(PCTURE)
Prudential
Allocation
Fund
Balanced Portfolio
(Formerly Conservatively
Managed Portfolio)
Strategy Portfolio
Annual Report
July 31, 1995
(LOGO)
<PAGE>
Portfolio
Manager's Report
Many stocks and bonds posted double-digit total returns over the last 12
months. So, too, did your Prudential Allocation Fund: Balanced Portfolio and
Strategy Portfolio, although both trailed the Lipper Flexible Portfolio
average.
Stocks were powered primarily by higher corporate profits, and bonds by lower
interest rates. Thus far, 1995 has been an exceptional year for mutual funds.
A Rout, Then A Rally.
Numbers tell the story: the Standard & Poor's 500 Stock Index, a broad measure
of the U.S. stock market, rose 26% over the last 12 months, while the Lehman
Brothers Aggregate Bond Index gained 10%.
The Dow Jones Industrial Average, a very narrow but frequently cited market
average, set a new record of 4700 in July. To put this year's dynamic
performance in perspective, consider that the stock market's rise in 1995 to
date is more than its increase in all of 1993 and 1994 combined.
What happened? Interest rates peaked last fall, when an inflation scare drove
the 30-year U.S. Treasury bond's yield to 8.2%. By the end of July, that yield
had plummeted to 6.8%, falling almost as rapidly as it rose last year. Slowing
economic growth and tame inflation nudged the decline in rates.
Technology, financial services and industrial stocks have led the stock market
so far in 1995.
The Allocation Team.
(PICTURE) Greg A. Smith (left), Chief Investment Strategist of
Prudential Securities, provides sector allocation advice for the
Strategy Portfolio.
(PICTURE) Portfolio Manager Greg Goldberg (right), selects the
individual securities for both portfolios. Greg follows a growth
style of investing, selecting stocks based on their potential to
deliver above-average growth in revenues and earnings.
(GRAPH)
Source: Lipper Analytical Services. Financial markets change, so a mutual fund's
past performance should never be used to predict future results. The risks to
each of the investments listed above are different -- we provide 12-month total
returns for several Lipper mutual fund categories to show you that reaching for
higher yields means tolerating more risk. The greater the risk, the larger the
potential reward or loss. In addition, we've added historical 20-year average
annual returns to show that 1995's returns (so far) are higher than normal.
These returns assume the reinvestment of dividends.
Money market funds attempt to preserve a constant share value; they don't
fluctuate much in price but their returns are generally among the lowest of
the major investment categories.
Bond funds provide more income than stock funds, which can help smooth out
their total returns year by year. But their prices still fluctuate (sometimes
a good deal) and their returns are historically lower than those of stock funds.
Stock funds will fluctuate a great deal. Smaller capitalization stocks offer
greater potential for long term growth but may be more volatile than larger
capitalization stocks. Investors receive higher historical total returns from
stocks than from most other investments.
Sector or specialty stock funds (such as flexible funds) usually entail the
greatest risks because they are not widely diversified. They are designed for
sophisticated investors who can tolerate additional risk in exchange for higher
potential rewards or losses.
<PAGE>
Prudential Allocation Fund:
Balanced Portfolio
The Portfolio seeks high total investment return consistent with moderate risk.
It invests in a diversified portfolio of equity securities (including
securities convertible into equity securities), debt obligations and money
market instruments.
The equity and debt securities are generally those of larger, more mature
companies and are generally subject to less price volatility than those held
by the Strategy Portfolio. Moreover, the weighted average maturity of the
Portfolio's holdings is usually shorter than that of the Strategy Portfolio.
The Portfolio may invest up to 10% of its assets in debt securities rated below
investment grade, commonly known as "junk bonds," which are subject to greater
risk of loss of principal and interest, including default risk, than higher-
rated bonds. The Portfolio may also engage in various strategies to reduce
certain investment risks and to attempt to enhance return, through the use
of conservative, time-tested derivatives such as options, forward currency
exchange contracts and futures contracts.
<TABLE>
Cumulative Total Returns1 As of 7/31/95
<CAPTION>
One Five Since2
Year Years Inception
<S> <C> <C> <C>
Class A 13.7% 68.5% 79.6%
Class B 12.8 62.2 90.6
Class C N/A N/A 12.5
Lipper Flexible Portfolio Avg.3 16.8% 68.7% 96.1%
</TABLE>
<TABLE>
Average Annual Total Returns1 As of 7/31/95
<CAPTION>
One Five Since2
Year Years Inception
<S> <C> <C> <C>
Class A 8.0% 9.9% 10.2%
Class B 7.8 10.0 8.5
Class C N/A N/A 11.5
</TABLE>
Past performance is not a guarantee 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 Mutual Fund Management and Lipper Analytical Services. The
cumulative total returns do not take into account sales charges. The average
annual returns do take into account applicable sales charges. The Fund charges
a maximum front-end sales load of 5% for Class A shares and a contingent
deferred sales charge of 5%, 4%, 3%, 2%, 1% and 1% for six years, for Class B
shares. Class C shares have a 1% CDSC for one year. Class B shares automatically
convert to Class A shares after approximately seven years.
2 Inception dates: 1/22/90 Class A; 9/15/87 Class B; 8/1/94 Class C.
3 Lipper average returns are for 138 funds for one year, 41 funds for five
years and 15 funds since inception of Class B shares on 9/15/87.
Name Change
Approved.
The Board of Trustees has voted to change the name of the Conservatively
Managed Portfolio to the Balanced Portfolio, effective with the publication of
a new prospectus on or about September 29, 1995.
Putting Cash To Work.
As the stock and bond markets came alive in early 1995, we put the Portfolio's
substantial cash position (30% of assets as of January 31) to work, cutting it
to less than 13% of assets as of July 31.
Dollar-denominated foreign bonds were reduced to 2% of assets from 6%.
The Portfolio increased holdings in equities to 55% of assets from 47% and
domestic bonds to 29% from 17%.
We increased holdings of technology stocks -- the leading sector this year --
to 17% from 2%.
<PAGE>
Balanced Portfolio
What Went Well.
Focus On
Technology, Finance.
Our focus on technology stocks benefited the Portfolio, as this sector led the
stock market through July 31. Worldwide demand is surging for technology-related
goods and services.
Companies around the globe are using improved technology to help increase
productivity and keep wages under control. In addition, home computer sales
have risen dramatically in the U.S. as CD-ROM and memory prices have fallen.
Top performing technology holdings in your Fund include Sun Microsystems, our
largest holding, at about 2% of assets, up about 25% in value year-to-date and
<PAGE>
VLSI Technology, about 1% of assets, up about 40% year to date.
(GRAPH)
Our finance holdings (12% of assets) also did well. As of July 31, 1995, finance
was our second largest industry weighting. And it was second only to technology
in the stock market in total return as measured by the S&P 500. Financial
services stocks were direct beneficiaries of lower long-term interest rates,
which made the cost of their raw material -- money -- cheaper. Bank stocks also
benefited from continuing industry-wide consolidation.
Among our best performing financial services holdings over the past six months
were Sun America, representing nearly 2% of assets, up more than 25% in value
year to date and Dean Witter Discover, about 1% of assets, up 25% year to date.
We Emphasized
Treasury and
Corporate Bonds.
Since January, we have lengthened the Portfolio's maturity and shifted holdings
to the Treasury and corporate sectors of the U.S. bond market, which have led
the market this year to date. To do so, we have reduced exposure to dollar-
denominated foreign bonds (to 2% as of July 31, from 6%), and eliminated our
position in short- term, asset-backed securities.
What Could
Have Gone
Better.
HMOs Were Hit.
During the past six months, we added to our positions in health care stocks,
believing they would do well, particularly as HMOs are able to reduce the cost
of group medical plans. While we were able to take advantage of low prices, our
holdings have not appreciated because highly competitive pricing has temporarily
hurt earnings.
A Tale of Two Stocks
Two of our consumer growth holdings also suffered: Fruit of the Loom and
discount retailer Caldor. Fruit of the Loom's emphasis on discounting hurt
company earnings. Discount retailer Caldor performed dramatically below
expectations because of mounting competitive pressures within the industry and
the bankruptcy filing of Bradlees.
1
<PAGE>
Prudential Allocation Fund:
Strategy Portfolio
The Portfolio seeks high total investment return, consistent with relatively
higher risk than the Balanced Portfolio. The Portfolio invests in equity
securities of major corporations, as well as smaller, faster growing companies,
which are subject to a greater degree of risk and price volatility than stocks
of major corporations.
The Portfolio also invests in a combination of investment grade, high yield
(commonly called "junk bonds") and foreign securities. Please note there are
special risks associated with foreign investing, such as economic, political
and social developments, along with currency fluctuations.
The Portfolio may invest as much as 25% of assets in debt securities rated
below investment grade, commonly known as "junk bonds," which are subject to
greater risk of loss of principal and interest, including default risk, than
higher-rated bonds.
<TABLE>
Cumulative Total Returns1 As of 7/31/95
<CAPTIONS>
One Five Since2
Year Years Inception
<S> <C> <C> <C>
Class A 14.0% 64.6% 74.2%
Class B 13.1 58.2 89.2
Class C N/A N/A 12.8
Lipper Flexible Portfolio Avg.3 16.8 68.7 96.1
</TABLE>
<TABLE>
Average Annual Total Returns1 As of 7/31/95
<CAPTIONS>
One Five Since2
Year Years Inception
<S> <C> <C> <C>
Class A 8.3% 9.4% 9.6%
Class B 8.1 9.5 8.4
Class C N/A N/A 11.8
</TABLE>
Past performance is not a guarantee 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 Mutual Fund Management, Inc., and Lipper Analytical
Services, Inc. The cumulative total returns do not take into account sales
charges. The average annual returns do take into account applicable sales
charges. The Fund charges a maximum front-end sales load of 5% for Class A
shares and a contingent deferred sales charge of 5%, 4%, 3%, 2%, 1% and 1%
for six years, for Class B shares. Class C shares have a 1% CDSC for one year.
Class B shares automatically convert to Class A shares after approximately
seven years.
2 Inception dates: 1/22/90 Class A; 9/15/87 Class B; 8/1/94 Class C.
3 Lipper average returns are for 138 funds for one year, 41 funds for five
years and 15 funds since inception of Class B shares on 9/15/87.
Overview.
The Portfolio is currently emphasizing technology stocks -- including computer
hardware and electronics -- consumer and health care stocks, and finance
stocks, including insurance and financial services.
Technology and Bonds
Lead the Way.
Believing that stock and bond prices had bottomed in January, we started to put
our substantial cash position (36% of assets as of January 31) to work, reducing
it to 12% by July 31.
Our largest purchases were in technology stocks, the leading sector of the
market this year, lifting our holdings to 19% of assets from 4%.
We also made a substantial commitment to the bond market, believing that
interest rates had peaked earlier this year. We increased our exposure to
bonds to 29% of assets from 14%. The entire position is in U.S. Treasurys.
We sold our corporate bonds, which had risen nicely in price.
2
<PAGE>
Strategy Portfolio
What Went Well.
We Sold Most of Our
Mexican Tesobonos.
When we wrote to you six months ago, we mentioned that the Portfolio's 9%
position in Mexican Tesobonos was being retained in hopes that it would
appreciate. These dollar-indexed, short-term Mexican government securities
suffered when the peso was devalued last December. We are pleased to report
we were correct here. Most of our holdings in these securities, $19 million,
representing 5% of assets, matured in July, and we recovered 100% of our
investment in U.S. dollars, plus all interest. A smaller, residual holding of
$2 million, or less than 1% of assets, matures in September.
(GRAPH)
We Increased Our
Duration In Bonds.
Sensing that interest rates had peaked for this part of the economic cycle, we
purchased 10- and 30-year U.S. Treasurys, lengthening the duration (a measure
of a bond's price sensitivity to interest rate changes) of the Portfolio's bond
position to eight years from four years. As a result, we benefited from the
exceptional bond rally this year.
What Could
Have Gone
Better.
HMOs Were Hit.
During the past six months, we added to our positions in health care stocks,
which should benefit in the long term, particularly as HMOs are able to reduce
the cost of group medical plans. While we were able to take advantage of low
prices, our holdings did not appreciate because highly competitive pricing has
temporarily cut earnings.
A Tale of Two Stocks.
Two of our consumer growth holding offered suffered: Fruit of the Loom and
discount retailer Caldor. Fruit of the Loom's emphasis on discounting hurt
company earnings. Discount retailer Caldor performed dramatically below
expectations because of mounting competitive pressures within the industry and
the bankruptcy filing of Bradlees.
Looking Ahead.
U.S. interest rates have fallen and corporate earnings remain strong. Despite
the heady levels of the U.S. stock market, we remain optimistic that U.S.
stocks have room to appreciate.
Don't forget, though: the last six months comprised one of the best periods in
U.S. stock market history, one not likely to be repeated anytime soon. More
realistically, U.S. stocks should return to their historical norms of about 10%
a year.
3
<PAGE>
President's Letter August 30, 1995
Dear Shareholder:
(PICTURE)
You've probably noticed your shareholder report looks different this month.
We've designed it to provide clear, concise and forthright information about
your investment, its performance, risks and potential rewards. And, from time
to time, I'll share some thoughts with you about the industry, mutual fund
trends and how we're responding to them at Prudential Mutual Funds.
On The Hill
One recent trend we like is part of the "Contract with America." It's called
the American Dream Savings Account and it was approved by the House of
Representatives earlier in the year. The bill should be considered by the
Senate sometime this fall.
The American Dream Savings Accounts seeks to improve the traditional Individual
Retirement Account program by allowing higher non-working spouse contributions.
It would also allow tax-free and penalty-free withdrawals from the account
before age 59 1/2, for certain expenses. Prudential Mutual Funds supports the
proposal and we urge you to share your opinion about it with your Senator. You
can reach your Senator's office by calling 202-224-3121.
In Closing
One final note: if you're a Class B shareholder, you'll begin noticing a change
on your statements once you've held your shares for seven years. At that time
they will automatically begin to convert to Class A shares on a quarterly
basis. Since Class A shares carry lower annual distribution charges than Class
B shares, your total returns will automatically rise after the conversion.
Conversions started earlier this year and will occur each calendar quarter --
beginning in December, 1995, they'll take place every March, June, September
and December.
I hope you'll find this information useful as you work with your financial
advisor or registered representative to develop your personal investment plan.
Thank you for choosing Prudential Mutual Funds for your mutual fund investment.
Sincerely,
Richard A. Redeker
President
4
<PAGE>
PRUDENTIAL ALLOCATION FUND
Portfolio of Investments as of July 31, 1995 BALANCED PORTFOLIO*
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- -------------------------------------------------------------------------
LONG-TERM INVESTMENTS--86.1%
COMMON STOCKS--55.0%
- --------------------------------------------------------------------------
Aerospace/Defense--1.1%
60,000 Boeing Co. $ 4,020,000
116,400 Gencorp, Inc. 1,353,150
-------------
5,373,150
- ------------------------------------------------------------
Automotive--0.8%
150,000 Ford Motor Co. 4,331,250
- ------------------------------------------------------------
Chemicals--0.9%
140,000 Agrium Inc. (Canada) 4,869,964
- ------------------------------------------------------------
Computer & Related Equipment--9.5%
135,000 Bay Networks* 6,058,125
80,000 Cisco Systems, Inc.* 4,450,000
50,000 Compaq Computer Corp.* 2,537,500
222,000 EMC Corp.* 5,078,250
100,000 Intel Corp. 6,500,000
85,000 Motorola, Inc. 6,513,125
172,500 Network Express, Inc.* 3,212,812
117,800 Quad Systems Corp.* 1,060,200
130,000 Seagate Technology* 5,768,750
160,000 Sun Microsystems, Inc.* 7,700,000
-------------
48,878,762
- ------------------------------------------------------------
Consumer Products--0.6%
158,500 Whitman Corp. 3,090,750
- ------------------------------------------------------------
Containers & Packaging--0.7%
160,000 Stone Container Corp.* 3,460,000
- ------------------------------------------------------------
Drugs & Health Care--5.3%
100,000 Columbia Healthcare Corp. 4,900,000
100,000 Forest Laboratories, Inc.* 4,437,500
35,000 Johnson & Johnson Co. 2,511,250
119,800 Physician Corp. of America* 1,957,981
70,000 St. Jude Medical, Inc. $ 3,832,500
50,100 Tenet Healthcare Corp. 764,025
133,800 U.S. HealthCare, Inc. 4,231,425
117,400 Ventritex, Inc.* 1,871,063
50,000 Zeneca Group PLC (United Kingdom) 2,668,750
-------------
27,174,494
- ------------------------------------------------------------
Electronics--5.4%
25,300 ADT Ltd.* 303,600
35,000 Applied Materials, Inc.* 3,622,500
77,000 Integrated Device Technology, Inc.* 4,822,125
51,000 KLA Instruments Corp.* 4,424,250
60,000 Loral Corp. 3,360,000
43,700 MEMC Electronic Materials, Inc.* 1,316,463
98,400 Tencor Instruments* 4,329,600
185,500 VLSI Technology, Inc.* 5,495,437
-------------
27,673,975
- ------------------------------------------------------------
Financial Services--6.5%
138,800 Ahmanson (H.F.) & Co. 3,105,650
70,000 Citicorp 4,366,250
124,500 Dean Witter Discover & Co. 6,287,250
60,900 Federal National Mortgage Association 5,701,762
85,000 NationsBank Corp. 4,770,625
47,300 Republic New York Corp. 2,648,800
130,000 Salomon, Inc. 4,793,750
166,600 Western National Corp. 1,978,375
-------------
33,652,462
- ------------------------------------------------------------
Home Improvements--1.2%
115,000 Owens-Corning Fiberglass* 4,513,750
119,400 Ply Gem Industries, Inc. 1,850,700
-------------
6,364,450
- ------------------------------------------------------------
Hotels & Leisure--0.6%
144,700 Carnival Corp. 3,273,838
</TABLE>
- --------------------------------------------------------------------------------
*See Note 8.
See Notes to Financial Statements.
5
<PAGE>
<PAGE>
PRUDENTIAL ALLOCATION FUND
Portfolio of Investments as of July 31, 1995 BALANCED PORTFOLIO*
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- --------------------------------------------------------------
Insurance--6.1%
35,400 Berkley (W. R.) Corp. $ 1,358,475
26,900 Chubb Corp. 2,243,702
57,300 Emphesys Financial Group, Inc. 1,640,213
210,000 Equitable Cos., Inc. 4,698,750
90,000 Equitable of Iowa Cos. 2,925,000
75,800 PMI Group Inc. 3,524,700
163,600 SunAmerica, Inc. 9,366,100
119,400 Travelers Corp. 5,656,575
-------------
31,413,515
- ------------------------------------------------------------
Machinery & Equipment--0.9%
44,100 Regal Beloit Corp. 904,050
225,000 Smith International, Inc.* 3,825,000
-------------
4,729,050
- ------------------------------------------------------------
Mining--0.7%
300,000 Santa Fe Pacific Gold Corp.* 3,750,000
- ------------------------------------------------------------
Oil & Gas--3.3%
106,200 Cabot Corp. 1,486,800
148,000 Mesa, Inc.* 629,000
187,300 Noble Drilling Corp.* 1,217,450
157,300 Oryx Energy Co. 2,261,187
44,700 Parker & Parsley Petroleum Co. 866,063
143,600 Repsol S.A. (ADR) (Spain) 4,792,650
89,000 Seagull Energy Corp.* 1,590,875
222,000 YPF Sociedad Anonima (ADS)
(Argentina) 3,857,250
-------------
16,701,275
- ------------------------------------------------------------
Petroleum Services--2.2%
230,000 BJ Services Corp.* 5,721,250
75,000 Exxon Corp. 5,437,500
-------------
11,158,750
Realty Investment Trust--0.3%
92,200 Manufactured Home Community, Inc. $ 1,463,675
- ------------------------------------------------------------
Retail--1.0%
152,700 Caldor Corp.* 2,080,538
106,000 Dillard Department Stores, Inc. 3,286,000
-------------
5,366,538
- ------------------------------------------------------------
Software--2.5%
121,600 Baan Company N.V.* (Netherlands) 4,058,400
60,000 Computer Associates International,
Inc. 4,402,500
50,000 Microsoft Corp.* 4,525,000
-------------
12,985,900
- ------------------------------------------------------------
Steel & Metals--0.9%
150,000 National Steel Corp.* 2,400,000
70,000 Trinity Industries, Inc. 2,345,000
-------------
4,745,000
- ------------------------------------------------------------
Telecommunications--2.4%
62,100 AirTouch Communications* 1,956,150
200,000 NEXTEL Communications, Inc.* 3,875,000
152,800 Tele-Communications, Inc.* 3,820,000
75,000 Telefonos de Mexico, Series A (ADR)
(Mexico) 2,475,000
-------------
12,126,150
- ------------------------------------------------------------
Textiles--1.0%
220,000 Fruit of the Loom, Inc.* 5,087,500
- ------------------------------------------------------------
Tobacco--1.1%
200,000 RJR Nabisco Holdings Corp. 5,525,000
-------------
Total common stocks (cost
$245,361,408) 283,195,448
</TABLE>
- --------------------------------------------------------------------------------
*See Note 8.
See Notes to Financial Statements.
6
<PAGE>
<PAGE>
PRUDENTIAL ALLOCATION FUND
Portfolio of Investments as of July 31, 1995 BALANCED PORTFOLIO*
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
<C> <C> <S> <C>
- --------------------------------------------------------------------------
DEBT OBLIGATIONS--31.1%
CORPORATE BONDS--6.6%
- ------------------------------------------------------------
Electronics--0.4%
Westinghouse Electric Corp.,
Ba1 $ 2,500 6.875%, 9/1/03 $ 2,280,825
- ------------------------------------------------------------
Financial Services--2.3%
Associates Corp. of North
America,
Aa3 750 6.875%, 1/15/97 756,172
Aa3 200 8.375%, 1/15/98, Sr. Note, 208,290
Financiera Energetica
Nacional (Columbia)
BBB-# 900 6.625%, 12/13/96 893,250
First Union Corp., Sub.
Note,
A3 1,000 9.45%, 6/15/99 1,082,240
Ford Motor Credit Co.,
A1 5,000 7.75%, 3/15/05 5,212,800
Kansallis-Osake-Pankki
Bank, (Finland)
A3 1,000 6.125%, 5/15/98 989,850
Ba1 1,000 8.65%, 12/29/49 1,042,500
PT Alatief Freeport
Finance, Sr. Note,
(Netherlands)
Ba2 1,400 9.75%, 4/15/01 1,414,000
------------
11,599,102
- ------------------------------------------------------------
Food & Beverage--0.1%
Coca Cola Enterprises,
Inc.,
A3 500 6.50%, 11/15/97 502,995
- ------------------------------------------------------------
Media--0.3%
Grupo Televisa, Sa De
Euro, (MTN) (Mexico)
Ba2 1,400 10.00%, 11/9/97 1,317,750
Oil & Gas--0.2%
Arkla, Inc., (MTN)
Ba1 $ 1,000 9.30%, 1/15/98 $ 1,038,270
- ------------------------------------------------------------
Petroleum Services--0.2%
Empresa De Petroleos,
(Columbia)
BBB-# 1,000 7.25%, 7/8/98 980,000
- ------------------------------------------------------------
Retail--1.0%
K Mart Corp.,
Baa1 5,000 8.125%, 12/1/06 5,084,650
- ------------------------------------------------------------
Shipping--0.2%
Compania SudAmericana
De Vapores, (Chile)
BBB-# 1,100 7.375%, 12/8/03 1,039,500
- ------------------------------------------------------------
Tobacco--0.9%
RJR Nabisco, Inc.,
Baa3 5,000 7.625%, 9/15/03 4,872,600
- ------------------------------------------------------------
Tourism/Resorts--1.0%
Royal Caribbean Cruises
Ltd.,
Baa3 5,000 8.25%, 4/1/05 5,187,750
------------
Total corporate bonds
(cost $33,379,339) 33,903,442
- ------------------------------------------------------------
SOVEREIGN BONDS--0.2%
- ------------------------------------------------------------
United Mexican States,
(Mexico)
Ba2 1,225 8.50%, 9/15/02
(cost $1,122,069) 1,022,875
</TABLE>
- --------------------------------------------------------------------------------
*See Note 8.
See Notes to Financial Statements.
7
<PAGE>
<PAGE>
PRUDENTIAL ALLOCATION FUND
Portfolio of Investments as of July 31, 1995 BALANCED PORTFOLIO*
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
<C> <C> <S> <C>
- --------------------------------------------------------------
U.S. GOVERNMENT SECURITIES--24.3%
United States Treasury
Bonds,
$ 30,000 7.625%, 2/15/25 $ 32,901,600
United States Treasury
Notes,
40,000 6.125%, 7/31/00 39,943,600
20,000 6.50%, 5/15/05 20,090,600
30,100 7.50%, 2/15/05 32,263,287
------------
Total U. S. government
securities
(cost $124,551,018) 125,199,087
------------
Total debt obligations
(cost $159,052,426) 160,125,404
------------
Total long-term
investments (cost
$404,413,834) 443,320,852
------------
- ------------------------------------------------------------
SHORT-TERM INVESTMENTS--12.6%
CORPORATE NOTES--0.9%
- ------------------------------------------------------------
Cemex S.A., (Mexico)
NR 750 6.25%, 10/25/95 765,000
Grupo Condumex S.A. de
C.V., (Mexico) (MTN)
NR 400 6.25%, 7/27/96 372,000
Union Bank Finland, Ltd.,
(Finland)
A2 2,600 5.25%, 6/15/96 2,569,788
Westinghouse Credit Corp.,
(MTN)
Ba1 $ 400 8.75%, 6/3/96 $ 406,144
Westinghouse Electric
Corp.,
Ba1 450 8.70%, 6/20/96 457,196
------------
Total corporate notes
(cost $4,651,369) 4,570,128
- ------------------------------------------------------------
REPURCHASE AGREEMENT--11.7%
60,491 Joint Repurchase Agreement
Account,
5.82%, 8/1/95, (Note 5) 60,491,000
------------
Total short-term
investments (cost
$65,142,369) 65,061,128
- ------------------------------------------------------------
Total Investments--98.7%
(cost $469,556,203; Note
4) 508,381,980
Other assets in excess of
liabilities--1.3% 6,783,070
------------
Net Assets--100% $515,165,050
------------
------------
</TABLE>
- ---------------
* Non-income producing security.
# S&P rating.
ADR--American Depository Receipt.
ADS--American Depository Shares.
MTN--Medium Term Note.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Prospectus contains a description of Moody's and Standard &
Poor's ratings.
- --------------------------------------------------------------------------------
*See Note 8.
See Notes to Financial Statements.
8
<PAGE>
<PAGE>
PRUDENTIAL ALLOCATION FUND
Statement of Assets and Liabilities BALANCED PORTFOLIO*
- --------------------------------------------------------------------------------
<TABLE>
<S>
<C>
Assets
July 31, 1995
Investments, at value (cost
$469,556,203)................................................................
.... $508,381,980
Receivable for investments
sold.........................................................................
..... 22,637,791
Receivable for Fund shares
sold.........................................................................
..... 5,289,720
Dividends and interest
receivable...................................................................
......... 3,431,481
Deferred
expenses.....................................................................
....................... 10,579
------------
Total
assets.......................................................................
....................... 539,751,551
------------
Liabilities
Bank
overdraft....................................................................
........................... 8,566
Payable for investments
purchased....................................................................
........ 23,092,390
Payable for Fund shares
reacquired...................................................................
........ 656,792
Distribution fee
payable......................................................................
............... 356,645
Management fee
payable......................................................................
................. 280,037
Accrued
expenses.....................................................................
........................ 192,071
------------
Total
liabilities..................................................................
....................... 24,586,501
------------
Net
Assets.......................................................................
............................ $515,165,050
------------
------------
Net assets were comprised of:
Shares of beneficial interest, at
par.....................................................................
$ 429,002
Paid-in capital in excess of
par..........................................................................
454,815,020
------------
455,244,022
Undistributed net investment
income.......................................................................
1,914,605
Accumulated net realized gain on
investments..............................................................
19,180,646
Net unrealized appreciation on
investments................................................................
38,825,777
------------
Net Assets, July 31,
1995.........................................................................
........... $515,165,050
------------
------------
Class A:
Net asset value and redemption price per share
($119,828,557 / 9,951,069 shares of beneficial interest issued and
outstanding)........................ $12.04
Maximum sales charge (5% of offering
price)...............................................................
.63
------------
Maximum offering price to
public..........................................................................
$12.67
------------
------------
Class B:
Net asset value, offering price and redemption price per share
($392,290,710 / 32,695,277 shares of beneficial interest issued and
outstanding)....................... $12.00
------------
------------
Class C:
Net asset value, offering price and redemption price per share
($3,045,783 / 253,825 shares of beneficial interest issued and
outstanding)............................ $12.00
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
*See Note 8.
See Notes to Financial Statements.
9
<PAGE>
<PAGE>
PRUDENTIAL ALLOCATION FUND
BALANCED PORTFOLIO*
Statement of Operations
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income July 31, 1995
<S> <C>
Income
Interest $ 16,851,017
Dividends (net of foreign withholding taxes
of $67,443).............................. 3,714,618
-------------
Total income............................. 20,565,635
-------------
Expenses
Distribution fee--Class A................... 174,385
Distribution fee--Class B................... 4,094,190
Distribution fee--Class C................... 9,153
Management fee.............................. 3,120,574
Transfer agent's fees and expenses.......... 972,000
Reports to shareholders..................... 264,000
Custodian's fees and expenses............... 159,000
Registration fees........................... 71,000
Legal fees.................................. 26,000
Trustees' fees and expenses................. 22,300
Audit fee and expenses...................... 16,500
Insurance................................... 13,700
Miscellaneous............................... 6,282
-------------
Total expenses........................... 8,949,084
-------------
Net investment income.......................... 11,616,551
-------------
Realized and Unrealized Gain (Loss)
on Investments
Net realized gain (loss) on:
Investment transactions..................... 24,868,871
Foreign currency transactions............... (13,031)
-------------
24,855,840
Net change in unrealized appreciation on
investments................................. 21,889,387
-------------
Net gain on investments........................ 46,745,227
-------------
Net Increase in Net Assets Resulting
from Operations................................ $ 58,361,778
-------------
-------------
</TABLE>
PRUDENTIAL ALLOCATION FUND
BALANCED PORTFOLIO*
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended July 31,
<S> <C> <C>
in Net Assets 1995 1994
Operations
Net investment income......... $ 11,616,551 $ 8,998,851
Net realized gain on
investments and foreign
currency transactions...... 24,855,840 8,854,437
Net change in unrealized
appreciation (depreciation)
of investments............. 21,889,387 (13,575,563)
------------- ------------
Net increase in net assets
resulting from
operations................. 58,361,778 4,277,725
------------- ------------
Net equalization credits
(debits)...................... (108,882) 1,077,644
------------- ------------
Dividends and distributions (Note
1)
Dividends to shareholders from
net investment income
Class A.................... (2,234,935) (970,829)
Class B.................... (9,204,130) (9,728,864)
Class C.................... (21,646) --
------------- ------------
(11,460,711) (10,699,693)
------------- ------------
Distributions to shareholders
from net realized gains on
investment transactions
Class A.................... (701,041) (1,247,471)
Class B.................... (7,720,336) (16,812,829)
Class C.................... (13,746) --
------------- ------------
(8,435,123) (18,060,300)
------------- ------------
Fund share transactions (net of
share conversions) (Note 6)
Net proceeds from shares
subscribed................. 177,082,017 216,417,990
Net asset value of shares
issued to shareholders in
reinvestment of dividends
and distributions.......... 18,598,887 26,617,480
Cost of shares reacquired..... (201,993,090) (80,947,022)
------------- ------------
Net increase (decrease) in net
assets from Fund shares
transactions............... (6,312,186) 162,088,448
------------- ------------
Total increase................... 32,044,876 138,683,824
Net Assets
Beginning of year................ 483,120,174 344,436,350
------------- ------------
End of year...................... $ 515,165,050 $483,120,174
------------- ------------
------------- ------------
</TABLE>
- --------------------------------------------------------------------------------
*See Note 8.
See Notes to Financial Statements.
10
<PAGE>
<PAGE>
PRUDENTIAL ALLOCATION FUND
Portfolio of Investments as of July 31, 1995 STRATEGY PORTFOLIO
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
-----------------------------------------------------------------
LONG-TERM INVESTMENTS--89.2%
COMMON STOCKS--60.1%
- ------------------------------------------------------------------
Aerospace/Defense--0.9%
51,000 Boeing Co. $ 3,417,000
- ------------------------------------------------------------
Automotive--1.1%
140,000 Ford Motor Co. 4,042,500
- ------------------------------------------------------------
Chemicals--1.3%
130,000 Agrium Inc. (Canada) 4,522,110
- ------------------------------------------------------------
Computer & Related Equipment--10.1%
100,000 Bay Networks* 4,487,500
70,000 Cisco Systems, Inc.* 3,893,750
45,000 Compaq Computer Corp.* 2,283,750
164,000 EMC Corp.* 3,751,500
75,000 Intel Corp. 4,875,000
65,000 Motorola, Inc. 4,980,625
135,500 Network Express, Inc.* 2,523,687
94,200 Quad Systems Corp.* 847,800
72,000 Seagate Technology* 3,195,000
130,000 Sun Microsystems, Inc.* 6,256,250
-------------
37,094,862
- ------------------------------------------------------------
Containers & Packaging--0.8%
140,000 Stone Container Corp.* 3,027,500
- ------------------------------------------------------------
Drugs & Health Care--6.3%
86,000 Columbia Healthcare Corp. 4,214,000
90,000 Forest Laboratories, Inc.* 3,993,750
63,900 Health Care & Retirement Corp.* 2,044,800
27,500 Johnson & Johnson Co. 1,973,125
102,100 Physician Corp. of America* 1,668,697
64,700 St. Jude Medical, Inc. 3,542,325
21,600 Tenet Healthcare Corp. 329,400
113,500 U.S. HealthCare, Inc. $ 3,589,437
102,900 Ventritex, Inc.* 1,639,969
-------------
22,995,503
- ------------------------------------------------------------
Electronics--6.3%
29,000 ADT Ltd.* 348,000
25,000 Applied Materials, Inc.* 2,587,500
40,000 General Electric Co. 2,360,000
59,000 Integrated Device Technology, Inc.* 3,694,875
40,000 KLA Instruments Corp.* 3,470,000
30,100 Loral Corp. 1,685,600
34,100 MEMC Electronic Materials, Inc.* 1,027,262
79,300 Tencor Instruments* 3,489,200
145,000 VLSI Technology, Inc.* 4,295,625
-------------
22,958,062
- ------------------------------------------------------------
Financial Services--7.4%
121,300 Ahmanson ( H.F.) & Co. 2,714,088
70,000 Citicorp 4,366,250
88,300 Dean Witter Discover & Co. 4,459,150
54,100 Federal National Mortgage Assn. 5,065,112
75,000 NationsBank Corp. 4,209,375
43,200 Republic New York Corp. 2,419,200
105,000 Salomon, Inc. 3,871,875
-------------
27,105,050
- ------------------------------------------------------------
Home Improvements--0.9%
65,000 Owens-Corning Fiberglass* 2,551,250
50,000 Ply Gem Industries, Inc. 775,000
-------------
3,326,250
- ------------------------------------------------------------
Hotels & Leisure--1.1%
179,800 Carnival Corp. 4,067,975
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 11
<PAGE>
<PAGE>
PRUDENTIAL ALLOCATION FUND
Portfolio of Investments as of July 31, 1995 STRATEGY PORTFOLIO
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ----------------------------------------------------------------
Information Services--0.5%
59,900 American Business Information, Inc.* $ 1,849,413
- ------------------------------------------------------------
Insurance--5.7%
10,200 Berkley (W. R.) Corp. 391,425
21,400 Chubb Corp. 1,784,953
160,000 Equitable Cos., Inc. 3,580,000
65,700 PMI Group, Inc. 3,055,050
135,400 SunAmerica, Inc. 7,751,650
89,700 Travelers Corp. 4,249,537
-------------
20,812,615
- ------------------------------------------------------------
Mining--1.0%
300,000 Santa Fe Pacific Gold Corp.* 3,750,000
- ------------------------------------------------------------
Oil & Gas--2.7%
105,900 Mesa, Inc.* 450,075
159,000 Noble Drilling Corp.* 1,033,500
118,900 Repsol S.A. (ADR) (Spain) 3,968,287
52,400 Seagull Energy Corp.* 936,650
190,000 YPF Sociedad Anonima (ADS)
(Argentina) 3,301,250
-------------
9,689,762
- ------------------------------------------------------------
Petroleum Services--3.5%
176,000 BJ Services Corp.* 4,378,000
70,000 Exxon Corp. 5,075,000
200,000 Smith International, Inc.* 3,400,000
-------------
12,853,000
- ------------------------------------------------------------
Realty Investment Trust--0.4%
97,300 Manufactured Home Community, Inc. 1,544,638
Retail--1.3%
132,100 Caldor Corp.* $ 1,799,863
93,000 Dillard Department Stores, Inc. 2,883,000
-------------
4,682,863
- ------------------------------------------------------------
Software--2.9%
97,700 Baan Company* (Netherlands) 3,260,738
50,000 Computer Associates International,
Inc. 3,668,750
42,000 Microsoft Corp.* 3,801,000
-------------
10,730,488
- ------------------------------------------------------------
Steel--1.2%
150,000 National Steel Corp.* 2,400,000
60,000 Trinity Industries, Inc. 2,010,000
-------------
4,410,000
- ------------------------------------------------------------
Telecommunications--2.3%
58,500 AirTouch Communications* 1,842,750
150,000 NEXTEL Communications, Inc.* 2,906,250
52,779 Tele-Communications, Inc.* 1,319,475
75,000 Telefonos de Mexico, Series A (ADR)
(Mexico) 2,475,000
-------------
8,543,475
- ------------------------------------------------------------
Textiles--1.3%
200,000 Fruit of the Loom, Inc.* 4,625,000
- ------------------------------------------------------------
Tobacco--1.1%
150,000 RJR Nabisco Holdings Corp. 4,143,750
-------------
Total common stocks (cost
$185,945,464) 220,191,816
</TABLE>
- --------------------------------------------------------------------------------
12 See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL ALLOCATION FUND
Portfolio of Investments as of July 31, 1995 STRATEGY PORTFOLIO
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Principal
Amount
(000) Description Value (Note 1)
<C> <C> <S> <C>
- ---------------------------------------------------------------------
DEBT OBLIGATIONS--29.1%
SOVEREIGN BONDS--3.3%
Argentina Gov't. Bond,
(Argentina)
$ 13,950 Zero Coupon, 9/1/97 $ 6,856,188
German Government Bonds,
(Germany)
7,000 7.375%, 1/3/05 5,259,382
------------
Total (cost $12,277,470) 12,115,570
- ------------------------------------------------------------
U.S. GOVERNMENT SECURITIES--25.8%
United States Treasury
Notes,
43,000 7.50%, 2/15/05 46,090,410
United States Treasury
Bonds,
44,000 7.625%, 2/15/25 48,255,680
------------
Total U.S. Government
Securities
(cost $94,448,437) 94,346,090
------------
Total debt obligations
(cost $106,725,907) 106,461,660
------------
Total long-term
investments
(cost $292,671,371) 326,653,476
------------
- ------------------------------------------------------------
SHORT-TERM INVESTMENTS--11.8%
SOVEREIGN BONDS--0.6%
- ------------------------------------------------------------
Mexican Tesobonos,
(Mexico)
2,348 Zero Coupon, 12/7/95 2,274,643
REPURCHASE AGREEMENT--11.2%
Joint Repurchase
Agreement Account,
5.82%, 8/1/95, (Note 5) $ 40,800,000
$ 40,800
------------
Total short-term
investments
(cost $43,078,628) 43,074,643
- ------------------------------------------------------------
Total Investments--101.0%
(cost $335,749,999; Note
4) 369,728,119
Liabilities in excess of
other assets--(1.0%) (3,644,178)
------------
Net Assets--100% $366,083,941
------------
------------
</TABLE>
- ---------------
* Non-income producing security.
ADR--American Depository Receipt.
ADS--American Depository Share.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 13
<PAGE>
<PAGE>
PRUDENTIAL ALLOCATION FUND
Statement of Assets and Liabilities STRATEGY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<S>
<C>
Assets
July 31, 1995
Investments, at value (cost
$335,749,999)................................................................
.... $369,728,119
Cash.........................................................................
................................ 34,950
Receivable for investments
sold.........................................................................
..... 16,703,011
Dividends and interest
receivable...................................................................
......... 3,379,850
Receivable for Fund shares
sold.........................................................................
..... 219,527
Deferred expenses and other
assets.......................................................................
.... 20,288
------------
Total
assets.......................................................................
...................... 390,085,745
------------
Liabilities
Payable for investments
purchased....................................................................
........ 22,560,918
Payable for Fund shares
reacquired...................................................................
........ 784,384
Distribution fee
payable......................................................................
............... 256,290
Management fee
payable......................................................................
................. 202,682
Accrued
expenses.....................................................................
........................ 197,530
------------
Total
liabilities..................................................................
...................... 24,001,804
------------
Net
Assets.......................................................................
............................ $366,083,941
------------
------------
Net assets were comprised of:
Shares of beneficial interest, at
par.....................................................................
$ 294,618
Paid-in capital in excess of
par..........................................................................
315,051,415
------------
315,346,033
Undistributed net investment
income.......................................................................
1,539,281
Accumulated net realized gain on
investments..............................................................
15,225,530
Net unrealized appreciation on
investments................................................................
33,973,097
------------
Net Assets, July 31,
1995.........................................................................
........... $366,083,941
------------
------------
Class A:
Net asset value and redemption price per share
($87,081,211 / 6,978,363 shares of beneficial interest issued and
outstanding)......................... $12.48
Maximum sales charge (5.00% of offering
price)............................................................
.66
------------
Maximum offering price to
public..........................................................................
$13.14
------------
------------
Class B:
Net asset value, offering price and redemption price per share
($278,713,976 / 22,460,135 beneficial interest issued and
outstanding)................................. $12.41
------------
------------
Class C:
Net asset value, offer price and redemption price per share
($288,754 / 23,269 shares of beneficial interest issued and
outstanding)............................... $12.41
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
14 See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL ALLOCATION FUND
STRATEGY PORTFOLIO
Statement of Operations
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income July 31, 1995
<S> <C>
Income
Interest.................................... $ 10,989,653
Dividends (net of foreign withholding taxes
of $58,427).............................. 3,814,245
-------------
Total income............................... 14,803,898
-------------
Expenses
Distribution fee--Class A................... 142,549
Distribution fee--Class B................... 3,074,388
Distribution fee--Class C................... 1,692
Management fee.............................. 2,370,080
Transfer agent's fees and expenses.......... 1,024,000
Reports to shareholders..................... 222,000
Custodian's fees and expenses............... 204,000
Registration fees........................... 56,500
Legal fees.................................. 26,000
Trustees' fees and expenses................. 22,300
Audit fee and expenses...................... 16,500
Insurance expenses.......................... 11,700
Miscellaneous............................... 985
-------------
Total expenses............................. 7,172,694
-------------
Net investment income.......................... 7,631,204
-------------
Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency
Net realized gain (loss) on:
Investment transactions..................... 16,396,551
Financial futures contracts................. (1,010,688)
Foreign currency transactions............... 326,751
-------------
15,712,614
-------------
Net change in unrealized appreciation
(depreciation) on:
Investments................................. 20,549,622
Financial futures contracts................. 467,750
Foreign currency transactions............... (348,855)
-------------
20,668,517
-------------
Net gain on investments........................ 36,381,131
-------------
Net Increase in Net Assets Resulting from
Operations..................................... $ 44,012,335
-------------
-------------
</TABLE>
PRUDENTIAL ALLOCATION FUND
STRATEGY PORTFOLIO
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended July 31,
<S> <C> <C>
in Net Assets 1995 1994
Operations
Net investment income......... $ 7,631,204 $ 7,171,844
Net realized gain on
investments................ 15,712,614 14,878,620
Net change in unrealized
appreciation (depreciation)
of investments............. 20,668,517 (13,682,115)
------------- ------------
Net increase in net assets
resulting from
operations................. 44,012,335 8,368,349
------------- ------------
Net equalization credits
(debits)...................... (274,536) 48,191
------------- ------------
Dividends and distributions (Note
1)
Dividends to shareholders from
net investment income
Class A.................... (1,553,405) (549,810)
Class B.................... (5,542,190) (4,811,597)
Class C.................... (3,515) --
------------- ------------
(7,099,110) (5,361,407)
------------- ------------
Distributions to shareholders
from net realized gains on
investment transactions
Class A.................... (1,061,481) (815,586)
Class B.................... (9,845,692) (10,082,411)
Class C.................... (5,857) --
------------- ------------
(10,913,030) (10,897,997)
------------- ------------
Distributions to shareholders
in excess of net investment
income
Class A.................... -- (40,192)
Class B.................... -- (351,923)
Class C.................... -- --
------------- ------------
-- (392,115)
------------- ------------
Fund share transactions (net of
share conversions) (Note 6)
Net proceeds from shares
subscribed................. 87,194,600 76,851,235
Net asset value of shares
issued to shareholders in
reinvestment of dividends
and distributions.......... 17,309,043 15,914,742
Cost of shares reacquired..... (147,769,905) (86,835,010)
------------- ------------
Net increase (decrease) in net
assets from Fund share
transactions............... (43,266,262) 5,930,967
------------- ------------
Total decrease................... (17,540,603) (2,304,012)
Net Assets
Beginning of year................ 383,624,544 385,928,556
------------- ------------
End of year...................... $ 366,083,941 $383,624,544
------------- ------------
------------- ------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 15
<PAGE>
<PAGE>
Notes to Financial Statements PRUDENTIAL ALLOCATION FUND
- --------------------------------------------------------------------------------
Prudential Allocation Fund, (the ``Fund'') is registered under the Investment
Company Act of 1940, as a diversified, open-end management investment company.
The Fund was organized as an unincorporated business trust in Massachusetts on
February 23, 1987 and consists of two series, the Balanced Portfolio* and the
Strategy Portfolio. The investment objective of the Balanced Portfolio* is to
achieve a high total investment return consistent with moderate risk by
investing in a diversified portfolio of money market instruments, debt
obligations and equity securities. The investment objective of the Strategy
Portfolio is to achieve a high total investment return consistent with
relatively higher risk than the Balanced Portfolio* through varying the
proportions of investments in debt and equity securities, the quality and
maturity of debt securities purchased and the price volatility and the type of
issuer of equity securities purchased. The ability of issuers of debt securities
held by the Fund to meet their obligations may be affected by economic
developments in a specific country, industry or region.
- ------------------------------------------------------------
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: Any security for which the primary market is on an
exchange (including NASDAQ National Market System equity securities) is valued
at the last sale price on such exchange on the day of valuation or, if there was
no sale on such day, the mean between the last bid and asked prices quoted on
such day. Corporate bonds (other than convertible debt securities) and U.S.
Government and agency securities that are actively traded in the
over-the-counter market, including listed securities for which the primary
market is believed to be over-the-counter, are valued on the basis of valuations
provided by a pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, agency ratings, market
transactions in comparable securities and various relationships between
securities in determining value. Convertible debt securities that are actively
traded in the over-the-counter market, including listed securities for which the
primary market is believed to be over-the-counter, are valued at the mean
between the most recently quoted bid and asked prices provided by principal
market makers. Forward currency exchange contracts are valued at the current
cost of offsetting the contract on the day of valuation. Options are valued at
the mean between the most recently quoted bid and asked prices. Futures and
options thereon are valued at their last sales price as of the close of the
commodities exchange or board of trade.
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 collateral securities, the value of which exceeds
the principal amount of the repurchase transaction, including accrued interest.
To the extent that any repurchase transaction exceeds one business day, the
value of the collateral is marked-to-market on a daily basis to ensure the
adequacy of the collateral. If the seller defaults and the value of the
collateral declines or if bankruptcy proceedings are commenced with respect to
the seller of the security, realization of the collateral by the Fund may be
delayed or limited.
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 rate 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 long-term securities held at the end of the fiscal 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 fiscal period. Accordingly, realized
foreign currency gains (losses) are included in the reported net realized gains
on investment transactions.
Net realized gains on foreign currency transactions represent net foreign
exchange gains from the holding of foreign currencies, currency gains or losses
realized between the trade and settlement dates on securities 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.
- --------------------------------------------------------------------------------
16 *See Note
8.
<PAGE>
<PAGE>
Notes to Financial Statements PRUDENTIAL ALLOCATION FUND
- --------------------------------------------------------------------------------
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors, the possibility of political and economic instability or
the level of governmental supervision and regulation of foreign securities
markets.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of investments
are calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date; interest income is recorded on the accrual basis. Net
investment income (other than distribution fees) and unrealized and realized
gains or losses are allocated daily to each class of shares of each series based
upon the relative proportion of net assets at the beginning of the day of each
class.
Equalization: The Fund follows the accounting practice known as equalization by
which a portion of the proceeds from sales and costs of reacquisitions of Fund
shares, equivalent on a per share basis to the amount of distributable net
investment income on the date of the transaction, is credited or charged to
undistributed net investment income. As a result, undistributed net investment
income per share is unaffected by sales or reacquisitions of the Fund's shares.
Federal Income Taxes: For federal income tax purposes, each series in the Fund
is treated as a separate taxpaying entity. It is the intent of each series to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its taxable net income
to its shareholders. Therefore, no federal income tax provision is required.
Withholding taxes on foreign interest and dividends have been provided for in
accordance with the Fund's understanding of the applicable country's tax rates.
Dividends and Distributions: The Fund expects to pay dividends of net investment
income quarterly and make distributions at least annually of any net capital
gains. Dividends and distributions are recorded on the ex-dividend date.
Income distributions and capital gains distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments of wash sales and foreign currency transactions.
Reclassification of Capital Accounts: The Fund accounts and reports for
distributions to shareholders in accordance with the Statement of Position 93-2:
Determination, Disclosure, and Financial Statement Presentation of Income;
Capital Gain, and Return of Capital Distributions by Investment Companies. For
the year ended July 31, 1995, the Strategy Portfolio decreased undistributed net
investment income and increased accumulated net realized gain on investments by
$265,496. Net realized gains and net assets were not affected by this change.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential Mutual Fund Management, Inc.
(``PMF''). Pursuant to this agreement, PMF has responsibility for all investment
advisory services and supervises the subadviser's performance of such services.
PMF has entered into a subadvisory agreement with The Prudential Investment
Corporation (``PIC''); PIC furnishes investment advisory services in connection
with the management of the Fund. PMF pays for the services of PIC, the
compensation of officers of the Fund, occupancy and certain clerical and
bookkeeping costs of the Fund. The Fund bears all other costs and expenses.
The management fee paid PMF is computed daily and payable monthly at an annual
rate of .65 of 1% of the average daily net assets of each of the series.
The Fund has distribution agreements with Prudential Mutual Fund Distributors,
Inc. (``PMFD''), which acts as the distributor of the Class A shares of the
Fund, and with Prudential Securities Incorporated (``PSI''), which acts as
distributor of the Class B and Class C shares of the Fund (collectively the
``Distributors''). The Fund compensates the Distributors for distributing and
servicing the Fund's Class A, Class B and Class C shares, pursuant to plans of
distribution (the ``Class A, B and C Plans'') regardless of expenses actually
incurred by them. The distribution fees are accrued daily and payable monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates the Distributors
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,
1995.
PMFD has advised the Fund that it has received approximately $440,000
($254,000--Balanced Portfolio* and $186,000--Strategy Portfolio) in front-end
sales charges resulting from sales of Class A shares during the
- --------------------------------------------------------------------------------
*See Note 8. 17
<PAGE>
<PAGE>
Notes to Financial Statements PRUDENTIAL ALLOCATION FUND
- --------------------------------------------------------------------------------
year ended July 31, 1995. From these fees, PMFD paid such sales charges to
dealers which in turn paid commissions to salespersons.
PSI advised the Fund that for the year ended July 31, 1995 it received
approximately $1,677,500 ($963,500--Balanced Portfolio* and $714,000--Strategy
Portfolio) in contingent deferred sales charges imposed upon certain redemptions
by Class B and C shareholders.
PMFD is a wholly-owned subsidiary of PMF. PSI, PIC and PMF are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
- ------------------------------------------------------------
Note 3. Other Transactions With Affiliates
Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During the year ended July 31, 1995,
the Fund incurred fees of approximately $1,396,000 ($711,000--Balanced
Portfolio* and $685,000--Strategy Portfolio) for the services of PMFS. As of
July 31, 1995, approximately $118,000 ($62,000--Balanced Portfolio* and
$56,000--Strategy Portfolio) of such fees were due to PMFS. Transfer agent fees
and expenses in the Statement of Operations also include certain out of pocket
expenses paid to non-affiliates.
For the year ended July 31, 1995, PSI received approximately $106,500
($47,400--Balanced Portfolio* and $59,100--Strategy Portfolio) in brokerage
commissions from portfolio transactions executed on behalf of the Fund.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the year ended July 31, 1995, were as follows:
<TABLE>
<CAPTION>
Portfolio Purchases Sales
- ---------------------------------- ------------- -------------
<S> <C> <C>
Balanced Portfolio*............... $ 806,898,931 $ 800,641,319
Strategy Portfolio................ $ 576,378,735 $ 532,216,646
</TABLE>
The cost basis of investments for federal income tax purposes as of July 31,
1995 was $469,592,939 and $335,765,352 for the Balanced Portfolio* and the
Strategy Portfolio, respectively, and net and gross unrealized appreciation of
investments for federal income tax purposes was as follows:
<TABLE>
<CAPTION>
Balanced Strategy
Portfolio* Portfolio
------------ -----------
<S> <C> <C>
Gross unrealized appreciation...... $ 49,713,371 $39,725,210
Gross unrealized depreciation...... (10,924,330) (5,762,443)
------------ -----------
Net unrealized appreciation........ $ 38,789,041 $33,962,767
------------ -----------
------------ -----------
</TABLE>
- ------------------------------------------------------------
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. Government or federal agency obligations. As of July 31, 1995, the Fund
had a 12.7% (Balanced Portfolio*--7.6% and Strategy Portfolio--5.1%) undivided
interest in the repurchase agreements in the joint account. The undivided
interest for the Fund represented $101,291,000 (Balanced Portfolio*--$60,491,000
and Strategy Portfolio--$40,800,000) in the principal amount. As of such date,
each repurchase agreement in the joint account and the value of the collateral
therefor was as follows:
Bear, Stearns & Co., Inc., 5.82%, dated 7/31/95, in the principal amount of
$265,000,000, repurchase price $265,042,842, due 8/1/95. The value of the
collateral including accrued interest is $270,429,672.
CS First Boston Corp., 5.82%, dated 7/31/95, in the principal amount of
$265,000,000, repurchase price $265,042,842, due 8/1/95. The value of the
collateral including accrued interest is $270,382,812.
Smith Barney Inc., 5.82%, dated 7/31/95, in the principal amount of $265,000,000
repurchase price $265,042,842 due 8/1/95. The value of the collateral including
accrued interest is $270,382,812.
- ------------------------------------------------------------
Note 6. Capital
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 contingent deferred sales charge of 1% during the first year. Class
B shares will automatically convert to Class A
- --------------------------------------------------------------------------------
18 *See Note
8.
<PAGE>
<PAGE>
Notes to Financial Statements PRUDENTIAL ALLOCATION FUND
- --------------------------------------------------------------------------------
shares on a quarterly basis approximately seven years after purchase commencing
in February 1995. All classes of shares have equal rights as to earnings, assets
and voting privileges except that each class bears different distribution
expenses and has exclusive voting rights with respect to its distribution plan.
The Fund has authorized an unlimited number of shares of beneficial interest of
each class at $.01 par value per share.
Transactions in shares of beneficial interest for the fiscal years ended July
31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
Balanced
Portfolio*: Strategy Portfolio:
Class
A Class A
- ------------------------------- -------------------------------
Year Ended July 31, 1995 Shares
Amount Shares Amount
- --------------------------------------------------------- -----------
- ------------- ----------- -------------
<S> <C>
<C> <C> <C>
Shares issued............................................ 3,862,947
$ 44,308,109 1,390,817 $ 15,562,421
Shares issued in reinvestment of dividends and
distributions.......................................... 251,790
2,763,092 226,669 2,532,533
Shares reacquired........................................ (3,252,889)
(37,646,830) (1,480,078) (17,030,049)
-----------
- ------------- ----------- -------------
Net increase in shares outstanding before conversion..... 861,848
9,424,371 137,408 1,064,905
Shares issued upon conversion from Class B............... 5,717,102
62,038,822 4,041,405 45,163,786
-----------
- ------------- ----------- -------------
Net increase in shares outstanding....................... 6,578,950
$ 71,463,193 4,178,813 $ 46,228,691
-----------
- ------------- ----------- -------------
-----------
- ------------- ----------- -------------
<CAPTION>
Year Ended July 31, 1994
- ---------------------------------------------------------
<S> <C>
<C> <C> <C>
Shares issued............................................ 1,936,121
$ 22,068,844 954,118 $ 11,209,754
Shares issued in reinvestment of dividends and
distributions.......................................... 185,818
2,104,551 115,925 1,362,807
Shares reacquired........................................ (673,143)
(7,607,829) (693,445) (8,199,850)
-----------
- ------------- ----------- -------------
Net increase in shares outstanding....................... 1,448,796
$ 16,565,566 376,598 $ 4,372,711
-----------
- ------------- ----------- -------------
-----------
- ------------- ----------- -------------
<CAPTION>
Class
B Class B
- ------------------------------- -------------------------------
Year Ended July 31, 1995 Shares
Amount Shares Amount
- --------------------------------------------------------- -----------
- ------------- ----------- -------------
<S> <C>
<C> <C> <C>
Shares issued............................................ 5,899,203
$ 65,629,606 2,294,936 $ 26,157,592
Shares issued in reinvestment of dividends and
distributions.......................................... 1,480,760
15,800,410 1,357,022 14,767,213
Shares reacquired........................................ (9,125,344)
(100,071,801) (7,554,633) (85,523,598)
-----------
- ------------- ----------- -------------
Net decrease in shares outstanding before conversion..... (1,745,381)
(18,641,785) (3,902,675) (44,598,793)
Shares reacquired upon conversion into Class A........... (5,738,270)
(62,038,822) (4,066,519) (45,163,786)
-----------
- ------------- ----------- -------------
Net decrease in shares outstanding....................... (7,483,651)
$ (80,680,607) (7,969,194) $ (89,762,579)
-----------
- ------------- ----------- -------------
-----------
- ------------- ----------- -------------
</TABLE>
- --------------------------------------------------------------------------------
*See Note 8. 19
<PAGE>
<PAGE>
Notes to Financial Statements PRUDENTIAL ALLOCATION FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Balanced
Portfolio*: Strategy Portfolio:
Class
B Class B
- ------------------------------- -------------------------------
Year Ended July 31, 1994 Shares
Amount Shares Amount
- --------------------------------------------------------- -----------
- ------------- ----------- -------------
<S> <C>
<C> <C> <C>
Shares issued............................................ 17,006,359
$ 194,349,146 5,564,589 $ 65,641,481
Shares issued in reinvestment of dividends and
distributions.......................................... 2,171,273
24,512,929 1,243,606 14,551,935
Shares reacquired........................................ (6,463,788)
(73,339,193) (6,693,142) (78,635,160)
-----------
- ------------- ----------- -------------
Net increase in shares outstanding....................... 12,713,844
$ 145,522,882 115,053 $ 1,558,256
-----------
- ------------- ----------- -------------
-----------
- ------------- ----------- -------------
<CAPTION>
Class
C Class C
- ------------------------------- -------------------------------
August 1, 1994* Through July 31, 1995 Shares
Amount Shares Amount
- --------------------------------------------------------- -----------
- ------------- ----------- -------------
<S> <C>
<C> <C> <C>
Shares issued............................................ 442,652
$ 5,105,480 26,928 $ 310,801
Shares issued in reinvestment of dividends and
distributions.......................................... 3,269
35,385 850 9,297
Shares reacquired........................................ (192,096)
(2,235,637) (4,509) (52,472)
-----------
- ------------- ----------- -------------
Net increase in shares outstanding....................... 253,825
$ 2,905,228 23,269 $ 267,626
-----------
- ------------- ----------- -------------
-----------
- ------------- ----------- -------------
- ---------------
* Commencement of offering of Class C shares.
</TABLE>
- ------------------------------------------------------------
Note 7. Dividends
On September 7, 1995, the Board of Trustees of the Fund declared a dividend from
undistributed net investment income of $.0675 per share to Class A shareholders
and $.0450 per share to Class B shareholders and Class C shareholders for the
Balanced Portfolio* and a dividend from undistributed net investment income of
$.0675 per share to Class A shareholders and $.0450 per share to Class B
shareholders, and Class C shareholders for the Strategy Portfolio. All dividends
are payable on September 15, 1995 to shareholders of record on September 12,
1995.
- ------------------------------------------------------------
Note 8. Subsequent Events
On May 3, 1995, the Board of Directors of the Prudential Allocation Fund has
approved a name change for the Conservatively Managed Portfolio to the Balanced
Portfolio. On September 6, 1995, the shareholders of the Prudential
Incomevertible Fund approved the merger into the Balanced Portfolio. Both
changes are effective September 29, 1995.
- --------------------------------------------------------------------------------
20 *See Note
8.
<PAGE>
<PAGE>
PRUDENTIAL ALLOCATION FUND
Financial Highlights BALANCED PORTFOLIO*
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each of
the years indicated:
<TABLE>
<CAPTION>
Class
A
- -------------------------------------------------------
Year Ended
July 31,
- -------------------------------------------------------
1995 1994 1993
1992 1991
-------- -------
- ------- ------- ------
<S> <C> <C> <C>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............ $ 11.12 $ 11.75 $
11.00 $ 10.73 $10.23
-------- -------
- ------- ------- ------
Income from investment operations
Net investment income......................... .34 .33
.43 .44 .44
Net realized and unrealized gain (loss) on
investment transactions.................... 1.11 (.05)
1.16 .81 .73
-------- -------
- ------- ------- ------
Total from investment operations........... 1.45 .28
1.59 1.25 1.17
-------- -------
- ------- ------- ------
Less distributions
Dividends from net investment income.......... (.33) (.37)
(.37) (.44) (.44)
Distributions paid to shareholders from net
realized gains on investment
transactions............................... (.20) (.54)
(.47) (.54) (.23)
-------- -------
- ------- ------- ------
Total distributions........................ (.53) (.91)
(.84) (.98) (.67)
-------- -------
- ------- ------- ------
Net asset value, end of period................ $ 12.04 $ 11.12 $
11.75 $ 11.00 $10.73
-------- -------
- ------- ------- ------
-------- -------
- ------- ------- ------
TOTAL RETURN(a):.............................. 13.67% 2.39%
15.15% 12.29% 11.99%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $119,829 $37,512
$22,605 $10,944 $4,408
Average net assets (000)...................... $ 69,754 $29,875
$15,392 $ 7,103 $2,747
Ratios to average net assets:
Expenses, including distribution fees...... 1.22% 1.23%
1.17% 1.29% 1.38%
Expenses, excluding distribution fees...... 0.97% 1.00%
.97% 1.09% 1.18%
Net investment income...................... 2.90% 2.84%
3.88% 3.97% 4.44%
Portfolio turnover rate....................... 201% 108%
83% 105% 137%
</TABLE>
- ---------------
<TABLE>
<C> <S>
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions.
</TABLE>
- --------------------------------------------------------------------------------
*See Note 8.
See Notes to Financial Statements. 21
<PAGE>
<PAGE>
PRUDENTIAL ALLOCATION FUND
Financial Highlights BALANCED PORTFOLIO*
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated:
<TABLE>
<CAPTION>
Class B Class C
- ------------------------------------------------------------ ---------
August 1,
1994(a)
Year Ended
July 31, through
- ------------------------------------------------------------ July 31,
1995 1994
1993 1992 1991 1995
-------- --------
- -------- -------- -------- ---------
<S> <C> <C> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 11.09 $ 11.72 $
10.98 $ 10.71 $ 10.22 $ 11.12
-------- --------
- -------- -------- -------- ---------
Income from investment operations
Net investment income......................... .26 .24
.34 .35 .36 .21
Net realized and unrealized gain (loss) on
investment transactions.................... 1.10 (.05)
1.16 .82 .73 1.12
-------- --------
- -------- -------- -------- ---------
Total from investment operations........... 1.36 .19
1.50 1.17 1.09 1.33
-------- --------
- -------- -------- -------- ---------
Less distributions
Dividends from net investment income.......... (.25) (.28)
(.29) (.36) (.37) (.25)
Distributions paid to shareholders from net
realized gains on investment
transactions............................... (.20) (.54)
(.47) (.54) (.23) (.20)
-------- --------
- -------- -------- -------- ---------
Total distributions........................ (.45) (.82)
(.76) (.90) (.60) (.45)
-------- --------
- -------- -------- -------- ---------
Net asset value, end of period................ $ 12.00 $ 11.09 $
11.72 $ 10.98 $ 10.71 $ 12.00
-------- --------
- -------- -------- -------- ---------
-------- --------
- -------- -------- -------- ---------
TOTAL RETURN(d):.............................. 12.79% 1.61%
14.27% 11.48% 11.13% 12.49%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $392,291 $445,609
$321,831 $225,995 $162,281 $ 3,046
Average net assets (000)...................... $409,419 $392,133
$267,340 $189,358 $149,907 $ 920
Ratios to average net assets:(c)
Expenses, including distribution fees...... 1.97% 2.00%
1.97% 2.09% 2.16% 2.04%(b)
Expenses, excluding distribution fees...... .97% 1.00%
.97% 1.09% 1.16% 1.04%(b)
Net investment income...................... 2.34% 2.08%
3.04% 3.25% 3.55% 2.20%(b)
Portfolio turnover rate....................... 201% 108%
83% 105% 137% 201%
</TABLE>
- ---------------
<TABLE>
<C> <S>
(a) Commencement of offering of Class C shares.
(b) Annualized.
(c) Because of the recent commencement of its offering, the ratios for the
Class C shares are not necessarily comparable to
that of Class A or B shares and are not necessarily indicative of future
ratios.
(d) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions.
Total returns for periods of less than a full year are not annualized.
</TABLE>
- --------------------------------------------------------------------------------
*See Note 8.
22 See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL ALLOCATION FUND
Financial Highlights STRATEGY PORTFOLIO
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each of
the years indicated:
<TABLE>
<CAPTION>
Class
A
- -------------------------------------------------------
Year Ended
July 31,
- -------------------------------------------------------
1995 1994 1993
1992 1991
------- -------
- ------- ------- -------
<S> <C> <C> <C>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............ $ 11.60 $ 11.82 $
12.03 $ 11.45 $ 10.50
------- -------
- ------- ------- -------
Income from investment operations
Net investment income......................... .38 .30
.42 .35 .38
Net realized and unrealized gain on investment
and foreign currency transactions.......... 1.14 .05
.70 1.02 .98
------- -------
- ------- ------- -------
Total from investment operations........... 1.52 .35
1.12 1.37 1.36
------- -------
- ------- ------- -------
Less distributions
Dividends from net investment income.......... (.30) (.22)
(.37) (.37) (.35)
Dividends in excess of net investment
income..................................... -- (.01)
- -- -- --
Distributions paid to shareholders from net
realized gains on investment and foreign
currency transactions...................... (.34) (.34)
(.96) (.42) (.06)
------- -------
- ------- ------- -------
Total distributions........................ (.64) (.57)
(1.33) (.79) (.41)
------- -------
- ------- ------- -------
Net asset value, end of year.................. $ 12.48 $ 11.60 $
11.82 $ 12.03 $ 11.45
------- -------
- ------- ------- -------
------- -------
- ------- ------- -------
TOTAL RETURN(a):.............................. 13.95% 2.88%
10.02% 12.36% 13.42%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $87,081 $32,485
$28,641 $20,378 $10,765
Average net assets (000)...................... $57,020 $30,634
$24,216 $15,705 $ 6,694
Ratios to average net assets:
Expenses, including distribution fees...... 1.33% 1.26%
1.21% 1.26% 1.33%
Expenses, excluding distribution fees...... 1.08% 1.03%
1.01% 1.06% 1.13%
Net investment income...................... 3.34% 2.52%
3.61% 3.05% 3.89%
Portfolio turnover rate....................... 180% 96%
145% 241% 189%
</TABLE>
- ---------------
<TABLE>
<C> <S>
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions.
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 23
<PAGE>
<PAGE>
PRUDENTIAL ALLOCATION FUND
Financial Highlights STRATEGY PORTFOLIO
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated:
<TABLE>
<CAPTION>
Class B Class C
- ------------------------------------------------------------ ---------
August 1,
1994(a)
Year Ended
July 31, through
- ------------------------------------------------------------ July 31,
1995 1994
1993 1992 1991 1995
-------- --------
- -------- -------- -------- ---------
<S> <C> <C> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 11.54 $ 11.79 $
12.01 $ 11.43 $ 10.49 $ 11.57
-------- --------
- -------- -------- -------- ---------
Income from investment operations
Net investment income......................... .20 .21
.34 .26 .30 .25
Net realized and unrealized gain on investment
and foreign currency transactions.......... 1.22 .05
.70 1.02 .97 1.14
-------- --------
- -------- -------- -------- ---------
Total from investment operations........... 1.42 .26
1.04 1.28 1.27 1.39
-------- --------
- -------- -------- -------- ---------
Less distributions
Dividends from net investment income.......... (.21) (.16)
(.30) (.28) (.27) (.21)
Dividends in excess of net investment
income..................................... -- (.01)
-- -- -- --
Distributions paid to shareholders from net
realized gains on investment and foreign
currency transactions...................... (.34) (.34)
(.96) (.42) (.06) (.34)
-------- --------
- -------- -------- -------- ---------
Total distributions........................ (.55) (.51)
(1.26) (.70) (.33) (.55)
-------- --------
- -------- -------- -------- ---------
Net asset value, end of period................ $ 12.41 $ 11.54 $
11.79 $ 12.01 $ 11.43 $ 12.41
-------- --------
- -------- -------- -------- ---------
-------- --------
- -------- -------- -------- ---------
TOTAL RETURN(d):.............................. 13.05% 2.11%
9.21% 11.53% 12.49% 12.75%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $278,714 $351,140
$357,287 $314,771 $219,983 $ 289
Average net assets (000)...................... $307,439 $362,579
$339,225 $267,525 $190,913 $ 170
Ratios to average net assets:(c)
Expenses, including distribution fees...... 2.08% 2.03%
2.01% 2.06% 2.11% 2.10%(b)
Expenses, excluding distribution fees...... 1.08% 1.03%
1.01% 1.06% 1.11% 1.10%(b)
Net investment income...................... 1.77% 1.77%
2.79% 2.27% 2.95% 2.27%(b)
Portfolio turnover rate....................... 180% 96%
145% 241% 189% 180%
</TABLE>
- ---------------
<TABLE>
<C> <S>
(a) Commencement of offering of Class C shares.
(b) Annualized.
(c) Because of the recent commencement of its offering, the ratios for the
Class C shares are not necessarily comparable to
that of Class A or B shares and are not necessarily indicative of future
ratios.
(d) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions.
Total returns for periods of less than a full year are not annualized.
</TABLE>
- --------------------------------------------------------------------------------
24 See Notes to Financial Statements.
<PAGE>
<PAGE>
Report of Independent Accountants PRUDENTIAL ALLOCATION FUND
- --------------------------------------------------------------------------------
The Shareholders and Board of Trustees
Prudential Allocation Fund
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Prudential Allocation Fund (consisting of the
Balanced Portfolio (formerly the Conservatively Managed Portfolio) and the
Strategy Portfolio) as of July 31, 1995, the related statements of operations
for the year then ended and of changes in net assets for each of the two years
in the period then ended, and the financial highlights for each of the five
years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on
a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
July 31, 1995 by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing procedures. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of each of the
respective portfolios constituting Prudential Allocation Fund as of July 31,
1995, the results of their operations, the changes in their net assets and the
financial highlights for the respective stated periods in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
September 7, 1995
Tax Information PRUDENTIAL ALLOCATION FUND
- --------------------------------------------------------------------------------
We are required by the Internal Revenue Code to advise you within 60 days of the
Fund's fiscal year end (July 31, 1995) as to the federal tax status of dividends
and distributions paid by the Fund during such fiscal year. Accordingly, during
its fiscal year ended July 31, 1995, the Fund paid aggregate dividends and
distributions as follows:
<TABLE>
<CAPTION>
Balanced
Portfolio* Strategy Portfolio
- --------------------------------- ---------------------------------
<S> <C> <C>
<C> <C> <C> <C>
Class A Class B
Class C Class A Class B Class C
------- -------
------- ------- ------- -------
Dividends from ordinary income.......... $ .33 $ .25
$ .25 $ .30 $ .21 $ .21
Distributions from long-term capital
gains................................... .20 .20
.20 .34 .34 .34
</TABLE>
Dividends paid from long-term capital gains are taxable as such. We also wish
to
advise you that 18.4%--Balanced Portfolio* and 46.0%--Strategy Portfolio of the
dividends paid from ordinary income in the fiscal year ended July 31, 1995
qualified for the corporate dividends received deduction available to corporate
taxpayers.
In January 1996, you will be advised on IRS Form 1099 DIV or substitute 1099 DIV
as to the federal tax status of the dividends and distributions received by you
in calendar year 1995.
- --------------------------------------------------------------------------------
*See Note 8. 25
<PAGE>
Getting
The Most
From Your
Prudential
Mutual
Fund
Some mutual fund shareholders won't ever read this -- they don't read annual
and semi-annual reports. It's quite understandable These annual and
semi-annual reports are prepared to comply with Federal regulations. They
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, in hopes you'll find it
profitable to spend a few minutes familiarizing yourself with your investment.
Here's what you'll find in the report:
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 "At A Glance" page where we compare the Fund and the comparable
average calculated by Lipper Analytical Services, 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 generally smoothes out
returns and gives you an idea 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. And keep in mind that past performance is not
indicative of future results.
Portfolio
Manager's Report
The portfolio manager who invests your money for you reports on
successful -- and not-so-successful -- strategies in this section
of your report. Look for recent purchases and sales here, as well
as information about the sectors the portfolio managers favors and
any changes that are on the drawing board.
Portfolio of
Investments
This is where the report begins to look technical, but it's really just a
listing of each security held at the end of the reporting period, along
with valuations and other information. Please note that sometimes we discuss
a security in the Portfolio Manager's Report that doesn't appear in this
listing because it was sold before the close of the reporting period.
<PAGE>
Statement of Assets
and Liabilities
The balance sheet shows the assets (the value of the Fund's holdings),
liabilities (how much the Fund owes) and net assets (the Fund's equity,
or holdings after the Fund pays its debts) as of the end of the reporting
period. It also shows how we calculate the net asset value per share for
each class of shares. The net asset value is reduced by payment of your
dividend, capital gain, or other distribution, but remember that the money
or new shares are being paid or issued to you and thus is not a realized
loss. The net asset value fluctuates daily along with the value of every
security in the portfolio.
Statement of
Operations
This is the income statement, which details income (mostly interest and
dividends earned) and expenses (including what you pay us to manage your
money). You'll also see capital gains here -- both realized and unrealized.
Statement of Changes
in Net Assets
This schedule shows how income and expenses translate into changes in net
assets, compared to last year's performance. 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 also outline how
Prudential Mutual Funds prices securities. The Notes also explain who manages
and distributes the Fund's shares, and more importantly, how much they are
paid for doing so. Finally, the Notes explain how many shares are outstanding
and the number issued and redeemed over the period.
Financial Highlights
This information contains many elements from prior pages, but on a per share
basis. It is designed to help you understand how the Fund performed and to
compare this year's performance and expenses to those of prior years.
Independent
Auditor's Report
Once a year, an outside auditor looks over our books and certifies that
the information we've presented is fair and complies with generally accepted
accounting principles.
Tax Information
This is information which we report annually about how much of your total
return is taxable. Should you have any questions, you may want to consult
a tax advisor.
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 broadly based
reference point commonly used by investors to measure how well they are
doing. A definition of the selected index is also provided. Investors
generally cannot invest directly in an index.
<PAGE>
Balanced Portfolio Lehman Gov't/Corp Index S&P 500 Index
Prudential Allocation Fund: Balanced Portfolio, Lehman
Gov't./Corp. Index & S&P 500: Comparing a $10,000 Investment.
Class A
(CHART)
Class B
(CHART)
Class C
(CHART)
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so an investor's shares, when redeemed, will
be worth more or less than their original cost. The charts on the right are
designed to give you an idea how much the Fund's returns can fluctuate from
year to year by measuring the best and worst years in terms of total annual
return since inception of each share class.
These graphs are furnished to you in accordance with SEC regulations. They
compare a $10,000 investment in the Prudential Allocation Fund (Balanced
Portfolio Class A, Class B and Class C) with similar investments in the
Lehman Government/Corporate Bond Index and the S&P 500 Index by portraying
the initial account values at the commencement of operations of each class,
and subsequent account values at the end of this reporting period (July 31),
as measured on a quarterly basis, beginning in 1990 for Class A shares, in
1987 for Class B shares and in 1994 for Class C shares. For purposes of the
graphs, and unless otherwise indicated, in the accompanying tables it has
been assumed (a) that the maximum applicable front-end sales charge was
deducted from the initial $10,000 investment in Class A shares; (b) the
maximum applicable contingent deferred sales charge was deducted from the
value of the investment in Class B and Class C shares, assuming full
redemption on July 31, 1995; (c) all recurring fees (including management
fees) were deducted; and (d) all dividends and distributions were
reinvested. Class B shares automatically convert to Class A shares
on a quarterly basis, approximately seven years after purchase. This
conversion feature is not reflected in the graph.
The Lehman Government/Corporate Bond Index is a weighted index comprised
of public, fixed- rate, non-convertible domestic corporate debt securities
that are rated at least investment grade (BBB/Baa or higher) and public
obligations of the U.S. Treasury. The S&P 500 is a capital- weighted index,
representing the aggregate market value of the common equity of 500 stocks
primarily traded on the New York Stock Exchange. Both the Lehman
Government/Corporate Bond Index and the S&P 500 are unmanaged indices and
include the reinvestment of all dividends, but do not reflect the payment
of transaction costs and advisory fees associated with an investment in the
Fund. The securities in these indices may differ substantially from the
securities in each of the Fund's portfolios. The Lehman Government/Corporate
Bond Index and the S&P 500 are not the only indices that may be used to
characterize performance of balanced funds and other indices may portray
different comparative performance.
<PAGE>
Strategy Portfolio Lehman Gov't/Corp Index S&P 500 Index
Prudential Allocation Fund: Strategy Portfolio, Lehman
Gov't./Corp. Index & S&P 500: Comparing a $10,000 Investment.
Class A
(CHART)
Class B
(CHART)
Class C
(CHART)
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so an investor's shares, when redeemed, will
be worth more or less than their original cost. The charts on the right are
designed to give you an idea how much the Fund's returns can fluctuate from
year to year by measuring the best and worst years in terms of total annual
return since inception of each share class.
These graphs are furnished to you in accordance with SEC regulations. They
compare a $10,000 investment in the Prudential Allocation Fund (Strategy
Portfolio Class A, Class B and Class C) with similar investments in the Lehman
Government/Corporate Bond Index and the S&P 500 Index by portraying the initial
account values at the commencement of operations of each class, and subsequent
account values at the end of this reporting period (July 31), as measured on a
quarterly basis, beginning in 1990 for Class A shares, in 1987 for Class B
shares and in 1994 for Class C shares. For purposes of the graphs, and unless
otherwise indicated, in the accompanying tables it has been assumed (a) that
the maximum applicable front-end sales charge was deducted from the initial
$10,000 investment in Class A shares; (b) the maximum applicable contingent
deferred sales charge was deducted from the value of the investment in Class B
and Class C shares, assuming full redemption on July 31, 1995; (c) all
recurring fees (including management fees) were deducted; and (d) all dividends
and distributions were reinvested. Class B shares automatically convert to
Class A shares on a quarterly basis, approximately seven years after purchase.
This conversion feature is not reflected in the graph.
The Lehman Government/Corporate Bond Index is a weighted index comprised of
public, fixed- rate, non-convertible domestic corporate debt securities that
are rated at least investment grade (BBB/Baa or higher) and public obligations
of the U.S. Treasury. The S&P 500 is a capital- weighted index, representing
the aggregate market value of the common equity of 500 stocks primarily traded
on the New York Stock Exchange. Both the Lehman Government/Corporate Bond Index
and the S&P 500 are unmanaged indices and include the reinvestment of all
dividends, but do not reflect the payment of transaction costs and advisory
fees associated with an investment in the Fund. The securities in these indices
may differ substantially from the securities in each of the Fund's portfolios.
The Lehman Government/Corporate Bond Index and the S&P 500 are not the only
indices that may be used to characterize performance of balanced funds and
other indices may portray different comparative performance.
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
(LOGO)
Trustees
Edward D. Beach
Donald D. Lennox
Douglas H. McCorkindale
Thomas T. Mooney
Richard A. Redeker
Louis A. Weil, III
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Susan C. Cote, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Marguerite E.H. Morrison, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributors
Prudential Mutual Fund Distributors, Inc.
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 06010-4795
This report is not authorized for distribution to prospective investors
unless preceded or accompanied by a current prospectus.
74429R108 74429R405 MF134E
74429R207 74429R504 Cat. #642032D
74429R306 74429R603
