-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QJd6pJNBNSb/nwe7qmht9BmdCEbXMcrsFjxc4vBqiBiftvkOTFjswcpPrvzxvABe BaIVwfsF11F3+m0flhLjYw== 0000898733-99-000776.txt : 19990909 0000898733-99-000776.hdr.sgml : 19990909 ACCESSION NUMBER: 0000898733-99-000776 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990430 FILED AS OF DATE: 19990908 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRUDENTIAL EQUITY FUND CENTRAL INDEX KEY: 0000356683 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 133104589 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-03336 FILM NUMBER: 99707371 BUSINESS ADDRESS: STREET 1: 100 MULBERRY STREET CITY: NEWARK STATE: NJ ZIP: 07102 BUSINESS PHONE: 9733677473 MAIL ADDRESS: STREET 1: 100 MULBERRY STREET CITY: NEWARK STATE: NJ ZIP: 07102 FORMER COMPANY: FORMER CONFORMED NAME: PRUDENTIAL BACHE EQUITY FUND INC DATE OF NAME CHANGE: 19920603 FORMER COMPANY: FORMER CONFORMED NAME: CHANCELLOR EQUITY FUND INC DATE OF NAME CHANGE: 19830509 N-30D 1 PRUDENTIAL EQUITY FUND, INC. (ICON) Prudential Equity Fund, Inc. SEMI ANNUAL REPORT June 30, 1999 (LOGO) Portfolio Manager's Report - ------------------------------------------------------------------------------- (PHOTO) Thomas R. Jackson Fund Manager Performance Review It's about time We knew we had very, very inexpensive stocks in our portfolio in terms of price-to-book-value and price-to-earnings ratios compared with the averages for S&P 500 Index stocks. We thought that once investors became less concerned about protecting themselves from a global economic crisis, they would discover our holdings. In the first half of 1999, Brazil devalued its currency and its economy contracted, but the damage was contained and neither the devaluation nor the subsequent Brazilian recession caused a crisis. Then news of improvements in Asian economies trickled in. So in April of 1999, our stocks began to shoot up, returning more in one quarter than large company stocks have averaged historically (1926-1998) over a full year. Investment Goals and Style The Prudential Equity Fund invests primarily in stocks of major, established companies mainly in the United States. One objective is long-term growth of capital. The Fund looks for bargains in the current market, using a strict value investment style. We look for stocks whose prices seem too low, given their underlying earnings, cash flow or book value. Historically, stocks that are inexpensive on these value measures subsequently have tended to outperform the market averages. Of course, there can be no assurance that past trends will continue or that the Fund will achieve its investment objective. Industries that traditionally do well in the early stages of an economic expansion had particularly substantial gains: our retailers--about 10% of our assets on June 30--included Tandy, whose extraordinary contribution was driven by two years of double-digit increases in same-store sales and by strong profit growth. Our largest holding at period end, Tandy gained 138% in the half year. We also did well with Nine West, which was acquired by Jones Apparel Group, and with Dillards. Among industrials, we had substantial contributions from paper companies, our largest industry focus. Asia has been a major importer of forest products, and we expected demand to rebound. Moreover, the additional Asian consumption probably will be building on an already high level of demand from the continued strength of the U.S. market. Another factor is the restructuring under way in this industry, separating land ownership from processing. These all bode well for earnings. Paper companies were among the first materials companies to benefit from the new optimism. Georgia Pacific, Mead, and Willamette made the largest contributions to our return. Metal producers, such as Alcoa (up 67%) and Freeport-McMoran Copper and Gold, also benefited from the economic recovery in Asia. Financials also benefit from a growing economy Our focus on financial companies, including insurance companies, banks, and financial service companies, is benefiting from the strong stock market, low interest rates, low inflation, and moderate but sustained economic growth. Stocks of these companies also had become inexpensive when investors feared for the economic future; the renewed confidence is making them much more attractive to most investors. Value companies in growth areas had mixed results We had mixed results among our relatively small technology holdings: Hewlett Packard bounced back from a lethargic period in which it had become undervalued, but Compaq and Seagate both declined over the half year because of poor earnings. Although our hospital management companies averaged a negative return, two of our health maintenance organizations (HMOs)--United Healthcare and Foundation Healthcare--had large gains. Performance at a Glance
Cumulative Total Returns1 As of 6/30/99 Six One Five Ten Since Months Year Years Years Inception2 Class A 15.61% 11.79% 152.55% N/A 332.40% Class B 15.18 10.94 143.16 337.31% 1388.31 Class C 15.18 10.94 N/A N/A 133.10 Class Z 15.77 12.07 N/A N/A 77.53 Lipper Growth Fund Avg.3 11.65 18.87 182.63 364.07 ***
Average Annual Total Returns1 As of 6/30/99
One Five Ten Since Year Years Years Inception2 Class A 6.20% 19.13% N/A 16.16% Class B 5.94 19.35 15.90% 16.89 Class C 8.83 N/A N/A 18.56 Class Z 12.07 N/A N/A 18.82
Past performance is not indicative of future results. Principal and investment return will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. 1 Source: Prudential Investments Fund Management LLC and Lipper, Inc. The cumulative total returns do not take into account sales charges. The average annual total returns do take into account applicable sales charges. The Fund charges a maximum front-end sales charge of 5% for Class A shares. Class B shares are subject to a declining contingent deferred sales charge (CDSC) of 5%, 4%, 3%, 2%, 1%, and 1% for six years. Class B shares will automatically convert to Class A shares, on a quarterly basis, approximately seven years after purchase. Class C shares are subject to a front-end sales charge of 1% and a CDSC of 1% for 18 months. Class C shares bought before November 2, 1998, have a 1% CDSC if sold within one year. Class Z shares are not subject to a sales charge or distribution and service (12b-1) fees. 2 Inception dates: Class A, 1/22/90; Class B, 3/15/82; Class C, 8/1/94; and Class Z, 3/1/96. 3 Lipper average returns are for all funds in each share class for the six-month, one-, five-, and ten-year periods in the Growth Fund category. ***Lipper Since Inception returns are 352.54% for Class A, 1395.43% for Class B, 175.09% for Class C, and 96.95% for Class Z, based on all funds in each share class. 1 Looking Ahead Growth and value investing styles tend to perform well in different environments. The three most important factors now all favor our value investing style: 1. The difference in price between value stocks and growth stocks with similar earnings Value stocks have been trailing for an exceptionally long period and are now as inexpensive, compared with growth stocks, as at any time in the last quarter century. 2. Interest rates Falling interest rates favor growth stocks because capital for expansion is less expensive, and because investors are willing to pay more for future earnings when interest rates are low. Whereas the Federal Reserve dropped interest rates in 1998 because of the economic uncertainty, they raised rates in June 1999. Greater demand for capital for economic growth in the United States and overseas may also push rates up. Value stocks generally tend to do better than growth stocks when interest rates are rising. 3. Corporate profit growth When profits are uncertain, investors are willing to pay much more for the few companies with consistent earnings growth, even if their stocks become quite expensive. This was the climate in 1998. But because recent earnings reports are very strong across a wide range of companies, investors need not pay so high a premium for the most popular. This also favors value stocks. Five Largest Holdings Expressed as a percentage of net assets as of 6/30/99 Tandy Corp. 3.9% Retail Eastman Kodak Co. 2.9 Diversified Consumer Products Well Point Health 2.8 Healthcare ELF Aquitaine ADR 2.7 Integrated Producers Darden Restaurants 2.5 Restaurants Portfolio Composition Expressed as a percentage of net assets as of 6/30/99 Consumer Growth & Stable 23% Finance 20 Industrial 19 Consumer Cyclical 13 Technology 9 Energy 6 Utility 6 Cash & Equivalents 4 2 A Message from the Fund's President August 20, 1999 - ------------------------------------------------------------------------------- (PHOTO) Dear Shareholder, I am pleased to report that Prudential Equity Fund returned 15.61% in the first half of 1999, a return that beat even a very high Lipper Growth Fund Average by almost four percentage points. Investors--finally feeling more confident about global economic growth--turned away from overpriced growth stocks toward value stocks. Although consumer and industrial cyclicals (companies that do well in a business expansion) made particularly substantial contributions to the Fund's return, value stocks in many sectors moved up sharply. The value advantage showed up in the second quarter, after global financial markets had digested a Brazilian currency devaluation with barely a hiccup. In the following report, Portfolio Manager Tom Jackson takes a closer look at stock market events that took place during the six-month reporting period and explains how Prudential Equity Fund was positioned to benefit. Diversification is key Stock and bond markets seldom perform in lockstep. In fact, most recently, while the stock market was reaching new highs, the bond market was experiencing some unpleasant turbulence. This disparity not only highlights the value of professional portfolio management, it illustrates why investors should have a well-diversified asset allocation strategy. It is also a good practice to rebalance your holdings, when necessary, to keep your asset allocation consistent with your long-term objectives and risk tolerance. A properly diversified portfolio of value- and growth-oriented equity funds, international and domestic bond funds, and money market funds could help you weather inevitable market turbulence and achieve more consistent returns over time. Your Prudential professional can help you conduct this review and make sure your investment strategies are on course. Thank you for your continued confidence in Prudential mutual funds. Sincerely, John R. Strangfeld President and Chief Investment Officer Prudential Equity Fund, Inc. Portfolio of Investments as of June 30, 1999 (Unaudited) PRUDENTIAL EQUITY FUND, INC. - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Shares Description Value (Note 1) - ------------------------------------------------------------ LONG-TERM INVESTMENTS--95.3% COMMON STOCKS--95.3% - ------------------------------------------------------------ Aluminum--1.8% 1,670,000 Alcoa Inc. $ 103,331,250 - ------------------------------------------------------------ Apparel--0.4% 641,809 Jones Apparel Group, Inc.(a) 22,022,067 - ------------------------------------------------------------ Automobiles & Trucks--1.3% 377,422 Delphi Automotive Systems Corp. 7,005,896 540,000 General Motors Corp. 35,640,000 404,800 Navistar International Corp.(a) 20,240,000 248,800 PACCAR Inc. 13,279,700 -------------- 76,165,596 - ------------------------------------------------------------ Banks & Financial Services--9.3% 294,000 American Express Co. 38,256,750 552,800 American Financial Group Inc. 18,829,750 1,473,134 BankAmerica Corporation 107,999,137 1,884,300 Bank of New York Co., Inc. 69,130,256 689,300 Chase Manhattan Corp. 59,710,613 1,182,602 Citigroup Inc. 56,173,571 676,700 Lehman Brothers Holdings Inc. 42,124,575 139,612 Mellon Bank Corp. 5,078,387 384,750 Mercantile Bankshares Corp. 13,610,531 286,400 Morgan (J.P.) & Co., Inc. 40,239,200 536,100 Morgan Stanley, Dean Witter & Co. 54,950,250 450,000 Republic New York Corp. 30,684,375 -------------- 536,787,395 - ------------------------------------------------------------ Chemicals--1.4% 711,000 Boc Group PLC, ADR (Great Britian) 28,662,187 828,800 Eastman Chemical Co.(a) 42,890,400 506,900 Wellman Inc. 8,078,719 100,000 Witco Corp. 2,000,000 -------------- 81,631,306 Commercial Services--1.5% 900,000 American Standard Co., Inc.(a) $ 43,200,000 806,710 Waste Management, Inc. 43,360,663 -------------- 86,560,663 - ------------------------------------------------------------ Computer Hardware--4.3% 2,973,350 Compaq Computer Corp. 70,431,228 250,200 Gerber Scientific, Inc. 5,520,038 977,000 Hewlett-Packard Co. 98,188,500 2,773,900 Seagate Technology, Inc.(a) 71,081,187 -------------- 245,220,953 - ------------------------------------------------------------ Construction & Housing--0.7% 1,100,000 Centex Corp. 41,318,750 - ------------------------------------------------------------ Consumer Services--0.4% 1,553,100 CKE Restaurants, Inc. 25,237,875 - ------------------------------------------------------------ Diversfied Consumer Products--7.4% 3,461,100 Freeport-McMoRan, Inc. (Class A) 57,973,425 487,000 Freeport-McMoRan, Inc. (Class B) 8,735,563 750,000 Gibson Greetings Inc.(a) 4,757,813 1,600,000 Loews Corp. 126,600,000 1,865,000 Philip Morris Companies Inc. 74,949,687 1,120,000 Reynolds RJ Tobacco Holdings Incorporated 35,280,000 3,360,000 RJR Nabisco Holdings Corp. 65,730,000 2,147,900 Sara Lee Corp. 48,730,481 -------------- 422,756,969 - ------------------------------------------------------------ Electrical Power--1.7% 170,000 American Electric Power Company, Inc. 6,385,625 570,000 General Public Utilities Corp. 24,046,875 974,519 Reliant Energy Incorporated 26,921,087 979,600 Unicom Corp. 37,775,825 -------------- 95,129,412
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 3 Portfolio of Investments as of June 30, 1999 (Unaudited) PRUDENTIAL EQUITY FUND, INC. - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Shares Description Value (Note 1) - ------------------------------------------------------------ Electronics--4.6% 1,937,700 Arrow Electronics, Inc. $ 36,816,300 776,300 Avnet, Inc. 36,097,950 2,544,000 Harris Corp. 99,693,000 465,000 Hitachi Ltd, ADR (Japan) 43,913,438 1,744,600 National Semiconductor Corp.(a) 44,160,187 -------------- 260,680,875 - ------------------------------------------------------------ Forest Products--11.3% 643,900 Fort James Corp. 24,387,713 2,832,500 Georgia-Pacific Corp. 134,189,687 1,046,000 Georgia-Pacific Corp. (Timber Group) 26,411,500 1,616,000 International Paper Co. 81,608,000 2,047,000 Mead Corp. 85,462,250 752,500 Rayonier Inc. 37,483,906 1,101,500 Temple-Inland Inc. 75,177,375 1,260,000 Weyerhaeuser Co. 86,625,000 2,112,100 Willamette Industries, Inc. 97,288,606 -------------- 648,634,037 - ------------------------------------------------------------ Health Care--10.9% 5,191,300 Columbia/HCA Healthcare Corp. 118,426,531 4,270,940 Foundation Health Systems, Inc. 64,064,100 273,226 Lifepoint Hospitals Inc. 3,671,474 963,600 Pacificare Health Systems(a) 69,318,975 5,633,274 Tenet Healthcare Corp.(a) 104,567,649 273,226 Triad Hosps Inc. 3,688,551 1,623,500 United Healthcare Corp. 101,671,688 1,880,000 Wellpoint Health Networks Inc.(a) 159,565,000 -------------- 624,973,968 - ------------------------------------------------------------ Insurance--9.1% 648,164 American General Corp. 48,855,361 1,891,600 Chubb Corp. 131,466,200 2,805,363 Old Republic International Corp. 48,567,847 2,600,700 SAFECO Corp. 114,755,887 1,667,000 Service Corp. International $ 32,089,750 1,433,800 St. Paul Companies, Inc. 45,612,763 981,200 The Equitable Companies, Inc. 65,740,400 589,400 Tokio Marine & Fire Insurance Ltd., ADR (Japan) 33,080,075 -------------- 520,168,283 - ------------------------------------------------------------ Metals-Non Ferrous--1.2% 978,100 Cyprus Minerals Co. 14,854,894 2,758,800 Newmont Mining Corp. 54,831,150 -------------- 69,686,044 - ------------------------------------------------------------ Oil & Gas Exploration/Production--6.9% 300,000 Amerada Hess Corp. 17,850,000 912,100 Atlantic Richfield Co. 76,217,356 562,319 Kerr-McGee Corp. 28,221,385 1,130,448 Keyspan Corporation 29,815,566 1,100,000 Occidental Petroleum Corp. 23,237,500 350,000 Potash Corp. of Saskatchewan Inc. 18,112,500 2,098,596 Societe Nationale Elf Aquitaine, ADR (France) 154,377,968 738,365 Total SA, ADR (France) 47,578,395 -------------- 395,410,670 - ------------------------------------------------------------ Photography--2.9% 2,501,400 Eastman Kodak Co. 169,469,850 - ------------------------------------------------------------ Restaurants--2.4% 6,457,300 Darden Restaurants Inc. 140,849,856 - ------------------------------------------------------------ Retail--12.0% 3,110,000 Dillards Department Stores, Inc. 109,238,750 3,111,700 Hilton Hotels Corp. 44,147,244 1,100,000 Homebase, Inc.(a) 6,943,750 4,566,000 Ikon Office Solutions Inc. 68,490,000 6,000,000 Kmart Corp.(a) 98,625,000
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 4 Portfolio of Investments as of June 30, 1999 (Unaudited) PRUDENTIAL EQUITY FUND, INC. - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Shares Description Value (Note 1) - ------------------------------------------------------------ Retail (cont'd.) 3,111,700 Park Place Entertainment Corp. $ 30,144,594 1,800,000 Pep Boys - Manny, Moe & Jack 38,925,000 625,000 Sears, Roebuck & Co. 27,851,562 4,548,000 Tandy Corp. 222,283,500 2,125,000 Toys 'R' Us Inc.(a) 43,960,937 -------------- 690,610,337 - ------------------------------------------------------------ Steel - Producers--0.1% 1,373,300 Birmingham Steel Corp. 5,664,863 - ------------------------------------------------------------ Telecommunications--3.5% 876,082 ALLTEL Corp. 62,639,863 1,494,650 AT&T Corp. 83,420,153 2,409,900 Loral Space & Communications(a) 43,378,200 359,400 Portugal Telecom, S.A. ADR (Portugal) 14,802,787 -------------- 204,241,003 - ------------------------------------------------------------ Transportation--0.2% 100,000 Marine Transport Corp. 356,250 1,000,000 OMI Corp.(a) 2,062,500 550,000 Overseas Shipholding Group, Inc. 7,081,250 -------------- 9,500,000 -------------- Total long-term investments (cost $3,706,633,966) 5,476,052,022 -------------- SHORT-TERM INVESTMENTS--5.1% - ------------------------------------------------------------ Commercial Paper--1.6% General Electric Cap. Corp. $ 14,000 5.06%, 8/2/99 $ 13,937,031 GE Capital International Funding 23,000 5.07%, 8/9/99 22,873,673 20,000 5.04%, 8/16/99 19,871,200 Monte Rosa Capital Corp. 13,000 5.07%, 7/19/99 12,967,045 Preferred Receivables Funding Corp. 25,000 5.25%, 8/19/99 24,821,354 -------------- Total commercial paper (cost $94,470,303) 94,470,303 -------------- - ------------------------------------------------------------ Repurchase Agreement--3.5% 197,772 Joint Repurchase Agreement Account, 4.78%, 7/1/99 (Note 5) (cost $197,772,000) 197,772,000 -------------- Total short-term investments (cost $292,242,303) 292,242,303 -------------- - ------------------------------------------------------------ Total Investments--100.4% (cost $3,998,876,269; Note 4) 5,768,294,325 Liabilities in excess of other assets--(0.4%) (24,734,702) -------------- Net Assets--100% $5,743,559,623 -------------- --------------
- --------------- (a) Non-income producing security. ADR--American Depository Receipt. - -------------------------------------------------------------------------------- See Notes to Financial Statements. 5 Statement of Assets and Liabilities (Unaudited) PRUDENTIAL EQUITY FUND, INC. - --------------------------------------------------------------------------------
Assets June 30, 1999 Investments, at value (cost $3,998,876,269)................................................................. $5,768,294,325 Dividends and interest receivable........................................................................... 9,387,395 Receivable for Fund shares sold............................................................................. 3,046,123 Deferred expenses and other assets.......................................................................... 47,010 -------------- Total assets............................................................................................. 5,780,774,853 -------------- Liabilities Bank overdraft.............................................................................................. 165,947 Payable for investments purchased........................................................................... 18,700,797 Payable for Fund shares reacquired.......................................................................... 11,494,768 Distribution fee payable.................................................................................... 2,882,906 Management fee payable...................................................................................... 2,175,480 Accrued expenses and other liabilities...................................................................... 1,769,276 Deferred Trustees' fees..................................................................................... 26,056 -------------- Total liabilities........................................................................................ 37,215,230 -------------- Net Assets.................................................................................................. $5,743,559,623 -------------- -------------- Net assets were comprised of: Common stock, at par..................................................................................... $ 2,570,771 Paid-in capital in excess of par......................................................................... 3,630,487,233 -------------- 3,633,058,004 Undistributed net investment income...................................................................... 35,293,480 Accumulated net realized gain on investments............................................................. 305,793,455 Net unrealized appreciation on investments............................................................... 1,769,414,684 -------------- Net assets, June 30, 1999................................................................................... $5,743,559,623 -------------- -------------- Class A: Net asset value and redemption price per share ($2,497,070,140 / 111,481,350 shares of common stock issued and outstanding).......................... $22.40 Maximum sales charge (5.00% of offering price)........................................................... 1.18 -------------- Maximum offering price to public......................................................................... $23.58 -------------- -------------- Class B: Net asset value, offering price and redemption price per share ($2,828,837,733 / 126,947,676 shares of common stock issued and outstanding).......................... $22.28 -------------- -------------- Class C: Net asset value and redemption price per share ($93,843,344 / 4,211,431 shares of common stock issued and outstanding)............................... $22.28 Maximum sales charge (1.00% of offering price)........................................................... .23 -------------- Maximum offering price to public......................................................................... $22.51 -------------- -------------- Class Z: Net asset value, offerng price and redemption price per share ($323,808,406 / 14,436,676 shares of common stock issued and outstanding)............................. $22.43 -------------- --------------
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 6 PRUDENTIAL EQUITY FUND, INC. Statement of Operations (Unaudited) - ------------------------------------------------------------
Six Months Ended June 30, Net Investment Income 1999 Income Dividends (net of foreign withholding taxes of $595,881)............................ $ 59,177,432 Interest................................... 5,873,784 ------------ Total income............................ 65,051,216 ------------ Expenses Distribution fee--Class A.................. 2,753,685 Distribution fee--Class B.................. 14,068,878 Distribution fee--Class C.................. 433,448 Management fee............................. 12,349,143 Transfer agent's fees and expenses......... 3,483,000 Reports to shareholders.................... 273,000 Custodian's fees and expenses.............. 149,000 Registration fees.......................... 139,000 Insurance expense.......................... 59,000 Directors' fees and expenses............... 22,000 Audit fee and expenses..................... 15,000 Legal fees and expenses.................... 15,000 Miscellaneous.............................. 14,334 ------------ Total expenses.......................... 33,774,488 ------------ Net investment income......................... 31,276,728 ------------ Realized and Unrealized Gain on Investments and Foreign Currency Transactions Net realized gain on: Investment transactions.................... 307,787,502 ------------ Net change in unrealized appreciation on investments................................ 435,631,452 ------------ Net gain on investments....................... 743,418,954 ------------ Net Increase in Net Assets Resulting from Operations..................... $774,695,682 ------------ ------------
PRUDENTIAL EQUITY FUND, INC. Statement of Changes in Net Assets (Unaudited) - ------------------------------------------------------------
Six Months Ended Year Ended Increase (Decrease) June 30, December 31, in Net Assets 1999 1998 Operations Net investment income..... $ 31,276,728 $ 55,919,449 Net realized gain on investments and foreign currencies............. 307,787,502 668,341,418 Net change in unrealized appreciation of investments and foreign currencies............. 435,631,452 (297,985,109) --------------- --------------- Net increase in net assets resulting from operations............. 774,695,682 426,275,758 --------------- --------------- Dividends and distributions (Note 1) Dividends from net investment income Class A................ (28,885,221) Class B................ -- (17,096,879) Class C................ -- (476,903) Class Z................ -- (4,978,773) --------------- --------------- -- (51,437,776) --------------- --------------- Distributions from net realized capital gains Class A................ (42,893,256) (155,041,927) Class B................ (54,779,742) (215,519,773) Class C................ (1,681,378) (6,228,203) Class Z................ (5,929,122) (22,058,351) --------------- --------------- (105,283,498) (398,848,254) --------------- --------------- Fund share transactions (net of share conversions) (Note 6) Proceeds from shares sold................... 2,096,049,837 6,813,992,163 Net asset value of shares issued in reinvestment of dividends and distributions.......... 101,478,620 431,480,103 Cost of shares reacquired............. (2,733,860,875) (6,953,915,648) --------------- --------------- Net increase in net assets from Fund share transactions........... (536,332,418) 291,556,618 --------------- --------------- Total increase............... 133,079,766 267,546,346 Net Assets Beginning of period.......... 5,610,479,857 5,342,933,511 --------------- --------------- End of period(a)............. $ 5,743,559,623 $ 5,610,479,857 --------------- --------------- --------------- --------------- - --------------- (a) Includes undistributed net investment income.... $ 35,293,480 $ 4,016,752 --------------- --------------- --------------- ---------------
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 7 Notes to Financial Statements (Unaudited) PRUDENTIAL EQUITY FUND, INC. - -------------------------------------------------------------------------------- Prudential Equity Fund, Inc. (the 'Fund') is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company. The investment objective of the Fund is long-term growth of capital. The Fund invests primarily in common stocks of major, established corporations. - ------------------------------------------------------------ Note 1. Accounting Policies The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. Securities Valuation: Investments, including options, traded on a securities or commodities exchange and NASDAQ National Market equity securities are valued at the last reported sales price on the exchange on which they are traded or, if securities traded in the over-the-counter market (including securities listed on exchanges whose primary market is believed to be over-the-counter) are valued by an independent pricing agent or principal market or at the bid price on such day in the absence of an asked price. Short-term securities which mature in more than 60 days are valued at current market quotations. Short-term securities which mature in 60 days or less are valued at amortized cost which unless the Board of Directors determines this does not represent fair value. In connection with transactions in repurchase agreements with U.S. financial institutions, it is the Fund's policy that its custodian or designated subcustodians, under triparty repurchase agreements, as the case may be, take possession of the underlying collateral securities, the value of which exceeds the principal amount of the repurchase transaction, including accrued interest. If the seller defaults and the value of the collateral declines or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Fund may be delayed or limited. All securities are valued as of 4:15 p.m., New York time. Foreign Currency Translation: The books and records of the Fund are maintained in United States dollars. Foreign currency amounts are translated into United States dollars on the following basis: (i) market value of investment securities, other assets and liabilities--at the current rate of exchange. (ii) purchases and sales of investment securities, income and expenses--at the rates of exchange prevailing on the respective dates of such transactions. 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. 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. PIFM has entered into a subadvisory agreement with The Prudential Investment Corporation ('PIC'); PIC furnishes investment advisory services in connection with the management of the Fund. PIFM pays for the cost of the subadviser's services, the compensation of officers of the Fund, occupancy and certain clerical and bookkeeping costs of the Fund. The Fund bears all other costs and expenses. The management fee paid PIFM is computed daily and payable monthly, at an annual rate of .50 of 1% of the Fund's average daily net assets up to $500 million, .475 of 1% of the next $500 million of average daily net assets and .45 of 1% of the Fund's average daily net assets in excess of $1 billion. - -------------------------------------------------------------------------------- 8 Notes to Financial Statements (Unaudited) PRUDENTIAL EQUITY FUND, INC. - -------------------------------------------------------------------------------- The Fund has a distribution agreement with Prudential Investment Management Services LLC ('PIMS'). The Fund compensates the distributors for distributing and servicing the Fund's Class A, Class B and Class C shares, pursuant to plans of distribution (the 'Class A, B and C Plans'), regardless of expenses actually incurred by them. The distribution fees are accrued daily and payable monthly. No distribution or service fees are paid to PSI or PIMS as distributor of the Class Z shares of the Fund. Pursuant to the Class A, B and C Plans, the Fund compensates PIMS for distribution-related activities at an annual rate of up to .30 of 1%, 1% and 1% of the average daily net assets of the Class A, B and C shares, respectively. Such expenses under the Class A, Class B and Class C Plans were .25%, 1% and 1%, respectively, of the average daily net assets of Class A, Class B and Class C shares for the six months ended June 30, 1999. PIMS has advised the Fund that it has received approximately $77,995 and $515,039 in front-end sales charges resulting from sales of Class A and after November 2, 1998 Class C shares during the six months ended June 30, 1999. From these fees, PIMS paid such sales charges to Securities Corporation an affiliated broker-dealer, 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, 1999, it received approximately $3,298,024 and $21,257 in contingent deferred sales charges imposed upon certain redemptions by certain Class B and Class C shareholders, respectively. PIFM, PIC and PIMS are indirect, wholly owned subsidiaries of The Prudential Insurance Company of America. As of March 11, 1999, the Fund, along with other affiliated registered investment companies (the 'Funds'), entered into a syndicated credit agreement ('SCA') with an unaffiliated lender. The maximum commitment under the SCA is $1 billion. The Funds pay a commitment fee at an annual rate of .065 of 1% on the unused portion of the credit facility, which is accrued and paid quarterly on a pro rata basis by the Funds. The SCA expires on March 9, 2000. Prior to March 11, 1999, the Funds had a credit agreement with a maximum commitment of $200,000,000. The commitment fee was .055 of 1% on the unused portion of the credit facility. The Fund did not borrow any amounts pursuant to either agreement during the period ended June 30, 1999. The purpose of the agreements is to serve as an alternative source of funding for capital share redemptions. - ------------------------------------------------------------ Note 3. Other Transactions with Affiliates Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned subsidiary of PIFM, serves as the Fund's transfer agent and during the six months ended June 30, 1999, the Fund incurred fees of approximately $2,898,951 for the services of PMFS. As of June 30, 1999, approximately $479,026 of such fees were due to PMFS. Transfer agent fees and expenses in the Statement of Operations include certain out-of-pocket expenses paid to nonaffiliates. For the six months ended June 30, 1999, PSI earned $198,492 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, 1999 aggregated $314,139,486 and $726,292,214, respectively. The federal income tax basis of the Fund's investments at June 30, 1999 was substantially the same as for financial reporting purposes and, accordingly, net unrealized appreciation for federal income tax purposes was $1,769,418,056 (gross unrealized appreciation--$1,935,310,456; gross unrealized depreciation--$165,892,400). - ------------------------------------------------------------ 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, 1999, the Fund has a 25.39% undivided interest in the joint account. The undivided interest for the Fund represents $197,772,000 in the principal amount. As of such date, each repurchase agreement in the joint account and the collateral therefor were as follows: Deutsche Bank Securities Inc., 4.75%, in the principal amount of $150,000,000, repurchase price $150,019,792, due 7/1/99. The value of the collateral including accrued interest was $153,000,548. Goldman Sachs & Co., 4.85%, in the principal amount of $200,000,000, repurchase price $200,026,944, due 7/1/99. The value of the collateral including accrued interest was $204,001,378. Morgan Stanley Dean Witter, 4.70%, in the principal amount of $178,944,000, repurchase price $178,967,362, due 7/1/99. The value of the collateral including accrued interest was $182,666,733. Morgan Stanley Dean Witter, 4.72%, in the principal amount of $50,000,000, repurchase price $50,006,556, due 7/1/99. The value of the collateral including accrued interest was $51,021,154. - -------------------------------------------------------------------------------- 9 Notes to Financial Statements (Unaudited) PRUDENTIAL EQUITY FUND, INC. - -------------------------------------------------------------------------------- Warburg Dillon Read LLC, 4.81%, in the principal amount of $200,000,000, repurchase price $200,026,722, due 7/1/99. The value of the collateral including accrued interest was $204,001,326. - ------------------------------------------------------------ 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. Transactions in shares of common stock were as follows:
Class A Shares Amount - --------------------------------- ------------ --------------- Six months ended June 30, 1999: Shares sold...................... 82,266,278 $ 1,720,479,075 Shares issued in reinvestment of dividends...................... 1,967,339 41,097,707 Shares reacquired................ (94,698,714) (1,962,083,798) ------------ --------------- Net decrease in shares outstanding before conversions.................... (10,465,097) (200,507,016) Shares issued upon conversion from Class B................... 6,024,517 128,750,247 ------------ --------------- Net decrease in shares outstanding.................... (4,440,580) $ (71,756,769) ------------ --------------- ------------ --------------- Year ended December 31, 1998: Shares sold...................... 257,279,581 $ 5,379,932,743 Shares issued in reinvestment of dividends...................... 8,698,400 174,395,442 Shares reacquired................ (257,576,459) (5,396,913,633) ------------ --------------- Net increase in shares outstanding before conversions.................... 8,401,522 157,414,552 Shares issued upon conversion from Class B................... 11,176,872 225,279,045 ------------ --------------- Net increase in shares outstanding.................... 19,578,394 $ 382,693,597 ------------ --------------- ------------ --------------- Class B Shares Amount - --------------------------------- ------------ --------------- Six months ended June 30, 1999: Shares sold...................... 14,061,493 $ 292,304,437 Shares issued in reinvestment of dividends...................... 2,538,673 52,829,780 Shares reacquired................ (31,741,140) (652,937,820) ------------ --------------- Net decrease in shares outstanding before conversions.................... (15,140,974) (307,803,603) Shares reacquired upon conversion into Class A................... (6,049,315) (128,750,247) ------------ --------------- Net decrease in shares outstanding.................... (21,190,289) $ (436,553,850) ------------ --------------- ------------ --------------- Year ended December 31, 1998: Shares sold...................... 57,870,061 $ 1,203,484,100 Shares issued in reinvestment of dividends...................... 11,185,741 223,571,853 Shares reacquired................ (65,658,297) (1,355,114,612) ------------ --------------- Net increase in shares outstanding before conversions.................... 3,397,505 71,941,341 Shares reacquired upon conversion into Class A................... (11,145,974) (225,279,045) ------------ --------------- Net increase in shares outstanding.................... (7,748,469) $ (153,337,704) ------------ --------------- ------------ --------------- Class C - --------------------------------- Six months ended June 30, 1999: Shares sold...................... 1,249,498 $ 26,050,768 Shares issued in reinvestment of dividends...................... 78,462 1,632,798 Shares reacquired................ (1,618,707) (33,213,076) ------------ --------------- Net decrease in shares outstanding.................... (290,747) $ (5,529,510) ------------ --------------- ------------ --------------- Year ended December 31, 1998: Shares sold...................... 3,508,923 $ 72,836,611 Shares issued in reinvestment of dividends...................... 328,636 6,521,538 Shares reacquired................ (2,977,095) (61,439,724) ------------ --------------- Net increase in shares outstanding.................... 860,464 $ 17,918,425 ------------ --------------- ------------ --------------- Class Z - --------------------------------- Six months ended June 30, 1999: Shares sold...................... 2,730,624 $ 57,215,557 Shares issued in reinvestment of dividends...................... 283,174 5,918,335 Shares reacquired................ (4,158,902) (85,626,181) ------------ --------------- Net decrease in shares outstanding.................... (1,145,104) $ (22,492,289) ------------ --------------- ------------ --------------- Year Ended December 31, 1998: Shares sold...................... 7,643,141 $ 157,738,709 Shares issued in reinvestment of dividends...................... 1,343,793 26,991,270 Shares reacquired................ (6,851,762) (140,447,679) ------------ --------------- Net increase in shares outstanding.................... 2,135,172 $ 44,282,300 ------------ --------------- ------------ ---------------
- -------------------------------------------------------------------------------- 10 Financial Highlights (Unaudited) PRUDENTIAL EQUITY FUND, INC. - --------------------------------------------------------------------------------
Class A ----------------------------------------------------------------------------------- Six Months Ended Year Ended December 31, June 30, ------------------------------------------------------------------- 1999 1998 1997 1996 1995 1994 ----------- ---------- ---------- ---------- ---------- ------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period....... $ 19.76 $ 19.85 $ 17.26 $ 16.44 $ 13.24 $ 13.80 ----------- ---------- ---------- ---------- ---------- -------- Income from investment operations Net investment income...................... .15 .31 .38 .35 .27 .22 Net realized and unrealized gain on investments and foreign currencies...... 2.91 1.37 3.70 2.52 3.88 .09 ----------- ---------- ---------- ---------- ---------- -------- Total from investment operations........ 3.06 1.68 4.08 2.87 4.15 .31 ----------- ---------- ---------- ---------- ---------- -------- Less distributions Dividends from net investment income....... -- (.28) (.36) (.35) (.27) (.22) Distributions in excess of net investment income.................................. -- -- -- (.01) -- -- Distributions from net realized capital gains................................... (.42 ) (1.49) (1.13) (1.69) (.68) (.65) ----------- ---------- ---------- ---------- ---------- -------- Total distributions..................... (.42 ) (1.77) (1.49) (2.05) (.95) (.87) ----------- ---------- ---------- ---------- ---------- -------- Net asset value, end of period............. $ 22.40 $ 19.76 $ 19.85 $ 17.26 $ 16.44 $ 13.24 ----------- ---------- ---------- ---------- ---------- -------- ----------- ---------- ---------- ---------- ---------- -------- TOTAL RETURN(a):........................... 15.61 % 8.41% 23.88% 17.94% 31.58% 2.38% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000)............ $2,497,070 $2,290,659 $1,912,802 $1,443,466 $1,158,111 $276,412 Average net assets (000)................... $2,221,204 $2,088,616 $1,709,030 $1,233,792 $ 908,365 $254,596 Ratios to average net assets: Expenses, including distribution fees... .86 %(b) .85% .88% .89% .91% 1.00% Expenses, excluding distribution fees... .61 %(b) .60% .63% .64% .66% .75% Net investment income................... 1.57 %(b) 1.41% 1.87% 2.07% 1.82% 1.62% For Class A, B, C and Z shares: Portfolio turnover...................... 11 % 25% 13% 19% 18% 12%
- --------------- (a) Total return does not consider the effects of sales loads. Total return is calculated assuming a purchase of shares on the first day and a sale on the last day of each period reported and includes reinvestment of dividends and distributions. Total returns for periods of less than one full year are not annualized. (b) Annualized. - -------------------------------------------------------------------------------- See Notes to Financial Statements. 11 Financial Highlights (Unaudited) PRUDENTIAL EQUITY FUND, INC. - --------------------------------------------------------------------------------
Class B ----------------------------------------------------------------------- Six Months Ended Year Ended December 31, June 30, ------------------------------------------------------- 1999 1998 1997 1996 1995 ----------- ---------- ---------- ---------- ---------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period....... $ 19.73 $ 19.83 $ 17.24 $ 16.43 $ 13.24 ----------- ---------- ---------- ---------- ---------- Income from investment operations Net investment income...................... .10 .14 .22 .22 .16 Net realized and unrealized gain on investments and foreign currencies...... 2.87 1.37 3.72 2.51 3.87 ----------- ---------- ---------- ---------- ---------- Total from investment operations........ 2.97 1.51 3.94 2.73 4.03 ----------- ---------- ---------- ---------- ---------- Less distributions Dividends from net investment income....... -- (.12) (.22) (.22) (.16) Distributions in excess of net investment income.................................. -- -- -- (.01) -- Distributions from net realized capital gains................................... (.42 ) (1.49) (1.13) (1.69) (.68) ----------- ---------- ---------- ---------- ---------- Total distributions..................... (.42 ) (1.61) (1.35) (1.92) (.84) ----------- ---------- ---------- ---------- ---------- Net asset value, end of period............. $ 22.28 $ 19.73 $ 19.83 $ 17.24 $ 16.43 ----------- ---------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- TOTAL RETURN(a):........................... 15.18 % 7.55% 23.05% 17.14% 30.62% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000)............ $2,828,838 $2,923,060 $3,090,767 $2,626,479 $2,140,895 Average net assets (000)................... $2,837,094 $3,135,980 $2,924,413 $2,417,900 $1,891,160 Ratios to average net assets: Expenses, including distribution fees... 1.61 %(b) 1.60% 1.63% 1.64% 1.66% Expenses, excluding distribution fees... .61 %(b) .60% .63% .64% .66% Net investment income................... .82 %(b) .66% 1.12% 1.37% .99% 1994 ---------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period....... $ 13.80 ---------- Income from investment operations Net investment income...................... .12 Net realized and unrealized gain on investments and foreign currencies...... .09 ---------- Total from investment operations........ .21 ---------- Less distributions Dividends from net investment income....... (.12) Distributions in excess of net investment income.................................. -- Distributions from net realized capital gains................................... (.65) ---------- Total distributions..................... (.77) ---------- Net asset value, end of period............. $ 13.24 ---------- ---------- TOTAL RETURN(a):........................... 1.60% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000)............ $1,970,580 Average net assets (000)................... $1,901,972 Ratios to average net assets: Expenses, including distribution fees... 1.75% Expenses, excluding distribution fees... .75% Net investment income................... .87%
- --------------- (a) Total return does not consider the effects of sales loads. Total return is calculated assuming a purchase of shares on the first day and a sale on the last day of each period reported and includes reinvestment of dividends and distributions. Total returns for periods of less than one full year are not annualized. (b) Annualized. - -------------------------------------------------------------------------------- See Notes to Financial Statements. 12 Financial Highlights (Unaudited) PRUDENTIAL EQUITY FUND, INC. - --------------------------------------------------------------------------------
Class C --------------------------------------------------------------------------- August 1, Six Months 1994(c) Ended Year Ended December 31, Through June 30, ------------------------------------------- December 31, 1999 1998 1997 1996 1995 1994 ---------- ------- ------- ------- ------- ------------ PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period....... $ 19.73 $ 19.83 $ 17.24 $ 16.43 $ 13.24 $14.02 ---------- ------- ------- ------- ------- ----- Income from investment operations Net investment income...................... .10 .16 .25 .22 .16 .09 Net realized and unrealized gain (loss) on investments and foreign currencies...... 2.87 1.35 3.69 2.51 3.87 (.10) ---------- ------- ------- ------- ------- Total from investment operations........ 2.97 1.51 3.94 2.73 4.03 (.01) ---------- ------- ------- ------- ------- ----- Less distributions Dividends from net investment income....... -- (.12) (.22) (.22) (.16) (.12) Distributions in excess of net investment income.................................. -- -- -- (.01) -- -- Distributions from net realized capital gains................................... (.42) (1.49) (1.13) (1.69) (.68) (.65) ---------- ------- ------- ------- ------- ----- Total distributions..................... (.42) (1.61) (1.35) (1.92) (.84) (.77) ---------- ------- ------- ------- ------- ----- Net asset value, end of period............. $ 22.28 $ 19.73 $ 19.83 $ 17.24 $ 16.43 $13.24 ---------- ------- ------- ------- ------- ----- ---------- ------- ------- ------- ------- ----- TOTAL RETURN(a):........................... 15.18% 7.55% 23.05% 17.14% 30.62% .01% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000)............ $ 93,843 $88,839 $72,244 $47,477 $23,894 $3,160 Average net assets (000)................... $ 87,408 $82,907 $60,434 $36,745 $12,190 $1,847 Ratios to average net assets: Expenses, including distribution fees... 1.61%(b) 1.60% 1.63% 1.64% 1.66% 1.83%(b) Expenses, excluding distribution fees... .61%(b) .60% .63% .64% .66% .83%(b) Net investment income................... .82%(b) .67% 1.11% 1.37% 1.03% .90%(b)
- --------------- (a) Total return does not consider the effects of sales loads. Total return is calculated assuming a purchase of shares on the first day and a sale on the last day of each period reported and includes reinvestment of dividends and distributions. Total returns for periods of less than a full year are not annualized. (b) Annualized. (c) Commencement of offering of Class C shares. - -------------------------------------------------------------------------------- See Notes to Financial Statements. 13 Financial Highlights (Unaudited) PRUDENTIAL EQUITY FUND, INC. - --------------------------------------------------------------------------------
Class Z ------------------------------------------------------ March 1, Six Months 1996(c) Ended Through June 30, December 31, 1999 1998 1997 1996 ----------- -------- -------- ------------ PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period....... $ 19.76 $ 19.87 $ 17.26 $ 17.10 ----------- -------- -------- ------------ Income from investment operations Net investment income...................... .19 .35 .42 .37 Net realized and unrealized gain (loss) on investments and foreign currencies...... 2.90 1.36 3.72 1.88 ----------- -------- -------- ------------ Total from investment operations........ 3.09 1.71 4.14 2.25 ----------- -------- -------- ------------ Less distributions Dividends from net investment income....... -- (.33) (.40) (.39) Distributions in excess of net investment income.................................. -- -- -- (.01) Distributions from net realized capital gains................................... (.42) (1.49) (1.13) (1.69) ----------- -------- -------- ------------ Total distributions..................... (.42) (1.82) (1.53) (2.09) ----------- -------- -------- ------------ Net asset value, end of period............. $ 22.43 $ 19.76 $ 19.87 $ 17.26 ----------- -------- -------- ------------ ----------- -------- -------- ------------ TOTAL RETURN(a):........................... 15.77% 8.56% 24.29% 13.65% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000)............ $ 323,808 $307,921 $267,121 $128,752 Average net assets (000)................... $ 304,953 $311,816 $ 57,646 $124,631 Ratios to average net assets: Expenses, including distribution fees... .61%(b) .60% .63% .64%(b) Expenses, excluding distribution fees... .61%(b) .60% .63% .64%(b) Net investment income................... 1.82%(b) 1.67% 2.11% 2.43%(b)
- --------------- (a) Total return does not consider the effects of sales loads. Total return is calculated assuming a purchase of shares on the first day and a sale on the last day of each period reported and includes reinvestment of dividends and distributions. Total returns for periods of less than a full year are not annualized. (b) Annualized. (c) Commencement of offering of Class Z shares. - -------------------------------------------------------------------------------- See Notes to Financial Statements. 14 Getting The Most From Your Prudential Mutual Fund How many times have you read these letters--or other financial materials--and stumbled across a word that you don't understand? Many shareholders have run into the same problem. We'd like to help. So we'll use this space from time to time to explain some of the words you might have read, but not understood. And if you have a favorite word that no one can explain to your satisfaction, please write to us. Basis Point: 1/100th of 1%. For example, one-half of one percent is 50 basis points. Collateralized Mortgage Obligations (CMOs): Mortgage-backed bonds that separate mortgage pools into different maturity classes, called tranches. These instruments are sensitive to changes in interest rates and homeowner refinancing activity. They are subject to prepayment and maturity extension risk. Derivatives: Securities that derive their value from other securities. The rate of return of these financial instruments rises and falls--sometimes very suddenly --in response to changes in some specific interest rate, currency, stock, or other variable. Discount Rate: The interest rate charged by the Federal Reserve on loans to member banks. Federal Funds Rate: The interest rate charged by one bank to another on overnight loans. Futures Contract: An agreement to purchase or sell a specific amount of a commodity or financial instrument at a set price at a specified date in the future. Leverage: The use of borrowed assets to enhance return. The expectation is that the interest rate charged on borrowed funds will be lower than the return on the investment. While leverage can increase profits, it can also magnify losses. Liquidity: The ease with which a financial instrument (or product) can be bought or sold (converted into cash) in the financial markets. Price/Earnings Ratio: The price of a share of stock divided by the earnings per share for a 12-month period. Option: An agreement to purchase or sell something, such as shares of stock, by a certain time for a specified price. An option need not be exercised. Spread: The difference between two values; often used to describe the difference between "bid" and "asked" prices of a security, or between the yields of two similar maturity bonds. Yankee Bond: A bond sold by a foreign company or government in the U.S. market and denominated in U.S. dollars. 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 Prudential/Pruco Securities registered representative. Your advisor or representative can provide you with the following services: - ------------------------------------------------------------------------------- There's No Reward Without Risk; but Is This Risk Worth It? Your financial advisor or registered representative 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 under-stands the markets and who knows you! - ------------------------------------------------------------------------------- Keeping Up With the Joneses A financial advisor or registered representative can help you wade through the numerous available mutual funds to find the ones that fit your own 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 advisor or registered representative 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 advisor or registered representative can answer questions when you're confused or worried about your investment, and should remind you that you're investing for the long haul. Prudential Mutual Funds Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 (800) 225-1852 http://www.prudential.com Directors Edward D. Beach Delayne Dedrick Gold Robert F. Gunia Douglas H. McCorkindale Thomas T. Mooney Stephen P. Munn Richard A. Redeker Robin B. Smith John R. Strangfeld Louis A. Weil, III Clay T. Whitehead Officers John R. Strangfeld, President Robert F. Gunia, Vice President Grace C. Torres, Treasurer Stephen M. Ungerman, Assistant Treasurer Marguerite E.H. Morrison, Secretary Manager Prudential Investments Fund Management LLC Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 Investment Adviser The Prudential Investment Corporation Prudential Plaza Newark, NJ 07102-3777 Distributor Prudential Investment Management Services LLC Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 Custodian State Street Bank and Trust Company One Heritage Drive North Quincy, MA 02171 Transfer Agent Prudential Mutual Fund Services LLC P.O. Box 15005 New Brunswick, NJ 08906 Independent Accountants PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, NY 10036 Legal Counsel Gardner, Carton & Douglas Quaker Tower 321 North Clark Street Chicago, IL 60610-4795 The views expressed in this report and information about the Fund's portfolio holdings are for the period covered by this report and are subject to change thereafter. The accompanying financial statements as of June 30, 1999, were not audited and, accordingly, no opinion is expressed on them. This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus. (LOGO) Prudential Mutual Funds Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 (800) 225-1852 BULK RATE U.S. POSTAGE PAID Permit 6807 New York, NY 744316100 MF101E2 744316209 744316308 744316407 -----END PRIVACY-ENHANCED MESSAGE-----