(ICON)
Prudential
Equity
Fund, Inc.
ANNUAL
REPORT
Dec. 31, 1997
(LOGO)
<PAGE>
Prudential Equity Fund, Inc.
Performance At A Glance.
1997 marked the first time in history that the
stock market returned
more than 20% for the third year in a row.
Stock prices have risen
even faster than company earnings, leaving few
of the kind of
bargains we like to buy. Because of the value
orientation of
the Prudential Equity Fund, we held much more
cash last year
than most equity funds did, so we fell short
of the return
of the average growth fund tracked by Lipper
Analytical
Services. However, even with our cash, we were
competitive
with the other growth funds. Over the longer
five-year
period, we have a substantially higher-than-
average
total return.
<TABLE>
<CAPTION>
Cumulative Total Returns1
As of 12/31/97
One Five
Ten Since
Year Years
Years Inception2
<S> <C> <C>
<C> <C>
Class A 23.88% 140.40%
N/A 245.00%
Class B 23.05 131.58
365.75% 1101.51
Class C 23.05 N/A
N/A 88.18
Class Z 24.29 N/A
N/A 41.26
Lipper Growth Fund Avg3 25.30 117.56
356.18 ***
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns1
As of 12/31/97
One Five
Ten Since
Year Years
Years Inception2
<S> <C> <C>
<C> <C>
Class A 17.68% 17.96%
N/A 16.13%
Class B 18.05 18.19
16.63% 17.04
Class C 22.05 N/A
N/A 20.33
Class Z 24.29 N/A
N/A 20.72
</TABLE>
Past performance is not indicative of future
results. Principal
and investment return will fluctuate so that
an investor's shares,
when redeemed, may be worth more or less than
their original cost.
1 Source: Prudential Investments Fund
Management and Lipper
Analytical Services. The cumulative total
returns do not take
into account sales charges. The average annual
returns do take
into account applicable sales charges. The
Fund charges a
maximum front-end sales load of 5% for Class A
shares and
a declining contingent deferred sales charge
(CDSC) of 5%,
4%, 3%, 2%, 1% and 1% for six years, for Class
B shares.
Class C shares have a 1% CDSC for one year.
Class B shares
will automatically convert to Class A shares
on a quarterly
basis, approximately seven years after
purchase. Class Z
shares do not carry a sales charge or a
distribution fee.
2 Inception dates: Class A, 1/22/90; Class B,
3/15/82;
Class C, 8/1/94; Class Z, 3/1/96.
3 These are the average returns in the Lipper
Growth Fund
category for one-, five-, and 10 year periods
for all
funds in each share class.
*** Lipper since inception returns are Class
A, 229.30%;
Class B, 1003.92%; Class C, 99.83%; and Class
Z, 43.24%
for all funds in each share class.
How Investments Compared.
(As of 12/31/97)
(GRAPH)
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 returns 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.
U.S. Taxable Money 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
(PICTURE)
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 Hostile Market.
It's tough being a disciplined value investor
when others
are bidding up the price of shares in almost
everything
but likely losers. Lately, there haven't been
many bargains.
So, a rapidly rising market may give us a good
return, but
can still be a hostile environment for our
investment style.
Our return relative to other equity funds
shines most when
uncertainty about the economic future leads
investors to
leave some bargains on the table.
Strategy Session.
A Case of Asian Flu.
A Pacific wind hit the markets in mid-year,
changing the
investment climate. Previously, earnings were
growing at
double-digit rates, but there were fears that
the economy
would grow too fast. Afterwards, the currency
crisis in
Southeast Asia began a chain reaction that
eventually
threatened economic growth in the U.S. Here
are the
implications, as we see them, for our major
investment focuses:
Financials. Securities brokerages had been
low-priced
because investors expected the financial
markets to cool
and for brokers to lose steam. The speculators
were wrong.
The industry reported excellent earnings and
continued
to consolidate during the reporting period. We
did very
well on their stocks. Although we expect the
stock market
to slow in 1998, we don't expect a threat to
brokers'
earnings. Our financial stocks still look
good.
Cyclicals. Since we are now in the seventh
year of economic
growth, investors have been unenthusiastic
about businesses
with cyclical earnings. That coolness turned
downright
cold following the slowdown in Asia. Cyclicals
now are
the best value stocks in the market. We are
invested
in several cyclical industries including
forest products.
Overcapacity in the industry killed off
profits and
drove the stocks to historically low market
valuations.
We believe the earnings of paper companies
have bottomed.
We expect these stocks to rebound.
Our auto companies and our retailers, notably
Dillards,
Kmart and Toys R Us, were also marked down in
the fourth
quarter. If Kmart consumers and investors
become more
sanguine about the economic future, these
stocks should
also recover.
Portfolio Breakdown.
Sectors expressed as a percentage of
total net assets as of 12/31/97.
(PIE)
<PAGE>
What Went Well.
Financial Stocks Boost Performance.
In 1997, the financial sector again led the
stock market
by a wide margin. That was good for us because
about a
third of our portfolio was in financial
stocks, about
twice the proportion of the market. What's
more, the
financial stocks we owned performed even
better, on
average, than most.
The biggest contribution to our return came
from securities
brokers and diversified financial services.
Morgan Stanley,
Dean Witter, Discover, our second-largest
holding, rose 81%
for the year. Travelers Group -- now our
third largest --
gained 80%. (We owned Salomon, which returned
79% for us
before being acquired by Travelers, increasing
our stake
in Travelers.) We had a large commitment to
The Equitable,
which more than doubled over the year. Our
fourth largest
holding is an insurance company -- Chubb --
which gained
43%. We also have substantial holdings of
money center
banks, such as Chase Manhattan (up 26%) and
BankAmerica
(up 49%). Our regional banks performed even
better,
averaging a 59% return.And Not So Well.Why We
Trailed.
We trailed our peers because we held about 25%
of our
assets in cash for most of the year. We wanted
to be
able to move quickly when bargain stocks
became
available. When economic turmoil in Asia
markedly
increased the volatility of the U.S. market
late
in the year, we found opportunities to put
more
of our cash to work. By year end, our cash
position
was down to 16%.
Cyclicals were hit in the fourth quarter. We
have a
substantial commitment to cyclical stocks --
stocks
in companies whose earnings tend to follow the
business
cycle. Late in the year, investors began to
fear that
trouble in Asia would slow down the U.S.
economy.
Cyclicals suffered. Our forest product
companies
that had gained 28% by the end of September
fell
back to a 6% gain for the year by December 31.
Our auto stocks also gave back some of their
gains.
Five Largest Holdings.
3.2% Loews
Diversified Consumer
Products
2.9% Morgan Stanley,
Dean Witter, Discover
Banks & Financial Services
2.7% Travelers Group
Insurance
2.7% Chubb Corp.
Insurance
2.3% Elf Acquitaine ADR
Oil & Gas
Expressed as a percentage of total net assets
as of 12/31/97.
Looking Ahead.
The financial uncertainty in Asia seems sure
to slow
economic growth in the U.S. somewhat, hurting
cyclical
company earnings. Consequently, there are
more value
opportunities in the cyclical industries now.
For example,
we bought Eastman Kodak. Its price had dropped
to levels
last seen in mid-1995 and management's
decision to reduce
its cost structure augurs well for future
earnings.
Another company that is back to mid-1995
prices is
Columbia/HCA Healthcare. We also like HMOs.
HMO
costs have been rising faster than their
prices,
but we believe that HMO pricing power is going
to
increase in 1998.
1
<PAGE>
What IS A Value Investor's Market?
Fund Manager Tom Jackson explains why today's
market can
be challenging for one following a value
investment strategy.
Q. If this is not a good investing environment
for
a value investor, what is?
A. From my perspective, value investing seems
to
work best if any of three conditions are
present:
1. Some stocks are very inexpensive compared
to the
average stock. When we can get a substantial
price
advantage on our stocks, they merely have to
catch
up to show a good return.
2. It is early in the economic cycle and
earnings for
many businesses are growing rapidly. Abundant
earnings
growth favors the cheaper value stocks.
3. I'm less certain of this one, but I think
value also
has an advantage when interest rates are
rising. With
growth stocks, investors generally pay high
prices for
anticipated future earnings. Rising interest
rates
make earnings that are still in the future
worth less today.
Q. That doesn't look like today, does it?
A. We haven't had any of these conditions.
It's the
third year of above-20% market gains and
investors
have picked through the market pretty well.
Value
differentials are generally small. We are in a
geriatric stage of the business cycle -- the
seventh
year of economic growth, well beyond normal
longevity
by historical standards. Most observers are
expecting
at the very least earnings stagnation.
Q. Does this mean we have to go through a
recession
before we see more value opportunities?
A. No. Value can be created by fear. We can
show above-average
value investing returns when we buy some
stocks at large
discounts. These can be big bargains because
of rational
differences of opinion or because of fear. The
financial
crisis in Asia has created fear of an economic
slowdown
that will hurt the cyclical industries (those
whose
earnings rise and fall with economic growth).
The
uncertainty about the strength of the impact
has made
cyclical stocks relatively inexpensive. That's
why our
cash holdings are down. When investors avoid
an entire
market sector because something negative might
happen,
that usually spells opportunity for us.
(PICTURE)
2
<PAGE>
President's Letter
February 2, 1998
Investing Smart.
Dear Shareholder:
This is the season when many investors receive
income tax refunds
or have a CD or two maturing. What will you do
with these assets?
Investing smart can be a challenge especially
given today's new
investment choices.
The Federal Taxpayer Relief Act of 1997 is
changing the way
Americans invest and accumulate wealth, save
for college or
build a nest egg for retirement. While the law
offers
opportunity, it is also complex. You may need
help to
put things in perspective.
Now may be an excellent time for you and your
Prudential
Financial Professional to update your
investment strategy
and retirement plan. A wise investor does so
periodically.
You could find the tax law opening doors that
may benefit
you now or over the long term, such as --
- -- Revised Capital Gains Tax Rates &
Exclusions. Long-term
rates are down. Is your portfolio positioned
to benefit? Also,
new rules allow you to keep more of the profit
from the sale
of your home (perhaps up to $500,000 more).
- -- New Roth IRAs. The Roth IRA features tax-
free distributions
and does not require mandatory withdrawals,
which should be of
particular interest to retirees seeking to
shelter assets in
a tax-free account.
- -- New Education IRAs. Similar to a
traditional IRA, but
specifically designed for higher education.
The new law also
creates credits and deductions to help defray
college costs.
- -- Expanded IRAs. Rules governing
traditional IRAs have
been extensively revised. Deductibility and
contribution
limits have been broadened as has the list for
penalty-free
early withdrawals, including first-time home
buyers.
As you can see, what you don't know may cost
you! That's
why I recommend you call your Prudential
Financial
Professional and get a free investment plan
checkup. Let
us give you the information and tools to
invest smart.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
3
<PAGE>
Portfolio of Investments as
of December 31, 1997
PRUDENTIAL EQUITY FUND, INC.
- ----------------------------------------------
- --------------
- ----------------------------------------------
- --------------
<TABLE>
<CAPTION>
Shares Description
Value (Note 1)
<C> <S>
<C>
------------------------------------------
- ------------
LONG-TERM INVESTMENTS--84.1%
COMMON STOCKS--84.1%
------------------------------------------
- ------------
Automobiles & Trucks--3.8%
2,300,000 Chrysler Corp.
$ 80,931,250
600,000 General Motors Corp.
36,375,000
17,000,000 LucasVarity PLC, ADR (Great
Britain) (a)
60,369,617
404,800 Navistar International Corp. (a)
10,044,100
248,800 PACCAR Inc.
13,062,000
- --------------
200,781,967
- ----------------------------------------------
- --------------
Banks & Financial Services--11.8%
650,000 American Express Co.
58,012,500
552,800 American Financial Group Inc.
22,284,750
1,100,000 Bank of New York Co., Inc.
63,593,750
700,000 BankAmerica Corp.
51,100,000
475,700 Chase Manhattan Corp.
52,089,150
265,500 First America Bank Corp.
20,476,688
800,000 Lehman Brothers Holdings Inc.
40,800,000
285,706 Mellon Bank Corp.
17,320,926
384,750 Mercantile Bankshares Corp.
15,053,344
345,600 Morgan (J.P.) & Co., Inc.
39,009,600
2,600,000 Morgan Stanley, Dean Witter,
Discover & Co.
153,725,000
700,000 NationsBank Corp.
42,568,750
225,000 Republic New York Corp.
25,692,187
429,200 Washington Mutual, Inc.
27,388,325
- --------------
629,114,970
- ----------------------------------------------
- --------------
Chemicals--3.2%
711,000 Boc Group PLC, ADR (Great Britain)
23,418,563
513,700 Dow Chemical Co.
52,140,550
788,200 Eastman Chemical Co. (a)
46,947,162
350,000 Potash Corp.
29,050,000
706,900 Wellman Inc.
13,784,550
100,000 Witco Corp.
4,081,250
- --------------
169,422,075
Commercial Services--1.7%
900,000 American Standard Co., Inc. (a)
$ 34,481,250
571,700 TRW Inc.
30,514,488
1,000,000 Waste Management, Inc.
27,500,000
- --------------
92,495,738
- ----------------------------------------------
- --------------
Computer Hardware--3.6%
2,750,000 Digital Equipment Corp. (a)
101,750,000
412,900 Gerber Scientific, Inc.
8,206,387
600,000 International Business Machines
Corp.
62,737,500
93,750 NCR Corp. (New)(a)
2,607,422
900,000 Seagate Technology, Inc. (a)
17,325,000
- --------------
192,626,309
- ----------------------------------------------
- --------------
Construction & Housing--0.6%
550,000 Centex Corp.
34,615,625
- ----------------------------------------------
- --------------
Diversfied Consumer Products--5.9%
2,500,000 Diageo PLC (Great Britain)
22,999,916
750,000 Gibson Greetings Inc. (a)
16,406,250
1,600,000 Loews Corp.
169,800,000
2,800,000 RJR Nabisco Holdings Corp.
105,000,000
- --------------
314,206,166
- ----------------------------------------------
- --------------
Electrical Power--2.4%
170,000 American Electric Power Company,
Inc.
8,776,250
570,000 General Public Utilities Corp.
24,011,250
974,519 Houston Industries, Inc.
26,007,476
1,284,600 Long Island Lighting Co.
38,698,575
979,600 Unicom Corp.
30,122,700
- --------------
127,616,251
- ----------------------------------------------
- --------------
Electronics--0.5%
600,000 Harris Corp.
27,525,000
38,262 Raytheon Corp. (a)
1,886,795
- --------------
29,411,795
</TABLE>
- ----------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as
of December 31, 1997
PRUDENTIAL EQUITY FUND, INC.
- ----------------------------------------------
- --------------
<TABLE>
<CAPTION>
Shares Description
Value (Note 1)
<C> <S>
<C>
------------------------------------------
- ------------------
Forest Products--7.9%
550,000 Fort James Corp.
$ 21,037,500
2,092,000 Georgia-Pacific Corp.
87,275,625
1,475,000 International Paper Co.
63,609,375
1,500,000 Mead Corp.
42,000,000
752,500 Rayonier Inc.
32,028,281
787,500 Temple-Inland Inc.
41,196,094
1,260,000 Weyerhaeuser Co.
61,818,750
2,200,000 Willamette Industries, Inc.
70,812,500
- --------------
419,778,125
- ----------------------------------------------
- --------------
Healthcare--5.1%
2,148,700 Columbia/HCA Healthcare Corp.
63,655,237
1,828,740 Foundation Health Systems, Inc.
(a)
40,918,058
264,900 Pacificare Health Systems (a)
13,874,138
2,937,874 Tenet Healthcare Corp. (a)
97,317,076
1,377,000 Wellpoint Health Networks Inc. (a)
58,178,250
- --------------
273,942,759
- ----------------------------------------------
- --------------
Insurance--13.0%
800,000 American General Corp.
43,250,000
1,891,600 Chubb Corp.
143,052,250
700,000 Citizens Corp.
20,125,000
1,700,242 Old Republic International Corp.
63,227,749
2,105,100 SAFECO Corp.
102,623,625
716,900 St. Paul Companies, Inc.
58,830,606
1,500,000 The Equitable Companies, Inc.
74,625,000
2,667,000 Travelers Corp.
143,684,625
1,461,900 Western National Corp.
43,308,788
- --------------
692,727,643
- ----------------------------------------------
- --------------
Metals-Non Ferrous--1.6%
600,000 Aluminum Company of America
42,225,000
122,750 Amax Gold Inc. (a)
283,859
1,293,000 Cyprus Minerals Co.
19,879,875
788,600 Newmont Mining Corp.
23,165,125
- --------------
85,553,859
Oil & Gas Exploration/Production--6.4%
300,000 Amerada Hess Corp.
$ 16,462,500
981,900 Atlantic Richfield Co.
78,674,737
1,100,000 Occidental Petroleum Corp.
32,243,750
1,523,900 Oryx Energy Co. (a)
38,859,450
2,098,596 Societe Nationale Elf Aquitaine,
ADR
(France)
123,030,190
738,365 Total SA, ADR (France)
40,979,258
504,400 Union Texas Petroleum Holdings,
Inc.
10,497,825
- --------------
340,747,710
- ----------------------------------------------
- --------------
Photography--0.5%
425,000 Eastman Kodak Co.
25,845,313
- ----------------------------------------------
- --------------
Restaurants--1.7%
7,081,700 Darden Restaurants Inc.
88,521,250
- ----------------------------------------------
- --------------
Retail--8.1%
1,100,000 BJ's Wholesale Club, Inc. (a)
34,512,500
359,100 Dayton-Hudson Corp.
24,239,250
2,800,000 Dillards Department Stores, Inc.
98,700,000
1,100,000 Homebase, Inc. (a)
8,662,500
6,000,000 Kmart Corp. (a)
69,375,000
640,800 Nine West Group, Inc. (a)
16,620,750
500,000 Petrie Stores Corp. (a)
1,495,000
625,000 Sears, Roebuck & Co.
28,281,250
2,584,600 Tandy Corp.
99,668,638
1,700,000 Toys 'R' Us Inc. (a)
53,443,750
- --------------
434,998,638
- ----------------------------------------------
- --------------
Steel - Producers--0.5%
500,000 Bethlehem Steel Corp. (a)
4,312,500
1,408,300 Birmingham Steel Corp.
22,180,725
- --------------
26,493,225
</TABLE>
- ----------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 5
<PAGE>
Portfolio of Investments as
of December 31, 1997
PRUDENTIAL EQUITY FUND, INC.
- ----------------------------------------------
- --------------
<TABLE>
<CAPTION>
Shares Description
Value (Note 1)
<C> <S>
<C>
-----------------------------------------
- -------------------
Telecommunications--5.4%
1,481,733 360 Communications Co. (a)
$ 29,912,485
1,800,000 AT&T Corp.
110,250,000
1,740,000 Loral Space & Communications (a)
37,301,250
700,000 Telefonica de Espana, S.A., ADR
(Spain)
63,743,750
1,107,000 Portugal Telecom, S.A. ADR
(Portugal)
52,029,000
- --------------
293,236,485
- ----------------------------------------------
- --------------
Transportation--0.4%
1,000,000 OMI Corp. (a)
9,187,500
550,000 Overseas Shipholding Group, Inc.
11,996,875
- --------------
21,184,375
- --------------
Total long-term investments
(cost $2,861,518,291)
4,493,320,278
- --------------
Principal
Amount
(000)
SHORT-TERM INVESTMENTS--18.2%
- ----------------------------------------------
- --------------
Commercial Paper--7.1%
Associates First Capital Corp.
$ 52,000 5.70%, 1/15/98
51,884,733
Bank of Montreal
46,000 5.90%, 1/16/98
46,000,000
Barclays Bank PLC
30,000 5.64%, 1/20/98
29,991,042
Bayerische Landesbank Girozentrale
20,000 5.69%, 1/28/98
19,997,056
Bayerische Vereinsbank
12,000 5.69%, 1/23/98
11,997,170
Bell Atlantic Financial Services,
Inc.
8,972 5.80%, 1/14/98
8,953,209
Beneficial Corp
10,000 5.74%, 2/12/98
9,933,033
Canadian Imperial Bank of Commerce
40,000 5.80%, 2/13/98
40,000,000
General Electric Capital Corp.
9,000 5.80%, 1/14/98
8,981,150
14,000 5.71%, 1/23/98
13,951,148
11,000 5.74%, 2/9/98
10,931,598
Morgan (J.P.) & Co., Inc.
$ 52,447 5.77%, 2/10/98
$ 52,110,756
Norwest Financial, Inc.
44,661 5.70%, 1/16/98
44,554,930
Rank Xerox Capital (Europe), PLC
18,193 5.75%, 2/10/98
18,076,767
Smith Barney Holdings Inc.
10,000 5.82%, 1/15/98
9,977,367
- --------------
Total commercial paper
(cost $377,339,959)
377,339,959
- ----------------------------------------------
- --------------
U.S. Government Agency & Instrumentalities--
1.9%
Federal Home Loan Mortgage Corp.
15,000 5.61%, 3/10/98
14,840,976
Federal National Mortgage
Association
10,000 5.40%, 2/5/98
9,943,129
12,800 5.89%, 5/21/98
12,809,982
7,000 5.63%, 8/14/98
6,996,151
15,000 5.71%, 9/9/98
14,983,650
United States Treasury Notes
16,000 5.125%, 2/28/98
15,987,482
10,000 5.875%, 4/30/98
10,012,500
17,000 6.125%, 8/31/98
17,055,781
- --------------
Total U.S. government agency &
instrumentalities
(cost $102,650,990)
102,629,651
- ----------------------------------------------
- --------------
Repurchase Agreement--9.2%
490,791 Joint Repurchase Agreement
Account,
6.63%, 1/2/98 (Note 5)
(cost $490,791,000)
490,791,000
- --------------
Total short-term investments
(cost $970,781,949)
970,760,610
- --------------
- ----------------------------------------------
- --------------
Total Investments--102.3%
(cost $3,832,300,240; Note 4)
5,464,080,888
Liabilities in excess of other
assets--(2.3%)
(121,147,377)
- --------------
Net Assets--100%
$5,342,933,511
- --------------
- --------------
</TABLE>
- ---------------
(a) Non-income producing security.
ADR--American Depository Receipt.
- ----------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 6
<PAGE>
PRUDENTIAL EQUITY FUND, INC.
Portfolio of Investments as of December 31,
1997
- ----------------------------------------------
- --------------
The industry classification of short-term
portfolio holdings
as a percentage of net assets as of December
31, 1997 was as
follows:
Security Brokers & Dealers
10.4%
Photographic Equipment
2.8
Personal Credit Institution
2.0
Federal Credit Agencies
1.1
U.S. Government Sovereign
.8
Short-Term Business Credit
.6
Commercial Banks
.3
Phone Communications
.2
- ----
18.2%
- ----
- ----
- ----------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 7
<PAGE>
Statement of Assets and Liabilities
PRUDENTIAL EQUITY FUND, INC.
- ----------------------------------------------
- ----------------------------------
<TABLE>
<CAPTION>
Assets
December 31, 1997
<S>
<C>
Investments, at value (cost
$3,832,300,240)...............................
.............................. $
5,464,080,888
Cash..........................................
..............................................
............ 2,034,817
Dividends and interest
receivable....................................
...................................
13,106,038
Receivable for Fund shares
sold..........................................
...............................
8,096,613
Receivable for investments
sold..........................................
...............................
1,882,916
Prepaid expenses and other
assets........................................
...............................
103,347
- -----------------
Total
assets........................................
..............................................
... 5,489,304,619
- -----------------
Liabilities
Payable for Fund shares
reacquired....................................
..................................
129,274,064
Payable for investments
purchased.....................................
..................................
10,370,858
Distribution fee
payable.......................................
.........................................
3,085,446
Management fee
payable.......................................
...........................................
2,066,989
Accrued expenses and other
liabilities...................................
...............................
1,542,600
Deferred director's
fees..........................................
......................................
31,151
- -----------------
Total
liabilities...................................
..............................................
... 146,371,108
- -----------------
Net
Assets........................................
..............................................
........ $ 5,342,933,511
- -----------------
- -----------------
Net assets were comprised of:
Common stock, at
par...........................................
...................................... $
2,692,683
Paid-in capital in excess of
par...........................................
..........................
3,681,137,292
- -----------------
3,683,829,975
Accumulated net realized gain on
investments and foreign
currencies..................................
27,335,195
Net unrealized appreciation on investments
and foreign
currencies....................................
1,631,768,341
- -----------------
Net assets, December 31,
1997..........................................
................................. $
5,342,933,511
- -----------------
- -----------------
Class A:
Net asset value and redemption price per
share
($1,912,801,918 / 96,343,536 shares of
common stock issued and
outstanding).......................
$19.85
Maximum sales charge (5.00% of offering
price)........................................
............... 1.04
- -----------------
Maximum offering price to
public........................................
.............................
$20.89
- -----------------
- -----------------
Class B:
Net asset value, offering price and
redemption price per share
($3,090,767,336 / 155,886,434 shares of
common stock issued and
outstanding)......................
$19.83
- -----------------
- -----------------
Class C:
Net asset value, offering price and
redemption price per share
($72,243,501 / 3,643,714 shares of
common stock issued and
outstanding)...........................
$19.83
- -----------------
- -----------------
Class Z:
Net asset value, offerng price and
redemption price per share
($267,120,756 / 13,446,608 shares of
common stock issued and
outstanding).........................
$19.87
- -----------------
- -----------------
</TABLE>
- ----------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 8
<PAGE>
PRUDENTIAL EQUITY FUND, INC.
Statement of Operations
- ----------------------------------------------
- --------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income
December 31, 1997
<S>
<C>
Income
Dividends (net of foreign withholding
taxes of $1,424,525)............... $
71,434,156
Interest..............................
62,851,621
--
- ---------------
Total income.......................
134,285,777
--
- ---------------
Expenses
Distribution fee--Class A.............
4,272,575
Distribution fee--Class B.............
29,244,129
Distribution fee--Class C.............
604,342
Management fee........................
22,440,588
Transfer agent's fees and expenses....
6,390,000
Reports to shareholders...............
900,000
Registration fees.....................
322,000
Custodian's fees and expenses.........
220,000
Franchise taxes.......................
185,000
Insurance expense.....................
100,000
Directors' fees and expenses..........
45,000
Audit fee and expenses................
35,000
Legal fees and expenses...............
35,000
Miscellaneous.........................
30,339
--
- ---------------
Total expenses.....................
64,823,973
--
- ---------------
Net investment income....................
69,461,804
--
- ---------------
Realized and Unrealized
Gain on Investments and
Foreign Currency Transactions
Net realized gain on:
Investment transactions...............
283,942,375
Foreign currency transactions.........
103,393
--
- ---------------
284,045,768
--
- ---------------
Net change in unrealized appreciation on:
Investments and foreign currencies....
662,447,800
--
- ---------------
Net gain on investments..................
946,493,568
--
- ---------------
Net Increase in Net Assets
Resulting from Operations................ $
1,015,955,372
--
- ---------------
--
- ---------------
</TABLE>
PRUDENTIAL EQUITY FUND, INC.
Statement of Changes in Net Assets
- ----------------------------------------------
- --------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended
December 31,
in Net Assets 1997
1996
<S> <C>
<C>
Operations
Net investment income..... $ 69,461,804
$ 61,585,909
Net realized gain on
investments and foreign
currencies............. 284,045,768
314,987,723
Net change in unrealized
appreciation of
investments and foreign
currencies............. 662,447,800
240,997,587
---------------
- ---------------
Net increase in net assets
resulting from
operations............. 1,015,955,372
617,571,219
---------------
- ---------------
Dividends and distributions
(Note 1)
Dividends from net
investment income
Class A................
(31,371,300) (23,519,167)
Class B................
(32,078,132) (33,859,586)
Class C................
(681,499) (557,215)
Class Z................
(4,240,127) (2,495,197)
---------------
- ---------------
(68,371,058) (60,431,165)
---------------
- ---------------
Distributions from net
realized
capital gains
Class A................
(100,192,825) (125,606,003)
Class B................
(168,533,830) (243,955,245)
Class C................
(3,730,960) (4,267,115)
Class Z................
(13,864,843) (11,894,518)
---------------
- ---------------
(286,322,458) (385,722,881)
---------------
- ---------------
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................... 4,822,813,820
3,428,831,074
Net asset value of shares
issued in reinvestment
of dividends and
distributions.......... 340,731,229
429,066,548
Cost of shares
reacquired.............
(4,728,047,555) (3,103,898,045)
---------------
- ---------------
Net increase in net assets
from Fund share
transactions........... 435,497,494
753,999,577
---------------
- ---------------
Total increase............... 1,096,759,350
923,274,971
Net Assets
Beginning of year............ 4,246,174,161
3,322,899,190
---------------
- ---------------
End of year.................. $ 5,342,933,511
$ 4,246,174,161
---------------
- ---------------
---------------
- ---------------
</TABLE>
- ----------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 9
<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.
Foreign Currency Translation: The books and
records of the Fund are maintained
in United States dollars. Foreign currency
amounts are translated into United
States dollars on the following basis:
(i) market value of investment securities,
other assets and liabilities--at the
current rate of exchange.
(ii) purchases and sales of investment
securities, income and expenses--at the
rates of exchange prevailing on the respective
dates of such transactions.
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.
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 capital 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.
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: The Fund
accounts and reports for
distributions to shareholders in accordance
with the American Institute of
Certified Public Accountants' (AICPA)
Statement of Position 93-2: Determination,
Disclosure, and Financial Statement
Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment
Companies. The effect of applying
this statement was to increase distributions
in excess of net investment income
and decrease accumulated net realized gain on
investments and foreign currencies
by $1,051,033. Net realized gains and net
assets were not affected by this
change.
- ----------------------------------------------
- --------------
Note 2. Agreements
The Fund has a management agreement with
Prudential Investments Fund Management
LLC ('PIFM'). Pursuant to this agreement, PIFM
has responsibility for all
investment advisory services and supervises
the subadviser's performance of such
services. PIFM has entered into a subadvisory
agreement with The Prudential
Investment Corporation ('PIC'); PIC furnishes
investment advisory services in
connection with the management of the Fund.
PIFM pays for the cost of the
subadviser's services, the compensation of
officers of the Fund, occupancy and
certain
- ----------------------------------------------
- ----------------------------------
10
<PAGE>
Notes to Financial Statements
PRUDENTIAL EQUITY FUND, INC.
- ----------------------------------------------
- ----------------------------------
clerical and bookkeeping costs of the Fund.
The Fund bears all other costs and
expenses.
The management fee paid PIFM is computed daily
and payable monthly, at an annual
rate of .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, 1997.
PSI has advised the Fund that it has received
approximately $2,583,674 in
front-end sales charges resulting from sales
of Class A shares during the year
ended December 31, 1997. From these fees, PSI
paid such sales charges to dealers
(PSI and PRUCO Securities Corporation
(Prusec)), which in turn paid commissions
to salespersons.
PSI advised the Fund that for the year ended
December 31, 1997, it received
approximately $3,777,700 and $23,100 in
contingent deferred sales charges
imposed upon certain redemptions by Class B
and Class C shareholders,
respectively.
PSI, PIFM and PIC are indirect, wholly owned
subsidiaries of The Prudential
Insurance Company of America and Prusec.
The Fund, along with other affiliated
registered investment companies (the
'Funds'), has a credit agreement (the
'Agreement') with an unaffiliated lender.
The maximum commitment under the Agreement is
$200,000,000. 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 during the year
ended December 31, 1997. 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. The Agreement
expired on December 30, 1997 and has been
extended through December 29, 1998
under the same terms.
- ----------------------------------------------
- --------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'),
a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent and during
the year ended December 31, 1997,
the Fund incurred fees of approximately
$4,989,000 for the services of PMFS. As
of December 31, 1997, approximately $436,000
of such fees were due to PMFS.
Transfer agent fees and expenses in the
Statement of Operations include certain
out-of-pocket expenses paid to nonaffiliates.
For the year ended December 31, 1997, PSI
earned $186,849 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, 1997
aggregated $807,252,133 and $491,288,133,
respectively.
The federal income tax basis of the Fund's
investments at December 31, 1997 was
substantially the same as for financial
reporting purposes and, accordingly, net
unrealized appreciation for federal income tax
purposes was $1,631,780,648
(gross unrealized appreciation--
$1,707,366,611; gross unrealized
depreciation--$75,585,963).
- ----------------------------------------------
- --------------
Note 5. Joint Repurchase Agreement Account
The Fund, along with other affiliated
registered investment companies, transfers
uninvested cash balances into a single joint
account, the daily aggregate
balance of which is invested in one or more
repurchase agreements collateralized
by U.S. Treasury or federal agency
obligations. As of December 31, 1997, the
Fund has a 41.67% undivided interest in the
joint account. The undivided
interest for the Fund represents $490,791,000
in the principal amount. As of
such date, each repurchase agreement in the
joint account and the collateral
therefor were as follows:
Credit Suisse First Boston Corp., 6.75%, in
the principal amount of
$342,000,000, repurchase price $342,128,250,
due 1/2/98. The value of the
collateral including accrued interest is
$353,486,750.
- ----------------------------------------------
- ----------------------------------
11
<PAGE>
Notes to Financial Statements
PRUDENTIAL EQUITY FUND, INC.
- ----------------------------------------------
- ----------------------------------
Deutsche Morgan Grenfell, Inc., 6.80%, in the
principal amount of $200,000,000,
repurchase price $200,075,555, due 1/2/98. The
value of the collateral including
accrued interest is $204,000,314.
SBC Warburg Dillon Read Inc., 6.55%, in the
principal amount of $142,000,000,
repurchase price $142,051,672, due 1/2/98. The
value of the collateral including
accrued interest is $144,862,841.
Morgan Stanley, Dean Witter, Discover & Co.,
5.95%, in the principal amount of
$151,553,000, repurchase price $151,603,097,
due 1/2/98. The value of the
collateral including accrued interest was
$154,584,932.
Salomon Smith Barney Inc., 6.75%, in the
principal amount of $342,000,000,
repurchase price $342,128,250, due 1/2/98. The
value of the collateral including
accrued interest was $350,295,372.
- ----------------------------------------------
- --------------
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, 1997:
Shares sold......................
176,089,330 $ 3,419,389,251
Shares issued in reinvestment of
dividends......................
6,449,778 125,989,153
Shares reacquired................
(180,465,455) (3,512,361,626)
-----------
- - ---------------
Net increase in shares
outstanding before
conversions....................
2,073,653 33,016,778
Shares issued upon conversion
from Class B...................
10,616,578 206,433,920
-----------
- - ---------------
Net increase in shares
outstanding....................
12,690,231 $ 239,450,698
-----------
- - ---------------
-----------
- - ---------------
<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
-----------
- - ---------------
-----------
- - ---------------
<CAPTION>
Class B
- ---------------------------------
<S> <C>
<C>
Year ended December 31, 1997:
Shares sold......................
59,587,032 $ 1,140,769,682
Shares issued in reinvestment of
dividends......................
9,872,279 192,363,178
Shares reacquired................
(55,367,777) (1,062,159,431)
-----------
- - ---------------
Net increase in shares
outstanding before
conversions....................
14,091,534 270,973,429
Shares reacquired upon conversion
into Class A...................
(10,585,531) (206,433,920)
-----------
- - ---------------
Net increase in shares
outstanding....................
3,506,003 $ 64,539,509
-----------
- - ---------------
-----------
- - ---------------
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
-----------
- - ---------------
-----------
- - ---------------
<CAPTION>
Class C
- ---------------------------------
<S> <C>
<C>
Year ended December 31, 1997:
Shares sold......................
1,997,551 $ 38,680,939
Shares issued in reinvestment of
dividends......................
219,243 4,278,697
Shares reacquired................
(1,327,660) (25,772,744)
-----------
- - ---------------
Net increase in shares
outstanding....................
889,134 $ 17,186,892
-----------
- - ---------------
-----------
- - ---------------
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
-----------
- - ---------------
-----------
- - ---------------
</TABLE>
- ----------------------------------------------
- ----------------------------------
12
<PAGE>
Notes to Financial Statements
PRUDENTIAL EQUITY FUND, INC.
- ----------------------------------------------
- ----------------------------------
<TABLE>
<CAPTION>
Class Z Shares
Amount
- --------------------------------- -----------
- - ---------------
Year ended December 31, 1997:
<S> <C>
<C>
Shares sold......................
11,766,210 $ 223,973,948
Shares issued in reinvestment of
dividends......................
923,845 18,100,201
Shares reacquired................
(6,704,933) (127,753,754)
-----------
- - ---------------
Net increase in shares
outstanding....................
5,985,122 $ 114,320,395
-----------
- - ---------------
-----------
- - ---------------
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
<PAGE>
Financial Highlights
PRUDENTIAL EQUITY FUND, INC.
- ----------------------------------------------
- ----------------------------------
<TABLE>
<CAPTION>
Class A
- ----------------------------------------------
- --------------------
Year Ended December 31,
- ----------------------------------------------
- --------------------
1997 1996 1995
1994 1993
- ---------- ---------- ---------- -
- ------- --------
<S>
<C> <C> <C>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
year.................. $ 17.26 $
16.44 $ 13.24 $ 13.80 $ 12.07
- ---------- ---------- ---------- -
- ------- --------
Income from investment operations
Net investment
income...............................
.38 .35 .27 .22
.23
Net realized and unrealized gain on
investments and
foreign
currencies...............................
3.70 2.52 3.88
.09 2.42
- ---------- ---------- ---------- -
- ------- --------
Total from investment
operations................. 4.08
2.87 4.15 .31 2.65
- ---------- ---------- ---------- -
- ------- --------
Less distributions
Dividends from net investment
income................ (.36)
(.35) (.27) (.22) (.22)
Distributions in excess of net investment
income.... -- (.01)
- -- -- --
Distributions from net realized capital
gains....... (1.13) (1.69)
(.68) (.65) (.70)
- ---------- ---------- ---------- -
- ------- --------
Total
distributions..............................
(1.49) (2.05) (.95)
(.87) (.92)
- ---------- ---------- ---------- -
- ------- --------
Net asset value, end of
year........................ $ 19.85
$ 17.26 $ 16.44 $ 13.24 $
13.80
- ---------- ---------- ---------- -
- ------- --------
- ---------- ---------- ---------- -
- ------- --------
TOTAL
RETURN(a):....................................
23.88% 17.94% 31.58%
2.38% 22.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000)....................... $1,912,802
$1,443,466 $1,158,111 $276,412
$232,535
Average net assets
(000)............................ $1,709,030
$1,233,792 $ 908,365 $254,596
$190,778
Ratios to average net assets:
Expenses, including distribution
fees............ .88% .89%
.91% 1.00% .91%
Expenses, excluding distribution
fees............ .63% .64%
.66% .75% .71%
Net investment
income............................
1.87% 2.07% 1.82%
1.62% 1.71%
For Class A, B, C and Z shares:
Portfolio
turnover...............................
13% 19% 18% 12%
21%
Average commission rate paid per
share........... $.0339 $.0523
$.0501 N/A N/A
</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.
- ----------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 14
<PAGE>
Financial Highlights
PRUDENTIAL EQUITY FUND, INC.
- ----------------------------------------------
- ----------------------------------
<TABLE>
<CAPTION>
Class B
- ----------------------------------------------
- ------------------------
Year Ended December 31,
- ----------------------------------------------
- ------------------------
1997 1996 1995
1994 1993
- ---------- ---------- ---------- -
- --------- ----------
<S>
<C> <C> <C>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
year.................. $ 17.24 $
16.43 $ 13.24 $ 13.80 $
12.08
- ---------- ---------- ---------- -
- --------- ----------
Income from investment operations
Net investment
income...............................
.22 .22 .16
.12 .12
Net realized and unrealized gain on
investments and
foreign
currencies...............................
3.72 2.51 3.87
.09 2.42
- ---------- ---------- ---------- -
- --------- ----------
Total from investment
operations................. 3.94
2.73 4.03 .21
2.54
- ---------- ---------- ---------- -
- --------- ----------
Less distributions
Dividends from net investment
income................ (.22)
(.22) (.16) (.12)
(.12)
Distributions in excess of net investment
income.... -- (.01)
- -- -- --
Distributions from net realized capital
gains....... (1.13) (1.69)
(.68) (.65) (.70)
- ---------- ---------- ---------- -
- --------- ----------
Total
distributions..............................
(1.35) (1.92) (.84)
(.77) (.82)
- ---------- ---------- ---------- -
- --------- ----------
Net asset value, end of
year........................ $ 19.83
$ 17.24 $ 16.43 $ 13.24 $
13.80
- ---------- ---------- ---------- -
- --------- ----------
- ---------- ---------- ---------- -
- --------- ----------
TOTAL
RETURN(a):....................................
23.05% 17.14% 30.62%
1.60% 21.13%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000)....................... $3,090,767
$2,626,479 $2,140,895 $1,970,580
$1,794,634
Average net assets
(000)............................ $2,924,413
$2,417,900 $1,891,160 $1,901,972
$1,522,992
Ratios to average net assets:
Expenses, including distribution
fees............ 1.63% 1.64%
1.66% 1.75% 1.71%
Expenses, excluding distribution
fees............ .63% .64%
.66% .75% .71%
Net investment
income............................
1.12% 1.37% .99%
.87% .91%
</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.
- ----------------------------------------------
- ----------------------------------
See Notes to Financial Statements. 15
<PAGE>
Financial Highlights
PRUDENTIAL EQUITY FUND, INC.
- ----------------------------------------------
- ----------------------------------
<TABLE>
<CAPTION>
Class C Class Z
- ----------------------------------------------
- --------- --------
August 1,
1994(c)
Year Ended December 31, Through
- --------------------------------------
December 31,
1997 1996 1995
1994 1997
- ------- ------------ --------- ---
- --------- --------
<S>
<C> <C> <C> <C>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period................ $ 17.24 $
16.43 $ 13.24 $14.02 $
17.26
- ------- ------ ---------
- ----- --------
Income from investment operations
Net investment
income...............................
.25 .22 .16
.09 .42
Net realized and unrealized gain (loss) on
investments and foreign
currencies............... 3.69
2.51 3.87 (.10)
3.72
- ------- ------ ---------
- ----- --------
Total from investment
operations................. 3.94
2.73 4.03 (.01)
4.14
- ------- ------ ---------
- ----- --------
Less distributions
Dividends from net investment
income................ (.22)
(.22) (.16) (.12)
(.40)
Distributions in excess of net investment
income.... -- (.01)
- -- -- --
Distributions from net realized capital
gains....... (1.13) (1.69)
(.68) (.65) (1.13)
- ------- ------ ---------
- ----- --------
Total
distributions..............................
(1.35) (1.92) (.84)
(.77) (1.53)
- ------- ------ ---------
- ----- --------
Net asset value, end of
period...................... $ 19.83 $
17.24 $ 16.43 $13.24 $
19.87
- ------- ------ ---------
- ----- --------
- ------- ------ ---------
- ----- --------
TOTAL
RETURN(a):....................................
23.05% 17.14% 30.62%
.01% 24.29%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)..................... $72,244 $
47,477 $23,894 $3,160
$267,121
Average net assets
(000)............................ $60,434
$ 36,745 $12,190 $1,847
$ 57,646
Ratios to average net assets:
Expenses, including distribution
fees............ 1.63% 1.64%
1.66% 1.83%(b) .63%
Expenses, excluding distribution
fees............ .63% .64%
.66% .83%(b) .63%
Net investment
income............................ 1.11%
1.37% 1.03% .90%(b)
2.11%
<CAPTION>
March 1,
1996(d)
Through
December 31,
1996
- ------------
<S>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period................ $ 17.10
- ------------
Income from investment operations
Net investment
income...............................
.37
Net realized and unrealized gain (loss) on
investments and foreign
currencies............... 1.88
- ------------
Total from investment
operations................. 2.25
- ------------
Less distributions
Dividends from net investment
income................ (.39)
Distributions in excess of net investment
income.... (.01)
Distributions from net realized capital
gains....... (1.69)
- ------------
Total
distributions..............................
(2.09)
- ------------
Net asset value, end of
period...................... $ 17.26
- ------------
- ------------
TOTAL
RETURN(a):....................................
13.65%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)..................... $128,752
Average net assets
(000)............................ $124,631
Ratios to average net assets:
Expenses, including distribution
fees............ .64%(b)
Expenses, excluding distribution
fees............ .64%(b)
Net investment
income............................
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. 16
<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, 1997, 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, 1997 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 LLP
1177 Avenue of the Americas
New York, New York
February 13, 1998
Tax Information (unaudited)
PRUDENTIAL EQUITY FUND, INC.
- ----------------------------------------------
- ----------------------------------
We are required by Internal Revenue Code to
advise you within 60 days of the
Fund's fiscal year end (December 31, 1997) as
to the federal tax status of
dividends paid by the Fund during its fiscal
year ended December 31, 1997.
During 1997, the Fund paid dividends of $1.486
per Class A share, $1.346 per
Class B share and $1.346 per Class C share and
$1.534 per Class Z share. Of
these amounts, $.952 per Class A, B, C and Z
shares represent distributions from
long-term capital gains of which $0.406 is
taxable at 28% and $0.546 is taxable
at 20%. The remaining $.534 per Class A share,
$.394 per Class B share, $.394
per Class C share and $.582 per Class Z share
represent dividends from ordinary
income (net investment income and short-term
capital gains). Further, we wish to
advise you that 61.72% of the ordinary income
dividends paid in 1997 qualified
for the corporate dividends received deduction
available to corporate taxpayers.
For the purpose of preparing your annual
federal income tax return, however, you
should report the amounts as reflected on the
appropriate Form 1099-DIV or
substitute 1099-DIV.
- ----------------------------------------------
- ----------------------------------
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 perfor-mance 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.
<PAGE>
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>
Comparing A $10,000 Investment.
- ----------------------------------------------
- ----
Prudential Equity Fund, Inc. vs. the S&P 500
Index.
- ----Prudential Equity Fund, Inc.
//S&P 500 Index
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 1987 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, 1997; (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.
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.
Average Annual Total
Returns - Class A
- ------------------------
With Sales Load
16.13% Since Inception
17.96% for 5 Years
17.68% for 1 Year
Class A
(GRAPH)
Without Sales Load
16.88% Since Inception
19.18% for 5 Years
23.88% for 1 Year
Average Annual Total
Returns - Class B
- -------------------------------
With Sales Load
17.04% Since Inception
16.63% for 10 Years
18.19% for 5 Years
18.05% for 1 Year
Class B
(GRAPH)
Without Sales Load
17.04% Since Inception
16.63% for 10 Years
18.29% for 5 Years
23.05% for 1 Year
Average Annual Total
Returns - Class C
- -------------------------
With Sales Load
20.33% Since Inception
22.05% for 1 Year
Class C
(GRAPH)
Without Sales Load
20.33% Since Inception
23.05% for 1 Year
Average Annual Total
Returns - Class Z
- -------------------------- Class Z
(GRAPH)
Without Sales Load
20.72% Since Inception
24.29% for 1 Year
<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
Douglas H. McCorkindale
Mendel A. Melzer, CFA
Thomas T. Mooney
Stephen P. Munn
Richard A. Redeker
Robin B. Smith
Louis A. Weil, III
Clay T. Whitehead
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Marguerite E.H. Morrison, Assistant Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
Distributor
Prudential 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 Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
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
