(ICON)
Prudential
Jennison
Growth &
Income Fund
ANNUAL
REPORT
Sept. 30, 1998
(LOGO)
<PAGE>
Prudential Jennison Growth & Income Fund
A Series of The Prudential Investment Portfolios, Inc.
Performance At A Glance.
After climbing steeply early in the year, the stock market
corrected
sharply during the summer months as investors feared a
global
economic slowdown and focused narrowly on the few companies
thought
not vulnerable to an economic slowdown. We did not own many
of these
favored stocks because we believed they already were
expensive for
their growth prospects. We also were hurt by our focus on
bargain-priced basic materials and specialty chemicals
stocks.
These industries tend to do well in an economic expansion,
and
their stocks did poorly as recessionary fears became acute.
<TABLE>
Cumulative Total Returns1 As of
9/30/98
<CAPTION>
One Since
Year
Inception2
<S> <C> <C>
Class A -9.40%
17.52%
Class B -10.01 15.93
Class C -10.01 15.93
Class Z -9.31 18.17
Lipper Growth & Income Fund Avg.3 -1.08 ***
</TABLE>
<TABLE>
Average Annual Total Returns1 As of
9/30/98
<CAPTION>
One Since
Year Inception2
<S> <C> <C>
Class A -13.93% 5.99%
Class B -15.01 6.13
Class C -11.01 8.12
Class Z -9.31 9.21
</TABLE>
Past performance is not indicative of future results.
Principal
and investment return will fluctuate so that an investor's
shares,
when redeemed, may be worth more or less than their original
cost.
1 Source: Prudential Investments Fund Management and Lipper
Analytical Services. 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 and
a
declining contingent deferred sales charge (CDSC) of 5%, 4%,
3%,
2%, 1% and 1% for six years for Class B shares. Class B
shares
will automatically convert to Class A shares, on a quarterly
basis, approximately seven years after purchase. Class C
shares
have a 1% CDSC for one year and, beginning November 2, 1998,
are sold with a front-end sales charge of 1% and a CDSC for
18 months. Class Z shares are not subject to a sales charge
or distribution fee.
2 Inception dates: Class A, B, C, and Z, 11/7/96.
3 Lipper average returns are for all funds in each share
class
for the one-year period in the Growth & Income Fund
category.
***Lipper Since Inception returns are 31.65% for Class A, B,
C,
and Z based on all funds in each share class.
How Investments Compared.
(As of 9/30/98)
(GRAPH)
Source: Lipper Analytical Services. Financial markets
change,
so a mutual fund's past performance should never be used to
predict future results. The risks to each of the investments
listed above are different -- we provide 12-month total
returns
for several Lipper mutual fund categories to show you that
reaching for higher returns means tolerating more risk. The
greater the risk, the larger the potential reward or loss.
In addition, we've included historical 20-year average
annual
returns. These returns assume the reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors
have
received higher historical total returns from stocks than
from
most other invest-ments. Smaller capitalization stocks offer
greater potential for long-term growth but may be more
volatile
than larger capitalization stocks.
General Bond Funds provide more income than stock funds,
which
can help smooth out their total returns year by year. But
their
prices still fluctuate (sometimes significantly) and their
returns have been historically lower than those of stock
funds.
General Municipal Debt Funds invest in bonds issued by state
governments, state agencies and/or municipalities. This
investment provides income that is usually exempt from
federal and state income taxes.
U.S. Taxable Money Funds attempt to preserve a constant
share value; they don't fluctuate much in price but,
historically, their returns have been generally among
the lowest of the major investment categories.
<PAGE>
Bradley Goldberg, Fund Manager (PICTURE)
Portfolio
Manager's Report
The Prudential Jennison Growth & Income Fund invests
primarily
in stocks of established companies with growth prospects we
believe to be underappreciated by the market. We aim at
strong
total investment returns by combining a focus on earnings
growth
with attention to the current price of a share. This
discipline
discourages us from paying too much for projected growth or
from continuing to hold a stock when the market offers more
than a fair price. There can be no assurance that the Fund
will reach its investment objective.
A Hybrid Strategy.
We combine a growth strategy -- looking for long-term
earnings
growth at faster rates than the overall market -- and a
value
strategy -- looking for companies selling significantly
below
the average ratio of price to earnings. We want our stocks
to
have both greater earnings growth than the market and lower
cost.
Strategy Session.
Our style is a hybrid of value and growth styles:
we look for good earnings growth for the portfolio as a
whole and
try to buy shares as inexpensively as we can. We're trying
to build
a portfolio with better-than-average earnings growth, but
with a
significantly lower average price/earnings ratio than the
S&P 500.
In view of the deteriorating global economic picture, we
have not
yet altered our defensive strategy of keeping high cash
balances
and selling some stocks short. However, some stock prices
have
fallen farther than is justified by the economic
uncertainty,
so we will become more fully invested as we find sufficient
value opportunities. As always, we are interested in
investments
that combine a strong potential for future earnings growth
with
an attractively low ratio of price to earnings. This past
summer,
these inexpensive stocks had a severe bear market. This hurt
our
return for the period, but at the lower prices, the
investment
value of out-of-favor companies is even better than normal.
<PAGE>
What Went Well.Two computer companies that we bought when
they
were unfashionable had very strong years. IBM --the world's
largest computer hardware company and second-largest
software
company -- finally convinced Wall Street analysts that it
has
a portfolio of businesses capable of stable long-term
earnings
growth. (Third-quarter 1998 profits were 10% above the 1997
level.) Growth investors have begun to embrace IBM, so not
only have earnings grown but the multiple of earnings that
investors are willing to pay also has moved up toward the
market average. It still is selling at below-average
price/earnings multiples, so we believe there is a way
to go before the company is at fair value.
Unisys also was an excellent performer during the period.
We purchased it initially as an out-of-favor technology
stock. Restructuring and new management have re-established
its earnings growth (88% third-quarter growth) and the stock
has been a very strong performer. We sold Unisys because we
thought that it achieved its full valuation in the market.
And Not So Well.
Our preference for companies with attractive relative
price/earnings
ratios that are selling at low prices led us away from the
stocks
of well-known large-capitalization companies. However, in
investors'
summer flight from any uncertainty, the stocks of such
companies
performed well. We had a focus on financial and basic
materials
companies, which were inexpensively priced, but these
sectors
fell further out of favor. Generally, the markets
exaggerated
previous differences: stocks that had been inexpensive fell
in price while expensive stocks became more so. This was a
very hostile environment for our investment style.
Hilton Hotels was among our poorest performing stocks. We
think
its hotel franchise is strong but investor concern about its
gaming operations is causing severe undervaluation. These
businesses will become separate companies shortly. Hilton's
stock bounced up sharply in October.
Case Corporation is a premier farm equipment manufacturer.
Its
stock fell because the decline of global grain prices hurt
farm
equipment sales. We believe its long-term prospects are
severely
undervalued. We also had a large loss in Polaroid, where we
expected its new management's cost reduction and revenue
growth
program to increase earnings. We believe that Polaroid's new
products and lower costs will enable exceptional profit
growth
when the Asian economies recover.
Looking Ahead.
We continue to
buy stocks with a favorable balance of risk and reward over
the
intermediate term. Since market valuations have become
depressed
except for the large-company stocks, we have found
inexpensive
stocks with excellent earning prospects, particularly when
we
look forward to the resumption of global economic growth.
Patience
may be rewarded well.
Five Largest
Holdings.
3.7% Raytheon Company
Aerospace/Defense
3.0% CIGNA Corp.
Insurance
2.7% The Limited, Inc.
Retail
2.4% Lockheed Martin Corp.
Aerospace/Defense
2.3% Eastman Kodak Corp.
Photography/Image
Technology
Expressed as a percentage of net assets as of 9/30/98.
1
<PAGE>
A Talk With Brad Goldberg.
Brad Goldberg talks about the past year's performance.
Q. When our reporting period began, you thought stocks were
overpriced. Did you have a special strategy to deal with
that?
A. We took a few steps, such as increasing our cash holdings
and establishing some positions short (selling borrowed
stocks
with the expectation of buying them back more cheaply).
However,
cheaper stocks have historically tended to not fall as far
in a
downturn as expensive stocks. We thought our everyday
value-oriented investment style was itself defensive. We
expected market leadership to continue to broaden as it
began to do in the summer of 1997.
Q. What do you mean by "broadening market leadership"?
A. We recognized that investors were favoring certain
familiar
stocks disproportionately to their earning prospects. These
market
leaders were selling at ratios of stock prices to earnings
that
were higher than the rest of the market. We expected the
most
expensive stocks to slow down or to decline more than the
cheaper
stocks. Historically, pricing discrepancies usually do close
as
investors look for better value for their dollar. A broader
range
of stocks would be expected to do well.
Q. That isn't what happened, is it?
A. No, it is unusual for already wide value differences to
grow
wider, but that is what happened. Investors were watching
the
recession develop in Asia and then were jolted by a default
on
Russian bonds. Instead of the leadership broadening, it
narrowed
as investors favored visibly stable earnings over value.
Equity
investors focused on stocks of a very small number of very
large companies. These stock prices climbed to very high
multiples of their annual earnings. Most other stocks
dropped in price.
Q. Do you think investors were overlooking the long-term
benefits
of your portfolio?
A. We believe we have identified a group of companies whose
earnings will improve much more than average over the next
few years. Some of them -- aluminum, steel, and paper
companies,
for example -- were adversely affected when the Asian
economic
crisis pushed down demand, but investors appeared to have
feared
a global recession. These cyclical stocks are now very
inexpensive.
We think the market has overlooked their potential for an
earnings
rebound. We believe we are in the trough of concern about
the
global economy. Their stock prices should rise in response
to
continued U.S. economic growth. We may see an upswing in
1999
that could last for several years.
Q. Are we back where we were a year ago?
A. No. For one thing, the gap between the market leading
stocks
and the rest of the market is wider than it was at the start
of
the year. There are some real bargains to be bought. On
September
30, our stocks had a price/earnings ratio of 13 times
estimated
1999 earnings, while the S&P 500 average was 24 times. For
another,
the economic situation in Asia is showing signs of
stabilizing.
Although growth hasn't resumed, I think investors aren't as
likely
to panic. Nonetheless, uncertainty is high and it may take a
while
for the values in our portfolio to be recognized.
(PICTURE)
2
<PAGE>
President's Letter November
9, 1998
(PICTURE)
Guarding Against Uncertainty.
Dear Shareholder:
As we enter the final months of the year, the news from the
financial markets is decidedly mixed. After setting record
highs earlier, stocks, as measured by the Dow Jones
Industrial
Average, experienced a series of steep sell-offs in late
summer.
The market rebounded in early fall, helped by two interest
rate
cuts by the Federal Reserve.
During this uncertainty there was also good news to report.
Bonds appreciated as investors fled troubled Asian and other
emerging markets for the safe haven of U.S. debt securities
- --
especially Treasuries. The U.S. economy remains strong, with
steady growth and low inflation.
Guarding against uncertainty in the current market
environment
can be challenging. That's why it is important to manage
your
expectations and diversify your portfolio.
Keep A Good Perspective.
Experienced mutual fund investors understand that financial
markets will always rise and fall -- that's what markets do.
Although past performance may not be indicative of future
results,
stocks and bonds have, over time, consistently produced
attractive
returns that have kept ahead of inflation. In fact,
investors who
remained focused on the long term and did not sell during
the
recent market volatility were rewarded. Stock prices, as
measured
by the Standard & Poor's 500 Index, have rebounded nearly
25%
since their August Lows -- setting a new record high on
November 23, 1998.
Diversify. Diversify. Diversify.
Because asset classes seldom move in lockstep, owning a mix
of stock, bond, and money market mutual funds can help
lessen
the effects of a market downturn over time. In fact, a
well-diversified portfolio may retain or perhaps even gain
in value during times of uncertainty.
We're Here To Help.
How diversified is your portfolio? Your Prudential
professional
will be glad to review your current allocations. He or she
will
recommend adjustments based upon your goals, market
conditions,
risk tolerance, and potential investment opportunities.
Thank you for your confidence in Prudential mutual funds.
We'll
continue to do our part in keeping you informed.
Sincerely,
Brian M. Storms
President
3
<PAGE>
THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.
Portfolio of Investments as of PRUDENTIAL JENNISON
GROWTH &
September 30, 1998 INCOME FUND
- ------------------------------------------------------------
- -------------------
- ------------------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--85.2%
COMMON STOCKS--84.1%
- ------------------------------------------------------------
Aerospace/Defense--6.1%
30,000 Lockheed Martin Corp. $
3,024,375
90,140 Raytheon Co.
4,670,379
---------
- ---
7,694,754
- ------------------------------------------------------------
Airlines--1.5%
18,800 Delta Airlines, Inc.
1,828,300
- ------------------------------------------------------------
Aluminum--3.7%
35,200 Aluminum Co. of America
2,499,200
42,800 Reynolds Metals Co.
2,174,775
---------
- ---
4,673,975
- ------------------------------------------------------------
Banking--7.0%
52,500 Chase Manhattan Corp.
2,270,625
32,800 Fleet Financial Group, Inc.
2,408,750
143,100 Hibernia Corp., Class A
2,066,006
24,100 J.P. Morgan & Co., Inc.
2,039,463
---------
- ---
8,784,844
- ------------------------------------------------------------
Biotechnology--1.2%
42,600 Agouron Pharmaceuticals, Inc.(a)
1,467,037
- ------------------------------------------------------------
Business Services--4.3%
24,900 Hertz Corp.
1,030,237
54,600 Ogden Corp.
1,552,688
112,000 Ryder System, Inc.
2,786,000
---------
- ---
5,368,925
- ------------------------------------------------------------
Computer Systems/Peripherals--5.5%
53,157 Compaq Computer Corp.
1,681,090
28,200 Hewlett-Packard Co.
1,492,838
16,900 International Business Machines
Corp.
2,163,200
29,125 Symbol Technologies, Inc.(a)
1,494,477
---------
- ---
6,831,605
EDP/Software Services--0.8%
153,700 Intergraph Corp.(a) $
999,050
- ------------------------------------------------------------
Foods--1.8%
63,100 Dole Food Co., Inc.
2,279,487
- ------------------------------------------------------------
Hotels--2.7%
136,600 Hilton Hotels Corp.
2,330,737
40,300 Promus Hotel Corp.(a)
1,110,769
---------
- ---
3,441,506
- ------------------------------------------------------------
Household & Personal Care Products--1.1%
64,400 The Dial Corp.
1,328,250
- ------------------------------------------------------------
Industrial Technology/Instruments--1.7%
83,600 Millipore Corp.
1,593,625
17,100 Varian Associates, Inc.
602,775
---------
- ---
2,196,400
- ------------------------------------------------------------
Insurance--4.0%
55,800 CIGNA Corp.
3,689,775
27,500 NAC Re Corp.
1,354,375
---------
- ---
5,044,150
- ------------------------------------------------------------
Machinery & Equipment--0.6%
36,100 Case Corp.
785,175
- ------------------------------------------------------------
Motor Vehicles & Equipment--2.2%
49,200 General Motors Corp., Class H
2,690,625
- ------------------------------------------------------------
Media--2.3%
84,200 CBS Corp.
2,041,850
19,131 Chris-Craft Industries, Inc.(a)
845,351
---------
- ---
2,887,201
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 4
<PAGE>
THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.
Portfolio of Investments as of PRUDENTIAL JENNISON
GROWTH &
September 30, 1998 INCOME FUND
- ------------------------------------------------------------
- -------------------
- ------------------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Oil Services--0.8%
35,900 McDermott International, Inc. $
967,056
- ------------------------------------------------------------
Paper & Forest Products--5.1%
84,000 Boise Cascade Corp.(a)
2,126,250
38,800 Champion International Corp.
1,214,925
117,000 Stone Container Corp.(a)
1,009,125
41,200 Temple-Inland, Inc.
1,972,450
---------
- ---
6,322,750
- ------------------------------------------------------------
Petroleum--4.1%
40,400 Anadarko Petroleum Corp.
1,588,225
37,000 Burlington Resources, Inc.
1,382,875
59,500 Unocal Corp.
2,156,875
---------
- ---
5,127,975
- ------------------------------------------------------------
Pharmaceuticals--0.8%
42,700 Vertex Pharmaceuticals, Inc.(a)
982,100
- ------------------------------------------------------------
Photography/Image Technology--3.7%
38,000 Eastman Kodak Co.
2,937,875
70,000 Polaroid Corp.
1,719,375
---------
- ---
4,657,250
- ------------------------------------------------------------
Publishing--6.6%
38,600 American Greetings Corp., Class A
1,527,113
18,900 McGraw-Hill Companies, Inc.
1,497,825
99,900 New York Times Co., Class A
2,747,250
49,300 Tribune Co.
2,480,406
---------
- ---
8,252,594
- ------------------------------------------------------------
Real Estate Investment Trusts--1.1%
77,971 Meditrust Cos.-Paired Stock
1,330,380
Retail--6.5%
64,500 AutoZone, Inc.(a) $
1,588,312
117,100 Boise Cascade Office Products
Corp.(a)
1,068,538
46,100 Sears, Roebuck & Co.
2,037,044
155,000 The Limited, Inc.
3,400,312
---------
- ---
8,094,206
- ------------------------------------------------------------
Savings & Loan--1.0%
36,050 Washington Mutual, Inc.
1,216,688
- ------------------------------------------------------------
Semiconductors--0.7%
91,700 National Semiconductor Corp.(a)
888,344
- ------------------------------------------------------------
Specialty Chemicals--1.8%
90,500 Dexter Corp.
2,217,250
- ------------------------------------------------------------
Steel & Metals--1.6%
83,600 USX-U.S. Steel Group, Inc.
1,995,950
- ------------------------------------------------------------
Telecommunications--1.8%
13,200 MCI WorldCom, Inc.(a)
645,150
25,700 Qwest Communications International,
Inc.(a)
804,731
21,100 Tellabs, Inc.(a)
840,044
---------
- ---
2,289,925
- ------------------------------------------------------------
Transportation--2.0%
34,400 FDX Corp.(a)
1,552,300
43,500 Knightsbridge Tankers Ltd.
935,250
---------
- ---
2,487,550
---------
- ---
Total common stocks
(cost $111,458,405)
105,131,302
---------
- ---
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 5
<PAGE>
THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.
Portfolio of Investments as of PRUDENTIAL JENNISON
GROWTH &
September 30, 1998 INCOME FUND
- ------------------------------------------------------------
- -------------------
- ------------------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
PREFERRED STOCKS--1.1%
- ------------------------------------------------------------
Steel and Metal--1.1%
33,300 USX-U.S. Steel Group, Inc.
Conv., 6.75%
(cost $1,593,525) $
1,444,387
---------
- ---
Total long-term investments
(cost $113,051,930)
106,575,689
---------
- ---
SHORT-TERM INVESTMENTS--14.7%
- ------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000)
<S> <C> <C> <C>
COMMERCIAL PAPER--4.3%
P-1 $ 5,378 Ford Motor Credit Corp.
5.37%, 10/1/98
(cost $5,378,000)
5,378,000
------
- -------
U.S. GOVERNMENT SECURITIES--10.4%
United States Treasury
Bills
3,000(b) 4.90%, 10/8/98
2,997,200
10,000(b) 4.97%, 10/8/98
9,990,336
------
- -------
Total U.S. government
securities
(cost $12,987,536)
12,987,536
------
- -------
Total short-term
investments
(cost $18,365,536)
18,365,536
------
- -------
Total investments before
short sales--99.9%
(cost $131,417,466; Note 4)
124,941,225
------
- -------
COMMON STOCKS SOLD SHORT(a)--(9.7%)
</TABLE>
<TABLE>
<CAPTION>
Shares
<C> <S> <C>
- ------------------------------------------------------------
Beverages--(0.9%)
(19,500) Coca-Cola Co.
(1,123,687)
- ------------------------------------------------------------
Foods--(1.1%)
(26,000) Campbell Soup Co.
(1,304,875)
Household & Personal Care Products--(1.1%)
(19,700) Procter & Gamble Co. $
(1,397,469)
- ------------------------------------------------------------
Industrial Technology/Instruments--(1.4%)
(28,500) Emerson Electric Co.
(1,774,125)
- ------------------------------------------------------------
Media--(1.0%)
(48,500) The Walt Disney Co.
(1,227,656)
- ------------------------------------------------------------
Petrolium International--(1.9%)
(12,200) Chevron Corp.
(1,025,562)
(19,300) Exxon Corp.
(1,354,619)
---------
- ---
(2,380,181)
- ------------------------------------------------------------
Medical Products--(0.7%)
(17,900) Boston Scientific Corp.(a)
(919,613)
- ------------------------------------------------------------
Retail--(0.4%)
(13,000) Best Buy Co., Inc.(a)
(539,500)
- ------------------------------------------------------------
Specialty Chemicals--(1.2%)
(17,300) The Dow Chemical Co.
(1,478,069)
---------
- ---
Total common stocks sold short
(proceeds at cost $13,809,611)
(12,145,175)
---------
- ---
Total investments, net of short
sales--90.2%
112,796,050
Other assets in excess of
other liabilities--9.8%
12,253,831
---------
- ---
Net Assets--100%
$125,049,881
---------
- ---
---------
- ---
</TABLE>
- ---------------
(a) Non-income producing securities.
(b) $12,493,000 of principal amount pledged as collateral
for short sales.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 6
<PAGE>
THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON
GROWTH &
Statement of Assets and Liabilities INCOME FUND
- ------------------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Assets
September 30, 1998
<S>
<C>
Investments, at value (cost
$131,417,466)...............................................
................ $124,941,225
Cash........................................................
............................................
23,968
Receivable for securities sold
short.......................................................
............. 13,809,611
Receivable for investments
sold........................................................
................. 1,529,202
Receivable for Series shares
sold........................................................
............... 270,704
Dividends and interest
receivable..................................................
..................... 202,889
Other
assets......................................................
...................................... 1,672
- ------------------
Total
assets......................................................
................................... 140,779,271
- ------------------
Liabilities
Investments sold short, at value (proceeds
$13,809,611)................................................
. 12,145,175
Payable for investments
purchased...................................................
.................... 1,542,928
Due to broker for securities sold
short.......................................................
.......... 1,502,069
Payable for Series shares
reacquired..................................................
.................. 292,816
Accrued
expenses....................................................
.................................... 102,412
Distribution fee
payable.....................................................
........................... 82,165
Management fee
payable.....................................................
............................. 61,825
- ------------------
Total
liabilities.................................................
................................... 15,729,390
- ------------------
Net
Assets......................................................
........................................
$125,049,881
- ------------------
- ------------------
Net assets were comprised of:
Common stock, at
par.........................................................
........................ $ 11,404
Paid-in capital in excess of
par.........................................................
............ 120,646,123
- ------------------
120,657,527
Undistributed net investment
income......................................................
............ 290,719
Accumulated net realized gain on
investments.................................................
........ 8,913,440
Net unrealized depreciation on
investments.................................................
.......... (4,811,805)
- ------------------
Net assets, September 30,
1998........................................................
.................. $125,049,881
- ------------------
- ------------------
Class A:
Net asset value and redemption price per share
($31,339,258 / 2,853,160 shares of common stock issued
and outstanding)...........................
$10.98
Maximum sales charge (5.0% of offering
price)......................................................
.. .58
- ------------------
Maximum offering price to
public......................................................
............... $11.56
- ------------------
- ------------------
Class B:
Net asset value, offering price and redemption price per
share
($84,751,017 / 7,733,804 shares of common stock issued
and outstanding)...........................
$10.96
- ------------------
- ------------------
Class C:
Net asset value, offering price and redemption price per
share
($7,123,821 / 650,074 shares of common stock issued
and outstanding)..............................
$10.96
- ------------------
- ------------------
Class Z:
Net asset value, offering price and redemption price per
share
($1,835,785 / 166,828 shares of common stock issued
and outstanding)..............................
$11.00
- ------------------
- ------------------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 7
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH &
INCOME FUND
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income September 30,
1998
<S> <C>
Income
Dividends (net of foreign withholding
taxes of $9,971)................... $ 2,158,603
Interest.............................. 1,314,600
----------------
- --
Total income....................... 3,473,203
----------------
- --
Expenses
Distribution fee--Class A............. 87,862
Distribution fee--Class B............. 934,652
Distribution fee--Class C............. 77,340
Management fee........................ 826,308
Transfer agent's fees and expenses.... 192,000
Custodian's fees and expenses......... 112,000
Registration fees..................... 100,000
Reports to shareholders............... 89,000
Dividends on securities sold short.... 71,634
Legal fees and expenses............... 38,000
Audit fees and expenses............... 20,000
Directors' fees....................... 8,000
Miscellaneous......................... 7,479
----------------
- --
Total expenses..................... 2,564,275
----------------
- --
Net investment income.................... 908,928
----------------
- --
Realized and Unrealized Gain (Loss)
on Investments
Net realized gain (loss) on:
Investment transactions............... 11,470,012
Financial futures transactions........ 101,894
Short sales........................... (794,668)
----------------
- --
10,777,238
----------------
- --
Net change in unrealized
appreciation/depreciation on:
Investments........................... (27,554,564)
Short sales........................... 1,706,026
----------------
- --
(25,848,538)
----------------
- --
Net loss on investments.................. (15,071,300)
----------------
- --
Net Decrease in Net Assets Resulting from
Operations............................... $(14,162,372)
----------------
- --
----------------
- --
</TABLE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH &
INCOME FUND Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended November 7,
1996(a)
Increase (Decrease) September 30,
Through
in Net Assets 1998 September
30, 1997
<S> <C> <C>
Operations
Net investment income..... $ 908,928 $
311,051
Net realized gain on
investment
transactions........... 10,777,238
4,530,772
Net change in unrealized
appreciation/depreciation
of investments......... (25,848,538)
21,036,733
------------- ------------
- --------
Net increase (decrease) in
net assets resulting
from operations........ (14,162,372)
25,878,556
------------- ------------
- --------
Dividends and distributions
(Note 1):
Dividends from net
investment income
Class A................ (350,759)
(173,413)
Class B................ (267,306)
(87,383)
Class C................ (22,287)
(9,043)
Class Z................ (17,381)
(1,688)
------------- ------------
- --------
(657,733)
(271,527)
------------- ------------
- --------
Distributions from net
realized gains
Class A................ (1,652,658)
- --
Class B................ (4,349,846)
- --
Class C................ (352,855)
- --
Class Z................ (39,211)
- --
------------- ------------
- --------
(6,394,570)
- --
------------- ------------
- --------
Series share transactions
(net of share conversions)
(Note 5)
Net proceeds from shares
sold................... 49,851,743
125,652,781
Net asset value of shares
issued in reinvestment
of dividends and
distributions.......... 6,672,687
248,524
Cost of shares
reacquired............. (40,383,538)
(21,384,670)
------------- ------------
- --------
Net increase in net assets
from Series share
transactions........... 16,140,892
104,516,635
------------- ------------
- --------
Total increase (decrease).... (5,073,783)
130,123,664
Net Assets
Beginning of period.......... 130,123,664
- --
------------- ------------
- --------
End of period(b)............. $ 125,049,881
$130,123,664
------------- ------------
- --------
------------- ------------
- --------
- ---------------
(a) Commencement of investment operations.
(b) Includes undistributed
net investment income of.. $ 290,719 $
39,524
------------- ------------
- --------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 8
<PAGE>
THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON
GROWTH &
Notes to Financial Statements INCOME FUND
- ------------------------------------------------------------
- --------------------
Prudential Jennison Growth & Income Fund (the 'Series') is a
separately managed
series of The Prudential Investment Portfolios, Inc.,
formerly Prudential
Jennison Series Fund, Inc. (the 'Fund'). The Fund was
incorporated in Maryland
on August 10, 1995 and is registered under the Investment
Company Act of 1940 as
a diversified, open-end, management investment company.
Investment operations of
the Series commenced on November 7, 1996.
The Series' investment objective is to achieve long-term
growth of capital and
income, with current income as a secondary objective. The
Series seeks to
achieve its objectives by investing primarily in common
stocks of established
companies with growth prospects believed to be
underappreciated by the market.
- ------------------------------------------------------------
Note 1. Accounting Policies
The following is a summary of significant accounting
policies followed by the
Series in the preparation of its financial statements.
Securities Valuation: Securities listed on a securities
exchange (other than
options on securities and indices) are valued at the last
sales price on such
exchange or system on the day of valuation, or, if there was
no sale on such
day, at the mean between the last bid and asked prices on
such day or at the bid
price on such day in the absence of an asked price.
Securities that are actively
traded in the over-the-counter market, including listed
securities for which the
primary market is believed by the Manager, in consultation
with the subadvisor,
to be over-the-counter, are valued by an independent pricing
agent of principal
market maker. Convertible debt securities that are actively
traded in the
over-the-counter market, including listed securities for
which the primary
market is believed by the Manager and the Subadvisor to be
over-the-counter, are
valued at the mean between the last reported bid and asked
prices provided by a
principal market maker. Options on securities and indices
traded on an exchange
are valued at the mean between the most recently quoted bid
and asked prices on
such exchange. Futures contracts and options thereon traded
on a commodities
exchange or board of trade are valued at the last sales
price at the close of
trading on such exchange or board of trade or, if there was
no sale on the
applicable commodities exchange or board of trade on such
day, at the mean
between the most recently quoted bid and asked prices on
such exchange or board
of trade. Securities for which market quotations are not
readily available,
other than private placements, are valued at a price
supplied by an independent
pricing agent, which is, in the opinion of such pricing
agent, representative of
the market value of such securities as of the time of
determination of net asset
value, or using a methodology developed by an independent
pricing agent, which
is, in the judgment of the Manager and the Subadviser, able
to produce prices
which are representative of market value.
Short-term securities which mature in more than 60 days, for
which market
quotations are readily available, are valued at current
market quotations as
provided by an independent pricing agent or principal market
maker. Short-term
securities which mature in 60 days or less are valued at
cost with interest
accrued or discount amortized to the date of maturity,
unless the Board of
Directors determines that such valuation does not represent
fair value.
All securities are valued as of 4:15 p.m., New York time.
Securities Transactions and Net Investment Income:
Securities transactions are
recorded on the trade date. Realized gains or losses on
sales of securities are
calculated on the identified cost basis. Dividend income is
recorded on the
ex-dividend date; interest income is recorded on the accrual
basis and is net of
discount accretion and premium amortization. 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
realized and unrealized
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.
Financial Futures Contracts: A financial futures contract is
an agreement to
purchase (long) or sell (short) an agreed amount of
securities or commodities at
a set price for delivery on a future date. Upon entering
into a financial
futures contract, the Series 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 Series each
day, depending on
the daily fluctuations in the value of the underlying
security or commodity.
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 Series invests in financial futures contracts in order
to hedge its existing
portfolio securities, or securities the Series intends to
purchase, against
fluctuations in value caused by changes in market conditions
or prevailing
interest rates. Should interest rates move unexpectedly, the
Series may not
achieve the anticipated benefits of the financial futures
contracts and may
realize a loss. The use of futures transactions involves
- ------------------------------------------------------------
- --------------------
9
<PAGE>
THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON
GROWTH &
Notes to Financial Statements INCOME FUND
- ------------------------------------------------------------
- --------------------
the risk of imperfect correlation in movements in the price
of futures
contracts, interest rates and the underlying hedged assets.
Short Sales: The Series may sell a security it does not own
in anticipation of a
decline in the market value of that security (short sale).
When the Series makes
a short sale, it must borrow the security sold short and
deliver it to the
broker-dealer through which it made the short sale. The
proceeds received from
the short sale are maintained as collateral for its
obligation to deliver the
security upon conclusion of the sale. In addition, the
Series may have to make
additional subsequent deposits with the broker equal to the
change in the market
value of the security sold short. The Series may have to pay
a fee to borrow the
particular security and may be obligated to remit any
payments received on such
borrowed securities. A gain, limited to the price at which
the Series sold the
security short, or a loss, unlimited in magnitude, will be
recognized upon the
termination of a short sale if the market price at
termination is less than or
greater than, respectively, the proceeds originally
received.
Dividends and Distributions: The Series expects to pay
dividends of net
investment income, if any, semi-annually and to make
distributions of any net
capital gains at least annually. 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 Series' policy to continue to meet the
requirements of the
Internal Revenue Code applicable to regulated investment
companies and to
distribute all of its taxable net income to its
shareholders. Therefore, no
federal income tax provision is required.
Withholding taxes on foreign dividends have been provided
for in accordance with
the Series' 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 a subadvisory agreement between
PIFM and Jennison
Associates LLC ('Jennison'), Jennison furnishes investment
advisory services in
connection with the management of the Fund. Under the
subadvisory agreement,
Jennison, subject to the supervision of PIFM, is responsible
for managing the
assets of the Series in accordance with its investment
objectives and policies.
The management fee paid PIFM is computed daily and payable
monthly, at an annual
rate of .60 of 1% of the average daily net assets of the
Series. PIFM pays
Jennison a subadvisory fee at an annual rate of .30 of 1% of
the average daily
net assets of the Series up to and including $300 million
and .25 of 1% of such
assets in excess of $300 million. PIFM also pays the cost of
compensation of
officers and employees of the Fund, occupancy and certain
clerical and
bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.
The Fund had a distribution agreement with Prudential
Securities Incorporated
('PSI'), which acted as the distributor of the Class A,
Class B, Class C and
Class Z shares of the Fund through May 31, 1998. Prudential
Investment
Management Services LLC ('PIMS') became the distributor of
the Fund effective
June 1, 1998 and is serving the Fund under the same terms
and conditions as
under the arrangement with PSI. The Fund compensated PSI and
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 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 Series
compensated PSI and PIMS for
distribution-related activities at an annual rate of up to
.30 of 1%, 1% and 1%
of the average daily net assets of the Class A, B and C
shares, respectively.
Such expenses under the Plans were .25 of 1%, 1% and 1% of
average daily net
assets of the Class A, B and C shares, respectively, for the
year ended
September 30, 1998.
PSI and PIMS have advised the Series that they received
approximately $159,300
in front-end sales charges resulting from sales of Class A
shares during the
year ended September 30, 1998. From these fees, PSI and PIMS
paid such sales
charges to affiliated broker-dealers, which in turn paid
commissions to
salespersons and incurred other distribution costs.
PSI and PIMS have advised the Series that for the year ended
September 30, 1998,
they received approximately $260,800 and $2,000 in
contingent deferred sales
charges imposed upon certain redemptions by Class B and C
shareholders,
respectively.
PIFM, PIMS, Jennison and PSI are wholly owned subsidiaries
of The Prudential
Insurance Company of America.
The Fund, along with other affiliated registered investment
companies (the
'Funds'), has a credit agreement (the 'Agreement') with an
unaffiliated lender.
The maximum commitment under the Agreement is $200,000,000.
Interest on any such
borrowings outstanding will be at market rates. The purpose
of the Agreement is
to serve as an alternative
- ------------------------------------------------------------
- --------------------
10
<PAGE>
THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON
GROWTH &
Notes to Financial Statements INCOME FUND
- ------------------------------------------------------------
- --------------------
source of funding for capital share redemptions. The Series
has not borrowed any
amounts pursuant to the Agreement during the year ended
September 30, 1998. The
Funds pay a commitment fee at an annual rate of .055 of 1%
on the unused portion
of the credit facility. The commitment fee is accrued and
paid quarterly on a
pro rata basis by the Funds. The Agreement expired on
December 30, 1997 and has
been extended through December 29, 1998 under the same
terms.
- ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned
subsidiary of PIFM,
serves as the Fund's transfer agent. During the year ended
September 30, 1998,
the Series incurred fees of approximately $160,900 for the
services of PMFS. As
of September 30, 1998, approximately $15,000 of such fees
were due to PMFS.
Transfer agent fees and expenses in the Statement of
Operations include certain
out-of-pocket expenses paid to nonaffiliates.
For the year ended September 30, 1998, PSI earned
approximately $200 in
brokerage commissions from portfolio transactions executed
on behalf of the
Series.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than
short-term investments,
for the year ended September 30, 1998 were $118,595,718 and
$110,701,303,
respectively.
The cost basis of the investments for federal income tax
purposes at September
30, 1998 was $132,607,134 and, accordingly, net unrealized
depreciation of
investments for federal income tax purposes was $7,665,909
(gross unrealized
appreciation-$6,425,720; gross unrealized depreciation--
$14,091,629).
- ------------------------------------------------------------
Note 5. Capital
The Series 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 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.
Prior to November 2,
1998, Class C shares were sold with a contingent deferred
sales charge of 1%
during the first year. Effective November 2, 1998, Class C
shares are sold with
a front-end sales charge of 1% and a contingent deferred
sales charge of 1%
during the first 18 months. Class Z shares are not subject
to any sales or
redemption charge and are offered exclusively for sale to a
limited group of
investors.
There are 3 billion shares of $.001 par value common stock
authorized which are
divided into three series, each of which offers four
classes, designated Class
A, Class B, Class C and Class Z, each of which consists of
250 million
authorized shares.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- -------------------------------------- ---------- -------
- ----
<S> <C> <C>
Year ended September 30, 1998:
Shares sold........................... 1,121,704
$13,786,056
Shares issued in reinvestment of
dividends and distributions......... 162,663
1,913,429
Shares reacquired..................... (1,213,010)
(14,774,385)
---------- -------
- ----
Net increase in shares outstanding
before conversion................... 71,357
925,100
Shares issued upon conversion from
Class B............................. 77,566
935,576
---------- -------
- ----
Net increase in shares outstanding.... 148,923 $
1,860,676
---------- -------
- ----
---------- -------
- ----
November 7, 1996* through
September 30, 1997:
Shares sold........................... 3,742,825
$39,152,598
Shares issued in reinvestment of
dividends........................... 14,160
157,166
Shares reacquired..................... (1,113,963)
(12,460,182)
---------- -------
- ----
Net increase in shares outstanding
before conversion................... 2,643,022
26,849,582
Shares issued upon conversion from
Class B............................. 61,215
732,819
---------- -------
- ----
Net increase in shares outstanding.... 2,704,237
$27,582,401
---------- -------
- ----
---------- -------
- ----
<CAPTION>
Class B
- --------------------------------------
<S> <C> <C>
Year ended September 30, 1998:
Shares sold........................... 2,383,930
$29,462,184
Shares issued in reinvestment of
dividends and distributions......... 369,244
4,332,243
Shares reacquired..................... (1,750,224)
(21,297,211)
---------- -------
- ----
Net increase in shares outstanding
before conversion................... 1,002,950
12,497,216
Shares reacquired upon conversion from
Class A............................. (77,755)
(935,576)
---------- -------
- ----
Net increase in shares outstanding.... 925,195
$11,561,640
---------- -------
- ----
---------- -------
- ----
</TABLE>
- ------------------------------------------------------------
- --------------------
11
<PAGE>
THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON
GROWTH &
Notes to Financial Statements INCOME FUND
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class B Shares
Amount
- -------------------------------------- ---------- -------
- ----
<S> <C> <C>
November 7, 1996* through
September 30, 1997:
Shares sold........................... 7,590,360
$79,524,546
Shares issued in reinvestment of
dividends........................... 7,661
80,973
Shares reacquired..................... (728,030)
(8,137,956)
---------- -------
- ----
Net increase in shares outstanding
before conversion................... 6,869,991
71,467,563
Shares reacquired upon conversion into
Class A............................. (61,382)
(732,819)
---------- -------
- ----
Net increase in shares outstanding.... 6,808,609
$70,734,744
---------- -------
- ----
---------- -------
- ----
<CAPTION>
Class C
- --------------------------------------
<S> <C> <C>
Year ended September 30, 1998:
Shares sold........................... 217,879 $
2,701,940
Shares issued in reinvestment of
dividends and distributions......... 31,625
371,055
Shares reacquired..................... (152,419)
(1,873,645)
---------- -------
- ----
Net increase in shares outstanding.... 97,085 $
1,199,350
---------- -------
- ----
---------- -------
- ----
November 7, 1996* through
September 30, 1997:
Shares sold........................... 608,639 $
6,265,784
Shares issued in reinvestment of
dividends........................... 827
8,698
Shares reacquired..................... (56,477)
(614,072)
---------- -------
- ----
Net increase in shares outstanding.... 552,989 $
5,660,410
---------- -------
- ----
---------- -------
- ----
<CAPTION>
Class Z
- --------------------------------------
<S> <C> <C>
Year ended September 30, 1998:
Shares sold........................... 309,216 $
3,901,563
Shares issued in reinvestment of
dividends
and distributions................... 4,713
55,960
Shares reacquired..................... (194,189)
(2,438,297)
---------- -------
- ----
Net increase in shares outstanding.... 119,740 $
1,519,226
---------- -------
- ----
---------- -------
- ----
November 7, 1996* through
September 30, 1997:
Shares sold........................... 62,839 $
709,853
Shares issued in reinvestment of
dividends........................... 146
1,687
Shares reacquired..................... (15,897)
(172,460)
---------- -------
- ----
Net increase in shares outstanding.... 47,088 $
539,080
---------- -------
- ----
---------- -------
- ----
- ---------------
* Commencement of investment operations.
</TABLE>
- ------------------------------------------------------------
- --------------------
12
<PAGE>
THE PRUDENTIAL INVESTMENT
PORTFOLIOS, INC.
PRUDENTIAL JENNISON
GROWTH &
Financial Highlights INCOME FUND
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class A
- --------------------------------------
November 7, 1996(a)
Year Ended Through
September 30, September 30,
1998 1997
- ------------- --------------------
<S>
<C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period...................................... $ 12.89
$ 10.00
- ------ ------
Income from investment operations
Net investment
income.....................................................
.15 .09
Net realized and unrealized gain (loss) on investment
transactions........ (1.32) 2.87
- ------ ------
Total from investment
operations.......................................
(1.17) 2.96
- ------ ------
Less distributions
Dividends from net investment
income...................................... (.12)
(.07)
Distributions from net realized
gains..................................... (.62)
- --
- ------ ------
Total
distributions...............................................
..... (.74) (.07)
- ------ ------
Net asset value, end of
period............................................ $
10.98 $ 12.89
- ------ ------
- ------ ------
TOTAL
RETURN(c)...................................................
........ (9.40)% 29.72%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000)...........................................
$31,339 $ 34,846
Average net assets
(000)..................................................
$35,145 $ 27,008
Ratios to average net assets:
Expenses, including distribution
fees.................................. 1.31%
1.58%(b)
Expenses, excluding distribution
fees.................................. 1.06%
1.33%(b)
Net investment
income..................................................
1.20% .90%(b)
Portfolio turnover
rate...................................................
99% 55%
<CAPTION>
Class B
- -------------------------------------
<S>
<C> <C>
November 7, 1996(a)
Year Ended Through
September 30, September 30,
1998 1997
- ------------- -------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period...................................... $ 12.86
$ 10.00
- ------ ------
Income from investment operations
Net investment
income.....................................................
.06 .02
Net realized and unrealized gain (loss) on investment
transactions........ (1.31) 2.86
- ------ ------
Total from investment
operations.......................................
(1.25) 2.88
- ------ ------
Less distributions
Dividends from net investment
income...................................... (.03)
(.02)
Distributions from net realized
gains..................................... (.62)
- --
- ------ ------
Total
distributions...............................................
..... (.65) (.02)
- ------ ------
Net asset value, end of
period............................................ $
10.96 $ 12.86
- ------ ------
- ------ ------
TOTAL
RETURN(c)...................................................
........ (10.01)% 28.83%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000)........................................... $84,751
$87,558
Average net assets
(000)..................................................
$93,465 $62,575
Ratios to average net assets:
Expenses, including distribution
fees.................................. 2.06%
2.33%(b)
Expenses, excluding distribution
fees.................................. 1.06%
1.33%(b)
Net investment
income..................................................
.46% .15%(b)
Portfolio turnover
rate...................................................
99% 55%
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) Annualized.
(c) 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.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 13
<PAGE>
THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON
GROWTH &
Financial Highlights INCOME FUND
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class C
- --------------------------------------
<S>
<C> <C>
November 7, 1996(a)
Year Ended Through
September 30, September 30,
1998 1997
- ------------- --------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period...................................... $ 12.86
$10.00
- ----- -----
Income from investment operations
Net investment
income.....................................................
.06 .02
Net realized and unrealized gain (loss) on investment
transactions........ (1.31) 2.86
- ----- -----
Total from investment
operations.......................................
(1.25) 2.88
- ----- -----
Less distributions
Dividends from net investment
income...................................... (.03)
(.02)
Distributions from net realized
gains..................................... (.62)
- --
- ----- -----
Total
distributions...............................................
..... (.65) (.02)
- ----- -----
Net asset value, end of
period............................................ $
10.96 $12.86
- ----- -----
- ----- -----
TOTAL
RETURN(c)...................................................
........ (10.01)% 28.83%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000)........................................... $
7,124 $7,111
Average net assets
(000)..................................................
$ 7,734 $5,631
Ratios to average net assets:
Expenses, including distribution
fees.................................. 2.06%
2.33%(b)
Expenses, excluding distribution
fees.................................. 1.06%
1.33%(b)
Net investment
income..................................................
.46% .15%(b)
Portfolio turnover
rate...................................................
99% 55%
<CAPTION>
Class Z
- -------------------------------------
<S>
<C> <C>
November 7, 1996(a)
Year Ended Through
September 30, September 30,
1998 1997
- ------------- -------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period...................................... $ 12.93
$ 10.00
- ----- -----
Income from investment operations
Net investment
income.....................................................
.17 .10
Net realized and unrealized gain (loss) on investment
transactions........ (1.33) 2.92
- ----- -----
Total from investment
operations.......................................
(1.16) 3.02
- ----- -----
Less distributions
Dividends from net investment
income...................................... (.15)
(.09)
Distributions from net realized
gains..................................... (.62)
- --
- ----- -----
Total
distributions...............................................
..... (.77) (.09)
- ----- -----
Net asset value, end of
period............................................ $
11.00 $ 12.93
- ----- -----
- ----- -----
TOTAL
RETURN(c)...................................................
........ (9.31)% 30.30%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000)........................................... $ 1,836
$ 609
Average net assets
(000)..................................................
$ 1,374 $ 227
Ratios to average net assets:
Expenses, including distribution
fees.................................. 1.06%
1.33%(b)
Expenses, excluding distribution
fees.................................. 1.06%
1.33%(b)
Net investment
income..................................................
1.54% 1.15%(b)
Portfolio turnover
rate...................................................
99% 55%
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) Annualized.
(c) 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.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 14
<PAGE>
THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON
GROWTH &
Report of Independent Accountants INCOME FUND
- ------------------------------------------------------------
- --------------------
To the Shareholders and Board of Directors of
The Prudential Investment Portfolios, Inc.,
Prudential Jennison Growth & Income Fund
In our opinion, the accompanying statement of assets and
liabilities, including
the portfolio of investments, and the related statements of
operations and of
changes in net assets and the financial highlights present
fairly, in all
material respects, the financial position of The Prudential
Investment
Portfolios, Inc., Prudential Jennison Growth & Income Fund
(the 'Fund', one of
the portfolios constituting The Prudential Investment
Portfolios, Inc.) at
September 30, 1998, the results of its operations for the
year then ended, and
the changes in its net assets and the financial highlights
for each of the two
years in the period then ended, in conformity with generally
accepted accounting
principles. These financial statements and financial
highlights (hereafter
referred to as 'financial statements') are the
responsibility of the Fund's
management; our responsibility is to express an opinion on
these financial
statements based on our audits. We conducted our audits of
these financial
statements in accordance with generally accepted auditing
standards which
require that we plan and perform the audit to obtain
reasonable assurance about
whether the financial statements are free of material
misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and
disclosures in the financial statements, assessing the
accounting principles
used and significant estimates made by management, and
evaluating the overall
financial statement presentation. We believe that our
audits, which included
confirmation of securities at September 30, 1998 by
correspondence with the
custodian and brokers, provide a reasonable basis for the
opinion expressed
above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
November 20, 1998
- ------------------------------------------------------------
- --------------------
15
<PAGE>
THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON
GROWTH &
Tax Information (Unaudited) INCOME FUND
- ------------------------------------------------------------
- --------------------
We are required by the Internal Revenue Code to advise you
within 60 days of the
Fund's fiscal year end (September 30, 1998) as to the
federal tax status of
dividends and distributions paid by the Series during such
fiscal year end.
We also wish to advise you that 43.60% of the dividends paid
from ordinary
income in the fiscal year ended September 30, 1998 qualified
for the corporate
dividends received deduction available to corporate
taxpayers.
We are required by Massachusetts, Missouri and Oregon to
inform you that
dividends which have been derived from interest on federal
obligations are not
taxable to shareholders. Please be advised that 5.45% of the
dividends paid from
ordinary income in the fiscal year ended September 30, 1998,
qualify for each of
these states' tax exclusion.
In January 1999, you will be advised on IRS Form 1099 DIV or
substitute 1099 DIV
as to the federal tax status of the dividends and
distributions received by you
in calendar year 1998.
- ------------------------------------------------------------
- --------------------
16
<PAGE>
//Prudential Jennison Growth & Income Fund
- --S&P 500 Index
Comparing A $10,000 Investment.
Prudential Jennison Growth & Income Fund
vs. the S&P 500 Index.
Past performance is not indicative of future results.
Principal
and investment return will fluctuate so an investor's
shares, when
redeemed, may be worth more or less than their original
cost.
These graphs are furnished to you in accordance with SEC
regulations.
They compare a $10,000 investment in The Prudential
Investment
Portfolios, Inc.: Jennison Growth & Income Fund (Class A, B,
C,
and Z shares) with a similar investment in the Standard &
Poor's
500 Composite Stock Price Index (S&P 500 Index) by
portraying the
initial account values at the commencement of operations of
each
class, and subsequent account values at the end of each
fiscal year
(September 30), as measured on a quarterly basis, beginning
in 1996
for Class A, B, C, and Z shares. For purposes of the graphs,
and
unless otherwise indicated in the accompanying tables, it
has been
assumed (a) that the maximum applicable front-end sales
charge was
deducted from the initial $10,000 investment in Class A
shares;
(b) the maximum applicable contingent deferred sales charges
were
deducted from the value of the investment in Class B and
Class C
shares, assuming full redemption on September 30, 1998; (c)
all
recurring fees (including management fees) were deducted;
and (d)
all dividends and distributions were reinvested. Class B
shares
will automatically convert to Class A shares, on a quarterly
basis,
approximately seven years after purchase. This conversion
feature is
not reflected in the graphs. Class Z shares are not subject
to a
sales charge or distribution fee.
The S&P 500 Index is a market capitalization-weighted index
representing the aggregate market value of the common equity
of 500 stocks primarily traded on the New York Stock
Exchange.
The S&P 500 is an unmanaged index and includes the
reinvestment
of all dividends, but does not reflect the payment of
transaction
costs and advisory fees associated with an investment in the
Fund. The S&P 500 is not the only index that may be used to
characterize performance of equity funds, and other indexes
may portray different comparative performance. Investors
cannot invest directly in an index.
Average Annual Total
Returns - Class A Class A
- ---------------------- (GRAPH)
With Sales Load
5.99% Since Inception
-13.93% for 1 Year
Without Sales Load
8.89% Since Inception
-9.40% for 1 Year
Average Annual Total
Returns - Class B
- ---------------------- Class B
With Sales Load (GRAPH)
6.13% Since Inception
-15.01% for 1 Year
Without Sales Load
8.12% Since Inception
-10.01% for 1 Year
Average Annual Total
Returns - Class C
- ------------------------ Class C
With Sales Load (GRAPH)
8.12% Since Inception
- -11.01% for 1 Year
Without Sales Load
8.12% Since Inception
- -10.01% for 1 Year
Average Annual Total
Returns - Class Z
- -------------------------- Class Z
9.21% Since Inception (GRAPH)
-9.31% for 1 Year
<PAGE>
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
Mendel A. Melzer, CFA
Thomas T. Mooney
Stephen P. Munn
Richard A. Redeker
Robin B. Smith
Brian M. Storms
Louis A. Weil, III
Clay T. Whitehead
Officers
Brian M. Storms, 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
Jennison Associates LLC
466 Lexington Avenue
New York, NY 10017
Distributor
Prudential Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
The views expressed in this report and information about the
Fund's
portfolio holdings are for the period covered by this report
and
are subject to change thereafter.This report is not
authorized
for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
74437E503 MF172E
74437E602
74437E701
74437E800
(ICON)
Prudential
Jennison
Growth
Fund
ANNUAL
REPORT
Sept. 30, 1998
(LOGO)
<PAGE>
Prudential Jennison Growth Fund
A Series of The Prudential Investment Portfolios, Inc.
Performance At A Glance.
The Prudential Jennison Growth Fund returned four percentage
points
more than the Lipper Growth Fund Average, although our one-
year
return was only a modest gain. After climbing steeply early
in
the year, the stock market corrected sharply in July and
August:
investors focused their favor on companies they thought
would not
be vulnerable to an economic slowdown. Most stocks had large
reversals, including our financial services holdings.
However,
the strong performance of technology, drug, and some
consumer
stocks supported our return.
<TABLE>
Cumulative Total Returns1 As of 9/30/98
<CAPTION>
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A 3.02% N/A 58.55%
Class B 2.21 N/A 55.16
Class C 2.21 N/A 55.16
Class Z 3.22 120.01% 166.70
Lipper Growth Fund Avg.3 -1.44 98.73 ***
</TABLE>
<TABLE>
Average Annual Total Returns1 As of 9/30/98
<CAPTION>
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A -2.13% N/A 15.11%
Class B -2.79 N/A 15.51
Class C 1.21 N/A 16.29
Class Z 3.22 17.08% 18.09
</TABLE>
Past performance is not indicative of future results.
Principal
and investment return will fluctuate so that an investor's
shares,
when redeemed, may be worth more or less than their original
cost.
1 Source: Prudential Investments Fund Management and Lipper
Analytical Services. 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 and
a
declining contingent deferred sales charge (CDSC) of 5%, 4%,
3%, 2%, 1% and 1% for six years for Class B shares. Class B
shares will automatically convert to Class A shares, on a
quarterly basis, approximately seven years after purchase.
Class C shares have a 1% CDSC for one year and, beginning
November 2, 1998, are sold with a front-end sales charge of
1% and a CDSC for 18 months. Class Z shares are not subject
to a sales charge or distribution fee.
2 Inception dates: Class A, B, and C, 11/2/95: Class Z,
4/15/96.
On 9/20/96, The Prudential Institutional Fund - Growth Stock
Fund merged into the Prudential Jennison Growth Fund, Class
Z shares. Performance prior to 9/20/96 is for the Growth
Stock
Fund, which had an inception date of 11/5/92.
3 Lipper average returns are for all funds in each share
class
for the one- and five-year periods in the Growth Fund
category.
*** Lipper Since Inception returns are 54.65% for Class A,
B,
and C; and 131.57% for Class Z based on all funds in each
share
class.
How Investment Compared.
(As of 9/30/98)
(GRAPH)
Source: Lipper Analytical Services. Financial markets
change, so a mutual fund's past performance should never be
used to predict future results. The risks to each of the
investments listed above are different -- we provide 12-
month
total returns for several Lipper mutual fund categories to
show you that reaching for higher returns means tolerating
more risk. The greater the risk, the larger the potential
reward or loss. In addition, we've included historical 20-
year
average annual returns. These returns assume the
reinvestment
of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors
have
received higher historical total returns from stocks than
from
most other investments. Smaller capitalization stocks offer
greater potential for long-term growth but may be more
volatile
than larger capitalization stocks.
General Bond Funds provide more income than stock funds,
which
can help smooth out their total returns year by year. But
their
prices still fluctuate (sometimes significantly) and their
returns historically have been lower than those of stock
funds.
General Municipal Debt Funds invest in bonds issued by state
governments, state agencies and/or municipalities. This
investment provides income that is usually exempt from
federal and state income taxes.
U.S. Taxable Money Funds attempt to preserve a constant
share
value; they don't fluctuate much in price but historically
their returns have been generally among the lowest of the
major investment categories.
<PAGE>
David Poiesz, Fund Manager
Peter Reinemann, Associate Fund Manager
Portfolio (PHOTO) (PHOTO)
Managers'
Report
The Prudential Jennison Growth Fund invests primarily
in stocks of medium and large companies (generally those
with a total market value of at least $1 billion) that we
believe have above-average prospects for growth. The Fund
may also invest in stocks of foreign companies, investment-
grade
bonds, and securities issued or backed by the U.S.
government
and its agencies, such as mortgage-backed securities. There
can
be no assurance that the Fund will reach its investment
objective.
Our Investment
Style.
We are growth investors. Jennison tries to identify stocks'
potential
for earnings growth over the coming 12 to 18 months. We look
for
firms that have room to grow, so we tend to focus on medium-
to
large-size companies. Because we use a longer time horizon
than
many growth investors, we can weather the turbulence, or
even
benefit, when a well-managed company has a short-term
disappointment.
Strategy Session.
The pace of earnings growth for U.S. companies has been
dropping
steadily over the past year. Investors have become deeply
concerned about future profits in an uncertain economic
climate. They are prizing companies that continue to deliver
rapid growth through the current difficulties, pushing their
stock prices ever higher and avoiding other stocks. The
differences in investment value between expensive and
bargain-priced stocks have become substantial. If a wider
range of companies resumes rapid earnings growth, investor
interest may broaden and is likely then to favor stocks that
are considerably less expensive than today's market leaders.
We have a two-pronged strategy for this environment. On the
one hand, we own companies that are currently high-priced
and
rising because of their strong earnings: our drug companies,
retail companies, some of our technology stocks, and
telecommunications companies. We also own companies that
are relatively inexpensive now because they are in the
early stages of what we believe will be a profit recovery.
These include Compaq, Intel, Chase Manhattan, CBS, and
Charles Schwab. We expect strong earnings growth from these
firms, but we have bought them at modest prices.
Portfolio Composition.
Sectors expressed as a percentage
of net assets as of 9/30/98.
(PIE CHART)
<PAGE>
What Went Well.
Through much of the year, we owned technology companies
that continued to post strong earnings gains, such as Cisco
Systems, Dell Computer, Symbol Technologies, and Microsoft.
These stocks performed well and we took some profits.
Afterward, the market became concerned about slowing
capital spending next year and these stocks fell sharply.
We added to some positions later at the lower prices.
Our pharmaceutical companies continued to perform well
because
of solid earnings and their new-product pipelines. Here,
too,
we have taken some profits, while increasing our holdings of
companies, such as Merck, that we believe will emerge the
winners in the group. We continue to have a focus on drug
companies, although we recognize that their current prices
leave no room for a serious disappointment on business
fundamentals.
And Not So Well.
Investors have been reacting very quickly to
any sign of vulnerability to economic slowing. Our financial
stocks, particularly Merrill Lynch, Chase Manhattan, and
Citicorp, tumbled in August as investors fled from companies
that might be exposed to risks in Asia, Russia, Latin
America,
and a slowing of U.S. economic growth. We continued to hold
them because we believe they have strong global positions
and
their losses would not be large enough to justify the deep
decline in their market prices. They recovered somewhat in
October after the Fund's fiscal year end.
Also, we owned Tellabs and Ciena, manufacturers of
telecommunications equipment. Tellabs, which had been
among our largest holdings, rose by more than 50% early
in 1998, partly on news of a possible merger with Ciena.
However, Ciena lost two major sales, and in light of its
deteriorating business fundamentals, it became clear no
merger would take place. Both stocks dropped sharply and
we sold them both.
Looking Ahead.
We believe that Federal Reserve policy is the key to the
market outlook for the foreseeable future. As the third
quarter closed, the Fed eased interest rates slightly and
then eased more in October. If it reduces rates far enough
and fast enough to prevent recession, as we believe it will,
our financial services positions will benefit.
The U.S. consumer, bolstered by attractive mortgage
refinancing
rates, healthy personal balance sheets, and low
unemployment,
remains a bright spot in a gloomy economic picture. Some of
the
large consumer stocks we have not owned recently may prove
to be
attractive purchases in the future, particularly as their
prices
have come down to earth.
Five Largest
Holdings.
4.3% MCI WorldCom, Inc.
Telecommunications
3.1% Eli Lilly & Co.
Pharmaceuticals
2.9% Schering-Plough Corp.
Pharmaceuticals
2.9% General Electric Co.
Diversified Operations
2.9% Microsoft Corp.
EDP Software & Services
Expressed as a percentage of net assets as
of 9/30/98.
1
<PAGE>
President's Letter November 9,
1998
(PHOTO)
Guarding Against Uncertainty.
Dear Shareholder:
As we enter the final months of the year, the news from the
financial markets is decidedly mixed. After setting record
highs earlier, stocks, as measured by the Dow Jones
Industrial
Average, experienced a series of steep sell-offs in late
summer.
The market rebounded in early fall, helped by two interest
rate
cuts by the Federal Reserve.
During this uncertainty there was also good news to report.
Bonds appreciated as investors fled troubled Asian and other
emerging markets for the safe haven of U.S. debt securities
- --
especially Treasuries. The U.S. economy remains strong, with
steady growth and low inflation.
Guarding against uncertainty in the current market
environment
can be challenging. That's why it is important to manage
your
expectations and diversify your portfolio.
Keep A Good Perspective.
Experienced mutual fund investors understand that financial
markets will always rise and fall -- that's what markets do.
Although past performance may not be indicative of future
results, stocks and bonds have, over time, consistently
produced attractive returns that have kept ahead of
inflation.
In fact, investors who remained focused on the long term and
did not sell during the recent market volatility were
rewarded.
Stock prices, as measured by the S&P 500, have rebounded
more
than 20% since their August lows, thereby almost erasing all
their losses.
Diversify. Diversify. Diversify.
Because asset classes seldom move in lockstep, owning a mix
of
stock, bond, and money market mutual funds can help lessen
the
effects of a market downturn over time. In fact, a well-
diversified
portfolio may retain or perhaps even gain in value during
times of
uncertainty.
We're Here To Help.
How diversified is your portfolio? Your Prudential
professional will
be glad to review your current allocations. He or she will
recommend
adjustments based upon your goals, market conditions, risk
tolerance,
and potential investment opportunities.
Thank you for your confidence in Prudential mutual funds.
We'll
continue to do our part in keeping you informed.
Sincerely,
Brian M. Storms
President
2
<PAGE>
THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.
Portfolio of Investments as of September 30, 1998
PRUDENTIAL JENNISON
GROWTH FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--96.7%
COMMON STOCKS--96.7%
- ------------------------------------------------------------
Banks & Financial Services--12.1%
682,200 Associates First Capital Corp. $
44,513,550
943,800 Chase Manhattan Corp.
40,819,350
523,500 Citicorp
48,652,781
213,600 Fleet Financial Group, Inc.
15,686,250
900,450 MBNA Corp.
25,775,381
389,200 Merrill Lynch & Co., Inc.
18,438,350
566,690 Morgan Stanley, Dean Witter & Co.
24,403,088
672,600 Schwab (Charles) Corp.
26,483,625
707,550 Washington Mutual, Inc.
23,879,813
-----------
- ---
268,652,188
- ------------------------------------------------------------
Business Services--2.6%
660,300 Omnicom Group, Inc.
29,713,500
323,000 Xerox Corp.
27,374,250
-----------
- ---
57,087,750
- ------------------------------------------------------------
Computer Systems/Peripherals--7.0%
1,036,200 Compaq Computer Corp.
32,769,825
614,700 Dell Computer Corp.(a)
40,416,525
706,200 Hewlett-Packard Co.
37,384,462
350,600 International Business Machines
Corp.
44,876,800
-----------
- ---
155,447,612
- ------------------------------------------------------------
Diversified Operations--2.9%
820,200 General Electric Co.
65,257,163
- ------------------------------------------------------------
EDP Software & Services--10.0%
285,000 Cadence Design Systems, Inc.(a)
7,285,313
1,074,400 HBO & Co.
31,023,300
571,000 Intuit, Inc.(a)
26,587,187
577,700 Microsoft Corp.(a)
63,583,106
1,673,600 Oracle Systems Corp.(a) $
48,743,600
730,239 Platinum Technology, Inc.(a)
13,144,302
780,000 Rational Software Corp.(a)
13,113,750
459,000 SAP AG (ADR)(Germany)
17,872,313
-----------
- ---
221,352,871
- ------------------------------------------------------------
Electronic Components--4.1%
521,900 Intel Corp.
44,752,925
62,100 International Rectifier Corp.(a)
318,263
864,100 Texas Instruments, Inc.
45,581,275
-----------
- ---
90,652,463
- ------------------------------------------------------------
Hotels--0.6%
502,700 Promus Hotel Corp.(a)
13,855,669
- ------------------------------------------------------------
Industrial Technology/Instruments--3.9%
865,500 Applied Materials, Inc.(a)
21,853,875
747,800 KLA Tencor Corp.(a)
18,601,525
910,400 Symbol Technologies, Inc.
46,714,900
-----------
- ---
87,170,300
- ------------------------------------------------------------
Insurance--6.7%
988,000 ACE, Ltd.
29,640,000
418,300 American International Group,
Inc.
32,209,100
976,766 Mutual Risk Management, Ltd.
34,553,097
725,300 Provident Companies, Inc.
24,478,875
545,800 UNUM Corp.
27,119,438
-----------
- ---
148,000,510
- ------------------------------------------------------------
Media--3.3%
1,550,800 CBS Corp.
37,606,900
746,200 Clear Channel Communications,
Inc.(a)
35,444,500
-----------
- ---
73,051,400
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 3
<PAGE>
THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.
Portfolio of Investments as of September 30, 1998
PRUDENTIAL JENNISON
GROWTH FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Networking--4.0%
764,000 Ascend Communications, Inc.(a) $
34,762,000
874,650 Cisco Systems, Inc.(a)
54,064,303
-----------
- ---
88,826,303
- ------------------------------------------------------------
Oil Services--1.0%
442,800 Schlumberger, Ltd.
22,278,375
- ------------------------------------------------------------
Pharmaceuticals--18.2%
985,600 American Home Products Corp.
51,620,800
878,000 Eli Lilly & Co.
68,758,375
437,100 Merck & Co., Inc.
56,631,769
939,800 Monsanto Co.
52,981,225
478,500 Pfizer, Inc.
50,691,094
144,700 Pharmacia & Upjohn, Inc.
7,262,131
631,800 Schering Plough Corp.
65,430,787
682,400 Warner-Lambert Co.
51,521,200
-----------
- ---
404,897,381
- ------------------------------------------------------------
Restaurants--1.5%
565,900 McDonald's Corp.
33,777,156
- ------------------------------------------------------------
Retail--8.7%
431,712 Abercrombie & Fitch Co.(a)
18,995,328
890,508 Dollar General Corp.
23,709,762
615,350 Gap, Inc.
32,459,712
1,477,600 Home Depot, Inc.
58,365,200
745,300 Kohl's Corp.(a)
29,066,700
1,051,500 Staples, Inc.(a)
30,887,813
-----------
- ---
193,484,515
- ------------------------------------------------------------
Telecommunications--7.1%
741,300 AirTouch Communications, Inc.(a)
42,254,100
1,942,400 MCI WorldCom, Inc.
94,934,800
633,300 Qwest Communications
International, Inc.(a)
19,830,206
-----------
- ---
157,019,106
Telecommunications Equipment--2.5%
412,600 Nokia Corp. (ADR)(Finland) $
32,363,312
612,600 Tellabs, Inc.(a)
24,389,138
-----------
- ---
56,752,450
- ------------------------------------------------------------
Trucking & Shipping--0.5%
270,600 FDX Corp.
12,210,825
Total long-term investments
(cost $1,951,570,244)
2,149,774,037
-----------
- ---
- ------------------------------------------------------------
SHORT-TERM INVESTMENTS--3.3%
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000)
- ------------------------------------------------------------
Commercial Paper--2.4%
P-1 $ 52,714 Chevron U.S.A., Inc.
5.50%, 10/1/98
(cost $52,714,000)
52,714,000
- ------------------------------------------------------------
U.S. Government Securities--0.9%
United States Treasury
Bills
20,000 4.275%, 12/31/98
(cost $19,783,875)
19,783,875
Total short-term
investments
(cost $72,497,875)
72,497,875
- ------------------------------------------------------------
Total Investments--100.0%
(cost $2,024,068,119;
Note 4)
2,222,271,912
Other assets in excess
of
liabilities
215,618
-------
- --------
Net Assets--100% $
2,222,487,530
-------
- --------
-------
- --------
</TABLE>
- ---------------
(a) Non-income producing security.
ADR--American Depository Receipt.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 4
<PAGE>
THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.
Statement of Assets and Liabilities PRUDENTIAL JENNISON
GROWTH FUND
- ------------------------------------------------------------
- --------------------
<TABLE>
Assets
September 30, 1998
<S>
<C>
Investments, at value (cost
$2,024,068,119).............................................
............... $2,222,271,912
Receivable for investments
sold........................................................
................ 19,435,409
Receivable for Series shares
sold........................................................
.............. 7,620,008
Dividends and interest
receivable..................................................
.................... 1,248,543
Deferred expenses and other
assets......................................................
............... 117,160
- ------------------
Total
assets......................................................
.................................. 2,250,693,032
- ------------------
Liabilities
Bank
overdraft...................................................
...................................... 221,509
Payable for investments
purchased...................................................
................... 17,275,137
Payable for Series shares
reacquired..................................................
................. 8,479,636
Management fee
payable.....................................................
............................ 1,081,955
Distribution fees
payable.....................................................
......................... 699,816
Accrued expenses and other
liabilities.................................................
................ 447,449
- ------------------
Total
liabilities.................................................
.................................. 28,205,502
- ------------------
Net
Assets......................................................
.......................................
$2,222,487,530
- ------------------
- ------------------
Net assets were comprised of:
Common stock, at
par.........................................................
....................... $ 154,702
Paid-in capital in excess of
par.........................................................
........... 1,924,037,776
- ------------------
1,924,192,478
Accumulated net realized gain on
investments.................................................
....... 100,091,259
Net unrealized appreciation on
investments.................................................
......... 198,203,793
- ------------------
Net assets, September 30,
1998........................................................
................. $2,222,487,530
- ------------------
- ------------------
Class A:
Net asset value and redemption price per share
($446,996,170 / 30,963,191 shares of common stock
issued and outstanding)........................
$14.44
Maximum sales charge (5% of offering
price)......................................................
... .76
- ------------------
Maximum offering price to
public......................................................
.............. $15.20
- ------------------
- ------------------
Class B:
Net asset value, offering price and redemption price per
share
($708,463,180 / 50,218,577 shares of common stock
issued and outstanding)........................
$14.11
- ------------------
- ------------------
Class C:
Net asset value, offering price and redemption price per
share
($45,125,515 / 3,198,724 shares of common stock issued
and outstanding)..........................
$14.11
- ------------------
- ------------------
Class Z:
Net asset value, offering price and redemption price per
share
($1,021,902,665 / 70,321,313 shares of common stock
issued and outstanding)......................
$14.53
- ------------------
- ------------------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 5
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH FUND
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income (Loss) September 30,
1998
<S> <C>
Income
Dividends (net of foreign withholding
taxes of $93,491).................. $ 11,248,612
Interest.............................. 2,241,927
----------------
- --
Total income....................... 13,490,539
----------------
- --
Expenses
Management fee........................ 9,927,436
Distribution fee--Class A............. 627,794
Distribution fee--Class B............. 5,578,224
Distribution fee--Class C............. 353,371
Transfer agent's fees and expenses.... 2,538,000
Reports to shareholders............... 460,000
Registration fees..................... 389,000
Custodian's fees and expenses......... 210,000
Legal fees and expenses............... 68,000
Amortization of deferred organization
expenses........................... 37,967
Audit fee and expenses................ 20,000
Insurance expense..................... 11,000
Directors' fees....................... 8,000
Miscellaneous......................... 16,356
----------------
- --
Total expenses..................... 20,245,148
----------------
- --
Net investment loss......................
(6,754,609)
----------------
- --
Realized and Unrealized Gain (Loss)
on Investments
Net realized gain on investment
transactions.......................... 131,020,013
Net change in unrealized appreciation on
investments...........................
(190,394,651)
----------------
- --
Net loss on investments..................
(59,374,638)
----------------
- --
Net Decrease in Net Assets
Resulting from Operations................ $
(66,129,247)
----------------
- --
----------------
- --
</TABLE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL JENNISON GROWTH FUND
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) in Year Ended September
30,
Net Assets 1998 1997
<S> <C> <C>
Operations
Net investment loss......... $ (6,754,609) $
(3,451,314)
Net realized gain on
investments.............. 131,020,013
90,453,012
Net change in unrealized
appreciation of
investments.............. (190,394,651)
224,732,097
-------------- ---------
- -----
Net increase (decrease) in
net assets resulting from
operations............... (66,129,247)
311,733,795
-------------- ---------
- -----
Distributions from net realized
capital gains (Note 1)
Class A..................... (12,677,688)
- --
Class B..................... (37,861,226)
- --
Class C..................... (2,330,817)
- --
Class Z..................... (55,817,957)
- --
-------------- ---------
- -----
(108,687,688)
- --
-------------- ---------
- -----
Series share transactions (net
of conversion) (Note 5)
Net proceeds from shares
sold (Note 6)............ 1,822,040,223
859,180,110
Net asset value of shares
issued in reinvestment of
distributions............ 106,812,422
- --
Cost of shares reacquired... (730,978,040)
(666,161,401)
-------------- ---------
- -----
Net increase in net assets
from Series share
transactions............. 1,197,874,605
193,018,709
-------------- ---------
- -----
Total increase................. 1,023,057,670
504,752,504
Net Assets
Beginning of year.............. 1,199,429,860
694,677,356
-------------- ---------
- -----
End of year.................... $2,222,487,530
$1,199,429,860
-------------- ---------
- -----
-------------- ---------
- -----
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 6
<PAGE>
THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.
Notes to Financial Statements PRUDENTIAL JENNISON
GROWTH FUND
- ------------------------------------------------------------
- --------------------
Prudential Jennison Growth Fund (the 'Series') is a
separately managed series of
The Prudential Investment Portfolios, Inc., formerly
Prudential Jennison Series
Fund, Inc. (the 'Fund'). The Fund was incorporated in
Maryland on August 10,
1995 and is registered under the Investment Company Act of
1940 as a
diversified, open-end, management investment company. The
Series had no
significant operations other than the issuance of 3,334
shares of Class A and
3,333 shares of Class B and Class C common stock for
$100,000 on September 13,
1995 to Prudential Investments Fund Management LLC ('PIFM').
Investment
operations of the Series commenced on November 2, 1995.
The Series' investment objective is to achieve long-term
growth of capital. It
invests primarily in equity securities (common stock,
preferred stock and
securities convertible into common stock) of established
companies with
above-average growth prospects.
- ------------------------------------------------------------
Note 1. Accounting Policies
The following is a summary of significant accounting
policies followed by the
Series in the preparation of its financial statements.
Securities Valuation: Securities listed on a securities
exchange (other than
options on securities and indices) are valued at the last
sales price on such
exchange or system on the day of valuation, or, if there was
no sale on such
day, at the mean between the last bid and asked prices on
such day or at the bid
price on such day in the absence of an asked price.
Securities that are actively
traded in the over-the-counter market, including listed
securities for which the
primary market is believed by the Manager, in consultation
with the Subadviser,
to be over-the-counter, are valued by an independent pricing
agent or principal
market maker. Convertible debt securities that are actively
traded in the
over-the-counter market, including listed securities for
which the primary
market is believed by the Manager and the Subadviser to be
over-the-counter, are
valued at the mean between the last reported bid and asked
prices provided by a
principal market maker. Options on securities and indices
traded on an exchange
are valued at the mean between the most recently quoted bid
and asked prices on
such exchange. Futures contracts and options thereon traded
on a commodities
exchange or board of trade are valued at the last sales
price at the close of
trading on such exchange or board of trade or, if there was
no sale on the
applicable commodities exchange or board of trade on such
day, at the mean
between the most recently quoted bid and asked prices on
such exchange or board
of trade. Securities for which market quotations are not
readily available,
other than private placements, are valued at a price
supplied by an independent
pricing agent, which is, in the opinion of such pricing
agent, representative of
the market value of such securities as of the time of
determination of net asset
value, or using a methodology developed by an independent
pricing agent, which
is, in the judgment of the Manager and the Subadviser, able
to produce prices
which are representative of market value.
Short-term securities which mature in more than 60 days, for
which market
quotations are readily available, are valued at current
market quotations as
provided by an independent pricing agent or principal market
maker. Short-term
securities which mature in 60 days or less are valued at
cost with interest
accrued or discount amortizied to the date of maturity,
unless the Board of
Directors determines that such valuation does not represent
fair value.
All securities are valued as of 4:15 p.m., New York time.
Securities Transactions and Net Investment Income:
Securities transactions are
recorded on the trade date. Realized gains or losses on
sales of securities are
calculated on the identified cost basis. Dividend income is
recorded on the
ex-dividend date; interest income is recorded on the accrual
basis and is net of
discount accretion and premium amortization. Expenses are
recorded on the
accrual basis which may require the use of certain estimates
by management.
Net investment income (loss), other than distribution fees,
and realized and
unrealized 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: The Series expects to pay
dividends of net
investment income, if any, semi-annually and to make
distributions of any net
capital gains at least annually. 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 Series' policy to continue to meet the
requirements of the
Internal Revenue Code applicable to regulated investment
companies and to
distribute all of its taxable net income to its
shareholders. Therefore, no
federal income tax provision is required.
Withholding taxes on foreign dividends have been provided
for in accordance with
the Series' understanding of the applicable country's tax
rules and rates.
Deferred Organization Expenses: Approximately $200,000 of
expenses were incurred
in connection with the organization of the Fund. These costs
have been deferred
and are being amortized ratably over a period of sixty
months from the date the
Series commenced investment operations.
- ------------------------------------------------------------
- --------------------
7
<PAGE>
THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.
Notes to Financial Statements PRUDENTIAL JENNISON
GROWTH FUND
- ------------------------------------------------------------
- --------------------
Reclassification of Capital Accounts: The Series accounts
and reports for
distributions to shareholders in accordance with the
American Institute of
Certified Public Accountants' Statement of Position 93-2:
'Determination,
Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and
Return of Capital Distributions by Investment Companies.'
For the year ended
September 30, 1998, the Series reclassified current net
operating losses and
adjustments due to acquisition by decreasing accumulated net
investment loss by
$6,754,609, decreasing accumulated net realized gains on
investments by
$3,517,586 and decreasing paid-in capital by $3,237,023. Net
investment income,
net realized gains and net assets were not affected by this
charge.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with PIFM. 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. Under the subadvisory agreement, Jennison, subject to
the supervision of
PIFM, is responsible for managing the assets of the Series
in accordance with
its investment objectives and policies.
The management fee paid PIFM will be computed daily and
payable monthly, at an
annual rate of .60 of 1% of the average daily net assets of
the Series. PIFM
pays Jennison a subadvisory fee at an annual rate of .30 of
1% of the average
daily net assets of the Series up to and including $300
million and .25 of 1% of
such assets in excess of $300 million. PIFM also pays the
cost of compensation
of officers and employees of the Fund, occupancy and certain
clerical and
bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.
The Fund had a distribution agreement with Prudential
Securities Incorporated
('PSI'), which acted as the distributor of the Class A,
Class B, Class C and
Class Z shares of the Fund through May 31, 1998. Prudential
Investment
Management Services LLC ('PIMS') became the distributor of
the Fund effective
June 1, 1998 and is serving the Fund under the same terms
and conditions as
under the arrangement with PSI. The Fund compensated PSI and
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 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 Series
compensated PSI and PIMS for
distribution-related activities at an annual rate of up to
.30 of 1%, 1% and 1%
of the average daily net assets of the Class A, B and C
shares, respectively.
Such expenses under the Plans were .25 of 1%, 1% and 1% of
the average daily net
assets of the Class A, B and C shares, respectively, for the
fiscal year ended
September 30, 1998.
PSI and PIMS have advised the Series that they received
approximately $1,447,800
in front-end sales charges resulting from sales of Class A
shares during the
year ended September 30, 1998. From these fees, PSI and PIMS
paid such sales
charges to affiliated broker-dealers which in turn paid
commissions to
salespersons and incurred other distribution costs.
PSI and PIMS have advised the Series that for the fiscal
year ended September
30, 1998, they received approximately $793,500 and $14,200
in contingent
deferred sales charges imposed upon certain redemptions by
Class B and C
shareholders, respectively.
PIFM, PIMS, Jennison and PSI are indirect, wholly owned
subsidiaries of The
Prudential Insurance Company of America.
The Fund, along with other affiliated registered investment
companies (the
'Funds'), has a credit agreement (the 'Agreement') with an
unaffiliated lender.
The maximum commitment under the Agreement is $200,000,000.
Interest on any such
borrowings outstanding will be at market rates. The purpose
of the Agreement is
to serve as an alternative source of funding for capital
share redemptions. The
Series has not borrowed any amounts pursuant to the
Agreement during the year
ended September 30, 1998. The Funds pay a commitment fee at
an annual rate of
.055 of 1% on the unused portion of the credit facility. The
commitment fee is
accrued and paid quarterly on a pro rata basis by the Funds.
The Agreement
expired on December 30, 1997 and has been extended through
December 29, 1998
under the same terms.
- ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned
subsidiary of PIFM,
serves as the Fund's transfer agent. During the year ended
September 30, 1998,
the Series incurred fees of approximately $2,279,000 for the
services of PMFS.
As of September 30, 1998, approximately $264,000 of such
fees were due to PMFS.
Transfer agent fees and expenses in the Statement of
Operations include certain
out-of-pocket expenses paid to nonaffiliates.
For the year ended September 30, 1998, PSI earned
approximately $17,000 in
brokerage commissions from portfolio transactions executed
on behalf of the
Series.
- ------------------------------------------------------------
- --------------------
8
<PAGE>
THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.
Notes to Financial Statements PRUDENTIAL JENNISON
GROWTH FUND
- ------------------------------------------------------------
- --------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than
short-term investments,
for the year ended September 30, 1998 were $1,900,121,642
and $932,574,857,
respectively.
The cost of investments for federal income tax purposes at
September 30, 1998
was $2,025,131,763 and, accordingly, net unrealized
appreciation of investments
for federal income tax purposes was $197,140,149 (gross
unrealized
appreciation--$356,106,924; gross unrealized depreciation--
$158,966,775).
- ------------------------------------------------------------
Note 5. Capital
The Series 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 B shares
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. Prior to
November 2, 1998, Class C
shares were sold with a contingent deferred sales charge of
1% during the first
year. Effective November 2, 1998, Class C shares are sold
with a front-end sales
charge of 1% and a contingent deferred sales charge of 1%
during the first 18
months. Class Z shares are not subject to any sales or
redemption charge and are
offered for sale to a limited group of investors.
There are 3 billion shares of $.001 par value common stock
authorized which are
divided into three series, each of which offers four
classes, designated Class
A, Class B, Class C and Class Z, each of which consists of
250 million
authorized shares. Of the shares outstanding at September
30, 1998, PIFM owned
10,000 shares of the Series.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ----------------------------------- ----------- ---------
- ----
<S> <C> <C>
Year ended September 30, 1998:
Shares sold........................ 14,958,226 $
229,811,039
Shares issued due to merger (Note
6)............................... 15,525,419
255,703,652
Shares issued in reinvestment of
distributions.................... 913,659
12,215,617
Shares reacquired.................. (10,632,449)
(163,008,985)
----------- ---------
- ----
Net increase in shares outstanding
before conversion................ 20,764,855
334,721,323
Shares issued upon conversion from
Class B.......................... 777,059
11,419,782
----------- ---------
- ----
Net increase in shares
outstanding...................... 21,541,914 $
346,141,105
----------- ---------
- ----
----------- ---------
- ----
Year ended September 30, 1997
Shares sold........................ 25,998,077 $
330,048,473
Shares reacquired.................. (24,630,004)
(310,892,744)
----------- ---------
- ----
Net increase in shares outstanding
before conversion................ 1,368,073
19,155,729
Shares issued upon conversion from
Class B.......................... 263,019
3,525,367
----------- ---------
- ----
Net increase in shares
outstanding...................... 1,631,092 $
22,681,096
----------- ---------
- ----
----------- ---------
- ----
<CAPTION>
Class B Shares Amount
- ----------------------------------- ----------- ---------
- ----
<S> <C> <C>
Year ended September 30, 1998:
Shares sold........................ 22,754,015 $
342,894,551
Shares issued due to merger (Note
6)............................... 7,486,124
120,751,178
Shares issued in reinvestment of
distributions.................... 2,776,715
36,513,797
Shares reacquired.................. (9,639,289)
(143,137,800)
----------- ---------
- ----
Net increase in shares outstanding
before conversion................ 23,377,565
357,021,726
Shares reacquired upon conversion
into
Class A.......................... (793,565)
(11,419,782)
----------- ---------
- ----
Net increase in shares
outstanding...................... 22,584,000 $
345,601,944
----------- ---------
- ----
----------- ---------
- ----
Year ended September 30, 1997
Shares sold........................ 11,358,438 $
145,846,890
Shares reacquired.................. (4,716,088)
(59,467,575)
----------- ---------
- ----
Net increase in shares outstanding
before conversion................ 6,642,350
86,379,315
Shares reacquired upon conversion
into Class A..................... (266,196)
(3,525,367)
----------- ---------
- ----
Net increase in shares
outstanding...................... 6,376,154 $
82,853,948
----------- ---------
- ----
----------- ---------
- ----
</TABLE>
- ------------------------------------------------------------
- --------------------
9
<PAGE>
THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.
Notes to Financial Statements PRUDENTIAL JENNISON
GROWTH FUND
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class C
- -----------------------------------
<S> <C> <C>
Year ended September 30, 1998:
Shares sold........................ 1,687,844 $
25,645,005
Shares issued due to merger (Note
6)............................... 260,502
4,201,896
Shares issued in reinvestment of
distributions.................... 172,793
2,272,229
Shares reacquired.................. (578,482)
(8,683,902)
----------- ---------
- ----
Net increase in shares
outstanding...................... 1,542,657 $
23,435,228
----------- ---------
- ----
----------- ---------
- ----
Year ended September 30, 1997
Shares sold........................ 560,427 $
7,367,068
Shares reacquired.................. (307,304)
(3,823,506)
----------- ---------
- ----
Net increase in shares
outstanding...................... 253,123 $
3,543,562
----------- ---------
- ----
----------- ---------
- ----
<CAPTION>
Class Z Shares Amount
- ----------------------------------- ----------- ---------
- ----
<S> <C> <C>
Year ended September 30, 1998:
Shares sold........................ 52,992,987 $
825,209,682
Shares issued due to merger (Note
6)............................... 1,075,632
17,823,220
Shares issued in reinvestment of
distributions.................... 4,155,680
55,810,779
Shares reacquired.................. (27,380,773)
(416,147,353)
----------- ---------
- ----
Net increase in shares
outstanding...................... 30,843,526 $
482,696,328
----------- ---------
- ----
----------- ---------
- ----
Year ended September 30, 1997
Shares sold........................ 30,018,513 $
375,917,679
Shares reacquired.................. (23,558,475)
(291,977,576)
----------- ---------
- ----
Net increase in shares
outstanding...................... 6,460,038 $
83,940,103
----------- ---------
- ----
----------- ---------
- ----
</TABLE>
Note 6. Acquisition of the Prudential Multi-Sector Fund,
Inc.
On June 26, 1998, the Series' acquired all of the assets of
the Prudential
Multi-Sector Fund, Inc., in exchange for shares in the
Series pursuant to a plan
of reorganization (the 'Plan') approved by the shareholders
of the Prudential
Multi-Sector Fund, Inc. at a shareholder meeting held on
June 24, 1998. The
acquisition was accomplished by a tax-free exchange of
15,525,419 Class A
shares, 7,486,124 Class B shares, 260,502 Class C shares and
1,075,632 Class Z
shares (valued at $398,479,946 in aggregate) for the Class
A, B, C and Z shares
of Prudential Multi-Sector Fund, Inc. outstanding on June
26, 1998. The
aggregate net assets of the Series and Prudential Multi-
Sector Fund, Inc.
immediately before the acquisition were $1,794,908,971 and
$398,479,946,
respectively (including $54,822,476 of net unrealized
appreciation for the
Prudential Multi-Sector Fund, Inc.) thereby resulting in
combined net assets of
$2,193,388,917 immediately after the reorganization.
- ------------------------------------------------------------
- --------------------
10
<PAGE>
THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.
Financial Highlights PRUDENTIAL JENNISON
GROWTH FUND
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class A Class B
-
- ------------------------------------------------ -------
- ------
November 2,
1995(a) Year Ended
Year Ended September 30, Through September
30,
-
- ------------------------------ September 30, -------
- ------
1998 1997 1996 1998
-
- ------------ ------------- ------------- -------
- ------
<S>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period...................
$ 15.39 $ 10.97 $ 10.00 $
15.18
-
- ------------ ------------- ------ -------
- ------
Income from investment operations
Net investment income (loss)(c)........................
(.04) (.03) (.03) (.15)
Net realized and unrealized gain on investment
transactions........................................
.40 4.45 1.00 .39
-
- ------------ ------------- ------ -------
- ------
Total from investment operations....................
.36 4.42 .97 .24
-
- ------------ ------------- ------ -------
- ------
Less distributions
Distributions from net realized gains..................
(1.31) -- -- (1.31)
-
- ------------ ------------- ------ -------
- ------
Net asset value, end of period.........................
$ 14.44 $ 15.39 $ 10.97 $
14.11
-
- ------------ ------------- ------ -------
- ------
-
- ------------ ------------- ------ -------
- ------
TOTAL RETURN(b)........................................
3.02% 40.29% 9.70% 2.21%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)........................
$ 446,996 $ 145,022 $85,440 $
708,463
Average net assets (000)...............................
$ 251,118 $ 105,982 $70,667 $
557,823
Ratios to average net assets:
Expenses, including distribution fees...............
1.08% 1.09% 1.23%(d) 1.83%
Expenses, excluding distribution fees...............
.83% .84% .98%(d) .83%
Net investment income (loss)........................
(.26)% (.25)% (.37)%(d) (1.01)%
For Class A, B, C and Z shares:
Portfolio turnover rate.............................
58% 63% 42% 58%
<CAPTION>
November 2,
1995(a)
Through
September 30,
1997 1996
---
- ---------- -------------
<S>
<C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period................... $
10.89 $ 10.00
---
- ---------- -------------
Income from investment operations
Net investment income (loss)(c)........................
(.12) (.10)
Net realized and unrealized gain on investment
transactions........................................
4.41 .99
---
- ---------- -------------
Total from investment operations....................
4.29 .89
---
- ---------- -------------
Less distributions
Distributions from net realized gains..................
- -- --
---
- ---------- -------------
Net asset value, end of period......................... $
15.18 $ 10.89
---
- ---------- -------------
---
- ---------- -------------
TOTAL RETURN(b)........................................
39.39% 8.90%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)........................ $
419,405 $ 231,541
Average net assets (000)............................... $
299,476 $ 162,412
Ratios to average net assets:
Expenses, including distribution fees...............
1.84% 1.98%(d)
Expenses, excluding distribution fees...............
.84% .98%(d)
Net investment income (loss)........................
(1.00)% (1.12)%(d)
For Class A, B, C and Z shares:
Portfolio turnover rate.............................
63% 42%
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) 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.
(c) Calculated based upon weighted average shares
outstanding during the period.
(d) Annualized.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 11
<PAGE>
THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.
Financial Highlights PRUDENTIAL JENNISON
GROWTH FUND
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class C Class Z
-
- ------------------------------------------------ -------
- ------
November 2,
1995(a) Year Ended
Year Ended September 30, Through September
30,
-
- ------------------------------ September 30, -------
- ------
1998 1997 1996 1998
-
- ------------ ------------- ------------- -------
- ------
<S>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period...................
$ 15.18 $ 10.89 $ 10.00 $
15.45
- ------ ------------- ------ ----------
- ---
Income from investment operations
Net investment income (loss)(c)........................
(.15) (.12) (.10) --
Net realized and unrealized gain on investment
transactions........................................
.39 4.41 .99 .39
- ------ ------------- ------ ----------
- ---
Total from investment operations....................
.24 4.29 .89 .39
- ------ ------------- ------ ----------
- ---
Less distributions
Distributions from net realized gains...............
(1.31) -- --
(1.31)
- ------ ------------- ------ ----------
- ---
Net asset value, end of period.........................
$ 14.11 $ 15.18 $ 10.89 $
14.53
- ------ ------------- ------ ----------
- ---
- ------ ------------- ------ ----------
- ---
TOTAL RETURN(b)........................................
2.21% 39.39% 8.90%
3.22%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)........................
$45,126 $ 25,134 $15,281 $
1,021,903
Average net assets (000)...............................
$35,337 $ 18,248 $12,550 $
810,296
Ratios to average net assets:
Expenses, including distribution fees...............
1.83% 1.84% 1.98%(d)
.83%
Expenses, excluding distribution fees...............
.83% .84% .98%(d) .83%
Net investment income (loss)........................
(1.01)% (1.00)% (1.12)%(d)
(.01)%
<CAPTION>
April 15,
1996(a)
Through
September 30,
1997 1996
---
- ---------- -------------
<S>
<C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period................... $
10.98 $ 10.32
---
- ---------- -------------
Income from investment operations
Net investment income (loss)(c)........................
- -- (.02)
Net realized and unrealized gain on investment
transactions........................................
4.47 .68
---
- ---------- -------------
Total from investment operations....................
4.47 .66
---
- ---------- -------------
Less distributions
Distributions from net realized gains...............
- -- --
---
- ---------- -------------
Net asset value, end of period......................... $
15.45 $ 10.98
---
- ---------- -------------
---
- ---------- -------------
TOTAL RETURN(b)........................................
40.71% 6.40%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)........................ $
609,869 $ 362,416
Average net assets (000)............................... $
455,684 $ 26,829
Ratios to average net assets:
Expenses, including distribution fees...............
.84% .98%(d)
Expenses, excluding distribution fees...............
.84% .98%(d)
Net investment income (loss)........................
- -- (.12)%(d)
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) 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.
(c) Calculated based upon weighted average shares
outstanding during the period.
(d) Annualized.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 12
<PAGE>
THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.
Report of Independent Accountants PRUDENTIAL JENNISON
GROWTH FUND
- ------------------------------------------------------------
- --------------------
To the Shareholders and Board of Directors of
The Prudential Investment Portfolios, Inc., Prudential
Jennison Growth Fund
In our opinion, the accompanying statement of assets and
liabilities, including
the portfolio of investments, and the related statements of
operations and of
changes in net assets and the financial highlights present
fairly, in all
material respects, the financial position of The Prudential
Investment
Portfolios, Inc., Prudential Jennison Growth Fund (the
'Fund', one of the
portfolios constituting The Prudential Investment
Portfolios, Inc.) at September
30, 1998, the results of its operations for the year then
ended, and the changes
in its net assets and the financial highlights for each of
the two years in the
period then ended, in conformity with generally accepted
accounting principles.
These financial statements and financial highlights
(hereafter referred to as
'financial statements') are the responsibility of the Fund's
management; our
responsibility is to express an opinion on these financial
statements based on
our audits. We conducted our audits of these financial
statements in accordance
with generally accepted auditing standards which require
that we plan and
perform the audit to obtain reasonable assurance about
whether the financial
statements are free of material misstatement. An audit
includes examining, on a
test basis, evidence supporting the amounts and disclosures
in the financial
statements, assessing the accounting principles used and
significant estimates
made by management, and evaluating the overall financial
statement presentation.
We believe that our audits, which included confirmation of
securities at
September 30, 1998 by correspondence with the custodian and
brokers, provide a
reasonable basis for the opinion expressed above. The
accompanying financial
highlights for the period ended September 30, 1996 were
audited by other
independent accountants, whose opinion dated November 4,
1996 was unqualified.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
November 20, 1998
- ------------------------------------------------------------
- --------------------
13
<PAGE>
THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.
Tax Information (Unaudited) PRUDENTIAL JENNISON
GROWTH FUND
- ------------------------------------------------------------
- --------------------
We are required by the Internal Revenue Code to advise you
within 60 days of the
Fund's fiscal year end (September 30, 1998) as to the
federal tax status of
dividends and distributions paid by the Series during such
fiscal year end.
Accordingly, we are advising you that during the fiscal
year, the Fund paid
distributions for Class A, B, C and Z shares totaling $1.31
per share, comprised
of $0.01 per share short-term capital gains which is taxable
as ordinary income
and $1.30 per share long-term capital gains which is taxable
as such.
Furthermore, we wish to advise you that your dividend
received deduction is
zero.
In January 1999, you will be advised on IRS Form 1099 DIV or
substitute 1099 DIV
as to the federal tax status of the dividends and
distributions received by you
in calendar year 1998.
- ------------------------------------------------------------
- --------------------
14
<PAGE>
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.
Call Option: A contract giving the holder a right to buy
stocks
or bonds at a predetermined price (called the strike price)
before a predetermined expiration date. A buyer of a call
option generally expects to benefit from a rise in the price
of the stock or bond.
Collateralized Mortgage Obligations (CMOs): Pools of
mortgage-backed securities sliced in maturity ranges
that bear differing interest rates. 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 products
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 on
equity.
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
mutual
fund) 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 for prices of" a
security.
Yankee Bond: A bond sold by a foreign company or government
in the
U.S. market and denominated in U.S. dollars.
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
When you invest through Prudential Mutual Funds, you receive
financial advice through 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.
And
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 advisor or registered representative can help
you
wade through the numerous mutual funds available 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 remind you that you're
investing for the long haul.
<PAGE>
// Prudential Jennison Growth Fund
- -- S&P 500 Index
Comparing A $10,000 Investment.
- ------------------------------------
Prudential Jennison Growth Fund vs.
the S&P 500 Index.
Past performance is not indicative of future results.
Principal and
investment return will fluctuate so an investor's shares,
when
redeemed, may be worth more or less than their original
cost.
These graphs are furnished to you in accordance with SEC
regulations. They compare a $10,000 investment in The
Prudential Investment Portfolios, Inc.: Jennison Growth
Fund (Class A, B, C, and Z shares) with a similar
investment in the Standard & Poor's 500 Composite
Stock Price Index (S&P 500 Index) by portraying the
initial account values at the commencement of operations
of each class, and subsequent account values at the end of
each fiscal year (September 30), as measured on a quarterly
basis, beginning in 1995 for Class A, B, and C shares, and
in 1992 for Class Z shares. For purposes of the graphs, and
unless otherwise indicated in the accompanying tables, it
has been assumed (a) that the maximum applicable front-end
sales charge was deducted from the initial $10,000
investment in Class A shares; (b) the maximum applicable
contingent deferred sales charges were deducted from the
value of the investment in Class B and Class C shares,
assuming full redemption on September 30, 1998; (c) all
recurring fees (including management fees) were deducted;
and (d) all dividends and distributions were reinvested.
Class B shares will automatically convert to Class A shares,
on a quarterly basis, approximately seven years after
purchase. This conversion feature is not reflected in
the graphs. Class Z shares are not subject to a sales
charge or distribution fee.
The S&P 500 Index is a market capitalization-weighted index
representing the aggregate market value of the common equity
of 500 stocks primarily traded on the New York Stock
Exchange.
The S&P 500 is an unmanaged index and includes the
reinvestment
of all dividends, but does not reflect the payment of
transaction
costs and advisory fees associated with an investment in the
Fund.
The S&P 500 is not the only index that may be used to
characterize
performance of equity funds, and other indexes may portray
different comparative performance. Investors cannot invest
directly in an index.
Average Annual Total
Returns - Class A
- ------------------------- Class A
With Sales Load (GRAPH)
15.11% Since Inception
-2.13% for 1 Year
Without Sales Load
17.16% Since Inception
3.02% for 1 Year
Average Annual Total
Returns - Class B
- -------------------------- Class B
With Sales Load (GRAPH)
15.51% Since Inception
-2.79% for 1 Year
Without Sales Load
16.29% Since Inception
2.21% for 1 Year
Average Annual Total
Returns - Class C
- --------------------------- Class C
With Sales Load (GRAPH)
16.29% Since Inception
1.21% for 1 Year
Without Sales Load
16.29% Since Inception
2.21% for 1 Year
Average Annual Total
Returns - Class Z
- ---------------------------- Class Z
Without Sales Load (GRAPH)
18.09% Since Inception
17.08% for 5 Years
3.22% for 1 Year
<PAGE>
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
Mendel A. Melzer, CFA
Thomas T. Mooney
Stephen P. Munn
Richard A. Redeker
Robin B. Smith
Brian M. Storms
Louis A. Weil, III
Clay T. Whitehead
Officers
Brian M. Storms, 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
Jennison Associates LLC
466 Lexington Avenue
New York, NY 10017
Distributor
Prudential Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
The views expressed in this report and information about the
Fund's portfolio holdings are for the period covered by this
report and are subject to change thereafter.
This report is not authorized for distribution to
prospective
investors unless preceded or accompanied by a current
prospectus.
74437E107 MF168E
74437E206
74437E305
74437E404
(ICON)
Prudential
Active
Balanced
Fund
ANNUAL
REPORT
Sept. 30, 1998
(LOGO)
<PAGE>
Prudential Active Balanced Fund
A Series of The Prudential Investment Portfolios, Inc.
Performance At A Glance.
Securities prices were very volatile in the 12 months ended
September 30, 1998, which included both a steep run-up and a
bear market for stocks and a Federal Reserve easing of
interest
rates. Our below-normal allocation to stocks in the first
half of
the period pulled our annual return below the Lipper
average.
<TABLE>
Cumulative TotalReturns1 As of
9/30/98
<CAPTION>
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A 1.93% N/A 19.75%
Class B 1.10 N/A 18.20
Class C 1.10 N/A 18.20
Class Z 2.12 60.78% 77.67
Lipper Balanced
Fund Avg3 3.26 73.61 ***
</TABLE>
<TABLE>
Average Annual Total Returns1 As of
9/30/98
<CAPTION>
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A -3.17% N/A 7.04%
Class B -3.90 N/A 7.26
Class C 0.10 N/A 9.23
Class Z 2.12 9.96% 10.54
</TABLE>
Past performance is not indicative of future results.
Principal and investment return will fluctuate so that an
investor's shares, when redeemed, may be worth more or less
than their original cost.
1 Source: Prudential Investments Fund Management and Lipper
Analytical Services. 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 and
a
declining contingent deferred sales charge (CDSC) of 5%, 4%,
3%,
2%, 1% and 1% for six years for Class B shares. Class B
shares
will automatically convert to Class A shares, on a quarterly
basis,
approximately seven years after purchase. Class C shares
have a
1% CDSC for one year and, beginning November 2, 1998, are
sold
with a front-end sales charge of 1% and a CDSC for 18
months.
Class Z shares are not subject to a sales charge or
distribution fee.
2 Inception dates: Class A, B, and C, 11/7/96; Class Z,
1/4/93.
3 Lipper average returns are for all funds in each share
class
for the one- and five-year periods in the Balanced Fund
category.
***Lipper Since Inception returns are 25.75% for Class A, B,
and
C; and 90.21% for Class Z based on all funds in each
share class.
How Investments Compared.
(As of 9/30/98)
(GRAPH)
Source: Lipper Analytical Services. Financial markets
change, so
a mutual fund's past performance should never be used to
predict
future results. The risks to each of the investments listed
above
are different -- we provide 12-month total returns for
several Lipper
mutual fund categories to show you that reaching for higher
returns
means tolerating more risk. The greater the risk, the larger
the
potential reward or loss. In addition, we've included
historical
20-year average annual returns. These returns assume the
reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors
have
received higher historical total returns from stocks than
from
most other investments. Smaller capitalization stocks
offer greater potential for long-term growth but may be more
volatile than larger capitalization stocks.
General Bond Funds provide more income than stock funds,
which
can help smooth out their total returns year by year. But
their
prices still fluctuate (sometimes significantly) and their
returns
have been historically lower than those of stock funds.
General Municipal Debt Funds invest in bonds issued by state
governments, state agencies and/or municipalities. This
investment
provides income that is usually exempt from federal and
state income
taxes.
U.S. Taxable Money Funds attempt to preserve a constant
share value;
they don't fluctuate much in price but, historically, their
returns
have been generally among the lowest of the
major investment categories.
<PAGE>
Mark S. Stumpp, James H. Scott, and Martin Lawlor, Fund
Managers
(PHOTO)
Portfolio
Managers' Report
The Active Balanced Fund seeks income and long-term growth
of
capital by investing in a portfolio of equity, fixed-income,
and money market securities that is actively managed to
capitalize
on opportunities created by what we see as market
misvaluations.
The Fund's investments will be actively shifted among equity
securities, fixed-income securities, and money market
instruments in order to capitalize on such valuation
opportunities
and to maximize the Fund's total investment return. Mark
Stumpp and
James Scott manage the asset allocation using a quantitative
model.
They also manage the stocks, using behavioral
finance models to select securities that they believe to be
underpriced, but maintaining a risk profile like the S&P
500.
Martin Lawlor manages the bonds. There can be no assurance
that
the Fund will meet its investment objective.
Quantitative
Active Management.
We use quantitative models to determine which market
sectors offer the best opportunities. Mark Stumpp and
James Scott monitor the changes in companies' earnings
expectations and stock prices, comparing the expected
return on stocks with the interest rates on bonds. They
try to increase the proportion of the kind of security
that offers the best value at any time. Since asset
class has a greater impact on returns over the long
term than selection of individual securities, these
shifts in allocation may affect your return significantly.
Strategy Session.
Portfolio Composition.
Sectors expressed as a percentage
of net assets as of 9/30/98.
Bonds 36%
Equity:
Finance 13%
Health Services & Technology 9%
Utilities 8%
Electronic Tech & Services 7%
Consumer Durables &
Nondurables 6%
Energy & Nonenergy
Minerals 5%
Producer Manufacturing 4%
Retail Trade 4%
Transportation 4%
Process Industries 3%
Commercial Services 1%
Consumer Services 1%
Cash & Equivalents 1%
Source: Prudential
Asset Allocation.
We use stock index and Treasury bond futures contracts to
change
our asset allocations rapidly and with lower transaction
costs than
trading the securities themselves. We are now managing our
exposures
aggressively.
Stocks: We sort about 900 companies on the basis of
historical and
expected growth. Among the low-growth stocks, we emphasize
stocks
that are inexpensive for their expected earnings and book
value
because research suggests that investors tend to undervalue
such
stocks. Among the high-growth stocks, we weigh positive news
(such
as earnings surprises) more because our research suggests
that
investors are slow to respond to changing business
fundamentals.
Our model suggests that now we slightly overrepresent the
stocks
of smaller companies. We also have a somewhat larger
representation
of financial services, utilities (such as telephone
companies), and
health service companies than the S&P 500, and are somewhat
less
invested in technology, energy, minerals, and consumer
services.
Bonds: We are emphasizing corporate bonds because we believe
the
greater yield advantage over Treasury bonds that they now
command more than compensates for any increased risk. Our
average
credit quality is AA. Our exposure to interest changes is
near
the market average.
<PAGE>
What Went Well.
Investors from around the world moved funds into U.S.
Treasury
bonds, as global uncertainty raised the value of the most
safe
securities and pushed down their interest rates. Our bond
holdings benefited from the associated capital gains. We
had avoided high-yield corporate bonds and emerging market
bonds, both of which fell in the flight to safety. Overall,
our bond holdings performed reasonably well.
And Not So Well.
In the fourth quarter of 1997, we had a focus on commodity
stocks.
These stocks performed poorly in the uncertain markets that
quarter. We had a substantial cash position through the
first
six months of our reporting period and didn't fully
participate
in the stock market's euphoria early in 1998. Subsequently,
we
changed management style and introduced limits on how much
we
would vary from our normal stock allocation and from the
sector
distribution of the S&P 500. We increased our stock
allocation
in time to benefit from the June rally.
In the third quarter of 1998, after the stock market fell
upon
fears of a world-wide credit crunch, our model recommended
an
increase in the allocation to common stocks. The increase
hurt
performance in September, although the Fund was prepared to
benefit from the sharp recovery that took place in October.
Looking Ahead.
We expect virtually no growth in corporate earnings over the
next 12 months, because we expect U.S. manufacturing
activity
to slow in response to troubled economies abroad. We are
reluctant to predict our asset allocation going forward,
because the mix will depend upon how values change in the
market. All other things being equal, however, we will tend
to be buyers on market dips and sellers into rallies. We
expect
the performance of our stocks to improve in 1999 once the
outlook
for corporate earnings stabilizes.
Five Largest
Equity Holdings.
1.8% Microsoft Corporation
EDP Software & Services
1.2% General Electric Co.
Diversified Operations
1.0% Pfizer Inc.
Pharmaceuticals
0.8% Intel Corp.
Computer Systems
0.8% Merck and Co.
Pharmaceuticals
Expressed as a percentage of net assets as of 9/30/98.
1
<PAGE>
Mathematics Helps Manage Risk.
Portfolio Manager Mark Stumpp introduces his quantitative
investment style.
Q. How do you use quantitative techniques in managing your
Fund?
A. We use quantitative models to manage both asset
allocation and
stock selection. Our mathematical model compares the
expected return
on the entire stock market (determined primarily by prices
and
estimated earnings) to interest rates on bonds. We
tilt the blend of stocks and bonds in our Fund toward the
category with the higher potential return, adjusted for the
amount of risk. We also use quantitative models to identify
which stocks have prices that do not accurately reflect
their company's
earnings prospects.
Q. What is the advantage of quantitative models?
A. Studies have shown that human judgment is frequently
biased.
For example, it's human nature to be overconfident: most of
us
believe that we are above-average drivers, despite evidence
to
the contrary. We also tend to overreact to dramatic events,
such
as sharp stock market declines. Quantitative models help
reduce
the impact of such biases on our investment decisions. In
fact,
the models help identify situations where other investors'
biases
may have created opportunities for the Fund.
Q. Can you give an example of how your models work?
A. In mid-October 1998, Russia was in default, Brazil was
teetering
on the verge of bankruptcy, and most of Southeast
Asia was in a deep recession. At home, a major hedge fund
was in
distress and the outlook for corporate earnings was grim.
Our
asset allocation model, however, signaled that the 19% drop
in
stock prices (from their summer highs) was an overreaction
to even that much bad news. We shifted some of the Fund's
assets
from bonds to stocks in time to capture the rally that
occurred
in the latter half of October. Investors who were heavily
influenced by the dour mood of the time missed this
opportunity.
Q. Do mathematical models play any other role in your
investment process?
A. We also use mathematical models in managing our stock
holdings. Rather than concentrate our assets in just a few
securities, we distribute them across a large number of
stocks. We begin by matching a broad market index, but then
we increase the attractively priced stocks and reduce or
eliminate unattractive ones. We use our models to manage
the risk by limiting the size of these deviations from the
benchmark index. We pay careful attention to the average
size of the company represented in our portfolio, as well
as to the distribution across economic sectors and
industries.
We want a portfolio that will, in normal times, move fairly
closely
with the overall stock market.
Q. Is there anything you wish to add?
A. Only this: The team managing our Fund works hard to
combine
modern quantitative methods with seasoned judgment. While
quantitative models play a critical role in our
investing, there is no substitute for experience.
(PHOTO)
2
<PAGE>
President's Letter November 9,
1998
(PHOTO)
Guarding Against Uncertainty.
Dear Shareholder:
As we enter the final months of the year, the news from the
financial markets is decidedly mixed. After
setting record highs earlier, stocks, as measured by the Dow
Jones Industrial Average, experienced a series of steep sell-
offs
in late summer. The market rebounded in early fall, helped
by two
interest rate cuts by the Federal Reserve.
During this uncertainty there was also good news to report.
Bonds
appreciated as investors fled troubled Asian and other
emerging
markets for the safe haven of U.S. debt securities --
especially
Treasuries. The U.S. economy remains strong, with steady
growth and
low inflation.
Guarding against uncertainty in the current market
environment can
be challenging. That's why it is important to manage your
expectations
and diversify your portfolio.
Keep A Good Perspective.
Experienced mutual fund investors understand that financial
markets
will always rise and fall -- that's what markets do.
Although past
performance may not be indicative of future results, stocks
and
bonds have, over time, consistently produced attractive
returns
that have kept ahead of inflation. In fact, investors who
remained
focused on the long term and did not sell during the recent
market
volatility were rewarded. Stock prices, as measured by the
S&P 500,
have rebounded more than 20% since their August lows,
thereby almost
erasing all their losses.
Diversify. Diversify. Diversify.
Because asset classes seldom move in lockstep, owning a mix
of
stock, bond, and money market mutual funds can help lessen
the
effects of a market downturn over time. In fact, a
well-diversified portfolio may retain or perhaps even gain
in
value during times of uncertainty.
We're Here To Help.
How diversified is your portfolio? Your Prudential
professional
will be glad to review your current allocations. He or she
will
recommend adjustments based upon your goals, market
conditions,
risk tolerance, and potential investment opportunities.
Thank you for your confidence in Prudential mutual funds.
We'll
continue to do our part in keeping you informed.
Sincerely,
Brian M. Storms
President
3
<PAGE>
Portfolio of Investments as of THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.*
September 30, 1998 PRUDENTIAL ACTIVE
BALANCED FUND
- ------------------------------------------------------------
- -------------------
- ------------------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--81.7%
COMMON STOCKS--46.4%
- ------------------------------------------------------------
Aerospace/Defense--0.7%
7,300 Allied Signal, Inc. $
258,237
5,600 Lockheed Martin Corp.
564,550
100 Northrop Grumman Corp.
7,300
3,000 Raytheon Co.
161,813
3,200 United Technologies Corp.
244,600
-------
- ------
1,236,500
- ------------------------------------------------------------
Airlines--0.4%
1,100 Alaska Air Group Inc
37,469
4,500 AMR Corp.
249,469
4,200 Delta Airlines, Inc.
408,450
900 Southwest Airlines Co.
18,000
-------
- ------
713,388
- ------------------------------------------------------------
Aluminum--0.2%
5,900 Aluminum Co. of America
418,900
- ------------------------------------------------------------
Apparel
3,000 Jones Apparel Group, Inc.(a)
68,813
- ------------------------------------------------------------
Automobiles & Trucks--1.1%
7,700 Chrysler Corp.
368,637
12,900 Ford Motor Co.
605,494
11,900 General Motors Corp., Class H
650,781
4,200 PACCAR, Inc.
172,988
-------
- ------
1,797,900
- ------------------------------------------------------------
Advertising
1,600 Interpublic Group of Companies, Inc.
86,300
- ------------------------------------------------------------
Banking--3.1%
9,900 Bankamerica Corp.
529,650
2,100 BankBoston Corp.
69,300
1,400 Bankers Trust NY Corp. $
82,600
16,800 Chase Manhattan Corp.
726,600
8,500 Citicorp
789,969
3,700 First Chicago NBD Corp.
253,450
10,200 First Union Corp.
522,112
6,900 Fleet Financial Group, Inc.
506,719
13,900 Hibernia Corp.
200,681
3,100 Keycorp
89,513
400 Mercantile Bancorporation, Inc.
19,350
4,400 National City Corp.
290,125
9,300 Norwest Corp.
333,056
3,100 Suntrust Banks, Inc.
192,200
3,000 Wachovia Corp.
255,750
1,100 Wells Fargo & Co.
390,500
-------
- ------
5,251,575
- ------------------------------------------------------------
Beverages--0.6%
13,200 Coca-Cola Co.
760,650
200 Coca-Cola Enterprises Inc.
5,050
9,300 PepsiCo, Inc.
273,769
-------
- ------
1,039,469
- ------------------------------------------------------------
Building & Construction
1,600 Masco Corp.
39,400
- ------------------------------------------------------------
Business Services--0.6%
9,600 Omnicom Group, Inc.
432,000
22,100 Ryder System, Inc.
549,737
-------
- ------
981,737
- ------------------------------------------------------------
Cellular Communications
600 AirTouch Communications, Inc.(a)
34,200
</TABLE>
- ------------------------------------------------------------
- --------------------
*See Note 7. 4
See Notes to Financial Statements.
<PAGE>
Portfolio of Investments as of THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.*
September 30, 1998 PRUDENTIAL ACTIVE
BALANCED FUND
- ------------------------------------------------------------
- -------------------
- ------------------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Chemicals--0.5%
3,000 Dow Chemical Co. $
256,312
100 E.I. Du Pont De Nemours & Co.
5,613
4,000 M.A. Hanna Co.
45,000
25,400 Schulman (A.), Inc.
358,775
12,200 Wellman Inc.
155,550
-------
- ------
821,250
- ------------------------------------------------------------
Chemical-Specialty--0.1%
4,200 Rohm & Haas Co.
116,813
- ------------------------------------------------------------
Commercial Services--0.4%
4,900 Paychex, Inc.
252,656
8,000 Quintiles Transnational, Corp.(a)
350,000
-------
- ------
602,656
- ------------------------------------------------------------
Computer Software & Services--2.9%
1,900 America Online, Inc.(a)
211,375
3,300 BMC Software Inc.(a)
198,206
1,500 Compuware Corp.(a)
88,313
3,700 Comverse Technology, Inc.(a)
151,238
8,200 EMC Corp.
468,937
12,800 Informix Corp.(a)
64,000
7,300 Keane, Inc(a)
256,413
27,300 Microsoft Corp.(a)
3,004,706
14,100 Oracle Systems Corp.(a)
410,662
-------
- ------
4,853,850
- ------------------------------------------------------------
Computer Systems/Peripherals--2.6%
16,400 Dell Computer Corp.(a)
1,078,300
10,300 Hewlett-Packard Co.
545,256
16,200 Intel Corp.
1,389,150
8,800 International Business Machines Corp.
1,126,400
1,500 Symbol Technologies, Inc.
76,969
3,900 Synopsys, Inc.(a)
129,919
-------
- ------
4,345,994
- ------------------------------------------------------------
Containers--0.1%
7,900 Owens-Illinois Holdings Corp.(a)
197,500
Diversfied Consumer Products--0.5%
11,800 Procter & Gamble Co. $
837,062
- ------------------------------------------------------------
Diversified Operations--1.3%
25,900 General Electric Co.
2,060,668
4,100 Seagram Co., Ltd.
117,619
-------
- ------
2,178,287
- ------------------------------------------------------------
Diversified Manufacturing--0.3%
13,600 Tenneco, Inc.
447,100
- ------------------------------------------------------------
Electrical Utilities--2.3%
13,100 Allegheny Energy Inc.
413,469
200 American Electric Power Co., Inc.(a)
9,763
10,600 American Power Conversion Co.(a)
399,487
1,700 Carolina Power & Light Co.
78,519
3,900 Consolidated Edison, Inc.
203,287
2,800 Dominion Resources, Inc.
124,950
9,300 Florida Progress Corp.
402,806
10,900 General Public Utilities Corp.
463,250
8,200 Hawaiian Electric Industries Inc.
338,250
4,000 New England Electric System
166,000
17,396 PP & L Resources, Inc.
450,121
15,900 Public Service Company of New
Mexico(a)
352,781
3,100 Public Service Enterprise Group Inc.
121,869
11,700 Southern Co.
344,419
300 Texas Utilities Co.
13,969
-------
- ------
3,882,940
- ------------------------------------------------------------
Electronic Components--0.2%
10,800 Avnet, Inc.
397,575
- ------------------------------------------------------------
Financial Services--3.2%
5,400 Ahmanson (H.F.) & Co.
299,700
5,200 American Express Co.
403,650
300 Associates First Capital Corp.
19,575
</TABLE>
- ------------------------------------------------------------
- --------------------
*See Note 7. 5
See Notes to Financial Statements.
<PAGE>
Portfolio of Investments as of THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.*
September 30, 1998 PRUDENTIAL ACTIVE
BALANCED FUND
- ------------------------------------------------------------
- -------------------
- ------------------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Financial Services (cont'd.)
7,300 BankAmerica Corp. $
438,912
1,700 Capital One Financial
175,950
4,900 Charles Schwab Corp.
192,938
11,700 Citigroup Inc.
438,750
5,200 Countrywide Mortgage Investments, Inc.
216,450
8,400 Federal Home Loan Mortgage Corp.
415,275
16,200 Federal National Mortgage Assoc.
1,040,850
700 Golden West Financial Corp.
57,269
7,900 Lehman Brothers Holdings, Inc.
223,175
6,300 Merrill Lynch & Co., Inc.
298,462
4,800 MGIC Investment Corp.
177,000
2,400 Morgan (J.P.) & Co., Inc.
203,100
6,700 Morgan Stanley, Dean Witter & Co.
288,519
2,000 PaineWebber Group, Inc.
60,000
6,100 Providian Financial Corp.
517,356
-------
- ------
5,466,931
- ------------------------------------------------------------
Foods--0.6%
10,395 Archer-Daniels Midland Co.
174,116
7,900 Dole Food Co., Inc.
285,388
7,200 General Mills, Inc.
504,000
-------
- ------
963,504
- ------------------------------------------------------------
Gas Distribution--0.2%
10,600 Peoples Energy Corp.
381,600
- ------------------------------------------------------------
Health Care Services--0.2%
8,300 Allegiance Corp.
246,925
3,100 American Home Products Corp.
162,363
-------
- ------
409,288
- ------------------------------------------------------------
Home Furnishings--0.3%
5,700 Newell Co.
262,556
7,000 Springs Industries, Inc.
243,250
-------
- ------
505,806
Human Resources--0.2%
8,500 Robert Half International Inc. $
367,094
- ------------------------------------------------------------
Insurance--2.2%
16,800 Allstate Corp.
700,350
9,100 American International Group, Inc.
700,700
2,900 Aon Corp.
187,050
5,600 CIGNA Corp.
370,300
1,200 General Reinsurance Corp.
243,600
5,900 Hartford Financial Services Group
279,881
1,200 Marsh & McLennan Cos., Inc.
59,700
13,600 Old Republic International Corp.
306,000
1,300 Progressive Corp.
146,575
11,900 Torchmark Corp.
427,656
2,100 Transamerica Corp.
222,600
-------
- ------
3,644,412
- ------------------------------------------------------------
Machinery & Equipment--0.5%
9,700 Case Corp.
210,975
2,900 Caterpillar, Inc.
129,231
2,200 Cooper Industries, Inc.
89,650
9,000 Danaher Corp.
270,000
5,900 Stewart & Stevenson Services, Inc.
69,325
-------
- ------
769,181
- ------------------------------------------------------------
Media & Communications--0.4%
400 Gannett Co., Inc.
21,425
1,300 Viacom, Inc.(a)
75,400
21,600 Walt Disney Co.
546,750
-------
- ------
643,575
- ------------------------------------------------------------
Medical Devices
700 Lincare Holdings Inc.(a)
27,125
- ------------------------------------------------------------
Medical Products--2.9%
5,300 Cardinal Health, Inc.
547,225
10,100 Johnson & Johnson Co.
790,325
100 McKesson Corporation
9,162
</TABLE>
- ------------------------------------------------------------
- --------------------
*See Note 7. 6
See Notes to Financial Statements.
<PAGE>
Portfolio of Investments as of THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.*
September 30, 1998 PRUDENTIAL ACTIVE
BALANCED FUND
- ------------------------------------------------------------
- -------------------
- ------------------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Medical Products (cont'd.)
14,200 Mylan Laboratories $
418,900
5,200 Pacificare Health Systems(a)
387,400
9,900 Schering Plough Corp.
1,025,269
7,900 Total Renal Care Holdings, Inc.(a)
189,600
13,000 Tyco International Ltd.
718,250
10,300 Warner-Lambert Co.
777,650
-------
- ------
4,863,781
- ------------------------------------------------------------
Medical Technology--0.6%
2,300 Abbott Laboratories
99,906
4,600 Amgen, Inc.(a)
347,588
4,500 Biogen, Inc.(a)
296,156
9,600 HBO & Co.
277,200
-------
- ------
1,020,850
- ------------------------------------------------------------
Metals--0.4%
100 Alcan Aluminum Ltd.
2,344
12,500 Reynolds Metals Co.
635,156
-------
- ------
637,500
- ------------------------------------------------------------
Miscellaneous/Diversified--0.3%
5,500 Cintas Corp
275,687
6,500 Harley-Davidson Inc.
190,938
-------
- ------
466,625
- ------------------------------------------------------------
Miscellaneous Industrial--0.2%
4,400 Clorox Co.
363,000
- ------------------------------------------------------------
Networking--0.4%
10,700 Cisco Systems, Inc.(a)
661,394
- ------------------------------------------------------------
Oil & Gas Equipment & Services--0.4%
3,100 Dresser Industries, Inc.
94,938
4,000 Enron Corp.,
211,250
15,200 Tidewater, Inc.
315,400
-------
- ------
621,588
Oil & Gas Exploration/Production--1.1%
1,200 MCN Corp. $
20,475
11,100 Phillips Petroleum Co.
500,887
18,900 Royal Dutch Petroleum Co.
900,112
6,600 Texaco, Inc.
413,738
500 USX-Marathon Group
17,719
-------
- ------
1,852,931
- ------------------------------------------------------------
Oil & Gas Services--1.5%
4,400 Amerada Hess Corp.
253,825
3,000 Ashland, Inc.
138,750
1,100 Chevron Corp.
92,469
7,650 Columbia Gas System, Inc.
448,481
2,700 Consolidated Natural Gas Co.
147,150
14,600 Exxon Corp.
1,024,738
6,300 Mobil Corp.
478,406
-------
- ------
2,583,819
- ------------------------------------------------------------
Paper & Forest Products--0.2%
13,900 Westvaco Corp.
333,600
- ------------------------------------------------------------
Pharmaceuticals--2.8%
8,700 Bristol Myers Squibb Co.
903,712
7,100 Eli Lilly & Co.
556,019
10,200 Merck & Co., Inc.
1,321,537
16,500 Pfizer, Inc.
1,747,969
3,800 Watson Pharmaceuticals, Inc.(a)
192,850
-------
- ------
4,722,087
- ------------------------------------------------------------
Photography--0.1%
3,000 Eastman Kodak Co.
231,938
- ------------------------------------------------------------
Plastic Products--0.2%
19,500 Milacron Inc.
301,031
- ------------------------------------------------------------
Printing--0.1%
1,800 Lexmark International Group, Inc.(a)
124,763
</TABLE>
- ------------------------------------------------------------
- --------------------
*See Note 7. 7
See Notes to Financial Statements.
<PAGE>
Portfolio of Investments as of THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.*
September 30, 1998 PRUDENTIAL ACTIVE
BALANCED FUND
- ------------------------------------------------------------
- -------------------
- ------------------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Publishing--0.3%
8,300 American General Corp. $
530,163
900 New York Times Co.
24,750
400 Tribune Co.
20,125
-------
- ------
575,038
- ------------------------------------------------------------
Retail--2.9%
4,200 Abercrombie & Fitch Co.(a)
184,800
1,400 Bed Bath & Beyond, Inc.(a)
32,725
5,100 Best Buy Co., Inc.
211,650
1,400 Costco Companies, Inc.
66,325
2,500 Dayton-Hudson Corp.
89,375
6,700 Gap, Inc.
353,425
23,500 Home Depot, Inc.
928,250
4,700 Kohl's Corp.(a)
183,300
9,200 Lowe's Companies, Inc.
292,675
4,500 McDonald's Corp.
268,594
2,900 Micro Warehouse Inc.(a)
43,681
18,700 Nine West Group, Inc.(a)
178,819
3,400 Penney (J.C.) Co., Inc.
152,788
16,600 Reebok International, Ltd.
225,137
5,600 Sears, Roebuck & Co.
247,450
100 Tiffany & Co.
3,138
23,900 Wal-Mart Stores, Inc.
1,305,537
1,300 Walgreen Co.
57,281
-------
- ------
4,824,950
- ------------------------------------------------------------
Steel & Metals--0.4%
18,000 AK Steel Holding Corp.
295,875
13,300 Bethlehem Steel Corp.(a)
109,725
7,600 Nucor Corp.
308,750
800 USX-U.S. Steel Group, Inc.
19,100
-------
- ------
733,450
- ------------------------------------------------------------
Telecommunication Services--3.4%
13,500 Ameritech Corp.
639,563
19,900 AT&T Corp.
1,162,906
20,500 Bell Atlantic Corp.
992,969
14,900 BellSouth Corp.
1,121,225
500 Century Telephone Enterprises, Inc. $
23,625
6,800 GTE Corp.
374,000
10,576 MCI WorldCom, Inc.(a)
516,882
4,700 SBC Communications, Inc.
208,856
9,100 Sprint Corp.
655,200
-------
- ------
5,695,226
- ------------------------------------------------------------
Telecommunications Equipment--1.0%
6,800 ADC Telecommunications, Inc.(a)
143,650
18,000 Lucent Technologies, Inc.
1,243,125
4,100 Qualcomm, Inc.(a)
196,543
700 Tellabs, Inc.(a)
27,869
-------
- ------
1,611,187
- ------------------------------------------------------------
Textile-Apparel Manufacturing--0.2%
28,900 Burlington Industries Inc.(a)
274,550
- ------------------------------------------------------------
Tires & Rubber--0.2%
8,800 B.F. Goodrich Co.
287,650
- ------------------------------------------------------------
Tobacco--0.6%
11,000 Philip Morris Co., Inc.
506,687
1,500 Universal Corp.
53,625
14,600 UST, Inc.
431,613
-------
- ------
991,925
- ------------------------------------------------------------
Transportation--0.1%
6,800 Airborne Freight Corp.
117,725
- ------------------------------------------------------------
Transportation/Trucking/Shipping--0.4%
14,900 Burlington Northern, Inc.
476,800
4,700 CSX Corp.
197,694
-------
- ------
674,494
Total common stocks
(cost $83,311,997)
78,098,827
-------
- ------
</TABLE>
- ------------------------------------------------------------
- --------------------
*See Note 7. 8
See Notes to Financial Statements.
<PAGE>
Portfolio of Investments as of THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.*
September 30, 1998 PRUDENTIAL ACTIVE
BALANCED FUND
- ------------------------------------------------------------
- -------------------
- ------------------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Description Value
(Note
(Unaudited) (000) 1)
<S> <C> <C> <C>
- ------------------------------------------------------------
DEBT OBLIGATIONS--35.3%
CORPORATE BONDS--19.7%
- ------------------------------------------------------------
Aerospace/Defense--1.2%
Aa3 $ 700 (b) Boeing Inc., Deb.
8.10%, 11/15/06 $
808,955
Baa3 700 (b) Northrop Grumman Corp.,
Deb.
7.75%, 3/1/16
743,498
Baa1 500 (b) Raytheon Co., Note
6.30%, 3/15/05
521,890
----
- --------
2,074,343
- ------------------------------------------------------------
Asset Backed Securities--1.9%
Aaa 1,500 (b) Citibank Credit Card Master
Trust, Cl. A
6.05%, 1/15/08
1,559,055
Aaa 1,500 (b) MBNA Master Credit Card
Trust Ser. C, Cl. A
6.45%, 6/15/05
1,601,250
----
- --------
3,160,305
- ------------------------------------------------------------
Automobiles & Trucks--0.7%
A2 1,000 (b) General Motors Corp., Note
7.70%, 4/15/16
1,122,100
- ------------------------------------------------------------
Banking--3.1%
Aa3 700 (b) Abbey National PLC, Note
6.69%, 10/17/05
739,578
Aa2 1,000 (b) BankAmerica Corp., MTN
7.125%, 5/12/05
1,079,590
A1 1,000 (b) Chemical Bank, Sub. Note
7.00%, 6/1/05
1,062,400
A1 500 (b) Citicorp, Sub. Note
7.125%, 9/1/05
538,340
Aa2 700 (b) Deutsche Bank, Deb.
6.70%, 12/13/06
732,837
Aa2 1,000 (b) NationsBank Corp.,
Sr. Note
6.375%, 5/15/05
1,037,790
----
- --------
5,190,535
Building & Construction--0.5%
A3 $ 800 (b) Hanson Overseas BV,
Sr. Note
6.75%, 9/15/05 $
851,640
- ------------------------------------------------------------
Financial Services--4.7%
Aa3 750 (b) Associates Corp. North
America, Sr. Note
6.75%, 7/15/01
779,490
A2 1,000 (b) Bear, Stearns & Co. Inc.,
Sr. Note
8.75%, 3/15/04
1,128,270
A1 830 (b) Ford Motor Co. (Del.), Bond
6.50%, 8/1/18
839,263
Ford Motor Credit Corp.,
Deb.
A1 285 (b) 7.40%, 11/1/46
306,164
(b) Note
A1 600 7.75%, 3/15/05
673,656
A2 570 (b) General Motors Acceptance
Corp., Sr. Note
6.75%, 2/7/02
595,507
A1 700 (b) Goldman, Sachs Group LP,
Note
7.25%, 10/1/05
776,104
Aa3 500 Merrill Lynch & Co., MTN
6.02%, 5/11/01
509,440
A1 1,000 (b) Morgan Stanley, Dean Witter
& Co., Note
6.875%, 3/1/07
1,042,580
A1 700 (b) Santander Finance
Issuances, Note
6.80%, 7/15/05
705,103
A3 600 (b) US West Capital Funding
Inc., Note
6.125%, 7/15/02
620,010
----
- --------
7,975,587
- ------------------------------------------------------------
Health Care Services--1.0%
A2 1,565 (b) American Home Products
Corp., Note
7.70%, 2/15/00
1,618,883
</TABLE>
- ------------------------------------------------------------
- --------------------
*See Note 7. 9
See Notes to Financial Statements.
<PAGE>
Portfolio of Investments as of THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.*
September 30, 1998 PRUDENTIAL ACTIVE
BALANCED FUND
- ------------------------------------------------------------
- -------------------
- ------------------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Description Value
(Note
(Unaudited) (000) 1)
<S> <C> <C> <C>
- ------------------------------------------------------------
Media & Communications--0.9%
Baa3 $ 600(b) News America Holdings,
Inc., Deb.
9.25%, 2/1/13 $
735,012
Baa3 600(b) Time Warner, Inc., Sr. Note
9.125%, 1/15/13
753,414
----
- --------
1,488,426
- ------------------------------------------------------------
Medical Products--0.2%
Baa1 400(b) Tyco International Group,
Note
6.375%, 6/15/05
421,624
- ------------------------------------------------------------
Oil & Gas Exploration/Production--0.5%
A2 700 (b) Atlantic Richfield Co.,
Deb.
10.875%, 7/15/05
907,564
- ------------------------------------------------------------
Retail--1.9%
A2 565 (b) Penney (J.C.) Co., Inc.,
MTN
7.05%, 5/23/05
617,472
A2 1,100 (b) Sears Roebuck & Co., Deb.
9.375%, 11/1/11
1,430,209
Aa2 1,000 (b) Wal Mart Stores Inc., Note
8.625%, 4/1/01
1,086,540
----
- --------
3,134,221
- ------------------------------------------------------------
Telecommunication Services--0.6%
Baa1 1,000 (b) GTE Corp., Deb.
6.36%, 4/15/06
1,065,100
- ------------------------------------------------------------
Telecommunications--0.6%
Baa2 1,000 (b) Worldcom, Inc., Sr. Note
6.40%, 8/15/05
1,055,220
- ------------------------------------------------------------
Utilities--1.9%
A2 1,000 (b) Hydro Quebec, Deb. (Canada)
7.50%, 4/1/16
1,118,280
Southern California Edison
Co., Note
A2 1,000 5.875%, 1/15/01
1,017,530
A2 1,000 6.50%, 6/1/01
1,035,940
----
- --------
3,171,750
Total corporate bonds
(cost $32,412,785)
33,237,298
----
- --------
U.S. GOVERNMENT SECURITIES--15.6%
- ------------------------------------------------------------
U.S. GOVERNMENT AGENCY MORTGAGE PASS-THROUGH
OBLIGATIONS--12.5%
Federal National Mortgage
Assoc.,
$ 9,500 (c) 6.50%, 12/1/28 $
9,672,445
4,000 (c) 7.00%, 12/1/28
4,111,240
4,000 (c) 7.50%, 12/1/28
4,126,240
Government National
Mortgage Assoc.,
3,000 (c) 8.00%, 12/15/28
3,123,750
----
- --------
Total U.S. government
agency mortgage
pass-through obligations
(cost $20,954,363)
21,033,675
----
- --------
- ------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--3.1%
United States Treasury
Bonds,
1,500 (b) 13.25%, 5/15/09
2,544,135
1,000 (b) 7.875%, 2/15/21
1,349,370
United States Treasury
Notes,
1,170 (b) 6.50%, 8/31/01
1,236,912
----
- --------
Total U.S. government
obligations
(cost $4,963,050)
5,130,417
----
- --------
Total U.S. government
securities
(cost $25,917,413)
26,164,092
----
- --------
Total debt obligations
(cost $58,330,198)
59,401,390
----
- --------
Total long-term investments
(cost $141,642,195)
137,500,217
----
- --------
- ------------------------------------------------------------
SHORT-TERM INVESTMENTS--31.5%
- ------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--1.0%
United States Treasury
Bills,
100 4.45%, 12/17/98
99,048
1,250 4.66%, 12/17/98
1,237,541
200 4.76%, 12/17/98
197,964
150 4.92%, 12/17/98
148,421
----
- --------
Total U.S. government
obligations
(cost $1,682,974)
1,682,974
----
- --------
</TABLE>
- ------------------------------------------------------------
- --------------------
*See Note 7. 10
See Notes to Financial Statements.
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.*
PRUDENTIAL ACTIVE BALANCED FUND
Portfolio of Investments as of September 30, 1998
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount
(Unaudited) (000) Description Value
(Note 1)
<S> <C> <C> <C>
- ------------------------------------------------------------
COMMERCIAL PAPER--12.5%
Chrysler Financial Corp.,
P-1 $ 5,000 5.53%, 10/13/98 $
4,990,783
Conagra, Inc.,
P-2 2,384 5.67%, 10/8/98
2,381,372
Cox Enterprises Inc.,
P-2 1,930 5.70%, 10/6/98
1,928,472
Dayton Hudson Corp.,
P-2 3,910 5.63%, 10/14/98
3,902,051
Textron Financial,
P-2 3,627 6.10%, 10/1/98
3,627,000
Windmill Funding Corp.,
NR 3,000 5.53%, 10/6/98
2,997,696
NR 1,188 5.50%, 10/9/98
1,186,548
----
- --------
Total commercial paper
(cost $21,013,922)
21,013,922
----
- --------
- ------------------------------------------------------------
REPURCHASE AGREEMENT--18.0%
30,406 Joint Repurchase Agreement
Account
5.522%, 10/01/98
(cost $30,406,000; Note
5)
30,406,000
----
- --------
Total short-term
investments
(cost $53,102,896)
53,102,896
----
- --------
- ------------------------------------------------------------
Total Investments--113.2%
(cost $194,745,091; Note 4)
190,603,113
Liabilities in excess of
other
assets--(13.2%)
(22,225,246)
----
- --------
Net Assets--100%
$168,377,867
----
- --------
----
- --------
</TABLE>
- ---------------
(a) Non-income producing security.
(b) All or partial amount of security is segregated as
collateral for financial
futures transactions. Aggregate market value of
$35,804,805 segregated at
9/30/98.
(c) Mortgage dollar roll, see Note 1.
MTN--Medium Term Note.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current SAI contains a description of Moody's and
Standard & Poor's
ratings.
- ------------------------------------------------------------
- --------------------
*See Note 7. 11
See Notes to Financial Statements.
<PAGE>
THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.*
Statement of Assets and Liabilities PRUDENTIAL ACTIVE
BALANCED FUND
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Assets
September 30, 1998
<S>
<C>
Investments, at value (cost
$194,745,091)...............................................
............... $ 160,197,113
Repurchase
Agreement...................................................
................................ 30,406,000
Cash........................................................
...........................................
14,294
Receivable for investments
sold........................................................
................ 25,006,086
Dividends and interest
receivable..................................................
.................... 827,808
Receivable for Fund shares
sold........................................................
................ 227,687
Other
assets......................................................
..................................... 9,657
- ------------------
Total
assets......................................................
................................. 216,688,645
- ------------------
Liabilities
Payable for investments
purchased...................................................
................... 47,054,176
Due to broker-variation
margin......................................................
................... 899,578
Payable for Fund shares
reacquired..................................................
................... 170,337
Accrued
expenses....................................................
................................... 97,350
Management fee
payable.....................................................
............................ 86,244
Distribution fee
payable.....................................................
.......................... 3,093
- ------------------
Total
liabilities.................................................
................................. 48,310,778
- ------------------
Net
Assets......................................................
....................................... $ 168,377,867
- ------------------
- ------------------
Net assets were comprised of:
Common stock, at
par.........................................................
....................... $ 12,647
Paid-in capital in excess of
par.........................................................
........... 144,361,513
- ------------------
144,374,160
Undistributed net investment
income......................................................
........... 3,863,980
Accumulated net realized gain on
investments.................................................
....... 23,567,471
Net unrealized depreciation on
investments.................................................
......... (3,427,744)
- ------------------
Net assets, September 30,
1998........................................................
................. $ 168,377,867
- ------------------
- ------------------
Class A:
Net asset value and redemption price per share
($3,218,074 / 242,164 shares of common stock issued
and outstanding).............................
$13.29
Maximum sales charge (5% of offering
price)......................................................
... .70
Maximum offering price to
public......................................................
.............. $13.99
Class B:
Net asset value, offering price and redemption price per
share
($3,037,721 / 229,776 shares of common stock issued
and outstanding).............................
$13.22
Class C:
Net asset value, offering price and redemption price per
share
($283,793 / 21,470 shares of common stock issued and
outstanding)................................
$13.22
Class Z:
Net asset value, offering price and redemption price per
share
($161,838,279 / 12,153,882 shares of common stock
issued and outstanding)........................
$13.32
</TABLE>
- ------------------------------------------------------------
- --------------------
*See Note 7. 12
See Notes to Financial Statements.
<PAGE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.*
PRUDENTIAL ACTIVE BALANCED FUND
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income September 30,
1998
<S> <C>
Income
Interest.............................. $ 5,787,656
Dividends (net of foreign withholding
taxes of $2,472)................... 1,481,227
----------------
- --
Total income......................... 7,268,883
----------------
- --
Expenses
Management fee........................ 1,176,079
Distribution fee--Class A............. 5,224
Distribution fee--Class B............. 12,848
Distribution fee--Class C............. 1,179
Transfer agent's fees and expenses.... 269,000
Registration fees..................... 127,000
Reports to shareholders............... 125,000
Custodian's fees and expenses......... 105,000
Legal fees and expenses............... 24,000
Audit fee and expenses................ 20,000
Directors' fees....................... 6,200
Organization expense.................. 3,404
Miscellaneous......................... 2,203
----------------
- --
Total expenses....................... 1,877,137
----------------
- --
Net investment income.................... 5,391,746
----------------
- --
Realized and Unrealized Gain (Loss)
on Investments
Net realized gain (loss) on:
Investment transactions............... 28,021,950
Financial futures contracts........... (1,583,588)
----------------
- --
26,438,362
Net change in unrealized appreciation (depreciation) on:
Investments........................... (28,930,426)
Financial futures contracts........... 714,234
----------------
- --
(28,216,192)
Net gain on investments.................. (1,777,830)
----------------
- --
Net Increase in Net Assets
Resulting from Operations................ $ 3,613,916
----------------
- --
----------------
- --
</TABLE>
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.*
PRUDENTIAL ACTIVE BALANCED FUND
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended September
30,
in Net Assets 1998 1997
<S> <C> <C>
Operations
Net investment income.......... $ 5,391,746 $
4,516,834
Net realized gain on
investments................. 26,438,362
11,725,117
Net change in unrealized
appreciation (depreciation)
on investments.............. (28,216,192)
13,786,966
------------ --------
- ----
Net increase in net assets
resulting from operations... 3,613,916
30,028,917
------------ --------
- ----
Dividends and distributions (Note
1)
Dividends to shareholders from
net investment income
Class A..................... (24,889)
(64)
Class B..................... (4,933)
(6)
Class C..................... (273)
(6)
Class Z..................... (4,664,569)
(4,627,738)
------------ --------
- ----
(4,694,664)
(4,627,814)
------------ --------
- ----
Distributions to shareholders
from net realized gains
Class A..................... (82,174)
(128)
Class B..................... (24,906)
(12)
Class C..................... (1,378)
(12)
Class Z..................... (13,860,433)
(9,255,475)
------------ --------
- ----
(13,968,891)
(9,255,627)
------------ --------
- ----
Fund share transactions
Net proceeds from shares
sold........................ 105,305,809
55,048,728
Net asset value of shares
issued in reinvestment of
distributions............... 18,663,277
13,883,406
Cost of shares reacquired...... (100,421,933)
(78,785,554)
------------ --------
- ----
Net increase (decrease) in net
assets from Fund share
transactions................ 23,547,153
(9,853,420)
------------ --------
- ----
Total increase.................... 8,497,514
6,292,056
Net Assets
Beginning of year................. 159,880,353
153,588,297
------------ --------
- ----
End of year(a).................... $168,377,867
$159,880,353
------------ --------
- ----
------------ --------
- ----
- ---------------
(a) Includes undistributed net
investment income of.......... $ 3,863,980 $
3,191,713
------------ --------
- ----
</TABLE>
- ------------------------------------------------------------
- --------------------
*See Note 7. 13
See Notes to Financial Statements.
<PAGE>
THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.*
Notes to Financial Statements PRUDENTIAL ACTIVE
BALANCED FUND
- ------------------------------------------------------------
- -------------------
The Prudential Active Balanced Fund (the 'Fund') is a
separately managed series
of The Prudential Investment Portfolios, Inc. (the
'Series'), formerly
Prudential Jennison Series Fund, Inc. (the 'Jennison Fund').
The Jennison Fund
was incorporated in Maryland on August 10, 1995 and is
registered under the
Investment Company Act of 1940 as a diversified, open-end,
management investment
company. Prior to January 23, 1998, the Fund was known as
Prudential Active
Balanced Fund (the 'Portfolio'), a separately managed series
of Prudential
Dryden Fund (the 'Company') (see Note 7).
The Company had no operations until July 7, 1992 when 10,000
shares of
beneficial interest of the Company were sold for $100,000 to
Prudential
Institutional Fund Management, Inc. Investment operations of
the Portfolio
commenced on January 4, 1993
The Fund's investment objective is to seek income and long-
term growth of
capital by investing in a portfolio of equity, fixed-income
and money market
securities, which is actively managed to capitalize on
opportunities created by
perceived misvaluation.
- ------------------------------------------------------------
Note 1. Accounting Policies
The following is a summary of significant accounting
policies followed by the
Series in the preparation of its financial statements.
Securities Valuation: Securities listed on a securities
exchange (other than
options on securities and indices) are valued at the last
sales price on such
exchange or system on the day of valuation, or, if there was
no sale on such
day, at the mean between the last bid and asked prices on
such day or at the bid
price on such day in the absence of an asked price.
Securities that are actively
traded in the over-the-counter market, including listed
securities for which the
primary market is believed by the Manager, in consultation
with the Subadviser,
to be over-the-counter, are valued by an independent pricing
agent or principal
market maker. Convertible debt securities that are actively
traded in the
over-the-counter market, including listed securities for
which the primary
market is believed by the Manager and the Subadviser to be
over-the-counter, are
valued at the mean between the last reported bid and asked
prices provided by a
principal market maker. Options on securities and indices
traded on an exchange
are valued at the mean between the most recently quoted bid
and asked prices on
such exchange. Futures contracts and options thereon traded
on a commodities
exchange or board of trade are valued at the last sales
price at the close of
trading on such exchange or board of trade or, if there was
no sale on the
applicable commodities exchange or board of trade on such
day, at the mean
between the most recently quoted bid and asked prices on
such exchange or board
of trade. Securities for which market quotations are not
readily available,
other than private placements, are valued at a price
supplied by an independent
pricing agent which is, in the opinion of such pricing
agent, representative of
the market value of such securities as of the time of
determination of net asset
value or, using a methodology developed by an independent
pricing agent, which
is, in the judgement of the Manager and Subadviser, able to
produce prices which
are representative of market value.
Short-term securities which mature in more than 60 days, for
which market
quotations are readily available, are valued at current
market quotations as
provided by an independent pricing agent or principal market
maker. Short-term
securities which mature in 60 days or less are valued at
cost with interest
accrued or discount amortized to the date of maturity,
unless the Board of
Directors determines that such variation does not represent
fair value.
All securities are valued as of 4:15 p.m., New York time.
In connection with transactions in repurchase agreements, it
is the Fund's
policy that its custodian or designated subcustodians, under
triparty repurchase
agreements, as the case may be, take possession of the
underlying collateral
securities, the value of which exceeds the principal amount
of the repurchase
transaction, including accrued interest. 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.
Financial Futures Contracts: A financial futures contract is
an agreement to
purchase (long) or sell (short) an agreed amount of debt
securities or
commodities 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 or commodity.
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.
The Fund invests in financial futures contracts in order to
hedge their existing
portfolio securities or securities the Fund intends to
purchase against
fluctuations in value caused by changes in prevailing
interest rates
- ------------------------------------------------------------
- --------------------
14
<PAGE>
THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.*
Notes to Financial Statements PRUDENTIAL ACTIVE
BALANCED FUND
- ------------------------------------------------------------
- -------------------
or market conditions. 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,
interest rates and
the underlying hedged assets.
Dollar Rolls: The Fund enters into mortgage dollar rolls in
which the Fund sells
mortgage securities for delivery in the current month,
realizing a gain or loss
and simultaneously contracts to repurchase somewhat similar
(same type, coupon
and maturity) securities on a specified future date. During
the roll period, the
Fund forgoes principal and interest paid on the securities.
The Fund is
compensated by the interest earned on the cash proceeds of
the initial sale and
by the lower repurchase price at the future date. The
difference between the
sales proceeds and the lower repurchase price is recorded as
interest income.
The Fund maintains a segregated account, the dollar value of
which is at least
equal to its obligations in respect of dollar rolls.
Securities Transactions and Net Investment Income:
Securities transactions are
recorded on the trade date. Realized gains or losses on
sales of securities 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 and distributions of
the Fund are
declared in cash and automatically reinvested in additional
shares of the Fund.
The Fund will declare and distribute its net investment
income and net capital
gains, if any, at least annually. 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.
Reclassification of Capital Accounts: The Fund accounts and
reports for
distributions to shareholders in accordance with the
American Institute of
Certified Public Accountants' Statement of Position 93-2:
'Determination,
Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and
Return of Capital Distributions by Investment Companies'.
For the fiscal year
ended September 30, 1998 the application of this statement
increased accumulated
net realized gain on investments by $17,605, increased paid-
in capital by $7,210
and decreased undistributed net investment income by
$24,815. Net investment
income, net realized gains, and net assets were not affected
by these
reclassifications.
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 investment income to its
shareholders.
Therefore, no federal income tax provision is required.
Withholding taxes on foreign dividends have been provided
for in accordance with
the Fund's understanding of the applicable country's tax
rules and rates.
Deferred Organizational Expenses: Approximately $450,000 of
costs were incurred
in connection with the organization and initial registration
of the Company and
have been deferred and are being amortized ratably over a
period of 60 months
from the date each of the Funds commenced investment
operations.
- ------------------------------------------------------------
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. Effective June 1, 1998, The Prudential Investment
Corporation ('PIC')
replaced Jennison Associates LLC as subadviser. Pursuant to
a subadvisory
agreement between PIFM and 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 and
employees 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 .65 of 1% of the average daily net assets of the
Fund.
The Fund had a distribution agreement with Prudential
Securities Incorporated
('PSI'), which acted as the distributor of the Class A,
Class B, Class C shares
of the Fund through May 31, 1998. Prudential Investment
Management Services LLC
('PIMS') became the distributor of the Fund effective June
1, 1998 and is
serving the Fund under the same terms and conditions as
under the arrangement
with PSI. The Fund compensated PSI and 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
them. The distributions fees are accrued daily
- ------------------------------------------------------------
- --------------------
15
<PAGE>
THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.*
Notes to Financial Statements PRUDENTIAL ACTIVE
BALANCED FUND
- ------------------------------------------------------------
- -------------------
and payable monthly. No distribution or service fees are
paid to PIMS as
distributor of the Class Z shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensated
PSI and PIMS for
distribution-related activities at an annual rate of up to
.30 of 1%, 1% and 1%
of the average daily net assets of the Class A, B and C
shares, respectively.
Such expenses under the Plans were .25 of 1%, 1% and 1% of
average daily net
assets of the Class A, B and C shares, respectively, for the
year ended
September 30, 1998.
PSI and PIMS have advised the Fund that they received
approximately $2,900 in
front-end sales charges resulting from sales of Class A
shares during the year
ended September 30, 1998. From these fees, PSI and PIMS paid
such sales charges
to affiliated broker-dealers, which in turn paid commissions
to salespersons and
incurred other distribution costs.
PSI and PIMS have advised the Fund that for the year ended
September 30, 1998,
they received approximately $1,500 in contingent deferred
sales charges imposed
upon redemptions by certain Class B and Class C
shareholders.
Jennison, PIFM, PIMS, PIC and PSI are wholly owned
subsidiaries of The
Prudential Insurance Company of America.
The Fund, along with other affiliated registered investment
companies (the
'Funds'), entered into a credit agreement (the 'Agreement')
with an unaffiliated
lender. The maximum commitment under the Agreement is
$200,000,000. Interest on
any such borrowings outstanding will be at market rates. The
purpose of the
Agreement is to serve as an alternative source of funding
for capital share
redemptions. The Fund did not borrow any amounts pursuant to
the Agreement
during the year ended September 30, 1998. The Funds pay a
commitment fee at an
annual rate of .055 of 1% on the unused portion of the
credit facility. The
commitment fee is accrued and paid quarterly on a pro rata
basis by the Funds.
The Agreement expired on December 30, 1997 and has been
extended through
December 29, 1998 under the same terms.
- ------------------------------------------------------------
Note 3. Other Transactions With Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned
subsidiary of PIFM,
serves as the Fund's transfer agent. During the year ended
September 30, 1998,
the Fund incurred fees of approximately $258,400 for the
services of PMFS. As of
September 30, 1998, approximately $21,800 of such fees were
due to PMFS.
Transfer agent fees and expenses in the Statement of
Operations also include
certain out-of-pocket expenses paid to nonaffiliates.
Note 4. Portfolio Securities
Purchases and sales of portfolio securities, excluding short-
term investments,
for the year ended September 30, 1998 aggregated
$410,050,166 and $416,492,547,
respectively. Purchases and sales of U.S. government
obligations were
$221,801,335 and $266,836,956, respectively.
The cost basis of investments for federal income tax
purposes is $194,761,410.
As of September 30, 1998, net unrealized depreciation for
federal income tax
purposes was $4,158,297 (gross unrealized depreciation--
$4,087,735, gross
unrealized depreciation--$8,246,032).
During the year ended September 30, 1998, the Fund entered
into financial
futures contracts. Details of open contracts at September
30, 1998 are as
follows:
<TABLE>
<CAPTION>
Value
at Value at Unrealized
Number of Expiration September
30, Trade Appreciation/
Contracts Type Date 1998
Date (Depreciation)
- ----------- ---------------- ------------ ---------
- ---- ----------- --------------
<S> <C> <C> <C>
<C> <C>
Long Position:
3 U.S.T-Bond Dec. 98 $
394,406 $ 376,594 $ 17,812
3 U.S. T-Note Dec. 98
344,859 334,500 10,359
115 S&P 500 Dec. 98
29,497,500 28,811,437 686,063
- -------
$714,234
- -------
- -------
</TABLE>
- ------------------------------------------------------------
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 joint repurchase
agreements
collateralized by U.S. Treasury or federal agency
obligations. At September 30,
1998, the Fund had a 4.1% undivided interest in the
repurchase agreements in the
joint account. The undivided interest represented
$30,406,000 in principal
amount. As of such date, each repurchase agreement in the
joint account and the
collateral therefore was as follows:
Warburg Dillon Read LLC, 5.52%, in the principal amount of
$210,000,000,
repurchase price $210,032,200, due 10/1/98. The value of the
collateral
including accrued interest was $214,255,819.
Bear Stearns & Co., 5.58%, in the principal amount of
$210,000,000, repurchase
price $210,032,550, due 10/1/98. The value of the collateral
including accrued
interest was $214,893,617.
Credit Suisse First Boston Corp., 5.55%, in the principal
amount of
$107,606,000, repurchase price $107,622,589, due 10/1/98.
The value of the
collateral including accrued interest was $111,084,883.
- ------------------------------------------------------------
- --------------------
16
<PAGE>
THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.*
Notes to Financial Statements PRUDENTIAL ACTIVE
BALANCED FUND
- ------------------------------------------------------------
- -------------------
Goldman Sachs & Co., 5.45%, in the principal amount of
$210,000,000, repurchase
price $210,031,792, due 10/1/98. The value of the collateral
including accrued
interest was $214,200,293.
- ------------------------------------------------------------
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 B shares will
automatically convert to
Class A shares on a quarterly basis approximately seven
years after purchase. A
special exchange privilege is also available for
shareholders who qualify to
purchase Class A shares at net asset value. Prior to
November 2, 1998, Class C
shares were sold with a contingent deferred sales charge of
1% during the first
year. Effective November 2, 1998, Class C shares are sold
with a front-end sales
charge of 1% and a contingent deferred sales charge of 1%
during the first 18
months. Class Z shares are not subject to any sales or
redemption charge and are
offered exclusively for sale to a limited group of
investors.
There are 3 billion shares of $.001 par value common stock
authorized which are
divided into three Series, each of which offers four
classes, designated Class
A, Class B, Class C and Class Z, each of which consists of
250 million
authorized shares.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- ----------------------------------- ---------- --------
- ----
<S> <C> <C>
Year ended September 30, 1998:
Shares sold........................ 324,143 $
4,450,999
Shares issued in reinvestment of
dividends and distributions...... 8,312
107,053
Shares reacquired.................. (159,004)
(2,196,936)
---------- --------
- ----
Net increase in shares
outstanding...................... 173,451 $
2,361,116
---------- --------
- ----
---------- --------
- ----
November 7, 1996(a)
through September 30, 1997:
Shares sold........................ 68,711 $
971,421
Shares issued in reinvestment of
dividends and distributions...... 15
183
Shares reacquired.................. (13)
(178)
---------- --------
- ----
Net increase in shares
outstanding...................... 68,713 $
971,426
---------- --------
- ----
---------- --------
- ----
<CAPTION>
Class B Shares
Amount
- ----------------------------------- ---------- --------
- ----
<S> <C> <C>
Year ended September 30, 1998:
Shares sold........................ 224,444 $
3,091,278
Shares issued in reinvestment of
dividends and distributions...... 2,309
29,757
Shares reacquired.................. (11,806)
(161,521)
---------- --------
- ----
Net increase in shares
outstanding...................... 214,947 $
2,959,514
---------- --------
- ----
---------- --------
- ----
November 7, 1996(a)
through September 30, 1997:
Shares sold........................ 14,903 $
197,257
Shares issued in reinvestment of
dividends and distributions...... 1
9
Shares reacquired.................. (75)
(964)
---------- --------
- ----
Net increase in shares
outstanding...................... 14,829 $
196,302
---------- --------
- ----
---------- --------
- ----
<CAPTION>
Class C
- -----------------------------------
<S> <C> <C>
Year ended September 30, 1998:
Shares sold........................ 22,836 $
314,699
Shares issued in reinvestment of
dividends and distributions...... 127
1,642
Shares reacquired.................. (1,859)
(25,489)
---------- --------
- ----
Net increase in shares
outstanding...................... 21,104 $
290,852
---------- --------
- ----
---------- --------
- ----
November 7, 1996(a)
through September 30, 1997:
Shares sold........................ 365 $
5,122
Shares issued in reinvestment of
dividends and distributions...... 1
9
Shares reacquired.................. --
- --
---------- --------
- ----
Net increase in shares
outstanding...................... 366 $
5,131
---------- --------
- ----
---------- --------
- ----
<CAPTION>
Class Z
- -----------------------------------
<S> <C> <C>
Year ended September 30, 1998:
Shares sold........................ 6,947,226 $
97,448,833
Shares issued in reinvestment of
dividends and distributions...... 1,437,147
18,524,825
Shares reacquired.................. (7,211,135)
(98,037,987)
---------- --------
- ----
Net increase in shares
outstanding...................... 1,173,238 $
17,935,671
---------- --------
- ----
---------- --------
- ----
Year ended September 30, 1997:
Shares sold........................ 4,174,112 $
53,874,928
Shares issued in reinvestment of
dividends and distributions...... 1,097,487
13,883,205
Shares reacquired.................. (6,097,293)
(78,784,412)
---------- --------
- ----
Net decrease in shares
outstanding...................... (825,694)
$(11,026,279)
---------- --------
- ----
---------- --------
- ----
</TABLE>
- ---------------
(a) Commencement of offering of Class A, B, and C shares.
- ------------------------------------------------------------
- --------------------
17
<PAGE>
THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.*
Notes to Financial Statements PRUDENTIAL ACTIVE
BALANCED FUND
- ------------------------------------------------------------
- -------------------
Of the shares outstanding at September 30, 1998, PIFM and
affiliates owned
119.544 Class Z shares of the Fund.
- ------------------------------------------------------------
Note 7. Reorganization
On August 26, 1997, the Board of Trustees of the Portfolio
approved an Agreement
and Plan of Conversion and Liquidation (the 'Plan of
Reorganization'). The Plan
of Reorganization was approved by applicable shareholders on
January 15, 1998.
Under the Plan of Reorganization, all of the assets of the
Portfolio were
transferred to Prudential Jennison Series Fund, Inc.--
Prudential Jennison Active
Balanced Fund in exchange for Class A, Class B, Class C and
Class Z shares of
the Fund and the assumption by the Fund of all of the
liabilities, if any, of
the Portfolio.
On May 14, 1998, the Board of Directors approved a change of
the investment
company's name from Prudential Jennison Series Fund, Inc. to
The Prudential
Investment Portfolios, Inc. and a change in the series name
of the Prudential
Jennison Active Balanced Fund series to the Prudential
Active Balanced Fund (the
Fund), effective June 1, 1998.
- ------------------------------------------------------------
- --------------------
18
<PAGE>
THE PRUDENTIAL INVESTMENT
PORTFOLIOS, INC.*
Financial Highlights PRUDENTIAL ACTIVE BALANCED
FUND
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class A Class B
--------
- ----------------------- -------------------------------
November 7, November 7,
1996(a) 1996(a)
Year
Ended Through Year Ended Through
September 30, September 30, September 30,
September 30,
1998
1997 1998 1997
--------
- ----- ------------- ------------- -------------
<S> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............. $
14.41 $ 13.40 $ 14.34 $ 13.40
---
- -- ----- ----- -----
Income from investment operations:
Net investment income............................
.44 .21(b) .27 .19(b)
Net realized and unrealized gain on investment
transactions..................................
(.20) 1.97 (.14) 1.92
---
- -- ----- ----- -----
Total from investment operations..............
.24 2.18 .13 2.11
---
- -- ----- ----- -----
Less distributions:
Dividends from net investment income.............
(.32) (.39) (.21) (.39)
Distributions from net realized gains............
(1.04) (.78) (1.04) (.78)
---
- -- ----- ----- -----
Total distributions...........................
(1.36) (1.17) (1.25) (1.17)
---
- -- ----- ----- -----
Net asset value, end of period................... $
13.29 $ 14.41 $ 13.22 $ 14.34
---
- -- ----- ----- -----
---
- -- ----- ----- -----
TOTAL RETURN(d)..................................
1.93% 17.48% 1.10% 16.91%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).................. $
3,218 $ 990 $ 3,038 $ 213
Average net assets (000)......................... $
2,090 $ 100 $ 1,285 $ 71
Ratios to average net assets:
Expenses, including distribution fees.........
1.28% 1.31%(c) 2.03%
2.06%(c)
Expenses, excluding distribution fees.........
1.03% 1.06%(c) 1.03%
1.06%(c)
Net investment income.........................
2.72% 2.69%(c) 1.95%
1.94%(c)
Portfolio turnover rate.......................
256% 50% 256% 50%
<CAPTION>
Class C
---------
- ----------------------
<S> <C>
<C> <C>
November 7,
1996(a)
Year
Ended Through
September
30, September 30,
1998
1997
---------
- ---- -------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............. $
14.34 $ 13.40
----
- - -----
Income from investment operations:
Net investment income............................
.48 .13(b)
Net realized and unrealized gain on investment
transactions..................................
(.35) 1.98
----
- - -----
Total from investment operations..............
.13 2.11
----
- - -----
Less distributions:
Dividends from net investment income.............
(.21) (.39)
Distributions from net realized gains............
(1.04) (.78)
----
- - -----
Total distributions...........................
(1.25) (1.17)
----
- - -----
Net asset value, end of period................... $
13.22 $ 14.34
----
- - -----
----
- - -----
TOTAL RETURN(d)..................................
1.10% 16.91%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).................. $
284 $ 5
Average net assets (000)......................... $
118 $ 1
Ratios to average net assets:
Expenses, including distribution fees.........
2.03% 2.06%(c)
Expenses, excluding distribution fees.........
1.03% 1.06%(c)
Net investment income.........................
2.04% 1.94%(c)
Portfolio turnover rate.......................
256% 50%
</TABLE>
- ---------------
(a) Commencement of offering of Class A, B and C shares.
(b) Calculated based upon weighted average shares
outstanding during the year.
(c) Annualized.
(d) 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 return for periods of less than a
full year are not
annualized. Total return includes the effect of expense
subsidies where
applicable.
- ------------------------------------------------------------
- --------------------
*See Note 7. 19
See Notes to Financial Statements.
<PAGE>
THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.*
Financial Highlights PRUDENTIAL ACTIVE
BALANCED FUND
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class Z
--------
- ---------------------------------------------------
Year Ended September 30,
--------
- ---------------------------------------------------
1998
1997 1996 1995 1994
--------
- -------- -------- -------- -------
<S> <C>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............. $ 14.45
$ 13.01 $ 12.46 $ 10.92 $ 11.05
--------
- -------- -------- -------- -------
Income from investment operations:
Net investment income............................ .38
.39(c) .29(a) .33(a) .24(a)
Net realized and unrealized gain (loss) on
investment transactions.......................
(.12) 2.22 .81 1.54 (.12)
--------
- -------- -------- -------- -------
Total from investment operations.............. .26
2.61 1.10 1.87 .12
--------
- -------- -------- -------- -------
Less distributions:
Dividends from net investment income.............
(.35) (.39) (.37) (.29) (.14)
Distributions from net realized gains............
(1.04) (.78) (.18) (.04) (.11)
--------
- -------- -------- -------- -------
Total distributions...........................
(1.39) (1.17) (.55) (.33) (.25)
--------
- -------- -------- -------- -------
Net asset value, end of period................... $ 13.32
$ 14.45 $ 13.01 $ 12.46 $ 10.92
--------
- -------- -------- -------- -------
--------
- -------- -------- -------- -------
TOTAL RETURN(b)..................................
2.12% 21.34% 9.11% 17.66% 1.07%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).................. $161,838
$158,672 $153,588 $133,352 $81,176
Average net assets (000)......................... $177,443
$154,199 $142,026 $104,821 $58,992
Ratios to average net assets:
Expenses, including distribution fees.........
1.03% 1.06% 1.00%(a) 1.00%(a) 1.00(a)
Expenses, excluding distribution fees.........
1.03% 1.06% 1.00%(a) 1.00%(a) 1.00(a)
Net investment income.........................
2.99% 2.94% 3.09%(a) 3.53%(a) 3.06(a)
Portfolio turnover rate.......................
256% 50% 51% 30% 40%
</TABLE>
- ---------------
(a) Net of expense subsidy.
(b) 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 return for periods of less than a
full year are not
annualized. Total return includes the effect of expense
subsidies where
applicable.
(c) Calculated based upon weighted average shares
outstanding during the year.
- ------------------------------------------------------------
- --------------------
*See Note 7. 20
See Notes to Financial Statements.
<PAGE>
THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.*
Report of Independant Accountants PRUDENTIAL ACTIVE
BALANCED FUND
- ------------------------------------------------------------
- --------------------
The Shareholders and Board of Directors of
The Prudential Investment Portfolios, Inc.--Prudential
Active Balanced Fund
In our opinion, the accompanying statement of assets and
liabilities, including
the portfolio of investments, and the related statements of
operations and of
changes in net assets and the financial highlights present
fairly, in all
material respects, the financial position of The Prudential
Investment
Portfolios, Inc.--Prudential Active Balanced Fund (the
'Fund,' one of the
portfolios constituting The Prudential Investment
Portfolios, Inc.) (formerly
the Prudential Dryden Fund--Prudential Active Balanced Fund
and The Prudential
Institutional Fund--Prudential Active Balanced Fund) at
September 30, 1998, the
results of its operations for the year then ended, and the
changes in its net
assets and the financial highlights for each of the two
years in the period then
ended, in conformity with generally accepted accounting
principles. These
financial statements and financial highlights (hereafter
referred to as
'financial statements') are the responsibility of the Fund's
management; our
responsibility is to express an opinion on these financial
statements based on
our audits. We conducted our audits of these financial
statements in accordance
with generally accepted auditing standards which require
that we plan and
perform the audits to obtain reasonable assurance about
whether the financial
statements are free of material misstatement. An audit
includes examining, on a
test basis, evidence supporting the amounts and disclosures
in the financial
statements, assessing the accounting principles used and
significant estimates
made by management, and evaluating the overall financial
statement presentation.
We believe that our audits, which included confirmation of
securities at
September 30, 1998 by correspondence with the custodian and
brokers, provide a
reasonable basis for the opinion expressed above. The
accompanying financial
highlights for each of the three periods in the period ended
September 30, 1996
were audited by other independent accountants, whose opinion
dated November 13,
1996 was unqualified.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
November 20, 1998
- ------------------------------------------------------------
- --------------------
*See Note 7. 21
See Notes to Financial Statements.
<PAGE>
Federal Income Tax Information THE PRUDENTIAL
INVESTMENT PORTFOLIOS, INC.*
(Unaudited) PRUDENTIAL ACTIVE
BALANCED FUND
- ------------------------------------------------------------
- --------------------
We are required by the Internal Revenue Code to advise you
within 60 days of the
Fund's fiscal year end (September 30, 1998) as to the
federal tax status of
dividends and distributions paid by the Fund during such
fiscal year.
Accordingly, we are advising you that in the fiscal year
ended September 30,
1998, dividends paid from net investment income were $.315
per share for Class A
shares, $.206 per share for Class B and Class C shares and
$.35 per share for
Class Z shares, which are taxable as ordinary income. In
addition, the Fund paid
to Class A, B, C and Z shares a short-term capital gain
distribution of $.31
which is taxable as ordinary income and a long-term capital
gain distribution of
$.73 of which $.32 is taxable at 20% and $.41 is taxable at
28%.
We are required by Massachusates, Missouri and Oregon to
inform you that
dividends which have been derived from interest on federal
obligations are not
taxable to shareholders. Please be advised that 37.6% of the
dividends paid from
ordinary income in the fiscal year ended September 30, 1998
qualify for each of
these states' tax exclusion.
We also wish to advise you that 16.71% of the dividends paid
from ordinary
income in the fiscal year ended September 30, 1998 qualified
for the corporate
dividends received deduction available to corporate
taxpayers.
In January 1999, you will be advised on IRS Form 1099 DIV or
substitute 1099 DIV
as to the federal tax status of the distributions received
by you in calendar
year 1998.
- ------------------------------------------------------------
- --------------------
*See Note 7. 22
See Notes to Financial Statements.
<PAGE>
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.
Call Option: A contract giving the holder a right to buy
stocks or
bonds at a predetermined price (called the strike price)
before a predetermined expiration date. A buyer of a call
option generally expects to benefit from a rise in the price
of the stock or bond.
Collateralized Mortgage Obligations (CMOs): Pools of
mortgage-backed securities sliced in maturity ranges
that bear differing interest rates. 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 products
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 on
equity. 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
mutual fund) 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 for"
prices
of a security.
Yankee Bond: A bond sold by a foreign company or government
in
the U.S. market and denominated in U.S. dollars.
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
When you invest through Prudential Mutual Funds, you receive
financial advice through 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.
And 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 advisor or registered representative can help
you wade
through the numerous mutual funds available 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 remind you that you're investing for the
long haul.
<PAGE>
// Prudential Active Balanced Fund
- -- S&P 500 Index
== Lehman Brothers
Gov't/Corp. Bond Index
Comparing A $10,000 Investment.
- --------------------------------------------------------
Prudential Active Balanced Fund vs. the S&P 500 Index
and the Lehman Brothers Government/Corporate Bond Index.
Past performance is not indicative of future results.
Principal
and investment return will fluctuate so an investor's
shares, when redeemed, may be worth more or less than their
original cost. These graphs are furnished to you in
accordance
with SEC regulations. They compare a $10,000 investment in
The
Prudential Investment Portfolios, Inc.: Prudential Active
Balanced Fund (Class A, B, C, and Z shares) with similar
investments in the Standard & Poor's 500 Composite Stock
Price Index (S&P 500 Index) and the Lehman Brothers
Government/
Corporate Bond Index (the Lehman Index) by portraying the
initial
account values at the commencement of operations of each
class,
and subsequent account values at the end of each fiscal year
(September 30), as measured on a quarterly basis, beginning
in 1996 for Class A, B, and C shares, and in 1993 for Class
Z
shares. For purposes of the graphs, and unless otherwise
indicated in the accompanying tables, it has been assumed
(a) that the maximum applicable front-end sales charge was
deducted from the initial $10,000 investment in Class A
shares; (b) the maximum applicable contingent deferred
sales charges were deducted from the value of the investment
in Class B and Class C shares, assuming full redemption on
September 30, 1998; (c) all recurring fees (including
management fees) were deducted; and (d) all dividends
and distributions were reinvested. Class B shares will
automatically convert to Class A shares, on a quarterly
basis, approximately seven years after purchase. This
conversion feature is not reflected in the graphs. Class Z
shares
are not subject to a sales charge or distribution fee.
The Lehman Index is a weighted index comprised of public,
fixed
rate, nonconvertible domestic corporate debt that is rated
at least
investment grade (BBB/Baa or higher) and public obligations
of the U.S. Treasury. The S&P 500 Index is a market
capitalization-weighted index representing the aggregate
market value of the common equity of 500 stocks primarily
traded on the New York Stock Exchange. The Lehman Index and
the S&P 500 Index are unmanaged indexes and both include the
reinvestment of all income and dividends, but do not reflect
the payment of transaction costs and advisory fees
associated
with an investment in the Fund. The Lehman Index and the S&P
500 Index are not the only indexes that may be used to
characterize performance of actively balanced funds, and
other indexes may portray different comparative performance.
Investors cannot invest directly in an index.
Average Annual Total
Returns - Class A
- ---------------------- Class A
With Sales Load (GRAPH)
7.04% Since Inception
-3.17% for 1 Year
Without Sales Load
9.98% Since Inception
1.93% for 1 Year
Average Annual Total
Returns - Class B
- ----------------------- Class B
With Sales Load (GRAPH)
7.26% Since Inception
-3.90% for 1 Yea
Without Sales Load
9.23% Since Inception
1.10% for 1 Year
Average Annual Total
Returns - Class C
- ------------------------- Class C
With Sales Load (GRAPH)
9.23% Since Inception
0.10% for 1 Year
Without Sales Load
9.23% Since Inception
1.10% for 1 Year
Average Annual Total
Returns - Class Z
- -------------------------- Class Z
Without Sales Load (GRAPH)
10.54% Since Inception
9.96% for 5 Years
2.12% for 1 Year
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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
Mendel A. Melzer, CFA
Thomas T. Mooney
Stephen P. Munn
Richard A. Redeker
Robin B. Smith
Brian M. Storms
Louis A. Weil, III
Clay T. Whitehead
Officers
Brian M. Storms, 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.
This report is not authorized for distribution to
prospective
investors unless preceded or accompanied by a
current prospectus.
74437E883 74437E875 74437E867 74437E859 MF185E
