PRUDENTIAL INSTITUTIONAL FUND, N-30D, 1997-06-17

PRUDENTIAL INSTITUTIONAL FUND
N-30D, 1997-06-17

Previous: ULTRAMAR DIAMOND SHAMROCK CORP, S-3/A, 1997-06-17

Next: PRUDENTIAL INSTITUTIONAL FUND, 485BPOS, 1997-06-17

(ICON)

Prudential
Active
Balanced
Fund

SEMI
ANNUAL
REPORT

March 31, 1997

(LOGO)

<PAGE>

Prudential Active Balanced Fund

A Series of the Prudential Dryden Fund

Performance At A Glance.

Led by large companies, stocks continued their record bull market run for much
of the last six months before faltering somewhat toward the end of the period
on fears of rising interest rates and slowing corporate earnings growth. Rising
short-term interest rates and the prospect of even higher rates to come also
hurt bond market performance. The Prudential Active Balanced Fund, which
invests in both stocks and bonds, did not perform as well as the average
balanced fund, as measured by Lipper Analytical Services. Our somewhat smaller
position in stocks, due to our continuing concerns over record stock market
valuations, restrained performance.

<TABLE>
Cumulative Total Returns1 As of 3/31/97
<CAPTION>
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A N/A N/A N/A 1.5%
Class B N/A N/A N/A 1.3
Class C N/A N/A N/A 1.3
Class Z 4.7% 8.3% 36.1% 50.1
Lipper Balanced Fds3 5.4 10.7 43.7 ***
</TABLE>

<TABLE>
Average Annual Total Returns1 As of 3/31/97
<CAPTION>
One Three Since
Year Years Inception2
<S> <C> <C> <C>
Class Z 8.3% 10.8% 10.0%
</TABLE>

Past performance is not indicative of future results. Principal and investment
return will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost.

1Source: Prudential Investments Fund Management and Lipper Analytical Services.
The cumulative total returns do not take into account sales charges. The
average annual returns do take into account applicable sales charges. The Fund
charges a maximum front-end sales load 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 C shares have a 1% CDSC for one year.
Class B shares will automatically convert to Class A shares on a quarterly
basis, after approximately seven years. Class Z shares are not subject to a
sales charge or distribution fee. Since Class A, B, and C shares have been in
existence less than a year, no average annual total returns are presented.

2Inception dates: 11/6/96 for Class A, B and C; 1/4/93 for Class Z.

3Lipper average returns are for 322 funds for six months, 294 funds for one
year and 177 funds for three years.

*** The Lipper Since Inception category return for Class A, Class B and Class C
is -1.0% which includes 338 funds, and Class Z is 52.8% for 108 funds.

How Investments Compared.
(As of 3/31/97)

(GRAPH)

Source: Lipper Analytical Services. Financial markets change, so a mutual
fund's past performance should never be used to predict future results. The
risks to each of the investments listed above are different -- we provide
12-month total returns for several Lipper mutual fund categories to show you
that reaching for higher yields means tolerating more risk. The greater the
risk, the larger the potential reward or loss. In addition, we've included
historical 20-year average annual returns. These returns assume the
reinvestment of dividends.

U.S. Growth Funds will fluctuate a great deal. Investors have received higher
historical total returns from stocks than from most other invest-ments. Smaller
capitalization stocks offer greater potential for long-term growth but may be
more volatile than larger capitalization stocks.

General Bond Funds provide more income than stock funds, which can help smooth
out their total returns year by year. But their prices still fluctuate
(sometimes significantly) and their returns have been historically lower than
those of stock funds.

General Municipal Debt Funds invest in bonds issued by state governments, state
agencies and/or municipalities. This investment provides income that is usually
exempt from federal and state income taxes.

Taxable 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>

Bradley Goldberg, Fund Manager (PICTURE)

Portfolio
Manager's Report

The Prudential Active Balanced Fund invests in a combination of stocks, bonds
and lower-risk money market instruments, such as short-term U.S. Treasury
securities. By diversifying in this way, the Fund aims to benefit from rising
stock markets while providing investors with greater protection should stocks
fall. In short, the Fund seeks to approach expected long-term returns of an
all-equity portfolio, while taking less risk. There can be no assurance that
the Fund will achieve its investment objective.

We're Active.
We actively manage our allocation to stocks, bonds and cash. We will shift
investments to capitalize on intermediate term opportunities (12 to 18 months)
and to maximize total return. We'll hold anywhere from 40% to 75% in stocks,
25% to 60% in bonds, and zero to 35% in cash, depending on market conditions.

Strategy Session.
- --------------------------------------------------------------------------
We remained relatively cautious on the stock market, particularly in view of
the recent period of higher short-term interest rates.

Relatively Less In Stocks.
We maintained a somewhat smaller position in stocks during the period in
response to record stock market valuations. For example, we held 46% of total
net assets in stocks as of March 31, 1997, in contrast with the traditional
balanced fund position of 60% in equities. We continue to look for stocks we
believe to be attractively priced, yet with good earnings growth potential.

Neutral In Bonds.
We believe bonds offer good long-term value, but on a short-term basis there
is some uncertainty regarding the recent Federal Reserve Board action to raise
interest rates. We therefore maintained the average duration of our bond
holdings at 5 years. (Duration is a measure of the sensitivity of bond prices
to changes in interest rates.)

Cash For Opportunities.
We continue to hold a moderate amount of cash -- 18% of total net assets. We
believe our cash position will allow us to take advantage of opportunities in
both stocks and bonds as they present themselves.

Portfolio Breakdown.
Expressed as a percentage of
total net assets as of 3/31/97.

(GRAPH)

<PAGE>

What Went Well.
- -----------------------------------------------
Earnings Were Up.
Several of our stocks performed exceptionally well during the period. Although
we found them in a variety of different industries, they had one thing in
common -- all were experiencing strong corporate earnings growth.

- -- Delta Airlines benefited from the recent boom in domestic airline industry
and recently reported earnings above Wall Street expectations.

- -- The New York Times continued to execute its operating strategy well.
Earnings received a boost from increases in advertising lineage and rates
combined with reductions in newsprint costs.

- -- CIGNA, the insurance and financial services company, also exceeded
expectations. Its ongoing restructuring is on target, with all sectors of
the business on or ahead of plan.

Five Largest Holdings.

2.3% CIGNA
Insurance
2.2% General Motors
Automobiles
2.0% New York Times
Media
1.6% International Business Machines
Computers
1.6% Dresser
Petroleum Services

Expressed as a percentage of total investments as of 3/31/97.

And Not So Well.
- -----------------------------------------------
Stocks Were Volatile.
After rising almost relentlessly for six years, the stock market suddenly
became volatile as March ended. The stock market continued to be quite narrow
in focus with large company or so-called Blue Chip stocks getting most of the
attention.

Also, earnings news for some of our stocks was not good. Computer giant IBM
suffered during the period due to investor nervousness about the level of first
quarter earnings. Newmont Mining also did not perform as well as we had hoped,
suffering from decreasing gold prices. Despite the setback, we continue to hold
Newmont because we like its production growth profile.

A Tough Time For Bonds.
With the unexpected strength of the economy, interest rates were on the rise,
creating a difficult time for bonds. We do believe, however, if rates continue
to rise, that bonds will become more attractive relative to our low inflation
outlook. Therefore we may be looking for buying opportunities in this sector.

Looking Ahead.
- -----------------
We expect the equity markets will remain volatile for some time to come.
Consequently, we are content to hold less in stocks than we normally would as
we wait for the more attractive price levels. We continue to look for solid
stocks that will provide the highest possible return for the lowest level of
risk.

We believe opportunities will appear as the year progresses to put our cash
reserves to work in both stocks and bonds. We plan to use cash
opportunistically as these situations present themselves.

1
<PAGE>

President's Letter May 14, 1997
(PICTURE)
We're On Your Side

Dear Shareholder:

The past few months were mixed for most U.S. stock and bond investors. The
recent news was good: The Dow Jones Industrial Average set several record highs
in May and long-term interest rates were easing. The average stock and bond
mutual fund finished the four-month period ending in April in positive
territory. It was a different story only a few weeks earlier when the Dow
declined significantly from another record high set in mid-March, and long-term
interest rates were at the highest levels in six months.

The reasons behind these recent market swings have been widely publicized --
higher interest rates and inflationary pressures. And while we are watching
market developments closely, we are also very concerned about you and how
you're dealing with events. We realize that staying the course during times of
market uncertainty isn't easy. Here are some thoughts that may help:

- -- Keep Your Expectations Realistic. The best investors know that financial
markets rise and fall -- and so too, will the value of their investments. Over
time, however, stocks have been shown to produce very attractive returns that
were well ahead of inflation.

- -- Remember Your Time Horizon. If your investment goals are long term (several
years or more), your time horizon should also be long term. During this period,
it's not unusual for stocks and bonds to experience several periods of market
uncertainty.

- -- We're On Your Side. Your Prudential Securities Financial Advisor or
Prudential Registered Representative can help you understand what's happening
in the financial markets. They can assist you in making informed decisions
based upon a thorough knowledge of your financial needs and long-term goals.
Call him or her today.

Thank you for your continued confidence in Prudential mutual funds. We'll do
everything we can to keep you informed and to earn your trust.

Sincerely,

Brian M. Storms
President, Prudential Mutual Funds & Annuities

2
<PAGE>

Portfolio of Investments as of THE PRUDENTIAL DRYDEN FUND
March 31, 1997 (Unaudited) ACTIVE BALANCED FUND
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--81.9%
COMMON STOCKS--46.0%
- ------------------------------------------------------------
Airlines--1.3%
22,800 Delta Airlines, Inc. $ 1,918,050
- ------------------------------------------------------------
Automobiles & Trucks--3.2%
57,000 General Motors Corp. 3,156,375
27,000 General Motors Corp., Class H 1,464,750
-------------
4,621,125
- ------------------------------------------------------------
Banking--2.9%
11,500 Chase Manhattan Corp. 1,076,687
22,800 Fleet Financial Group, Inc. 1,305,300
144,400 Hibernia Corp. 1,895,250
-------------
4,277,237
- ------------------------------------------------------------
Business Services--0.5%
20,300 Manpower, Inc. 730,800
- ------------------------------------------------------------
Chemicals--2.1%
27,300 Betz Laboratories, Inc. 1,723,312
43,100 Dexter Corp. 1,298,388
-------------
3,021,700
- ------------------------------------------------------------
Chemicals-Specialty--1.7%
82,100 Engelhard Corp. 1,724,100
17,500 Morton International, Inc. 739,375
-------------
2,463,475
- ------------------------------------------------------------
Commercial Services--1.7%
35,375 CUC International Inc.(a) 795,937
49,800 Ogden Corp. 1,052,025
15,100 York International Corp. 632,313
-------------
2,480,275
Computer Software & Services--0.4%
13,700 Symbol Technologies, Inc.(a) $ 661,025
- ------------------------------------------------------------
Computers--2.8%
18,200 Hewlett-Packard Co. 969,150
17,200 International Business Machines
Corp. 2,362,850
112,600 Unisys Corp.(a) 717,825
-------------
4,049,825
- ------------------------------------------------------------
Drugs & Medical Supplies--1.2%
30,500 Pharmacia & Upjohn, Inc. 1,117,063
15,100 Vertex Pharmaceuticals, Inc.(a) 611,550
-------------
1,728,613
- ------------------------------------------------------------
Electronics--0.3%
35,600 International Rectifier Corp.(a) 422,750
- ------------------------------------------------------------
Industrial Technology/Instruments--1.0%
33,000 Millipore Corp. 1,398,375
- ------------------------------------------------------------
Insurance--2.3%
22,800 CIGNA Corp. 3,331,650
- ------------------------------------------------------------
Lodging--0.6%
36,500 Hilton Hotels Corp. 885,125
- ------------------------------------------------------------
Machinery--1.6%
15,000 Case Corp. 761,250
8,800 Caterpillar Inc. 706,200
22,300 Kennametal, Inc. 808,375
-------------
2,275,825
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3

<PAGE>

Portfolio of Investments as of THE PRUDENTIAL DRYDEN FUND
March 31, 1997 (Unaudited) ACTIVE BALANCED FUND
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Media--5.1%
42,900 McGraw-Hill Companies, Inc. $ 2,193,263
66,700 New York Times Co. 2,943,137
8,600 Omnicom Group 428,925
47,800 Tribune Co. 1,935,900
-------------
7,501,225
- ------------------------------------------------------------
Mineral Resources--1.8%
30,200 ASARCO Inc. 849,375
44,474 Newmont Mining Corp. 1,723,367
-------------
2,572,742
- ------------------------------------------------------------
Miscellaneous Basic Industry--4.0%
39,450 Avalon Properties, Inc. 1,084,875
19,900 Champion International Corp. 905,450
28,700 Reynolds Metals Co. 1,779,400
118,900 Westinghouse Electric Corp. 2,110,475
-------------
5,880,200
- ------------------------------------------------------------
Office Equipment & Supplies--0.7%
17,400 Xerox Corp. 989,625
- ------------------------------------------------------------
Petroleum--2.1%
26,200 Amerada Hess Corp. 1,388,600
60,823 Union Pacific Resources Group, Inc. 1,627,015
-------------
3,015,615
Paper--0.7%
32,900 Boise Cascade Corp. $ 1,003,450
- ------------------------------------------------------------
Petroleum Services--2.6%
27,200 Anadarko Petroleum Corp. 1,526,600
76,700 Dresser Industries, Inc. 2,320,175
-------------
3,846,775
- ------------------------------------------------------------
Publishing--0.7%
31,400 American Greetings Corp. 1,002,838
- ------------------------------------------------------------
Railroads--0.6%
14,961 Union Pacific Corp. 849,037
- ------------------------------------------------------------
Retail--1.4%
115,179 Limited, Inc. 2,116,414
- ------------------------------------------------------------
Steel-Producers--0.7%
40,000 USX Corp. -U.S. Steel Group 1,065,000
- ------------------------------------------------------------
Telecommunications--0.8%
32,100 MCI Communications Corp. 1,143,563
- ------------------------------------------------------------
Trucking & Shipping--1.2%
58,800 Ryder System, Inc. 1,719,900
-------------
Total common stocks
(cost $56,956,080) 66,972,234
-------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 4

<PAGE>

<PAGE>
Statement of Assets and Liabilities THE PRUDENTIAL DRYDEN FUND
(Unaudited) ACTIVE BALANCED FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets March 31, 1997
<S> <C>
Investments, at value (cost $133,997,972).................................................................. $143,782,003
Cash....................................................................................................... 744
Receivable for investments sold............................................................................ 1,135,065
Dividends and interest receivable.......................................................................... 799,847
Receivable for Fund shares sold............................................................................ 365,507
Other assets............................................................................................... 12,959
--------------
Total assets........................................................................................... 146,096,125
--------------
Liabilities
Payable for Fund shares reacquired......................................................................... 377,199
Management fee payable..................................................................................... 82,138
Payable for investments purchased.......................................................................... 6,012
Distribution fee payable................................................................................... 28
Accrued expenses........................................................................................... 49,461
--------------
Total liabilities...................................................................................... 514,838
--------------
Net Assets................................................................................................. $145,581,287
--------------
--------------
Net assets were comprised of:
Common stock, at par.................................................................................... $ 11,674
Paid-in capital in excess of par........................................................................ 128,913,040
--------------
128,924,714
Undistributed net investment income..................................................................... 1,025,019
Accumulated net realized gain on investments............................................................ 5,847,523
Net unrealized appreciation on investments.............................................................. 9,784,031
--------------
Net assets, March 31, 1997................................................................................. $145,581,287
--------------
--------------
Class A:
Net asset value and redemption price per share
($2,228.10 / 178.886 shares of common stock issued and outstanding).................................. $12.46
Maximum sales charge (5.0% of offering price)........................................................... .65
Maximum offering price to public........................................................................ $13.11
Class B:
Net asset value, offering price and redemption price per share
($50,245 / 4,041 shares of common stock issued and outstanding)...................................... $12.43
Class C:
Net asset value, offering price and redemption price per share
($196.77 / 15.827 shares of common stock issued and outstanding)..................................... $12.43
Class Z:
Net asset value, offering price and redemption price per share
($145,528,617 / 11,670,294 shares of common stock issued and outstanding)............................ $12.47
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 6

<PAGE>

THE PRUDENTIAL DRYDEN FUND
ACTIVE BALANCED FUND
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income March 31, 1997
<S> <C>
Income
Interest................................. $ 2,437,209
Dividends (net of foreign withholding
taxes of $522)........................ 663,573
--------------
Total income............................ 3,100,782
--------------
Expenses
Distribution fee--Class A................ 2
Distribution fee--Class B................ 33
Distribution fee--Class C................ 1
Management fee........................... 514,076
Transfer agent's fees and expenses....... 61,700
Registration fees........................ 50,000
Custodian's fees and expenses............ 43,000
Reports to shareholders.................. 22,500
Administration fee....................... 21,553
Legal fees............................... 10,500
Audit fee................................ 10,000
Organization expense..................... 6,588
Directors' fees.......................... 5,000
Miscellaneous............................ 5,689
--------------
Total expenses.......................... 750,642
--------------
Net investment income....................... 2,350,140
--------------
Realized and Unrealized Gain on
Investment Transactions
Net realized gain on investment
transactions............................. 6,492,245
Net change in unrealized appreciation on
investments.............................. (1,210,241)
--------------
Net gain on investments..................... 5,282,004
--------------
Net Increase in Net Assets
Resulting from Operations................... $ 7,632,144
--------------
--------------
</TABLE>

THE PRUDENTIAL DRYDEN FUND
ACTIVE BALANCED FUND
Statement of Changes in Net Assets (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase March 31, September 30,
in Net Assets 1997 1996
<S> <C> <C>
Operations
Net investment income.......... $ 2,350,140 4,391,687
Net realized gain on
investment.................. 6,492,245 9,129,045
Net change in unrealized
appreciation on
investments................. (1,210,241) (1,120,181)
------------ -------------
Net increase in net assets
resulting from operations... 7,632,144 12,400,551
------------ -------------
Dividends and distributions
Dividends to shareholders from
net investment income
Class A..................... (64) --
Class B..................... (6) --
Class C..................... (6) --
Class Z..................... (4,627,738) (3,972,955)
------------ -------------
(4,627,814) (3,972,955)
------------ -------------
Distributions to shareholders
from net realized gains
Class A..................... (128) --
Class B..................... (12) --
Class C..................... (12) --
Class Z..................... (9,255,475) (1,932,789)
------------ -------------
(9,255,627) (1,932,789)
------------ -------------
Fund share transactions
Net proceeds from shares
sold........................ 36,626,039 36,454,403
Net asset value of shares
issued to shareholders in
reinvestment of
distributions............... 13,883,406 5,905,744
Cost of shares reacquired...... (52,265,158) (8,618,544)
------------ -------------
Net increase (decrease) in net
assets from Fund share
transactions................ (1,755,713) 13,741,603
------------ -------------
Total increase (decrease)......... (8,007,010) 20,236,410
Net Assets
Beginning of period............... 153,588,297 133,351,887
------------ -------------
End of period..................... $145,581,287 $ 153,588,297
------------ -------------
------------ -------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7

<PAGE>

Notes to Financial Statements THE PRUDENTIAL DRYDEN FUND
(Unaudited) ACTIVE BALANCED FUND
- --------------------------------------------------------------------------------
The Prudential Dryden Fund, (the 'Company') is registered under the Investment
Company Act of 1940 as an open-end, diversified management investment company.
The Company was established as a Delaware business trust on May 11, 1992 and
currently consists of two separate funds: Stock Index Fund and Active Balanced
Fund (the 'Fund'). Prior to October 28, 1996 the Company was named the
Prudential Institutional Fund and prior to September 20, 1996, it consisted of
seven separate funds, five of which were reorganized on September 20, 1996 and
combined with existing funds in the Prudential Mutual Funds family of funds (see
Note 6.)
The Company had no operations until July 7, 1992 when 10,000 shares of
beneficial interest of the Company were sold for $100,000 to Prudential
Institutional Fund Management, Inc. ('PIFM'). Investment operations of the Fund
commenced on January 4, 1993. The Fund's investment objective is to achieve
total returns approaching equity returns, while accepting less risk than an
all-equity portfolio, through an actively-managed portfolio of equity
securities, fixed income securities and money market instruments.
- ------------------------------------------------------------
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund.
Securities Valuation: Securities, including options, warrants, futures contracts
and options thereon, for which the primary market is on a national securities
exchange, commodities exchange or board of trade and NASDAQ national market
equity securities are valued at the last sale price on such exchange or board of
trade on the date of valuation or, if there was no sale on such day, at the
average of readily closing bid and asked prices quoted on such day.
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, shall be valued at the average of the most recently quoted bid
and asked prices provided by a principal market maker or dealer.
U.S. government securities for which market quotations are available shall be
valued at a price provided by an independent broker/dealer or pricing service.
Securities for which reliable market quotations are not available or for which
the pricing agent or principal market maker does not provide a valuation or
provides a valuation that, in the judgement of the subadviser, does not
represent fair value, shall by valued at fair value as determined under
procedures established by the Trustees.
In connection with transactions in repurchase agreements, it is the Fund's
policy that its custodian or designated subcustodians, as the case may be under
triparty repurchase agreements, take possession of the underlying collateral
securities, the value of which exceeds the principal amount of the repurchase
transaction, including accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to ensure the adequacy of the collateral. If
the seller defaults, and the value of the collateral declines or, if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities 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.
Dividends and Distributions: Dividends and distributions of the Fund are
declared in cash and automatically reinvested in additional shares of the Fund.
The Fund will declare and distribute its net investment income and net capital
gains, if any, at least annually. 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.
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 dividends have been provided for in accordance with
the Fund's understanding of the applicable country's tax rules and rates.
Deferred Organizational Expenses: Approximately $450,000 of costs were incurred
in connection with the organization and initial registration of the Company and
have been deferred and are being amortized ratably over the date each of the
Funds' commenced investment operations.
- --------------------------------------------------------------------------------
8

<PAGE>

Notes to Financial Statements THE PRUDENTIAL DRYDEN FUND
(Unaudited) ACTIVE BALANCED FUND
- --------------------------------------------------------------------------------
Note 2. Agreements
The Fund had a management agreement with PIFM through October 30, 1996. Pursuant
to this agreement, PIFM had responsibility for all investment advisory services
and supervises the subadviser's performance of such services.
PIFM had a subadvisory agreement with Jennison Associates Capital Corp.
('Jennison') through October 30, 1996. Jennison furnished investment advisory
services in connection with the management of the Fund. PIFM paid for the costs
and expenses attributable to the subadvisory agreements and the salaries and
expenses of all personnel of the Fund except for fees and expenses of
unaffiliated Trustees. The Fund paid for all other costs and expenses.
Through October 30, 1996 the management fee paid PIFM was computed daily and
payable monthly at an annual rate of .70 of 1% of the average daily net assets
of the Fund. Effective October 31, 1996 the management fee paid PMF was computed
daily and payable monthly at an annual rate of .65 of 1% of the average daily
net assets of the Fund. Pursuant to the subadvisory agreement, Jennison was
compensated by PMF for its services at an annual rate of .30 of 1% of the Fund's
average daily net assets up to and including $300 million and .25 of 1% of the
Fund's average daily net assets in excess of $300 million.
Effective October 31, 1996 the Fund entered into a management agreement with
Prudential Investments Fund Management LLC ('PMF'). Pursuant to this agreement
PMF has responsibility for all investment advisory services. PMF entered into a
subadvisory agreement with Jennison. Jennison, subject to the supervision of
PMF, manages the assets of the Fund in accordance with its investment objectives
and policies and in a manner consistent with the previous arrangement. PMF pays
for the compensation of officers of the Fund, occupancy and certain clerical and
bookkeeping costs of the Fund. The Fund will bear all other costs and expenses.
The Fund had an administration agreement with PMF through October 30, 1996. The
administration fee paid PMF was computed daily and payable monthly, at an annual
rate of .17% of the Company's average daily net assets up to $250 million and
.15% of the Company's average daily net assets in excess of $250 million. PMF
furnished to the Fund such services as the Fund may require in connection with
the administration of the Fund's business affairs. PMF also provided certain
transfer agent services through its wholly-owned subsidiary, Prudential Mutual
Fund Services, Inc. ('PMFS'). For such services, PMFS was paid .03% of the
Company's average daily net assets up to $250 million and .02% of the Company's
average daily net assets in excess of $250 million from the administration fee
paid to PMF.
Effective October 31, 1996 Prudential Securities Incorporated ('PSI') became the
distributor of the Fund's Class A, Class B and Class C shares. PSI also will
incur the expenses of distributing the Fund's Class Z shares under the
distribution agreement, none of which is reimbursed by or paid for by the Fund.
Pursuant to plans of distribution (the 'Class A, B and C plans'), the Fund
compensates PSI for distribution-related activities at an annual rate of up to
.30 of 1%, 1% and 1% of the average daily net assets of the Class A, B and C
shares, respectively. Such expenses under the Class A, Class B and Class C plans
will be .25%, 1% and 1%, respectively, of the average daily net assets of the
Fund.
PIFM, Jennison, PMF and PSI are indirect wholly-owned subsidiaries of The
Prudential Insurance Company of America.
- ------------------------------------------------------------
Note 3. Portfolio Securities
Purchases and sales of portfolio securities, excluding short-term investments,
for the six months ended March 31, 1997 aggregated $28,911,422 and $36,690,586,
respectively.
The cost basis of investments for federal income tax purposes is $133,961,911.
As of March 31, 1997, net unrealized appreciation for federal income tax
purposes was $9,820,092 (gross unrealized appreciation--$11,469,015, gross
unrealized depreciation--$1,648,923).
- --------------------------------------------------------------------------------
9

<PAGE>

Notes to Financial Statements THE PRUDENTIAL DRYDEN FUND
(Unaudited) ACTIVE BALANCED FUND
- --------------------------------------------------------------------------------
Note 4. 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. At March 31, 1997, the Fund had
a 2.55% undivided interest in the repurchase agreements in the joint account.
The undivided interest represented $24,526,000 in principal amount. As of such
date, each repurchase agreement in the joint account and the collateral
therefore was as follows:
Bear, Stearns & Co., Inc., 6.40%, in the principal amount of $315,000,000,
repurchase price $315,056,000, due 4/1/97. The value of the collateral including
accrued interest was $321,684,450.
CS First Boston Corp., 6.45%, in the principal amount of $250,000,000,
repurchase price $250,044,792, due 4/1/97. The value of the collateral including
accrued interest was $256,162,625.
Goldman, Sachs & Co., Inc., 6.50%, in the principal amount of $315,000,000,
repurchase price $315,056,875, due 4/1/97. The value of the collateral including
accrued interest was $321,300,771.
J.P. Morgan Securities, Inc., 6.00%, in the principal amount of $18,220,000,
repurchase price $18,223,037, due 4/1/97. The value of the collateral including
accrued interest was $18,584,479.
UBS Securities, Inc., 6.40% in the principal amount of $65,000,000, repurchase
price $65,011,556, due 4/1/97. The value of the collateral including accrued
interest was $66,300,284.
- ------------------------------------------------------------
Note 5. Capital
The Fund has authorized an unlimited number of shares of beneficial interest at
$.001 par value per share. Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ----------------------------------- ---------- ------------
<S> <C> <C>
October 31, 1996(a)
through March 31, 1997:
Shares sold........................ 165 $ 2,242
Shares issued in reinvestment of
dividends and distributions...... 14 183
---------- ------------
Net increase in shares
outstanding...................... 179 $ 2,425
---------- ------------
---------- ------------
<CAPTION>
Class B Shares Amount
- ----------------------------------- ---------- ------------
<S> <C> <C>
October 31, 1996(a)
through March 31, 1997:
Shares sold........................ 4,115 $ 52,384
Shares issued in reinvestment of
dividends and distributions...... 1 9
Shares reacquired.................. (75) (964)
---------- ------------
Net increase in shares
outstanding...................... 4,041 $ 51,429
---------- ------------
---------- ------------
<CAPTION>
Class C
- -----------------------------------
<S> <C> <C>
October 31, 1996(a)
through March 31, 1997:
Shares sold........................ 15 200
Shares issued in reinvestment of
dividends and distributions...... 1 9
---------- ------------
Net increase in shares
outstanding...................... 16 $ 209
---------- ------------
---------- ------------
<CAPTION>
Class Z
- -----------------------------------
<S> <C> <C>
Six months ended March 31, 1997:
Shares sold........................ 2,879,807 $ 36,571,213
Shares issued in reinvestment of
dividends and distributions...... 1,097,487 13,883,205
Shares reacquired.................. (4,113,338) (52,264,194)
---------- ------------
Net decrease in shares
outstanding...................... (136,044) $ (1,809,776)
---------- ------------
---------- ------------
Year ended September 30, 1996:
Shares sold........................ 2,893,381 $ 36,454,403
Shares issued in reinvestment of
dividends and distributions...... 483,285 5,905,744
Shares reacquired.................. (2,273,501) (28,618,544)
---------- ------------
Net increase in shares
outstanding...................... 1,103,165 $ 13,741,603
---------- ------------
---------- ------------
</TABLE>
- ---------------
(a) Commencement of offering of Class A, B, and C shares.
Of the shares outstanding at March 31, 1997, PIFM and affiliates owned 514,745
shares of the Fund.
- --------------------------------------------------------------------------------
10

<PAGE>

Notes to Financial Statements THE PRUDENTIAL DRYDEN FUND
(Unaudited) ACTIVE BALANCED FUND
- --------------------------------------------------------------------------------
Note 6. Reorganization
On May 17, 1996, the Trustees of the Company approved an Agreement and a Plan of
Reorganization (the 'Plan of Reorganization') for five other series of the
Company. The Plan of Reorganization was approved by shareholders on September 6,
1996. This Fund approved a new manager, distributor and transfer agency
agreements on October 30, 1996.
Under the Plan of Reorganization, all of the assets and liabilities of the
Growth Stock Fund, Balanced Fund, Income Fund and Money Market Fund ('Series')
were transferred at net asset value for equivalent value Class Z shares of
Prudential Jennison Fund, Inc., Prudential Allocation Fund--Balanced Portfolio,
Prudential Government Income Fund, Inc. and Prudential MoneyMart Assets, Inc.,
respectively. These Series then ceased operations.
International Stock Fund joined the Prudential Global Fund as separate series of
a newly named Prudential World Fund. Existing shareholders became Class Z
shareholders and the International Stock Fund also began offering Classes A, B
and C shares.
Stock Index Fund and the Fund remained with The Prudential Institutional Fund
(renamed the Prudential Dryden Fund) as separate funds. Existing shareholders of
the Fund became Class Z shareholders and the Fund began offering Classes A, B
and C shares. Stock Index Fund offers a single class of shares. Effective
October 30, 1996 these funds were managed by PMF, PMFS will provide transfer
agency services and PSI will act as distributor.
- --------------------------------------------------------------------------------
11

<PAGE>
THE PRUDENTIAL DRYDEN FUND
Financial Highlights (Unaudited) ACTIVE BALANCED FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Class C Class Z
----------- ----------- ----------- ------------------------------------
October 31, October 31, October 31,
1996(e) 1996(e) 1996(e) Six Months Year Ended September
Through Through Through Ended 30,
March 31, March 31, March 31, March 31, ---------------------
1997 1997 1997 1997 1996 1995
----------- ----------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period......................... $ 13.40 $ 13.40 $ 13.40 $ 13.01 $ 12.46 $ 10.92
----- ----- ----- ---------- -------- --------
Income from investment
operations:
Net investment income............. .18 .14 .14 .20 .29(b) .33(b)
Net realized and unrealized gain
(loss) on investment
transactions................... .05 .06 .06 .43 .81 1.54
----- ----- ----- ---------- -------- --------
Total from investment
operations.................. .23 .20 .20 .63 1.10 1.87
----- ----- ----- ---------- -------- --------
Less distributions:
Dividends from net investment
income......................... (.39) (.39) (.39) (.39) (.37) (.29)
Distributions from net realized
gains.......................... (.78) (.78) (.78) (.78) (.18) (.04)
----- ----- ----- ---------- -------- --------
Total distributions............ (1.17) (1.17) (1.17) (1.17) (.55) (.33)
----- ----- ----- ---------- -------- --------
Net asset value, end of period.... $ 12.46 $ 12.43 $ 12.43 $ 12.47 $ 13.01 $ 12.46
----- ----- ----- ---------- -------- --------
----- ----- ----- ---------- -------- --------
TOTAL RETURN(d)................... 1.50% 1.34% 1.34% 4.71% 9.11% 17.66%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)... $ 2 $ 50 $ 197(f) $145,529 $153,588 $133,352
Average net assets (000).......... $ 2 $ 7 $ 163(f) $156,582 $142,026 $104,821
Ratios to average net assets:(b)
Expenses, including
distribution fees........... 1.21%(c) 1.96%(c) 1.96%(c) .96%(c) 1.00% 1.00%
Expenses, excluding
distribution fees........... .96%(c) .96%(c) .96%(c) .96%(c) N/A N/A
Net investment income.......... 2.75%(c) 2.00%(c) 2.00%(c) 3.00%(c) 3.09% 3.53%
Portfolio turnover rate........... 23% 23% 23% 23% 51% 30%
Average commission rate paid per
share.......................... $ .0604 $ .0604 $ .0604 $ .0604 $ .0654 N/A
<CAPTION>
January 4,
1993(a)
Through
September 30,
1994 1993
------- -------------
<S> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period......................... $ 11.05 $ 10.00
------- ------
Income from investment
operations:
Net investment income............. .24(b) .21(b)
Net realized and unrealized gain
(loss) on investment
transactions................... (.12) .84
------- ------
Total from investment
operations.................. .12 1.05
------- ------
Less distributions:
Dividends from net investment
income......................... (.14) --
Distributions from net realized
gains.......................... (.11) --
------- ------
Total distributions............ (.25) --
------- ------
Net asset value, end of period.... $ 10.92 $ 11.05
------- ------
------- ------
TOTAL RETURN(d)................... 1.07% 10.50%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)... $81,176 $38,786
Average net assets (000).......... $58,992 $12,815
Ratios to average net assets:(b)
Expenses, including
distribution fees........... 1.00% 1.00%(c)
Expenses, excluding
distribution fees........... N/A N/A
Net investment income.......... 3.06% 2.68%(c)
Portfolio turnover rate........... 40% 47%
Average commission rate paid per
share.......................... N/A N/A
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) Net of expense subsidy.
(c) Annualized.
(d) 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 return for periods of less than a full
year are not annualized. Total return includes the effect of expense
subsidies.
(e) Commencement of offering of Class A, B and C shares.
(f) Figure is actual and not rounded to nearest thousand.
N/A--Data not required for these periods.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 12

<PAGE>

Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077

(800) 225-1852
http://www.prudential.com

(LOGO)

Trustees
Edward D. Beach
Delayne Dedrick Gold
Robert F. Gunia
Donald D. Lennox
Douglas H. McCorkindale
Mendel A. Melzer
Thomas T. Mooney
Stephen P. Munn
Richard A. Redeker
Robin B. Smith
Louis A. Weil, III
Clay T. Whitehead

Officers
Richard A. Redeker, President
Thomas Early, Vice President
Robert F. Gunia, Vice President
Eugene S. Stark, Treasurer
S. Jane Rose, Secretary
Marguerite E.H. Morrison, Assistant Secretary

Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077

Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101

Distributor
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292

Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171

Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 15005
New Brunswick, NJ 08906

Independent Auditors
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036

Legal Counsel
Kirkpatrick and Lockhart LLP
1800 Massachusetts Ave., N.W.
Washington, D.C. 20036

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 March 31, 1997 were not audited
and, accordingly, no opinion is expressed on them.

This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.

BULK RATE
U.S. POSTAGE
PAID
Permit 6807
New York, NY

74431F506
74431F605 MF174E4
74431F704 Cat# 42M271T
74431F803