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Prudential Equity Income Fund
(Class Z Shares)
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PROSPECTUS DATED MARCH 1, 1996 AS SUPPLEMENTED ON SEPTEMBER 12, 1996
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Prudential Equity Income Fund (the Fund) is an open-end, diversified manage-
ment investment company. Its investment objective is both current income and
capital appreciation. It seeks to achieve this objective by investing primar-
ily in common stocks and convertible securities that provide investment income
returns above those of the Standard & Poor's 500 Stock Index or the NYSE Com-
posite Index. In normal circumstances, the Fund intends to invest at least 65%
of its total assets in such securities. The balance of the Fund's assets may
be invested in other common stocks, other securities convertible into common
stocks, debt securities and certain derivatives, including options on stocks
and stock indices. Common stocks may include securities of foreign issuers.
There can be no assurance that the Fund's investment objective will be
achieved. See "How the Fund Invests--Investment Objective and Policies." The
Fund's address is One Seaport Plaza, New York, New York 10292, and its tele-
phone number is (800) 225-1852.
The Fund's purchase and sale of put and call options and related short-term
trading may result in a high portfolio turnover rate. These activities may be
considered speculative and may result in higher risks and costs to the Fund.
The Fund may also buy and sell stock index futures and options thereon for the
purpose of hedging its securities portfolio and may buy and sell options on
stock indices, in each case in accordance with limits described herein. See
"How the Fund Invests--Investment Objective and Policies."
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Class Z shares are offered exclusively for sale to a limited group of invest-
ors. Only Class Z shares are offered through this Prospectus. The Fund also
offers Class A, Class B and Class C shares through the attached Prospectus
dated January 2, 1996 (the Retail Class Prospectus), which is a part hereof.
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This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. Additional information
about the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated January 2, 1996, which information
is incorporated herein by reference (is legally considered a part of this Pro-
spectus) and is available without charge upon request to the Fund at the ad-
dress or telephone number noted above.
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Investors are advised to read this Prospectus and retain it for future
reference.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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FUND EXPENSES
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CLASS Z SHARES
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SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price)............................................... None
Maximum Sales Load or Deferred Sales Load Imposed on Reinvested
Dividends..................................................... None
Deferred Sales Load (as a percentage of original purchase price
or redemption proceeds,
whichever is lower)........................................... None
Redemption Fees................................................ None
Exchange Fee................................................... None
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ANNUAL FUND OPERATING EXPENSES* CLASS Z SHARES
(as a percentage of average net assets) --------------
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Management Fees................................................ .54%
12b-1 Fees..................................................... None
Other Expenses................................................. .24
---
Total Fund Operating Expenses.................................. .78%
===
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<TABLE>
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EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
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You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual
return and (2) redemption at the end of
each time period:
Class Z.................................... $8 $25 $43 $97
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The above example is based on expenses expected to have been incurred
if Class Z shares had been in existence throughout the fiscal year
ended October 31, 1995. The example should not be considered a
representation of past or future expenses. Actual expenses may be
greater or less than those shown.
The purpose of this table is to assist investors in understanding the
various costs and expenses that an investor in the Class Z shares of
the Fund will bear, whether directly or indirectly. For more complete
descriptions of the various costs and expenses, see "How the Fund is
Managed." "Other Expenses" includes operating expenses of the Fund,
such as Trustees' and professional fees, registration fees, reports to
shareholders and transfer agency and custodian fees.
--------
* Estimated based on expenses expected to have been incurred if Class Z
shares had been in existence throughout the fiscal year ended October
31, 1995.
2
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THE FOLLOWING INFORMATION SUPPLEMENTS "HOW THE FUND IS MANAGED--DISTRIBUTOR"
IN THE RETAIL CLASS PROSPECTUS:
Prudential Securities Incorporated (Prudential Securities) serves as the
Distributor of Class Z shares and incurs the expenses of distributing the
Fund's Class Z shares under a Distribution Agreement with the Fund, none of
which is reimbursed by or paid for by the Fund.
THE FOLLOWING INFORMATION SUPPLEMENTS "HOW THE FUND VALUES ITS SHARES" IN
THE RETAIL CLASS PROSPECTUS:
The NAV of Class Z shares will generally be higher than the NAV of Class A,
Class B or Class C shares as a result of the fact that the Class Z shares are
not subject to any distribution and/or service fee. It is expected, however,
that the NAV of the four classes will tend to converge immediately after the
recording of dividends, which will differ by approximately the amount of the
distribution-related expense accrual differential among the classes.
THE FOLLOWING INFORMATION SUPPLEMENTS "TAXES, DIVIDENDS AND DISTRIBUTIONS--
TAXATION OF SHAREHOLDERS" IN THE RETAIL CLASS PROSPECTUS:
The Fund has obtained opinions of counsel to the effect that neither (i) the
conversion of Class B shares into Class A shares nor (ii) the exchange of any
class of the Fund's shares for any other class of its shares constitutes a
taxable event for federal income tax purposes. However, such opinions are not
binding on the Internal Revenue Service.
THE FOLLOWING INFORMATION SUPPLEMENTS "SHAREHOLDER GUIDE--HOW TO BUY SHARES
OF THE FUND" AND "SHAREHOLDER GUIDE--HOW TO SELL YOUR SHARES" IN THE RETAIL
CLASS PROSPECTUS:
Class Z shares of the Fund are available for purchase by the following
categories of investors:
(i) pension, profit-sharing or other employee benefit plans qualified under
Section 401 of the Internal Revenue Code, deferred compensation and annuity
plans under Sections 457 and 403(b)(7) of the Internal Revenue Code, and non-
qualified plans for which the Fund is an available option (collectively,
Benefit Plans), provided such Benefit Plans (in combination with other plans
sponsored by the same employer or group of related employers) have at least
$50 million in defined contribution assets; (ii) participants in any fee-based
program sponsored by Prudential Securities or its affiliates which includes
mutual funds as investment options and for which the Fund is an available
option; (iii) investors who are, or have executed a letter of intent to
become, shareholders of any series of The Prudential Institutional Fund
(Institutional Fund) on or before one or more series of Institutional Fund
reorganize or who on that date have investments in certain products for which
Institutional Fund provides exchangeability and (iv) the PSI Cash Balance
Pension Plan, an employee defined benefit plan sponsored by Prudential
Securities. After a Benefit Plan qualifies to purchase Class Z shares, all
subsequent purchases will be for Class Z shares.
In connection with the sale of Class Z shares, the Manager, the Distributor
or one of their affiliates may pay dealers, financial advisers and other
persons which distribute shares a finders' fee based on a percentage of the
net asset value of shares sold by such persons.
THE FOLLOWING INFORMATION SUPPLEMENTS "SHAREHOLDER GUIDE--HOW TO EXCHANGE
YOUR SHARES" IN THE RETAIL CLASS PROSPECTUS:
Class Z shareholders of the Fund may exchange their Class Z shares for Class
Z shares of other Prudential Mutual Funds (except that the PSI Pension Plan
may only exchange its Class Z shares for Class Z shares of those Prudential
Mutual Funds which permit investment by the PSI Pension Plan) on the basis of
relative net asset value. Shareholders who qualify to purchase Class Z shares
(other than participants in any fee-based program) will have their Class B and
Class C shares which are not subject to contingent deferred sales charges and
their Class A shares exchanged for Class Z shares on a quarterly basis.
Participants in any fee-based program for which the Fund is an available
option will have their Class A shares, if any, exchanged for Class Z shares
when they elect to have those assets become a part of the fee-based program.
Upon
3
<PAGE>
leaving the program (whether voluntarily or not), such Class Z shares (and, to
the extent provided for in the program, Class Z shares acquired through
participation in the program) will be exchanged for Class A shares at net asset
value. Similarly, participants in the PSI 401(k) Plan, an employee benefit plan
sponsored by Prudential Securities (the PSI 401(k) Plan), for which the Fund's
Class Z shares are an available option and who wish to transfer their Class Z
shares out of the PSI 401(k) Plan following separation from service (i.e.,
voluntary or involuntary termination of employment or retirement) will have
their Class Z shares exchanged for Class A shares at net asset value. See
"Shareholder Guide--How to Exchange Your Shares--Special Exchange Privilege."
THE INFORMATION ABOVE ALSO SUPPLEMENTS THE INFORMATION UNDER "FUND
HIGHLIGHTS" IN THE RETAIL CLASS PROSPECTUS AS APPROPRIATE.
4
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No dealer, sales representative or any other person has been authorized to
give any information or to make any representations, other than those
contained in this Prospectus, in connection with the offer contained herein,
and, if given or made, such other information or representations must not be
relied upon as having been authorized by the Fund or the Distributor. This
Prospectus does not constitute an offer by the Fund or by the Distributor to
sell, or a solicitation of any offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful to make such
offer in such jurisdiction.
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TABLE OF CONTENTS
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PAGE
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FUND HIGHLIGHTS............................................................ 2
Risk Factors and Special Characteristics.................................. 2
FUND EXPENSES.............................................................. 4
FINANCIAL HIGHLIGHTS....................................................... 5
HOW THE FUND INVESTS....................................................... 8
Investment Objective and Policies......................................... 8
Hedging and Return Enhancement Strategies................................. 10
Other Investments and Policies............................................ 12
Investment Restrictions................................................... 14
HOW THE FUND IS MANAGED.................................................... 14
Manager................................................................... 14
Distributor............................................................... 15
Portfolio Transactions.................................................... 17
Custodian and Transfer and Dividend Disbursing Agent...................... 17
HOW THE FUND VALUES ITS SHARES............................................. 18
HOW THE FUND CALCULATES PERFORMANCE........................................ 18
TAXES, DIVIDENDS AND DISTRIBUTIONS......................................... 19
GENERAL INFORMATION........................................................ 20
Description of Shares..................................................... 20
Additional Information.................................................... 21
SHAREHOLDER GUIDE.......................................................... 22
How to Buy Shares of the Fund............................................. 22
Alternative Purchase Plan................................................. 23
How to Sell Your Shares................................................... 26
Conversion Feature--Class B Shares........................................ 29
How to Exchange Your Shares............................................... 30
Shareholder Services...................................................... 31
THE PRUDENTIAL MUTUAL FUND FAMILY.......................................... A-1
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</TABLE>
MF131Z 4401367
CUSIP No.: Class Z: 743916405
PRUDENTIAL
EQUITY
INCOME
FUND
(CLASS Z SHARES)
----------------
PROSPECTUS
JANUARY 2, 1996
(AS SUPPLEMENTED
ON
SEPTEMBER 12, 1996)
[LOGO]
<PAGE>
PRUDENTIAL EQUITY INCOME FUND
Supplement dated September 12, 1996 to
Prospectus dated January 2, 1996
THE FOLLOWING INFORMATION SUPPLEMENTS "GENERAL INFORMATION--DESCRIPTION OF
SHARES" IN THE PROSPECTUS:
The Fund is an open-end investment company which was organized under the
laws of Massachusetts on September 18, 1986 as an unincorporated business
trust, a form of organization that is commonly known as a Massachusetts
business trust. The Fund is authorized to issue an unlimited number of shares
of beneficial interest, divided into four classes, designated Class A, Class
B, Class C and Class Z shares. Each class of shares represents an interest in
the same assets of the Fund and is identical in all respects except that (i)
each class is subject to different sales charges and distribution and/or
service fees (except for Class Z shares which are not subject to any sales
charges and distribution and/or service fees), which may affect performance,
(ii) each class has exclusive voting rights on any matter submitted to
shareholders that relates solely to its arrangement and has separate voting
rights on any matter submitted to shareholders in which the interests of one
class differ from the interests of any other class, (iii) each class has a
different exchange privilege, (iv) only Class B shares have a conversion
feature and (v) Class Z shares are offered exclusively for sale to a limited
group of investors. For more information about Class Z shares, contact your
Prudential Securities financial adviser or Prusec representative or telephone
the Fund at (800) 225-1852. Participants in programs sponsored by Prudential
Retirement Services should contact their client representative for more
information about Class Z shares. Since Class B and Class C shares generally
bear higher distribution expenses than Class A shares, the liquidation
proceeds to shareholders of those classes are likely to be lower than to Class
A shareholders and to Class Z shareholders, whose shares are not subject to
any distribution and/or service fee. In accordance with the Fund's Declaration
of Trust, the Trustees may authorize the creation of additional series and
classes within such series, with such preferences, privileges, limitations and
voting and dividend rights as the Trustees may determine. Currently, the Fund
is offering four classes designated Class A, Class B, Class C and Class Z
shares.
THE FOLLOWING INFORMATION SUPPLEMENTS "HOW THE FUND CALCULATES PERFORMANCE"
IN THE PROSPECTUS:
The Fund may include comparative performance information in advertising or
marketing the Fund's shares. The Fund may include performance information
about each of the Fund's classes and is no longer required to include
performance data for all classes of shares in any advertisement or other
information including performance data of the Fund. See "How the Fund
Calculates Performance."
MF131C-2 (9/12/96)
<PAGE>
PRUDENTIAL EQUITY INCOME FUND
Supplement dated September 12, 1996 to Statement of Additional Information
dated January 2, 1996
THE FOLLOWING INFORMATION SUPPLEMENTS "PURCHASE AND REDEMPTION OF FUND
SHARES" IN THE STATEMENT OF ADDITIONAL INFORMATION:
Shares of the Fund may be purchased at a price equal to the next determined
net asset value per share plus a sales charge which, at the election of the
investor, may be imposed either (i) at the time of purchase (Class A shares)
or (ii) on a deferred basis (Class B or Class C shares). Class Z shares of the
Fund are offered to a limited group of investors at net asset value without
any sales charges. See "Shareholder Guide--How to Buy Shares of the Fund" in
the Prospectus.
Each class represents an interest in the same assets of the Fund and is
identical in all respects except that (i) each class is subject to different
sales charges and distribution and/or service fees (except for Class Z shares
which are not subject to any sales charges and distribution and/or service
fees), which may affect performance, (ii) each class has exclusive voting
rights on any matter submitted to shareholders that relates solely to its
arrangement and has separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the interests of
any other class, (iii) each class has a different exchange privilege, (iv)
only Class B shares have a conversion feature and (v) Class Z shares are
offered exclusively for sale to a limited group of investors. See
"Distributor" and "Shareholder Investment Account--Exchange Privilege."
THE FOLLOWING INFORMATION SUPPLEMENTS "SHAREHOLDER INVESTMENT ACCOUNT--
EXCHANGE PRIVILEGE" IN THE STATEMENT OF ADDITIONAL INFORMATION:
CLASS Z. Class Z shares may be exchanged for Class Z shares of other
Prudential Mutual Funds (except that the PSI Pension Plan may only exchange
its Class Z shares for Class Z shares of those Prudential Mutual Funds which
permit investment by the PSI Pension Plan).
MF131C-3 (9/12/96)
S-2
