<PAGE>
(ICON)
Prudential
Tax-Managed
Equity Fund
SEMI
ANNUAL
REPORT
April 30, 1999
<PAGE>
Prudential Tax-Managed Equity Fund
Performance At A Glance
The Prudential Tax-Managed Equity Fund opened on March 3, 1999. In the very
short time to the April 30 closing of our first reporting period, the Fund
returned 9.3%. This beat the Lipper Average return of 7.4% over the same
period.
Cumulative Total Returns1 As of 4/30/99
<TABLE>
<CAPTION>
Since Inception2 Since Inception2
(Without sales charge) (With sales charge)
<S> <C> <C>
Class A 9.30% 3.84%
Class B 9.30 4.30
Class C 9.30 7.21
Class Z 9.50 9.50
Lipper Growth Fund Avg.3 7.38 N/A
</TABLE>
Past performance is not indicative of future results. Principal and investment
return will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
1 Source: Prudential Investments Fund Management and Lipper, Inc. Since the
Fund has been in existence less than one year, no average annual total returns
are presented. The Fund charges a maximum front-end sales charge of 5% for
Class A shares. Class B shares are subject to a declining contingent deferred
sales charge (CDSC) of 5%, 4%, 3%, 2%, 1%, and 1% for six years. Class B shares
will automatically convert to Class A shares, on a quarterly basis,
approximately seven years after purchase. Class C shares are subject to a
front-end sales charge of 1% and a CDSC of 1% for 18 months. Class Z shares are
not subject to a sales charge or distribution fee.
2 Inception date: Class A, B, C, and Z, 3/3/99.
3 The Lipper average return is for all funds in each share class in the Growth
Fund category.
How Investments Compared
(As of 4/30/99)
(GRAPH)
Source: Lipper, Inc. Financial markets change, so a mutual fund's past
performance should never be used to predict future results. The risks to each
of the investments listed above are different--we provide 12-month total
returns for several Lipper mutual fund categories to show you that reaching for
higher returns means tolerating more risk. The greater the risk, the larger the
potential reward or loss. In addition, we've included historical 20-year
average annual returns. These returns assume the reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors have received higher
historical total returns from stocks than from most other investments. Smaller
capitalization stocks offer greater potential for long-term growth, but may be
more volatile than larger capitalization stocks.
General Bond Funds provide more income than stock funds, which can help smooth
out their total returns year by year. But their prices still fluctuate
(sometimes significantly), and their returns have been historically lower than
those of stock funds.
General Municipal Debt Funds invest in bonds issued by state governments, state
agencies and/or municipalities. This investment provides income that is usually
exempt from federal and state income taxes.
U.S. Taxable Money Funds attempt to preserve a constant share value; they don't
fluctuate much in price but, historically, their returns have been generally
among the lowest of the major investment categories.
<PAGE>
Portfolio Managers' Report
- -------------------------------------------------------------------------------
(PHOTOS)
James Scott, Mark Stumpp, and Ted Lockwood--Fund Managers
Investment Goals and Style
We attempt to provide after-tax returns that exceed those of the Standard &
Poor's 500 Stock Index (S&P 500) over the long term. Using quantitative
investment strategies, we emphasize individual securities that we believe are
likely to perform well. To manage risk and provide broad market participation
at all times, however, we try to maintain the Fund's sector, industry, size,
and security exposures close to those of the S&P 500.
Performance Review
A strong market and some good choices
In March and April, investors continued to reward financial and electronics
stocks, but began to favor the long-suffering industrial stocks as the
recession in Asia appeared to reach bottom. Although we benefited from the
broad market's rise, our superior returns came primarily from our security
selection in electronics, as well as in certain industrial sectors. We also
did quite well with our retail-oriented stocks.
When our models suggest an advantage in departing from a sector's weight in the
S&P 500, we do so modestly. In the current reporting period, for example, our
techniques uncovered few bargains among healthcare stocks; we accordingly
invested somewhat less in the sector. This decision eased the impact on our
returns when those stocks did, in fact, underperform the broader market.
Two different disciplines
While many managers are associated with a single investment style, we buy both
growth and value stocks, using different criteria to identify attractive
opportunities in each category. Our techniques are grounded in the emerging
field of behavioral finance, whose studies suggest that human nature causes
investors to overemphasize recent news about companies while neglecting
longer-term trends.
For example, slow-growing stocks often become underpriced relative to their
earnings or book value when investors overreact to unexpected bad news. We try
to take advantage of such depressed prices, buying and holding these stocks
until they have reached their fair value. For these slow-growth stocks, our
approach is similar to that of traditional value investors.
With rapid-growth stocks, on the other hand, overconfident investors may
disregard signs that an expanding company is unlikely to sustain its recent
pace. They may continue to hold a stock even after it experiences an earnings
disappointment. While we invest in a number of strong growth companies, we try
to avoid those whose earnings will be unable to keep up with expectations,
paying close attention to recent news about future growth prospects.
Knowing when to sell is also important--even when it involves realizing a loss.
Investors commonly hold losing stocks for too long, often for psychological
reasons. Our quantitative discipline forces us to be dispassionate investors,
reducing the likelihood that we will hold deteriorating positions in the face
of worsening business prospects.
<PAGE>
Tax management and long-term capital appreciation: an integrated strategy
We try to defer taxes by allowing stocks to appreciate, free from tax
implications, for as long as prudence allows. Indeed, because current tax law
penalizes profits on securities sold within a year after purchase, many funds
minimize turnover as a way of becoming more tax-efficient.
But turnover that focuses on stocks that have depreciated can actually increase
tax efficiency. With the aid of state-of-the-art market assessment techniques,
we review the portfolio daily for holdings that have fallen in value. We will
sometimes lock in a loss by selling a stock, particularly if we can replace it
with another that has a similar profile--generally in the same industry or with
similar growth potential. Through this kind of exchange, we can maintain or
improve the quality of our portfolio with new stocks while reaping tax benefits
from the sale of the old ones. The result is an inventory of stored, or
"harvested," losses that can be used to offset taxes from gains later on.
To maximize the benefits of this "tax loss harvesting," we trade relatively
often. Though our turnover may appear higher than that of other tax-managed
funds, active management can significantly reduce the tax implications when we
feel the time has come to sell a winning position. In the short time since its
inception, the Fund realized $4.6 million in losses to offset future capital
gains--a significant tax advantage--while achieving a high net return that beat
a strongly rising market.
Looking Ahead
Positioning the portfolio for future performance
Over time, we believe that our disciplined, quantitative investment structure
will provide solid overall performance, with volatility relatively close to
that of the stock market as a whole. Although we continue to maintain a risk
profile very close to that of the S&P 500 benchmark, we currently have a slight
emphasis on stocks of smaller and mid-sized companies, where we find more
potential for gain.
Five Largest Holdings
Expressed as a percentage of net assets as of 4/30/99
Microsoft Corp. 3.8%
Computer Software & Services
General Electric 3.2
Diversified Manufacturing
Cisco Systems, Inc. 1.9
Computer Software & Services
Intel Corp. 1.7
Computers
International Business 1.7
Machines Corp.--Computers
1
<PAGE>
A Message to Our Shareholders June 18, 1999
- -------------------------------------------------------------------------------
(PHOTO)
Dear Shareholder:
In the last couple of years, the recurring possibility of a global economic
crisis caused investors to focus on securities they perceived to be safe. In
the equity market, they focused on the stocks of a handful of very large
companies that were perceived to be well-buffeted from an economic slowdown.
These stocks became very expensive--out of proportion to their earnings
expectations. As a result, there was a substantial disparity in value between
large and small companies and between growth and value stocks.
Since earlier this year, however, that gap has narrowed significantly amid
news of strong U.S. economic growth and faster-than-expected global stability.
While the long-term prospects of U.S. growth stocks are still very good, many
of the smaller and economically sensitive companies favored by our value
managers now are posting very attractive returns.
In the bond market, U.S. Treasuries and select European government bonds were
the major beneficiaries of the flight to quality that occurred in recent years.
When this trend reversed itself toward the end of 1998, other sectors of the
bond market rebounded. However, with a strong U.S. economy comes the threat of
higher inflation, which erodes the value of bonds' fixed interest payments. The
recent inflation concerns jolted the bond market and helped send long-term
interest rates to a 19-month high.
The winds of change in the equity market and the recent turbulence in the bond
market not only highlight the value of professional portfolio management, but
they illustrate why investors should have a well-diversified asset allocation
strategy. It is also a good practice to rebalance your holdings, when
necessary, to keep your asset allocation consistent with your long-term
objectives and risk tolerance. A properly diversified portfolio of value- and
growth-oriented equity funds, international bond funds, and money market funds
could help you weather inevitable market turbulence and achieve more consistent
returns over time. Prudential offers a wide range of mutual funds to help our
shareholders diversify, as well as several balanced and diversified funds to
allow one-decision diversification.
Thank you for your continued confidence in Prudential mutual funds.
Sincerely,
John R. Strangfeld
President
Prudential Tax-Managed Equity Fund
2
<PAGE>
Portfolio of Investments as of
April 30, 1999 (Unaudited) PRUDENTIAL TAX-MANAGED EQUITY FUND, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--99.5%
COMMON STOCKS
- ------------------------------------------------------------
Aerospace/Defense--1.7%
14,700 AlliedSignal Inc. $ 863,625
27,800 Boeing Co. 1,129,375
6,900 Gencorp Inc. 159,562
10,000 General Dynamics Corp. 702,500
11,300 Lockheed Martin Corp. 486,606
3,300 Northrop Grumman Corp. 210,994
9,300 Raytheon Co. 653,325
6,200 United Technologies Corp. 898,225
------------
5,104,212
- ------------------------------------------------------------
Airlines--0.3%
4,100 AMR Corp.(a) 286,231
6,400 Delta Air Lines, Inc. 406,000
7,500 Southwest Airlines Co. 244,219
------------
936,450
- ------------------------------------------------------------
Aluminum--0.3%
9,500 Alcan Aluminum Ltd. 301,625
10,500 Alcoa Inc. 653,625
------------
955,250
- ------------------------------------------------------------
Auto & Truck--2.4%
1,000 Arvin Industries, Inc. 36,625
46,800 Ford Motor Co. 2,992,275
20,100 General Motors Corp. 1,787,644
19,000 Genuine Parts Co. 570,000
11,300 Harley-Davidson, Inc. 673,762
3,000 Johnson Controls, Inc. 218,813
13,000 PACCAR Inc. 728,000
------------
7,007,119
- ------------------------------------------------------------
Banking--6.6%
3,300 AmSouth Bancorporation 156,956
45,100 Bank of America Corp. 3,247,200
13,000 Bank of New York Co., Inc. 520,000
30,100 Bank One Corp. 1,775,900
8,300 BankBoston Corp. $ 406,700
3,000 Bankers Trust Corp. 270,188
8,800 BB&T Corp. 351,450
21,900 Chase Manhattan Corp. 1,812,225
3,900 Fifth Third Bancorp 279,581
17,100 First Union Corp. 946,912
34,600 Firstar Corp. 1,040,162
20,800 Fleet Financial Group, Inc. 895,700
13,100 Huntington Bancshares Inc. 464,231
31,300 KeyCorp 968,344
6,700 Mellon Bank Corp. 497,894
5,100 Mercantile Bancorporation Inc. 290,700
8,100 National City Corp. 581,175
3,100 Northern Trust Corp. 288,688
7,900 PNC Bank Corp. 457,213
4,100 Republic New York Corp. 240,875
2,700 SouthTrust Corp. 107,578
4,500 State Street Corp. 393,750
5,800 Summit Bancorp 245,775
9,400 SunTrust Banks, Inc. 672,100
6,100 U.S. Bancorp 226,081
2,000 Wachovia Corp. 175,750
9,000 Washington Mutual, Inc. 370,125
40,700 Wells Fargo Co. 1,757,731
------------
19,440,984
- ------------------------------------------------------------
Beverages--1.9%
62,600 Coca-Cola Co. 4,256,800
32,100 PepsiCo, Inc. 1,185,694
2,100 Seagram Co., Ltd. 120,487
------------
5,562,981
- ------------------------------------------------------------
Chemicals--1.3%
8,400 Air Products & Chemicals, Inc. 394,800
2,100 Dow Chemical Co. 275,494
23,000 E.I. du Pont de Nemours & Co. 1,624,375
5,200 Morton International, Inc. 209,950
6,800 Praxair, Inc. 351,900
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as of
April 30, 1999 (Unaudited) PRUDENTIAL TAX-MANAGED EQUITY FUND, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Chemicals (cont'd.)
7,700 Rohm & Haas Co. $ 345,056
10,500 Schulman (A.), Inc. 183,750
9,700 Union Carbide Corp. 503,187
------------
3,888,512
- ------------------------------------------------------------
Computer Software & Services--10.4%
7,500 3Com Corp.(a) 195,938
10,900 Adobe Systems Inc. 690,787
27,200 America Online, Inc. 3,882,800
9,500 Automatic Data Processing, Inc. 422,750
19,100 BMC Software Inc.(a) 809,013
47,900 Cisco Systems, Inc.(a) 5,463,594
41,800 Computer Associates International,
Inc. 1,784,337
19,350 Comverse Technology, Inc.(a) 1,240,819
10,000 Electronic Arts, Inc.(a) 508,125
14,000 Electronic Data Systems Corp. 752,500
10,900 EMC Corp.(a) 1,187,419
11,200 First Data Corp. 475,300
6,500 Intuit, Inc.(a) 559,812
136,400 Microsoft Corp.(a) 11,091,025
32,200 Oracle Systems Corp.(a) 871,412
15,900 Rational Software Corp.(a) 471,038
10,200 Unisys Corp.(a) 320,663
------------
30,727,332
- ------------------------------------------------------------
Computers--5.8%
14,300 Apple Computer, Inc.(a) 657,800
39,300 Dell Computer Corp.(a) 1,618,669
33,100 Hewlett-Packard Co. 2,610,762
81,200 Intel Corp. 4,968,425
23,300 International Business Machines
Corp. 4,874,069
3,300 Lexmark International Group,
Inc.(a) 407,550
31,600 Sun Microsystems, Inc.(a) 1,890,075
------------
17,027,350
- ------------------------------------------------------------
Consumer Products--0.5%
18,200 American Greetings Corp. 476,612
15,300 NIKE, Inc. 951,469
------------
1,428,081
Cosmetics & Soaps--1.9%
3,900 Clorox Co. $ 449,963
9,400 Colgate-Palmolive Co. 962,912
11,900 Kimberly-Clark Corp. 729,619
36,200 Procter & Gamble Co. 3,396,012
------------
5,538,506
- ------------------------------------------------------------
Diversified Operations--0.2%
19,800 Ogden Corp. 511,088
- ------------------------------------------------------------
Diversified Manufacturing--4.8%
8,800 Cintas Corp. 605,000
8,200 Cooper Industries, Inc. 396,675
6,400 Corning Inc. 366,400
7,800 Danaher Corp. 518,212
3,300 Eaton Corp. 302,569
88,700 General Electric Co. 9,357,850
10,100 Harsco Corp. 331,406
3,800 Honeywell, Inc. 360,050
4,200 Liz Claiborne, Inc. 138,863
2,800 Minnesota Mining & Manufacturing
Co. 249,200
14,600 Owens-Illinois, Inc.(a) 423,400
3,300 Parker-Hannifin Corp. 154,894
5,100 PPG Industries, Inc. 331,181
6,100 Sherwin-Williams Co. 189,862
11,600 Trinity Industrial, Inc. 403,825
------------
14,129,387
- ------------------------------------------------------------
Drugs & Medical Supplies--6.6%
58,300 Abbott Laboratories 2,823,906
19,200 American Home Products Corp. 1,171,200
13,400 Amgen Inc.(a) 823,263
1,200 Biogen, Inc.(a) 114,075
11,000 Biomet, Inc.(a) 451,000
24,100 Boston Scientific Corp.(a) 1,025,756
59,700 Bristol-Myers Squibb Co. 3,794,681
34,300 Columbia/HCA Healthcare Corp. 846,781
2,700 Guidant Corp. 144,956
36,700 Johnson & Johnson 3,578,250
14,900 Lincare Holdings Inc.(a) 441,413
14,400 Mallinckrodt Inc. 504,900
3,700 Medtronic, Inc. 266,169
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as of
April 30, 1999 (Unaudited) PRUDENTIAL TAX-MANAGED EQUITY FUND, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Drugs & Medical Supplies (cont'd.)
24,500 Pfizer Inc. $ 2,819,031
29,800 Quorum Health Group, Inc. 368,775
1,800 Shared Medical Systems Corp. 97,763
6,000 Sybron International Corp.(a) 166,125
------------
19,438,044
- ------------------------------------------------------------
Electronics--0.4%
11,500 Emerson Electric Co. 741,750
5,500 Linear Technology Corp. 312,813
------------
1,054,563
- ------------------------------------------------------------
Electronic Components--1.2%
6,600 Altera Corp.(a) 476,850
15,900 KLA-Tencor Corp.(a) 789,038
16,500 Motorola, Inc. 1,322,062
21,500 Xilinx Inc.(a) 980,937
------------
3,568,887
- ------------------------------------------------------------
Entertainment--0.2%
15,100 Carnival Corp. 622,875
- ------------------------------------------------------------
Financial Services--8.8%
11,000 American Express Co. 1,437,562
16,600 Associates First Capital Corp. 735,588
15,500 Bear Stearns Cos., Inc. 722,688
60,200 Citigroup Inc. 4,530,050
33,300 Concord EFS, Inc. 1,111,387
17,800 Countrywide Credit Industries, Inc. 806,562
26,400 Federal Home Loan Mortgage Corp. 1,656,600
25,900 Federal National Mortgage
Association 1,837,281
7,300 Golden West Financial Corp. 730,913
5,300 Household International, Inc. 266,656
17,800 Lehman Brothers Holdings Inc. 989,012
3,900 MBIA, Inc. 262,275
19,200 MBNA Corp. 541,200
8,600 Merrill Lynch & Co., Inc. 721,863
10,100 MGIC Investment Corp. 490,481
9,700 Morgan (J.P.) & Co., Inc. 1,307,075
14,400 Morgan Stanley Dean Witter & Co. $ 1,428,300
18,500 Paine Webber Group Inc. 868,344
17,400 Paychex, Inc. 888,487
14,700 Providian Financial Corp. 1,897,219
14,100 Regions Financial Corp. 532,275
15,300 Schwab (Charles) Corp. 1,679,175
4,900 SLM Holding Corp. 209,169
10,100 Synovus Financial Corp. 223,463
------------
25,873,625
- ------------------------------------------------------------
Foods--1.1%
22,000 Archer-Daniels-Midland Co. 330,000
9,900 Campbell Soup Co. 402,217
8,200 Great Atlantic & Pacific Tea Co.,
Inc. 252,150
2,300 H.J. Heinz Co. 107,381
2,200 Kellogg Co. 81,400
23,900 Ralston-Ralston Purina Group 728,950
11,500 SYSCO Corp. 341,406
9,800 Unilever NV 636,388
3,700 Wm. Wrigley Jr. Co. 328,144
------------
3,208,036
- ------------------------------------------------------------
Gas Distribution--0.1%
11,900 KeySpan Energy 318,325
- ------------------------------------------------------------
Gas Pipelines--0.3%
3,100 El Paso Energy Corp. 113,925
7,900 Enron Corp. 594,475
5,800 K N Energy, Inc. 119,625
------------
828,025
- ------------------------------------------------------------
Housing Related--0.5%
9,700 Masco Corp. 284,937
3,100 Maytag Corp. 211,962
4,900 Newell Rubbermaid Inc. 232,444
4,100 Owens Corning 146,063
6,800 Whirlpool Corp. 451,350
------------
1,326,756
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5
<PAGE>
Portfolio of Investments as of
April 30, 1999 (Unaudited) PRUDENTIAL TAX-MANAGED EQUITY FUND, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Insurance--3.7%
30,200 Allstate Corp. $ 1,098,525
6,500 American General Corp. 481,000
31,700 American International Group, Inc. 3,722,769
5,300 Aon Corp. 363,050
10,600 Chubb Corp. 628,050
5,700 CIGNA Corp. 496,969
6,800 Hartford Financial Services Group,
Inc. 400,775
3,200 Jefferson-Pilot Corp. 215,600
3,000 Lincoln National Corp. 288,188
7,600 Marsh & McLennan Co., Inc. 581,875
25,500 Old Republic International Corp. 498,844
4,800 Provident Companies, Inc. 189,000
12,200 Torchmark Corp. 417,087
9,400 Transamerica Corp. 669,750
16,700 UNUM Corp. 912,237
------------
10,963,719
- ------------------------------------------------------------
Lodging--0.1%
7,600 Marriott International, Inc. 318,250
- ------------------------------------------------------------
Machinery--1.2%
12,200 Caterpillar Inc. 785,375
6,100 Deere & Co. 262,300
6,900 Dover Corp. 254,869
4,200 Ingersoll-Rand Co. 290,588
13,000 Kennametal, Inc. 345,312
6,600 MagneTek, Inc.(a) 71,363
26,200 McDermott International, Inc. 759,800
4,900 Tecumseh Products Co. 299,512
9,400 W.W. Grainger, Inc. 471,762
------------
3,540,881
- ------------------------------------------------------------
Media--2.2%
17,300 Disney (Walt) Co. 549,275
7,300 Gannett Co., Inc. 516,931
8,900 Knight-Ridder, Inc. 478,931
5,600 McGraw-Hill Companies, Inc. 309,400
8,300 Mediaone Group, Inc.(a) 676,969
10,500 Omnicom Group Inc. 761,250
5,500 R.R. Donnelley & Sons Co. 194,563
35,000 Time Warner, Inc. $ 2,450,000
3,600 Tribune Co. 300,375
7,200 Viacom Inc.(a) 294,300
100 Washington Post Co. 57,400
------------
6,589,394
- ------------------------------------------------------------
Miscellaneous Basic Industry--1.7%
19,900 Fortune Brands, Inc. 786,050
5,200 Kelly Services, Inc. 131,625
5,700 Pittston Brink's Group 150,338
1,700 Textron, Inc. 156,612
42,805 Tyco International Ltd. 3,477,906
4,100 Waste Management, Inc. 231,650
------------
4,934,181
- ------------------------------------------------------------
Office Equipment & Supplies--0.1%
4,300 Avery Dennison Corp. 293,475
- ------------------------------------------------------------
Oil & Gas--1.0%
4,300 Amerada Hess Corp. 245,100
9,900 Atlantic Richfield Co. 830,981
6,300 Burlington Resources, Inc. 290,194
13,100 Coastal Corp. 501,075
8,200 Helmerich & Payne, Inc. 211,150
14,400 Schlumberger Ltd. 919,800
------------
2,998,300
- ------------------------------------------------------------
Paper & Packaging--0.8%
3,500 Champion International Corp. 191,406
9,300 Fort James Corp. 353,400
3,100 Georgia-Pacific Group 286,750
9,900 International Paper Co. 527,794
22,000 Willamette Industries, Inc. 1,028,500
------------
2,387,850
- ------------------------------------------------------------
Petroleum & Coal--4.9%
17,800 Chevron Corp. 1,775,550
59,500 Exxon Corp. 4,942,219
25,700 Mobil Corp. 2,692,075
9,100 Phillips Petroleum Co. 460,687
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 6
<PAGE>
Portfolio of Investments as of
April 30, 1999 (Unaudited) PRUDENTIAL TAX-MANAGED EQUITY FUND, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Petroleum & Coal (cont'd.)
52,000 Royal Dutch Petroleum Co. $ 3,051,750
18,400 Texaco Inc. 1,154,600
6,500 Tidewater Inc. 172,250
2,700 Unocal Corp. 112,219
------------
14,361,350
- ------------------------------------------------------------
Pharmaceuticals--3.1%
3,200 Allergan, Inc. 287,600
9,400 Eli Lilly & Co. 692,075
50,900 Merck & Co., Inc. 3,575,725
47,700 Schering-Plough Corp. 2,304,506
31,300 Warner-Lambert Co. 2,126,444
------------
8,986,350
- ------------------------------------------------------------
Photography--0.2%
8,300 Eastman Kodak Co. 619,388
- ------------------------------------------------------------
Railroads--0.5%
13,400 CSX Corp. 659,950
3,500 Kansas City Southern Industries,
Inc. 208,469
3,600 Norfolk Southern Corp. 117,675
6,900 Union Pacific Corp. 414,000
------------
1,400,094
- ------------------------------------------------------------
Restaurants--0.7%
36,300 McDonald's Corp. 1,538,212
5,200 Outback Steakhouse, Inc.(a) 186,225
4,600 Tricon Global Restaurants, Inc.(a) 296,125
------------
2,020,562
- ------------------------------------------------------------
Retail--6.2%
11,500 Abercrombie & Fitch Co.(a) 1,093,937
14,600 Bed Bath & Beyond, Inc.(a) 521,038
10,700 Best Buy Co., Inc.(a) 510,925
16,200 Circuit City Stores-Circuit City
Group 996,300
4,900 Costco Companies, Inc.(a) 396,594
9,700 Dayton Hudson Corp. 652,931
19,400 Federated Department Stores,
Inc.(a) 905,737
21,600 Gap, Inc. 1,437,750
46,400 Home Depot, Inc. $ 2,781,100
6,300 J.C. Penney Co., Inc. 287,438
9,400 Kohl's Corp.(a) 624,513
5,700 Limited, Inc. 249,375
8,100 May Department Stores Co. 322,481
8,600 Nine West Group Inc.(a) 245,100
1,500 Nordstrom, Inc. 52,781
4,300 Payless Shoesource, Inc.(a) 208,281
600 Sears, Roebuck & Co. 27,600
32,500 Staples, Inc.(a) 975,000
4,000 Tiffany & Co. 336,000
7,800 TJX Companies, Inc. 259,838
3,900 Toys 'R' Us, Inc.(a) 84,825
116,100 Wal-Mart Stores, Inc. 5,340,600
------------
18,310,144
- ------------------------------------------------------------
Rubber--0.3%
20,500 Cooper Tire & Rubber Co. 449,719
5,300 Goodyear Tire & Rubber Co. 303,094
------------
752,813
- ------------------------------------------------------------
Steel - Producers--0.4%
5,900 AK Steel Holding Corp. 153,400
9,200 Allegheny Teldyne Inc. 205,850
10,100 Carpenter Technology Corp. 316,256
4,600 Nucor Corp. 269,963
6,700 USX-U.S. Steel Group 202,675
------------
1,148,144
- ------------------------------------------------------------
Telecommunications--11.2%
23,600 ADC Telecommunications, Inc.(a) 1,128,375
22,700 AirTouch Communications, Inc.(a) 2,119,613
32,100 Ameritech Corp. 2,196,844
70,561 AT&T Corp. 3,563,330
39,900 Bell Atlantic Corp. 2,299,237
51,000 BellSouth Corp. 2,282,250
5,700 Frontier Corp. 314,569
2,600 General Instrument Corp.(a) 94,900
21,200 GTE Corp. 1,419,075
79,800 Lucent Technologies, Inc. 4,797,975
39,800 MCI WorldCom, Inc.(a) 3,271,062
36,800 Nortel Networks Corp. 2,509,300
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7
<PAGE>
Portfolio of Investments as of
April 30, 1999 (Unaudited) PRUDENTIAL TAX-MANAGED EQUITY FUND, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Telecommunications (cont'd.)
10,900 QUALCOMM, Inc.(a) $ 2,180,000
40,700 SBC Communications Inc. 2,279,200
11,700 Sprint Corp. 1,199,981
1,100 Sprint Corp. (PCS Group) 46,613
10,000 Tellabs, Inc.(a) 1,095,625
5,000 US WEST, Inc. 261,563
------------
33,059,512
- ------------------------------------------------------------
Textiles--0.6%
57,000 Burlington Industries Inc. 463,125
10,300 Mohawk Industries, Inc. 332,175
12,100 Springs Industries, Inc. 452,237
24,400 Unifi, Inc. 341,600
3,800 V.F. Corp. 195,700
------------
1,784,837
- ------------------------------------------------------------
Tobacco--0.5%
28,100 Philip Morris Companies Inc. 985,256
21,900 UST Inc. 610,463
------------
1,595,719
- ------------------------------------------------------------
Trucking & Shipping--0.2%
4,200 FDX Corp.(a) 472,763
- ------------------------------------------------------------
Utilities - Electric--2.6%
5,200 Ameren Corp. 201,175
7,900 American Electric Power Co., Inc. 327,356
15,500 Baltimore Gas & Electric Co. 435,937
5,100 Carolina Power & Light Co. 205,594
6,300 Cinergy Corp. 187,819
1,200 Consolidated Edison, Inc. 54,525
5,100 Dominion Resources, Inc. 209,738
5,200 DTE Energy Co. 212,225
16,800 Duke Energy Co. 940,800
28,400 Entergy Corp. 887,500
17,100 FirstEnergy Corp. 507,656
9,200 FPL Group, Inc. $ 518,650
11,900 GPU, Inc. 453,687
12,200 New Century Energies, Inc. 427,000
6,600 PECO Energy Co. 313,088
10,300 PG&E Corp. 319,944
5,900 PP & L Resources, Inc. 164,831
22,800 Public Service Company of New
Mexico(a) 407,550
7,100 Public Service Enterprise Group
Inc. 284,000
8,600 Texas Utilities Co. 341,850
6,100 Unicom Corp. 236,756
------------
7,637,681
------------
Total long-term investments
(cost $267,033,003) 292,671,795
------------
Principal
Amount
(000)
SHORT-TERM INVESTMENT--0.5%
- ------------------------------------------------------------
REPURCHASE AGREEMENT
$ 1,352 Joint Repurchase Agreement Account,
4.90%, 5/3/99
(cost $1,352,000; Note 5) 1,352,000
------------
- ------------------------------------------------------------
Total Investments--100.0%
(cost $268,385,003; Note 4) 294,023,795
Other assets in excess of
liabilities 117,880
------------
Net Assets--100% $294,141,675
------------
------------
</TABLE>
- ---------------
(a) Non-income producing security.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 8
<PAGE>
Statement of Assets and Liabilities
(Unaudited) PRUDENTIAL TAX-MANAGED EQUITY FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets April 30, 1999
<S> <C>
Investments, at value (cost $268,385,003)................................................................... $294,023,795
Cash........................................................................................................ 331
Receivable for Fund shares sold............................................................................. 5,848,675
Receivable for investments sold............................................................................. 4,826,902
Dividends and interest receivable........................................................................... 213,408
Deferred expenses and other assets.......................................................................... 173,609
--------------
Total assets............................................................................................. 305,086,720
--------------
Liabilities
Payable for investments purchased........................................................................... 9,630,798
Payable for Fund shares reacquired.......................................................................... 960,729
Distribution fee payable.................................................................................... 177,294
Management fee payable...................................................................................... 132,438
Accrued expenses and other liabilities...................................................................... 43,786
--------------
Total liabilities........................................................................................ 10,945,045
--------------
Net Assets.................................................................................................. $294,141,675
--------------
--------------
Net assets were comprised of:
Shares of beneficial interest, at par.................................................................... $ 26,913
Paid-in capital in excess of par......................................................................... 273,258,115
--------------
273,285,028
Accumulated net investment loss.......................................................................... (173,397)
Accumulated net realized loss on investments............................................................. (4,608,748)
Net unrealized appreciation on investments............................................................... 25,638,792
--------------
Net assets, April 30, 1999.................................................................................. $294,141,675
--------------
--------------
Class A:
Net asset value and redemption price per share
($63,517,781 / 5,809,800 shares of beneficial interest issued and outstanding)........................ $10.93
Maximum sales charge (5% of offering price).............................................................. .58
--------------
Maximum offering price to public......................................................................... $11.51
--------------
--------------
Class B:
Net asset value, offering price and redemption price per share
($134,953,373 / 12,350,385 shares of beneficial interest issued and outstanding)...................... $10.93
--------------
--------------
Class C:
Net asset value and redemption price per share
($83,320,640 / 7,625,028 shares of beneficial interest issued and outstanding)........................ $10.93
Sales charge (1% of offering price)...................................................................... .11
--------------
Offering price to public................................................................................. $11.04
--------------
--------------
Class Z:
Net asset value, offering price and redemption price per share
($12,349,881 / 1,128,115 shares of beneficial interest issued and outstanding)........................ $10.95
--------------
--------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 9
<PAGE>
PRUDENTIAL TAX-MANAGED EQUITY FUND
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
March 3, 1999(a)
Through
Net Investment Loss April 30, 1999
<S> <C>
Income
Dividends (net of foreign withholding
taxes of $93)........................ $ 403,292
Interest................................ 124,564
----------------
Total income......................... 527,856
----------------
Expenses
Management fee.......................... 257,736
Distribution fee--Class A............... 22,007
Distribution fee--Class B............... 177,621
Distribution fee--Class C............... 112,691
Amortization of offering costs.......... 32,693
Transfer agent's fees and expenses...... 25,000
Custodian's fees and expenses........... 23,000
Registration fees....................... 16,000
Reports to shareholders................. 13,000
Legal fees and expenses................. 8,000
Audit fee and expenses.................. 6,000
Trustees' fees and expenses............. 6,000
Miscellaneous........................... 1,505
----------------
Total expenses....................... 701,253
----------------
Net investment loss........................ (173,397)
----------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized loss on:
Investment transactions................. (4,608,748)
----------------
Net unrealized appreciation on:
Investments............................. 25,638,792
----------------
Net gain on investments.................... 21,030,044
----------------
Net Increase in Net Assets
Resulting from Operations $ 20,856,647
----------------
----------------
</TABLE>
- ---------------
(a) Commencement of investment operations.
PRUDENTIAL TAX-MANAGED EQUITY FUND
Statement of Changes in Net Assets (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
March 3, 1999(a)
Increase (Decrease) In Through
Net Assets April 30, 1999
<S> <C>
Operations
Net investment loss......................... $ (173,397)
Net realized loss on investments............ (4,608,748)
Net unrealized appreciation of
investments.............................. 25,638,792
----------------
Net increase in net assets resulting from
operations............................... 20,856,647
----------------
Fund share transactions (net of share
conversions) (Note 5)
Net proceeds from shares subscribed......... 283,871,943
Cost of shares reacquired................... (10,686,915)
----------------
Net increase in net assets from Fund share
transactions............................. 273,185,028
----------------
Total increase................................. 294,041,675
Net Assets
Beginning of period............................ 100,000
----------------
End of period.................................. $294,141,675
----------------
----------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 10
<PAGE>
Notes to Financial Statements (Unaudited) PRUDENTIAL TAX-MANAGED EQUITY FUND
- --------------------------------------------------------------------------------
Prudential Tax-Managed Equity Fund (the 'Fund') is registered under the
Investment Company Act of 1940, as an open-end, diversified management
investment company. The Fund was organized as a business trust in Delaware on
September 18, 1998. The Fund had no significant operations other than the
issuance of 2,500 shares each of Class A, Class B, Class C, and Class Z shares
for each Portfolio of beneficial interest for $100,000 on December 8, 1998 to
Prudential Investments Fund Management LLC ('PIFM'). The Fund commenced
investment operations on March 3, 1999.
The investment objective of the Fund is to seek long-term after-tax growth of
capital. The Fund pursues its objective by investing a majority of the total
assets in equity-related securities, such as common stock and convertible
securities of U.S. companies.
- ------------------------------------------------------------
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund and the Series in the preparation of its financial statements.
Securities Valuation: Securities listed on a securities exchange are valued at
the last sales price on such exchange on the day of valuation, or, if there was
no sale on such day, at the mean between the last bid and asked prices on such
day or at the bid price on such day in the absence of an asked price. Securities
that are actively traded in the over-the-counter market, including listed
securities for which the primary market is believed by the Manager, in
consultation with the subadvisor, to be over-the-counter, are valued by an
independent pricing agent of principal market maker. Convertible debt securities
that are actively traded in the over-the-counter market, including listed
securities for which the primary market is believed by the Manager and the
Subadvisor to be over-the-counter, are valued at the mean between the last
reported bid and asked prices provided by a principal market maker. Options on
securities and indices traded on an exchange are valued at the last sale price,
or if there was no sale on such day, at mean between the most recently quoted
bid and asked prices on such exchange. Futures contracts and options thereon
traded on a commodities exchange or board of trade are valued at the last sales
price at the close of trading on such exchange or board of trade or, if there
was no sale on the applicable commodities exchange or board of trade on such
day, at the mean between the most recently quoted bid and asked prices on such
exchange or board of trade. Privately placed securities including equity
securities for which market prices may be obtained from primary dealers shall be
valued at the bid prices provided by such primary dealers. Securities for which
market quotations are not readily available, may be valued using the last
available market quotation for a period not to exceed five days, provided the
Manager and Subadvisor feel this is representative of market value.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost.
In connection with transactions in repurchase agreements with U.S. financial
institutions, it is the Funds' policy that its custodian or designated
subcustodians, as the case may be under triparty repurchase agreements, take
possession of the underlying securities, the value of which exceeds the
principal amount of the repurchase transaction including accrued interest. If
the seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
All securities are valued as of 4:15 p.m., New York time.
Securities Transactions and Net Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses from investment and
currency transactions are calculated on the identified cost basis. Dividend
income is recorded on the ex-dividend date; interest income is recorded on the
accrual basis. Expenses are recorded on the accrual basis which may require the
use of certain estimates by management.
Net investment income (loss), other than distribution fees, and unrealized and
realized gains or losses are allocated daily to each class of shares based upon
the relative proportion of net assets of each class at the beginning of the day.
Dividends and Distributions: The Fund expects to pay dividends of net investment
income and distributions of net realized capital and currency gains, if any,
annually. Dividends and distributions are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
Taxes: For federal income tax purposes, each Fund in the Trust is treated as a
separate taxpaying entity. It is the intent of the Fund to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to shareholders.
Therefore, no federal income tax provision is required.
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.
- --------------------------------------------------------------------------------
11
<PAGE>
Notes to Financial Statements (Unaudited) PRUDENTIAL TAX-MANAGED EQUITY FUND
- --------------------------------------------------------------------------------
Deferred Offering Cost: The Fund incurred approximately $291,000 in connection
with the initial offering of the Fund. Offering costs are being amortized over a
period of 12 months ending March 2000.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with PIFM. Pursuant to this agreement, PIFM
manages the investment operations of the Fund, administers the Fund's affairs
and supervises the subadviser's performance of all investment advisory services
services. PIFM pays for the costs pursuant to the advisory agreements, the cost
of compensation of officers of the Fund, occupancy and certain clerical and
accounting costs of the Fund. The management fee paid PIFM is computed daily and
payable monthly at an annual rate of .65% of the average daily net assets of the
Fund.
The Fund has a distribution agreement with Prudential Investment Management
Services LLC ('PIMS') which acts as the distributor of the Class A, Class B,
Class C and Class Z shares of the Fund. The Fund compensates PIMS for
distributing and servicing the Fund's Class A, Class B and Class C shares,
pursuant to plans of distribution, (the 'Class A, B and C plans'), regardless of
expenses actually incurred by PIMS. The distribution fees are accrued daily and
payable monthly. No distribution or service fees are paid to PIMS as distributor
for Class Z shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates PIMS for
distribution-related activities at an annual rate of up to .30 of 1%, 1% and 1%
of the average daily net assets of the Class A, B and C shares, respectively.
Such expenses under the Plans were .25 of 1%, 1% and 1% of the average daily net
assets of the Class A, B and C shares respectively, for the period ended April
30, 1999.
PIMS has advised the Fund that it has received approximately $1,597,400 and
$733,500 in front-end sales charges resulting from sales of Class A and Class C
shares, respectively, during the period ended April 30, 1999.
PIMS has advised the Fund that for the period ended April 30, 1999, it has
received approximately $31,200 and $10,800 in contingent deferred sales charges
imposed upon certain redemptions by Class B and Class C shareholders,
respectively.
PIMS, PIC and PIFM are indirect, wholly owned subsidiaries of The Prudential
Insurance Company of America.
As of March 11, 1999, the Fund, along with other affiliated registered
investment companies (the 'Funds'), entered into a syndicated credit agreement
('SCA') with an unaffiliated lender. The maximum commitment under the SCA is $1
billion. The Funds pay a commitment fee at an annual rate of .065 of 1% on the
unused portion of the credit facility, which is accrued and paid quarterly on a
pro rata basis by the Funds. The SCA expires on March 9, 2000. Prior to March
11, 1999, the Funds had a credit agreement with a maximum commitment of
$200,000,000. The commitment fee was .055 of 1% on the unused portion of the
credit facility. The Fund did not borrow any amounts pursuant to either
agreement during the period ended April 30, 1999. The purpose of the agreements
is to serve as an alternative source of funding for capital share redemptions.
- ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned subsidiary of PIFM,
serves as the Trust's transfer agent. During the period ended April 30, 1999,
the Fund incurred fees of approximately $24,100 for the services of PMFS. As of
April 30, 1999 approximately $13,400 of such fees were due to PMFS. Transfer
agent fees and expenses in the Statement of Operations include certain
out-of-pocket expenses paid to nonaffiliates.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of portfolio securities, excluding short-term investments,
for the period ended April 30, 1999 were $319,725,235 and $48,083,484,
respectively.
The United States federal income tax basis of the Funds' investments as of April
30, 1999 was $268,426,079 and accordingly, net unrealized appreciation on
investments for federal income tax purposes was $25,597,716 (gross unrealized
appreciation--$28,139,403, gross unrealized depreciation--$2,541,687).
- ------------------------------------------------------------
Note 5. Joint Repurchase Agreement Account
The Fund, along with other affiliated registered investment companies, transfers
uninvested cash balances into a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements collateralized
by U.S. Treasury or federal agency obligations. As of April 30, 1999, the Series
had a .2% undivided interest in the repurchase agreements in the joint account.
The undivided interest for the Series represents $1,352,000 in principal amount.
As of such date, each repurchase agreement in the joint account and the
collateral therefore were as follows:
Bear, Stearns & Co. Inc., 4.90%, in the principal amount of $150,000,000
repurchase price $150,061,250, due 5/3/99. The value of the collateral including
accrued interest was $153,641,618.
- --------------------------------------------------------------------------------
12
<PAGE>
Notes to Financial Statements (Unaudited) PRUDENTIAL TAX-MANAGED EQUITY FUND
- --------------------------------------------------------------------------------
Merrill Lynch, Pierce, Fenner & Smith, Inc., 4.90%, in the principal amount of
$121,448,000, repurchase price $121,497,571, due 5/3/99. The value of the
collateral including accrued interest was $123,877,485.
Salomon Smith Barney, Inc., 4.90%, in the principal amount of $150,000,000,
repurchase price $150,061,250, due 5/3/99. The value of the collateral including
accrued interest was $153,037,359.
Warburg Dillon Read LLC, 4.90%, in the principal amount of $150,000,000,
repurchase price of $150,061,250, due 5/3/99. The value of the collateral
including accrued interest was $153,001,025.
- ------------------------------------------------------------
Note 6. Capital
The Fund offers Class A, Class B, Class C and Class Z shares. Class A shares are
sold with a front-end sales charge of up to 5%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class C shares are sold with a front-end
sales charge of 1% and a contingent deferred sales charge of 1% during the first
18 months. Class B shares automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. A special exchange privilege is
also available for shareholders who qualified to purchase Class A shares at net
asset value. Class Z shares are not subject to any sales or redemption charge
and are offered exclusively for sale to a limited group of investors. Of the
26,913,328 shares of beneficial interest issued and outstanding at April 30,
1999, Prudential owned 10,000.
The Fund has authorized an unlimited number of shares of beneficial interest at
$.001 par value.
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------------ ---------- ------------
<S> <C> <C>
March 3, 1999(a) through
April 30, 1999:
Shares sold......................... 6,283,979 $ 63,699,045
Shares reacquired................... (477,718) (4,965,707)
---------- ------------
Net increase in shares outstanding
before conversion................. 5,806,261 58,733,338
Shares issued upon conversion from
Class B........................... 1,039 10,934
---------- ------------
Net increase in shares
outstanding....................... 5,807,300 $ 58,744,272
---------- ------------
---------- ------------
<CAPTION>
Class B
- ------------------------------------
<S> <C> <C>
March 3, 1999(a) through
April 30, 1999:
Shares sold......................... 12,609,988 $128,483,424
Shares reacquired................... (261,064) (2,768,323)
---------- ------------
Net increase in shares outstanding
before conversion................. 12,348,924 125,715,101
Shares reacquired upon conversion
into Class A...................... (1,039) (10,934)
---------- ------------
Net increase in shares
outstanding....................... 12,347,885 $125,704,167
---------- ------------
---------- ------------
<CAPTION>
Class C
- ------------------------------------
<S> <C> <C>
March 3, 1999(a) through
April 30, 1999:
Shares sold......................... 7,808,728 $ 79,391,143
Shares reacquired................... (186,200) (1,995,015)
---------- ------------
Net increase in shares
outstanding....................... 7,622,528 $ 77,396,128
---------- ------------
---------- ------------
<CAPTION>
Class Z
- ------------------------------------
<S> <C> <C>
March 3, 1999(a) through
April 30, 1999:
Shares sold......................... 1,214,574 $ 12,298,331
Shares reacquired................... (88,959) (957,870)
---------- ------------
Net increase in shares
outstanding....................... 1,125,615 $ 11,340,461
---------- ------------
---------- ------------
</TABLE>
- ---------------
(a) Commencement of investment operations.
- --------------------------------------------------------------------------------
13
<PAGE>
Financial Highlights (Unaudited) PRUDENTIAL TAX-MANAGED EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Class C Class Z
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
March 3, March 3, March 3, March 3,
1999(a) 1999(a) 1999(a) 1999(a)
Through Through Through Through
April 30, April 30, April 30, April 30,
1999(d) 1999(d) 1999(d) 1999(d)
--------- --------- --------- ---------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................................ $ 10.00 $ 10.00 $ 10.00 $ 10.00
--------- --------- --------- ---------
Income from investment operations:
Net investment income (loss)................................................ -- (0.01 ) (0.01) 0.01
Net realized and unrealized gain on investment and foreign currency
transactions............................................................. 0.93 0.94 0.94 0.94
--------- --------- --------- ---------
Total from investment operations......................................... 0.93 0.93 0.93 0.95
--------- --------- --------- ---------
Net asset value, end of period.............................................. $ 10.93 $ 10.93 $ 10.93 $ 10.95
--------- --------- --------- ---------
--------- --------- --------- ---------
TOTAL RETURN(b)............................................................. 9.30% 9.30 % 9.30% 9.50%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............................................. $63,518 $134,953 $83,321 $12,350
Average net assets (000).................................................... $53,551 $108,053 $68,554 $11,057
Ratios to average net assets:(c)
Expenses, including distribution fees.................................... 1.23% 1.98 % 1.98% 0.98%
Expenses, excluding distribution fees.................................... 0.98% 0.98 % 0.98% 0.98%
Net investment income (loss)............................................. 0.12% (0.66 )% (0.65)% 0.36%
Portfolio turnover rate..................................................... 18% 18 % 18% 18%
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) Total return does not consider the effect of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(c) Annualized.
(d) Based on weighted average shares outstanding during the period.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 14
<PAGE>
Getting The Most From Your Prudential Mutual Fund
How many times have you read these letters--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 in the U.S. market
and denominated in U.S. dollars.
<PAGE>
Getting The Most From Your Prudential Mutual Fund
When you invest through Prudential Mutual Funds, you receive financial advice
through a Prudential Securities financial advisor or Prudential/Pruco
Securities registered representative. Your advisor or representative can
provide you with the following services:
- -------------------------------------------------------------------------------
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial advisor or registered representative can help you match the
reward you seek with the risk you can tolerate. And risk can be difficult to
gauge--sometimes even the simplest investments bear surprising risks. The
educated investor knows that markets seldom move in just one direction--there
are times when a market sector or asset class will lose value or provide little
in the way of total return. Managing your own expectations is easier with help
from someone who understands the markets and who knows you!
- -------------------------------------------------------------------------------
Keeping Up With The Joneses
A financial advisor or registered representative can help you wade through the
numerous mutual funds available to find the ones that fit your own individual
investment profile and risk tolerance. While the newspapers and popular
magazines are full of advice about investing, they are aimed at generic groups
of people or representative individuals--not at you personally. Your financial
advisor or registered representative will review your investment objectives
with you. This means you can make financial decisions based on the assets and
liabilities in your current portfolio and your risk tolerance--not just based
on the current investment fad.
- -------------------------------------------------------------------------------
Buy Low, Sell High
Buying at the top of a market cycle and selling at the bottom are among the
most common investor mistakes. But, sometimes it's difficult to hold on to an
investment when it's losing value every month. Your financial advisor or
registered representative can answer questions when you're confused or worried
about your investment, and remind you that you're investing for the long haul.
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Trustees
Edward D. Beach
Delayne Dedrick Gold
Robert F. Gunia
Don G. Hoff
Robert E. LaBlanc
Douglas H. McCorkindale
Thomas T. Mooney
Stephen P. Munn
Richard Redeker
Robin B. Smith
John R. Strangfeld
Louis A. Weil, III
Clay T. Whitehead
Officers
John R. Strangfeld, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
Marguerite E.H. Morrison, Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
Distributor
Prudential Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
The views expressed in this report and information about the Fund's portfolio
holdings are for the period covered by this report, and are subject to change
thereafter.
The accompanying financial statements as of April 30, 1999, were not audited
and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
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(LOGO)
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
74437B103
74437B202 MF187E2
74437B301
74437B400
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