N-30D 1 mf14964.txt PRU EQUITY FUND - PROSPECTUS -- JUNE 30, 2001 SEMIANNUAL REPORT JUNE 30, 2001 Prudential Equity Fund, Inc. FUND TYPE Large capitalization stock OBJECTIVE Long-term growth of capital (GRAPHIC) 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. (LOGO) Prudential Financial is a service mark of Prudential, Newark, NJ, and its affiliates. Build on the Rock INVESTMENT GOALS AND STYLE The Prudential Equity Fund, Inc. (the Fund) seeks long-term growth of capital by investing primarily in stocks of major, established companies that we believe are in sound financial condition and have the potential for price appreciation greater than broadly based stock indexes. In deciding which stocks to buy, our investment advisers use a blend of investment styles. Under normal conditions, the Fund's assets will be divided among three investment advisers that have somewhat different approaches, with the goal of reducing the performance variability inherent in any one adviser's style. There can be no assurance that the Fund will achieve its investment objective. Portfolio Composition Sectors expressed as a percentage of net assets as of 6/30/01 26.4% Consumer Growth 18.7 Technology 17.9 Finance 11.1 Industrial 9.3 Energy 7.7 Utility 6.4 Consumer Cyclical 2.5 Cash & Equivalents Five Largest Holdings Expressed as a percentage of net assets as of 6/30/01 3.7% Microsoft Corp. Computer Software & Services 1.9 Philip Morris Companies, Inc. Tobacco 1.8 AOL Time Warner, Inc. Multimedia 1.7 IBM Corp. Computer Hardware 1.7 Alcoa, Inc. Aluminum Holdings are subject to change. The Prudential Equity Fund was repositioned in 2000 from a multi-cap value style to a large-cap core style. The current Lipper classification is the Lipper Multi-Cap Value category, but our expectation is for the Fund to be reclassified by Lipper to the Lipper Large-Cap Core Fund category in the near future. www.prudential.com (800) 225-1852 Performance at a Glance Cumulative Total Returns1 As of 6/30/01
Six One Five Ten Since Months Year Years Years Inception2 Class A -6.32% 4.31% 63.39% 239.83% 312.81% Class B -6.69 3.51 57.37 214.95 1299.67 Class C -6.69 3.51 57.37 N/A 119.22 Class Z -6.20 4.58 65.37 N/A 70.31 Lipper Multi-Cap Value Fund Avg.3 1.36 11.37 84.52 286.95 *** Lipper Large-Cap Core Fund Avg.3 -8.56 -15.62 77.48 245.59 ****
Average Annual Total Returns1 As of 6/30/01
One Five Ten Since Year Years Years Inception2 Class A -0.90% 9.19% 12.43% 12.69% Class B -1.49 9.35 12.16 14.65 Class C 1.48 9.27 N/A 11.86 Class Z 4.58 10.58 N/A 10.50
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. Approximately seven years after purchase, Class B shares will automatically convert to Class A shares on a quarterly basis. 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 unmanaged and based on the average return for all funds in each share class for the six- month, one-, five-, and ten-year periods in the Lipper Multi- Cap Value Fund category and the Lipper Large-Cap Core Fund category. Lipper Multi-Cap Value funds invest in a variety of market capitalization ranges. They invest in companies considered to be undervalued and have below-average price/earnings ratios, price-to-book ratios, and three-year earnings growth figures. Lipper Large-Cap Core funds invest at least 75% of their equity assets in companies, with market caps greater than 300% of the dollar-weighted median of the S&P* MidCap 400 Index, have wide latitude in the companies in which they invest, and have average price/earnings ratios, price-to-book ratios, and three-year earnings growth figures. * S&P is a registered trademark of The McGraw-Hill Companies, Inc. *** Lipper Multi-Cap Value Fund Since Inception returns are 341.49% for Class A, 1,444.77% for Class B, 165.11% for Class C, and 92.40% for Class Z, based on all funds in each share class. **** Lipper Large-Cap Core Fund Since Inception returns are 302.78% for Class A, 1,289.92% for Class B, 157.83% for Class C, and 85.62% for Class Z, based on all funds in each share class. 1 (LOGO) August 14, 2001 DEAR SHAREHOLDER, Over the first half of 2001, the Prudential Equity Fund's Class A shares returned -6.32% (-11.00% to those paying the maximum one-time Class A share sales charge), a marginally better return than the -6.69% return of the Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index). Although the Fund has adopted a blend investment style, it is still classified by Lipper as a value fund. Since investors strongly favored value stocks during this reporting period, the Fund trailed the Lipper Multi-Cap Value Fund Average while outperforming the style-neutral Lipper Large-Cap Core Fund Average--the category in which we expect the Fund to soon be placed--by more than two percentage points. We changed the Fund's investment style because we think that a blend style will enhance its performance over time and produce more consistent returns from year to year. In a further effort to reduce the variability of the Fund's performance, we increased the number of its investment advisers during this reporting period. We selected advisers with complementary investment styles so that shifts in market favor from sector to sector should have less impact on the Fund's performance. After a thorough investigation by Prudential's Investment Management Research team, the Board of Directors selected GE Asset Management and Salomon Brothers Asset Management to join Jennison Associates as advisers. Sincerely, David R. Odenath, Jr., President Prudential Equity Fund, Inc. 2 Prudential Equity Fund, Inc. Semiannual Report June 30, 2001 INVESTMENT ADVISERS' REPORT THE FUND BENEFITED FROM A FOCUS ON CONSISTENT EARNERS Earnings consistency was especially important during this half year. A stream of negative quarterly earnings reports and reduced forecasts throughout the period made investors very sensitive to the issue. They reacted strongly to earnings news, both good and bad, and moved their assets to companies that had been consistently profitable. Although the overall market fell, the Fund benefited from its focus on consistent earners such as Microsoft, IBM, and Philip Morris. IBM's earnings continued to reflect the important role that consulting services now play in its business model. Microsoft shares also benefited from investors' expectations that the Department of Justice and Microsoft would settle their outstanding antitrust suit. The Fund has a large position in Microsoft, in part because our analysts ascertained that its new XP operating system is much more stable than previous systems. We think this will not only fuel an increase in Microsoft's sales, but also revive personal computer sales because it will give owners of older computers a good reason to upgrade. Although resolution of the antitrust suit is still uncertain, we think that Microsoft's earnings will be driven more by its business fundamentals than by legal issues. We also had gains on Dell Computer and Compaq. We purchased our shares of Dell after the stock plummeted because of concerns about reduced demand for personal computers and an industry-wide buildup of inventories. We believed Dell's troubles would be short-lived because the company is the low- cost manufacturer of personal computers; other investors moved to our opinion in April. Dell shares tripled during this reporting period, and we took much of our profits. Our gains on Compaq were smaller. There were some companies with consistent earnings that didn't benefit during this reporting period. For example, we estimate Tyco International's earnings will grow by more than 20% a year over the next few years, and 3 Prudential Equity Fund, Inc. Semiannual Report June 30, 2001 second quarter 2001 earnings exceeded analysts' expectations. Nonetheless, we were able to build a position when Tyco's shares were priced at a much lower-than-average multiple of its estimated year 2002 earnings (at a low price/earnings multiple). Although Tyco shares fell when the overall market was plunging, they bottomed on April 4. CONSUMER SENTIMENT REMAINED STRONG A broader positive theme was the continuing strength of U.S. consumer spending despite the slowing global economy. The Fund benefited from gains posted by the media companies AOL Time Warner and AT&T--Liberty Media Corp. Significant positive contributions came from consumer-oriented stocks such as Philip Morris, Target, Eastman Kodak, and Darden Restaurants. Darden, for example, is a well-managed company that owns the Olive Garden and Red Lobster restaurant brands, and is introducing two new chains. We think today's living style makes family restaurants a growth business. SUPPLY AND DEMAND GOVERNS BASIC MATERIALS We think that over a moderate time span, the prices of basic materials stocks are driven by the supply/demand relationship of the underlying commodities. During this period, the Fund had gains on Alcoa (aluminum), Freeport-McMoRan Copper & Gold (mining), Newmont Mining (mining), and Monsanto (chemicals). Nonetheless, its aggregate holdings in the sector detracted from its return. We think supplies are tightening up in many basic materials, including some paper products. As demand increases when the global economy begins to recover, stocks in these industries should appreciate sharply. Alcoa is a special case since it benefited during this reporting period from the energy shortage in the northwestern United States. Alcoa was able to close down energy-intensive aluminum refining capacity there, and sell the energy it saved in a strong market. Then, it also benefited from the higher prices that resulted from the decreased aluminum supply. 4 www.prudential.com (800) 225-1852 SOME GROWTH SECTORS FELL SHARPLY Two large growth-oriented sectors had the deepest drops in the S&P 500 Index, and both were well-represented in the Fund. Healthcare stocks--including drug companies Schering-Plough, the biotechnology drug company Sepracor, and Eli Lillys--and managed care companies such as Health Net and Wellpoint Health Networks--declined substantially. After large gains in 2000, the sector suffered from profit-taking in the first two weeks of the year when investors briefly turned toward cyclical stocks. For the remainder of our reporting period its decline was in line with the S&P 500 Index. We scaled back our holdings, especially in drug companies, before the sector bottomed out. We think that increased FDA scrutiny of new drugs may squeeze future profits in what has been a very profitable industry. In this sector, we expect that hospital managers such as HCA and Tenet Healthcare will turn in the best performances in the near future. We believe they now have a pricing advantage over HMOs that will result in quality earnings over the next few years. Telecommunications-related stocks continued their slide, including companies that have dominated core sectors of the networking and wireless telephony hardware industries: Nokia, Sun Microsystems, and Cisco Systems. These were the three worst performers in the Fund. Telecommunications service companies, such as Global Crossing and Qwest Communications International, also detracted from the Fund's return. These large and growing businesses were underrepresented in the Fund when it was managed in a value style. We began to correct that imbalance after prices had substantially fallen from their highs, but shares of some of the market leaders continued to plunge. We still believe that these are core long-term growth industries, although we do not expect the same kind of spectacular profit growth we saw in the late 1990s. 5 Prudential Equity Fund, Inc. Semiannual Report June 30, 2001 VOLATILITY CREATES OPPORTUNITIES This was an extraordinarily volatile period for the stock market, not only over the months, but also from day to day. The chart at right shows the sharp (1% or greater) daily market rises and falls against historical baselines. Volatility creates opportunities for investors who have evaluated a company and who have a good estimate of the fair value of its stock. As the market fluctuates, some stocks become available at very attractive prices. We used part of our assets to benefit from the trading opportunities this volatility offers, while using another part to build substantial positions at very good prices. Many of our holdings are based on our long-term projections of a company's potential. This is particularly true where supply and demand relationships for commodities have the determining effect on stock prices over the long run. In addition to the basic materials we have already discussed, we think worldwide oil demand and domestic natural gas demand are increasing much faster than supply. Share prices currently are affected by the mild summer, presenting buying opportunities. Similarly, demand for gold exceeds current production. We expect a sharp price increase when central banks eventually stop selling their reserves. We are keeping a small position in anticipation of what may be a large change in share prices. LOOKING AHEAD The primary reason for the Fund's negative return was the decline of the market. A portion of the Fund's assets is now managed in a sector-neutral fashion, while the sector deviations from the S&P 500 Index in the rest of the portfolio are somewhat constrained. As a result, the behavior of the broad market may have a larger impact on the Fund's performance than in the past. 6 www.prudential.com (800) 225-1852 Conversely, our advisers are likely to disagree occasionally about particular stocks. Because the Fund has multiple advisers, any single adviser's views will have less impact on the Fund's exposure than would have been the case if that adviser had sole management. The Fund's exposure to stocks on which its advisers disagree is likely to be smaller than exposure to those stocks on which there is a consensus. The comments in this report are intended to explain the Fund's overall position, but they are not necessarily held unanimously by its advisers. Prudential Equity Fund Management Team (CHART) Source: FactSet Research System, Prudential Securities, Bloomberg, and Prudential Investments. S&P 500 Index comprises stocks representing approximately 80% of the total market value of all publicly traded U.S. common stock, and is widely regarded as representative of the performance of the U.S. stock market as a whole. Past performance is not indicative of future results. Investors cannot invest directly in an index. 7 Prudential Equity Fund, Inc. Portfolio of Investments as of June 30, 2001 (Unaudited)
Shares Description Value (Note 1) ---------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS 97.6% Common Stocks 97.4% ------------------------------------------------------------------------------------- Advertising 0.4% 16,155 Interpublic Group of Companies, Inc. $ 474,149 247,500 Lamar Advertising Co. (Class A)(a) 10,890,000 17,042 Omnicom Group, Inc. 1,465,612 7,831 TMP Worldwide, Inc.(a) 469,860 ---------------- 13,299,621 ------------------------------------------------------------------------------------- Aerospace/Defense 1.7% 122,862 Boeing Co. 6,831,127 30,635 General Dynamics Corp. 2,383,710 135,700 Northrop Grumman Corp. 10,869,570 640,800 Raytheon Co. 17,013,240 262,692 United Technologies Corp. 19,244,816 ---------------- 56,342,463 ------------------------------------------------------------------------------------- Agricultural Products 0.3% 257,000 Monsanto Co. 9,509,000 ------------------------------------------------------------------------------------- Airlines 0.1% 19,750 AMR Corp.(a) 713,568 5,457 Continental Airlines, Inc. (Class B)(a) 268,757 56,666 Southwest Airlines Co. 1,047,754 ---------------- 2,030,079 ------------------------------------------------------------------------------------- Aluminum 1.8% 32,014 Alcan, Inc. 1,345,228 1,472,514 Alcoa, Inc. 58,017,052 ---------------- 59,362,280 ------------------------------------------------------------------------------------- Apparel 37,846 NIKE, Inc. (Class A) 1,589,154 ------------------------------------------------------------------------------------- Automobiles & Trucks 0.4% 71,100 Cummins, Inc. 2,751,570 55,655 Delphi Automotive Systems Corp. 886,584 75,457 Ford Motor Co. 1,852,470 47,038 General Motors Corp. 3,026,895 53,300 PACCAR, Inc. 2,740,686 27,138 TRW, Inc. 1,112,658 ---------------- 12,370,863
8 See Notes to Financial Statements Prudential Equity Fund, Inc. Portfolio of Investments as of June 30, 2001 (Unaudited) Cont'd.
Shares Description Value (Note 1) ---------------------------------------------------------------------------------------- Banks & Financial Services 11.5% 373,230 American Express Co. $ 14,481,324 278,122 Bank of America Corp. 16,695,664 703,703 Bank of New York Co., Inc. 33,777,744 545,507 Bank One Corp. 19,529,151 64,259 Capital One Financial Corp. 3,855,540 16,670 Charles Schwab Corp. 255,051 536,800 Citigroup, Inc. 28,364,512 26,006 Comerica, Inc. 1,497,946 275,944 Federal Home Loan Mortgage Corp. 19,316,080 142,193 Federal National Mortgage Association 12,107,734 41,865 Fifth Third Bancorp 2,513,993 947,713 FleetBoston Financial Corp. 37,387,278 31,965 Franklin Resources, Inc. 1,463,038 106,906 Goldman Sachs Group, Inc. 9,172,535 9,161 H&R Block, Inc. 591,343 268,863 Household International Corp. 17,933,162 1,058,045 J.P. Morgan Chase 47,188,807 34,871 John Hancock Financial Services, Inc. 1,403,906 39,550 Lehman Brothers Holdings, Inc. 3,075,013 131,062 MBNA Corp. 4,318,493 23,149 Mellon Financial Corp. 1,064,854 216,209 Merrill Lynch & Co., Inc. 12,810,383 626,484 Morgan Stanley 40,239,067 23,641 National City Corp. 727,670 27,434 Paychex, Inc. 1,097,360 98,765 PNC Financial Services Group, Inc. 6,497,749 368,124 Providian Financial Corp. 21,792,941 23,838 SouthTrust Corp. 619,788 105,894 US Bancorp 2,413,324 281,697 Washington Mutual, Inc. 10,577,722 342,608 Wells Fargo & Co. 15,907,289 ---------------- 388,676,461 ------------------------------------------------------------------------------------- Beverages 1.6% 34,600 Anheuser-Busch Companies, Inc. 1,425,520 315,349 Coca-Cola Co. 14,190,705
See Notes to Financial Statements 9 Prudential Equity Fund, Inc. Portfolio of Investments as of June 30, 2001 (Unaudited) Cont'd.
Shares Description Value (Note 1) ---------------------------------------------------------------------------------------- 30,199 Coca-Cola Enterprises, Inc. $ 493,754 12,707 Pepsi Bottling Group, Inc. 509,551 840,122 PepsiCo, Inc. 37,133,392 ---------------- 53,752,922 ------------------------------------------------------------------------------------- Biotechnology 0.3% 71,963 Amgen, Inc.(a) 4,366,715 19,500 Genetech, Inc.(a) 1,074,450 68,100 Invitrogen Corp.(a) 4,889,580 ---------------- 10,330,745 ------------------------------------------------------------------------------------- Broadcasting Services 1.7% 2,647,679 AT&T Corp.-Liberty Media Corp. (Class A)(a) 46,307,906 47,628 Clear Channel Communications, Inc.(a) 2,986,275 375,300 General Motors Corp.(Class 'H' Stock)(a) 7,599,825 ---------------- 56,894,006 ------------------------------------------------------------------------------------- Chemicals 0.5% 142,416 Air Products & Chemicals, Inc. 6,515,532 71,131 Dow Chemical Co. 2,365,106 80,036 E.I. du Pont de Nemours & Co. 3,860,936 64,794 Ecolab, Inc. 2,654,610 18,793 Praxair, Inc. 883,271 30,143 Rohm & Haas Co. 991,705 ---------------- 17,271,160 ------------------------------------------------------------------------------------- Commercial Services 0.1% 3,448 Cintas Corp. 159,470 22,755 Concord EFS, Inc.(a) 1,183,487 38,043 Convergys Corp.(a) 1,150,801 17,042 Moody's Corp. 570,907 ---------------- 3,064,665 ------------------------------------------------------------------------------------- Computer Hardware 2.4% 556,633 Compaq Computer Corp. 8,622,245 360,209 Dell Computer Corp.(a) 9,419,465 124,708 Hewlett-Packard Co. 3,566,649 517,824 IBM Corp. 58,514,112 ---------------- 80,122,471
10 See Notes to Financial Statements Prudential Equity Fund, Inc. Portfolio of Investments as of June 30, 2001 (Unaudited) Cont'd.
Shares Description Value (Note 1) ---------------------------------------------------------------------------------------- Computer Software & Services 5.9% 15,123 Adobe Systems, Inc. $ 710,781 155,300 BEA Systems, Inc.(a) 4,769,263 356,500 BMC Software, Inc.(a) 8,035,510 37,472 Computer Associates International, Inc. 1,348,992 134,612 Electronic Data Systems Corp. 8,413,250 393,762 EMC Corp.(a) 11,438,786 64,163 Intuit, Inc.(a) 2,565,878 38,017 Mercury Interactive Corp.(a) 2,277,218 1,726,612 Microsoft Corp.(a) 126,042,676 1,155,151 Oracle Corp.(a) 21,947,869 34,102 PeopleSoft, Inc.(a) 1,678,842 27,367 Siebel Systems, Inc.(a) 1,283,512 93,384 Unisys Corp.(a) 1,373,678 90,742 VERITAS Software Corp.(a) 6,037,065 ---------------- 197,923,320 ------------------------------------------------------------------------------------- Containers & Packaging 7,930 Ball Corp. 377,151 17,288 Sealed Air Corp.(a) 643,978 ---------------- 1,021,129 ------------------------------------------------------------------------------------- Cosmetics & Toiletries 0.3% 36,570 Avon Products, Inc. 1,692,459 38,024 Colgate-Palmolive Co. 2,243,036 17,362 Estee Lauder Cos., Inc.(a) 748,302 46,372 Gillette Co. 1,344,324 83,016 Procter & Gamble Co. 5,296,421 ---------------- 11,324,542 ------------------------------------------------------------------------------------- Data Processing/Management 0.2% 52,159 Automatic Data Processing, Inc. 2,592,302 67,906 First Data Corp. 4,362,961 ---------------- 6,955,263 ------------------------------------------------------------------------------------- Diversified Manufacturing 3.3% 53,883 Corning, Inc.(a) 900,385 126,400 Danaher Corp. 7,078,400
See Notes to Financial Statements 11 Prudential Equity Fund, Inc. Portfolio of Investments as of June 30, 2001 (Unaudited) Cont'd.
Shares Description Value (Note 1) ---------------------------------------------------------------------------------------- 11,131 Eaton Corp. $ 780,283 52,340 Honeywell International, Inc. 1,831,377 7,240 Illinois Tool Works, Inc. 458,292 244,226 Minnesota Mining & Manufacturing Co. 27,866,187 8,700 Pall Corp. 204,711 139,300 SPX Corp.(a) 17,437,574 7,437 Textron, Inc. 409,332 984,728 Tyco International Ltd. 53,667,676 ---------------- 110,634,217 ------------------------------------------------------------------------------------- Diversified Operations 52,504 Cendant Corp.(a) 1,023,828 ------------------------------------------------------------------------------------- Drugs & Medical Supplies 0.5% 17,683 Becton, Dickinson & Co. 632,874 111,200 Biomet, Inc. 5,344,272 47,406 Cardinal Health, Inc. 3,271,014 17,879 MedImmune, Inc.(a) 843,889 137,859 Medtronic, Inc. 6,342,893 18,300 Nycomed Amersham PLC (ADR) (United Kingdom) 667,950 ---------------- 17,102,892 ------------------------------------------------------------------------------------- Electronics 0.7% 18,174 Agilent Technologies, Inc.(a) 590,655 65,553 Analog Devices, Inc.(a) 2,835,167 193,835 Emerson Electric Co. 11,727,017 23,789 Jabil Circuit, Inc.(a) 734,129 446,370 Solectron Corp.(a) 8,168,571 23,937 Xilinx, Inc.(a) 987,162 ---------------- 25,042,701 ------------------------------------------------------------------------------------- Electronic Components 0.3% 13,348 Broadcom Corp.(a) 570,760 148,000 Celestica, Inc.(a) 7,622,000 71,516 Molex, Inc. (Class A) 2,132,607 22,755 Sanmina Corp.(a) 532,695 ---------------- 10,858,062
12 See Notes to Financial Statements Prudential Equity Fund, Inc. Portfolio of Investments as of June 30, 2001 (Unaudited) Cont'd.
Shares Description Value (Note 1) ---------------------------------------------------------------------------------------- Foods 0.8% 30,635 Campbell Soup Co. $ 788,851 212,300 ConAgra Foods, Inc. 4,205,663 50,287 General Mills, Inc. 2,201,565 22,213 H.J. Heinz Co. 908,289 18,618 Hershey Foods Corp. 1,148,917 24,528 Quaker Oats Co. 2,238,180 61,369 Sara Lee Corp. 1,162,329 82,597 SYSCO Corp. 2,242,508 199,494 Unilever NV(a) 11,883,858 ---------------- 26,780,160 ------------------------------------------------------------------------------------- Gold Mines 51,075 Barrick Gold Corp. (ADR) (Canada) 773,786 39,304 Placer Dome, Inc. 385,179 ---------------- 1,158,965 ------------------------------------------------------------------------------------- Health Care 2.7% 445,200 HCA, Inc. 20,118,588 1,205,400 Health Net, Inc.(a) 20,973,960 19,701 Tenet Healthcare Corp.(a) 1,016,375 398,228 UnitedHealth Group, Inc. 24,590,579 268,000 Wellpoint Health Networks, Inc.(a) 25,256,320 ---------------- 91,955,822 ------------------------------------------------------------------------------------- Home Furnishings 39,944 Leggett & Platt, Inc. 879,966 ------------------------------------------------------------------------------------- Hotels 0.3% 241,419 Marriott International, Inc. (Class A) 11,428,775 ------------------------------------------------------------------------------------- Index Trading 0.6% 443,400 Nasdaq Gold Trust 20,263,380 ------------------------------------------------------------------------------------- Instrument - Controls 6,058 Johnson Controls, Inc. 439,023 16,009 PerkinElmer, Inc. 440,728 ---------------- 879,751
See Notes to Financial Statements 13 Prudential Equity Fund, Inc. Portfolio of Investments as of June 30, 2001 (Unaudited) Cont'd.
Shares Description Value (Note 1) ---------------------------------------------------------------------------------------- Insurance 5.3% 15,121 ACE, Ltd. $ 591,080 64,029 AFLAC, Inc. 2,016,273 86,784 Allstate Corp. 3,817,628 140,826 American General Corp. 6,541,368 392,688 American International Group, Inc. 33,771,168 88,904 Chubb Corp. 6,883,837 406,200 CIGNA Corp. 38,922,084 464,169 Hartford Financial Services Group, Inc. 31,749,160 15,318 Lincoln National Corp. 792,706 590,000 Loews Corp. 38,013,700 71,149 Marsh & McLennan Companies, Inc. 7,186,049 56,444 MetLife, Inc. 1,748,635 33,935 MGIC Investment Corp. 2,465,038 19,849 St. Paul Companies, Inc. 1,006,146 29,600 XL Capital Ltd. (Class A) 2,430,160 ---------------- 177,935,032 ------------------------------------------------------------------------------------- Internet 30,980 Yahoo!, Inc.(a) 619,290 ------------------------------------------------------------------------------------- Leisure 0.1% 59,744 Carnival Corp. 1,834,141 54,671 Harley-Davidson, Inc. 2,573,911 ---------------- 4,408,052 ------------------------------------------------------------------------------------- Machinery 0.2% 12,215 Caterpillar, Inc. 611,361 76,104 Deere & Co. 2,880,537 58,316 Dover Corp. 2,195,597 45,461 Parker-Hannifin Corp. 1,929,365 ---------------- 7,616,860 ------------------------------------------------------------------------------------- Medical Products & Services 2.0% 917,431 Abbott Laboratories 44,045,862 138,401 Bristol-Myers Squibb Co. 7,238,372 275,990 Merck & Co., Inc. 17,638,521 ---------------- 68,922,755
14 See Notes to Financial Statements Prudential Equity Fund, Inc. Portfolio of Investments as of June 30, 2001 (Unaudited) Cont'd.
Shares Description Value (Note 1) ---------------------------------------------------------------------------------------- Medical Technology 0.2% 16,253 Applera Corp.-Applied Biosystems Group $ 434,768 110,041 Baxter International, Inc. 5,392,009 29,553 IMS Health, Inc. 842,260 ---------------- 6,669,037 ------------------------------------------------------------------------------------- Metals-Non Ferrous 2.3% 2,692,800 Freeport-McMoRan Copper & Gold, Inc. (Class A)(a) 27,008,784 1,420,420 Newmont Mining Corp. 26,434,016 583,300 Phelps Dodge Corp. 24,206,950 ---------------- 77,649,750 ------------------------------------------------------------------------------------- Multimedia 4.9% 1,130,157 AOL Time Warner, Inc.(a) 59,898,321 152,323 Comcast Corp. (Class A)(a) 6,610,818 30,044 Gannett Co., Inc. 1,979,900 303,461 McGraw-Hill Companies., Inc. 20,073,945 666,700 News Corp. Ltd. (ADR) (Australia) 21,601,080 15,662 Univision Communications, Inc. (Class A)(a) 670,021 946,139 Viacom, Inc. (Class B)(a) 48,962,693 148,004 Walt Disney Co. 4,275,836 ---------------- 164,072,614 ------------------------------------------------------------------------------------- Networking 2.2% 2,016,095 Cisco Systems, Inc.(a) 36,692,929 4,715 Network Appliance, Inc.(a) 64,596 103,200 ONI Systems Corp.(a) 2,879,280 2,209,840 Sun Microsystems, Inc.(a) 34,738,685 ---------------- 74,375,490 ------------------------------------------------------------------------------------- Office Equipment & Supplies 0.1% 13,594 Avery Dennison Corp. 693,974 144,600 Staples, Inc.(a) 2,312,154 ---------------- 3,006,128 ------------------------------------------------------------------------------------- Oil Field Services 0.9% 723,700 Halliburton Co. 25,763,720
See Notes to Financial Statements 15 Prudential Equity Fund, Inc. Portfolio of Investments as of June 30, 2001 (Unaudited) Cont'd.
Shares Description Value (Note 1) ---------------------------------------------------------------------------------------- 62,010 Schlumberger, Ltd. $ 3,264,826 35,760 Weatherford International, Inc.(a) 1,716,480 ---------------- 30,745,026 ------------------------------------------------------------------------------------- Oil & Gas Drilling 0.7% 49,302 Nabors Industries, Inc.(a) 1,834,034 518,760 Transocean Sedco Forex, Inc.(a) 21,398,850 ---------------- 23,232,884 ------------------------------------------------------------------------------------- Oil & Gas Exploration/Production 5.5% 335,800 Amerada Hess Corp. 27,132,640 199,200 Anadarko Petroleum Corp. 10,762,776 20,838 BP Amoco PLC 1,038,774 38,959 Burlington Resources, Inc. 1,556,412 64,349 Chevron Corp. 5,823,584 1,136,500 Conoco, Inc. (Class A) 32,049,300 70,974 Conoco, Inc. (Class B) 2,051,149 16,697 Devon Energy Corp. 876,593 69,151 Dynegy, Inc. (Class A) 3,215,521 289,200 Kerr-McGee Corp. 19,165,284 549,600 Phillips Petroleum Co. 31,327,200 211,426 Royal Dutch Petroleum Co. (ADR) (Netherlands)(a) 12,319,793 552,800 TotalFinaElf SA (France) 38,806,560 28,517 Unocal Corp. 973,856 ---------------- 187,099,442 ------------------------------------------------------------------------------------- Oil & Gas Production/Pipeline 2.1% 590,845 El Paso Corp. 31,042,996 201,409 Enron Corp. 9,869,041 20,391 Kinder Morgan, Inc. 1,024,648 879,512 Williams Companies, Inc. 28,979,920 ---------------- 70,916,605 ------------------------------------------------------------------------------------- Paper & Forest Products 2.3% 9,801 Bowater, Inc. 438,497 196,500 Georgia-Pacific Group 6,651,525 39,402 International Paper Co. 1,406,652 222,358 Kimberly-Clark Corp. 12,429,812 687,000 Mead Corp. 18,645,180
16 See Notes to Financial Statements Prudential Equity Fund, Inc. Portfolio of Investments as of June 30, 2001 (Unaudited) Cont'd.
Shares Description Value (Note 1) ---------------------------------------------------------------------------------------- 559,400 Temple-Inland, Inc. $ 29,810,426 170,400 UPM-Kymmene Oyj (ADR) (Finland) 4,830,840 24,528 Weyerhaeuser Co. 1,348,304 17,922 Willamette Industries, Inc. 887,139 ---------------- 76,448,375 ------------------------------------------------------------------------------------- Petroleum Services 1.5% 507,245 Exxon Mobil Corp. 44,307,851 ------------------------------------------------------------------------------------- Pharmaceuticals 5.5% 11,230 Allergan, Inc. 960,165 701,654 American Home Products Corp. 41,004,660 100,690 Eli Lilly & Co. 7,451,060 534,492 Johnson & Johnson 26,724,612 455,100 Novartis AG (ADR) (Switzerland)(a) 16,451,865 1,163,011 Pfizer, Inc. 46,578,591 195,561 Pharmacia Corp. 8,986,028 29,609 Schering-Plough Corp. 1,073,030 620,300 Sepracor Inc.(a) 24,687,940 172,800 Teva Pharmaceutical Industries Ltd. (ADR) (Israel) 10,765,440 30,044 Watson Pharmaceuticals, Inc.(a) 1,851,912 ---------------- 186,535,303 ------------------------------------------------------------------------------------- Photography 0.9% 687,400 Eastman Kodak Co. 32,087,832 ------------------------------------------------------------------------------------- Publishing 0.8% 96,600 Knight-Ridder, Inc. 5,728,380 172,755 New York Times Co. (Class A) 7,255,710 354,500 Tribune Co. 14,183,545 ---------------- 27,167,635 ------------------------------------------------------------------------------------- Real Estate Investment Trust 0.6% 36,600 Archstone Communities Trust 943,548 64,200 CarrAmerica Realty Corp. 1,958,100 174,800 Equity Office Properties Trust 5,528,924 63,200 Spieker Properties, Inc. 3,788,840 224,209 Starwood Hotels & Resorts Worldwide, Inc. 8,358,512 ---------------- 20,577,924
See Notes to Financial Statements 17 Prudential Equity Fund, Inc. Portfolio of Investments as of June 30, 2001 (Unaudited) Cont'd.
Shares Description Value (Note 1) ---------------------------------------------------------------------------------------- Restaurants 1.0% 1,124,900 Darden Restaurants, Inc. $ 31,384,710 112,444 McDonald's Corp. 3,042,735 ---------------- 34,427,445 ------------------------------------------------------------------------------------- Retail 5.4% 29,749 Bed Bath & Beyond, Inc.(a) 928,169 15,859 Best Buy Co., Inc.(a) 1,007,364 301,100 Circuit City Stores-Circuit City Group 5,419,800 649,023 Costco Wholesale Corp. (Class A) 26,661,865 73,042 CVS Corp. 2,819,421 555,269 Federated Department Stores, Inc.(a) 23,598,932 56,888 Gap, Inc. 1,649,752 1,000,030 Home Depot, Inc. 46,551,396 100,230 Kroger Co.(a) 2,505,750 48,810 Lowe's Companies, Inc. 3,541,166 9,555 May Department Stores Co. 327,354 14,776 RadioShack Corp. 450,668 378,776 Safeway, Inc.(a) 18,181,248 14,418 Sherwin-Williams Co. 320,080 48,268 Starbucks Corp.(a) 1,110,164 856,359 Target Corp. 29,630,021 332,950 Wal-Mart Stores, Inc. 16,247,960 43,835 Walgreen Co. 1,496,965 ---------------- 182,448,075 ------------------------------------------------------------------------------------- Semiconductors 3.4% 9,900 Advanced Micro Devices, Inc.(a) 285,912 189,799 Applied Materials, Inc.(a) 9,319,131 26,661 Axcelis Technologies, Inc.(a) 394,583 1,147,981 Intel Corp. 33,578,444 15,515 KLA-Tencor Corp.(a) 907,162 23,717 Linear Technology Corp. 1,048,766 635,626 Micron Technology, Inc.(a) 26,124,229 168,400 Novellus Systems, Inc.(a) 9,563,436 1,062,859 Texas Instruments, Inc. 33,480,058 ---------------- 114,701,721
18 See Notes to Financial Statements Prudential Equity Fund, Inc. Portfolio of Investments as of June 30, 2001 (Unaudited) Cont'd.
Shares Description Value (Note 1) ---------------------------------------------------------------------------------------- Specialty/Retail 31,916 Tiffany & Co. $ 1,155,998 13,742 Zale Corp.(a) 463,105 ---------------- 1,619,103 ------------------------------------------------------------------------------------- Telecommunications 4.9% 137,071 ADC Telecommunications, Inc.(a) 904,669 15,484 ALLTEL Corp. 948,550 1,764,241 AT&T Corp. 38,813,302 96,925 BellSouth Corp. 3,903,170 3,246,300 Global Crossing Ltd.(a) 28,048,032 91,476 JDS Uniphase Corp.(a) 1,143,450 171,548 Lucent Technologies, Inc. 1,063,597 1,788,100 Metromedia Fiber Network, Inc.(Class A)(a) 3,647,724 12,966 NTL, Inc.(a) 156,240 49,204 QUALCOMM, Inc.(a) 2,877,450 518,138 Qwest Communications International, Inc.(a) 16,513,058 458,241 SBC Communications, Inc. 18,357,134 127,900 Sonus Networks, Inc.(a) 2,987,744 45,258 Sprint Corp. 966,711 74,126 Tellabs, Inc.(a) 1,436,562 676,371 Verizon Communications 36,185,848 1,887,247 Williams Communications Group, Inc.(a) 5,567,379 169,490 WorldCom, Inc.-WorldCom Group(a) 2,406,758 1 WorldCom, Inc.-MCI Group 11 221,640 XO Communications, Inc.(a) 425,549 ---------------- 166,352,938 ------------------------------------------------------------------------------------- Tobacco 1.9% 1,234,708 Philip Morris Companies, Inc. 62,661,431 ------------------------------------------------------------------------------------- Transportation 0.3% 41,964 Burlington Northern Santa Fe Corp. 1,266,054 129,300 Canadian National Railway Co. 5,236,650 13,692 Canadian Pacific Ltd. 530,565 21,425 FedEx Corp.(a) 861,285 20,440 Union Pacific Corp. 1,122,360 992 United Parcel Service, Inc. (Class B) 57,338 ---------------- 9,074,252
See Notes to Financial Statements 19 Prudential Equity Fund, Inc. Portfolio of Investments as of June 30, 2001 (Unaudited) Cont'd.
Shares Description Value (Note 1) ---------------------------------------------------------------------------------------- Travel Services 11,082 Sabre Holdings Corp.(a) $ 554,100 ------------------------------------------------------------------------------------- Utilities - Electric & Gas 1.7% 59,547 AES Corp.(a) 2,563,498 61,369 Calpine Corp.(a) 2,319,748 30,241 Dominion Resources, Inc. 1,818,391 80,479 Duke Energy Co. 3,139,486 551,054 Exelon Corp. 35,333,583 24,730 Mirant Corp.(a) 850,712 22,164 NiSource, Inc. 605,742 232,000 PG&E Corp. 2,598,400 322,898 Southern Co. 7,507,379 ---------------- 56,736,939 ------------------------------------------------------------------------------------- Waste Management 45,362 Waste Management, Inc. 1,398,057 ------------------------------------------------------------------------------------- Wireless/Communication Equipment 2.3% 2,127,674 Motorola, Inc. 35,234,281 182,471 Nextel Communications, Inc. (Class A)(a) 3,193,243 1,571,100 Nokia Corp. (Finland), (ADR) 34,627,044 213,265 Nortel Networks Corp. 1,938,579 153,385 Spirit Corp. (PCS Group) 3,704,248 ---------------- 78,697,395 ---------------- Total common stocks (cost $3,295,368,383) 3,292,914,004 ---------------- PREFERRED STOCKS 0.2% ------------------------------------------------------------------------------------- Computer Software & Services 0.2% 87,100 Electronic Data Systems Corp. (Cum. Conv.), 7.625% (cost $4,355,000) 4,590,170 ---------------- Total long-term investments (cost $3,299,723,383) 3,297,504,174 ----------------
20 See Notes to Financial Statements Prudential Equity Fund, Inc. Portfolio of Investments as of June 30, 2001 (Unaudited) Cont'd.
Principal Amount (000) Description Value (Note 1) ---------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS 2.8% U.S. GOVERNMENT SECURITIES 0.1% United States Treasury Bills, 1,850 Zero Coupon, 8/23/01(b) (cost $1,840,317) $ 1,840,317 ------------------------------------------------------------------------------------- REPURCHASE AGREEMENT 2.7% 93,019 Joint Repurchase Agreement Account, 3.97%, 7/2/01 (cost $93,019,000; Note 5) 93,019,000 ---------------- ------------------------------------------------------------------------------------- PUT OPTIONS PURCHASED(a) Contracts ---------------------------------------------------------------------------------------- Veritas Software Corp. 62 Expiring 7/21/01 @ $60.00 (cost $300,426) 102,630 ---------------- Total short-term investments (cost $95,159,743) 94,961,947 ---------------- Total Investments before outstanding call options written 100.4% (cost $3,394,883,126; Note 4) 3,392,466,121 ---------------- ------------------------------------------------------------------------------------- CALL OPTIONS WRITTEN(a) Veritas Software Corp. 47 Expiring 7/21/01 @ $80.00 (premium received $187,569) (37,360) ---------------- Total Investments net of outstanding call options written 100.4% 3,392,428,761 Liabilities in excess of other assets (0.4%) (12,727,329) ---------------- Net Assets 100% $ 3,379,701,432 ---------------- ----------------
------------------------------ (a) Non-income producing security. (b) Security segregated as collateral for financial futures contracts. ADR--American Depository Receipt. PLC--Public Liability Company (British Company). NV--Naamloze Vennootschaap (Dutch Company). SA--Sociedad Anonima (Spanish Corporation). AG--Aktiengesellschaft (German Company). See Notes to Financial Statements 21 Prudential Equity Fund, Inc. Statement of Assets and Liabilities (Unaudited)
June 30, 2001 -------------------------------------------------------------------------------------- ASSETS Investments, at value (cost $3,394,883,126) $3,392,466,121 Receivable for Fund shares sold 7,716,618 Receivable for investments sold 3,588,941 Dividends and interest receivable 2,779,420 Deferred expenses and other assets 1,033,707 Due from broker-variation margin 112,750 -------------- Total assets 3,407,697,557 -------------- LIABILITIES Payable to custodian 186,847 Payable for Fund shares reacquired 14,693,143 Payable for investments purchased 6,709,451 Management fee payable 3,590,972 Distribution fee payable 1,460,918 Accrued expenses and other liabilities 1,317,434 Outstanding options written (premium received $187,569) 37,360 -------------- Total liabilities 27,996,125 -------------- NET ASSETS $3,379,701,432 -------------- -------------- Net assets were comprised of: Common stock, at par $ 2,255,225 Paid-in capital in excess of par 3,217,101,928 -------------- 3,219,357,153 Undistributed net investment income 1,285,552 Accumulated net realized gain (loss) on investments 161,645,733 Net unrealized appreciation (depreciation) on investments (2,587,006) -------------- Net assets, June 30, 2001 $3,379,701,432 -------------- --------------
22 See Notes to Financial Statements Prudential Equity Fund, Inc. Statement of Assets and Liabilities (Unaudited) Cont'd.
June 30, 2001 -------------------------------------------------------------------------------------- Class A: Net asset value and redemption price per share ($1,908,215,053 / 127,105,746 shares of common stock issued and outstanding) $15.01 Maximum sales charge (5% of offering price) .79 -------------- Maximum offering price to public $15.80 -------------- -------------- Class B: Net asset value, offering price and redemption price per share ($1,173,795,165 / 78,588,451 shares of common stock issued and outstanding) $14.94 -------------- -------------- Class C: Net asset value and redemption price per share ($64,738,426 / 4,334,390 shares of common stock issued and outstanding) $14.94 Sales charge (1% of offering price) .15 -------------- Offering price to public $15.09 -------------- -------------- Class Z: Net asset value, offering price and redemption price per share ($232,952,788 / 15,493,953 shares of common stock issued and outstanding) $15.04 -------------- --------------
See Notes to Financial Statements 23 Prudential Equity Fund, Inc. Statement of Operations (Unaudited)
Six Months Ended June 30, 2001 -------------------------------------------------------------------------------------- NET INVESTMENT INCOME Income Dividends (net of foreign withholding taxes of $539,109) $ 20,226,019 Interest 2,380,383 ------------- Total income 22,606,402 ------------- Expenses Management fee 8,200,255 Distribution fee--Class A 2,406,382 Distribution fee--Class B 6,629,678 Distribution fee--Class C 333,091 Transfer agent's fees and expenses 2,446,000 Reports to shareholders 880,000 Custodian's fees and expenses 166,000 Registration fees 74,000 Legal fees and expenses 34,000 Directors' fees and expenses 16,000 Audit fees 15,000 Miscellaneous 120,444 ------------- Total expenses 21,320,850 ------------- Net investment income 1,285,552 ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on: Investment transactions 174,806,865 Financial futures contracts (2,905,656) ------------- 171,901,209 ------------- Net change in unrealized appreciation (depreciation) on: Investments (414,956,514) Options written 150,209 Financial futures contracts (320,350) ------------- (415,126,655) ------------- Net loss on investments (243,225,446) ------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(241,939,894) ------------- -------------
24 See Notes to Financial Statements Prudential Equity Fund, Inc. Statement of Changes in Net Assets (Unaudited)
Six Months Year Ended Ended June 30, 2001 December 31, 2000 ----------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS Operations Net investment income $ 1,285,552 $ 28,212,190 Net realized gain (loss) on investments 171,901,209 903,511,270 Net change in unrealized appreciation (depreciation) of investments and foreign currencies (415,126,655) (823,987,383) ----------------- ----------------- Net increase (decrease) in net assets resulting from operations (241,939,894) 107,736,077 ----------------- ----------------- Dividends and distributions (Note 1): Dividends from net investment income Class A -- (23,008,458) Class B -- (6,137,984) Class C -- (244,523) Class Z -- (3,750,982) ----------------- ----------------- -- (33,141,947) ----------------- ----------------- Distributions from net realized capital gains Class A (113,508,585) (292,683,056) Class B (77,147,759) (238,381,214) Class C (4,029,288) (10,015,506) Class Z (14,404,193) (39,016,835) ----------------- ----------------- (209,089,825) (580,096,611) ----------------- ----------------- Fund share transactions (net of share conversions) (Note 6) Proceeds from shares sold 388,088,454 2,786,295,380 Net asset value of shares issued in reinvestment of dividends and distributions 201,828,986 590,219,826 Cost of shares reacquired (589,730,113) (4,019,561,411) ----------------- ----------------- Net increase (decrease) in net assets from Fund share transactions 187,327 (643,046,205) ----------------- ----------------- Total decrease (450,842,392) (1,148,548,686) NET ASSETS Beginning of period 3,830,543,824 4,979,092,510 ----------------- ----------------- End of period(a) $ 3,379,701,432 $ 3,830,543,824 ----------------- ----------------- ----------------- ----------------- --------------- (a) Includes undistributed net investment income $ 1,285,552 $ -- ----------------- -----------------
See Notes to Financial Statements 25 Prudential Equity Fund, Inc. Notes to Financial Statements (Unaudited) 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. Repurchase Agreements: 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. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked-to-market on a daily basis to ensure the adequacy of the collateral. 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. 26 Prudential Equity Fund, Inc. Notes to Financial Statements (Unaudited) Cont'd. (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 securities held at the end of the period. 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 period. Accordingly, such realized foreign currency losses are included in the reported net realized gains on investment transactions. Net realized gains or losses on foreign currency transactions represent net foreign exchange gains or losses from sales and maturities of short-term securities and forward currency contracts, disposition of foreign currencies, 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 (excluding investments) and liabilities at period 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 U.S. companies 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. Financial Futures Contracts: A financial futures contract is an agreement to purchase (long) or sell (short) an agreed amount of securities at a set price for delivery on a future date. Upon entering into a financial futures contract, the Fund is required to pledge to the broker an amount of cash and/or other assets equal to a certain percentage of the contract amount. This amount is known as the 'initial margin.' Subsequent payments, known as 'variation margin,' are made or received by the Fund each day, depending on the daily fluctuations in the value of the underlying security. Such variation margin is recorded for financial statement purposes on a daily basis as unrealized gain or loss. When the contract expires or is closed, the gain or loss is realized and is presented in the statement of operations as net realized gain (loss) on financial futures contracts. The Fund invests in financial futures contracts in order to hedge existing portfolio securities, or securities the Fund intends to purchase, against fluctuations in value 27 Prudential Equity Fund, Inc. Notes to Financial Statements (Unaudited) Cont'd. caused by changes in prevailing interest rates. Should interest rates move unexpectedly, the Fund may not achieve the anticipated benefits of the financial futures contracts and may realize a loss. The use of futures transactions involves the risk of imperfect correlation in movements in the price of futures contracts and the underlying hedged assets. Options: The Fund may either purchase or write options in order to hedge against adverse market movements or fluctuations in value caused by changes in prevailing interest rates with respect to securities which the Fund currently owns or intends to purchase. When the Fund purchases an option, it pays a premium and an amount equal to that premium is recorded as an investment. When the Fund writes an option, it receives a premium and an amount equal to that premium is recorded as a liability. The investment or liability is adjusted daily to reflect the current market value of the option. If an option expires unexercised, the Fund realizes a gain or loss to the extent of the premium received or paid. If an option is exercised, the premium received or paid is an adjustment to the proceeds from the sale or the cost basis of the purchase in determining whether the Fund has realized a gain or loss. The difference between the premium and the amount received or paid on effecting a closing purchase or sale transaction is also treated as a realized gain or loss. Gain or loss on purchased options is included in net realized gain (loss) on investment transactions. Gain or loss on written options is presented separately as net realized gain (loss) on written option transactions. The Fund, as writer of an option, has no control over whether the underlying securities or currencies may be sold (called) or purchased (put). As a result, the Fund bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. The Fund, as purchaser of an option, bears the risk of 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. 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. 28 Prudential Equity Fund, Inc. Notes to Financial Statements (Unaudited) Cont'd. 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. 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 Jennison Associates LLC ('Jennison'), Jennison furnishes investment advisory services in connection with the management of the Fund since September 7, 2000. On November 28, 2000, the Board of Directors approved to divide the management responsibility among three subadvisers, Jennison, GE Asset Management, Inc. ('GEAM') and Salomon Brothers Asset Management, Inc. ('Salomon'). The new subadvisers have received the necessary shareholder approval and, effective February 16, 2001, these subadvisers assumed the day-to-day management responsibilities with Jennison retaining approximately half of the assets and the two new subadvisers each assuming approximately 25% of assets. PIFM pays for the services of Jennison, GEAM and Salomon, 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 to 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') 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 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. 29 Prudential Equity Fund, Inc. Notes to Financial Statements (Unaudited) Cont'd. 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% of the average daily net assets of Class A, Class B and Class C shares for the six months ended June 30, 2001, respectively. PIMS has advised the Fund that it has received approximately $251,800 and $20,200 in front-end sales charges resulting from sales of Class A and Class C shares, respectively, during the six months ended June 30, 2001. 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 six months ended June 30, 2001, it received approximately $788,700 and $4,400 in contingent deferred sales charges imposed upon certain redemptions by certain Class B and Class C shareholders, respectively. PIFM, PIMS and Jennison are indirect, wholly owned subsidiaries of The Prudential Insurance Company of America. The Fund, along with other affiliated registered investment companies (the 'Funds'), entered into a syndicated credit agreement ('SCA') with an unaffiliated lender. The maximum commitment under the SCA is $500 million. Interest on any such borrowings will be at market rates. The Funds pay a commitment fee of .080 of 1% of the unused portion of the credit facility. The commitment fee is accrued and paid quarterly on a pro rata basis by the Funds. The expiration date of the SCA is March 6, 2002. Prior to March 7, 2001, the maximum commitment was $1 billion and the commitment fee was .080 of 1% of the unused portion of the credit facility. The purpose of the agreement is to serve as an alternative source of funding for capital share redemptions. The Fund utilized the line of credit during the six months ended June 30, 2001. The average daily balance the Fund had outstanding during the six months was approximately $4,076,400 at a weighted average interest rate of approximately 4.97%. Note 3. Other Transactions with Affiliates Prudential Mutual Fund Services LLC ('PMFS'), an affiliate of PIFM and an a indirect wholly owned subsidiary of Prudential, serves as the Fund's transfer agent. During the six months ended June 30, 2001, the Fund incurred fees of approximately $2,056,700 for the services of PMFS. As of June 30, 2001, approximately $335,700 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. 30 Prudential Equity Fund, Inc. Notes to Financial Statements (Unaudited) Cont'd. For the six months ended June 30, 2001, Prudential Securities Incorporated ('PSI'), an indirect wholly owned subsidiary of The Prudential Insurance Company of America, earned $14,380 in brokerage commissions from portfolio transactions executed on behalf of the Fund. Note 4. Portfolio Securities Purchases and sales of investment securities, other than short-term investments, for the six months ended June 30, 2001 aggregated $4,270,453,305 and $4,491,396,131, respectively. The federal income tax basis of the Fund's investments at June 30, 2001 was $3,448,578,075 and, accordingly, net unrealized depreciation for federal income tax purposes was $56,111,954 (gross unrealized appreciation--$274,213,144; gross unrealized depreciation--$330,325,098). Transactions in options written during the six months ended June 30, 2001, were as follows:
Number of Premiums Contracts Received ---------- ---------- Options outstanding at December 31, 2000 -- $ -- Options written 47 187,569 ----- ---------- Options outstanding at June 30, 2001 47 $187,569 ----- ---------- ----- ----------
During the period ended June 30, 2001, the Fund entered into financial futures contracts. Details of open contracts at June 30, 2001 are as follows:
Value at Value at Number of Expiration Trade June 30, Unrealized Contracts Type Date Date 2001 (Depreciation) --------- ----------------- ----------- ----------- ----------- --------------- Long Position: 47 S&P 500 Sept. 2001 $13,009,850 $12,689,500 $(320,350) --------------- ---------------
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 June 30, 2001, the Fund had a 14.9% undivided interest in the joint account. The undivided interest for the Fund represents $93,019,000 in principal amount. As of such date, each repurchase agreement in the joint account and the collateral therefor were as follows: 31 Prudential Equity Fund, Inc. Notes to Financial Statements (Unaudited) Cont'd. Credit Suisse First Boston Corp., 4.00%, in the principal amount of $212,000,000, repurchase price $212,070,667, due 7/2/01. The value of the collateral including accrued interest was $216,244,971. Greenwich Capital Markets, LLC, 3.99%, in the principal amount of $65,000,000, repurchase price $65,021,613, due 7/2/01. The value of the collateral including accrued interest was $66,301,130. J.P. Morgan Chase, 3.92%, in the principal amount of $135,000,000, repurchase price $135,044,100, due 7/2/01. The value of the collateral including accrued interest was $137,704,404. UBS Warburg, 3.98%, in the principal amount of $212,000,000, repurchase price $212,070,313 due 7/2/01. The value of the collateral including accrued interest was $216,242,728. 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. 32 Prudential Equity Fund, Inc. Notes to Financial Statements (Unaudited) Cont'd. Transactions in shares of common stock were as follows:
Class A Shares Amount ------------------------------------------------------- ------------ --------------- Six months ended June 30, 2001: Shares sold 17,679,302 $ 282,845,003 Shares issued in reinvestment of dividends 6,743,009 108,562,442 Shares reacquired (25,342,466) (406,076,530) ------------ --------------- Net increase (decrease) in shares outstanding before conversions (920,155) (14,669,085) Shares issued upon conversion from Class B 8,620,946 137,121,882 ------------ --------------- Net increase (decrease) in shares outstanding 7,700,791 $ 122,452,797 ------------ --------------- ------------ --------------- Year ended December 31, 2000: Shares sold 127,680,427 $ 2,348,271,247 Shares issued in reinvestment of dividends 17,982,498 300,644,201 Shares reacquired (161,663,950) (2,967,462,415) ------------ --------------- Net increase (decrease) in shares outstanding before conversions (16,001,025) (318,546,967) Shares issued upon conversion from Class B 19,276,459 349,094,680 ------------ --------------- Net increase (decrease) in shares outstanding 3,275,434 $ 30,547,713 ------------ --------------- ------------ --------------- Class B ------------------------------------------------------- Six months ended June 30, 2001: Shares sold 3,334,713 $ 53,337,903 Shares issued in reinvestment of dividends 4,677,321 74,977,460 Shares reacquired (7,958,432) (128,451,727) ------------ --------------- Net increase (decrease) in shares outstanding before conversions 53,602 (136,364) Shares reacquired upon conversion into Class A (8,654,472) (137,121,882) ------------ --------------- Net increase (decrease) in shares outstanding (8,600,870) $ (137,258,246) ------------ --------------- ------------ --------------- Year ended December 31, 2000: Shares sold 17,194,266 $ 314,076,344 Shares issued in reinvestment of dividends 14,185,775 237,002,406 Shares reacquired (46,930,282) (851,861,206) ------------ --------------- Net increase (decrease) in shares outstanding before conversions (15,550,241) (300,782,456) Shares reacquired upon conversion into Class A (19,337,962) (349,094,680) ------------ --------------- Net increase (decrease) in shares outstanding (34,888,203) $ (649,877,136) ------------ --------------- ------------ ---------------
33 Prudential Equity Fund, Inc. Notes to Financial Statements (Unaudited) Cont'd.
Class C Shares Amount ------------------------------------------------------- ------------ --------------- Six months ended June 30, 2001: Shares sold 829,944 $ 13,715,970 Shares issued in reinvestment of dividends 246,534 3,951,939 Shares reacquired (704,277) (11,252,240) ------------ --------------- Net increase (decrease) in shares outstanding 372,201 $ 6,415,669 ------------ --------------- ------------ --------------- Year ended December 31, 2000: Shares sold 1,825,916 $ 33,451,558 Shares issued in reinvestment of dividends 600,321 10,009,520 Shares reacquired (2,759,925) (49,825,633) ------------ --------------- Net increase (decrease) in shares outstanding (333,688) $ (6,364,555) ------------ --------------- ------------ --------------- Class Z ------------------------------------------------------- Six months ended June 30, 2001: Shares sold 2,350,972 $ 38,189,578 Shares issued in reinvestment of dividends 889,401 14,337,145 Shares reacquired (2,768,103) (43,949,616) ------------ --------------- Net increase (decrease) in shares outstanding 472,270 $ 8,577,107 ------------ --------------- ------------ --------------- Year ended December 31, 2000: Shares sold 4,954,535 $ 90,496,231 Shares issued in reinvestment of dividends 2,544,908 42,563,699 Shares reacquired (8,276,008) (150,412,157) ------------ --------------- Net increase (decrease) in shares outstanding (776,565) $ (17,352,227) ------------ --------------- ------------ ---------------
34 Prudential Equity Fund, Inc. Financial Highlights ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' Prudential Equity Fund, Inc. Financial Highlights (Unaudited)
Class A ---------------- Six Months Ended June 30, 2001 ---------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 16.99 ---------------- Income from investment operations Net investment income .03 Net realized and unrealized gain (loss) on investments (1.04) ---------------- Total from investment operations (1.01) ---------------- Less distributions Dividends from net investment income -- Distributions in excess of net investment income -- Distributions from net realized capital gains (.97) ---------------- Total distributions (.97) ---------------- Net asset value, end of period $ 15.01 ---------------- ---------------- TOTAL RETURN(a): (6.32)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000) $1,908,215 Average net assets (000) $1,941,059 Ratios to average net assets: Expenses, including distribution and service (12b-1) fees .92%(b) Expenses, excluding distribution and service (12b-1) fees .67%(b) Net investment income .35%(b) Portfolio turnover 122%
------------------------------ (a) 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 return does not consider the effects of sales loads. Total return for periods of less than a full year are not annualized. (b) Annualized. 36 See Notes to Financial Statements Prudential Equity Fund, Inc. Financial Highlights (Unaudited) Cont'd.
Class A --------------------------------------------------------------------------------------------------------- Year Ended December 31, --------------------------------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 --------------------------------------------------------------------------------------------------------- $ 19.29 $ 19.76 $ 19.85 $ 17.26 $ 16.44 ---------------- ---------------- ---------------- ---------------- ---------------- .20 .26 .31 .38 .35 .55 2.15 1.37 3.70 2.52 ---------------- ---------------- ---------------- ---------------- ---------------- .75 2.41 1.68 4.08 2.87 ---------------- ---------------- ---------------- ---------------- ---------------- (.22) (.27) (.28) (.36) (.35) -- -- -- -- (.01) (2.83) (2.61) (1.49) (1.13) (1.69) ---------------- ---------------- ---------------- ---------------- ---------------- (3.05) (2.88) (1.77) (1.49) (2.05) ---------------- ---------------- ---------------- ---------------- ---------------- $ 16.99 $ 19.29 $ 19.76 $ 19.85 $ 17.26 ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- 4.73% 12.50% 8.41% 23.88% 17.94% $2,028,525 $2,240,250 $2,290,659 $1,912,802 $1,443,466 $1,983,138 $2,217,410 $2,088,616 $1,709,030 $1,233,792 .87% .86% .85% .88% .89% .62% .61% .60% .63% .64% 1.01% 1.25% 1.41% 1.87% 2.07% 63% 9% 25% 13% 19%
See Notes to Financial Statements 37 Prudential Equity Fund, Inc. Financial Highlights (Unaudited) Cont'd.
Class B ---------------- Six Months Ended June 30, 2001 ---------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 16.97 ---------------- Income from investment operations Net investment income (loss) (.03) Net realized and unrealized gain (loss) on investments (1.03) ---------------- Total from investment operations (1.06) ---------------- Less distributions Dividends from net investment income -- Distributions in excess of net investment income -- Distributions from net realized capital gains (.97) ---------------- Total distributions (.97) ---------------- Net asset value, end of period $ 14.94 ---------------- ---------------- TOTAL RETURN(a): (6.69)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000) $1,173,795 Average net assets (000) $1,336,924 Ratios to average net assets: Expenses, including distribution and service (12b-1) fees 1.67%(b) Expenses, excluding distribution and service (12b-1) fees .67%(b) Net investment income (.40)%(b)
------------------------------ (a) 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 investment return does not consider the effect of sales load. Total return for periods of less than a full year are not annualized. (b) Annualized. 38 See Notes to Financial Statements Prudential Equity Fund, Inc. Financial Highlights (Unaudited) Cont'd.
Class B --------------------------------------------------------------------------------------------------------- Year Ended December 31, --------------------------------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 --------------------------------------------------------------------------------------------------------- $ 19.26 $ 19.73 $ 19.83 $ 17.24 $ 16.43 ---------------- ---------------- ---------------- ---------------- ---------------- .11 .13 .14 .22 .22 .50 2.12 1.37 3.72 2.51 ---------------- ---------------- ---------------- ---------------- ---------------- .61 2.25 1.51 3.94 2.73 ---------------- ---------------- ---------------- ---------------- ---------------- (.07) (.11) (.12) (.22) (.22) -- -- -- -- (.01) (2.83) (2.61) (1.49) (1.13) (1.69) ---------------- ---------------- ---------------- ---------------- ---------------- (2.90) (2.72) (1.61) (1.35) (1.92) ---------------- ---------------- ---------------- ---------------- ---------------- $ 16.97 $ 19.26 $ 19.73 $ 19.83 $ 17.24 ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- 3.93% 11.69% 7.55% 23.05% 17.14% $1,479,532 $2,351,200 $2,923,060 $3,090,767 $2,626,479 $1,785,239 $2,666,269 $3,135,980 $2,924,413 $2,417,900 1.62% 1.61% 1.60% 1.63% 1.64% .62% .61% .60% .63% .64% .26% .49% .66% 1.12% 1.37%
See Notes to Financial Statements 39 Prudential Equity Fund, Inc. Financial Highlights (Unaudited) Cont'd.
Class C ---------------- Six Months Ended June 30, 2001 ---------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 16.97 -------- Income from investment operations Net investment income (.03) Net realized and unrealized gain (loss) on investments (1.03) -------- Total from investment operations (1.06) -------- Less distributions Dividends from net investment income -- Distributions in excess of net investment income -- Distributions from net realized capital gains (.97) -------- Total distributions (.97) -------- Net asset value, end of period $ 14.94 -------- -------- TOTAL RETURN(a): (6.69)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000) $ 64,738 Average net assets (000) $ 67,170 Ratios to average net assets: Expenses, including distribution and service (12b-1) fees 1.67%(b) Expenses, excluding distribution and service (12b-1) fees .67%(b) Net investment income (.40)%(b)
------------------------------ (a) 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 return does not consider the effects of sales loads. Total return for periods of less than a full year are not annualized. (b) Annualized. 40 See Notes to Financial Statements Prudential Equity Fund, Inc. Financial Highlights (Unaudited) Cont'd.
Class C --------------------------------------------------------------------------------------------------------- Year Ended December 31, --------------------------------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 --------------------------------------------------------------------------------------------------------- $ 19.26 $ 19.73 $ 19.83 $ 17.24 $ 16.43 -------- -------- -------- -------- -------- .04 .10 .16 .25 .22 .57 2.15 1.35 3.69 2.51 -------- -------- -------- -------- -------- .61 2.25 1.51 3.94 2.73 -------- -------- -------- -------- -------- (.07) (.11) (.12) (.22) (.22) -- -- -- -- (.01) (2.83) (2.61) (1.49) (1.13) (1.69) -------- -------- -------- -------- -------- (2.90) (2.72) (1.61) (1.35) (1.92) -------- -------- -------- -------- -------- $ 16.97 $ 19.26 $ 19.73 $ 19.83 $ 17.24 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- 3.93% 11.69% 7.55% 23.05% 17.14% $ 67,237 $ 82,737 $ 88,839 $ 72,244 $ 47,477 $ 67,999 $ 86,078 $ 82,907 $ 60,434 $ 36,745 1.62% 1.61% 1.60% 1.63% 1.64% .62% .61% .60% .63% .64% .26% .50% .67% 1.11% 1.37%
See Notes to Financial Statements 41 Prudential Equity Fund, Inc. Financial Highlights (Unaudited) Cont'd.
Class Z ---------------- Six Months Ended June 30, 2001 ---------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 16.99 ---------------- Income from investment operations Net investment income .05 Net realized and unrealized gain (loss) on investments (1.03) ---------------- Total from investment operations (.98) ---------------- Less distributions Dividends from net investment income -- Distributions in excess of net investment income -- Distributions from net realized capital gains (.97) ---------------- Total distributions (.97) ---------------- Net asset value, end of period $ 15.04 ---------------- ---------------- TOTAL RETURN(a): (6.20)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000) $232,953 Average net assets (000) $246,275 Ratios to average net assets: Expenses, including distribution and service (12b-1) fees .67%(b) Expenses, excluding distribution and service (12b-1) fees .67%(b) Net investment income .60%(b)
------------------------------ (a) 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 return for periods of less than a full year are not annualized. (b) Annualized. (c) Commencement of offering of Class Z shares. 42 See Notes to Financial Statements Prudential Equity Fund, Inc. Financial Highlights (Unaudited) Cont'd.
Class Z -------------------------------------------------------------------------------------------------- Year Ended December 31, March 1, 1996(c) --------------------------------------------------------------------- Through December 31, 2000 1999 1998 1997 1996 -------------------------------------------------------------------------------------------------- $ 19.30 $ 19.76 $ 19.87 $ 17.26 $ 17.10 --------------- --------------- --------------- --------------- ---------- .25 .31 .35 .42 .37 .54 2.16 1.36 3.72 1.88 --------------- --------------- --------------- --------------- ---------- .79 2.47 1.71 4.14 2.25 --------------- --------------- --------------- --------------- ---------- (.27) (.32) (.33) (.40) (.39) -- -- -- -- (.01) (2.83) (2.61) (1.49) (1.13) (1.69) --------------- --------------- --------------- --------------- ---------- (3.10) (2.93) (1.82) (1.53) (2.09) --------------- --------------- --------------- --------------- ---------- $ 16.99 $ 19.30 $ 19.76 $ 19.87 $ 17.26 --------------- --------------- --------------- --------------- ---------- --------------- --------------- --------------- --------------- ---------- 4.95% 12.81% 8.56% 24.29% 13.65% $ 255,250 $ 304,906 $ 307,921 $ 267,121 $128,752 $ 269,633 $ 302,528 $ 311,816 $ 57,646 $124,631 .62% .61% .60% .63% .64%(b) .62% .61% .60% .63% .64%(b) 1.26% 1.50% 1.67% 2.11% 2.43%(b)
See Notes to Financial Statements 43 Prudential Equity Fund, Inc. Supplemental Proxy Information (Unaudited) Meetings of the Fund's shareholders were held on February 2, and February 22, 2001, in conjunction with shareholder meetings for certain other Funds within the Prudential Mutual Fund complex. The meetings were held for the following purposes: (1) To elect the following thirteen individuals to serve on the Fund's Board of Directors to a term until the earlier to occur of (a) the next meeting of shareholders at which Board Members are elected and until their successors are elected and qualified or (b) until their terms expire in accordance with each Fund's retirement policy. Each Fund's retirement policy generally calls for the retirement of Directors on December 31 of the year in which they reach the age of 75. - Saul K. Fenster - Delayne Dedrick Gold - Robert F. Gunia - Douglas H. McCorkindale - W. Scott McDonald, Jr. - Thomas T. Mooney - Stephen P. Munn - David R. Odenath, Jr. - Richard A. Redeker - Judy A. Rice - Robin B. Smith - Louis A. Weil, III - Clay T. Whitehead (2) To approve the adoption of a new subadvisory agreement between PIFM and Jennison. (3) To approve a new subadvisory agreement between PIFM and GE Asset Management, Inc. (4) To approve a new subadvisory agreement between PIFM and Salomon Brothers Asset Management, Inc. (5) To permit PIFM to enter into subadvisory agreements with new subadvisors to the Fund, or make material changes to subadvisory agreements with existing subadvisors to the Fund, without obtaining shareholder approval. This is called 'Manager-of-Managers' structure and would not change the rate of advisory fees charged to a Fund. (6) To approve an amendment to the management agreement for the Fund to permit PIFM to allocate assets among affiliated and unaffiliated subadvisors. The rate of advisory fees payable by each Fund would not change. (7) To approve an amendment to certain fundamental investment restrictions and policies of the Fund. (8) To ratify the selection of PricewaterhouseCoopers LLP as independent public accountants of the Fund for the current fiscal year. 44 Prudential Equity Fund, Inc. Supplemental Proxy Information (Unaudited) Cont'd. The results of the proxy solicitation on the preceding matters were:
Director/Manager/ Investment Votes Votes Votes Restrictions/Auditor for Against Withheld Abstentions ----------------------------- ----------- --------- --------- ----------- (1)D Saul K. Fenster 101,584,251 -- 3,023,270 -- Delayne Dedrick Gold 101,668,821 -- 2,938,700 -- Robert F. Gunia 101,691,046 -- 2,916,476 -- Douglas H. McCorkindale 101,723,572 -- 2,883,949 -- W. Scott McDonald, Jr. 101,712,807 -- 2,894,714 -- Thomas T. Mooney 101,720,040 -- 2,887,481 -- Stephen P. Munn 101,739,158 -- 2,868,363 -- David R. Odenath, Jr. 101,712,648 -- 2,894,873 -- Richard A. Redeker 101,697,688 -- 2,909,833 -- Judy A. Rice 101,705,027 -- 2,902,494 -- Robin B. Smith 101,620,569 -- 2,986,952 -- Louis A. Weil, III 101,692,998 -- 2,914,523 -- Clay T. Whitehead 101,680,815 -- 2,926,706 -- (2)* PIFM & Jennison 97,495,009 1,803,924 -- 2,630,974 (3)* PIFM & GE 97,179,936 2,053,149 -- 2,696,822 (4)* PIFM & Salomon 97,170,869 2,067,501 -- 2,691,536 (5)D PIFM 75,959,451 7,444,737 -- 3,927,676 (6)D PIFM 77,901,109 5,343,329 -- 4,087,426 (7a)D Fund Diversification 79,704,669 3,880,303 -- 3,746,892 (7b)D Issuing Senior Securities, Borrowing Money and Pledging Assets 77,679,274 5,606,082 -- 4,046,508 (7c)D Buying and Selling Real Estate 78,435,538 5,115,156 -- 3,781,170 (7d)D Buying and Selling Commodities and Commodity Contracts 77,195,973 6,275,332 -- 3,860,559 (7e)D Fund Concentration 78,949,587 4,333,365 -- 4,048,912 (7f)D Making Loans 77,243,742 6,160,603 -- 3,927,519 (7g)D Other Investment Restrictions 78,013,201 4,403,938 -- 4,914,725 (8)D PricewaterhouseCoopers LLP 99,364,254 1,517,418 -- 3,725,849
------------------------------ * Approved at the February 2, 2001 meeting. D Approved at the February 22, 2001 meeting. 45 Prudential Equity Fund, Inc. Prudential Mutual Funds Prudential offers a broad range of mutual funds designed to meet your individual needs. For information about these funds, contact your financial professional or call us at (800) 225-1852. Read the prospectus carefully before you invest or send money. STOCK FUNDS Large Capitalization Stock Funds Prudential 20/20 Focus Fund Prudential Equity Fund, Inc. Prudential Stock Index Fund Prudential Tax-Managed Funds Prudential Tax-Managed Equity Fund Prudential Value Fund Target Funds Large Capitalization Growth Fund Large Capitalization Value Fund The Prudential Investment Portfolios, Inc. Prudential Jennison Growth Fund Small- to Mid-Capitalization Stock Funds Nicholas-Applegate Fund, Inc. Nicholas-Applegate Growth Equity Fund Prudential Small Company Fund, Inc. Prudential Tax-Managed Small-Cap Fund, Inc. Prudential U.S. Emerging Growth Fund, Inc. Target Funds Small Capitalization Growth Fund Small Capitalization Value Fund The Prudential Investment Portfolios, Inc. Prudential Jennison Equity Opportunity Fund Sector Stock Funds Prudential Natural Resources Fund, Inc. Prudential Real Estate Securities Fund Prudential Sector Funds, Inc. Prudential Financial Services Fund Prudential Health Sciences Fund Prudential Technology Fund Prudential Utility Fund Global/International Stock Funds Global Utility Fund, Inc. Prudential Europe Growth Fund, Inc. Prudential Pacific Growth Fund, Inc. Prudential World Fund, Inc. Prudential Global Growth Fund Prudential International Value Fund Prudential Jennison International Growth Fund Target Funds International Equity Fund Strategic Partners Series Strategic Partners Focused Growth Fund* Strategic Partners New Era Growth Fund* Strategic Partners Focused Value Fund* balanced/allocation funds Prudential Diversified Funds Conservative Growth Fund Moderate Growth Fund High Growth Fund The Prudential Investment Portfolios, Inc. Prudential Active Balanced Fund www.prudential.com (800) 225-1852 BOND FUNDS Taxable Bond Funds Prudential Government Income Fund, Inc. Prudential High Yield Fund, Inc. Prudential High Yield Total Return Fund, Inc. Prudential Short-Term Corporate Bond Fund, Inc. Income Portfolio Prudential Total Return Bond Fund, Inc. Target Funds Total Return Bond Fund Tax-Free 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 New Jersey Series New York Series Pennsylvania Series Prudential National Municipals Fund, Inc. Global/International Bond Funds Prudential Global Total Return 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 Institutional Liquidity Portfolio, Inc. Institutional Money Market Series Prudential MoneyMart Assets, Inc. Special Money Market Fund, Inc. Tax-Free Money Market Funds Prudential California Municipal Fund California Money Market Series Prudential Municipal Series Fund New Jersey Money Market Series New York Money Market Series Prudential Tax-Free Money Fund, Inc. Other Money Market Funds Command Government Fund Command Money Fund Command Tax-Free Fund * Not currently exchangeable with the Prudential mutual funds. Prudential Equity Fund, Inc. Getting the Most from Your Prudential Mutual Fund Some mutual fund shareholders won't ever read this--they don't read annual and semiannual reports. It's quite understandable. These annual and semiannual reports are prepared to comply with federal regulations, and are often written in language that is difficult to understand. So when most people run into those particularly daunting sections of these reports, they don't read them. WE THINK THAT'S A MISTAKE At Prudential Mutual Funds, we've made some changes to our report to make it easier to understand and more pleasant to read. We hope you'll find it profitable to spend a few minutes familiarizing yourself with your investment. Here's what you'll find in the report: PERFORMANCE AT A GLANCE Since an investment's performance is often a shareholder's primary concern, we present performance information in two different formats. You'll find it first on the "Performance at a Glance" page where we compare the Fund and the comparable average calculated by Lipper, Inc., a nationally recognized mutual fund rating agency. We report both the cumulative total returns and the average annual total returns. The cumulative total return is the total amount of income and appreciation the Fund has achieved in various time periods. The average annual total return is an annualized representation of the Fund's performance. It gives you an idea of how much the Fund has earned in an average year for a given time period. Under the performance box, you'll see legends that explain the performance information, whether fees and sales charges have been included in returns, and the inception dates for the Fund's share classes. See the performance comparison charts at the back of the report for more performance information. Please keep in mind that past performance is not indicative of future results. www.prudential.com (800) 225-1852 INVESTMENT ADVISER'S REPORT The portfolio manager, who invests your money for you, reports on successful--and not-so-successful--strategies in this section of your report. Look for recent purchases and sales here, as well as information about the sectors the portfolio manager favors, and any changes that are on the drawing board. PORTFOLIO OF INVESTMENTS This is where the report begins to appear technical, but it's really just a listing of each security held at the end of the reporting period, along with valuations and other information. Please note that sometimes we discuss a security in the "Investment Adviser's Report" section that doesn't appear in this listing because it was sold before the close of the reporting period. STATEMENT OF ASSETS AND LIABILITIES The balance sheet shows the assets (the value of the Fund's holdings), liabilities (how much the Fund owes), and net assets (the Fund's equity, or holdings after the Fund pays its debts) as of the end of the reporting period. It also shows how we calculate the net asset value per share for each class of shares. The net asset value is reduced by payment of your dividend, capital gain, or other distribution, but remember that the money or new shares are being paid or issued to you. The net asset value fluctuates daily, along with the value of every security in the portfolio. STATEMENT OF OPERATIONS This is the income statement, which details income (mostly interest and dividends earned) and expenses (including what you pay us to manage your money). You'll also see capital gains here--both realized and unrealized. Prudential Equity Fund, Inc. Getting the Most from Your Prudential Mutual Fund STATEMENT OF CHANGES IN NET ASSETS This schedule shows how income and expenses translate into changes in net assets. The Fund is required to pay out the bulk of its income to shareholders every year, and this statement shows you how we do it (through dividends and distributions) and how that affects the net assets. This statement also shows how money from investors flowed into and out of the Fund. NOTES TO FINANCIAL STATEMENTS This is the kind of technical material that can intimidate readers, but it does contain useful information. The Notes provide a brief history and explanation of your Fund's objectives. In addition, they outline how Prudential Mutual Funds prices securities. The Notes also explain who manages and distributes the Fund's shares and, more importantly, how much they are paid for doing so. Finally, the Notes explain how many shares are outstanding and the number issued and redeemed over the period. FINANCIAL HIGHLIGHTS This information contains many elements from prior pages, but on a per-share basis. It is designed to help you understand how the Fund performed, and to compare this year's performance and expenses to those of prior years. INDEPENDENT ACCOUNTANT'S REPORT Once a year, an independent accountant looks over our books and certifies that the financial statements are fairly presented in accordance with generally accepted accounting principles. TAX INFORMATION This is information that we report annually about how much of your total return is taxable. Should you have any questions, you may want to consult a tax adviser. www.prudential.com (800) 225-1852 PERFORMANCE COMPARISON These charts are included in the annual report and are required by the Securities Exchange Commission. Performance is presented here as the return on a hypothetical $10,000 investment in the Fund since its inception or for 10 years (whichever is shorter). To help you put that return in context, we are required to include the performance of an unmanaged, broad-based securities index as well. The index does not reflect the cost of buying the securities it contains or the cost of managing a mutual fund. Of course, the index holdings do not mirror those of the Fund--the index is a broad- based reference point commonly used by investors to measure how well they are doing. A definition of the selected index is also provided. Investors cannot invest directly in an index. Prudential Equity Fund, Inc. Getting the Most from Your Prudential Mutual Fund When you invest through Prudential Mutual Funds, you receive financial advice from a Prudential Securities Financial Advisor or Pruco Securities registered representative. Your financial professional can provide you with the following services: THERE'S NO REWARD WITHOUT RISK; BUT IS THIS RISK WORTH IT? Your financial professional can help you match the reward you seek with the risk you can tolerate. Risk can be difficult to gauge--sometimes even the simplest investments bear surprising risks. The educated investor knows that markets seldom move in just one direction. There are times when a market sector or asset class will lose value or provide little in the way of total return. Managing your own expectations is easier with help from someone who understands the markets, and who knows you! KEEPING UP WITH THE JONESES A financial professional can help you wade through the numerous available mutual funds to find the ones that fit your individual investment profile and risk tolerance. While the newspapers and popular magazines are full of advice about investing, they are aimed at generic groups of people or representative individuals--not at you personally. Your financial professional will review your investment objectives with you. This means you can make financial decisions based on the assets and liabilities in your current portfolio and your risk tolerance--not just based on the current investment fad. BUY LOW, SELL HIGH Buying at the top of a market cycle and selling at the bottom are among the most common investor mistakes. But sometimes it's difficult to hold on to an investment when it's losing value every month. Your financial professional can answer questions when you're confused or worried about your investment, and should remind you that you're investing for the long haul. www.prudential.com (800) 225-1852 For More Information Prudential Mutual Funds Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 (800) 225-1852 Directors Saul K. Fenster Delayne Dedrick Gold Robert F. Gunia Douglas H. McCorkindale W. Scott McDonald, Jr. Thomas T. Mooney Stephen P. Munn David R. Odenath, Jr. Richard A. Redeker Judy A. Rice Robin B. Smith Louis A. Weil, III Clay T. Whitehead Officers David R. Odenath, Jr., President Robert F. Gunia, Vice President Judy A. Rice, Vice President Grace C. Torres, Treasurer Marguerite E.H. Morrison, Secretary William V. Healey, Assistant Secretary Manager Prudential Investments Fund Management LLC Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 Investment Advisers Jennison Associates LLC 466 Lexington Avenue New York, NY 10017 GE Asset Management, Inc. 3003 Summer Street Stamford, CT 06904 Salomon Brothers Asset Management, Inc. 7 World Trade Center, 37th Floor New York, NY 10048 Distributor Prudential Investment Management Services LLC Gateway Center Three, 14th Floor 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 8098 Philadelphia, PA 19101 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 Fund Symbols NASDAQ CUSIP Class A PBQAX 744316100 Class B PBQFX 744316209 Class C PRECX 744316308 Class Z PEQZX 744316407 The views expressed in this report and information about the Fund's portfolio holdings are for the period covered by this report and are subject to change thereafter. The accompanying financial statements as of June 30, 2001, were not audited and, accordingly, no opinion is expressed on them. (LOGO) Prudential Mutual Funds Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 (800) 225-1852 MF101E2 744316100 744316209 744316308 744316407 (LOGO) Printed on Recycled Paper