(ICON)
Prudential
Balanced Fund
ANNUAL
REPORT
July 31, 1998
(LOGO)
<PAGE>
Prudential Balanced Fund
Performance At A Glance.
Over the past year, stock market advances were concentrated in the shares of a
few companies with histories of reliable earnings growth. We increased our
holdings of these blue chip stocks over our reporting period, but we trailed
the Lipper average primarily because we didn't hold as much as our peers. We
held a significant representation of midsize companies, which were out of
favor, while the value stocks we bought in the second quarter of 1998
continued to be overlooked by investors. Our bond holdings increased our
return, however.
<TABLE>
<CAPTION>
Cumulative
Total
Returns1
As of 7/31/98
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A 5.05% 65.54% N/A 155.49%
Class B 4.28 59.47 173.22% 165.18
Class C 4.28 N/A N/A 56.53
Class Z 5.37 N/A N/A 34.65
Lipper Balanced
Fund Avg.3 9.79 88.28 231.66 ***
</TABLE>
<TABLE>
<CAPTION>
Average
Annual Total
Returns1
As of 6/30/98
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A 8.29% 10.24% N/A 11.48%
Class B 8.28 10.42 10.84% 9.77
Class C 12.28 N/A N/A 13.01
Class Z 14.42 N/A N/A 15.07
</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 Investments Fund Management and Lipper Analytical Services.
The cumulative total returns do not take into account sales charges. The
average annual total returns do take into account applicable sales charges.
The Fund charges a maximum front-end sales load of 5% for Class A shares and a
declining contingent deferred sales charge (CDSC) of 5%, 4%, 3%, 2%, 1% and 1%
for six years for Class B shares. Class B shares will automatically convert to
Class A shares, on a quarterly basis, approximately seven years after purchase.
Class C shares have a 1% CDSC for one year. Class Z shares are not subject to
a sales charge or distribution fee.
2Inception dates: Class A, 1/22/90; Class B, 9/15/87; Class C, 8/1/94; Class Z,
3/1/96.
3Lipper average returns are for all funds in each share class for the one-,
five-, and ten-year periods in the Balanced Fund category.
***Lipper Since Inception returns are 182.85% for Class A; 224.03% for Class
B; 84.11% for Class C; and 42.98% for Class Z based on all funds in each share
class.
How Investments Compared.
(As of 7/31/98)
(GRAPH)
U.S. General General U.S.
Growth Bond Muni Debt Taxable
Funds Funds Funds Money Funds
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 returns 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.
U.S. Taxable Money 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>
Warren Spitz, Jeff Rose, Barbara Kenworthy, Fund Managers
Portfolio
Managers' Report
The Prudential Balanced Fund invests in a diversified portfolio of stocks,
bonds and money market instruments. The Fund buys stocks of larger, more
mature companies or smaller, faster-growing companies. It may invest in
investment-grade debt securities and up to 25% of its assets in bonds rated
below investment grade, commonly known as junk bonds. These are subject to
greater credit risk, but also may provide greater returns. There can be no
assurance that the Fund will achieve its investment objective of high total
return consistent with moderate risk.
Balance and Diversification.
The aim of a balanced fund is to increase the consistency of returns by
reducing exposure to each of the component asset classes. Because different
asset classes perform differently over time, holding more than one class often
dilutes the impact of market movements. We diversified even more by dividing
our stock holdings into value and growth portions. Historically, these two
investment styles alternate in periods of superior performance. Whichever
style is doing best, your Fund will share in that strength.
Strategy Session.
Blue Chips Won.
As the long bull market in stocks grew older, investors focused increasingly
on a few very large stable companies, while stocks of other companies did not
keep pace. These neglected stocks became today's value investments --
underpriced when compared with other companies that have similar earnings
prospects. They included industrial companies (such as metals and chemicals),
energy companies, and economically sensitive consumer stocks (such as autos,
retailers, and housing-related companies).
Our strategy has been to buy some of the market-leading blue chips (such as
drug companies, software companies, electronics firms, and financials) so we
could participate in today's successes, and also some of the inexpensive value
stocks so we could share in the gains when market leadership changes. Our
stock allocation isn't all in one style basket.
We Liked Treasuries.
In bonds, the Asian financial situation pushed down the value of most foreign
bonds. We substantially reduced our foreign holdings at an opportune rebound
in 1998. We also reduced our holdings of U.S. corporate bonds. We began to
hold more U.S. Treasuries -- the world's safe haven -- which have increased in
value as the global financial picture became more turbulent.
Portfolio Composition.
Sectors expressed as a percentage of
total net assets as of 7/31/98.
(PIE CHART)
<PAGE>
What Went Well.
A Growth Year.
We shared in the gains of some of the large-growth companies such as Pfizer,
Microsoft, and Ford. We benefited from our focus on the leisure industry,
with Walt Disney and the smaller company, Carnival Corporation. In technology,
Uniphase, a fiber optic and semiconductor capital equipment company, and
Cisco, the networking company, both had substantial returns. The telephone
company WorldCom, the first company since the breakup of the Bell telephone
system to offer both local and long-distance service, also made a strong
contribution to our return.
We bought AIG, an insurance company, late in the reporting period, and it
returned 22% in the relatively short time since.
Our sales of foreign and U.S. corporate bonds protected the return on our
portfolio, although our substantial foreign holdings at the beginning of the
period hurt.
Five Largest Equity Holdings.
1.5% Duke Energy Corp.
Electrical Services
1.3% Exxon Corp.
Oil & Gas
1.2% Federal National Mortgage
Financial Services
1.1% Enron Corp.
Oil & Gas Equipment
& Services
1.1% Manor Care
Hospital Management
Expressed as a percentage of net assets as of 7/31/98.
And Not So Well.
We Sought Value.
Late in March, we began adding value stocks to our equity holdings to increase
our diversification. Since then, value stocks as a group -- and smaller
companies generally -- have trailed growth stocks by a large margin, as
investors focused on large-growth companies that they believed were not as
vulnerable to an economic slowdown. Our retailers and home builders, value
style purchases that had been doing well recently, gave up some of their
gains. Some of the stocks we bought particularly inexpensively, such as RJR
Nabisco and oil service companies, continued to languish. However, these
companies were so inexpensive that we think their balance of upward potential
to downward is very favorable.
Our real estate investment trusts (REITs) also suffered from the fear of an
economic slowdown. However, we believe their prospects for earnings growth
are excellent compared with the average stock and they are very inexpensive
on a number of value measurements. We see this as a good opportunity.
- -------------------------------------------------------------------------------
1
<PAGE>
Looking Ahead.
The stock market has been rising for several years, carried by large increases
in earnings. But the rate of corporate earnings growth slowed and the prices
of companies with more stable earnings rose so fast that now these stocks are
quite expensive compared to the overall market. Recently, the most expensive
stocks have continued to outperform when most stocks declined. We believe this
trend toward wider and wider value differentials cannot continue for long. We
are watching for signs of weakening earnings in the market leaders we own and
we are focusing our purchases on stocks that are less expensive.
The U.S. economy is growing at a moderate rate that is unlikely to generate
bottlenecks or ignite inflation. We believe a much broader range of companies
have good earnings prospects than recent stock price trends reflect. That
spells opportunity to us. However, because of the increased uncertainty of
economic growth, we reduced our holdings of corporate bonds and are looking
for advantageous opportunities to increase our average maturity and thereby
benefit should rates fall. The Federal Reserve may reduce interest rates if
the economy slows enough. An August decline in the value of Russian bonds will
affect our return somewhat, although our Russian holdings are small.
(PHOTOS)
Warren E. Spitz Jeffrey T. Rose, CFA Barbara L. Kenworthy
Portfolio Manager Portfolio Manager Portfolio Manager
Equities Equities Bonds
- -------------------------------------------------------------------------------
2
<PAGE>
A Matter of Balance.
Portfolio Co-Managers Warren Spitz, Jeff Rose, and Barbara Kenworthy review
today's markets.
Q. Does the current uncertainty in the stock market mean that stocks have
peaked?
A. Warren Spitz: No one really knows. That's why it is a good idea to own
stocks, bonds, and cash to smooth your return over time. We do know that our
balanced fund will have some assets in the best-performing asset class,
whichever that is. And our return is likely to be more stable than that of
either stocks or bonds alone.
Q. How is the diversification into both value and growth stocks working?
A. Warren Spitz: As we expected, value stocks and growth stocks have not
performed the same way. Since we added a value strategy, our growth stocks
have outperformed the S&P 500 Index, while we purchased value stocks at lower
prices (for each dollar of earnings) than growth stocks command. Should the
economy continue to slow and/or earnings growth continue to falter, our value
stocks are less likely to disappoint their investors. And when the economy
resumes its growth, they have more room for striking gains. We believe the
volatility of our returns has been reduced by this strategy.
Q. Can the market leaders become too expensive for a growth investor?
A. Jeff Rose: Yes. Although we are willing to pay a premium for stable
earnings growth, so are many other investors. At some price for each company,
it makes sense for us to take our profits and look for less popular growth
companies. We are watching our stocks particularly carefully because we think
some may be approaching that point.
Q. If you sell growth stocks because they have become too expensive, what can
you buy?
A. Jeff Rose: The market has become more and more focused on just a few
companies, which are the ones that are becoming too expensive. There are other
blue chip companies with stable earnings that are not quite as expensive. Our
overall strategy will remain the same, but we will buy more reasonably priced
stocks. We are likely to remain focused in the health care and technology
industries.
Q. Bonds have lagged stocks for several years. What is their role in a
balanced portfolio?
A. Barbara Kenworthy: Corporate earnings and stock prices have been unusually
high in the recent past. As the volatility of stock prices increases, bonds
are like a flywheel that stabilizes your portfolio's returns. If the rate of
economic growth continues to slow, as it has been doing, the Federal Reserve
is likely to reduce interest rates. This increases the value of outstanding
bonds with higher yields. So, the very slowing of growth that would decrease
corporate earnings can increase bond prices. This is a portfolio safety
mechanism.
- -------------------------------------------------------------------------------
3
<PAGE>
President's Letter September 8, 1998
(PHOTO)
Managing Expectations.
Dear Shareholder:
For nearly eight years we've enjoyed above-average, double-digit returns from
stocks -- a bull market of unprecedented duration. As a result, many of us
have grown accustomed to seeing the Dow Jones Industrial Average, the S&P 500
and other market indexes set new records. That's why the fluctuations normally
seen in financial markets may take investors by surprise.
Although the media have given ample coverage to the factors that have caused
concern in 1998, we'd like to remind you that there is also good news to
report: the U.S. economy is healthy and continues to grow. Inflation remains
subdued and employment is strong.
Even with a sound economy, it isn't easy to maintain your investment
discipline when the market is fluctuating. Here are some thoughts that may
help:
- - Manage Your Expectations. Experienced mutual fund investors understand that
financial markets rise and fall. Over time, however, stocks and bonds have
produced attractive returns that have kept ahead of inflation.
- - Don't Invest Emotionally. If you have long-term (several years or longer)
investment goals, it may be counterproductive to sell an investment in
reaction to short-term market fluctuation. Over the course of several years,
it's not unusual for stocks and bonds to experience several periods of
market uncertainty.
- - Diversification Lessens Risk. Market sectors seldom move in tandem. A well-
diversified portfolio that includes stock, bond, and money market mutual
funds can lessen the effects of market volatility over time.
- - We're On Your Side. Your Prudential professional can help you understand
what's happening in the markets. He or she can assist you in making informed
decisions based upon a thorough knowledge of your financial needs and long-
term goals. Call your Prudential professional today.
Thank you for your continued confidence in Prudential mutual funds. We'll do
everything we can to keep you informed and to earn your trust.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
- -------------------------------------------------------------------------------
4
<PAGE>
Portfolio of Investments as of July 31, 1998 PRUDENTIAL BALANCED FUND
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--90.2%
COMMON STOCKS--59.9%
- ------------------------------------------------------------
Advertising--0.6%
121,000 Interpublic Group of Companies, Inc. $ 7,290,250
- ------------------------------------------------------------
Airlines--0.2%
303,600 Trans World Airlines, Inc. 2,523,675
- ------------------------------------------------------------
Automobiles--1.9%
188,200 Ford Motor Co. 10,715,638
161,000 General Motors Corp. 11,642,312
-------------
22,357,950
- ------------------------------------------------------------
Banks--2.4%
122,600 Chase Manhattan Corp. 9,271,625
187,692 First Union Corp. 11,308,443
216,200 Norwest Corp. 7,769,687
-------------
28,349,755
- ------------------------------------------------------------
Beverages--1.0%
304,200 PepsiCo, Inc. 11,806,763
- ------------------------------------------------------------
Chemicals--2.0%
344,800 Agrium, Inc. (Canada) 4,069,246
121,200 Dow Chemical Co. 10,998,900
368,600 Geon Co. 8,270,462
-------------
23,338,608
- ------------------------------------------------------------
Commercial Services--0.6%
409,700 Cendant Corp.(a) 7,092,931
- ------------------------------------------------------------
Computer Software & Services--3.1%
150,000 BMC Software, Inc.(a) 7,396,875
309,600 Compaq Computer Corp. 10,178,100
50,700 Computer Associates International,
Inc. 1,682,606
103,100 Microsoft Corp.(a) $ 11,353,888
217,200 Unisys Corp.(a) 5,986,575
-------------
36,598,044
- ------------------------------------------------------------
Construction--1.8%
283,500 Hanson PLC (ADR) 7,300,125
229,200 J. Ray McDermott, S.A.(a) 6,474,900
195,900 US Home Corp.(a) 7,334,006
-------------
21,109,031
- ------------------------------------------------------------
Diversfied Consumer Products--5.1%
86,300 Avon Products, Inc. 7,464,950
109,700 Colgate-Palmolive Co. 10,140,394
272,000 The Dial Corp. 6,494,000
188,800 Gillette Co. 9,888,400
103,300 Illinois Tool Works, Inc. 5,791,256
81,400 Estee Lauder Cos., Inc. 5,229,950
101,300 Procter & Gamble Co. 8,040,687
74,000 The Unilever Group PLC (ADR)
(United Kingdom) 5,143,000
-------------
58,192,637
- ------------------------------------------------------------
Diversified Operations--0.9%
116,150 General Electric Co. 10,373,647
- ------------------------------------------------------------
Electrical Services--2.2%
298,200 Duke Energy Corp. 17,034,675
214,200 Texas Utilities Co. 8,581,387
-------------
25,616,062
- ------------------------------------------------------------
Electronics--2.7%
88,900 Intel Corp. 7,506,494
281,700 Mattel, Inc. 10,827,843
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5
<PAGE>
Portfolio of Investments as of July 31, 1998 PRUDENTIAL BALANCED FUND
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Electronics (cont'd.)
215,500 Uniphase Corp.(a) $ 10,775,000
155,500 VLSI Technology, Inc.(a) 2,488,000
-------------
31,597,337
- ------------------------------------------------------------
Entertainment--1.3%
145,500 Carnival Corp. 5,374,406
263,100 The Walt Disney Co. 9,060,506
-------------
14,434,912
- ------------------------------------------------------------
Financial Services--3.6%
24,622 Associates First Capital Corp. 1,912,822
111,500 Bear Stearns Co., Inc. 6,271,875
230,900 Federal National Mortgage Association 14,315,800
326,300 MBNA Corp. 10,931,050
108,400 Providian Financial Corp. 8,516,175
-------------
41,947,722
- ------------------------------------------------------------
Foods--0.5%
106,700 Bestfoods 5,935,188
- ------------------------------------------------------------
Hospital Management--2.7%
335,200 Columbia/HCA Healthcare Corp. 9,553,200
363,600 Healthsouth Corp.(a) 9,135,450
333,100 Manor Care, Inc. 12,428,794
-------------
31,117,444
- ------------------------------------------------------------
Insurance--2.0%
80,150 American International Group, Inc. 12,087,622
120,000 Provident Companies, Inc. 4,425,000
95,099 Travelers Group, Inc. 6,371,633
-------------
22,884,255
Hotels & Leisure--0.3%
128,600 Hilton Hotels Corp. $ 3,239,113
- ------------------------------------------------------------
Media--0.8%
284,600 CBS Corp.(a) 9,658,613
- ------------------------------------------------------------
Medical Products & Services--1.7%
77,200 Cardinal Health, Inc. 7,416,025
179,200 Health Care & Retirement Corp.(a) 6,764,800
93,500 Tyco International Ltd. 5,791,156
-------------
19,971,981
- ------------------------------------------------------------
Medical Technology--1.4%
49,000 Abbott Laboratories 2,036,562
260,100 HBO & Co. 7,664,822
111,600 IMS Health, Inc. 7,009,875
-------------
16,711,259
- ------------------------------------------------------------
Metals-Nonferrous--2.1%
175,600 Aluminum Co. of America 12,171,275
123,200 Reynolds Metals Co. 6,468,000
203,900 UCAR International Inc.(a) 5,377,863
-------------
24,017,138
- ------------------------------------------------------------
Mining--0.5%
291,000 Newmont Mining Corp. 5,492,625
- ------------------------------------------------------------
Networking--1.0%
119,900 Cisco Systems, Inc.(a) 11,480,425
- ------------------------------------------------------------
Oil & Gas--3.0%
213,100 Exxon Corp. 14,943,637
477,200 McDermott International, Inc. 12,377,375
376,800 Pioneer Natural Resources Co. 7,418,250
-------------
34,739,262
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 6
<PAGE>
Portfolio of Investments as of July 31, 1998 PRUDENTIAL BALANCED FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Oil & Gas Equipment & Services--2.4%
237,800 Enron Corp. $ 12,588,537
91,536 Marketspan Corp. 2,522,961
125,200 Schlumberger Ltd. 7,582,425
412,200 Western Gas Resources, Inc. 4,766,063
-------------
27,459,986
- ------------------------------------------------------------
Paper & Forest Products--0.8%
194,000 Longview Fibre Co. 2,279,500
322,900 Louisiana-Pacific Corp. 6,437,819
-------------
8,717,319
- ------------------------------------------------------------
Pharmaceuticals--2.6%
91,000 Bristol Myers Squibb Co. 10,368,313
76,250 Merck & Co., Inc. 9,402,578
90,500 Pfizer, Inc. 9,955,000
-------------
29,725,891
- ------------------------------------------------------------
Real Estate Investment Trust--1.9%
171,300 CCA Prison Realty Trust, 3,693,656
229,800 Crescent Real Estate Equities Co. 6,750,375
252,200 Patriot American Hospitality, Inc. 4,791,800
183,100 Vornado Realty Trust 6,614,488
-------------
21,850,319
- ------------------------------------------------------------
Retail--3.5%
253,200 American Stores Co. 5,871,075
144,300 CVS Corp. 5,916,300
291,000 Kmart Corp.(a) $ 4,746,937
161,200 Proffitt's, Inc.(a) 5,077,800
80,100 Rite Aid Corp. 3,163,950
183,600 Sears Roebuck & Co. 9,317,700
261,900 The Limited, Inc. 7,022,194
-------------
41,115,956
- ------------------------------------------------------------
Steel - Producers--0.8%
183,600 AK Steel Holding Corp. 2,926,125
310,400 British Steel PLC (ADR) (United
Kingdom) 6,499,000
-------------
9,425,125
- ------------------------------------------------------------
Telecommunications--1.1%
95,200 Alcatel Alsthom, Inc. 3,730,650
58,400 Omnipoint Corp.(a) 1,230,050
142,800 WorldCom, Inc.(a) 7,550,550
-------------
12,511,250
- ------------------------------------------------------------
Tobacco--1.0%
101,900 Philip Morris Co., Inc. 4,464,494
286,100 RJR Nabisco Holdings Corp. 6,991,569
-------------
11,456,063
- ------------------------------------------------------------
Waste Management--0.4%
92,400 Waste Management, Inc.(a) 5,093,550
-------------
Total common stocks
(cost $646,090,146) 695,232,086
-------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7
<PAGE>
Portfolio of Investments as of July 31, 1998 PRUDENTIAL BALANCED FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
<C> <C> <S> <C>
- ------------------------------------------------------------
DEBT OBLIGATIONS--30.3%
CORPORATE BONDS--23.9%
- ------------------------------------------------------------
Aerospace--0.3%
Baa1 3,000 Raytheon Co., Sr. Note,
5.95%, 3/15/01 $ 2,987,550
- ------------------------------------------------------------
Airlines--0.5%
Baa3 5,000 United Airlines, Inc.,
10.67%, 5/1/04 5,954,000
- ------------------------------------------------------------
Automobiles--0.2%
Ba1 2,000 Navistar International
Corp., Sr. Note,
7.00%, 2/1/03 2,007,500
- ------------------------------------------------------------
Banks--1.2%
A1 3,900 Bank Nova Scotia NY,
6.50%, 7/15/07 3,934,125
Baa3 3,000 Capital One Bank,
Sr. Note,
7.08%, 10/30/01 3,062,010
A1 2,100 National Australia Bank
Ltd.,
6.40%, 12/10/07 2,161,362
Baa1 5,000 Skandinaviska Enskilda
Banken,
7.50%, 3/29/49 5,170,000
--------------
14,327,497
- ------------------------------------------------------------
Cable & Pay Television Systems--0.4%
Ba3 2,000 Century Communications
Corp., Sr. Note,
9.75%, 2/15/02 2,150,000
Baa3 2,000 Comcast Cable
Communications,
8.375%, 5/1/07 2,229,380
--------------
4,379,380
- ------------------------------------------------------------
Chemicals--0.2%
Ba3 2,000 ISP Holdings, Inc.,
Sr. Note,
9.75%, 2/15/02 2,110,000
Computer Software--0.3%
Baa1 $ 4,000 Computer Associates
International, Inc.,
6.375%, 4/15/05 $ 3,931,720
- ------------------------------------------------------------
Diversified Products--0.3%
Baa1 1,000 SB Treasury Co.,
9.40%, 12/29/49 995,000
A3 3,000 Tokai Preferred Cap, LLC
1.00%, 12/29/49 2,786,250
--------------
3,781,250
- ------------------------------------------------------------
Engineering--0.1%
Ba2 1,200 CSC Holdings, Inc.,
Sr. Note,
7.625%, 7/15/18 1,205,400
- ------------------------------------------------------------
Entertainment--0.5%
Baa3 5,000 Royal Caribbean Cruises
Ltd.,
Sr. Note,
8.25%, 4/1/05 5,390,000
- ------------------------------------------------------------
Financial Services--7.7%
B2 5,000 Advanta Corp.,
7.25%, 8/16/99 4,931,450
Baa3 9,500 AT&T Capital Corp.,
6.41%, 8/13/99 9,542,750
Ba2 4,000 Conseco Finance Trust,
8.796%, 4/1/27 4,393,640
Contifinancial Corp.,
Sr. Notes,
Ba1 5,000 8.375%, 8/15/03 5,035,700
Ba1 3,300 8.125%, 4/1/08 3,187,437
A3 3,300 ERP Operating, LP,
6.63%, 4/13/05 3,290,694
Aa3 11,000 Team Fleet Financing
Corp.,
7.35%, 5/15/03 11,464,062
Ford Motor Credit Co.,
Notes,
A1 6,000 7.32%, 5/23/02 6,060,000
A1 5,000 7.75%, 3/15/05 5,390,000
Baa1 17,000 Lehman Brothers Holdings, Inc.,
6.33%, 8/1/00 17,084,150
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 8
<PAGE>
Portfolio of Investments as of July 31, 1998 PRUDENTIAL BALANCED FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
<C> <C> <S> <C>
- ------------------------------------------------------------
Financial Services (cont'd.)
A2 $ 18,000 Salomon, Inc.,
7.30%, 5/15/02 $ 18,625,140
--------------
89,005,023
- ------------------------------------------------------------
Foods--0.3%
Baa3 3,400 Kroger Co., Sr. Note,
6.375%, 3/1/08 3,365,082
- ------------------------------------------------------------
Hotels & Leisure--0.6%
ITT Corp., Notes,
Ba1 3,500 6.25%, 11/15/00 3,414,635
Ba1 3,500 6.75%, 11/15/03 3,372,390
--------------
6,787,025
- ------------------------------------------------------------
Industrial--0.6%
Scotia Pacific Co.,
A3 2,200 7.11%, 1/20/14 2,170,256
Baa2 4,800 7.71%, 1/20/14 4,781,280
--------------
6,951,536
- ------------------------------------------------------------
Media--1.9%
Baa3 14,000 News America Holdings
Inc.,
6.703%, 5/21/04 14,140,000
Baa3 5,500 Time Warner, Inc.,
8.11%, 8/15/06 6,043,070
Ba2 1,850 Viacom, Inc.,
7.75%, 6/1/05 1,962,943
--------------
22,146,013
- ------------------------------------------------------------
Oil & Gas Equipment & Services--0.8%
Baa2 3,500 BJ Services Co., Sr.
Note,
7.00%, 2/1/06 3,571,190
R & B Falcon Corp.,
Sr. Notes,
Ba1 5,000 6.50%, 4/15/03 4,968,400
Ba1 1,500 7.375%, 4/15/18 1,440,000
--------------
9,979,590
- ------------------------------------------------------------
Packaging--0.2%
Ba1 2,100 Owens Illinois Inc.,
7.50%, 5/15/10 2,120,832
Paper & Forest Products--0.2%
Baa3 $ 2,000 Fort James Corp., Note,
6.234%, 3/15/01 $ 2,000,440
- ------------------------------------------------------------
Real Estate Investment Trust--0.1%
Baa3 550 Colonial Realty, LP,
Sr. Note,
7.00%, 7/14/07 546,975
Baa2 500 First Industrial Realty
Trust
7.60%, 7/15/28 493,325
--------------
1,040,300
- ------------------------------------------------------------
Restaurants--0.6%
Darden Restaurants, Inc.,
Baa1 2,500 6.375%, 2/1/06 2,389,025
Baa1 4,500 7.125%, 2/1/16 4,435,650
--------------
6,824,675
- ------------------------------------------------------------
Retail--1.6%
Federated Dept. Stores,
Inc.,
Baa2 7,500 8.125%, 10/15/02 7,958,625
Baa2 2,500 8.50%, 6/15/03 2,715,000
Baa2 2,000 10.00%, 2/15/01 2,168,800
Ba2 2,000 Fred Meyer, Inc.,
7.375%, 3/1/05 2,001,160
Ba2 5,000 Kmart Corp.,
8.125%, 12/1/06 5,225,000
--------------
20,068,585
- ------------------------------------------------------------
Telecommunications--1.1%
A3 2,000 Cable & Wireless
Communication, Note,
6.375%, 3/6/03 2,004,480
Ba1 3,000 LCI International Inc.,
7.25%, 6/15/07 3,078,240
Baa3 7,000 Tele-Communications,
Inc., Sub. Deb.,
9.25%, 4/15/02 7,667,100
--------------
12,749,820
- ------------------------------------------------------------
Transportation/Trucking/Shipping--1.9%
Baa2 10,000 CSX Corp., Sub. Deb.,
7.45%, 5/1/07 10,623,900
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 9
<PAGE>
Portfolio of Investments as of July 31, 1998 PRUDENTIAL BALANCED FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
<C> <C> <S> <C>
- ------------------------------------------------------------
Transportation/Trucking/Shipping (cont'd.)
Baa1 $ 11,000 Norfolk Southern Corp.,
Note,
6.95%, 5/1/02 $ 11,296,120
--------------
21,920,020
- ------------------------------------------------------------
Utilities--2.1%
Aaa 3,000 California
Infrastructure, PG&E,
6.32%, 9/25/05 3,030,000
Cleveland Electric
Illuminating,
Ba1 3,000 7.19%, 7/1/00 3,044,400
Ba1 2,000 7.67%, 7/1/04 2,091,200
Baa1 450 Hyder, PLC
6.875%, 12/15/07 457,236
Niagara Mohawk Power Corp.,
Ba1 2,875 6.875%, 4/1/03 2,920,799
Ba1 4,500 7.375%, 8/1/03 4,682,070
Ba1 2,000 8.00%, 6/1/04 2,138,660
Ba2 6,000 Western Massachusetts
Electric Co.,
7.375%, 7/1/01 6,088,800
--------------
24,453,165
- ------------------------------------------------------------
Waste Management--0.1%
Baa3 1,000 USA Waste Services, Inc.,
Note,
6.125%, 7/15/01 998,020
Total corporate bonds
(cost $270,416,937) 276,484,423
--------------
- ------------------------------------------------------------
U.S. GOVERNMENT SECURITIES--6.1%
United States Treasury Bonds,
4,026 3.625%, 4/15/28 3,974,151
27,000 8.125%, 8/15/19 34,488,180
24,450 6.125%, 11/15/27 25,844,383
United States Treasury Notes,
1,100 5.50%, 2/15/08 1,095,182
3,050 5.625%, 5/15/08 3,078,578
1,250 6.125%, 8/15/07 1,297,075
900 7.25%, 5/15/04 974,394
--------------
Total U.S. government
securities
(cost $70,831,066) 70,751,943
--------------
FOREIGN GOVERNMENT BONDS--0.3%
Ba2 $ 4,000 City of Moscow, (Russia)
9.50%, 5/31/00 $ 3,440,000
B+(b) 500 City of St. Petersburg,
(Russia)
9.50%, 6/18/02 350,000
--------------
Total foreign government
(cost $4,518,260) 3,790,000
--------------
Total debt obligations
(cost $345,766,263) 351,026,366
--------------
Total long-term
investments
(cost $991,856,409) 1,046,258,452
--------------
SHORT-TERM INVESTMENTS--9.0%
CORPORATE BONDS--0.1%
- ------------------------------------------------------------
Banks
A2 1,000 First Union Corp.,
9.45%, 6/15/99
(cost $1,104,060) 1,029,000
--------------
- ------------------------------------------------------------
REPURCHASE AGREEMENT--8.9%
103,812 Joint Repurchase
Agreement Account
5.61%, 8/3/98,
(cost $103,812,000;
Note 5) 103,812,000
--------------
Total short-term
investments
(cost $104,916,060) 104,841,000
--------------
- ------------------------------------------------------------
Total Investments--99.2%
(cost $1,096,772,469;
Note 4) 1,151,099,452
Other assets in excess of
liabilities--0.8% 8,816,299
--------------
Net Assets--100% $1,159,915,751
--------------
--------------
</TABLE>
- ---------------
(a) Non-income producing security.
(b) Standard & Poor's rating.
ADR--American Depository Receipt.
The Fund's current Prospectus contains a description of Moody's and Standard &
Poor's ratings.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 10
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL BALANCED FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets July 31, 1998
<S> <C>
Investments, at value (cost $1,096,772,469)................................................................. $1,151,099,452
Cash........................................................................................................ 228,772
Receivable for investments sold............................................................................. 10,287,068
Dividends and interest receivable........................................................................... 7,917,001
Receivable for Fund shares sold............................................................................. 749,674
Prepaid expenses............................................................................................ 45,886
--------------
Total assets............................................................................................. 1,170,327,853
--------------
Liabilities
Payable for investments purchased........................................................................... 6,728,546
Payable for Fund shares reacquired.......................................................................... 2,167,343
Management fee payable...................................................................................... 665,535
Distribution fee payable.................................................................................... 585,949
Accrued expenses............................................................................................ 264,729
--------------
Total liabilities........................................................................................ 10,412,102
--------------
Net Assets.................................................................................................. $1,159,915,751
--------------
--------------
Net assets were comprised of:
Shares of beneficial interest, at par.................................................................... $ 920,239
Paid-in capital in excess of par......................................................................... 1,015,617,864
--------------
1,016,538,103
Undistributed net investment income...................................................................... 1,384,812
Accumulated net realized gain on investments............................................................. 87,665,853
Net unrealized appreciation on investments............................................................... 54,326,983
--------------
Net assets, July 31, 1998................................................................................... $1,159,915,751
--------------
--------------
Class A:
Net asset value and redemption price per share
($485,689,864 / 38,457,582 shares of beneficial interest issued and outstanding)...................... $12.63
Maximum sales charge (5% of offering price).............................................................. .66
Maximum offering price to public......................................................................... $13.29
Class B:
Net asset value, offering price and redemption price per share
($533,353,620 / 42,414,858 shares of beneficial interest issued and outstanding)...................... $12.57
Class C:
Net asset value, offering price and redemption price per share
($9,201,203 / 731,714 shares of beneficial interest issued and outstanding)........................... $12.57
Class Z:
Net asset value, offering price and redemption price per share
($131,671,064 / 10,419,748 shares of beneficial interest issued and outstanding)...................... $12.64
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 11
<PAGE>
PRUDENTIAL BALANCED FUND
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income July 31, 1998
<S> <C>
Income
Interest................................... $ 36,163,798
Dividends (net of foreign withholding taxes
of $143,621)............................ 8,602,741
-------------
Total income............................ 44,766,539
-------------
Expenses
Management fee............................. 7,857,149
Distribution fee--Class A.................. 1,234,570
Distribution fee--Class B.................. 5,784,317
Distribution fee--Class C.................. 81,752
Transfer agent's fees and expenses......... 2,640,000
Reports to shareholders.................... 335,000
Custodian's fees and expenses.............. 215,000
Registration fees.......................... 190,000
Legal fees................................. 41,000
Audit fees................................. 30,000
Insurance.................................. 24,000
Trustees' fees and expenses................ 20,000
Miscellaneous.............................. 20,078
-------------
Total expenses.......................... 18,472,866
-------------
Net investment income......................... 26,293,673
-------------
Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency
Net realized gain (loss) on:
Investment transactions.................... 155,550,453
Foreign currency transactions.............. (650)
-------------
155,549,803
-------------
Net change in unrealized appreciation
(depreciation) on investments.............. (126,216,321)
-------------
Net gain on investments....................... 29,333,482
-------------
Net Increase in Net Assets
Resulting from Operations..................... $ 55,627,155
-------------
-------------
</TABLE>
<TABLE>
PRUDENTIAL BALANCED FUND
Statement of Changes in Net Assets
<CAPTION>
Increase (Decrease) Year Ended July 31,
in Net Assets 1998 1997
<S> <C> <C>
Operations
Net investment income....... $ 26,293,673 $ 20,934,760
Net realized gain on
investments and foreign
currency transactions.... 155,549,803 92,822,065
Net change in unrealized
appreciation
(depreciation) of
investments.............. (126,216,321) 97,850,789
-------------- --------------
Net increase in net assets
resulting from
operations............... 55,627,155 211,607,614
-------------- --------------
Dividends and distributions
(Note 1)
Dividends to shareholders
from net investment
income
Class A.................. (12,700,788) (8,678,960)
Class B.................. (10,437,329) (8,766,533)
Class C.................. (148,597) (97,195)
Class Z.................. (3,608,837) (2,758,541)
-------------- --------------
(26,895,551) (20,301,229)
-------------- --------------
Distributions from net
realized gains on
investment transactions
Class A.................. (57,771,866) (17,250,282)
Class B.................. (69,878,157) (26,414,816)
Class C.................. (920,721) (273,589)
Class Z.................. (14,427,869) (6,764,801)
-------------- --------------
(142,998,613) (50,703,488)
-------------- --------------
Fund share transactions (net of
share conversions) (Note 6)
Net proceeds from shares
sold..................... 195,965,154 583,212,616
Net asset value of shares
issued to shareholders in
reinvestment of dividends
and distributions........ 160,126,884 65,884,101
Cost of shares reacquired... (341,566,835) (220,143,556)
-------------- --------------
Net increase in net assets
from Fund shares
transactions............. 14,525,203 428,953,161
-------------- --------------
Total increase (decrease)...... (99,741,806) 569,556,058
Net Assets
Beginning of year.............. 1,259,657,557 690,101,499
-------------- --------------
End of year(a)................. $1,159,915,751 $1,259,657,557
-------------- --------------
-------------- --------------
- ---------------
(a) Includes undistributed net
investment income of....... $ 1,384,812 $ 1,986,876
-------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 12
<PAGE>
Notes to Financial Statements PRUDENTIAL BALANCED FUND
- --------------------------------------------------------------------------------
Prudential Balanced 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. The investment objective of the Fund 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, under triparty repurchase agreements, as the case may be, 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.
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.
- --------------------------------------------------------------------------------
13
<PAGE>
Notes to Financial Statements PRUDENTIAL BALANCED FUND
- --------------------------------------------------------------------------------
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: It is the Fund's policy to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable net income to its shareholders.
Therefore, no federal income tax provision is required.
Withholding taxes on foreign interest and dividends have been provided for in
accordance with the Fund's understanding of the applicable country's tax rates.
Dividends and Distributions: The Fund expects to pay dividends of net investment
income quarterly and make distributions at least annually of any net capital
gains. Dividends and distributions are recorded on the ex-dividend date.
Income distributions and capital gains distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments of wash sales and foreign currency transactions.
Reclassification of Capital Accounts: The Fund accounts and reports for
distributions to shareholders in accordance with 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. The effect of applying this statement was
to decrease undistributed net investment income by $186, increase accumulated
net realized gain on investments by $99,848 and decrease paid in capital by
$99,662 for the year ended July 31, 1998. Net realized gains and net assets were
not affected by this change.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential Investments Fund Management
LLC ('PIFM'). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PIFM 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. PIFM 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 PIFM is computed daily and payable monthly at an annual
rate of .65 of 1% of the Fund's average daily net assets.
The Fund had a distribution agreement with Prudential Securities Incorporated
('PSI') which acted as the distributor of the Class A, Class B, Class C and
Class Z shares. The Fund compensated PSI for distributing and servicing the
Fund's Class A, Class B and Class C shares, pursuant to plans of distribution
(the 'Class A, B and C Plans'), regardless of expenses actually incurred. The
distribution fees were accrued daily and payable monthly. No distribution or
service fees were paid to PSI as distributor of the Class Z shares of the Fund.
Effective July 1, 1998, Prudential Investment Management Services LLC ('PIMS')
became the distributor of the Fund and serves the Fund under the same terms and
conditions as under the arrangement with PSI.
Pursuant to the Class A, B and C Plans, the Fund 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 year ended July 31,
1998.
PSI has advised the Fund that it received approximately $359,000 in front-end
sales charges resulting from sales of Class A shares during the year ended July
31, 1998. From these fees, PSI paid such sales charges to
- --------------------------------------------------------------------------------
14
<PAGE>
Notes to Financial Statements PRUDENTIAL BALANCED FUND
- --------------------------------------------------------------------------------
affiliated broker-dealers, which in turn paid commissions to salespersons and
incurred other distribution costs.
PSI has advised the Fund that for the year ended July 31, 1998, it received
approximately $820,000 and $5,000 in contingent deferred sales charges imposed
upon certain redemptions by Class B and C shareholders, respectively.
PSI, PIC, PIFM and PIMS are indirect, wholly owned subsidiaries of The
Prudential Insurance Company of America.
The Fund, along with other affiliated registered investment companies (the
'Funds'), entered into a credit agreement (the 'Agreement') on December 31, 1996
with an unaffiliated lender. The maximum commitment under the Agreement is
$200,000,000. Interest on any such borrowings outstanding will be at market
rates. The purpose of the Agreement is to serve as an alternative source of
funding for capital share redemptions. The Fund did not borrow any amounts
pursuant to the Agreement during the year ended July 31, 1998. The Funds pay a
commitment fee at an annual rate of .055 of 1% on the unused portion of the
credit facility. The commitment fee is accrued and paid quarterly on a pro rata
basis by the Funds. The Agreement expired on December 30, 1997 and has been
extended through December 29, 1998 under the same terms.
- ------------------------------------------------------------
Note 3. Other Transactions With Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the year ended July 31, 1998, the
Fund incurred fees of approximately $2,170,000 for the services of PMFS. As of
July 31, 1998, approximately $172,000 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 nonaffiliates.
For the year ended July 31, 1998, PSI received approximately $103,500 in
brokerage commissions from portfolio transactions executed on behalf of the
Fund.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities of the Fund, other than short-term
investments, for the fiscal year ended July 31, 1998, were $1,577,446,098 and
$1,693,942,904, respectively, which includes purchases and sales of U.S.
government obligations of $444,746,462 and $399,778,178, respectively.
The cost basis of investments for federal income tax purposes as of July 31,
1998 was $1,096,883,147 and accordingly, net unrealized appreciation of
investments for federal income tax purposes was $54,216,305 (gross unrealized
appreciation--$103,786,088; gross unrealized depreciation--$49,569,783).
- ------------------------------------------------------------
Note 5. Joint Repurchase Agreement Account
The Fund, along with other affiliated registered investment companies, transfers
uninvested cash balances into a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements collateralized
by U.S. Government or federal agency obligations. As of July 31, 1998, the Fund
had a 13.7% undivided interest in repurchase agreements in the joint account.
The undivided interest for the Fund represented $103,812,000 in principal
amount. As of such date, each repurchase agreement in the joint account and the
value of the collateral therefor was as follows:
Credit Suisse First Boston Corp., 5.67%, dated 7/31/98, in the principal amount
of $175,000,000, repurchase price $175,082,689, due 8/3/98. The value of the
collateral including accrued interest is $180,594,823.
Bear, Stearns & Co. Inc., 5.66%, dated 7/31/98, in the principal amount of
$175,000,000, repurchase price $175,082,542, due 8/3/98. The value of the
collateral including accrued interest is $179,027,728.
Salomon Smith Barney Inc., 5.64%, dated 7/31/98, in the principal amount of
$175,000,000, repurchase price $175,082,251, due 8/3/98. The value of the
collateral including accrued interest is $178,789,931.
SBC Warburg Dillon Read Inc., 5.52% dated 7/31/98, in the principal amount of
$235,118,000, repurchase price $235,226,153, due 8/3/98. The value of the
collateral including accrued interest is $240,150,611.
- ------------------------------------------------------------
Note 6. Capital
The Fund offers Class A, Class B, Class C and Class Z shares. Class A shares are
sold with a front-end sales charge of up to 5%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class C shares are sold with a 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.
- --------------------------------------------------------------------------------
15
<PAGE>
Notes to Financial Statements PRUDENTIAL BALANCED FUND
- --------------------------------------------------------------------------------
Transactions in shares of beneficial interest for the years ended July 31, 1998
and July 31, 1997 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ---------------------------------- ----------- -------------
<S> <C> <C>
Year ended July 31, 1998:
Shares sold....................... 3,967,817 $ 52,091,809
Shares issued in reinvestment of
dividends and distributions..... 5,263,433 64,754,657
Shares reacquired................. (9,908,242) (129,373,980)
----------- -------------
Net decrease in shares outstanding
before conversion............... (676,992) (12,527,514)
Shares issued upon conversion from
Class B......................... 3,632,745 46,694,238
----------- -------------
Net increase in shares
outstanding..................... 2,955,753 $ 34,166,724
----------- -------------
----------- -------------
Year ended July 31, 1997:
Shares sold....................... 3,337,159 $ 42,801,873
Shares issued in connection with
acquisition of Prudential
Allocation Fund--Strategy
Portfolio....................... 10,702,166 148,314,174
Shares issued in reinvestment of
dividends and distributions..... 1,818,378 23,032,477
Shares reacquired................. (7,231,992) (92,932,910)
----------- -------------
Net increase in shares outstanding
before conversion............... 8,625,711 121,215,614
Shares issued upon conversion from
Class B......................... 4,759,297 60,515,298
----------- -------------
Net increase in shares
outstanding..................... 13,385,008 $ 181,730,912
----------- -------------
----------- -------------
<CAPTION>
Class B
- ----------------------------------
Year ended July 31, 1998:
Shares sold....................... 5,179,076 $ 67,414,895
Shares issued in reinvestment of
dividends and distributions..... 6,244,089 76,307,531
Shares reacquired................. (10,219,280) (133,027,987)
----------- -------------
Net increase in shares outstanding
before conversion............... 1,203,885 10,694,439
Shares reacquired upon conversion
into Class A.................... (3,615,791) (46,694,238)
----------- -------------
Net decrease in shares
outstanding..................... (2,411,906) $ (35,999,799)
----------- -------------
----------- -------------
Year ended July 31, 1997:
Shares sold....................... 4,838,750 $ 61,524,309
Shares issued in connection with
acquisition of Prudential
Allocation Fund--Strategy
Portfolio....................... 13,556,615 187,167,091
Shares issued in reinvestment of
dividends and distributions..... 2,613,632 32,974,262
Shares reacquired................. (7,023,090) (89,550,269)
----------- -------------
Net increase in shares outstanding
before conversion............... 13,985,907 192,115,393
Shares reacquired upon conversion
into Class A.................... (4,781,062) (60,515,298)
----------- -------------
Net increase in shares
outstanding..................... 9,204,845 $ 131,600,095
----------- -------------
----------- -------------
<CAPTION>
Class C Shares Amount
- ---------------------------------- ----------- -------------
<S> <C> <C>
Year ended July 31, 1998:
Shares sold....................... 323,478 $ 4,203,230
Shares issued in reinvestment of
dividends and distributions..... 84,293 1,030,457
Shares reacquired................. (178,945) (2,326,256)
----------- -------------
Net increase in shares
outstanding..................... 228,826 $ 2,907,431
----------- -------------
----------- -------------
Year ended July 31, 1997:
Shares sold....................... 232,388 $ 2,935,142
Shares issued in connection with
acquisition of Prudential
Allocation Fund--Strategy
Portfolio....................... 91,197 1,259,091
Shares issued in reinvestment of
dividends and distributions..... 28,051 354,029
Shares reacquired................. (147,414) (1,879,415)
----------- -------------
Net increase in shares
outstanding..................... 204,222 $ 2,668,847
----------- -------------
----------- -------------
<CAPTION>
Class Z
- ----------------------------------
Year ended July 31, 1998:
Shares sold....................... 5,472,022 $ 72,255,220
Shares issued in reinvestment of
dividends and distributions..... 1,463,704 18,034,239
Shares reacquired................. (5,753,738) (76,838,612)
----------- -------------
Net increase in shares
outstanding..................... 1,181,988 $ 13,450,847
----------- -------------
----------- -------------
Year ended July 31, 1997:
Shares sold....................... 2,901,740 $ 37,167,348
Shares issued in connection with
acquisition of Prudential
Allocation Fund--Strategy
Portfolio....................... 891 12,363
Shares issued in connection with
acquisition of The Prudential
Institutional Fund--Balanced
Fund............................ 8,056,026 102,031,225
Shares issued in reinvestment of
dividends and distributions..... 752,454 9,523,333
Shares reacquired................. (2,812,213) (35,780,962)
----------- -------------
Net increase in shares
outstanding..................... 8,898,898 $ 112,953,307
----------- -------------
----------- -------------
</TABLE>
- ------------------------------------------------------------
Note 7. Dividends
On September 22, 1998 the Board of Trustees of the Fund declared the following
dividends per share, payable on September 30, 1998 to shareholders of record on
September 25, 1998:
<TABLE>
<CAPTION>
Class B
Class A and C Class Z
-------- -------- --------
<S> <C> <C> <C>
Ordinary Income.................. $ .075 $ .05 $ .0825
</TABLE>
- --------------------------------------------------------------------------------
16
<PAGE>
Financial Highlights PRUDENTIAL BALANCED FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------------
Year Ended July 31,
-----------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year...... $ 14.01 $ 11.85 $ 12.04 $ 11.12 $ 11.75
-------- -------- -------- -------- -------
Income from investment operations
Net investment income................... .33 .34 .31 .34 .33
Net realized and unrealized gain (loss)
on investment transactions........... .29 2.96 .28 1.11 (.05)
-------- -------- -------- -------- -------
Total from investment operations..... .62 3.30 .59 1.45 .28
-------- -------- -------- -------- -------
Less distributions
Dividends from net investment income.... (.34) (.36) (.29) (.33) (.37)
Distributions from net realized gains on
investment and foreign currency
transactions......................... (1.66) (.78) (.49) (.20) (.54)
-------- -------- -------- -------- -------
Total distributions.................. (2.00) (1.14) (.78) (.53) (.91)
-------- -------- -------- -------- -------
Net asset value, end of year............ $ 12.63 $ 14.01 $ 11.85 $ 12.04 $ 11.12
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
TOTAL RETURN(a):........................ 5.05% 29.09% 4.89% 13.67% 2.39%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)........... $485,690 $497,461 $262,096 $119,829 $37,512
Average net assets (000)................ $493,828 $306,717 $246,609 $ 69,754 $29,875
Ratios to average net assets:
Expenses, including distribution
fees.............................. 1.19% 1.17% 1.20% 1.22% 1.23%
Expenses, excluding distribution
fees.............................. .94% .92% .95% .97% 1.00%
Net investment income................ 2.51% 2.84% 2.53% 2.90% 2.84%
For Class A, B, C and Z shares:
Portfolio turnover rate.............. 144% 140% 97% 201% 108%
</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 year reported and includes reinvestment of dividends and
distributions.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 17
<PAGE>
Financial Highlights PRUDENTIAL BALANCED FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
------------------------------------------------------------
Year Ended July 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year...... $ 13.96 $ 11.80 $ 12.00 $ 11.09 $ 11.72
-------- -------- -------- -------- --------
Income from investment operations
Net investment income................... .24 .26 .21 .26 .24
Net realized and unrealized gain (loss)
on investment transactions........... .27 2.95 .28 1.10 (.05)
-------- -------- -------- -------- --------
Total from investment operations..... .51 3.21 .49 1.36 .19
-------- -------- -------- -------- --------
Less distributions
Dividends from net investment income.... (.24) (.27) (.20) (.25) (.28)
Distributions from net realized gains on
investment and foreign currency
transactions......................... (1.66) (.78) (.49) (.20) (.54)
-------- -------- -------- -------- --------
Total distributions.................. (1.90) (1.05) (.69) (.45) (.82)
-------- -------- -------- -------- --------
Net asset value, end of year............ $ 12.57 $ 13.96 $ 11.80 $ 12.00 $ 11.09
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN(a):........................ 4.28% 28.24% 4.05% 12.79% 1.61%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)........... $533,354 $625,715 $420,465 $392,291 $445,609
Average net assets (000)................ $578,432 $431,425 $437,792 $409,419 $392,133
Ratios to average net assets:
Expenses, including distribution
fees.............................. 1.94% 1.92% 1.95% 1.97% 2.00%
Expenses, excluding distribution
fees.............................. .94% .92% .95% .97% 1.00%
Net investment income................ 1.76% 2.09% 1.78% 2.34% 2.08%
</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 year reported and includes reinvestment of dividends and
distributions.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 18
<PAGE>
Financial Highlights PRUDENTIAL BALANCED FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C Class Z
-------------------------------------------------- ------------------------
August 1,
1994(a)
Year Ended July 31, through Year Ended July 31,
------------------------------------ July 31, ------------------------
1998 1997 1996 1995 1998 1997
-------- ----- -------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $13.96 $11.80 $12.00 $ 11.12 $ 14.01 $ 11.85
-------- ----- -------- --------- ----------- --------
Income from investment operations
Net investment income................... .24 .26 .21 .21 .37 .46
Net realized and unrealized gain (loss)
on investment transactions........... .27 2.95 .28 1.12 .29 2.87
-------- ----- -------- --------- ----------- --------
Total from investment operations..... .51 3.21 .49 1.33 .66 3.33
-------- ----- -------- --------- ----------- --------
Less distributions
Dividends from net investment income.... (.24) (.27) (.20) (.25) (.37) (.39)
Distributions from net realized gains on
investment and foreign currency
transactions......................... (1.66) (.78) (.49) (.20) (1.66) (.78)
-------- ----- -------- --------- ----------- --------
Total distributions.................. (1.90) (1.05) (.69) (.45) (2.03) (1.17)
-------- ----- -------- --------- ----------- --------
Net asset value, end of period.......... $12.57 $13.96 $11.80 $ 12.00 $ 12.64 $ 14.01
-------- ----- -------- --------- ----------- --------
-------- ----- -------- --------- ----------- --------
TOTAL RETURN(b):........................ 4.28% 28.24% 4.05% 12.49% 5.37% 29.39%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $9,201 $7,023 $3,525 $ 3,046 $ 131,671 $129,459
Average net assets (000)................ $8,175 $4,790 $2,444 $ 920 $ 128,358 $ 99,391
Ratios to average net assets:
Expenses, including distribution
fees.............................. 1.94% 1.92% 1.95% 2.04%(d) .94% .92%
Expenses, excluding distribution
fees.............................. .94% .92% .95% 1.04%(d) .94% .92%
Net investment income................ 1.76% 2.09% 1.78% 2.20%(d) 2.76% 3.12%
<CAPTION>
March 1,
1996(c)
through
July 31,
1996
--------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $12.16
--------
Income from investment operations
Net investment income................... .13
Net realized and unrealized gain (loss)
on investment transactions........... (.28)
--------
Total from investment operations..... (.15)
--------
Less distributions
Dividends from net investment income.... (.16)
Distributions from net realized gains on
investment and foreign currency
transactions......................... --
--------
Total distributions.................. (.16)
--------
Net asset value, end of period.......... $11.85
--------
--------
TOTAL RETURN(b):........................ (1.24)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $4,015
Average net assets (000)................ $4,217
Ratios to average net assets:
Expenses, including distribution
fees.............................. .95%(d)
Expenses, excluding distribution
fees.............................. .95%(d)
Net investment income................ 2.72%(d)
</TABLE>
- ---------------
(a) Commencement of offering of Class C shares.
(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.
(c) Commencement of offering of Class Z shares.
(d) Annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 19
<PAGE>
Report of Independent Accountants PRUDENTIAL BALANCED FUND
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
Prudential Balanced Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Balanced Fund (the
'Fund') (formerly Prudential Allocation Fund--Balanced Portfolio) at July 31,
1998, the results of its operations for the year then ended and the changes in
its net assets and the financial highlights for the two years in the period then
ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
'financial statements') are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at July
31, 1998 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above. The accompanying financial highlights for
each of the three years in the period ended July 31, 1996 were audited by other
independent accountants, whose opinion dated September 16, 1996 was unqualified.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
September 17, 1998
Tax Information (Unaudited) PRUDENTIAL BALANCED FUND
- --------------------------------------------------------------------------------
We are required by the Internal Revenue Code to advise you within 60 days of the
Fund's fiscal year end (July 31, 1998) as to the federal tax status of dividends
and distributions paid by the Fund during such fiscal year. Accordingly, we are
advising you that in the fiscal year ended July 31, 1998, dividends paid from
net investment income were $.3425 per share for Class A shares, $.2425 per share
for Class B and Class C shares and $.3725 per share for Class Z shares, which
are taxable as ordinary income. In addition, the Fund paid to Class A, B, C and
Z shares a short-term capital gain distribution of $.505, which is taxable as
ordinary income and a long-term capital gain distribution of $1.15, of which
$.6077 is taxable at 20% and $.5423 is taxable at 28%.
We also wish to advise you that 11.5% of the dividends paid from ordinary income
in the fiscal year ended July 31, 1998 qualified for the corporate dividends
received deduction available to corporate tax payers.
We are required by Massachusetts, Missouri and Oregon to inform you that
dividends which have been derived from interest on federal obligations are not
taxable to shareholders. Please be advised that 4.10% of the dividends paid from
ordinary income in the fiscal year ended July 31, 1998 qualify for each of these
states' tax exclusion.
In January 1999, you will be advised on IRS Form 1099 DIV or substitute 1099 DIV
as to the federal tax status of the dividends and distributions received by you
in calendar year 1998.
- --------------------------------------------------------------------------------
20
<PAGE>
Comparing A $10,000 Investment.
Prudential Balanced Fund vs. The Lehman Brothers
Government/Corporate Bond Index and the S&P 500.
// Prudential Balanced Fund
- -- Lehman Bros. Gov't./Corp. Bond Inde
- - S&P 500 Index
Past performance is not indicative of future results. Principal and investment
return will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. The boxes on top of the graphs
are designed to give you an idea of how much the Fund's returns can fluctuate
from year to year by measuring the best and worst calendar years in terms of
total annual return since inception of each share class.
These graphs are furnished to you in accordance with SEC regulations. They
compare a $10,000 investment in the Prudential Balanced Fund (Class A, Class
B, Class C and Class Z) with similar investments in the Lehman Brothers
Government/Corporate Bond Index and the Standard & Poor's 500 Composite Stock
Price Index (S&P 500 Index) by portraying the initial account values at the
commencement of operations of Class A, C, and Z shares, and for 10 years for
Class B shares, and subsequent account values at the end of each fiscal year
(July 31), as measured on a quarterly basis, beginning in 1990 for Class A
shares, 1988 for Class B shares, 1994 for Class C shares, and 1996 for Class
Z shares. For purposes of the graphs, and unless otherwise indicated, in the
accompanying tables it has been assumed (a) that the maximum applicable front-
end sales charge was deducted from the initial $10,000 investment in Class A
shares; (b) the maximum applicable contingent deferred sales charge was
deducted from the value of the investment in Class B and Class C shares,
assuming full redemption on July 31, 1998; (c) all recurring fees (including
management fees) were deducted; and (d) all dividends and distributions were
reinvested. Class B shares will automatically convert to Class A shares, on a
quarterly basis, approximately seven years after purchase. This conversion
feature is not reflected in the graph. Class Z shares are not subject to a
sales charge or distribution fee.
The Lehman Brothers Government/Corporate Bond Index is a weighted index
comprised of public, fixed-rate, non-convertible domestic corporate debt
securities that are rated at least investment grade (BBB/Baa or higher) and
public obligations of the U.S. Treasury. The S&P 500 is a market
capitalization-weighted index, representing the aggregate market value of
the common equity of 500 stocks primarily traded on the New York Stock
Exchange. Both the Lehman Brothers Government/Corporate Bond Index and the
S&P 500 are unmanaged indexes and include the reinvestment of all dividends
and interests, as appropriate, but do not reflect the payment of transaction
costs and advisory fees associated with an investment in the Fund. The
securities in these indexes may differ substantially from the securities in
each of the Fund's portfolios. The Lehman Brothers Government/Corporate Bond
Index and the S&P 500 are not the only indexes that may be used to
characterize performance of balanced funds and other indexes may portray
different comparative performance. Investors cannot invest directly in an
index.
Best Year: 1991 22.27%
Worst Year: 1994 -2.83%
Class A
(CHART)
Average Annual Total Returns - Class A
With Sales Load
10.97% Since Inception
9.48% for 5 Years
- -0.20% for 1 Year
Without Sales Load
11.64% Since Inception
10.61% for 5 Years
5.05% for 1 Year
Best Year: 1991 21.44%
Worst Year: 1994 -3.59%
Class B
(CHART)
Average Annual Total Returns - Class B
With Sales Load
9.38% Since Inception
10.58% for 10 Years
9.65% for 5 Years
- -0.72% for 1 Year
Without Sales Load
9.38% Since Inception
10.58% for 10 Years
9.78% for 5 Years
4.28% for 1 Year
Best Year: 1995 16.75%
Worst Year: 1997 13.48%
Class C
(CHART)
Average Annual Total Returns - Class C
With Sales Load
11.86% Since Inception
3.28% for 1 Year
Without Sales Load
11.86% Since Inception
4.28% for 1 Year
Class Z
(CHART)
Average Annual Total Returns - Class Z
13.11% Since Inception
5.37% for 1 Year
<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
Douglas H. McCorkindale
Mendel A. Melzer, CFA
Thomas T. Mooney
Stephen P. Munn
Richard A. Redeker
Robin B. Smith
Louis A. Weil, III
Clay T. Whitehead
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Marguerite E. H. Morrison, Assistant Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
Distributor
Prudential Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
PricewaterhouseCoopers 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.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
74431M105 MF134E
74431M204 Cat. #642032D
74431M303
74431M402
