<PAGE>
Annual Report January 31, 2000
Prudential
Mid-Cap Value Fund
(LOGO)
<PAGE>
A Message From the Fund's President March 16, 2000
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(PHOTO)
Dear Shareholder,
On March 1, 2000, the Board of Trustees for Prudential Mid-Cap Value Fund
decided that it was in our shareholders' best interest to liquidate the Fund
as soon as possible, but no later than July 31, 2000. (You should have already
received a letter informing you of your options for disposition of your
investment.) The decision to liquidate was made after careful consideration.
Except for short periods, over most of the life of the Fund, investors shunned
value stocks in favor of growth stocks. As a result, it has been difficult for
the Fund to gather enough assets to operate efficiently.
Performance
For most of the 12 months ended January 31, 2000, Prudential Mid-Cap Value Fund
struggled against a hostile market. Over this reporting period, the S&P Mid-Cap
400/Barra Growth Index beat the corresponding Value Index by 27 percentage
points--a much larger style differential than in any other market
capitalization range. This is a huge disadvantage for value managers. In April,
we had a hint of what a favorable investment environment would do for the
Fund's strict value style, but its very strong 12% one-month gain barely offset
the difficult conditions through the rest of its reporting period. Its 12-month
return was only 1.70%. Including sales charges, the Fund's Class A shares
returned -3.39%.
According to the most recent publicly available data, Prudential Mid-Cap Value
Fund has been among the most value-focused funds in its Lipper category. By
today's standards, its average price/earnings ratio of 12.4 and price-to-book
value ratio of 1.5 (on January 31) are very low. In a strongly unfavorable
environment for value investors, this style purity held down the Fund's return
considerably.
New benchmark
Our benchmark in this report reflects the new categories for mutual funds
introduced by Lipper Inc. Funds now are classified by their actual holdings
instead of by their objectives; mid-cap funds are either a value, growth, or
core peer group. Prudential Mid-Cap Value Fund trailed the 6.50% return of its
Lipper benchmark primarily because it held significantly less technology stocks
than its peers.
We thank you for your commitment to Prudential Mid-Cap Value Fund.
Sincerely,
John R. Strangfeld
President
Prudential Mid-Cap Value Fund
<PAGE>
Performance Review
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(PHOTO)
Jay Kaplan
Fund Manager
Investment Goals and Style
Prudential Mid-Cap Value Fund provides an opportunity for long-term capital
growth. It invests primarily in stocks of medium-sized companies the manager
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. There can be no assurance that the Fund will achieve its
investment objective.
New economy/old economy
In 1999, the majority (63%) of stocks listed on the New York Stock Exchange
actually declined in value. Over our reporting period (the 12 months ended
January 31), entire sectors of the S&P Mid-Cap 400--such as financials,
consumer cyclicals, basic materials, and consumer staples--had negative average
returns, while the strongest gains were concentrated in technology stocks. The
S&P Mid-Cap 400 Technology Index rose to a price more than 86 times the average
annual earnings for the group (compared with 23 to 30 times for the overall S&P
Mid-Cap 400). Many investors believe--and we agree--that technology will
transform the way people live and how business is done, but they appear to
focus on technology stocks almost to the exclusion of others. We'd like to look
more closely at who is going to profit from this technological watershed.
Conventional wisdom today contrasts "new economy" with "old economy" companies.
New economy companies provide information technology equipment or services;
old economy companies provide clothing, food, transportation, retail services,
financial services, medical care, and industrial goods such as metals, energy
commodities, and construction equipment. It is clear that demand for old
economy products and services is not going to go away. What does this mean for
investors?
Opportunities in technology have been attracting both entrepreneurial young
people and investment capital to new companies at a rapid rate. As a result,
competition is fierce and unpredictable. Many new economy companies make no
profits, while many of those that do are likely to find their profits squeezed
by new competitors because of the easy availability of venture financing.
While competition may constrain profits, share prices are often at multiples
of today's sales that were unheard of until last year. Some investors make out
very well from this intense activity, especially in the short term, but we
think the risks are high.
Don't count on the old economy to forfeit!
What about old economy companies? Many are using technological advances to
transform their operations. Manufacturers, including the auto companies, are
moving toward building on demand and to using Internet-based procurement to
reduce costs. Retailers are reducing inventories and eliminating waste.
Businesses are tracking their customers' purchases more closely to improve
stocking. Established retailers with familiar brand names and customer loyalty
can add new capacities to their existing strengths.
<PAGE>
Many--notably bookstores and clothing companies--are now selling from their
own websites, with the added advantage of having brick-and-mortar sites where
you can see the actual product or return unwanted goods. Existing brand
franchises give them an advertising cost advantage. When a company with
established expertise adds the benefits of new technology, it is often in a
stronger position than an enterprise starting from scratch. Moreover, companies
that sell services, such as hospital management, can benefit from improved
procurement, while the demand for many of the labor-intensive health services
is not likely to be reduced by technology.
Here's where we have found value: Industrials--the neglected sector
As value investors, we buy companies whose earnings prospects are not reflected
in their stock prices. About 18% of our holdings at period end--down from 30% a
year ago--were the industrial companies that benefit from an expanding economy.
In the aggregate, they made only a modest contribution to our return. We had
particularly poor performance from GenCorp, a producer of components and fine
chemicals for the aerospace industry. It spun off OMNOVA, a chemicals operation
that had been distracting its managers from GenCorp's core businesses.
Performance at a Glance
Cumulative Total Returns1 As of 1/31/00
<TABLE>
<CAPTION>
One Since
Year Inception2
<S> <C> <C>
Class A 1.70% -21.73%
Class B 1.05 -22.51
Class C 1.05 -22.51
Class Z 1.96 -21.53
Lipper Mid-Cap Value Fund Avg.3 6.50 -5.83
</TABLE>
Average Annual Total Returns1 As of 1/31/00
<TABLE>
<CAPTION>
One Since
Year Inception2
<S> <C> <C>
Class A -3.39% -15.78%
Class B -3.95 -15.75
Class C -0.96 -14.25
Class Z 1.96 -13.12
</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
cumulative total returns do not take into account sales charges. The average
annual total returns do take into account applicable sales charges. The Fund
charges a maximum front-end sales charge of 5% for Class A shares. Class B
shares are subject to a declining contingent deferred sales charge (CDSC) of
5%, 4%, 3%, 2%, 1%, and 1% for six years. Class B shares will automatically
convert to Class A shares, on a quarterly basis, approximately seven years
after purchase. Class C shares are subject to a front-end sales charge of 1%
and a CDSC of 1% for 18 months. Class Z shares are not subject to a sales
charge or distribution and service (12b-1) fees.
2 Inception date: Class A, B, C, and Z, 5/11/98.
3 Lipper average returns are for all funds in each share class for the one-year
and since inception periods in the Mid-Cap Value Fund category. The Lipper
average is unmanaged. Mid-Cap Value funds, by portfolio practice, invest at
least 75% of their equity assets in companies with market capitalizations (on
a three-year weighted basis) of less than 300% of the dollar-weighted median
market capitalization of the S&P(R) Mid-Cap 400 Index. Mid-Cap Value funds seek
long-term growth of capital by investing in companies that are considered
undervalued relative to a major unmanaged stock index based on price/earnings,
book value, asset value, or other factors. These funds will normally have a
below-average price/earnings ratio, price-to-book ratio, and three-year
earnings growth figure compared to the U.S. diversified mid-cap funds universe
average.
S&P(R) is a registered trademark of The McGraw-Hill Companies, Inc.
1
<PAGE>
Review Cont'd.
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Our oil industry holdings, however, had strong returns, led by Vintage
Petroleum and Kerr McGee. Devon Energy and Sante Fe Snyder also had good
performance. All benefited from the sharp increase in the price of oil after
OPEC tightened production quotas.
Underpriced assets attract buyers
If individual investors don't currently appreciate these stocks, other
businesses are taking advantage of the bargains. We benefited from nine
takeovers. Case, Platinum Technologies, Premark International, and World Color
Press were takeovers that also were among the largest contributors to our
return. We also benefited from the breakup of the scientific instrument
manufacturer Varian into several more focused technology companies. Varian
Medical Systems was among our best performers.
Healthcare is recovering
Healthcare stocks have been depressed by a nationwide attempt to bring down
healthcare costs. Pricing is beginning to recover as it becomes clearer that
providers were being pushed to the wall. Three hospital managers--Health
Management Associates, Tenet, and Quorum--made positive contributions to our
return, as did Foundation Health, an HMO. Health Management was among our
better performers, with its stock price reflecting improvement in same-hospital
statistics for both admissions and profit margins.
Financials mixed
Our regional bank and savings and loans--including Astoria Financial (see table
of Five Largest Holdings)--suffered from rising interest rates and a slowdown
in mortgage refinancing.
Five Largest Holdings Expressed as a percentage of net assets as of 1/31/00
<TABLE>
<CAPTION>
Security/Industry
% of Net Assets Comments
<S> <C>
Financial Security Assurance Insures the payments on municipal bonds and asset-backed securities. A well-managed
Insurance company in a stable business, FSA's net income grew 21% in 1999. Book value (a good
2.8% valuation measure for insurance companies) rose every year since 1994, aggregating
72% growth. P/E: 9.7 X earnings. In mid-March, FSA agreed to be acquired by Dexia,
Europe's largest municipal lender, for $76 a share, 32% above the previous day's
closing price.
Supervalu Food retailer and distributor. We took shares in Supervalu for our Richfood Holdings
Food stock upon its acquisition last August. The purchase is expected to accelerate Supervalu's
2.5% earnings growth, now averaging 24% a year over five years. Recent contract to provide food
distribution for Kmart stores estimated to add $2.3 billion in sales. P/E: 9.7 X earnings.
Amerus Life Holdings, Inc. The first mutual insurance firm in the United States to demutualize (1996), became a half-public
Insurance hybrid. In 1999, Amerus announced it would demutualize completely; the prospect of additional
2.4% stock supply drove the share prices down, but we had a modest gain. We think the market will
absorb this supply, and the inherent strength of the company will be realized. P/E: 7.5 X
earnings.
Tenet Healthcare Corp. Second-largest hospital chain in the United States. Sales were up 10% in 1999. Should benefit
Healthcare from recovery of industry pricing, its continued cost-control efforts, and the growth in
2.3% healthcare demand as the average age in the United States rises. P/E: 11.8 X earnings.
Astoria Financial Corp. Savings and Loan. Stock hurt by interest-rate concerns and a slowdown in mortgage lending.
Financial Services Now has second largest share of Long Island market; expected to be a valuable franchise.
2.3% Has been repurchasing stock. P/E: 6.0 X earnings.
</TABLE>
2
<PAGE>
Our insurance companies have been suffering from poor pricing in the industry.
We expect tight pricing eventually to remove the weaker companies from the
market. Indeed, pricing appears to have bottomed recently. The stocks of our
companies, all well managed, were priced as though the industry would never
recover. A few of our larger holdings had positive returns--Amerus Life
Holdings (see table), PMI Group, and Financial Security Assurance (see
table)--but overall, the group was a significant drag on our performance,
particularly Reinsurance Group of America.
Additional Performance Tracking Tools
You can access comprehensive information about the performance of your
Prudential mutual funds 24 hours a day through our website 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.
Prudential is committed to meeting shareholders' needs. That is why we continue
to upgrade and make improvements to our website. Please send us your comments
about how we can continue to improve our site to meet your needs.
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
Portfolio Composition
Sectors expressed as a percentage of net assets as of 1/31/00
Consumer Growth 26%
Finance 25
Industrial 18
Consumer Cyclical 7
Energy 6
Technology 6
Utility 5
Cash & Equivalents 7
3
<PAGE>
Portfolio of Investments as of January 31, 2000 PRUDENTIAL MID-CAP VALUE FUND
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<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--92.5%
COMMON STOCKS
- ------------------------------------------------------------
Aerospace/Defense--0.5%
5,000 Litton Industries, Inc.(a) $ 212,188
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Apparel--1.5%
18,900 Liz Claiborne, Inc. 639,056
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Auto & Truck--1.6%
20,700 Borg-Warner Automotive, Inc. 696,038
- ------------------------------------------------------------
Chemicals--3.6%
32,900 Agrium, Inc., (Canada) 306,381
40,600 Ck Witco Corp. 484,662
30,400 Ferro Corp. 592,800
13,000 Hanna (M.A.) Co. 148,688
-----------
1,532,531
- ------------------------------------------------------------
Diversified Manufacturing--2.7%
12,600 FMC Corp.(a) 677,250
15,000 Lancaster Colony Corp. 476,250
-----------
1,153,500
- ------------------------------------------------------------
Electrical Equipment--2.6%
11,600 Applied Power Inc. 323,350
35,900 Belden, Inc. 774,094
-----------
1,097,444
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Electrical Utilities--4.6%
49,200 Niagara Mohawk Hldgs. Inc.(a) 618,075
11,500 NSTAR 482,281
11,400 Pinnacle West Capital Corp. 351,975
32,164 Sierra Pacific Resources 514,624
-----------
1,966,955
Electronics--5.1%
45,300 Arrow Electronics, Inc. $ 951,300
9,500 Avnet, Inc. 510,031
24,300 Harris Corp. 704,700
-----------
2,166,031
- ------------------------------------------------------------
Exploration & Production--6.5%
11,000 Devon Energy Corp.(a) 386,375
10,810 Kerr-McGee Corp. 598,604
134,500 Santa Fe Snyder Corp.(a) 983,531
60,700 Vintage Petroleum, Inc. 777,719
-----------
2,746,229
- ------------------------------------------------------------
Financial Services--11.0%
34,100 Astoria Financial Corp. 993,162
31,720 Charter One Financial Inc. 616,558
10,900 Deluxe Corp. 291,575
38,500 Federated Investors, Inc. 760,375
38,800 Heller Financial Inc. 807,525
57,800 Peoples Heritage Financial Group,
Inc. 848,938
13,034 Waddell + Reed Financial, Inc.
(Class B) 364,137
-----------
4,682,270
- ------------------------------------------------------------
Food Distribution--2.5%
59,985 SUPERVALU, Inc. 1,079,730
- ------------------------------------------------------------
Foods--4.5%
44,200 International Home Foods, Inc(a) 676,812
24,200 Interstate Bakeries Corp. 370,563
20,700 Suiza Foods Corp.(a) 851,287
-----------
1,898,662
</TABLE>
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See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as of January 31, 2000 PRUDENTIAL MID-CAP VALUE FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Health Care--11.2%
66,900 Beverly Enterprises Inc $ 246,694
69,000 Foundation Health Systems, Inc. 707,250
20,700 Health Management Associates,
Inc.(a) 288,506
73,100 Quorum Health Group, Inc. 701,303
43,700 Tenet Healthcare Corp.(a) 994,175
32,100 Trigon Healthcare, Inc.(a) 977,044
19,300 Universal Health Services, Inc.(a) 862,469
-----------
4,777,441
- ------------------------------------------------------------
Hotels & Leisure--3.0%
18,800 Harrah's Entertainment, Inc.(a) 374,825
83,500 Park Place Entertainment Corp. 876,750
-----------
1,251,575
- ------------------------------------------------------------
Household Furnishings--1.0%
25,100 Furniture Brands International,
Inc.(a) 426,700
- ------------------------------------------------------------
Housing--0.6%
20,700 D.R. Horton, Inc. 239,344
- ------------------------------------------------------------
Insurance--14.4%
51,100 Amerus Life Hldgs., Inc. 1,041,162
25,200 Enhance Financial Services Group
Inc. 351,225
37,900 Everest Reinsurance Hldgs. 954,606
21,700 Financial Security Assurance Hldgs.
Ltd. 1,197,569
32,400 Old Republic International Corp. 392,850
18,000 PMI Group, Inc. (The) 742,500
41,276 Reinsurance Group of America, Inc. 913,232
17,900 ReliaStar Financial Corp. 531,406
-----------
6,124,550
- ------------------------------------------------------------
Media--3.2%
48,000 Belo (A.H.) Corp. 762,000
18,200 Central Newspapers, Inc. 593,775
-----------
1,355,775
Miscellaneous Industrial--7.5%
19,300 Crane Co. $ 377,556
28,900 Harsco Corp. 778,494
23,600 IDEX Corp. 634,250
24,600 Pentair, Inc. 824,100
45,600 U.S. Industries, Inc. 589,950
-----------
3,204,350
- ------------------------------------------------------------
Recreation & Other Consumer Goods--0.6%
12,300 Brunswick Corp. 232,931
- ------------------------------------------------------------
Retail--2.7%
21,400 Burlington Coat Factory Warehouse
Corp. 226,037
17,000 Payless Shoesource Inc. 692,750
18,900 Ross Stores, Inc. 240,975
-----------
1,159,762
- ------------------------------------------------------------
Waste Management--1.7%
60,700 Republic, Services, Inc.(a) 713,225
-----------
Total long-term investments
(cost $46,392,516) 39,356,287
-----------
Principal
Amount
(000)
SHORT-TERM INVESTMENTS--9.4%
- ------------------------------------------------------------
REPURCHASE AGREEMENT
4,009 Joint Repurchase Agreement Account,
5.71%, 2/1/00
(cost $4,009,000; Note 5) 4,009,000
-----------
- ------------------------------------------------------------
Total Investments--101.9%
(cost $50,401,516; Note 4) 43,365,287
Liabilities in excess of other
assets--(1.9%) (805,033)
-----------
Net Assets--100% $42,560,254
-----------
-----------
</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, 2000
<S> <C>
Investments, at value (cost $50,401,516).................................................................. $ 43,365,287
Cash...................................................................................................... 4,048
Receivable for investments sold........................................................................... 1,649,397
Due from manager.......................................................................................... 79,781
Dividends and interest receivable......................................................................... 45,369
Prepaid expenses.......................................................................................... 2,763
Receivable for Fund shares sold........................................................................... 2,079
----------------
Total assets........................................................................................... 45,148,724
----------------
Liabilities
Payable for Fund shares reacquired........................................................................ 2,030,679
Payable for investments purchased......................................................................... 416,403
Accrued expenses.......................................................................................... 111,207
Management fee payable.................................................................................... 29,211
Distribution fee payable.................................................................................. 970
----------------
Total liabilities...................................................................................... 2,588,470
----------------
Net Assets................................................................................................ $ 42,560,254
----------------
----------------
Net assets were comprised of:
Shares of beneficial interest, at par.................................................................. $ 5,461
Paid-in capital in excess of par....................................................................... 62,689,716
----------------
62,695,177
Undistributed net investment income.................................................................... 215,623
Accumulated net realized loss on investments........................................................... (13,314,317)
Net unrealized depreciation on investments............................................................. (7,036,229)
----------------
Net assets, January 31, 2000.............................................................................. $ 42,560,254
----------------
----------------
Class A:
Net asset value and redemption price per share
($1,595,188 / 204,818 shares of beneficial interest issued and outstanding)......................... $7.79
Maximum sales charge (5% of offering price)............................................................ .41
----------------
Maximum offering price to public....................................................................... $8.20
----------------
----------------
Class B:
Net asset value, offering price and redemption price per share
($2,310,218 / 298,351 shares of beneficial interest issued and outstanding)......................... $7.74
----------------
----------------
Class C:
Net asset value and redemption price per share
($263,475 / 34,027 shares of beneficial interest issued and outstanding)............................ $7.74
Sales charge (1% of offering price).................................................................... .08
----------------
Offering price to public............................................................................... $7.82
----------------
----------------
Class Z:
Net asset value, offering price and redemption price per share
($38,391,373 / 4,922,711 shares of beneficial interest issued and outstanding)...................... $7.80
----------------
----------------
</TABLE>
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See Notes to Financial Statements. 6
<PAGE>
PRUDENTIAL MID-CAP VALUE FUND
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income January 31, 2000
<S> <C>
Income
Dividends (net of foreign withholding
taxes of $6,712)..................... $ 727,443
Interest................................ 302,771
----------------
Total income......................... 1,030,214
----------------
Expenses
Management fee.......................... 451,130
Distribution fee--Class A............... 4,485
Distribution fee--Class B............... 30,476
Distribution fee--Class C............... 2,863
Custodian's fees and expenses........... 94,000
Reports to shareholders................. 58,000
Registration fees....................... 55,000
Legal fees and expenses................. 45,000
Audit fees and expenses................. 25,000
Trustees' fees and expenses............. 18,000
Transfer agent's fees and expenses...... 17,000
Amortization of deferred organization
costs................................ 10,175
Miscellaneous........................... 3,462
----------------
Total expenses....................... 814,591
----------------
Net investment income...................... 215,623
----------------
Realized and Unrealized Gain
(Loss) on Investments
Net realized gain (loss) on:
Investment transactions................. (13,085,646)
Financial futures transactions.......... 49,464
----------------
(13,036,182)
----------------
Net change in unrealized appreciation
(depreciation) on investments........... 16,934,815
----------------
Net gain on investments.................... 3,898,633
----------------
Net Increase in Net Assets
Resulting from Operations.................. $ 4,114,256
----------------
----------------
</TABLE>
PRUDENTIAL MID-CAP VALUE FUND
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
May 11, 1998(a)
Year Ended Through
Increase In January 31, January 31,
Net Assets 2000 1999
<S> <C> <C>
Operations
Net investment income........... $ 215,623 $ 224,541
Net realized loss on
investments.................. (13,036,182) (194,466)
Net change in unrealized
appreciation (depreciation)
of investments............... 16,934,815 (23,971,044)
------------ ---------------
Net increase (decrease) in net
assets resulting from
operations................... 4,114,256 (23,940,969)
------------ ---------------
Dividends and distributions (Note
1)
Dividends to shareholders 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 from net realized
capital gains on investments
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... 3,350,019 108,338,129
Net asset value of shares issued
in reinvestment of dividends
and distributions............ -- 621,170
Cost of shares reacquired....... (47,386,071) (2,014,234)
------------ ---------------
Net increase (decrease) in net
assets from fund share
transactions................. (44,036,052) 106,945,065
------------ ---------------
Total increase (decrease).......... (39,921,796) 82,382,050
Net Assets
Beginning of period................ 82,482,050 100,000
------------ ---------------
End of period(b)................... $ 42,560,254 $ 82,482,050
------------ ---------------
------------ ---------------
- ---------------
(a) Commence of investments
operations......................
(b) Includes undistributed net
investments income of:.......... $ 215,623 --
------------ ---------------
</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. 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 or principal
market maker. Convertible debt securities that are actively traded in the
over-the-counter market, including listed securities for which the primary
market is believed 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 last sale price or, if there was no sale, 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.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with PIFM. Pursuant to this agreement, PIFM
has responsibility for all investment advisory services and supervises the
subadviser's performance of such services. The management fee paid PIFM is
computed daily and payable monthly, at an annual rate of .70 of 1% of the
average daily net assets. 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 a portion of
its management fee to PIC for such investment advisory services and pays 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 Fund has a distribution agreement with Prudential Investment Management
Services LLC ('PIMS') which acts as the distributor of the Class A, Class B,
Class C and Class Z shares. 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. The distribution fees 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.
From February 1, 1999 to November 21, 1999 such expenses under the Plans were
.25 of 1%, 1% and 1% of the average daily net assets of the Class A, B and C
shares, respectively. For the period November 22, 1999 to January 31, 2000, the
expenses under the Plans were .25 of 1%, .25 of 1% and .25 of 1% of the average
daily net assets of the Class A, B and C shares, respectively.
PIMS has advised the Fund that it received approximately $9,100 and $930 in
front-end sales charges resulting from sales of Class A shares and Class C
shares, respectively, during the year ended January 31, 2000. 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 year ended January 31, 2000, it received
approximately $18,500 and $400 in contingent deferred sales charges imposed upon
certain redemptions by Class B and Class C shareholders, respectively.
Prudential Securities Incorporated, PIFM and PIMS are wholly owned subsidiaries
of The Prudential Insurance Company of America ('Prudential').
The Fund, along with other affiliated registered investment companies (the
'Funds'), entered into a syndicated credit agreement ('SCA') with an
unaffiliated lender. The maximum commitment under the SCA is $1 billion and
interest on any borrowings will be at market rates. For the period
3/11/99-3/9/00, the commitment fee on the unused portion of the credit facility
was .065 of 1%. Subsequent to March 9, 2000, the SCA was renewed with a maximum
commitment of $1 billion at a commitment fee of .080 of 1% of the unused portion
of the credit facility. The expiration date of the SCA is March 9, 2001. The
commitment fee is accrued and paid quarterly on a pro rata basis by the Funds.
Prior to March 11, 1999, the Funds had a credit agreement with a maximum
commitment of $200,000,000. The commitment fee was .055 of 1% on the unused
portion of the credit facility. The Fund did not borrow any amounts during the
year ended January 31, 2000. The purpose of the credit agreements is to serve as
an alternative source of funding for capital share redemptions.
- ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the year ended January 31, 2000, the
Fund incurred fees of approximately $14,700 for the services of PMFS. As of
January 31, 2000, approximately $1,200 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 year ended January 31, 2000, PSI earned approximately $48 in
brokerage commissions from portfolio transactions executed on behalf of the
Fund.
- --------------------------------------------------------------------------------
9
<PAGE>
Notes to Financial Statements PRUDENTIAL MID-CAP VALUE FUND
- -------------------------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities of the Fund, other than short-term
investments, for the year ended January 31, 2000 were $22,534,421 and
$62,135,132, respectively.
The cost basis of investments for federal income tax purposes of January 31,
2000 was $50,540,671 and accordingly, net unrealized depreciation of investments
for federal income tax purposes was $7,175,384 (gross unrealized
appreciation--$1,813,319; gross unrealized depreciation--$8,988,703).
The Fund will elect, for United States federal income tax purposes, to treat net
long-term capital losses of approximately $2,658,000 incurred in the three
months ended January 31, 2000 as having been incurred in the following fiscal
year.
For federal income tax purposes, the Fund had a capital loss carryforward as of
January 31, 2000 of $10,517,204 which expires in 2008. Accordingly, no capital
gains distributions are expected to be paid to shareholders until future net
gains have been realized in excess of such carryforward.
- ------------------------------------------------------------
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, 2000, the
Fund had 0.6% undivided interest in the repurchase agreements in the joint
account. The undivided interest for the Fund represented $4,009,000 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., 5.72%, in the principal amount of $150,000,000,
repurchase price $150,023,833, due 2/1/00. The value of the collateral including
accrued interest was $153,133,078.
Credit Suisse First Boston Corp., 5.74%, in the principal amount of $75,000,000,
repurchase price $75,011,958, due 2/1/00. The value of the collateral including
accrued interest was $77,491,043.
Credit Suisse First Boston Corp., 5.73%, in the principal amount of
$125,000,000, repurchase price $125,019,895, due 2/1/00. The value of the
collateral including accrued interest was $129,169,641.
Greenwich Capital Markets, Inc., 5.72%, in the principal amount of $100,000,000,
repurchase price $100,015,888, due 2/1/00. The value of the collateral including
accrued interest was $102,001,008.
Goldman, Sachs & Co., 5.7%, in the principal amount of $230,536,000, repurchase
price $230,572,501, due 2/1/00. The value of the collateral including accrued
interest was $235,147,150.
Merrill Lynch, Pierce, Fenner & Smith, Inc., 5.6%, in the principal amount of
$25,000,000, repurchase price $25,003,888, due 2/1/00. The value of the
collateral including accrued interest was $25,501,335.
- ------------------------------------------------------------
Note 6. Capital
The Fund offers Class A, Class B, Class C and Class Z shares. Class A shares are
sold with a front-end sales charge of up to 5%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class C shares are sold with a front-end
sales charge of 1% and a contingent deferred sales charge of 1% during the first
18 months. Class B shares 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, divided into four classes, designated Class
A, Class B, Class C and Class Z shares
Transactions in shares of beneficial interest for the year ended January 31,
2000 and the period May 11, 1998 through January 31, 1999 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ---------------------------------- ----------- -------------
<S> <C> <C>
Year ended January 31, 2000:
Shares sold....................... 163,152 $ 1,354,506
Shares reacquired................. (155,056) (1,235,584)
----------- -------------
Net increase in shares outstanding
before conversion............... 8,096 118,922
Shares issued upon conversion from
Class B......................... 6,622 54,877
----------- -------------
Net increase in shares
outstanding..................... 14,718 $ 173,799
----------- -------------
----------- -------------
May 11, 1998(a) through
January 31, 1999:
Shares sold....................... 300,197 $ 2,535,490
Shares issued in reinvestment of
dividends and distributions..... 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
----------- -------------
----------- -------------
</TABLE>
- --------------------------------------------------------------------------------
10
<PAGE>
Notes to Financial Statements PRUDENTIAL MID-CAP VALUE FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Shares Amount
- ---------------------------------- ----------- -------------
<S> <C> <C>
Year ended January 31, 2000:
Shares sold....................... 135,482 $ 1,123,676
Shares reacquired................. (271,818) (2,165,873)
----------- -------------
Net decrease in shares outstanding
before conversion............... (136,336) (1,042,197)
Shares reacquired upon conversion
into Class A.................... (6,638) (54,877)
----------- -------------
Net decrease in shares
outstanding..................... (142,974) $ (1,097,074)
----------- -------------
----------- -------------
May 11, 1998(a) through
January 31, 1999:
Shares sold....................... 534,568 $ 4,732,367
Shares issued in reinvestment of
dividends and distributions..... 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>
Year ended January 31, 2000:
Shares sold....................... 29,860 $ 254,289
Shares reacquired................. (33,150) (263,426)
----------- -------------
Net decrease in shares
outstanding..................... (3,290) $ (9,137)
----------- -------------
----------- -------------
May 11, 1998(a) through
January 31, 1999:
Shares sold....................... 45,554 $ 413,942
Shares issued in reinvestment of
dividends and distributions..... 91 755
Shares reacquired................. (10,828) (84,510)
----------- -------------
Net increase in shares
outstanding..................... 34,817 $ 330,187
----------- -------------
----------- -------------
<CAPTION>
Class Z Shares Amount
- ---------------------------------- ----------- -------------
<S> <C> <C>
Year ended January 31, 2000:
Shares sold....................... 73,159 $ 617,548
Shares reacquired................. (5,271,938) (43,721,188)
----------- -------------
Net decrease in shares
outstanding..................... (5,198,779) $ (43,103,640)
----------- -------------
----------- -------------
May 11, 1998(a) through
January 31, 1999:
Shares sold....................... 10,078,396 $ 100,656,330
Shares issued in reinvestment of
dividends and distributions..... 72,912 602,985
Shares reacquired................. (32,318) (261,471)
----------- -------------
Net increase in shares
outstanding..................... 10,118,990 $ 100,997,844
----------- -------------
----------- -------------
</TABLE>
As of January 31, 2000, Prudential and its affiliates owned 72,089, 8,908 and
5,145,279 of the outstanding shares of Class A, C and Z shares, respectively.
- ------------------------------------------------------------
Note 7. Subsequent Event
On March 1, 2000, the Board of Trustees decided it was in the shareholders' best
interests to liquidate the Fund as soon as practicable and no later than July
31, 2000. The Fund previously had suspended the sale of shares to new accounts
on November 29, 1999 because the Fund's Board of Trustees was considering
whether to liquidate the Fund or merge it into another Prudential mutual fund.
Effective March 10, 2000, shares of the Fund may no longer be purchased by any
existing shareholder accounts. The current exchange privilege of obtaining
shares of other Prudential mutual funds and the current redemption rights are
still in effect.
- ---------------
(a) Commencement of investment operations.
- --------------------------------------------------------------------------------
11
<PAGE>
Financial Highlights PRUDENTIAL MID-CAP VALUE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
-------------------------------------
May 11, 1998(a)
Year Ended Through
January 31, January 31,
2000(e) 1999(e)
---------------- ----------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period..................................... $ 7.65 $10.00
----- -----
Income from investment operations
Net investment income (loss)............................................. .02 .01
Net realized and unrealized gain (loss) on investment transactions....... .12 (2.31)
----- -----
Total from investment operations...................................... .14 (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....................................... -- (.01)
----- -----
Total distributions................................................... -- (.05)
----- -----
Net asset value, end of period........................................... $ 7.79 $ 7.65
----- -----
----- -----
TOTAL RETURN(c):......................................................... 1.70% 23.04%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).......................................... $1,595 $1,455
Average net assets (000)................................................. $1,799 $1,115
Ratios to average net assets(b):
Expenses, including distribution fees................................. 1.46% 1.54%(b)
Expenses, excluding distribution fees................................. 1.21% 1.29%(b)
Net investment income (loss).......................................... .19% .10%(b)
Portfolio turnover rate.................................................. 38% 19%
<CAPTION>
Class B
-------------------------------------
<S> <C> <C>
May 11, 1998(a)
Year Ended Through
January 31, January 31,
2000(e) 1999(e)
---------------- ----------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period..................................... $ 7.65 $10.00
------ -----
Income from investment operations
Net investment income (loss)............................................. (.04) (.04)
Net realized and unrealized gain (loss) on investment transactions....... .13 (2.29)
------ -----
Total from investment operations...................................... .09 (2.33)
------ -----
Less distributions
Dividends from net investment income..................................... -- --(d)
Dividends in excess of net investment income............................. -- --(d)
Distributions in excess of net realized gains............................ -- (.01)
Distributions from paid-in-capital....................................... -- (.01)
------ -----
Total distributions................................................... -- (.02)
------ -----
Net asset value, end of period........................................... $ 7.74 $ 7.65
------ -----
------ -----
TOTAL RETURN(c):......................................................... 1.05% (23.32)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).......................................... $ 2,310 $3,377
Average net assets (000)................................................. $ 3,466 $2,528
Ratios to average net assets(b):
Expenses, including distribution fees................................. 2.08% 2.29%(b)
Expenses, excluding distribution fees................................. 1.21% 1.29%(b)
Net investment income (loss).......................................... (.47)% (.66)%(b)
Portfolio turnover rate.................................................. 38% 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>
Financial Highlights PRUDENTIAL MID-CAP VALUE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
-------------------------------------
May 11, 1998(a)
Year Ended Through
January 31, January 31,
2000(e) 1999(e)
---------------- ----------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period..................................... $ 7.65 $10.00
----- -----
Income from investment operations
Net investment income (loss)............................................. (.04) (.04)
Net realized and unrealized gain (loss) on investment transactions....... .13 (2.29)
----- -----
Total from investment operations...................................... .09 (2.33)
----- -----
Less distributions
Dividends from net investment income..................................... -- --(d)
Dividends in excess of net investment income............................. -- --(d)
Distributions in excess of net realized gains............................ -- (.01)
Distributions from paid-in-capital....................................... -- (.01)
----- -----
Total distributions................................................... -- (.02)
----- -----
Net asset value, end of period........................................... $ 7.74 $ 7.65
----- -----
----- -----
TOTAL RETURN(c):......................................................... 1.05% (23.32)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).......................................... $ 263 $ 286
Average net assets (000)................................................. $ 330 $ 260
Ratios to average net assets(b):
Expenses, including distribution fees................................. 2.07% 2.29%(b)
Expenses, excluding distribution fees................................. 1.21% 1.29%(b)
Net investment income (loss).......................................... (.43)% (.66)%(b)
Portfolio turnover rate.................................................. 38% 19%
<CAPTION>
Class Z
-------------------------------------
<S> <C> <C>
May 11, 1998(a)
Year Ended Through
January 31, January 31,
2000(e) 1999(e)
---------------- ----------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period..................................... $ 7.64 $ 10.00
------ ------
Income from investment operations
Net investment income (loss)............................................. .03 .02
Net realized and unrealized gain (loss) on investment transactions....... .13 (2.32)
------ ------
Total from investment operations...................................... .16 (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........................................... $ 7.80 $ 7.64
------ ------
------ ------
TOTAL RETURN(c):......................................................... 1.96% (23.05)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).......................................... $ 38,391 $ 77,364
Average net assets (000)................................................. $ 58,852 $ 83,452
Ratios to average net assets(b):
Expenses, including distribution fees................................. 1.21% 1.29%(b)
Expenses, excluding distribution fees................................. 1.21% 1.29%(b)
Net investment income (loss).......................................... .39% .39%(b)
Portfolio turnover rate.................................................. 38% 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. 13
<PAGE>
Report of Independent 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, 2000, the results of its operations for the year then
ended, and the changes in its net assets and the financial highlights for the
year then ended and for the period May 11, 1998 (commencement of operations)
through January 31, 1999 in conformity with accounting principles generally
accepted in the United States. These financial statements and financial
highlights (hereafter referred to as 'financial statements') are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at January
31, 2000 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
As disclosed in Note 7, on March 1, 2000, the Board of Trustees elected to
liquidate the Fund as soon as practicable and no later than July 31, 2000.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
March 21, 2000
- --------------------------------------------------------------------------------
14
<PAGE>
Getting the Most from Your Prudential Mutual Fund
How many times have you read these reports--or other financial materials--and
stumbled across a word that you don't understand?
Many shareholders have run into the same problem. We'd like to help. So we'll
use this space from time to time to explain some of the words you might have
read, but not understood. And if you have a favorite word that no one can
explain to your satisfaction, please write to us.
Basis Point: 1/100th of 1%. For example, one-half of one percent is 50 basis
points.
Collateralized Mortgage Obligations (CMOs): Mortgage-backed bonds that separate
mortgage pools into different maturity classes called tranches. These
instruments are sensitive to changes in interest rates and homeowner
refinancing activity. They are subject to prepayment and maturity extension
risk.
Derivatives: Securities that derive their value from other securities. The rate
of return of these financial instruments rises and falls--sometimes very
suddenly--in response to changes in some specific interest rate, currency,
stock, or other variable.
Discount Rate: The interest rate charged by the Federal Reserve on loans to
member banks.
Federal Funds Rate: The interest rate charged by one bank to another on
overnight loans.
Futures Contract: An agreement to purchase or sell a specific amount of a
commodity or financial instrument at a set price at a specified date in the
future.
Leverage: The use of borrowed assets to enhance return. The expectation is that
the interest rate charged on borrowed funds will be lower than the return on
the investment. While leverage can increase profits, it can also magnify
losses.
Liquidity: The ease with which a financial instrument (or product) can be
bought or sold (converted into cash) in the financial markets.
Price/Earnings Ratio: The price of a share of stock divided by the earnings per
share for a 12-month period.
Option: An agreement to purchase or sell something, such as shares of stock, by
a certain time for a specified price. An option need not be exercised.
Spread: The difference between two values; often used to describe the
difference between "bid" and "asked" prices of a security, or between the
yields of two similar maturity bonds.
Yankee Bond: A bond sold by a foreign company or government on the U.S. market
and denominated in U.S. dollars.
<PAGE>
Getting the Most from Your Prudential Mutual Fund
Some mutual fund shareholders won't ever read this--they don't read annual and
semiannual reports. It's quite understandable. These annual and semiannual
reports are prepared to comply with federal regulations, and are often written
in language that is difficult to understand. So when most people run into those
particularly daunting sections of these reports, they don't read them.
We think that's a mistake.
At Prudential Mutual Funds, we've made some changes to our report to make it
easier to understand and more pleasant to read. We hope you'll find it
profitable to spend a few minutes familiarizing yourself with your investment.
Here's what you'll find in the report:
Performance at a Glance
Since an investment's performance is often a shareholder's primary concern, we
present performance information in two different formats. You'll find it first
on the "Performance at a Glance" page where we compare the Fund and the
comparable average calculated by Lipper, Inc., a nationally recognized mutual
fund rating agency. We report both the cumulative total returns and the average
annual total returns. The cumulative total return is the total amount of income
and appreciation the Fund has achieved in various time periods. The average
annual total return is an annualized representation of the Fund's performance.
It gives you an idea of how much the Fund has earned in an average year for a
given time period. Under the performance box, you'll see legends that explain
the performance information, whether fees and sales charges have been included
in returns, and the inception dates for the Fund's share classes.
See the performance comparison charts at the back of the report for more
performance information. Please keep in mind that past performance is not
indicative of future results.
Portfolio Manager's Report
The portfolio manager, who invests your money for you, reports on successful--
and not-so-successful--strategies in this section of your report. Look for
recent purchases and sales here, as well as information about the sectors the
portfolio manager favors, and any changes that are on the drawing board.
Portfolio of Investments
This is where the report begins to appear technical, but it's really just a
listing of each security held at the end of the reporting period, along with
valuations and other information. Please note that sometimes we discuss a
security in the Portfolio Manager's Report that doesn't appear in this listing
because it was sold before the close of the reporting period.
<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 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 that we report annually about how much of your total
return is taxable. Should you have any questions, you may want to consult a
tax adviser.
Performance Comparison
These charts are included in the annual report and are required by the
Securities Exchange Commission. Performance is presented here as a hypothetical
$10,000 investment in the Fund since its inception or for 10 years (whichever
is shorter). To help you put that return in context, we are required to include
the performance of an unmanaged, broad-based securities index as well. The
index does not reflect the cost of buying the securities it contains or the
cost of managing a mutual fund. Of course, the index holdings do not mirror
those of the Fund--the index is a broad-based reference point commonly used by
investors to measure how well they are doing. A definition of the selected
index is also provided. Investors cannot invest directly in an index.
<PAGE>
Comparing a $10,000 Investment
- -------------------------------------------------------------------------------
Prudential Mid-Cap Value Fund vs. the S&P Mid-Cap 400 Index
Class A
(CHART)
Average Annual Total Returns
With Sales Charge As of 1/31/00
Since Inception -15.78%
One Year -3.39
- ----------------------------------
Without Sales Charge As of 1/31/00
Since Inception -13.24%
One Year 1.70
Class B
(CHART)
Average Annual Total Returns
With Sales Charge As of 1/31/00
Since Inception -15.75%
One Year -3.95
- ----------------------------------
Without Sales Charge As of 1/31/00
Since Inception -13.75%
One Year 1.05
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 Prudential Mid-Cap Value Fund
(Class A, B, C, and Z shares) with a similar investment in the Standard &
Poor's Mid-Cap 400 Stock Index (S&P Mid-Cap 400 Index) by portraying the
initial account values of Class A, B, C, and Z shares, and their values at the
end of the fiscal year (January 31), as measured on a quarterly basis,
beginning May 11, 1998. For purposes of the graphs, and unless otherwise
indicated, it has been assumed that (a) the maximum applicable front-end sales
charge was deducted from the initial $10,000 investment in Class A 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, 2000; (c) all recurring fees
(including management fees) were deducted; and (d) all dividends and
distributions were reinvested. Class Z shares are not subject to a sales
charge or distribution and service (12b-1) fees.
<PAGE>
Class C
(CHART)
Average Annual Total Returns
With Sales Charge As of 1/31/00
Since Inception -14.25%
One Year -0.96
- ----------------------------------
Without Sales Charge As of 1/31/00
Since Inception -13.75%
One Year 1.05
Class Z
(CHART)
Average Annual Total Returns
As of 1/31/00
Since Inception -13.12%
One Year 1.96
The S&P Mid-Cap 400 Index is an unmanaged index of 400 domestic stocks chosen
for market size, liquidity, and industry group representation, giving a broad
look at how mid-cap stock prices have performed. The S&P Mid-Cap 400 Index
returns include the reinvestment of all dividends, but do not include the
effect of sales charges or operating expenses of a mutual fund. The securities
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, and 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.
<PAGE>
Prudential Mutual Fund Family
- -------------------------------------------------------------------------------
Prudential offers a broad range of mutual funds designed to meet your
individual needs. For information about these funds, contact your financial
adviser or call us at (800) 225-1852. Read the prospectus carefully before you
invest or send money.
STOCK FUNDS
Prudential Emerging Growth Fund, Inc.
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Index Series Fund
Prudential Small-Cap Index Fund
Prudential Stock Index Fund
The Prudential Investment Portfolios, Inc.
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Mid-Cap Value Fund
Prudential Real Estate Securities Fund
Prudential Sector Funds, Inc.
Prudential Financial Services Fund
Prudential Health Sciences Fund
Prudential Technology Fund
Prudential Utility Fund
Prudential Small-Cap Quantum Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Tax-Managed Funds
Prudential Tax-Managed Equity Fund
Prudential 20/20 Focus Fund
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Target Funds
Large Capitalization Growth Fund
Large Capitalization Value Fund
Small Capitalization Growth Fund
Small Capitalization Value Fund
Asset Allocation/Balanced Funds
Prudential Balanced Fund
Prudential Diversified Funds
Conservative Growth Fund
Moderate Growth Fund
High Growth Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund
GLOBAL FUNDS
Global Stock Funds
Prudential Developing Markets Fund
Prudential Developing Markets Equity Fund
Prudential Latin America Equity Fund
Prudential Europe Growth Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Index Series Fund
Prudential Europe Index Fund
Prudential Pacific Index Fund
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Prudential Global Growth Fund
Prudential International Value Fund
Prudential Jennison International Growth Fund
Global Utility Fund, Inc.
Target Funds
International Equity Fund
Global Bond Funds
Prudential Global Total Return Fund, Inc.
Prudential International Bond Fund, Inc.
BOND FUNDS
Taxable Bond Funds
Prudential Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential High Yield Total Return Fund, Inc.
Prudential Index Series Fund
Prudential Bond Market Index Fund
Prudential Structured Maturity Fund, Inc.
Income Portfolio
Target Funds
Total Return Bond Fund
Tax-Exempt Bond Funds
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Income Series
Insured Series
Prudential Municipal Series Fund
Florida Series
Massachusetts Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
MONEY MARKET FUNDS
Taxable Money Market Funds
Cash Accumulation Trust
Liquid Assets Fund
National Money Market Fund
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.
Tax-Free Money Market Funds
Prudential Tax-Free Money Fund, Inc.
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
COMMAND Funds
COMMAND Money Fund
COMMAND Government Fund
COMMAND Tax-Free Fund
Institutional Money Market Funds
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
Fund Symbols NASDAQ CUSIP
Class A -- 744353103
Class B -- 744353202
Class C -- 744353301
Class Z PMCZX 744353400
- ---------------------------------------
visit our website at www.prudential.com
- ---------------------------------------
Trustees
Delayne Dedrick Gold
Robert F. Gunia
Douglas H. McCorkindale
Thomas T. Mooney
Stephen P. Munn
David R. Odenath, Jr.
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
David R. Odenath, Jr., Vice President
Grace C. Torres, Treasurer
Marguerite E. H. Morrison, Secretary
William V. Healey, Assistant Secretary
Stephen M. Ungerman, Assistant Treasurer
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment 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.
(LOGO) Printed on Recycled Paper
<PAGE>
Fund Symbols NASDAQ CUSIP
Class A -- 744353103
Class B -- 744353202
Class C -- 744353301
Class Z PMCZX 744353400
- ---------------------------------------
visit our website at www.prudential.com
- ---------------------------------------
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.
MF184E (LOGO)Printed on Recycled Paper
