<PAGE>
LETTER TO SHAREHOLDERS
February 10, 1994
Dear Shareholder:
In a year of low interest rates, moderate economic growth and rising
productivity, U.S. corporations turned in another year of solid earnings.
Our consistent emphasis on cyclical stocks helped the Prudential Equity Fund
outperform comparable growth-oriented funds and the broad stock market in
1993.
In fact, the Fund was among the top 10% of growth equity funds for total
return in 1993, according to Lipper Analytical Services, Inc. For the 12
months ended December 31, 1993, Class A shares ranked 30th of 395 funds in
its category, and Class B shares ranked 38th. Our long-term performance is
also good: For the ten years ended December 31, 1993, the Fund's Class B
shares ranked 19th out of 122 funds, or in the top 16%.*
LESSONS LEARNED IN 1993 . . .
It is getting harder to make money in the stock market. Stocks gained 10.1%
as measured by Standard & Poor's 500 Index during the year ended December 31,
1993. So, when inflation rates are taken into account, stocks provided gains
that exceeded the cost of living, in line with historical trends.
Since we anticipate that the stock market will remain in its current range
this year, stock selection will be a more critical determinant of
performance. Last year, our performance was above-average. Some of the
Fund's holdings were stock market winners:
Humana, up 141% (which, we sold in the fall) General Motors, up 73%, and
American Express, up 28%. (See the "Portfolio of Investments" for the number
of shares we owned at year end.) Our largest holding, Digital Equipment
Corp., gained only about 2%, but we continue to believe its recent
restructuring will prove to be more beneficial going forward.
We had some underperformers too: Baxter International lost 10.5%, Loews Corp.
was down 22%, and Comerica declined almost 14%.
Value investing is back in favor. Last year, "value" sectors -- industrials,
technology and finance -- widely outperformed the broad market and outdid
"growth" sectors as well. Your Fund is managed with a value investment style,
meaning we look for stocks with prices that are low in relation to potential
earnings, cash flow and book value. All of the Fund's holdings mentioned
previously fit the criteria for value.
-3-
<PAGE>
*Source: Lipper Analytical Services, Inc. The Lipper rankings do not take
sales charges into consideration, which could affect the Fund's ranking.
Class B shares ranked #10 for the 5-year period of 17 funds. Class A shares
have been available for less than 5 years, and therefore a more complete
Lipper ranking does not yet exist. As always, past performance is not
indicative of future results. Class A shares are subject to a maximum 5.25%
front-end sales load; Class B shares are subject to a 5%, 4%, 3%, 2%, 1%
and 1% contingent deferred sales charge for the first six years. Both Class A
and B shares share a common portfolio.
Going forward, we think more and more investors will be looking for
bargain-priced stocks -- a turn away from more conventional issues.
Just say "no" to drugs and tobacco. In retrospect, the biggest decision
facing managers of stock funds last year was whether or not to own companies
that produces staples like food, beverages and tobacco (consumer non-durables).
This turned out to be the weakest sector of the market, and we made a prudent
decision to underweight it in the Fund. At year end, consumer non-durables
accounted for 28% of the S&P 500, while we held just 10% in our Fund.
Our other sector weightings were determined by our value discipline; we
substantially overweighted technology and consumer cyclical stocks all year
relative to the S&P 500.
(CHART)
. . . AT WORK IN 1994
We think that society is moving away from the conspicuous consumption of the
1980s to belt tightening and "restructuring" in the 1990s. For example, the
stocks that did best last year were not personal products manufacturers but
were producers of industrial goods. Also, corporate downsizing was a big
factor in the economy, as many firms like American Express shed unprofitable
operations. Barring a global economic slowdown, we believe this trend will
present attractive investment opportunities in the foreseeable future.
As always, it is a pleasure to have you as a shareholder in the Prudential
Equity Fund and to take the opportunity to report our activities to you.
Sincerely,
Lawrence C. McQuade
President
Thomas R. Jackson
Portfolio Manager
-4-
<PAGE>
PORTFOLIO Q&A
(PHOTO)
Tom Jackson
Following is an interview with Tom Jackson, Portfolio Manager of the
Prudential Equity Fund.
Q. Why are you so enthusiastic about corporate restructuring?
A. It's gotten harder for investors to make money in the stock market. And at
the same time, it's also become more difficult for companies to make money by
raising prices given today's slow growth, low inflation economy. Drug and
tobacco companies found this out last year as consumers shifted to generics
and as Washington tried to clamp down on both industries. The lack of pricing
power means companies must find alternative ways to maximize returns.
Q. So, lack of pricing power is forcing companies to restructure?
A. Partly. But there's another impetus for change -- shareholder concern.
Increasingly, managements that don't deliver are being held accountable for
their lapses. Last year, we saw it with Kodak, (which was 1.1% of the
portfolio at year end) as its board of directors ousted the CEO in a
boardroom coup. Over the past decade, Kodak steadily lost market share in the
photography industry and saw its stock lag the market. Likewise, there have
been management shake-ups at a number of companies over the past two years
including Digital Equipment Corp., Scott Paper, American Express and ITT to
name a few. We own all these stocks in the Fund. Altogether, I've invested
about 50% of Fund assets in companies that are in the midst of some form of
restructuring.
Q. What do value investing and corporate restructuring have in common?
A. Many of the companies I own have low stock prices precisely because they
have disappointed investors in some way; usually earnings have fallen short of
expectations. By weeding out companies that have structural problems, I try to
pick stocks that have transitory ills, the kind that can be fixed by more
aggressive management. Companies in these categories offer return potential in
three ways: they are undervalued; restructuring may enhance their efficiency;
and many are cyclical companies that may benefit in a growing economy. That's
one tenet of value investing. I'm also willing to wait for results. Patience
is another hallmark of my investment style. Two years ago, if you asked the
average investor if Kodak was a good company, he probably would have turned
up his nose.
-5-
<PAGE>
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
Common Stocks--81.9%
Aerospace/ Defense--4.5%
290,000 E-Systems, Inc............. $ 12,578,750
207,800 Lockheed Corp.............. 14,182,350
870,000 Loral Corp................. 32,842,500
500,000 United Technologies
Corp..................... 31,000,000
--------------
90,603,600
--------------
Automobiles & Trucks--5.2%
500,000 Chrysler Corp.............. 26,625,000
554,800 Ford Motor Co.............. 35,784,600
600,000 General Motors Corp........ 32,925,000
404,800 Navistar International
Corp.*................... 9,563,400
--------------
104,898,000
--------------
Banks & Financial Services--9.9%
1,400,000 American Express Co........ 43,225,000
300,000 BankAmerica Corp........... 13,912,500
600,000 Chase Manhattan Corp....... 20,325,000
600,000 Comerica, Inc.............. 15,975,000
35,600 Dean Witter, Discover &
Co....................... 1,232,650
149,900 Dreyfus Corp............... 6,745,500
177,000 First America Bank Corp.... 6,947,250
300,000 First Interstate Bank
Corp..................... 19,237,500
125,530 Fund American Companies,
Inc.*.................... 9,854,105
1,000,000 Great Western Financial
Corp..................... 20,000,000
256,500 Mercantile Bankshares
Corp..................... 4,905,563
225,000 Republic New York Corp..... 10,518,750
600,000 Salomon, Inc............... 28,575,000
--------------
201,453,818
--------------
Cards & Gift Wrappings--0.8%
750,000 Gibson Greetings, Inc...... 15,843,750
--------------
Chemicals--2.6%
123,800+ Eastman Chemical Co........ 5,880,500
355,500 IMC Fertilizer Group,
Inc...................... 16,130,813
300,000 Monsanto Co................ $ 22,012,500
500,000 Wellman, Inc............... 9,375,000
--------------
53,398,813
--------------
Commercial Services--0.4%
600,000 AAR Corp................... 8,700,000
--------------
Computer Hardware--6.6%
800,000 Amdahl Corp................ 4,800,000
800,000 Comdisco, Inc.............. 15,400,000
2,300,000 Digital Equipment Corp.*... 78,775,000
412,900 Gerber Scientific, Inc..... 5,728,987
150,000 Hewlett-Packard Co......... 11,850,000
300,000 International Business
Machines Corp............ 16,950,000
--------------
133,503,987
--------------
Diversified Consumer Products--5.2%
400,000+ Eastman Kodak Co........... 22,400,000
500,000 ITT Corp................... 45,625,000
300,000 Loews Corp................. 27,900,000
122,400 Premark International,
Inc...................... 9,822,600
--------------
105,747,600
--------------
Drugs & Medical Supplies--2.2%
1,800,000 Baxter International,
Inc...................... 43,875,000
--------------
Electric Power--1.2%
170,000 American Electric Power,
Inc...................... 6,311,250
570,000 General Public Utilities
Corp..................... 17,598,750
--------------
23,910,000
--------------
Electronics--1.8%
300,000 Avnet, Inc................. 11,700,000
300,000 Harris Corp................ 13,650,000
200,000 Varian Associates, Inc..... 12,000,000
--------------
37,350,000
--------------
</TABLE>
-6- See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
Farm & Industrial Machinery--0.5%
150,000 Deere & Co................. $ 11,100,000
--------------
Forest Products--5.1%
400,000 International Paper Co..... 27,100,000
550,000 James River Corp. of
Virginia................. 10,587,500
1,600,000 Scott Paper Co............. 65,800,000
--------------
103,487,500
--------------
Gas Distribution--0.5%
1,300,000 Arkla, Inc................. 10,237,500
--------------
Hospitals--3.9%
649,700 American Medical Holdings,
Inc.*.................... 12,425,512
39,400 Beverly Enterprises,
Inc.*.................... 522,050
747,720 Columbia Healthcare
Corp..................... 24,861,690
266,800 Foundation Health Corp.*... 8,270,800
459,500 Hillhaven Corp. *.......... 8,673,063
1,665,000 National Medical
Enterprises, Inc......... 23,310,000
--------------
78,063,115
--------------
Insurance--7.0%
900,000 Alexander & Alexander
Services................. 17,550,000
18,100 Citizens Corp.............. 355,212
1,500,000 Continental Corp........... 41,437,500
500,000 First Colony Corp.......... 12,687,500
900,828 Old Republic International
Corp..................... 20,381,233
580,000 SAFECO Corp................ 31,900,000
175,000 St. Paul Companies, Inc.... 15,728,125
62,765 White River Corp. *........ 2,165,393
--------------
142,204,963
--------------
Non - Ferrous Metals--2.7%
250,000 Alumax Inc.*............... 5,375,000
300,000 Aluminum Co. of America.... 20,812,500
122,750 Amax, Inc.................. 843,906
1,093,000 Cyprus Minerals Corp....... 28,281,375
--------------
55,312,781
--------------
Oil & Gas Exploration/ Production--7.3%
300,000 Amerada Hess Corp.......... $ 13,537,500
500,000 BJ Services Co.*........... 9,625,000
750,000 British Petroleum PLC, ADR
(United Kingdom)......... 48,000,000
1,100,000 Occidental Petroleum
Corp..................... 18,837,500
400,000 Oryx Energy Co............. 6,900,000
200,000 Royal Dutch Petroleum
Co....................... 20,875,000
700,000 Total SA, ADR (France)..... 18,987,500
504,400 Union Texas Petroleum,
Inc...................... 10,277,150
--------------
147,039,650
--------------
Retail--7.9%
119,700 Dayton Hudson Corp......... 7,989,975
300,000 Dillard Department Stores,
Inc...................... 11,400,000
700,000 Federated Department
Stores, Inc.*............ 14,525,000
470,000 K-Mart Corp................ 9,987,500
500,000 Petrie Stores Corp......... 14,562,500
1,368,300 Tandy Corp................. 67,730,850
1,391,900 U.S. Shoe Corp............. 20,878,500
900,000 Waban, Inc. *.............. 12,262,500
--------------
159,336,825
--------------
Specialty Chemicals--0.2%
22,600 LeaRonal, Inc.............. 355,950
100,000 Witco Corp................. 3,187,500
--------------
3,543,450
--------------
Steel--0.5%
500,000 Bethlehem Steel Corp.*..... 10,187,500
--------------
Telecommunications--4.4%
1,446,500 Sprint Corp................ 50,265,875
1,000,000 Telefonica de Espana, ADR
(Spain).................. 39,000,000
--------------
89,265,875
--------------
</TABLE>
-7- See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
Trucking/Shipping--1.5%
1,000,000 OMI Corp................... $ 6,875,000
550,000 Overseas Shipholding Group,
Inc...................... 12,993,750
555,400 Southern Pacific Rail
Corp.*................... 10,969,150
--------------
30,837,900
--------------
Total common stocks
(cost $1,346,025,042)...... 1,659,901,627
--------------
<CAPTION>
Principal
Amount Short-Term Investments--18.1%
(000) Repurchase Agreement
- ----------
<C> <S> <C>
Joint Repurchase Agreement
Account
$367,097 3.15%, 1/3/94
(cost $367,097,000; Note
5)....................... 367,097,000
--------------
Total Investments--100.0%
(cost $1,713,122,042; Note
4)....................... 2,026,998,627
Other assets in excess of
liabilities................ 170,160
--------------
Net Assets--100%........... $2,027,168,787
--------------
--------------
<FN>
- ---------------
* Non-income producing security.
+ Indicates a when-issued security.
ADR--American Depository Receipt.
</TABLE>
-8- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL EQUITY FUND, INC.
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
December 31,
Assets 1993
--------------
<S> <C>
Investments, at value (cost $1,346,025,042)............................................. $1,659,901,627
Repurchase Agreement (cost $367,097,000)................................................ 367,097,000
Receivable for Fund shares sold......................................................... 8,932,506
Receivable for investments sold......................................................... 3,461,617
Dividends and interest receivable....................................................... 3,191,370
Deferred expenses and other assets...................................................... 29,229
--------------
Total assets........................................................................ 2,042,613,349
--------------
Liabilities
Bank overdraft.......................................................................... 601,581
Payable for Fund shares reacquired...................................................... 6,840,120
Payable for investments purchased....................................................... 5,583,739
Due to Distributors..................................................................... 1,535,623
Due to Manager.......................................................................... 792,503
Accrued expenses........................................................................ 38,571
Withholding taxes payable............................................................... 52,425
--------------
Total liabilities................................................................... 15,444,562
--------------
Net Assets.............................................................................. $2,027,168,787
--------------
--------------
Net assets were comprised of:
Common stock, at par.................................................................. $ 1,469,012
Paid-in capital in excess of par...................................................... 1,638,420,903
--------------
1,639,889,915
Undistributed net investment income................................................... 41,806,826
Accumulated net realized gain on investments.......................................... 31,595,461
Net unrealized appreciation on investments............................................ 313,876,585
--------------
Net assets, December 31, 1993......................................................... $2,027,168,787
--------------
--------------
Class A:
Net asset value and redemption price per share ($232,534,586 (div) 16,854,273 shares
of common stock issued and outstanding)............................................. $13.80
Maximum sales charge (5.25% of offering price)........................................ .76
--------------
Maximum offering price to public...................................................... $14.56
--------------
--------------
Class B:
Net asset value, offering and redemption price per share ($1,794,634,201 (div)
130,046,894 shares of common stock issued and outstanding).......................... $13.80
--------------
--------------
</TABLE>
See Notes to Financial Statements.
-9-
<PAGE>
PRUDENTIAL EQUITY FUND, INC.
Statement of Operations
<TABLE>
<CAPTION>
Year Ended
December 31,
Net Investment Income 1993
------------
<S> <C>
Income
Dividends (net of foreign
withholding taxes of $479,392).... $ 35,991,011
Interest............................ 9,093,326
------------
Total income...................... 45,084,337
------------
Expenses
Distribution fee--Class A........... 381,556
Distribution fee--Class B........... 15,229,923
Management fee...................... 8,086,967
Transfer agent's fees and
expenses............................ 2,455,000
Reports to shareholders............. 786,000
Custodian's fees and expenses....... 285,000
Registration fees................... 249,000
Franchise taxes..................... 202,000
Audit fee........................... 45,000
Directors' fees..................... 45,000
Insurance expense................... 42,000
Legal fees.......................... 25,000
Miscellaneous....................... 13,017
------------
Total expenses.................... 27,845,463
------------
Net investment income................. 17,238,874
------------
Realized and Unrealized
Gain on Investments
Net realized gain on investment
transactions........................ 116,747,891
Net change in unrealized appreciation
of investments...................... 183,732,635
------------
Net gain on investments............... 300,480,526
------------
Net Increase in Net Assets
Resulting from Operations............. $317,719,400
------------
------------
</TABLE>
PRUDENTIAL EQUITY FUND, INC.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
Increase in Net Assets 1993 1992
-------------- --------------
<S> <C> <C>
Operations
Net investment
income.............. $ 17,238,874 $ 13,719,123
Net realized gain on
investment
transactions...... 116,747,891 73,529,360
Net change in
unrealized
appreciation of
investments....... 183,732,635 51,173,102
-------------- --------------
Net increase in net
assets resulting
from operations... 317,719,400 138,421,585
-------------- --------------
Net equalization
credits............. 10,311,865 6,843,469
-------------- --------------
Dividends and
distributions (Note
1)
Dividends to
shareholders from
net investment
income
Class A........... (3,388,881) (2,284,357)
Class B........... (13,831,847) (11,637,458)
-------------- --------------
(17,220,728) (13,921,815)
-------------- --------------
Distributions to
shareholders from
net realized gains
on investment
transactions
Class A........... (11,075,863) (6,510,083)
Class B........... (85,590,180) (57,843,200)
-------------- --------------
(96,666,043) (64,353,283)
-------------- --------------
Fund share
transactions
(Note 6)
Proceeds from shares
subscribed........ 1,246,554,009 838,574,064
Net asset value of
shares issued in
reinvestment of
dividends and
distributions..... 107,310,518 73,350,581
Cost of shares
reacquired........ (881,414,705) (625,567,145)
-------------- --------------
Net increase in net
assets from Fund
share
transactions...... 472,449,822 286,357,500
-------------- --------------
Total increase........ 686,594,316 353,347,456
Net Assets
Beginning of year..... 1,340,574,471 987,227,015
-------------- --------------
End of year........... $2,027,168,787 $1,340,574,471
-------------- --------------
-------------- --------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
-10-
<PAGE>
PRUDENTIAL EQUITY FUND, INC.
Notes to Financial Statements
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 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.
Reclassification of Capital Accounts: Effective January 1, 1993, the Fund began
accounting and reporting for distributions to shareholders in accordance with
Statement of Position 93-2: Determination, Disclosure, and Financial Statement
Presentation of Income, Capital Gain, and Return of Capital Distributions by
Investment Companies. As a result of this statement, the Fund changed the
classification of distributions to shareholders to better disclose the
differences between financial statement amounts and distributions determined in
accordance with income tax regulations. The effect caused by adopting this
statement was to decrease paid-in capital by $770,938, increase undistributed
net investment income by $629,827 and increase accumulated net realized gains on
investments by $141,111 compared to amounts previously reported through December
31, 1992. Net investment income, net realized gains and net assets were not
affected by this change.
Note 2. Agreements The Fund has a management
agreement with Prudential Mutual Fund Management,
Inc. (``PMF''). Pursuant to this
-11-
<PAGE>
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.
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 .20 of 1% of the average daily net assets of the Class A shares for the
year ended December 31, 1993. 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 $2,373,000 in
front-end sales charges resulting from sales of Class A shares during the year
ended December 31, 1993. 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 year ended December 31,
1993, it received approximately $1,957,000 in contingent deferred sales charges
imposed upon certain redemptions by investors. PSI, as distributor, has also
advised the Fund that at December 31, 1993, the amount of distribution expenses
incurred by PSI and not yet reimbursed by the Fund or recovered through
contingent deferred sales charges approximated $16,074,000. 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.
SerNote 3. Other Prudential Mutual Fund
Transactions vices, Inc. (``PMFS''), a
with Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent and
during the year ended December 31, 1993, the Fund incurred fees of approximately
$2,177,000 for the services of PMFS. As of December 31, 1993, $198,000 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 year ended December 31, 1993, PSI earned approximately $351,200 in
brokerage commissions from portfolio transactions executed on behalf of the
Fund.
investNote 4. Portfolio Purchases and sales of
Securities ment securities, other than
short-term investments, for
-12-
<PAGE>
the year ended December 31, 1993 aggregated $488,102,364 and $304,396,823,
respectively.
The federal income tax basis of the Fund's investments at December 31, 1993
was $1,713,122,042 and, accordingly, net unrealized appreciation for federal
income tax purposes was $313,876,585 (gross unrealized appreciation--
$389,901,278; gross unrealized depreciation-- $76,024,693).
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 December 31, 1993, the Fund has a 30.67% undivided interest
in the joint account. The undivided interest for the Fund represents
$367,097,000 in the principal amount. As of such date, each repurchase agreement
in the joint account and the collateral therefor were as follows:
Bear, Stearns & Co., 3.18%, in the principal amount of $323,000,000,
repurchase price $323,085,595, due 1/3/94; collateralized by $200,000,000 U.S.
Treasury Notes, 3.875%, due 3/31/95, $5,745,000 U.S. Treasury Notes, 4.25% due,
7/31/95, $85,000 U.S. Treasury Notes, 7.375%, due 5/15/96, $30,000,000 U.S.
Treasury Notes, 5.625%, due 1/31/98 and $80,030,000 U.S.Treasury Notes, 7.50%,
due 11/15/01; approximate aggregate value including accrued
interest--$329,564,341.
Kidder, Peabody & Co. Inc., 3.20%, in the principal amount of $375,000,000,
repurchase price $375,100,000, due 1/3/94; collateralized by $200,000,000 U.S.
Treasury Bond, 11.625%, due 11/15/04, $38,000,000 U.S. Treasury Bonds, 12.75%,
due 11/15/10, $11,730,000 U.S. Treasury Notes, due 11/15/96, $90,000 U.S.
Treasury Bonds, 9.00%, due 2/15/94 and $15,000,000 U.S. Treasury Notes, 7.375%,
due 5/15/96; approximate aggregate value including accrued
interest--$382,608,562.
Goldman, Sachs & Co., 3.10%, in the principal amount of $399,000,000,
repurchase price $399,103,075, due 1/3/94; collateralized by $363,720,000 U.S.
Treasury Bonds, 7.50%, due 11/15/16; approximate value including accrued
interest--$408,104,889.
Barclays de Zoete Wedd, Inc., 3.10%, in the principal amount of $100,000,000,
repurchase price $100,025,833, due 1/3/94; collateralized by $32,000,000 U.S.
Treasury Notes, 7.50%, due 11/15/01, $7,305,000 U.S. Treasury Notes, 8.50%, due
2/15/00 and $49,000,000 U.S. Treasury Notes, 8.875%, due 11/15/98; approximate
aggregate value including accrued interest--$102,043,014.
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>
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
---------------- ---------------
---------------- ---------------
Year ended December 31, 1992:
Shares sold.................. 11,944,562 $ 145,512,175
Shares issued in reinvestment
of dividends and
distributions.............. 721,030 8,603,423
Shares reacquired............ (8,604,764) (105,650,276)
---------------- ---------------
Net increase in shares
outstanding................ 4,060,828 $ 48,465,322
---------------- ---------------
---------------- ---------------
</TABLE>
-13-
<PAGE>
<TABLE>
<CAPTION>
Class B Shares Amount
---------------- ---------------
<S> <C> <C>
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
---------------- ---------------
---------------- ---------------
<CAPTION>
Class B Shares Amount
---------------- ---------------
<S> <C> <C>
Year ended December 31, 1992:
Shares sold.................. 59,164,132 $ 693,061,889
Shares issued in reinvestment
of dividends and
distributions.............. 5,566,480 64,747,158
Shares reacquired............ (44,433,983) (519,916,869)
---------------- ---------------
Net increase in shares
outstanding................ 20,296,629 $ 237,892,178
---------------- ---------------
---------------- ---------------
</TABLE>
-14-
<PAGE>
PRUDENTIAL EQUITY FUND, INC.
Financial Highlights
<TABLE>
<CAPTION>
Class A Class B
----------------------------------------- --------------------------------------------------------
January
22,
1990(dag)
through
Year Ended December 31, December Year Ended December 31,
PER SHARE OPERATING ----------------------------- 31, --------------------------------------------------------
PEFORMANCE: 1993 1992 1991 1990 1993 1992 1991 1990 1989
<CAPTION>
-------- -------- ------- --------- ---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period............... $ 12.07 $ 11.39 $ 9.84 $ 11.46 $ 12.08 $ 11.40 $ 9.85 $ 11.83 $ 9.18
-------- -------- ------- --------- ---------- ---------- -------- -------- --------
Income from investment
operations
Net investment income..... .23 .24 .27 .31 .12 .14 .18 .26 .19
Net realized and
unrealized gain (loss)
on
investment
transactions............ 2.42 1.30 2.09 (.36) 2.42 1.30 2.09 (.76) 2.75
-------- -------- ------- --------- ---------- ---------- -------- -------- --------
Total from investment
operations............ 2.65 1.54 2.36 (.05) 2.54 1.44 2.27 (.50) 2.94
-------- -------- ------- --------- ---------- ---------- -------- -------- --------
Less distributions
Dividends from net
investment income....... (.22) (.23) (.24) (.35) (.12) (.13) (.15) (.26) (.20)
Distributions from net
realized capital
gains................... (.70) (.63) (.57) (1.22) (.70) (.63) (.57) (1.22) (.09)
-------- -------- ------- --------- ---------- ---------- -------- -------- --------
Total distributions..... (.92) (.86) (.81) (1.57) (.82) (.76) (.72) (1.48) (.29)
-------- -------- ------- --------- ---------- ---------- -------- -------- --------
Net asset value, end of
period.................. $ 13.80 $ 12.07 $ 11.39 $ 9.84 $ 13.80 $ 12.08 $ 11.40 $ 9.85 $ 11.83
-------- -------- ------- --------- ---------- ---------- -------- -------- --------
-------- -------- ------- --------- ---------- ---------- -------- -------- --------
TOTAL RETURN#:............ 22.14% 13.65% 24.55% (0.47)% 21.13% 12.72% 23.55% (4.28)% 32.04%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)................... $232,535 $136,834 $82,845 $ 30,264 $1,794,634 $1,203,740 $904,382 $578,213 $629,230
Average net assets
(000)................... $190,778 $111,489 $57,845 $ 27,371 $1,522,992 $1,042,028 $757,485 $583,016 $567,575
Ratios to average net
assets:
Expenses, including
distribution fees..... .91% .94% .97% 1.01%* 1.71% 1.74% 1.77% 1.89% 1.62%
Expenses, excluding
distribution fees..... .71% .74% .77% .84%* .71% .74% .77% .89% .82%
Net investment income... 1.71% 1.91% 2.36% 2.86%* .91% 1.11% 1.56% 2.27% 1.66%
Portfolio turnover........ 21% 22% 19% 76% 21% 22% 19% 76% 57%
<FN>
- ---------------
* Annualized.
(dag) Commencement of offering of Class A Shares.
# Total return does not consider the effects of sales loads. Total return is calculated assuming a purchase of shares in
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.
</TABLE>
See Notes to Financial Statements.
-15-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Prudential Equity Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Equity Fund, Inc. (the
``Fund'') at December 31, 1993, and the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
``financial statements'') are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1993 by correspondence with the custodian and brokers, and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE
1177 Avenue of the Americas
New York, New York
February 9, 1994
TAX INFORMATION
We are required by the Internal Revenue Code to advise you within 60 days of
the Fund's fiscal year end (December 31, 1993) as to the federal tax status of
dividends paid by the Fund during such fiscal year. Accordingly, we are advising
you that in 1993 the Fund paid distributions for Class A shares totalling $.92
per share, comprised of $.325 net investment income and short-term capital gains
which are taxable as ordinary income and $.595 long-term capital gains. The Fund
paid distributions for Class B shares totalling $.815 per share, comprised of
$.22 net investment income and short-term capital gains which are taxable as
ordinary income and $.595 long-term capital gains. Further, we wish to advise
you that 84.1% of the ordinary income dividends paid in 1993 qualified for the
corporate dividends received deduction available to corporate taxpayers.
-16-
<PAGE>
Past performance is no guarantee of future performance and an investor's
shares, may be worth more or less than their original cost.
These graphs are furnished to you in accordance with SEC regulations. They
compare a $10,000 investment in Prudential Equity Fund (Class A and Class B)
with a similar investment in the Standard & Poor's 500 Index (S&P 500) by
portraying the initial account values on January 22, 1990 for Class A shares and
January 1, 1984 for Class B shares and subsequent account values at the end of
each fiscal year (December 31), as measured on a quarterly basis, beginning in
1990 for Class A shares and in 1984 for Class B shares. For purposes of the
graphs and, unless otherwise indicated, the accompanying tables, it has been
assumed that (a) the maximum sales charge was deducted from the initial $10,000
investment in Class A shares; (b) the maximum applicable contingent deferred
sales charge was deducted from the value of the investment in Class B shares
assuming full redemption on December 31, 1993; (c) all recurring fees (including
management fees) were deducted; and (d) all dividends and distributions were
reinvested.
The S&P 500 is a capital-weighted index, representing the aggregate market
value of the common equity of 500 stocks primarily traded on the New York Stock
Exchange. The S&P 500 is an unmanaged index and includes the reinvestment of all
dividends, but does not reflect the payment of transaction costs and advisory
fees associated with an investment in the Fund. The securities which comprise
the S&P 500 may differ substantially from the securities in the Fund's
portfolio. The S&P 500 is not the only index which may be used to characterize
performance of equity funds and other indexes may portray different comparative
performance.
-17-
<PAGE>
Directors
Edward D. Beach
Eugene C. Dorsey
Delayne D. Gold
Harry A. Jacobs, Jr.
Lawrence C. McQuade
Thomas T. Mooney
Thomas H. O'Brien
Nancy H. Teeters
Officers
Lawrence C. McQuade, President
David W. Drasnin, Vice President
Robert F. Gunia, Vice President
Susan C. Cote, Treasurer
S. Jane Rose, Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributors
Prudential Mutual Fund Distributors, Inc.
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Price Waterhouse
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
One Seaport Plaza
New York, NY 10292
Toll free (800) 225-1852
Collect (908) 417-7555
This report is not authorized for distribution to prospective investors
unless preceded or accompanied by a current prospectus.
744316100 MF101E
744316209 Cat. #4331473
Prudential
Equity Fund, Inc.
- ------------------------------------------------
Prudential Mutual Funds
BUILDING YOUR FUTURE
(LOGO)
ON OUR STRENGTH
<PAGE>
Chart entitled Prudential Mutual Funds: Risk/Reward Spectrum.
The chart shows a graphic representation of the spectrum of risks of various
categories of Prudential Mutual Funds including stock funds, tax-exempt bond
funds, taxable bond funds and global taxable bond funds. The chart rates the
risk of individual Prudential Mutual Funds relative to other Prudential Mutual
Funds in each category.
Under the category of stock funds, the chart lists from low risk to high risk
the following funds (beginning at the low end of the spectrum):
FlexiFund (The Conservatively Managed Portfolio)
IncomeVertible Fund
FlexiFund (The Strategy Portfolio)
Equity Income Fund
Utility Fund
Global Utility Fund
Equity Fund
Growth Fund
Global Fund
Nicholas-Applegate Growth Equity Fund
Growth Opportunity Fund
Multi-Sector Fund
Global Natural Resources Fund
Global Genesis Fund
Pacific Growth Fund
Under the category of tax-exempt bond funds, the chart lists from low risk to
high risk the following funds (beginning at the low end of the spectrum):
Municipal Bond Fund (Modified Term Series)
Municipal Bond Fund (Insured Series)
National Municipals Fund
Municipal Series Fund (State Series Fund)
California Municipal Fund (California Income Series)
Municipal Bond Fund (High Yield Series)
Under the category of taxable bond funds, the chart lists from low risk to high
risk the following funds (beginning at the low end of the spectrum):
Adjustable Rate Securities Fund
The BlackRock Government Income Fund
Structured Maturity Fund (Income Portfolio)
Government Securities Trust (Intermediate Term Series)
<PAGE>
GNMA Fund
Government Plus Fund
U.S. Government Fund
High Yield Fund
Under the category of global taxable bond funds, the chart lists from low risk
to high risk the following funds (beginning at the low end of the spectrum):
Short-Term Global Income Fund (Global Assets Portfolio)
Short-Term Global Income Fund (Short-Term Global Income Portfolio)
Intermediate Global Income Fund
<PAGE>
PERFORMANCE CHARTS
A. Historical Investment Results
The chart shows comparative historical investment results for the one-year,
five-year and since inception periods ended December 31, 1993 for the Class A
shares of the Fund, the Class B shares of the Fund and the Lipper Growth Fund
Average, without taking into account front-end or contingent deferred sales
charges.
B. Average Annual Total Returns
The chart also shows the average annual total returns for the one-year, five-
year and since inception periods ended December 31, 1993 for Class A and Class B
shares taking into account any applicable sales charges.
<PAGE>
MOUNTAIN CHARTS
Two mountain charts show the growth of an assumed investment of $10,000 in
Prudential Equity Fund. The charts represent historical performance and are not
a guarantee of future performance of Class A shares or Class B shares.
A. Class A shares
The chart shows the growth of a $10,000 investment in Class A shares from
inception on January 31, 1993 through December 31, 1993, and assumes a front-end
sales charge of 5.25%. The chart shows the value of the investment as of
December 31, 1993 (i) with the reinvestment of dividends and distributions in
additional shares of the Fund and (ii) with all dividends and distributions
taken in cash.
B. Class B shares
The chart shows the growth of a $10,000 investment in Class B shares from
inception on March 15, 1982 through December 31 1993, and does not assume the
effect of a contingent deferred sales charge on redemptions. The chart shows the
value of the investment as of December 31, 1993 (i) with the reinvestment of
dividends and distributions in additional shares of the Fund and (ii) with all
dividends and distributions taken in cash.
<PAGE>
SEC REQUIRED CHARTS
The following two charts compare a $10,000 investment in Class A shares and
Class B shares, with a similar investment in the Standard & Poor's 500 Index.
Included in the charts are the average annual total returns for each Class for
the one-year, five-year and since inception periods with and without sales
charges.
