Letter to
Shareholders
July 12, 1994
Dear Shareholder:
Stock market investors saw disappointing returns this year as the market
gave up some of its gains from 1993. The catalysts? The Federal Reserve
raised short-term interest rates, the U.S. dollar plummeted against the
currencies of several foreign trading partners, and the stock market appeared
overvalued. While overall returns were down, the Prudential Equity Fund still
outperformed the Lipper growth fund category.
The Fund
The Prudential Equity Fund seeks long-term capital growth through a
diversified portfolio primarily composed of common stocks of major,
established corporations. It may place up to 30% of assets in foreign stocks,
which have greater economic, political and currency risks than U.S. stocks.
Rising Rates Jolt Markets
The Federal Reserve raised short-term rates in February, March, April and
May, hoping that by tightening the nation's money supply, it could slow
economic growth and keep inflation under control in the rapidly recovering U.S.
economy. U.S. stocks reacted unfavorably to rising rates on fears that company
operating costs would increase and earnings fall. In addition, bond yields
began to look more attractive and some conservative investors, who bought
stocks when interest rates were at rock bottom, have likely sought safer
shores in fixed-income instruments. As a result, U.S. stocks, as measured by
the Standard & Poor's 500 Index, lost 3.4% during the six months ended June 30,
1994.
The Benefits of Cash
The Fund's relatively large cash position (13% as of June 30, 1994 but as
high as 20% earlier in the year) helped us outperform the broad stock market
and most comparable growth-oriented mutual funds.
Stock Selection In An Uneven Market
In the unsettled stock market environment we have seen this year, stock
selection has proved critical to performance. We sought stocks that appeared
to be bargains. In the current market, our value management style means we
always search for stocks with prices that are low in relation to book value
and potential earnings and cash flow. This strategy becomes easier when stock
market prices are falling. The idea is that over time, other investors will
also realize the discrepancy between the stocks' low prices and their higher
intrinsic values.
-3-
<PAGE>
Here's Where We're Invested
- - Financial stocks. The Fund currently holds a large position in financial
stocks, such as banks and insurance companies. As of June 30, 1994, finance
stocks accounted for 22.6% of the Fund. We feel these stocks, hard hit by
rising interest rates, now offer many outstanding value investment
opportunities. Consequently, we bought Chubb, Dean Witter/Discover and Bank
of New York. We also added to some of our top holdings in financial
services, including Continental and American Express.
- - Energy stocks. During the first half of the year, the Fund also bought
energy stocks, which we feel will benefit from increased worldwide economic
activity. These include oil companies Atlantic Richfield, Oryx Energy and
Elf Aquitaine, a French oil company recently privatized by the French
government.
- - Cyclicals. Some of the Fund's industry holdings, like chemical firm Monsanto
and farm machinery manufacturer Deere, helped its performance. We reduced
our position in automaker Ford after good performance. (See the "Portfolio
of Investments" for the number of shares owned at period end.)
- - A few we wish had done better. The Fund had some underperformers, as well.
Digital Equipment, one of our largest holdings, declined during the first
half of 1994 amid news of continued financial problems tied to its hardware
operations. However, we still believe the firm's restructuring, as well as
its attention to new technology, will help it overcome recent setbacks.
Other underperformers included Tandy and IMC Fertilizer.
- - We underweighted drugs, food and beverages. Drugs and other consumer-oriented
stocks like food and beverage companies have been among the weakest performing
stocks for more than a year now. In our current cost-conscious economy, we
do not see consumers willing to pay the premium prices "brand name" food and
drug products once commanded. This will continue to put pressure on the
profit margins of those companies. Our decision to stay away from these
stocks has helped the Fund's performance. As of June 30, 1994, the Fund's
holdings in consumer non-durable stocks made up 12% of Fund assets, a
relatively small proportion compared to the stock market in general. We
also continue to shy away from utility stocks, because rising interest rates
have made them vulnerable.
-4-
<PAGE>
Outlook for the Second Half of 1994
Despite market volatility early in 1994, we remain optimistic that the U.S.
economy is fundamentally sound. As U.S. corporations restructure and
re-engineer their operations to become more competitive in a global
marketplace, we expect the U.S. economic recovery to continue throughout the
latter half of 1994. Investors who believe earnings will support current price
levels might expect flat to slightly higher stock market returns through the
rest of the year. Conversely, if economic growth slows and earnings are
disappointing, stock returns could remain in negative territory. On the
positive side, the economic turnaround in Europe and Asia should continue,
which may mean stronger returns in non-U.S. markets.
As always, it is a pleasure to have you as a shareholder in the Prudential
Equity Fund and we welcome this opportunity to report our activities to you.
Sincerely,
Lawrence C. McQuade
President
Thomas R. Jackson
Portfolio Manager
-5-
<PAGE>
(PHOTO)
PORTFOLIO Q&A
Tom Jackson
The following is an interview with Tom Jackson, Portfolio Manager of the
Prudential Equity Fund.
Q. How has the U.S. stock market correction in the first quarter 1994 affected
your management of the Fund?
A. While market corrections are always painful, they're certainly no reason to
abandon the stock market. We should remind ourselves that, despite market
downturns, the value of stocks has historically risen over time. Of course,
past performance is no guarantee of future results. Stock market
corrections create opportunities because the indiscriminate selling that
occurs without regard to the fundamental attractiveness of the underlying
companies creates "bargains." I try to find stocks that have declined more
during the downturn than would seem logical. These may have the greatest
growth potential going forward.
Q. Do you think you've found any such values lately?
A. Well, since this recent correction was triggered by rising interest rates,
I've looked for stocks that have been affected most by higher rates. This
led me to make finance stocks a big bet for 1994. In the first half of this
year, I began positions in financial companies whose prices I found
attractive relative to the companies' underlying value, including Chubb,
Continental Gp., Bank of New York, Emphesys Financial, Western National
and American General. Similarly, I've seen value opportunities in the
energy sector, with Atlantic Richfield and the recently privatized French
oil company Elf Aquitaine.
Q. Why do you still favor cyclical stocks
(which tend to closely follow market movements) over growth stocks (which
have the potential for steady growth over the long term)?
A. Many U.S. corporations are becoming more competitive worldwide as they
restructure. Continued U.S. economic growth combined with the bottoming of
non-U.S. economies should allow many of these companies to experience
substantial earnings growth over the next couple of years. I don't think
their stocks fully reflect this outlook yet.
-6-
<PAGE>
PRUDENTIAL EQUITY FUND, INC. Portfolio of Investments
June 30, 1994 (Unaudited)
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
LONG-TERM INVESTMENTS--87.3%
Common Stocks--86.0%
Aerospace/Defense--4.2%
290,000 E-Systems, Inc............. $ 10,838,750
207,800 Lockheed Corp.............. 13,584,925
870,000 Loral Corp................. 30,450,000
500,000 United Technologies
Corp..................... 32,125,000
--------------
86,998,675
--------------
Automobiles & Trucks--4.2%
600,000 Chrysler Corp.............. 28,275,000
400,000 Ford Motor Co.............. 23,600,000
600,000 General Motors Corp........ 30,150,000
404,800 Navistar International
Corp.*................... 5,414,200
--------------
87,439,200
--------------
Banks & Financial Services--10.2%
1,500,000 American Express Co........ 38,625,000
581,400 Bank of New York, Inc...... 16,787,925
300,000 BankAmerica Corp........... 13,725,000
600,000 Chase Manhattan Corp....... 22,950,000
600,000 Comerica, Inc.............. 16,950,000
285,600 Dean Witter-Discover &
Co....................... 10,710,000
149,900 Dreyfus Corp............... 7,270,150
177,000 First America Bank Corp.... 6,305,625
125,530 Fund American Companies,
Inc.*.................... 8,849,865
1,000,000 Great Western Financial
Corp..................... 18,375,000
300,000 Lehman Brothers Holdings,
Inc...................... 4,537,500
256,500 Mercantile Bankshares
Corp..................... 5,033,812
225,000 Republic New York Corp..... 10,378,125
600,000 Salomon, Inc............... 28,650,000
--------------
209,148,002
--------------
Cards & Gift Wrappings--0.6%
750,000 Gibson Greetings, Inc...... 12,000,000
--------------
Chemicals--2.0%
300,000 Eastman Chemical Co........ 14,325,000
355,500 IMC Fertilizer Group,
Inc...................... $ 12,309,188
500,000 Wellman, Inc............... 13,937,500
--------------
40,571,688
--------------
Commercial Services--0.4%
600,000 AAR Corp................... 8,100,000
--------------
Computer Hardware--4.8%
800,000 Amdahl Corp................ 4,400,000
800,000 Comdisco, Inc.............. 15,300,000
2,300,000 Digital Equipment Corp.*... 44,562,500
412,900 Gerber Scientific, Inc..... 6,399,950
150,000 Hewlett-Packard Co......... 11,306,250
300,000 International Business
Machines Corp............ 17,625,000
--------------
99,593,700
--------------
Diversified Consumer Products--4.2%
400,000 Eastman Kodak Co........... 19,250,000
500,000 ITT Corp................... 40,812,500
300,000 Loews Corp................. 25,575,000
--------------
85,637,500
--------------
Drugs & Medical Supplies--3.7%
2,000,000 Baxter International,
Inc...................... 52,500,000
210,800 Lilly (Eli) & Co........... 11,989,250
400,000 Upjohn Co.................. 11,650,000
--------------
76,139,250
--------------
Electric Power--1.0%
170,000 American Electric Power,
Inc...................... 4,802,500
570,000 General Public Utilities
Corp..................... 14,962,500
--------------
19,765,000
--------------
Electronics--1.8%
300,000 Avnet, Inc................. 9,450,000
300,000 Harris Corp................ 13,237,500
400,000 Varian Associates, Inc..... 14,200,000
--------------
36,887,500
--------------
</TABLE>
-7- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL EQUITY FUND, INC.
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
Energy Equipment & Services--0.4%
1,300,000 Noram Energy Corporation... $ 7,800,000
--------------
Forest Products--6.0%
400,000 International Paper Co..... 26,500,000
550,000 James River Corp. of
Virginia................. 9,350,000
125,000 Rayonier, Inc.............. 3,609,375
1,600,000 Scott Paper Co............. 83,600,000
--------------
123,059,375
--------------
Hospitals & Medical Services--4.3%
649,700 American Medical Holdings,
Inc.*.................... 16,323,713
39,400 Beverly Enterprises,
Inc.*.................... 477,725
747,720 Columbia Healthcare
Corp..................... 28,039,500
266,800 Foundation Health Corp.*... 10,371,850
459,500 Hillhaven Corp............. 8,271,000
1,665,000 National Medical
Enterprises, Inc......... 26,015,625
--------------
89,499,413
--------------
Insurance--10.5%
1,000,000 Alexander & Alexander
Services, Inc............ 16,250,000
400,000 American General Corp...... 11,050,000
400,000 Chubb Corp................. 30,650,000
500,000 Citizens Corp.............. 8,750,000
2,200,000 Continental Corp........... 34,100,000
406,600 Emphesys Financial Group,
Inc...................... 12,096,350
767,300 First Colony Corp.......... 16,496,950
900,828 Old Republic International
Corp..................... 20,043,423
700,000 SAFECO Corp................ 38,937,500
350,000 St. Paul Companies, Inc.... 14,043,750
933,600 Western National Corp...... 11,086,500
62,765 White River Corp.*......... 2,102,627
--------------
215,607,100
--------------
Non-Ferrous Metals--3.0%
250,000 Alumax Inc.*............... $ 6,406,250
300,000 Aluminum Co. of America.... 21,937,500
122,750 Amax Gold, Inc............. 966,656
1,093,000 Cyprus Minerals Corp....... 32,516,750
--------------
61,827,156
--------------
Oil & Gas Exploration & Production--10.9%
300,000 Amerada Hess Corp.......... 14,775,000
200,000 Atlantic Richfield Co...... 20,425,000
500,000 BJ Services Co.*........... 10,312,500
750,000 British Petroleum Ltd.,
PLC, ADR
(United Kingdom)......... 53,812,500
1,100,000 Occidental Petroleum
Corp..................... 20,762,500
1,200,000 Oryx Energy Co............. 18,000,000
200,000 Royal Dutch Petroleum
Co....................... 20,925,000
1,100,000 Societe Nationale Elf
Aquitaine, ADR
(France)*................ 36,575,000
700,000 Total SA, ADR (France)*.... 20,125,000
504,400 Union Texas Petroleum,
Inc...................... 9,016,150
--------------
224,728,650
--------------
Retail--7.5%
119,700 Dayton Hudson Corp......... 9,695,700
300,000 Dillard Department Stores,
Inc...................... 9,262,500
700,000 Federated Department
Stores, Inc.*............ 14,000,000
1,294,700 K-Mart Corp................ 20,067,850
500,000 Petrie Stores Corp......... 12,312,500
1,368,300 Tandy Corp................. 47,206,350
1,391,900 U.S. Shoe Corp............. 26,446,100
900,000 Waban, Inc.*............... 14,962,500
--------------
153,953,500
--------------
Specialty Chemicals--0.1%
100,000 Witco Corp................. 2,975,000
--------------
Steel--0.5%
500,000 Bethlehem Steel Corp.*..... 9,312,500
--------------
</TABLE>
-8- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL EQUITY FUND, INC.
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
Telecommunications--4.4%
1,446,500 Sprint Corp................ $ 50,446,688
1,000,000 Telefonica de Espana (ADR)
(Spain).................. 40,250,000
--------------
90,696,688
--------------
Transportation--1.3%
1,000,000 OMI Corp.*................. 6,000,000
550,000 Overseas Shipholding Group,
Inc...................... 10,037,500
555,400 Southern Pacific Rail
Corp.*................... 10,899,725
--------------
26,937,225
--------------
Total common stocks
(cost $1,557,968,422).... 1,768,677,122
--------------
Preferred Stock--1.3%
RJR Nabisco Holdings, Inc.*
4,000,000 (cost $25,999,618)......... 26,500,000
--------------
Total long-term investments
(cost $1,583,968,040)...... 1,795,177,122
--------------
<CAPTION>
Principal
Amount
(000) SHORT-TERM INVESTMENT--13.2%
- ---------
Repurchase Agreement
Joint Repurchase Agreement
Account,
$271,954 4.26%, 7/1/94
(cost $271,954,000; Note
5)....................... 271,954,000
--------------
Total Investments--100.5%
(cost $1,855,922,040; Note
4)....................... 2,067,131,122
Liabilities in excess of
other
assets--(0.5%)............. (10,601,123)
--------------
Net Assets--100%........... $2,056,529,999
--------------
--------------
</TABLE>
- ---------------
* Non-income producing security.
ADR--American Depository Receipt.
-9- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL EQUITY FUND, INC.
Statement of Assets and Liabilities
(Unaudited)
<TABLE>
<CAPTION>
Assets June 30, 1994
--------------
<S> <C>
Investments, at value (cost $1,855,922,040)............................................. $2,067,131,122
Cash.................................................................................... 140,889
Dividends and interest receivable....................................................... 5,923,627
Receivable for Fund shares sold......................................................... 5,296,171
Deferred expenses and other assets...................................................... 49,969
--------------
Total assets........................................................................ 2,078,541,778
--------------
Liabilities
Payable for investments purchased....................................................... 14,320,973
Payable for Fund shares reacquired...................................................... 5,267,009
Distribution fee payable................................................................ 1,602,906
Management fee payable.................................................................. 820,891
--------------
Total liabilities................................................................... 22,011,779
--------------
Net Assets.............................................................................. $2,056,529,999
--------------
--------------
Net assets were comprised of:
Common stock, at par.................................................................. $ 1,529,819
Paid-in capital in excess of par...................................................... 1,723,328,123
--------------
1,724,857,942
Undistributed net investment income................................................... 53,600,497
Accumulated net realized gains........................................................ 66,862,478
Net unrealized appreciation........................................................... 211,209,082
--------------
Net assets, June 30, 1994............................................................. $2,056,529,999
--------------
--------------
Class A:
Net asset value and redemption price per share
($242,796,334 / 18,005,762 shares of common stock issued and outstanding)........... $13.48
Maximum sales charge (5.25% of offering price)........................................ .75
--------------
Maximum offering price to public...................................................... $14.23
--------------
--------------
Class B:
Net asset value, offering and redemption price per share
($1,813,733,665 / 134,976,106 shares of common stock issued and outstanding)........ $13.44
--------------
--------------
</TABLE>
See Notes to Financial Statements.
-10-
<PAGE>
PRUDENTIAL EQUITY FUND, INC.
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
June 30,
Net Investment Income 1994
-------------
<S> <C>
Income
Dividends (net of foreign
withholding taxes of $564,079).... $ 20,195,957
Interest............................ 6,306,917
-------------
Total income...................... 26,502,874
-------------
Expenses
Distribution fee--Class A........... 301,215
Distribution fee--Class B........... 9,205,692
Management fee...................... 4,870,710
Transfer agent's fees and
expenses............................ 1,388,000
Reports to shareholders............. 264,000
Custodian's fees and expenses....... 144,000
Registration fees................... 45,000
Insurance expense................... 28,000
Audit fee........................... 27,000
Directors' fees..................... 22,000
Legal fees.......................... 21,000
Miscellaneous....................... 6,699
-------------
Total expenses.................... 16,323,316
-------------
Net investment income................. 10,179,558
-------------
Realized and Unrealized
Gain on Investments
Net realized gain on investment
transactions........................ 35,267,017
Net change in unrealized appreciation
of investments...................... (102,667,503)
-------------
Net loss on investments............... (67,400,486)
-------------
Net Decrease in Net Assets
Resulting from Operations............. $ (57,220,928)
-------------
-------------
</TABLE>
PRUDENTIAL EQUITY FUND, INC.
Statement of Changes in Net Assets
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
June 30, December 31,
Increase in Net Assets 1994 1993
-------------- --------------
<S> <C> <C>
Operations
Net investment
income.............. $ 10,179,558 $ 17,238,874
Net realized gain on
investment
transactions...... 35,267,017 116,747,891
Net change in
unrealized
appreciation of
investments....... (102,667,503) 183,732,635
-------------- --------------
Net increase
(decrease) in net
assets resulting
from operations... (57,220,928) 317,719,400
-------------- --------------
Net equalization
credits............. 1,614,113 10,311,865
-------------- --------------
Dividends and distributions
(Note 1)
Dividends to
shareholders from
net investment
income
Class A........... -- (3,388,881)
Class B........... -- (13,831,847)
-------------- --------------
-- (17,220,728)
-------------- --------------
Distributions to
shareholders from
net realized gains
on investment
transactions
Class A........... -- (11,075,863)
Class B........... -- (85,590,180)
-------------- --------------
-- (96,666,043)
-------------- --------------
Fund share transactions (Note 6)
Proceeds from shares
subscribed........ 688,241,155 1,246,554,009
Net asset value of
shares issued in
reinvestment of
dividends and
distributions..... -- 107,310,518
Cost of shares
reacquired........ (603,273,128) (881,414,705)
-------------- --------------
Net increase in net
assets from Fund
share
transactions...... 84,968,027 472,449,822
-------------- --------------
Total increase........ 29,361,212 686,594,316
Net Assets
Beginning of period... 2,027,168,787 1,340,574,471
-------------- --------------
End of period......... $2,056,529,999 $2,027,168,787
-------------- --------------
-------------- --------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
-11-
<PAGE>
PRUDENTIAL EQUITY FUND, INC.
Notes to Financial Statements
(Unaudited)
Prudential Equity Fund, Inc. (the ``Fund''), is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The investment objective of the Fund is long-term growth of capital by
investing primarily in common stocks of major established corporations.
Note 1. Accounting The following is a summary
Policies of significant accounting poli-
cies followed by the Fund in the preparation of
its financial statements.
Securities Valuation: Investments, including options, traded on a national
securities or commodities exchange and NASDAQ National Market equity securities
are valued at the last reported sales price on the primary exchange on which
they are traded. Securities traded in the over-the-counter market (including
securities listed on exchanges whose primary market is believed to be
over-the-counter) and listed securities for which no sale was reported on that
date are valued at the mean between the last reported bid and asked prices.
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 Fund's policy that its custodian or designated
subcustodians, as the case may be under triparty repurchase agreements, take
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 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.
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 semi-annually. The Fund will distribute at least annually net capital
gains in excess of loss carryforwards, if any. 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.
Equalization: The Fund follows the accounting practice known as equalization by
which a portion of the proceeds from sales and costs of reacquisitions of Fund
shares, equivalent on a per share basis to the amount of distributable net
investment income on the date of the transaction, is credited or charged to
undistributed net investment income. As a result, undistributed net investment
income per share is unaffected by sales or reacquisitions of the Fund's shares.
Taxes: It is the Fund's policy to continue to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable net income 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.
Note 2. Agreements The Fund has a management
agreement with Prudential Mutual Fund Management,
Inc. (``PMF''). Pursuant to this agreement, PMF has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PMF 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. PMF pays for the cost of the
subadviser's services, 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 PMF is computed daily and payable monthly, at an
annual rate of .50 of 1% of the Fund's average daily net assets up to $500
million, .475 of 1% of the next $500 million of average daily net assets and
.45 of 1% of the Fund's average daily net assets in excess of $1 billion.
-12-
<PAGE>
The Fund has distribution agreements with Prudential Mutual Fund
Distributors, Inc. (``PMFD''), which acts as the distributor of the Class A
shares of the Fund, and with Prudential Securities Incorporated (``PSI''), which
acts as distributor of the Class B shares of the Fund (collectively the
``Distributors''). To reimburse the Distributors for their expenses incurred in
distributing the Fund's Class A and Class B shares, the Fund, pursuant to plans
of distribution, pays the Distributors a reimbursement accrued daily and payable
monthly.
Pursuant to the Class A Plan, the Fund reimburses PMFD for its expenses with
respect to Class A shares at an annual rate of up to .30 of 1% of the average
daily net assets of the Class A shares. Such expenses under the Class A Plan
were .25 of 1% of the average daily net assets of the Class A shares for the six
months ended June 30, 1994. PMFD pays various broker-dealers, including PSI and
Pruco Securities Corporation (``Prusec'') affiliated broker-dealers, for account
servicing fees and other expenses incurred by such broker-dealers.
Pursuant to the Class B Plan, the Fund reimburses PSI for its
distribution-related expenses with respect to Class B shares at an annual rate
of up to 1% of the average daily net assets of the Class B shares.
The Class B distribution expenses include commission credits for payments of
commissions and account servicing fees to financial advisers and an allocation
for overhead and other distribution-related expenses, for interest and/or
carrying charges, the cost of printing and mailing prospectuses to potential
investors and of advertising incurred in connection with the distribution of
shares.
The Distributors recover the distribution expenses and service fees incurred
through the receipt of reimbursement payments from the Fund under the plans and
the receipt of initial sales charges (Class A only) and contingent deferred
sales charges (Class B only) from shareholders.
PMFD has advised the Fund that it has received approximately $970,000 in
front-end sales charges resulting from sales of Class A shares during the six
months ended June 30, 1994. From these fees, PMFD paid such sales charges to
dealers (PSI and Prusec) which in turn paid commissions to salespersons.
With respect to the Class B Plan, at any given time, the amount of expenses
incurred by PSI in distributing the Fund's shares and not recovered through the
imposition of contingent deferred sales charges in connection with certain
redemptions of shares may exceed the total payments made by the Fund pursuant to
the Class B Plan. PSI advised the Fund that for the six months ended June 30,
1994, it received approximately $1,675,000 in contingent deferred sales charges
imposed upon certain redemptions by investors. PSI, as distributor, has also
advised the Fund that at June 30, 1994, the amount of distribution expenses
incurred by PSI and not yet reimbursed by the Fund or recovered through
contingent deferred sales charges approximated $14,931,000. This amount may be
recovered through future payments under the Class B Plan or contingent deferred
sales charges.
In the event of termination or noncontinuation of the Class B Plan, the Fund
would not be contractually obligated to pay PSI, as distributor, for any
expenses not previously reimbursed or recovered through contingent deferred
sales charges.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
Note 3. Other Prudential Mutual Fund Ser-
Transactions vices, Inc. (``PMFS''), a
with Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent and
during the six months ended June 30, 1994, the Fund incurred fees of
approximately $1,371,000 for the services of PMFS. As of June 30, 1994, $241,000
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 non-affiliates.
For the six months ended June 30, 1994, PSI earned approximately $61,600 in
brokerage commissions from portfolio transactions executed on behalf of the
Fund.
Note 4. Portfolio Purchases and sales of invest-
Securities ment securities, other than
short-term investments, for the six months ended
June 30, 1994 aggregated $284,066,277 and $81,390,296, respectively.
The federal income tax basis of the Fund's investments at June 30, 1994 was
substantially the same as for financial reporting purposes and, accordingly, net
unrealized appreciation for federal income tax purposes was $211,209,082 (gross
unrealized appreciation--$374,357,168; gross unrealized
depreciation--$163,148,086).
Note 5. Joint The Fund, along with other
Repurchase affiliated registered invest-
Agreement Account ment 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
-13-
<PAGE>
June 30, 1994, the Fund has a 28.4% undivided interest in the joint account. The
undivided interest for the Fund represents $271,954,000 in the principal amount.
As of such date, each repurchase agreement in the joint account and the
collateral therefor were as follows:
Goldman Sachs & Co., 4.30%, in the principal amount of $300,000,000,
repurchase price $300,035,833, due 7/1/94. The value of the collateral including
accrued interest is $306,000,136.
Merrill Lynch, Pierce, Fenner & Smith, Inc., 4.15%, in the principal amount
of $232,000,000, repurchase price $232,026,744, due 7/1/94. The value of the
collateral including accrued interest is $236,645,037.
Nomura Securities International, Inc., 4.25%, in the
principal amount of $275,000,000, repurchase price $275,032,465, due 7/1/94. The
value of the collateral including accrued interest is $280,500,174.
Smith Barney Shearson, Inc., 4.35%, in the prin-
cipal amount of $150,000,000, repurchase price $150,018,125, due 7/1/94. The
value of the collateral including accrued interest is $153,000,285.
Note 6. Capital The Fund offers both Class A
and Class B shares. Class A shares are sold with a
front-end sales charge of up to 5.25%. 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. Both classes of shares have equal rights as to
earnings, assets and voting privileges except that each class bears different
distribution expenses and has exclusive voting rights with respect to its
distribution plan.
There are 500 million shares of common stock, $.01 par value per share,
dividend into two classes, designated Class A and B common stock, each of which
consists of 250 million authorized shares.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ----------------------------- ---------------- --------------
<S> <C> <C>
Six months ended June 30,
1994:
Shares sold.................. 6,556,104 $ 90,329,094
Shares reacquired............ (5,404,615) (74,510,049)
---------------- --------------
Net increase in shares
outstanding................ 1,151,489 $ 15,819,045
---------------- --------------
---------------- --------------
<CAPTION>
Class A Shares Amount
- ----------------------------- ---------------- --------------
<S> <C> <C>
Year ended December 31, 1993:
Shares sold.................. 10,666,901 $ 142,866,820
Shares issued in reinvestment
of dividends and
distributions.............. 1,024,585 13,957,895
Shares reacquired............ (6,172,832) (83,163,283)
---------------- --------------
Net increase in shares
outstanding................ 5,518,654 $ 73,661,432
---------------- --------------
---------------- --------------
Class B
Six months ended June 30,
1994:
Shares sold.................. 44,268,158 $ 597,912,061
Shares reacquired............ (39,338,946) (528,763,079)
---------------- --------------
Net increase in shares
outstanding................ 4,929,212 $ 69,148,983
---------------- --------------
---------------- --------------
Year ended December 31, 1993:
Shares sold.................. 84,220,134 $1,103,687,189
Shares issued in reinvestment
of dividends and
distributions.............. 7,009,195 93,352,623
Shares reacquired............ (60,836,074) (798,251,422)
---------------- --------------
Net increase in shares
outstanding................ 30,393,255 $ 398,788,390
---------------- --------------
---------------- --------------
</TABLE>
Note 7. Dividends Subsequent to June 30,
and Distributions 1994, the Board of Directors
of the Fund declared dividends from undistributed
net investment income to Class A shareholders of $.115 per share and Class B
shareholders of $.0575 per share and both short-term and long-term capital gains
distributions to Class A and B shareholders of $.06 and $.15 per share
respectively, payable on August 31, 1994 to shareholders of record on August 24,
1994.
Note 8. Subsequent On July 19, 1994, a meeting
Event of the shareholders of the
Fund was held at which time the shareholders
approved, among other things, a) amendments to the Fund's Articles of
Incorporation to permit a conversion feature for Class B shares to Class A
shares after seven years and b) amendments to the Class A and Class B
Distribution Plans, under which the Distribution Plans become compensation
rather than reimbursement plans. These amendments were effective August 1, 1994.
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<PAGE>
PRUDENTIAL EQUITY FUND, INC.
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Class A Class B
--------------------------------------------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
January 22,
Six Months 1990(D) Six Months
Ended Year Ended December 31, through Ended Year Ended December 31,
PER SHARE OPERATING June 30, ----------------------------- December 31, June 30, ----------------------------------
PEFORMANCE: 1994 1993 1992 1991 1990 1994 1993 1992 1991
<CAPTION>
---------- -------- -------- ------- ------------ ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period............ $ 13.80 $ 12.07 $ 11.39 $ 9.84 $ 11.25(D)(D) $ 13.80 $ 12.08 $ 11.40 $ 9.85
---------- -------- -------- ------- ------------ ---------- ---------- ---------- --------
Income from
investment
operations
Net investment
income............ .11 .23 .24 .27 .31 .06 .12 .14 .18
Net realized and
unrealized gain
(loss) on
investment
transactions...... (.43) 2.42 1.30 2.09 (.15)(D)(D) (.42) 2.42 1.30 2.09
---------- -------- -------- ------- ------------ ---------- ---------- ---------- --------
Total from
investment
operations...... (.32) 2.65 1.54 2.36 .16(D)(D) (.36) 2.54 1.44 2.27
---------- -------- -------- ------- ------------ ---------- ---------- ---------- --------
Less distributions
Dividends from net
investment
income............ -- (.22) (.23) (.24) (.35) -- (.12) (.13) (.15)
Distributions from
net
realized capital
gains............. -- (.70) (.63) (.57) (1.22) -- (.70) (.63) (.57)
---------- -------- -------- ------- ------------ ---------- ---------- ---------- --------
Total
distributions... -- (.92) (.86) (.81) (1.57) -- (.82) (.76) (.72)
---------- -------- -------- ------- ------------ ---------- ---------- ---------- --------
Net asset value, end
of period......... $ 13.48 $ 13.80 $ 12.07 $ 11.39 $ 9.84 $ 13.44 $ 13.80 $ 12.08 $ 11.40
---------- -------- -------- ------- ------------ ---------- ---------- ---------- --------
---------- -------- -------- ------- ------------ ---------- ---------- ---------- --------
TOTAL RETURN#:...... (2.32)% 22.14% 13.65% 24.55% (0.29)%(D)(D) (2.61)% 21.13% 12.72% 23.55%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000)...... $ 242,796 $232,535 $136,834 $82,845 $ 30,264 $1,813,734 $1,794,634 $1,203,740 $904,382
Average net assets
(000)............. $ 242,970 $190,778 $111,489 $57,845 $ 27,371 $1,856,396 $1,522,992 $1,042,028 $757,485
Ratios to average
net assets:
Expenses,
including
distribution
fees............ .91%* .91% .94% .97% 1.01%* 1.66%* 1.71% 1.74% 1.77%
Expenses,
excluding
distribution
fees............ .66%* .71% .74% .77% .84%* .66%* .71% .74% .77%
Net investment
income.......... 1.64%* 1.71% 1.91% 2.36% 2.86%* .89%* .91% 1.11% 1.56%
Portfolio
turnover.......... 5% 21% 22% 19% 76% 5% 21% 22% 19%
<CAPTION>
<S> <C> <C>
PER SHARE OPERATING
PEFORMANCE: 1990 1989
-------- --------
<S> <C> <C>
Net asset value,
beginning of
period............ $ 11.83 $ 9.18
-------- --------
Income from
investment
operations
Net investment
income............ .26 .19
Net realized and
unrealized gain
(loss) on
investment
transactions...... (.76) 2.75
-------- --------
Total from
investment
operations...... (.50) 2.94
-------- --------
Less distributions
Dividends from net
investment
income............ (.26) (.20)
Distributions from
net
realized capital
gains............. (1.22) (.09)
-------- --------
Total
distributions... (1.48) (.29)
-------- --------
Net asset value, end
of period......... $ 9.85 $ 11.83
-------- --------
-------- --------
TOTAL RETURN#:...... (4.28)% 32.04%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000)...... $578,213 $629,230
Average net assets
(000)............. $583,016 $567,575
Ratios to average
net assets:
Expenses,
including
distribution
fees............ 1.89% 1.62%
Expenses,
excluding
distribution
fees............ .89% .82%
Net investment
income.......... 2.27% 1.66%
Portfolio
turnover.......... 76% 57%
</TABLE>
- ---------------
* Annualized.
(D) Commencement of offering of Class A Shares.
(D)(D) Restated.
# 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
distributions. Total returns for periods of less than a full year are not
annualized.
See Notes to Financial Statements.
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<PAGE>
