<PAGE>
Prudential
Mid-Cap
Value Fund
SEMI
ANNUAL
REPORT
July 31, 1999
(LOGO)
<PAGE>
A Message from the Fund's President September 17, 1999
(PHOTO)
Dear Shareholder,
Mid-cap stocks are rebounding in 1999 from their recent neglect. During the
six-month reporting period of Prudential Mid-Cap Value Fund, mid-caps gained
8.8% (as measured by Standard & Poor's Mid Cap 400 Index)--almost double the
return of large-cap stocks (the S&P 500 rose 4.5%). Among mid-caps, value
stocks beat growth stocks 10.0% to 7.0%. And our Mid-Cap Value Fund
outperformed even its value peers by more than 3 percentage points.
Historically (1926--June 1999), mid-cap stocks outperformed large-cap stocks,
but last year investors favored mega-sized companies because they appeared
less susceptible to the global economic turmoil. This made mid-caps a very
good value for those who paid attention. Now the market is realizing that
value.
Our Fund did particularly well because its inexpensively purchased energy and
industrial stocks benefited from the resurgence of global economic growth. In
addition, many of its holdings have been involved in mergers, spin-offs, or
takeovers that accelerated the translation of their value into higher share
prices.
Staying the course
The rebound in mid-cap stocks underscores points all investors should keep in
mind: financial markets will rise and fall, sometimes dramatically. Because
asset classes seldom move in lockstep, owning a mix of value- and growth-
oriented mutual funds in addition to bond and money market funds can help
lessen the effects of market volatility.
Generally speaking, long-term success in investment management comes from
remaining true to an investment disciple--even when it is out of favor.
Investors who maintain a long-term perspective and don't sell during market
lows are more likely to regain lost ground; while past events cannot foretell
future performance, stocks and bonds have produced attractive returns ahead of
inflation over time.
Thank you for your continued confidence in Prudential mutual funds.
Sincerely,
John R. Strangfeld
President
Prudential Mid-Cap Value Fund
<PAGE>
Portfolio Manager's Report
(PHOTO)
Jay Kaplan
Fund Manager
Investment Goals and Style
The Prudential Mid-Cap Value Fund provides an opportunity for long-term
capital growth by investing primarily in stocks of medium-sized companies
that the investment adviser believes 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.
Performance Review
Sitting on a spring
Analysts have been commenting for some time that investors were favoring the
stocks of the very largest companies despite large and growing value
differentials. Mid-cap stocks had become cheap. In our view, this was like
a power spring waiting to be released. In several cases, corporate managers
didn't wait for the general market to recognize the unrealized value. They
bought or merged with undervalued companies to take advantage of the
opportunity or broke their firms into pieces to encourage investor activity.
A few examples where we benefited significantly from such actions were the
pending merger of machinery manufacturers Case and New Holland, the breakup of
the scientific instrument manufacturer Varian into several more focused
technology companies, and the merger of energy companies Santa Fe Energy
Resources and Snyder Oil. In each case, investors placed a significantly
higher value on the resulting company or companies than before the action,
and our return was substantially enhanced. One of the Varian spin-offs was
Varian Medical Systems, whose advanced cancer care systems pushed its stock
price up 38% in our six-month period.
Energy prices climbed
When OPEC announced production controls, energy prices shot up. So did energy
stocks, rebounding from levels that had been depressed by warm winters and the
Asian economic recession. We owned Santa Fe Energy Resources, which acquired
Snyder Oil to become Santa Fe Snyder--an oil exploration and production
company with extensive oil reserves. We also owned Vintage Petroleum, which
buys producing oil wells and then uses special techniques to improve their
yield and increase their value. Both of these stocks appreciated by more than
50% in our six-month reporting period. We also did quite well with our shares
of Kerr McGee and Devon Energy.
Good value in financial companies
We are bottom-up investors, buying each company on its own merits, so if we
have a focus on a particular industry, it is because we find a concentration
of value there. On July 31, about 11% of our assets were invested in insurance
companies. These are well-run firms with high profits and cash flow. However,
the entire financial sector was neglected, in part because of investors'
strong risk-aversion in mid-1998. Our holdings had mixed results in this
reporting period. We gained more than 40% on both Amerus Life Holdings and PMI
Group, but had negative returns on several others.
<PAGE>
We also had poor returns on our savings and loans, notably Astoria Financial.
The stock prices of savings and loans often suffer when interest rates rise.
Investors have been skittish about higher rates recently. Should banks and
thrifts become even less expensive, we anticipate an excellent buying
opportunity.
Gaming--more popular with investors
When Hilton spun off its gaming operations (including Hilton and Bally's
casinos) as Park Place Entertainment, we bought in. Now Park Place has agreed
to buy Starwood's gaming operations (Caesars). Park Place and Harrah's, in
which we have somewhat smaller holdings, each returned more than 40% in our
reporting period.
Healthcare...sickly
Although the growth prospects of the healthcare industry are enormous because
America's population is aging, in the short term, uncertainty about government
reimbursements has discouraged investors. We purchased shares inexpensively in
several healthcare companies. We bought Foundation Health Systems near its
bottom--it appreciated 65% in our reporting period to make a hefty contribution
to our return. Our returns on others were mixed, but we expect them to
eventually recover.
Performance at a Glance
<TABLE>
<CAPTION>
Cumulative Total Returns1 As of 7/31/99
Six One Since
Months Year Inception2
<S> <C> <C> <C>
Class A 13.59% -1.33% -12.58%
Class B 13.20 -1.91 -13.19
Class C 13.20 -1.91 -13.19
Class Z 13.74 -1.10 -12.47
Lipper Mid-Cap Fund Avg.3 8.97 17.16 9.86
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns1 As of 6/30/99
One Since
Year Inception2
<S> <C> <C>
Class A -10.87% -13.70%
Class B -11.63 -13.77
Class C -8.57 -11.87
Class Z -5.87 -9.62
</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 LLC and Lipper, Inc. 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 and service (12b-1) fees.
2 Inception date: Class A, B, C, and Z, 5/11/98.
3 The Lipper Since Inception return is for all funds in each share class in
the Mid-Cap Fund category.
- -------------------------------------------------------------------------------
1
<PAGE>
Review Cont'd.
Looking Ahead
Merger and acquisition activity helped a number of our stocks during our
reporting period, largely because our bottom-up approach allows us to select
companies within the mid-cap value universe whose business operations we
consider strong. Larger companies looking to grow have seen how inexpensive
these promising mid-cap companies have become, and we have benefited from the
premiums they have paid to acquire them.
On the whole, however, equity markets remain surprisingly narrow: investors
continue to favor the large, highly visible companies that seem to become more
and more expensive. While higher interest rates might keep some investors
away from smaller stocks, the remarkably strong U.S. economy would appear to
justify a much broader market than we have seen recently. That could lift
value stocks in general--and, we hope, continue to reward our selections among
deeply undervalued stocks.
Additional Performance Tracking Tools
You can access comprehensive information about the performance of your
Prudential mutual fund 24 hours a day through our Web site and automated
phone service. At www.prudential.com/investing, you'll find the daily closing
values, changes from the previous day, and quarterly performance for all of
our retail mutual funds. Other available resources include daily, monthly
and quarterly market commentary.
Daily fund values are also a toll-free call away from any touch-tone phone.
Call (800) 225-1852 and follow the voice prompts to obtain mutual fund closing
values and yields. You can even set up a personalized "watch list" to track
specific Prudential mutual funds.
Mutual Fund Automated Service (800) 225-1852
Main Menu Submenus
1. Account Information 1. Account Balance
2. Transactions
3. Order Forms
2. Prices and yields
3. Transactions
4. Order checks and statements
5. PIN change
Five Largest Holdings
Expressed as a percentage of net assets as of 7/31/99
Financial Security Assurance 2.3%
Holdings Ltd.--Insurance
Amerus Life Holdings, Inc. 2.2
Insurance
Richfood Holdings, Inc. 2.1
Foods
Santa Fe Snyder Corp. 2.0
Energy
Premark International, Inc. 2.0
Miscellaneous Industrial
Comments on our Largest Holdings
Financial Security Assurance is a well-run financial insurance company with
good earnings growth, but selling at historically low valuations in an out-of-
favor sector.
Richfood Holdings is a regional food wholesaler/retailer that was acquired in
August 1999 by SuperValu, another wholesaler/retailer. We elected to receive
SuperValu stock as compensation because we expect growth to accelerate and
SuperValu sells at only 11 times next year's estimated earnings.
Premark International is a well-managed, diversified company that includes
food equipment and kitchen laminates businesses. Premark continues to exceed
investors' earnings expectations and generates strong cash flows. It is still
inexpensive at 14.5 times next year's estimated earnings.
We discuss Amerus Life and Santa Fe Snyder in our performance review.
Portfolio Composition
Expressed as a percentage of net assets as of 7/31/99
Industrial 23.3%
Finance 19.4
Consumer Growth 19.3
Consumer Cyclical 12.9
Technology 8.5
Energy 4.5
Utility 3.4
Cash & Equivalents 8.7
- -------------------------------------------------------------------------------
2
<PAGE>
Portfolio of Investments as of July 31, 1999
(Unaudited) PRUDENTIAL MID-CAP VALUE FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--91.3%
COMMON STOCKS--91.3%
- ------------------------------------------------------------
Aerospace/Defense--2.6%
40,000 GenCorp Inc. $ 1,052,500
9,000 Litton Industries, Inc.(a) 614,812
-----------
1,667,312
- ------------------------------------------------------------
Apparel--1.9%
18,100 Liz Claiborne, Inc. 702,506
42,700 Reebok International, Ltd. 517,738
-----------
1,220,244
- ------------------------------------------------------------
Auto & Truck--1.6%
19,600 Borg-Warner Automotive, Inc. 995,925
- ------------------------------------------------------------
Chemicals--6.6%
99,300 Agrium, Inc., (Canada) 875,081
27,600 Crompton & Knowles Corp. 541,650
26,000 Dexter Corp. 1,020,500
30,400 Ferro Corp. 782,800
26,600 Hanna (M.A.) Co. 425,600
34,600 Varian Incorporated 525,488
-----------
4,171,119
- ------------------------------------------------------------
Diversified Manufacturing--1.5%
7,600 FMC Corp.(a) 530,100
11,700 Lancaster Colony Corp. 389,756
-----------
919,856
- ------------------------------------------------------------
Electrical Equipment--2.3%
37,900 Belden, Inc. 942,763
26,700 Lincoln Electric Hldgs. 505,631
-----------
1,448,394
- ------------------------------------------------------------
Electrical Utilities--3.4%
11,500 BEC Energy 490,187
49,200 Niagara Mohawk Hldgs. Inc. 774,900
11,400 Pinnacle West Capital Corp. $ 455,288
15,264 Sierra Pacific Resources 396,864
-----------
2,117,239
- ------------------------------------------------------------
Electronics--5.4%
45,300 Arrow Electronics, Inc. 965,456
19,000 Avnet, Inc. 931,000
24,300 Harris Corp. 736,594
29,900 UCAR International Inc.(a) 794,219
-----------
3,427,269
- ------------------------------------------------------------
Energy--6.1%
12,300 Devon Energy Corp.(a) 452,794
19,310 Kerr-McGee Corp. 994,465
138,800 Santa Fe Snyder Corporation(a) 1,283,900
94,800 Vintage Petroleum, Inc. 1,125,750
-----------
3,856,909
- ------------------------------------------------------------
Financial Services--8.6%
24,400 Astoria Financial Corp. 928,725
30,210 Charter One Financial, Inc. 781,684
43,500 Commercial Federal Corp. 1,011,375
34,900 Federated Invs Inc. Pennsylvania 665,281
25,000 Heller Financial Inc. 637,500
48,900 Peoples Heritage Financial Group,
Inc. 883,256
26,000 Sovereign Bancorp, Inc. 313,625
449 Waddell & Reed Financial, Inc.
(Class A) 11,394
7,534 Waddell & Reed Financial, Inc.
(Class B) 188,350
-----------
5,421,190
- ------------------------------------------------------------
Foods--5.8%
37,700 International Home Foods, Inc(a) 725,725
24,200 Interstate Bakeries Corporation 565,675
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as of July 31, 1999
(Unaudited) PRUDENTIAL MID-CAP VALUE FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Foods (cont'd.)
72,200 Richfood Holdings, Inc. $ 1,313,137
34,400 Suiza Foods Corp.(a) 1,075,000
-----------
3,679,537
- ------------------------------------------------------------
Health Care--8.0%
82,000 Beverly Enterprises Inc 471,500
69,000 Foundation Health Systems, Inc. 1,047,938
72,100 Quorum Health Group, Inc. 725,506
36,800 Tenet Healthcare Corp.(a) 660,100
32,100 Trigon Healthcare, Inc.(a) 1,119,487
24,000 Universal Health Services, Inc.(a) 1,021,500
-----------
5,046,031
- ------------------------------------------------------------
Hotels & Leisure--2.9%
40,500 Harrah's Entertainment, Inc.(a) 863,156
97,000 Park Place Entertainment Corp. 988,188
-----------
1,851,344
- ------------------------------------------------------------
Housing--1.1%
44,000 D.R. Horton, Inc. 715,000
- ------------------------------------------------------------
Insurance--10.8%
51,100 Amerus Life Holdings, Inc. 1,408,444
33,500 Capital Re Corp. 450,156
25,200 Enhance Financial Services Group
Inc. 522,900
31,500 Everest Reinsurance Hldgs. 984,375
27,900 Financial Security Assurance Hldgs.
Ltd. 1,466,494
32,400 Old Republic International Corp. 544,725
12,000 PMI Group, Inc. 767,250
13,100 Reinsurance Group of America, Inc. 479,787
3,900 ReliaStar Financial Corp. 176,963
-----------
6,801,094
- ------------------------------------------------------------
Machinery--1.7%
10,900 Case Corp. 519,112
35,700 New Holland NV (Netherlands) 535,500
-----------
1,054,612
Media--2.5%
41,200 Belo (A.H.) Corp. $ 831,725
18,200 Central Newspapers, Inc. 764,400
-----------
1,596,125
- ------------------------------------------------------------
Medical Products & Services--1.4%
38,000 Varian Medical Systems, Inc. 890,625
- ------------------------------------------------------------
Miscellaneous Industrial--10.9%
37,000 Blount International, Inc. 1,045,250
19,300 Crane Co. 489,738
28,900 Harsco Corp. 830,875
25,500 IDEX Corp. 718,781
18,000 Pentair, Inc. 781,875
32,800 Premark International, Inc. 1,242,300
45,600 U.S. Industries, Inc. 746,700
40,300 United Dominion Industries, Ltd.
(Canada) 992,387
-----------
6,847,906
- ------------------------------------------------------------
Railroads--0.3%
10,700 Wisconsin Central Transportation
Corp.(a) 191,263
- ------------------------------------------------------------
Recreation & Other Consumer Goods--1.0%
22,500 Brunswick Corp. 615,937
- ------------------------------------------------------------
Restaurants--0.3%
14,100 CKE Restaurants, Inc. 197,400
- ------------------------------------------------------------
Retail--4.1%
42,800 Burlington Coat Factory Warehouse
Corp. 775,750
16,900 Dillard's, Inc. 520,731
22,700 Furniture Brands International,
Inc.(a) 612,900
13,000 Payless Shoesource Inc. 702,000
-----------
2,611,381
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 4
<PAGE>
PRUDENTIAL MID-CAP VALUE FUND
Portfolio of Investments as of July 31, 1999
(Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Semiconductors--0.5%
$ 12,300 Varian Semiconductor Equipment
Associates Inc. $ 285,975
-----------
Total long-term investments
(cost $61,546,086) 57,629,687
-----------
Principal Amount
(000)
SHORT TERM INVESTMENT--8.9%
- ------------------------------------------------------------
REPURCHASE AGREEMENT
5,597 Joint Repurchase Agreement Account,
5.06%, 8/2/99
(cost $5,597,000; Note 5) 5,597,000
-----------
- ------------------------------------------------------------
Total Investments--100.2%
(cost $67,143,086; Note 4) 63,226,687
Liabilities in excess of other
assets--(0.2%) (129,218)
-----------
Net Assets--100% $63,097,469
-----------
-----------
</TABLE>
- ---------------
(a) Non-income products security.
NV--Naamloze Vennootschop (Dutch Corporation).
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5
<PAGE>
Statement of Assets and Liabilities (Unaudited) PRUDENTIAL MID-CAP VALUE FUND
- --------------------------------------------------------------------------------
<TABLE>
Assets July 31, 1999
<S> <C>
Investments, at value (cost $67,143,086)..................................................................... $63,226,687
Cash......................................................................................................... 932
Deferred organizational costs................................................................................ 95,727
Receivable for investments sold.............................................................................. 50,287
Dividends and interest receivable............................................................................ 40,442
Receivable for Fund shares sold.............................................................................. 8,426
-------------
Total assets.............................................................................................. 63,422,501
-------------
Liabilities
Accrued expenses............................................................................................. 161,828
Payable for investments purchased............................................................................ 120,861
Management fee payable....................................................................................... 38,192
Distribution fee payable..................................................................................... 4,119
Payable for Fund shares reacquired........................................................................... 32
-------------
Total liabilities......................................................................................... 325,032
-------------
Net Assets................................................................................................... $63,097,469
-------------
-------------
Net assets were comprised of:
Shares of beneficial interest, at par..................................................................... $ 7,261
Paid-in capital in excess of par.......................................................................... 77,077,337
-------------
77,084,598
Undistrbuted net investment income........................................................................ 63,293
Accumulated net realized loss on investments.............................................................. (10,134,023)
Net unrealized depreciation on investments................................................................ (3,916,399)
-------------
Net assets, July 31, 1999.................................................................................... $63,097,469
-------------
-------------
Class A:
Net asset value and redemption price per share
($1,823,079 / 209,736 shares of common stock issued and outstanding)................................... $8.69
Maximum sales charge (5% of offering price)............................................................... .46
-------------
Maximum offering price to public.......................................................................... $9.15
-------------
-------------
Class B:
Net asset value, offering price and redemption price per share
($3,975,871 / 459,096 shares of common stock issued and outstanding)................................... $8.66
-------------
-------------
Class C:
Net asset value and redemption price per share
($358,948 / 41,449 shares of common stock issued and outstanding)...................................... $8.66
Maximum sales charge (1% of offering price)............................................................... .09
-------------
Offering price to public.................................................................................. $8.75
-------------
-------------
Class Z:
Net asset value, offering price and redemption price per share
($56,939,571 / 6,550,583 shares of common stock issued and outstanding)................................ $8.69
-------------
-------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 6
<PAGE>
PRUDENTIAL MID-CAP VALUE FUND
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income July 31, 1999
<S> <C>
Income
Interest................................. $ 106,630
Dividends (net of foreign withholding
taxes of $5,170)...................... 406,564
---------------
Total income.......................... 513,194
---------------
Expenses
Management fee........................... 251,809
Distribution fee--Class A................ 1,939
Distribution fee--Class B................ 17,869
Distribution fee--Class C................ 1,499
Amortization of deferred offering and
organizational cost................... 60,196
Custodian's fees and expenses............ 45,000
Reports to shareholders.................. 20,000
Registration fees........................ 15,000
Audit fees and expenses.................. 12,000
Trustees' fees and expenses.............. 8,000
Transfer agent's fees and expenses....... 8,000
Legal fees and expenses.................. 7,000
Miscellaneous............................ 1,589
---------------
Total expenses........................ 449,901
---------------
Net investment income....................... 63,293
---------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions.................. (9,905,352)
Financial futures transactions........... 49,464
---------------
(9,855,888)
---------------
Net change in unrealized appreciation of
investments.............................. 20,054,645
---------------
Net gain on investments..................... 10,198,757
---------------
Net Increase in Net Assets
Resulting from Operations................... $ 10,262,050
---------------
---------------
</TABLE>
PRUDENTIAL MID-CAP VALUE FUND
Changes in Net Assets (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months May 11, 1998(a)
Ended Through
Increase (Decrease) July 31, January 31,
in Net Assets 1999 1999
<S> <C> <C>
Operations
Net investment income.......... $ 63,293 $ 224,541
Net realized loss on
investments................. (9,855,888) (194,466)
Net change in unrealized
appreciation (depreciation)
of investments.............. 20,054,645 (23,971,044)
------------ ---------------
Net increase (decrease) in net
assets resulting from
operations.................. 10,262,050 (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)
------------ ---------------
Distributions 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 gains
Class A..................... -- (1,490)
Class B..................... -- (3,345)
Class C..................... -- (315)
Class Z..................... -- (78,519)
------------ ---------------
-- (83,669)
------------ ---------------
Distributions from net realized
capital gains
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 5)
Proceeds from shares sold...... 2,049,785 108,344,089
Net asset value of shares
issued in reinvestment of
dividends and
distributions............... -- 621,170
Cost of shares reacquired...... (31,696,416) (2,020,194)
------------ ---------------
Net increase (decrease) in net
assets from Fund share
transactions................ (29,646,631) 106,945,065
------------ ---------------
Total increase (decrease)......... (19,384,581) 82,382,050
Net Assets
Beginning of period............... 82,482,050 100,000
------------ ---------------
End of period(b).................. $ 63,097,469 $ 82,482,050
------------ ---------------
------------ ---------------
- ---------------
(a) Commencement of investment operations.
(b) Includes undistributed net
investment income of:......... $ 63,293 --
------------ ---------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7
<PAGE>
Notes to Financial Statements (Unaudited) 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 (Unaudited) 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.
- ------------------------------------------------------------
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 has a distribution agreement with Prudential Investment Management
Services LLC ('PIMS'), which acts as the distributor of the Class A, B, C and 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 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 six months ended July 31, 1999.
PIMS has advised the Fund that they have received approximately $7,860 in
front-end sales charges resulting from sales of Class A and Class C shares
during the six months ended July 31, 1999. From these fees, PIMS paid such sales
charges to affiliated broker-dealers, which in turn paid commissions to
salespersons and incurred other distribution costs.
PIMS has advised the Fund that for the six months ended July 31, 1999, they
received approximately $6,660 and $130 in contingent deferred sales charges
imposed upon certain redemptions by Class B and Class C shareholders,
respectively.
PIFM, PIC and PIMS are indirect, wholly owned subsidiaries of The Prudential
Insurance Company of America.
As of March 11, 1999, 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. The Funds pay a commitment fee at an annual rate of .065 of 1% on the
unused portion of the credit facility, which is accrued and paid quarterly on a
pro rata basis by the Funds. The SCA expires on March 9, 2000. Prior to March
11, 1999, the Funds had a credit agreement with a maximum commitment of
$200,000,000. The commitment fee was .055 of 1% on the unused portion of the
credit facility. The Fund did not borrow any amounts pursuant to either
agreement during the six months ended July 31, 1999. The purpose of the
agreements is to serve as an alternative source of funding for capital share
redemptions.
- ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the six months ended July 31, 1999,
the Fund incurred fees of approximately $7,000 for the services of PMFS. As of
July 31, 1999, approximately $1,190 of such fees were due to PMFS. Transfer
agent fees and expenses in the Statement of Operations also include certain
out-of-pocket expenses paid to nonaffiliates.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the six months ended July 31, 1999 were $1,403,302 and $3,299,075,
respectively.
- --------------------------------------------------------------------------------
9
<PAGE>
Notes to Financial Statements (Unaudited) PRUDENTIAL MID-CAP VALUE FUND
- --------------------------------------------------------------------------------
The cost basis of investments for federal income tax purposes at July 31, 1999
was $67,143,086 and accordingly, net unrealized depreciation of investments for
federal income tax purposes was $4,283,732 (gross unrealized
appreciation--$3,847,907; gross unrealized depreciation--$8,131,639).
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.
- ------------------------------------------------------------
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 July 31, 1999, the Fund
had a 1.0% undivided interest in the repurchase agreements in the joint account.
The undivided interest for the Fund represented $5,597,000 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., 5.07%, in the principal amount of $180,000,000,
repurchase price $180,075,900, due 8/2/99. The value of the collateral including
accrued interest was $183,904,910.
Deutsche Bank Securities Corp., 5.06%, in the principal amount of $96,548,000,
repurchase price $96,588,711, due 8/2/99. The value of the collateral including
accrued interest was $98,479,006.
Salomon Smith Barney, Inc., 5.06%, in the principal amount of $180,000,000,
repurchase price $180,075,900, due 8/2/99. The value of the collateral including
accrued interest was $184,504,113.
Warburg Dillon Read LLC, 5.07%, in the principal amount of $180,000,000,
repurchase price $180,076,050, due 8/2/99. The value of the collateral including
accrued interest was $183,604,710.
- ------------------------------------------------------------
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.
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------------ ---------- ------------
<S> <C> <C>
Six months ended July 31, 1999:
Shares sold......................... 79,331 $ 650,661
Shares issued in reinvestment of
dividends and distributions....... -- --
Shares reacquired................... (65,154) (516,166)
---------- ------------
Net increase in shares outstanding
before conversion................. 14,177 134,495
Shares issued upon conversion from
Class B........................... 5,459 45,379
---------- ------------
Net increase in shares
outstanding....................... 19,636 $ 179,874
---------- ------------
---------- ------------
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
- ------------------------------------
Six months ended July 31, 1999:
Shares sold......................... 98,600 $ 825,879
Shares issued in reinvestment of
dividends and distributions....... -- --
Shares reacquired................... (75,379) (598,886)
---------- ------------
Net increase in shares outstanding
before conversion................. 23,221 226,993
Shares reacquired upon conversion
into Class A...................... (5,450) (45,379)
---------- ------------
Net increase in shares
outstanding....................... 17,771 $ 181,614
---------- ------------
---------- ------------
</TABLE>
- --------------------------------------------------------------------------------
10
<PAGE>
Notes to Financial Statements (Unaudited) PRUDENTIAL MID-CAP VALUE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Shares Amount
- ------------------------------------ ---------- ------------
<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
- ------------------------------------
Six months ended July 31, 1999:
Shares sold......................... 11,868 $ 102,207
Shares issued in reinvestment of
dividends and distributions....... -- --
Shares reacquired................... (7,736) (59,623)
---------- ------------
Net increase in shares
outstanding....................... 4,132 $ 42,584
---------- ------------
---------- ------------
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
- ------------------------------------
Six months ended July 31, 1999:
Shares sold......................... 55,139 $ 471,038
Shares issued in reinvestment of
dividends and distributions....... -- --
Shares reacquired................... (3,626,046) (30,521,741)
---------- ------------
Net decrease in shares
outstanding....................... (3,570,907) $(30,050,703)
---------- ------------
---------- ------------
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 (Unaudited) PRUDENTIAL MID-CAP VALUE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Class C
------------------------------- ------------------------------- -----------
Six Months May 11, 1998(a) Six Months May 11, 1998(a) Six Months
Ended Through Ended Through Ended
July 31, January 31, July 31, January 31, July 31,
1999 1999(e) 1999 1999(e) 1999
----------- --------------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 7.65 $ 10.00 $ 7.65 $ 10.00 $ 7.65
----------- ------ ----------- ------ -----------
Income from investment operations
Net investment income (loss)......... .04 .01 .01 (.04) .01
Net realized and unrealized losses on
investment transactions........... 1.00 (2.31) 1.00 (2.29) 1.00
----------- ------ ----------- ------ -----------
Total from investment
operations..................... 1.04 (2.30) 1.01 (2.33) 1.01
----------- ------ ----------- ------ -----------
Less distributions
Dividends from net investment
income............................ -- (.02) -- --(d) --
Dividends in excess of net investment
income............................ -- (.01) -- --(d) --
Distributions in excess of net
realized gains ................... -- (.01) -- (.01) --
Distributions from paid-in-capital... -- (.01) -- (.01) --
----------- ------ ----------- ------ -----------
Total distributions............... -- (.05) -- (.02) --
----------- ------ ----------- ------ -----------
Net asset value, end of period....... $ 8.69 $ 7.65 $ 8.66 $ 7.65 $ 8.66
----------- ------ ----------- ------ -----------
----------- ------ ----------- ------ -----------
TOTAL RETURN(c):..................... (1.33)% (23.04)% (1.91)% (23.32)% (1.91)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...... $ 1,823 $ 1,455 $ 3,976 $ 3,377 $ 359
Average net assets (000)............. $ 1,564 $ 1,115 $ 3,603 $ 2,528 $ 302
Ratios to average net assets(b):
Expenses, including distribution
fees........................... 1.44% 1.54% 2.19% 2.29% 2.19%
Expenses, excluding distribution
fees........................... 1.19% 1.29% 1.19% 1.29% 1.19%
Net investment income (loss)...... .03% .10% .01% (.66)% .01%
Portfolio turnover rate.............. 3% 19% 3% 19% 3%
<CAPTION>
Class Z
-------------------------------
May 11, 1998(a) Six Months May 11, 1998(a)
Through Ended Through
January 31, July 31, January 31,
1999(e) 1999 1999(e)
--------------- ----------- ---------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 10.00 $ 7.64 $ 10.00
----- ----------- ------
Income from investment operations
Net investment income (loss)......... (.04) .04 .02
Net realized and unrealized losses on
investment transactions........... (2.29) 1.01 (2.32)
----- ----------- ------
Total from investment
operations..................... (2.33) 1.05 (2.30)
----- ----------- ------
Less distributions
Dividends from net investment
income............................ --(d) -- (.02)
Dividends in excess of net investment
income............................ --(d) -- (.01)
Distributions in excess of net
realized gains ................... (.01) -- (.01)
Distributions from paid-in-capital... (.01) -- (.02)
----- ----------- ------
Total distributions............... (.02) -- (.06)
----- ----------- ------
Net asset value, end of period....... $ 7.65 $ 8.69 $ 7.64
----- ----------- ------
----- ----------- ------
TOTAL RETURN(c):..................... (23.32)% (1.10)% (23.05)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...... $ 286 $56,940 $77,364
Average net assets (000)............. $ 260 $67,072 $83,452
Ratios to average net assets(b):
Expenses, including distribution
fees........................... 2.29% 1.19% 1.29%
Expenses, excluding distribution
fees........................... 1.29% 1.19% 1.29%
Net investment income (loss)...... (.66)% .04% .39%
Portfolio turnover rate.............. 19% 3% 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>
<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
David R. Odenath
Richard A. Redeker
Robin B. Smith
John R. Strangfeld
Louis A. Weil, III
Clay T. Whitehead
Officers
John R. Strangfeld, President
Robert F. Gunia, Vice 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.
The accompanying financial statements as of July 31, 1999, were not audited
and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors
unless preceded or accompanied by a current prospectus.
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
BULK RATE
U.S. POSTAGE
PAID
Permit 6807
New York, NY
Class NASDAQ Cusip
A -- 744353103
B -- 744353202
C -- 744353301
Z PMCZX 744353400 MF184E2
