(ICON)
Prudential
Allocation
Fund
- ------------------------
Balanced Portfolio
SEMI
ANNUAL
REPORT
Jan. 31, 1997
(LOGO)
<PAGE>
Prudential Allocation Fund:
Balanced Portfolio
Performance At A Glance
U.S. stock and bond prices climbed over the six months
ending January 31, 1997,
as corporate profits rose, interest rates fell, and
inflation remained stable.
The stock market was exceptional, as the Dow Jones
Industrial Average first
broke through 6000 and then approached 7000 (only to surpass
it in February).
Your Prudential Allocation Fund: Balanced Portfolio
delivered an excellent
performance, returning about 16% over the six months, well
ahead of the average
balanced fund measured by Lipper Analytical Services. The
Portfolio's strong return was the result of its emphasis on
technology and financial stocks, the same sectors that led
the market higher.
Cumulative Total Returns1 As of 1/31/97
<TABLE>
<CAPTION>
Six One Five
Since
Months Year Years
Inception2
<S> <C> <C> <C>
<C>
Class A 16.1% 16.4% 68.4%
118.7%
Class B 15.7 15.6 62.1
129.5
Class C 15.7 15.6 N/A
35.5
Class Z 16.2 N/A N/A
14.8
Lipper Balanced Port. Avg.3 14.2 14.8 72.8
**
</TABLE>
Average Annual Total Returns1 As of 12/31/96
<TABLE>
<CAPTION>
One Five
Since
Year Years
Inception2
<S> <C> <C>
<C>
Class A 16.6% 10.4%
11.6%
Class B 15.7 9.6
9.1
Class C 15.7 N/A
12.5
</TABLE>
Past performance is not indicative of future results.
Principal and investment
return will fluctuate so that an investor's shares, when
redeemed, may be worth
more or less than their original cost.
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 declining
contingent deferred sales charge of 5%, 4%, 3%, 2%, 1% and
1% over six years,
for Class B shares. Class C shares have a 1% CDSC for one
year. Class B shares
automatically convert to Class A shares after approximately
seven years. Class
Z shares are not subject to a sales charge or a distribution
and/or service
fee. Since Class Z shares have been in existence less than
one year, no average
annual returns are shown.
2Inception dates: 1/22/90 Class A; 9/15/87 Class B; 8/1/94
Class C; 3/1/96
Class Z.
3Lipper average returns are for 305 funds for six months,
282 funds for one
year and 77 funds for five years.
** The Lipper Since Inception category return for Class A
shares is 126.5%,
which includes 58 funds; for Class B is 158.8% for 40 funds;
for Class C is
46.0% for 193 funds and for Class Z is 14.3% for 286 funds.
How Investments Compared.
(As of 1/31/97)
(CHART)
Source: Lipper Analytical Services. Financial markets
change, so a mutual
fund's past performance should never be used to predict
future results. The
risks to each of the investments listed above are different
- -- we provide
12-month total returns for several Lipper mutual fund
categories to show you
that reaching for higher yields means tolerating more risk.
The greater the
risk, the larger the potential reward or loss. In addition,
we've included
historical 20-year average annual returns. These 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
invest-ments. Smaller
capitalization stocks offer greater potential for long-term
growth but may be
more volatile than larger capitalization stocks.
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.
General Municipal Debt Funds invest in bonds issued by state
governments, state
agencies and/or municipalities. This investment provides
income that is usually
exempt from federal and state income taxes.
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>
Greg Goldberg, Fund Manager (PICTURE)
Portfolio
Manager's Report
The Balanced Portfolio invests in a diversified portfolio of
stocks, bonds and
money market instruments. The Portfolio invests in stocks
and bonds of larger,
more mature companies, plus some smaller, faster growing
companies. The
Portfolio may invest up to 10% of its assets in bonds rated
below investment
grade, commonly known as junk bonds, which are subject to
greater credit risk.
There can be no assurance that the Portfolio's investment
objective will be
achieved.
Growth Oriented.
Portfolio Manager Greg Goldberg is a growth-oriented
investor who reviews
company financial statements to find stocks with above-
average growth and
earnings potential. When buying bonds, he seeks investments
with attractive
total returns that may be undervalued when their prices and
yields to maturity
are compared with the rest of the market.
Strategy Session
- ------------------------------------------------------------
- ----------
When Big Gets Too Big.
We like to purchase growth stocks. But we don't like to pay
high prices. As
the Dow Jones Industrial Average hit 6000 last fall, and
Federal Reserve
Chairman Alan Greenspan warned of "irrational exuberance" in
the stock market,
we intensified our search for growth at a reasonable price.
Since Thanksgiving,
we've been finding opportunities in smaller and medium-sized
companies that
have been priced more attractively than large companies. In
fact, these small-
to medium-sized companies have significantly underperformed
larger companies
now for the last three years.
Investment Allocation
Six-Month Comparisons
Balanced Portfolio
(CHART)
We've Taken Profits.
As a result, we've taken profits in some of our larger
company stocks and
increased our holdings in small- to medium-sized companies
(those whose total
market worth is less than $5 billion). For example, we
trimmed our holdings in
Microsoft, and added to our holdings like Weatherford
Enterra and other oil
service industry stocks.
We must say we haven't been immediately successful. Some of
these small company
stocks have had a difficult time in 1997. (Oil service
industry stocks fell as
much as 20% early this year). But we suspect that the market
will come around
to our way of thinking sometime this year. We believe the
prices of the largest
stocks -- sometimes called the "Nifty 50" -- are just too
expensive.
This change in focus toward the smaller stocks is our most
significant change
in strategy over the past six months. Our asset allocation
has varied only
slightly -- we trimmed our stock holdings somewhat and
raised a little cash.
Our targeted asset allocation is 55% in stocks, 35% in
bonds, and 10% in cash,
but that may vary by as much as 5 percentage points in
either direction for any
of the three.
<PAGE>
What Went Well.
- -----------------------------------------
Tech & Finance.
We're bottom-up investors, not top-down -- we look for
opportunities in
specific companies, not broad industries. We're glad that we
found most of
these in technology and financial services, because these
sectors led the
market over the last six months. As a percentage of our
total assets in
stocks, we held 29% in technology -- twice as much as the
market as a whole,
and 19% in financial stocks -- one and a half times as much
as the market.
In 1996, the big technology stocks were tops. Names like
Intel, Microsoft and
IBM led the sector. In the last six months, all technology
stocks rose 42%, as
measured by the S&P. Our top performing holding was Intel,
which rose 116%
during the past six months.
Financial stocks rose nearly 36% over the same time, as
interest rates fell,
profits remained strong and mergers and acquisitions helped.
Among our
best-performing holdings was Travelers Group, which rose
nearly 67%.
Energy & Health.
Energy was the third best performing sector during the
reporting period, rising
24%, as the price of crude oil climbed to its highest levels
since the Gulf
War. Our oil services stocks did exceptionally well, with
Weatherford Enterra
rising 47% during the six months, BJ Services up 40% and
Smith International
climbing 36%.
We also did well in health care, led by our position in
Aetna, the last of the
major insurance companies to enter the Health Maintenance
Organization
business, by acquiring U.S. Healthcare. Aetna stock rose by
nearly 37% during
the six months.
And Not So Well.
- ------------------------------------
Tech Trouble.
While technology stocks have been rewarding (they've risen
83% in the last two
years), it's never been easy to own the right ones at the
right time. While we
did well with our technology holdings over the last six
months, we could have
done better. After some of our large company stocks ran up
as high as they did
(Intel rose 116%), we started to sell some, thinking that
smaller company
stocks held more potential. We wish we hadn't sold so soon.
One of our holdings, Uniphase, is a small company that makes
laser systems. It
rose 68%. We thought we found other small to mid-sized
companies that would
perform well. In the short-term, we were wrong. Instead,
Uniphase was more an
aberration than a trend, as investors continued to favor
liquidity -- owning
larger companies whose stock can be sold much more quickly
and easily than
those of the smaller companies.
Five Largest
Holdings.
2.0% Novartis AG
Pharmaceuticals
1.9% FNMA
Financial Services
1.8% Uniphase Corp.
Electronics
1.8% Citicorp
Financial Services
1.7% ADC Telecom
Telecommunications
Expressed as a percentage of total net assets as of 1/31/97.
Looking Ahead.
- ------------------------
We've positioned the Fund to take advantage of a surge in
demand for oil and
renewed strength in small and medium-sized company stocks in
a number of
industries. To date, 1997 hasn't been cooperative.
There was a sizable drop in oil prices early this year (from
$27 a barrel to
$20), and natural gas prices have fallen as well. That has
been hard on one
area we like the most -- the oil service stocks. That said,
we're still
optimistic on this sector, and expect it to rebound later
this year.
We also believe in small- to medium-sized company stocks,
although they have
not performed as well as we expected to date. These stocks
have trailed larger
stocks for three years in a row now. But we believe that
funds will rotate this
year out of the "Nifty 50" -- the biggest company stocks --
and into smaller
companies that can be purchased at more reasonable prices.
1
<PAGE>
President's Letter March 3, 1997
Prudential Allocation Fund Portfolios May Merge.
(PICTURE)
Dear Shareholder:
There's important news for shareholders of the Prudential
Allocation Fund:
Strategy Portfolio and the Prudential Allocation Fund:
Balanced Portfolio.
Strategy Portfolio shareholders will soon be receiving
information in the mail
concerning the future of their Fund. The Board of Trustees
has recently
approved a proposal to exchange the assets and liabilities
of the Strategy
Portfolio for shares of the Balanced Portfolio. If this
merger occurs, the
Fund will be renamed the Prudential Balanced Fund, and its
investment
objective will be to seek high total return consistent with
moderate risk.
Why Merge?
We are continually assessing the operation of our mutual
funds to see if
they're performing in the most efficient way possible. That
means we are
constantly searching for new ways to strengthen our
investment management and
reduce costs while we ensure that the mutual fund's
investment objective
closely matches your long-term financial needs.
Under the planned merger, Strategy Portfolio shareholders
will have their
shares (Class A, B, C, and Z) exchanged for like shares of
the Balanced
Portfolio at net asset value. No sales charges will be
imposed. And, each Fund
anticipates obtaining an opinion from counsel that no gain
or loss for federal
income tax purposes would be realized by shareholders as a
result of this
transaction.
Providing you with the highest quality investment products
is our No. 1
priority. We are committed to helping you reach your
financial goals.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds and Annuities
2
<PAGE>
Portfolio of Investments as of January 31, 1997
PRUDENTIAL ALLOCATION FUND
(Unaudited) BALANCED
PORTFOLIO
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note
1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--89.3%
COMMON STOCKS--53.4%
- ------------------------------------------------------------
Auto Parts--0.4%
100,462 LucasVarity PLC (ADR) (United
Kingdom)* $
3,340,362
- ------------------------------------------------------------
Chemicals--0.7%
414,900 Agrium Inc. (Canada)*
6,295,693
- ------------------------------------------------------------
Computer Software & Services--6.1%
61,400 C-NET Inc.*
1,780,600
191,300 Cisco Systems, Inc.*
13,343,175
169,500 Computer Associates International,
Inc.
7,691,062
134,100 Edify Corp.*
1,743,300
291,200 Informix Corp.*
6,042,400
295,500 Larscom, Inc.*
3,546,000
115,000 Microsoft Corp.*
11,730,000
295,000 The Learning Company, Inc.*
3,724,375
82,300 VeriFone, Inc.*
2,973,088
--------
- -----
52,574,000
- ------------------------------------------------------------
Containers & Packaging--0.7%
448,800 Stone Container Corp.
6,058,800
- ------------------------------------------------------------
Drugs & Health Care--1.2%
256,500 United States Surgical Corp.
10,292,063
- ------------------------------------------------------------
Electrical Services--0.4%
132,700 Long Island Lighting Co.
3,018,925
- ------------------------------------------------------------
Electronics--6.1%
176,000 Burr-Brown Corp.*
4,730,000
294,300 Checkpoint Systems, Inc.*
6,143,512
277,800 Input/Output, Inc.*
6,597,750
86,700 Intel Corp. $
14,067,075
82,900 SGS Thomson Microelectronics N.V.*
5,865,175
358,300 Uniphase Corp.*
15,630,837
--------
- -----
53,034,349
- ------------------------------------------------------------
Entertainment--0.7%
164,028 Carnival Corp.
6,028,029
- ------------------------------------------------------------
Financial Services--8.1%
138,750 Advanta Corp.
5,931,563
132,412 Citicorp
15,409,446
426,900 Federal National Mortgage Association
16,862,550
132,200 Imperial Credit Industries, Inc.*
2,891,875
76,600 Student Loan Marketing Association
8,339,825
432,300 The Money Store, Inc.
11,023,650
197,933 Travelers Group, Inc.
10,366,741
--------
- -----
70,825,650
- ------------------------------------------------------------
Foods--0.5%
120,900 RJR Nabisco Holdings Corp.
3,959,475
- ------------------------------------------------------------
Hospital Management--2.9%
131,600 Aetna, Inc.
10,396,400
214,700 Columbia/HCA Healthcare Corp.
8,480,650
453,400 Physician Corp. of America*
4,448,988
68,900 Sierra Health Services Inc.*
1,886,137
--------
- -----
25,212,175
- ------------------------------------------------------------
Lodging--1.1%
78,500 Hilton Hotels Corp.
2,237,250
308,800 La Quinta Inns, Inc.
6,021,600
67,100 Prime Hospitality Corp.*
1,149,088
--------
- -----
9,407,938
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements.
3 -----
<PAGE>
Portfolio of Investments as of January 31, 1997
PRUDENTIAL ALLOCATION FUND
(Unaudited) BALANCED
PORTFOLIO
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note
1)
<C> <S> <C>
- ------------------------------------------------------------
Machinery & Equipment--0.3%
139,500 Miller Industries, Inc.* $
2,824,875
- ------------------------------------------------------------
Metals--1.9%
242,600 AK Steel Holding Corp.
8,763,925
106,500 Aluminum Co. of America
7,348,500
--------
- -----
16,112,425
- ------------------------------------------------------------
Metals-Non Ferrous--1.2%
285,000 UCAR International Inc.*
10,687,500
- ------------------------------------------------------------
Oil & Gas--3.2%
170,400 Alberta Energy Co., Ltd.*
4,238,700
131,600 Exxon Corp.
13,637,050
361,000 YPF Sociedad Anonima (ADR) (Argentina)
10,062,875
--------
- -----
27,938,625
- ------------------------------------------------------------
Oil & Gas Equipment & Services--4.6%
166,400 BJ Services Co.*
7,696,000
341,200 Bouygues Offshore S.A.*
4,435,600
216,500 J. Ray McDermott, S.A.*
5,033,625
235,000 Smith International, Inc.*
10,692,500
330,800 Weatherford Enterra, Inc.*
12,032,850
--------
- -----
39,890,575
- ------------------------------------------------------------
Pharmaceuticals--4.2%
309,000 Novartis (ADR) (Switzerland)*
17,767,500
98,700 Pfizer Inc.
9,166,762
266,700 Pharmacia & Upjohn, Inc.
9,934,575
--------
- -----
36,868,837
- ------------------------------------------------------------
Realty Investment Trust--3.4%
92,700 Crescent Real Estate Equities Co.
4,971,037
150,000 Developers Diversified Realty Corp.*
5,362,500
150,000 Equity Residential Properties Trust
6,450,000
148,200 Manufactured Home Communities, Inc.
3,501,225
47,800 Meditrust Corp. $
1,840,300
160,000 Patriot American Hospitality, Inc.
7,520,000
--------
- -----
29,645,062
- ------------------------------------------------------------
Restaurants--0.6%
117,000 McDonald's Corp.
5,323,500
- ------------------------------------------------------------
Retail--1.1%
350,000 Gap, Inc.
10,062,500
- ------------------------------------------------------------
Telecommunications--3.1%
420,500 ADC Telecommunications, Inc.*
15,085,437
65,800 Comverse Technology, Inc.*
2,961,000
330,400 NEXTEL Communications, Inc.*
5,079,900
283,500 Westell Technologies, Inc.*
4,110,750
--------
- -----
27,237,087
- ------------------------------------------------------------
Textiles--0.3%
169,600 Polymer Group, Inc.*
2,416,800
- ------------------------------------------------------------
Toy Manufacturer--0.6%
279,800 Galoob Toys, Inc.*
4,896,500
--------
- -----
Total common stocks
(cost $375,312,969)
463,951,745
--------
- -----
PREFERRED STOCKS--1.7%
- ------------------------------------------------------------
Foods--0.6%
851,400 RJR Nabisco Holdings Corp.,
Conv. Pfd.
5,640,525
- ------------------------------------------------------------
Retail--1.1%
188,000 Kmart Financing
Conv. Pfd.
9,588,000
--------
- -----
Total preferred stocks
(cost $15,132,507)
15,228,525
--------
- -----
</TABLE
- ------------------------------------------------------------
- --------------------
- ----- 4 See Notes to
Financial Statements.
<PAGE>
Portfolio of Investments as of January 31, 1997
PRUDENTIAL ALLOCATION FUND
(Unaudited) BALANCED
PORTFOLIO
- ------------------------------------------------------------
- ------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Description Value
(Note 1)
(Unaudited) (000)
<S> <C> <C> <C>
- ------------------------------------------------------------
DEBT OBLIGATIONS--34.2%
CORPORATE BONDS--8.7%
- ------------------------------------------------------------
Computer Hardware--0.5%
Ba $ 14,975 Digital Equipment Corp.,
7.125%, 10/15/02 $
4,785,552
- ------------------------------------------------------------
Computer Software & Services--0.2%
NR 2,281 The Learning Company, Inc.
5.50%, 11/1/00
1,867,569
- ------------------------------------------------------------
Containers & Packaging--0.6%
B2 4,000 Stone Container Corp.
8.875%, 7/15/00
5,320,000
- ------------------------------------------------------------
Electrical Services--0.3%
Ba 12,500 Westinghouse Electric
Corp.,
6.875%, 9/1/03
2,368,850
- ------------------------------------------------------------
Entertainment--0.6%
Baa 25,000 Royal Caribbean Cruises
Ltd.,
8.25%, 4/1/05
5,221,350
- ------------------------------------------------------------
Financial Services--2.2%
Aa3 200 Associates Corp. of North
America,
8.375%, 1/15/98
204,220
2,890 Banco Nacional de Mexico
S.A.,
7.00%, 12/15/99
2,788,850
A2 1,000 First Union Corp.,
9.45%, 6/15/99
1,065,930
A1 5,000 Ford Motor Credit Co.,
7.75%, 3/15/05
5,178,100
A2 10,000 Sears Roebuck Acceptance
Corp.,
6.75%, 9/15/05
9,794,300
-----
- -------
19,031,400
Food & Beverages--0.1%
A $ 3500 Coca Cola Enterprises,
Inc.,
6.50%, 11/15/97 $
502,025
- ------------------------------------------------------------
Hospital Management--0.6%
Ba1 5,000 Tenet Healthcare Corp.,
Sr. Sub. Notes,
8.625%, 12/1/03
5,200,000
- ------------------------------------------------------------
Oil & Gas--0.1%
Baa3 1,000 Arkla, Inc., MTN,
9.30%, 1/15/98
1,025,050
- ------------------------------------------------------------
Oil & Gas Services--0.4%
Ba1 3,500 BJ Services Co.,
7.00%, 2/1/06
3,388,385
- ------------------------------------------------------------
Restaurants--0.3%
Baa1 2,500 Darden Restaurants, Inc.
6.375%, 2/1/06
2,306,275
- ------------------------------------------------------------
Retail--2.3%
Ba1 2,500 Federated Dept. Stores,
Inc.
Sr. Notes,
8.50%, 6/15/03
2,603,750
Ba3 6,000 K Mart Corp.,
8.125%, 12/1/06
5,640,000
Baa3 9,400 Office Depot, Inc.
Zero Coupon, 11/1/08
5,557,750
B2 8,306 Sunglass Hut
International, Inc.
5.25%, 6/15/03
6,187,970
-----
- -------
19,989,470
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements.
5 -----
<PAGE>
Portfolio of Investments as of January 31, 1997
PRUDENTIAL ALLOCATION FUND
(Unaudited) BALANCED
PORTFOLIO
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Description Value
(Note 1)
(Unaudited) (000)
<S> <C> <C> <C>
- ------------------------------------------------------------
Tobacco--0.5%
Baa3 $ 5,000 RJR Nabisco, Inc.
7.625%, 9/15/03 $
4,853,300
-----
- -------
Total corporate bonds
(cost $75,868,347)
75,859,226
-----
- -------
SOVEREIGN BONDS--2.9%
25,000 United Mexican States,
7.5625%, 8/6/01
(cost $24,886,922)
25,225,000
-----
- -------
U.S. GOVERNMENT SECURITIES--22.6%
United States Treasury
Bonds,
15,000 7.625%, 2/15/25
16,399,200
10,000 6.75%, 8/15/26
9,901,600
15,000 6.50%, 11/15/26
14,435,100
United States Treasury
Notes,
20,000 6.875%, 8/31/99
20,393,800
30,500 6.125%, 7/31/00
30,476,210
30,000 6.25%, 4/30/01
30,009,300
35,000 6.375%, 9/30/01
35,142,100
10,000 5.875%, 11/30/01
9,835,900
5,000 6.125%, 12/31/01
4,969,550
15,100 7.50%, 2/15/05
16,065,041
8,000 7.00%, 7/15/06
8,266,240
-----
- -------
Total U.S. government
securities
(cost $195,124,979)
195,894,041
-----
- -------
Total debt obligations
(cost $295,880,248)
296,978,267
-----
- -------
Total long-term
investments
(cost $686,325,724)
776,158,537
-----
- -------
SHORT-TERM INVESTMENTS--10.3%
REPURCHASE AGREEMENT
$ 89,205 Joint Repurchase Agreement
Account
5.55%, 2/03/97
(cost $89,205,000; Note
5) $
89,205,000
-----
- -------
- ------------------------------------------------------------
Total Investments--99.6%
(cost $775,530,724; Note
4)
865,363,537
Other assets in excess of
liabilities--0.4%
3,701,795
-----
- -------
Net Assets--100%
$869,065,332
-----
- -------
-----
- -------
</TABLE>
- ---------------
* Non-income producing security.
ADR--American Depository Receipt.
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.
- ------------------------------------------------------------
- --------------------
- ----- 6 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL ALLOCATION FUND
Statement of Assets and Liabilities (Unaudited) BALANCED
PORTFOLIO
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Assets
January 31, 1997
<S>
<C>
Investments, at value (cost
$775,530,724)...............................................
.................. $865,363,537
Cash........................................................
..............................................
831,123
Dividends and interest
receivable..................................................
....................... 5,896,933
Receivable for investments
sold........................................................
................... 4,061,537
Receivable for Fund shares
sold........................................................
................... 733,311
Due from broker - variation
margin......................................................
.................. 28,125
Deferred
expenses....................................................
..................................... 20,703
- ----------------
Total
assets......................................................
..................................... 876,935,269
- ----------------
Liabilities
Payable for investments
purchased...................................................
...................... 5,754,964
Payable for Fund shares
reacquired..................................................
...................... 929,994
Due to
Manager.....................................................
....................................... 475,854
Due to
Distributor.................................................
....................................... 437,527
Accrued
expenses....................................................
...................................... 271,598
- ----------------
Total
liabilities.................................................
..................................... 7,869,937
- ----------------
Net
Assets......................................................
..........................................
$869,065,332
- ----------------
- ----------------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
......... $ 680,865
Paid-in capital in excess of
par.........................................................
.............. 741,530,741
- ----------------
742,211,606
Undistributed net investment
income......................................................
.............. 1,620,322
Accumulated net realized gain on
investments.................................................
.......... 36,206,493
Net unrealized appreciation on
investments.................................................
............ 89,026,911
- ----------------
Net assets, January 31,
1997........................................................
...................... $869,065,332
- ----------------
- ----------------
Class A:
Net asset value and redemption price per share
($311,255,318 / 24,331,522 shares of beneficial
interest issued and outstanding)....................
$12.79
Maximum sales charge (5% of offering
price)......................................................
...... .67
Maximum offering price to
public......................................................
................. $13.46
Class B:
Net asset value, offering price and redemption price per
share
($436,959,803 / 34,307,077 shares of beneficial
interest issued and outstanding)....................
$12.74
Class C:
Net asset value, offering price and redemption price per
share
($5,007,031 / 393,132 shares of beneficial interest
issued and outstanding).........................
$12.74
Class Z:
Net asset value, offering price and redemption price per
share
($115,843,180 / 9,059,779 shares of beneficial
interest issued and outstanding).....................
$12.79
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements.
7 -----
<PAGE>
PRUDENTIAL ALLOCATION FUND
BALANCED PORTFOLIO
Statement of Operations (Unaudited)
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six
Months
Ended
<S> <C>
Net Investment Income January 31,
1997
Income
Interest................................... $
12,271,060
Dividends (net of foreign withholding taxes
of $6,018)..............................
3,024,386
-----------
- -----
Total income............................
15,295,446
-----------
- -----
Expenses
Distribution fee--Class A..................
368,586
Distribution fee--Class B..................
2,214,192
Distribution fee--Class C..................
22,450
Management fee.............................
2,678,767
Transfer agent's fees and expenses.........
713,000
Custodian's fees and expenses..............
79,000
Reports to shareholders....................
76,000
Legal fees and expenses....................
39,000
Registration fees..........................
33,000
Trustees' fees and expenses................
10,000
Audit fees and expenses....................
10,000
Insurance..................................
6,000
Miscellaneous..............................
1,701
-----------
- -----
Total expenses..........................
6,251,696
-----------
- -----
Net investment income.........................
9,043,750
-----------
- -----
Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions
Net realized gain (loss) on:
Investment transactions....................
54,045,639
Foreign currency transactions..............
63,323
-----------
- -----
54,108,962
-----------
- -----
Net change in unrealized appreciation (depreciation) on:
Investments................................
61,391,673
Financial futures contracts................
(804,250)
-----------
- -----
60,587,423
-----------
- -----
Net gain on investments.......................
114,696,385
-----------
- -----
Net Increase in Net Assets
Resulting from Operations.....................
$123,740,135
-----------
- -----
-----------
- -----
</TABLE>
PRUDENTIAL ALLOCATION FUND
BALANCED PORTFOLIO
Statement of Changes in Net Assets (Unaudited)
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year
Ended
Increase (Decrease) January 31, July
31,
in Net Assets 1997 1996
<S> <C> <C>
Operations
Net investment income........ $ 9,043,750 $
14,155,270
Net realized gain on
investments and foreign
currency transactions..... 54,108,962
42,413,859
Net change in unrealized
appreciation
(depreciation) of
investments............... 60,587,423
(32,532,379)
------------- ---------
- ----
Net increase in net assets
resulting from
operations................ 123,740,135
24,036,750
------------- ---------
- ----
Net equalization credits
(debits)..................... --
266,040
------------- ---------
- ----
Dividends and distributions
(Note 1)
Dividends from net investment
income
Class A................... (3,805,277)
(5,700,390)
Class B................... (4,170,893)
(7,051,910)
Class C................... (41,608)
(41,036)
Class Z................... (854,213)
(56,180)
------------- ---------
- ----
(8,871,991)
(12,849,516)
------------- ---------
- ----
Distributions from net
realized gains on
investment transactions
Class A................... (17,250,282)
(10,904,493)
Class B................... (26,414,816)
(17,821,478)
Class C................... (273,589)
(80,545)
Class Z................... (6,764,802)
- --
------------- ---------
- ----
(50,703,489)
(28,806,516)
------------- ---------
- ----
Fund share transactions (net of
share conversions) (Note 6)
Net proceeds from shares
subscribed................ 164,638,505
382,325,569
Net asset value of shares
issued to shareholders in
reinvestment of dividends
and distributions......... 55,265,004
37,994,029
Cost of shares reacquired.... (105,104,331)
(228,029,907)
------------- ---------
- ----
Net increase (decrease) in
net assets from Fund
shares transactions....... 114,799,178
192,289,691
------------- ---------
- ----
Total increase.................. 178,963,833
174,936,449
Net Assets
Beginning of period............. 690,101,499
515,165,050
------------- ---------
- ----
End of period................... $ 869,065,332 $
690,101,499
------------- ---------
- ----
------------- ---------
- ----
</TABLE>
- ------------------------------------------------------------
- --------------------
- ----- 8 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL ALLOCATION FUND
Notes to Financial Statements (Unaudited) BALANCED
PORTFOLIO
- ------------------------------------------------------------
- --------------------
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, namely:
Balanced Portfolio and
Strategy Portfolio. The investment objective of the Balanced
Portfolio (the
'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
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 which approximates market value.
In connection with transactions in repurchase agreements
with U.S. financial
institutions, it is the Fund's policy that its custodian or
designated
subcustodians, as the case may be, under triparty repurchase
agreements, take
possession of the underlying collateral securities, the
value of which exceeds
the principal amount of the repurchase transaction,
including accrued interest.
To the extent that any repurchase transaction exceeds one
business day, the
value of the collateral is marked-to-market on a daily basis
to ensure the
adequacy of the collateral. If the seller defaults and the
value of the
collateral declines or if bankruptcy proceedings are
commenced with respect to
the seller of the security, realization of the collateral by
the Fund may be
delayed or limited.
Foreign Currency Translation: The books and records of the
Fund are maintained
in U.S. dollars. Foreign currency amounts are translated
into U.S. dollars on
the following basis:
(i) market value of investment securities, other assets and
liabilities--at the
closing daily rate of exchange.
(ii) purchases and sales of investment securities, income
and expenses--at the
rate of exchange prevailing on the respective dates of such
transactions.
Although the net assets of the Fund are presented at the
foreign exchange rates
and market values at the close of the fiscal period, the
Fund does not isolate
that portion of the results of operations arising as a
result of changes in the
foreign exchange rates from the fluctuations arising from
changes in the market
prices of long-term securities held at the end of the fiscal
period. Similarly,
the Fund does not isolate the effect of changes in foreign
exchange rates from
the fluctuations arising from changes in the market prices
of long-term
portfolio securities sold during the fiscal period.
Accordingly, realized
foreign currency gains (losses) are included in the reported
net realized gains
on investment transactions.
Net realized gains on foreign currency transactions
represent net foreign
exchange gains from the holding of foreign currencies,
currency gains or losses
realized between the trade and settlement dates on
securities transactions, and
the difference between the amounts of dividends, interest
and foreign taxes
recorded on the Fund's books and the U.S. dollar equivalent
amounts actually
received or paid.
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.
- ------------------------------------------------------------
- --------------------
9 -----
<PAGE>
PRUDENTIAL ALLOCATION FUND
Notes to Financial Statements (Unaudited) BALANCED
PORTFOLIO
- ------------------------------------------------------------
- --------------------
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.
Federal Income Taxes: For federal income tax purposes, each
series in the Fund
is treated as a separate taxpaying entity. It is the intent
of each series to
continue to meet the requirements of the Internal Revenue
Code applicable to
regulated investment companies and to distribute all of its
taxable net income
to its shareholders. Therefore, no federal income tax
provision is required.
Withholding taxes on foreign interest and dividends have
been provided for in
accordance with the Fund's understanding of the applicable
country's tax rates.
Dividends and Distributions: The Fund expects to pay
dividends of net investment
income quarterly and make distributions at least annually of
any net capital
gains. Dividends and distributions are recorded on the ex-
dividend date.
Income distributions and capital gains distributions are
determined in
accordance with income tax regulations which may differ from
generally accepted
accounting principles. These differences are primarily due
to differing
treatments of wash sales and foreign currency transactions.
Equalization: Effective August 1, 1996, the Fund
discontinued the accounting
practice of equalization. Equalization is a practice whereby
a portion of the
proceeds from sales and costs of repurchases of capital
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. The balance of $2,024,805 of undistributed net
investment income at July
31, 1996, resulting from equalization was transferred to
paid-in capital in
excess of par. Such reclassification has no effect on net
assets, results of
operations, or net asset value per share.
Reclassification of Capital Accounts: The Fund accounts and
reports for
distributions to shareholders in accordance with American
Institute of Certified
Public Accountants, 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,
1997, the Balanced Portfolio increased undistributed net
investment income and
decreased accumulated net realized gain on investments by
$63,323. 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 LLC
('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 Portfolio's average daily net
assets.
- ------------------------------------------------------------
- --------------------
- ----- 10
<PAGE>
PRUDENTIAL ALLOCATION FUND
Notes to Financial Statements (Unaudited)
BALANCED PORTFOLIO
- ------------------------------------------------------------
- --------------------
The Fund has a distribution agreement with Prudential
Securities Incorporated
which acts as the distributor of the Class A, Class B, Class
C and Class Z
shares. ('PSI'). The Portfolio compensated PSI for
distributing and servicing
the Portfolio'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. The distribution fees are accrued daily and
payable monthly. No
distributions or service fees are paid to PSI as distributor
of the Class Z
shares of the Portfolio.
Pursuant to the Class A, B and C Plans, the Portfolio
compensated PSI 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, 1997.
PSI has advised the Portfolio that it received approximately
$134,800 in
front-end sales charges resulting from sales of Class A
shares during the six
months ended January 31, 1997. From these fees, PSI paid
such sales charges to
dealers which in turn paid commissions to salespersons.
PSI has advised the Portfolio that for the six months ended
January 31, 1997, it
received approximately $395,200 and $1,900 in contingent
deferred sales charges
imposed upon certain redemptions by Class B and C
shareholders, respectively.
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 LLC ('PMFS'), a wholly-owned
subsidiary of PMF,
serves as the Portfolio's transfer agent. During the six
months ended January
31, 1997, the Portfolio incurred fees of approximately
$690,300 for the services
of PMFS. As of January 31, 1997, approximately $126,700 of
such fees were due to
PMFS. Transfer agent fees and expenses in the Statement of
Operations also
include certain out-of-pocket expenses paid to non-
affiliates.
For the six months ended January 31, 1997, PSI received
approximately $39,900 in
brokerage commissions from portfolio transactions executed
on behalf of the
Portfolio.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities of the
Portfolio, other than
short-term investments, for the six months ended January 31,
1997, were
$386,996,095 and $455,307,465, respectively.
The cost basis of investments for federal income tax
purposes as of January 31,
1997 was $775,616,296 and accordingly, net unrealized
appreciation of
investments for federal income tax purposes was $89,747,241
(gross unrealized
appreciation--$110,729,751; gross unrealized depreciation--
$20,982,510).
At January 31, 1997, the Portfolio sold 62 financial futures
contracts on the
Standard & Poor's Index which expire in March 1997. The
value at disposition of
such contracts is $48,414,500. The value of such contracts
on January 31, 1997
was $49,218,750, thereby resulting in an unrealized gain of
$804,250.
- ------------------------------------------------------------
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, 1997, the
Portfolio had a 7.6% undivided interest in repurchase
agreements in the joint
account. The undivided interest for the Portfolio
represented $89,205,000 in
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., 5.56%, dated 1/31/97, in the
principal amount of
$343,000,000, repurchase price $343,158,923, due 2/3/97. The
value of the
collateral including accrued interest is $350,781,750.
Goldman, Sachs & Co., Inc.,5.57%, dated 1/31/97, in the
principal amount of
$343,000,000, repurchase price $343,159,209, due 2/3/97. The
value of the
collateral including accrued interest is $349,860,525.
SBC Warburg, 5.40% dated 1/31/97, in the principal amount of
$143,898,000,
repurchase price $143,962,754, due 2/3/97. The value of the
collateral including
accrued interest is $146,829,414.
Smith Barney Inc., 5.57%, dated 1/31/97, in the principal
amount of
$343,000,000, repurchase price $343,159,209, due 2/3/97. The
value of the
collateral including accrued interest is $349,860,960.
- ------------------------------------------------------------
- --------------------
11 -----
<PAGE>
PRUDENTIAL ALLOCATION FUND
Notes to Financial Statements (Unaudited) BALANCED
PORTFOLIO
- ------------------------------------------------------------
- --------------------
Note 6. Capital
The Portfolio offers Class A, Class B, Class C and Class Z
shares. Class A
shares are sold with a front-end sales charge of up to 5%.
Class B shares are
sold with a contingent deferred sales charge which declines
from 5% to zero
depending on the period of time the shares are held. Class C
shares are sold
with a 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. Class Z shares are not subject to any sales or
redemption charge and are
offered exclusively for sale to a limited group of
investors.
The Fund has authorized an unlimited number of shares of
beneficial interest of
each class at $.01 par value per share.
Transactions in shares of beneficial interest for the six
months ended January
31, 1997 and fiscal year ended July 31, 1996 were as
follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ---------------------------------- ----------- ---------
- ----
<S> <C> <C>
Six months ended January 31, 1997:
Shares issued..................... 1,883,849 $
24,181,883
Shares issued in reinvestment of
dividends and distributions..... 1,477,898
18,684,539
Shares reacquired................. (3,612,805)
(46,253,126)
----------- ---------
- ----
Net decrease in shares outstanding
before conversion............... (251,058)
(3,386,704)
Shares issued upon conversion from
Class B......................... 2,465,759
30,920,132
----------- ---------
- ----
Net increase in shares
outstanding..................... 2,214,701 $
27,533,428
----------- ---------
- ----
----------- ---------
- ----
Year ended July 31, 1996:
Shares issued..................... 6,671,164 $
80,509,210
Shares issued in connection with
acquisition of Prudential
IncomeVertible(R) Fund, Inc..... 12,372,804
153,694,070
Shares issued in reinvestment of
dividends and distributions..... 1,222,084
14,673,158
Shares reacquired................. (10,761,405)
(130,646,163)
----------- ---------
- ----
Net increase in shares outstanding
before conversion............... 9,504,647
118,230,275
Shares issued upon conversion from
Class B......................... 2,661,105
32,556,721
----------- ---------
- ----
Net increase in shares
outstanding..................... 12,165,752 $
150,786,996
----------- ---------
- ----
----------- ---------
- ----
Class B Shares Amount
- ---------------------------------- ----------- ---------
- ----
Six months ended January 31, 1997:
Shares issued..................... 2,326,497 $
29,657,229
Shares issued in reinvestment of
dividends and distributions..... 2,274,241
28,659,977
Shares reacquired................. (3,439,576)
(43,817,796)
----------- ---------
- ----
Net increase in shares outstanding
before conversion............... 1,161,162
14,499,410
Shares reacquired upon conversion
into Class A.................... (2,476,002)
(30,920,132)
----------- ---------
- ----
Net decrease in shares
outstanding..................... (1,314,840) $
(16,420,722)
----------- ---------
- ----
----------- ---------
- ----
Year ended July 31, 1996:
Shares issued..................... 5,453,476 $
65,698,493
Shares issued in connection with
acquisition of Prudential
IncomeVertible(R) Fund, Inc..... 5,994,600
74,209,881
Shares issued in reinvestment of
dividends and distributions..... 1,934,648
23,143,383
Shares reacquired................. (7,782,895)
(93,671,895)
----------- ---------
- ----
Net increase in shares outstanding
before conversion............... 5,599,829
69,379,862
Shares reacquired upon conversion
into Class A.................... (2,673,189)
(32,556,721)
----------- ---------
- ----
Net increase in shares
outstanding..................... 2,926,640 $
36,823,141
----------- ---------
- ----
----------- ---------
- ----
Class C
- ----------------------------------
Six months ended January 31, 1997:
Shares issued..................... 133,833 $
1,681,428
Shares issued in reinvestment of
dividends and distributions..... 23,922
301,481
Shares reacquired................. (63,289)
(803,357)
----------- ---------
- ----
Net increase in shares
outstanding..................... 94,466 $
1,179,552
----------- ---------
- ----
----------- ---------
- ----
Year ended July 31, 1996:
Shares issued..................... 279,411 $
3,368,769
Shares issued in reinvestment of
dividends and distributions..... 10,109
121,326
Shares reacquired................. (244,931)
(2,928,958)
----------- ---------
- ----
Net increase in shares
outstanding..................... 44,841 $
564,259
----------- ---------
- ----
----------- ---------
- ----
</TABLE>
- ------------------------------------------------------------
- --------------------
- ----- 12
<PAGE>
PRUDENTIAL ALLOCATION FUND
Notes to Financial Statements (Unaudited) BALANCED
PORTFOLIO
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class Z Shares Amount
- ---------------------------------- ----------- ---------
- ----
<S> <C> <C>
Six months ended January 31, 1997:
Shares issued..................... 1,180,417 $
15,146,080
Shares issued in connection with
acquisition of Prudential
Institutional Fund Balanced Fund
(Note 7)........................ 8,056,026
93,971,885
Shares issued in reinvestment of
dividends and distributions..... 603,239
7,619,007
Shares reacquired................. (1,118,765)
(14,230,053)
----------- ---------
- ----
Net increase in shares
outstanding..................... 8,720,917 $
102,506,919
----------- ---------
- ----
----------- ---------
- ----
March 1, 1996* through
July 31, 1996:
Shares issued..................... 398,041 $
4,842,024
Shares issued in reinvestment of
dividends and distributions..... 4,624
56,162
Shares reacquired................. (63,803)
(782,891)
----------- ---------
- ----
Net increase in shares
outstanding..................... 338,862 $
4,115,295
----------- ---------
- ----
----------- ---------
- ----
</TABLE>
- ---------------
* Commencement of offering of Class Z shares.
- ------------------------------------------------------------
Note 7. Acquisition of Prudential Institutional Fund--
Balanced Fund
On September 20, 1996, the Portfolio acquired all the net
assets of the
Prudential Institutional Fund-Balanced Fund ('Balanced
Fund') pursuant to a plan
of reorganization approved by Balanced Fund shareholders on
September 6, 1996.
The acquisition was accomplished by a tax-free exchange of
8,056,026 Class Z
shares of the Portfolio (valued at $93,971,885) for
8,387,005 shares of Balanced
Fund outstanding on September 20, 1996. Balanced Fund's net
assets at that date
($102,031,225), including $8,097,968 of unrealized
appreciation, were combined
with those of the Portfolio. The aggregate net assets of the
Portfolio and
Balanced Fund immediately before the acquisition were
$728,255,658 and
$102,031,225 respectively.
- ------------------------------------------------------------
Note 8. Proposed Reorganization
On February 19, 1997, the Board of Trustees of the Fund
approved an Agreement
and Plan of Reorganization (the 'Plan') which provides for
the transfer of all
of the assets of the Strategy Portfolio to the Balanced
Portfolio in exchange
for the respective Class A, Class B, Class C and Class Z
shares of the Balanced
Portfolio and the Balanced Portfolio's assumption of the
liabilities of the
Strategy Portfolio.
The Plan is subject to approval by the shareholders of the
Strategy Portfolio at
a shareholder meeting scheduled on or about June 25, 1997.
If the Plan is
approved, it is expected that the reorganization will take
place in July 1997.
The Strategy Portfolio and the Balanced Portfolio will each
bear their pro-rata
share of the costs of the reorganization, including cost of
proxy solicitation.
- ------------------------------------------------------------
Note 9. Dividends
On March 21, 1997 the Board of Trustees of the Fund declared
the following
dividends per share, payable on March 31, 1997 to
shareholders of record on
March 25, 1997:
<TABLE>
<CAPTION>
Class B
Class A and C
Class Z
-------- -------- ---
- -----
<S> <C> <C> <C>
Ordinary Income.................. $ .0975 $ .0725 $
.1050
</TABLE>
- ------------------------------------------------------------
- --------------------
13 -----
<PAGE>
PRUDENTIAL ALLOCATION FUND
Financial Highlights (Unaudited) BALANCED
PORTFOLIO
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class A
-------------------
- ------------------------------------------------------
Six Months
Ended
Year Ended July 31,
January 31, ---
- ------------------------------------------------------
1997
1996 1995 1994 1993 1992
----------- ---
- ----- -------- ------- ------- -------
<S> <C> <C>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 11.85 $
12.04 $ 11.12 $ 11.75 $ 11.00 $ 10.73
----------- ---
- ----- -------- ------- ------- -------
Income from investment operations
Net investment income................ .16
.31 .34 .33 .43 .44
Net realized and unrealized gain
(loss) on investment
transactions...................... 1.73
.28 1.11 (.05) 1.16 .81
----------- ---
- ----- -------- ------- ------- -------
Total from investment
operations..................... 1.89
.59 1.45 .28 1.59 1.25
----------- ---
- ----- -------- ------- ------- -------
Less distributions
Dividends from net investment
income............................ (.17)
(.29) (.33) (.37) (.37) (.44)
Distributions from net realized gains
on investment and foreign currency
transactions...................... (.78)
(.49) (.20) (.54) (.47) (.54)
----------- ---
- ----- -------- ------- ------- -------
Total distributions............... (.95)
(.78) (.53) (.91) (.84) (.98)
----------- ---
- ----- -------- ------- ------- -------
Net asset value, end of period....... $ 12.79 $
11.85 $ 12.04 $ 11.12 $ 11.75 $ 11.00
----------- ---
- ----- -------- ------- ------- -------
----------- ---
- ----- -------- ------- ------- -------
TOTAL RETURN(a):..................... 16.09%
4.89% 13.67% 2.39% 15.15% 12.29%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...... $ 311,255
$262,096 $119,829 $37,512 $22,605 $10,944
Average net assets (000)............. $ 292,465
$246,609 $ 69,754 $29,875 $15,392 $ 7,103
Ratios to average net assets:
Expenses, including distribution
fees........................... 1.14%(b)
1.20% 1.22% 1.23% 1.17% 1.29%
Expenses, excluding distribution
fees........................... .89%(b)
.95% .97% 1.00% .97% 1.09%
Net investment income............. 2.58%(b)
2.53% 2.90% 2.84% 3.88% 3.97%
For Class A, B, C and Z shares:
Portfolio turnover rate........... 54%
97% 201% 108% 83% 105%
Average commission rate paid per
share $.0573
$.0569 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. Total returns for periods of less than a
full year are not
annualized.
(b) Annualized.
- ------------------------------------------------------------
- --------------------
- ----- 14 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
ALLOCATION FUND
Financial Highlights (Unaudited) BALANCED
PORTFOLIO
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class B
-------------------
- ---------------------------------------------------------
Six Months
Ended
Year Ended July 31,
January 31, ---
- ---------------------------------------------------------
1997
1996 1995 1994 1993 1992
----------- ---
- ----- -------- -------- -------- --------
<S> <C> <C>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 11.80 $
12.00 $ 11.09 $ 11.72 $ 10.98 $ 10.71
----------- ---
- ----- -------- -------- -------- --------
Income from investment operations
Net investment income................ .12
.21 .26 .24 .34 .35
Net realized and unrealized gain
(loss) on investment
transactions...................... 1.72
.28 1.10 (.05) 1.16 .82
----------- ---
- ----- -------- -------- -------- --------
Total from investment
operations..................... 1.84
.49 1.36 .19 1.50 1.17
----------- ---
- ----- -------- -------- -------- --------
Less distributions
Dividends from net investment
income............................ (.12)
(.20) (.25) (.28) (.29) (.36)
Distributions from net realized gains
on investment and foreign currency
transactions...................... (.78)
(.49) (.20) (.54) (.47) (.54)
----------- ---
- ----- -------- -------- -------- --------
Total distributions............... (.90)
(.69) (.45) (.82) (.76) (.90)
----------- ---
- ----- -------- -------- -------- --------
Net asset value, end of period....... $ 12.74 $
11.80 $ 12.00 $ 11.09 $ 11.72 $ 10.98
----------- ---
- ----- -------- -------- -------- --------
----------- ---
- ----- -------- -------- -------- --------
TOTAL RETURN(a):..................... 15.73%
4.05% 12.79% 1.61% 14.27% 11.48%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...... $ 436,960
$420,465 $392,291 $445,609 $321,831 $225,995
Average net assets (000)............. $ 439,228
$437,792 $409,419 $392,133 $267,340 $189,358
Ratios to average net assets:
Expenses, including distribution
fees........................... 1.89%(b)
1.95% 1.97% 2.00% 1.97% 2.09%
Expenses, excluding distribution
fees........................... .89%(b)
.95% .97% 1.00% .97% 1.09%
Net investment income............. 1.83%(b)
1.78% 2.34% 2.08% 3.04% 3.25%
</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. Total returns for periods of less than a
full year are not
annualized.
(b) Annualized.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements.
15 -----
<PAGE>
PRUDENTIAL ALLOCATION FUND
Financial Highlights (Unaudited) BALANCED
PORTFOLIO
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class C Class Z
-------------------
- ------------------- ------------------------
August 1, March 1,
Six Months
Year 1994(a) Six Months 1996(d)
Ended
Ended through Ended through
January 31,
July 31, July 31, January 31, July 31,
1997
1996 1995 1997 1996
<S> <C> <C>
<C> <C> <C>
----- ---
- ----- --------- ----------- --------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 11.80 $
12.00 $ 11.12 $ 11.85 $12.16
----- ---
- ----- --------- ----------- --------
Income from investment operations
Net investment income................ .12
.21 .21 .25 .13
Net realized and unrealized gain
(loss) on investment
transactions...................... 1.72
.28 1.12 1.66 (.28)
----- ---
- ----- --------- ----------- --------
Total from investment
operations..................... 1.84
.49 1.33 1.91 (.15)
----- ---
- ----- --------- ----------- --------
Less distributions
Dividends from net investment
income............................ (.12)
(.20) (.25) (.19) (.16)
Distributions from net realized gains
on investment and foreign currency
transactions...................... (.78)
(.49) (.20) (.78) --
----- ---
- ----- --------- ----------- --------
Total distributions............... (.90)
(.69) (.45) (.97) (.16)
----- ---
- ----- --------- ----------- --------
Net asset value, end of period....... $ 12.74 $
11.80 $ 12.00 $ 12.79 $11.85
----- ---
- ----- --------- ----------- --------
----- ---
- ----- --------- ----------- --------
TOTAL RETURN(c):..................... 15.73%
4.05% 12.49% 16.23% (1.24)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...... $ 5,007 $
3,525 $ 3,046 $ 115,843 $4,015
Average net assets (000)............. $ 4,453 $
2,444 $ 920 $ 44,961 $4,217
Ratios to average net assets:
Expenses, including distribution
fees........................... 1.89%(b)
1.95% 2.04%(b) .89%(b) .95%(b)
Expenses, excluding distribution
fees........................... .89%(b)
.95% 1.04%(b) .89%(b) .95%(b)
Net investment income............. 1.84%(b)
1.78% 2.20%(b) 5.07%(b) 2.72%(b)
</TABLE>
- ---------------
(a) Commencement of offering of Class C shares.
(b) Annualized.
(c) 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.
(d) Commencement of offering of Class Z shares.
- ------------------------------------------------------------
- --------------------
- ----- 16 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL ALLOCATION FUND
Supplemental Proxy Information BALANCED
PORTFOLIO
- ------------------------------------------------------------
- --------------------
The Annual Meeting of Shareholders of the Prudential
Allocation
Fund--Balanced Portfolio was held on Wednesday, October 30,
1996 at the offices
of Prudential Securities Incorporated, One Seaport Plaza,
New York, New York.
The meeting was held for the following purposes:
(1) To elect Directors as follows: Edward D. Beach, Delayne
Dedrick Gold, Robert
F. Gunia, Donald D. Lennox, Douglas H. McCorkindale,
Mendel A. Melzer,
Thomas T. Mooney, Stephen P. Munn, Richard A. Redeker,
Robin B. Smith, Louis
A. Weil, III and Clay T. Whitehead.
The results of the proxy solicitation on the above matters
were as follows:
<TABLE>
<CAPTION>
Director/Matter
Votes for Votes against
Abstentions
--------------- --
- -------------- ------------- ---
- --------
<S>
<C> <C>
<C>
(1) Edward D. Beach
52,479,965 --
444,021
Delayne Dedrick Gold
52,520,343 --
403,643
Robert F. Gunia
52,528,388 --
395,598
Donald D. Lennox
52,491,088 --
432,898
Douglas H. McCorkindale
52,531,165 --
392,821
Mendel A. Melzer
52,510,717 --
413,269
Thomas T. Mooney
52,530,203 --
393,783
Stephen P. Munn
52,545,582 --
378,404
Richard A. Redeker
52,528,603 --
395,383
Robin B. Smith
52,519,421 --
404,565
Louis A. Weil, III
52,518,308 --
405,678
Clay T. Whitehead
52,541,270 --
382,716
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements.
17 -----
<PAGE>
Getting
The Most
From Your
Prudential
Mutual
Fund.
Some mutual fund shareholders won't ever read this -- they
don't read annual
and semi-annual reports. It's quite understandable. These
annual and
semi-annual reports are prepared to comply with Federal
regulations. They are
often written in language that is difficult to understand.
So when most people
run into those particularly daunting sections of these
reports, they don't read
them.
We think that's a mistake.
At Prudential Mutual Funds, we've made some changes to our
report to make it
easier to understand and more pleasant to read, in hopes
you'll find it
profitable to spend a few minutes familiarizing yourself
with your investment.
Here's what you'll find in the report:
At A Glance
Since an investment's performance is often a shareholder's
primary concern, we
present performance information in two different formats.
You'll find it first
on the "At A Glance" page where we compare the Fund and the
comparable average
calculated by Lipper Analytical Services, a nationally
recognized mutual fund
rating agency. We report both the cumulative total returns
and the average
annual total returns. The cumulative total return is the
total amount of income
and appreciation the Fund has achieved in various time
periods. The average
annual total return is an annualized representation of the
Fund's
performance -- it generally smoothes out returns and gives
you an idea how
much the Fund has earned in an average year, for a given
time period. Under
the performance box, you'll see legends that explain the
performance
information, whether fees and sales charges have been
included in returns, and
the inception dates for the Fund's share classes.
See the performance comparison charts at the back of the
report for more
performance information. And keep in mind that past
performance is not
indicative of future results.
Portfolio
Manager's Report
The portfolio manager who invests your money for you reports
on successful --
and not-so-successful -- strategies in this section of your
report. Look for
recent purchases and sales here, as well as information
about the sectors the
portfolio manager favors and any changes that are on the
drawing board.
Portfolio
Of Investments
This is where the report begins to look technical, but it's
really just a
listing of each security held at the end of the reporting
period, along with
valuations and other information. Please note that sometimes
we discuss a
security in the Portfolio Manager's Report that doesn't
appear in this listing
because it was sold before the close of the reporting
period.
<PAGE>
Statement Of Assets
And Liabilities
The balance sheet shows the assets (the value of the Fund's
holdings),
liabilities (how much the Fund owes) and net assets (the
Fund's equity, or
holdings after the Fund pays its debts) as of the end of the
reporting period.
It also shows how we calculate the net asset value per share
for each class of
shares. The net asset value is reduced by payment of your
dividend, capital
gain, or other distribution, but remember that the money or
new shares are
being paid or issued to you. The net asset value fluctuates
daily along with
the value of every security in the portfolio.
Statement Of
Operations
This is the income statement, which details income (mostly
interest and
dividends earned) and expenses (including what you pay us to
manage your
money). You'll also see capital gains here -- both realized
and unrealized.
Statement Of Changes
In Net Assets
This schedule shows how income and expenses translate into
changes in net
assets. The Fund is required to pay out the bulk of its
income to shareholders
every year, and this statement shows you how we do it --
through dividends
and distributions -- and how that affects the net assets.
This statement also
shows how money from investors flowed into and out of the
Fund.
Notes To Financial
Statements
This is the kind of technical material that can intimidate
readers, but it does
contain useful information. The Notes provide a brief
history and explanation
of your Fund's objectives. In addition, they also outline
how Prudential Mutual
Funds prices securities. The Notes also explain who manages
and distributes the
Fund's shares, and more importantly, how much they are paid
for doing so.
Finally, the Notes explain how many shares are outstanding
and the number
issued and redeemed over the period.
Financial Highlights
This information contains many elements from prior pages,
but on a per share
basis. It is designed to help you understand how the Fund
performed and to
compare this year's performance and expenses to those of
prior years.
Independent
Auditor's Report
Once a year, an outside auditor looks over our books and
certifies that the
information is fairly presented and complies with generally
accepted
accounting principles.
Tax Information
This is information which we report annually about how much
of your total
return is taxable. Should you have any questions, you may
want to consult a
tax advisor.
Performance
Comparison
These charts are included in the annual report and are
required by the
Securities Exchange Commission. Performance is presented
here as a hypothetical
$10,000 investment in the Fund since its inception or for 10
years (whichever
is shorter). To help you put that return in context, we are
required to
include the performance of an unmanaged, broad based
securities index, as well.
The index does not reflect the cost of buying the securities
it contains or the
cost of managing a mutual fund. Of course, the index
holdings do not mirror
those of the fund -- the index is a broadly based reference
point commonly used
by investors to measure how well they are doing. A
definition of the selected
index is also provided. Investors generally cannot invest
directly in an index.
<PAGE>
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
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
(LOGO)
Trustees
Edward D. Beach
Delayne Dedrick Gold
Robert F. Gunia
Donald D. Lennox
Douglas H. McCorkindale
Mendel A. Melzer
Thomas T. Mooney
Stephen P. Munn
Richard A. Redeker
Robin B. Smith
Louis A. Weil, III
Clay T. Whitehead
Officers
Richard A. Redeker, President
Susan C. Cote, Vice President
Thomas A. Early, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Marguerite E. H. Morrison, Assistant Secretary
Manager
Prudential Mutual Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
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 LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Auditors
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
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, 1997
were not audited
and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to
prospective investors unless
preceded or accompanied by a current prospectus.
(LOGO)
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
BULK RATE
U.S. POSTAGE
PAID
Permit 6807
New York, NY
74429R108
74439R207 MF134E2
74429R306 Cat#642031F
74429R702
<ICON>
Prudential
Allocation
Fund
Strategy Portfolio
SEMI
ANNUAL
REPORT
Jan. 31, 1997
(LOGO)
<PAGE>
Prudential Allocation Fund:
Strategy Portfolio
Performance At A Glance
U.S. stock and bond prices climbed over the six months
ending January 31,
1997, as corporate profits rose, interest rates fell, and
inflation remained
stable. The stock market was exceptional, as the Dow Jones
Industrial Average
first broke through 6000 and then approached 7000 (only to
surpass it in
February). Your Prudential Allocation Fund: Strategy
Portfolio delivered an
excellent performance, returning about 15% over the six
months, ahead of the
average flexible fund measured by Lipper Analytical
Services. The Portfolio's
strong return was the result of its emphasis on technology
and financial
stocks, the same sectors that led the market higher.
Cumulative Total Returns1 As of 1/31/97
<TABLE>
<CAPTION>
Six One Five
Since
Months Year Years
Inception2
<S> <C> <C> <C>
<C>
Class A 15.0% 12.2% 60.5%
110.0%
Class B 14.6 11.3 54.5
125.5
Class C 14.6 11.3 N/A
34.4
Class Z N/A N/A N/A
6.4
Lipper Flexible Port. Avg.3 13.9 14.8 74.3
**
</TABLE>
Average Annual Total Returns1 As of 12/31/96
<TABLE>
<CAPTION>
One Five
Since
Year Years
Inception2
<S> <C> <C>
<C>
Class A 11.8% 9.0%
11.0%
Class B 11.0 8.2
8.9
Class C 11.0 N/A
12.1
</TABLE>
Past performance is not indicative of future results.
Principal and investment
return will fluctuate so that an investor's shares, when
redeemed, may be worth
more or less than their original cost.
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 declining
contingent deferred sales charge of 5%, 4%, 3%, 2%, 1% and
1% over six years,
for Class B shares. Class C shares have a 1% CDSC for one
year. Class B shares
automatically convert to Class A shares after approximately
seven years. Class
Z shares are not subject to a sales charge or a distribution
and/or service
fee. Since Class Z shares have been in existence for less
than a year, no
average annual total returns are shown.
2Inception dates: 1/22/90 Class A; 9/15/87 Class B; 8/1/94
Class C; 10/21/96
Class Z.
3Lipper average returns are for 203 funds for six months,
185 funds for one
year, 48 funds for five years.
** The Lipper Since Inception category return for Class A
shares is 127.1%,
which includes 37 funds; for Class B is 144.8% for 17 funds;
for Class C is
47.0% for 127 funds and for Class Z is 6.8% for 215 funds.
How Investments Compared.
(As of 1/31/97)
(CHART)
Source: Lipper Analytical Services. Financial markets
change, so a mutual
fund's past performance should never be used to predict
future results. The
risks to each of the investments listed above are different
- -- we provide
12-month total returns for several Lipper mutual fund
categories to show you
that reaching for higher yields means tolerating more risk.
The greater the
risk, the larger the potential reward or loss. In addition,
we've included
historical 20-year average annual returns. These 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.
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.
General Municipal Debt Funds invest in bonds issued by state
governments, state
agencies and/or municipalities. This investment provides
income that is usually
exempt from federal and state income taxes.
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>
Greg Goldberg and Greg A. Smith, Fund Managers
Portfolio (PICTURE) (PICTURE)
Managers'
Report
Greg A. Smith, chief investment strategist of Prudential
Securities, provides
sector allocation advice for the Prudential Allocation Fund:
Strategy
Portfolio, while Portfolio Manager Greg Goldberg selects
individual securities.
The Portfolio is invested in a diversified portfolio of
stocks, bonds and money
market instruments. There can be no assurance that the
Portfolio's investment
objective will be achieved.
Merger Vote.
The Board of Trustees has recently approved a proposal to
exhange the assets
and liabilities of the Strategy Portfolio for shares of the
Balanced Portfolio
of the Fund. For more information, please see the
"President's Message" on
Page 2.
Strategy Session.
- ------------------------------------------------------------
- ------------
We manage the Portfolio seeking a high investment return by
holding a
diversified portfolio of stocks, bonds and cash. Our
allocations to stocks,
bonds and cash have varied widely.
Investment Allocation
Six-Month Comparisons
Strategy Portfolio
(CHART)
Over the last six months, as the stock market worked its way
up to 6000 as
measured by the Dow Jones Industrial Average, we put more of
our cash to work
in stocks. Stocks moved to 75% of assets, while cash fell to
11% and bonds to
14% of assets.
The stock portion of the portfolio is managed with a growth
philosophy. But we
have been concerned that prices are getting high. We prefer
growth at a
reasonable price. Since Thanksgiving, we've been finding
opportunities in
smaller and medium-sized companies that have been priced
more attractively
than large companies.
Growth Priced Reasonably.
As a result, we've taken profits in some of our larger-
company stocks and
increased our holdings in small to medium-sized companies
(those whose total
market worth is less than $5 billion). For example, we
trimmed our holdings in
Microsoft and Intel, and added to our holdings like
Weatherford Enterra and
other oil service industry stocks.
We must say we haven't been immediately successful. Some of
these small
company stocks have had a difficult time in 1997. (Oil
service industry stocks
fell as much as 20% early this year). But we suspect that
the market will come
around to our way of thinking sometime this year.
<PAGE>
What Went Well.
- ------------------------------------------------------------
- ----
Tech & Finance.
Technology and financial stocks led the market over the last
six months, and
we're glad that we had substantial holdings in these stocks.
As a percentage of
our total assets in stocks, we held nearly 21% in technology
- -- one and a half
times as much as the market as a whole, and nearly 19% in
financial
stocks -- more than the market.
In 1996, the big technology stocks were tops. Names like
Intel, Microsoft and
IBM led the sector. In the last six months, all technology
stocks rose 42%, as
measured by the S&P. Our top performing holding was Intel,
which rose 116%.
Financial stocks rose nearly 36% over the six months. Among
our best-performing
holdings were Travelers Group, which rose nearly 67% and
Student Loan
Marketing.
Energy & Health
Energy was the third best performing sector during the six
months, rising 24%,
as the price of crude oil climbed to its highest levels
since the Gulf War. Of
the funds we invested in stocks, we held nearly 14% in oil
stocks, almost twice
as much as the market as a whole, and our stocks performed
better than the
average, too. Our oil services stocks did exceptionally
well, with Weatherford
Enterra rising 47% during the six months.
We also did well in health care, led by our position in
Aetna, the last of the
major insurance companies to enter the Health Maintenance
Organization
business, by acquiring U.S. Healthcare. Aetna stock rose by
nearly 37% during
the six months.
And Not So Well.
- --------------------------------------------------
Tech Trouble.
While technology stocks have been rewarding (they've risen
83% in the last two
years), it's never been easy to own the right ones at the
right time. While we
did well with our technology holdings over the last six
months, we could have
done better. After some of our large company stocks ran up
as high as they did
(Intel rose 116%), we started to sell some, thinking that
smaller company
stocks held more potential. We wish we hadn't sold so soon.
One of our holdings, Uniphase, is a small company that makes
laser systems. It
rose 68%. We thought we found other small to mid-sized
companies that would
perform well. In the short-term, we were wrong. Instead,
Uniphase was more an
aberration than a trend, as investors continued to favor
liquidity -- owning
large companies whose stock can be sold much more quickly
and easily than
those of the small companies.
Five Largest
Holdings.
2.7% Federal National
Mortgage Association
Financial Services
2.4% Novartis AG
Pharmaceuticals
2.2% Travelers Group
Financial Services
2.1% Exxon Corp.
Oil and Gas
2.1% Uniphase Corp.
Electronics
Expressed as a percentage of total net assets as of 1/31/97.
Looking Ahead.
- --------------------------------
We've positioned the Fund to take advantage of a surge in
demand for oil and
renewed strength in small- and medium-sized company stocks
in a number of
industries. To date, 1997 hasn't been cooperative.
There was a sizable drop in oil prices early this year, and
natural gas prices
have fallen as well. That has been hard on one area we like
the most -- the oil
service stocks. We're still optimistic on this sector.
We also believe in small- to medium-sized company stocks,
although they have
not performed as well as we expected to date. These stocks
have trailed larger
stocks for three years in a row now. The stock market is at
an all time high.
We doubt that this can continue indefinitely. We expect that
funds will rotate
this year out of the "Nifty 50" -- the biggest company
stocks -- and into
smaller companies that can be purchased at more reasonable
prices.
1
<PAGE>
President's Letter March 3, 1997
(PICTURE)
- ------------------------------------------------------------
- ---
Prudential Allocation Fund Portfolios May Merge.
Dear Shareholder:
There's important news for shareholders of the Prudential
Allocation Fund:
Strategy Portfolio and the Prudential Allocation Fund:
Balanced Portfolio.
Strategy Portfolio shareholders will soon be receiving
information in the mail
concerning the future of their Fund. The Board of Trustees
has recently
approved a proposal to exchange the assets and liabilities
of the Strategy
Portfolio for shares of the Balanced Portfolio. If this
merger occurs, the Fund
will be renamed the Prudential Balanced Fund, and its
investment objective will
be to seek high total return consistent with moderate risk.
Why Merge?
We are continually assessing the operation of our mutual
funds to see if
they're performing in the most efficient way possible. That
means we are
constantly searching for new ways to strengthen our
investment management and
reduce costs while we ensure that the mutual fund's
investment objective
closely matches your long-term financial needs.
Under the planned merger, Strategy Portfolio shareholders
will have their
shares (Class A, B, C, and Z) exchanged for like shares of
the Balanced
Portfolio at net asset value. No sales charges will be
imposed. And, each Fund
anticipates obtaining an opinion from counsel that no gain
or loss for federal
income tax purposes would be realized by shareholders as a
result of this
transaction.
Providing you with the highest quality investment products
is our No. 1
priority. We are committed to helping you reach your
financial goals.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds and Annuities
2
<PAGE>
Portfolio of Investments as of PRUDENTIAL ALLOCATION
FUND
January 31, 1997 (Unaudited) STRATEGY PORTFOLIO
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S> <C>
- ------------------------------------------------------------
- ------
LONG-TERM INVESTMENTS--88.6%
COMMON STOCKS--73.0%
- ------------------------------------------------------------
- -------
Airlines--0.7%
110,700 US Airways, Inc.* $
2,310,863
- ------------------------------------------------------------
Auto Parts--0.6%
63,368 LucasVarity PLC (ADR) (United
Kingdom)*
2,106,986
- ------------------------------------------------------------
Chemicals--1.0%
223,900 Agrium, Inc. (Canada)
3,397,459
- ------------------------------------------------------------
Computer Software & Services--6.1%
28,100 C-NET, Inc.*
814,900
86,000 Cisco Systems, Inc.*
5,998,500
76,500 Computer Associates International,
Inc.
3,471,187
59,700 Edify Corp.*
776,100
137,400 Informix Corp.*
2,851,050
132,900 Larscom, Inc.*
1,594,800
36,000 Microsoft Corp.
3,672,000
87,000 The Learning Company, Inc.*
1,098,375
34,700 VeriFone, Inc.*
1,253,538
--------
- -----
21,530,450
- ------------------------------------------------------------
Containers & Packaging--0.8%
210,800 Stone Container Corp.
2,845,800
- ------------------------------------------------------------
Drugs & Health Care--1.4%
126,700 United States Surgical Corp.
5,083,838
- ------------------------------------------------------------
Electronics--6.2%
61,700 Burr-Brown Corp.*
1,658,188
135,400 Checkpoint Systems, Inc.*
2,826,475
126,000 Input/Output, Inc.*
2,992,500
26,000 Intel Corp. $
4,218,500
37,700 SGS Thomson Microelectronics N.V.*
2,667,275
168,100 Uniphase Corp.*
7,333,362
--------
- -----
21,696,300
- ------------------------------------------------------------
Entertainment--1.1%
107,800 Carnival Corp.
3,961,650
- ------------------------------------------------------------
Financial Services--10.6%
46,000 Advanta Corp.
2,070,000
57,800 Citicorp
6,726,475
236,200 Federal National Mortgage Association
9,329,900
49,200 Student Loan Marketing Association
5,356,650
243,100 The Money Store, Inc.
6,199,050
148,200 Travelers Group, Inc.
7,761,975
--------
- -----
37,444,050
- ------------------------------------------------------------
Foods--1.5%
156,700 RJR Nabisco Holdings Corp.
5,131,925
- ------------------------------------------------------------
Hospital Management--3.3%
64,000 Aetna, Inc.
5,056,000
97,700 Columbia/HCA Healthcare Corp.
3,859,150
203,300 Physician Corp. of America*
1,994,881
28,900 Sierra Health Services, Inc.*
791,137
--------
- -----
11,701,168
- ------------------------------------------------------------
Insurance--1.0%
64,600 The PMI Group, Inc.
3,375,350
- ------------------------------------------------------------
Lodging--1.3%
40,500 Hilton Hotels Corp.
1,154,250
141,900 La Quinta Inns, Inc.
2,767,050
30,000 Prime Hospitality Corp.*
513,750
--------
- -----
4,435,050
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements.
3 -----
<PAGE>
Portfolio of Investments as of PRUDENTIAL ALLOCATION
FUND
January 31, 1997 (Unaudited) STRATEGY PORTFOLIO
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S> <C>
- ------------------------------------------------------------
- ------
Machinery & Equipment--0.4%
64,050 Miller Industries, Inc. $
1,297,013
- ------------------------------------------------------------
Metals--2.7%
112,500 AK Steel Holding Corp.
4,528,125
70,600 Aluminum Co. of America
4,871,400
--------
- -----
9,399,525
- ------------------------------------------------------------
Metals-Non Ferrous--2.0%
188,700 UCAR International Inc.*
7,076,250
- ------------------------------------------------------------
Oil & Gas--7.9%
95,300 Alberta Energy Co., Ltd.
2,370,587
55,000 Anadarko Petroleum Corp.
3,561,250
125,000 Elf Aquitaine S.A. (ADR) (France)
6,062,500
72,000 Exxon Corp.
7,461,000
85,000 Noble Affiliates, Inc.
3,708,125
165,000 YPF Sociedad Anonima (ADR) (Argentina)
4,599,375
--------
- -----
27,762,837
- ------------------------------------------------------------
Oil & Gas Equipment & Services--5.9%
76,300 BJ Services Co.*
3,528,875
155,400 Bouygues Offshore S. A.*
2,020,200
98,900 J. Ray McDermott, S.A.*
2,299,425
108,000 Smith International, Inc.*
4,914,000
67,500 The Williams Companies, Inc.
2,708,438
153,000 Weatherford Enterra, Inc.*
5,565,375
--------
- -----
21,036,313
- ------------------------------------------------------------
Pharmaceuticals--4.9%
144,000 Novartis (ADR) (Switzerland)*
8,280,000
48,000 Pfizer, Inc.
4,458,000
125,100 Pharmacia & Upjohn, Inc.
4,659,975
--------
- -----
17,397,975
Realty Investment Trust--6.7%
90,000 Crescent Real Estate Equities Co. $
4,826,250
100,000 Developers Diversified Realty Corp.
3,575,000
120,000 Equity Residential Properties Trust
5,160,000
162,000 Manufactured Home Communities, Inc.
3,827,250
65,000 Meditrust Corp.
2,502,500
75,000 Patriot American Hospitality, Inc.
3,525,000
--------
- -----
23,416,000
- ------------------------------------------------------------
Restaurants--0.7%
57,000 McDonald's Corp.
2,593,500
- ------------------------------------------------------------
Retail--1.3%
160,000 Gap, Inc.
4,600,000
- ------------------------------------------------------------
Telecommunications--3.9%
199,200 ADC Telecommunications, Inc.*
7,146,300
50,000 Comverse Technology, Inc.*
2,250,000
151,100 NEXTEL Communications, Inc.*
2,323,162
135,000 Westell Technologies, Inc.
1,957,500
--------
- -----
13,676,962
- ------------------------------------------------------------
Textiles--0.4%
95,200 Polymer Group, Inc.*
1,356,600
- ------------------------------------------------------------
Toy Manufacturer--0.6%
127,500 Galoob Toys, Inc.*
2,231,250
--------
- -----
Total common stocks
(cost $214,194,042)
256,865,114
--------
- -----
PREFERRED STOCKS--1.4%
- ------------------------------------------------------------
Retail--1.4%
95,000 Kmart Financing
Conv. Pfd. (cost $4,760,820)
4,845,000
</TABLE>
- ------------------------------------------------------------
- --------------------
- ----- 4 See Notes to
Financial Statements.
<PAGE>
Portfolio of Investments as of PRUDENTIAL ALLOCATION
FUND
January 31, 1997 (Unaudited) STRATEGY PORTFOLIO
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Description Value
(Note 1)
(Unaudited) (000)
<S> <C> <C> <C>
- ------------------------------------------------------------
DEBT OBLIGATIONS--14.2%
CORPORATE BONDS--3.3%
- ------------------------------------------------------------
Chemicals--1.2%
Ba3 $ 2,000 ISP Holdings, Inc.,
Sr. Notes
9.75%, 2/15/02 $
2,097,500
Ba3 2,000 Owens-Illinois Inc.
Gtd. Deb.,
11.00%, 12/1/03
2,225,000
-----
- -------
4,322,500
- ------------------------------------------------------------
Computer Software & Services--0.3%
NR 1,055 The Learning Company, Inc.
5.50%, 11/1/00
863,781
- ------------------------------------------------------------
Hospital Management--0.6%
Ba3 2,000 Tenet Healthcare Corp.,
Sr. Sub. Notes
10.125%, 3/1/05
2,195,000
- ------------------------------------------------------------
Retail--0.6%
Ba1 2,000 Federated Dept. Stores,
Inc.
Sr. Notes,
8.125%, 10/15/02
2,053,660
- ------------------------------------------------------------
Telecommunications--0.6%
Ba3 2,000 Century Communications
Corp.,
Sr. Notes,
9.75%, 2/15/02
2,065,000
-----
- -------
Total corporate bonds
(cost $11,584,307)
11,499,941
-----
- -------
SOVEREIGN BONDS--0.6%
13,950 Argentina Gov't Bond,
Zero Coupon, 9/1/97
(cost $3,838,058)
2,243,160
U.S. GOVERNMENT SECURITIES--10.3%
$ 6,500 United States Treasury
Bond,
6.00%, 2/15/26 $
5,813,405
United States Treasury
Notes,
7,000 6.25%, 6/30/98
7,044,870
15,000 6.625%, 6/30/01
15,210,900
5,000 6.375%, 9/30/01
5,020,300
3,000 6.50%, 10/15/06
2,997,180
-----
- -------
Total U.S. government
securities
(cost $35,586,644)
36,086,655
-----
- -------
Total debt obligations
(cost $49,381,858)
49,829,756
-----
- -------
Total long-term
investments
(cost $268,336,720)
311,539,870
-----
- -------
SHORT-TERM INVESTMENTS--11.9%
REPURCHASE AGREEMENT
41,757 Joint Repurchase Agreement
Account
5.55%, 2/03/97
(cost $41,757,000; Note 5)
41,757,000
-----
- -------
- ------------------------------------------------------------
Total Investments--100.5%
(cost $310,093,720; Note 4)
353,296,870
Liabilities in excess of
other assets--(0.5%)
(1,646,386)
-----
- -------
Net Assets--100%
$351,650,484
-----
- -------
-----
- -------
</TABLE>
- ---------------
* Non-income producing security.
ADR--American Depository Receipt.
NR--Not Rated by Moody's or Standard & Poor's
The Fund's current Prospectus contains a description of
Moody's and Standard &
Poor's ratings.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements.
5 -----
<PAGE>
PRUDENTIAL ALLOCATION FUND
Statement of Assets and Liabilities (Unaudited) STRATEGY
PORTFOLIO
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Assets
January 31, 1997
<S>
<C>
Investments, at value (cost
$310,093,720)...............................................
.................. $353,296,870
Cash........................................................
..............................................
1,884,641
Dividends and interest
receivable..................................................
....................... 1,029,231
Receivable for Fund shares
sold........................................................
................... 202,706
Deferred expenses and other
assets......................................................
.................. 21,792
- ----------------
Total
assets......................................................
..................................... 356,435,240
- ----------------
Liabilities
Payable for investments
purchased...................................................
...................... 2,975,274
Payable for Fund share
reacquired..................................................
....................... 1,124,230
Accrued expenses and other
liabilities.................................................
................... 275,960
Due to
Distributor.................................................
....................................... 215,513
Due to
Manager.....................................................
....................................... 193,779
- ----------------
Total
liabilities.................................................
..................................... 4,784,756
- ----------------
Net
Assets......................................................
..........................................
$351,650,484
- ----------------
- ----------------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
......... $ 282,231
Paid-in capital in excess of
par.........................................................
.............. 299,829,414
- ----------------
300,111,645
Distributions in excess of net investment
income......................................................
. (132,493)
Accumulated net realized gain on
investments.................................................
.......... 8,468,182
Net unrealized appreciation on
investments.................................................
............ 43,203,150
- ----------------
Net assets, January 31,
1997........................................................
...................... $351,650,484
- ----------------
- ----------------
Class A:
Net asset value and redemption price per share
($129,970,212 / 10,385,192 shares of beneficial
interest issued and outstanding)....................
$12.51
Maximum sales charge (5% of offering
price)......................................................
...... .66
- ----------------
Maximum offering price to
public......................................................
................. $13.17
- ----------------
- ----------------
Class B:
Net asset value, offering price and redemption price per
share
($220,552,838 / 17,747,241 shares of beneficial
interest issued and outstanding)....................
$12.43
- ----------------
- ----------------
Class C:
Net asset value, offering price and redemption price per
share
($1,122,810 / 90,331 shares of beneficial interest
issued and outstanding)..........................
$12.43
- ----------------
- ----------------
Class Z:
Net asset value, offering price and redemption price per
share
($4,624 / 369 shares of beneficial interest issued and
outstanding).................................
$12.53
- ----------------
- ----------------
</TABLE>
- ------------------------------------------------------------
- --------------------
- ----- 6 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL ALLOCATION FUND
STRATEGY PORTFOLIO
Statement of Operations (Unaudited)
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six
Months
Ended
January
31,
Net Investment Income 1997
<S> <C>
Income
Interest...................................... $
4,041,330
Dividends (net of foreign withholding taxes of
$1,847)....................................
1,308,520
---------
- --
Total income...............................
5,349,850
---------
- --
Expenses
Distribution fee--Class A.....................
144,158
Distribution fee--Class B.....................
1,186,643
Distribution fee--Class C.....................
4,893
Management fee................................
1,149,312
Transfer agent's fees and expenses............
411,000
Custodian's fees and expenses.................
85,000
Reports to shareholders.......................
82,000
Registration fees.............................
25,000
Legal fees....................................
12,000
Trustees' fees and expenses...................
11,000
Audit fee and expenses........................
10,000
Insurance expense.............................
4,200
Miscellaneous.................................
2,609
---------
- --
Total expenses.............................
3,127,815
---------
- --
Net investment income............................
2,222,035
---------
- --
Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency
Net realized gain (loss) on:
Investment transactions.......................
10,797,439
Foreign currency transactions.................
(57)
---------
- --
10,797,382
---------
- --
Net change in unrealized appreciation
(depreciation) on investments.................
34,581,335
---------
- --
Net gain on investments..........................
45,378,717
---------
- --
Net Increase in Net Assets
Resulting from Operations........................
$47,600,752
---------
- --
---------
- --
</TABLE>
PRUDENTIAL ALLOCATION FUND
STRATEGY PORTFOLIO
Statement of Changes in Net Assets (Unaudited)
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year
Ended
Increase (Decrease) January 31, July
31,
in Net Assets 1997 1996
<S> <C> <C>
Operations
Net investment income.......... $ 2,222,035 $
5,507,871
Net realized gain on
investments and foreign
currency transactions....... 10,797,382
36,314,860
Net change in unrealized
appreciation of
investments................. 34,581,335
(25,351,282)
------------ --------
- ----
Net increase in net assets
resulting from operations... 47,600,752
16,471,449
------------ --------
- ----
Net equalization debits........... --
(91,163)
------------ --------
- ----
Dividends and distributions (Note
1)
Dividends from net investment
income
Class A..................... (972,113)
(1,971,726)
Class B..................... (1,245,104)
(3,432,191)
Class C..................... (4,817)
(5,649)
Class Z..................... (1)
- --
------------ --------
- ----
(2,222,035)
(5,409,566)
------------ --------
- ----
Dividends in excess of net
investment income
Class A..................... (10,083)
- --
Class B..................... (12,914)
- --
Class C..................... (50)
- --
------------ --------
- ----
(23,047)
- --
------------ --------
- ----
Distributions to shareholders
from net realized gains on
investment transactions
Class A..................... (9,955,287)
(6,072,810)
Class B..................... (21,456,644)
(16,739,446)
Class C..................... (95,986)
(23,748)
Class Z..................... (18)
- --
------------ --------
- ----
(31,507,935)
(22,836,004)
------------ --------
- ----
Fund share transactions (net of
share conversions) (Note 6)
Net proceeds from shares
subscribed.................. 23,666,697
55,447,312
Net asset value of shares
issued to shareholders in
reinvestment of dividends
and distributions........... 32,301,346
27,153,769
Cost of shares reacquired...... (52,145,287)
(102,839,745)
------------ --------
- ----
Net increase (decrease) in net
assets from Fund share
transactions................ 3,822,756
(20,238,664)
------------ --------
- ----
Total increase.................... 17,670,491
32,103,948
Net Assets
Beginning of period............... 333,979,993
366,083,941
------------ --------
- ----
End of period..................... $351,650,484
$333,979,993
------------ --------
- ----
------------ --------
- ----
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements.
7 -----
<PAGE>
PRUDENTIAL ALLOCATION FUND
Notes to Financial Statements (Unaudited) STRATEGY
PORTFOLIO
- ------------------------------------------------------------
- --------------------
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, namely:
Balanced Portfolio and
Strategy Portfolio. The investment objective of the Strategy
Portfolio (the
'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 which approximates market value.
In connection with transactions in repurchase agreements
with U.S. financial
institutions, it is the Fund's policy that its custodian or
designated
subcustodians, as the case may be, under triparty repurchase
agreements, take
possession of the underlying collateral securities, the
value of which exceeds
the principal amount of the repurchase transaction,
including accrued interest.
To the extent that any repurchase transaction exceeds one
business day, the
value of the collateral is marked-to-market on a daily basis
to ensure the
adequacy of the collateral. If the seller defaults and the
value of the
collateral declines or if bankruptcy proceedings are
commenced with respect to
the seller of the security, realization of the collateral by
the Fund may be
delayed or limited.
Foreign Currency Translation: The books and records of the
Fund are maintained
in U.S. dollars. Foreign currency amounts are translated
into U.S. dollars on
the following basis:
(i) market value of investment securities, other assets and
liabilities--at the
closing daily rate of exchange.
(ii) purchases and sales of investment securities, income
and expenses--at the
rate of exchange prevailing on the respective dates of such
transactions.
Although the net assets of the Fund are presented at the
foreign exchange rates
and market values at the close of the fiscal period, the
Fund does not isolate
that portion of the results of operations arising as a
result of changes in the
foreign exchange rates from the fluctuations arising from
changes in the market
prices of long-term securities held at the end of the fiscal
period. Similarly,
the Fund does not isolate the effect of changes in foreign
exchange rates from
the fluctuations arising from changes in the market prices
of long-term
portfolio securities sold during the fiscal period.
Accordingly, realized
foreign currency gains (losses) are included in the reported
net realized gains
on investment transactions.
Net realized gains on foreign currency transactions
represent net foreign
exchange gains from the holding of foreign currencies,
currency gains or losses
realized between the trade and settlement dates on
securities transactions, and
the difference between the amounts of dividends, interest
and foreign taxes
recorded on the Fund's books and the U.S. dollar equivalent
amounts actually
received or paid.
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
- ------------------------------------------------------------
- --------------------
- ----- 8
<PAGE>
PRUDENTIAL ALLOCATION FUND
Notes to Financial Statements (Unaudited) STRATEGY
PORTFOLIO
- ------------------------------------------------------------
- --------------------
instability or the level of governmental supervision and
regulation of foreign
securities markets.
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.
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.
Federal Income Taxes: For federal income tax purposes, each
series in the Fund
is treated as a separate taxpaying entity. It is the intent
of each series to
continue to meet the requirements of the Internal Revenue
Code applicable to
regulated investment companies and to distribute all of its
taxable net income
to its shareholders. Therefore, no federal income tax
provision is required.
Withholding taxes on foreign interest and dividends have
been provided for in
accordance with the Fund's understanding of the applicable
country's tax rates.
Dividends and Distributions: The Fund expects to pay
dividends of net investment
income quarterly and make distributions at least annually of
any net capital
gains. Dividends and distributions are recorded on the ex-
dividend date.
Income distributions and capital gains distributions are
determined in
accordance with income tax regulations which may differ from
generally accepted
accounting principles. These differences are primarily due
to differing
treatments of wash sales and foreign currency transactions.
Equalization: Effective August 1, 1996, the Fund
discontinued the accounting
practice of equalization. Equalization is a practice whereby
a portion of the
proceeds from sales and costs of repurchases of capital
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
- ------------------------------------------------------------
- --------------------
9 -----
<PAGE>
PRUDENTIAL ALLOCATION FUND
Notes to Financial Statements (Unaudited) STRATEGY
PORTFOLIO
- ------------------------------------------------------------
- --------------------
to undistributed net investment income. The balance of
$1,181,520 of
undistributed net investment income at July 31, 1996,
resulting from
equalization was transferred to paid-in capital in excess of
par. Such
reclassification has no effect on net assets, results of
operations, or net
asset value per share.
Reclassification of Capital Accounts: The Fund accounts and
reports for
distributions to shareholders in accordance with American
Institute of Certified
Public Accountants, 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,
1997, the Strategy Portfolio decreased undistributed net
investment income and
increased accumulated net realized gain on investments by
$57. 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 LLC
('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 Portfolio's average daily net
assets.
The Fund has a distribution agreement with Prudential
Securities Incorporated
('PSI') which acts as the distributor of the Class A, Class
B, Class C and Class
Z shares. The Portfolio compensated PSI for distributing and
servicing the
Portfolio'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. The distribution fees are accrued daily and
payable monthly. No
distribution or service fees are paid to PSI as distributor
of the Class Z
shares of the Portfolio.
Pursuant to the Class A, B and C Plans, the Portfolio
compensated PSI 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, 1997.
PSI has advised the Portfolio that it received approximately
$67,400 in
front-end sales charges resulting from sales of Class A
shares during the six
months ended January 31, 1997. From these fees, PSI paid
such sales charges to
dealers which in turn paid commissions to salespersons.
PSI has advised the Portfolio that for the six months ended
January 31, 1997, it
received approximately $214,600 and $300 in contingent
deferred sales charges
imposed upon certain redemptions by Class B and C
shareholders, respectively.
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 LLC ('PMFS'), a wholly-owned
subsidiary of PMF,
serves as the Portfolio's transfer agent. During the six
months ended January
31, 1997, the Portfolio incurred fees of approximately
$362,700 for the services
of PMFS. As of January 31, 1997, approximately $61,300 of
such fees were due to
PMFS. Transfer agent fees and expenses in the Statement of
Operations also
include certain out-of-pocket expenses paid to non-
affiliates.
For the six months ended January 31, 1997, PSI received
approximately $25,700 in
brokerage commissions from portfolio transactions executed
on behalf of the
Portfolio.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities of the
Portfolio, other than
short-term investments, for the six months ended January 31,
1997 aggregated
$143,705,924 and $116,521,835, respectively.
The cost basis of investments for federal income tax
purposes as of January 31,
1997 was $310,153,624 and accordingly, net unrealized
appreciation for federal
income tax purposes was $43,143,246 (gross unrealized
appreciation--$50,541,294,
gross unrealized depreciation--$7,398,048).
- ------------------------------------------------------------
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
- ------------------------------------------------------------
- --------------------
- ----- 10
<PAGE>
PRUDENTIAL ALLOCATION FUND
Notes to Financial Statements (Unaudited) STRATEGY
PORTFOLIO
- ------------------------------------------------------------
- --------------------
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, 1997, the Portfolio had a 3.6% undivided interest in the
repurchase
agreements in the joint account. The undivided interest for
the Portfolio
represented $41,757,000 in 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., 5.56%, dated 1/31/97, in the
principal amount of
$343,000,000, repurchase price $343,158,923, due 2/3/97. The
value of the
collateral including accrued interest is $350,781,750.
Goldman, Sachs & Co., 5.57%, dated 1/31/97, in the principal
amount of
$343,000,000, repurchase price $343,159,209, due 2/3/97. The
value of the
collateral including accrued interest is $349,860,525.
SBC Warburg, 5.40%, dated 1/31/97, in the principal amount
of $143,898,000,
repurchase price $143,962,754, due 2/3/97. The value of the
collateral including
accrued interest is $146,829,414.
Smith Barney Inc., 5.57%, dated 1/31/97, in the principal
amount of
$343,000,000, repurchase price $343,159,209, due 2/3/97. The
value of the
collateral including accrued interest is $349,860,960.
- ------------------------------------------------------------
Note 6. Capital
The Portfolio offers Class A, Class B, Class C and Class Z
shares. Class A
shares are sold with a front-end sales charge of up to 5%.
Class B shares are
sold with a contingent deferred sales charge which declines
from 5% to zero
depending on the period of time the shares are held. Class C
shares are sold
with a 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. Effective October 21, 1996 the Portfolio commenced
offering Class Z
shares. Class Z shares are not subject to any sales charge
and are offered
exclusively for sale to a limited group of investors.
The Fund has authorized an unlimited number of shares of
beneficial interest of
each class at $.01 par value per share.
Transactions in shares of beneficial interest for the six
months ended January
31, 1997 and the fiscal year ended July 31, 1996 were as
follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- ----------------------------------- ----------- -------
- -----
<S> <C> <C>
Six months ended January 31, 1997:
Shares issued...................... 1,007,345 $
12,702,004
Shares issued in reinvestment of
dividends and distributions...... 863,122
10,649,033
Shares reacquired.................. (1,706,307)
(21,528,016)
----------- -------
- -----
Net decrease in shares outstanding
before conversion................ 164,160
1,823,021
Shares issued upon conversion from
Class B.......................... 1,898,813
23,221,998
----------- -------
- -----
Net increase in shares
outstanding...................... 2,062,973 $
25,045,019
----------- -------
- -----
----------- -------
- -----
Year ended July 31, 1996:
Shares issued...................... 2,260,476 $
28,118,465
Shares issued in reinvestment of
dividends and distributions...... 633,928
7,815,389
Shares reacquired.................. (3,190,632)
(39,885,580)
----------- -------
- -----
Net increase in shares outstanding
before conversion................ (296,228)
(3,951,726)
Shares issued upon conversion from
Class B.......................... 1,640,084
20,771,295
----------- -------
- -----
Net increase in shares
outstanding...................... 1,343,856 $
16,819,569
----------- -------
- -----
----------- -------
- -----
Class B
- -----------------------------------
Six months ended January 31, 1997:
Shares issued...................... 834,746 $
10,563,905
Shares issued in reinvestment of
dividends and distributions...... 1,757,775
21,553,436
Shares reacquired.................. (2,410,828)
(30,493,851)
----------- -------
- -----
Net increase in shares outstanding
before conversion................ 181,693
1,623,490
Shares reacquired upon conversion
into Class A..................... (1,911,877)
(23,221,998)
----------- -------
- -----
Net decrease in shares
outstanding...................... (1,730,184)
$(21,598,508)
----------- -------
- -----
----------- -------
- -----
Year ended July 31, 1996:
Shares issued...................... 2,151,781 $
26,736,221
Shares issued in reinvestment of
dividends and distributions...... 1,576,044
19,309,058
Shares reacquired.................. (5,059,562)
(62,798,210)
----------- -------
- -----
Net decrease in shares outstanding
before conversion................ (1,331,737)
(16,752,931)
Shares reacquired upon conversion
into Class A..................... (1,650,974)
(20,771,295)
----------- -------
- -----
Net decrease in shares
outstanding...................... (2,982,711)
$(37,524,226)
----------- -------
- -----
----------- -------
- -----
</TABLE>
- ------------------------------------------------------------
- --------------------
11 -----
<PAGE>
PRUDENTIAL ALLOCATION FUND
Notes to Financial Statements (Unaudited) STRATEGY
PORTFOLIO
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class C Shares
Amount
- ----------------------------------- ----------- -------
- -----
<S> <C> <C>
Six months ended January 31, 1997:
Shares issued...................... 30,991 $
396,199
Shares issued in reinvestment of
dividends and distributions...... 8,065
98,867
Shares reacquired.................. (9,616)
(123,420)
----------- -------
- -----
Net increase in shares
outstanding...................... 29,440 $
371,646
----------- -------
- -----
----------- -------
- -----
August 1, 1995* Through July 31,
1996:
Shares issued...................... 47,663 $
592,626
Shares issued in reinvestment of
dividends and distributions...... 2,388
29,322
Shares reacquired.................. (12,428)
(155,955)
----------- -------
- -----
Net increase in shares
outstanding...................... 37,623 $
465,993
----------- -------
- -----
----------- -------
- -----
Class Z
- -----------------------------------
October 21, 1996**
through January 31, 1997:
Shares issued...................... 368 $
4,589
Shares issued in reinvestment of
dividends and distributions...... 1
10
Shares reacquired.................. --
- --
----------- -------
- -----
Net increase in shares
outstanding...................... 369 $
4,599
----------- -------
- -----
----------- -------
- -----
</TABLE>
- ---------------
* Commencement of offering of Class C shares.
** Commencement of offering of Class Z shares.
Note 7. Proposed Reorganization
On February 19, 1997, the Board of Trustees of the Fund
approved an Agreement
and Plan of Reorganization (the 'Plan') which provides for
the transfer of all
of the assets of the Strategy Portfolio to the Balanced
Portfolio in exchange
for the respective Class A, Class B, Class C and Class Z
shares of the Balanced
Portfolio and the Balanced Portfolio's assumption of the
liabilities of the
Strategy Portfolio.
The Plan is subject to approval by the shareholders of the
Strategy Portfolio at
a shareholder meeting scheduled on or about June 25, 1997.
If the Plan is
approved, it is expected that the reorganization will take
place in July 1997.
The Strategy Portfolio and the Balanced Portfolio will each
bear their pro-rata
share of the costs of the reorganization, including cost of
proxy solicitation.
- ------------------------------------------------------------
Note 8. Dividends
On March 21, 1997 the Board of Trustees of the Fund declared
the following
dividends per share, payable on March 31, 1997 to
shareholders of record on
March 25, 1997:
<TABLE>
<CAPTION>
Class B
Class A and C
Class Z
-------- -------- ---
- -----
<S> <C> <C> <C>
Ordinary Income.................. $ .0650 $ .0400 $
.0725
</TABLE>
- ------------------------------------------------------------
- --------------------
- ----- 12
<PAGE>
PRUDENTIAL ALLOCATION FUND
Financial Highlights (Unaudited) STRATEGY
PORTFOLIO
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class A
-------------
- -----------------------------------------------------------
Six Months
Ended
Year Ended July 31,
January 31,
- --------------------------------------------------------
1997
1996 1995 1994 1993 1992
-----------
- -------- ------- ------- ------- -------
<S> <C>
<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....... $ 12.04
$ 12.48 $ 11.60 $ 11.82 $ 12.03 $ 11.45
-----------
- -------- ------- ------- ------- -------
Income from investment operations
Net investment income...................... .11
.27 .38 .30 .42 .35
Net realized and unrealized gain on
investment and foreign currency
transactions............................ 1.67
.35 1.14 .05 .70 1.02
-----------
- -------- ------- ------- ------- -------
Total from investment operations........ 1.78
.62 1.52 .35 1.12 1.37
-----------
- -------- ------- ------- ------- -------
Less distributions
Dividends from net investment income....... (.12)
(.25) (.30) (.22) (.37) (.37)
Dividends in excess of net investment
income..................................
- -- -- (.01) -- --
Distributions from net realized gains on
investment and foreign currency
transactions............................ (1.19)
(.81) (.34) (.34) (.96) (.42)
-----------
- -------- ------- ------- ------- -------
Total distributions..................... (1.31)
(1.06) (.64) (.57) (1.33) (.79)
-----------
- -------- ------- ------- ------- -------
Net asset value, end of period............. $ 12.51
$ 12.04 $ 12.48 $ 11.60 $ 11.82 $ 12.03
-----------
- -------- ------- ------- ------- -------
-----------
- -------- ------- ------- ------- -------
TOTAL RETURN(a):........................... 14.99%
4.84% 13.95% 2.88% 10.02% 12.36%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............ $ 129,970
$100,211 $87,081 $32,485 $28,641 $20,378
Average net assets (000)................... $ 114,386
$97,601 $57,020 $30,634 $24,216 $15,705
Ratios to average net assets:
Expenses, including distribution fees...
1.26%(b) 1.27% 1.33% 1.26% 1.21%
1.26%
Expenses, excluding distribution fees...
1.01%(b) 1.02% 1.08% 1.03% 1.01%
1.06%
Net investment income...................
1.74%(b) 2.06% 3.34% 2.52% 3.61%
3.05%
For Class A, B, C and Z shares:
Portfolio turnover rate................. 40%
147% 180% 96% 145% 241%
Average commission rate paid per share $.0576
$.0552 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. Total returns for periods of less than a
full year are not
annualized.
(b) Annualized
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements.
13 -----
<PAGE>
PRUDENTIAL ALLOCATION FUND
Financial Highlights (Unaudited) STRATEGY
PORTFOLIO
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class B
-------------
- ------------------------------------------------------------
- ---
Six Months
Ended
Year Ended July 31,
January 31,
- ------------------------------------------------------------
1997
1996 1995 1994 1993 1992
-----------
- -------- -------- -------- -------- --------
<S> <C>
<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....... $ 11.96
$ 12.41 $ 11.54 $ 11.79 $ 12.01 $ 11.43
-----------
- -------- -------- -------- -------- --------
Income from investment operations
Net investment income...................... .07
.17 .20 .21 .34 .26
Net realized and unrealized gain on
investment and foreign currency
transactions............................ 1.66
.35 1.22 .05 .70 1.02
-----------
- -------- -------- -------- -------- --------
Total from investment operations........ 1.73
.52 1.42 .26 1.04 1.28
-----------
- -------- -------- -------- -------- --------
Less distributions
Dividends from net investment income....... (.07)
(.16) (.21) (.16) (.30) (.28)
Dividends in excess of net investment
income..................................
- -- -- (.01) -- --
Distributions from net realized gains on
investment and foreign currency
transactions............................ (1.19)
(.81) (.34) (.34) (.96) (.42)
-----------
- -------- -------- -------- -------- --------
Total distributions..................... (1.26)
(.97) (.55) (.51) (1.26) (.70)
-----------
- -------- -------- -------- -------- --------
Net asset value, end of period............. $ 12.43
$ 11.96 $ 12.41 $ 11.54 $ 11.79 $ 12.01
-----------
- -------- -------- -------- -------- --------
-----------
- -------- -------- -------- -------- --------
TOTAL RETURN(b):........................... 14.58%
4.03% 13.05% 2.11% 9.21% 11.53%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............ $ 220,553
$233,040 $278,714 $351,140 $357,287 $314,771
Average net assets (000)................... $ 235,394
$265,387 $307,439 $362,579 $339,225 $267,525
Ratios to average net assets:
Expenses, including distribution fees...
2.01%(a) 2.02% 2.08% 2.03% 2.01%
2.06%
Expenses, excluding distribution fees...
1.01%(a) 1.02% 1.08% 1.03% 1.01%
1.06%
Net investment income...................
1.02%(a) 1.31% 1.77% 1.77% 2.79%
2.27%
</TABLE>
- ---------------
(a) Annualized.
(b) 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.
- ------------------------------------------------------------
- --------------------
- ----- 14 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL ALLOCATION FUND
Financial Highlights (Unaudited) STRATEGY
PORTFOLIO
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class C
- ----------------------------------------------------
August 1,
Six Months Year 1995(a)
Ended Ended through
January 31, July 31, July 31,
1997 1996 1995
- ----- -------- ---------
<S>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period................................ $ 11.96
$12.41 $ 11.57
- ----- -------- ---------
Income from investment operations
Net investment
income...............................................
.07 .17 .25
Net realized and unrealized gain on investment
and foreign currency
transactions................................
1.66 .35 1.14
- ----- -------- ---------
Total from investment
operations.................................
1.73 .52 1.39
- ----- -------- ---------
Less distributions
Dividends from net investment
income................................ (.07)
(.16) (.21)
Dividends in excess of net investment
income........................
- -- --
Distributions from net realized gains on
investment and foreign currency
transactions..................... (1.19)
(.81) (.34)
- ----- -------- ---------
Total
distributions..............................................
(1.26) (.97) (.55)
- ----- -------- ---------
Net asset value, end of
period...................................... $
12.43 $11.96 $ 12.41
- ----- -------- ---------
- ----- -------- ---------
TOTAL
RETURN(c):..................................................
.. 14.58% 4.03% 12.75%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)..................................... $ 1,123
$ 729 $ 289
Average net assets
(000)............................................
$ 971 $ 467 $ 170
Ratios to average net assets:
Expenses, including distribution
fees............................ 2.01%(b)
2.02% 2.10%(b)
Expenses, excluding distribution
fees............................ 1.01%(b)
1.02% 1.10%(b)
Net investment
income............................................
.99%(b) 1.31% 2.27%(b)
<CAPTION>
Class Z
- -----------
October 21,
1996(d)
through
January 31,
1997
- -----
<S>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period................................ 12.97
- -----
Income from investment operations
Net investment
income...............................................
.08
Net realized and unrealized gain on investment
and foreign currency
transactions................................ .73
- -----
Total from investment
operations................................. .81
- -----
Less distributions
Dividends from net investment
income................................ (.06)
Dividends in excess of net investment
income........................
Distributions from net realized gains on
investment and foreign currency
transactions..................... (1.19)
- -----
Total
distributions..............................................
(1.25)
- -----
Net asset value, end of
period...................................... $ 12.53
- -----
- -----
TOTAL
RETURN(c):..................................................
.. 6.38%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)..................................... $ 5
Average net assets
(000)............................................ $
968(e)
Ratios to average net assets:
Expenses, including distribution
fees............................ 1.02%(b)
Expenses, excluding distribution
fees............................ 1.02%(b)
Net investment
income............................................
2.17%(b)
</TABLE>
- ---------------
(a) Commencement of offering of Class C shares.
(b) Annualized.
(c) 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.
(d) Commencement of offering of Class Z shares.
(e) Figures are actual and not rounded to the nearest
thousand.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements.
15 -----
<PAGE>
PRUDENTIAL
ALLOCATION FUND
Supplemental Proxy Information STRATEGY
PORTFOLIO
- ------------------------------------------------------------
- --------------------
The Annual Meeting of Shareholders of the Prudential
Allocation
Fund--Strategy Portfolio was held on Wednesday, October 30,
1996 at the offices
of Prudential Securities Incorporated, One Seaport Plaza,
New York, New York.
The meeting was held for the following purposes:
(1) To elect Directors as follows: Edward D. Beach, Delayne
Dedrick Gold, Robert
F. Gunia, Donald D. Lennox, Douglas H. McCorkindale,
Mendel A. Melzer,
Thomas T. Mooney, Stephen P. Munn, Richard A. Redeker,
Robin B. Smith, Louis
A. Weill, III and Clay T. Whitehead.
The results of the proxy solicitation on the above matters
were as follows:
<TABLE>
<CAPTION>
Director/Matter
Votes for Votes against
Abstentions
---------------- --
- -------------- ------------- ---
- --------
<S>
<C> <C>
<C>
(1) Edward D. Beach
21,666,683 --
208,441
Delayne Dedrick Gold
21,673,961 --
201,163
Robert F. Gunia
21,676,705 --
198,419
Donald D. Lennox
21,666,169 --
208,955
Douglas H. McCorkindale
21,672,604 --
202,520
Mendel A. Melzer
21,669,027 --
206,097
Thomas T. Mooney
21,669,671 --
205,453
Stephen P. Munn
21,674,944 --
200,180
Richard A. Redeker
21,674,171 --
200,953
Robin B. Smith
21,668,067 --
207,057
Louis A. Weil, III
21,674,472 --
200,652
Clay T. Whitehead
21,676,792 --
198,332
</TABLE>
- ------------------------------------------------------------
- --------------------
- ----- 16 See Notes to
Financial Statements.
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http:\\www.prudential.com
Trustees
Edward D. Beach
Delayne Dedrick Gold
Robert F. Gunia
Donald D. Lennox
Douglas H. McCorkindale
Mendel A. Melzer
Thomas T. Mooney
Stephen P. Munn
Richard A. Redeker
Robin B. Smith
Louis A. Weil, III
Clay T. Whitehead
Officers
Richard A. Redeker, President
Susan C. Cote, Vice President
Thomas A. Early, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Marguerite E. H. Morrison, Assistant Secretary
Manager
Prudential Mutual Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza Newark, NJ 07101
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 LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Auditors
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
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, 1997
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
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
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