fund that it has received approximately $239,300 and
$86,700 in front-end sales charges resulting from sales of Class A and Class C
shares, respectively, during the fiscal year ended July 31, 2000.
PIMS has advised the Fund that for the fiscal year ended July 31, 2000, it
has received approximately $156,500 and $42,600 in contingent deferred sales
charges imposed upon certain redemptions by Class B and Class C shareholders,
respectively.
Jennison, 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.
Interest on any such borrowings will be at market rates. The purpose of the
agreement is to serve as an alternative source of funding for capital share
redemptions. The Funds pay a commitment fee of .080 of 1% of the unused portion
of the credit facility. The commitment fee is accrued and paid quarterly on a
pro rata basis by the Funds. The expiration date of the SCA is March 9, 2001.
Prior to March 9, 2000, the commitment fee was .065 of 1% of the unused portion
of the credit facility. The Fund did not borrow any amounts pursuant to the SCA
during the year ended March 31, 2000.
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 fiscal year ended July 31, 2000,
the Fund incurred fees of approximately $145,200 for the services of PMFS. As of
July 31, 2000 approximately $14,500 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. For the year ended July 31, 2000,
PSI earned approximately $1,000 in brokage commission fees from portfolio
transactions executed on behalf of the Fund.
61
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund
Notes to Financial Statements Cont'd.
Note 4. Portfolio Securities
Purchases and sales of portfolio securities, excluding short-term investments,
for the fiscal year ended July 31, 2000 were $258,784,131 and $214,755,237,
respectively.
At July 31, 2000, the Fund had outstanding forward currency contracts both
to purchase and sell foreign currencies, as follows:
<TABLE>
<CAPTION>
Value at Value
Foreign Currency Settlement Date at Appreciation/
Purchase Contracts Payable July 31, 2000 (Depreciation)
----------------------------------- --------------- ------------- --------------
<S> <C> <C> <C>
Euro Dollars,
expiring 8/1/00 $ 4,690 $ 4,712 $ (22)
expiring 8/14/00 577,994 574,273 3,721
expiring 8/31/00 80,768 81,040 (272)
Great Britain Pounds,
expiring 8/3/00 23,262 23,103 159
--------------- ------------- --------------
$ 686,714 $ 683,128 $ 3,586
--------------- ------------- --------------
--------------- ------------- --------------
<CAPTION>
Value at Value
Foreign Currency Settlement Date at
Sale Contracts Receivable July 31, 2000 (Depreciation)
----------------------------------- --------------- ------------- --------------
<S> <C> <C> <C>
Japanese Yen,
expiring 8/1/00 $ 46,668 $ 46,441 $ (227)
Swedish Krona,
expiring 8/1/00 36,098 35,806 (292)
--------------- ------------- --------------
$ 82,766 $ 82,247 $ (519)
--------------- ------------- --------------
--------------- ------------- --------------
</TABLE>
The Fund entered into 4 swap agreements. For each interest rate swap
agreement, the Fund receives a floating rate and pays a respective fixed rate.
Details of each swap agreement are as follows:
<TABLE>
<CAPTION>
Open Termination Notional Fixed Floating Appreciation
Counterparty Date Date Amount Rate Rate (Depreciation)
--------------- -------- ----------- ---------- ------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
J.P. Morgan 5/19/00 1/04/24 $ 30,000 6.25% 6.78% plus 6 $ 32
mo LIBOR
Morgan Stanley 5/31/00 9/13/24 2,500,000 7.75 6.66% plus 3 5,466
mo LIBOR
Goldman Sachs 5/18/00 5/22/30 90,000 6.175 6.78% plus 6 (1,664)
mo LIBOR
Morgan Stanley 6/21/00 9/15/00 600,000 7.00 6.66% plus 3 (424)
mo LIBOR
-------
$ 3,410
-------
-------
</TABLE>
62
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund
Notes to Financial Statements Cont'd.
The United States federal income tax cost basis of the Fund's investments
as of July 31, 2000 was $179,785,410 and accordingly, net unrealized
appreciation of investments for federal income tax purposes was $10,210,509
(gross unrealized appreciation $19,926,223, gross unrealized depreciation
$9,715,714).
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 July 31, 2000, the Fund
had a 2.89% undivided interest in the repurchase agreements in the joint
account. The undivided interest for the Fund represents $16,263,000 in principal
amount. As of such date, each repurchase agreement in the joint account and the
collateral therefore were as follows:
ABN AMRO Incorporated, 6.56%, in the principal amount of $100,000,000,
repurchase price $100,018,222, due 8/1/00. The value of the collateral including
accrued interest was $102,000,029.
Bear, Stearns & Co. Inc., 6.55%, in the principal amount of $100,000,000,
repurchase price $100,018,194, due 8/1/00. The value of the collateral including
accrued interest was $102,926,906.
Greenwich Capital Markets, Inc., 6.57%, in the principal amount of
$110,000,000, repurchase price $110,020,075, due 8/1/00. The value of the
collateral including accrued interest was $112,201,716.
Merrill Lynch, Pierce, Fenner & Smith, Inc., 6.45%, in the principal
amount of $97,030,000, repurchase price $97,047,384, due 8/1/00. The value of
the collateral including accrued interest was $98,970,864.
Salomon Smith Barney, Inc., 6.55%, in the principal amount of
$155,000,000, repurchase price $155,028,201, due 8/1/00. The value of the
collateral including accrued interest was $158,174,190.
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.
63
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund
Notes to Financial Statements Cont'd.
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
------------------------------------------------------------ ---------- ------------
<S> <C> <C>
Year ended July 31, 2000:
Shares sold 3,134,768 $ 36,505,644
Shares issued in reinvestment of dividends and distributions 86,639 1,018,090
Shares reacquired (1,196,414) (13,887,233)
---------- ------------
Net increase in shares outstanding before conversion 2,024,993 23,636,501
Shares issued upon conversion from Class B 153,988 1,821,985
---------- ------------
Net increase in shares outstanding 2,178,981 $ 25,458,486
---------- ------------
---------- ------------
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
---------- ------------
---------- ------------
<CAPTION>
Class B
------------------------------------------------------------
<S> <C> <C>
Year ended July 31, 2000:
Shares sold 4,174,726 $ 48,125,208
Shares issued in reinvestment of dividends and distributions 139,553 1,627,356
Shares reacquired (1,240,994) (14,314,656)
---------- ------------
Net increase in shares outstanding before conversion 3,073,285 35,437,908
Shares reacquired upon conversion from Class A (154,483) (1,821,985)
---------- ------------
Net increase in shares outstanding 2,918,802 $ 33,615,923
---------- ------------
---------- ------------
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
---------- ------------
---------- ------------
------------------------------
(a) Commencement of investment operations.
</TABLE>
64
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund
Notes to Financial Statements Cont'd.
<TABLE>
<CAPTION>
Class C Shares Amount
------------------------------------------------------------ ---------- ------------
Year ended July 31, 2000:
<S> <C> <C>
Shares sold 864,615 $ 9,952,845
Shares issued in reinvestment of dividends and distributions 44,150 512,945
Shares reacquired (635,034) (7,388,381)
---------- ------------
Net increase in shares outstanding 273,731 $ 3,077,409
---------- ------------
---------- ------------
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
---------- ------------
---------- ------------
<CAPTION>
Class Z
------------------------------------------------------------
<S> <C> <C>
Year ended July 31, 2000:
Shares sold 139,641 $ 1,690,602
Shares issued in reinvestment of dividends and distributions 10,092 115,014
Shares reacquired (1,287,052) (14,407,917)
---------- ------------
Net decrease in shares outstanding (1,137,319) $(12,602,301)
---------- ------------
---------- ------------
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.
65
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund
Financial Highlights
<TABLE>
<CAPTION>
Class A
-----------------------------------------
November 18, 1998(a)
Year Ended Through
July 31, 2000 July 31, 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 10.86 $ 10.00
-------- --------
Income from investment operations:(d)
Net investment income .26 .12
Net realized and unrealized gain on
investments and foreign currencies 1.25 .83
-------- --------
Total from investment operations 1.51 .95
-------- --------
Less distributions
Dividends from net investment income (.26) (.09)
Distributions from net realized capital
gains (.08) --
-------- --------
Total dividends and distributions (.34) (.09)
-------- --------
Net asset value, end of period $ 12.03 $ 10.86
-------- --------
-------- --------
TOTAL RETURN(b) 13.96% 9.47%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 48,786 $ 20,372
Average net assets (000) $ 34,809 $ 12,286
Ratios to average net assets:
Expenses, including distribution fees 1.49% 1.88%(c)
Expenses, excluding distribution fees 1.24% 1.63%(c)
Net investment income 2.27% 1.59%(c)
For Class A, B, C and Z shares:
Portfolio turnover rate 155% 96%
</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.
66 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class B
-----------------------------------------
November 18, 1998(a)
Year Ended Through
July 31, 2000 July 31, 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 10.85 $ 10.00
-------- --------
Income from investment operations:(d)
Net investment income 0.17 .06
Net realized and unrealized gain on
investments and foreign currencies 1.23 .83
-------- --------
Total from investment operations 1.40 .89
-------- --------
Less distributions
Dividends from net investment income (.16) (.04)
Distributions from net realized capital
gains (.08) --
-------- --------
Total dividends and distributions (.24) (.04)
-------- --------
Net asset value, end of period $ 12.01 $ 10.85
-------- --------
-------- --------
TOTAL RETURN(b) 12.88% 8.99%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 99,950 $ 58,678
Average net assets (000) $ 79,855 $ 36,645
Ratios to average net assets:
Expenses, including distribution fees 2.24% 2.63%(c)
Expenses, excluding distribution fees 1.24% 1.63%(c)
Net investment income 1.48% .85%(c)
</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 67
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class C
-----------------------------------------
November 18, 1998(a)
Year Ended Through
July 31, 2000 July 31, 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 10.85 $ 10.00
-------- --------
Income from investment operations:(d)
Net investment income .17 .06
Net realized and unrealized gain on
investments and foreign currencies 1.23 .83
-------- --------
Total from investment operations 1.40 .89
-------- --------
Less distributions
Dividends from net investment income (.16) (.04)
Distributions from net realized capital
gains (.08) --
-------- --------
Total dividends and distributions (.24) (.04)
-------- --------
Net asset value, end of period $ 12.01 $ 10.85
-------- --------
-------- --------
TOTAL RETURN(b) 12.88% 8.99%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 28,040 $ 22,375
Average net assets (000) $ 25,835 $ 18,346
Ratios to average net assets:
Expenses, including distribution fees 2.24% 2.63%(c)
Expenses, excluding distribution fees 1.24% 1.63%(c)
Net investment income 1.44% .79%(c)
</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.
68 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class Z
-----------------------------------------
November 18, 1998(a)
Year Ended Through
July 31, 2000 July 31, 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $10.87 $ 10.00
------- --------
Income from investment operations:(d)
Net investment income .27 .13
Net realized and unrealized gain on
investments and foreign currencies 1.27 .84
------- --------
Total from investment operations 1.54 .97
------- --------
Less distributions
Dividends from net investment income (.28) (.10)
Distributions from net realized capital
gains (.08) --
------- --------
Total dividends and distributions (.36) (.10)
------- --------
Net asset value, end of period $12.05 $ 10.87
------- --------
------- --------
TOTAL RETURN(b) 14.18% 9.70%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $1,348 $ 13,578
Average net assets (000) $4,102 $ 21,914
Ratios to average net assets:
Expenses, including distribution fees 1.24% 1.63%(c)
Expenses, excluding distribution fees 1.24% 1.63%(c)
Net investment income 2.11% 1.68%(c)
</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 69
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund
Report of Independent Accountants
To the Shareholders and Board of Trustees of
Prudential Diversified Funds--
Prudential Diversified Moderate Growth Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Diversified
Funds--Prudential Diversified Moderate Growth Fund (the 'Fund') at July 31,
2000, the results of its operations for the year then ended, and the changes in
its net assets and the financial highlights for the year then ended and for the
period November 18, 1998 (commencement of operations) through July 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements and financial highlights (hereafter referred to as
'financial statements') are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at July 31, 2000 by correspondence with the custodian and brokers,
provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
September 22, 2000
70 See Notes to Financial Statements
<PAGE>
Prudential Diversified Funds
Prudential Diversified Moderate Growth Fund
Tax Information (Unaudited)
We are required by the Internal Revenue Code to advise you within 60 days
of the Fund's fiscal year end (July 31, 2000) as to the federal income tax
status of dividends paid by the Fund during such fiscal period. Accordingly, we
are advising you that during its fiscal period ended July 31, 1999, the Fund
paid an ordinary distribution for Class A, Class B, Class C and Class Z shares
of $.34 per share, $.24 per share, $.24 per share and $.36 per share,
respectively, which represents net investment income and short-term capital
gains and is taxable as ordinary income. Further, we wish to advise you that 15%
of the ordinary income dividends paid in the fiscal period ended July 31, 2000
qualified for the corporate dividend received deduction available to corporate
taxpayers.
We are required by Massachusetts, Missouri and Oregon to inform you that
dividends which have been derived from interest on federal obligations are not
taxable to shareholders. Please be advised that 4.06% of the dividends paid from
ordinary income in the fiscal year ended July 31, 2000, qualify for each of
these states' tax exclusion.
For the purpose of preparing your annual federal income tax return,
however, you should report the amounts as reflected on the appropriate Form
1099-DIV or substitute 1099-DIV.
See Notes to Financial Statements 71
<PAGE>
Prudential Diversified Moderate Growth Fund
Prudential Mutual Funds
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
Large Capitalization Stock Funds
Prudential 20/20 Focus Fund
Prudential Equity Fund, Inc.
Prudential Stock Index Fund
Prudential Tax-Managed Funds
Prudential Tax-Managed Equity Fund
Strategic Partners Focused Growth Fund
Target Funds
Large Capitalization Growth Fund
Large Capitalization Value Fund
The Prudential Investment Portfolios, Inc.
Prudential Jennison Growth Fund
Prudential Value Fund
Small- to Mid-Capitalization Stock Funds
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Prudential Small Company Fund, Inc.
Prudential Tax-Managed Small-Cap Fund, Inc.
Prudential U.S. Emerging Growth Fund, Inc.
Target Funds
Small Capitalization Growth Fund
Small Capitalization Value Fund
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
Sector Stock Funds
Prudential Natural Resources Fund, Inc.
Prudential Real Estate Securities Fund
Prudential Sector Funds, Inc.
Prudential Financial Services Fund
Prudential Health Sciences Fund
Prudential Technology Fund
Prudential Utility Fund
Global/International Stock Funds
Global Utility Fund, Inc.
Prudential Europe Growth Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Prudential Global Growth Fund
Prudential International Value Fund
Prudential Jennison International Growth Fund
Target Funds
International Equity Fund
balanced/allocation funds
Prudential Diversified Funds
Conservative Growth Fund
Moderate Growth Fund
High Growth Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund
<PAGE>
www.prudential.com (800) 225-1852
BOND FUNDS
Taxable Bond Funds
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 Short-Term Corporate Bond Fund, Inc.
Income Portfolio
Prudential Total Return Bond Fund, Inc.
Target Funds
Total Return Bond Fund
Tax-Free 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.
Global/International Bond Funds
Prudential Global Total Return Fund, Inc.
Prudential International Bond 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 Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
Prudential MoneyMart Assets, Inc.
Prudential Special Money Market Fund, Inc.
Money Market Series
Tax-Free Money Market Funds
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
Prudential Tax-Free Money Fund, Inc.
Other Money Market Funds
Command Government Fund
Command Money Fund
Command Tax-Free Fund
<PAGE>
Prudential Diversified Moderate Growth Fund
Class A Growth of a $10,000 Investment
(GRAPH)
Average Annual Total Returns as of 7/31/00
One Year Five Years Ten Years Since Inception
With Sales Charge 8.26% N/A N/A 10.51%
Without Sales Charge 13.96% N/A N/A 13.89%
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. The graph
compares a $10,000 investment in the Prudential
Diversified Moderate Growth Fund (Class A shares) with a
similar investment in the Standard & Poor's 500 Composite
Stock Price Index (S&P 500 Index) by portraying the
initial account value at the commencement of operations
of Class A shares, and the account value at the end of
the current fiscal year (July 31, 2000), as measured on a
quarterly basis, beginning in November 1998 for Class A
shares. For purposes of the graph, and unless otherwise
indicated, it has been assumed that (a) the maximum
applicable front-end sales charge was deducted from the
initial $10,000 investment in Class A shares; (b) all
recurring fees (including management fees) were deducted;
and (c) all dividends and distributions were reinvested.
The S&P 500 Index is an unmanaged index of 500 stocks of
large U.S. companies. It gives a broad look at how stock
prices have performed. The S&P 500 Index total returns
include the reinvestment of
all dividends, but do not include the effect of sales
charges or operating expenses of a mutual fund. The
securities that comprise the Index may differ
substantially from the securities in the Fund. The Index
is not the only one that may be used to characterize
performance of large-capitalization stock funds. Other
indexes may portray different comparative performance.
Investors cannot invest directly in an index.
This graph is furnished to you in accordance with SEC
regulations.
<PAGE>
www.prudential.com (800) 225-1852
Class B Growth of a $10,000 Investment
(GRAPH)
Average Annual Total Returns as of 7/31/00
One Year Five Years Ten Years Since Inception
With Sales Charge 7.88% N/A N/A 10.78%
Without Sales Charge 12.88% N/A N/A 12.96%
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. The graph
compares a $10,000 investment in the Prudential
Diversified Moderate Growth Fund (Class B shares) with a
similar investment in the Standard & Poor's 500 Composite
Stock Price Index (S&P 500 Index) by portraying the
initial account values at the commencement of operations
of Class B shares, and the account value at the end of
the current fiscal year (July 31, 2000), as measured on a
quarterly basis, beginning in November 1998 for Class B
shares. For purposes of the graph, and unless otherwise
indicated, it has been assumed that (a) the maximum
applicable contingent deferred sales charge was deducted
from the value of the investment in Class B shares,
assuming full redemption on July 31, 2000; (b) all
recurring fees (including management fees) were deducted;
and (c) all dividends and distributions were reinvested.
Class B shares will automatically convert to Class A
shares, on a quarterly basis,
beginning approximately seven years after purchase. This
conversion feature is not reflected in the graph.
The S&P 500 Index is an unmanaged index of 500 stocks of
large U.S. companies. It gives a broad look at how stock
prices have performed. The S&P 500 Index total returns
include the reinvestment of all
dividends, but do not include the effect of sales charges
or operating expenses of a mutual fund. The securities
that comprise the Index may differ substantially from the
securities in the Fund. The Index is not the only one
that may be used to characterize performance of large-
capitalization stock funds. Other indexes may portray
different comparative performance. Investors cannot
invest directly in an index.
This graph is furnished to you in accordance with SEC
regulations.
<PAGE>
Prudential Diversified Moderate Growth Fund
Class C Growth of a $10,000 Investment
(GRAPH)
Average Annual Total Returns as of 7/31/00
One Year Five Years Ten Years Since Inception
With Sales Charge 10.75% N/A N/A 12.29%
Without Sales Charge 12.88% N/A N/A 12.96%
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. The graph
compares a $10,000 investment in the Prudential
Diversified Moderate Growth Fund (Class C shares) with a
similar investment in the Standard & Poor's 500 Composite
Stock Price Index (S&P 500 Index) by
portraying the initial account value at the commencement
of operations of Class C shares, and the account value at
the end of the current fiscal year (July 31, 2000), as
measured on a quarterly basis, beginning in November 1998
for Class C shares. For purposes of the graph, and unless
otherwise
indicated, it has been assumed that (a) the maximum
applicable front-end sales charge was deducted from the
initial $10,000 investment in Class C shares; (b) the
maximum applicable contingent deferred sales charge was
deducted from the value of the investment in Class C
shares, assuming full redemption on July 31, 2000; (c)
all recurring fees (including management fees) were
deducted; and (d) all dividends and distributions were
reinvested.
The S&P 500 Index is an unmanaged index of 500 stocks of
large U.S. companies. It gives a broad look at how stock
prices have performed. The S&P 500 Index total returns
include the reinvestment of all
dividends, but do not include the effect of sales charges
or operating expenses of a mutual fund. The
securities that comprise the Index may differ
substantially from the securities in the Fund. The Index
is not the only one that may be used to characterize
performance of large-capitalization stock funds. Other
indexes may portray different comparative performance.
Investors cannot invest directly in an index.
This graph is furnished to you in accordance with SEC
regulations.
<PAGE>
www.prudential.com (800) 225-1852
Class Z Growth of a $10,000 Investment
(GRAPH)
Average Annual Total Returns as of 7/31/00
One Year Five Years Ten Years Since Inception
With Sales Charge 14.18% N/A N/A 14.16%
Without Sales Charge 14.18% N/A N/A 14.16%
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. The graph
compares a $10,000 investment in the Prudential
Diversified Moderate Growth Fund (Class Z shares) with a
similar investment in the Standard & Poor's 500 Composite
Stock Price Index (S&P 500 Index) by
portraying the initial account value at the commencement
of operations of Class Z shares, and the account value at
the end of the current fiscal year (July 31, 2000), as
measured on a quarterly basis, beginning in November 1998
for Class Z shares. For purposes of the graph, and unless
otherwise
indicated, it has been assumed that (a) all recurring
fees (including management fees) were deducted, and (b)
all dividends and distributions were reinvested. Class Z
shares are not subject to a sales charge or distribution
and service (12b-1) fees.
The S&P 500 Index is an unmanaged index of 500 stocks of
large U.S. companies. It gives a broad look at how stock
prices have performed. The S&P 500 Index total returns
include the reinvestment of all
dividends, but do not include the effect of sales charges
or operating expenses of a mutual fund. The
securities that comprise the Index may differ
substantially from the securities in the Fund. The Index
is not the only one that may be used to characterize
performance of large-capitalization stock funds. Other
indexes may portray different comparative performance.
Investors cannot invest directly in an index.
This graph is furnished to you in accordance with SEC
regulations.
<PAGE>
For More Information
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
Visit Prudential's web site at:
http://www.prudential.com
Trustees
Eugene C. Dorsey
Saul K. Fenster, Ph.D.
Robert F. Gunia
Prof. Maurice F. Holmes
Robert E. LaBlanc
Douglas H. McCorkindale
W. Scott McDonald, Jr.
Thomas T. Mooney
David R. Odenath, Jr.
Stephen Stoneburn
John R. Strangfeld
Joseph Weber
Clay T. Whitehead
Officers
John R. Strangfeld, President
Robert F. Gunia, Vice President
David R. Odenath, Jr., Vice President
Grace C. Torres, Treasurer
William V. Healey, Assistant Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Sub-Advisers
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
Jennison Associates LLC
466 Lexington Avenue
New York, NY 10017
Franklin Advisers, Inc.
777 Mariners Island Blvd.
San Mateo, CA 94404
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
Lazard Asset Management
30 Rockefeller Plaza
New York, NY 10112
Pacific Investment Management Company LLC
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 8098
Philadelphia, PA 19101
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
Fund Symbols NASDAQ CUSIP
Class A PAMGX 74432F505
Class B DMGBX 74432F604
Class C PIMGX 74432F703
Class Z PDMZX 74432F802
MF186E3
(ICON) Printed on Recycled Paper
