<PAGE>
(ICON)
Prudential
Equity
Fund, Inc.
SEMI
ANNUAL
REPORT
June 30, 1999
(LOGO)
<PAGE>
Portfolio Manager's Report
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(PHOTO)
Thomas R. Jackson
Fund Manager
Performance Review
It's about time
We knew we had very, very inexpensive stocks in our portfolio in terms of
price-to-book-value and price-to-earnings ratios compared with the averages for
S&P 500 Index stocks. We thought that once investors became less concerned
about protecting themselves from a global economic crisis, they would discover
our holdings. In the first half of 1999, Brazil devalued its currency and its
economy contracted, but the damage was contained and neither the devaluation
nor the subsequent Brazilian recession caused a crisis. Then news of
improvements in Asian economies trickled in. So in April of 1999, our stocks
began to shoot up, returning more in one quarter than large company stocks
have averaged historically (1926-1998) over a full year.
Investment Goals and Style
The Prudential Equity Fund invests primarily in stocks of major, established
companies mainly in the United States. One objective is long-term growth of
capital. 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, cash flow or book value. Historically, stocks that
are inexpensive on these value measures subsequently have tended to outperform
the market averages. Of course, there can be no assurance that past trends will
continue or that the Fund will achieve its investment objective.
Industries that traditionally do well in the early stages of an economic
expansion had particularly substantial gains: our retailers--about 10% of our
assets on June 30--included Tandy, whose extraordinary contribution was driven
by two years of double-digit increases in same-store sales and by strong profit
growth. Our largest holding at period end, Tandy gained 138% in the half year.
We also did well with Nine West, which was acquired by Jones Apparel Group, and
with Dillards.
Among industrials, we had substantial contributions from paper companies, our
largest industry focus. Asia has been a major importer of forest products, and
we expected demand to rebound. Moreover, the additional Asian consumption
probably will be building on an already high level of demand from the continued
strength of the U.S. market. Another factor is the restructuring under way in
this industry, separating land ownership from processing. These all bode well
for earnings. Paper companies were among the first materials companies to
benefit from the new optimism. Georgia Pacific, Mead, and Willamette made the
largest contributions to our return. Metal producers, such as Alcoa (up 67%)
and Freeport-McMoran Copper and Gold, also benefited from the economic recovery
in Asia.
<PAGE>
Financials also benefit from a growing economy
Our focus on financial companies, including insurance companies, banks, and
financial service companies, is benefiting from the strong stock market, low
interest rates, low inflation, and moderate but sustained economic growth.
Stocks of these companies also had become inexpensive when investors feared
for the economic future; the renewed confidence is making them much more
attractive to most investors.
Value companies in growth areas had mixed results
We had mixed results among our relatively small technology holdings: Hewlett
Packard bounced back from a lethargic period in which it had become
undervalued, but Compaq and Seagate both declined over the half year because
of poor earnings.
Although our hospital management companies averaged a negative return, two of
our health maintenance organizations (HMOs)--United Healthcare and Foundation
Healthcare--had large gains.
Performance at a Glance
<TABLE>
<CAPTION>
Cumulative Total Returns1 As of 6/30/99
Six One Five Ten Since
Months Year Years Years Inception2
<S> <C> <C> <C> <C> <C>
Class A 15.61% 11.79% 152.55% N/A 332.40%
Class B 15.18 10.94 143.16 337.31% 1388.31
Class C 15.18 10.94 N/A N/A 133.10
Class Z 15.77 12.07 N/A N/A 77.53
Lipper Growth Fund Avg.3 11.65 18.87 182.63 364.07 ***
</TABLE>
Average Annual Total Returns1 As of 6/30/99
<TABLE>
<CAPTION>
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A 6.20% 19.13% N/A 16.16%
Class B 5.94 19.35 15.90% 16.89
Class C 8.83 N/A N/A 18.56
Class Z 12.07 N/A N/A 18.82
</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 LLC and Lipper, Inc. The
cumulative total returns do not take into account sales charges. The average
annual total returns do take into account applicable sales charges. The Fund
charges a maximum front-end sales charge of 5% for Class A shares. Class B
shares are subject to a declining contingent deferred sales charge (CDSC) of
5%, 4%, 3%, 2%, 1%, and 1% for six years. Class B shares will automatically
convert to Class A shares, on a quarterly basis, approximately seven years
after purchase. Class C shares are subject to a front-end sales charge of 1%
and a CDSC of 1% for 18 months. Class C shares bought before November 2, 1998,
have a 1% CDSC if sold within one year. Class Z shares are not subject to a
sales charge or distribution and service (12b-1) fees.
2 Inception dates: Class A, 1/22/90; Class B, 3/15/82; Class C, 8/1/94; and
Class Z, 3/1/96.
3 Lipper average returns are for all funds in each share class for the
six-month, one-, five-, and ten-year periods in the Growth Fund category.
***Lipper Since Inception returns are 352.54% for Class A, 1395.43% for Class
B, 175.09% for Class C, and 96.95% for Class Z, based on all funds in each
share class.
1
<PAGE>
Looking Ahead
Growth and value investing styles tend to perform well in different
environments. The three most important factors now all favor our value
investing style:
1. The difference in price between value stocks and growth stocks with similar
earnings
Value stocks have been trailing for an exceptionally long period and are now as
inexpensive, compared with growth stocks, as at any time in the last quarter
century.
2. Interest rates
Falling interest rates favor growth stocks because capital for expansion is
less expensive, and because investors are willing to pay more for future
earnings when interest rates are low. Whereas the Federal Reserve dropped
interest rates in 1998 because of the economic uncertainty, they raised rates
in June 1999. Greater demand for capital for economic growth in the United
States and overseas may also push rates up. Value stocks generally tend to do
better than growth stocks when interest rates are rising.
3. Corporate profit growth
When profits are uncertain, investors are willing to pay much more for the few
companies with consistent earnings growth, even if their stocks become quite
expensive. This was the climate in 1998. But because recent earnings reports
are very strong across a wide range of companies, investors need not pay so
high a premium for the most popular. This also favors value stocks.
Five Largest Holdings
Expressed as a percentage of net assets as of 6/30/99
Tandy Corp. 3.9%
Retail
Eastman Kodak Co. 2.9
Diversified Consumer Products
Well Point Health 2.8
Healthcare
ELF Aquitaine ADR 2.7
Integrated Producers
Darden Restaurants 2.5
Restaurants
Portfolio Composition
Expressed as a percentage of net assets as of 6/30/99
Consumer Growth & Stable 23%
Finance 20
Industrial 19
Consumer Cyclical 13
Technology 9
Energy 6
Utility 6
Cash & Equivalents 4
2
<PAGE>
A Message from the Fund's President August 20, 1999
- -------------------------------------------------------------------------------
(PHOTO)
Dear Shareholder,
I am pleased to report that Prudential Equity Fund returned 15.61% in the first
half of 1999, a return that beat even a very high Lipper Growth Fund Average by
almost four percentage points.
Investors--finally feeling more confident about global economic growth--turned
away from overpriced growth stocks toward value stocks. Although consumer and
industrial cyclicals (companies that do well in a business expansion) made
particularly substantial contributions to the Fund's return, value stocks in
many sectors moved up sharply. The value advantage showed up in the second
quarter, after global financial markets had digested a Brazilian currency
devaluation with barely a hiccup.
In the following report, Portfolio Manager Tom Jackson takes a closer look at
stock market events that took place during the six-month reporting period and
explains how Prudential Equity Fund was positioned to benefit.
Diversification is key
Stock and bond markets seldom perform in lockstep. In fact, most recently,
while the stock market was reaching new highs, the bond market was experiencing
some unpleasant turbulence. This disparity not only highlights the value of
professional portfolio management, it illustrates why investors should have a
well-diversified asset allocation strategy. It is also a good practice to
rebalance your holdings, when necessary, to keep your asset allocation
consistent with your long-term objectives and risk tolerance. A properly
diversified portfolio of value- and growth-oriented equity funds,
international and domestic bond funds, and money market funds could help you
weather inevitable market turbulence and achieve more consistent returns over
time. Your Prudential professional can help you conduct this review and make
sure your investment strategies are on course.
Thank you for your continued confidence in Prudential mutual funds.
Sincerely,
John R. Strangfeld
President and Chief Investment Officer
Prudential Equity Fund, Inc.
<PAGE>
Portfolio of Investments as of
June 30, 1999 (Unaudited) PRUDENTIAL EQUITY FUND, INC.
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--95.3%
COMMON STOCKS--95.3%
- ------------------------------------------------------------
Aluminum--1.8%
1,670,000 Alcoa Inc. $ 103,331,250
- ------------------------------------------------------------
Apparel--0.4%
641,809 Jones Apparel Group, Inc.(a) 22,022,067
- ------------------------------------------------------------
Automobiles & Trucks--1.3%
377,422 Delphi Automotive Systems Corp. 7,005,896
540,000 General Motors Corp. 35,640,000
404,800 Navistar International Corp.(a) 20,240,000
248,800 PACCAR Inc. 13,279,700
--------------
76,165,596
- ------------------------------------------------------------
Banks & Financial Services--9.3%
294,000 American Express Co. 38,256,750
552,800 American Financial Group Inc. 18,829,750
1,473,134 BankAmerica Corporation 107,999,137
1,884,300 Bank of New York Co., Inc. 69,130,256
689,300 Chase Manhattan Corp. 59,710,613
1,182,602 Citigroup Inc. 56,173,571
676,700 Lehman Brothers Holdings Inc. 42,124,575
139,612 Mellon Bank Corp. 5,078,387
384,750 Mercantile Bankshares Corp. 13,610,531
286,400 Morgan (J.P.) & Co., Inc. 40,239,200
536,100 Morgan Stanley, Dean Witter & Co. 54,950,250
450,000 Republic New York Corp. 30,684,375
--------------
536,787,395
- ------------------------------------------------------------
Chemicals--1.4%
711,000 Boc Group PLC, ADR (Great Britian) 28,662,187
828,800 Eastman Chemical Co.(a) 42,890,400
506,900 Wellman Inc. 8,078,719
100,000 Witco Corp. 2,000,000
--------------
81,631,306
Commercial Services--1.5%
900,000 American Standard Co., Inc.(a) $ 43,200,000
806,710 Waste Management, Inc. 43,360,663
--------------
86,560,663
- ------------------------------------------------------------
Computer Hardware--4.3%
2,973,350 Compaq Computer Corp. 70,431,228
250,200 Gerber Scientific, Inc. 5,520,038
977,000 Hewlett-Packard Co. 98,188,500
2,773,900 Seagate Technology, Inc.(a) 71,081,187
--------------
245,220,953
- ------------------------------------------------------------
Construction & Housing--0.7%
1,100,000 Centex Corp. 41,318,750
- ------------------------------------------------------------
Consumer Services--0.4%
1,553,100 CKE Restaurants, Inc. 25,237,875
- ------------------------------------------------------------
Diversfied Consumer Products--7.4%
3,461,100 Freeport-McMoRan, Inc. (Class A) 57,973,425
487,000 Freeport-McMoRan, Inc. (Class B) 8,735,563
750,000 Gibson Greetings Inc.(a) 4,757,813
1,600,000 Loews Corp. 126,600,000
1,865,000 Philip Morris Companies Inc. 74,949,687
1,120,000 Reynolds RJ Tobacco Holdings
Incorporated 35,280,000
3,360,000 RJR Nabisco Holdings Corp. 65,730,000
2,147,900 Sara Lee Corp. 48,730,481
--------------
422,756,969
- ------------------------------------------------------------
Electrical Power--1.7%
170,000 American Electric Power Company,
Inc. 6,385,625
570,000 General Public Utilities Corp. 24,046,875
974,519 Reliant Energy Incorporated 26,921,087
979,600 Unicom Corp. 37,775,825
--------------
95,129,412
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as of
June 30, 1999 (Unaudited) PRUDENTIAL EQUITY FUND, INC.
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Electronics--4.6%
1,937,700 Arrow Electronics, Inc. $ 36,816,300
776,300 Avnet, Inc. 36,097,950
2,544,000 Harris Corp. 99,693,000
465,000 Hitachi Ltd, ADR (Japan) 43,913,438
1,744,600 National Semiconductor Corp.(a) 44,160,187
--------------
260,680,875
- ------------------------------------------------------------
Forest Products--11.3%
643,900 Fort James Corp. 24,387,713
2,832,500 Georgia-Pacific Corp. 134,189,687
1,046,000 Georgia-Pacific Corp. (Timber
Group) 26,411,500
1,616,000 International Paper Co. 81,608,000
2,047,000 Mead Corp. 85,462,250
752,500 Rayonier Inc. 37,483,906
1,101,500 Temple-Inland Inc. 75,177,375
1,260,000 Weyerhaeuser Co. 86,625,000
2,112,100 Willamette Industries, Inc. 97,288,606
--------------
648,634,037
- ------------------------------------------------------------
Health Care--10.9%
5,191,300 Columbia/HCA Healthcare Corp. 118,426,531
4,270,940 Foundation Health Systems, Inc. 64,064,100
273,226 Lifepoint Hospitals Inc. 3,671,474
963,600 Pacificare Health Systems(a) 69,318,975
5,633,274 Tenet Healthcare Corp.(a) 104,567,649
273,226 Triad Hosps Inc. 3,688,551
1,623,500 United Healthcare Corp. 101,671,688
1,880,000 Wellpoint Health Networks Inc.(a) 159,565,000
--------------
624,973,968
- ------------------------------------------------------------
Insurance--9.1%
648,164 American General Corp. 48,855,361
1,891,600 Chubb Corp. 131,466,200
2,805,363 Old Republic International Corp. 48,567,847
2,600,700 SAFECO Corp. 114,755,887
1,667,000 Service Corp. International $ 32,089,750
1,433,800 St. Paul Companies, Inc. 45,612,763
981,200 The Equitable Companies, Inc. 65,740,400
589,400 Tokio Marine & Fire Insurance
Ltd., ADR (Japan) 33,080,075
--------------
520,168,283
- ------------------------------------------------------------
Metals-Non Ferrous--1.2%
978,100 Cyprus Minerals Co. 14,854,894
2,758,800 Newmont Mining Corp. 54,831,150
--------------
69,686,044
- ------------------------------------------------------------
Oil & Gas Exploration/Production--6.9%
300,000 Amerada Hess Corp. 17,850,000
912,100 Atlantic Richfield Co. 76,217,356
562,319 Kerr-McGee Corp. 28,221,385
1,130,448 Keyspan Corporation 29,815,566
1,100,000 Occidental Petroleum Corp. 23,237,500
350,000 Potash Corp. of Saskatchewan Inc. 18,112,500
2,098,596 Societe Nationale Elf Aquitaine,
ADR (France) 154,377,968
738,365 Total SA, ADR (France) 47,578,395
--------------
395,410,670
- ------------------------------------------------------------
Photography--2.9%
2,501,400 Eastman Kodak Co. 169,469,850
- ------------------------------------------------------------
Restaurants--2.4%
6,457,300 Darden Restaurants Inc. 140,849,856
- ------------------------------------------------------------
Retail--12.0%
3,110,000 Dillards Department Stores, Inc. 109,238,750
3,111,700 Hilton Hotels Corp. 44,147,244
1,100,000 Homebase, Inc.(a) 6,943,750
4,566,000 Ikon Office Solutions Inc. 68,490,000
6,000,000 Kmart Corp.(a) 98,625,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as of
June 30, 1999 (Unaudited) PRUDENTIAL EQUITY FUND, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Retail (cont'd.)
3,111,700 Park Place Entertainment Corp. $ 30,144,594
1,800,000 Pep Boys - Manny, Moe & Jack 38,925,000
625,000 Sears, Roebuck & Co. 27,851,562
4,548,000 Tandy Corp. 222,283,500
2,125,000 Toys 'R' Us Inc.(a) 43,960,937
--------------
690,610,337
- ------------------------------------------------------------
Steel - Producers--0.1%
1,373,300 Birmingham Steel Corp. 5,664,863
- ------------------------------------------------------------
Telecommunications--3.5%
876,082 ALLTEL Corp. 62,639,863
1,494,650 AT&T Corp. 83,420,153
2,409,900 Loral Space & Communications(a) 43,378,200
359,400 Portugal Telecom, S.A. ADR
(Portugal) 14,802,787
--------------
204,241,003
- ------------------------------------------------------------
Transportation--0.2%
100,000 Marine Transport Corp. 356,250
1,000,000 OMI Corp.(a) 2,062,500
550,000 Overseas Shipholding Group, Inc. 7,081,250
--------------
9,500,000
--------------
Total long-term investments
(cost $3,706,633,966) 5,476,052,022
--------------
SHORT-TERM INVESTMENTS--5.1%
- ------------------------------------------------------------
Commercial Paper--1.6%
General Electric Cap. Corp.
$ 14,000 5.06%, 8/2/99 $ 13,937,031
GE Capital International Funding
23,000 5.07%, 8/9/99 22,873,673
20,000 5.04%, 8/16/99 19,871,200
Monte Rosa Capital Corp.
13,000 5.07%, 7/19/99 12,967,045
Preferred Receivables Funding
Corp.
25,000 5.25%, 8/19/99 24,821,354
--------------
Total commercial paper
(cost $94,470,303) 94,470,303
--------------
- ------------------------------------------------------------
Repurchase Agreement--3.5%
197,772 Joint Repurchase Agreement
Account,
4.78%, 7/1/99 (Note 5)
(cost $197,772,000) 197,772,000
--------------
Total short-term investments
(cost $292,242,303) 292,242,303
--------------
- ------------------------------------------------------------
Total Investments--100.4%
(cost $3,998,876,269; Note 4) 5,768,294,325
Liabilities in excess of other
assets--(0.4%) (24,734,702)
--------------
Net Assets--100% $5,743,559,623
--------------
--------------
</TABLE>
- ---------------
(a) Non-income producing security.
ADR--American Depository Receipt.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5
<PAGE>
Statement of Assets and Liabilities (Unaudited) PRUDENTIAL EQUITY FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets June 30, 1999
<S> <C>
Investments, at value (cost $3,998,876,269)................................................................. $5,768,294,325
Dividends and interest receivable........................................................................... 9,387,395
Receivable for Fund shares sold............................................................................. 3,046,123
Deferred expenses and other assets.......................................................................... 47,010
--------------
Total assets............................................................................................. 5,780,774,853
--------------
Liabilities
Bank overdraft.............................................................................................. 165,947
Payable for investments purchased........................................................................... 18,700,797
Payable for Fund shares reacquired.......................................................................... 11,494,768
Distribution fee payable.................................................................................... 2,882,906
Management fee payable...................................................................................... 2,175,480
Accrued expenses and other liabilities...................................................................... 1,769,276
Deferred Trustees' fees..................................................................................... 26,056
--------------
Total liabilities........................................................................................ 37,215,230
--------------
Net Assets.................................................................................................. $5,743,559,623
--------------
--------------
Net assets were comprised of:
Common stock, at par..................................................................................... $ 2,570,771
Paid-in capital in excess of par......................................................................... 3,630,487,233
--------------
3,633,058,004
Undistributed net investment income...................................................................... 35,293,480
Accumulated net realized gain on investments............................................................. 305,793,455
Net unrealized appreciation on investments............................................................... 1,769,414,684
--------------
Net assets, June 30, 1999................................................................................... $5,743,559,623
--------------
--------------
Class A:
Net asset value and redemption price per share
($2,497,070,140 / 111,481,350 shares of common stock issued and outstanding).......................... $22.40
Maximum sales charge (5.00% of offering price)........................................................... 1.18
--------------
Maximum offering price to public......................................................................... $23.58
--------------
--------------
Class B:
Net asset value, offering price and redemption price per share
($2,828,837,733 / 126,947,676 shares of common stock issued and outstanding).......................... $22.28
--------------
--------------
Class C:
Net asset value and redemption price per share
($93,843,344 / 4,211,431 shares of common stock issued and outstanding)............................... $22.28
Maximum sales charge (1.00% of offering price)........................................................... .23
--------------
Maximum offering price to public......................................................................... $22.51
--------------
--------------
Class Z:
Net asset value, offerng price and redemption price per share
($323,808,406 / 14,436,676 shares of common stock issued and outstanding)............................. $22.43
--------------
--------------
</TABLE>
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See Notes to Financial Statements. 6
<PAGE>
PRUDENTIAL EQUITY FUND, INC.
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
June 30,
Net Investment Income 1999
<S> <C>
Income
Dividends (net of foreign withholding taxes
of $595,881)............................ $ 59,177,432
Interest................................... 5,873,784
------------
Total income............................ 65,051,216
------------
Expenses
Distribution fee--Class A.................. 2,753,685
Distribution fee--Class B.................. 14,068,878
Distribution fee--Class C.................. 433,448
Management fee............................. 12,349,143
Transfer agent's fees and expenses......... 3,483,000
Reports to shareholders.................... 273,000
Custodian's fees and expenses.............. 149,000
Registration fees.......................... 139,000
Insurance expense.......................... 59,000
Directors' fees and expenses............... 22,000
Audit fee and expenses..................... 15,000
Legal fees and expenses.................... 15,000
Miscellaneous.............................. 14,334
------------
Total expenses.......................... 33,774,488
------------
Net investment income......................... 31,276,728
------------
Realized and Unrealized
Gain on Investments and
Foreign Currency Transactions
Net realized gain on:
Investment transactions.................... 307,787,502
------------
Net change in unrealized appreciation on
investments................................ 435,631,452
------------
Net gain on investments....................... 743,418,954
------------
Net Increase in Net Assets
Resulting from Operations..................... $774,695,682
------------
------------
</TABLE>
PRUDENTIAL EQUITY FUND, INC.
Statement of Changes in Net Assets (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) June 30, December 31,
in Net Assets 1999 1998
<S> <C> <C>
Operations
Net investment income..... $ 31,276,728 $ 55,919,449
Net realized gain on
investments and foreign
currencies............. 307,787,502 668,341,418
Net change in unrealized
appreciation of
investments and foreign
currencies............. 435,631,452 (297,985,109)
--------------- ---------------
Net increase in net assets
resulting from
operations............. 774,695,682 426,275,758
--------------- ---------------
Dividends and distributions
(Note 1)
Dividends from net
investment income
Class A................ (28,885,221)
Class B................ -- (17,096,879)
Class C................ -- (476,903)
Class Z................ -- (4,978,773)
--------------- ---------------
-- (51,437,776)
--------------- ---------------
Distributions from net
realized
capital gains
Class A................ (42,893,256) (155,041,927)
Class B................ (54,779,742) (215,519,773)
Class C................ (1,681,378) (6,228,203)
Class Z................ (5,929,122) (22,058,351)
--------------- ---------------
(105,283,498) (398,848,254)
--------------- ---------------
Fund share transactions (net
of share conversions)
(Note 6)
Proceeds from shares
sold................... 2,096,049,837 6,813,992,163
Net asset value of shares
issued in reinvestment
of dividends and
distributions.......... 101,478,620 431,480,103
Cost of shares
reacquired............. (2,733,860,875) (6,953,915,648)
--------------- ---------------
Net increase in net assets
from Fund share
transactions........... (536,332,418) 291,556,618
--------------- ---------------
Total increase............... 133,079,766 267,546,346
Net Assets
Beginning of period.......... 5,610,479,857 5,342,933,511
--------------- ---------------
End of period(a)............. $ 5,743,559,623 $ 5,610,479,857
--------------- ---------------
--------------- ---------------
- ---------------
(a) Includes undistributed
net investment income.... $ 35,293,480 $ 4,016,752
--------------- ---------------
--------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7
<PAGE>
Notes to Financial Statements (Unaudited) 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. The Fund
invests 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 securities or
commodities exchange and NASDAQ National Market equity securities are valued at
the last reported sales price on the exchange on which they are traded or, if
securities traded in the over-the-counter market (including securities listed on
exchanges whose primary market is believed to be over-the-counter) are valued by
an independent pricing agent or principal market or at the bid price on such day
in the absence of an asked price.
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 unless the Board of Directors determines this
does not represent fair 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, under triparty repurchase agreements, as the case may be, take
possession of the underlying collateral securities, the value of which exceeds
the principal amount of the repurchase transaction, including accrued interest.
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.
- ------------------------------------------------------------
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 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.
- --------------------------------------------------------------------------------
8
<PAGE>
Notes to Financial Statements (Unaudited) PRUDENTIAL EQUITY FUND, INC.
- --------------------------------------------------------------------------------
The Fund has a distribution agreement with Prudential Investment Management
Services LLC ('PIMS'). The Fund compensates the distributors for distributing
and servicing the Fund's Class A, Class B and Class C shares, pursuant to plans
of distribution (the 'Class A, B and C Plans'), regardless of expenses actually
incurred by them. The distribution fees are accrued daily and payable monthly.
No distribution or service fees are paid to PSI or PIMS as distributor of the
Class Z shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates PIMS for
distribution-related activities at an annual rate of up to .30 of 1%, 1% and 1%
of the average daily net assets of the Class A, B and C shares, respectively.
Such expenses under the 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 six months ended June 30, 1999.
PIMS has advised the Fund that it has received approximately $77,995 and
$515,039 in front-end sales charges resulting from sales of Class A and after
November 2, 1998 Class C shares during the six months ended June 30, 1999. From
these fees, PIMS paid such sales charges to Securities Corporation an affiliated
broker-dealer, which in turn paid commissions to salespersons and incurred other
distribution costs.
PIMS has advised the Fund that for the six months ended June 30, 1999, it
received approximately $3,298,024 and $21,257 in contingent deferred sales
charges imposed upon certain redemptions by certain Class B and Class C
shareholders, respectively.
PIFM, PIC and PIMS are indirect, wholly owned subsidiaries of The Prudential
Insurance Company of America.
As of March 11, 1999, the Fund, along with other affiliated registered
investment companies (the 'Funds'), entered into a syndicated credit agreement
('SCA') with an unaffiliated lender. The maximum commitment under the SCA is $1
billion. The Funds pay a commitment fee at an annual rate of .065 of 1% on the
unused portion of the credit facility, which is accrued and paid quarterly on a
pro rata basis by the Funds. The SCA expires on March 9, 2000. Prior to March
11, 1999, the Funds had a credit agreement with a maximum commitment of
$200,000,000. The commitment fee was .055 of 1% on the unused portion of the
credit facility. The Fund did not borrow any amounts pursuant to either
agreement during the period ended June 30, 1999. The purpose of the agreements
is to serve as an alternative source of funding for capital share redemptions.
- ------------------------------------------------------------
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 six months ended June 30,
1999, the Fund incurred fees of approximately $2,898,951 for the services of
PMFS. As of June 30, 1999, approximately $479,026 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 six months ended June 30, 1999, PSI earned $198,492 in brokerage
commissions from portfolio transactions executed on behalf of the Fund.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the six months ended June 30, 1999 aggregated $314,139,486 and $726,292,214,
respectively.
The federal income tax basis of the Fund's investments at June 30, 1999 was
substantially the same as for financial reporting purposes and, accordingly, net
unrealized appreciation for federal income tax purposes was $1,769,418,056
(gross unrealized appreciation--$1,935,310,456; gross unrealized
depreciation--$165,892,400).
- ------------------------------------------------------------
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 June 30, 1999, the Fund
has a 25.39% undivided interest in the joint account. The undivided interest for
the Fund represents $197,772,000 in the principal amount. As of such date, each
repurchase agreement in the joint account and the collateral therefor were as
follows:
Deutsche Bank Securities Inc., 4.75%, in the principal amount of $150,000,000,
repurchase price $150,019,792, due 7/1/99. The value of the collateral including
accrued interest was $153,000,548.
Goldman Sachs & Co., 4.85%, in the principal amount of $200,000,000, repurchase
price $200,026,944, due 7/1/99. The value of the collateral including accrued
interest was $204,001,378.
Morgan Stanley Dean Witter, 4.70%, in the principal amount of $178,944,000,
repurchase price $178,967,362, due 7/1/99. The value of the collateral including
accrued interest was $182,666,733.
Morgan Stanley Dean Witter, 4.72%, in the principal amount of $50,000,000,
repurchase price $50,006,556, due 7/1/99. The value of the collateral including
accrued interest was $51,021,154.
- --------------------------------------------------------------------------------
9
<PAGE>
Notes to Financial Statements (Unaudited) PRUDENTIAL EQUITY FUND, INC.
- --------------------------------------------------------------------------------
Warburg Dillon Read LLC, 4.81%, in the principal amount of $200,000,000,
repurchase price $200,026,722, due 7/1/99. The value of the collateral including
accrued interest was $204,001,326.
- ------------------------------------------------------------
Note 6. Capital
The Fund offers Class A, Class B, Class C and Class Z shares. Class A shares are
sold with a front-end sales charge of up to 5%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class C shares are sold with a front-end
sales charge of 1% and a contingent deferred sales charge of 1% during the first
18 months. Class B shares will automatically convert to Class A shares on a
quarterly basis approximately seven years after purchase. A special exchange
privilege is also available for shareholders who qualified to purchase Class A
shares at net asset value. Class Z shares are not subject to any sales charge
and are offered exclusively for sale to a limited group of investors.
There are 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>
Six months ended June 30, 1999:
Shares sold...................... 82,266,278 $ 1,720,479,075
Shares issued in reinvestment of
dividends...................... 1,967,339 41,097,707
Shares reacquired................ (94,698,714) (1,962,083,798)
------------ ---------------
Net decrease in shares
outstanding before
conversions.................... (10,465,097) (200,507,016)
Shares issued upon conversion
from Class B................... 6,024,517 128,750,247
------------ ---------------
Net decrease in shares
outstanding.................... (4,440,580) $ (71,756,769)
------------ ---------------
------------ ---------------
Year ended December 31, 1998:
Shares sold...................... 257,279,581 $ 5,379,932,743
Shares issued in reinvestment of
dividends...................... 8,698,400 174,395,442
Shares reacquired................ (257,576,459) (5,396,913,633)
------------ ---------------
Net increase in shares
outstanding before
conversions.................... 8,401,522 157,414,552
Shares issued upon conversion
from Class B................... 11,176,872 225,279,045
------------ ---------------
Net increase in shares
outstanding.................... 19,578,394 $ 382,693,597
------------ ---------------
------------ ---------------
<CAPTION>
Class B Shares Amount
- --------------------------------- ------------ ---------------
<S> <C> <C>
Six months ended June 30, 1999:
Shares sold...................... 14,061,493 $ 292,304,437
Shares issued in reinvestment of
dividends...................... 2,538,673 52,829,780
Shares reacquired................ (31,741,140) (652,937,820)
------------ ---------------
Net decrease in shares
outstanding before
conversions.................... (15,140,974) (307,803,603)
Shares reacquired upon conversion
into Class A................... (6,049,315) (128,750,247)
------------ ---------------
Net decrease in shares
outstanding.................... (21,190,289) $ (436,553,850)
------------ ---------------
------------ ---------------
Year ended December 31, 1998:
Shares sold...................... 57,870,061 $ 1,203,484,100
Shares issued in reinvestment of
dividends...................... 11,185,741 223,571,853
Shares reacquired................ (65,658,297) (1,355,114,612)
------------ ---------------
Net increase in shares
outstanding before
conversions.................... 3,397,505 71,941,341
Shares reacquired upon conversion
into Class A................... (11,145,974) (225,279,045)
------------ ---------------
Net increase in shares
outstanding.................... (7,748,469) $ (153,337,704)
------------ ---------------
------------ ---------------
<CAPTION>
Class C
- ---------------------------------
<S> <C> <C>
Six months ended June 30, 1999:
Shares sold...................... 1,249,498 $ 26,050,768
Shares issued in reinvestment of
dividends...................... 78,462 1,632,798
Shares reacquired................ (1,618,707) (33,213,076)
------------ ---------------
Net decrease in shares
outstanding.................... (290,747) $ (5,529,510)
------------ ---------------
------------ ---------------
Year ended December 31, 1998:
Shares sold...................... 3,508,923 $ 72,836,611
Shares issued in reinvestment of
dividends...................... 328,636 6,521,538
Shares reacquired................ (2,977,095) (61,439,724)
------------ ---------------
Net increase in shares
outstanding.................... 860,464 $ 17,918,425
------------ ---------------
------------ ---------------
<CAPTION>
Class Z
- ---------------------------------
<S> <C> <C>
Six months ended June 30, 1999:
Shares sold...................... 2,730,624 $ 57,215,557
Shares issued in reinvestment of
dividends...................... 283,174 5,918,335
Shares reacquired................ (4,158,902) (85,626,181)
------------ ---------------
Net decrease in shares
outstanding.................... (1,145,104) $ (22,492,289)
------------ ---------------
------------ ---------------
Year Ended December 31, 1998:
Shares sold...................... 7,643,141 $ 157,738,709
Shares issued in reinvestment of
dividends...................... 1,343,793 26,991,270
Shares reacquired................ (6,851,762) (140,447,679)
------------ ---------------
Net increase in shares
outstanding.................... 2,135,172 $ 44,282,300
------------ ---------------
------------ ---------------
</TABLE>
- --------------------------------------------------------------------------------
10
<PAGE>
Financial Highlights (Unaudited) PRUDENTIAL EQUITY FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------------------------------------
Six Months
Ended Year Ended December 31,
June 30, -------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
----------- ---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....... $ 19.76 $ 19.85 $ 17.26 $ 16.44 $ 13.24 $ 13.80
----------- ---------- ---------- ---------- ---------- --------
Income from investment operations
Net investment income...................... .15 .31 .38 .35 .27 .22
Net realized and unrealized gain on
investments and foreign currencies...... 2.91 1.37 3.70 2.52 3.88 .09
----------- ---------- ---------- ---------- ---------- --------
Total from investment operations........ 3.06 1.68 4.08 2.87 4.15 .31
----------- ---------- ---------- ---------- ---------- --------
Less distributions
Dividends from net investment income....... -- (.28) (.36) (.35) (.27) (.22)
Distributions in excess of net investment
income.................................. -- -- -- (.01) -- --
Distributions from net realized capital
gains................................... (.42 ) (1.49) (1.13) (1.69) (.68) (.65)
----------- ---------- ---------- ---------- ---------- --------
Total distributions..................... (.42 ) (1.77) (1.49) (2.05) (.95) (.87)
----------- ---------- ---------- ---------- ---------- --------
Net asset value, end of period............. $ 22.40 $ 19.76 $ 19.85 $ 17.26 $ 16.44 $ 13.24
----------- ---------- ---------- ---------- ---------- --------
----------- ---------- ---------- ---------- ---------- --------
TOTAL RETURN(a):........................... 15.61 % 8.41% 23.88% 17.94% 31.58% 2.38%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............ $2,497,070 $2,290,659 $1,912,802 $1,443,466 $1,158,111 $276,412
Average net assets (000)................... $2,221,204 $2,088,616 $1,709,030 $1,233,792 $ 908,365 $254,596
Ratios to average net assets:
Expenses, including distribution fees... .86 %(b) .85% .88% .89% .91% 1.00%
Expenses, excluding distribution fees... .61 %(b) .60% .63% .64% .66% .75%
Net investment income................... 1.57 %(b) 1.41% 1.87% 2.07% 1.82% 1.62%
For Class A, B, C and Z shares:
Portfolio turnover...................... 11 % 25% 13% 19% 18% 12%
</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 one full year are not
annualized.
(b) Annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 11
<PAGE>
Financial Highlights (Unaudited) PRUDENTIAL EQUITY FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
-----------------------------------------------------------------------
Six Months
Ended Year Ended December 31,
June 30, -------------------------------------------------------
1999 1998 1997 1996 1995
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....... $ 19.73 $ 19.83 $ 17.24 $ 16.43 $ 13.24
----------- ---------- ---------- ---------- ----------
Income from investment operations
Net investment income...................... .10 .14 .22 .22 .16
Net realized and unrealized gain on
investments and foreign currencies...... 2.87 1.37 3.72 2.51 3.87
----------- ---------- ---------- ---------- ----------
Total from investment operations........ 2.97 1.51 3.94 2.73 4.03
----------- ---------- ---------- ---------- ----------
Less distributions
Dividends from net investment income....... -- (.12) (.22) (.22) (.16)
Distributions in excess of net investment
income.................................. -- -- -- (.01) --
Distributions from net realized capital
gains................................... (.42 ) (1.49) (1.13) (1.69) (.68)
----------- ---------- ---------- ---------- ----------
Total distributions..................... (.42 ) (1.61) (1.35) (1.92) (.84)
----------- ---------- ---------- ---------- ----------
Net asset value, end of period............. $ 22.28 $ 19.73 $ 19.83 $ 17.24 $ 16.43
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
TOTAL RETURN(a):........................... 15.18 % 7.55% 23.05% 17.14% 30.62%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............ $2,828,838 $2,923,060 $3,090,767 $2,626,479 $2,140,895
Average net assets (000)................... $2,837,094 $3,135,980 $2,924,413 $2,417,900 $1,891,160
Ratios to average net assets:
Expenses, including distribution fees... 1.61 %(b) 1.60% 1.63% 1.64% 1.66%
Expenses, excluding distribution fees... .61 %(b) .60% .63% .64% .66%
Net investment income................... .82 %(b) .66% 1.12% 1.37% .99%
<CAPTION>
1994
----------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....... $ 13.80
----------
Income from investment operations
Net investment income...................... .12
Net realized and unrealized gain on
investments and foreign currencies...... .09
----------
Total from investment operations........ .21
----------
Less distributions
Dividends from net investment income....... (.12)
Distributions in excess of net investment
income.................................. --
Distributions from net realized capital
gains................................... (.65)
----------
Total distributions..................... (.77)
----------
Net asset value, end of period............. $ 13.24
----------
----------
TOTAL RETURN(a):........................... 1.60%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............ $1,970,580
Average net assets (000)................... $1,901,972
Ratios to average net assets:
Expenses, including distribution fees... 1.75%
Expenses, excluding distribution fees... .75%
Net investment income................... .87%
</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 one full year are not
annualized.
(b) Annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 12
<PAGE>
Financial Highlights (Unaudited) PRUDENTIAL EQUITY FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
---------------------------------------------------------------------------
August 1,
Six Months 1994(c)
Ended Year Ended December 31, Through
June 30, ------------------------------------------- December 31,
1999 1998 1997 1996 1995 1994
---------- ------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....... $ 19.73 $ 19.83 $ 17.24 $ 16.43 $ 13.24 $14.02
---------- ------- ------- ------- ------- -----
Income from investment operations
Net investment income...................... .10 .16 .25 .22 .16 .09
Net realized and unrealized gain (loss) on
investments and foreign currencies...... 2.87 1.35 3.69 2.51 3.87 (.10)
---------- ------- ------- ------- -------
Total from investment operations........ 2.97 1.51 3.94 2.73 4.03 (.01)
---------- ------- ------- ------- ------- -----
Less distributions
Dividends from net investment income....... -- (.12) (.22) (.22) (.16) (.12)
Distributions in excess of net investment
income.................................. -- -- -- (.01) -- --
Distributions from net realized capital
gains................................... (.42) (1.49) (1.13) (1.69) (.68) (.65)
---------- ------- ------- ------- ------- -----
Total distributions..................... (.42) (1.61) (1.35) (1.92) (.84) (.77)
---------- ------- ------- ------- ------- -----
Net asset value, end of period............. $ 22.28 $ 19.73 $ 19.83 $ 17.24 $ 16.43 $13.24
---------- ------- ------- ------- ------- -----
---------- ------- ------- ------- ------- -----
TOTAL RETURN(a):........................... 15.18% 7.55% 23.05% 17.14% 30.62% .01%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............ $ 93,843 $88,839 $72,244 $47,477 $23,894 $3,160
Average net assets (000)................... $ 87,408 $82,907 $60,434 $36,745 $12,190 $1,847
Ratios to average net assets:
Expenses, including distribution fees... 1.61%(b) 1.60% 1.63% 1.64% 1.66% 1.83%(b)
Expenses, excluding distribution fees... .61%(b) .60% .63% .64% .66% .83%(b)
Net investment income................... .82%(b) .67% 1.11% 1.37% 1.03% .90%(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.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 13
<PAGE>
Financial Highlights (Unaudited) PRUDENTIAL EQUITY FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class Z
------------------------------------------------------
March 1,
Six Months 1996(c)
Ended Through
June 30, December 31,
1999 1998 1997 1996
----------- -------- -------- ------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....... $ 19.76 $ 19.87 $ 17.26 $ 17.10
----------- -------- -------- ------------
Income from investment operations
Net investment income...................... .19 .35 .42 .37
Net realized and unrealized gain (loss) on
investments and foreign currencies...... 2.90 1.36 3.72 1.88
----------- -------- -------- ------------
Total from investment operations........ 3.09 1.71 4.14 2.25
----------- -------- -------- ------------
Less distributions
Dividends from net investment income....... -- (.33) (.40) (.39)
Distributions in excess of net investment
income.................................. -- -- -- (.01)
Distributions from net realized capital
gains................................... (.42) (1.49) (1.13) (1.69)
----------- -------- -------- ------------
Total distributions..................... (.42) (1.82) (1.53) (2.09)
----------- -------- -------- ------------
Net asset value, end of period............. $ 22.43 $ 19.76 $ 19.87 $ 17.26
----------- -------- -------- ------------
----------- -------- -------- ------------
TOTAL RETURN(a):........................... 15.77% 8.56% 24.29% 13.65%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............ $ 323,808 $307,921 $267,121 $128,752
Average net assets (000)................... $ 304,953 $311,816 $ 57,646 $124,631
Ratios to average net assets:
Expenses, including distribution fees... .61%(b) .60% .63% .64%(b)
Expenses, excluding distribution fees... .61%(b) .60% .63% .64%(b)
Net investment income................... 1.82%(b) 1.67% 2.11% 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 Z shares.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 14
<PAGE>
Getting The Most From Your Prudential Mutual Fund
How many times have you read these letters--or other financial materials--and
stumbled across a word that you don't understand?
Many shareholders have run into the same problem. We'd like to help. So we'll
use this space from time to time to explain some of the words you might have
read, but not understood. And if you have a favorite word that no one can
explain to your satisfaction, please write to us.
Basis Point: 1/100th of 1%. For example, one-half of one percent is 50 basis
points.
Collateralized Mortgage Obligations (CMOs): Mortgage-backed bonds that separate
mortgage pools into different maturity classes, called tranches. These
instruments are sensitive to changes in interest rates and homeowner
refinancing activity. They are subject to prepayment and maturity extension
risk.
Derivatives: Securities that derive their value from other securities. The rate
of return of these financial instruments rises and falls--sometimes very
suddenly --in response to changes in some specific interest rate, currency,
stock, or other variable.
Discount Rate: The interest rate charged by the Federal Reserve on loans to
member banks.
Federal Funds Rate: The interest rate charged by one bank to another on
overnight loans.
Futures Contract: An agreement to purchase or sell a specific amount of a
commodity or financial instrument at a set price at a specified date in the
future.
Leverage: The use of borrowed assets to enhance return. The expectation is that
the interest rate charged on borrowed funds will be lower than the return on
the investment. While leverage can increase profits, it can also magnify
losses.
Liquidity: The ease with which a financial instrument (or product) can be
bought or sold (converted into cash) in the financial markets.
Price/Earnings Ratio: The price of a share of stock divided by the earnings
per share for a 12-month period.
Option: An agreement to purchase or sell something, such as shares of stock,
by a certain time for a specified price. An option need not be exercised.
Spread: The difference between two values; often used to describe the
difference between "bid" and "asked" prices of a security, or between the
yields of two similar maturity bonds.
Yankee Bond: A bond sold by a foreign company or government in the U.S. market
and denominated in U.S. dollars.
<PAGE>
Getting The Most From Your Prudential Mutual Fund
When you invest through Prudential Mutual Funds, you receive financial advice
from a Prudential Securities Financial Advisor or Prudential/Pruco Securities
registered representative. Your advisor or representative can provide you with
the following services:
- -------------------------------------------------------------------------------
There's No Reward Without Risk; but Is This Risk Worth It?
Your financial advisor or registered representative can help you match the
reward you seek with the risk you can tolerate. Risk can be difficult to
gauge--sometimes even the simplest investments bear surprising risks. The
educated investor knows that markets seldom move in just one direction. There
are times when a market sector or asset class will lose value or provide
little in the way of total return. Managing your own expectations is easier
with help from someone who under-stands the markets and who knows you!
- -------------------------------------------------------------------------------
Keeping Up With the Joneses
A financial advisor or registered representative can help you wade through the
numerous available mutual funds to find the ones that fit your own individual
investment profile and risk tolerance. While the newspapers and popular
magazines are full of advice about investing, they are aimed at generic groups
of people or representative individuals--not at you personally. Your financial
advisor or registered representative will review your investment objectives
with you. This means you can make financial decisions based on the assets and
liabilities in your current portfolio and your risk tolerance--not just based
on the current investment fad.
- -------------------------------------------------------------------------------
Buy Low, Sell High
Buying at the top of a market cycle and selling at the bottom are among the
most common investor mistakes. But, sometimes it's difficult to hold on to an
investment when it's losing value every month. Your financial advisor or
registered representative can answer questions when you're confused or worried
about your investment, and should remind you that you're investing for the
long haul.
<PAGE>
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
Thomas T. Mooney
Stephen P. Munn
Richard A. Redeker
Robin B. Smith
John R. Strangfeld
Louis A. Weil, III
Clay T. Whitehead
Officers
John R. Strangfeld, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
Marguerite E.H. Morrison, Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
Distributor
Prudential Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
The views expressed in this report and information about the Fund's portfolio
holdings are for the period covered by this report and are subject to change
thereafter.
The accompanying financial statements as of June 30, 1999, were not audited
and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
<PAGE>
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Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
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