-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RZMvohpmJR4mqGPhbUhzrBcHQMD8Ko8BpLbiAlXp/JsCeRl+26+HIZ5Mw1yu1Iom zf2u/7sgXFLC64psWFGPrQ== 0000898733-00-000134.txt : 20000310 0000898733-00-000134.hdr.sgml : 20000310 ACCESSION NUMBER: 0000898733-00-000134 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000309 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRUDENTIAL EQUITY FUND CENTRAL INDEX KEY: 0000356683 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 133104589 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-03336 FILM NUMBER: 564885 BUSINESS ADDRESS: STREET 1: 100 MULBERRY STREET CITY: NEWARK STATE: NJ ZIP: 07102 BUSINESS PHONE: 9733677473 MAIL ADDRESS: STREET 1: 100 MULBERRY STREET CITY: NEWARK STATE: NJ ZIP: 07102 FORMER COMPANY: FORMER CONFORMED NAME: PRUDENTIAL BACHE EQUITY FUND INC DATE OF NAME CHANGE: 19920603 FORMER COMPANY: FORMER CONFORMED NAME: CHANCELLOR EQUITY FUND INC DATE OF NAME CHANGE: 19830509 N-30D 1 PRUDENTIAL EQUITY FUND, INC. (LOGO) ANNUAL REPORT DECEMBER 31, 1999 Prudential Equity Fund, Inc. (GRAPHIC) A Message from the Fund's President February 3, 2000 (PHOTO) Dear Shareholder, Prudential Equity Fund returned 12.50% (Class A shares) in 1999. It was helped by a surge of value-style stocks in the second quarter, but this broad-based value rally was not sustained. The Fund's returns were supported by its industrial commodities--including oil companies--and by its investment banks. However, Tandy, which owns the Radio Shack chain, was among its largest holdings for most of the year, and made the largest single contribution to its return. Its hospital management and tobacco companies performed poorly. New benchmark Our benchmark in this report reflects the new categories for mutual funds introduced by Lipper Inc. in September 1999. Funds are now classified by their actual holdings instead of by their objectives. They are in peer groups with the same investment style--value, growth, or core--and with holdings of the same general market capitalization--small-, mid-, large-, or multi-cap (for diversified market capitalizations). Prudential Equity Fund is classified as a multi-cap value fund because it currently holds less of the companies with giant-sized capitalizations than the S&P 500 and much more of companies with mid-sized capitalizations. The Fund has this focus because the strong market preference for larger-cap companies in recent years has not left many value opportunities there. Because the value investing style has been out of favor, Lipper's new classification shows the Fund's stock selection to better advantage. Prudential Equity Fund (Class A shares) beat the 7.78% Lipper Average of funds investing with a similar style by more than 4 1/2 percentage points. Moreover, it has had above-average performance compared with this peer group of value investors over the past three- and ten-year periods. Style diversification Recently, growth investing has had an unusually long run of outperforming value. Historically, each style has had periods of superior performance that eventually come to an end. Prudential recommends owning funds in both stock investment styles so that you may have a more consistent return over such changes in market favor. In the following pages, Tom Jackson explains why he thinks value investing has trailed recently, and what has affected his investment performance. Sincerely, John R. Strangfeld President Prudential Equity Fund, Inc. Performance Review (PHOTO) Thomas R. Jackson Fund Manager Investment Goals and Style Prudential Equity Fund invests primarily in stocks of major, established companies, located mostly in the United States. The Fund looks for bargains in the current market, using a strict value investment style. We look for stocks whose prices seem too low given their underlying earnings, cash flow, or book value. Historically, stocks that are inexpensive on these value measures subsequently have tended to outperform the market averages. Of course, there can be no assurance that past trends will continue or that the Fund will achieve its investment objective of long-term growth of capital. Although our return in 1999 was well ahead of the Lipper Average of similar value-oriented funds, it trailed the S&P 500 substantially. Many shareholders were disappointed. I'd like to explain what I think is happening, and why I'm sticking to my strategy. New economy/old economy In 1999, the majority (63%) of stocks listed on the New York Stock Exchange actually declined in value. Entire sectors--such as healthcare, consumer staples, and utilities-- had negative average returns, while the strongest gains were concentrated in technology stocks. Many investors believe--and we agree--that technology will transform the way people live and how business is done, but they appear to focus on technology stocks almost to the exclusion of others. I'd like to look more closely at who is going to profit from this technological watershed. Conventional wisdom today contrasts new economy with old economy companies. New economy companies provide information technology equipment or services; old economy companies provide clothing, food, transportation, retail services, financial services, medical care, and industrial goods such as metals, energy commodities, and construction equipment. It is clear that demand for old economy products and services is not going to go away. What does this mean for investors? Opportunities in technology have been attracting both entrepreneurial young people and investment capital to new companies at a rapid rate. As a result, competition is fierce and unpredictable. Many new economy companies make no profits, while many of those that do are likely to find their profits squeezed by new competitors because of the easy Mid-cap is not mid-size Prudential Equity Fund is classified multi-cap because many of its holdings are mid-cap, but this doesn't mean they are small companies. Market capitalization (the total price of all of a company's outstanding shares) is the market's valuation of the company. It is affected by changes in investor favor as well as by company size or earnings potential. As a value fund, we hold many mid-cap stocks because their share prices are currently depressed. This has happened to many very large old economy companies, such as Georgia-Pacific. It is ranked No. 122 in the Fortune 500 and had 1998 sales of $13.2 billion, yet its market cap was only $8.7 billion at year end, in the mid-cap range, because forest product companies have been out of favor. availability of venture financing. While competition may constrain profits, share prices are often at multiples of today's sales that were unheard of until last year. Some investors have done well from this intense activity, especially in the short term, but we think the risks are high. Don't count on old economy companies to forfeit! What about old economy companies? Many are using technological advances to transform their operations. Many manufacturers, including the auto companies, are moving toward building on demand and using Internet-based procurement to reduce costs. Retailers are reducing inventories and eliminating waste. Many businesses are tracking their customers' purchases more closely to improve inventory management. Established retailers with familiar brand names and customer loyalty can add new capacities to their existing strengths. Many, notably bookstores and clothing companies, are now selling from their own websites with the added advantage of having "brick-and-mortar" sites where you can see the actual product or return unwanted goods. Moreover, existing brand franchises give them an advertising cost advantage. When a company with established expertise adds the Performance at a Glance
Cumulative Total Returns1 As of 12/31/99 One Five Ten Since Year Years Years Inception2 Class A 12.50% 134.46% N/A 320.76% Class B 11.69 126.02 270.83% 1343.20 Class C 11.69 126.02 N/A 126.04 Class Z 12.81 N/A N/A 73.00 Lipper Multi-Cap Value Fund Avg.3 7.78 135.37 253.34 ***
Average Annual Total Returns1 As of 12/31/99
One Five Ten Since Year Years Years Inception2 Class A 6.87% 17.37% N/A 14.96% Class B 6.69 17.61 14.00% 16.17 Class C 9.57 17.48 N/A 16.04 Class Z 12.81 N/A N/A 15.37
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 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, 3/15/82; Class C, 8/1/94; and 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 Multi-Cap Value Fund category. The Lipper average is unmanaged. Multi-Cap Value funds, by portfolio practice, invest in a variety of market capitalization ranges without concentrating 75% of their equity assets in any one market capitalization range over an extended period of time. Multi-Cap Value funds will generally have between 25% and 75% of their assets invested in companies with market capitalizations (on a three-year weighted basis) above 300% of the dollar-weighted median market capitalization of the S&P(R) Mid-Cap 400 Index. Multi-Cap Value funds seek long-term growth of capital by investing in companies that are considered undervalued, relative to a major, unmanaged stock index (such as the S&P(R) Mid-Cap 400 Index), based on price/earnings, book value, asset value, or other factors. (R)S&P is a registered trademark of The McGraw-Hill Companies, Inc. ***Lipper Since Inception returns are 275.40% for Class A, 1207.05% for Class B, 135.61% for Class C, and 70.44% for Class Z, based on all funds in each share class. 1 Review Cont'd. benefits of new technology, it is often in a stronger position than an enterprise starting from scratch. Moreover, companies that sell services, such as hospital management, can benefit from improved procurement, while the demand for many of the labor-intensive health services is not likely to be reduced by technology. Here's where we have found value The recent steep advances in growth stocks have increased the value differentials between new and old economy stocks, providing ample opportunities today. Upward pressure on commodity prices Commodity prices are rising across the board--nickel is up 98%, zinc 21%, aluminum 16%, etc. The price of oil more than doubled in 1999, and continues to rise in 2000. Industrial stocks often become value priced when investors are fearful about the economy, and move up rapidly when investors become more optimistic. That happened in 1999. Alcoa (aluminum), one of the Fund's holdings, which also benefited from a tight market in alumina ore and excellent management, had very strong returns in 1999. Our 1999 performance also was enhanced by our largest industry focus: paper companies such as Georgia-Pacific, Mead, Willamette, and Weyerhauser. Worldwide growth in capacity has slowed, as company managers are more reluctant than in the past to build without seeing a respectable return on their investment. Higher operating rates lead to better pricing and higher profits. Integrated oil companies, such as Elf Aquitaine, Atlantic Richfield, and Kerr-McGee, also had strong returns in 1999, benefiting from OPEC's production controls and increasing demand from the reviving Asian economies. We took our profits on Elf Aquitaine. Tandy: classic value We bought Tandy when its price was depressed because of unwise investments in new businesses in which it had no competitive advantage. Now it is focusing on its Radio Shack retail locations, providing sales outlets for the very competitive computer and cellular telephone industries. Its stock rose 140% in 1999, driven by two years of double-digit increases in same-store sales and by strong profit growth. We have taken some profits, but it is still a large holding. Stock market activity is good for broker/investment banks The high rate of stock issuance and merger and acquisition activity, as well as strong investor activity in the markets, benefited our shares in Morgan Stanley Dean Witter, Citigroup, and Lehman Brothers. We took some profits, selling our holdings in American Express and reducing our holdings in Citigroup, Morgan Stanley Dean Witter, and Lehman Brothers. With rising interest rates and stocks at all-time highs, it seemed reasonable to take some of your money off the table. Portfolio Composition Sectors expressed as a percentage of total net assets as of 12/31/99 Consumer Growth 23.3% Industrial 22.1 Finance 18.7 Technology 11.3 Consumer Cyclical 9.5 Utility 6.2 Energy 5.5 Cash & Equivalents 3.4 2 Looking Ahead Growth and value investing styles often have very different returns. In 1999, the S&P/BARRA Growth Index finished 16 percentage points ahead of the corresponding value index, but in 1993, value stocks were 15 percentage points in front. That's an example of why Prudential recommends that shareholders participate in both styles. Over the long run, value investing has been very successful, and the track record of Prudential Equity Fund has been better than that of the average value fund. Reversals in market favor are very difficult, if not impossible, to time. However, rising interest rates have historically been associated with value markets. So have periods of economic expansion. After all, if earnings growth will be widespread, why pay more for it? Value differentials are very broad today, so it is relatively inexpensive to buy value stocks. We think we are well positioned for the future. Five Largest Holdings Expressed as a percentage of net assets as of 12/31/99 Security/Industry % of Net Assets Comments Eastman Kodak Co. Photography 3.3% Inexpensive because it's perceived as old economy. A very strong franchise in photography; adding digital imaging to its product line while increasing sales and earnings. Focused on becoming more cost-competitive. We think the expanding U.S. market for digital photography and the expanding global market for film (which is relatively cheap) mean strong earnings growth. Columbia/HCA Healthcare Corp. Health Care 3.1% Largest hospital chain in the United States. Stock suffered from federal investigation into its Medicare and referral procedures. New management stopped aggressive expansion to focus on getting operations under control. Pricing for the hospital industry appears to have bottomed. Should benefit from growth in healthcare demand as the average age in the United States rises. Tenet Healthcare Corp. Health Care 3.0% Second-largest hospital chain in the United States. Sales were up 10% in 1999. Should benefit from recovery of industry pricing, continued cost-control efforts, and the growth in healthcare demand as the U.S. population ages. Georgia-Pacific Corp. Paper & Forest Products 2.9% Second-largest forest and paper products company in the world. Demand for paper is high, while additional industry capacity is being restrained, leading to rising prices for paper products, rising sales, and higher earnings. Earnings per share at Georgia-Pacific Corp. are particularly sensitive to improvements in industry pricing. Wellpoint Health Networks, Inc. Health Care 2.9% A converted California Blue Cross/Blue Shield company with very strong management, innovative product design, well-above-average enrollment and earnings growth, and high returns on capital. Should benefit from continued growth in the demand for healthcare and the recovery in industry pricing. 3 Portfolio of Investments as of December 31, 1999 PRUDENTIAL EQUITY FUND, INC. - ------------------------------------------------------------ - ------------------------------------------------------------
Shares Description Value (Note 1) - ------------------------------------------------------------ Aluminum--2.8% 1,670,000 Alcoa, Inc. $ 138,610,000 - ------------------------------------------------------------ Apparel--0.4% 641,808 Jones Apparel Group, Inc.(a) 17,409,042 - ------------------------------------------------------------ Automobiles & Trucks--1.5% 377,422 Delphi Automotive Systems Corp. 5,944,396 540,000 General Motors Corp. 39,251,250 404,800 Navistar International Corp.(a) 19,177,400 248,800 PACCAR, Inc. 11,024,950 -------------- 75,397,996 - ------------------------------------------------------------ Banks & Financial Services--8.4% 1,473,134 Bank of America Corp. 73,932,913 1,884,300 Bank of New York Co., Inc. 75,372,000 315,200 Chase Manhattan Corp. 24,487,100 1,182,601 Citigroup, Inc. 65,708,268 196,500 J.P. Morgan & Co., Inc. 24,881,813 609,000 Lehman Brothers Holdings, Inc. 51,574,687 139,612 Mellon Financial Corp. 4,755,534 384,750 Mercantile Bankshares Corp. 12,287,953 383,400 Morgan Stanley Dean Witter & Co. 54,730,350 450,000 Republic New York Corp. 32,400,000 -------------- 420,130,618 - ------------------------------------------------------------ Chemicals--1.0% 828,800 Eastman Chemical Co. 39,523,400 506,900 Wellman, Inc. 9,441,013 -------------- 48,964,413 - ------------------------------------------------------------ Computer Hardware--6.5% 2,973,350 Compaq Computer Corp. 80,466,284 977,000 Hewlett-Packard Co. 111,316,938 2,773,900 Seagate Technology, Inc.(a) 129,159,719 -------------- 320,942,941 Construction & Housing--0.5% 1,100,000 Centex Corp. $ 27,156,250 - ------------------------------------------------------------ Diversified Consumer Products--3.8% 750,000 Gibson Greetings, Inc.(a) 6,726,562 1,600,000 Loews Corp. 97,100,000 3,360,000 Nabisco Group Holdings Corp. 35,700,000 2,147,900 Sara Lee Corp. 47,388,044 -------------- 186,914,606 - ------------------------------------------------------------ Diversified Manufacturing--0.8% 900,000 American Standard Companies, Inc.(a) 41,287,500 - ------------------------------------------------------------ Electronics--4.8% 1,937,700 Arrow Electronics, Inc.(a) 49,169,137 776,300 Avnet, Inc. 46,966,150 2,544,000 Harris Corp. 67,893,000 465,000 Hitachi, Ltd., ADR (Japan) 75,271,875 -------------- 239,300,162 - ------------------------------------------------------------ Fertilizers--0.3% 350,000 Potash Corp. of Saskatchewan, Inc. (Canada) 16,865,625 - ------------------------------------------------------------ Funeral Services--0.4% 3,065,900 Service Corp. International(a) 21,269,681 - ------------------------------------------------------------ Health Care--13.1% 5,191,300 Columbia/HCA Healthcare Corp. 152,169,981 4,270,940 Foundation Health Systems, Inc.(a) 42,442,466 4,359,700 HEALTHSOUTH Corp.(a) 23,433,388 273,226 LifePoint Hospitals, Inc.(a) 3,227,482 963,600 PacifiCare Health Systems, Inc.(a) 51,070,800 6,269,574 Tenet Healthcare Corp.(a) 147,334,989 273,226 Triad Hospitals, Inc.(a) 4,132,543
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 4 Portfolio of Investments as of December 31, 1999 PRUDENTIAL EQUITY FUND, INC. - ------------------------------------------------------------ - ------------------------------------------------------------
Shares Description Value (Note 1) - ------------------------------------------------------------ Health Care (cont'd.) 1,623,500 United HealthCare Corp. $ 86,248,438 2,157,600 Wellpoint Health Networks, Inc.(a) 142,266,750 -------------- 652,326,837 - ------------------------------------------------------------ Hotels & Leisure--0.8% 3,111,700 Hilton Hotels Corp. 29,950,113 967,200 Park Place Entertainment Corp.(a) 12,090,000 -------------- 42,040,113 - ------------------------------------------------------------ Industrial Technology--0.1% 250,200 Gerber Scientific, Inc. 5,488,763 - ------------------------------------------------------------ Insurance--8.3% 552,800 American Financial Group, Inc. 14,580,100 648,164 American General Corp. 49,179,444 1,962,400 AXA Financial, Inc. 66,476,300 1,891,600 Chubb Corp. 106,520,725 2,805,363 Old Republic International Corp. 38,223,071 2,600,700 SAFECO Corp. 64,692,412 1,144,400 St. Paul Companies, Inc. 38,551,975 589,400 Tokio Marine & Fire Insurance Co., Ltd., ADR (Japan) 34,848,275 -------------- 413,072,302 - ------------------------------------------------------------ Metals-Non Ferrous--3.3% 3,461,100 Freeport-McMoRan Copper & Gold, Inc. (Class A)(a) 64,246,669 487,000 Freeport-McMoRan Copper & Gold, Inc. (Class B)(a) 10,287,875 2,758,800 Newmont Mining Corp. 67,590,600 342,335 Phelps Dodge Corp. 22,979,237 -------------- 165,104,381 - ------------------------------------------------------------ Office Equipment & Supplies--0.8% 4,566,000 IKON Office Solutions, Inc. 31,105,875 2,544,000 Lanier Worldwide, Inc.(a) 9,858,000 -------------- 40,963,875 Oil & Gas Exploration/Production--5.6% 300,000 Amerada Hess Corp. $ 17,025,000 912,100 Atlantic Richfield Co. 78,896,650 562,319 Kerr-McGee Corp. 34,863,778 1,100,000 Occidental Petroleum Corp. 23,787,500 1,744,770 Total Fina S.A., ADR (France) 120,825,322 -------------- 275,398,250 - ------------------------------------------------------------ Paper & Forest Products--13.4% 643,900 Fort James Corp. 17,626,763 2,832,500 Georgia-Pacific Corp. 143,749,375 1,046,000 Georgia-Pacific Corp. (Timber Group) 25,757,750 1,616,000 International Paper Co. 91,203,000 2,047,000 Mead Corp. 88,916,562 752,500 Rayonier, Inc. 36,355,156 1,101,500 Temple-Inland, Inc. 72,630,156 1,260,000 Weyerhaeuser Co. 90,483,750 2,112,100 Willamette Industries, Inc. 98,080,644 -------------- 664,803,156 - ------------------------------------------------------------ Photography--3.3% 2,501,400 Eastman Kodak Co. 165,717,750 - ------------------------------------------------------------ Restaurants--2.5% 1,644,200 CKE Restaurants, Inc. 9,659,675 6,457,300 Darden Restaurants, Inc. 117,038,562 -------------- 126,698,237 - ------------------------------------------------------------ Retail--6.1% 1,694,800 Consolidated Stores Corp.(a) 27,540,500 3,110,000 Dillard's, Inc. 62,783,125 6,000,000 Kmart Corp.(a) 60,375,000 1,417,300 Pep Boys - Manny, Moe & Jack 12,932,863 625,000 Sears, Roebuck & Co. 19,023,438 1,845,800 Tandy Corp. 90,790,287 2,125,000 Toys 'R' Us, Inc.(a) 30,414,062 -------------- 303,859,275
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 5 Portfolio of Investments as of December 31, 1999 PRUDENTIAL EQUITY FUND, INC. - ------------------------------------------------------------ - ------------------------------------------------------------
Shares Description Value (Note 1) - ------------------------------------------------------------ Steel - Producers--0.1% 1,373,300 Birmingham Steel Corp.(a) $ 7,295,656 - ------------------------------------------------------------ Telecommunications--4.2% 876,082 ALLTEL Corp. 72,441,030 1,494,650 AT&T Corp. 75,853,488 2,409,900 Loral Space & Communications, Ltd.(a) 58,590,694 -------------- 206,885,212 - ------------------------------------------------------------ Tobacco--1.3% 1,865,000 Philip Morris Companies, Inc. 43,244,687 1,120,000 R.J. Reynolds Tobacco Holdings, Inc. 19,740,000 -------------- 62,984,687 - ------------------------------------------------------------ Utilities--2.1% 170,000 American Electric Power Co., Inc. 5,461,250 570,000 GPU, Inc. 17,064,375 1,130,448 KeySpan Corp. 26,212,263 974,519 Reliant Energy, Inc. 22,292,122 979,600 Unicom Corp. 32,816,600 -------------- 103,846,610 - ------------------------------------------------------------ Waste Management--0.6% 1,580,010 Waste Management, Inc. 27,156,422 -------------- Total long-term investments (cost $3,581,190,842) 4,817,890,360 -------------- Principal Amount (000) SHORT-TERM INVESTMENTS--3.5% - ------------------------------------------------------------ Commercial Paper--2.4% Baus Funding LLC $ 25,000 6.20%, 1/31/00 $ 24,870,833 Falcon Asset Securitization Corp. 38,285 Zero Coupon, 1/13/00 38,208,558 5,050 6.13%, 2/3/00 5,021,623 Old Line Funding Corp. 13,734 6.25%, 1/20/00 13,688,697 Windmill Funding Corp. 25,000 6.10%, 1/27/00 24,889,861 11,000 6.11%, 1/28/00 10,949,593 -------------- Total commercial paper (cost $117,629,165) 117,629,165 -------------- - ------------------------------------------------------------ Repurchase Agreement--1.1% 56,181 Joint Repurchase Agreement Account, 2.83%, 1/3/00 (Note 5) (cost $56,181,000) 56,181,000 -------------- Total short-term investments (cost $173,810,165) 173,810,165 -------------- - ------------------------------------------------------------ Total Investments--100.3% (cost $3,755,001,007; Note 4) 4,991,700,525 Liabilities in excess of other assets--(0.3%) (12,608,015) -------------- Net Assets--100% $4,979,092,510 -------------- --------------
- --------------- (a) Non-income producing security. ADR--American Depository Receipt. - -------------------------------------------------------------------------------- See Notes to Financial Statements. 6 Statement of Assets and Liabilities PRUDENTIAL EQUITY FUND, INC. - -------------------------------------------------------------------------------- Assets December 31, 1999 Investments, at value (cost $3,755,001,007)............................................................. $ 4,991,700,525 Cash.................................................................................................... 253,593 Dividends and interest receivable....................................................................... 8,161,355 Receivable for Fund shares sold......................................................................... 3,698,451 Deferred expenses and other assets...................................................................... 104,707 ----------------- Total assets......................................................................................... 5,003,918,631 ----------------- Liabilities Payable for Fund shares reacquired...................................................................... 17,738,475 Distribution fee payable................................................................................ 2,496,785 Management fee payable.................................................................................. 1,886,139 Accrued expenses and other liabilities.................................................................. 1,429,049 Payable for investments purchased....................................................................... 1,076,517 Forward currency contracts - amount payable to counterparties........................................... 172,486 Deferred Directors' fees................................................................................ 26,670 ----------------- Total liabilities.................................................................................... 24,826,121 ----------------- Net Assets.............................................................................................. $ 4,979,092,510 ----------------- ----------------- Net assets were comprised of: Common stock, at par................................................................................. $ 2,583,012 Paid-in capital in excess of par..................................................................... 3,623,182,029 ----------------- 3,625,765,041 Undistributed net investment income.................................................................. 2,361,582 Accumulated net realized gain on investments......................................................... 114,438,855 Net unrealized appreciation on investments and foreign currencies.................................... 1,236,527,032 ----------------- Net assets, December 31, 1999........................................................................... $ 4,979,092,510 ----------------- ----------------- Class A: Net asset value and redemption price per share ($2,240,249,990 / 116,129,521 shares of common stock issued and outstanding)...................... $19.29 Maximum sales charge (5% of offering price).......................................................... 1.02 ----------------- Maximum offering price to public..................................................................... $20.31 ----------------- ----------------- Class B: Net asset value, offering price and redemption price per share ($2,351,200,014 / 122,077,524 shares of common stock issued and outstanding)...................... $19.26 ----------------- ----------------- Class C: Net asset value and redemption price per share ($82,736,964 / 4,295,877 shares of common stock issued and outstanding)........................... $19.26 Sales charge (1% of offering price).................................................................. .19 ----------------- Offering price to public............................................................................. $19.45 ----------------- ----------------- Class Z: Net asset value, offering price and redemption price per share ($304,905,542 / 15,798,248 shares of common stock issued and outstanding)......................... $19.30 ----------------- -----------------
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 7 PRUDENTIAL EQUITY FUND, INC. Statement of Operations - ------------------------------------------------------------
Year Ended December 31, Net Investment Income 1999 Income Dividends (net of foreign withholding taxes of $1,135,398).................. $ 99,040,729 Interest................................. 12,280,863 ----------------- Total income.......................... 111,321,592 ----------------- Expenses Management fee........................... 24,100,287 Distribution fee--Class A................ 5,543,526 Distribution fee--Class B................ 26,662,689 Distribution fee--Class C................ 860,782 Transfer agent's fees and expenses....... 6,780,000 Reports to shareholders.................. 626,000 Registration fees........................ 290,000 Custodian's fees and expenses............ 281,000 Directors' fees and expenses............. 45,000 Audit fee and expenses................... 30,000 Legal fees and expenses.................. 30,000 Miscellaneous............................ 127,903 ----------------- Total expenses........................ 65,377,187 ----------------- Net investment income....................... 45,944,405 ----------------- Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions Net realized gain (loss) on: Investment transactions.................. 646,667,889 Foreign currency transactions............ (2,950) ----------------- 646,664,939 ----------------- Net change in unrealized appreciation (depreciation) on: Investments.............................. (97,082,959) Foreign currencies....................... (173,241) ----------------- (97,256,200) ----------------- Net gain on investments and foreign currencies............................... 549,408,739 ----------------- Net Increase in Net Assets Resulting from Operations................... $ 595,353,144 ----------------- -----------------
PRUDENTIAL EQUITY FUND, INC. Statement of Changes in Net Assets - ------------------------------------------------------------
Increase (Decrease) Year Ended December 31, in Net Assets 1999 1998 Operations Net investment income..... $ 45,944,405 $ 55,919,449 Net realized gain on investments and foreign currency transactions........... 646,664,939 668,341,418 Net change in unrealized appreciation (depreciation) on investments and foreign currencies............. (97,256,200) (297,985,109) ----------------- --------------- Net increase in net assets resulting from operations............. 595,353,144 426,275,758 ----------------- --------------- Dividends and distributions (Note 1) Dividends from net investment income Class A................ (28,805,414) (28,885,221) Class B................ (13,641,876) (17,096,879) Class C................ (456,451) (476,903) Class Z................ (4,692,283) (4,978,773) ----------------- --------------- (47,596,024) (51,437,776) ----------------- --------------- Distributions from net realized capital gains Class A................ (273,294,379) (155,041,927) Class B................ (312,998,178) (215,519,773) Class C................ (10,688,756) (6,228,203) Class Z................ (38,537,773) (22,058,351) ----------------- --------------- (635,519,086) (398,848,254) ----------------- --------------- Fund share transactions (net of share conversions) (Note 6) Proceeds from shares sold................... 4,402,962,271 6,813,992,163 Net asset value of shares issued in reinvestment of dividends and distributions.......... 655,203,376 431,480,103 Cost of shares reacquired............. (5,601,791,028) (6,953,915,648) ----------------- --------------- Net increase (decrease) in net assets from Fund share transactions..... (543,625,381) 291,556,618 ----------------- --------------- Total increase (decrease).... (631,387,347) 267,546,346 Net Assets Beginning of year............ 5,610,479,857 5,342,933,511 ----------------- --------------- End of year (a).............. $ 4,979,092,510 $ 5,610,479,857 ----------------- --------------- ----------------- --------------- - --------------- (a) Includes undistributed net investment income.... $ 2,361,582 $ 4,016,752 ----------------- --------------- ----------------- ---------------
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 8 Notes to Financial Statements PRUDENTIAL EQUITY FUND, INC. - -------------------------------------------------------------------------------- Prudential Equity Fund, Inc. (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 long-term growth of capital. The Fund invests primarily in common stocks of major, established corporations. - ------------------------------------------------------------ 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: Securities traded on an exchange and NASDAQ National Market System securities are valued at the last reported sales price on the exchange or system on which they are traded or, if no sale was reported on that date, at the mean between the last reported bid and asked prices or at the bid price on such day in the absence of an asked price. Securities traded in the over-the-counter market (including securities listed on exchanges whose primary market is believed to be over-the-counter) are value by an independent pricing agent or principal market maker. Short-term securities which mature in more than 60 days are valued based at current market quotations. Short-term securities which mature in 60 days or less are valued at amortized cost. Securities for which reliable market quotations are not readily available are valued by the Valuation Committee based upon procedures adopted by the Board of Directors in consultation with the manager or subadviser. In connection with transactions in repurchase agreements with U.S. financial institutions, 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. All securities are valued as of 4:15 p.m., New York time. 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 rate 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 year, 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 securities held at the end of the year. 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 portfolio securities sold during the year. Net realized gains or losses on foreign currency transactions represent net foreign exchange gains or losses from sales and maturities of short-term securities, disposition of foreign currency, gains or losses realized between the trade and settlement dates of security transactions, and the difference between amounts of dividends, interest and foreign withholding 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 and liabilities at year end exchange rates are reflected as a component of unrealized appreciation or depreciation on investments and foreign currencies. Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of domestic origin as a result of, among other factors, the possibility of political and economic instability and the level of governmental supervision and regulation of foreign securities markets. Forward Currency Contracts: A forward currency contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The Fund enters into forward currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings or on specific receivables and payables denominated in a foreign currency. The contracts are valued daily at current exchange rates and any unrealized gain or loss is included in net unrealized appreciation or depreciation on investments. Gain or loss is realized on the settlement date of the contract equal to the difference between the settlement value of the original and renegotiated forward contracts. This gain or loss, if any, is included in net realized gain (loss) on foreign currency transactions. Risks may arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts. 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 and 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. - -------------------------------------------------------------------------------- 9 Notes to Financial Statements PRUDENTIAL EQUITY FUND, INC. - -------------------------------------------------------------------------------- Net investment income (other than distribution fees) and unrealized and realized gains or losses are allocated daily to each class of shares based upon the relative proportion of net assets of each class at the beginning of the day. Dividends and Distributions: Dividends from net investment income are declared and paid semi-annually. The Fund will distribute at least annually net capital gains in excess of capital loss carryforwards, if any. 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. 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 and net capital gains, if any, 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 rules and rates. Reclassification of Capital Accounts: The Fund accounts and reports for distributions to shareholders in accordance with the American Institute of Certified Public Accountants' Statement of Position 93-2: Determination, Disclosure, and Financial Statement Presentation of Income, Capital Gain, and Return of Capital Distributions by Investment Companies. The effect of applying this statement was to decrease undistributed net investment income and increase accumulated net realized gain on investments and foreign currencies by $3,551. Net investment income, net realized gains and net assets were not affected by this change. - ------------------------------------------------------------ Note 2. Agreements The Fund has a management agreement with Prudential 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 .50 of 1% of the Fund's average daily net assets up to $500 million, .475 of 1% of the next $500 million of average daily net assets and .45 of 1% of the Fund's average daily net assets in excess of $1 billion. The Fund has a distribution agreement with Prudential Investment Management Services LLC ('PIMS'). 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 by PIMS. 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 Class A, Class B and Class C Plans were .25%, 1% and 1%, respectively, of the average daily net assets of Class A, Class B and Class C shares for the year ended December 31, 1999. PIMS has advised the Fund that it has received approximately $910,100 and $136,300 in front-end sales charges resulting from sales of Class A and Class C shares, respectively, during the year ended December 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 December 31, 1999, it received approximately $5,458,200 and $35,600 in contingent deferred sales charges imposed upon certain redemptions by certain Class B and Class C shareholders, respectively. PIFM, PIC and PIMS are wholly owned subsidiaries of The Prudential Insurance Company of America. 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 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 December 31, 1999. The purpose of the agreement is to serve as an alternative source of funding for capital share redemptions. - -------------------------------------------------------------------------------- 10 Notes to Financial Statements PRUDENTIAL EQUITY FUND, INC. - -------------------------------------------------------------------------------- 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 December 31, 1999, the Fund incurred fees of approximately $5,747,900 for the services of PMFS. As of December 31, 1999, approximately $485,200 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 December 31, 1999, Prudential Securities Incorporated, a wholly owned subsidiary of The Prudential Insurance Company of America, earned $264,017 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 December 31, 1999 aggregated $437,959,534 and $667,991,750, respectively. The federal income tax basis of the Fund's investments at December 31, 1999 was substantially the same as for financial reporting purposes and, accordingly, net unrealized appreciation for federal income tax purposes was $1,236,699,518 (gross unrealized appreciation--$1,627,230,044; gross unrealized depreciation--$390,530,526). The Fund will elect to treat net currency losses of approximately $177,100 incurred in the two month period ended December 31, 1999 as having been incurred in the following fiscal year. At December 31, 1999, the Fund had outstanding forward currency contracts to sell foreign currencies as follows:
Value at Forward Currency Settlement Current Sale Contracts Date Receivable Value Depreciation - ------------------------ --------------- ----------- ------------ Japanese Yen, expiring 3/30/2000 $38,626,821 $38,799,307 $ (172,486) --------------- ----------- ------------ --------------- ----------- ------------
- ------------------------------------------------------------ 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 December 31, 1999, the Fund had a 7.93% undivided interest in the joint account. The undivided interest for the Fund represents $56,181,000 in principal amount. As of such date, each repurchase agreement in the joint account and the collateral therefor were as follows: ABN AMRO, Inc., 2.75%, in the principal amount of $90,000,000, repurchase price $90,020,625, due 1/3/2000. The value of the collateral including accrued interest was $91,800,968. Bear, Stearns & Co., Inc., 2.75%, in the principal amount of $210,000,000, repurchase price $210,048,125, due 1/3/2000. The value of the collateral including accrued interest was $221,923,528. Lehman Brothers, Inc., 2.50%, in the principal amount of $100,000,000, repurchase price $100,020,833, due 1/3/2000. The value of the collateral including accrued interest was $101,979,049. Morgan (J.P.) Securities, Inc., 3.00%, in the principal amount of $120,000,000, repurchase price $120,030,000, due 1/3/2000. The value of the collateral including accrued interest was $122,400,783. Morgan (J.P.) Securities, Inc., 4.50%, in the principal amount of $78,685,000, repurchase price $78,714,507, due 1/3/2000. The value of the collateral including accrued interest was $80,259,686. Salomon Smith Barney, Inc., 2.00%, in the principal amount of $110,000,000, repurchase price $110,018,333, due 1/3/2000. The value of the collateral including accrued interest was $112,231,078. - ------------------------------------------------------------ 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 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 qualified to purchase Class A shares at net asset value. Class Z shares are not subject to any sales charge and are offered exclusively for sale to a limited group of investors. There are 1 billion shares of common stock, $.01 par value per share, divided into four classes, designated Class A, Class B, Class C and Class Z common stock, each of which consists of 250 million authorized shares. - -------------------------------------------------------------------------------- 11 Notes to Financial Statements PRUDENTIAL EQUITY FUND, INC. - -------------------------------------------------------------------------------- Transactions in shares of common stock were as follows:
Class A Shares Amount - --------------------------------- ------------ --------------- Year ended December 31, 1999: Shares sold...................... 177,649,766 $ 3,645,037,492 Shares issued in reinvestment of dividends...................... 14,887,348 287,460,109 Shares reacquired................ (203,602,465) (4,166,822,984) ------------ --------------- Net decrease in shares outstanding before conversions.................... (11,065,351) (234,325,383) Shares issued upon conversion from Class B................... 11,272,942 232,069,406 ------------ --------------- Net increase (decrease) in shares outstanding.................... 207,591 $ (2,255,977) ------------ --------------- ------------ --------------- Year ended December 31, 1998: Shares sold...................... 257,279,581 $ 5,379,932,743 Shares issued in reinvestment of dividends...................... 8,698,400 174,395,442 Shares reacquired................ (257,576,459) (5,396,913,633) ------------ --------------- Net increase in shares outstanding before conversions.................... 8,401,522 157,414,552 Shares issued upon conversion from Class B................... 11,176,872 225,279,045 ------------ --------------- Net increase in shares outstanding.................... 19,578,394 $ 382,693,597 ------------ --------------- ------------ --------------- Class B - --------------------------------- Year ended December 31, 1999: Shares sold...................... 28,723,418 $ 588,852,845 Shares issued in reinvestment of dividends...................... 16,308,918 313,982,958 Shares reacquired................ (59,782,294) (1,212,006,187) ------------ --------------- Net decrease in shares outstanding before conversions.................... (14,749,958) (309,170,384) Shares reacquired upon conversion into Class A................... (11,310,483) (232,069,406) ------------ --------------- Net decrease in shares outstanding.................... (26,060,441) $ (541,239,790) ------------ --------------- ------------ --------------- Year ended December 31, 1998: Shares sold...................... 57,870,061 $ 1,203,484,100 Shares issued in reinvestment of dividends...................... 11,185,741 223,571,853 Shares reacquired................ (65,658,297) (1,355,114,612) ------------ --------------- Net increase in shares outstanding before conversions.................... 3,397,505 71,941,341 Shares reacquired upon conversion into Class A................... (11,145,974) (225,279,045) ------------ --------------- Net decrease in shares outstanding.................... (7,748,469) $ (153,337,704) ------------ --------------- ------------ ---------------
Class C Shares Amount - --------------------------------- ------------ --------------- Year ended December 31, 1999: Shares sold...................... 2,648,837 $ 54,352,108 Shares issued in reinvestment of dividends...................... 555,178 10,671,295 Shares reacquired................ (3,410,316) (69,046,229) ------------ --------------- Net decrease in shares outstanding.................... (206,301) $ (4,022,826) ------------ --------------- ------------ --------------- Year ended December 31, 1998: Shares sold...................... 3,508,923 $ 72,836,611 Shares issued in reinvestment of dividends...................... 328,636 6,521,538 Shares reacquired................ (2,977,095) (61,439,724) ------------ --------------- Net increase in shares outstanding.................... 860,464 $ 17,918,425 ------------ --------------- ------------ --------------- Class Z - --------------------------------- Year ended December 31, 1999: Shares sold...................... 5,576,859 $ 114,719,826 Shares issued in reinvestment of dividends...................... 2,230,904 43,089,014 Shares reacquired................ (7,591,295) (153,915,628) ------------ --------------- Net increase in shares outstanding.................... 216,468 $ 3,893,212 ------------ --------------- ------------ --------------- Year ended December 31, 1998: Shares sold...................... 7,643,141 $ 157,738,709 Shares issued in reinvestment of dividends...................... 1,343,793 26,991,270 Shares reacquired................ (6,851,762) (140,447,679) ------------ --------------- Net increase in shares outstanding.................... 2,135,172 $ 44,282,300 ------------ --------------- ------------ ---------------
- -------------------------------------------------------------------------------- 12 Financial Highlights PRUDENTIAL EQUITY FUND, INC. - --------------------------------------------------------------------------------
Class A ---------------------------------------------------------------------- Year Ended December 31, ---------------------------------------------------------------------- 1999 1998 1997 1996 1995 ---------- ---------- ---------- ---------- ---------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of year........................ $ 19.76 $ 19.85 $ 17.26 $ 16.44 $ 13.24 ---------- ---------- ---------- ---------- ---------- Income from investment operations Net investment income.......... .26 .31 .38 .35 .27 Net realized and unrealized gain on investments and foreign currencies.......... 2.15 1.37 3.70 2.52 3.88 ---------- ---------- ---------- ---------- ---------- Total from investment operations............... 2.41 1.68 4.08 2.87 4.15 ---------- ---------- ---------- ---------- ---------- Less distributions Dividends from net investment income...................... (.27) (.28) (.36) (.35) (.27) Distributions in excess of net investment income........... -- -- -- (.01) -- Distributions from net realized capital gains............... (2.61) (1.49) (1.13) (1.69) (.68) ---------- ---------- ---------- ---------- ---------- Total distributions......... (2.88) (1.77) (1.49) (2.05) (.95) ---------- ---------- ---------- ---------- ---------- Net asset value, end of year... $ 19.29 $ 19.76 $ 19.85 $ 17.26 $ 16.44 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL RETURN(a):............... 12.50% 8.41% 23.88% 17.94% 31.58% RATIOS/SUPPLEMENTAL DATA: Net assets, end of year (000)....................... $2,240,250 $2,290,659 $1,912,802 $1,443,466 $1,158,111 Average net assets (000)....... $2,217,410 $2,088,616 $1,709,030 $1,233,792 $ 908,365 Ratios to average net assets: Expenses, including distribution fees........ .86% .85% .88% .89% .91% Expenses, excluding distribution fees........ .61% .60% .63% .64% .66% Net investment income....... 1.25% 1.41% 1.87% 2.07% 1.82% For Class A, B, C and Z shares: Portfolio turnover.......... 9% 25% 13% 19% 18%
- --------------- (a) Total return does not consider the effects of sales loads. Total return is calculated assuming a purchase of shares on the first day and a sale on the last day of each period reported and includes reinvestment of dividends and distributions. - -------------------------------------------------------------------------------- See Notes to Financial Statements. 13 Financial Highlights PRUDENTIAL EQUITY FUND, INC. - --------------------------------------------------------------------------------
Class B ---------------------------------------------------------------------- Year Ended December 31, ---------------------------------------------------------------------- 1999 1998 1997 1996 1995 ---------- ---------- ---------- ---------- ---------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of year........................ $ 19.73 $ 19.83 $ 17.24 $ 16.43 $ 13.24 ---------- ---------- ---------- ---------- ---------- Income from investment operations Net investment income.......... .13 .14 .22 .22 .16 Net realized and unrealized gain on investments and foreign currencies.......... 2.12 1.37 3.72 2.51 3.87 ---------- ---------- ---------- ---------- ---------- Total from investment operations............... 2.25 1.51 3.94 2.73 4.03 ---------- ---------- ---------- ---------- ---------- Less distributions Dividends from net investment income...................... (.11) (.12) (.22) (.22) (.16) Distributions in excess of net investment income........... -- -- -- (.01) -- Distributions from net realized capital gains............... (2.61) (1.49) (1.13) (1.69) (.68) ---------- ---------- ---------- ---------- ---------- Total distributions......... (2.72) (1.61) (1.35) (1.92) (.84) ---------- ---------- ---------- ---------- ---------- Net asset value, end of year... $ 19.26 $ 19.73 $ 19.83 $ 17.24 $ 16.43 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL RETURN(a):............... 11.69% 7.55% 23.05% 17.14% 30.62% RATIOS/SUPPLEMENTAL DATA: Net assets, end of year (000)....................... $2,351,200 $2,923,060 $3,090,767 $2,626,479 $2,140,895 Average net assets (000)....... $2,666,269 $3,135,980 $2,924,413 $2,417,900 $1,891,160 Ratios to average net assets: Expenses, including distribution fees........ 1.61% 1.60% 1.63% 1.64% 1.66% Expenses, excluding distribution fees........ .61% .60% .63% .64% .66% Net investment income....... .49% .66% 1.12% 1.37% .99%
- --------------- (a) Total return does not consider the effects of sales loads. Total return is calculated assuming a purchase of shares on the first day and a sale on the last day of each period reported and includes reinvestment of dividends and distributions. - -------------------------------------------------------------------------------- See Notes to Financial Statements. 14 Financial Highlights PRUDENTIAL EQUITY FUND, INC. - --------------------------------------------------------------------------------
Class C Class Z ------------------------------------------------------- ---------------------------------- Year Ended December 31, Year Ended December 31, ------------------------------------------------------- ---------------------------------- 1999 1998 1997 1996 1995 1999 1998 1997 ------- ------- ------- ------- ------- -------- -------- -------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period...................... $ 19.73 $ 19.83 $ 17.24 $ 16.43 $ 13.24 $ 19.76 $ 19.87 $ 17.26 ------- ------- ------- ------- ------- -------- -------- -------- Income from investment operations Net investment income.......... .10 .16 .25 .22 .16 .31 .35 .42 Net realized and unrealized gain on investments and foreign currencies.......... 2.15 1.35 3.69 2.51 3.87 2.16 1.36 3.72 ------- ------- ------- ------- ------- -------- -------- -------- Total from investment operations............... 2.25 1.51 3.94 2.73 4.03 2.47 1.71 4.14 ------- ------- ------- ------- ------- -------- -------- -------- Less distributions Dividends from net investment income...................... (.11) (.12) (.22) (.22) (.16) (.32) (.33) (.40) Distributions in excess of net investment income........... -- -- -- (.01) -- -- -- -- Distributions from net realized capital gains............... (2.61) (1.49) (1.13) (1.69) (.68) (2.61) (1.49) (1.13) ------- ------- ------- ------- ------- -------- -------- -------- Total distributions......... (2.72) (1.61) (1.35) (1.92) (.84) (2.93) (1.82) (1.53) ------- ------- ------- ------- ------- -------- -------- -------- Net asset value, end of period...................... $ 19.26 $ 19.73 $ 19.83 $ 17.24 $ 16.43 $ 19.30 $ 19.76 $ 19.87 ------- ------- ------- ------- ------- -------- -------- -------- ------- ------- ------- ------- ------- -------- -------- -------- TOTAL RETURN(a):............... 11.69% 7.55% 23.05% 17.14% 30.62% 12.81% 8.56% 24.29% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000)....................... $82,737 $88,839 $72,244 $47,477 $23,894 $304,906 $307,921 $267,121 Average net assets (000)....... $86,078 $82,907 $60,434 $36,745 $12,190 $302,528 $311,816 $ 57,646 Ratios to average net assets: Expenses, including distribution fees........ 1.61% 1.60% 1.63% 1.64% 1.66% .61% .60% .63% Expenses, excluding distribution fees........ .61% .60% .63% .64% .66% .61% .60% .63% Net investment income....... .50% .67% 1.11% 1.37% 1.03% 1.50% 1.67% 2.11% March 1, 1996(c) Through December 31, 1996 ------------ PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period...................... $ 17.10 ------------ Income from investment operations Net investment income.......... .37 Net realized and unrealized gain on investments and foreign currencies.......... 1.88 ------------ Total from investment operations............... 2.25 ------------ Less distributions Dividends from net investment income...................... (.39) Distributions in excess of net investment income........... (.01) Distributions from net realized capital gains............... (1.69) ------------ Total distributions......... (2.09) ------------ Net asset value, end of period...................... $ 17.26 ------------ ------------ TOTAL RETURN(a):............... 13.65% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000)....................... $128,752 Average net assets (000)....... $124,631 Ratios to average net assets: Expenses, including distribution fees........ .64%(b) Expenses, excluding distribution fees........ .64%(b) Net investment income....... 2.43%(b)
- --------------- (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. 15 Report of Independent Accountants PRUDENTIAL EQUITY FUND, INC. - -------------------------------------------------------------------------------- To the Shareholders and Board of Directors of Prudential Equity Fund, Inc. 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 Fund, Inc. (the 'Fund') at December 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 periods presented, in conformity with accounting principles generally accepted in the United States. 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 in the United States 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 December 31, 1999 by correspondence with the custodian and brokers, provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, New York February 11, 2000 Tax Information (Unaudited) PRUDENTIAL EQUITY FUND, INC. - -------------------------------------------------------------------------------- We are required by the Internal Revenue Code to advise you within 60 days of the Fund's fiscal year end (December 31, 1999) as to the federal tax status of dividends paid by the Fund during its fiscal year ended December 31, 1999. During 1999, the Fund paid dividends of $2.876 per Class A share, $2.715 per Class B share, $2.715 per Class C share and $2.926 per Class Z share. Of these amounts, $2.41 per Class A, B, C and Z shares represent distributions from long-term capital gains and is taxable as such. The remaining $0.466 per Class A share, $0.305 per Class B share, $0.305 per Class C share and $0.516 per Class Z share represent dividends from ordinary income (net investment income and short-term capital gains). Further, we wish to advise you that 98.66% of the ordinary income dividends paid in 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 1099-DIV. - -------------------------------------------------------------------------------- 16 Getting the Most from Your Prudential Mutual Fund How many times have you read these reports--or other financial materials-- and stumbled across a word that you don't understand? Many shareholders have run into the same problem. We'd like to help. So we'll use this space from time to time to explain some of the words you might have read, but not understood. And if you have a favorite word that no one can explain to your satisfaction, please write to us. Basis Point: 1/100th of 1%. For example, one-half of one percent is 50 basis points. Collateralized Mortgage Obligations (CMOs): Mortgage-backed bonds that separate mortgage pools into different maturity classes, called tranches. These instruments are sensitive to changes in interest rates and homeowner refinancing activity. They are subject to prepayment and maturity extension risk. Derivatives: Securities that derive their value from other securities. The rate of return of these financial instruments rises and falls--sometimes very suddenly--in response to changes in some specific interest rate, currency, stock, or other variable. Discount Rate: The interest rate charged by the Federal Reserve on loans to member banks. Federal Funds Rate: The interest rate charged by one bank to another on overnight loans. Futures Contract: An agreement to purchase or sell a specific amount of a commodity or financial instrument at a set price at a specified date in the future. Leverage: The use of borrowed assets to enhance return. The expectation is that the interest rate charged on borrowed funds will be lower than the return on the investment. While leverage can increase profits, it can also magnify losses. Liquidity: The ease with which a financial instrument (or product) can be bought or sold (converted into cash) in the financial markets. Price/Earnings Ratio: The price of a share of stock divided by the earnings per share for a 12-month period. Option: An agreement to purchase or sell something, such as shares of stock, by a certain time for a specified price. An option need not be exercised. Spread: The difference between two values; often used to describe the difference between "bid" and "asked" prices of a security, or between the yields of two similar maturity bonds. Yankee Bond: A bond sold by a foreign company or government in the U.S. market and denominated in U.S. dollars. Comparing a $10,000 Investment - -------------------------------------------------------- Prudential Equity Fund, Inc. vs. the S&P 500 Index Class A (GRAPH) Average Annual Total Returns With Sales Charge As of 12/31/99 Since Inception 14.96% Five Years 17.37% One Year 6.87% Without Sales Charge As of 12/31/99 Since Inception 15.56% Five Years 18.58% One Year 12.50% Class B (GRAPH) Average Annual Total Returns With Sales Charge As of 12/31/99 Since Inception 16.17% Ten Years 14.00% Five Years 17.61% One Year 6.69% Without Sales Charge As of 12/31/99 Since Inception 16.17% Ten Years 14.00% Five Years 17.71% One Year 11.69% 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 canfluctuate 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 the Prudential Equity Fund, Inc. (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 (December 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 Class A and Class C Class C (GRAPH) Average Annual Total Returns With Sales Charge As of 12/31/99 Since Inception 16.04% Five Years 17.48% One Year 9.57% Without Sales Charge As of 12/31/99 Since Inception 16.25% Five Years 17.71% One Year 11.69% Class Z (GRAPH) Average Annual Total Returns As of 12/31/99 Since Inception 15.37% One Year 12.81% 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 December 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. It gives a broad look at how stock prices have performed. The S&P 500 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. The Prudential Mutual Fund Family Prudential offers a broad range of mutual funds designed to meet your individual needs. For information about these funds, contact your financial adviser or call us at (800) 225-1852. Read the prospectus carefully before you invest or send money. STOCK FUNDS Prudential Emerging Growth Fund, Inc. Prudential Equity Fund, Inc. Prudential Equity Income Fund Prudential Index Series Fund Prudential Small-Cap Index Fund Prudential Stock Index Fund The Prudential Investment Portfolios, Inc. Prudential Jennison Growth Fund Prudential Jennison Growth & Income Fund Prudential Mid-Cap Value Fund Prudential Real Estate Securities Fund Prudential Sector Funds, Inc. Prudential Financial Services Fund Prudential Health Sciences Fund Prudential Technology Fund Prudential Utility Fund Prudential Small-Cap Quantum Fund, Inc. Prudential Small Company Value Fund, Inc. Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund Prudential 20/20 Focus Fund Nicholas-Applegate Fund, Inc. Nicholas-Applegate Growth Equity Fund Target Funds Large Capitalization Growth Fund Large Capitalization Value Fund Small Capitalization Growth Fund Small Capitalization Value Fund Asset Allocation/Balanced Funds Prudential Balanced Fund Prudential Diversified Funds Conservative Growth Fund Moderate Growth Fund High Growth Fund The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund GLOBAL FUNDS Global Stock Funds Prudential Developing Markets Fund Prudential Developing Markets Equity Fund Prudential Latin America Equity Fund Prudential Europe Growth Fund, Inc. Prudential Global Genesis Fund, Inc. Prudential Index Series Fund Prudential Europe Index Fund Prudential Pacific Index Fund Prudential Natural Resources Fund, Inc. Prudential Pacific Growth Fund, Inc. Prudential World Fund, Inc. Prudential Global Growth Fund Prudential International Value Fund Prudential Jennison International Growth Fund Global Utility Fund, Inc. Target Funds International Equity Fund Global Bond Funds Prudential Global Total Return Fund, Inc. Prudential International Bond Fund, Inc. BOND FUNDS Taxable Bond Funds Prudential Diversified Bond Fund, Inc. Prudential Government Income Fund, Inc. Prudential Government Securities Trust Short-Intermediate Term Series Prudential High Yield Fund, Inc. Prudential High Yield Total Return Fund, Inc. Prudential Index Series Fund Prudential Bond Market Index Fund Prudential Structured Maturity Fund, Inc. Income Portfolio Target Funds Total Return Bond Fund Tax-Exempt Bond Funds Prudential California Municipal Fund California Series California Income Series Prudential Municipal Bond Fund High Income Series Insured Series Prudential Municipal Series Fund Florida Series Massachusetts Series New Jersey Series New York Series North Carolina Series Ohio Series Pennsylvania Series Prudential National Municipals Fund, Inc. MONEY MARKET FUNDS Taxable Money Market Funds Cash Accumulation Trust Liquid Assets Fund National Money Market Fund Prudential Government Securities Trust Money Market Series U.S. Treasury Money Market Series Prudential Special Money Market Fund, Inc. Money Market Series Prudential MoneyMart Assets, Inc. Tax-Free Money Market Funds Prudential Tax-Free Money Fund, Inc. Prudential California Municipal Fund California Money Market Series Prudential Municipal Series Fund Connecticut Money Market Series Massachusetts Money Market Series New Jersey Money Market Series New York Money Market Series Command Funds Command Money Fund Command Government Fund Command Tax-Free Fund Institutional Money Market Funds Prudential Institutional Liquidity Portfolio, Inc. Institutional Money Market Series Prudential Mutual Funds Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 (800) 225-1852 Fund Symbols NASDAQ CUSIP Class A PBQAX 744316100 Class B PBQFX 744316209 Class C PRECX 744316308 Class Z PEQZX 744316407 visit our website at www.prudential.com Directors 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 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. (ICON) Printed on Recycled Paper Fund Symbols NASDAQ CUSIP Class A PBQAX 744316100 Class B PBQFX 744316209 Class C PRECX 744316308 Class Z PEQZX 744316407 visit our website at www.prudential.com 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. MF101E (ICON) Printed on Recycled Paper -----END PRIVACY-ENHANCED MESSAGE-----