PRUDENTIAL EQUITY FUND, N-30D, 1997-03-10

PRUDENTIAL EQUITY FUND
N-30D, 1997-03-10

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(ICON)

Prudential
Equity
Fund, Inc.

ANNUAL
REPORT
Dec. 31, 1996
(LOGO)

<PAGE>
Prudential Equity Fund, Inc.

Performance At A Glance.
1996 was an extraordinary time for the U.S. stock market. In fact, stocks have
just concluded one of their best two-year performances in history, with back-
to-back, 20%-plus returns in both 1995 and 1996, as measured by the S&P 500.
Your Fund also performed quite well, and has now completed the two best years
in its history, returning a total of nearly 48%. Unfortunately, in 1996, your
Fund performed slightly below the average equity fund. We couldn't find enough
inexpensive stocks to buy in 1996, leading us to hold a significant portion of
assets in cash. In a stock market that rose as much as it did in 1996, that
was a formula for underperformance. Still, if we are to underperform, we
believe it is better to do so by taking too little risk than too much.

<TABLE>
Cumulative Total Returns1 As of 12/31/96
<CAPTION>
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A 17.9% 120.6% N/A 178.5%
Class B 17.1 112.1 282.2 876.4
Class C 17.1 N/A N/A 52.9
Class Z N/A N/A N/A 13.6
Lipper Growth Fund Avg3 19.2 87.1 266.9 **
</TABLE>

<TABLE>
Average Annual Total Returns1 As of 12/31/96
<CAPTION>
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A 12.1% 15.9% N/A 15.1%
Class B 12.1 16.1 14.4 16.7
Class C 16.1 N/A N/A 19.2
</TABLE>

Past performance is not indicative of future results. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost.

1Source: Prudential Mutual Fund Management and Lipper Analytical Services.
Cumulative total returns do not take into account sales charges. Average
annual total returns do take into account applicable sales charges. The Fund
charges a maximum front end sales load 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 C shares have a 1% CDSC for
one year, Class B shares will automatically convert to Class A shares on a
quarterly basis, after approximately seven years. Class Z shares are not
subject to a sales charge or a distribution fee. Since Class Z shares have
been in existence for less than one year, no average annual total returns are
shown.

2Inception dates: 1/22/90 Class A; 3/15/82 Class B; 8/1/94 Class C; 3/1/96
Class Z.

3These are the average returns of: 669 funds for one year; 255 funds for five
years and 163 funds for 10 years as determined by Lipper Analytical Services,
Inc.

** The Lipper Since Inception category return for Class A shares is 158.9%,
which includes 206 funds; for Class B is 764.8% for 113 funds and for Class C
is 58.5% for 495 funds. Class Z share returns are not available. Lipper
provides data on a monthly basis, so for comparative purposes, these return
reflect the Fund's first full calendar month of performance.

How Investments Compared.
(As of 12/31/96)
(CHART)

U.S. General General U.S.
Growth Bond Muni Debt Taxable
Funds Funds Funds Money Funds

Source: Lipper Analytical Services. Financial markets change, so a mutual
fund's past performance should never be used to predict future results. The
risks to each of the investments listed above are different -- we provide 12-
month total returns for several Lipper mutual fund categories to show you that
reaching for higher yields means tolerating more risk. The greater the risk,
the larger the potential reward or loss. In addition, we've included historical
20-year average annual returns. These returns assume the reinvestment of
dividends.

U.S. Growth Funds will fluctuate a great deal. Investors have received higher
historical total returns from stocks than from most other investments. Smaller
capitalization stocks offer greater potential for long-term growth but may be
more volatile than larger capitalization stocks.

General Bond Funds provide more income than stock funds, which can help smooth
out their total returns year by year. But their prices still fluctuate
(sometimes significantly) and their returns have been historically lower than
those of stock funds.

General Municipal Debt Funds invest in bonds issued by state governments,
state agencies and/or municipalities. This investment provides income that is
usually exempt from federal and state income taxes.

Money Market Funds attempt to preserve a constant share value; they don't
fluctuate much in price but, historically, their returns have been generally
among the lowest of the major investment categories.

<PAGE>
Thomas R. Jackson, Fund Manager
(PHOTO)
Portfolio
Manager's Report

The Prudential Equity Fund invests in stocks of major, established companies,
primarily in the United States. The Fund looks for bargains in the current
market, using a strict value investment style. We look for stocks whose prices
seem too low given their underlying earnings, sales, cash flow or book value.
There can be no assurance that the Fund's investment objective will be achieved.

A Reality Check.
We're quite pleased with the extraordinary returns that stocks have provided
in the last two years -- the best in 20 years. But just because the Yankees
won the World Series in 1996, it certainly doesn't mean that they'll do it
again in 1997. While we would like this tremendous performance to be repeated
year after year, we know that it cannot continue indefinitely. It's simply the
law of averages.

Strategy Session.

A Time To Remember.
Remember gas lines and bellbottoms? That's what was happening during the last
two-year period in which U.S. stocks soared 60%, their best performance since
1975-76, as measured by the S&P 500.

It's always wonderful when stock prices rise, but frankly, the way they rose
did make us somewhat apprehensive. With so many stocks all rising at the same
time, and by so much, we wondered if some investors weren't paying more than
they should for their stocks.

We Like Low Prices.
We follow a "value" investment approach, buying stocks at bargain levels -- as
measured by the company's potential earnings, cash, and the value of its
assets. In 1996's market, we didn't find many stocks that met our rigorous
criteria. We did take advantage of a market downturn over the summer, primarily
by adding to existing investments in paper and forest products stocks. But that
was our only significant opportunity to buy this year. Rather than deviate from
our disciplined value investment style, which has served the Fund well over the
years, we kept those assets in cash (24% as of December 31, 1996).

As a result, the Fund looks largely the same as it did a year ago. Our largest
investments are in financial services stocks, since we remain convinced that
financial assets are the assets of choice in the 1990s. We primarily hold
insurance companies (11% of assets) and other financial services companies
such as credit card companies and brokerage houses (9% of assets). In addition,
we have major holdings in paper and forest products (8%), retail (8%) and autos
(5%). We bought our paper stocks at recession-level valuations compared to the
market, expecting that the decline in the price of paper products is bottoming.

One new stock we did buy toward year end was AT&T. It was very inexpensive and
yields nearly 4%. We suspect its new management will help this powerful
franchise regain its footing in the growing telecommunications industry.

Portfolio Breakdown.
Expressed as a percentage of
total investments as of 12/31/96.
(PIE CHART)

<PAGE>

What Went Well.

Fabulous Finance.
We held two and a half times as many assets in financial stocks as the market
in general, and we're glad we did, because this was the second-best performing
sector in the stock market in 1996, returning 35%.

Over the last two years, financial stocks have led the stock market's historic
advance, driven in large part by mergers and acquisitions. The U.S. is
overbanked and overinsured by any measure. That means there are huge cost
savings to be made by mergers and acquisitions -- expenses can often be cut by
50% or more. Adding to the attraction is the fact that the economic and
regulatory environment today encourages mergers. We benefited when General
Electric acquired First Colony Life Insurance Co., and when Chase Manhattan
Corp. merged with Chemical.

Another interesting and potentially profitable development in financial
services today is the blurring line between banking and stock brokerages. For
example, the Federal Reserve in early 1997 proposed rules to make it easier
for banks to sell and underwrite securities. We believe this increases the
value of the brokerage companies we own, because it makes them more attractive
takeover candidates for large banks.

And Not So Well.

Too Little Risk.
We held about a fourth of our assets in cash for much of the year, so our
performance suffered. That's because during the year cash returned about 5%
while the stock market in general returned 23%. While the cash dampened our
return, we believe that it's better to underperform by taking too little risk
than too much.

We've held substantial amounts of cash before -- in early 1990 and in 1994.
Both times, the market declined enough to give us an opportunity to put that
cash to work. In fact, it was in 1994 that we bought many of the financial
services stocks that are now the largest segment of the Fund, and some of our
best performers.

We expect we'll have another opportunity to put the cash back to work soon.

Digital Was Down.
One of the most frustrating stocks we own is Digital Equipment, the computer
maker, which has been a top 10 holding in the Fund for years. Currently, it
comprises approximately 2% of total net assets. Digital is a company in a
turnaround situation that is taking longer, and proving more difficult, than
we anticipated. If the company is successful, we believe its stock has
substantial room to rise.

Looking Ahead.
The stock market rose by 23% in 1996, nearly twice the long-term average of
10.7%. We've just finished the two best years back to back in the last 20
years. So where do we go from here?

We encourage you to have considerably more modest expectations for the year
ahead. Yes, sometimes it seems that economic conditions could not be better
for stocks -- economic growth is moderate, inflation is modest, and corporate
profits have been rising. But we doubt that this will continue indefinitely.
We do know that lightning can strike twice, but three times? We're glad the
New York Yankees won the World Series in 1996, but can we expect them to do it
again this year? History suggests otherwise.

We suspect that this year will provide us an opportunity to put some of our
cash to work.

Five Largest
Holdings.
2.9% Loews
Diversified Consumer
Products
2.6 Chrysler
Autos & Trucks
2.5 American Express
Banks & Financial Svcs.
2.4 Chubb
Insurance
2.2 Elf Acquitaine
Oil & Gas

Expressed as a percentage of total net assets as of 12/31/96.
- -------------------------------------------------------------------------------
1

<PAGE>
A Conversation with Portfolio Manager Tom Jackson.

It's Time To Temper Expectations.

Q. Tom, the Equity Fund has just returned more than 47% over the last two
years -- the Fund's best performance ever. What's next?

A. I think now is the time to temper our expectations. Since 1926, the stock
market on average has returned 10.7%. Stocks in general have just completed
their two best years in 20 years.

Q. What could possibly slow the market down? Economic growth is moderate,
inflation is tame and corporate profits are rising.

A. This, too, shall pass, but it's virtually impossible to say how or when. Of
course, I said this last year, too, after the market was up 37%. I said it
wouldn't happen again. I was half right. The market went up "only" 23%.

Q. So what is a value investor to do? You only buy stocks when they are
inexpensive.

A. This is not a value investor's dream. Most of the undervalued stocks have
been discovered by now. We're in the sixth year of a bull market. There are
not a lot of extraordinarily cheap stocks to be found. As the economic
expansion has aged, growth in profits is taking place in a narrowing group of
companies -- predominately non-cyclical growth companies. As a result, a
relatively narrow group of ever more expensive growth companies has been
leading the market higher.

Q. You held about a quarter of the Fund's assets in cash in 1996. Will you
continue to do so?

A. I will keep looking for stocks priced low enough to compensate for the risk
that makes them cheap -- I just haven't found them yet. This has happened to
me before -- both in 1990 and in 1994. In 1994, I put a lot of cash to work
buying the financial stocks that have led the market now for the last two
years. So I expect I will have a chance to put the cash to work again.

Annual Performance of Class B Shares
(CHART)

1995 and 1996 were both exceptional years for the stock market and for the
Prudential Equity Fund. But not all years are alike. Past performance is not
indicative of future results. For average annual returns on a one-, five- and
10-year basis, please return to the first page of this letter entitled
"Performance at a Glance."
- -------------------------------------------------------------------------------
2

President's Letter February 3, 1997
(PHOTO)

Dear Shareholder:
For many investors, 1996 was the second year of back-to-back, double-digit
stock market returns. In late November, the Dow Jones Industrial Average
passed 6500 -- only weeks after breaking the 6000 mark in mid-October -- and
another record high was reached in January 1997. America's economic expansion
is entering its sixth year and there seems little evidence of an end to the
continued modest growth and low inflation we've enjoyed for the last several
years.

This is good news. For most investors it's meant an increase in their share
values for college funds, retirement nest eggs or other long-term financial
goals. However, as you read your year-end account statements and make plans
for 1997, it's important to remember that there never is a "sure thing" when
it comes to investment returns. Stock and bond markets go down just as they go
up. (Did you notice the brief period of decline this past summer?) No one
likes to see the value of their investments fall but such periods remind us we
must keep our expectations realistic.

Regardless of the market's direction, a wise investor plans for tomorrow's
needs today. Your Financial Advisor or Registered Representative can help you:

- - Review your portfolio and suggest strategies for 1997, such as diversifying
across different types of investments. Financial markets seldom move in
lockstep. By investing in a mix of stock and bond funds (foreign & domestic)
and money market funds you may be in a better position to achieve your long-
term goals and to weather periods of uncertainty.

- - See why annuities have become popular retirement planning tools. The choices
are broader than ever. Our new Discovery SelectSM Variable Annuity offers
you many of the keys to successful retirement planning, including a
personalized asset allocation program and a choice of 21 variable- or fixed-
rate investment options offering a broad array of investment objectives and
styles.

- - Explain new retirement savings developments. For example, Congress has
expanded the contribution limit on spousal IRAs. And don't forget, it's not
too late for you to make a contribution to your IRA or open one for 1996.
The IRS deadline is April 15, 1997, but it's best to act sooner.

Why not contact your Financial Advisor or Registered Representative today? If
you are interested in Discovery SelectSM call for a prospectus, which contains
more complete information. Read it carefully before you invest.

Sincerely,

Brian M. Storms
President, Prudential Mutual Funds & Annuities

P.S. Your 1997 Prudential IRA contribution may qualify you for a waiver of the
annual custodial fee. Ask your financial representative for details.
- -------------------------------------------------------------------------------
3

<PAGE>
Portfolio of Investments as of PRUDENTIAL EQUITY
December 31, 1996 FUND, INC.
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
Forest Products (cont'd.)
342,900 Kimberly-Clark Corp. $ 32,661,225
750,000 Mead Corp. 43,593,750
125,000 Rayonier Inc. 4,796,875
750,000 Temple-Inland Inc. 40,593,750
1,177,000 Weyerhaeuser Co. 55,760,375
1,100,000 Willamette Industries, Inc. 76,862,500
--------------
378,537,225
- ------------------------------------------------------------
Hospitals--3.1%
1,280,800 Foundation Health Corp. (a) 40,665,400
2,937,874 Tenet Healthcare Corp. (a) 64,265,994
749,900 Wellpoint Health Networks Inc. (a) 25,777,812
--------------
130,709,206
- ------------------------------------------------------------
Insurance--11.1%
1,000,000 Alexander & Alexander Services,
Inc. 17,375,000
303,800 American Financial Group Inc. 11,468,450
800,000 American General Corp. 32,700,000
1,891,600 Chubb Corp. 101,673,500
700,000 Citizens Corp. 15,750,000
1,700,242 Old Republic International Corp. 45,481,473
255,500 Providian Corp. 13,126,313
1,400,000 SAFECO Corp. 55,212,500
716,900 St. Paul Companies, Inc. 42,028,262
1,500,000 The Equitable Companies, Inc. 36,937,500
1,600,000 Travelers Corp. 72,600,000
1,461,900 Western National Corp. 28,141,575
--------------
472,494,573
- ------------------------------------------------------------
Metals-Non Ferrous--1.6%
600,000 Aluminum Company of America 38,250,000
122,750 AMAX Gold Inc. (a) 782,531
1,293,000 Cyprus Minerals Co. 30,223,875
--------------
69,256,406
- ------------------------------------------------------------
Oil & Gas Exploration/Production--6.2%
300,000 Amerada Hess Corp. 17,362,500
350,000 Atlantic Richfield Co. 46,375,000
1,100,000 Occidental Petroleum Corp. 25,712,500
1,500,000 Oryx Energy Co. (a) $ 37,125,000
2,098,596 Societe Nationale Elf Aquitaine,
ADR (France) 94,961,469
738,365 Total SA, ADR (France) 29,719,191
504,400 Union Texas Petroleum Holdings,
Inc. 11,285,950
--------------
262,541,610
- ------------------------------------------------------------
Restaurants--0.4%
2,000,000 Darden Restaurants Inc. 17,500,000
- ------------------------------------------------------------
Retail--5.9%
359,100 Dayton-Hudson Corp. 14,094,675
2,100,000 Dillard Department Stores, Inc. 64,837,500
6,000,000 K-Mart Corp. (a) 62,250,000
500,000 Petrie Stores Corp. (a) 1,375,000
1,292,300 Tandy Corp. 56,861,200
800,000 Toys ``R'' Us Inc. (a) 24,000,000
1,100,000 Waban, Inc. (a) 28,600,000
--------------
252,018,375
- ------------------------------------------------------------
Specialty Chemicals--0.6%
388,200 Eastman Chemical Co. 21,448,050
100,000 Witco Corp. 3,050,000
--------------
24,498,050
- ------------------------------------------------------------
Steel--0.7%
500,000 Bethlehem Steel Corp. (a) 4,500,000
1,368,300 Birmingham Steel Corp. 25,997,700
--------------
30,497,700
- ------------------------------------------------------------
Telecommunications--3.5%
81,733 360 Communications Co. (a) 1,890,076
1,500,000 AT&T Corp. 65,250,000
1,740,000 Loral Space & Communications (a) 31,972,500
700,000 Telefonica de Espana, S.A., ADR
(Spain) 48,475,000
--------------
147,587,576
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5 -----
<PAGE>
<PAGE>
Portfolio of Investments as of PRUDENTIAL EQUITY
December 31, 1996 FUND, INC.
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
- ------------------------------------------------------------
<C> <S> <C>
Transportation--0.4%
1,000,000 OMI Corp. (a) $ 8,750,000
550,000 Overseas Shipholding Group, Inc. 9,350,000
--------------
18,100,000
--------------
Total common stocks
(cost $2,235,288,016) 3,203,685,389
--------------
PREFERRED STOCK--0.6%
4,000,000 RJR Nabisco Holdings Corp.
Conv. Pfd. Stock
(cost $25,999,617) 27,000,000
--------------
Total long-term investments
(cost $2,261,287,633) 3,230,685,389
--------------
Principal
Amount
(000)
SHORT-TERM INVESTMENTS--24.3%
- ------------------------------------------------------------
Commercial Paper--6.6%
Aristar, Inc.
$ 6,000 5.59%, 2/21/97 5,952,485
Bank of Montreal
42,000 5.45%, 1/7/97 42,000,000
Canadian Imperial Bank of Commerce
12,000 5.41%, 1/31/97 12,000,000
Ciba-Geigy Corp.
2,000 5.75%, 2/6/97 1,988,500
Countrywide Home Loan, Inc.
9,000 6.20%, 1/15/97 8,978,300
15,000 6.35%, 1/15/97 14,962,958
6,000 5.35%, 1/21/97 5,980,513
11,664 5.58%, 1/21/97 11,627,842
Creditanstalt Finance Inc.
20,000 5.40%, 2/11/97 19,868,724
Deutsche Bank
41,000 5.37%, 1/21/97 41,000,000
Englehard Corp.
5,000 5.34%, 1/17/97 4,988,133
General Motors Acceptance Corp.
$ 7,846 5.72%, 1/31/97 $ 7,808,601
GTE Corp.
2,000 5.50%, 1/14/97 1,996,028
Heller Financial, Inc.
1,000 5.57%, 1/13/97 998,143
2,000 5.57%, 1/14/97 1,995,977
6,000 5.75%, 1/16/97 5,985,625
2,000 5.80%, 1/21/97 1,993,556
Lehman Brothers Holdings, Inc.
43,000 6.70%, 1/7/97 42,951,983
Mitsubishi International Corp.
3,000 5.45%, 1/15/97 2,993,642
2,000 5.35%, 1/24/97 1,993,164
NYNEX Corp.
5,000 6.80%, 1/6/97 4,995,278
4,000 5.71%, 1/13/97 3,992,386
Preferred Receivables Funding
Corp.
2,760 5.50%, 1/13/97 2,754,940
1,000 5.45%, 1/14/97 998,032
2,436 5.33%, 1/21/97 2,435,599
2,412 5.55%, 1/22/97 2,404,191
7,200 5.32%, 1/23/97 7,176,592
Rank Xerox Capital (Europe) PLC
13,995 5.50%, 1/17/97 13,960,790
1,000 5.35%, 1/21/97 997,028
--------------
Total commercial paper
(cost $277,782,128) 277,779,010
--------------
- ------------------------------------------------------------
U.S. Government Agency & Instrumentalities--4.7%
Federal Home Loan Mortgage Corp.
19,200 5.24%, 2/14/97 19,073,488
29,000 5.225%, 2/28/97 28,753,351
12,000 5.27%, 3/17/97 11,861,950
3,360 5.26%, 6/20/97 3,274,602
Federal National Mortgage Assoc.
12,960 5.23%, 1/28/97 12,907,234
19,200 5.22%, 2/18/97 19,057,623
19,570 5.21%, 3/3/97 19,396,420
7,000 5.30%, 3/27/97 6,910,007
7,680 5.37%, 3/27/97 7,581,250
9,400 5.50%, 3/27/97 9,279,100
</TABLE>
- --------------------------------------------------------------------------------
6 See Notes to Financial Statements.
<PAGE>
<PAGE>
Portfolio of Investments as of PRUDENTIAL EQUITY
December 31, 1996 FUND, INC.
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
------------------------------------------------------------
<C> <S> <C>
U.S. Government Agency & Instrumentalities (cont'd)
Federal National Mortgage Assoc.,
$ 19,200 5.30%, 4/4/97 $ 18,933,473
1,000 5.25%, 4/10/97 985,104
20,005 5.25%, 4/11/97 19,703,496
10,000 5.40%, 12/5/97 9,978,271
United States Treasury Notes
3,500 6.875%, 2/28/97 3,507,761
10,000 5.75%, 9/30/97 10,015,800
--------------
Total U.S. government, agency &
instrumentalities
(cost $201,293,027) 201,218,930
--------------
- ------------------------------------------------------------
Repurchase Agreement--13.0%
552,907 Joint Repurchase Agreement
Account,
6.61%, due 1/2/97 (Note 5)
(cost $552,907,000) 552,907,000
--------------
Total short-term investments
(cost $1,031,982,155) 1,031,904,940
--------------
- ------------------------------------------------------------
Total Investments--100.4%
(cost $3,293,269,788; Note 4) 4,262,590,329
Liabilities in excess of other
assets--(0.4%) (16,416,168)
--------------
Net Assets--100% $4,246,174,161
--------------
--------------
</TABLE>
- ---------------
(a) Non-income producing security.
ADR--American Depository Receipt.
The industry classification of short-term portfolio holdings as a percentage of
net assets as of December 31, 1996 was as follows:
<TABLE>
<S> <C>
Security Brokers & Dealers 14.0%
Federal Credit Agencies 4.4
Commercial Banks 2.7
Mortgage Bankers 1.0
Asset Backed Securities .4
Government Coupon Issues .3
Photographic Equipment .3
Telecommunications .3
Business Credits .3
Finance Lessors .2
Commodity Trading Firms .1
Petroleum Refining .1
Personal Credit Institutions .1
Pharmaceuticals .1
----
24.3
----
----
</TABLE>

- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7 -----
<PAGE>
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL EQUITY FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets December 31, 1996
Investments, at value (cost $3,293,269,788)............................................................. $ 4,262,590,329
Cash.................................................................................................... 1,140,692
Dividends and interest receivable....................................................................... 8,903,032
Receivable for investments sold......................................................................... 5,933,012
Receivable for Fund shares sold......................................................................... 5,697,443
Deferred expenses and other assets...................................................................... 102,589
-----------------
Total assets......................................................................................... 4,284,367,097
-----------------
Liabilities
Payable for Fund shares reacquired...................................................................... 33,389,161
Distribution fee payable................................................................................ 2,571,662
Management fee payable.................................................................................. 1,637,942
Accrued expenses and other liabilities.................................................................. 483,796
Deferred directors' fees................................................................................ 110,375
-----------------
Total liabilities.................................................................................... 38,192,936
-----------------
Net Assets.............................................................................................. $ 4,246,174,161
-----------------
-----------------
Net assets were comprised of:
Common stock, at par................................................................................. $ 2,462,498
Paid-in capital in excess of par..................................................................... 3,245,869,983
-----------------
3,248,332,481
Distributions in excess of net investment income..................................................... (2,141,779)
Accumulated net realized gains on investments and foreign currency................................... 30,662,918
Net unrealized appreciation on investments........................................................... 969,320,541
-----------------
Net assets, December 31, 1996........................................................................... $ 4,246,174,161
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($1,443,465,793 / 83,653,305 shares of common stock issued and outstanding)....................... $17.26
Maximum sales charge (5.00% of offering price)....................................................... .91
-----------------
Maximum offering price to public..................................................................... $18.17
-----------------
-----------------
Class B:
Net asset value, offering price and redemption price per share
($2,626,478,929 / 152,380,431 shares of common stock issued and outstanding)...................... $17.24
-----------------
-----------------
Class C:
Net asset value, offering price and redemption price per share
($47,477,141 / 2,754,580 shares of common stock issued and outstanding)........................... $17.24
-----------------
-----------------
Class Z:
Net asset value, offerng price and redemption price per share
($128,752,298 / 7,461,486 shares of common stock issued and outstanding).......................... $17.26
-----------------
-----------------
</TABLE>

- --------------------------------------------------------------------------------
8 See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL EQUITY FUND, INC.
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income December 31, 1996
<S> <C>
Income
Dividends (net of foreign withholding
taxes of $898,574)................. $ 62,440,031
Interest.............................. 51,048,355
-----------------
Total income....................... 113,488,386
-----------------
Expenses
Distribution fee--Class A............. 3,084,481
Distribution fee--Class B............. 24,178,996
Distribution fee--Class C............. 367,452
Management fee........................ 17,435,738
Transfer agent's fees and expenses.... 5,200,000
Reports to shareholders............... 800,000
Registration fees..................... 222,000
Custodian's fees and expenses......... 190,000
Franchise taxes....................... 185,000
Insurance expense..................... 64,000
Audit fee and expenses................ 55,000
Legal fees and expenses............... 45,000
Directors' fees....................... 45,000
Miscellaneous......................... 29,810
-----------------
Total expenses..................... 51,902,477
-----------------
Net investment income.................... 61,585,909
-----------------
Realized and Unrealized
Gain (Loss) on Investments and
Foreign Currency Transactions
Net realized gain (loss) on:
Investment transactions............... 315,002,076
Foreign currency transactions......... (14,353)
-----------------
314,987,723
-----------------
Net change in unrealized appreciation on:
Investments........................... 240,991,430
Foreign currencies.................... 6,157
-----------------
240,997,587
-----------------
Net gain on investments.................. 555,985,310
-----------------
Net Increase in Net Assets
Resulting from Operations................ $ 617,571,219
-----------------
-----------------
</TABLE>

<PAGE>
PRUDENTIAL EQUITY FUND, INC.
EQUITY FUND, INC.
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended December 31,
<S> <C> <C>
in Net Assets 1996 1995
Operations
Net investment income..... $ 61,585,909 $ 35,567,740
Net realized gain on
investments............ 314,987,723 221,104,455
Net change in unrealized
appreciation of
investments............ 240,997,587 482,824,209
--------------- ---------------
Net increase in net assets
resulting from
operations............. 617,571,219 739,496,404
--------------- ---------------
Net equalization debits...... -- (4,049,462)
--------------- ---------------
Dividends and distributions
(Note 1)
Dividends from net
investment income
Class A................ (23,519,167) (17,125,686)
Class B................ (33,859,586) (19,755,318)
Class C................ (557,215) (167,436)
Class Z................ (2,495,197) --
--------------- ---------------
(60,431,165) (37,048,440)
--------------- ---------------
Distributions from net
realized
capital gains
Class A................ (125,606,003) (43,407,909)
Class B................ (243,955,245) (84,861,913)
Class C................ (4,267,115) (795,345)
Class Z................ (11,894,518) --
--------------- ---------------
(385,722,881) (129,065,167)
--------------- ---------------
Distributions in excess of
net investment income
Class A................ (833,152) --
Class B................ (1,199,396) --
Class C................ (19,276) --
Class Z................ (89,955) --
--------------- ---------------
(2,141,779) --
--------------- ---------------
Fund share transactions (net
of share conversions)
(Note 6)
Proceeds from shares
sold................... 3,428,831,074 2,331,421,579
Net asset value of shares
issued in reinvestment
of dividends and
distributions.......... 429,066,548 156,970,117
Cost of shares
reacquired............. (3,103,898,045) (1,984,977,517)
--------------- ---------------
Net increase in net assets
from Fund share
transactions........... 753,999,577 503,414,179
--------------- ---------------
Total increase............... 923,274,971 1,072,747,514
Net Assets
Beginning of year............ 3,322,899,190 2,250,151,676
--------------- ---------------
End of year.................. $ 4,246,174,161 $ 3,322,899,190
--------------- ---------------
--------------- ---------------
</TABLE>

- --------------------------------------------------------------------------------
See Notes to Financial Statements. 9 -----
<PAGE>
<PAGE>
Notes to Financial Statements PRUDENTIAL EQUITY FUND, INC.
- --------------------------------------------------------------------------------
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 Policies

The following is a summary of significant accounting policies 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 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.

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.
Forward Currency Contracts: A forward currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. The Fund enters into forward currency contracts in order to hedge its
exposure to changes in foreign currency exchange rates on its foreign portfolio
holdings or on specific receivables and payables denominated in a foreign
currency. The contracts are valued daily at current exchange rates and any
unrealized gain or loss is included in net unrealized appreciation or
depreciation on investments. Gain or loss is realized on the settlement date of
the contract equal to the difference between the settlement value of the
original and renegotiated forward contracts. This gain or loss, if any, is
included in net realized gain (loss) on foreign currency transactions. Risks may
arise upon entering into these contracts from the potential inability of the
counterparties to meet the terms of their contracts. There were no open foreign
currency contracts at December 31, 1996.

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: Effective January 1, 1996, the Fund discontinued the accounting
practice of equalization. Equalization is a practice whereby a portion of the
proceeds from sales and costs of repurchases of capital 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. The balance of $43,313,819 of undistributed net investment income at
December 31, 1995 resulting from equalization was transferred to paid-in capital
in excess of par. Such reclassification had no effect on net assets, results of
operations, or net asset value per share.

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.
- --------------------------------------------------------------------------------
10
<PAGE>
<PAGE>
Notes to Financial Statements PRUDENTIAL EQUITY FUND, INC.
- --------------------------------------------------------------------------------
Note 2. Agreements

The Fund has a management agreement with Prudential Mutual Fund Management LLC
(``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.

The Fund has a distribution agreement with Prudential Securities Incorporated
(``PSI''), which acts as the distributor of the Class A, Class B, Class C and
Class Z shares of the Fund. The Fund compensates PSI 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 PSI as
distributor of the Class Z shares of the Fund.

Pursuant to the Class A, B and C Plans, the Fund compensates PSI 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 Class A, Class B and Class C Plans were .25%, 1% and 1%,
respectively, of the average daily net assets of Class A, Class B and Class C
shares for the year ended December 31, 1996.

PSI has advised the Fund that it has received approximately $2,680,800 in
front-end sales charges resulting from sales of Class A shares during the year
ended December 31, 1996. From these fees, PSI paid such sales charges to dealers
(PSI and Prusec) which in turn paid commissions to salespersons.

PSI advised the Fund that for the year ended December 31, 1996, it received
approximately $4,067,300 and $28,400 in contingent deferred sales charges
imposed upon certain redemptions by Class B and Class C shareholders,
respectively.

PSI, PMF and PIC are indirect, wholly-owned subsidiaries of The Prudential
Insurance Company of America.

The Fund, along with other affiliated registered investment companies (the
``Funds''), entered into a credit agreement (the ``Agreement'') on December 31,
1996 with an unaffiliated lender. The maximum commitment under the Agreement is
$200,000,000. The Agreement expires on December 30, 1997. Interest on any such
borrowings outstanding will be at market rates. The purpose of the Agreement is
to serve as an alternative source of funding for capital share redemptions. The
Fund has not borrowed any amounts pursuant to the Agreement as of December 31,
1996. The Funds pay a commitment fee at an annual rate of .055 of 1% on the
unused portion of the credit facility. The commitment fee is accrued and paid
quarterly on a pro-rata basis by the Funds.
- ------------------------------------------------------------
Note 3. Other Transactions with Affiliates

Prudential Mutual Fund Services LLC (``PMFS''), a wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent and during the year ended December 31,
1996, the Fund incurred fees of approximately $4,310,000 for the services of
PMFS. As of December 31, 1996, approximately $384,000 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, 1996, PSI earned $142,134 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 year ended December 31, 1996 aggregated $558,284,875 and $567,226,021,
respectively.

The federal income tax basis of the Fund's investments at December 31, 1996 was
substantially the same as for financial reporting purposes and, accordingly, net
unrealized appreciation for federal income tax purposes was $969,320,541 (gross
unrealized appreciation--$1,036,432,891; gross unrealized
depreciation--$67,112,350).
- ------------------------------------------------------------
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
- --------------------------------------------------------------------------------
11 -----

<PAGE>
Notes to Financial Statements PRUDENTIAL EQUITY FUND, INC.
- --------------------------------------------------------------------------------
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, 1996, the Fund has a 50.7% undivided interest in the joint account. The
undivided interest for the Fund represents $552,907,000 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., 6.75%, in the principal amount of $341,000,000, repurchase
price $341,127,875, due 1/2/97. The value of the collateral including accrued
interest was $349,151,276.

Goldman, Sachs & Co. Inc., 6.60%, in the principal amount of $341,000,000,
repurchase price $341,125,033, due 1/2/97. The value of the collateral including
accrued interest was $347,820,889.

J.P. Morgan Securities, 6.60%, in the principal amount of $341,000,000,
repurchase price $341,125,033, due 1/2/97. The value of the collateral including
accrued interest was $347,822,540.

Sanwa Securities USA, 6.00%, in the principal amount of $68,014,000, repurchase
price $68,022,671, due 1/2/97. The value of the collateral including accrued
interest was $69,375,117.
- ------------------------------------------------------------
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 contingent
deferred sales charge of 1% during the first year. Class B shares will
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.
Effective March 1, 1996 the Fund commenced offering Class Z shares. Class Z
shares are not subject to any sales charge and are offered exclusively for sale
to a limited group of investors.

There are 1 billion 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 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, 1996:
Shares sold...................... 121,412,060 $ 2,078,689,059
Shares issued in reinvestment of
dividends and distributions.... 8,451,292 144,703,799
Shares reacquired................ (119,988,980) (2,054,486,124)
------------ ---------------
Net increase in shares
outstanding before conversion
from Class B................... 9,874,372 168,906,734
Shares issued upon conversion
from Class B................... 10,235,548 174,694,214
Shares reacquired upon
conversion into Class Z........ (6,921,503) (118,081,252)
------------ ---------------
Net increase in shares
outstanding.................... 13,188,417 $ 225,519,696
------------ ---------------
------------ ---------------
Year ended December 31, 1995:
Shares sold...................... 71,637,369 $ 1,094,814,294
Shares issued in reinvestment of
dividends and distributions.... 3,610,392 57,800,752
Shares reacquired................ (66,953,389) (1,028,414,685)
------------ ---------------
Net increase in shares
outstanding before conversion
from Class B................... 8,294,372 124,200,361
Shares issued upon conversion
from Class B................... 41,288,563 582,060,191
------------ ---------------
Net increase in shares
outstanding.................... 49,582,935 $ 706,260,552
------------ ---------------
------------ ---------------
</TABLE>

- --------------------------------------------------------------------------------
12

<PAGE>
Notes to Financial Statements PRUDENTIAL EQUITY FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Shares Amount
- --------------------------------- ------------ ---------------
<S> <C> <C>
Year ended December 31, 1996:
Shares sold...................... 74,658,239 $ 1,272,242,211
Shares issued in reinvestment of
dividends and distributions.... 15,498,339 265,200,473
Shares reacquired................ (57,845,034) (984,240,216)
------------ ---------------
Net increase in shares
outstanding before
conversion..................... 32,311,544 553,202,468
Shares reacquired upon
conversion into Class A........ (10,257,533) (174,694,214)
------------ ---------------
Net increase in shares
outstanding.................... 22,054,011 $ 378,508,254
------------ ---------------
------------ ---------------
Year ended December 31, 1995:
Shares sold...................... 81,698,002 $ 1,215,662,984
Shares issued in reinvestment of
dividends and distributions.... 6,251,700 98,250,095
Shares reacquired................ (65,164,474) (953,481,508)
------------ ---------------
Net increase in shares
outstanding before
conversion..................... 22,785,228 360,431,571
Shares reacquired upon
conversion into Class A........ (41,293,731) (582,060,191)
------------ ---------------
Net decrease in shares
outstanding.................... (18,508,503) $ (221,628,620)
------------ ---------------
------------ ---------------
<CAPTION>
Class C Shares Amount
- --------------------------------- ------------ ---------------
<S> <C> <C>
Year ended December 31, 1996:
Shares sold...................... 1,824,988 $ 31,122,983
Shares issued in reinvestment of
dividends and distributions.... 259,155 4,433,090
Shares reacquired................ (784,090) (13,332,036)
------------ ---------------
Net increase in shares
outstanding.................... 1,300,053 $ 22,224,037
------------ ---------------
------------ ---------------
Year ended December 31, 1995
Shares sold...................... 1,352,277 $ 20,944,301
Shares issued in reinvestment of
dividends and distributions.... 57,365 919,269
Shares reacquired................ (193,799) (3,081,322)
------------ ---------------
Net increase in shares
outstanding.................... 1,215,843 $ 18,782,248
------------ ---------------
------------ ---------------
<CAPTION>
Class Z
- ---------------------------------
March 1, 1996(a) through
December 31, 1996:
Shares sold...................... 2,700,145 $ 46,776,821
Shares issued in reinvestment of
dividends and distributions.... 860,658 14,729,186
Shares reacquired................ (3,020,820) (51,839,669)
------------ ---------------
Net increase in shares
outstanding before conversion
from Class A................... 539,983 9,666,338
Shares issued upon conversion
from Class A................... 6,921,503 118,081,252
------------ ---------------
Net increase in shares
outstanding.................... 7,461,486 $ 127,747,590
------------ ---------------
------------ ---------------
</TABLE>

- ---------------
(a) Commencement of offering of Class Z shares.
- --------------------------------------------------------------------------------
13 -----

- ---------------
(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.
- --------------------------------------------------------------------------------
14 See Notes to Financial Statements.

<PAGE>
Financial Highlights PRUDENTIAL EQUITY FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Class C
---------------------------------------------------------------------- -------------------
Year Ended December
Year Ended December 31, 31,
---------------------------------------------------------------------- -------------------
1996 1995 1994 1993 1992 1996 1995
---------- ---------- ---------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................... $ 16.43 $ 13.24 $ 13.80 $ 12.08 $ 11.40 $ 16.43 $ 13.24
---------- ---------- ---------- ---------- ---------- ------- -------
Income from investment operations
Net investment income............. .22 .16 .12 .12 .14 .22 .16
Net realized and unrealized gain
(loss) on investments and
foreign currencies............. 2.51 3.87 .09 2.42 1.30 2.51 3.87
---------- ---------- ---------- ---------- ---------- ------- -------
Total from investment
operations.................. 2.73 4.03 .21 2.54 1.44 2.73 4.03
---------- ---------- ---------- ---------- ---------- ------- -------
Less distributions
Dividends from net investment
income......................... (.22) (.16) (.12) (.12) (.13) (.22) (.16)
Distributions from net realized
capital gains.................. (1.69) (.68) (.65) (.70) (.63) (1.69) (.68)
Distributions in excess of net
investment income.............. (.01) -- -- -- -- (.01) --
---------- ---------- ---------- ---------- ---------- ------- -------
Total distributions............ (1.92) (.84) (.77) (.82) (.76) (1.92) (.84)
---------- ---------- ---------- ---------- ---------- ------- -------
Net asset value, end of period.... $ 17.24 $ 16.43 $ 13.24 $ 13.80 $ 12.08 $ 17.24 $ 16.43
---------- ---------- ---------- ---------- ---------- ------- -------
---------- ---------- ---------- ---------- ---------- ------- -------
TOTAL RETURN(a):.................. 17.14% 30.62% 1.60% 21.13% 12.72% 17.14% 30.62%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)... $2,626,479 $2,140,895 $1,970,580 $1,794,634 $1,203,740 $47,477 $23,894
Average net assets (000).......... $2,417,900 $1,891,160 $1,901,972 $1,522,992 $1,042,028 $36,745 $12,190
Ratios to average net assets:
Expenses, including
distribution fees........... 1.64% 1.66% 1.75% 1.71% 1.74% 1.64% 1.66%
Expenses, excluding
distribution fees........... .64% .66% .75% .71% .74% .64% .66%
Net investment income.......... 1.37% .99% .87% .91% 1.11% 1.37% 1.03%
<CAPTION>
Class Z
------------
August 1, March 1,
1994(c) 1996(d)
Through Through
December 31, December 31,
1994 1996
------------ ------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................... $14.02 $ 17.10
----- ------------
Income from investment operations
Net investment income............. .09 .37
Net realized and unrealized gain
(loss) on investments and
foreign currencies............. (.10) 1.88
----- ------------
Total from investment
operations.................. (.01) 2.25
----- ------------
Less distributions
Dividends from net investment
income......................... (.12) (.39)
Distributions from net realized
capital gains.................. (.65) (1.69)
Distributions in excess of net
investment income.............. -- (.01)
----- ------------
Total distributions............ (.77) (2.09)
----- ------------
Net asset value, end of period.... $13.24 $ 17.26
----- ------------
----- ------------
TOTAL RETURN(a):.................. .01% 13.65%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)... $3,160 $128,752
Average net assets (000).......... $1,847 $124,631
Ratios to average net assets:
Expenses, including
distribution fees........... 1.83%(b) .64%(b)
Expenses, excluding
distribution fees........... .83%(b) .64%(b)
Net investment income.......... .90%(b) 2.43%(b)
</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) Annualized.
(c) Commencement of offering of Class C shares.
(d) Commencement of offering of Class Z shares.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 15 -----

<PAGE>
Report of Independent Accountants PRUDENTIAL EQUITY FUND, INC.
- --------------------------------------------------------------------------------
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, 1996, 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 periods indicated, 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, 1996 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.

PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 27, 1997

Tax Information PRUDENTIAL EQUITY FUND, INC.
- --------------------------------------------------------------------------------
We are required by the Internal Revenue Code to advise you within 60 days of the
Fund's fiscal year end (December 31, 1996) as to the federal tax status of
dividends paid by the Fund during such fiscal year. Accordingly, we are advising
you that in 1996 the Fund paid distributions to Class A shares totalling $2.048
per share, comprised of $.357 per share of net investment income, $.629 per
share from short-term capital gains (both of which are taxable as ordinary
income) and $1.062 per share of net long-term capital gains. The Fund paid
distributions to Class B and C shares totalling $1.923 per share, comprised of
$.232 per share of net investment income, $.629 per share from short-term
capital gains (both of which are taxable as ordinary income) and $1.062 per
share of net long-term capital gains. The Fund paid distributions to Class Z
shares totalling $2.088 per share, comprised of $.397 per share of net
investment income, $.629 per share from short-term capital gains (both of which
are taxable as ordinary income) and 1.062 per share of net long-term capital
gains. Further, we wish to advise you that 50.52% of the ordinary income
dividends paid in 1996 qualified for the corporate dividends received deduction
available to corporate taxpayers.
- --------------------------------------------------------------------------------
16

<PAGE>
Supplemental Proxy Information PRUDENTIAL EQUITY FUND, INC.
- --------------------------------------------------------------------------------
The Annual Meeting of Shareholders of the Prudential Equity Fund, Inc. was
held on October 30, 1996 at the offices of Prudential Securities Incorporated,
One Seaport Plaza, New York, New York. The meeting was held for the following
purposes:

(1) To elect the following twelve Directors:
- Edward D. Beach
- Delayne Dedrick Gold
- Robert F. Gunia
- Donald D. Lennox
- Douglas H. McCorkindale
- Mendel A. Melzer
- Thomas T. Mooney
- Stephen P. Munn
- Richard A. Redeker
- Robin B. Smith
- Louis A. Weil, III
- Clay T. Whitehead
(2b) To amend the Fund's investment restrictions to eliminate the
restriction regarding the purchase of securities of unseasoned
issuers.
(2c) To amend the Fund's investment restrictions to allow loans of
portfolio securities up to 10% of the Fund's total assets.
(3) To ratify the selection of Price Waterhouse LLP as independent
accountants for the fiscal year ending December 31, 1997.

The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
Directors/Auditor Votes for Votes against Votes withheld Abstentions
------------------------ ------------ -------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
(1) Edward D. Beach 108,904,537 -- 3,927,678 --
Delayne Dedrick Gold 109,029,733 -- 3,802,482 --
Robert F. Gunia 109,109,144 -- 3,723,071 --
Donald D. Lennox 108,872,212 -- 3,955,003 --
Douglas H. McCorkindale 109,061,163 -- 3,771,052 --
Mendel A. Melzer 109,027,954 -- 3,804,261 --
Thomas T. Mooney 109,073,245 -- 3,758,970 --
Stephen P. Munn 109,108,518 -- 3,723,697 --
Richard A. Redeker 109,092,459 -- 3,732,756 --
Robin B. Smith 109,057,759 -- 3,014,456 --
Louis A. Weil, III 109,066,470 -- 3,765,745 --
Clay T. Whitehead 109,085,038 -- 3,747,177 --
(2b) Investment restrictions 77,622,851 6,520,151 5,480,579 --
(2c) Investment restrictions 77,880,460 6,171,478 5,571,643 --
(3) Price Waterhouse LLP 107,490,494 1,055,270 -- 4,286,451
</TABLE>

- --------------------------------------------------------------------------------
17 -----

<PAGE>
Getting The Most
From Your Prudential
Mutual Fund.

Some mutual fund shareholders won't ever read this -- they don't read annual
and semi-annual reports. It's quite understandable. These annual and semi-
annual reports are prepared to comply with Federal regulations. They 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, in hopes you'll find it
profitable to spend a few minutes familiarizing yourself with your investment.
Here's what you'll find in the report:

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 "At A Glance" page where we compare the Fund and the comparable average
calculated by Lipper Analytical Services, 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 generally smoothes out returns and gives you an idea 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. And keep in mind that past performance is not
indicative of future results.

Portfolio Manager's Report
The portfolio manager who invests your money for you reports onsuccessful --
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 look 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 Portfolio Manager's Report 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.

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 also 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 Auditor's Report
Once a year, an outside auditor looks over our books and certifies that the
information is fairly presented and complies with generally accepted
accounting principles.

Tax Information
This is information which we report annually about how much of your total
return is taxable. Should you have any questions, you may want to consult a
tax advisor.

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 broadly based
reference point commonly used by investors to measure how well they are doing.
A definition of the selected index is also provided. Investors generally cannot
invest directly in an index.

<PAGE>
Getting The Most
From Your Prudential
Mutual Fund.

Change Your Mind.
You can exchange your shares in most Prudential Mutual Funds for shares in most
other Prudential Mutual Funds, without charges. This may be most helpful if
your investment needs change.

Reinvest Dividends Free Of Charge.
Reinvest your dividends and/or capital gains distributions automatically --
without charge.

Invest For Retirement.
There is no minimum investment for an IRA. Plus, you defer taxes on your
investment earnings by investing in an IRA.

If you'd like, you can contribute up to $2,000 a year in an IRA. If you are
married, you and your spouse (if not working outside the home) can contribute
up to $2,250 a year. (Withdrawals are taxed as ordinary income and may be
subject to a 10% penalty prior to age 59 1/2.)

Change Your Job.
You can take your pension with you. Use a rollover IRA to manage your company-
sponsored retirement plan while retaining the special tax-deferred advantages.

Invest In Your Children.
There's no fee to open a custodial account for a child's education or other
needs.

Take Income.
Would you like to receive monthly or quarterly checks in any amount from your
fund account? Just let us know. We'll take care of it. Of course, there are
minimum amounts. And shares redeemed may be subject to tax, and Class B and C
shares may be subject to contingent deferred sales charges. We'll gladly answer
your questions.

Keep Informed.
We want to keep you up-to-date. Of course, you receive account activity
statements every quarter. But you also receive annual and semi-annual fund
reports, as well as other important updates on events that affect your
investments, including tax information.

This material is only authorized for distribution when preceded or accompanied
by a current prospectus. Read the prospectus carefully before you invest or
send money.

<PAGE>
Comparing A $10,000 Investment.
Prudential Equity Fund, Inc. vs. the S&P 500 Index.

// // // // Prudential Equity Fund, Inc.

-- S&P 500 Index

Average Annual Total
Returns - Class A

Class A With Sales Load
(CHART) 15.1% Since Inception
15.9% for 5 Years
12.1% for 1 Year

Without Sales Load
15.9% Since Inception
17.1% for 5 Years
17.9% for 1 Year

Average Annual Total
Returns - Class B
Class B With Sales Load
(CHART) 16.7% Since Inception
14.4% for 10 Years
16.1% for 5 Years
12.1% for 1 Year

Without Sales Load
16.7% Since Inception
14.4% for 10 Years
16.2% for 5 Years
17.1% for 1 Year

Average Annual Total
Returns - Class C
Class C With Sales Load
(CHART) 19.2% Since Inception
16.1% for 1 Year

Without Sales Load
19.2% Since Inception
17.1% for 1 Year

Class Z
(CHART)

Past performance is not indicative of future results. Investment return and
principal value will fluctuate so an investor's shares, when redeemed, may be
worth more or less than their original cost. The boxes on top of the graphs are
designed to give you an idea how much the Fund's returns can fluctuate from
year to year by measuring the best and worst calendar years in terms of total
annual return since inception of each share class.

These graphs are furnished to you in accordance with SEC regulations. They
compare a $10,000 investment in the Prudential Equity Fund, Inc. (Class A,
Class B, Class C and Class Z) with a similar investment in the S&P 500 Index
by portraying the initial account values at the commencement of operations of
each class (10 years for Class B), and subsequent account values at the end of
this reporting period (December 31), as measured on a quarterly basis,
beginning in 1990 for Class A shares, in 1986 for Class B shares, in 1994 for
Class C shares and in 1996 for Class Z shares. For purposes of the graphs, and
unless otherwise indicated, in the accompanying tables it has been assumed (a)
that the maximum applicable front-end 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 and Class C shares, assuming full redemption on December 31, 1996;
(c) all recurring fees (including management fees) were deducted; and (d) all
dividends and distributions were reinvested. Class Z shares do not have a
sales charge or a distribution fee. Since Class Z shares have been in
existence less than one year, no average annual total returns are shown.
Class B shares will automatically convert to Class A shares, on a quarterly
basis, beginning approximately seven years after purchase. This conversion
feature is not reflected in the graph.

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 in the S&P 500 may differ substantially from the securities in the
Fund. The S&P 500 is not the only index that may be used to characterize
performance of stock funds and other indexes may portray different comparative
performance.

<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077

(800) 225-1852
http://www.prudential.com

Directors
Edward D. Beach
Delayne Dedrick Gold
Robert F. Gunia
Donald D. Lennox
Douglas H. McCorkindale
Mendel A. Melzer
Thomas T. Mooney
Stephen P. Munn
Richard A. Redeker
Robin B. Smith
Louis A. Weil, III
Clay T. Whitehead

Officers
Richard A. Redeker, President
David W. Drasnin, Vice President
Robert F. Gunia, Vice President
Eugene S. Stark, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Deborah A. Docs, Assistant Secretary

Manager
Prudential Mutual Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077

Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101

Distributor
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 LLC
P.O. Box 15005
New Brunswick, NJ 08906

Independent Auditors
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036

Legal Counsel
Sullivan & Cromwell
125 Broad Street
New York, NY 10004

The views expressed in this report and information about the Fund's portfolio
holdings are for the period covered by this report and are subject to change
thereafter.

This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.

744316100 MF101E
744316209 Cat. #4331473
744316308
744316407
<PAGE>