<PAGE>
(ICON)
Prudential
Equity
Income
Fund
ANNUAL
REPORT
Oct. 31, 1999
(LOGO)
<PAGE>
A Message from the Fund's President December 15, 1999
(PHOTO)
Dear Shareholder,
Over the 12 months ended October 31, 1999, Prudential Equity
Income Fund Class A shares had a moderate 5.03% return. However,
the market averages over this period were extraordinarily high,
continuing a five-year trend of exceptional returns.
Although the Lipper Equity Income Fund Average also trailed
the overall market, it provided a higher return than Prudential's
fund. This year's underperformance is far from satisfactory,
but even including this year's trailing return, Fund Manager
Warren Spitz is ahead of the Lipper average over the past
three years (52.01% for Class A shares versus the Lipper
average of 51.63%). What has changed?
Since the 1997 economic downturn in Asia, investors have
been very skittish about growth prospects. By and large,
they have concentrated their attention on technology and
telecommunications stocks that they seem to believe are
on growth trajectories that cannot be stopped. Other stocks,
including shares in well-managed companies that play
essential roles in the global economy, have not done
well. Over Prudential Equity Income Fund's reporting
period, for example, the top 10 stocks in the
Russell 1000 Index (representing the 1,000 largest
U.S. companies by total market value)--all telecommunications,
Internet, or media related--quadrupled or better in value,
while about two-fifths of the listings had negative returns.
The gap between growth-stock and value-stock returns has
not been as great in 20 years.
Warren Spitz is a strict value investor, whose strategy
goes right against the grain of recent market trends,
but which has had excellent long-term success. For some
time now, he has been focused in economic sectors that
have been out of favor because many investors thought
they were dependent on strong economic growth for an
earnings surge. Some of these industries have benefited
from the recent increase in confidence; the Fund's
aluminum, chemicals, and investment banks generally turned
in returns above 30%. These were balanced by poor
performance by consumer-related, energy, and real
estate stocks. In the following pages, Warren Spitz
explains why he believes his portfolio is well
positioned to benefit should growth continue to
strengthen in the world's three major economic
regions--the Pacific, Europe, and the United States.
Yours sincerely,
John R. Strangfeld
President
Prudential Equity Income Fund
<PAGE>
Performance Review
(PHOTO)
Warren Spitz
Fund Manager
Investment Goals and Style
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 Composite
Stock Price Index (S&P 500 Index) or the NYSE
Composite Index. It 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.
In investing, herd behavior leaves you exposed
We buy shares in good businesses when they are inexpensive;
we expect to benefit when other investors come to see their
value. Recently, that strategy has not worked very well. On
economic and business grounds, the companies we own are sound, with
excellent prospects for profit growth, but the stocks of many
of them remain unpopular. As the chart on page 3 shows, value
investing in the Russell 1000 (which includes both large-cap
and mid-cap stocks) is trailing growth investing by the greatest
margin in 20 years.
On October 31, 1999, less than 1% of our assets were in
technology companies, which is where the market gains have
been concentrated. We understand that technological developments
may be driving economic growth, but technology companies are
competing against one another. There are likely to be substantial
losers even in a booming market. Moreover, if a firm's profits
are only modest, it is hard to justify the large premiums now
being paid for technology stocks. By contrast, many of the
firms we own dominate their markets, as described in our five
largest holdings table, and demand for their products is likely
to rise over the long term. In addition, as European and Asian
economies accelerate, the profits of our holdings may
increase substantially. We believe they also have much less
risk of a profitless future than many technology companies.
(Indeed, many of the high-flying Internet stocks have little
or no current profits.) We expect more investors to realize this
eventually, although it may take a few technology stock
disasters to have a full impact.
Industrials respond to global growth
Industrials made up more than a third of our assets at period
end. Aluminum (Alcoa and Reynolds Metals Co.) accounted for 10%.
Many of the basic materials companies became proficient
cost-cutters when they were in a difficult environment; they are
now poised to benefit from rising demand. Consolidation
in the industry is concentrating market power and helping
prevent the construction of additional capacity. More business,
Portfolio Composition
Expressed as a percentage of net assets
as of 10/31/99
Industrial 34.9%
Finance 27.1
Consumer Cyclicals 15.4
Consumer Growth 9.0
Energy 8.5
Utility 3.7
Technology 0.8
Cash & Equivalents 0.6
<PAGE>
greater pricing power, and lower costs are a very powerful
recipe for profit growth. Investors seemed to realize this
in the value-stock-dominated market of April 1999. It
accounted for most of the 56% gain in our reporting period
of Alcoa, our largest holding. A temporary increase in
uncertainty about Asia cut that bull market for value
stocks short. Other basic materials are
playing out the same scenario, but slower: paper (e.g.,
Georgia-Pacific Corp., up 55%); steel (e.g., US Steel,
up 14%); and chemicals (e.g., Dow Chemical Co., up 31%).
Although our industrials have generally performed well, steel
is still suffering from the competition from foreign producers
triggered by the Asian crisis. Although inventories have fallen,
pricing has been slow to rise. Little or no new capacity
has been added, however, so the recovery of global growth
should soon tilt the supply/demand balance toward producers.
Financials bounced back
Financial stocks had suffered in the 1998 crisis because
investors feared they might have been exposed to the
emerging markets or to other financial companies that
had such exposure. Our holdings are focused on securities
brokers and real estate firms. Securities brokers also were
<TABLE>
Performance at a Glance
<CAPTION>
Cumulative Total Returns1 As of 10/31/99
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A 5.03% 95.94% N/A 240.99%
Class B 4.25 88.79 209.95% 288.92
Class C 4.25 88.79 N/A 89.64
Class Z 5.28 N/A N/A 60.19
Lipper Equity Income Fund Avg3 9.56 115.32 232.14 ***
S&P 500 Index4 25.66 217.68 414.54 ****
</TABLE>
<TABLE>
Average Annual Total Returns1 As of 9/30/99
<CAPTION>
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A 6.88% 13.32% N/A 12.94%
Class B 6.69 13.52 11.68% 11.33
Class C 9.57 13.41 N/A 13.06
Class Z 12.83 N/A N/A 14.19
</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.
1 Source: Prudential Investments Fund Management LLC and Lipper
Inc. The cumulative total returns do not take into account sales
charges. The average annual total returns do take into account
applicable sales charges. The Fund charges a maximum
front-end sales charge 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% for
six years. Class B shares will automatically convert
to Class A shares, on a quarterly basis, approximately
seven years after purchase. Class C shares are subject
to a front-end sales charge of 1% and a CDSC of 1% for
18 months. Class C shares bought before November 2, 1998,
have a 1% CDSC if sold within one year. Class Z
shares are not subject to a sales charge or distribution
and service (12b-1) fees.
2 Inception dates: Class A, 1/22/90; Class B, 1/2/87;
Class C, 8/1/94; Class Z, 3/1/96.
3 Lipper average returns are for all funds in each share
class for the one-, five-, and ten-year periods in the
Equity Income Fund category. The Lipper average is
unmanaged. Equity Income funds, by prospectus and
portfolio practice, seek relatively
high current income and growth of income through
investing 65% or more of their portfolios in
dividend-paying equity securities.
4 The Standard & Poor's 500 Composite Stock Price
Index (S&P 500(R) Index) is an unmanaged index of
500 stocks of large U.S. companies that gives a
broad look at how stock prices have performed.
These returns do not include the effect of any operating
expense of a mutual fund. These returns would be
lower if they included the effect of operating
expenses. The S&P 500 Index is not the only index
that may be used to characterize performance of
stock funds, and other indexes may portray different
comparative performance. Investors cannot invest
directly in an index.
"Standard & Poor's(R)", "S&P 500(R)", "Standard & Poor's
500", and "500" are trademarks of The McGraw-Hill Companies, Inc.
***Lipper Since Inception returns are 241.18% for Class A,
315.42% for Class B, 117.70% for Class C, and 65.49% for
Class Z, based on all funds in each share class.
****The S&P 500 Index Since Inception returns are 18.61%
for Class A, 16.50% for Class B, 25.52% for Class C, and
24.93% for Class Z.
1
<PAGE>
Review Cont'd.
vulnerable to a slowdown in U.S. stock market activity,
which has been a major source of revenue. When global
financial markets stabilized and U.S. markets resumed
their climb, the beaten-down brokerages recovered. In
addition to Lehman Brothers Holdings, Inc. (see our five
largest holdings table), we had significant investments
in PaineWebber Group, Inc. and Bear Stearns Cos., Inc.
A real estate investment trust (REIT) turns real estate
into more liquid investments by buying property and
issuing stock. When a national REIT buys apartment or
office buildings across the country, it can buy electrical
and telecommunications services, carpeting, furniture,
and maintenance supplies more cheaply than smaller firms.
By buying real estate and adding these benefits of national
scale and good management, the REIT adds value. They are
one of our largest industry holdings, but
have suffered from the market preference for fast
growth and large companies.
Consumer stocks hurt
We own a variety of consumer cyclical stocks (which sell products
that consumers are more likely to buy in a growing economy),
including automakers and retailers. We took our profits and
sold our last shares of Daimler-Chrysler, which had moved up
dramatically. However, overall, this sector trailed the
market. Among consumer growth companies, those associated
with tobacco, such as RJR Nabisco Holdings Corp. and Philip
Morris Companies, Inc., fell substantially. These stocks are
so inexpensive because the market is, in effect, paying
an investor to take the tobacco business along with the
stronger food businesses due to fear of potential litigation
settlements. Our largest energy holding--McDermott International,
Inc.--is a diversified company with a major oil service business.
It fell when oil was cheap, but the recent jump in prices,
together with falling oil reserves, bode well for its prospects.
Five Largest Holdings Expressed as a percentage of net assets
as of 10/31/99
Security/Industry Comments
% of Net Assets
Alcoa Inc.
Aluminum
6.4% The world's largest aluminum company,
its acquisition of Reynolds Metals Co.
will bring it to more than 300
operating locations. General industry
consolidation and internal productivity
improvements should multiply the impact
of growing global demand. Sales grew
15% in 1998.
Lehman Brothers Hldgs., Inc.
Financial Services
6.3% A leading investment bank, it is
maintaining good cost control while
growing. Robust earnings gains over
the past five years, including 14%
growth in the Asia-crash year of
1998. Still sells for less than ten
times earnings. Tremendous appreciation
potential if it should approach the
industry price/earnings multiple.
Dow Chemical Co.
Chemicals
4.8% Second largest chemical company in the
United States. It is acquiring Union
Carbide. It is very well diversified,
so not at the mercy of any single
chemical commodity price, and is
sensitive to global economic growth.
Hanson PLC, ADR
Misc. Industrial
4.2% After recent acquisition, now the
world's largest producer of aggregates.
Generating large quantities of free
cash, much of which is used for
acquisitions. Should be a major
beneficiary of the Highway Bill.
Equity Residential
Properties Trust
Real Estate Investment Trust
3.7% Largest multi-unit housing REIT in
the United States (by sales).
Exclusively in apartments. Consistent
modest growth in cash flow and
dividends (things we particularly
like to see).
2
<PAGE>
Looking Ahead
Momentum--buying what has already become expensive--is usually
a poor investment strategy. Over the past 30 years, it would
have been a disastrous policy to follow, but it has paid off
for short periods of time. We are now in the longest period of
success for momentum investing since the late 1960s. This hurt
us because our holdings on October 31, 1999, were below the
average in price/ earnings ratio even when compared only with
value funds.1 We believe there are many ways our economy has
changed over the past decade, but neither human nature nor the
economy is likely to have changed so much that buying the most
expensive stocks will continue to pay off indefinitely. We had
a taste in April of what a correction in that trend would
be, and we benefited. We are well positioned should investors
once again want to plant their feet on firm ground.
1 Prudential Investments' calculations for the holdings
reported by Morningstar for October 31, 1999. Although
the most recent and objective available data, reporting
lags mean that these listings do not necessarily represent
most other funds' holdings on that date. However,
Prudential priced all the reported holdings at 10/31/99.
We have been in unusual times
(GRAPH)
The Russell 1000 Index measures the performance of the
1,000 largest U.S. companies, based on total market
capitalization.
The Russell 1000 Value Index contains those Russell
1000 securities with a less-than-average growth
orientation. Securities in this index generally have
low price-to-book and price/earnings ratios, higher
dividend yields, and lower forecasted growth
values than more growth-oriented securities in the
Russell 1000 Growth Index.
The Russell 1000 Growth Index contains those Russell
1000 securities with a greater-than-average growth
orientation. Companies in this index tend to exhibit
higher price-to-book and price/earnings ratios, lower
dividend yields, and higher forecasted
growth values than the Value universe.
The performance cited does not represent the performance
of Prudential Equity Income Fund. The total return values
include the reinvestment of all dividends. Past performance
is not indicative of future results. Investors cannot invest
directly in an index.
Source: Lipper, Inc. and Prudential Investments.
3
<PAGE>
Portfolio of Investments as
of October 31, 1999 PRUDENTIAL EQUITY INCOME FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--99.6%
COMMON STOCKS--94.4%
- ------------------------------------------------------------
Airlines--3.7%
956,300 AMR Corp.(a)(b) $ 60,725,050
224,100 US Airways Group, Inc.(a) 6,274,800
--------------
66,999,850
- ------------------------------------------------------------
Aluminum--10.1%
1,895,900 Alcoa Inc.(b) 115,175,925
1,076,384 Reynolds Metals Co. 65,053,958
--------------
180,229,883
- ------------------------------------------------------------
Apparel--0.7%
688,200 Kellwood Co. 12,172,538
- ------------------------------------------------------------
Automobiles & Trucks--3.9%
445,218 Delphi Automotive Systems Corp. 7,318,271
335,800 Ford Motor Co.(b) 18,427,025
637,000 General Motors Corp. 44,749,250
--------------
70,494,546
- ------------------------------------------------------------
Building & Construction--1.6%
680,600 Kaufman & Broad Home Corp. 13,654,538
725,100 Ryland Group, Inc. 14,955,187
--------------
28,609,725
- ------------------------------------------------------------
Chemicals--6.1%
735,700 Dow Chemical Co.(b) 86,996,525
487,200 Lyondell Chemical Co. 5,907,300
848,028 Millennium Chemicals, Inc. 15,688,518
--------------
108,592,343
- ------------------------------------------------------------
Diversfied Consumer Products--0.8%
217,000 Eastman Kodak Co. 14,959,437
- ------------------------------------------------------------
Diversified Operations--0.6%
819,700 Tomkins PLC, ADR (United
Kingdom)(b) 11,475,800
Electrical Equipment--0.9%
596,000 Esterline Technologies Corp.(a) $ 8,195,000
360,800 Newport Corp.(b) 7,035,600
--------------
15,230,600
- ------------------------------------------------------------
Energy Systems--2.8%
2,819,500 McDermott International, Inc. 51,103,437
- ------------------------------------------------------------
Financial Services--12.8%
997,455 Bear Stearns Cos., Inc. 42,516,520
322,500 Edwards (A.G.), Inc. 9,695,156
1,434,300 Hanvit Bank, GDR (South
Korea)(a) 10,757,250
1,545,900 Lehman Brothers Holdings, Inc. 113,913,506
1,311,300 PaineWebber Group, Inc. 53,435,475
--------------
230,317,907
- ------------------------------------------------------------
Forest & Paper--3.8%
778,800 Georgia-Pacific Corp.(b) 30,908,625
1,283,400 Louisiana-Pacific Corp. 16,283,138
204,700 Potlatch Corp. 8,635,781
198,000 Weyerhaeuser Co.(b) 11,818,125
--------------
67,645,669
- ------------------------------------------------------------
Gas Pipelines--0.6%
942,360 TransCanada Pipelines Ltd.(b) 11,367,218
- ------------------------------------------------------------
Health Care Services--3.4%
1,017,300 Columbia/HCA Healthcare Corp. 24,542,362
1,148,100 Humana Inc.(a) 7,893,188
53,542 LifePoint Hospitals, Inc.(a) 632,465
1,980,000 PhyCor, Inc.(a) 4,950,000
1,125,300 Tenet Healthcare Corp.(a) 21,873,019
53,542 Triad Hospitals, Inc.(a) 522,034
--------------
60,413,068
- ------------------------------------------------------------
Insurance--2.0%
200,700 Marsh & McLennan Cos., Inc. 15,867,844
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as
of October 31, 1999 PRUDENTIAL EQUITY INCOME FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Insurance (cont'd.)
779,000 Ohio Casualty Corp.(b) $ 12,999,562
353,200 Selective Insurance Group, Inc. 6,600,425
--------------
35,467,831
- ------------------------------------------------------------
Machinery--2.4%
14,600 Cascade Corp. 133,225
167,600 Commercial Intertech Corp. 2,126,425
1,100,100 Flowserve Corp. 18,564,187
200,000 Graco, Inc. 6,700,000
150,000 Regal-Beloit Corp. 3,262,500
600,000 United Dominion Industries, Ltd.
(Canada) 12,712,500
--------------
43,498,837
- ------------------------------------------------------------
Mining
67,658 Ashanti Goldfields Co. Ltd., GDR
(Africa) 321,376
- ------------------------------------------------------------
Miscellaneous Industrial--4.2%
1,967,200 Hanson PLC, ADR (United Kingdom) 76,106,050
- ------------------------------------------------------------
Oil & Gas Exploration/Production--6.2%
703,200 Noble Affiliates, Inc. 17,799,750
990,000 Occidental Petroleum Corp. 22,584,375
1,157,400 Pennzoil-Quaker State Co. 13,671,787
2,468,327 Pioneer Natural Resources Co.(b) 23,140,566
481,200 Stillwater Mining Co.(a) 9,684,150
371,377 Total Fina SA, ADR (France) 24,766,199
--------------
111,646,827
- ------------------------------------------------------------
Paper & Packaging--1.1%
752,300 Gibson Greetings, Inc. 3,667,463
1,332,100 Longview Fibre Co. 15,152,637
--------------
18,820,100
- ------------------------------------------------------------
Real Estate Investment Trust--12.1%
584,100 Capital Automotive REIT 7,447,275
2,607,800 Crescent Real Estate Equities,
Inc. 43,517,662
1,142,900 Crown American Realty Trust 7,000,263
553,826 Equity Office Properties Trust 12,253,400
1,589,000 Equity Residential Properties
Trust $ 66,440,062
538,500 Gables Residential Trust 13,024,969
525,000 Glimcher Realty Trust 7,776,563
406,200 Manufactured Home Communities,
Inc. 9,469,537
164,900 TriNet Corporate Realty Trust,
Inc. 3,803,006
1,243,300 Vornado Realty Trust 39,397,069
351,400 Walden Residential Properties,
Inc. 7,533,138
--------------
217,662,944
- ------------------------------------------------------------
Retail--4.8%
801,093 Limited, Inc. (The) 32,944,950
145,900 Dillard's, Inc. 2,753,863
1,726,500 Heilig-Meyers Co. 7,553,437
2,462,520 Nabisco Group Holdings Corp. 31,551,037
481,400 Penney (J.C.) Co., Inc.(b) 12,215,525
--------------
87,018,812
- ------------------------------------------------------------
Steel--3.5%
938,900 AK Steel Holding Corp. 16,254,706
1,188,000 Bethlehem Steel Corp. 8,241,750
1,497,400 USX Corp.-U.S. Steel Group 38,277,288
--------------
62,773,744
- ------------------------------------------------------------
Telecommunication Services--1.6%
354,700 Telecomunicacoes Brasileras SA,
ADR (Brazil) 11,084
327,200 Telefonos de Mexico, SA,
ADR (Mexico)(b) 27,975,600
--------------
27,986,684
- ------------------------------------------------------------
Tobacco--2.3%
925,600 Philip Morris Companies, Inc. 23,313,550
820,840 R.J. Reynolds Tobacco Holdings,
Inc. 17,801,967
--------------
41,115,517
- ------------------------------------------------------------
Tools--0.6%
354,800 Snap-on Inc. 10,777,050
- ------------------------------------------------------------
Trucking & Shipping--0.6%
584,600 Yellow Corp.(a) 9,938,200
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5
<PAGE>
Portfolio of Investments as
of October 31, 1999 PRUDENTIAL EQUITY INCOME FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------
Waste Management--0.3%
311,317 Waste Management, Inc. $ 5,720,450
- ------------------------------------------------------------
Wood Processing--0.9%
392,700 Rayonier Inc. 16,100,700
Total common stocks
(cost $1,529,759,689) 1,694,567,143
--------------
- ------------------------------------------------------------
PREFERRED STOCKS--4.6%
- ------------------------------------------------------------
Manufacturing--0.1%
262,500 Worthington Industries Inc.
Conv. 7.25% 1,640,625
- ------------------------------------------------------------
Mining--0.1%
34,500 Hecla Mining Co.,
Conv. 7.00%, Ser. B 1,138,500
- ------------------------------------------------------------
Retail--1.5%
608,500 K-Mart Financing I,
Conv. 7.75% 27,344,469
- ------------------------------------------------------------
Steel--0.7%
248,300 Bethlehem Steel Corp.,
Conv. $3.50 7,449,000
118,900 USX-Capital Trust I
Conv., 6.75% 4,778,294
--------------
12,227,294
- ------------------------------------------------------------
Telecommunication Services--1.5%
354,700 Telebras SA, ADR (Brazil)(b) 27,622,262
- ------------------------------------------------------------
Transportation-Road & Rail--0.7%
241,500 Union Pacific Capital Trust 11,773,125
--------------
Total preferred stocks
(cost $105,418,275) 81,746,275
--------------
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value (Note 1)
- ------------------------------------------------------
<C> <C> <S> <C>
CONVERTIBLE BONDS--0.6%
- ------------------------------------------------------------
Real Estate Investment Trust--0.2%
B3 $ 3,761 Malan Realty Investors,
Inc.,
Conv. 9.50%, 7/15/04,
Sub. Deb. $ 3,403,705
- ------------------------------------------------------------
Retail--0.4%
B2 7,921 Charming Shoppes Inc.
Conv. 7.50%, 7/15/06 7,287,320
--------------
Total convertible bonds
(cost $11,819,331) 10,691,025
--------------
Total long-term investments
(cost $1,646,997,295) 1,787,004,443
--------------
- ------------------------------------------------------------
SHORT-TERM INVESTMENTS--7.0%
- ------------------------------------------------------------
Commercial Paper--4.1%
Bombardier Capital Inc.
7,000 5.55%, 11/15/99(c) 6,982,733
11,000 5.60%, 11/12/99(c) 10,977,756
11,000 Burlington Resources, Inc.
5.50%, 11/01/99(c) 10,994,958
10,000 Coastal Corp.
5.58%, 11/17/99(c) 9,972,100
17,000 Raytheon Corp.
5.50%, 11/12/99(c) 16,965,219
18,000 Rohm & Hass Co.
5.50%, 11/01/99(c) 17,991,750
--------------
Total commercial paper
(cost $73,884,516) 73,884,516
--------------
- ------------------------------------------------------------
Loan Participation--0.6%
11,000 Tyson Foods, Inc.
5.47%, 11/01/99(c)
(cost $11,000,000) 11,000,000
- ------------------------------------------------------------
Time Deposit--1.5%
27,660 First Union National Bank
5.28%, 11/01/99(c)
(cost $27,660,000) 27,660,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 6
<PAGE>
PRUDENTIAL EQUITY INCOME FUND
Portfolio of Investments as of October 31, 1999
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Repurchase Agreement--0.8%
$14,509 Joint Repurchase Agreement
Account,
5.21%, 11/1/99
(cost $14,509,000; Note 5) $ 14,509,000
--------------
Total short-term investments
(cost $127,053,516) 127,053,516
--------------
- ------------------------------------------------------------
Total Investments--106.6%
(cost $1,774,050,811; Note 4) 1,914,057,959
Liabilities in excess of other
assets--(6.6%) (118,029,657)
--------------
Net Assets--100% $1,796,028,302
--------------
--------------
</TABLE>
- ---------------
(a) Non-income producing security.
(b) Portion of securities on loan, see Note 4.
(c) Represents security, or portion thereof, purchased with cash collateral
received for securities on loan.
ADR--American Depository Receipt.
GDR--Global Depository Receipt.
PLC--Public Limited Company.
SA--Sociedad Anomia (Spanish Corporation) or Societe Anonyme (French
Corporation).
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 PRUDENTIAL EQUITY INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets October 31, 1999
<S> <C>
Investments, at value (cost $1,774,050,811)............................................................... $1,914,057,959
Cash...................................................................................................... 26,811
Dividends and interest receivable......................................................................... 2,563,303
Receivable for Fund shares sold........................................................................... 1,081,423
Receivable for investments sold........................................................................... 939,039
Receivable for securities lending......................................................................... 68,473
Prepaid expenses.......................................................................................... 43,800
----------------
Total assets........................................................................................... 1,918,780,808
----------------
Liabilities
Payable to broker for collateral for securities on loan................................................... 112,051,950
Payable for Fund shares reacquired........................................................................ 5,537,601
Payable for investments purchased......................................................................... 2,877,737
Distribution fee payable.................................................................................. 1,008,480
Management fee payable.................................................................................... 775,016
Securities lending rebate payable......................................................................... 438,533
Accrued expenses.......................................................................................... 36,290
Foreign withholding tax payable........................................................................... 26,899
----------------
Total liabilities...................................................................................... 122,752,506
----------------
Net Assets................................................................................................ $1,796,028,302
----------------
----------------
Net assets were comprised of:
Shares of beneficial interest, at par.................................................................. $ 993,191
Paid-in capital in excess of par....................................................................... 1,446,540,382
----------------
1,447,533,573
Accumulated net realized gains......................................................................... 208,488,456
Net unrealized appreciation on investments and foreign currencies...................................... 140,006,273
----------------
Net assets, October 31, 1999.............................................................................. $1,796,028,302
----------------
----------------
Class A:
Net asset value and redemption price per share
($619,468,527 / 34,191,040 shares of beneficial interest issued and outstanding).................... $18.12
Maximum sales charge (5% of offering price)............................................................ .95
----------------
Maximum offering price to public....................................................................... $19.07
----------------
----------------
Class B:
Net asset value, offering price and redemption price per share
($1,006,346,032 / 55,733,634 shares of beneficial interest issued and outstanding).................. $18.06
----------------
----------------
Class C:
Net asset value and redemption price per share
($33,684,824 / 1,865,572 shares of beneficial interest issued and outstanding)...................... $18.06
Sales charge (1% of offering price).................................................................... .18
----------------
Offering price to public............................................................................... $18.24
----------------
----------------
Class Z:
Net asset value, offering price and redemption price per share
($136,528,919 / 7,528,822 shares of beneficial interest issued and outstanding)..................... $18.13
----------------
----------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 8
<PAGE>
PRUDENTIAL EQUITY INCOME FUND
Statement of Operations
- --------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income October 31, 1999
<S> <C>
Income
Dividends (net of foreign withholding taxes
of $1,072,938).......................... $ 53,601,878
Interest................................... 1,944,518
Income from securities loaned, net......... 411,204
----------------
Total income............................ 55,957,600
----------------
Expenses
Management fee............................. 10,287,851
Distribution fee--Class A.................. 1,634,495
Distribution fee--Class B.................. 12,006,633
Distribution fee--Class C.................. 369,808
Transfer agent's fees and expenses......... 4,684,000
Reports to shareholders.................... 340,000
Custodian's fees and expenses.............. 181,000
Registration fees.......................... 145,000
Trustees' fees and expenses................ 36,000
Insurance.................................. 35,000
Legal fees and expenses.................... 26,000
Audit fee and expenses..................... 25,000
Miscellaneous.............................. 10,464
----------------
Total expenses.......................... 29,781,251
----------------
Net investment income......................... 26,176,349
----------------
Realized and Unrealized Gain (Loss) on
Investments and Foreign Currencies
Net realized gain (loss) on:
Investment transactions.................... 218,035,153
Foreign currency transactions.............. (1,529,033)
----------------
216,506,120
----------------
Net change in unrealized appreciation
(depreciation) of:
Investments................................ (142,077,401)
Foreign currencies......................... 2,065
----------------
(142,075,336)
----------------
Net gain on investments and foreign
currencies................................. 74,430,784
----------------
Net Increase in Net Assets
Resulting from Operations..................... $ 100,607,133
----------------
----------------
</TABLE>
PRUDENTIAL EQUITY INCOME FUND
Statement of Changes in Net Assets
- --------------------------------------
<TABLE>
<CAPTION>
Year Ended October 31,
Increase (Decrease) -------------------------------
in Net Assets 1999 1998
<S> <C> <C>
Operations
Net investment income........ $ 26,176,349 $ 37,410,326
Net realized gain on
investments and foreign
currency transactions..... 216,506,120 138,053,262
Net change in unrealized
depreciation of
investments and foreign
currencies................ (142,075,336) (224,412,031)
-------------- --------------
Net increase (decrease) in
net assets resulting from
operations................ 100,607,133 (48,948,443)
-------------- --------------
Dividends and distributions (Note 1)
Dividends from net investment income
Class A................... (11,212,454) (14,084,914)
Class B................... (11,757,902) (19,144,502)
Class C................... (360,445) (438,559)
Class Z................... (2,845,548) (2,479,859)
-------------- --------------
(26,176,349) (36,147,834)
-------------- --------------
Dividends in excess of net
investment income
Class A................... (1,032,878) --
Class B................... (1,796,239) --
Class C................... (55,705) --
Class Z................... (189,062) --
-------------- --------------
(3,073,884) --
-------------- --------------
Distributions from net realized gains
Class A................... (36,735,180) (54,361,373)
Class B................... (73,406,073) (114,880,805)
Class C................... (2,177,750) (1,798,135)
Class Z................... (7,944,744) (8,584,415)
-------------- --------------
(120,263,747) (179,624,728)
-------------- --------------
Fund share transactions (net of
share conversions) (Note 6)
Proceeds from shares sold.... 495,723,387 1,012,745,142
Net asset value of shares
issued in reinvestment of
dividends and
distributions............. 138,241,458 198,544,772
Cost of shares reacquired.... (908,444,366) (740,383,287)
-------------- --------------
Net increase (decrease) in
net assets from Fund share
transactions.............. (274,479,521) 470,906,627
-------------- --------------
Total increase (decrease)....... (323,386,368) 206,185,622
Net Assets
Beginning of year............... 2,119,414,670 1,913,229,048
-------------- --------------
End of year(a).................. $1,796,028,302 $2,119,414,670
-------------- --------------
-------------- --------------
(a)Includes undistributed net
investment income of......... $ -- $ 500,009
-------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 9
<PAGE>
Notes to Financial Statements PRUDENTIAL EQUITY INCOME FUND
- --------------------------------------------------------------------------------
Prudential Equity Income Fund (the 'Fund') is registered under the Investment
Company Act of 1940 as a diversified, open-end, management investment company.
The investment objective of the Fund is both current income and capital
appreciation. It seeks to achieve this objective by investing primarily in
common stocks and convertible securities that provide investment income returns
above those of the Standard & Poor's 500 Composite Stock Price 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. 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 by an independent
pricing agent or principal market maker. Securities for which reliable market
quotations are not available or for which the pricing agent or principal market
maker does not provide a valuation or methodology or provides a valuation or
methodology that does not represent fair value, are valued 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 $1,529,033 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 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.
Securities Lending: The Fund may lend securities to broker-dealers. The loans
are secured by collateral at least equal at all times to the market value of the
securities loaned. Loans are subject to termination at the option of the
borrower or the Fund. Upon termination of the loan, the borrower will return to
the lender securities identical to the loaned securities. The Fund may bear the
risk of delay in recovery of, or even loss of rights in, the securities loaned
should the borrower of the securities fail financially. The Fund receives
compensation, net of any rebate, for lending its securities in the form of fees
or it retains a portion of interest on the investment of any cash received as
collateral. The Fund also continues to receive interest and dividends on the
securities loaned and any gain or loss in the market price of the securities
loaned that may occur during the term of the loan. Prudential Securities
Incorporated ('PSI') is the securities lending agent for the Fund. For the year
ended October 31, 1999, PSI has been compensated approximately $115,300 for
these services.
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 by
$22,418,100, increase undistributed net investment loss by $2,573,875 and
increase paid-in capital by $19,844,225 for realized foreign currency losses and
for redemptions utilized as distibutions for federal income tax purposes. 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. Pursuant to a subadvisory agreement between PIFM and 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 Investment Management
Services LLC ('PIMS'), which acts as the distributor of the Class A, Class B,
Class C and Class Z shares. The Fund compensates PIMS 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. The distribution fees are accrued daily and payable monthly. No
distribution or service fees are paid to PIMS as distributor of the Class Z
shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates PIMS 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%, 1% and 1% of the average daily net
assets of the Class A, B and C shares for the year ended October 31, 1999,
respectively.
PIMS has advised the Fund that it has received approximately $376,500 and
$54,600 in front-end sales charges resulting from sales of Class A shares and
Class C shares, respectively, during the year ended October 31, 1999. From these
fees, PIMS paid such sales charges to affiliated broker-dealers, which in turn
paid commissions to salespersons and incurred other distribution costs.
PIMS has advised the Fund that for the year ended October 31, 1999, it received
approximately $2,448,000 and $30,100 in contingent deferred sales charges
imposed upon certain redemptions by Class B and Class C shareholders,
respectively.
PIFM, PIC and PIMS are wholly owned subsidiaries of The Prudential Insurance
Company of America ('Prudential').
- --------------------------------------------------------------------------------
11
<PAGE>
Notes to Financial Statements PRUDENTIAL EQUITY INCOME FUND
- --------------------------------------------------------------------------------
As of March 11, 1999, the Fund along with other affiliated registered investment
companies (the 'Funds'), entered into a syndicated credit agreement ('SCA') with
an unaffiliated lender. The maximum commitment under the SCA is $1 billion.
Interest on any borrowings will be at market rates. The Funds pay a commitment
fee at an annual rate of .065 of 1% on the unused portion of the credit
facility, which is accrued and paid quarterly on a pro rata basis by the Funds.
The SCA expires on March 9, 2000. Prior to March 11, 1999, the Funds had a
credit agreement with a maximum commitment of $200,000,000. The commitment fee
was .055 of 1% on the unused portion of the credit facility. The Fund did not
borrow any amounts pursuant to either agreement during the year ended October
31, 1999. The purpose of the agreements is to serve as an alternative source of
funding for capital share redemptions.
- ------------------------------------------------------------
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. During the year ended October 31, 1999, the
Fund incurred fees of approximately $4,328,000 for the services of PMFS. As of
October 31, 1999, approximately $357,800 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 year ended October 31, 1999, PSI, which is an indirect, wholly owned
subsidiary of Prudential, earned approximately $81,300 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 year ended October 31, 1999 were $340,763,609 and $710,716,241,
respectively.
The cost basis of investments for federal income tax purposes at October 31,
1999 was $1,662,502,374 and, accordingly, net unrealized appreciation for
federal income tax purposes was $139,011,069 (gross unrealized
appreciation--$421,699,859; gross unrealized depreciation--$282,688,790).
As of October 31, 1999, the Fund had securities on loan with an aggregate market
value of $108,364,179. The Fund received $112,051,950 in cash as collateral for
securities on loan which was used to purchase highly liquid short-term
investments in accordance with the Fund's securities lending procedures.
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 October 31, 1999, the Fund
had a 1.5% undivided interest in repurchase agreements in the joint account. The
undivided interest for the Fund represented $14,509,000 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., 5.23%, in the principal amount of $250,000,000,
repurchase price $250,108,958, due 11/1/99. The value of the collateral
including accrued interest was $255,352,721.
Goldman, Sachs & Co., 5.18%, in the principal amount of $194,830,000, repurchase
price $194,914,102, due 11/1/99. The value of the collateral including accrued
interest was $198,727,175.
Morgan (J.P.) Securities, Inc., 5.22%, in the principal amount of $250,000,000,
repurchase price $250,108,750, due 11/1/99. The value of the collateral
including accrued interest was $255,000,115.
Salomon Smith Barney Inc., 5.22%, in the principal amount of $250,000,000,
repurchase price $250,108,750, due 11/1/99. The value of the collateral
including accrued interest was $255,452,608.
- ------------------------------------------------------------
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. Prior to November 2, 1998, Class C shares
were sold with a contingent deferred sales charge of 1% during the first year.
Effective November 2, 1998, Class C shares are sold with a front-end sales
charge of 1% and a contingent deferred sales charge of 1% during the first 18
months. 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 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.
- --------------------------------------------------------------------------------
12
<PAGE>
Notes to Financial Statements PRUDENTIAL EQUITY INCOME FUND
- --------------------------------------------------------------------------------
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- --------------------------------- ----------- -------------
<S> <C> <C>
Year ended October 31, 1999:
Shares sold...................... 16,694,821 $ 317,280,599
Shares issued in reinvestment of
dividends and distributions.... 2,467,403 44,364,034
Shares reacquired................ (22,063,847) (415,812,468)
----------- -------------
Net decrease in shares
outstanding before
conversion..................... (2,901,623) (54,167,835)
Shares issued upon conversion
from Class B................... 2,822,586 53,289,360
----------- -------------
Net decrease in shares
outstanding.................... (79,037) $ (878,475)
----------- -------------
----------- -------------
Year ended October 31, 1998:
Shares sold...................... 18,187,422 $ 372,808,932
Shares issued in reinvestment of
dividends and distributions.... 3,225,575 63,494,283
Shares reacquired................ (16,281,521) (328,591,719)
----------- -------------
Net increase in shares
outstanding before
conversion..................... 5,131,476 107,711,496
Shares issued upon conversion
and/or exchanged from Class
B.............................. 1,987,257 39,239,381
----------- -------------
Net increase in shares
outstanding.................... 7,118,733 $ 146,950,877
----------- -------------
----------- -------------
<CAPTION>
Class B
- ---------------------------------
<S> <C> <C>
Year ended October 31, 1999:
Shares sold...................... 5,716,752 $ 108,733,754
Shares issued in reinvestment of
dividends and distributions.... 4,509,403 80,447,105
Shares reacquired................ (21,658,431) (404,250,026)
----------- -------------
Net decrease in shares
outstanding before
conversion..................... (11,432,276) (215,069,167)
Shares reacquired upon conversion
into Class A................... (2,833,175) (53,289,360)
----------- -------------
Net decrease in shares
outstanding.................... (14,265,451) $(268,358,527)
----------- -------------
----------- -------------
Year ended October 31, 1998:
Shares sold...................... 21,354,121 $ 438,253,055
Shares issued in reinvestment of
dividends and distributions.... 6,214,814 121,857,308
Shares reacquired................ (15,295,489) (302,422,093)
----------- -------------
Net increase in shares
outstanding before
conversion..................... 12,273,446 257,688,270
Shares reacquired upon conversion
into Class A................... (1,995,029) (39,239,381)
----------- -------------
Net increase in shares
outstanding.................... 10,278,417 $ 218,448,889
----------- -------------
----------- -------------
<CAPTION>
Class C Shares Amount
- --------------------------------- ----------- -------------
<S> <C> <C>
Year ended October 31, 1999:
Shares sold...................... 736,586 $ 14,065,037
Shares issued in reinvestment of
dividends and distributions.... 139,408 2,487,645
Shares reacquired................ (1,055,951) (19,790,850)
----------- -------------
Net decrease in shares
outstanding.................... (179,957) $ (3,238,168)
----------- -------------
----------- -------------
Year ended October 31, 1998:
Shares sold...................... 1,490,743 $ 30,682,873
Shares issued in reinvestment of
dividends and distributions.... 109,439 2,144,607
Shares reacquired................ (410,298) (8,131,504)
----------- -------------
Net increase in shares
outstanding.................... 1,189,884 $ 24,695,976
----------- -------------
----------- -------------
<CAPTION>
Class Z
- ---------------------------------
<S> <C> <C>
Year ended October 31, 1999:
Shares sold...................... 2,860,602 $ 55,643,997
Shares issued in reinvestment of
dividends and distributions.... 607,453 10,942,674
Shares reacquired................ (3,605,044) (68,591,022)
----------- -------------
Net decrease in shares
outstanding.................... (136,989) $ (2,004,351)
----------- -------------
----------- -------------
Year ended October 31, 1998:
Shares sold...................... 8,469,492 $ 171,000,282
Shares issued in reinvestment of
dividends and distributions.... 563,480 11,048,574
Shares reacquired................ (4,936,214) (101,237,971)
----------- -------------
Net increase in shares
outstanding.................... 4,096,758 $ 80,810,885
----------- -------------
----------- -------------
</TABLE>
- ------------------------------------------------------------
Note 7. Dividends
On December 1, 1999 the Board of Trustees of the Fund declared the following
dividends per share, payable on December 3, 1999 to shareholders of record on
December 2, 1999.
<TABLE>
<CAPTION>
Class Class B Class
A and C Z
--------- --------- -------
<S> <C> <C> <C>
Ordinary Income.................. $ 0.09 $ 0.055 $0.1025
Short-Term Capital Gains......... 0.025 0.025 0.025
Long-Term Capital Gains.......... 2.15 2.15 2.15
</TABLE>
- --------------------------------------------------------------------------------
13
<PAGE>
Financial Highlights PRUDENTIAL EQUITY INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
------------------------------------------------------------
Year Ended October 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year........................ $ 18.63 $ 21.00 $ 15.43 $ 14.40 $ 14.03
-------- -------- -------- -------- --------
Income from investment operations
Net investment income..................................... .33 .45 .45 .47 .48
Net realized and unrealized gain (loss) on investment
transactions........................................... .58 (.49) 6.29 1.75 .95
-------- -------- -------- -------- --------
Total from investment operations....................... .91 (.04) 6.74 2.22 1.43
-------- -------- -------- -------- --------
Less distributions
Dividends from net investment income...................... (.33) (.44) (.43) (.49) (.54)
Dividends in excess of net investment income.............. (.03) -- -- -- --
Distributions from net realized gains..................... (1.06) (1.89) (.74) (.70) (.52)
-------- -------- -------- -------- --------
Total distributions.................................... (1.42) (2.33) (1.17) (1.19) (1.06)
-------- -------- -------- -------- --------
Net asset value, end of year.............................. $ 18.12 $ 18.63 $ 21.00 $ 15.43 $ 14.40
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN(a):.......................................... 5.03% (.65)% 45.68% 15.97% 11.15%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)............................. $619,469 $638,547 $570,146 $341,717 $276,990
Average net assets (000).................................. $653,798 $655,776 $454,892 $310,335 $236,688
Ratios to average net assets:
Expenses, including distribution fees.................. 1.02% .91% .94% .98% 1.03%
Expenses, excluding distribution fees.................. .77% .66% .69% .73% .78%
Net investment income.................................. 1.71% 2.19% 2.32% 3.26% 3.36%
For Class A, B, C and Z shares:
Portfolio turnover rate................................... 17% 22% 36% 36% 74%
</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 year reported and includes reinvestment of dividends and
distributions.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 14
<PAGE>
Financial Highlights PRUDENTIAL EQUITY INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
--------------------------------------------------------------------
Year Ended October 31,
--------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year........................ $ 18.57 $ 20.93 $ 15.39 $ 14.36 $ 14.00
---------- ---------- ---------- ---------- --------
Income from investment operations
Net investment income..................................... .19 .29 .29 .39 .37
Net realized and unrealized gain (loss) on investment
transactions........................................... .58 (.48) 6.29 1.71 .95
---------- ---------- ---------- ---------- --------
Total from investment operations....................... .77 (.19) 6.58 2.10 1.32
---------- ---------- ---------- ---------- --------
Less distributions
Dividends from net investment income...................... (.19) (.28) (.30) (.37) (.44)
Dividends in excess of net investment income.............. (.03) -- -- -- --
Distributions from net realized gains..................... (1.06) (1.89) (.74) (.70) (.52)
---------- ---------- ---------- ---------- --------
Total distributions.................................... (1.28) (2.17) (1.04) (1.07) (.96)
---------- ---------- ---------- ---------- --------
Net asset value, end of year.............................. $ 18.06 $ 18.57 $ 20.93 $ 15.39 $ 14.36
---------- ---------- ---------- ---------- --------
---------- ---------- ---------- ---------- --------
TOTAL RETURN(a):.......................................... 4.25% (1.35)% 44.60% 15.12% 10.29%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)............................. $1,006,346 $1,299,962 $1,250,216 $ 929,948 $906,793
Average net assets (000).................................. $1,200,663 $1,391,826 $1,072,118 $ 951,220 $911,856
Ratios to average net assets:
Expenses, including distribution fees.................. 1.77% 1.66% 1.69% 1.73% 1.78%
Expenses, excluding distribution fees.................. .77% .66% .69% .73% .78%
Net investment income.................................. .98% 1.44% 1.60% 2.51% 2.66%
</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 year reported and includes reinvestment of dividends and
distributions.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 15
<PAGE>
Financial Highlights PRUDENTIAL EQUITY INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
-----------------------------------------------------
Year Ended October 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year........................ $ 18.57 $ 20.93 $ 15.39 $14.36 $14.00
------- ------- ------- ------ ------
Income from investment operations
Net investment income..................................... .19 .30 .37 .38 .40
Net realized and unrealized gain (loss) on investment
transactions........................................... .58 (.49) 6.21 1.72 .92
------- ------- ------- ------ ------
Total from investment operations....................... .77 (.19) 6.58 2.10 1.32
------- ------- ------- ------ ------
Less distributions
Dividends from net investment income...................... (.19) (.28) (.30) (.37) (.44)
Dividends in excess of net investment income.............. (.03) -- -- -- --
Distributions from net realized gains..................... (1.06) (1.89) (.74) (.70) (.52)
------- ------- ------- ------ ------
Total distributions.................................... (1.28) (2.17) (1.04) (1.07) (.96)
------- ------- ------- ------ ------
Net asset value, end of year.............................. $ 18.06 $ 18.57 $ 20.93 $15.39 $14.36
------- ------- ------- ------ ------
------- ------- ------- ------ ------
TOTAL RETURN(a):.......................................... 4.25% (1.35)% 44.60% 15.12% 10.29%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)............................. $33,685 $37,988 $17,911 $8,511 $4,586
Average net assets (000).................................. $36,981 $31,345 $11,432 $6,730 $3,132
Ratios to average net assets:
Expenses, including distribution fees.................. 1.77% 1.66% 1.69% 1.73% 1.78%
Expenses, excluding distribution fees.................. .77% .66% .69% .73% .78%
Net investment income.................................. .98% 1.47% 1.53% 2.51% 2.57%
</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 year reported and includes reinvestment of dividends and
distributions.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 16
<PAGE>
Financial Highlights PRUDENTIAL EQUITY INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class Z
-------------------------------------------------
March 1,
1996(c)
Year Ended October 31, Through
--------------------------------- October 31,
1999 1998 1997 1996
-------- -------- ------- -----------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...................... $ 18.64 $ 21.00 $ 15.42 $ 15.13
-------- -------- ------- -----------
Income from investment operations
Net investment income..................................... .38 .52 .36 .38
Net realized and unrealized gain (loss) on investment
transactions........................................... .58 (.51) 6.43 .30
-------- -------- ------- -----------
Total from investment operations....................... .96 .01 6.79 .68
-------- -------- ------- -----------
Less distributions
Dividends from net investment income...................... (.38) (.48) (.47) (.39)
Dividends in excess of net investment income.............. (.03) -- -- --
Distributions from net realized gains..................... (1.06) (1.89) (.74) --
-------- -------- ------- -----------
Total distributions.................................... (1.47) (2.37) (1.21) (.39)
-------- -------- ------- -----------
Net asset value, end of period............................ $ 18.13 $ 18.64 $ 21.00 $ 15.42
-------- -------- ------- -----------
-------- -------- ------- -----------
TOTAL RETURN(a):.......................................... 5.28% (.40)% 46.12% 4.55%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........................... $136,529 $142,918 $74,956 $44,509
Average net assets (000).................................. $144,747 $103,474 $57,369 $24,641
Ratios to average net assets:
Expenses, including distribution fees.................. .77% .66% .69% .73%(b)
Expenses, excluding distribution fees.................. .77% .66% .69% .73%(b)
Net investment income.................................. 1.97% 2.49% 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 Z shares.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 17
<PAGE>
Report of Independent Accountants PRUDENTIAL EQUITY INCOME FUND
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
Prudential Equity Income Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Equity Income Fund (the
'Fund') at October 31, 1999, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the three years in the
period then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
'financial statements') are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at October
31, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above. The accompanying financial highlights for
each of the two periods in the period ended October 31, 1996 were audited by
other independent accountants, whose opinion dated December 5, 1996 was
unqualified.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
December 28, 1999
- --------------------------------------------------------------------------------
18
<PAGE>
Federal Income Tax Information (Unaudited) PRUDENTIAL EQUITY INCOME FUND
- --------------------------------------------------------------------------------
We are required by the Internal Revenue Code to advise you within 60 days of the
Fund's fiscal year end (October 31, 1999) as to the federal tax status of
dividends paid by the Fund during its fiscal year ended October 31, 1999.
During the fiscal year ended October 31, 1999, the Fund paid dividends of $1.42
per Class A share, $1.28 per Class B share, $1.28 per Class C share and $1.47
per Class Z share. Of these amounts, $.69 per Class A, B, C and Z shares
represent distributions from long-term capital gains which is taxable at 20%
rate gain. The remaining $.73 per Class A share, $.585 per Class B share, $.585
per Class C share and $.775 per Class Z share represents dividends from ordinary
income (net investment income and short-term capital gains). The Fund utilized
redemptions as distributions in the amount of $.09 and $.09 per Class A, Class
B, Class C and Class Z shares of short-term capital gains and long-term capital
gains, respectively. Further, we wish to advise you that 67.6% of the ordinary
income dividends paid in the fiscal year ended October 31, 1999 qualified for
the corporate dividends received deduction available to corporate taxpayers.
For the purpose of preparing your annual federal income tax return, however,
you should report the amounts as reflected on the appropriate Form 1099-DIV or
substitute Form 1099.
- --------------------------------------------------------------------------------
19
<PAGE>
<PAGE>
Comparing a $10,000 Investment
- ------------------------------------------------------
Prudential Equity Income Fund vs. the S&P 500 Index
Class A Average Annual Total Returns
(GRAPH) As of 10/31/99
With Sales Load
Since Inception 12.78%
Five Years 13.23%
One Year -0.22%
Without Sales Load
Since Inception 13.38%
Five Years 14.40%
One Year 5.03%
Class B Average Annual Total Returns
(GRAPH) As of 10/31/99
With Sales Load
Since Inception 11.22%
Ten Years 11.98%
Five Years 13.43%
One Year -0.75%
Without Sales Load
Since Inception 11.22%
Ten Years 11.98%
Five Years 13.55%
One Year 4.25%
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. The information beneath
the graphs is designed to give you an idea of how much
the Fund's returns can fluctuate from year to year by
measuring the best and worst calendar years in terms of
total annual return since inception of each share class
(or for the past ten years for Class B shares).
These graphs compare a $10,000 investment in Prudential
Equity Income Fund (Class A, B, C, and Z shares) with a
similar investment in the Standard & Poor's 500 Composite
Stock Price Index (S&P 500 Index) by portraying the initial
account values of Class A, C, and Z shares at the commencement
of operations, at the beginning of the ten-year period for
Class B shares, and at the end of the fiscal year (October
31), as measured on a quarterly basis, beginning in 1990
for Class A, 1989 for Class B, 1994 for Class C, and 1996
for Class Z shares. For purposes of the graphs, and unless
otherwise indicated, it has been assumed that (a) the
maximum applicable front-end sales charge was deducted
from the initial $10,000 investment in
<PAGE>
Class C Average Annual Total Returns
(GRAPH) As of 10/31/99
With Sales Load
Since Inception 12.75%
Five Years 13.32%
One Year 2.20%
Without Sales Load
Since Inception 12.97%
Five Years 13.55%
One Year 4.25%
Class Z Average Annual Total Returns
(GRAPH) As of 10/31/99
Since Inception 13.72%
One Year 5.28%
Class A and Class C shares; (b) the maximum applicable
contingent deferred sales charges were deducted from the
value of the investment in Class B and Class C shares,
assuming full redemption on October 31, 1999; (c) all
recurring fees (including management fees) were deducted;
and (d) all dividends and distributions were reinvested.
Class B shares will automatically convert to Class A
shares, on a quarterly basis, approximately seven years
after purchase. This conversion feature is not
reflected in the graphs. Class Z shares are not subject
to a sales charge or distribution and service (12b-1) fees.
The S&P 500 Index is an unmanaged index of 500 stocks
of large U.S. companies that gives a broad look at how
stock prices have performed. The Index returns include
the reinvestment of all dividends, but do not include
the effect of sales charges or operating expenses of a
mutual fund. The securities in the Index may differ
substantially from the securities in the Fund. The
Index is not the only one that may be used to
characterize performance of equity funds, and
other indexes may portray different comparative
performance. Investors cannot invest directly in
an index.
These graphs are furnished to you in accordance with SEC regulations.
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Class NASDAQ Cusip
A PBEAX 743916207
B PBQIX 743916108
C PEICX 743916306
Z PEIZX 743916405
Trustees
Edward D. Beach
Delayne Dedrick Gold
Robert F. Gunia
Douglas H. McCorkindale
Thomas T. Mooney
Stephen P. Munn
David R. Odenath, Jr.
Richard A. Redeker
Robin B. Smith
John R. Strangfeld
Louis A. Weil, III
Clay T. Whitehead
Officers
John R. Strangfeld, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Marguerite E.H. Morrison, Secretary
Stephen M. Ungerman, Assistant Treasurer
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 Investment Management Services LLC
Gateway Center Three
100 Mulberry Street, Newark, NJ 07102-4077
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
PricewaterhouseCoopers 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
Prudential Investments is a unit of The Prudential Insurance
Company of America, 751 Broad Street, Newark, NJ 07102.
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.
This report is not authorized for distribution to
prospective investors unless preceded or accompanied
by a current prospectus.
MF131E
