SEMI
ANNUAL
REPORT
April 30, 1995
Prudential
Equity
Income
Fund
<PAGE>
<TABLE>
<CAPTION>
Five Largest Holdings*
<S> <C>
3.6% Westinghouse Electric
Electrical equipment &
technology.
3.5% McDemott International
Manufacturer of energy systems.
3.0% IBM Corp.
Computer hardware & software.
2.5% Lehman Bros. Holdings
Financial services.
2.5% Northrop Grumman
Aerospace/defense manufacturer.
* Expressed as a percentage of total
net assets.
</TABLE>
What Went Well...
Finance Issues Predominate.
The Fund holds substantial positions in the financial services, insurance
and real estate industries, and our financial services and insurance
holdings performed well. During the past six months, we continued to
add to finance issues -- now one of the Fund's largest investments (27%
of total net assets, as of 4/30/95). We pursued stocks selling at a
discount to their underlying worth, particularly those that had suffered
as a result of rising U.S. interest rates. Big gainers included Alex Brown,
Lehman Brothers and Aetna Life and Casualty.
Increased Exposure to Technology Issues -- the Top-Performing Market Sector.
During the period, we slightly increased our position in technology issues,
to take advantage of rising stock prices spawned by the global demand for
technology. Now at 12.1% (as of April 30, 1995) technology is one of the
Fund's larger positions. This helped during the past six months, as technology
stocks have been the market's top performers since early 1994. Best performers
included computer software company Intergraph, hardware firm IBM and
aerospace/defense company Northrop Grumman.
Energy Issues Picked Up Speed During the Past Six Months.
Energy stocks, traditionally high dividend issues, have begun to benefit
from increased worldwide economic activity and the subsequent demand for
oil and natural gas to power industry and homes. Energy issues performed
well-returning 9.0% as a group. In this area, we've accrued a substantial
position in oil service stocks (7% as of April 30), as we believe they
offer the greatest potential for future growth. Top holdings here include
McDermott International, Dresser Industries and Baker Hughes.
...And Not So Well.
One drawback for us was our 12.5% position in Real Estate Investment Trusts
(REITs), which did not perform well over the past six months. Some REITS
had expanded their operations too rapidly, causing anemic cash flow growth
and poor stock price performance. They've acquired "too much, too fast,"
and need time to digest their gains.
We believe this phenomenon is only temporary. Long term, we continue to
believe these investments offer the potential for above-average dividends
and price appreciation.
In fact, many of the REITS that have experienced similar growing pains in
the past have since seen their cash flow improve; we believe they will be
the trend-setters for this group.
Another setback for us followed Mexico's devaluation of its peso, and the
subsequent loss experienced by the Mexican securities market, which hurt
Mexican telecommunications stock Telefonos de Mexico. We now maintain a
smaller position here than we previously did.
Looking Ahead.
We expect continued moderate growth from the economy for the remainder
of the year, and we believe the stabilization of U.S. interest rates will
support stocks. However, we cannot emphasize enough how unusual the stock
market's robust 10.5% return over the past six months was. We expect much
more modest stock market returns in the future, and believe that you should,
too.
1
<PAGE>
President's Letter June 19, 1995
Dear Shareholder:
You've probably noticed your shareholder report looks different this month.
We've designed it to provide clear, concise and forthright information
about your investment, its performance, risks and potential rewards. And,
from time to time, I'll share some thoughts with you about the industry,
mutual fund trends and how we're responding to them at Prudential
Mutual Funds.
On The Hill
One recent trend we like is part of the "Contract with America." It's called
the American Dream Savings Account and it was approved by the House of
Representatives earlier in the year. The Senate has now taken up the proposal,
which would improve the traditional Individual Retirement Account program by
allowing higher non-working spouse contributions. The proposed law would also
allow tax-free and penalty-free withdrawals from the account before age
59 1/2, for certain expenses. Prudential Mutual Funds supports the proposal
and we urge you to share your opinion about it with your Senator. You can
reach your Senator's office by calling 202-224-3121.
Another trend we like is the Securities & Exchange Commission's move to let
mutual fund companies simplify the prospectuses that describe their funds.
While we understand and commend SEC rules requiring comprehensive disclosure
about investment practices in prospectuses, the documents that result from
these regulations may be too lengthy for some investors. A profile prospectus
would be shorter and more concise. We'll keep you posted on developments in
this area.
In Closing
One final note: if you're a Class B shareholder, you'll begin noticing a
change on your statements once you've held your shares for seven years. At
that time they will automatically begin to convert to Class A shares on a
quarterly basis. Since Class A shares carry lower annual distribution charges
than Class B shares, your total returns will automatically rise after the
conversion. Conversions will take place each calendar quarter in March, June,
September and December, beginning in September 1995.
I hope you'll find this information useful as you work with your financial
advisor or registered representative to develop your personal investment
plan. Thank you for choosing Prudential Mutual Funds for your mutual fund
investment.
Sincerely,
Richard A. Redeker
President
2
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments as of April 30, 1995 (Unaudited) PRUDENTIAL EQUITY
INCOME FUND
- ------------------------------------------------------------
- ------------------------------------------------------------
Shares Description Value (Note 1)
<C> <S> <C>
- -------------------------------------------------------------------
LONG-TERM INVESTMENTS--97.6%
COMMON STOCKS--75.3%
- -------------------------------------------------------------------
Aerospace/Defense--4.7%
583,600 Northrop Grumman Corp. $ 28,961,150
896,400 Thiokol Corp. 24,987,150
39,200 United Industrial Corp. 240,100
---------------
54,188,400
- ------------------------------------------------------------------
Apparel--1.9%
500,000 Fruit of the Loom, Inc.* 13,000,000
4,700 Garan, Inc. 81,075
423,500 Kellwood Co. 7,570,063
41,300 Oxford Industries, Inc. 795,025
---------------
21,446,163
- ------------------------------------------------------------------
Automobiles & Trucks--0.6%
150,000 General Motors Corp. 6,768,750
- ------------------------------------------------------------------
Banking--1.5%
200,000 Chase Manhattan Corp. 8,750,000
200,000 Chemical Banking Corp. 8,350,000
15,100 First Fidelity Bancorp 728,575
---------------
17,828,575
- ------------------------------------------------------------------
Chemicals--0.6%
120,100 Potash Corp. of Saskatchewan, Inc. 6,380,313
- ------------------------------------------------------------------
Computer Hardware--3.0%
370,600 International Business Machines
Corp. 35,114,350
- ------------------------------------------------------------------
Computer Software & Services--1.0%
1,041,100 Intergraph Corp.* 11,191,825
- ------------------------------------------------------------------
Drugs & Medical Supplies--0.9%
300,000 Baxter International, Inc. 10,425,000
- ------------------------------------------------------------------
Electric Utilities--0.9%
9,000 Central Louisiana Electric Co. $ 207,000
457,800 Entergy Corp. 9,957,150
---------------
10,164,150
- ------------------------------------------------------------------
Electrical Equipment--1.9%
183,660 Advanced Micro Devices, Inc. 6,611,760
1,020,100 Westinghouse Electric Corp. 15,301,500
---------------
21,913,260
- ------------------------------------------------------------------
Electronics--1.3%
220,500 Esterline Technologies Corp.* 3,720,938
517,900 IMO Industries, Inc.* 3,819,512
379,400 Newport Corp. 3,177,475
190,500 Pacific Scientific Co. 4,024,312
---------------
14,742,237
- ------------------------------------------------------------------
Energy Equipment & Services--3.7%
501,000 Smith International, Inc.* 8,642,250
265,400 Sonat Offshore Drilling, Inc. 7,165,800
522,800 USX Corp. 15,945,400
1,372,000 Varco International, Inc.* 11,490,500
---------------
43,243,950
- ------------------------------------------------------------------
Energy Systems--8.8%
823,700 Baker Hughes, Inc. 18,533,250
823,100 Dresser Industries, Inc. 18,005,313
445,000 Halliburton Co. 17,076,875
1,284,500 McDermott International, Inc. 35,323,750
1,403,100 Morrison Knudsen Corp. 11,049,412
80,000 Zurn Industries, Inc. 1,610,000
---------------
101,598,600
</TABLE>
See Notes to Financial Statements. 3
<PAGE>
<TABLE>
Portfolio of Investments as of April 30, 1995 (Unaudited) PRUDENTIAL EQUITY
INCOME FUND
- ------------------------------------------------------------
- ------------------------------------------------------------
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------------
Financial Services--6.6%
147,900 Alex Brown, Inc. $ 6,063,900
903,500 Bear Stearns Cos., Inc. 18,634,688
530,900 Edwards (A.G.), Inc. 12,144,337
111,600 Legg Mason, Inc. 2,748,150
1,502,000 Lehman Brothers Holdings, Inc. 29,289,000
100,000 Morgan Stanley Group, Inc. 6,950,000
---------------
75,830,075
- ------------------------------------------------------------------
Gas Distribution--1.4%
129,800 British Gas Plc., (ADS)
(United Kingdom) 6,327,750
76,400 Equitable Resources, Inc. 2,186,950
237,450 KN Energy, Inc. 6,025,294
58,450 Yankee Energy System, Inc. 1,139,775
---------------
15,679,769
- ------------------------------------------------------------------
Gas Pipelines--2.7%
532,000 Panhandle Eastern Corp. 12,768,000
318,300 Sonat, Inc. 9,668,362
410,000 TransCanada Pipelines, Ltd. 5,483,750
68,963 Transco Energy Co. 1,413,742
51,300 Williams Cos., Inc. 1,686,488
---------------
31,020,342
- ------------------------------------------------------------------
Insurance--5.6%
277,500 Aetna Life & Casualty Co. 15,817,500
981,100 Alexander & Alexander Services,
Inc. 23,423,762
117,800 Fremont General Corp. 2,606,325
186,600 Ohio Casualty Corp. 5,458,050
194,000 SAFECO Corp. 10,961,000
225,500 Selective Insurance Group, Inc. 6,567,688
---------------
64,834,325
- ------------------------------------------------------------------
Integrated Producers--7.0%
19,000 Kerr-McGee Corp. 985,625
33,300 Mobil Corp. 3,159,338
544,300 Occidental Petroleum Corp. 12,518,900
49,800 Petroleum Heat & Power Co., Inc. 361,050
893,300 Quaker State Corp. 12,729,525
210,300 Repsol, S.A. (ADS) $ 6,729,600
469,170 Societe Nationale Elf
Aquitaine,(ADR) (France) 18,649,507
158,700 Sun Co., Inc. 4,780,837
39,400 Texaco, Inc. 2,693,975
962,000 USX Marathon Corp. 18,037,500
---------------
80,645,857
- ------------------------------------------------------------------
Machinery--0.2%
278,600 Terex Corp.* 1,810,900
- ------------------------------------------------------------------
Media--2.4%
250,000 Dun & Bradstreet Corp. 13,031,250
150,000 Gannett Co., Inc. 7,893,750
46,200 Harland (John H.) Co. 1,027,950
140,875 Pulitzer Publishing Co. 5,687,828
---------------
27,640,778
- ------------------------------------------------------------------
Miscellaneous Industrial--1.6%
60,000 Hanson Plc., (ADR) 1,140,000
5,400 Kollmorgen Corp. 34,425
374,200 Tenneco, Inc. 17,166,425
---------------
18,340,850
- ------------------------------------------------------------------
Offshore Service Vessel--0.4%
200,000 Tidewater, Inc. 4,750,000
- ------------------------------------------------------------------
Paper--0.4%
482,900 Gibson Greetings, Inc. 4,829,000
- ------------------------------------------------------------------
Realty Investment Trust--12.1%
271,000 AMLI Residential Property Trust 4,945,750
315,000 Avalon Properties, Inc. 6,181,875
231,200 Beacon Properties 4,537,300
300,000 Bradley Real Estate Trust 4,537,500
30,200 Carr Realty Corp. 536,050
68,100 Charles E. Smith Residential
Realty, Inc. 1,549,275
808,900 Crescent Real Estate Equities 23,255,875
837,400 Equity Residential Property Trust 22,400,450
175,000 Essex Property Trust 2,843,750
- ------------------------------------------------------------------
</TABLE>
4 See Notes to Financial Statements.
<PAGE>
<PAGE>
<TABLE>
Portfolio of Investments as of April 30, 1995 (Unaudited) PRUDENTIAL EQUITY
INCOME FUND
- ------------------------------------------------------------
- ------------------------------------------------------------
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------------
Realty Investment Trust (cont'd.)--12.1%
151,800 First Union Real Estate Equity &
Mortgage Investments $ 1,100,550
567,700 Gables Residential Trust 10,431,487
300,000 Glimcher Realty Trust 5,812,500
400,000 Irvine Apartment Communities, Inc. 6,300,000
96,000 JP Realty, Inc. 1,824,000
41,700 Kimco Realty Corp. 1,574,175
230,000 Malan Reality Investors, Inc. 3,162,500
442,100 Manufactured Home Communities, Inc. 6,963,075
43,500 MGI Properties 614,438
62,600 Pennsylvania Real Estate
Investment Trust 1,314,600
586,093 Security Capital Pacific Trust 10,256,628
285,700 Simon Property Group, Inc. 6,785,375
70,500 Storage Equities, Inc. 1,136,812
302,500 Vornado Realty Trust 10,209,375
69,600 Weingarten Realty Investors, Inc. 2,436,000
---------------
140,709,340
- ------------------------------------------------------------------
Retail--1.4%
300,000 Bradlees, Inc. 3,150,000
400,000 K-Mart Corp. 5,550,000
200,000 May Department Stores Co. 7,250,000
---------------
15,950,000
- ------------------------------------------------------------------
Steel--0.1%
102,400 LTV Corp.* 1,459,200
59,600 Tubos de Acero de Mexico, S.A.,
(ADR)* (Mexico) 257,025
---------------
1,716,225
- ------------------------------------------------------------------
Telecommunication Services--2.0%
13,600 Ameritech Corp. $ 612,000
100,000 BellSouth Corp. 6,125,000
196,700 NYNEX Corp. 8,040,112
265,000 Telefonos de Mexico, S.A., (ADR)
(Mexico) 8,016,250
11,600 U.S. West, Inc. 479,950
---------------
23,273,312
- ------------------------------------------------------------------
Wood Processing--0.6%
200,000 Rayonier, Inc. 6,625,000
---------------
Total common stocks (cost
$782,807,396) 868,661,346
---------------
PREFERRED STOCKS--15.6%
- ------------------------------------------------------------------
Aluminum--1.2%
422,500 Kaiser Aluminum Corp., Conv. $8.25 4,647,500
193,500 Reynolds Metals Co., Conv. $3.31 9,336,375
---------------
13,983,875
- ------------------------------------------------------------------
Automobiles & Trucks--3.3%
158,200 Chrysler Corp.,* Conv. $4.63 18,964,225
213,000 Ford Motor Co., Conv. $4.20 18,770,625
---------------
37,734,850
- ------------------------------------------------------------------
Banking--0.1%
54,600 Security Capital Pacific Trust,
Ser. A, Conv. 1,228,500
- ------------------------------------------------------------------
Electric Utilities--0.1%
2,100 Gulf States Utilities Co., $5.08,
Class E 122,063
10,624 Gulf States Utilities Co., $8.08,
Class K 1,025,880
---------------
1,147,943
- ------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements. 5
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments as of April 30, 1995 (Unaudited) PRUDENTIAL EQUITY
INCOME FUND
- ------------------------------------------------------------
- ------------------------------------------------------------
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------------
Electrical Equipment--3.6%
172,000 National Semiconductor Corp.,
Conv. $3.25 $ 14,276,000
1,743,000 Westinghouse Electric Corp.,
Conv. $1.30 26,580,750
---------------
40,856,750
- ------------------------------------------------------------------
Energy Systems--0.7%
100,000 McDermott International, Inc.,
Conv. $5.75, Ser. C 4,575,000
149,300 Reading & Bates Corp., Conv. $1.63 4,012,437
---------------
8,587,437
- ------------------------------------------------------------------
Insurance--0.5%
102,200 Alexander & Alexander Services,
Inc.,* Conv. $3.63, Ser. A 4,982,250
12,700 USF&G Corp., Conv. $4.10, Ser. A 598,488
---------------
5,580,738
- ------------------------------------------------------------------
Integrated Producers--0.9%
110,000 Noble Drilling Corp., Conv. $1.50 2,509,375
49,000 Unocal Corp., Conv. $3.50 2,664,375
118,900 USX Marathon Corp., Conv. 6.5% 5,335,637
---------------
10,509,387
- ------------------------------------------------------------------
Mining--0.5%
100,000 Echo Bay Finance Corp., Conv.
$1.75, Ser. A 2,962,500
60,000 Hecla Mining Co., Conv. 7.00%, Ser.
B 3,037,500
---------------
6,000,000
- ------------------------------------------------------------------
Oil & Gas Exploration & Production--0.3%
85,000 Parker & Parsley Capital, Conv.
6.25% 3,952,500
- ------------------------------------------------------------------
Paper--0.7%
58,300 Bowater, Inc., Conv. 7%, Ser. B $ 1,880,175
244,000 James River Corp., Conv. $9.00 5,978,000
---------------
7,858,175
- ------------------------------------------------------------------
Steel--1.1%
285,000 Bethleham Steel Corp., Conv. $3.50 12,433,125
- ------------------------------------------------------------------
Textiles--0.3%
79,000 Fieldcrest Cannon, Inc., Conv.
$3.00, Ser. A 3,811,750
- ------------------------------------------------------------------
Tobacco--2.3%
4,400,000 RJR Nabisco Holdings, Inc., Conv.
$0.60, PERCS 26,400,000
---------------
Total preferred stocks (cost
$186,080,708) 180,085,030
---------------
<CAPTION>
Principal
Moody's Amount
Rating (000)
<C> <C> <S> <C>
CONVERTIBLE BONDS--6.4%
- --------------------------------------------------------------------
Airlines--1.0%
Ba2 $ 11,500 AMR Corp., Deb.,
6.125%, 11/1/24 11,149,480
- --------------------------------------------------------------------
Computer Hardware--1.8%
B2 2,300 Conner Peripherals,
Inc., Sub. Deb.,
6.75%, 3/1/01 1,776,290
B2 7,000 Quantum Corp., Deb.,
6.375%, 4/1/02 7,595,000
Seagate Technology,
6.75%, 5/1/12, Deb. 3,321,825
B1 3,407
B1 7,600 Sub. Deb.,
5.00%, 11/1/03 9,766,000
---------------
22,459,115
</TABLE>
- --------------------------------------------------------------------
6 See Notes to Financial Statements.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments as of April 30, 1995 (Unaudited) PRUDENTIAL EQUITY
INCOME FUND
- ------------------------------------------------------------
- ------------------------------------------------------------
Principal
Moody's Amount
Rating (000) Description Value (Note 1)
<C> <C> <S> <C>
- --------------------------------------------------------------------
Electrical Equipment--0.4%
B2 $ 2,665 Cypress Semiconductor
Corp., Sub. Notes,
3.15%, 3/15/01 $ 3,071,413
B3 1,626 VLSI Technology, Inc.,
Sub. Deb.,
7.00%, 5/1/12 1,747,950
---------------
4,819,363
- --------------------------------------------------------------------
Fertilizer--0.4%
B3 4,500 IMC Fertilizer Group,
Inc., Deb.,
6.25%, 12/1/01 4,328,505
- --------------------------------------------------------------------
Integrated Oil--0.8%
Aa3 339 Amoco Canada Petroleum
Co., Sub. Exch. Deb.,
7.375%, 9/1/13 426,252
A2 8,250 Baker Hughes, Inc.,
Zero Coupon, 5/5/08 4,749,113
B2 2,583 Cross Timbers Oil Co.,
Deb.,
5.25%, 11/1/03 2,182,635
B2 2,121 Oryx Energy Co.,
Sub. Deb.,
7.50%, 5/15/14 1,765,732
---------------
9,123,732
- --------------------------------------------------------------------
Integrated Producers--1.2%
Baa3 14,299 Noble Affiliates, Inc.,
Sub. Notes,
4.25%, 11/1/03 13,691,292
- --------------------------------------------------------------------
Mining--0.4%
B2 3,000 Coeur D'Alene Mines
Corp., Sub. Deb.,
7.00%, 11/30/02 3,855,000
Ba3 1,000 Freeport McMoran, Inc.,
Deb.,
6.55%, 1/15/01 918,050
---------------
4,773,050
- --------------------------------------------------------------------
Realty Investment Trust--0.3%
NR $ 3,800 Malan Reality Investors,
Inc., Sub. Deb.,
9.50%, 7/15/04 $ 3,344,000
- --------------------------------------------------------------------
Steel--0.1%
Ba2 710 USX Corp., Sub. Deb.,
7.00%, 6/15/17 624,800
---------------
Total convertible bonds
(cost $70,667,529) 74,313,337
---------------
- --------------------------------------------------------------------
Foreign Government Obligations--0.3%
NZ$5,900 New Zealand Gov't.
Bonds, 8.00%, 4/15/04
(cost $4,003,914) 4,017,047
---------------
Total long-term
investments (cost
$1,043,559,548) 1,127,076,760
---------------
SHORT-TERM INVESTMENTS--1.7%
- --------------------------------------------------------------------
Repurchase Agreement--1.7%
19,881 Joint Repurchase
Agreement Account,
5.93%, 5/1/95, (cost
$19,881,000; Note 5) 19,881,000
- --------------------------------------------------------------------
Total Investments--99.3%
(cost $1,063,440,548;
Note 4) 1,146,957,760
Other assets in excess
of liabilities--0.7% 8,374,499
---------------
Net Assets--100% $ 1,155,332,259
---------------
---------------
</TABLE>
- ---------------
*Non-income producing security.
ADR--American Depository Receipt.
ADS--American Depository Shares.
PERCS--Preferred Equity Redemption Cumulative Stock.
The Fund's current Statement of Additional Information contains a description
of
Moody's ratings.
NR--Not rated by Moody's or Standard & Poor's.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
7
<PAGE>
Statement of Assets and Liabilities (Unaudited) PRUDENTIAL EQUITY INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<S>
<C>
ASSETS
April 30, 1995
Investments, at value (cost
$1,063,440,548)................................................................
$1,146,957,760
Cash.........................................................................
.............................. 47,471
Receivable for investments
sold............................................................................
14,685,163
Dividends and interest
receivable...................................................................
....... 3,563,406
Receivable for Fund shares
sold............................................................................
3,225,387
Deferred expenses and other
assets.........................................................................
30,373
--------------
Total
assets.......................................................................
..................... 1,168,509,560
--------------
Liabilities
Payable for investments
purchased....................................................................
...... 8,015,725
Payable for Fund shares
reacquired...................................................................
...... 3,424,385
Distribution fee
payable......................................................................
............. 777,376
Management fee
payable......................................................................
............... 508,424
Accrued
expenses.....................................................................
...................... 440,403
Foreign withholding tax
payable......................................................................
...... 10,988
--------------
Total
liabilities..................................................................
..................... 13,177,301
--------------
Net
Assets.......................................................................
.......................... $1,155,332,259
--------------
Net assets were comprised of:
Shares of beneficial interest, at
par................................................................... $
829,766
Paid-in capital in excess of
par........................................................................
1,076,679,813
--------------
1,077,509,579
Undistributed net investment
income.....................................................................
7,950,101
Accumulated net realized loss on
investments............................................................
(13,631,919)
Net unrealized appreciation of investments and foreign
currencies....................................... 83,504,498
--------------
Net assets, April 30,
1995.........................................................................
........ $1,155,332,259
--------------
--------------
Class A:
Net asset value and redemption price per share
($261,036,128 / 18,715,618 shares of beneficial interest issued and
outstanding)..................... $13.95
------
Maximum sales charge (5% of offering
price).............................................................
.73
Maximum offering price to
public........................................................................
$14.68
------
------
Class B:
Net asset value, offering price and redemption price per share
($891,264,215 / 64,043,150 shares of beneficial interest issued and
outstanding)..................... $13.92
------
------
Class C:
Net asset value, offering price and redemption price per share
($3,031,916 / 217,855 shares of beneficial interest issued and
outstanding).......................... $13.92
------
------
</TABLE>
- --------------------------------------------------------------------------------
8 See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL EQUITY INCOME FUND
Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
April 30,
Net Investment Income 1995
<S> <C>
Income
Dividends (net of foreign withholding taxes
of $51,758)............................. $ 20,420,943
Interest................................... 4,110,287
------------
Total income............................ 24,531,230
------------
Expenses
Distribution fee--Class A.................. 238,206
Distribution fee--Class B.................. 4,430,608
Distribution fee--Class C.................. 10,980
Management fee............................. 2,945,150
Transfer agent's fees and expenses......... 773,000
Reports to shareholders.................... 177,000
Registration fees.......................... 106,000
Custodian's fees and expenses.............. 103,000
Legal fees................................. 23,000
Trustees' fees............................. 18,500
Audit fee.................................. 18,000
Insurance.................................. 14,000
Miscellaneous.............................. 5,066
------------
Total expenses.......................... 8,862,510
------------
Net investment income......................... 15,668,720
------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized loss on investment
transactions............................... (13,082,353)
------------
Net change in unrealized
appreciation/depreciation of:
Investments................................ 59,429,200
Foreign currencies......................... (11,662)
------------
59,417,538
------------
Net gain on investment transactions........... 46,335,185
------------
Net Increase in Net Assets
Resulting from Operations..................... $ 62,003,905
------------
------------
</TABLE>
PRUDENTIAL EQUITY INCOME FUND
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Increase (Decrease) Ended Year Ended
in Net Assets April 30, 1995 October 31, 1994
<S> <C> <C>
Operations
Net investment income....... $ 15,668,720 $ 21,216,512
Net realized gain (loss) on
investments.............. (13,082,353) 42,485,087
Net change in unrealized
appreciation/depreciation
of investments and
foreign currencies....... 59,417,538 (35,543,092)
-------------- --------------
Net increase in net assets
resulting from
operations............... 62,003,905 28,158,507
-------------- --------------
Net equalization credits....... 38,992 3,591,448
-------------- --------------
Dividends and distributions
(Note 1)
Dividends from net
investment income
Class A.................. (4,157,436) (2,741,569)
Class B.................. (17,422,155) (10,744,017)
Class C.................. (39,686) (3,204)
-------------- --------------
(21,619,277) (13,488,790)
-------------- --------------
Distributions from net
realized gains
Class A.................. (5,627,572) (4,073,407)
Class B.................. (35,965,908) (22,284,545)
Class C.................. (68,654) --
-------------- --------------
(41,662,134) (26,357,952)
-------------- --------------
Fund share transactions (net of
share conversions) (Note 6)
Proceeds from shares sold... 152,493,616 668,069,397
Net asset value of shares
issued in reinvestment of
dividends and
distributions............ 57,507,057 36,142,786
Cost of shares reacquired... (160,408,987) (221,021,185)
-------------- --------------
Net increase in net assets
from Fund share
transactions............. 49,591,686 483,190,998
-------------- --------------
Total increase................. 48,353,172 475,094,211
Net Assets
Beginning of period............ 1,106,979,087 631,884,876
-------------- --------------
End of period.................. $1,155,332,259 $1,106,979,087
-------------- --------------
-------------- --------------
</TABLE>
- -----------------------------------------------------------------
See Notes to Financial Statements. 9
<PAGE>
Notes to Financial Statements (Unaudited) PRUDENTIAL EQUITY INCOME FUND
- --------------------------------------------------------------------------------
Prudential Equity Income Fund (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 both current income and capital
appreciation. It seeks to achieve this objective by investing primarily in
common stocks and convertible securities that provide investment income returns
above those of the Standard & Poor's 500 Stock Index or the NYSE Composite
Index. The ability of the issuers of the debt securities held by the Fund to
meet their obligations may be affected by economic developments in a specific
industry or country.
- ------------------------------------------------------------
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 in securities traded on a national securities
exchange (or reported on the NASDAQ national market) are valued at the last sale
price on such exchange on the day of valuation or, if there was no sale on such
day, the mean between the last bid and asked prices quoted on such day.
Convertible debt securities that are actively traded in the over-the-counter
market, including listed securities for which the primary market is believed to
be over-the-counter, are valued at the mean between the most recently quoted bid
and asked prices provided by principal market makers. Other securities are
valued at the mean between the most recently quoted bid and asked prices.
Securities which are otherwise not readily marketable or securities for which
market quotations are not readily available are valued in good faith at fair
value in accordance with procedures adopted by the Fund's Board of Trustees.
Short-term securities which mature in more than 60 days are valued based upon
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, 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.
Foreign Currency Translation: The books and records of the Fund are maintained
in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on
the following basis:
(i) market value of investment securities, other assets and liabilities--at
the current rates 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.
Although the net assets of the Fund are presented at the foreign exchange rates
and market values at the close of the period, the Fund does not isolate that
portion of the results of operations arising as a result of changes in the
foreign exchange rates from the fluctuations arising from changes in the market
prices of the securities held at period end. Similarly, the Fund does not
isolate the effect of changes in foreign exchange rates from the fluctuations
arising from changes in the market prices of long-term debt securities sold
during the period. Accordingly, such realized foreign currency gains and losses
are included in the reported net realized gains/losses on investment
transactions.
Net realized losses on foreign currency transactions represents net foreign
exchange gains and losses from sales and maturities of short-term securities and
forward currency contracts, holding of foreign currencies, currency gains or
losses realized between the trade and settlement dates on securities
transactions, and the difference between the amounts of interest and foreign
taxes recorded on the Fund's books and the U.S. dollar equivalent amounts
actually received or paid. Net currency gains and losses from valuing foreign
currency denominated assets (excluding investments) and liabilities at period
end exchange rates are reflected as a component of net unrealized
appreciation/depreciation on investments and foreign currencies.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of U.S. companies as a result of,
among other factors, the possibility of political or economic instability and
the level of governmental supervision and regulation of foreign securities
markets.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of investments
are calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date; interest income is recorded on the accrual basis.
Net investment income (other than distribution fees) and unrealized and realized
gains or losses are allocated daily to each class of shares of the Fund based
upon the relative proportion of net assets of each class at the beginning of the
day.
- --------------------------------------------------------------------------------
10
<PAGE>
<PAGE>
Notes to Financial Statements (Unaudited) PRUDENTIAL EQUITY INCOME FUND
- --------------------------------------------------------------------------------
Equalization: The Fund follows the accounting practice known as equalization by
which a portion of the proceeds from sales and costs of reacquisitions of Fund
shares, equivalent on a per share basis to the amount of distributable net
investment income on the date of the transaction, is credited or charged to
undistributed net investment income. As a result, undistributed net investment
income per share is unaffected by sales or reacquisitions of the Fund's shares.
Federal Income 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 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 rates.
Dividends and Distributions: The Fund expects to pay dividends out of net
investment income quarterly and make distributions at least annually of any net
capital gains. 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.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential Mutual Fund Management, Inc.
(``PMF''). Pursuant to this agreement, PMF has responsibility for all investment
advisory services and supervises the subadviser's performance of such services.
PMF has entered into a subadvisory agreement with The Prudential Investment
Corporation (``PIC''); PIC furnishes investment advisory services in connection
with the management of the Fund. PMF pays for the cost of the subadviser's
services, the compensation of officers of the Fund, occupancy and certain
clerical and bookkeeping costs of the Fund. The Fund bears all other costs and
expenses.
The management fee paid PMF is computed daily and payable monthly at an annual
rate of .60 of 1% of the average daily net assets of the Fund up to $500 million
and .50 of 1% of the average daily net assets in excess of $500 million. PMF has
agreed to voluntarily reduce its management fee, effective June 1, 1995, to an
annual rate of .60% of 1% of the Fund's average daily net assets up to $500
million, .50 of 1% of the next $500 million, .475 of 1% of the next $500 million
and .45 of 1% of the average daily net assets in excess of $1.5 billion.
The Fund has distribution agreements with Prudential Mutual Fund Distributors,
Inc. (``PMFD''), which acts as the distributor of the Class A shares of the
Fund, and with Prudential Securities Incorporated (``PSI''), which acts as
distributor of the Class B and Class C shares of the Fund (collectively, the
``Distributors''). 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.
Pursuant to the Class A, B and C Plans, the Fund compensates the Distributors
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 Plans were .25 of 1% of the average daily
net assets of Class A shares and 1% of the average daily net assets of both the
Class B and C shares for the six months ended April 30, 1995.
PMFD has advised the Fund that it has received approximately $320,200 in
front-end sales charges resulting from sales of Class A shares during the six
months ended April 30, 1995. From these fees, PMFD paid such sales charges to
dealers which in turn paid commissions to salespersons.
PSI has advised the Fund that for the six months ended April 30, 1995, it
received approximately $1,354,000 in contingent deferred sales charges imposed
upon certain redemptions by Class B and Class C shareholders.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
- ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent and during the six months ended April
30, 1995, the Fund incurred fees of approximately $760,500 for the services of
PMFS. As of April 30, 1995, approximately $138,600 of such fees were due to
PMFS. Transfer agent fees and expenses in the Statement of Operations include
certain out-of-pocket expenses paid to non-affiliates.
For the six months ended April 30, 1995, PSI earned approximately $73,100 in
brokerage commissions from portfolio transactions executed on behalf of the
Fund.
- --------------------------------------------------------------------------------
11
<PAGE>
Notes to Financial Statements (Unaudited) PRUDENTIAL EQUITY INCOME FUND
- --------------------------------------------------------------------------------
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the six months ended April 30, 1995 were $395,698,140 and $364,510,964,
respectively.
The federal income tax basis of the Fund's investments at April 30, 1995 was
$1,063,440,548 and, accordingly, net unrealized appreciation for federal income
tax purposes was $83,517,212 (gross unrealized appreciation--$129,939,350; gross
unrealized depreciation--$46,422,138)
- ------------------------------------------------------------
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. At April 30, 1995, the Fund had
a 2.9% undivided interest in the repurchase agreements in the joint account. The
undivided interest for the Fund represented $19,881,000 in principal amount. As
of such date, each repurchase agreement in the joint account and the value of
the collateral therefor was as follows:
Bear, Stearns & Co., 5.92%, in the principal amount of $125,000,000, repurchase
price $125,061,667, due 5/1/95. The value of the collateral including accrued
interest is $127,647,875.
UBS Securities Inc., 5.93%, in the principal amount of $100,000,000, repurchase
price $100,049,417, due 5/1/95. The value of the collateral including accrued
interest is $102,062,500.
Morgan Stanley and Co., Inc., 5.93%, in the principal amount of $225,000,000,
repurchase price $225,111,188, due 5/1/95. The value of the collateral including
accrued interest is $229,640,625.
CS First Boston Corp., 5.93%, in the principal amount of $225,000,000,
repurchase price $225,111,188, due 5/1/95. The value of the collateral including
accrued interest is $229,640,625.
- ------------------------------------------------------------
Note 6. Capital
The Fund offers Class A, Class B and Class C shares. Class A shares are sold
with a front-end sales charge of up to 5.00%. 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.
The Fund has authorized an unlimited number of shares of beneficial interest at
$.01 par value divided into three classes, designated Class A, Class B and Class
C.
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- --------------------------------- ----------- -------------
<S> <C> <C>
Six months ended April 30, 1995:
Shares sold...................... 3,718,522 $ 48,483,821
Shares issued in reinvestment of
dividends and distributions.... 717,157 9,087,229
Shares reacquired................ (3,586,028) (47,216,896)
----------- -------------
Net increase in shares
outstanding before
conversion..................... 849,651 10,354,154
Shares issued upon conversion
from Class B................... 7,136,039 92,554,638
----------- -------------
Net increase in shares
outstanding.................... 7,985,690 $ 102,908,792
----------- -------------
----------- -------------
Year ended October 31, 1994:
Shares sold...................... 6,678,218 $ 92,227,070
Shares issued in reinvestment of
dividends and distributions.... 461,830 6,268,096
Shares reacquired................ (3,645,394) (50,335,973)
----------- -------------
Net increase in shares
outstanding.................... 3,494,654 $ 48,159,193
----------- -------------
----------- -------------
<CAPTION>
Class B
- ---------------------------------
<S> <C> <C>
Six months ended April 30, 1995:
Shares sold...................... 7,832,547 $ 102,568,917
Shares issued in reinvestment of
dividends and distributions.... 3,849,679 48,314,439
Shares reacquired................ (8,711,753) (113,072,931)
----------- -------------
Net decrease in shares
outstanding before
conversion..................... 2,970,473 37,810,425
Shares reacquired upon conversion
into Class A................... (7,152,506) (92,554,638)
----------- -------------
Net decrease in shares
outstanding.................... (4,182,033) $ (54,744,213)
----------- -------------
----------- -------------
Year ended October 31, 1994:
Shares sold...................... 41,661,976 $ 574,309,044
Shares issued in reinvestment of
dividends and distributions.... 2,213,613 29,871,685
Shares reacquired................ (12,436,151) (170,671,244)
----------- -------------
Net increase in shares
outstanding.................... 31,439,438 $ 433,509,485
----------- -------------
----------- -------------
</TABLE>
- ----------------------------------------------------------------
12
<PAGE>
<PAGE>
Notes to Financial Statements (Unaudited) PRUDENTIAL EQUITY INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C Shares Amount
- --------------------------------- ----------- -------------
Six months ended April 30, 1995:
<S> <C> <C>
Shares sold...................... 109,364 $ 1,440,878
Shares issued in reinvestment of
dividends and distributions.... 8,330 105,389
Shares reacquired................ (8,916) (119,160)
----------- -------------
Net increase in shares
outstanding.................... 108,778 $ 1,427,107
----------- -------------
----------- -------------
August 1, 1994* through October
31, 1994:
Shares sold...................... 109,870 $ 1,533,283
Shares issued in reinvestment of
dividends...................... 215 3,005
Shares reacquired................ (1,008) (13,968)
----------- -------------
Net increase in shares
outstanding.................... 109,077 $ 1,522,320
----------- -------------
----------- -------------
</TABLE>
- ---------------
* Commencement of offering of Class C shares.
- ------------------------------------------------------------
Note 7. Dividends
On June 15, 1995, the Board of Trustees of the Fund declared dividends of $.11
per Class A share and $.085 per Class B and Class C shares payable on June 23,
1995 to shareholders of record on June 20, 1995.
- ------------------------------------------------------------------------------
13
<PAGE>
Financial Highlights (Unaudited) PRUDENTIAL EQUITY INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
- -----------------------------------------------------------------------------
January 22,
Six Months
1990D
Ended
Year Ended October 31, Through
April 30,
- -------------------------------------------- October 31,
1995 1994
1993 1992 1991 1990
<S> <C> <C>
<C> <C> <C> <C>
------------ --------
-------- ------- ------ -----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 14.03 $ 14.38
$ 12.16 $ 12.04 $ 9.53 $ 10.59
------------ --------
-------- ------- ------ -----
Income from investment operations
Net investment income......................... .23 .41
.47 .47 .38 .25
Net realized and unrealized gain (loss) on
investment transactions..................... .53 .06
2.65 .60 2.50 (1.01)
------------ --------
-------- ------- ------ -----
Total from investment operations............ .76 .47
3.12 1.07 2.88 (.76)
------------ --------
-------- ------- ------ -----
Less distributions
Dividends from net investment income.......... (.31) (.29)
(.46) (.47) (.37) (.30)
Distributions from net realized gains......... (.53) (.53)
(.44) (.48) -- --
------------ --------
-------- ------- ------ -----
Total distributions......................... (.84) (.82)
(.90) (.95) (.37) (.30)
------------ --------
-------- ------- ------ -----
Net asset value, end of period................ $ 13.95 $ 14.03
$ 14.38 $ 12.16 $12.04 $ 9.53
------------ --------
-------- ------- ------ -----
------------ --------
-------- ------- ------ -----
TOTAL RETURN#:................................ 6.04% 3.48%
26.93% 9.50% 30.62% (7.36)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $261,036 $150,502
$104,017 $51,165 $4,013 $ 1,098
Average net assets (000)...................... $192,144 $131,398
$ 70,895 $21,931 $2,084 $ 752
Ratios to average net assets:
Expenses, including distribution fees....... 1.03%* 1.09%
1.07% 1.22% 1.37% 1.59%*
Expenses, excluding distribution fees....... .78%* .85%
.87% 1.02% 1.17% 1.39%*
Net investment income....................... 3.46%* 2.97%
3.44% 3.22% 3.43% 3.12%*
Portfolio turnover............................ 35% 70%
57% 43% 64% 58%
</TABLE>
- ---------------
* Annualized.
D Commencement of offering of Class A shares.
# Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares 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.
- --------------------------------------------------------------------------------
14 See Notes to Financial Statements.
<PAGE>
<PAGE>
Financial Highlights (Unaudited) PRUDENTIAL EQUITY INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
- -----------------------------------------------------------------------------
Six Months
Ended
Year Ended October 31,
April 30,
- ------------------------------------------------------------
1995 1994
1993 1992 1991 1990
<S> <C> <C>
<C> <C> <C> <C>
------------ --------
-------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 14.00 $ 14.35
$ 12.14 $ 12.03 $ 9.53 $ 10.89
------------ --------
-------- -------- -------- --------
Income from investment operations
Net investment income......................... .18 .31
.37 .37 .30 .28
Net realized and unrealized gain (loss) on
investment transactions..................... .53 .06
2.64 .59 2.49 (1.32)
------------ --------
-------- -------- -------- --------
Total from investment operations............ .71 .37
3.01 .96 2.79 (1.04)
------------ --------
-------- -------- -------- --------
Less distributions
Dividends from net investment income.......... (.26) (.19)
(.36) (.37) (.29) (.32)
Distributions from net realized gains......... (.53) (.53)
(.44) (.48) -- --
------------ --------
-------- -------- -------- --------
Total distributions......................... (.79) (.72)
(.80) (.85) (.29) (.32)
------------ --------
-------- -------- -------- --------
Net asset value, end of period................ $ 13.92 $ 14.00
$ 14.35 $ 12.14 $ 12.03 $ 9.53
------------ --------
-------- -------- -------- --------
------------ --------
-------- -------- -------- --------
TOTAL RETURN#:................................ 5.65% 2.73%
25.93% 8.55% 29.58% (9.77)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $891,264 $954,951
$527,868 $190,846 $151,538 $120,032
Average net assets (000)...................... $893,465 $784,063
$304,898 $169,524 $136,602 $142,179
Ratios to average net assets:
Expenses, including distribution fees....... 1.79%* 1.85%
1.87% 2.02% 2.17% 2.22%
Expenses, excluding distribution fees....... .79%* .85%
.87% 1.02% 1.17% 1.22%
Net investment income....................... 2.79%* 2.21%
2.58% 3.05% 2.67% 2.70%
Portfolio turnover............................ 35% 70%
57% 43% 64% 58%
<CAPTION>
Class C
August 1,
Six Months 1994D
Ended Through
April 30, October 31,
1995 1994
<S> <C> <C>
------------ -----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 14.00 $ 13.99
------------ -----------
Income from investment operations
Net investment income......................... .18 .08
Net realized and unrealized gain (loss) on
investment transactions..................... .53 (.02)
------------ -----------
Total from investment operations............ .71 .06
------------ -----------
Less distributions
Dividends from net investment income.......... (.26) (.05)
Distributions from net realized gains......... (.53) --
------------ -----------
Total distributions......................... (.79) (.05)
------------ -----------
Net asset value, end of period................ $ 13.92 $ 14.00
------------ -----------
------------ -----------
TOTAL RETURN#:................................ 5.65% 0.45%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $ 3,032 $ 1,527
Average net assets (000)...................... $ 2,214 $ 762
Ratios to average net assets:
Expenses, including distribution fees....... 1.78%* 2.05%*
Expenses, excluding distribution fees....... .78%* 1.05%*
Net investment income....................... 2.65%* 2.42%*
Portfolio turnover............................ 35% 70%
</TABLE>
- ---------------
* Annualized.
D Commencement of offering of Class C shares.
# 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.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
15
<PAGE>
Prudential Equity Income Fund
Performance At A Glance.
The past six months have been good for the U.S. stock market although the
market was flat in late 1994. So far in 1995, stock prices have risen as the
U.S. economy appeared to slow, relieving concerns about possible Federal
Reserve intervention to raise interest rates again to dampen inflation. The
Prudential Equity Income Fund posted gains for the last six months, although
they were slightly less than those earned by the average equity income fund as
measured by Lipper Analytical Services, Inc. However, the Fund performed better
than the Lipper equity income fund average for the one-, three- and five-year
periods ended April 30, 1995.
<TABLE>
<CAPTION>
Six One Five Since
Months Year Years Inception2
<S> <C> <C> <C> <C> <C>
Cumulative Class A 6.0% 11.8% 89.6% 84.6%
Total Class B 5.7 10.9 82.3 117.7
Returns1 Class C 5.7 N/A N/A 6.1
As of 4/30/95
*Lipper Equity Income Fund Avg 6.3 10.0 66.0 104.9
</TABLE>
<TABLE>
<CAPTION>
One Five Since
Year Years Inception2
<S> <C> <C> <C> <C>
Average
Annual
Total Class A 3.0% 10.9% 10.7%
Returns1 Class B 2.7 11.0 9.5
As of 3/31/95 Class C N/A N/A 1.5
</TABLE>
Past performance is not a guarantee of future results. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost.
1Source: Prudential Mutual Fund Management Inc. and Lipper Analytical Services,
Inc. The cumulative returns do not take into account sales charges. The average
annual returns do take into account sales charges. The Fund charges a maximum
front-end sales load of 5% for Class A shares. Class B shares are subject to a
declining contingent deferred sales charge of 5%, 4%, 3%, 2%, 1% and 1% for six
years. Class C shares have a 1% CDSC for one year. Class B shares will
automatically convert to Class A shares on a quarterly basis approximately
seven years after purchase.
2Inception dates: 1/22/90 Class A; 1/22/87 Class B; 8/1/94 Class C.
*These are the average returns of 105 funds in the equity income category for
one year; 54 funds for five years; and 28 funds since inception of Class B
shares on 1/22/87.
<PAGE>
Portfolio Manager's Report.
(PHOTO)
Warren E. Spitz
Fund Manager
The Prudential Equity Income Fund seeks to provide both current income and
capital appreciation through a portfolio of common stocks and convertible
securities, most of which provide investment income returns above those of the
Standard & Poor's 500 or the New York Stock Exchange Composite Index. The Fund
may hold up to 30% of its assets in securities of foreign issuers and up to 35%
of its assets in bonds. We may also use derivatives like options to hedge risk,
although we have not done so during this reporting period.
How The Markets Compare
Total Returns 4/30/94 to 4/30/95
(GRAPH)
Source: Prudential Mutual Fund Management Inc. U.S. Stocks: S& P 500; Global
Stocks: Morgan Stanley World Index; U.S. Bonds: Lehman Brothers
government/corporate aggregate; and Money Markets: IBC/Donoghue taxable funds
average. Note: Total Return figures assume reinvestment of dividends and
distributions. All bond returns are market value weighted inclusive of accrued
interest. This chart is for comparison purposes only. There are different risks
associated with each investment sector which should be considered carefully
before investing. Past performance is not indicative of future results.
Strategy Session.
For the long term, our strategy is to look for cheap stocks of companies with
pricing flexibility and strong cash flow. This leads us to stocks of basic
goods producers, financial companies, some energy concerns and
telecommunications firms. We are currently avoiding consumer cyclical stocks,
such as media, restaurants and airlines.
We are also fully invested in stocks at this time since we believe the last
six months marked the beginning of a slow growth phase in the U.S., rather than
the end of the growth cycle. Many investors appear to agree: The benchmark S&P
500 returned a healthy 10.5% during the reporting period -- most of it during
the first four months of 1995 as the Index has returned 13% year to date. And
the Dow Jones Industrial Average (DJIA) broke the 4000 barrier for the first
time on February 23, 1995, after flirting with that level for almost a year.
While the DJIA measures the performance of only 30 stocks and is a less
broad-based representation of stock price movement than the S&P 500, it is a
widely followed measure of general stock market health.
Banking on Industrial and Financial Stocks
Prudential Equity Income Fund Compared to the S&P 500 as of 4/30/95
(CHART)
Prudential Equity Income Fund S&P 500
<PAGE>
The Prudential Equity Income Fund and the S&P
500:
Comparing a $10,000 Investment.
Class A
(CHART)
Class B
(CHART)
Class C
(CHART)
Past performance is not a guarantee of future performance. Principal and
investment return will fluctuate so that an investor's shares may be worth
more or less than their original cost when redeemed.
These graphs are furnished to you in accordance with SEC regulations. They
compare a $10,000 investment in the Prudential Equity Income Fund (Class A,
Class B and Class C) with a similar investment in the Standard & Poor's 500
Index (S&P 500) by portraying the initial account values at the commencement of
operations of each class and subsequent account values at the end of each
fiscal year (October 31), as measured on a quarterly basis, beginning in 1990
for Class A shares, in 1987 for Class B shares and 1994 for Class C shares.
For purposes of the graphs, it has been assumed that (a) the maximum sales
charge was deducted from the initial $10,000 investment in Class A shares; (b)
the maximum applicable contingent deferred sales charge was deducted from the
value of the investment in Class B shares and Class C shares, assuming full
redemption on April 30, 1995; (c) all recurring fees (including management
fees) were deducted; and (d) all dividends and distributions were reinvested.
Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. This conversion feature was
implemented in February 1995 and 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 which
comprise the S&P 500 may differ substantially from the securities in the Fund's
portfolio. The S&P 500 is not the only index which may be used to characterize
performance of equity income funds and other indexes may portray different
comparative performance.
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
Collect (908) 417-7555
Prudential Mutual Fund Management (LOGO)
Trustees
Edward D. Beach
Donald D. Lennox
Douglas H. McCorkindale
Thomas T. Mooney
Richard A. Redeker
Louis A. Weil, III
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Susan C. Cote, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Marguerite E.H. Morrison, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributors
Prudential Mutual Fund Distributors, Inc.
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Deloitte & Touche LLP
Two World Financial Center
New York NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610
The accompanying financial statements as of April 30, 1995 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.
743916207 MF131E2
743916108 Cat. #4441363
743916306
