(ICON)
Prudential
Mid-Cap
Value Fund
ANNUAL
REPORT
Jan. 31, 1999
(LOGO)
<PAGE>
Prudential Mid-Cap Value Fund
Performance At A Glance.
In the short time since its inception in May 1998, the
Prudential
Mid-Cap Value Fund has faced an unusually difficult market
for
mid-cap stocks and an extremely poor environment for its
value
investing style: the S&P/Barra Mid-Cap Value Index tumbled
10%
over this period while the corresponding Growth Index gained
15%.
Moreover, we adhere strictly to our value discipline, which
exacerbated the impact of the anti-value market. However,
investment styles historically have alternated in periods of
superior performance. With our stocks selling for much less
per dollar of earnings than the average mid-cap stock, we
are
positioned to benefit handsomely when stock prices better
reflect companies' earnings performance.
<TABLE>
Cumulative Total Returns1As of 1/31/99
<CAPTION>
Since
Since
Inception2
Inception2
(Without Sales Charge) (With
Sales Charge)
<S> <C> <C>
Class A -23.04% -
26.89%
Class B -23.32 -
28.32
Class C -23.32 -
25.08
Class Z -23.05 -
23.05
Lipper Mid-Cap Fund Avg.3 0.23
N/A
</TABLE>
Past performance is not indicative of future results.
Principal
and investment return will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their
original cost.
1 Source: Prudential Investments Fund Management and Lipper,
Inc. Since the Fund has been in existence less than one
year,
no average annual total returns are presented. 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 C shares bought before
November 2, 1998 have a 1% CDSC if sold within one year.
Class
Z shares are not subject to a sales charge or distribution
fee.
2 Inception dates: Class A, B, C, and Z, 5/11/98.
3 The Lipper Since Inception return is for all funds in each
share class.
How Investments Compared.
(As of 1/31/99)
(GRAPH)
Source: Lipper, Inc. Financial markets change, so a mutual
fund's past
performance should never be used to predict future results.
The risks
to each of the investments listed above are different -- we
provide
12-month total returns for several Lipper mutual fund
categories to
show you that reaching for higher returns means tolerating
more risk.
The greater the risk, the larger the potential reward or
loss. In
addition, we've included historical 20-year average annual
returns.
These returns assume the reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors
have
received higher historical total returns from stocks than
from
most other invest-ments. Smaller capitalization stocks offer
greater potential for long-term growth but may be more
volatile
than larger capitalization stocks.
General Bond Funds provide more income than stock funds,
which
can help smooth out their total returns year by year. But
their
prices still fluctuate (sometimes significantly) and their
returns
have been historically lower than those of stock funds.
General Municipal Debt Funds invest in bonds issued by state
governments, state agencies and/or municipalities. This
investment
provides income that is usually exempt from federal and
state income
taxes.
U.S. Taxable Money Funds attempt to preserve a constant
share value;
they don't fluctuate much in price but, historically, their
returns
have been generally among the lowest of the major investment
categories.
<PAGE>
Jay S. Kaplan, Fund Manager (PHOTO)
Portfolio
Manager's Report
The Prudential Mid-Cap Value Fund provides an opportunity
for
long-term capital growth by investing primarily in stocks of
medium-size companies that we believe to be undervalued. We
follow a traditional value investment style: we look for
good
businesses with sound management that are selling for
substantially less than a fair price. We are aiming at
good risk-adjusted returns consistently year after year.
There can be no assurance that the Fund will achieve its
investment objective.
Portfolio Co-Manager Roger Ford retired from Prudential on
January 29, 1999. I will continue to manage the Fund in a
consistently disciplined way with the assistance of our
research staff.
What you don't own...
...can hurt you -- at least comparatively. The S&P Mid-Cap
400 Index
is weighted by the value of each company's outstanding
stock. Its
small 2% gain since the inception of our Fund was strongly
concentrated in the largest stocks. America Online
alone accounted for more than a fifth of the Index's lead
over us. Funds that bought the few large, high-priced market
leaders benefited; we thought those stocks offered a poor
balance of risk and reward.
Strategy Session.
Good Values.
We view ourselves as business owners rather than stock
traders, so
our strategy is best captured by describing some of our
largest
holdings:
Richfood Holdings is the biggest food wholesaler in the Mid-
Atlantic
and recently has added almost 100 retail grocery stores.
Investors
have not appreciated this new growth opportunity. Although
Richfood
runs both of its businesses well, its stock sells for only
13 times
its 1999 earnings per share, while pure wholesalers average
14 times
and retailers about 18 times earnings. We bought an
excellent company
at a bargain price.
Financial Security Assurance Holdings (FSA) sells guarantees
on
municipal bonds and on securities backed by specific assets.
Its
shares have been priced at low multiples of its book value
(about
1.5 times), at least in part because investors
recently have avoided the risks inherent in insurance. FSA's
share of the municipal guarantee market is growing, the
credit
quality of the bonds it insures is better than average, and
it is increasing both its margins and earnings. It is a
strong
competitor in a growing industry.
More Diversification. In our view, many industrial companies
are substantially undervalued, so about 30% of our holdings
are in that sector. To reduce our reliance on industrials,
we
have focused recent purchases in the health care, retailing,
casino, and technology sectors.
Portfolio Composition.
Expressed as a percentage of
net assets as of 1/31/99.
(PIE CHART)
<PAGE>
What Went Well.
Benefiting From Industry Consolidation.
We owned Allied Group, a high-quality regional property and
casualty insurer. The insurance industry has been
consolidating
for some time because economies of scale favor larger firms.
Nationwide Insurance merged with Allied in the fall to
create
the fourth largest auto and homeowner's insurance company in
the United States. We had a substantial gain on our shares.
And Not So Well.
Economic Uncertainty.
When your assets lose more than a fifth of their value, it
is
extremely unsettling. We had the misfortune of opening our
Fund
at a market peak when investors' anxiety level was high,
leading
them to markedly prefer the stocks of companies with
continued strong earnings growth, regardless of their price.
Mid-cap stocks languished, and value stocks of any size also
suffered. Our holdings lost considerable ground because they
were among the smaller and least expensive in the mid-cap
universe
(in terms of how much earnings or book value we received for
each dollar of share price). We focus on such companies
because
we consistently look for the greatest bargains. Our
holdings,
by and large, are well-managed companies with good earning
prospects, although they may have had problems in the recent
past. But in these times, those were not strong
considerations
for most investors.
Many of the stocks that did do well were technology stocks:
fully
half of the S&P Mid-Cap 400 advantage over our holdings was
due
to the strong performance of technology companies that we
did
not own. Industrials, which have been good values because
of investor disinterest, continued to trail the market. They
are by far our largest focus and accounted for about a third
of our performance gap.
Five Largest Holdings.
2.8% Richfood Holdings, Inc.
Foods
2.6% Financial Security
Assurance Holdings Ltd.
Insurance
2.5% Borg-Warner
Automotive, Inc.
Auto & Truck
2.1% Dexter Corp.
Chemicals
2.0% Premark Int'l, Inc.
Miscellaneous Industrial
Expressed as a percentage of net assets as of 1/31/99.
Looking Ahead.
At period end, our holdings were priced at an average of 13
times
their 1998 earnings, only half the price of the S&P Mid-Cap
400.
This gap between value and growth stocks is exceptionally
large.
Moreover, midcaps themselves are very inexpensive
compared to the stocks of larger companies -- at a 12-year
low.
(See the interview on the next page.) We confess that we
find
these extreme differences in share prices puzzling. Usually,
investors are more aggressive in searching out bargains.
However, our investments provide a very good earnings yield
in the short term and we are well positioned for superior
performance when these pricing anomalies narrow or
disappear.
1
<PAGE>
Portfolio Manager Jay Kaplan discusses value investing in
the mid-cap market.
Q. Is this a poor time to buy mid-cap stocks?
A. It is a great time to buy mid-cap stocks, although a poor
time to
have owned them. Over the long term (1926-1998), mid-size
and
small-company stocks on the New York Stock Exchange have
outperformed
stocks of the largest companies. Now, however, the S&P 400
Mid-Cap Index
has trailed the S&P 500 Index for five successive years,
with the
largest gap this past year. Over that period, the average
largecap
returned 196%, while the midcaps returned only 123% (or an
annual
average of 17%). While that is an excellent return by
historical
standards, it leaves mid-cap stocks much cheaper than those
of
larger companies with comparable earnings.
Earnings are the common yardstick for comparing stocks of
firms of different size and in different businesses because
they
are the source of future dividends or of investment in
faster
growth. When we compare stocks in terms of how much we have
to spend to buy a dollar of company earnings (P/E, or price
to earnings ratio), midcaps now are much cheaper than large
caps. The display below shows that over the past 20 years,
midcaps and larger firms have been, on average, priced about
the same
in terms of P/E. Now, however, they are 14% cheaper; only
once
in that period were there greater bargains -- in the 1987
crash.
Q. If midcaps are generally good value now, shouldn't we buy
the
fastest-growing companies?
A. Among the mid-cap stocks, value stocks have lagged. When
mid-cap
growth stocks began to join the market rally toward the end
of 1998,
mid-cap value stocks did not. In January of 1999, they fell.
Investors have been strongly focused on technology
companies. Not only is that sector very competitive, with
rapid
technological obsolescence, but the stocks generally are
priced
as though investors expect these companies to have long,
continuous
stretches of rapid earnings growth. We believe those
are unrealistic and risky assumptions.
Until the middle of this century, stock investors were
considered to
be "speculators" who were gambling on the stock market. This
is not
an unfair characterization of the current market for
Internet stocks
and for certain other technology stocks. Stocks are being
bought on
the assumption their prices will be bid up higher without
regard to
profitability. In contrast, we consider ourselves to be
investing
in good businesses. We try to find well- managed, sound
companies
that are being undervalued by other investors. We buy them
for
their current earnings or their undervalued assets. Then we
hold
them until other investors will pay us what these stocks are
truly
worth. If they don't, we still own the valuable business
growth we
bought at bargain prices. It isn't a get-rich-quick scheme;
it
isn't speculating on the market; it's investing for the long
term.
Russell Mid-Cap P/E Divided by S&P 500 P/E
1.00 = P/Es are the same
(GRAPH)
The Standard & Poor's 500 Composite Stock Price Index (S&P
500),
composed of stocks representing approximately 70% of the
total
market value of all publicly traded U.S. common stocks, is
widely
regarded as representative of the performance of the
U.S. stock market as a whole.
The Russell Mid-Cap Index consists of the smallest 800
companies
in the Russell 1000 Index, as ranked by total market
capitalization.
The Russell Mid-Cap Index accurately captures the medium-
size
universe of securities and represents 33.8% of the
Russell 1000 total market capitalization. The Russell Index
has
data covering the past 20 years; our benchmark, the Standard
&
Poor's Mid-Cap 400 Index, does not.
Source: Prudential Securities Incorporated
2
<PAGE>
A Message to Our Shareholders March
26, 1999
(PHOTO)
Dear Shareholder,
When I think about how Prudential's clients can benefit from
their
investments, one of my recent concerns is how misleading
today's
equity markets have become. Major index advances continue to
be
driven by the stocks of a handful of very large companies.
These
stocks are getting more and more expensive, out of
proportion to
their earnings expectations. As a result, a substantial
disparity
in value continues to grow between large and small companies
and
between growth and value stocks.
Since not all stocks are benefiting from the highly
publicized
euphoria surrounding each record-breaking milestone, it is
unlikely that these trends will continue. In fact, history
shows that markets generally bring prices in line with
earnings
performance sooner or later.
Diversification Is Critical.
Instead of chasing recent market winners, investors should
have
a well-diversified asset allocation strategy in place and
keep
to it. It is also a good practice to rebalance your holdings
when necessary to keep your asset allocation consistent with
your long-term objectives and risk tolerance. A properly
diversified
portfolio of value- and growth-oriented mutual funds, bond
funds
and money market funds could help you weather inevitable
market
turbulence and receive more consistent returns over
time. Prudential offers a wide range of mutual funds to help
our
shareholders diversify.
Thank you for your continued confidence in Prudential mutual
funds.
Sincerely,
John R. Strangfeld
Chief Investment Officer
Prudential Investments
3
<PAGE>
Portfolio of Investments as
of January 31, 1999 PRUDENTIAL MID-CAP
VALUE FUND
- ------------------------------------------------------------
- ------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
--------------------------------------------------------
- ---
LONG-TERM INVESTMENTS--91.0%
COMMON STOCKS
--------------------------------------------------------
- ---
Aerospace/Defense--4.4%
58,000 GenCorp Inc. $
1,355,750
28,400 Litton Industries, Inc.(a)
1,617,025
17,900 Precision Castparts Corp.
679,081
--------
- ---
3,651,856
- ------------------------------------------------------------
Apparel--2.0%
11,100 Liz Claiborne, Inc.
424,575
84,800 Reebok International, Ltd.
1,261,400
--------
- ---
1,685,975
- ------------------------------------------------------------
Auto & Truck--4.0%
43,400 Borg-Warner Automotive, Inc.
2,088,625
31,900 Lear Corp.(a)
1,256,062
--------
- ---
3,344,687
- ------------------------------------------------------------
Chemicals--5.3%
157,900 Agrium, Inc., (Canada)
1,352,019
59,000 Dexter Corp.
1,729,437
58,500 Ferro Corp.
1,279,688
--------
- ---
4,361,144
- ------------------------------------------------------------
Coal--1.0%
61,700 Arch Coal, Inc.
786,675
- ------------------------------------------------------------
Electric Utilities--1.3%
68,700 Niagara Mohawk Power Corp.(a)
1,051,969
- ------------------------------------------------------------
Electrical Equipment--3.0%
54,400 Belden, Inc.
1,091,400
66,000 Lincoln Electric Hldgs.
1,394,250
--------
- ---
2,485,650
- ------------------------------------------------------------
Electronics--7.7%
62,600 Arrow Electronics, Inc.
1,032,900
26,500 Avnet, Inc. $
1,190,844
23,600 Harris Corp.
885,000
31,200 National Semiconductors Corp.(a)
403,650
44,400 UCAR International, Inc.(a)
818,625
48,300 Varian Associates, Inc.
1,684,462
29,800 VLSI Technology, Inc.(a)
353,875
--------
- ---
6,369,356
- ------------------------------------------------------------
Exploration & Production--4.5%
73,200 Oryx Energy Co.
892,125
58,600 Pioneer Natural Resources Co.
483,450
198,300 Santa Fe Energy Resources, Inc.
1,152,619
161,500 Vintage Petroleum, Inc.
1,170,875
--------
- ---
3,699,069
- ------------------------------------------------------------
Financial Services--7.3%
34,100 Astoria Financial Corp.
1,560,075
42,210 Charter One Financial Inc.
1,181,880
60,000 Commercial Federal Corp.
1,372,500
29,800 Heller Financial Inc.
815,775
59,200 Peoples Heritage Financial Group,
Inc.
1,065,600
--------
- ---
5,995,830
- ------------------------------------------------------------
Foods--5.1%
41,000 Interstate Bakeries Corp.
1,007,062
98,700 Richfood Holdings, Inc.
2,288,606
24,600 Suiza Foods Corp.(a)
874,838
--------
- ---
4,170,506
- ------------------------------------------------------------
Health Care--5.4%
32,800 Beverly Enterprises Inc
186,550
70,800 Foundation Health Systems, Inc.
650,475
73,000 Quorum Health Group, Inc.
620,500
44,800 Trigon Healthcare, Inc.(a)
1,430,800
35,500 Universal Health Services, Inc.(a)
1,588,625
--------
- ---
4,476,950
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as
of January 31, 1999 PRUDENTIAL MID-
CAP VALUE FUND
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
--------------------------------------------------------
- ---
Hotels & Leisure--2.1%
56,600 Harrah's Entertainment, Inc.(a) $
841,925
135,400 Park Place Entertainment Corp.
922,413
--------
- ---
1,764,338
- ------------------------------------------------------------
Housing--1.3%
52,300 D.R. Horton, Inc.
1,104,838
- ------------------------------------------------------------
Insurance--10.4%
71,400 Amerus Life Hldgs., Inc.
1,405,687
44,700 Capital Re Corp.
812,981
35,200 Enhance Financial Services Group
Inc.
880,000
26,300 Everest Reinsurance Hldgs.
884,337
38,900 Financial Security Assurance Hldgs.
Ltd.
2,137,069
45,300 Old Republic International Corp.
886,181
16,700 PMI Group, Inc., (The)
716,013
12,200 Reinsurance Group of America, Inc.
821,213
--------
- ---
8,543,481
- ------------------------------------------------------------
Machinery--1.4%
22,600 Case Corp.
427,988
69,600 New Holland N.V. (Netherlands)
756,900
--------
- ---
1,184,888
- ------------------------------------------------------------
Media--2.4%
57,000 Belo (A.H.) Corp.
1,072,312
25,400 Central Newspapers, Inc.
895,350
--------
- ---
1,967,662
- ------------------------------------------------------------
Miscellaneous Industrial--14.5%
60,400 Blount International, Inc.
1,555,300
36,800 Crane Co.
1,000,500
44,200 Harsco Corp.
1,179,587
45,300 IDEX Corp.
1,033,406
63,600 Kimball International, Inc.
1,120,950
63,300 Mark IV Industries, Inc.
949,500
28,300 Pentair, Inc.
1,082,475
49,200 Premark International, Inc.
1,685,100
55,900 U.S. Industries, Inc.
1,055,113
65,100 United Dominion Industries, Ltd.,
(Canada)
1,297,931
--------
- ---
11,959,862
Printing--2.0%
65,700 World Color Press, Inc.(a) $
1,617,863
- ------------------------------------------------------------
Railroads--1.4%
70,000 Wisconsin Central Transportation
Corp.(a)
1,120,000
- ------------------------------------------------------------
Recreation & Other Consumer Goods--1.5%
51,500 Brunswick Corp.
1,271,406
- ------------------------------------------------------------
Retail--2.0%
59,800 Burlington Coat Factory Warehouse
Corp.
855,887
15,000 Payless Shoesource Inc.
780,938
--------
- ---
1,636,825
- ------------------------------------------------------------
Steel--1.0%
29,900 Texas Industries, Inc.
792,350
--------
- ---
Total long-term investments
(cost $99,078,874)
75,043,180
--------
- ---
Principal Amount
(000)
SHORT-TERM INVESTMENT--9.4%
REPURCHASE AGREEMENT
- ------------------------------------------------------------
$ 7,738 Joint Repurchase Agreement Account,
4.72%, 2/1/99
(cost $7,738,000; Note 5)
7,738,000
--------
- ---
- ------------------------------------------------------------
Total Investments--100.4%
(cost $106,816,874; Note 4)
82,781,180
Liabilities in excess of other
assets--(0.4%)
(299,130)
--------
- ---
Net Assets--100%
$82,482,050
--------
- ---
--------
- ---
</TABLE>
- ---------------
(a) Non-income producing security.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 5
<PAGE>
Statement of Assets and Liabilities
PRUDENTIAL MID-CAP VALUE FUND
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Assets
January 31, 1999
<S>
<C>
Investments, at value (cost
$106,816,874)...............................................
.................. $ 82,781,180
Cash........................................................
..............................................
721
Deposit with brokers as collateral for futures
transactions...............................................
256,000
Deferred organizational
costs.......................................................
...................... 155,727
Dividends and interest
receivable..................................................
....................... 28,951
Receivable for Fund shares
sold........................................................
................... 21,221
- ----------------
Total
assets......................................................
..................................... 83,243,800
- ----------------
Liabilities
Payable for investments
purchased...................................................
...................... 420,803
Accrued
expenses....................................................
...................................... 246,463
Management fee
payable.....................................................
............................... 51,122
Payable for Fund shares
reacquired..................................................
...................... 35,893
Due to broker-variation
margin......................................................
...................... 3,750
Distribution fee
payable.....................................................
............................. 3,719
- ----------------
Total
liabilities.................................................
..................................... 761,750
- ----------------
Net
Assets......................................................
.......................................... $
82,482,050
- ----------------
- ----------------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
......... $ 10,790
Paid-in capital in excess of
par.........................................................
.............. 106,720,439
- ----------------
106,731,229
Accumulated net realized loss on
investments.................................................
.......... (278,135)
Net unrealized depreciation on
investments.................................................
............ (23,971,044)
- ----------------
Net assets, January 31,
1999........................................................
...................... $ 82,482,050
- ----------------
- ----------------
Class A:
Net asset value and redemption price per share
($1,455,145 / 190,100 shares of beneficial interest
issued and outstanding).........................
$7.65
Maximum sales charge (5% of offering
price)......................................................
...... .40
- ----------------
Maximum offering price to
public......................................................
................. $8.05
- ----------------
- ----------------
Class B:
Net asset value, offering price and redemption price per
share
($3,377,025 / 441,325 shares of beneficial interest
issued and outstanding).........................
$7.65
- ----------------
- ----------------
Class C:
Net asset value and redemption price per share
($285,535 / 37,317 shares of beneficial interest
issued and outstanding)............................
$7.65
Sales charge (1% of offering
price)......................................................
.............. .08
- ----------------
Offering price to
public......................................................
......................... $7.73
- ----------------
- ----------------
Class Z:
Net asset value, offering price and redemption price per
share
($77,364,345 / 10,121,490 shares of beneficial
interest issued and outstanding).....................
$7.64
- ----------------
- ----------------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 6
<PAGE>
PRUDENTIAL MID-CAP VALUE FUND
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
May 11,
1998(a)
Through
Net Investment Income January 31,
1999
<S> <C>
Income
Interest................................ $ 488,646
Dividends (net of foreign withholding
taxes of $14,220).................... 580,401
--------------
- --
Total income......................... 1,069,047
--------------
- --
Expenses
Management fee.......................... 445,632
Distribution fee--Class A............... 2,031
Distribution fee--Class B............... 18,421
Distribution fee--Class C............... 1,897
Amortization of deferred offering and
organization costs................... 144,836
Custodian's fees and expenses........... 70,000
Reports to shareholders................. 50,000
Registration fees....................... 40,000
Audit fees and expenses................. 25,000
Legal fees and expenses................. 20,000
Trustees' fees and expenses............. 12,000
Transfer agent's fees and expenses...... 10,000
Miscellaneous........................... 4,689
--------------
- --
Total expenses....................... 844,506
--------------
- --
Net investment income...................... 224,541
--------------
- --
Realized and Unrealized
Gain on Investments
Net realized gain (loss) on:
Investment transactions................. 836,643
Financial futures transactions..........
(1,031,109)
--------------
- --
(194,466)
--------------
- --
Net unrealized appreciation (depreciation)
on:
Investments.............................
(24,035,694)
Financial futures....................... 64,650
--------------
- --
(23,971,044)
--------------
- --
Net loss on investments....................
(24,165,510)
--------------
- --
Net Decrease in Net Assets
Resulting from Operations..................
$(23,940,969)
--------------
- --
--------------
- --
- ---------------
(a) Commencement of investment operations.
</TABLE>
PRUDENTIAL MID-CAP VALUE FUND
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
May 11,
1998(a)
Increase In Through
Net Assets January 31,
1999
<S> <C>
Operations
Net investment income....................... $
224,541
Net realized loss on investments............
(194,466)
Net unrealized depreciation of
investments..............................
(23,971,044)
-----------
- -----
Net decrease in net assets resulting from
operations...............................
(23,940,969)
-----------
- -----
Dividends and distributions (Note 1)
Dividends from net investment income
Class A..................................
(3,330)
Class B..................................
(1,869)
Class C..................................
(11)
Class Z..................................
(219,331)
-----------
- -----
(224,541)
-----------
- -----
Dividends in excess of net investment income
Class A..................................
(2,195)
Class B..................................
(1,232)
Class C..................................
(201)
Class Z..................................
(144,619)
-----------
- -----
(148,247)
-----------
- -----
Distributions in excess of net realized
capital gains
Class A..................................
(1,490)
Class B..................................
(3,345)
Class C..................................
(315)
Class Z..................................
(78,519)
-----------
- -----
(83,669)
-----------
- -----
Distributions from paid-in-capital
Class A..................................
(2,522)
Class B..................................
(2,120)
Class C..................................
(280)
Class Z..................................
(160,667)
-----------
- -----
(165,589)
-----------
- -----
Fund share transactions (net of share
conversion)
(Note 6)
Net proceeds from shares sold...............
108,338,129
Net asset value of shares issued in
reinvestment of dividends and
distributions............................
621,170
Cost of shares reacquired...................
(2,014,234)
-----------
- -----
Net increase in net assets from Fund share
transactions.............................
106,945,065
-----------
- -----
Total increase.................................
82,382,050
Net Assets
Beginning of period............................
100,000
-----------
- -----
End of period.................................. $
82,482,050
-----------
- -----
-----------
- -----
- ---------------
(a) Commencement of investment operations.
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 7
<PAGE>
Notes to Financial Statements
PRUDENTIAL MID-CAP VALUE FUND
- ------------------------------------------------------------
- --------------------
Prudential Mid-Cap Value Fund (the 'Fund') is registered
under the Investment
Company Act of 1940 as a diversified, open-end, management
investment company.
The Fund was organized in Delaware on October 24, 1997 as a
business trust. The
Fund issued 2,500 shares each of Class A, Class B, Class C
and Class Z shares of
beneficial interest for $100,000 on April 14, 1998 to
Prudential Investments
Fund Management LLC ('PIFM').
The Fund's investment objective is to achieve long-term
capital growth by
investing primarily in equity-related securities of mid-cap
companies, ranging
from $1 billion to $5 billion in market capitalization.
- ------------------------------------------------------------
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 listed on a securities
exchange (other than
options on stock and stock indices) are valued at the last
sales price on the
day of valuation, or, if there was no sale on such day, at
the mean between the
closing bid and asked prices on such day, or at the bid
price in the absence of
an asked price as provided by a pricing service. Securities
that are actively
traded in the over-the-counter market, including listed
securities for which the
primary market is believed to be over-the-counter, are
valued by an independent
pricing service. Convertible debt securities that are
actively traded in the
over-the-counter market, including listed securities for
which the primary
market is believed to be over-the-counter, are valued at the
mean between the
most recently quoted bid and asked prices provided by a
principal market maker
or independent pricing agent. Options on securities and
indices traded on an
exchange are valued at the mean between the most recently
quoted bid and asked
prices provided by the respective exchange. Futures
contracts and options
thereon are valued at the last sales price as of the close
of business of the
exchange. Securities for which market quotations are not
readily available are
valued at fair value as determined in good faith by or under
the direction of
the Board of Trustees of the Fund.
Short-term securities which mature in more than 60 days are
valued at current
market quotations. Short-term securities which mature in 60
days or less are
valued at amortized cost.
Repurchase Agreement: In connection with transactions in
repurchase agreements,
it is the Fund's policy that its custodian or designated
subcustodians under
triparty repurchase agreements, as the case may be, take
possession of the
underlying collateral securities, the value of which exceeds
the principal
amount of the repurchase transaction, including accrued
interest. To the extent
that any repurchase transaction exceeds one business day,
the value of the
collateral is marked-to-market on a daily basis to ensure
the adequacy of the
collateral. If the seller defaults, and the value of the
collateral declines or
if bankruptcy proceedings are commenced with respect to the
seller of the
security, realization of the collateral by the Fund may be
delayed or limited.
All securities are valued as of 4:15 p.m., New York time.
Financial Futures Contracts: A financial futures contract is
an agreement to
purchase (long) or sell (short) an agreed amount of
securities at a set price
for delivery on a future date. Upon entering into a
financial futures contract,
the Fund is required to pledge to the broker an amount of
cash and/or other
assets equal to a certain percentage of the contract amount.
This amount is
known as the 'initial margin.' Subsequent payments, known as
'variation margin,'
are made or received by the Fund each day, depending on the
daily fluctuations
in the value of the underlying security. Such variation
margin is recorded for
financial statement purposes on a daily basis as unrealized
gain or loss. When
the contract expires or is closed, the gain or loss is
realized and is presented
in the statement of operations as net realized gain (loss)
on financial futures
contracts.
The Fund invests in financial futures contracts in order to
hedge its existing
portfolio securities, or securities the Fund intends to
purchase, against
fluctuations in value caused by changes in prevailing
interest rates. Should
interest rates move unexpectedly, the Fund may not achieve
the anticipated
benefits of the financial futures contracts and may realize
a loss. The use of
futures transactions involves the risk of imperfect
correlation in movements in
the price of futures contracts, interest rates and the
underlying hedged assets.
Securities Transactions and Net Investment Income:
Securities transactions are
recorded on the trade date. Realized gains and losses on
sales of securities 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 realized and
unrealized gains or losses are allocated daily to each class
of shares based
upon the relative proportion of net assets of each class at
the beginning of the
day.
Dividends and Distributions: Dividends from net investment
income are declared
and paid semi-annually. The Fund will distribute net capital
gains in excess of
loss carryforwards, if any, at least annually. Dividends and
distributions are
recorded on the ex-dividend date.
- ------------------------------------------------------------
- --------------------
8
<PAGE>
Notes to Financial Statements
PRUDENTIAL MID-CAP VALUE FUND
- ------------------------------------------------------------
- --------------------
Income distributions and capital gain distributions are
determined in accordance
with income tax regulations which may differ from generally
accepted accounting
principles.
Taxes: It is the Fund's policy to continue to meet the
requirements of the
Internal Revenue Code applicable to regulated investment
companies and to
distribute all of its taxable net income and net capital
gains, if any, to its
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 and Organization Expenses: Approximately
$175,000 and $125,000
of expenses were incurred in connection with the initial
offering and
organization of the Fund, respectively. These costs have
been deferred and are
being amortized ratably over a period of sixty months for
organization expense
and twelve months for offering costs from the date the Fund
commenced investment
operations.
Reclassification of Capital Accounts: The Fund accounts for
and reports
distributions to shareholders in accordance with 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 paid-in-capital by $313,836
increase
undistributed net investment income by $290,389, and
increase accumulated net
realized loss on investments by $23,447 for certain
organizational expenses not
deductible for tax purposes and for distributions from paid-
in-capital. Net
investment income, net realized gains and net assets were
not affected by these
changes.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential
Investments Fund Management
LLC ('PIFM'). Pursuant to this agreement, PIFM has
responsibility for all
investment advisory services and supervises the subadviser's
performance of such
services. PIFM has entered into a subadvisory agreement with
The Prudential
Investment Corporation ('PIC'). PIC furnishes investment
advisory services, in
connection with the management of the Fund. PIFM pays for
the cost of the
subadviser's services, the compensation of officers of the
Fund, occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund
bears all other
costs and expenses.
The management fee paid to PIFM is computed daily and
payable monthly, at an
annual rate of .70 of 1% of the average daily net assets of
the Fund.
The Fund had a distribution agreement with Prudential
Securities Incorporated
('PSI'), which acted as the distributor of the Class A,
Class B, Class C and
Class Z shares of the Fund through May 31, 1998. Prudential
Investment
Management Services LLC ('PIMS') became the distributor of
the Fund effective
June 1, 1998 and is serving the Fund under the same terms
and conditions as
under the agreement with PSI. The Fund compensated PSI and
PIMS for distributing
and servicing the Fund's Class A, Class B and Class C
shares, pursuant to plans
of distribution (the 'Class A, B and C Plans'), regardless
of expenses actually
incurred by them. The distribution fees for Class A, B and C
shares were accrued
daily and payable monthly. No distribution or service fees
are paid to PIMS as
distributor of the 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 charged at an annual rate
of .25 of 1%, 1%
and 1% of the average daily net assets of the Class A, B and
C shares,
respectively, for the period May 11, 1998 through January
31, 1999.
PSI and PIMS have advised the Fund that they have received
approximately $40,500
in front-end sales charges resulting from sales of Class A
and Class C shares
during the period ended January 31, 1999. From these fees,
PSI and PIMS paid
such sales charges to affiliated broker-dealers, which in
turn paid commissions
to salespersons and incurred other distribution costs.
PSI and PIMS have advised the Fund that for the period ended
January 31, 1999,
they received approximately $15,300 and $500 in contingent
deferred sales
charges imposed upon certain redemptions by Class B and
Class C shareholders,
respectively.
PSI, PIFM, PIC and PIMS are indirect, wholly owned
subsidiaries of The
Prudential Insurance Company of America.
The Fund, along with other affiliated registered investment
companies (the
'Funds'), entered into a credit agreement (the 'Agreement')
with an unaffiliated
lender. The maximum commitment under the Agreement is
$200,000,000. Interest on
any such borrowings outstanding will be at market rates. The
purpose of the
Agreement is to serve as an alternative source of funding
for capital share
redemptions. The Fund did not borrow any amounts pursuant to
the Agreement
during the period ended January
- ------------------------------------------------------------
- --------------------
9
<PAGE>
Notes to Financial Statements
PRUDENTIAL MID-CAP VALUE FUND
- ------------------------------------------------------------
- --------------------
31, 1999. The Funds pay a commitment fee at an annual rate
of .055 of 1% on the
unused portion of the credit facility. The commitment fee is
accrued and paid
quarterly on a pro rata basis by the Funds. The Agreement
expired on February
28, 1999, and has been extended through March 12, 1999 under
the same terms.
- ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned
subsidiary of PIFM,
serves as the Fund's transfer agent. During the period May
11, 1998 through
January 31, 1999, the Fund incurred fees of approximately
$7,800 for the
services of PMFS. As of January 31, 1999, approximately
$1,100 of such fees were
due to PMFS. Transfer agent fees and expenses in the
Statement of Operations
also include certain out-of-pocket expenses paid to
nonaffiliates.
During the period May 11, 1998 through January 31, 1999, PSI
received
approximately $500 in brokerage commissions from portfolio
transactions executed
on behalf of the Fund.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than
short-term investments,
for the period May 11, 1998 through January 31, 1999 were
$112,718,337 and
$14,476,105, respectively.
The cost basis of investments for federal income tax
purposes at January 31,
1999 was $106,844,940 and accordingly, net unrealized
depreciation of
investments for federal income tax purposes was $24,063,760
(gross unrealized
appreciation--$1,896,564; gross unrealized depreciation--
$25,960,324).
The Fund will elect, for United States Federal income tax
purposes, to treat net
short-term capital losses of approximately $185,419 incurred
in the three months
ended January 31, 1999 as having been incurred in the
following fiscal year.
During the period ended January 31, 1999, the Fund entered
into financial
futures contracts. Details of open contracts as of January
31, 1999 are as
follows:
<TABLE>
<CAPTION>
Value at
Value at Unrealized
Number of Expiration January 31,
Trade Appreciation/
Contracts Type Date 1999
Date (Depreciation)
- -------------- ------------ ---------- -----------
- ---------- --------------
<S> <C> <C> <C>
<C> <C>
Long Positions:
5 S&P 400 Mar. 1998 $ 945,000
$ 880,350 $ 64,650
- --------------
- --------------
</TABLE>
- ------------------------------------------------------------
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. Government or federal agency
obligations. As of January
31, 1999, the Fund had a 1.1% undivided interest in the
repurchase agreements in
the joint account. The undivided interest for the Fund
represented $7,738,000 in
principal amount. As of such date, each repurchase agreement
in the joint
account and the value of the collateral therefor were as
follows:
Bear, Stearns & Co. Inc., 4.75%, in the principal amount of
$200,000,000,
repurchase price $200,079,167, due 2/1/99. The value of the
collateral including
accrued interest was $206,615,704.
Salomon Brothers, Inc., 4.73%, in the principal amount of
$200,000,000,
repurchase price $200,078,833, due 2/1/99. The value of the
collateral including
accrued interest was $204,209,880.
Morgan (J.P.) Securities Inc., 4.72%, in the principal
amount of $200,000,000,
repurchase price $200,078,667, due 2/1/99. The value of the
collateral including
accrued interest was $204,000,313.
Warburg Dillon Read LLC, 4.62%, in the principal amount of
$80,255,000,
repurchase price $80,285,898, due 2/1/99. The value of the
collateral including
accrued interest was $81,862,553.
- ------------------------------------------------------------
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. Prior to November 2,
1998 Class C shares
were sold with a contingent deferred sales charge of 1%
during the first year.
Effective November 2, 1998, Class C shares are sold with a
front-end sales
charge of 1% and a contingent deferred sales charge of 1%
during the first 18
months. Class B shares will 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 qualify to
purchase Class A
shares at net asset value or Class Z shares. 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 is authorized to issue an unlimited number of
shares of beneficial
interest, $.001 per value per share, equally divided into
four classes,
designated Class A, Class B, Class C and Class Z shares
- ------------------------------------------------------------
- --------------------
10
<PAGE>
Notes to Financial Statements
PRUDENTIAL MID-CAP VALUE FUND
- ------------------------------------------------------------
- --------------------
Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------------ ---------- ---------
- ---
<S> <C> <C>
May 11, 1998(a) through
January 31, 1999:
Shares sold......................... 300,197 $
2,535,490
Shares issued in reinvestment of
dividends......................... 1,092
9,046
Shares reacquired................... (114,344)
(897,466)
---------- ---------
- ---
Net increase in shares outstanding
before conversion................. 186,945
1,647,070
Shares issued upon conversion from
Class B........................... 655
5,960
---------- ---------
- ---
Net increase in shares
outstanding....................... 187,600 $
1,653,030
---------- ---------
- ---
---------- ---------
- ---
<CAPTION>
Class B
- ------------------------------------
<S> <C> <C>
May 11, 1998(a) through
January 31, 1999:
Shares sold......................... 534,568 $
4,732,367
Shares issued in reinvestment of
dividends......................... 1,010
8,384
Shares reacquired................... (96,098)
(770,787)
---------- ---------
- ---
Net increase in shares outstanding
before conversion................. 439,480
3,969,964
Shares reacquired upon conversion
into Class A...................... (655)
(5,960)
---------- ---------
- ---
Net increase in shares
outstanding....................... 438,825 $
3,964,004
---------- ---------
- ---
---------- ---------
- ---
<CAPTION>
Class C
- ------------------------------------
<S> <C> <C>
May 11, 1998(a) through
January 31, 1999:
Shares sold......................... 45,554 $
413,942
Shares issued in reinvestment of
dividends......................... 91
755
Shares reacquired................... (10,828)
(84,510)
---------- ---------
- ---
Net increase in shares
outstanding....................... 34,817 $
330,187
---------- ---------
- ---
---------- ---------
- ---
<CAPTION>
Class Z
- ------------------------------------
<S> <C> <C>
May 11, 1998(a) through
January 31, 1999:
Shares sold......................... 10,078,396
$100,656,330
Shares issued in reinvestment of
dividends......................... 72,912
602,985
Shares reacquired................... (32,318)
(261,471)
---------- ---------
- ---
Net increase in shares
outstanding....................... 10,118,990
$100,997,844
---------- ---------
- ---
---------- ---------
- ---
</TABLE>
- ---------------
(a) Commencement of investment operations.
- ------------------------------------------------------------
- --------------------
11
<PAGE>
Financial Highlights
PRUDENTIAL MID-CAP VALUE FUND
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class A Class B Class C
- ---------------- ---------------- ----------------
<S>
<C> <C> <C>
May 11, 1998(a) May 11, 1998(a) May 11, 1998(a)
Through Through Through
January 31, January 31, January 31,
1999(e) 1999(e) 1999(e)
- ---------------- ---------------- ----------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................... $ 10.00 $
10.00 $10.00
- ------ ------ -----
Income from investment operations
Net investment income
(loss)................................. .01
(.04) (.04)
Net realized and unrealized losses on investment
transactions..............................................
(2.31) (2.29) (2.29)
- ------ ------ -----
Total from investment
operations.......................... (2.30)
(2.33) (2.33)
- ------ ------ -----
Less distributions
Dividends from net investment
income......................... (.02)
- --(d) --(d)
Dividends in excess of net investment
income................. (.01) --
(d) --(d)
Distributions in excess of net realized
gains................ (.01) (.01)
(.01)
Distributions from paid-in-
capital........................... (.01)
(.01) (.01)
- ------ ------ -----
Total
distributions.......................................
(.05) (.02) (.02)
- ------ ------ -----
Net asset value, end of
period............................... $ 7.65
$ 7.65 $ 7.65
- ------ ------ -----
- ------ ------ -----
TOTAL
RETURN(c):.............................................
(23.04)% (23.32)% (23.32)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).............................. $ 1,455
$ 3,377 $ 286
Average net assets
(000)..................................... $ 1,115
$ 2,528 $ 260
Ratios to average net assets(b):
Expenses, including distribution
fees..................... 1.54%(b)
2.29%(b) 2.29%(b)
Expenses, excluding distribution
fees..................... 1.29%(b)
1.29%(b) 1.29%(b)
Net investment income
(loss).............................. .10%(b)
(.66)%(b) (.66)%(b)
Portfolio turnover
rate...................................... 19%
19% 19%
<CAPTION>
Class Z
- ----------------
<S>
<C>
May 11, 1998(a)
Through
January 31,
1999(e)
- ----------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................... $ 10.00
- ------
Income from investment operations
Net investment income
(loss)................................. .02
Net realized and unrealized losses on investment
transactions..............................................
(2.32)
- ------
Total from investment
operations.......................... (2.30)
- ------
Less distributions
Dividends from net investment
income......................... (.02)
Dividends in excess of net investment
income................. (.01)
Distributions in excess of net realized
gains................ (.01)
Distributions from paid-in-
capital........................... (.02)
- ------
Total
distributions.......................................
(.06)
- ------
Net asset value, end of
period............................... $ 7.64
- ------
- ------
TOTAL
RETURN(c):.............................................
(23.05)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).............................. $ 77,364
Average net assets
(000)..................................... $ 83,452
Ratios to average net assets(b):
Expenses, including distribution
fees..................... 1.29%(b)
Expenses, excluding distribution
fees..................... 1.29%(b)
Net investment income
(loss).............................. .39%(b)
Portfolio turnover
rate...................................... 19%
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) Annualized.
(c) Total return does not consider the effects of sales
loads. Total return is
calculated assuming a purchase of shares on the first
day and a sale on the
last day of each period reported and includes
reinvestment of dividends and
distributions. Total returns for periods of less than a
full year are not
annualized.
(d) Less than $.005 per share.
(e) Calculated based on weighted average shares outstanding
during the period.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 12
<PAGE>
Report of Independant Accountants PRUDENTIAL
MID-CAP VALUE FUND
- ------------------------------------------------------------
- --------------------
To the Trustees and Shareholders of
Prudential Mid-Cap Value 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 Mid-
Cap Value Fund (the
'Fund') at January 31, 1999, and the results of its
operations, the changes in
its net assets and the financial highlights for the period
May 11, 1998
(commencement of operations) through January 31, 1999, in
conformity with
generally accepted accounting principles. These financial
statements and
financial highlights (hereafter referred to as 'financial
statements') are the
responsibility of the Fund's management; our responsibility
is to express an
opinion on these financial statements based on our audit. We
conducted our audit
of these financial statements in accordance with generally
accepted auditing
standards which require that we plan and perform the audit
to obtain reasonable
assurance about whether the financial statements are free of
material
misstatement. An audit includes examining, on a test basis,
evidence supporting
the amounts and disclosures in the financial statements,
assessing the
accounting principles used and significant estimates made by
management, and
evaluating the overall financial statement presentation. We
believe that our
audit, which included confirmation of securities at January
31, 1999 by
correspondence with the custodian and brokers, provides a
reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
March 19, 1999
Federal Income Tax Information
(Unaudited) PRUDENTIAL MID-CAP
VALUE FUND
- ------------------------------------------------------------
- --------------------
We are required by the Internal Revenue Code to advise you
within 60 days of the
Fund's fiscal period end (January 31, 1999) as to the
federal tax status of
dividends and distributions paid by the Fund during such
fiscal year.
Accordingly, we are advising you that in the fiscal period
ended January 31,
1999, dividends paid from net investment income were $.03
per share for Class A
and Class Z shares, respectively. In addition, the Fund paid
to Class A, B, C
and Z shares a short-term capital gain distribution of $.01
which is taxable as
ordinary income.
We also wish to advise you that 100% of the dividends paid
from ordinary income
in the fiscal period ended January 31, 1999 qualified for
the corporate
dividends received deduction available to corporate
taxpayers.
In January 2000, 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 1999.
- ------------------------------------------------------------
- --------------------
13
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
Some mutual fund shareholders won't ever read this -- they
don't
read annual and semi-annual reports. It's quite
understandable.
These annual and semi-annual reports are prepared to comply
with
Federal regulations. They 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, in hopes you'll find it profitable to spend a few
minutes
familiarizing yourself with your investment. Here's what
you'll
find in the report:
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 "At A Glance" page
where
we compare the Fund and the comparable average calculated
by Lipper Analytical Services, 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 generally smoothes out returns and gives you an idea 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. And keep in mind that past
performance is not indicative of future results.
Portfolio Manager's Report
The portfolio manager who invests your money for you reports
on
successful -- and not-so-successful -- strategies in this
section
of your report. Look for recent purchases and sales here, as
well
as information about the sectors the portfolio manager
favors and
any changes that are on the drawing board.
Portfolio Of Investments
This is where the report begins to look technical, but it's
really
just a listing of each security held at the end of the
reporting
period, along with valuations and other information. Please
note
that sometimes we discuss a security in the
Portfolio Manager's Report that doesn't appear in this
listing
because it was sold before the close of the reporting
period.
<PAGE>
Statement Of Assets And Liabilities
The balance sheet shows the assets (the value of the Fund's
holdings),
liabilities (how much the Fund owes) and net assets (the
Fund's equity,
or holdings after the Fund pays its debts) as of the end of
the
reporting period. It also shows how we calculate the net
asset
value per share for each class of shares. The net asset
value is
reduced by payment of your dividend, capital gain, or other
distribution, but remember that the money or new shares are
being paid or issued to you. The net asset value fluctuates
daily along with the value of every security in the
portfolio.
Statement Of Operations
This is the income statement, which details income (mostly
interest
and dividends earned) and expenses (including what you pay
us to
manage your money). You'll also see capital gains here --
both
realized and unrealized.
Statement Of Changes In Net Assets
This schedule shows how income and expenses translate into
changes
in net assets. The Fund is required to pay out the bulk of
its
income to shareholders every year, and this statement shows
you
how we do it -- through dividends and distributions -- and
how
that affects the net assets. This statement also shows how
money
from investors flowed into and out of the Fund.
Notes To Financial Statements
This is the kind of technical material that can intimidate
readers, but
it does contain useful information. The Notes provide a
brief history
and explanation of your Fund's objectives. In addition, they
also
outline how Prudential Mutual Funds prices securities. The
Notes
also explain who manages and distributes the Fund's shares,
and
more importantly, how much they are paid for doing so.
Finally,
the Notes explain how many shares are outstanding and the
number
issued and redeemed over the period.
Financial Highlights
This information contains many elements from prior pages,
but on
a per share basis. It is designed to help you understand how
the
Fund performed and to compare this year's performance and
expenses
to those of prior years.
Independent Auditor's Report
Once a year, an outside auditor looks over our books and
certifies
that the information is fairly presented and complies with
generally
accepted accounting principles.
Tax Information
This is information which we report annually about how much
of your
total return is taxable. Should you have any questions, you
may
want to consult a tax advisor.
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 broadly based reference point commonly used by
investors
to measure how well they are doing. A definition of the
selected
index is also provided. Investors generally cannot
invest directly in an index.
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
When you invest through Prudential Mutual Funds, you receive
financial
advice through a Prudential Securities financial advisor or
Prudential/Pruco Securities registered representative. Your
advisor or representative can provide you with the
following services:
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial advisor or registered representative can help
you match the reward you seek with the risk you can
tolerate.
And risk can be difficult to gauge --sometimes even the
simplest
investments bear surprising risks. The educated investor
knows that markets seldom move in just one direction --
there are
times when a market sector or asset class will lose value or
provide
little in the way of total return. Managing your own
expectations
is easier with help from someone who understands
the markets and who knows you!
Keeping Up With The Joneses.
A financial advisor or registered representative can help
you wade
through the numerous mutual funds available to find the ones
that
fit your own individual investment profile and risk
tolerance.
While the newspapers and popular magazines are full
of advice about investing, they are aimed at generic groups
of
people or representative individuals, not at you personally.
Your financial advisor or registered representative will
review
your investment objectives with you. This means you can make
financial decisions based on the assets and liabilities in
your
current portfolio and your risk tolerance -- not just based
on
the current investment fad.
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the
bottom
are among the most common investor mistakes. But sometimes
it's
difficult to hold on to an investment when it's losing value
every month. Your financial advisor or registered
representative can answer questions when you're confused or
worried about your investment, and remind you that you're
investing for the long haul.
<PAGE>
Comparing A $10,000 Investment.
- ----------------------------------------
Prudential Mid-Cap Value Fund vs.
the Standard & Poor's Mid-Cap 400 Index.
/ / Prudential Mid-Cap Value Fund
- --- S&P Mid-Cap 400 Index
Past performance is not indicative of future results.
Principal and
investment return will fluctuate so that an investor's
shares, when
redeemed, may be worth more or less than their original
cost.
These graphs compare a $10,000 investment in the Prudential
Mid-Cap
Value Fund (Class A, B, C, and Z shares) with a similar
investment
in the Standard & Poor's Mid-Cap 400 Index (the Index) by
portraying
the account values at the commencement of operations of
Class A, B,
C, and Z shares, and at the end of the fiscal year (January
31), as
measured on a quarterly basis, beginning in 1998 for Class
A, B, C,
and Z shares. For purposes of the graphs, and unless
otherwise
indicated, it has been assumed that (a) the maximum
applicable
front-end sales charges were deducted from the initial
$10,000
investment in Class A and Class C shares; (b) the maximum
applicable contingent deferred sales charges were deducted
from the value of the investment in Class B and Class C
shares,
assuming full redemption on January 31, 1999; (c) all
recurring
fees (including management fees) were deducted; and (d) all
dividends and distributions were reinvested. Class B shares
will automatically convert to Class A shares, on a quarterly
basis, approximately seven years after purchase. Class Z
shares
are not subject to a sales charge or distribution fee. Since
the
Fund has been in existence less than one year, no average
annual
total returns are presented.
The Index is a weighted index comprised of approximately 400
medium-size companies, chosen for market size, liquidity,
and
industry group representation. The Index is comprised of
industrial, utility, financial, and transportation stocks
that
provide a broad indicator of stock price movements. The
Index is unmanaged. The total return includes the
reinvestment
of all dividends, but does not reflect the payment of
transaction
costs and advisory fees associated with an investment in the
Fund. The securities in 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 equity funds.
Other
indexes may portray different comparative performance.
Investors cannot invest directly in an index.
These graphs are furnished to you in accordance with SEC
regulations.
Class A (GRAPH)
Class B (GRAPH)
Class C (GRAPH)
Class Z (GRAPH)
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Trustees
Edward D. Beach
Delayne Dedrick Gold
Robert F. Gunia
Douglas H. McCorkindale
Thomas T. Mooney
Stephen P. Munn
Richard A. Redeker
Robin B. Smith
Louis A. Weil, III
Clay T. Whitehead
Officers
Robert F. Gunia, President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
Marguerite E.H. Morrison, Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
Distributor
Prudential Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
The views expressed in this report and information about the
Fund's
portfolio holdings are for the period covered by this report
and
are subject to change thereafter.
This report is not authorized for distribution to
prospective
investors unless preceded or accompanied by a current
prospectus.
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