-----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, QkPYyxAMvoabB5tekOKsD7s6nPU2fPtWUuK9yg/6wQ7zc7RBghy8AQdX2PHLmLhQ rtyT5bHYGerFriCQjx1nJw== /in/edgar/work/0000898733-00-000741/0000898733-00-000741.txt : 20001009 0000898733-00-000741.hdr.sgml : 20001009 ACCESSION NUMBER: 0000898733-00-000741 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000731 FILED AS OF DATE: 20001006 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: 735741 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 0001.txt PRUDENTIAL DIVERSIFIED CONSERVATIVE GROWTH FUND (ICON) ANNUAL REPORT JULY 31, 2000 Prudential Diversified Conservative Growth Fund Fund Type Balanced Objective Current income and a reasonable level of capital appreciation This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus. Build On The Rock (GRAPHIC) 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. (LOGO) Build on the Rock Investment Goals and Style The Prudential Diversified Conservative Growth Fund seeks to provide current income and a reasonable level of capital appreciation. It invests in a diversified portfolio of equity and fixed-income securities. There can be no assurance that the Fund will achieve its investment objective. MANAGER Prudential Investments Fund Management LLC Investment Sub-Advisers (PRUDENTIAL LOGO) (FRANKLIN TEMPLETON LOGO) (DREYFUS LOGO) (JENNISON ASSOCIATES LOGO) (PIMCO LOGO) (LAZARD LOGO) www.prudential.com (800) 225-1852 Performance at a Glance Cumulative Total Returns1 As of 7/31/00
One Since Year Inception2 Class A 11.73% 17.69% Class B 10.89 16.18 Class C 10.89 16.18 Class Z 11.84 18.08 Lipper Balanced Fund Avg.3 6.07 14.04
Average Annual Total Returns1 As of 7/31/00
One Since Year Inception2 Class A 6.14% 6.78% Class B 5.89 7.00 Class C 8.78 8.58 Class Z 11.84 10.27
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 one-year and since inception periods in the Balanced Fund category. The Lipper average is unmanaged. The Lipper Balanced Fund average includes funds that 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 (LOGO) Dear Shareholder, The Prudential Diversified Conservative Growth Fund's Class A shares had a cumulative total return of 11.73% over the 12-month period ended July 31, 2000, almost twice the 6.07% Lipper Balanced Fund Average. This was 6.14% to those paying the maximum one-time Class A share sales charge. Although its core bonds, the Fund's largest allocation, generated a good return, its outperformance was due to its small-cap and large-cap growth holdings. Both substantially exceeded even their high benchmark returns. The Fund's high-yield bonds posted a small positive return, while its value stocks made a net negative contribution over the period. This was a good period to be in a diversified fund. The markets changed with dizzying frequency and rapidity. To illustrate this point, the graph on the next page represents the monthly returns of three different indexes: the Standard & Poor's Electronics Index, which represents a model growth industry; the Standard & Poor's SmallCap Gaming Index, which represents stocks that can be found in many value funds; and the Morgan Stanley Capital International EAFE Index, which represents the major world markets excluding the United States. As you can see, each had dramatic month-to-month changes, including some negative months, and they behaved in very different ways. A diversified fund-one that is invested in several companies within a number of different industries that have different growth characteristics-is more likely to exhibit steady performance. Sincerely, John R. Strangfeld, President Prudential Diversified Conservative Growth Fund 2 September 15, 2000 Monthly Returns of Selected Indexes (GRAPH) 1 The S&P Electronics (semiconductors) Index is an unmanaged capitalization-weighted index of all stocks designed to measure performance of the electronics (semiconductors) sector of the S&P 500 Index. 2 The S&P SmallCap Gaming, Lottery, and Parimutuel Companies Index is an unmanaged capitalization-weighted index that measures the performance of the gaming, lottery, and parimutuel sector of the S&P SmallCap Index. 3 The Morgan Stanley Capital International Europe, Australia, Far East Index (MSCI EAFE Index) is an unmanaged weighted index of performance that reflects stock price movements in Europe, Australasia, and the Far East. The performance cited does not represent the performance of the Prudential Diversified Conservative Growth Fund. Past performance is not indicative of future results. Investors cannot invest directly in an index. 3 Prudential Diversified Conservative Growth Fund Annual Report July 31, 2000 Investment Adviser's Report The Investing Context Good news about the global economy dominated in the fiscal year ended July 31, 2000. During the early part of the period, uncertainties about how information systems would behave during the turnover to the year 2000 caused a flood of investment activity as companies updated their information system support. The uncertainty also led the U.S. Federal Reserve to increase the money supply to ensure that any unexpected failure would not freeze the financial system. During this period, technology and telecommunications stocks around the world shot up to extraordinarily high prices in comparison to even optimistic earnings projections. In the latter half of 1999, the Federal Reserve began increasing interest rates to prevent the U.S. economy from overheating. The series of interest rate increases continued into 2000, leading investors to take a second look at stock prices that were based upon expectations of a long stream of future earnings. In addition, many investors feared that rising interest rates would choke off economic growth. In the wake of increasing investor uncertainty, many of the most expensive stocks declined in value, and stock markets faced unprecedented volatility as every additional piece of economic news was scrutinized and acted upon. Growth and value investing styles alternated in success, sometimes from day to day. Investors with well-diversified portfolios were better positioned to weather these style turnovers because some holdings might have experienced gains as others lost ground. Over the full 12 months, growth-style investing performed best. Among stocks of small-capitalization companies, the advantage was entirely in the early part of the period, as small-cap value stocks were significantly favored in the second half. Among large caps, market favor continued to alternate through the summer of 2000. International stocks gained modestly, mostly early in the period. As in the U.S. market, style volatility and increased caution held back international returns in 2000. 4 www.prudential.com (800) 225-1852 The threat of rising interest rates depressed bond prices early in the fiscal period because bonds lose value when market interest rates rise. However, the U.S. budget surplus led to Treasury buybacks that reduced the supply of long-term Treasury bonds. Consequently, their prices increased and yields fell. The yield premium on corporate over government bonds widened in 2000. Our Performance Core bonds. The Fund's core bond holdings provided a substantial return, in line with their benchmark. Its managers had underweighted corporate bonds and emphasized several better-performing sectors: mortgage-backed securities, real-return bonds (whose yields are adjusted for inflation), and emerging market bonds. Corporates performed relatively poorly because of increased concerns about credit quality. Mortgage-backed securities and real-return bonds had attractive yields, while emerging market bonds appreciated sharply in value as the improving global economy reduced credit concerns. In contrast, bonds of less strong U.S. companies (high-yield bonds) declined in value as credit concerns undermined their higher yields. High-yield bonds. About 15% of the Fund's assets are allocated to high-yield debt securities, or "junk bonds." Although their benchmark had a negative return over our reporting period, the Fund's investments produced positive returns. Growth stocks. The Prudential Diversified Conservative Growth Fund continued to benefit from the 20% of its assets allocated to growth-style investing (15% large cap and 5% small cap) and from the strong performance of its growth managers. They far exceeded the returns of their respective benchmarks. In small-cap stocks, the portfolio benefited from its focus on technology. Early in the period, an emphasis was placed on Internet-related stocks, and these were market favorites. The managers reduced their Internet position in time to protect much of these gains from the sharp technology stock correction that occurred in the second quarter of 2000. The cash was reinvested in more established companies as the market declined. 5 Prudential Diversified Conservative Growth Fund Annual Report July 31, 2000 Value stocks. Largely because of the growth-oriented environment early in the period, value benchmarks posted negative performances over the reporting period. Our style-consistent managers were more affected than most by changes in market favor, and both underperformed their benchmarks. In large-cap stocks, the strong contribution of rebounding health management companies and gains by oil companies failed to offset the impact of a low representation in technology and a high weighting in paper companies. With regard to the latter, a 1999 recovery of paper stocks was cut short in 2000 when investors focused on the threats to continuing economic growth. In small caps, the portfolio's return relative to its peers was hurt by the absence of biotechnology holdings, which received an unexpected boost in the second quarter from the publicity following the mapping of the human genome. Prudential Diversified Conservative Growth Fund Management Team 6 www.prudential.com (800) 225-1852 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 the Fund 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, but 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 buffer than a fund investing in only one asset class. We believe this will result in more consistent returns over time. Rebalancing The 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 the 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. 7 Prudential Diversified Conservative Growth Fund Annual Report July 31, 2000 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 the terms specified in the bond. They have a maturity date at which they must be repaid. Generally, bond prices fluctuate with current interest rates and with events that affect 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. Prudential Diversified Conservative Growth Fund Diversification Target (GRAPH) Prudential Diversified Conservative Growth Fund Annual Report July 31, 2000 Financial Statements Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS 107.6% Common Stocks 36.1% - ------------------------------------------------------------------------------------- Advertising 0.2% 1,300 Omnicom Group, Inc. $ 110,500 400 Penton Media, Inc. 13,850 475 True North Communications, Inc. 23,186 ---------------- 147,536 - ------------------------------------------------------------------------------------- Aerospace/Defense 0.2% 275 ADVO, Inc. 11,258 1,525 Gencorp, Inc. 12,105 1,053 General Motors Corp., Class H 59,955 6,300 Loral Space & Communications, Inc.(a) 32,681 625 Scott Technologies, Inc. 12,031 ---------------- 128,030 - ------------------------------------------------------------------------------------- Airlines 800 Airborne Freight Corp. 12,350 350 Skywest, Inc. 15,619 ---------------- 27,969 - ------------------------------------------------------------------------------------- Aluminum 0.4% 8,600 Alcoa, Inc. 260,150 787 Reliance Steel & Aluminum Co. 16,527 ---------------- 276,677 - ------------------------------------------------------------------------------------- Apparel 0.1% 575 American Eagle Outfitters, Inc.(a) 8,553 600 Kellwood Co. 13,425 1,050 Polo Ralph Lauren Corp. 16,997 675 Russell Corp. 13,289 375 Springs Industries, Inc. 12,094 ---------------- 64,358
10 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- Audio/Visual 0.1% 300 Harman International Industries, Inc. $ 18,975 700 Polycom, Inc. 66,402 ---------------- 85,377 - ------------------------------------------------------------------------------------- Auto & Truck 0.1% 850 Arvinmeritor, Inc. 13,281 400 Borg-Warner Automotive, Inc. 13,575 768 Delphi Automotive Systems Corp. 11,376 1,675 Dura Automotive Systems, Inc.(a) 17,274 825 Lear Corp. 19,233 375 Superior Industries International, Inc. 11,273 ---------------- 86,012 - ------------------------------------------------------------------------------------- Banking 0.9% 1,225 Bancorpsouth, Inc. 18,605 575 BancWest Corp. 10,602 4,200 Bank America Corp. 198,975 980 Bank of New York Co., Inc. 45,876 500 Bank United Corp. 18,219 1,505 BankNorth Group, Inc. 23,045 600 BSB Bancorp, Inc. 12,825 500 City National Corp. 18,344 525 Corus Bankshares, Inc. 15,356 1,550 Cullen/Frost Bankers, Inc. 44,078 1,558 CVB Financial Corp. 24,538 75 First Citizens Bancshares, Inc. 4,575 900 Fulton Financial Corp. 19,350 2,300 Golden State Bancorp, Inc.(a) 43,987 375 Greater Bay Bancorp 20,180 725 Harbor Florida Bancshares, Inc. 8,247 1,225 MAF Bancorp, Inc. 24,423 800 PFF Bancorp, Inc. 13,900 525 Queens County Savings Bank, Inc. 12,141 600 Southwest Bancorp(a) 15,712 1,212 Washington Federal, Inc. 22,725 825 Westamerica Bancorporation 22,894
See Notes to Financial Statements 11 Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- 425 Whitney Holding Corp. $ 15,805 ---------------- 654,402 - ------------------------------------------------------------------------------------- Building & Construction 0.5% 1,800 American Standard Co.(a) 80,212 2,500 Centex Corp. 59,844 1,400 D.R. Horton, Inc. 21,700 200 Dycom Industries, Inc.(a) 8,550 675 Kaufman & Broad Home Corp. 13,205 1,325 M.D.C. Holdings, Inc. 26,500 1,600 Pulte Corp. 36,700 400 Texas Industries, Inc. 12,975 1,300 Thomas Industries, Inc.(a) 27,137 500 Toll Brothers, Inc. 12,094 1,375 Webb Delaware Corp. 20,969 ---------------- 319,886 - ------------------------------------------------------------------------------------- Cable 0.1% 500 Belden, Inc. 12,563 425 Cable Design Technologies Corp. 14,981 1,125 General Cable Corp. 9,703 ---------------- 37,247 - ------------------------------------------------------------------------------------- Chemicals 0.4% 375 Albany Molecular Research, Inc. 20,766 800 Albemarle Corp. 19,750 475 Arch Chemicals, Inc. 9,500 100 Cambrex Corp. 4,519 725 Cytec Industries, Inc.(a) 22,656 1,800 Eastman Chemical Co. 84,375 225 H.B. Fuller Co. 8,690 1,100 Olin Corp. 17,256 250 Om Group, Inc. 11,859 800 Spartech Corp. 21,450 450 The Geon Co. 7,397 725 The Lubrizol Corp. 15,497 875 W.R. Grace & Co.(a) 18,516 ---------------- 262,231
12 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- Commercial Products/Services 0.1% 700 John H. Harland Co.(a) $ 9,362 1,400 Luminant Worldwide Corp.(a) 11,375 800 Potash Corp. of Saskatchewan, Inc. 42,950 325 United Stationers, Inc. 9,466 100 Ventro Corp. 1,206 ---------------- 74,359 - ------------------------------------------------------------------------------------- Computers 2.2% 1,500 ASM Lithography Holding N.V. (Netherlands) 59,625 700 Axent Technologies, Inc.(a) 17,238 600 Brooktrout, Inc.(a) 18,150 3,200 Catapult Communications Corp.(a) 42,600 1,500 Citrix Systems, Inc.(a) 22,875 12,000 Compaq Computer Corp. 336,750 1,400 Comverse Technology, Inc.(a) 122,850 2,300 Dell Computer Corp.(a) 101,056 2,900 EMC Corp.(a) 246,862 2,800 Hewlett-Packard Co. 305,725 525 InFocus Corp.(a) 18,375 775 Phoenix Technologies, Ltd.(a) 13,175 1,500 Sun Microsystems, Inc.(a) 158,156 500 Verisign, Inc.(a) 79,344 ---------------- 1,542,781 - ------------------------------------------------------------------------------------- Computer Services 0.8% 1,700 Affiliated Computer Services, Inc.(a) 76,606 100 AnswerThink Consulting Group(a) 1,681 6,000 Cisco Systems, Inc.(a) 392,625 2,700 NetSolve, Inc.(a) 63,450 475 Onyx Software Corp.(a) 11,489 100 Predictive Systems, Inc.(a) 2,200 325 PurchasePro.Com, Inc.(a) 12,675 337 RadiSys Corp.(a) 20,726 600 Virage Logic Corp.(a) 7,200 ---------------- 588,652 - ------------------------------------------------------------------------------------- Consumer Products/Services 0.1% 787 Fossil, Inc.(a) 14,363 6,600 Service Corp. International(a) 16,912 700 Tupperware Corp. 13,606 ---------------- 44,881
See Notes to Financial Statements 13 Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- Diversified Manufacturing 0.5% 325 Aptargroup, Inc. $ 8,105 1,125 Carpenter Technology Corp. 34,453 500 Corning, Inc. 116,969 600 Cuno, Inc. 18,150 3,100 General Electric Co. 159,456 825 Hon Industries, Inc. 22,017 275 Libbey, Inc. 8,577 500 Trinity Industries, Inc. 9,625 ---------------- 377,352 - ------------------------------------------------------------------------------------- Electrical Services 0.1% 225 Littelfuse, Inc. 7,931 300 PerkinElmer, Inc. 19,181 250 RGS Energy Group, Inc. 5,735 ---------------- 32,847 - ------------------------------------------------------------------------------------- Electronic Components 1.9% 1,000 Alpha Industries, Inc.(a) 34,063 700 Applied Micro Circuits Corp. 104,475 4,500 Arrow Electronics, Inc.(a) 148,781 425 ATMI, Inc.(a) 10,944 1,700 Avnet, Inc. 96,794 400 Broadcom Corp.(a) 89,700 125 Brooks Automation, Inc.(a) 6,203 150 Electro Scientific Industries, Inc.(a) 6,816 425 Electroglas, Inc.(a) 8,500 900 Flextronics International, Ltd.(a) 63,717 2,300 Gentex Corp.(a) 52,325 275 Integrated Silicon Solution, Inc. 5,775 525 Kemet Corp.(a) 12,600 1,700 Novellus Systems, Inc.(a) 91,694 700 PMC-Sierra, Inc.(a) 135,712 75 Power-One, Inc.(a) 8,855 100 QLogic Corp.(a) 7,450 700 Rogers Corp. 25,025 2,100 STMicroelectronics N.V. (Netherlands) 119,569 900 Tektronix, Inc. 55,350 3,500 Texas Instruments, Inc. 205,406 175 Varian Semiconductor Equipment, Inc. 8,498 300 Veeco Instruments, Inc.(a) 23,625 ---------------- 1,321,877
14 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- Entertainment 0.1% 200 Anchor Gaming(a) $ 10,837 425 Gaylord Entertainment Co. 10,545 500 SFX Entertainment, Inc.(a) 23,000 ---------------- 44,382 - ------------------------------------------------------------------------------------- Financial Services 2.2% 1,175 Allied Capital Corp. 22,252 3,800 American Express Co. 215,412 725 Arthur J. Gallagher & Co. 35,570 5,600 Citigroup, Inc. 395,150 200 Dain Rauscher Corp. 13,563 1,300 Doral Financial Corp. 16,900 850 Downey Financial Corp. 29,750 450 Eaton Vance Corp. 23,316 2,550 Federated Investors, Inc. 66,779 250 Investment Technology Group 12,156 1,100 LaBranche & Co., Inc.(a) 22,412 1,200 Merrill Lynch & Co., Inc. 155,100 1,350 Metris Companies, Inc. 39,572 3,300 Morgan Stanley Dean Witter & Co. 301,125 425 National Discount Brokers Group, Inc.(a) 13,998 2,000 Schwab (Charles) Corp. 72,250 2,375 Silicon Valley Bancshares 104,055 400 Triad Guaranty, Inc. 9,700 900 Webster Financial Corp. 20,137 ---------------- 1,569,197 - ------------------------------------------------------------------------------------- Food & Beverage 0.7% 175 Adolph Coors Co. 11,025 475 Dean Foods Co. 16,536 600 Fleming Cos., Inc. 9,413 900 Mettler-Toledo International, Inc.(a) 36,450 725 Michael Foods, Inc. 17,400 8,200 Nabisco Group Holding Corp.(a) 217,300 625 Performance Food Group Co.(a) 20,586 1,125 Riviana Foods, Inc. 18,281
See Notes to Financial Statements 15 Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- 4,900 Sara Lee Corp. $ 90,344 700 Smithfield Foods, Inc.(a) 19,906 650 Universal Foods Corp. 12,675 ---------------- 469,916 - ------------------------------------------------------------------------------------- Health Care 3.3% 1,025 Apria Healthcare Group, Inc.(a) 15,311 1,350 Bergen Brunswig Corp. 11,813 525 Datascope Corp.(a) 19,819 9,300 Foundation Health Systems, Inc.(a) 135,431 12,800 HCA Healthcare Co. 435,200 1,100 Health Care Properties Investments, Inc. 32,725 10,400 HEALTHSOUTH Corp.(a) 61,750 100 Oxford Health Plans, Inc.(a) 2,394 2,000 Pacificare Health Systems, Inc.(a) 130,000 1,300 Parexel International Corp.(a) 12,919 500 Patterson Dental Co.(a) 13,250 3,975 Pharmacia Corp. 217,631 14,400 Tenet Healthcare Corp.(a) 438,300 525 Trigon Healthcare, Inc.(a) 27,825 3,900 UnitedHealth Group, Inc. 319,068 525 Varian Med Systems, Inc. 22,575 5,100 Wellpoint Health Networks, Inc.(a) 444,656 ---------------- 2,340,667 - ------------------------------------------------------------------------------------- Home Furnishings 0.1% 525 Ethan Allen Interiors, Inc. 13,387 925 Furniture Brands International, Inc.(a) 13,702 ---------------- 27,089 - ------------------------------------------------------------------------------------- Hotels 0.1% 6,700 Hilton Hotels Corp. 68,675 8,500 Meristar Hotels & Resorts, Inc.(a) 22,844 ---------------- 91,519 - ------------------------------------------------------------------------------------- Human Resources 0.1% 2,300 Careerbuilder, Inc.(a) 18,040 450 CDI Corp.(a) 8,944
16 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- 775 Spherion Corp.(a) $ 14,822 ---------------- 41,806 - ------------------------------------------------------------------------------------- Insurance 2.1% 800 Alfa Corp. 14,600 1,100 American Financial Group, Inc. 27,500 900 American General Corp. 60,019 2,363 American International Group, Inc. 207,162 600 Annuity & Life Reinsurance Holdings, Ltd. 14,775 4,600 AXA Financial, Inc. 175,950 4,500 Chubb Corp. 333,000 675 Commerce Group, Inc. 18,731 415 Fidelity National Financial, Inc. 7,340 550 First American Financial Corp. 8,559 3,100 John Hancock Financial Services, Inc.(a) 73,238 650 Leucadia National Corp. 17,347 725 MONY Group, Inc. 25,919 6,100 Old Republic International Corp. 136,106 1,350 Presidential Life Corp. 19,491 400 Quotesmith.com, Inc.(a) 975 468 Radian Group, Inc. 28,490 2,600 Reinsurance Group of America, Inc. 82,713 6,600 SAFECO Corp. 152,212 2,200 St. Paul Companies, Inc. 97,762 400 StanCorp Financial Group, Inc. 13,800 ---------------- 1,515,689 - ------------------------------------------------------------------------------------- Internet 0.3% 350 Agency Common Limited 7,547 100 Alteon Websystems, Inc.(a) 13,194 2,100 America Online, Inc.(a) 111,956 100 Go2Net, Inc.(a) 5,906 100 Interwoven, Inc.(a) 6,456 100 ITXC Corp.(a) 1,813 375 Keynote Systems, Inc.(a) 14,227 400 Liberate Technologies, Inc.(a) 9,175 225 Proxicom, Inc.(a) 9,295 100 Software.com, Inc.(a) 10,087
See Notes to Financial Statements 17 Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- 100 Viant Corp.(a) $ 3,300 100 Ziff-Davis, Inc.(a) 1,713 ---------------- 194,669 - ------------------------------------------------------------------------------------- Machinery 0.2% 275 Helix Technology Corp. 8,938 400 IDEX Corp. 13,200 1,025 JLG Industries, Inc. 10,442 450 Kulicke & Soffa Industries, Inc.(a) 20,306 1,425 Lincoln Electric Holdings, Inc.(a) 21,553 575 Manitowoc Co., Inc. 14,159 575 Milacron, Inc. 8,266 775 Terex Corp. 12,787 575 Toro Co. 17,322 100 Varian, Inc.(a) 4,212 ---------------- 131,185 - ------------------------------------------------------------------------------------- Media 0.9% 6,600 AT&T Corp. Liberty Media 146,850 450 Banta Corp. 8,690 2,400 Clear Channel Communications, Inc.(a) 182,850 300 Cumulus Media, Inc.(a) 2,925 250 Entercom Communications Corp. 9,703 600 Gemstar TV Guide International, Inc. 36,488 650 Lee Enterprises, Inc. 16,562 1,000 Primedia, Inc. 92,250 250 Scholastic, Corp.(a) 15,969 300 Time Warner, Inc. 23,006 1,100 Univision Communications, Inc.(a) 136,675 ---------------- 671,968 - ------------------------------------------------------------------------------------- Medical Products/Services 0.5% 2,300 Amgen, Inc.(a) 149,356 700 Genentech, Inc.(a) 106,488 125 Quest Diagnostics, Inc.(a) 12,617 2,200 Serono SA (Switzerland) 59,400 ---------------- 327,861
18 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- Metals 0.3% 550 Cleveland-Cliffs, Inc. $ 13,647 850 Commercial Metals Co. 24,969 525 Kaydon Corp. 10,992 2,300 Phelps Dodge Corp. 93,581 375 Precision Castparts Corp. 23,977 850 Worthington Industries, Inc. 8,978 ---------------- 176,144 - ------------------------------------------------------------------------------------- Mining 0.3% 8,400 Freeport-McMoRan Copper & Gold, Inc.(a) 71,925 6,000 Newmont Mining Corp. 106,500 ---------------- 178,425 - ------------------------------------------------------------------------------------- Networking 0.3% 100 Adaptec, Inc.(a) 2,475 475 Anixter International, Inc.(a) 13,805 200 C-COR.net Corp.(a) 5,287 500 Juniper Networks, Inc.(a) 71,219 2,100 Metromedia Fiber Network, Inc.(a) 73,762 500 Network Appliance, Inc.(a) 43,094 ---------------- 209,642 - ------------------------------------------------------------------------------------- Office Equipment & Supplies 0.3% 5,500 Harris Corp. 188,375 5,500 Lanier Worldwide, Inc.(a) 3,781 ---------------- 192,156 - ------------------------------------------------------------------------------------- Oil & Gas 1.5% 400 Amerada Hess Corp. 24,200 3,936 BP Amoco PLC 205,902 1,425 Energen Corp. 32,063 775 Helmerich & Payne, Inc. 24,800 1,280 Kerr-McGee Corp. 70,240 2,500 Keyspan Corp. 79,375 2,600 Marine Drilling Co., Inc.(a) 56,550 2,200 Newfield Exploration Co.(a) 74,938
See Notes to Financial Statements 19 Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- 1,600 Nuevo Energy Co. $ 24,400 2,700 Occidental Petroleum Corp. 54,675 900 Oneok, Inc. 24,019 525 Patterson Energy, Inc. 13,092 1,400 Schlumberger, Ltd. 103,512 3,344 Total SA, ADR (France) 245,993 750 Valero Energy Corp. 19,453 ---------------- 1,053,212 - ------------------------------------------------------------------------------------- Oil & Gas Exploration/Production 0.1% 775 Berry Petroleum Co. 14,095 725 Mitchell Energy & Development Corp. 23,110 250 St. Mary Land & Exploration Co. 7,484 425 Ultramar Diamond Shamrock Corp. 9,722 ---------------- 54,411 - ------------------------------------------------------------------------------------- Paper & Packaging 1.5% 450 Chesapeake Corp. 11,784 1,500 Fort James Corp. 45,844 6,900 Georgia-Pacific Corp. 171,206 2,100 Georgia-Pacific Corp. (Timber Group) 63,656 4,100 International Paper Co. 139,400 4,800 Mead Corp. 121,800 1,850 Pactiv Corp. 17,113 900 Pope & Talbot, Inc. 17,325 2,050 Rayonier, Inc. 83,410 2,700 Temple-Inland, Inc. 117,281 3,100 Weyerhaeuser Co. 141,631 4,700 Willamette Industries, Inc. 142,469 ---------------- 1,072,919 - ------------------------------------------------------------------------------------- Pharmaceuticals 1.2% 325 Alpharma, Inc. 21,287 3,100 American Home Products Corp. 164,494 775 Bindley Western Industries, Inc. 20,392 1,200 Lilly (Eli) & Co. 124,650 1,300 Inhale Therapeutic Systems, Inc.(a) 105,544 7,950 Pfizer, Inc. 342,844
20 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- 600 Waters Corp.(a) $ 71,175 ---------------- 850,386 - ------------------------------------------------------------------------------------- Photography 0.5% 6,100 Eastman Kodak Co. 334,737 - ------------------------------------------------------------------------------------- Real Estate Investment Trusts 0.7% 200 Alexandria Real Estate Equities, Inc. 7,163 900 Amli Residential Properties Trust 21,937 925 Arden Reality, Inc. 24,512 500 Avalonbay Communities, Inc. 23,562 900 Bradley Real Estate, Inc. 19,350 750 BRE Properties, Inc. 24,328 875 Cabot Industrial Trust Corp. 17,937 450 Camden Property Trust 14,063 300 Catellus Development Corp.(a) 5,175 600 Developers Diversified Reality Corp. 9,450 625 First Industrial Reality Trust, Inc. 20,000 750 Franchise Finance Corp. of America 18,000 625 Gables Residential Trust 16,992 300 General Growth Properties, Inc. 10,163 750 Health Care REIT, Inc. 13,500 950 Highwoods Properties, Inc. 25,650 650 Hospitality Properties Trust 16,088 1,800 JDN Realty Corp. 18,900 2,300 Meristar Hospitality Corp. 51,031 1,300 Nationwide Health Properties, Inc. 20,475 1,375 Reckson Associates Reality Corp. 36,094 850 Regency Reality Corp. 20,400 200 SL Green Reality Corp. 5,938 875 Summit Properties, Inc. 20,891 550 Weingarten Realty Investors 22,756 ---------------- 484,355 - ------------------------------------------------------------------------------------- Restaurants 0.4% 3,500 CKE Restaurants, Inc. 10,281 15,400 Darden Restaurants, Inc. 251,213 300 Jack in the Box, Inc.(a) 6,431
See Notes to Financial Statements 21 Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- 950 Ruby Tuesday, Inc. $ 11,697 2,225 Ryan's Family Steak Houses, Inc.(a) 20,303 ---------------- 299,925 - ------------------------------------------------------------------------------------- Retail 2.6% 575 Alberto-Culver Co. 17,466 1,225 Ames Department Stores, Inc. 8,728 550 BJ's Wholesale Club, Inc.(a) 16,466 3,500 Consolidated Stores Corp.(a) 41,781 6,700 Dillards, Inc. (Class 'A' Stock) 91,706 500 Dress Barn, Inc.(a) 10,375 1,200 Estee Lauder Cos., Inc. 52,800 275 Factory 2 U, Inc. 11,413 4,075 Gap, Inc. 145,936 6,800 Home Depot, Inc. 351,900 9,700 IKON Office Solutions, Inc. 39,406 2,100 J.C. Penney Co., Inc. 33,862 14,400 Kmart Corp.(a) 100,800 3,800 Kohl's Corp.(a) 215,650 400 Michaels Stores, Inc.(a) 17,325 700 Pep Boys - Manny, Moe & Jack, Inc. 4,069 1,350 Pier 1 Imports, Inc. 16,116 3,800 RadioShack Corp. 214,225 1,350 Ross Stores, Inc. 20,756 100 Sears, Roebuck & Co. 2,988 3,400 Tiffany & Co. 116,450 4,500 Toys 'R' Us, Inc.(a) 74,250 1,300 Venator Group, Inc. 18,363 3,800 Wal-Mart Stores, Inc. 208,762 675 Zale Corp.(a) 25,228 ---------------- 1,856,821 - ------------------------------------------------------------------------------------- Semiconductors 0.7% 1,600 Applied Materials, Inc.(a) 121,400 100 Cirrus Logic, Inc.(a) 1,938 550 Gasonics International Corp.(a) 13,200 5,400 Intel Corp. 360,450
22 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- 100 Micrel, Inc.(a) $ 5,007 ---------------- 501,995 - ------------------------------------------------------------------------------------- Shipbuilding 275 Newport News Shipbuilding, Inc. 11,103 - ------------------------------------------------------------------------------------- Software 0.9% 125 Allaire Corp.(a) 3,857 100 Broadbase Software, Inc.(a) 2,356 1,800 Broadvision, Inc.(a) 65,138 1,400 Computer Associates International, Inc. 34,738 100 E Piphany, Inc. 9,306 100 Exchange Applications, Inc.(a) 2,200 800 HNC Software, Inc.(a) 35,300 100 Informatica Corp.(a) 8,000 3,600 Marchfirst, Inc. 74,475 800 Microsoft Corp.(a) 55,850 394 NetIQ Corp.(a) 19,011 725 Progress Software Corp.(a) 10,920 600 RSA Security, Inc.(a) 38,025 100 Sapient Corp.(a) 11,375 700 Sybase, Inc.(a) 16,888 1,850 VERITAS Software Corp.(a) 188,584 700 Verity, Inc.(a) 25,506 ---------------- 601,529 - ------------------------------------------------------------------------------------- Telecommunications 4.1% 200 Advanced Fibre Communications, Inc.(a) 8,575 1,450 Allegiance Telecom, Inc.(a) 80,566 2,400 ALLTEL Corp. 147,900 2,700 AT&T Corp. 83,531 500 Audiovox Corp. 7,750 100 Copper Mountain Networks, Inc.(a) 7,886 100 Ditech Communications Corp.(a) 4,787 100 Dobson Communications Corp.(a) 2,188 6,400 Ericsson (L.M.) AB (ADR) (Sweden) 125,600 600 Exodus Communications, Inc.(a) 26,662 4,907 General Motors Corp., Class H 126,969
See Notes to Financial Statements 23 Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- 5,100 Global Crossing Ltd.(a) $ 123,994 500 Intermedia Communications, Inc. 8,812 2,368 JDS Uniphase Corp.(a) 279,720 325 Leap Wireless International, Inc.(a) 20,596 700 Level 3 Communications, Inc.(a) 47,906 1,000 Millicom International Cellular SA (Luxembourg)(a) 44,125 2,100 Motorola, Inc. 69,431 900 Net2000 Communications, Inc.(a) 8,550 2,400 Nextel Communications, Inc.(a) 134,250 1,600 NEXTLINK Communications(a) 52,900 6,700 Nokia Corp. (ADR) (Finland)(a) 296,895 2,800 Nortel Networks Corp. 208,250 2,218 NTL, Inc.(a) 99,949 5,500 Qwest Communications International, Inc.(a) 258,156 4,940 Viacom, Inc.(a) 327,584 7,098 Vodafone Airtouch Group PLC, (ADR) (United Kingdom) 306,101 ---------------- 2,909,633 - ------------------------------------------------------------------------------------- Tobacco 0.6% 4,100 Loews Corp. 257,275 4,500 Philip Morris Companies, Inc. 113,625 2,700 R.J. Reynolds Tobacco Holdings, Inc. 76,613 ---------------- 447,513 - ------------------------------------------------------------------------------------- Transportation 0.1% 600 Alexander & Baldwin, Inc. 15,112 1,125 Roadway Express, Inc. 26,719 575 Sea Containers, Ltd. 15,094 700 U.S. Freightways Corp. 19,425 ---------------- 76,350 - ------------------------------------------------------------------------------------- Utilities 0.6% 550 California Water Service Group 13,131 475 CH Energy Group, Inc. 15,497 525 Cleco Corp. 19,359 775 Conectiv, Inc. 12,836 1,500 General Public Utilities Corp. 39,750 850 Equitable Resources, Inc. 44,253
24 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- 650 Idacorp, Inc. $ 24,050 1,500 Minnesota Power & Light Co. 31,969 1,650 Public Service Company of New Mexico(a) 29,906 2,500 Reliant Energy, Inc. 83,750 775 Sierra Pacific Resources 10,947 2,500 Unicom Corp. 102,656 975 Washington Gas Light Co. 24,010 ---------------- 452,114 - ------------------------------------------------------------------------------------- Waste Management 0.1% 700 Waste Connections, Inc. 14,175 3,700 Waste Management, Inc. 69,144 ---------------- 83,319 ---------------- Total common stocks (cost $22,264,619) 25,345,111 ----------------
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- ASSET BACKED SECURITIES 2.6% Capital One Bank Corp., Notes, Baa2 US$ 300 6.76%, 7/23/02 294,673 General Motors Acceptance Corp., MTN, A2 700 7.02%, 10/5/00 698,467 MBNA Corp., MTN, Baa1 900 6.875%, 7/15/04 861,526 ---------------- Total asset backed securities (cost $1,893,241) 1,854,666 ---------------- CORPORATE BONDS 31.9% - ------------------------------------------------------------------------------------- Aerospace/Defense 0.1% BE Aerospace, Inc., Sr. Sub. Notes, B1 50 9.50%, 11/1/08 47,375 Sequa Corp., Ba2 35 9.00%, 8/1/09 33,950 ---------------- 81,325
See Notes to Financial Statements 25 Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- Airlines 0.4% Continental Airlines, Inc., Sr. Notes, Ba2 US$ 75 8.00%, 12/15/05 $ 70,036 Delta Air Lines, Inc., Debs., Baa3 100 9.75%, 5/15/21 105,222 Notes, Baa3 100 8.30%, 12/15/29 89,652 United Airlines, Inc., Debs., Baa3 5 9.75%, 8/15/21 4,927 U.S. Air, Inc., Sr. Notes, B3 50 9.625%, 2/1/01 49,507 ---------------- 319,344 - ------------------------------------------------------------------------------------- Apparel 0.1% Burlington Inds., Inc., Debs., Ba2 100 7.25%, 8/1/27 60,000 Phillips-Van Heusen Corp., Sr. Sub. Notes, B1 15 9.50%, 5/1/08 13,650 ---------------- 73,650 - ------------------------------------------------------------------------------------- Auto/Equipment Rental 0.1% United Rentals, Inc., Sr. Sub. Notes, B1 50 9.25%, 1/15/09 46,500 - ------------------------------------------------------------------------------------- Automotive Parts 1.3% Collins & Aikman Products Co., Sr. Sub. Notes, B2 110 11.50%, 4/15/06 106,700 Eagle Picher Industries, Inc., Sr. Sub. Notes, B3 50 9.375%, 3/1/08 41,500 Federal Mogul Corp., Sr. Notes, Ba2 70 7.50%, 1/15/09 53,550 Hayes Wheels, Inc., Sr. Sub. Notes, B2 200 9.125%, 7/15/07 183,000 Lear Corp., Sr. Notes, Ba1 250 8.11%, 5/15/09 229,375
26 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- Tenneco, Inc., Sr. Sub. Notes, B2 US$ 40 11.625%, 10/15/09 $ 35,600 TRW, Inc., Notes, Baa1 250 8.34%, 5/15/06 255,764 ---------------- 905,489 - ------------------------------------------------------------------------------------- Banks 1.0% Bank Tokyo Mitsubishi, Ltd., Global Sr. Sub. Notes, A3 400 8.40%, 4/15/10 403,555 Export-Import Bank of Korea, Sr. Notes, Ba2 180 7.25%, 6/25/01 178,911 Sovereign Bancorp Inc., Sr. Note, Ba3 50 10.50%, 11/15/06 50,000 Ba3 150 10.25%, 5/15/04 148,113 ---------------- 780,579 - ------------------------------------------------------------------------------------- Building & Products 0.1% Lennar Corp., Sr. Notes, Ba1 15 9.95%, 5/1/10 15,150 Nortek, Inc., Sr. Sub. Notes, B1 40 9.125%, 9/1/07 37,600 ---------------- 52,750 - ------------------------------------------------------------------------------------- Cable 1.0% Adelphia Communications Corp., Sr. Notes, B1 130 8.125%, 7/15/03 120,900 Century Communications Corp., B1 40 9.50%, 8/15/00 39,900 Classic Cable, Inc., Sr. Sub. Notes, B3 20 9.375%, 8/1/09 16,200 B3 20 10.50%, 3/1/10 17,700 Coaxial Communications, Inc., Sr. Notes, B3 25 10.00%, 8/15/06 23,875
See Notes to Financial Statements 27 Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- Fox Family Worldwide, Inc., Sr. Notes, B1 US$ 15 9.25%, 11/1/07 $ 14,175 International Wire Group, Inc., Sr. Sub. Notes B3 100 11.75%, 6/1/05 100,000 Lin Holdings Corp., Sr. Disc. Notes, Zero Coupon (until 3/1/03), B3 115 10.00%, 3/1/08 77,337 Pecunia 1 Vermogeensverwaltung, Sr. Disc. Notes, Zero Coupon (until 7/15/05), B3 50 16.00%, 7/15/10 22,250 Sr. Notes, B3 50 14.00%, 7/15/10 49,250 Rogers Cablesystems Ltd., Sr. Sub. Gtd. Debs., Ba3 50 11.00%, 12/1/15 55,000 United Pan-European Communications (Netherlands), Sr. Notes, B2 200 10.875%, 8/1/09 175,000 ---------------- 711,587 - ------------------------------------------------------------------------------------- Chemicals 0.5% Avecia Group PLC, Sr. Sub. Notes, B2 45 11.00%, 7/1/09 44,887 Huntsman ICI Chemicals, Inc., Sr. Sub. Notes, B2 70 10.125%, 7/1/09 71,400 Huntsman Polymers Corp., Sr. Notes, B1 50 11.75%, 12/1/04 50,750 Lyondell Chemical Co., Sr. Sec'd. Notes, Ba3 100 9.875%, 5/1/07 100,000 NL Industries, Inc., Sr. Sec'd. Notes, B1 15 11.75%, 10/15/03 15,263
28 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- Sterling Chemical Holdings, Inc., Sr. Sub. Notes, B3 US$ 45 12.375%, 7/15/06 $ 46,125 B3 60 11.75%, 8/15/06 48,000 Texas Petrochemicals Corp., Sr. Sub. Notes, B3 5 11.125%, 7/1/06 4,450 ---------------- 380,875 - ------------------------------------------------------------------------------------- Commercial Services 0.6% Cox Enterprises, Inc., Baa1 300 7.5525%, 5/1/03 300,825 Metris Cos, Inc., Sr. Notes, Ba3 150 10.125%, 7/15/06 142,500 ---------------- 443,325 - ------------------------------------------------------------------------------------- Computer Services 0.2% Globix Corp., Sr. Notes, B-Pound 150 12.50%, 2/1/10 117,000 Unisys Corp., Sr. Sub. Notes, Ba1 50 11.75%, 10/15/04 53,000 ---------------- 170,000 - ------------------------------------------------------------------------------------- Distribution/Wholesalers Core Mark International, Inc., Sr. Sub. Notes, B3 10 11.375%, 9/15/03 9,300 - ------------------------------------------------------------------------------------- Electronics 0.2% Flextronics International Ltd., Sr. Sub. Notes, Ba3 50 9.875%, 7/1/10 50,563 TNP Enterprises, Inc., Sr. Sub. Notes, Ba3 100 10.25%, 4/1/10 104,250 ---------------- 154,813
See Notes to Financial Statements 29 Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- Energy 1.6% Aes Drax Energy Ltd., Sr. Sec'd Notes, Ba2 US$ 100 11.50%, 8/30/10 $ 102,750 Cinergy Corp., Debs., Baa2 700 6.125%, 4/15/04 653,513 Hollywood Park, Inc., Sr. Sub. Notes B2 100 9.25%, 2/15/07 101,250 Premier Parks, Inc., Sr. Notes, B3 250 9.75%, 6/15/07 237,500 ---------------- 1,095,013 - ------------------------------------------------------------------------------------- Financial Services 5.9% AT & T Capital Corp., MTN, Ser. G A1 600 7.01%, 4/23/02 601,275 A1 600 6.60%, 5/15/05 571,926 Americredit Corp., Sr. Notes, Ba1 100 9.875%, 4/15/06 98,000 The Bear Stearns Cos., Inc., Sr. Notes, A2 300 6.76625%, 8/1/02 300,193 Donaldson Lufkin & Jenrette, A3 300 7.25%, 7/18/03 300,000 Ford Motor Credit Co., A2 600 7.50%, 3/15/05 596,592 GS Escrow Corp. Sr. Note, Ba1 100 6.75%, 8/1/01 96,750 Lehman Brothers Holdings, Inc., MTN, Ser. E, A3 300 7.68%, 4/1/02 301,271 Midland Funding Corp., Sr. Sec'd. Note, Ser. A Ba3 50 11.75%, 7/23/05 55,507 Morgan Stanley Dean Witter, MTN, Aa3 600 6.838%, 1/28/02 600,672 Orion Power Holdings, Inc., Sr. Notes Ba3 100 12.00%, 5/1/10 105,500
30 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- RBF Finance Co., Sr. Sec'd. Notes, Ba3 US$ 175 11.00%, 3/15/06 $ 189,000 Salomon Smith Barney, Inc., Sr. Notes, Aa3 300 7.06%, 7/18/07 299,919 Stone Container Finance Co., Sr. Notes, B2 10 11.50%, 8/15/06 10,363 ---------------- 4,126,968 - ------------------------------------------------------------------------------------- Food & Beverage 0.5% Agrilink Foods, Inc., Sr. Sub. Notes, B3 50 11.875%, 11/1/08 38,000 Aurora Foods, Inc., Sr. Sub. Notes, B1 90 9.875%, 2/15/07 56,025 Del Monte Foods Co., Sr. Disc. Notes, Zero Coupon (until 12/15/02), Caa1 50 12.50%, 12/15/07 37,500 Pilgrim's Pride Corp., Sr. Sub. Notes, B1 100 10.875%, 8/1/03 100,250 Stater Brothers Holdings, Inc., Sr. Notes, B2 35 10.75%, 8/15/06 30,975 Vlasic Foods International, Inc., Sr. Sub. Notes, B2 105 10.25%, 7/1/09 53,025 ---------------- 315,775 - ------------------------------------------------------------------------------------- Gaming 1.8% Boyd Gaming Corp., Sr. Sub. Notes, B1 50 9.50%, 7/15/07 48,000 Circus Circus Enterprises, Inc., Debs., Baa3 100 6.70%, 11/15/96 91,967 Sr. Sub. Notes, Ba2 100 6.45%, 2/1/06 86,577 Coast Hotels & Casinos, Inc., Sr. Sub. Notes, B3 75 9.50%, 4/1/09 71,625
See Notes to Financial Statements 31 Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- Harrahs Casinos, Inc., Gtd. Sr. Sub. Notes, Ba2 US$ 60 7.875%, 12/15/05 $ 56,925 Harveys Casino Resorts, Sr. Sub. Notes, B2 100 10.625%, 6/1/06 102,000 Horseshoe Gaming Holding Corp., Sr. Sub. Notes, B2 30 8.625%, 5/15/09 28,538 International Game Technology Corp., Sr. Notes, Ba1 600 7.875%, 5/15/04 579,000 Mohegan Tribal Gaming Auth., Sr. Notes, Ba2 150 8.125%, 1/1/06 143,625 Park Place Entertainment Corp., Sr. Sub. Notes, Ba2 20 9.375%, 2/15/07 20,100 Station Casinos, Inc., Sr. Notes, B1 40 9.875%, 7/1/10 40,000 ---------------- 1,268,357 - ------------------------------------------------------------------------------------- Health Care 1.9% Abbey Healthcare Group, Inc., Sr. Sub. Notes, B2 140 9.50%, 11/1/02 138,600 Columbia/HCA Healthcare Corp., Debs., Ba2 55 7.05%, 12/1/27 42,350 Ba2 20 7.50%, 11/15/95 15,100 Ba2 300 6.73%, 7/15/45 278,250 Ba2 100 7.69%, 6/15/25 83,000 Concentra Operating Corp., Sr. Sub. Notes, B3 25 13.00%, 8/15/09 21,500 HEALTHSOUTH Corp., Sr. Notes, Baa3 45 6.875%, 6/15/05 38,569
32 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- Integrated Health Services, Inc., Sr. Sub. Notes, C US$ 350(b) 9.25%, 1/15/08 $ 6,564 Lifepoint Hospitals Holdings, Inc., Sr. Sub. Notes, B3 25 10.75%, 5/15/09 26,000 Long Island College Hosp., Rev., FHA Mtge., Ser. B, Aa2 500 8.90%, 8/15/30 507,341 Magellan Health Services, Inc., Sr. Sub. Notes, B3 50 9.00%, 2/15/08 26,250 Tenet Healthcare Corp., Sr. Sub. Notes, Ser. B, Ba3 85 8.125%, 12/1/08 80,112 Triad Hospitals, Sr. Sub. Notes, B3 50 11.00%, 5/15/09 51,750 ---------------- 1,315,386 - ------------------------------------------------------------------------------------- Industrials 0.7% AES Drax Holdings, Ltd., Sr. Sec'd. Notes, Baa3 100 10.41%, 12/31/20 103,536 Purina Mills, Inc., Sr. Sub. Notes, B2 350 9.00%, 3/15/10 101,500 United International Holdings, Inc., Sr. Disc. Notes, Zero Coupon (until 2/15/03), B3 350 10.75%, 2/15/08 252,000 ---------------- 457,036 - ------------------------------------------------------------------------------------- Internet 0.3% Exodus Communications, Inc., Sr. Notes, B3 50 10.75%, 12/15/09 48,750 B3 70 11.625%, 7/15/10 70,525 PSI Net, Inc., Sr. Notes, B3 80 11.00%, 8/1/09 64,800
See Notes to Financial Statements 33 Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- Verio, Inc., Sr. Notes, B3 US$ 5 11.25%, 12/1/08 $ 5,788 B3 30 10.625%, 11/15/09 33,900 ---------------- 223,763 - ------------------------------------------------------------------------------------- Lodging 0.1% ITT Corp., Debs., Ba1 115 7.375%, 11/15/15 96,283 - ------------------------------------------------------------------------------------- Machinery 0.2% Applied Power, Inc., Sr. Sub. Notes, B1 150 8.75%, 4/1/09 164,625 - ------------------------------------------------------------------------------------- Manufacturing 0.3% Corning Consumer Products Co., Sr. Sub. Notes, B3 50 9.625%, 5/1/08 32,500 Foamex JPS Automotive LLC, Sr. Sub. Notes, B1 60 11.125%, 6/15/01 61,200 Gentek, Inc., Sr. Sub. Notes, B2 75 11.00%, 8/1/09 75,750 Polymer Group, Inc., Sr. Sub. Notes, B2 20 8.75%, 3/1/08 16,400 Venture Holdings, Inc., Sr. Notes, B2 40 9.50%, 7/1/05 30,400 ---------------- 216,250 - ------------------------------------------------------------------------------------- Media 1.6% Ackerley Group, Inc., Sr. Sub. Notes, B2 200 9.00%, 1/15/09 187,000 Alliance Atlantis Communications, Inc., Sr. Sub. Notes, B2 20 13.00%, 12/15/09 51,250 Imax Corp., Sr. Notes, Ba2 15 7.875%, 12/1/05 14,400
34 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- Paxson Communications Corp., Sr. Sub. Notes, B3 US$ 50 11.625%, 10/1/02 $ 51,125 Seagram, Joseph E. & Sons, Inc., Sr. Notes, Baa3 200 6.25%, 12/15/01 196,598 Time Warner, Inc., Sr. Notes, Baa3 600 6.10%, 12/30/01 589,200 ---------------- 1,089,573 - ------------------------------------------------------------------------------------- Metals 0.3% Golden Northwest Aluminum, Inc., First Mtge. Notes, B2 10 12.00%, 12/15/06 10,150 Kaiser Aluminum & Chemical Corp., Sr. Notes, B1 75 9.875%, 2/15/02 72,094 LTV Corp., Sr. Notes, Ba3 70 11.75%, 11/15/09 59,850 WHX Corp., Sr. Sub. Notes, B3 65 10.50%, 4/15/05 52,000 ---------------- 194,094 - ------------------------------------------------------------------------------------- Miscellaneous Services 0.3% Fresenius Med. Care Cap. Trust III, Gtd. Notes, Ba3 200 7.875%, 2/1/08 187,000 IT Group, Inc., Sr. Sub. Notes, B3 50 11.25%, 4/1/09 44,500 Sun World International, Inc., First Mtge. Notes, B2 5 11.25%, 4/15/04 4,763 ---------------- 236,263 - ------------------------------------------------------------------------------------- Networking 0.5% Intersil Corp., Sr. Sub. Notes, B1 35 13.25%, 8/15/09 40,250
See Notes to Financial Statements 35 Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- Metromedia Fiber Network, Inc., Sr. Notes, B2 US$ 85 10.00%, 12/15/09 $ 82,450 Williams Communications Group, Inc., Sr. Notes, B2 275 10.875%, 10/1/09 261,250 ---------------- 383,950 - ------------------------------------------------------------------------------------- Oil & Gas 0.6% Canadian Forest Oil, Ltd., Sr. Sub. Notes, B2 30 8.75%, 9/15/07 28,800 Comstock Resources, Inc., Sr. Sub. Notes, B2 55 11.25%, 5/1/07 55,550 Eott Energy Partners LP, Sr. Notes, Ba2 80 11.00%, 10/1/09 81,600 Houston Exploration Co., Sr. Sub. Notes, B2 15 8.625%, 1/1/08 14,400 Leviathan Gas Pipeline LP, Sr. Sub. Notes, Ba2 25 10.375%, 6/1/09 25,750 Parker Drilling Co., Sr. Notes, B1 55 9.75%, 11/15/06 53,075 Plains Resources, Inc., Sr. Sub. Notes, B2 20 10.25%, 3/15/06 20,150 Swift Energy Co., Sr. Sub. Notes, B2 40 10.25%, 8/1/09 40,600 Vintage Petroleum, Inc., Sr. Sub. Notes, B1 70 9.75%, 6/30/09 71,400 ---------------- 391,325 - ------------------------------------------------------------------------------------- Paper & Packaging 1.3% Ball Corp., Sr. Sub. Notes, B1 200 8.25%, 8/1/08 192,000 Doman Industries Ltd. (Canada), Sr. Notes, B1 45 8.75%, 3/15/04 36,900
36 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- Sr. Notes, Ser. B, B1 US$ 20 9.25%, 11/15/07 $ 15,200 Norampac, Inc., Sr. Notes, B2 10 9.50%, 2/1/08 9,800 Owens-Illinois, Inc., Sr. Notes, Ba1 100 7.85%, 5/15/04 92,171 Packaged Ice, Inc., Sr. Notes, B3 106 9.75%, 2/1/05 90,100 Radnor Holdings, Inc., Sr. Notes, B2 100 10.00%, 12/1/03 89,000 Repap New Brunswick (Canada), Inc., Sr. Sec'd. Notes, Caa 75 10.625%, 4/15/05 68,625 Silgan Holdings, Inc., Sr. Sub. Deb., B1 100 9.00%, 6/1/09 91,500 Stone Container Corp., Mtg. Notes, B1 10 10.75%, 10/1/02 10,100 Sr. Sub. Deb., B3 200 12.25%, 4/1/02 201,000 ---------------- 896,396 - ------------------------------------------------------------------------------------- Pharmaceuticals 0.2% Bio Rad Labs, Inc., Sr. Sub. Notes, B2 20 11.625%, 2/15/07 20,900 ICN Pharmaceuticals, Inc., Sr. Notes, Ba3 100 8.75%, 11/15/08 98,250 ---------------- 119,150 - ------------------------------------------------------------------------------------- Printing & Publishing 0.3% Mail-Well Corp., Sr. Sub. Notes, B1 250 8.75%, 12/15/08 215,000 Transwestern Publishing Co., Sr. Sub. Notes, B2 20 9.625%, 11/15/07 19,500 ---------------- 234,500
See Notes to Financial Statements 37 Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- Real Estate 0.4% HMH Properties, Inc., Sr. Notes, Ba2 US$ 185 8.45%, 12/1/08 $ 172,050 Intrawest Corp., Sr. Notes, B1 100 10.50%, 2/1/10 103,500 ---------------- 275,550 - ------------------------------------------------------------------------------------- Recreation 0.1% Bally's Total Fitness Holdings, Sr. Sub. Notes, B3 80 9.875%, 10/15/07 73,200 - ------------------------------------------------------------------------------------- Restaurants 1.0% Advantica Restaurant Group, Inc., Sr. Notes, B3 70 11.25%, 1/15/08 46,200 Carrols Corp., Sr. Sub. Notes, B2 350 9.50%, 12/1/08 290,500 Felcor Suites LP, Gtd. Sr. Notes, Ba2 350 7.375%, 10/1/04 317,625 Sbarro, Inc., Sr. Notes, Ba3 25 11.00%, 9/15/09 25,750 ---------------- 680,075 - ------------------------------------------------------------------------------------- Retail 0.1% Musicland Group, Inc., Sr. Sub. Notes, B2 50 9.00%, 6/15/03 46,500 - ------------------------------------------------------------------------------------- Schools 0.1% Kindercare Learning Center, Inc., Sr. Sub. Notes, B3 80 9.50%, 2/15/09 73,200 - ------------------------------------------------------------------------------------- Semiconductors SCG Holding Corp., Sr. Notes, B2 32 12.00%, 8/1/09 34,400
38 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- Sovereign Bonds 0.3% State of Qatar, Sr. Notes, Baa2 US$ 200 9.75%, 6/15/30 $ 202,500 - ------------------------------------------------------------------------------------- Steel 0.1% Algoma Steel, Inc., First Mtge. Notes, B2 40 12.375%, 7/15/05 35,600 National Steel Corp., Notes, Ba3 15 9.875%, 3/1/09 13,238 Sheffield Steel Corp., First Mtge. Notes, Caa2 20 11.50%, 12/1/05 12,800 ---------------- 61,638 - ------------------------------------------------------------------------------------- Telecommunications 3.3% Clearnet Communications, Inc., Sr. Disc. Notes, Zero Coupon (until 5/01/04) B3 10 10.125%, 5/1/09 5,800 Fairpoint Commerce, Sr. Sub. Note, B3 40 12.50%, 5/1/10 40,400 Focal Communications Corp., Sr. Notes, B3 125 11.875%, 1/15/10 124,375 Global Crossing Holdings Ltd., Sr. Notes, Ba2 250 9.50%, 11/15/09 243,750 Hyperion Telecom, Sr. Disc. Notes, Zero Coupon (until 4/15/01) B3 40 13.00%, 4/15/03 35,400 Level 3 Communications, Inc., Sr. Disc. Notes, Zero Coupon (until 12/1/03), B3 30 10.50%, 12/1/08 17,625 Zero Coupon (until 3/15/05) B3 250 12.875%, 3/15/10 132,500 Sr. Notes, B3 55 11.00%, 3/15/08 52,250 McleodUSA, Inc., Sr. Notes, B1 95 8.125%, 2/15/09 85,261
See Notes to Financial Statements 39 Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- Microcell Telecommunications, Sr. Disc. Notes, Zero Coupon (until 6/1/04), B3 US$ 250 12.00%, 6/1/09 $ 168,750 Millicom International Cellular, Sr. Disc. Notes, Zero Coupon (until 6/1/01), B3 45 13.50%, 6/1/06 39,375 Netia Holdings BV, (Poland), Gtd. Sr. Disc. Notes, Zero Coupon (until 11/1/01), B2 100 11.25%, 11/1/07 71,500 Nextel Communications, Inc., Sr. Notes, B2 175 10.75%, 6/1/09 171,500 B1 130 9.375%, 11/15/09 124,150 Sr. Disc. Notes, Zero Coupon (until 9/15/02) B1 155 10.65%, 9/15/07 120,900 NTL Communications Corp., Sr. Notes, Zero Coupon (until 10/01/03) B2 250 12.375%, 10/1/08 161,250 Primus Telecommunications, Inc., Sr. Notes, B3 100 12.75%, 10/15/09 60,000 RCN Corp., Sr. Notes, B3 25 10.125%, 1/15/10 20,000 Spectrasite Holdings, Inc., Sr. Disc. Notes, Zero Coupon (until 3/15/05), B3 140 12.875%, 3/15/10 78,400 Tritel PCS, Inc., Sr. Sub. Disc. Notes, Zero Coupon (until 5/15/04) B3 55 12.75%, 5/15/09 40,425 Vodafone Airtouch PLC, Notes, A2 300 7.00%, 12/19/01 301,038 Voicestream Wireless Corp., Sr. Disc. Notes, Zero Coupon (until 11/15/04), >B2 120 11.875%, 11/15/09 84,600 Sr. Notes, B2 80 10.375%, 11/15/09 86,400
40 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- Worldwide Fiber, Inc. Sr. Sub. Notes, B3 US$ 30 12.00%, 8/1/09 $ 26,850 ---------------- 2,292,499 - ------------------------------------------------------------------------------------- Transportation 0.1% American Commercial Lines LLC, Sr. Notes, B1 50 10.25%, 6/30/08 42,000 - ------------------------------------------------------------------------------------- Utilities 1.2% AES Corp., Sr. Notes, Ba1 150 9.50%, 6/1/09 151,500 Niagara Mohawk Power Corp., Sr. Notes, Ba2 529 7.00%, 10/1/00 528,464 Baa3 151 7.125%, 7/1/01 150,709 ---------------- 830,673 - ------------------------------------------------------------------------------------- Waste Management 1.2% Atlanta Georgia Wtr. and Wastewtr., Rev. Ref. Ser. A, Aaa 600 5.00%, 11/1/38 526,482 Allied Waste of North America, Inc., Sr. Notes, Ba3 150 7.875%, 1/1/09 132,000 Sr. Sub. Notes, B2 25 10.00%, 8/1/09 21,625 Waste Management, Inc., Sr. Notes, Ba1 150 6.00%, 5/15/01 146,316 ---------------- 826,423 ---------------- Total corporate bonds (cost $23,542,704) 22,392,902 ---------------- CONVERTIBLE BONDS 1.0% - ------------------------------------------------------------------------------------- Financial Services 0.6% Hellenic Finance Corp., A3 EURO 500 2.00%, 7/15/03 451,839
See Notes to Financial Statements 41 Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- Utilities 0.4% Alliant Energy Resources, Inc., A3 US$ 5 7.25%, 2/15/30 $ 303,125 ---------------- Total convertible bonds (cost $560,750) 754,964 ---------------- MORTGAGE-RELATED SECURITIES 6.5% - ------------------------------------------------------------------------------------- Bear Stearns Mortgage Securities, Inc., Series 1997-7, Class A-9 Aaa 600 7.00%, 2/25/28 565,308 GE Capital Mortgage Services, Inc., Series 1999-15, Class 16, AAAPound 403 6.75%, 8/25/29 396,852 Mellon Residental Funding Corp., Series 1999, Class A-3, Aaa 500 6.58%, 7/25/29 490,927 Merrill Lynch Mortgage Investors, Inc., Series 1998-F1, AAAPound 63 6.78%, 1/20/28 63,119 Nationslink Funding Corp., Series 1999-Sl, Class A-3, Aaa 500 6.297%, 12/10/02 490,190 PNC Mortgage Securities Corp., Series 1995-2, Class A-4, Aa1 550 6.75%, 6/25/16 540,928 Series 1999, Class A-3, AAAPound 500 7.25%, 10/25/29 482,104 Series 1999-8, Class A-5, AAAPound 676 6.75%, 8/25/29 666,240 Residential Funding Mortgage, Inc., Series 1997 S-19, Class A-3, AAAPound 805 6.50%, 12/25/12 762,472 ---------------- Total mortgage-related securities (cost $4,537,483) 4,458,140 ----------------
42 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Principal Amount (000) Description Value (Note 1) - ----------------------------------------------------------------------------------------- FOREIGN GOVERNMENT SECURITIES 0.6% Government of Germany, EURO 20 6.25%, 1/4/24 $ 20,316 70 6.25%, 1/4/30 73,009 PLN 500 Government of Poland, 3.50% (until 10/27/00) 5.00%, 10/27/24 333,467 ---------------- Total foreign government securities (cost $397,149) 426,792 ---------------- U.S. GOVERNMENT AND AGENCY SECURITIES 28.9% US$ 1,000 Federal Home Loan Mortgage Corp., 7.00%, 3/31/26 966,560 1,799 Debs., 10.00%, 5/15/20 1,877,284 Federal National Mortgage Association, 546 6.50%, 5/1/06 535,958 262 5.00%, 4/1/14 239,072 348 5.00%, 4/1/14 317,031 1,000 7.50%, 1/31/27 985,310 Government National Mortgage Association, 91 6.75%, 9/20/22 91,949 585 7.50%, 12/15/28 579,569 3,500 6.00%, 9/30/27 3,222,205 2,500 6.50%, 3/31/27 2,370,325 600 7.50%, 1/31/26 594,564 2,000 8.50%, 12/31/24 2,041,880 1,500 8.50%, 12/31/24 1,524,367 1,075 United States Department Veteran Affairs, 6.83501%, 1/15/30 1,026,648 1,500 United States Treasury Bond, Principal Only, 11.25%, 02/15/15 624,405 United States Treasury Notes, 645 3.625%, 7/15/02 642,838 324 3.375%, 1/15/07 312,392 1,776 3.875%, 1/15/09, TIPS 1,755,107
See Notes to Financial Statements 43 Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Principal Amount (000) Description Value (Note 1) - ----------------------------------------------------------------------------------------- United States Treasury Security, Interest only, $ 1,000 Zero Coupon, 5/15/11 $ 516,710 ---------------- Total U. S. government and agency securities (cost $20,213,183) 20,224,174 ---------------- Total debt obligations (cost $51,144,510) 50,111,638 ---------------- Total long-term investments (cost $73,409,129) 75,456,749 ---------------- SHORT-TERM INVESTMENTS 10.6% COMMERCIAL PAPER 2.7% Edison Mission Midwest Holdings, 400 6.85%, 9/7/00 397,184 1,000 6.78%, 9/13/00 991,902 200 Reseau Ferre De France, 6.52%, 10/26/00 196,885 Washington Mutual Finance, 300 6.70%, 8/28/00 298,492 ---------------- Total commercial paper (cost $1,884,463) 1,884,463 ---------------- REPURCHASE AGREEMENT 7.9% 5,540 Joint Repurchase Agreement Account, 6.538%, 8/1/00 (cost $5,540,000; Note 5) 5,540,000 ---------------- Total short-term investments (cost $7,424,463) 7,424,463 ---------------- Total Investments 118.2% (cost $80,833,592; Note 4) 82,881,212 Liabilities in excess of other assets (18.2)% (12,756,727) ---------------- Net Assets 100% $ 70,124,485 ---------------- ----------------
44 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000 - ------------------------------ (a) Non-income producing security. (b) Represents issuer in default on interest payments, non income producing security. Pound S&P rating. AB--Aktiebolag (Swedish stock company). ADR--American Depository Receipt. FHA--Federal Housing Administration. LLC--Limited Liability Company. LP--Limited Partnership. MTN--Medium-Term Note. NR--Not Rated by Moody's or Standard & Poor's. N.V.--Naamloze Vennootschaap (Dutch Corporation). PLC--Public Limited Company. SA--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 45 Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Statement of Assets and Liabilities
July 31, 2000 - ---------------------------------------------------------------------------------------- ASSETS Investments, at value (cost $80,833,592) $ 82,881,212 Cash 192,862 Foreign currency, at value (cost $7,661) 7,499 Receivable for investments sold 3,116,083 Interest and dividends receivable 553,306 Receivable for Fund shares sold 168,946 Unrealized appreciation on forward currency contracts 3,595 Deferred expenses and other assets 368 ------------- Total assets 86,923,871 ------------- LIABILITIES Payable for investments purchased 15,944,320 Payable for Fund shares reacquired 556,549 Accrued expenses and other liabilities 176,487 Distribution fee payable 49,613 Management fee payable 44,439 Payable for swaps purchased 16,228 Unrealized depreciation on interest rate swaps 11,016 Foreign withholding tax payable 734 ------------- Total liabilities 16,799,386 ------------- NET ASSETS $ 70,124,485 ------------- ------------- Net assets were comprised of: Shares of beneficial interest, at par $ 6,344 Paid-in capital in excess of par 61,755,125 ------------- 61,761,469 Undistributed net investment income 392,105 Accumulated net realized gain on investments 5,937,943 Net unrealized appreciation on investments, foreign currency and interest rate swaps transactions 2,032,968 ------------- Net assets, July 31, 2000 $ 70,124,485 ------------- -------------
46 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Statement of Assets and Liabilities Cont'd.
July 31, 2000 - ---------------------------------------------------------------------------------------- Class A: Net asset value and redemption price per share ($14,514,046 / 1,312,702 shares of beneficial interest issued and outstanding) $11.06 Maximum sales charge (5% of offering price) .58 ------------- Maximum offering price to public $11.64 ------------- ------------- Class B: Net asset value, offering price and redemption price per share ($43,837,693 / 3,965,946 shares of beneficial interest issued and outstanding) $11.05 ------------- ------------- Class C: Net asset value and redemption price per share ($11,301,315 / 1,022,356 shares of beneficial interest issued and outstanding) $11.05 Sales charge (1% of offering price) .11 ------------- Offering price to public $11.16 ------------- ------------- Class Z: Net asset value, offering price and redemption price per share ($471,430 / 42,653 shares of beneficial interest issued and outstanding) $11.05 ------------- -------------
See Notes to Financial Statements 47 Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Statement of Operations
Year Ended July 31, 2000 - --------------------------------------------------------------------------------------- NET INVESTMENT INCOME Income Interest $3,500,952 Dividends (net of foreign withholding taxes of $1,304) 297,390 ------------ Total income 3,798,342 ------------ Expenses Management fee 558,132 Distribution fee--Class A 31,338 Distribution fee--Class B 365,743 Distribution fee--Class C 129,543 Custodian's fees and expenses 300,000 Transfer agent's fees and expenses 63,000 Reports to shareholders 63,000 Registration fees 60,000 Audit fee 25,000 Legal fees 14,000 Amortization of offering costs 9,033 Trustees' fees and expenses 6,000 Miscellaneous 2,929 ------------ Total expenses 1,627,718 ------------ Net investment income 2,170,624 ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS Net realized gain on: Investment transactions 6,219,031 Foreign currency transactions 65,465 Swaps 52,224 ------------ 6,336,720 ------------ Net change in unrealized appreciation (depreciation) on: Investments (221,530) Foreign currencies 21,185 Swaps (11,016) ------------ (211,361) ------------ Net gain on investments 6,125,359 ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $8,295,983 ------------ ------------
48 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Statement of Changes in Net Assets
Year November 18, 1998(a) Ended Through July 31, 2000 July 31, 1999 - ----------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS Operations Net investment income $ 2,170,624 $ 1,315,456 Net realized gain on investment and foreign currency transactions 6,336,720 577,710 Net change in unrealized appreciation/(depreciation) of investments, foreign currencies and swaps (211,361) 2,244,329 ------------- -------------------- Net increase in net assets resulting from operations 8,295,983 4,137,495 ------------- -------------------- Dividends and distributions (Note 1) Dividends from net investment income Class A (419,711) (118,082) Class B (1,002,217) (278,242) Class C (337,721) (155,747) Class Z (348,570) (637,575) ------------- -------------------- (2,108,219) (1,189,646) ------------- -------------------- 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 $ 35,877,305 $107,208,098 Net asset value of shares issued in reinvestment of dividends and distributions 2,861,038 1,162,526 Cost of shares reacquired (48,138,088) (37,138,250) ------------- -------------------- Net decrease in net assets from Fund share transactions (9,399,745) 71,232,374 ------------- -------------------- Total increase/(decrease) (4,085,738) 74,180,223 NET ASSETS Beginning of year 74,210,223 30,000 ------------- -------------------- End of year(b) $ 70,124,485 $ 74,210,223 ------------- -------------------- ------------- -------------------- - ------------------------------ (a) Commencement of investment operations. (b) Includes undistributed net investment income of $ 392,105 $ 236,864 ------------- --------------------
See Notes to Financial Statements 49 Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Notes to Financial Statements 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. Jennison Associates, The Prudential Investment Corporation, Pacific Investment Management Company, Franklin Advisers, Inc. and The Dreyfus Corporation are the Fund's 'Advisers'. 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. 50 Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Notes to Financial Statements Cont'd. 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 reflected as a component of net unrealized appreciation on investments and foreign currencies. 51 Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Notes to Financial Statements Cont'd. 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. Interest Rate Swaps: In a simple interest rate swap, one investor pays a floating rate of interest on a notional principal amount and receives a fixed rate of interest on the same notional principal amount for a specified period of time. Alternatively, an investor may pay a fixed rate and receive a floating rate. Interest rate swaps were conceived as asset/liability management tools. In more complex swaps, the notional principal amount may decline (or amortize) over time. During the term of the swap, changes in the value of the swap are recognized as unrealized gains or losses by 'marking-to-market' to reflect the market value of the swap. When the swap is terminated, the Fund will record a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund's basis in the contract, if any. The Fund is exposed to credit loss in the event of non-performance by the other party to the interest rate swap. However, the Fund does not anticipate non-performance by any counterparty. 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. 52 Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Notes to Financial Statements Cont'd. 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 $77,498 in connection with the initial offering of the Fund. Offering costs were amortized over a period of 12 months ended November 1999. Reclassification of Capital Accounts: The Fund accounts for and reports distributions to shareholders in accordance with the American Institute of Certified 53 Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Notes to Financial Statements Cont'd. Public Accountants Statement of Position 93-2: Determination, Disclosure, and Financial Statement Presentation of Income, Capital Gains, and Return of Capital Distributions by Investment Companies. The effect of applying this statement was to increase undistributed net investment income by $92,836, decrease accumulated net realized gain on investments by $83,803, and decrease paid-in capital by $9,033 for the period ended July 31, 2000, due to realized and recognized currency gains during the period and certain expenses not deductible for tax purposes. 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 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 ('Jennison') $300 million; .25% for amounts in excess of $300 million The Prudential Investment Corporation ('PIC') .375%1 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 54 Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Notes to Financial Statements Cont'd. 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 year ended July 31, 2000. PIMS has advised the Fund that it has received approximately $90,500 and $28,800 in front-end sales charges resulting from sales of Class A and Class C shares, respectively, during the year ended July 31, 2000. PIMS has advised the Fund that for the year ended July 31, 2000, it has received approximately $112,000 and $33,700 in contingent deferred sales charges imposed upon certain redemptions by Class B and Class C shareholders, respectively. Jennison, 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. Interest on any such borrowings will be at market rates. The purpose of the agreement is to serve as an alternative source of funding for capital share redemptions. The Funds pay a commitment fee of .080 of 1% of the unused portion of the credit facility. The commitment fee is accrued and paid quarterly on a pro rata basis by the Funds. The expiration date of the SCA is March 9, 2001. Prior to March 9, 2000, the commitment fee was .065 of 1% of the unused portion of the credit facility. The Fund did not borrow any amounts pursuant to the SCA during the period ended July 31, 2000. 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 year ended July 31, 2000, the Fund incurred fees of approximately $54,000 for the services of PMFS. As of July 31, 2000 approximately $5,200 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. Note 4. Portfolio Securities Purchases and sales of portfolio securities, excluding short-term investments, for the year ended July 31, 2000 were $190,136,013 and $196,606,023, respectively. 55 Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Notes to Financial Statements Cont'd. At July 31, 2000, the Fund had outstanding forward currency contracts to sell foreign currencies as follows:
Value at Foreign Currency Settlement Date Value at Sale Contracts Payable July 31, 2000 Appreciation - ----------------------------------- --------------- ------------- ------------ Euro, expiring 8/14/00 $ 558,385 $ 554,790 $3,595 --------------- ------------- ------------ --------------- ------------- ------------
The Fund entered into 6 interest rate swap agreements. Under the agreement the Fund receives a floating rate and pays a respective fixed rate. Details of the swaps at July 31, 2000 are as follows:
Notional Unrealized Amount Fixed Floating Termination Appreciation (000) Rate Rate Date (Depreciation) - -------- ------ -------------- ------------ -------------- $ 20 6.25% 6 month LIBOR 1/4/24(c) $ (3,573) 80 6.175 6 month LIBOR 5/22/30(a) (1,479) 2,500 7.75 3 month LIBOR 1/1/01(b) 6,250 1,300 7.498 3 month LIBOR 5/8/03(b) (11,546) 500 7.00 3 month LIBOR 9/15/00(b) (353) 500 7.00 3 month LIBOR 9/22/00(a) (315) -------------- $(11,016) -------------- --------------
- ------------------------------ (a) Counterparty--Goldman Sachs (b) Counterparty--Morgan Stanley Dean Witter (c) Counterparty--J.P. Morgan The United States federal income tax basis of the Fund's investments, including short-term investments, as of July 31, 2000 was $81,030,809; accordingly, net unrealized appreciation on investments for federal income tax purposes was $1,850,403 (gross unrealized appreciation--$5,941,922, gross unrealized depreciation--$4,091,519). 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 July 31, 2000, the Fund had a 1.0% undivided interest in the repurchase agreements in the joint account. The undivided interest for the Fund represents $5,540,000 in principal amount. As of such date, each repurchase agreement in the joint account and the collateral therefore were as follows: 56 Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Notes to Financial Statements Cont'd. ABN AMRO Incorporated, 6.56%, in the principal amount of $100,000,000, repurchase price $100,018,222, due 8/1/00. The value of the collateral including accrued interest was $102,000,029. Bear, Stearns & Co. Inc., 6.55%, in the principal amount of $100,000,000, repurchase price $100,018,194, due 8/1/00. The value of the collateral including accrued interest was $102,926,906. Greenwich Capital Markets, Inc., 6.57%, in the principal amount of $110,000,000, repurchase price $110,020,075, due 8/1/00. The value of the collateral including interest was $112,201,716. Merrill Lynch, Pierce, Fenner & Smith, Inc., 6.45%, in the principal amount of $97,030,000, repurchase price $97,047,384, due 8/1/00. The value of the collateral including accrued interest was $98,970,864. Salomon Smith Barney, Inc., 6.55%, in the principal amount of $155,000,000, repurchase price $155,028,201, due 8/1/00. The value of the collateral including accrued interest was $158,174,190. 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. Transactions in shares of beneficial interest were as follows:
Class A Shares Amount - ----------------------------------------------------------- ---------- ------------ Year ended July 31, 2000: Shares sold 1,090,045 $ 11,650,462 Shares issued in reinvestment of dividends and distributions 47,988 515,634 Shares reacquired (812,925) (8,741,195) ---------- ------------ Net increase in shares outstanding before conversion 325,108 3,424,901 Shares issued upon conversion from Class B 109,810 1,201,204 ---------- ------------ Net increase in shares outstanding 434,918 $ 4,626,105 ---------- ------------ ---------- ------------
57 Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Notes to Financial Statements Cont'd.
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 1,584 16,195 ---------- ------------ Net increase in shares outstanding 877,034 $ 8,988,790 ---------- ------------ ---------- ------------ Class B - ----------------------------------------------------------- Year ended July 31, 2000: Shares sold 1,916,483 $ 20,536,163 Shares issued in reinvestment of dividends and distributions 123,462 1,322,329 Shares reacquired (885,951) (9,503,752) ---------- ------------ Net increase in shares outstanding before conversion 1,153,994 12,354,740 Shares issued upon conversion into Class A (110,000) (1,201,204) ---------- ------------ Net increase in shares outstanding 1,043,994 $ 11,153,536 ---------- ------------ ---------- ------------ 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 ---------- ------------ ---------- ------------ - ------------------------------ (a) Commencement of investment operations.
58 Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Notes to Financial Statements Cont'd.
Class C Shares Amount - ----------------------------------------------------------- ---------- ------------ Year ended July 31, 2000: Shares sold 304,558 $ 3,288,339 Shares issued in reinvestment of dividends and distributions 42,720 455,132 Shares reacquired (681,306) (7,334,166) ---------- ------------ Net decrease in shares outstanding (334,028) $ (3,590,695) ---------- ------------ ---------- ------------ 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 - ----------------------------------------------------------- Year ended July 31, 2000: Shares sold 37,256 $ 402,341 Shares issued in reinvestment of dividends and distributions 54,363 567,943 Shares reacquired (2,059,454) (22,558,975) ---------- ------------ Net decrease in shares outstanding (1,967,835) $(21,588,691) ---------- ------------ ---------- ------------ 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. 59 Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Financial Highlights
Class A -------------------------------------- November 18, 1998(a) Year Ended Through July 31, 2000 July 31, 1999 - -------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE(d): Net asset value, beginning of period $ 10.36 $10.00 ------------- ------- Income from investment operations: Net investment income .37 .19 Net realized and unrealized gain on investments and foreign currencies .82 .35 ------------- ------- Total from investment operations 1.19 .54 ------------- ------- Less distributions Dividends from net investment income (.37) (.18) Distributions from net realized capital gains (.12) -- ------------- ------- Total dividends and distributions (.49) (.18) ------------- ------- Net asset value, end of period $ 11.06 $10.36 ------------- ------- ------------- ------- TOTAL RETURN(b) 11.73% 5.34% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000) $14,514 $9,097 Average net assets (000) $12,535 $6,157 Ratios to average net assets: Expenses, including distribution fees 1.73% 1.92%(c) Expenses, excluding distribution fees 1.48% 1.67%(c) Net investment income 3.46% 2.69%(c) For Class A, B, C and Z shares: Portfolio turnover rate 244% 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. 60 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Financial Highlights Cont'd.
Class B -------------------------------------- November 18, 1998(a) Year Ended Through July 31, 2000 July 31, 1999 - -------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE(d): Net asset value, beginning of period $ 10.35 $ 10.00 ------------- -------- Income from investment operations: Net investment income .29 .14 Net realized and unrealized gain on investments and foreign currencies .82 .34 ------------- -------- Total from investment operations 1.11 .48 ------------- -------- Less distributions Dividends from net investment income (.29) (.13) Distributions from net realized capital gains (.12) -- ------------- -------- Total dividends and distributions (.41) (.13) ------------- -------- Net asset value, end of period $ 11.05 $ 10.35 ------------- -------- ------------- -------- TOTAL RETURN(b) 10.89% 4.77% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000) $43,838 $ 30,235 Average net assets (000) $36,574 $ 19,308 Ratios to average net assets: Expenses, including distribution fees 2.48% 2.67%(c) Expenses, excluding distribution fees 1.48% 1.67%(c) Net investment income 2.70% 1.94%(c)
- ------------------------------ (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 61 Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Financial Highlights Cont'd.
Class C ----------------------------------------- November 18, 1998(a) Year Ended Through July 31, 2000 July 31, 1999 - ----------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE(d): Net asset value, beginning of period $ 10.35 $ 10.00 -------- -------- Income from investment operations: Net investment income .28 .14 Net realized and unrealized gain on investments and foreign currencies .83 .34 -------- -------- Total from investment operations 1.11 .48 -------- -------- Less distributions Dividends from net investment income (.29) (.13) Distributions from net realized capital gains (.12) -- -------- -------- Total dividends and distributions (.41) (.13) -------- -------- Net asset value, end of period $ 11.05 $ 10.35 -------- -------- -------- -------- TOTAL RETURN(b) 10.89% 4.77% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000) $ 11,301 $ 14,035 Average net assets (000) $ 12,954 $ 12,039 Ratios to average net assets: Expenses, including distribution fees 2.48% 2.67%(c) Expenses, excluding distribution fees 1.48% 1.67%(c) Net investment income 2.63% 1.91%(c)
- ------------------------------ (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. 62 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Financial Highlights Cont'd.
Class Z ----------------------------------------- November 18, 1998(a) Year Ended Through July 31, 2000 July 31, 1999 - ----------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE(d): Net asset value, beginning of period $ 10.37 $ 10.00 -------- -------- Income from investment operations: Net investment income .35 .21 Net realized and unrealized gain on investments and foreign currencies .85 .35 -------- -------- Total from investment operations 1.20 .56 -------- -------- Less distributions Dividends from net investment income (.40) (.19) Distributions from net realized capital gains (.12) -- -------- -------- Total dividends and distributions (.52) (.19) -------- -------- Net asset value, end of period $ 11.05 $ 10.37 -------- -------- -------- -------- TOTAL RETURN(b) 11.84% 5.58% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000) $ 471 $ 20,843 Average net assets (000) $ 12,354 $ 38,460 Ratios to average net assets: Expenses, including distribution fees 1.48% 1.67%(c) Expenses, excluding distribution fees 1.48% 1.67%(c) Net investment income 3.30% 2.89%(c)
- ------------------------------ (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 63 Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Report of Independent Accountants To the Shareholders and Trustees of Prudential Diversified Funds-- Prudential Diversified Conservative Growth Fund In our opinion, the accompanying statement of assets and liabilities, including the portfolio of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Prudential Diversified Funds--Prudential Diversified Conservative Growth Fund (the 'Fund') at July 31, 2000, the results of its operations for the year then ended, and the changes in its net assets and the financial highlights for the year then ended and for the period November 18, 1998 (commencement of operations) through July 31, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements and financial highlights (hereafter referred to as 'financial statements') are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at July 31, 2000 by correspondence with the custodian and brokers, provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, New York September 22, 2000 64 Prudential Diversified Funds Prudential Diversified Conservative Growth Fund Federal Income Tax Information We are required by the Internal Revenue Code to advise you within 60 days of the Fund's fiscal year end (July 31, 2000) as to the federal tax status of dividends paid by the Fund during such fiscal period. Accordingly, we are advising you that during the fiscal period, the Fund paid dividends for Class A, Class B, Class C and Class Z shares totaling $.37, $.29, $.29 and $.40 per share, of ordinary income, which is taxable as such, respectively. In addition, the Fund paid to Class A, B, C and Z shares a short-term capital gain distribution of $.12 which is taxable as such. Further, we wish to advise you that 6.96% of the ordinary income dividends paid in the fiscal year ended July 31, 2000 qualified for the corporate dividend received deduction available to corporate taxpayers. In January 2001, you will be advised on IRS Form 1099 DIV or substitute 1099 DIV as to the federal tax status of the distributions received by you in calendar year 2000. IMPORTANT NOTICE FOR CERTAIN SHAREHOLDERS We are required by Massachusetts, Missouri and Oregon to inform you that dividends which have been derived from interest on federal obligations are not taxable to shareholders providing the mutual fund meets certain requirements mandated by the respective state's taxing authorities. We are pleased to report that 6.73% of the dividends paid by the Prudential Diversified Conservative Growth Fund qualify for such deduction. For more detailed information regarding your state and local taxes, you should contact your tax advisor or the state/local taxing authorities. 65 Prudential Diversified Conservative Growth Fund Class A Growth of a $10,000 Investment (GRAPH) Average Annual Total Returns as of 7/31/00
One Year Five Years Ten Years Since Inception With Sales Charge 6.14% N/A N/A 6.78% Without Sales Charge 11.73% N/A N/A 10.06%
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. The graph compares a $10,000 investment in the Prudential Diversified Conservative Growth Fund (Class A shares) with a similar investment in the Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index) by portraying the initial account value at the commencement of operations of Class A shares, and the account value at the end of the current fiscal year (July 31, 2000), as measured on a quarterly basis, beginning in November 1998 for Class A shares. For purposes of the graph, and unless otherwise indicated, it has been assumed that (a) the maximum applicable front- end sales charge was deducted from the initial $10,000 investment in Class A shares; (b) all recurring fees (including management fees) were deducted; and (c) all dividends and distributions were reinvested. The S&P 500 Index is an unmanaged index of 500 stocks of large U.S. companies. It gives a broad look at how stock prices have performed. The S&P 500 Index total returns include the reinvestment of all dividends, but do not include the effect of sales charges or operating expenses of a mutual fund. The securities that comprise the Index may differ substantially from the securities in the Fund. The Index is not the only one that may be used to characterize performance of large- capitalization stock funds. Other indexes may portray different comparative performance. Investors cannot invest directly in an index. This graph is furnished to you in accordance with SEC regulations. www.prudential.com (800) 225-1852 Class B Growth of a $10,000 Investment (GRAPH) Average Annual Total Returns as of 7/31/00
One Year Five Years Ten Years Since Inception With Sales Charge 5.89% N/A N/A 7.00% Without Sales Charge 10.89% N/A N/A 9.22%
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. The graph compares a $10,000 investment in the Prudential Diversified Conservative Growth Fund (Class B shares) with a similar investment in the Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index) by portraying the initial account values at the commencement of operations of Class B shares, and the account value at the end of the current fiscal year (July 31, 2000), as measured on a quarterly basis, beginning in November 1998 for Class B shares. For purposes of the graph, and unless otherwise indicated, it has been assumed that (a) the maximum applicable contingent deferred sales charge was deducted from the value of the investment in Class B shares, assuming full redemption on July 31, 2000; (b) all recurring fees (including management fees) were deducted; and (c) all dividends and distributions were reinvested. Class B shares will automatically convert to Class A shares, on a quarterly basis, beginning approximately seven years after purchase. This conversion feature is not reflected in the graph. The S&P 500 Index is an unmanaged index of 500 stocks of large U.S. companies. It gives a broad look at how stock prices have performed. The S&P 500 Index total returns include the reinvestment of all dividends, but do not include the effect of sales charges or operating expenses of a mutual fund. The securities that comprise the Index may differ substantially from the securities in the Fund. The Index is not the only one that may be used to characterize performance of large- capitalization stock funds. Other indexes may portray different comparative performance. Investors cannot invest directly in an index. This graph is furnished to you in accordance with SEC regulations. Prudential Diversified Conservative Growth Fund Class C Growth of a $10,000 Investment Average Annual Total Returns as of 7/31/00
One Year Five Years Ten Years Since Inception With Sales Charge 8.78% N/A N/A 8.58% Without Sales Charge 10.89% N/A N/A 9.22%
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. The graph compares a $10,000 investment in the Prudential Diversified Conservative Growth Fund (Class C shares) with a similar investment in the Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index) by portraying the initial account value at the commencement of operations of Class C shares, and the account value at the end of the current fiscal year (July 31, 2000), as measured on a quarterly basis, beginning in November 1998 for Class C shares. For purposes of the graph, and unless otherwise indicated, it has been assumed that (a) the maximum applicable front- end sales charge was deducted from the initial $10,000 investment in Class C shares; (b) the maximum applicable contingent deferred sales charge was deducted from the value of the investment in Class C shares, assuming full redemption on July 31, 2000; (c) all recurring fees (including management fees) were deducted; and (d) all dividends and distributions were reinvested. The S&P 500 Index is an unmanaged index of 500 stocks of large U.S. companies. It gives a broad look at how stock prices have performed. The S&P 500 Index total returns include the reinvestment of all dividends, but do not include the effect of sales charges or operating expenses of a mutual fund. The securities that comprise the Index may differ substantially from the securities in the Fund. The Index is not the only one that may be used to characterize performance of large- capitalization stock funds. Other indexes may portray different comparative performance. Investors cannot invest directly in an index. This graph is furnished to you in accordance with SEC regulations. www.prudential.com (800) 225-1852 Class Z Growth of a $10,000 Investment Average Annual Total Returns as of 7/31/00
One Year Five Years Ten Years Since Inception With Sales Charge 11.84% N/A N/A 10.27% Without Sales Charge 11.84% N/A N/A 10.27%
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. The graph compares a $10,000 investment in the Prudential Diversified Conservative Growth Fund (Class Z shares) with a similar investment in the Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index) by portraying the initial account value at the commencement of operations of Class Z shares, and the account value at the end of the current fiscal year (July 31, 2000), as measured on a quarterly basis, beginning in November 1998 for Class Z shares. For purposes of the graph, and unless otherwise indicated, it has been assumed that (a) all recurring fees (including management fees) were deducted, and (b) all dividends and distributions were reinvested. Class Z shares are not subject to a sales charge or distribution and service (12b-1) fees. The S&P 500 Index is an unmanaged index of 500 stocks of large U.S. companies. It gives a broad look at how stock prices have performed. The S&P 500 Index total returns include the reinvestment of all dividends, but do not include the effect of sales charges or operating expenses of a mutual fund. The securities that comprise the Index may differ substantially from the securities in the Fund. The Index is not the only one that may be used to characterize performance of large-capitalization stock funds. Other indexes may portray different comparative performance. Investors cannot invest directly in an index. This graph is furnished to you in accordance with SEC regulations. FOR MORE INFORMATION Prudential Mutual Funds Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 (800) 225-1852 Visit Prudential's web site at: http://www.prudential.com Trustees Eugene C. Dorsey Saul K. Fenster, Ph.D. Robert F. Gunia Prof. Maurice F. Holmes Robert E. LaBlanc Douglas H. McCorkindale W. Scott McDonald, Jr. Thomas T. Mooney David R. Odenath, Jr. Stephen Stoneburn John R. Strangfeld Joseph Weber Clay T. Whitehead Officers John R. Strangfeld, President Robert F. Gunia, Vice President David R. Odenath, Jr., Vice President Grace C. Torres, Treasurer William V. Healey, Assistant Secretary 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 LLC 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 8098 Philadelphia, PA 19101 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 Fund Symbols NASDAQ CUSIP Class A N/A 74432F109 Class B PBCFX 74432F208 Class C PCCFX 74432F307 Class Z PDCZX 74432F406 MF186E5 (LOGO) Printed on Recycled Paper (ICON) ANNUAL REPORT JULY 31, 2000 Prudential Diversified High Growth Fund Fund Type Stock Objective Long-term capital appreciation This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus. Build On The Rock (GRAPHIC) 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. (LOGO) Build on the Rock Investment Goals and Style The Prudential Diversified High Growth Fund seeks to provide long-term capital appreciation. It invests in a diversified portfolio of equity securities. There can be no assurance that the Fund will achieve its investment objective. MANAGER Prudential Investments Fund Management LLC INVESTMENT SUB-ADVISERS (LOGO) www.prudential.com (800) 225-1852 Performance at a Glance Cumulative Total Returns1 As of 7/31/00
One Since Year Inception2 Class A 18.99% 37.08% Class B 18.13 35.49 Class C 18.13 35.49 Class Z 19.23 37.83 Lipper Multi-Cap Core Fund Avg.3 13.29 28.56
Average Annual Total Returns1 As of 7/31/00
One Since Year Inception2 Class A 13.04% 16.80% Class B 13.13 17.47 Class C 15.95 18.86 Class Z 19.23 20.77
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 one-year and since inception periods in the Multi-Cap Core Fund category. The Lipper average is unmanaged. The Lipper Multi-Cap Core Fund average includes funds that invest in a variety of market capitalization ranges, generally have between 25% and 75% of their equity assets invested in companies with market capitalizations above 300% of the dollar-weighted median of the S&P(r) Mid-Cap 400 Index, have wide latitude in the companies in which they invest, and have an above- average price/earnings ratio, price-to-book ratio, and three-year earnings growth figure. S&P(r) is a registered trademark of The McGraw-Hill Companies, Inc. 1 (LOGO) Dear Shareholder, The Prudential Diversified High Growth Fund's Class A shares had a cumulative total return of 18.99% over the 12-month period ended July 31, 2000, more than five percentage points above the 13.29% Lipper Multi-Cap Core Fund Average. This was 13.04% to those paying the maximum one-time Class A share sales charge. Although value stocks had a net negative return over the period, the Fund's small-cap and large-cap growth holdings each substantially exceeded the return on their benchmarks, contributing most of the positive return for the period. This was a good period to be in a diversified fund. The markets changed with dizzying frequency and rapidity. To illustrate this point, the graph on the next page represents the monthly returns of three different indexes: the Standard & Poor's Electronics Index, which represents a model growth industry; the Standard & Poor's SmallCap Gaming Index, which represents stocks that can be found in many value funds; and the Morgan Stanley Capital International EAFE Index, which represents the major world markets excluding the United States. As you can see, each had dramatic month-to-month changes, including some negative months, and they behaved in very different ways. A diversified fund-one that is invested in several companies within a number of different industries that have different growth characteristics-is more likely to exhibit steady performance. Sincerely, John R. Strangfeld, President Prudential Diversified High Growth Fund 2 September 15, 2000 Monthly Returns of Selected Indexes (GRAPH) 1 The S&P Electronics (semiconductors) Index is an unmanaged capitalization-weighted index of all stocks designed to measure performance of the electronics (semiconductors) sector of the S&P 500 Index. 2 The S&P SmallCap Gaming, Lottery, and Parimutuel Companies Index is an unmanaged capitalization-weighted index that measures the performance of the gaming, lottery, and parimutuel sector of the S&P SmallCap Index. 3 The Morgan Stanley Capital International Europe, Australia, Far East Index (MSCI EAFE Index) is an unmanaged weighted index of performance that reflects stock price movements in Europe, Australasia, and the Far East. The performance cited does not represent the performance of the Prudential Diversified High Growth Fund. Past performance is not indicative of future results. Investors cannot invest directly in an index. Prudential Diversified High Growth Fund Annual Report July 31, 2000 Investment Adviser's Report The Investing Context Good news about the global economy dominated in the fiscal year ended July 31, 2000. During the early part of the period, uncertainties about how information systems would behave during the turnover to the year 2000 caused a flood of investment activity as companies updated their information system support. The uncertainty also led the U.S. Federal Reserve to increase the money supply to ensure that any unexpected failure would not freeze the financial system. During this period, technology and telecommunications stocks around the world shot up to extraordinarily high prices in comparison to even optimistic earnings projections. In the latter half of 1999, the Federal Reserve began increasing interest rates to prevent the U.S. economy from overheating. The series of interest rate increases continued into 2000, leading investors to take a second look at stock prices that were based upon expectations of a long stream of future earnings. In addition, many investors feared that rising interest rates would choke off economic growth. In the wake of increasing investor uncertainty, many of the most expensive stocks declined in value, and stock markets faced unprecedented volatility as every additional piece of economic news was scrutinized and acted upon. Growth and value investing styles alternated in success, sometimes from day to day. Investors with well-diversified portfolios were better positioned to weather these style turnovers because some holdings might have experienced gains as others lost ground. Over the full 12 months, growth-style investing performed best. Among stocks of small-capitalization companies, the advantage was entirely in the early part of the period, as small-cap value stocks were significantly favored in the second half. Among large caps, market favor continued to alternate through the summer of 2000. International stocks gained modestly, mostly early in the period. As in the U.S. market, style volatility and increased caution held back international returns in 2000. 4 www.prudential.com (800) 225-1852 Our Performance Growth stocks. The Prudential Diversified High Growth Fund continued to benefit from the 40% of its assets allocated to growth-style investing (25% large cap and 15% small cap) and from the strong performance of its growth managers. They far exceeded the returns of their respective benchmarks. In small-cap stocks, the portfolio benefited from its focus on technology. Early in the period, an emphasis was placed on Internet-related stocks, and these were market favorites. The managers reduced their Internet position in time to protect much of these gains from the sharp technology stock correction that occurred in the second quarter of 2000. The cash was reinvested in more established companies as the market declined. Value stocks. Largely because of the growth-oriented environment early in the period, value benchmarks posted negative performances over the reporting period. Our style-consistent managers were more affected than most by changes in market favor, and both underperformed their benchmarks. In large-cap stocks, the strong contribution of rebounding health management companies and gains by oil companies failed to offset the impact of a low representation in technology and a high weighting in paper companies. With regard to the latter, a 1999 recovery of paper stocks was cut short in 2000 when investors focused on the threats to continuing economic growth. In small caps, the portfolio's return relative to its peers was hurt by the absence of biotechnology holdings, which received an unexpected boost in the second quarter from the publicity following the mapping of the human genome. After several years of poor performance compared with growth investing, the value style has been more competitive in the year 2000. International stocks. The positive contribution of international stocks came primarily early in the period. The value orientation of the Fund's international holdings made them sensitive to concerns about global economic growth. Many investors feared that the European Central Bank's raising of interest rates would slow growth. Moreover, the return from international stocks was hurt by the rise of the value of the dollar compared to other 5 Prudential Diversified High Growth Fund Annual Report July 31, 2000 currencies, particularly the euro. It is widely believed that the euro is undervalued, and a correction of this imbalance would boost the relative value of euro- denominated stocks generally. Prudential Diversified High Growth Fund Management Team 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 the Fund 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, but 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 buffer than a fund investing in only one asset class. We believe this will result in more consistent returns over time. Rebalancing The 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. 6 www.prudential.com (800) 225-1852 Although an individual investor can diversify and rebalance, it would require a large investment to own the range of asset classes represented in the 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. Prudential Diversified High Growth Fund Diversification Target (GRAPH) 7 Prudential Diversified Funds Prudential Diversified High Growth Fund Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ------------------------------------------------------------------------------------------ LONG-TERM INVESTMENTS 87.5% Common Stocks - ------------------------------------------------------------------------------------- Advertising 0.4% 1,750 ADVO, Inc. $ 71,641 4,300 Omnicom Group, Inc. 365,500 2,550 Penton Media, Inc. 88,294 2,900 True North Communications, Inc. 141,556 ---------------- 666,991 - ------------------------------------------------------------------------------------- Aerospace/Defense 0.4% 59,500 British Aerospace PLC (United Kingdom)(a) 401,210 9,450 Gencorp, Inc. 75,009 20,000 Loral Space & Communications, Inc. 103,750 3,850 Scott Technologies, Inc. 74,113 ---------------- 654,082 - ------------------------------------------------------------------------------------- Airlines 0.3% 15,900 Deutsche Lufthansa AG (Germany)(a) 392,002 2,200 SkyWest, Inc. 98,175 ---------------- 490,177 - ------------------------------------------------------------------------------------- Auto & Truck 1.3% 5,250 ArvinMeritor, Inc. 82,031 2,400 Borg-Warner Automotive, Inc. 81,450 1,847 Delphi Automotive Systems Corp. 27,359 10,350 Dura Automotive Systems, Inc.(a) 106,734 18,767 General Motors Corp. 574,373 17,500 GKN PLC (United Kingdom) 224,074 5,200 Lear Corp.(a) 121,225 136,000 Nissan Motor Co., Ltd. (Japan)(a) 679,162 2,350 Superior Industries International, Inc. 70,647 ---------------- 1,967,055 - ------------------------------------------------------------------------------------- Banking 5.4% 7,600 BancorpSouth, Inc. 115,425 3,550 BancWest Corp. 65,453 3,200 Bank of New York Co., Inc. 149,800 1,300 Bank United Corp. (Class 'A' Stock) 47,369 9,301 Banknorth Group, Inc. 142,422
8 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified High Growth Fund Portfolio of Investments as of July 31, 2000 Cont'd.
Shares Description Value (Note 1) - ------------------------------------------------------------------------------------------ 3,700 Banque Nationale de Paris (France) $ 365,225 10,600 Bayerische Vereinsbank AG (Germany) 615,512 3,700 BSB Bancorp, Inc. 79,088 3,050 City National Corp. 111,897 3,200 CORUS BankShares, Inc. 93,600 9,650 Cullen/Frost Bankers, Inc. 274,422 9,475 CVB Financial Corp. 149,231 450 First Citizens BancShares, Inc. 27,450 31,000 Fuji Bank Ltd. (Japan) 200,374 5,650 Fulton Financial Corp. 121,475 12,000 Golden State Bancorp, Inc.(a) 229,500 2,250 Greater Bay Bancorp 121,078 4,450 Harbor Florida Bancshares, Inc. 50,619 36,500 HSBC Holdings PLC (United Kingdom) 494,155 33,000 Industrial Bank of Japan, Ltd. (Japan)(a) 211,795 8,200 ING Groep NV (Netherlands)(a) 548,276 7,550 MAF Bancorp, Inc. 150,528 55,850 Overseas-Chinese Banking Corp., Ltd. (Singapore) 406,147 5,050 PFF Bancorp, Inc. 87,744 3,250 Queens County Bancorp, Inc. 75,156 69,000 Sakura Bank, Ltd. (Japan) 400,009 21,300 San Paolo Imi SpA (Italy) 361,277 17,450 Silicon Valley Bancshares(a) 764,528 3,750 Southwest Bancorpoation of Texas, Inc.(a) 98,203 58,000 Sumitomo Trust & Banking Co., Ltd. (Japan) 373,835 22,000 Svenska Handelsbanken, Ser. A (Sweden) 330,968 72,904 United Overseas Bank, Ltd. (Singapore) 521,750 7,600 Washington Federal, Inc. 142,500 5,200 WestAmerica Bancorporation 144,300 ---------------- 8,071,111 - ------------------------------------------------------------------------------------- Building & Construction 1.4% 6,200 American Standard Companies, Inc.(a) 276,287 1,500 Catellus Development Corp.(a) 25,875 7,400 Centex Corp. 177,137 8,700 D.R. Horton, Inc. 134,850 1,300 Dycom Industries, Inc. 55,575
See Notes to Financial Statements 9 Prudential Diversified Funds Prudential Diversified High Growth Fund Portfolio of Investments as of July 31, 2000 Cont'd.
Shares Description Value (Note 1) - ------------------------------------------------------------------------------------------ 4,200 Kaufman & Broad Home Corp. $ 82,163 8,200 M.D.C. Holdings, Inc. 164,000 10,000 Pulte Corp. 229,375 2,500 Texas Industries, Inc. 81,094 8,100 Thomas Industries, Inc. 169,088 3,100 Toll Brothers, Inc.(a) 74,981 5,018 Vivendi SA (France) 400,911 8,500 Webb (Del E.) Corp. 129,625 ---------------- 2,000,961 - ------------------------------------------------------------------------------------- Chemicals 1.4% 8,900 Akzo Nobel NV (Netherlands) 395,868 2,250 Albany Molecular Research, Inc. 124,594 4,950 Albemarle Corp. 122,203 2,900 Arch Chemicals, Inc. 58,000 200 Cambrex Corp. 9,038 4,525 Cytec Industries, Inc.(a) 141,406 5,700 Eastman Chemical Co. 267,187 2,750 Geon Co. 45,203 11,700 Grace (W.R.) & Co.(a) 115,537 1,350 H.B. Fuller Co. 52,144 19,300 Imperial Chemical Industries PLC (United Kingdom) 138,672 4,550 Lubrizol Corp. 97,256 6,900 Olin Corp. 108,244 1,650 OM Group, Inc. 78,272 2,300 Potash Corp. of Saskatchewan, Inc. 123,481 4,950 Spartech Corp. 132,722 ---------------- 2,009,827 - ------------------------------------------------------------------------------------- Computer Services 3.2% 13,200 Affiliated Computer Services, Inc.(a) 594,825 500 AnswerThink Consulting Group, Inc.(a) 8,406 5,100 ASM Lithography Holding NV (Netherlands)(a) 202,725 4,400 AXENT Technologies, Inc.(a) 108,350 3,700 Brooktrout, Inc.(a) 111,925 14,000 Catapult Communications Corp.(a) 186,375 20,300 Cisco Systems, Inc.(a) 1,328,381
10 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified High Growth Fund Portfolio of Investments as of July 31, 2000 Cont'd.
Shares Description Value (Note 1) - ------------------------------------------------------------------------------------------ 18,900 Getronics NV (Netherlands)(a) $ 318,818 3,250 InFocus Corp.(a) 113,750 2,000 Liberate Technologies, Inc.(a) 45,875 6,200 Luminant Worldwide Corp.(a) 50,375 16,000 MarchFirst, Inc.(a) 331,000 16,200 NetSolve, Inc.(a) 380,700 2,125 RadiSys Corp.(a) 130,688 3,400 RSA Security, Inc.(a) 215,475 500 Sapient Corp.(a) 56,875 4,800 Sun Microsystems, Inc.(a) 506,100 ---------------- 4,690,643 - ------------------------------------------------------------------------------------- Computers 2.6% 9,000 Citrix Systems, Inc.(a) 137,250 41,200 Compaq Computer Corp. 1,156,175 7,900 Dell Computer Corp.(a) 347,106 9,800 EMC Corp.(a) 834,225 13,000 Fujitsu, Ltd. (Japan) 365,545 9,500 Hewlett-Packard Co. 1,037,281 200 Nuance Communications, Inc.(a) 28,075 100 Predictive Systems, Inc.(a) 2,200 ---------------- 3,907,857 - ------------------------------------------------------------------------------------- Consumer Products 1.9% 3,550 Alberto-Culver Co. (Class 'B' Stock) 107,831 20,500 Eastman Kodak Co. 1,124,938 17,300 Electrolux AB, Ser. B (Sweden) 257,432 4,000 Estee Lauder Co., Inc. (Class 'A' Stock) 176,000 4,825 Fossil, Inc.(a) 88,056 14,000 Kao Corp. (Japan) 414,114 13,600 Philip Morris Co., Inc. 343,400 8,133 Reynolds (R.J.) Tobacco Holdings, Inc. 230,774 4,350 Tupperware Corp. 84,553 ---------------- 2,827,098 - ------------------------------------------------------------------------------------- Consumer Services 0.3% 2,000 PurchasePro.com, Inc.(a) 78,000 19,500 Service Corp. International(a) 49,969
See Notes to Financial Statements 11 Prudential Diversified Funds Prudential Diversified High Growth Fund Portfolio of Investments as of July 31, 2000 Cont'd.
Shares Description Value (Note 1) - ------------------------------------------------------------------------------------------ 4,350 Waste Connections, Inc.(a) $ 88,088 11,100 Waste Management, Inc. 207,431 ---------------- 423,488 - ------------------------------------------------------------------------------------- Diversified Manufacturing 1.7% 1,800 Corning, Inc. 421,088 4,100 CUNO, Inc.(a) 124,025 10,700 General Electric Co. 550,381 104,700 Invensys PLC (United Kingdom) 375,354 3,250 KEMET Corp.(a) 78,000 2,130 Siemens AG (Germany) 329,690 10,200 Thyssen Krupp AG (Germany)(a) 175,086 8,300 Veba AG (Germany) 463,879 ---------------- 2,517,503 - ------------------------------------------------------------------------------------- Electronics 1.1% 1 Agilent Technologies, Inc.(a) 41 9,350 Minnesota Power, Inc. 199,272 36,600 National Grid Group PLC (United Kingdon) 300,541 4,500 Polycom, Inc.(a) 426,867 6,100 Sony Corp. (Japan) 560,798 13,000 Sumitomo Electric Industries, Ltd. (Japan) 210,545 ---------------- 1,698,064 - ------------------------------------------------------------------------------------- Electronic Components 4.8% 4,108 ABB Ltd. (Switzerland) 489,677 2,400 Applied Micro Circuits Corp.(a) 358,200 14,700 Arrow Electronics, Inc.(a) 486,019 2,700 ATMI, Inc.(a) 69,525 3,050 Audiovox Corp.(a) 47,275 5,300 Avnet, Inc. 301,769 3,050 Belden, Inc. 76,631 2,700 Cable Design Technologies Corp.(a) 95,175 2,600 Electroglas, Inc.(a) 52,000 900 Electronic Scientific Industries, Inc.(a) 40,894 7,800 Flextronics International, Ltd. (Singapore)(a) 552,216 14,500 Gentex Corp.(a) 329,875 13,000 Hitachi, Ltd. (Japan) 155,475
12 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified High Growth Fund Portfolio of Investments as of July 31, 2000 Cont'd.
Shares Description Value (Note 1) - ------------------------------------------------------------------------------------------ 3,950 Idacorp, Inc. $ 146,150 1,750 Integrated Silicon Solution, Inc. 36,750 7,780 KPN NV (Netherlands)(a) 352,469 1,400 Littelfuse, Inc.(a) 49,350 12,000 Novellus Systems, Inc.(a) 647,250 4,600 PMC-Sierra, Inc.(a) 891,825 4,400 Rogers Corp.(a) 157,300 200 Silicon Laboratories, Inc.(a) 11,512 7,300 STMicroelectronics NV (France) 415,644 5,000 TDK Corp. ADR (Japan) 635,000 13,100 Texas Instruments, Inc. 768,806 ---------------- 7,166,787 - ------------------------------------------------------------------------------------- Financial Services 5.4% 1,700 Acom Co., Ltd. (Japan)(a) 128,817 6,900 Allied Capital Corp. 130,669 12,900 American Express Co. 731,269 11,900 Bank of America Corp. 563,762 6,900 Charles Schwab Corp. 249,262 19,050 Citigroup, Inc. 1,344,216 1,200 Dain Rauscher Corp. 81,375 8,150 Doral Financial Corp. 105,950 5,250 Downey Financial Corp. 183,750 2,750 Eaton Vance Corp. 142,484 12,900 Federated Investors, Inc. 337,819 32,400 Halifax Group PLC (United Kingdom)(a) 253,915 1,600 Investment Technology, Inc.(a) 77,800 33,500 Investor AB (Sweden) 485,714 9,400 John Hancock Financial Services, Inc. 222,075 8,700 Labranche & Co., Inc.(a) 177,262 4,300 Merrill Lynch & Co., Inc. 555,775 7,500 Metris Companies, Inc. 219,844 11,600 Morgan Stanley Dean Witter & Co. 1,058,500 2,700 National Discount Brokers Group, Inc.(a) 88,931 2,800 Orix Corp. (Japan) 361,711 2,813 Radian Group, Inc. 171,241
See Notes to Financial Statements 13 Prudential Diversified Funds Prudential Diversified High Growth Fund Portfolio of Investments as of July 31, 2000 Cont'd.
Shares Description Value (Note 1) - ------------------------------------------------------------------------------------------ 2,550 Triad Guaranty, Inc. $ 61,838 5,650 Webster Financial Corp. 126,419 2,600 Whitney Holding Corp. 96,688 ---------------- 7,957,086 - ------------------------------------------------------------------------------------- Food & Beverage 2.6% 1,150 Adolph Coors Co. 72,450 53,500 Cadbury Schweppes PLC (United Kingdom) 346,121 11,500 CKE Restaurants, Inc. 33,781 53,100 Darden Restaurants, Inc. 866,194 2,900 Dean Foods Co. 100,956 45,600 Diageo PLC (United Kingdom) 400,410 3,750 Fleming Cos., Inc. 58,828 7,500 Heineken NV (Netherlands) 428,900 4,450 Michael Foods, Inc. 106,800 24,500 Nabisco Group Holding Corp. 649,250 3,900 Performance Food Group Co.(a) 128,456 6,850 Riviana Foods, Inc. 111,313 13,850 Ryan's Family Steak Houses, Inc.(a) 126,381 15,400 Sara Lee Corp. 283,938 4,350 Smithfield Foods, Inc.(a) 123,703 4,050 Universal Foods Corp. 78,975 ---------------- 3,916,456 - ------------------------------------------------------------------------------------- Gas Distribution 0.5% 3,000 CH Energy Group, Inc. 97,875 8,850 Energen Corp. 199,125 7,700 KeySpan Corp. 244,475 5,500 ONEOK, Inc. 146,781 ---------------- 688,256 - ------------------------------------------------------------------------------------- Health Care 4.1% 6,400 Apria Healthcare Group, Inc.(a) 95,600 29,900 Foundation Health Systems, Inc. 435,419 38,200 HCA-The Healthcare Corp. 1,298,800 32,600 HEALTHSOUTH Corp.(a) 193,563 700 Oxford Health Plans, Inc.(a) 16,756 9,000 PAREXEL International Corp.(a) 89,438
14 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified High Growth Fund Portfolio of Investments as of July 31, 2000 Cont'd.
Shares Description Value (Note 1) - ------------------------------------------------------------------------------------------ 45,000 Tenet Healthcare Corp.(a) $ 1,369,687 3,250 Trigon Healthcare, Inc.(a) 172,250 12,200 UnitedHealth Group, Inc. 998,112 15,200 Wellpoint Health Networks, Inc.(a) 1,325,250 ---------------- 5,994,875 - ------------------------------------------------------------------------------------- Home Furnishings 0.3% 3,275 Ethan Allen Interiors, Inc. 83,512 5,750 Furniture Brands International, Inc.(a) 85,172 5,100 HON INDUSTRIES, Inc. 136,106 8,350 Pier 1 Imports, Inc. 99,678 2,250 Springs Industries, Inc. 72,563 ---------------- 477,031 - ------------------------------------------------------------------------------------- Hotels & Leisure 0.4% 1,300 Anchor Gaming(a) 70,444 2,600 Gaylord Entertainment Co. 64,513 21,600 Hilton Hotels Corp. 221,400 39,400 MeriStar Hotels & Resorts, Inc.(a) 105,887 3,400 SFX Entertainment, Inc.(a) 156,400 ---------------- 618,644 - ------------------------------------------------------------------------------------- Human Resources 0.1% 2,850 CDI Corp.(a) 56,644 4,750 Spherion Corp.(a) 90,844 ---------------- 147,488 - ------------------------------------------------------------------------------------- Insurance 5.4% 5,050 Alfa Corp. 92,163 12,295 Alleanza Assicurazioni (Italy) 153,271 1,771 Allianz AG (Germany) 656,597 3,800 American Financial Group, Inc. 95,000 2,800 American General Corp. 186,725 7,950 American International Group, Inc. 697,116 2,800 Annuity and Life Re (Holdings), Ltd. 68,950 4,450 Arthur J. Gallagher & Co. 218,328 2,680 AXA Financial, Inc. (France) 407,369 14,400 AXA Financial, Inc. 550,800 13,900 Chubb Corp. 1,028,600
See Notes to Financial Statements 15 Prudential Diversified Funds Prudential Diversified High Growth Fund Portfolio of Investments as of July 31, 2000 Cont'd.
Shares Description Value (Note 1) - ------------------------------------------------------------------------------------------ 4,200 Commerce Group, Inc. $ 116,550 2,640 Fidelity National Financial, Inc. 46,695 3,400 First American Financial Corp. 52,913 4,050 Leucadia National Corp. 108,084 11,800 Loews Corp. 740,450 3,550 Milacron, Inc. 51,031 4,450 MONY Group, Inc. 159,088 18,900 Old Republic International Corp. 421,706 8,350 Presidential Life Corp. 120,553 18,500 Prudential Corp. PLC (United Kingdom) 252,541 1,500 Quotesmith.com, Inc.(a) 3,656 13,700 Reinsurance Group of America, Inc. 435,831 18,700 SAFECO Corp. 431,269 6,000 St. Paul Companies, Inc. 266,625 2,550 StanCorp Financial Group, Inc. 87,975 4,800 Terex Corp. 79,200 940 Zurich Versicherungs-Gesellschaft (Switzerland) 506,754 ---------------- 8,035,840 - ------------------------------------------------------------------------------------- Machinery 0.3% 1,700 Helix Technology Corp. 55,250 2,500 IDEX Corp. 82,500 6,400 JLG Industries, Inc. 65,200 8,850 Lincoln Electric Holdings, Inc. 133,856 3,600 Manitowoc Co., Inc. 88,650 3,050 Trinity Industrial Corp. (Japan) 58,713 ---------------- 484,169 - ------------------------------------------------------------------------------------- Manufacturing 1.1% 2,050 AptarGroup, Inc. 51,122 850 Brooks Automation, Inc. 42,181 300 Coherent, Inc. 17,963 2,050 Compagnie de Saint Gobain (France) 301,157 8,000 Mettler-Toledo International Inc.(a) 324,000 4,900 Tektronix, Inc.(a) 301,350 3,550 The Toro Co. 106,944 100 Varian, Inc.(a) 4,213
16 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified High Growth Fund Portfolio of Investments as of July 31, 2000 Cont'd.
Shares Description Value (Note 1) - ------------------------------------------------------------------------------------------ 3,900 Waters Corp.(a) $ 462,637 ---------------- 1,611,567 - ------------------------------------------------------------------------------------- Media 2.7% 2,750 Banta Corp. 53,109 8,300 Clear Channel Communications, Inc.(a) 632,356 2,200 Cumulus Media, Inc.(a) 21,450 1,550 Entercom Communications Corp.(a) 60,159 5,000 Gemstar-TV Guide International, Inc.(a) 304,062 6,950 General Cable Corp. 59,944 1,900 Harman International Industries, Inc. 120,175 3,200 Lagardere SCA (France) 207,170 3,900 Lee Enterprises, Inc. 103,350 7,200 Metromedia Fiber Network, Inc.(a) 252,900 44,400 Reed International PLC (United Kingdom) 354,944 1,650 Scholastic Corp.(a) 105,394 1,100 Time Warner, Inc. 84,356 3,800 Univision Communications, Inc.(a) 472,150 17,024 Viacom, Inc.(a) 1,128,904 100 Wink Communications, Inc.(a) 2,450 500 Ziff Davis, Inc.(a) 8,563 ---------------- 3,971,436 - ------------------------------------------------------------------------------------- Medical Products & Services 3.2% 7,600 Amgen, Inc.(a) 493,525 9,269 AstraZeneca Group PLC (United Kingdom)(a) 399,452 8,350 Bergen Brunswig Corp. 73,063 3,250 Datascope Corp.(a) 122,687 2,400 Genetech, Inc.(a) 365,100 9,000 Inhale Therapeutic Systems, Inc.(a) 730,687 6,800 PacifiCare Health Systems, Inc.(a) 442,000 3,100 Patterson Dental Co.(a) 82,150 2,300 PerkinElmer, Inc. 147,056 12,901 Pharmacia Corp. 706,330 850 Quest Diagnostics, Inc.(a) 85,797 11,000 Sankyo Co., Ltd. (Japan)(a) 258,091 7,700 Serono SA (Switzerland)(a) 207,900
See Notes to Financial Statements 17 Prudential Diversified Funds Prudential Diversified High Growth Fund Portfolio of Investments as of July 31, 2000 Cont'd.
Shares Description Value (Note 1) - ------------------------------------------------------------------------------------------ 41,100 Smithkline Beecham PLC (United Kingdom) $ 529,642 3,350 Varian Medical Systems, Inc. 144,050 ---------------- 4,787,530 - ------------------------------------------------------------------------------------- Metals 1.4% 24,400 Alcoa, Inc. 738,100 33,600 Broken Hill Proprietary Co., Ltd. (Australia) 355,533 3,900 Carpenter Technology Corp. 119,438 3,400 Cleveland-Cliffs, Inc. 84,363 5,300 Commercial Metals Co. 155,687 3,200 Kaydon Corp. 67,000 7,700 Phelps Dodge Corp. 313,294 2,350 Precision Castparts Corp. 150,253 4,775 Reliance Steel & Aluminum Co. 100,275 5,250 Worthington Industries, Inc. 55,453 ---------------- 2,139,396 - ------------------------------------------------------------------------------------- Mining 0.4% 25,700 Freeport-McMoRan Copper & Gold, Inc.(a) 220,056 18,700 Newmont Mining Corp. 331,925 ---------------- 551,981 - ------------------------------------------------------------------------------------- Networking 0.5% 600 Adaptec, Inc.(a) 14,850 2,900 Anixter International, Inc.(a) 84,281 1,200 Broadcom Corp.(a) 269,100 1,700 Juniper Networks, Inc.(a) 242,144 1,800 Network Appliance, Inc.(a) 155,138 ---------------- 765,513 - ------------------------------------------------------------------------------------- Office Equipment & Supplies 0.4% 10,000 Canon, Inc. (Japan) 445,519 4,400 John H. Harland Co. 58,850 17,700 Lanier Worldwide, Inc.(a) 12,169 2,000 United Stationers, Inc. 58,250 ---------------- 574,788
18 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified High Growth Fund Portfolio of Investments as of July 31, 2000 Cont'd.
Shares Description Value (Note 1) - ------------------------------------------------------------------------------------------ Oil & Gas 2.7% 2,100 Amerada Hess Corp. $ 127,050 57,300 ENI SpA (Italy) 320,775 4,750 Helmerich & Payne, Inc. 152,000 3,877 Kerr-McGee Corp. 212,750 13,800 Marine Drilling Companies, Inc.(a) 300,150 14,200 Newfield Exploration Co.(a) 483,687 9,700 Nuevo Energy Co.(a) 147,925 7,900 Occidental Petroleum Corp. 159,975 3,250 Patterson Energy, Inc.(a) 81,047 4,800 Schlumberger, Ltd. (France) 354,900 11,233 Total Fina SA ADR (France) 826,328 4,510 Total Fina SA, (France) 668,397 2,600 Ultramar Diamond Shamrock Corp. 59,475 4,600 Valero Energy Corp. 119,313 ---------------- 4,013,772 - ------------------------------------------------------------------------------------- Oil & Gas Exploration/Production 1.1% 4,900 Berry Petroleum Co. 89,119 55,300 BP Amoco PLC (United Kingdom) 483,928 12,464 BP Amoco PLC 652,023 5,250 Equitable Resources, Inc. 273,328 4,300 Mitchell Energy & Development Corp.(a) 137,062 1,650 St. Mary Land & Exploration Co. 49,397 ---------------- 1,684,857 - ------------------------------------------------------------------------------------- Paper & Packaging 2.8% 2,850 Chesapeake Corp. 74,634 5,100 Fort James Corp. 155,869 7,300 Georgia-Pacific Corp. (Timber Group) 221,281 23,500 Georgia-Pacific Group 583,094 13,700 International Paper Co. 465,800 16,300 Mead Corp. 413,612 26,000 Nippon Paper Industries Co., Ltd.(Japan) 189,894 11,500 Pactiv Corp.(a) 106,375 5,650 Pope & Talbot, Inc. 108,763 8,750 Rayonier, Inc. 356,016 9,200 Temple-Inland, Inc. 399,625
See Notes to Financial Statements 19 Prudential Diversified Funds Prudential Diversified High Growth Fund Portfolio of Investments as of July 31, 2000 Cont'd.
Shares Description Value (Note 1) - ------------------------------------------------------------------------------------------ 10,100 UPM-Kymmene Oyj (Finland) $ 249,008 9,400 Weyerhaeuser Co. 429,462 15,200 Willamette Industries, Inc. 460,750 ---------------- 4,214,183 - ------------------------------------------------------------------------------------- Pharmaceuticals 2.4% 2,000 Alpharma, Inc. 131,000 10,700 American Home Products Corp. 567,769 9,051 Aventis SA, (France) 697,119 4,900 Bindley Western Industries, Inc. 128,931 4,200 Eli Lilly & Co. 436,275 27,500 Pfizer, Inc. 1,185,937 43 Roche Holdings AG (Switzerland) 403,870 ---------------- 3,550,901 - ------------------------------------------------------------------------------------- Real Estate Investment Trusts 2.1% 700 Alexandria Real Estate Equities, Inc. 25,069 5,600 Amli Residential Properties Trust 136,500 5,800 Arden Realty, Inc. 153,700 3,100 Avalonbay Communities, Inc. 146,087 5,600 Bradley Real Estate, Inc. 120,400 4,600 BRE Properties, Inc. 149,212 5,350 Cabot Industrial Trust 109,675 2,850 Camden Property Trust 89,063 2,700 Developers Diversified Realty Corp. 42,525 3,850 First Industrial Reality Trust, Inc. 123,200 4,700 Franchise Finance Corp. of America 112,800 3,900 Gables Residential Trust 106,031 1,500 General Growth Properties, Inc. 50,813 3,400 Health Care Property Investors, Inc. 101,150 4,600 Health Care REIT, Inc. 82,800 5,900 Highwoods Properties, Inc. 159,300 4,100 Hospitality Properties Trust 101,475 11,300 JDN Realty Corp. 118,650 16,400 MeriStar Hospitality Corp. 363,875 8,000 Nationwide Health Properties, Inc. 126,000 8,600 Reckson Associates Reality Corp. 225,750
20 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified High Growth Fund Portfolio of Investments as of July 31, 2000 Cont'd.
Shares Description Value (Note 1) - ------------------------------------------------------------------------------------------ 5,300 Regency Realty Corp. $ 127,200 1,100 SL Green Realty Corp. 32,656 5,400 Summit Properties, Inc. 128,925 3,400 Weingarten Realty Investors 140,675 ---------------- 3,073,531 - ------------------------------------------------------------------------------------- Retail 5.1% 3,600 American Eagle Outfitters, Inc.(a) 53,550 7,650 Ames Department Stores, Inc. 54,506 3,400 BJ's Wholesale Club, Inc.(a) 101,787 10,200 Consolidated Stores Corp.(a) 121,762 21,600 Dillard's, Inc. (Class 'A' Stock) 295,650 3,050 Dress Barn, Inc.(a) 63,288 1,750 Factory 2-U Stores, Inc.(a) 72,625 13,925 GAP, Inc. 498,689 50,000 Great Universal Stores PLC (United Kingdom) 330,783 23,100 Home Depot, Inc. 1,195,425 31,500 IKON Office Solutions, Inc. 127,969 6,800 J.C. Penney Co., Inc. 109,650 2,700 Jack In The Box, Inc.(a) 57,881 3,700 Kellwood Co. 82,788 44,200 Kmart Corp.(a) 309,400 13,100 Kohl's Corp.(a) 743,425 1,700 Libbey, Inc. 53,019 2,500 Michaels Stores, Inc.(a) 108,281 6,700 Pep Boys - Manny, Moe & Jack 38,944 6,550 Polo Ralph Lauren Corp.(a) 106,028 11,400 RadioShack Corp. 642,675 8,450 Ross Stores, Inc. 129,919 5,900 Ruby Tuesday, Inc. 72,644 4,250 Russell Corp. 83,672 1,100 Sears, Roebuck & Co. 32,863 131,900 Tesco PLC (United Kingdom)(a) 434,820 10,800 Tiffany & Co. 369,900 14,700 Toys 'R' Us, Inc.(a) 242,550 8,000 Venator Group, Inc. 113,000 13,000 Wal-Mart Stores, Inc. 714,187
See Notes to Financial Statements 21 Prudential Diversified Funds Prudential Diversified High Growth Fund Portfolio of Investments as of July 31, 2000 Cont'd.
Shares Description Value (Note 1) - ------------------------------------------------------------------------------------------ 4,200 Zale Corp.(a) $ 156,975 ---------------- 7,518,655 - ------------------------------------------------------------------------------------- Semiconductors 1.6% 6,000 Alpha Industries, Inc.(a) 204,375 5,400 Applied Materials, Inc.(a) 409,725 1,300 Cirrus Logic, Inc.(a) 25,187 3,400 GaSonics International Corp.(a) 81,600 18,600 Intel Corp. 1,241,550 2,750 Kulicke & Soffa Industries, Inc.(a) 124,094 300 Micrel, Inc.(a) 15,019 400 QLogic Corp.(a) 29,800 1,150 Varian Semiconductor Equipment Associates, Inc.(a) 55,847 2,800 Veeco Instruments, Inc.(a) 220,500 ---------------- 2,407,697 - ------------------------------------------------------------------------------------- Shipbuilding 1,700 Newport News Shipbuilding, Inc. 68,638 - ------------------------------------------------------------------------------------- Software 3.0% 100 Actuate Corp.(a) 4,925 2,150 Agency.com, Inc.(a) 46,359 1,200 Allaire Corp.(a) 37,031 100 Alteon Websystems, Inc.(a) 13,194 7,300 America Online, Inc.(a) 389,181 500 Broadbase Software, Inc.(a) 11,781 15,300 BroadVision, Inc.(a) 553,669 100 Clarus Corp.(a) 3,700 4,800 Computer Associates International, Inc. 119,100 200 EPiphany, Inc. 18,613 200 Exchange Applications, Inc.(a) 4,400 4,000 Exodus Communications, Inc.(a) 177,750 8,200 HNC Software, Inc.(a) 361,825 200 Informatica Corp.(a) 16,000 200 Interwoven, Inc.(a) 12,913 600 ITXC Corp.(a) 10,875 2,150 Keynote Systems, Inc. 81,525 2,700 Microsoft Corp.(a) 188,494
22 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified High Growth Fund Portfolio of Investments as of July 31, 2000 Cont'd.
Shares Description Value (Note 1) - ------------------------------------------------------------------------------------------ 1,558 NetIQ Corp.(a) $ 75,173 2,900 ONYX Software Corp.(a) 70,144 4,800 Phoenix Technologies Ltd. 81,600 4,550 Progress Software Corp.(a) 68,534 1,350 Proxicom, Inc.(a) 55,772 300 Software.com, Inc.(a) 30,262 4,400 Sybase, Inc.(a) 106,150 1,200 U.S. Interactive, Inc.(a) 16,200 1,600 VeriSign, Inc.(a) 253,900 13,500 VERITAS Software Corp.(a) 1,376,156 4,800 Verity, Inc. 174,900 400 Viant Corp.(a) 13,200 ---------------- 4,373,326 - ------------------------------------------------------------------------------------- Telecommunications 9.6% 1,300 Advanced Fibre Communications, Inc.(a) 55,738 7,900 Alcatel (France) 582,840 4,900 Allegiance Telecom, Inc.(a) 272,256 6,600 ALLTEL Corp. 406,725 31,200 AT&T Corp. 770,650 26,500 British Telecommunications PLC (United Kingdom) 350,233 800 C-COR.net Corp.(a) 21,150 6,600 Comverse Technology, Inc.(a) 579,150 700 Copper Mountain Networks, Inc.(a) 55,202 2,154 Deutsche Telekom AG (Germany)(a) 93,852 600 Ditech Communications Corp.(a) 28,724 800 Dobson Communications Corp.(a) 17,500 21,600 Ericsson (L.M.) AB (ADR) (Sweden) 423,900 17,600 Global Crossing Ltd.(a) 427,900 600 Go2Net, Inc.(a) 35,438 17,100 Harris Corp. 585,675 2,200 Intermedia Communications, Inc.(a) 38,775 11,500 JDS Uniphase Corp.(a) 1,358,437 2,200 Leap Wireless International, Inc.(a) 139,425 2,200 Level 3 Communications, Inc.(a) 150,563 7,400 Millicom International Cellular SA (Luxembourg)(a) 326,525 7,300 Motorola, Inc. 241,356
See Notes to Financial Statements 23 Prudential Diversified Funds Prudential Diversified High Growth Fund Portfolio of Investments as of July 31, 2000 Cont'd.
Shares Description Value (Note 1) - ------------------------------------------------------------------------------------------ 5,650 Net2000 Communications, Inc.(a) $ 53,675 8,100 Nextel Communications, Inc.(a) 453,094 5,700 NEXTLINK Communications, Inc.(a) 188,456 43 Nippon Telegraph & Telephone Corp. (Japan) 514,265 23,000 Nokia Corp. ADR (Finland)(a) 1,019,187 9,600 Nortel Networks Corp 714,000 7,400 NTL, Inc.(a) 333,462 13 NTT Mobile Communication (Japan) 326,380 45,300 Portugal Telecom SA (Portugal) 493,339 19,200 Qwest Communications International, Inc.(a) 901,200 5,800 Tele Danmark A/S (Denmark) 356,837 14,915 Telefonica SA (Spain) 313,804 600 Ventro Corp.(a) 7,238 122,275 Vodafone Airtouch PLC, ADR (United Kingdom)(a) 1,483,932 ---------------- 14,120,883 - ------------------------------------------------------------------------------------- Trucking & Shipping 0.4% 4,950 Airborne Freight Corp. 76,416 3,750 Alexander & Baldwin, Inc. 94,453 6,950 Roadway Express, Inc. 165,062 3,600 Sea Containers, Ltd. (Bermuda) 94,500 4,400 USFreightways Corp. 122,100 ---------------- 552,531 - ------------------------------------------------------------------------------------- Utilities 1.7% 38,597 British Energy PLC (Class 'A' Stock) (United Kingdom) 138,806 3,400 California Water Service Group 81,175 3,350 Cleco Corp. 123,531 4,900 Conectiv, Inc. 81,156 26,800 Endesa SA (Spain) 556,158 4,000 GPU, Inc. 106,000 10,200 Public Service Company of New Mexico(a) 184,875 7,100 Reliant Energy, Inc. 237,850 1,550 RGS Energy Group, Inc. 35,553 4,800 Sierra Pacific Resources 67,800 2,310 Suez Lyonnaise des Eaux (France) 377,891
24 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified High Growth Fund Portfolio of Investments as of July 31, 2000 Cont'd.
Shares Description Value (Note 1) - ------------------------------------------------------------------------------------------ 7,400 Unicom Corp. $ 303,862 6,100 Washington Gas Light Co. 150,213 ---------------- 2,444,870 ---------------- Total long-term investments (cost $112,321,225) 129,837,544 ---------------- SHORT-TERM INVESTMENTS 13.3% Principal Amount (000) - ------------------------------------------------------------------------------------- Repurchase Agreement $ 19,783 Joint Repurchase Agreement Account, 6.56%, 8/1/00 (cost $19,783,000; Note 5) 19,783,000 ---------------- Total Investments 100.8% (cost $132,104,225; Note 4) 149,620,544 Liabilities in excess of other assets (0.8%) (1,195,137) ---------------- Net Assets 100% $ 148,425,407 ---------------- ----------------
- ------------------------------ (a) Non-income producing security. AB--Aktiebolag (Swedish Stock Company) ADR--American Depository Receipt. AG--Aktiengesellschaft (German Stock Company). NV--Naamloze Vennoutschop (Dutch Corporation). PLC--Public Limited Company (British Corporation). SA-- Sociedada Anonima (Spanish Corporation) or Societe Anonyme (French Corporation). SCA--Societe Capital Anonyme (French Corporation). See Notes to Financial Statements 25 Prudential Diversified Funds Prudential Diversified High Growth Fund Statement of Assets and Liabilities
July 31, 2000 - --------------------------------------------------------------------------------------- ASSETS Investments, at value (cost $112,321,225) $ 129,837,544 Joint repurchase agreement, at value (cost $19,783,000) 19,783,000 Foreign currency, at value (cost $160,606) 157,352 Cash 92,289 Receivable for investments sold 1,397,240 Receivable for Fund shares sold 723,388 Dividends and interest receivable 117,355 Prepaid assets 143 ------------- Total assets 152,108,311 ------------- LIABILITIES Payable for investments purchased 2,880,584 Payable for Fund shares reacquired 513,088 Due to Distributor 102,253 Due to Manager 94,593 Accrued expenses 89,322 Foreign withholding tax payable 3,064 ------------- Total liabilities 3,682,904 ------------- NET ASSETS $ 148,425,407 ------------- ------------- Net assets were comprised of: Shares of beneficial interest, at par $ 11,524 Paid-in capital in excess of par 119,510,520 ------------- 119,522,044 Distributions in excess of net investment income (241,221) Accumulated net realized gain on investments 11,632,832 Net unrealized appreciation on investments and foreign currency transactions 17,511,752 ------------- Net assets, July 31, 2000 $ 148,425,407 ------------- -------------
26 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified High Growth Fund Statement of Assets and Liabilities Cont'd.
July 31, 2000 - --------------------------------------------------------------------------------------- Class A: Net asset value and redemption price per share ($35,677,785 / 2,756,080 shares of beneficial interest issued and outstanding) $12.95 Maximum sales charge (5% of offering price) .68 ------------- Maximum offering price to public $13.63 ------------- ------------- Class B: Net asset value, offering price and redemption price per share ($79,793,490 / 6,206,110 shares of beneficial interest issued and outstanding) $12.86 ------------- ------------- Class C: Net asset value and redemption price per share ($31,636,329 / 2,460,442 shares of beneficial interest issued and outstanding) $12.86 Sales charge (1% of offering price) .13 ------------- Offering price to public $12.99 ------------- ------------- Class Z: Net asset value, offering price and redemption price per share ($1,317,803 / 101,507 shares of beneficial interest issued and outstanding) $12.98 ------------- -------------
See Notes to Financial Statements 27 Prudential Diversified Funds Prudential Diversified High Growth Fund Statement of Operations
Year Ended July 31, 2000 - ---------------------------------------------------------------------------------------- NET INVESTMENT LOSS Income Dividends (net of foreign withholding taxes of $71,319) $ 1,508,810 Interest 660,653 ------------- Total income 2,169,463 ------------- Expenses Management fee 1,055,456 Distribution fee--Class A 68,819 Distribution fee--Class B 609,935 Distribution fee--Class C 264,132 Custodian's fees and expenses 316,000 Transfer agent's fees and expenses 208,000 Reports to shareholders 105,000 Registration fees 56,000 Legal fees 27,000 Audit fees 25,000 Trustees' fees and expenses 14,000 Offering expense 9,034 Miscellaneous 4,840 ------------- Total expenses 2,763,216 ------------- Net investment loss (593,753) ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS Net realized gain (loss) on: Investment transactions 18,037,391 Foreign currency transactions (101,823) ------------- 17,935,568 ------------- Net change in unrealized appreciation (depreciation) of: Investments 5,905,191 Foreign currency (5,188) ------------- 5,900,003 ------------- Net gain on investments 23,835,571 ------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 23,241,818 ------------- -------------
28 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified High Growth Fund Statement of Changes in Net Assets
Year November 18, 1998(a) Ended Through July 31, 2000 July 31, 1999 - ----------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS Operations Net investment loss $ (593,753) $ (131,077) Net realized gain on investments and foreign currency transactions 17,935,568 1,469,897 Net unrealized appreciation of investments 5,900,003 11,611,749 ------------- -------------------- Net increase in net assets resulting from operations 23,241,818 12,950,569 ------------- -------------------- Dividends and distributions (Note 1) Distributions in excess of net investment income Class A (798,740) -- Class B (1,548,906) -- Class C (694,850) -- Class Z (1,329,649) -- ------------- -------------------- (4,372,145) -- ------------- -------------------- Distributions from net realized gains Class A (510,822) -- Class B (1,183,192) -- Class C (530,788) -- Class Z (794,899) -- ------------- -------------------- (3,019,701) -- ------------- -------------------- Fund share transactions (net of share conversions) (Note 6) Net proceeds from shares sold 75,419,062 130,702,522 Net asset value of shares issued to shareholders in reinvestment of dividends and distributions 7,276,356 -- Cost of shares reacquired (68,742,787) (25,070,287) ------------- -------------------- Net increase in net assets from Fund share transactions 13,952,631 105,632,235 ------------- -------------------- Total increase 29,802,603 118,582,804 NET ASSETS Beginning of period 118,622,804 40,000 ------------- -------------------- End of period $ 148,425,407 $118,622,804 ------------- -------------------- ------------- -------------------- - --------------- (a) Commencement of investment operations.
See Notes to Financial Statements 29 Prudential Diversified Funds Prudential Diversified High Growth Fund Notes to Financial Statements 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 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 30 Prudential Diversified Funds Prudential Diversified High Growth Fund Notes to Financial Statements Cont'd. 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. 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 31 Prudential Diversified Funds Prudential Diversified High Growth Fund Notes to Financial Statements Cont'd. 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. 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. 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. 32 Prudential Diversified Funds Prudential Diversified High Growth Fund Notes to Financial Statements Cont'd. 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 $77,955 in connection with the initial offering of the Fund. Offering costs were amortized over a period of 12 months ended 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' Statement of Position 93-2: Determination, Disclosure, and Financial Statement Presentation of Income, Capital Gains, and Return of Capital Distributions by Investment Companies. The effect of applying this statement was to decrease distributions in excess of net investment loss by $4,861,021, decrease accumulated net realized gain on investments by $4,851,531 and decrease paid-in capital by $9,490 for the year ended July 31, 2000, due to dividend distribution reclasses, realized and recognized currency gains during the period and certain expenses not deductible for tax purposes. 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 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 ('Jennison') $300 million; .25% for amounts in excess of $300 million The Prudential Investment Corporation ('PIC') .375%1 Lazard Asset Management .40% Franklin Advisers, Inc. .50% The Dreyfus Corporation .45% 1Under the Advisory Agreement between PIFM and PIC, PIC was reimbursed by PIFM for its reasonable costs and expenses for the period August 1, 1999 through December 31, 1999.
33 Prudential Diversified Funds Prudential Diversified High Growth Fund Notes to Financial Statements Cont'd. 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 year ended July 31, 2000. PIMS has advised the Fund that it has received approximately $189,200 and $116,400 in front-end sales charges resulting from sales of Class A and Class C shares, respectively, during the year ended July 31, 2000. PIMS has advised the Fund that for the year ended July 31, 2000, it has received approximately $137,300 and $32,000 in contingent deferred sales charges imposed upon certain redemptions by Class B and Class C shareholders, respectively. Jennison, PIMS, PIC and PIFM are 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. Interest on any such borrowings will be at market rates. The purpose of the agreement is to serve as an alternative source of funding for capital share redemptions. The Funds pay a commitment fee of .080 of 1% of the unused portion of the credit facility. The commitment fee is accrued and paid quarterly on a pro rata basis by the Funds. The expiration date of the SCA is March 9, 2001. Prior to March 9, 2000, the commitment fee was .065 of 1% of the unused portion of the credit facility. The Fund did not borrow any amounts pursuant to the SCA during the period ended July 31, 2000. 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 year ended July 31, 2000, the Fund incurred fees of approximately $175,000 for the services of PMFS. As of July 31, 34 Prudential Diversified Funds Prudential Diversified High Growth Fund Notes to Financial Statements Cont'd. 2000 approximately $18,000 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 year ended July 31, 2000, PSI earned approximately $1,000 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 year ended July 31, 2000 were $96,819,710 and $85,830,743, respectively. The United States federal income tax basis of the Funds' investments as of July 31, 2000 was $133,166,809 and accordingly, net unrealized appreciation on investments for federal income tax purposes was $16,453,735 (gross unrealized appreciation $25,878,600, gross unrealized depreciation $9,424,865). The Fund will elect, for United States Federal income tax purposes, to treat net currency losses of approximately $84,593 incurred in the nine month period ended July 31, 2000 as having been incurred in the following 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 July 31, 2000, the Fund had a 3.5% undivided interest in the repurchase agreements in the joint account. The undivided interest for the Fund represents $19,783,000 in principal amount. As of such date, each repurchase agreement in the joint account and the collateral therefore were as follows: ABN AMRO Incorporated, 6.56%, in the principal amount of $100,000,000, repurchase price $100,018,222, due 8/1/00. The value of the collateral including accrued interest was $102,000,029. Bear, Stearns & Co. Inc., 6.55%, in the principal amount of $100,000,000, repurchase price $100,018,194, due 8/1/00. The value of the collateral including accrued interest was $102,926,906. Greenwich Capital Markets, Inc., 6.57%, in the principal amount of $110,000,000, repurchase price $110,020,075, due 8/1/00. The value of the collateral including accrued interest was $112,201,716. Merrill Lynch, Pierce, Fenner & Smith, Inc., 6.45%, in the principal amount of $97,030,000, repurchase price $97,047,384, due 8/1/00. The value of the collateral including accrued interest was $98,970,864. 35 Prudential Diversified Funds Prudential Diversified High Growth Fund Notes to Financial Statements Cont'd. Salomon Smith Barney, Inc., 6.55%, in the principal amount of $155,000,000, repurchase price $155,028,201, due 8/1/00. The value of the collateral including accrued interest was $158,174,190. 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. Transactions in shares of beneficial interest were as follows:
Class A Shares Amount - ------------------------------------------------------------ ---------- ------------ Year ended July 31, 2000: Shares sold 1,540,352 $ 19,257,931 Shares issued in reinvestment of dividends and distributions 106,417 1,264,231 Shares reacquired (967,716) (12,147,899) ---------- ------------ Net increase in shares outstanding before conversion 679,053 8,374,263 Shares issued upon conversion from Class B 233,346 3,014,476 ---------- ------------ Net increase in shares outstanding 912,399 $ 11,388,739 ---------- ------------ ---------- ------------ 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 1,821,275 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 - ------------------------------------------------------------ Year ended July 31, 2000: Shares sold 3,291,551 $ 40,858,317 Shares issued in reinvestment of dividends and distributions 226,817 2,687,787 Shares reacquired (655,599) (8,105,781) ---------- ------------ Net increase in shares outstanding before conversion 2,862,769 35,440,323 Shares reacquired upon conversion into Class A (234,534) (3,014,476) ---------- ------------ Net increase in shares outstanding 2,628,235 $ 32,425,847 ---------- ------------ ---------- ------------
36 Prudential Diversified Funds Prudential Diversified High Growth Fund Notes to Financial Statements Cont'd.
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 - ------------------------------------------------------------ Year ended July 31, 2000: Shares sold 1,132,420 $ 14,053,104 Shares issued in reinvestment of dividends and distributions 101,310 1,200,525 Shares reacquired (508,887) (6,343,433) ---------- ------------ Net increase in shares outstanding 724,843 $ 8,910,196 ---------- ------------ ---------- ------------ 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 - ------------------------------------------------------------ Year ended July 31, 2000: Shares sold 96,668 $ 1,249,710 Shares issued in reinvestment of dividends and distributions 178,772 2,123,813 Shares reacquired (3,324,795) (42,145,674) ---------- ------------ Net decrease in shares outstanding (3,049,355) $(38,772,151) ---------- ------------ ---------- ------------ 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. 37 Prudential Diversified Funds Prudential Diversified High Growth Fund Financial Highlights
Class A ----------------------------------------- Year November 18, 1998(a) Ended Through July 31, 2000 July 31, 1999 - ----------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE(d): Net asset value, beginning of period $ 11.52 $ 10.00 -------- -------- Income from investment operations: Net investment income (loss) --(e) --(e) Net realized and unrealized gain on investment and foreign currency transactions 2.14 1.52 -------- -------- Total from investment operations 2.14 1.52 -------- -------- Less distributions: Dividends in excess of net investment income (0.43) -- Distributions from net realized gains (0.28) -- -------- -------- Total dividends and distributions (0.71) -- -------- -------- Net asset value, end of period $ 12.95 $ 11.52 -------- -------- -------- -------- TOTAL RETURN(b) 18.99% 15.20% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000) $ 35,678 $ 21,248 Average net assets (000) $ 27,528 $ 10,442 Ratios to average net assets: Expenses, including distribution fees 1.54% 1.73%(c) Expenses, excluding distribution fees 1.29% 1.48%(c) Net investment income (loss) 0.01% 0.02%(c) For Classes A, B, C and Z shares: Portfolio turnover rate 67% 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 are not annualized. (c) Annualized. (d) Based on weighted average shares outstanding during the period. (e) Less than $.005 per share. 38 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified High Growth Fund Financial Highlights Cont'd.
Class B ----------------------------------------- Year November 18, 1998(a) Ended Through July 31, 2000 July 31, 1999 - ----------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE(d): Net asset value, beginning of period $ 11.47 $ 10.00 -------- -------- Income from investment operations: Net investment income (loss) (0.09) (0.05) Net realized and unrealized gain on investment and foreign currency transactions 2.12 1.52 -------- -------- Total from investment operations 2.03 1.47 -------- -------- Less distributions: Dividends in excess of net investment income (0.36) -- Distributions from net realized gains (0.28) -- -------- -------- Total dividends and distributions (0.64) -- -------- -------- Net asset value, end of period $ 12.86 $ 11.47 -------- -------- -------- -------- TOTAL RETURN(b) 18.13% 14.70% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000) $ 79,793 $ 41,049 Average net assets (000) $ 60,994 $ 24,260 Ratios to average net assets: Expenses, including distribution fees 2.29% 2.48%(c) Expenses, excluding distribution fees 1.29% 1.48%(c) Net investment income (loss) (0.71)% (0.70)%(c)
- ------------------------------ (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) Based on weighted average shares outstanding during the period. See Notes to Financial Statements 39 Prudential Diversified Funds Prudential Diversified High Growth Fund Financial Highlights Cont'd.
Class C ----------------------------------------- Year November 18, 1998(a) Ended Through July 31, 2000 July 31, 1999 - ----------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE(d): Net asset value, beginning of period $ 11.47 $ 10.00 -------- -------- Income from investment operations: Net investment income (loss) (0.09) (0.05) Net realized and unrealized gain on investment and foreign currency transactions 2.12 1.52 -------- -------- Total from investment operations 2.03 1.47 -------- -------- Less distributions: Dividends in excess of net investment income (0.36) -- Distributions from net realized gains (0.28) -- -------- -------- Total dividends and distributions (0.64) -- -------- -------- Net asset value, end of period $ 12.86 $ 11.47 -------- -------- -------- -------- TOTAL RETURN(b) 18.13% 14.70% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000) $ 31,636 $ 19,914 Average net assets (000) $ 26,413 $ 15,204 Ratios to average net assets: Expenses, including distribution fees 2.29% 2.48%(c) Expenses, excluding distribution fees 1.29% 1.48%(c) Net investment income (loss) (0.73)% (0.75)%(c)
- ------------------------------ (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) Based on weighted average shares outstanding during the period. 40 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified High Growth Fund Financial Highlights Cont'd.
Class Z ----------------------------------------- Year November 18, 1998(a) Ended Through July 31, 2000 July 31, 1999 - ----------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE(d): Net asset value, beginning of period $ 11.56 $ 10.00 -------- -------- Income from investment operations: Net investment income (loss) 0.02 0.02 Net realized and unrealized gain on investment and foreign currency transactions 2.14 1.54 -------- -------- Total from investment operations 2.16 1.56 -------- -------- Less distributions: Dividends in excess of net investment income (0.46) -- Distributions from net realized gains (0.28) -- -------- -------- Total dividends and distributions (0.74) -- -------- -------- Net asset value, end of period $ 12.98 $ 11.56 -------- -------- -------- -------- TOTAL RETURN(b) 19.23% 15.60% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000) $ 1,318 $ 36,413 Average net assets (000) $ 25,793 $ 45,999 Ratios to average net assets: Expenses, including distribution fees 1.29% 1.48%(c) Expenses, excluding distribution fees 1.29% 1.48%(c) Net investment income (loss) 0.12% 0.21%(c)
- ------------------------------ (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) Based on weighted average shares outstanding during the period. See Notes to Financial Statements 41 Prudential Diversified Funds Prudential Diversified High Growth Fund Report of Independent Accountants To the Shareholders and Board of Trustees of Prudential Diversified Funds-- Prudential Diversified High Growth Fund In our opinion, the accompanying statement of assets and liabilities, including the portfolio of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Prudential Diversified Funds--Prudential Diversified High Growth Fund (the 'Fund') at July 31, 2000, the results of its operations for the year then ended, and the changes in its net assets and the financial highlights for the year then ended and for the period November 18, 1998 (commencement of operations) through July 31, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements and financial highlights (hereafter referred to as 'financial statements') are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at July 31, 2000 by correspondence with the custodian and brokers, provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, New York September 22, 2000 42 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified High Growth Fund Federal Tax Information (Unaudited) We are required by the Internal Revenue Code to advise you within 60 days of the Fund's fiscal year end (March 31, 2000) as to the federal tax status of dividends paid by the Fund during such fiscal period. Accordingly, we are advising you that in the fiscal period ended March 31, 2000, dividends were paid of $.43, $.36, $.36 and $.46 per share (representing net investment income for Class A, B, C and Z shares respectively, which are taxable as ordinary income) and a short-term capital gain distribution of $.28 per share which is taxable as ordinary icome. Further, we wish to advise you that 15.51% of the ordinary income dividends paid in the fiscal period ended March 31, 2000 qualified for the corporate dividends received deduction available to corporate taxpayers. In January 2001, you will be advised on IRS Form 1099 DIV or substitute 1099 DIV as to the federal tax status of the dividends received by you in calendar year 2000. See Notes to Financial Statements 43 Prudential Diversified High Growth Fund Prudential Mutual Funds 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 Large Capitalization Stock Funds Prudential 20/20 Focus Fund Prudential Equity Fund, Inc. Prudential Stock Index Fund Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund Strategic Partners Focused Growth Fund Target Funds Large Capitalization Growth Fund Large Capitalization Value Fund The Prudential Investment Portfolios, Inc. Prudential Jennison Growth Fund Prudential Value Fund Small- to Mid-Capitalization Stock Funds Nicholas-Applegate Fund, Inc. Nicholas-Applegate Growth Equity Fund Prudential Small Company Fund, Inc. Prudential Tax-Managed Small-Cap Fund, Inc. Prudential U.S. Emerging Growth Fund, Inc. Target Funds Small Capitalization Growth Fund Small Capitalization Value Fund The Prudential Investment Portfolios, Inc. Prudential Jennison Equity Opportunity Fund Sector Stock Funds Prudential Natural Resources Fund, Inc. Prudential Real Estate Securities Fund Prudential Sector Funds, Inc. Prudential Financial Services Fund Prudential Health Sciences Fund Prudential Technology Fund Prudential Utility Fund Global/International Stock Funds Global Utility Fund, Inc. Prudential Europe Growth Fund, Inc. Prudential Pacific Growth Fund, Inc. Prudential World Fund, Inc. Prudential Global Growth Fund Prudential International Value Fund Prudential Jennison International Growth Fund Target Funds International Equity Fund BALANCED/ALLOCATION FUNDS Prudential Diversified Funds Conservative Growth Fund Moderate Growth Fund High Growth Fund The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund www.prudential.com (800) 225-1852 BOND FUNDS Taxable Bond Funds 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 Short-Term Corporate Bond Fund, Inc. Income Portfolio Prudential Total Return Bond Fund, Inc. Target Funds Total Return Bond Fund Tax-Free 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. Global/International Bond Funds Prudential Global Total Return Fund, Inc. Prudential International Bond 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 Institutional Liquidity Portfolio, Inc. Institutional Money Market Series Prudential MoneyMart Assets, Inc. Prudential Special Money Market Fund, Inc. Money Market Series Tax-Free Money Market Funds 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 Prudential Tax-Free Money Fund, Inc. Other Money Market Funds COMMAND Government Fund COMMAND Money Fund COMMAND Tax-Free Fund Prudential Diversified High Growth Fund 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 semiannual 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. www.prudential.com (800) 225-1852 INVESTMENT ADVISER'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 "Investment Adviser's Report" section 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. Prudential Diversified High Growth Fund Getting the Most from Your Prudential Mutual Fund 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 ACCOUNTANT'S REPORT Once a year, an outside auditor looks over our books and certifies that the financial statements are fairly presented and comply with generally accepted accounting principles. TAX INFORMATION This is information that 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. www.prudential.com (800) 225-1852 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. Prudential Diversified High Growth Fund Class A Growth of a $10,000 Investment (GRAPH) Average Annual Total Returns as of 7/31/00
One Year Five Years Ten Years Since Inception With Sales Charge 13.04% N/A N/A 16.80% Without Sales Charge 18.99% N/A N/A 20.38%
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. The graph compares a $10,000 investment in the Prudential Diversified High Growth Fund (Class A shares) with a similar investment in the Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index) by portraying the initial account value at the commencement of operations of Class A shares, and the account value at the end of the current fiscal year (July 31, 2000), as measured on a quarterly basis, beginning in November 1998 for Class A shares. For purposes of the graph, and unless otherwise indicated, it has been assumed that (a) the maximum applicable front-end sales charge was deducted from the initial $10,000 investment in Class A shares; (b) all recurring fees (including management fees) were deducted; and (c) all dividends and distributions were reinvested. The S&P 500 Index is an unmanaged index of 500 stocks of large U.S. companies. It gives a broad look at how stock prices have performed. The S&P 500 Index total returns include the reinvestment of all dividends, but do not include the effect of sales charges or operating expenses of a mutual fund. The securities that comprise the Index may differ substantially from the securities in the Fund. The Index is not the only one that may be used to characterize performance of large- capitalization stock funds. Other indexes may portray different comparative performance. Investors cannot invest directly in an index. This graph is furnished to you in accordance with SEC regulations. www.prudential.com (800) 225-1852 Class B Growth of a $10,000 Investment (GRAPH) Average Annual Total Returns as of 7/31/00
One Year Five Years Ten Years Since Inception With Sales Charge 13.13% N/A N/A 17.47% Without Sales Charge 18.13% N/A N/A 19.56%
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. The graph compares a $10,000 investment in the Prudential Diversified High Growth Fund (Class B shares) with a similar investment in the Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index) by portraying the initial account values at the commencement of operations of Class B shares, and the account value at the end of the current fiscal year (July 31, 2000), as measured on a quarterly basis, beginning in November 1998 for Class B shares. For purposes of the graph, and unless otherwise indicated, it has been assumed that (a) the maximum applicable contingent deferred sales charge was deducted from the value of the investment in Class B shares, assuming full redemption on July 31, 2000; (b) all recurring fees (including management fees) were deducted; and (c) all dividends and distributions were reinvested. Class B shares will automatically convert to Class A shares, on a quarterly basis, beginning approximately seven years after purchase. This conversion feature is not reflected in the graph. The S&P 500 Index is an unmanaged index of 500 stocks of large U.S. companies. It gives a broad look at how stock prices have performed. The S&P 500 Index total returns include the reinvestment of all dividends, but do not include the effect of sales charges or operating expenses of a mutual fund. The securities that comprise the Index may differ substantially from the securities in the Fund. The Index is not the only one that may be used to characterize performance of large- capitalization stock funds. Other indexes may portray different comparative performance. Investors cannot invest directly in an index. This graph is furnished to you in accordance with SEC regulations. Prudential Diversified High Growth Fund Class C Growth of a $10,000 Investment (GRAPH) Average Annual Total Returns as of 7/31/00
One Year Five Years Ten Years Since Inception With Sales Charge 15.95% N/A N/A 18.86% Without Sales Charge 18.13% N/A N/A 19.56%
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. The graph compares a $10,000 investment in the Prudential Diversified High Growth Fund (Class C shares) with a similar investment in the Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index) by portraying the initial account value at the commencement of operations of Class C shares, and the account value at the end of the current fiscal year (July 31, 2000), as measured on a quarterly basis, beginning in November 1998 for Class C shares. For purposes of the graph, and unless otherwise indicated, it has been assumed that (a) the maximum applicable front-end sales charge was deducted from the initial $10,000 investment in Class C shares; (b) the maximum applicable contingent deferred sales charge was deducted from the value of the investment in Class C shares, assuming full redemption on July 31, 2000; (c) all recurring fees (including management fees) were deducted; and (d) all dividends and distributions were reinvested. The S&P 500 Index is an unmanaged index of 500 stocks of large U.S. companies. It gives a broad look at how stock prices have performed. The S&P 500 Index total returns include the reinvestment of all dividends, but do not include the effect of sales charges or operating expenses of a mutual fund. The securities that comprise the Index may differ substantially from the securities in the Fund. The Index is not the only one that may be used to characterize performance of large- capitalization stock funds. Other indexes may portray different comparative performance. Investors cannot invest directly in an index. This graph is furnished to you in accordance with SEC regulations. www.prudential.com (800) 225-1852 Class Z Growth of a $10,000 Investment (GRAPH) Average Annual Total Returns as of 7/31/00
One Year Five Years Ten Years Since Inception With Sales Charge 19.23% N/A N/A 20.77% Without Sales Charge 19.23% N/A N/A 20.77%
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. The graph compares a $10,000 investment in the Prudential Diversified High Growth Fund (Class Z shares) with a similar investment in the Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index) by portraying the initial account value at the commencement of operations of Class Z shares, and the account value at the end of the current fiscal year (July 31, 2000), as measured on a quarterly basis, beginning in November 1998 for Class Z shares. For purposes of the graph, and unless otherwise indicated, it has been assumed that (a) all recurring fees (including management fees) were deducted, and (b) all dividends and distributions were reinvested. Class Z shares are not subject to a sales charge or distribution and service (12b-1) fees. The S&P 500 Index is an unmanaged index of 500 stocks of large U.S. companies. It gives a broad look at how stock prices have performed. The S&P 500 Index total returns include the reinvestment of all dividends, but do not include the effect of sales charges or operating expenses of a mutual fund. The securities that comprise the Index may differ substantially from the securities in the Fund. The Index is not the only one that may be used to characterize performance of large- capitalization stock funds. Other indexes may portray different comparative performance. Investors cannot invest directly in an index. This graph is furnished to you in accordance with SEC regulations. FOR MORE INFORMATION Prudential Mutual Funds Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 (800) 225-1852 Visit Prudential's web site at: http://www.prudential.com Trustees Eugene C. Dorsey Saul K. Fenster, Ph.D. Robert F. Gunia Prof. Maurice F. Holmes Robert E. LaBlanc Douglas H. McCorkindale W. Scott McDonald, Jr. Thomas T. Mooney David R. Odenath, Jr. Stephen Stoneburn John R. Strangfeld Joseph Weber Clay T. Whitehead Officers John R. Strangfeld, President Robert F. Gunia, Vice President David R. Odenath, Jr., Vice President Grace C. Torres, Treasurer William V. Healey, Assistant Secretary 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 8098 Philadelphia, PA 19101 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 Fund Symbols NASDAQ CUSIP Class A PHGAX 74432F885 Class B PIHGX 74432F877 Class C PHGCX 74432F869 Class Z PDHZX 74432F851 MF186E (LOGO) Printed on Recycled Paper (ICON) ANNUAL REPORT JULY 31, 2000 Prudential Diversified Moderate Growth Fund Fund Type Balanced Objective Capital appreciation and a reasonable level of current income (GRAPHIC) This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus. 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. (LOGO) Build on the Rock Investment Goals and Style The Prudential Diversified Moderate Growth Fund seeks to provide capital appreciation and a reasonable level of current income. It invests in a diversified portfolio of equity and fixed-income securities. There can be no assurance that the Fund will achieve its investment objective. Manager Prudential Investments Fund Management LLC Investment Sub-Advisers (PRUDENTIAL LOGO) (FRANKLIN TEMPLETON LOGO) (DREYFUS LOGO) (JENNISON ASSOCIATES LOGO) (PIMCO LOGO) (LAZARD LOGO) www.prudential.com (800) 225-1852 Performance at a Glance Cumulative Total Returns1 As of 7/31/00 One Since Year Inception2 Class A 13.96% 24.75% Class B 12.88 23.02 Class C 12.88 23.02 Class Z 14.18 25.25 Lipper Multi-Cap Core Fund Avg.3 13.29 28.56 Average Annual Total Returns1 As of 7/31/00 One Since Year Inception2 Class A 8.26% 10.51% Class B 7.88 10.78 Class C 10.75 12.29 Class Z 14.18 14.16 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 one-year and since inception periods in the Multi-Cap Core Fund category. The Lipper average is unmanaged. The Lipper Multi-Cap Core Fund average includes funds that invest in a variety of market capitalization ranges, generally have between 25% and 75% of their equity assets invested in companies with market capitalizations above 300% of the dollar-weighted median of the S&P(r) Mid-Cap 400 Index, have wide latitude in the companies in which they invest, and have an above- average price/earnings ratio, price-to-book ratio, and three-year earnings growth figure. S&P(r) is a registered trademark of The McGraw-Hill Companies, Inc. 1 (LOGO) Dear Shareholder, The Prudential Diversified Moderate Growth Fund's Class A shares had a cumulative total return of 13.96% over the 12-month period ended July 31, 2000, in line with the 13.29% Lipper Multi-Cap Core Fund Average, despite the fact that most funds in that Lipper category hold no bonds. This was 8.26% to those paying the maximum one- time Class A share sales charge. The return on bonds over this period was low, as rising interest rates hurt fixed- income securities. Value stocks had a net negative return over the period. The Fund's small-cap and large-cap growth holdings each substantially exceeded the return on their benchmarks, contributing most of the positive return for the period. This was a good period to be in a diversified fund. The markets changed with dizzying frequency and rapidity. To illustrate this point, the graph on the next page represents the monthly returns of three different indexes: the Standard & Poor's Electronics Index, which represents a model growth industry; the Standard & Poor's SmallCap Gaming Index, which represents stocks that can be found in many value funds; and the Morgan Stanley Capital International EAFE Index, which represents the major world markets excluding the United States. As you can see, each had dramatic month-to-month changes, including some negative months, and they behaved in very different ways. A diversified fund-one that is invested in several companies within a number of different industries that have different growth characteristics-is more likely to exhibit steady performance. Sincerely, John R. Strangfeld, President Prudential Diversified Moderate Growth Fund 2 September 15, 2000 Monthly Returns of Selected Indexes (GRAPH) 1 The S&P Electronics (semiconductors) Index is an unmanaged capitalization-weighted index of all stocks designed to measure performance of the electronics (semiconductors) sector of the S&P 500 Index. 2 The S&P SmallCap Gaming, Lottery, and Parimutuel Companies Index is an unmanaged capitalization-weighted index that measures the performance of the gaming, lottery, and parimutuel sector of the S&P SmallCap Index. 3 The Morgan Stanley Capital International Europe, Australia, Far East Index (MSCI EAFE Index) is an unmanaged weighted index of performance that reflects stock price movements in Europe, Australasia, and the Far East. The performance cited does not represent the performance of the Prudential Diversified Moderate Growth Fund. Past performance is not indicative of future results. Investors cannot invest directly in an index. 3 Prudential Diversified Moderate Growth Fund Annual Report July 31, 2000 Investment Adviser's Report The Investing Context Good news about the global economy dominated in the fiscal year ended July 31, 2000. During the early part of the period, uncertainties about how information systems would behave during the turnover to the year 2000 caused a flood of investment activity as companies updated their information system support. The uncertainty also led the U.S. Federal Reserve to increase the money supply to ensure that any unexpected failure would not freeze the financial system. During this period, technology and telecommunications stocks around the world shot up to extraordinarily high prices in comparison to even optimistic earnings projections. In the latter half of 1999, the Federal Reserve began increasing interest rates to prevent the U.S. economy from overheating. The series of interest rate increases continued into 2000, leading investors to take a second look at stock prices that were based upon expectations of a long stream of future earnings. In addition, many investors feared that rising interest rates would choke off economic growth. In the wake of increasing investor uncertainty, many of the most expensive stocks declined in value, and stock markets faced unprecedented volatility as every additional piece of economic news was scrutinized and acted upon. Growth and value investing styles alternated in success, sometimes from day to day. Investors with well-diversified portfolios were better positioned to weather these style turnovers because some holdings might have experienced gains as others lost ground. Over the full 12 months, growth-style investing performed best. Among stocks of small-capitalization companies, the advantage was entirely in the early part of the period, as small-cap value stocks were significantly favored in the second half. Among large caps, market favor continued to alternate through the summer of 2000. International stocks gained modestly, mostly early in the period. As in the U.S. market, style volatility and increased caution held back international returns in 2000. 4 www.prudential.com (800) 225-1852 The threat of rising interest rates depressed bond prices early in the fiscal period because bonds lose value when market interest rates rise. However, the U.S. budget surplus led to Treasury buybacks that reduced the supply of long-term Treasury bonds. Consequently, their prices increased and yields fell. The yield premium on corporate over government bonds widened in 2000. Our Performance Growth stocks. The Prudential Diversified Moderate Growth Fund continued to benefit from the 27.5% of its assets allocated to growth-style investing (20% large cap and 7.5% small cap) and from the strong performance of its growth managers. They far exceeded the returns of their respective benchmarks. In small-cap stocks, the portfolio benefited from its focus on technology. Early in the period, an emphasis was placed on Internet-related stocks, and these were market favorites. The managers reduced their Internet position in time to protect much of these gains from the sharp technology stock correction that occurred in the second quarter of 2000. The cash was reinvested in more established companies as the market declined. Value stocks. Largely because of the growth-oriented environment early in the period, value benchmarks posted negative performances over the reporting period. Our style-consistent managers were more affected than most by changes in market favor, and both underperformed their benchmarks. In large-cap stocks, the strong contribution of rebounding health management companies and gains by oil companies failed to offset the impact of a low representation in technology and a high weighting in paper companies. With regard to the latter, a 1999 recovery of paper stocks was cut short in 2000 when investors focused on the threats to continuing economic growth. In small caps, the portfolio's return relative to its peers was hurt by the absence of biotechnology holdings, which received an unexpected boost in the second quarter from the publicity following the mapping of the human genome. 5 Prudential Diversified Moderate Growth Fund Annual Report July 31, 2000 International stocks. The positive contribution of international stocks came primarily early in the period. The value orientation of the Fund's international holdings made them sensitive to concerns about global economic growth. Many investors feared that the European Central Bank's raising of interest rates would slow growth. Moreover, the return from international stocks was hurt by the rise of the value of the dollar compared to other currencies, particularly the euro. It is widely believed that the euro is undervalued, and a correction of this imbalance would boost the value of euro-denominated stocks generally. Core bonds. The Fund's core bond holdings provided a substantial return, in line with their benchmark. Its managers had underweighted corporate bonds and emphasized several better-performing sectors: mortgage-backed securities, real-return bonds (whose yields are adjusted for inflation), and emerging market bonds. Corporates performed relatively poorly because of increased concerns about credit quality. Mortgage-backed securities and real-return bonds had attractive yields, while emerging market bonds appreciated sharply in value as the improving global economy reduced credit concerns. In contrast, bonds of less strong U.S. companies (high-yield bonds) declined in value as credit concerns undermined their higher yields. High-yield bonds. About 15% of the Fund's assets are allocated to high-yield debt securities, or "junk bonds." Although their benchmark had a negative return over our reporting period, the Fund's investments produced positive returns. Prudential Diversified Moderate Growth Fund Management Team 6 www.prudential.com (800) 225-1852 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 the Fund 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, but 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 buffer than a fund investing in only one asset class. We believe this will result in more consistent returns over time. Rebalancing The 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 keeps your risk exposure from changing too much; by forcing us to sell high, it may also increase our average selling price over time. 7 Prudential Diversified Moderate Growth Fund Annual Report July 31, 2000 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 the terms specified in the bond. They have a maturity date at which they must be repaid. Generally, bond prices fluctuate with current interest rates and with events that affect 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. Prudential Diversified Moderate Growth Fund Diversification Target (PIE CHART) 8 Prudential Diversified Moderate Growth Fund Annual Report July 31, 2000 Financial Statements Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS 96.7% Common Stocks 58.8% - ------------------------------------------------------------------------------------- Aerospace 0.3% 37,900 British Aerospace PLC (United Kingdom)(a) $ 255,560 5,825 GenCorp., Inc. 46,236 19,300 Loral Space & Communications, Inc. 100,119 1,350 Skywest, Inc. 60,244 ---------------- 462,159 - ------------------------------------------------------------------------------------- Agriculture & Equipment 2,175 Toro Co. 65,522 - ------------------------------------------------------------------------------------- Airlines 0.1% 10,100 Deutsche Lufthansa AG (Germany) 249,008 - ------------------------------------------------------------------------------------- Aluminum 0.5% 26,400 Alcoa, Inc. 798,600 3,012 Reliance Steel & Aluminum Co. 63,252 ---------------- 861,852 - ------------------------------------------------------------------------------------- Apparel 0.1% 2,225 American Eagle Outfitters, Inc.(a) 33,097 2,300 Kellwood Co. 51,462 ---------------- 84,559 - ------------------------------------------------------------------------------------- Audio/Visual 0.4% 1,175 Harman International Industries, Inc. 74,319 3,000 Polycom, Inc.(a) 284,578 3,800 Sony Corp. (Japan) 349,349 ---------------- 708,246 - ------------------------------------------------------------------------------------- Auto & Truck 0.6% 1,475 Borg-Warner Automotive, Inc. 50,058 2,237 Delphi Automotive Systems Corp. 33,136 6,375 Dura Automotive Systems, Inc.(a) 65,742 3,610 General Motors Corp. 205,544 11,100 GKN PLC (United Kingdom) 142,127
10 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- 3,200 Lear Corp.(a) $ 74,600 87,000 Nissan Motor Co., Ltd. (Japan)(a) 434,464 1,450 Superior Industries Int'l, Inc. 43,591 ---------------- 1,049,262 - ------------------------------------------------------------------------------------- Banking 3.4% 4,650 BancorpSouth, Inc. 70,622 3,000 Bank of New York Co., Inc. 140,438 1,000 Bank United Corp. (Class A) 36,438 13,700 BankAmerica Corp. 649,037 5,758 Banknorth Group, Inc. 88,169 2,320 Banque Nationale de Paris (France) 229,006 6,600 Bayerische Vereinsbank AG (Germany) 383,243 2,275 BSB Bancorp, Inc. 48,628 1,875 City National Corp. 68,789 1,975 CORUS Bankshares, Inc. 57,769 5,950 Cullen/Frost Bankers, Inc. 169,203 5,968 CVB Financial Corp. 93,996 250 First Citizens BancShares, Inc. (Class A) 15,250 17,000 Fuji Bank (Japan) 109,883 6,000 Golden State Bancorp, Inc.(a) 114,750 1,400 Greater Bay Bancorp 75,338 20,700 Halifax Group PLC (United Kingdom) 162,224 2,750 Harbor Florida BancShares, Inc. 31,281 23,300 HSBC Holdings PLC (Hong Kong)(a) 315,447 19,000 IND Bank (Japan) 121,943 5,100 ING Groep N.V. (Netherlands) 341,001 20,500 Investor AB (Sweden) 297,228 5,700 LaBranche & Co., Inc.(a) 116,138 4,650 MAF Bancorp, Inc. 92,709 35,400 Overseas-Chinese Banking Corp. Ltd. (Singapore) 257,432 2,000 Queens County Bancorp, Inc. 46,250 13,200 Sao Paolo Imi SpA (Italy) 223,890 9,800 Silicon Valley Bancshares 429,362 2,325 Southwest Bancorp of Texas(a) 60,886 35,000 Sumitomo Trust & Banking Co. Ltd. (Japan) 225,590 12,460 Svenska Handelsbanken, Ser. A (Sweden) 187,448
See Notes to Financial Statements 11 Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- 41,000 The Sakura Bank Ltd. (Japan) $ 237,687 45,896 United Overseas Bank Ltd. 328,462 4,675 Washington Federal, Inc. 87,656 3,200 Westamerica Bancorporation 88,800 1,625 Whitney Holding Corp. 60,430 ---------------- 6,062,423 - ------------------------------------------------------------------------------------- Broadcasting 100 Wink Communications, Inc.(a) 2,450 - ------------------------------------------------------------------------------------- Building & Products 1.0% 2,565 ABB AG (Switzerland) 305,750 5,700 American Standard Companies, Inc.(a) 254,006 7,600 Centex Corp. 181,925 5,375 D.R.Horton, Inc. 83,313 775 Dycom Industries, Inc.(a) 33,131 2,575 Kaufman & Broad Home Corp. 50,373 5,050 M.D.C. Holdings, Inc. 101,000 6,175 Pulte Corp. 141,639 7,150 Rayonier, Inc. 290,916 1,525 Texas Industries, Inc. 49,467 5,000 Thomas Industries, Inc. 104,375 1,925 Toll Brothers, Inc.(a) 46,561 5,250 Webb Delaware Corp. 80,063 ---------------- 1,722,519 - ------------------------------------------------------------------------------------- Cable 0.1% 1,875 Belden, Inc. 47,109 1,650 Cable Design Technologies Corp. 58,163 4,275 General Cable Corp. 36,872 7,000 Sumitomo Electric Industries (Japan) 113,370 ---------------- 255,514 - ------------------------------------------------------------------------------------- Casinos 775 Anchor Gaming(a) 41,995
12 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- Chemicals 0.7% 5,700 Akzo Nobel N.V. (Netherlands) $ 253,533 3,050 Albemarle Corp. 75,297 1,800 Arch Chemicals, Inc. 36,000 200 Cambrex Corp. 9,038 2,800 Cytec Industries, Inc.(a) 87,500 5,400 Eastman Chemical Co. 253,125 825 H.B. Fuller Co. 31,866 12,300 Imperial Chemical Industries PLC (United Kingdom) 88,376 4,250 Olin Corp. 66,672 1,000 OM Group, Inc. 47,437 3,050 Spartech Corp. 81,778 1,700 The Geon Co. 27,944 2,800 The Lubrizol Corp. 59,850 7,200 W.R. Grace & Co.(a) 71,100 ---------------- 1,189,516 - ------------------------------------------------------------------------------------- Commercial Services 2,900 Luminant Worlwide Corp.(a) 23,562 - ------------------------------------------------------------------------------------- Computers 2.7% 5,300 ASM Lithography Holding N.V. (Netherlands)(a) 210,675 2,275 Brooktrout, Inc.(a) 68,819 7,200 Catapult Communications Corp.(a) 95,850 1,200 Citrix Systems, Inc.(a) 18,300 40,800 Compaq Computer Corp. 1,144,950 4,500 Comverse Technology, Inc.(a) 394,875 8,300 Dell Computer Corp.(a) 364,681 10,100 EMC Corp.(a) 859,763 9,800 Hewlett-Packard Co. 1,070,037 2,000 InFocus Corp.(a) 70,000 2,700 Microsoft Corp.(a) 188,494 3,100 TDK Corp. 393,700 ---------------- 4,880,144 - ------------------------------------------------------------------------------------- Computer Services 1.8% 8,400 Affiliated Computer Services, Inc.(a) 378,525
See Notes to Financial Statements 13 Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- 300 AnswerThink Consulting Group, Inc.(a) $ 5,044 2,700 Axent Technologies, Inc.(a) 66,488 21,000 Cisco Systems, Inc.(a) 1,374,187 100 E Piphany, Inc. 9,306 8,500 Marchfirst, Inc.(a) 175,844 7,500 NetSolve, Inc.(a) 176,250 100 Predictive Systems, Inc.(a) 2,200 1,300 RadiSys Corp.(a) 79,950 2,000 RSA Security, Inc.(a) 126,750 300 Sapient Corp.(a) 34,125 4,700 Sun Microsystems, Inc.(a) 495,556 1,600 Verisign, Inc.(a) 253,900 ---------------- 3,178,125 - ------------------------------------------------------------------------------------- Consumer Products 0.4% 2,962 Fossil, Inc. 54,056 2,000 PerkinElmer, Inc. 127,875 1,340 Siemens AG (Germany) 207,411 2,675 Tupperware Corp. 51,995 2,400 Waters Corp.(a) 284,700 ---------------- 726,037 - ------------------------------------------------------------------------------------- Cosmetics/Toiletries 0.3% 9,000 Kao Corp. (Japan) 266,216 4,100 The Estee Lauder Co., Inc. 180,400 ---------------- 446,616 - ------------------------------------------------------------------------------------- Dental Supplies 1,925 Patterson Dental Co.(a) 51,013 - ------------------------------------------------------------------------------------- Diversified Manufacturing 0.9% 1,800 Corning, Inc. 421,087 2,000 CUNO, Inc.(a) 60,500 11,000 General Electric Co. 565,812 66,800 Invensys PLC (United Kingdom) 239,481 1,875 Trinity Industries, Inc. 36,094 5,350 Veba AG (Germany) 299,007 ---------------- 1,621,981
14 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- Diversified Operations 0.3% 2,000 Lagardere S.A. (France) $ 129,481 7,075 Pactiv Corp.(a) 65,444 1,225 United Stationers, Inc. 35,678 3,239 Vivendi (France) 258,778 ---------------- 489,381 - ------------------------------------------------------------------------------------- Drugs & Medical Supplies 0.5% 2,000 Datascope Corp.(a) 75,500 7,000 Sankyo Co. Ltd. (Japan) 164,240 26,000 Smithkline Beecham PLC (United Kingdom)(a) 335,054 5,433 Zeneca Group PLC (United Kingdom)(a) 234,138 ---------------- 808,932 - ------------------------------------------------------------------------------------- Electrical Utilities 0.5% 24,277 British Energy 87,307 1,825 CH Energy Group, Inc. 59,541 3,025 Conectiv, Inc. 50,101 17,020 Endesa S.A. (Spain) 353,202 5,775 Minnesota Power, Inc. 123,080 6,300 Public Service Co. of New Mexico 114,187 950 RGS Energy Group, Inc. 21,791 2,975 Sierra Pacific Resources 42,022 ---------------- 851,231 - ------------------------------------------------------------------------------------- Electronic Components 3.3% 4,700 Alpha Industries, Inc.(a) 160,094 2,500 Applied Micro Circuits Corp.(a) 373,125 13,900 Arrow Electronics, Inc.(a) 459,569 1,650 ATMI, Inc.(a) 42,488 5,200 Avnet, Inc. 296,075 1,300 Broadcom Corp.(a) 291,525 2,050 Cleco Corp. 75,594 575 Electro Scientific Industries, Inc.(a) 26,127 1,625 Electroglas, Inc.(a) 32,500 11,040 Electrolux AB, Ser. B (Sweden) 164,280 3,200 Flextronics International Ltd.(a) 226,550
See Notes to Financial Statements 15 Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- 17,101 General Motors Corp (Class H) $ 442,488 10,000 Gentex Corp.(a) 227,500 8,000 Hitachi Ltd. (Japan) 95,677 2,450 Idacorp, Inc. 90,650 1,100 Integrated Silicon Solution, Inc.(a) 23,100 7,500 Motorola, Inc. 247,969 6,000 Novellus Systems, Inc.(a) 323,625 4,904 Philips Electronic N.V. (Netherlands) 222,173 2,500 PMC-Sierra, Inc.(a) 484,687 225 Power-One, Inc.(a) 26,564 300 Q-Logic Corp. 22,350 7,600 Reliant Energy, Inc. 254,600 2,700 Rogers Corp.(a) 96,525 7,400 Stmicroelectronics N.V. (Netherlands) 421,337 13,300 Texas Instruments, Inc. 780,544 700 Veeco Instruments, Inc.(a) 55,125 ---------------- 5,962,841 - ------------------------------------------------------------------------------------- Entertainment 0.1% 1,625 Gaylord Entertainment Co. 40,320 1,900 SFX Entertainment, Inc.(a) 87,400 ---------------- 127,720 - ------------------------------------------------------------------------------------- Fertilizers 0.1% 2,000 Potash Corp. of Saskatchewan, Inc. 107,375 - ------------------------------------------------------------------------------------- Financial Services 3.2% 900 ACOM Co. Ltd. (Japan) 68,197 4,075 Allied Capital Corp. 77,170 13,700 American Express Co. 776,619 2,750 Arthur J. Gallagher & Co. 134,922 2,175 Bancwest Corp. 40,102 19,850 Citigroup, Inc. 1,400,666 750 Dain Rauscher Corp. 50,859 5,025 Doral Financial Corp. 65,325 3,250 Downey Financial Corp. 113,750 1,700 Eaton Vance Corp. 88,081 9,000 Federated Investment, Inc. 235,687
16 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- 3,500 Fulton Financial Corp. $ 75,250 12,000 Getronics N.V. (Netherlands) 202,424 2,700 John H. Harland Co. 36,113 4,300 Merrill Lynch & Co., Inc. 555,775 5,250 Metris Co., Inc. 153,891 11,900 Morgan Stanley Dean Witter 1,085,875 1,800 Orix Corp. (Japan) 232,528 3,100 PFF Bancorp, Inc. 53,863 7,100 Schwab Charles Corp. 256,487 3,500 Webster Financial Corp. 78,313 ---------------- 5,781,897 - ------------------------------------------------------------------------------------- Food & Beverage 1.4% 700 Adolph Coors Co. 44,100 34,300 Cadbury Schweppes PLC (United Kingdom) 221,906 1,800 Dean Foods Co. 62,663 29,100 Diageo PLC (United Kingdom) 255,525 2,325 Fleming Cos., Inc. 36,473 4,800 Heineken N.V. (Netherlands) 274,496 2,750 Michael Foods, Inc. 66,000 27,200 Nabisco Group Holding Corp. 720,800 2,400 Performance Food Group Co.(a) 79,050 4,350 Riviana Foods, Inc. 70,687 16,400 Sara Lee Corp. 302,375 2,675 Smithfield Foods, Inc.(a) 76,070 84,200 Tesco PLC (United Kingdom) 277,573 2,500 Universal Foods Corp. 48,750 ---------------- 2,536,468 - ------------------------------------------------------------------------------------- Gold Mines 2,575 Commerce Group Corp.(a) 71,456 - ------------------------------------------------------------------------------------- Health Care 3.0% 3,925 Apria Healthcare Group, Inc.(a) 58,630 29,200 Foundation Health Systems, Inc. 425,225 39,600 HCA-The Healthcare Corp. 1,346,400 33,900 HEALTHSOUTH Corp.(a) 201,281 4,950 Nationwide Health Properties, Inc. 77,962
See Notes to Financial Statements 17 Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- 7,400 PacifiCare Health Systems, Inc.(a) $ 481,000 4,500 PAREXEL International Corp.(a) 44,719 48,100 Tenet Healthcare Corp.(a) 1,464,044 2,000 Trigon Healthcare, Inc.(a) 106,000 2,050 Varian Med Systems, Inc. 88,150 11,700 Wellpoint Health Networks, Inc.(a) 1,020,094 ---------------- 5,313,505 - ------------------------------------------------------------------------------------- Home Furnishings 0.1% 2,000 Ethan Allen Interiors, Inc. 51,000 3,550 Furniture Brands International, Inc.(a) 52,584 ---------------- 103,584 - ------------------------------------------------------------------------------------- Hotels 0.2% 20,500 Hilton Hotels Corp. 210,125 27,400 MeriStar Hotels & Resorts, Inc. 73,638 ---------------- 283,763 - ------------------------------------------------------------------------------------- Household Products 1,050 Libbey, Inc. 32,747 - ------------------------------------------------------------------------------------- Human Resources 0.1% 1,750 CDI Corp.(a) 34,781 2,925 Spherion Corp.(a) 55,941 ---------------- 90,722 - ------------------------------------------------------------------------------------- Industrial 525 Brooks Automation, Inc.(a) 26,053 1,400 Springs Industries, Inc. 45,150 ---------------- 71,203 - ------------------------------------------------------------------------------------- Insurance 4.1% 3,100 Alfa Corp. 56,575 7,700 Alleanza Assicurazionni (Italy)(a) 95,989 1,124 Allianz AG (Germany) 416,722 3,600 American Financial Group, Inc. 90,000 2,900 American General Corp. 193,394 8,213 American International Group, Inc. 720,134
18 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- 2,000 Annuity & Life Ltd. $ 49,250 15,800 AXA Financial, Inc. 604,350 1,700 AXA-UAP (France) 258,406 14,800 Chubb Corp. 1,095,200 1,640 Fidelity National Financial, Inc. 29,008 2,100 First American Financial Corp. 32,681 10,000 John Hancock Financial Services, Inc.(a) 236,250 2,500 Leucadia National Corp. 66,719 18,900 Old Republic International Corp. 421,706 500 Oxford Health Plans, Inc.(a) 11,969 5,150 Presidential Life Corp. 74,353 11,600 Prudential Corp. PLC (United Kingdom) 158,350 800 Quotesmith.com, Inc.(a) 1,950 1,779 Radian Group, Inc. 108,297 9,000 Reinsurance Group of America, Inc. 286,312 20,900 SAFECO Corp. 482,006 6,100 St. Paul Companies, Inc. 271,069 1,575 Stancorp Financial Group, Inc. 54,337 2,750 The MONY Group, Inc. 98,312 1,575 Triad Guaranty, Inc.(a) 38,194 11,900 Unitedhealth Group, Inc. 973,569 598 Zurich Versicherungs-Gesellschaft (Switzerland) 322,382 ---------------- 7,247,484 - ------------------------------------------------------------------------------------- Internet 0.1% 475 Allaire Corp.(a) 14,658 400 Go2Net, Inc.(a) 23,625 100 Interwoven, Inc.(a) 6,456 1,000 Investment Technology Group, Inc.(a) 48,625 1,650 National Discount Brokers Group, Inc.(a) 54,347 1,225 PurchasePro.com Inc.(a) 47,775 300 Viant Corp.(a) 9,900 300 Ziff-Davis, Inc.(a) 5,138 ---------------- 210,524
See Notes to Financial Statements 19 Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- Machinery & Equipment 0.2% 1,050 Helix Technology Corp. $ 34,125 1,525 IDEX Corp. 50,325 3,925 JLG Industries, Inc. 39,986 1,700 Kulicke & Soffa Industries, Inc.(a) 76,712 5,475 Lincoln Electric Holdings, Inc. 82,809 2,175 Milacron, Inc. 31,266 2,975 Terex Corp.(a) 49,088 2,225 The Manitowoc Co., Inc. 54,791 ---------------- 419,102 - ------------------------------------------------------------------------------------- Manufacturing 0.4% 1,275 AptarGroup, Inc. 31,795 1,290 Cie De Saint Gobain (France) 189,508 900 Cirrus Logic, Inc.(a) 17,438 2,100 GaSonics International Corp.(a) 50,400 2,000 KEMET Corp.(a) 48,000 4,900 Mettler-Toledo International, Inc.(a) 198,450 2,350 Scott Technologies, Inc. 45,237 6,520 Thyssen AG (Germany) 111,918 100 Varian, Inc.(a) 4,213 ---------------- 696,959 - ------------------------------------------------------------------------------------- Media 1.4% 8,500 Clear Channel Communications, Inc.(a) 647,594 1,400 Cumulus Media, Inc. 13,650 3,600 Gemstar-TV Guide Int'l, Inc.(a) 218,925 4,400 Omnicom Group, Inc. 374,000 1,575 Penton Media Inc. 54,534 1,200 Time Warner, Inc. 92,025 17,330 Viacom, Inc. (Class B)(a) 1,149,196 ---------------- 2,549,924 - ------------------------------------------------------------------------------------- Medical Products & Services 5,150 Bergen Brunswig Corp. (Class A) 45,062 200 Coherent, Inc.(a) 11,975 ---------------- 57,037
20 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- Medical Technology 0.9% 1,400 Albany Molecular Research, Inc. $ 77,525 8,000 Amgen, Inc.(a) 519,500 2,600 Genetech, Inc. 395,525 5,500 Inhale Therapeutic Systems, Inc.(a) 446,531 7,900 Serono S.A., ADR(a) 213,300 ---------------- 1,652,381 - ------------------------------------------------------------------------------------- Metals 0.5% 21,500 Broken Hill Proprietary Co. Ltd. (Australia) 227,499 2,100 Cleveland-Cliffs, Inc. 52,106 3,275 Commercial Metals Co. 96,203 1,975 Kaydon Corp. 41,352 8,400 Phelps Dodge Corp. 341,775 1,450 Precision Castparts Corp. 92,709 3,225 Worthington Industries, Inc. 34,064 ---------------- 885,708 - ------------------------------------------------------------------------------------- Mining 0.3% 27,600 Freeport-McMoRan Copper & Gold, Inc.(a) 236,325 18,000 Newmont Mining Corp. 319,500 ---------------- 555,825 - ------------------------------------------------------------------------------------- Networking 0.3% 400 Adaptec, Inc.(a) 9,900 1,800 Anixter International, Inc.(a) 52,313 400 C-COR.net Corp.(a) 10,575 1,800 Juniper Networks, Inc.(a) 256,387 1,800 Network Appliance, Inc.(a) 155,137 ---------------- 484,312 - ------------------------------------------------------------------------------------- Office Equipment & Supplies 0.6% 6,000 Canon, Inc. (Japan) 267,312 15,200 Harris Corp. 520,600 3,150 HON Industries, Inc. 84,065 30,200 IKON Office Solutions, Inc. 122,687 16,900 Lanier Worldwide, Inc.(a) 11,619 ---------------- 1,006,283
See Notes to Financial Statements 21 Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- Oil & Gas Services 2.9% 5,000 Alliant Energy Resources, Inc. $ 303,125 1,800 Amerada Hess Corp. 108,900 3,025 Berry Petroleum Co. 55,017 35,200 BP Amoco PLC (United Kingdom) 308,033 10,004 BP Amoco PLC, ADR 523,334 5,475 Energen Corp. 123,188 36,500 ENI SpA (Italy) 204,333 3,225 Equitable Resources, Inc. 167,902 2,925 Helmerich & Payne, Inc. 93,600 3,676 Kerr-McGee Corp. 201,721 7,600 Keyspan Energy 241,300 9,000 Marine Drilling Companies, Inc.(a) 195,750 2,775 Mitchell Energy & Development Corp. 88,453 8,500 Newfield Exploration Co.(a) 289,531 5,200 Nuevo Energy Co. 79,300 8,900 Occidental Petroleum Corp. 180,225 3,475 Oneok, Inc. 92,739 2,000 Patterson Energy, Inc 49,875 525 Quest Diagnostics, Inc.(a) 52,992 5,000 Schlumberger Ltd. 369,687 1,000 St. Mary Land & Exploration Co. 29,937 11,585 Total S.A., ADR 852,222 2,853 Total S.A., Ser. B (France) 422,824 1,625 Ultramar Diamond Shamrock Corp. 37,172 2,850 Valero Energy Corp. 73,922 1 Varco International, Inc.(a) 9 ---------------- 5,145,091 - ------------------------------------------------------------------------------------- Paper & Packaging 1.9% 1,750 Chesapeake Corp. 45,828 5,000 Fort James Corp. 152,813 6,300 Georgia-Pacific Corp. (Timber Group) 190,969 25,100 Georgia-Pacific Group 622,793 13,200 International Paper Co. 448,800 15,700 Mead Corp. 398,387 14,000 Nippon Paper Industries Co. Ltd. (Japan) 102,250
22 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- 3,500 Pope & Talbot, Inc. $ 67,375 8,800 Temple- Inland, Inc. 382,250 6,300 UPM-Kymmene OY (Finland) 155,322 10,400 Weyerhaeuser Co. 475,150 14,300 Willamette Industries, Inc. 433,469 ---------------- 3,475,406 - ------------------------------------------------------------------------------------- Pharmaceuticals 2.2% 1,225 Alpharma, Inc. 80,238 11,000 American Home Products Corp. 583,687 3,025 Bindley Western Industries, Inc. 79,595 4,300 Eli Lilly & Co. 446,663 28,325 Pfizer, Inc. 1,221,516 14,078 Pharmacia Corp. 770,770 5,800 Rhone Poulenc S.A., Ser. A (France) 446,723 27 Roche Holdings AG (Switzerland) 253,592 ---------------- 3,882,784 - ------------------------------------------------------------------------------------- Photography 0.7% 22,400 Eastman Kodak Co. 1,229,200 - ------------------------------------------------------------------------------------- Printing & Publishing 0.3% 1,700 Banta Corp. 32,831 2,400 Lee Enterprises, Inc. 63,600 1,000 Primedia, Inc. 92,250 28,200 Reed International PLC (United Kingdom) 225,438 1,000 Scholastic Corp.(a) 63,875 ---------------- 477,994 - ------------------------------------------------------------------------------------- Radio & Television 950 Entercom Communications Corp.(a) 36,872 - ------------------------------------------------------------------------------------- Real Estate Development 700 Catellus Development Corp.(a) 12,075 - ------------------------------------------------------------------------------------- Real Estate 1.0% 400 Alexandria Real Estate Equities, Inc. 14,325 3,450 Amli Residential Properties Trust 84,094 3,575 Arden Realty, Inc. 94,737
See Notes to Financial Statements 23 Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- 1,925 Avalonbay Communities, Inc. $ 90,716 3,450 Bradley Real Estate, Inc. 74,175 2,850 BRE Properties, Inc. 92,447 3,375 Cabot Industrial Trust 69,188 1,750 Camden Property Trust 54,688 2,000 Developers Diversified Realty Corp. 31,500 2,350 First Industrial Realty Trust, Inc. 75,200 2,875 Franchise Finance Corp. of America 69,000 2,400 Gables Residential Trust 65,250 800 General Growth Properties, Inc. 27,100 1,600 Health Care Property Investments, Inc. 47,600 2,850 Health Care REIT, Inc. 51,300 3,625 Highwoods Properties, Inc. 97,875 2,525 Hospitality Properties Trust 62,494 6,950 JDN Realty Corp. 72,975 9,000 MeriStar Hospitality Corp. 199,687 5,300 Reckson Associates Realty Corp. 139,125 3,275 Regency Realty Corp. 78,600 600 SL Green Realty Corp. 17,813 3,325 Summit Properties, Inc. 79,384 2,100 Weingarten Realty Investors 86,887 ---------------- 1,776,160 - ------------------------------------------------------------------------------------- Restaurants 0.5% 11,600 CKE Restaurants, Inc. 34,075 38,400 Darden Restaurants, Inc. 626,400 1,900 Jack in the Box, Inc.(a) 40,731 3,625 Ruby Tuesday, Inc. 44,633 8,525 Ryan's Family Steak Houses, Inc.(a) 77,791 ---------------- 823,630 - ------------------------------------------------------------------------------------- Retail 3.5% 2,175 Alberto-Culver Co. (Class B) 66,066 4,725 Ames Department Stores, Inc.(a) 33,666 2,100 BJ's Wholesale Club, Inc.(a) 62,869 10,300 Consolidated Stores Corp.(a) 122,956 20,500 Dillards, Inc. (Class A) 280,594
24 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- 1,875 Dress Barn, Inc.(a) $ 38,906 1,100 Factory 2-U Stores, Inc.(a) 45,650 14,400 Gap, Inc. 515,700 31,900 Great Universal Stores PLC (United Kingdom) 211,039 23,800 Home Depot, Inc. 1,231,650 5,000 J.C. Penney Co., Inc. 80,625 48,100 Kmart Corp.(a) 336,700 13,500 Kohl's Corp.(a) 766,125 1,525 Michaels Stores, Inc.(a) 66,052 4,700 Pep Boys - Manny, Moe & Jack 27,319 5,150 Pier 1 Imports, Inc. 61,478 4,025 Polo Ralph Lauren Corp.(a) 65,155 11,500 RadioShack Corp. 648,312 5,200 Ross Stores, Inc. 79,950 2,625 Russell Corp. 51,680 700 Sears, Roebuck & Co. 20,912 11,000 Tiffany & Co. 376,750 13,800 Toys 'R' Us, Inc.(a) 227,700 4,950 Venator Group, Inc. 69,919 300 Ventro Corp. 3,619 13,400 Wal-Mart Stores, Inc. 736,162 2,575 Zale Corp.(a) 96,241 ---------------- 6,323,795 - ------------------------------------------------------------------------------------- Semiconductors 1.0% 5,800 Applied Materials, Inc.(a) 440,075 19,200 Intel Corp. 1,281,600 200 Micrel, Inc.(a) 10,012 200 Silicon Laboratories, Inc.(a) 23,025 700 Varian Semiconductor Equipment, Inc. 33,994 ---------------- 1,788,706 - ------------------------------------------------------------------------------------- Services 0.3% 1,100 ADVO, Inc. 45,031 8,000 Fujitsu (Japan) 224,951 875 Littelfuse, Inc. 30,844
See Notes to Financial Statements 25 Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- 23,400 National Grid Co. PLC (United Kingdom) $ 192,149 20,900 Service Corp. International(a) 53,556 ---------------- 546,531 - ------------------------------------------------------------------------------------- Shipbuilding 1,050 Newport News Shipbuilding, Inc. 42,394 - ------------------------------------------------------------------------------------- Software 1.2% 100 Actuate Corp.(a) 4,925 1,300 Agency.com, Inc.(a) 28,031 100 Alteon Websystems, Inc.(a) 13,194 7,500 America Online, Inc.(a) 399,844 300 Broadbase Software, Inc.(a) 7,069 5,400 BroadVision, Inc.(a) 195,412 100 Clarus Corp.(a) 3,700 4,700 Computer Associates International, Inc.(a) 116,619 1,600 Exodus Communications, Inc.(a) 71,100 4,200 HNC Software, Inc.(a) 185,325 100 Informatica Corp.(a) 8,000 300 ITXC Corp.(a) 5,438 1,400 Keynote Systems, Inc.(a) 53,062 700 Liberate Technologies(a) 16,056 782 NetIQ Corp.(a) 37,732 200 Nuance Communications, Inc.(a) 28,075 1,800 Onyx Software Corp.(a) 43,537 2,975 Phoenix Technologies Ltd.(a) 50,575 2,800 Progress Software Corp.(a) 42,175 825 Proxicom, Inc.(a) 34,083 200 Software.com, Inc.(a) 20,175 2,700 Sybase, Inc.(a) 65,137 600 U.S. Interactive, Inc.(a) 8,100 6,850 VERITAS Software Corp.(a) 698,272 2,200 Verity, Inc.(a) 80,162 ---------------- 2,215,798
26 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- Steel 2,400 Carpenter Technology Corp. $ 73,500 - ------------------------------------------------------------------------------------- Telecommunications 6.7% 900 Advanced Fibre Communications, Inc.(a) 38,588 5,000 Alcatel (France) 368,886 4,800 Allegiance Telecommunications, Inc.(a) 266,700 7,100 ALLTEL Corp. 437,538 32,600 AT&T Corp.(a) 808,750 1,875 Audiovox Corp.(a) 29,062 16,800 British Telecommunications PLC (United Kingdom) 222,034 500 Copper Mountain Networks, Inc.(a) 39,430 1,382 Deutsche Telekom (Germany) 60,215 400 Ditech Communications Corp.(a) 19,150 500 Dobson Communications Corp. (Class A)(a) 10,938 22,300 Ericsson (L.M.) Telephone Co., Inc., ADR 437,638 18,000 Global Crossing Ltd.(a) 437,625 1,600 Intermedia Communications, Inc.(a) 28,200 9,200 JDS Uniphase Corp.(a) 1,086,750 1,375 Leap Wireless International, Inc. 87,141 2,300 Level 3 Communications, Inc.(a) 157,406 7,400 Metromedia Fiber Network, Inc. 259,925 3,600 Millicom International Cellular S.A., ADR(a) 158,850 3,500 Net2000 Communication, Inc.(a) 33,250 8,300 Nextel Communications, Inc.(a) 464,281 5,700 Nextlink Communications, Inc. 188,456 24 Nippon Telegraph & Telephone Corp. (Japan) 287,032 23,600 Nokia Corp., ADR(a) 1,045,775 9,800 Nortel Networks Corp. 728,875 7,537 NTL, Inc.(a) 339,636 8 NTT Mobile Communications (Japan) 200,849 28,800 Portugal Telecom S.A. (Portugal) 313,646 19,000 Qwest Communications International, Inc.(a) 891,812 3,200 Tektronix, Inc. 196,800 3,700 Tele Danmark AS (Denmark) 227,637
See Notes to Financial Statements 27 Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- 9,509 Telefonica S.A. (Spain) $ 200,065 1,800 True North Communications, Inc. 87,863 3,900 Univision Communications, Inc.(a) 3484,575 25,196 Vodafone AirTouch PLC, ADR 1,086,577 62,500 Vodafone Group PLC (United Kingdom) 276,277 ---------------- 12,008,232 - ------------------------------------------------------------------------------------- Tobacco 0.8% 13,200 Loews Corp. 828,300 14,500 Philip Morris Co., Inc. 366,125 8,833 R.J. Reynolds Tobacco Holdings, Inc. 250,636 ---------------- 1,445,061 - ------------------------------------------------------------------------------------- Transportation 0.2% 2,325 Alexander & Baldwin, Inc. 58,561 3,225 ArvinMeritor, Inc. 50,391 4,275 Roadway Express, Inc. 101,531 2,225 Sea Containers Ltd. 58,406 ---------------- 268,889 - ------------------------------------------------------------------------------------- Trucking & Shipping 0.1% 3,050 Airborne Freight Corp. 47,084 2,700 US Freightways Corp. 74,925 ---------------- 122,009 - ------------------------------------------------------------------------------------- Utilities 0.5% 2,100 California Water Service Group 50,137 4,900 General Public Utilities Corp. 129,850 1,470 Suez Lyonnaise des Eaux (France) 240,476 7,600 Unicom Corp. 312,075 3,750 Washington Gas Light Co. 92,344 ---------------- 824,882
28 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Shares Description Value (Note 1) - ---------------------------------------------------------------------------------------- Waste Management 0.1% 2,675 Waste Connections, Inc.(a) $ 54,169 11,600 Waste Management, Inc. 216,775 ---------------- 270,944 ---------------- Total common stocks (cost $92,948,043) 104,870,820 ----------------
CORPORATE BONDS 20.9%
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- Aerospace 0.2% BE Aerospace, Inc., Sr. Sub. Notes, B1 $ 50 9.50%, 11/1/08 47,375 Sequa Corp., Sr. Notes, Ba2 250 9.00%, 8/1/09 242,500 ---------------- 289,875 - ------------------------------------------------------------------------------------- Airlines 0.3% Continental Airlines Inc., Sr. Notes, Ba2 140 8.00%, 12/15/05 130,733 Delta Air Lines, Inc., Sr. Notes, Baa3 250 9.75%, 5/15/21 263,055 Baa3 100 8.30%, 12/15/29 89,652 United Airlines, Inc., Sr. Deb. Notes, Baa3 15 9.75%, 8/15/21 14,783 US Airways, Inc., Sr. Notes, B3 50 9.625%, 2/1/01 49,517 ---------------- 547,740 - ------------------------------------------------------------------------------------- Audio/Visual Imax Corp., Sr. Notes, Ba2 45 7.875%, 12/1/05 43,200 - ------------------------------------------------------------------------------------- Auto & Truck 0.1% Federal-Mogul Corp., Sr. Notes, Ba2 50 7.375%, 1/15/06 40,500 Ba2 105 7.50%, 1/15/09 80,325
See Notes to Financial Statements 29 Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- Lear Seating Corp., Sr. Sub. Notes, Ba3 $ 75 8.25%, 2/1/02 $ 73,427 ---------------- 194,252 - ------------------------------------------------------------------------------------- Auto Rental United Rentals, Inc., Gtd. Notes, B1 55 9.25%, 1/15/09 51,150 - ------------------------------------------------------------------------------------- Automotive Parts 0.4% Collins & Aikman Products Co., Gtd. Notes, B2 110 11.50%, 4/15/06 106,700 Eagle-Picher, Inc., Gtd. Notes B3 75 9.375%, 3/1/08 62,250 Hayes Wheels Int'l, Inc., Sr. Sub. Notes, B2 250 9.125%, 7/15/07 228,750 Lear Corp. Sr. Notes, Ser. B Ba1 250 8.11%, 5/15/09 229,375 ---------------- 627,075 - ------------------------------------------------------------------------------------- Banking 1.1% Bank of Tokyo-Mitsubishi Ltd., Sr. Sub. Notes, A3 400 8.40%, 4/15/10 403,554 Central Bank of Philippines, Bonds, NR 88 7.8125%, 1/5/05 82,129 Chevy Chase Savings Bank, Sub. Deb. B1 100 9.25%, 12/1/05 94,000 KBC Bank Funding Trust, Gtd. Notes, A1 300 9.86%, 11/29/49 306,822 Korea Development Bank, Sr. Notes, Baa2 200 7.125%, 9/17/01 198,652 Baa2 300 7.90%, 2/1/02 300,081 Royal Bank of Scotland Group PLC, Sr. Notes, A1 300 9.118%, 3/31/49 312,213 Sovereign Bancorp, Inc., Sr. Notes, Ba3 110 10.25%, 5/15/04 108,616
30 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- Sovereign Bancorp, Sr. Notes, Ba3 $ 90 10.50%, 11/15/06 $ 90,000 ---------------- 1,896,067 - ------------------------------------------------------------------------------------- Broadcasting Paxson Communications Corp., Sr. Sub. Notes, B3 80 11.625%, 10/1/02 81,800 - ------------------------------------------------------------------------------------- Building & Products Lennar Corp., Sr. Notes, Ba1 20 9.95%, 5/1/10 20,200 Nortek, Inc., Sr. Notes, B1 70 9.125%, 9/1/07 65,800 ---------------- 86,000 - ------------------------------------------------------------------------------------- Cable 0.8% Adelphia Communications Corp., Sr. Notes, B1 300 8.125%, 7/15/03 279,000 Callahan NRH (Denmark), Sr. Disc. Notes, Zero Coupon, (until 7/15/05) B3 50 16.00%, 7/15/10 22,250 Sr. Notes, B3 100 14.00%, 7/15/10 98,500 Charter Communications Holdings LLC., Sr. Disc. Notes, Zero Coupon (until 4/1/04) B2 100 9.92%, 4/1/11 57,000 Classic Cable, Inc., Sr. Sub. Notes, B3 25 9.375%, 8/1/09 20,250 B3 30 10.50%, 3/1/10 26,550 Diamond Cable Comm. Co. (United Kingdom), Sr. Disc. Notes, B2 150 13.25%, 9/30/04 157,500 Fox Family Worldwide, Inc., Sr. Notes, B1 30 9.25%, 11/1/07 28,350
See Notes to Financial Statements 31 Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- International Wire Group, Inc., Sr. Sub. Notes, B3 $ 150 11.75%, 6/1/05 $ 150,000 Metromedia Fiber Network, Sr. Notes, B2 90 10.00%, 12/15/09 87,300 Mediacom LLC Capital Corp., Sr. Notes, B2 250 7.875%, 2/15/11 215,000 Rogers Cablesystems, Inc., Sr. Notes, Ba1 100 9.625%, 8/1/02 102,000 United Pan Europe Communications (Netherlands), Sr. Disc. Notes, Zero Coupon (until 8/1/04) B2 100 12.50%, 8/1/09 46,000 Sr. Notes, B2 200 10.875%, 8/1/09 175,000 ---------------- 1,464,700 - ------------------------------------------------------------------------------------- Casinos 0.7% Aztar Corp., Sr. Sub. Notes, B2 150 8.875%, 5/15/07 142,500 Boyd Gaming Corp., Sr. Sub. Notes, B1 50 9.50%, 7/15/07 48,000 Harrahs Operating, Inc., Gtd. Sr. Sub. Notes, Ba2 90 7.875%, 12/15/05 85,388 Harvey Casino & Resorts, Sr. Sub. Notes, B2 100 10.625%, 6/1/06 102,000 Hollywood Park, Inc., Sr. Sub. Notes, Ser. B, B2 250 9.25%, 2/15/07 253,125 Horseshoe Gaming LLC, Sr. Sub. Notes, B2 65 8.625%, 5/15/09 61,831 Mandalay Resort Group, Deb. Notes, Ba2 100 6.70%, 11/15/96 91,967 Sr. Sub. Deb. Ba2 100 7.625%, 7/15/13 79,250
32 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- Mohegan Tribal Gaming Authority, Sr. Notes, Ba2 $ 250 8.125%, 1/1/06 $ 239,375 Park Place Entertainment Corp., Sr. Sub. Notes, Ba2 40 9.375%, 2/15/07 40,200 Station Casinos, Inc, Sr. Sub Notes, B1 70 9.875%, 7/1/10 70,000 ---------------- 1,213,636 - ------------------------------------------------------------------------------------- Chemicals 0.5% Arco Chemical Co., Deb. Notes Ba3 250 9.90%, 11/1/00 249,375 Avecia Group PLC, Sr. Notes, B2 80 11.00%, 7/1/09 79,800 Huntsman ICI Chemicals, Inc., Sr. Sub. Notes, B2 115 10.125%, 7/1/09 117,300 Huntsman Polymers Corp., Sr. Notes B1 50 11.75%, 12/1/04 50,750 Lyondell Chemical Co., Sr. Sub. Notes, Ba3 100 9.875%, 5/1/07 100,000 NL Industries, Inc., Sr. Sec'd. Notes, B1 30 11.75%, 10/15/03 30,525 Sterling Chemicals, Inc., Sr. Sub. Notes, B3 55 12.375%, 7/15/06 56,375 B3 75 11.75%, 8/15/06 60,000 Texas Petrochemicals Corp., Sr. Sub. Notes, Caa1 20 11.125%, 7/1/06 17,800 USEC, Inc., Sr. Notes, Ba1 100 6.75%, 1/20/09 72,400 ---------------- 834,325 - ------------------------------------------------------------------------------------- Commercial Services 0.1% Iron Mountain, Inc., Sr. Sub. Notes, MTN, B2 100 8.25%, 7/1/11 88,000
See Notes to Financial Statements 33 Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- Computer Services 0.1% Globix Corp., Sr. Notes, B-* $ 200 12.50%, 2/1/10 $ 156,000 Unisys Corp., Sr. Notes, Ba1 100 11.75%, 10/15/04 106,000 ---------------- 262,000 - ------------------------------------------------------------------------------------- Containers 0.3% Norampac, Inc., Sr. Notes, B1 20 9.50%, 2/1/08 19,600 Owens-Illinois, Inc., Deb. Notes, Ba1 50 7.50%, 5/15/10 41,117 Sr. Notes, Ba1 100 7.85%, 5/15/04 92,171 Packaged Ice, Inc., Sr. Notes, B3 135 9.75%, 2/1/05 114,750 Radnor Holdings Corp., Sr. Notes, B2 150 10.00%, 12/1/03 133,500 Silgan Holdings, Inc., Sr. Sub. Deb., B1 150 9.00%, 6/1/09 137,250 ---------------- 538,388 - ------------------------------------------------------------------------------------- Distribution Core- Mark Int'l, Inc., Sr. Sub. Notes, B3 15 11.375%, 9/15/03 13,950 - ------------------------------------------------------------------------------------- Diversified Manufacturing 0.2% Corning Consumer Products, Sr. Sub. Notes, B3 200 9.625%, 5/1/08 130,000 Gentek, Inc., Gtd. Notes, B2 150 11.00%, 8/1/09 151,500 Tenneco, Inc., Sr. Sub. Notes, B2 55 11.625%, 10/15/09 48,950 ---------------- 330,450
34 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- Diversified Operations 0.2% Cox Enterprises, Inc., Sr. Notes, Baa1 $ 300 7.55%, 8/1/00 $ 300,825 SCG Holding Corp., Sr. Sub. Notes, B2 49 12.00%, 8/1/09 52,675 ---------------- 353,500 - ------------------------------------------------------------------------------------- Electrical Utilities 0.6% Calpine Corp., Sr. Notes, Ba1 500 10.50%, 5/15/06 525,000 Sierra Pacific Resources, Sr. Notes, Baa2 500 7.39%, 4/20/02 500,000 ---------------- 1,025,000 - ------------------------------------------------------------------------------------- Electrical Equipment 0.1% Motors & Gears, Inc., Sr. Notes, B3 125 10.75%, 11/15/06 121,250 - ------------------------------------------------------------------------------------- Electrical Services 0.1% TNP Enterprises, Inc., Sr. Sub. Notes, NR 225 10.25%, 4/1/10 234,563 - ------------------------------------------------------------------------------------- Electronics 0.1% Flextronics Int'l Ltd., Sr. Sub. Notes, Ba3 100 9.875%, 7/1/10 101,125 - ------------------------------------------------------------------------------------- Engineering & Construction 0.2% CSC Holdings, Inc., Sr. Sub. Deb., Ba3 329 10.50%, 5/15/16 348,740 - ------------------------------------------------------------------------------------- Financial Services 4.9% AT&T Capital Corp., MTN, A1 500 6.60%, 5/15/05 476,605 Americredit Corp., Sr. Notes, Ba1 100 9.875%, 4/15/06 98,000 Associates Corp. of North America, Sr. Notes, A1 600 6.96%, 5/8/03 605,430
See Notes to Financial Statements 35 Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- Bear Stearns Cos., Inc., Sr. Notes, A2 $ 300 6.15%, 3/2/04 $ 284,349 Capital One Bank, Sr. Notes, Baa2 500 6.76%, 7/23/02 491,121 Coinstar, Inc., Sr. Disc. Notes, NR 100 13.00%, 10/1/06 101,000 Credit Asset Receivable LLC, Sr. Sec'd. Notes, NR 247 6.274%, 10/31/03 242,374 Finova Capital Corp., MTN, Baa2 300 5.98%, 2/27/01 288,639 Ford Motor Credit Co., Sr. Notes, A2 500 7.50%, 3/15/05 497,160 A2 500 6.75%, 5/15/05 481,970 General Motors Acceptance Corp., MTN, A2 400 6.54%, 4/5/04 399,124 GS Escrow Corp., Sr. Notes, Ba1 100 6.75%, 8/1/01 96,750 Ba1 50 7.125%, 8/1/05 45,436 GS Escrow Corp., Notes, Ba1 100 7.05%, 8/1/03 95,211 Heller Financial, Inc., MTN, A3 500 6.50%, 7/22/02 490,525 Household Finance Corp., Notes, A2 700 7.00%, 8/1/03 688,112 MBNA America Bank NA, MTN, Baa1 500 6.875%, 7/15/04 478,625 Metris Co., Inc., Sr. Deb. Notes, Ba3 150 10.125%, 7/15/06 142,500 Midland Funding Corp., Sec. Deb. Notes, Ba3 100 11.75%, 7/23/05 111,014 Morgan J.P. & Co., Inc., Sr. Notes, A1 300 5.75%, 2/25/04 283,839 Morgan Stanley Dean Witter, Sr. Notes, Aa3 600 6.99%, 4/22/04 599,619 Orion Power Holdings, Inc., Sr. Notes, Ba3 500 12.00%, 5/1/10 527,500
36 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- Orix Credit Alliance, Inc., MTN, Baa2 $ 300 6.785%, 4/16/01 $ 299,040 Paine Webber Group, Inc., Sr. Notes, Baa1 300 7.29%, 7/15/02 299,778 RBF Finance Co., Sr. Notes, Ba3 275 11.00%, 3/15/06 297,000 Salomon Smith Barney Holdings, Inc., Sr. Notes, Aa3 300 7.06%, 7/18/03 299,919 ---------------- 8,720,640 - ------------------------------------------------------------------------------------- Food & Beverage 0.4% Agrilink Foods., Inc., Sr. Sub. Notes, B3 150 11.875%, 11/1/08 114,000 Aurora Foods, Inc., Sr. Sub. Notes, Caa1 90 9.875%, 2/15/07 56,025 Cott Corp., Sr. Notes, B1 250 8.50%, 5/1/07 228,750 Del Monte Foods Co., Sr. Disc. Notes, Ser. B, Zero Coupon (until Caa 125 12/15/02) 12.50%, 12/15/07 93,750 Pilgrim's Pride Corp., Sr. Sub. Notes, B1 150 10.875%, 8/1/03 150,375 Vlasic Foods Intl., Inc., Sr. Sub. Notes, B2 200 10.25%, 7/1/09 101,000 ---------------- 743,900 - ------------------------------------------------------------------------------------- Gaming Coast Hotels & Casinos, Inc., Gtd. Notes, B3 75 9.50%, 4/1/09 71,625 - ------------------------------------------------------------------------------------- Health Care 0.8% Apria Healthcare Group, Sr. Sub. Notes, B2 100 9.50%, 11/1/02 99,000 Bio-Rad Labs, Inc., Sr. Sub. Notes, B2 40 11.625%, 2/15/07 41,800
See Notes to Financial Statements 37 Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- Columbia/HCA Healthcare Co., Deb. Notes, Ba2 $ 50 8.36%, 4/15/24 $ 45,000 Ba2 55 7.05%, 12/1/27 42,350 Ba2 175 7.50%, 11/15/50 132,125 MTN, Ba2 100 7.69%, 6/15/25 83,000 Ba2 200 6.73%, 7/15/45 185,500 Concentra Operating Corp., Sr. Sub. Notes, Ser. A, B3 30 13.00%, 8/15/09 25,800 Fresenius MedCare CapTrust, Gtd. Notes, Ba3 125 9.00%, 12/1/06 123,125 Ba3 75 7.875%, 2/1/08 70,125 Healthsouth Corp., Sr. Notes, Ba1 85 6.875%, 6/15/05 72,853 HEALTHSOUTH Corp., Sr. Notes, Baa3 250 7.00%, 6/15/08 197,730 Integrated Health Services, Inc., Sr. Sub. Notes, Ser. A, C 250(b) 9.25%, 1/15/08 4,687 LifePoint Hospitals Holdings, Inc., Sr. Sub. Notes, B3 55 10.75%, 5/15/09 57,200 Magellan Health Services, Inc., Sr. Sub. Notes, B3 50 9.00%, 2/15/08 26,250 Tenet Healthcare Corp. Sr. Sub. Notes, Ba3 60 8.125%, 12/1/08 56,550 Triad Hospitals Holdings, Inc., Sr. Sub. Notes, B3 90 11.00%, 5/15/09 93,150 ---------------- 1,356,245
38 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- Hotels Starwood Hotel & Resorts, Deb. Notes, Ba1 $ 120 7.375%, 11/15/15 $ 100,469 - ------------------------------------------------------------------------------------- Industrial 0.3% Aes Drax Holdings Ltd., Sr. Sec. Notes, Ba2 175 10.41%, 12/31/20 181,188 Intersil Corp., Sr. Notes, B1 41 13.25%, 8/15/09 47,150 Purina Mills, Inc., Sr. Sub. Notes, NR 250(b) 9.00%, 3/15/10 72,500 United Int'l. Holdings, Inc., Sr. Disc. Notes, Zero Coupon (until B3 250 2/15/03) 10.75%, 2/15/08 180,000 ---------------- 480,838 - ------------------------------------------------------------------------------------- Machinery & Equipment 0.1% Applied Power, Inc., Sr. Sub. Notes, B1 150 8.75%, 4/1/09 164,625 - ------------------------------------------------------------------------------------- Manufacturing 0.1% JPS Products, Sr. Notes, B1 75 11.125%, 6/15/01 76,500 Phillips Van-Heusen, Sr. Sub. Notes, B1 50 9.50%, 5/1/08 45,500 Polymer Group, Inc., Sr. Sub. Notes, B2 20 9.00%, 7/1/07 16,600 B2 25 8.75%, 3/1/08 20,500 Sun World International, Inc., First Mtge., Ser. B, B2 5 11.25%, 4/15/04 4,763 Venture Holdings Trust, Sr. Notes, B2 40 9.50%, 7/1/05 30,400 ---------------- 194,263 - ------------------------------------------------------------------------------------- Media 0.6% Ackerley Group, Inc., Sr. Sub. Notes, B2 250 9.00%, 1/15/09 233,750
See Notes to Financial Statements 39 Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- Adelphia Communications Corp., Sr. Notes, Ser. B, B2 $ 500 9.25%, 10/1/02 $ 495,000 Lin Holdings Corp., Sr. Disc. Notes, Zero Coupon, 8/1/00 Zero B3 175 Coupon (until 3/1/03) 117,687 Time Warner, Inc., Series 97-1 Baa3 265 6.10%, 12/30/01 260,230 ---------------- 1,106,667 - ------------------------------------------------------------------------------------- Metals 0.1% Golden Northwest Aluminum, Gtd. Notes, B2 15 12.00%, 12/15/06 15,225 Kaiser Aluminum & Chemical Corp., Sr. Notes, B1 225 9.875%, 2/15/02 216,281 ---------------- 231,506 - ------------------------------------------------------------------------------------- Oil & Gas 1.2% Canadian Forest Oil Ltd., Sr. Sub. Notes, B2 60 8.75%, 9/15/07 57,600 Comstock Resources, Inc., Sr. Notes, B2 55 11.25%, 5/1/07 55,550 Eott Energy Partners, Sr. Notes, Ba2 85 11.00%, 10/1/09 86,700 Houston Exploration Co., Sr. Sub. Notes, B2 20 8.625%, 1/1/08 19,200 Parker Drilling Co., Sr. Notes, B1 80 9.75%, 11/15/06 77,200 Petroleos Mexicanos (Mexico), Gtd. Notes, Baa3 200 9.375%, 12/2/08 205,000 Plains Resources, Inc., Sr. Sub. Notes, B2 120 10.25%, 3/15/06 121,150 Public Service Enterprise Group, Notes, NR 1,100 7.01%, 6/15/01 1,099,993
40 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- Swift Energy Co., Sr. Sub. Notes, B2 $ 55 10.25%, 8/1/09 $ 55,825 Triton Energy Ltd., Sr. Notes, B1 250 9.25%, 4/15/05 250,000 Vintage Petroleum, Inc., Sr. Sub. Notes, B1 95 9.75%, 6/30/09 96,900 ---------------- 2,125,118 - ------------------------------------------------------------------------------------- Paper & Packaging 0.4% Ball Corp., Sr. Sub. Notes, B1 250 8.25%, 8/1/08 240,000 Doman Industries Ltd. (Canada), Sr. Notes, B1 60 8.75%, 3/15/04 49,200 B1 100 9.25%, 11/15/07 76,000 Repap New Brunswick (Canada), Sr. Notes, Caa 50 11.50%, 6/1/04 50,875 Caa 75 10.625%, 4/15/05 68,625 Stone Container Corp., First Mtge., B1 20 10.75%, 10/1/02 20,200 Sr. Notes, B2 15 11.50%, 8/15/06 15,544 Sr. Sub. Deb., B3 250 12.25%, 4/1/02 251,250 ---------------- 771,694 - ------------------------------------------------------------------------------------- Pharmaceuticals 0.1% ICN Pharmaceuticals, Inc., Sr. Notes, Ba3 100 8.75%, 11/15/08 98,250 - ------------------------------------------------------------------------------------- Printing & Publishing 0.1% Mail Well I Corp., Sr. Sub. Notes, B1 250 8.75%, 12/15/08 215,000 Transwestern Publishing Co., LP Sr. Sub. Notes, Series D, B2 40 9.625%, 11/15/07 39,000 ---------------- 254,000
See Notes to Financial Statements 41 Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- Real Estate 0.2% HMH Properties, Inc., Sr. Notes, Ba2 $ 300 8.45%, 12/1/08 $ 279,000 Intrawest Corp. Sr. Notes, B1 100 10.50%, 2/1/10 103,500 ---------------- 382,500 - ------------------------------------------------------------------------------------- Recreation 0.2% Ballys Total Fitness Holdings, Sr. Sub. Notes, Ser. C, B3 100 9.875%, 10/15/07 91,500 Premier Parks, Inc., Sr. Notes, B3 350 9.75%, 6/15/07 332,500 ---------------- 424,000 - ------------------------------------------------------------------------------------- Restaurants 0.3% Advantica Restaurant Group, Inc., Sr. Notes, B3 125 11.25%, 1/15/08 82,500 Carrols Corp., Sr. Sub. Notes, B2 250 9.50%, 12/1/08 207,500 CKE Restaurants, Inc., Sr. Notes, B3 50 9.125%, 5/1/09 32,500 Felcor Suites LP, Gtd. Sr. Notes, Ba2 250 7.375%, 10/1/04 226,875 Sbarro, Inc., Sr. Notes, Ba3 30 11.00%, 9/15/09 30,900 ---------------- 580,275 - ------------------------------------------------------------------------------------- Retail 0.1% Musicland Group, Inc., Sr. Sub. Notes, B2 80 9.00%, 6/15/03 74,400 Stater Brothers Holdings, Inc., Sr. Notes, B2 65 10.75%, 8/15/06 57,525 ---------------- 131,925
42 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- Schools 0.1% Kindercare Learning Center, Inc., Sr. Sub. Notes, B3 $ 190 9.50%, 2/15/09 $ 173,850 La Petite Holdings, Sr. Notes, B3 25 10.00%, 5/15/08 15,250 ---------------- 189,100 - ------------------------------------------------------------------------------------- Services 0.4% Alliance Atlantis Commerce, Inc., Sr. Sub. Notes, B2 150 13.00%, 12/15/09 153,750 IT Group, Inc., Sr. Sub. Notes, Ser. B, B3 50 11.25%, 4/1/09 44,500 Midamerican Funding LLC, Sr. Notes, Baa1 450 5.85%, 3/1/01 445,625 ---------------- 643,875 - ------------------------------------------------------------------------------------- Software 0.3% Exodus Communications, Sr. Notes, B3 50 10.75%, 12/15/09 48,750 B3 170 11.625%, 7/15/10 171,275 Psinet, Inc., Sr. Notes, B3 145 11.00%, 8/1/09 117,450 Verio, Inc., Sr. Notes, B3 5 11.25%, 12/1/08 5,788 B3 100 10.625%, 11/15/09 113,000 ---------------- 456,263 - ------------------------------------------------------------------------------------- Steel 0.2% Algoma Steel, Inc., First Mtge. Notes, B2 75 12.375%, 7/15/05 66,750 Leviathan Corp., Sr. Sub. Notes, Ba2 25 10.375%, 6/1/09 25,750 LTV Corp., Sr. Notes, Ba3 100 11.75%, 11/15/09 85,500 National Steel Corp., First Mtge., Ser. D, Ba3 25 9.875%, 3/1/09 22,062
See Notes to Financial Statements 43 Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- Sheffield Steel Corp., First Mtge., Ser. B, Caa2 $ 25 11.50%, 12/1/05 $ 16,000 WHX Corp., Sr. Notes, B3 145 10.50%, 4/15/05 116,000 ---------------- 332,062 - ------------------------------------------------------------------------------------- Telecommunications 2.9% AT&T Corp., MTN, Ser. G, A1 600 6.31%, 4/23/02 600,984 Adelphia Business Solution, Sr. Disc. Notes, Zero Coupon (until 4/15/01) B3 85 13.00%, 4/15/03 75,225 Caprock Communications Corp., Sr. Notes, B3 250 11.50%, 5/1/09 155,000 Clearnet Communications, Inc., Sr. Disc. Notes, Zero Coupon (until B3 110 5/1/04) 10.125%, 5/1/09 63,800 Coaxial Communications, Inc., Sr. Notes, B3 25 10.00%, 8/15/06 24,000 Fairpoint Communications, Sr. Sub. Notes, B3 95 12.50%, 5/1/10 95,950 Focal Communications Corp., Sr. Notes, B3 125 11.875%, 1/15/10 124,375 Global Crossing Holdings Ltd., Sr. Notes, Ba2 500 9.50%, 11/15/09 487,500 Level 3 Communications, Inc., Sr. Disc. Notes, Zero Coupon (until 3/15/05) B3 500 12.875%, 3/15/10 265,000 Zero Coupon (until 12/1/03) B3 130 10.50%, 12/1/08 76,375 Sr. Notes, B3 30 11.00%, 3/15/08 28,500 Mcleodusa, Inc., Sr. Notes, B1 95 8.125%, 2/15/09 85,262
44 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- Microcell Telecommunications, Sr. Disc. Notes, Zero Coupon (until 6/1/04) B3 $ 250 12.00%, 6/1/09 $ 168,750 Millicom Int'l. Cellular, Sr. Disc. Notes, Zero Coupon (until 6/1/01) Caa1 65 13.50%, 6/1/06 56,875 Netia Holdings BV (Poland), Gtd. Sr. Disc. Notes, Zero Coupon B2 250 (until 11/1/01) 11.25%, 11/1/07 178,750 Nextel Communications, Inc., Sr. Disc. Notes, Zero Coupon (until B1 300 9/15/02) 10.65%, 9/15/07 234,000 Sr. Notes, B1 200 9.375%, 11/15/09 191,000 Nextlink Communications, Inc., Sr. Disc. Notes, B2 330 10.75%, 6/1/09 323,400 NTL Communications Corp., Sr. Notes, Zero Coupon (until 10/1/03) B2 250 12.375%, 10/1/08 161,250 Primus Telecomm Group, Sr. Notes, B3 100 12.75%, 10/15/09 60,000 RCN Corp., Sr. Notes, B3 45 10.125%, 1/15/10 36,000 RSL Communications PLC (United Kingdom), Gtd. Sr. Notes, B3 150 9.875%, 11/15/09 46,500 Spectrasite Holdings, Inc., Sr. Disc. Notes, Zero Coupon (until 3/15/05) B3 305 12.875%, 3/15/10 170,800 Telewest Communications PLC (United Kingdom), Sr. Disc. Notes, (Zero Coupon until 2/1/05, 11.375%, B1 235 2/1/10 131,600 Tritel PCS, Inc., Sr. Sub. Disc. Notes, Zero Coupon (until 5/15/04) B3 110 12.75%, 5/15/09 80,850
See Notes to Financial Statements 45 Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- Vodafone Airtouch PLC (United Kingdom), Sr. Notes, A2 $ 300 6.96%, 12/19/01 $ 301,038 Voicestream Wireless Corp., Sr. Disc. Notes, Zero Coupon (until 11/15/04) B2 240 11.875%, 11/15/09 169,200 Sr. Notes, B2 130 10.375%, 11/15/09 140,400 Williams Communications Group, Inc., Sr. Notes, B2 25 10.70%, 10/1/07 24,125 B2 245 10.875%, 10/1/09 232,750 Worldcom, Inc., FRN, A3 300 7.05%, 11/26/01 301,113 Worldwide Fiber, Inc., Sr. Notes, B3 30 12.00%, 8/1/09 26,850 ---------------- 5,117,222 - ------------------------------------------------------------------------------------- Textile-Apparel Manufacturing 0.1% Burlington Industries, Inc., Sr. Disc. Deb., Ba2 250 7.25%, 8/1/27 150,000 Collins & Aikman Floorcovering, Sr. Sub. Notes, B3 15 10.00%, 1/15/07 14,700 ---------------- 164,700 - ------------------------------------------------------------------------------------- Transportation American Commercial Lines LLC, Sr. Notes, B1 50 10.25%, 6/30/08 42,000 Kitty Hawk, Inc., Gtd. Notes, Ca 60(a) 9.95%, 11/15/04 24,900 ---------------- 66,900 - ------------------------------------------------------------------------------------- Utilities 0.6% AES Corp., Sr. Notes, Ba1 250 9.50%, 6/1/09 252,500
46 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- Sr. Sub. Debs., Ba3 $ 100 8.875%, 11/1/27 $ 84,000 Aes Drax Energy Ltd., (United Kingdom), Sr. Sec. Notes, Ba2 100 11.50%, 8/30/10 102,750 CMS Energy Corp., Sr. Notes, Ba3 250 7.50%, 1/15/09 226,250 Niagara Mohawk Power Corp., Sr. Notes, Ser. C, Ba2 227 7.00%, 10/1/00 226,485 Baa3 151 7.125%, 7/1/01 150,709 ---------------- 1,042,694 - ------------------------------------------------------------------------------------- Waste Management 0.3% Allied Waste of North America, Inc., Sr. Notes, Ba3 250 7.875%, 1/1/09 220,000 Sr. Sub. Notes, B2 45 10.00%, 8/1/09 38,925 Waste Management, Inc., Gtd. Notes, Ba1 150 6.00%, 5/15/01 146,316 Sr. Deb Notes, Ba1 100 8.75%, 5/1/18 98,040 ---------------- 503,281 ---------------- Total corporate bonds (cost $38,656,267) 37,201,423 ---------------- CONVERTIBLE BONDS 0.3% - ------------------------------------------------------------------------------------- Financial Services Hellenic Finance, 2.00%, 7/15/03 A2 Euro 500 (cost $526,875) 451,840 ---------------- FOREIGN GOVERNMENT BONDS 0.1% German Government Bonds, 6.25%, $ 30,000 1/4/24 30,475 German Government Bonds, 6.25%, 80,000 1/4/30 83,439 ---------------- 113,914 ---------------- Total foreign government bonds (cost $106,815) 37,201,423 ----------------
See Notes to Financial Statements 47 Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- SOVEREIGN BONDS 0.3% Republic Of Phillippines, Bonds, Ba1 $ 74 9.50%, 10/21/24 $ 68,820 United Mexican States, Sr. Notes, Baa3 500 8.50%, 2/1/06 499,000 ---------------- Total soverign bonds (cost $570,673) 567,820 ---------------- COLLATERALIZED MORTGAGE OBLIGATIONS 3.2% Bear Stearns Mortgage Secs, Inc., Series 97-7, Class 1, Aaa 500 7.00%, 2/25/28 471,090 Capital Asset Research Funding LP, Series 97-A, Class I, Aaa 110 6.40%, 12/15/04 109,515 Contimortgage Home Equity Loan Trust, Series 1998-2, Class A4, Aaa 500 6.19%, 1/15/14 491,875 Federal Home Loan Mortgage Corp., Debs., 1,000 7.00%, 12/31/30 966,560 Series 7, Class A, 243 7.00%, 9/17/31 241,008 Series 119, Class H, 670 7.50%, 1/15/21 664,469 Series 1599, Class A, 31 5.80%, 6/15/19 30,795 Federal National Mortgage Assoc., Series 1998-73, Class MZ, 541 6.30%, 10/17/38 434,021 GE Capital Mortgage Services, Inc., Series 1999-S, Class A29, Aaa 300 6.50%, 5/25/29 273,177 Istar Receivables Trust, Mtge. Bonds, Class A, Aaa 497 6.92%, 9/25/22 497,263
48 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Moody's Principal Rating Amount (Unaudited) (000) Description Value (Note 1) - -------------------------------------------------------------------------------------------- Merrill Lynch Mortgage Investors, Inc., Series 1998-FF1, Class A, Aaa $ 53 6.80%, 1/20/28 $ 52,599 PNC Mortgage Secs. Corp., Series 1999-5, Class A1, Aaa 400 7.25%, 10/25/29 385,683 Residential Funding Mortgage, Series 1993-S36, Class A9, Aaa 163 6.48%, 10/25/08 161,442 Series 1994-S5, Class A6, Aa1 500 6.50%, 2/25/24 435,465 Series 1999-S8, Class A1, Aaa 203 6.25%, 3/25/14 191,338 Salomon Brothers Mortgage, Series 1999-LB1, Class A, Aaa 330 6.95%, 6/25/29 329,860 ---------------- Total collateralized mortgage obligations (cost $3,474,689) 5,736,160 ---------------- MUNICIPAL BONDS 0.6% Central Puget Sound Washington Regional, Revenue Bonds, Aaa 500 4.75%, 2/1/28 423,974 New York City Gen. Oblig., Series B, A3 300 6.00%, 8/1/01 296,500 New York State Twy. Auth. Gen. Rev., Series E, Aa3 300 5.00%, 1/1/25 257,910 ---------------- Total municipal bond (cost $566,909) 978,384 ----------------
See Notes to Financial Statements 49 Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Principal Amount (000) Description Value (Note 1) - ----------------------------------------------------------------------------------------- U.S. GOVERNMENT AGENCIES AND SECURITIES 12.5% Federal National Mortgage Assoc., $ 993 6.00%, 8/1/06 $ 948,196 2,500 6.00%, 12/31/30 2,293,750 700 7.50%, 12/31/30 689,717 Government National Mortgage Assoc., 1,900 7.50%, 12/15/28 1,883,599 2,038 6.50%, 5/15/29 1,932,151 462 6.50%, 6/15/29 438,384 500 6.50%, 7/15/29 474,060 470 7.50%, 11/15/29 465,738 30 7.50%, 3/15/30 29,731 1,750 6.00%, 12/31/30 1,611,102 3,300 6.50%, 12/31/30 3,128,829 1,470 7.50%, 12/31/30 1,456,682 1,500 8.50%, 12/31/30 1,524,367 83 6.75%, 9/20/22 83,535 United States Treasury Bonds, 800 11.25%, 2/15/15 1,187,376 318 3.625%, 4/15/28, TIPS 305,215 United States Treasury Notes, 645 3.625%, 7/15/02, TIPS 642,838 973 3.375%, 1/15/07, TIPS 937,176 209 3.875%, 1/15/09, TIPS 206,483 United States Treasury Strips, 3,800 Zero Coupon, 2/15/11 1,992,720 ---------------- Total U. S. government agencies and securities (cost $24,607,793) 22,231,649 ---------------- Total debt obligations (cost $68,510,021) 67,281,190 ---------------- Total long-term investments (cost $161,458,064) 172,152,010 ---------------- SHORT-TERM INVESTMENTS 10.0% - ------------------------------------------------------------------------------------- Commercial Paper 0.9% 1,100 General Dynamics Corp., 6.61%, 9/6/00 1,087,714
50 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Cont'd. Portfolio of Investments as of July 31, 2000
Principal Amount (000) Description Value (Note 1) - ----------------------------------------------------------------------------------------- General Electric Credit Capital of Puerto Rico, $ 200 6.61%, 9/6/00 $ 198,678 200 6.57%, 12/6/00 195,365 100 Washington Mutual Finance Corp., 6.85%, 8/30/00 99,152 ---------------- Total commercial paper (cost $1,586,293) 1,580,909 ---------------- REPURCHASE AGREEMENT 9.1% 16,263 Joint Repurchase Agreement Account, 6.54%, 8/1/00 (cost $16,263,000; Note 5) 16,263,000 ---------------- Total short-term investments (cost $17,849,293) 17,843,909 ---------------- Total investments 106.7% (cost $179,307,357; Note 4) 189,995,919 Liabilities in excess of other assets (6.7%) (11,871,807) ---------------- Net Assets 100% $ 178,124,112 ---------------- ----------------
- ------------------------------ (a) Non-income producing security. (b) Represents issuer in default on interest payments. * Rated by Standard and Poor's. AB--Antiebolay (Swedish Stock Company). ADR--American Depository Receipt. AG--Aktiengesellschate (German Stock Company). FRN--Flating Rate Note. LLC--Limited Liability Company. LP--Limited Partnership. MTN--Medium Term Note. NR--Not Rated by Moody's or Standard & Poor's N.V.--Naamkee Vennootachap (Dutch Corporation). OY--Osakeyhtio (Finland Stock Company). PLC--Public Limited Company (British Corporation). S.A.--Sociedad Anomima (Spanish Corpiration or Societe Anonyme or French Corporation). SpA--Societa par Atione (Italian 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 51 Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Statement of Assets and Liabilities
July 31, 2000 - --------------------------------------------------------------------------------------- ASSETS Investments, at value (cost $179,307,357) $ 189,995,919 Foreign currency, at value (cost $397,278) 389,771 Cash 304,736 Receivable for investments sold 1,534,905 Interest and dividends receivable 1,000,964 Receivable for Fund shares sold 601,446 Unrealized appreciation on forward currency contracts 3,880 Receivable for interest rate swaps 3,737 Unrealized appreciation on interest rate swaps (Note 1 & 4) 3,410 Other assets 4,416 ------------- Total assets 193,843,184 ------------- LIABILITIES Payable for investments purchased 15,152,708 Payable for Fund shares reacquired 270,619 Distribution fee payable 118,911 Management fee payable 113,495 Accrued expenses and other liabilities 59,940 Withholding taxes payable 2,586 Unrealized depreciation on forward currency contracts 813 ------------- Total liabilities 15,719,072 ------------- NET ASSETS $ 178,124,112 ------------- ------------- Net assets were comprised of: Shares of beneficial interest, at par $ 14,826 Paid-in capital in excess of par 157,912,523 ------------- 157,927,349 Undistributed net investment income 403,745 Accumulated net realized gain on investments 9,104,720 Net unrealized appreciation on investments 10,688,298 ------------- Net assets, July 31, 2000 $ 178,124,112 ------------- -------------
52 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Statement of Assets and Liabilities Cont'd.
July 31, 2000 - --------------------------------------------------------------------------------------- Class A: Net asset value and redemption price per share ($48,786,361 / 4,054,185 shares of beneficial interest issued and outstanding) $12.03 Maximum sales charge (5% of offering price) 0.63 ------------- Maximum offering price to public $12.66 ------------- ------------- Class B: Net asset value, offering price and redemption price per share ($99,950,347 / 8,324,305 shares of beneficial interest issued and outstanding) $12.01 ------------- ------------- Class C: Net asset value and redemption price per share ($28,039,543 / 2,335,158 shares of beneficial interest issued and outstanding) $12.01 Sales charge (1% of offering price) 0.12 ------------- Offering price to public $12.13 ------------- ------------- Class Z: Net asset value, offering price and redemption price per share ($1,347,861 / 111,898 shares of beneficial interest issued and outstanding) $12.05 ------------- -------------
See Notes to Financial Statements 53 Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Statement of Operations
Year Ended July 31, 2000 - ---------------------------------------------------------------------------------------- NET INVESTMENT INCOME Income Interest (net of foreign withholding taxes of $3,139) $ 4,358,879 Dividends (net of foreign withholding taxes of $41,475) 1,015,803 ------------- Total income 5,374,682 ------------- Expenses Management fee 1,084,509 Distribution fee--Class A 87,021 Distribution fee--Class B 798,551 Distribution fee--Class C 258,352 Custodian's fees and expenses 323,000 Transfer agent's fees and expenses 189,500 Registration fees 62,000 Reports to shareholders 56,000 Legal fees 30,000 Audit fees 25,000 Trustees' fees and expenses 15,300 Amortization of offering costs 10,535 Miscellaneous 3,445 ------------- Total expenses 2,943,213 ------------- Net investment income 2,431,469 ------------- REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS Net realized gain on: Investment transactions 10,006,048 Interest Rate Swaps 55,483 Foreign currency transactions 25,824 ------------- 10,087,355 ------------- Net change in unrealized appreciation on: Investments 4,403,007 Foreign currencies 21,728 Interest Rate Swaps 3,410 ------------- 4,428,145 ------------- Net gain on investments and foreign currency transactions 14,515,500 ------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 16,946,969 ------------- -------------
54 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Statement of Changes in Net Assets
November 18, 1998(a) Year Ended Through July 31, 2000 July 31, 1999 - ---------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS Operations Net investment income $ 2,431,469 $ 711,879 Net realized gain on investment and foreign currency transactions 10,087,355 66,328 Net change in unrealized appreciation of investments and foreign currencies 4,428,145 6,260,153 ------------- ------------- Net increase in net assets resulting from operations 16,946,969 7,038,360 ------------- ------------- Dividends and distributions (Note 1) Dividends to shareholders from net investment income Class A (845,618) (132,253) Class B (1,192,915) (170,151) Class C (367,691) (73,278) Class Z (80,073) (152,622) ------------- ------------- (2,486,297) (528,304) ------------- ------------- Distributions from net realized gains on investment transactions 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 $96,274,299 $ 132,889,254 Net asset value of shares issued to shareholders in reinvestment of dividends and distributions 3,273,405 516,607 Cost of shares reacquired (49,998,187) (24,942,216) ------------- ------------- Net increase in net assets from Fund shares transactions 49,549,517 108,463,645 ------------- ------------- Total increase 63,120,411 114,973,701 NET ASSETS Beginning of period 115,003,701 30,000 ------------- ------------- End of period(b) $ 178,124,112 $ 115,003,701 ------------- ------------- ------------- ------------- - ------------------------------ (a) Commencement of investment operations. (b) Includes undistributed net investment income of $ 333,724 $ 296,575 ------------- ------------- ------------- -------------
See Notes to Financial Statements 55 Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Notes to Financial Statements 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. 56 Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Notes to Financial Statements Cont'd. 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. 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: (i) market value of investment securities, other assets and liabilities - at the closing daily rates of exchange. 57 Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Notes to Financial Statements Cont'd. (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. Interest Rate Swaps: In a simple interest rate swap, one investor pays a floating rate of interest on a notional principal amount and receives a fixed rate of 58 Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Notes to Financial Statements Cont'd. interest on the same notional principal amount for a specified period of time. Alternatively, an investor may pay a fixed rate and receive a floating rate. Interest rate swaps were conceived as asset/liability management tools. In more complex swaps, the notional principal amount may decline (or amortize) over time. During the term of the swap, changes in the value of the swap are recognized as unrealized gains or losses by 'marking-to-market' to reflect the market value of the swap. When the swap is terminated, the Fund will record a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund's basis in the contract, if any. The Fund is exposed to credit loss in the event of non-performance by the other party to the interest rate swap. However, the Fund does not anticipate non-performance by any counterparty. 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. 59 Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Notes to Financial Statements Cont'd. Deferred Offering Cost: The Fund incurred approximately $77,500 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 decrease accumulated net realized gain on investments and foreign currency transactions by $152,963, increase undistributed net investment income by $161,998 and decrease paid-in capital in excess of par by $9,035 due to nondeductible stock issuance expenses, the reclass of net realized foreign currency gains and the reclass of passive foreign investment company gains. Net investment income, net realized gains and net assets were not affected by this change. Note 2. Agreements The Fund has a management agreement with PIFM. Pursuant to this agreement, PIFM 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 ('Jennison') first $300 million; .25% for amounts in excess of $300 million The Prudential Investment Corporation ('PIC') .375%1 Lazard 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. 60 Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Notes to Financial Statements Cont'd. 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 fiscal year ended July 31, 2000. PIMS has advised the Fund that it has received approximately $239,300 and $86,700 in front-end sales charges resulting from sales of Class A and Class C shares, respectively, during the fiscal year ended July 31, 2000. PIMS has advised the Fund that for the fiscal year ended July 31, 2000, it has received approximately $156,500 and $42,600 in contingent deferred sales charges imposed upon certain redemptions by Class B and Class C shareholders, respectively. Jennison, 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. Interest on any such borrowings will be at market rates. The purpose of the agreement is to serve as an alternative source of funding for capital share redemptions. The Funds pay a commitment fee of .080 of 1% of the unused portion of the credit facility. The commitment fee is accrued and paid quarterly on a pro rata basis by the Funds. The expiration date of the SCA is March 9, 2001. Prior to March 9, 2000, the commitment fee was .065 of 1% of the unused portion of the credit facility. The Fund did not borrow any amounts pursuant to the SCA during the year ended March 31, 2000. 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 fiscal year ended July 31, 2000, the Fund incurred fees of approximately $145,200 for the services of PMFS. As of July 31, 2000 approximately $14,500 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. For the year ended July 31, 2000, PSI earned approximately $1,000 in brokage commission fees from portfolio transactions executed on behalf of the Fund. 61 Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Notes to Financial Statements Cont'd. Note 4. Portfolio Securities Purchases and sales of portfolio securities, excluding short-term investments, for the fiscal year ended July 31, 2000 were $258,784,131 and $214,755,237, respectively. At July 31, 2000, the Fund had outstanding forward currency contracts both to purchase and sell foreign currencies, as follows:
Value at Value Foreign Currency Settlement Date at Appreciation/ Purchase Contracts Payable July 31, 2000 (Depreciation) - ----------------------------------- --------------- ------------- -------------- Euro Dollars, expiring 8/1/00 $ 4,690 $ 4,712 $ (22) expiring 8/14/00 577,994 574,273 3,721 expiring 8/31/00 80,768 81,040 (272) Great Britain Pounds, expiring 8/3/00 23,262 23,103 159 --------------- ------------- -------------- $ 686,714 $ 683,128 $ 3,586 --------------- ------------- -------------- --------------- ------------- -------------- Value at Value Foreign Currency Settlement Date at Sale Contracts Receivable July 31, 2000 (Depreciation) - ----------------------------------- --------------- ------------- -------------- Japanese Yen, expiring 8/1/00 $ 46,668 $ 46,441 $ (227) Swedish Krona, expiring 8/1/00 36,098 35,806 (292) --------------- ------------- -------------- $ 82,766 $ 82,247 $ (519) --------------- ------------- -------------- --------------- ------------- --------------
The Fund entered into 4 swap agreements. For each interest rate swap agreement, the Fund receives a floating rate and pays a respective fixed rate. Details of each swap agreement are as follows:
Open Termination Notional Fixed Floating Appreciation Counterparty Date Date Amount Rate Rate (Depreciation) - --------------- -------- ----------- ---------- ------ ------------ -------------- J.P. Morgan 5/19/00 1/04/24 $ 30,000 6.25% 6.78% plus 6 $ 32 mo LIBOR Morgan Stanley 5/31/00 9/13/24 2,500,000 7.75 6.66% plus 3 5,466 mo LIBOR Goldman Sachs 5/18/00 5/22/30 90,000 6.175 6.78% plus 6 (1,664) mo LIBOR Morgan Stanley 6/21/00 9/15/00 600,000 7.00 6.66% plus 3 (424) mo LIBOR ------- $ 3,410 ------- -------
62 Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Notes to Financial Statements Cont'd. The United States federal income tax cost basis of the Fund's investments as of July 31, 2000 was $179,785,410 and accordingly, net unrealized appreciation of investments for federal income tax purposes was $10,210,509 (gross unrealized appreciation $19,926,223, gross unrealized depreciation $9,715,714). 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 July 31, 2000, the Fund had a 2.89% undivided interest in the repurchase agreements in the joint account. The undivided interest for the Fund represents $16,263,000 in principal amount. As of such date, each repurchase agreement in the joint account and the collateral therefore were as follows: ABN AMRO Incorporated, 6.56%, in the principal amount of $100,000,000, repurchase price $100,018,222, due 8/1/00. The value of the collateral including accrued interest was $102,000,029. Bear, Stearns & Co. Inc., 6.55%, in the principal amount of $100,000,000, repurchase price $100,018,194, due 8/1/00. The value of the collateral including accrued interest was $102,926,906. Greenwich Capital Markets, Inc., 6.57%, in the principal amount of $110,000,000, repurchase price $110,020,075, due 8/1/00. The value of the collateral including accrued interest was $112,201,716. Merrill Lynch, Pierce, Fenner & Smith, Inc., 6.45%, in the principal amount of $97,030,000, repurchase price $97,047,384, due 8/1/00. The value of the collateral including accrued interest was $98,970,864. Salomon Smith Barney, Inc., 6.55%, in the principal amount of $155,000,000, repurchase price $155,028,201, due 8/1/00. The value of the collateral including accrued interest was $158,174,190. 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. 63 Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Notes to Financial Statements Cont'd. Transactions in shares of beneficial interest were as follows:
Class A Shares Amount - ------------------------------------------------------------ ---------- ------------ Year ended July 31, 2000: Shares sold 3,134,768 $ 36,505,644 Shares issued in reinvestment of dividends and distributions 86,639 1,018,090 Shares reacquired (1,196,414) (13,887,233) ---------- ------------ Net increase in shares outstanding before conversion 2,024,993 23,636,501 Shares issued upon conversion from Class B 153,988 1,821,985 ---------- ------------ Net increase in shares outstanding 2,178,981 $ 25,458,486 ---------- ------------ ---------- ------------ 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 - ------------------------------------------------------------ Year ended July 31, 2000: Shares sold 4,174,726 $ 48,125,208 Shares issued in reinvestment of dividends and distributions 139,553 1,627,356 Shares reacquired (1,240,994) (14,314,656) ---------- ------------ Net increase in shares outstanding before conversion 3,073,285 35,437,908 Shares reacquired upon conversion from Class A (154,483) (1,821,985) ---------- ------------ Net increase in shares outstanding 2,918,802 $ 33,615,923 ---------- ------------ ---------- ------------ 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 ---------- ------------ ---------- ------------ - ------------------------------ (a) Commencement of investment operations.
64 Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Notes to Financial Statements Cont'd.
Class C Shares Amount - ------------------------------------------------------------ ---------- ------------ Year ended July 31, 2000: Shares sold 864,615 $ 9,952,845 Shares issued in reinvestment of dividends and distributions 44,150 512,945 Shares reacquired (635,034) (7,388,381) ---------- ------------ Net increase in shares outstanding 273,731 $ 3,077,409 ---------- ------------ ---------- ------------ 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 - ------------------------------------------------------------ Year ended July 31, 2000: Shares sold 139,641 $ 1,690,602 Shares issued in reinvestment of dividends and distributions 10,092 115,014 Shares reacquired (1,287,052) (14,407,917) ---------- ------------ Net decrease in shares outstanding (1,137,319) $(12,602,301) ---------- ------------ ---------- ------------ 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. 65 Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Financial Highlights
Class A ----------------------------------------- November 18, 1998(a) Year Ended Through July 31, 2000 July 31, 1999 - ----------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 10.86 $ 10.00 -------- -------- Income from investment operations:(d) Net investment income .26 .12 Net realized and unrealized gain on investments and foreign currencies 1.25 .83 -------- -------- Total from investment operations 1.51 .95 -------- -------- Less distributions Dividends from net investment income (.26) (.09) Distributions from net realized capital gains (.08) -- -------- -------- Total dividends and distributions (.34) (.09) -------- -------- Net asset value, end of period $ 12.03 $ 10.86 -------- -------- -------- -------- TOTAL RETURN(b) 13.96% 9.47% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000) $ 48,786 $ 20,372 Average net assets (000) $ 34,809 $ 12,286 Ratios to average net assets: Expenses, including distribution fees 1.49% 1.88%(c) Expenses, excluding distribution fees 1.24% 1.63%(c) Net investment income 2.27% 1.59%(c) For Class A, B, C and Z shares: Portfolio turnover rate 155% 96%
- ------------------------------ (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. 66 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Financial Highlights Cont'd.
Class B ----------------------------------------- November 18, 1998(a) Year Ended Through July 31, 2000 July 31, 1999 - ----------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 10.85 $ 10.00 -------- -------- Income from investment operations:(d) Net investment income 0.17 .06 Net realized and unrealized gain on investments and foreign currencies 1.23 .83 -------- -------- Total from investment operations 1.40 .89 -------- -------- Less distributions Dividends from net investment income (.16) (.04) Distributions from net realized capital gains (.08) -- -------- -------- Total dividends and distributions (.24) (.04) -------- -------- Net asset value, end of period $ 12.01 $ 10.85 -------- -------- -------- -------- TOTAL RETURN(b) 12.88% 8.99% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000) $ 99,950 $ 58,678 Average net assets (000) $ 79,855 $ 36,645 Ratios to average net assets: Expenses, including distribution fees 2.24% 2.63%(c) Expenses, excluding distribution fees 1.24% 1.63%(c) Net investment income 1.48% .85%(c)
- ------------------------------ (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 67 Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Financial Highlights Cont'd.
Class C ----------------------------------------- November 18, 1998(a) Year Ended Through July 31, 2000 July 31, 1999 - ----------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 10.85 $ 10.00 -------- -------- Income from investment operations:(d) Net investment income .17 .06 Net realized and unrealized gain on investments and foreign currencies 1.23 .83 -------- -------- Total from investment operations 1.40 .89 -------- -------- Less distributions Dividends from net investment income (.16) (.04) Distributions from net realized capital gains (.08) -- -------- -------- Total dividends and distributions (.24) (.04) -------- -------- Net asset value, end of period $ 12.01 $ 10.85 -------- -------- -------- -------- TOTAL RETURN(b) 12.88% 8.99% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000) $ 28,040 $ 22,375 Average net assets (000) $ 25,835 $ 18,346 Ratios to average net assets: Expenses, including distribution fees 2.24% 2.63%(c) Expenses, excluding distribution fees 1.24% 1.63%(c) Net investment income 1.44% .79%(c)
- ------------------------------ (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. 68 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Financial Highlights Cont'd.
Class Z ----------------------------------------- November 18, 1998(a) Year Ended Through July 31, 2000 July 31, 1999 - ----------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $10.87 $ 10.00 ------- -------- Income from investment operations:(d) Net investment income .27 .13 Net realized and unrealized gain on investments and foreign currencies 1.27 .84 ------- -------- Total from investment operations 1.54 .97 ------- -------- Less distributions Dividends from net investment income (.28) (.10) Distributions from net realized capital gains (.08) -- ------- -------- Total dividends and distributions (.36) (.10) ------- -------- Net asset value, end of period $12.05 $ 10.87 ------- -------- ------- -------- TOTAL RETURN(b) 14.18% 9.70% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000) $1,348 $ 13,578 Average net assets (000) $4,102 $ 21,914 Ratios to average net assets: Expenses, including distribution fees 1.24% 1.63%(c) Expenses, excluding distribution fees 1.24% 1.63%(c) Net investment income 2.11% 1.68%(c)
- ------------------------------ (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 69 Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Report of Independent Accountants To the Shareholders and Board of Trustees of Prudential Diversified Funds-- Prudential Diversified Moderate Growth Fund In our opinion, the accompanying statement of assets and liabilities, including the portfolio of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Prudential Diversified Funds--Prudential Diversified Moderate Growth Fund (the 'Fund') at July 31, 2000, the results of its operations for the year then ended, and the changes in its net assets and the financial highlights for the year then ended and for the period November 18, 1998 (commencement of operations) through July 31, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements and financial highlights (hereafter referred to as 'financial statements') are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at July 31, 2000 by correspondence with the custodian and brokers, provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, New York September 22, 2000 70 See Notes to Financial Statements Prudential Diversified Funds Prudential Diversified Moderate Growth Fund Tax Information (Unaudited) We are required by the Internal Revenue Code to advise you within 60 days of the Fund's fiscal year end (July 31, 2000) as to the federal income tax status of dividends paid by the Fund during such fiscal period. Accordingly, we are advising you that during its fiscal period ended July 31, 1999, the Fund paid an ordinary distribution for Class A, Class B, Class C and Class Z shares of $.34 per share, $.24 per share, $.24 per share and $.36 per share, respectively, which represents net investment income and short-term capital gains and is taxable as ordinary income. Further, we wish to advise you that 15% of the ordinary income dividends paid in the fiscal period ended July 31, 2000 qualified for the corporate dividend received deduction available to corporate taxpayers. We are required by Massachusetts, Missouri and Oregon to inform you that dividends which have been derived from interest on federal obligations are not taxable to shareholders. Please be advised that 4.06% of the dividends paid from ordinary income in the fiscal year ended July 31, 2000, qualify for each of these states' tax exclusion. For the purpose of preparing your annual federal income tax return, however, you should report the amounts as reflected on the appropriate Form 1099-DIV or substitute 1099-DIV. See Notes to Financial Statements 71 Prudential Diversified Moderate Growth Fund Prudential Mutual Funds 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 Large Capitalization Stock Funds Prudential 20/20 Focus Fund Prudential Equity Fund, Inc. Prudential Stock Index Fund Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund Strategic Partners Focused Growth Fund Target Funds Large Capitalization Growth Fund Large Capitalization Value Fund The Prudential Investment Portfolios, Inc. Prudential Jennison Growth Fund Prudential Value Fund Small- to Mid-Capitalization Stock Funds Nicholas-Applegate Fund, Inc. Nicholas-Applegate Growth Equity Fund Prudential Small Company Fund, Inc. Prudential Tax-Managed Small-Cap Fund, Inc. Prudential U.S. Emerging Growth Fund, Inc. Target Funds Small Capitalization Growth Fund Small Capitalization Value Fund The Prudential Investment Portfolios, Inc. 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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 Institutional Liquidity Portfolio, Inc. Institutional Money Market Series Prudential MoneyMart Assets, Inc. Prudential Special Money Market Fund, Inc. Money Market Series Tax-Free Money Market Funds 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 Prudential Tax-Free Money Fund, Inc. Other Money Market Funds Command Government Fund Command Money Fund Command Tax-Free Fund Prudential Diversified Moderate Growth Fund Class A Growth of a $10,000 Investment (GRAPH) Average Annual Total Returns as of 7/31/00 One Year Five Years Ten Years Since Inception With Sales Charge 8.26% N/A N/A 10.51% Without Sales Charge 13.96% N/A N/A 13.89% 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. The graph compares a $10,000 investment in the Prudential Diversified Moderate Growth Fund (Class A shares) with a similar investment in the Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index) by portraying the initial account value at the commencement of operations of Class A shares, and the account value at the end of the current fiscal year (July 31, 2000), as measured on a quarterly basis, beginning in November 1998 for Class A shares. For purposes of the graph, and unless otherwise indicated, it has been assumed that (a) the maximum applicable front-end sales charge was deducted from the initial $10,000 investment in Class A shares; (b) all recurring fees (including management fees) were deducted; and (c) all dividends and distributions were reinvested. The S&P 500 Index is an unmanaged index of 500 stocks of large U.S. companies. It gives a broad look at how stock prices have performed. The S&P 500 Index total returns include the reinvestment of all dividends, but do not include the effect of sales charges or operating expenses of a mutual fund. The securities that comprise the Index may differ substantially from the securities in the Fund. The Index is not the only one that may be used to characterize performance of large-capitalization stock funds. Other indexes may portray different comparative performance. Investors cannot invest directly in an index. This graph is furnished to you in accordance with SEC regulations. www.prudential.com (800) 225-1852 Class B Growth of a $10,000 Investment (GRAPH) Average Annual Total Returns as of 7/31/00 One Year Five Years Ten Years Since Inception With Sales Charge 7.88% N/A N/A 10.78% Without Sales Charge 12.88% N/A N/A 12.96% 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. The graph compares a $10,000 investment in the Prudential Diversified Moderate Growth Fund (Class B shares) with a similar investment in the Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index) by portraying the initial account values at the commencement of operations of Class B shares, and the account value at the end of the current fiscal year (July 31, 2000), as measured on a quarterly basis, beginning in November 1998 for Class B shares. For purposes of the graph, and unless otherwise indicated, it has been assumed that (a) the maximum applicable contingent deferred sales charge was deducted from the value of the investment in Class B shares, assuming full redemption on July 31, 2000; (b) all recurring fees (including management fees) were deducted; and (c) all dividends and distributions were reinvested. Class B shares will automatically convert to Class A shares, on a quarterly basis, beginning approximately seven years after purchase. This conversion feature is not reflected in the graph. The S&P 500 Index is an unmanaged index of 500 stocks of large U.S. companies. It gives a broad look at how stock prices have performed. The S&P 500 Index total returns include the reinvestment of all dividends, but do not include the effect of sales charges or operating expenses of a mutual fund. The securities that comprise the Index may differ substantially from the securities in the Fund. The Index is not the only one that may be used to characterize performance of large- capitalization stock funds. Other indexes may portray different comparative performance. Investors cannot invest directly in an index. This graph is furnished to you in accordance with SEC regulations. Prudential Diversified Moderate Growth Fund Class C Growth of a $10,000 Investment (GRAPH) Average Annual Total Returns as of 7/31/00 One Year Five Years Ten Years Since Inception With Sales Charge 10.75% N/A N/A 12.29% Without Sales Charge 12.88% N/A N/A 12.96% 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. The graph compares a $10,000 investment in the Prudential Diversified Moderate Growth Fund (Class C shares) with a similar investment in the Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index) by portraying the initial account value at the commencement of operations of Class C shares, and the account value at the end of the current fiscal year (July 31, 2000), as measured on a quarterly basis, beginning in November 1998 for Class C shares. For purposes of the graph, and unless otherwise indicated, it has been assumed that (a) the maximum applicable front-end sales charge was deducted from the initial $10,000 investment in Class C shares; (b) the maximum applicable contingent deferred sales charge was deducted from the value of the investment in Class C shares, assuming full redemption on July 31, 2000; (c) all recurring fees (including management fees) were deducted; and (d) all dividends and distributions were reinvested. The S&P 500 Index is an unmanaged index of 500 stocks of large U.S. companies. It gives a broad look at how stock prices have performed. The S&P 500 Index total returns include the reinvestment of all dividends, but do not include the effect of sales charges or operating expenses of a mutual fund. The securities that comprise the Index may differ substantially from the securities in the Fund. The Index is not the only one that may be used to characterize performance of large-capitalization stock funds. Other indexes may portray different comparative performance. Investors cannot invest directly in an index. This graph is furnished to you in accordance with SEC regulations. www.prudential.com (800) 225-1852 Class Z Growth of a $10,000 Investment (GRAPH) Average Annual Total Returns as of 7/31/00 One Year Five Years Ten Years Since Inception With Sales Charge 14.18% N/A N/A 14.16% Without Sales Charge 14.18% N/A N/A 14.16% 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. The graph compares a $10,000 investment in the Prudential Diversified Moderate Growth Fund (Class Z shares) with a similar investment in the Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index) by portraying the initial account value at the commencement of operations of Class Z shares, and the account value at the end of the current fiscal year (July 31, 2000), as measured on a quarterly basis, beginning in November 1998 for Class Z shares. For purposes of the graph, and unless otherwise indicated, it has been assumed that (a) all recurring fees (including management fees) were deducted, and (b) all dividends and distributions were reinvested. Class Z shares are not subject to a sales charge or distribution and service (12b-1) fees. The S&P 500 Index is an unmanaged index of 500 stocks of large U.S. companies. It gives a broad look at how stock prices have performed. The S&P 500 Index total returns include the reinvestment of all dividends, but do not include the effect of sales charges or operating expenses of a mutual fund. The securities that comprise the Index may differ substantially from the securities in the Fund. The Index is not the only one that may be used to characterize performance of large-capitalization stock funds. Other indexes may portray different comparative performance. Investors cannot invest directly in an index. This graph is furnished to you in accordance with SEC regulations. For More Information Prudential Mutual Funds Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 (800) 225-1852 Visit Prudential's web site at: http://www.prudential.com Trustees Eugene C. Dorsey Saul K. Fenster, Ph.D. Robert F. Gunia Prof. Maurice F. Holmes Robert E. LaBlanc Douglas H. McCorkindale W. Scott McDonald, Jr. Thomas T. Mooney David R. Odenath, Jr. Stephen Stoneburn John R. Strangfeld Joseph Weber Clay T. Whitehead Officers John R. Strangfeld, President Robert F. Gunia, Vice President David R. Odenath, Jr., Vice President Grace C. Torres, Treasurer William V. Healey, Assistant Secretary 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 LLC 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 8098 Philadelphia, PA 19101 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 Fund Symbols NASDAQ CUSIP Class A PAMGX 74432F505 Class B DMGBX 74432F604 Class C PIMGX 74432F703 Class Z PDMZX 74432F802 MF186E3 (ICON) Printed on Recycled Paper -----END PRIVACY-ENHANCED MESSAGE-----