(ICON)
Prudential
Allocation
Fund
Balanced Portfolio
Strategy Portfolio
Semi
Annual Report
January 31, 1996
(LOGO)
<PAGE>
Portfolio
Manager's Report
U.S. stock and bond prices generally climbed higher over the last six months.
Virtually all types of stocks rose, driven by strong corporate earnings and
lower interest rates. In late fall, though, technology stocks slipped, while
consumer growth and utility stocks surged higher. The Prudential Allocation
Fund: Balanced Portfolio and Strategy Portfolio each owned significant
technology stock holdings. As a result, both portfolios had a disappointing six
months, finishing behind the S&P 500 Index and the average Lipper Flexible
Portfolio for the reporting period ending January 31, 1996.
Broader Was Better.
Stocks, as measured by Standard & Poor's 500 Stock Index, gained 14.5% over the
last six months and 38.7% for the 12-month period ended January 31, 1996. Over
the same time bonds also scored, rising 7.3% and 17% respectively, according to
the Lehman Brothers Aggregate Index.
The S&P 500's impressive performance masked turbulence in certain sectors of
the market. Technology stocks, for example, led all sectors through the first
half of 1995, but then pulled back toward the end of the year. What caused the
downturn? Investors were concerned about future earnings, mostly because of
reports indicating lower demand for semiconductors.
Bonds also had reason to celebrate over the last six months. Inflation was
subdued enough that the Federal Reserve cut short-term interest rates twice --
in December of 1995, and then again in January of 1996. Bond prices rose as the
30-year Treasury yield declined to 6% in January from 7% last August (bond
yields move in the opposite direction of bond prices).
The Allocation Team.
(PICTURE)
Greg A. Smith, Chief Investment Strategist of Prudential Securities, provides
sector allocation advice for the Strategy Portfolio.
(PICTURE)
Portfolio Manager Greg Goldberg determines the asset allocation for the
Balanced Portfolio and oversees the management of both the Strategy Portfolio
and Balanced Portfolio. Greg follows a "growth" style of investing, selecting
stocks based on their potential to deliver above-average growth in revenues
and earnings.
How Investments Compared.
(As of 1/31/96)
(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 r loss. In addition, we've added
historical 20-year average annual returns. The returns assume the reinvestment
of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors have received higher
historical total returns from stocks than from most other investments. Smaller
capitalization stocks offer greater potential for long-term growth but may be
more volatile than larger capitalization stocks.
Flexible Funds seek a high total return by investing in a mixture of stocks,
bonds and cash instruments.
General 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 significantly) and their returns have been historically lower than
those of stock funds.
Money Market Funds attempt to preserve a constant share value; they don't
fluctuate much in price but, historically, their returns have been generally
among the lowest of the major investment categories.
<PAGE>
Prudential Allocation Fund:
Balanced Portfolio
The Balanced Portfolio invests in a diversified portfolio of stocks, bonds
(including convertible stocks and bonds) and money market instruments. The
Portfolio generally holds bonds of larger, more mature companies, which may be
subject to less price volatility than those held by the Strategy Portfolio, and
the weighted average maturity of the Balanced Portfolio's holdings is usually
shorter than that of the Strategy Portfolio.
The Balanced Portfolio may invest in foreign securities, which may be subject
to currency and political risk, and up to 10% of its assets in bonds rated
below investment grade, commonly known as "junk bonds," which are subject to
greater credit risk. The Balanced Portfolio may also engage in various
strategies to reduce certain investment risks and to attempt to enhance return,
using derivatives such as options, forward currency exchange contracts and
futures contracts, the risks of which are described in the prospectus.
<TABLE>
<CAPTION>
Cumulative Total Returns1 As of 1/31/96
Six One Five Since
Months Year Years Inception2
<S> <C> <C> <C> <C>
Class A 4.7% 20.1% 70.4% 88.0%
Class B 4.2 19.3 63.9 98.6
Class C 4.2 19.3 N/A 17.2
Lipper Flexible Port. Avg3 8.9 26.0 81.9 108.2
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns1 As of 12/31/95
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A 11.8% 10.4% 9.9%
Class B 11.7 10.5 8.4
Class C 15.7 N/A 10.3
</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.
1Source: 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 will
automatically convert to Class A shares on a quarterly basis approximately
seven years after purchase.
2Inception dates: 1/22/90 Class A; 9/15/87 Class B; 8/1/94 Class C.
3Lipper average returns are for 169 funds for six months 147 funds for one
year, 42 funds for five years and 15 funds since inception of Class B shares on
9/15/87.
Investment Allocation
Six-Month Comparison
Balanced Portfolio
(GRAPH)
Expressed as a percentage of total net assets as of 7/31/95 and 1/31/96.
*Includes convertible securities.
Strategy Session.
Over the past six months, our strategy was to favor a slightly higher than
normal weighting in stocks and bonds. We believed that stocks still had room to
rise, especially if the economy continued to expand at a healthy rate. We also
believed interest rates would continue to decline in 1996, although probably
not as much as in 1995. We decreased our cash holdings to 8% of net assets from
13% during the period and bought stocks with the difference.
Within our bond allocation, we eliminated our dollar-denominated emerging
market debt, to focus primarily on U.S. Treasury bonds. We believed there was
better value in the U.S. bond market than in less-developed countries. Among
stocks, we focused on technology, financial services and growth-oriented
companies. Our technology stocks started losing momentum in November when
earnings slowed, which resulted in negative returns.
<PAGE>
Balanced Portfolio
What Went Well.
Focus On Financials.
Financial services stocks profited from lower interest rates, which made the
cost of their raw material -- money -- cheaper. One of our best performers was
the Federal National Mortgage Association (Fannie Mae), which comprised 2.6% of
total net assets and gained more than 47% over the past six months. Fannie Mae
buys mortgages from lending institutions. It holds a majority of them as
investments and repackages the rest for sale to the public as mortgage-backed
securities. As interest rates fell in 1995, Fannie Mae was able to borrow at
lower rates to invest in higher paying mortgages, which increased their
revenues and earnings for the year.
Lengthening Duration.
Since July, we lengthened the duration of the bond portion of the portfolio.
The longer the duration, the more sensitive a bond's price is to interest rate
changes. This strategy helped our bond holdings perform well as long-term
interest rates declined during the last six months.
What Could Have Gone Better.
We were right to shift more assets into stocks (technology stocks in
particular), but we missed out on the early gains and then were hurt later when
declines hit the sector.
Right Place, Wrong Time.
Technology stocks had the highest returns through the first half of 1995 but
gained less than 1% since then, as of January 31, 1996. Over the past six
months, we gradually increased our technology stock holdings to 19% from 17% of
net assets. During the fourth quarter, some of our semiconductor stocks lost
all of their 1995 gains as concerns of a potential supply glut and lower prices
rattled investors. We're holding onto certain networking and computer software
stocks, which rebounded nicely in mid-January.
When investors became skittish about the future earnings growth of technology
companies, many sold them to buy lower priced utility and consumer growth
stocks, such as pharmaceutical, tobacco and restaurant companies. This helped
push consumer growth and utility stock prices higher. Unfortunately, our
performance was hindered because we did not hold as many assets in these stocks
as the average flexible fund.
Looking Ahead.
We anticipate stable interest rates and continued economic growth in 1996. We
believe long-term interest rates will stabilize around 6.5% and short-term
rates will remain steady. Corporate earnings should continue to grow but at a
slower rate than in 1995. We see the best growth potential among the financial
services sector, certain technology industries, as well as cyclical companies
(such as retailers, airlines, etc.).
Five Largest Issuers.
23.3% U.S. Government
Bonds and Notes
2.6% Cisco Systems
Computer Software Services
2.6% Federal National
Mortgage Association
Financial Services
1.8% SunAmerica
Insurance
1.6% Bay Networks
Computer Software
Services
Expressed as a percentage of total net assets as of 1/31/96.
- -------------------------------------------------------------------------------
1
<PAGE>
Prudential Allocation Fund:
Strategy Portfolio
The Strategy Portfolio invests in stocks of major corporations and smaller,
faster growing companies (small company stocks are subject to a greater degree
of risk and price volatility than stocks of major corporations) and a
combination of investment grade, high yield bonds and foreign stocks and bonds.
On January 31, 1996, assets were split equally between stocks and bonds with
12% of holdings in cash.
There are special risks associated with foreign investing, such as economic,
political and social developments, as well as currency fluctuations. The
Strategy Portfolio may invest as much as 25% of assets in bonds 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>
<CAPTION>
Cumulative Total Returns1 As of 1/31/96
Six One Five Since
Months Year Years Inception2
<S> <C> <C> <C> <C>
Class A 7.5% 24.3% 70.2% 87.2%
Class B 7.1 23.4 63.7 102.5
Class C 7.1 23.4 N/A 20.7
Lipper Flexible Port. Avg3 8.9 26.0 81.9 108.2
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns1 As of 12/31/95
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A 16.1% 10.6% 9.9%
Class B 16.3 10.7 8.7
Class C 20.3 N/A 13.0
</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.
1Source: 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 will
automatically convert to Class A shares on a quarterly basis approximately
seven years after purchase.
2Inception dates: 1/22/90 Class A; 9/15/87 Class B; 8/1/94 Class C.
3Lipper average returns are for 169 funds for six months, 147 funds for one
year, 42 funds for five years and 15 funds since inception of Class B shares on
9/15/87.
Investment Allocation
Six-Month Comparison
Strategy Portfolio
(GRAPH)
Expressed as a percentage of total net assets as of 7/31/95 and 1/31/96.
*Includes convertible securities.
Strategy Session.
Over the past six months, our strategy was to continue to invest the cash that
we had held in the earlier part of 1995. We bought more stocks and bonds,
reducing our focus on technology issues in favor of more cyclical stocks. Six
months ago we held about 19% of net assets in technology stocks hoping to
capitalize on that sector's accelerating returns. But by November, they started
losing momentum and earnings slowed, resulting in negative returns.
So, we reduced our technology holdings, which pushed our cash holdings as high
as 20% of net assets in early January. We put some of it back to work by buying
more bonds as well as stocks of cyclical companies - those whose earnings rise
and fall with economic growth. Cyclical stocks presented good value in terms
of price and estimated earnings growth.
- -------------------------------------------------------------------------------
2
<PAGE>
Strategy Portfolio
What Went Well.
Owning More Bonds.
We increased our bond holdings to 44% of net assets from 29% over the past six
months. We believed long- and short-term interest rates would decline as
economic growth slowed and inflation remained in check. We were right. We also
lengthened the Portfolio's duration (as a rule, the longer the duration the
more sensitive a bond's price is to interest rate changes) which helped our
bonds perform well.
Focus On Finance And Energy.
We focused on finance and energy stocks, which reached as high as 34% and 13%
of net assets, respectively, during the period. Financial services stocks were
direct beneficiaries of lower interest rates, which made the cost of their raw
material--money--cheaper. Stocks of oil-related companies also rose in value as
oil prices stabilized and new technologies continued to make operating new oil
and gas wells cheaper.
What Could Have Gone Better.
Cash Was Not King.
Rising interest rates in 1994 enabled cash to perform better than bonds and
stocks. In early 1995, we thought that rising rates would hurt the stock and
bond markets, so we held a lot of cash (more than 30% on January 31, 1995). As
it turned out, we were right about short-term interest rates (they rose) but
wrong about how bonds and stocks would react--bond and stock prices began
rising sharply. Our large cash position at the beginning of 1995 caused us to
miss out on the early stages of this rally, which continued to hinder
performance through January 31, 1996.
We Stayed Too Long In Technology.
When we last reported to you, our technology holdings were 19% of total net
assets. Since then, these stocks were hurt after some companies reported lower
than expected earnings. Our semi-conductor stocks were hit hardest because of
a
potential supply glut and lower prices rattled investors. We reduced our
technology holdings in December, and used the proceeds to buy more stocks of
cyclical companies, which may benefit from moderate economic growth.
Looking Ahead.
We anticipate stable interest rates and continued economic growth in 1996. We
believe long-term interest rates will stabilize around 6.5% and short-term
rates will remain steady. Corporate earnings should continue to grow but at as
lower rate than in 1995. We see the best growth potential among the financial
services sector, certain technology industries, as well as cyclical companies
(such as retailers, airlines, etc.).
Five Largest Issuers.
42.2% U.S. Government
Bonds and Notes
2.2% Cisco Systems
Computer Software
Services
2.2% Federal National
Mortgage Association
Financial Services
1.5% Bay Networks
Computer Software
Services
1.4% Travelers Group
Financial Services
Expressed as a percentage of total net assets as of 1/31/96.
- -----------------------------------------------------------------------------
3
3
<PAGE>
President's Letter March 5, 1996
(PHOTO)
Dear Shareholder:
For many investors, 1995 was a profitable year -- most stock and bond funds
enjoyed healthy returns from the U.S. markets. While climbing returns can tempt
even the most skittish investors to start buying again, it is important to
remember that the stock and bond markets go down just as they go up. At times
like these, remember the importance of working with your Financial Advisor or
Registered Representative to help you find investments that are consistent with
your risk tolerance and time horizon. Your Financial Advisor or Registered
Representative can help you maintain realistic expectations about both the
potential performance and risks associated with your investments.
Shareholder Legislative Action Program.
From time to time we've been informing you about significant legislation before
Congress, such as the American Dream Savings Account, that may potentially
impact mutual fund investors. We want to make it easier for you to share your
views with your Congressional member. So, beginning in 1996, whenever Congress
is considering legislation that would affect you, we'll send you postage-paid
message cards that you simply drop in the mail if you want to let your senator
or representative know how you want him or her to vote.
Fund Profiles.
Over the past year, we've worked to make your shareholder reports more
interesting, informative and easy to read. This year, we'll be considering
"fund profiles." Some mutual fund companies now offer one to shareholders
along with a full prospectus. The purpose of a fund profile is to provide a
very brief, reader-friendly summary of a fund's objective, investments, risks
and expenses. Would you like to see fund profiles from us? Please call your
Financial Advisor or Registered Representative to share your views.
As always, thank you for your confidence in Prudential Mutual Funds.
Sincerely,
Richard A. Redeker
President
- -------------------------------------------------------------------------------
4
<PAGE>
Portfolio of Investments as of PRUDENTIAL ALLOCATION FUND
January 31, 1996 (Unaudited) BALANCED PORTFOLIO
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--91.2%
COMMON STOCKS--53.3%
- ------------------------------------------------------------
Aerospace/Defense--0.6%
55,800 Boeing Co. $ 4,331,475
- ------------------------------------------------------------
Automotive--0.7%
130,000 Varity Corp.* 4,810,000
- ------------------------------------------------------------
Chemicals--2.8%
390,600 Agrium Inc. (Canada) 5,346,320
98,000 Dow Chemical Co. 7,301,000
175,000 Union Carbide Corp. 7,371,875
-------------
20,019,195
- ------------------------------------------------------------
Computer & Related Equipment--11.5%
158,550 Advanta Corp. 6,560,006
67,100 Advanta Corp. (ADS) 2,818,200
267,000 Bay Networks* 11,347,500
228,000 Cisco Systems, Inc.* 18,981,000
82,300 Compaq Computer Corp.* 3,878,387
186,000 COMS Corp. 3,487,500
90,000 Comverse Technology, Inc.* 1,743,750
166,100 EMC Corp.* 3,176,662
150,000 Intel Corp. 8,285,156
79,100 Motorola, Inc. 4,251,625
214,900 Network Express, Inc.* 832,737
73,900 Quad Systems Corp.* 572,725
75,900 Ross Technology Inc.* 986,700
236,000 Sun Microsystems Inc.* 10,856,000
314,000 Western Digital Corp.* 5,809,000
-------------
83,586,948
- ------------------------------------------------------------
Containers & Packaging--0.3%
148,800 Stone Container Corp. 2,176,200
Drugs & Health Care--5.4%
134,500 AMGEN Inc.* $ 8,086,813
84,500 Bard (C.R.), Inc. 2,957,500
93,000 Columbia/HCA Healthcare Corp. 5,173,125
67,400 Forest Laboratories, Inc.* 3,639,600
95,000 Johnson & Johnson 9,120,000
111,400 Physician Corp. of America* 2,005,200
76,850 St. Jude Medical, Inc.* 3,391,006
186,000 United States Surgical Corp. 4,836,000
-------------
39,209,244
- ------------------------------------------------------------
Electrical Equipment--0.6%
149,800 UCAR International Inc.* 4,662,525
- ------------------------------------------------------------
Electronics--4.1%
127,800 Applied Materials, Inc.* 4,728,600
91,100 KLA Instruments Corp.* 2,687,450
178,500 Tencor Instruments* 4,116,656
120,000 Texas Instruments Inc. 5,580,000
230,200 Ultratech Stepper Inc. 6,762,125
177,000 Uniphase Corp.* 6,195,000
-------------
30,069,831
- ------------------------------------------------------------
Financial Services--8.3%
44,400 Ahmanson (H.F.) & Co. 1,065,600
35,300 Citicorp 7,148,250
115,800 Dean Witter, Discover & Co. 6,267,675
543,200 Federal National Mortgage Association 18,740,400
297,200 Money Store, Inc. 5,795,400
117,300 Republic New York Corp. 6,832,725
186,000 Salomon Inc. 7,091,250
93,600 Student Loan Marketing Association 6,891,300
-------------
59,832,600
- ------------------------------------------------------------
Household Products--0.2%
15,500 Colgate-Palmolive Co. 1,147,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5 -----
<PAGE>
<PAGE>
Portfolio of Investments as of PRUDENTIAL ALLOCATION FUND
January 31, 1996 (Unaudited) BALANCED PORTFOLIO
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Insurance--6.0%
166,200 Allstate Corp. $ 7,375,125
62,800 Amerin Corp.* 1,624,950
253,600 Equitable Companies, Inc. 6,244,900
83,700 Equitable of Iowa Cos. 3,096,900
116,600 Primark Corp.* 3,891,525
271,100 SunAmerica, Inc. 13,351,675
117,000 Travelers Group Inc. 7,692,750
-------------
43,277,825
- ------------------------------------------------------------
Oil & Gas--1.1%
83,000 Atlantic Richfield Co. 2,085,375
137,600 Mesa Inc.* 481,600
337,300 Noble Drilling Corp.* 3,309,756
146,300 Oryx Energy Co.* 1,920,188
-------------
7,796,919
- ------------------------------------------------------------
Paper & Forest Products--2.0%
100,000 Georgia-Pacific Corp. 7,337,500
180,000 International Paper Co. 7,357,500
-------------
14,695,000
- ------------------------------------------------------------
Petroleum Services--2.0%
335,500 BJ Services Co. 8,974,625
225,000 Smith International, Inc.* 5,287,500
-------------
14,262,125
- ------------------------------------------------------------
Realty Investment Trust--0.2%
85,700 Manufacturers Home Communities, Inc. 1,564,025
- ------------------------------------------------------------
Retail--0.8%
122,000 Caldor Corp.* 396,500
186,000 Dillard Department Stores, Inc. 5,394,000
-------------
5,790,500
- ------------------------------------------------------------
Software--1.9%
35,900 Baan Co. N.V.* (Netherlands) 1,557,163
90,500 Microsoft Corp.* 8,371,250
26,400 PIXAR Inc.* 528,000
263,700 Softkey International Inc.* $ 3,658,838
-------------
14,115,251
- ------------------------------------------------------------
Steel--0.5%
102,300 AK Steel Holding Corp. 3,542,138
- ------------------------------------------------------------
Steel & Metals--1.8%
73,000 Alumax, Inc.* 2,299,500
130,000 Aluminum Co. of America 7,215,000
272,000 National Steel Corp.* 3,740,000
-------------
13,254,500
- ------------------------------------------------------------
Telecommunications--0.8%
395,300 Nextel Communications Inc.* 5,435,375
- ------------------------------------------------------------
Tobacco--1.7%
65,100 Philip Morris Co., Inc. 6,054,300
933,700 RJR Nabisco Holdings Corp. 6,185,763
-------------
12,240,063
-------------
Total common stocks (cost
$341,094,408) 385,818,739
-------------
PREFERRED STOCKS--0.3%
- ------------------------------------------------------------
Insurance--0.3%
39,400 American General Delaware
Conv. Pfd. Stock
(cost $1,970,930) 2,196,550
-------------
<CAPTION>
Principal
Moody's Amount
Rating (000)
- ------------ --------
<C> <C> <S> <C>
DEBT OBLIGATIONS--37.6%
CORPORATE BONDS--14.3%
- ------------------------------------------------------------
Computer & Related Equipment--3.0%
Ba1 $ 4,975 Digital Equipment Corp.,
7.125%, 10/15/02 5,039,824
Ba3 4,356 E M C Corp.,
4.25%, 1/1/01 4,881,943
</TABLE>
- --------------------------------------------------------------------------------
- -----6 See Notes to Financial Statements.
<PAGE>
<PAGE>
Portfolio of Investments as of PRUDENTIAL ALLOCATION FUND
January 31, 1996 (Unaudited) BALANCED PORTFOLIO
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Principal
Moody's Amount Description Value (Note 1)
Rating (000) (Note 1)
<C> <C> <S> <C>
- ------------------------------------------------------------
Computer & Related Equipment (cont'd.)
A1 $ 9,835 Motorola Inc.,
Zero coupon, 9/27/13 $ 7,351,662
B1 1,946 Seagate Technology Inc.,
5.00%, 11/1/03 4,429,583
------------
21,703,012
- ------------------------------------------------------------
Conglomerate--0.8%
14,000 Valhi, Inc.,
Zero coupon, 10/20/07 5,551,000
- ------------------------------------------------------------
Containers & Packaging--0.4%
B2 2,205 Stone Container Corp.,
8.875%, 7/15/00 3,194,494
- ------------------------------------------------------------
Drugs & Health Care--1.6%
B3 7,305 Beverly Enterprises, Inc.,
5.50%, 8/1/18 7,314,131
NR 5,555 Roche Holdings Inc.,
(Switzerland)
Zero coupon, 9/23/08 4,187,081
------------
11,501,212
- ------------------------------------------------------------
Electronics--1.0%
B2 5,500 Integrated Device
Technology Inc.,
5.50%, 6/1/02 4,555,595
Ba1 2,500 Westinghouse Electric
Corp.,
6.875%, 9/1/03 2,436,475
------------
6,992,070
- ------------------------------------------------------------
Financial Services--2.8%
Associates Corp. of North
America,
Aa3 750 6.875%, 1/15/97 759,690
Aa3 200 8.375%, 1/15/98 211,218
NR 3,160 Banco Nacional De Mexico,
(Mexico)
7.00%, 12/15/99 2,776,850
A2 1,000 First Union Corp.,
Sub. Note,
9.45%, 6/15/99 1,115,860
A1 $ 5,000 Ford Motor Credit Co.,
7.75%, 3/15/05 $ 5,499,600
A2 10,000 Sears Roebuck Acceptance
Corp.,
6.75%, 9/15/05 10,355,600
------------
20,718,818
- ------------------------------------------------------------
Food & Beverage--0.1%
A3 500 Coca Cola Enterprises,
Inc.,
6.50%, 11/15/97 509,535
- ------------------------------------------------------------
Foreign Industrial--0.2%
NR 2,000 Nippon Denro Ispat, Ltd.,
(India)
3.00%, 4/1/01 1,165,000
- ------------------------------------------------------------
Insurance--0.5%
Baa3 7,135 USF&G Corp.,
Zero coupon, 3/3/09 3,995,600
- ------------------------------------------------------------
Oil & Gas--1.2%
Ba2 1,000 Arkla, Inc., (MTN),
9.30%, 1/15/98 1,054,810
Baa3 5,434 Noble Affiliates Inc.,
4.25%, 11/1/03 5,474,755
B2 2,420 Oryx Energy Co.,
7.50%, 5/15/14 2,202,200
------------
8,731,765
- ------------------------------------------------------------
Retail--0.5%
Baa3 7,000 K Mart Corp.,
8.125%, 12/1/06 4,200,000
- ------------------------------------------------------------
Tobacco--0.7%
Baa 5,000 RJR Nabisco, Inc.,
7.625%, 9/15/03 4,967,100
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7 -----
<PAGE>
<PAGE>
Portfolio of Investments as of PRUDENTIAL ALLOCATION FUND
January 31, 1996 (Unaudited) BALANCED PORTFOLIO
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Principal
Moody's Amount Description Value (Note 1)
Rating (000) (Note 1)
<C> <C> <S> <C>
- ------------------------------------------------------------
Tourism/Resorts--1.5%
Baa1 $ 3,260 Carnival Cruise Lines,
Inc.,
4.50%, 7/1/97 $ 5,116,766
Baa3 5,000 Royal Caribbean Cruises
Ltd.,
8.25%, 4/1/05 5,472,850
------------
10,589,616
------------
Total corporate bonds
(cost $101,229,909) 103,819,222
U. S. GOVERNMENT SECURITIES--23.3%
30,000 United States Treasury
Bonds,
7.625%, 2/15/25 36,318,600
United States Treasury
Notes,
40,000 5.625%, 10/31/97 40,450,000
30,100 7.50%, 2/15/05 34,083,434
25,000 6.50%, 5/15/05 26,578,000
30,000 6.125%, 7/31/00 31,040,700
------------
Total U. S. Government
securities
(cost $159,750,260) 168,470,734
------------
Total debt obligations
(cost $260,980,169) 272,289,956
------------
Total long-term
investments (cost
$604,045,507) 660,305,245
------------
- ------------------------------------------------------------
SHORT-TERM INVESTMENTS--3.3%
CORPORATE NOTES--0.1%
- ------------------------------------------------------------
Ba1 400 Westinghouse Credit Corp.,
(MTN)
8.75%, 6/3/96 402,204
Ba1 450 Westinghouse Electric
Corp.,
8.70%, 6/20/96 452,844
------------
Total corporate notes
(cost $887,261) 855,048
------------
REPURCHASE AGREEMENT--3.2%
- ------------------------------------------------------------
$ 23,255 Joint Repurchase Agreement
Account,
5.91%, 2/1/96, (Note 5)
(cost $23,255,000) $ 23,255,000
------------
Total short-term
investments (cost
$24,142,261) 24,110,048
- ------------------------------------------------------------
Total Investments--94.5%
(cost $628,187,768; Note
4) 684,415,293
Other assets in excess of
liabilities--5.5% 39,468,638
------------
Net Assets--100% $723,883,931
------------
------------
</TABLE>
- ---------------
* Non-income producing security.
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.
- --------------------------------------------------------------------------------
- -----8 See Notes to Financial Statements.
<PAGE>
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL ALLOCATION FUND
(Unaudited) BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<S>
<C>
Assets
January 31, 1996
Investments, at value (cost
$628,187,768).................................................................
$684,415,293
Cash.........................................................................
............................. 61,361
Receivable for investments
sold...........................................................................
63,117,162
Dividends and interest
receivable...................................................................
...... 4,967,376
Receivable for Fund shares
sold...........................................................................
957,547
Deferred
expenses.....................................................................
.................... 16,440
----------------
Total
assets.......................................................................
.................... 753,535,179
----------------
Liabilities
Payable for investments
purchased....................................................................
..... 26,920,703
Payable for Fund shares
reacquired...................................................................
..... 1,812,805
Due to
Distributor..................................................................
...................... 428,077
Due to
Manager......................................................................
...................... 388,315
Accrued
expenses.....................................................................
..................... 101,348
----------------
Total
liabilities..................................................................
.................... 29,651,248
----------------
Net
Assets.......................................................................
......................... $723,883,931
----------------
----------------
Net assets were comprised of:
Shares of beneficial interest, at
par.................................................................. $
606,245
Paid-in capital in excess of
par.......................................................................
651,914,125
----------------
652,520,370
Undistributed net investment
income....................................................................
3,572,298
Accumulated net realized gain on
investments...........................................................
11,563,738
Net unrealized appreciation on
investments.............................................................
56,227,525
----------------
Net Assets, January 31,
1996.........................................................................
..... $723,883,931
----------------
----------------
Class A:
Net asset value and redemption price per share
($273,186,569 3 22,823,394 shares of beneficial interest issued and
outstanding).................... $11.97
Maximum sales charge (5% of offering
price)............................................................
.63
----------------
Maximum offering price to
public.......................................................................
$12.60
----------------
----------------
Class B:
Net asset value, offering price and redemption price per share
($448,373,337 3 37,606,163 shares of beneficial interest issued and
outstanding).................... $11.92
----------------
----------------
Class C:
Net asset value, offering price and redemption price per share
($2,324,025 3 194,929 shares of beneficial interest issued and
outstanding)......................... $11.92
----------------
----------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 9-----
<PAGE>
<PAGE>
PRUDENTIAL ALLOCATION FUND
BALANCED PORTFOLIO
Statement of Operations
(Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income January 31, 1996
<S> <C>
Income
Interest $ 9,252,147
Dividends (net of foreign withholding taxes
of $24,392)............................. 3,163,316
----------------
Total income............................ 12,415,463
----------------
Expenses
Distribution fee--Class A.................. 277,575
Distribution fee--Class B.................. 2,157,861
Distribution fee--Class C.................. 9,395
Management fee............................. 2,130,412
Transfer agent's fees and expenses......... 680,000
Custodian's fees and expenses.............. 78,950
Reports to shareholders.................... 76,250
Registration fees.......................... 54,700
Legal fees................................. 16,500
Trustees' fees and expenses................ 12,350
Insurance.................................. 9,900
Audit fee and expenses..................... 8,250
Miscellaneous.............................. 5,023
----------------
Total expenses.......................... 5,517,166
----------------
Net investment income......................... 6,898,297
----------------
Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency
Net realized gain (loss) on:
Investment transactions.................... 21,189,589
Foreign currency transactions.............. (102,581)
----------------
21,087,008
Net change in unrealized appreciation on
investments................................ 17,401,748
----------------
Net gain on investments....................... 38,488,756
----------------
Net Increase in Net Assets
Resulting from Operations..................... $ 45,387,053
----------------
----------------
</TABLE>
PRUDENTIAL ALLOCATION FUND
BALANCED PORTFOLIO
Statement of Changes in Net Assets
(Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended
Increase Ended July 31,
in Net Assets January 31, 1996 1995
----------------- ------------
<S> <C> <C>
Operations
Net investment income......... $ 6,898,297 $ 11,616,551
Net realized gain on
investments and foreign
currency transactions...... 21,087,008 24,855,840
Net change in unrealized
appreciation of
investments................ 17,401,748 21,889,387
----------------- ------------
Net increase in net assets
resulting from
operations................. 45,387,053 58,361,778
----------------- ------------
Net equalization credits
(debits)...................... 440,006 (108,882)
----------------- ------------
Dividends and distributions (Note
1)
Dividends from net investment
income
Class A.................... (2,324,509) (2,234,935)
Class B.................... (3,239,256) (9,204,130)
Class C.................... (14,245) (21,646)
----------------- ------------
(5,578,010) (11,460,711)
----------------- ------------
Distributions from net
realized gains on
investment transactions
Class A.................... (10,904,493) (701,041)
Class B.................... (17,821,478) (7,720,336)
Class C.................... (80,545) (13,746)
----------------- ------------
(28,806,516) (8,435,123)
----------------- ------------
Fund share transactions (net of
share conversions) (Note 6)
Net proceeds from shares
subscribed (Note 8)........ 291,809,437 177,082,017
Net asset value of shares
issued to shareholders in
reinvestment of dividends
and distributions.......... 31,397,458 18,598,887
Cost of shares reacquired..... (125,930,547) (201,993,090)
----------------- ------------
Net increase (decrease) in net
assets from Fund shares
transactions............... 197,276,348 (6,312,186)
----------------- ------------
Total increase................... 208,718,881 32,044,876
Net Assets
Beginning of period.............. 515,165,050 483,120,174
----------------- ------------
End of period.................... $ 723,883,931 $515,165,050
----------------- ------------
----------------- ------------
</TABLE>
- --------------------------------------------------------------------------------
- -----10 See Notes to Financial Statements.
<PAGE>
<PAGE>
Portfolio of Investments as of PRUDENTIAL ALLOCATION FUND
January 31, 1996 (Unaudited) STRATEGY PORTFOLIO
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note1)
Shares (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--87.7%
COMMON STOCKS--44.0%
- -------------------------------------------------------------
Aerospace/Defense--0.9%
42,300 Boeing Co. $ 3,283,538
- ------------------------------------------------------------
Automotive--0.6%
60,000 Varity Corp.* 2,220,000
- ------------------------------------------------------------
Chemicals--2.3%
174,300 Agrium Inc. (Canada) 2,385,723
42,000 Dow Chemical Co. 3,129,000
75,000 Union Carbide Corp. 3,159,375
-------------
8,674,098
- ------------------------------------------------------------
Computer & Related Equipment--7.1%
92,200 Advanta Corp. 3,872,400
37,000 Advanta Corp. (ADS) 1,530,875
127,300 Bay Networks* 5,410,250
98,100 Cisco Systems, Inc.* 8,166,825
48,600 Comverse Technology, Inc.* 941,625
149,700 Network Express, Inc.* 580,087
51,100 Quad Systems Corp.* 396,025
34,900 Ross Technology Inc.* 453,700
109,000 Sun Microsystems, Inc.* 5,014,000
-------------
26,365,787
- ------------------------------------------------------------
Containers & Packaging--0.5%
116,300 Stone Container Corp. 1,700,888
- ------------------------------------------------------------
Drugs & Health Care--4.9%
58,300 AMGEN Inc.* 3,505,287
36,500 Bard (C.R.), Inc. $ 1,277,500
71,400 Columbia/HCA Healthcare Corp. 3,971,625
45,700 Forest Laboratories, Inc.* 2,467,800
38,500 Johnson & Johnson Co. 3,696,000
84,900 Physician Corp. of America* 1,528,200
35,300 St. Jude Medical, Inc.* 1,557,612
-------------
18,004,024
- ------------------------------------------------------------
Electrical Equipment--1.0%
122,500 UCAR International Inc.* 3,812,812
- ------------------------------------------------------------
Electronics--1.5%
94,600 Ultratech Stepper Inc.* 2,778,875
79,600 Uniphase Corp.* 2,786,000
-------------
5,564,875
- ------------------------------------------------------------
Financial Services--7.6%
34,600 Ahmanson (H.F.) & Co. 830,400
58,100 Citicorp 4,292,137
73,300 Dean Witter Discover & Co. 3,967,362
232,400 Federal National Mortgage Association 8,017,800
127,000 Money Store, Inc. 2,476,500
42,720 Republic New York Corp. 2,488,440
87,200 Salomon, Inc. 3,324,500
38,300 Student Marketing Association 2,819,838
-------------
28,216,977
- ------------------------------------------------------------
Household Products--0.1%
6,700 Colgate-Palmolive Co. 495,800
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 11-----
<PAGE>
<PAGE>
Portfolio of Investments as of PRUDENTIAL ALLOCATION FUND
January 31, 1996 (Unaudited) STRATEGY PORTFOLIO
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note1)
Shares (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Insurance--5.1%
28,000 Amerin Corp.* $ 724,500
18,400 Equitable of Iowa Cos. 680,800
52,500 Primark Corporation* 1,752,187
97,600 SunAmerica, Inc. 4,806,800
132,400 The Equitable Companies, Inc. 3,260,350
54,500 The PMI Group, Inc. 2,731,813
76,500 Travelers Inc. 5,029,875
-------------
18,986,325
- ------------------------------------------------------------
Oil & Gas--0.8%
88,000 Mesa, Inc.* 308,000
256,000 Noble Drilling Corp.* 2,512,000
-------------
2,820,000
- ------------------------------------------------------------
Paper & Forest Products--1.8%
45,000 Georgia-Pacific Corp. 3,301,875
80,000 International Paper Co. 3,270,000
-------------
6,571,875
- ------------------------------------------------------------
Petroleum Services--2.2%
146,200 BJ Services Co.* 3,910,850
188,000 Smith International, Inc.* 4,418,000
-------------
8,328,850
- ------------------------------------------------------------
Realty Investment Trust--0.4%
80,800 Manufactured Home Communities, Inc. 1,474,600
Retail--0.7%
59,800 Caldor Corp.* $ 194,350
77,300 Dillard Department Stores, Inc. 2,241,700
-------------
2,436,050
- ------------------------------------------------------------
Software--0.7%
15,100 Baan Company N.V.* (Netherlands) 654,963
11,100 PIXAR Inc.* 222,000
116,100 Softkey International Inc.* 1,610,888
-------------
2,487,851
- ------------------------------------------------------------
Steel & Metals--1.9%
34,900 AK Steel Holding Corp.* 1,212,775
33,600 Alumax, Inc.* 1,058,400
55,000 Aluminum Co. of America 3,052,500
124,600 National Steel Corp.* 1,713,250
-------------
7,036,925
- ------------------------------------------------------------
Telecommunications--0.5%
124,600 NEXTEL Communications Inc.* 1,713,271
- ------------------------------------------------------------
Tobacco--2.3%
49,800 Philip Morris Companies., Inc. 4,631,400
124,600 RJR Nabisco Holdings Corp. 4,049,500
-------------
8,680,900
- ------------------------------------------------------------
Tourism/Resorts--1.1%
149,300 Carnival Cruise Lines, Inc. 4,031,100
-------------
Total common stocks (cost
$133,596,827) 162,906,546
</TABLE>
- --------------------------------------------------------------------------------
- -----12 See Notes to Financial Statements.
<PAGE>
<PAGE>
Portfolio of Investments as of PRUDENTIAL ALLOCATION FUND
January 31, 1996 (Unaudited) STRATEGY PORTFOLIO
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Description Value (Note1)
(000) (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
DEBT OBLIGATIONS--43.7%
SOVEREIGN BONDS--1.5%
- ------------------------------------------------------------
$ 13,950 Argentina Gov't Bond,
Zero Coupon, 9/1/97
(cost $5,440,540) $ 5,531,175
------------
U. S. GOVERNMENT SECURITIES--42.2%
- ------------------------------------------------------------
United States Treasury Bonds,
44,000 7.625%, 2/15/25 53,267,280
35,000+ 6.875%, 8/15/25 39,063,150
United States Treasury Notes,
10,000 5.625%, 10/31/97 10,112,500
43,000 7.50%, 2/15/05 48,690,620
5,000 5.875%, 11/15/05 5,107,050
------------
Total U. S. Government Securities
(cost $146,316,725) 156,240,600
------------
Total debt obligations
(cost $151,757,265) 161,771,775
------------
Total long-term investments
(cost $285,354,092) 324,678,321
------------
SHORT-TERM INVESTMENTS--11.5%
REPURCHASE AGREEMENT
- ------------------------------------------------------------
$ 42,616 Joint Repurchase Agreement Account,
5.91%, 2/1/96,
(cost $42,616,000; Note 5) $ 42,616,000
------------
- ------------------------------------------------------------
Total Investments-->99.2%
(cost $327,970,092; Note 4) 367,294,321
Other assets in excess of
liabilities--0.8% 2,986,789
------------
Net Assets--100% $370,281,110
------------
------------
</TABLE>
- ---------------
* Non-income producing security.
ADS--American Depository Share.
+Pledged as initial margin on financial future contracts.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 13 -----
<PAGE>
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL ALLOCATION FUND
(Unaudited) STRATEGY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<S>
<C>
Assets
January 31, 1996
Investments, at value (cost
$327,970,092).................................................................
$367,294,321
Cash.........................................................................
............................. 463,393
Receivable for investments
sold...........................................................................
12,048,136
Dividends and interest
receivable...................................................................
...... 4,486,477
Receivable for Fund shares
sold...........................................................................
245,910
Due from broker-variation
margin..........................................................................
90,000
Deferred
expenses.....................................................................
.................... 17,244
----------------
Total
assets.......................................................................
................... 384,645,481
----------------
Liabilities
Payable for investments
purchased....................................................................
..... 12,949,272
Payable for Fund shares
reacquired...................................................................
..... 728,316
Due to
Distributor..................................................................
...................... 246,208
Due to
Manager......................................................................
...................... 200,289
Accrued
expenses.....................................................................
..................... 240,286
----------------
Total
liabilities..................................................................
................... 14,364,371
----------------
Net
Assets.......................................................................
......................... $370,281,110
----------------
----------------
Net assets were comprised of:
Shares of beneficial interest, at
par.................................................................. $
298,591
Paid-in capital in excess of
par.......................................................................
319,546,542
----------------
319,845,133
Undistributed net investment
income....................................................................
1,824,620
Accumulated net realized gain on
investments...........................................................
8,988,378
Net unrealized appreciation on
investments.............................................................
39,622,979
----------------
Net Assets, January 31,
1996.........................................................................
..... $370,281,110
----------------
----------------
Class A:
Net asset value and redemption price per share
($99,197,155 3 7,962,815 shares of beneficial interest issued and
outstanding)...................... $12.46
Maximum sales charge (5% of offering
price)............................................................
.66
----------------
Maximum offering price to
public.......................................................................
$13.12
----------------
----------------
Class B:
Net asset value, offering price and redemption price per share
($270,647,817 3 21,861,071 beneficial interest issued and
outstanding).............................. $12.38
----------------
----------------
Class C:
Net asset value, offering price and redemption price per share
($436,138 3 35,227 shares of beneficial interest issued and
outstanding)............................ $12.38
----------------
----------------
</TABLE>
- --------------------------------------------------------------------------------
- -----14 See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL ALLOCATION FUND
STRATEGY PORTFOLIO
Statement of Operations
(Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income January 31, 1996
-----------------
<S> <C>
Income
Interest (net of foreign withholding taxes
of $1,135)............................... $ 5,372,242
Dividends (net of foreign withholding taxes
of $1,426)............................... 1,293,477
-----------------
Total income............................... 6,665,719
-----------------
Expenses
Distribution fee--Class A................... 117,441
Distribution fee--Class B................... 1,373,953
Distribution fee--Class C................... 1,747
Management fee.............................. 1,199,552
Transfer agent's fees and expenses.......... 467,300
Custodian's fees and expenses............... 91,200
Reports to shareholders..................... 50,300
Registration fees........................... 27,200
Trustees' fees and expenses................. 12,350
Legal fees.................................. 11,800
Audit fee and expenses...................... 8,250
Insurance expense........................... 5,600
Miscellaneous............................... 388
-----------------
Total expenses............................. 3,367,081
-----------------
Net investment income.......................... 3,298,638
-----------------
Realized and Unrealized Gain on
Investments and Foreign Currency
Net realized gain (loss) on:
Investment transactions..................... 16,324,682
Foreign currency transactions............... 190,970
-----------------
16,515,652
-----------------
Net change in unrealized appreciation
(depreciation) on:
Investments................................. 5,342,125
Financial futures contracts................. 298,750
Foreign currency transactions............... 9,007
-----------------
5,649,882
-----------------
Net gain on investments........................ 22,165,534
-----------------
Net Increase in Net Assets
Resulting from Operations...................... $25,464,172
-----------------
-----------------
</TABLE>
PRUDENTIAL ALLOCATION FUND
STRATEGY PORTFOLIO
Statement of Changes in Net Assets
(Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended
Increase Ended July 31,
in Net Assets January 31, 1996 1995
----------------- ------------
<S> <C> <C>
Operations
Net investment income.......... $ 3,298,638 $ 7,631,204
Net realized gain on
investments................. 16,515,652 15,712,614
Net change in unrealized
appreciation of
investments................. 5,649,882 20,668,517
------------ ------------
Net increase in net assets
resulting from operations... 25,464,172 44,012,335
------------ ------------
Net equalization debits........... (18,950) (274,536)
------------ ------------
Dividends and distributions (Note
1)
Dividends from net investment
income
Class A..................... (993,581) (1,553,405)
Class B..................... (1,915,138) (5,542,190)
Class C..................... (2,430) (3,515)
------------ ------------
(2,911,149) (7,099,110)
------------ ------------
Distributions from net realized
gains on investment
transactions
Class A..................... (6,072,810) (1,061,481)
Class B..................... (16,739,446) (9,845,692)
Class C..................... (23,748) (5,857)
------------ ------------
(22,836,004) (10,913,030)
------------ ------------
Fund share transactions (net of
share conversions) (Note 6)
Net proceeds from shares
subscribed.................. 21,155,753 87,194,600
Net asset value of shares
issued to shareholders in
reinvestment of dividends
and distributions........... 24,747,644 17,309,043
Cost of shares reacquired...... (41,404,297) (147,769,905)
------------ ------------
Net increase (decrease) in net
assets from Fund share
transactions................ 4,499,100 (43,266,262)
------------ ------------
Total increase (decrease)......... 4,197,169 (17,540,603)
Net Assets
Beginning of period............... 366,083,941 383,624,544
------------ ------------
End of period..................... $370,281,110 $366,083,941
------------ ------------
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 15-----
<PAGE>
<PAGE>
Notes to Financial Statements
(Unaudited) 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 generally accepted 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
- --------------------------------------------------------------------------------
- -----16
<PAGE>
<PAGE>
Notes to Financial Statements
(Unaudited) PRUDENTIAL ALLOCATION FUND
- --------------------------------------------------------------------------------
and foreign taxes recorded on the Fund's books and the U.S. dollar equivalent
amounts actually received or paid.
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 Net 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 and interest income is recorded on the accrual basis. Expenses
are recorded on the accrual basis which may require the use of certain estimates
by management.
Net investment income (other than distribution fees) and unrealized and realized
gains or losses are allocated daily to each class of shares based upon the
relative proportion of net assets of each class at the beginning of the day.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Fund is required to pledge to the broker an amount of cash and/or other
assets equal to a certain percentage of the contract amount. This amount is
known as the ``initial margin.'' Subsequent payments, known as ``variation
margin,'' are made or received by the Fund each day, depending on the daily
fluctuations in the value of the underlying security. Such variation margin is
recorded for financial statement purposes on a daily basis as unrealized gain
or
loss. When the contract expires or is closed, the gain or loss is realized and
is presented in the statement of operations as net realized gain (loss) on
financial futures contracts.
The Fund invests in financial futures contracts in order to hedge its existing
portfolio securities, or securities the Fund intends to purchase, against
fluctuations in value caused by changes in prevailing interest rates. Should
interest rates move unexpectedly, the Fund may not achieve the anticipated
benefits of the financial futures contracts and may realize a loss. The use of
futures transactions involves the risk of imperfect correlation in movements in
the price of futures contracts, interest rates and the underlying hedged assets.
Options: The Fund may either purchase or write options in order to hedge against
adverse market movements or fluctuations in value caused by changes in
prevailing interest rates or foreign currency exchange rates with respect to
securities or currencies which the Fund currently owns or intends to purchase.
When the Fund purchases an option, it pays a premium and an amount equal to that
premium is recorded as an investment. When the Fund writes an option, it
receives a premium and an amount equal to that premium is recorded as a
liability. The investment or liability is adjusted daily to reflect the current
market value of the option. If an option expires unexercised, the Fund realizes
a gain or loss to the extent of the premium received or paid. If an option is
exercised, the premium received or paid is an adjustment to the proceeds from
the sale or the cost basis of the purchase in determining whether the Fund has
realized a gain or loss. The difference between the premium and the amount
received or paid on effecting a closing purchase or sale transaction is also
treated as a realized gain or loss. Gain or loss on purchased options is
included in net realized gain (loss) on investment transactions. Gain or loss
on
written options is presented separately as net realized gain (loss) on written
option transactions.
The Fund, as writer of an option, has no control over whether the underlying
securities or currencies may be sold (called) or purchased (put). As a result,
the Fund bears the market risk of an unfavorable change in the price of the
security or currency underlying the written option. The Fund, as purchaser of
an
option, bears the risk of the potential inability of the counterparties to meet
the terms of their contracts.
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.
- --------------------------------------------------------------------------------
17-----
<PAGE>
<PAGE>
Notes to Financial Statements
(Unaudited) PRUDENTIAL ALLOCATION FUND
- --------------------------------------------------------------------------------
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 AICPA 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 six months ended January 31, 1996, the Balanced Portfolio and the Strategy
Portfolio decreased undistributed net investment income and increased
accumulated net realized gain on investments by $102,600 and $83,200,
respectively. 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 had a distribution agreement with Prudential Mutual Fund Distributors,
Inc. (``PMFD''), which acted as the distributor of the Class A shares of the
Fund through January 1, 1996. Prudential Securities Incorporated (``PSI'') is
distributor of the Class B and Class C shares of the Fund. The Fund compensated
PMFD and PSI 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. Effective January 2, 1996, PSI
became the distributor of the Class A shares of the Fund and is serving the Fund
under the same terms and conditions as under the arrangement with PMFD.
Pursuant to the Class A, B and C Plans, the Fund compensates PSI, and PMFD for
the period August 1, 1995 through January 1, 1996 with respect to Class A
shares, for distribution-related activities at an annual rate of up to .30 of
1%, 1% and 1% of the average daily net assets of the Class A, B and C shares,
respectively. Such expenses under the Plans were .25 of 1%, 1% and 1% of the
average daily net assets of the Class A, B and C shares, respectively, for the
six months ended January 31, 1996.
PMFD has advised the Fund that it has received approximately $164,200
($105,500--Balanced Portfolio and $58,700--Strategy Portfolio) in front-end
sales charges resulting from sales of Class A shares during the six months ended
January 31, 1996. From these fees, PMFD paid such sales charges to dealers which
in turn paid commissions to salespersons.
PSI advised the Fund that for the six months ended January 31, 1996 it received
approximately $531,100 ($344,000--Balanced Portfolio and $187,100--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 six months ended January
31, 1996, the Fund incurred fees of approximately $1,074,900 ($668,000--Balanced
Portfolio and $406,900--Strategy Portfolio) for the services of PMFS. As of
January 31, 1996, approximately $172,600 ($107,500--Balanced Portfolio and
$65,100--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.
- --------------------------------------------------------------------------------
- -----18
<PAGE>
<PAGE>
Notes to Financial Statements
(Unaudited) PRUDENTIAL ALLOCATION FUND
- --------------------------------------------------------------------------------
For the six months ended January 31, 1996, PSI received approximately $65,400
($37,000--Balanced Portfolio and $28,400--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 six months ended January 31, 1996, were as follows:
<TABLE>
<CAPTION>
Portfolio Purchases Sales
- ---------------------------------- ------------- -------------
<S> <C> <C>
Balanced Portfolio................ $ 500,265,757 $ 326,036,854
Strategy Portfolio................ $ 145,702,455 $ 169,267,624
</TABLE>
The cost basis of investments for federal income tax purposes as of January 31,
1996 was $628,187,768 and $327,970,092 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....... $84,822,694 $45,372,936
Gross unrealized depreciation....... 28,595,169 6,048,707
----------- -----------
Net unrealized appreciation......... $56,227,525 $39,324,229
----------- -----------
----------- -----------
</TABLE>
At January 31, 1996, the Strategy Portfolio bought 15 financial futures
contracts, on the S&P 500 Index expiring March 1996. The unrealized appreciation
on such contracts as of January 31, 1996 was as follows:
<TABLE>
<CAPTION>
Value on
Value at January 31, Unrealized
Portfolio Disposition 1996 Appreciation
- ---------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Strategy Portfolio.... $ 9,270,500 $ 9,569,250 $ 298,750
</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 January 31, 1996, the
Fund had a 5.7% (Balanced Portfolio--2.0% and Strategy Portfolio--3.7%)
undivided interest in the repurchase agreements in the joint account. The
undivided interest for the Fund represented $65,871,000 (Balanced
Portfolio--$23,255,000 and Strategy Portfolio--$42,616,000) 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., 5.90%, dated 1/31/96, in the principal amount of
$85,000,000, repurchase price $85,013,931, due 2/1/96. The value of the
collateral including accrued interest is $86,750,540.
CS First Boston Corp., 5.94%, dated 1/31/96, in the principal amount of
$383,000,000, repurchase price $383,063,195, due 2/1/96. The value of the
collateral including accrued interest is $390,660,453.
Goldman, Sachs Co., 5.90%, dated 1/31/96, in the principal amount of
$383,000,000, repurchase price $383,062,769, due 2/1/96. The value of the
collateral including accrued interest is $390,660,439.
Smith Barney Inc., 5.87%, dated 1/31/96, in the principal amount of
$316,512,000, repurchase price $316,563,620, due 2/1/96. The value of the
collateral including accrued interest is $322,842,680.
- ------------------------------------------------------------
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 shares on a quarterly basis
approximately seven years after purchase. A special exchange privilege is also
available for shareholders who qualified to purchase Class A shares at net asset
value.
The Fund has authorized an unlimited number of shares of beneficial interest of
each class at $.01 par value per share.
- --------------------------------------------------------------------------------
19-----
<PAGE>
<PAGE>
Notes to Financial Statements
(Unaudited) PRUDENTIAL ALLOCATION FUND
- --------------------------------------------------------------------------------
Transactions in shares of beneficial interest for the six months ended January
31, 1996, and the fiscal year ended July 31, 1995 were as follows:
<TABLE>
<CAPTION>
Balanced
Portfolio: Strategy Portfolio:
Class
A Class A
- ------------------------------- -------------------------------
Six Months Ended January 31, 1996 Shares
Amount Shares Amount
- --------------------------------------------------------- -----------
- ------------- ----------- -------------
<S> <C>
<C> <C> <C>
Shares issued............................................ 4,581,745
$ 55,324,002 727,875 $ 9,070,996
Shares issued in connection with acquisition of
Prudential IncomeVertible Fund (Note 8)................ 12,372,804
132,422,961 -- --
Shares issued in reinvestment of dividends and
distributions.......................................... 976,496
11,697,514 557,409 6,863,694
Shares reacquired........................................ (6,432,246)
(78,206,041) (1,048,690) (13,144,869)
-----------
- ------------- ----------- -------------
Net increase in shares outstanding before conversion..... 11,498,799
121,238,436 236,594 2,789,821
Shares issued upon conversion from Class B............... 1,373,526
16,909,673 747,858 9,609,100
-----------
- ------------- ----------- -------------
Net increase in shares outstanding....................... 12,872,325
$ 138,148,109 984,452 $ 12,398,921
-----------
- ------------- ----------- -------------
-----------
- ------------- ----------- -------------
<CAPTION>
Year Ended July 31, 1995
- ---------------------------------------------------------
<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>
Class
B Class B
- ------------------------------- -------------------------------
Six Months Ended January 31, 1996 Shares
Amount Shares Amount
- --------------------------------------------------------- -----------
- ------------- ----------- -------------
<S> <C>
<C> <C> <C>
Shares issued............................................ 2,454,206
$ 29,357,066 950,208 $ 11,865,846
Shares issued in connection with acquisition of
Prudential IncomeVertible Fund (Note 8)................ 5,994,600
73,335,169 -- --
Shares issued in reinvestment of dividends and
distributions.......................................... 1,641,425
19,605,162 1,458,563 17,857,847
Shares reacquired........................................ (3,800,116)
(45,568,668) (2,255,555) (28,162,920)
-----------
- ------------- ----------- -------------
Net increase in shares outstanding before conversion..... 6,290,115
76,728,729 153,216 1,560,773
Shares reacquired upon conversion into Class A........... (1,379,228)
(16,909,673) (752,280) (9,609,100)
-----------
- ------------- ----------- -------------
Net increase (decrease) in shares outstanding............ 4,910,887
$ 59,819,056 (599,064) $ (8,048,327)
-----------
- ------------- ----------- -------------
-----------
- ------------- ----------- -------------
<CAPTION>
Year Ended July 31, 1995
- ---------------------------------------------------------
<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>
- --------------------------------------------------------------------------------
- ----- 20
<PAGE>
<PAGE>
Notes to Financial Statements
(Unaudited) PRUDENTIAL ALLOCATION FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Balanced
Portfolio: Strategy Portfolio:
Class
C Class C
- ------------------------------- -------------------------------
Six Months Ended January 31, 1996 Shares
Amount Shares Amount
- --------------------------------------------------------- -----------
- ------------- ----------- -------------
<S> <C>
<C> <C> <C>
Shares issued............................................ 113,994
$ 1,367,386 17,494 $ 218,911
Shares issued in connection with acquisition of
Prudential IncomeVertible Fund (Note 8)................ 252
2,853 -- --
Shares issued in reinvestment of dividends and
distributions.......................................... 7,918
94,782 2,128 26,103
Shares reacquired........................................ (181,060)
(2,155,838) (7,664) (96,508)
-----------
- ------------- ----------- -------------
Net increase (decrease) in shares outstanding............ (58,896)
$ (690,817) 11,958 $ 148,506
-----------
- ------------- ----------- -------------
-----------
- ------------- ----------- -------------
<CAPTION>
August 1, 1994* Through July 31, 1995
- ---------------------------------------------------------
<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 March 14, 1996, the Board of Trustees of the Fund declared a dividend from
undistributed net investment income of $.075 per share to Class A shareholders,
$.05 per share to Class B shareholders and Class C shareholders, and $.08 to
Class Z shareholders for the Balanced Portfolio and a dividend from
undistributed net investment income of $.08 per share to Class A shareholders,
and $.0575 per share to Class B shareholders and Class C shareholders for the
Strategy Portfolio. All dividends are payable on March 22, 1996 to shareholders
of record on March 19, 1996.
- ------------------------------------------------------------
Note 8. Subsequent Events
Effective March 1, 1996, the Balanced Portfolio commenced offering Class Z
shares. Upon the commencement of such offering the Balanced Portfolio will be
divided into four classes of shares, designated Class A, Class B, Class C and
Class Z shares. Class Z shares are not subject to any sales or redemption charge
and are offered exclusively for sale to the Trustees of the Prudential
Securities 401(k) Plan, a defined contribution plan sponsored by Prudential
Securities.
- ------------------------------------------------------------
Note 9. Acquisition of Prudential IncomeVertiblet Fund
On September 29, 1995, the Balanced Portfolio acquired all the net assets of
Prudential IncomeVertiblet Fund, Inc. (``IncomeVertible'') pursuant to a plan
of
reorganization approved by IncomeVertible shareholders on September 6, 1995. The
acquisition was accomplished by a tax-free exchange of 12,372,804 Class A
shares, 5,994,600 Class B shares, and 252 Class C shares of the Balanced
Portfolio (valued at $205,760,983 in the aggregate) for 12,616,603 Class A
shares, 6,083,045 Class B shares, and 256 Class C shares, respectively, of
IncomeVertible outstanding on September 29, 1995. IncomeVertible's net assets
at
that date ($205,760,983), including $22,146,090 of unrealized depreciation were
combined with those of the Balanced Portfolio. The aggregate net assets of the
Balanced Portfolio and IncomeVertible immediately before the acquisition were
$514,749,678 and $205,760,983 respectively.
- --------------------------------------------------------------------------------
21-----
<PAGE>
<PAGE>
Financial Highlights PRUDENTIAL ALLOCATION FUND
(Unaudited) BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated:
<TABLE>
<CAPTION>
Class
A
- ----------------------------------------------------------------------------
Six Months
Ended
Year Ended July 31,
January 31,
- -------------------------------------------------------
1996 1995 1994
1993 1992 1991
------- --------
- ------- ------- ------- ------
<S> <C> <C> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 12.04 $ 11.12 $
11.75 $ 11.00 $ 10.73 $10.23
------- --------
- ------- ------- ------- ------
Income from investment operations
Net investment income................ .14 .34
.33 .43 .44 .44
Net realized and unrealized gain
(loss) on investment
transactions...................... .42 1.11
(.05) 1.16 .81 .73
------- --------
- ------- ------- ------- ------
Total from investment
operations..................... .56 1.45
.28 1.59 1.25 1.17
------- --------
- ------- ------- ------- ------
Less distributions
Dividends from net investment
income............................ (.14) (.33)
(.37) (.37) (.44) (.44)
Distributions from net realized gains
on investment and foreign currency
transactions...................... (.49) (.20)
(.54) (.47) (.54) (.23)
------- --------
- ------- ------- ------- ------
Total distributions............... (.63) (.53)
(.91) (.84) (.98) (.67)
------- --------
- ------- ------- ------- ------
Net asset value, end of period....... $ 11.97 $ 12.04 $
11.12 $ 11.75 $ 11.00 $10.73
------- --------
- ------- ------- ------- ------
------- --------
- ------- ------- ------- ------
TOTAL RETURN(a):..................... 4.65% 13.67%
2.39% 15.15% 12.29% 11.99%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...... $273,187 $119,829
$37,512 $22,605 $10,944 $4,408
Average net assets (000)............. $220,853 $ 69,754
$29,875 $15,392 $ 7,103 $2,747
Ratios to average net assets:
Expenses, including distribution
fees........................... 1.19%(b) 1.22%
1.23% 1.17% 1.29% 1.38%
Expenses, excluding distribution
fees........................... .94%(b) 0.97%
1.00% .97% 1.09% 1.18%
Net investment income............. 2.62%(b) 2.90%
2.84% 3.88% 3.97% 4.44%
For Class A, B and C shares:
Portfolio turnover rate........... 53% 201%
108% 83% 105% 137%
Average commission rate paid per
share $ 0.0573 N/A
N/A N/A N/A N/A
- ---------------
</TABLE>
(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.
(b) Annualized.
- --------------------------------------------------------------------------------
- -----22 See Notes to Financial Statements.
<PAGE>
<PAGE>
Financial Highlights PRUDENTIAL ALLOCATION FUND
(Unaudited) BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated:
<TABLE>
<CAPTION>
Class
B
- ----------------------------------------------------------------------------
Six Months
Ended
Year Ended July 31,
January 31,
- ------------------------------------------------------------
1996 1995 1994
1993 1992 1991
----------- -------- --------
-------- -------- --------
<S> <C> <C> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 12.00 $ 11.09 $ 11.72
$ 10.98 $ 10.71 $ 10.22
----------- -------- --------
-------- -------- --------
Income from investment operations
Net investment income................ .11 .26 .24
.34 .35 .36
Net realized and unrealized gain
(loss) on investment
transactions...................... .40 1.10 (.05)
1.16 .82 .73
----------- -------- --------
-------- -------- --------
Total from investment
operations..................... .51 1.36 .19
1.50 1.17 1.09
----------- -------- --------
-------- -------- --------
Less distributions
Dividends from net investment
income............................ (.10) (.25) (.28)
(.29) (.36) (.37)
Distributions from net realized gains
on investment and foreign currency
transactions...................... (.49) (.20) (.54)
(.47) (.54) (.23)
----------- -------- --------
-------- -------- --------
Total distributions............... (.59) (.45) (.82)
(.76) (.90) (.60)
----------- -------- --------
-------- -------- --------
Net asset value, end of period....... $ 11.92 $ 12.00 $ 11.09
$ 11.72 $ 10.98 $ 10.71
----------- -------- --------
-------- -------- --------
----------- -------- --------
-------- -------- --------
TOTAL RETURN(d):..................... 4.20% 12.79% 1.61%
14.27% 11.48% 11.13%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...... $ 448,373 $392,291 $445,609
$321,831 $225,995 $162,281
Average net assets (000)............. $ 429,227 $409,419 $392,133
$267,340 $189,358 $149,907
Ratios to average net assets:(c)
Expenses, including distribution
fees........................... 1.94%(b) 1.97% 2.00%
1.97% 2.09% 2.16%
Expenses, excluding distribution
fees........................... .94%(b) .97% 1.00%
.97% 1.09% 1.16%
Net investment income............. 1.84%(b) 2.34% 2.08%
3.04% 3.25% 3.55%
<CAPTION>
</TABLE>
<TABLE> Class C
-------------------------
August 1,
Six Months 1994(a)
Ended through
January 31, July 31,
1996 1995
----------- ---------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 12.00 $ 11.12
----------- ---------
Income from investment operations
Net investment income................ .11 .21
Net realized and unrealized gain
(loss) on investment
transactions...................... .40 1.12
----------- ---------
Total from investment
operations..................... .51 1.33
----------- ---------
Less distributions
Dividends from net investment
income............................ (.10) (.25)
Distributions from net realized gains
on investment and foreign currency
transactions...................... (.49) (.20)
----------- ---------
Total distributions............... (.59) (.45)
----------- ---------
Net asset value, end of period....... $ 11.92 $ 12.00
----------- ---------
----------- ---------
TOTAL RETURN(d):..................... 4.20% 12.49%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...... $ 2,324 $ 3,046
Average net assets (000)............. $ 1,869 $ 920
Ratios to average net assets:(c)
Expenses, including distribution
fees........................... 1.94%(b) 2.04%(b)
Expenses, excluding distribution
fees........................... .94%(b) 1.04%(b)
Net investment income............. 1.83%(b) 2.20%(b)
- --------------- <C> <C>
(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 Notes to Financial Statements. 23-----
<PAGE>
<PAGE>
Financial Highlights PRUDENTIAL ALLOCATION FUND
(Unaudited) STRATEGY PORTFOLIO
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated:
<TABLE>
<CAPTION>
Class
A
<C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------
Six Months
Ended
Year Ended July 31,
January 31,
- -------------------------------------------------------
1996 1995 1994
1993 1992 1991
------ -------
- ------- ------- ------- -------
<S> <C> <C> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 12.48 $ 11.60 $
11.82 $ 12.03 $ 11.45 $ 10.50
------ -------
- ------- ------- ------- -------
Income from investment operations
Net investment income................ .16 .38
.30 .42 .35 .38
Net realized and unrealized gain on
investment and foreign currency
transactions...................... .77 1.14
.05 .70 1.02 .98
------ -------
- ------- ------- ------- -------
Total from investment
operations..................... .93 1.52
.35 1.12 1.37 1.36
------ -------
- ------- ------- ------- -------
Less distributions
Dividends from net investment
income............................ (.14) (.30)
(.22) (.37) (.37) (.35)
Dividends in excess of net investment
income............................ -- --
(.01) -- -- --
Distributions from net realized gains
on investment and foreign currency
transactions...................... (.81) (.34)
(.34) (.96) (.42) (.06)
------ -------
- ------- ------- ------- -------
Total distributions............... (.95) (.64)
(.57) (1.33) (.79) (.41)
------ -------
- ------- ------- ------- -------
Net asset value, end of period....... $ 12.46 $ 12.48 $
11.60 $ 11.82 $ 12.03 $ 11.45
------ -------
- ------- ------- ------- -------
------ -------
- ------- ------- ------- -------
TOTAL RETURN(a):..................... 7.48% 13.95%
2.88% 10.02% 12.36% 13.42%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...... $ 99,197 $87,081
$32,485 $28,641 $20,378 $10,765
Average net assets (000)............. $ 93,442 $57,020
$30,634 $24,216 $15,705 $ 6,694
Ratios to average net assets:
Expenses, including distribution
fees........................... 1.27%(b) 1.33%
1.26% 1.21% 1.26% 1.33%
Expenses, excluding distribution
fees........................... 1.02%(b) 1.08%
1.03% 1.01% 1.06% 1.13%
Net investment income............. 2.36%(b) 3.34%
2.52% 3.61% 3.05% 3.89%
For Class A, B and C shares:
Portfolio turnover rate........... 43% 180%
96% 145% 241% 189%
Average commission rate paid per
share $ 0.0565 N/A
N/A N/A N/A N/A
- ---------------
</TABLE>
(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.
(b) Annualized.
- --------------------------------------------------------------------------------
- -----24 See Notes to Financial Statements.
<PAGE>
<PAGE>
Financial Highlights PRUDENTIAL ALLOCATION FUND
(Unaudited) STRATEGY PORTFOLIO
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated:
<TABLE>
<CAPTION>
Class
B
- ----------------------------------------------------------------------------
Six Months
Ended
Year Ended July 31,
January 31,
- ------------------------------------------------------------
1996 1995 1994
1993 1992 1991
----------- -------- --------
-------- -------- --------
<S> <C> <C> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 12.41 $ 11.54 $ 11.79
$ 12.01 $ 11.43 $ 10.49
----------- -------- --------
-------- -------- --------
Income from investment operations
Net investment income................ .10 .20 .21
.34 .26 .30
Net realized and unrealized gain on
investment and foreign currency
transactions...................... .77 1.22 .05
.70 1.02 .97
----------- -------- --------
-------- -------- --------
Total from investment
operations..................... .87 1.42 .26
1.04 1.28 1.27
----------- -------- --------
-------- -------- --------
Less distributions
Dividends from net investment
income............................ (.09) (.21) (.16)
(.30) (.28) (.27)
Dividends in excess of net investment
income............................ -- -- (.01)
-- -- --
Distributions from net realized gains
on investment and foreign currency
transactions...................... (.81) (.34) (.34)
(.96) (.42) (.06)
----------- -------- --------
-------- -------- --------
Total distributions............... (.90) (.55) (.51)
(1.26) (.70) (.33)
----------- -------- --------
-------- -------- --------
Net asset value, end of period....... $ 12.38 $ 12.41 $ 11.54
$ 11.79 $ 12.01 $ 11.43
----------- -------- --------
-------- -------- --------
----------- -------- --------
-------- -------- --------
TOTAL RETURN(d):..................... 7.06% 13.05% 2.11%
9.21% 11.53% 12.49%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...... $270,648 $278,714 $351,140
$357,287 $314,771 $219,983
Average net assets (000)............. $273,297 $307,439 $362,579
$339,225 $267,525 $190,913
Ratios to average net assets:(c)
Expenses, including distribution
fees........................... 2.02%(b) 2.08% 2.03%
2.01% 2.06% 2.11%
Expenses, excluding distribution
fees........................... 1.02%(b) 1.08% 1.03%
1.01% 1.06% 1.11%
Net investment income............. 1.59%(b) 1.77% 1.77%
2.79% 2.27% 2.95%
<CAPTION>
Class C
-------------------------
August 1,
Six Months 1994(a)
Ended through
January 31, July 31,
1996 1995
----------- ---------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 12.41 $ 11.57
----------- ---------
Income from investment operations
Net investment income................ .10 .25
Net realized and unrealized gain on
investment and foreign currency
transactions...................... .77 1.14
----------- ---------
Total from investment
operations..................... .87 1.39
----------- ---------
Less distributions
Dividends from net investment
income............................ (.09) (.21)
Dividends in excess of net investment
income............................ -- --
Distributions from net realized gains
on investment and foreign currency
transactions...................... (.81) (.34)
----------- ---------
Total distributions............... (.90) (.55)
----------- ---------
Net asset value, end of period....... $ 12.38 $ 12.41
----------- ---------
----------- ---------
TOTAL RETURN(d):..................... 7.06% 12.75%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...... $436 $289
Average net assets (000)............. $348 $170
Ratios to average net assets:(c)
Expenses, including distribution
fees........................... 2.02%(b) 2.10%(b)
Expenses, excluding distribution
fees........................... 1.02%(b) 1.10%(b)
Net investment income............. 1.63%(b) 2.27%(b)
- ---------------
</TABLE>
(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.
- -----------------------------------------------------------------------------
- ---See Notes to Financial Statements.
25-----
<PAGE>
Getting The Most From Your
Prudential Mutual Fund
How many times have you read these letters -- or other financial materials --
and stumbled across a word that you don't understand?
Many shareholders have run into the same problem. We'd like to help. So we'll
use this space from time to time to explain some of the words you might have
read, but not understood. And if you have a favorite word that no one can
explain to your satisfaction, please write to us.
Basis Point: One 1/100th of 1%. For example, one half of one percentage point
is 50 basis points.
Call Option: A contract giving the holder a right to buy stocks or bonds at a
predetermined price (called the strike price) before a predetermined expiration
date. A buyer of a call option generally expects to benefit from a rise in the
price of the stock or bond.
Capital Gain/Capital Loss: The difference between the cost of a capital asset
(for example, a stock, bond or mutual fund share) and its selling price. Under
current law the federal income tax rate for individuals on a long-term gain
is 28%.
Collateralized Mortgage Obligations (CMOs): Pools of mortgage-backed securities
sliced in maturity ranges that bear differing interest rates. These instruments
are sensitive to changes in interest rates and homeowner refinancing activity.
They are subject to prepayment and maturity extension risk.
Derivatives: Securities that derive their value from another security. The rate
of return of these financial products rise and fall -- sometimes very suddenly
- -- in response to changes in some specific interest rate, currency, stock or
other variable.
Discount Rate: The interest rate charged by the Federal Reserve on loans to
banks and other depository institutions.
Federal Funds Rate: The interest rate charged by one bank to another on
overnight loans.
Futures Contract: An agreement to deliver a specific amount of a commodity or
financial instruments at a set price at a stipulated time in the future.
Leverage: The use of borrowed assets to enhance return on equity. The
expectation is that the interest rate charged will be lower than the return on
the investment. While leverage can increase profits, it can also magnify
losses.
Liquidity: The ease with which a financial instrument (or mutual fund) can be
bought or sold (converted into cash) in the financial markets.
Option: An agreement to buy or sell something, such as shares of stock, by a
certain time for a specified price. An option need not be exercised. In fact,
most expire unexercised.
Price/Earnings Ratio: The price of a share of stock divided by the earnings per
share for a 12-month period.
Spread: The difference between two values; most often used to describe the
difference between prices bid and asked for a security.
Yankee Bond: A bond denominated in U.S. dollars but sold by a foreign company
or government in the U.S. market.
<PAGE>
Getting The Most From Your
Prudential Mutual Fund
Change Your Mind.
You can exchange your shares in most Prudential Mutual Funds for shares in most
other Prudential Mutual Funds, without charges. This may be most helpful if
your investment needs change.
Reinvest Dividends Free Of Charge.
Reinvest your dividends and/or capital gains distributions automatically --
without charge.
Invest For Retirement.
There is no minimum investment for an IRA. Plus, you defer taxes on your
investment earnings by investing in an IRA.
If you'd like, you can contribute up to $2,000 a year in an IRA. If you are
married, you and your spouse (if not working outside the home) can contribute
up to $2,250 a year. (Withdrawals are taxed as ordinary income and may be
subject to a 10% penalty prior to age 59 1/2.)
Change Your Job.
You can take your pension with you. Use a rollover IRA to manage your
company-sponsored retirement plan while retaining the special tax-deferred
advantages.
Invest In Your Children.
There's no fee to open a custodial account for a child's education or other
needs.
Take Income.
Would you like to receive monthly or quarterly checks in any amount from your
fund account? Just let us know. We'll take care of it. Of course, there are
minimum amounts. And shares redeemed may be subject to tax, and Class B and C
shares may be subject to contingent deferred sales charges. We'll gladly answer
your questions.
Keep Informed.
We want to keep you up-to-date. Of course, you receive account activity
statements every quarter. But you also receive annual and semi-annual fund
reports, as well as other important updates on events that affect your
investments, including tax information.
This material is only authorized for distribution when preceded or accompanied
by a current prospectus. Read the prospectus carefully before you invest or
send money.
<PAGE>
Getting The Most From Your
Prudential Mutual Fund
When you invest through Prudential Mutual Funds, you receive financial advice
through a Prudential Securities financial advisor or Prudential/Pruco
Securities registered representative. Your advisor or representative can
provide you with the following services:
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial advisor or registered representative can help you match the
reward you seek with the risk you can tolerate. And risk can be difficult to
gauge -- sometimes even the simplest investments bear surprising risks. The
educated investor knows that markets seldom move in just one direction -- there
are times when a market sector or asset class will lose value or provide little
in the way of total return. Managing your own expectations is easier with help
from someone who understands the markets and who knows you!
Keeping Up With The Joneses.
A financial advisor or registered representative can help you wade through the
numerous mutual funds available to find the ones that fit your own individual
investment profile and risk tolerance. While the newspapers and popular
magazines are full of advice about investing, they are aimed at generic groups
of people or representative individuals, not at you personally. Your financial
advisor or registered representative will review your investment objectives
with you. This means you can make financial decisions based on the assets and
liabilities in your current portfolio and your risk tolerance -- not just based
on the current investment fad.
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the bottom are among the
most common investor mistakes. But sometimes it's difficult to hold on to an
investment when it's losing value every month. Your financial advisor or
registered representative can answer questions when you're confused or worried
about your investment, and remind you that you're investing for the long haul.
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
Internet Address:
http:\\www.prudential.com
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 07102
Distributor
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 Auditor
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
The views expressed in this report and information about the Fund's portfolio
holdings are for the period covered by this report and are subject to change
thereafter.
The accompanying financial statements as of January 31, 1996 were not audited
and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
<PAGE>
(LOGO)
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
BULK RATE
U.S. POSTAGE
PAID
Permit 6807
New York, NY
74429R108 74429R405 MF134E2
74429R207 74429R504 Cat. #642013F
74429R306 74429R603
<PAGE>
