(ICON)
Prudential
Balanced
Fund
SEMI
ANNUAL
REPORT
Jan. 31, 1998
(LOGO)
<PAGE>
Prudential Balanced Fund
Performance At A Glance
The Asian financial crisis last fall drove
investors to the relative security
of the very largest companies and to U.S.
Treasury bonds, hurting our holdings
of less-familiar stocks and emerging market
bonds. Although we had bought more
blue-chip growth stocks over the six months
ending January 31, our return was
negative. And because we didn't own as much
of these as other funds, we
trailed the Lipper average during the period.
Our focus on retailers, computer
networking, oil services, and hospital care
performed poorly during the period.
Cumulative Total Returns1 As of
1/31/98
<TABLE>
<CAPTION>
Six One
Five Ten Since
Months Year
Years Years Inception2
<S> <C> <C>
<C> <C> <C>
Class A -0.55%
10.59% 69.05% N/A 141.88
Class B -0.91
9.80 62.91 169.06% 151.96
Class C -0.91
9.80 N/A N/A 48.73
Class Z -0.44
10.84 N/A N/A 27.23
Lipper Bal.
Port. Avg3 2.73
16.52 84.74 229.66 ***
</TABLE>
Average Annual Total Returns1 As of
12/31/97
<TABLE>
<CAPTION>
One Five
Ten Since
Year Years
Years Inception2
<S> <C> <C>
<C> <C>
Class A 5.06 9.94%
N/A 10.92%
Class B 4.80 10.12
10.41% 9.31
Class C 8.80 N/A
N/A 12.00
Class Z 10.84 N/A
N/A 13.37
</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.
1 Source: Prudential Investments 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
(CDSC) of 5%, 4%, 3%, 2%, 1% and 1%
for six years, for Class B shares. Class C
shares have a 1% CDSC for one year.
Class B shares will automatically convert to
Class A shares on a quarterly
basis, approximately seven years after
purchase. Class Z shares are not subject
to a sales charge or a distribution fee.
2 Inception dates: Class A, 1/22/90; Class B,
9/15/87; Class C, 8/1/94; and
Class Z, 3/1/96.
3 Lipper average returns are for all funds in
each share class for the
six-month, 1-, 5-, and 10-year.
*** Lipper Since Inception returns are Class
A, 165.46%; Class B, 204.10%;
Class C, 71.01%; and Class Z, 33.63% for all
funds in each share class.
How Investments Compared.
(As of 1/31/98)
(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 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, and 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 and bonds primarily
of larger, more mature companies, but may
also purchase securities from
smaller, faster-growing companies. It may
invest 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's
investment objective will be achieved.
Strategy Session.
- ---------------------------------------------
- ----------------------------------
Complementary Styles.
We are dividing our stocks into a value
portion, managed by Warren Spitz, and
a growth portion, managed by Jeff Rose.
Historically, these two investment
styles have alternated in market leadership,
so using both should smooth our
long-term performance. Each portion will be
broadly diversified.
A Focus On Blue-Chips. We are shifting our
growth investments to predominantly
blue-chip stocks because the earnings of
large, established companies are less
likely to be buffeted by short-term events
than those of smaller firms. We are
still focusing our purchases in sectors that
we believe have the greatest
earnings growth, such as technology and
consumer staples. In technology, we
currently favor networking and
telecommunications providers. Among consumer
staples, we are focusing on health care firms
(such as Novartis),
manufacturers of household products (such as
Colgate Palmolive), and the
leisure industry (such as Walt Disney).
Adding Value Stocks. As we went to press, we
were in the process of buying
value stocks. Currently, we find
opportunities among industrial, financial,
and consumer cyclical companies. Economically
sensitive industrial companies
have improved their profitability since the
beginning of this business cycle,
while their stock prices have been depressed.
At current prices, their
earnings should be satisfactory even in a
downturn and they should provide an
excellent return in a growing economy.
A Shift To Treasuries. We expect our
corporate bonds to perform well during
the year, but they no longer represent extra
value, so we will shift assets to
Treasuries as the markets provide favorable
opportunities. We also will be
watching for opportunities in the volatile
foreign bond markets.
Portfolio Composition.
Sectors expressed as a percentage of
total net assets as of 1/31/98.
(CHART)
New Co-Manager.
We are pleased to announce that Warren Spitz
is co-managing the Prudential
Balanced Fund. In 11 years with Prudential,
he has managed several funds,
including the Prudential Utility Fund, Inc.
and the Prudential Equity Income
Fund. Warren invests with a value style. He
will manage the Fund's asset
allocation as well as part of our stock
portfolio. The other stock portion
will be managed with a growth style by Jeff
Rose.
<PAGE>
What Went Well.
- ---------------------------------------------
- ----
A Flight To
Familiar Stocks.
We owned some of the large, well-known
companies that benefited when investors
pulled back to familiar stocks. They included
our substantial holdings in
General Electric, which is now our fifth
largest holding (and which rose 14%
over the six-month period), Pfizer (up 37%)
and Walt Disney (up 33%).
Investors moved to industries whose earnings
would be insulated from overseas
turmoil, so our electric utilities, about 5%
of our stock holdings, rose 24%
in price for the half year, on average, and
our smaller focus on real estate
rose 19%. We took some profits on our real
estate holdings.
Our largest industry focus on January 31 was
the drug and medical supply
industry. In addition to Pfizer, our
holdingsof Novartis, Johnson & Johnson,
and Bristol-Myers Squibb performed much
better than the market average over
the six-month reporting period.
Declining interest rates also helped our U.S.
bond prices rise.
And Not So Well.
- ---------------------------------------------
- ----
The Asian Contagion.
Asia-induced uncertainty led to a sharp
decline last October in the U.S. stock
market. Consumers worried about their
financial futures, so they spent
cautiously at Christmas. Our retailing stocks
- -- including Nordstrom, Sears,
and Toys R Us -- suffered. Computer
networking stocks, including our holdings
in Bay Networks and 3Com, were affected by
fears that their fastest-growing
markets -- in Asia -- would slow.
El Nino Strikes.
After a strong summer, our oil service stocks
- -- including Schlumberger,
McDermott, and Smith International --
suffered when warm fall and winter
weather attributable to the effects of El
Nino, kept the demand for energy
below expectations. We believe the long-term
balance of supply and demand is
still favorable for oil service companies.
Sick Hospitals.
Aetna suffered from its inability to increase
prices as fast as its costs
rose, while Columbia HCA faces investigations
into its billing practices. We
expect to see hospital managers gain pricing
power in 1998. We have broadened
our health care holdings by buying drug
companies that have more established
businesses.
Indiscriminate Dumping.
Investors fled emerging market bonds
generally, including Latin American,
Southeast Asian and Russian bonds, which
composed 4% of our investments as the
reporting period ended.
Five Largest Equity Holdings.
2.8% Cisco Systems
Networking
2.2% Novartis AG
Pharmaceuticals
1.9% Colgate-Palmolive Co.
Diversified Consumer
Products
1.6% Federal National
Mortgage Association
Financial Services
1.6% General Electric
Diversified Operations
Expressed as a percentage of net assetsas of
1/31/98.
1
<PAGE>
Warren E. Spitz
Portfolio Manager
Equities
(PHOTO)
Jeffrey T. Rose, CFA
Portfolio Manager
Equities
(PHOTO)
Barbara L. Kenworthy
Portfolio Manager
Bonds
(PHOTO)
Looking Ahead.
- ---------------------------------------------
- ----
Growth Stocks.
We are focusing on blue-chip stocks. More
people are investing in the stock
market, many of whom don't want to follow
stocks closely, so demand for
companies with the most reliable earnings has
increased. Investors favor these
market leaders because their earnings are
less likely to slow as an economic
expansion ages. Ours already is the second
longest period of uninterrupted
peacetime growth. The largest firms have
greater management depth and broader
product lines, so they have better prospects
for earnings stability. Investors
typically are willing to pay more for stable
earnings when growth becomes
harder to find.
We still have to watch that blue-chip
earnings justify their price. Earnings
of the average large U.S. company have risen
each quarter for the past two
years, but the rate of growth has slowed
considerably. Consequently, we don't
expect stock prices to increase at the same
rate in 1998. The extraordinary
stock market rise over the past three years
reflects both greater demand for
stocks and rapid growth of company earnings.
We believe we have reached a new
plateau in the relationship of large-stock
prices to earnings and also that
earnings will stabilize. If mega-company
stock prices get much more expensive,
the amount of earnings they offer for a
dollar invested will be less
attractive than the dependable yield on
bonds. We are buying, but we have not
lost our caution.
Value Stocks.
Whereas a growth strategy focuses on
companies with increasing earnings, a
value strategy looks for underpriced stocks.
After a long economic expansion,
investors tend to avoid the stocks of
companies whose earnings vary with the
pace of economic activity, such as
industrials and consumer cyclicals. So a
value investor can find bargain stocks in
these sectors. If the economy
continues on a course of moderate growth,
these stocks will prove to be
tremendous bargains.
Bonds.
Although we expect bond yields to fluctuate
within a fairly narrow range in
1998, we expect lower yields and higher
prices later in the year. We will be
looking for attractive opportunities to
lighten our corporate holdings.
Asset Allocation.
In an effort order to enhance performance, we
are also considering a
modification to the range of our asset
allocations.
2
<PAGE>
President's Letter
March 17, 1998
- ---------------------------------------------
- ----------------------------------
(PHOTO)
Investing
Smart.
Dear Shareholder:
This is the season when many investors
receive income tax refunds or have a CD
or two maturing. What will you do with these
assets? Investing smart can be a
challenge especially given today's new
investment choices.
The Federal Taxpayer Relief Act of 1997 is
changing the way Americans invest
and accumulate wealth, save for college or
build a nest egg for retirement.
While the law offers opportunity, it is also
complex. You may need help to put
things in perspective.
Now may be an excellent time for you and your
Prudential Financial Professional
to update your investment strategy and
retirement plan. A wise investor does
so periodically. You could find the tax law
opening doors that may benefit you
now or over the long term, such as --
- - Revised Capital Gains Tax Rates &
Exclusions. Long-term rates are down. Is
your portfolio positioned to benefit? Also,
new rules allow you to keep more
of the profit from the sale of your home
(perhaps up to $500,000 more).
- - New Roth IRAs. The Roth IRA features tax-
free distributions and does not
require mandatory withdrawals, which should
be of particular interest to
retirees seeking to shelter assets in a tax-
free account.
- - New Education IRAs. Similar to a
traditional IRA, but specifically designed
for higher education. The new law also
creates credits and deductions to help
defray college costs.
- - Expanded IRAs. Rules governing traditional
IRAs have been extensively
revised. Deductibility and contribution
limits have been broadened as has the
list for penalty-free early withdrawals,
including first-time home buyers.
As you can see, what you don't know may cost
you! That's why I recommend you
call your Prudential Financial Professional
and get a free investment plan
checkup. Let us give you the information and
tools to invest smart.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds &
Annuities
3
<PAGE>
A Special Message To Prudential Balanced Fund
Shareholders.
- ---------------------------------------------
- ----------------------------------
Dear Shareholder:
About a year ago we consolidated the
Prudential Allocation Fund: Strategy
Portfolio, and Balanced Portfolio into the
Prudential Balanced Fund because
we believed that balanced funds generally
serve the same purpose: a relatively
stable net asset value with growth potential
and protection from inflation.
A More Effective Strategy. Now we believe we
have a more effective strategy
for sharing in rising markets, while
moderating the risk from market
downturns. We are splitting our stock
portfolio into two portions, managed
with contrasting styles -- growth and value.
When one style has a difficult
year, the other is more likely to perform
well. Overall, our return should
vary less than with either style alone.
We are fortunate in having Warren Spitz to
manage the value stocks. In his 11
years with Prudential, Warren has specialized
in low volatility stock
investing with a contrarian approach. He
likes to buy stocks that are
underpriced because they are out of fashion.
Warren invests in stocks of both
large and small companies, wherever he finds
the best value, so Balanced Fund
investors will have broad exposure to the
U.S. stock market. Warren's
experience makes him a good choice to direct
the Balanced Fund's asset
allocation.
Reassessing Blue-Chips. While additional
diversification is a strong step to
smooth our stock performance, we also have
changed our mind about blue-chip
stocks. We believe a balanced fund should
have broad exposure, including the
market-leading stocks. Since August 1997,
Jeff Rose, who specializes in
investing in blue-chip companies, has been
investing a portion of our stock
allocation in a blue-chip oriented growth
portfolio.
We are confident that this combination of
value and blue-chip growth stocks,
together with our bond investments, is an
excellent strategy to increase
stability without sacrificing growth
potential -- just right for our Balanced
Fund.
Sincerely,
Mendel A. Melzer, CFA
Chief Investment Officer
Prudential Investments
<PAGE>
Portfolio of Investments as of January 31,
1998
(Unaudited)
PRUDENTIAL BALANCED FUND
- ---------------------------------------------
- ----------------------------------
- ---------------------------------------------
- ----------------------------------
<TABLE>
<CAPTION>
Shares Description
Value (Note 1)
<C> <S>
<C>
- ---------------------------------------------
- ---------------
LONG-TERM INVESTMENTS--91.6%
COMMON STOCKS--54.6%
- ---------------------------------------------
- ---------------
Beverages--1.2%
392,600 PepsiCo, Inc.
$ 14,158,138
- ---------------------------------------------
- ---------------
Chemicals--0.4%
358,600 Agrium, Inc. (Canada)
4,520,631
- ---------------------------------------------
- ---------------
Computer Software & Services--1.0%
78,800 Microsoft Corp.*
11,755,975
- ---------------------------------------------
- ---------------
Diversfied Consumer Products--3.4%
297,400 Colgate-Palmolive Co.
21,784,550
52,100 Gillette Co.
5,144,875
216,300 The Unilever Group
12,342,619
- -------------
39,272,044
- ---------------------------------------------
- ---------------
Diversified Operations--1.6%
241,600 General Electric Co.
18,724,000
- ---------------------------------------------
- ---------------
Electrical Services--2.6%
314,900 Duke Energy Co.
17,063,644
111,500 Long Island Lighting Co.
3,247,438
229,700 Texas Utilities Co.
9,446,412
- -------------
29,757,494
- ---------------------------------------------
- ---------------
Electronics--1.5%
373,200 Uniphase Corp.*
13,715,100
160,300 VLSI Technology, Inc.*
3,195,981
- -------------
16,911,081
- ---------------------------------------------
- ---------------
Entertainment--0.7%
155,900 Carnival Corp.
8,701,169
Environmental Services--0.7%
209,900 USA Waste Services, Inc.*
$ 7,713,825
- ---------------------------------------------
- ---------------
Financial Services--4.0%
63,700 Chase Manhattan Corp.
6,827,844
304,700 Federal National Mortgage
Association 18,815,225
64,500 Imperial Credit Industries, Inc.*
1,181,156
603,900 The Money Store, Inc.
11,549,587
133,200 Washington Mutual, Inc.
8,558,100
- -------------
46,931,912
- ---------------------------------------------
- ---------------
Hospital Management--2.4%
359,400 Columbia/HCA Healthcare Corp.
8,985,000
537,000 Healthsouth Corp.*
12,048,938
201,100 Manor Care, Inc.
6,975,656
- -------------
28,009,594
- ---------------------------------------------
- ---------------
Insurance HMO--0.8%
133,000 Aetna, Inc.
9,775,500
- ---------------------------------------------
- ---------------
Insurance--3.4%
107,800 American International Group, Inc.
11,891,687
82,700 CIGNA Corp.
14,022,819
128,600 Provident Companies, Inc.
4,677,825
161,799 Travelers Group, Inc.
8,009,051
- -------------
38,601,382
- ---------------------------------------------
- ---------------
Lodging--1.7%
355,200 Hilton Hotels Corp.
10,056,600
454,400 La Quinta Inns, Inc.
9,684,400
- -------------
19,741,000
</TABLE>
- ---------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 5
<PAGE>
Portfolio of Investments as of January 31,
1998
(Unaudited)
PRUDENTIAL BALANCED FUND
- ---------------------------------------------
- ----------------------------------
- ---------------------------------------------
- ----------------------------------
<TABLE>
<CAPTION>
Shares Description
Value (Note 1)
<C> <S>
<C>
- ---------------------------------------------
- ---------------
Machinery--1.4%
511,700 McDermott International, Inc.
$ 16,310,437
- ---------------------------------------------
- ---------------
Media--1.3%
138,000 Walt Disney Co.
14,705,625
- ---------------------------------------------
- ---------------
Medical Products--0.9%
161,600 Johnson & Johnson
10,817,100
- ---------------------------------------------
- ---------------
Metals-Nonferrous--1.1%
374,600 UCAR International, Inc.*
13,298,300
- ---------------------------------------------
- ---------------
Networking--5.1%
259,400 3Com Corp.*
8,576,412
581,500 Bay Networks, Inc.*
15,809,531
512,300 Cisco Systems, Inc.*
32,306,919
356,800 Larscom, Inc.*
3,077,400
- -------------
59,770,262
- ---------------------------------------------
- ---------------
Oil & Gas--1.8%
198,700 Exxon Corp.
11,785,394
404,000 Pioneer Natural Resources Co.
8,761,750
- -------------
20,547,144
- ---------------------------------------------
- ---------------
Oil & Gas Equipment & Services--3.4%
394,500 Bouygues Offshore S.A.
7,520,156
245,700 J. Ray McDermott, S.A.*
8,799,131
196,800 Schlumberger Ltd.
14,501,700
187,400 Smith International, Inc.*
9,299,725
- -------------
40,120,712
Pharmaceuticals--5.5%
176,700 Bristol Myers Squibb Co.
$ 17,614,781
60,000 Merck & Co., Inc.
7,035,000
300,900 Novartis AG (ADR) (Switzerland)
25,783,369
173,300 Pfizer, Inc.
14,199,769
- -------------
64,632,919
- ---------------------------------------------
- ---------------
Realty Investment Trust--1.2%
191,400 CCA Prison Realty Trust
7,656,000
260,000 Patriot American Hospitality, Inc.
6,662,500
- -------------
14,318,500
- ---------------------------------------------
- ---------------
Retail--5.1%
370,300 American Stores Co.
8,054,025
175,100 Avon Products, Inc.
10,506,000
123,600 CVS Corp.
8,103,525
311,800 Nordstrom, Inc.
15,862,825
196,900 Sears Roebuck & Co.
9,069,706
308,200 Toys 'R' Us, Inc.*
8,263,613
- -------------
59,859,694
- ---------------------------------------------
- ---------------
Telecommunications--1.6%
65,400 ADC Telecommunications, Inc.*
1,246,688
136,900 BellSouth Corp.
8,291,006
297,000 Glenayre Technologies, Inc.*
3,916,687
107,500 Tellabs, Inc.*
5,502,656
- -------------
18,957,037
- ---------------------------------------------
- ---------------
Tobacco--0.8%
218,500 Philip Morris Co., Inc.
9,067,750
- -------------
Total common stocks
(cost $559,625,031)
636,979,225
- -------------
</TABLE>
- ---------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 6
<PAGE>
Portfolio of Investments as of January 31,
1998
(Unaudited)
PRUDENTIAL BALANCED FUND
- ---------------------------------------------
- ----------------------------------
- ---------------------------------------------
- ----------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description
Value (Note 1)
<S> <C> <C>
<C>
- ---------------------------------------------
- ---------------
DEBT OBLIGATIONS--37.0%
CORPORATE BONDS--28.3%
- ---------------------------------------------
- ---------------
Airlines--0.5%
Baa3 $ 5,000 United Airlines,
Inc.,
10.67%, 5/1/04
$ 6,061,800
- ---------------------------------------------
- ---------------
Automobiles & Trucks--0.2%
Ba1 2,000 Navistar
International
Corp.,
7.00%, 2/1/03
1,992,108
- ---------------------------------------------
- ---------------
Banks--1.5%
Ba1 500 Bangko Sentral Ng
Philipinas,
8.60%, 6/15/27
410,500
A1 3,900 Bank Nova Scotia
NY,
6.50%, 7/15/07
3,929,250
Baa3 1,700 Banque Centrale De
Tunisie,
7.50%, 9/19/07
1,598,000
Baa3 3,000 Capital One Bank,
7.08%, 10/30/01
3,102,390
A2 1,000 First Union Corp.,
9.45%, 6/15/99
1,046,240
A1 2,100 National Australia
Bank
Ltd.,
6.40%, 12/10/07
2,147,250
Baa1 5,000 Skandinaviska
Enskilda
Banken,
7.50%, 3/29/49
5,150,000
- --------------
17,383,630
- ---------------------------------------------
- ---------------
Cable & Pay Television Systems--2.6%
Ba3 2,000 Century
Communications
Corp.,
Sr. Note,
9.75%, 2/15/02
2,135,000
Baa3 2,000 Comcast Cable
Communications,
Inc.,
8.375%, 5/1/07
2,231,520
Ba3 $ 2,500 Lenfest
Communications,
Inc.,
7.625%, 2/15/08
$ 2,493,000
Tele-
Communications,
Inc.,
Ba1 17,000 9.25%, 4/15/02
18,811,520
Ba1 4,000 7.875%, 8/1/13
4,248,960
- --------------
29,920,000
- ---------------------------------------------
- ---------------
Chemicals--0.2%
Ba3 2,000 ISP Holdings, Inc.,
Sr. Note,
9.75%, 2/15/02
2,125,000
- ---------------------------------------------
- ---------------
Entertainment--1.8%
Royal Caribbean
Cruises
Ltd.,
Sr. Note,
Baa3 5,000 8.25%, 4/1/05
5,486,150
Baa3 15,000 7.50%, 10/15/27
15,299,400
- --------------
20,785,550
- ---------------------------------------------
- ---------------
Financial Services--7.9%
Ba3 5,000 Advanta Corp.,
7.25%, 8/16/99
4,959,750
Baa3 9,500 AT&T Capital Corp.,
6.41%, 8/13/99
9,547,500
Ba2 12,000 Conseco Finance
Trust,
8.796%, 4/1/27
13,742,520
Ford Motor Credit
Co.,
A1 6,000 7.32, 5/23/02
6,105,000
A1 5,000 7.75%, 3/15/05
5,418,700
Ba1 8,000 Industrial Finance
Corporation of
Thailand,
7.875%, 8/4/02
7,600,000
Baa1 20,000 Lehman Brothers
Holdings,
Inc.,
6.33%, 8/1/00
20,114,000
</TABLE>
- ---------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 7
<PAGE>
Portfolio of Investments as of January 31,
1998
(Unaudited)
PRUDENTIAL BALANCED FUND
- ---------------------------------------------
- ----------------------------------
- ---------------------------------------------
- ----------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description
Value (Note 1)
<S> <C> <C>
<C>
- ---------------------------------------------
- ---------------
Financial Services (cont'd.)
B2 $ 3,450 Polysindo
International
Finance Co.,
9.375%, 7/30/07
$ 1,966,500
Salomon Smith
Barney,
A2 4,000 6.25%, 10/1/99
4,020,800
A2 18,000 7.30%, 5/15/02
18,771,300
- --------------
92,246,070
- ---------------------------------------------
- ---------------
Food & Household Products--0.1%
Aa3 1,750 Archer-Daniels-
Midland
Co.,
6.95%, 12/15/97
1,788,343
- ---------------------------------------------
- ---------------
Hospital Management--0.2%
Ba3 2,000 Tenet Healthcare
Corp.,
10.125%, 3/1/05
2,205,000
- ---------------------------------------------
- ---------------
Hotels & Leisure--0.6%
ITT Corp.,
Baa2 3,500 6.25%, 11/15/00
3,462,970
Baa2 3,500 6.75%, 11/15/03
3,483,830
- --------------
6,946,800
- ---------------------------------------------
- ---------------
Insurance--1.1%
A2 5,000 American General
Corp.,
7.57%, 12/1/45
5,185,000
Baa1 7,100 Lumbermens Mutual
Casualty Co.,
8.30%, 12/1/37
7,614,750
- --------------
12,799,750
- ---------------------------------------------
- ---------------
Media--2.2%
Time Warner, Inc.,
Ba1 7,500 7.75%, 6/15/05
8,002,200
Ba1 4,100 9.125%, 1/15/13,
Sr. Note 4,932,833
Ba1 7,256 Turner
Broadcasting,
Inc.,
Sr. Note,
8.375%, 7/1/13
8,229,973
Ba2 $ 3,750 Viacom, Inc.,
7.75%, 6/1/05
$ 3,931,200
- --------------
25,096,206
- ---------------------------------------------
- ---------------
Oil & Gas Exploration/Production--0.6%
Baa1 700 Apache Corp.,
7.95%, 4/15/26
776,034
Ba1 1,000 Gulf Canada
Resources
Ltd.,
Sr. Note,
8.25%, 3/15/17
1,074,870
Baa3 2,100 Pioneer Natural
Resources
Co.,
7.20%, 1/15/28
2,086,665
Ba1 3,000 Seagull Energy
Corp.,
Sr. Note,
7.50%, 9/15/27
3,023,760
- --------------
6,961,329
- ---------------------------------------------
- ---------------
Oil & Gas Services--0.3%
Baa2 3,500 BJ Services Co.,
7.00%, 2/1/06
3,624,460
- ---------------------------------------------
- ---------------
Paper & Forest Products--0.2%
Baa1 2,000 UPM Kymmene Corp.,
7.45%, 11/26/27
2,035,000
- ---------------------------------------------
- ---------------
Restaurants--0.6%
Darden Restaurants,
Inc.,
Baa1 2,500 6.375%, 2/1/06
2,431,400
Baa1 4,500 7.125%, 2/1/16
4,362,840
- --------------
6,794,240
- ---------------------------------------------
- ---------------
Retail--1.8%
Federated Dept.
Stores,
Inc.,
Baa2 7,500 8.125%, 10/15/02
8,072,400
Baa2 2,500 8.50%, 6/15/03
2,754,550
</TABLE>
- ---------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 8
<PAGE>
Portfolio of Investments as of January 31,
1998
(Unaudited)
PRUDENTIAL BALANCED FUND
- ---------------------------------------------
- ----------------------------------
- ---------------------------------------------
- ----------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description
Value (Note 1)
<S> <C> <C>
<C>
- ---------------------------------------------
- ---------------
Retail (cont'd.)
Ba3 $ 5,000 Kmart Corp.,
8.125%, 12/1/06
$ 5,087,500
B2 7,256 Sunglass Hut
International,
Inc.,
5.25%, 6/15/03
5,224,320
- --------------
21,138,770
- ---------------------------------------------
- ---------------
Technology--0.1%
Baa3 1,400 Seagate Technology,
Inc.,
7.45%, 3/1/37
1,361,766
- ---------------------------------------------
- ---------------
Telecommunications--1.1%
Baa3 9,000 Videotron Holdings
PLC
Sr. Note,
Zero Coupon,
7/1/04 8,651,790
Ba1 4,000 Worldcom Inc.,
Sr. Note,
7.75%, 4/1/27
4,475,720
- --------------
13,127,510
- ---------------------------------------------
- ---------------
Textiles--0.9%
Baa3 13,000 Reliance Industries
Ltd.,
8.25%, 1/15/27
11,375,000
- ---------------------------------------------
- ---------------
Tobacco--0.7%
RJR Nabisco, Inc.,
Baa3 5,000 7.625%, 9/15/03
5,120,350
Baa3 3,000 8.25%, 7/1/04
3,140,400
- --------------
8,260,750
- ---------------------------------------------
- ---------------
Transportation/Trucking/Shipping--1.9%
Baa2 10,000 CSX Corp.,
7.45%, 5/1/07
10,690,900
Baa1 11,000 Norfolk Southern
Corp.,
6.95%, 5/1/02
11,389,840
- --------------
22,080,740
Utilities - Electric--1.1%
Cleveland Electric
Illuminating Co.,
NR $ 3,000 7.19%, 7/1/00
$ 3,067,800
Ba1 2,000 7.67%, 7/1/04
2,111,200
Ba3 2,000 Niagara Mohawk
Power
Corp.,
8.00%, 6/1/04
2,147,320
Ba1 6,000 Western
Massachusetts
Electric Co.,
7.375%, 7/1/01
6,045,000
- --------------
13,371,320
- ---------------------------------------------
- ---------------
Utilities-Water--0.1%
Baa1 900 Hyder PLC
6.875%, 12/15/07
931,680
- --------------
Total corporate
bonds
(cost
$322,279,534) 330,412,822
- --------------
- ---------------------------------------------
- ---------------
ASSET-BACKED SECURITIES--1.3%
AAA 3,000 California
Infrastructure
6.32%, 9/25/05
3,063,750
Aa3 11,000 Team Fleet
Financial
Corp.,
7.35%, 5/15/03
11,553,437
- --------------
Total asset-backed
securities
(cost
$13,991,220) 14,617,187
- --------------
- ---------------------------------------------
- ---------------
COLLATERALIZED MORTGAGE OBLIGATIONS--0.6%
ICI Funding Corp.,
6,773 7.60%, 7/25/28
(cost $6,784,641)
6,943,070
- --------------
- ---------------------------------------------
- ---------------
U.S. GOVERNMENT SECURITIES--4.9%
United States
Treasury
Bonds,
5,300 13.75%, 8/15/04
7,674,241
10,925 6.375%, 8/15/27
11,727,332
</TABLE>
- ---------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 9
<PAGE>
Portfolio of Investments as of January 31,
1998
(Unaudited)
PRUDENTIAL BALANCED FUND
- ---------------------------------------------
- ----------------------------------
- ---------------------------------------------
- ----------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description
Value (Note 1)
<S> <C> <C>
<C>
- ---------------------------------------------
- ---------------
U.S. GOVERNMENT SECURITIES (cont'd.)
United States
Treasury
Notes,
$ 4,100 6.25%, 8/31/02
$ 4,233,906
6,175 5.875%, 9/30/02
6,288,867
1,300 7.25%, 8/15/04
1,424,514
24,250 6.125%, 8/15/07
25,322,335
- --------------
Total U.S.
government
securities
(cost
$55,572,211) 56,671,195
- --------------
- ---------------------------------------------
- ---------------
FOREIGN GOVERNMENT BONDS--1.9%
City of Moscow,
Ba2 1,000 9.50%, 5/31/00
942,500
Ba2 9,000 9.50%, 5/31/00
8,482,500
Baa3 4,000 Republic of
Colombia,
7.625%, 2/15/07
3,740,000
Baa3 8,300 Republic of South
Africa,
8.50%, 6/23/17
7,739,750
Ba2 1,750 Russian Ministry of
Finance,
10.00%, 6/26/07
1,554,219
- --------------
Total foreign
government
bonds
(cost
$24,353,426) 22,458,969
- --------------
Total debt
obligations
(cost
$422,981,032) 431,103,243
- --------------
Total long-term
investments
(cost
$982,606,063) 1,068,082,468
- --------------
SHORT-TERM INVESTMENT--7.0%
REPURCHASE AGREEMENT
- ---------------------------------------------
- ---------------
$ 81,150 Joint Repurchase
Agreement Account
5.60%, 2/2/98,
(cost
$81,150,000; Note
5)
$ 81,150,000
- --------------
- ---------------------------------------------
- ---------------
Total Investments--98.6%
(cost
$1,063,756,063;
Note 4)
1,149,232,468
Other assets in
excess of
liabilities--1.4%
16,833,358
- --------------
Net Assets--100%
$1,166,065,826
- --------------
- --------------
</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. 10
<PAGE>
Statement of Assets and Liabilities
(Unaudited) PRUDENTIAL BALANCED FUND
- ---------------------------------------------
- ----------------------------------
<TABLE>
<CAPTION>
Assets
January 31, 1998
<S>
<C>
Investments, at value (cost
$1,063,756,063)..............................
................................. $
1,149,232,468
Foreign currency, at value (cost
$4,925)......................................
............................
4,921
Cash.........................................
.............................................
................ 295,162
Receivable for investments
sold.........................................
..................................
17,169,036
Dividends and interest
receivable...................................
......................................
8,909,871
Receivable for Fund shares
sold.........................................
..................................
1,854,660
Prepaid
expenses.....................................
.............................................
........ 39,044
- ----------------
Total
assets.......................................
.............................................
....... 1,177,505,162
- ----------------
Liabilities
Payable for Fund shares
reacquired...................................
.....................................
5,620,089
Payable for investments
purchased....................................
.....................................
4,485,108
Managemenet fee
payable......................................
.............................................
649,144
Distribution fee
payable......................................
............................................
586,367
Accrued
expenses.....................................
.............................................
........ 80,056
Foreign withholding tax
payable......................................
.....................................
18,572
- ----------------
Total
liabilities..................................
.............................................
....... 11,439,336
- ----------------
Net
Assets.......................................
.............................................
............ $ 1,166,065,826
- ----------------
- ----------------
Net assets were comprised of:
Shares of beneficial interest, at
par..........................................
........................ $ 965,084
Paid-in capital in excess of
par..........................................
.............................
1,073,009,373
- ----------------
1,073,974,457
Undistributed net investment
income.......................................
.............................
1,927,808
Accumulated net realized gain on
investments..................................
.........................
4,687,160
Net unrealized appreciation on investments
and foreign
currencies...................................
... 85,476,401
- ----------------
Net assets, January 31,
1998.........................................
..................................... $
1,166,065,826
- ----------------
- ----------------
Class A:
Net asset value and redemption price per
share
($482,134,005 / 39,821,751 shares of
beneficial interest issued and
outstanding)....................
$12.11
Maximum sales charge (5% of offering
price).......................................
..................... .64
Maximum offering price to
public.......................................
................................
$12.75
Class B:
Net asset value, offering price and
redemption price per share
($558,221,192 / 46,310,400 shares of
beneficial interest issued and
outstanding)....................
$12.05
Class C:
Net asset value, offering price and
redemption price per share
($8,121,904 / 673,747 shares of
beneficial interest issued and
outstanding).........................
$12.05
Class Z:
Net asset value, offering price and
redemption price per share
($117,588,725 / 9,707,305 shares of
beneficial interest issued and
outstanding).....................
$12.11
</TABLE>
- ---------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 11
<PAGE>
PRUDENTIAL BALANCED FUND
Statement of Operations (Unaudited)
- ---------------------------------------------
- ---------------
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income
January 31, 1998
<S>
<C>
Income
Interest (net of foreign withholding taxes
of
$10,327)............................. $
19,135,211
Dividends (net of foreign withholding
taxes
of
$15,114).............................
3,659,517
- ----------------
Total
income............................
22,794,728
- ----------------
Expenses
Distribution fee--Class
A.................. 618,657
Distribution fee--Class
B.................. 2,971,517
Distribution fee--Class
C.................. 37,321
Management
fee.............................
3,967,833
Transfer agent's fees and
expenses......... 1,240,000
Registration
fees..........................
179,000
Reports to
shareholders....................
139,000
Custodian's fees and
expenses.............. 118,000
Legal
fees.................................
28,000
Insurance..................................
15,000
Audit
fees.................................
12,000
Trustees' fees and
expenses................ 9,000
Miscellaneous..............................
3,360
- ----------------
Total
expenses..........................
9,338,688
- ----------------
Net investment
income.........................
13,456,040
- ----------------
Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency
Net realized gain on:
Investment
transactions....................
72,663,709
Foreign currency
transactions.............. 7,248
- ----------------
72,670,957
- ----------------
Net change in unrealized appreciation on
investments................................
(95,066,903)
- ----------------
Net loss on
investments.......................
(22,395,946)
- ----------------
Net Decrease in Net Assets
Resulting from
Operations..................... $
(8,939,906)
- ----------------
- ----------------
</TABLE>
PRUDENTIAL BALANCED FUND
Statement of Changes in Net Assets
(Unaudited)
- ---------------------------------------------
- ---------------
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended
Increase (Decrease) January 31,
July 31,
in Net Assets 1998
1997
<S> <C>
<C>
Operations
Net investment income....... $
13,456,040 $ 20,934,760
Net realized gain on
investments and foreign
currency transactions....
72,670,957 92,822,065
Net change in unrealized
appreciation of
investments..............
(95,066,903) 97,850,789
------------
- -- --------------
Net increase (decrease) in
net assets resulting from
operations...............
(8,939,906) 211,607,614
------------
- -- --------------
Dividends and distributions
(Note 1)
Dividends to shareholders
from net investment
income
Class A..................
(6,281,566) (8,678,960)
Class B..................
(5,422,271) (8,766,533)
Class C..................
(68,332) (97,195)
Class Z..................
(1,742,939) (2,758,541)
------------
- -- --------------
(13,515,108) (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..................
(920,720) (273,589)
Class Z..................
(14,427,869) (6,764,801)
------------
- -- --------------
(142,998,612) (50,703,488)
------------
- -- --------------
Fund share transactions (net of
share conversions) (Note 6)
Net proceeds from shares
sold.....................
92,777,300 583,212,616
Net asset value of shares
issued to shareholders in
reinvestment of dividends
and distributions........
147,451,504 65,884,101
Cost of shares reacquired...
(168,366,909) (220,143,556)
------------
- -- --------------
Net increase in net assets
from Fund shares
transactions.............
71,861,895 428,953,161
------------
- -- --------------
Total increase (decrease)......
(93,591,731) 569,556,058
Net Assets
Beginning of period............
1,259,657,557 690,101,499
------------
- -- --------------
End of period..................
$1,166,065,826 $1,259,657,557
------------
- -- --------------
------------
- -- --------------
</TABLE>
- ---------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 12
<PAGE>
Notes to Financial Statements (Unaudited)
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
- ---------------------------------------------
- -----------------------------------
13
<PAGE>
Notes to Financial Statements (Unaudited)
PRUDENTIAL BALANCED FUND
- ---------------------------------------------
- ----------------------------------
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: 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. For
the six months ended January 31,
1998, the Fund increased undistributed net
investment income and decreased
accumulated net realized gain on investments
by $7,248. 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 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 Fund compensates 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 are accrued daily and
payable monthly. No distribution or
service fees are paid to PSI as distributor
of the Class Z shares of the Fund.
Pursuant to the Class A, B and C Plans, the
Fund compensates 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, 1998.
PSI has advised the Fund that it received
approximately $175,200 in front-end
sales charges resulting from sales of Class A
shares during the six months ended
January 31, 1998. From these fees, PSI paid
such sales charges to affiliated
broker-dealers, which in turn paid
commissions to salespersons and incurred
other distribution costs.
- ---------------------------------------------
- -----------------------------------
14
<PAGE>
Notes to Financial Statements (Unaudited)
PRUDENTIAL BALANCED FUND
- ---------------------------------------------
- ----------------------------------
PSI has advised the Fund that for the six
months ended January 31, 1998, it
received approximately $406,900 and $2,200 in
contingent deferred sales charges
imposed upon certain redemptions by Class B
and C shareholders, respectively.
PSI, PIC and PIFM 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 has not borrowed any amounts
pursuant to the Agreement as of January 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 six months ended January 31,
1998, the Fund incurred fees of approximately
$1,180,000 for the services of
PMFS. As of January 31, 1998, approximately
$195,000 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 six months ended January 31, 1998,
PSI received approximately $24,400 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, 1997, were $675,322,053 and
$719,057,491, respectively. Purchases and
sales of U.S. government obligations
were $180,687,995 and $148,970,758,
respectively.
The cost basis of investments for federal
income tax purposes as of January 31,
1998 was $1,063,805,431 and accordingly, net
unrealized appreciation of
investments for federal income tax purposes
was $85,427,037 (gross unrealized
appreciation--$119,661,491; gross unrealized
depreciation--$34,234,454).
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, 1998, the
Fund had a 7.6% undivided interest in
repurchase agreements in the joint
account. The undivided interest for the Fund
represented $81,150,000 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., 5.60%, dated 1/30/98, in
the principal amount of
$300,000,000, repurchase price $300,140,000,
due 2/2/98. The value of the
collateral including accrued interest is
$306,228,090.
Goldman, Sachs & Co., Inc., 5.62%, dated
1/30/98, in the principal amount of
$172,326,000, repurchase price $172,406,706,
due 2/2/98. The value of the
collateral including accrued interest is
$175,773,435.
Salomon Smith Barney Inc., 5.60%, dated
1/30/98, in the principal amount of
$300,000,000, repurchase price $300,140,000,
due 2/2/98. The value of the
collateral including accrued interest is
$307,338,245.
SBC Warburg, 5.60% dated 1/30/98, in the
principal amount of $300,000,000,
repurchase price $300,140,000, due 2/2/98.
The value of the collateral including
accrued interest is $306,007,126.
- ---------------------------------------------
- ---------------
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 (Unaudited)
PRUDENTIAL BALANCED FUND
- ---------------------------------------------
- ----------------------------------
Transactions in shares of beneficial interest
for the six months ended January
31, 1998 and fiscal year ended July 31, 1997
were as follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- ---------------------------------- ---------
- -- -------------
<S> <C>
<C>
Six months ended January 31, 1998:
Shares sold.......................
1,619,155 $ 21,667,145
Shares issued in reinvestment of
dividends and distributions.....
4,802,556 58,792,801
Shares reacquired.................
(4,296,740) (57,542,296)
---------
- -- -------------
Net increase in shares outstanding
before conversion...............
2,124,971 22,917,650
Shares issued upon conversion from
Class B.........................
2,194,951 28,473,380
---------
- -- -------------
Net increase in shares
outstanding.....................
4,319,922 $ 51,391,030
---------
- -- -------------
---------
- -- -------------
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
- ----------------------------------
<S> <C>
<C>
Six months ended January 31, 1998:
Shares sold.......................
2,284,510 $ 30,382,113
Shares issued in reinvestment of
dividends and distributions.....
5,874,041 71,537,422
Shares reacquired.................
(4,470,809) (59,782,933)
---------
- -- -------------
Net increase in shares outstanding
before conversion...............
3,687,742 42,136,602
Shares reacquired upon conversion
into Class A....................
(2,204,106) (28,473,380)
---------
- -- -------------
Net increase in shares
outstanding.....................
1,483,636 $ 13,663,222
---------
- -- -------------
---------
- -- -------------
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>
Six months ended January 31, 1998:
Shares sold.......................
169,615 $ 2,227,049
Shares issued in reinvestment of
dividends and distributions.....
78,275 952,886
Shares reacquired.................
(77,031) (1,022,289)
---------
- -- -------------
Net increase in shares
outstanding.....................
170,859 $ 2,157,646
---------
- -- -------------
---------
- -- -------------
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
- ----------------------------------
<S> <C>
<C>
Six months ended January 31, 1998:
Shares sold.......................
2,821,653 $ 38,500,993
Shares issued in reinvestment of
dividends and distributions.....
1,319,519 16,168,395
Shares reacquired.................
(3,671,627) (50,019,391)
---------
- -- -------------
Net increase in shares
outstanding.....................
469,545 $ 4,649,997
---------
- -- -------------
---------
- -- -------------
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 March 23, 1998 the Board of Trustees of
the Fund declared the following
dividends per share, payable on March 31,
1998 to shareholders of record on
March 26, 1998:
<TABLE>
<CAPTION>
Class B
Class A
and C Class Z
--------
- -------- --------
<S> <C>
<C> <C>
Ordinary Income.................. $0.080
$0.055 $0.0875
</TABLE>
- ---------------------------------------------
- -----------------------------------
16
<PAGE>
Financial Highlights (Unaudited)
PRUDENTIAL BALANCED FUND
- ---------------------------------------------
- ----------------------------------
<TABLE>
<CAPTION>
Class A
--
- ---------------------------------------------
- ---------------------------
Six Months
Ended Year Ended
July 31,
January 31, -----------------------------
- -----------------------------
1998 1997 1996 1995
1994 1993
--
- --------- -------- -------- -----
- --- ------- -------
<S>
<C> <C> <C> <C>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $
14.01 $ 11.85 $ 12.04 $ 11.12
$ 11.75 $ 11.00
--
- --------- -------- -------- -----
- --- ------- -------
Income from investment operations
Net investment income...................
.17 .34 .31 .34
.33 .43
Net realized and unrealized gain (loss)
on investment transactions...........
(.23) 2.96 .28 1.11
(.05) 1.16
--
- --------- -------- -------- -----
- --- ------- -------
Total from investment operations.....
(.06) 3.30 .59 1.45
.28 1.59
--
- --------- -------- -------- -----
- --- ------- -------
Less distributions
Dividends from net investment income....
(.18) (.36) (.29) (.33)
(.37) (.37)
Distributions from net realized gains on
investment and foreign currency
transactions.........................
(1.66) (.78) (.49)
(.20) (.54) (.47)
--
- --------- -------- -------- -----
- --- ------- -------
Total distributions..................
(1.84) (1.14) (.78)
(.53) (.91) (.84)
--
- --------- -------- -------- -----
- --- ------- -------
Net asset value, end of period.......... $
12.11 $ 14.01 $ 11.85 $ 12.04
$ 11.12 $ 11.75
--
- --------- -------- -------- -----
- --- ------- -------
--
- --------- -------- -------- -----
- --- ------- -------
TOTAL RETURN(a):........................
(.55)% 29.09% 4.89% 13.67%
2.39% 15.15%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $
482,134 $497,461 $262,096
$119,829 $37,512 $22,605
Average net assets (000)................ $
490,891 $306,717 $246,609 $
69,754 $29,875 $15,392
Ratios to average net assets:
Expenses, including distribution
fees..............................
1.19%(b) 1.17% 1.20% 1.22%
1.23% 1.17%
Expenses, excluding distribution
fees..............................
.94%(b) .92% .95% .97%
1.00% .97%
Net investment income................
2.55%(b) 2.84% 2.53% 2.90%
2.84% 3.88%
For Class A, B, C and Z shares:
Portfolio turnover rate..............
62% 140% 97% 201%
108% 83%
Average commission rate paid per
share
$.0594 $.0577 $.0569
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. 17
<PAGE>
Financial Highlights (Unaudited)
PRUDENTIAL BALANCED FUND
- ---------------------------------------------
- ----------------------------------
<TABLE>
<CAPTION>
Class B
--
- ---------------------------------------------
- -----------------------------
Six Months
Ended Year Ended
July 31,
January 31, -----------------------------
- -------------------------------
1998 1997 1996 1995
1994 1993
--
- --------- -------- -------- -----
- --- -------- --------
<S>
<C> <C> <C> <C>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $
13.96 $ 11.80 $ 12.00 $ 11.09
$ 11.72 $ 10.98
--
- --------- -------- -------- -----
- --- -------- --------
Income from investment operations
Net investment income...................
.12 .26 .21 .26
.24 .34
Net realized and unrealized gain (loss)
on investment transactions...........
(.24) 2.95 .28 1.10
(.05) 1.16
--
- --------- -------- -------- -----
- --- -------- --------
Total from investment operations.....
(.12) 3.21 .49 1.36
.19 1.50
--
- --------- -------- -------- -----
- --- -------- --------
Less distributions
Dividends from net investment income....
(.13) (.27) (.20) (.25)
(.28) (.29)
Distributions from net realized gains on
investment and foreign currency
transactions.........................
(1.66) (.78) (.49)
(.20) (.54) (.47)
--
- --------- -------- -------- -----
- --- -------- --------
Total distributions..................
(1.79) (1.05) (.69)
(.45) (.82) (.76)
--
- --------- -------- -------- -----
- --- -------- --------
Net asset value, end of period.......... $
12.05 $ 13.96 $ 11.80 $ 12.00
$ 11.09 $ 11.72
--
- --------- -------- -------- -----
- --- -------- --------
--
- --------- -------- -------- -----
- --- -------- --------
TOTAL RETURN(a):........................
(.91)% 28.24% 4.05% 12.79%
1.61% 14.27%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $
558,221 $625,715 $420,465
$392,291 $445,609 $321,831
Average net assets (000)................ $
589,459 $431,425 $437,792
$409,419 $392,133 $267,340
Ratios to average net assets:
Expenses, including distribution
fees..............................
1.94%(b) 1.92% 1.95% 1.97%
2.00% 1.97%
Expenses, excluding distribution
fees..............................
.94%(b) .92% .95% .97%
1.00% .97%
Net investment income................
1.80%(b) 2.09% 1.78% 2.34%
2.08% 3.04%
</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. 18
<PAGE>
Financial Highlights (Unaudited)
PRUDENTIAL BALANCED FUND
- ---------------------------------------------
- ----------------------------------
<TABLE>
<CAPTION>
Class C
Class Z
--
- ---------------------------------------------
- ------ ---------------------------
August 1,
Six Months
1994(a) Six Months
Ended Year Ended July 31,
through Ended Year Ended
January 31, -----------------------
July 31, January 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...................
.12 .26 .21
.21 .19 .46
Net realized and unrealized gain (loss)
on investment transactions...........
(.24) 2.95 .28
1.12 (.24) 2.87
- ----- ----- -------- -----
- ---- ----------- -----------
Total from investment operations.....
(.12) 3.21 .49
1.33 (.05) 3.33
- ----- ----- -------- -----
- ---- ----------- -----------
Less distributions
Dividends from net investment income....
(.13) (.27) (.20)
(.25) (.19) (.39)
Distributions from net realized gains on
investment and foreign currency
transactions.........................
(1.66) (.78) (.49)
(.20) (1.66) (.78)
- ----- ----- -------- -----
- ---- ----------- -----------
Total distributions..................
(1.79) (1.05) (.69)
(.45) (1.85) (1.17)
- ----- ----- -------- -----
- ---- ----------- -----------
Net asset value, end of period..........
$ 12.05 $13.96 $ 11.80 $
12.00 $ 12.11 $ 14.01
- ----- ----- -------- -----
- ---- ----------- -----------
- ----- ----- -------- -----
- ---- ----------- -----------
TOTAL RETURN(c):........................
(.91)% 28.24% 4.05%
12.49% (.44)% 29.39%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).........
$ 8,122 $7,023 $ 3,525 $
3,046 $ 117,589 $ 129,459
Average net assets (000)................
$ 7,403 $4,790 $ 2,444 $
920 $ 123,166 $ 99,391
Ratios to average net assets:
Expenses, including distribution
fees..............................
1.94%(b) 1.92% 1.95%
2.04%(b) .94%(b) .92%
Expenses, excluding distribution
fees..............................
.94%(b) .92% .95%
1.04%(b) .94%(b) .92%
Net investment income................
1.81%(b) 2.09% 1.78%
2.20%(b) 2.80%(b) 3.12%
<CAPTION>
March 1,
1996(d)
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(c):........................
(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%(b)
Expenses, excluding distribution
fees..............................
.95%(b)
Net investment income................
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.
- ---------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 19
<PAGE>
Getting The Most From Your Prudential Mutual
Fund.
- ---------------------------------------------
- ----
Change Your Mind.
You can exchange your shares in most
Prudential Mutual Funds for shares in
most other Prudential Mutual Funds, without
charges. This may be most helpful
if your investment needs change.
- ---------------------------------------------
- ----
Reinvest Dividends Free Of Charge.
Reinvest your dividends and/or capital gains
distributions automatically --
without charge.
- ---------------------------------------------
- ----
Invest For Retirement.
There is no minimum investment for an IRA.
Plus, you defer taxes on your
investment earnings by investing in an IRA.
If you'd like, you can contribute up to
$2,000 a year in an IRA. And if you
are married and not covered by a retirement
plan at work, you and your spouse
may each contribute $2,000 a year to an IRA
for a total of $4,000.
- ---------------------------------------------
- ----
Change Your Job.
You can take your pension with you. Use a
rollover IRA to manage your
company-sponsored retirement plan while
retaining the special tax-deferred
advantages.
- ---------------------------------------------
- ----
Invest In Your Children.
There's no fee to open a custodial account
for a child's education or other
needs.
- ---------------------------------------------
- ----
Take Income.
Would you like to receive monthly or
quarterly checks in any amount from your
fund account? Just let us know. We'll take
care of it. Of course, there are
minimum amounts. And shares redeemed may be
subject to tax, and Class B and C
shares may be subject to contingent deferred
sales charges. We'll gladly
answer your questions.
- ---------------------------------------------
- ----
Keep Informed.
We want to keep you up-to-date. Of course,
you receive account activity
statements every quarter. But you also
receive annual and semi-annual fund
reports, as well as other important updates
on events that affect your
investments, including tax information.
This material is only authorized for
distribution when preceded or accompanied
by a current prospectus. Read the prospectus
carefully before you invest or
send money.
<PAGE>
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 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 Accountants
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, 1998 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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U.S. POSTAGE
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