(ICON)
Prudential
Diversified
Bond
Fund, Inc.
ANNUAL
REPORT
Dec. 31, 1995
(LOGO)
<PAGE>
Prudential Diversified Bond Fund, Inc.
Performance At A Glance.
Many bond investors enjoyed a banner year in 1995. In general, U.S. interest
rates fell sharply and bond prices rose significantly, registering some of
their best yearly gains ever. Investors are lucky to see one year like
this in a lifetime -- we've experienced two in the 1990s alone (the other
was 1993). There could hardly have been a better time to launch a new bond
mutual fund. We are pleased to report that the Prudential Diversified
Bond Fund in its first year produced higher total returns
than the average general bond fund, according to Lipper Analytical
Services.
<TABLE>
Cumulative Total Returns1 As of 12/31/95
<CAPTION>
Since
Inception2
<S> <C>
Class A 19.8%
Class B 19.1
Class C 19.1
Lipper General Bond Avg3 18.2
</TABLE>
<TABLE>
<CAPTION>
Total Dividends 30-Day
Paid for 12 Mos. SEC Yield
<C> <S> <C> <C>
Dividends
& Yields Class A $1.12 6.46%
As of Class B $1.04 6.13
12/31/95 Class C $1.04 6.13
</TABLE>
An investment in the Fund is neither insured nor guaranteed by the U.S.
government. Past performance is no guarantee of future results. Investment
return and principal value will fluctuate so 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 are not yet available since the Fund has
been in existence for slightly less than one year. The Fund charges a
maximum sales charge of 4% for Class A shares. Class B shares are subject
to a contingent deferred sales charge (CDSC) of 5%, 4%, 3%, 2%, 1% and 1%,
respectively, for six years. Class C shares charge a CDSC of 1% for one
year. Class B shares will automatically convert to Class A shares on a
quarterly basis, approximately seven years after purchase.
2Inception date: The Fund commenced investment operations on 1/10/95.
The Lipper average is measured from 1/1/95 to 12/31/95.
3The Lipper General Bond average measures performance of 64 funds since
the Fund's inception.
How Investments Compared.
(As of 12/31/95)
(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 added historical 20-year average annual returns. These returns
assume the reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Smaller capitalization
stocks offer greater potential for long-term growth but may be more
volatile than larger capitalization stocks. Investors have received
higher historical total returns from stocks than from most other
investments.
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. Unlike bond funds, bonds, if held to
maturity, generally offer a fixed rate of return and fixed principal value.
High Yield Bond Funds generally provide more income than general bond
funds, but are subject to greater credit risk.
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
sectors of the fixed income markets: 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 offer competitive yields and appear to be priced lower than their
inherent worth would merit.
Strategy Session.
1995 was one of the best years bond investors are likely to see for a
long while. Long-term U.S. interest rates fell sharply all year, to 6%
from 8% a year ago, which drove up bond prices significantly (bond prices
and interest rates move in the opposite direction). Long-term Treasury
bonds posted stunning total returns last year, up 31%, and intermediate-term
bonds were up 21%, both measured by Lehman Brothers.
The Prudential Diversified Bond Fund's strategy in 1995 was to generate
yield, while still taking advantage of opportunities to provide price
gains:
- -- U.S. corporate bonds offered higher yields than government bonds, so
we bought a lot of them last year. They were 69% of net assets at year
end. Some were priced particularly low last year as investors worried
about possible corporate financial woes. We particularly liked bonds
in the media, entertainment and airline industries.
- --Foreign, U.S. dollar-denominated bonds (16% of net assets at year
end) also provided better yields than U.S. securities, so we bought
them as well. The foreign bond markets offered exceptional bargains
last year. Investors were scared off by financial scandals in Europe,
South America and Japan. They were concerned that a faltering U.S.
economy would stall growth around the world, and they were troubled
by political uncertainty in many parts of the globe.
Looking into 1996, our strategy shouldn't change much although we
will be watching political events and the economic climate here in
the U.S. closely.
Sector Breakdown.
Prudential Diversified Bond Fund, Inc.
as of 12/31/95.
(PIE CHART)
Putting 1995
In Perspective.
Most financial markets posted extraordinary returns in 1995. While
investors celebrated this performance, few expect last year's returns
to repeat in 1996. It is important to maintain realistic expectations
about the future -- differences in yearly returns highlight the
importance of diversification and professional management.
<PAGE>
What Went Well.
Corporate; High Yield
Bonds Did Well.
Buying U.S. corporate bonds in the intermediate-term maturity range (69%
of total net assets) was a good move. Corporate bonds performed well in
1995 because of slow economic growth, low inflation and strengthening
corporate earnings. Our holdings were focused in the media and airline
industries, which did particularly well. Cable TV operators should
benefit from moves in Congress to deregulate their rates. United
Airlines, an especially strong bond for us, has emerged from years
of cutthroat competition in good shape for the future.
Holding high yield corporate bonds (15% of net assets at year end) was
also a good move for us. With interest rates falling, it was hard for
income investors to find attractive yields on new bonds, which prompted
them to turn to lower-quality, high yield bonds. That helped support
high yield bond prices. Our strategy was to look for bonds that seemed
to have the potential for an upgrade to their credit ratings (which
usually leads to price gains) or for bonds whose prices seemed unusually
low considering their credit ratings. Rogers Cable Systems is an example
of one high yield company we like -- it's a media giant that should
profit both by expanding its services and from cable TV deregulation.
Quebec, Oui!
We invested 16% of net assets (at year end) in foreign bonds issued in
U.S. dollars. We bought Province of Quebec bonds at low prices (and
high yields) when secession fever was at its height in October. They
have since appreciated in price as investors realized secession is years
away and the bonds are better credit risks than first realized.
And Not So Well.
We probably put new cash to work a bit more slowly than we should have
throughout 1995, considering the bond market's tremendous rally. Holding
any assets in cash lowers a bond fund's total return when interest
rates fall. But we wanted to be careful to purchase the correct mix
of securities early on, and to avoid buying too much in any one area,
which would have substantially increased the Fund's risk. We also
reduced the Fund's maturity several times during the year, concerned
that interest rates might rise, which never happened. We preferred to
err on the side of caution, although in hindsight a more aggressive
stance would have paid off in even higher total returns.
Looking Ahead.
We think 1996 could be another good year for bond investors. Inflation is
low and economic growth is modest, which is generally a good environment
for bonds. The economy's health is still a bit unclear and may suffer
from January's snowstorms. Furthermore, there's been a recent acceleration
of corporate layoffs. Therefore, the Federal Reserve seems likely to
reduce interest rates at least one more time in our view, although at
this writing it is difficult to anticipate when. If the economy remains
flat or dips into recession, investors could see interest rates
touching historical lows again this year -- or even moving lower.
Five Largest Holdings.
2.7% First Union Corp.
Financial Services
2.6% Republic of South Africa
Foreign Government
2.5% Columbia Gas Systems
Oil & Gas
2.4% Salomon
Financial Services
2.3% Auburn Hills Trust
Automotive
Expressed as a percentage of total net assets as of 12/31/95.
1
<PAGE>
President's Letter February 5, 1996
(PICTURE)
Dear Shareholder:
For many investors, 1995 was a profitable year -- most stock and bond
funds enjoyed healthy returns from the U.S. markets. While climbing
returns can tempt even the most skittish investors to start buying
again, it is important to remember that the stock and bond markets
go down just as they go up. At times like these, remember the importance
of working with your Financial Advisor or Registered Representative to
help you find investments that are consistent with your risk tolerance
and time horizon. Your Financial Advisor or Registered Representative
can help you maintain realistic expectations about both the potential
performance and risks associated with your investments.
Shareholder Legislative Action Program.
From time to time we've been informing you about significant legislation
before Congress, such as the American Dream Savings Account, that may
potentially impact mutual fund investors. We want to make it easier
for you to share your views with your Congressional member. So,
beginning in 1996, whenever Congress is considering legislation
that would affect you, we'll send you postage-paid message cards
that you simply drop in the mail if you want to let your senator
or representative know how you want him or her to vote.
Fund Profiles.
Over the past year, we've worked to make your shareholder reports
more interesting, informative and easy to read. This year, we'll be
considering "fund profiles." Some mutual fund companies now offer one
to shareholders along with a full prospectus. The purpose of a fund
profile is to provide a very brief, reader-friendly summary of a
fund's objective, investments, risks and expenses. Would you like
to see fund profiles from us? Please call your Financial Advisor
or Registered Representative to share your views.
As always, thank you for your confidence in Prudential Mutual Funds.
Sincerely,
Richard A. Redeker
President
2
<PAGE>
Portfolio of Investments
as of December 31, 1995 PRUDENTIAL DIVERSIFIED BOND FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
<C> <C> <S> <C>
LONG-TERM INVESTMENTS--90.2%
- ------------------------------------------------------------
Domestic Corporate Bonds--64.8%
Baa2 $ 2,000 Advanta National Bank,
6.26%, 9/1/97
(Financial Services) $ 2,014,000
A2 1,600 Allmerica Financial Corp.,
Sr. Notes,
7.625%, 10/15/25
(Financial Services) 1,681,104
Ba3 1,000 American Standard, Inc.,
Sr. Deb.,
11.375%, 5/15/04
(Consumer Services) 1,105,000
Baa3 2,000 AMR Corp.,
9.00%, 8/1/12
(Transportation) 2,255,540
A3 1,500 Auburn Hills Trust,
Gtd. Cert.,
12.00%, 5/1/20
(Automotive) 2,360,640
Baa2 1,000 BayBanks, Inc.,
F.R.N.,
5.8125%(b), 9/30/97
(Financial Services) 998,240
B3 1,000 Cablevision Systems Corp.,
9.25%, 11/1/05
(Cable & Pay Television
Systems) 1,045,000
B2 1,000 Centennial Cellular Corp.,
Sr. Notes,
10.125%, 5/15/05
(Telecommunications) 1,052,500
Colombia / HCA Healthcare
Corp.,
A3 2,000 6.91%, 6/15/05 2,089,480
A3 1,000 7.05%, 12/1/27
(Health Care) 1,004,550
Baa3 $ 2,500 Colombia Gas Systems,
Inc.,
7.62%, 11/28/25
(Oil & Gas) $ 2,544,975
Ba2 2,000 Continental Cablevision,
Inc.,
Sr. Notes,
8.30%, 5/15/06
(Cable & Pay Television
Systems) 2,007,500
Baa3 1,000 Coso Funding Corp.,
Sr. Notes,
8.87%, 12/31/01
(Financial Services) 1,075,900
Delta Air Lines, Inc.,
Sr. Notes,
Ba1 1,000 9.875%, 5/15/00 1,130,660
Ba1 1,000 9.25%, 3/15/22
(Transportation) 1,181,250
Baa3 1,000 Enterprise Rent-A-Car Co.,
7.875%, 3/15/98
(Transportation) 1,045,670
A3 1,500 Equitable Life Assurance
Society of the United
States,
6.95%, 12/1/05
(Insurance) 1,521,562
Federated Department
Stores, Inc., Sr. Notes,
Ba1 1,000 10.00%, 2/15/01 1,080,000
Ba1 2,000 8.125%, 10/15/02
(Retail) 2,010,000
A3 2,500 First Union Corp.,
8.00%, 11/15/02
(Financial Services) 2,752,600
Ba1 500 Fleming Cos., Inc.,
Sr. Notes,
10.625%, 12/15/01
(Consumer Services) 485,000
A3 500 General Motors Acceptance
Corp.,
8.625%, 6/15/99
(Financial Services) 541,805
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3 -----
<PAGE>
Portfolio of Investments
as of December 31, 1995 PRUDENTIAL DIVERSIFIED BOND FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
<C> <C> <S> <C>
------------------------------------------------------------
Aa3 $ 1,000 Nationwide Life Insurance
Co.,
9.875%, 2/15/25
(Insurance) $ 1,164,800
News America Holdings,
Inc.,
Sr. Notes,
Baa3 1,000 9.125%, 10/15/99 1,105,380
Baa3 1,000 7.75%, 12/1/45
(Media) 1,012,940
Occidental Petroleum
Corp.,
Baa3 1,000 10.125%, 11/15/01 1,195,990
Baa3 1,000 Sr. Notes
11.125%, 8/1/10
(Oil & Gas) 1,379,300
Baa2 1,000 Orion Capital Corp.,
9.125%, 9/1/02
(Financial Services) 1,129,550
Paramount Communications,
Inc.,
Sr. Notes,
Ba2 1,857 5.875%, 7/15/00 1,832,265
Ba2 500 7.50%, 1/15/02
(Communications) 518,400
Ba2 1,250 Parker & Parsley Petroleum
Co.,
8.25%, 8/15/07
(Oil & Gas) 1,351,525
RJR Nabisco, Inc.,
Baa2 1,000 6.70%, 6/15/02 1,016,890
Baa3 1,000 8.75%, 8/15/05
(Consumer Goods) 1,024,310
Ba2 1,000 Royal Caribbean Cruises
Ltd.,
Sr. Sub. Notes,
11.375%, 5/15/02
(Entertainment) 1,090,000
Sears Roebuck Acceptance
Corp.,
A2 $ 1,000 6.34%, 10/12/00 $ 1,013,900
A2 2,000 6.75%, 9/15/05
(Financial Services) 2,074,240
TCI Communications, Inc.,
Sr. Notes,
Baa3 1,300 8.65%, 9/15/04 1,444,521
Baa3 1,500 8.75%, 8/1/15
(Communications) 1,663,005
Ba2 1,000 Tenet Healthcare Corp.,
Sr. Notes,
9.625%, 9/1/02
(Health Care) 1,100,000
Baa3 1,000 Time Warner Entertainment,
Inc., Sr. Deb.,
8.375%, 3/15/23
(Entertainment) 1,076,510
Ba1 2,000 Time Warner, Inc.,
7.75%, 6/15/05
(Media) 2,082,060
Transco Energy Co.,
Baa2 500 9.125%, 5/1/98 534,230
Baa2 500 9.375%, 8/15/01
(Oil & Gas) 573,745
B2 295 Ucar Global Enterprises,
Inc.,
Sr. Sub. Notes,
12.00%, 1/15/05
(Steel) 340,725
United Air Lines, Inc.,
Baa3 1,800 9.125%, 1/15/12 2,011,500
Baa3 750 11.21%, 5/1/14 992,737
Baa3 1,210 9.75%, 8/15/21
(Transportation) 1,451,480
Baa3 1,000 USX Corp.,
9.80%, 7/1/01
(Steel) 1,151,890
</TABLE>
- --------------------------------------------------------------------------------
- ----- 4 See Notes to Financial Statements.
<PAGE>
Portfolio of Investments
as of December 31, 1995 PRUDENTIAL DIVERSIFIED BOND FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
<C> <C> <S> <C>
------------------------------------------------------------
Viacom Inc.,
Sr. Notes,
Ba2 $ 1,000 7.75%, 6/1/05 $ 1,061,970
Ba2 1,000 7.625%, 1/15/16 1,011,875
(Entertainment)
Total Domestic Corporate
Bonds
(cost $63,337,479) 66,388,714
- ------------------------------------------------------------
Foreign Corporate Bonds--8.9%
Aa1 1,000 African Development Bank,
6.875%, 10/15/15
(Financial Services) 1,030,270
Ba1 1,000 Banco de Commercio
Exterior de Colombia,
8.625%, 6/2/00
(Financial Services) 1,028,000
NR 500 Financira Energetica
Nacional, (Colombia),
9.00%, 11/8/99
(Financial Services) 525,000
A3 1,000 Kansallis-Osake-Pankki
Bank,
(Finland), Sub. Notes,
10.00%, 5/1/02
(Financial Services) 1,196,440
A1 1,000 Petroliam Nasional Berhad
Corp. (Malaysia),
7.125%, 8/15/05
(Oil & Gas) 1,056,920
Aa3 2,000 Rodamco, NV,
(Netherlands)
7.30%, 5/15/05
(Financial Services) 2,150,700
Ba3 2,000 Rogers Cablesystems Ltd., 2,150,000
(Canada), Sr. Notes,
10.00%, 3/15/05
(Cable & Pay Television
Systems)
Total Foreign Corporate
Bonds (cost $8,709,593) 9,137,330
Foreign Government Securities--6.6%
A2 $ 2,000 Hydro-Quebec,
(Canada),
8.05%, 7/7/24 $ 2,283,520
A2 1,250 Quebec Province,
(Canada),
7.125%, 2/9/24 1,257,038
Baa3 500 Republic of Colombia,
8.75%, 10/6/99 528,560
Baa3 2,500 Republic of South Africa,
9.625%, 12/15/99 2,696,425
-------------
Total Foreign Government
Securities
(cost $6,632,940) 6,765,543
- ------------------------------------------------------------
U. S. Government Securities--4.3%
1,000 U.S. Treasury Bond,
6.875%, 8/15/25 1,127,810
U.S. Treasury Notes,
2,100 6.50%, 8/15/97 2,142,000
1,000 8.875%, 5/15/00 1,135,000
-------------
Total U.S. Government
Securities
(cost $4,335,703) 4,404,810
- ------------------------------------------------------------
U. S. Government Agencies--5.6%
2,000 Federal Home Loan Mortgage
Corp.,
6.71%, 6/11/02 2,060,320
1,500 Federal National Mortgage
Association,
6.55%, 9/12/05 1,574,760
2,000 Tennessee Valley
Authority,
6.235%, 7/15/45 2,071,220
-------------
Total U.S. Government
Agencies
(cost $5,576,140) 5,706,300
-------------
Total Long-Term
Investments
(cost $88,591,855) 92,402,697
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5 -----
<PAGE>
Portfolio of Investments
as of December 31, 1995 PRUDENTIAL DIVERSIFIED BOND FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
<C> <C> <S> <C>
------------------------------------------------------------
SHORT-TERM INVESTMENTS--7.2%
- ------------------------------------------------------------
Corporate Bonds--3.9%
Baa1 $ 1,000 Marine Midland Bank,
Sub. Notes,
5.8125%, 9/27/96
(Financial Services) $ 998,000
Salomon, Inc.,
Baa1 500 6.725%, 2/14/96 500,187
Baa1 2,400 9.19%, 6/25/96 2,443,200
(Financial Services) -------------
Total Corporate Bonds
(cost $3,942,740) 3,941,387
- ------------------------------------------------------------
Repurchase Agreement--3.3%
3,359 Joint Repurchase Agreement
Account,
5.85%, 1/2/96, (Note 6)
(cost $3,359,000) 3,359,000
- ------------------------------------------------------------
Put Options Purchased
Contracts
(a)
--------
50 U.S. Treasury Notes,
5.875%, 11/15/05,
expiring Feb '96 @
99.3125
(cost $30,625) 13,281
-------------
Total Short-Term
Investments
(cost $7,332,365) 7,313,668
- ------------------------------------------------------------
Total Investments--97.4%
(cost $95,924,220; Note 5) 99,716,365
Other assets in excess of
liabilities--2.6% 2,686,737
-------------
Net Assets--100% $ 102,403,102
-------------
-------------
- ---------------
F.R.N.--Floating Rate Note
NR--Not Rated by Moody's or Standard & Poor's.
(a) One contract equals $100,000 face value.
(b) 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 December 31, 1995 was as follows:
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Financial Services.................................... 22.6%
U.S. Government & Agency Securities................... 13.3
Transportation........................................ 9.8
Oil & Gas............................................. 8.4
Foreign Government Securities......................... 6.6
Communications/Telecommunications..................... 6.3
Cable & Pay Television Systems........................ 5.1
Entertainment......................................... 4.2
Health Care........................................... 4.1
Media................................................. 4.1
Retail................................................ 3.0
Insurance............................................. 2.6
Automotive............................................ 2.3
Consumer Goods........................................ 2.0
Consumer Services..................................... 1.5
Steel................................................. 1.5
Other assets in excess of liabilities................. 2.6
-----
100.0%
-----
-----
</TABLE>
- --------------------------------------------------------------------------------
- ----- 6 See Notes to Financial Statements.
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL DIVERSIFIED BOND FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<S>
<C>
Assets
December 31, 1995
Investments, at value (cost
$95,924,220)................................................................
$ 99,716,365
Cash.........................................................................
........................... 107,521
Interest
receivable...................................................................
.................. 1,750,361
Deposit with
broker.......................................................................
.............. 1,144,166
Receivable for Fund shares
sold.........................................................................
966,183
Deferred expenses and other
assets......................................................................
202,109
Due from
Manager......................................................................
.................. 6,959
-----------------
Total
assets.......................................................................
.................. 103,893,664
-----------------
Liabilities
Payable for investments
purchased.......................................................................
1,144,166
Accrued expenses and other
liabilities..................................................................
168,059
Payable for Fund shares
reacquired......................................................................
73,787
Distribution fees
payable......................................................................
......... 55,249
Dividends
payable......................................................................
................. 49,301
-----------------
Total
liabilities..................................................................
.................. 1,490,562
-----------------
Net
Assets.......................................................................
....................... $ 102,403,102
-----------------
-----------------
Net assets were comprised of:
Common stock, at
par..........................................................................
....... $ 7,425
Paid-in capital in excess of
par.....................................................................
98,356,413
-----------------
98,363,838
Accumulated net realized gain on
investments.........................................................
247,119
Net unrealized appreciation on
investments...........................................................
3,792,145
-----------------
Net assets, December 31,
1995...........................................................................
$ 102,403,102
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($14,275,528 / 1,035,221 shares of common stock issued and
outstanding)........................... $13.79
Maximum sales charge (4.0% of offering
price)........................................................
.57
Maximum offering price to
public.....................................................................
$14.36
Class B:
Net asset value, offering price and redemption price per share
($85,472,077 / 6,197,455 shares of common stock issued and
outstanding)........................... $13.79
Class C:
Net asset value, offering price and redemption price per share
($2,655,497 / 192,542 shares of common stock issued and
outstanding).............................. $13.79
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7 -----
<PAGE>
PRUDENTIAL DIVERSIFIED BOND FUND, INC.
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
January 10,
1995(a)
Through
Net Investment Income December 31, 1995
-----------------
<S> <C>
Income
Interest................................. $ 3,945,453
-----------------
Expenses
Distribution fee--Class A................ 10,837
Distribution fee--Class B................ 317,851
Distribution fee--Class C................ 9,532
Management fee........................... 254,378
Custodian's fees and expenses............ 108,000
Transfer agent's fees and expenses....... 89,000
Registration fees........................ 72,000
Reports to shareholders.................. 50,000
Amortization of deferred organization
expenses.............................. 48,630
Audit fee and expenses................... 25,000
Directors' fees.......................... 22,500
Legal fees and expenses.................. 15,000
Miscellaneous............................ 1,004
-----------------
Total expenses........................ 1,023,732
Less: Management fee waiver (Note 2)..... (203,502)
Expense subsidy (Note 4).............. (116,791)
-----------------
Net expenses.......................... 703,439
-----------------
Net investment income....................... 3,242,014
-----------------
Realized and Unrealized
Gain on Investments
Net realized gain on:
Investment transactions.................. 1,770,665
Written options transactions............. 3,047
-----------------
1,773,712
Net unrealized appreciation on
investments.............................. 3,792,145
-----------------
Net gain on investments..................... 5,565,857
-----------------
Net Increase in Net Assets
Resulting from Operations................... $ 8,807,871
-----------------
-----------------
- ---------------
(a) Commencement of investment operations.
</TABLE>
PRUDENTIAL DIVERSIFIED BOND FUND, INC.
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
January 10,
1995(a)
Increase (Decrease) Through
in Net Assets December 31, 1995
-----------------
<S> <C>
Operations
Net investment income................... $ 3,242,014
Net realized gain on investment
transactions......................... 1,773,712
Net unrealized appreciation on
investments.......................... 3,792,145
-----------------
Net increase in net assets resulting
from operations...................... 8,807,871
-----------------
Dividends and distributions (Note 1)
Dividends to shareholders from net
investment
income
Class A.............................. (499,866)
Class B.............................. (2,663,152)
Class C.............................. (78,996)
-----------------
(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........... 108,185,016
Net asset value of shares issued to
shareholders in reinvestment of
dividends and distributions.......... 3,228,879
Cost of shares reacquired............... (13,150,057)
-----------------
Net increase in net assets from Fund
share transactions................... 98,263,838
-----------------
Total increase............................. 102,303,102
Net Assets
Beginning of period........................ 100,000
-----------------
End of period.............................. $ 102,403,102
-----------------
-----------------
- ---------------
(a) Commencement of investment operations.
</TABLE>
- --------------------------------------------------------------------------------
- ----- 8 See Notes to Financial Statements.
<PAGE>
Notes to Financial Statements 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 triparty 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.
The Fund, as a writer of an option, has no control over whether the underlying
securities may be sold (called) or purchased (put). As a result, the Fund bears
the market risk of an unfavorable change in the price of the security or
currency underlying the written option. The Fund, as purchaser of an option,
bears the risk of the potential inability of the counterparties to meet the
terms of their contracts. There were no written options outstanding at December
31, 1995.
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.
- --------------------------------------------------------------------------------
9 -----
<PAGE>
Notes to Financial Statements PRUDENTIAL DIVERSIFIED BOND FUND, INC.
- --------------------------------------------------------------------------------
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.
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 $250,000 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 period
ended December 31, 1995, PMF waived 80% of its management fee. The amount of
fees waived for the period ended December 31, 1995 amounted to $203,502 ($.05
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. Prudential Securities Incorporated (``PSI'') is
distributor of the Class B and Class C shares of the Fund. The Fund compensates
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. Effective January 2, 1996, PSI became the
distributor of the Class A shares of the Fund and is serving under the same
terms and conditions as under the arrangement with PMFD.
Pursuant to the Class A, B and C Plans, the Fund compensates PSI and PMFD for
the year ended December 31, 1995 with respect to Class A shares, 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.
With respect to the Class A Plan, PMFD has agreed to limit its
distribution-related fees to .15 of 1% of average daily net assets for the
fiscal year ended December 31, 1995. With respect to the Class B and Class C
Plans, PSI has agreed to limit its distribution fee, to .75 of 1% of average
daily net assets of Class B and Class C shares, respectively, for the period
ended December 31, 1995.
PMFD has advised the Fund that it has received approximately $279,600 in
front-end sales charges resulting from sales of Class A shares during the period
ended December 31, 1995. From these fees, PMFD paid such sales charges to PSI
and Pruco Securities Corporation, affiliated broker-dealers, which in turn paid
commissions to salespersons and incurred other distribution costs.
PSI has advised the Fund that for the period ended December 31, 1995, it
received approximately $71,000 in contingent deferred sales charges imposed upon
redemptions by certain Class B and Class C shareholders.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
- ------------------------------------------------------------
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 period ended December 31,
1995, the Fund incurred fees of approximately $76,000 for the services of PMFS.
As of December 31, 1995, approximately $12,500 of such fees were due to PMFS.
Transfer agent fees and expenses in the
- --------------------------------------------------------------------------------
- ----- 10
<PAGE>
Notes to Financial Statements PRUDENTIAL DIVERSIFIED BOND FUND, INC.
- --------------------------------------------------------------------------------
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. For the period
ended December 31, 1995, PMF subsidized $116,791 ($.03 per share for Class A,
B
and C shares; .23% of average daily net assets, annualized) of the Fund's
expenses. The Fund is not required to reimburse PMF for such subsidy.
- ------------------------------------------------------------
Note 5. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the period ended December 31, 1995 were $218,286,047 and $130,480,809,
respectively.
The federal income tax cost basis of the Fund's investments at December 31, 1995
was $95,943,459 and, accordingly, net unrealized appreciation for federal income
tax purposes was $3,772,906 (gross unrealized appreciation-$3,837,415; gross
unrealized depreciation-$64,509).
Transactions in written options during the period ended December 31, 1995 were
as follows:
<TABLE>
<CAPTION>
Number of Premiums
Contracts Received
<S> <C> <C>
---------- --------
Options written 20 $ 9,688
Options expired (10) (3,047)
Options exercised (10) (6,641)
---------- --------
Options outstanding at December 31,
1995 0 0
---------- --------
---------- --------
</TABLE>
- ------------------------------------------------------------
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 December 31, 1995, the
Fund had a 0.29% undivided interest in the repurchase agreements in the joint
account. The undivided interest for the Fund represents $3,359,000 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., 5.80%, in the principal amount of $262,000,000,
repurchase price $262,168,844, due 1/2/96. The value of the collateral including
accrued interest was $267,947,172.
BT Securities Corp., 5.75%, in the principal amount of $61,765,000, repurchase
price $61,804,461, due 1/2/96. The value of the collateral including accrued
interest was $63,059,883.
Goldman, Sachs & Co., 5.90%, in the principal amount of $365,000,000, repurchase
price $365,239,278, due 1/2/96. The value of the collateral including accrued
interest was $372,300,053.
Morgan Stanley & Co., Inc., 5.89%, in the principal amount of $103,000,000,
repurchase price $103,067,408, due 1/2/96. The value of the collateral including
interest was $105,192,608.
Smith Barney, Inc., 5.83%, in the principal amount of $365,000,000, repurchase
price $365,236,439, due 1/2/96. The value of the collateral including accrued
interest was $372,300,416.
- ------------------------------------------------------------
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
7,425,218 shares of common stock issued and outstanding at December 31, 1995,
PMF owned 8,000.
- --------------------------------------------------------------------------------
11 -----
<PAGE>
<PAGE>
Notes to Financial Statements PRUDENTIAL DIVERSIFIED BOND FUND, INC.
- --------------------------------------------------------------------------------
Transactions in shares of common stock for the period January 10, 1995
(commencement of operations) through December 31, 1995 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- -------------------------------------- --------- -----------
<S> <C> <C>
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>
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
- --------------------------------------
<S> <C> <C>
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
--------- -----------
--------- -----------
</TABLE>
- --------------------------------------------------------------------------------
- ----- 12
<PAGE>
Financial Highlights PRUDENTIAL DIVERSIFIED BOND FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Class C
------------- ------------- -------------
January 10, January 10, January 10,
1995(a) 1995(a) 1995(a)
Through Through Through
December 31, December 31, December 31,
1995 1995 1995
------------- ------------- -------------
<S>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period........................................
$ 12.50 $ 12.50 $ 12.50
------ ------ -----
Income from investment operations
Net investment income(b)....................................................
.90 .82 .82
Net realized and unrealized gain on investment transactions.................
1.51 1.51 1.51
------ ------ -----
Total from investment operations.........................................
2.41 2.33 2.33
------ ------ -----
Less distributions
Dividends from net investment income........................................
(.90) (.82) (.82)
Distributions from net realized gains.......................................
(.22) (.22) (.22)
------ ------ -----
Total distributions......................................................
(1.12) (1.04) (1.04)
------ ------ -----
Net asset value, end of period..............................................
$ 13.79 $ 13.79 $ 13.79
------ ------ -----
------ ------ -----
TOTAL RETURN(d).............................................................
19.80% 19.11% 19.11%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000).............................................
$14,276 $85,472 $ 2,655
Average net assets (000)....................................................
$ 7,428 $43,574 $ 1,307
Ratios to average net assets(b)/(c):
Expenses, including distribution fees....................................
.87% 1.47% 1.47%
Expenses, excluding distribution fees....................................
.72% .72% .72%
Net investment income....................................................
6.92% 6.32% 6.32%
Portfolio turnover rate.....................................................
260% 260% 260%
<CAPTION>
- ---------------
</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>
Independent Auditors' Report PRUDENTIAL DIVERSIFIED BOND FUND, INC.
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
Prudential Diversified Bond Fund, Inc.
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Prudential Diversified Bond Fund, Inc. as of
December 31, 1995, the related statements of operations and of changes in net
assets, and the financial highlights for the period January 10, 1995
(commencement of operations) to December 31, 1995. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned at December 31, 1995 by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Prudential
Diversified Bond Fund, Inc. as of December 31, 1995, the results of its
operations, the changes in its net assets and its financial highlights for the
above stated period, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
New York, New York
February 9, 1996
- --------------------------------------------------------------------------------
- ----- 14
<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 Diversified Bond Fund, Inc. == Lehman Bros. Aggregate Bond Index
The Prudential Diversified Bond Fund, Inc. and the Lehman Bros.
Aggregate Bond Index: Comparing a $10,000 Investment.
Average Annual
Total Returns
- ----------------
With Sales Load
15.0% Since Inception
Class A
(GRAPH)
Without Sales Load
19.8% Since Inception
Average Annual
Total Returns
- --------------
With Sales Load
14.1% Since Inception
Class B
(GRAPH)
Without Sales Load
19.1% Since Inception
Average Annual
Total Returns
- --------------
With Sales Load
18.1% Since Inception
Class C
(GRAPH)
Without Sales Load
19.1% Since Inception
Past performance is no guarantee of future results. Investment return
and principal value will fluctuate so an investor's shares, when redeemed,
will be worth more or less than their original cost.
These graphs are furnished to you in accordance with SEC regulations.
They compare a $10,000 investment in the Prudential Diversified Bond
Fund (Class A, Class B and Class C) with a similar investment in the
Lehman Brothers Aggregate Bond Index (the Index) by portraying the
initial account values at the end of this reporting period (December
31), as measured on a quarterly basis, beginning in 1995. For purposes
of the graphs, and unless otherwise indicated, in the accompanying
tables it has been assumed that (a) the maximum applicable front-end
sales charge was deducted from the initial $10,000 investment in Class
A shares; (b) the maximum applicable contingent deferred sales charge
was deducted from the value of the investment in Class B and Class C
shares, assuming full redemption on December 31, 1995; ( c ) all recurring
fees (including management fees) were deducted; and (d) all dividends
and distributions were reinvested. Class B shares will automatically
convert to Class A shares approximately seven years after purchase.
This conversion feature is not reflected in the graphs.
The Index is a weighted index comprised of securities with a remaining
maturity of one to 30 years, which are issued or backed by the U.S.
government (including mortgage backed securities) and its agencies,
or issued by private corporations. It is an unmanaged index that
includes the reinvestment of all dividends, but does not reflect
the transaction costs and advisory fees paid by the Fund's investors.
The Index's holdings differ from the Fund's portfolio. The Index is
not the only one that may be used to characterize performance of
bond funds and other indices may portray different comparative
performance.
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
Internet Address:
http:\\www.prudential.com
(LOGO)
Directors
Thomas R. Anderson
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. Acker, 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.
This report is not authorized for distribution to prospective investors
unless preceded or accompanied by a current prospectus.
74431J102 MF166E
74431J201 Cat.# 42M173R
74431J300
