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PRUDENTIAL ALLOCATION FUND
(Class Z Shares)
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PROSPECTUS DATED MARCH 1, 1996 AS SUPPLEMENTED ON
SEPTEMBER 12, 1996
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Prudential Allocation Fund (the Fund) is an open-end, diversified, management
investment company comprised of two separate portfolios--the Balanced Portfolio
(formerly called the Conservatively Managed Portfolio) and the Strategy
Portfolio (the Portfolios). The investment objective of the Balanced Portfolio
is to achieve a high total investment return consistent with moderate risk. The
investment objective of the Strategy Portfolio is to achieve a high total
investment return consistent with relatively higher risk than the Balanced
Portfolio. While each Portfolio will seek to achieve its objective by investing
in a diversified portfolio of money market instruments, debt obligations and
equity securities (including securities convertible into equity securities), the
Portfolios will differ with respect to the proportions of investments in debt
and equity securities, the quality and maturity of debt securities purchased and
the price volatility of equity securities purchased. It is expected that the
Strategy Portfolio will offer investors a higher potential return with a
correspondingly higher risk of loss than the Balanced Portfolio. There can be no
assurance that the Portfolios' investment objectives will be achieved. See "How
the Fund Invests--Investment Objectives and Policies." The Fund's address is One
Seaport Plaza, New York, New York 10292, and its telephone number is (800)
225-1852.
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Class Z shares are offered by the Balanced Portfolio exclusively for sale to a
limited group of investors. Only Class Z shares are offered through this
Prospectus. The Fund also offers Class A, Class B and Class C shares through the
attached Prospectus dated September 29, 1995 (the Retail Class Prospectus),
which is a part hereof.
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This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. Additional information about
the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated September 29, 1995, which information
is incorporated herein by reference (is legally considered to be a part of this
Prospectus) and is available without charge upon request to the Fund at the
address or telephone number noted above.
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INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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FUND EXPENSES
(BALANCED PORTFOLIO)
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SHAREHOLDER TRANSACTION EXPENSES CLASS Z SHARES
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Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).... None
Maximum Sales Load or Deferred Sales Load
Imposed on Reinvested Dividends........ None
Deferred Sales Load (as a percentage of
original purchase price or redemption
proceeds, whichever is lower).......... None
Redemption Fees.......................... None
Exchange Fee............................. None
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ANNUAL FUND OPERATING EXPENSES* CLASS Z SHARES
(as a percentage of average net assets) --------------
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Management Fees.......................... .65%
12b-1 Fees............................... None
Other Expenses........................... .32
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Total Fund Operating Expenses............ .97%
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<TABLE>
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EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
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You would pay the following expenses on a $1,000
investment, assuming: (1) 5% annual return and (2)
redemption at the end of each time period:
Class Z................................................ $10 $31 $54 $119
The above example is based on expenses expected to have been incurred if Class Z shares had been in
existence throughout the fiscal year ended July 31, 1995. THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The purpose of this table is to assist investors in understanding the various costs and expenses that an
investor in Class Z shares of the Balanced Portfolio will bear, whether directly or indirectly. For more
complete descriptions of the various costs and expenses, see "How the Fund is Managed." "Other Expenses"
includes operating expenses of the Portfolio, such as Trustees' and professional fees, registration fees,
reports to shareholders and transfer agency and custodian fees.
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* Estimated based on expenses expected to have been incurred if Class Z
shares had been in existence throughout the fiscal year ended July 31,
1995.
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2
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THE FOLLOWING INFORMATION SUPPLEMENTS "HOW THE FUND IS MANAGED--DISTRIBUTOR" IN
THE RETAIL CLASS PROSPECTUS:
Prudential Securities Incorporated (Prudential Securities) serves as the
Distributor of Class Z shares and incurs the expenses of distributing the Class
Z shares under a Distribution Agreement with the Fund, none of which is
reimbursed by or paid for by the Fund.
THE FOLLOWING INFORMATION SUPPLEMENTS "HOW THE FUND VALUES ITS SHARES" IN THE
RETAIL CLASS PROSPECTUS:
The NAV of Class Z shares will generally be higher than the NAV of Class A,
Class B or Class C shares as a result of the fact that the Class Z shares are
not subject to any distribution and/or service fee. It is expected, however,
that the NAV of the four classes will tend to converge immediately after the
recording of dividends, which will differ by approximately the amount of the
distribution-related expense accrual differential among the classes.
THE FOLLOWING INFORMATION SUPPLEMENTS "TAXES, DIVIDENDS AND
DISTRIBUTIONS--TAXATION OF SHAREHOLDERS" IN THE RETAIL CLASS PROSPECTUS:
The Fund has obtained opinions of counsel to the effect that neither (i) the
conversion of Class B shares into Class A shares nor (ii) the exchange of any
class of the Fund's shares for any other class of its shares constitutes a
taxable event for federal income tax purposes. However, such opinions are not
binding on the Internal Revenue Service.
THE FOLLOWING INFORMATION REPLACES THE INFORMATION UNDER "SHAREHOLDER GUIDE--HOW
TO BUY SHARES OF THE FUND" AND "SHAREHOLDER GUIDE--HOW TO SELL YOUR SHARES" IN
THE RETAIL CLASS PROSPECTUS:
Class Z shares of the Fund are available for purchase by the following
categories of investors:
(i) pension, profit-sharing or other employee benefit plans qualified under
Section 401 of the Internal Revenue Code, deferred compensation and annuity
plans under Sections 467 and 403(b)(7) of the Internal Revenue Code, and
non-qualified plans for which the Fund is an available option (collectively,
Benefit Plans), provided such Benefit Plans (in combination with other plans
sponsored by the same employer or group of related employers) have at least $50
million in defined contribution assets; (ii) participants in any fee-based
program sponsored by Prudential Securities or its affiliates which includes
mutual funds as investment options and for which the Fund is an available
option; and (iii) investors who are or have executed a letter of intent to
become shareholders of any series of The Prudential Institutional Fund
(Institutional Fund) on or before one or more series of Institutional Fund
reorganize or who on that date have investments in certain products for which
Institutional Fund provides exchangeability. After a Benefit Plan qualifies to
purchase Class Z shares, all subsequent purchases will be for Class Z shares.
In connection with the sale of Class Z shares, the Manager, the Distributor or
one of their affiliates may pay dealers, financial advisers and other persons
which distribute shares a finders' fee based on a percentage of the net asset
value of shares sold by such persons.
THE FOLLOWING INFORMATION SUPPLEMENTS "SHAREHOLDER GUIDE--HOW TO EXCHANGE YOUR
SHARES" IN THE RETAIL CLASS PROSPECTUS:
Class Z shareholders of the Fund may exchange their Class Z shares of other
Prudential Mutual Funds on the basis of relative net asset value. Shareholders
who qualify to purchase Class Z shares (other than participants in any fee-based
program) will have their Class B and Class C shares which are not subject to
contingent deferred sales charges and their Class A shares exchanged for Class Z
shares on a quarterly basis. Participants in any fee-based program for which the
Fund is an available option will have their Class A shares, if any, exchanged
for Class Z shares when they elect to have those assets become a part of the
fee-based program. Upon leaving the program (whether voluntarily or not), such
Class Z shares (and, to the extent provided for in the program, Class Z shares
acquired through participation in the program) will be exchanged for Class A
shares at net asset value. Similarly, participants in the PSI 401(k) Plan, an
employee benefit plan sponsored by Prudential Securities (the PSI 401(k) Plan)
for which the Fund's Class Z shares are an available option and who wish to
transfer their Class Z shares out of the PSI 401(k) Plan following separation
from service (I.E., voluntary or involuntary termination of employment or
retirement) will have their Class Z shares exchanged for Class A shares at net
asset value. See "Shareholder Guide--How to Exchange Your Shares--Special
Exchange Privilege."
THE INFORMATION ABOVE ALSO SUPPLEMENTS THE INFORMATION UNDER "FUND HIGHLIGHTS"
IN THE RETAIL CLASS PROSPECTUS AS APPROPRIATE.
3
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No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained herein, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the Distributor to sell, or a solicitation
of any offer to buy any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.
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TABLE OF CONTENTS
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PAGE
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<S> <C>
FUND HIGHLIGHTS........................................................... 2
Risk Factors and Special Characteristics................................ 2
FUND EXPENSES............................................................. 4
FINANCIAL HIGHLIGHTS...................................................... 5
HOW THE FUND INVESTS...................................................... 9
Investment Objectives and Policies...................................... 9
Hedging Strategies...................................................... 15
Other Investments and Policies.......................................... 17
Investment Restrictions................................................. 18
HOW THE FUND IS MANAGED................................................... 19
Manager................................................................. 19
Distributor............................................................. 20
Portfolio Transactions.................................................. 22
Custodian and Transfer and Dividend Disbursing Agent.................... 22
HOW THE FUND VALUES ITS SHARES............................................ 22
HOW THE FUND CALCULATES PERFORMANCE....................................... 22
TAXES, DIVIDENDS AND DISTRIBUTIONS........................................ 23
GENERAL INFORMATION....................................................... 25
Description of Shares................................................... 25
Additional Information.................................................. 26
SHAREHOLDER GUIDE......................................................... 26
How to Buy Shares of the Fund........................................... 26
Alternative Purchase Plan............................................... 27
How to Sell Your Shares................................................. 29
Conversion Feature -- Class B Shares.................................... 32
How to Exchange Your Shares............................................. 33
Shareholder Services.................................................... 34
DESCRIPTION OF SECURITY RATINGS........................................... A-1
THE PRUDENTIAL MUTUAL FUND FAMILY......................................... B-1
</TABLE>
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MF134Z 44414OE
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CUSIP No.: Balanced: Class Z: 74429R702
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PRUDENTIAL
ALLOCATION
FUND
(CLASS Z SHARES)
---------------------------
(BALANCED PORTFOLIO)
[LOGO]
PROSPECTUS
MARCH 1, 1996
AS SUPPLEMENTED ON SEPTEMBER 12, 1996
<PAGE>
PRUDENTIAL ALLOCATION FUND
SUPPLEMENT DATED SEPTEMBER 12, 1996 TO
PROSPECTUS DATED SEPTEMBER 29, 1995
THE FOLLOWING INFORMATION SUPPLEMENTS "GENERAL INFORMATION--DESCRIPTION OF
SHARES" IN THE PROSPECTUS:
The Fund is authorized to offer an unlimited number of shares of beneficial
interest, $.01 par value per share, of separate series or portfolios, one of
which is the Balanced Portfolio which is divided into four classes of shares,
designated Class A, Class B, Class C and Class Z shares. Each class represents
an interest in the same assets of the Portfolio and is identical in all respects
except that (i) each class is subject to different sales charges and
distribution and/or service fees (except for Class Z shares which are not
subject to any sales charges and distribution and/or service fees), which may
affect performance, (ii) each class has exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement and has
separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class, (iii) each
class has a different exchange privilege, (iv) only Class B shares have a
conversion feature and (v) Class Z shares are offered exclusively for sale to a
limited group of investors. For more information about Class Z shares, contact
your Prudential Securities financial adviser or Prusec representative or
telephone the Fund at (800) 225-1852. Participants in programs sponsored by
Prudential Retirement Services should contact their client representative for
more information about Class Z Shares. Since Class B and Class C shares
generally bear higher distribution expenses than Class A shares, the liquidation
proceeds to shareholders of those classes are likely to be lower than to Class A
shareholders and to Class Z shareholders, whose shares are not subject to any
distribution and/or service fee. In accordance with the Fund's Declaration of
Trust, the Trustees may authorize the creation of additional series and classes
within such series, with such preferences, privileges, limitations and voting
and dividend rights as the Trustees may determine. Currently, the Balanced
Portfolio is offering four classes, designated Class A, Class B, Class C and
Class Z shares, and the Strategy Portfolio is offering three classes, designated
Class A, Class B and Class C shares.
THE FOLLOWING INFORMATION FOR THE CLASS Z SHARES SUPPLEMENTS "HOW THE FUND
CALCULATES PERFORMANCE" IN THE PROSPECTUS:
The Fund may include comparative performance information in advertising or
marketing the Fund's shares. The Fund may include performance information about
each of the Fund's classes and is no longer required to include performance data
for all classes of shares in any advertisement or other information including
performance data of the Fund. See "How the Fund Calculates Performance."
MF134C-3(9/12/96)
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PRUDENTIAL ALLOCATION FUND
SUPPLEMENT DATED SEPTEMBER 12, 1996 TO
STATEMENT OF ADDITIONAL INFORMATION DATED
SEPTEMBER 29, 1995
THE FOLLOWING INFORMATION SUPPLEMENTS "PURCHASE AND REDEMPTION OF FUND SHARES"
IN THE STATEMENT OF ADDITIONAL INFORMATION:
Shares of the Fund may be purchased at a price equal to the next determined
net asset value per share plus a sales charge which, at the election of the
investor, may be imposed either (i) at the time of purchase (Class A shares) or
(ii) on a deferred basis (Class B or Class C shares). Class Z shares of the
Balanced Portfolio of the Fund are offered to a limited group of investors at
net asset value without any sales charges. See "Shareholder Guide--How to Buy
Shares of the Fund" in the Prospectus.
Each class represents an interest in the same assets of the Portfolio and is
identical in all respects except that (i) each class is subject to different
sales charges and distribution and/or service fees (except for Class Z shares
which are not subject to any sales charges and distribution and/or service
fees), which may affect performance, (ii) each class has exclusive voting rights
on any matter submitted to shareholders that relates solely to its arrangement
and has separate voting rights on any matter submitted to shareholders in which
the interests of one class differ from the interests of any other class, (iii)
each class has a different exchange privilege, (iv) only Class B shares have a
conversion feature and (v) Class Z shares are offered exclusively for sale to a
limited group of investors. See "Distributor" and "Shareholder Investment
Account--Exchange Privilege."
THE FOLLOWING INFORMATION SUPPLEMENTS "SHAREHOLDER INVESTMENT ACCOUNT--EXCHANGE
PRIVILEGE" IN THE STATEMENT OF ADDITIONAL INFORMATION:
CLASS Z. Class Z shares may be exchanged for Class Z shares of other
Prudential Mutual Funds.
MF134C-4(9/12/96)
