(ICON)
Prudential
Equity
Income
Fund
ANNUAL
REPORT
Oct. 31, 1995
(LOGO)
<PAGE>
Prudential Equity Income Fund
Performance At A Glance.
In an exceptional year for the U.S. stock market, equity income mutual funds
have provided good returns. Stock prices in general are rising because
investors like moderate economic growth and low inflation in the U.S. -- and
they're confident about trends towards more efficient production in American
companies. As a result, the Prudential Equity Income Fund produced comfortable
returns, though it was slightly below its Lipper category average.
<TABLE>
<CAPTION>
Cumulative Total Returns1 As of 10/31/95
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A 11.2% 108.8% 93.4%
Class B 10.3 100.7 127.2
Class C 10.3 N/A 10.8
Lipper Global Fund Avg3 17.9 103.7 126.7
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns1 As of 9/30/95
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A 10.5% 15.8% 12.2%
Class B 10.4 15.9 10.5
Class C 14.4 N/A 13.6
</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 theiroriginal cost.
1Source: Prudential Mutual Funds and Lipper Analytical Services, Inc.
Cumulative total returns do not take into account sales charges. Average
annual total 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%, during the first six years. Class C shares are subject to a 1-year
contingent deferred sales charge of 1%. 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.
3These are the average returns of 119 funds in the equity fund category for
one year; 56 funds for five years; and 23 since inception of the Class B
shares.
How Investments Compared.
(As of 10/31/95)
(CHART)
Source: Lipper Analytical Services. Financial markets change, so a mutual
fund's past performance should never be used to predict future results. The
risks to each of the investments listed above are different -- we provide
12-month total returns for several Lipper mutual fund categories to show you
that reaching for higher yields means tolerating more risk. The greater the
risk, the larger the potential reward or loss. In addition, we've added
historical 20-year average annual returns to show that some of 1995's returns
(so far) are higher than normal. These returns assume the reinvestment of
dividends.
U.S. Growth Funds will fluctuate a great deal. Smaller capitalization stocks
offer greater potential for long-term growth but may be more volatile than
larger capitalization stocks. Investors receive higher historical total returns
from stocks than from most other investments.
Bond Funds provide more income than stock funds, which can help smooth out
their total returns year by year. But their prices still fluctuate (sometimes
significantly) and their returns are historically lower than those of stock
funds.
Global Stock Funds will fluctuate more than domestic stock funds, since they
invest at least 25% of their portfolios outside the United States. They are
subject to risks of currency fluctuation, and social, political and economic
change. They are designed for investors who can tolerate additional risks in
hopes of higher rewards.
Money Market Funds attempt to preserve a constant share value; they don't
fluctuate much in price but their returns are generally among the lowest of
the major investment categories.
<PAGE>
Warren E. Spitz, Fund Manager
(PHOTO)
Portfolio
Manager's Report
The Prudential Equity Income Fund seeks both income and capital appreciation by
investing primarily in stocks that provide investment income returns above
those of the S&P 500. Warren is a value investor--he looks for stocks that are
cheap given their earnings or cash flow.
Strategy Session.
Our overall strategy is to buy inexpensive stocks issued by good companies. We
think this is the best way to create a portfolio that will appreciate in value
over time. And we look for high dividends--whenever that won't conflict with
our total return objective too much--to keep our payout appealing for the
conservative equity investors who are attracted to this Fund.
Within those parameters, however, we've shifted course somewhat this year to
reflect some unusual trends in the financial marketplace:
- -Since interest rates appear to be on a downward course, we've shifted a
portion of the portfolio towards the kinds of stocks that typically benefit
as rates decline: financial stocks (28% of total net assets) like real estate
investment trusts and insurance companies are good examples. REITs benefit as
their cost of financing falls and insurance companies reap above-average
investment returns from bonds.
- -Investors are acting as if the economy is weaker than it appears. That means
the cyclical issues we favored earlier this year--which usually do well in an
expanding economy--have been weak performers. We've stopped buying cyclicals,
like steel companies, for the time being, though we'll hold on to what we have
until the U.S. and global economic picture becomes clearer.
- -Stock prices have risen so high that bonds look like the sector of choice
right now, especially after comparing the risk levels. In addition, we're
having trouble finding the bargain-basement stocks we like. So, we're
actually buying a limited number of U.S. Treasury bonds (6% of total net
assets), which rise in value when interest rates fall. If the economy remains
at its current levels, or weakens somewhat, we think interest rates will
continue to fall.
Media Mentions.
Warren's "contrarian streak has paid off in the long run..." Morningstar,
9/29/95.
The Prudential Equity Income Fund was featured by U.S. News & World Report
(2/6/95) in its 1995 Mutual Fund Guide as "a fund with strong, consistent
performance over the last 10 years" and by Fortune (7/24/95) in its Retirement
Guide/Special Issue as "a fund noteworthy for performance over the last three
years."
Sector Breakdown.
Prudential Equity Income Fund
As of 10/31/95
(CHART)
<PAGE>
What Went Well.
Technology Gains.
Our decision to buy technology stocks earlier this year (12% of total net
assets six months ago) and sell them at the end of the summer (10% of total
net assets on 10/31/95) was a good one. We picked up substantial gains when
technology stock prices were rising during the spring and avoided most of the
technology downdraft in the third quarter. Seagate Technologies, a disk drive
manufacturer, and National Semiconductor, a chip maker, were among our better
performing stocks in this sector.
Profiting From Insurance.
Insurance companies were a strong sector for us, at 7% of total net assets.
Insurance companies profit from falling interest rates because they invest so
much of their assets in bonds. In addition, these companies are rebounding
from a two-year string of natural disasters and their costs have fallen
dramatically as current claims have fallen. Two holdings that served us well
were Aetna and Marsh McLennan -- both also profited from efficiency programs,
which helped them produce more revenue while spending less money.
Bonds Look Good, Too.
Bonds make sense -- even for stock investors -- when interest rates are
falling. Our U.S. Treasury bond holdings (6% of total net assets), purchased
in September, had appreciated around 5% in value by 10/31/95. We plan to hold
on to these securities until we see how far interest rates fall in coming
months -- we're looking especially for the Federal Reserve to reduce the
federal funds rate once more in 1995.
And Not So Well.
Steel: Rusty Performance.
Overall, steel stocks have not been good performers. Because the economy has
weakened in the past six months, they're attractively priced now. So we're
still holding on to these stocks, in the belief the economy will continue to
expand enough (both here and overseas) to fuel growth among the big steelmakers.
Looking Ahead.
We expect interest rates to fall for at least the next six months, especially
if the Federal Reserve reduces short-term interest rates again in an attempt
to shore up the economy. Earnings disappointments will probably begin to
increase because the economy has slowed, and investors have become accustomed
to earnings rising faster than analysts' predictions. But the stock market
might weather the bad news as long as interest rates continue to fall--lower
borrowing costs can translate to reduced expenses for many companies and might
eventually stimulate consumer demand for housing, autos and other big-ticket
merchandise. In any event, we anticipate some of today's undervalued sectors,
like retailers, raw materials producers and energy, may catch the market's
attention in the next few quarters and begin to produce higher total returns.
Five Largest
Holdings.*
<TABLE>
<C> <S>
4.0% U.S.Treasury
30-YearBonds
3.9% Lehman Bros. Holdings
Financial Services
3.5% IBM
Computer Hardware
3.2% Chrysler
Automobiles & Trucks
3.1% AMR Corp.Debenture
Airlines
</TABLE>
*Expressed as a percentage of total net assets as of 10/31/95. Portfolio
holdings are subject to change.
- ------------------------------------------------------------------------------
1
<PAGE>
President's Letter
(PHOTO)
December 15, 1995
Dear Shareholder:
For many investors, 1995 was a profitable year -- most stock and bond funds
enjoyed healthy returns from the U.S. markets. While climbing returns can
tempt even the most skittish investors to start buying again, it is important
to remember that the stock and bond markets go down just as they go up. At
times like these, remember the importance of working with your Financial
Advisor or Registered Representative to help you find investments that are
consistent with your risk tolerance and time horizon. Your Financial Advisor
or Registered Representative can help you maintain realistic expectations
about both the potential performance and risks associated with your
investments.
American Dream Savings Account.
The U.S. Congress is now considering one of the most significant and positive
pieces of legislation to affect individual investors -- the American Dream
Savings Account. This legislation may improve the traditional Individual
Retirement Account (IRA) by allowing higher non- working spouse contributions
as well as tax-free and penalty-free withdrawals from the account before age
59 1/2, for certain expenses. We will keep our Financial Advisors and
Registered Representatives updated on the progress of this legislation, so
call him or her to learn how you may benefit.
Shareholder Legislative Action Program.
From time to time we've be informing you about significant legislation before
Congress, such as the American Dream Savings Account, that may potentially
impact mutual fund investors. We want to make it easier for you to share your
views with your Congressional member. So, beginning in 1996, your shareholder
reports will contain postage-paid message cards that you simply drop in the
mail if you want to let your senator or representative know how you feel about
pending legislation.
Fund Profiles.
Over the past year, we've worked to make your shareholder reports more
interesting, informative and easy to read. This year, we'll be turning our
attention to "fund profiles." Some mutual fund companies now offer one to
shareholders along with a full prospectus. The purpose of a fund profile is to
provide a very brief, reader-friendly summary of a fund's objective,
investments, risks and expenses. Would you like to see fund profiles from us?
Please call your Financial Advisor or Registered Representative to share your
views.
As always, thank you for your confidence in Prudential Mutual Funds.
Sincerely,
Richard A. Redeker
President
- ------------------------------------------------------------------------------
2
<PAGE>
Portfolio of Investments as of October 31, 1995 PRUDENTIAL EQUITY INCOME FUND
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--95.9%
COMMON STOCKS--73.9%
- ------------------------------------------------------------
Aerospace/Defense--4.6%
478,800 Northrop Grumman Corp. $ 27,411,300
784,800 Thiokol Corp. 27,173,700
39,200 United Industrial Corp. 200,900
---------------
54,785,900
- ------------------------------------------------------------
Apparel--1.2%
370,000 Fruit of the Loom, Inc.* 6,428,750
4,100 Garan, Inc. 75,338
372,700 Kellwood Co. 6,988,125
40,800 Oxford Industries, Inc. 663,000
---------------
14,155,213
- ------------------------------------------------------------
Automobiles & Trucks--3.2%
746,779 Chrysler Corp. 38,552,466
- ------------------------------------------------------------
Chemicals--0.7%
1,158,500 Nova Corp. (Canada)* 8,833,562
- ------------------------------------------------------------
Computer Hardware--5.9%
1,000,000 Amdahl Corp.* 9,250,000
354,500 Digital Equipment Corp.* 19,187,312
426,100 International Business Machines
Corp.* 41,438,225
---------------
69,875,537
- ------------------------------------------------------------
Computer Software & Services--0.8%
828,200 Intergraph Corp.* 10,041,925
- ------------------------------------------------------------
Diversified Consumer Products--
2,600 U.S. Industries, Inc.* 39,000
- ------------------------------------------------------------
Electric Utilities--1.8%
57,900 Centerior Energy Corp. 579,000
407,800 Entergy Corp. $ 11,622,300
300,000 Pacific Gas & Electric Co. 8,812,500
---------------
21,013,800
- ------------------------------------------------------------
Electrical Equipment--4.3%
209,700 Esterline Technologies Corp.* 4,849,312
455,800 IMO Industries, Inc.* 2,677,825
700,000 Kuhlman Corp. 8,050,000
377,900 Newport Corp. 3,164,913
210,200 Pacific Scientific Co. 4,440,475
1,970,200 Westinghouse Electric Corp. 27,829,075
---------------
51,011,600
- ------------------------------------------------------------
Energy Equipment & Services--5.0%
440,900 Smith International, Inc.* 7,054,400
334,300 Sonat Offshore Drilling, Inc. 10,614,025
1,006,200 USX Corp. 30,060,225
1,304,200 Varco International, Inc.* 11,900,825
---------------
59,629,475
- ------------------------------------------------------------
Energy Systems--5.4%
1,056,800 Baker Hughes, Inc. 20,739,700
724,300 Dresser Industries, Inc. 15,029,225
1,282,300 McDermott International, Inc. 20,356,512
1,303,100 Morrison Knudsen Corp. 8,470,150
---------------
64,595,587
- ------------------------------------------------------------
Financial Services--7.3%
524,175 Bear Stearns Cos., Inc. 10,417,978
242,200 Edwards (A.G.), Inc. 6,176,100
2,132,000 Lehman Brothers Holdings, Inc. 46,371,000
660,000 Salomon, Inc. 23,842,500
---------------
86,807,578
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
3
<PAGE>
<PAGE>
Portfolio of Investments as of October 31, 1995 PRUDENTIAL EQUITY INCOME FUND
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Forest & Paper--0.2%
72,600 Fletcher Challenge Forests, (ADR)
(New Zealand) $ 1,007,325
71,600 Louisiana-Pacific Corp. 1,709,450
---------------
2,716,775
- ------------------------------------------------------------
Gas Distribution--0.6%
224,950 KN Energy, Inc. 5,764,344
51,450 Yankee Energy System, Inc. 1,099,744
---------------
6,864,088
- ------------------------------------------------------------
Gas Pipelines--1.8%
318,200 Panhandle Eastern Corp. 8,034,550
280,100 Sonat, Inc. 8,052,875
360,800 TransCanada Pipelines, Ltd. 4,825,700
---------------
20,913,125
- ------------------------------------------------------------
Insurance--6.6%
933,400 Alexander & Alexander Services,
Inc. 20,884,825
114,080 Fremont General Corp. 3,308,320
293,100 Marsh & McLennan Cos. 23,997,563
328,400 Ohio Casualty Corp. 11,658,200
170,700 SAFECO Corp. 10,956,806
198,400 Selective Insurance Group, Inc. 7,390,400
---------------
78,196,114
- ------------------------------------------------------------
Integrated Producers--1.6%
5,657 Amoco Corp. 361,341
43,800 Petroleum Heat & Power Co., Inc. 339,450
665,000 Quaker State Corp. 8,728,125
540,600 USX Marathon Corp. 9,595,650
---------------
19,024,566
- ------------------------------------------------------------
Machinery--0.1%
278,600 Terex Corp.* 1,358,175
- ------------------------------------------------------------
Media--1.2%
220,000 Dun & Bradstreet Corp. 13,145,000
40,700 Harland (John H.) Co. 844,525
---------------
13,989,525
Mining--0.2%
298,499 Echo Bay Mines, Ltd. $ 2,686,491
- ------------------------------------------------------------
Miscellaneous Industrial--0.1%
52,800 Hanson Plc., (ADR) (United Kingdom) 818,400
- ------------------------------------------------------------
Oil & Gas-Equipment & Services--0.3%
494,900 Global Marine Inc.* 3,216,850
116,300 Rowan Cos., Inc.* 770,488
---------------
3,987,338
- ------------------------------------------------------------
Offshore Service Vessel--0.4%
176,000 Tidewater, Inc. 4,642,000
- ------------------------------------------------------------
Paper--0.5%
425,000 Gibson Greetings, Inc. 5,896,875
- ------------------------------------------------------------
Realty Investment Trust--14.6%
271,000 AMLI Residential Property Trust 5,216,750
315,000 Avalon Properties, Inc. 6,142,500
231,200 Beacon Properties 5,028,600
300,000 Bradley Real Estate Trust 4,312,500
30,200 Carr Realty Corp. 573,800
68,100 Charles E. Smith Residential
Realty, Inc. 1,583,325
808,900 Crescent Real Estate Equities 25,884,800
565,400 Crown American Realty 4,311,175
952,400 Equity Residential Property Trust 26,667,200
175,000 Essex Property Trust 3,193,750
151,800 First Union Real Estate Equity &
Mortgage Investments 1,081,575
567,700 Gables Residential Trust 12,205,550
369,100 Glimcher Realty Trust 6,643,800
500,000 Haagen (Alexander) Properties Inc. 5,500,000
400,000 Irvine Apartment Communities, Inc. 7,150,000
353,500 JDN Realty Corp. 7,202,563
96,000 JP Realty, Inc. 1,968,000
41,700 Kimco Realty Corp. 1,537,688
230,000 Malan Realty Investors, Inc. 3,220,000
592,100 Manufactured Home Communities, Inc. 9,769,650
43,500 MGI Properties 674,250
105,000 Patriot American Hospitality, Inc.* 2,559,375
</TABLE>
- --------------------------------------------------------------------------------
4 See Notes to Financial Statements.
<PAGE>
<PAGE>
Portfolio of Investments as of October 31, 1995 PRUDENTIAL EQUITY INCOME FUND
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Realty Investment Trust (cont'd.)
62,600 Pennsylvania Real Estate Investment
Trust $ 1,259,825
586,093 Security Capital Pacific Trust 10,476,412
285,700 Simon Property Group, Inc. 6,642,525
286,300 Vornado Realty Trust 10,271,012
61,200 Weingarten Realty Investors, Inc. 2,111,400
---------------
173,188,025
- ------------------------------------------------------------
Retail--1.9%
352,000 K-Mart Corp. 2,860,000
378,400 Penney (J.C.), Inc. 15,940,100
236,300 TJX Companies, Inc. 3,190,050
---------------
21,990,150
- ------------------------------------------------------------
Tobacco--2.7%
200,000 Philip Morris Cos., Inc. 16,900,000
500,000 RJR Nabisco Holdings Corp. 15,375,000
---------------
32,275,000
- ------------------------------------------------------------
Trucking & Shipping--0.4%
315,000 Yellow Corp. 4,134,375
- ------------------------------------------------------------
Wood Processing--0.5%
150,000 Rayonier, Inc. 5,625,000
---------------
Total common stocks (cost
$824,567,450) 877,647,665
---------------
PREFERRED STOCKS--9.4%
- ------------------------------------------------------------
Aluminum--1.1%
371,800 Kaiser Aluminum Corp., Conv. $8.25 4,275,700
170,300 Reynolds Metals Co., Conv. $3.31 8,515,000
---------------
12,790,700
- ------------------------------------------------------------
Banking--0.1%
54,600 Security Capital Pacific Trust,
Ser. A, Conv. $1.75 1,296,750
- ------------------------------------------------------------
Electrical Equipment--2.1%
1,743,000 Westinghouse Electric Corp., Conv.
$1.30 24,837,750
Energy Systems--0.6%
88,000 McDermott International, Inc.,
Conv. $5.75, Ser. C $ 3,223,000
131,400 Reading & Bates Corp., Conv. $1.63 4,566,150
---------------
7,789,150
- ------------------------------------------------------------
Insurance--0.5%
102,200 Alexander & Alexander Services,
Inc., Conv. $3.63, Ser. A 5,263,300
12,700 USF&G Corp., Conv. $4.10, Ser. A 635,000
---------------
5,898,300
- ------------------------------------------------------------
Integrated Producers--0.9%
107,800 Noble Drilling Corp., Conv. $1.50 2,681,525
43,100 Unocal Corp., Conv. $3.50 2,230,425
118,900 USX Marathon Corp., Conv. 6.50% 5,618,025
---------------
10,529,975
- ------------------------------------------------------------
Mining--0.2%
60,000 Hecla Mining Co., Conv. 7.00%, Ser.
B 2,490,000
- ------------------------------------------------------------
Oil & Gas Exploration/Production--0.3%
74,800 Parker & Parsley Capital, Conv.
6.25% 3,272,500
- ------------------------------------------------------------
Steel--0.9%
250,800 Bethlehem Steel Corp., Conv. $3.50 10,909,800
- ------------------------------------------------------------
Textiles--0.4%
90,200 Fieldcrest Cannon, Inc. Conv.
$3.00, Ser. A 4,284,500
- ------------------------------------------------------------
Tobacco--2.3%
4,400,000 RJR Nabisco Holdings, Inc. Conv.
$0.60, PERCS 27,500,000
---------------
Total preferred stocks (cost
$117,935,074) 111,599,425
---------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
5<PAGE>
<PAGE>
Portfolio of Investments as of October 31, 1995 PRUDENTIAL EQUITY INCOME FUND
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
<S> <C> <C> <C>
- ------------------------------------------------------------
CONVERTIBLE BONDS--5.8%
- ------------------------------------------------------------
Airlines--3.1%
Ba2 $ 37,745 AMR Corp., Deb.,
6.125%, 11/1/24 $ 36,512,247
- ------------------------------------------------------------
Fertilizer--0.4%
B3 4,500 IMC Fertilizer Group,
Inc.,
Deb.,
6.25%, 12/1/01 5,108,490
- ------------------------------------------------------------
Integrated Oil--0.7%
A2 7,260 Baker Hughes, Inc.,
Zero Coupon, 5/5/08 4,455,825
B2 2,695 Cross Timbers Oil Co.,
Deb.,
5.25%, 11/1/03 2,346,159
B2 1,871 Oryx Energy Co.,
Sub. Deb.,
7.50%, 5/15/14 1,630,352
--------------
8,432,336
- ------------------------------------------------------------
Integrated Producers--1.0%
Baa3 12,579 Noble Affiliates, Inc.,
Sub. Notes,
4.25%, 11/1/03 11,953,824
- ------------------------------------------------------------
Mining--0.3%
B2 3,000 Coeur D'Alene Mines
Corp., Sub. Deb.,
7.00%, 11/30/02 3,348,660
- ------------------------------------------------------------
Realty Investment Trust--0.3%
NR 3,800 Malan Realty Investors,
Inc., Sub. Deb.,
9.50%, 7/15/04 3,144,500
- ------------------------------------------------------------
Steel--
Ba2 620 USX Corp., Sub. Deb.,
7.00%, 6/15/17 577,375
--------------
Total convertible bonds
(cost $69,965,713) 69,077,432
--------------
FOREIGN GOVERNMENT OBLIGATIONS--0.9%
NR NZ$15,580 New Zealand Gov't.
Bonds,
8.00%, 4/15/04
(cost $10,819,084) $ 10,783,885
- ------------------------------------------------------------
U. S. GOVERNMENT SECURITIES--5.9%
United States Treasury
Bonds,
Aaa 20,000 7.50%, 11/15/24 22,850,000
Aaa 44,560 6.875%, 8/15/25 47,825,357
--------------
Total U. S. Government
Securities
(cost $67,656,369) 70,675,357
Total long-term
investments
(cost $1,090,943,690;
Note 4) 1,139,783,764
--------------
SHORT-TERM INVESTMENTS--4.7%
- ------------------------------------------------------------
REPURCHASE AGREEMENT--4.7%
55,990 Joint Repurchase
Agreement Account,
5.89%, 11/1/95
(cost $55,990,000 (Note
5)) 55,990,000
--------------
- ------------------------------------------------------------
Total Investments--100.6%
(cost $1,146,933,690) 1,195,773,764
Liabilities in excess of
other assets--(0.6%) (7,404,354)
--------------
Net Assets--100% $1,188,369,410
--------------
--------------
- ---------------
*Non-income producing security.
ADR--American Depository Receipt.
PERCS--Preferred Equity Redemption Cumulative Stock.
NR--Not rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a description
of
Moody's ratings.
</TABLE>
- --------------------------------------------------------------------------------
6 See Notes to Financial Statements.
<PAGE>
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL EQUITY INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<S>
<C>
Assets
October 31, 1995
Investments, at value (cost
$1,146,933,690).................................................................
$1,195,773,764
Cash.........................................................................
............................... 49,913
Receivable for investments
sold.........................................................................
.... 6,649,082
Dividends and interest
receivable...................................................................
........ 5,261,660
Receivable for Fund shares
sold.........................................................................
.... 1,201,081
Deferred
expenses.....................................................................
...................... 13,156
--------------
Total
assets.......................................................................
...................... 1,208,948,656
--------------
Liabilities
Payable for investments
purchased....................................................................
....... 16,235,590
Payable for Fund shares
reacquired...................................................................
....... 2,390,586
Distribution fee
payable......................................................................
.............. 857,005
Management fee
payable......................................................................
................ 556,949
Accrued
expenses.....................................................................
....................... 514,714
Foreign withholding tax
payable......................................................................
....... 24,402
--------------
Total
liabilities..................................................................
...................... 20,579,246
--------------
Net
Assets.......................................................................
........................... $1,188,369,410
--------------
--------------
Net assets were comprised of:
Shares of beneficial interest, at
par.................................................................... $
826,902
Paid-in capital in excess of
par.........................................................................
1,072,986,635
--------------
1,073,813,537
Undistributed net investment
income......................................................................
8,846,851
Accumulated net realized
gains...........................................................................
56,872,291
Net unrealized appreciation on investments and foreign
currencies........................................ 48,836,731
--------------
Net assets, October 31,
1995.........................................................................
....... $1,188,369,410
--------------
--------------
Class A:
Net asset value and redemption price per share
($276,989,900 / 19,236,598 shares of beneficial interest issued and
outstanding)...................... $14.40
Maximum sales charge (5% of offering
price)..............................................................
.76
--------------
Maximum offering price to
public.........................................................................
$15.16
--------------
--------------
Class B:
Net asset value, offering price and redemption price per share
($906,793,354 / 63,134,276 shares of beneficial interest issued and
outstanding)...................... $14.36
--------------
--------------
Class C:
Net asset value, offering price and redemption price per share
($4,586,156 / 319,334 shares of beneficial interest issued and
outstanding)........................... $14.36
--------------
--------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
7
<PAGE>
<PAGE>
PRUDENTIAL EQUITY INCOME FUND
Statement of Operations
- --------------------------------------
- --------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income October 31, 1995
<S> <C>
Income
Dividends (net of foreign withholding
taxes of $260,162)................... $ 42,055,083
Interest................................ 8,979,751
----------------
Total income......................... 51,034,834
----------------
Expenses
Distribution fee--Class A............... 591,721
Distribution fee--Class B............... 9,118,564
Distribution fee--Class C............... 31,320
Management fee.......................... 6,235,010
Transfer agent's fees and expenses...... 1,816,000
Reports to shareholders................. 485,000
Custodian's fees and expenses........... 168,000
Registration fees....................... 93,500
Legal fees and expenses................. 41,000
Trustees' fees and expenses............. 38,320
Audit fee and expenses.................. 37,500
Insurance............................... 31,300
Miscellaneous........................... 16,061
----------------
Total expenses....................... 18,703,296
----------------
Net investment Income...................... 32,331,538
----------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions................. 58,034,997
Financial futures contracts............. (613,140)
Foreign currency transactions........... (27,377)
----------------
57,394,480
Net change in unrealized
appreciation/depreciation of
investments............................. 24,749,771
----------------
Net gain on investments and foreign
currency transactions................... 82,144,251
----------------
Net Increase in Net Assets
Resulting from Operations.................. $ 114,475,789
----------------
----------------
</TABLE>
PRUDENTIAL EQUITY INCOME FUND
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended October 31,
in Net Assets 1995 1994
<S> <C> <C>
Operations
Net investment income....... $ 32,331,538 $ 21,216,512
Net realized gain on
investments.............. 57,394,480 42,485,087
Net change in unrealized
appreciation/depreciation
of investments and
foreign currencies....... 24,749,771 (35,543,092)
-------------- --------------
Net increase in net assets
resulting from
operations............... 114,475,789 28,158,507
-------------- --------------
Net equalization credits
(debits).................... (34,109) 3,591,448
-------------- --------------
Dividends and distributions (Note 1)
Dividends from net
investment income
Class A.................. (8,544,147) (2,741,569)
Class B.................. (28,652,286) (10,744,017)
Class C.................. (88,434) (3,204)
-------------- --------------
(37,284,867) (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 conversion) (Note 6)
Proceeds from shares sold... 314,835,425 668,069,397
Net asset value of shares
issued in reinvestment of
dividends and
distributions............ 71,744,648 36,142,786
Cost of shares reacquired... (340,684,429) (221,021,185)
-------------- --------------
Net increase in net assets
from Fund share
transactions............. 45,895,644 483,190,998
-------------- --------------
Total increase................. 81,390,323 475,094,211
Net Assets
Beginning of year.............. 1,106,979,087 631,884,876
-------------- --------------
End of year.................... $1,188,369,410 $1,106,979,087
-------------- --------------
-------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
8 See Notes to Financial Statements.
<PAGE>
<PAGE>
Notes to Financial Statements 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.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Fund is required to pledge to the broker an amount of cash and/or other
assets equal to a certain percentage of the contract amount. This amount is
known as the ``initial margin''. Subsequent payments, known as ``variation
margin'', are made or received by the Fund each day, depending on the daily
fluctuations in the value of the underlying security. Such variation margin is
recorded for financial statement purposes on a daily basis as unrealized gain
or
loss. When the contract expires or is closed, the gain or loss is realized and
is presented in the statement of operations as net realized gain(loss) on
financial futures contracts.
The Fund invests in financial futures contracts in order to hedge its existing
portfolio securities, or securities the Fund intends to purchase, against
fluctuations in value caused by changes in prevailing interest rates. Should
interest rates move unexpectedly, the Fund may not achieve the anticipated
benefits of the financial futures contracts and may realize a loss. The use of
futures transactions involves the risk of imperfect correlation in movements in
the price of futures contracts, interest rates and the underlying hedged assets.
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
- --------------------------------------------------------------------------------
9
<PAGE>
<PAGE>
Notes to Financial Statements PRUDENTIAL EQUITY INCOME FUND
- -------------------------------------------------------------------------------
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.
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.
Reclassification of Capital Accounts: The Fund accounts for and reports
distributions to shareholders in accordance with American Institute of Certified
Public Accountants (AICPA) Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies. The effect of applying
this statement was to decrease undistributed net investment income and increase
accumulated net realized gains on investments by $27,377 relating to net
realized foreign currency losses. Net investment income, net realized gains and
net assets were not affected by this change.
- ------------------------------------------------------------
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. For the
period November 1, 1994 through May 31, 1995, the fee was calculated 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.
Effective June 1, 1995, the management fee was reduced 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''),
- --------------------------------------------------------------------------------
10
<PAGE>
<PAGE>
Notes to Financial Statements PRUDENTIAL EQUITY INCOME FUND
- -------------------------------------------------------------------------------
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 fiscal year ended October 31, 1995.
PMFD has advised the Fund that it has received approximately $586,400 in
front-end sales charges resulting from sales of Class A shares during the fiscal
year ended October 31, 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 fiscal year ended October 31, 1995, it
received approximately $2,466,000 and $3,500 in contingent deferred sales
charges imposed upon certain redemptions by Class B and Class C shareholders,
respectively.
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 fiscal year ended
October 31, 1995, the Fund incurred fees of approximately $1,468,000 for the
services of PMFS. As of October 31, 1995, approximately $126,000 of such fees
were due to PMFS. Transfer agent fees and expenses in the Statement of
Operations include certain out-of-pocket expenses paid to non-affiliates.
For the fiscal year ended October 31, 1995, PSI earned approximately $183,700
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 fiscal year ended October 31, 1995 were $824,525,086 and $804,021,664,
respectively.
The federal income tax basis of the Fund's investments at October 31, 1995 was
$1,147,754,106 and, accordingly, net unrealized appreciation for federal income
tax purposes was $48,019,658 (gross unrealized appreciation--$106,439,597; gross
unrealized depreciation--$58,419,939).
- ------------------------------------------------------------
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 October 31, 1995, the Fund
had a 6.0% undivided interest in the repurchase agreements in the joint account.
The undivided interest for the Fund represented $55,990,000 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., 5.875%, in the principal amount of $273,000,000, repurchase
price $273,044,552, due 11/1/95. The value of the collateral including accrued
interest is $278,800,077.
CS First Boston Corp., 5.90%, in the principal amount of $273,000,000,
repurchase price $273,044,742, due 11/1/95. The value of the collateral
including accrued interest is $278,529,780.
Goldman Sachs & Co., 5.88%, in the principal amount of $273,000,000, repurchase
price $273,044,590, due 11/1/95. The value of the collateral including accrued
interest is $278,460,050.
Smith Barney, Inc., 5.93%, in the principal amount of $114,753,000, repurchase
price $114,771,902, due 11/1/95. The value of the collateral including accrued
interest is $117,048,982.
- ------------------------------------------------------------
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. A special exchange privilege is also available for
shareholders who qualify to purchase Class A shares at net asset value.
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:
- --------------------------------------------------------------------------------
11
<PAGE>
<PAGE>
Notes to Financial Statements PRUDENTIAL EQUITY INCOME FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Shares Amount
- --------------------------------- ----------- -------------
<S> <C> <C>
Year ended October 31, 1995:
Shares sold...................... 9,069,984 $ 126,481,791
Shares issued in reinvestment of
dividends and distributions.... 988,308 13,123,973
Shares reacquired................ (9,432,145) (132,413,659)
----------- -------------
Net increase in shares
outstanding before
conversion..................... 626,147 7,192,105
Shares issued upon conversion
and/or exchange from Class B
and Class C.................... 7,880,523 103,261,849
----------- -------------
Net increase in shares
outstanding.................... 8,506,670 $ 110,453,954
----------- -------------
----------- -------------
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>
Year ended October 31, 1995:
Shares sold...................... 13,508,457 $ 185,025,545
Shares issued in reinvestment of
dividends and distributions.... 4,535,064 58,469,219
Shares reacquired................ (15,235,600) (207,693,768)
----------- -------------
Net increase in shares
outstanding before
conversion..................... 2,807,921 35,800,996
Shares reacquired upon conversion
and/or exchange into Class A... (7,898,828) (103,261,498)
----------- -------------
Net decrease in shares
outstanding.................... (5,090,907) $ (67,460,502)
----------- -------------
----------- -------------
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
----------- -------------
----------- -------------
<CAPTION>
Class C Shares Amount
- --------------------------------- ----------- -------------
<S> <C> <C>
Year ended October 31, 1995:
Shares sold...................... 238,881 $ 3,328,089
Shares issued in reinvestment of
dividends and distributions.... 11,418 151,456
Shares reacquired................ (40,015) (577,002)
----------- -------------
Net increase in shares
outstanding before
conversion..................... 210,284 2,902,543
Shares reacquired upon exchange
into Class A................... (27) (351)
----------- -------------
Net increase in shares
outstanding.................... 210,257 $ 2,902,192
----------- -------------
----------- -------------
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
----------- -------------
----------- -------------
- ---------------
* Commencement of offering of Class C shares.
</TABLE>
- ------------------------------------------------------------
Note 7. Dividends
On December 7, 1995 the Board of Trustees of the Fund declared the following
dividends and distributions per share, payable on December 15, 1995 to
shareholders of record on December 12, 1995.
<TABLE>
<CAPTION>
Class B
Class A and C
------- -------------
<S> <C> <C>
Ordinary Income.................. $0.1200 $0.0925
Short-Term Capital Gains......... $0.3100 $0.3100
Long-Term Capital Gains.......... $0.3900 $0.3900
</TABLE>
- --------------------------------------------------------------------------------
12
<PAGE>
<PAGE>
Financial Highlights PRUDENTIAL EQUITY INCOME FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
- ---------------------------------------------------------
Year
Ended October 31,
- ---------------------------------------------------------
1995 1994
1993 1992 1991
-------- --------
-------- ------- ------
<S> <C> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year.................. $ 14.03 $ 14.38
$ 12.16 $ 12.04 $ 9.53
-------- --------
-------- ------- ------
Income from investment operations
Net investment income............................... .48 .41
.47 .47 .38
Net realized and unrealized gain (loss) on
investment transactions........................... .95 .06
2.65 .60 2.50
-------- --------
-------- ------- ------
Total from investment operations.................. 1.43 .47
3.12 1.07 2.88
-------- --------
-------- ------- ------
Less distributions
Dividends from net investment income................ (.54) (.29)
(.46) (.47) (.37)
Distributions from net realized gains............... (.52) (.53)
(.44) (.48) --
-------- --------
-------- ------- ------
Total distributions............................... (1.06) (.82)
(.90) (.95) (.37)
-------- --------
-------- ------- ------
Net asset value, end of year........................ $ 14.40 $ 14.03
$ 14.38 $ 12.16 $12.04
-------- --------
-------- ------- ------
-------- --------
-------- ------- ------
TOTAL RETURN(a):.................................... 11.15% 3.48%
26.93% 9.50% 30.62%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)....................... $276,990 $150,502
$104,017 $51,165 $4,013
Average net assets (000)............................ $236,688 $131,398
$ 70,895 $21,931 $2,084
Ratios to average net assets:
Expenses, including distribution fees............ 1.03% 1.09%
1.07% 1.22% 1.37%
Expenses, excluding distribution fees............ .78% .85%
.87% 1.02% 1.17%
Net investment income............................. 3.36% 2.97%
3.44% 3.22% 3.43%
Portfolio turnover.................................. 74% 70%
57% 43% 64%
</TABLE>
- ---------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on
the last day of each period reported and includes reinvestment of dividends
and distributions.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
13
<PAGE>
<PAGE>
Financial Highlights PRUDENTIAL EQUITY INCOME FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
Class B -----------
- ------------------------------------------------------------ Year
Year
Ended October 31, Ended
- ------------------------------------------------------------ October 31,
1995 1994
1993 1992 1991 1995
<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 $ 14.00
-------- --------
-------- -------- -------- ---------
Income from investment operations
Net investment income............................... .37 .31
.37 .37 .30 .40
Net realized and unrealized gain (loss) on
investment transactions........................... .95 .06
2.64 .59 2.49 .92
-------- --------
-------- -------- -------- --------
Total from investment operations.................. 1.32 .37
3.01 .96 2.79 1.32
-------- --------
-------- -------- -------- --------
Less distributions
Dividends from net investment income................ (.44) (.19)
(.36) (.37) (.29) (.44)
Distributions from net realized gains............... (.52) (.53)
(.44) (.48) -- (.52)
-------- --------
-------- -------- -------- --------
Total distributions............................... (.96) (.72)
(.80) (.85) (.29) (.96)
-------- --------
-------- -------- -------- --------
Net asset value, end of period...................... $ 14.36 $ 14.00
$ 14.35 $ 12.14 $ 12.03 $ 14.36
-------- --------
-------- -------- -------- --------
-------- --------
-------- -------- -------- --------
TOTAL RETURN(a):.................................... 10.29% 2.73%
25.93% 8.55% 29.58% 10.29%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..................... $906,793 $954,951
$527,868 $190,846 $151,538 $ 4,586
Average net assets (000)............................ $911,856 $784,063
$304,898 $169,524 $136,602 $ 3,132
Ratios to average net assets:
Expenses, including distribution fees............ 1.78% 1.85%
1.87% 2.02% 2.17% 1.78%
Expenses, excluding distribution fees............ .78% .85%
.87% 1.02% 1.17% .78%
Net investment income............................. 2.66% 2.21%
2.58% 3.05% 2.67% 2.57%
Portfolio turnover.................................. 74% 70%
57% 43% 64% 74%
<CAPTION>
August 1,
Through
October 31,
1994
<S> <C>
-----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................ $ 13.99
-----------
Income from investment operations
Net investment income............................... .08
Net realized and unrealized gain (loss) on
investment transactions........................... (.02)
-----------
Total from investment operations.................. .06
-----------
Less distributions
Dividends from net investment income................ (.05)
Distributions from net realized gains............... --
-----------
Total distributions............................... (.05)
-----------
Net asset value, end of period...................... $ 14.00
-----------
-----------
TOTAL RETURN(a):.................................... 0.45%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..................... $ 1,527
Average net assets (000)............................ $ 762
Ratios to average net assets:
Expenses, including distribution fees............ 2.05%(b)
Expenses, excluding distribution fees............ 1.05%(b)
Net investment income............................. 2.42%(b)
Portfolio turnover.................................. 70%
</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.
- --------------------------------------------------------------------------------
14 See Notes to Financial Statements.
<PAGE>
<PAGE>
Independent Auditors' Report PRUDENTIAL EQUITY INCOME FUND
- -------------------------------------------------------------------------------
The Shareholders and Board of Trustees
Prudential Equity Income Fund
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Prudential Equity Income Fund as of October 31,
1995, the related statements of operations for the year then ended and of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on
a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
October 31, 1995 by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing procedures. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Prudential Equity
Income Fund as of October 31, 1995, the results of its operations, the changes
in its net assets and its financial highlights for the respective stated periods
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
December 7, 1995
Federal Income Tax Information PRUDENTIAL EQUITY INCOME FUND
- -------------------------------------------------------------------------------
We are required by the Internal Revenue Code to advise you within 60 days of the
Fund's fiscal year end (October 31, 1995) as to the federal income tax status
of
dividends paid by the Fund during such fiscal year. Accordingly, we are advising
you that during its fiscal year ended October 31, 1995, the Fund paid
distributions for Class A shares totaling $1.06 per share, comprised of $0.665
per share ordinary income and short-term capital gains which are taxable as
ordinary income and $0.395 per share long-term capital gains which is taxable
as
such. The Fund paid distributions for Class B shares totaling $0.96 per share,
comprised of $0.565 per share ordinary income and short-term capital gains which
are taxable as ordinary income and $0.395 per share long-term capital gains
which is taxable as such. The Fund paid distributions for Class C shares
totaling $0.96 per share, comprised of $0.565 per share ordinary income and
short-term capital gains which are taxable as ordinary income and $0.395 per
share long-term capital gains which are taxable as such. Further, we wish to
advise you that 69% of the dividends (excluding long-term capital gains) paid
in
the fiscal year ended October 31, 1995 qualified for the corporate dividends
received deduction available to corporate taxpayers.
In January 1996, you will be advised on IRS Form 1099 DIV or substitute Form
1099 DIV as to the federal tax status of the distributions received by you in
calendar 1995. The amounts that will be reported on such Form 1099 DIV will be
the amounts to use on your 1994 federal income tax return and will differ from
the amounts which we must report for the Fund's fiscal year ended October 31,
1995.
- --------------------------------------------------------------------------------
15
<PAGE>
Getting The
Most From
Your Prudential
Mutual Fund
When you invest through Prudential Mutual Funds, you receive financial advice
through 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. And 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 understands the markets and who knows you!
Keeping Up With The Joneses.
A financial advisor or registered representative can help you wade through the
numerous mutual funds available 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 remind you that you're investing for the long haul.
<PAGE>
Prudential Equity Income Fund S&P 500 Index
The Prudential Equity Income Fund and the S&P 500 Index:
Comparing a $10,000 Investment.
Class A
Average Annual
Total Returns
With Sales Load
11.1% Since Inception
14.7% for 5 Years
5.6% for 1 Year
Without Sales Load
12.1% Since Inception
15.9% for 5 Years
11.2% for 1 Year
(CHART)
Class B
Average Annual
Total Returns
With Sales Load
9.8% Since Inception
14.8% for 5 Years
5.3% for 1 Year
Without Sales Load
9.8% Since Inception
15.0% for 5 Years
10.3% for 1 Year
(CHART)
Class C
Average Annual
Total Returns
With Sales Load
8.6% Since Inception
9.3% for 1 Year
Without Sales Load
8.6% Since Inception
10.3% for 1 Year
(CHART)
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so an investor's shares, when redeemed, will be
worth more or less than their original cost. The charts on the right are
designed to give you an idea how much the Fund's returns can fluctuate from
year to year by measuring the best and worst calendar years in terms of total
annual return since inception of each share class.
These graphs are furnished to you in accordance with SEC regulations. They
compare a $10,000 investment in the Prudential Equity Income Fund (Class A,
Class B and Class C) with a similar investment in the S&P 500 Index by
portraying the initial account values at the commencement of operations of
each class, and subsequent account values at the end of this reporting period
(October 31), as measured on a quarterly basis, beginning in 1990 for Class A
shares, in 1987 for Class B shares and in 1994 for Class C shares. For purposes
of the graphs, and unless otherwise indicated, in the accompanying tables it
has been assumed (a) that the maximum applicable front-end sales charge was
deducted from the initial $10,000 investment in Class A shares; (b) the maximum
applicable contingent deferred sales charge was deducted from the value of the
investment in Class B and Class C shares, assuming full redemption on October
31, 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, beginning
approximately seven years after purchase. This conversion feature is not
reflected in the graph.
The S&P 500 is a capital-weighted index, representing the aggregate market
value of the common equity of 500 stocks primarily traded on the New York
Stock Exchange. The S&P 500 is an unmanaged index and includes the
reinvestment of all dividends, but does not reflect the payment of transaction
costs and advisory fees associated with an investment in the Fund. The
securities in the S&P 500 may differ substantially from the securities in the
Fund. The S&P 500 is not the only index that may be used to characterize
performance of stock funds and other indexes may portray different comparative
performance.
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
Internet Address:
http:\\www.prudential.com
(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 60610-4795
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
743916207 MF131E
743916108 Cat. #4441355
743916306
