(ICON)
Prudential
Diversified
Bond
Fund, Inc.
ANNUAL
REPORT
Dec. 31, 1998
(LOGO)
<PAGE>
Prudential Diversified Bond Fund, Inc.
Performance At A Glance.
A financial crisis that spread beyond Asia to Russia and
Latin America roiled
global bond markets during 1998. Investors sought refuge in
"safe haven"
securities, such as U.S. Treasuries, and sold assets that
carried greater
credit risk, including corporate bonds. The Prudential
Diversified Bond Fund
benefited from its exposure to Treasuries and our decision
to sell certain
corporate bonds at a profit earlier in the year. But it also
held debt
securities of foreign governments, financial services firms,
and energy
companies that performed poorly. As a result, Fund returns
lagged the gain on
the Lipper General Bond Fund Average.
<TABLE>
Cumulative Total Returns1 As of 12/31/98
<CAPTION>
One Three
Since
Year Years
Inception2
<S> <C> <C>
<C>
Class A 5.14% (5.06) 20.10%
(19.46) 43.88% (42.90)
Class B 4.51 (4.43) 17.90
(17.28) 40.44 (39.48)
Class C 4.51 (4.43) 17.90
(17.28) 40.41 (39.46)
Class Z 5.30 (5.22) N/A
19.86 (19.41)
Lipper General Bond
Fund Avg.3 6.47 24.93
***
</TABLE>
<TABLE>
Average Annual Total Returns1 As of 12/31/98
<CAPTION>
One Three
Since
Year Years
Inception2
<S> <C> <C>
<C>
Class A 0.93% (0.86) 4.86%
(4.67) 8.47% (8.28)
Class B -0.49 (-0.57) 4.74
(4.55) 8.53 (8.34)
Class C 2.47 (2.39) 5.29
(5.10) 8.64 (8.46)
Class Z 5.30 (5.22) N/A
8.24 (8.06)
</TABLE>
<TABLE>
Distributions & Yields1 As of 12/31/98
<CAPTION>
Total Distributions
30-Day
Paid for 12 Months
SEC Yield
<S> <C>
<C>
Class A $0.85
6.42% (6.36)
Class B $0.77
6.09 (6.02)
Class C $0.77
6.02 (5.96)
Class Z $0.87
6.85 (6.78)
</TABLE>
Past performance is not indicative of future results.
Principal and investment
return will fluctuate so that an investor's shares, when
redeemed, may be worth
more or less than their original cost.
1 Source: Prudential Investments Fund Management and Lipper,
Inc. The
cumulative total returns do not take into account sales
charges. The average
annual total returns do take into account applicable sales
charges. The Fund
charges a maximum front-end sales load of 4% for Class A
shares. Class B
shares are subject to a declining contingent deferred sales
charge (CDSC) of
5%, 4%, 3%, 2%, 1%, and 1% for six years. Class B shares
will automatically
convert to Class A shares, on a quarterly basis,
approximately seven years
after purchase. Class C shares are subject to a front-end
sales load of 1% and
a CDSC of 1% for 18 months. Class C shares bought before
November 2, 1998 have
a 1% CDSC if sold within one year. Class Z shares are not
subject to a sales
charge or distribution fee. Without 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 (
).
2 Inception dates: Class A, B, and C, 1/10/95; Class Z,
9/16/96.
3 Lipper average returns are for all funds in each share
class for the one-
and three-year periods in the General Bond Fund category.
***Lipper Since Inception returns are 49.23% for Class A, B,
and C; and 21.83%
for Class Z based on all funds in each share class.
How Investments Compared.
(As of 12/31/98)
(GRAPH)
Source: Lipper, Inc. 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's investment objective
is high current
income consistent with an appropriate balance between risk
and reward as
determined by the Fund's investment adviser. The Fund
allocates its assets
among U.S. government, mortgage-backed, corporate 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. There can be no assurance that the Fund will
achieve its
investment objective.
A Triple Play.
The Federal Reserve cut the Federal funds rate (what banks
charge each other
for overnight loans) by one-quarter percentage point on
September 29, October
15, and November 17, leaving the key rate at 4.75%. The mid-
October move
marked the first time in 4 1/2 years that the central bank
had changed
monetary policy outside of a regularly scheduled meeting.
Strategy Session.
Asset Allocation Shifts.
Financial markets proved highly volatile in 1998. Therefore
we made timely
shifts in the Fund's asset allocation to take advantage of
changes in the
relative value of world bond markets.
A financial crisis that spread from Asia was among the
developments that shook
global fixed-income markets. The rash of slumping local
currencies and
corporate bankruptcies in the region initially seemed to
ease by early spring.
During this period of relative calm, strong demand persisted
for securities,
such as corporate bonds that provided incremental yield over
U.S. Treasuries.
As of April 30, 1998, U.S. corporate bonds comprised 69% of
the Fund's total
investments. Debt securities of foreign companies and
governments accounted
for 16%, Treasuries were 12%, and three percent was held in
cash. Later in the
spring, however, expectations of slower growth in corporate
earnings led us to
purchase more Treasuries and reduce exposure to corporate
bonds.
When Russia and Latin America fell prey to the financial
malaise in August,
Treasuries rallied strongly and bonds that carried greater
credit risk sold
off. We shifted even more assets into Treasuries,
maintaining roughly 25% of
the Fund's total investments in Treasuries from August
through October.
Because this growing reluctance to invest in corporate bonds
and stocks could
have endangered the U.S. economic expansion, the Federal
Reserve engineered
three one-quarter-percentage-point cuts in the Federal funds
rate in the
autumn that left the rate at 4.75%. These moves encouraged
economic activity
by lowering borrowing costs. As confidence in the economy
returned, the
"flight to quality" began to reverse. In response, we
increased U.S. corporate
bond holdings to 86% of the Fund's total investments as of
December 31, 1998,
while Treasuries accounted for only six percent.
Portfolio Composition.
Expressed as a percentage of
total investments as of 12/31/98.
(PIE CHART)
<PAGE>
What Went Well.
Good Timing.
The Fund benefited from its large exposure to U.S.
Treasuries from August
through early October. During that time, Treasuries
performed significantly
better than most bond sectors because many investors wanted
"safe haven"
securities that could be easily bought and sold, given the
turbulent market
conditions. Investors also purchased Treasuries out of
disappointment over the
modest quarter-percentage-point cut in the Federal funds
rate on September 29.
Within days of this move, prices of Treasuries rallied so
strongly that the
30-year Treasury bond yield, which falls when its price
rises, slid to its
lowest level since April 1967.
Realizing the first change in monetary policy was not
enough, the Fed reduced
the Federal funds rate by the same amount in October and
again in November.
Even though the changes in monetary policy helped reverse
the "flight to
quality" trend, Treasuries still returned more than
corporate bonds in 1998,
based on Lehman Brothers indexes.
And Not So Well.
Some Poor Choices.
Fund returns lagged the Lipper average because we sold at a
loss U.S. dollar-
denominated bonds of the cities of Moscow and St.
Petersburg, Russia. Prices
of these bonds had begun to tumble in August, along with
other Russian debt
securities, after the nation's government defaulted on some
of its ruble-
denominated bonds and effectively devalued its currency.
However, prices of
Moscow and St. Petersburg bonds edged higher after the
"flight to quality"
reversed in the autumn. Because we believed Russia's chaotic
financial and
economic conditions would continue, we chose to cut our
losses by selling the
bonds as their prices rose.
The Fund also held R&B Falcon Corp. bonds, whose prices fell
after Mobil Corp.
canceled an offshore drilling contract with the company, and
ContiFinancial
Corp. bonds that performed poorly after their ratings were
downgraded by major
U.S. credit-rating agencies.
In addition, the Fund cannot invest in stocks as do some of
its competitors
included in the Lipper average. Therefore it did not benefit
from the
impressive stock market rally that took place in the final
three months of
1998.
Five Largest Issuers.
4.1% News America, Inc.
2.4% Time Warner, Inc.
2.4% Household Finance Corp.
2.3% ERP Operating, L.P.
2.1% Niagara Mohawk
Power Corp.
Expressed as a percentage of net assets as of 12/31/98.
Looking Ahead.
We believe U.S. economic growth will moderate in 1999. In
other words, the
economy could grow at a slower pace but not slide into a
recession. If the
economy behaves as expected, the 30-year Treasury bond yield
could fluctuate
in a range of 4.75% to 5.75% this year. Therefore debt
securities that offer
incremental yield over Treasuries such as corporate bonds
stand a good chance
of performing better than the federal government securities.
The Fund, with
its 86% exposure to U.S. corporate bonds, is positioned to
benefit from that
anticipated performance.
- ------------------------------------------------------------
- -------------------
1
<PAGE>
President's Letter
February 16, 1999
(PHOTO)
Dear Shareholder:
Many major equity market indexes ended 1998 on the upswing -
- - posting an
unprecedented fourth consecutive year of double-digit
returns -- as many
stocks rebounded off their early October lows. Bond
investors were also
cheered by healthy returns on U.S. Treasuries and investment-
grade corporate
debt, as well as certain Western European bonds.
Unfortunately, the equity market's advance was neither broad
nor deep. It was
limited primarily to stocks of larger companies with
established records of
growth. Investors ignored the stocks of both undervalued
companies and smaller
companies in a "flight to quality" stemming from financial
turmoil in Asia and
fears of a recession in the United States. Accordingly,
growth-style investors
in large-company stocks outperformed value-style investors
by the widest
margins in nearly 24 years -- and not since the Great
Depression have large-
company stocks so outperformed stocks of small companies.
The rally in bonds was not universal either. While
government bonds --
especially Treasuries -- enjoyed strong appeal, investors
were cool toward
lower-rated issues. High yield bonds, therefore, saw yields
rise while prices
fell.
What We Can Learn From '98
The volatility of 1998 underscores points all investors
should keep in mind:
Financial markets will rise and fall, sometimes
dramatically. Because asset
classes seldom move in lockstep, owning a mix of value- and
growth-oriented
mutual funds in addition to bond and money market funds can
help lessen the
effects of market volatility.
Generally speaking, long-term success in investment
management comes from
remaining true to an investment discipline -- even when it
is out of favor.
Investors who maintain a long-term perspective and don't
sell during market
lows are more likely to regain lost ground, and while past
events cannot
foretell future performance, stocks and bonds have produced
attractive returns
ahead of inflation over time.
Thank you for your continued confidence in Prudential mutual
funds.
Sincerely,
Brian M. Storms
President
- ------------------------------------------------------------
- -------------------
2
<PAGE>
Portfolio of Investments as of December 31, 1998 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--97.7%
- ------------------------------------------------------------
Domestic Corporate Bonds--85.3%
Ba2 $ 3,000 Airplane Pass-Through
Trust,
Sr. Sub. Notes,
10.875%, 3/15/19 $
3,150,000
Ba2 4,000 Allied Waste North
America,
Sr. Notes,
7.625%, 1/1/06
4,050,000
Ba3 700 American Standard, Inc.,
Sub. Deb.,
7.375%, 4/15/05
689,773
Aa3 2,500 Associates Corp. North
America, Sr. Deb.,
6.95%, 11/1/18
2,663,950
Baa3 1,000 AT&T Capital Corp., Medium
Term Notes,
7.50%, 11/15/00
1,012,240
B3 2,000 Atlas Air, Inc.,
Sr. Notes,
9.375%, 11/15/06
2,020,000
Baa2 2,000 BJ Services Co.,
Sr. Notes,
7.00%, 2/1/06
2,069,940
Ba2 2,000 Calair Capital Corp.,
Sr. Notes,
8.125%, 4/1/08
1,955,900
Calenergy Co., Inc.,
Ba1 2,000 Sr. Notes, 6.96%, 9/15/03
2,035,660
Ba1 2,000 Sr. Notes, 7.23%, 9/15/05
2,060,520
Ba1 2,000 Series B, 8.48%, 9/15/28
2,211,060
Baa2 3,000 Camden Property Trust,
Notes,
7.23%, 10/30/00
3,007,200
Baa3 3,000 Capital One Bank,
Medium Term Notes,
7.08%, 10/30/01
3,016,710
Baa1 5,000 Cendant Corp.,
Notes,
7.75%, 12/1/03
5,053,350
Ba1 3,200 Cogentrix Energy, Inc.,
Sr. Notes,
8.75%, 10/15/08
3,400,000
Baa3 $ 400 Colonial Realty, L.P.,
Sr. Notes,
7.00%, 7/14/07 $
383,564
Baa1 2,000 Comdisco, Inc.,
Medium Term Notes,
6.32%, 11/27/00
2,009,320
Baa3 3,500 Commonwealth Edison Co.,
Notes,
7.625%, 1/15/07
3,866,905
A3 3,000 Compass Trust I,
Gtd. Bonds,
8.23%, 1/15/27
3,213,750
Baa1 1,950 Computer Associates
International, Inc.,
Sr. Notes,
6.375%, 4/15/05
1,929,798
Ba2 4,000 Connecticut Light & Power
Co., Series C,
7.75%, 6/1/02
4,149,280
Ba2 500 Conseco Financing Trust
II,
Bonds,
8.70%, 11/15/26
456,815
Ba2 2,900 Conseco Financing Trust
III,
Bonds,
8.796%, 4/1/27
2,651,470
Contifinancial Corp.,
Ba3 3,600 Sr. Notes,
7.50%, 3/15/02
2,520,000
Ba3 1,000 Sr. Notes,
8.125%, 4/1/08
680,000
Ba2 3,000 Continental Airlines Inc.,
Sr. Notes,
8.00%, 12/15/05
2,964,300
Baa3 1,000 Delta Air Lines, Inc.,
Deb.,
9.875%, 5/15/00
1,049,720
Ba2 1,500 El Paso Electric Co.,
First Mtge. Bonds,
9.40%, 5/1/11
1,720,590
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 3
<PAGE>
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value
(Note 1)
<C> <C> <S> <C>
- ------------------------------------------------------------
Domestic Corporate Bonds (cont'd.)
Baa2 $ 5,500 Enterprise Rent-A-Car Co.,
Medium Term Notes,
7.00%, 6/15/00 $
5,523,485
ERP Operating, L.P.,
A3 2,000 Bonds,
6.63%, 4/13/15
1,973,520
A3 5,000 Partnership Notes,
6.15%, 9/15/00
4,967,000
B2 2,000 Falcon Holdings Group,
L.P.,
Sr. Notes,
8.375%, 4/15/10
2,040,000
Baa2 5,100 Federated Dept. Stores,
Inc.,
Sr. Notes,
8.50%, 6/15/03
5,625,198
NR 5,000 First Industrial, L.P.,
Notes,
6.50%, 4/5/01
4,924,850
Baa2 2,000 Fort James Corp.,
Notes,
6.23%, 3/15/01
2,018,820
NR 3,500 Gables Reality, L.P.,
Sr. Notes,
6.55%, 10/1/00
3,502,940
A2 7,000 Household Finance Corp.
Notes,
6.50%, 11/15/08
7,245,000
NR 6,000 ICG Holdings, Inc.,
Sr. Notes,
Zero Coupon, 3/15/07
3,720,000
Ba2 2,000 Interpool Capital Trust,
Series B,
9.875%, 2/15/27
1,640,000
B2 2,000 ITC Deltacom Inc.,
Sr. Notes,
9.75%, 11/15/08
2,050,000
ITT Corp., Notes,
Ba1 2,000 6.25%, 11/15/00
1,929,480
Ba1 2,000 6.75%, 11/15/03
1,841,660
Ba2 $ 2,200 K Mart Corp.
Pass-Through Trust,
Series 1995 K-4,
9.35%, 1/2/20 $
2,288,000
Baa2 4,000 K N Energy, Inc.,
Notes,
6.30%, 3/1/01
4,011,240
Ba1 5,000 LCI International Inc.,
Sr. Notes,
7.25%, 6/15/07
5,062,600
Baa1 1,200 Lehman Brothers, Inc.,
Medium Term Notes,
6.40%, 8/30/00
1,200,300
B3 3,000 Level 3 Communication,
Inc.,
Sr. Disc. Notes,
10.50%, 12/1/03, Zero
Coupon (until 12/1/08)
1,743,750
Baa2 2,000 Mallinckrodt, Inc.,
Notes,
6.30%, 3/15/01
1,969,125
B3 2,000 McLeod, Inc.,
Sr. Notes,
9.25%, 7/15/07
2,070,000
Aa3 2,800 Merrill Lynch & Co., Inc.,
Notes,
6.875%, 11/15/18
2,902,620
Meyer Fred, Inc.,
Ba2 2,000 Deb.,
7.38%, 3/1/05
2,115,680
Ba2 300 Notes,
7.15%, 3/1/03
312,114
A1 2,500 Morgan Stanley Dean
Witter, Inc., Notes,
6.09%, 3/9/01
2,533,375
Baa2 3,000 National Oilwell, Inc.,
Notes,
6.88%, 7/1/05
2,981,250
A1 1,000 Nationwide Life Insurance
Co.,
Deb.,
9.875%, 2/15/25
1,253,440
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 4
<PAGE>
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value
(Note 1)
<C> <C> <S> <C>
- ------------------------------------------------------------
Domestic Corporate Bonds (cont'd.)
Navistar International
Corp.,
Sr. Notes,
Ba1 $ 1,000 7.00%, 2/1/03 $
1,000,156
Ba3 4,500 8.00%, 2/1/08
4,578,750
NR 12,500 News America, Inc.,
6.70%, 5/21/04
12,742,125
B2 4,000 Nextel Communications,
Inc.,
Sr. Disc. Notes,
9.75%, 10/31/07, Zero
Coupon (until 10/31/02)
2,440,000
B3 5,000 Nextlink Communications,
Inc., Sr. Disc. Notes,
9.00%, 3/15/08,
Zero Coupon (until
3/15/03)
2,825,000
Niagara Mohawk Power
Corp.,
Notes,
Ba1 2,000 6.875%, 4/1/03
2,069,400
Ba1 2,000 7.38%, 8/1/03
2,113,820
Ba1 2,000 8.00%, 6/1/04
2,183,720
B3 3,250 NTL, Inc., Sr. Notes,
Zero Coupon, 10/1/03
2,031,250
Occidental Petroleum
Corp.,
Sr. Notes,
Baa2 1,000 10.125%, 11/15/01
1,093,360
Baa2 1,000 11.125%, 8/1/10
1,305,310
NR 4,000 Owens Corning, Inc.,
Notes,
7.50%, 5/1/05
4,088,840
Ba1 2,100 Owens Illinois, Inc.,
Deb.,
7.50%, 5/15/10
2,139,942
Ba2 500 Paramount Communications,
Inc., Sr. Notes,
7.50%, 1/15/02
521,765
A2 4,000 Philip Morris Co., Inc.,
Notes,
6.15%, 3/15/00
4,033,200
NR 3,000 Qwest Communications
Int'l.,
Inc., Sr. Notes,
7.50%, 11/1/08
3,120,000
R & B Falcon Corp.,
Sr. Notes, Ser. B,
Ba1> $ 1,000 6.50%, 4/15/03 $
908,320
Ba1 2,500 6.75%, 4/15/05
2,150,000
Ba1 2,500 7.375%, 4/15/18
1,928,475
Raytheon Co.,
Deb.,
Baa1 2,500 6.40%, 12/15/18
2,481,250
Baa1 1,150 7.00%, 11/1/28
1,210,743
Ba3 2,000 Rogers Cablesystems, Inc.,
Sr. Sec'd. Notes,
10.00%, 3/15/05
2,240,000
Baa3 3,500 Saks, Inc.,
Gtd. Sr. Sub. Notes,
8.25%, 11/15/08
3,710,000
Baa3 2,500 Saks, Inc.,
Bonds,
7.50%, 12/1/10
2,499,825
Salomon, Inc.,
Medium Term Notes,
A2 1,500 6.59%, 2/21/01
1,528,800
A2 3,000 6.65%, 7/15/01
3,071,280
A2 500 7.25%, 5/1/01
517,880
Scotia Pacific Co.,
A3 1,200 Class A-2
7.11%, 1/20/14
1,142,112
Baa2 3,700 Class A-3
7.71%, 1/20/14
3,314,756
A2 3,000 Sears Roebuck Acceptance
Corp., Sr. Notes,
6.50%, 12/1/28
2,944,590
B3 3,000 SFX Entertainment, Inc.,
Sr. Sub. Notes,
9.125%, 12/1/08
2,985,000
Baa1 4,000 Sprint Capital Corp.,
Notes,
6.875%, 11/15/28
4,157,200
Tele-Communications, Inc.,
Deb.,
Baa3 1,000 6.34%, 2/1/02
1,024,250
Ba1 1,500 10.125%, 4/15/22
2,170,005
Time Warner, Inc.,
Deb.,
Baa3 5,000 6.625%, 5/15/29
5,087,300
Baa3 2,000 8.11%, 8/15/06
2,280,100
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 5
<PAGE>
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value
(Note 1)
<C> <C> <S> <C>
- ------------------------------------------------------------
Domestic Corporate Bonds (cont'd.)
B2 $ 1,000 Time Warner Telecom LLC,
Sr. Notes,
9.75%, 7/15/08 $
1,045,000
Baa3 1,000 Tokai Preferred Capital
LLC,
Series A,
9.98%, 12/29/49
840,000
NR 4,500 Toyota Motor Credit Corp.,
Notes,
5.625%, 11/13/03
4,534,425
NR 2,000 TVN Entertainment Corp.,
Sr. Notes,
14.00%, 8/1/08
1,700,000
Baa3 1,500 Turner Broadcasting
Systems,
Inc., Sr. Notes,
7.40%, 2/1/04
1,608,570
United Airlines, Inc.,
Deb.,
Baa3 3,000 10.67%, 5/1/04
3,549,600
Baa3 2,000 11.21%, 5/1/14
2,626,400
Baa3 2,000 USA Waste Services Inc.,
Notes,
6.125%, 7/15/01
2,012,400
B2 2,000 United States Can Corp.,
Sr. Sub. Notes, Series B,
10.125%, 10/15/06
2,060,000
Ba2 750 Viacom, Inc., Sr. Notes,
7.75%, 6/1/05
813,623
Baa2 900 Worldcom, Inc., Notes,
6.125%, 8/15/01
914,382
-----
- -------
Total domestic corporate
bonds
(cost $262,266,857)
262,780,186
-----
- -------
- ------------------------------------------------------------
Foreign Government Securities--2.7%
Baa3 1,000 Banco de Commercio
Exterior
de Colombia,
8.625%, 6/2/00
980,000
A1 1,200 National Australia Bank
Ltd.,
6.40%, 12/10/07
1,224,000
Baa3 2,500 Republic of Columbia
12.243%, 2/16/99
2,287,500
Ba1 $ 4,000 Republic of Panama,
7.875%, 2/13/02 $
3,860,000
-----
- -------
Total foreign government
securities
(cost $8,700,676)
8,351,500
-----
- -------
- ------------------------------------------------------------
Foreign Corporate Bonds--2.4%
Aaa 2,500 Bayerische Landesbank
(Germany)
5.875%, 12/1/08
2,556,000
Baa1 1,800 Cable & Wireless
Communication,
(United Kingdom)
Note,
6.75%, 12/1/08
1,834,920
A3 1,000 Kansallis-Osake-Pankki,
N.Y.,
(Finland) Sub. Notes,
10.00%, 5/1/02
1,124,200
Baa1 2,000 Skandinaviska Enskilda
Banken,
(Sweden) Bonds,
7.50%, 3/29/49
1,976,560
-----
- -------
Total foreign corporate
bonds
(cost $7,330,605)
7,491,680
-----
- -------
- ------------------------------------------------------------
U.S. Government Securities--7.3%
4,000 Small Business
Administration,
Deb., Series 1988-201
6.00%, 9/1/18
4,081,480
United States Treasury
Bonds,
4,300 5.50%, 8/15/28
4,500,896
2,000 6.375%, 8/15/27
2,298,740
4,300(b) 6.75%, 8/15/26
5,151,271
2,000 8.125%, 8/15/21
2,702,500
United States Treasury
Notes,
500 4.75%, 11/15/08
503,905
1,600 5.75%, 11/15/05
1,706,752
1,300 6.50%, 5/15/05
1,424,722
-----
- -------
Total U. S. government
securities
(cost $22,061,375)
22,370,266
-----
- -------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 6
<PAGE>
<TABLE>
<CAPTION>
Units Description
Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
WARRANTS(a)
2,000 TVN Entertainment Corp.,
expiring 8/1/08 $
20
------
- ------
Total long-term
investments
(cost $300,359,513)
300,993,652
------
- ------
SHORT-TERM INVESTMENTS--0.7%
Moody's Principal
Rating Amount
(Unaudited) (000)
- ------------ ---------
- ------------------------------------------------------------
Domestic Corporate Bond--0.5%
Ba2 $ 1,500 K Mart Corp.,
Medium Term Notes,
6.78%, 8/2/99
(cost $1,495,800)
1,503,405
------
- ------
- ------------------------------------------------------------
Repurchase Agreements--0.2%
625 Joint Repurchase Agreement
Account 4.69%, 1/4/99
(cost $625,000; Note 6)
625,000
------
- ------
Total short-term
investments
(cost $2,120,800)
2,128,405
------
- ------
Total Investments--98.4%
(cost $302,480,313; Note
5)
303,122,057
Other assets in excess of
liabilities--1.6%
4,884,103
------
- ------
Net Assets--100%
$308,006,160
------
- ------
------
- ------
</TABLE>
- ---------------
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Prospectus contains a description of
Moody's and Standard &
Poor's ratings.
(a) Non-income producing security.
(b) Pledged as intial margin on financial futures contracts.
<TABLE>
<S> <C>
The industry classification of portfolio holdings and other
assets shown as a percentage of net assets as of December
31,
1998 was as follows:
Telecommunications....................................
8.7%
Electric..............................................
8.4
U.S. Government Securities............................
7.3
Retail................................................
6.8
Real Estate...........................................
6.1
Financial Institute...................................
5.7
Airlines..............................................
5.6
Oil & Gas.............................................
5.3
Banking...............................................
5.2
Media-Other...........................................
5.1
Financial Services....................................
3.8
Media - Cable.........................................
3.6
Entertainment.........................................
3.3
Foreign Government Securities.........................
2.7
Foreign Corporate Bonds...............................
2.4
Environmental.........................................
2.0
Automotive............................................
1.8
Consumer Cyclical.....................................
1.6
Building Materials....................................
1.6
Industrial............................................
1.4
Insurance.............................................
1.4
Containers............................................
1.4
Tobacco...............................................
1.3
Aerospace.............................................
1.2
Miscellaneous.........................................
4.5
Other assets in excess of liabilities (including Joint
Repurchase Agreement)...............................
1.8
----
- -
100.0%
----
- -
----
- -
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 7
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL
DIVERSIFIED BOND FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
Assets
December 31, 1998
<S>
<C>
Investments, at value (cost
$302,480,313)...............................................
................ $ 303,122,057
Cash........................................................
............................................
108,342
Interest
receivable..................................................
................................... 4,686,897
Receivable for Fund shares
sold........................................................
................. 1,023,806
Due from
manager.....................................................
................................... 48,717
Deferred expenses and other
assets......................................................
................ 44,540
- -----------------
Total
assets......................................................
................................... 309,034,359
- -----------------
Liabilities
Payable for Fund shares
reacquired..................................................
.................... 532,671
Accrued
expenses....................................................
.................................... 176,369
Distribution fee
payable.....................................................
........................... 131,623
Management fee
payable.....................................................
............................. 113,639
Dividends
payable.....................................................
.................................. 47,397
Due to broker - variation
margin......................................................
.................. 26,500
- -----------------
Total
liabilities.................................................
................................... 1,028,199
- -----------------
Net
Assets......................................................
........................................ $
308,006,160
- -----------------
- -----------------
Net assets were comprised of:
Common stock, at
par.........................................................
........................ $ 23,283
Paid-in capital in excess of
par.........................................................
............ 311,708,370
- -----------------
311,731,653
Undistributed net investment
income......................................................
............ 836,812
Accumulated net realized loss on
investments.................................................
........ (5,203,266)
Net unrealized appreciation on investments and foreign
currencies....................................
640,961
- -----------------
Net assets, December 31,
1998........................................................
................... $ 308,006,160
- -----------------
- -----------------
Class A:
Net asset value and redemption price per share
($59,186,280 / 4,473,810 shares of common stock issued
and outstanding)...........................
$13.23
Maximum sales charge (4.0% of offering
price)......................................................
.. .55
- -----------------
Maximum offering price to
public......................................................
............... $13.78
- -----------------
- -----------------
Class B:
Net asset value, offering price and redemption price per
share
($186,658,659 / 14,108,534 shares of common stock
issued and outstanding).........................
$13.23
- -----------------
- -----------------
Class C:
Net asset value and redemption price per share
($9,281,746 / 701,534 shares of common stock issued
and outstanding)..............................
$13.23
Sales charge (1% of offering
price)......................................................
............ .13
- -----------------
Offering price to
public......................................................
....................... $13.36
- -----------------
- -----------------
Class Z:
Net asset value, offering price and redemption price per
share
($52,879,475 / 3,999,506 shares of common stock issued
and outstanding)...........................
$13.22
- -----------------
- -----------------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 8
<PAGE>
PRUDENTIAL DIVERSIFIED BOND FUND, INC.
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income December 31,
1998
<S> <C>
Interest and discount earned.......... $20,387,218
----------------
- -
Expenses
Distribution fee--Class A............. 77,872
Distribution fee--Class B............. 1,292,444
Distribution fee--Class C............. 55,422
Management fee........................ 1,403,088
Transfer agent's fees and expenses.... 617,000
Custodian's fees and expenses......... 120,000
Reports to shareholders............... 100,000
Registration fees..................... 89,000
Amortization of deferred organization
expenses........................... 40,135
Audit fee and expenses................ 25,000
Legal fees and expenses............... 25,000
Directors' fees and expenses.......... 17,500
Miscellaneous......................... 6,939
----------------
- -
Total expenses.................. 3,869,400
Less: Expense subsidy (Note 4)........ (337,358)
----------------
- -
Net expenses.................... 3,532,042
----------------
- -
Net investment income.................... 16,855,176
----------------
- -
Realized and Unrealized Gain (Loss) on
Investments and Foreign Currencies
Net realized gain (loss) on:
Investment transactions............... (4,209,397)
Financial futures transactions........ (966,103)
Foreign currency transactions......... 418,258
----------------
- -
(4,757,242)
----------------
- -
Net change in unrealized appreciation
(depreciation) on:
Investments........................... 345,644
Financial futures..................... 285,907
----------------
- -
631,551
----------------
- -
Net loss on investments.................. (4,125,691)
----------------
- -
Net Increase in Net Assets
Resulting from Operations................ $12,729,485
----------------
- -
----------------
- -
</TABLE>
PRUDENTIAL DIVERSIFIED BOND FUND, INC.
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended December
31,
in Net Assets 1998
1997
<S> <C> <C>
Operations
Net investment income.......... $ 16,855,176 $
14,936,849
Net realized gain (loss) on
investment and foreign
currency transactions....... (4,757,242)
4,065,056
Net change in unrealized
appreciation (depreciation)
of investments and foreign
currencies.................. 631,551
(3,160,737)
------------- -------
- -----
Net increase in net assets
resulting from operations... 12,729,485
15,841,168
------------- -------
- -----
Dividends and distributions (Note
1)
Dividends from net investment
income
Class A..................... (3,300,618)
(2,499,000)
Class B..................... (9,936,206)
(9,461,239)
Class C..................... (424,457)
(309,631)
Class Z..................... (3,193,895)
(2,666,979)
------------- -------
- -----
(16,855,176)
(14,936,849)
------------- -------
- -----
Distributions in excess of net
investment income
Class A..................... (680)
(62,548)
Class B..................... (2,156)
(239,443)
Class C..................... (85)
(9,136)
Class Z..................... (693)
(72,124)
------------- -------
- -----
(3,614)
(383,251)
------------- -------
- -----
Distributions from net realized
gains
Class A..................... --
(613,027)
Class B..................... --
(2,367,951)
Class C..................... --
(87,655)
Class Z..................... --
(685,629)
------------- -------
- -----
--
(3,754,262)
------------- -------
- -----
Fund share transactions (net of
share conversions) (Note 7)
Net proceeds from shares
sold........................ 129,677,477
121,952,066
Net asset value of shares
issued to shareholders in
reinvestment of dividends
and distributions........... 13,554,825
15,297,448
Cost of shares reacquired...... (83,173,090)
(53,401,326)
------------- -------
- -----
Net increase in net assets from
Fund share transactions..... 60,059,212
83,848,188
------------- -------
- -----
Total increase.................... 55,929,907
80,614,994
Net Assets
Beginning of year................. 252,076,253
171,461,259
------------- -------
- -----
End of year(a).................... $ 308,006,160
$252,076,253
------------- -------
- -----
------------- -------
- -----
- ---------------
(a) Includes undistributed net
investment income of.......... $ 836,812 $
3,614
------------- -------
- -----
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 9
<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 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 period, the Fund does
not isolate that
portion of the results of operations arising as a result of
changes in the
foreign exchange rates from the fluctuations arising from
changes in the market
prices of securities held at the end of the period.
Similarly, the Fund does not
isolate the effect of changes in foreign exchange rates from
the fluctuations
arising from changes in the market prices of portfolio
securities sold during
the period.
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
period 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.
- ------------------------------------------------------------
- --------------------
10
<PAGE>
Notes to Financial Statements PRUDENTIAL
DIVERSIFIED BOND FUND, INC.
- ------------------------------------------------------------
- --------------------
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.
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.
Reclassification of Capital Accounts: The Fund accounts and
reports for
distributions to shareholders in accordance with 'Statement
of Position 93-2:
Determination, Disclosure, and Financial Statement
Presentation of Income,
Capital Gain, and Return of Capital Distributions by
Investment Companies.' The
effect of applying this statement was to increase
undistributed net investment
income by $836,812, and increase accumulated net realized
loss by $836,812
primarily due to the sale of securities purchased with
market discount and net
foreign currency gains. Net investment income, net realized
gains and net assets
were not affected by this change.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with 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 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.
The Fund had a distribution agreement with Prudential
Securities Incorporated
('PSI'), which acted as the distributor of the Class A,
Class B, Class C and
Class Z shares of the Fund through May 31, 1998. Prudential
Investment
Management Services LLC ('PIMS') became the distributor of
the Fund, effective
June 1, 1998 and is serving the Fund under the same terms
and conditions as
under the agreement with PSI. The Fund compensated PSI and
PIMS for distributing
and servicing the Fund's Class A, Class B and Class C
shares, pursuant to plans
of distribution (the 'Class A, B and C Plans'), regardless
of expenses actually
incurred by them. The distribution fees are accrued daily
and payable monthly.
No distribution or service fees are paid to PSI and PIMS as
distributor for
Class Z shares of the Fund.
- ------------------------------------------------------------
- --------------------
11
<PAGE>
Notes to Financial Statements PRUDENTIAL
DIVERSIFIED BOND FUND, INC.
- ------------------------------------------------------------
- --------------------
Pursuant to the Class A, B and C Plans, the Fund compensated
PSI and PIMS for
distribution-related activities at an annual rate of up to
.30 of 1%, 1% and 1%
of the average daily net assets of the Class A, B and C
shares, respectively.
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 year ended December 31, 1998.
Effective January 1, 1999,
the annual rate for Class A shares was increased to .25 of
1%.
PSI and PIMS have advised the Fund that they received
approximately $215,800 in
front-end sales charges resulting from sales of Class A and
$3,100 in Class C
shares (after November 2, 1998) during the year ended
December 31, 1998. From
these fees, PSI and PIMS 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 and PIMS have advised the Fund that for the year ended
December 31, 1998,
they received approximately $351,100 and $4,400 in
contingent deferred sales
charges imposed upon redemptions by certain Class B and
Class C shareholders,
respectively.
PSI, PIFM, PIMS 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'), has a credit agreement (the 'Agreement') with an
unaffiliated lender.
The maximum commitment under the Agreement is $200,000,000.
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
during the year
ended December 31, 1998. 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.
The Agreement
expired on December 29, 1998, and has been extended through
February 28, 1999
under the same terms.
- ------------------------------------------------------------
Note 3. Other Transactions With Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned
subsidiary of PIFM,
serves as the Fund's transfer agent. During the year ended
December 31, 1998,
the Fund incurred fees of approximately $534,600 for the
services of PMFS. As of
December 31, 1998, approximately $49,800 of such fees were
due to PMFS. Transfer
agent fees and expenses in the Statement of Operations also
include certain
out-of-pocket expenses paid to nonaffiliates.
- ------------------------------------------------------------
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 year ended December 31, 1998, such
reimbursement amounted
to $337,358 ($0.01 per share for Class A, B, C and Z shares;
.12% of average net
assets). The Fund is not required to reimburse PIFM for such
subsidy.
- ------------------------------------------------------------
Note 5. Portfolio Securities
Purchases and sales of investment securities, other than
short-term investments,
for the year ended December 31, 1998 were $900,766,031 and
$826,317,167,
respectively.
The federal income tax cost basis of the Fund's investments
at December 31, 1998
was $302,480,313 and, accordingly, net unrealized
appreciation for federal
income tax purposes was $641,744 (gross unrealized
appreciation--$6,923,687;
gross unrealized depreciation--$6,281,943).
For federal income tax purposes, the Fund has a capital loss
carryforward as of
December 31, 1998 of approximately $5,204,000 which expires
in 2006.
Accordingly, no capital gains distribution is expected to be
paid to
shareholders until net gains have been realized in excess of
such carryforward.
During the year ended December 31, 1998, the Fund entered
into financial futures
contracts. Details of open contracts at December 31, 1998
are as follows:
<TABLE>
<CAPTION>
Value
at Value at Unrealized
Number of Expiration December
31, Trade Appreciation
Contracts Type Date 1998
Date (Depreciation)
- --------- ------------------ ----------- ---------
- --- ----------- --------------
<S> <C> <C> <C>
<C> <C>
Long Positions:
100 20 yr. T-Bond Mar. 1999
$12,778,125 $12,646,875 $ 131,250
18 20 yr. T-Bond Mar. 1999
2,300,063 2,289,938 10,125
7 20 yr. T-Bond Mar. 1999
894,469 897,969 (3,500)
87 20 yr. T-Bond Mar. 1999
11,116,969 11,255,625 (138,656)
- --------------
$ (781)
- --------------
- --------------
</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
- ------------------------------------------------------------
- --------------------
12
<PAGE>
Notes to Financial Statements PRUDENTIAL
DIVERSIFIED BOND FUND, INC.
- ------------------------------------------------------------
- --------------------
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, 1998, the Fund had a 0.1% undivided interest in the
joint account. The
undivided interest for the Fund represents $625,000 in
principal amount. As of
such date, each repurchase agreement in the joint account
and the collateral
therefor were as follows:
Bear Stearns & Co. Inc., 4.75%, in the principal amount of
$165,000,000,
repurchase price $165,087,083, due 1/4/99. The value of the
collateral including
accrued interest was $169,478,699.
Deutche Bank Securities Inc., 4.80%, in the principal amount
of $100,000,000,
repurchase price $100,053,333, due 1/4/99. The value of the
collateral including
accrued interest was $102,001,052.
Goldman Sachs & Co., 4.25%, in the principal amount of
$93,088,000, repurchase
price $93,131,958, due 1/4/99. The value of the collateral
including accrued
interest was $94,950,662.
Morgan (J.P.) Securities Inc., 4.75%, in the principal
amount of $165,000,000,
repurchase price $165,087,083, due 1/4/99. The value of the
collateral including
accrued interest was $168,300,696.
Warburg Dillon Read LLC, 4.75%, in the principal amount of
$165,000,000,
repurchase price $165,087,083, due 1/4/99. The value of the
collateral including
accrued interest was $168,529,699.
- ------------------------------------------------------------
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. Prior to November 2,
1998 Class C shares
were sold with a contingent deferred sales charge of 1%
during the first year.
Effective November 2, 1998, Class C shares are sold with a
front-end sales
charge of 1% and a contingent deferred sales charge of 1%
during the first 18
months. Class B shares 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 authorized, $.001
par value per
share, divided into four classes, designated Class A, B, C
and Class Z, each of
which consists of 500 million, 500 million, 500 million and
500 million
authorized shares, respectively. Of the 23,283,384 shares of
common stock issued
and outstanding at December 31, 1998, PIFM owned 8,117.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------------- ---------- --------
- ---
<S> <C> <C>
Year ended December 31, 1998:
Shares sold.......................... 2,495,893
$33,401,514
Shares issued in reinvestment of
dividends.......................... 194,963
2,602,189
Shares reacquired.................... (1,507,321)
(20,108,457)
---------- --------
- ---
Net increase in shares outstanding
before conversion.................. 1,183,535
15,895,246
Shares issued upon conversion from
Class B............................ 228,881
3,064,759
---------- --------
- ---
Net increase in shares outstanding... 1,412,416
$18,960,005
---------- --------
- ---
---------- --------
- ---
Year ended December 31, 1997:
Shares sold.......................... 1,426,052
$19,452,716
Shares issued in reinvestment of
dividends and distributions........ 187,300
2,545,364
Shares reacquired.................... (1,021,326)
(13,910,845)
---------- --------
- ---
Net increase in shares outstanding
before conversion.................. 592,026
8,087,235
Shares issued upon conversion from
Class B............................ 210,803
2,878,755
---------- --------
- ---
Net increase in shares outstanding... 802,829
$10,965,990
---------- --------
- ---
---------- --------
- ---
<CAPTION>
Class B
- -------------------------------------
Year ended December 31, 1998:
Shares sold.......................... 4,920,054
$65,663,839
Shares issued in reinvestment of
dividends.......................... 562,773
7,514,653
Shares reacquired.................... (2,889,045)
(38,488,622)
---------- --------
- ---
Net increase in shares outstanding
before conversion.................. 2,593,782
34,689,970
Shares reacquired upon conversion
into Class A....................... (228,881)
(3,064,759)
---------- --------
- ---
Net increase in shares outstanding... 2,364,901
$31,625,111
---------- --------
- ---
---------- --------
- ---
Year ended December 31, 1997:
Shares sold.......................... 3,336,421
$45,561,167
Shares issued in reinvestment of
dividends and distributions........ 663,972
9,023,614
Shares reacquired.................... (2,067,600)
(28,222,638)
---------- --------
- ---
Net increase in shares outstanding
before conversion.................. 1,932,793
26,362,143
Shares reacquired upon conversion
into Class A....................... (210,717)
(2,878,755)
---------- --------
- ---
Net increase in shares outstanding... 1,722,076
$23,483,388
---------- --------
- ---
---------- --------
- ---
</TABLE>
- ------------------------------------------------------------
- --------------------
13
<PAGE>
Notes to Financial Statements PRUDENTIAL
DIVERSIFIED BOND FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class C Shares Amount
- ------------------------------------- ---------- --------
- ---
<S> <C> <C>
Year ended December 31, 1998:
Shares sold.......................... 412,554 $
5,507,004
Shares issued in reinvestment of
dividends.......................... 25,359
338,435
Shares reacquired.................... (184,168)
(2,450,323)
---------- --------
- ---
Net increase in shares outstanding... 253,745 $
3,395,116
---------- --------
- ---
---------- --------
- ---
Year ended December 31, 1997:
Shares sold.......................... 211,330 $
2,892,963
Shares issued in reinvestment of
dividends and distributions........ 23,545
319,900
Shares reacquired.................... (92,251)
(1,257,156)
---------- --------
- ---
Net increase in shares outstanding... 142,624 $
1,955,707
---------- --------
- ---
---------- --------
- ---
<CAPTION>
Class Z
- -------------------------------------
Year ended December 31, 1998:
Shares sold.......................... 1,880,837
$25,105,120
Shares issued in reinvestment of
dividends.......................... 232,269
3,099,548
Shares reacquired.................... (1,659,265)
(22,125,688)
---------- --------
- ---
Net increase in shares outstanding... 453,841 $
6,078,980
---------- --------
- ---
---------- --------
- ---
Year ended December 31, 1997:
Shares sold.......................... 3,983,551
$54,045,220
Shares issued in reinvestment of
dividends and distributions........ 250,799
3,408,570
Shares reacquired.................... (733,462)
(10,010,687)
---------- --------
- ---
Net increase in shares outstanding... 3,500,888
$47,443,103
---------- --------
- ---
---------- --------
- ---
</TABLE>
- ------------------------------------------------------------
- --------------------
14
<PAGE>
Financial Highlights PRUDENTIAL
DIVERSIFIED BOND FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class A Class B
----------------
- -------------------------------------- -----------------
- --------
January 10,
1995(a)
Year
Ended December 31, Through Year Ended
December 31,
----------------
- --------------------- December 31, -----------------
- --------
1998
1997 1996 1995 1998
1997
------- ----
- -------- -------- ------------ -------- ----
- --------
<S> <C> <C>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.... $ 13.41 $
13.57 $ 13.79 $ 12.50 $ 13.41 $
13.58
-------
- ------ -------- ------ -------- ----
- --------
Income from investment operations
Net investment income(b)................ .85
.98 .93 .90 .77
.89
Net realized and unrealized gain (loss)
on investment transactions........... (.18)
.07 (.19 ) 1.51 (.18)
.06
-------
- ------ -------- ------ -------- ----
- --------
Total from investment operations..... .67
1.05 .74 2.41 .59
.95
-------
- ------ -------- ------ -------- ----
- --------
Less distributions
Dividends from net investment income.... (.85)
(.98) (.93 ) (.90) (.77)
(.89)
Distributions in excess of net
investment income.................... --(e)
(.02) -- -- --(e)
(.02)
Distributions from net realized gains... --
(.21) (.03 ) (.22) --
(.21)
-------
- ------ -------- ------ -------- ----
- --------
Total distributions.................. (.85)
(1.21) (.96 ) (1.12) (.77)
(1.12)
-------
- ------ -------- ------ -------- ----
- --------
Net asset value, end of period.......... $ 13.23 $
13.41 $ 13.57 $ 13.79 $ 13.23 $
13.41
-------
- ------ -------- ------ -------- ----
- --------
-------
- ------ -------- ------ -------- ----
- --------
TOTAL RETURN(d)......................... 5.14%
7.96% 5.80% 19.80% 4.51%
7.24%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)......... $59,186 $
41,051 $30,657 $ 14,276 $186,659
$157,501
Average net assets (000)................ $51,915 $
34,994 $21,867 $ 7,428 $172,326
$144,620
Ratios to average net assets(b):
Expenses, including distribution
fees.............................. .90%
.82% .79% .87%(c) 1.50%
1.42%
Expenses, excluding distribution
fees.............................. .75%
.67% .64% .72%(c) .75%
.67%
Net investment income................ 6.36%
7.14% 7.08% 6.92%(c) 5.76%
6.54%
Portfolio turnover rate................. 304%
334% 362% 260% 304%
334%
<CAPTION>
January 10,
1995(a)
Through
December 31,
1996
1995
-------- -----
- -------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.... $ 13.79 $
12.50
-------- -
- -----
Income from investment operations
Net investment income(b)................ .85
.82
Net realized and unrealized gain (loss)
on investment transactions........... (.18)
1.51
-------- -
- -----
Total from investment operations..... .67
2.33
-------- -
- -----
Less distributions
Dividends from net investment income.... (.85)
(.82)
Distributions in excess of net
investment income.................... --
- --
Distributions from net realized gains... (.03)
(.22)
-------- -
- -----
Total distributions.................. (.88)
(1.04)
-------- -
- -----
Net asset value, end of period.......... $ 13.58 $
13.79
-------- -
- -----
-------- -
- -----
TOTAL RETURN(d)......................... 5.19%
19.11%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)......... $136,054 $
85,472
Average net assets (000)................ $114,560 $
43,574
Ratios to average net assets(b):
Expenses, including distribution
fees.............................. 1.39%
1.47%(c)
Expenses, excluding distribution
fees.............................. .64%
.72%(c)
Net investment income................ 6.48%
6.32%(c)
Portfolio turnover rate................. 362%
260%
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) Net of expense subsidy and/or 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) Less than $.005 per share.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 15
<PAGE>
Financial Highlights PRUDENTIAL
DIVERSIFIED BOND FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class C Class Z
-----------------
- ---------------------------------------- ---------------
- ---------
January 10,
1995(a)
Year
Ended December 31, Through Year Ended
December 31,
-----------------
- ----------------------- December 31, ---------------
- ---------
1998
1997 1996 1995 1998
1997
------ ------
- ------ ------------ ------------ ------- ---
- ---------
<S> <C> <C>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.... $13.41
$13.58 $13.79 $12.50 $ 13.40
$ 13.57
------ --
- --- ----- ----- -------
- ------
Income from investment operations
Net investment income(b)................ .77
.89 .85 .82 .87
1.00
Net realized and unrealized gain (loss)
on investment transactions........... (.18)
.06 (.18) 1.51 (.18)
.06
------ --
- --- ----- ----- -------
- ------
Total from investment operations..... .59
.95 .67 2.33 .69
1.06
------ --
- --- ----- ----- -------
- ------
Less distributions
Dividends from net investment income.... (.77)
(.89) (.85) (.82) (.87)
(1.00)
Distributions in excess of net
investment income.................... --(e)
(.02) -- -- --(e)
(.02)
Distributions from net realized gains... --
(.21) (.03) (.22) --
(.21)
------ --
- --- ----- ----- -------
- ------
Total distributions.................. (.77)
(1.12) (.88) (1.04) (.87)
(1.23)
------ --
- --- ----- ----- -------
- ------
Net asset value, end of period.......... $13.23
$13.41 $13.58 $13.79 $ 13.22
$ 13.40
------ --
- --- ----- ----- -------
- ------
------ --
- --- ----- ----- -------
- ------
TOTAL RETURN(d)......................... 4.51%
7.24% 5.19% 19.11% 5.30%
8.05%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)......... $9,282
$6,005 $4,143 $2,655 $52,879
$ 47,519
Average net assets (000)................ $7,390
$4,747 $3,534 $1,307 $48,988
$ 36,750
Ratios to average net assets(b):
Expenses, including distribution
fees.............................. 1.50%
1.42% 1.39% 1.47%(c) .75%
.67%
Expenses, excluding distribution
fees.............................. .75%
.67% .64% .72%(c) .75%
.67%
Net investment income................ 5.76%
6.54% 6.48% 6.32%(c) 6.51%
7.29%
Portfolio turnover rate................. 304%
334% 362% 260% 304%
334%
<CAPTION>
September 16,
1996(a)
Through
December 31,
1996
-------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.... $ 13.20
-----
Income from investment operations
Net investment income(b)................ .28
Net realized and unrealized gain (loss)
on investment transactions........... .40
-----
Total from investment operations..... .68
-----
Less distributions
Dividends from net investment income.... (.28)
Distributions in excess of net
investment income.................... --
Distributions from net realized gains... (.03)
-----
Total distributions.................. (.31)
-----
Net asset value, end of period.......... $ 13.57
-----
-----
TOTAL RETURN(d)......................... 5.35%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)......... $ 608
Average net assets (000)................ $ 125
Ratios to average net assets(b):
Expenses, including distribution
fees.............................. .64%(c)
Expenses, excluding distribution
fees.............................. .64%(c)
Net investment income................ 7.23%(c)
Portfolio turnover rate................. 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) Less than $.005 per share.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 16
<PAGE>
Report of Independent Accountants PRUDENTIAL
DIVERSIFIED BOND FUND, INC.
- ------------------------------------------------------------
- --------------------
To the Shareholders and Board of Directors of
Prudential Diversified Bond Fund, Inc.
In our opinion, the accompanying statement of assets and
liabilities, including
the portfolio of investments, and the related statements of
operations and of
changes in net assets and the financial highlights present
fairly, in all
material respects, the financial position of Prudential
Diversified Bond Fund,
Inc. (the 'Fund') at December 31, 1998, the results of its
operations for the
year then ended, and the changes in its net assets and the
financial highlights
for each of the two years in the period then ended, in
conformity with generally
accepted accounting principles. These financial statements
and financial
highlights (hereafter referred to as 'financial statements')
are the
responsibility of the Fund's management; our responsibility
is to express an
opinion on these financial statements based on our audits.
We conducted our
audits of these financial statements in accordance with
generally accepted
auditing standards which require that we plan and perform
the audit to obtain
reasonable assurance about whether the financial statements
are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting
the amounts and disclosures in the financial statements,
assessing the
accounting principles used and significant estimates made by
management, and
evaluating the overall financial statement presentation. We
believe that our
audits, which included confirmation of securities at
December 31, 1998 by
correspondence with the custodian and brokers provide a
reasonable basis for the
opinion expressed above. The accompanying financial
highlights for the three
periods in the period ended December 31, 1996 were audited
by other independent
accountants, whose opinion dated February 12, 1997 was
unqualified.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 23, 1999
- ------------------------------------------------------------
- --------------------
17
<PAGE>
Tax Information (Unaudited) PRUDENTIAL
DIVERSIFIED BOND FUND, INC.
- ------------------------------------------------------------
- --------------------
As required by the Internal Revenue Code, we are to advise
you within 60 days of
the Fund's fiscal year end (December 31, 1998) as to the
federal tax status of
dividends and distributions paid by the Fund.
We are required by Massachusetts, Missouri and Oregon to
inform you that
dividends which have been derived from interest on federal
obligations are not
taxable to shareholders providing the Mutual Fund meets
certain requirements
mandated by the respective state's taxing authorities. We
are pleased to report
that 11.44% of the dividends paid by the Fund qualifies for
such deduction.
During the fiscal year ended December 31, 1998, the Fund
paid dividends from net
investment income and a short-term capital gains
distribution which was taxable
as ordinary income. We wish to advise you that the corporate
dividends received
deduction for the Fund is zero.
For the purpose of preparing your annual federal income tax
return, however, you
should report the amounts as reflected on the appropriate
Form 1099-DIV or
substitute 1099-DIV.
- ------------------------------------------------------------
- --------------------
18
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
How many times have you read these letters -- or other
financial materials --
and stumbled across a word that you don't understand?
Many shareholders have run into the same problem. We'd like
to help. So we'll
use this space from time to time to explain some of the
words you might have
read, but not understood. And if you have a favorite word
that no one can
explain to your satisfaction, please write to us.
Basis Point: 1/100th of 1%. For example, one-half of one
percent is 50 basis
points.
Collateralized Mortgage Obligations (CMOs): Mortgage-backed
bonds that
separate mortgage pools into different maturity classes,
called tranches.
These instruments are sensitive to changes in interest rates
and homeowner
refinancing activity. They are subject to prepayment and
maturity extension
risk.
Derivatives: Securities that derive their value from other
securities. The
rate of return of these financial instruments rises and
falls -- sometimes
very suddenly -- in response to changes in some specific
interest rate,
currency, stock, or other variable.
Discount Rate: The interest rate charged by the Federal
Reserve on loans to
member banks.
Federal Funds Rate: The interest rate charged by one bank to
another on
overnight loans.
Futures Contract: An agreement to purchase or sell a
specific amount of a
commodity or financial instrument at a set price at a
specified date in the
future.
Leverage: The use of borrowed assets to enhance return. The
expectation is
that the interest rate charged on borrowed funds will be
lower than the
return on the investment. While leverage can increase
profits, it can also
magnify losses.
Liquidity: The ease with which a financial instrument (or
product) can be
bought or sold (converted into cash) in the financial
markets.
Price/Earnings Ratio: The price of a share of stock divided
by the earnings
per share for a 12-month period.
Option: An agreement to purchase or sell something, such as
shares of stock,
by a certain time for a specified price. An option need not
be exercised.
Spread: The difference between two values; often used to
describe the
difference between "bid" and "asked" prices of a security,
or between the
yields of two similar maturity bonds.
Yankee Bond: A bond sold by a foreign company or government
in the U.S. market
and denominated in U.S. dollars.
<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>
Comparing A $10,000 Investment.
Prudential Diversified Bond Fund, Inc. vs. the
Lehman Brothers Aggregate Bond Index.
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.
These graphs are furnished to you in accordance with SEC
regulations. They
compare a $10,000 investment in the Prudential Diversified
Bond Fund, Inc.
(Class A, B, C, and Z shares) with a similar investment in
the Lehman Brothers
Aggregate Bond Index (the Index) by portraying the initial
account values at
the commencement of operations of each share class, and
subsequent account
values at the end of each fiscal year (December 31), as
measured on a
quarterly basis, beginning in 1995 for Class A, B, and C
shares, and in 1996
for Class Z shares. 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 load was deducted from the
initial $10,000
investment in Class A shares; (b) the maximum applicable
contingent deferred
sales charges were deducted from the value of the investment
in Class B and
Class C shares, assuming full redemption on December 31,
1998; (c) beginning
November 2, 1998, Class C shares are subject to a front-end
sales load of 1%
and a CDSC of 1% for 18 months; (d) all recurring fees
(including management
fees) were deducted; and (e) all dividends and distributions
were reinvested.
Class B shares will automatically convert to Class A shares,
on a quarterly
basis, approximately seven years after purchase. This
conversion feature is
not reflected in the graphs. Class Z shares are not subject
to a sales charge
or distribution fee. Without waiver of management fees
and/or expense
subsidization, the Fund's average annual total returns would
have been lower,
as indicated in parentheses ( ).
The Index is a weighted index that covers the U.S.
investment-grade fixed-rate
bond market, including government and corporate securities,
agency mortgage
pass-through securities, and asset-backed securities. The
Index is unmanaged
and the total return includes the reinvestment of all
dividends, but does not
reflect the payment of transaction costs and advisory fees
associated with an
investment in the Fund. The securities held in the Index may
differ
substantially from those held by the Fund. The Index is not
the only one
that may be used to characterize performance of bond funds,
and other indexes
may portray different comparative performance. Investors
cannot invest
directly in an index.
// Prudential Diversified Bond Fund, Inc.
- -- Lehman Bros. Aggregate Bond Index
Class A
Average Annual Total
Returns - Class A
With Sales Load
8.47% Since Inception (8.28%)
4.86% for 3 Years (4.67%)
0.93% for 1 Year (0.86%)
Without Sales Load
9.59% Since Inception (9.40%)
6.29% for 3 Years (6.11%)
5.14% for 1 Year (5.06%)
Class B
Average Annual Total
Returns - Class B
With Sales Load 8.53%
Since Inception (8.34%)
4.74% for 3 Years (4.55%)
- -0.49% for 1 Year (-0.57%)
Without Sales Load
8.92% Since Inception (8.74%)
5.64% for 3 Years (5.46%)
4.51% for 1 Year (4.43%)
Class C
Average Annual Total
Returns - Class C
With Sales Load
8.64% Since Inception (8.46%)
5.29% for 3 Years (5.10%)
2.47% for 1 Year (2.39%)
Without Sales Load
8.92% Since Inception (8.73%)
5.64% for 3 Years (5.45%)
4.51% for 1 Year (4.43%)
Class Z
Average Annual Total
Returns - Class Z
8.24% Since Inception (8.06%)
5.30% for 1 Year (5.22%)
<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
Mendel A. Melzer, CFA
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Brian M. Storms
Nancy H. Teeters
Louis A. Weil, III
Officers
Brian M. Storms, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
Deborah A. Docs, Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
Distributor
Prudential Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Swidler Berlin Shereff Friedman, 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.
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