<PAGE>
SEMIANNUAL REPORT SEPTEMBER 30, 2000
Prudential
Real Estate Securities Fund
FUND TYPE Stock
OBJECTIVE High current income and long-term growth of capital
(GRAPHIC)
The views expressed in this report and information
about the Fund's portfolio holdings are for the
period covered by this report and are subject to
change thereafter.
This report is not authorized for distribution to
prospective investors unless preceded or
accompanied by a current prospectus.
(LOGO)
<PAGE>
Build on the Rock
Investment Goals and Style
The Prudential Real Estate Securities Fund provides
an opportunity for high current income and long-
term growth of capital by investing primarily in
equity-related securities of real estate companies.
We use a value-oriented investment style: we seek
companies that have the potential for high risk-
adjusted return on investment capital. Investing in
real estate poses certain risks related to economic
conditions, as well as risks related to an
individual property, credit risk, and interest-rate
fluctuations. There can be no assurance that the
Fund will achieve its investment objective.
Portfolio Composition
Expressed as a percentage of
net assets as of 9/30/00
23.8% Office Property REIT
16.7 Apartments REIT
15.5 Mixed Use & Miscellaneous REIT
9.2 Warehouse/Industrial REIT
7.5 Shopping Centers REIT
6.9 Hotels REIT
6.5 Regional Malls REIT
5.3 Self-Storage REIT
3.1 Office Industrial REIT
1.7 Real Estate Development
3.8 Cash & Equivalents
Ten Largest Holdings
Expressed as a percentage of
net assets as of 9/30/00
7.0% Vornado Realty Trust
Mixed Use & Miscellaneous
6.2 Equity Office Properties Trust
Office Property
5.2 Phillips International Realty Corp.
Shopping Centers
4.7 Mission West Properties, Inc.
Office Property
4.5 Spieker Properties, Inc.
Office Property
4.3 Equity Residential Properties Trust
Apartments
4.2 Apartment Investment &
Management Co.
Apartments
3.8 Cousins Properties, Inc.
Mixed Use & Miscellaneous
3.8 CenterPoint Properties Corp.
Warehouse/Industrial
3.3 General Growth Properties, Inc.
Regional Malls
Holdings are subject to change.
3
<PAGE>
www.prudential.com (800) 225-1852
Performance at a Glance
Cumulative Total Returns1 As of 9/30/00
<TABLE>
<CAPTION>
Six One Since
Months Year Inception2
<S> <C> <C> <C>
Class A 12.70% 20.76% 6.86%
Class B 12.19 19.77 8.53
Class C 12.19 19.77 8.53
Class Z 12.82 21.05 6.23
Lipper Real Estate Fund Avg.3 19.37 22.01 0.34
</TABLE>
Average Annual Total Returns1 As of 9/30/00
<TABLE>
<CAPTION>
One Since
Year Inception2
<S> <C> <C>
Class A 14.73% 4.96%
Class B 14.77 4.96
Class C 17.58 4.04
Class Z 21.05 2.64
</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, 5/5/98.
3 Lipper average returns are for all funds in each
share class for the six-month, one-year, and since
inception periods in the Real Estate Fund category.
The Lipper average is unmanaged. Real Estate funds
invest 65% of their portfolio in equity securities
of domestic and foreign companies engaged in the
real estate industry.
1
<PAGE>
(LOGO) November 15, 2000
Dear Shareholder,
During the six-month reporting period ended
September 30, 2000, the Prudential Real Estate
Securities Fund's Class A shares posted a 12.70%
return--7.06% for shareholders paying the initial
Class A share sales charge--underperforming the
19.37% return of the Lipper Real Estate Fund
Average.
The financial markets have continued to be
extremely volatile, with many indexes registering
negative returns during the reporting period. One
of the few shining stars amid the market turbulence
has been the performance of real estate investment
trusts (REITs). Investors embraced these stocks, as
they offered relative safety, solid growth
prospects, and strong cash flows. The Prudential
Real Estate Securities Fund participated in this
upswing, as indicated by its double-digit return.
However, on a relative basis, it underperformed its
benchmark, as some of its smaller niche companies
did not appreciate to the same extent as many of
the larger, more diversified REITs. A complete
review of the Fund by its management team follows.
Focusing on the big picture
We believe the last six months exemplify the
importance of maintaining a disciplined investment
approach. As we've recently seen, investment
classes will move in and out of favor over time. As
a result, we believe it's vital to maintain a well-
diversified portfolio, and to focus on your long-
term financial objectives.
Sincerely,
David R. Odenath, Jr., President
Prudential Real Estate Securities Fund
2
<PAGE>
Prudential Real Estate Securities Fund
Semiannual Report September 30, 2000
Investment Adviser's Report
In our last report to shareholders, we explained
that we were cautiously optimistic about the real
estate investment trust (REIT) market and about the
Fund. In short, we believed that the price of REITs
had bottomed out in December 1999, and that
instability in the equity markets could serve to
benefit REITs. It was also our view that as
investors become more aware of excessive stock
price valuations, they would take a closer look at
REITs and the tremendous opportunities offered by
many individual securities.
As we look at the REIT market during the past six
months, we see that much of this has come to pass.
After being widely ignored by investors in previous
years, REITs were one of the few sectors of the
market that generated strong results during the
reporting period. This reversal of fortune began to
take shape early this spring. Signs of rising
inflation, continued interest rate hikes, and high
stock valuations caused investors to flee many
large-capitalization growth stocks and, in
particular, the technology-heavy Nasdaq. Daily
market volatility rose to unprecedented levels, and
at one point the Nasdaq had fallen roughly 35% from
its peak, while the S&P 500 Index was down more
than 10%.
With falling stock prices, unnerving volatility,
and no end in sight for rising interest rates,
investors were eager to find a safer haven for
their assets. As we anticipated, this led to
renewed interest in the REIT market.
Positive REIT fundamentals
In hindsight, the sudden allure of REITs should not
have come as a surprise. In 1998 and 1999, REIT
prices fell, and many stocks were trading well
below even the most conservative net asset
valuation estimates. As such, when the technology
sector experienced its much anticipated correction,
investors looked to reallocate their assets into
more stable investments with solid fundamentals,
and REITs filled the bill.
3
<PAGE>
Prudential Real Estate Securities Fund
Holdings expressed as a percentage of the Fund's net assets
Comments on Largest Holdings As of September 30, 2000
--------------------------------------------------------------
7.0% Vornado Realty Trust/Mixed Use & Miscellaneous
Vornado owns a diversified portfolio that includes
office properties, retail centers, and a
refrigerated cold storage business. Some of its
desirable assets include 14 million square feet of
office space in Manhattan, 56 shopping centers in
six states and Puerto Rico, 7 million square feet
of Merchandise Mart properties in the United States
and partnership interests in 10.7 million square
feet of office space in Washington, D.C.
6.2% Equity Office Properties Trust/Office Property
Equity Office Properties Trust is the country's
largest owner and manager of office properties. The
firm has a portfolio of 380 buildings, comprising
99 million square feet in 24 states and the
District of Columbia.
5.2% Phillips International Realty Corp./Shopping Centers
Phillips specializes in the ownership, management,
and acquisition for development and redevelopment
of shopping centers primarily in the greater New
York City area. These centers are located in areas
with below-average retail per capita and high
barriers to entry for new retail products.
4.7% Mission West Properties, Inc./Office Property
Mission West Properties is an owner, developer, and
acquirer of flex-office space exclusively in
Silicon Valley. The company owns 5.9 million square
feet, and currently has nearly 2 million square
feet under development. In addition, it has another
3.9 million square feet that could be built on land
that it controls.
4.5% Spieker Properties, Inc./Office Property
Spieker Properties owns and operates over 41
million square feet of office and industrial space
in California and the Pacific Northwest, and has
consistently exceeded earnings projections.
Holdings are subject to change.
4
<PAGE>
www.prudential.com (800) 225-1852
Even in the face of increased market volatility,
the REIT market as a whole bucked the trend and
continued to deliver strong returns. Operating
results for many REITs were above expectations, due
to higher rental rate growth as a result of
extremely positive supply and demand trends. In
supply-constrained markets such as New York, Boston,
San Francisco, and Silicon Valley, demand for rental
space has outpaced development, causing significant
rental spikes. These higher rents have, in turn,
boosted the bottom-line results for many REITs.
Strategically enhancing results
During the reporting period, the Fund's performance
was enhanced by its overweight positions in the
office and industrial sectors, and its holdings in
the multifamily sectors. In both cases, the supply
and demand trends explained above have led to
exceptional returns. As a case in point, the office
market rental rates in Silicon Valley and Manhattan
have risen roughly 25% and 35%, respectively, year-
to-date. The strong economy has led to pent-up
demand, and with limited new development taking
place, incumbent owners have been able to raise
rental rates.
Similarly, in several major urban areas, the
multihousing market is reaping the benefits of
economic expansion and extremely tight supply.
Examples of holdings include Mission West
Properties (see Comments on Largest Holdings) and
Essex Property Trust. Mission West is a select
office space developer in Silicon Valley, and its
stock rose 62% during the reporting period. Essex
is a multifamily outfit that owns, manages,
acquires, and develops apartments in California.
The firm continues to exceed growth expectations,
and its stock appreciated 54% during the period.
The Fund also benefited from its relative
underweight in the retail sectors. In addition, we
took profits from several of our hotel holdings as
their stock prices appreciated over the reporting
period. This has proved to be an astute move as
investors have since sold hotel stocks due to
concern about an economic slowdown in 2001. A
notable example was the paring back of our
5
<PAGE>
Prudential Real Estate Securities Fund
Semiannual Report September 30, 2000
exposure to Starwood Hotels & Resorts Worldwide,
Inc., our previous largest holding. We have also
de-emphasized the retail market, as an ample supply
of retail space, coupled with pressures from
alternative shopping venues such as the Internet
and catalogs, has hampered performance results.
A few missteps
While the Fund produced strong absolute returns
versus the market in general, it underperformed its
benchmark, the Lipper Real Estate Fund Average.
This was partially due to our holdings in several
smaller real estate companies. In several cases,
these firms generated solid results and had strong
balance sheets, but investors who focused their
dollars on more diverse and liquid issues
overlooked them.
In addition, several specific stocks produced
disappointing results. One such example was Excel
Legacy Corporation, a real estate development and
investment company based in California. The firm
has been experiencing delays in obtaining financing
for its projects, and its stock subsequently fell.
Another example was Boardwalk Equities, a Canadian
apartment company that failed to meet its earnings
estimates during the last quarter. The firm also
incurred higher-than-expected costs from one of
its ventures. We have since eliminated these two
positions from the Fund's portfolio.
Going forward: continued optimism
Looking ahead, we remain generally optimistic about
the outlook for the REIT market and the Fund.
Despite the recent appreciation in REIT prices,
they continue to be fairly valued versus their net
asset valuations. In addition, real estate
fundamentals remain sound, with the supply-
constrained markets seeing very strong rental
growth and other areas of the country showing
stability. As the Fed has raised interest rates,
construction starts in all property types have
slowed in 2000. Therefore, even if the economy
slows, we expect the real estate dynamics to remain
steady, and for REITs, on average, to post solid
earnings growth in 2001.
6
<PAGE>
www.prudential.com (800) 225-1852
As we move forward, we anticipate further
diversifying the portfolio into areas that could
soon be experiencing positive supply and demand
trends--specifically the Houston and Dallas markets.
Companies with holdings in these markets are
currently trading at significant discounts, and we
believe there could be some positive earnings
surprises. We will also monitor hotel stocks, which
could become oversold.
In summary, as we've seen, REITs can play an
important part in an investor's overall portfolio.
We believe the REIT market can continue to generate
solid long-term results given its strong
fundamentals.
Prudential Real Estate Securities Fund Management Team
7
<PAGE>
Prudential Real Estate Securities Fund
Semiannual Report September 30, 2000
Financial
Statements
<PAGE>
Prudential Real Estate Securities Fund
Portfolio of Investments as of September 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C> <C>
------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS 96.2%
Common Stocks
-------------------------------------------------------------------------------------
Apartments 16.7%
51,000 Apartment Investment & Management Co. (Class 'A'
Stock) $ 2,349,187
10,000 Archstone Communities Trust 245,625
20,000 Avalonbay Communities, Inc. 953,750
14,500 Boardwalk Equities, Inc. (a) 115,676
20,000 BRE Properties, Inc. 640,000
50,000 Equity Residential Properties Trust 2,400,000
25,000 Essex Property Trust, Inc. 1,384,375
26,800 Post Properties, Inc. 1,167,475
--------------
9,256,088
-------------------------------------------------------------------------------------
Hotels 6.9%
100,000 Host Marriott Corp. 1,125,000
52,500 MeriStar Hospitality Corp. 1,063,125
53,000 Starwood Hotels & Resorts Worldwide, Inc. 1,656,250
--------------
3,844,375
-------------------------------------------------------------------------------------
Mixed Use & Miscellaneous 15.5%
13,900 Catellus Development Corp. (a) 243,250
49,100 Cousins Properties, Inc. 2,114,369
50,000 Fortress Investment Corp. 643,750
77,400 Franchise Finance Corporation of America 1,741,500
104,000 Vornado Realty Trust 3,861,000
--------------
8,603,869
-------------------------------------------------------------------------------------
Office Industrial 3.1%
70,000 Duke-Weeks Realty Corp. 1,688,750
-------------------------------------------------------------------------------------
Office Property 23.8%
50,400 Alexandria Real Estate Equities, Inc. 1,729,350
20,000 Boston Properties, Inc. 858,750
111,400 Equity Office Properties Trust 3,460,362
189,800 Mission West Properties, Inc. 2,633,475
</TABLE>
See Notes to Financial Statements 9
<PAGE>
Prudential Real Estate Securities Fund
Portfolio of Investments as of September 30, 2000 (Unaudited)
Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
25,000 Prentiss Properties Trust $ 653,125
47,900 Reckson Associates Realty Corp. 1,221,450
5,000 SL Green Realty Corp. 140,313
43,200 Spieker Properties, Inc. 2,486,700
--------------
13,183,525
-------------------------------------------------------------------------------------
Real Estate-Development 1.7%
56,200 Intrawest Corp. 934,325
-------------------------------------------------------------------------------------
Regional Malls 6.5%
57,400 General Growth Properties, Inc. 1,847,562
50,000 Macerich Co. 1,062,500
30,000 Simon Property Group, Inc. 703,125
--------------
3,613,187
-------------------------------------------------------------------------------------
Self Storage 5.3%
76,400 Public Storage, Inc. 1,828,825
48,500 Public Storage, Inc., Ser. A 1,124,594
--------------
2,953,419
-------------------------------------------------------------------------------------
Shopping Centers 7.5%
30,000 Kimco Realty Corp. 1,267,500
167,900 Philips International Realty Corp. 2,896,275
--------------
4,163,775
-------------------------------------------------------------------------------------
Warehouse/Industrial 9.2%
75,000 AMB Property Corp. 1,842,188
45,300 CenterPoint Properties Corp. 2,086,631
50,000 Prologis Trust 1,187,500
--------------
5,116,319
--------------
Total long-term investments (cost $46,954,455) 53,357,632
--------------
</TABLE>
10 See Notes to Financial Statements
<PAGE>
Prudential Real Estate Securities Fund
Portfolio of Investments as of September 30, 2000 (Unaudited)
Cont'd.
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C> <C>
-----------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 3.9%
Repurchase Agreement
$ 2,153 Joint Repurchase Agreement Account, 6.50%, 10/2/00
(cost $2,153,000; Note 5) $ 2,153,000
--------------
Total investments 100.1%
(cost $49,107,455; Note 4) 55,510,632
Liabilities in excess of other assets (0.1%) (33,145)
--------------
Net Assets 100% $ 55,477,487
--------------
--------------
</TABLE>
--------------------------------------------------------------------------------
(a) Non-income producing security.
See Notes to Financial Statements 11
<PAGE>
Prudential Real Estate Securities Fund
Statement of Assets and Liabilities (Unaudited)
<TABLE>
<CAPTION>
September 30, 2000
<S> <C> <C>
----------------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $49,107,455) $ 55,510,632
Foreign currency, at value (cost $39,797) 39,370
Receivable for investments sold 1,190,733
Dividends and interest receivable 296,076
Receivable for Fund shares sold 86,278
Deferred organization expenses and other assets 58,085
------------------
Total assets 57,181,174
------------------
LIABILITIES
Payable for investments purchased 895,169
Payable for Fund shares reacquired 444,806
Accrued expenses and other liabilities 295,482
Management fee payable 34,287
Distribution fee payable 33,943
------------------
Total liabilities 1,703,687
------------------
NET ASSETS $ 55,477,487
------------------
Net assets were comprised of:
Shares of beneficial interest, at par $ 6,378
Paid-in capital in excess of par 85,105,146
------------------
85,111,524
Undistributed net investment income 378,673
Accumulated net realized loss on investments (36,415,460)
Net unrealized appreciation on investments 6,402,750
------------------
Net assets, September 30, 2000 $ 55,477,487
------------------
------------------
</TABLE>
12 See Notes to Financial Statements
<PAGE>
Prudential Real Estate Securities Fund
Statement of Assets and Liabilities (Unaudited) Cont'd.
<TABLE>
<CAPTION>
September 30, 2000
<S> <C> <C>
----------------------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share
($16,932,120 / 1,943,894 shares of beneficial interest
issued and outstanding) $8.71
Maximum sales charge (5% of offering price) .46
------------------
Maximum offering price to public $9.17
------------------
------------------
Class B:
Net asset value, offering price and redemption price per
share ($31,746,473 / 3,652,742 shares of beneficial
interest issued and outstanding) $8.69
------------------
------------------
Class C:
Net asset value and redemption price per share
($5,246,818 / 603,704 shares of beneficial interest
issued and outstanding) $8.69
Sales charge (1% of offering price) .09
------------------
Offering price to public $8.78
------------------
------------------
Class Z:
Net asset value, offering price and redemption price per
share ($1,552,076 / 177,997 shares of beneficial
interest issued and outstanding) $8.72
------------------
------------------
</TABLE>
See Notes to Financial Statements 13
<PAGE>
Prudential Real Estate Securities Fund
Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
September 30, 2000
<S> <C> <C>
----------------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Dividends (net of foreign withholding taxes of $460) $1,320,241
Interest 45,471
------------------
Total income 1,365,712
------------------
Expenses
Management fee 208,378
Distribution fee--Class A 20,886
Distribution fee--Class B 160,057
Distribution fee--Class C 26,151
Registration fees 70,000
Custodian's fees and expenses 59,000
Reports to shareholders 38,000
Transfer agent's fees and expenses 37,000
Legal fees and expenses 18,000
Audit fee 13,000
Amortization of organizational expense 10,938
Trustees' fees and expenses 5,000
Miscellaneous 6,443
------------------
Total expenses 672,853
------------------
Net investment income 692,859
------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on:
Investment transactions (438,702)
Foreign currency transactions (23,671)
------------------
(462,373)
------------------
Net change in unrealized appreciation/depreciation on:
Investments 6,132,358
Foreign currencies (427)
------------------
6,131,931
------------------
Net gain on investments 5,669,558
------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $6,362,417
------------------
------------------
</TABLE>
14 See Notes to Financial Statements
<PAGE>
This page intentionally left blank
See Notes to Financial Statements 15
<PAGE>
Prudential Real Estate Securities Fund
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
September 30, 2000 March 31, 2000
<S> <C> <C> <C>
------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income $ 692,859 $ 1,051,499
Net realized loss on investments and
foreign currency transactions (462,373) (4,753,472)
Net change in unrealized
appreciation/depreciation on
investments 6,131,931 8,859,325
------------------ ------------------
Net increase in net assets resulting
from operations 6,362,417 5,157,352
------------------ ------------------
Dividends and distributions (Note 1)
Dividends from net investment income
Class A (131,605) (559,630)
Class B (144,848) (1,007,051)
Class C (23,125) (179,414)
Class Z (14,608) (41,497)
------------------ ------------------
(314,186) (1,787,592)
------------------ ------------------
Distributions in excess of net
investment income
Class A -- (8,994)
Class B -- (21,865)
Class C -- (3,865)
Class Z -- (613)
------------------ ------------------
-- (35,337)
------------------ ------------------
Tax return of capital distributions
Class A -- (85,320)
Class B -- (207,414)
Class C -- (36,663)
Class Z -- (5,817)
------------------ ------------------
-- (335,214)
------------------ ------------------
</TABLE>
16 See Notes to Financial Statements
<PAGE>
Prudential Real Estate Securities Fund
Statement of Changes in Net Assets (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
September 30, 2000 March 31, 2000
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fund share transactions (net of share
conversions) (Note 6)
Net proceeds from shares sold $ 4,392,392 $ 10,662,694
Net asset value of shares issued in
reinvestment of dividends and
distributions 243,664 1,776,637
Cost of shares reacquired (12,275,387) (47,093,302)
------------------ ------------------
Net decrease in net assets from Fund
share transactions (7,639,331) (34,653,971)
------------------ ------------------
Total decrease (1,591,100) (31,654,762)
NET ASSETS
Beginning of period 57,068,587 88,723,349
------------------ ------------------
End of period (a) $ 55,477,487 $ 57,068,587
------------------ ------------------
------------------ ------------------
------------------------------
(a) Includes undistributed net investment
income of: $ 378,673 $ --
------------------ ------------------
</TABLE>
See Notes to Financial Statements 17
<PAGE>
Prudential Real Estate Securities Fund
Notes to Financial Statements (Unaudited)
Prudential Real Estate Securities Fund (the 'Fund') is registered under
the Investment Company Act of 1940 as a nondiversified, open-end, management
investment company. The Fund was established as a Delaware business trust on
October 24, 1997. The Fund issued 2,500 shares of beneficial interest each of
Class A, Class B, Class C and Class Z on February 18, 1998 to Prudential
Investments Fund Management LLC ('PIFM'). Investment operations commenced on May
5, 1998. The investment objective of the Fund is high current income and
long-term growth of capital. It seeks to achieve this objective by investing
primarily in equity securities of real estate companies.
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: Investments in securities traded on a national
securities exchange (or reported on the Nasdaq National Market) are valued at
the last sale price on such exchange on the day of valuation or, if there was no
sale on such day, the mean between the last bid and asked prices quoted on such
day. 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 principal market makers.
Corporate bonds (other than convertible debt) and U.S. Government 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. Other securities are valued at the
mean between the most recently quoted bid and asked prices. Securities which are
otherwise not readily marketable or securities for which market quotations are
not readily available are valued in good faith at fair value in accordance with
procedures adopted by the Fund's Board of Trustees.
Short-term securities which mature in more than 60 days are valued based
upon current market quotations. Short-term securities which mature in 60 days or
less are valued at amortized cost which approximates market value.
Repurchase Agreements: 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 collateral is marked-to-market on a daily basis to ensure adequacy of
the collateral. If the seller defaults and the value of
18
<PAGE>
Prudential Real Estate Securities Fund
Notes to Financial Statements (Unaudited) Cont'd.
the collateral declines or if bankruptcy proceedings are commenced with respect
to the seller of the security, realization of the collateral by the Fund may be
delayed or limited.
All securities are valued as of 4:15 p.m. New York time.
Foreign Currency Translation: The books and records of the Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:
(i) market value of investment securities, other assets and
liabilities--at the current rates of exchange;
(ii) purchases and sales of investment securities, income and expenses--at
the rates of exchange prevailing on the respective dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange
rates and market values at the close of the period, the Fund does not isolate
that portion of the results of operations arising as a result of changes in the
foreign exchange rates from the fluctuations arising from changes in the market
prices of the securities held at period end. Similarly, the Fund does not
isolate the effect of changes in foreign exchange rates from the fluctuations
arising from changes in the market prices of long-term debt securities sold
during the period. Accordingly, such realized foreign currency gains and losses
are included in the reported net realized gains/losses on investment
transactions.
Net realized gain (loss) on foreign currency transactions represents net
foreign exchange gains and losses from sales and maturities of short-term
securities and forward currency contracts, holding of foreign currencies,
currency gains or losses realized between the trade and settlement dates on
securities transactions, and the difference between the amounts of interest and
foreign taxes recorded on the Fund's books and the U.S. dollar equivalent
amounts actually received or paid. Net currency gains and losses from valuing
foreign currency denominated assets (excluding investments) and liabilities at
period end exchange rates are reflected as a component of net unrealized
appreciation/depreciation on investments.
Foreign security and currency transactions may involve certain
considerations and risks not typically associated with those of U.S. companies
as a result of, among other factors, the possibility of political or economic
instability and the level of governmental supervision and regulation of foreign
securities markets.
Securities Transactions and Investment Income: Securities transactions
are recorded on the trade date. Realized gains and losses on sales of
investments are calculated on the identified cost basis. Dividend income is
recorded on the ex-dividend
19
<PAGE>
Prudential Real Estate Securities Fund
Notes to Financial Statements (Unaudited) Cont'd.
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 (other than distribution fees) and unrealized and
realized gains or losses are allocated daily to each class of shares of the Fund
based upon the relative proportion of net assets of each class at the beginning
of the day.
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 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 rates.
Dividends and Distributions: The Fund expects to pay dividends out of
net investment income quarterly and make distributions at least annually of any
net capital gains. Dividends and distributions are recorded on the ex-dividend
date.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
Organization Expenses: Organization cost of approximately $108,700 is
being amortized ratably over a period of sixty months from the date the Fund
commenced investment opertions.
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. 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 services of PIC, the cost of 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 PIFM is computed daily and payable monthly at an
annual rate of .75 of 1% of the Fund's average daily net assets.
Effective January 1, 2000, the subadvisory fee paid to PIC by PIFM is
computed daily and payable monthly at an annual rate of .375 of 1% of the
average daily net assets of the Fund. Prior to January 1, 2000, PIC was
reimbursed by PIFM for reasonable costs and expenses incurred in furnishing
investment advisory services.
20
<PAGE>
Prudential Real Estate Securities Fund
Notes to Financial Statements (Unaudited) Cont'd.
The change in the subadvisory fee structure has no impact on the management fee
charged to the Fund or its shareholders.
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 were 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 .25 of 1% of the average daily net assets of
Class A shares and 1% of the average daily net assets of both the Class B and C
shares for the six months ended September 30, 2000.
PIMS has advised the Fund that it received approximately $6,300 and $3,100
in front-end sales charges resulting from sales of Class A and Class C shares,
respectively, during the six months ended September 30, 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 six months ended September 30,
2000, it received approximately $133,700 and $800 in contingent deferred sales
charges imposed upon certain redemptions by Class B and Class C shareholders,
respectively.
PIFM, PIC 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.
Interest on any such borrowings will be at market rates. The purposes of the
agreement is to serve as an alternative source of funding for capital share
redemptions. The Funds pay a commitment fee of .080 of 1% of the unused portion
of the credit facility. The commitment fee is accrued and paid quarterly on a
pro rata basis by the Funds. The expiration date of the SCA is March 9, 2001.
The Fund did not borrow any amounts pursuant to the SCA during the six months
ended September 30, 2000.
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the six months ended September 30,
21
<PAGE>
Prudential Real Estate Securities Fund
Notes to Financial Statements (Unaudited) Cont'd.
2000, the Fund incurred fees of approximately $34,500 for the services of PMFS.
As of September 30, 2000, approximately $5,100 of such fees were due to PMFS.
Transfer agent fees and expenses in the Statement of Operations include certain
out-of-pocket expenses paid to nonaffiliates.
For the six months ended September 30, 2000, Prudential Securities
Incorporated ('PSI'), a wholly owned subsidiary of Prudential, earned
approximately $11,500 in brokerage commissions from portfolio transactions
executed on behalf of the Fund.
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the six months ended September 30, 2000 were $19,709,427 and $28,299,615,
respectively.
The federal income tax basis of the Fund's investments at September 30,
2000 was $49,749,162 and, accordingly, net unrealized appreciation for federal
income tax purposes was $5,761,470 (gross unrealized appreciation--$6,943,995;
gross unrealized depreciation--$1,182,525).
For federal income tax purposes, the Fund had a capital loss carryforward
as of March 31, 2000, of approximately $32,666,000, of which $11,509,000 expires
in 2007 and $21,157,000 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.
The Fund will elect for United States Federal income tax purposes, to
treat net capital losses of approximately $1,445,000 and foreign currency losses
of approximately $600 incurred in the five months ended March 31, 2000 as having
occurred in the current fiscal year.
Note 5. Joint Repurchase Agreement Account
The Fund, along with other affiliated registered investment companies, transfers
uninvested cash balances into a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements collateralized
by U.S. Treasury or federal agency obligations. The Fund had a .19% undivided
interest in the joint account. The undivided interest for the Fund represented
$2,153,000 in principal amount. As of such date, each repurchase agreement in
the joint account and the value of the collateral therefor was as follows:
Bear, Stearns & Co., Inc., 6.51%, in the principal amount of $300,000,000,
repurchase price $300,162,750, due 10/2/00. The value of the collateral
including accrued interest was $307,686,775.
22
<PAGE>
Prudential Real Estate Securities Fund
Notes to Financial Statements (Unaudited) Cont'd.
Chase Securities Inc., 6.45%, in the principal amount of $264,084,000,
repurchase price $264,225,945, due 10/2/00. The value of the collateral
including accrued interest was $269,373,200.
Credit Suisse First Boston Corp., 6.54%, in the principal amount of
$200,000,000, repurchase price $200,109,000, due 10/2/00. The value of the
collateral including accrued interest was $206,853,792.
Salomon Smith Barney Inc., 6.45%, in the principal amount of $97,990,000,
repurchase price $98,042,670, due 10/2/00. The value of the collateral including
accrued interest was $102,042,316.
UBS Warburg, 6.52%, in the principal amount of $300,000,000, repurchase
price $300,163,000, due 10/2/00. The value of the collateral including accrued
interest was $306,002,065.
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 qualified to purchase Class A
shares at net asset value. Class Z shares are not subject to any sales or
redemption charge and are offered exclusively for sale to a limited group of
investors.
The Fund has authorized an unlimited number of shares of beneficial
interest at $.001 par value divided into four classes, designated Class A, Class
B, Class C and Class Z.
23
<PAGE>
Prudential Real Estate Securities Fund
Notes to Financial Statements (Unaudited) Cont'd.
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
---------------------------------------------------------- ----------- -------------
<S> <C> <C>
Six months ended September 30, 2000:
Shares sold 218,855 $ 1,747,121
Shares issued in reinvestment of dividends 10,724 86,784
Shares reacquired (416,110) (3,351,907)
----------- -------------
Net increase (decrease) in shares outstanding before
conversion (186,531) (1,518,002)
Shares issued upon conversion and/or exchange from Class B 7,862 65,284
----------- -------------
Net increase (decrease) in shares outstanding (178,669) $ (1,452,718)
----------- -------------
----------- -------------
Year ended March 31, 2000:
Shares sold 522,363 $ 4,045,340
Shares issued in reinvestment of dividends and
distributions 62,550 479,160
Shares reacquired (1,488,857) (11,455,221)
----------- -------------
Net increase (decrease) in shares outstanding before
conversion (903,944) (6,930,721)
Shares issued upon conversion from Class B 14,648 114,057
----------- -------------
Net increase (decrease) in shares outstanding (889,296) $ (6,816,664)
----------- -------------
----------- -------------
<CAPTION>
Class B
----------------------------------------------------------
<S> <C> <C>
Six months ended September 30, 2000:
Shares sold 125,297 $ 1,059,379
Shares issued in reinvestment of dividends 15,136 122,242
Shares reacquired (800,159) (6,454,398)
----------- -------------
Net increase (decrease) in shares outstanding before
conversion (659,726) (5,272,777)
Shares reacquired upon conversion and/or exchange into
Class A (7,876) (65,284)
----------- -------------
Net increase (decrease) in shares outstanding (667,602) $ (5,338,061)
----------- -------------
----------- -------------
Year ended March 31, 2000:
Shares sold 449,448 $ 3,620,253
Shares issued in reinvestment of dividends and
distributions 136,720 1,050,158
Shares reacquired (3,616,798) (27,558,916)
----------- -------------
Net increase (decrease) in shares outstanding before
conversion (3,030,630) (22,888,505)
Shares reacquired upon conversion into Class A (14,670) (114,057)
----------- -------------
Net increase (decrease) in shares outstanding (3,045,300) $ (23,002,562)
----------- -------------
----------- -------------
</TABLE>
24
<PAGE>
Prudential Real Estate Securities Fund
Notes to Financial Statements (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class C Shares Amount
---------------------------------------------------------- ----------- -------------
Six months ended September 30, 2000:
<S> <C> <C>
Shares sold 120,881 $ 1,003,206
Shares issued in reinvestment of dividends 2,533 20,481
Shares reacquired (183,167) (1,509,309)
----------- -------------
Net increase (decrease) in shares outstanding (59,753) $ (485,622)
----------- -------------
----------- -------------
Year ended March 31, 2000:
Shares sold 196,869 $ 1,611,167
Shares issued in reinvestment of dividends and
distributions 26,227 201,703
Shares reacquired (886,875) (6,791,591)
----------- -------------
Net increase (decrease) in shares outstanding (663,779) $ (4,978,721)
----------- -------------
----------- -------------
<CAPTION>
Class Z
----------------------------------------------------------
<S> <C> <C>
Six months ended September 30, 2000:
Shares sold 68,838 $ 582,686
Shares issued in reinvestment of dividends 1,756 14,157
Shares reacquired (116,314) (959,773)
----------- -------------
Net increase (decrease) in shares outstanding (45,720) $ (362,930)
----------- -------------
----------- -------------
Year ended March 31, 2000:
Shares sold 181,158 $ 1,385,934
Shares issued in reinvestment of dividends and
distributions 5,991 45,616
Shares reacquired (168,210) (1,287,574)
----------- -------------
Net increase (decrease) in shares outstanding 18,939 $ 143,976
----------- -------------
----------- -------------
</TABLE>
Note 7. Dividends
On October 9, 2000 the Board of Trustees of the Fund declared the following
dividends per share, payable on October 12, 2000 to shareholders of record on
October 11, 2000.
<TABLE>
<CAPTION>
Class B
Class A and C Class Z
------- ------------- -------
<S> <C> <C> <C>
Ordinary Income $.060 $.044 $.065
</TABLE>
25
<PAGE>
Prudential Real Estate Securities Fund
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
Class A
--------------------------------------------------
Six Months Year May 5, 1998(a)
Ended Ended Through
September 30, March 31, March 31,
2000 2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 7.79 $ 7.46 $ 10.00
-------- ---------- --------------
Income from investment operations
Net investment income .13 .15(e) .27
Net realized and unrealized gain
(loss) on investment transactions .85 .42 (2.60)
-------- ---------- --------------
Total from investment
operations .98 .57 (2.33)
-------- ---------- --------------
Less distributions
Dividends from net investment income (.06) (.21) (.21)
Distributions in excess of net
investment income -- --(d) --
Tax return of capital distributions -- (.03) --
-------- ---------- --------------
Total distributions (.06) (.24) (.21)
-------- ---------- --------------
Net asset value, end of period $ 8.71 $ 7.79 $ 7.46
-------- ---------- --------------
-------- ---------- --------------
TOTAL RETURN(b): 12.70% 7.74% (23.29)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 16,932 $ 16,545 $ 22,465
Average net assets (000) $ 16,663 $ 19,631 $ 31,941
Ratios to average net assets:
Expenses, including distribution
fees 1.93%(c) 1.70% 1.56%(c)
Expenses, excluding distribution
fees 1.68%(c) 1.45% 1.31%(c)
Net investment income 3.00%(c) 1.93% 3.47%(c)
For Class A, B, C and Z shares:
Portfolio turnover 37% 54% 122%
</TABLE>
------------------------------
(a) Commencement of investment operations.
(b) 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 less than a full year are not
annualized.
(c) Annualized.
(d) Less than $.005 per share.
(e) Calculations are made based on average month-end shares outstanding during
the year.
26 See Notes to Financial Statements
<PAGE>
Prudential Real Estate Securities Fund
Financial Highlights (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class B
--------------------------------------------------
Six Months Year May 5, 1998(a)
Ended Ended Through
September 30, March 31, March 31,
2000 2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 7.78 $ 7.45 $ 10.00
-------- ---------- --------------
Income from investment operations
Net investment income .09 .09(e) .20
Net realized and unrealized gain
(loss) on investment transactions .86 .42 (2.58)
-------- ---------- --------------
Total from investment
operations .95 .51 (2.38)
-------- ---------- --------------
Less distributions
Dividends from net investment income (.04) (.15) (.17)
Distributions in excess of net
investment income -- --(d) --
Tax return of capital distributions -- (.03) --
-------- ---------- --------------
Total distributions (.04) (.18) (.17)
-------- ---------- --------------
Net asset value, end of period $ 8.69 $ 7.78 $ 7.45
-------- ---------- --------------
-------- ---------- --------------
TOTAL RETURN(b): 12.19% 6.96% (23.78)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 31,746 $ 33,616 $ 54,845
Average net assets (000) $ 31,924 $ 47,271 $ 72,304
Ratios to average net assets:
Expenses, including distribution
fees 2.68%(c) 2.45% 2.31%(c)
Expenses, excluding distribution
fees 1.68%(c) 1.45% 1.31%(c)
Net investment income 2.23%(c) 1.16% 2.70%(c)
</TABLE>
------------------------------
(a) Commencement of investment operations.
(b) 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 less than a full year are not
annualized.
(c) Annualized.
(d) Less than $.005 per share.
(e) Calculations are made based on average month-end shares outstanding during
the year.
See Notes to Financial Statements 27
<PAGE>
Prudential Real Estate Securities Fund
Financial Highlights (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class C
--------------------------------------------------
Six Months Year May 5, 1998(a)
Ended Ended Through
September 30, March 31, March 31,
2000 2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 7.78 $ 7.45 $ 10.00
------- ---------- --------------
Income from investment operations
Net investment income .09 .09(e) .20
Net realized and unrealized gain
(loss) on investment transactions .86 .42 (2.58)
------- ---------- --------------
Total from investment
operations .95 .51 (2.38)
------- ---------- --------------
Less distributions
Dividends from net investment income (.04) (.15) (.17)
Distributions in excess of net
investment income -- --(d) --
Tax return of capital distributions -- (.03) --
------- ---------- --------------
Total distributions (.04) (.18) (.17)
------- ---------- --------------
Net asset value, end of period $ 8.69 $ 7.78 $ 7.45
------- ---------- --------------
------- ---------- --------------
TOTAL RETURN(b): 12.19% 6.96% (23.78)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $5,247 $5,162 $ 9,883
Average net assets (000) $5,216 $8,215 $ 13,672
Ratios to average net assets:
Expenses, including distribution
fees 2.68%(c) 2.45% 2.31%(c)
Expenses, excluding distribution
fees 1.68%(c) 1.45% 1.31%(c)
Net investment income 2.26%(c) 1.12% 2.70%(c)
</TABLE>
------------------------------
(a) Commencement of investment operations.
(b) 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 less than a full year are not
annualized.
(c) Annualized.
(d) Less than $.005 per share.
(e) Calculations are made based on average month-end shares outstanding during
the year.
28 See Notes to Financial Statements
<PAGE>
Prudential Real Estate Securities Fund
Financial Highlights (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class Z
--------------------------------------------------
Six Months Year May 5, 1998(a)
Ended Ended Through
September 30, March 31, March 31,
2000 2000 1999
<CAPTION>
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 7.80 $ 7.47 $10.00
------- ---------- -------
Income from investment operations
Net investment income .15 .18(e) .29
Net realized and unrealized gain
(loss) on investment transactions .84 .41 (2.59)
------- ---------- -------
Total from investment
operations .99 .59 (2.30)
------- ---------- -------
Less distributions
Dividends from net investment income (.07) (.23) (.23)
Distributions in excess of net
investment income -- --(d) --
Tax return of capital distributions -- (.03) --
------- ---------- -------
Total distributions (.07) (.26) (.23)
------- ---------- -------
Net asset value, end of period $ 8.72 $ 7.80 $ 7.47
------- ---------- -------
------- ---------- -------
TOTAL RETURN(b): 12.82% 8.02% (23.05)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $1,552 $1,746 $1,530
Average net assets (000) $1,613 $1,482 $2,894
Ratios to average net assets:
Expenses, including distribution
fees 1.68%(c) 1.45% 1.31%(c)
Expenses, excluding distribution
fees 1.68%(c) 1.45% 1.31%(c)
Net investment income 3.21%(c) 2.32% 3.76%(c)
</TABLE>
------------------------------
(a) Commencement of investment operations.
(b) 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 less than a full
year are not annualized.
(c) Annualized.
(d) Less than $.005 per share.
(e) Calculations are made based on average month-end shares outstanding during
the year.
See Notes to Financial Statements 29
<PAGE>
Prudential Real Estate Securities Fund
Prudential Mutual Funds
Prudential offers a broad range of mutual funds
designed to meet your individual needs. For
information about these funds, contact your
financial adviser or call us at (800) 225-1852.
Read the prospectus carefully before you invest or
send money.
STOCK FUNDS
Large Capitalization Stock Funds
Prudential 20/20 Focus Fund
Prudential Equity Fund, Inc.
Prudential Stock Index Fund
Prudential Tax-Managed Funds
Prudential Tax-Managed Equity Fund
Strategic Partners Focused Growth Fund
Target Funds
Large Capitalization Growth Fund
Large Capitalization Value Fund
The Prudential Investment Portfolios, Inc.
Prudential Jennison Growth Fund
Prudential Value Fund
Small- to Mid-Capitalization Stock Funds
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Prudential Small Company Fund, Inc.
Prudential Tax-Managed Small-Cap Fund, Inc.
Prudential U.S. Emerging Growth Fund, Inc.
Target Funds
Small Capitalization Growth Fund
Small Capitalization Value Fund
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
Sector Stock Funds
Prudential Natural Resources Fund, Inc.
Prudential Real Estate Securities Fund
Prudential Sector Funds, Inc.
Prudential Financial Services Fund
Prudential Health Sciences Fund
Prudential Technology Fund
Prudential Utility Fund
Global/International Stock Funds
Global Utility Fund, Inc.
Prudential Europe Growth Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Prudential Global Growth Fund
Prudential International Value Fund
Prudential Jennison International Growth Fund
Target Funds
International Equity Fund
BALANCED/ALLOCATION FUNDS
Prudential Diversified Funds
Conservative Growth Fund
Moderate Growth Fund
High Growth Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund
<PAGE>
www.prudential.com (800) 225-1852
BOND FUNDS
Taxable Bond Funds
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential High Yield Total Return Fund, Inc.
Prudential Short-Term Corporate Bond Fund, Inc.
Income Portfolio
Prudential Total Return Bond Fund, Inc.
Target Funds
Total Return Bond Fund
Tax-Free Bond Funds
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Income Series
Insured Series
Prudential Municipal Series Fund
Florida Series
Massachusetts Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
Global/International Bond Funds
Prudential Global Total Return Fund, Inc.
Prudential International Bond Fund, Inc.
MONEY MARKET FUNDS
Taxable Money Market Funds
Cash Accumulation Trust
Liquid Assets Fund
National Money Market Fund
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
Prudential MoneyMart Assets, Inc.
Prudential Special Money Market Fund, Inc.
Money Market Series
Tax-Free Money Market Funds
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
Prudential Tax-Free Money Fund, Inc.
Other Money Market Funds
COMMAND Government Fund
COMMAND Money Fund
COMMAND Tax-Free Fund
<PAGE>
Prudential Real Estate Securities Fund
Getting the Most from Your Prudential Mutual Fund
Some mutual fund shareholders won't ever read this--
they don't read annual and semiannual reports. It's
quite understandable. These annual and semiannual
reports are prepared to comply with federal
regulations, and are often written in language that
is difficult to understand. So when most people run
into those particularly daunting sections of these
reports, they don't read them.
We think that's a mistake
At Prudential Mutual Funds, we've made some changes
to our report to make it easier to understand and
more pleasant to read. We hope you'll find it
profitable to spend a few minutes familiarizing
yourself with your investment. Here's what you'll
find in the report:
Performance at a Glance
Since an investment's performance is often a
shareholder's primary concern, we present
performance information in two different formats.
You'll find it first on the "Performance at a
Glance" page where we compare the Fund and the
comparable average calculated by Lipper, Inc., a
nationally recognized mutual fund rating agency. We
report both the cumulative total returns and the
average annual total returns. The cumulative total
return is the total amount of income and
appreciation the Fund has achieved in various time
periods. The average annual total return is an
annualized representation of the Fund's
performance. It gives you an idea of how much the
Fund has earned in an average year for a given time
period. Under the performance box, you'll see
legends that explain the performance information,
whether fees and sales charges have been included
in returns, and the inception dates for the Fund's
share classes.
See the performance comparison charts at the back
of the report for more performance information.
Please keep in mind that past performance is not
indicative of future results.
<PAGE>
www.prudential.com (800) 225-1852
investment adviser's report
The portfolio manager, who invests your money for
you, reports on successful--and not-so-successful--
strategies in this section of your report. Look for
recent purchases and sales here, as well as
information about the sectors the portfolio manager
favors, and any changes that are on the drawing board.
Portfolio of Investments
This is where the report begins to appear
technical, but it's really just a listing of
each security held at the end of the
reporting period, along with valuations and other
information. Please note that sometimes we discuss
a security in the "Investment Adviser's Report"
section that doesn't appear in this listing because
it was sold before the close of the reporting
period.
Statement of Assets and Liabilities
The balance sheet shows the assets (the value of
the Fund's holdings), liabilities (how much the
Fund owes), and net assets (the Fund's
equity, or holdings after the Fund pays its debts)
as of the end of the reporting period. It also
shows how we calculate the net asset value per
share for each class of shares. The net asset value
is reduced by payment of your dividend, capital gain,
or other distribution, but remember that the money
or new shares are being paid or issued to you. The
net asset value fluctuates daily, along with the value
of every security in the portfolio.
Statement of Operations
This is the income statement, which details income
(mostly interest and dividends earned) and expenses
(including what you pay us to manage your money).
You'll also see capital gains here--both realized
and unrealized.
<PAGE>
Prudential Real Estate Securities Fund
Getting the Most from Your Prudential Mutual Fund
Statement of Changes in Net Assets
This schedule shows how income and expenses
translate into changes in net assets. The Fund
is required to pay out the bulk of its income
to shareholders every year, and this statement
shows you how we do it (through dividends and
distributions) and how that affects the net assets.
This statement also shows how money from investors
flowed into and out of the Fund.
Notes to Financial Statements
This is the kind of technical material that can
intimidate readers, but it does contain useful
information. The Notes provide a brief history and
explanation of your Fund's objectives. In addition,
they outline how Prudential Mutual Funds prices
securities. The Notes also explain who manages and
distributes the Fund's shares and, more
importantly, how much they are paid for doing so.
Finally, the Notes explain how many shares are
outstanding and the number issued and redeemed over
the period.
Financial Highlights
This information contains many elements from prior
pages, but on a per-share basis. It is designed
to help you understand how the Fund
performed, and to compare this year's performance
and expenses to those of prior years.
Independent accountant's Report
Once a year, an outside auditor looks over our
books and certifies that the financial statements
are fairly presented and comply with generally
accepted accounting principles.
Tax Information
This is information that we report annually about
how much of your total return is taxable. Should
you have any questions, you may want to consult a
tax adviser.
<PAGE>
www.prudential.com (800) 225-1852
Performance Comparison
These charts are included in the annual report and
are required by the Securities Exchange Commission.
Performance is presented here as a hypothetical
$10,000 investment in the Fund since its inception
or for 10 years (whichever is shorter). To help you
put that return in context, we are required to include
the performance of an unmanaged, broad-based securities
index as well. The index does not reflect the cost of
buying the securities it contains or the cost of managing
a mutual fund. Of course, the index holdings do not
mirror those of the Fund--the index is a broad-based
reference point commonly used by investors to
measure how well they are doing. A definition of
the selected index is also provided. Investors
cannot invest directly in an index.
<PAGE>
Prudential Real Estate Securities Fund
Getting the Most from Your Prudential Mutual Fund
When you invest through Prudential Mutual Funds,
you receive financial advice from a Prudential
Securities Financial Advisor or Pruco Securities
registered representative. Your advisor or
representative can provide you with the following
services:
There's No Reward Without Risk; but Is This Risk
Worth It?
Your financial advisor or registered representative
can help you match the reward you seek with the
risk you can tolerate. Risk can be difficult to
gauge--sometimes even the simplest investments bear
surprising risks. The educated investor knows that
markets seldom move in just one direction. There
are times when a market sector or asset class will
lose value or provide little in the way of total
return. Managing your own expectations is easier
with help from someone who understands the markets
and who knows you!
Keeping Up With the Joneses
A financial advisor or registered representative
can help you wade through the numerous available
mutual funds to find the ones that fit your
individual investment profile and risk tolerance.
While the newspapers and popular magazines are full
of advice about investing, they are aimed at
generic groups of people or representative
individuals--not at you personally. Your financial
advisor or registered representative will review
your investment objectives with you. This means you
can make financial decisions based on the assets
and liabilities in your current portfolio and your
risk tolerance--not just based on the current
investment fad.
Buy Low, Sell High
Buying at the top of a market cycle and selling at
the bottom are among the most common investor
mistakes. But sometimes it's difficult to hold on
to an investment when it's losing value every
month. Your financial advisor or registered
representative can answer questions when you're
confused or worried about your investment, and
should remind you that you're investing for the
long haul.
<PAGE>
www.prudential.com (800) 225-1852
FOR MORE INFORMATION
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
--------------------------------------------
Trustees
Saul K. Fenster, Ph.D.
Delayne Dedrick Gold
Robert F. Gunia
Douglas H. McCorkindale
W.Scott McDonald, Jr.
Thomas T. Mooney
Stephen P. Munn
David R. Odenath, Jr.
Richard A. Redeker
Judy A. Rice
Robin B. Smith
Louis A. Weil, III
Clay T. Whitehead
Officers
David R. Odenath, Jr., President
Bernard Winograd, Vice President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Marguerite E.H. Morrison, Secretary
William V. Healey, Assistant Secretary
Jonathan D. Shain, Assistant 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 8098
Philadelphia, PA 19101
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
--------------------------------------------
Fund Symbols NASDAQ CUSIP
Class A PURAX 74436U102
Class B PURBX 74436U201
Class C -- 74436U300
Class Z -- 74436U409
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 September 30, 2000, were not audited and,
accordingly, no opinion is expressed on them.
<PAGE>
(LOGO) Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
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