<PAGE>
SEMIANNUAL REPORT MAY 31, 2000
Prudential
Financial Services Fund
FUND TYPE Stock
OBJECTIVE Long-term capital appreciation
(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 Financial Services Fund seeks to achieve
long-term capital appreciation by investing primarily in securities
of companies in the banking and financial services
industries. The Fund is divided into two approximately
equal portfolios. The enhanced index portfolio consists
of securities selected from those in the benchmark
Standard & Poor's SuperComposite 1500 Financials Index
(S&P SC Financials Index). Quantitative models are used
to create a sample that is representative of the Index,
but with over- and underweighted holdings designed to
increase the likelihood of performing better than the
benchmark. The strategically managed portfolio invests in
a relatively small number of securities in which the
management team has the highest confidence.
Portfolio Composition
Sectors expressed as a percentage of
net assets as of 5/31/00
32.7% Insurance
32.6 Financial Services
27.9 Banks
2.7 Savings & Loan
4.1 Cash & Equivalents
Ten Largest Holdings
Expressed as a percentage of
net assets as of 5/31/00
5.7% Citigroup, Inc.
Financial Services-Diversified
4.6 American International Group, Inc.
Insurance-Multi-Line
3.7 FleetBoston Financial Corp.
Banks-Major
3.5 Industrial Alliance Life Ins. Co.
Insurance-Life
3.4 Freddie Mac
Financial Companies
3.4 Fannie Mae
Financial Companies
3.0 Allstate Corp.
Insurance-Multi-Line
2.9 SLM Holding Corp.
Financial Companies
2.6 Bank of America Corp.
Banks-Major
2.5 XL Capital Ltd.
Insurance-Property & Casualty
<PAGE>
www.prudential.com (800) 225-1852
Performance at a Glance
Cumulative Total Returns1 As of 5/31/00
Six One Since
Months Year Inception2
Class A 3.10% N/A -3.50%
Class B 2.68 N/A -4.20
Class C 2.68 N/A -4.20
Class Z 3.09 N/A -3.40
Lipper Financial
Services Fund Avg.3 -0.10 N/A -6.72
Average Annual Total Returns1 As of 6/30/00
One Since
Year Inception2
Class A -13.17% -13.17%
Class B -14.30 -14.30
Class C -11.21 -11.21
Class Z -8.50 -8.50
Past performance is not indicative of future results.
Principal and investment return will fluctuate so that an
investor's shares, when redeemed, may be worth more or
less than their original cost.
1 Source: Prudential Investments Fund Management LLC and
Lipper Inc. The cumulative total returns do not take into
account sales charges. The average annual total returns
do take into account applicable sales charges. The Fund
charges a maximum front-end sales charge of 5% for Class
A shares.
Class B shares are subject to a declining contingent
deferred sales charge (CDSC) of 5%, 4%, 3%, 2%, 1%, and
1% for six years. Class B shares will automatically
convert to Class A shares, on a quarterly basis,
approximately seven years after purchase. Class C shares
are subject to a front-end sales charge of 1% and a CDSC
of 1% for 18 months. Class Z shares are not subject to a
sales charge or distribution and service (12b-1) fees.
2 Inception date: Class A, B, C, and Z, 6/30/99.
3 Lipper average returns are for all funds in each share
class for the six-month and since inception
periods in the Financial Services Fund category. The
Lipper average is unmanaged. Financial Services funds
invest at least 65% of their assets in equity securities
of companies engaged in providing
financial services, including, but not limited to, banks,
finance companies, insurance companies, and
securities/brokerage firms.
1
<PAGE>
(LOGO) July 17, 2000
Dear Shareholder,
For most of the six months ended May 31, 2000, the prices
on financial services stocks fell. After the decline
bottomed on March 8, the sector began to recover.
Nonetheless, the Lipper Average return for Financial
Services Funds over the six-month period didn't quite
reach positive territory:
-0.10%. The Prudential Financial Services Fund, however,
outperformed the average, posting a return of 3.10% for
Class A shares. For those paying the maximum one-time
Class A share sales charge, the return was -2.06%.
About half of the Fund's investments are in its enhanced
index portfolio, which reflects the company size and
sector composition of the S&P SC Financials Index. This
portfolio slightly outperformed the 2.68% Index return,
and came in well above the Lipper Average. The Fund's
strategically managed portfolio performed even more
strongly, largely because of its holdings of insurance
companies and some money-center banks. However, for much
of the reporting period, its focus on credit card
companies and subprime auto lenders hurt its performance.
These were among the positions that were reduced or sold
after a new management team assumed responsibility for
this portfolio in May. The portfolio's holdings have been
restructured, as described in the following report.
The March market turnaround affected many sectors,
including the previously leading technology and
telecommunications services sectors. This illustrates
the importance of owning a diversified portfolio.
Yours sincerely,
John R. Strangfeld, President
Prudential Sector Funds, Inc.-Prudential Financial Services Fund
2
<PAGE>
Prudential Financial Services Fund
Semiannual Report May 31, 2000
INVESTMENT ADVISER'S REPORT
The six months ended May 31, 2000, included a large and
abrupt turnaround for financial stocks. S&P SC Financials
Index fell about 16% in the first half of our reporting
period, then bounced back to post a 2.68% net gain over
the entire six-month period. The decline early in the
period came because investors were focused on the
potential of high-technology stocks. However, as interest
rates rose and it became clear that the U.S. economy
would slow, investors began to look for less expensive
growth opportunities. They found them in financial
services stocks, which moved sharply upward as a result.
The enhanced index portfolio of our Fund had a slight
edge on the Index's return.
In addition to the change in market favor, the holdings
of our strategically managed portfolio were changed for
two reasons. One was that rising interest rates, combined
with the long climb of consumer credit exposure,
suggested that there would be greater stress on consumer
lenders in the future. This
suggested that we shift the Fund's focus, as we explain
below. The second was a change in the management team for
this portfolio. Both of these factors contributed to an
unusually high turnover of the portfolio's holdings that
lasted through June. When the restructuring was
completed, many of the holdings that already had the
greatest negative impact on the portfolio's performance
had been sold. The portfolio's return was significantly
higher in May, but all three factors-the change in market
favor, rising interest rates, and the shift in the Fund's
focus-may have contributed to this improvement. In any
case, this portfolio finished the reporting period well
ahead of the Index.
THE DOWNSIDE
We'll discuss the poor performers first, because their
impact came primarily in the first part of the reporting
period. We continued to experience losses in our shares
in Hanvit, a Korean bank that owned a substantial part of
Daewoo. As the amount of Hanvit's loans classified as
nonperforming (late in payments) increased, we sold our
holding. Some of our largest positions at the beginning
of the period were credit card issuers, including Capital
One,
3
<PAGE>
Prudential Financial Services Fund
Semiannual Report May 31, 2000
Providian, and MBNA. In our view, rising interest rates
will place stress on consumer credit operations as
households are carrying unusually large debt burdens.
When interest rates rise, the number of individuals who
cannot manage their payments is likely to increase. We
think it is time to increase the quality of the
portfolio's holdings. Probably because investors were
anticipating earnings declines, shares in all three of
these banks fell significantly over this reporting
period. We substantially reduced our holdings in all
three.
Another negative impact on return was our exposure to
subprime auto lenders, which were hurt, in part, due to
market disinterest in small-cap stocks. However, since
they also faced the same increasing credit concerns as
the credit card issuers, we eliminated these niche
holdings.
SLM Holding Corp., the parent of the Student Loan
Marketing Association (Sallie Mae), serves the student
loan market with funding and operational support.
Formerly government owned, SLM Holding was fully
privatized in 1997. Its profit margins shrank as interest
rates rose; concerns about the future direction of
federal student loan programs also pulled down share
prices. However, lending to students is a long-time
feature of the U.S.
education system, and we believe that Sallie Mae will
continue to play a major role in it. The stock began to
rebound toward the end of our reporting period. At period
end, it was among our largest holdings.
Five Largest Holdings-Enhanced Index Portfolio As of 5/31/00
Industry % of Total Enhanced % of S&P SC
Security Group Index Market Value Financials Index*
Citigroup, Inc. Financial Services 11.5% 11.5%
American
International
Group, Inc. Insurance 9.2 9.5
Bank of America
Corp. Banks 5.2 5.1
Morgan Stanley
Dean Witter Financial Services 4.5 4.5
Wells Fargo & Co. Banks 3.8 4.1
*Source: Standard & Poor's, based on data retrieved by Factset.
Holdings are subject to change.
4
<PAGE>
www.prudential.com (800) 225-1852
More banks and insurance companies
In the past, we had de-emphasized insurance companies and
banks in our strategically managed portfolio. After our
change in portfolio managers, we bolstered these segments
of the portfolio. Pricing in the important property/
casualty business had been declining for 10 to 12 years.
However, this situation began to correct during our
reporting period. Consequently, we added XL Capital Ltd.
(property and casualty), Allstate Corp. (personal lines),
and John Hancock Financial Services, Inc. (life)-a
diversified trio of large insurance companies. XL is a
Bermuda-based company with a strong capital position and
a highly regarded management team; it is in an excellent
position to take advantage of an acceleration in
property/casualty rates that we expect to last for
several years. Its shares already contributed to our
outperformance by period end.
An improvement in auto insurance rates is helping
Allstate, which is a major player in that sector. The
outlook for future pricing in auto insurance also is
good. Allstate is reorganizing to better align its
structure with newly developing distribution channels
centered on the Internet. It also contributed to our
outperformance.
John Hancock recently demutualized: It issued stock and
is no longer owned solely by its policyholders. Hancock
is among the fastest-growing companies in the life
insurance industry, and among those generating the
highest returns. What's more, it's clear that investors
have priced stocks in the entire industry inexpensively,
when the earnings of these companies are compared to
those in the overall stock market. We expect at least
some of this undervaluation to correct, adding to our
return. We think Hancock's earnings will increase by 12%
to 14% a year.
We also added to our bank holdings. FleetBoston Financial
Corp. became one of our largest positions. FleetBoston is
a super-regional bank in the northeast that is benefiting
from its recent formation from the merger of
5
<PAGE>
Prudential Financial Services Fund
Semiannual Report May 31, 2000
Fleet Financial with BankBoston. A significant overlap in
their infrastructures means there are opportunities for
savings from consolidation. We expect these savings to
strengthen FleetBoston's future earnings while other
banks are losing earnings momentum. We think FleetBoston
may increase its earnings by 12% a year for the next
several years, but it is currently selling for about 11
times year 2000 earnings-well below the S&P 500 average.
Looking Ahead
Our strategically managed portfolio has become more
representative of the industry composition and somewhat
less exposed to credit risk. Most of its restructuring
was completed by period end, and the rest was completed
by the end of June. There should be less turnover in the
future. We believe the strategically managed portfolio is
now well-positioned to benefit from improved pricing in
the insurance sector and from continued economic growth.
Investors appear to have become more critical in looking
at earnings potential and stock price. This bodes well
for financial services stocks, which have been selling at
substantially lower price/earnings multiples than the
stock market overall.
Prudential Financial Services Fund Management Team
6
<PAGE>
Prudential Financial Services Fund
Semiannual Report May 31, 2000
Financial
Statements
<PAGE>
Prudential Sector Funds, Inc. Prudential Financial Services Fund
Portfolio of Investments as of May 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C> <C>
------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS 95.9%
Common Stocks
-------------------------------------------------------------------------------------
Banks - Major 20.6%
53,900 Bank of America Corp. $ 2,994,819
19,800 Bank of New York Co., Inc. 929,363
36,600 Bank One Corp. 1,210,087
8,500 BB&T Corp. 249,156
25,100 Chase Manhattan Corp. 1,874,656
6,800 Comerica, Inc. 344,250
32,200 First Union Corp. 1,133,037
113,901 FleetBoston Financial Corp. 4,306,882
16,900 KeyCorp 354,900
11,900 Mellon Financial Corp. 458,894
5,200 Morgan (J.P.) Securites, Inc. 669,500
17,400 National City Corp. 348,000
43,200 PNC Bank Corp. 2,176,200
15,500 SouthTrust Corp. 419,469
5,300 State Street Corp. 590,950
9,200 Summit Bancorp. 263,925
8,600 SunTrust Banks, Inc. 513,850
94,600 U.S. Bancorp. 2,459,600
5,400 Wachovia Corp. 373,275
48,400 Wells Fargo & Co. 2,190,100
----------------
23,860,913
-------------------------------------------------------------------------------------
Banks - Mid-Sized 4.6%
17,000 AmSouth Bancorp. 307,062
32,300 Bank United Corp. 1,158,762
8,100 Compass Bancshares, Inc. 164,025
7,400 Fifth Third Bancorp. 503,200
12,800 First Security Corp. 199,200
24,636 Firstar Corp. 629,758
20,600 Hibernia Corp. 265,225
</TABLE>
8 See Notes to Financial Statements
<PAGE>
Prudential Sector Funds, Inc. Prudential Financial Services Fund
Portfolio of Investments as of May 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
4,200 Huntington Bancshares, Inc. $ 81,375
1,700 Mercantile Bankshares Corp. 56,313
4,700 Northern Trust Corp. 309,319
57,400 Pacific Century Financial Corp. 1,291,500
8,300 Regions Financial Corp. 187,788
2,800 Synovus Financial Corp. 56,000
5,600 Union Planters Corp. 175,000
----------------
5,384,527
-------------------------------------------------------------------------------------
Banks - Smaller 2.7%
1,760 Associated BancCorp. 44,797
182 Banknorth Group, Inc. 2,537
95,800 BankUnited Financial Corp.(a) 616,712
900 CCB Financial Corp. 41,400
2,400 Centura Banks, Inc. 103,800
200 Chittenden Corp. 5,538
1,300 City National Corp. 50,700
700 Community First Bankshares, Inc. 11,550
300 Cullen/Frost Bankers, Inc. 7,950
500 First Tennessee National Corp. 10,250
2,700 FirstMerit Corp. 51,131
2,217 Hudson United Bancorp. 53,901
6,100 Keystone Financial, Inc. 130,006
6,800 North Fork Bancorp., Inc. 112,625
8,260 Provident Bankshares Corp. 121,835
4,000 Provident Financial Group, Inc. 111,500
4,900 Riggs National Corp. 71,050
2,000 Silicon Valley Bancshares(a) 65,625
200 South Financial Group, Inc. 2,525
6,700 Susquehanna Bancshares, Inc. 90,869
200 United Bankshares, Inc. 3,800
29,400 Zions Bancorp 1,370,775
----------------
3,080,876
-------------------------------------------------------------------------------------
Financial Companies 16.4%
4,900 Americredit Corp.(a) 90,344
31,100 Associates First Capital Corp. 853,306
</TABLE>
See Notes to Financial Statements 9
<PAGE>
Prudential Sector Funds, Inc. Prudential Financial Services Fund
Portfolio of Investments as of May 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
26,800 Capital One Financial Corp. $ 1,266,300
43,200 Countrywide Credit Industries, Inc. 1,328,400
66,100 Fannie Mae 3,974,262
6,200 FINOVA Group Inc. 74,013
89,500 Freddie Mac 3,982,750
35,500 Hilb, Rogal & Hamilton Co. 1,111,594
13,400 Household International, Inc. 629,800
81,900 MBNA Corp. 2,282,962
100,000 SLM Holding Corp. 3,368,750
----------------
18,962,481
-------------------------------------------------------------------------------------
Financial Services - Diversified 9.6%
39,100 American Express Co. 2,104,069
10 Berkshire Hathaway, Inc. (Class A)(a) 586,000
106,300 Citigroup, Inc. 6,610,531
19,900 Providian Financial Corp. 1,769,856
----------------
11,070,456
-------------------------------------------------------------------------------------
Insurance - Accident & Health 0.9%
8,300 AFLAC Inc. 429,006
11,200 Torchmark Corp. 304,500
12,336 UnumProvident Corp. 279,873
----------------
1,013,379
-------------------------------------------------------------------------------------
Insurance - Brokers/Services 1.9%
37,500 Aon Corp. 1,317,188
8,400 Marsh & McLennan Cos., Inc. 924,525
----------------
2,241,713
-------------------------------------------------------------------------------------
Insurance - Life 8.0%
29,800 American General Corp. 1,909,062
6,290 Delphi Financial Group, Inc.(a) 210,715
260,000 Industrial Alliance Life Insurance Co.(a) 4,077,955
1,700 Jefferson-Pilot Corp. 116,663
</TABLE>
10 See Notes to Financial Statements
<PAGE>
Prudential Sector Funds, Inc. Prudential Financial Services Fund
Portfolio of Investments as of May 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
69,300 John Hancock Financial Services, Inc.(a) $ 1,546,256
8,700 Lincoln National Corp. 337,125
34,700 Nationwide Financial Services, Inc. 984,613
1,000 Protective Life Corp. 27,500
----------------
9,209,889
-------------------------------------------------------------------------------------
Insurance - Multi-line 14.8%
129,800 Allstate Corp. 3,439,700
47,125 American International Group, Inc. 5,304,508
32,200 CIGNA Corp. 2,859,762
33,900 Hartford Financial Services Group, Inc. 2,004,337
64,600 HCC Insurance Holdings, Inc. 1,102,238
112,600 Horace Mann Educators Corp. 1,914,200
3,000 Markel Corp.(a) 431,813
1,700 Old Kent Financial Corp. 56,525
300 SAFECO Corp. 7,369
1,300 Unitrin, Inc. 41,681
----------------
17,162,133
-------------------------------------------------------------------------------------
Insurance - Property & Casualty 4.5%
3,400 Allmerica Financial Corp. 196,137
5,300 American Financial Group, Inc. 148,069
3,747 Chubb Corp. 262,290
800 Cincinnati Financial Corp. 32,113
8,500 Everest Re Group, Ltd. 289,000
4,800 Loews Corp. 316,200
12,200 Old Republic International Corp. 214,262
31,000 Philadelphia Consolidated Holding Corp.(a) 527,000
300 Progressive Corp. 28,163
300 Selective Insurance Group, Inc. 5,531
7,300 St. Paul Cos., Inc. 273,750
48,400 XL Capital Ltd. 2,879,800
----------------
5,172,315
-------------------------------------------------------------------------------------
Insurance - Specialty 2.6%
3,400 Ambac Financial Group, Inc. 171,275
122,000 Fidelity National Financial, Inc. 1,891,000
8,100 First American Corp. 134,663
</TABLE>
See Notes to Financial Statements 11
<PAGE>
Prudential Sector Funds, Inc. Prudential Financial Services Fund
Portfolio of Investments as of May 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
5,000 MBIA, Inc. $ 289,062
3,100 MGIC Investment Corp. 153,644
1,700 Radian Group, Inc. 93,500
5,250 The PMI Group, Inc. 266,437
----------------
2,999,581
-------------------------------------------------------------------------------------
Investment Bankers/Brokers/Services 6.2%
8,400 Bear Stearns & Co., Inc. 330,750
9,000 E* TRADE Group, Inc.(a) 140,063
1,700 Edwards (A.G.), Inc. 59,394
3,500 Jefferies Group, Inc. 70,656
18,600 Lehman Brothers, Inc. 1,435,687
10,300 Merrill Lynch, Pierce, Fenner & Smith, Inc. 1,015,837
36,300 Morgan Stanley Dean Witter 2,611,331
6,900 PaineWebber, Inc. 310,069
39,900 Schwab (Charles) Corp. 1,147,125
----------------
7,120,912
-------------------------------------------------------------------------------------
Investment Managers 0.4%
6,200 T. Rowe Price Associates, Inc. 236,763
9,300 Franklin Resources, Inc. 279,000
----------------
515,763
-------------------------------------------------------------------------------------
Savings & Loan Associations 2.7%
9,000 Astoria Financial Corp. 245,250
95 Charter One Financial, Inc. 2,161
8,100 Commercial Federal Corp. 129,094
14,600 Dime Bancorp, Inc. 266,450
3,800 Downey Financial Corp. 113,050
6,300 Golden West Financial Corp. 263,025
3,700 GreenPoint Financial Corp. 77,238
7,100 MAF Bancorp., Inc. 139,781
500 TCF Financial Corp. 13,094
</TABLE>
12 See Notes to Financial Statements
<PAGE>
Prudential Sector Funds, Inc. Prudential Financial Services Fund
Portfolio of Investments as of May 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
63,000 Washington Mutual, Inc. $ 1,811,250
3,800 Webster Financial Corp. 87,637
----------------
3,148,030
----------------
Total long-term investments (cost $105,737,007) 110,942,968
----------------
SHORT-TERM INVESTMENTS 3.1%
<CAPTION>
Principal
Amount
(000)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Repurchase Agreement 3.1%
3,575 Joint Repurchase Agreement Account,
6.307%, 6/1/00
(cost $3,575,000; Note 5) 3,575,000
----------------
Total Investments 99.0%
(cost $109,312,007; Note 4) 114,517,968
Other assets in excess of liabilities 1.0% 1,118,488
----------------
Net Assets 100% $ 115,636,456
----------------
----------------
</TABLE>
--------------------------------------------------------------------------------
(a) Non-income producing security.
See Notes to Financial Statements 13
<PAGE>
Prudential Sector Funds, Inc. Prudential Financial Services Fund
Statement of Assets and Liabilities (Unaudited)
<TABLE>
<CAPTION>
May 31, 2000
<S> <C> <C>
--------------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $109,312,007) $114,517,968
Cash 2,691
Receivable for investments sold 1,205,990
Receivable for Fund shares sold 365,301
Dividends and interest receivable 223,041
Prepaid expenses 589
------------
Total assets 116,315,580
------------
LIABILITIES
Payable for Fund shares reacquired 385,236
Accrued expenses and other liabilities 89,264
Payable for investments purchased 73,954
Distribution fee payable 75,023
Management fee payable 55,647
------------
Total liabilities 679,124
------------
NET ASSETS $115,636,456
------------
------------
Net assets were comprised of:
Common stock, at par $ 120,472
Paid-in capital in excess of par 117,933,054
------------
118,053,526
Net investment loss (76,787)
Accumulated net realized loss on investments (7,546,244)
Net unrealized appreciation on investments 5,205,961
------------
Net assets, May 31, 2000 $115,636,456
------------
------------
</TABLE>
14 See Notes to Financial Statements
<PAGE>
Prudential Sector Funds, Inc. Prudential Financial Services Fund
Statement of Assets and Liabilities (Unaudited) Cont'd.
<TABLE>
<CAPTION>
May 31, 2000
--------------------------------------------------------------------------------------
<S> <C> <C>
Class A:
Net asset value and redemption price per share
($21,894,760 / 2,268,985 shares of common stock issued
and outstanding) $9.65
Maximum sales charge (5% of offering price) .51
------------
Maximum offering price to public $10.16
------------
------------
Class B:
Net asset value, offering price and redemption price per
share ($58,990,541 / 6,156,104 shares of common stock
issued and outstanding) $9.58
------------
------------
Class C:
Net asset value and redemption price per share
($29,626,986 / 3,091,822 shares of common stock issued
and outstanding) $9.58
Sales charge (1% of offering price) .10
------------
Offering price to public $9.68
------------
------------
Class Z:
Net asset value, offering price and redemption price per
share ($5,124,169 / 530,257 shares of common stock issued
and outstanding) $9.66
------------
------------
</TABLE>
See Notes to Financial Statements 15
<PAGE>
Prudential Sector Funds, Inc. Prudential Financial Services Fund
Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
May 31, 2000
<S> <C> <C>
---------------------------------------------------------------------------------------
NET INVESTMENT LOSS
Income
Dividends $ 981,071
Interest 20,765
------------
Total income 1,001,836
------------
Expenses
Management fee 378,436
Distribution fee--Class A 24,762
Distribution fee--Class B 251,535
Distribution fee--Class C 130,106
Transfer agent's fees and expenses 112,000
Custodian's fees and expenses 72,000
Registration fees 38,000
Amortization of offering costs 36,000
Reports to shareholders 15,000
Audit fee 12,000
Legal fees and expenses 10,000
Directors' fees and expenses 6,000
Miscellaneous 105
------------
Total expenses 1,085,944
Less: Management fee waiver (75,687 )
------------
Net expenses 1,010,257
------------
Net investment loss (8,421 )
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS
Net realized loss on:
Investment transactions (4,435,243 )
Foreign currency transactions (68,366 )
------------
(4,503,609 )
------------
Net change in unrealized appreciation on investments 8,114,552
------------
Net gain on investments 3,610,943
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 3,602,522
------------
------------
</TABLE>
16 See Notes to Financial Statements
<PAGE>
Prudential Sector Funds, Inc. Prudential Financial Services Fund
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months June 30, 1999(a)
Ended Through
May 31, 2000 November 30, 1999
<S> <C> <C> <C>
---------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net investment loss $ (8,421) $ (183,006)
Net realized loss on investments and
foreign currency transactions (4,503,609) (3,104,451)
Net change in unrealized appreciation
(depreciation) of investments 8,114,552 (2,908,591)
------------ -----------------
Net increase (decrease) in net assets
resulting from operations 3,602,522 (6,196,048)
------------ -----------------
Fund share transactions (net of share
conversions)
(Note 6)
Net proceeds from shares subscribed 34,375,030 122,605,417
Cost of shares reacquired (26,523,354) (12,227,111)
------------ -----------------
Net increase in net assets from Fund share
transactions 7,851,676 110,378,306
------------ -----------------
Total increase 11,454,198 104,182,258
NET ASSETS
Beginning of period 104,182,258 --
------------ -----------------
End of period $115,636,456 $ 104,182,258
------------ -----------------
------------ -----------------
------------------------------
(a) Commencement of investment operations.
</TABLE>
See Notes to Financial Statements 17
<PAGE>
Prudential Sector Funds, Inc. Prudential Financial Services Fund
Notes to Financial Statements (Unaudited)
Prudential Sector Funds, Inc. (the 'Company') is registered under the
Investment Company Act of 1940 as an open-end diversified management investment
company. The Company presently consists of four Portfolios: Prudential Health
Sciences Fund, Prudential Technology Fund, Prudential Utility Fund and
Prudential Financial Services Fund (the 'Fund').
The Fund is non-diversified and its investment objective is long-term
capital appreciation. It seeks to achieve this objective by investing primarily
in equities of companies in the banking and financial services group of
industries.
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Company and the Fund in the preparation of its financial statements.
Securities Valuation: Securities traded on an exchange and NASDAQ
National Market System securities are valued at the last sales price on the
exchange or system on which they are traded or, if no sale was reported on that
date, at the mean between the last reported bid and asked prices or at the last
bid price on such day in the absence of an asked price. Securities traded in the
over-the-counter market (including securities listed on exchanges whose primary
market is believed to be over-the-counter) are valued by an independent pricing
agent or principal market maker. Short-term securities which mature in more than
60 days are valued based on current market quotations. Short-term securities
which mature in 60 days or less are valued at amortized cost. Securities for
which reliable market quotations are not readily available are valued by the
Valuation Committee or Board of Directors in consultation with the manager or
subadviser.
In connection with transactions in repurchase agreements with U.S.
financial institutions, it is the Company's policy that its custodian or
designated subcustodians, as the case may be under triparty repurchase
agreements, takes possession of the underlying collateral securities, the value
of which exceeds the principal amount of the repurchase transaction, including
accrued interest. To the extent that any repurchase transaction exceeds one
business day, the value of the collateral is marked-to-market on a daily basis
to ensure the adequacy of the collateral. If the seller defaults and the value
of the collateral declines or if bankruptcy proceedings are commenced with
respect to the seller of the security, realization of the collateral by the Fund
may be delayed or limited.
All securities are valued as of 4:15 P.M., New York time.
18
<PAGE>
Prudential Sector Funds, Inc. Prudential Financial Services Fund
Notes to Financial Statements (Unaudited) Cont'd.
Foreign Currency Translation: The books and records of the Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:
(i) market value of investment securities, other assets and
liabilities--at the closing daily rate of exchange.
(ii) purchases and sales of investment securities, income and expenses--at
the rate of exchange prevailing on the respective dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange
rates and market values at the close of the period, the Fund does not isolate
that portion of the results of operations arising as a result of changes in the
foreign exchange rates from the fluctuations arising from changes in the market
prices of securities held at the end of the period. Similarly, the Fund does not
isolate the effect of changes in foreign exchange rates from the fluctuations
arising from changes in the market prices of portfolio securities sold during
the period. Accordingly, realized foreign currency gains (losses) are included
in the reported net realized gains (losses) on investment transactions.
Net realized gains or losses on foreign currency transactions represent
net foreign exchange gains or losses from sales and maturities of short-term
securities, disposition of foreign currency, gains or losses realized between
the trade and settlement dates of security transactions, and the difference
between amounts of dividends, interest and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent amounts actually received or
paid. Net currency gains and losses from valuing foreign currency denominated
assets, except portfolio securities, and liabilities (other than investments) at
period-end exchange rates are reflected as a component of unrealized
appreciation or depreciation on investments and foreign currencies.
Foreign security and currency transactions may involve certain
considerations and risks not typically associated with those of domestic origin
as a result of, among other factors, the possibility of political and economic
instability and the level of governmental supervision and regulation of foreign
securities markets.
Securities Transactions and Net Investment Income: Securities
transactions are recorded on the trade date. Realized gains and losses on sales
of investments and foreign currencies are calculated on the identified cost
basis. Dividend income is recorded on the ex-dividend date and 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. The Company's
expenses are allocated to the respective
19
<PAGE>
Prudential Sector Funds, Inc. Prudential Financial Services Fund
Notes to Financial Statements (Unaudited) Cont'd.
Funds on the basis of relative net assets except for expenses that are charged
directly at a Fund level.
Net investment income or 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 gains, if any, annually.
Dividends and distributions are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
Taxes: For federal income tax purposes, each fund in the Company is
treated as a separate taxpaying entity. It is the Fund's policy to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable net income to its shareholders.
Therefore, no federal income tax provision is required.
Withholding taxes on foreign dividends have been provided for in
accordance with the Fund's understanding of the applicable country's tax rules
and rates.
The Fund incurred approximately $63,000 in offering costs which are being
amortized over a period of 12 months ending June 2000.
Reclassification of Capital Accounts: The Company accounts for and
reports distributions to shareholders in accordance with the American Institute
of Certified Public Accountants' Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies. The effect for the Fund
of applying this statement was to increase undistributed net investment loss by
$68,366, decrease accumulated net realized loss on investments by $68,366 for
realized foreign currency losses for the period ended May 31, 2000. Net
investment income, net realized gains and net assets were not affected by this
change.
Note 2. Agreements
The Company 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. 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
services of PIC, the cost of
20
<PAGE>
Prudential Sector Funds, Inc. Prudential Financial Services Fund
Notes to Financial Statements (Unaudited) Cont'd.
compensation of officers of the Fund, occupancy and certain clerical and
bookkeeping costs of the Fund. The Fund bears all other costs and expenses.
The management fee paid to PIFM is computed daily and payable monthly at
an annual rate of .75 of 1% of the average daily net assets of the Fund. PIFM
has agreed to waive a portion (.15 of 1% of the Fund's average daily net assets)
of its management fee, which amounted to $75,687 ($.006 per share) for the six
months ended May 31, 2000. The Fund is not required to reimburse PIFM for such
waiver.
The Company 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 them. 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 average daily net assets of the Class A, B and C shares, respectively.
Such expenses under the Plans were .25 of 1%, 1% and 1% of the average daily net
assets of the Class A, Class B and C shares, respectively, for the six months
ended May 31, 2000.
PIMS has advised the Fund that it received approximately $99,000 and
$68,400 in front-end sales charges resulting from sales of Class A and Class C
shares, respectively, during the six months ended May 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 six months ended May 31, 2000, it
received approximately $159,000 and $38,000 in contingent deferred sales charges
imposed upon redemptions by certain Class B and Class C shareholders,
respectively.
PIFM, PIC and PIMS are wholly owned subsidiaries of The Prudential
Insurance Company of America ('The 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 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
21
<PAGE>
Prudential Sector Funds, Inc. Prudential Financial Services Fund
Notes to Financial Statements (Unaudited) Cont'd.
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 six months ended May 31, 2000.
Note 3. Other Transactions With Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned subsidiary of PIFM,
serves as the Company's transfer agent. During the six months ended May 31,
2000, the Fund incurred fees of approximately $100,400 for the services of PMFS.
As of May 31, 2000, approximately $17,300 of such fees were due to PMFS.
Transfer agent fees and expenses in the Statement of Operations also include
certain out-of-pocket expenses paid to nonaffiliates.
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the six months ended May 31, 2000, were $64,817,926 and $60,888,805,
respectively.
The federal income tax basis of the Fund's investments at May 31, 2000 was
$110,064,101 and, accordingly, net unrealized appreciation for federal income
tax purposes was $4,453,867 (gross unrealized appreciation--$11,223,587; gross
unrealized depreciation--$6,769,720).
For federal income tax purposes, the Fund had a capital loss carryforward
as of November 30, 1999, of approximately $2,019,000 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.
The Fund will elect for United States federal income tax purposes, to
treat net short-term capital losses of approximately $744,000 incurred in the
one month ended November 30, 1999 as having been incurred in the current fiscal
year.
Note 5. Joint Repurchase Agreement Account
The Company, 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 May 31,
2000, the Fund had a .413% undivided interest in the joint account. The
undivided interest for the Fund represented $3,575,000 in principal amount. As
of such date, each repurchase agreement in the joint account and the collateral
therefor were as follows:
ABN AMRO Incorporated, 6.37%, in the principal amount of $110,000,000,
repurchase price $110,019,464, due 6/1/00. The value of the collateral including
accrued interest was $112,200,491.
22
<PAGE>
Prudential Sector Funds, Inc. Prudential Financial Services Fund
Notes to Financial Statements (Unaudited) Cont'd.
Bear, Stearns & Co. Inc., 6.37%, in the principal amount of $130,000,000,
repurchase price $130,023,003, due 6/1/00. The value of the collateral including
accrued interest was $133,856,194.
Chase Securities Inc., 6.15%, in the principal amount of $114,985,000,
repurchase price $115,004,643, due 6/1/00. The value of the collateral including
accrued interest was $117,289,066.
Credit Suisse First Boston Corp., 6.40%, in the principal amount of
$90,000,000, repurchase price $90,016,000, due 6/1/00. The value of the
collateral including accrued interest was $93,252,694.
Salomon Smith Barney, Inc., 6.38%, in the principal amount of
$220,000,000, repurchase price $220,038,989, due 6/1/00. The value of the
collateral including accrued interest was $224,578,626.
Warburg Dillon Read LLC, 6.20%, in the principal amount of $200,000,000,
repurchase price $200,034,444, due 6/1/00. The value of the collateral including
accrued interest was $204,004,940.
Note 6. Capital
The Fund offers Class A, Class B, Class C and Class Z shares. Class A shares are
sold with a front-end sales charge of up to 5%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class C shares are sold with a front-end
sales charge of 1% and a contingent deferred sales charge of 1% during the first
18 months. Class B shares automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. A special exchange privilege is
also available for shareholders who qualified to purchase Class A shares at net
asset value. Class Z shares are not subject to any sales or redemption charge
and are offered exclusively for sale to a limited group of investors.
The Fund has authorized an unlimited number of shares of beneficial
interest at $.001 par value. As of May 31, 2000, The Prudential owned 10 Class A
shares, 10 Class B shares, 10 Class C shares and 10 Class Z shares.
There are 400 million shares of $.01 par value per share common stock
divided into four classes, designated Class A, Class B, Class C and Class Z
common stock, each of which consists of 100 million authorized shares.
23
<PAGE>
Prudential Sector Funds, Inc. Prudential Financial Services Fund
Notes to Financial Statements (Unaudited) Cont'd.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
------------------------------------------------------------ ---------- -----------
<S> <C> <C>
Six months ended May 31, 2000:
Shares sold 873,812 $ 7,636,291
Shares reacquired (983,114) (8,614,070)
---------- -----------
Net decrease in shares outstanding before conversion (109,302) (977,779)
Shares issued upon conversion and/or exchange from Class B 21,494 175,534
---------- -----------
Net decrease in shares outstanding (87,808) $ (802,245)
---------- -----------
---------- -----------
June 30, 1999(a)through
November 30, 1999:
Shares sold 2,858,418 $28,192,142
Shares reacquired (502,545) (4,744,998)
---------- -----------
Net increase in shares outstanding before conversion 2,355,873 23,447,144
Shares issued upon conversion and/or exchange from Class B 920 8,172
---------- -----------
Net increase in shares outstanding 2,356,793 $23,455,316
---------- -----------
---------- -----------
<CAPTION>
Class B
------------------------------------------------------------
<S> <C> <C>
Six months ended May 31, 2000:
Shares sold 1,881,020 $16,376,868
Shares reacquired (1,091,133) (9,349,371)
---------- -----------
Net increase in shares outstanding before conversion 789,887 7,027,497
Shares reacquired upon conversion and/or exchange into Class
A (21,591) (175,534)
---------- -----------
Net increase in shares outstanding 768,296 $ 6,851,963
---------- -----------
---------- -----------
June 30, 1999(a)through
November 30, 1999:
Shares sold 5,716,187 $56,000,581
Shares reacquired (327,458) (3,022,153)
---------- -----------
Net increase in shares outstanding before conversion 5,388,729 52,978,428
Shares reacquired upon conversion and/or exchange into Class
A (921) (8,172)
---------- -----------
Net increase in shares outstanding 5,387,808 $52,970,256
---------- -----------
---------- -----------
</TABLE>
24
<PAGE>
Prudential Sector Funds, Inc. Prudential Financial Services Fund
Notes to Financial Statements (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class C Shares Amount
------------------------------------------------------------ ---------- -----------
Six months ended May 31, 2000:
<S> <C> <C>
Shares sold 954,221 $ 8,255,640
Shares reacquired (750,674) (6,451,767)
---------- -----------
Net increase in shares outstanding 203,547 $ 1,803,873
---------- -----------
---------- -----------
June 30, 1999(a)through
November 30, 1999:
Shares sold 3,189,081 $31,470,302
Shares reacquired (300,806) (2,814,482)
---------- -----------
Net increase in shares outstanding 2,888,275 28,655,820
---------- -----------
---------- -----------
<CAPTION>
Class Z
------------------------------------------------------------
<S> <C> <C>
Six months ended May 31, 2000:
Shares sold 242,930 $ 2,106,231
Shares reacquired (240,399) (2,108,146)
---------- -----------
Net increase in shares outstanding 2,531 $ (1,915)
---------- -----------
---------- -----------
June 30, 1999(a)through
November 30, 1999:
Shares sold 703,918 $ 6,942,392
Shares reacquired (176,192) (1,645,478)
---------- -----------
Net increase in shares outstanding 527,726 $ 5,296,914
---------- -----------
---------- -----------
------------------------------
(a) Commencement of investment operations.
</TABLE>
25
<PAGE>
Prudential Sector Funds, Inc. Prudential Financial Services Fund
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
Class A
--------------------------------------
June 30,1999(c)
Six Months Ended Through
May 31, 2000 November 30, 1999
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 9.36 $ 10.00
-------- --------
Income from investment operations
Net investment income(d) .02 --(b)
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions .27 (.64)
-------- --------
Total from investment operations .29 (.64)
-------- --------
Net asset value, end of period $ 9.65 $ 9.36
-------- --------
-------- --------
TOTAL RETURN(a) 3.10% (6.40)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 21,895 $22,050
Average net assets (000) $ 19,810 $21,235
Ratios to average net assets:(d)/(e)
Expenses, including distribution fees 1.45% 1.58%
Expenses, excluding distribution fees 1.20% 1.33%
Net investment income .53% .09%
For Class A, B, C and Z shares:
Portfolio turnover rate 59% 39%
</TABLE>
------------------------------
(a) 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 return for periods of less than one full year are not
annualized.
(b) Less than $.005 per share.
(c) Commencement of investment operations.
(d) Net of management fee waiver.
(e) Annualized.
26 See Notes to Financial Statements
<PAGE>
Prudential Sector Funds, Inc. Prudential Financial Services Fund
Financial Highlights (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class B
--------------------------------------
June 30,1999(b)
Six Months Ended Through
May 31, 2000 November 30, 1999
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 9.33 $ 10.00
-------- --------
Income from investment operations
Net investment (loss)(d) (.01) (.02)
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions .26 (.65)
-------- --------
Total from investment operations .25 (.67)
-------- --------
Net asset value, end of period $ 9.58 $ 9.33
-------- --------
-------- --------
TOTAL RETURN(a) 2.68% (6.70)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 58,990 $50,252
Average net assets (000) $ 50,307 $44,194
Ratios to average net assets:(c)/(d)
Expenses, including distribution fees 2.20% 2.33%
Expenses, excluding distribution fees 1.20% 1.33%
Net investment loss (.21)% (.69)%
</TABLE>
------------------------------
(a) 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 return for periods of less than one full year are not
annualized.
(b) Commencement of investment operations.
(c) Net of management fee waiver.
(d) Annualized.
See Notes to Financial Statements 27
<PAGE>
Prudential Sector Funds, Inc. Prudential Financial Services Fund
Financial Highlights (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class C
--------------------------------------
June 30,1999(b)
Six Months Ended Through
May 31, 2000 November 30, 1999
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 9.33 $ 10.00
-------- --------
Income from investment operations
Net investment loss(d) (.01) (.02)
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions .26 (.65)
-------- --------
Total from investment operations .25 (.67)
-------- --------
Net asset value, end of period $ 9.58 $ 9.33
-------- --------
-------- --------
TOTAL RETURN(a) 2.68% (6.70)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 29,627 $26,939
Average net assets (000) $ 26,021 $25,325
Ratios to average net assets:(c)/(d)
Expenses, including distribution fees 2.20% 2.33%
Expenses, excluding distribution fees 1.20% 1.33%
Net investment loss (.21)% (.66)%
</TABLE>
------------------------------
(a) 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 return for periods of less than one full year are not
annualized.
(b) Commencement of investment operations.
(c) Net of management fee waiver.
(d) Annualized.
28 See Notes to Financial Statements
<PAGE>
Prudential Sector Funds, Inc. Prudential Financial Services Fund
Financial Highlights (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class Z
--------------------------------------
June 30,1999(b)
Six Months Ended Through
May 31, 2000 November 30, 1999
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 9.36 $ 10.00
------- -------
Income from investment operations
Net investment income(d) .03 .01
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions .27 (.65)
------- -------
Total from investment operations .30 (.64)
------- -------
Net asset value, end of period $ 9.66 $ 9.36
------- -------
------- -------
TOTAL RETURN(a) 3.09% (6.40)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $5,124 $ 4,941
Average net assets (000) $4,778 $ 4,972
Ratios to average net assets:(c)/(d)
Expenses, including distribution fees 1.20% 1.33%
Expenses, excluding distribution fees 1.20% 1.33%
Net investment income .78% .35%
</TABLE>
------------------------------
(a) 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 return for periods of less than one
full year are not annualized.
(b) Commencement of investment operations.
(c) Net of management fee waiver.
(d) Annualized.
See Notes to Financial Statements 29
<PAGE>
Prudential Financial Services Fund
Prudential Mutual Funds
Prudential offers a broad range of mutual funds designed
to meet your individual needs. For information about
these funds, contact your financial adviser or call us at
(800) 225-1852. Read the prospectus carefully before you
invest or send money.
STOCK FUNDS
Large Capitalization Stock Funds
Prudential 20/20 Focus Fund
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
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
Small- to Mid-Capitalization Stock Funds
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Prudential Small Company Fund, Inc.
Prudential Tax-Managed Small-Cap Fund, Inc.
Prudential U.S. Emerging Growth Fund, Inc.
Target Funds
Small Capitalization Growth Fund
Small Capitalization Value Fund
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
Sector Stock Funds
Prudential Natural Resources Fund, Inc.
Prudential Real Estate Securities Fund
Prudential Sector Funds, Inc.
Prudential Financial Services Fund
Prudential Health Sciences Fund
Prudential Technology Fund
Prudential Utility Fund
Global/International Stock Funds
Global Utility Fund, Inc.
Prudential Europe Growth Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Prudential Global Growth Fund
Prudential International Value Fund
Prudential Jennison International Growth Fund
Target Funds
International Equity Fund
BALANCED/ALLOCATION FUNDS
Prudential Diversified Funds
Conservative Growth Fund
Moderate Growth Fund
High Growth Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund
<PAGE>
www.prudential.com (800) 225-1852
BOND FUNDS
Taxable Bond Funds
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential High Yield Total Return Fund, Inc.
Prudential Short-Term Corporate Bond Fund, Inc.
Income Portfolio
Prudential Total Return Bond Fund, Inc.
Target Funds
Total Return Bond Fund
Tax-Free Bond Funds
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Income Series
Insured Series
Prudential Municipal Series Fund
Florida Series
Massachusetts Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
Global/International Bond Funds
Prudential Global Total Return Fund, Inc.
Prudential International Bond Fund, Inc.
MONEY MARKET FUNDS
Taxable Money Market Funds
Cash Accumulation Trust
Liquid Assets Fund
National Money Market Fund
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
Prudential MoneyMart Assets, Inc.
Prudential Special Money Market Fund, Inc.
Money Market Series
Tax-Free Money Market Funds
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
Prudential Tax-Free Money Fund, Inc.
Other Money Market Funds
Command Government Fund
Command Money Fund
Command Tax-Free Fund
<PAGE>
Prudential Financial Services Fund
Getting the Most from Your Prudential Mutual Fund
Some mutual fund shareholders won't ever read this-they
don't read annual and semiannual reports. It's quite
understandable. These annual and semiannual reports are
prepared to comply with federal regulations, and are
often written in language that is difficult to
understand. So when most people run into those
particularly daunting sections of these reports, they
don't read them.
WE THINK THAT'S A MISTAKE
At Prudential Mutual Funds, we've made some changes to
our report to make it easier to understand and more
pleasant to read. We hope you'll find it profitable to
spend a few minutes familiarizing yourself with your
investment. Here's what you'll find in the report:
PERFORMANCE AT A GLANCE
Since an investment's performance is often a
shareholder's primary concern, we present performance
information in two different formats. You'll find it
first on the "Performance at a Glance" page where we
compare the Fund and the comparable average calculated by
Lipper, Inc., a nationally recognized mutual fund rating
agency. We report both the cumulative total returns and
the average annual total returns. The cumulative total
return is the total amount of income and appreciation the
Fund has achieved in various time periods. The average
annual total return is an annualized representation of
the Fund's performance. It gives you an idea of how much
the Fund has earned in an average year for a given time
period. Under the performance box, you'll see legends
that explain the performance information, whether fees
and sales charges have been included in returns, and the
inception dates for the Fund's share classes.
See the performance comparison charts at the back of the
report for more performance information. Please keep in
mind that past performance is not indicative of future
results.
<PAGE>
www.prudential.com (800) 225-1852
INVESTMENT ADVISER'S REPORT
The portfolio manager, who invests your money for you, reports on
successful-and not-so-successful-strategies in this
section of your report. Look for recent purchases and
sales here, as well as information about the sectors the
portfolio manager favors, and any changes that are on the
drawing board.
PORTFOLIO OF INVESTMENTS
This is where the report begins to appear technical, but it's really just a
listing of each security held at the end of the reporting
period, along with valuations and other information.
Please note that sometimes we discuss a security in the
"Investment Adviser's Report" section that doesn't appear
in this listing because it was sold before the close of
the reporting period.
STATEMENT OF ASSETS AND LIABILITIES
The balance sheet shows the assets (the value of the
Fund's holdings),
liabilities (how much the Fund owes), and net assets (the Fund's
equity, or holdings after the Fund pays its debts) as of
the end of the reporting period. It also shows how we
calculate the net asset value per share for each class of
shares. The net asset value is reduced by payment of your
dividend, capital gain, or other distribution, but
remember that the money or new shares are being paid or
issued to you. The net asset value fluctuates daily,
along with the value of every security in the portfolio.
STATEMENT OF OPERATIONS
This is the income statement, which details income
(mostly interest and
dividends earned) and expenses (including what you pay us
to manage your money). You'll also see capital gains
here-both realized and unrealized.
<PAGE>
Prudential Financial Services Fund
Getting the Most from Your Prudential Mutual Fund
STATEMENT OF CHANGES IN NET ASSETS
This schedule shows how income and expenses translate into changes
in net assets. The Fund is required to pay out the bulk
of its income to shareholders every year, and this
statement shows you how we do it (through
dividends and distributions) and how that affects the net
assets. This statement also shows how money from
investors flowed into and out of the Fund.
NOTES TO FINANCIAL STATEMENTS
This is the kind of technical material that can
intimidate readers, but it does contain useful
information. The Notes provide a brief history and
explanation of your Fund's objectives. In addition, they
outline how Prudential Mutual Funds prices securities.
The Notes also explain who manages and distributes the
Fund's shares and, more importantly, how much they are
paid for doing so. Finally, the Notes explain how many
shares are outstanding and the number issued and redeemed
over the period.
FINANCIAL HIGHLIGHTS
This information contains many elements from prior pages, but on a
per-share basis. It is designed to help you understand how the Fund
performed, and to compare this year's performance and
expenses to those of prior years.
INDEPENDENT ACCOUNTANT'S REPORT
Once a year, an outside auditor looks over our books and certifies that
the financial statements are fairly presented and comply
with generally accepted accounting principles.
TAX INFORMATION
This is information that we report annually about how
much of your total return is taxable. Should you have any
questions, you may want to consult a tax adviser.
<PAGE>
www.prudential.com (800) 225-1852
Performance Comparison
These charts are included in the annual report and are
required by the Securities Exchange Commission.
Performance is presented here as a hypothetical $10,000
investment in the Fund since its inception or for 10
years (whichever is shorter). To help you put that return
in context, we
are required to include the performance of an unmanaged,
broad-based securities index as well. The index does not
reflect the cost of buying the securities it contains or
the cost of managing a mutual fund. Of course, the index
holdings do not mirror those of the Fund-the index is a
broad-based reference point commonly used by investors to
measure how well they are doing. A definition of the
selected index is also provided. Investors cannot invest
directly in an index.
<PAGE>
Prudential Financial Services Fund
Getting the Most from Your Prudential Mutual Fund
When you invest through Prudential Mutual Funds, you
receive financial advice from a Prudential Securities
Financial Advisor or Pruco Securities registered
representative. Your advisor or representative can
provide you with the following services:
THERE'S NO REWARD WITHOUT RISK; BUT IS THIS RISK WORTH
IT?
Your financial advisor or registered representative can
help you match the reward you seek with the risk you can
tolerate. Risk can be difficult to gauge-sometimes even
the simplest investments bear surprising risks. The
educated investor knows that markets seldom move in just
one direction. There are times when a market sector or
asset class will lose value or provide little in the way
of total return. Managing your own expectations is easier
with help from someone who understands the markets and
who knows you!
KEEPING UP WITH THE JONESES
A financial advisor or registered representative can help
you wade through the numerous available mutual funds to
find the ones that fit your individual investment profile
and risk tolerance. While the newspapers and popular
magazines are full of advice about investing, they are
aimed at generic groups of people or representative
individuals-not at you personally. Your financial advisor
or registered representative will review your investment
objectives with you. This means you can make financial
decisions based on the assets and liabilities in your
current portfolio and your risk tolerance-not just based
on the current investment fad.
BUY LOW, SELL HIGH
Buying at the top of a market cycle and selling at the
bottom are among the most common investor mistakes. But
sometimes it's difficult to hold on to an investment when
it's losing value every month. Your financial advisor or
registered representative can answer questions when
you're confused or worried about your investment, and
should remind you that you're investing for the long
haul.
<PAGE>
www.prudential.com (800) 225-1852
For More Information
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
Directors
Delayne Dedrick Gold
Robert F. Gunia
Douglas H. McCorkindale
Thomas T. Mooney
Stephen P. Munn
David R. Odenath, Jr.
Richard A. Redeker
Robin B. Smith
John R. Strangfeld
Louis A. Weil, III
Clay T. Whitehead
Officers
John R. Strangfeld, President
Robert F. Gunia, Vice President
David R. Odenath, Jr., Vice President
Grace C. Torres, Treasurer
Marguerite E.H. Morrison, Secretary
William V. Healey, Assistant Secretary
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
194 Wood Avenue South
Iselin, NJ 08830
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 PFSAX 74437K103
Class B PUFBX 74437K202
Class C PUFCX 74437K301
Class Z N/A 74437K400
The views expressed in this report and information about
the Fund's portfolio holdings are for the period covered
by this report and are subject to change thereafter.
The accompanying financial statements as
of May 31, 2000, were not audited and, accordingly, no
opinion is expressed on them.
<PAGE>
(LOGO)
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
MF188E2 74437K103 74437K202 74437K301 74437K400
(LOGO) Printed on Recycled Paper
<PAGE>
SEMIANNUAL REPORT MAY 31, 2000
Prudential
Health Sciences Fund
FUND TYPE Stock
OBJECTIVE Long-term capital appreciation
(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)
[pb]
Build on the Rock
INVESTMENT GOALS AND STYLE
The Prudential Health Sciences Fund seeks to achieve
long-term capital appreciation by investing primarily in
the following industries: hospitals, healthcare,
pharmaceutical and medicine companies; and medical
equipment and supply companies. The Fund is divided into
two approximately equal subportfolios. One is the
strategically managed portfolio, which is actively
managed and holds a relatively small number of securities
in which the managers have the highest confidence. The
other is the enhanced index portfolio, which consists of
securities selected from those in the benchmark Standard
& Poor's SuperComposite 1500 Health Care Index (S&P SC
Health Care Index). Quantitative models are used to
create a sample that is representative of the Index, but
with over- and underweighted holdings designed to
increase the likelihood of performing better than the
benchmark.
Portfolio Composition
Sectors expressed as a percentage of
net assets as of 5/31/00
55.4% Pharmaceuticals
10.6 Biotechnology
10.5 Medical Devices/Equipment
8.3 Medical Specialties
6.9 Hospital Management
8.3 Cash & Equivalents
Ten Largest Holdings
Expressed as a percentage of
net assets as of 5/31/00
8.2% Pfizer, Inc.
Pharmaceuticals
7.7 Warner-Lambert Co.
Pharmaceuticals
6.5 Merck & Co., Inc.
Pharmaceuticals
5.9 American Home Products Corp.
Pharmaceuticals
5.9 Pharmacia Corp.
Pharmaceuticals
4.3 Johnson & Johnson
Medical Specialties
3.8 Bristol-Myers Squibb Co.
Pharmaceuticals
3.3 Allergan, Inc.
Medical Devices/Equipment
3.2 Aviron
Biotechnology
3.1 Amgen, Inc.
Biotechnology
Holdings are subject to change.
<PAGE>
www.prudential.com (800) 225-1852
Performance at a Glance
Cumulative Total Returns1 As of 5/31/00
Six One Since
Months Year Inception2
Class A 30.17% N/A 41.36%
Class B 29.60 N/A 40.36
Class C 29.60 N/A 40.36
Class Z 30.30 N/A 41.76
Lipper Health/
Biotechnology
Fund Avg.3 30.22 N/A 40.23
Average Annual Total Returns1 As of 6/30/00
One Since
Year Inception2
Class A 53.01% 53.01%
Class B 54.86 54.86
Class C 57.26 57.26
Class Z 61.57 61.57
Past performance is not indicative of future results.
Principal and investment return will fluctuate so that an
investor's shares, when redeemed, may be worth more or
less than their original cost.
1 Source: Prudential Investments Fund Management LLC and
Lipper Inc. The cumulative total returns do not take into
account sales charges. The average annual total returns
do take into account applicable sales charges. The Fund
charges a maximum front-end sales charge of 5% for Class
A shares.
Class B shares are subject to a declining contingent
deferred sales charge (CDSC) of 5%, 4%, 3%, 2%, 1%, and
1% for six years. Class B shares will automatically
convert to Class A shares, on a
quarterly basis, approximately seven years after
purchase. Class C shares are subject to a front-end sales
charge of 1% and a CDSC of 1% for 18 months. Class Z
shares are not subject to a sales charge or distribution
and service (12b-1) fees.
2 Inception date: Class A, B, C, and Z, 6/30/99.
3 Lipper average returns are for all funds in each share
class for the six-month and since inception periods in
the Health/Biotechnology Fund category. The Lipper
average is unmanaged. Health/Biotechnology funds invest
at least 65% of their assets in equity securities of
companies engaged in healthcare, medicine, and
biotechnology.
1
<PAGE>
(LOGO) July 17, 2000
Dear Shareholder,
The health sector benefited when-beginning in March-
investors turned away from expensive high-tech stocks in
search of growth stocks that offered better value.
Although several of the giant drug companies that
dominate the sector-Merck, Johnson & Johnson, Bristol-
Myers Squibb, and Schering-Plough-had negative net
returns (some very substantial), the S&P SC Health Care
Index had a positive 6.47% return for the six-month
period ended May 31, 2000.
The Prudential Health Sciences Fund is designed to be
sensitive to the factors driving the S&P SC Health Care
Index. About half of the Fund's assets-its enhanced index
portfolio-are managed to reflect the company size and
industry composition of this benchmark. Nonetheless, the
Fund as a whole substantially outperformed the Index
because of the strong performance of its strategically
managed portfolio. The 30.17% six-month return on the
Fund's Class A shares-23.66% to those paying the maximum
one-time Class A share sales charge-was in line with the
30.22% return of the Lipper Health/Biotechnology Fund
Average. Actively managed portfolios that could
underweight the large poor performers in the sector had a
decided advantage. The substantial outperformance of the
Fund's strategically managed portfolio was primarily due
to the exceptional returns on some of its holdings of
smaller companies. It
benefited from taking some profits on these before the
market turned away from the most speculative stocks.
Yours sincerely,
John R. Strangfeld, President
Prudential Sector Funds, Inc.-Prudential Health Sciences Fund
2
<PAGE>
Prudential Health Sciences Fund
Semiannual Report May 31, 2000
INVESTMENT ADVISER'S REPORT
The six months ended May 31, 2000, included a dramatic
peak in the prices of the most popular stocks. As we
entered the reporting period, momentum-focused investors
were favoring technology sectors and biotechnology, and
were avoiding drug stocks. Concern about the implications
of a potential federal drug benefit hurt the sector
because investors feared some form of price control on
drugs. Not surprisingly, the more speculative
biotechnology stocks performed very well, sharing in the
euphoria about new technologies.
The moderate gain of the S&P SC Health Care Index was
driven largely by enthusiasm for Pfizer's purchase of
Warner-Lambert and by a pair of large firms-Medtronic and
Amgen. Our enhanced index portfolio performed in line
with the Index. Our strategically managed portfolio had
very substantial gains on its biotechnology holdings,
most notably on Sequenom, Vertex Pharmaceuticals,
ViroPharma, Sepracor, and Aviron (see Comments on Largest
Holdings). These were significant positions that
appreciated greatly over our reporting period.
ViroPharma had been among our very largest investments.
Its oral drug Pleconaril failed its late-phase clinical trial for
treating viral meningitis and viral respiratory
infections. We already had realized some of our gains
before the stock dropped, and we sold the remainder upon
the announcement of the failed clinical trial. (We think
the market overreacted to a short-term setback-the trial
will be repeated. In the wake of the failed clinical
trial, ViroPharma dropped to prices that made it an
attractive investment once again.)
As share prices reached levels we considered
unsustainable, we took our profits on many of our most
momentum-driven positions, including Sequenom,
ViroPharma, Sciquest, Maxygen, and others. We generally
take some of our profits when holdings have increased
substantially in value. It is a discipline that helps
preserve gains in a volatile sector.
3
<PAGE>
Prudential Health Sciences Fund
Holdings expressed as a percentage of the specified portfolio
Comments on Largest Holdings-
Strategically Managed Portfolio As of 5/31/00
8.5% Pharmacia Corp./Pharmaceuticals
Pharmacia is a rapidly growing pharmaceutical firm with a
very robust drug business,
which includes its G.D. Searle subsidiary. The company is
spinning off part of its agricultural business, which is
somewhat clouded by opposition to genetically modified
seeds. The FDA recently approved Zyvox, a product aimed
at bacteria resistant to traditional antibiotics.
Searle's best-selling Celebrex treats arthritis.
8.3% Warner-Lambert Co./Pharmaceuticals
After the end of our reporting period, Warner-Lambert
became part of Pfizer. The combined company is the
largest and fastest-growing drug firm in the United
States. It became our largest position. We expect annual
earnings growth above 20% for the next few years.
Combined sales in 1999 were about $29 billion. Products
include Viagra for impotence and Norvasc to reduce
cholesterol.
8.2% American Home Products Corp./Pharmaceuticals
American Home will launch a new series of products later
this year. It received a breakup
fee of $1.8 billion when Pfizer outbid its offer for
Warner-Lambert. It sold its agricultural business to
focus on pharmaceuticals, including Premarin (the most
prescribed drug in the United States) for estrogen
replacement and Effexor. The company also has substantial
biotech holdings.
6.8% Aviron/Biotechnology
Aviron has a flu vaccine that can be delivered through a
nasal spray. This has great potential for filling a void
that exists in the effort to vaccinate children for the
flu-a largely unserved market today. It should be refiled
with the FDA in the fourth quarter of 2000. Aviron's
vaccines for croup and mononucleosis (in collaboration
with SmithKline Beecham) are in trials. Aviron's shares
rose 50% in our reporting period.
6.2% Allergan, Inc./Medical Devices/Equipment
A specialty drug company focused on eye care, Allergan is
expected to file for a new glaucoma product in late
summer 2000. Botox has attracted attention for its
wrinkle reduction capabilities, as well as for its
intended purpose of treating muscle spasms.
Holdings are subject to change.
Five Largest Holdings-Enhanced Index Portfolio As of 5/31/00
Industry % of Total Enhanced % of S&P SC
Security Group Index Market Value Health Care Index*
Merck & Co., Inc. Pharmaceuticals 12.0% 11.9%
Pfizer, Inc. Pharmaceuticals 11.8 12.0
Johnson & Johnson Medical Specialties 8.6 8.7
Warner-Lambert Co. Pharmaceuticals 7.6 7.5
Bristol-Myers
Squibb Co. Pharmaceuticals 7.5 7.6
*Source: Standard & Poor's, based on data retrieved by Factset.
4
<PAGE>
www.prudential.com (800) 225-1852
Semiannual Report May 31, 2000
THE MARKET TURNS
Early in March, the stock market saw a "flight to
safety." Investors feared that rising interest rates
would erode the current value of companies' future
earnings. Because investors use current interest rates to
discount the value of
distant earnings, when interest rates are high, investors
are no longer willing to pay huge premiums for earnings
growth. As interest rates rose in 2000, many momentum-
driven stocks in biotechnology dropped in market value.
We already had taken substantial profits by then. As
these more speculative investments fell in price, drug
stocks-which offered steadier growth at lower prices-
moved up. The unpopularity of drug stocks had never been
due to poor earnings; in fact, drug sales in the United
States rose a record 17% in 1999, according to a study by
Express Scripts, a pharmacy benefit manager. Investors
were simply distracted by the faster growth in technology.
THE DRUG INDUSTRY
The global drug industry is undergoing a restructuring in
several ways. One is a trend to sell the agricultural
product units that many firms had developed. They had
thought that their core technologies in "life sciences"
could add significant new revenue streams. This
assumption lost its luster when it was realized that
agricultural products are partly cyclical and partly
unpredictable because of weather and other factors. They
introduced turbulence into the growth pattern of
pharmaceutical companies. So Pharmacia (formerly
Monsanto) is spinning off 20% of its agriculture
operations later this year, while American Home Products
is selling its agricultural subsidiary to BASF. The
pharmaceuticals industry is also consolidating. Pfizer is
merging with Warner-Lambert, and Glaxo with SmithKline
Beecham. Pharmacia is the result of a recently completed
merger between Monsanto and Pharmacia & Upjohn (itself
the product of an earlier merger). These consolidations
should reduce the volatility of company earnings by
increasing drug pipelines and reducing costs in research,
development, and marketing.
5
<PAGE>
Prudential Health Sciences Fund
Semiannual Report May 31, 2000
Our strategically managed portfolio benefited from two of
these mergers: Its gains on its Warner-Lambert holdings
were substantial, while its holdings of the new Pharmacia
also made a significant contribution to this period's
return.
WHAT WENT POORLY
Visx is in the rapidly growing business of laser
correction of vision problems. Strong competitive
pressure that led to price cuts and concern about its
ability to enforce its patents drove Visx's share price
down drastically.
It had a substantial negative impact on our return, and
we sold our shares in favor of more immediate
opportunities. We also sold our holding in Bristol-Myers
Squibb after a modest share decline due to two setbacks:
a disappointing clinical trial result on Vanlev (for
hypertension) and a loss in a patent suit on its cancer
drug Taxol.
LOOKING AHEAD
If the U.S. economy continues to slow, as we expect,
interest rates should stabilize. We expect earnings in
the health sciences sector to continue to grow at present
rates, which is a positive scenario for drug company
share prices. However, continuing efforts in Washington
to enact a Medicare drug benefit and to allow
importation of drugs from
overseas may cause volatility in the sector.
Prudential Health Sciences Fund Management Team
6
<PAGE>
Prudential Health Sciences Fund
Semiannual Report May 31, 2000
Financial
Statements
<PAGE>
Prudential Sector Funds, Inc. Prudential Health Sciences Fund
Portfolio of Investments as of May 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C> <C>
------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS 92.9%
Common Stocks 92.9%
-------------------------------------------------------------------------------------
Biotechnology 10.6%
15,000 Aclara Biosciences, Inc.(a) $ 395,625
39,700 Alexion Pharmaceuticals, Inc.(a) 1,476,344
140,800 Amgen, Inc.(a) 8,958,400
381,700 Aviron(a) 9,232,369
51,900 Biogen, Inc.(a) 2,828,550
21,700 Chiron Corp.(a) 823,244
21,000 Genentech, Inc.(a) 2,254,875
23,800 Genzyme Corp.(a) 1,352,137
1,100 Incyte Pharmaceuticals, Inc.(a) 58,025
900 Protein Design Labs, Inc.(a) 95,962
30,900 QLT Photo Therapeutics, Inc.(a) 1,512,169
1,200 Serono SA (Switzerland) 1,055,635
----------------
30,043,335
-------------------------------------------------------------------------------------
Drug/Medical/Dental Distribution 1.2%
44,900 Cardinal Health, Inc. 2,912,888
8,100 DENTSPLY International, Inc. 248,569
3,000 Invacare Corp. 74,250
6,400 Sybron International Corp.(a) 202,800
----------------
3,438,507
-------------------------------------------------------------------------------------
Hospital Management 6.9%
17,700 Aetna, Inc. 1,181,475
87,000 Allscripts, Inc.(a) 2,414,250
7,900 Beverly Enterprises, Inc.(a) 23,700
541,800 Caremark Rx, Inc.(a) 3,284,662
175,600 Columbia/HCA Healthcare Corp. 4,741,200
21,500 Express Scripts, Inc.(a) 1,152,937
6,600 First Health Group Corp.(a) 231,000
33,800 Foundation Health Systems, Inc.(a) 405,600
16,700 Health Management Associates, Inc.(a) 197,269
53,700 HEALTHSOUTH Corp.(a) 345,694
3,200 Manor Care, Inc.(a) 22,600
</TABLE>
8 See Notes to Financial Statements
<PAGE>
Prudential Sector Funds, Inc. Prudential Health Sciences Fund
Portfolio of Investments as of May 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
35,400 Orthodontic Centers of America, Inc.(a) $ 811,988
16,800 Oxford Health Plans, Inc.(a) 357,000
8,100 Pacificare Health Systems, Inc.(a) 524,981
18,700 Quorum Health Group, Inc.(a) 180,572
3,300 Rural/Metro Corp.(a) 3,919
34,700 Tenet Healthcare Corp.(a) 889,187
3,600 Trigon Healthcare, Inc.(a) 180,000
27,600 UnitedHealth Group Inc. 2,057,925
700 Universal Health Services, Inc. 37,188
7,200 Wellpoint Health Networks, Inc.(a) 522,900
----------------
19,566,047
-------------------------------------------------------------------------------------
Medical Devices/Equipment 10.5%
138,200 Allergan, Inc. 9,492,612
20,000 Aspect Medical Systems, Inc.(a) 570,000
4,400 Beckman Coulter, Inc. 264,550
13,700 Biomet, Inc.(a) 494,056
68,000 Boston Scientific Corp.(a) 1,742,500
1,700 Datascope Corp. 63,963
137,300 Guidant Corp. 6,950,812
98,672 Medtronic, Inc. 5,093,942
49,700 Novoste Corp.(a) 1,879,281
20,000 ORATEC Interventions, Inc.(a) 755,000
23,200 PE Biosystems Group Corp. 1,287,600
28,300 ResMed, Inc.(a) 679,200
2,900 Sola International, Inc.(a) 14,500
5,600 St. Jude Medical, Inc.(a) 201,250
2,900 Techne Corp.(a) 231,819
8,900 Visx, Inc.(a) 175,219
----------------
29,896,304
-------------------------------------------------------------------------------------
Medical Specialties 8.3%
56,500 Alkermes, Inc.(a) 2,069,312
16,600 Baxter International, Inc. 1,103,900
2,200 Cooper Company, Inc. 75,900
336,900 Cygnus, Inc.(a) 2,716,256
136,242 Johnson & Johnson 12,193,659
</TABLE>
See Notes to Financial Statements 9
<PAGE>
Prudential Sector Funds, Inc. Prudential Health Sciences Fund
Portfolio of Investments as of May 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
4,356 Kimberly-Clark Corp. $ 263,538
30,200 Mallinckrodt, Inc. 873,913
9,700 MiniMed, Inc.(a) 1,159,150
14,200 Respironics, Inc.(a) 228,088
158,100 Sonic Innovations, Inc.(a) 2,618,531
8,000 Stryker Corp. 302,500
----------------
23,604,747
-------------------------------------------------------------------------------------
Pharmaceuticals 55.4%
143,900 Abbott Laboratories 5,854,931
4,200 Alpharma, Inc. 207,900
314,400 American Home Products Corp. 16,938,300
194,600 Bristol-Myers Squibb Co. 10,715,162
1,200 Cephalon, Inc.(a) 62,100
800 Cor Therapeutics, Inc.(a) 50,700
16,600 Forest Laboratories, Inc.(a) 1,469,100
95,100 Glaxo Wellcome PLC, ADR (United Kingdom) 5,355,319
17,600 Ivax Corp. 662,200
32,200 Jones Pharma, Inc. 1,173,288
107,900 Lilly (Eli) & Co. 8,213,887
19,200 Medicis Pharmaceutical Corp.(a) 897,600
25,465 Medimmune, Inc.(a) 3,956,624
247,600 Merck & Co., Inc. 18,477,150
4,000 Millennium Pharmaceuticals, Inc.(a) 334,500
524,400 Pfizer, Inc. 23,368,575
323,665 Pharmacia Corp. 16,810,351
138,300 Schering-Plough Corp. 6,690,263
65,700 Sepracor, Inc.(a) 6,282,563
3,440 Shire Pharmaceuticals Group PLC, ADR (United
Kingdom)(a) 150,070
900 Syncor International Corp.(a) 44,325
27,800 Transkaryotic Therapies, Inc.(a) 695,000
99,300 Vertex Pharmaceuticals, Inc.(a) 7,335,787
180,400 Warner-Lambert Co. 22,031,350
----------------
157,777,045
----------------
Total long-term investments (cost $223,364,249) 264,325,985
----------------
</TABLE>
10 See Notes to Financial Statements
<PAGE>
Prudential Sector Funds, Inc. Prudential Health Sciences Fund
Portfolio of Investments as of May 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C> <C>
-----------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 5.0%
Corporate Bonds 4.3%
$ 7,000 American Express Co.
6.70%, 6/1/00 $ 7,000,000
5,314 General Electric Capital Corp.
6.55%, 6/1/00 5,314,000
----------------
Total corporate bonds (cost $12,314,000) 12,314,000
-------------------------------------------------------------------------------------
Repurchase Agreement
49 Joint Repurchase Agreement Account,
6.307%, 6/1/00
(cost $49,000; Note 5) 49,000
-------------------------------------------------------------------------------------
U.S. Government Securities 0.7%
1,905 United States Treasury Bills
5.22%, 6/22/00
(cost $1,899,621) 1,899,802
----------------
Total short-term investments (cost $14,262,621) 14,262,802
----------------
Total Investments Before Short Sales 97.9%
(cost $237,626,870; Note 4) 278,588,787
-------------------------------------------------------------------------------------
INVESTMENTS SOLD SHORT (1.1%)
<CAPTION>
Shares
<C> <S> <C> <C>
(17,500) Human Genome Sciences, Inc.(a) (1,535,625)
(18,300) Millennium Pharmaceuticals, Inc.(a) (1,530,338)
----------------
(proceeds $2,789,264) (3,065,963)
----------------
Total Investments, Net of Short Sales 96.8% 275,522,824
Other assets in excess of liabilities 3.2% 9,171,671
----------------
Net Assets 100% $ 284,694,495
----------------
----------------
</TABLE>
------------------------------
(a) Non-income producing security.
See Notes to Financial Statements 11
<PAGE>
Prudential Sector Funds, Inc. Prudential Health Sciences Fund
Statement of Assets and Liabilities (Unaudited)
<TABLE>
<CAPTION>
May 31, 2000
<S> <C> <C>
--------------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $237,626,870) $278,588,787
Cash 44,314
Receivable for investments sold 9,318,989
Receivable for Fund shares sold 999,473
Dividends and interest receivable 510,334
Other assets 293
------------
Total assets 289,462,190
------------
LIABILITIES
Investments sold short, at value (proceeds $2,789,264) $ 3,065,963
Payable for investments purchased 615,548
Payable for Fund shares repurchased 488,776
Accrued expenses 241,026
Distribution fees payable 190,317
Management fee payable 142,487
Foreign withholding taxes payable 23,578
------------
Total liabilities 4,767,695
------------
NET ASSETS $284,694,495
------------
------------
Net assets were comprised of:
Common stock, at par $ 204,517
Paid-in capital in excess of par 216,952,924
------------
217,157,441
Net investment loss (556,894)
Accumulated net realized gain on investments and foreign
currency transactions 27,408,730
Net unrealized appreciation on investments 40,685,218
------------
Net assets, May 31, 2000 $284,694,495
------------
------------
</TABLE>
12 See Notes to Financial Statements
<PAGE>
Prudential Sector Funds, Inc. Prudential Health Sciences Fund
Statement of Assets and Liabilities (Unaudited) Cont'd.
<TABLE>
<CAPTION>
May 31, 2000
<S> <C> <C>
--------------------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share ($54,677,917 /
3,907,601 shares of common stock issued and outstanding) $13.99
Maximum sales charge (5% of offering price) .74
------------
Maximum offering price to public $14.73
------------
------------
Class B:
Net asset value, offering price and redemption price per share
($148,511,563 / 10,689,316 shares of common stock issued
and outstanding) $13.89
------------
------------
Class C:
Net asset value and redemption price per share ($64,799,586 /
4,663,905 shares of common stock issued and outstanding) $13.89
Sales charge (1% of offering price) .14
------------
Offering price to public $14.03
------------
------------
Class Z:
Net asset value, offering price and redemption price per share
($16,705,429 / 1,190,832 shares of common stock issued and
outstanding) $14.03
------------
------------
</TABLE>
See Notes to Financial Statements 13
<PAGE>
Prudential Sector Funds, Inc. Prudential Health Sciences Fund
Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
May 31, 2000
<S> <C> <C>
---------------------------------------------------------------------------------------
NET INVESTMENT LOSS
Income
Dividends (net of foreign witholding tax of $23,578) $ 1,150,712
Interest 321,638
------------
Total income 1,472,350
------------
Expenses
Management fee 883,695
Distribution fee--Class A 56,996
Distribution fee--Class B 608,108
Distribution fee--Class C 284,874
Transfer agent's fees and expenses 171,000
Registration fees 60,000
Custodian's fees and expenses 60,000
Reports to shareholders 51,000
Audit fee and expenses 12,000
Legal fees and expenses 6,000
Directors' fees 5,000
Miscellaneous 1,968
------------
Total expenses 2,200,641
Less: Management fee waiver (Note 2) (176,739 )
------------
Net expenses 2,023,902
------------
Net investment loss (551,552 )
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS
Net realized gain (loss) on:
Investment transactions 29,030,183
Foreign currency transactions (5,342 )
------------
29,024,841
------------
Net change in unrealized appreciation on investments 27,553,561
------------
Net gain on investments 56,578,402
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $56,026,850
------------
------------
</TABLE>
14 See Notes to Financial Statements
<PAGE>
Prudential Sector Funds, Inc. Prudential Health Sciences Fund
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months June 30, 1999(a)
Ended Through
May 31, 2000 November 30, 1999
<S> <C> <C> <C>
---------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net investment loss $ (551,552) $ (642,381)
Net realized gain on investments and
foreign currency transactions 29,024,841 1,720,697
Net change in unrealized appreciation on
investments 27,553,561 13,131,657
------------ ------------------
Net increase in net assets resulting from
operations 56,026,850 14,209,973
------------ ------------------
Dividends and distributions (Note 1):
Distributions from net realized gains
Class A (560,664) --
Class B (1,526,461) --
Class C (667,678) --
Class Z (172,194) --
------------ ------------------
(2,926,997) --
------------ ------------------
Fund share transactions
Net proceeds from shares sold 89,325,546 180,151,042
Net asset value of shares issued in
reinvestment of dividends and
distributions 2,809,025 --
Cost of shares reacquired (41,178,449) (13,722,495)
------------ ------------------
Net increase in net assets from Fund
share transactions 50,956,122 166,428,547
------------ ------------------
Total increase 104,055,975 180,638,520
NET ASSETS
Beginning of period 180,638,520 --
------------ ------------------
End of period $284,694,495 $180,638,520
------------ ------------------
------------ ------------------
------------------------------
(a) Commencement of investment operations.
</TABLE>
See Notes to Financial Statements 15
<PAGE>
Prudential Sector Funds, Inc. Prudential Health Sciences Fund
Notes to Financial Statements (Unaudited)
Prudential Sector Funds, Inc. (the 'Company') is registered under the
Investment Company Act of 1940 as an open-end management investment company. The
Company presently consists of four Portfolios: Prudential Financial Services
Fund, Prudential Utility Fund, Prudential Technology Fund and Prudential Health
Sciences Fund (the 'Fund'). Investment operations commenced on June 30, 1999.
The Fund is non-diversified and it's investment objective is long-term capital
appreciation which is sought by investing primarily in equity-related securities
of U.S. companies engaged in the drug, healthcare, medicine, medical device and
biotechnology group of industries.
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Company and 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 sales price on
the day of valuation, or, if there was no sale on such day, 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. Corporate bonds and U.S. Government securities are
valued on the basis of valuations provided by a pricing service or principal
market makers. Options traded on an exchange are valued at the mean between the
most recently quoted bid and asked prices on the respective exchange, and
futures contracts and options thereon are valued at their last sales prices as
of the close of trading on the applicable commodities exchange. Any security for
which a reliable market quotation is unavailable is valued at fair value as
determined in good faith by or under the direction of the Fund's Board of
Directors.
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 which approximates market value.
In connection with transactions in repurchase agreements with U.S.
financial institutions, it is the Company's policy that its custodian or
designated subcustodians under triparty repurchase agreements, as the case may
be take possession of the underlying collateral securities, the value of which
exceeds the principal amount of the repurchase transaction including accrued
interest. To the extent that any repurchase transaction exceeds one business
day, the value of the collateral is marked-to-market on a daily basis to ensure
the adequacy of the collateral. If the seller defaults and the value of the
collateral declines or if bankruptcy proceedings are commenced with respect to
the seller of the security, realization of the collateral by the Fund may be
delayed or limited.
All securities are valued as of 4:15 p.m., New York time.
16
<PAGE>
Prudential Sector Funds, Inc. Prudential Health Sciences Fund
Notes to Financial Statements (Unaudited) Cont'd.
Short Sales: The Fund may sell a security it does not own in
anticipation of a decline in the market value of that security (short sale).
When the Fund makes a short sale, it must borrow the security sold short and
deliver it to broker-dealer through which it made the short sale. The proceeds
received from the short sale are maintained as collateral for its obligation to
deliver the security upon conclusion of the sale. The Fund may have to pay a fee
to borrow the particular security and may be obligated to pay over any payments
received on such borrowed securities. A gain, limited to the price at which the
Fund sold the security short, or at a loss, unlimited in magnitude, will be
recognized upon the termination of a short sale if the market price at
termination is less than or greater than, respectively, the proceeds originally
received.
Securities Transactions and Net Investment Income: Securities
transactions are recorded on the trade date. Realized gains and losses on sales
of investments are calculated on the identified cost basis. Dividend income is
recorded on the ex-dividend date and 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. The Company's expenses are allocated to the
respective Funds on the basis of relative net assets except for expenses that
are charged directly at a Fund level.
Net investment income (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 gains, if any,
annually. Dividends and distributions are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
Taxes: For federal income tax purposes, each fund in the Company is
treated as a separate tax paying entity. It is the Fund's policy to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable net income and net capital gains,
if any, to its shareholders. Therefore, no federal income tax provision is
required.
Withholding taxes on foreign dividends have been provided for in
accordance with the Fund's understanding of the applicable country's tax rules
and rates.
Reclassification of Capital Accounts: The Company accounts and reports
for distributions to shareholders in accordance with '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 on the Fund
17
<PAGE>
Prudential Sector Funds, Inc. Prudential Health Sciences Fund
Notes to Financial Statements (Unaudited) Cont'd.
of applying this statement was to increase undistributed net investment loss by
$5,342 and increase accumulated net realized gain on investments and foreign
currency transactions by $5,342 due to realized foreign currency losses. Net
investment loss, net realized gains and net assets were not affected by this
change.
Note 2. Agreements
The Fund 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 agreements with The Prudential
Investment Corporation ('PIC') and Jennison Associates LLC ('Jennison'). Each
subadviser furnishes investment advisory services in connection with the
management of the Fund. PIFM pays for the services of PIC and Jennison, the cost
of compensation of officers of the Fund, occupancy and certain clerical and
bookkeeping costs of the Fund. The Fund bears all other costs and expenses.
The management fee paid PIFM is computed daily and payable monthly, at an
annual rate of .75 of 1% of the Fund's average daily net assets. PIC is
compensated by PIFM for providing services to a portion of the Fund's assets.
Jennison is compensated by PIFM for its services at the rate of .30 of 1% of the
average daily net assets of the portion of the Fund that Jennison manages up to
and including $300 million and .25 of 1% of such average daily net assets in
excess of $300 million.
PIFM has agreed to waive a portion (.15 of 1% of the Fund's average daily
net assets) of its management fee, which amounted to $176,739 ($.0086 per share)
for the six months ended May 31, 2000. The Fund is not required to reimburse
PIFM for such waiver.
The Fund has a distribution agreement with Prudential Investment
Management Services LLC ('PIMS') which acts as the distributor of the Class A,
Class B, Class C and Class Z shares. The Fund compensates PIMS for distributing
and servicing the Fund's Class A, Class B and Class C shares pursuant to plans
of distribution (the 'Class A, B and C Plans'), regardless of expenses actually
incurred by them. 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 average daily net assets of the Class A, B and C shares, respectively.
Such expenses
18
<PAGE>
Prudential Sector Funds, Inc. Prudential Health Sciences Fund
Notes to Financial Statements (Unaudited) Cont'd.
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 six months ended May 31, 2000.
PIMS has advised the Fund that it received approximately $172,000 and
$123,000 in front-end sales charges resulting from sales of Class A shares and
Class C shares, respectively, during the six months ended May 31, 2000. From
these fees, PIMS paid such sales charges to dealers, which in turn paid
commissions to salespersons and incurred other distribution costs.
PIMS has advised the Fund that for the six months ended May 31, 2000, it
received approximately $202,000 and $43,000 in contingent deferred sales charges
imposed upon certain redemptions by Class B and Class C shareholders,
respectively.
PIFM, PIC, PIMS and Jennison are wholly owned subsidiaries of The
Prudential Insurance Company of America ('The 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 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 six months ended March 31, 2000.
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned subsidiary of PIFM,
serves as the Company's transfer agent. During the six months ended May 31,
2000, the Fund incurred fees of approximately $153,000 for the services of PMFS.
As of May 31, 2000, approximately $19,000 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 six months ended May 31, 2000 were $250,078,148 and $211,567,204,
respectively.
The federal income tax basis of the Fund's investments at May 31, 2000 was
$238,305,598 and, accordingly, net unrealized appreciation for federal income
tax
19
<PAGE>
Prudential Sector Funds, Inc. Prudential Health Sciences Fund
Notes to Financial Statements (Unaudited) Cont'd.
purposes was $37,217,226 (gross unrealized appreciation--$42,526,014; gross
unrealized depreciation--$5,308,788).
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 May 31, 2000, the Fund had
a .01% undivided interest in the repurchase agreements in the joint account. The
undivided interest for the Fund represents $49,000 in principal amount. As of
such date, each repurchase agreement in the joint account and the collateral
therefore were as follows:
ABN AMRO Incorporated, 6.37%, in the principal amount of $110,000,000,
repurchase price $110,019,464, due 6/1/00. The value of the collateral including
accrued interest was $112,200,491.
Bear, Stearns & Co. Inc., 6.37%, in the principal amount of $130,000,000,
repurchase price $130,023,003, due 6/1/00. The value of the collateral including
accrued interest was $133,856,194.
Chase Securities Inc., 6.15%, in the principal amount of $114,985,000,
repurchase price $115,004,643, due 6/1/00. The value of the collateral including
accrued interest was $117,289,066.
Credit Suisse First Boston Corp., 6.40%, in the principal amount of
$90,000,000, repurchase price $90,016,000, due 6/1/00. The value of the
collateral including accrued interest was $93,252,694.
Salomon Smith Barney, Inc., 6.38%, in the principal amount of
$220,000,000, repurchase price $220,038,989, due 6/1/00. The value of the
collateral including accrued interest was $224,578,626.
Warburg Dillon Read LLC, 6.20%, in the principal amount of $200,000,000,
repurchase price $200,034,444, due 6/1/00. The value of the collateral including
accrued interest was $204,004,940.
Note 6. Capital
The Fund offers Class A, Class B, Class C and Class Z shares. Class A shares are
sold with a front-end sales charge of up to 5%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class C shares are sold with a front-end
sales charge of 1% and a contingent deferred sales charge of 1% during the first
18 months. Class B shares will automatically convert to Class A shares on a
quarterly basis approximately seven
20
<PAGE>
Prudential Sector Funds, Inc. Prudential Health Sciences Fund
Notes to Financial Statements (Unaudited) Cont'd.
years after purchase. A special exchange privilege is also available for
shareholders who qualified to purchase Class A shares at net asset value. Class
Z shares are not subject to any sales charge and are offered exclusively for
sale to a limited group of investors.
There are 400 million shares of common stock, $.01 par value per share,
divided into four classes, designated Class A, Class B, Class C and Class Z
common stock, each of which consists of 100 million authorized shares.
As of May 31, 2000 PIFM owned 10 Class A shares, 10 Class B shares, 10
Class C shares and 10 Class Z shares.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
---------------------------------------------------------- ----------- -------------
<S> <C> <C>
Six months ended May 31, 2000:
Shares sold 1,470,400 $ 19,160,650
Shares issued in reinvestment of distributions 38,339 532,140
Shares reacquired (1,044,774) (12,907,687)
----------- -------------
Net increase in shares outstanding before conversion 463,965 6,785,103
Shares issued upon conversion from Class B 70,787 967,705
----------- -------------
Net increase in shares outstanding 534,752 $ 7,752,808
----------- -------------
----------- -------------
June 30, 1999(a) through
November 30, 1999:
Shares sold 3,887,815 $ 38,863,218
Shares reacquired (517,941) (5,221,019)
----------- -------------
Net increase in shares outstanding before conversion 3,369,874 33,642,199
Shares issued upon conversion from Class B 2,975 30,317
----------- -------------
Net increase in shares outstanding 3,372,849 $ 33,672,516
----------- -------------
----------- -------------
<CAPTION>
Class B
----------------------------------------------------------
<S> <C> <C>
Six months ended May 31, 2000:
Shares sold 3,550,932 $ 46,327,654
Shares issued in reinvestment of distributions 105,422 1,453,777
Shares reacquired (1,119,580) (14,377,107)
----------- -------------
Net increase in shares outstanding before conversion 2,536,774 33,404,324
Shares reacquired upon conversion into Class A (71,131) (967,705)
----------- -------------
Net increase in shares outstanding 2,465,643 $ 32,436,619
----------- -------------
----------- -------------
June 30, 1999(a) through
November 30, 1999:
Shares sold 8,576,932 $ 85,677,986
Shares reacquired (350,278) (3,570,092)
----------- -------------
Net increase in shares outstanding before conversion 8,226,654 82,107,894
Shares reacquired upon conversion into Class A (2,981) (30,317)
----------- -------------
Net increase in shares outstanding 8,223,673 $ 82,077,577
----------- -------------
----------- -------------
</TABLE>
21
<PAGE>
Prudential Sector Funds, Inc. Prudential Health Sciences Fund
Notes to Financial Statements (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class C Shares Amount
---------------------------------------------------------- ----------- -------------
Six months ended May 31, 2000:
<S> <C> <C>
Shares sold 1,104,184 $ 14,226,998
Shares issued in reinvestment of distributions 47,409 653,773
Shares reacquired (786,099) (9,969,109)
----------- -------------
Net increase in shares outstanding 365,494 $ 4,911,662
----------- -------------
----------- -------------
June 30, 1999(a) through
November 30, 1999:
Shares sold 4,638,743 $ 46,390,371
Shares reacquired (340,332) (3,446,453)
----------- -------------
Net increase in shares outstanding 4,298,411 $ 42,943,918
----------- -------------
----------- -------------
<CAPTION>
Class Z
----------------------------------------------------------
<S> <C> <C>
Six months ended May 31, 2000:
Shares sold 716,676 $ 9,610,244
Shares issued in reinvestment of distributions 12,165 169,335
Shares reacquired (308,388) (3,924,546)
----------- -------------
Net increase in shares outstanding 420,453 $ 5,855,033
----------- -------------
----------- -------------
June 30, 1999(a) through
November 30, 1999:
Shares sold 917,727 $ 9,219,467
Shares reacquired (147,348) (1,484,931)
----------- -------------
Net increase in shares outstanding 770,379 $ 7,734,536
----------- -------------
----------- -------------
</TABLE>
------------------------------
(a) Commencement of investment operations.
22
<PAGE>
Prudential Sector Funds, Inc. Prudential Health Sciences Fund
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
Class A
----------------------------------
Six Months June 30, 1999(b)
Ended Through
May 31, 2000 November 30, 1999
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 10.86 $ 10.00
------------ --------
Income from investment operations
Net investment gain (loss)(d) .01 (.02)
Net realized and unrealized gain on
investments and foreign currency
transactions 3.27 .88
------------ --------
Total from investment operations 3.28 .86
Less distributions:
Distributions from net realized gains (.15) --
------------ --------
Net asset value, end of period $ 13.99 $ 10.86
------------ --------
------------ --------
TOTAL RETURN(a): 30.17% 8.60%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 54,678 $36,646
Average net assets (000) $ 45,597 $32,032
Ratios to average net assets(c)/(d):
Expenses, including distribution fees 1.16% 1.59%
Expenses, excluding distribution fees .91% 1.34%
Net investment gain (loss) .09% (.43)%
For Class A, B, C and Z shares:
Portfolio turnover rate 95% 61%
</TABLE>
------------------------------
(a) 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.
(b) Commencement of investment operations.
(c) Annualized.
(d) Net of management fee waiver.
See Notes to Financial Statements 23
<PAGE>
Prudential Sector Funds, Inc. Prudential Health Sciences Fund
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
Class B
----------------------------------
Six Months June 30, 1999(b)
Ended Through
May 31, 2000 November 30, 1999
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 10.83 $ 10.00
------------ --------
Income from investment operations
Net investment loss(d) (.04) (.05)
Net realized and unrealized gain on
investments and foreign currency
transactions 3.25 .88
------------ --------
Total from investment operations 3.21 .83
Less distributions:
Distributions from net realized gains (.15) --
------------ --------
Net asset value, end of period $ 13.89 $ 10.83
------------ --------
------------ --------
TOTAL RETURN(a): 29.60% 8.30%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $148,512 $89,061
Average net assets (000) $121,621 $74,448
Ratios to average net assets(c)/(d):
Expenses, including distribution fees 1.91% 2.34%
Expenses, excluding distribution fees .91% 1.34%
Net investment loss (.66)% (1.20)%
</TABLE>
------------------------------
(a) 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.
(b) Commencement of investment operations.
(c) Annualized.
(d) Net of management fee waiver.
24 See Notes to Financial Statements
<PAGE>
Prudential Sector Funds, Inc. Prudential Health Sciences Fund
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
Class C
----------------------------------
Six Months June 30, 1999(b)
Ended Through
May 31, 2000 November 30, 1999
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 10.83 $ 10.00
------------ --------
Income from investment operations
Net investment loss(d) (.04) (.05)
Net realized and unrealized gain on
investments and foreign currency
transactions 3.25 .88
------------ --------
Total from investment operations 3.21 .83
Less distributions:
Distributions from net realized gains (.15) --
------------ --------
Net asset value, end of period $ 13.89 $ 10.83
------------ --------
------------ --------
TOTAL RETURN(a): 29.60% 8.30%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 64,800 $46,551
Average net assets (000) $ 56,975 $41,090
Ratios to average net assets(c)/(d):
Expenses, including distribution fees 1.91% 2.34%
Expenses, excluding distribution fees .91% 1.34%
Net investment loss (.67)% (1.18)%
</TABLE>
------------------------------
(a) 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.
(b) Commencement of investment operations.
(c) Annualized.
(d) Net of management fee waiver.
See Notes to Financial Statements 25
<PAGE>
Prudential Sector Funds, Inc. Prudential Health Sciences Fund
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
Class Z
----------------------------------
Six Months June 30, 1999(b)
Ended Through
May 31, 2000 November 30, 1999
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 10.88 $ 10.00
------------ --------
Income from investment operations
Net investment gain (loss)(d) .02 (.01)
Net realized and unrealized gain on
investments and foreign currency
transactions 3.28 .89
------------ --------
Total from investment operations 3.30 .88
------------ --------
Less distributions:
Distributions from net realized gains (.15) --
------------ --------
Net asset value, end of period $ 14.03 $ 10.88
------------ --------
------------ --------
TOTAL RETURN(a): 30.30% 8.80%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 16,705 $ 8,381
Average net assets (000) $ 11,459 $ 6,932
Ratios to average net assets(c)/(d):
Expenses, including distribution fees .91% 1.34%
Expenses, excluding distribution fees .91% 1.34%
Net investment gain (loss) .35% (.20)%
</TABLE>
------------------------------
(a) 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.
(b) Commencement of investment operations.
(c) Annualized.
(d) Net of management fee waiver.
26 See Notes to Financial Statements
<PAGE>
<PAGE>
Prudential Health Sciences 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>
Prudential Health Sciences Fund
Getting the Most from Your Prudential Mutual Fund
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>
www.prudential.com (800) 225-1852
For More Information
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
Directors
Delayne Dedrick Gold
Robert F. Gunia
Douglas H. McCorkindale
Thomas T. Mooney
Stephen P. Munn
David R. Odenath, Jr.
Richard A. Redeker
Robin B. Smith
John R. Strangfeld
Louis A. Weil, III
Clay T. Whitehead
Officers
John R. Strangfeld, President
Robert F. Gunia, Vice President
David R. Odenath, Jr., Vice President
Grace C. Torres, Treasurer
Marguerite E.H. Morrison, Secretary
William V. Healey, Assistant Secretary
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
194 Wood Avenue South
Iselin, NJ 08830
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 PHLAX 74437K509
Class B PHLBX 74437K608
Class C PHLCX 74437K707
Class Z N/A 74437K806
The views expressed in this report and information about
the Fund's portfolio holdings are for the period covered
by this report and are subject to change thereafter.
The accompanying financial statements as
of May 31, 2000, were not audited and, accordingly, no
opinion is expressed on them.
<PAGE>
(LOGO)
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
MF188E4 74437K509 74437K608 74437K707 74437K806
(LOGO) Printed on Recycled Paper
<PAGE>
SEMIANNUAL REPORT MAY 31, 2000
Prudential
Technology Fund
(GRAPHIC)
FUND TYPE Stock
OBJECTIVE Long-term capital appreciation
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 Technology Fund seeks to achieve long-term
capital appreciation. It invests primarily in securities
of companies that its portfolio managers expect will
derive a substantial portion of their sales from products
or services in technology and technology-related
activities in the computer, electronic, and electronic
equipment industries. The Fund is divided into two
approximately equal portfolios. One is the enhanced index
portfolio consisting of securities selected from those in
the benchmark Standard & Poor's SuperComposite1500
Technology Index (S&P SC Technology Index). Quantitative
models are used to create a sample that is representative
of the Index, but with overweighted and underweighted
holdings designed to increase the likelihood of
performing better than the benchmark. The other is the
strategically managed portfolio, which holds securities
in which the managers have the highest confidence.
Portfolio Composition
Sectors expressed as a percentage of
net assets as of 5/31/00
18.0% Semiconductors
14.4 Software
10.7 Telecommunications Equipment
10.0 Computer Hardware
7.7 Fiber Optics
7.2 Networking
6.0 Telecommunications-Wireless
5.3 Semiconductor Equipment
5.3 Internet Software
4.2 Electronics
8.2 Other
3.0 Cash & Equivalents
Ten Largest Holdings
Expressed as a percentage of
net assets as of 5/31/00
7.0% Intel Corp.
Semiconductors
6.3 Cisco Systems, Inc.
Networking
4.9 Microsoft Corp.
Software
4.4 Oracle Corp.
Software
3.9 Lucent Technologies, Inc.
Telecommunications Equipment
3.7 Corning, Inc.
Fiber Optics
3.4 America Online, Inc.
Internet Software
2.7 JDS Uniphase Corp.
Fiber Optics
2.3 Int'l Business Machines Corp.
Computer Hardware
2.3 Comverse Technology, Inc.
Telecommunications Equipment
<PAGE>
www.prudential.com (800) 225-1852
Performance at a Glance
Cumulative Total Returns1 As of 5/31/00
Six One Since
Months Year Inception2
Class A 16.53% N/A 60.34%
Class B 16.14 N/A 59.33
Class C 16.14 N/A 59.33
Class Z 16.66 N/A 60.74
Lipper Science
& Technology Fund
Avg.3 13.11 N/A 58.90
Average Annual Total Returns1 As of 6/30/00
One Since
Year Inception2
Class A 72.16% 72.16%
Class B 75.00 75.00
Class C 77.20 77.20
Class Z 81.73 81.73
Past performance is not indicative of future results.
Principal and investment return will fluctuate so that an
investor's shares, when redeemed, may be worth more or
less than their original cost.
1 Source: Prudential Investments Fund Management LLC and
Lipper Inc. The cumulative total returns do not take into
account sales charges. The average annual total returns
do take into account applicable sales charges. The Fund
charges a maximum front-end sales charge of 5% for Class
A shares. Class B shares are subject to a declining
contingent deferred sales charge (CDSC) of 5%, 4%, 3%,
2%, 1%, and 1% for six years. Class B shares will
automatically convert to Class A shares, on a quarterly
basis, approximately seven years after purchase. Class C
shares are subject to a front-end sales charge of 1% and
a CDSC of 1% for 18 months. Class Z shares are not
subject to a sales charge or distribution and service
(12b-1) fees.
2 Inception date: Class A, B, C, and Z, 6/30/99.
3 Lipper average returns are for all funds in each share
class for the six-month and since inception periods in
the Science & Technology Fund category. The Lipper
average is unmanaged. Science & Technology funds invest
at least 65% of their assets in science and technology
stocks.
1
<PAGE>
(LOGO) July 17, 2000
Dear Shareholder,
During the reporting period that covers the six months
ended May 31, 2000, the Prudential Technology Fund's
Class A shares posted an impressive 16.53% return-10.71%
for those paying the maximum one-time Class A share sales
charge. This compares favorably to the 13.11% return for
the Lipper Science & Technology Fund Average.
Overall, technology stocks added to the very strong
returns they generated in 1999. In fact, during the last
six months, the overall stock market, as measured by the
Standard & Poor's 500 Composite Stock Price Index, rose
only 2.90%. However, looking at the return of technology
stocks during the reporting period does not tell the
whole story. In fact, the first half and the second half
of the period couldn't have been more dissimilar.
From December through mid-March, technology issues
continued their rapid ascent. This astounded many
financial experts, given the unprecedented rise in
technology stocks throughout 1999. However, in March,
signs of rising inflation, continued interest rate hikes,
and high stock valuations caused investors to flee the
technology-laden Nasdaq. This was punctuated by a 9.7%
decline on April 14, 2000. While other types of stocks
were dragged down, the Nasdaq experienced the brunt of
the damage and, by period end, had fallen roughly 35%
from its peak on March 10, 2000.
More recently, technology stocks have begun to rebound.
However, the short-term outlook for the overall stock
market and technology shares remains uncertain. As such,
we urge investors to maintain a diversified portfolio and
a longer-term outlook.
Sincerely,
John R. Strangfeld, President
Prudential Sector Funds, Inc.-Prudential Technology Fund
2
<PAGE>
Prudential Technology Fund
Semiannual Report May 31, 2000
Investment Adviser's Report
The industry fixtures
Intel, Cisco Systems, and Microsoft-the three largest
companies (by market capitalization) in the S&P SC
Technology Index-were among the Fund's largest holdings
at the end of the reporting period. Since these stocks
are such an important part of the Index, these firms will
be represented in the Fund's holdings, although usually
not to the extent that they dominate the Index.
During the period under review, Intel rose over 70%, and
Cisco produced approximately a 33% return. However,
Microsoft fell sharply due to concerns over the
government's proposal to split the company into two
separate entities. At this point, it's uncertain how this scenario
will play out. Microsoft has vowed to fight the decision,
and the case could end up being reviewed by the Supreme
Court before all is said and done.
The wireless boom continues
Overall, one of the biggest contributors to the Fund's
performance during the period was its exposure to
wireless communications infrastructure
companies. In particular, firms that supply fiberoptic
telecommunications systems produced outstanding returns.
As fiberoptic networks are expanded, consumers will be
able to use their wireless phones to access the Internet,
send and receive e-mail, and even execute stock trades.
In some countries, such as Japan, these features are
already commonplace. However, in the United States, these
enhancements have only recently been introduced, and a
huge potential market remains untapped. Top Fund holdings
in this area include Corning and JDS Uniphase (see
Comments on Largest Holdings).
3
<PAGE>
Prudential Technology Fund
Holdings expressed as a percentage of the specified portfolio
Comments on Largest Holdings-
Strategically Managed Portfolio As of 5/31/00
6.3% Corning, Inc./Fiber Optics
A global provider of technology-based products, including
optical fiber and cable. Earnings grew 50% during the 12-
month period ended March 31, 2000. The firm's share price
stabilized quickly during the technology sector
correction.
5.3% JDS Uniphase Corp./Fiber Optics
A leading provider of hardware for fiberoptic
communications, its chips increase the carrying capacity
of optical fibers. Earnings grew 179% during the 12-month
period ended March 31, 2000, and the firm's five-year
historical growth rate was 84%.
4.2% Comverse Technology, Inc./Telecommunications
Equipment
A designer and manufacturer of computer and
telecommunications systems for multimedia communications.
The firm's products allow phone providers to offer
services used to generate incremental revenue, such as
voicemail, fax, prepaid services, and call answering.
3.7% America Online, Inc./Internet Software
A worldwide provider of interactive communications
services offered through America Online and CompuServe.
Concerns over the firm's proposed merger with Time Warner
detracted from performance, although it held up well
during the technology correction.
3.6% Oracle Corp./Software
A leading developer of large database software systems
and provider of consulting and support services for the
systems. The firm's systems software products feature the
Oracle 8I relationship database management system,
designed for Internet development and deployment.
Earnings grew 72% during the 12-month period ended March
31, 2000.
Holdings are subject to change.
Five Largest Holdings-Enhanced Index Portfolio As of 5/31/00
Industry % of Total Enhanced % of S&P SC
Security Group Index Market Value Technology Index*
Intel Corp. Semiconductors 10.9% 10.4%
Cisco Systems,
Inc. Networking 10.1% 10.0%
Microsoft Corp. Software 8.1% 8.2%
Oracle Corp. Software 5.3% 5.1%
International
Business
Machines
Corp. Computer Hardware 4.7% 4.8%
*Source: Standard & Poor's, based on data retrieved by
Factset.
4
<PAGE>
www.prudential.com (800) 225-1852
Semiannual Report May 31, 2000
Semiconductors revitalize consumer electronics
Another important area for the Fund has been its
overweight position in semiconductors. These chips are
most commonly known for their use in computers, and the
Fund owns several traditional chip manufacturers. Another
less publicized use of these chips has been in the
consumer electronics industry. Digital cameras, high-
definition televisions (HDTVs), and DVD players are but a
few devices that rely on semiconductor chips to operate.
Sales of these types of products are growing rapidly, and
this should drive the demand for these chips in the
foreseeable future. Fund holdings in this area include
LSI Logic.
Carefully investing in the Internet
As we explained in our last report to shareholders, the
Fund has veered away from business-to-consumer Internet
stocks due to excessive valuations and, in many cases,
questionable business plans. However, the Fund continues
to participate in the vast opportunities provided by the
Internet by investing in business-to-business firms and
companies involved in the infrastructure of the Internet.
This strategy has allowed the Fund to focus on profitable
companies rather than gamble on companies that can only
hope to turn a profit at some point in the future.
A perfect example of a Fund holding in this area is
Oracle (see Comments on Largest Holdings). The firm
provides database software that drives many companies'
information systems and websites. Oracle's earnings
continue to exceed expectations, and its stock price rose
substantially during the period.
Active management leading to outperformance
As the Fund invests almost exclusively in technology
stocks, it was not
possible to avoid the sharp decline in the sector that
began in mid-March. However, the Fund held up much better
than many of its counterparts. During the three-month
period ended May 31, 2000, the Fund's Class A shares fell
17.81% versus a 27.69% decline in the Lipper Science &
Technology Fund Average.
5
<PAGE>
Prudential Technology Fund
Semiannual Report May 31, 2000
The Fund was able to sidestep the steepest losses through
careful management of its portfolio. In addition to
avoiding more speculative Internet
companies, we rotated from smaller-cap issues in favor of
larger-cap technology stocks that performed relatively
better during the downturn. We also looked for firms that
would not be as adversely affected by rising interest
rates. Our fiberoptic holdings also held up relatively
well, as demand for their products remained steady
despite the market turmoil.
A positive long-term outlook
Despite the recent correction in the technology sector,
we continue to believe that technology stocks are a
sound, long-term investment. The only constant in the
technology area is change, and with change comes
investment opportunities. While much has been said and
written about innovations such as the Internet and
wireless communications, global penetration of these
types of products remains low. As such, solid gains from
firms in a wide variety of industries could be generated
over the longer term.
As we've seen, there will undoubtedly be some bumps in
the road. In the short term, technology performance could
remain choppy, as uncertain economic conditions have
unsettled investors. While we're not anticipating a
recession, a significant economic slowdown could cause
companies to cut capital spending budgets, and
subsequently hurt technology stocks. Until the economic
picture becomes clearer, stock prices continue to be
volatile. In such a period, astute stock selection will
become increasingly important.
Prudential Technology Fund Management Team
6
<PAGE>
Prudential Technology Fund
Semiannual Report May 31, 2000
Financial
Statements
<PAGE>
Prudential Sector Funds, Inc. Prudential Technology Fund
Portfolio of Investments as of May 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C> <C>
------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS 97.0%
Common Stocks
-------------------------------------------------------------------------------------
Aerospace/Defense 0.1%
2,400 Litton Industries, Inc.(a) $ 103,050
25,300 Raytheon Co. (Class B) 592,969
----------------
696,019
-------------------------------------------------------------------------------------
Computer Hardware 10.0%
11,100 Apple Computer, Inc.(a) 932,400
91,800 Compaq Computer Corp. 2,409,750
190,400 Dell Computer Corp.(a) 8,211,000
74,100 EMC Corp.(a) 8,618,756
15,900 Gateway, Inc.(a) 787,050
71,700 Hewlett-Packard Co. 8,612,962
123,000 International Business Machines Corp. 13,199,437
8,600 NCR Corp.(a) 362,813
8,900 Quantum Corp. - DLT & Storage Systems(a) 92,338
8,000 SanDisk Corp.(a) 465,000
15,600 Seagate Technology, Inc.(a) 904,800
5,200 Storage Technology Corp.(a) 58,175
112,600 Sun Microsystems, Inc.(a) 8,627,975
19,600 Symbol Technologies, Inc. 863,625
59,400 Tech Data Corp.(a) 2,231,213
----------------
56,377,294
-------------------------------------------------------------------------------------
Computer Services 1.2%
61,000 American Management Systems, Inc.(a) 2,283,687
2,200 Aspen Technology, Inc.(a) 45,375
8,800 Comdisco, Inc. 225,500
1,600 Computer Sciences Corp.(a) 153,500
7,200 Dendrite International, Inc.(a) 181,350
31,800 Electronic Data Systems Corp. 2,045,137
1,500 Jack Henry & Associates, Inc. 65,227
9,800 marchFIRST, Inc.(a) 184,975
5,200 National Computer Systems, Inc. 236,275
7,100 Sapient Corp.(a) 709,556
</TABLE>
8 See Notes to Financial Statements
<PAGE>
Prudential Sector Funds, Inc. Prudential Technology Fund
Portfolio of Investments as of May 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
10,100 Titan Corp.(a) $ 362,338
17,700 Unisys Corp.(a) 480,113
----------------
6,973,033
-------------------------------------------------------------------------------------
Data Processing/Management 2.4%
70,000 Acxiom Corp.(a) 2,047,500
44,100 Automatic Data Processing, Inc. 2,422,744
46,600 CheckFree Holdings Corp.(a) 1,948,462
18,300 CSG Systems International, Inc.(a) 910,425
6,600 DST Systems, Inc.(a) 495,413
800 FactSet Research Systems, Inc. 20,600
29,000 First Data Corp. 1,625,812
20,200 Fiserv, Inc.(a) 944,350
92,100 Informix Corp.(a) 667,725
36,750 Paychex, Inc. 1,286,250
33,400 SunGuard Data Systems, Inc.(a) 1,133,513
2,500 Sybase, Inc.(a) 47,656
----------------
13,550,450
-------------------------------------------------------------------------------------
Electronics 4.2%
5,000 Actel Corp.(a) 145,625
24,500 Analog Devices, Inc.(a) 1,886,500
5,600 Arrow Electronics, Inc. 196,350
200 Audiovox Corp.(a) 3,788
2,369 Avnet, Inc. 163,905
15,000 Epcos AG (ADR)(a) 1,831,875
39,900 Gemstar International Group, Ltd.(a) 1,693,256
2,200 International Rectifier Corp.(a) 90,750
147,800 Jabil Circuit, Inc.(a) 5,394,700
5,100 KEMET Corp.(a) 342,656
100 Kent Electronics Corp.(a) 2,775
13,300 L-3 Communications Holdings, Inc.(a) 744,800
26,500 Linear Technology Corp. 1,565,156
4,600 Mercury Computer Systems, Inc.(a) 144,325
11,300 Plexus Corp.(a) 943,550
5,300 Polycom, Inc.(a) 445,531
15,000 Sawtek, Inc.(a) 964,688
</TABLE>
See Notes to Financial Statements 9
<PAGE>
Prudential Sector Funds, Inc. Prudential Technology Fund
Portfolio of Investments as of May 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
168,600 Solectron Corp.(a) $ 5,574,337
19,000 Tektronix, Inc.(a) 1,016,500
600 Trimble Navigation, Ltd.(a) 26,513
9,100 Waters Corp.(a) 859,950
----------------
24,037,530
-------------------------------------------------------------------------------------
Fiber Optics 7.7%
14,500 CIENA Corp.(a) 1,735,469
107,600 Corning, Inc. 20,813,875
5,259 Harmonic, Inc.(a) 235,011
173,400 JDS Uniphase Corp.(a) 15,259,200
900 ONI Systems Corp.(a) 22,500
24,000 SDL, Inc.(a) 5,437,500
----------------
43,503,555
-------------------------------------------------------------------------------------
Financial Services 0.6%
52,200 Concord EFS, Inc.(a) 1,265,850
6,600 Equifax, Inc. 182,737
8,300 Investment Technology Group, Inc. 280,125
52,900 Safeguard Scientifics, Inc.(a) 1,702,719
----------------
3,431,431
-------------------------------------------------------------------------------------
Industrial Technology
1,900 W. W. Grainger, Inc. 75,881
-------------------------------------------------------------------------------------
Internet Content 2.1%
49,800 At Home Corp.(a) 921,300
29,600 Go2Net, Inc.(a) 1,350,500
37,400 Media Metrix, Inc.(a) 1,042,525
7,500 National Information Consortium, Inc.(a) 111,563
26,400 Network Solutions, Inc.(a) 3,902,250
39,000 Yahoo!, Inc.(a) 4,409,437
----------------
11,737,575
-------------------------------------------------------------------------------------
Internet Software 5.3%
362,000 America Online, Inc.(a) 19,186,000
93,700 Exodus Communications, Inc.(a) 6,611,706
6,000 Macromedia, Inc.(a) 480,750
</TABLE>
10 See Notes to Financial Statements
<PAGE>
Prudential Sector Funds, Inc. Prudential Technology Fund
Portfolio of Investments as of May 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
28,500 PC-Tel, Inc.(a) $ 762,375
26,400 Proxicom, Inc.(a) 1,211,100
300 Sequoia Software Corp.(a) 2,025
17,800 Software.com, Inc.(a) 1,499,650
----------------
29,753,606
-------------------------------------------------------------------------------------
Leisure & Tourism 0.2%
35,800 Sabre Holdings Corp.(a) 1,029,250
-------------------------------------------------------------------------------------
Medical Technology 0.3%
8,100 MedQuist, Inc.(a) 335,138
20,700 PE Corp. - PE Biosystems Group 1,148,850
----------------
1,483,988
-------------------------------------------------------------------------------------
Networking 7.2%
16,800 3Com Corp.(a) 702,450
15,000 Ancor Communications, Inc.(a) 395,625
1,200 Anixter International, Inc.(a) 33,900
630,700 Cisco Systems, Inc.(a) 35,910,481
12,000 Extreme Networks, Inc.(a) 586,500
7,100 Foundry Networks, Inc.(a) 447,744
24,900 Network Appliance, Inc.(a) 1,607,606
20,000 Visual Networks, Inc.(a) 992,500
----------------
40,676,806
-------------------------------------------------------------------------------------
Office Equipment & Supplies 0.6%
3,000 IKON Office Solutions, Inc. 15,000
28,900 Lexmark International Group, Inc.(a) 2,015,775
43,600 Xerox Corp. 1,182,650
----------------
3,213,425
-------------------------------------------------------------------------------------
Photography 0.2%
20,800 Eastman Kodak Co. 1,242,800
-------------------------------------------------------------------------------------
Semiconductors 18.0%
10,100 Advanced Micro Devices, Inc.(a) 822,519
1,000 Alpha Industries, Inc. 46,063
29,500 Altera Corp.(a) 2,533,312
</TABLE>
See Notes to Financial Statements 11
<PAGE>
Prudential Sector Funds, Inc. Prudential Technology Fund
Portfolio of Investments as of May 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
55,000 ANADIGICS, Inc.(a) $ 1,907,812
30,200 Atmel Corp.(a) 1,153,262
30,000 Broadcom Corp.(a) 3,901,875
2,450 Burr-Brown Corp.(a) 139,497
1,400 C-Cube Microsystems, Inc.(a) 24,063
90,900 Conexant Systems, Inc.(a) 3,420,112
6,900 Cypress Semiconductor Corp.(a) 290,231
7,000 Dallas Semiconductor Corp. 280,000
61,700 Galileo Technology, Ltd.(a) 1,068,181
6,000 General Semiconductor, Inc. 94,500
5,400 Integrated Device Technology, Inc.(a) 256,163
316,800 Intel Corp. 39,501,000
60,800 Intersil Holding Corp.(a) 2,378,800
33,300 Lattice Semiconductor Corp.(a) 1,975,106
220,600 LSI Logic Corp.(a) 11,622,862
26,900 Maxim Integrated Products, Inc.(a) 1,706,469
26,300 Metalink, Ltd.(a) 657,500
5,400 Micrel, Inc.(a) 344,250
20,000 Microchip Technology, Inc.(a) 1,135,313
31,500 Micron Technology, Inc. 2,203,031
12,200 NVIDIA Corp.(a) 1,392,325
1,500 QLogic Corp.(a) 73,688
146,304 Texas Instruments, Inc. 10,570,464
6,400 TranSwitch Corp.(a) 400,800
6,600 TriQuint Semiconductor, Inc.(a) 622,875
64,000 Vitesse Semiconductor Corp.(a) 3,240,000
109,200 Xilinx, Inc.(a) 8,312,850
----------------
102,074,923
-------------------------------------------------------------------------------------
Semiconductor Equipment 5.3%
148,238 Applied Materials, Inc.(a) 12,377,873
20,900 Asyst Technologies, Inc.(a) 843,838
6,000 Helix Technology Corp. 204,375
21,700 KLA-Tencor Corp.(a) 1,075,506
6,000 Kulicke & Soffa Industries, Inc.(a) 301,875
60,000 Lam Research Corp.(a) 1,927,500
40,800 Novellus Systems, Inc.(a) 1,966,050
</TABLE>
12 See Notes to Financial Statements
<PAGE>
Prudential Sector Funds, Inc. Prudential Technology Fund
Portfolio of Investments as of May 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
67,600 Photronics, Inc.(a) $ 1,622,400
18,200 PRI Automation, Inc.(a) 935,309
88,000 Silicon Valley Group, Inc.(a) 2,343,000
52,600 Teradyne, Inc.(a) 4,523,600
42,000 Varian Semiconductor Equipment Associates, Inc.(a) 2,002,875
----------------
30,124,201
-------------------------------------------------------------------------------------
Software 14.4%
8,100 Adobe Systems, Inc. 911,756
1,600 Autodesk, Inc. 59,500
27,400 Cadence Design Systems, Inc.(a) 438,400
19,500 Citrix Systems, Inc.(a) 1,026,188
31,168 Computer Associates International, Inc. 1,605,152
2,000 Electronic Arts, Inc.(a) 127,750
82,800 HNC Software, Inc.(a) 3,394,800
3,900 Intuit, Inc.(a) 141,375
4,100 Mercury Interactive Corp.(a) 347,475
442,560 Microsoft Corp.(a) 27,687,660
155,200 Network Associates, Inc.(a) 3,395,000
81,200 ONYX Software Corp.(a) 1,380,400
347,600 Oracle Corp.(a) 24,983,750
19,800 Parametric Technology Corp.(a) 210,375
39,200 PeopleSoft, Inc.(a) 541,450
9,100 Rational Software Corp.(a) 667,144
15,800 Siebel Systems, Inc.(a) 1,848,600
8,500 Symantec Corp.(a) 558,875
40,100 Synopsys, Inc.(a) 1,897,231
86,750 VERITAS Software Corp.(a) 10,106,375
----------------
81,329,256
-------------------------------------------------------------------------------------
Telecommunication Services 0.5%
7,100 Aspect Communications Corp.(a) 284,888
19,100 Convergys Corp.(a) 858,306
16,200 Covad Communications Group, Inc.(a) 382,725
52,800 ICG Communications, Inc.(a) 993,300
16,000 Illuminet Holdings, Inc.(a) 610,000
----------------
3,129,219
</TABLE>
See Notes to Financial Statements 13
<PAGE>
Prudential Sector Funds, Inc. Prudential Technology Fund
Portfolio of Investments as of May 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Telecommunications Equipment 10.7%
47,900 ADC Telecommunications, Inc.(a) $ 3,218,281
14,000 ADTRAN, Inc.(a) 862,750
29,900 Advanced Fibre Communications, Inc.(a) 1,375,400
1,600 Andrew Corp.(a) 56,200
23,000 Aware, Inc.(a) 1,017,750
18,400 CommScope, Inc.(a) 710,700
144,400 Comverse Technology, Inc.(a) 13,194,550
1,100 Harris Corp. 33,619
9,400 Hughes Electronics Corp. (General Motors Corp. -
Class 'H') 925,312
385,000 Lucent Technologies, Inc. 22,089,375
206,800 Nortel Networks Corp. 11,231,825
19,000 Orckit Communications, Ltd.(a) 475,297
200 Plantronics, Inc.(a) 17,075
10,000 Scientific-Atlanta, Inc. 563,750
32,100 Tellabs, Inc.(a) 2,084,494
53,700 Tut Systems, Inc.(a) 2,778,975
----------------
60,635,353
-------------------------------------------------------------------------------------
Telecommunications - Wireless 6.0%
22,500 BreezeCom, Ltd.(a) 555,469
7,800 Brightpoint, Inc.(a) 91,163
159,800 CellStar Corp.(a) 449,437
9,500 Digital Microwave Corp.(a) 265,406
70,000 Glenayre Technologies, Inc.(a) 573,125
130,885 Motorola, Inc. 12,270,469
2,600 Proxim, Inc.(a) 227,013
57,100 QUALCOMM, Inc.(a) 3,790,012
63,900 REMEC, Inc.(a) 2,168,606
468,000 Telefonaktiebolaget LM Ericsson AB (ADR) 9,594,000
11,800 U.S. Unwired, Inc.(a) 129,063
33,800 VoiceStream Wireless Corp.(a) 3,870,100
----------------
33,983,863
----------------
Total long-term investments (cost $488,548,129) 549,059,458
----------------
</TABLE>
14 See Notes to Financial Statements
<PAGE>
Prudential Sector Funds, Inc. Prudential Technology Fund
Portfolio of Investments as of May 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C> <C>
-----------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT 3.2%
-------------------------------------------------------------------------------------
Repurchase Agreement
$ 17,886 Joint Repurchase Agreement Account,
6.31%, 6/1/00 (cost $17,886,000; Note 5) $ 17,886,000
----------------
Total Investments 100.2% (cost $506,434,129; Note
4) 566,945,458
Liabilities in excess of other assets (0.2%) (957,657)
----------------
Net Assets 100% $ 565,987,801
----------------
----------------
</TABLE>
------------------------------
(a) Non-income producing security.
ADR--American Depository Receipt.
See Notes to Financial Statements 15
<PAGE>
Prudential Sector Funds, Inc. Prudential Technology Fund
Statement of Assets and Liabilities (Unaudited)
<TABLE>
<CAPTION>
May 31, 2000
<S> <C> <C>
--------------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $506,434,129) $566,945,458
Cash 325,503
Receivable for investments sold 9,322,879
Receivable for Fund shares sold 1,640,694
Dividends and interest receivable 86,875
Prepaid expenses 11,055
------------
Total assets 578,332,464
------------
LIABILITIES
Payable for investments purchased 10,474,375
Payable for Fund shares reacquired 1,009,494
Distribution fee payable 379,532
Management fee payable 289,583
Accrued expenses and other liabilities 191,679
------------
Total liabilities 12,344,663
------------
NET ASSETS $565,987,801
------------
------------
Net assets were comprised of:
Common stock, at par $ 364,892
Paid-in capital in excess of par 475,042,518
------------
475,407,410
Accumulated net investment loss (3,424,409)
Accumulated net realized gain on investments 33,493,471
Net unrealized appreciation on investments 60,511,329
------------
Net assets, May 31, 2000 $565,987,801
------------
------------
</TABLE>
16 See Notes to Financial Statements
<PAGE>
Prudential Sector Funds, Inc. Prudential Technology Fund
Statement of Assets and Liabilities (Unaudited) Cont'd.
<TABLE>
<CAPTION>
May 31, 2000
<S> <C> <C>
--------------------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share ($133,432,289 /
8,561,583 shares of common stock issued and outstanding) $15.59
Maximum sales charge (5% of offering price) .82
------------
Maximum offering price to public $16.41
------------
------------
Class B:
Net asset value, offering price and redemption price per share
($305,665,227 / 19,743,368 shares of common stock issued
and outstanding) $15.48
------------
------------
Class C:
Net asset value and redemption price per share ($106,530,090 /
6,881,287 shares of common stock issued and outstanding) $15.48
Sales charge (1% of offering price) .16
------------
Offering price to public $15.64
------------
------------
Class Z:
Net asset value, offering price and redemption price per share
($20,360,195 / 1,303,011 shares of common stock issued and
outstanding) $15.63
------------
------------
</TABLE>
See Notes to Financial Statements 17
<PAGE>
Prudential Sector Funds, Inc. Prudential Technology Fund
Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
May 31, 2000
<S> <C> <C>
---------------------------------------------------------------------------------------
NET INVESTMENT LOSS
Income
Interest $ 564,592
Dividends 271,240
Less: Foreign withholding taxes (8,875 )
------------
Total income 826,957
------------
Expenses
Management fee 2,017,276
Distribution fee--Class A 156,479
Distribution fee--Class B 1,431,749
Distribution fee--Class C 530,268
Transfer agent's fees and expenses 361,000
Custodian's fees and expenses 61,000
Registration fees 43,000
Reports to shareholders 28,000
Audit fee and expenses 13,000
Directors' fees and expenses 8,000
Legal fees and expenses 4,000
Miscellaneous 1,049
------------
Total expenses 4,654,821
Less: Management fee waiver (Note 2) (403,455 )
------------
Net expenses 4,251,366
------------
Net investment loss (3,424,409 )
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on:
Investment transactions 34,584,088
Financial futures contracts 31,603
------------
34,615,691
Net decrease in unrealized appreciation on investments (2,559,943 )
------------
Net gain on investments 32,055,748
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $$28,631,339
------------
------------
</TABLE>
18 See Notes to Financial Statements
<PAGE>
Prudential Sector Funds, Inc. Prudential Technology Fund
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months June 30, 1999(a)
Ended Through
May 31, 2000 November 30, 1999
<S> <C> <C> <C>
---------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net investment loss $ (3,424,409) $ (1,301,156)
Net realized gain on investment
transactions 34,615,691 9,670,846
Net increase (decrease) in unrealized
appreciation on investments (2,559,943) 63,071,272
------------ -----------------
Net increase in net assets resulting from
operations 28,631,339 71,440,962
------------ -----------------
Distributions from net realized capital gains
(Note 1)
Class A (669,978) (1,498,101)
Class B (1,548,017) (3,542,180)
Class C (540,111) (1,538,490)
Class Z (104,204) (289,280)
------------ -----------------
(2,862,310) (6,868,051)
------------ -----------------
Fund share transactions (net of share
conversions) (Note 6)
Net proceeds from shares sold 322,729,836 260,789,621
Net asset value of shares issued in
reinvestment of distributions 9,378,174 --
Cost of shares reacquired (92,745,513) (24,506,257)
------------ -----------------
Net increase in net assets from Fund share
transactions 239,362,497 236,283,364
------------ -----------------
Total increase 265,131,526 300,856,275
NET ASSETS
Beginning of period 300,856,275 --
------------ -----------------
End of period $565,987,801 $ 300,856,275
------------ -----------------
------------ -----------------
---------------
(a) Commencement of investment operations.
</TABLE>
See Notes to Financial Statements 19
<PAGE>
Prudential Sector Funds, Inc. Prudential Technology Fund
Notes to Financial Statements (Unaudited)
Prudential Sector Funds, Inc. (the 'Company') is registered under the
Investment Company Act of 1940 as an open-end diversified management investment
company. The Company presently consists of four Portfolios: Prudential Financial
Services Fund, Prudential Health Sciences Fund, Prudential Utility Fund and
Prudential Technology Fund (the 'Fund'). The Fund is non-diversified and its
investment objective is to seek long-term capital appreciation. The Fund seeks
to achieve this objective by investing primarily in equity securities of
technology companies. Technology companies include companies that will derive a
substantial portion of their sales from products or services in technology and
technology-related activities.
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Company and the Fund in the preparation of its financial statements.
Securities Valuation: Securities traded on an exchange and NASDAQ
National Market System securities are valued at the last reported sales price on
the exchange or system on which they are traded or, if no sale was reported on
that date, at the mean between the last reported bid and asked prices or at the
bid price on such day in the absence of an asked price. Securities traded in the
over-the-counter market (including securities listed on exchanges whose primary
market is believed to be over-the-counter) are valued by an independent pricing
agent or principal market maker. Short-term securities which mature in more than
60 days are valued based on current market quotations. Short-term securities
which mature in 60 days or less are valued at amortized cost. Securities for
which reliable market quotations are not readily available are valued by the
Valuation Committee or Board of Directors in consultation with the manager or
subadviser.
In connection with transactions in repurchase agreements with U.S.
financial institutions, it is the Company's policy that its custodian or
designated subcustodians, as the case may be under triparty repurchase
agreements, takes possession of the underlying collateral 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 on sales
of investments are calculated on the identified cost basis. Dividend income is
recorded on the ex-dividend date and interest income is recorded on the accrual
basis. The Fund amortizes
20
<PAGE>
Prudential Sector Funds, Inc. Prudential Technology Fund
Notes to Financial Statements (Unaudited) Cont'd.
discounts on purchases of debt securities as adjustments to interest income.
Expenses are recorded on the accrual basis which may require the use of certain
estimates by management.
Net investment income (other than distribution fees) and unrealized and
realized gains or losses are allocated daily to each class of shares based upon
the relative proportion of net assets of each class at the beginning of the day.
Financial Futures Contracts: A financial futures contract is an
agreement to purchase (long) or sell (short) an agreed amount of debt securities
or commodities at a set price for delivery on a future date. Upon entering into
a financial futures contract, the Fund is required to pledge to the broker an
amount of cash and/or other assets equal to a certain percentage of the contract
amount. This amount is known as the 'initial margin.' Subsequent payments, known
as 'variation margin,' are made or received by the Fund each day, depending on
the daily fluctuations in the value of the underlying security or commodity.
Such variation margin is recorded for financial statement purposes on a daily
basis as unrealized gain or loss. When the contract expires or is closed, the
gain or loss is realized and is presented in the Statement of Operations as net
realized gain (loss) on financial futures.
The Fund invests in financial futures contracts in order to hedge its
existing portfolio securities or securities the Fund intends to purchase against
fluctuations in value caused by changes in prevailing interest rates or market
conditions. Should interest rates move unexpectedly, the Fund may not achieve
the anticipated benefits of the financial futures contracts and may realize a
loss. The use of futures transactions involves the risk of imperfect correlation
in movements in the price of futures contracts, interest rates and the
underlying hedged assets.
Dividends and Distributions: The Fund expects to pay dividends of net
investment income and distributions of net realized capital gains, if any,
annually. Dividends and distributions are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
Taxes: For federal income tax purposes, each fund in the Company is
treated as a separate tax paying entity. It is the Fund's policy to continue to
meet the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Therefore, no federal income tax provision is required.
Withholding taxes on foreign dividends have been provided for in
accordance with the Fund's understanding of the applicable country's tax rules
and rates.
21
<PAGE>
Prudential Sector Funds, Inc. Prudential Technology Fund
Notes to Financial Statements (Unaudited) Cont'd.
Offering and Organization Costs: The Fund incurred approximately
$162,500 in connection with the organization of the Fund. Organization costs of
$12,500 were expensed and offering costs of $150,000 are being amortized over a
period of 12 months ending June 2000.
Note 2. Agreements
The Company 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. 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
services of PIC, the cost of compensation of officers of the Fund, occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.
The management fee paid PIFM is computed daily and payable monthly at an
annual rate of .75% of the Fund's average daily net assets. PIFM has agreed to
waive a portion (.15 of 1% of the Fund's average daily net assets) of its
management fee which amounted to $403,455 ($0.011 per share for Class A, B, C
and Z shares) for the six months ended May 31, 2000. The Fund is not required to
reimburse PIFM for such waiver.
The Company 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 Company. The Company 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 them. The distribution fees for Class A, B and C
shares are accrued daily and payable monthly. No distribution or service fees
are paid to PIMS as distributor of the Class Z shares of the Company.
Pursuant to the Class A, B and C Plans, the Fund compensates PIMS for
distribution-related activities at an annual rate of up to .30 of 1%, 1% and 1%
of the average daily net assets of the Class A, B and C shares, respectively.
Such expenses under the Plans were .25 of 1%, 1% and 1% of the average daily net
assets of the Class A, B and C shares, respectively, for the six months ended
May 31, 2000.
PIMS has advised the Fund that it received approximately $704,200 and
$348,600 in front-end sales charges resulting from sales of Class A and Class C
shares, respectively, during the six months ended May 31, 2000. From these fees,
22
<PAGE>
Prudential Sector Funds, Inc. Prudential Technology Fund
Notes to Financial Statements (Unaudited) Cont'd.
PIMS paid such sales charges to dealers, which in turn paid commissions to
salespersons and incurred other distribution costs.
PIMS has advised the Fund that for the six months ended May 31, 2000, it
received approximately $342,600 and $61,700 in contingent deferred sales charges
imposed upon redemptions by certain Class B and Class C shareholders,
respectively.
PIFM, PIMS and PIC are wholly owned subsidiaries of The Prudential
Insurance Company of America.
The Company, 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 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 six months ended May 31, 2000.
Note 3. Other Transactions With Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned subsidiary of PIFM,
serves as the Company's transfer agent. During the six months ended May 31,
2000, the Fund incurred fees of approximately $316,500 for the services of PMFS.
As of May 31, 2000, approximately $63,600 of such fees were due to PMFS.
Transfer agent fees and expenses in the Statement of Operations also include
certain out-of-pocket expenses paid to nonaffiliates.
For the six months ended May 31, 2000, Prudential Securities Incorporated,
a wholly owned subsidiary of the Prudential Insurance Company of America, earned
approximately $24,700 in brokerage commissions from portfolio transactions
executed on behalf of the Fund.
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the six months ended May 31, 2000, were $551,937,197 and $334,819,897,
respectively.
The federal income tax basis of the Fund's investments at May 31, 2000 was
$515,565,645 and, accordingly, net unrealized appreciation for federal income
tax
23
<PAGE>
Prudential Sector Funds, Inc. Prudential Technology Fund
Notes to Financial Statements (Unaudited) Cont'd.
purposes was $51,379,813 (gross unrealized appreciation--$103,557,621; gross
unrealized depreciation--$52,177,808).
Note 5. Joint Repurchase Agreement Account
The Company, 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 May 31,
2000, the Fund had a 2.07% undivided interest in the joint account. The
undivided interest for the Fund represents $17,886,000 in principal amount. As
of such date, each repurchase agreement in the joint account and the collateral
therefore were as follows:
ABN AMRO Incorporated, 6.37%, in the principal amount of $110,000,000,
repurchase price $110,019,464, due 6/1/00. The value of the collateral including
accrued interest was $112,200,491.
Bear, Stearns & Co. Inc., 6.37%, in the principal amount of $130,000,000,
repurchase price $130,023,003, due 6/1/00. The value of the collateral including
accrued interest was $133,856,194.
Chase Securities Inc., 6.15%, in the principal amount of $114,985,000,
repurchase price $115,004,643, due 6/1/00. The value of the collateral including
accrued interest was $117,289,066.
Credit Suisse First Boston Corp., 6.40%, in the principal amount of
$90,000,000, repurchase price $90,016,000, due 6/1/00. The value of the
collateral including accrued interest was $93,252,694.
Salomon Smith Barney, Inc., 6.38%, in the principal amount of
$220,000,000, repurchase price $220,038,989, due 6/1/00. The value of the
collateral including accrued interest was $224,578,626.
Warburg Dillon Read LLC, 6.20%, in the principal amount of $200,000,000,
repurchase price $200,034,444, due 6/1/00. The value of the collateral including
accrued interest was $204,004,940.
24
<PAGE>
Prudential Sector Funds, Inc. Prudential Technology Fund
Notes to Financial Statements (Unaudited) Cont'd.
Note 6. Capital
The Fund offers Class A, Class B, Class C and Class Z shares. Class A shares are
sold with a front-end sales charge of up to 5%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class C shares are sold with a front-end
sales charge of 1% and a contingent deferred sales charge of 1% during the first
18 months. Class B shares automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. A special exchange privilege is
also available for shareholders who qualified to purchase Class A shares at net
asset value. Class Z shares are not subject to any sales or redemption charge
and are offered exclusively for sale to a limited group of investors.
There are 400 million shares of common stock, $.01 par value per share,
divided into four classes, designated Class A, Class B, Class C and Class Z
common stock, each of which consists of 100 million authorized shares.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
---------------------------------------------------------- ----------- -------------
<S> <C> <C>
Six months ended May 31, 2000:
Shares sold 5,295,510 $ 91,192,046
Shares issued in reinvestment of distributions 147,327 2,085,243
Shares reacquired (2,063,698) (35,075,592)
----------- -------------
Net increase in shares outstanding before conversion 3,379,139 58,201,697
Shares issued upon conversion from Class B 272,510 5,246,715
----------- -------------
Net increase in shares outstanding 3,651,649 $ 63,448,412
----------- -------------
----------- -------------
June 30, 1999(a) through November 30, 1999:
Shares sold 6,084,868 $ 64,145,519
Shares reacquired (1,188,102) (13,262,726)
----------- -------------
Net increase in shares outstanding before conversion 4,896,766 50,882,793
Shares issued upon conversion from Class B 13,168 149,719
----------- -------------
Net increase in shares outstanding 4,909,934 $ 51,032,512
----------- -------------
----------- -------------
------------------------------
(a) Commencement of investment operations.
</TABLE>
25
<PAGE>
Prudential Sector Funds, Inc. Prudential Technology Fund
Notes to Financial Statements (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class B Shares Amount
---------------------------------------------------------- ----------- -------------
Six months ended May 31, 2000:
<S> <C> <C>
Shares sold 10,301,102 $ 175,882,867
Shares issued in reinvestment of distributions 345,964 4,876,138
Shares reacquired (2,255,969) (38,143,408)
----------- -------------
Net increase in shares outstanding before conversion 8,391,097 142,615,597
Shares reacquired upon conversion into Class A (273,714) (5,246,715)
----------- -------------
Net increase in shares outstanding 8,117,383 $ 137,368,882
----------- -------------
----------- -------------
June 30, 1999(a) through November 30, 1999:
Shares sold 12,089,533 $ 129,326,211
Shares reacquired (450,357) (5,371,488)
----------- -------------
Net increase in shares outstanding before conversion 11,639,176 123,954,723
Shares reacquired upon conversion into Class A (13,191) (149,719)
----------- -------------
Net increase in shares outstanding 11,625,985 $ 123,805,004
----------- -------------
----------- -------------
<CAPTION>
Class C
----------------------------------------------------------
<S> <C> <C>
Six months ended May 31, 2000:
Shares sold 2,619,605 $ 44,617,850
Shares issued in reinvestment of distributions 144,324 2,029,705
Shares reacquired (834,037) (14,164,986)
----------- -------------
Net increase in shares outstanding 1,929,892 $ 32,482,569
----------- -------------
----------- -------------
June 30, 1999(a) through November 30, 1999:
Shares sold 5,292,766 $ 55,378,868
Shares reacquired (341,371) (3,851,186)
----------- -------------
Net increase in shares outstanding 4,951,395 $ 51,527,682
----------- -------------
----------- -------------
<CAPTION>
Class Z
----------------------------------------------------------
<S> <C> <C>
Six months ended May 31, 2000:
Shares sold 643,953 $ 11,037,073
Shares issued in reinvestment of distributions 27,368 387,088
Shares reacquired (312,995) (5,361,527)
----------- -------------
Net increase in shares outstanding 358,326 $ 6,062,634
----------- -------------
----------- -------------
June 30, 1999(a) through November 30, 1999:
Shares sold 1,125,739 $ 11,939,023
Shares reacquired (181,054) (2,020,857)
----------- -------------
Net increase in shares outstanding 944,685 $ 9,918,166
----------- -------------
----------- -------------
---------------
(a) Commencement of investment operations.
</TABLE>
26
<PAGE>
Prudential Sector Funds, Inc. Prudential Technology Fund
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
Class A
--------------------------------------
Six Months Ended June 30, 1999(b)
May 31, Through
2000 November 30, 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 13.44 $ 10.00
---------------- --------
Income from investment operations
Net investment loss(d) (0.05) (0.04)
Net realized and unrealized gains on
investment transactions 2.60 3.80
---------------- --------
Total from investment operations 2.55 3.76
---------------- --------
Less distributions
Distributions from net realized gain on
investments (0.40) (0.32)
---------------- --------
Net asset value, end of period $ 15.59 $ 13.44
---------------- --------
---------------- --------
TOTAL RETURN(a) 16.53% 37.59%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $133,432 $65,991
Average net assets (000) $125,183 $46,443
Ratios to average net assets(c)(d):
Expenses, including distribution and
service (12b-1) fees 1.04% 1.47%
Expenses, excluding distribution and
service (12b-1) fees 0.79% 1.22%
Net investment loss (0.73)% (1.00)%
For Class A, B, C and Z shares:
Portfolio turnover rate 65% 38%
</TABLE>
------------------------------
(a) 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.
(b) Commencement of investment operations.
(c) Annualized.
(d) Net of management fee waiver.
27
<PAGE>
Prudential Sector Funds, Inc. Prudential Technology Fund
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
Class B
--------------------------------------
Six Months Ended June 30, 1999(b)
May 31, Through
2000 November 30, 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 13.40 $ 10.00
---------------- -----------------
Income from investment operations
Net investment loss(d) (0.11) (0.06)
Net realized and unrealized gains on
investment transactions 2.59 3.78
---------------- -----------------
Total from investment operations 2.48 3.72
---------------- -----------------
Less distributions
Distributions from net realized gain on
investments (0.40) (0.32)
---------------- -----------------
Net asset value, end of period $ 15.48 $ 13.40
---------------- -----------------
---------------- -----------------
TOTAL RETURN(a) 16.14% 37.19%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $305,666 $ 155,801
Average net assets (000) $286,350 $ 97,787
Ratios to average net assets(c)(d):
Expenses, including distribution and
service (12b-1) fees 1.79% 2.22%
Expenses, excluding distribution and
service (12b-1) fees 0.79% 1.22%
Net investment loss (1.49)% (1.75)%
</TABLE>
------------------------------
(a) 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.
(b) Commencement of investment operations.
(c) Annualized.
(d) Net of management fee waiver.
28
<PAGE>
Prudential Sector Funds, Inc. Prudential Technology Fund
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
Class C
--------------------------------------
Six Months Ended June 30, 1999(b)
May 31, Through
2000 November 30, 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 13.40 $ 10.00
---------------- -------- ---
Income from investment operations
Net investment loss(d) (0.11) (0.07)
Net realized and unrealized gains on
investment transactions 2.59 3.79
---------------- --------
Total from investment operations 2.48 3.72
---------------- --------
Less distributions
Distributions from net realized gain on
investments (0.40) (0.32)
---------------- --------
Net asset value, end of period $ 15.48 $ 13.40
---------------- --------
---------------- --------
TOTAL RETURN(a) 16.14% 37.19%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $106,530 $66,353
Average net assets (000) $106,054 $46,510
Ratios to average net assets(c)(d):
Expenses, including distribution and
service (12b-1) fees 1.79% 2.22%
Expenses, excluding distribution and
service (12b-1) fees 0.79% 1.22%
Net investment loss (1.49)% (1.75)%
</TABLE>
------------------------------
(a) 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.
(b) Commencement of investment operations.
(c) Annualized.
(d) Net of management fee waiver.
29
<PAGE>
Prudential Sector Funds, Inc. Prudential Technology Fund
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
Class Z
--------------------------------------
Six Months Ended June 30, 1999(b)
May 31, Through
2000 November 30, 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 13.46 $ 10.00
-------- --------
Income from investment operations
Net investment loss(d) (0.04) (0.03)
Net realized and unrealized gains on
investment transactions 2.61 3.81
-------- --------
Total from investment operations 2.57 3.78
-------- --------
Less distributions
Distributions from net realized gain on
investments (0.40) (0.32)
-------- --------
Net asset value, end of period $ 15.63 $ 13.46
-------- --------
-------- --------
TOTAL RETURN(a) 16.66% 37.79%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 20,360 $12,711
Average net assets (000) $ 20,354 $ 8,743
Ratios to average net assets(c)(d):
Expenses, including distribution and
service (12b-1) fees 0.79% 1.22%
Expenses, excluding distribution and
service (12b-1) fees 0.79% 1.22%
Net investment loss (0.48)% (.75)%
</TABLE>
------------------------------
(a) 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.
(b) Commencement of investment operations.
(c) Annualized.
(d) Net of management fee waiver.
30
<PAGE>
<PAGE>
Prudential Technology Fund
Getting the Most from Your Prudential Mutual Fund
Some mutual fund shareholders won't ever read this-they
don't read annual and semiannual reports. It's quite
understandable. These annual and semiannual reports are
prepared to comply with federal regulations, and are
often written in language that is difficult to
understand. So when most people run into those
particularly daunting sections of these reports, they
don't read them.
We think that's a mistake
At Prudential Mutual Funds, we've made some changes to
our report to make it easier to understand and more
pleasant to read. We hope you'll find it profitable to
spend a few minutes familiarizing yourself with your
investment. Here's what you'll find in the report:
Performance at a Glance
Since an investment's performance is often a
shareholder's primary concern, we present performance
information in two different formats. You'll find it
first on the "Performance at a Glance" page where we
compare the Fund and the comparable average calculated by
Lipper, Inc., a nationally recognized mutual fund rating
agency. We report both the cumulative total returns and
the average annual total returns. The cumulative total
return is the total amount of income and appreciation the
Fund has achieved in various time periods. The average
annual total return is an annualized representation of
the Fund's performance. It gives you an idea of how much
the Fund has earned in an average year for a given time
period. Under the performance box, you'll see legends
that explain the performance information, whether fees
and sales charges have been included in returns, and the
inception dates for the Fund's share classes.
See the performance comparison charts at the back of the
report for more performance information. Please keep in
mind that past performance is not indicative of future
results.
<PAGE>
Prudential Technology Fund
Getting the Most from Your Prudential Mutual Fund
Investment Adviser's Report
The portfolio manager, who invests your money for you, reports on
successful-and not-so-successful-strategies in this
section of your report. Look for recent purchases and
sales here, as well as information about the sectors the
portfolio manager favors, and any changes that are on the
drawing board.
Portfolio of Investments
This is where the report begins to appear technical, but
it's really just a
listing of each security held at the end of the reporting
period, along with valuations and other information.
Please note that sometimes we discuss a security in the
"Investment Adviser's Report" section that doesn't appear
in this listing because it was sold before the close of
the reporting period.
Statement of Assets and Liabilities
The balance sheet shows the assets (the value of the Fund's holdings),
liabilities (how much the Fund owes), and net assets (the Fund's
equity, or holdings after the Fund pays its debts) as of
the end of the reporting period. It also shows how we
calculate the net asset value per share for each class of
shares. The net asset value is reduced by payment of your
dividend, capital gain, or other distribution, but
remember that the money or new shares are being paid or
issued to you. The net asset value fluctuates daily,
along with the value of every security in the portfolio.
Statement of Operations
This is the income statement, which details income (mostly interest and
dividends earned) and expenses (including what you pay us
to manage your money). You'll also see capital gains
here-both realized and unrealized.
<PAGE>
www.prudential.com (800) 225-1852
Semiannual Report May 31, 2000
Statement of Changes in Net Assets
This schedule shows how income and expenses translate into changes
in net assets. The Fund is required to pay out the bulk
of its income to shareholders every year, and this
statement shows you how we do it (through
dividends and distributions) and how that affects the net
assets. This statement also shows how money from
investors flowed into and out of the Fund.
Notes to Financial Statements
This is the kind of technical material that can
intimidate readers, but it does contain useful
information. The Notes provide a brief history and
explanation of your Fund's objectives. In addition, they
outline how Prudential Mutual Funds prices securities.
The Notes also explain who manages and distributes the
Fund's shares and, more importantly, how much they are
paid for doing so. Finally, the Notes explain how many
shares are outstanding and the number issued and redeemed
over the period.
Financial Highlights
This information contains many elements from prior pages, but on a
per-share basis. It is designed to help you understand how the Fund
performed, and to compare this year's performance and expenses to
those of prior years.
Independent accountant's Report
Once a year, an outside auditor looks over our books and certifies that
the financial statements are fairly presented and comply
with generally accepted accounting principles.
Tax Information
This is information that we report annually about how
much of your total return is taxable. Should you have any
questions, you may want to consult a tax adviser.
<PAGE>
Prudential Technology Fund
Getting the Most from Your Prudential Mutual Fund
Performance Comparison
These charts are included in the annual report and are
required by the Securities Exchange Commission.
Performance is presented here as a hypothetical $10,000
investment in the Fund since its inception or for 10
years (whichever is shorter). To help you put that return
in context, we
are required to include the performance of an unmanaged,
broad-based securities index as well. The index does not
reflect the cost of buying the securities it contains or
the cost of managing a mutual fund. Of course, the index
holdings do not mirror those of the Fund-the index is a
broad-based reference point commonly used by investors to
measure how well they are doing. A definition of the
selected index is also provided. Investors cannot invest
directly in an index.
<PAGE>
www.prudential.com (800) 225-1852
Semiannual Report May 31, 2000
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>
Prudential Technology Fund
Getting the Most from Your Prudential Mutual Fund
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>
www.prudential.com (800) 225-1852
For More Information
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
Directors
Delayne Dedrick Gold
Robert F. Gunia
Douglas H. McCorkindale
Thomas T. Mooney
Stephen P. Munn
David R. Odenath, Jr.
Richard A. Redeker
Robin B. Smith
John R. Strangfeld
Louis A. Weil, III
Clay T. Whitehead
Officers
John R. Strangfeld, President
Robert F. Gunia, Vice President
David R. Odenath, Jr., Vice President
Grace C. Torres, Treasurer
Marguerite E.H. Morrison, Secretary
William V. Healey, Assistant Secretary
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
194 Wood Avenue South
Iselin, NJ 08830
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 PTYAX 74437K889
Class B PTYBX 74437K871
Class C PTYCX 74437K863
Class Z PTFZX 74437K855
The views expressed in this report and information about
the Fund's portfolio holdings are for the period covered
by this report and are subject to change thereafter.
The accompanying financial statements as
of May 31, 2000, were not audited and, accordingly, no
opinion is expressed on them.
<PAGE>
BULK RATE
U.S. POSTAGE
PAID
Permit 6807
New York, NY
(LOGO)
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
MF188E6 74437K889 74437K871 74437K863 74437K855
(LOGO) Printed on Recycled Paper
<PAGE>
SEMIANNUAL REPORT MAY 31, 2000
Prudential
Utility Fund
FUND TYPE Stock
OBJECTIVE Total return through capital appreciation and
current income
(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 Utility Fund invests in equity-related and
investment-grade debt securities of utility companies-
primarily electric, natural gas, gas pipeline, telephone
and telecommunications, water, and cable-both in the
United States and abroad. Utility investments can be
affected by government regulations, the price of fuel, environmental
factors, and interest rates. Foreign investments are subject to
additional risks, including currency, political and social
risks, and illiquidity. There can be no assurance that the
Fund will achieve its investment objective.
Portfolio Composition
Sectors expressed as a percentage of
net assets as of 5/31/00
U.S. Foreign
39.6% 3.7% Electrical Power
21.7 N/A Gas Pipelines
13.2 2.7 Telecommunications
8.8 N/A Oil & Gas
Exploration/Production
2.9 1.5 Gas Distribution
4.5 0.5 Miscellaneous
0.9 N/A Cash & Equivalents
Ten Largest Holdings
Expressed as a percentage of
net assets as of 5/31/00
4.4% Coastal Corp.
Gas Pipelines
3.5 El Paso Energy Corp.
Gas Pipelines
3.4 Williams Companies, Inc.
Gas Pipelines
3.4 Northeast Utilities Co.
Electrical Power
3.3 Dynegy, Inc.
Gas Pipelines
2.7 SBC Communications, Inc.
Telecommunications
2.6 Columbia Energy Group
Gas Pipelines
2.5 Kinder Morgan, Inc.
Gas Pipelines
2.5 Unicom Corp.
Electrical Power
2.5 CMS Energy Corp.
Electrical Power
<PAGE>
www.prudential.com (800) 225-1852
Performance at a Glance
Cumulative Total Returns1 As of 5/31/00
Six One Five Ten Since
Months Year Years Years Inception2
Class A 16.83% 14.31% 129.96% 260.72% 261.62%
Class B 16.33 13.42 121.50 234.10 1592.92
Class C 16.33 13.42 121.50 N/A 130.75
Class Z 16.88 14.49 N/A N/A 102.35
Lipper Utility
Fund Avg.3 5.58 9.61 114.42 256.86 ***
Average Annual Total Returns1 As of 6/30/00
One Five Ten Since
Year Years Years Inception2
Class A 5.91% 16.41% 12.79% 12.30%
Class B 5.64 16.60 12.50 16.01
Class C 8.53 16.48 N/A 14.52
Class Z 11.75 N/A N/A 17.05
Past performance is not indicative of future results.
Principal and investment return will fluctuate so that an
investor's shares, when redeemed, may be worth more or
less than their original cost.
1 Source: Prudential Investments Fund Management LLC and
Lipper Inc. The cumulative total returns do not take into
account sales charges. The average annual total returns
do take into account applicable sales charges. The Fund
charges a maximum front-end sales charge of 5% for Class
A shares. Class B shares are subject to a declining contingent
deferred sales charge (CDSC) of 5%, 4%, 3%, 2%, 1%, and
1% for six years. Class B shares will automatically
convert to Class A shares, on a quarterly basis,
approximately seven years after purchase. Class C shares
are subject to a front-end sales charge of 1% and a CDSC
of 1% for 18 months. Class Z shares are not subject to a
sales charge or distribution and service (12b-1) fees.
2 Inception dates: Class A, 1/22/90; Class B, 8/10/81;
Class C, 8/1/94; and Class Z, 3/1/96.
3 Lipper average returns are for all funds in each share
class for the six-month, one-, five-, and ten-year
periods in the Utility Fund category. The Lipper average
is unmanaged. Utility funds invest at least 65% of their
equity portfolios in utility shares.
***Lipper Since Inception returns are 260.63% for Class
A, 771.59% for Class B, 137.03% for
Class C, and 86.26% for Class Z, based on all funds in
each share class.
1
<PAGE>
(LOGO) July 17, 2000
Dear Shareholder,
Since the beginning of the year 2000, there has been a
sharp turnaround in the performance of gas and
electricity stocks, which had been in a bear market for
about six years. In our opinion, this turnaround was
caused by the market's recognition of shifting
supply/demand fundamentals within the industry. Electric
utilities have not invested
sufficiently in new U.S. electricity generation plants to
provide for the country's growing needs. Widespread power
shortages are expected this summer, with greatly improved
pricing for firms that are well-positioned for this
environment. The Prudential Utility Fund anticipated this
energy shortage, and its Class A shares returned 16.83%
over the six months ended May 31, 2000. The return was
11.83% to those paying the maximum one-time Class A share
sales charge.
The Lipper Utility Fund Average for this period was only
5.58%-more than 11 percentage points below the Fund's
return. The Lipper Average was pulled down by funds with
greater exposure to the telecommunications industry,
which corrected from steep gains in 1999. Although
diversified across the various utility industries, the
Prudential Utility Fund was focused on the power
industries, where its managers thought it was easier to
see who the future winners would be.
Yours sincerely,
John R. Strangfeld, President
Prudential Sector Funds, Inc.-Prudential Utility Fund
2
<PAGE>
Prudential Utility Fund
Semiannual Report May 31, 2000
Investment Adviser's Report
For some time now, we have focused on well-positioned
natural gas and electric companies in anticipation of a
national power generation shortage. This strategy paid
off in the new year. Many of the energy utilities stocks
that we owned have soared, while stocks generally have
declined.
Power shortage means opportunity
You may have seen one of the many recent media stories
that warns about the threat of brownouts and blackouts in
many parts of the United States this summer due to a
national power shortage. The measure of adequacy to meet
peak demand is known as the "capacity reserve margin."
This was as high as 40.0% in the mid-1980s, but is now
significantly below the 12.5% value set as a minimum by
the North America Electricity Reliability Council.
Investment in new electricity generation capacity has not
been adequate to secure a reliable supply. Moreover, most
new plants are gas-burning, and natural gas inventories
are well below normal. Both generating capacity and
natural gas will be in strong demand for some time.
We focused on companies that have substantial generating
capacity or command of the fuels that will be in short
supply. As the gap between supply and demand widens this
summer, we expect that these companies will become
increasingly valuable. It's important to point out that
this is not merely a summer phenomenon, although seasonal
air-conditioning demand will likely widen the gap. Demand
has been increasing regardless of the season, and
generating capacity hasn't kept pace. In addition, almost
all new plants burn environmentally friendly natural gas,
while the means of delivering sufficient gas isn't yet in
place. We believe this investment theme has a long way to
go.
3
<PAGE>
Prudential Utility Fund
Holdings expressed as a percentage of the Fund's net assets
Comments on Largest Holdings As of 5/31/00
4.4% Coastal Corp./Gas Pipelines
In January 2000, Coastal agreed to be acquired by El
Paso. The combined company will have a great exploration
and production subsidiary and the largest gas pipeline
system in the United States. It will be well-exposed to
the burgeoning demand for natural gas as large numbers of
gas-fired plants are built. Over this reporting period,
Coastal shares rose 75% and El Paso shares rose 36%,
reflecting investors' enthusiasm about the merger.
3.5% El Paso Energy Corp./Gas Pipelines
See above.
3.4% Williams Companies, Inc./Gas Pipelines
Williams owns a large U.S. gas pipeline system, and also
has locked in the cost of large amounts of electricity at
attractive prices. It can resell its surplus in the very
favorable market this summer. Moreover, Williams has used
its rights of way to build a modern fiberoptic
telecommunications network-the fourth largest in the
United States. It sold 15% of that network in October,
and we estimate its remaining 85% to be worth billions of
dollars. Earnings of both the gas and communications
businesses should grow rapidly, providing a diversified
revenue stream.
3.4% Northeast Utilities Co./Electrical Power
Northeast is New England's largest electric utility. Con
Edison, pending regulatory approval, is purchasing it. We
think the price will be at least 10% higher than the
market value at our period end. The deal is expected to
be completed by the end of 2000.
3.3% Dynegy Inc./Gas Pipelines
Dynegy bought Illinova in February 2000, and now has more
than 14,000 megawatts of generating power. With an
exceptional trading operation and both gas and low-cost
coal generators, it is in a strong position to supply
spot power through the summer when other utilities are
likely to run short of capacity.
Holdings are subject to change.
4
<PAGE>
www.prudential.com (800) 225-1852
Semiannual Report May 31, 2000
Merger and acquisition activity creates value
Our focus on companies with either strong management or
undervalued physical assets has positioned us well for
the considerable amount of merger and acquisition
activity accompanying the restructuring of these
industries. For example, consider our position in KN
Energy. Prior to this reporting period, after KN's plan
to be acquired by Sempra fell through, the price of the
stock plummeted. We made a very large opportunistic
purchase of additional KN shares. Then KN engineered a
merger with Kinder Morgan that brought in a management
team that is well equipped to maximize the value of KN's
substantial pipeline assets. The combined company took
Kinder Morgan's name. Our shares rose substantially at
that time, and continued up another 62% over the six
months covered by this report.
We also own both Coastal and El Paso Energy (see Comments
on Largest Holdings), which have planned to merge. The
combination will be a powerful player in the energy
trading market.
We had owned Illinova on the basis of its low-cost, well-
located, coal-fired generating plants and our strongly
favorable opinion of its chief executive officer.
Illinova agreed to merge with Dynegy (see Comments on
Largest Holdings), combining Dynegy's strong energy
trading team and access to natural gas supplies with
Illinova's coal plants. We gained 65% during this
reporting period on our Dynegy holdings. We expect the
new Dynegy to continue to benefit from its extraordinary
flexibility to decide whether to sell
its gas or burn it itself, and to shift among fuels for
generating electricity.
Telecommunications
We expect to include the range of utility industries in
our portfolio. However, we have significantly
underweighted telecommunications
recently. This hurt us in 1999, but allowed us to
outperform most other
utility funds by a large margin over this reporting
period. Moreover, it
permitted us to add to our telecommunications exposure as
some attractive companies came down from their high share
prices. We added CenturyTel, BellSouth, Alltel, and US West.
5
<PAGE>
Prudential Utility Fund
Semiannual Report May 31, 2000
Looking Ahead
We believe the benefits from the power shortage theme are
far from over. Stocks in the gas and electric industries
were in a massive long-term bear market between the
beginning of 1994 and the beginning of 2000. They have a
lot of catching-up to do. Despite the potential for
strong earnings growth from the supply/demand imbalance,
the stocks in the Standard & Poor's Utilities Index still
sell at an average price/earnings multiple below 20,
while those in the S&P 500 Index sell at 30 times
earnings. This 50% price advantage remains very
attractive. Eventually, we expect that we will scale down
our focus over time as attractive opportunities appear
elsewhere, but we expect to enjoy strong returns from
these stocks for some time.
Prudential Utility Fund Management Team
6
<PAGE>
Prudential Sector Funds, Inc. Prudential Utility Fund
Portfolio of Investments as of May 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C> <C>
------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS 99.1%
Common Stocks 98.2%
-------------------------------------------------------------------------------------
Business Services 1.5%
1,435,100 Convergys Corp.(a) $ 64,489,806
-------------------------------------------------------------------------------------
Diversified Manufacturing 0.5%
1,079,300 Viag AG (Germany)(b) 21,905,477
-------------------------------------------------------------------------------------
Electrical Power 43.2%
2,165,200 Allegheny Energy, Inc. 66,985,875
1,309,100 Avista Corp.(b) 29,291,113
2,513,085 Cinergy Corp. 66,910,888
975,400 Cleco Corp. 33,407,450
4,509,000 CMS Energy Corp.(b) 102,579,750
1,971,600 Constellation Energy Group 67,650,525
2,815,400 DPL, Inc. 65,985,938
1,456,411 Duke Energy Corp. 84,835,941
4,303,500 Energy East Corp. 91,987,312
2,117,900 Entergy Corp. 61,419,100
2,765,300 FirstEnergy Corp. 69,478,163
1,060,500 FPL Group, Inc. 52,494,750
2,031,300 GPU, Inc. 57,384,225
1,800,000 Korea Electric Power Corp. (ADR) (South Korea)(b) 28,125,000
9,881,599 National Power PLC (United Kingdom) 54,396,078
6,345,500 Niagara Mohawk Holdings, Inc. 93,199,531
3,675,953 NiSource, Inc. 66,396,901
6,367,300 Northeast Utilities 140,876,513
1,144,905 NSTAR 49,302,472
1,445,900 PECO Energy Co.(b) 63,529,231
2,032,300 Pinnacle West Capital Corp. 72,654,725
2,505,600 Public Service Co. of New Mexico 41,812,200
1,973,200 Puget Sound Energy, Inc. 45,506,925
707,700 RGS Energy Group, Inc. 16,984,800
9,027,967 ScottishPower PLC (United Kingdom) 71,671,889
2,904,440 Sierra Pacific Resources 41,932,853
</TABLE>
See Notes to Financial Statements 7
<PAGE>
Prudential Sector Funds, Inc. Prudential Utility Fund
Portfolio of Investments as of May 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
1,642,500 Southern Co. $ 42,602,344
2,461,400 Unicom Corp. 102,609,612
1,760,140 Unisource Energy Corp. 27,062,153
----------------
1,809,074,257
-------------------------------------------------------------------------------------
Gas Distribution 4.4%
2,127,092 BG Group PLC (ADR) (United Kingdom) 63,812,760
686,500 Energen Corp. 15,188,813
1,971,592 KeySpan Corp.(b) 60,133,556
794,300 NICOR, Inc. 29,140,881
610,800 Washington Gas Light Co. 16,262,550
----------------
184,538,560
-------------------------------------------------------------------------------------
Gas Pipelines 20.9%
1,682,700 Columbia Energy Group 108,849,656
1,773,300 Dynegy, Inc. 136,765,762
2,836,200 El Paso Energy Corp. 146,064,300
1,921,700 Equitable Resources, Inc. 95,604,575
3,239,950 Kinder Morgan, Inc. 105,703,369
372,100 National Fuel Gas Co. 19,279,431
4,285,800 Questar Corp. 87,055,313
1,446,300 Western Gas Resources, Inc. 32,812,931
3,471,022 Williams Companies, Inc. 144,264,352
----------------
876,399,689
-------------------------------------------------------------------------------------
Oil & Gas Exploration/Production 8.8%
3,007,050 Coastal Corp. 184,557,694
1,100,000 Devon Energy Corp. 65,793,750
1,607,310 EEX Corp. 8,237,464
632,600 Kerr-McGee Corp. 37,758,312
1,484,300 Pioneer Natural Resources Co.(b) 22,171,731
2,100,000 Union Pacific Resources Group, Inc. 49,743,750
----------------
368,262,701
-------------------------------------------------------------------------------------
Power Generation 0.6%
1,510,000 NRG Energy, Inc.(a) 25,103,750
</TABLE>
8 See Notes to Financial Statements
<PAGE>
Prudential Sector Funds, Inc. Prudential Utility Fund
Portfolio of Investments as of May 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Real Estate Investment Trust 1.8%
1,774,900 Crescent Real Estate Equities Co. $ 36,274,519
850,400 Equity Residential Properties Trust 37,949,100
----------------
74,223,619
-------------------------------------------------------------------------------------
Telecommunications 15.9%
598,100 ALLTEL Corp. 39,138,169
2,273,500 AT&T Corp.(b) 78,862,031
625,800 AT&T Wireless Group(a) 17,874,412
985,800 Bell Atlantic Corp. 52,124,175
890,600 BellSouth Corp. 41,579,887
1,888,200 CenturyTel, Inc. 50,981,400
448,116 COMSAT Corp. 10,978,842
1,658,400 Global Crossing Ltd.(a)/(b) 41,563,650
492,900 GTE Corp. 31,175,925
186,300 Infonet Services Corp.(a) 2,142,450
1,038,700 Millicom International Cellular SA
(Luxembourg)(a)/(b) 44,144,750
699,900 Philippine Long Distance Telephone Co. (ADR)
(Philippines)(b) 12,335,738
2,574,950 SBC Communications, Inc.(b) 112,493,128
534,700 Sprint Corp. 32,349,350
11,030 Tele Norte Leste Participacoes S.A.(ADR)(Brazil) 216,464
94,200 Telecomunicacoes Brasileiras SA (ADR) (Brazil)(b) 10,903,650
961,800 Telefonos de Mexico, SA de CV (ADR) (Mexico)(b) 46,827,637
519,500 US West, Inc. 37,404,000
----------------
663,095,658
-------------------------------------------------------------------------------------
Water 0.6%
3,453,200 Azurix Corp.(a) 23,309,100
----------------
Total common stocks (cost $2,764,324,174) 4,110,402,617
----------------
</TABLE>
See Notes to Financial Statements 9
<PAGE>
Prudential Sector Funds, Inc. Prudential Utility Fund
Portfolio of Investments as of May 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Preferred Stock 0.8%
-------------------------------------------------------------------------------------
Gas Pipelines
705,700 Kinder Morgan, Inc. (cost $30,345,100) $ 31,756,500
----------------
Corporate Bonds 0.1%
<CAPTION>
Principal
Amount
(000)
<C> <S> <C> <C>
-------------------------------------------------------------------------------------
Electrical Power
$ 5,000 Texas Utilities Electric Co.,
9.75%, 5/1/21 (cost $5,000,000) 5,237,750
----------------
Total long-term investments (cost $2,799,639,274) 4,147,396,867
----------------
SHORT-TERM INVESTMENTS 6.9%
Commercial Paper 5.0%
12,000 Bombardier Capital Inc.(c)
6.50%, 6/2/00 11,997,833
3,236 Bombardier Capital Inc.(c)
6.67%, 6/5/00 3,233,601
15,300 GPU Australia Holdings(c)
6.75%, 6/5/00 15,288,525
GE Capital International Funding(c)
6.38%, 8/7/00 9,989,367
10,000
17,000 6.52%, 6/1/00 16,858,371
GPU Capital Inc.(c)
6.70%, 6/9/00 11,982,133
12,000
9,000 6.75%, 6/12/00 8,981,438
15,000 Cooper Tire & Rubber(c)
6.90%, 6/13/00 14,965,500
30,000 Heller Financial, Inc.(c)
6.78%, 6/20/00 29,892,650
41,000 Phillips Petroleum(c)
6.85%, 6/20/00 40,851,774
</TABLE>
10 See Notes to Financial Statements
<PAGE>
Prudential Sector Funds, Inc. Prudential Utility Fund
Portfolio of Investments as of May 31, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C> <C>
-----------------------------------------------------------------------------------------
$ 25,000 Salomon Smith Barney Hldgs. Inc.(c)
6.82%, 6/1/00 $ 25,000,000
15,929 Sears Roebuck Corp.(c)
6.75%, 6/1/00 15,237,522
5,000 Sprint Capital Corp.(c)
6.72%, 6/1/00 4,976,667
----------------
Total commercial paper (cost $209,255,381) 209,255,381
----------------
-------------------------------------------------------------------------------------
Repurchase Agreement 1.1%
47,119 Joint Repurchase Agreement Account,
6.31%, 6/1/00 (cost $47,119,000; Note 5) 47,119,000
-------------------------------------------------------------------------------------
Time Deposit 0.2%
12,218 Canadian Imperial Bank of Commerce(c)
6.81%, 6/1/00 (cost $10,219,934) 10,219,934
-------------------------------------------------------------------------------------
Time Deposit - Yankee 0.6%
25,000 Deutsche Bank AG(c)
6.81%, 6/1/00 (cost $25,004,731) 25,004,731
----------------
Total short-term investments (cost $291,599,046) 291,599,046
----------------
Total Investments 106.0%
(cost $3,091,238,320; Note 4) 4,438,995,913
Liabilities in excess of other assets (6.0%) (251,849,901)
----------------
Net Assets 100% $ 4,187,146,012
----------------
----------------
</TABLE>
------------------------------
(a) Non-income producing.
(b) Portion of securities on loan, see Note 4.
(c) Represents security, or portion thereof, purchased with cash collateral
received for securities on loan.
ADR--American Depository Receipt.
AG--Aktiengesellschaft (German Corporation).
PLC--Public Limited Company (British Corporation).
SA-- Sociedad Anonima (Spanish Corporation) or Societe Anonyme (French
Corporation).
See Notes to Financial Statements 11
<PAGE>
Prudential Sector Funds, Inc. Prudential Utility Fund
Statement of Assets and Liabilities (Unaudited)
<TABLE>
<CAPTION>
May 31, 2000
<S> <C> <C>
--------------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $3,091,238,320) $4,438,995,913
Foreign currency, at value (cost $850,530) 817,418
Receivable for investments sold 16,484,077
Dividends and interest receivable 14,952,857
Receivable for securities lending 9,282,366
Receivable for Fund shares sold 1,508,704
Deferred expenses and other assets 60,110
--------------
Total assets 4,482,101,445
--------------
LIABILITIES
Payable to broker for collateral for securities on loan 243,023,500
Payable for investments purchased 32,377,716
Securities lending rebate payable 8,779,537
Payable for Fund shares reacquired 5,215,290
Accrued expenses and other liabilities 2,066,176
Distribution fee payable 1,624,101
Management fee payable 1,414,144
Foreign withholding taxes payable 454,969
--------------
Total liabilities 294,955,433
--------------
NET ASSETS $4,187,146,012
--------------
--------------
Net assets were comprised of:
Common stock, at par $ 3,271,891
Paid-in capital in excess of par 2,303,547,016
--------------
2,306,818,907
Undistributed net investment income 26,847,124
Accumulated net realized gain on investments 505,796,097
Net unrealized appreciation on investments and foreign
currencies 1,347,683,884
--------------
Net assets, May 31, 2000 $4,187,146,012
--------------
--------------
</TABLE>
12 See Notes to Financial Statements
<PAGE>
Prudential Sector Funds, Inc. Prudential Utility Fund
Statement of Assets and Liabilities (Unaudited) Cont'd.
<TABLE>
<CAPTION>
May 31, 2000
--------------------------------------------------------------------------------------
<S> <C> <C>
Class A:
Net asset value and redemption price per share
($2,903,508,947 / 226,786,402 shares of common stock
issued and outstanding) $12.80
Maximum sales charge (5% of offering price) .68
--------------
Maximum offering price to public $13.48
--------------
--------------
Class B:
Net asset value, offering price and redemption price per
share ($1,212,293,588 / 94,832,523 shares of common
stock issued and outstanding) $12.78
--------------
--------------
Class C:
Net asset value and redemption price per share
($20,666,286 / 1,616,517 shares of common stock issued
and outstanding) $12.78
Sales charge (1% of offering price) .13
--------------
Offering price to public $12.91
--------------
--------------
Class Z:
Net asset value, offering price and redemption price per
share ($50,677,191 / 3,953,629 shares of common stock
issued and outstanding) $12.82
--------------
--------------
</TABLE>
See Notes to Financial Statements 13
<PAGE>
Prudential Sector Funds, Inc. Prudential Utility Fund
Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
May 31, 2000
<S> <C> <C>
-------------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Dividends (net of foreign withholding taxes of $891,266,
$1,616,312 and $3,291,897, respectively) $ 70,986,948
Interest 1,309,401
Income from securities loaned (net of rebate $8,211,302 and
$8,791,540) 586,458
------------
Total income 72,882,807
------------
Expenses
Management fee 8,227,298
Distribution fee--Class A 3,414,496
Distribution fee--Class B 6,170,308
Distribution fee--Class C 100,818
Transfer agent's fees and expenses 2,444,000
Reports to shareholders 198,000
Custodian's fees and expenses 178,000
Insurance 27,000
Registration fees 25,000
Audit fees and expenses 23,000
Legal fees and expenses 22,000
Directors' fees 22,000
Miscellaneous 8,513
------------
Total expenses 20,860,433
------------
Net investment income 52,022,374
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS
Net realized gain (loss) on:
Investment transactions $440,441,568
Foreign currency transactions (494,283)
------------
439,947,285
------------
Net change in unrealized appreciation/depreciation on:
Investments 128,320,746
Foreign currencies (33,112)
------------
128,287,634
------------
Net gain on investments and foreign currencies 568,234,919
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $620,257,293
------------
------------
</TABLE>
14 See Notes to Financial Statements
<PAGE>
Prudential Sector Funds, Inc. Prudential Utility Fund
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Eleven Months
Six Months Ended Year Ended
Ended November 30, December 31,
May 31, 2000 1999 1998
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net investment income $ 52,022,374 $ 88,135,214 $ 101,425,211
Net realized gain on
investments and foreign
currency transactions 439,947,285 401,848,174 392,411,532
Net change in unrealized
appreciation/
depreciation of investments
and foreign currency
transactions 128,287,634 (349,278,639) (137,310,063)
-------------- -------------- -------------- ---
Net increase in net assets
resulting from operations 620,257,293 140,704,749 356,526,680
-------------- -------------- -------------- ---
Dividends and distributions
(Note 1):
Dividends from net investment
income
Class A (16,336,806) (64,280,177) (68,056,406)
Class B (4,648,938) (25,800,181) (37,778,258)
Class C (77,163) (392,291) (384,643)
Class Z (242,202) (1,080,264) (1,307,870)
-------------- -------------- -------------- ---
(21,305,109) (91,552,913) (107,527,177)
-------------- -------------- -------------- ---
Distributions in excess of net
investment income
Class A -- (2,268,012) --
Class B -- (910,314) --
Class C -- (13,841) --
Class Z -- (38,115) --
-------------- -------------- -------------- ---
-- (3,230,282) --
-------------- -------------- -------------- ---
Distributions from net realized
capital gains
Class A -- (257,055,029) (197,560,744)
Class B -- (144,261,482) (153,950,412)
Class C -- (2,290,179) (1,758,047)
Class Z -- (3,815,172) (3,456,422)
-------------- -------------- -------------- ---
-- (407,421,862) (356,725,625)
-------------- -------------- -------------- ---
</TABLE>
See Notes to Financial Statements 15
<PAGE>
Prudential Sector Funds, Inc. Prudential Utility Fund
Statement of Changes in Net Assets (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Eleven Months
Six Months Ended Year Ended
Ended November 30, December 31,
May 31, 2000 1999 1998
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fund share transactions (net of
share conversions) (Note 6)
Net proceeds from shares sold $ 237,576,454 $ 338,658,783 $ 598,995,199
Net asset value of shares
issued in reinvestment of
dividends and distributions 337,678,414 141,116,049 426,138,453
Cost of shares reacquired (788,680,895) (1,120,939,298) (883,989,695)
-------------- -------------- -------------- ---
Net increase (decrease) in net
assets from Fund share
transactions (213,426,027) (641,164,466) 141,143,957
-------------- -------------- -------------- ---
Total increase (decrease) 385,526,157 (1,002,664,774) 33,417,835
NET ASSETS
Beginning of period 3,801,619,855 4,804,284,629 4,770,866,794
-------------- -------------- -------------- ---
End of period(a) $4,187,146,012 $3,801,619,855 $4,804,284,629
-------------- -------------- -------------- ---
-------------- -------------- -------------- ---
------------------------------
(a) Includes undistributed net
investment income of: $ 26,847,124 $ -- $ 3,417,699
-------------- -------------- -------------- ---
</TABLE>
16 See Notes to Financial Statements
<PAGE>
Prudential Sector Funds, Inc. Prudential Utility Fund
Notes to Financial Statements (Unaudited)
Prudential Sector Funds, Inc. (the 'Company'), is registered under the
Investment Company Act of 1940 as an open-end management investment company. The
Company presently consists of four separate funds, one of which is Prudential
Utility Fund (the 'Fund'). Subsequent to December 31, 1998 (the Company's prior
fiscal year-end), the Company changed its fiscal year-end to November 30. The
Fund is diversified and its investment objective is to seek total return through
a combination of income and capital appreciation. The Fund seeks to achieve this
objective by investing primarily in equity and debt securities of utility
companies. Utility companies include electric, gas, gas pipeline, telephone,
telecommunications, water, cable, airport, seaport and toll road companies. The
ability of issuers of certain debt securities held by the Fund to meet their
obligations may be affected by economic developments in a specific industry or
region.
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Company and the Fund in the preparation of its financial statements.
Securities Valuation: Securities traded on an exchange and NASDAQ
National Market System securities are valued at the last reported sales price on
the exchange or system on which they are traded or, if no sale was reported on
that date, at the mean between the last reported bid and asked prices or at the
bid price on such day in the absence of an asked price. Securities traded in the
over-the-counter market (including securities listed on exchanges whose primary
market is believed to be over-the-counter) are valued by an independent pricing
agent or principal market maker. Corporate bonds (other than convertible) and
U.S. government securities are valued on the basis of valuations provided by an
independent pricing agent or principal market maker. Convertible debt securities
are valued at the mean between the last reported bid and asked prices provided
by principal market makers. Options are valued at the mean between the most
recently quoted bid and asked prices on the exchange on which they are traded.
Futures contracts and options thereon are valued at their last sale prices as of
the close of trading on the applicable commodities exchange or, if there was no
sale on such day at the mean between the most recently quoted bid and asked
prices. Short-term securities which mature in more than 60 days are valued based
on current market quotations. Short-term securities which mature in 60 days or
less are valued at amortized cost. Securities for which reliable market
quotations are not readily available are valued by the Valuation Committee based
upon procedures adopted by the Board of Directors in consultation with the
manager or subadviser.
Repurchase Agreements: In connection with transactions in repurchase
agreements with U.S. financial institutions, it is the Company's policy that its
custodian
17
<PAGE>
Prudential Sector Funds, Inc. Prudential Utility Fund (Unaudited)
Notes to Financial Statements Cont'd.
or designated subcustodians under triparty repurchase agreements, as the case
may be, takes possession of the underlying collateral 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.
Foreign Currency Translation: The books and records of the Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:
(i) market value of investment securities, other assets and
liabilities--at the closing daily rate of exchange;
(ii) purchases and sales of investment securities, income and expenses--at
the rate of exchange prevailing on the respective dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange
rates and market values at the close of the period, the Fund does not isolate
that portion of the results of operations arising as a result of changes in the
foreign exchange rates from the fluctuations arising from changes in the market
prices of securities held at the end of the period. Similarly, the Fund does not
isolate the effect of changes in foreign exchange rates from the fluctuations
arising from changes in the market prices of portfolio securities sold during
the period.
Net realized gains or losses on foreign currency transactions represent
net foreign exchange gains or losses from sales and maturities of short-term
securities, disposition of foreign currency, gains or losses realized between
the trade and settlement dates of security transactions, and the difference
between amounts of dividends, interest and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent amounts actually received or
paid. Net currency gains and losses from valuing foreign currency denominated
assets and liabilities at period end exchange rates are reflected as a component
of unrealized appreciation or depreciation on investments and foreign
currencies.
Foreign security and currency transactions may involve certain
considerations and risks not typically associated with those of domestic origin
as a result of, among other factors, the possibility of political and economic
instability and the level of governmental supervision and regulation of foreign
securities markets.
Securities Transactions and Net Investment Income: Securities
transactions are recorded on the trade date. Realized gains and losses on sales
of investments and foreign currencies are calculated on the identified cost
basis. Dividend income is
18
<PAGE>
Prudential Sector Funds, Inc. Prudential Utility Fund (Unaudited)
Notes to Financial Statements Cont'd.
recorded on the ex-dividend date and interest income is recorded on the accrual
basis. The Fund amortizes discount on purchases of debt securities as
adjustments to interest income. Expenses are recorded on the accrual basis which
may require the use of certain estimates by management. The Company's expenses
are allocated to the respective Funds on the basis of relative net assets except
for expenses that are charged directly at a Fund level.
Net investment income (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: Dividends from net investment income are
declared and paid quarterly. The Fund will distribute at least annually any net
capital gains in excess of capital loss carryforwards. 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.
Securities Lending: The Fund may lend securities to broker-dealers. The
loans are secured by collateral at least equal at all times to the market value
of the securities loaned. Loans are subject to termination at the option of the
borrower or the Fund. Upon termination of the loan, the borrower will return to
the lender securities identical to the loaned securities. The Fund may bear the
risk of delay in recovery of, or even loss of rights in, the securities loaned
should the borrower of the securities fail financially. The Fund receives
compensation, net of any rebate, for lending its securities in the form of fees
or it retains a portion of interest on the investment of any cash received as
collateral. The Fund also continues to receive interest and dividends on the
securities loaned and any gain or loss in the market price of the securities
loaned that may occur during the term of the loan. Prudential Securities
Incorporated ('PSI') is the securities lending agent for the Fund. For the six
months months ended May 31, 2000, PSI has been compensated approximately
$183,300 for these services. As of May 31, 2000, approximately $49,900 of such
compensation was due to PSI.
Taxes: For federal income tax purposes, each fund in the Company is
treated as a separate taxpaying entity. It is the Fund's policy to continue to
meet the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable net income to its
shareholders. Therefore, no federal income tax provision is required.
19
<PAGE>
Prudential Sector Funds, Inc. Prudential Utility Fund (Unaudited)
Notes to Financial Statements Cont'd.
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.
Reclassification of Capital Accounts: The Company accounts for and
reports distributions to shareholders in accordance with the American Institute
of Certified Public Accountants' Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies. The effect for the Fund
of applying this statement was to decrease undistributed net investment income
and increase accumulated net realized gain on investments by $494,283 for
realized foreign currency losses during the six months ended May 31, 2000. Net
investment income, net realized gains and net assets were not affected by this
change.
Note 2. Agreements
The Company 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'), PIC furnishes investment advisory services in
connection with the management of the Fund. PIFM pays for the services of PIC,
the compensation of officers of the Fund, occupancy and certain clerical and
bookkeeping costs of the Fund. The Fund bears all other costs and expenses.
The management fee paid PIFM is computed daily and payable monthly at an
annual rate of .60% of the Fund's average daily net assets up to $250 million,
.50% of the next $500 million, .45% of the next $750 million, .40% of the next
$500 million, .35% of the next $2 billion, .325% of the next $2 billion and .30%
of the average daily net assets of the Fund in excess of $6 billion.
The Company has a distribution agreement with Prudential Investment
Management Services LLC ('PIMS'), which acts as the distributor of the Class A,
Class B, Class C and Class Z shares. The Company 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 them. The distribution fees for Class A, B and C
shares 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 average daily net assets of the Class A, B and C shares, respectively.
Such expenses
20
<PAGE>
Prudential Sector Funds, Inc. Prudential Utility Fund (Unaudited)
Notes to Financial Statements Cont'd.
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 six months ended May 31, 2000.
PIMS has advised the Fund that it received approximately $202,200 and
$13,000 in front-end sales charges resulting from sales of Class A and Class C
shares, respectively, during the six months ended May 31, 2000. From these fees,
PIMS paid such sales charges to dealers, which in turn paid commissions to
salespersons and incurred other distribution costs.
PIMS has advised the Fund that for the six months ended May 31, 2000, it
received approximately $877,600 and $10,200 in contingent deferred sales charges
imposed upon redemptions by certain Class B and Class C shareholders,
respectively.
PIFM, PIC and PIMS are wholly owned subsidiaries of The Prudential
Insurance Company of America ('Prudential').
The Fund, along with other affiliated registered investment companies (the
'Funds'), entered into a syndicated credit agreement ('SCA') with an
unaffiliated lender. The maximum commitment under the SCA is $1 billion.
Interest on any such borrowings will be at market rates. The purpose of the
agreement is to serve as an alternative source of funding for capital share
redemptions. The Funds pay a commitment fee of .080 of 1% of the unused portion
of the credit facility. The commitment fee is accrued and paid quarterly on a
pro rata basis by the Funds. The expiration date of the SCA is March 9, 2001.
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 six months ended May 31, 2000.
Note 3. Other Transactions With Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned subsidiary of PIFM,
serves as the Company's transfer agent. During the six months ended May 31,
2000, the Fund incurred fees of approximately $1,922,300 for the services of
PMFS. As of May 31, 2000, approximately $312,000 of such fees were due to PMFS.
Transfer agent fees and expenses in the Statement of Operations also include
certain out-of-pocket expenses paid to nonaffiliates.
For the six months ended May 31, 2000, PSI earned approximately $130,000
in brokerage commissions from portfolio transactions executed on behalf of the
Fund.
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the six months ended May 31, 2000, were $683,662,365 and $1,174,460,070,
respectively.
21
<PAGE>
Prudential Sector Funds, Inc. Prudential Utility Fund (Unaudited)
Notes to Financial Statements Cont'd.
The cost basis of investments for federal income tax purposes at May 31,
2000 was substantially the same as for financial reporting purposes and
accordingly, net unrealized appreciation for federal income tax purposes was
$1,347,727,593 (gross unrealized appreciation-$1,489,430,700; gross unrealized
depreciation-
$141,703,700).
As of May 31, 2000, the Fund had securities on loan with an aggregate
market value of $232,988,407. The Fund received $243,023,500 in cash as
collateral for securities on loan which was used to purchase highly liquid
short-term investments in accordance with the Fund's securities lending
procedures.
Note 5. Joint Repurchase Agreement Account
The Company, 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 May 31,
2000, the Fund had a 5.45% undivided interest in the repurchase agreements in
the joint account. The undivided interest for the Fund represents $47,119,000 in
principal amount. As of such date, each repurchase agreement in the joint
account and the collateral therefore were as follows:
ABN AMRO Incorporated, 6.37%, in the principal amount of $110,000,000,
repurchase price $110,019,464, due 6/1/00. The value of the collateral including
accrued interest was $112,200,491.
Bear, Stearns & Co. Inc., 6.37%, in the principal amount of $130,000,000,
repurchase price $130,023,003, due 6/1/00. The value of the collateral including
accrued interest was $133,856,194.
Chase Securities Inc., 6.15%, in the principal amount of $114,985,000,
repurchase price $115,004,643, due 6/1/00. The value of the collateral including
accrued interest was $117,289,066.
Credit Suisse First Boston Corp., 6.40%, in the principal amount of
$90,000,000, repurchase price $90,016,000, due 6/1/00. The value of the
collateral including accrued interest was $93,252,694.
Salomon Smith Barney, Inc., 6.38%, in the principal amount of
$220,000,000, repurchase price $220,038,989, due 6/1/00. The value of the
collateral including accrued interest was $224,578,626.
Warburg Dillon Read LLC, 6.20%, in the principal amount of $200,000,000,
repurchase price $200,034,444, due 6/1/00. The value of the collateral including
accrued interest was $204,004,940.
22
<PAGE>
Prudential Sector Funds, Inc. Prudential Utility Fund (Unaudited)
Notes to Financial Statements Cont'd.
Note 6. Capital
The Fund offers Class A, Class B, Class C and Class Z shares. Class A shares are
sold with a front-end sales charge of up to 5%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class C shares are sold with a front-end
sales charge of 1% and a contingent deferred sales charge of 1% during the first
18 months. Class B shares automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. A special exchange privilege is
also available for shareholders who qualified to purchase Class A shares at net
asset value. Class Z shares are not subject to any sales or redemption charge
and are offered exclusively for sale to a limited group of investors.
There are 800 million shares of $.01 par value per share common stock
authorized which consists of 400 million shares of Class A common stock, 300
million shares of Class B common stock, 50 million shares of Class C common
stock and 50 million shares of Class Z common stock.
23
<PAGE>
Prudential Sector Funds, Inc. Prudential Utility Fund (Unaudited)
Notes to Financial Statements Cont'd.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
------------------------------------------------------- ------------ ---------------
<S> <C> <C>
Six months ended May 30, 2000:
Shares sold 12,815,008 $ 144,212,094
Shares issued in reinvestment of dividends and
distributions 19,698,898 219,902,417
Shares reacquired (36,252,633) (417,450,307)
------------ ---------------
Net decrease in shares outstanding before conversion (3,738,727) (53,335,796)
Shares issued upon conversion from Class B 9,055,252 100,624,462
------------ ---------------
Net increase in shares outstanding 5,316,525 $ 47,288,666
------------ ---------------
------------ ---------------
Eleven months ended November 30, 1999:
Shares sold 14,785,271 $ 181,083,952
Shares issued in reinvestment of dividends and
distributions 7,855,395 89,975,001
Shares reacquired (44,526,267) (531,780,531)
------------ ---------------
Net decrease in shares outstanding before conversion (21,885,601) (260,721,578)
Shares issued upon conversion from Class B 16,038,997 193,752,614
------------ ---------------
Net decrease in shares outstanding (5,846,604) $ (66,968,964)
------------ ---------------
------------ ---------------
Year ended December 31, 1998:
Shares sold 19,037,525 $ 237,779,818
Shares issued in reinvestment of dividends and
distributions 19,621,888 242,393,959
Shares reacquired (29,837,592) (374,504,596)
------------ ---------------
Net increase in shares outstanding before conversion 8,821,821 105,669,181
Shares issued upon conversion from Class B 9,025,214 109,890,889
------------ ---------------
Net increase in shares outstanding 17,847,035 $ 215,560,070
------------ ---------------
------------ ---------------
<CAPTION>
Class B
-------------------------------------------------------
<S> <C> <C>
Six months ended May 30, 2000:
Shares sold 6,026,971 $ 69,347,425
Shares issued in reinvestment of dividends and
distributions 10,089,477 112,492,329
Shares reacquired (30,761,938) (348,751,653)
------------ ---------------
Net decrease in shares outstanding before conversion (14,645,490) (166,911,899)
Shares reacquired upon conversion into Class A (9,062,649) (100,624,462)
------------ ---------------
Net decrease in shares outstanding (23,708,139) $ (267,536,361)
------------ ---------------
------------ ---------------
Eleven months ended November 30, 1999:
Shares sold 10,783,081 $ 126,624,035
Shares issued in reinvestment of dividends and
distributions 4,297,088 48,815,688
Shares reacquired (45,653,985) (543,633,642)
------------ ---------------
Net decrease in shares outstanding before conversion (30,573,816) (368,193,919)
Shares reacquired upon conversion into Class A (16,065,511) (193,752,614)
------------ ---------------
Net decrease in shares outstanding (46,639,327) $ (561,946,533)
------------ ---------------
------------ ---------------
</TABLE>
24
<PAGE>
Prudential Sector Funds, Inc. Prudential Utility Fund (Unaudited)
Notes to Financial Statements Cont'd.
<TABLE>
<CAPTION>
Class B Shares Amount
------------------------------------------------------- ------------ ---------------
Year ended December 31, 1998:
<S> <C> <C>
Shares sold 24,489,734 $ 307,013,338
Shares issued in reinvestment of dividends and
distributions 14,344,999 177,016,698
Shares reacquired (37,529,567) (468,939,125)
------------ ---------------
Net increase in shares outstanding before conversion 1,305,166 15,090,911
Shares reacquired upon conversion into Class A (9,136,008) (109,890,889)
------------ ---------------
Net decrease in shares outstanding (7,830,842) $ (94,799,978)
------------ ---------------
------------ ---------------
<CAPTION>
Class C
-------------------------------------------------------
<S> <C> <C>
Six months ended May 30, 2000:
Shares sold 259,709 $ 3,034,965
Shares issued in reinvestment of dividends and
distributions 159,413 1,777,532
Shares reacquired (667,642) (7,564,025)
------------ ---------------
Net decrease in shares outstanding (248,520) $ (2,751,528)
------------ ---------------
------------ ---------------
Eleven months ended November 30, 1999:
Shares sold 1,061,776 $ 12,462,807
Shares issued in reinvestment of dividends and
distributions 62,086 706,720
Shares reacquired (1,506,051) (17,415,310)
------------ ---------------
Net decrease in shares outstanding (382,189) $ (4,245,783)
------------ ---------------
------------ ---------------
Year ended December 31, 1998:
Shares sold 1,692,797 $ 21,154,562
Shares issued in reinvestment of dividends and
distributions 161,515 1,983,980
Shares reacquired (701,686) (8,661,428)
------------ ---------------
Net increase in shares outstanding 1,152,626 $ 14,477,114
------------ ---------------
------------ ---------------
<CAPTION>
Class Z
-------------------------------------------------------
<S> <C> <C>
Six months ended May 30, 2000:
Shares sold 1,748,338 $ 20,981,970
Shares issued in reinvestment of dividends and
distributions 313,765 3,506,136
Shares reacquired (1,302,501) (14,914,910)
------------ ---------------
Net increase in shares outstanding 759,602 $ 9,573,196
------------ ---------------
------------ ---------------
Eleven months ended November 30, 1999:
Shares sold 1,557,947 $ 18,487,989
Shares issued in reinvestment of dividends and
distributions 141,150 1,618,640
Shares reacquired (2,370,022) (28,109,815)
------------ ---------------
Net decrease in shares outstanding (670,925) $ (8,003,186)
------------ ---------------
------------ ---------------
Year ended December 31, 1998:
Shares sold 2,632,084 $ 33,047,481
Shares issued in reinvestment of dividends and
distributions 383,622 4,743,816
Shares reacquired (2,547,360) (31,884,546)
------------ ---------------
Net increase in shares outstanding 468,346 $ 5,906,751
------------ ---------------
------------ ---------------
</TABLE>
25
<PAGE>
Prudential Sector Funds, Inc. Prudential Utility Fund
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
Class A
----------------
Six Months
Ended
May 31, 2000(b)
----------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $11.02
-------
Income from investment operations
Net investment income .17
Net realized and unrealized gains (losses) on investment and
foreign currency transactions 1.68
-------
Total from investment operations 1.85
-------
Less distributions
Dividends from net investment income (.07)
Distributions in excess of net investment income --
Distributions from net realized gains --
-------
Total distributions (.07)
-------
Net asset value, end of period $12.80
-------
-------
TOTAL RETURN(a) 16.83%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000,000) $2,904
Average net assets (000,000) $2,732
Ratios to average net assets:
Expenses, including distribution and service (12b-1) fees .81%(c)
Expenses, excluding distribution and service (12b-1) fees .56%(c)
Net investment income 2.82%(c)
For Class A, B, C and Z shares:
Portfolio turnover rate 17%
</TABLE>
------------------------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods less than one full year are not
annualized.
(b) Calculated based upon weighted average shares outstanding during the period.
(c) Annualized.
26 See Notes to Financial Statements
<PAGE>
Prudential Sector Funds, Inc. Prudential Utility Fund
Financial Highlights (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------------------------------------------------------
Eleven Months
Ended
November 30, Year Ended December 31,
1999(b) 1998(b) 1997(b) 1996(b) 1995
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 12.06 $12.33 $10.88 $ 9.87 $ 8.27
------------- ------- ------- ------- -------
.27 .30 .34 .32 .30
.14 .69 2.53 1.80 1.79
------------- ------- ------- ------- -------
.41 .99 2.87 2.12 2.09
------------- ------- ------- ------- -------
(.27) (.32) (.32) (.32) (.30)
(.03) -- -- -- --
(1.15) (.94) (1.10) (.79) (.19)
------------- ------- ------- ------- -------
(1.45) (1.26) (1.42) (1.11) (.49)
------------- ------- ------- ------- -------
$ 11.02 $12.06 $12.33 $10.88 $ 9.87
------------- ------- ------- ------- -------
------------- ------- ------- ------- -------
3.64% 7.98% 27.77% 22.09% 25.74%
$ 2,440 $2,741 $2,583 $2,023 $1,709
$ 2,691 $2,652 $2,201 $1,786 $1,440
.78%(c) .78% .82% .86% .88%
.53%(c) .53% .57% .61% .63%
2.45%(c) 2.43% 2.95% 3.10% 3.12%
19% 17% 15% 17% 14%
</TABLE>
See Notes to Financial Statements 27
<PAGE>
Prudential Sector Funds, Inc. Prudential Utility Fund
Financial Highlights
<TABLE>
<CAPTION>
Class B
----------------
Six Months
Ended
May 31, 2000(b)
----------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $11.02
-------
Income from investment operations
Net investment income .12
Net realized and unrealized gains (losses) on investment and
foreign currency transactions 1.69
-------
Total from investment operations 1.81
-------
Less distributions
Dividends from net investment income (.05)
Distributions in excess of net investment income --
Distributions from net realized gains --
-------
Total distributions (.05)
-------
Net asset value, end of period $12.78
-------
-------
TOTAL RETURN(a) 16.33%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000,000) $1,212
Average net assets (000,000) $1,234
Ratios to average net assets:
Expenses, including distribution and service (12b-1) fees 1.56%(c)
Expenses, excluding distribution and service (12b-1) fees .56%(c)
Net investment income 2.06%(c)
</TABLE>
------------------------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods less than one full year are not
annualized.
(b) Calculated based upon weighted average shares outstanding during the period.
(c) Annualized.
28 See Notes to Financial Statements
<PAGE>
Prudential Sector Funds, Inc. Prudential Utility Fund
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class B
-------------------------------------------------------------------------------------------------------
<CAPTION>
Eleven Months
Ended
November 30, Year Ended December 31,
1999(b) 1998(b) 1997(b) 1996(b) 1995
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 12.05 $12.32 $10.88 $ 9.87 $ 8.26
------------- ------- ------- ------- -------
.19 .21 .25 .24 .22
.13 .69 2.53 1.80 1.80
------------- ------- ------- ------- -------
.32 .90 2.78 2.04 2.02
------------- ------- ------- ------- -------
(.19) (.23) (.24) (.24) (.22)
(.01) -- -- -- --
(1.15) (.94) (1.10) (.79) (.19)
------------- ------- ------- ------- -------
(1.35) (1.17) (1.34) (1.03) (.41)
------------- ------- ------- ------- -------
$ 11.02 $12.05 $12.32 $10.88 $ 9.87
------------- ------- ------- ------- -------
------------- ------- ------- ------- -------
2.98% 7.18% 26.80% 21.16% 24.80%
$ 1,306 $1,990 $2,132 $2,137 $2,355
$ 1,691 $2,120 $2,059 $2,184 $2,450
1.53%(c) 1.53% 1.57% 1.61% 1.63%
.53%(c) .53% .57% .61% .63%
1.71%(c) 1.67% 2.20% 2.35% 2.37%
</TABLE>
See Notes to Financial Statements 29
<PAGE>
Prudential Sector Funds, Inc. Prudential Utility Fund
Financial Highlights
<TABLE>
<CAPTION>
Class C
----------------
Six Months
Ended
May 31, 2000(b)
----------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 11.02
--------
Income from investment operations
Net investment income .12
Net realized and unrealized gains (losses) on investment and
foreign currency transactions 1.69
--------
Total from investment operations 1.81
--------
Less distributions
Dividends from net investment income (.05)
Distributions in excess of net investment income --
Distributions from net realized gains --
--------
Total distributions (.05)
--------
Net asset value, end of period $ 12.78
--------
--------
TOTAL RETURN(a) 16.33%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 20,666
Average net assets (000) $ 20,164
Ratios to average net assets:
Expenses, including distribution and service (12b-1) fees 1.56%(c)
Expenses, excluding distribution and service (12b-1) fees .56%(c)
Net investment income 2.07%(c)
</TABLE>
------------------------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods less than one full year are not
annualized.
(b) Calculated based upon weighted average shares outstanding during the period.
(c) Annualized.
30 See Notes to Financial Statements
<PAGE>
Prudential Sector Funds, Inc. Prudential Utility Fund
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class C
-------------------------------------------------------------------------------------------------------
Eleven Months
Ended
November 30, Year Ended December 31,
1999(b) 1998(b) 1997(b) 1996(b) 1995
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 12.05 $ 12.32 $ 10.88 $ 9.87 $ 8.26
------------- -------- -------- ------- -------
.19 .21 .25 .24 .22
.13 .69 2.53 1.80 1.80
------------- -------- -------- ------- -------
.32 .90 2.78 2.04 2.02
------------- -------- -------- ------- -------
(.19) (.23) (.24) (.24) (.22)
(.01) -- -- -- --
(1.15) (.94) (1.10) (.79) (.19)
------------- -------- -------- ------- -------
(1.35) (1.17) (1.34) (1.03) (.41)
------------- -------- -------- ------- -------
$ 11.02 $ 12.05 $ 12.32 $10.88 $ 9.87
------------- -------- -------- ------- -------
------------- -------- -------- ------- -------
2.98% 7.18% 26.80% 21.16% 24.80%
$20,550 $ 27,072 $ 13,490 $6,001 $3,455
$$24,448 $ 20,309 $ 9,424 $4,517 $2,181
1.53%(c) 1.53% 1.57% 1.61% 1.63%
.53%(c) .53% .57% .61% .63%
1.71%(c) 1.71% 2.20% 2.35% 2.37%
</TABLE>
See Notes to Financial Statements 31
<PAGE>
Prudential Sector Funds, Inc. Prudential Utility Fund
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class Z
----------------
Six Months
Ended
May 31, 2000(b)
----------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 11.02
--------
Income from investment operations
Net investment income .18
Net realized and unrealized gains (losses) on investment and
foreign currency transactions 1.70
--------
Total from investment operations 1.88
--------
Less distributions
Dividends from net investment income (.08)
Distributions in excess of net investment income --
Distributions from net realized gains --
--------
Total distributions (.08)
--------
Net asset value, end of period $ 12.82
--------
--------
TOTAL RETURN(a) 16.88%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 50,677
Average net assets (000) $ 38,669
Ratios to average net assets:
Expenses, including distribution and service (12b-1) fees .56%(c)
Expenses, excluding distribution and service (12b-1) fees .56%(c)
Net investment income 3.10%
</TABLE>
------------------------------
(a) 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 return for periods of less than one full year are not
annualized.
(b) Calculated based upon weighted average shares outstanding during the period.
(c) Annualized.
(d) Commencement of offering of Class Z shares.
32 See Notes to Financial Statements
<PAGE>
Prudential Sector Funds, Inc. Prudential Utility Fund
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class Z
----------------------------------------------------------------------------
Eleven Months March 1, 1996(d)
Ended Through
November 30, Year Ended December 31, December 31,
1999(b) 1998(b) 1997(b) 1996(b)
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 12.07 $ 12.34 $ 10.88 $ 10.05
------------- -------- -------- --------
.30 .34 .36 .29
.13 .69 2.54 1.67
------------- -------- -------- --------
.43 1.03 2.90 1.96
------------- -------- -------- --------
(.30) (.36) (.34) (.34)
(.03) -- -- --
(1.15) (.94) (1.10) (.79)
------------- -------- -------- --------
(1.48) (1.30) (1.44) (1.13)
------------- -------- -------- --------
$ 11.02 $ 12.07 $ 12.34 $ 10.88
------------- -------- -------- --------
------------- -------- -------- --------
3.91% 8.24% 28.15% 20.11%
$35,201 $ 46,642 $ 41,904 $ 34,446
$42,002 $ 46,093 $ 35,994 $ 34,291
.53%(c) .53% .57% .61%(c)
.53%(c) .53% .57% .61%(c)
2.70%(c) 2.68% 3.20% 3.35%(c)
</TABLE>
See Notes to Financial Statements 33
<PAGE>
Prudential Utility Fund
Prudential Mutual Funds
Prudential offers a broad range of mutual funds designed
to meet your individual needs. For information about
these funds, contact your financial adviser or call us at
(800) 225-1852. Read the prospectus carefully before you
invest or send money.
STOCK FUNDS
Large Capitalization Stock Funds
Prudential 20/20 Focus Fund
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
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
Small- to Mid-Capitalization Stock Funds
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Prudential Small Company Fund, Inc.
Prudential Tax-Managed Small-Cap Fund, Inc.
Prudential U.S. Emerging Growth Fund, Inc.
Target Funds
Small Capitalization Growth Fund
Small Capitalization Value Fund
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
Sector Stock Funds
Prudential Natural Resources Fund, Inc.
Prudential Real Estate Securities Fund
Prudential Sector Funds, Inc.
Prudential Financial Services Fund
Prudential Health Sciences Fund
Prudential Technology Fund
Prudential Utility Fund
Global/International Stock Funds
Global Utility Fund, Inc.
Prudential Europe Growth Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Prudential Global Growth Fund
Prudential International Value Fund
Prudential Jennison International Growth Fund
Target Funds
International Equity Fund
balanced/allocation funds
Prudential Diversified Funds
Conservative Growth Fund
Moderate Growth Fund
High Growth Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund
<PAGE>
www.prudential.com (800) 225-1852
BOND FUNDS
Taxable Bond Funds
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential High Yield Total Return Fund, Inc.
Prudential Short-Term Corporate Bond Fund, Inc.
Income Portfolio
Prudential Total Return Bond Fund, Inc.
Target Funds
Total Return Bond Fund
Tax-Free Bond Funds
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Income Series
Insured Series
Prudential Municipal Series Fund
Florida Series
Massachusetts Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
Global/International Bond Funds
Prudential Global Total Return Fund, Inc.
Prudential International Bond Fund, Inc.
MONEY MARKET FUNDS
Taxable Money Market Funds
Cash Accumulation Trust
Liquid Assets Fund
National Money Market Fund
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
Prudential MoneyMart Assets, Inc.
Prudential Special Money Market Fund, Inc.
Money Market Series
Tax-Free Money Market Funds
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
Prudential Tax-Free Money Fund, Inc.
Other Money Market Funds
Command Government Fund
Command Money Fund
Command Tax-Free Fund
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Prudential Utility Fund
Getting the Most from Your Prudential Mutual Fund
When you invest through Prudential Mutual Funds, you
receive financial advice from a Prudential Securities
Financial Advisor or Pruco Securities registered
representative. Your advisor or representative can
provide you with the following services:
There's No Reward Without Risk; but Is This Risk Worth
It?
Your financial advisor or registered representative can
help you match the reward you seek with the risk you can
tolerate. Risk can be difficult to gauge-sometimes even
the simplest investments bear surprising risks. The
educated investor knows that markets seldom move in just
one direction. There are times when a market sector or
asset class will lose value or provide little in the way
of total return. Managing your own expectations is easier
with help from someone who understands the markets and
who knows you!
Keeping Up With the Joneses
A financial advisor or registered representative can help
you wade through the numerous available mutual funds to
find the ones that fit your individual investment profile
and risk tolerance. While the newspapers and popular
magazines are full of advice about investing, they are
aimed at generic groups of people or representative
individuals-not at you personally. Your financial advisor
or registered representative will review your investment
objectives with you. This means you can make financial
decisions based on the assets and liabilities in your
current portfolio and your risk tolerance-not just based
on the current investment fad.
Buy Low, Sell High
Buying at the top of a market cycle and selling at the
bottom are among the most common investor mistakes. But
sometimes it's difficult to hold on to an investment when
it's losing value every month. Your financial advisor or
registered representative can answer questions when
you're confused or worried about your investment, and
should remind you that you're investing for the long
haul.
<PAGE>
www.prudential.com (800) 225-1852
For More Information
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
Directors
Delayne Dedrick Gold
Robert F. Gunia
Douglas H. McCorkindale
Thomas T. Mooney
Stephen P. Munn
David R. Odenath, Jr.
Richard A. Redeker
Robin B. Smith
John R. Strangfeld
Louis A. Weil, III
Clay T. Whitehead
Officers
John R. Strangfeld, President
Robert F. Gunia, Vice President
David R. Odenath, Jr., Vice President
Grace C. Torres, Treasurer
Marguerite E.H. Morrison, Secretary
William V. Healey, Assistant Secretary
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
194 Wood Avenue South
Iselin, NJ 08830
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 PRUAX 74437K814
Class B PRUTX 74437K822
Class C PCUFX 74437K830
Class Z PRUZX 74437K848
The views expressed in this report and information about
the Fund's portfolio holdings are for the period covered
by this report and are subject to change thereafter.
The accompanying financial statements as
of May 31, 2000, were not audited and, accordingly, no
opinion is expressed on them.
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(LOGO)
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
MF105E2 74437K814 74437K822 74437K830 74437K848
(LOGO) Printed on Recycled Paper
