-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Jg2CAQcunQRxIp9HlRmR9jT6HDfhXqrmzII2LJKOxmuKORRTTz9igb+OKN/Bldyr JtZc11Sb+K1md0uIqeZ9Dg== 0000898733-00-000242.txt : 20000411 0000898733-00-000242.hdr.sgml : 20000411 ACCESSION NUMBER: 0000898733-00-000242 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000131 FILED AS OF DATE: 20000410 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRUDENTIAL DIVERSIFIED FUNDS CENTRAL INDEX KEY: 0001067442 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-08915 FILM NUMBER: 597109 BUSINESS ADDRESS: STREET 1: GATEWAY CENTER THREE STREET 2: 100 MULBERRY STREET CITY: NEWARK STATE: NJ ZIP: 07102 BUSINESS PHONE: 9733671495 FORMER COMPANY: FORMER CONFORMED NAME: PRUDENTIAL DIVERSIFIED SERIES DATE OF NAME CHANGE: 19980803 N-30D 1 PRUDENTIAL DIVERSIFIED FUNDS (ICON) Prudential Diversified Conservative Growth Fund Semi Annual Report January 31, 2000 (LOGO) A Message From the Fund's President March 16, 2000 - ------------------------------------------------------------------------------- (PHOTO) Dear Shareholder, The six months ended January 31, 2000, were generally very difficult for any investment securities except technology and biotechnology stocks. Prudential Diversified Conservative Growth Fund's Class A shares returned 5.47% over the period, three percentage points above the 2.09% Lipper Balanced Fund Average. Including sales charges, the Fund's Class A shares returned 0.20%. This performance primarily reflected the focus on technology in its growth stock holdings. In a period in which S&P 500 technology stocks had almost 10 times the average return of the next highest performing sector, the amount of technology stock in a portfolio was a dominant factor. The bond holdings, which together make up about 60% of the Fund's holdings, outperformed their respective benchmarks, but the return on bonds over this period was generally low, as fear of rising interest rates hurt fixed-income securities. Similarly, value stocks declined in value over this reporting period, as did the average stock in most economic sectors of the S&P 500. With the high returns on stocks in recent years, it is important to remember the stabilizing role bonds played in August 1997. Although bonds did fall in value then, they were far less volatile than stocks. Diversification can dilute the impact that the occasional extreme market movement can have on your portfolio. The diversification of Prudential Diversified Conservative Growth Fund allowed you to benefit from the strong, but narrow, technology gains without being wholly exposed to this volatile sector. Our reporting period included the falling markets in January 2000 as well as the exuberant technology stock surge at the end of 1999. In an uncertain environment, diversification is particularly important. Prudential Diversified Funds' one-purchase selection makes it easy. Yours sincerely, John R. Strangfeld President Prudential Diversified Funds Investment Advisers' Report - ------------------------------------------------------------------------------- Investment Advisers Prudential Investments Fund Management LLC - - John Van Belle, Ph.D. - - Stacie Mintz Sub-Advisers (PRUDENTIAL INVESTMENTS LOGO) (LAZARD LOGO) (FRANKLIN TEMPLETON LOGO) (JENNISON ASSOCIATES LOGO) (DREYFUS LOGO) (PIMCO LOGO) Investment Goals and Style The Fund seeks to provide current income and a reasonable level of capital appreciation. It invests in a diversified portfolio of bonds and stocks. There can be no assurance that the Fund will achieve its investment objective. The investment context For five of the six months that made up our reporting period, the economy was beset by uncertainties about how information systems would behave during the changeover to the year 2000. Many businesses and homeowners stocked up on vital supplies, while the U.S. Federal Reserve allowed the money supply to rise. However, this drove the U.S. economy to a pace widely believed to be unsustainable. The Federal Reserve raised short-term interest rates shortly before our reporting period (June 30), twice during the period (August 24 and November 16), and again right afterward (February 2). This hurt the prices of most existing fixed-income securities. The S&P 500 (large-cap stocks) returned 5.6% over this period. However, almost all of this gain was by technology stocks. Stocks of basic materials companies, consumer staples, financials, energy firms, utilities, and even communications services declined, while S&P 500 technology stocks rose about 30%. The extreme narrowness of this stock market was disconcerting to investment professionals, as it was clearly disproportionate to differences in earnings potential. Moreover, volatility in the market--the ups and downs of individual stock prices--has been increasing for some time and is unusually high. This increases the uncertainty about whether most investors will continue with their current enthusiasm for technology or search out the less expensive stocks on the market. Prudential Diversified Conservative Growth Fund, with its allocation to both growth and value stock investment styles and to bonds, is wholly exposed to neither alternative. Our performance Core bonds. The overall bond market, as measured by the Lehman Aggregate Bond Index, had a small positive 0.66% return over the six months ended January 31, despite the actions of the Federal Reserve to increase interest rates. Prudential Diversified Conservative Growth Fund's core bond holdings outperformed the Index slightly, primarily because they had a shorter average duration than the benchmark, which made them less exposed to these rising rates. The return on the core bond holdings also was enhanced by mortgage- related bonds, which benefit during periods of rising interest rates from the slower pace of prepayments due to refinancing. The Fund's high-quality emerging market bonds also contributed to its performance, as better economic prospects reduced the amount of extra yield emerging market borrowers had to pay to attract investors. The price of existing bonds in this sector benefited from the falling yield on new bonds. However, the Fund's holdings were relatively light in investment-grade corporate bonds, and so it failed to benefit from the similar narrowing of the pricing differential for corporate bonds over Treasuries. High-yield bonds. About 20% of the Fund's assets are allocated to high-yield holdings, or "junk bonds." These outperformed their benchmark more substantially than the core holdings, producing a solidly positive return while the benchmark fell. Among these lower-rated bonds, those with a "B" credit rating performed best over this reporting period, and these were overweighted in the Fund's holdings. Both the higher-rated BB bonds and the lower-rated CCCs had poorer returns, and both were underrepresented in the Fund's holdings. Large-cap stocks. More than a third of the Fund's large-cap growth portfolio was invested in technology stocks on January 31, including the seven largest contributors to the period's large-cap growth return. These included Cumulative Total Returns1 As of 1/31/00
Six One Since Months Year Inception2 Class A 5.47% 5.49% 11.11% Class B 5.08 4.60 10.09 Class C 5.08 4.60 10.09 Class Z 5.62 5.75 11.52 Lipper Balanced Fund Avg.3 2.09 4.08 9.54
Average Annual Total Returns1 As of 1/31/00
One Since Year Inception2 Class A 0.21% 4.60% Class B -0.40 5.04 Class C 2.56 6.60 Class Z 5.75 9.49
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 LLC 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 charge of 5% for Class A shares. Class B shares are subject to a declining contingent deferred sales charge (CDSC) of 5%, 4%, 3%, 2%, 1%, and 1% for six years. Class 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 charge of 1% and a CDSC of 1% for 18 months. Class Z shares are not subject to a sales charge or distribution and service (12b-1) fees. 2 Inception date: Class A, B, C, and Z, 11/18/98. 3 Lipper average returns are for all funds in each share class for the six-month, one-year, and since inception periods in the Balanced Fund category. The Lipper average is unmanaged. Funds in this category generally seek to conserve principal by maintaining at all times a balanced portfolio of both stocks and bonds. Typically, the stock/bond ratio ranges around 60/40%. 1 Investment Advisers' Report Cont'd. - ------------------------------------------------------------------------------- Cisco Systems, Nokia, and JDS Uniphase. The large-cap growth investments are focused on stocks the managers believe have substantial potential for earnings growth over a longer time horizon than many growth investors use, so sometimes they can benefit when a well-managed company has a short-term disappointment. The growth holdings also had above-benchmark returns from their focuses on the consumer staples (such as Home Depot), healthcare, and intermediate goods and services (business-to-business commerce) sectors. The strength of these holdings more than offset the weakness of the Fund's large-cap value stocks. Although the value portion of the portfolio benefited from some technology stocks purchased at bargain prices--including Seagate Technology, National Semiconductor, and Hitachi (and took its profits on National Semiconductor and Hitachi)--the gains of these holdings were outweighed by the poor performance of its focuses on hospital management, tobacco, forest products, and insurance. The value portion of the portfolio lost ground. Small-cap stocks. Among small-cap stocks, the very strong gains of our growth holdings were more than double the 29.7% gain of the Russell 2000 Growth Index. Our growth holdings had a substantial focus on technology. This sector benefited as technology investors looked for better value among small-cap stocks, given that large-cap technology stocks had become very expensive. Small-cap technology stocks rose sharply over our reporting period. The interest in smaller companies did not extend to value stocks, however. The Russell 2000 Value Index fell by 6.6% over our reporting period. Our small-cap value holdings fared particularly poorly because they had a focus on financial stocks whose earnings prospects are hurt by rising interest rates. Glossary of Terms Asset classes are classifications of investments. The most basic classification of securities is among stocks, bonds, and money market investments. Stocks are shares of ownership in a firm. Owners share in the profits, after debts are paid, and share in the firm's appreciation in value. Generally, the prices of stocks vary with investors' estimates of a firm's earnings prospects, including the impact of broader economic conditions. Bonds are loans to a company, government, or agency. They carry a fixed interest rate or one that varies according to a rule that is specified in the bond. They have a maturity date at which they must be repaid. Generally, bond prices vary with current interest rates for new bonds and with changes in the debtor's prospects of repaying the loan. Money market instruments are short-term loans that mature in 13 months or less. Bonds and money market instruments are called fixed-income securities. High yield bonds are also known as "junk bonds." They are subject to greater risk of loss of principal and interest, including default risk, than higher-rated bonds. Standard & Poor's 500 Composite Stock Price Index (S&P 500) is an unmanaged index of 500 stocks of large U.S. companies. The Russell 2000 Growth Index comprises securities in the Russell 2000 Index with a greater-than-average growth orientation. Companies in this Index tend to exhibit higher price-to-book and price/earnings ratios. The Russell 2000 Value Index comprises securities in the Russell 2000 Index with a less-than-average growth orientation. Companies in this Index generally have low price-to-book and price/earnings ratios. 2 What Is Diversification? - ------------------------------------------------------------------------------- Diversification--spreading your investments over many different securities--is a basic principle of investing. It helps to reduce the overall risk of your portfolio. Moreover, when we rebalance our portfolio to restore the original weighting of different asset classes, the discipline forces us to sell high and buy low. Over time, this may improve your return. How diversification works Mutual funds not only provide professional money management; they also allow a relatively small investment to be spread over many different securities. When you own a large number of different securities, the impact of any one security on your return is reduced. In addition, if you diversify your investments among asset classes and investment styles--between stocks and bonds, value and growth stocks, and investment-grade and high-yield bonds--it is less likely that all the securities you own will move in the same direction at one time. Prudential Diversified Funds provide more of this buffering than a fund investing in only one asset class. We believe this will result in more consistent returns over time. Prudential Conservative Growth Fund Diversification Target (GRAPH) Rebalancing--Diversified Conservative Growth Fund has a target allocation for each asset class. As some perform better than others, the portfolio will drift from this original target: asset classes with the best performance will become a larger proportion of the invested assets. We direct new investments to the asset classes that have fallen below their target ratio and, when necessary, sell certain securities in appreciated asset classes to maintain the balance. This not only keeps your risk exposure from changing too much, but it may reduce the average cost of our investments and increase our average selling price over time. Although an individual investor can diversify and rebalance, it would require a large investment to own the range of asset classes represented in Prudential Diversified Conservative Growth Fund. Moreover, calculating the amounts to allocate to each kind of security in a rebalancing would be difficult. Prudential Diversified Funds do it all for you. 3 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED CONSERVATIVE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Shares Description Value (Note 1) - ------------------------------------------------------------ LONG-TERM INVESTMENTS--96.8% COMMON STOCKS--40.0% - ------------------------------------------------------------ Advertising--0.3% 2,600 Omnicom Group, Inc. $ 243,588 525 True North Communications, Inc. 21,820 ---------- 265,408 - ------------------------------------------------------------ Aerospace/Defense--0.5% 2,200 Boeing Co. 97,488 2,000 Gencorp, Inc. 16,250 1,400 General Motors Corp., Class H 112,612 6,300 Loral Space & Communications, Inc.(a) 123,637 ---------- 349,987 - ------------------------------------------------------------ Airlines 800 Alaska Air Group, Inc.(a) 25,500 - ------------------------------------------------------------ Aluminum--0.4% 4,300 Alcoa, Inc. 299,656 862 Reliance Steel & Aluminum Co. 17,887 ---------- 317,543 - ------------------------------------------------------------ Apparel--0.1% 625 American Eagle Outfitters, Inc.(a) 22,695 1,300 Kellwood Co. 22,913 ---------- 45,608 - ------------------------------------------------------------ Audio/Visual--0.2% 800 Gemstar International Group Ltd.(a) 53,100 325 Harman International Industries, Inc. 18,972 1,000 Polycom, Inc. 60,375 ---------- 132,447 - ------------------------------------------------------------ Auto & Truck--0.1% 925 Arvin Industries, Inc. 21,448 875 Borg-Warner Automotive, Inc. $ 29,422 768 Delphi Automotive Systems Corp. 13,296 ---------- 64,166 - ------------------------------------------------------------ Auto/Equipment Rental 1,000 Rent-Way, Inc. 18,000 - ------------------------------------------------------------ Banking--1.2% 1,325 Bancorpsouth, Inc. 20,372 4,200 Bank America Corp. 203,437 5,500 Bank of New York Co., Inc. 223,437 200 Bank United Corp. 5,188 875 BankNorth Group, Inc. 23,078 650 BSB Bancorp, Inc. 12,472 2,200 Chase Manhattan Corp. 176,962 525 City National Corp. 18,309 550 Corus Bankshares, Inc. 13,647 2,325 Cullen/Frost Bankers, Inc. 57,834 1,367 CVB Financial Corp. 32,125 75 First Citizens Bancshares, Inc. 4,566 2,300 Golden State Bancorp, Inc.(a) 32,488 775 Harbor Florida Bancshares, Inc. 8,719 1,325 MAF Bancorp, Inc. 25,092 1,225 North Fork Bancorporation, Inc. 20,825 1,725 Peoples Heritage Financial Group, Inc. 25,336 550 Queens County Savings Bank, Inc. 12,547 712 Washington Federal, Inc. 11,926 625 Westamerica Bancorporation 15,781 450 Whitney Holding Corp. 14,737 ---------- 958,878 - ------------------------------------------------------------ Building & Construction--0.5% 1,800 American Standard Co.(a) 67,500 750 Building One Services Corp. 7,453
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 4 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED CONSERVATIVE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Shares Description Value (Note 1) - ------------------------------------------------------------ Building & Construction (cont'd.) 2,500 Centex Corp. $ 55,000 3,225 D.R. Horton, Inc. 37,289 1,125 M.D.C. Holdings, Inc. 15,891 2,975 Pulte Corp. 51,876 475 Southdown, Inc. 23,780 450 Texas Industries, Inc. 16,453 1,425 Thomas Industries, Inc.(a) 26,541 900 Toll Brothers, Inc. 15,300 775 U.S. Home Corp.(a) 18,551 1,500 Webb Delaware Corp. 27,375 ---------- 363,009 - ------------------------------------------------------------ Cable 850 Belden, Inc. 18,328 - ------------------------------------------------------------ Casinos 225 Anchor Gaming 10,041 - ------------------------------------------------------------ Chemicals--0.3% 800 Cytec Industries, Inc.(a) 20,200 1,800 Eastman Chemical Co. 71,775 250 H.B. Fuller Co. 16,250 2,000 Omnova Solutions, Inc. 15,000 875 Spartech Corp. 22,422 475 The Geon Co. 13,805 800 The Lubrizol Corp. 23,700 1,450 W.R. Grace & Co.(a) 17,128 ---------- 200,280 - ------------------------------------------------------------ Commercial Services--0.1% 1,400 Luminant Worldwide Corp.(a) 43,925 2,700 Pacific Gateway Exchange, Inc.(a) 52,988 ---------- 96,913 - ------------------------------------------------------------ Computers--3.0% 900 Brooktrout, Inc. 24,131 3,875 Catapult Communications Corp.(a) 44,078 1,100 Citrix Systems, Inc.(a) 150,975 7,300 Compaq Computer Corp. $ 199,838 700 Comverse Technology, Inc.(a) 100,363 4,300 Dell Computer Corp.(a) 165,281 2,600 EMC Corp.(a) 276,900 1,900 Equant N V(a) 196,531 4,900 Hewlett-Packard Co. 530,425 1,500 International Business Machine Corp. 168,281 1,275 Micro Warehouse, Inc.(a) 24,225 4,900 Seagate Technology, Inc.(a) 196,306 3,200 Sun Microsystems, Inc.(a) 251,400 ---------- 2,328,734 - ------------------------------------------------------------ Computer Services--1.3% 2,500 Affiliated Computer Services, Inc.(a) 99,375 100 AnswerThink Consulting Group(a) 3,256 725 Ciber, Inc.(a) 16,358 5,400 Cisco Systems, Inc.(a) 591,300 3,800 NetSolve, Inc.(a) 138,938 487 RadiSys Corp.(a) 19,845 925 Wallace Computer Services, Inc. 10,117 3,600 Whittman Hart, Inc.(a) 127,800 ---------- 1,006,989 - ------------------------------------------------------------ Consumer Products--0.3% 37 Fossil, Inc.(a) 16,269 3,800 Tandy Corp. 185,725 750 Tupperware Corp. 12,235 ---------- 214,229 - ------------------------------------------------------------ Consumer Services 900 1-800-Flowers.Com, Inc.(a) 8,775 6,600 Service Corp. International 30,113 ---------- 38,888 - ------------------------------------------------------------ Diversified Manufacturing--0.7% 375 Aptargroup, Inc. 8,250 500 Carpenter Technology Corp. 12,000 800 Corning, Inc. 123,400
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 5 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED CONSERVATIVE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Shares Description Value (Note 1) - ------------------------------------------------------------ Diversified Manufacturing (cont'd.) 800 Cuno, Inc. $ 18,700 2,800 General Electric Co. 373,450 ---------- 535,800 - ------------------------------------------------------------ Electrical Services--0.1% 650 NorthWestern Corp. 14,381 975 NSTAR 40,889 300 PerkinElmer, Inc. 15,019 275 RGS Energy Group, Inc. 5,552 ---------- 75,841 - ------------------------------------------------------------ Electronic Components--2.2% 700 Alpha Industries, Inc.(a) 58,625 200 Applied Micro Circuits Corp. 29,550 4,500 Arrow Electronics, Inc.(a) 94,500 600 ATMI, Inc.(a) 20,850 1,700 Avnet, Inc. 91,269 500 Broadcom Corp.(a) 144,656 175 Credence Systems Corp. 14,853 425 CTS Corp. 29,830 450 Electroglas, Inc.(a) 13,247 1,200 Flextronics International, Ltd.(a) 59,625 3,100 Gentex Corp.(a) 93,000 375 Hadco Corp.(a) 14,906 600 Kemet Corp.(a) 28,538 400 L3 Communications Holdings Corp.(a) 16,100 2,100 Novellus Systems, Inc.(a) 103,162 800 Optical Coating Lab, Inc. 303,900 750 Pioneer-Standard Electronics, Inc. 10,230 900 PMC-Sierra, Inc.(a) 162,450 575 Rogers Corp. 21,850 575 Semtech Corp.(a) 34,500 3,200 Texas Instruments, Inc. 345,200 300 Veeco Instruments, Inc.(a) 16,463 ---------- 1,707,304 Entertainment 450 Gaylord Entertainment Co. $ 12,544 500 SFX Entertainment, Inc.(a) 16,281 ---------- 28,825 - ------------------------------------------------------------ Fertilizers--0.1% 800 Potash Corp. of Saskatchewan, Inc. 41,850 - ------------------------------------------------------------ Financial Services--1.9% 400 Allied Capital Corp. 7,400 900 American Express Co. 148,331 450 Arthur J. Gallagher & Co. 24,188 500 Chittenden Corp. 14,156 8,600 Citigroup, Inc. 493,962 225 Dain Rauscher Corp. 11,334 1,425 Doral Financial Corp. 14,784 1,300 Downey Financial Corp. 25,025 875 Eaton Vance Corp. 35,820 1,700 Federated Investors, Inc. 33,575 1,475 Financial Security Assurance Holdings, Ltd. 81,402 300 Knight/Trimark Group, Inc.(a) 9,488 1,600 LaBranche & Co., Inc. 22,000 200 Mortgage.com, Inc.(a) 1,088 600 Merrill Lynch & Co., Inc. 52,050 900 Metris Companies, Inc. 32,963 400 Morgan (J.P.) & Co., Inc. 49,125 4,400 Morgan Stanley Dean Witter & Co. 291,500 1,500 Silicon Valley Bancshares 83,625 1,000 Webster Financial Corp. 23,250 ---------- 1,455,066 - ------------------------------------------------------------ Food & Beverage--0.4% 250 Adolph Coors Co. 12,125 575 Corn Products International, Inc. 13,225 600 J & J Snack Foods Corp.(a) 11,475 1,500 Mettler-Toledo International, Inc.(a) 47,812
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 6 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED CONSERVATIVE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Shares Description Value (Note 1) - ------------------------------------------------------------ Food & Beverage (cont'd.) 8,200 Nabisco Group Holding Corp.(a) $ 70,725 675 Performance Food Group Co.(a) 15,567 1,225 Riviana Foods, Inc. 20,059 4,900 Sara Lee Corp. 90,344 700 Universal Foods Corp. 12,863 ---------- 294,195 - ------------------------------------------------------------ Health Care--2.0% 1,125 Apria Healthcare Group, Inc.(a) 22,500 12,800 Columbia/HCA Healthcare Corp. 349,600 575 Datascope Corp.(a) 20,772 9,300 Foundation Health Systems, Inc.(a) 95,325 10,400 HEALTHSOUTH Corp.(a) 57,200 405 Lifepoint Hospitals, Inc.(a) 5,467 2,000 Pacificare Health Systems, Inc.(a) 84,625 1,800 Parexel International Corp.(a) 23,850 425 Patterson Dental Co.(a) 18,514 14,400 Tenet Healthcare Corp.(a) 327,600 405 Triad Hospitals, Inc.(a) 6,936 575 Trigon Healthcare, Inc. 17,501 3,900 United Healthcare Corp. 206,700 5,100 Wellpoint Health Networks, Inc.(a) 346,800 ---------- 1,583,390 - ------------------------------------------------------------ Home Furnishings--0.1% 1,400 Ethan Allen Interiors, Inc. 35,000 1,000 Furniture Brands International, Inc.(a) 17,000 ---------- 52,000 - ------------------------------------------------------------ Hotels--0.1% 6,700 Hilton Hotels Corp. 56,532 8,500 Meristar Hotels & Resorts, Inc.(a) 28,156 1,300 Park Place Entertainment Corp.(a) 13,650 ---------- 98,338 - ------------------------------------------------------------ Human Resources--0.1% 2,300 Careerbuilder, Inc.(a) 14,519 500 CDI Corp.(a) 11,656 825 Interim Services, Inc.(a) $ 20,677 1,600 RemedyTemp, Inc.(a) 34,500 ---------- 81,352 - ------------------------------------------------------------ Insurance--2.1% 1,100 American Financial Group, Inc. 23,513 900 American General Corp. 55,294 3,775 American International Group, Inc. 393,072 600 Annuity & Life Reinsurance Holdings, Ltd. 14,775 4,600 Axa Financial, Inc. 149,787 275 Blanch (E.W.) Holdings, Inc. 13,303 4,500 Chubb Corp. 253,125 450 Commerce Group, Inc. 11,644 690 Fidelity National Financial, Inc. 8,625 600 First American Financial Corp. 7,125 675 Foremost Corp. of America 19,280 3,100 John Hancock Financial Services, Inc.(a) 54,056 564 Medical Assurance, Inc.(a) 12,334 775 The MONY Group, Inc. 20,925 700 Mutual Risk Management, Ltd. 11,463 6,100 Old Republic International Corp. 73,962 525 Partnerre Ltd. 15,225 1,450 Presidential Life Corp. 23,925 825 Professionals Group, Inc. 18,563 575 Protective Life Corp. 15,992 400 Quotesmith.com, Inc.(a) 4,075 743 Radian Group, Inc. 29,952 2,600 Reinsurance Group of America, Inc. 57,525 6,600 SAFECO Corp. 161,700 2,200 St. Paul Companies, Inc. 66,412 1,500 Tokio Marine & Fire Insurance Ltd. 78,844 ---------- 1,594,496 - ------------------------------------------------------------ Internet--0.3% 100 Alteon Websystems, Inc.(a) 9,837 2,400 America Online, Inc.(a) 136,650 200 Bluestone Software, Inc.(a) 17,625
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 7 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED CONSERVATIVE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Shares Description Value (Note 1) - ------------------------------------------------------------ Internet (cont'd.) 100 Chemdex Corp.(a) $ 9,750 200 ITXC Corp. 21,500 200 Liberate Technologies, Inc.(a) 15,762 775 OneMain.com, Inc.(a) 9,494 125 Proxicom, Inc.(a) 12,625 100 Software.com, Inc.(a) 6,788 200 U.S. Interactive, Inc.(a) 10,400 ---------- 250,431 - ------------------------------------------------------------ Machinery--0.5% 300 Helix Technology Corp. 14,588 1,250 IDEX Corp. 33,594 550 Imation Corp.(a) 16,637 1,100 JLG Industries, Inc. 9,213 625 Kulicke & Soffa Industries, Inc.(a) 32,695 2,450 Lincoln Electric Holdings, Inc.(a) 47,928 500 Mannesmann A.G. (ADR) (Germany) 135,751 600 Milacron, Inc. 7,238 400 Tecumseh Products Co.(a) 18,250 850 Terex Corp. 19,337 625 The Manitowoc Co., Inc. 17,070 ---------- 352,301 - ------------------------------------------------------------ Manufactering/Distributing 325 Libbey, Inc. 8,369 625 Trinity Industrial, Inc. 14,609 ---------- 22,978 - ------------------------------------------------------------ Media--1.6% 5,000 AT&T Corp. Liberty Media 255,625 6,900 CBS Corp.(a) 402,356 3,800 Clear Channel Communications, Inc.(a) 328,225 400 Cumulus Media, Inc.(a) 15,625 275 Entercom Communications Corp. 14,609 800 Time Warner, Inc. 63,950 1,700 Univision Communications, Inc.(a) 182,113 ---------- 1,262,503 Medical Technology--0.6% 3,800 Amgen, Inc.(a) $ 242,012 1,025 Cell Genesys Inc. 15,119 1,100 Genetech, Inc.(a) 154,550 500 Gliatech, Inc.(a) 7,531 75 PE Corp. 15,108 325 Resmed, Inc. 13,955 350 TLC Laser Eye Ctrs, Inc. 4,769 ---------- 453,044 - ------------------------------------------------------------ Metals--0.1% 600 Cleveland-Cliffs, Inc. 16,762 925 Commercial Metals Co. 29,427 550 Kaydon Corp. 14,884 400 Precision Castparts Corp. 10,250 ---------- 71,323 - ------------------------------------------------------------ Mining--0.3% 8,400 Freeport-McMoRan Copper & Gold, Inc.(a) 134,400 6,000 Newmont Mining Corp. 122,250 ---------- 256,650 - ------------------------------------------------------------ Networking--0.4% 600 Ancor Communications, Inc.(a) 22,575 200 C-COR.net Corp.(a) 4,275 900 Juniper Networks, Inc.(a) 121,781 2,100 Metromedia Fiber Network, Inc.(a) 142,144 ---------- 290,775 - ------------------------------------------------------------ Office Equipment & Supplies--0.2% 5,500 Harris Corp. 159,500 675 Kimball International, Inc. 10,336 5,500 Lanier Worldwide, Inc.(a) 19,250 ---------- 189,086
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 8 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED CONSERVATIVE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Shares Description Value (Note 1) - ------------------------------------------------------------ Oil & Gas--1.3% 400 Amerada Hess Corp. $ 21,275 2,400 Atlantic Richfield Co. 184,800 1,550 Energen Corp. 26,737 925 Equitable Resources, Inc. 31,913 2,075 Helmerich & Payne, Inc. 48,762 1,280 Kerr-McGee Corp. 70,880 2,500 Keyspan Corp. 58,594 3,500 Marine Drilling Co., Inc.(a) 67,375 3,400 Newfield Exploration Co.(a) 93,500 2,200 Nuevo Energy Co. 40,700 2,700 Occidental Petroleum Corp. 53,662 1,000 Oneok, Inc. 26,125 375 SEACOR Holdings, Inc.(a) 17,297 1,600 Southwestern Energy Co. 9,100 3,344 Total SA, ADR (France) 208,164 525 Valero Energy Corp. 11,911 1,150 Varco International, Inc. 11,644 675 Wicor, Inc. 19,955 ---------- 1,002,394 - ------------------------------------------------------------ Oil & Gas Exploration/Production--0.1% 500 Atwood Oceanics, Inc. 20,406 850 Berry Petroleum Co. 12,378 800 Mitchell Energy & Development Corp. 18,000 450 Ultramar Diamond Shamrock Corp. 9,844 ---------- 60,628 - ------------------------------------------------------------ Paper & Packaging--1.7% 725 Ball Corp. 26,372 500 Chesapeake Corp. 13,031 1,500 Fort James Corp. 40,125 5,800 Georgia-Pacific Corp. 236,350 2,100 Georgia-Pacific Corp. (Timber Group) 45,544 4,100 International Paper Co. 195,262 4,300 Mead Corp. 160,175 1,000 P.H. Glatfelter Co. 12,313 1,500 Rayonier, Inc. 64,500 2,500 Temple-Inland, Inc. $ 139,844 3,100 Weyerhaeuser Co. 177,862 4,700 Willamette Industries, Inc. 192,700 ---------- 1,304,078 - ------------------------------------------------------------ Paper & Forest Products--0.1% 1,000 Pope & Talbot, Inc. 16,000 725 Potlatch Corp. 29,181 ---------- 45,181 - ------------------------------------------------------------ Pharmaceuticals--1.7% 350 Alpharma, Inc. 11,900 4,400 American Home Products Corp. 207,075 850 Bindley Western, Inc. 14,503 2,400 Bristol-Myers Squibb Co. 158,400 750 Dura Pharmaceuticals, Inc.(a) 11,625 2,600 Glaxo Wellcome PLC, ADR (United Kingdom) 137,150 1,800 Inhale Therapeutic Systems, Inc.(a) 105,187 375 King Pharmaceuticals, Inc. 22,125 1,900 Merck & Co., Inc. 149,744 1,075 Ocular Sciences, Inc.(a) 21,769 4,600 Warner-Lambert Co. 436,712 900 Waters Corp.(a) 66,488 ---------- 1,342,678 - ------------------------------------------------------------ Photography--0.5% 5,900 Eastman Kodak Co. 365,062 - ------------------------------------------------------------ Printing 475 Banta Corp. 9,025 - ------------------------------------------------------------ Real Estate Investment Trust--0.4% 200 Alexandria Real Estate Equities, Inc. 5,900 975 Bradley Real Estate, Inc. 16,575 800 BRE Properties, Inc. 17,600 950 Cabot Industrial Trust Corp. 18,525 1,475 Catellus Development Corp.(a) 18,438
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 9 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED CONSERVATIVE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Shares Description Value (Note 1) - ------------------------------------------------------------ Real Estate Investment Trust (cont'd.) 600 Developers Diversified Reality Corp. $ 7,800 1,525 Franchise Finance Corp. of America 36,600 675 Gables Residential Trust 14,639 300 General Growth Properties, Inc. 8,550 2,100 Glenborough Realty Trust, Inc. 28,612 1,100 Health Care Property Investors, Inc. 28,119 800 Health Care REIT, Inc. 12,900 725 Hospitality Properties Trust 14,183 2,300 Meristar Hospitality Corp. 37,519 1,400 Nationwide Health Properties, Inc. 18,900 1,500 Reckson Assocs Reality Corp. 29,625 200 Sl Green Reality Corp. 4,350 ---------- 318,835 - ------------------------------------------------------------ Restaurants--0.6% 3,500 CKE Restaurants, Inc. 22,531 15,400 Darden Restaurants, Inc. 244,475 300 Jack in the Box, Inc.(a) 6,169 4,400 McDonald's Corp. 163,625 4,425 Ryan's Family Steak Houses, Inc.(a) 39,548 ---------- 476,348 - ------------------------------------------------------------ Retail--2.6% 600 BJ's Wholesale Club, Inc.(a) 21,000 675 Buckle, Inc.(a) 10,589 3,500 Consolidated Stores Corp.(a) 49,875 525 Department 56, Inc.(a) 10,073 6,700 Dillards, Inc. 128,556 2,500 Estee Lauder Cos., Inc. 127,813 5,675 Gap, Inc. 253,602 8,400 Home Depot, Inc. 475,650 9,700 Ikon Office Solutions, Inc. 78,206 14,400 Kmart Corp.(a) 120,600 3,100 Kohl's Corp.(a) 217,388 700 Pep Boys - Manny, Moe & Jack, Inc. $ 5,075 2,225 Ross Stores, Inc. 28,369 1,500 Sears, Roebuck & Co. 46,406 2,000 Tiffany & Co. 148,000 4,500 Toys 'R' Us, Inc.(a) 46,406 3,700 Wal-Mart Stores, Inc. 202,575 725 Zale Corp.(a) 25,919 ---------- 1,996,102 - ------------------------------------------------------------ Semiconductors--1.1% 2,000 Applied Materials, Inc.(a) 274,500 750 Cypress Semiconductor Corp.(a) 25,125 975 ESS Technology, Inc.(a) 15,844 1,125 Integrated Device Technology, Inc.(a) 32,062 4,300 Intel Corp. 425,431 1,800 KLA Instruments Corp.(a) 105,525 ---------- 878,487 - ------------------------------------------------------------ Software--2.2% 500 Activision, Inc.(a) 7,813 100 Ardent Software, Inc. 4,300 625 Aspen Technology Corp., Inc.(a) 22,656 900 Broadvision, Inc.(a) 114,581 1,100 HNC Software, Inc.(a) 99,206 1,200 i2 Technologies, Inc.(a) 231,150 2,400 Intuit, Inc.(a) 144,750 900 Legato Systems, Inc.(a) 22,669 5,900 Microsoft Corp.(a) 577,462 100 Mission Critical Software, Inc.(a) 5,750 300 NetIQ Corp.(a) 16,800 800 Progress Software Corp.(a) 17,300 600 RSA Security, Inc.(a) 32,625 100 Sapient Corp.(a) 8,838 775 Sybase, Inc.(a) 18,455 2,100 VERITAS Software Corp.(a) 306,337 1,000 Verity, Inc.(a) 34,000 ---------- 1,664,692
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 10 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED CONSERVATIVE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Shares Description Value (Note 1) - ------------------------------------------------------------ Steel - Producers 800 AK Steel Holding Corp. $ 8,100 - ------------------------------------------------------------ Telecommunications--4.2% 200 Airgate PCS, Inc.(a) 12,225 1,700 Allegiance Telecom, Inc.(a) 179,138 2,400 ALLTEL Corp.(a) 160,200 3,500 AT&T Corp. 184,625 950 AVT Corp.(a) 21,256 900 Carrier Access Corp.(a) 39,600 400 Exodus Communications, Inc.(a) 45,950 500 Intermedia Communications, Inc. 21,500 1,100 JDS Uniphase Corp.(a) 224,331 1,300 Level 3 Communications, Inc.(a) 153,319 1,500 Millicom International Cellular S A(a) 107,063 2,000 Motorola, Inc. 273,500 1,000 Nextel Communications, Inc.(a) 106,375 1,400 Nextlink Communications(a) 118,125 2,700 Nokia Corp. (ADR Finland)(a) 494,100 2,275 NTL, Inc.(a) 286,223 200 Plantronics, Inc.(a) 14,325 200 Qualcomm, Inc.(a) 25,400 8,600 Qwest Communications International, Inc.(a) 338,625 1,300 Tellabs, Inc.(a) 70,200 7,150 Vodafone Airtouch Group PLC, ADR (United Kingdom) 400,400 ---------- 3,276,480 - ------------------------------------------------------------ Tobacco--0.5% 4,100 Loews Corp. 229,600 4,500 Philip Morris Companies, Inc. 94,219 2,700 R.J. Reynolds Tobacco Holdings, Inc. 46,406 1,225 Universal Corp. 25,036 ---------- 395,261 Transportation--0.3% 3,900 Air Express International Corp. $ 127,237 650 Alexander & Baldwin, Inc. 13,122 1,225 Roadway Express, Inc. 28,175 625 Sea Containers, Ltd. 18,008 750 U.S. Freightways Corp. 27,281 ---------- 213,823 - ------------------------------------------------------------ Utilities--0.5% 600 California Water Service Group 15,975 325 Calpine Corp.(a) 23,766 575 Cleco Corp. 19,334 850 Conectiv, Inc. 14,822 1,500 General Public Utilities Corp. 43,500 450 Idacorp, Inc. 15,103 1,775 Public Service Company of New Mexico(a) 28,178 2,500 Reliant Energy, Inc. 57,031 2,500 Unicom Corp. 97,812 2,525 Washington Gas Light Co. 63,441 ---------- 378,962 - ------------------------------------------------------------ Waste Management--0.1% 2,200 Casella Waste Systems, Inc.(a) 33,138 3,700 Waste Management, Inc. 64,750 ---------- 97,888 ---------- Total common stocks (cost $25,400,446) 30,986,520 ----------
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 11 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED CONSERVATIVE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Principal Moody's Amount Description Value (Note 1) Rating (000) - ------------------------------------------------------------ ASSET BACKED SECURITIES--1.9% - ------------------------------------------------------------ Baa2 US$ 600 Capital One Bank Corp., Notes, 6.76%, 7/23/02 $ 585,941 Baa1 900 MBNA Corp., MTN, 6.875%, 7/15/04 865,404 ----------- Total asset backed securities (cost $1,491,297) 1,451,345 - ------------------------------------------------------------ CORPORATE BONDS--24.9% - ------------------------------------------------------------ Aerospace/Defense--0.1% B1 50 BE Aerospace, Inc., Sr. Sub. Notes, 9.50%, 11/1/08 46,250 - ------------------------------------------------------------ Airlines--0.2% Ba2 150 Continental Airlines, Inc., Sr. Notes, 8.00%, 12/15/05 135,674 B3 50 U.S. Air, Inc., Sr. Notes, 9.625%, 2/1/01 49,622 ----------- 185,296 - ------------------------------------------------------------ Apparel--0.1% Ba2 100 Burlington Industries, Inc., Debs., 7.25%, 8/1/27 73,000 B1 15 Phillips-Van Heusen Corp., Sr. Sub. Notes, 9.50%, 5/1/08 13,950 ----------- 86,950 - ------------------------------------------------------------ Auto/Equipment Rental--0.1% B1 50 United Rentals, Inc., Sr. Sub. Notes, 9.25%, 1/15/09 46,875 - ------------------------------------------------------------ Automotive Parts--0.7% B2 US$ 10 Collins & Aikman Products Co., Sr. Sub. Notes, 11.50%, 4/15/06 $ 9,700 B3 50 Eagle Picher Industries, Inc., Sr. Sub. Notes, 9.375%, 3/1/08 42,750 B3 200 Hayes Wheels, Inc., Sr. Sub. Notes, 9.125%, 7/15/07 192,500 B1 60 JPS Automotive Products Corp., Sr. Notes, 11.125%, 6/15/01 60,450 Ba1 250 Lear Corp., Sr. Notes, 8.11%, 5/15/09 232,500 B2 40 Tenneco Inc., Sr. Sub. Notes, 11.625%, 10/15/09 40,800 ----------- 578,700 - ------------------------------------------------------------ Banks--0.5% Ba2 180 Export-Import Bank of Korea, Sr. Notes, 7.25%, 6/25/01 179,255 Ba3 200 Sovereign Bancorp, Inc., Sr. Notes, 10.50%, 11/15/06 203,000 ----------- 382,255 - ------------------------------------------------------------ Building & Products--0.3% Ba3 250 Building Materials Corp., Sr. Notes, 8.00%, 12/1/08 220,625 Ba2 10 Standard Pacific Corp., Sr. Sub. Notes, 8.50%, 4/1/09 8,775 ----------- 229,400
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 12 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED CONSERVATIVE (Unaudited) GROWTH FUND - -------------------------------------------------------------------------------
Principal Moody's Amount Description Value (Note 1) Rating (000) - ------------------------------------------------------------ Cable--1.3% Adelphia Communications Corp., Sr. Notes, B1 US$ 200 7.875%, 5/1/09 $ 173,500 B1 280 8.125%, 7/15/03 261,800 Charter Communication Holdings, Sr. Notes, B2 150 8.625%, 4/1/09 138,000 NR 100 10.25%, 1/15/10 100,000 B3 20 Classic Cable, Inc., Sr. Sub. Notes, 9.375%, 8/1/09 18,850 B2 50 Rogers Cablesystems Ltd., Sr. Sub. Gtd. Debs., 11.00%, 12/1/15 56,250 B2 300 United Pan-European Communications (Netherlands), Sr. Notes, 10.875%, 8/1/09 291,750 ------------ 1,040,150 - ------------------------------------------------------------ Cellular Communications--0.2% B3 10 Clearnet Communications, Inc., Sr. Disc. Notes, Zero Coupon (until 5/01/04), 10.125%, 5/1/09 5,900 B3 20 Triton PCS Holdings, Inc., Sr. Sub. Disc. Notes, Zero Coupon (until 5/01/03), 11.00%, 5/1/08 14,150 Voicestream Wire Co., B2 60 Sr. Disc. Notes, Zero Coupon (until 11/15/04), 11.875%, 11/15/09 36,600 B2 80 Sr. Notes, 10.375%, 11/15/09 82,000 ------------ 138,650 - ------------------------------------------------------------ Chemicals--0.5% B2 US$ 75 Huntsman ICI Chemicals, Inc., Sr. Sub. Notes, 10.125%, 7/1/09 $ 75,750 B1 50 Huntsman Polymers Corp., Sr. Notes, 11.75%, 12/1/04 52,500 Ba3 100 Lyondell Chemical Co., Sr. Sec'd. Notes, 9.875%, 5/1/07 98,750 Sterling Chemical Holdings, Inc., Sr. Sub. Notes, B3 45 12.375%, 7/15/06 46,575 B3 40 11.75%, 8/15/06 32,000 B2 60 ZSC Specialty Corp., Sr. Notes, 11.00%, 7/1/09 61,500 ------------ 367,075 - ------------------------------------------------------------ Coal Ba3 20 P & L Coal Holdings Corp., Sr. Notes, 8.875%, 5/15/08(b) 19,050 - ------------------------------------------------------------ Commercial Services--0.2% Ba3 150 Metris Cos, Inc., Sr. Notes, 10.125%, 7/15/06 144,000 - ------------------------------------------------------------ Computer Services--0.1% NR 100 Globix Corp., Sr. Notes, 12.50%, 2/1/10 101,000 - ------------------------------------------------------------ Containers--0.1% B3 50 Packaged Ice, Inc., Sr. Notes, 9.75%, 2/1/05 44,500
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 13 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED CONSERVATIVE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Principal Moody's Amount Description Value (Note 1) Rating (000) - ------------------------------------------------------------ Entertainment--0.4% B2 US$ 100 Hollywood Park, Inc., Sr. Sub. Notes, 9.25%, 2/15/07 $ 96,375 B3 250 Premier Parks, Inc., Sr. Notes, 9.75%, 6/15/07 243,750 ----------- 340,125 - ------------------------------------------------------------ Financial Services--3.6% A1 600 AT & T Capital Corp., MTN, Ser. G, 6.31%, 4/23/02 598,482 Ba1 100 Americredit Corp., Sr. Notes, 9.875%, 4/15/06 100,250 A2 300 The Bear Stearns Cos., Inc., Sr. Notes, 6.42375%, 8/1/02 299,719 A3 300 Lehman Brothers Holdings, Inc., MTN, 6.90%, 4/2/02 301,314 A1 600 Morgan Stanley Dean Witter, MTN, 6.165%, 1/28/02 599,830 Ba3 275 RBF Finance Co., Sr. Secured Notes, 11.00%, 3/15/06 294,250 B2 10 Stone Container Finance Co., Sr. Notes, 11.50%, 8/15/06 10,575 Aa3 600 Wells Fargo & Co., Notes, 6.625%, 7/15/04 578,616 ----------- 2,783,036 - ------------------------------------------------------------ Food & Beverage--0.4% B3 US$ 50 Agrilink Foods, Inc., Sr. Sub. Notes, 11.875%, 11/1/08 $ 49,250 B3 5 Domino's, Inc., Sr. Sub. Notes, 10.375%, 1/15/09 4,688 B1 100 Pilgrim's Pride Corp., Sr. Sub. Notes, 10.875%, 8/1/03 101,000 B2 65 Stater Brothers Holdings, Inc., Sr. Notes, 10.75%, 8/15/06 65,650 B2 105 Vlasic Foods International, Inc., Sr. Sub. Notes, 10.25%, 7/1/09 94,500 ----------- 315,088 - ------------------------------------------------------------ Gaming--1.7% B3 75 Coast Hotels & Casinos, Inc., Sr. Sub. Notes, 9.50%, 4/1/09 69,375 Ba2 350 Harrahs Casinos, Inc., Gtd. Sr. Sub. Notes, 7.875%, 12/15/05 329,875 B2 150 Horseshoe Gaming Holding Corp., Sr. Sub. Notes, 8.625%, 5/15/09 138,750 Ba1 600 International Game Technology Corp., Sr. Notes, 7.875%, 5/15/04 568,500 Baa3 100 Mandalay Resort Group, Debs., 6.70%, 11/15/96 92,448 Ba2 150 Mohegan Tribal Gaming Auth., Sr. Notes, 8.125%, 1/1/06 141,000 ----------- 1,339,948
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 14 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED CONSERVATIVE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Principal Moody's Amount Description Value (Note 1) Rating (000) - ------------------------------------------------------------ Health Care--1.4% B3 US$ 140 Abbey Healthcare Group, Inc., Sr. Sub. Notes, 9.50%, 11/1/02 $ 136,500 B2 100 Biovail International, Inc., Sr. Notes, 10.875%, 11/15/05 105,000 Columbia/HCA Healthcare Corp., Debs., Ba2 55 7.05%, 12/1/27 40,975 Ba2 20 7.50%, 11/15/95 15,900 MTN, Ba2 300 6.73%, 7/15/45 278,250 Notes, Ba2 100 7.69%, 6/15/25 80,500 B3 25 Concentra Operating Corp., Sr. Sub. Notes, 13.00%, 8/15/09 21,250 Baa3 75 HEALTHSOUTH Corp., Sr. Notes, 6.875%, 6/15/05 65,186 B3 30 Iasis Healthcare Corp., Sr. Sub. Notes, 13.00%, 10/15/09 30,750 C 350 Integrated Health Services, Inc., Sr. Sub. Notes, 9.25%, 1/15/08 24,500 B3 100 Lifepoint Hospitals Holdings, Inc., Sr. Sub. Notes, 10.75%, 5/15/09 102,750 B3 100 Magellan Health Services, Inc., Sr. Sub. Notes, 9.00%, 2/15/08 80,000 B3 125 Triad Hospitals Holdings, Inc., Sr. Sub. Notes, 11.00%, 5/15/09 129,375 ----------- 1,110,936 - ------------------------------------------------------------ Industrials--0.4% B2 US$ 350 Purina Mills, Inc., Sr. Sub. Notes, 9.00%, 3/15/10 $ 87,500 B3 350 United International Holdings Inc., Sr. Disc. Notes, Zero Coupon (until 2/15/03), 10.75%, 2/15/08 229,250 ----------- 316,750 - ------------------------------------------------------------ Internet--0.3% B3 20 Covad Communications Group Inc., 12.00%, 2/15/10 20,150 NR 50 Exodus Communications, Inc., Sr. Notes, 10.75%, 12/15/09 50,875 B3 150 PSI Net, Inc., Sr. Notes, 11.00%, 8/1/09 154,500 Verio, Inc., Sr. Notes, B3 5 11.25%, 12/1/08 5,238 B3 30 10.625%, 11/15/09 31,050 ----------- 261,813 - ------------------------------------------------------------ Lodging--0.2% Ba1 115 ITT Corp., Debs., 7.375%, 11/15/15 92,079 Ba2 50 La Quinta Inns, Inc., Sr. Notes, 7.25%, 3/15/04 39,686 ----------- 131,765 - ------------------------------------------------------------ Machinery--0.2% B1 150 Applied Power, Inc., Sr. Sub. Notes, 8.75%, 4/1/09 157,500
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 15 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED CONSERVATIVE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Principal Moody's Amount Description Value (Note 1) Rating (000) - ------------------------------------------------------------ Manufacturing--0.2% B3 US$ 50 Corning Consumer Products Co., Sr. Sub. Notes, 9.625%, 5/1/08 $ 37,250 B2 75 Gentek, Inc., Sr. Sub. Notes, 11.00%, 8/1/09 77,250 B2 40 Venture Holdings, Inc., Sr. Notes, 9.50%, 7/1/05 36,400 ----------- 150,900 - ------------------------------------------------------------ Media--1.9% B2 350 Ackerley Group, Inc., Sr. Sub. Notes, 9.00%, 1/15/09 330,750 B2 30 Alliance Atlantis Communications, Inc., Sr. Sub. Notes, 13.00%, 12/15/09 29,400 B1 75 Chancellor Media Corp., Sr. Sub. Notes, 9.00%, 10/1/08 76,687 Ba2 250 Imax Corp., Sr. Notes, 7.875%, 12/1/05(b) 233,125 B3 25 Paxson Communications Corp., Sr. Sub. Notes, 11.625%, 10/1/02 25,875 Baa3 200 Seagram, Joseph E. & Sons, Inc., Sr. Notes, 6.25%, 12/15/01 195,020 Baa3 600 Time Warner, Inc., Sr. Notes, 6.10%, 12/30/01 586,200 ----------- 1,477,057 - ------------------------------------------------------------ Metals B2 US$ 20 Golden Northwest Aluminum, Inc., First Mtge. Notes, 12.00%, 12/15/06 $ 20,850 - ------------------------------------------------------------ Miscellaneous Services--0.3% 200 Fresenius Med Care Cap Trust III, Gtd. Notes, 7.875%, 2/1/08 179,000 B2 50 IT Group, Inc., Sr. Sub. Notes, 11.25%, 4/1/09 47,500 B2 5 Sun World International, Inc., First Mtge. Notes, 11.25%, 4/15/04 5,050 ----------- 231,550 - ------------------------------------------------------------ Networking--0.5% B3 15 Intersil Corp., Sr. Sub. Notes, 13.25%, 8/15/09 16,800 B2 60 Metromedia Fiber Network, Inc., Sr. Notes, 10.00%, 12/15/09 60,150 B2 275 Williams Communications Group, Inc., Sr. Notes, 10.875%, 10/1/09 283,250 ----------- 360,200 - ------------------------------------------------------------ Oil & Gas--0.8% B3 105 Chesapeake Energy Corp., Sr. Notes, 9.625%, 5/1/05 98,175 Ba2 30 Eott Energy Partners LP, Sr. Notes, 11.00%, 10/1/09 30,338
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 16 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED CONSERVATIVE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Principal Moody's Amount Description Value (Note 1) Rating (000) - ------------------------------------------------------------ Oil & Gas (cont'd.) Gulf Canada Resources Ltd., Sr. Notes, Ba1 US$ 335 8.35%, 8/1/06 $ 320,762 Sr. Sub. Debs., Ba2 15 9.625%, 7/1/05 15,375 Ba2 25 Leviathan Gas Pipeline L.P>, Sr. Sub. Notes, 10.375%, 6/1/09 25,875 B1 60 Parker Drilling Co., Sr. Notes, 9.75%, 11/15/06 57,900 B2 20 Plains Resources, Inc., Sr. Sub. Notes, 10.25%, 3/15/06 19,300 B2 40 Swift Energy Co., Sr. Sub. Notes, 10.25%, 8/1/09 39,400 ----------- 607,125 - ------------------------------------------------------------ Paper & Packaging--1.1% B1 350 Ball Corp., Sr. Sub. Notes, 8.25%, 8/1/08 329,875 B1 25 Doman Industries Ltd. (Canada), Sr. Notes, 8.75%, 3/15/04 21,000 Caa 100 Repap New Brunswick (Canada), Inc., Sr. Sec'd. Notes, 10.625%, 4/15/05 91,000 B1 250 S.D. Warren Co., Sr. Sub. Notes, 12.00%, 12/15/04(b) 260,000 B3 200 Stone Container Corp., Sr. Sub. Deb., 12.25%, 4/1/02 202,000 ----------- 903,875 - ------------------------------------------------------------ Pharmaceuticals--0.1% Ba3 US$ 100 ICN Pharmaceuticals, Inc., Sr. Notes, 8.75%, 11/15/08 $ 93,000 - ------------------------------------------------------------ Printing & Publishing--0.7% B1 250 Mail-Well I Corp., Sr. Sub. Notes, 8.75%, 12/15/08 228,750 B2 150 Transwestern Publishing Co., Sr. Sub. Notes, 9.625%, 11/15/07 145,125 Baa3 150 World Color Press, Inc., Sr. Sub. Notes, 7.75%, 2/15/09 139,500 ----------- 513,375 - ------------------------------------------------------------ Real Estate--0.4% Ba2 235 HMH Properties, Inc., Sr. Notes, 8.45%, 12/1/08 210,912 B1 100 Intrawest Corp., Sr. Notes, 10.50%, 2/1/10 99,000 ----------- 309,912 - ------------------------------------------------------------ Recreation--0.1% B3 100 Ballys Total Fitness Holdings, Sr. Sub. Notes, 9.875%, 10/15/07 94,000 - ------------------------------------------------------------ Restaurants--1.0% B3 150 Advantica Restaurant Group, Inc., Sr. Notes, 11.25%, 1/15/08 100,500 B2 350 Carrols Corp., Sr. Sub. Notes, 9.50%, 12/1/08 304,500
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 17 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED CONSERVATIVE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Principal Moody's Amount Description Value (Note 1) Rating (000) - ------------------------------------------------------------ Restaurants (cont'd.) Ba1 US$ 350 Felcor Suites LP, Gtd. Sr. Notes, 7.375%, 10/1/04 $ 309,750 Ba3 25 Sbarro, Inc., Sr. Notes, 11.00%, 9/15/09 25,625 ----------- 740,375 - ------------------------------------------------------------ Schools--0.1% B3 80 Kindercare Learning Center, Inc., Sr. Sub. Notes, 9.50%, 2/15/09 76,000 - ------------------------------------------------------------ Semiconductors--0.1% B2 40 SCG Holding Corp., Sr. Notes, 12.00%, 8/1/09 42,400 - ------------------------------------------------------------ Steel--0.5% B2 15 Algoma Steel, Inc., First Mtge. Notes, 12.375%, 7/15/05 14,025 Ba3 60 The LTV Corp., Sr. Notes, 11.75%, 11/15/09 61,500 Ba3 50 National Steel Corp., Notes, 9.875%, 3/1/09 50,000 Caa2 20 Sheffield Steel Corp., First Mtge. Notes, 11.50%, 12/1/05 17,000 B2 250 UCAR Global Enterprises, Inc., Sr. Sub. Notes, 12.00%, 1/15/05 258,750 ----------- 401,275 - ------------------------------------------------------------ Telecommunications--2.1% Ba2 US$ 125 Global Crossing Holdings Ltd., Sr. Notes, 9.50%, 11/15/09 $ 120,625 B3 40 Hyperion Telecom, Sr. Disc. Notes, Zero Coupon (until 4/15/01), 13.00%, 4/15/03 35,800 Level 3 Communications, Inc., Sr. Disc. Notes, Zero Coupon (until 12/1/03), B3 130 10.50%, 12/1/08 78,000 Sr. Notes, B3 55 9.125%, 5/1/08 51,013 B1 95 McleodUSA, Inc., Sr. Notes, 8.125%, 2/15/09 85,500 Nextel Communications, Inc., Sr. Notes, B1 250 9.375%, 11/15/09 241,250 B3 325 10.75%, 6/1/09 327,437 Sr. Disc. Notes, B1 10 Zero Coupon (until 9/15/02), 10.65%, 9/15/07 7,450 B3 250 NTL Communications Corp., Sr. Notes, Zero Coupon (until 10/01/03), 12.375%, 10/1/08 171,250 RCN Corp., Sr. Notes, B3 5 10.00%, 10/15/07 4,850 B3 40 10.125%, 1/15/10 38,900 B1 200 Telewest PLC, Sr. Disc. Debs., Zero Coupon (until 10/01/00), 11.00%, 10/1/07 186,000
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 18 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED CONSERVATIVE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Principal Moody's Amount Description Value (Note 1) Rating (000) - ------------------------------------------------------------ Telecommunications (cont'd.) B3 US$ 200 Tritel PCS, Inc., Sr. Sub. Disc. Notes, Zero Coupon (until 5/15/04), 12.75%, 5/15/09 $ 126,000 B3 100 Primus Telecommunications, Inc., Sr. Notes, 12.75%, 10/15/09 102,000 B3 30 Worldwide Fiber, Inc., Sr. Notes, 12.00%, 8/1/09 31,425 ----------- 1,607,500 - ------------------------------------------------------------ Transportation--0.1% B1 50 American Commercial Lines LLC, Sr. Notes, 10.25%, 6/30/08 45,500 - ------------------------------------------------------------ Utilities--1.4% Ba1 250 AES Corp., Sr. Notes, 9.50%, 6/1/09 248,125 Baa2 700 Cinergy Corp., Debs., 6.125%, 4/15/04 651,667 Baa2 151 Niagara Mohawk Power Corp., Sr. Notes, 7.125%, 7/1/01 150,640 ----------- 1,050,432 - ------------------------------------------------------------ Waste Management--0.5% Allied Waste of North America, Inc., Ba3 200 Sr. Notes, 7.875%, 1/1/09 172,000 B2 100 Sr. Sub. Notes, 10.00%, 8/1/09 87,000 Baa2 US$ 150 Waste Management, Inc., Sr. Notes, 6.00%, 5/15/01 $ 145,332 ----------- 404,332 ----------- Total corporate bonds (cost $20,455,541) 19,296,770 ----------- - ------------------------------------------------------------ CONVERTIBLE BONDS--0.6% Financial Services--0.6% A2 EURO500 Hellenic Finance Corp., Bonds, 2.00%, 7/15/03 481,510 - ------------------------------------------------------------ Utilities Alliant Energy Resources, Inc., Sub. Notes, A3 US$ 1 7.25%, 2/15/30 33,375 ----------- Total convertible bonds (cost $560,750) 514,885 ----------- - ------------------------------------------------------------ MORTGAGE-RELATED SECURITIES--7.3% Aaa 583 Commercial Mortgage Acceptance Corp., Series 1999-C1, Class A-1 6.79%, 8/15/08 561,577 NR 479 DLJ Mortgage Acceptance Corp., Series 1999-2, Class 1PA1 6.50%, 5/19/29 443,827 NR 450 GE Capital Mortgage Services, Inc., Series 1999-15, Class 16, 6.75%, 8/25/29 440,186 Aaa 461 GMAC Commercial Mortgage, Inc., Series 1998-C2, Class A-1, 6.15%, 11/15/07 434,726
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 19 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED CONSERVATIVE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Principal Moody's Amount Description Value (Note 1) Rating (000) - ------------------------------------------------------------ MORTGAGE-RELATED SECURITIES (cont'd.) Aaa US$ 500 Mellon Residental Funding Corp., Series 1999, Class A-3, 6.58%, 7/25/29 $ 499,858 NA 236 Merrill Lynch Mortgage Investments, Inc., Series 1998-F1, 5.53125%, 1/20/28 235,455 Aaa 500 Nationslink Funding Corp., Series 1999-Sl, Class A-3, 6.297%, 12/10/02 487,245 PNC Mortgage Securities Corp., Aa1 600 Series 1995-2, Class A-4, 6.75%, 6/25/16 586,146 Aa1 733 Series 1999-8, Class A-5, 6.75%, 8/25/29 716,863 Aa1 500 Series 1999, Class A-3, 7.25%, 10/25/29 477,185 NR 823 Residential Funding Mortgage, Inc., Series 1997 S-19, Class A-3, 6.50%, 12/25/12 769,676 ----------- Total mortgage-related securities (cost $5,844,853) 5,652,744 ----------- - ------------------------------------------------------------ FOREIGN SECURITIES--1.6% - ------------------------------------------------------------ A2 1,000 Government of Poland, 3.50% (until 10/27/00) 5.00%, 10/27/24 610,000 Baa3 600 United Mexican States, Notes, 9.875%, 2/1/10 591,750 ----------- Total foreign securities (cost $1,827,566) 1,201,750 ----------- - ------------------------------------------------------------ U.S. GOVERNMENT AND AGENCIES SECURITIES--21.3% US$ 2,032 Federal Home Loan Mortgage Corp., Debs., 10.00%, 5/15/20 $ 2,134,685 596 Federal National Mortgage Association, 6.50%, 9/1/05 581,992 Government National Mortgage Association, 8,000 6.50%, 12/31/29 7,392,480 100 6.75%, 9/20/22 101,018 United States Treasury Bonds, 1,100 8.75%, 8/15/20 1,348,017 500 8.00%, 11/15/21 575,000 1,900 6.00%, 2/15/26 1,758,089 United States Treasury Notes, 630 3.625%, 7/15/02 623,559 319 3.375%, 1/15/07 300,834 1,747 3.875%, 1/15/09, TIPS 1,689,488 ----------- Total U. S. government and agencies securities (cost $16,525,043) 16,505,162 ----------- Total debt obligations (cost $46,091,417) 44,622,656 ----------- - ------------------------------------------------------------ WARRANTS Units - ------------------------------------------------------------ 15 Intersil Holding Corp., Expiring 08/15/09 3,750 ----------- Total long-term investments (cost $71,491,863) 75,612,926 -----------
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 20 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED CONSERVATIVE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Principal Moody's Amount Description Value (Note 1) Rating (000) - ------------------------------------------------------------ SHORT-TERM INVESTMENTS--14.0% - ------------------------------------------------------------ ASSET BACKED SECURITIES--0.9% A2 US$ 700 General Motors Acceptance Corp., 6.25%, 4/5/00 (cost $699,744) $ 698,362 - ------------------------------------------------------------ CORPORATE BONDS--3.4% A2 2,100 TCI Communications, Inc., MTN, 6.46%, 3/6/00 2,101,407 Ba2 529 Niagara Mohawk Power Corp., Sr. Notes, 7.00%, 10/1/00 528,099 ----------- Total corporate bonds (cost $2,634,465) 2,629,506 ----------- - ------------------------------------------------------------ U.S. GOVERNMENT SECURITIES--1.2% Federal Home Loan Mortgage Corp., Disc. Notes, 900 Zero Coupon, 2/2/00 (cost $899,862) 899,809 - ------------------------------------------------------------ REPURCHASE AGREEMENT--4.4% 3,423 Joint Repurchase Agreement Account, 5.71%, 2/1/00 (cost $3,423,000; Note 5) 3,423,000 Principal Amount (000) Description Value (Note 1) - ------------------------------------------------------------ COMMERCIAL PAPER--3.3% US$ 1,000 IBM Credit Corp., 6.29%, 2/8/00 $ 998,777 U.S. West Capital Funding, Inc., 600 6.25%, 2/8/00 599,318 1,000 6.64%, 3/24/00 991,128 ----------- Total commercial paper (cost $2,588,457) 2,589,223 ----------- Total short-term investments (cost $10,245,528) 10,239,900 ----------- - ------------------------------------------------------------ Total Investments--110.8% (cost $81,737,391; Note 4) 85,852,826 Liabilities in excess of other assets--(10.8%) (8,376,563) ----------- Net Assets--100% $77,476,263 ----------- -----------
- --------------- (a) Non-income producing security. (b) All or partial principal amount segregated as collateral. ADR--American Depository Receipt. FRN--Floating Rate Note. LP--Limited Partnership. MTN--Medium-Term Notes. NR--Not Rated by Moody's or Standard & Poor's. PLC--Public Limited Company (British Corporation). SA-- Sociedad Anonima (Spanish Corporation or Societe Anonyme French Corporation). TIPS--Treasury Inflation Protection Securities. The Fund's current Prospectus contains a description of Moody's and Standard & Poor's ratings. - -------------------------------------------------------------------------------- See Notes to Financial Statements. 21 PRUDENTIAL DIVERSIFIED FUNDS Statement of Assets and Liabilities PRUDENTIAL DIVERSIFIED CONSERVATIVE (Unaudited) GROWTH FUND - -------------------------------------------------------------------------------
Assets January 31, 2000 Investments, at value (cost $81,737,391).................................................................. $ 85,852,826 Receivable for investments sold........................................................................... 5,336,116 Interest and dividends receivable......................................................................... 611,852 Receivable for Fund shares sold........................................................................... 271,345 Forward currency contracts - net amount receivable from counterparty...................................... 26,883 Deferred expenses and other assets........................................................................ 1,529 ---------------- Total assets........................................................................................... 92,100,551 ---------------- Liabilities Bank overdraft............................................................................................ 1,121,220 Payable for investments purchased......................................................................... 12,983,928 Accrued expenses and other liabilities.................................................................... 243,886 Payable for Fund shares reacquired........................................................................ 179,198 Management fee payable.................................................................................... 51,000 Distribution fee payable.................................................................................. 45,056 ---------------- Total liabilities...................................................................................... 14,624,288 ---------------- Net Assets................................................................................................ $ 77,476,263 ---------------- ---------------- Net assets were comprised of: Shares of beneficial interest, at par.................................................................. $ 7,290 Paid-in capital in excess of par....................................................................... 72,404,305 ---------------- 72,411,595 Undistributed net investment income.................................................................... 159,889 Accumulated net realized gain on investments........................................................... 762,845 Net unrealized appreciation on investments and foreign currency translations........................... 4,141,934 ---------------- Net assets, January 31, 2000.............................................................................. $ 77,476,263 ---------------- ---------------- Class A: Net asset value and redemption price per share ($14,817,111 / 1,393,325 shares of beneficial interest issued and outstanding)...................... $10.63 Maximum sales charge (5% of offering price)............................................................ .56 ---------------- Maximum offering price to public....................................................................... $11.19 ---------------- ---------------- Class B: Net asset value, offering price and redemption price per share ($35,976,458 / 3,386,612 shares of beneficial interest issued and outstanding)...................... $10.62 ---------------- ---------------- Class C: Net asset value and redemption price per share ($12,952,048 / 1,219,255 shares of beneficial interest issued and outstanding)...................... $10.62 Sales charge (1% of offering price).................................................................... .11 ---------------- Offering price to public............................................................................... $10.73 ---------------- ---------------- Class Z: Net asset value, offering price and redemption price per share ($13,730,646 / 1,290,473 shares of beneficial interest issued and outstanding)...................... $10.64 ---------------- ----------------
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 22 PRUDENTIAL DIVERSIFED FUNDS PRUDENTIAL DIVERSIFIED CONSERVATIVE GROWTH FUND Statement of Operations (Unaudited) - ------------------------------------------------------------
Six Months ended Net Investment Income January 31, 2000 Income Interest............................ $1,704,573 Dividends (net of foreign withholding taxes of $293)....... 141,922 ----------- Total income..................... 1,846,495 ----------- Expenses Management fee...................... 288,242 Distribution fee--Class A........... 13,482 Distribution fee--Class B........... 167,237 Distribution fee--Class C........... 68,227 Custodian's fees and expenses....... 151,000 Reports to shareholders............. 32,000 Registration fees................... 31,000 Amortization of offering cost....... 29,535 Transfer agent's fees and expenses......................... 29,000 Legal fees.......................... 15,000 Audit fee and expenses.............. 12,500 Trustees' fees and expenses......... 3,000 Miscellaneous....................... 4,163 ----------- Total expenses................... 844,386 ----------- Net investment income.................. 1,002,109 ----------- Realized and Unrealized Gain (Loss) on Investment and Foreign Currency Transactions Net realized gain on: Investment transactions............. 1,058,792 Foreign currency transactions....... 18,394 Options written..................... 633 ----------- 1,077,819 ----------- Net change in unrealized appreciation on: Investments......................... 1,845,866 Foreign currencies.................. 51,739 ----------- 1,897,605 ----------- Net gain on investments................ 2,975,424 ----------- Net Increase in Net Assets Resulting from Operations $3,977,533 ----------- -----------
PRUDENTIAL DIVERSIFIED FUNDS PRUDENTIAL DIVERSIFIED CONSERVATIVE GROWTH FUND Statement of Changes in Net Assets (Unaudited) - ------------------------------------------------------------
Six Months November 18, 1998(a) Ended Through Increase (Decrease) January 31, July 31, in Net Assets 2000 1999 Operations Net investment income..... $ 1,002,109 $ 1,315,456 Net realized gain on investment and foreign currency transactions........... 1,077,819 577,710 Net change in unrealized appreciation of investments and foreign currencies............. 1,897,605 2,244,329 ------------ -------------------- Net increase in net assets resulting from operations............. 3,977,533 4,137,495 ------------ -------------------- Dividends and distributions (Note 1) Dividends from net investment income Class A................ (149,418) (118,082) Class B................ (383,307) (278,242) Class C................ (155,926) (155,747) Class Z................ (313,458) (637,575) ------------ -------------------- (1,002,109) (1,189,646) ------------ -------------------- Dividends in excess of net investment income Class A................ (11,477) -- Class B................ (29,443) -- Class C................ (11,977) -- Class Z................ (24,078) -- ------------ -------------------- (76,975) -- ------------ -------------------- Distributions from net realized gains on investment transactions Class A................ (113,245) -- Class B................ (387,774) -- Class C................ (152,973) -- Class Z................ (219,765) -- ------------ -------------------- (873,757) -- ------------ -------------------- Fund share transactions (net of share conversions) (Note 6) Net proceeds from shares sold................... 19,060,786 107,208,098 Net asset value of shares issued in reinvestment of dividends and distributions.......... 1,889,736 1,162,526 Cost of shares reacquired............. (19,709,174) (37,138,250) ------------ -------------------- Net increase in net assets from Fund share transactions........... 1,241,348 71,232,374 ------------ -------------------- Total increase............... 3,266,040 74,180,223 Net Assets Beginning of period.......... 74,210,223 30,000 ------------ -------------------- End of period(b)............. $ 77,476,263 $ 74,210,223 ------------ -------------------- ------------ -------------------- - --------------- (a) Commencement of investment operations. (b) Includes undistributed net investment income of....................... $ 159,889 $ 236,864 ------------ --------------------
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 23 PRUDENTIAL DIVERSIFIED FUNDS PRUDENTIAL DIVERSIFIED CONSERVATIVE Notes to Financial Statements (Unaudited) GROWTH FUND - -------------------------------------------------------------------------------- Prudential Diversified Funds (the 'Trust') is registered under the Investment Company Act of 1940, as an open-end, diversified management investment company presently consisting of three Portfolios: Prudential Diversified Conservative Growth Fund (the 'Fund'), Prudential Diversified Moderate Growth Fund and Prudential Diversified High Growth Fund. The Trust was organized as a business trust in Delaware on July 29, 1998. The Fund had no significant operations other than the issuance of 750 shares each of Class A, Class B, Class C and Class Z shares of beneficial interest for $30,000 on September 2, 1998 to Prudential Investments Fund Management LLC ('PIFM' or the 'Manager'). The Fund commenced investment operations on November 18, 1998. The investment objective of the Fund is to provide current income and a reasonable level of capital appreciation. The Fund seeks to achieve its investment objective by investing in a diversified portfolio of debt obligations and equity securities. The ability of the issuers of the debt securities held by the Fund to meet their obligations may be affected by economic developments in a specific industry or country. - ------------------------------------------------------------ Note 1. Accounting Policies The following is a summary of significant accounting policies followed by the Fund and the Trust in the preparation of its financial statements. Securities Valuation: Securities for which the primary market is on an exchange and NASDAQ National Market Securities are valued at the last sales price on such exchange on the day of valuation, or, if there was no sale on such day, at the mean between the last bid and asked prices on such day or at the bid price on such day in the absence of an asked price. Securities that are actively traded in the over-the-counter market, including listed securities for which the primary market is believed by the Manager, in consultation with the Adviser, to be over-the-counter, are valued by an independent pricing agent or principal market maker. U.S. Government securities for which market quotations are available shall be valued at a price provided by an independent pricing agent or broker-dealer. Privately placed securities including equity securities for which market prices may be obtained from primary dealers shall be valued at the bid prices provided by such primary dealers. Securities for which market quotations are not readily available, may be valued using the last available market quotation for a period not to exceed five days, provided the Manager and Adviser feel this is representative of market value, after that period, such securities are valued in good faith under procedures adopted by the Trustees. 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 transactions in repurchase agreements with U.S. financial institutions, it is the Fund's policy that its custodian or designated subcustodians, as the case may be under triparty repurchase agreements, take possession of the underlying 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. All securities are valued as of 4:15 p.m., New York time. 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 rates 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 fiscal 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 long-term portfolio securities sold during the period. Accordingly, these realized foreign currency gains (losses) are included in the reported net realized gains (losses) on investment transactions. Net realized gains on foreign currency transactions represent net foreign exchange gains or losses from holdings of foreign currencies, currency gains or losses realized between the trade and settlement dates on security transactions, and the difference between the amounts of dividends, interest and foreign taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains or losses from valuing foreign currency denominated assets and liabilities (other than investments) at fiscal period end exchange rates are - -------------------------------------------------------------------------------- 24 PRUDENTIAL DIVERSIFIED FUNDS PRUDENTIAL DIVERSIFIED CONSERVATIVE Notes to Financial Statements (Unaudited) GROWTH FUND - -------------------------------------------------------------------------------- reflected as a component of net unrealized appreciation on investments and 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. 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. Securities Transactions and Net Investment Income: Securities transactions are recorded on the trade date. Realized gains and losses from investment and currency transactions are calculated on the identified cost basis. Dividend income is recorded on the ex-dividend date; interest income is recorded on the accrual basis. Expenses are recorded on the accrual basis which may require the use of certain estimates by management. Net investment income (loss), other than distribution fees, and unrealized and realized 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 expects to pay dividends of net investment income quarterly, and distributions of net realized capital and currency gains, if any, annually. Dividends and distributions are recorded on the ex-dividend date. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Options: The Fund may either purchase or write options in order to hedge against adverse market movements or fluctuations in value caused by changes in prevailing interest rates or foreign currency exchange rates with respect to securities or currencies which the Fund currently owns or intends to purchase. When the Fund purchases an option, it pays a premium and an amount equal to that premium is recorded as an investment. When the Fund writes an option, it receives a premium and an amount equal to that premium is recorded as a liability. The investment or liability is adjusted daily to reflect the current market value of the option. If an option expires unexercised, the Fund realizes a gain or loss to the extent of the premium received or paid. If an option is exercised, the premium received or paid is an adjustment to the proceeds from the sale or the cost basis of the purchase in determining whether the Fund has realized a gain or loss. The difference between the premium and the amount received or paid on effecting a closing purchase or sale transaction is also treated as a realized gain or loss. Gain or loss on purchased options is included in net realized gain (loss) on investment transactions. Gain or loss on written options is presented separately as net realized gain (loss) on written option transactions. Taxes: For federal income tax purposes, each Fund in the Trust is treated as a separate taxpaying entity. It is the intent of the Fund to continue to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to shareholders. Therefore, no federal income tax provision is required. Withholding taxes on foreign dividends have been provided for in accordance with the Fund's understanding of the applicable country's tax rules and rates. Deferred Offering Cost: The Fund incurred approximately $98,000 in connection with the initial offering of the Fund. Offering costs were amortized over a period of 12 months ended November 1999. - ------------------------------------------------------------ Note 2. Agreements The Fund has a management agreement with PIFM. Pursuant to this agreement, PIFM manages the investment operations of the Fund, administers the Fund's affairs and supervises the Adviser's performance of all investment advisory services. PIFM pays for the costs pursuant to the advisory agreements, the cost of compensation of officers of the Fund, occupancy and certain clerical and accounting 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 .75% of the - -------------------------------------------------------------------------------- 25 PRUDENTIAL DIVERSIFIED FUNDS PRUDENTIAL DIVERSIFIED CONSERVATIVE Notes to Financial Statements (Unaudited) GROWTH FUND - -------------------------------------------------------------------------------- average daily net assets of the Fund. PIFM, in turn, pays each Adviser a fee, computed daily and paid monthly, equal to the annual rate specified below based on the average daily net assets of the Fund segments they manage.
Fee Paid By PIFM Advisers to Advisers - ------------------------------ --------------------------------- Jennison Associates LLC .30% with respect to the first $300 million; .25% for amounts in excess of $300 million The Prudential Investment .375%1 Corporation ('PIC') Pacific Investment Management .25% Company Franklin Advisers, Inc. .50% The Dreyfus Corporation .45% 1Prior to January 1, 2000, PIC was reimbursed by PIFM for its reasonable costs and expenses.
The Fund has a distribution agreement with Prudential Investment Management Services LLC ('PIMS') which acts as the distributor of the Class A, Class B, Class C and Class Z shares of the Fund. The Fund compensates 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 PIMS. The distribution fees are accrued daily and payable monthly. No distribution or service fees are paid to PIMS as distributor for Class Z shares of the Fund. Pursuant to the Class A, B and C Plans, the Fund compensates 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 .25 of 1%, 1% and 1% of the average daily net assets of the Class A, B and C shares respectively, for the six month period ended January 31, 2000. PIMS has advised the Fund that it has received approximately $48,000 and $11,200 in front-end sales charges resulting from sales of Class A and Class C shares, respectively, during the six month period ended January 31, 2000. PIMS has advised the Fund that for the six month period ended January 31, 2000, it has received approximately $59,100 and $16,300 in contingent deferred sales charges imposed upon certain redemptions by Class B and Class C shareholders, respectively. PIMS, PIC and PIFM 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 syndicated credit agreement ('SCA') with an unaffiliated lender. The maximum commitment under the SCA is $1 billion and interest on any borrowings will be at market rates. For the period 3/11/99-3/9/00, the commitment fee on the unused portion of the credit facility was .065 of 1%. Subsequent to March 9, 2000, the SCA was renewed with a maximum commitment of $1 billion at a commitment fee of .080 of 1% of the unused portion of the credit facility. The expiration date of the SCA is March 9, 2001. The commitment fee is accrued and paid quarterly on a pro rata basis by the Funds. Prior to March 11, 1999, the Funds had a credit agreement with a maximum commitment of $200,000,000. The commitment fee was .055 of 1% on the unused portion of the credit facility. The Fund did not borrow any amounts during the year ended January 31, 2000. The purpose of the credit agreements is to serve as an alternative source of funding for capital share redemptions. - ------------------------------------------------------------ Note 3. Other Transactions with Affiliates Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned subsidiary of PIFM, serves as the Trust's transfer agent. During the six month period ended January 31, 2000, the Fund incurred fees of approximately $60,400 for the services of PMFS. As of January 31, 2000 approximately $5,500 of such fees were due to PMFS. Transfer agent fees and expenses in the Statement of Operations include certain out-of-pocket expenses paid to nonaffiliates. - ------------------------------------------------------------ Note 4. Portfolio Securities Purchases and sales of portfolio securities, excluding short-term investments, for the six month period ended January 31, 2000 were $96,142,862 and $96,589,592, respectively. At January 31, 2000, the Fund had outstanding forward currency contracts to sell foreign currencies as follows:
Value at Foreign Currency Settlement Date Current Sale Contracts Payable Value Appreciation - ----------------------- --------------- -------- ------------- Euro, expiring 2/17/00..... $ 507,850 $485,679 $22,171 Japanese Yen, expiring 3/30/00..... 98,790 94,078 4,712 --------------- -------- ------------- $ 606,640 $579,757 $26,883 --------------- -------- ------------- --------------- -------- -------------
- -------------------------------------------------------------------------------- 26 PRUDENTIAL DIVERSIFIED FUNDS PRUDENTIAL DIVERSIFIED CONSERVATIVE Notes to Financial Statements (Unaudited) GROWTH FUND - -------------------------------------------------------------------------------- Transactions in options written during the six month period ended January 31, 2000, were as follows:
Number of Premiums Contracts Received --------- -------- Options outstanding at July 31, 1999... -- -- Options written........................ 3 $ 1,758 Options expired........................ (3) (1,758) -- -------- Options outstanding at January 31, 2000................................. -- -- -- -------- -- --------
The United States federal income tax basis of the Fund's investments, including short-term investments, as of January 31, 2000 was $81,796,553; accordingly, net unrealized appreciation on investments for federal income tax purposes was $4,056,273 (gross unrealized appreciation--$8,015,727, gross unrealized depreciation--$3,959,454). - ------------------------------------------------------------ Note 5. 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 January 31, 2000, the Fund had a 0.5% undivided interest in the repurchase agreements in the joint account. The undivided interest for the Fund represents $3,423,000 in principal amount. As of such date, each repurchase agreement in the joint account and the collateral therefore were as follows: Bear, Stearns & Co. Inc., 5.72%, in the principal amount of $150,000,000 repurchase price $150,023,833, due 2/01/00. The value of the collateral including accrued interest was $153,133,078. Credit Suisse First Boston Corporation, 5.74%, in the principal amount of $75,000,000 repurchase price $75,011,958, due 2/01/00. The value of the collateral including accrued interest was $77,491,043. Credit Suisse First Boston Corporation, 5.73%, in the principal amount of $125,000,000 repurchase price $125,019,895, due 2/01/00. The value of the collateral including accrued interest was $129,169,641. Greenwich Capital Markets, Inc., 5.73%, in the principal amount of $100,000,000 repurchase price $100,015,888, due 2/01/00. The value of the collateral including accrued interest was $102,001,008. Goldman, Sachs & Co., 5.70%, in the principal amount of $230,536,000 repurchase price $230,572,501, due 2/01/00. The value of the collateral including accrued interest was $235,147,150. Merrill Lynch, Pierce, Fenner & Smith, Inc., 5.60%, in the principal amount of $25,000,000 repurchase price $25,003,888, due 2/01/00. The value of the collateral including accrued interest was $25,501,335. - ------------------------------------------------------------ Note 6. 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 5%. 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 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. Of the 7,289,665 shares of beneficial interest issued and outstanding at January 31, 2000, Prudential owned 1,224,866 shares. The Fund has authorized an unlimited number of shares of beneficial interest at $.001 par value. Transactions in shares of beneficial interest were as follows:
Class A Shares Amount - ---------------------------------- ----------- ------------- Six months ended January 31, 2000: Shares sold....................... 828,470 $ 8,780,679 Shares issued in reinvestment of dividends and distributions..... 25,579 266,987 Shares reacquired................. (346,834) (3,638,228) ----------- ------------- Net increase in shares outstanding before conversion............... 507,215 5,409,438 Shares issued upon conversion..... 8,326 87,413 ----------- ------------- Net increase in shares outstanding..................... 515,541 $ 5,496,851 ----------- ------------- ----------- -------------
- -------------------------------------------------------------------------------- 27 PRUDENTIAL DIVERSIFIED FUNDS PRUDENTIAL DIVERSIFIED CONSERVATIVE Notes to Financial Statements (Unaudited) GROWTH FUND - --------------------------------------------------------------------------------
Class A Shares Amount - ---------------------------------- ----------- ------------- November 18, 1998(a) through July 31, 1999: Shares sold....................... 1,042,412 $ 10,711,221 Shares issued in reinvestment of dividends....................... 10,808 113,563 Shares reacquired................. (177,770) (1,852,189) ----------- ------------- Net increase in shares outstanding before conversion............... 875,450 8,972,595 Shares issued upon conversion from Class B......................... 1,585 16,195 ----------- ------------- Net increase in shares outstanding..................... 877,034 $ 8,988,790 ----------- ------------- ----------- ------------- Class B - ---------------------------------- Six months ended January 31, 2000: Shares sold....................... 866,586 $ 9,039,455 Shares issued in reinvestment of dividends and distributions..... 73,455 766,993 Shares reacquired................. (467,045) (4,904,930) ----------- ------------- Net increase in shares outstanding before conversion............... 472,996 4,901,518 Shares issued upon conversion..... (8,336) (87,413) ----------- ------------- Net increase in shares outstanding..................... 464,660 $ 4,814,105 ----------- ------------- ----------- ------------- Class B - ---------------------------------- November 18, 1998(a) through July 31, 1999: Shares sold....................... 3,203,723 $ 32,945,049 Shares issued in reinvestment of dividends....................... 25,247 265,233 Shares reacquired................. (306,183) (3,184,477) ----------- ------------- Net increase in shares outstanding before conversion............... 2,922,787 30,025,805 Shares issued upon conversion into Class A......................... (1,585) (16,195) ----------- ------------- Net increase in shares outstanding..................... 2,921,202 $ 30,009,610 ----------- ------------- ----------- ------------- Class C Shares Amount - ---------------------------------- ----------- ------------- Six months ended January 31, 2000: Shares sold....................... 113,985 $ 1,186,478 Shares issued in reinvestment of dividends and distributions..... 28,617 298,684 Shares reacquired................. (279,731) (2,929,433) ----------- ------------- Net decrease in shares outstanding..................... (137,129) $ (1,444,271) ----------- ------------- ----------- ------------- November 18, 1998(a) through July 31, 1999: Shares sold....................... 1,533,354 $ 15,566,209 Shares issued in reinvestment of dividends....................... 13,956 146,297 Shares reacquired................. (191,676) (1,993,717) ----------- ------------- Net increase in shares outstanding..................... 1,355,634 $ 13,718,789 ----------- ------------- ----------- ------------- Class Z - ---------------------------------- Six months ended January 31, 2000: Shares sold....................... 5,210 $ 54,174 Shares issued in reinvestment of dividends and distributions..... 53,379 557,072 Shares reacquired................. (778,604) (8,236,583) ----------- ------------- Net decrease in shares outstanding..................... (720,015) $ (7,625,337) ----------- ------------- ----------- ------------- November 18, 1998(a) through July 31, 1999: Shares sold....................... 4,798,062 $ 47,985,619 Shares issued in reinvestment of dividends....................... 61,120 637,433 Shares reacquired................. (2,849,444) (30,107,867) ----------- ------------- Net increase in shares outstanding..................... 2,009,738 $ 18,515,185 ----------- ------------- ----------- -------------
- --------------- (a) Commencement of investment operations. - -------------------------------------------------------------------------------- 28 PRUDENTIAL DIVERSIFIED FUNDS PRUDENTIAL DIVERSIFIED CONSERVATIVE Notes to Financial Statements (Unaudited) GROWTH FUND - --------------------------------------------------------------------------------
Class A Class B ----------------------------------------- ---------------- Six Months November 18, 1998(a) Six Months Ended Through Ended January 31, 2000 July 31, 1999(d) January 31, 2000 ---------------- -------------------- ---------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period......................... $ 10.36 $10.00 $ 10.35 ------ ----- ------ Income from investment operations: Net investment income........................................ .16 .19 .12 Net realized and unrealized gain on investments and foreign currencies................................................ .40 .35 .40 ------ ----- ------ Total from investment operations.......................... .56 .54 .52 ------ ----- ------ Less distributions Dividends from net investment income......................... (.17) (.18) (.13) Distributions from net realized capital gains................ (.12) -- (.12) ------ ----- ------ Total dividends and distributions......................... (.29) (.18) (.25) ------ ----- ------ Net asset value, end of period............................... $ 10.63 $10.36 $ 10.62 ------ ----- ------ ------ ----- ------ TOTAL RETURN(b).............................................. 5.47% 5.34% 5.08% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000).............................. $ 14,817 $9,097 $ 35,976 Average net assets (000)..................................... $ 10,727 $6,157 $ 33,266 Ratios to average net assets:(c) Expenses, including distribution fees..................... 1.80% 1.92% 2.55% Expenses, excluding distribution fees..................... 1.55% 1.67% 1.55% Net investment income..................................... 3.01% 2.69% 2.26% Portfolio turnover rate...................................... 121% 180% 121% November 18, 1998(a) Through July 31, 1999(d) -------------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period......................... $ 10.00 ------ Income from investment operations: Net investment income........................................ .14 Net realized and unrealized gain on investments and foreign currencies................................................ .34 ------ Total from investment operations.......................... .48 ------ Less distributions Dividends from net investment income......................... (.13) Distributions from net realized capital gains................ -- ------ Total dividends and distributions......................... (.13) ------ Net asset value, end of period............................... $ 10.35 ------ ------ TOTAL RETURN(b).............................................. 4.77% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000).............................. $ 30,235 Average net assets (000)..................................... $ 19,308 Ratios to average net assets:(c) Expenses, including distribution fees..................... 2.67% Expenses, excluding distribution fees..................... 1.67% Net investment income..................................... 1.94% Portfolio turnover rate...................................... 180%
- --------------- (a) Commencement of investment operations. (b) Total return does not consider the effect of sales loads. Total return is calculated assuming a purchase of shares on the first day and a sale on the last day and includes reinvestment of dividends and distributions. Total return for periods of less than a full year are not annualized. (c) Annualized. (d) Calculated based upon weighted average shares outstanding during the period. - -------------------------------------------------------------------------------- See Notes to Financial Statements. 29 PRUDENTIAL DIVERSIFIED FUNDS PRUDENTIAL DIVERSIFIED CONSERVATIVE Notes to Financial Statements (Unaudited) GROWTH FUND - --------------------------------------------------------------------------------
Class C Class Z ----------------------------------------- ---------------- Six Months November 18, 1998(a) Six Months Ended Through Ended January 31, 2000 July 31, 1999(d) January 31, 2000 ---------------- -------------------- ---------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period......................... $ 10.35 $ 10.00 $ 10.37 ------ ------ ------ Income from investment operations: Net investment income........................................ .12 .14 .18 Net realized and unrealized gain on investments and foreign currencies................................................ .40 .34 .40 ------ ------ ------ Total from investment operations.......................... .52 .48 .58 ------ ------ ------ Less distributions Dividends from net investment income......................... (.13) (.13) (.19) Distributions from net realized capital gains................ (.12) -- (.12) ------ ------ ------ Total dividends and distributions......................... (.25) (.13) (.31) ------ ------ ------ Net asset value, end of period............................... $ 10.62 $ 10.35 $ 10.64 ------ ------ ------ ------ ------ ------ TOTAL RETURN(b).............................................. 5.08% 4.77% 5.62% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000).............................. $ 12,952 $ 14,035 $ 13,731 Average net assets (000)..................................... $ 13,571 $ 12,039 $ 18,883 Ratios to average net assets:(c) Expenses, including distribution fees..................... 2.55% 2.67% 1.55% Expenses, excluding distribution fees..................... 1.55% 1.67% 1.55% Net investment income..................................... 2.25% 1.91% 3.25% Portfolio turnover rate...................................... 121% 180% 121% November 18, 1998(a) Through July 31, 1999(d) -------------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period......................... $ 10.00 ------ Income from investment operations: Net investment income........................................ .21 Net realized and unrealized gain on investments and foreign currencies................................................ .35 ------ Total from investment operations.......................... .56 ------ Less distributions Dividends from net investment income......................... (.19) Distributions from net realized capital gains................ -- ------ Total dividends and distributions......................... (.19) ------ Net asset value, end of period............................... $ 10.37 ------ ------ TOTAL RETURN(b).............................................. 5.58% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000).............................. $ 20,843 Average net assets (000)..................................... $ 38,460 Ratios to average net assets:(c) Expenses, including distribution fees..................... 1.67% Expenses, excluding distribution fees..................... 1.67% Net investment income..................................... 2.89% Portfolio turnover rate...................................... 180%
- --------------- (a) Commencement of investment operations. (b) Total return does not consider the effect of sales loads. Total return is calculated assuming a purchase of shares on the first day and a sale on the last day and includes reinvestment of dividends and distributions. Total return for periods of less than a full year are not annualized. (c) Annualized. (d) Calculated based upon weighted average shares outstanding during the period. - -------------------------------------------------------------------------------- See Notes to Financial Statements. 30 PRUDENTIAL DIVERSIFIED FUNDS PRUDENTIAL DIVERSIFIED CONSERVATIVE Supplemental Proxy Information (Unaudited) GROWTH FUND - -------------------------------------------------------------------------------- A Special Meeting of Shareholders of Prudential Diversified Funds was held on November 8, 1999 for the following purposes: (1) To elect nine trustees; (2) To ratify the selection of PricewaterhouseCoopers LLP as independent accountants for the fiscal year ending July 31, 2000; and (3) To approve certain changes to each Fund's fundamental investment restrictions. The results of the voting at the Special Meeting of Shareholders with respect to these matters was as follows: With respect to all Funds of Prudential Diversified Funds:
Votes for Votes withheld ----------- -------------- (1) Election of Trustees (A) Eugene C. Dorsey................ 16,149,330 212,677 (B) Robert F. Gunia................. 16,144,315 217,692 (C) Robert E. LaBlanc............... 16,153,554 208,453 (D) Douglas H. McCorkindale......... 16,156,578 205,429 (E) Thomas T. Mooney................ 16,137,871 224,136 (F) David R. Odenath, Jr............ 16,160,076 201,931 (G) Stephen Stoneburn............... 16,158,803 203,204 (H) John R. Strangfeld, Jr.......... 16,160,076 201,931 (I) Clay T. Whitehead............... 16,140,906 221,101 With respect to all Funds of Prudential Diversified Funds: Votes for Votes against Abstentions ----------- ------------- -------------- (2) PricewaterhouseCoopers LLP............ 16,014,097 55,890 292,020 (3) Approval of certain changes to the Moderate Conservative Growth Fund's fundamental investment restrictions regarding (A) Diversification................. 3,405,197 31,552 167,545 (B) Engaging in margin transactions.................... 3,407,251 19,144 177,899 (C) Issuing senior securities, borrowing and pledging assets... 3,391,626 38,597 174,071 (D) Investing in real estate........ 3,426,117 31,053 147,124 (E) Making loans.................... 3,405,754 41,410 157,130 (F) Concentration................... 3,388,465 22,710 193,119 (G) Selling securities short........ 3,338,609 81,319 184,366 (H) Investing for the purpose of exercising control.............. 3,381,849 55,977 166,468
- -------------------------------------------------------------------------------- 31 Prudential Mutual Fund Family - ------------------------------------------------------------------------------- Prudential offers a broad range of mutual funds designed to meet your individual needs. For information about these funds, contact your financial adviser or call us at (800) 225-1852. Read the prospectus carefully before you invest or send money. STOCK FUNDS Prudential Emerging Growth Fund, Inc. Prudential Equity Fund, Inc. Prudential Equity Income Fund Prudential Index Series Fund Prudential Small-Cap Index Fund Prudential Stock Index Fund The Prudential Investment Portfolios, Inc. Prudential Jennison Growth Fund Prudential Jennison Growth & Income Fund Prudential Mid-Cap Value Fund Prudential Real Estate Securities Fund Prudential Sector Funds, Inc. Prudential Financial Services Fund Prudential Health Sciences Fund Prudential Technology Fund Prudential Utility Fund Prudential Small-Cap Quantum Fund, Inc. Prudential Small Company Value Fund, Inc. Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund Prudential 20/20 Focus Fund Nicholas-Applegate Fund, Inc. Nicholas-Applegate Growth Equity Fund Target Funds Large Capitalization Growth Fund Large Capitalization Value Fund Small Capitalization Growth Fund Small Capitalization Value Fund Asset Allocation/Balanced Funds Prudential Balanced Fund Prudential Diversified Funds Conservative Growth Fund Moderate Growth Fund High Growth Fund The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund GLOBAL FUNDS Global Stock Funds Prudential Developing Markets Fund Prudential Developing Markets Equity Fund Prudential Latin America Equity Fund Prudential Europe Growth Fund, Inc. Prudential Global Genesis Fund, Inc. Prudential Index Series Fund Prudential Europe Index Fund Prudential Pacific Index Fund Prudential Natural Resources Fund, Inc. Prudential Pacific Growth Fund, Inc. Prudential World Fund, Inc. Prudential Global Growth Fund Prudential International Value Fund Prudential Jennison International Growth Fund Global Utility Fund, Inc. Target Funds International Equity Fund Global Bond Funds Prudential Global Total Return Fund, Inc. Prudential International Bond Fund, Inc. BOND FUNDS Taxable Bond Funds Prudential Diversified Bond Fund, Inc. Prudential Government Income Fund, Inc. Prudential Government Securities Trust Short-Intermediate Term Series Prudential High Yield Fund, Inc. Prudential High Yield Total Return Fund, Inc. Prudential Index Series Fund Prudential Bond Market Index Fund Prudential Structured Maturity Fund, Inc. Income Portfolio Target Funds Total Return Bond Fund Tax-Exempt Bond Funds Prudential California Municipal Fund California Series California Income Series Prudential Municipal Bond Fund High Income Series Insured Series Prudential Municipal Series Fund Florida Series Massachusetts Series New Jersey Series New York Series North Carolina Series Ohio Series Pennsylvania Series Prudential National Municipals Fund, Inc. MONEY MARKET FUNDS Taxable Money Market Funds Cash Accumulation Trust Liquid Assets Fund National Money Market Fund Prudential Government Securities Trust Money Market Series U.S. Treasury Money Market Series Prudential Special Money Market Fund, Inc. Money Market Series Prudential MoneyMart Assets, Inc. Tax-Free Money Market Funds Prudential Tax-Free Money Fund, Inc. Prudential California Municipal Fund California Money Market Series Prudential Municipal Series Fund Connecticut Money Market Series Massachusetts Money Market Series New Jersey Money Market Series New York Money Market Series COMMAND Funds COMMAND Money Fund COMMAND Government Fund COMMAND Tax-Free Fund Institutional Money Market Funds Prudential Institutional Liquidity Portfolio, Inc. Institutional Money Market Series Prudential Mutual Funds Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 (800) 225-1852 - --------------------------------------- visit our website at www.prudential.com - --------------------------------------- Fund Symbols NASDAQ CUSIP Class A -- 74432F109 Class B -- 74432F208 Class C -- 74432F307 Class Z PDCZX 74432F406 Trustees Eugene C. Dorsey Robert F. Gunia Robert E. LaBlanc Douglas H. McCorkindale Thomas T. Mooney David R. Odenath, Jr. Stephen Stoneburn John R. Strangfeld Clay T. Whitehead Officers John R. Strangfeld, President Robert F. Gunia, Vice President David R. Odenath, Jr., Vice President Grace C. Torres, Treasurer David F. Connor, Secretary William V. Healey, Assistant Secretary Stephen M. Ungerman, Assistant Treasurer Manager Prudential Investments Fund Management LLC Gateway Center Three, 100 Mulberry Street Newark, NJ 07102-4077 Investment Sub-Advisers The Prudential Investment Corporation Prudential Plaza, Newark, NJ 07102-3777 Jennison Associates LLC 466 Lexington Avenue, New York, NY 10017 Franklin Advisers, Inc. 777 Mariners Island Blvd., San Mateo, CA 94404 The Dreyfus Corporation 200 Park Avenue, New York, NY 10166 Pacific Investment Management Company 840 Newport Center Dr., Newport Beach, CA 92660 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 Kirkpatrick & Lockhart LLP 1800 Massachusetts Avenue, N.W. Washington, DC 20036 The views expressed in this report and information about the Fund's portfolio holdings are for the period covered by this report and are subject to change thereafter. The accompanying financial statements as of January 31, 2000, 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. (LOGO) Printed on Recycled Paper (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 MF186E6 74432F109 74432F208 74432F307 74432F406 (LOGO) Printed on Recycled Paper (ICON) Semi Annual Report January 31, 2000 Prudential Diversified High Growth Fund (LOGO) A Message From the Fund's President March 16, 2000 - ------------------------------------------------------------------------------- (PHOTO) Dear Shareholder, The six months ended January 31, 2000, were generally very difficult for any investment securities except technology and biotechnology stocks, yet Prudential Diversified High Growth Fund's Class A shares returned 12.19%. They beat the 9.37% Lipper Multi-Cap Core Fund Average primarily because of their growth stocks and some value technology investments. Including sales charges, the Fund's Class A shares returned 6.58%. Diversification can dilute the impact that the occasional extreme market movement can have on your portfolio. Over this reporting period, many economic sectors of the S&P 500 Index (primarily value sectors) faced falling average prices, while technology stocks in that Index averaged almost 10 times the return of the second-highest performing sector. The result was the largest price gap in the past 30 years between the most expensive fifth of the Index's stocks and the others. Among small caps, Russell 2000 technology stocks rose 74%, while most other sectors declined. The diversification of Prudential Diversified High Growth Fund allowed you to benefit from the large, but narrow, technology gains without being wholly exposed to this volatile sector. Our reporting period included the falling markets in January 2000 as well as the exuberant technology stock surge at the end of 1999. In an uncertain environment, diversification is particularly important. Prudential Diversified Funds' one-purchase selection makes it easy. Yours sincerely, John R. Strangfeld President Prudential Diversified Funds Investment Advisers' Report - ------------------------------------------------------------------------------- Investment Advisers Prudential Investments Fund - - John Van Belle, Ph.D - - Stacie Mintz Sub-Advisers (PRUDENTIAL INVESTMENTS LOGO) (LAZARD LOGO) (FRANKLIN TEMPLETON LOGO) (JENNISON ASSOCIATES LOGO) (DREYFUS LOGO) (PIMCO LOGO) Investment Goals and Style The Fund seeks to provide long-term capital appreciation. It invests in a diversified portfolio of stocks. There can be no assurance that the Fund will achieve its investment objective. The investment context For five of the six months that made up our reporting period, the economy was beset by uncertainties about how information systems would behave during the changeover to the year 2000. Many businesses and homeowners stocked up on vital supplies, while the U.S. Federal Reserve allowed the money supply to rise. However, this drove the U.S. economy to a pace widely believed to be unsustainable. The S&P 500 returned 5.6% over this period, but almost all of this gain was contributed by technology stocks. Stocks of basic materials companies, consumer staples, financials, energy firms, utilities, and even communications services declined, while S&P 500 technology stocks rose about 30%. The extreme narrowness of this market was disconcerting to investment professionals because it was clearly disproportionate to differences in earnings potential. Moreover, volatility in the market--the ups and downs of individual stock prices--has been increasing for some time and is unusually high. This increases the uncertainty about whether most investors will continue with their current enthusiasm for technology or search out the less expensive stocks on the market. Prudential Diversified High Growth Fund, with its allocation to both growth and value stock investment styles, is wholly exposed to neither alternative. Internationally, developed country markets performed somewhat better than the large-cap U.S. market average. However, the preference for technology stocks is becoming widespread. The Morgan Stanley Capital International (MSCI) World Information Technology Index rose 42%, almost five times the gain of the overall MSCI World Index. Our performance Prudential Diversified High Growth Fund benefited from the 40% of its assets allocated to growth-style investing and from the strong performance of its growth managers. More than a third of its large-cap growth portfolio was invested in technology stocks on January 31, including the seven largest contributors to the period's large-cap growth return. These included Cisco Systems, Nokia, and JDS Uniphase. However, the growth holdings also had above-benchmark returns from the Fund's focuses on the consumer staples (such as Home Depot), healthcare, and intermediate goods and services (business-to- business commerce) sectors. The strength of these holdings more than offset the weakness of the Fund's large-cap value stocks. Although the value portion of the portfolio benefited from some technology stocks pur- chased at bargain prices--including National Semiconductor, Seagate Technology, and Hitachi--the gains of these holdings were outweighed by the poor performance of the Fund's focuses in hospital management, tobacco, forest products, and insurance. The value portion of the portfolio lost ground. Among small-cap stocks, the very strong gains of our growth holdings again compensated for the poor performance of the value stocks. Our growth holdings had a substantial focus in technology, which benefited as technology investors looked for better prices among small-cap stocks. Small-cap technology stocks rose very sharply over our reporting period. The interest in smaller companies did not extend to value stocks, however. They fell in value over our reporting period. Our small-cap value holdings fared particularly poorly because of an emphasis on financial stocks, whose earnings prospects are hurt by rising interest rates. The Federal Reserve raised short-term interest rates four times between June 30, 1999, and February 2, 2000. Although our international holdings made a significant positive contribution to the Fund's return, they trailed their benchmark index. The movement toward growth stocks--and technology in particular--was global, whereas our holdings are managed in a value style. They were focused on companies with strong global brands and excellent long-term earnings prospects. However, the prices of many of these companies are now at historic lows in comparison to their earnings and represent exceptional value. Historically, although not indicative of future performance, when prices of the most and least expensive stocks have diverged this widely, they have returned toward normal relationships either by a decline in the high-priced stocks or a gain in the inexpensive ones. In either case, we believe that the relative performance of our international holdings should benefit. Cumulative Total Returns1 As of 1/31/00
Six One Since Months Year Inception2 Class A 12.19% 18.24% 29.24% Class B 11.70 17.43 28.12 Class C 11.70 17.43 28.12 Class Z 12.16 18.51 29.65 Lipper Multi-Cap Core Fund Avg.3 9.37 13.44 23.39
Average Annual Total Returns1 As of 1/31/00
One Since Year Inception2 Class A 12.33% 18.62% Class B 12.43 19.69 Class C 15.26 21.07 Class Z 18.51 24.12
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 LLC 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 charge of 5% for Class A shares. Class B shares are subject to a declining contingent deferred sales charge (CDSC) of 5%, 4%, 3%, 2%, 1%, and 1% for six years. Class 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 charge of 1% and a CDSC of 1% for 18 months. Class Z shares are not subject to a sales charge or distribution and service (12b-1) fees. 2 Inception date: Class A, B, C, and Z, 11/18/98. 3 Lipper average returns are for all funds in each share class for the six-month, one-year, and since inception periods in the Multi-Cap Core Fund category. The Lipper average is unmanaged. Multi-Cap Core funds, by portfolio practice, invest in a variety of market capitalization ranges, without concentrating 75% of their equity assets in any one market capitalization range over an extended period of time. Multi-Cap Core funds will generally have between 25% and 75% of their assets invested in companies with market capitalizations (on a three-year weighted basis) above 300% of the dollar-weighted median market capitalization of the S&P(R) Mid-Cap 400 Index. Multi-Cap Core funds have wide latitude in the companies in which they invest. S&P(R) is a registered trademark of The McGraw-Hill Companies, Inc. 1 What Is Diversification? - ------------------------------------------------------------------------------- Diversification--spreading your investments over many different securities--is a basic principle of investing. It helps to reduce the overall risk of your portfolio. Moreover, when we rebalance our portfolio to restore the original weighting of different asset classes, the discipline forces us to sell high and buy low. Over time, this may improve your return. How diversification works Mutual funds not only provide professional money management; they also allow a relatively small investment to be spread over many different securities. When you own a large number of different securities, the impact of any one on your return is reduced. In addition, if you diversify your investments among asset classes and investment styles--between stocks and bonds, value and growth stocks, and investment-grade and high-yield bonds--it is less likely that all the securities you own will move in the same direction at one time. Prudential Diversified Funds provide more of this buffering than a fund investing in only one asset class. We believe this will result in more consistent returns over time. Rebalancing--Diversified High Growth Fund has a target allocation for each asset class. As some perform better than others, the portfolio will drift from this original target: the securities that rise most will become a larger proportion of the invested assets. We direct new investments to the asset classes that have fallen below their target ratio and, when necessary, sell certain securities in appreciated asset classes to maintain the balance. This not only keeps your risk exposure from changing too much, but it may reduce the average cost of our investments and increase our average selling price over time. Although an individual investor can diversify and rebalance, it would require a large investment to own the range of asset classes represented in Prudential Diversified High Growth Fund. Moreover, calculating the amounts to allocate to each kind of security in a rebalancing would be difficult. Prudential Diversified Funds do it all for you. Glossary of Terms Asset classes are classifications of investments. The most basic classification of securities is among stocks, bonds, and money market investments. Stocks are shares of ownership in a firm. Owners share in the profits, after debts are paid, and share in the firm's appreciation in value. Generally, the prices of stocks vary with investors' estimates of a firm's earnings prospects, including the impact of broader economic conditions. Standard & Poor's 500 Composite Stock Price Index (S&P 500) is an unmanaged index of 500 stocks of large U.S. companies. The Morgan Stanley Capital International (MSCI) World Index is a weighted, unmanaged index of performance of approximately 1,500 securities listed on the stock exchanges of the United States, Europe, Canada, Australasia, and the Far East. The MSCI World Information Technology Index invests across 22 countries in companies that are represented in the Software and Services and the Technology Hardware and Equipment industries. 2 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 (Unaudited) PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Shares Description Value (Note 1) - ------------------------------------------------------------ LONG-TERM INVESTMENTS--91.6% COMMON STOCKS - ------------------------------------------------------------ Advertising--0.5% 6,700 Omnicom Group Inc. $ 627,706 2,700 True North Communications, Inc. 112,219 ------------ 739,925 - ------------------------------------------------------------ Aerospace/Defense--0.7% 6,100 Boeing Co. 270,306 55,700 British Aerospace PLC (United Kingdom)(a) 298,182 10,450 Gencorp Inc. 84,906 20,500 Loral Space & Communications, Inc. 402,313 ------------ 1,055,707 - ------------------------------------------------------------ Airlines--0.3% 4,200 Alaska Air Group, Inc.(a) 133,875 15,000 Deutsche Lufthansa AG (Germany)(a) 308,087 ------------ 441,962 - ------------------------------------------------------------ Aluminum--0.7% 12,500 Alcoa Inc. 871,094 4,475 Reliance Steel & Aluminum Co. 92,856 ------------ 963,950 - ------------------------------------------------------------ Apparel--0.1% 6,800 Kellwood Co. 119,850 - ------------------------------------------------------------ Appliances--0.2% 16,400 Electrolux AB, Ser. B (Sweden) 346,733 - ------------------------------------------------------------ Audio/Video--0.3% 1,750 Harman International Industries, Inc. 102,156 5,000 Gemstar International Group Ltd.(a) 331,875 ------------ 434,031 - ------------------------------------------------------------ Auto-Rental--0.1% 5,200 Rent-Way, Inc.(a) $ 93,600 - ------------------------------------------------------------ Auto & Truck--1.0% 4,800 Arvin Industries, Inc. 111,300 4,600 Borg-Warner Automotive, Inc. 154,675 4,760 DaimlerChrysler AG (Germany) 306,645 1,947 Delphi Automotive Systems Corp. 33,707 3,900 General Motors Corp. 313,706 8,400 GKN PLC (United Kingdom) 105,368 112,000 Nissan Motor Co., Ltd. (Japan)(a) 532,439 ------------ 1,557,840 - ------------------------------------------------------------ Banking--4.9% 6,950 BancorpSouth, Inc. 106,856 16,500 Bank of New York Co., Inc. 670,312 1,300 Bank United Corp. (Class 'A' Stock) 33,719 4,600 Banknorth Group, Inc. 121,325 3,400 Banque Nationale de Paris (France) 268,018 3,350 BSB Bancorp, Inc. 64,278 6,100 Chase Manhattan Corp. 490,669 2,800 City National Corp. 97,650 2,850 CORUS BankShares, Inc. 70,716 12,200 Cullen/Frost Bankers, Inc. 303,475 7,140 CVB Financial Corp. 167,790 400 First Citizens BancShares, Inc. 24,350 27,000 Fuji Bank Ltd. (Japan) 268,289 12,000 Golden State Bancorp, Inc.(a) 169,500 4,050 Harbor Florida Bancshares, Inc. 45,562 33,600 HSBC Holdings PLC (United Kingdom) 398,381 4,100 Hypo Vereinsbank (Germany) 242,647 31,000 Industrial Bank of Japan, Ltd. (Japan) 298,499 7,500 ING Groep NV (Netherlands) 375,468 6,900 MAF Bancorp, Inc. 130,669 19,300 Merita PLC (Finland) 106,919 9,800 National Westminster Bank PLC (United Kingdom) 187,962
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 3 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 (Unaudited) PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Shares Description Value (Note 1) - ------------------------------------------------------------ Banking (cont'd.) 6,350 North Fork Bancorporation, Inc. $ 107,950 36,850 Overseas-Chinese Banking Corp., Ltd. (Singapore) 313,939 9,100 Peoples Heritage Financial Group, Inc. 133,656 2,900 Queens County Bancorp Inc. 66,156 23,000 Sakura Bank, Ltd. (Japan) 145,787 20,100 Sao Paolo Imi SpA (Italy) 238,303 7,600 Silicon Valley Bancshares(a) 423,700 65,105 Sumitomo Trust & Banking Co., Ltd. (Japan) 397,912 20,000 Svenska Handelsbanken, Ser. A (Sweden) 232,283 42,904 United Overseas Bank, Ltd. (Singapore) 315,100 3,750 Washington Federal, Inc. 62,812 3,250 WestAmerica Bancorporation 82,062 ------------ 7,162,714 - ------------------------------------------------------------ Building & Construction--1.1% 6,300 American Standard Companies Inc.(a) 236,250 4,000 Building One Services Corp.(a) 39,750 7,600 Centex Corp. 167,200 16,900 D.R. Horton, Inc. 195,406 5,900 M.D.C. Holdings, Inc. 83,338 15,550 Pulte Corp. 271,153 2,550 Southdown, Inc. 127,659 2,300 Texas Industries, Inc. 84,094 7,450 Thomas Industries, Inc. 138,756 4,700 Toll Brothers Inc.(a) 79,900 4,050 U.S. Home Corp.(a) 96,947 7,800 Webb (Del E.) Corp. 142,350 ------------ 1,662,803 - ------------------------------------------------------------ Casino Services--0.0% 1,200 Anchor Gaming(a) 53,550 - ------------------------------------------------------------ Chemicals--1.0% 6,100 Akzo Nobel NV (Netherlands) 251,761 4,175 Cytec Industries Inc.(a) 105,419 5,900 Eastman Chemical Co. 235,263 2,550 Geon Co. 74,109 7,550 Grace (W.R.) & Co.(a) $ 89,184 1,250 H.B. Fuller Co. 81,250 30,500 Imperial Chemical Industries PLC (United Kingdom) 243,373 4,150 Lubrizol Corp. 122,944 10,450 Omnova Solutions Inc. 78,375 4,550 Spartech Corp. 116,594 ------------ 1,398,272 - ------------------------------------------------------------ Computer Services--4.4% 12,700 Affiliated Computer Services, Inc.(a) 504,825 3,100 Ancor Communications, Inc.(a) 116,637 500 AnswerThink Consulting Group, Inc.(a) 16,281 4,750 Brooktrout Inc.(a) 127,359 17,500 Catapult Communications Corp.(a) 199,062 3,800 CIBER, Inc.(a) 85,738 14,500 Cisco Systems, Inc.(a) 1,587,750 3,300 Comverse Technology, Inc.(a) 473,137 5,400 Equant NV (Netherlands)(a) 558,562 2,000 Exodus Communications, Inc.(a) 229,750 600 Getronics NV (Netherlands)(a) 38,566 2,400 Juniper Networks, Inc.(a) 324,750 6,200 Luminant Worldwide Corp.(a) 194,525 16,200 NetSolve, Inc.(a) 592,312 2,625 RadiSys Corp.(a) 106,969 3,400 RSA Security, Inc.(a) 184,875 500 Sapient Corp.(a) 44,188 8,500 Sun Microsystems, Inc.(a) 667,781 16,000 Whittman-Hart, Inc.(a) 568,000 ------------ 6,621,067 - ------------------------------------------------------------ Computers--3.5% 6,000 Citrix Systems, Inc.(a) 823,500 22,500 Compaq Computer Corp. 615,938 11,400 Dell Computer Corp.(a) 438,188 7,000 EMC Corp.(a) 745,500 14,000 Hewlett-Packard Co. 1,515,500 3,900 International Business Machines Corp. 437,531 14,400 Seagate Technology, Inc.(a) 576,900 ------------ 5,153,057
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 4 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 (Unaudited) PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Shares Description Value (Note 1) - ------------------------------------------------------------ Consumer Products--0.5% 4,375 Fossil Inc.(a) $ 85,039 300 Hitachi Ltd. ADR (Japan) 42,900 1,600 Libbey, Inc. 41,200 11,600 Tandy Corp. 566,950 3,900 Tupperware Corp. 63,619 ------------ 799,708 - ------------------------------------------------------------ Cosmetics/Toiletries--0.5% 6,600 Estee Lauder Co., Inc. (Class 'A' Stock) 337,425 13,000 Kao Corp. (Japan) 355,052 ------------ 692,477 - ------------------------------------------------------------ Diversified Manufacturing--2.0% 2,100 Corning, Inc. 323,925 4,100 CUNO, Inc.(a) 95,838 7,600 General Electric Co. 1,013,650 53,100 Invensys PLC (United Kingdom) 258,265 5,250 Siemens AG (Germany) 708,564 9,500 Thyssen Krupp AG (Germany)(a) 239,547 6,900 Veba AG (Germany) 286,854 ------------ 2,926,643 - ------------------------------------------------------------ Diversified Operations--0.7% 44,200 Granada Group PLC (United Kingdom) 440,686 9,105 Sumitomo Electric Industries, Ltd. (Japan) 120,687 5,198 Vivendi (France) 529,526 ------------ 1,090,899 - ------------------------------------------------------------ Electronics--1.6% 900 Credence Systems Corp.(a) 76,388 2,000 Hadco Corp.(a) 79,500 2,950 Koninklijke (Royal) Phillips Electronics NV (Netherlands) 430,745 2,150 L-3 Communications Holdings, Inc.(a) 86,537 4,500 Polycom, Inc.(a) 271,687 3,000 Sony Corp. (Japan) 753,915 5,100 TDK Corp. ADR (Japan) $ 545,700 2,150 Tecumseh Products Co.(a) 98,094 ------------ 2,342,566 - ------------------------------------------------------------ Electronic Components--5.4% 4,058 ABB Ltd. (Switzerland) 446,714 1,200 Applied Micro Circuits Corp.(a) 177,300 15,100 Arrow Electronics, Inc.(a) 317,100 3,100 ATMI, Inc.(a) 107,725 5,500 Avnet, Inc. 295,281 4,450 Belden, Inc. 95,953 2,250 CTS Corp. 157,922 4,000 Cypress Semiconductor Corp.(a) 134,000 2,400 Electroglas, Inc.(a) 70,650 7,800 Flextronics International Ltd. (Singapore)(a) 387,563 16,500 Gentex Corp.(a) 495,000 2,300 Idacorp Inc. 77,194 3,100 KEMET Corp.(a) 147,444 12,000 Novellus Systems, Inc.(a) 589,500 5,900 Optical Coating Laboratory, Inc. 2,241,262 4,000 Pioneer-Standard Electronics, Inc. 54,563 4,600 PMC-Sierra, Inc.(a) 830,300 2,950 Rogers Corp.(a) 112,100 2,950 Semtech Corp.(a) 177,000 8,600 Texas Instruments, Inc. 927,725 2,800 Veeco Instruments Inc.(a) 153,650 ------------ 7,995,946 - ------------------------------------------------------------ Fertilizers--0.1% 2,400 Potash Corp. of Saskatchewan Inc. 125,550 - ------------------------------------------------------------ Fiber Optics--0.7% 800 C-COR.net Corp.(a) 17,100 2,800 JDS Uniphase Corp.(a) 571,025 5,900 Metromedia Fiber Network, Inc.(a) 399,356 ------------ 987,481 - ------------------------------------------------------------ Financial Services--4.8% 800 Acom Co., Ltd. (Japan)(a) 93,289 2,100 Allied Capital Corp. 38,850 2,700 American Express Company 444,994
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 5 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 (Unaudited) PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Shares Description Value (Note 1) - ------------------------------------------------------------ Financial Services (cont'd.) 12,200 Bank of America Corp. $ 590,937 1,250 Blanch (E.W.) Holdings, Inc. 60,469 2,600 Chittenden Corp. 73,612 22,950 Citigroup Inc. 1,318,191 1,100 Dain Rauscher Corp. 55,413 7,500 Doral Financial Corp. 77,812 6,850 Downey Financial Corp. 131,862 4,550 Eaton Vance Corp. 186,266 8,600 Federated Investors Inc. 169,850 11,600 Financial Security Assurance Holdings Ltd. 640,175 29,400 Halifax Group PLC (United Kingdom)(a) 255,533 10,200 John Hancock Financial Services 177,862 1,600 Knight/Trimark Group, Inc.(a) 50,600 8,500 Labranche & Co., Inc.(a) 116,875 1,800 Merrill Lynch & Co., Inc. 156,150 5,000 Metris Companies Inc. 183,125 1,200 Morgan (J.P.) & Co., Inc. 147,375 12,000 Morgan Stanley Dean Witter Discover & Co. 795,000 1,300 Mortgage.com, Inc.(a) 7,069 3,000 Orix Corp. (Japan) 559,284 3,800 Promise Co., Ltd. (Japan) 261,764 3,913 Radian Group Inc. 157,743 5,200 Webster Financial Corp. 120,900 2,400 Whitney Holding Corp. 78,600 ------------ 6,949,600 - ------------------------------------------------------------ Food & Beverage--1.5% 1,350 Adolph Coors Co. 65,475 30,000 Asahi Breweries, Ltd. (Japan) 293,904 29,500 Cadbury Schweppes PLC (United Kingdom) 164,012 2,950 Corn Products International, Inc. 67,850 30,800 Diageo PLC (United Kingdom) 229,316 4,500 Flowers Industries, Inc. 43,875 6,900 Heineken NV (Netherlands) 355,137 3,200 J & J Snack Foods Corp.(a) 61,200 25,100 Nabisco Group Holding Corp. 216,487 3,500 Performance Food Group Co.(a) $ 80,719 6,450 Riviana Foods Inc. 105,619 15,800 Sara Lee Corp. 291,312 33,425 Unilever PLC (United Kingdom) 205,445 3,650 Universal Foods Corp. 67,069 ------------ 2,247,420 - ------------------------------------------------------------ Forestry & Paper--0.1% 7,500 Georgia-Pacific Corp. (Timber Group) 162,656 - ------------------------------------------------------------ Funeral Services--0.1% 19,900 Service Corp. International(a) 90,794 - ------------------------------------------------------------ Gas Distribution--0.4% 8,100 Energen Corp. 139,725 7,900 KeySpan Corp. 185,156 5,200 ONEOK, Inc. 135,850 3,500 WICOR, Inc. 103,469 ------------ 564,200 - ------------------------------------------------------------ Health Care--3.4% 5,850 Apria Healthcare Group, Inc.(a) 117,000 39,100 Columbia/HCA Healthcare Corp. 1,067,919 30,600 Foundation Health Systems, Inc. 313,650 3,400 Healthsouth Corp.(a) 183,700 1,163 LifePoint Hospitals, Inc.(a) 15,700 6,900 PacifiCare Health Systems, Inc.(a) 291,956 9,000 PAREXEL International Corp.(a) 119,250 46,100 Tenet Healthcare Corp.(a) 1,048,775 1,063 Triad Hospitals, Inc.(a) 18,204 2,950 Trigon Healthcare, Inc.(a) 89,791 12,500 United Healthcare Corp. 662,500 14,400 Wellpoint Health Networks Inc.(a) 979,200 ------------ 4,907,645 - ------------------------------------------------------------ Home Furnishings--0.2% 7,325 Ethan Allen Interiors, Inc. 183,125 5,250 Furniture Brands International, Inc.(a) 89,250 ------------ 272,375
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 6 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 (Unaudited) PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Shares Description Value (Note 1) - ------------------------------------------------------------ Hotels--0.2% 22,100 Hilton Hotels Corp. $ 186,469 39,400 MeriStar Hotels & Resorts, Inc.(a) 130,512 4,300 Park Place Entertainment Corp.(a) 45,150 ------------ 362,131 - ------------------------------------------------------------ Human Resources--0.3% 2,650 CDI Corp.(a) 61,778 4,300 Interim Services Inc.(a) 107,769 10,000 RemedyTemp, Inc.(a) 215,625 ------------ 385,172 - ------------------------------------------------------------ Instruments--0.4% 7,400 Mettler-Toledo International Inc.(a) 235,875 3,900 Waters Corp.(a) 288,112 ------------ 523,987 - ------------------------------------------------------------ Insurance--4.6% 1,241 Allianz AG (Germany) 404,309 3,900 American Financial Group Inc. 83,362 2,800 American General Corp. 172,025 9,800 American International Group, Inc. 1,020,425 2,800 Annuity And Life Re (Holdings), Ltd. 68,950 2,300 Arthur J. Gallagher & Co. 123,625 2,900 AXA (France) 362,671 14,700 AXA Financial, Inc. 478,669 14,200 Chubb Corp. 798,750 2,400 Commerce Group, Inc. 62,100 3,340 Fidelity National Financial, Inc. 41,750 3,100 First American Financial Corp. 36,813 3,500 Foremost Corporation of America 99,969 3,003 Medical Assurance, Inc.(a) 65,691 3,200 Milacron Inc. 38,600 4,050 MONY Group Inc. 109,350 4,000 Mutual Risk Management, Ltd. 65,500 19,400 Old Republic International Corp. 235,225 2,800 PartnerRe Ltd. 81,200 7,650 Presidential Life Corp. 126,225 4,400 Professionals Group, Inc.(a) 99,000 2,950 Protective Life Corp. 82,047 16,700 Prudential Corp. PLC (United Kingdom) 309,491 1,500 Quotesmith.com, Inc.(a) 15,281 13,700 Reinsurance Group of America, Inc. 303,112 40,617 Royal & Sun Alliance Insurance Group (United Kingdom) $ 265,592 19,200 SAFECO Corp. 470,400 6,100 St. Paul Companies, Inc. 184,144 4,400 Terex Corp. 100,100 4,200 Tokio Marine & Fire Insurance Co. Ltd, ADR (Japan) 220,762 605 Zurich Versicherungs-Gesellschaft (Switzerland) 279,902 ------------ 6,805,040 - ------------------------------------------------------------ Leisure--0.1% 2,400 Gaylord Entertainment Co.(a) 66,900 3,400 SFX Entertainment, Inc.(a) 110,712 ------------ 177,612 - ------------------------------------------------------------ Machinery--0.8% 1,600 Helix Technology Corp. 77,800 6,550 IDEX Corp. 176,031 2,850 Imation Corp.(a) 86,213 5,800 JLG Industries, Inc. 48,575 3,250 Kulicke & Soffa Industries, Inc.(a) 170,016 12,800 Lincoln Electric Holdings Inc. 250,400 3,250 Manitowoc Co., Inc. 88,766 1,200 Mannesmann AG, ADR (Germany) 325,803 3,150 Trinity Industrial Corp. (Japan) 73,631 ------------ 1,297,235 - ------------------------------------------------------------ Manufacturing--0.5% 1,900 AptarGroup, Inc. 41,800 1,750 Compagnie de Saint Gobain (France) 246,188 4,100 Compagnie Generale des Etablissements Michelin, Ser. B (France) 143,639 1,500 Nintendo Co., Ltd. (Japan) 276,287 ------------ 707,914 - ------------------------------------------------------------ Media--1.9% 18,400 CBS Corp.(a) 1,072,950 10,000 Clear Channel Communications, Inc.(a) 863,750 2,200 Cumulus Media Inc.(a) 85,938 1,450 Entercom Communications Corp.(a) 77,031
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 7 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 (Unaudited) PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Shares Description Value (Note 1) - ------------------------------------------------------------ Media (cont'd.) 2,200 Time Warner, Inc. $ 175,863 4,500 Univision Communications, Inc.(a) 482,062 100 Wink Communications, Inc.(a) 5,825 ------------ 2,763,419 - ------------------------------------------------------------ Medical Products & Services--2.7% 9,900 Amgen Inc.(a) 630,506 9,569 AstraZeneca Group PLC (United Kingdom)(a) 353,899 6,500 Bristol-Myers Squibb Co. 429,000 5,450 Cell Genesys, Inc.(a) 80,387 2,950 Datascope Corp.(a) 106,569 4,000 Dura Pharmaceuticals, Inc.(a) 62,000 2,900 Genetech Inc.(a) 407,450 6,900 Glaxo Holdings PLC, ADR (United Kingdom) 363,975 2,550 Gliatech Inc.(a) 38,409 10,000 Inhale Therapeutic Systems, Inc.(a) 584,375 400 P E Corp-Celera Genomics(a) 80,575 2,250 Patterson Dental Co.(a) 98,016 2,300 PerkinElmer, Inc. 115,144 1,750 ResMed, Inc.(a) 75,141 11,000 Sankyo Co., Ltd. (Japan)(a) 257,364 15,100 Smithkline Beecham PLC (United Kingdom) 180,857 1,850 TLC Laser Eye Centers Inc.(a) 25,206 ------------ 3,888,873 - ------------------------------------------------------------ Metals--0.6% 41,100 Broken Hill Proprietary Co., Ltd. (Australia) 489,717 3,100 Cleveland-Cliffs Inc. 86,606 4,850 Commercial Metals Co. 154,291 2,850 Kaydon Corp. 77,128 2,150 Precision Castparts Corp. 55,094 ------------ 862,836 - ------------------------------------------------------------ Mining--0.5% 26,300 Freeport-McMoRan Copper & Gold, Inc.(a) 420,800 19,200 Newmont Mining Corp. 391,200 ------------ 812,000 - ------------------------------------------------------------ Office Equipment & Supplies--0.6% 2,550 Banta Corp. $ 48,450 16,000 Canon, Inc. (Japan) 654,735 3,500 Kimball International, Inc. (Class 'B' Stock) 53,594 18,100 Lanier Worldwide, Inc.(a) 63,350 4,800 Wallace Computer Services, Inc. 52,500 ------------ 872,629 - ------------------------------------------------------------ Oil Field Machinery & Equipment--0.0% 6,050 Varco International, Inc. 61,256 - ------------------------------------------------------------ Oil & Gas--2.7% 2,200 Amerada Hess Corp. 117,013 6,900 Atlantic Richfield Co. 531,300 52,400 ENI SpA (Italy) 246,058 10,850 Helmerich & Payne, Inc. 254,975 3,977 Kerr-McGee Corp. 220,226 14,800 Marine Drilling Companies, Inc.(a) 284,900 17,200 Newfield Exploration Co.(a) 473,000 9,700 Nuevo Energy Co.(a) 179,450 8,100 Occidental Petroleum Corp. 160,987 1,900 SEACOR SMIT Inc. 87,638 11,433 Total Fina SA ADR (France) 711,704 4,520 Total Fina SA (France) 557,811 2,400 Ultramar Diamond Shamrock Corp. 52,500 2,800 Valero Energy Corp. 63,525 ------------ 3,941,087 - ------------------------------------------------------------ Oil & Gas Exploration/Production--0.6% 2,650 Atwood Oceanics, Inc.(a) 108,153 4,450 Berry Petroleum Company 64,803 49,500 BP Amoco PLC (United Kingdom) 436,645 4,800 Equitable Resources, Inc. 165,600 4,150 Mitchell Energy & Development Corp.(a) 93,375 ------------ 868,576 - ------------------------------------------------------------ Paper & Related Products--3.3% 3,750 Ball Corp. 136,406 2,650 Chesapeake Corp. 69,066 5,200 Fort James Corp. 139,100
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 8 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 (Unaudited) PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Shares Description Value (Note 1) - ------------------------------------------------------------ Paper & Related Products (cont'd.) 17,100 Georgia-Pacific Group $ 696,825 5,200 Glatfelter (P.H.) Co. 64,025 12,200 International Paper Co. 581,025 14,800 Mead Corp. 551,300 10,000 Nippon Paper Industries Co., Ltd. (Japan) 68,978 5,200 Pope & Talbot, Inc. 83,200 3,750 Potlatch Corp. 150,938 5,500 Rayonier Inc. 236,500 7,600 Temple-Inland Inc. 425,125 8,200 UPM-Kymmene Oyj (Finland) 304,701 9,600 Weyerhaeuser Co. 550,800 15,600 Willamette Industries, Inc. 639,600 ------------ 4,697,589 - ------------------------------------------------------------ Pharmaceuticals--2.4% 1,850 Alpharma Inc. 62,900 11,700 American Home Products Corp. 550,631 12,051 Aventis SA (France) 632,531 4,450 Bindley Western Industries Inc. 75,928 2,025 King Pharmaceuticals, Inc.(a) 119,475 5,200 Merck & Co., Inc. 409,825 5,650 Ocular Sciences, Inc.(a) 114,413 32 Roche Holdings AG (Switzerland) 343,578 12,200 Warner-Lambert Co. 1,158,237 ------------ 3,467,518 - ------------------------------------------------------------ Photography--0.8% 18,600 Eastman Kodak Co. 1,150,875 - ------------------------------------------------------------ Publishing--0.3% 41,600 Reed International PLC (United Kingdom) 356,858 - ------------------------------------------------------------ Real Estate-Development--0.1% 7,650 Catellus Development Corp.(a) 95,625 - ------------------------------------------------------------ Real Estate Investment Trust--1.1% 700 Alexandria Real Estate Equities, Inc. 20,650 5,100 Bradley Real Estate, Inc. 86,700 4,200 BRE Properties, Inc. 92,400 5,000 Cabot Industrial Trust 97,500 2,700 Developers Diversified Reality Corp. $ 35,100 7,950 Franchise Finance Corp. of America 190,800 3,500 Gables Residential Trust 75,906 1,500 General Growth Properties, Inc. 42,750 10,800 Glenborough Realty Trust Inc. 147,150 3,400 Health Care Property Investors Inc. 86,913 4,200 Health Care REIT, Inc. 67,725 3,750 Hospitality Properties Trust 73,359 16,400 MeriStar Hospitality Corp. 267,525 7,350 Nationwide Health Properties, Inc. 99,225 7,900 Reckson Associates Reality Corp. 156,025 1,100 SL Green Reality Corp. 23,925 ------------ 1,563,653 - ------------------------------------------------------------ Restaurants--1.0% 11,700 CKE Restaurants, Inc. 75,319 48,300 Darden Restaurants, Inc. 766,762 11,400 McDonald's Corp. 423,938 23,150 Ryan's Family Steak Houses, Inc.(a) 206,903 ------------ 1,472,922 - ------------------------------------------------------------ Retail--4.3% 3,600 American Eagle Outfitters Inc.(a) 130,725 3,100 BJ's Wholesale Club, Inc.(a) 108,500 3,500 Buckle, Inc. 54,906 600 Chemdex Corp.(a) 58,500 10,500 Consolidated Stores Corp.(a) 149,625 2,700 Department 56, Inc. 51,806 22,100 Dillard's, Inc. (Class 'A' Stock) 424,044 15,325 GAP, Inc. 684,836 36,100 Great Universal Stores PLC (United Kingdom) 231,966 22,100 Home Depot, Inc. 1,251,412 32,300 IKON Office Solutions Inc. 260,419 2,700 Jack in the Box Inc.(a) 55,519 45,300 Kmart Corp.(a) 379,387 8,100 Kohl's Corp.(a) 568,012 6,600 Micro Warehouse Inc.(a) 125,400 6,700 Pep Boys--Manny, Moe & Jack 48,575 11,650 Ross Stores, Inc. 148,538 5,200 Sears, Roebuck & Co. 160,875 40,400 Tesco PLC (United Kingdom)(a) 106,912 5,400 Tiffany & Co. 399,600 15,000 Toys 'R' Us, Inc.(a) 154,687
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 9 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 (Unaudited) PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Shares Description Value (Note 1) - ------------------------------------------------------------ Retail (cont'd.) 9,800 Wal-Mart Stores, Inc. $ 536,550 3,800 Zale Corp.(a) 135,850 ------------ 6,226,644 - ------------------------------------------------------------ Semiconductors--1.9% 4,000 Alpha Industries, Inc.(a) 335,000 5,400 Applied Materials, Inc.(a) 741,150 5,100 ESS Technology, Inc.(a) 82,875 5,900 Integrated Device Technology, Inc.(a) 168,150 11,400 Intel Corp. 1,127,887 5,200 KLA-Tencor Corp.(a) 304,850 ------------ 2,759,912 - ------------------------------------------------------------ Software--5.4% 5,000 Activision, Inc.(a) 78,125 200 Allaire Corp.(a) 25,000 100 Alteon Websystems, Inc.(a) 9,838 600 Ardent Software, Inc.(a) 25,800 6,500 America Online, Inc.(a) 370,094 3,250 Aspen Technology, Inc.(a) 117,813 4,900 AVT Corp.(a) 109,637 400 Bluestone Software, Inc.(a) 35,250 5,100 BroadVision, Inc.(a) 649,294 10,000 HNC Software Inc.(a) 901,875 5,900 I2 Technologies Inc.(a) 1,136,487 600 ITXC Corp.(a) 64,500 12,600 Intuit, Inc.(a) 759,937 4,600 Legato Systems, Inc.(a) 115,863 1,000 Liberate Technologies, Inc.(a) 78,813 15,700 Microsoft Corp.(a) 1,536,637 700 Mission Critical Software, Inc.(a) 40,250 900 NetIQ Corp.(a) 50,400 4,050 OneMain.com, Inc.(a) 49,612 4,100 Progress Software Corp.(a) 88,663 650 Proxicom, Inc.(a) 65,650 300 Software.com, Inc.(a) 20,363 4,000 Sybase, Inc.(a) 95,250 1,200 U.S. Interactive, Inc.(a) 62,400 9,000 VERITAS Software Corp.(a) 1,312,875 4,800 Verity, Inc.(a) 163,200 ------------ 7,963,626 - ------------------------------------------------------------ Steel - Producers--0.1% 4,250 AK Steel Holding Corp. $ 43,031 2,300 Carpenter Technology Corp. 55,200 ------------ 98,231 - ------------------------------------------------------------ Telecommunications--9.8% 100 AirGate PCS, Inc.(a) 6,113 3,500 Alcatel (France) 692,723 4,500 Allegiance Telecom, Inc.(a) 474,187 6,700 ALLTEL Corp. 447,225 24,200 AT&T Corp. 1,254,775 7,400 British Telecommunications PLC (United Kingdom) 143,877 1,400 Broadcom Corp. (Class 'B' Stock)(a) 405,037 4,700 Carrier Access Corp.(a) 206,800 4,134 Deutsche Telekom AG (Germany)(a) 278,350 18,100 Harris Corp.(a) 524,900 2,200 Intermedia Communications Inc.(a) 94,600 3,500 Level 3 Communications, Inc.(a) 412,781 7,400 Millicom International Cellular SA (Luxembourg)(a) 528,175 5,300 Motorola, Inc. 724,775 2,700 Nextel Communications, Inc.(a) 287,212 3,800 NEXTLINK Communications, Inc.(a) 320,625 28 Nippon Telegraph & Telephone Corp. (Japan) 422,819 7,100 Nokia Corp. ADR (Finland)(a) 1,299,300 6,000 NTL Inc.(a) 754,875 22 NTT Mobile Communications (Japan) 746,458 13,325 Pacific Gateway Exchange, Inc.(a) 261,503 1,100 Plantronics Inc. 78,788 40,900 Portugal Telecom SA (Portugal) 484,111 600 QUALCOM, Inc.(a) 76,200 23,500 Qwest Communications International, Inc.(a) 925,312 6,400 Tele Danmark A/S (Denmark) 453,259 33,215 Telefonica SA (Spain) 834,633 3,600 Tellabs, Inc.(a) 194,400 18,900 Vodafone Airtouch PLC, ADR (United Kingdom)(a) 1,058,400 ------------ 14,392,213
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 10 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 (Unaudited) PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Shares Description Value (Note 1) - ------------------------------------------------------------ Tobacco--0.9% 12,100 Loews Corp. $ 677,600 13,900 Philip Morris Co., Inc. 291,031 8,333 Reynolds (R.J.) Tobacco Holdings Inc. 143,223 6,450 Universal Corp. 131,822 ------------ 1,243,676 - ------------------------------------------------------------ Trucking & Shipping--0.8% 20,000 Air Express International Corp. 652,500 3,400 Alexander & Baldwin, Inc. 68,637 6,350 Roadway Express, Inc. 146,050 3,250 Sea Containers, Ltd. (Bermuda) 93,641 4,000 USFreightways Corp. 145,500 ------------ 1,106,328 - ------------------------------------------------------------ Utilities--1.8% 30,297 British Energy PLC (Class 'A' Stock) (United Kingdom) 137,304 3,100 California Water Service Group 82,538 1,750 Calpine Corp.(a) 127,969 3,050 Cleco Corp. 102,556 4,450 Conectiv Inc. 77,597 21,500 Endesa SA (Spain) 396,327 4,100 GPU, Inc. 118,900 3,450 NorthWestern Corp. 76,331 5,050 NSTAR 211,784 9,300 Public Service Company of New Mexico(a) 147,637 7,300 Reliant Energy, Inc. 166,531 1,750 RGS Energy Group Inc. 35,328 8,350 Southwestern Energy Co. 47,491 1,760 Suez Lyonnaise des Eaux (France) 251,864 7,600 Unicom Corp. 297,350 13,200 Washington Gas Light Co. 331,650 ------------ 2,609,157 - ------------------------------------------------------------ Waste Management--0.3% 12,000 Casella Waste Systems Inc.(a) $ 180,750 11,300 Waste Management, Inc. 197,750 ------------ 378,500 Total long-term investments (cost $112,754,223) 133,874,115 ------------ Principal Amount (000) SHORT-TERM INVESTMENTS--8.3% - ------------------------------------------------------------ REPURCHASE AGREEMENT Joint Repurchase Agreement Account, $ 12,176 5.71%, 2/1/00 (cost $12,176,000; Note 5) 12,176,000 ------------ Total Investments--99.9% (cost $124,930,223; Note 4) 146,050,115 Other assets in excess of liabilities--0.1% 89,611 ------------ Net Assets--100% $146,139,726 ------------ ------------
- --------------- (a) Non-income producing security. AB--Aktiebolag (Swedish Stock Company). ADR--American Depository Receipt. AG--Aktiengesellschaft (German Stock Company). A/S--Arsreqnskab (Damark Corporation). NV--Naamloze Vennootschop (Dutch Corporation). PLC--Public Limited Company (British Corporation). SA-- Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French Corporation). SpA--Societa per Azioni (Italian Corporation). - -------------------------------------------------------------------------------- See Notes to Financial Statements. 11 Statement of Assets and Liabilities PRUDENTIAL DIVERSIFIED FUNDS (Unaudited) PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND - --------------------------------------------------------------------------------
Assets January 31, 2000 Investments, at value (cost $124,930,223)................................................................. $146,050,115 Foreign currency, at value (cost $8,281).................................................................. 7,939 Cash...................................................................................................... 71,796 Receivable for Fund shares sold........................................................................... 809,728 Receivable for investments sold........................................................................... 776,838 Dividends and interest receivable......................................................................... 95,165 Prepaid assets............................................................................................ 1,111 ---------------- Total assets........................................................................................... 147,812,692 ---------------- Liabilities Payable for investments purchased......................................................................... 1,162,033 Payable for Fund shares reacquired........................................................................ 192,089 Accrued expenses.......................................................................................... 144,097 Due to Manager............................................................................................ 94,403 Due to Distributor........................................................................................ 78,481 Foreign wtihholding tax payable........................................................................... 1,863 ---------------- Total liabilities...................................................................................... 1,672,966 ---------------- Net Assets................................................................................................ $146,139,726 ---------------- ---------------- Net assets were comprised of: Shares of beneficial interest, at par.................................................................. $ 12,003 Paid-in capital in excess of par....................................................................... 125,389,407 ---------------- 125,401,410 Distribution in excess of net investment income........................................................ (4,912,305) Accumulated net realized gain on investments........................................................... 4,546,176 Net unrealized appreciation on investments and foreign currency transactions........................... 21,104,445 ---------------- Net assets, January 31, 2000.............................................................................. $146,139,726 ---------------- ---------------- Class A: Net asset value and redemption price per share ($26,013,582 / 2,133,074 shares of beneficial interest issued and outstanding)...................... $12.20 Maximum sales charge (5% of offering price)............................................................ .64 ---------------- Maximum offering price to public....................................................................... $12.84 ---------------- ---------------- Class B: Net asset value, offering price and redemption price per share ($60,106,079 / 4,944,845 shares of beneficial interest issued and outstanding)...................... $12.16 ---------------- ---------------- Class C: Net asset value and redemption price per share ($26,339,769 / 2,166,920 shares of beneficial interest issued and outstanding)...................... $12.16 Sales charge (1% of offering price).................................................................... .12 ---------------- Offering price to public............................................................................... $12.28 ---------------- ---------------- Class Z: Net asset value, offering price and redemption price per share ($33,680,296 / 2,758,303 shares of beneficial interest issued and outstanding)...................... $12.21 ---------------- ----------------
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 12 PRUDENTIAL DIVERSIFIED FUNDS PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND Statement of Operations (Unaudited) - ------------------------------------------------------------
Six Months Ended January 31, Net Investment Loss 2000 Income Dividends (net of foreign withholding taxes of $18,121)................. $ 612,475 Interest............................. 227,437 -------------------- Total income...................... 839,912 -------------------- Expenses Management fee....................... 495,390 Distribution fee--Class A............ 29,608 Distribution fee--Class B............ 249,913 Distribution fee--Class C............ 114,397 Custodian's fees and expenses........ 160,000 Transfer agent's fees and expenses... 75,000 Prepaid offering cost................ 29,535 Registration fees.................... 29,000 Reports to shareholders.............. 28,000 Legal fees........................... 15,000 Audit fees and expenses.............. 13,000 Trustees' fees and expenses.......... 3,000 Miscellaneous........................ 1,805 -------------------- Total expenses.................... 1,243,648 -------------------- Net investment loss..................... (403,736) -------------------- Realized and Unrealized Gain (Loss) on Investment and Foreign Currency Transactions Net realized gain (loss) on: Investment transactions.............. 6,137,960 Foreign currency transactions........ (140,660) -------------------- 5,997,300 -------------------- Net unrealized appreciation (depreciation) of: Investments.......................... 9,493,599 Foreign currencies................... (903) -------------------- 9,492,696 -------------------- Net gain on investments and foreign currencies........................... 15,489,996 -------------------- Net Increase in Net Assets Resulting from Operations............... $ 15,086,260 -------------------- --------------------
PRUDENTIAL DIVERSIFIED FUNDS PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND Statement of Changes in Net Assets (Unaudited) - ------------------------------------------------------------
Six Months Ended November 18, 1998(a) Increase (Decrease) January 31, to in Net Assets 2000 July 31, 1999 Operations Net investment loss...... $ (403,736) $ (131,077) Net realized gain on investments and foreign currency transactions.......... 5,997,300 1,469,897 Net change in unrealized appreciation of investments and foreign currencies.... 9,492,696 11,611,749 ---------------- -------------------- Net increase in net assets resulting from operations............ 15,086,260 12,950,569 ---------------- -------------------- Dividends and distributions (Note 1) Dividends in excess of net investment income Class A............... (798,745) -- Class B............... (1,548,981) -- Class C............... (694,850) -- Class Z............... (1,329,649) -- ---------------- -------------------- (4,372,225) -- ---------------- -------------------- Distributions from net realized gains Class A............... (510,817) -- Class B............... (1,183,116) -- Class C............... (530,788) -- Class Z............... (794,899) -- ---------------- -------------------- (3,019,620) -- ---------------- -------------------- Fund share transactions (net of share conversions) (Note 6) Net proceeds from shares sold.................. 33,121,090 130,702,522 Net asset value of shares issued in reinvestment of dividends and distributions......... 7,276,355 -- Cost of shares reacquired............ (20,574,938) (25,070,287) ---------------- -------------------- Net increase in net assets from Fund share transactions.......... 19,822,507 105,632,235 ---------------- -------------------- Total increase.............. 27,516,922 118,582,804 Net Assets Beginning of period......... 118,622,804 40,000 ---------------- -------------------- End of period............... $146,139,726 $118,622,804 ---------------- -------------------- ---------------- -------------------- - --------------- (a) Commencement of investment operations.
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 13 Notes to Financial Statements PRUDENTIAL DIVERSIFIED FUNDS (Unaudited) PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND - -------------------------------------------------------------------------------- Prudential Diversified Funds (the 'Trust') is registered under the Investment Company Act of 1940, as an open-end, diversified management investment company presently consisting of three Portfolios: Prudential Diversified High Growth Fund ('the Fund'), Prudential Diversified Conservative Growth Fund and Prudential Diversified Moderate Growth Fund. The Trust was organized as a business trust in Delaware on July 29, 1998. The Fund had no significant operations other than the issuance of 1,000 shares each of Class A, Class B, Class C and Class Z shares for each Portfolio of beneficial interest for $40,000 on June 16, 1998 to Prudential Investments Fund Management LLC ('PIFM' or the 'Manager'). The Fund commenced investment operations on November 18, 1998. The investment objective of the Fund is to seek to provide long-term capital appreciation. The Fund pursues its objective by investing in a diversified portfolio of equity securities issued by U.S. and foreign companies. Under normal circumstances, substantially all of the Fund's assets will be invested in equity securities, including common stock, securities convertible into common stock and preferred stock. - ------------------------------------------------------------ Note 1. Accounting Policies The following is a summary of significant accounting policies followed by the Trust and the Fund in the preparation of its financial statements. Securities Valuation: Securities listed on a securities exchange are valued at the last sales price on such exchange on the day of valuation, or, if there was no sale on such day, at the mean between the last bid and asked prices on such day or at the bid price on such day in the absence of an asked price. Securities that are actively traded in the over-the-counter market, including listed securities for which the primary market is believed by the Manager, in consultation with the subadviser, to be over-the-counter, are valued by an independent pricing agent or principal market maker. Convertible debt securities that are actively traded in the over-the-counter market, including listed securities for which the primary market is believed by the Manager and the subadviser to be over-the-counter, are valued at the mean between the last reported bid and asked prices provided by a principal market maker. Options on securities and indices traded on an exchange are valued at the last sale price, or if there was no sale on such day, at the mean between the most recently quoted bid and asked prices on such exchange. Futures contracts and options thereon traded on a commodities exchange or board of trade are valued at the last sales price at the close of trading on such exchange or board of trade or, if there was no sale on the applicable commodities exchange or board of trade on such day, at the mean between the most recently quoted bid and asked prices on such exchange or board of trade. Privately placed securities including equity securities for which market prices may be obtained from primary dealers shall be valued at the bid prices provided by such primary dealers. Securities for which market quotations are not readily available, may be valued using the last available market quotation for a period not to exceed five days, provided the Manager and subadviser feel this is representative of market value, afterwards, such securities are valued in good faith under procedures adopted by the Trustees. 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 transactions in repurchase agreements with U.S. financial institutions, it is the Fund's policy that its custodian or designated subcustodians, as the case may be under triparty repurchase agreements, take possession of the underlying 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. All securities are valued as of 4:15 p.m., New York time. 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 rates 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 fiscal 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 long-term portfolio securities sold during the period. Accordingly, these realized foreign currency gains (losses) are included in the reported net realized gains (losses) on investment transactions. - -------------------------------------------------------------------------------- 14 Notes to Financial Statements PRUDENTIAL DIVERSIFIED FUNDS (Unaudited) PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND - -------------------------------------------------------------------------------- Net realized gains (losses) on foreign currency transactions represent net foreign exchange gains or losses from holdings of foreign currencies, currency gains or losses realized between the trade and settlement dates on security transactions, and the difference between the amounts of dividends, interest and foreign taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains or losses from valuing foreign currency denominated assets and liabilities (other than investments) at fiscal period end exchange rates are reflected as a component of net unrealized appreciation on investments and 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. Securities Transactions and Net Investment Income: Securities transactions are recorded on the trade date. Realized gains and losses from investment and currency transactions are calculated on the identified cost basis. Dividend income is recorded on the ex-dividend date; interest income is recorded on the accrual basis. Expenses are recorded on the accrual basis which may require the use of certain estimates by management. Net investment income (loss), other than distribution fees, and unrealized and realized 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 expects to pay dividends of net investment income and distributions of net realized capital and currency gains, if any, annually. Dividends and distributions are recorded on the ex-dividend date. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Taxes: For federal income tax purposes, each Fund in the Trust is treated as a separate taxpaying entity. It is the intent of the Fund to continue to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to shareholders. Therefore, no federal income tax provision is required. Withholding taxes on foreign dividends have been provided for in accordance with the Fund's understanding of the applicable country's tax rules and rates. Deferred Offering Cost: The Fund incurred approximately $98,000 in connection with the initial offering of the Fund. Offering costs were being amortized over a period of 12 months ended November 1999. - ------------------------------------------------------------ Note 2. Agreements The Fund has a management agreement with PIFM. Pursuant to this agreement, PIFM manages the investment operations of the Fund, administers the Fund's affairs and supervises the Adviser's performance of all investment advisory services. PIFM pays for the costs pursuant to the advisory agreements, the cost of compensation of officers of the Fund, occupancy and certain clerical and accounting costs of the Fund. The management fee paid PIFM is computed daily and payable monthly at an annual rate of .75% of the average daily net assets of the Fund. PIFM, in turn, pays the Advisers' fees, computed daily and paid monthly, equal to the annual rate specified below based on the average daily net assets of the Fund segments they manage.
Fee Paid By PIFM Advisers to Advisers - ------------------------------ --------------------------------- Jennison Associates LLC .30% with respect to the first $300 million; .25% for amounts in excess of $300 million The Prudential Investment Corporation ('PIC') N/A1 Lazard Asset Management .40% Franklin Advisers, Inc. .50% The Dreyfus Corporation .45% 1Under the Advisory Agreement between PIFM and PIC, PIC is reimbursed by PIFM for its reasonable costs and expenses.
The Fund has a distribution agreement with Prudential Investment Management Services LLC ('PIMS') which acts as the distributor of the Class A, Class B, Class C and Class Z shares of the Fund. The Fund compensates 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 PIMS. The distribution fees are accrued daily and payable monthly. No distribution or service fees are paid to PIMS as distributor for Class Z shares of the Fund. Pursuant to the Class A, B and C Plans, the Fund compensates 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 .25 of 1%, 1% and 1% of the average daily net assets of the Class A, B and C shares respectively, for the period ended January 31, 2000. - -------------------------------------------------------------------------------- 15 Notes to Financial Statements PRUDENTIAL DIVERSIFIED FUNDS (Unaudited) PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND - -------------------------------------------------------------------------------- PIMS has advised the Fund that it has received approximately $76,700 and $51,500 in front-end sales charges resulting from sales of Class A and Class C shares, respectively, during the period ended January 31, 2000. PIMS has advised the Fund that for the period ended January 31, 2000, it has received approximately $49,400 and $15,900 in contingent deferred sales charges imposed upon certain redemptions by Class B and Class C shareholders, respectively. PIMS, PIC and PIFM are wholly owned subsidiaries of The Prudential Insurance Company of America ('Prudential'). The Fund, along with other affiliated registered investment companies (the 'Funds'), entered into a syndicated credit agreement ('SCA') with an unaffiliated lender. The maximum commitment under the SCA is $1 billion and interest on any borrowings will be at market rates. For the period 3/11/99-3/9/00, the commitment fee on the unused portion of the credit facility was .065 of 1%. Subsequent to March 9, 2000, the SCA was renewed with a maximum commitment of $1 billion at a commitment fee of .080 of 1% of the unused portion of the credit facility. The expiration date of the SCA is March 9, 2001. The commitment fee is accrued and paid quarterly on a pro rata basis by the Funds. Prior to March 11, 1999, the Funds had a credit agreement with a maximum commitment of $200,000,000. The commitment fee was .055 of 1% on the unused portion of the credit facility. The Fund did not borrow any amounts during the six months ended January 31, 2000. The purpose of the credit agreements is to serve as an alternative source of funding for capital share redemptions. - ------------------------------------------------------------ Note 3. Other Transactions with Affiliates Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned subsidiary of PIFM, serves as the Trust's transfer agent. During the period ended January 31, 2000, the Fund incurred fees of approximately $73,400 for the services of PMFS. As of January 31, 2000 approximately $13,600 of such fees were due to PMFS. Transfer agent fees and expenses in the Statement of Operations include certain out-of-pocket expenses paid to nonaffiliates. For the period ended January 31, 2000, PSI earned approximately $77,900 in brokerage commissions from portfolio transactions executed on behalf of the Fund. - ------------------------------------------------------------ Note 4. Portfolio Securities Purchases and sales of portfolio securities, excluding short-term investments, for the period ended January 31, 2000 were $43,755,055 and $38,362,786, respectively. The United States federal income tax basis of the Funds' investments as of January 31, 2000 was $124,980,492 and accordingly, net unrealized appreciation on investments for federal income tax purposes was $21,069,623 (gross unrealized appreciation--$31,387,044, gross unrealized depreciation--$10,317,421). - ------------------------------------------------------------ Note 5. 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 January 31, 2000, the Fund had a 1.7% undivided interest in the repurchase agreements in the joint account. The undivided interest for the Fund represents $12,176,000 in principal amount. As of such date, each repurchase agreement in the joint account and the collateral therefore were as follows: Bear, Stearns & Co. Inc., 5.72%, in the principal amount of $150,000,000 repurchase price $150,023,833, due 02/01/00. The value of the collateral including accrued interest was $153,133,078. Credit Suisse First Boston Corporation, 5.74%, in the principal amount of $75,000,000 repurchase price $75,011,958, due 02/01/00. The value of the collateral including accrued interest was $77,491,043. Credit Suisse First Boston Corporation, 5.73%, in the principal amount of $125,000,000 repurchase price $125,019,896, due 02/01/00. The value of the collateral including accrued interest was $129,169,641. Greenwich Capital Markets, Inc., 5.72%, in the principal amount of $100,000,000 repurchase price $100,015,889, due 02/01/00. The value of the collateral including accrued interest was $102,001,008. Goldman, Sachs & Co., 5.70%, in the principal amount of $230,536,000 repurchase price $230,572,502, due 02/01/00. The value of the collateral including accrued interest was $235,147,150. Merrill Lynch, Pierce, Fenner & Smith, Inc., 5.60%, in the principal amount of $25,000,000 repurchase price $25,003,889, due 02/01/00. The value of the collateral including accrued interest was $25,501,335. - ------------------------------------------------------------ Note 6. 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 5%. Class B shares are sold with a contingent deferred sales charge which declines from 5% - -------------------------------------------------------------------------------- 16 Notes to Financial Statements PRUDENTIAL DIVERSIFIED FUNDS (Unaudited) PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND - -------------------------------------------------------------------------------- to zero depending on the period of time the shares are held. 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. Of the 12,003,142 shares of beneficial interest issued and outstanding at January 31, 2000, PIFM owned 4,000,000. The Fund has authorized an unlimited number of shares of beneficial interest at $.001 par value. Transactions in shares of beneficial interest were as follows:
Class A Shares Amount - ------------------------------------- ---------- ----------- Six months ended January 31, 2000: Shares sold.......................... 747,138 $ 8,966,006 Shares issued in reinvestment of dividends and distributions........ 106,417 1,264,231 Shares reacquired.................... (589,474) (7,287,224) ---------- ----------- Net increase in shares outstanding before conversion.................. 264,081 2,943,013 Shares issued upon conversion from Class B............................ 25,312 302,304 ---------- ----------- Net increase in shares outstanding... 289,393 $ 3,245,317 ---------- ----------- ---------- ----------- November 18, 1998(a) through July 31, 1999: Shares sold.......................... 2,085,850 $22,693,721 Shares reacquired.................... (264,575) (2,915,672) ---------- ----------- Net increase in shares outstanding before conversion.................. 1,842,681 19,778,049 Shares issued upon conversion from Class B............................ 21,406 236,761 ---------- ----------- Net increase in shares outstanding... 1,842,681 $20,014,810 ---------- ----------- ---------- ----------- Class B - ------------------------------------- Six months ended January 31, 2000: Shares sold.......................... 1,469,340 $17,456,392 Shares issued in reinvestment of dividends and distributions........ 226,817 2,687,787 Shares reacquired.................... (303,771) (3,621,462) ---------- ----------- Net increase in shares outstanding before conversion.................. 1,392,386 16,522,717 Shares reacquired upon conversion into Class A............................ (25,416) (302,304) ---------- ----------- Net increase in shares outstanding... 1,366,970 $16,220,413 ---------- ----------- ---------- ----------- Class B Shares Amount - ------------------------------------- ---------- ----------- November 18, 1998(a) through July 31, 1999: Shares sold.......................... 3,792,825 $40,686,002 Shares reacquired.................... (194,476) (2,146,432) ---------- ----------- Net increase in shares outstanding before conversion.................. 3,598,349 38,539,570 Shares reacquired upon conversion into Class A....................... (21,474) (236,761) ---------- ----------- Net increase in shares outstanding... 3,576,875 $38,302,809 ---------- ----------- ---------- ----------- Class C - ------------------------------------- Six months ended January 31, 2000: Shares sold.......................... 550,866 $ 6,563,161 Shares issued in reinvestment of dividends and distributions........ 101,310 1,200,525 Shares reacquired.................... (220,855) (2,639,467) ---------- ----------- Net increase in shares outstanding... 431,321 $ 5,124,219 ---------- ----------- ---------- ----------- November 18, 1998(a) through July 31, 1999: Shares sold.......................... 1,902,895 $19,882,224 Shares reacquired.................... (168,296) (1,835,812) ---------- ----------- Net increase in shares outstanding... 1,734,599 $18,046,412 ---------- ----------- ---------- ----------- Class Z - ------------------------------------- Six months ended January 31, 2000: Shares sold.......................... 10,943 $ 135,531 Shares issued in reinvestment of dividends and distributions........ 178,772 2,123,813 Shares reacquired.................... (582,274) (7,026,785) ---------- ----------- Net decrease in shares outstanding... (392,559) $(4,767,441) ---------- ----------- ---------- ----------- November 18, 1998(a) through July 31, 1999: Shares sold.......................... 4,741,404 $47,440,575 Shares reacquired.................... (1,591,542) (18,172,371) ---------- ----------- Net increase in shares outstanding... 3,149,862 $29,268,204 ---------- ----------- ---------- -----------
- --------------- (a) Commencement of investment operations. - -------------------------------------------------------------------------------- 17 PRUDENTIAL DIVERSIFIED FUNDS Financial Highlights (Unaudited) PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND - --------------------------------------------------------------------------------
Class A Class B Class C ---------------------------- ---------------------------- ----------- November 18, November 18, Six Months 1998(a) Six Months 1998(a) Six Months Ended Through Ended Through Ended January 31, July 31, January 31, July 31, January 31, 2000(d) 1999(d) 2000(d) 1999(d) 2000(d) ----------- ------------ ----------- ------------ ----------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period.... $ 11.52 $ 10.00 $ 11.47 $ 10.00 $ 11.47 ----------- ------ ----------- ------ ----------- Income from investment operations: Net investment income (loss)............ (0.02) --(e) (0.06) (0.05) (0.06) Net realized and unrealized gain on investment and foreign currency transactions......................... 1.41 1.52 1.39 1.52 1.39 ----------- ------ ----------- ------ ----------- Total from investment operations..... 1.39 1.52 1.33 1.47 1.33 ----------- ------ ----------- ------ ----------- Less distributions Dividends in excess of net investment income............................... (0.43) -- (0.36) -- (0.36) Distributions from net realized gains... (0.28) -- (0.28) -- (0.28) ----------- ------ ----------- ------ ----------- Total distributions.................. (0.71) -- (0.64) -- (0.64) ----------- ------ ----------- ------ ----------- Net asset value, end of period.......... $ 12.20 $ 11.52 $ 12.16 $ 11.47 $ 12.16 ----------- ------ ----------- ------ ----------- ----------- ------ ----------- ------ ----------- TOTAL RETURN(b)......................... 12.19% 15.20% 11.70% 14.70% 11.70% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000)......... $26,014 $ 21,248 $60,106 $ 41,049 $26,340 Average net assets (000)................ $23,558 $ 10,442 $49,711 $ 24,260 $22,755 Ratios to average net assets:(c) Expenses, including distribution fees.............................. 1.54% 1.73% 2.29% 2.48% 2.29% Expenses, excluding distribution fees.............................. 1.29% 1.48% 1.29% 1.48% 1.29% Net investment income (loss)......... (0.27)% 0.02% (1.01)% (0.70)% (1.01)% Portfolio turnover rate................. 31% 38% 31% 38% 31% Class Z ---------------------------- November 18, November 18, 1998(a) Six Months 1998(a) Through Ended Through July 31, January 31, July 31, 1999(d) 2000(d) 1999(d) ------------ ----------- ------------ PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period.... $ 10.00 $ 11.56 $ 10.00 ------ ----------- ------ Income from investment operations: Net investment income (loss)............ (0.05) --(e) 0.02 Net realized and unrealized gain on investment and foreign currency transactions......................... 1.52 1.39 1.54 ------ ----------- ------ Total from investment operations..... 1.47 1.39 1.56 ------ ----------- ------ Less distributions Dividends in excess of net investment income............................... -- (0.46) -- Distributions from net realized gains... -- (0.28) -- ------ ----------- ------ Total distributions.................. -- (0.74) -- ------ ----------- ------ Net asset value, end of period.......... $ 11.47 $ 12.21 $ 11.56 ------ ----------- ------ ------ ----------- ------ TOTAL RETURN(b)......................... 14.70% 12.16% 15.60% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000)......... $ 19,914 $33,680 $ 36,413 Average net assets (000)................ $ 15,204 $35,362 $ 45,999 Ratios to average net assets:(c) Expenses, including distribution fees.............................. 2.48% 1.29% 1.48% Expenses, excluding distribution fees.............................. 1.48% 1.29% 1.48% Net investment income (loss)......... (0.75)% (0.02)% 0.21% Portfolio turnover rate................. 38% 31% 38%
- --------------- (a) Commencement of investment operations. (b) Total return does not consider the effect of sales loads. Total return is calculated assuming a purchase of shares on the first day and a sale on the last day and includes reinvestment of dividends and distributions. Total return for periods of less than a full year is not annualized. (c) Annualized. (d) Based on weighted average shares outstanding during the period. (e) Less than $.005 per share. - -------------------------------------------------------------------------------- See Notes to Financial Statements. 18 Supplemental Proxy Information PRUDENTIAL DIVERSIFIED FUNDS (Unaudited) PRUDENTIAL DIVERSIFIED HIGH GROWTH FUND - -------------------------------------------------------------------------------- A Special Meeting of Shareholders of Prudential Diversified Funds was held on November 8, 1999 for the following purposes: (1) To elect nine trustees; (2) To ratify the selection of PricewaterhouseCoopers LLP as independent accountants for the fiscal year ending July 31, 2000; and (3) To approve certain changes to each Fund's fundamental investment restrictions. The results of the voting at the Special Meeting of Shareholders with respect to these matters was as follows: With respect to all Funds of Prudential Diversified Funds:
Votes for Votes withheld ----------- -------------- (1) Election of Trustees (A) Eugene C. Dorsey................ 16,149,330 212,677 (B) Robert F. Gunia................. 16,144,315 217,692 (C) Robert E. LaBlanc............... 16,153,554 208,453 (D) Douglas H. McCorkindale......... 16,156,578 205,429 (E) Thomas T. Mooney................ 16,137,871 224,136 (F) David R. Odenath, Jr............ 16,160,076 201,931 (G) Stephen Stoneburn............... 16,158,803 203,204 (H) John R. Strangfeld, Jr.......... 16,160,076 201,931 (I) Clay T. Whitehead............... 16,140,906 221,101 With respect to all Funds of Prudential Diversified Funds: Votes for Votes against Abstentions ----------- ------------- -------------- (2) PricewaterhouseCoopers LLP............ 16,014,097 55,890 292,020 (3) Approval of certain changes to the High Growth Fund's fundamental investment restrictions regarding (A) Diversification................. 4,454,866 37,979 96,559 (B) Engaging in margin transactions.................... 4,432,846 55,907 100,652 (C) Issuing senior securities, borrowing and pledging assets... 4,415,875 57,694 115,835 (D) Investing in real estate........ 4,437,125 49,113 103,167 (E) Making loans.................... 4,414,781 61,180 113,443 (F) Concentration................... 4,417,655 48,013 123,736 (G) Selling securities short........ 4,395,877 76,848 116,679 (H) Investing for the purpose of exercising control.............. 4,428,439 47,706 113,260
- -------------------------------------------------------------------------------- 19 Prudential Mutual Fund Family - ------------------------------------------------------------------------------- Prudential offers a broad range of mutual funds designed to meet your individual needs. For information about these funds, contact your financial adviser or call us at (800) 225-1852. Read the prospectus carefully before you invest or send money. STOCK FUNDS Prudential Emerging Growth Fund, Inc. Prudential Equity Fund, Inc. Prudential Equity Income Fund Prudential Index Series Fund Prudential Small-Cap Index Fund Prudential Stock Index Fund The Prudential Investment Portfolios, Inc. Prudential Jennison Growth Fund Prudential Jennison Growth & Income Fund Prudential Mid-Cap Value Fund Prudential Real Estate Securities Fund Prudential Sector Funds, Inc. Prudential Financial Services Fund Prudential Health Sciences Fund Prudential Technology Fund Prudential Utility Fund Prudential Small-Cap Quantum Fund, Inc. Prudential Small Company Value Fund, Inc. Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund Prudential 20/20 Focus Fund Nicholas-Applegate Fund, Inc. Nicholas-Applegate Growth Equity Fund Target Funds Large Capitalization Growth Fund Large Capitalization Value Fund Small Capitalization Growth Fund Small Capitalization Value Fund Asset Allocation/Balanced Funds Prudential Balanced Fund Prudential Diversified Funds Conservative Growth Fund Moderate Growth Fund High Growth Fund The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund GLOBAL FUNDS Global Stock Funds Prudential Developing Markets Fund Prudential Developing Markets Equity Fund Prudential Latin America Equity Fund Prudential Europe Growth Fund, Inc. Prudential Global Genesis Fund, Inc. Prudential Index Series Fund Prudential Europe Index Fund Prudential Pacific Index Fund Prudential Natural Resources Fund, Inc. Prudential Pacific Growth Fund, Inc. Prudential World Fund, Inc. Prudential Global Growth Fund Prudential International Value Fund Prudential Jennison International Growth Fund Global Utility Fund, Inc. Target Funds International Equity Fund Global Bond Funds Prudential Global Total Return Fund, Inc. Prudential International Bond Fund, Inc. BOND FUNDS Taxable Bond Funds Prudential Diversified Bond Fund, Inc. Prudential Government Income Fund, Inc. Prudential Government Securities Trust Short-Intermediate Term Series Prudential High Yield Fund, Inc. Prudential High Yield Total Return Fund, Inc. Prudential Index Series Fund Prudential Bond Market Index Fund Prudential Structured Maturity Fund, Inc. Income Portfolio Target Funds Total Return Bond Fund Tax-Exempt Bond Funds Prudential California Municipal Fund California Series California Income Series Prudential Municipal Bond Fund High Income Series Insured Series Prudential Municipal Series Fund Florida Series Massachusetts Series New Jersey Series New York Series North Carolina Series Ohio Series Pennsylvania Series Prudential National Municipals Fund, Inc. MONEY MARKET FUNDS Taxable Money Market Funds Cash Accumulation Trust Liquid Assets Fund National Money Market Fund Prudential Government Securities Trust Money Market Series U.S. Treasury Money Market Series Prudential Special Money Market Fund, Inc. Money Market Series Prudential MoneyMart Assets, Inc. Tax-Free Money Market Funds Prudential Tax-Free Money Fund, Inc. Prudential California Municipal Fund California Money Market Series Prudential Municipal Series Fund Connecticut Money Market Series Massachusetts Money Market Series New Jersey Money Market Series New York Money Market Series COMMAND Funds COMMAND Money Fund COMMAND Government Fund COMMAND Tax-Free Fund Institutional Money Market Funds Prudential Institutional Liquidity Portfolio, Inc. Institutional Money Market Series Prudential Mutual Funds Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 (800) 225-1852 - --------------------------------------- visit our website at www.prudential.com - --------------------------------------- Fund Symbols NASDAQ CUSIP Class A -- 74432F885 Class B -- 74432F877 Class C -- 74432F869 Class Z PDHZX 74432F851 Trustees Eugene C. Dorsey Robert F. Gunia Robert E. LaBlanc Douglas H. McCorkindale Thomas T. Mooney David R. Odenath, Jr. Stephen Stoneburn John R. Strangfeld Clay T. Whitehead Officers John R. Strangfeld, President Robert F. Gunia, Vice President David R. Odenath, Jr., Vice President Grace C. Torres, Treasurer David F. Connor, Secretary William V. Healey, Assistant Secretary Stephen M. Ungerman, Assistant Treasurer Manager Prudential Investments Fund Management LLC Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 Investment Sub-Advisers The Prudential Investment Corporation Prudential Plaza, Newark, NJ 07102-3777 Jennison Associates LLC 466 Lexington Avenue, New York, NY 10017 Franklin Advisers, Inc. 777 Mariners Island Blvd., San Mateo, CA 94404 The Dreyfus Corporation 200 Park Avenue, New York, NY 10166 Lazard Asset Management 30 Rockefeller Plaza, New York, NY 10112 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 Kirkpatrick & Lockhart LLP 1800 Massachusetts Avenue, N.W. Washington, DC 20036 The views expressed in this report and information about the Fund's portfolio holdings are for the period covered by this report and are subject to change thereafter. The accompanying financial statements as of January 31, 2000, 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. (LOGO) Printed on Recycled Paper (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 MF186E2 74432F885 74432F877 74432F869 74432F851 (LPGO)Printed on Recycled Paper (ICON) Semi Annual Report January 31, 2000 Prudential Diversified Moderate Growth Fund (LOGO) A Message From the Fund's President March 16, 2000 - ------------------------------------------------------------------------------- (PHOTO) Dear Shareholder, The six months ended January 31, 2000, were generally very difficult for any investment securities except technology and biotechnology stocks. Prudential Diversified Moderate Growth Fund's Class A shares returned 7.36% over the period, trailing the 9.37% Lipper Multi-Cap Core Fund Average primarily because most funds in that category hold no bonds. Including sales charges, the Fund's Class A shares returned 1.99%. The return on bonds over this period was low, as rising interest rates hurt fixed-income securities. Similarly, value stocks declined in price over this reporting period, as did the average stock in most economic sectors of the S&P 500. S&P 500 technology stocks had almost 10 times the average return of the next highest performing sector. With the high returns on stocks in recent years, it is important to remember the stabilizing role bonds played in August 1997. Although bonds did fall in value then, they were far less volatile than stocks. Diversification can dilute the impact that the occasional extreme market movement can have on your portfolio. The diversification of Prudential Diversified Moderate Growth Fund allowed you to benefit from the strong, but narrow, technology gains without being wholly exposed to this volatile sector. Our reporting period included the falling markets in January 2000 as well as the exuberant technology stock surge at the end of 1999. In an uncertain environment, diversification is particularly important. Prudential Diversified Funds' one-purchase selection makes it easy. Yours sincerely, John R. Strangfeld President Prudential Diversified Funds Investment Advisers' Report - ------------------------------------------------------------------------------- Investment Advisers Prudential Investments Fund Management LLC - - John Van Belle, Ph.D. - - Stacie Mintz Sub-Advisers (PRUDENTIAL INVESTMENTS LOGO) (LAZARD LOGO) (FRANKLIN TEMPLETON LOGO) (JENNISON ASSOCIATES LOGO) (DREYFUS LOGO) (PIMCO LOGO) Investment Goals and Style The Fund seeks to provide capital appreciation and a reasonable level of current income. It invests in a diversified portfolio of stocks and bonds. There can be no assurance that the Fund will achieve its investment objective. The investing context For five of the six months that made up our reporting period, the economy was beset by uncertainties about how information systems would behave during the changeover to the year 2000. Many businesses and homeowners stocked up on vital supplies, while the U.S. Federal Reserve allowed the money supply to rise. However, this drove the U.S. economy to a pace widely believed to be unsustainable. Short-term interest rates rose as investors anticipated Federal Reserve actions to slow the economy early in 2000. This drove down the prices of most existing fixed-income securities. The S&P 500 returned 5.6% over this period. However, almost all of this gain was by technology stocks. Stocks of basic materials companies, consumer staples, financials, energy firms, utilities, and even communications services declined, while S&P 500 technology stocks rose about 30%. The extreme narrowness of this market was disconcerting to investment professionals, as it was clearly disproportionate to differences in earnings potential. Moreover, volatility in the market--the ups and downs of individual stock prices--has been increasing for some time and is unusually high. This increases the uncertainty about whether most investors will continue with their current enthusiasm for technology or search out the less expensive stocks on the market. Prudential Diversified Moderate Growth Fund, with its allocation to both growth and value stock investment styles and to bonds, is wholly exposed to neither alternative. Our performance Large-cap stocks. Prudential Diversified Moderate Growth Fund benefited from the 27.5% of its assets allocated to growth-style investing (20% large cap, 7.5% small cap) and from the strong performance of its growth managers. More than a third of its large-cap growth portfolio was invested in technology stocks on January 31, including the seven largest contributors to the period's large-cap growth return. These included Cisco Systems, Nokia, and JDS Uniphase. The large-cap growth managers have a longer time horizon than many growth investors, so sometimes they can benefit when a well-managed company has a short-term disappointment. The growth holdings also had above-benchmark returns from their focuses on the consumer staples (such as Home Depot), healthcare, and intermediate goods and services (business-to-business commerce) sectors. The strength of these holdings more than offset the weakness of the Fund's large-cap value stocks. Although the value por- tion of the portfolio benefited from some technology stocks purchased at bargain prices--including National Semiconductor, Seagate Technology, and Hitachi--the gains of these holdings were outweighed by the poor performance of its focuses on hospital management, tobacco, forest products, and insurance. The value portion of the portfolio lost ground. Small-cap stocks. Among small-cap stocks, the very strong gains of our growth holdings again compensated for the poor performance of the value stocks. Our growth holdings had a substantial focus on technology. This sector benefited as technology investors looked for better prices among small-cap stocks, given that large-cap technology stocks had become very expensive. Small-cap technology stocks rose very sharply over our reporting period. The interest in smaller companies did not extend to value stocks, however. They fell in value over our reporting period. Our small-cap value holdings fared particularly poorly because of an emphasis on financial stocks, whose earnings prospects are hurt by rising interest rates. The Federal Reserve raised short-term interest rates four times between June 30, 1999, and February 2, 2000. International stocks. Although our international holdings made a significant positive contribution to the Fund's return, they trailed their benchmark index. The movement toward growth stocks--and technology in particular--was global, whereas our holdings are managed in a value style. The Morgan Stanley Capital International (MSCI) AC World Growth Index rose 20 percentage points more than the corresponding Value Index. Our holdings were Cumulative Total Returns1 As of 1/31/00
Six One Since Months Year Inception2 Class A 7.36% 9.87% 17.52% Class B 6.70 8.90 16.29 Class C 6.70 8.90 16.29 Class Z 7.45 10.15 17.87 Lipper Multi-Cap Core Fund Avg.3 9.37 13.44 19.59
Average Annual Total Returns1 As of 1/31/00
One Since Year Inception2 Class A 4.38% 9.60% Class B 3.90 10.13 Class C 6.81 11.62 Class Z 10.15 14.66
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 LLC 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 charge of 5% for Class A shares. Class B shares are subject to a declining contingent deferred sales charge (CDSC) of 5%, 4%, 3%, 2%, 1%, and 1% for six years. Class 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 charge of 1% and a CDSC of 1% for 18 months. Class Z shares are not subject to a sales charge or distribution and service (12b-1) fees. 2 Inception date: Class A, B, C, and Z, 11/18/98. 3 Lipper average returns are for all funds in each share class for the six-month, one-year, and since inception periods in the Multi-Cap Core Fund category. The Lipper average is unmanaged. Multi-Cap Core funds generally invest in a variety of market capitalization ranges, without concentrating 75% of their equity assets in any one market capitalization range over an extended period of time. Multi-Cap Core funds will generally have between 25% and 75% of their assets invested in companies with market capitalizations (on a three-year weighted basis) above 300% of the dollar-weighted median market capitalization of the S&P(R) Mid-Cap 400 Index. Multi-Cap Core funds have wide latitude in the companies in which they invest. These funds normally have an above-average price/earnings ratio, price-to-book ratio, and three-year earnings growth figure, compared to the U.S. diversified multi-cap funds universe average. S&P(R) is a registered trademark of The McGraw-Hill Companies, Inc. 1 Investment Advisers' Report Cont'd. - ------------------------------------------------------------------------------- focused on companies with strong global brands and excellent long-term earnings prospects. However, the prices of many of these companies are now at historic lows in comparison to their earnings. They represent exceptional value. Historically, when prices of the most and least expensive stocks have diverged this widely, they have returned toward normal relationships either by a decline in the high-priced stocks or a gain in the inexpensive ones. In either case, we believe that the relative performance of our international holdings should benefit. Core bonds. The overall bond market, as measured by the Lehman Aggregate Bond Index, had a small positive 0.66% return over the six months ended January 31, despite the actions of the Federal Reserve to increase interest rates. Prudential Diversified Moderate Growth Fund's core bond holdings outperformed the Index slightly, primarily because they had a shorter average duration than the benchmark, which made them less exposed to these rising rates. The return on the core bond holdings also was enhanced by mortgage-related bonds, which benefit during periods of rising interest rates from the slower pace of prepayments due to refinancing. The Fund's high-quality emerging market bonds also contributed to its performance, as better economic prospects reduced the amount of extra yield emerging market borrowers had to pay to attract investors. The price of existing bonds in this sector benefited from the falling yield. However, the Fund's holdings were relatively light in investment-grade corporate bonds, and so it failed to benefit from the similar narrowing of the pricing differential for corporate bonds over Treasuries. High-yield bonds. About 15% of the Fund's assets are allocated to high-yield holdings, or "junk bonds." These outperformed their benchmark more substantially than the core holdings, producing a solidly positive return while the benchmark fell. Among these lower-rated bonds, those with a "B" credit rating performed best over this reporting period, and these were overweighted in the Fund's holdings. Both the higher-rated BB bonds and the lower-rated CCCs had poorer returns, and both were underrepresented in the Fund's holdings. Glossary of Terms Asset classes are classifications of investments. The most basic classification of securities is among stocks, bonds, and money market investments. Stocks are shares of ownership in a firm. Owners share in the profits, after debts are paid, and share in the firm's appreciation in value. Generally, the prices of stocks vary with investors' estimates of a firm's earnings prospects, including the impact of broader economic conditions. Bonds are loans to a company, government, or agency. They carry a fixed interest rate or one that varies according to a rule that is specified in the bond. They have a maturity date at which they must be repaid. Generally, bond prices vary with current interest rates for new bonds and with changes in the debtor's prospects of repaying the loan. Money market instruments are short-term loans that mature in 13 months or less. Bonds and money market instruments are called fixed-income securities. High yield bonds are also known as "junk bonds." They are subject to greater risk of loss of principal and interest, including default risk, than higher-rated bonds. Standard & Poor's 500 Composite Stock Price Index (S&P 500) is an unmanaged index of 500 stocks of large U.S. companies. The Lehman Brothers Aggregate Bond Index is an unmanaged index of investment-grade securities issued by the U.S. government and its agencies and by corporations with between one and ten years remaining to maturity. The Morgan Stanley Capital International (MSCI) AC World Growth Index consists of the most expensive stocks in price-to-book value in the MSCI AC World Index. It includes the top 50% by market capitalization. 2 What Is Diversification? - ------------------------------------------------------------------------------- Diversification--spreading your investments over many different securities--is a basic principle of investing. It helps to reduce the overall risk of your portfolio. Moreover, when we rebalance our portfolio to restore the original weighting of different asset classes, the discipline forces us to sell high nd buy low. Over time, this may improve your return. How diversification works Mutual funds not only provide professional money management; they also allow a relatively small investment to be spread over many different securities. When you own a large number of different securities, the impact of any one security on your return is reduced. In addition, if you diversify your investments among asset classes and investment styles--between stocks and bonds, value and growth stocks, and investment-grade and high-yield bonds--it is less likely that all the securities you own will move in the same direction at one time. Prudential Diversified Funds provide more of this buffering than a fund investing in only one asset class. We believe this will result in more consistent returns over time. Rebalancing--Diversified Moderate Growth Fund has a target allocation for each asset class. As some perform better than others, the portfolio will drift from this original target: the securities that rise most will become a larger proportion of the invested assets. We direct new investments to the asset classes that have fallen below their target ratio and, when necessary, sell certain securities in appreciated asset classes to maintain the balance. This not only keeps your risk exposure from changing too much, but it may reduce the average cost of our investments and increase our average selling price over time. Although an individual investor can diversify and rebalance, it would require a large investment to own the range of asset classes represented in Prudential Moderate Growth Fund. Moreover, calculating the amounts to allocate to each kind of security in a rebalancing would be difficult. Prudential Diversified Funds do it all for you. Prudential Moderate Growth Fund Diversification Target (GRAPH 3 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Shares Description Value (Note 1) - ------------------------------------------------------------ LONG-TERM INVESTMENTS--94.5% COMMON STOCKS--61.6% - ------------------------------------------------------------ Aerospace--0.5% 25,200 British Aerospace PLC (United Kingdom)(a) $ 134,905 5,025 GenCorp, Inc. 40,828 14,900 Loral Space & Communications, Inc. 292,412 4,900 The Boeing Co. 217,131 ---------- 685,276 - ------------------------------------------------------------ Airlines--0.2% 2,025 Alaska Air Group, Inc.(a) 64,547 6,800 Deutsche Lufthansa AG 139,666 ---------- 204,213 - ------------------------------------------------------------ Aluminum--0.6% 10,200 Alcoa, Inc. 710,812 2,162 Reliance Steel & Aluminum Co. 44,862 ---------- 755,674 - ------------------------------------------------------------ Apparel--0.1% 1,700 American Eagle Outfitters, Inc.(a) 61,731 3,275 Kellwood Co. 57,722 ---------- 119,453 - ------------------------------------------------------------ Audio/Visual--0.5% 2,600 Gemstar International Group Ltd.(a) 172,575 850 Harman International Industries, Inc. 49,619 2,300 Polycom, Inc.(a) 138,862 1,400 Sony Corp. (Japan) 351,827 ---------- 712,883 - ------------------------------------------------------------ Auto & Truck--0.5% 2,300 Arvin Industries, Inc. 53,331 2,225 Borg-Warner Automotive, Inc. 74,816 2,130 Daimlerchrysler AG (Germany) 137,217 1,737 Delphi Automotive Systems Corp. $ 30,072 4,100 GKN PLC (United Kingdom) 51,429 50,000 Nissan Motor Co. Ltd. (Japan)(a) 237,696 2,500 Rent-Way, Inc. 45,000 ---------- 629,561 - ------------------------------------------------------------ Banking--3.3% 3,350 BancorpSouth, Inc. 51,506 13,400 Bank of New York Co., Inc. 544,375 500 Bank United Corp. (Class A) 12,969 10,600 BankAmerica Corp. 513,437 2,225 Banknorth Group, Inc. 58,684 1,570 Banque Nationale de Paris (France) 123,761 1,900 Bayerische Vereinsbank AG (Germany) 112,446 1,600 BSB Bancorp, Inc. 30,700 4,800 Chase Manhattan Corp. 386,100 1,350 City National Corp. 47,081 1,375 CORUS Bankshares, Inc. 34,117 5,875 Cullen/Frost Bankers, Inc. 146,141 3,435 CVB Financial Corp. 80,722 275 First Citizens BancShares, Inc. (Class A) 16,741 12,000 Fuji Bank (Japan) 119,239 6,000 Golden State Bancorp, Inc.(a) 84,750 13,300 Halifax Group PLC 115,598 1,950 Harbor Florida BancShares, Inc. 21,938 15,200 HSBC Holdings PLC (Hong Kong)(a) 180,220 14,000 IND Bank (Japan) 134,806 3,400 ING Groep N.V. (Netherlands) 170,212 4,000 LaBranche & Co., Inc.(a) 55,000 3,325 MAF Bancorp, Inc. 62,967 9,200 Merita PLC, Series A (Finland) 50,967 600 Mortgage.com, Inc.(a) 3,263 4,500 National Westminster Bank PLC (United Kingdom)(a) 86,309 3,075 North Fork Bancorporation, Inc. 52,275
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 4 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Shares Description Value (Note 1) - ------------------------------------------------------------ Banking (cont'd.) 17,400 Overseas-Chinese Banking Corp. Ltd. (Singapore) $ 148,237 4,375 Peoples Heritage Financial Group, Inc. 64,258 1,400 Queens County Bancorp, Inc. 31,938 9,100 Sao Paolo Imi SpA ( Italy) 107,888 3,800 Silicon Valley Bancshares 211,850 29,000 Sumitomo Trust & Banking Co. Ltd. (Japan) 180,304 8,960 Svenska Handelsbanken, Series A (Sweden) 104,063 10,000 The Sakura Bank Ltd. (Japan) 63,386 16,896 United Overseas Bank Ltd. (Singapore) 124,089 1,800 Washington Federal, Inc. 30,150 1,575 Westamerica Bancorporation 39,769 1,150 Whitney Holding Corp. 37,663 ---------- 4,439,919 - ------------------------------------------------------------ Broadcasting 100 Wink Communications, Inc.(a) 5,825 - ------------------------------------------------------------ Building & Products--0.9% 1,815 ABB AG (Sweden) 199,799 4,400 American Standard Companies, Inc.(a) 165,000 1,925 Building One Services Corp.(a) 19,130 5,900 Centex Corp. 129,800 8,125 D.R. Horton, Inc. 93,945 2,850 M.D.C. Holdings, Inc. 40,256 7,475 Pulte Corp. 130,345 3,900 Rayonier, Inc. 167,700 1,225 Southdown, Inc. 61,327 1,125 Texas Industries, Inc. 41,133 3,600 Thomas Industries, Inc. 67,050 2,275 Toll Brothers, Inc.(a) 38,675 1,950 U S Home Corp.(a) 46,678 3,775 Webb Delaware Corp. 68,894 ---------- 1,269,732 - ------------------------------------------------------------ Cable 2,150 Belden, Inc. 46,359 - ------------------------------------------------------------ Casinos 575 Anchor Gaming(a) $ 25,659 - ------------------------------------------------------------ Chemicals--0.5% 2,700 Akzo Nobel N.V. (Netherlands) 111,435 2,000 Cytec Industries, Inc.(a) 50,500 4,200 Eastman Chemical Co. 167,475 625 H.B. Fuller Co. 40,625 13,700 Imperial Chemical Industries PLC (United Kingdom) 109,318 5,025 Omnova Solutions, Inc. 37,688 2,175 Spartech Corp. 55,734 1,225 The Geon Co. 35,602 2,000 The Lubrizol Corp. 59,250 3,650 W.R. Grace & Co.(a) 43,116 ---------- 710,743 - ------------------------------------------------------------ Commercial Services--0.1% 300 Chemdex Corp.(a) 29,250 2,900 Luminant Worldwide Corp.(a) 90,988 ---------- 120,238 - ------------------------------------------------------------ Communications 2,400 AVT Corp.(a) 53,700 - ------------------------------------------------------------ Computers--3.6% 2,300 Brooktrout, Inc.(a) 61,669 8,900 Catapult Communications Corp.(a) 101,238 2,600 Citrix Systems, Inc.(a) 356,850 18,800 Compaq Computer Corp. 514,650 1,600 Comverse Technology, Inc.(a) 229,400 9,000 Dell Computer Corp.(a) 345,937 5,600 EMC Corp.(a) 596,400 4,500 Equant(a) 465,469 11,200 Hewlett-Packard Co. 1,212,400 3,100 International Business Machines Corp. 347,781 11,700 Seagate Technology, Inc.(a) 468,731 2,300 TDK Corp. 246,100 ---------- 4,946,625
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 5 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Shares Description Value (Note 1) - ------------------------------------------------------------ Computer Services--2.1% 6,300 Affiliated Computer Services, Inc.(a) $ 250,425 300 AnswerThink Consulting Group, Inc.(a) 9,769 1,575 Aspen Technology, Inc.(a) 57,094 1,850 CIBER, Inc.(a) 41,741 11,500 Cisco Systems, Inc.(a) 1,259,250 300 Getronics N.V. (Netherlands) 19,283 7,500 NetSolve, Inc.(a) 274,219 1,275 RadiSys Corp.(a) 51,956 1,700 RSA Security, Inc.(a) 92,437 300 Sapient Corp.(a) 26,512 6,700 Sun Microsystems, Inc.(a) 526,369 8,500 Whittman-Hart, Inc.(a) 301,750 ---------- 2,910,805 - ------------------------------------------------------------ Consumer Products--0.8% 2,112 Fossil, Inc. 41,052 200 Hitachi Ltd., ADR 28,600 1,000 PerkinElmer, Inc. 50,063 2,360 Siemens AG (Germany) 318,516 8,900 Tandy Corp. 434,987 1,875 Tupperware Corp. 30,586 15,942 Unilever PLC (United Kingdom) 97,987 2,100 Waters Corp.(a) 155,137 ---------- 1,156,928 - ------------------------------------------------------------ Cosmetics/Toiletries--0.3% 6,000 Kao Corp. (Japan) 163,870 5,100 The Estee Lauder Co., Inc. 260,738 ---------- 424,608 - ------------------------------------------------------------ Dental Supplies 1,075 Patterson Dental Co.(a) 46,830 - ------------------------------------------------------------ Diversified Manufacturing--1.0% 1,600 Corning, Inc. 246,800 2,000 CUNO, Inc.(a) 46,750 6,000 General Electric Co. 800,250 23,900 Invensys PLC (United Kingdom) $ 116,243 1,625 Trinity Industries, Inc. 37,984 3,100 Veba AG (Germany) 128,877 ---------- 1,376,904 - ------------------------------------------------------------ Diversified Operations--0.3% 20,000 Granada Group PLC (United Kingdom)(a) 199,405 2,329 Vivendi (France) 237,258 ---------- 436,663 - ------------------------------------------------------------ Drugs & Medical Supplies--0.3% 1,425 Datascope Corp.(a) 51,478 5,000 Sankyo Co. Ltd. (Japan) 116,984 7,300 Smithkline Beecham PLC (United Kingdom)(a) 87,434 4,333 Zeneca Group PLC(a) 160,251 ---------- 416,147 - ------------------------------------------------------------ Electrical Utilities--0.4% 14,677 British Energy PLC (United Kingdom) 66,515 2,150 Conectiv, Inc. 37,491 9,720 Endesa SA (Spain) 179,177 1,650 NorthWestern Corp. 36,506 2,450 NSTAR 102,747 4,500 Public Service Co. of New Mexico 71,437 700 RGS Energy Group, Inc. 14,131 ---------- 508,004 - ------------------------------------------------------------ Electronic Components--4.3% 1,800 Alpha Industries, Inc.(a) 150,750 1,000 Applied Micro Circuits Corp.(a) 147,750 10,800 Arrow Electronics, Inc.,(a) 226,800 1,500 ATMI, Inc.(a) 52,125 4,000 Avnet, Inc. 214,750 1,100 Broadcom Corp.(a) 318,244 1,450 Cleco Corp. 48,756 400 Credence Systems Corp.(a) 33,950 1,075 CTS Corp. 75,452 8,540 Electrolux AB, Series B (Sweden) 180,555
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 6 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Shares Description Value (Note 1) - ------------------------------------------------------------ Electronic Components (cont'd.) 1,150 Electroglas, Inc.(a) $ 33,853 2,450 ESS Technology, Inc.(a) 39,812 3,200 Flextronics International Ltd.(a) 159,000 8,000 Gentex Corp.(a) 240,000 3,700 General Motors Corp. (Class H) 297,619 950 Hadco Corp.(a) 37,763 1,125 Idacorp, Inc. 37,758 4,200 Motorola, Inc. 574,350 5,700 Novellus Systems, Inc.(a) 280,012 2,600 Optical Coating Lab, Inc. 987,675 1,346 Philips Electronics N.V. (Netherlands) 196,536 1,925 Pioneer-Standard Electronics, Inc. 26,258 2,200 PMC-Sierra, Inc.(a) 397,100 5,900 Reliant Energy, Inc. 134,594 1,425 Rogers Corp.(a) 54,150 1,425 Semtech Corp.(a) 85,500 6,800 Texas Instruments, Inc. 733,550 700 Veeco Instruments, Inc.(a) 38,413 ---------- 5,803,075 - ------------------------------------------------------------ Entertainment--0.1% 1,150 Gaylord Entertainment Co. 32,056 1,700 SFX Entertainment, Inc.(a) 55,356 ---------- 87,412 - ------------------------------------------------------------ Fertilizer--0.1% 1,500 Potash Corp. of Saskatchewan, Inc. 78,469 - ------------------------------------------------------------ Financial Services--2.9% 400 ACOM Co. Ltd. (Japan) 46,644 1,600 Alcatel Alsthom (France) 316,673 1,100 Allied Capital Corp. 20,350 2,100 American Express Co. 346,106 1,125 Arthur J. Gallagher & Co. 60,469 1,250 Chittenden Corp. 35,391 18,250 Citigroup, Inc. 1,048,234 525 Dain Rauscher Corp. 26,447 3,600 Doral Financial Corp. 37,350 3,300 Downey Financial Corp. 63,525 2,175 Eaton Vance Corp. $ 89,039 4,300 Federated Investment, Inc. 84,925 4,225 Financial Security Assurance Holdings Ltd. 233,167 700 Knight-Trimark Group, Inc.(a) 22,138 1,400 Merrill Lynch & Co., Inc. 121,450 2,500 Metris Co., Inc. 91,562 1,400 Morgan (J.P.) & Co., Inc. 171,938 9,400 Morgan Stanley Dean Witter 622,750 1,400 Orix Corp. (Japan) 260,999 1,700 Promise Co. Ltd. (Japan) 117,105 2,500 Webster Financial Corp. 58,125 ---------- 3,874,387 - ------------------------------------------------------------ Food & Beverage--0.9% 650 Adolph Coors Co. 31,525 14,000 Asahi Breweries Ltd. (Japan) 137,155 13,900 Cadbury Schweppes PLC (United Kingdom) 77,280 1,425 Corn Products International, Inc. 32,775 14,500 Diageo PLC (United Kingdom) 107,957 3,100 Heineken N.V. (Netherlands) 159,554 1,525 J & J Snack Foods Corp.(a) 29,166 21,000 Nabisco Group Holding Corp. 181,125 1,700 Performance Food Group Co.(a) 39,206 3,100 Riviana Foods, Inc. 50,763 12,700 Sara Lee Corp. 234,156 19,300 Tesco PLC 51,074 1,775 Universal Foods Corp. 32,616 ---------- 1,164,352 - ------------------------------------------------------------ Gold Mines 1,150 Commerce Group Corp.(a) 29,756 - ------------------------------------------------------------ Health Care--2.8% 2,800 Apria Healthcare Group, Inc.(a) 56,000 30,600 Columbia/HCA Healthcare Corp. 835,763 22,500 Foundation Health Systems, Inc. 230,625 26,200 HEALTHSOUTH Corp.(a) 144,100 926 LifePoint Hospitals, Inc.(a) 12,501
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 7 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Shares Description Value (Note 1) - ------------------------------------------------------------ Health Care (cont'd.) 3,525 Nationwide Health Properties, Inc. $ 47,588 5,700 PacifiCare Health Systems, Inc.(a) 241,181 4,500 PAREXEL International Corp.(a) 59,625 850 ResMed, Inc.,(a) 36,497 37,200 Tenet Healthcare Corp.(a) 846,300 875 TLC The Laser Center, Inc.(a) 11,922 826 Triad Hospital, Inc.(a) 14,145 1,425 Trigon Healthcare, Inc.(a) 43,373 9,200 United Healthcare Corp. 487,600 11,700 Wellpoint Health Networks, Inc.(a) 795,600 ---------- 3,862,820 - ------------------------------------------------------------ Home Furnishings--0.1% 3,525 Ethan Allen Interiors, Inc. 88,125 2,525 Furniture Brands International, Inc.(a) 42,925 ---------- 131,050 - ------------------------------------------------------------ Hotels--0.2% 15,800 Hilton Hotels Corp. 133,312 19,400 MeriStar Hotels & Resorts, Inc. 64,263 2,900 Park Place Entertainment Corp.(a) 30,450 ---------- 228,025 - ------------------------------------------------------------ Household Products 775 Libbey, Inc. 19,956 - ------------------------------------------------------------ Human Resources--0.1% 1,275 CDI Corp.(a) 29,723 2,075 Interim Services, Inc.(a) 52,005 4,000 RemedyTemp, Inc.(a) 86,250 ---------- 167,978 - ------------------------------------------------------------ Insurance--3.3% 544 Allianz AG (Germany) 177,232 2,800 American Financial Group, Inc. 59,850 2,300 American General Corp. 141,306 7,775 American International Group, Inc. 809,572 1,400 Annuity & Life Ltd. 34,475 12,200 AXA Financial, Inc. $ 397,262 1,290 AXA-UAP (France) 161,326 11,400 Chubb Corp. 641,250 650 E.W. Blanch Holdings, Inc. 31,444 1,640 Fidelity National Financial, Inc. 20,500 1,500 First American Financial Corp. 17,813 1,700 Foremost Corporation of America 48,556 7,700 John Hancock Financial Services, Inc.(a) 134,269 1,444 Medical Assurance, Inc.(a) 31,582 2,200 Mutual Risk Management Ltd. 36,025 14,600 Old Republic International Corp. 177,025 1,350 PartnerRe Ltd. 39,150 3,675 Presidential Life Corp. 60,637 2,117 Professionals Group, Inc. 47,633 1,425 Protective Life Corp. 39,633 7,500 Prudential Corp. PLC (United Kingdom) 138,993 800 Quotesmith.com, Inc.(a) 8,150 1,879 Radian Group, Inc. 75,747 6,500 Reinsurance Group of America, Inc. 143,812 19,271 Royal & Sun Alliance Insurance Group PLC (United Kingdom)(a) 126,012 16,100 SAFECO Corp. 394,450 4,700 St. Paul Companies, Inc. 141,881 1,950 The MONY Group, Inc. 52,650 3,800 Tokio Marine & Fire Insurance Co. Ltd., ADR 199,737 253 Zurich Versicherungs-Gesellschaft (Switzerland) 117,050 ---------- 4,505,022 - ------------------------------------------------------------ Machinery & Equipment--0.6% 775 Helix Technology Corp. 37,684 3,150 IDEX Corp. 84,656 1,375 Imation Corp.(a) 41,594 2,800 JLG Industries, Inc. 23,450 1,575 Kulicke & Soffa Industries, Inc.(a) 82,392 6,175 Lincoln Electric Holdings, Inc. 120,799 1,000 Mannesmann AG, ADR (Germany) 271,503 1,525 Milacron, Inc. 18,395 1,025 Tecumseh Products Co. 46,766 2,100 Terex Corp.(a) 47,775 1,575 The Manitowoc Co., Inc. 43,017 ---------- 818,031
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 8 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Shares Description Value (Note 1) - ------------------------------------------------------------ Manufacturing--0.5% 950 AptarGroup, Inc. $ 20,900 810 Cie De Saint Gobain (France) 113,950 1,970 Compagnie Generale des Etablissements, Series B (France) 69,017 1,500 KEMET Corp.(a) 71,344 3,800 Mettler-Toledo International, Inc.(a) 121,125 700 Nintendo Co. Ltd. (Japan) 128,934 4,220 Thyssen AG (Germany) 106,409 ---------- 631,679 - ------------------------------------------------------------ Media--1.6% 14,500 CBS Corp.(a) 845,531 8,000 Clear Channel Communications, Inc.(a) 691,000 1,000 Cumulus Media, Inc. 39,063 5,000 Omnicom Group, Inc. 468,438 1,700 Time Warner, Inc. 135,894 ---------- 2,179,926 - ------------------------------------------------------------ Medical Technology--0.9% 7,800 Amgen, Inc.(a) 496,762 200 Celera Genomics(a) 40,288 2,625 Cell Genesys, Inc.(a) 38,719 2,300 Genetech, Inc. 323,150 1,225 Gliatech, Inc.(a) 18,452 5,000 Inhale Therapeutic Systems, Inc.(a) 292,187 ---------- 1,209,558 - ------------------------------------------------------------ Metals--0.3% 18,600 Broken Hill Proprietary Co. Ltd. (Australia) 221,624 1,500 Cleveland-Cliffs, Inc. 41,906 2,350 Commercial Metals Co. 74,759 1,375 Kaydon Corp. 37,211 1,025 Precision Castparts Corp. 26,266 ---------- 401,766 - ------------------------------------------------------------ Mining--0.5% 21,400 Freeport-McMoRan Copper & Gold, Inc.(a) $ 342,400 13,900 Newmont Mining Corp. 283,213 ---------- 625,613 - ------------------------------------------------------------ Networking--0.2% 1,500 Ancor Communications, Inc.(a) 56,438 400 C-COR.net Corp.(a) 8,550 1,800 Juniper Networks, Inc.(a) 243,562 ---------- 308,550 - ------------------------------------------------------------ Office Equipment & Supplies--0.7% 7,000 Canon, Inc. (Japan) 286,447 13,000 Harris Corp. 377,000 23,400 IKON Office Solutions, Inc. 188,662 1,700 Kimball International, Inc. (Class B) 26,031 13,000 Lanier Worldwide, Inc.(a) 45,500 2,300 Wallace Computer Services, Inc. 25,156 ---------- 948,796 - ------------------------------------------------------------ Oil & Gas Services--2.3% 1,400 Amerada Hess Corp. 74,463 5,500 Atlantic Richfield Co. 423,500 1,275 Atwood Oceanics, Inc.(a) 52,036 2,150 Berry Petroleum Co. 31,309 22,400 BP Amoco PLC (United Kingdom) 197,593 3,925 Energen Corp. 67,706 23,700 ENI SpA (Italy) 111,290 2,300 Equitable Resources, Inc. 79,350 5,225 Helmerich & Payne, Inc. 122,788 2,876 Kerr-McGee Corp. 159,258 5,900 Keyspan Energy 138,281 7,300 Marine Drilling Companies, Inc.(a) 140,525 2,000 Mitchell Energy & Development Corp. 45,000 7,000 Newfield Exploration Co.(a) 192,500 5,200 Nuevo Energy Co. 96,200 6,900 Occidental Petroleum Corp. 137,137
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 9 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Shares Description Value (Note 1) - ------------------------------------------------------------ Oil & Gas Services (cont'd.) 2,500 Oneok, Inc. $ 65,313 925 SEACOR SMIT, Inc.(a) 42,666 4,025 Southwestern Energy Co. 22,892 8,985 Total SA, ADR 559,316 2,033 Total SA, Ser. B (France) 250,891 1,150 Ultramar Diamond Shamrock Corp. 25,156 1,350 Valero Energy Corp. 30,628 2,925 Varco International, Inc. 29,616 1,700 Wicor, Inc. 50,256 ---------- 3,145,670 - ------------------------------------------------------------ Paper & Packaging--2.4% 1,800 Ball Corp. 65,475 1,250 Chesapeake Corp. 32,578 3,900 Fort James Corp. 104,325 4,900 Georgia-Pacific Corp. (Timber Group) 106,269 13,500 Georgia-Pacific Group 550,125 10,200 International Paper Co. 485,775 10,600 Mead Corp. 394,850 2,000 Nippon Paper Industries Co. Ltd. (Japan) 13,796 2,500 P.H. Glatfelter Co. 30,781 2,500 Pope & Talbot, Inc. 40,000 1,800 Potlatch Corp. 72,450 5,900 Temple-Inland, Inc. 330,031 3,700 UPM-Kymmene Oy (Finland) 137,487 8,100 Weyerhaeuser Co. 464,738 11,000 Willamette Industries, Inc. 451,000 ---------- 3,279,680 - ------------------------------------------------------------ Pharmaceuticals--2.2% 875 Alpharma, Inc. 29,750 9,300 American Home Products Corp. 437,681 2,150 Bindley Western Industries, Inc. 36,685 5,100 Bristol-Myers Squibb Co. 336,600 1,925 Dura Pharmaceuticals, Inc.(a) 29,837 5,500 Glaxo Holdings PLC, ADR 290,125 975 King Pharmaceuticals, Inc.(a) 57,525 4,100 Merck & Co., Inc. 323,131 2,725 Ocular Sciences, Inc.(a) $ 55,181 5,850 Rhone Poulenc SA, Series A (France) 307,054 15 Roche Holdings AG (Switzerland) 161,052 9,600 Warner-Lambert Co. 911,400 ---------- 2,976,021 - ------------------------------------------------------------ Photography--0.7% 14,700 Eastman Kodak Co. 909,563 - ------------------------------------------------------------ Power Generation 850 Calpine Corp. 62,156 - ------------------------------------------------------------ Printing & Publishing--0.1% 1,225 Banta Corp. 23,275 18,700 Reed International PLC (United Kingdom) 160,414 ---------- 183,689 - ------------------------------------------------------------ Radio & Television 700 Entercom Communications Corp.(a) 37,188 - ------------------------------------------------------------ Real Estate--0.5% 400 Alexandria Real Estate Equities, Inc. 11,800 2,450 Bradley Real Estate, Inc. 41,650 2,025 BRE Properties, Inc. 44,550 2,425 Cabot Industrial Trust 47,287 1,400 Developers Diversified Reality Corp. 18,200 3,850 Franchise Finance Corp. of America 92,400 1,700 Gables Residential Trust 36,869 800 General Growth Properties, Inc. 22,800 4,900 Glenborough Realty Trust, Inc. 66,762 1,600 Health Care Property Investments, Inc. 40,900 2,025 Health Care REIT, Inc. 32,653 1,800 Hospitality Properties Trust 35,213 9,500 MeriStar Hospitality Corp. 154,969 3,800 Reckson Associates Reality Corp. 75,050 600 SL Green Reality Corp. 13,050 ---------- 734,153
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 10 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Shares Description Value (Note 1) - ------------------------------------------------------------ Real Estate-Development 3,650 Catellus Development Corp.(a) $ 45,625 - ------------------------------------------------------------ Restaurants--0.8% 9,000 CKE Restaurants, Inc. 57,938 34,800 Darden Restaurants, Inc. 552,450 1,300 Jack in the Box, Inc.(a) 26,731 9,100 McDonald's Corp. 338,406 11,175 Ryan's Family Steak Houses, Inc.(a) 99,877 ---------- 1,075,402 - ------------------------------------------------------------ Retail--3.1% 2,200 1-800-FLOWERS.COM, Inc.(a) 21,450 1,500 BJ's Wholesale Club, Inc.(a) 52,500 1,700 Buckle, Inc. 26,669 8,000 Consolidated Stores Corp.(a) 114,000 1,300 Department 56, Inc. 24,944 15,800 Dillards, Inc. (Class A) 303,162 12,100 Gap, Inc. 540,719 16,300 Great Universal Stores PLC (United Kingdom) 104,738 17,600 Home Depot, Inc. 996,600 37,200 Kmart Corp.(a) 311,550 6,500 Kohl's Corp.(a) 455,812 3,175 Micro Warehouse, Inc.(a) 60,325 4,700 Pep Boys - Manny, Moe & Jack 34,075 5,600 Ross Stores, Inc. 71,400 3,900 Sears, Roebuck & Co. 120,656 4,300 Tiffany & Co. 318,200 10,700 Toys 'R' Us, Inc.(a) 110,344 7,800 Wal-Mart Stores, Inc. 427,050 1,850 Zale Corp.(a) 66,138 ---------- 4,160,332 - ------------------------------------------------------------ Semiconductors--1.4% 4,300 Applied Materials, Inc.(a) 590,175 1,925 Cypress Semiconductor Corp.(a) 64,487 2,850 Integrated Device Technology, Inc.(a) $ 81,225 9,000 Intel Corp. 890,438 4,000 KLA Tencor Corp.(a) 234,500 ---------- 1,860,825 - ------------------------------------------------------------ Services--0.1% 16,100 Service Corp. International(a) 73,456 - ------------------------------------------------------------ Software--3.3% 2,100 Activision, Inc.(a) 32,813 100 Alteon Websystems, Inc.(a) 9,838 5,100 America Online, Inc.(a) 290,381 300 Ardent Software, Inc.(a) 12,900 200 Bluestone Software, Inc.(a) 17,625 2,500 BroadVision, Inc.(a) 318,281 800 Exodus Communications, Inc.(a) 91,900 5,000 HNC Software, Inc.(a) 450,937 2,900 I2 Technologies, Inc.(a) 558,612 5,000 Intuit, Inc.(a) 301,563 300 ITXC Corp.(a) 32,250 2,500 Legato Systems, Inc.(a) 62,969 600 Liberate Technologies(a) 47,288 12,400 Microsoft Corp.(a) 1,213,650 300 Mission Critical Software, Inc.(a) 17,250 500 NetIQ Corp.(a) 28,000 1,950 OneMain.com, Inc.(a) 23,888 2,000 Progress Software Corp.(a) 43,250 300 Proxicom, Inc.(a) 30,300 200 Software.com, Inc.(a) 13,575 2,000 Sybase, Inc.(a) 47,625 600 U.S. Interactive, Inc.(a) 31,200 5,100 VERITAS Software Corp.(a) 743,962 2,200 Verity, Inc.(a) 74,800 ---------- 4,494,857 - ------------------------------------------------------------ Steel 2,050 AK Steel Holding Corp. 20,756 1,200 Carpenter Technology Corp. 28,800 ---------- 49,556
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 11 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Shares Description Value (Note 1) - ------------------------------------------------------------ Telecommunications--6.8% 100 AirGate PCS, Inc.(a) $ 6,113 3,600 Allegiance Telecommunications, Inc.(a) 379,350 5,500 ALLTEL Corp. 367,125 19,600 AT&T Corp.(a) 1,016,675 3,300 British Telecommunications PLC (United Kingdom) 64,161 2,100 Carrier Access Corp.(a) 92,400 1,812 Deutsche Telekom (Germany) 122,005 1,100 Intermedia Communications, Inc.(a) 47,300 2,300 JDS Uniphase Corp.(a) 469,056 3,825 Level 3 Communications, Inc.(a) 371,481 4,600 Metromedia Fiber Network, Inc. 311,362 3,600 Millicom International Cellular SA(a) 256,950 2,100 Nextel Communications, Inc.(a) 223,388 3,100 Nextlink Communications, Inc. 261,563 11 Nippon Telegraph & Telephone Corp. (Japan) 166,107 5,600 Nokia Corp., ADR(a) 1,024,800 4,750 NTL, Inc.(a) 597,609 10 NTT Mobile Communications (Japan) 339,299 6,500 Pacific Gateway Exchange, Inc.(a) 127,563 500 Plantronics, Inc.(a) 35,813 18,500 Portugal Telecom SA 218,974 500 QUALCOMM, Inc.(a) 63,500 18,600 Qwest Communications International, Inc.(a) 732,375 2,900 Tele Danmark AS (Denmark) 205,383 15,009 Telefonica SA (Spain) 377,149 2,800 Tellabs, Inc.(a) 151,200 1,300 True North Communications, Inc. 54,031 3,600 Univision Communications, Inc.(a) 385,650 15,000 Vodafone AirTouch PLC, ADR 840,000 ---------- 9,308,382 - ------------------------------------------------------------ Tobacco--0.7% 10,200 Loews Corp. 571,200 11,200 Philip Morris Co., Inc. 234,500 6,833 R.J. Reynolds Tobacco Holdings, Inc. 117,442 3,100 Universal Corp. 63,356 ---------- 986,498 - ------------------------------------------------------------ Transportation--0.1% 1,650 Alexander & Baldwin, Inc. $ 33,309 3,075 Roadway Express, Inc. 70,725 1,575 Sea Containers Ltd. 45,380 ---------- 149,414 - ------------------------------------------------------------ Trucking & Shipping--0.3% 10,700 Air Express International Corp. 349,087 1,925 US Freightways Corp. 70,022 ---------- 419,109 - ------------------------------------------------------------ Utilities--0.5% 1,500 California Water Service Group 39,938 3,800 General Public Utilities Corp. 110,200 840 Suez Lyonnaise des Eaux (France) 120,208 5,900 Unicom Corp. 230,837 6,375 Washington Gas Light Co. 160,172 ---------- 661,355 - ------------------------------------------------------------ Waste Management--0.2% 6,000 Casella Waste Systems, Inc.(a) 90,375 9,000 Waste Management, Inc. 157,500 ---------- 247,875 - ------------------------------------------------------------ Wire & Cable 1,000 Sumitomo Electric Industries (Japan) 13,255 ---------- Total common stocks (cost $71,125,281) 83,953,031 ---------- ------------------------------------------------------------ WARRANTS(a) - ------------------------------------------------------------ Units 25 Intersil Corp., expiring 8/15/09 (cost $0) 6,250 ----------
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 12 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Principal Moody's Amount Rating (000) Description Value (Note 1 - ------------------------------------------------------------ CORPORATE BONDS--18.3% - ------------------------------------------------------------ Aerospace B2 $ 50 BE Aerospace, Inc., Sr. Sub. Notes, 9.50%, 11/1/08 $ 46,250 - ------------------------------------------------------------ Airlines--0.2% Ba2 200 Continental Airlines Inc., Sr. Notes, 8.00%, 12/15/05 180,898 B3 50 US Airways, Inc., Sr. Notes, 9.625%, 2/1/01 49,622 ------------ 230,520 - ------------------------------------------------------------ Audio/Visual--0.2% Ba2 250 Imax Corp., Sr. Notes, 7.875%, 12/1/05 233,125 - ------------------------------------------------------------ Auto Rental B1 55 United Rentals, Inc., Gtd. Notes, 9.25%, 1/15/09 51,563 - ------------------------------------------------------------ Automotive Parts--0.4% B2 10 Collins & Aikman Products Co., Sr. Sub. Notes, 11.50%, 4/15/06 9,700 B3 75 Eagle-Picher, Inc., Gtd. Notes, 9.375%, 3/1/08 64,125 B3 250 Hayes Wheels Int'l, Inc., Sr. Sub. Notes, 9.125%, 7/15/07 240,625 Ba1 250 Lear Corp., Sr. Notes, Series B, 8.11%, 5/15/09 232,500 ------------ 546,950 - ------------------------------------------------------------ Banking--0.6% B1 $ 100 Chevy Chase Savings Bank, Sub. Deb., 9.25%, 12/1/05 $ 96,000 Korea Development Bank, Sr. Notes, Baa3 200 7.125%, 9/17/01 197,978 Baa3 300 7.90%, 2/1/02 299,508 Ba3 200 Sovereign Bancorp, Sr. Notes, 10.50%, 11/15/06 203,000 ------------ 796,486 - ------------------------------------------------------------ Broadcasting B3 30 Paxson Communications Corp., Sr. Sub. Notes, 11.625%, 10/1/02 31,050 - ------------------------------------------------------------ Building & Products--0.3% B2 250 Ainsworth Lumber Ltd., Sr. Notes, 12.50%, 7/15/07 272,500 Ba3 150 Building Materials Corp. of America, Sr. Notes, 8.00%, 12/1/08 132,375 Ba2 15 Standard Pacific Corp., Sr. Notes, 8.50%, 4/1/09 13,162 ------------ 418,037 - ------------------------------------------------------------ Cable--0.8% Adelphia Communications Corp., Sr. Notes, B1 200 8.125%, 7/15/03 187,000 B1 100 7.875%, 5/1/09 86,750 B3 25 Classic Cable, Inc., Sr. Sub. Notes, 9.375%, 8/1/09 23,563
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 13 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Principal Moody's Amount Rating (000) Description Value (Note 1 - ------------------------------------------------------------ Cable (cont'd.) B3 $ 150 Diamond Cable Comm. Co. (United Kingdom), Sr. Disc. Notes, 13.25%, 9/30/04 $ 160,875 B2 250 Mediacom LLC Capital Corp., Sr. Notes, 7.875%, 2/15/11 214,375 Ba3 100 Rogers Cablesystems, Inc., Sr. Notes, 9.625%, 8/1/02 102,000 United Pan-Europe Communications (Netherlands), Sr. Disc. Notes, B2 100 12.50%, 8/1/09 53,500 Sr. Notes, B2 335 10.875%, 8/1/09 325,787 ------------ 1,153,850 - ------------------------------------------------------------ Casinos--0.8% B2 150 Aztar Corp., Sr. Sub. Notes, 8.875%, 5/15/07 138,750 Ba2 250 Harrahs Operating, Inc., Gtd. Sr. Sub. Notes, 7.875%, 12/15/05 235,625 B2 250 Hollywood Park, Inc., Sr. Sub. Notes, Series B, 9.25%, 2/15/07 240,937 B2 150 Horseshoe Gaming LLC, Sr. Sub. Notes, 8.625%, 5/15/09 138,750 B2 15 Isle Capri Casinos, Inc., Sr. Sub. Notes, 8.75%, 4/15/09 13,425 Ba2 100 Mandalay Resort Group, Sr. Sub. Deb., 7.625%, 7/15/13 85,500 Ba2 250 Mohegan Tribal Gaming Authority, Sr. Notes, 8.125%, 1/1/06 235,000 ------------ 1,087,987 - ------------------------------------------------------------ Chemicals--0.3% B2 $ 75 Huntsman ICI Chemicals, Inc., Sr. Sub. Notes, 10.125%, 7/1/09 $ 75,750 B1 50 Huntsman Polymers Corp., Sr. Notes, 11.75%, 12/1/04 52,500 Ba3 100 Lyondell Chemical Co., Sr. Sub. Notes, 9.875%, 5/1/07 98,750 Sterling Chemicals, Inc., Sr. Sub. Notes, B3 55 12.375%, 7/15/06 56,925 B3 55 11.75%, 8/15/06 44,000 B2 65 ZSC Specialty Chemicals PLC, Sr. Notes, 11.00%, 7/1/09 66,625 ------------ 394,550 - ------------------------------------------------------------ Coal Ba3 25 P & L Coal Holdings Corp., Sr. Notes, 8.875%, 5/15/08 23,813 - ------------------------------------------------------------ Commercial Services--0.1% B2 100 Iron Mountain, Inc., Sr. Sub. Notes, MTN, 8.25%, 7/1/11 88,250 - ------------------------------------------------------------ Computer Services--0.3% NR 100 Globix Corp., Sr. Notes, 12.50%, 2/1/10 101,000 Ba1 250 Unisys Corp., Sr. Notes, Series B, 12.00%, 4/15/03 266,875 ------------ 367,875
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 14 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Principal Moody's Amount Rating (000) Description Value (Note 1 - ------------------------------------------------------------ Containers--0.1% Ba1 $ 50 Owens-Illinois, Inc., Sr. Deb. Notes, 7.50%, 5/15/10 $ 44,946 B3 75 Packaged Ice, Inc., Sr. Notes, 9.75%, 2/1/05 66,750 ------------ 111,696 - ------------------------------------------------------------ Diversified Manufacturing--0.3% B3 200 Corning Consumer Products, Sr. Sub. Notes, 9.625%, 5/1/08 149,000 B2 150 Gentek, Inc., Gtd. Notes, 11.00%, 8/1/09 154,500 B2 145 Tenneco, Inc., Sr. Sub. Notes, 11.625%, 10/15/09 147,900 ------------ 451,400 - ------------------------------------------------------------ Diversified Operations B2 55 SCG Holding Co., Sr. Sub. Notes, 12.00%, 8/1/09 58,300 - ------------------------------------------------------------ Electrical Utilities A3 500 Alliant Energy Resources, Inc., Sub. Notes, 7.25%, 2/15/30 33,375 - ------------------------------------------------------------ Engineering & Construction--0.1% B1 129 CSC Holdings, Inc., Sr. Sub. Deb., 10.50%, 5/15/16 142,223 - ------------------------------------------------------------ Financial Services--3.1% Ba1 100 Americredit Corp., Sr. Notes, 9.875%, 4/15/06 100,250 A2 300 Bear Stearns Cos., Inc., Sr. Notes, 6.15%, 3/2/04 282,498 Baa2 $ 500 Capital One Bank, Sr. Notes, 6.76%, 7/23/02 $ 488,284 NR 100 Coinstar, Inc., Sr. Disc. Notes, 13.00%, 10/1/06 102,000 NR 268 Credit Asset Receivable LLC, Sr. Sec'd. Notes, 6.274%, 10/31/03 260,959 Baa1 300 Finova Capital Corp., MTN, 5.98%, 2/27/01 296,343 Ba1 100 GS Escrow Corp., Notes, 7.05%, 8/1/03 95,346 A2 700 Household Finance Corp., Notes, 7.00%, 8/1/03 683,649 Baa1 500 MBNA America Bank NA, MTN, 6.875%, 7/15/04 480,780 Ba3 150 Metris Co., Inc., Sr. Deb. Notes, 10.125%, 7/15/06 144,000 A1 300 Morgan J.P. & Co., Inc., Sr. Notes, 5.75%, 2/25/04 280,977 Baa2 300 Orix Credit Alliance, Inc., MTN, 6.785%, 4/16/01 298,317 Ba3 275 RBF Finance Co., Sr. Notes, 11.00%, 3/15/06 294,250 Aa3 500 Wells Fargo & Co., Notes, 6.625%, 7/15/04 482,180 ------------ 4,289,833
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 15 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Principal Moody's Amount Rating (000) Description Value (Note 1 - ------------------------------------------------------------ Food & Beverage--0.4% B3 $ 50 Agrilink Foods, Inc., Sr. Sub. Notes, 11.875%, 11/1/08 $ 49,250 B2 20 Ameriserve Food Distribution, Inc., Sr. Notes, 8.875%, 10/15/06 6,900 B1 250 Cott Corp., Sr. Notes, 8.50%, 5/1/07 231,875 Caa 25 Del Monte Foods Co., Sr. Disc. Notes, Series B, Zero Coupon (until 12/15/02) 12.50%, 12/15/07 20,000 B3 5 Dominos, Inc., Sr. Sub. Notes, 10.375%, 1/15/09 4,688 B2 150 Pilgrim's Pride Corp., Sr. Sub. Notes, 10.875%, 8/1/03 151,500 B2 100 Vlasic Foods Intl., Inc., Sr. Sub. Notes, 10.25%, 7/1/09 90,000 ------------ 554,213 - ------------------------------------------------------------ Gaming--0.1% B3 75 Coast Hotels & Casinos, Inc., Gtd. Notes, 9.50%, 4/1/09 69,375 - ------------------------------------------------------------ Health Care--1.0% B3 100 Apria Healthcare Group, Sr. Sub. Notes, 9.50%, 11/1/02 97,500 B2 100 Biovail Corp. International, Sr. Notes, 10.875%, 11/15/05 105,000 Columbia/HCA Healthcare Corp., Deb. Notes, Ba2 55 7.05%, 12/1/27 40,975 Ba2 25 7.50%, 11/15/95 19,875 MTN, Ba2 $ 100 7.69%, 6/15/25 $ 80,500 Ba2 200 6.73%, 7/15/45 185,500 B3 30 Concentra Operating Corp., Sr. Sub. Notes, Series A, 13.00%, 8/15/09 25,500 Fresenius MedCare Cap. Trust, Gtd. Notes, Ba3 125 9.00%, 12/1/06 118,750 Ba3 75 7.875%, 2/1/08 67,125 Baa3 250 HEALTHSOUTH Corp., Sr. Notes, 7.00%, 6/15/08 204,767 B3 40 Iasis Healthcare Corp., Sr. Sub. Notes, 13.00%, 10/15/09 41,000 C 250 Integrated Health Services, Inc., Sr. Sub. Notes, Series A, 9.25%, 1/15/08 17,500 B3 100 LifePoint Hospitals Holdings, Inc., Sr. Sub. Notes, 10.75%, 5/15/09 102,750 B3 100 Magellan Health Services, Inc., Sr. Sub. Notes, 9.00%, 2/15/08 80,000 Ba1 100 Tenet Healthcare Corp., Sr. Notes, 7.875%, 1/15/03 96,500 B3 125 Triad Hospitals Holdings, Inc., Sr. Sub. Notes, 11.00%, 5/15/09 129,375 ------------ 1,412,617 - ------------------------------------------------------------ Hotels--0.1% Ba2 50 Meditrust, Sr. Notes, 7.25%, 3/15/04 39,686 Ba1 120 Starwood Hotel & Resorts, Deb. Notes, 7.375%, 11/15/15 96,083 ------------ 135,769
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 16 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Principal Moody's Amount Rating (000) Description Value (Note 1 - ------------------------------------------------------------ Industrials--0.2% B3 $ 25 Intersil Corp., Sr. Sub. Notes, 13.25%, 8/15/09 $ 28,000 B2 250 Purina Mills, Inc., Sr. Sub. Notes, 9.00%, 3/15/10 62,500 B3 250 United Int'l. Holdings, Inc., Sr. Disc. Notes, Zero Coupon (until 2/15/03) 10.75%, 2/15/08 163,750 ------------ 254,250 - ------------------------------------------------------------ Machinery & Equipment--0.1% B1 150 Applied Power, Inc., Sr. Sub. Notes, 8.75%, 4/1/09 157,500 - ------------------------------------------------------------ Manufacturing--0.1% B1 60 JPS Products, Sr. Notes, 11.125%, 6/15/01 60,450 B1 50 Phillips Van-Heusen, Sr. Sub. Notes, 9.50%, 5/1/08 46,500 B2 5 Sun World International, Inc., First Mtg., Series B, 11.25%, 4/15/04 5,050 B2 40 Venture Holdings Trust, Sr. Notes, 9.50%, 7/1/05 36,400 ------------ 148,400 - ------------------------------------------------------------ Media--0.4% B2 250 Ackerley Group, Inc., Sr. Sub. Notes, 9.00%, 1/15/09 236,250 B1 75 Chancellor Media Corp., Sr. Sub. Notes, 9.00%, 10/1/08 76,687 Baa3 $ 265 Time Warner, Inc., Series 97-1, 6.10%, 12/30/01 $ 258,905 ------------ 571,842 - ------------------------------------------------------------ Metals--0.2% B2 30 Golden Northwest Aluminum, Gtd. Notes, 12.00%, 12/15/06 31,275 B1 225 Kaiser Aluminum & Chemical Corp., Sr. Notes, 9.875%, 2/15/02 219,375 ------------ 250,650 - ------------------------------------------------------------ Miscellaneous--0.4% B2 65 Metromedia Fiber Network, Sr. Notes, 10.00%, 12/15/09 65,163 Baa1 450 Midamerican Funding LLC, Sr. Notes, 5.85%, 3/1/01 443,349 ------------ 508,512 - ------------------------------------------------------------ Oil & Gas Services--1.0% B3 160 Chesapeake Energy Corp., Sr. Notes, 9.625%, 5/1/05 149,600 Ba2 85 Eott Energy Partners LP, Sr. Notes, 11.00%, 10/1/09 85,956 Gulf Canada Resources Ltd., Sr. Notes, Ba1 220 8.35%, 8/1/06 210,650 Sr. Sub. Deb., Ba2 30 9.625%, 7/1/05 30,750
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 17 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Principal Moody's Amount Rating (000) Description Value (Note 1 - ------------------------------------------------------------ Oil & Gas (cont'd.) B1 $ 200 Parker Drilling Co., Sr. Notes, 9.75%, 11/15/06 $ 193,000 Ba2 200 Petroleos Mexicanos (Mexico), Gtd. Notes, 9.375%, 12/2/08 205,000 Plains Resources, Inc., Gtd. Notes, Series D, B2 100 10.25%, 3/15/06 96,000 Sr. Sub. Notes, Series B, B2 20 10.25%, 3/15/06 19,300 B2 55 Swift Energy Co., Sr. Sub. Notes, 10.25%, 8/1/09 54,175 B1 250 Triton Energy Ltd., Sr. Notes, 9.25%, 4/15/05 252,500 ------------ 1,296,931 - ------------------------------------------------------------ Paper & Packaging--0.7% B1 250 Ball Corp., Sr. Sub. Notes, 8.25%, 8/1/08 235,625 Doman Industries Ltd. (Canada), Sr. Notes, Caa 50 8.75%, 3/15/04 42,000 Caa 25 9.25%, 11/15/07 19,875 Caa 100 Repap New Brunswick (Canada), Sr. Notes, 10.625%, 4/15/05 91,000 B1 250 S.D. Warren Co., Sr. Sub. Notes, 12.00%, 12/15/04 260,000 Stone Container Corp., Sr. Notes Deb., B2 15 11.50%, 8/15/06 15,862 Sr. Sub. Deb., B3 250 12.25%, 4/1/02 252,500 ------------ 916,862 - ------------------------------------------------------------ Pharmaceuticals--0.1% Ba3 $ 100 ICN Pharmaceuticals, Inc., Sr. Notes, 8.75%, 11/15/08 $ 93,000 - ------------------------------------------------------------ Printing & Publishing--0.5% B1 250 Mail Well I Corp., Sr. Sub. Notes, 8.75%, 12/15/08 228,750 B2 250 Transwestern Publishing Co. LP, Sr. Sub. Notes, Series D, 9.625%, 11/15/07 241,875 B1 250 World Color Press, Inc., Sr. Sub. Notes, 7.75%, 2/15/09 232,500 ------------ 703,125 - ------------------------------------------------------------ Real Estate--0.2% Ba2 250 HMH Properties, Inc., Sr. Notes, 8.45%, 12/1/08 224,375 - ------------------------------------------------------------ Real Estate-Development--0.1% B1 100 Intrawest Corp., Sr. Notes, 10.50%, 2/1/10 99,000 - ------------------------------------------------------------ Recreation--0.3% B3 100 Ballys Total Fitness Holdings, Sr. Sub. Notes, Series C, 9.875%, 10/15/07 94,000 B3 350 Premier Parks, Inc., Sr. Notes, 9.75%, 6/15/07 341,250 ------------ 435,250
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 18 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Principal Moody's Amount Rating (000) Description Value (Note 1 - ------------------------------------------------------------ Restaurants--0.4% B2 $ 125 Advantica Restaurant Group, Inc., Sr. Notes, 11.25%, 1/15/08 $ 83,750 B2 250 Carrols Corp., Sr. Sub. Notes, 9.50%, 12/1/08 217,500 B2 50 CKE Restaurants, Inc., Sr. Sub. Notes, 9.125%, 5/1/09 38,000 Ba1 250 Felcor Suites LP, Gtd. Sr. Notes, 7.375%, 10/1/04 221,250 Ba3 30 Sbarro, Inc., Sr. Notes, 11.00%, 9/15/09 30,750 ------------ 591,250 - ------------------------------------------------------------ Retail--0.1% Caa 50 Pathmark Stores, Inc., Sr. Sub. Notes, 9.625%, 5/1/03 40,000 B2 75 Stater Brothers Holdings, Inc., Sr. Notes, 10.75%, 8/15/06 75,750 ------------ 115,750 - ------------------------------------------------------------ Schools--0.1% B3 90 Kindercare Learning Center, Inc., Sr. Sub. Notes, 9.50%, 2/15/09 85,500 B3 25 La Petite Holdings, Sr. Notes, 10.00%, 5/15/08 16,875 ------------ 102,375 - ------------------------------------------------------------ Services--0.1% B2 $ 35 Alliance Atlantis Commerce, Inc., Sr. Sub. Notes, 13.00%, 12/15/09 $ 34,300 B3 50 IT Group, Inc., Sr. Sub. Notes, Series B, 11.25%, 4/1/09 47,500 ------------ 81,800 - ------------------------------------------------------------ Software--0.2% B3 25 Covad Commerce Group, Sr. Notes, 12.00%, 2/15/10 25,187 NR 50 Exodus Communications, Sr. Notes, 10.75%, 12/15/09 50,875 B3 150 Psinet, Inc., Sr. Notes, 11.00%, 8/1/09 154,500 Verio, Inc., Sr. Notes, B3 5 11.25%, 12/1/08 5,238 B3 100 10.625%, 11/15/09 103,500 ------------ 339,300 - ------------------------------------------------------------ Steel--0.4% Ba2 20 AK Steel Corp., Sr. Notes, 7.875%, 2/15/09 18,000 B2 15 Algoma Steel, Inc., First Mtg. Notes, 12.375%, 7/15/05 14,025 Ba2 25 Leviathan Corp., Sr. Sub. Notes, 10.375%, 6/1/09 25,875
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 19 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Principal Moody's Amount Rating (000) Description Value (Note 1 - ------------------------------------------------------------ Steel (cont'd.) Ba3 $ 150 National Steel Corp., First Mtg., Series D, 9.875%, 3/1/09 $ 150,000 Caa2 25 Sheffield Steel Corp., First Mtg., Series B, 11.50%, 12/1/05 21,250 B2 250 UCAR Global Enterprises, Inc., Sr. Sub. Notes, 12.00%, 1/15/05 258,750 ------------ 487,900 - ------------------------------------------------------------ Telecommunications--2.6% Baa3 600 AT&T Corp., MTN, Series G, 6.31%, 4/23/02 598,482 B3 85 Adelphia Business Solutions, Sr. Disc. Notes, Zero Coupon (until 4/15/01) 13.00%, 4/15/03 76,075 B2 250 Charter Communication Holdings, Sr. Notes, 8.625%, 4/1/09 230,000 B3 110 Clearnet Communications, Inc., Sr. Disc. Notes, Zero Coupon (until 5/1/04) 10.125%, 5/1/09 64,900 B1 250 Global Crossing Holdings Ltd., Sr. Notes, 9.50%, 11/15/09 241,250 Level 3 Communications, Inc., Sr. Disc. Notes, B3 30 9.125%, 5/1/08 27,825 B3 130 Zero Coupon (until 12/1/03) 10.50%, 12/1/08 78,000 B1 95 Mcleodusa, Inc., Sr. Notes, 8.125%, 2/15/09 85,500 Nextel Communications, Inc., Sr. Disc. Notes, B1 $ 15 Zero Coupon (until 9/15/02) 10.65%, 9/15/07 $ 11,175 Sr. Notes, B1 425 9.375%, 11/15/09 410,125 B2 330 Nextlink Communications, Inc., Sr. Disc. Notes, 10.75%, 6/1/09 332,475 B3 250 NTL Communications Corp., Sr. Notes, Zero Coupon (until 10/1/03) 12.38%, 10/1/08 171,250 B3 100 Primus Telecomm Group, Sr. Notes, 12.75%, 10/15/09 102,000 RCN Corp., Sr. Notes, B3 5 10.00%, 10/15/07 4,850 B3 55 10.125%, 1/15/10 53,488 Telewest Communications PLC (United Kingdom), Sr. Disc. Deb., B1 250 Zero Coupon (until 10/1/00) 11.00%, 10/1/07 232,500 Sr. Disc. Notes, B1 235 Zero Coupon (2/1/05) 11.375%, 2/1/10 138,650 B3 250 Tritel PCS, Inc., Sr. Sub. Disc. Notes, Zero Coupon (until 5/15/04) 12.75%, 5/15/09 157,500 B3 125 Triton PCS, Inc., Gtd. Notes, 11.00%, 5/1/08 88,437 VSTR Wire Co., Sr. Disc. Notes, B2 65 Zero Coupon (11/15/04) 11.875%, 11/15/09 39,650 Sr. Notes, B2 90 10.375%, 11/15/09 92,250
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 20 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Principal Moody's Amount Rating (000) Description Value (Note 1 - ------------------------------------------------------------ Telecommunications (cont'd.) B2 $ 245 Williams Communications Group, Inc., Sr. Notes, 10.875%, 10/1/09 $ 252,350 B3 30 Worldwide Fiber, Inc., Sr. Notes, 12.00%, 8/1/09 31,425 ------------ 3,520,157 - ------------------------------------------------------------ Textile-Apparel Manufacturing--0.2% Baa3 250 Burlington Industries, Inc., Sr. Disc. Deb., 7.25%, 8/1/27 182,500 B3 25 Collins & Aikman Floorcovering, Sr. Sub. Notes, 10.00%, 1/15/07 24,125 ------------ 206,625 - ------------------------------------------------------------ Transportation B1 50 American Commercial Lines LLC, Sr. Notes, 10.25%, 6/30/08 45,500 - ------------------------------------------------------------ Utilities--0.4% Ba1 250 AES Corp., Sr. Notes, 9.50%, 6/1/09 248,125 Ba3 250 CMS Energy Corp., Sr. Notes, 7.50%, 1/15/09 227,500 Ba2 151 Niagara Mohawk Power Corp., Sr. Notes, Series C, 7.125%, 7/1/01 150,640 ------------ 626,265 - ------------------------------------------------------------ Waste Management--0.3% Allied Waste of North America, Inc., Sr. Notes, Ba3 250 7.875%, 1/1/09 215,000 Sr. Sub. Notes, B2 $ 100 10.00%, 8/1/09 $ 87,000 Ba1 150 Waste Management, Inc., Gtd. Notes, 6.00%, 5/15/01 145,332 ------------ 447,332 ------------ Total corporate bonds (cost $26,110,578) 24,953,058 ------------ - ------------------------------------------------------------ COLLATERALIZED MORTGAGE OBLIGATIONS--4.9% Aaa 134 Capital Asset Research Funding LP, Series 97-A, Class I, 6.40%, 12/15/04 130,825 Aaa 500 Contimortgage Home Equity Loan Trust, Series 1998-2, Class A4, 6.19%, 1/15/14 487,500 Aaa 192 DLJ Mortgage Acceptance Corp., 6.50%, 5/19/29 177,531 Federal Home Loan Mortgage Corp., Debs. 1,000 6.00%, 12/31/29 948,750 1,800 7.50%, 12/31/29 1,754,712 Series 119, Class H, 729 7.50%, 1/15/21 717,345 Series 1599, Class A, 47 5.80%, 6/15/19 46,722 Series 7, Class A, 252 7.00%, 9/17/31 238,318 525 Federal National Mortgage Assoc., Series 1998-73, Class MZ, 6.30%, 10/17/38 390,601 Aaa 300 GE Capital Mortgage Services, Inc., Series 1999-S, Class A29, 6.50%, 5/25/29 269,784
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 21 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Principal Moody's Amount Rating (000) Description Value (Note 1 - ------------------------------------------------------------ COLLATERALIZED MORTGAGE OBLIGATIONS (cont'd.) Aaa $ 400 PNC Mortgage Secs. Corp., Series 1999-5, Class A1, 7.25%, 10/25/29 $ 381,748 Residential Funding Mortgage, Series 1993-S36, Class A9, Aaa 200 6.48%, 10/25/08 197,750 Series 1994-S5, Class A6, Aa1 500 6.50%, 2/25/24 433,905 Series 1999-S8, Class A1, Aaa 208 6.25%, 3/25/14 191,803 Aaa 370 Salomon Brothers Mortgage, Series 1999-LB1, Class A, 5.39%, 6/25/29 369,793 ------------ Total collateralized mortgage obligations (cost $7,040,237) 6,737,087 ------------ - ------------------------------------------------------------ CONVERTIBLE BONDS--0.4% - ------------------------------------------------------------ Financial Services A2 EURO500 Hellenic Finance, 2.00%, 7/15/03, (cost $526,875) 481,510 ------------ - ------------------------------------------------------------ MUNICIPAL BONDS--0.2% New York City Gen. Oblig., Series B, NR $ 300 6.00%, 8/1/01 (cost $303,420) 293,085 ------------ - ------------------------------------------------------------ SOVEREIGN BONDS--0.3% Ba1 74 Republic of Phillippines, 9.50%, 10/21/24 73,783 United Mexican States, Ba1 300 7.44%, 6/27/02 297,750 ------------ Total sovereign bonds (cost $355,534) 371,533 ------------ - ------------------------------------------------------------ U.S. GOVERNMENT AGENCIES AND SECURITIES--8.8% Government National Mortgage Assoc., Single Family, $ 91 6.75%, 9/20/22 $ 91,774 250 6.00%, 12/31/29 223,282 5,800 6.50%, 12/31/29 5,359,548 420 7.00%, 12/31/29 399,592 United States Treasury Bonds, 400 8.75%, 8/15/20 490,188 1,700 8.00%, 11/15/21 1,955,000 300 6.00%, 2/15/26 277,593 312 3.625%, 4/15/28, TIPS 279,775 United States Treasury Notes, 1,261 3.625%, 7/15/02, TIPS 1,246,859 425 3.375%, 1/15/07, TIPS 401,259 500 4.75%, 11/15/08 435,000 821 3.875%, 1/15/09, TIPS 794,024 ------------ Total U.S. government agencies and securities (cost $11,969,446) 11,953,894 ------------ Total debt obligations (cost $46,306,090) 44,790,167 ------------ Total long-term investments (cost $117,431,371) 128,749,448 ------------ SHORT-TERM INVESTMENTS--11.7% - ------------------------------------------------------------ CORPORATE BONDS--2.6% - ------------------------------------------------------------ Banking--0.3% Baa1 300 Banco Latinoamericano SA, MTN, 6.15%, 5/2/00 298,950 NR 97 Central Bank Corp., Bonds, 6.93%, 7/5/00 95,265 ------------ 394,215
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 22 Portfolio of Investments as of PRUDENTIAL DIVERSIFIED FUNDS January 31, 2000 PRUDENTIAL DIVERSIFIED MODERATE (Unaudited) GROWTH FUND - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Principal Moody's Amount Rating (000) Description Value (Note 1 - ------------------------------------------------------------ Chemicals--0.2% Ba3 $ 250 Arco Chemical Co., Deb. Notes, 9.90%, 11/1/00 $ 252,500 - ------------------------------------------------------------ Financial Services--0.7% A2 400 General Motors Acceptance Corp., MTN, 6.25%, 4/5/00 399,064 Aa3 600 Morgan Stanley Dean Witter, Sr. Notes, 6.29%, 4/24/00 600,096 ------------ 999,160 - ------------------------------------------------------------ Multimedia--0.1% Baa3 200 Paramount Communications, Inc., Sr. Notes, 5.87%, 7/15/00 199,018 - ------------------------------------------------------------ Oil & Gas--0.8% Baa2 1,100 Public Services Enterprise Group, Notes, Series C, 6.52%, 3/15/00 1,100,049 - ------------------------------------------------------------ Telecommunications--0.3% A2 300 AT&T Corp., MTN, 6.46%, 3/6/00 300,201 - ------------------------------------------------------------ Utilities--0.2% Ba2 227 Niagara Mohawk Power Corp., Sr. Notes, Series B, 7.00%, 10/1/00 226,328 ------------ Total corporate bonds (cost $3,472,479) 3,471,471 ------------ - ------------------------------------------------------------ COLLATERALIZED MORTGAGE OBLIGATIONS--0.1% Aaa 196 Merrill Lynch Mortgage Investors, Inc., Series 1998-FF1, Class A, 5.95%, 2/20/00 (cost $195,816) 196,213 ------------ Principal Amount (000) Description Value (Note 1 - ------------------------------------------------------------ COMMERCIAL PAPER--0.8% $ 700 IBM Credit Corp., 6.29%, 2/8/00 $ 699,144 400 US West Capital Funding, Inc., 5.957%, 3/24/00 396,451 ------------ Total commercial paper (cost $1,095,702) 1,095,595 ------------ - ------------------------------------------------------------ REPURCHASE AGREEMENT--8.2% 11,165 Joint Repurchase Agreement Account, 4.72%, 02/01/00 (cost $11,165,000; Note 5) 11,165,000 ------------ Total short-term investments (cost $15,928,997) 15,928,279 ------------ - ------------------------------------------------------------ Total Investments--106.2% (cost $133,360,368) 144,677,727 Liabilities in excess of other assets--(6.2%) (8,453,551) ------------ Net Assets--100% $136,224,176 ------------ ------------
- --------------- (a) Non-income producing security. AB--Antiebolay (Swedish Stock Company). ADR--American Depository Receipt. AG--Aktiengesellschaft (German Stock Company). LLC--Limited Liability Company. LP--Limited Partnership. MTN--Medium Term Note. NR--Not Rated by Moody's or Standard & Poor's. N.V.--Naamloze Vennootschap (Dutch Corporation). Oy--Osakeyhtio (Finland Stock Company). PLC--Public Limited Company (British Corporation). SA-- Sociedad Anonima (Spanish Corporation or Societe Anonyme or French Corporation). SpA--Societa per Azione (Italian Corporation). TIPS--Treasury Inflation Protection Securities. The Fund's current Statement of Additional Information contains a description of Moody's and Standard & Poor's ratings. - -------------------------------------------------------------------------------- See Notes to Financial Statements. 23 PRUDENTIAL DIVERSIFIED FUNDS Statement of Assets and Liabilities PRUDENTIAL DIVERSIFIED MODERATE (Unaudited) GROWTH FUND - --------------------------------------------------------------------------------
Assets January 31, 2000 Investments, at value (cost $133,360,368)................................................................. $144,677,727 Foreign currency, at value ($1,490)....................................................................... 1,483 Cash...................................................................................................... 36,687 Receivable for investments sold........................................................................... 2,898,380 Receivable for Fund shares sold........................................................................... 774,651 Dividends and interest receivable......................................................................... 740,687 Forward currency contracts - amount receivable from counterparties........................................ 32,563 Prepaid expenses.......................................................................................... 1,068 ---------------- Total assets........................................................................................... 149,163,246 ---------------- Liabilities Payable for investments purchased......................................................................... 12,149,757 Payable for Fund shares reacquired........................................................................ 426,092 Accrued expenses and other liabilities.................................................................... 177,300 Distribution fee payable.................................................................................. 95,201 Management fee payable.................................................................................... 88,361 Forward currency contracts - amount payable to counterparties............................................. 1,636 Withholding taxes payable................................................................................. 723 ---------------- Total liabilities...................................................................................... 12,939,070 ---------------- Net Assets................................................................................................ $136,224,176 ---------------- ---------------- Net assets were comprised of: Shares of beneficial interest, at par.................................................................. $ 11,917 Paid-in capital in excess of par....................................................................... 122,921,536 ---------------- 122,933,453 Undistributed net investment income.................................................................... 1,016 Accumulated net realized gain on investments........................................................... 1,942,093 Net unrealized appreciation on investments and foreign currency transactions........................... 11,347,614 ---------------- Net assets, January 31, 2000.............................................................................. $136,224,176 ---------------- ---------------- Class A: Net asset value and redemption price per share ($32,365,646 / 2,827,278 shares of beneficial interest issued and outstanding)...................... $11.45 Maximum sales charge (5% of offering price)............................................................ .60 ---------------- Maximum offering price to public....................................................................... $12.05 ---------------- ---------------- Class B: Net asset value, offering price and redemption price per share ($77,600,427 / 6,791,420 shares of beneficial interest issued and outstanding)...................... $11.43 ---------------- ---------------- Class C: Net asset value and redemption price per share ($26,066,833 / 2,281,281 shares of beneficial interest issued and outstanding)...................... $11.43 Sales charge (1% of offering price).................................................................... .12 ---------------- Offering price to public............................................................................... $11.55 ---------------- ---------------- Class Z: Net asset value, offering price and redemption price per share ($191,270 / 16,698 shares of beneficial interest issued and outstanding)............................ $11.45 ---------------- ----------------
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 24 PRUDENTIAL DIVERSIFIED FUNDS PRUDENTIAL DIVERSIFIED MODERATE GROWTH FUND Statement of Operations (Unaudited) - ------------------------------------------------------------
Six Months Ended Net Investment Income January 31, 2000 Income Interest............................ $1,759,465 Dividends (net of foreign withholding taxes of $8,397)..... 380,207 ----------- Total income..................... 2,139,672 ----------- Expenses Management fee...................... 478,195 Distribution fee--Class A........... 33,268 Distribution fee--Class B........... 345,421 Distribution fee--Class C........... 122,362 Custodian's fees and expenses....... 176,000 Transfer agent's fees and expenses......................... 70,000 Registration fees................... 35,000 Amortization of offering costs...... 29,535 Reports to shareholders............. 21,000 Audit fees and expenses............. 12,500 Legal fees.......................... 6,000 Trustees' fees and expenses......... 2,500 Miscellaneous....................... 3,141 ----------- Total expenses................... 1,334,922 ----------- Net investment income.................. 804,750 ----------- Realized and Unrealized Gain (Loss) on Investment and Foreign Currency Transactions Net realized gain (loss) on: Investment transactions............. 2,771,765 Foreign currency transactions....... (6,223) ----------- 2,765,542 ----------- Net change in unrealized appreciation of: Investments......................... 5,031,804 Foreign currencies.................. 55,657 ----------- 5,087,461 ----------- Net gain on investments and foreign currencies....................... 7,853,003 ----------- Net Increase in Net Assets Resulting from Operations $8,657,753 ----------- -----------
PRUDENTIAL DIVERSIFIED FUNDS PRUDENTIAL DIVERSIFIED MODERATE GROWTH FUND Statement of Changes in Net Assets (Unaudited) - ------------------------------------------------------------
November 18, Six Months 1998(a) Ended Through Increase (Decrease) January 31, July 31, in Net Assets 2000 1999 Operations Net investment income.......... $ 804,750 $ 711,879 Net realized gain on investment and foreign currency transactions................ 2,765,542 66,328 Net change in unrealized appreciation of investments................. 5,087,461 6,260,153 ------------ ------------ Net increase in net assets resulting from operations... 8,657,753 7,038,360 ------------ ------------ Dividends and distributions (Note 1) Dividends from net investment income Class A..................... (259,944) (132,253) Class B..................... (623,246) (170,151) Class C..................... (209,353) (73,278) Class Z..................... (1,543) (152,622) ------------ ------------ (1,094,086) (528,304) ------------ ------------ Distributions from net realized capital gains Class A..................... (197,082) -- Class B..................... (490,277) -- Class C..................... (167,209) -- Class Z..................... (35,210) -- ------------ ------------ (889,778) -- ------------ ------------ Fund share transactions (Net of share conversions) (Note 6) Net proceeds from shares sold........................ 42,711,829 132,889,254 Net asset value of shares issued in reinvestment of dividends and distributions............... 1,929,600 516,607 Cost of shares reacquired...... (30,094,843) (24,942,216) ------------ ------------ Net increase in net assets from Fund shares transactions.... 14,546,586 108,463,645 ------------ ------------ Total increase.................... 21,220,475 114,973,701 Net Assets Beginning of period............... 115,003,701 30,000 ------------ ------------ End of period(b).................. $136,224,176 $115,003,701 ------------ ------------ ------------ ------------ - --------------- (a) Commencement of investment operations. (b) Includes undistributed net investment income of........... $ 1,016 $ 296,575 ------------ ------------
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 25 PRUDENTIAL DIVERSIFIED FUNDS PRUDENTIAL DIVERSIFIED MODERATE Notes to Financial Statements (Unaudited) GROWTH FUND - -------------------------------------------------------------------------------- Prudential Diversified Funds (the 'Trust'), is registered under the Investment Company Act of 1940 as an open-end, diversified management investment company presently consisting of three portfolios: Prudential Diversified Moderate Growth Fund (the 'Fund'), Prudential Diversified Conservative Growth Fund and Prudential Diversified High Growth Fund. The Trust was organized as a business trust in Delaware on July 29, 1998. The Fund had no significant operations other than the issuance of 750 shares each of Class A, Class B, Class C and Class Z shares of beneficial interest for $30,000 on September 2, 1998 to Prudential Investments Fund Management LLC ('PIFM' or the 'Manager'). The Fund commenced investment operations on November 18, 1998. The investment objective of the Fund is to provide capital appreciation and a reasonable level of current income. The Fund seeks to achieve its investment objective by investing in a diversified portfolio of equity and fixed income securities. The ability of the issuers of the debt securities held by the Fund to meet their obligations may be affected by economic developments in a specific industry or country. - ------------------------------------------------------------ Note 1. Accounting Policies The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. Securities Valuation: Securities for which the primary market is on an exchange and NASDAQ National Market Securities are valued at the last sales price on such exchange on the day of valuation, or, if there was no sale on such day, at the mean between the last bid and asked prices on such day or at the bid price on such day in the absence of an asked price. Securities that are actively traded in the over-the-counter market, including listed securities for which the primary market is believed by the Manager, in consultation with the subadviser, to be over-the-counter, are valued by an independent pricing agent or principal market maker. U.S. Government securities for which market quotations are available shall be valued at a price provided by an independent pricing agent or broker-dealer. Privately placed securities including equity securities for which market prices may be obtained from primary dealers shall be valued at the bid prices provided by such primary dealers. Securities for which market quotations are not readily available, may be valued using the last available market quotation for a period not to exceed five days, provided the Manager and Subadviser feel this is representative of market value; after that period, such securities and other securities are valued in good faith under procedures adopted by the Trustees. 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. All securities are valued as of 4:15 p.m., New York time. Repurchase Agreements: In connection with transactions in repurchase agreements with U.S. financial institutions, it is the Fund's policy that its custodian or designated subcustodians, as the case may be under triparty repurchase agreements, take possession of the underlying 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. Options: The Fund may either purchase or write options in order to hedge against adverse market movements or fluctuations in value caused by changes in prevailing interest rates or foreign currency exchange rates with respect to securities or currencies which the Fund currently owns or intends to purchase. When the Fund purchases an option, it pays a premium and an amount equal to that premium is recorded as an investment. When the Fund writes an option, it receives a premium and an amount equal to that premium is recorded as a liability. The investment or liability is adjusted daily to reflect the current market value of the option. If an option expires unexercised, the Fund realizes a gain or loss to the extent of the premium received or paid. If an option is exercised, the premium received or paid is an adjustment to the proceeds from the sale or the cost basis of the purchase in determining whether the Fund has realized a gain or loss. The difference between the premium and the amount received or paid on effecting a closing purchase or sale transaction is also treated as a realized gain or loss. Gain or loss on purchased options is included in net realized gain (loss) on investment transactions. Gain or loss on written options is presented separately as net realized gain (loss) on written option transactions. The Fund, as writer of an option, has no control over whether the underlying securities or currencies may be sold (called) or purchased (put). As a result, the Fund bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. The Fund, as purchaser of an option, bears the risk of the potential inability of the counterparties to meet the terms of their contracts. 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: - -------------------------------------------------------------------------------- 26 PRUDENTIAL DIVERSIFIED FUNDS PRUDENTIAL DIVERSIFIED MODERATE Notes to Financial Statements (Unaudited) GROWTH FUND - -------------------------------------------------------------------------------- (i) market value of investment securities, other assets and liabilities - at the closing daily rates 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 fiscal 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 long-term portfolio securities sold during the period. Accordingly, these realized foreign currency gains and losses are included in the reported net realized gains and losses on investment transactions. Net realized gains and losses on foreign currency transactions represent net foreign exchange gains or losses from holdings of foreign currencies, currency gains or losses realized between the trade and settlement dates on security transactions, and the difference between the amounts of dividends, interest and foreign taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains or losses from valuing foreign currency denominated assets and liabilities (other than investments) at fiscal period end exchange rates are reflected as a component of net unrealized appreciation on investments and 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. 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. Securities Transactions and Net Investment Income: Securities transactions are recorded on the trade date. Realized gains and losses from investment and currency transactions are calculated on the identified cost basis. Dividend income is recorded on the ex-dividend date; interest income is recorded on the accrual basis. Expenses are recorded on the accrual basis which may require the use of certain estimates by management. Net investment income (loss), other than distribution fees, and unrealized and realized 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 expects to pay dividends of net investment income semi-annually, and distributions of net realized capital and currency gains, if any, annually. Dividends and distributions are recorded on the ex-dividend date. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Taxes: For federal income tax purposes, each Fund is treated as a separate taxpaying entity. It is the intent of the Fund to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to shareholders. Therefore, no federal income tax provision is required. Withholding taxes on foreign dividends have been provided for in accordance with the Fund's understanding of the applicable country's tax rules and rates. Deferred Offering Cost: The Fund incurred approximately $98,000 in connection with the initial offering of the Fund. Offering costs were being amortized over a period of 12 months, that ended in November 1999. Reclassification of Capital Accounts: The Fund accounts for and reports distributions to shareholders in accordance with the American Institute of Certified Public Accountants (AICPA) 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 accumulated net realized gain on investments and decrease undistributed net investment income by $6,223, which is due to - -------------------------------------------------------------------------------- 27 PRUDENTIAL DIVERSIFIED FUNDS PRUDENTIAL DIVERSIFIED MODERATE Notes to Financial Statements (Unaudited) GROWTH FUND - -------------------------------------------------------------------------------- the reclass of net realized foreign currency losses. 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 manages the investment operations of the Fund, administers the Fund's affairs and supervises the Advisers' performance of all investment advisory services. PIFM pays for the costs pursuant to the advisory agreements, the cost of compensation of officers of the Fund, occupancy and certain clerical and accounting 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 .75% of the average daily net assets of the Fund. PIFM, in turn, pays the Advisers' fees, computed daily and paid monthly, equal to the annual rate specified below based on the average daily net assets of the Fund segments they manage.
Fee Paid By PIFM Advisers to Advisers - ------------------------------ --------------------------------- Jennison Associates LLC .30% with respect to the first $300 million; .25% for amounts in excess of $300 million The Prudential Investment .375%1 Corporation ('PIC') Lazzard Asset Management .40% Pacific Investment Management Company .25% Franklin Advisers, Inc. .50% The Dreyfus Corporation .45% 1Prior to January 1, 2000, PIC was reimbursed by PIFM for its reasonable costs and expenses.
The Fund has a distribution agreement with Prudential Investment Management Services LLC ('PIMS') which acts as the distributor of the Class A, Class B, Class C and Class Z shares of the Fund. The Fund compensates 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 PIMS. The distribution fees are accrued daily and payable monthly. No distribution or service fees are paid to PIMS as distributor for Class Z shares of the Fund. Pursuant to the Class A, B and C Plans, the Fund compensates 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 .25 of 1%, 1% and 1% of the average daily net assets of the Class A, B and C shares respectively, for the six months ended January 31, 2000. PIMS has advised the Fund that it has received approximately $113,300 and $46,600 in front-end sales charges resulting from sales of Class A and Class C shares, respectively, during the six months ended January 31, 2000. PIMS has advised the Fund that for the six months ended January 31, 2000, it has received approximately $68,100 and $20,600 in contingent deferred sales charges imposed upon certain redemptions by Class B and Class C shareholders, respectively. PIMS, PIC and PIFM 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 syndicated credit agreement ('SCA') with an unaffiliated lender. The maximum commitment under the SCA is $1 billion and interest on any borrowings will be at market rates. For the period 3/11/99-3/9/00, the commitment fee on the unused portion of the credit facility was .065 of 1%. Subsequent to March 9, 2000, the SCA was renewed with a maximum commitment of $1 billion at a commitment fee of .080 of 1% of the unused portion of the credit facility. The expiration date of the SCA is March 9, 2001. The commitment fee is accrued and paid quarterly on a pro rata basis by the Funds. Prior to March 11, 1999, the Funds had a credit agreement with a maximum commitment of $200,000,000. The commitment fee was .055 of 1% on the unused portion of the credit facility. The Fund did not borrow any amounts during the year ended January 31, 2000. The purpose of the credit agreements is to serve as an alternative source of funding for capital share redemptions. - ------------------------------------------------------------ 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 January 31, 2000, the Fund incurred fees of approximately $63,300 for the services of PMFS. As of January 31, 2000 approximately $12,200 of such fees were due to PMFS. Transfer agent fees and expenses in the Statement of Operations include certain out-of-pocket expenses paid to nonaffiliates. - -------------------------------------------------------------------------------- 28 PRUDENTIAL DIVERSIFIED FUNDS PRUDENTIAL DIVERSIFIED MODERATE Notes to Financial Statements (Unaudited) GROWTH FUND - -------------------------------------------------------------------------------- Note 4. Portfolio Securities Purchases and sales of portfolio securities, excluding short-term investments, for the six months ended January 31, 2000 were $98,992,136 and $93,983,901, respectively. At January 31, 2000, the Fund had outstanding forward currency contracts both to purchases and sell foreign currencies, as follows:
Value at Foreign Currency Settlement Date Current Purchase Contracts Payable Value Depreciation - --------------------- --------------- -------- --------------- Euro Dollars, expiring 2/2/00.... $ 114,006 $112,523 $(1,483) Japanese Yen, expiring 2/2/00.... 15,279 15,209 (70) --------------- -------- ------- $ 129,285 $127,732 $(1,553) --------------- -------- ------- --------------- -------- -------
Value at Foreign Currency Settlement Date Current Appreciation Sale Contracts Receivable Value (Depreciation) - --------------------- --------------- -------- --------------- Euro Dollars, expiring 2/17/00... $ 507,850 $485,679 $22,171 Great Britain Pounds, expiring 2/4/00.... 22,926 23,009 (83) Japanese Yen, expiring 3/30/00... 217,337 206,971 10,366 Swedish Krona, expiring 2/2/00.... 44,870 44,844 26 --------------- -------- ------- $ 792,983 $760,503 $32,480 --------------- -------- ------- --------------- -------- -------
The United States federal income tax cost basis of the Fund's investments as of January 31, 2000 was $133,443,343 and accordingly, net unrealized appreciation of investments for federal income tax purposes was $11,234,384 (gross unrealized appreciation--$19,311,999, gross unrealized depreciation--$8,077,615). For federal income tax purposes, the Fund is electing to treat net currency losses of approximately $19,300 incurred in the nine month period ended July 31, 1999 as being incurred in the current fiscal year. - ------------------------------------------------------------ Note 5. 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 January 31, 2000, the Fund had a 1.58% undivided interest in the repurchase agreements in the joint account. The undivided interest for the Fund represents $11,165,000 in principal amount. As of such date, each repurchase agreement in the joint account and the collateral therefore were as follows: Bear, Stearns & Co. Inc., 5.72% in the principal amount of $150,000,000, repurchase price $150,023,833, due 02/01/00. The value of the collateral including accrued interest is $153,133,078. Credit Suisse First Boston Corporation, 5.74% in the principal amount of $75,000,000, repurchase price $75,011,958, due 02/01/00. The value of the collateral including accrued interest is $77,491,043. Credit Suisse First Boston Corporation, 5.73% in the principal amount of $125,000,000, repurchase price $125,019,895, due 02/01/00. The value of the collateral including accrued interest is $129,169,641. Greenwich Capital Markets, Inc., 5.72% in the principal amount of $100,000,000, repurchase price $100,015,888, due 02/01/00. The value of the collateral including accrued interest is $102,001,008. Goldman, Sachs & Co., 5.70% in the principal amount of $230,536,000, repurchase price $230,572,501, due 02/01/00. The value of the collateral including accrued interest is $235,147,150. Merrill Lynch, Pierce, Fenner & Smith, Inc., 5.60% in the principal amount of $25,000,000, repurchase price $25,003,888, due 02/01/00. The value of the collateral including accrued interest is $25,501,335. - ------------------------------------------------------------ Note 6. 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 5%. 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 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. The Fund has authorized an unlimited number of shares of beneficial interest at $.001 par value per share. - -------------------------------------------------------------------------------- 29 PRUDENTIAL DIVERSIFIED FUNDS PRUDENTIAL DIVERSIFIED MODERATE Notes to Financial Statements (Unaudited) GROWTH FUND - -------------------------------------------------------------------------------- Transactions in shares of beneficial interest were as follows:
Class A Shares Amount - ----------------------------------- ---------- ------------ Six months ended January 31, 2000: Shares sold........................ 1,410,445 $ 15,736,690 Shares issued in reinvestment of dividends and distributions...... 46,636 526,056 Shares reacquired.................. (529,023) (5,896,916) ---------- ------------ Net increase in shares outstanding before conversion................ 928,058 10,365,830 Shares issued upon conversion from Class B.......................... 24,016 270,219 ---------- ------------ Net increase in shares outstanding...................... 952,074 $ 10,636,049 ---------- ------------ ---------- ------------ November 18, 1998(a) through July 31, 1999: Shares sold........................ 2,104,901 $ 22,082,276 Shares issued in reinvestment of dividends........................ 11,721 130,122 Shares reacquired.................. (257,414) (2,765,509) ---------- ------------ Net increase in shares outstanding before conversion................ 1,859,208 19,446,889 Shares issued upon conversion from Class B.......................... 15,246 163,070 ---------- ------------ Net increase in shares outstanding...................... 1,874,454 $ 19,609,959 ---------- ------------ ---------- ------------ Class B - ----------------------------------- Six months ended January 31, 2000: Shares sold........................ 1,941,548 $ 21,482,545 Shares issued in reinvestment of dividends and distributions...... 86,355 974,081 Shares reacquired.................. (617,939) (6,913,104) ---------- ------------ Net increase in shares outstanding before conversion................ 1,409,964 15,543,522 Shares reacquired upon conversion from Class A..................... (24,047) (270,219) ---------- ------------ Net increase in shares outstanding...................... 1,385,917 $ 15,273,303 ---------- ------------ ---------- ------------ November 18, 1998(a) through July 31, 1999: Shares sold........................ 5,754,697 $ 60,238,518 Shares issued in reinvestment of dividends........................ 14,797 163,946 Shares reacquired.................. (349,450) (3,747,204) ---------- ------------ Net increase in shares outstanding before conversion................ 5,420,044 56,655,260 Shares reacquired upon conversion into Class A..................... (15,291) (163,070) ---------- ------------ Net increase in shares outstanding...................... 5,404,753 $ 56,492,190 ---------- ------------ ---------- ------------ Class C Shares Amount - ----------------------------------- ---------- ------------ Six months ended January 31, 2000: Shares sold........................ 491,811 $ 5,461,426 Shares issued in reinvestment of dividends and distributions...... 29,216 329,554 Shares reacquired.................. (301,173) (3,389,674) ---------- ------------ Net increase in shares outstanding...................... 219,854 $ 2,401,306 ---------- ------------ ---------- ------------ November 18, 1998(a) through July 31, 1999: Shares sold........................ 2,362,554 $ 24,279,763 Shares issued in reinvestment of dividends........................ 6,349 69,993 Shares reacquired.................. (308,226) (3,281,900) ---------- ------------ Net increase in shares outstanding...................... 2,060,677 $ 21,067,856 ---------- ------------ ---------- ------------ Class Z - ----------------------------------- Six months ended January 31, 2000: Shares sold........................ 2,803 $ 31,168 Shares issued in reinvestment of dividends and distributions...... 8,865 99,909 Shares reacquired.................. (1,244,187) (13,895,149) ---------- ------------ Net decrease in shares outstanding...................... (1,232,519) $(13,764,072) ---------- ------------ ---------- ------------ November 18, 1998(a) through July 31, 1999: Shares sold........................ 2,627,588 $ 26,288,697 Shares issued in reinvestment of dividends........................ 14,003 152,546 Shares reacquired.................. (1,393,124) (15,147,603) ---------- ------------ Net increase in shares outstanding...................... 1,248,467 $ 11,293,640 ---------- ------------ ---------- ------------
- --------------- (a) Commencement of investment operations. - -------------------------------------------------------------------------------- 30 PRUDENTIAL DIVERSIFIED FUNDS PRUDENTIAL DIVERSIFIED MODERATE Financial Highlights (Unaudited) GROWTH FUND - --------------------------------------------------------------------------------
Class A Class B ---------------------------- ----------- Six Six Months November 18, Months Ended 1998(a) Ended January 31, Through July January 31, 2000 31, 1999 2000 ----------- ------------ ----------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period............................... $ 10.86 $ 10.00 $ 10.85 ----------- ------ ----------- Income from investment operations: Net investment income(b)........................................... .10 .12 .06 Net realized and unrealized gain on investments and foreign currencies...................................................... .70 .83 .68 ----------- ------ ----------- Total from investment operations................................ .80 .95 .74 ----------- ------ ----------- Less distributions: Dividends from net investment income............................... (.13) (.09) (.08) Distributions from net realized gains.............................. (.08) -- (.08) ----------- ------ ----------- Total distributions............................................. (.21) (.09) (.16) ----------- ------ ----------- Net asset value, end of period..................................... $ 11.45 $ 10.86 $ 11.43 ----------- ------ ----------- ----------- ------ ----------- TOTAL RETURN(c).................................................... 7.36% 9.47% 6.70% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000).................................... $32,366 $ 20,372 $77,600 Average net assets (000)........................................... $26,470 $ 12,286 $68,709 Ratios to average net assets:(d) Expenses, including distribution fees........................... 1.56% 1.88% 2.31% Expenses, excluding distribution fees........................... 1.31% 1.63% 1.31% Net investment income........................................... 1.80% 1.59% 1.05% Portfolio turnover rate............................................ 76% 96% 76% November 18, 1998(a) Through July 31, 1999 ------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period............................... $ 10.00 ------ Income from investment operations: Net investment income(b)........................................... .06 Net realized and unrealized gain on investments and foreign currencies...................................................... .83 ------ Total from investment operations................................ .89 ------ Less distributions: Dividends from net investment income............................... (.04) Distributions from net realized gains.............................. -- ------ Total distributions............................................. (.04) ------ Net asset value, end of period..................................... $ 10.85 ------ ------ TOTAL RETURN(c).................................................... 8.99% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000).................................... $58,678 Average net assets (000)........................................... $36,645 Ratios to average net assets:(d) Expenses, including distribution fees........................... 2.63% Expenses, excluding distribution fees........................... 1.63% Net investment income........................................... .85% Portfolio turnover rate............................................ 96%
- --------------- (a) Commencement of investment operations. (b) Calculated based upon weighted average shares outstanding during the period. (c) Total return is calculated assuming a purchase of shares on the first day and a sale on the last day and includes reinvestment of dividends and distributions. Total returns for periods of less than a full year are not annualized. (d) Annualized. - -------------------------------------------------------------------------------- See Notes to Financial Statements. 31 PRUDENTIAL DIVERSIFIED FUNDS PRUDENTIAL DIVERSIFIED MODERATE Financial Highlights (Unaudited) GROWTH FUND - --------------------------------------------------------------------------------
Class C Class Z ---------------------------- ----------- Six Six Months November 18, Months Ended 1998(a) Ended January 31, Through July January 31, 2000 31, 1999 2000 ----------- ------------ ----------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period............................... $ 10.85 $ 10.00 $ 10.87 ----------- ------ ----------- Income from investment operations: Net investment income(b)........................................... .06 .06 .13 Net realized and unrealized gain (loss) on investment transactions.................................................... .68 .83 .67 ----------- ------ ----------- Total from investment operations................................ .74 .89 .80 ----------- ------ ----------- Less distributions: Dividends from net investment income............................... (.08) (.04) (.14) Distributions from net realized gains.............................. (.08) -- (.08) ----------- ------ ----------- Total distributions............................................. (.16) (.04) (.22) ----------- ------ ----------- Net asset value, end of period..................................... $ 11.43 $ 10.85 $ 11.45 ----------- ------ ----------- ----------- ------ ----------- TOTAL RETURN(c).................................................... 6.70% 8.99% 7.45% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000).................................... $26,067 $ 22,375 $ 191 Average net assets (000)........................................... $24,339 $ 18,346 $ 7,308 Ratios to average net assets:(d) Expenses, including distribution fees........................... 2.31% 2.63% 1.31% Expenses, excluding distribution fees........................... 1.31% 1.63% 1.31% Net investment income........................................... 1.05% .79% 2.03% Portfolio turnover rate............................................ 76% 96% 76% November 18, 1998(a) Through July 31, 1999 ------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period............................... $ 10.00 ------ Income from investment operations: Net investment income(b)........................................... .13 Net realized and unrealized gain (loss) on investment transactions.................................................... .84 ------ Total from investment operations................................ .97 ------ Less distributions: Dividends from net investment income............................... (.10) Distributions from net realized gains.............................. -- ------ Total distributions............................................. (.10) ------ Net asset value, end of period..................................... $ 10.87 ------ ------ TOTAL RETURN(c).................................................... 9.70% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000).................................... $13,578 Average net assets (000)........................................... $21,914 Ratios to average net assets:(d) Expenses, including distribution fees........................... 1.63% Expenses, excluding distribution fees........................... 1.63% Net investment income........................................... 1.68% Portfolio turnover rate............................................ 96%
- --------------- (a) Commencement of investment operations. (b) Calculated based upon weighted average shares outstanding during the period. (c) Total return is calculated assuming a purchase of shares on the first day and a sale on the last day and includes reinvestment of dividends and distributions. Total returns for periods of less than a full year are not annualized. (d) Annualized. - -------------------------------------------------------------------------------- See Notes to Financial Statements. 32 PRUDENTIAL DIVERSIFIED FUNDS PRUDENTIAL DIVERSIFIED MODERATE Supplemental Proxy Information (Unaudited) GROWTH FUND - -------------------------------------------------------------------------------- A Special Meeting of Shareholders of Prudential Diversified Funds was held on November 8, 1999 for the following purposes: (1) To elect nine trustees; (2) To ratify the selection of PricewaterhouseCoopers LLP as independent accountants for the fiscal year ending July 31, 2000; and (3) To approve certain changes to each Fund's fundamental investment restrictions.
The results of the voting at the Special Meeting of Shareholders with respect to these matters was as follows: With respect to all Funds of Prudential Diversified Funds:
Votes for Votes withheld ----------- -------------- (1) Election of Trustees (A) Eugene C. Dorsey................ 16,149,330 212,677 (B) Robert F. Gunia................. 16,144,315 217,692 (C) Robert E. LaBlanc............... 16,153,554 208,453 (D) Douglas H. McCorkindale......... 16,156,578 205,429 (E) Thomas T. Mooney................ 16,137,871 224,136 (F) David R. Odenath, Jr............ 16,160,076 201,931 (G) Stephen Stoneburn............... 16,158,803 203,204 (H) John R. Strangfeld, Jr.......... 16,160,076 201,931 (I) Clay T. Whitehead............... 16,140,906 221,101
With respect to all Funds of Prudential Diversified Funds:
Votes for Votes against Abstentions ----------- ------------- -------------- (2) PricewaterhouseCoopers LLP............ 16,014,097 55,890 292,020 (3) Approval of certain changes to the Moderate Growth Fund's fundamental investment restrictions regarding (A) Diversification................. 4,084,552 69,686 163,162 (B) Engaging in margin transactions.................... 4,028,569 94,664 194,167 (C) Issuing senior securities, borrowing and pledging assets... 4,018,420 81,560 217,420 (D) Investing in real estate........ 4,045,259 81,096 191,045 (E) Making loans.................... 4,018,534 102,654 196,212 (F) Concentration................... 4,034,914 84,768 197,718 (G) Selling securities short........ 3,843,012 169,024 305,364 (H) Investing for the purpose of exercising control.............. 4,005,621 94,268 217,511
- -------------------------------------------------------------------------------- 33 Getting the Most from Your Prudential Mutual Fund How many times have you read these reports--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. Getting the Most from Your Prudential Mutual Fund Some mutual fund shareholders won't ever read this--they don't read annual and semiannual reports. It's quite understandable. These annual and semi-annual reports are prepared to comply with federal regulations, and are often written in language that is difficult to understand. So, when most people run into those particularly daunting sections of these reports, they don't read them. We think that's a mistake. At Prudential Mutual Funds, we've made some changes to our report to make it easier to understand and more pleasant to read. We hope you'll find it profitable to spend a few minutes familiarizing yourself with your investment. Here's what you'll find in the report: Performance at a Glance Since an investment's performance is often a shareholder's primary concern, we present performance information in two different formats. You'll find it first on the "Performance at a Glance" page where we compare the Fund and the comparable average calculated by Lipper, Inc., a nationally recognized mutual fund rating agency. We report both the cumulative total returns and the average annual total returns. The cumulative total return is the total amount of income and appreciation the Fund has achieved in various time periods. The average annual total return is an annualized representation of the Fund's performance. It gives you an idea of how much the Fund has earned in an average year for a given time period. Under the performance box, you'll see legends that explain the performance information, whether fees and sales charges have been included in returns, and the inception dates for the Fund's share classes. See the performance comparison charts at the back of the report for more performance information. Please keep in mind that past performance is not indicative of future results. Portfolio Manager's Report The portfolio manager, who invests your money for you, reports on successful-- and not-so-successful--strategies in this section of your report. Look for recent purchases and sales here, as well as information about the sectors the portfolio manager favors, and any changes that are on the drawing board. Portfolio of Investments This is where the report begins to appear technical, but it's really just a listing of each security held at the end of the reporting period, along with valuations and other information. Please note that sometimes we discuss a security in the Portfolio Manager's Report that doesn't appear in this listing because it was sold before the close of the reporting period. Statement of Assets and Liabilities The balance sheet shows the assets (the value of the Fund's holdings), liabilities (how much the Fund owes), and net assets (the Fund's equity, or holdings after the Fund pays its debts) as of the end of the reporting period. It also shows how we calculate the net asset value per share for each class of shares. The net asset value is reduced by payment of your dividend, capital gain, or other distribution, but remember that the money or new shares are being paid or issued to you. The net asset value fluctuates daily, along with the value of every security in the portfolio. Statement of Operations This is the income statement, which details income (mostly interest and dividends earned) and expenses (including what you pay us to manage your money). You'll also see capital gains here--both realized and unrealized. Statement of Changes in Net Assets This schedule shows how income and expenses translate into changes in net assets. The Fund is required to pay out the bulk of its income to shareholders every year, and this statement shows you how we do it--through dividends and distributions--and how that affects the net assets. This statement also shows how money from investors flowed into and out of the Fund. Notes to Financial Statements This is the kind of technical material that can intimidate readers, but it does contain useful information. The Notes provide a brief history and explanation of your Fund's objectives. In addition, they outline how Prudential Mutual Funds prices securities. The Notes also explain who manages and distributes the Fund's shares and, more importantly, how much they are paid for doing so. Finally, the Notes explain how many shares are outstanding and the number issued and redeemed over the period. Financial Highlights This information contains many elements from prior pages, but on a per-share basis. It is designed to help you understand how the Fund performed, and to compare this year's performance and expenses to those of prior years. Independent Auditor's Report Once a year, an outside auditor looks over our books and certifies that the information is fairly presented and complies with generally accepted accounting principles. Tax Information This is information which we report annually about how much of your total return is taxable. Should you have any questions, you may want to consult a tax adviser. Performance Comparison These charts are included in the annual report and are required by the Securities Exchange Commission. Performance is presented here as a hypothetical $10,000 investment in the Fund since its inception or for 10 years (whichever is shorter). To help you put that return in context, we are required to include the performance of an unmanaged, broad-based securities index as well. The index does not reflect the cost of buying the securities it contains or the cost of managing a mutual fund. Of course, the index holdings do not mirror those of the Fund--the index is a broad-based reference point commonly used by investors to measure how well they are doing. A definition of the selected index is also provided. Investors cannot invest directly in an index. The Prudential Mutual Fund Family - ------------------------------------------------------------------------------- Prudential offers a broad range of mutual funds designed to meet your individual needs. For information about these funds, contact your financial adviser or call us at (800) 225-1852. Read the prospectus carefully before you invest or send money. STOCK FUNDS Prudential Emerging Growth Fund, Inc. Prudential Equity Fund, Inc. Prudential Equity Income Fund Prudential Index Series Fund Prudential Small-Cap Index Fund Prudential Stock Index Fund The Prudential Investment Portfolios, Inc. Prudential Jennison Growth Fund Prudential Jennison Growth & Income Fund Prudential Mid-Cap Value Fund Prudential Real Estate Securities Fund Prudential Sector Funds, Inc. Prudential Financial Services Fund Prudential Health Sciences Fund Prudential Technology Fund Prudential Utility Fund Prudential Small-Cap Quantum Fund, Inc. Prudential Small Company Value Fund, Inc. Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund Prudential 20/20 Focus Fund Nicholas-Applegate Fund, Inc. Nicholas-Applegate Growth Equity Fund Target Funds Large Capitalization Growth Fund Large Capitalization Value Fund Small Capitalization Growth Fund Small Capitalization Value Fund Asset Allocation/Balanced Funds Prudential Balanced Fund Prudential Diversified Funds Conservative Growth Fund Moderate Growth Fund High Growth Fund The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund GLOBAL FUNDS Global Stock Funds Prudential Developing Markets Fund Prudential Developing Markets Equity Fund Prudential Latin America Equity Fund Prudential Europe Growth Fund, Inc. Prudential Global Genesis Fund, Inc. Prudential Index Series Fund Prudential Europe Index Fund Prudential Pacific Index Fund Prudential Natural Resources Fund, Inc. Prudential Pacific Growth Fund, Inc. Prudential World Fund, Inc. Prudential Global Growth Fund Prudential International Value Fund Prudential Jennison International Growth Fund Global Utility Fund, Inc. Target Funds International Equity Fund Global Bond Funds Prudential Global Total Return Fund, Inc. Prudential International Bond Fund, Inc. BOND FUNDS Taxable Bond Funds Prudential Diversified Bond Fund, Inc. Prudential Government Income Fund, Inc. Prudential Government Securities Trust Short-Intermediate Term Series Prudential High Yield Fund, Inc. Prudential High Yield Total Return Fund, Inc. Prudential Index Series Fund Prudential Bond Market Index Fund Prudential Structured Maturity Fund, Inc. Income Portfolio Target Funds Total Return Bond Fund Tax-Exempt Bond Funds Prudential California Municipal Fund California Series California Income Series Prudential Municipal Bond Fund High Income Series Insured Series Prudential Municipal Series Fund Florida Series Massachusetts Series New Jersey Series New York Series North Carolina Series Ohio Series Pennsylvania Series Prudential National Municipals Fund, Inc. MONEY MARKET FUNDS Taxable Money Market Funds Cash Accumulation Trust Liquid Assets Fund National Money Market Fund Prudential Government Securities Trust Money Market Series U.S. Treasury Money Market Series Prudential Special Money Market Fund, Inc. Money Market Series Prudential MoneyMart Assets, Inc. Tax-Free Money Market Funds Prudential Tax-Free Money Fund, Inc. Prudential California Municipal Fund California Money Market Series Prudential Municipal Series Fund Connecticut Money Market Series Massachusetts Money Market Series New Jersey Money Market Series New York Money Market Series COMMAND Funds COMMAND Money Fund COMMAND Government Fund COMMAND Tax-Free Fund Institutional Money Market Funds Prudential Institutional Liquidity Portfolio, Inc. Institutional Money Market Series Prudential Mutual Funds Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 (800) 225-1852 - --------------------------------------- visit our website at www.prudential.com - --------------------------------------- Fund Symbols NASDAQ CUSIP Class A -- 74432F505 Class B DMGBX 74432F604 Class C -- 74432F703 Class Z PDMZX 74432F802 Trustees Eugene C. Dorsey Robert F. Gunia Robert E. LaBlanc Douglas H. McCorkindale Thomas T. Mooney David R. Odenath, Jr. Stephen Stoneburn John R. Strangfeld Clay T. Whitehead Officers John R. Strangfeld, President Robert F. Gunia, Vice President David R. Odenath, Jr., Vice President Grace C. Torres, Treasurer David F. Connor, Secretary William V. Healey, Assistant Secretary Stephen M. Ungerman, Assistant Treasurer Manager Prudential Investments Fund Management LLC Gateway Center Three, 100 Mulberry Street Newark, NJ 07102-4077 Investment Sub-Advisers The Prudential Investment Corporation Prudential Plaza, Newark, NJ 07102-3777 Jennison Associates LLC 466 Lexington Avenue, New York, NY 10017 Franklin Advisers, Inc. 777 Mariners Island Blvd., San Mateo, CA 94404 The Dreyfus Corporation 200 Park Avenue, New York, NY 10166 Lazard Asset Management 30 Rockefeller Plaza, New York, NY 10112 Pacific Investment Management Company 840 Newport Center Dr.Newport Beach, CA 92660 Distributor Prudential Investment Management Services LLC Gateway Center Three 100 Mulberry StreetNewark, 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 Kirkpatrick & Lockhart LLP 1800 Massachusetts Avenue, N.W. Washington, DC 20036 The views expressed in this report and information about the Fund's portfolio holdings are for the period covered by this report and are subject to change thereafter. The accompanying financial statements as of January 31, 2000, 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. (LOGO) Printed on Recycled Paper (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 MF186E4 74432F505 74432F604 74432F703 74432F802 (LOGO) Printed on Recycled Paper -----END PRIVACY-ENHANCED MESSAGE-----