(ICON)
Prudential
Equity
Income Fund
SEMI
ANNUAL
REPORT
April 30, 1996
(LOGO)
<PAGE>
Prudential Equity Income Fund
Performance At A Glance.
It was a healthy six months for the U.S. stock market and for stock mutual
funds. Despite surging interest rates this spring, stocks continued to rise,
although with far more volatility than last year. The Prudential Equity Income
Fund produced good returns over the last six months, performing better than its
Lipper category average. We performed well because of our significant
investments in industrial and technology stocks, which did not fare well late
in 1995. These stocks performed much better than other types of stocks early
in 1996, and we anticipate they will continue to do so in the future.
Cumulative Total Returns1 As of 4/30/96
<TABLE>
<CAPTION>
Six One Five Since
Months Year Years Inception2
<S> <C> <C> <C> <C>
Class A 13.7% 19.2% 95.6% 119.9%
Class B 13.3 18.3 88.1 157.4
Class C 13.3 18.3 N/A 25.5
Class Z N/A N/A N/A 2.6
Lipper Equity Income Fund Avg3 13.0 25.1 91.1 158.8
</TABLE>
Average Annual Total Returns1 As of 3/31/96
<TABLE>
<CAPTION>
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A 15.5% 13.1% 12.4%
Class B 15.6 13.3 10.7
Class C 19.6 N/A 13.7
Class Z N/A N/A N/A
</TABLE>
Past performance is not indicative 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 Funds and Lipper Analytical Services. 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 (CDSC) of 5%, 4%, 3%, 2%, 1% and
1%, during the first six years. Class C shares are subject to a one-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. Class Z shares are not subject to a sales charge or a
distribution fee. Class Z shares have been in existence for less than one year
and average annual returns are not available.
2Inception dates: 1/22/90 Class A; 1/22/87 Class B; 8/1/94 Class C; 3/1/96
Class Z.
3These are the average returns of 145 funds in the equity fund category for
six months, 137 funds for one year; 57 funds for five years; and 25 since
inception of the Class B shares.
How Investments Compared.
(As of 4/30/96)
(GRAPH)
U.S. General General U.S.
Growth Bond Muni Debt Taxable
Funds Funds Funds Money Funds
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 included
historical 20-year average annual returns. These returns assume the
reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors have received higher
historical total returns from stocks than from most other investments. Smaller
capitalization stocks offer greater potential for long-term growth but may be
more volatile than larger capitalization stocks.
General Bond Funds provide more income than stock funds, which can help smooth
out their total returns year by year. But their prices still fluctuate
(sometimes significantly) and their returns have been historically lower than
those of stock funds.
General Municipal Debt Funds invest in bonds issued by state governments, state
agencies and/or municipalities. This investment provides income that is usually
exempt from federal and state income taxes.
Money Market Funds attempt to preserve a constant share value; they don't
fluctuate much in price but, historically, their returns have been generally
among the lowest of the major investment categories.
<PAGE>
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 Spitz is a value investor -- he looks for stocks
that are cheap given their earnings or cash flow. There can be no assurance that
the Fund will achieve its investment objective.
Strategy Session.
Our strategy over the last six months was to buy stocks of good companies when
their prices were temporarily depressed. And nothing looked as good to us as
cyclical stocks -- those that tend to rise and fall with economic growth.
These are both industrial and consumer-oriented companies: paper, chemicals and
steel, as well as auto and retail stocks.
Late last year, the prices of these stocks fell to near-recession lows, as the
economy slowed and investors overreacted. We didn't think a recession was
likely, so we bought the stocks. Typically, investors buy cyclicals because
they are counting on an economic rebound. We bought for a different reason --
because they were cheap -- and because we didn't believe the economy would
weaken nearly as much as others feared. So as long as we didn't get a
significant economic downturn, we expected to do well.
We were right -- the economy didn't fall apart. But unfortunately, we were a
little early. These stocks did not perform very well late last year, because
economic growth didn't accelerate. That hurt. Plus, we also purchased
technology stocks at the same time, because they, too, were cheap. Then some
of these technology stocks fell in price after we bought them. This led to our
sub-par performance last year.
But early 1996 was a different story. This year, investors started to notice
that commodity prices were rising and economic growth was picking up. As a
result, investors came around to our way of thinking, and the cyclical stocks
we bought last year came to life.
A Word of Thanks.
We were disappointed with our 1995 performance. Even though the Prudential
Equity Income Fund's return was high on an absolute basis, our performance was
still below the average equity income fund. We made some significant strides
early this year, and we believe the Fund is on the right track. Thank you for
staying the course.
Industrials Dominate.
Sectors expressed as a percentage of
total net assets as of 4/30/96.
(GRAPH)
<PAGE>
What Went Well.
Big Blue Bargain.
We significantly added to technology holdings last winter (to 16% on April 30,
1996, from 10% six months ago), after this group had weakened substantially
last fall. We're glad we added to IBM, our largest holding (5% of total net
assets on April 30).
We believed for a long time that IBM would rebound, and started buying it at an
average price of $50 a share. As its price rose, we added more shares, so our
average cost per share is now closer to $75 a share. The stock price rose to
$108 as of April 30, 1996, largely because its fourth quarter earnings slightly
exceeded analysts' expectations. So we were right to buy it when it was out of
favor. IBM's first quarter earnings were not as well received, but the company's
cash flow and expense control continues to be superior.
REITS Were RIGHT.
Our largest holding in the financial services industry (which is our second
largest group after industrial stocks) was in real estate investment trusts
(REITS), amounting to about 16% of net assets. We invested in publicly-traded
REITS which are companies that own income-producing real estate, such as
apartments, shopping malls, and office buildings. While some of our financial
services stocks suffered somewhat this spring when interest rates suddenly rose,
REITS did not because of continued improvement in many real estate markets. In
fact, REITS were one of the best-performing groups paying high dividends.
Our other holdings in finance that did well were brokerage stocks such as
Lehman Brothers (our second largest holding at 3.9% of total net assets), Bear
Stearns and A.G. Edwards.
And Not So Well.
Timing Was Everything.
It's better to be early than late, but we would rather be on time. While our
purchase of cyclical stocks paid off for us in this year's first quarter,
they hurt performance in last year's fourth quarter. So while the passage of
time has proved us right, we would rather have been punctual than early on this
one.
We wish we had owned more bank stocks in 1995. The few we did own were sold
prematurely. However, we are comfortable not owning them currently, given
their generally high prices and vulnerability to bad news on inflation and/or
interest rates.
Looking Ahead.
The stock market has done quite well in recent years -- it has been five years
now since it declined by 5% or more in any time period. That's very unusual and
a temporary setback is always a possibility when investing in stocks.
Economic growth clearly accelerated early this year. But this growth created
uncertainty for the bond market, driving yields higher and bond prices lower.
We believe that we are well positioned for the uncertainty ahead. Our cyclical
stocks should perform well in an improving economy, and our financial services
stocks should do well in a time of slow growth and stable interest rates.
Five Largest Holdings.
<TABLE>
<C> <S>
5.0% IBM
Computer Hardware &
Software
3.9% Lehman Brothers
Financial Services
3.5% Chrysler
Automobiles & Trucks
3.4% AMR Corp.
Airline
3.4% Societe Nationale
Elf Aquitane
Integrated Producers
</TABLE>
Expressed as a percentage of total net assets as of 4/30/96.
- -------------------------------------------------------------------------------
1
<PAGE>
A Talk With Warren Spitz.
What Are REITS And Why Is The Fund Investing In Them?
We asked Prudential Equity Income Fund Portfolio Manager Warren Spitz to
explain REITS to us because approximately 16% of the Fund's assets are invested
in them.
Q. Warren, what is a REIT?
A. It's a real estate investment trust, a professionally managed investment
company that invests funds in income-producing real estate, such as apartments,
shopping malls and commercial office space.
Q.I thought only pension funds and insurance companies bought real estate as an
investment.
A. Real estate investments and REITs are related, but they are not the same. If
you purchase real estate as an investment, and then decide to sell a building
or a property, it may take a considerable period of time before the sale goes
through. When you invest in a REIT, as we do, you own shares of a publicly
traded company (many of which are listed on the New York Stock Exchange) that
owns the real estate. So a REIT offers the same advantages of other real estate
investments, such as income and potential price appreciation -- plus you have
liquidity.
Q. Why do you own REITs?
A. They pay a high dividend. By law, they must pay out at least 95% of their
earnings or they must pay Federal income taxes. REITS pay a much higher
dividend than stocks -- on average, property-owning REITs paid a 7.4% yield as
of the end of March, as measured by the National Association of Real Estate
Investment Trusts. That's much higher than the Standard & Poor's 500 Stock
Index, which paid a 2.2% yield and even higher than the Dow Jones Utilities
Average yield of 6%. The S&P 500 is a widely used measurement of the broad
stock market, and the Dow Jones Utilities average is an index of utility
stocks, which pay some of the highest dividends in the stock market.
Q. Why own REITS now?
A. They are attractively priced. Years ago, investors bought real estate as a
tax shelter. That changed when Congress reformed the tax laws in 1986,
eliminating the tax benefit. Today, REITS are in demand because they pay high
dividends and offer a way to benefit from undervalued real estate.
Q. How have they performed recently?
A. They've done quite well. In fact, when interest rates rose this spring,
hurting many financial services stocks, REITs were relatively unscathed because
of their high dividends. And if rates fall, the value of their real estate
should increase. So they can benefit somewhat whether interest rates rise or
fall. Of course, there are risks in all investments, including real estate.
REITs can be adversely affected if a major tenant left a shopping mall or
commercial office building, or if real estate markets in certain sections of
the country weaken. We seek to protect ourselves from these risks by
diversifying nationally in a broad variety of conservative investments.
- -------------------------------------------------------------------------------
2
<PAGE>
President's Letter June 3, 1996
(PHOTO)
Dear Shareholder:
Last year, U.S. stocks and bonds generally posted extraordinary returns.
Investors celebrated this performance by putting record amounts of new money
into mutual funds in the first few months of 1996. According to figures
released by the Investment Company Institute, a mutual fund industry trade
group, new investments in mutual funds reached an all-time monthly high of $33
billion in January of 1996. An additional $66 billion was invested in the
following three months.
While we are pleased that mutual funds are attracting new investors, we're
concerned that some of them may be "buying last year's returns." Few expect
1995's virtual non-stop returns from the stock and bond markets. In fact,
1996's markets have been volatile so far (stock and bond prices go down just
as they go up). There's no better time than now to be talking with your
Financial Advisor or Registered Representative. She or he can help you
determine reasonable expectations about both the potential performance and
risks associated with your investments.
Board of Directors Election.
Late this summer, we'll be sending you a notice about a special shareholder
meeting to elect new Prudential mutual fund boards of directors. Your Board of
Directors has approved a proposal to place a common board of experienced
directors across many of Prudential's mutual funds to improve business
efficiency. The materials you'll receive this summer will contain more complete
information about this proposal.
Changes at Prudential.
Finally, there have been some important changes recently at Prudential that
were made with you in mind. Prudential Mutual Funds has moved under the
umbrella of Prudential's newly created "Money Management Group." This group
manages and administers nearly $190 billion in client assets and provides
mutual funds, annuities, defined benefit and defined contribution plans to our
individual and institutional investors. We plan to improve the range and
quality of investment products and services that we can provide you by better
leveraging Prudential's strengths. There will, however, be no change in the
service you receive from your Financial Advisor, Registered Representative or
our Customer Service unit.
We're excited about our future and hope that you are, too. Thank you for your
continued support and confidence in Prudential Mutual Funds.
Sincerely,
Richard A. Redeker
President
- -------------------------------------------------------------------------------
3
<PAGE>
Portfolio of Investments as of
April 30, 1996 (Unaudited) PRUDENTIAL EQUITY INCOME FUND
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Description Value
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--98.0%
COMMON STOCKS--84.4%
- ------------------------------------------------------------
Aerospace/Defense--4.1%
453,800 Northrop Grumman Corp. $ 28,078,875
604,200 Thiokol Corp. 25,829,550
---------------
53,908,425
- ------------------------------------------------------------
Airlines--3.4%
508,000 AMR Corp.* 45,339,000
- ------------------------------------------------------------
Apparel--0.8%
572,700 Kellwood Co. 9,306,375
40,800 Oxford Industries, Inc. 714,000
---------------
10,020,375
- ------------------------------------------------------------
Automobiles & Trucks--4.0%
746,779 Chrysler Corp. 46,860,382
150,000 Ford Motor Co. 5,381,250
---------------
52,241,632
- ------------------------------------------------------------
Chemicals--2.3%
348,600 Dow Chemical Co. 30,981,825
- ------------------------------------------------------------
Computer Hardware--9.8%
1,000,000 Amdahl Corp.* 12,750,000
354,500 Digital Equipment Corp.* 21,181,375
611,100 International Business Machines
Corp. 65,693,250
528,000 Texas Instruments Inc. 29,832,000
---------------
129,456,625
- ------------------------------------------------------------
Computer Related Equipment--2.0%
561,000 Micron Technology Inc. 20,406,375
400,000 National Semiconductor Corp.* 6,300,000
---------------
26,706,375
Computer Software & Services--0.7%
719,800 Intergraph Corp.* $ 9,132,463
- ------------------------------------------------------------
Electrical Equipment--4.9%
209,700 Esterline Technologies Corp.* 4,823,100
455,800 IMO Industries Inc.* 3,076,650
700,000 Kuhlman Corp. 12,075,000
355,300 Newport Corp. 3,419,762
210,200 Pacific Scientific Co. 4,151,450
1,970,200 Westinghouse Electric Corp. 37,187,525
---------------
64,733,487
- ------------------------------------------------------------
Energy Equipment & Services--2.5%
1,006,200 USX Corp. 33,204,600
- ------------------------------------------------------------
Energy Systems--6.3%
1,056,800 Baker Hughes Inc. 33,553,400
724,300 Dresser Industries, Inc. 23,087,062
1,282,300 McDermott International, Inc. 26,928,300
---------------
83,568,762
- ------------------------------------------------------------
Financial Services--7.1%
394,175 Bear Stearns Cos., Inc. 9,903,647
217,200 Edwards (A.G.), Inc. 5,104,200
2,032,000 Lehman Brothers Holdings Inc. 51,562,000
660,000 Salomon Inc. 26,812,500
---------------
93,382,347
- ------------------------------------------------------------
Forest & Paper--0.2%
72,600 Fletcher Challenge Ltd., (ADR) 934,725
71,600 Louisiana-Pacific Corp. 1,798,950
---------------
2,733,675
</TABLE>
- --------------------------------------------------------------------------------
- ----- 4 See Notes to Financial Statements.
<PAGE>
Portfolio of Investments as of
April 30, 1996 (Unaudited) PRUDENTIAL EQUITY INCOME FUND
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Description Value
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Gas Distribution--0.6%
224,950 KN Energy, Inc. $ 7,198,400
51,450 Yankee Energy System, Inc. 1,151,194
---------------
8,349,594
- ------------------------------------------------------------
Gas Pipelines--2.1%
318,200 Panenergy Corporation 10,381,275
280,100 Sonat Inc. 12,219,362
360,800 TransCanada Pipelines Ltd.
(Canada) 5,096,300
---------------
27,696,937
- ------------------------------------------------------------
Insurance--5.7%
933,400 Alexander & Alexander Services,
Inc. 17,617,925
151,120 Fremont General Corp. 3,778,000
293,100 Marsh & McLennan Cos., Inc. 27,551,400
328,400 Ohio Casualty Corp. 11,329,800
306,400 SAFECO Corporation 10,111,200
178,400 Selective Insurance Group Inc. 5,597,300
---------------
75,985,625
- ------------------------------------------------------------
Integrated Producers--4.3%
1 Amoco Corp. 73
1,200,000 Societe Nationale Elf Aquitaine,
ADR (France) 45,150,000
540,600 USX-Marathon Group 11,893,200
---------------
57,043,273
- ------------------------------------------------------------
Media--1.1%
220,000 Dun & Bradstreet Corporation 13,392,500
40,700 Harland (John H.) Co. 1,068,375
---------------
14,460,875
- ------------------------------------------------------------
Mining--0.6%
194,678 Coeur d'Alene Mines Corp. 3,869,225
298,499 Echo Bay Mines Ltd. (Canada) 3,917,800
---------------
7,787,025
Miscellaneous Industrial--1.0%
772,800 Hanson Plc., (ADR) $ 11,688,600
26,400 Tenneco Inc. 1,448,700
---------------
13,137,300
- ------------------------------------------------------------
Paper--1.0%
922,000 Gibson Greetings Inc.* 13,023,250
- ------------------------------------------------------------
Realty Investment Trust--15.7%
271,000 Amli Residential Properties
Trust 5,386,125
315,000 Avalon Properties, Inc. 6,615,000
231,200 Beacon Properties Corp. 5,924,500
300,000 Bradley Real Estate Trust 4,425,000
30,200 Carr Realty Corp. 732,350
68,100 Charles E. Smith Residential
Realty, Inc. 1,583,325
808,900 Crescent Real Estate Equities,
Inc. 27,401,488
815,400 Crown American Realty Trust 6,115,500
1,180,100 Equity Residential Properties
Trust 38,058,225
175,000 Essex Property Trust, Inc. 3,609,375
62,900 First Union Real Estate Equity
& Mortgage Investments 456,025
567,700 Gables Residential Trust 13,411,912
585,000 Glimcher Realty Trust 10,018,125
500,000 Haagen (Alexander) Properties
Inc. 5,750,000
400,000 Irvine Apartment Communities,
Inc. 8,000,000
353,500 JDN Realty Corp. 7,423,500
96,000 JP Realty, Inc. 1,908,000
62,550 Kimco Realty Corp. 1,626,300
230,000 Malan Realty Investors, Inc. 3,277,500
692,100 Manufactured Home Communities,
Inc. 13,063,388
43,500 MGI Properties 750,375
218,100 Patriot American Hospitality,
Inc. 6,079,538
62,600 Pennsylvania Real Estate
Investment Trust 1,267,650
586,093 Security Capital Pacific Trust 12,234,691
285,700 Simon Property Group, Inc. 6,571,100
293,100 Sunstone Hotel Investors Inc. 2,931,000
286,300 Vornado Realty Trust 10,807,825
61,200 Weingarten Realty Investors 2,149,650
---------------
207,577,467
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5 -----
<PAGE>
Portfolio of Investments as of
April 30, 1996 (Unaudited) PRUDENTIAL EQUITY INCOME FUND
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Description Value
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Retail--2.1%
352,000 K-Mart Corp. $ 3,564,000
478,400 Penney (J.C.) Co., Inc. 23,680,800
---------------
27,244,800
- ------------------------------------------------------------
Telecommunication Services--0.6%
247,700 Telefonos de Mexico, S.A. de
C.V., ADR (Mexico) 8,421,800
- ------------------------------------------------------------
Tobacco--0.3%
144,100 RJR Nabisco Holdings Corp. 4,304,988
- ------------------------------------------------------------
Trucking & Shipping--0.8%
252,100 Alexander & Baldwin, Inc. 6,176,450
315,000 Yellow Corp. 3,858,750
---------------
10,035,200
- ------------------------------------------------------------
Wood Processing--0.4%
150,000 Rayonier Inc. 5,381,250
---------------
Total common stocks
(cost $954,071,957) 1,115,858,975
---------------
PREFERRED STOCKS--10.7%
- ------------------------------------------------------------
Airlines--2.1%
440,000 Delta Air Lines, Inc., Ser. C 27,885,000
- ------------------------------------------------------------
Aluminum--1.0%
371,800 Kaiser Aluminum Corp., Conv.
$8.25 4,601,025
170,300 Reynolds Metals Co., Conv. $3.31 8,195,687
---------------
12,796,712
- ------------------------------------------------------------
Electrical Equipment--2.3%
1,743,000 Westinghouse Electric Corp.,
Conv. $1.30 30,720,375
- ------------------------------------------------------------
Energy Systems--0.3%
88,000 McDermott International, Inc.,
Conv. $5.75, Ser. C 3,564,000
Insurance--0.4%
102,200 Alexander & Alexander Services,
Inc.,
Conv. $3.63, Ser. A $ 4,905,600
12,700 USF&G Corp., Conv. $4.10, Ser. A 639,763
---------------
5,545,363
- ------------------------------------------------------------
Integrated Producers--0.9%
107,800 Noble Drilling Corp., Conv.
$1.50 4,002,075
43,100 Unocal Corp., Conv. $3.50 2,392,050
118,900 USX Marathon Group, Conv. 6.50% 5,618,025
---------------
12,012,150
- ------------------------------------------------------------
Mining--0.2%
60,000 Hecla Mining Co.,
Conv. 7.00%, Ser. B 2,625,000
- ------------------------------------------------------------
Oil & Gas Exploration/Production--0.3%
74,800 Parker & Parsley Petroleum Co.,
Conv. 6.25% 3,833,500
- ------------------------------------------------------------
Realty Investment Trust--0.1%
54,600 Security Capital Pacific Trust,
Ser. A, Conv., $1.75 1,399,125
- ------------------------------------------------------------
Steel--0.8%
250,800 Bethlehem Steel Corp., Conv.
$3.50 10,972,500
- ------------------------------------------------------------
Textiles--0.3%
90,200 Fieldcrest Cannon, Inc.
Conv. $3.00, Ser. A 4,261,950
- ------------------------------------------------------------
Tobacco--2.0%
4,400,000 RJR Nabisco Holdings Corp., Inc.
Conv. $0.60, PERCS 26,400,000
---------------
Total preferred stocks
(cost $139,885,819) 142,015,675
---------------
</TABLE>
- --------------------------------------------------------------------------------
- ----- 6 See Notes to Financial Statements.
<PAGE>
Portfolio of Investments as of
April 30, 1996 (Unaudited) PRUDENTIAL EQUITY INCOME FUND
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Amount Description Value (Note 1)
Rating (000)
<C> <C> <S> <C>
- ------------------------------------------------------------
CONVERTIBLE BONDS--2.1%
- ------------------------------------------------------------
Integrated Oil--0.7%
A2 $ 7,260 Baker Hughes Inc.,
Zero Coupon, 5/5/08 $ 4,962,283
B2 2,695 Cross Timbers Oil Co.,
Deb.,
5.25%, 11/1/03 2,669,721
B2 1,871 Oryx Energy Co.,
Sub. Deb.,
7.50%, 5/15/14 1,669,867
--------------
9,301,871
- ------------------------------------------------------------
Integrated Producers--1.0%
Baa3 12,579 Noble Affiliates, Inc.,
Sub. Notes,
4.25%, 11/1/03 13,302,292
- ------------------------------------------------------------
Realty Investment Trust--0.4%
Haagen (Alexander)
Properties Inc.,
NR 1,200 Sub. Deb.,
7.50%, 1/15/01 1,044,000
B3 700 Sub. Deb., Ser. A,
7.50%, 1/15/01 609,000
B3 3,800 Malan Realty Investors,
Inc.,
Sub. Deb.,
9.50%, 7/15/04 3,439,000
--------------
5,092,000
Steel
Ba2 $ 620 USX Corp., Sub. Deb.,
7.00%, 6/15/17 $ 592,100
--------------
Total convertible bonds
(cost $26,586,983) 28,288,263
--------------
- ------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS--0.8%
NR NZ$15,580 New Zealand Gov't.
Bonds,
8.00%, 4/15/04
(cost $10,819,084) 10,292,745
--------------
Total long-term
investments
(cost $1,131,363,843;
Note 4) 1,296,455,658
--------------
SHORT-TERM INVESTMENTS--2.1%
- ------------------------------------------------------------
Repurchase Agreement--2.1%
27,041 Joint Repurchase
Agreement Account,
5.33%, 5/1/96
(cost $27,041,000;
Note 5) 27,041,000
- ------------------------------------------------------------
Total Investments--100.1%
(cost $1,158,404,843) 1,323,496,658
Liabilities in excess
of other
assets--(0.1%) (790,524)
--------------
Net Assets--100% $1,322,706,134
--------------
--------------
</TABLE>
- ---------------
*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.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7 -----
<PAGE>
Statement of Assets and Liabilities (Unaudited) PRUDENTIAL EQUITY INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<S>
<C>
Assets
April 30, 1996
Investments, at value (cost
$1,158,404,843).................................................................
$1,323,496,658
Cash.........................................................................
............................... 32,239
Dividends and interest
receivable...................................................................
........ 2,920,520
Receivable for Fund shares
sold.........................................................................
.... 2,300,817
Receivable for investments
sold.........................................................................
.... 137,638
Deferred
expenses.....................................................................
...................... 7,793
--------------
Total
assets.......................................................................
...................... 1,328,895,665
--------------
Liabilities
Payable for Fund shares
reacquired...................................................................
....... 3,376,635
Payable for investments
purchased....................................................................
....... 876,275
Distribution fee
payable......................................................................
.............. 870,047
Management fee
payable......................................................................
................ 571,095
Accrued
expenses.....................................................................
....................... 484,752
Foreign withholding tax
payable......................................................................
....... 10,727
--------------
Total
liabilities..................................................................
...................... 6,189,531
--------------
Net
Assets.......................................................................
........................... $1,322,706,134
--------------
--------------
Net assets were comprised of:
Shares of beneficial interest, at
par.................................................................... $
862,257
Paid-in capital in excess of
par.........................................................................
1,130,384,715
--------------
1,131,246,972
Undistributed net investment
income......................................................................
2,598,074
Accumulated net realized
gains...........................................................................
23,769,038
Net unrealized appreciation on investments and foreign
currencies........................................ 165,092,050
--------------
Net assets, April 30,
1996.........................................................................
......... $1,322,706,134
--------------
--------------
Class A:
Net asset value and redemption price per share
($313,955,453 / 20,426,632 shares of beneficial interest issued and
outstanding)...................... $15.37
Maximum sales charge (5% of offering
price)..............................................................
.81
--------------
Maximum offering price to
public.........................................................................
$16.18
--------------
--------------
Class B:
Net asset value, offering price and redemption price per share
($987,094,414 / 64,388,607 shares of beneficial interest issued and
outstanding)...................... $15.33
--------------
--------------
Class C:
Net asset value, offering price and redemption price per share
($7,151,457 / 466,498 shares of beneficial interest issued and
outstanding)........................... $15.33
--------------
--------------
Class Z:
Net asset value, offering price and redemption price per share
($14,504,810 / 943,919 shares of beneficial interest issued and
outstanding).......................... $15.37
--------------
--------------
</TABLE>
- --------------------------------------------------------------------------------
- ----- 8 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL EQUITY INCOME FUND
Statement of Operations
(Unaudited)
- --------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income April 30, 1996
<S> <C>
Income
Dividends (net of foreign withholding
taxes of $107,787)..................... $ 22,570,800
Interest.................................. 3,765,379
--------------
Total income........................... 26,336,179
--------------
Expenses
Distribution fee--Class A................. 374,178
Distribution fee--Class B................. 4,744,255
Distribution fee--Class C................. 28,611
Management fee............................ 3,361,362
Transfer agent's fees and expenses........ 931,000
Reports to shareholders................... 127,000
Custodian's fees and expenses............. 86,000
Registration fees......................... 52,000
Audit fee and expenses.................... 19,000
Trustees' fees and expenses............... 19,000
Legal fees and expenses................... 17,000
Insurance................................. 14,000
Miscellaneous............................. 2,562
--------------
Total expenses......................... 9,775,968
--------------
Net investment income........................ 16,560,211
--------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions................... 24,480,910
Foreign currencies........................ (8,734)
--------------
24,472,176
--------------
Net change in unrealized
appreciation/depreciation of:
Investments............................... 116,251,741
Foreign currencies........................ 3,578
--------------
116,255,319
--------------
Net gain on investments and foreign currency
transactions.............................. 140,727,495
--------------
Net Increase in Net Assets
Resulting from Operations.................... $157,287,706
--------------
--------------
</TABLE>
PRUDENTIAL EQUITY INCOME FUND
Statement of Changes in Net Assets
(Unaudited)
- --------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) April 30, October 31,
in Net Assets 1996 1995
<S> <C> <C>
Operations
Net investment income..... $ 16,560,211 $ 32,331,538
Net realized gain on
investments............ 24,472,176 57,394,480
Net change in unrealized
appreciation/depreciation
of investments and
foreign currencies..... 116,255,319 24,749,771
----------------- --------------
Net increase in net assets
resulting from
operations............. 157,287,706 114,475,789
----------------- --------------
Net equalization debits...... -- (34,109)
----------------- --------------
Dividends and distributions (Note 1)
Dividends from net
investment income
Class A................ (4,866,112) (8,544,147)
Class B................ (11,641,575) (28,652,286)
Class C................ (71,957) (88,434)
Class Z................ (120,560) --
----------------- --------------
(16,700,204) (37,284,867)
----------------- --------------
Distributions from net
realized gains
Class A................ (13,884,497) (5,627,572)
Class B................ (43,458,487) (35,965,908)
Class C................ (241,179) (68,654)
----------------- --------------
(57,584,163) (41,662,134)
----------------- --------------
Fund share transactions (net
of share conversion) (Note
6)
Proceeds from shares
sold................... 186,330,075 314,835,425
Net asset value of shares
issued in reinvestment
of dividends and
distributions.......... 67,988,922 71,744,648
Cost of shares
reacquired............. (202,985,612) (340,684,429)
----------------- --------------
Net increase in net assets
from Fund share
transactions........... 51,333,385 45,895,644
----------------- --------------
Total increase............... 134,336,724 81,390,323
Net Assets
Beginning of period.......... 1,188,369,410 1,106,979,087
----------------- --------------
End of period................ $ 1,322,706,134 $1,188,369,410
----------------- --------------
----------------- --------------
</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. Expenses are
recorded on the accrual basis which may require the use of certain estimates by
management.
Net investment income (other than distribution fees) and unrealized and realized
gains or losses are allocated daily to each class of shares of the
- --------------------------------------------------------------------------------
- ----- 10
<PAGE>
Notes to Financial Statements (Unaudited) PRUDENTIAL EQUITY INCOME FUND
- --------------------------------------------------------------------------------
Fund based upon the relative proportion of net assets of each class at the
beginning of the day.
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.
Equalization: Effective November 1, 1995, the Fund discontinued the accounting
practice of equalization. Equalization is a practice whereby a portion of the
proceeds from sales and costs of repurchases of capital 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. The balance of $6,100,050 of undistributed net investment income at
October 31, 1995, resulting from equalization was transferred to paid-in capital
in excess of par. Such reclassification has no effect on net assets, results of
operations, or net asset value per share.
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 $8,734 relating to net realized
foreign currency losses. Net investment income, net realized gains and net
assets were not affected by these changes.
- ------------------------------------------------------------
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 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 had a distribution agreement with Prudential Mutual Fund Distributors,
Inc. (``PMFD''), which acted as the distributor of the Class A shares of the
Fund through January 1, 1996. Prudential Securities Incorporated (``PSI'')
became the distributor of the Class A shares of the Fund effective January 2,
1996 and is serving the Fund under the same terms and conditions as under the
arrangement with PMFD and continues as the distributor of the Class B and Class
C shares of the Fund. The Fund compensates PMFD and PSI for distributing and
servicing the Fund's Class A, Class B, Class C and Class Z 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, 1996.
PMFD and PSI have advised the Fund that they have received approximately
$281,500 in front-end sales charges resulting from sales of Class A shares
during the six months ended April 30, 1996. From these fees, PMFD and PSI 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, 1996, it
received approximately $1,063,300 and $1,500 in contingent deferred sales
charges imposed upon certain redemptions by Class B and Class C shareholders,
respectively.
- --------------------------------------------------------------------------------
11 -----
<PAGE>
Notes to Financial Statements (Unaudited) PRUDENTIAL EQUITY INCOME FUND
- --------------------------------------------------------------------------------
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, 1996, the Fund incurred fees of approximately $780,000 for the services of
PMFS. As of April 30, 1996, approximately $134,000 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 six months ended April 30, 1996, PSI earned approximately $23,200 in
brokerage commissions from portfolio transactions executed on behalf of the
Fund.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the six months ended April 30, 1996 were $301,429,409 and $285,626,297,
respectively.
The federal income tax basis of the Fund's investments at April 30, 1996 was
$1,159,225,251 and, accordingly, net unrealized appreciation for federal income
tax purposes was $164,271,407 (gross unrealized appreciation--$198,462,780;
gross unrealized depreciation--$34,191,373).
- ------------------------------------------------------------
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, 1996, the Fund had
a 1.66% undivided interest in the repurchase agreements in the joint account.
The undivided interest for the Fund represented $27,041,000 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., 5.32%, in the principal amount of $535,000,000, repurchase
price $535,079,055, due 5/1/96. The value of the collateral including accrued
interest is $547,286,203.
Goldman Sachs & Co., 5.33%, in the principal amount of $535,000,000, repurchase
price $535,079,209, due 5/1/96. The value of the collateral including accrued
interest is $545,700,215.
Morgan Stanley & Co., Inc., 5.30%, in the principal amount of $22,851,000,
repurchase price $22,854,364, due 5/1/96. The value of the collateral including
accrued interest is $23,347,897.
Smith Barney, Inc., 5.33%, in the principal amount of $535,000,000, repurchase
price $535,079,209, due 5/1/96. The value of the collateral including accrued
interest is $545,700,779.
- ------------------------------------------------------------
Note 6. Capital
The Fund offers Class A, Class B, Class C and Class Z shares. Class A shares are
sold with a front-end sales charge of up to 5.00%. 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. Class
Z
shares are not subject to any sales or redemption charge and are offered
exclusively for sale to the Trustees of the Prudential Securities 401(k) Plan,
a
defined contribution plan sponsored by Prudential Securities.
The Fund has authorized an unlimited number of shares of beneficial interest at
$.01 par value divided into four classes, designated Class A, Class B, Class C
and Class Z.
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- --------------------------------- ----------- -------------
<S> <C> <C>
Six months ended April 30, 1996:
Shares sold...................... 5,570,978 $ 83,035,864
Shares issued in reinvestment of
dividends and distributions.... 1,190,151 17,350,997
Shares reacquired................ (6,796,988) (101,529,895)
----------- -------------
Net increase in shares
outstanding before
conversion..................... (35,859) (1,143,034)
Shares issued upon conversion
and/or exchange from Class B... 1,225,893 18,508,651
----------- -------------
Net increase in shares
outstanding.................... 1,190,034 $ 17,365,617
----------- -------------
----------- -------------
</TABLE>
- --------------------------------------------------------------------------------
- ----- 12
<PAGE>
Notes to Financial Statements (Unaudited) 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
----------- -------------
----------- -------------
<CAPTION>
Class B
- ---------------------------------
<S> <C> <C>
Six months ended April 30, 1996:
Shares sold...................... 5,692,424 $ 84,899,452
Shares issued in reinvestment of
dividends and distributions.... 3,454,399 50,217,474
Shares reacquired................ (6,662,526) (99,136,876)
----------- -------------
Net increase in shares
outstanding before
conversion..................... 2,484,297 35,980,050
Shares reacquired upon conversion
and/or exchange into Class A... (1,229,966) (18,508,651)
----------- -------------
Net increase in shares
outstanding.................... 1,254,331 $ 17,471,399
----------- -------------
----------- -------------
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)
----------- -------------
----------- -------------
<CAPTION>
Class C Shares Amount
- --------------------------------- ----------- -------------
<S> <C> <C>
Six months ended April 30, 1996:
Shares sold...................... 169,391 $ 2,538,409
Shares issued in reinvestment of
dividends and distributions.... 20,613 300,005
Shares reacquired................ (42,840) (639,931)
----------- -------------
Net increase in shares
outstanding.................... 147,164 $ 2,198,483
----------- -------------
----------- -------------
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
----------- -------------
----------- -------------
<CAPTION>
Class Z
- ---------------------------------
<S> <C> <C>
March 1, 1996* through
April 30, 1996:
Shares sold...................... 1,046,192 $ 15,856,350
Shares issued in reinvestment of
dividends and distributions.... 7,857 120,446
Shares reacquired................ (110,130) (1,678,910)
----------- -------------
Net increase in shares
outstanding.................... 943,919 $ 14,297,886
----------- -------------
----------- -------------
</TABLE>
- ---------------
* Commencement of offering of Class Z shares.
- ------------------------------------------------------------
Note 7. Dividends
On June 13, 1996 the Board of Trustees of the Fund declared the following
dividends per share, payable on June 21, 1996 to shareholders of record on June
18, 1996.
<TABLE>
<CAPTION>
Class B Class
Class A and C Z
--------- --------- -------
<S> <C> <C> <C>
Ordinary Income.................. $ .1225 $ .0925 $ .1300
</TABLE>
- --------------------------------------------------------------------------------
13 -----
<PAGE>
Financial Highlights (Unaudited) PRUDENTIAL EQUITY INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
- ------------------------------------------------------------------------
Six Months
Ended
Year Ended October 31,
April 30,
- ---------------------------------------------------------
1996 1995
1994 1993 1992 1991
---------- --------
- -------- -------- ------- ------
<S> <C> <C>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 14.40 $ 14.03
$ 14.38 $ 12.16 $ 12.04 $ 9.53
---------- --------
- -------- -------- ------- ------
Income from investment operations
Net investment income......................... .24 .48
.41 .47 .47 .38
Net realized and unrealized gain on investment
transactions............................... 1.67 .95
.06 2.65 .60 2.50
---------- --------
- -------- -------- ------- ------
Total from investment operations........... 1.91 1.43
.47 3.12 1.07 2.88
---------- --------
- -------- -------- ------- ------
Less distributions
Dividends from net investment income.......... (.24) (.54)
(.29) (.46) (.47) (.37)
Distributions from net realized gains......... (.70) (.52)
(.53) (.44) (.48) --
---------- --------
- -------- -------- ------- ------
Total distributions........................ (.94) (1.06)
(.82) (.90) (.95) (.37)
---------- --------
- -------- -------- ------- ------
Net asset value, end of period................ $ 15.37 $ 14.40
$ 14.03 $ 14.38 $ 12.16 $12.04
---------- --------
- -------- -------- ------- ------
---------- --------
- -------- -------- ------- ------
TOTAL RETURN(a):.............................. 13.69% 11.15%
3.48% 26.93% 9.50% 30.62%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $313,955 $276,990
$150,502 $104,017 $51,165 $4,013
Average net assets (000)...................... $300,987 $236,688
$131,398 $ 70,895 $21,931 $2,084
Ratios to average net assets:
Expenses, including distribution fees...... .99%(b) 1.03%
1.09% 1.07% 1.22% 1.37%
Expenses, excluding distribution fees...... .74%(b) .78%
.85% .87% 1.02% 1.17%
Net investment income...................... 3.20%(b) 3.36%
2.97% 3.44% 3.22% 3.43%
For Class A, B, C and Z shares:
Portfolio turnover............................ 23% 74%
70% 57% 43% 64%
Average commission rate paid per share........ $ .0549 N/A
N/A N/A N/A N/A
</TABLE>
- ---------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on
the last day of each period reported and includes reinvestment of
dividends and distributions. Total returns for periods of less than a
full year are not annualized.
(b) Annualized.
- --------------------------------------------------------------------------------
- ----- 14 See Notes to Financial Statements.
<PAGE>
Financial Highlights (Unaudited) PRUDENTIAL EQUITY INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
- ---------------------------------------------------------------------------
Six Months
Ended
Year Ended October 31,
April 30,
- ------------------------------------------------------------
1996 1995
1994 1993 1992 1991
---------- --------
- -------- -------- -------- --------
<S> <C> <C>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 14.36 $ 14.00
$ 14.35 $ 12.14 $ 12.03 $ 9.53
---------- --------
- -------- -------- -------- --------
Income from investment operations
Net investment income......................... .18 .37
.31 .37 .37 .30
Net realized and unrealized gain on investment
transactions............................... 1.68 .95
.06 2.64 .59 2.49
---------- --------
- -------- -------- -------- --------
Total from investment operations........... 1.86 1.32
.37 3.01 .96 2.79
---------- --------
- -------- -------- -------- --------
Less distributions
Dividends from net investment income.......... (.19) (.44)
(.19) (.36) (.37) (.29)
Distributions from net realized gains......... (.70) (.52)
(.53) (.44) (.48) --
---------- --------
- -------- -------- -------- --------
Total distributions........................ (.89) (.96)
(.72) (.80) (.85) (.29)
---------- --------
- -------- -------- -------- --------
Net asset value, end of period................ $ 15.33 $ 14.36
$ 14.00 $ 14.35 $ 12.14 $ 12.03
---------- --------
- -------- -------- -------- --------
---------- --------
- -------- -------- -------- --------
TOTAL RETURN(a):.............................. 13.29% 10.29%
2.73% 25.93% 8.55% 29.58%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $987,094 $906,793
$954,951 $527,868 $190,846 $151,538
Average net assets (000)...................... $954,064 $911,856
$784,063 $304,898 $169,524 $136,602
Ratios to average net assets:
Expenses, including distribution fees...... 1.74%(b) 1.78%
1.85% 1.87% 2.02% 2.17%
Expenses, excluding distribution fees...... .74%(b) .78%
.85% .87% 1.02% 1.17%
Net investment income...................... 2.45%(b) 2.66%
2.21% 2.58% 3.05% 2.67%
</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.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 15 -----
<PAGE>
Financial Highlights (Unaudited) PRUDENTIAL EQUITY INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
Class Z
- ------------------------------------------ -----------
August 1, March 1,
Six Months Year
1994(c) 1996(d)
Ended Ended
Through Through
April 30, October 31,
October 31, April 30,
1996 1995
1994 1996
---------- -----------
----------- -----------
<S> <C> <C>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $14.36 $ 14.00
$ 13.99 $ 15.13
----- -----
----- -----------
Income from investment operations
Net investment income......................... .21 .40
.08 .08
Net realized and unrealized gain (loss) on
investment transactions.................... 1.65 .92
(.02) .29
----- -----
----- -----------
Total from investment operations........... 1.86 1.32
.06 .37
----- -----
----- -----------
Less distributions
Dividends from net investment income.......... (.19) (.44)
(.05) (.13)
Distributions from net realized gains......... (.70) (.52)
-- --
----- -----
----- -----------
Total distributions........................ (.89) (.96)
(.05) (.13)
----- -----
----- -----------
Net asset value, end of period................ $15.33 $ 14.36
$ 14.00 $ 15.37
----- -----
----- -----------
----- -----
----- -----------
TOTAL RETURN(a):.............................. 13.29% 10.29%
0.45% 2.46%
RATIOS/SUPPLEMENTAL DATA:(e)
Net assets, end of period (000)............... $7,151 $ 4,586
$ 1,527 $14,505
Average net assets (000)...................... $5,754 $ 3,132
$ 762 $14,008
Ratios to average net assets:
Expenses, including distribution fees...... 1.74%(b) 1.78%
2.05%(b) .74%(b)
Expenses, excluding distribution fees...... .74%(b) .78%
1.05%(b) .74%(b)
Net investment income...................... 2.44%(b) 2.57%
2.42%(b) 3.44%(b)
</TABLE>
- ---------------
(a) Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment of
dividends and distributions. Total returns for periods of less than a
full year are not annualized.
(b) Annualized.
(c) Commencement of offering of Class C shares.
(d) Commencement of offering of Class Z shares.
(e) Because of the event referred to in (d) and the timing of such, the ratios
of Class Z are not necessarily comparable to that of Class A, B and C
shares and are not necessarily indicative of future ratios.
- --------------------------------------------------------------------------------
- ----- 16 See Notes to Financial Statements.
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
(800) 225-1852
http:\\www.prudential.com
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
Distributor
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Auditors
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
The views expressed in this report and information about the Fund's portfolio
holdings are for the period covered by this report and are subject to change
thereafter.
The accompanying financial statements as of April 30, 1996 were not audited and,
accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
<PAGE>
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