(ICON)
Prudential
Diversified
Bond
Fund, Inc.
SEMI
ANNUAL
REPORT
June 30, 1997
(LOGO)
<PAGE>
Prudential Diversified Bond Fund,
Inc.
Performance At A Glance.
Despite challenging market
conditions earlier this year, your
Prudential
Diversified Bond Fund provided
attractive returns by investing
heavily in
select bonds issued by U.S. and
foreign corporations that gained in
value as
their financial positions improved.
Returns on all four classes of the
Fund
surpassed that of the average
general bond fund tracked by Lipper
Analytical
Services.
<TABLE>
<CAPTION>
Cumulative
Total
Returns1
As of 6/30/97
Six
One Since
Months
Year Inception2
<S> <C>
<C> <C>
Class A
4.6%(4.4)4 12.5%(12.1)4
32.6%(31.7)4
Class B 4.2
(4.1)4 11.7 (11.3)4 30.6
(29.7)4
Class C 4.2
(4.1)4 11.7 (11.3)4 30.6
(29.7)4
Class Z 4.6
(4.4)4 N/A 10.2
(10.0)4
Lipper Gen. Bond Avg3 4.1
10.8 ***
</TABLE>
<TABLE>
<CAPTION>
Average
Annual Total
Returns1
As of 6/30/97
One Since
Year Inception2
<S>
<C> <C>
Class A
8.0%(7.7)4 10.3%(10.0)4
Class B
6.7 (6.4)4 10.4 (10.1)4
Class C
10.7 (10.3)4 11.4 (11.1)4
</TABLE>
<TABLE>
<CAPTION>
Dividends
& Yields
As of 6/30/97
Total Dividends 30-Day
Paid for Six Mos. SEC Yield
<S> <C>
<C>
Class A
$0.49
6.93%(6.74)4
Class B
$0.45 6.61
(6.42)4
Class C
$0.45 6.61
(6.42)4
Class Z
$0.50 7.37
(7.18)4
</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 4% for Class A shares and a
declining
contingent deferred sales charge
(CDSC) of 5%, 4%, 3%, 2%, 1% and 1%
for six
years, for Class B shares. Class C
shares have a 1% CDSC for one year.
Class B
shares 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
a distribution fee. Since Class Z
share have been in existence less
than one
year, no average annual returns are
presented.
2Inception dates: 1/10/95 Class A,
Class B and Class C; 9/16/96 Class
Z.
3Lipper average returns are for all
funds in the six-month and one year
categories since inception of the
fund on 1/10/95.
4Without waiver of management fees
and/or expense subsidization, the
Fund's
cumulative and average annual total
returns and yields would have been
lower,
as indicated in parentheses ( ).
*** The Lipper Since Inception
category return for Class A, B and
C shares is
31.0%; Class Z is 8.1%.
How Investments Compared.
(As of 6/30/97)
(GRAPHIC)
U.S. General General
U.S.
Growth Bond Muni Debt
Taxable
Funds Funds Funds
Money Funds
Source: Lipper Analytical Services.
Financial markets change, so a
mutual
fund's past performance should
never be used to predict future
results. The
risks to each of the investments
listed above are different -- we
provide 12-
month total returns for several
Lipper mutual fund categories to
show you that
reaching for higher returns means
tolerating more risk. The greater
the risk,
the larger the potential reward or
loss. In addition, we've included
historical
20-year average annual returns.
These returns assume the
reinvestment of
dividends.
U.S. Growth Funds will fluctuate a
great deal. Investors have received
higher
historical total returns from
stocks than from most other
investments. Smaller
capitalization stocks offer greater
potential for long-term growth but
may be
more volatile than larger
capitalization stocks.
General Bond Funds provide more
income than stock funds, which can
help smooth
out their total returns year by
year. But their prices still
fluctuate
(sometimes significantly) and their
returns have been historically
lower than
those of stock funds.
General Municipal Debt Funds invest
in bonds issued by state
governments,
state agencies and/or
municipalities. This investment
provides income that is
usually exempt from federal and
state income taxes.
U.S. Taxable Money Funds attempt to
preserve a constant share value;
they don't
fluctuate much in price but,
historically, their returns have
been generally
among the lowest of the major
investment categories.
<PAGE>
Barbara L. Kenworthy, Fund Manager
(PHOTO)
Portfolio Manager's Report
The Prudential Diversified Bond
Fund allocates its assets primarily
among
different types of bonds: U.S.
government securities, mortgage
backed
securities, corporate debt
securities and foreign (mainly
government)
securities. Barbara Kenworthy is a
value investor. She looks for bonds
that,
in her view, offer competitive
yields and appear to be priced
inexpensively.
Foreign Bonds.
The Fund can invest up to 45% of
total investments in foreign bonds,
including
those issued by corporations and
governments. We held 42% of assets
in foreign
bonds as of June 30, 1997, up from
23% at the end of 1996. These
holdings were
denominated in U.S. dollars.
Although these investments can
offer higher
returns than U.S. bonds, they can
also be subject to the risks of
social,
political and economic change.
Strategy Session.
Economy On A Roll.
As 1997 got underway, the U.S.
economy was on a roll. The jobs
market was
booming, retail sales surged and
corporate earnings rose sharply.
But when
economic growth is too strong, it
can lead to increased inflationary
pressures
that erode the value of a bond's
fixed interest and principal
payments. So
investors began to push bond prices
lower and yields higher in late
February,
sensing that the Federal Reserve
would raise the Federal Funds rate
(what banks
charge each other to borrow money
overnight) to rein in the economy.
The rate
was increased by a quarter of a
percentage point to 5.5% in March.
Some investors had expected the
central bank to act again in May,
but the
economy lost momentum as consumer
spending slowed. Furthermore,
government
reports showed subdued inflation
and thus little need for another
rate
increase. The difficult market
conditions that prevailed earlier
in the year
vanished in the spring and bond
prices rose while yields fell.
Hungry For Yield.
We emphasized corporate bonds over
U.S. Treasuries. In the winter, the
robust
economy, moderating growth in
employee benefit costs and a
renewed drive for
more efficiency helped boost U.S.
corporate earnings and improve
balance
sheets. Corporate bonds typically
perform better than governments
when
interest rates increase because
they offer higher coupons that help
offset any
decline in price. As interest rates
tumbled in the spring, corporates
still did
well because of investor appetite
for bonds that offered higher
yields than
Treasuries. Corporate bonds
returned 3.1% over the past six
months, while
Treasuries returned 2.6%, according
to Lehman Brothers. We held more
than 90%
of total investment in corporate
bonds for most of the reporting
period.
Sector Breakdown.
Expressed as a percentage of
total investments as of 6/30/97.
(PIE CHART)
<PAGE>
What Went Well.
Peter The Great.
Our team of analysts search the
globe for bonds with attractive
yields that
offer potential for price
appreciation and improvement in
credit ratings. In
1996, foreign bonds provided some
of the best returns in the bond
market. This
also held true for the first half
of 1997. Foreign bonds denominated
in U.S.
dollars accounted for nearly 42% of
the Fund's total investments as of
June 30,
1997.
- - Russia has taken major steps to
reform its economy, including
privatizing
state-owned assets and reducing
inflation. Investors have grown
increasingly
confident in the government's
ability to pay back bondholders. We
purchased
bonds issued by the City of St.
Petersburg.
On The Fast Track.
- -- Newly issued bonds of CSX
Corporation and Norfolk Southern
appreciated as
investors scrambled to purchase the
rarely issued railroad industry
debt. Both
companies sold bonds to help pay
for their joint purchase of
Conrail, a
transaction that would reshape the
eastern rail system. Initially, the
bonds
were attractively priced to lure
investors, but they rapidly gained
in value
as interest rates tumbled after the
Federal Reserve decided not to
raise the
Federal Funds rate on May 20.
TCI & Federated.
Our bonds issued by U.S.
corporations also performed well:
- -- Bonds of Tele-Communications,
Inc. (TCI) appreciated in value
more than
Treasuries as its financial
position improved.
- -- The first half of the year was
a good time to hold bonds issued by
Federated Department Stores. Major
credit rating agencies upgraded the
company's debt rating.
And Not So Well.
Over the past six months, interest
rates fluctuated as investors first
worried
that strong economic growth would
reignite inflation and then
breathed a sigh
of relief when inflationary
pressures remained in check. We
decided to avoid
making a commitment on the
direction of interest rates. The
Fund would have
gained even more had we extended
duration (a measure of sensitivity
to
interest rate changes). Lengthening
duration would have enabled the
Fund to
appreciate more rapidly in the
spring as interest rates fell and
bond prices
rose. As of June 30, 1997, our
duration stood at 5.25 years,
slightly shorter
than at the beginning of the year.
Five Largest Issuers.
5.1% Reliance Industries
Oil & Gas
4.9% Republic of Panama
Foreign Government
Bond
4.6% Tele-Communications
Media
3.4% Republic of
Venezuela
Foreign Government
Bond
3.0% U.S. Treasury
U.S. Government
Security
Expressed as a percentage of total
investments as of 6/30/97.
Looking Ahead.
Although inflation is well
contained, the U.S. economy
continues to grow at a
pace that could eventually cause
inflationary pressures to build. A
robust
316,000 non-farm jobs were created
in July and the unemployment rate
slid to
4.8%, both signs of economic vigor.
The economy, however, is not
expanding as
rapidly as it did in the first
quarter. Therefore, we think the
Federal
Reserve will leave short-term
interest rates unchanged for the
remainder of
the year. The 30-year U.S. Treasury
yield will likely hover in a range
of
6.25% to 6.75%. All in all, it
will be a favorable environment for
bonds.
- -----------------------------------
- -----------------------------------
- ---------
1
<PAGE>
President's Letter
August 4, 1997
(PHOTO)
Dear Shareholder:
With the midpoint of 1997 behind
us, I'm pleased to report that the
recent
news from the financial markets has
been decidedly upbeat. The Dow
Jones
Industrial Average has gained more
than 20% through the end of June,
while
lower long-term interest rates have
made bonds an attractive
investment.
This stands in contrast to April
when the Dow fell 10% from a record
high on
fears of higher interest rates and
surging inflation. Interest rates
have
since fallen as the economy slowed
and the Dow has reached several new
highs.
The market swings we've seen this
year illustrate the importance of
"staying
the course" to your financial goal.
We realize that maintaining
investment
discipline when faced with 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. And where income is the
primary
goal, bonds have also provided
attractive returns.
- -- Remember Your Time Horizon. If
your investment goals are long term
(several years or more), your
time horizon should be too. 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 Pruco
Securities 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 June 30, 1997 (Unaudited)
PRUDENTIAL DIVERSIFIED BOND FUND,
INC.
- -----------------------------------
- -------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000)
Description Value
(Note 1)
<S> <C> <C>
<C>
- -----------------------------------
- -------------------------
LONG-TERM INVESTMENTS--100.4%
- -----------------------------------
- -------------------------
Domestic Corporate Bonds--54.4%
Ba1 US$ 1,000 Agco Corp.,
Sr. Sub.
Notes,
8.50%,
3/15/06
(Agricultural Equipment) $
1,022,500
Baa3 3,000 Allegiance
Corp., Deb.,
7.80%,
10/15/16
(Health &
Hospital Supplies) 3,012,600
A3 2,500 Aon Capital
Trust A,
8.205%,
1/1/27
(Financial
Services) 2,565,550
Baa3 2,000 BJ Services
Co.,
Sr. Notes,
7.00%,
2/1/06 1,962,260
(Oil & Gas
Equipment &
Services)
Cleveland
Electric
Illuminating Co., Sec'd.
Notes, Ser.
A,
Ba2 2,000 7.19%,
7/1/00
2,005,740
Ba2 2,000 7.67%,
7/1/04
(Utilities)
2,007,500
Baa3 3,500 Commonwealth
Edison Co.,
Notes,
7.625%,
1/15/07
(Utilities)
3,508,890
A3 3,000 Compass
Trust I,
Gtd. Bond,
8.23%,
1/15/27
(Banking)
3,013,080
Ba2 500 Conseco
Financing Trust II,
8.70%,
11/15/26
(Financial
Services) 511,745
Ba2 5,000 Conseco
Financing Trust III,
8.796%,
4/1/27
(Financial
Services) 5,170,050
Baa2 2,000 CSX Corp,
7.95%,
5/1/27
(Railroads)
2,069,140
Baa3 1,000 Delta Air
Lines, Inc.,
Sr. Notes,
9.875%,
5/15/00
(Airlines)
1,077,760
Ba1 US$ 500 Digital
Equipment Corp.,
Notes,
7.125%,
10/15/02
(Computer
Hardware) $ 489,605
Ba3 1,500 El Paso
Electric Co.,
First Mtge.
Bonds,
9.40%,
5/1/11
(Utilities)
1,633,065
Baa2 5,500 Enterprise
Rent-A-Car Co.,
Medium Term
Notes,
7.00%,
6/15/00
(Financial
Services) 5,538,555
Baa2 5,900 Federated
Dept. Stores, Inc.,
Sr. Notes,
8.50%,
6/15/03
(Retail)
6,273,765
A3 1,500 First
Tennessee National
Corp.,
Gtd. Bond,
8.07%,
1/6/27
(Banking)
1,473,495
B2 2,000 Impsat
Corp.,
Sr. Notes,
12.125%,
7/15/03
(Telecommunications)
2,145,000
A2 3,000 Liberty
Mutual Insurance Co.,
Notes,
8.20%,
5/4/07
(Financial
Services) 3,195,630
B3 6,000 McLeod,
Inc.,
Sr. Disc.
Notes,
Zero Coupon
(until 3/1/02)
10.50%,
3/1/07
(Telecommunications)
3,825,000
A1 1,000 Nationwide
Life Insurance
Co.,
Notes,
9.875%,
2/15/25
(Financial
Services) 1,100,000
Baa3 3,000 News America
Hldgs., Inc.,
Sr. Notes,
7.75%,
12/1/45
(Media)
2,808,030
</TABLE>
- -----------------------------------
- -----------------------------------
- ----------
- -----
See Notes to Financial Statements.
3
<PAGE>
Portfolio of Investments
as of June 30, 1997 (Unaudited)
PRUDENTIAL DIVERSIFIED BOND FUND,
INC.
- -----------------------------------
- -------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000)
Description Value
(Note 1)
<S> <C> <C>
<C>
- -----------------------------------
- -------------------------
Domestic Corporate Bonds (cont'd.)
Baa1 US$ 4,000 Norfolk
Southern Corp.,
7.80%,
5/15/27
(Railroads)
$ 4,108,400
Occidental
Petroleum Corp.,
Sr. Notes,
Baa2 1,000 10.125%,
11/15/01 1,121,650
Baa2 1,000 11.125%,
8/1/10
(Oil & Gas)
1,314,570
A2 2,590 Orchard
Hardware Supply
Corp.,
Sr. Notes,
9.375%,
2/15/02
(Retail)
2,696,837
Ba2 500 Paramount
Communications,
Inc., Sr.
Notes,
7.50%,
1/15/02
(Media)
500,920
Baa3 1,250 Parker &
Parsley Petroleum
Co.,
Sr. Notes,
8.25%,
8/15/07
(Oil & Gas)
1,310,188
Baa3 1,000 Riggs
Capital,
Trust
Preferred Ser. C,
8.875%,
3/15/27
(Banking)
1,015,010
Baa3 2,000 RJR Nabisco,
Inc., Sr. Notes,
8.25%,
7/1/04 1,990,000
(Consumer
Goods & Services)
Salomon,
Inc.,
Medium Term
Notes,
Baa1 4,000 6.59%,
2/21/01
3,953,560
Sr. Notes,
Baa1 2,000 6.50%,
3/1/00
1,986,160
Baa1 500 7.25%,
5/1/01
(Financial
Services) 505,800
Baa3 3,000 Seagate
Technology, Inc.,
Deb.,
7.45%,
3/1/37
(Computer
Hardware) 3,014,280
Tele-
Communications, Inc.,
Deb.,
Ba1 3,000 6.875%,
2/15/06 2,837,490
Ba1 1,000 9.80%,
2/1/12
1,144,590
Ba1 US$ 4,500 7.875%,
8/1/13 $ 4,393,575
Ba1 1,500 10.125%,
4/15/22 1,753,185
(Media)
Baa3 3,000 Time Warner
Entertainment
Co., L. P.,
Sr. Sub. Deb.,
8.375%,
7/15/33 3,063,330
(Media)
Time Warner,
Inc.,
Ba1 2,500 Notes,
7.75%,
6/15/05 2,540,625
Ba1 2,000 Deb.,
6.85%,
1/15/26
(Media)
1,967,340
Ba1 1,500 Turner
Broadcasting Systems,
Inc., Sr.
Notes,
7.40%,
2/1/04
(Media)
1,495,665
B1 295 UCAR Global
Enterprises,
Inc.,
Sr. Sub.
Notes,
12.00%,
1/15/05
(Steel)
331,875
Baa1 1,000 Union
Planters Corp.,
Gtd. Bond,
8.20%,
12/15/26
(Banking)
985,440
United
Airlines, Inc.,
Deb.,
Baa3 3,000 10.67%,
5/1/04 3,521,760
Baa3 2,000 11.21%,
5/1/14
(Airlines)
2,618,380
B2 2,000 United
States Can Corp.,
Sr. Sub.
Notes, Ser. B,
10.125%,
10/15/06
(Containers)
2,125,000
Baa3 4,000 Vesta
Capital,
Gtd. Notes,
8.525%,
1/15/27
(Financial
Services) 4,076,000
Ba2 4,450 Viacom,
Inc., Sr. Notes,
7.75%,
6/1/05
(Media)
4,416,313
Total
domestic corporate
bonds
(cost
$115,029,235)
117,196,903
- ------------
</TABLE>
- -----------------------------------
- -----------------------------------
- ----------
- -----
See Notes to Financial Statements.
4
<PAGE>
Portfolio of Investments
as of June 30, 1997 (Unaudited)
PRUDENTIAL DIVERSIFIED BOND FUND,
INC.
- -----------------------------------
- -------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000)
Description Value
(Note 1)
<S> <C> <C>
<C>
- -----------------------------------
- -------------------------
Foreign Government Securities--
24.0%
Baa3 US$ 1,000 Banco de
Commercio Exterior
de
Colombia,
8.625%,
6/2/00 $ 1,032,500
B1 5,054 Republic of
Argentina,
6.75%,
3/31/05 4,750,478
Republic of
Colombia,
Baa3 1,000 8.75%,
10/6/99
1,045,870
Baa3 250 8.00%,
6/14/01
254,130
Republic of
Panama,
Ba1 6,000 7.875%,
2/13/02 5,962,500
Ba1 6,000 3.50%,
7/17/14
4,627,500
Ba1 5,000 Republic of
The Philippines,
8.60%,
6/15/27 4,917,600
Baa3 5,500 Republic of
Poland,
4.00%(a),
F.R.N., 10/27/14 4,695,625
Baa3 2,500 Republic of
South Africa,
8.50%,
6/23/17 2,452,500
B1 3,000 Rio de
Janeiro Municipality,
10.375%,
7/12/99
(Brazil)
3,123,750
Ba2 4,025 Russian
Federation,
10.00%,
6/26/07 4,010,913
NA 5,000 St.
Petersburg Russia,
9.50%,
6/18/02 5,000,000
Ba2 2,000 United
Mexican States,
11.50%,
5/15/26 2,295,000
Ba2 8,000 Republic of
Venezuela,
6.75%(a),
F.R.N., 12/18/07 7,420,000
- ------------
Total
foreign government
securities
(cost
$51,024,507)
51,588,366
- ------------
- -----------------------------------
- -------------------------
Foreign Corporate Bonds--18.9%
A3 5,000 Bangkok Bank
Public Ltd.,
(Thailand)
Sub. Notes,
8.375%,
1/15/27
(Banking)
4,780,900
Ba1 2,500 Greater
Beijing First
(China)
Expressway, Sr.
Notes,
9.50%,
6/15/07
(Toll
Roads)
2,518,750
Ba3 US$ 3,500 Grupo
Televisa Sa,
(Mexico)
Sr. Disc. Notes,
Zero
Coupon, (until 5/1/01)
13.25%,
5/15/08
(Media)
$ 2,345,000
A3 1,000 Kansallis-
Osake-Pankki,
(Finland),
Sub. Notes,
10.00%,
5/1/02
(Banking)
1,121,450
Ba3 3,000 Polysindo
Int'l. Finance Co.,
(Indonesia)
Gtd. Notes,
11.375%,
6/15/06
(Textiles)
3,303,750
NR 5,000 Quezon Pwr.
Philippines Co.,
Sr. Notes,
8.86%,
6/15/17
(Utilities)
5,000,000
Reliance
Industries Ltd.,
(India)
Baa3 3,000 10.375%,
6/24/16 3,275,520
Baa3 7,000 10.50%,
8/6/46
(Oil & Gas)
7,883,750
Ba3 2,000 Rogers
Cablesystems, Inc.,
(Canada)
Sr. Notes 2,160,000
10.00%,
3/15/05
(Media)
Baa1 2,000
Skandinaviska Enskilda Bank,
(Sweden)
7.50%,
3/29/49
(Banking)
1,990,000
A1 1,500 Svenska
Handelsbanken,
(Sweden)
Sub. Notes,
7.125%,
3/29/49
(Banking)
1,471,500
Ba1 5,000 Total Access
Communication
Pub.,
(Thailand)
8.375%,
11/4/06 4,909,500
(Telecommunications)
Total
foreign corporate bonds
(cost
$40,733,483)
40,760,120
- ------------
</TABLE>
- -----------------------------------
- -----------------------------------
- ----------
- -----
See Notes to Financial Statements.
5
<PAGE>
Portfolio of Investments
as of June 30, 1997 (Unaudited)
PRUDENTIAL DIVERSIFIED BOND FUND,
INC.
- -----------------------------------
- -------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount
Rating (000)
Description Value
(Note 1)
<S> <C> <C>
<C>
- -----------------------------------
- -------------------------
U.S. Government Securities--3.1%
US$ 2,600 United
States Treasury Bonds,
6.50%,
11/15/26 $ 2,493,556
United
States Treasury Notes,
1,000 6.25%,
1/31/02
994,530
2,500 6.375%,
8/15/02 2,499,225
600 6.25%,
2/15/03
595,314
- ------------
Total U.S.
government
securities
(cost
$6,578,776)
6,582,625
- ------------
Total long-
term investments
(cost
$213,366,001)
216,128,014
- ------------
SHORT-TERM INVESTMENTS--0.8%
- -----------------------------------
- -------------------------
Domestic Corporate Bond--0.5%
Ba3 1,000 Kmart Corp.,
Medium Term
Notes,
9.80%,
6/15/98
(Retail)
(cost
$1,010,000)
1,010,000
- -----------------------------------
- -------------------------
Repurchase Agreement--0.3%
737 Joint
Repurchase Agreement
Account,
5.96%,
7/01/97, (Note 6)
(cost
$737,000)
737,000
- ------------
Total short-
term investments
(cost
$1,747,000)
1,747,000
- ------------
- -----------------------------------
- -------------------------
Total investments before short
sales--101.2%
(cost
$215,113,001; Note 5)
$217,875,014
- ------------
- -----------------------------------
- -------------------------
INVESTMENTS SOLD SHORT(b)--(4.4%)
- -----------------------------------
- -------------------------
U.S. Government Securities--(4.4%)
United
States Treasury Notes,
1,500 6.25%,
6/30/02
(1,491,680)
2,000 7.25%,
5/15/04
(2,084,680)
5,000 6.625%,
5/15/07
(5,041,405)
800 6.50%,
11/15/26
(767,248)
- ------------
Total
investments sold short
(proceeds
at cost
$9,393,023)
(9,385,013)
- ------------
<CAPTION>
Description
Value (Note 1)
<S>
<C>
Total Investments, net of short
sales--96.8% $208,490,001
Other assets
in excess of
other
liabilities--3.2%
6,853,927
- ------------
Net Assets--
100% $215,343,928
- ------------
- ------------
</TABLE>
- ---------------
F.R.N.--Floating Rate Note.
NR--Not Rated by Moody's or
Standard & Poor's.
(a) Rate shown reflects current
rate of variable rate instruments.
(b) Non-income producing security.
The Fund's current Prospectus
contains a description of Moody's
and Standard &
Poor's ratings.
The industry classification of
portfolio holdings and other net
assets shown as
a percentage of net assets as of
June 30, 1997 was as follows:
<TABLE>
<S>
<C>
Foreign Government
Securities.........................
24.0%
Media..............................
................... 14.6
Financial
Services...........................
......... 13.8
Banking............................
................... 7.4
Oil &
Gas................................
............. 6.9
Utilities..........................
................... 6.4
Telecommunications.................
................... 5.1
Retail.............................
................... 4.6
Airlines...........................
................... 3.4
U.S. Government Securities (long
positions)........... 3.1
Railroads..........................
................... 2.8
Computer
Hardware...........................
.......... 1.6
Textiles...........................
................... 1.5
Health & Hospital
Supplies...........................
. 1.4
Toll
Roads..............................
.............. 1.2
Containers.........................
................... 1.0
Consumer Goods &
Services...........................
.. 0.9
Oil & Gas Equipment &
Services........................
0.9
Agricultural
Equipment..........................
...... 0.5
Steel..............................
................... 0.1
Other assets in excess of other
liabilities (net of
investments sold
short).............................
(1.2)
- -----
100%
- -----
- -----
</TABLE>
- -----------------------------------
- -----------------------------------
- ----------
- -----
See Notes to Financial Statements.
6
<PAGE>
Statement of Assets and Liabilities
(Unaudited)
PRUDENTIAL DIVERSIFIED BOND FUND,
INC.
- -----------------------------------
- -----------------------------------
- ----------
<TABLE>
<S>
<C>
Assets
June 30, 1997
Investments, at value (cost
$215,113,001)......................
...................................
.......... $217,875,014
Foreign currency, at value (cost
$99,590)...........................
...................................
..... 101,525
Cash...............................
...................................
...................................
... 81,109
Receivable for investments sold
short..............................
...................................
...... 9,463,055
Receivable for investments
sold...............................
...................................
........... 5,564,361
Interest
receivable.........................
...................................
.............................
3,807,005
Receivable for Fund shares
sold...............................
...................................
........... 596,445
Due from broker-variation
margin.............................
...................................
............ 155,719
Deferred expenses and other
assets.............................
...................................
.......... 106,904
- -------------
Total
assets.............................
...................................
.............................
237,751,137
- -------------
Liabilities
Payable for investments
purchased..........................
...................................
.............. 12,001,573
Investments sold short, at value
(proceeds
$9,393,023)........................
..............................
9,385,013
Payable for Fund shares
reacquired.........................
...................................
.............. 407,430
Dividends
payable............................
...................................
............................
331,854
Accrued
expenses...........................
...................................
..............................
131,022
Distribution fee
payable............................
...................................
.....................
95,130
Management fee
payable............................
...................................
.......................
55,187
- -------------
Total
liabilities........................
...................................
.............................
22,407,209
- -------------
Net
Assets.............................
...................................
..................................
$215,343,928
- -------------
- -------------
Net assets were comprised of:
Common stock, at
par................................
...................................
.................. $
15,755
Paid-in capital in excess of
par................................
...................................
...... 209,965,105
- -------------
209,980,860
Accumulated net realized gain on
investments........................
...................................
.. 3,176,922
Net unrealized appreciation on
investments, foreign currencies,
and
futures............................
.. 2,186,146
- -------------
Net assets, June 30,
1997...............................
...................................
................. $215,343,928
- -------------
- -------------
Class A:
Net asset value and redemption
price per share
($34,081,995 / 2,493,615
shares of common stock issued and
outstanding).......................
........ $13.67
Maximum sales charge (4.0% of
offering
price).............................
...............................
.57
- -------------
Maximum offering price to
public.............................
...................................
......... $14.24
- -------------
- -------------
Class B:
Net asset value, offering price
and redemption price per share
($143,635,653 / 10,507,543
shares of common stock issued and
outstanding).......................
...... $13.67
- -------------
- -------------
Class C:
Net asset value, offering price
and redemption price per share
($4,450,664 / 325,594 shares
of common stock issued and
outstanding).......................
........... $13.67
- -------------
- -------------
Class Z:
Net asset value, offering price
and redemption price per share
($33,175,616 / 2,428,630
shares of common stock issued and
outstanding).......................
........ $13.66
- -------------
- -------------
</TABLE>
- -----------------------------------
- -----------------------------------
- ----------
- -----
See Notes to Financial Statements.
7
<PAGE>
PRUDENTIAL DIVERSIFIED BOND FUND,
INC.
DIVERSIFIED BOND FUND, INC.
Statement of Operations (Unaudited)
- -----------------------------------
- -------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income
June 30, 1997
<S>
<C>
Income
Interest...........................
........ $ 8,282,034
- -------------
Expenses
Distribution fee--Class
A.................. 24,161
Distribution fee--Class
B.................. 516,349
Distribution fee--Class
C.................. 15,831
Management
fee.............................
511,882
Transfer agent's fees and
expenses......... 172,000
Custodian's fees and
expenses..............
76,000
Registration
fees..........................
56,000
Reports to
shareholders....................
41,000
Amortization of deferred
organization
expenses...........................
..... 21,000
Audit
fee................................
.. 12,500
Directors' fees and
expenses...............
8,000
Legal fees and
expenses....................
7,000
Miscellaneous......................
........ 1,624
- -------------
Total
expenses..........................
1,463,347
Less: Management fee waiver
(Note 2)....... (267,317)
Expense subsidy (Note
4)...................
(59,729)
- -------------
Net
expenses...........................
. 1,136,301
- -------------
Net investment
income.........................
7,145,733
- -------------
Realized and Unrealized Gain (Loss)
on
Investments and Foreign Currencies
Net realized gain on:
Investment
transactions....................
2,996,163
Futures
transactions.......................
200,538
Foreign currency
transactions..............
55,618
- -------------
3,252,319
- -------------
Net change in unrealized
appreciation
(depreciation) on:
Investments........................
........ (356,815)
Futures............................
........ (585,812)
Short
sales..............................
.. (47,868)
Foreign
currencies.........................
6,494
- -------------
(984,001)
- -------------
Net gain on
investments.......................
2,268,318
- -------------
Net Increase in Net Assets
Resulting from
Operations.....................
$ 9,414,051
- -------------
- -------------
</TABLE>
PRUDENTIAL DIVERSIFIED BOND FUND,
INC.
DIVERSIFIED BOND FUND, INC.
Statement of Changes in Net Assets
(Unaudited)
- -----------------------------------
- -------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease)
June 30, December 31,
in Net Assets
1997 1996
<S>
<C> <C>
Operations
Net investment income....... $
7,145,733 $ 9,199,027
Net realized gain on
investment
transactions.............
3,252,319 544,282
Net change in unrealized
depreciation of
investments..............
(984,001) (621,998)
--
- ----------- -----------------
Net increase in net assets
resulting from
operations...............
9,414,051 9,121,311
--
- ----------- -----------------
Dividends and distributions
(Note 1)
Dividends from net
investment income
Class A..................
(1,189,943) (1,551,620)
Class B..................
(4,665,878) (7,416,277)
Class C..................
(142,939) (228,430)
Class Z..................
(1,146,973) (2,700)
--
- ----------- -----------------
(7,145,733) (9,199,027)
--
- ----------- -----------------
Distributions from net
realized gains
Class A..................
(88,817) (58,141)
Class B..................
(361,210) (257,928)
Class C..................
(11,052) (7,883)
Class Z..................
(81,177) (590)
--
- ----------- -----------------
(542,256) (324,542)
--
- ----------- -----------------
Fund share transactions (net of
share conversions) (Note 7)
Net proceeds from shares
sold.....................
67,558,723 96,732,342
Net asset value of shares
issued to shareholders in
reinvestment of dividends
and distributions........
5,800,478 6,941,778
Cost of shares reacquired...
(31,202,594) (34,213,705)
--
- ----------- -----------------
Net increase in net assets
from
Fund share
transactions.............
42,156,607 69,460,415
--
- ----------- -----------------
Total increase.................
43,882,669 69,058,157
Net Assets
Beginning of period............
171,461,259 102,403,102
--
- ----------- -----------------
End of period.................. $
215,343,928 $ 171,461,259
--
- ----------- -----------------
--
- ----------- -----------------
</TABLE>
- -----------------------------------
- -----------------------------------
- ----------
- -----
See Notes to Financial Statements.
8
<PAGE>
Notes to Financial Statements
(Unaudited)
PRUDENTIAL DIVERSIFIED BOND FUND,
INC.
- -----------------------------------
- -----------------------------------
- ----------
Prudential Diversified Bond Fund,
Inc. (the 'Fund'), which was
incorporated in
Maryland on September 1, 1994, is
registered under the Investment
Company Act of
1940 as a diversified, open-end
management investment company. The
Fund had no
significant operations other than
the issuance of 2,667 shares each
of Class A
and Class B common stock and 2,666
shares of Class C common stock for
$100,000
on October 5, 1994 to Prudential
Investments Fund Management LLC
('PIFM').
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. The ability of issuers
of debt
securities held by the fund to meet
their obligations may be affected
by
economic developments in a specific
industry or region.
- -----------------------------------
- -------------------------
Note 1. Accounting Policies
The following is a summary of
significant accounting policies
followed by the
Fund in the preparation of its
financial statements.
Security Valuation: Securities
listed on a securities exchange 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 and U.S. Government
securities
that are actively traded in the
over-the-counter market, including
listed
securities for which the primary
market is believed to be over-the-
counter, are
valued by an independent pricing
service. Convertible debt
securities that are
actively traded in the over-the-
counter market, including listed
securities for
which the primary market is
believed to be over-the-counter,
are valued at the
average of the most recently quoted
bid and asked prices provided by a
principal
market maker or dealer. Options on
securities and indices traded on an
exchange
are valued at the average of the
most recently quoted bid and asked
prices
provided by the respective exchange
and futures contracts and options
thereon
are valued at the last sales price
as of the close of business of the
exchange.
Securities for which market
quotations are not readily
available are valued at
fair value as determined in good
faith by or under the direction of
the Board of
Directors of the Fund.
Short-term securities which mature
in more than 60 days are valued at
current
market quotations. Short-term
securities which mature in 60 days
or less are
valued at amortized cost.
In connection with repurchase
agreement transactions, the Fund's
custodian, or
designated subcustodians, as the
case may be under tri-party
repurchase
agreements, takes possession of the
underlying collateral securities,
the value
of which exceeds the principal
amount of the repurchase
transaction, including
accrued interest. If the seller
defaults and the value of the
collateral
declines or if bankruptcy
proceedings are commenced with
respect to the seller
of the security, realization of the
collateral by the Fund may be
delayed or
limited.
Foreign Currency Translation: The
books and records of the Fund are
maintained
in U.S. dollars. Foreign currency
amounts are translated into U.S.
dollars on
the following basis:
(i) market value of investment
securities, other assets and
liabilities--at the
closing daily rate of exchange;
(ii) purchases and sales of
investment securities, income and
expenses--at the
rate of exchange prevailing on the
respective dates of such
transactions.
Although the net assets of the Fund
are presented at the foreign
exchange rates
and market values at the close of
the year, the Fund does not isolate
that
portion of the results of
operations arising as a result of
changes in the
foreign exchange rates from the
fluctuations arising from changes
in the market
prices of securities held at the
end of the year. Similarly, the
Fund does not
isolate the effect of changes in
foreign exchange rates from the
fluctuations
arising from changes in the market
prices of portfolio securities sold
during
the year.
Net realized gains and losses on
foreign currency transactions
represent net
foreign exchange gains and losses
from sales and maturities of short-
term
securities, disposition of foreign
currency, gains or losses realized
between
the trade and settlement dates of
security transactions, and the
difference
between amounts of dividends,
interest and foreign withholding
taxes recorded on
the Fund's books and the U.S.
dollar equivalent amounts actually
received or
paid. Net currency gains and losses
from valuing foreign currency
denominated
assets, except portfolio
securities, and liabilities at year
end exchange rates
are reflected as a component of
unrealized appreciation or
depreciation on
foreign currencies.
Foreign security and currency
transactions may involve certain
considerations
and risks not typically associated
with those of domestic origin as a
result of,
among other factors, the
possibility of political and
economic instability and
the level of governmental
supervision and regulation of
foreign securities
markets.
- -----------------------------------
- -----------------------------------
- ----------
- -----
9
<PAGE>
Notes to Financial Statements
(Unaudited)
PRUDENTIAL DIVERSIFIED BOND FUND,
INC.
- -----------------------------------
- -----------------------------------
- ----------
Forward Currency Contracts: A
forward currency contract is a
commitment to
purchase or sell a foreign currency
at a future date at a negotiated
forward
rate. The Fund enters into forward
currency contracts in order to
hedge its
exposure to changes in foreign
currency exchange rates on its
foreign portfolio
holdings or on specific receivables
and payables denominated in a
foreign
currency. The contracts are valued
daily at current exchange rates and
any
unrealized gain or loss is included
in net unrealized appreciation or
depreciation on investments. Gain
or loss is realized on the
settlement date of
the contract equal to the
difference between the settlement
value of the
original and renegotiated forward
contracts. This gain or loss, if
any, is
included in net realized gain
(loss) on foreign currency
transactions. Risks may
arise upon entering into these
contracts from the potential
inability of the
counterparties to meet the terms of
their contracts.
Financial Futures Contracts: A
financial futures contract is an
agreement to
purchase (long) or sell (short) an
agreed amount of securities at a
set price
for delivery on a future date. Upon
entering into a financial futures
contract,
the Fund is required to pledge to
the broker an amount of cash and/or
other
assets equal to a certain
percentage of the contract amount.
This amount is
known as the 'initial margin'.
Subsequent payments, known as
'variation margin',
are made or received by the Fund
each day, depending on the daily
fluctuations
in the value of the underlying
security. Such variation margin is
recorded for
financial statement purposes on a
daily basis as unrealized gain or
loss. When
the contract expires or is closed,
the gain or loss is realized and is
presented
in the statement of operations as
net realized gain (loss) on
financial futures
contracts.
The Fund invests in financial
futures contracts in order to hedge
its existing
portfolio securities, or securities
the Fund intends to purchase,
against
fluctuations in value caused by
changes in prevailing interest
rates. Should
interest rates move unexpectedly,
the Fund may not achieve the
anticipated
benefits of the financial futures
contracts and may realize a loss.
The use of
futures transactions involves the
risk of imperfect correlation in
movements in
the price of futures contracts,
interest rates and the underlying
hedged assets.
Short Sales: The Fund may sell a
security it does not own in
anticipation of a
decline in the market value of that
security (short sale). When the
Fund makes a
short sale, it must borrow the
security sold short and deliver it
to the
broker-dealer through which it made
the short sale as collateral for
its
obligation to deliver the security
upon conclusion of the sale. The
Fund may
have to pay a fee to borrow the
particular security and may be
obligated to pay
over any payments received on such
borrowed securities. A gain,
limited to the
price at which the Fund sold the
security short, or a loss,
unlimited in
magnitude, will be recognized upon
the termination of a short sale if
the market
price at termination is less than
or greater than, respectively, the
proceeds
originally received.
Securities Transactions and Net
Investment Income: Securities
transactions are
recorded on the trade date.
Realized gains or losses on sales
of securities are
calculated on the identified cost
basis. Interest income is recorded
on the
accrual basis. The Fund amortizes
premiums and discounts paid on
purchases of
portfolio securities as adjustments
to interest income. Expenses are
recorded on
the accrual basis which may require
the use of certain estimates by
management.
Net investment income (other than
distribution fees) and realized and
unrealized
gains or losses are allocated daily
to each class of shares based upon
the
relative proportion of net assets
of each class at the beginning of
the day.
Dividends and Distributions: The
Fund declares daily and pays
monthly dividends
from net investment income. The
Fund will distribute at least
annually any net
capital gains in excess of loss
carryforwards. Dividends and
distributions are
recorded on the ex-dividend date.
Income distributions and capital
gain distributions are determined
in accordance
with income tax regulations which
may differ from generally accepted
accounting
principles.
Federal Income Taxes: It is the
Fund's policy to meet the
requirements of the
Internal Revenue Code applicable to
regulated investment companies and
to
distribute all of its taxable net
income to its shareholders.
Therefore, no
federal income tax provision is
required.
Deferred Organization Expenses:
Approximately $210,000 of expenses
were incurred
in connection with the organization
of the Fund. These costs have been
deferred
and are being amortized ratably
over a period of sixty months from
the date the
Fund commenced investment
operations.
- -----------------------------------
- -------------------------
Note 2. Agreements
The Fund has a management agreement
with PIFM. Pursuant to this
agreement, PIFM
has responsibility for all
investment advisory services and
supervises the
subadviser's performance of such
services. PIFM has entered into a
subadvisory
agreement with The Prudential
Investment Corporation ('PIC'); PIC
furnishes
investment advisory services in
connection with the management of
the Fund. PIFM
pays for the cost of the
subadviser's services, the
compensation of officers of
the Fund, occupancy
- -----------------------------------
- -----------------------------------
- ----------
- -----
10
<PAGE>
Notes to Financial Statements
(Unaudited)
PRUDENTIAL DIVERSIFIED BOND FUND,
INC.
- -----------------------------------
- -----------------------------------
- ----------
and certain clerical and
bookkeeping costs of the Fund. The
Fund bears all other
costs and expenses.
The management fee paid PIFM is
computed daily and payable monthly,
at an annual
rate of .50 of 1% of the average
daily net assets of the Fund. PIFM
waived 80%
of its management fee until May 1,
1997. Effective May 1, 1997 PIFM
eliminated
its voluntary management fee
waiver. The amount of fees waived
for the six
months ended June 30, 1997 amounted
to $267,317 ($.02 per share for
Class A, B,
C and Z shares; .26 of 1% of
average net assets, annualized).
The Fund is not
required to reimburse PMF for such
waiver.
The Fund has a distribution
agreement with Prudential
Securities Incorporated
('PSI'), which acts as the
distributor of the Class A, Class
B, Class C and
Class Z shares of the Fund. The
Fund compensates PSI for
distributing and
servicing the Fund's Class A, Class
B and Class C shares, pursuant to
plans of
distribution (the 'Class A, B and C
Plans'), regardless of expenses
actually
incurred by them. The distribution
fees are accrued daily and payable
monthly.
No distribution or service fees are
paid to PSI as distributor for
Class Z
shares of the Fund.
Pursuant to the Class A, B and C
Plans, the Fund compensates PSI for
distribution-related activities at
an annual rate of up to .30 of 1%,
1% and 1%
of the average daily net assets of
the Class A, B and C shares,
respectively.
Such expenses under the Plans were
.15 of 1% of the average daily net
assets of
Class A shares and .75% of the
average daily net assets of both
the Class B and
Class C shares for the six months
ended June 30, 1997.
PSI has advised the Fund that it
has received approximately $41,000
in front-end
sales charges resulting from sales
of Class A shares during the six
months ended
June 30, 1997. From these fees, PSI
paid such sales charges to Pruco
Securities
Corporation and affiliated broker-
dealers, which in turn paid
commissions to
salespersons and incurred other
distribution costs.
PSI has advised the Fund that for
the six months ended June 30, 1997,
it
received approximately $209,000 and
$1,200 in contingent deferred sales
charges
imposed upon redemptions by certain
Class B and Class C shareholders,
respectively.
PSI, PIFM and PIC are indirect,
wholly-owned subsidiaries of The
Prudential
Insurance Company of America.
The Fund, along with other
affiliated registered investment
companies (the
'Funds'), entered into a credit
agreement (the 'Agreement') on
December 31, 1996
with an unaffiliated lender. The
maximum commitment under the
Agreement is
$200,000,000. The Agreement expires
on December 30, 1997. Interest on
any such
borrowings outstanding will be at
market rates. The purpose of the
Agreement is
to serve as an alternative source
of funding for capital share
redemptions. The
Fund has not borrowed any amounts
pursuant to the Agreement as of
June 30, 1997.
The Funds pay a commitment fee at
an annual rate of .055 of 1% on the
unused
portion of the credit facility. The
commitment fee is accrued and paid
quarterly
on a pro-rata basis by the Funds.
- -----------------------------------
- -------------------------
Note 3. Other Transactions With
Affiliates
Prudential Mutual Fund Services LLC
('PMFS'), a wholly-owned subsidiary
of PIFM,
serves as the Fund's transfer
agent. During the six months ended
June 30, 1997,
the Fund incurred fees of
approximately $184,000 for the
services of PMFS. As of
June 30, 1997, approximately
$32,000 of such fees were due to
PMFS. Transfer
agent fees and expenses in the
Statement of Operations also
include certain
out-of-pocket expenses paid to non-
affiliates.
- -----------------------------------
- -------------------------
Note 4. Expense Subsidy
PIFM voluntarily agreed to
subsidize operating expenses so
that total Fund
operating expenses do not exceed
.90%, 1.50%, 1.50% and .75% of the
average
daily net assets of the Class A,
Class B, Class C and Class Z
shares,
respectively. For the six months
ended June 30, 1997, such
reimbursement
amounted to $59,729 ($0.004 per
share for Class A, B, C and Z
shares; .06% of
average net assets, annualized).
- -----------------------------------
- -------------------------
Note 5. Portfolio Securities
Purchases and sales of investment
securities, other than short-term
investments,
for the six months ended June 30,
1997 were $458,024,348 and
$417,785,358,
respectively.
The federal income tax cost basis
of the Fund's investments at June
30, 1997 was
$215,125,658 and, accordingly, net
unrealized appreciation for federal
income
tax purposes was $2,165,479 (gross
unrealized appreciation-$3,859,279;
gross
unrealized depreciation-
$1,693,800).
- -----------------------------------
- -----------------------------------
- ----------
- -----
11
<PAGE>
Notes to Financial Statements
(Unaudited)
PRUDENTIAL DIVERSIFIED BOND FUND,
INC.
- -----------------------------------
- -----------------------------------
- ----------
During the six months ended June
30, 1997, the Fund entered into
financial
futures contracts. Details of open
contracts at June 30, 1997 are as
follows:
<TABLE>
<CAPTION>
Value at Value at
Number of
Expiration June 30,
Trade Unrealized
Contracts Type
Date 1997 Date
Depreciation
- --------- ------------------
- ----------- ----------- ----
- ------- --------------
<S> <C>
<C> <C> <C>
<C>
Short positions:
203 10 yr. T-Note
Sept. 1997 $21,898,625
$21,611,656 $ (286,969)
131 30 yr. T-Note
Sept. 1997 14,549,187
14,250,344 (298,843)
- --------------
$ (585,812)
- --------------
- --------------
</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 June 30, 1997,
the Fund
had a 0.1% undivided interest in
the repurchase agreements in the
joint account.
The undivided interest for the Fund
represents $737,000 in principal
amount. As
of such date, each repurchase
agreement in the joint account and
the value of
the collateral therefor were as
follows:
Dean Witter Reynolds, Inc., 5.90%,
in the principal amount of
$100,000,000,
repurchase price $100,016,389, due
7/1/97. The value of the collateral
including
accrued interest was $102,000,893.
Deutsche Bank Securities Corp.,
5.95%, in the principal amount of
$184,000,000,
repurchase price $184,030,411, due
7/1/97. The value of the collateral
including
accrued interest was $187,680,112.
J.P. Morgan Securities, 6.00%, in
the principal amount of
$170,000,000,
repurchase price $170,028,333, due
7/1/97. The value of the collateral
including
accrued interest was $173,400,988.
SBC Warburg, Ltd., 5.95%, in the
principal amount of $227,000,000,
repurchase
price $227,037,518, due 7/1/97. The
value of the collateral including
accrued
interest was $232,448,194.
Note 7. Capital
The Fund offers Class A, Class B,
Class C and Class Z shares. Class A
shares are
sold with a front-end sales charge
of up to 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. Class Z
shares are not
subject to any sales or redemption
charge and are offered exclusively
for sale
to a limited group of investors.
There are 2 billion shares of
common stock, $.001 par value per
share, divided
into four classes, designated Class
A, B, C and Class Z, each of which
consists
of 1 billion, 500 million, 500
million and 500 million authorized
shares,
respectively. Of the 15,755,382
shares of common stock issued and
outstanding at
June 30, 1997, PIFM owned 8,142.
Transactions in shares of common
stock were as follows:
<TABLE>
<CAPTION>
Class A
Shares Amount
- -----------------------------------
- --- ---------- -----------
<S>
<C> <C>
Six months ended June 30, 1997:
Shares
sold...........................
734,724 $ 9,928,128
Shares issued in reinvestment of
dividends and
distributions......... 72,165
975,390
Shares
reacquired.....................
(715,154) (9,689,136)
- ---------- -----------
Net increase in shares outstanding
before
conversion...................
91,735 1,214,382
Shares issued upon conversion from
Class
B.............................
143,315 1,950,031
- ---------- -----------
Net increase in shares
outstanding.... 235,050 $
3,164,413
- ---------- -----------
- ---------- -----------
Year ended December 31, 1996:
Shares
sold...........................
1,409,945 $18,784,906
Shares issued in reinvestment of
dividends and
distributions......... 93,794
1,254,514
Shares
reacquired.....................
(477,222) (6,363,413)
- ---------- -----------
Net increase in shares outstanding
before
conversion...................
1,026,517 13,676,007
Shares issued upon conversion from
Class
B.............................
196,827 2,615,114
- ---------- -----------
Net increase in shares
outstanding.... 1,223,344
$16,291,121
- ---------- -----------
- ---------- -----------
</TABLE>
- -----------------------------------
- -----------------------------------
- ----------
- -----
12
<PAGE>
Notes to Financial Statements
(Unaudited)
PRUDENTIAL DIVERSIFIED BOND FUND,
INC.
- -----------------------------------
- -----------------------------------
- ----------
<TABLE>
<CAPTION>
Class B
Shares Amount
- -----------------------------------
- --- ---------- -----------
<S>
<C> <C>
Six months ended June 30, 1997:
Shares
sold...........................
1,534,792 $20,765,184
Shares issued in reinvestment of
dividends and
distributions......... 261,852
3,540,171
Shares
reacquired.....................
(1,167,343) (15,787,742)
- ---------- -----------
Net increase in shares outstanding
before
conversion...................
629,301 8,517,613
Shares reacquired upon conversion
into Class
A........................
(143,315) (1,950,031)
- ---------- -----------
Net increase in shares
outstanding.... 485,986 $
6,567,582
- ---------- -----------
- ---------- -----------
Year ended December 31, 1996:
Shares
sold...........................
5,615,168 $75,013,374
Shares issued in reinvestment of
dividends and
distributions......... 412,093
5,507,751
Shares
reacquired.....................
(2,006,332) (26,854,321)
- ---------- -----------
Net increase in shares
outstanding before
conversion....... 4,020,929
53,666,804
Shares reacquired upon conversion
into
Class
A.............................
(196,827) (2,615,114)
- ---------- -----------
Net increase in shares
outstanding.... 3,824,102
$51,051,690
- ---------- -----------
- ---------- -----------
<CAPTION>
Class C
- -----------------------------------
- ---
Six months ended June 30, 1997:
Shares
sold...........................
65,328 $ 883,707
Shares issued in reinvestment of
dividends and
distributions......... 8,279
111,940
Shares
reacquired.....................
(53,178) (721,094)
- ---------- -----------
Net increase in shares
outstanding.... 20,429 $
274,553
- ---------- -----------
- ---------- -----------
<CAPTION>
Class C
Shares Amount
- -----------------------------------
- --- ---------- -----------
<S>
<C> <C>
Year ended December 31, 1996:
Shares
sold...........................
169,498 $ 2,266,712
Shares issued in reinvestment of
dividends and
distributions......... 13,201
176,406
Shares
reacquired.....................
(70,076) (934,259)
- ---------- -----------
Net increase in shares
outstanding.... 112,623 $
1,508,859
- ---------- -----------
- ---------- -----------
<CAPTION>
Class Z
- -----------------------------------
- ---
Six months ended June 30, 1997:
Shares
sold...........................
2,666,667 $35,981,704
Shares issued in reinvestment of
dividends and
distributions......... 86,795
1,172,977
Shares
reacquired.....................
(369,609) (5,004,622)
- ---------- -----------
Net increase in shares
outstanding.... 2,383,853
$32,150,059
- ---------- -----------
- ---------- -----------
September 16, 1996(a) through
December 31, 1996
Shares
sold...........................
49,040 $ 667,350
Shares issued in reinvestment of
dividends and
distributions......... 229
3,107
Shares
reacquired.....................
(4,542) (61,712)
- ---------- -----------
Net increase in shares
outstanding.... 44,727 $
608,745
- ---------- -----------
- ---------- -----------
</TABLE>
- ---------------
(a) Commencement of Offering of
Class Z shares.
- -----------------------------------
- -----------------------------------
- ----------
- -----
13
<PAGE>
Financial Highlights (Unaudited)
PRUDENTIAL DIVERSIFIED BOND FUND,
INC.
- -----------------------------------
- -----------------------------------
- ----------
<TABLE>
<CAPTION>
Class A
Class B
- -----------------------------------
- ---------- --------------------
- ---------
January 10,
Six Months Year
1995(a) Six Months
Year
Ended Ended
Through Ended
Ended
June 30, December 31,
December 31, June 30,
December 31,
1997 1996
1995 1997
1996
- ----------- ------------ --
- ---------- ------------ ---
- ---------
<S>
<C> <C>
<C> <C>
<C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period.......... $ 13.57
$ 13.79 $ 12.50 $
13.58 $ 13.79
- ----------- ------
- ------ ------------ -----
- -------
Income from investment operations
Net investment
income(b)......................
.49 .93
.90 .45
.85
Net realized and unrealized gain
(loss) on
investment
transactions....................
.14 (.19)
1.51 .13
(.18)
- ----------- ------
- ------ ------------ -----
- -------
Total from investment
operations........... .63
.74 2.41
.58 .67
- ----------- ------
- ------ ------------ -----
- -------
Less distributions
Dividends from net investment
income.......... (.49)
(.93) (.90)
(.45) (.85)
Distributions from net realized
gains......... (.04)
(.03) (.22)
(.04) (.03)
- ----------- ------
- ------ ------------ -----
- -------
Total
distributions......................
.. (.53) (.96)
(1.12) (.49)
(.88)
- ----------- ------
- ------ ------------ -----
- -------
Net asset value, end of
period................ $ 13.67
$ 13.57 $ 13.79 $
13.67 $ 13.58
- ----------- ------
- ------ ------------ -----
- -------
- ----------- ------
- ------ ------------ -----
- -------
TOTAL
RETURN(d)..........................
..... 4.60%
5.80% 19.80%
4.23% 5.19%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000)............... $34,082
$ 30,657 $ 14,276
$143,635 $136,054
Average net assets
(000)......................
$32,482 $ 21,867 $
7,428 $138,834
$114,560
Ratios to average net assets(b):
Expenses, including distribution
fees...... .72%(c)
.79% .87%(c)
1.32%(c) 1.39%
Expenses, excluding distribution
fees...... .57%(c)
.64% .72%(c)
.57%(c) .64%
Net investment
income......................
7.37%(c) 7.08%
6.92%(c) 6.77%(c)
6.48%
Portfolio turnover
rate.......................
208% 362%
260% 208%
362%
<CAPTION>
January 10,
1995(a)
Through
December 31,
1995
- ------------
<S>
<C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period.......... $ 12.50
- ------
Income from investment operations
Net investment
income(b)......................
.82
Net realized and unrealized gain
(loss) on
investment
transactions....................
1.51
- ------
Total from investment
operations........... 2.33
- ------
Less distributions
Dividends from net investment
income.......... (.82)
Distributions from net realized
gains......... (.22)
- ------
Total
distributions......................
.. (1.04)
- ------
Net asset value, end of
period................ $ 13.79
- ------
- ------
TOTAL
RETURN(d)..........................
..... 19.11%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000)............... $ 85,472
Average net assets
(000)...................... $
43,574
Ratios to average net assets(b):
Expenses, including distribution
fees...... 1.47%(c)
Expenses, excluding distribution
fees...... .72%(c)
Net investment
income......................
6.32%(c)
Portfolio turnover
rate.......................
260%
</TABLE>
- ---------------
(a) Commencement of investment
operations.
(b) Net of expense subsidy and fee
waiver.
(c) Annualized.
(d) Total return does not consider
the effects of sales loads. Total
return is
calculated assuming a purchase
of shares on the first day and a
sale on the
last day of each period
reported and includes reinvestment
of dividends and
distributions. Total returns
for periods of less than a full
year are not
annualized.
- -----------------------------------
- -----------------------------------
- ----------
- -----
See Notes to Financial Statements.
14
<PAGE>
Financial Highlights (Unaudited)
PRUDENTIAL DIVERSIFIED BOND FUND,
INC.
- -----------------------------------
- -----------------------------------
- ----------
<TABLE>
<CAPTION>
Class C
Class Z
- -----------------------------------
- ---------- --------------------
- ---------
January 10,
September 16,
Six Months Year
1995(a) Six Months
1996(e)
Ended Ended
Through Ended
Through
June 30, December 31,
December 31, June 30,
December 31,
1997 1996
1995 1997
1996
- ----------- ------------ --
- ---------- ----------- ----
- ---------
<S>
<C> <C>
<C> <C>
<C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period.......... $ 13.58
$13.79 $12.50 $
13.57 $ 13.20
- ----- ----- --
- --- ----------- ---
- --
Income from investment operations
Net investment
income(b)......................
.45 .85
.82 .50
.28
Net realized and unrealized gain
(loss) on
investment
transactions....................
.13 (.18)
1.51 .13
.40
- ----- ----- --
- --- ----------- ---
- --
Total from investment
operations........... .58
.67 2.33
.63 .68
- ----- ----- --
- --- ----------- ---
- --
Less distributions
Dividends from net investment
income.......... (.45)
(.85) (.82)
(.50) (.28)
Distributions from net realized
gains......... (.04)
(.03) (.22)
(.04) (.03)
- ----- ----- --
- --- ----------- ---
- --
Total
distributions......................
.. (.49) (.88)
(1.04) (.54)
(.31)
- ----- ----- --
- --- ----------- ---
- --
Net asset value, end of
period................ $ 13.67
$13.58 $13.79 $
13.66 $ 13.57
- ----- ----- --
- --- ----------- ---
- --
- ----- ----- --
- --- ----------- ---
- --
TOTAL
RETURN(d)..........................
..... 4.23% 5.19%
19.11% 4.60%
5.35%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000)............... $ 4,451
$4,143 $2,655
$33,176 $ 608
Average net assets
(000)...................... $
4,257 $3,534
$1,307 $30,877 $
125
Ratios to average net assets(b):
Expenses, including distribution
fees...... 1.32%(c)
1.39% 1.47%(c)
.57%(c) .64%(c)
Expenses, excluding distribution
fees...... .57%(c)
.64% .72%(c)
.57%(c) .64%(c)
Net investment
income......................
6.77%(c) 6.48%
6.32%(c) 7.52%(c)
7.23%(c)
Portfolio turnover
rate.......................
208% 362%
260% 208%
362%
</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.
(e) Commencement of offering of
Class Z shares.
- -----------------------------------
- -----------------------------------
- ----------
- -----
See Notes to Financial Statements.
15
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Directors
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Robert F. Gunia
Harry A. Jacobs, Jr.
Donald D. Lennox
Mendel A. Melzer
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Richard A. Redeker, President
Thomas A. Early, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant
Treasurer
S. Jane Rose, Secretary
Deborah A. Docs, Assistant
Secretary
Manager
Prudential Investments Fund
Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment
Corporation
Prudential Plaza
Newark, NJ 07102-3777
Distributor
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Shereff, Friedman, Hoffman &
Goodman, LLP
919 Third Avenue
New York, NY 10022
The views expressed in this report
and information about the Fund's
portfolio
holdings are for the period covered
by this report and are subject to
change
thereafter.
The accompanying financial
statements as of June 30, 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.
<PAGE>
(LOGO)
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
BULK RATE
U.S. POSTAGE
PAID
Permit 6807
New York, NY
74431J102
74431J201 MF166E2
74431J300 Cat#42M138L
74431J409
