(ICON)
Prudential
Equity
Income
Fund
SEMI
ANNUAL
REPORT
April 30, 1998
(LOGO)
<PAGE>
Prudential Equity Income Fund
Performance At A Glance.
Supported by our holdings in retail, housing,
and auto stocks,
the Prudential Equity Income Fund delivered
double-digit returns
over the six months ended April 30, 1998,
performing in line with
similar funds tracked by Lipper Analytical
Services. Our focus
on the high-performing consumer cyclical
sector helped, although
our holdings of mid-sized companies (mid-
caps) held us back
somewhat. Still, over the 12-month period
ended April 30,
our mid-cap holdings contributed to a return
which was 13
percentage points ahead of the Lipper
average.
<TABLE>
Cumulative Total Returns1
As of 4/30/98
<CAPTION>
Six One Five
Ten Since
Months Year Years
Years Inception2
<S> <C> <C> <C>
<C> <C>
Class A 16.24% 47.52% 145.92%
N/A 279.85%
Class B 15.81 46.35 136.81
342.31% 337.99
Class C 15.81 46.35 N/A
N/A 113.56
Class Z 16.41 47.90 N/A
N/A 77.84
Lipper Eq. Inc.
Fund Average3 16.30 34.07 132.78
314.41 ***
</TABLE>
<TABLE>
Average Annual Total Returns1
As of 3/31/98
<CAPTION>
One Five
Ten Since
Year Years
Years Inception2
<S> <C> <C>
<C> <C>
Class A 42.99% 18.41%
N/A 16.89%
Class B 44.47 18.64
16.12% 14.06
Class C 48.47 N/A
N/A 22.85
Class Z 50.93 N/A
N/A 31.47
</TABLE>
Past performance is not indicative of future
results. Principal
and investment return will fluctuate so that
an investor's shares,
when redeemed, may be worth more or less than
their original cost.
1Source: Prudential Investments Fund
Management and Lipper Analytical
Services. The cumulative total returns do not
take into account sales
charges. The average annual returns do take
into account applicable
sales charges. The Fund charges a maximum
front-end sales load of
5% for Class A shares and a declining
contingent deferred sales
charge (CDSC) of 5%, 4%, 3%, 2%, 1% and 1%
for six years for Class
B shares. Class C shares have a 1% CDSC for
one year. Class Z shares
are not subject to a sales charge or a
distribution fee. Class B
shares will automatically convert to Class A
shares, on a quarterly
basis, approximately seven years after
purchase.
2Inception dates: Class A, 1/22/90; Class B,
1/22/87; Class C,
8/1/94; Class Z, 3/1/96.
3These are the average returns of all funds
in each share class
for the Lipper Analytical Services' Equity
Income category for
the six-month, one-, five-, and 10-year
periods.
***Lipper Since Inception returns are 230.80%
for Class A,
302.24% for Class B, 115.07% for Class C, and
61.82% for
Class Z for all funds in each share class.
How Investments Compared.
(As of 4/30/98)
(GRAPH)
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 returns 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.
U.S. Taxable Money 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
(PICTURE)
Portfolio
Manager's Report
The Prudential Equity Income Fund seeks both
current income
and capital appreciation by investing
primarily in stocks and
convertible securities that provide
investment income returns
above those of the Standard & Poor's 500
Index (S&P 500) or the
NYSE Composite Index. The Fund emphasizes
stocks that are
considered undervalued, given their earnings,
cash flow or
asset values. There can be no assurance that
the Fund will
achieve its investment objective.
Focus On
Mid-Caps.
Almost a quarter of our holdings were mid-cap
companies, where
we find more value today than in the mega-
sized blue-chips.
Late in the period this focus hurt us. We
believe investors
reacted to the uncertainty in Asia, not to a
change in the
earnings prospects of mid-caps.
Strategy Session.
Maintaining Our Focus.
We remain focused in financials, industrials,
and consumer
cyclicals. About 14% of our holdings are in
real estate
investment trusts (REITs). We believe real
estate offers
good long-term growth potential, especially
with today's
high dividend yields. We own well-run real
estate companies
and see no significant overbuilding or
economic softness
which could threaten their rent income. Our
bankers and
brokerages, such as Lehman (our largest
holding), continue
to record excellent profits. Their market
values are further
enhanced by industry consolidation.
We have sizable holdings in industrials,
companies that produce
the raw materials needed to make the economy
grow. These include
forest products, chemicals, and metals. We
increased our holdings
of ALCOA, the aluminum manufacturer, to make
it our fifth largest
holding. Basic materials stocks have been
inexpensive. They are
cyclical -- companies whose prospects vary
with the economic
cycle. With U.S. first quarter economic
growth almost five
percent and inflation still relatively
negligible, we expect
strong earnings from these companies and
possibly sharp stock
price appreciation when their earnings growth
is more widely
appreciated.
Our consumer cyclicals also represent our
belief that the U.S.
economy is growing, even though it is in its
second longest
peacetime expansion. We hold retailers (such
as the Limited,
up 44% over the six months ended April 30,
1998, and KMart
preferred shares, up 19%), home builders
(Hanson plc, up 19%),
and auto makers (Chrysler, up 17%, and Ford,
up 58%).
Portfolio Composition.
Sectors expressed as a percentage of
net assets as of 4/30/98.
(PIE CHART)
<PAGE>
What Went Well.
Stocks Provide
Excellent Returns.
The U.S. equity market generally provided an
excellent
return for the six months ended April 30,
1998, with
six of seven sectors (except energy)
providing a 20%
or greater gain. Our reporting period
included a strong
rebound from the market's decline in mid-1997
out of fear
that Asian weakness would stop U.S. growth.
Our financial services companies had
particularly strong
gains, especially Paine Webber (up 53% for
the six months),
Lehman Brothers (our largest holding, up
51%), and Bear
Stearns (up 45%). Financial services
companies make up 11%
of our portfolio and averaged a 49% return
over the
six-month period. The increasing pace of
consolidation
in the sector increases the value of the
remaining
acquisition or merger candidates. Meanwhile,
they
continue to have excellent earnings because
the pace
of investment in U.S. securities remains very
high.
Industry consolidation also added to our
return in a
more direct fashion: a number of our holdings
were
acquired by other firms. For example, Digital
Equipment
Corp. was acquired by Compaq, Nova by
Transcanada (for
its Canadian gas pipelines; its chemical
business was
resold), and Waste Management by USA Waste
Services.
Five Largest Holdings.
4.7% Lehman Brothers
Financial Services
4.1% Dow Chemical Company
Chemicals
3.4% McDermott International
Energy Systems
3.3% Equity Residential
Realty Investment Trust
3.1% Aluminum Co. of America
Aluminum
Expressed as a percentage of net assets
as of 4/30/98.
And Not So Well.
Asian Concerns
Affect Stocks.
Although the stock market rebounded, its
concern over
financial developments in Asia took the form
of a strong
focus on the largest globally oriented
companies, which
many investors believed would have more
stable earnings
growth. We had avoided these stocks because
they had been
expensive for some time. The less expensive
mid-sized
companies that we thought were better values
lost favor.
We considered this a buying opportunity.
Tobacco-related companies were unpopular: RJR
Nabisco,
whose nontobacco components alone would, in
our analysis,
be a bargain at today's price for the entire
company,
had a price decline.
Our industrial and energy holdings generally
lagged the
strong market, and Pioneer Natural Resources,
an independent
exploration and production company, was in a
weak segment of
the industry.
Looking Ahead.
We see no sign the U.S. economy will
falter any time soon. Job growth is strong,
consumer spending
is rising at the fastest pace since early
1992, inflation is
negligible, and no major production
bottlenecks have appeared.
Both companies that sell to consumers and the
industrial firms
that provide the raw materials for these
products should continue
to prosper. These are the consumer and
industrial cyclicals we
have bought. After-tax corporate profits have
been declining,
but this is primarily a concern for investors
who have overpaid
for the stock market leaders.
1
<PAGE>
Where Does A Value Investor Find Bargains In
A Rising Market?
Portfolio Manager Warren Spitz sees growth
potential in mid-cap
companies, consumer cyclicals, and more.Q.
Where do you find
value after the stock market has gained more
than 130% in three years?
A. Investors are paying more for a dollar of
corporate earnings
today than they have in the past, but the
interest is going
predominantly to the largest, globally
oriented companies.
This may be a reaction to uncertainty in Asia
or it may be
that investors new to the U.S. market prefer
familiar names,
but the less-known mid-sized companies (mid-
caps) have become
inexpensive by comparison.
Q. What makes mid-caps attractive?
A. As of April 30, the six-month return on
S&P 400 (mid-cap)
companies has been more than the historical
average full-year
return for stocks, so they are not
languishing. However, share
prices of the mid-caps have not kept up with
those of the S&P
500 (large-caps), while the earnings of mid-
caps over the five
years ended April 30 have grown faster than
those of either
larger or smaller firms. The difference was a
substantial
three percentage points a year faster average
growth than
S&P 500 companies. Faster earnings growth,
together with
share prices that, while healthy, have lagged
the blue-chips,
should mean mid-caps are a good value. What's
more, mid-caps
have continued their rapid earnings growth,
while after-tax
profits of U.S. firms overall have declined
for two quarters,
according to U.S. Department of Commerce
figures (released
May 28, 1998).
Q. What other opportunities do you see?
A. Investors also have been neglecting basic
materials companies --
the forest products, chemicals, and metals
firms. In the past, when
demand pushed up the prices of their goods,
these companies used
their earnings to build new capacity. When
the economic cycle
slowed, they were left with expensive and
idle facilities. Since
we are now into the eighth year of economic
expansion (the post-WWII
economic expansion cycle average is 3 1/2
years), investors who based
their analysis only on the history of this
sector had reason to
avoid it. However, current management has
learned the lessons
of the past. Instead of spending money on new
capacity in good
times, they are planning better, buying back
stock, reducing
debt, and increasing dividends. This focus on
shareholder value
has not yet been adequately reflected in
their share prices.
That's why we brought ALCOA up to our fifth
largest position.
Industrials are our second largest sector: we
remain
heavily invested in steel, papers, and
chemicals.
The economic expansion also is helping
consumer
cyclicals -- auto companies, retailers, home
builders,
and furnishing companies. Consumer spending
in the first
quarter of 1998 rose faster than at any time
since 1992.
Although consumer cyclical stocks are not as
inexpensive
as the industrials, we believe that their
prospects for
earnings growth still make them attractive.
3
<PAGE>
President's Letter
June 9, 1998
See You On the Net!
Dear Shareholder:
We are proud to be part of the worldwide web
and we invite you
to visit our two web sites, if you have not
already done so.
Yes, we currently offer two sites -- each
with its own
distinctive identity.
http://www.prudential.com
The Prudential web site features information
on personal
investing, retirement planning, commercial
and residential
real estate opportunities, as well as
insurance products
for life, health, home and property.
You can look up performance data on your
Prudential mutual
funds, learn about proven investment
strategies, or take
one of our many interactive quizzes that will
help guide
you in determining long-term goals -- like
how much to
save for your child's college education or
for your
retirement.
http://www.prusec.com
The Prudential Securities Virtual Branch
Office is a full-service
brokerage web site specifically designed to
provide investors
with the information they need to make
informed financial
decisions. It was rated the No. 1 full-
service brokerage
web site of its type by Financial Net News
(February 1998),
a subsidiary of Institutional Investor
magazine, and was
also rated among the top corporate web sites
by Fortune
magazine (Winter 1998).
What investors can find here are -- daily
market commentaries,
stock quotes, economic forecasts, product
news, and current
market research, in addition to interactive
investing programs.
Investors, through their Prudential
Securities Financial
Advisors, may also enroll in Prudential
Online" and have
access to their personal account information
which includes
balances, security values, transactions and
account
activities. They can also easily E-mail their
Financial Advisor.
Both sites also contain professional
opportunities for
people who are searching for employment or
considering
a change of career paths.
We plan to make further enhancements to our
web pages as
the year progresses. So please, the next time
you
are "web browsing" or "surfing the net," pay
us a
visit. Let us know what you think and what
you'd
like to see added in the future.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds &
Annuities
3
<PAGE>
Portfolio of Investments as
of April 30, 1998 (Unaudited)
PRUDENTIAL EQUITY INCOME FUND
- ---------------------------------------------
- ---------------
<TABLE>
<CAPTION>
Shares Description
Value (Note 1)
<C> <S>
<C>
---------------------------------------
- ---------------------
LONG-TERM INVESTMENTS--97.7%
COMMON STOCKS--92.8%
---------------------------------------
- ---------------------
Airlines--3.1%
483,000 AMR Corp.(a)
$ 73,597,125
- ---------------------------------------------
- ---------------
Aluminum--5.0%
977,300 Aluminum Co. of America
75,740,750
309,820 Kaiser Aluminum Corp.(a)
3,233,746
642,984 Reynolds Metals Co.
42,436,944
- ---------------
121,411,440
- ---------------------------------------------
- ---------------
Apparel--0.8%
572,700 Kellwood Co.
18,290,606
40,800 Oxford Industries, Inc.
1,453,500
- ---------------
19,744,106
- ---------------------------------------------
- ---------------
Automobiles & Trucks--5.2%
1,493,558 Chrysler Corp.
60,022,362
750,000 Ford Motor Co.
34,359,375
450,000 General Motors Corp.
30,318,750
- ---------------
124,700,487
- ---------------------------------------------
- ---------------
Building & Construction--1.4%
630,300 Kaufman & Broad Home Corp.
18,318,094
750,000 Ryland Group, Inc.
15,703,125
- ---------------
34,021,219
- ---------------------------------------------
- ---------------
Business Services--0.2%
161,780 Crescent Operating, Inc.(a)
3,538,938
- ---------------------------------------------
- ---------------
Chemicals--5.3%
1,015,800 Dow Chemical Co.
98,215,162
856,628 Millennium Chemicals, Inc.
30,731,530
- ---------------
128,946,692
Computer Hardware--1.4%
496,500 Digital Equipment Corp.(a)
$ 27,617,812
719,800 Intergraph Corp.(a)
6,118,300
- ---------------
33,736,112
- ---------------------------------------------
- ---------------
Diversfied Consumer Products--0.7%
219,200 Eastman Kodak Co.
15,823,500
- ---------------------------------------------
- ---------------
Diversified Industries--2.1%
1,451,555 CBS Corp.
51,711,647
- ---------------------------------------------
- ---------------
Electrical Equipment--2.4%
602,000 Esterline Technologies
Corp.(a) 13,846,000
154,800 Instron Corp.
2,979,900
700,000 Kuhlman Corp.
34,300,000
364,400 Newport Corp.
7,424,650
- ---------------
58,550,550
- ---------------------------------------------
- ---------------
Energy Systems--3.4%
1,986,600 McDermott International, Inc.
82,195,575
- ---------------------------------------------
- ---------------
Financial Services--11.1%
196,563 Associates First Capital
Corp. 14,680,799
959,577 Bear Stearns Cos., Inc.
54,755,863
220,000 Dun & Bradstreet Corp.
7,810,000
325,800 Edwards (A.G.), Inc.
14,661,000
1,612,000 Lehman Brothers Holdings,
Inc. 114,552,750
1,324,500 PaineWebber Group, Inc.
59,354,156
29,232 Travelers Group, Inc.
1,788,633
- ---------------
267,603,201
- ---------------------------------------------
- ---------------
Forest & Paper--3.2%
72,600 Fletcher Challenge Forest
Ltd.
ADR
(New Zealand)
485,512
392,400 Georgia-Pacific Corp.
30,288,375
</TABLE>
- ---------------------------------------------
- -----------------------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as
of April 30, 1998 (Unaudited)
PRUDENTIAL EQUITY INCOME FUND
- ---------------------------------------------
- ---------------
<TABLE>
<CAPTION>
Shares Description
Value (Note 1)
<C> <S>
<C>
---------------------------------------
- ---------------------
Forest & Paper (cont'd.)
1,096,400 Louisiana-Pacific Corp.
$ 23,983,750
206,800 Potlatch Corp.
9,797,150
200,000 Weyerhaeuser Co.
11,525,000
- ---------------
76,079,787
- ---------------------------------------------
- ---------------
Gas Distribution--1.0%
914,467 BG PLC, S.A. ADR
(United Kingdom)
24,404,838
- ---------------------------------------------
- ---------------
Gas Pipelines--1.4%
1,830,500 NOVA Corp.
20,821,937
280,100 Sonat, Inc.
12,429,438
- ---------------
33,251,375
- ---------------------------------------------
- ---------------
Insurance--3.4%
586,200 Marsh & McLennan Cos., Inc.
53,417,475
393,400 Ohio Casualty Corp.
19,030,725
356,800 Selective Insurance Group,
Inc. 9,812,000
- ---------------
82,260,200
- ---------------------------------------------
- ---------------
Integrated Producers--1.8%
676,000 Elf Aquitaine, S.A. ADR
(France) 43,897,750
- ---------------------------------------------
- ---------------
Mining--0.4%
700,000 Ashanti Goldfields Co. Ltd.
GDR
(Africa)
6,912,500
194,678 Coeur D'Alene Mines Corp.(a)
2,275,299
298,499 Echo Bay Mines, Ltd.(a)
1,063,403
37,500 Zeigler Coal Holding Company
677,344
- ---------------
10,928,546
- ---------------------------------------------
- ---------------
Miscellaneous Industrial--2.2%
1,796,000 Hanson PLC, S.A. ADR
(United Kingdom)
53,206,500
- ---------------------------------------------
- ---------------
Oil & Gas Exploration/Production--3.1%
1,000,000 Occidental Petroleum Corp.
29,437,500
1,896,527 Pioneer Natural Resources Co.
45,398,115
- ---------------
74,835,615
Oil Refining & Marketing--1.1%
1,500,000 Quaker State Corp.
$ 27,093,750
- ---------------------------------------------
- ---------------
Paper & Packaging--1.2%
759,900 Gibson Greetings Inc.(a)
19,876,135
486,300 Longview Fibre Co.
8,236,706
- ---------------
28,112,841
- ---------------------------------------------
- ---------------
Realty Investment Trust--13.6%
271,000 AMLI Residential Properties
Trust
6,216,063
134,300 Bradley Real Estate, Inc.
2,795,119
590,000 Capital Automotive REIT
9,181,875
718,700 CCA Prison Realty Trust
25,468,931
1,817,800 Crescent Real Estate
Equities,
Inc.
62,032,425
1,266,500 Crown American Realty Trust
12,823,313
200,000 Equity Inns, Inc.
2,950,000
559,426 Equity Office Properties
Trust 15,908,677
1,605,100 Equity Residential Properties
Trust
78,850,537
543,900 Gables Residential Trust
14,821,275
530,300 Glimcher Realty Trust
11,268,875
500,000 Haagen (Alexander)
Properties,
Inc.
8,093,750
388,100 Irvine Apartment Communities,
Inc.
11,861,306
34,900 JDN Realty Corp.
1,110,256
96,000 JP Realty, Inc.
2,322,000
62,550 Kimco Realty Corp.
2,318,259
230,000 Malan Realty Investors, Inc.
4,053,750
410,300 Manufactured Home
Communities,
Inc.
10,360,075
62,600 Pennsylvania Real Estate
Investment Trust
1,486,750
190,427 Security Capital Pacific
Trust 4,260,804
16,800 Simon De Bartolo Group, Inc.
553,350
198,700 Sunstone Hotel Investors,
Inc. 3,079,850
166,600 Tri Net Corporate Realty
Trust,
Inc.
5,966,363
533,400 Vornado Realty Trust
21,369,337
355,000 Walden Residential
Properties,
Inc.
8,653,125
- ---------------
327,806,065
</TABLE>
- ---------------------------------------------
- -----------------------------------
See Notes to Financial Statements. 5
<PAGE>
Portfolio of Investments as
of April 30, 1998 (Unaudited)
PRUDENTIAL EQUITY INCOME FUND
- ---------------------------------------------
- ---------------
<TABLE>
<CAPTION>
Shares Description
Value (Note 1)
<C> <S>
<C>
---------------------------------------
- ---------------------
Retail--5.2%
1,509,300 The Limited, Inc.
$ 50,655,881
80,500 Blair Corp.
2,223,813
1,099,300 Heilig-Meyers Co.
15,458,906
758,400 Penney (J.C.) Co., Inc.
53,893,800
66,300 Tandy Corp.
3,298,425
- ---------------
125,530,825
- ---------------------------------------------
- ---------------
Steel--3.0%
1,866,900 USX-U.S. Steel Group, Inc.
73,042,462
- ---------------------------------------------
- ---------------
Telecommunication Services--2.9%
359,600 Telebras ADR
43,803,775
470,200 Telefonos de Mexico, S.A. ADR
(Mexico)
26,625,075
- ---------------
70,428,850
- ---------------------------------------------
- ---------------
Tobacco--3.7%
606,500 B.A.T Industries PLC, ADR
(United
Kingdom)
11,788,844
548,200 Imperial Tobacco Group PLC,
ADR(a) (United Kingdom)
7,674,800
2,487,420 RJR Nabisco Holdings Corp.
69,181,368
- ---------------
88,645,012
- ---------------------------------------------
- ---------------
Trucking & Shipping--0.5%
287,950 Alexander & Baldwin, Inc.
8,242,569
190,500 Yellow Corp.(a)
3,417,094
- ---------------
11,659,663
- ---------------------------------------------
- ---------------
Waste Management--2.2%
1,546,900 Waste Management, Inc.
51,821,150
- ---------------------------------------------
- ---------------
Wood Processing--0.8%
396,700 Rayonier, Inc.
19,884,588
- ---------------
Total common stocks
(cost $1,532,672,488)
2,238,470,409
- ---------------
PREFERRED STOCKS--3.9%
- ---------------------------------------------
- ---------------
Integrated Producers--0.1%
48,099 Unocal Capital Trust, Conv.
6.25%
$ 2,789,742
- ---------------------------------------------
- ---------------
Manufacturing--0.2%
262,500 Worthington Industries, Inc.
Conv. 7.25%
3,953,906
- ---------------------------------------------
- ---------------
Mining--0.1%
60,000 Hecla Mining Co., Conv.
7.00%,
Ser. B
2,670,000
- ---------------------------------------------
- ---------------
Realty Investment Trust--0.1%
Security Capital Pacific
Trust,
54,600 Conv. $1.75, Ser. A
1,627,763
- ---------------------------------------------
- ---------------
Retail--2.1%
768,000 K-Mart Financing I, Conv.
7.75% 50,496,000
- ---------------------------------------------
- ---------------
Steel--0.8%
250,800 Bethlehem Steel Corp., Conv.
$3.50
12,540,000
118,900 USX Capital Trust I, Conv.,
6.75%
6,071,331
- ---------------
18,611,331
- ---------------------------------------------
- ---------------
Transportation-Road & Rail--0.5%
243,900 Union Pacific Capital Trust
12,987,675
- ---------------
Total preferred stocks
(cost $86,581,224)
93,136,417
- ---------------
Units
- -------------
WARRANTS(a)
- ---------------------------------------------
- ---------------
Engineering & Construction
Morrison Knudsen Corp.
12,044 expiring 3/11/03 @$12.00
60,220
- ---------------------------------------------
- ---------------
Realty Investment Trust
Security Capital Group-Class
B
34,726 expiring 9/18/98 @$28.00
97,667
- ---------------
Total warrants
(cost $0)
157,887
- ---------------
</TABLE>
- ---------------------------------------------
- -----------------------------------
See Notes to Financial Statements. 6
<PAGE>
Portfolio of Investments as
of April 30, 1998 (Unaudited) PRUDENTIAL
EQUITY INCOME FUND
- ---------------------------------------------
- ---------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description
Value (Note 1)
<C> <C> <S>
<C>
- ---------------------------------------------
- ---------------
CONVERTIBLE BONDS--0.6%
- ---------------------------------------------
- ---------------
Integrated Oil--0.1%
Oryx Energy Co.,
Sub.
Deb.,
Ba3 $1,871 7.50%, 5/15/14
$1,871,000
- ---------------------------------------------
- ---------------
Realty Investment Trust--0.2%
Haagen (Alexander)
Properties, Inc.,
Sub. Deb., Ser. A,
B2 700 7.50%, 1/15/01
696,766
Sub. Deb., Ser. B,
B2 1,200 7.50%, 1/15/01
1,194,456
Malan Realty
Investors,
Inc.,
Sub. Deb.,
B3 3,800 9.50%, 7/15/04
3,895,000
- --------------
5,786,222
- ---------------------------------------------
- ---------------
Retail--0.3%
Charming Shoppes,
Inc.
B2 8,000 7.50%, 7/15/06
7,603,760
- --------------
Total convertible
bonds
(cost $15,481,951)
15,260,982
- --------------
FOREIGN GOVERNMENT OBLIGATIONS--0.4%
New Zealand Gov't.
Bonds,
NR NZ$15,580 8.00%, 4/15/04
(cost $10,819,084)
$8,985,482
- --------------
Total long-term
investments
(cost
$1,645,554,747) 2,356,011,177
- --------------
SHORT-TERM INVESTMENT--2.3%
- ---------------------------------------------
- ---------------
REPURCHASE AGREEMENT--2.3%
55,897 Joint Repurchase
Agreement Account
5.50%, 5/1/98,
(cost $55,897,000;
Note
5)
55,897,000
- --------------
- ---------------------------------------------
- ---------------
Total Investments--100.0%
(cost
$1,701,451,747;
Note 4)
2,411,908,177
Other assets in
excess of
liabilities
346,914
- --------------
Net Assets--100%
$2,412,255,091
- --------------
- --------------
</TABLE>
- ---------------
(a) Non-income producing security.
ADR--American Depository Receipt.
GDR--Global Depository Receipt.
NR--Not rated by Moody's or Standard &
Poor's.
PLC--Public Limited Company.
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>
<CAPTION>
Assets
April 30, 1998
<S>
<C>
Investments, at value (cost
$1,701,451,747)..............................
...................................
$2,411,908,177
Foreign currency, at value (cost
$343,913)....................................
..............................
345,091
Cash.........................................
.............................................
.................. 284,229
Receivable for Fund shares
sold.........................................
....................................
6,024,377
Dividends and interest
receivable...................................
........................................
5,743,492
Receivable for investments
sold.........................................
....................................
2,867,815
Other
assets.......................................
.............................................
............ 23,517
- --------------
Total
assets.......................................
.............................................
......... 2,427,196,698
- --------------
Liabilities
Payable for investments
purchased....................................
.......................................
7,135,635
Payable for Fund shares
reacquired...................................
.......................................
4,977,521
Distribution fee
payable......................................
.............................................
. 1,457,363
Management fee
payable......................................
.............................................
... 986,110
Foreign withholding tax
payable......................................
.......................................
294,451
Accued
expenses.....................................
.............................................
........... 90,527
- --------------
Total
liabilities..................................
.............................................
......... 14,941,607
- --------------
Net
Assets.......................................
.............................................
.............. $2,412,255,091
- --------------
- --------------
Net assets were comprised of:
Shares of beneficial interest, at
par..........................................
.......................... $
1,097,017
Paid-in capital in excess of
par..........................................
...............................
1,604,392,060
- --------------
1,605,489,077
Distributions in excess of net investment
income.......................................
.................. (1,912,595)
Accumulated net realized
gains........................................
...................................
98,220,512
Net unrealized appreciation on investments
and foreign
currencies...................................
..... 710,458,097
- --------------
Net assets, April 30,
1998.........................................
.........................................
$2,412,255,091
- --------------
- --------------
Class A:
Net asset value and redemption price per
share
($732,523,179 / 33,239,656 shares of
beneficial interest issued and
outstanding)......................
$22.04
Maximum sales charge (5% of offering
price).......................................
....................... 1.16
- --------------
Maximum offering price to
public.......................................
..................................
$23.20
- --------------
- --------------
Class B:
Net asset value, offering price and
redemption price per share
($1,559,893,326 / 71,020,154 shares of
beneficial interest issued and
outstanding)....................
$21.96
- --------------
- --------------
Class C:
Net asset value, offering price and
redemption price per share
($35,754,661 / 1,627,912 shares of
beneficial interest issued and
outstanding)........................
$21.96
- --------------
- --------------
Class Z:
Net asset value, offering price and
redemption price per share
($84,083,925 / 3,814,016 shares of
beneficial interest issued and
outstanding)........................
$22.05
- --------------
- --------------
</TABLE>
- ---------------------------------------------
- -----------------------------------
See Notes to Financial Statements. 8
<PAGE>
PRUDENTIAL EQUITY INCOME FUND
Statement of Operations (Unaudited)
- --------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income
April 30, 1998
<S>
<C>
Income
Dividends (net of foreign withholding
taxes of $63,575)......................
$ 27,420,810
Interest..................................
2,726,106
- --------------
Total income...........................
30,146,916
- --------------
Expenses
Management fee............................
5,318,108
Distribution fee--Class A.................
793,483
Distribution fee--Class B.................
6,799,127
Distribution fee--Class C.................
124,823
Transfer agent's fees and expenses........
1,003,000
Reports to shareholders...................
104,000
Custodian's fees and expenses.............
72,000
Registration fees.........................
54,500
Trustees' fees and expenses...............
18,000
Insurance.................................
13,000
Audit fee and expenses....................
12,500
Legal fees and expenses...................
12,000
Miscellaneous.............................
4,500
- --------------
Total expenses.........................
14,329,041
- --------------
Net investment income........................
15,817,875
- --------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions...................
101,904,209
Foreign currency transactions.............
(97,032)
- --------------
101,807,177
- --------------
Net change in unrealized appreciation on:
Investments...............................
203,947,147
Foreign currency transactions.............
17,310
- --------------
203,964,457
- --------------
Net gain on investments and foreign currency
transactions..............................
305,771,634
- --------------
Net Increase in Net Assets
Resulting from Operations....................
$321,589,509
- --------------
- --------------
</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 1998
1997
<S> <C>
<C>
Operations
Net investment income....... $
15,817,875 $ 29,370,366
Net realized gain on
investments and foreign
currency transactions....
101,807,177 184,439,985
Net change in unrealized
appreciation of
investments and foreign
currencies...............
203,964,457 363,934,627
------------
- -- --------------
Net increase in net assets
resulting from
operations...............
321,589,509 577,744,978
------------
- -- --------------
Dividends and distributions (Note 1)
Dividends from net investment income
Class A..................
(6,200,850) (10,388,275)
Class B..................
(8,461,394) (17,820,066)
Class C..................
(152,828) (186,974)
Class Z..................
(1,002,803) (1,432,974)
------------
- -- --------------
(15,817,875) (29,828,289)
------------
- -- --------------
Distributions in excess of
net investment income
Class A..................
(528,318) --
Class B..................
(720,919) --
Class C..................
(13,021) --
Class Z..................
(85,440) --
------------
- -- --------------
(1,347,698) --
------------
- -- --------------
Distributions from net realized gains
Class A..................
(54,361,373) (16,446,394)
Class B..................
(114,880,805) (44,123,354)
Class C..................
(1,798,135) (407,245)
Class Z..................
(8,584,415) (2,197,282)
------------
- -- --------------
(179,624,728) (63,174,275)
------------
- -- --------------
Fund share transactions (net of
share conversions) (Note 6)
Proceeds from shares sold...
576,410,828 699,979,865
Net asset value of shares
issued in reinvestment of
dividends and
distributions............
180,974,312 84,965,746
Cost of shares reacquired...
(383,158,305) (681,144,020)
------------
- -- --------------
Net increase in net assets
from Fund share
transactions.............
374,226,835 103,801,591
------------
- -- --------------
Total increase.................
499,026,043 588,544,005
Net Assets
Beginning of period............
1,913,229,048 1,324,685,043
------------
- -- --------------
End of period..................
$2,412,255,091 $1,913,229,048
------------
- -- --------------
------------
- -- --------------
</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 or at the
bid price in the absence of an asked price.
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. 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 of $97,032 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 Net Investment
Income: Securities transactions are
recorded on the trade date. Realized gains
and losses on sales of investments
are calculated on the identified cost basis.
Dividend income is recorded on the
ex-dividend date; 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 Fund based
upon the relative proportion of net assets of
each class at the beginning of the
day.
- ---------------------------------------------
- -----------------------------------
10
<PAGE>
Notes to Financial Statements (Unaudited)
PRUDENTIAL EQUITY INCOME FUND
- ---------------------------------------------
- -----------------------------------
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. These differences are primarily
due to differing treatment of
distributions from Real Estate Investment
Trusts.
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 accumulated
net realized gains on investments and
increase net unrealized appreciation on
investments by $192,220. 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 Investments Fund Management
LLC ('PIFM'). Pursuant to this agreement,
PIFM has responsibility for all
investment advisory services and supervises
the subadviser's performance of such
services. PIFM has entered into a subadvisory
agreement with The Prudential
Investment Corporation ('PIC'); PIC furnishes
investment advisory services in
connection with the management of the Fund.
PIFM pays for the cost of the
subadviser's services, the compensation of
officers of the Fund, occupancy and
certain clerical and bookkeeping costs of the
Fund. The Fund bears all other
costs and expenses.
The management fee paid PIFM is computed
daily and payable monthly at an annual
rate of .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 a distribution agreement with
Prudential Securities Incorporated
('PSI'), which acts as the distributor of the
Class A, Class B, Class C and
Class Z shares of the Fund. The Fund
compensates PSI for distributing and
servicing the Fund's Class A, Class B and
Class C shares, pursuant to plans of
distribution (the 'Class A, B and C Plans')
regardless of expenses actually
incurred by them. The distribution fees are
accrued daily and payable monthly.
No distribution or service fees are paid to
PSI as distributor for Class Z
shares of the Fund. Effective July 1, 1998
Prudential Investment Management
Services LLC will become the distributor of
the Fund and will serve the Fund
under the same terms and conditions as under
the arrangement with PSI.
Pursuant to the Class A, B and C Plans, the
Fund compensates PSI 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,
1998.
PSI has advised the Fund that it has received
approximately $1,263,200 in
front-end sales charges resulting from sales
of Class A shares during the six
months ended April 30, 1998. From these fees,
PSI paid such sales charges to
dealers, which in turn paid commissions to
salespersons and incurred other
distribution costs.
PSI has advised the Fund that for the six
months ended April 30, 1998, it
received approximately $551,000 and $7,400 in
contingent deferred sales charges
imposed upon certain redemptions by Class B
and Class C shareholders,
respectively.
PSI, PIFM and PIC are indirect, wholly owned
subsidiaries of The Prudential
Insurance Company of America.
The Fund, along with other affiliated
registered investment companies (the
'Funds'), entered into a credit agreement
(the 'Agreement') on December 31, 1996
with an unaffiliated lender. The maximum
commitment under the Agreement is
$200,000,000. Interest on any such borrowings
outstanding will be at market
rates. The purpose of the Agreement is to
serve as an alternative source of
funding for capital share redemptions. The
Fund did not borrow any amounts
pursuant to the Agreement during the six
months ended April 30, 1998. The Funds
pay a commitment fee at an annual rate of
.055 of 1% on the unused portion of
the credit facility. The commitment fee is
accrued and paid quarterly on a pro
rata basis by the Funds. The Agreement
expired on December 30, 1997 and has been
extended through December 29, 1998 under the
same terms.
- ---------------------------------------------
- -----------------------------------
11
<PAGE>
Notes to Financial Statements (Unaudited)
PRUDENTIAL EQUITY INCOME FUND
- ---------------------------------------------
- -----------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'),
a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent and
during the six months ended April 30,
1998, the Fund incurred fees of approximately
$1,000,000 for the services of
PMFS. As of April 30, 1998, approximately
$204,500 of such fees were due to
PMFS. Transfer agent fees and expenses in the
Statement of Operations include
certain out-of-pocket expenses paid to
nonaffiliates.
For the six months ended April 30, 1998, PSI
earned approximately $64,100 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, 1998 were
$476,912,543 and $261,307,216,
respectively.
The cost basis of investments for federal
income tax purposes at April 30, 1998
was $1,701,451,747 and, accordingly, net
unrealized appreciation for federal
income tax purposes was $710,456,430 (gross
unrealized
appreciation--$746,494,985; gross unrealized
depreciation--$36,038,555).
- ---------------------------------------------
- ---------------
Note 5. Joint Repurchase Agreement Account
The Fund, along with other affiliated
registered investment companies, transfers
uninvested cash balances into a single joint
account, the daily aggregate
balance of which is invested in one or more
repurchase agreements collateralized
by U.S. Treasury or Federal agency
obligations. As of April 30, 1998, the Fund
had a 4.87% undivided interest in repurchase
agreements in the joint account.
The undivided interest for the Fund
represented $55,897,000 in principal amount.
As of such date, each repurchase agreement in
the joint account and the value of
the collateral therefor were as follows:
Bear, Stearns & Co. Inc., 5.53%, in the
principal amount of $310,000,000,
repurchase price $310,047,619, due 5/1/98.
The value of the collateral including
accrued interest was $316,688,713.
Credit Suisse First Boston Corp., 5.54%, in
the principal amount of
$310,000,000, repurchase price $310,047,706,
due 5/1/98. The value of the
collateral including accrued interest was
$321,763,994.
J.P. Morgan Securities, Inc., 5.53%, in the
principal amount of $310,000,000,
repurchase price $310,047,619, due 5/1/98.
The value of the collateral including
accrued interest was $316,200,983.
UBS Securities LLC, 5.375%, in the principal
amount of $218,770,000, repurchase
price $218,802,664, due 5/1/98. The value of
the collateral including accrued
interest was $223,146,143.
- ---------------------------------------------
- ---------------
Note 6. Capital
The Fund offers Class A, Class B, Class C and
Class Z shares. Class A shares are
sold with a front-end sales charge of up to
5%. Class B shares are sold with a
contingent deferred sales charge which
declines from 5% to zero depending on the
period of time the shares are held. Class C
shares are sold with a 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. Special exchange
privileges are also available for
shareholders who qualify to purchase Class A
shares at net asset value or Class
Z shares. Class Z shares are not subject to
any sales or redemption charge and
are offered exclusively for sale to a limited
group of investors.
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, 1998:
Shares sold......................
10,792,790 $ 224,136,877
Shares issued in reinvestment of
dividends and distributions....
2,874,412 56,689,346
Shares reacquired................
(8,603,749) (175,726,982)
---------
- -- -------------
Net increase in shares
outstanding before
conversion.....................
5,063,453 105,099,241
Shares issued upon conversion
and/or exchange from Class B...
1,024,859 20,788,919
---------
- -- -------------
Net increase in shares
outstanding....................
6,088,312 $ 125,888,160
---------
- -- -------------
---------
- -- -------------
Year ended October 31, 1997:
Shares sold......................
24,088,902 $ 429,955,821
Shares issued in reinvestment of
dividends and distributions....
1,457,169 24,726,140
Shares reacquired................
(23,710,223) (422,399,190)
---------
- -- -------------
Net increase in shares
outstanding before
conversion.....................
1,835,848 32,282,771
Shares issued upon conversion
and/or exchange from Class B...
3,168,790 57,758,918
---------
- -- -------------
Net increase in shares
outstanding....................
5,004,638 $ 90,041,689
---------
- -- -------------
---------
- -- -------------
</TABLE>
- ---------------------------------------------
- -----------------------------------
12
<PAGE>
Notes to Financial Statements (Unaudited)
PRUDENTIAL EQUITY INCOME FUND
- ---------------------------------------------
- -----------------------------------
<TABLE>
<CAPTION>
Class B Shares
Amount
- --------------------------------- ---------
- -- -------------
Six months ended April 30, 1998:
<S> <C>
<C>
Shares sold......................
13,185,047 $ 272,684,789
Shares issued in reinvestment of
dividends and distributions....
5,739,813 112,732,028
Shares reacquired................
(6,597,071) (135,954,614)
---------
- -- -------------
Net increase in shares
outstanding before
conversion.....................
12,327,789 249,462,203
Shares reacquired upon conversion
and/or exchange into Class A...
(1,028,303) (20,788,919)
---------
- -- -------------
Net increase in shares
outstanding....................
11,299,486 $ 228,673,284
---------
- -- -------------
---------
- -- -------------
Year ended October 31, 1997:
Shares sold......................
11,692,362 $ 220,160,621
Shares issued in reinvestment of
dividends and distributions....
3,363,615 56,041,561
Shares reacquired................
(12,575,129) (224,049,253)
---------
- -- -------------
Net increase in shares
outstanding before
conversion.....................
2,480,848 52,152,929
Shares reacquired upon conversion
and/or exchange into Class A...
(3,179,464) (57,758,918)
---------
- -- -------------
Net decrease in shares
outstanding....................
(698,616) $ (5,605,989)
---------
- -- -------------
---------
- -- -------------
<CAPTION>
Class C
- ---------------------------------
<S> <C>
<C>
Six months ended April 30, 1998:
Shares sold......................
831,950 $ 17,312,533
Shares issued in reinvestment of
dividends and distributions....
96,048 1,888,496
Shares reacquired................
(155,731) (3,248,868)
---------
- -- -------------
Net increase in shares
outstanding....................
772,267 $ 15,952,161
---------
- -- -------------
---------
- -- -------------
<CAPTION>
Class C Shares
Amount
- --------------------------------- ---------
- -- -------------
<S> <C>
<C>
Year ended October 31, 1997:
Shares sold......................
479,888 $ 9,368,720
Shares issued in reinvestment of
dividends and distributions....
33,855 567,873
Shares reacquired................
(211,033) (3,840,172)
---------
- -- -------------
Net increase in shares
outstanding....................
302,710 $ 6,096,421
---------
- -- -------------
---------
- -- -------------
<CAPTION>
Class Z
- ---------------------------------
<S> <C>
<C>
Six months ended April 30, 1998:
Shares sold......................
2,997,588 $ 62,276,629
Shares issued in reinvestment of
dividends and distributions....
490,185 9,664,442
Shares reacquired................
(3,242,810) (68,227,841)
---------
- -- -------------
Net increase in shares
outstanding....................
244,963 $ 3,713,230
---------
- -- -------------
---------
- -- -------------
Year ended October 31, 1997:
Shares sold......................
2,149,748 $ 40,494,703
Shares issued in reinvestment of
dividends and distributions....
213,923 3,630,172
Shares reacquired................
(1,680,122) (30,855,405)
---------
- -- -------------
Net increase in shares
outstanding....................
683,549 $ 13,269,470
---------
- -- -------------
---------
- -- -------------
</TABLE>
- ---------------------------------------------
- ---------------
Note 7. Dividends
On June 22, 1998 the Board of Trustees of the
Fund declared the following
dividends per share, payable on June 30, 1998
to shareholders of record on June
25, 1998.
<TABLE>
<CAPTION>
Class
Class B Class
A
and C Z
---------
- --------- ------
<S> <C>
<C> <C>
Ordinary Income................... $0.10
$ 0.06 $ 0.11
</TABLE>
- ---------------------------------------------
- -----------------------------------
13
<PAGE>
Financial Highlights (Unaudited)
PRUDENTIAL EQUITY INCOME FUND
- ---------------------------------------------
- -----------------------------------
<TABLE>
<CAPTION>
Class A
-
- ---------------------------------------------
- -------------------------------
Six Months
Ended Year Ended
October 31,
April 30, -----------------------------
- -------------------------------
1998 1997 1996 1995
1994 1993
-
- ----------- -------- -------- ---
- ----- -------- --------
<S>
<C> <C> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....
$ 21.00 $ 15.43 $ 14.40 $
14.03 $ 14.38 $ 12.16
-
- ----------- -------- -------- ---
- ----- -------- --------
Income from investment operations
Net investment income...................
.21 .45 .47 .48
.41 .47
Net realized and unrealized gain on
investment transactions..............
2.94 6.29 1.75 .95
.06 2.65
-
- ----------- -------- -------- ---
- ----- -------- --------
Total from investment operations.....
3.15 6.74 2.22 1.43
.47 3.12
-
- ----------- -------- -------- ---
- ----- -------- --------
Less distributions
Dividends from net investment income....
(.22) (.43) (.49)
(.54) (.29) (.46)
Distributions from net realized gains...
(1.89) (.74) (.70)
(.52) (.53) (.44)
-
- ----------- -------- -------- ---
- ----- -------- --------
Total distributions..................
(2.11) (1.17) (1.19)
(1.06) (.82) (.90)
-
- ----------- -------- -------- ---
- ----- -------- --------
Net asset value, end of period..........
$ 22.04 $ 21.00 $ 15.43 $
14.40 $ 14.03 $ 14.38
-
- ----------- -------- -------- ---
- ----- -------- --------
-
- ----------- -------- -------- ---
- ----- -------- --------
TOTAL RETURN(a):........................
16.24% 45.68% 15.97%
11.15% 3.48% 26.93%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).........
$732,523 $570,146 $341,717
$276,990 $150,502 $104,017
Average net assets (000)................
$640,047 $454,892 $310,335
$236,688 $131,398 $ 70,895
Ratios to average net assets:
Expenses, including distribution
fees..............................
.88%(b) .94% .98% 1.03%
1.09% 1.07%
Expenses, excluding distribution
fees..............................
.63%(b) .69% .73% .78%
.85% .87%
Net investment income................
1.98%(b) 2.32% 3.26%
3.36% 2.97% 3.44%
For Class A, B, C and Z shares:
Portfolio turnover rate.................
13% 36% 36% 74%
70% 57%
</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. 14
<PAGE>
Financial Highlights (Unaudited)
PRUDENTIAL EQUITY INCOME FUND
- ---------------------------------------------
- -----------------------------------
<TABLE>
<CAPTION>
Class B
-
- ---------------------------------------------
- -----------------------------------
Six Months
Ended Year Ended
October 31,
April 30, -----------------------------
- -----------------------------------
1998 1997 1996
1995 1994 1993
-
- ----------- ---------- ----------
- -------- -------- --------
<S>
<C> <C> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....
$ 20.93 $ 15.39 $ 14.36
$ 14.00 $ 14.35 $ 12.14
-
- ----------- ---------- ----------
- -------- -------- --------
Income from investment operations
Net investment income...................
.13 .29 .39
.37 .31 .37
Net realized and unrealized gain on
investment transactions..............
2.93 6.29 1.71
.95 .06 2.64
-
- ----------- ---------- ----------
- -------- -------- --------
Total from investment operations.....
3.06 6.58 2.10
1.32 .37 3.01
-
- ----------- ---------- ----------
- -------- -------- --------
Less distributions
Dividends from net investment income....
(.14) (.30) (.37)
(.44) (.19) (.36)
Distributions from net realized gains...
(1.89) (.74) (.70)
(.52) (.53) (.44)
-
- ----------- ---------- ----------
- -------- -------- --------
Total distributions..................
(2.03) (1.04) (1.07)
(.96) (.72) (.80)
-
- ----------- ---------- ----------
- -------- -------- --------
Net asset value, end of period..........
$ 21.96 $ 20.93 $ 15.39
$ 14.36 $ 14.00 $ 14.35
-
- ----------- ---------- ----------
- -------- -------- --------
-
- ----------- ---------- ----------
- -------- -------- --------
TOTAL RETURN(a):........................
15.81% 44.60% 15.12%
10.29% 2.73% 25.93%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).........
$1,559,893 $1,250,216 $ 929,948
$906,793 $954,951 $527,868
Average net assets (000)................
$1,371,095 $1,072,118 $ 951,220
$911,856 $784,063 $304,898
Ratios to average net assets:
Expenses, including distribution
fees..............................
1.63%(b) 1.69% 1.73%
1.78% 1.85% 1.87%
Expenses, excluding distribution
fees..............................
.63%(b) .69% .73%
.78% .85% .87%
Net investment income................
1.23%(b) 1.60% 2.51%
2.66% 2.21% 2.58%
</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
-
- ---------------------------------------------
- ---------------------------
August 1,
Six Months
1994(c)
Ended Year Ended October 31,
Through
April 30, -----------------------------
- ----------- October 31,
1998 1997 1996
1995 1994
-
- ----------- ------------ ------------
- ------ -----------
<S>
<C> <C> <C>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....
$ 20.93 $ 15.39 $14.36
$14.00 $ 13.99
-
- ----------- ------ -----
- ------ -----
Income from investment operations
Net investment income...................
.14 .37 .38
.40 .08
Net realized and unrealized gain (loss)
on investment transactions...........
2.92 6.21 1.72
.92 (.02)
-
- ----------- ------ -----
- ------ -----
Total from investment operations.....
3.06 6.58 2.10
1.32 .06
-
- ----------- ------ -----
- ------ -----
Less distributions
Dividends from net investment income....
(.14) (.30) (.37)
(.44) (.05)
Distributions from net realized gains...
(1.89) (.74) (.70)
(.52) --
-
- ----------- ------ -----
- ------ -----
Total distributions..................
(2.03) (1.04) (1.07)
(.96) (.05)
-
- ----------- ------ -----
- ------ -----
Net asset value, end of period..........
$ 21.96 $ 20.93 $15.39
$14.36 $ 14.00
-
- ----------- ------ -----
- ------ -----
-
- ----------- ------ -----
- ------ -----
TOTAL RETURN(a):........................
15.81% 44.60% 15.12%
10.29% 0.45%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).........
$ 35,755 $ 17,911 $8,511
$4,586 $ 1,527
Average net assets (000)................
$ 25,172 $ 11,432 $6,730
$3,132 $ 762
Ratios to average net assets:
Expenses, including distribution
fees..............................
1.63%(b) 1.69% 1.73%
1.78% 2.05%(b)
Expenses, excluding distribution
fees..............................
.63%(b) .69% .73%
.78% 1.05%(b)
Net investment income................
1.19%(b) 1.53% 2.51%
2.57% 2.42%(b)
<CAPTION>
Class Z
---
- -----------------------------------------
March 1,
Six Months Year 1996(d)
Ended Ended Through
April 30, October 31, October 31,
1998 1997 1996
---
- --------- ----------- -----------
<S>
<C> <C> <C>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $
21.00 $ 15.42 $ 15.13
---
- --------- ----------- -----------
Income from investment operations
Net investment income...................
.23 .36 .38
Net realized and unrealized gain (loss)
on investment transactions...........
2.95 6.43 .30
---
- --------- ----------- -----------
Total from investment operations.....
3.18 6.79 .68
---
- --------- ----------- -----------
Less distributions
Dividends from net investment income....
(.24) (.47) (.39)
Distributions from net realized gains...
(1.89) (.74) --
---
- --------- ----------- -----------
Total distributions..................
(2.13) (1.21) (.39)
---
- --------- ----------- -----------
Net asset value, end of period.......... $
22.05 $ 21.00 $ 15.42
---
- --------- ----------- -----------
---
- --------- ----------- -----------
TOTAL RETURN(a):........................
16.41% 46.12% 4.55%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $
84,084 $74,956 $44,509
Average net assets (000)................ $
96,879 $57,369 $24,641
Ratios to average net assets:
Expenses, including distribution
fees..............................
.63%(b) .69% .73%(b)
Expenses, excluding distribution
fees..............................
.63%(b) .69% .73%(b)
Net investment income................
2.20%(b) 2.58% 3.51%(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.
- ---------------------------------------------
- -----------------------------------
See Notes to Financial Statements. 16
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Trustees
Edward D. Beach
Delayne Dedrick Gold
Robert F. Gunia
Douglas H. McCorkindale
Mendel A. Melzer, CFA
Thomas T. Mooney
Stephen P. Munn
Richard A. Redeker
Robin B. Smith
Louis A. Weil, III
Clay T. Whitehead
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Marguerite E.H. Morrison, Assistant Secretary
Caren A. Cunningham, Assistant Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
Distributor
Prudential 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 LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
The views expressed in this report and
information about the
Fund's portfolio holdings are for the period
covered by this
report and are subject to change thereafter.
The accompanying financial statements as of
April 30, 1998
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>
(LOGO)
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
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