<PAGE>
ANNUAL REPORT OCTOBER 31, 2000
Prudential
Tax-Managed Equity Fund
Fund Type Stock
Objective Long-term after-tax growth of capital
(GRAPHIC)
This report is not authorized for distribution to
prospective investors unless preceded or
accompanied by a current prospectus.
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.
(LOGO)
<PAGE>
Build on the Rock
INVESTMENT GOALS AND STYLE
The Prudential Tax-Managed Equity Fund attempts 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. There can be no assurance that the Fund will
achieve its investment objective.
Portfolio Breakdown/
Sector Composition
% of the % of the
Fund's S&P
Equity 500
Assets Index
21.6% 21.1% Electronic Technology
17.2 15.5 Finance
10.0 11.3 Health Technology
9.0 8.0 Technology Services
7.0 7.5 Producer Manufacturing
6.6 5.1 Energy Minerals
4.5 6.0 Consumer Non-Durables
4.2 5.1 Retail Trade
3.5 2.3 Utilities
2.4 0.5 Consumer Services
1.0 1.5 Process Industries
13.0 16.1 Other
Ten Largest Holdings
Expressed as a percentage of
equity assets as of 10/31/00
4.4% General Electric Co.
Diversifed Manufacturing
2.9 Microsoft Corp.
Computer Software & Services
2.8 Cisco Systems, Inc.
Computer Networks
2.5 Exxon Mobil Corp.
Petroleum & Coal
2.4 Intel Corp.
Semiconductors
1.9 Citigroup Inc.
Financial Services
1.9 American Int'l Group, Inc.
Insurance
1.9 Pfizer Inc.
Pharmaceuticals
1.7 Merck & Co., Inc.
Pharmaceuticals
1.6 EMC Corp.
Computer Software & Services
Holdings are subject to change.
<PAGE>
www.prudential.com (800) 225-1852
Performance at a Glance
Cumulative Total Returns1 As of 10/31/00
<TABLE>
<CAPTION>
One Since
Year Inception2
<S> <C> <C>
Class A 10.12% 24.10%
Class B 9.36 22.70
Class C 9.36 22.70
Class Z 10.44 24.80
Lipper Large-Cap Core Fund Avg.3 9.71 22.00
</TABLE>
Average Annual Total Returns1 As of 10/31/00
<TABLE>
<CAPTION>
One Since
Year Inception2
<S> <C> <C>
Class A 4.61% 10.40%
Class B 4.36 10.85
Class C 7.26 12.40
Class Z 10.44 14.24
</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.
1Source: Prudential Investments Fund Management
LLC and Lipper Inc. The cumulative total returns do
not take into account sales charges. The average
annual total returns do take into account
applicable sales charges. The Fund charges a
maximum front-end sales charge of 5% for Class A
shares. Class B shares are subject to a declining
contingent deferred sales charge (CDSC) of 5%, 4%,
3%, 2%, 1%, and 1% for six years. Class B shares
will automatically convert to Class A shares, on a
quarterly basis, approximately seven years after
purchase. Class C shares are subject to a front-end
sales charge of 1% and a CDSC of 1% for 18 months.
Class Z shares are not subject to a sales charge or
distribution and service (12b-1) fees.
2Inception date: Class A, B, C, and Z, 3/3/99.
3Lipper average returns are for all funds in each
share class for the one-year and since-inception
periods 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&PR 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.
"Standard & Poor'sR" and "S&PR" are registered
trademarks of The McGraw-Hill Companies, Inc.
1
<PAGE>
(LOGO) December 15, 2000
DEAR SHAREHOLDER,
The Prudential Tax-Managed Equity Fund sustained
relatively stable growth through the very turbulent
markets during the 12-month period ended October
31, 2000, usually holding up better than the S&P
500 Index when the Index declined. Over the full
period, the Fund's Class A shares returned 10.12%,
significantly more than the 6.08% return of the S&P
500 Index, and slightly ahead of the 9.71% gain
posted by the Lipper Large-Cap Core Fund Average.
Its return was 4.61% to those paying the maximum
one-time Class A share sales charge.
The period began with a sharply rising market whose
gains were narrowly focused in technology stocks,
followed by a period of exceptional market
instability. Daily volatility was high, while
market favor moved frequently among economic
sectors. The reporting period concluded with a two-
month plummet of growth stocks that gave back much
of their gains of the period; value stocks
continued to move ahead. The Fund's "core" style--
incorporating both value and growth elements--held
up well.
However, the turbulence among market sectors and
investing styles challenged even the strongest
stomachs. It was a good reminder of why we
recommend that investors, and particularly
investors with a low tolerance for short-term
instability of their asset values, diversify
their equity holdings. The Prudential Tax-Managed
Equity Fund is a highly diversified fund, holding
approximately 300 stocks spread throughout the U.S.
large-cap market. We also remind you that stock
investors should have a time horizon of several
years. Volatility in stock prices is normal, although
not to the extent we saw during the past 12 months.
Sincerely,
David R. Odenath, Jr., President
Prudential Tax-Managed Funds
2
<PAGE>
Prudential Tax-Managed Equity Fund
Annual Report October 31, 2000
INVESTMENT ADVISER'S REPORT
OUR QUANTITATIVE TAX-MANAGED INVESTMENT DISCIPLINE
Limiting risk exposures. Our definition of success
is a return that is better than the overall market,
as measured by the S&P 500 Index, over the long
term. So we try to be somewhat like the Index, only
slightly better. The Prudential Tax-Managed Equity
Fund is managed to reduce the risk of a large
deviation in return from the Fund's S&P 500 Index
benchmark, while also increasing the likelihood
that its performance will be better than the Index.
We classify the market into 19 economic sectors. We
allow only small deviations from the benchmark S&P
500 Index in risk factors such as sector, industry,
and market capitalization. Such deviations do not
come about because we make judgements about which
industries or market capitalization group will
outpace others. Rather, we attempt to overweight
(or underweight) individual stocks on the basis of
our assessment of their investment prospects. This
sometimes results in an overweight (or underweight)
in particular economic sectors or other
categorizations. Over time, we expect our
variations from the Index on various risk factors
to have only a minor impact on our return.
In this reporting period, these sector variations
accounted for about two points of our four
percentage point outperformance of the S&P 500
Index.
How we select stocks. Our primary objective is to
add value through judiciously chosen individual
securities. Usually stocks of both fast-growing and
slow-growing companies (the latter are often called
"value" stocks) are represented in our portfolio.
We have found that no single discipline identifies
winners and losers equally well within each style.
Consequently, we apply different selection criteria
to growth and value stocks.
Research suggests that investors tend to
overemphasize recent news while neglecting longer-
term trends. So, among slowly growing stocks, we
tend to buy and hold shares in companies that
become underpriced relative to their
3
<PAGE>
Prudential Tax-Managed Equity Fund
Annual Report October 31, 2000
Comments on Largest Holdings As of 10/31/00
-----------------------------------------------------
% of the % of the
Fund's S&P
Equity 500
Assets Index
4.4% 4.3% General Electric Co./Diversified Manufacturing
We held a modest overweight in this broadly
diversified enterprise that is both the largest
company in the S&P 500 Index and in our portfolio.
We were attracted by improved valuations as prices
fell in late October.
2.9% 2.9% Microsoft Corp./Computer Software & Services
We held Microsoft at a very slight overweight
relative to the benchmark S&P 500 Index (which is
obscured by rounding). Although we underweighted it
early in the year as earnings forecasts deteriorated,
we have reacquired our position as its share price and
earnings outlook both have stabilized.
2.8% 3.0% Cisco Systems, Inc./Computer Networks
Although it was our third largest holding, we
underweighted this high-growth supplier of network
technology, relative to its weight in the S&P
500 Index. We believe that the stock is attractive,
but have taken tax losses in some shares and switched
into more attractive alternatives.
2.5% 2.5% Exxon Mobil Corp./Petroleum & Coal
We had a neutral outlook on this large energy
supplier, and our holdings were near its weight in
the S&P 500 Index, primarily to maintain our
exposure to large-cap stocks and to the energy
sector.
2.4% 2.4% Intel Corp./Semiconductors
Although our models showed this stock to be
relatively attractive, we held it near its market
weight. We had sold shares as the stock price fell
over the previous month to realize capital losses and
switch into more attractive alternatives.
Holdings are subject to change.
4
<PAGE>
www.prudential.com (800) 225-1852
earnings or book value. We do this in the belief
that the market has overreacted to past
disappointments from these firms. We buy slow-
growth stocks with the intention of holding them
until they have reached their fair value. Even
though earnings may grow slowly for these firms, we
believe that the shares have good prospects for
capital appreciation should prices move toward
intrinsic value.
Among stocks in rapidly growing companies, however,
both theory and practice suggest that investors'
overconfidence slows their response to news about
future growth. We try to emphasize stocks of
companies that have had positive news about their
future prospects in the belief that the market will
eventually follow. We hold these stocks until bad
news calls into question the firm's ability to
sustain profitable future growth. In contrast to
value stocks, we de-emphasize price because low
prices do not necessarily make attractive growth
stocks.
Overall, stock selection within each industry
accounted for a little more than half of our
outperformance during this reporting period.
Tax management. The changes in market value of a
stock in our portfolio affect our net asset value
and our return, but have no tax consequences until
the gain or loss is locked in by the shares' sale.
This is called "realizing" the gain or loss.
We review our portfolio frequently for stocks that
have fallen in value. When appropriate, we may sell
some of these shares to realize capital losses.
When doing so, we search for stocks with a similar
risk profile to purchase as a substitute. We try to
keep a tax-loss carryforward--a net realized loss
that can be subtracted from future gains--amounting
to 3% to 5% of our portfolio.
At period end, our tax-loss carryforward was 4.6% of net assets.
5
<PAGE>
Prudential Tax-Managed Equity Fund
Annual Report October 31, 2000
ANALYSIS OF THE PERIOD'S RETURN
Despite their volatility and sharp price correction
during this period, electronic technology stocks
contributed more than half of the gains in both
the S&P 500 Index and our portfolio. We benefited
from overweighting the sector, on average, but
benefited even more from our selection within
the sector. Some of the largest companies made the
largest contributions: Cisco Systems, EMC, Sun
Microsystems, Intel, and Oracle. We also had
substantial gains on smaller technology companies,
including Network Appliance, Hewlett Packard, and
Altera. Among our software holdings, Siebel and
Adobe moved up sharply.
Good selection among telecommunications equipment
manufacturers also made a substantial contribution
to our outperformance. We had underweighted Lucent,
which dropped sharply over the period, and had
overweighted the strong performing Qualcomm, Adc
Telecommunications, and Comverse Technology. We
sold our positions in these stocks when we thought
they became expensive.
General Electric, by far the largest company in the
S&P 500 Index, had a 23% rise over the period,
which had a significant impact on the Index and on
our return. Our holding was a very slight
overweighting.
In the financial sector, we focused slightly on
investment banks, and these had a particularly
strong performance, as they had been inexpensively
priced compared to other sectors. Insurance
companies also performed well, particularly
property/casualty insurers that benefited from an
improvement in the prices of their services. We had
a relatively large overweight in Allstate. We also
benefited from a slight overweight of the multiline
insurer American International Group. Both stocks
gained more than 40% over the 12 months.
6
<PAGE>
www.prudential.com (800) 225-1852
We occasionally buy stocks that are not part of the
S&P 500 Index when we believe they offer better
risk/reward characteristics than the Index-listed
stocks in an industry. Among property/casualty
insurers, we benefited from our purchases of
Allmerica Financial, Everest Re Group, and Old
Republic International. We had small exposures, but
the stocks had large gains. On the other hand, we
lost ground by selling our holdings in Chubb, which
rose sharply late in the period. Overall, our
selection in the property/casualty industry
contributed to our outperformance.
We also gained from a relatively large
overweighting of electric utilities, including our
holdings in Reliant Energy, Duke Energy, PG&E, and
Entergy. These firms, and the industry overall, had
very good returns over the period.
Prudential Tax-Managed Equity Fund Management Team
7
<PAGE>
Prudential Tax-Managed Equity Fund
Annual Report October 31, 2000
Financial
Statements
<PAGE>
Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund
Portfolio of Investments as of October 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C> <C>
------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS 99.9%
Common Stocks
-------------------------------------------------------------------------------------
Aerospace/Defense 0.9%
37,100 Boeing Co. $ 2,515,844
22,600 General Dynamics Corp. 1,617,312
--------------
4,133,156
-------------------------------------------------------------------------------------
Airlines 0.9%
88,200 AMR Corp.(a) 2,888,550
12,600 Delta Air Lines, Inc. 595,350
16,300 Southwest Airlines Co. 464,550
--------------
3,948,450
-------------------------------------------------------------------------------------
Aluminum 0.4%
9,500 Alcan Aluminum Ltd. 299,844
54,500 Alcoa Inc. 1,563,468
--------------
1,863,312
-------------------------------------------------------------------------------------
Auto & Truck 1.8%
1,000 ArvinMeritor, Inc. 16,750
2,500 BorgWarner, Inc. 94,375
58,608 Ford Motor Co. 1,531,134
48,500 General Motors Corp. 3,013,062
10,200 Harley-Davidson, Inc. 491,513
4,800 Johnson Controls, Inc. 286,200
3,200 PACCAR Inc. 134,600
142,700 Visteon Corp. 2,524,006
--------------
8,091,640
-------------------------------------------------------------------------------------
Banking 3.6%
43,000 Astoria Financial Corp. 1,612,500
11,000 Bank of America Corp. 528,687
23,100 Bank of New York Co., Inc. 1,329,694
45,300 Chase Manhattan Corp. 2,061,150
22,700 Dime Bancorp, Inc. 554,731
3,650 Fifth Third Bancorp 187,519
9,864 Firstar Corp. 194,198
</TABLE>
See Notes to Financial Statements 9
<PAGE>
Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund
Portfolio of Investments as of October 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
31,030 FleetBoston Financial Corp. $ 1,179,140
49,400 Golden West Financial Corp. 2,769,487
9,500 Mellon Financial Corp. 458,375
4,900 Northern Trust Corp. 418,338
18,900 PNC Financial Services Group 1,263,937
3,500 U.S. Bancorp 84,656
15,900 Washington Mutual, Inc. 699,600
64,800 Wells Fargo & Co. 3,001,050
--------------
16,343,062
-------------------------------------------------------------------------------------
Beverages 1.9%
44,200 Anheuser-Busch Cos., Inc. 2,022,150
39,000 Coca-Cola Co. 2,354,625
92,400 PepsiCo, Inc. 4,475,625
--------------
8,852,400
-------------------------------------------------------------------------------------
Biotechnology 0.1%
4,600 PE Corp.-PE Biosystems Group 538,200
-------------------------------------------------------------------------------------
Business Services 0.3%
22,700 Paychex, Inc. 1,286,806
-------------------------------------------------------------------------------------
Chemicals 0.5%
28,200 Air Products & Chemicals, Inc. 1,052,212
600 Ashland, Inc. 19,650
6,300 Dow Chemical Co. 192,938
21,085 E.I. du Pont de Nemours & Co. 956,732
3,800 Union Carbide Corp. 163,400
--------------
2,384,932
-------------------------------------------------------------------------------------
Commercial Services
400 Cendant Corp.(a) 4,800
-------------------------------------------------------------------------------------
Computers 3.7%
29,200 Apple Computer, Inc.(a) 571,225
81,000 Hewlett-Packard Co. 3,761,438
5,300 InFocus Corp.(a) 234,194
</TABLE>
10 See Notes to Financial Statements
<PAGE>
Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund
Portfolio of Investments as of October 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
54,400 International Business Machines Corp. $ 5,358,400
62,500 Sun Microsystems, Inc.(a) 6,929,687
--------------
16,854,944
-------------------------------------------------------------------------------------
Computer Networks 3.2%
236,600 Cisco Systems, Inc.(a) 12,746,825
15,200 Network Appliance, Inc.(a) 1,808,800
--------------
14,555,625
-------------------------------------------------------------------------------------
Computer Software & Services 10.8%
40,800 Adobe Systems, Inc. 3,103,350
103,000 America Online, Inc.(a) 5,194,290
2,800 Cadence Design Systems, Inc.(a) 71,925
29,100 Comverse Technology, Inc.(a) 3,251,925
14,300 Electronic Data Systems Corp. 671,206
83,600 EMC Corp.(a) 7,445,625
41,700 Intuit, Inc.(a) 2,561,944
6,700 Macromedia, Inc.(a) 516,319
195,400 Microsoft Corp.(a) 13,458,175
6,000 NVIDIA Corp.(a) 372,844
221,000 Oracle Corp.(a) 7,293,000
3,600 Parametric Technology Corp.(a) 44,325
14,000 Rational Software Corp.(a) 835,625
4,200 Siebel Systems, Inc.(a) 440,737
28,300 VERITAS Software Corp.(a) 3,990,742
3,500 Yahoo! Inc.(a) 205,188
--------------
49,457,220
-------------------------------------------------------------------------------------
Consumer Products 0.4%
900 American Greetings Corp. 16,369
2,900 Clorox Co. (The) 129,413
19,100 NIKE, Inc. 762,806
12,500 V.F. Corp. 341,406
18,400 Whirlpool Corp. 800,400
--------------
2,050,394
</TABLE>
See Notes to Financial Statements 11
<PAGE>
Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund
Portfolio of Investments as of October 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Cosmetics & Soaps 0.9%
21,700 Avon Products, Inc. $ 1,052,450
33,100 Colgate-Palmolive Co. 1,944,956
9,000 Kimberly-Clark Corp. 594,000
4,800 Procter & Gamble Co. 342,900
--------------
3,934,306
-------------------------------------------------------------------------------------
Data Processing/Management 0.6%
23,700 Automatic Data Processing, Inc. 1,547,906
6,900 CSG Systems Int'l., Inc.(a) 320,419
11,200 First Data Corp. 561,400
7,600 Fiserv, Inc.(a) 398,525
400 SEI Investments Co. 36,300
--------------
2,864,550
-------------------------------------------------------------------------------------
Distribution/ Wholesalers 0.2%
21,700 Costco Wholesale Corp.(a) 794,762
6,700 Tech Data Corp.(a) 278,888
500 W.W. Grainger, Inc. 15,969
--------------
1,089,619
-------------------------------------------------------------------------------------
Diversified Manufacturing 6.2%
700 Ball Corp. 24,588
28,200 Corning, Inc. 2,157,300
2,100 Eaton Corp. 142,931
371,100 General Electric Co. 20,340,919
17,850 Honeywell Int'l., Inc. 960,553
4,200 Illinois Tool Works, Inc. 233,363
4,500 Liz Claiborne, Inc. 191,250
13,100 Minnesota Mining & Manufacturing Co. (3M) 1,265,787
26,600 National Service Industries, Inc. 543,637
12,100 Parker-Hannifin Corp. 500,638
6,000 Polycom, Inc.(a) 390,000
1,100 Symbol Technologies, Inc. 49,981
12,100 Trinity Industrial, Inc. 291,156
</TABLE>
12 See Notes to Financial Statements
<PAGE>
Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund
Portfolio of Investments as of October 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
11,700 Tyco Int'l. Ltd. $ 663,244
7,600 Unilever N V (Netherlands) 386,175
--------------
28,141,522
-------------------------------------------------------------------------------------
Drugs & Medical Supplies 4.9%
60,300 Abbott Laboratories 3,184,594
12,900 American Home Products Corp. 819,150
47,800 Amgen, Inc.(a) 2,769,412
12,450 Biomet, Inc. 450,534
64,700 Bristol-Myers Squibb Co. 3,942,656
18,900 Cardinal Health, Inc. 1,790,775
200 Express Scripts, Inc.(a) 13,438
13,000 Forest Laboratories, Inc.(a) 1,722,500
22,600 Genzyme Corp.(a) 1,604,600
58,500 Johnson & Johnson 5,389,312
4,400 MiniMed, Inc.(a) 320,925
600 Mylan Laboratories, Inc. 16,800
400 Quest Diagnostics, Inc.(a) 38,500
6,200 VISX, Inc.(a) 132,913
--------------
22,196,109
-------------------------------------------------------------------------------------
Electronics 1.2%
64,200 Agilent Technologies, Inc.(a) 2,973,263
6,100 ALLETE 131,531
16,400 Avnet, Inc. 440,750
15,900 Emerson Electric Co. 1,167,656
6,600 Linear Technology Corp. 426,113
6,300 Power-One, Inc.(a) 446,906
--------------
5,586,219
-------------------------------------------------------------------------------------
Electronic Components 2.7%
36,400 Altera Corp.(a) 1,490,125
5,900 Arrow Electronics, Inc.(a) 188,800
28,500 Jabil Circuit, Inc.(a) 1,626,281
15,600 KLA-Tencor Corp.(a) 527,475
2,200 Molex Inc. 118,800
25,600 Sanmina Corp.(a) 2,926,400
</TABLE>
See Notes to Financial Statements 13
<PAGE>
Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund
Portfolio of Investments as of October 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
7,600 Sawtek, Inc.(a) $ 386,650
66,800 Solectron Corp.(a) 2,939,200
32,900 Xilinx, Inc.(a) 2,383,194
--------------
12,586,925
-------------------------------------------------------------------------------------
Entertainment 0.1%
12,500 Carnival Corp. 310,156
-------------------------------------------------------------------------------------
Financial Services 9.2%
3,300 Ambac Financial Group, Inc. 263,381
70,600 American Express Co. 4,236,000
18,100 Associates First Capital Corp. 671,963
22,395 Bear Stearns Cos., Inc. 1,357,697
169,133 Citigroup, Inc. 8,900,624
24,000 Federal Home Loan Mortgage Corp. 1,440,000
36,400 Federal National Mortgage Association 2,802,800
11,700 Household Int'l., Inc. 588,656
54,600 Lehman Brothers Holdings, Inc. 3,521,700
111,300 MBNA Corp. 4,180,706
28,200 Merrill Lynch & Co., Inc. 1,974,000
5,000 MGIC Investment Corp. 340,625
23,400 Morgan (J.P.) & Co., Inc. 3,872,700
57,200 Morgan Stanley Dean Witter & Co. 4,593,875
9,600 PaineWebber Group, Inc. 684,000
24,800 Providian Financial Corp. 2,579,200
3,000 Stilwell Financial, Inc. 134,438
--------------
42,142,365
-------------------------------------------------------------------------------------
Foods 0.8%
740 Archer-Daniels-Midland Co. 8,140
9,000 ConAgra Foods, Inc. 192,375
200 General Mills, Inc. 8,350
1,500 H.J. Heinz Co. 62,906
45,400 IBP, Inc. 933,537
3,700 International Multifoods Corp. 62,669
2,200 Quaker Oats Co. (The) 179,438
36,900 Sara Lee Corp. 795,656
</TABLE>
14 See Notes to Financial Statements
<PAGE>
Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund
Portfolio of Investments as of October 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
19,000 Suiza Foods Corp.(a) $ 879,938
11,500 SYSCO Corp. 600,156
400 Wrigley (Wm.) Jr. Co. 31,675
--------------
3,754,840
-------------------------------------------------------------------------------------
Forest Products 0.3%
26,300 Weyerhaeuser Co. 1,234,456
-------------------------------------------------------------------------------------
Gas Distribution 0.1%
18,900 Sempra Energy 390,994
-------------------------------------------------------------------------------------
Gas Pipelines 1.5%
56,200 Dynegy Inc. 2,602,762
15,600 El Paso Energy Corp. 977,925
29,200 Enron Corp. 2,396,225
21,800 Williams Companies, Inc. (The) 911,513
--------------
6,888,425
-------------------------------------------------------------------------------------
Health Care 1.1%
17,900 Foundation Health Systems(a) 361,356
16,300 Tenet Healthcare Corp.(a) 640,794
4,200 Trigon Healthcare, Inc.(a) 301,087
33,800 UnitedHealth Group, Inc. 3,696,875
200 Wellpoint Health Networks Inc.(a) 23,388
--------------
5,023,500
-------------------------------------------------------------------------------------
Housing Construction 0.5%
26,700 Centex Corp. 987,900
100 Masco Corp. 1,869
29,100 Pulte Corp. 969,394
2,900 Southdown, Inc. 205,537
--------------
2,164,700
-------------------------------------------------------------------------------------
Human Resources
1,100 Robert Half Int'l., Inc.(a) 33,550
-------------------------------------------------------------------------------------
Insurance 4.5%
6,800 Aetna, Inc. 393,125
17,800 Allmerica Financial Corp. 1,122,512
</TABLE>
See Notes to Financial Statements 15
<PAGE>
Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund
Portfolio of Investments as of October 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
106,600 Allstate Corp. $ 4,290,650
11,900 American General Corp. 957,950
88,000 American Int'l. Group, Inc. 8,624,000
14,400 Everest Re Group, Ltd. 844,200
6,800 Hartford Financial Services Group, Inc. (The) 506,175
3,600 Jefferson-Pilot Corp. 247,500
2,300 Loews Corp. 209,156
6,200 Marsh & McLennan Co., Inc. 810,650
23,900 Old Republic Int'l Corp. 621,400
8,100 PMI Group, Inc. (The) 598,388
25,800 St. Paul Companies, Inc. (The) 1,322,250
--------------
20,547,956
-------------------------------------------------------------------------------------
Lodging
300 Marriott Int'l., Inc. 12,150
-------------------------------------------------------------------------------------
Machinery 0.4%
700 Caterpillar, Inc. 24,544
16,100 Deere & Co. 592,681
6,900 Dover Corp. 292,819
5,800 Ingersoll-Rand Co. 218,950
26,200 McDermott Int'l., Inc.(a) 253,813
700 Milacron Inc. 11,156
14,100 Tecumseh Products Co. 562,237
--------------
1,956,200
-------------------------------------------------------------------------------------
Media 2.7%
11,100 Comcast Corp.(a) 452,325
85,100 Disney (Walt) Co. 3,047,644
100 Donnelley (R.R.) & Sons Co. 2,150
6,800 Dow Jones & Co., Inc. 400,350
700 Gannett Co., Inc. 40,600
5,400 Interpublic Group of Companies, Inc. 231,863
2,100 Knight-Ridder, Inc. 105,525
5,900 McGraw-Hill Cos., Inc. 378,706
6,800 New York Times Co. 249,900
10,500 Omnicom Group Inc. 968,625
</TABLE>
16 See Notes to Financial Statements
<PAGE>
Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund
Portfolio of Investments as of October 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
20,700 Seagram Co. Ltd. $ 1,182,487
54,200 Time Warner, Inc. 4,114,322
9,000 Tribune Co. 333,562
10,200 Viacom Inc.(a) 580,125
--------------
12,088,184
-------------------------------------------------------------------------------------
Metals
200 Phelps Dodge Corp. 9,350
-------------------------------------------------------------------------------------
Mining
900 Barrick Gold Corp. 12,038
-------------------------------------------------------------------------------------
Miscellaneous Basic Industry
5,000 Precision Castparts Corp. 188,750
-------------------------------------------------------------------------------------
Oil & Gas 1.0%
7,500 Amerada Hess Corp. 465,000
8,100 Baker Hughes, Inc. 278,438
8,300 Coastal Corp. 626,131
21,000 Schlumberger Ltd. 1,598,625
52,200 USX - Marathon Group 1,419,188
--------------
4,387,382
-------------------------------------------------------------------------------------
Oil & Gas Exploration/Production 0.5%
500 Anadarko Petroleum Corp. 32,025
5,100 Apache Corp. 282,094
7,600 Burlington Resources, Inc. 273,600
8,949 Conoco Inc. 243,301
8,000 ENSCO International, Inc. 266,000
11,200 Nabors Industries, Inc.(a) 570,080
30,200 Tosco Corp. 864,475
--------------
2,531,575
-------------------------------------------------------------------------------------
Paper & Packaging 0.4%
10,500 Bowater Inc. 568,313
22,700 Georgia-Pacific Group 610,062
</TABLE>
See Notes to Financial Statements 17
<PAGE>
Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund
Portfolio of Investments as of October 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
12,075 International Paper Co. $ 442,247
34,100 Louisiana-Pacific Corp. 289,850
--------------
1,910,472
-------------------------------------------------------------------------------------
Petroleum & Coal 5.8%
23,200 Chevron Corp. 1,905,300
125,903 Exxon Mobil Corp. 11,228,974
47,800 Phillips Petroleum Co. 2,951,650
110,600 Royal Dutch Petroleum Co. 6,566,875
63,500 Texaco Inc. 3,750,469
--------------
26,403,268
-------------------------------------------------------------------------------------
Pharmaceuticals 5.4%
7,300 Allergan, Inc. 613,656
6,100 ALZA Corp.(a) 493,719
49,300 Eli Lilly & Co. 4,406,188
87,500 Merck & Co., Inc. 7,869,531
197,275 Pfizer Inc. 8,519,814
55,100 Schering-Plough Corp. 2,847,981
--------------
24,750,889
-------------------------------------------------------------------------------------
Photography Equipment & Supplies
300 Polaroid Corp. 3,019
-------------------------------------------------------------------------------------
Railroads 0.2%
21,600 Burlington Northern Santa Fe Corp. 573,750
6,700 Union Pacific Corp. 314,062
--------------
887,812
-------------------------------------------------------------------------------------
Retail 4.0%
16,700 Abercrombie & Fitch Co.(a) 393,494
6,300 Albertson's, Inc. 149,231
12,700 American Eagle Outfitters, Inc.(a) 437,356
34,800 Bed Bath & Beyond Inc.(a) 898,275
7,000 CDW Computer Centers, Inc.(a) 451,063
16,100 CVS Corp. 852,294
25,000 Federated Department Stores, Inc.(a) 814,062
23,000 Home Depot, Inc. 989,000
</TABLE>
18 See Notes to Financial Statements
<PAGE>
Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund
Portfolio of Investments as of October 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
35,500 Kohl's Corp.(a) $ 1,923,656
6,200 Neiman Marcus Group, Inc.(a) 230,175
3,300 RadioShack Corp. 196,763
19,900 Safeway Inc.(a) 1,088,281
51,600 Sears, Roebuck & Co. 1,534,068
12,700 Target Corp. 350,838
15,200 Tiffany & Co. 648,850
123,000 Wal-Mart Stores, Inc. 5,581,125
38,100 Walgreen Co. 1,738,312
--------------
18,276,843
-------------------------------------------------------------------------------------
Semiconductors 4.2%
6,700 Advanced Micro Devices, Inc.(a) 151,588
7,900 Analog Devices, Inc.(a) 513,500
43,000 Applied Materials, Inc.(a) 2,284,375
45,400 Atmel Corp.(a) 678,163
1,100 Broadcom Corp.(a) 244,613
247,100 Intel Corp. 11,119,500
1,300 Maxim Integrated Products, Inc.(a) 86,206
5,200 Micrel, Inc.(a) 235,300
17,500 Novellus Systems, Inc.(a) 716,406
2,800 Semtech Corp.(a) 90,300
32,200 Texas Instruments, Inc. 1,579,812
8,900 TranSwitch Corp.(a) 513,975
15,100 Vitesse Semiconductor Corp.(a) 1,056,056
--------------
19,269,794
-------------------------------------------------------------------------------------
Steel - Producers
400 Nucor Corp. 13,875
-------------------------------------------------------------------------------------
Telecommunications 7.9%
3,000 ALLTEL Corp. 193,313
139,011 AT&T Corp. 3,223,318
3,625 Avaya, Inc. 48,711
75,900 BellSouth Corp. 3,666,919
2,100 CenturyTel, Inc. 80,850
49,200 JDS Uniphase Corp.(a) 4,003,650
13,800 Lucent Technologies, Inc. 321,712
</TABLE>
See Notes to Financial Statements 19
<PAGE>
Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund
Portfolio of Investments as of October 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
134,300 Nortel Networks Corp. $ 6,110,650
8,600 Powerwave Technologies, Inc.(a) 413,875
500 Quanta Services, Inc.(a) 15,531
69,900 Qwest Communications Int'l., Inc.(a) 3,398,887
124,694 SBC Communications, Inc. 7,193,285
1,700 Sprint Corp. (PCS Group)(a) 43,350
64,800 Tellabs, Inc.(a) 3,235,950
69,596 Verizon Communications 4,023,519
10,750 WorldCom, Inc.(a) 255,312
--------------
36,228,832
-------------------------------------------------------------------------------------
Textiles 0.1%
14,400 Springs Industries, Inc. 339,300
-------------------------------------------------------------------------------------
Tobacco 0.6%
45,300 Philip Morris Companies, Inc. 1,659,112
26,900 R.J. Reynolds Tobacco Holdings, Inc. 961,675
1,200 Universal Corp. 33,600
--------------
2,654,387
-------------------------------------------------------------------------------------
Transportation
5,000 CNF Transportation, Inc. 133,438
1,600 FedEx Corp.(a) 74,976
--------------
208,414
-------------------------------------------------------------------------------------
Utilities 3.4%
18,900 Calpine Corp.(a) 1,491,919
2,000 Cinergy Corp. 61,250
6,673 Dominion Resources, Inc. 397,461
29,900 Duke Energy Corp. 2,584,481
42,800 Entergy Corp. 1,639,775
8,750 Exelon Corp. 526,094
13,100 Florida Progress Corp. 696,756
1,200 FPL Group, Inc. 79,200
17,400 GPU, Inc. 575,287
</TABLE>
20 See Notes to Financial Statements
<PAGE>
Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund
Portfolio of Investments as of October 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
28,000 KeySpan Corp. $ 985,250
86,200 PG&E Corp. 2,322,012
6,600 Pinnacle West Capital Corp. 286,688
23,700 PPL Corp. 976,144
24,100 Public Service Company of New Mexico 664,256
40,900 Reliant Energy, Inc. 1,689,681
12,400 Southern Co. 364,250
--------------
15,340,504
-------------------------------------------------------------------------------------
Waste Management
700 Waste Management, Inc. 14,000
--------------
Total long-term investments (cost $362,167,921) 456,742,171
--------------
SHORT-TERM INVESTMENTS 0.3%
<CAPTION>
Principal
Amount
(000)
<C> <S> <C> <C>
-------------------------------------------------------------------------------------
Repurchase Agreement
$ 1,321 Joint Repurchase Agreement Account,
6.55%, 11/1/00
(cost $1,321,000; Note 5) 1,321,000
--------------
Total Investments 100.2%
(cost $363,488,921; Note 4) 458,063,171
Liabilities in excess of other assets (0.2%) (956,956)
--------------
Net Assets 100% $ 457,106,215
--------------
--------------
</TABLE>
--------------------------------------------------------------------------------
(a) Non-income producing security.
N.V.--Naamlooze Vennootschap (Dutch Corporation).
See Notes to Financial Statements 21
<PAGE>
Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
October 31, 2000
<S> <C> <C>
----------------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $363,488,921) $458,063,171
Cash 111,792
Receivable for investments sold 6,712,461
Receivable for Fund shares sold 2,140,465
Dividends and interest receivable 284,480
Deferred expenses and other assets 3,011
----------------
Total assets 467,315,380
----------------
LIABILITIES
Payable for investments purchased 8,267,701
Payable for Fund shares reacquired 1,100,307
Distribution fee payable 303,512
Accrued expenses and other liabilities 293,576
Management fee payable 244,069
----------------
Total liabilities 10,209,165
----------------
NET ASSETS $457,106,215
----------------
----------------
Net assets were comprised of:
Shares of beneficial interest, at par $ 37,139
Paid-in capital in excess of par 385,241,284
----------------
385,278,423
Accumulated net realized gain (loss) on investments (22,746,458)
Net unrealized appreciation (depreciation) on investments 94,574,250
----------------
Net assets, October 31, 2000 $457,106,215
----------------
----------------
</TABLE>
22 See Notes to Financial Statements
<PAGE>
Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund
Statement of Assets and Liabilities Cont'd.
<TABLE>
<CAPTION>
October 31, 2000
<S> <C> <C>
----------------------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share
($92,684,974 / 7,466,784 shares of beneficial interest
issued and outstanding) $12.41
Maximum sales charge (5% of offering price) .65
----------------
Maximum offering price to public $13.06
----------------
----------------
Class B:
Net asset value, offering price and redemption price per
share ($214,699,795 / 17,496,155 shares of beneficial
interest issued and outstanding) $12.27
----------------
----------------
Class C:
Net asset value and redemption price per share
($131,554,218 / 10,720,269 shares of beneficial interest
issued and outstanding) $12.27
Sales charge (1% of offering price) .12
----------------
Offering price to public $12.39
----------------
----------------
Class Z:
Net asset value, offering price and redemption price per
share ($18,167,228 / 1,456,268 shares of beneficial
interest issued and outstanding) $12.48
----------------
----------------
</TABLE>
See Notes to Financial Statements 23
<PAGE>
Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund
Statement of Operations
<TABLE>
<CAPTION>
Year
Ended
October 31, 2000
<S> <C> <C>
----------------------------------------------------------------------------------------
NET INVESTMENT LOSS
Income
Dividends (net of foreign withholding taxes of $23,148) $ 4,895,271
Interest 47,318
----------------
Total income 4,942,589
----------------
Expenses
Management fee 2,863,786
Distribution fee--Class A 227,659
Distribution fee--Class B 2,051,746
Distribution fee--Class C 1,268,806
Transfer agent's fees and expenses 245,000
Reports to shareholders 160,000
Registration fees 150,000
Custodian's fees and expenses 112,000
Amortization of offering costs 110,000
Legal fees and expenses 30,000
Audit fee 26,000
Trustees' fees and expenses 14,000
Miscellaneous 8,574
----------------
Total expenses 7,267,571
----------------
Net investment loss (2,324,982)
----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investment transactions (10,461,288)
Net change in unrealized appreciation/depreciation on
investments 50,679,291
----------------
Net gain on investments 40,218,003
----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 37,893,021
----------------
----------------
</TABLE>
24 See Notes to Financial Statements
<PAGE>
Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year March 3, 1999(a)
Ended Through
October 31, 2000 October 31, 1999
<S> <C> <C> <C>
-------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net investment loss $ (2,324,982) $ (981,843)
Net realized gain (loss) on investments (10,461,288) (12,285,170)
Net change in unrealized
appreciation/depreciation of
investments 50,679,291 43,894,959
---------------- -------------------
Net increase in net assets resulting
from operations 37,893,021 30,627,946
---------------- -------------------
Fund share transactions (net of share
conversion)
(Note 6)
Net proceeds from shares sold 153,203,379 391,486,386
Cost of shares reacquired (111,835,796) (44,368,721)
---------------- -------------------
Net increase in net assets from Fund
share transactions 41,367,583 347,117,665
---------------- -------------------
Total increase 79,260,604 377,745,611
NET ASSETS
Beginning of period 377,845,611 100,000
---------------- -------------------
End of period $457,106,215 $ 377,845,611
---------------- -------------------
---------------- -------------------
---------------
(a) Commencement of investment operations.
</TABLE>
See Notes to Financial Statements 25
<PAGE>
Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund
Notes to Financial Statements
Prudential Tax-Managed Equity Fund (the 'Fund') is a series of Prudential
Tax-Managed Funds (the 'Trust'), which is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company.
The Trust 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 and
NASDAQ National Market System Securities are valued at the last sale price 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 makers. 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 by a pricing service or principal market makers.
Short-term securities which mature in 60 days or less are valued at amortized
cost which approximates market value.
Repurchase Agreements: In connection with transactions in repurchase
agreements 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 to the extent that any repurchase transaction exceeds one
business day, the value of the collateral is marked-to-market on a daily basis
to ensure the adequacy of the collateral.
26
<PAGE>
Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund
Notes to Financial Statements Cont'd.
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 on sales
of 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 of the
Fund 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
$2,324,982, due to the Fund experiencing net operating losses and certain
organizational expenses not deductible for tax purposes during the fiscal year
ended October 31, 2000. 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.
27
<PAGE>
Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund
Notes to Financial Statements Cont'd.
Deferred Offering Cost: The Fund incurred approximately $327,000 in
connection with the initial offering of the Fund. Offering costs have been
amortized over a period of 12 months ending in March 2000.
Note 2. Agreements
The Trust has a management agreement with Prudential Investments Fund Management
LLC ('PIFM'). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PIFM has entered into a Subadvisory Agreement with The Prudential
Investment Corporation ('PIC'). The subadvisory agreement provides that PIC will
furnish investment advisory services in connection with the management of the
Fund. In connection therewith, PIC is obligated to keep certain books and
records of the Fund. PIFM continues to have responsibility for all investment
advisory services pursuant to the management agreement and supervises PIC's
performance of such services. PIFM pays for the services of PIC, the cost of
compensation of officers of the Trust, occupancy and certain clerical and
bookkeeping costs of the Fund. The Fund bears all other costs and expenses.
For the period November 1, 1999 through December 31, 1999, the management
fee paid PIFM was computed daily and payable monthly at an annual rate of .65 of
1% of the Fund's average daily net assets. Effective January 1, 2000, the
management fee paid PIFM is computed daily and payable monthly at an annual rate
of .65 of 1% of the average daily net assets of the Fund up to and including
$500 million and .60 of 1% of such assets in excess of $500 million.
Effective January 1, 2000, the subadvisory fee paid to PIC by PIFM is
computed daily and payable monthly at an annual rate of .325 of 1% of the
average daily net assets of the Fund. Prior to January 1, 2000, PIC was
reimbursed by PIFM for reasonable costs and expenses incurred in furnishing
investment advisory services. The change in the subadvisory fee structure has no
impact on the management fee charged to the Fund or its shareholders.
The Trust 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 it. The distribution fees are accrued daily and
payable monthly. No distribution or service fees are paid to PIMS as distributor
of the Class Z shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates PIMS for
distribution-related activities at an annual rate of up to .30 of 1%, 1% and 1%,
of the
28
<PAGE>
Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund
Notes to Financial Statements Cont'd.
average daily net assets of the Class A, B and C shares, respectively. Such
expenses were .25 of 1%, 1% and 1% of the average daily net assets of the Class
A, Class B and Class C shares, respectively, for the year ended October 31,
2000.
PIMS has advised the Fund that it received approximately $319,000 and
$344,100 in front-end sales charges resulting from sales of Class A and Class C
shares, respectively, during the year ended October 31, 2000. From these fees,
PIMS paid such sales charges to affiliated broker-dealers, which in turn paid
commissions to salespersons and incurred other distribution costs.
PIMS has advised the Fund that for the year ended October 31, 2000, it
received approximately $825,600 and $184,300 in contingent deferred sales
charges imposed upon certain redemptions by Class B and Class C shareholders,
respectively.
PIFM, PIMS and PIC are indirect, wholly owned subsidiaries of The
Prudential Insurance Company of America ('Prudential').
The Fund, along with other affiliated registered investment companies (the
'Funds'), entered into a syndicated credit agreement ('SCA') with an
unaffiliated lender. The maximum commitment under the SCA is $1 billion.
Interest on any such borrowings will be at market rates. The purpose of the
agreement is to serve as an alternative source of funding for capital share
redemptions. The Funds pay a commitment fee at an annual rate of .080 of 1% of
the unused portion of the credit facility. The commitment fee is accrued and
paid quarterly on a pro rata basis by the Funds. The expiration date of the SCA
is March 9, 2001. Prior to March 9, 2000, the commitment fee was .065 of 1% of
the unused portion of the credit facility. The Fund did not borrow any amounts
pursuant to the SCA during the year ended October 31, 2000.
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the year ended October 31, 2000, the
Fund incurred fees of approximately $235,100 for the services of PMFS. As of
October 31, 2000, approximately $20,100 of such fees were due to PMFS. Transfer
agent fees and expenses in the Statement of Operations include certain
out-of-pocket expenses paid to nonaffiliates.
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the fiscal year ended October 31, 2000 were $453,511,584 and $412,287,150,
respectively.
29
<PAGE>
Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund
Notes to Financial Statements Cont'd.
The cost basis of investments for federal income tax purposes as of
October 31, 2000 was $365,032,176 and, accordingly, net unrealized appreciation
for federal income tax purposes was $93,030,995 (gross unrealized
appreciation--$105,364,426; gross unrealized depreciation--$12,333,431).
The Fund had a capital loss carryforward as of October 31, 2000, of
approximately $21,203,200, of which $11,454,800 expires in 2007 and $9,748,400
expires in 2008. Accordingly, no capital gains distributions are expected to be
paid to shareholders until future net gains have been realized in excess of such
amounts.
Note 5. Joint Repurchase Agreement Account
The Fund, along with other affiliated registered investment companies, transfers
uninvested cash 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, 2000, the Fund had a
.20% undivided interest in the repurchase agreements in the joint account. The
undivided interest for the Fund represents $1,321,000 in principal amount. As of
such date, each repurchase agreement in the joint account and the collateral
therefor were as follows:
ABN AMRO, Inc., 6.56%, in the principal amount of $150,000,000, repurchase
price $150,027,333, due 11/1/00. The value of the collateral including accrued
interest was $153,000,176.
Bear, Stearns & Co., Inc., 6.56%, in the principal amount of $175,000,000,
repurchase price $175,031,889, due 11/1/00. The value of the collateral
including accrued interest was $184,628,570.
Chase Securities, Inc., 6.56%, in the principal amount of $115,000,000,
repurchase price $115,020,956, due 11/1/00. The value of the collateral
including accrued interest was $117,304,831.
Merrill Lynch, Pierce, Fenner & Smith, Inc., 6.375%, in the principal
amount of $43,782,000, repurchase price $43,789,753, due 11/1/00. The value of
the collateral including accrued interest was $44,659,885.
UBS Warburg, Inc., 6.56%, in the principal amount of $175,000,000,
repurchase price $175,031,889, due 11/1/00. The value of the collateral
including accrued interest was $178,501,724.
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
30
<PAGE>
Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund
Notes to Financial Statements Cont'd.
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. 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>
Year ended October 31, 2000:
Shares sold 2,946,204 $ 35,336,218
Shares reacquired (2,771,616) (33,625,988)
----------- -------------
Net increase (decrease) in shares outstanding before
conversion 174,588 1,710,230
Shares issued upon conversion from Class B 355,164 4,412,297
----------- -------------
Net increase (decrease) in shares outstanding 529,752 $ 6,122,527
----------- -------------
----------- -------------
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 (decrease) 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 (decrease) in shares outstanding 6,934,532 $ 71,212,454
----------- -------------
----------- -------------
<CAPTION>
Class B
----------------------------------------------------------
<S> <C> <C>
Year ended October 31, 2000:
Shares sold 5,292,530 $ 63,653,331
Shares reacquired (3,044,109) (36,839,619)
----------- -------------
Net increase (decrease) in shares outstanding before
conversion 2,248,421 26,813,712
Shares reacquired upon conversion into Class A (357,981) (4,412,297)
----------- -------------
Net increase (decrease) in shares outstanding 1,890,440 $ 22,401,415
----------- -------------
----------- -------------
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 (decrease) 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 (decrease) in shares outstanding 15,603,215 $ 161,409,978
----------- -------------
----------- -------------
</TABLE>
------------------------------
(a) Commencement of investment operations.
31
<PAGE>
Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund
Notes to Financial Statements Cont'd.
<TABLE>
<CAPTION>
Class C Shares Amount
---------------------------------------------------------- ----------- -------------
Year ended October 31, 2000:
<S> <C> <C>
Shares sold 3,271,233 $ 39,345,027
Shares reacquired (2,432,795) (29,332,942)
----------- -------------
Net increase (decrease) in shares outstanding 838,438 $ 10,012,085
----------- -------------
----------- -------------
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 (decrease) in shares outstanding 9,879,331 $ 102,244,266
----------- -------------
----------- -------------
<CAPTION>
Class Z
----------------------------------------------------------
<S> <C> <C>
Year ended October 31, 2000:
Shares sold 1,233,776 $ 14,868,803
Shares reacquired (986,072) (12,037,247)
----------- -------------
Net increase (decrease) in shares outstanding 247,704 $ 2,831,556
----------- -------------
----------- -------------
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 (decrease) in shares outstanding 1,206,064 $ 12,250,967
----------- -------------
----------- -------------
</TABLE>
---------------
(a) Commencement of investment operations.
32
<PAGE>
Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund
Financial Highlights
<TABLE>
<CAPTION>
Class A
---------------------------------------------
Year March 3, 1999(a)
Ended Through
October 31, 2000 October 31, 1999
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:(d)
Net asset value, beginning of period $ 11.27 $ 10.00
-------- --------
Income from investment operations
Net investment income --(e) 0.01
Net realized and unrealized gain on
investment transactions 1.14 1.26
-------- --------
Total from investment operations 1.14 1.27
-------- --------
Net asset value, end of period $ 12.41 $ 11.27
-------- --------
-------- --------
TOTAL RETURN(b): 10.12% 12.70%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 92,685 $ 78,169
Average net assets (000) $ 91,064 $ 66,701
Ratios to average net assets:
Expenses, including distribution and
service (12b-1) fees(f) 1.09% 1.23%(c)
Expenses, excluding distribution and
service (12b-1) fees 0.84% 0.98%(c)
Net investment income 0.03% 0.09%(c)
For Class A, B, C and Z shares:
Portfolio turnover 94% 67%
</TABLE>
------------------------------
(a) Commencement of investment operations.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(c) Annualized.
(d) Based on average shares outstanding during the period.
(e) Less than $.005 per share.
(f) The distributor of the Fund agreed to limit its distribution and service
(12b-1) fees to .25 of 1% of the average daily net assets of the Class A
shares.
See Notes to Financial Statements 33
<PAGE>
Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class B
---------------------------------------------
Year March 3, 1999(a)
Ended Through
October 31, 2000 October 31, 1999
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:(d)
Net asset value, beginning of period $ 11.22 $ 10.00
---------- ----------
Income from investment operations
Net investment loss (0.09) (0.05)
Net realized and unrealized gain on
investment transactions 1.14 1.27
---------- ----------
Total from investment operations 1.05 1.22
---------- ----------
Net asset value, end of period $ 12.27 $ 11.22
---------- ----------
---------- ----------
TOTAL RETURN(b): 9.36% 12.20%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $214,700 $175,129
Average net assets (000) $205,175 $144,221
Ratios to average net assets:
Expenses, including distribution and
service (12b-1) fees 1.84% 1.98%(c)
Expenses, excluding distribution and
service (12b-1) fees 0.84% 0.98%(c)
Net investment income (0.72)% (0.67)%(c)
</TABLE>
------------------------------
(a) Commencement of investment operations.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(c) Annualized.
(d) Based on average shares outstanding during the period.
34 See Notes to Financial Statements
<PAGE>
Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class C
---------------------------------------------
Year March 3, 1999(a)
Ended Through
October 31, 2000 October 31, 1999
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:(d)
Net asset value, beginning of period $ 11.22 $ 10.00
---------- ----------
Income from investment operations
Net investment loss (0.09) (0.05)
Net realized and unrealized gain on
investment transactions 1.14 1.27
---------- ----------
Total from investment operations 1.05 1.22
---------- ----------
Net asset value, end of period $ 12.27 $ 11.22
---------- ----------
---------- ----------
TOTAL RETURN(b): 9.36% 12.20%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $131,554 $110,895
Average net assets (000) $126,881 $ 91,235
Ratios to average net assets:
Expenses, including distribution and
service (12b-1) fees 1.84% 1.98%(c)
Expenses, excluding distribution and
service (12b-1) fees 0.84% 0.98%(c)
Net investment income (0.72)% (0.67)%(c)
</TABLE>
------------------------------
(a) Commencement of investment operations.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(c) Annualized.
(d) Based on average shares outstanding during the period.
See Notes to Financial Statements 35
<PAGE>
Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class Z
---------------------------------------------
Year March 3, 1999(a)
Ended Through
October 31, 2000 October 31, 1999
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:(d)
Net asset value, beginning of year $ 11.30 $ 10.00
-------- --------
Income from investment operations
Net investment income 0.03 0.02
Net realized and unrealized gain on
investment transactions 1.15 1.28
-------- --------
Total from investment operations 1.18 1.30
-------- --------
Net asset value, end of period $ 12.48 $ 11.30
-------- --------
-------- --------
TOTAL RETURN(b): 10.44% 13.00%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 18,167 $ 13,653
Average net assets (000) $ 17,464 $ 12,627
Ratios to average net assets(c):
Expenses, including distribution and
service (12b-1) fees 0.84% 0.98%(c)
Expenses, excluding distribution and
service (12b-1) fees 0.84% 0.98%(c)
Net investment income 0.28% 0.35%(c)
</TABLE>
------------------------------
(a) Commencement of investment operations.
(b) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes reinvestment
of dividends and distributions. Total returns for periods of less than a
full year are not annualized.
(c) Annualized.
(d) Based on average shares outstanding during the period.
36 See Notes to Financial Statements
<PAGE>
Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund
Report of Independent Accountants
To the Shareholders and Board of Trustees of
Prudential Tax-Managed Funds--
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, 2000, the results of its operations for the year
then ended, and the changes in its net assets and the financial highlights for
each of the periods indicated, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
and financial highlights (hereafter referred to as 'financial statements') are
the responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at October
31, 2000 by correspondence with the custodian and brokers, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
December 15, 2000
37
<PAGE>
Prudential Tax-Managed Equity Fund
Prudential Mutual Funds
Prudential offers a broad range of mutual funds
designed to meet your individual needs. For
information about these funds, contact your
financial professional or call us at (800)
225-1852. Read the prospectus carefully
before you invest or send money.
STOCK FUNDS
Large Capitalization Stock Funds
Prudential 20/20 Focus Fund
Prudential Equity Fund, Inc.
Prudential Stock Index Fund
Prudential Tax-Managed Funds
Prudential Tax-Managed Equity Fund
Strategic Partners Focused Growth Fund
Target Funds
Large Capitalization Growth Fund
Large Capitalization Value Fund
The Prudential Investment Portfolios, Inc.
Prudential Jennison Growth Fund
Prudential Value Fund
Small- to Mid-Capitalization Stock Funds
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Prudential Small Company Fund, Inc.
Prudential Tax-Managed Small-Cap Fund, Inc.
Prudential U.S. Emerging Growth Fund, Inc.
Target Funds
Small Capitalization Growth Fund
Small Capitalization Value Fund
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
Sector Stock Funds
Prudential Natural Resources Fund, Inc.
Prudential Real Estate Securities Fund
Prudential Sector Funds, Inc.
Prudential Financial Services Fund
Prudential Health Sciences Fund
Prudential Technology Fund
Prudential Utility Fund
Global/International Stock Funds
Global Utility Fund, Inc.
Prudential Europe Growth Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Prudential Global Growth Fund
Prudential International Value Fund
Prudential Jennison International Growth Fund
Target Funds
International Equity Fund
BALANCED/ALLOCATION FUNDS
Prudential Diversified Funds
Conservative Growth Fund
Moderate Growth Fund
High Growth Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund
<PAGE>
www.prudential.com (800) 225-1852
BOND FUNDS
Taxable Bond Funds
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential High Yield Total Return Fund, Inc.
Prudential Short-Term Corporate Bond Fund, Inc.
Income Portfolio
Prudential Total Return Bond Fund, Inc.
Target Funds
Total Return Bond Fund
Tax-Free Bond Funds
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Income Series
Insured Series
Prudential Municipal Series Fund
Florida Series
New Jersey Series
New York Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
Global/International Bond Funds
Prudential Global Total Return Fund, Inc.
Prudential International Bond Fund, Inc.
MONEY MARKET FUNDS
Taxable Money Market Funds
Cash Accumulation Trust
Liquid Assets Fund
National Money Market Fund
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
Prudential MoneyMart Assets, Inc.
Prudential Special Money Market Fund, Inc.
Money Market Series
Tax-Free Money Market Funds
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
Prudential Tax-Free Money Fund, Inc.
Other Money Market Funds
COMMAND Government Fund
COMMAND Money Fund
COMMAND Tax-Free Fund
<PAGE>
Prudential Tax-Managed Equity Fund
Getting the Most from Your Prudential Mutual Fund
How many times have you read these reports--or other
financial materials--and stumbled across a word that
you don't understand?
Many shareholders have run into the same problem.
We'd like to help. So we'll use this space from
time to time to explain some of the words you might
have read, but not understood. And if you have a
favorite word that no one can explain to your
satisfaction, please write to us.
Basis Point: 1/100th of 1%. For example, one-half
of one percent is 50 basis points.
Collateralized Mortgage Obligations (CMOs):
Mortgage-backed bonds that separate mortgage pools
into different maturity classes called tranches.
These instruments are sensitive to changes in
interest rates and homeowner refinancing activity.
They are subject to prepayment and maturity
extension risk.
Derivatives: Securities that derive their value
from other securities. The rate of return of these
financial instruments rises and falls--sometimes
very suddenly--in response to changes in some
specific interest rate, currency, stock, or other
variable.
Discount Rate: The interest rate charged by the
Federal Reserve on loans to member banks.
Federal Funds Rate: The interest rate charged by
one bank to another on overnight loans.
Futures Contract: An agreement to purchase or sell
a specific amount of a commodity or financial instrument at a set price
at a specified date in the future.
<PAGE>
www.prudential.com (800) 225-1852
Leverage: The use of borrowed assets to enhance
return. The expectation is that the interest rate
charged on borrowed funds will be lower than the
return on the investment. While leverage can
increase profits, it can also magnify losses.
Liquidity: The ease with which a financial
instrument (or product) can be bought or sold
(converted into cash) in the financial markets.
Price/Earnings Ratio: The price of a share of stock
divided by the earnings per share for a 12-month
period.
Option: An agreement to purchase or sell something,
such as shares of stock, by a certain time for a
specified price. An option need not be exercised.
Spread: The difference between two values; often
used to describe the difference between "bid" and
"asked" prices of a security, or between the yields
of two similar maturity bonds.
Yankee Bond: A bond sold by a foreign company or
government on the U.S. market and denominated in
U.S. dollars.
<PAGE>
Prudential Tax-Managed Equity Fund
Class A Growth of a $10,000 Investment
(GRAPH)
Average Annual Total Returns as of 10/31/00
One Year Since Inception
With Sales Charge 4.61% 10.40%
Without Sales Charge 10.12% 13.85%
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. The graph compares a $10,000
investment in Prudential Tax-Managed Equity Fund
(Class A 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 at the commencement of operations of Class A
shares, and at the end of the current fiscal year
(October 31, 2000), as measured on a quarterly basis.
For purposes of the graph, 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 shares; (b) all recurring
fees (including management fees) were deducted; and
(c) all dividends and distributions were reinvested.
The S&P 500 Index is an unmanaged index of 500
stocks of large U.S. companies. It gives a broad
look at how stock prices have performed. The S&P
500 Index total 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 that comprise the Index may differ from
the securities in the Fund. The Index is not the
only one that may be used to characterize
performance of large-capitalization stock funds.
Other indexes may portray different comparative
performance. Investors cannot invest directly in an index.
This graph is furnished to you in accordance with SEC regulations.
<PAGE>
www.prudential.com (800) 225-1852
Class B Growth of a $10,000 Investment
(GRAPH)
Average Annual Total Returns as of 10/31/00
One Year Since Inception
With Sales Charge 4.36% 10.85%
Without Sales Charge 9.36% 13.08%
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. The graph compares a $10,000
investment in the Prudential Tax-Managed Equity
Fund (Class B 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 at the commencement of operations of
Class B shares, and at the end of the current fiscal
year (October 31, 2000), as measured on a quarterly basis.
For purposes of the graph, and unless otherwise indicated,
it has been assumed that (a) the maximum applicable
contingent deferred sales charge was deducted from the
value of the investment in Class B shares, assuming full
redemption on October 31, 2000; (b) all recurring
fees (including management fees) were deducted; and
(c) all dividends and distributions were reinvested.
Class B shares will automatically convert to Class A
shares, on a quarterly basis, beginning approximately
seven years after purchase.
The S&P 500 Index is an unmanaged index of 500
stocks of large U.S. companies. It gives a broad
look at how stock prices have performed. The S&P
500 Index total 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 that comprise the Index may differ from
the securities in the Fund. The Index is not the
only one that may be used to characterize
performance of large-capitalization stock funds.
Other indexes may portray different comparative
performance. Investors cannot invest directly in an index.
This graph is furnished to you in accordance with SEC regulations.
<PAGE>
Prudential Tax-Managed Equity Fund
Class C Growth of a $10,000 Investment
(GRAPH)
Average Annual Total Returns as of 10/31/00
One Year Since Inception
With Sales Charge 7.26% 12.40%
Without Sales Charge 9.36% 13.08%
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. The graph compares a $10,000
investment in the Prudential Tax-Managed Equity
Fund (Class C 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 at the commencement of operations of
Class C shares, and at the end of the
current fiscal year (October 31, 2000), as measured
on a quarterly basis. For purposes of the graph,
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 C shares; (b) the maximum
applicable contingent deferred sales charge was
deducted from the value of the investment in Class
C shares, assuming full redemption on October 31,
2000; (c) all recurring fees (including management
fees) were deducted; and (d) all dividends and
distributions were reinvested.
The S&P 500 Index is an unmanaged index of 500
stocks of large U.S. companies. It gives a broad
look at how stock prices have performed. The S&P
500 Index total 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 that comprise the Index may differ from
the securities in the Fund. The Index is not the
only one that may be used to characterize
performance of large-capitalization stock funds.
Other indexes may portray different comparative
performance. Investors cannot invest directly in an index.
This graph is furnished to you in accordance with SEC regulations.
<PAGE>
www.prudential.com (800) 225-1852
Class Z Growth of a $10,000 Investment
(GRAPH)
Average Annual Total Returns as of 10/31/00
One Year Since Inception
With Sales Charge 10.44% 14.24%
Without Sales Charge 10.44% 14.24%
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. The graph compares a $10,000
investment in the Prudential Tax-Managed Equity
Fund (Class 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 at the commencement of operations of
Class Z shares, and at the end of the current fiscal
year (October 31, 2000), as measured on a quarterly
basis. For purposes of the graph, and unless otherwise
indicated, it has been assumed that (a) all recurring
fees (including management fees) were deducted; and
(b) all dividends and distributions were reinvested.
Class Z shares are not subject to a sales charge or
distribution and service (12b-1) fees.
The S&P 500 Index is an unmanaged index of 500
stocks of large U.S. companies. It gives a broad
look at how stock prices have performed. The S&P
500 Index total 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 that comprise the Index may differ from
the securities in the Fund. The Index is not the
only one that may be used to characterize
performance of large-capitalization stock funds.
Other indexes may portray different comparative
performance. Investors cannot invest directly in an index.
This graph is furnished to you in accordance with SEC regulations.
<PAGE>
FOR MORE INFORMATION
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
Visit Prudential's website at:
http://www.prudential.com
Trustees
Saul K. Fenster
Delayne Dedrick Gold
Robert F. Gunia
Douglas H. McCorkindale
W. Scott McDonald, Jr.
Thomas T. Mooney
Stephen P. Munn
David R. Odenath, Jr.
Judy A. Rice
Robin B. Smith
Louis A. Weil, III
Clay T. Whitehead
Officers
David R. Odenath, Jr., President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Marguerite E.H. Morrison, Secretary
William V. Healey, Assistant Secretary
Jonathan D. Shain, Assistant Secretary
Manager
Prudential Investments
Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
Distributor
Prudential Investment
Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 8098
Philadelphia, PA 19101
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
Fund Symbols NASDAQ CUSIP
Class A PTMAX 74437B103
Class B PTMBX 74437B202
Class C PTMCX 74437B301
Class Z PTEZX 74437B400
MF187E
(LOGO) Printed on Recycled Paper
