(ICON)
Prudential
Diversified
Bond
Fund, Inc.
SEMI
ANNUAL
REPORT
June 30, 1996
(LOGO)
<PAGE>
Prudential Diversified Bond Fund, Inc.
Performance At A Glance.
After delivering excellent returns in 1995, bonds disappointed investors
during the first half of 1996. Economic growth accelerated, pushing
interest rates dramatically higher and weakening bond prices. As a
result, the Prudential Diversified Bond Fund provided a negative
return during the six months ended June 30, 1996. The Fund also
finished behind the average bond fund measured by Lipper Analytical
Services. We believe the average maturity of the Fund's bonds was
longer than our competition's, and we also held too few assets in
lower quality high yield bonds (the best peforming type of domestic
bond during the period). Nor did we hold any non-dollar denominated
securities. We have since shortened our maturities, as well as added
to our high yield holdings. (We may hold as much as 35% of assets in
junk bonds.)
<TABLE>
Cumulative Total Returns1 As of 6/30/96
<CAPTION>
Six One Since
Months Year Inception2
<S> <C> <C> <C>
Class A -1.6% 6.0% 17.9%
Class B -1.8 5.4 17.0
Class C -1.8 5.4 17.0
Lipper Gen. Bond Avg3 0.6 7.4 17.5
</TABLE>
<TABLE>
Average Annual Total Returns1 As of 6/30/96
<CAPTION>
One Since
Year Inception2
<S> <C> <C> <C>
Class A 1.7% (1.6)4 8.8% (8.6)4
Class B 0.4 (0.3)4 8.6 (8.5)4
Class C 4.4 (4.3)4 11.2 (11.1)4
</TABLE>
<TABLE>
<CAPTION>
Total Dividends 30-Day
Paid for Six Mos. SEC Yield
<S> <C> <C> <C>
Dividends
& Yields Class A $0.46 6.57%
As of Class B $0.42 6.25
6/30/96 Class C $0.42 6.25
</TABLE>
Past performance is not indicative of future results. Principal and
investment return will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
1Source: Prudential Mutual Fund Management and Lipper Analytical
Services. The cumulative total returns do not take into account
sales charges. The average annual total returns do take into
account applicable sales charges. The Fund charges a maximum
front-end sales load of 4% for Class A shares and a declining
contingent deferred sales charge (CDSC) of 5%, 4%, 3%, 2%, 1%
and 1%, respectively for six years, for Class B shares. Class
C shares have a 1% CDSC for one year. Class B shares automatically
convert to Class A shares on a quarterly basis, after approximately
seven years after purchase.
2Inception dates: 1/10/95 Class A, Class B and Class C.
3Lipper average returns are for 57 funds for six months, 53 funds
for one year, and 51 funds since inception on 1/10/95.
4Without waivers and expense subsidies, the Series' average annual
total return/30-day SEC yield would have been lower, as indicated
in parentheses ( ).
How Investments Compared.
(As of 6/30/96)
(CHART)
Source: Lipper Analytical Services. Financial markets change, so a
mutual fund's past performance should never be used to predict future
results. The risks to each of the investments listed above are
different -- we provide 12-month total returns for several Lipper
mutual fund categories to show you that reaching for higher yields
means tolerating more risk. The greater the risk, the larger the
potential reward or loss. In addition, we've included historical
20-year average annual returns. These returns assume the reinvestment
of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors have received
higher historical total returns from stocks than from most other
investments. Smaller capitalization stocks offer greater potential
for long-term growth but may be more volatile than larger
capitalization stocks.
General Bond Funds provide more income than stock funds, which
can help smooth out their total returns year by year. But their
prices still fluctuate (sometimes significantly) and their returns
have been historically lower than those of stock funds.
General Municipal Debt Funds invest in bonds issued by state
governments, state agencies and/or municipalities. This investment
provides income that is usually exempt from federal and state
income taxes.
Money Market Funds attempt to preserve a constant share value; they
don't fluctuate much in price but, historically, their returns have
been generally among the lowest of the major investment categories.
<PAGE>
Barbara L. Kenworthy, Fund Manager (PICTURE)
Portfolio
Manager's Report
The Prudential Diversified Bond Fund allocates its assets among
different types of bonds: U.S. government securities, mortgage backed
securities, corporate debt securities and foreign (mainly government)
securities. Barbara Kenworthy is a "value investor". She looks for
bonds that, in her view, offer competitive yields and appear to be
priced lower than their inherent worth would merit. There can be no
assurance that the Fund will achieve its investment objective.
Some High
Yields.
The Fund can invest up to 35% of its total net assets in lower-rated
and unrated bonds, commonly known as "junk bonds." Investments of
this type are subject to greater risk of loss of principal and
interest, including default risk, than higher rated bonds. As of
June 30, 1996, the Fund held about 30% of total net assets in
junk bonds, up from 15% six months earlier.
Strategy Session.
Interest Rates Rose.
It's been a difficult six months in the bond market. After falling
dramatically in 1995, interest rates rose sharply with little warning
this year, whipsawing bond investors. In the first half of 1996, the
30-year U.S. Treasury yield rose by nearly one full percentage point,
closing on June 30 at 6.89%. It was just last year the 30-year yield
plummeted two percentage points to 5.95%.
What happened? When we last wrote, investors were optimistic. Inflation
seemed to be beaten, the economy was growing slowly and the president
and the Congress appeared to be on the brink of a historic agreement
to balance the budget. (This was good for bonds.) Then gold hit $415
an ounce, the economy suddenly strengthened and talk of a landmark
budget deal turned out to be just that -- talk. (This was bad for bonds.)
In this rapidly changing market of the last six months, the Fund followed
a two-pronged strategy:
First, we reduced duration, a measure of sensitivity to interest rates,
to 5.2 years on June 30, 1996 from 6.0 years on December 31, 1995. This
helped us defend against rising interest rates, because shorter maturity
bonds fall less in price than those with longer maturities when interest
rates rise.
Second, we held more assets than the average fund in corporate and
Yankee (U.S. dollar-denominated foreign) bonds. In addition, we increased
our holdings in high yield or junk bonds to about 30% by June 30, 1996,
up from 15% six months earlier. That proved to be wise, because junk
bonds have performed better than any other type of domestic bond so
far this year.
High Yield Bonds Grow.
Expressed as a percentage of
total net assets as of 6/30/96.
(CHART)
<PAGE>
What Went Well.
Crossing Over.
In our search for higher yields, we met with some success with
"crossover bonds" -- so-called because they straddle the line between
junk and investment-grade bonds. These bonds tend to be rated triple-B,
or investment grade, by one rating agency and double-B, or junk by
another. Crossover bonds are attractive because there's a relatively
thin supply of new, top-rated corporate bonds, so the prices of
comparatively lower-rated crossover bonds rise as investors battle
over them, driving their yields down. These bonds represent as much
as 25% of today's junk bond market, as measured by First Boston.
We found crossover bonds primarily in the communications industry.
We also owned two crossover airline bonds, which performed well.
Corporates Did Well.
For much of the last six months, we held a significant portion of
assets in investment grade corporate bonds (as much as 60% of total
net assets), because these bonds carried higher yields and offered
more price appreciation potential than Treasurys. In early June,
we started to lighten up on our corporate holdings as the yield of
the 30-year U.S. Treasury climbed toward 7.25%.
And Not So Well.
Worst Was Best.
Your Fund suffered from rising interest rates a little more than other
bond funds partly because we held longer maturity and better-rated
bonds. When interest rates rise, sometimes the worst bonds to hold
are the ones that are the most sensitive to interest rate changes:
top quality Treasury bonds, government agency bonds and highly-rated
corporate bonds (bonds with the highest credit ratings). Why? These
bonds generally have lower yields than lower-rated bonds, so when
interest rates rise, they lose their principal value more quickly.
It Paid To Be Short.
We wish we had shortened our duration more in January, before the first
signs of stronger economic growth started to surface. Had we been more
defensive at that point (by holding bonds with slightly shorter
maturities instead of those with somewhat longer maturities) we
would have lost less when yields rose. It's important to note that
bond yields have risen this year on the fear -- not the actual
appearance -- of rising inflation.
Five Largest Issuers.
5.2% Time Warner
Media
4.5% Salomon Inc.
Financial Services
4.3% Federated Dept. Stores
Retail
4.0% Tenet Healthcare
Health Care
3.5% Republic of Colombia
Foreign Gov't Security
Expressed as a percentage of total net assets as of 6/30/96.
Looking Ahead.
The ball is pretty much in the court of the Federal Reserve now. We've
seen some rather dramatic evidence of a surging economy in the second
quarter -- higher employment, consumer spending and business investment.
This surge in economic activity could very well force the Federal
Reserve to raise short-term interest rates to prevent any rise in
inflation.
Still, interest rates at these levels are becoming quite attractive for
income-oriented investors, so we wouldn't be surprised to see
professional investors step in. It would buoy the bond market.
We will be watching economic growth and are looking forward to the
inevitable buying opportunities.
1
<PAGE>
A Talk With Barbara Kenworthy.
Why Did The Bond Market Falter? Here's One Opinion.
Q. Barbara, it's been a difficult six months in the bond market.
What happened?
A. Economic growth was a lot stronger than investors expected. So
investors started to worry once again that inflation might be coming back.
Q. Does that mean that interest rates could go still higher?
A. Inflation at the moment seems to be contained. But if economic
activity continues to intensify, the Federal Reserve may make a pre-emptive
strike against inflation by raising short-term interest rates.
Q. What would change your mind?
A. I watch the number of new jobs created by the economy each month.
There were 239,000 new jobs created in June, clearly worrying investors.
Also a concern was the big June jump in average hourly earnings. I also
monitor commodities prices closely. Gold and oil prices rose earlier
this year, but fell by midyear, and that's good news for bond holders.
The U.S. dollar is also important, because so many buyers of our U.S.
government bonds are actually citizens of other countries. They like to
see a strong dollar.
Q. This is an election year. How will the election affect the market?
A. In most election years, government spending goes up, so politicians
running for re-election can point to lots of new initiatives, helping
their re-election prospects. That really hasn't happened so far.
Instead, the budget deficit is falling, and that's generally good
news for bond prices. But it's early yet. Last fall our elected
officials in Washington told us they would give us a balanced budget.
This clearly hasn't happened.
<PAGE>
2
<PAGE>
President's Letter August 1, 1996
(PICTURE)
Dear Shareholder:
Last year, U.S. stocks and bonds generally posted extraordinary returns.
Investors celebrated this performance by putting record amounts of new
money into mutual funds in the first few months of 1996. According to
figures released by the Investment Company Institute, a mutual fund
industry trade group, new investments in mutual funds reached an
all-time monthly high of $33 billion in January of 1996. An additional
$66 billion was invested in the following three months, although this
rapid inflow subsided somewhat in late spring.
While we are pleased that mutual funds are attracting new investors,
we're concerned that some of them may be "buying last year's returns."
Few expect 1995's virtual non-stop returns from the stock and bond
markets. In fact, 1996's markets have been volatile so far (stock
and bond prices go down just as they go up). There's no better time
than now to be talking with your Financial Advisor or Registered
Representative. She or he can help you determine reasonable
expectations about both the potential performance and risks
associated with your investments.
Board of Directors Election.
In addition to this report, we are including a notice about a special
shareholder meeting to elect new Prudential mutual fund boards of
directors. Your Board of Directors has approved a proposal to place
a common board of experienced directors across many of Prudential's
mutual funds to improve business efficiency. The enclosed material
contains more complete information about this proposal.
Changes at Prudential.
Finally, there have been some important changes recently at Prudential
that were made with you in mind. Prudential Mutual Funds has moved under
the umbrella of Prudential's newly created "Money Management Group."
This group manages and administers nearly $190 billion in client assets
and provides mutual funds, annuities, defined benefit and defined
contribution plans to our individual and institutional investors.
We plan to improve the range and quality of investment products and
services that we can provide you by better leveraging Prudential's
strengths. There will, however, be no change in the service you
receive from your Financial Advisor, Registered Representative or
our Customer Service unit.
We're excited about our future and hope that you are, too. Thank
you for your continued support and confidence in Prudential Mutual
Funds.
Sincerely,
Richard A. Redeker
President
3
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED
June 30, 1996 (Unaudited) BOND FUND, INC.
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description Value (Note 1)
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--89.9%
- ------------------------------------------------------------
Domestic Corporate Bonds--65.7%
<C> <C> <S> <C>
Baa3 $ 2,000 Advanta National Bank,
Cert. of Deposit,
6.26%, 9/1/97
(Banking) $ 1,997,000
Ba3 2,000 Agco Corp.,
Sr. Sub. Notes,
8.50%, 3/15/06
(Agricultural Equipment) 1,960,000
Ba3 1,000 American Standard, Inc.,
Sr. Deb.,
11.375%, 5/15/04
(Consumer Goods & Services) 1,080,000
A3 2,500 Auburn Hills Trust,
Gtd. Cert.,
12.00%, 5/1/20
(Automotive) 3,611,000
B1 2,000 Bally's Grand, Inc.,
10.375%, 12/15/03
(Casinos) 2,195,000
NR 2,400 BankAmerica Corp.,
Sub. Notes, F.R.N.,
5.9844% (a), 5/17/99
(Banking) 2,419,680
Ba2 2,000 BJ Services Co.,
Sr. Notes,
7.00%, 2/1/06 1,846,720
(Oil & Gas Equipment &
Services)
B2 1,000 Cablevision Systems Corp.,
Sr. Sub. Notes,
9.25%, 11/1/05 930,000
(Cable & Pay Television
Systems)
B2 1,000 Centennial Cellular Corp.,
Sr. Notes,
10.125%, 5/15/05
(Telecommunications) 960,000
Baa3 2,500 Columbia Gas Systems, Inc.,
7.62%, 11/28/25
(Oil & Gas) 2,350,425
Baa3 $ 1,000 Delta Air Lines, Inc.,
Sr. Notes,
9.875%, 5/15/00
(Transportation) $ 1,092,590
Digital Equipment Corp.,
Ba1 1,000 7.125%, 10/15/02 970,100
Ba1 4,000 7.75%, 4/1/23
(Computers) 3,616,320
Ba3 1,500 El Paso Electric Co.,
9.40%, 5/1/11
(Utilities) 1,485,000
Enterprise Rent-A-Car U.S.A.
Finance Co.,
Baa3 1,000 7.875%, 3/15/98 1,024,660
Baa3 2,500 7.00%, 6/15/00
(Financial Services) 2,497,656
Federated Dept. Stores, Inc.,
Sr. Notes,
Ba1 2,000 10.00%, 2/15/01 2,105,000
Ba1 1,000 8.125%, 10/15/02 980,000
Ba1 3,000 8.50%, 6/15/03
(Retail) 2,970,000
A2 2,500 First Union Corp.,
8.00%, 11/15/02
(Banking) 2,612,525
A3 500 General Motors Acceptance
Corp.,
8.625%, 6/15/99
(Financial Services) 525,480
Baa1 3,000 Lumbermens Mutual Casualty
Co., Sub. Notes,
9.15%, 7/1/26
(Insurance) 3,103,125
B1 3,000 MFS Communications, Inc.,
Zero Coupon, 1/15/06
(Telecommunications) 1,815,000
A2 2,500 NationsBank Corp.,
Sr. Notes,
7.00%, 5/15/03
(Banking) 2,486,175
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3 -----
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED
June 30, 1996 (Unaudited) BOND FUND, INC.
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description Value (Note 1)
- ------------------------------------------------------------
Domestic Corporate Bonds (cont'd.)
<C> <C> <S> <C>
A1 $ 1,000 Nationwide Life Insurance
Co.,
9.875%, 2/15/25
(Insurance) $ 1,088,000
News America Hldgs., Inc.,
Sr. Notes,
Baa3 1,000 9.125%, 10/15/99 1,064,310
Baa3 4,000 7.75%, 12/1/45
(Media) 3,579,040
Ba2 1,500 Noble Drilling Corp.,
Sr. Notes,
9.125%, 7/1/06 1,503,750
(Oil & Gas Equipment &
Services)
Baa3 3,000 NorAm Energy Corp.,
7.50%, 8/1/00
(Oil & Gas) 3,040,440
Occidental Petroleum Corp.,
Baa3 1,000 10.125%, 11/15/01 1,136,440
Baa3 1,000 11.125%, 8/1/10
(Oil & Gas) 1,282,980
Paramount Communications,
Inc., Sr. Notes,
Ba2 1,857 5.875%, 7/15/00 1,766,156
Ba2 500 7.50%, 1/15/02
(Media) 493,220
Ba2 1,250 Parker & Parsley Petroleum
Co.,
8.25%, 8/15/07
(Oil & Gas) 1,303,600
Ba2 1,000 RHG Finance Corp.,
Gtd. Notes,
8.875%, 10/1/05
(Financial Services) 1,032,500
Baa2 1,000 RJR Nabisco, Inc.,
6.70%, 6/15/02
(Consumer Goods & Services) 975,410
Ba2 1,000 Royal Caribbean Cruises Ltd.,
Sr. Sub. Notes,
11.375%, 5/15/02
(Entertainment) 1,075,000
Ba1 1,000 Ryerson Tull, Inc.,
8.50%, 7/15/01
(Metals Processing) 1,001,250
Salomon Inc.,
Sr. Notes,
Baa1 $ 2,000 5.98%, 2/2/98 $ 1,978,080
Baa1 3,800 7.00%, 5/15/99 3,801,938
Baa1 500 7.25%, 5/1/01
(Financial Services) 498,760
A2 1,000 Sears Roebuck Acceptance
Corp.,
6.34%, 10/12/00
(Financial Services) 981,710
Tenet Healthcare Corp.,
Sr. Notes,
Ba1 2,000 9.625%, 9/1/02 2,125,000
Ba1 3,500 8.625%, 12/1/03
(Health Care) 3,548,125
Baa3 1,000 Time Warner Entertainment,
Co., L.P., Sr. Deb.,
8.375%, 3/15/23
(Entertainment) 973,620
Time Warner, Inc.,
Ba1 2,500 7.75%, 6/15/05 2,440,550
Ba1 2,000 6.85%, 1/15/26
(Media) 1,915,740
Transco Energy Co.,
Baa2 500 9.125%, 5/1/98 519,595
Baa2 500 9.375%, 8/15/01
(Oil & Gas) 549,495
B2 295 UCAR Global Enterprises,
Inc.,
Sr. Sub. Notes,
12.00%, 1/15/05
(Steel) 334,825
Baa3 1,000 USX Corp.,
9.80%, 7/1/01
(Steel) 1,097,200
Ba2 3,000 Viacom Inc.,
Sr. Notes,
7.75%, 6/1/05
(Media) 2,925,060
Baa1 2,000 Weatherford Enterra, Inc., 1,970,000
7.25%, 5/15/06
(Oil & Gas Equipment &
Services)
Total Domestic Corporate
Bonds
(cost $93,162,942) 92,635,250
</TABLE>
- --------------------------------------------------------------------------------
4 See Notes to Financial Statements.
<PAGE>
Portfolio of Investments as of PRUDENTIAL DIVERSIFIED
June 30, 1996 (Unaudited) BOND FUND, INC.
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description Value (Note 1)
- ------------------------------------------------------------
Foreign Government Securities--10.9%
<C> <C> <S> <C>
A2 $ 2,000 Hydro-Quebec,
(Canada),
8.05%, 7/7/24 $ 2,120,080
A2 2,500 Quebec Province,
(Canada),
6.50%, 1/17/06 2,343,325
B1 600 Republic of Argentina,
9.25%, 2/23/01 575,250
Republic of Colombia,
Baa3 1,000 8.75%, 10/6/99 1,021,250
Baa3 2,000 8.00%, 6/14/01 1,981,660
Baa3 2,000 7.25%, 2/15/03 1,886,580
A1 3,600 Republic of Italy,
6.875%, 9/27/23 3,246,192
Ba1 2,000 Trinidad & Tobago,
(Trinidad),
11.50%, 11/20/97 2,100,000
Total Foreign Government
Securities
(cost $15,681,787) 15,274,337
- ------------------------------------------------------------
Foreign Corporate Bonds--10.9%
Aa1 1,000 African Development Bank,
6.875%, 10/15/15
(Banking-Supranational) 939,950
Ba1 1,000 Banco de Comercio Exterior de
Colombia,
8.625%, 6/2/00
(Financial Services) 1,017,500
A3 1,000 Kansallis-Osake-Pankki,
(Finland), Sub. Notes,
10.00%, 5/1/02
(Banking-Yankee) 1,128,070
NR 3,000 National Bank of Romania,
9.75%, 6/25/99
(Banking) 3,030,000
</TABLE>
<TABLE>
<CAPTION>
Shares/
Principal
Moody's Amount
Rating (000) Description Value (Note 1)
<S> <C> <C> <C>
Ba3 $ 4,000 Polysindo Int'l. Finance Co.
BV,
(Indonesia),
11.375%, 6/15/06
(Financial Services-Yankee) $ 4,070,000
Aa3 2,000 Rodamco NV,
(Netherlands),
7.30%, 5/15/05
(Financial Services) 1,991,000
Ba3 2,000 Rogers Cablesystems, Inc.,
(Canada), Sr. Notes,
10.00%, 3/15/05 1,970,000
(Cable & Pay Television
Systems-Yankee)
A1 1,250 Santander Financial
Issuances,
(Spain),
Gtd. Sub. Notes,
7.25%, 5/30/06
(Financial Services) 1,230,862
Total Foreign Corporate Bonds
(cost $15,409,893) 15,377,382
- ------------------------------------------------------------
U. S. Government Securities--1.0%
Aaa 1,200 United States Treasury Bond,
6.875%, 8/15/25 1,187,808
Aaa 250 United States Treasury Note,
6.875%, 5/15/06 252,773
-------------
Total U. S. Government
Securities
(cost $1,412,086) 1,440,581
- ------------------------------------------------------------
Preferred Stock--1.4%
Ba3 2,000 Time Warner, Inc., 1,960,000
(Media)
(cost $2,000,000)
Total Long-Term Investments
(cost $127,666,708) 126,687,550
-------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5 -----
<PAGE>
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000) Description Value (Note 1)
------------------------------------------------------------
SHORT-TERM INVESTMENTS--9.3%
- ------------------------------------------------------------
Domestic Corporate Bond--0.7%
<C> <C> <S> <C>
Baa1 $ 1,000 Marine Midland Bank,
Sub. Notes,
5.6875%, 9/27/96
(Banking)
(cost $998,700) $ 997,500
- ------------------------------------------------------------
Repurchase Agreement--8.6%
12,128 Joint Repurchase Agreement
Account,
5.46%, 7/01/96, (Note 6)
(cost $12,128,000) 12,128,000
-------------
Total Short-Term Investments
(cost $13,126,700) 13,125,500
-------------
- ------------------------------------------------------------
Total Investments--99.2%
(cost $140,793,408; Note 5) 139,813,050
Other assets in excess of
liabilities--0.8% 1,194,221
-------------
Net Assets--100% $ 141,007,271
-------------
-------------
</TABLE>
- ---------------
F.R.N.--Floating Rate Note
NR--Not Rated by Moody's or Standard & Poor's.
(a) Rate shown reflects current rate of variable rate instruments.
The Fund's current Prospectus contains a description of Moody's and Standard &
Poor's ratings.
The industry classification of portfolio holdings and other net assets shown as
a percentage of net assets as of June 30, 1996 was as follows:
<TABLE>
<S> <C>
Financial Services.................................... 14.6%
Media................................................. 11.4
Banking............................................... 11.1
Foreign Government Securities......................... 10.9
U.S. Government & Agency Securities................... 9.6
Oil & Gas............................................. 7.2
Retail................................................ 4.3
Health Care........................................... 4.0
Oil & Gas Equipment & Services........................ 3.8
Computers............................................. 3.3
Insurance............................................. 3.0
Automotive............................................ 2.6
Cable & Pay Television Systems........................ 2.1
Telecommunications.................................... 2.0
Casinos............................................... 1.6
Agricultural Equipment................................ 1.4
Consumer Goods & Services............................. 1.4
Entertainment......................................... 1.4
Steel................................................. 1.0
Utilities............................................. 1.0
Transportation........................................ .8
Metals Processing..................................... .7
Other assets in excess of liabilities................. .8
-----
100.0%
-----
-----
</TABLE>
- --------------------------------------------------------------------------------
- ----- 6 See Notes to Financial Statements.
<PAGE>
Statement of Assets and Liabilities (Unaudited) PRUDENTIAL DIVERSIFIED BOND
FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<S>
<C>
Assets
June 30, 1996
Investments, at value (cost
$140,793,408)...................................................................
$139,813,050
Cash.........................................................................
............................... 41,926
Receivable for investments
sold.........................................................................
.... 8,274,799
Interest
receivable...................................................................
...................... 2,091,500
Receivable for Fund shares
sold.........................................................................
.... 1,304,895
Deferred expenses and other
assets..........................................................................
145,968
Dividends
receivable...................................................................
..................... 44,565
-------------
Total
assets.......................................................................
...................... 151,716,703
-------------
Liabilities
Payable for investments
purchased....................................................................
....... 9,501,946
Payable for Fund shares
reacquired...................................................................
....... 712,444
Dividends
payable......................................................................
..................... 293,659
Accrued expenses and other
liabilities..................................................................
.... 116,857
Distribution fee
payable......................................................................
.............. 73,442
Management fee
payable......................................................................
................ 11,084
-------------
Total
liabilities..................................................................
...................... 10,709,432
-------------
Net
Assets.......................................................................
........................... $141,007,271
-------------
-------------
Net assets were comprised of:
Common stock, at
par..........................................................................
........... $ 10,736
Paid-in capital in excess of
par.........................................................................
142,695,555
-------------
142,706,291
Accumulated net realized loss on
investments.............................................................
(718,662 )
Net unrealized depreciation on
investments...............................................................
(980,358 )
-------------
Net assets, June 30,
1996.........................................................................
.......... $141,007,271
-------------
-------------
Class A:
Net asset value and redemption price per share
($21,238,725/1,617,125 shares of common stock issued and
outstanding)................................. $13.13
Maximum sales charge (4.0% of offering
price)............................................................
0.55
Maximum offering price to
public.........................................................................
$13.68
Class B:
Net asset value, offering price and redemption price per share
($116,244,956/8,850,209 shares of common stock issued and
outstanding)................................ $13.13
Class C:
Net asset value, offering price and redemption price per share
($3,523,590/268,267 shares of common stock issued and
outstanding).................................... $13.13
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7 -----
<PAGE>
PRUDENTIAL DIVERSIFIED BOND FUND, INC.
Statement of Operations (Unaudited)
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Six Months
Ended
June 30,
Net Investment Income 1996
Income
Interest..................................... $ 4,622,288
Dividends.................................... 44,565
-----------
Total income............................... 4,666,853
-----------
Expenses
Distribution fee--Class A.................... 12,917
Distribution fee--Class B.................... 376,372
Distribution fee--Class C.................... 11,688
Management fee............................... 301,762
Transfer agent's fees and expenses........... 98,000
Custodian's fees and expenses................ 63,000
Registration fees............................ 50,000
Reports to shareholders...................... 40,000
Amortization of deferred organization
expenses.................................. 21,735
Audit fee and expenses....................... 12,000
Directors' fees.............................. 11,000
Legal fees and expenses...................... 7,000
Miscellaneous................................ 1,495
-----------
Total expenses............................ 1,006,969
Less: Management fee waiver (Note 2)......... (241,410)
-----------
Net expenses.............................. 765,559
-----------
Net investment income........................... 3,901,294
-----------
Realized and Unrealized
Loss on Investments
Net realized loss on investment transactions.... (965,781)
Net change in unrealized depreciation on
investments.................................. (4,772,503)
-----------
Net loss on investments......................... (5,738,284)
-----------
Net Decrease in Net Assets
Resulting from Operations....................... $(1,836,990)
-----------
-----------
</TABLE>
PRUDENTIAL DIVERSIFIED BOND FUND, INC.
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
January 10,
Six Months 1995(a)
Ended Through
Increase (Decrease) June 30, December 31,
in Net Assets 1996 1995
<S> <C> <C>
Operations
Net investment income........... $ 3,901,294 $ 3,242,014
Net realized gain (loss) on
investment transactions...... (965,781) 1,773,712
Net unrealized appreciation
(depreciation) on
investments.................. (4,772,503) 3,792,145
------------ ------------
Net increase (decrease) in net
assets resulting from
operations................... (1,836,990) 8,807,871
------------ ------------
Dividends and distributions (Note
1)
Dividends to shareholders from
net investment income
Class A...................... (601,652) (499,866 )
Class B...................... (3,200,448) (2,663,152 )
Class C...................... (99,194) (78,996 )
------------ ------------
(3,901,294) (3,242,014 )
------------ ------------
Distributions to shareholders
from net realized gains
Class A...................... -- (209,652 )
Class B...................... -- (1,276,511 )
Class C...................... -- (40,430 )
------------ ------------
-- (1,526,593 )
------------ ------------
Fund share transactions (net of
share conversions) (Note 7)
Net proceeds from shares sold... 58,500,069 108,185,016
Net asset value of shares issued
to shareholders in
reinvestment of dividends and
distributions................ 2,602,913 3,228,879
Cost of shares reacquired....... (16,760,529) (13,150,057 )
------------ ------------
Net increase in net assets from
Fund share transactions...... 44,342,453 98,263,838
------------ ------------
Total increase..................... 38,604,169 102,303,102
Net Assets
Beginning of period................ 102,403,102 100,000
------------ ------------
End of period...................... $$141,007,271 $102,403,102
------------ ------------
------------ ------------
- ---------------
(a) Commencement of investment operations.
</TABLE>
- --------------------------------------------------------------------------------
- ----- 8 See Notes to Financial Statements.
<PAGE>
Notes to Financial Statements (Unaudited) PRUDENTIAL DIVERSIFIED BOND
FUND, INC.
- --------------------------------------------------------------------------------
Prudential Diversified Bond Fund, Inc. (the ``Fund''), which was incorporated
in
Maryland on September 1, 1994, is registered under the Investment Company Act
of
1940 as a diversified, open-end management investment company. The Fund had no
significant operations other than the issuance of 2,667 shares each of Class A
and Class B common stock and 2,666 shares of Class C common stock for $100,000
on October 5, 1994 to Prudential Mutual Fund Management, Inc. (``PMF'').
Investment operations commenced on January 10, 1995.
The Fund's investment objective is to achieve high current income consistent
with an appropriate balance between risk and reward. The Fund will seek to
achieve this objective by allocating its assets among sectors of the fixed
income securities markets, U.S. Government securities, mortgage-backed
securities, corporate debt, and foreign securities based upon an evaluation of
current market and economic conditions.
- ------------------------------------------------------------
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
Security Valuation: Securities listed on a securities exchange (other than
options on securities and indices) are valued at the last sales price on the day
of valuation, or, if there was no sale on such day, at the average of readily
available closing bid and asked prices on such day as provided by a pricing
service. Corporate bonds (other than convertible debt securities) and U.S.
Government 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 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 average of the most recently quoted bid and
asked prices provided by a principal market maker or dealer. Options on
securities and indices traded on an exchange are valued at the average of the
most recently quoted bid and asked prices provided by the respective exchange
and futures contracts and options thereon are valued at the last sales price as
of the close of business of the exchange. Securities for which market quotations
are not readily available are valued at fair value as determined in good faith
by or under the direction of the Board of Directors of the Fund.
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.
In connection with repurchase agreement transactions, the Fund's custodian, or
designated subcustodians, as the case may be under tri-party repurchase
agreements, takes possession of the underlying collateral securities, the value
of which exceeds the principal amount of the repurchase transaction, including
accrued interest. To the extent that any repurchase transaction exceeds one
business day, the value of the collateral is marked-to-market on a daily basis
to ensure the adequacy of the collateral. If the seller defaults and the value
of the collateral declines or if bankruptcy proceedings are commenced with
respect to the seller of the security, realization of the collateral by the Fund
may be delayed or limited.
Options: The Fund may either purchase or write options in order to hedge against
adverse market movements or fluctuations in value caused by changes in
prevailing interest rates or foreign currency exchange rates with respect to
securities or currencies which the Fund currently owns or intends to purchase.
When the Fund purchases an option, it pays a premium and an amount equal to that
premium is recorded as an investment. When the Fund writes an option, it
receives a premium and an amount equal to that premium is recorded as a
liability. The investment or liability is adjusted daily to reflect the current
market value of the option. If an option expires unexercised, the Fund realizes
a gain or loss to the extent of the premium received or paid. If an option is
exercised, the premium received or paid is an adjustment to the proceeds from
the sale or the cost of the purchase in determining whether the Fund has
realized a gain or loss. The difference between the premium and the amount
received or paid on effecting a closing purchase or sale transaction is also
treated as a realized gain or loss. Gain or loss on purchased options is
included in net realized gain (loss) on investment transactions. Gain or loss
on
written options is presented separately as net realized gain (loss) on written
option transactions.
Securities Transactions and Net Investment Income: Securities transactions are
recorded on the trade date. Realized gains or losses on sales of securities are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis. The Fund amortizes premiums and discounts paid on purchases of
portfolio securities as adjustments to interest income. 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 realized and unrealized
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.
- --------------------------------------------------------------------------------
9 -----
<PAGE>
Notes to Financial Statements (Unaudited) PRUDENTIAL DIVERSIFIED BOND
FUND, INC.
- --------------------------------------------------------------------------------
Dividends and Distributions: The Fund declares daily and pays monthly dividends
from net investment income. The Fund will distribute at least annually any net
capital gains in excess of loss carryforwards. Dividends and distributions are
recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
Federal Income Taxes: It is the Fund's policy 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.
Deferred Organization Expenses: Approximately $210,000 of expenses were incurred
in connection with the organization of the Fund. These costs have been deferred
and are being amortized ratably over a period of sixty months from the date the
Fund commenced investment operations.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with PMF. Pursuant to this agreement, PMF
has responsibility for all investment advisory services and supervises the
subadviser's performance of such services. PMF has entered into a subadvisory
agreement with The Prudential Investment Corporation (``PIC''); PIC furnishes
investment advisory services in connection with the management of the Fund. PMF
pays for the cost of the subadviser's services, the compensation of officers of
the Fund, occupancy and certain clerical and bookkeeping costs of the Fund. The
Fund bears all other costs and expenses.
The management fee paid PMF is computed daily and payable monthly, at an annual
rate of .50 of 1% of the average daily net assets of the Fund. For the six
months ended June 30, 1996, PMF waived 80% of its management fee. The amount of
fees waived for the six months ended June 30, 1996 amounted to $241,410 ($.02
per share for Class A, B and C shares; .40 of 1% of average daily net assets,
annualized). The Fund is not required to reimburse PMF for such waiver.
The Fund had a distribution agreement with Prudential Mutual Fund Distributors,
Inc. (``PMFD''), which acted as the distributor of the Class A shares of the
Fund through January 1, 1996. Effective January 2, 1996, Prudential Securities
Incorporated (``PSI'') became the distributor of the Class A shares of the Fund
and is serving the Fund under the same terms and conditions as under the
arrangement with PMFD. PSI is also distributor of the Class B and Class C shares
of the Fund. The Fund compensated PMFD and PSI for distributing and servicing
the Fund's Class A, Class B and Class C shares, pursuant to plans of
distribution (the ``Class A, B and C Plans''), regardless of expenses actually
incurred by them. The distribution fees are accrued daily and payable monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates PSI and PMFD for
distribution-related activities at an annual rate of up to .30 of 1%, 1% and 1%
of the average daily net assets of the Class A, B and C shares, respectively.
Such expenses under the Class A, Class B and Class C Plans were .15%, .75% and
.75%, respectively, of the average daily net assets of Class A, Class B and
Class C shares for the six months ended June 30, 1996.
PSI has advised the Fund that it has received approximately $79,000 in front-end
sales charges resulting from sales of Class A shares during the six months ended
June 30, 1996. From these fees, PSI paid such sales charges to Pruco Securities
Corporation and affiliated broker-dealers, which in turn paid commissions to
salespersons and incurred other distribution costs.
PSI has advised the Fund that for the six months ended June 30, 1996, it
received approximately $125,000 and $1,600 in contingent deferred sales charges
imposed upon redemptions by certain Class B and Class C shareholders,
respectively.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
- --------------------------------------------------------------------------------
- ----- 10
<PAGE>
Notes to Financial Statements (Unaudited) PRUDENTIAL DIVERSIFIED BOND
FUND, INC.
- --------------------------------------------------------------------------------
Note 3. Other Transactions With Affiliates
Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During the six months ended June 30
1996, the Fund incurred fees of approximately $97,000 for the services of PMFS.
As of June 30, 1996, approximately $21,000 of such fees were due to PMFS.
Transfer agent fees and expenses in the Statement of Operations also include
certain out-of-pocket expenses paid to non-affiliates.
- ------------------------------------------------------------
Note 4. Expense Subsidy
PMF voluntarily agreed to subsidize operating expenses so that total Fund
operating expenses do not exceed .90%, 1.50% and 1.50% of the average daily net
assets of the Class A, Class B and Class C shares, respectively. No
reimbursement was required for the six months ended June 30, 1996.
- ------------------------------------------------------------
Note 5. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the six months ended June 30, 1996 were $209,629,130 and $172,723,814,
respectively.
The federal income tax cost basis of the Fund's investments at June 30, 1996 was
$140,799,523 and, accordingly, net unrealized depreciation for federal income
tax purposes was $986,473 (gross unrealized appreciation-$988,257; gross
unrealized depreciation-$1,974,730).
- ------------------------------------------------------------
Note 6. 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. Treasury or federal agency obligations. As of June 30, 1996, the Fund
had a 1.1% undivided interest in the repurchase agreements in the joint account.
The undivided interest for the Fund represents $12,128,000 in principal amount.
As of such date, each repurchase agreement in the joint account and the value
of
the collateral therefor were as follows:
Bear, Stearns & Co., Inc., 5.40%, in the principal amount of $369,000,000,
repurchase price $369,055,350, due 7/1/96. The value of the collateral including
accrued interest was $377,194,429.
Goldman, Sachs & Co., 5.47%, in the principal amount of $369,000,000, repurchase
price $369,056,068 7/1/96. The value of the collateral including accrued
interest was $376,380,556.
Smith Barney, Inc., 5.50%, in the principal amount of $369,000,000, repurchase
price $369,056,375, due 7/1/96. The value of the collateral including accrued
interest was $376,380,118.
- ------------------------------------------------------------
Note 7. Capital
The Fund offers Class A, Class B and Class C shares. Class A shares are sold
with a front-end sales charge of up to 4%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class C shares are sold with a contingent
deferred sales charge of 1% during the first year. Class B shares 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.
There are 2 billion shares of common stock, $.001 par value per share, divided
into three classes, designated Class A, B and Class C, each of which consists
of
1 billion, 500 million and 500 million authorized shares, respectively. Of the
10,735,601 shares of common stock issued and outstanding at June 30, 1996, PMF
owned 8,000.
- --------------------------------------------------------------------------------
11 -----
<PAGE>
Notes to Financial Statements (Unaudited) PRUDENTIAL DIVERSIFIED BOND
FUND, INC.
- --------------------------------------------------------------------------------
Transactions in shares of common stock for the six months ended June 30, 1996
and fiscal year ended December 31, 1995 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- -------------------------------------- --------- -----------
<S> <C> <C>
Six months ended June 30, 1996:
Shares sold........................... 718,103 $ 9,596,855
Shares issued in reinvestment of
dividends........................... 32,331 430,621
Shares reacquired..................... (252,605) (3,361,031)
--------- -----------
Net increase in shares outstanding
before conversion................... 497,829 6,666,445
Shares issued upon conversion from
Class B............................. 84,075 1,100,474
--------- -----------
Net increase in shares outstanding.... 581,904 $ 7,766,919
--------- -----------
--------- -----------
January 10, 1995 (a) through
December 31, 1995:
Shares sold........................... 1,149,425 $15,161,009
Shares issued in reinvestment of
dividends and distributions......... 39,135 528,573
Shares reacquired..................... (242,566) (3,231,169)
--------- -----------
Net increase in shares outstanding
before conversion................... 945,994 12,458,413
Shares issued upon conversion from
Class B............................. 86,560 1,185,549
--------- -----------
Net increase in shares outstanding.... 1,032,554 $13,643,962
--------- -----------
--------- -----------
<CAPTION>
Class B
- --------------------------------------
<S> <C> <C>
Six months ended June 30, 1996:
Shares sold........................... 3,550,255 $47,510,958
Shares issued in reinvestment of
dividends........................... 157,986 2,104,091
Shares reacquired..................... (971,412) (12,959,921)
--------- -----------
Net increase in shares outstanding
before conversion................... 2,736,829 36,655,128
Shares reacquired upon conversion
into Class A........................ (84,075) (1,100,474)
--------- -----------
Net increase in shares outstanding.... 2,652,754 $35,554,654
--------- -----------
--------- -----------
January 10, 1995 (a) through
December 31, 1995:
Shares sold........................... 6,807,170 $90,362,412
Shares issued in reinvestment of
dividends and distributions......... 193,355 2,618,478
Shares reacquired..................... (719,177) (9,697,206)
--------- -----------
Net increase in shares
outstanding before conversion....... 6,281,348 83,283,684
Shares reacquired upon conversion into
Class A............................. (86,560) (1,185,549)
--------- -----------
Net increase in shares outstanding.... 6,194,788 $82,098,135
--------- -----------
--------- -----------
<CAPTION>
Class C Shares Amount
- -------------------------------------- --------- -----------
<S> <C> <C>
Six months ended June 30, 1996:
Shares sold........................... 103,776 $ 1,392,256
Shares issued in reinvestment of
dividends........................... 5,121 68,201
Shares reacquired..................... (33,172) (439,577)
--------- -----------
Net increase in shares outstanding.... 75,725 $ 1,020,880
--------- -----------
--------- -----------
January 10, 1995 (a) through
December 31, 1995:
Shares sold........................... 200,032 $ 2,661,595
Shares issued in reinvestment of
dividends and distributions......... 6,043 81,828
Shares reacquired..................... (16,199) (221,682)
--------- -----------
Net increase in shares outstanding.... 189,876 $ 2,521,741
--------- -----------
--------- -----------
- ---------------
(a) Commencement of investment operations.
</TABLE>
- --------------------------------------------------------------------------------
- ----- 12
<PAGE>
Financial Highlights (Unaudited) PRUDENTIAL DIVERSIFIED BOND FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
Class B Class C
----------------------------
---------------------------- ----------
January 10,
January 10,
Six Months 1995(a)
Six Months 1995(a) Six Months
Ended Through
Ended Through Ended
June 30, December 31,
June 30, December 31, June 30,
1996 1995
1996 1995 1996
---------- -------------
---------- ------------- ----------
<S> <C> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.......... $ 13.79 $ 12.50
$ 13.79 $ 12.50 $ 13.79
---------- ------
---------- ------ ----------
Income from investment operations
Net investment income(b)...................... .46 .90
.42 .82 .42
Net realized and unrealized gain on investment
transactions................................ (.66) 1.51
(.66) 1.51 (.66)
---------- ------
---------- ------ ----------
Total from investment operations........... (.20) 2.41
(.24) 2.33 (.24)
---------- ------
---------- ------ ----------
Less distributions
Dividends from net investment income.......... (.46) (.90)
(.42) (.82) (.42)
Distributions from net realized gains......... -- (.22)
-- (.22) --
---------- ------
---------- ------ ----------
Total distributions........................ (.46) (1.12)
(.42) (1.04) (.42)
---------- ------
---------- ------ ----------
Net asset value, end of period................ $ 13.13 $ 13.79
$ 13.13 $ 13.79 $ 13.13
---------- ------
---------- ------ ----------
---------- ------
---------- ------ ----------
TOTAL RETURN(d)............................... (1.60)% 19.80%
(1.80)% 19.11% (1.80)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)............... $ 21,239 $14,276
$116,245 $85,472 $ 3,523
Average net assets (000)...................... $ 17,317 $ 7,428
$100,917 $43,574 $ 3,134
Ratios to average net assets(b)/(c):
Expenses, including distribution fees...... .75% .87%
1.35% 1.47% 1.35%
Expenses, excluding distribution fees...... .60% .72%
.60% .72% .60%
Net investment income...................... 6.98% 6.92%
6.38% 6.32% 6.38%
Portfolio turnover rate....................... 149% 260%
149% 260% 149%
<CAPTION>
- ---------------
<CAPTION>
January 10,
1995(a)
Through
December 31,
1995
-------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.......... $ 12.50
-----
Income from investment operations
Net investment income(b)...................... .82
Net realized and unrealized gain on investment
transactions................................ 1.51
-----
Total from investment operations........... 2.33
-----
Less distributions
Dividends from net investment income.......... (.82)
Distributions from net realized gains......... (.22)
-----
Total distributions........................ (1.04)
-----
Net asset value, end of period................ $ 13.79
-----
-----
TOTAL RETURN(d)............................... 19.11%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)............... $ 2,655
Average net assets (000)...................... $ 1,307
Ratios to average net assets(b)/(c):
Expenses, including distribution fees...... 1.47%
Expenses, excluding distribution fees...... .72%
Net investment income...................... 6.32%
Portfolio turnover rate....................... 260%
- ---------------
</TABLE>
(a) Commencement of investment operations.
(b) Net of expense subsidy and fee waiver.
(c) Annualized.
(d) Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment of
dividends and distributions. Total returns for periods of less than
a full year are not annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 13 -----
<PAGE>
Getting
The Most
From Your
Prudential
Mutual
Fund.
Change Your Mind.
You can exchange your shares in most Prudential Mutual Funds for shares
in most other Prudential Mutual Funds, without charges. This may be
most helpful if your investment needs change.
Reinvest Dividends Free Of Charge.
Reinvest your dividends and/or capital gains distributions automatically --
without charge.
Invest For Retirement.
There is no minimum investment for an IRA. Plus, you defer taxes on
your investment earnings by investing in an IRA.
If you'd like, you can contribute up to $2,000 a year in an IRA. If
you are married, you and your spouse (if not working outside the home)
can contribute up to $2,250 a year. (Withdrawals are taxed as ordinary
income and may be subject to a 10% penalty prior to age 59 1/2.)
Change Your Job.You can take your pension with you. Use a rollover IRA to manage
your company-sponsored retirement plan while retaining the special tax-deferred
advantages.
Invest In Your Children.
There's no fee to open a custodial account for a child's education
or other needs.
Take Income.
Would you like to receive monthly or quarterly checks in any amount
from your fund account? Just let us know. We'll take care of it. Of
course, there are minimum amounts. And shares redeemed may be subject
to tax, and Class B and C shares may be subject to contingent deferred
sales charges. We'll gladly answer your questions.
Keep Informed.
We want to keep you up-to-date. Of course, you receive account activity
statements every quarter. But you also receive annual and semi-annual
fund reports, as well as other important updates on events that affect
your investments, including tax information.
This material is only authorized for distribution when preceded or
accompanied by a current prospectus. Read the prospectus carefully
before you invest or send money.
<PAGE>
Getting
The Most
From Your
Prudential
Mutual
Fund.
When you invest through Prudential Mutual Funds, you receive financial
advice through a Prudential Securities financial advisor or
Prudential/Pruco Securities registered representative. Your
advisor or representative can provide you with the following services:
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial advisor or registered representative can help you
match the reward you seek with the risk you can tolerate. And risk
can be difficult to gauge --sometimes even the simplest investments
bear surprising risks. The educated investor knows that markets
seldom move in just one direction -- there are times when a market
sector or asset class will lose value or provide little in the way
of total return. Managing your own expectations is easier with help
from someone who understands the markets and who knows you!
Keeping Up With The Joneses.
A financial advisor or registered representative can help you wade
through the numerous mutual funds available to find the ones that
fit your own individual investment profile and risk tolerance. While
the newspapers and popular magazines are full of advice about investing,
they are aimed at generic groups of people or representative individuals,
not at you personally. Your financial advisor or registered
representative will review your investment objectives with you.
This means you can make financial decisions based on the assets
and liabilities in your current portfolio and your risk tolerance --
not just based on the current investment fad.
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the bottom are
among the most common investor mistakes. But sometimes it's difficult
to hold on to an investment when it's losing value every month. Your
financial advisor or registered representative can answer questions
when you're confused or worried about your investment, and remind
you that you're investing for the long haul.
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
(800) 225-1852
http:\\www.prudential.com
Directors
Eugene C. Dorsey
Richard A. Redeker
Robin B. Smith
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Eugene S. Stark, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Ellyn C. Vogin, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributor
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Auditors
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Shereff, Friedman, Hoffman & Goodman LLP
919 Third Avenue
New York, NY 10022
The views expressed in this report and information about the Fund's
portfolio holdings are for the period covered by this report and
are subject to change thereafter.
The accompanying financial statements as of June 30, 1996 were
not audited and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective
investors unless preceded or accompanied by a current prospectus.
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