<PAGE>
(ICON)
Prudential
Tax-Managed
Equity Fund
ANNUAL
REPORT
Oct. 31, 1999
(LOGO)
<PAGE>
A Message from the Fund's President December 15, 1999
(PHOTO)
Dear Shareholder,
Prudential Tax-Managed Equity Fund opened on March 3, 1999.
Since inception, the Fund's Class A shares returned 12.70%,
ahead of the 10.81% returns for the Lipper Large-Cap Core
Fund Average.
Growth and technology
Growth stocks, specifically large-capitalization growth stocks,
continued to drive the performance of the Fund
over our reporting period. Large-cap growth stocks also led
the way for many of the major equity indexes, including the
S&P 500 Index--which we most closely attempt to mirror. Our
quantitatively driven stock selection greatly benefited the Fund in
this market environment and enabled Prudential Tax-Managed
Equity Fund to outperform the S&P 500 Index, which returned
10.99%. The Fund also benefited from the absence of any
taxable distributions being reported since its inception.
In the following pages, our portfolio management team explains
why Prudential Tax-Managed Equity Fund performed well, how the
Fund is managed, and why it is an important part of an investor's
portfolio.
Thank you for your continued confidence in
Prudential mutual funds.
Sincerely,
John R. Strangfeld
President
Prudential Tax-Managed Equity Fund
<PAGE>
Performance Review
(PHOTO) (PHOTO) (PHOTO)
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 Composite Stock Price Index (S&P 500
Index) 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 Index.
Wise choices in a strong market
Throughout our reporting period, investors continued to reward
electronics/ technology stocks as well as the resurgent industrial
stocks. While the Fund benefited from the broad market's rise,
our healthy returns came primarily from our
security selection in electronics/technology and in
certain industrial sectors. We also did well with our
energy-oriented stocks.
When our models suggest an advantage in departing from
a sector's weight in the S&P 500 Index, we do so
modestly. During the current reporting period, our
techniques uncovered few bargains among healthcare
stocks and, as a result, we invested somewhat less
in this sector. This decision eased the impact on
our returns when healthcare stocks actually
underperformed the broader market.
Our investment techniques
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 investment 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.
An example of our technique: slow growing stocks often become
underpriced, relative to their earnings or book value, when
investors over-react to unexpected bad news. We try to take
advantage of these depressed prices by buying and holding
these stocks until they have reached their fair value.
This approach is similar to that of traditional value investors.
In the case of rapid-growth stocks, overconfident investors
may disregard signs that an expanding company is unlikely to
sustain its recent pace. Investors may continue to hold a
stock even after it experiences an earnings letdown. While
we invest in a number of strong growth companies, we try to
avoid those whose earnings we believe will be unable to keep
up with expectations. We also pay close attention to recent
news about the future growth prospects of these companies.
Knowing when to sell a holding is also important, even
when it involves realizing a loss. Investors commonly
hold poorly performing stocks for too long. Our
approach forces us to be objective investors and,
therefore, reduces the likelihood that we will hold
deteriorating positions in the face of ever-worsening
business prospects.
<PAGE>
Tax management and long-term capital appreciation
We try to defer taxes by allowing stocks to appreciate free
from tax consequences for as long as prudence allows. Since
current tax law penalizes profits on securities sold within
a year after purchase, many funds minimize turnover to become
more tax efficient.
Turnover that focuses on stocks that have depreciated in
value can actually increase tax efficiency. With state-of-the-art
market assessment techniques, we can review the portfolio daily
for holdings that have fallen in value. We
sometimes lock in a loss by selling a stock, especially if we
can replace it with another stock that has a common profile,
is generally in the same industry, or has similar growth
potential. Through this type of exchange, we can maintain,
or even improve, the quality of our portfolio with new stocks
while reaping tax benefits from the sale of the old stocks.
The desired result is an inventory of "stored losses" that
can be used to offset taxes from future gains.
To maximize the benefits of these "stored tax losses," we
trade relatively often. While many times we have a turnover
that is higher than that of other tax-managed funds, we
believe our active management can significantly reduce
the tax
<TABLE>
Performance at a Glance
<CAPTION>
Cumulative Total Returns1 As of 10/31/99
Since Inception2 Since Inception2
(Without sales charge) (With sales [ZW]
charge)
<S> <C> <C>
Class A 12.70% 7.07%
Class B 12.20 7.20
Class C 12.20 10.08
Class Z 13.00 13.00
Lipper Large-Cap Core Fund Avg.3 10.81 ***
</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. 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 and service (12b-1) fees.
2 Inception date: Class A, B, C, and Z, 3/3/99.
3 The Lipper Since Inception return is for all funds in each
share class in the Large-Cap Core Fund category. The Lipper
average is unmanaged. Large-Cap Core funds invest at least
75% of their equity assets in companies with market
capitalizations (on a three-year weighted basis) of
greater than 300% of the dollar-weighted median market
capitalization of the S&P(R) Mid-Cap 400 Index. Large-Cap
Core funds have wide latitude in the companies in which
they invest. These funds will normally have an average
price/earnings ratio, price-to-book ratio, and three-year
earnings growth figure, compared to the U.S. diversified
large-cap funds universe average.
"Standard & Poor's(R)" and "S&P(R)" are registered trademarks
of The McGraw-Hill Companies, Inc.
1
<PAGE>
Review Cont'd.
implications when we feel the time has come to sell a
winning holding. In the relatively short time since the
Fund's inception, it has realized a suitable amount of
losses--in dollar terms--to offset future capital
gains. This provided the Fund with a significant tax
advantage while still allowing the Fund to achieve a
high net return that outpaced its competitive
benchmarks.
Looking Ahead
Positioning the portfolio for the long term
We believe that our disciplined, quantitative investment style
will provide healthy overall performance, with volatility
relatively close to that of the stock market as a whole.
We will continue to maintain a risk profile very close to
that of the S&P 500 Index, which currently has an emphasis
on large-cap growth stocks. Some of our largest holdings--
Microsoft, General Electric, and Wal-Mart Stores--are also
large-cap stocks represented heavily in the S&P 500 Index.
We will, however, continue to search for companies that
offer good, solid value and have the potential for future
positive gains.
Additional Performance Tracking Tools
You can access comprehensive information about the performance
of your Prudential mutual funds 24 hours a
day through our website and automated phone service. At
www.prudential.com/investing, you'll find the daily closing
values, changes from the previous day, and quarterly performance
for all of our retail mutual funds. Other available resources
include daily, monthly, and quarterly market commentary.
Prudential is committed to meeting shareholders' needs. That is
why we continue to upgrade and make improvements to our website.
Please send us your comments about how we can continue to
improve our site to meet your needs.
Daily fund values are also a toll-free call away from any
touch-tone phone. Call (800) 225-1852 and follow the voice
prompts to obtain mutual fund closing values and yields. You
can even set up a personalized "watch list" to track specific
Prudential mutual funds.
Mutual Fund Automated Service: (800) 225-1852
Main Menu Submenus
1. Account information 1. Account balance
2. Transactions
3. Order forms
2. Prices and yields
3. Transactions
4. Order checks and statements
5. PIN change
Five Largest Holdings
Expressed as a percentage of net assets
as of 10/31/99
Microsoft Corporation 4.0%
Computer Software & Services
General Electric Co. 4.0
Diversified Manufacturing
Wal-Mart Stores, Inc. 2.3
Retail
CISCO Systems, Inc. 2.1
Computer Networking
Intel Corp. 1.8
Semiconductors
2
<PAGE>
Portfolio of Investments as
of October 31, 1999 PRUDENTIAL TAX-MANAGED EQUITY FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--99.4%
COMMON STOCKS
Aerospace/Defense--1.5%
20,700 AlliedSignal Inc. $ 1,178,606
43,200 Boeing Co. 1,989,900
9,300 Cordant Technologies Inc. 290,044
15,400 Gencorp Inc. 175,175
13,200 General Dynamics Corp. 731,775
8,200 Lockheed Martin Corp. 164,000
10,600 Northrop Grumman Corp. 581,675
9,300 Raytheon Co. 270,862
1,600 Rockwell Int'l. Corp. 77,500
400 United Technologies Corp. 24,200
------------
5,483,737
- ------------------------------------------------------------
Airlines--0.4%
15,100 Alaska Air Group, Inc.(a) 600,225
17,700 Delta Air Lines, Inc. 963,544
------------
1,563,769
- ------------------------------------------------------------
Aluminum--0.3%
9,500 Alcan Aluminum Ltd. 312,906
12,200 Alcoa Inc. 741,150
------------
1,054,056
- ------------------------------------------------------------
Apparel
4,000 Jones Apparel Group, Inc.(a) 126,500
- ------------------------------------------------------------
Auto & Truck--2.7%
8,700 Arvin Industries, Inc. 247,950
4,700 Borg-Warner Automotive, Inc. 185,650
17,500 Delphi Automotive Systems Corp. 287,656
72,900 Ford Motor Co. 4,000,387
34,000 General Motors Corp. 2,388,500
9,900 Genuine Parts Co. 258,019
3,000 Johnson Controls, Inc. 182,250
30,900 PACCAR Inc. 1,456,162
2,500 Superior Industries Int'l., Inc. 66,719
26,500 TRW Inc. 1,136,188
------------
10,209,481
Banking--5.3%
4,800 Astoria Financial Corp. $ 172,800
44,900 Bank of America Corp. 2,890,437
13,000 Bank of New York Co., Inc. 544,375
30,200 Chase Manhattan Corp. 2,638,725
1,800 Comerica Inc. 106,988
59,300 Dime Bancorp, Inc. 1,059,987
3,500 Fifth Third Bancorp 258,344
18,100 First Union Corp. 772,644
10,664 Firstar Corp. 313,255
64,130 Fleet Boston Corp. 2,797,671
11,910 Huntington Bancshares Inc. 352,834
80,500 KeyCorp 2,248,969
7,800 Mellon Financial Corp. 288,112
400 Northern Trust Corp. 38,625
9,400 Pacific Century Financial Corp. 214,438
18,900 PNC Bank Corp. 1,126,912
3,400 Provident Financial Group, Inc. 145,988
7,300 Republic New York Corp. 461,269
29,000 Sovereign Bancorp, Inc. 255,562
8,900 SunTrust Banks, Inc. 651,369
7,300 U.S. Bancorp 270,556
52,900 Wells Fargo Co. 2,532,587
------------
20,142,447
- ------------------------------------------------------------
Beverages--1.4%
18,500 Anheuser-Busch Cos., Inc. 1,328,531
47,000 Coca-Cola Co. 2,773,000
37,700 PepsiCo Inc. 1,307,719
------------
5,409,250
- ------------------------------------------------------------
Business Services--0.2%
12,200 Convergys Corp.(a) 238,663
2,000 IMS Health Inc. 58,000
5,300 Navigant Consulting, Inc.(a) 151,381
8,800 Paychex, Inc. 346,500
------------
794,544
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as
of October 31, 1999 PRUDENTIAL TAX-MANAGED EQUITY FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Chemicals--0.8%
8,400 Air Products & Chemicals, Inc. $ 231,000
3,400 Dow Chemical Co. 402,050
21,085 E.I. du Pont de Nemours & Co. 1,358,664
6,800 Praxair, Inc. 317,900
17,500 Schulman (A.), Inc. 272,344
3,800 Union Carbide Corp. 231,800
------------
2,813,758
- ------------------------------------------------------------
Computers--3.9%
14,600 Apple Computer, Inc.(a) 1,169,825
39,100 Dell Computer Corp.(a) 1,568,888
30,600 Hewlett-Packard Co. 2,266,312
62,900 International Business Machines
Corp. 6,187,787
6,600 Lexmark Int'l. Group, Inc.(a) 515,213
29,500 Sun Microsystems, Inc.(a) 3,121,469
------------
14,829,494
- ------------------------------------------------------------
Computer Networks--2.3%
14,600 Adaptec, Inc.(a) 657,000
105,900 Cisco Systems, Inc.(a) 7,836,600
3,800 Network Appliance, Inc.(a) 281,200
------------
8,774,800
- ------------------------------------------------------------
Computer Software & Services--10.1%
30,000 Adobe Systems Inc. 2,098,125
24,900 America Online, Inc. 3,229,219
11,200 Automatic Data Processing, Inc. 539,700
7,900 BMC Software Inc.(a) 507,081
21,700 Citrix Systems Inc.(a) 1,391,513
19,700 Computer Associates Int'l., Inc. 1,113,050
55,400 Compuware Corp.(a) 1,540,812
14,650 Comverse Technology, Inc.(a) 1,662,775
23,900 Electronic Arts, Inc.(a) 1,931,419
14,300 Electronic Data Systems Corp. 836,550
41,300 EMC Corp.(a) 3,014,900
11,200 First Data Corp. 511,700
9,200 Legato Systems, Inc.(a) 494,500
162,900 Microsoft Corp.(a) 15,078,431
49,800 Oracle Systems Corp.(a) 2,368,612
14,300 Siebel Systems, Inc.(a) 1,570,319
1,600 Synopsys, Inc.(a) $ 99,700
10,600 Unisys Corp.(a) 257,050
------------
38,245,456
- ------------------------------------------------------------
Consumer Products--0.7%
17,100 American Greetings Corp. 442,462
38,100 NIKE, Inc. 2,150,269
------------
2,592,731
- ------------------------------------------------------------
Cosmetics & Soaps--1.5%
18,800 Colgate-Palmolive Co. 1,137,400
42,600 Procter & Gamble Co. 4,467,675
------------
5,605,075
- ------------------------------------------------------------
Distribution/Wholesalers
1,800 Costco Wholesale Corp.(a) 144,563
- ------------------------------------------------------------
Diversified Manufacturing--6.3%
8,200 Cooper Industries, Inc. 353,113
6,700 Corning Inc. 526,787
5,000 Danaher Corp. 241,563
19,300 Eaton Corp. 1,452,325
110,600 General Electric Co. 14,993,212
6,900 Harsco Corp. 203,119
3,900 Honeywell, Inc. 411,206
7,700 Illinois Tool Works Inc. 564,025
6,400 Lancaster Colony Corp. 223,600
4,200 Liz Claiborne, Inc. 168,000
17,600 Minnesota Mining & Manufacturing
Co. 1,673,100
3,300 Parker-Hannifin Corp. 151,181
5,100 PPG Industries, Inc. 309,188
19,000 Trinity Industrial, Inc. 566,437
26,100 Unilever NV (Netherlands) 1,740,544
------------
23,577,400
- ------------------------------------------------------------
Drugs & Medical Supplies--4.7%
41,400 Abbott Laboratories 1,671,525
25,500 Amgen Inc.(a) 2,033,625
6,600 Baxter Int'l. Inc. 428,175
1,500 Biogen, Inc.(a) 111,188
72,700 Bristol-Myers Squibb Co. 5,584,269
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as
of October 31, 1999 PRUDENTIAL TAX-MANAGED EQUITY FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Drugs & Medical Supplies (cont'd.)
4,000 Forest Laboratories, Inc.(a) $ 183,500
28,600 Hillenbrand Industries, Inc. 947,375
46,300 Johnson & Johnson 4,849,925
14,400 Mallinckrodt Inc. 488,700
13,100 Pharmacia & Upjohn, Inc. 706,581
14,400 VISX, Inc.(a) 900,900
------------
17,905,763
- ------------------------------------------------------------
Electronics--0.3%
2,700 Avnet, Inc. 146,644
11,800 Emerson Electric Co. 708,737
3,300 Linear Technology Corp. 230,794
------------
1,086,175
- ------------------------------------------------------------
Electrical Components--2.3%
3,400 Altera Corp.(a) 165,325
4,700 American Power Conversion Corp.(a) 105,456
21,600 Jabil Circuit, Inc.(a) 1,128,600
17,900 KLA-Tencor Corp.(a) 1,417,456
25,000 Motorola, Inc. 2,435,937
1,100 Sanmina Corp.(a) 99,069
24,600 Solectron Corp.(a) 1,851,150
39,400 Teradyne, Inc.(a) 1,516,900
------------
8,719,893
- ------------------------------------------------------------
Entertainment--0.2%
18,700 Carnival Corp. 832,150
- ------------------------------------------------------------
Financial Services--8.1%
1,500 Ambac Financial Group, Inc. 89,625
16,800 American Express Co. 2,587,200
49,700 Bear Stearns Cos., Inc. 2,118,463
107,050 Citigroup Inc. 5,794,081
21,500 Countrywide Credit Industries, Inc. 729,656
21,300 Federal Home Loan Mortgage Corp. 1,151,531
37,100 Federal National Mortgage
Association 2,624,825
18,800 Golden West Financial Corp. 2,100,900
5,000 Household Int'l., Inc. 223,125
31,400 Lehman Brothers Holdings Inc. 2,313,787
3,700 Merrill Lynch & Co., Inc. 290,450
5,000 MGIC Investment Corp. 298,750
17,000 Morgan (J.P.) & Co., Inc. $ 2,224,875
29,900 Morgan Stanley Dean Witter & Co. 3,298,344
42,600 PaineWebber Group Inc. 1,735,950
20,500 Providian Financial Corp. 2,234,500
18,600 SLM Holding Corp. 910,238
------------
30,726,300
- ------------------------------------------------------------
Foods--0.8%
23,100 Archer-Daniels-Midland Co. 284,419
15,100 ConAgra, Inc. 393,544
2,800 General Mills, Inc. 244,125
9,500 Ralston-Ralston Purina Group 298,656
17,000 Sara Lee Corp. 460,062
21,500 Suiza Foods Corp.(a) 775,344
9,000 SUPERVALU INC. 189,000
11,500 SYSCO Corp. 442,031
------------
3,087,181
- ------------------------------------------------------------
Gas Pipelines--0.2%
3,100 El Paso Energy Corp. 127,100
18,200 Enron Corp. 726,863
------------
853,963
- ------------------------------------------------------------
Health Care--0.5%
34,300 Columbia/HCA Healthcare Corp. 827,487
9,400 Trigon Healthcare, Inc.(a) 266,725
16,000 United HealthCare Corp. 827,000
------------
1,921,212
- ------------------------------------------------------------
Housing Construction--0.3%
20,700 Fleetwood Enterprises, Inc. 451,519
9,700 Masco Corp. 295,850
8,600 Pulte Corp. 173,075
------------
920,444
- ------------------------------------------------------------
Insurance--3.9%
3,300 Aetna Inc. 165,825
5,100 AFLAC INC. 260,738
11,300 Allmerica Financial Corp. 646,219
95,200 Allstate Corp. 2,737,000
51,400 American Int'l. Group, Inc. 5,290,987
8,600 Chubb Corp. 471,925
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5
<PAGE>
Portfolio of Investments as
of October 31, 1999 PRUDENTIAL TAX-MANAGED EQUITY FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Insurance (cont'd.)
5,700 CIGNA Corp. $ 426,075
20,000 Cincinnati Financial Corp. 716,250
68,500 Conseco, Inc. 1,665,406
2,500 Jefferson-Pilot Corp. 187,656
18,800 Lincoln National Corp. 867,150
5,000 Marsh & McLennan Co., Inc. 395,313
35,900 Old Republic Int'l. Corp. 491,381
8,600 PMI Group, Inc. (The) 446,125
------------
14,768,050
- ------------------------------------------------------------
Lodging--0.1%
7,600 Marriott Int'l., Inc. 256,025
- ------------------------------------------------------------
Machinery--0.4%
1,400 Black & Decker Corp. 60,200
800 Cummins Engine Co., Inc. 40,550
6,100 Deere & Co. 221,125
6,900 Dover Corp. 293,681
4,200 Ingersoll-Rand Co. 219,450
26,200 McDermott Int'l., Inc. 474,875
10,800 Milacron Inc. 177,525
900 Tecumseh Products Co. 43,144
------------
1,530,550
- ------------------------------------------------------------
Media--2.3%
55,300 Disney (Walt) Co. 1,458,537
6,800 Dow Jones & Co., Inc. 418,200
11,100 Gannett Co., Inc. 856,088
11,800 Hispanic Broadcasting Corp.(a) 955,800
5,400 Interpublic Group of Companies,
Inc. 219,375
3,500 Knight-Ridder, Inc. 222,250
5,900 McGraw-Hill Cos., Inc. 351,788
6,800 New York Times Co. 273,700
10,500 Omnicom Group Inc. 924,000
32,300 Time Warner, Inc. 2,250,906
11,900 Tribune Co. 714,000
100 Washington Post Co. 53,206
------------
8,697,850
- ------------------------------------------------------------
Mining
3,500 Barrick Gold Corp. 64,094
Miscellaneous Basic Industry--1.1%
5,200 Kelly Services, Inc. $ 152,425
12,200 Precision Castparts Corp. 359,900
1,700 Textron, Inc. 131,219
85,710 Tyco Int'l. Ltd. 3,423,043
------------
4,066,587
- ------------------------------------------------------------
Office Equipment & Supplies--0.1%
20,100 Office Depot, Inc.(a) 249,994
1,500 Pitney Bowes Inc. 68,344
------------
318,338
- ------------------------------------------------------------
Oil & Gas--0.6%
4,600 Amerada Hess Corp. 263,925
10,100 Atlantic Richfield Co. 941,194
17,000 Coastal Corp. 716,125
2,800 Schlumberger Ltd. 169,575
7,100 USX - Marathon Group 206,787
------------
2,297,606
- ------------------------------------------------------------
Oil & Gas Exploration/Production--0.6%
48,000 Apache Corp. 1,872,000
13,100 Conoco Inc. 355,338
800 Noble Affiliates, Inc. 20,250
------------
2,247,588
- ------------------------------------------------------------
Paper & Packaging--0.6%
3,500 Champion Int'l. Corp. 202,344
11,500 Georgia-Pacific Group 456,406
9,900 International Paper Co. 520,988
22,000 Willamette Industries, Inc. 914,375
------------
2,094,113
- ------------------------------------------------------------
Petroleum & Coal--3.9%
23,600 Chevron Corp. 2,154,975
56,500 Exxon Corp. 4,184,531
20,000 Mobil Corp. 1,930,000
3,100 Phillips Petroleum Co. 144,150
77,900 Royal Dutch Petroleum Co. 4,669,131
25,200 Texaco Inc. 1,546,650
------------
14,629,437
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 6
<PAGE>
Portfolio of Investments as
of October 31, 1999 PRUDENTIAL TAX-MANAGED EQUITY FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Pharmaceuticals--4.9%
3,200 Allergan, Inc. $ 343,600
25,100 Eli Lilly & Co. 1,728,763
82,100 Merck & Co., Inc. 6,532,081
108,600 Pfizer Inc. 4,289,700
60,900 Schering-Plough Corp. 3,014,550
33,600 Warner-Lambert Co. 2,681,700
------------
18,590,394
- ------------------------------------------------------------
Railroads--0.7%
54,200 Burlington Northern, Inc. 1,727,625
6,800 CSX Corp. 278,800
12,600 Union Pacific Corp. 702,450
------------
2,708,875
- ------------------------------------------------------------
Restaurants--0.7%
800 Bob Evans Farms, Inc. 11,000
55,900 McDonald's Corp. 2,305,875
9,700 Tricon Global Restaurants, Inc.(a) 389,819
------------
2,706,694
- ------------------------------------------------------------
Retail--6.4%
28,600 Abercrombie & Fitch Co.(a) 779,350
2,100 Albertson's, Inc. 76,256
8,900 Best Buy Co., Inc.(a) 494,506
43,000 Circuit City Stores-Circuit City
Group 1,835,562
10,000 CVS Corp. 434,375
4,300 Dayton Hudson Corp. 277,888
35,500 Federated Department Stores,
Inc.(a) 1,515,406
60,700 Home Depot, Inc. 4,582,850
6,300 J.C. Penney Co., Inc. 159,863
146,200 Kmart Corp.(a) 1,471,137
9,400 Kohl's Corp.(a) 703,238
5,489 Limited, Inc. 225,735
11,700 Lowe's Companies, Inc. 643,500
8,100 May Department Stores Co. 280,969
17,600 Ross Stores, Inc. $ 363,000
2,300 Ruddick Corp. 39,244
400 Safeway Inc.(a) 14,125
8,000 Tiffany & Co. 476,000
155,400 Wal-Mart Stores, Inc. 8,809,237
36,200 Walgreen Co. 911,788
------------
24,094,029
- ------------------------------------------------------------
Semiconductors--3.2%
28,500 Applied Materials, Inc.(a) 2,559,656
90,000 Intel Corp. 6,969,375
26,300 LSI Logic Corp.(a) 1,398,831
14,700 Micron Technology, Inc. 1,048,294
1,000 QLogic Corp.(a) 104,125
------------
12,080,281
- ------------------------------------------------------------
Steel - Producers--0.3%
14,700 Nucor Corp. 762,562
8,200 USX-U.S. Steel Group 209,613
------------
972,175
- ------------------------------------------------------------
Telecommunications--10.9%
37,700 ADC Telecommunications, Inc.(a) 1,797,819
1,000 ALLTEL Corp. 83,250
104,500 AT&T Corp. 4,885,375
49,000 Bell Atlantic Corp. 3,181,937
101,800 BellSouth Corp. 4,581,000
1,100 General Instrument Corp.(a) 59,194
4,305 Global Crossing Ltd.(a) 149,061
38,400 GTE Corp. 2,880,000
76,100 Lucent Technologies, Inc. 4,889,425
36,300 MCI WorldCom, Inc.(a) 3,114,994
32,400 Nortel Networks Corp 2,006,775
13,100 QUALCOMM, Inc.(a) 2,918,025
134,978 SBC Communications Inc. 6,875,442
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7
<PAGE>
Portfolio of Investments as
of October 31, 1999 PRUDENTIAL TAX-MANAGED EQUITY FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Telecommunications (cont'd.)
21,200 Sprint Corp. $ 1,575,425
34,600 Tellabs, Inc.(a) 2,188,450
1,000 Vodafone AirTouch PLC, ADR
(United Kingdom) 47,937
------------
41,234,109
- ------------------------------------------------------------
Textiles--0.2%
12,100 Springs Industries, Inc. 481,731
16,600 Unifi, Inc. 199,200
------------
680,931
- ------------------------------------------------------------
Tobacco--0.7%
79,000 Philip Morris Companies Inc. 1,989,813
10,400 R.J. Reynolds Tobacco Holdings,
Inc. 225,550
5,400 Universal Corp. 126,900
11,600 UST Inc. 321,175
------------
2,663,438
- ------------------------------------------------------------
Transportation/Shipping--0.1%
13,000 Airborne Freight Corp. 279,500
3,600 Alexander & Baldwin, Inc. 86,400
3,500 Arnold Industies, Inc. 35,109
------------
401,009
- ------------------------------------------------------------
Utilities--2.9%
5,200 Ameren Corp. 196,625
34,000 Central & South West Corp. 754,375
4,200 Conectiv, Inc. 81,900
2,700 Consolidated Edison, Inc. 103,106
3,900 Constellation Energy Group 119,681
5,100 Dominion Resources, Inc. 245,438
11,000 DTE Energy Co. 365,063
3,700 Duke Energy Co. 209,050
36,900 Edison Int'l. 1,093,162
69,700 Entergy Corp. 2,086,644
17,100 FirstEnergy Corp. 445,669
17,400 Florida Progress Corp. $ 797,137
6,800 FPL Group, Inc. 342,125
24,500 GPU, Inc. 831,469
11,900 KeySpan Corp. 334,688
10,300 PG&E Corp. 236,256
26,200 PP & L Resources, Inc. 709,037
22,800 Public Service Company of New
Mexico(a) 407,550
7,100 Public Service Enterprise Group
Inc. 280,894
6,000 Puget Sound Energy, Inc. 132,750
16,200 Southern Co. 430,312
8,300 Texas Utilities Co. 321,625
6,600 Unicom Corp. 252,863
------------
10,777,419
------------
Total long-term investments
(cost $331,404,775) 375,299,734
------------
Principal
Amount
(000)
SHORT-TERM INVESTMENT--0.3%
- ------------------------------------------------------------
REPURCHASE AGREEMENT
$ 1,255 Joint Repurchase Agreement Account,
5.21%, 11/1/99
(cost $1,255,000; Note 5) 1,255,000
------------
- ------------------------------------------------------------
Total Investments--99.7%
(cost $332,659,775; Note 4) 376,554,734
Other assets in excess of
liabilities--0.3% 1,290,877
------------
Net Assets--100% $377,845,611
------------
------------
</TABLE>
- ---------------
(a) Non-income producing security.
ADR--American Depository Receipt.
NV--Naamloze Vennootschap (Dutch Corporation).
PLC--Public Limited Company (British Corporation).
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 8
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL TAX-MANAGED EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets [ZW]
October 31, 1999
<S> [ZW]
<C>
Investments, at value (cost [ZW]
$332,659,775)................................................................. [ZW]
$376,554,734
Receivable for Fund shares [ZW]
sold........................................................................... [ZW]
4,184,392
Receivable for investments [ZW]
sold........................................................................... [ZW]
1,443,314
Dividends and interest r[ZW]
eceivable......................................................................... [ZW]
304,301
Deferred expenses and other [ZW]
assets........................................................................ [ZW]
114,878
[ZW]
- ----------------
Total [ZW]
assets........................................................................................... [ZW]
382,601,619
[ZW]
- ----------------
Liabilities
Payable for investments [ZW]
purchased......................................................................... [ZW]
2,454,464
Payable for Fund shares [ZW]
reacquired........................................................................ [ZW]
1,556,174
Accrued expenses and other [ZW]
liabilities.................................................................... [ZW]
305,533
Distribution fee [ZW]
payable.................................................................................. [ZW]
244,173
Management fee [ZW]
payable.................................................................................... [ZW]
195,664
[ZW]
- ----------------
Total [ZW]
liabilities...................................................................................... [ZW]
4,756,008
[ZW]
- ----------------
Net [ZW]
Assets................................................................................................ [ZW]
$377,845,611
[ZW]
- ----------------
[ZW]
- ----------------
Net assets were comprised of:
Shares of beneficial interest, at [ZW]
par.................................................................. [ZW]
$ 33,633
Paid-in capital in excess of [ZW]
par....................................................................... [ZW]
346,202,189
[ZW]
- ----------------
[ZW]
346,235,822
Accumulated net realized loss on [ZW]
investments........................................................... [ZW]
(12,285,170)
Net unrealized appreciation on [ZW]
investments............................................................. [ZW]
43,894,959
[ZW]
- ----------------
Net assets, October 31, [ZW]
1999.............................................................................. [ZW]
$377,845,611
[ZW]
- ----------------
[ZW]
- ----------------
Class A:
Net asset value and redemption price per share
($78,169,385 / 6,937,032 shares of beneficial interest issued and [ZW]
outstanding)...................... $11.27
Maximum sales charge (5% of offering [ZW]
price)............................................................ [ZW]
.59
[ZW]
- ----------------
Maximum offering price to [ZW]
public....................................................................... [ZW]
$11.86
[ZW]
- ----------------
[ZW]
- ----------------
Class B:
Net asset value, offering price and redemption price per share
($175,128,619 / 15,605,715 shares of beneficial interest issued and [ZW]
outstanding).................... $11.22
[ZW]
- ----------------
[ZW]
- ----------------
Class C:
Net asset value and redemption price per share
($110,894,779 / 9,881,831 shares of beneficial interest issued and [ZW]
outstanding)..................... $11.22
Sales charge (1% of offering [ZW]
price).................................................................... [ZW]
.11
[ZW]
- ----------------
Offering price to [ZW]
public............................................................................... [ZW]
$11.33
[ZW]
- ----------------
[ZW]
- ----------------
Class Z:
Net asset value, offering price and redemption price per share
($13,652,828 / 1,208,564 shares of beneficial interest issued and [ZW]
outstanding)...................... $11.30
[ZW]
- ----------------
[ZW]
- ----------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 9
<PAGE>
PRUDENTIAL TAX-MANAGED EQUITY FUND
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
March 3, 1999(a)
Through
Net Investment Loss October 31, 1999
<S> <C>
Income
Dividends (net of foreign withholding
taxes of $26,545)................. $ 2,577,327
Interest............................. 150,723
-------------------
Total income...................... 2,728,050
-------------------
Expenses
Management fee....................... 1,356,586
Distribution fee--Class A............ 110,559
Distribution fee--Class B............ 956,204
Distribution fee--Class C............ 604,899
Amortization of offering costs....... 217,006
Transfer agent's fees and expenses... 130,000
Registration fees.................... 120,600
Custodian's fees and expenses........ 100,000
Reports to shareholders.............. 55,000
Audit fee and expenses............... 26,000
Legal fees and expenses.............. 20,000
Trustees' fees and expenses.......... 9,000
Miscellaneous........................ 4,039
-------------------
Total expenses.................... 3,709,893
-------------------
Net investment loss..................... (981,843)
-------------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized loss on investment
transactions......................... (12,285,170)
Net unrealized appreciation on
investments.......................... 43,894,959
-------------------
Net gain on investments................. 31,609,789
-------------------
Net Increase in Net Assets
Resulting from Operations $30,627,946
-------------------
-------------------
</TABLE>
- ---------------
(a) Commencement of investment operations.
PRUDENTIAL TAX-MANAGED EQUITY FUND
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
March 3, 1999(a)
Increase (Decrease) In Through
Net Assets October 31, 1999
<S> <C>
Operations
Net investment loss....................... $ (981,843)
Net realized loss on investments.......... (12,285,170)
Net unrealized appreciation of
investments............................ 43,894,959
-------------------
Net increase in net assets resulting from
operations............................. 30,627,946
-------------------
Fund share transactions (net of share
conversions) (Note 5)
Net proceeds from shares subscribed....... 391,486,386
Cost of shares reacquired................. (44,368,721)
-------------------
Net increase in net assets from Fund share
transactions........................... 347,117,665
-------------------
Total increase............................... 377,745,611
Net Assets
Beginning of period.......................... 100,000
-------------------
End of period................................ $ 377,845,611
-------------------
-------------------
- ---------------
(a) Commencement of investment operations.
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 10
<PAGE>
Notes to Financial Statements 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 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 in the preparation of its financial statements.
Securities Valuation: Securities listed on a securities exchange are valued at
the last sale 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 to be over-the-counter, are
valued by an independent pricing agent or principal market maker. Securities for
which market quotations are not readily available or for which the pricing agent
or principal market maker does not provide a valuation methodology or provides a
valuation or methodology that does not represent fair value are valued in
accordance with procedures adopted by the Fund's Board of Trustees.
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 Fund's policy that its custodian or designated
subcustodians under triparty repurchase agreements, as the case may be, 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.
Reclassification of Capital Accounts: The Fund accounts for and reports
distributions to shareholders in accordance with American Institute of Certified
Public Accountants' Statement of Position 93-2: Determination, Disclosure, and
Financial Statement Presentation of Income, Capital Gains, and Return of Capital
Distributions by Investment Companies. The effect of applying this statement was
to decrease undistributed net investment loss and decrease paid-in capital by
$981,843 for the period ended October 31, 1999, due to the Fund experiencing net
operating losses and certain organizational expenses not deductible for tax
purposes. Net investment income, net realized gains and net assets were not
affected by this change.
Taxes: It is the intent of the Fund 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.
Deferred Offering Cost: The Fund incurred approximately $327,000 in connection
with the initial offering of the Fund. Offering costs are being amortized over a
period of 12 months ending in March 2000.
- --------------------------------------------------------------------------------
11
<PAGE>
Notes to Financial Statements PRUDENTIAL TAX-MANAGED EQUITY FUND
- --------------------------------------------------------------------------------
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.
Pursuant to a subadvisory agreement between PIFM and The Prudential Investment
Corporation ('PIC'), PIC furnishes investment advisory services in connection
with the Management of the Fund. PIFM pays for the costs of the Subadviser's
services, the compensation of officers of the Fund, occupancy and certain
clerical and accounting 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 .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 annualized 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 October 31, 1999.
PIMS has advised the Fund that it has received approximately $1,898,400 and
$1,057,400 in front-end sales charges resulting from sales of Class A and Class
C shares, respectively, during the period ended October 31, 1999.
PIMS has advised the Fund that for the period ended October 31, 1999, it has
received approximately $327,400 and $76,000 in contingent deferred sales charges
imposed upon certain redemptions by Class B and Class C shareholders,
respectively.
PIMS, PIC and PIFM are wholly owned subsidiaries of The Prudential Insurance
Company of America ('Prudential').
Prior to March 11, 1999, the Fund, along with other affiliated registered
investment companies (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
the agreement during the period ended October 31, 1999. The purpose of the
agreement is to serve as an alternative source of funding for capital share
redemptions.
- ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the period ended October 31, 1999,
the Fund incurred fees of approximately $120,400 for the services of PMFS. As of
October 31, 1999, approximately $17,700 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 October 31, 1999 were $561,279,199 and $217,589,254,
respectively.
The United States federal income tax basis of the Fund's investments as of
October 31, 1999 was $333,490,360 and accordingly, net unrealized appreciation
on investments for federal income tax purposes was $43,064,374 (gross unrealized
appreciation--$51,253,054, gross unrealized depreciation--$8,188,680).
For federal income tax purposes, the Fund had a capital loss carryforward as of
October 31, 1999, of $11,454,800 which expires in 2007. Accordingly, no capital
gains distributions are expected to be paid to shareholders until future net
gains have been realized in excess of such carryforward.
- ------------------------------------------------------------
Note 5. Joint Repurchase Agreement Account
The Fund, along with other affiliated registered investment companies, transfers
uninvested cash balances into a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements collateralized
by U.S. Treasury or federal agency obligations. As of October 31, 1999, the Fund
had a .13% undivided interest in the repurchase agreements in the joint account.
The undivided interest for the Fund represents $1,255,000 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., 5.23%, in the principal amount of $250,000,000,
repurchase price $250,108,958, due 11/1/99. The value of the collateral
including accrued interest was $255,352,721.
- --------------------------------------------------------------------------------
12
<PAGE>
Notes to Financial Statements PRUDENTIAL TAX-MANAGED EQUITY FUND
- --------------------------------------------------------------------------------
Goldman, Sachs & Co., 5.18%, in the principal amount of $194,830,000, repurchase
price $194,914,102, due 11/1/99. The value of the collateral including accrued
interest was $198,727,175.
Morgan (J.P.) Securities Inc., 5.22%, in the principal amount of $250,000,000,
repurchase price of $250,108,750, due 11/1/99. The value of the collateral
including accrued interest was $255,000,115.
Salomon Smith Barney, Inc., 5.22%, in the principal amount of $250,000,000,
repurchase price $250,108,750, due 11/1/99. The value of the collateral
including accrued interest was $255,452,608.
- ------------------------------------------------------------
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 qualify 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.
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------------ ---------- ------------
<S> <C> <C>
March 3, 1999(a) through
October 31, 1999:
Shares sold......................... 8,370,870 $ 86,651,084
Shares reacquired................... (1,531,309) (16,474,883)
---------- ------------
Net increase in shares outstanding
before conversion................. 6,839,561 70,176,201
Shares issued upon conversion from
Class B........................... 94,971 1,036,253
---------- ------------
Net increase in shares
outstanding....................... 6,934,532 $ 71,212,454
---------- ------------
---------- ------------
<CAPTION>
Class B
- ------------------------------------
<S> <C> <C>
March 3, 1999(a) through
October 31, 1999:
Shares sold......................... 16,918,477 $175,697,109
Shares reacquired................... (1,220,109) (13,250,878)
---------- ------------
Net increase in shares outstanding
before conversion................. 15,698,368 162,446,231
Shares reacquired upon conversion
into Class A...................... (95,153) (1,036,253)
---------- ------------
Net increase in shares
outstanding....................... 15,603,215 $161,409,978
---------- ------------
---------- ------------
<CAPTION>
Class C
- ------------------------------------
<S> <C> <C>
March 3, 1999(a) through
October 31, 1999:
Shares sold......................... 10,842,964 $112,692,373
Shares reacquired................... (963,633) (10,448,107)
---------- ------------
Net increase in shares
outstanding....................... 9,879,331 $102,244,266
---------- ------------
---------- ------------
<CAPTION>
Class Z
- ------------------------------------
<S> <C> <C>
March 3, 1999(a) through
October 31, 1999:
Shares sold......................... 1,592,714 $ 16,445,820
Shares reacquired................... (386,650) (4,194,853)
---------- ------------
Net increase in shares
outstanding....................... 1,206,064 $ 12,250,967
---------- ------------
---------- ------------
</TABLE>
- ---------------
(a) Commencement of investment operations.
- --------------------------------------------------------------------------------
13
<PAGE>
Financial Highlights PRUDENTIAL TAX-MANAGED EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
[ZW]
Class A Class B Class C
[ZW]
- ----------- ----------- -----------
<S> [ZW]
<C> <C> <C>
[ZW]
March 3, March 3, March 3,
[ZW]
1999(a) 1999(a) 1999(a)
[ZW]
Through Through Through
[ZW]
October 31, October 31, October 31,
[ZW]
1999(d) 1999(d) 1999(d)
[ZW]
- ----------- ----------- -----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of [ZW]
period........................................ $ 10.00 $ [ZW]
10.00 $ 10.00
[ZW]
- ----------- ----------- -----------
Income from investment operations:
Net investment income (loss)........................................[ZW]
........ 0.01 (0.05) (0.05)
Net realized and unrealized gain on investment and foreign currency
[ZW]
transactions............................................................. [ZW]
1.26 1.27 1.27
[ZW]
- ----------- ----------- -----------
Total from investment [ZW]
operations......................................... 1.27 [ZW]
1.22 1.22
[ZW]
- ----------- ----------- -----------
Net asset value, end of [ZW]
period.............................................. $ 11.27 $ [ZW]
11.22 $ 11.22
[ZW]
- ----------- ----------- -----------
[ZW]
- ----------- ----------- -----------
TOTAL [ZW]
RETURN(b)............................................................. [ZW]
12.70% 12.20% 12.20%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period [ZW]
(000)............................................. $78,169 $ [ZW]
175,129 $ 110,895
Average net assets [ZW]
(000).................................................... $66,701 $ [ZW]
144,221 $ 91,235
Ratios to average net assets:(c)
Expenses, including distribution [ZW]
fees.................................... 1.23% [ZW]
1.98% 1.98%
Expenses, excluding distribution [ZW]
fees.................................... 0.98% [ZW]
0.98% 0.98%
Net investment income [ZW]
(loss)............................................. 0.09% [ZW]
(0.67)% (0.67)%
Portfolio turnover [ZW]
rate..................................................... [ZW]
67% 67% 67%
<CAPTION>
[ZW]
Class Z
[ZW]
- -----------
<S> [ZW]
<C>
[ZW]
March 3,
[ZW]
1999(a)
[ZW]
Through
[ZW]
October 31,
[ZW]
1999(d)
[ZW]
- -----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................................ [ZW]
$ 10.00
[ZW]
- -----------
Income from investment operations:
Net investment income [ZW]
(loss)................................................ 0.02
Net realized and unrealized gain on investment and foreign currency
[ZW]
transactions............................................................. [ZW]
1.28
[ZW]
- -----------
Total from investment [ZW]
operations......................................... 1.30
[ZW]
- -----------
Net asset value, end of period.............................................. [ZW]
$ 11.30
[ZW]
- -----------
[ZW]
- -----------
TOTAL [ZW]
RETURN(b)............................................................. [ZW]
13.00%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............................................. [ZW]
$13,653
Average net assets (000).................................................... [ZW]
$12,627
Ratios to average net assets:(c)
Expenses, including distribution [ZW]
fees.................................... 0.98%
Expenses, excluding distribution [ZW]
fees.................................... 0.98%
Net investment income [ZW]
(loss)............................................. 0.35%
Portfolio turnover [ZW]
rate..................................................... 67%
</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>
Report of Independant Accountants PRUDENTIAL TAX-MANAGED EQUITY FUND
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
Prudential Tax-Managed Equity Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Tax-Managed Equity Fund
(the 'Fund') at October 31, 1999, and the results of its operations, the changes
in its net assets and the financial highlights for the period March 3, 1999
(commencement of operations) through October 31, 1999, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as 'financial statements') are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at October 31, 1999 by
correspondence with the custodian and brokers, provides a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
December 20, 1999
- --------------------------------------------------------------------------------
15
<PAGE>
Comparing a $10,000 Investment
Prudential Tax-Managed Equity Fund vs. the S&P 500 Index
Class A
(GRAPH)
Class B
(GRAPH)
Past performance is not indicative of future results.
Principal and investment return will fluctuate so that an
investor's shares, when redeemed, may be worth more or
less than their original cost.
These graphs compare a $10,000 investment in Prudential
Tax-Managed Equity Fund (Class A, B, C, and Z shares) with
a similar investment in the Standard & Poor's 500 Composite
Stock Price Index (S&P 500 Index) by portraying the initial
account values of Class A, B, C, and Z shares
at the commencement of operations, and at the end of the
fiscal year (October 31), as measured on a quarterly basis,
for Class A, B, C, and Z shares. For purposes of the graphs,
and unless otherwise indicated, it has been assumed that (a) the
maximum applicable front-end sales charge was deducted from
the initial $10,000 investment in Class A and Class C shares;
(b) the maximum applicable contingent deferred sales charges
were deducted from the value of the investment in Class B and
Class C shares, assuming full redemption on October 31, 1999;
(c) all recurring fees (including management fees) were deducted;
and (d) all dividends and distributions were reinvested. Class
B shares will automatically convert to Class A shares, on
a quarterly basis, approximately seven years after
<PAGE>
Class C
(GRAPH)
Class Z
(GRAPH)
purchase. Class Z shares are not subject to a sales charge or
distribution and service (12b-1) fees. Since the Fund has been
in existence less than one year, no average annual total returns
are presented.
The S&P 500 Index is an unmanaged index of 500 stocks of
large U.S. companies that gives a broad look at how stock
prices have performed. The Index returns include the
reinvestment of all dividends, but do not include the effect of
sales charges or operating expenses of a mutual fund.
The securities in the Index may differ substantially
from the securities in the Fund. The Index is not the
only one that may be used to characterize performance
of equity funds, and other indexes may portray different
comparative performance. Investors cannot invest directly
in an index.
These graphs are furnished to you in accordance with SEC regulations.
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry StreetNewark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Class NASDAQ Cusip
A PTMAX 74437B103
B PTMBX 74437B202
C PTMCX 74437B301
Z -- 74437B400
Trustees
Edward D. Beach
Delayne Dedrick Gold
Robert F. Gunia
Douglas H. McCorkindale
Thomas T. Mooney
Stephen P. Munn
David R. Odenath, Jr.
Richard A. Redeker
Robin B. Smith
John R. Strangfeld
Louis A. Weil, III
Clay T. Whitehead
Officers
John R. Strangfeld, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Marguerite E.H. Morrison, Secretary
Stephen M. Ungerman, Assistant Treasurer
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street, Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza, Newark, NJ 07102-3777
Distributor
Prudential Investment Management Services LLC
Gateway Center Three
100 Mulberry Street, Newark, NJ 07102-4077
Custodian
State Street Bank and Trust Company
One Heritage Drive, North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 15005, New Brunswick, NJ 08906
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas, New York, NY 10036
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street, Chicago, IL 60610-4795
Prudential Investments is a unit of The Prudential
Insurance Company of America, 751 Broad Street,
Newark, NJ 07102.
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.
MF187E
