<PAGE>
(ICON)
ANNUAL REPORT JULY 31, 2000
Prudential
Balanced Fund
Fund Type Stock and Bond
Objective High total investment return consistent with moderate risk
This report is not authorized for distribution to
prospective investors unless preceded or accompanied by a
current prospectus.
Build On The Rock
(GRAPHIC)
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.
(LOGO)
<PAGE>
Build on the Rock
Investment Goals and Style
The Prudential Balanced Fund invests in a diversified
portfolio of stocks, bonds, and money market instruments,
with a target range of 50% to 60% stocks, 30% to 40%
bonds, and 5% to 15% cash. It buys stocks and bonds
primarily of larger, more mature companies, but also of
some smaller, faster-growing companies. The Fund 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
will achieve its investment objective.
The managers use quantitative methods to identify
attractive stocks, and sophisticated portfolio
construction techniques intended to limit day-to-day
performance deviations from the Standard & Poor's 500
Composite Stock Price Index (S&P 500 Index). This is
accomplished by managing exposure to various risk
factors, such as industries, small stocks, economic
sectors, and other variables that may affect performance.
Portfolio Composition
Sectors expressed as a percentage of
net assets as of 7/31/00
61.7% Stocks
33.1 Bonds
5.2 Cash & Equivalents
Holdings are subject to change.
Ten Largest Stock Holdings
Expressed as a percentage of
net assets as of 7/31/00
2.5% General Electric Co.
Diversified Operations
2.3 Cisco Systems, Inc.
Networking
2.2 Intel Corp.
Electronics
1.4 Microsoft Corp.
Computer Software & Services
1.4 Exxon Mobil Corp.
Oil & Gas Equipment & Services
1.3 Pfizer, Inc.
Pharmaceuticals
1.2 Citigroup Inc.
Financial Services
1.2 Wal-Mart Stores, Inc.
Retail
1.1 Oracle Corp.
Computer Software & Services
1.1 Nortel Networks Corp.
Telecommunications Equipment
<PAGE>
www.prudential.com (800) 225-1852
Performance at a Glance
Cumulative Total Returns1 As of 7/31/00
<TABLE>
<CAPTION>
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A 8.85% 70.88% 187.95% 206.93%
Class B 8.22 64.79 167.33 214.06
Class C 8.22 64.79 N/A 85.38
Class Z 9.02 N/A N/A 62.40
Lipper Balanced Fund Avg.3 6.07 84.11 207.07 ***
</TABLE>
Average Annual Total Returns1 As of 7/31/00
<TABLE>
<CAPTION>
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A 3.40% 10.17% 10.59% 10.71%
Class B 3.22 10.37 10.33 9.29
Class C 6.13 10.28 N/A 10.65
Class Z 9.02 N/A N/A 11.61
</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 LLC and
Lipper Inc. 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 charge of 5% for Class
A shares. Class B shares are subject to a declining
contingent deferred sales charge (CDSC) of 5%, 4%, 3%,
2%, 1%, and 1% for six years. Class B shares will
automatically convert to Class A shares, on a quarterly
basis, approximately seven years after purchase. Class C
shares are subject to a front-end sales charge of 1% and
a CDSC of 1% for 18 months. Class Z shares are not
subject to a sales charge or distribution and service
(12b-1) fees.
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 one-, five-, and ten-year periods in the
Balanced Fund category. The Lipper average is unmanaged.
Balanced funds' primary strategy is to provide high total
investment return by maintaining a balanced portfolio of
stocks, bonds, and money
market instruments at all times. Typically, the
stock/bond/cash ratio ranges around 60/30/10%.
***Lipper since inception returns are 205.86% for Class
A, 251.76% for Class B, 110.40% for
Class C, and 65.40% for Class Z, based on all funds in
each share class.
1
<PAGE>
(LOGO)
September 15, 2000
Dear Shareholder,
Both the bond and stock holdings of the Prudential
Balanced Fund contributed to the solid 8.85% return to Class A
shareholders over the 12 months ended July 31, 2000. This was
3.40% for those paying the maximum one-time Class A share sales
charge. The return was almost three percentage points above the Lipper
Balanced Fund Average and in line with the return of the overall
stock market, as measured by the S&P 500 Index.
Despite the great volatility of technology stocks in the
year 2000, the Fund's stock advantage over its benchmark
was due to the exceptional return on its technology
holdings, which, in aggregate, more than doubled in value
over the period. The bond holdings had a solidly positive
return over this reporting period, although they trailed
their benchmark slightly.
In May, the Fund's portfolio management changed to a team
in Prudential's Quantitative Management group. The new
team is gradually moving the Fund's separate growth and
value stock portfolios into a single "core" equity style,
with the goal of outperforming the S&P 500 Index while limiting
daily performance differences from the S&P benchmark. The team
is also working with the Fund's bond managers to reduce
volatility in the bond portfolio.
In addition, shareholders will be asked to approve a
merger with the Prudential Active Balanced Fund, which is
managed by the same team. Should the merger be approved,
the combined Fund will employ a slightly more active
approach to managing allocation to stocks and bonds.
Sincerely,
John R. Strangfeld, President
Prudential Balanced Fund
2
<PAGE>
Prudential Balanced Fund
Annual Report July 31, 2000
Investment Adviser's Report
The Prudential Balanced Fund's fiscal year ended July 31,
2000, included a dramatic rise in the prices of technology
stocks, a subsequent correction, and a period of extraordinary
stock market volatility. For most of this period, the Fund's
stocks had been divided into two portfolios: one managed in a
value style and one in a growth style. The stock market
fluctuated sharply between these two styles. By the end of
our reporting period, the net result was a strong advance by
growth stocks, while the mid- and large-cap value indexes-such
as the Russell Midcap Value Index and the Standard & Poor's 500/Barra
Value Index-declined slightly. In this volatile market,
the growth portfolio fared particularly well because it
had focused on blue-chip companies. These less-speculative
growth holdings had excellent returns.
The Fund's largest growth holdings at the beginning of
the reporting period were (in descending order): JDS
Uniphase, a leading provider of hardware for fiberoptic
communications, whose chips increase the carrying
capacity of optical fibers. Although there was a
substantial correction in its share price during our
reporting period, shares rose 423% over the 12 months.
Cisco Systems shares (see Comments on Largest Stock
Holdings) rose 111%. Enron, a natural gas pipeline
company that is the largest buyer and seller of natural
gas in the United States, saw its shares rise 75%.
Oracle, the leading developer of large database software
systems, gained 295%. Intel shares (see Comments on
Largest Stock Holdings) rose 94%.
Among somewhat smaller positions, EMC-the world's leading
supplier of intelligent storage and retrieval technology
for large enterprises-rose 182%, and Broadcom-a rapidly
growing manufacturer of telecommunications chips-rose
272%. Overall, the Fund's technology holdings averaged a
little more than a fifth of its stock investments over
the reporting period, and these stocks in aggregate
returned 117%.
The Fund's value stocks, especially its retail,
industrial, real estate investment trusts (REITs), and
healthcare holdings, hurt performance. Except for
3
<PAGE>
Prudential Balanced Fund
Holdings expressed as a percentage of the Fund's net assets
Comments on Largest Stock Holdings As of 7/31/00
----------------------------------------------------------------
2.5% General Electric Co./Diversified Operations
The model of a successful conglomerate, GE reports long-term
earnings growth of 14.3%. Originally a manufacturer of products
for the generation, distribution, and use of electricity, GE
now also owns financial services subsidiaries and the National
Broadcasting Company (NBC).
2.3% Cisco Systems, Inc./Networking
Makes data networking products such as routers, switches, and
relays. Provides most of the Internet switching infrastructure
for both carriers and corporate entry points as well as internal
corporate networks. A long-term, high-growth business with a 28%
operating margin and 22% return on equity.
2.2% Intel Corp./Electronics
Leading manufacturer of the microprocessors that power personal
computers. Produces other semiconductor chips and information
technology products. Operating margins of 33%.
1.4% Microsoft Corp./Computer Software & Services
The world's largest software company, with expected long-term
earnings growth of 22.6% annually.* The company is expanding beyond
its dominance of the PC market into cable, Internet, and
Internet-related services. Its recently introduced Windows 2000
for mainframe computers has been well received. *Source: Bloomberg.
The consensus estimated annual growth rate projected over the next
five years as provided by I/B/E/S International, Inc.
1.4% Exxon Mobil Corp./Oil & Gas Equipment & Services
The merger of Exxon and Mobil produced the world's largest oil
company. It is strong throughout the production chain, from its
almost 21 billion barrels of oil equivalent in reserves to its
45,000 service stations in 118 countries. Its shares are modestly
priced, by today's standards, for its earnings potential.
Holdings are subject to change.
4
<PAGE>
www.prudential.com (800) 225-1852
Annual Report July 31, 2000
healthcare, these industries are particularly sensitive
to economic growth. There was considerable concern during
this period that the series of Federal Reserve interest-
rate increases would choke off growth.
A shift in strategy
The strategy of diversifying stock holdings by investment
style worked well, in that the overall performance of
these holdings was significantly ahead of the S&P 500
benchmark, but relatively few holdings were responsible
for this lead. In May, the Fund began to shift to a
strategy aimed at reducing the risk of deviations-
particularly downward deviations-from the benchmark
return. REIT holdings were almost entirely eliminated,
while other industries were gradually moved closer to
benchmark weightings.
Whereas previously the Fund had two equity portfolios,
each of which could assume substantial positions in a few
industries, the united equity portfolio now will take a
large number of smaller deviations from the composition
of the overall market. In addition, other characteristics
that influence overall portfolio performance-such as
company size and industry-are being monitored to reduce
the likelihood of an unplanned risk exposure. Within
those parameters, the management team selects stocks
that, in its view, have a better-than-average likelihood of
an above-market return.
Bonds
The Fund's bond holdings slightly trailed the benchmark
Lehman Government/Credit Bond Index, primarily because of
credit concerns about some of the corporate holdings in the
second quarter of 2000. By and large, the bond portfolio
emphasized corporate over government bonds. When the
period began, corporates had a much higher yield than
Treasuries, and so they appreciated in value as the yield
differential on the market shrank. However, some of this
capital gain was given back in the year 2000. Moreover,
an overrepresentation in the airline sector hurt returns.
In both portfolios, we intend to reduce some of the more
significant deviations from the risk profile of the
larger market, particularly the portfolio's exposure to
risky emerging market and high-yield issues.
Prudential Balanced Fund Management Team
5
<PAGE>
Prudential Balanced Fund
Portfolio of Investments as of July 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C> <C>
------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS 94.8%
Common Stocks 61.7%
-------------------------------------------------------------------------------------
Advertising 0.3%
63,600 Interpublic Group of Companies, Inc. $ 2,547,975
3,300 Omnicom Group Inc. 280,500
1,400 Young & Rubicam Inc. 79,100
--------------
2,907,575
-------------------------------------------------------------------------------------
Aerospace 0.4%
41,800 Boeing Co. 2,048,200
22,700 General Dynamics Corp. 1,281,131
2,100 Titan Corp.(a) 62,344
--------------
3,391,675
-------------------------------------------------------------------------------------
Airlines 0.2%
64,200 AMR Corp.(a) 2,122,612
-------------------------------------------------------------------------------------
Apparel
3,600 NIKE, Inc. (Class 'B' Stock) 157,500
-------------------------------------------------------------------------------------
Audio/Visual
4,000 Polycom, Inc.(a) 379,438
-------------------------------------------------------------------------------------
Automobiles 0.7%
45,600 Dana Corp. 1,045,950
58,500 Ford Motor Co. 2,723,906
53,676 General Motors Corp. 3,056,177
7,659 Visteon Corp. 107,226
--------------
6,933,259
-------------------------------------------------------------------------------------
Automotive 0.1%
22,800 BorgWarner, Inc. 773,775
-------------------------------------------------------------------------------------
Banks 0.9%
26,600 Bank of New York Co., Inc. 1,245,212
65,850 Chase Manhattan Corp. 3,271,922
5,000 Comerica, Inc. 255,000
27,300 Firstar Corp. 539,175
4,300 SunTrust Banks, Inc. 205,863
</TABLE>
6 See Notes to Financial Statements
<PAGE>
Prudential Balanced Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
16,700 U.S. Bancorp $ 320,431
400 Wachovia Corp. 22,000
72,300 Wells Fargo Co. 2,986,894
--------------
8,846,497
-------------------------------------------------------------------------------------
Beverages 1.1%
17,700 Anheuser-Busch Companies, Inc. 1,424,850
64,800 Coca-Cola Co. 3,973,050
123,100 PepsiCo, Inc. 5,639,519
--------------
11,037,419
-------------------------------------------------------------------------------------
Cable & Pay Television Systems 0.1%
36,800 Comcast Corp. (Class 'A' Stock)(a) 1,251,775
-------------------------------------------------------------------------------------
Cellular Communications 0.1%
13,200 Powerwave Technologies, Inc.(a) 457,875
-------------------------------------------------------------------------------------
Chemicals 1.3%
458,600 Agrium, Inc. (Canada) 3,955,846
17,800 Air Products & Chemicals, Inc. 594,075
93,000 Dow Chemical Co. 2,673,750
39,400 Du Pont (E.I.) de Nemours & Co. 1,785,313
167,000 Geon Co. 2,745,062
82,000 Lyondell Chemical Co. 1,148,000
9,800 Praxair, Inc. 387,713
--------------
13,289,759
-------------------------------------------------------------------------------------
Commercial Services 0.3%
17,700 Convergys Corp.(a) 797,606
77,395 Lennar Corp. 1,857,477
--------------
2,655,083
-------------------------------------------------------------------------------------
Computers 3.0%
8,700 Apple Computer, Inc.(a) 442,069
137,500 Dell Computer Corp.(a) 6,041,406
53,800 Hewlett-Packard Co. 5,874,287
58,100 International Business Machines Corp. 6,532,619
4,300 Seagate Technology, Inc.(a) 217,956
</TABLE>
See Notes to Financial Statements 7
<PAGE>
Prudential Balanced Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
81,300 Sun Microsystems, Inc.(a) $ 8,572,069
18,200 VERITAS Software Corp.(a) 1,855,263
--------------
29,535,669
-------------------------------------------------------------------------------------
Computer Software & Services 4.5%
1,200 Adobe Systems Inc. 137,400
120,100 America Online, Inc.(a) 6,402,831
15,600 Electronic Data Systems Corp. 670,800
106,600 EMC Corp.(a) 9,074,325
11,800 Intuit Inc.(a) 401,200
198,300 Microsoft Corp.(a) 13,843,819
149,400 Oracle Corp.(a) 11,233,012
84,300 PeopleSoft, Inc.(a) 1,838,794
4,100 Rational Software Corp.(a) 417,175
5,200 Symantec Corp. 266,500
--------------
44,285,856
-------------------------------------------------------------------------------------
Consumer Products 0.1%
25,800 Eastman Kodak Co. 1,415,775
-------------------------------------------------------------------------------------
Containers & Packaging 0.1%
91,800 Crown Cork & Seal Co., Inc. 1,279,463
-------------------------------------------------------------------------------------
Data Processing/Management 0.2%
21,100 Automatic Data Processing, Inc. 1,045,769
900 CSG Systems International, Inc.(a) 47,869
9,600 First Data Corp. 442,200
7,300 Fiserv, Inc.(a) 407,431
--------------
1,943,269
-------------------------------------------------------------------------------------
Diversfied Consumer Products 0.9%
66,300 Colgate-Palmolive Co. 3,692,081
37,900 Gillette Co. 1,106,206
37,500 Illinois Tool Works, Inc. 2,146,875
28,500 Procter & Gamble Co. 1,620,938
--------------
8,566,100
</TABLE>
8 See Notes to Financial Statements
<PAGE>
Prudential Balanced Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Diversified Operations 3.2%
4,000 Corning, Inc. $ 935,750
490,050 General Electric Co. 25,206,947
31,200 Honeywell International Inc. 1,049,100
26,900 JDS Uniphase Corp.(a) 3,177,562
121,300 Tomkins PLC (ADR) (United Kingdom) 1,592,063
--------------
31,961,422
-------------------------------------------------------------------------------------
Electrical Services 1.1%
8,000 Calpine Corp.(a) 570,000
62,700 Duke Energy Corp. 3,867,806
22,300 Entergy Corp. 604,888
40,400 PECO Energy Co. 1,724,575
60,000 PG&E Corp. 1,552,500
9,100 Southern Co. 222,381
74,000 TXU Corp. 2,312,500
--------------
10,854,650
-------------------------------------------------------------------------------------
Electronics 4.7%
2,860 Agilent Technologies, Inc.(a) 116,545
24,200 Altera Corp.(a) 2,376,137
72,800 Applied Materials, Inc.(a) 5,523,700
18,300 Broadcom Corp.(a) 4,103,775
14,400 Emerson Electric Co. 879,300
326,400 Intel Corp. 21,787,200
6,600 Jabil Circuit, Inc.(a) 330,413
87,000 LSI Logic Corp.(a) 2,947,125
7,000 Microchip Technology, Inc.(a) 486,063
125,400 Motorola, Inc. 4,146,037
37,800 Sanmina Corp.(a) 3,510,675
6,700 Sawtek Inc.(a) 356,775
2,200 Symbol Technologies, Inc. 87,725
--------------
46,651,470
-------------------------------------------------------------------------------------
Entertainment 0.4%
93,700 Walt Disney Co. 3,625,019
</TABLE>
See Notes to Financial Statements 9
<PAGE>
Prudential Balanced Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Financial Services 6.7%
60,200 American Express Co. $ 3,412,587
113,000 Associates First Capital Corp. (Class 'A' Stock) 2,959,188
71,900 Bank of America Corp. 3,406,262
43,246 Bear, Stearns & Co. Inc. 2,329,878
168,700 Citigroup Inc. 11,903,894
3,600 Countrywide Credit Industries, Inc. 126,675
41,200 Edwards (A.G.), Inc. 2,178,450
25,100 Federal Home Loan Mortgage Corp. 989,881
43,900 Federal National Mortgage Assoc. 2,189,513
32,500 FleetBoston Financial Corp. 1,163,906
3,900 Golden West Financial Corp. 179,400
15,500 Goldman, Sachs & Co. 1,533,531
12,300 Household International, Inc. 548,119
36,400 Lehman Brothers Holdings Inc. 4,090,450
173,850 MBNA Corp. 5,802,244
12,430 Mellon Financial Corp. 468,456
17,600 Merrill Lynch, Pierce, Fenner & Smith, Inc. 2,274,800
15,800 Morgan (J.P.) Securities, Inc. 2,109,300
53,100 Morgan Stanley Dean Witter & Co. 4,845,375
3,200 Northern Trust Corp. 239,600
9,800 PaineWebber Incorporated 678,650
57,400 PNC Financial Services Group 2,920,225
48,600 Providian Financial Corp. 4,954,162
4,000 State Street Corp. 401,500
32,200 Stilwell Financial, Inc.(a) 1,418,813
100,000 Washington Mutual, Inc. 3,212,500
--------------
66,337,359
-------------------------------------------------------------------------------------
Foods 0.4%
7,200 Bestfoods 501,300
300 General Mills, Inc. 10,313
4,000 Heinz (H.J.) Co. 159,750
73,800 Nabisco Group Holdings Corp. 1,955,700
13,200 Sara Lee Corp. 243,375
700 SYSCO Corp. 27,562
13,700 Unilever NV 606,225
--------------
3,504,225
</TABLE>
10 See Notes to Financial Statements
<PAGE>
Prudential Balanced Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Funeral Services 0.1%
278,700 Service Corp. International(a) $ 714,169
-------------------------------------------------------------------------------------
Health Care Services/Hospital Management 0.6%
68,200 Tenet Healthcare Corp.(a) 2,075,837
42,000 UnitedHealth Group Inc. 3,436,125
--------------
5,511,962
-------------------------------------------------------------------------------------
Household & Personal Care Products 0.1%
17,700 Kimberly-Clark Corp. 1,016,644
-------------------------------------------------------------------------------------
Insurance 2.3%
29,200 Aetna, Inc. 1,620,600
106,400 Allstate Corp. 2,932,650
3,800 American General Corp. 253,413
117,422 American International Group, Inc. 10,296,398
37,800 Chubb Corp. 2,797,200
2,900 Cincinnati Financial Corp. 109,475
2,000 Hartford Financial Services Group, Inc. 128,500
2,300 Marsh & McLennan Companies, Inc. 280,600
65,900 SAFECO Corp. 1,519,819
78,400 Selective Insurance Group, Inc. 1,445,500
60,300 Torchmark Corp. 1,499,962
--------------
22,884,117
-------------------------------------------------------------------------------------
Internet Service/Software 0.6%
30,100 Software.com, Inc.(a) 3,036,337
25,500 Yahoo! Inc.(a) 3,281,531
--------------
6,317,868
-------------------------------------------------------------------------------------
Machinery 0.5%
3,800 Caterpillar Inc. 129,438
37,800 Deere & Co. 1,457,662
35,300 Ingersoll-Rand Co. 1,385,525
129,700 United Dominion Industries, Ltd. (Canada) 2,131,944
--------------
5,104,569
</TABLE>
See Notes to Financial Statements 11
<PAGE>
Prudential Balanced Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Manufacturing 0.5%
4,600 Danaher Corp. $ 234,312
29,700 Donaldson Co., Inc. 569,869
14,800 Minnesota Mining & Manufacturing Co. 1,332,925
43,100 Tyco International Ltd. 2,305,850
--------------
4,442,956
-------------------------------------------------------------------------------------
Media 1.2%
4,100 Gannett Co., Inc. 220,887
14,600 Seagram Co., Ltd. 818,512
60,800 Time Warner Inc. 4,662,600
86,919 Viacom Inc. (Class 'B' Stock)(a) 5,763,816
--------------
11,465,815
-------------------------------------------------------------------------------------
Medical Products & Services 1.1%
36,250 Cardinal Health, Inc. 2,664,375
600 Express Scripts, Inc. (Class 'A' Stock)(a) 38,550
76,900 Johnson & Johnson 7,156,506
35,600 Manor Care, Inc.(a) 351,550
3,900 MiniMed Inc.(a) 491,644
2,500 PE Corp-PE Biosystems Group 217,969
--------------
10,920,594
-------------------------------------------------------------------------------------
Medical Technology 0.7%
90,900 Abbott Laboratories 3,783,712
45,600 Amgen Inc.(a) 2,961,150
7,200 IMS Health, Inc. 130,050
--------------
6,874,912
-------------------------------------------------------------------------------------
Metals-Non Ferrous 0.4%
115,688 Alcoa Inc. 3,499,562
200 UCAR International Inc.(a) 2,812
--------------
3,502,374
-------------------------------------------------------------------------------------
Mining
2,300 Newmont Mining Corp. 40,825
-------------------------------------------------------------------------------------
Networking 2.4%
345,100 Cisco Systems, Inc.(a) 22,582,481
</TABLE>
12 See Notes to Financial Statements
<PAGE>
Prudential Balanced Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
10,400 Network Appliance, Inc.(a) $ 896,350
3,900 Network Associates, Inc.(a) 74,831
--------------
23,553,662
-------------------------------------------------------------------------------------
Office Equipment & Supplies
13,500 Xerox Corp. 200,813
-------------------------------------------------------------------------------------
Oil & Gas Equipment & Services 3.1%
56,100 Baker Hughes, Inc. 1,942,462
7,900 BJ Services Co.(a) 461,163
2,500 Coastal Corp. 144,375
2,300 El Paso Energy Corp. 111,263
66,500 Enron Corp. 4,896,062
172,900 Exxon Mobil Corp. 13,832,000
47,636 KeySpan Corp. 1,512,443
134,600 McDermott International, Inc. 1,001,087
8,600 Nabors Industries, Inc.(a) 357,975
11,000 Schlumberger, Ltd. 813,312
6,900 Smith International, Inc.(a) 492,488
164,000 Western Gas Resources, Inc. 2,993,000
56,300 Williams Companies, Inc. 2,350,525
--------------
30,908,155
-------------------------------------------------------------------------------------
Oil & Gas Exploration/Production 2.4%
34,900 Anadarko Petroleum Corp. 1,668,656
12,800 Apache Corp. 636,800
28,100 Chevron Corp. 2,219,900
12,300 Conoco, Inc. (Class 'B' Stock) 283,669
7,600 ENSCO International Inc. 256,500
17,400 Global Marine Inc.(a) 492,638
41,400 Noble Affiliates, Inc. 1,242,000
27,300 Phillips Petroleum Co. 1,387,181
401,000 Pioneer Natural Resources Co.(a) 4,310,750
104,300 Royal Dutch Petroleum Co. (ADR) (Netherlands) 6,075,475
74,700 Texaco, Inc. 3,692,981
41,500 USX - Marathon Group 1,008,969
--------------
23,275,519
</TABLE>
See Notes to Financial Statements 13
<PAGE>
Prudential Balanced Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Paper & Forest Products 0.3%
10,400 International Paper Co. $ 353,600
292,200 Louisiana-Pacific Corp. 2,830,687
1,800 Weyerhaeuser Co. 82,238
--------------
3,266,525
-------------------------------------------------------------------------------------
Pharmaceuticals 3.7%
4,900 American Home Products Corp. 260,006
118,800 Bristol-Myers Squibb Co. 5,895,450
8,000 Forest Laboratories, Inc.(a) 856,000
55,700 Lilly (Eli) & Co. 5,785,837
121,300 Merck & Co., Inc. 8,695,694
294,125 Pfizer, Inc. 12,684,141
22,542 Pharmacia & Upjohn, Inc. 1,234,175
32,300 Schering-Plough Corp. 1,394,956
--------------
36,806,259
-------------------------------------------------------------------------------------
Publishing 0.2%
96,200 Donnelley (R.R.) & Sons Co. 2,140,450
-------------------------------------------------------------------------------------
Railroads
8,550 Kansas City Southern Industries, Inc.(a) 59,316
-------------------------------------------------------------------------------------
Real Estate Investment Trust
27,400 Prison Realty Corp. 75,350
-------------------------------------------------------------------------------------
Restaurants
7,200 McDonald's Corp. 226,800
-------------------------------------------------------------------------------------
Retail 3.7%
5,400 Albertson's, Inc. 163,013
31,800 Bed Bath & Beyond Inc.(a) 1,170,638
34,000 Best Buy Co., Inc.(a) 2,473,500
7,200 CDW Computer Centers, Inc.(a) 344,700
63,100 CVS Corp. 2,488,506
104,900 Dillard's, Inc. 1,435,819
3,900 Dollar Tree Stores, Inc.(a) 165,994
</TABLE>
14 See Notes to Financial Statements
<PAGE>
Prudential Balanced Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
82,000 Home Depot, Inc. $ 4,243,500
321,500 Kmart Corp.(a) 2,250,500
35,200 Kohl's Corp.(a) 1,997,600
82,600 Lowe's Companies, Inc. 3,484,687
51,100 Sears Roebuck & Co. 1,526,612
28,600 Target Corp. 829,400
116,300 The Limited, Inc. 2,376,881
215,400 Wal-Mart Stores, Inc. 11,833,537
--------------
36,784,887
-------------------------------------------------------------------------------------
Semiconductors 1.6%
3,900 Advanced Micro Devices, Inc.(a) 280,556
12,700 Analog Devices, Inc.(a) 849,312
20,200 Atmel Corp.(a) 604,738
10,400 KLA-Tencor Corp.(a) 553,800
11,200 Linear Technology Corp. 618,800
5,600 Micrel, Inc.(a) 280,350
20,200 Micron Technology, Inc. 1,646,300
32,100 Novellus Systems, Inc.(a) 1,731,394
11,200 QLogic Corp.(a) 834,400
3,300 Semtech Corp.(a) 264,619
4,200 Teradyne, Inc.(a) 266,175
70,300 Texas Instruments Inc. 4,125,731
5,600 TranSwitch Corp.(a) 447,300
12,400 TriQuint Semiconductor, Inc.(a) 475,075
34,400 Vitesse Semiconductor Corp.(a) 2,051,100
14,000 Xilinx Inc.(a) 1,050,875
--------------
16,080,525
-------------------------------------------------------------------------------------
Telecommunications 3.2%
135,549 AT&T Corp. 4,193,547
82,800 BellSouth Corp. 3,296,475
34,600 Comverse Technology, Inc. 3,036,150
25,161 General Motors Corp. (Class 'H' Stock) 651,041
86,400 Lucent Technologies Inc. 3,780,000
170,600 SBC Communications, Inc. 7,261,163
37,400 Sprint Corp. 1,332,375
</TABLE>
See Notes to Financial Statements 15
<PAGE>
Prudential Balanced Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
92,060 Verizon Communications $ 4,326,820
100,850 WorldCom, Inc.(a) 3,939,453
--------------
31,817,024
-------------------------------------------------------------------------------------
Telecommunications Equipment 1.6%
62,400 ADC Telecommunications, Inc.(a) 2,616,900
149,100 Nortel Networks Corp. 11,089,312
37,800 QUALCOMM Inc.(a) 2,454,638
800 Scientific-Atlanta, Inc. 61,600
--------------
16,222,450
-------------------------------------------------------------------------------------
Tobacco 0.3%
82,400 Philip Morris Co., Inc. 2,080,600
42,166 R.J. Reynolds Tobacco Holdings, Inc. 1,196,460
--------------
3,277,060
-------------------------------------------------------------------------------------
Tools 0.2%
56,900 Snap-on, Inc. 1,717,669
-------------------------------------------------------------------------------------
Travel Services 0.1%
57,524 Sabre Holdings Corp.(a) 1,405,743
--------------
Total common stocks (cost $539,388,278) 610,779,531
--------------
</TABLE>
<TABLE>
<CAPTION>
DEBT OBLIGATIONS 33.1%
Corporate Bonds 20.1%
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aerospace 0.3%
Litton Industries, Inc., Sr. Note,
Baa2 $ 400 8.00%, 10/15/09 401,480
Northrop-Grumman Corp.,
Baa3 900 7.875%, 3/1/26 859,932
Raytheon Co., Note,
Baa2 1,300 6.50%, 7/15/05 1,233,856
--------------
2,495,268
</TABLE>
16 See Notes to Financial Statements
<PAGE>
Prudential Balanced Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Airlines 0.8%
Continental Airlines, Inc., Notes,
Aa3 $ 1,392 7.461%, 4/1/15 $ 1,346,108
Ba2 810 8.00%, 12/15/05 756,386
Delta Air Lines Inc., Note,
Baa3 500 7.90%, 12/15/09 473,990
United Airlines, Inc.,
Baa3 5,000 10.67%, 5/1/04 5,210,450
--------------
7,786,934
-------------------------------------------------------------------------------------
Asset Backed Securities 2.3%
California Infrastructure, PG&E,
Aaa 3,000 6.32%, 9/25/05 2,938,125
Citibank Credit Card Master Trust,
Aaa 5,000 6.10%, 5/15/08 4,693,750
MBNA Master Credit Card Trust,
Aaa 5,000 5.90%, 8/15/11 4,554,111
Team Fleet Financing Corp.,
Aa3 11,000 7.35%, 5/15/03 10,960,469
--------------
23,146,455
-------------------------------------------------------------------------------------
Automobiles 0.8%
Ford Motor Co.,
A2 3,000 6.375%, 2/1/29 2,450,100
A2 600 7.45%, 7/16/31 564,300
Lear Corp., Sr. Notes,
Ba1 2,335 7.96%, 5/15/05 2,189,063
Ba3 770 8.25%, 2/1/02 753,845
Navistar International Corp., Sr.
Notes,
Baa3 2,000 7.00%, 2/1/03 1,930,000
Ba2 370 8.00%, 2/1/08 347,800
--------------
8,235,108
-------------------------------------------------------------------------------------
Banks 1.8%
Bank Nova Scotia NY,
A1 3,900 6.50%, 7/15/07 3,666,000
Barclays Bank PLC,
Aa3 500 7.40%, 12/15/09 488,425
</TABLE>
See Notes to Financial Statements 17
<PAGE>
Prudential Balanced Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bayer Hypo-Vereinsbank,
Aa3 $ 300 8.741%, 6/30/31 $ 280,380
Bayerische Landesbank,
Aaa 1,950 5.875%, 12/1/08 1,752,445
Capital One Bank, Sr. Note,
Baa2 3,000 7.08%, 10/30/01 2,966,070
Chon Hung Bank,
Ba3 2,150 Zero Coupon, 1/7/05 2,171,500
Compass Bank,
A1 1,300 8.10%, 8/15/09 1,276,223
HVB Funding Trust III,
A1 200 9.00%, 10/22/31 192,040
KBC Bank Funding Trust,
A1 2,500 9.86%, 11/29/49 2,569,250
Keycorp Capital,
A1 750 7.75%, 7/15/29 652,553
National Australia Bank Ltd.,
A1 2,100 6.40%, 12/10/07 2,084,250
--------------
18,099,136
-------------------------------------------------------------------------------------
Beverages 0.1%
Coca Cola Bottling Co.,
Baa2 600 6.375%, 5/1/09 537,948
-------------------------------------------------------------------------------------
Broadcasting 0.1%
Liberty Media Corp., Notes,
Baa3 400 7.875%, 7/15/09 389,576
Baa3 700 8.50%, 7/15/29 685,930
--------------
1,075,506
-------------------------------------------------------------------------------------
Cable & Pay Television Systems 0.7%
British Sky Broadcasting Group,
Baa3 500 6.875%, 2/23/09 423,275
Century Communications Corp., Sr.
Note,
B2 2,000 9.75%, 2/15/02 1,995,000
Comcast Cable Communications,
Baa2 2,000 8.375%, 5/1/07 2,060,300
</TABLE>
18 See Notes to Financial Statements
<PAGE>
Prudential Balanced Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CSC Holdings, Inc., Sr. Notes,
Ba1 $ 900 7.25%, 7/15/08 $ 846,342
Ba1 475 7.875%, 12/15/07 464,279
Rogers Cablesystems Ltd.,
Ba3 885 11.00%, 12/1/15 973,500
--------------
6,762,696
-------------------------------------------------------------------------------------
Captive Finance 0.7%
Ford Motor Credit Co., Note,
A2 1,950 6.70%, 7/16/04 1,890,915
A2 400 7.375%, 10/28/09 386,544
Sears Roebuck Acceptance Corp.,
Note,
A3 5,000 6.38%, 10/7/02 4,882,350
--------------
7,159,809
-------------------------------------------------------------------------------------
Cellular Communications 0.1%
Rogers Cantel, Inc.,
Baa3 790 9.375%, 6/1/08 817,650
-------------------------------------------------------------------------------------
Chemicals 0.1%
Lyondell Chemical Co.,
Ba3 325 9.625%, 5/1/07 325,000
Monsanto Co.,
A1 245 6.50%, 12/1/18 218,599
A1 585 6.75%, 12/15/27 532,970
--------------
1,076,569
-------------------------------------------------------------------------------------
Commercial Services 0.1%
Cendant Corp., Notes,
Baa1 1,400 7.75%, 12/1/03 1,350,272
-------------------------------------------------------------------------------------
Containers 0.7%
Owens Illinois, Inc., Sr. Note,
Ba1 975 7.85%, 5/15/04 898,667
Pactiv Corp.,
Baa3 5,000 7.20%, 12/15/05 4,650,750
Baa3 1,650 7.95%, 12/15/25 1,497,524
--------------
7,046,941
</TABLE>
See Notes to Financial Statements 19
<PAGE>
Prudential Balanced Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Diversified Operations 0.1%
Cox Enterprises Inc.,
Baa1 $ 900 6.625%, 6/14/02 $ 886,140
-------------------------------------------------------------------------------------
Electrical Services 0.7%
AES Corp., Sr. Note,
Ba1 1,640 9.50%, 6/1/09 1,656,400
Calpine Corp., Sr. Notes,
Ba1 1,355 10.50%, 5/15/06 1,422,750
Cogentrix Inc., Sr. Notes,
Ba1 950 8.10%, 3/15/04 918,270
Edison Mission Energy Co., Sr.
Note,
Baa1 900 7.73%, 6/15/09 876,771
PSEG Energy Holdings, Inc., Sr.
Note,
Ba1 870 10.00%, 10/1/09 922,200
Utilicorp United Inc., Sr. Note,
Baa3 800 7.00%, 7/15/04 766,528
--------------
6,562,919
-------------------------------------------------------------------------------------
Financial Services 0.7%
Capital One Financial Corp., Note,
Baa3 850 7.25%, 5/1/06 795,812
Heller Financial, Inc., Note,
A3 800 6.00%, 3/19/04 753,912
Osprey Trust Inc.,
Baa2 3,000 8.31%, 1/15/03 3,018,120
RBF Finance Co.
Ba3 415 11.375%, 3/15/09 451,312
Sanwa Finance,
Baa1 1,250 8.35%, 7/15/09 1,242,950
Washington Mutual Inc., Notes,
A3 1,000 7.50%, 8/15/06 982,450
--------------
7,244,556
-------------------------------------------------------------------------------------
Foods 0.4%
Kroger Co., Sr. Notes,
Baa3 3,400 6.375%, 3/1/08 3,068,840
</TABLE>
20 See Notes to Financial Statements
<PAGE>
Prudential Balanced Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kroger Co., Sr. Notes,
Baa3 $ 1,000 7.25%, 6/1/09 $ 945,150
Baa3 250 7.70%, 6/1/29 232,325
--------------
4,246,315
-------------------------------------------------------------------------------------
Healthcare Services/Hospital Management 0.2%
HCA-The Healthcare Co., Notes,
Ba2 825 6.91%, 6/15/05 756,938
Tenet Healthcare Corp., Sr. Notes,
Ba1 620 7.875%, 1/15/03 608,375
--------------
1,365,313
-------------------------------------------------------------------------------------
Hotels & Leisure 1.0%
Harrahs Operating Co., Inc.,
Ba2 95 7.875%, 12/15/05 90,131
HMH Properties Inc.,
Ba2 1,080 7.875%, 8/1/05 1,004,400
Park Place Entertainment Corp.,
Ba2 300 9.375%, 2/15/07 301,500
Ba2 815 7.875%, 12/15/05 774,250
Royal Caribbean Cruises Ltd., Sr.
Note,
Baa2 5,000 8.25%, 4/1/05 4,768,950
Starwood Hotels & Resorts, Inc.,
Note,
Ba1 3,500 6.75%, 11/15/03 3,293,500
--------------
10,232,731
-------------------------------------------------------------------------------------
Insurance 0.2%
Allstate Corp., Sr. Notes,
A1 200 7.20%, 12/1/09 191,386
Conseco Finance Trust,
B3 2,950 8.70%, 11/15/26 1,386,500
--------------
1,577,886
-------------------------------------------------------------------------------------
Investment Banking 0.7%
Goldman Sachs & Co., Note,
A1 2,500 7.80%, 1/28/10 2,487,500
Lehman Brothers Inc., Notes,
A3 3,565 6.625%, 4/1/04 3,426,001
A3 1,370 6.625%, 2/15/06 1,292,568
--------------
7,206,069
</TABLE>
See Notes to Financial Statements 21
<PAGE>
Prudential Balanced Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Media 0.9%
News America Holdings Inc.,
Baa3 $ 6,500 6.703%, 5/21/04(b) $ 6,299,800
Time Warner, Inc.,
Baa3 2,000 8.11%, 8/15/06 2,042,960
United News & Media PLC, Note,
Baa2 550 7.25%, 7/1/04 533,830
--------------
8,876,590
-------------------------------------------------------------------------------------
Miscellaneous Services
Comunidad Autonoma De Andalucia,
Note,
Aa3 120 7.25%, 10/1/29 116,868
-------------------------------------------------------------------------------------
Oil & Gas Equipment & Services 0.8%
Amerada Hess Corp., Notes,
Baa1 150 7.375%, 10/1/09 146,412
Baa1 400 7.875%, 10/1/29 392,548
Atlantic Richfield Co., Note,
Aa2 1,760 5.90%, 4/15/09 1,609,274
BJ Services Co., Sr. Note,
Baa2 3,500 7.00%, 2/1/06 3,368,470
El Paso Energy Corp., Notes,
Baa2 1,400 7.625%, 7/15/11 1,372,840
Eott Energy Partners LP, Sr. Note,
Ba2 670 11.00%, 10/1/09 683,400
--------------
7,572,944
-------------------------------------------------------------------------------------
Oil & Gas Exploration/Production 0.8%
Gulf Canada Resources Ltd.,
Ba2 1,420 9.25%, 1/15/04 1,427,980
Limestone Electron Trust,
Baa3 4,250 8.625%, 3/15/03 4,296,198
Parker & Parsley Petroleum Co., Sr.
Note,
Ba2 500 8.875%, 4/15/05 489,070
</TABLE>
22 See Notes to Financial Statements
<PAGE>
Prudential Balanced Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Seagull Energy Corp., Sr. Notes,
Ba1 $ 615 7.875%, 8/1/03 $ 596,550
Union Pacific Resources Group,
Inc.,
Sr. Note,
Baa1 600 7.95%, 4/15/29 601,914
--------------
7,411,712
-------------------------------------------------------------------------------------
Paper & Forest Products 0.6%
International Paper Co., Notes,
Baa1 3,000 8.00%, 7/8/03 3,028,830
Scotia Pacific Co.,
Baa2 4,800 7.71%, 7/20/28 3,168,000
--------------
6,196,830
-------------------------------------------------------------------------------------
Printing 0.1%
World Color Press Inc.,
Baa3 260 8.375%, 11/15/08 247,000
Baa3 815 7.75%, 2/15/09 755,913
--------------
1,002,913
-------------------------------------------------------------------------------------
Real Estate Investment Trust 0.3%
Duke Realty Ltd., Sr. Note,
Baa1 800 7.30%, 6/30/03 788,800
ERP Operating, LP, Notes,
A3 400 7.10%, 6/23/04 388,624
A3 2,000 6.63%, 4/13/05(b) 1,890,080
--------------
3,067,504
-------------------------------------------------------------------------------------
Retail 0.5%
Federated Dept. Stores, Inc., Sr.
Notes,
Baa1 2,500 8.125%, 10/15/02 2,519,800
Baa1 2,500 8.50%, 6/15/03 2,500,825
--------------
5,020,625
-------------------------------------------------------------------------------------
Savings & Loan 0.1%
Sovereign Bancorp Inc., Sr. Notes,
Ba3 445 10.25%, 5/15/04 439,402
Ba3 750 10.50%, 11/15/06 750,000
--------------
1,189,402
</TABLE>
See Notes to Financial Statements 23
<PAGE>
Prudential Balanced Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Telecommunications 1.4%
AT&T Canada Inc., Sr. Note,
Baa3 $ 500 7.65%, 9/15/06 $ 498,520
Electric Lightwave Inc., Note,
A2 900 6.05%, 5/15/04 831,600
Global Crossing Holdings Ltd., Sr.
Note,
Ba2 1,465 9.125%, 11/15/06 1,413,725
LCI International Inc.,
Baa1 3,550 7.25%, 6/15/07 3,431,252
Qwest Communications Int'l., Inc.,
Sr. Note,
Baa1 1,870 7.50%, 11/1/08 1,827,925
Sprint Capital Corp., Note,
Baa1 2,500 6.875%, 11/15/28 2,159,075
Telecomunicaciones de Puerto Rico,
Notes,
Baa2 1,800 6.65%, 5/15/06 1,683,000
Baa2 1,400 6.80%, 6/15/09 1,282,750
Williams Communications Group,
Inc.,
Sr. Notes,
B2 680 10.70%, 10/1/07 656,200
B2 385 10.875%, 10/1/09 365,750
--------------
14,149,797
-------------------------------------------------------------------------------------
Utilities 1.9%
Calenergy Co., Inc., Sr. Note,
Baa3 4,500 6.96%, 9/15/03 4,414,545
Cleveland Electric Illuminating,
Note,
Ba1 2,000 7.67%, 7/1/24 2,001,000
Hydro-Quebec,
A2 125 7.50%, 4/1/16 124,163
A2 1,175 9.40%, 2/1/21 1,399,225
Niagara Mohawk Power Corp.,
Baa2 4,500 7.375%, 8/1/03 4,490,820
Baa2 2,000 8.00%, 6/1/04 2,019,100
</TABLE>
24 See Notes to Financial Statements
<PAGE>
Prudential Balanced Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TXU Eastern Funding Co.,
Baa1 $ 5,000 6.45%, 5/15/05 $ 4,685,400
--------------
19,134,253
-------------------------------------------------------------------------------------
Waste Management 0.1%
Allied Waste North America Inc.,
Sr. Note,
Ba3 490 7.625%, 1/1/06 441,000
--------------
Total corporate bonds
(cost $208,808,704) 199,092,659
--------------
-------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES 12.1%
United States Treasury Bonds,
19,000 13.875%, 5/15/11 25,759,820
6,983 8.75%, 5/15/17 8,871,692
10,000(c) 8.125%, 8/15/19 12,220,300
7,000 8.75%, 5/15/20 9,084,670
2,700 7.625%, 11/15/22 3,196,125
13,800 7.125%, 2/15/23 15,520,722
1,400 6.75%, 8/15/26 1,528,184
3,400 6.125%, 8/15/29 3,499,348
7,400 8.125%, 8/15/21 9,142,478
United States Treasury Notes,
350 5.875%, 11/15/04 345,517
20 6.75%, 5/15/05 20,487
24,000 6.625%, 5/15/07 24,577,440
5,757 6.50%, 2/15/10 5,946,808
--------------
Total U.S. government securities
(cost $118,738,949) 119,713,591
-------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS 0.9%
Province of Quebec, (Canada)
A2 780 5.75%, 2/15/09 699,972
A2 800 7.125%, 2/9/24 763,920
Province of Saskatchewan, (Canada)
A1 500 9.125%, 2/15/21 584,015
</TABLE>
See Notes to Financial Statements 25
<PAGE>
Prudential Balanced Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Republic of Phillipines,
(Philippines)
Ba1 $ 300 8.875%, 4/15/08 $ 264,000
Republic of Philippines,
(Philippines)
Ba1 400 8.875%, 4/15/08 352,000
United Mexican States, (Mexico)
Baa3 2,500 10.375%, 2/17/09(d) 2,682,500
Baa3 600 7.312%, 12/31/19 596,250
Baa3 1,200 7.602%, 12/31/19 1,192,500
Baa3 1,700 7.80%, 12/31/19 1,689,375
--------------
Total foreign government
obligations
(cost $8,462,116) 8,824,532
--------------
Total debt obligations
(cost $336,009,769) 327,630,782
--------------
Total long-term investments
(cost $875,398,047) 938,410,313
--------------
SHORT-TERM INVESTMENTS 4.7%
Corporate Bonds 2.2%
-------------------------------------------------------------------------------------
Automobiles 0.5%
Baa1 5,000 TRW Inc., Note, 6.45%, 6/15/01 5,000,000
-------------------------------------------------------------------------------------
Diversified Operations 0.2%
Seagram (J.) & Sons Inc., Note,
Baa3 1,400 5.79%, 4/15/01 1,384,880
-------------------------------------------------------------------------------------
Electrical Services 0.1%
CMS Energy Corp., Sr. Note,
Ba3 1,300 8.00%, 7/1/01 1,288,820
-------------------------------------------------------------------------------------
Foods 0.2%
Kroger Co., Sr. Note,
Baa3 1,800 6.34%, 6/1/01 1,773,000
-------------------------------------------------------------------------------------
Oil & Gas Equipment & Services 0.1%
El Paso Energy Corp., Sr. Note,
Baa2 1,000 6.625%, 7/15/01 991,910
</TABLE>
26 See Notes to Financial Statements
<PAGE>
Prudential Balanced Fund
Portfolio of Investments as of July 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Paper & Forest Products 0.2%
Fort James Corp., Note,
Baa2 $ 2,000 6.234%, 3/15/01 $ 1,983,800
-------------------------------------------------------------------------------------
Real Estate Investment Trust 0.5%
ERP Operating, LP, Notes,
A3 5,000 6.15%, 9/15/00 4,991,566
-------------------------------------------------------------------------------------
Utilities 0.3%
Western Massachusetts Electric Co.,
Baa3 3,000 7.375%, 7/1/01 2,985,150
-------------------------------------------------------------------------------------
Waste Management 0.1%
Waste Management Inc.,
Ba1 1,000 6.125%, 7/15/01(b) 968,720
--------------
Total corporate bonds
(cost $21,495,039) 21,367,846
-------------------------------------------------------------------------------------
Repurchase Agreement 2.5%
Joint Repurchase Agreement Account,
6.538%, 8/1/00
24,667 (cost $24,667,000; Note 5) 24,667,000
--------------
Total short-term investments
(cost $46,162,039) 46,034,846
--------------
Total Investments 99.5%
(cost $921,560,086; Note 4) 984,445,159
Other assets in excess of
liabilities 0.5% 5,173,176
--------------
Net Assets 100% $ 989,618,335
--------------
--------------
</TABLE>
--------------------------------------------------------------------------------
(a) Non-income producing security.
(b) Mandatory put/call.
(c) Principal partially pledged as initial margin on financial futures
contracts.
(d) Unit which includes 5,384 Value Recovery Rights expiring 12/31/03.
ADR--American Depository Receipt.
The Fund's current SAI contains a description of Moody's and Standard & Poor's
ratings.
See Notes to Financial Statements 27
<PAGE>
Prudential Balanced Fund As of July 31, 2000
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
July 31, 2000
<S> <C> <C>
--------------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $921,560,086) $ 984,445,159
Cash 298,736
Dividends and interest receivable 7,146,723
Receivable for investments sold 1,078,227
Receivable for Fund shares sold 654,678
Prepaid expenses 29,230
--------------
Total assets 993,652,753
--------------
LIABILITIES
Payable for Fund shares reacquired 2,231,587
Management fee payable 556,413
Distribution fee payable 188,410
Payable for investments purchased 159,984
Withholding tax payable 11,935
Due to broker-variation margin 2,503
Accrued expenses 883,586
--------------
Total liabilities 4,034,418
--------------
NET ASSETS $ 989,618,335
--------------
--------------
Net assets were comprised of:
Shares of beneficial interest, at par $ 791,407
Paid-in capital in excess of par 859,718,009
--------------
860,509,416
Undistributed net investment income 2,436,307
Accumulated net realized gain on investments 63,763,164
Net unrealized appreciation on investments 62,909,448
--------------
Net assets, July 31, 2000 $ 989,618,335
--------------
--------------
</TABLE>
28 See Notes to Financial Statements
<PAGE>
Prudential Balanced Fund As of July 31, 2000 Cont'd.
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
July 31, 2000
--------------------------------------------------------------------------------------
<S> <C> <C>
Class A:
Net asset value and redemption price per share
($523,901,788 / 41,853,976 shares of beneficial
interest issued and outstanding) $12.52
Maximum sales charge (5% of offering price) 0.66
Maximum offering price to public $13.18
Class B:
Net asset value, offering price and redemption price per
share
($336,850,965 / 26,993,582 shares of beneficial
interest issued and outstanding) $12.48
Class C:
Net asset value and redemption price per share
($9,855,065 / 789,753 shares of beneficial interest
issued and outstanding) $12.48
Sales charge (1% of offering price) 0.13
Offering price to public $12.61
Class Z:
Net asset value, offering price and redemption price per
share
($119,010,517 / 9,503,345 shares of beneficial interest
issued and outstanding) $12.52
</TABLE>
See Notes to Financial Statements 29
<PAGE>
Prudential Balanced Fund
Statement of Operations
<TABLE>
<CAPTION>
Year
Ended
July 31, 2000
<S> <C> <C>
---------------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Interest (net of foreign withholding taxes of $10,646) $ 30,097,289
Dividends (net of foreign withholding taxes of $313,412) 10,297,899
-------------
Total income 40,395,188
-------------
Expenses
Management fee 6,779,981
Distribution fee--Class A 1,305,099
Distribution fee--Class B 3,273,578
Distribution fee--Class C 82,655
Transfer agent's fees and expenses 2,420,000
Reports to shareholders 343,000
Custodian's fees and expenses 193,000
Legal fees and expenses 70,000
Registration fees 60,000
Audit fees 40,000
Trustees' fees and expenses 21,000
Insurance expense 17,000
Miscellaneous 13,510
-------------
Total expenses 14,618,823
-------------
Net investment income 25,776,365
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
Net realized gain on:
Investment transactions 75,968,879
Financial futures transactions 67,125
Foreign currency transactions 2,141
-------------
76,038,145
-------------
Net change in unrealized appreciation (depreciation) on:
Investments (15,786,199)
Financial futures 24,375
-------------
(15,761,824)
-------------
Net gain on investments 60,276,321
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 86,052,686
-------------
-------------
</TABLE>
30 See Notes to Financial Statements
<PAGE>
Prudential Balanced Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended July 31,
----------------------------------
2000 1999
<S> <C> <C> <C>
-----------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income $ 25,776,365 $ 22,728,264
Net realized gain on investments and
foreign currency transactions 76,038,145 58,971,735
Net change in unrealized appreciation
(depreciation) of investments (15,761,824) 24,344,289
---------------- --------------
Net increase in net assets resulting from
operations 86,052,686 106,044,288
---------------- --------------
Dividends and distributions (Note 1)
Dividends to shareholders from net
investment income
Class A (13,885,233) (11,600,552)
Class B (7,290,106) (7,501,189)
Class C (191,351) (147,713)
Class Z (3,555,499) (3,085,601)
---------------- --------------
(24,922,189) (22,335,055)
---------------- --------------
Distributions to shareholders from net
realized gains on investments
Class A (34,600,438) (33,667,951)
Class B (27,903,897) (35,854,241)
Class C (676,969) (670,807)
Class Z (8,022,304) (7,850,486)
---------------- --------------
(71,203,608) (78,043,485)
---------------- --------------
Fund share transactions (net of share
conversions)
(Note 7)
Net proceeds from shares subscribed 128,616,112 174,931,450
Net asset value of shares issued to
shareholders in reinvestment of
dividends and distributions 91,690,955 95,452,760
Cost of shares reacquired (314,910,778) (341,670,552)
---------------- --------------
Net decrease in net assets from Fund shares
transactions (94,603,711) (71,286,342)
---------------- --------------
Total decrease (104,676,822) (65,620,594)
NET ASSETS
Beginning of year 1,094,295,157 1,159,915,751
---------------- --------------
End of year(a) $ 989,618,335 $1,094,295,157
---------------- --------------
---------------- --------------
------------------------------
(a) Includes undistributed net investment
income of: $ 2,436,307 $ 1,780,283
---------------- --------------
</TABLE>
See Notes to Financial Statements 31
<PAGE>
Prudential Balanced Fund
Notes to Financial Statements
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. The Fund invests in a
diversified portfolio of equity securities, debt obligations and money market
instruments. 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 significant 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 or at the bid price in the absence of an asked price.
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 an
independent pricing service. 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
32
<PAGE>
Prudential Balanced Fund
Notes to Financial Statements Cont'd.
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.
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.
33
<PAGE>
Prudential Balanced Fund
Notes to Financial Statements Cont'd.
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 and distributions of net realized capital gains, if any,
annually. 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.
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 $198,152 and increase
accumulated net realized gain on investments by $198,152 due to differing
treatments of characterization of distribution and
34
<PAGE>
Prudential Balanced Fund
Notes to Financial Statements Cont'd.
foreign currency transactions. Net investment income, 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'). The subadvisory agreement provides that PIC will
furnish investment advisory services in connection with the management of the
Fund. In connection therewith, PIC is obligated to keep certain books and
records of the Fund. PIFM continues to have responsibility for all investment
advisory services pursuant to the management agreement and supervises PIC's
performance of such services. 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.
For the period August 1, 1999 through December 31, 1999, the management
fee paid PIFM was computed daily and payable monthly at an annual rate of .65 of
1% of the Fund's average daily net assets. Effective January 1, 2000, 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 up to $1 billion and .60 of
1% of the average net assets of the Fund in excess of $1 billion.
Effective January 1, 2000, the subadvisory fee paid to PIC by PIFM is
computed daily and payable monthly at an annual rate of .325 of 1% of the
average daily net assets of the Fund. Prior to January 1, 2000, PIC was
reimbursed by PIFM for reasonable costs and expenses incurred in furnishing
investment advisory services.
The Fund has a distribution agreement with Prudential Investment
Management Services LLC ('PIMS'), which acts as the distributor of the Class A,
Class B, Class C and Class Z shares. The Fund compensates PIMS 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 PIMS as distributor of the Class Z
shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates PIMS 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.
Effective May 4, 2000, such expenses for the Fund were .25 of 1% of the average
daily net assets of the Class A, B and C shares. Prior to May 4, 2000, such
expenses under the Plans were .25 of 1%, 1%
35
<PAGE>
Prudential Balanced Fund
Notes to Financial Statements Cont'd.
and 1% of the average daily net assets of the Class A, Class B and Class C
shares, respectively.
PIMS has advised the Fund that it has received approximately $146,000 and
$14,400 in front-end sales charges resulting from sales of Class A and Class C
shares, respectively, during the year ended July 31, 2000. From these fees, PIMS
paid such sales charges to affiliated broker-dealers, which in turn paid
commissions to salespersons and incurred other distribution costs.
PIMS has advised the Fund that for the year ended July 31, 2000, it
received approximately $559,900 and $4,700 in contingent deferred sales charges
imposed upon certain redemptions by Class B and C shareholders, respectively.
PIC, PIFM and PIMS are wholly owned subsidiaries of The Prudential
Insurance Company of America ('Prudential').
The Fund, along with other affiliated registered investment companies (the
'Funds'), entered into a syndicated credit agreement ('SCA') with an
unaffiliated lender. The maximum commitment under the SCA is $1 billion.
Interest on any such borrowings will be at market rates. The purpose of the
agreement is to serve as an alternative source of funding for capital share
redemptions. The Funds pay a commitment fee at an annual rate of .080 of 1% of
the unused portion of the credit facility. The commitment fee is accrued and
paid quarterly on a pro rata basis by the Funds. The expiration date of the SCA
is March 9, 2001. Prior to March 9, 2000, the commitment fee was .065 of 1% of
the unused portion of the credit facility. The Fund did not borrow any amounts
pursuant to the SCA during the year ended July 31, 2000.
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, 2000, the
Fund incurred fees of approximately $1,883,500 for the services of PMFS. As of
July 31, 2000, approximately $138,700 of such fees were due to PMFS. Transfer
agent fees and expenses in the Statement of Operations also include certain
out-of-pocket expenses paid to nonaffiliates.
For the year ended July 31, 2000, Prudential Securities Incorporated
('PSI') earned approximately $16,890 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 year ended July 31, 2000, were $910,749,243 and
36
<PAGE>
Prudential Balanced Fund
Notes to Financial Statements Cont'd.
$1,012,308,582, respectively, which includes purchases and sales of U.S.
government obligations of $257,709,344 and $197,717,329, respectively.
The cost basis of investments for federal income tax purposes at July 31,
2000 was $922,558,807 and, accordingly, net unrealized appreciation of
investments for federal income tax purposes was $61,886,352 (gross unrealized
appreciation--$110,362,846; gross unrealized depreciation--$48,476,494).
During the year ended July 31, 2000, the Fund entered into financial
futures contracts. Details of open contracts at July 31, 2000 are as follows:
<TABLE>
<CAPTION>
Value at Value at Unrealized
Number of Expiration Trade July 31, Appreciation/
Contracts Type Date Date 2000 (Depreciation)
--------- ----------------- ----------- ---------- ---------- ---------------
<C> <C> <S> <C> <C> <C>
Long Positions:
20 U.S. Long Bond Sept. 2000 $1,947,500 $1,971,875 $ 24,375
---------------
---------------
</TABLE>
Note 5. Joint Repurchase Agreement Account
The Fund, along with other affiliated registered investment companies, transfers
uninvested cash balances into a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements collateralized
by U.S. Government or federal agency obligations. As of July 31, 2000, the Fund
had a 4.4% undivided interest in repurchase agreements in the joint account. The
undivided interest for the Fund represented $24,667,000 in principal amount. As
of such date, each repurchase agreement in the joint account and the value of
the collateral therefor was as follows:
ABN AMRO Incorporated, 6.56%, in the principal amount of $100,000,000,
repurchase price $100,018,222, due 8/1/00. The value of the collateral including
accrued interest was $102,000,029
Bear, Stearns & Co. Inc., 6.55%, in the principal amount of $100,000,000,
repurchase price $100,018,194, due 8/1/00. The value of the collateral including
accrued interest was $102,926,906.
Greenwich Capital Markets, Inc., 6.57%, in the principal amount of
$110,000,000, repurchase price $110,020,075, due 8/1/00. The value of the
collateral including accrued interest was $112,201,716.
Merrill Lynch, Pierce, Fenner & Smith, Inc., 6.45%, in the principal
amount of $97,030,000, repurchase price $97,047,384, due 8/1/00. The value of
the collateral including accrued interest was $98,970,864.
Salomon Smith Barney, Inc., 6.55%, in the principal amount of
$155,000,000, repurchase price $155,028,201, due 8/1/00. The value of the
collateral including accrued interest was $158,174,190.
37
<PAGE>
Prudential Balanced Fund
Notes to Financial Statements Cont'd.
Note 6. Proposed Reorganization
On May 2, 2000, the Trustees of the Fund approved an Agreement and Plan of
Reorganization (the 'Plan'), which provides for the transfer of all of the
assets and liabilities of Prudential Balanced Fund to Prudential Active Balanced
Fund in exchange for Class A, B, C and Z shares of the Prudential Active
Balanced Fund and Prudential Active Balanced Fund's assumption of the
liabilities of the Balanced Fund.
The Plan is subject to approval by the shareholders of the Balanced Fund
at a shareholder meeting scheduled to be held on October 27, 2000. If the Plan
is approved, it is expected that the reorganization will take place on or about
November 3, 2000. The Active Balanced Fund and the Balanced Fund will each bear
their pro-rata share of the costs of the reorganization, including cost of proxy
solicitation.
Note 7. 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 upon
the period of time the shares are held. Class C shares are sold with a front-end
sales charge of 1% and a contingent deferred sales charge of 1% during the first
18 months. 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. Of the 79,140,656 shares of beneficial interest issued and
outstanding at July 31, 2000, Prudential owned 8,871,583.
The Fund has authorized an unlimited number of shares of beneficial
interest of each class at $.01 par value per share.
Transactions in shares of beneficial interest for the years ended July 31,
2000 and July 31, 1999 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
---------------------------------------------------------- ----------- -------------
<S> <C> <C>
Year ended July 31, 2000:
Shares sold 4,033,642 $ 50,333,004
Shares issued in reinvestment of dividends and
distributions 3,791,453 45,326,432
Shares reacquired (12,913,869) (159,529,027)
----------- -------------
Net decrease in shares outstanding before conversion (5,088,774) (63,869,591)
Shares issued upon conversion from Class B 6,151,387 76,096,080
----------- -------------
Net increase in shares outstanding 1,062,613 $ 12,226,489
----------- -------------
----------- -------------
</TABLE>
38
<PAGE>
Prudential Balanced Fund
Notes to Financial Statements Cont'd.
<TABLE>
<CAPTION>
Class A Shares Amount
---------------------------------------------------------- ----------- -------------
<S> <C> <C>
Year ended July 31, 1999:
Shares sold 5,888,331 $ 72,630,854
Shares issued in reinvestment of dividends and
distributions 3,548,537 42,190,816
Shares reacquired (10,211,802) (126,616,025)
----------- -------------
Net decrease in shares outstanding before conversion (774,934) (11,794,355)
Shares issued upon conversion from Class B 3,108,715 37,656,869
----------- -------------
Net increase in shares outstanding 2,333,781 $ 25,862,514
----------- -------------
----------- -------------
<CAPTION>
Class B
----------------------------------------------------------
<S> <C> <C>
Year ended July 31, 2000:
Shares sold 2,936,826 $ 36,153,322
Shares issued in reinvestment of dividends and
distributions 2,857,445 33,967,629
Shares reacquired (7,995,030) (98,644,645)
----------- -------------
Net decrease in shares outstanding before conversion (2,200,759) (28,523,694)
Shares reacquired upon conversion into Class A (6,181,542) (76,096,080)
----------- -------------
Net decrease in shares outstanding (8,382,301) $(104,619,774)
----------- -------------
----------- -------------
Year ended July 31, 1999:
Shares sold 4,593,047 $ 56,428,035
Shares issued in reinvestment of dividends and
distributions 3,520,532 41,558,742
Shares reacquired (12,029,878) (147,746,960)
----------- -------------
Net decrease in shares outstanding before conversion (3,916,299) (49,760,183)
Shares reacquired upon conversion into Class A (3,122,676) (37,656,869)
----------- -------------
Net decrease in shares outstanding (7,038,975) $ (87,417,052)
----------- -------------
----------- -------------
<CAPTION>
Class C
----------------------------------------------------------
<S> <C> <C>
Year ended July 31, 2000:
Shares sold 259,720 $ 3,202,108
Shares issued in reinvestment of dividends and
distributions 69,684 829,129
Shares reacquired (328,169) (4,045,276)
----------- -------------
Net increase (decrease) in shares outstanding 1,235 $ (14,039)
----------- -------------
----------- -------------
Year ended July 31, 1999:
Shares sold 311,461 $ 3,843,335
Shares issued in reinvestment of dividends and
distributions 65,181 770,023
Shares reacquired (319,838) (3,923,655)
----------- -------------
Net increase in shares outstanding 56,804 $ 689,703
----------- -------------
----------- -------------
<CAPTION>
Class Z
----------------------------------------------------------
<S> <C> <C>
Year ended July 31, 2000:
Shares sold 3,140,525 $ 38,927,678
Shares issued in reinvestment of dividends and
distributions 966,703 11,567,765
Shares reacquired (4,246,206) (52,691,830)
----------- -------------
Net decrease in shares outstanding (138,978) $ (2,196,387)
----------- -------------
----------- -------------
Year ended July 31, 1999:
Shares sold 3,393,149 $ 42,029,226
Shares issued in reinvestment of dividends and
distributions 918,694 10,933,179
Shares reacquired (5,089,268) (63,383,912)
----------- -------------
Net decrease in shares outstanding (777,425) $ (10,421,507)
----------- -------------
----------- -------------
</TABLE>
39
<PAGE>
Prudential Balanced Fund
Financial Highlights
<TABLE>
<CAPTION>
Class A
----------------
Year Ended
July 31, 2000
----------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 12.66
----------------
Income from investment operations
Net investment income .33
Net realized and unrealized gain on investment transactions .71
----------------
Total from investment operations 1.04
----------------
Less distributions
Dividends from net investment income (0.33)
Distributions from net realized gains on investment and
foreign currency transactions (0.85)
----------------
Total distributions (1.18)
----------------
Net asset value, end of year $ 12.52
----------------
----------------
TOTAL RETURN(a): 8.85%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) $523,902
Average net assets (000) $522,040
Ratios to average net assets:
Expenses, including distribution fees and service (12b-1)
fees 1.20%
Expenses, excluding distribution fees and service (12b-1)
fees .95%
Net investment income 2.66%
Portfolio turnover rate 96%
</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.
40 See Notes to Financial Statements
<PAGE>
Prudential Balanced Fund
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------------------------------------
Year Ended July 31,
-------------------------------------------------------------------------------------
1999 1998 1997 1996
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 12.63 $ 14.01 $ 11.85 $ 12.04
---------------- ---------------- ---------------- ----------------
.29 .33 .34 .31
.92 .29 2.96 .28
---------------- ---------------- ---------------- ----------------
1.21 .62 3.30 .59
---------------- ---------------- ---------------- ----------------
(.29) (.34) (.36) (.29)
)
(.89 (1.66) (.78) (.49)
---------------- ---------------- ---------------- ----------------
(1.18) (2.00) (1.14) (.78)
---------------- ---------------- ---------------- ----------------
$ 12.66 $ 12.63 $ 14.01 $ 11.85
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
10.37% 5.05% 29.09% 4.89%
$516,281 $485,690 $497,461 $262,096
$493,917 $493,828 $306,717 $246,609
1.17% 1.19% 1.17% 1.20%
.92% .94% .92% .95%
2.34% 2.51% 2.84% 2.53%
103% 144% 140% 97%
</TABLE>
See Notes to Financial Statements 41
<PAGE>
Prudential Balanced Fund
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class B
----------------
Year Ended
July 31, 2000
----------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 12.61
----------------
Income from investment operations
Net investment income .28
Net realized and unrealized gain on investment transactions .68
----------------
Total from investment operations .96
----------------
Less distributions
Dividends from net investment income (.24)
Distributions from net realized gains on investment and
foreign currency transactions (.85)
----------------
Total distributions (1.09)
----------------
Net asset value, end of year $ 12.48
----------------
----------------
TOTAL RETURN(a): 8.22%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) $336,851
Average net assets (000) $391,969
Ratios to average net assets:
Expenses, including distribution fees and service (12b-1)
fees 1.77%
Expenses, excluding distribution fees and service (12b-1)
fees .95%
Net investment income 2.08%
Portfolio turnover rate 96%
</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.
42 See Notes to Financial Statements
<PAGE>
Prudential Balanced Fund
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class B
-------------------------------------------------------------------------------------
Year Ended July 31,
-------------------------------------------------------------------------------------
1999 1998 1997 1996
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 12.57 $ 13.96 $ 11.80 $ 12.00
---------------- ---------------- ---------------- ----------------
.20 .24 .26 .21
.92 .27 2.95 .28
---------------- ---------------- ---------------- ----------------
1.12 .51 3.21 .49
---------------- ---------------- ---------------- ----------------
(.19) (.24) (.27) (.20)
)
(.89 (1.66) (.78) (.49)
---------------- ---------------- ---------------- ----------------
(1.08) (1.90) (1.05) (.69)
---------------- ---------------- ---------------- ----------------
$ 12.61 $ 12.57 $ 13.96 $ 11.80
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
9.44% 4.28% 28.24% 4.05%
$445,946 $533,354 $625,715 $420,465
$490,071 $578,432 $431,425 $437,792
1.92% 1.94% 1.92% 1.95%
.92% .94% .92% .95%
1.60% 1.76% 2.09% 1.78%
103% 144% 140% 97%
</TABLE>
See Notes to Financial Statements 43
<PAGE>
Prudential Balanced Fund
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class C
----------------
Year Ended
July 31, 2000
----------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 12.61
--------
Income from investment operations
Net investment income .26
Net realized and unrealized gain on investment transactions .70
--------
Total from investment operations .96
--------
Less distributions
Dividends from net investment income (.24)
Distributions from net realized gains on investment and
foreign currency transactions (.85)
--------
Total distributions (1.09)
--------
Net asset value, end of year $ 12.48
--------
--------
TOTAL RETURN(b): 8.22%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) $ 9,855
Average net assets (000) $ 10,104
Ratios to average net assets:
Expenses, including distribution fees and service (12b-1)
fees 1.77%
Expenses, excluding distribution fees and service (12b-1)
fees .95%
Net investment income 2.09%
Portfolio turnover rate 96%
</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.
44 See Notes to Financial Statements
<PAGE>
Prudential Balanced Fund
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class C
-------------------------------------------------------------------------------------
Year Ended July 31,
-------------------------------------------------------------------------------------
1999 1998 1997 1996
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 12.57 $ 13.96 $ 11.80 $ 12.00
---------------- ---------------- ---------------- ----------------
.20 .24 .26 .21
.92 .27 2.95 .28
---------------- ---------------- ---------------- ----------------
1.12 .51 3.21 .49
---------------- ---------------- ---------------- ----------------
(.19) (.24) (.27) (.20)
)
(.89 (1.66) (.78) (.49)
---------------- ---------------- ---------------- ----------------
(1.08) (1.90) (1.05) (.69)
---------------- ---------------- ---------------- ----------------
$ 12.61 $ 12.57 $ 13.96 $ 11.80
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
9.44% 4.28% 28.24% 4.05%
$ 9,939 $ 9,201 $ 7,023 $ 3,525
$ 9,535 $ 8,175 $ 4,790 $ 2,444
1.92% 1.94% 1.92% 1.95%
.92% .94% .92% .95%
1.60% 1.76% 2.09% 1.78%
102% 144% 140% 97%
</TABLE>
See Notes to Financial Statements 45
<PAGE>
Prudential Balanced Fund
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class Z
----------------
Year Ended
July 31, 2000
----------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 12.67
----------------
Income from investment operations
Net investment income .36
Net realized and unrealized gain (loss) on investment
transactions .70
----------------
Total from investment operations 1.06
----------------
Less distributions
Dividends from net investment income (.36)
Distributions from net realized gains on investment and
foreign currency transactions (.85)
----------------
Total distributions (1.21)
----------------
Net asset value, end of period $ 12.52
----------------
----------------
TOTAL RETURN(b): 9.02%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $119,010
Average net assets (000) $122,550
Ratios to average net assets:
Expenses, including distribution fees and service (12b-1)
fees .95%
Expenses, excluding distribution fees and service (12b-1)
fees .95%
Net investment income 2.91%
Portfolio turnover rate 96%
</TABLE>
------------------------------
(a) Commencement of offering of Class Z shares.
(b) 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) Annualized.
46 See Notes to Financial Statements
<PAGE>
Prudential Balanced Fund
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class Z
-------------------------------------------------------------------------------------
Year Ended July 31, March 1, 1996(a)
---------------------------------------------------------- through
1999 1998 1997 July 31, 1996
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 12.64 $ 14.01 $ 11.85 $ 12.16
---------------- ---------------- ---------------- ----------------
.33 .37 .46 .13
.91 .29 2.87 (.28)
---------------- ---------------- ---------------- ----------------
1.24 .66 3.33 (.15)
---------------- ---------------- ---------------- ----------------
(.32) (.37) (.39) (.16)
)
(.89 (1.66) (.78) --
---------------- ---------------- ---------------- ----------------
(1.21) (2.03) (1.17) (.16)
---------------- ---------------- ---------------- ----------------
$ 12.67 $ 12.64 $ 14.01 $ 11.85
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
10.63% 5.37% 29.39% (1.24)%
$122,129 $131,671 $129,459 $ 4,015
$121,398 $128,358 $ 99,391 $ 4,217
.92% .94% .92% .95%(c)
.92% .94% .92% .95%(c)
2.60% 2.76% 3.12% 2.72%(c)
102% 144% 140% 97%
</TABLE>
See Notes to Financial Statements 47
<PAGE>
Prudential Balanced Fund
Report of Independent Accountants
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') at July 31, 2000, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the four years in the period then
ended, in conformity with accounting principles generally accepted in the United
States. 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 auditing standards generally accepted in the United States,
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, 2000 by correspondence with the custodian
and brokers, provide a reasonable basis for the opinion expressed above. The
accompanying financial highlights for the period ended July 31, 1996 were
audited by other independent accountants, whose opinion dated September 16, 1996
was unqualified.
As described in Note 6 to the financial statements, on May 2, 2000, the Board of
Trustees of the Fund approved an Agreement and Plan of Reorganization, subject
to shareholder approval, whereby the Fund would be merged into Prudential Active
Balanced Fund.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
September 22, 2000
48
<PAGE>
Prudential Balanced Fund
Tax Information (Unaudited)
We are required by the Internal Revenue Code to advise you within 60 days
of the Fund's fiscal year end (July 31, 2000) 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, 2000,
dividends paid from net investment income were $.333 per share for Class A
shares, $.238 per share for Class B and Class C shares and $.363 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 $.15,
which is taxable as ordinary income and a long-term capital gain distribution of
$.70.
We also wish to advise you that 34.08% of the dividends paid from ordinary
income in the fiscal year ended July 31, 2000 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 9.50% of the dividends paid from
ordinary income in the fiscal year ended July 31, 2000 qualify for each of these
states' tax exclusion. In January 2001, 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 2000.
49
<PAGE>
Prudential Balanced Fund
Class A Growth of a $10,000 Investment
(GRAPH)
Average Annual Total Returns as of 7/31/00
<TABLE>
<CAPTION>
One Year Five Years Ten Years Since Inception
<S> <C> <C> <C> <C>
With Sales Charge 3.40% 10.17% 10.59% 10.71% (1/22/90)
Without Sales Charge 8.85% 11.31% 11.16% 11.25% (1/22/90)
</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. The information within the
graph is designed to give you an idea of how much the
Fund's return can fluctuate from year to year by
measuring the best and worst calendar years in terms of
total annual return for the past ten years.
The graph compares a $10,000 investment in the Prudential
Balanced Fund Class A shares with a
similar investment in the Lehman Brothers
Government/Credit Bond Index and the Standard & Poor's
500 Composite Stock Price Index (S&P 500 Index) by
portraying the account value at the beginning of the
ten-year period, and at the end of the current fiscal
year (July 31, 2000), as measured on a quarterly basis,
beginning in 1990. For purposes of the graph, and unless
otherwise indicated, it has been assumed that (a) the
maximum applicable Class A front-end sales charge was
deducted from the initial $10,000
investment; (b) all recurring fees (including management
fees) were deducted; and (c) all dividends and
distributions were reinvested.
The Lehman Brothers Government/Credit Bond Index is a
weighted index of public, fixed-rate, non-
convertible domestic corporate debt securities rated at
least investment grade, and public obligations of the
U.S. Treasury. The S&P 500 Index is an unmanaged index of
500 stocks of large U.S. companies, which gives a broad
look at how stock prices have performed. The total
returns of both indexes include the
reinvestment of all dividends, but do not include the
effect of sales charges or operating expenses of a mutual
fund. The securities that comprise the indexes may differ
substantially from the securities in the Fund. These
indexes are not the only indexes that may be used to
characterize performance of balanced funds. Other indexes
may portray different comparative performance. Investors
cannot invest directly in an index. This graph is
furnished to you in accordance with SEC regulations.
<PAGE>
www.prudential.com (800) 225-1852
Class B Growth of a $10,000 Investment
(GRAPH)
Average Annual Total Returns as of 7/31/00
<TABLE>
<CAPTION>
One Year Five Years Ten Years Since Inception
<S> <C> <C> <C> <C>
With Sales Charge 3.22% 10.37% 10.33% 9.29% (9/15/87)
Without Sales Charge 8.22% 10.51% 10.33% 9.29% (9/15/87)
</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. The information within the
graph is designed to give you an idea of how much the
Fund's return can fluctuate from year to year by
measuring the best and worst calendar years in terms of
total annual return for the past ten years.
The graph compares a $10,000 investment in the Prudential
Balanced Fund Class B shares with a
similar investment in the Lehman Brothers
Government/Credit Bond Index and the Standard & Poor's
500 Composite Stock Price Index (S&P 500 Index) by
portraying the account value at the beginning of the
ten-year period, and at the end of the current fiscal
year (July 31, 2000), as measured on a quarterly basis,
beginning in 1990. For purposes of the graph, and unless
otherwise indicated, it has been assumed that (a) the
maximum applicable contingent deferred sales charge for
Class B shares was deducted from the value of the
investment, assuming full redemption on July 31, 2000;
(b) all recurring fees (including management fees) were
deducted; and (c) 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.
The Lehman Brothers Government/Credit Bond Index is a
weighted index of public, fixed-rate, non-
convertible domestic corporate debt securities rated at
least investment grade, and public obligations of the
U.S. Treasury. The S&P 500 Index is an unmanaged index of
500 stocks of large U.S. companies, which gives a broad
look at how stock prices have performed. The total
returns of both indexes include the reinvestment of all
dividends, but do not include the effect of sales charges
or operating expenses of a mutual fund. The securities
that comprise the indexes may differ substantially from
the securities in the Fund. These indexes are not the
only indexes that may be used to characterize performance of
balanced funds. Other indexes may portray different
comparative performance. Investors cannot invest directly
in an index. This graph is furnished to you in accordance
with SEC regulations.
<PAGE>
Prudential Balanced Fund
Class C Growth of a $10,000 Investment
(GRAPH)
Average Annual Total Returns as of 7/31/00
<TABLE>
<CAPTION>
One Year Five Years Ten Years Since Inception
<S> <C> <C> <C> <C>
With Sales Charge 6.13% 10.28% N/A 10.65%
Without Sales Charge 8.22% 10.51% N/A 10.84%
</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. The information within the
graph is designed to give you an idea of how much the
Fund's return can fluctuate from year to year by
measuring the best and worst calendar years in terms of
total annual return since the inception of the share
class.
The graph compares a $10,000 investment in the Prudential
Balanced Fund Class C shares with a
similar investment in the Lehman Brothers
Government/Credit Bond Index and the Standard & Poor's
500 Composite Stock Price Index (S&P 500 Index) by
portraying the account value at the commencement of
operations of Class C shares, and at the end of the
current fiscal year (July 31, 2000), as measured on a
quarterly basis, beginning in 1994. For purposes of the
graph, and unless otherwise indicated, it has been
assumed that (a) the maximum applicable Class C front-end
sales charge was deducted from the initial $10,000
investment; (b) the maximum applicable Class C contingent
deferred sales charge was deducted from the value of the
investment, assuming full redemption on July 31, 2000;
(c) all recurring fees (including management fees) were
deducted; and (d) all dividends and distributions were
reinvested.
The Lehman Brothers Government/Credit Bond Index is a
weighted index of public, fixed-rate, nonconvertible
domestic corporate debt securities rated at least
investment grade, and public obligations of the U.S.
Treasury. The S&P 500 Index is an unmanaged index of 500
stocks of large U.S. companies, which gives a broad look
at how stock prices have performed. The total returns of
both indexes include the
reinvestment of all dividends, but do not include the
effect of sales charges or operating expenses of a mutual
fund. The securities that comprise the indexes may differ
substantially from the securities in the Fund. These
indexes are not the only indexes that may be used to
characterize performance of balanced funds. Other indexes
may portray different comparative performance. Investors
cannot invest directly in an index. This graph is
furnished to you in accordance with SEC regulations.
<PAGE>
www.prudential.com (800) 225-1852
Class Z Growth of a $10,000 Investment
(GRAPH)
Average Annual Total Returns as of 7/31/00
<TABLE>
<CAPTION>
One Year Five Years Ten Years Since Inception
<S> <C> <C> <C> <C>
With Sales Charge 9.02% N/A N/A 11.61%
Without Sales Charge 9.02% N/A N/A 11.61%
</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. The information within the
graph is designed to give you an idea of how much the
Fund's return can fluctuate from year to year by
measuring the best and worst calendar years in terms of
total annual return since the inception of the share
class.
The graph compares a $10,000 investment in the Prudential
Balanced Fund Class Z shares with a
similar investment in the Lehman Brothers
Government/Credit Bond Index and the Standard & Poor's
500 Composite Stock Price Index (S&P 500 Index) by
portraying the account value at the commencement of
operations of Class Z shares, and at the end of the
current fiscal year (July 31, 2000), as measured on a
quarterly basis, beginning in 1996. For purposes of the
graph, and unless otherwise indicated, it has been
assumed that all dividends and distributions were
reinvested. Class Z shares are not subject to a sales
charge or distribution and service (12b-1) fees.
The Lehman Brothers Government/Credit Bond Index is a
weighted index of public, fixed-rate, non-
convertible domestic corporate debt securities rated at
least investment grade, and public obligations of the
U.S. Treasury. The S&P 500 Index is an unmanaged index of
500 stocks of large U.S. companies, which gives a broad
look at how stock prices have performed. The total
returns of both indexes include the reinvestment of all
dividends, but do not include the effect of sales charges
or operating expenses of a mutual fund. The securities
that comprise the indexes may differ substantially from
the securities in the Fund. These indexes are not the
only indexes that may be used to characterize performance of
balanced funds. Other indexes may portray different
comparative performance. Investors cannot invest directly
in an index. This graph is furnished to you in accordance
with SEC regulations.
<PAGE>
FOR MORE INFORMATION
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
Visit Prudential's web site at:
http://www.prudential.com
Trustees
Delayne Dedrick Gold
Robert F. Gunia
Saul K. Fenster, Ph.D.
Douglas H. McCorkindale
W. Scott McDonald, Jr.
Thomas T. Mooney
Stephen P. Munn
David R. Odenath, Jr.
Richard A. Redeker
Robin B. Smith
John R. Strangfeld
Louis A. Weil, III
Clay T. Whitehead
Officers
John R. Strangfeld, President
Robert F. Gunia, Vice President
David R. Odenath, Jr., Vice President
Grace C. Torres, Treasurer
Marguerite E. H. Morrison, Secretary
William V. Healey, 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 8098
Philadelphia, PA 19101
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
Fund Symbols NASDAQ CUSIP
Class A PFCAX 74431M105
Class B PRFCX 74431M204
Class C PBFCX 74431M303
Class Z PFCZX 74431M402
MF134E
(LOGO) Printed on Recycled Paper
